10-K

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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

ý	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2004
or
o	TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                              to

Commission file number 0-14535

Citizens Bancshares Corporation
(Exact name of registrant as specified in its charter)

Georgia (State or other jurisdiction of incorporation or organization)	58-1631302 (I.R.S. Employer Identification No.)
75 Piedmont Avenue, N.E., Atlanta, Georgia (Address of principal executive offices)	30302 (Zip Code)
(404) 659-5959 (Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None.
Securities registered pursuant to Section 12(g) of the Act:
20,000,000 Shares of Common Stock, $1.00 par value (Title of class)

        Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý    No o

        Indicate by checkmark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this form 10-K. o

        Indicate by checkmark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes o    No ý

        Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13, or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ý    No o

        The number of shares outstanding for each of the registrant's classes of common stock as of March 15, 2005 was: 1,989,422 shares of Common Stock, $1.00 par value and 90,000 shares of Non-Voting Common Stock, $1.00 par value.

        The aggregate market value of common stock held by non-affiliates of the Registrant, based on the last sale price of $9.99 per share on June 30, 2004, was approximately $19,832,907.

DOCUMENTS INCORPORATED BY REFERENCE

        List hereunder the following documents if incorporated by reference and the Part of the Form 10-K (e.g., Part I, Part II, etc.) into which the document is incorporated: (1) any annual report to security holders; (2) Any proxy or information statement; and (3) Any prospectus filed pursuant to Rule 424(b) or (c) under the Securities Act of 1933. The listed documents should be clearly described for identification purposes (e.g., annual report to security holders for fiscal year ended December 24, 1890).

(1)

Annual Report to security holders for fiscal year ended December 31, 2004



(2)

Proxy Statement for Annual Meeting of Shareholders to be held May 25, 2005

SPECIAL CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS

        Certain of the matters discussed in this document and in documents incorporated by reference herein, including matters discussed under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations," may constitute forward-looking statements for purposes of the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended. These forward-looking statements may involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from future results, performance or achievements expressed or implied by the forward-looking statements. The words "expect," "anticipate," "intend," "plan," "believe," "seek," "estimate," and similar expressions are intended to identify the forward-looking statements. The Company's actual results may differ materially from the results anticipated in these forward-looking statements due to a variety of factors, including, without limitation:

(1)

The effects of future economic conditions;



(2)

Governmental monetary and fiscal policies, as well as legislative and regulatory changes;



(3)

The effects of future financial accounting standard changes as promulgated by any financial accounting standard setting board or committee;



(4)

The risks of unexpected changes in interest rates on the level and composition of deposits, loan demand, and the values of loan collateral, securities and interest rate protection agreements, as well as interest rate risks;



(5)

The effects of competition from other financial institutions and companies in the financial services industry; and



(6)

The failure of assumptions underlying the establishment of reserves for possible loan losses and estimations of values of collateral and various financial assets and liabilities.

        All written or oral forward-looking statements attributable to the Company are expressly qualified in their entirety by these cautionary statements.

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PART I

ITEM 1.    DESCRIPTION OF BUSINESS

The Company

General

        Citizens Bancshares Corporation (the "Company") was incorporated as a Georgia business corporation in 1972 and became a bank holding company by acquiring all of the common stock of Citizens Trust Bank (the "Bank"). The Company's election to become a financial holding company was approved by the Federal Reserve Bank of Atlanta on December 20, 2000, but on September 23, 2004, the Company notified the Federal Reserve that, because its business strategy included only activities permissible for a bank holding company, it was withdrawing it election to be designated as a financial holding company. On September 28, 2004, the Federal Reserve Bank of Atlanta approved the Company's election to withdraw its financial holding company designation. The Company also owns and operates a wholly owned subsidiary grantor trust, Citizens (GA) Statutory Trust I (the "Trust") through the issuance of pooled trust preferred securities.

        The Company was organized to facilitate the Bank's ability to serve its customers' requirements for financial services. The holding company structure provides flexibility for expansion of the Company's banking business through the possible acquisition of other financial service institutions and the provision of additional banking-related services that the traditional commercial bank may not provide under present laws. For example, banking regulations require that the Bank maintain a minimum ratio of capital to assets. In the event that the Bank's growth is such that this minimum ratio is not maintained, the Company may borrow funds, subject to capital adequacy guidelines of the Federal Reserve, and contribute them to the capital of the Bank and otherwise raise capital in a manner that is unavailable to the Bank under existing banking regulations.

        Over the years, the Company has completed several acquisitions. On January 30, 1998, the Company merged with First Southern Bancshares, Inc., whose banking subsidiary, First Southern Bank simultaneously merged into the Bank. On March 10, 2000, the Company acquired certain assets and all of the deposits of Mutual Federal Savings Bank, a failing minority bank, from the Federal Deposit Insurance Corporation. On February 28, 2003, the Company acquired CFS Bancshares, Inc., a minority-owned savings and loan holding company located in Birmingham, Alabama, whose banking subsidiary, Citizens Federal Savings Bank, simultaneously merged into the Bank. This acquisition has resulted in a significant expansion of the Company's market area.

        The Company may make additional acquisitions in the future in the event that such acquisitions are deemed to be in the best interests of the Company and its shareholders. Such acquisitions, if any, will be subject to certain regulatory approvals and requirements. See "Business—Bank Holding Company Regulations."

Minority Control

        A majority of the outstanding shares of the Company's Common Stock is held by minority individuals. The Company thus views itself as having a social obligation to help members of the minority community. Accordingly, a majority of the Bank's customers are from the minority communities.

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The Bank

General

        The Bank, a state bank headquartered in Atlanta, Georgia, was organized in 1921 and is a member of the Federal Reserve System.

        The Bank's home office is located at 75 Piedmont Avenue, N.E., Atlanta, Georgia 30303. Including its main branch, the Bank operates twelve branch offices located in Atlanta, East Point, Lithonia, Decatur, Stone Mountain and Columbus, Georgia, and Birmingham and Eutaw, Alabama. The Bank conducts a general commercial banking business that serves Fulton, DeKalb and Muscogee Counties, Georgia, as well as Jefferson and Greene Counties, Alabama, acts as an issuing agent for U.S. savings bonds, travelers checks and cashiers checks, and offers collection teller services. The Bank has no subsidiaries.

        The Bank does not engage in any line of business in addition to normal commercial banking activities. The Bank does not engage in any operations in foreign countries nor is a material portion of the Bank's revenues derived from customers in foreign countries.

The Bank's Primary Service Area

        The Bank's primary service area consists of Fulton and DeKalb Counties, along with certain portions of Rockdale County; through its branch in Columbus, the Bank also serves Muscogee County, Georgia, and now through its branches in Birmingham and Eutaw, it serves Jefferson and Greene Counties, Alabama. The primary focus of the Bank is the small business and commercial/service firms in the area plus individuals and households who reside in or commute to the area. The majority of the Bank's customers are drawn from the described area.

Competition

        The Bank must compete for both deposit and loan customers with other financial institutions with greater resources than are available to the Bank. Currently, there are numerous branches of regional and local banks, as well as other types of entities offering financial services, located in the Bank's market area.

Deposits

        The Bank offers a wide range of commercial and consumer deposit accounts, including non-interest bearing checking accounts, money market checking accounts (consumer and commercial), negotiable order of withdrawal ("NOW") accounts, individual retirement accounts, time certificates of deposit, sweep accounts, and regular savings accounts. The sources of deposits typically are residents and businesses and their employees within the Bank's market area, obtained through personal solicitation by the Bank's officers and directors, direct mail solicitation and advertisements published in the local media. The Bank pays competitive interest rates on time and savings deposits and has a service charge fee schedule competitive with other financial institutions in the Bank's market area, covering such matters as maintenance fees on checking accounts, per item processing fees on checking accounts, returned check charges and the like.

Loan Portfolio

        The Bank engages in a full complement of lending activities, including consumer/installment loans, mortgage loans, home equity lines of credit, construction loans and commercial loans, with particular emphasis on small business loans. The Bank believes that the origination of short-term fixed rate loans and loans tied to floating interest rates is the most desirable method of conducting its lending activities.

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Consumer Loans

        The Bank's consumer loans consist primarily of installment loans to individuals for personal, family and household purposes, including loans for automobiles, home improvements and investments. This category of loans also includes loans secured by second mortgages on the residences of borrowers.

Commercial Lending

        Commercial lending is directed principally toward businesses whose demands for funds fall within the Bank's legal lending limits and which are existing deposit customers of the Bank. This category of loans includes loans made to individual, partnership, or corporate borrowers and obtained for a variety of business purposes.

Investments

        As of December 31, 2004, investment securities comprised approximately 26% of the Bank's assets, with loans (net of loan loss reserves) comprising approximately 63% of assets. The Bank invests primarily in obligations of the United States or obligations guaranteed as to principal and interest by the United States and other taxable securities.

Asset/Liability Management

        It is the objective of the Bank to manage assets and liabilities to provide a satisfactory, consistent level of profitability within the framework of established cash, loan, investment, borrowing and capital policies. Certain officers of the Bank are charged with the responsibility for developing and monitoring policies and procedures that are designed to ensure acceptable composition of the asset/liability mix. It is the overall philosophy of management to support asset growth primarily through the growth of core deposits, which include deposits of all categories made by individuals, partnerships and corporations. Management of the Bank seeks to invest the largest portion of the Bank's assets in consumer/installment, commercial and construction loans.

        The Bank's asset/liability mix is monitored on a daily basis and a report reflecting the interest-sensitive assets and interest-sensitive liabilities is prepared and presented to the Bank's Board of Directors on a monthly basis. The objective of this policy is to control interest-sensitive assets and liabilities so as to minimize the impact of substantial movements in interest rates on the Bank's earnings.

Correspondent Banking

        Correspondent banking involves the provision of services by one bank to another bank that cannot provide that service for itself from an economic or practical standpoint. The Bank purchases correspondent services offered by larger banks, including check collections, security safekeeping, investment services, wire transfer services, coin and currency supplies, overline and liquidity loan participation, and sales of loans to or participation with correspondent banks.

Employees

        As of December 31, 2004, the Bank had 164 full-time equivalent employees (the Company has no employees who are not also employees of the Bank). The Bank is not a party to any collective bargaining agreement and, in the opinion of management, the Bank enjoys excellent relations with its employees.

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Supervision and Regulation

        Both the Company and the Bank are subject to extensive state and federal banking regulations that impose restrictions on and provide for general regulatory oversight of their operations. These laws are generally intended to protect depositors and not shareholders. The following discussion describes the material elements of the regulatory framework that applies to us.

The Company

        Since the Company owns all of the capital stock of the Bank, it is a bank holding company under the federal Bank Holding Company Act of 1956. As a result, the Company is primarily subject to the supervision, examination, and reporting requirements of the Bank Holding Company Act and the regulations of the Federal Reserve.

        Acquisitions of Banks.    The Bank Holding Company Act requires every bank holding company to obtain the Federal Reserve's prior approval before:

•

Acquiring direct or indirect ownership or control of any voting shares of any bank if, after the acquisition, the bank holding company will directly or indirectly own or control more than 5% of the bank's voting shares;



•

Acquiring all or substantially all of the assets of any bank; or



•

Merging or consolidating with any other bank holding company.

        Additionally, the Bank Holding Company Act provides that the Federal Reserve may not approve any of these transactions if it would result in or tend to create a monopoly or, substantially lessen competition or otherwise function as a restraint of trade, unless the anticompetitive effects of the proposed transaction are clearly outweighed by the public interest in meeting the convenience and needs of the community to be served. The Federal Reserve is also required to consider the financial and managerial resources and future prospects of the bank holding companies and banks concerned and the convenience and needs of the community to be served. The Federal Reserve's consideration of financial resources generally focuses on capital adequacy, which is discussed below.

        Under the Bank Holding Company Act, if adequately capitalized and adequately managed, the Company or any other bank holding company located in Georgia may purchase a bank located outside of Georgia. Conversely, an adequately capitalized and adequately managed bank holding company located outside of Georgia may purchase a bank located inside Georgia. In each case, however, restrictions may be placed on the acquisition of a bank that has only been in existence for a limited amount of time or will result in specified concentrations of deposits. For example, Georgia law prohibits a bank holding company from acquiring control of a financial institution until the target financial institution has been incorporated for three years. Because the Bank has been incorporated for more than three years, this limitation does not apply to the Bank or the Company.

        Change in Bank Control.    Subject to various exceptions, the Bank Holding Company Act and the Change in Bank Control Act, together with related regulations, require Federal Reserve approval prior to any person or company acquiring "control" of a bank holding company. Control is conclusively presumed to exist if an individual or company acquires 25% or more of any class of voting securities of the bank holding company. Control is rebuttably presumed to exist if a person or company acquires 10% or more, but less than 25%, of any class of voting securities and either:

•

the bank holding company has registered securities under Section 12 of the Securities Act of 1934; or



•

no other person owns a greater percentage of that class of voting securities immediately after the transaction.

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        Our common stock is registered under Section 12 of the Securities Exchange Act of 1934. The regulations provide a procedure for challenge of the rebuttable control presumption.

Permitted Activities. A bank holding company is generally permitted under the Bank Holding Company Act to engage in or acquire direct or indirect control of more than 5% of the voting shares of any company engaged in the following activities:

•

Banking or managing or controlling banks; and



•

Any activity that the Federal Reserve determines to be so closely related to banking as to be a proper incident to the business of banking.

        Activities that the Federal Reserve has found to be so closely related to banking as to be a proper incident to the business of banking include:

•

Factoring accounts receivable;



•

Making, acquiring, brokering or servicing loans and usual related activities;



•

Leasing personal or real property;



•

Operating a non-bank depository institution, such as a savings association;



•

Trust company functions;



•

Financial and investment advisory activities;



•

Conducting discount securities brokerage activities;



•

Underwriting and dealing in government obligations and money market instruments;



•

Providing specified management consulting and counseling activities;



•

Performing selected data processing services and support services;



•

Acting as agent or broker in selling credit life insurance and other types of insurance in connection with credit transactions; and



•

Performing selected insurance underwriting activities.

        Despite prior approval, the Federal Reserve may order a bank holding company or its subsidiaries to terminate any of these activities or to terminate its ownership or control of any subsidiary when it has reasonable cause to believe that the bank holding company's continued ownership, activity or control constitutes a serious risk to the financial safety, soundness, or stability of it or any of its bank subsidiaries.

        Support of Subsidiary Institutions.    Under Federal Reserve policy, the Company is expected to act as a source of financial strength for the Bank and to commit resources to support the Bank. This support may be required at times when, without this Federal Reserve policy, the Company might not be inclined to provide it. In addition, any capital loans made by the Company to the Bank will be repaid only after its deposits and various other obligations are repaid in full. In the unlikely event of the Company's bankruptcy, any commitment by it to a federal bank regulatory agency to maintain the capital of the Bank will be assumed by the bankruptcy trustee and entitled to a priority of payment.

The Bank

        Since the Bank is a commercial bank chartered under the laws of the State of Georgia and is a Federal Reserve member bank, it is primarily subject to the supervision, examination and reporting requirements of the Georgia Department of Banking and Finance and the Federal Reserve Bank of Atlanta. The Georgia Department of Banking and Finance and the Federal Reserve Bank of Atlanta

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regularly examine the Bank's operations and have the authority to approve or disapprove mergers, the establishment of branches and similar corporate actions. Both regulatory agencies have the power to prevent the continuance or development of unsafe or unsound banking practices or other violations of law. Additionally, the Bank's deposits are insured by the FDIC to the maximum extent provided by law. The Bank is also subject to numerous state and federal statutes and regulations that affect its business, activities and operations.

        Branching.    Under current Georgia law, the Bank may open branch offices throughout Georgia with the prior approval of the Georgia Department of Banking and Finance. In addition, with prior regulatory approval, the Bank may acquire branches of existing banks located in Georgia. The Bank and any other national or state-chartered bank generally may branch across state lines by merging with banks in other states if allowed by the applicable states' laws. Georgia law, with limited exceptions, currently permits branching across state lines through interstate mergers.

        Under the Federal Deposit Insurance Act, states may "opt-in" and allow out-of-state banks to branch into their state by establishing a new start-up branch in the state. Currently, Georgia has not opted-in to this provision. Therefore, interstate merger is the only method through which a bank located outside of Georgia may branch into Georgia. This provides a limited barrier of entry into the Georgia banking market, which protects the Company from an important segment of potential competition. However, because Georgia has elected not to opt-in, our ability to establish a new start-up branch in another state may be limited. Many states that have elected to opt-in have done so on a reciprocal basis, meaning that an out-of-state bank may establish a new start-up branch only if their home state has also elected to opt-in. Consequently, until Georgia changes its election, the only way the Company will be able to branch into states that have elected to opt-in on a reciprocal basis will be through interstate merger.

        Prompt Corrective Action.    The Federal Deposit Insurance Corporation Improvement Act of 1991 establishes a system of prompt corrective action to resolve the problems of undercapitalized financial institutions. Under this system, the federal banking regulators have established five capital categories, well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized, in which all institutions are placed. The federal banking agencies have also specified by regulation the relevant capital levels for each of the other categories.

        Federal banking regulators are required to take some mandatory supervisory actions and are authorized to take other discretionary actions with respect to institutions in the three undercapitalized categories. The severity of the action depends upon the capital category in which the institution is placed. Generally, subject to a narrow exception, the banking regulator must appoint a receiver or conservator for an institution that is critically undercapitalized.

        An institution in any of the undercapitalized categories is required to submit an acceptable capital restoration plan to its appropriate federal banking agency. A bank holding company must guarantee that a subsidiary depository institution meets its capital restoration plan, subject to various limitations. The controlling holding company's obligation to fund a capital restoration plan is limited to the lesser of 5% of an undercapitalized subsidiary's assets at the time it becomes undercapitalized or the amount required to meet regulatory capital requirements. An undercapitalized institution is also generally prohibited from increasing its average total assets, making acquisitions, establishing any branches or engaging in any new line of business, except under an accepted capital restoration plan or with FDIC's approval. The regulations also establish procedures for downgrading an institution to a lower capital category based on supervisory factors other than capital.

        FDIC Insurance Assessments.    The FDIC has adopted a risk-based assessment system for insured depository institutions' that takes into account the risks attributable to different categories and concentrations of assets and liabilities. The system assigns an institution to one of three capital

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categories: (1) well capitalized; (2) adequately capitalized; and (3) undercapitalized. These three categories are substantially similar to the prompt corrective action categories described above, with the "undercapitalized" category including institutions that are undercapitalized, significantly undercapitalized, and critically undercapitalized for prompt corrective action purposes. The FDIC also assigns an institution to one of three supervisory subgroups based on a supervisory evaluation that the institution's primary federal regulator provides to the FDIC and information that the FDIC determines to be relevant to the institution's financial condition and the risk posed to the deposit insurance funds. Assessments range from 0 to 27 cents per $100 of deposits, depending on the institution's capital group and supervisory subgroup. In addition, the FDIC imposes assessments to help pay off the $780 million in annual interest payments on the $8 billion Financing Corporation bonds issued in the late 1980s as part of the government rescue of the thrift industry. This assessment rate is adjusted annually and is set at 1.44 cents per $100 of deposits for the first quarter of 2005.

        The FDIC may terminate its insurance of deposits if it finds that the institution has engaged in unsafe and unsound practices, is in an unsafe or unsound condition to continue operations, or has violated any applicable law, regulation, rule, order or condition imposed by the FDIC.

        Community Reinvestment Act.    The Community Reinvestment Act requires that, in connection with examinations of financial institutions within their respective jurisdictions, the Federal Reserve or the FDIC shall evaluate the record of each financial institution in meeting the credit needs of its local community, including low and moderate-income neighborhoods. These facts are also considered in evaluating mergers, acquisitions, and applications to open a branch or facility. Failure to adequately meet these criteria could impose additional requirements and limitations on the Bank. Additionally, we must publicly disclose the terms of various Community Reinvestment Act-related agreements.

        Other Regulations.    Interest and other charges collected or contracted for by the Bank are subject to state usury laws and federal laws concerning interest rates. For example, under the Soldiers' and Sailors' Civil Relief Act of 1940, a lender is generally prohibited from charging an annual interest rate of more than 6% on any obligation for which the borrower is a person on active duty with the United States Military. The Bank's loan operations are also subject to federal laws applicable to credit transactions, such as:

•

The federal Truth-In-Lending Act, governing disclosures of credit terms to consumer borrowers;



•

The Home Mortgage Disclosure Act of 1975, requiring financial institutions to provide information to enable the public and public officials to determine whether a financial institution is fulfilling its obligation to help meet the housing needs of the community it serves;



•

The Equal Credit Opportunity Act, prohibiting discrimination on the basis of race, creed or other prohibited factors in extending credit;



•

The Fair Credit Reporting Act of 1978, governing the use and provision of information to credit reporting agencies;



•

The Fair Debt Collection Act, governing the manner in which consumer debts may be collected by collection agencies;



•

The Soldiers' and Sailors' Relief Act of 1940, governing the repayment terms of, and property rights underlying, secured obligations of persons in military service; and



•

The rules and regulations of the various federal agencies charged with the responsibility of implementing these federal laws.

        In addition to the federal and state laws noted above, the Georgia Fair Lending Act ("GAFLA") imposes restrictions and procedural requirements on most mortgage loans made in Georgia, including home equity loans and lines of credit. On August 5, 2003, the Office of the Comptroller of the

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Currency issued a formal opinion stating that the entirety of GAFLA is preempted by federal law for national banks and their operating subsidiaries. GAFLA contains a provision that preempts GAFLA as to state banks in the event that the Office of the Comptroller of the Currency preempts GAFLA as to national banks. Therefore, the Bank is exempt from the requirements of GAFLA.

        The deposit operations of the Bank are subject to:

•

The Right to Financial Privacy Act, which imposes a duty to maintain confidentiality of consumer financial records and prescribes procedures for complying with administrative subpoenas of financial records; and



•

The Electronic Funds Transfer Act and Regulation E issued by the Federal Reserve to implement that act, which governs automatic deposits to and withdrawals from deposit accounts and customers' rights and liabilities arising from the use of automated teller machines and other electronic banking services.

Capital Adequacy

        The Company and the Bank are required to comply with the capital adequacy standards established by the Federal Reserve, in the case of the Company, and the FDIC and Georgia Department of Banking and Finance, in the case of the Bank. The Federal Reserve has established a risk-based and a leverage measure of capital adequacy for bank holding companies. The Bank is also subject to risk-based and leverage capital requirements adopted by the FDIC, which are substantially similar to those adopted by the Federal Reserve for bank holding companies.

        The risk-based capital standards are designed to make regulatory capital requirements more sensitive to differences in risk profiles among banks and bank holding companies, to account for off-balance-sheet exposure, and to minimize disincentives for holding liquid assets. Assets and off-balance-sheet items, such as letters of credit and unfunded loan commitments, are assigned to broad risk categories, each with appropriate risk weights. The resulting capital ratios represent capital as a percentage of total risk-weighted assets and off-balance-sheet items.

        The minimum guideline for the ratio of total capital to risk-weighted assets is 8%. Total capital consists of two components, Tier 1 Capital and Tier 2 Capital. Tier 1 Capital generally consists of common shareholders' equity, minority interests in the equity accounts of consolidated subsidiaries, qualifying noncumulative perpetual preferred stock, and a limited amount of qualifying cumulative perpetual preferred stock, less goodwill and other specified intangible assets. Tier 1 Capital must equal at least 4% of risk-weighted assets. Tier 2 Capital generally consists of subordinated debt, other preferred stock and hybrid capital and a limited amount of loan loss reserves. The total amount of Tier 2 Capital is limited to 100% of Tier 1 Capital. At December 31, 2004, our ratio of total capital to risk-weighted assets was 14% and our ratio of Tier 1 Capital to risk-weighted assets was 13%.

        In addition, the Federal Reserve has established minimum leverage ratio guidelines for bank holding companies. These guidelines provide for a minimum ratio of Tier 1 Capital to average assets, less goodwill and other specified intangible assets, of 3% for bank holding companies that meet specified criteria, including having the highest regulatory rating and implementing the Federal Reserve's risk-based capital measure for market risk. All other bank holding companies generally are required to maintain a leverage ratio of at least 4%. At December 31, 2004, the Company's leverage ratio was 9%. The guidelines also provide that bank holding companies experiencing internal growth or making acquisitions will be expected to maintain strong capital positions substantially above the minimum supervisory levels without reliance on intangible assets. The Federal Reserve considers the leverage ratio and other indicators of capital strength in evaluating proposals for expansion or new activities.

        Failure to meet capital guidelines could subject a bank or bank holding company to a variety of enforcement remedies, including issuance of a capital directive, the termination of deposit insurance by

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the FDIC, a prohibition on accepting brokered deposits, and certain other restrictions on its business. As described above, significant additional restrictions can be imposed on FDIC-insured depository institutions that fail to meet applicable capital requirements. See "—Prompt Corrective Action."

Payment of Dividends

        The Company is a legal entity separate and distinct from the Bank. The principal source of the Company's cash flow, including cash flow to pay dividends to its shareholders, is dividends that the Bank pays to the Company, its sole shareholder. Statutory and regulatory limitations apply to the Bank's payment of dividends to the Company as well as to the Company's payment of dividends to its shareholders. Currently, the Bank must receive approval from the Georgia Department of Banking and Finance and the Company must receive approval from the Federal Reserve Bank of Atlanta prior to the payment of dividends.

        If, in the opinion of the federal banking regulator, the Bank were engaged in or about to engage in an unsafe or unsound practice, the federal banking regulator could require, after notice and a hearing, that it cease and desist from its practice. The federal banking agencies have indicated that paying dividends that deplete a depository institution's capital base to an inadequate level would be an unsafe and unsound banking practice. Under the Federal Deposit Insurance Corporation Improvement Act of 1991, a depository institution may not pay any dividend if payment would cause it to become undercapitalized or if it is already undercapitalized. Moreover, the federal agencies have issued policy statements that provide that bank holding companies and insured banks should generally only pay dividends out of current operating earnings. See "—Prompt Corrective Action" above.

        The Georgia Department of Banking and Finance also regulates the Bank's dividend payments and must approve dividend payments that would exceed 50% of the Bank's net income for the prior year. Our payment of dividends may also be affected or limited by other factors, such as the requirement to maintain adequate capital above regulatory guidelines.

Restrictions on Transactions with Affiliates

        The Company and the Bank are subject to the provisions of Section 23A of the Federal Reserve Act. Section 23A places limits on the amount of:

•

loans or extensions of credit to affiliates;



•

investment in affiliates;



•

the purchase of assets from affiliates, except for real and personal property exempted by the Federal Reserve;



•

loans or extensions of credit to third parties collateralized by the securities or obligations of affiliates; and



•

any guarantee, acceptance or letter of credit issued on behalf of an affiliate.

        The total amount of the above transactions is limited in amount, as to any one affiliate, to 10% of a bank's capital and surplus and, as to all affiliates combined, to 20% of a bank's capital and surplus. In addition to the limitation on the amount of these transactions, each of the above transactions must also meet specified collateral requirements. The Bank must also comply with other provisions designed to avoid the taking of low-quality assets.

        The Company and the Bank are also subject to the provisions of Section 23B of the Federal Reserve Act which, among other things, prohibit an institution from engaging in the above transactions with affiliates unless the transactions are on terms substantially the same, or at least as favorable to the

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institution or its subsidiaries, as those prevailing at the time for comparable transactions with nonaffiliated companies.

        The Bank is also subject to restrictions on extensions of credit to its executive officers, directors, principal shareholders and their related interests. These extensions of credit (1) must be made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with third parties, and (2) must not involve more than the normal risk of repayment or present other unfavorable features.

Privacy

        Financial institutions are required to disclose their policies for collecting and protecting confidential information. Customers generally may prevent financial institutions from sharing nonpublic personal financial information with nonaffiliated third parties except under narrow circumstances, such as the processing of transactions requested by the consumer or when the financial institution is jointly sponsoring a product or service with an unaffiliated third party. Additionally, financial institutions generally may not disclose consumer account numbers to any nonaffiliated third party for use in telemarketing, direct mail marketing or other marketing to consumers.

Consumer Credit Reporting

        On December 4, 2003, the President signed the Fair and Accurate Credit Transactions Act (the FAIR Act), amending the federal Fair Credit Reporting Act (the FCRA). These amendments to the FCRA (the FCRA Amendments) became effective in 2004.

        The FCRA Amendments include, among other things:

•

new requirements for financial institutions to develop policies and procedures to identify potential identity theft and, upon the request of a consumer, place a fraud alert in the consumer's credit file stating that the consumer may be the victim of identity theft or other fraud;



•

new consumer notice requirements for lenders that use consumer report information in connection with risk-based credit pricing programs;



•

for entities that furnish information to consumer reporting agencies (which would include the Bank), new requirements to implement procedures and policies regarding the accuracy and integrity of the furnished information and regarding the correction of previously furnished information that is later determined to be inaccurate; and



•

a new requirement for mortgage lenders to disclose credit scores to consumers.

        The FCRA Amendments also will prohibit a business that receives consumer information from an affiliate from using that information for marketing purposes unless the consumer is first provided a notice and an opportunity to direct the business not to use the information for such marketing purposes (the "opt-out"), subject to certain exceptions. We do not share consumer information between our affiliates for marketing purposes, except as allowed under exceptions to the notice and opt-out requirements.

Anti-Terrorism Legislation

        The Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism (USA PATRIOT) Act imposed new requirements and limitations on specified financial transactions and account relationships, intended to guard against money laundering and terrorism. The Bank has established a customer identification program pursuant to the "Know your

12

customer" rules contained in Section 326 of the USA PATRIOT Act. The Bank has implemented procedures and policies to comply with those rules prior to the effective date of each of those rules.

Proposed Legislation and Regulatory Action

        New regulations and statutes are regularly proposed that contain wide-ranging proposals for altering the structures, regulations and competitive relationships of financial institutions operating or doing business in the United States. We cannot predict whether or in what form any proposed regulation or statute will be adopted or the extent to which our business may be affected by any new regulation or statute.

Effect of Governmental Monetary Polices

        Our earnings are affected by domestic economic conditions and the monetary and fiscal policies of the United States government and its agencies. The Federal Reserve Bank's monetary policies have had, and are likely to continue to have, an important impact on the operating results of commercial banks through its power to implement national monetary policy in order, among other things, to curb inflation or combat a recession. The monetary policies of the Federal Reserve affect the levels of bank loans, investments and deposits through its control over the issuance of United States government securities, its regulation of the discount rate applicable to member banks and its influence over reserve requirements to which member banks are subject. We cannot predict the nature or impact of future changes in monetary and fiscal policies.

13

SELECTED STATISTICAL INFORMATION

        The following statistical information is provided for the Company for the years ended December 31, 2004, 2003 and 2002. The data is presented using daily average balances. The data should be read in conjunction with the financial statements appearing elsewhere in this Annual Report on Form 10-K.

Average Balance Sheets, Interest Rates, and Interest Differentials

        Condensed consolidated average balance sheets for the years indicated are presented below (amounts in thousands):

				Average Balances			2004 Interest Income/ Expense		Yield/ Rate		Average Balances			2003 Interest Income/ Expense		Yield/ Rate		Average Balances			2002 Interest Income/ Expense		Yield/ Rate
Assets:
Interest-earning assets:
	Loans, net(a)			$	208,824		$	15,659	7.50	%	$	198,296		$	14,781	7.45	%	$	157,867		$	12,748	8.08	%
	Investment securities:
	Taxable(b)				76,306			2,762	3.62	%		91,006			2,852	3.13	%		55,529			2,984	5.37	%
	Tax-exempt(c)				19,234			1,254	6.52	%		21,989			1,431	6.51	%		20,704			1,436	6.94	%
	Federal funds sold				—			—	0.00	%		982			11	1.12	%		493			8	1.62	%
	Interest bearing deposits				1,559			34	2.18	%		4,183			144	3.44	%		14,505			324	2.23	%
		Total interest-earning assets			305,923		$	19,709	6.44	%		316,456		$	19,219	6.07	%		249,098		$	17,500	7.03	%
	Other non-interest earning assets				34,789							36,058							29,179
Total Assets				$	340,712						$	352,514						$	278,277
Liabilities and stockholders' equity:
Interest bearing liabilities:
	Deposits:
		Interest bearing demand and savings		$	101,341		$	797	0.79	%	$	104,945		$	818	0.78	%	$	89,702		$	1,253	1.40	%
		Time			111,349			2,035	1.83	%		119,713			2,413	2.02	%		91,350			2,796	3.06	%
	Other borrowings				38,680			1,228	3.17	%		42,271			1,223	2.89	%		18,529			867	4.68	%
			Total interest bearing liabilities	$	251,370		$	4,060	1.62	%	$	266,929		$	4,454	1.67	%	$	199,581		$	4,916	2.46	%
	Other non-interest bearing liabilities				64,634							61,644							56,096
	Stockholders' equity(d)				24,708							23,941							22,600
Total liabilities and stockholders' equity				$	340,712						$	352,514						$	278,277
Excess of interest-earning assets over Interest-bearing liabilities				$	54,553						$	49,527						$	49,517
Ratio of interest-earning assets to Interest-bearing liabilities					121.70	%						118.55	%						124.81	%
Net interest income							$	15,649						$	14,765						$	12,584
Net interest spread									4.83	%						4.40	%						4.57	%
Net interest yield on interest earning assets									5.12	%						4.67	%						5.05	%

(a)

Average loans are shown net of unearned income, discounts and the allowance for loan losses. Nonperforming loans are also included.

(b)

Includes dividend income.

(c)

Reflects taxable equivalent adjustments using a tax rate of 34% to adjust interest on tax-exempt investment securities to a fully taxable basis, including the impact of the disallowed interest expense related to carrying such tax-exempt securities.

(d)

Includes both voting and non-voting common stock.

14

        The following table sets forth, for the year ended December 31, 2004, a summary of the changes in interest earned and interest paid resulting from changes in volume and changes in rates (amounts in thousands):

		December 31,							Due to Change in(a)
						Increase (decrease)
		2004		2003					Volume			Rate
Interest earned on:
Loans, net(b)		$	15,659	$	14,781	$	878		$	10,529		$	(9,651	)
Taxable investment securities(c)			2,762		2,852		(90	)		(14,700	)		14,610
Tax-exempt investment securities(d)			1,254		1,431		(177	)		(2,755	)		2,578
Federal funds sold			—		11		(11	)		(982	)		971
Interest bearing deposits			34		144		(110	)		(2,624	)		2,514
	Total interest income		19,709		19,219		490			(10,532	)		11,022
Interest paid on:
Savings & interest-bearing demand deposits			797		818		(21	)		(3,908	)		3,887
Time deposits			2,035		2,413		(378	)		(8,061	)		7,683
Other borrowed funds			1,228		1,223		5			(3,591	)		3,596
	Total interest expense		4,060		4,454		(394	)		(15,560	)		15,166
Net interest income		$	15,649	$	14,765	$	884		$	5,028		$	(4,144	)

(a)

The change in interest due to both rate and volume has been allocated proportionately to the volume and rate components.

(b)

Included in interest earned on loans are fees of approximately $1,068,000 in 2004 and $744,000 in 2003. Includes interest income recognized on nonaccrual loans during 2004 and 2003.

(c)

Includes dividend income.

(d)

Reflects taxable equivalent adjustments using a tax rate of 34% to adjust interest on tax-exempt investment securities to a fully taxable basis, including the impact of the disallowed interest expense related to carrying such tax-exempt securities.

15

        The following table sets forth, for the year ended December 31, 2003 a summary of the changes in interest earned and interest paid resulting from changes in volume and changes in rates (amounts in thousands):

		December 31,							Due to Change in(a)
						Increase (decrease)
		2003		2002					Volume			Rate
Interest earned on:
Loans, net(b)		$	14,781	$	12,748	$	2,033		$	3,139		$	(1,106	)
Taxable investment securities(c)			2,852		2,984		(132	)		1,509			(1,641	)
Tax-exempt investment securities(d)			1,431		1,436		(5	)		86			(91	)
Federal funds sold			11		8		3			7			(4	)
Interest bearing deposits			144		324		(180	)		(293	)		113
	Total interest income		19,219		17,500		1,719			4,448			(2,729	)
Interest paid on:
Savings & interest-bearing demand deposits			818		1,253		(435	)		166			(601	)
Time deposits			2,413		2,796		(383	)		718			(1,101	)
Other borrowed funds			1,223		867		356			899			(543	)
	Total interest expense		4,454		4,916		(462	)		1,783			(2,245	)
Net interest income		$	14,765	$	12,584	$	2,181		$	2,665		$	(484	)

(a)

The change in interest due to both rate and volume has been allocated proportionately to the volume and rate components.

(b)

Included in interest earned on loans are fees of approximately $744,000 in 2003 and $700,000 in 2002. Includes interest income recognized on nonaccrual loans during 2003 and 2002.

(c)

Includes dividend income.

(d)

Reflects taxable equivalent adjustments using a tax rate of 34% to adjust interest on tax-exempt investment securities to a fully taxable basis, including the impact of the disallowed interest expense related to carrying such tax-exempt securities.

16

Investment Securities

        The carrying values of investment securities held to maturity and investment securities available for sale at the indicated dates are presented below:

			December 31,
			2004		2003		2002
			(amounts in thousands)
Held to Maturity:
	U. S. Treasury and U. S. Government agency securities		$	3,000	$	3,000	$	—
	Mortgage-backed securities			1,590		2,004		—
	State, county, and municipal securities			5,390		5,549		2,376
		Totals	$	9,980	$	10,553	$	2,376

			December 31,
			2004		2003		2002
			(amounts in thousands)
Available for Sale:
	U. S. Treasury and U. S. Government agency securities		$	9,867	$	14,908	$	4,037
	Mortgage-backed securities			49,279		67,187		16,289
	State, county, and municipal securities			14,491		14,038		32,335
	Equity securities			1,050		1,168		1,311
		Totals	$	74,687	$	97,301	$	53,972

        The following table shows the contractual maturities of all investment securities, presented at carrying value, at December 31, 2004 and the weighted average yields (on a fully taxable basis assuming a 34 percent tax rate) of such securities. 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 (amounts in thousands, except yields):

		Maturing
		Within 1 Year				Between 1 and 5 Years				Between 5 and 10 Years				After 10 Years
		Amount		Yield		Amount		Yield		Amount		Yield		Amount			Yield
U.S. Treasury and U.S. Government agencies		$	—	—		$	6,426	3.14	%	$	6,441	4.12	%	$	—		—
Mortgage-backed securities(a)			20	5.31	%		2,894	4.03	%		14,935	3.75	%		33,020		3.94	%
State, County, and Municipal Securities			180	4.90	%		862	4.82	%		6,532	4.59	%		12,307		4.19	%
Other equity securities(b)			—				—				—				1,050	(b)
	Totals	$	200			$	10,182			$	27,908			$	46,377

(a)

Mortgage-backed securities have been categorized at their average life according to their projected speed of repayment. Principal repayments will occur at varying dates throughout the terms of the mortgages.

(b)

Other equity securities are primarily comprised of investments in preferred stock of the Fannie Mae Corporation and Federal Home Loan Mortgage Corporation. These investments have no specific maturity date or yield.

        The Company did not have any investments with a single issuer which exceeded 10% of the Company's stockholders' equity at December 31, 2004, except for U.S. Treasury and U.S. Government agencies and mortgage-backed securities as shown in the table above.

17

Loans

        The amounts of loans outstanding at the indicated dates are shown in the following table according to the type of loan:

		December 31,
		2004		2003		2002		2001		2000
Commercial, financial, and agricultural		$	22,326,651	$	21,258,932	$	54,449,015	$	50,528,620	$	50,678,691
Installment			7,665,954		13,570,748		5,674,074		8,206,869		9,704,183
Real estate—mortgage			174,335,435		174,140,038		112,014,193		96,647,073		95,951,456
Real estate—construction			4,509,731		2,856,718		3,362,742		2,587,465		2,784,377
Other			2,609,407		1,388,343		525,192		1,231,124		2,287,962
			211,447,178		213,214,779		176,025,216		159,201,151		161,406,669
Less:	Net deferred loan fees		554,117		589,563		537,430		247,537		231,488
	Allowance for loan losses		3,182,697		3,239,703		2,629,753		2,002,842		2,672,919
	Discount on loans acquired from FDIC		356,362		571,636		781,153		1,039,657		1,150,374
		$	207,354,002	$	208,813,877	$	172,076,880	$	155,911,115	$	157,351,888

        Certain loans were reclassified in 2003, 2002, 2001, and 2000 to conform to regulatory reporting requirements.

        There were no securitization of loans during 2004 and 2003.

        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 Annual Report on Form 10-K. A substantial portion of the Company's loan portfolio is secured by real estate in metropolitan Atlanta.

        The Company's loans to area churches were approximately $46.1 million and $36.6 million at December 31, 2004 and 2003, respectively, which are generally secured by real estate. The Company also has approximately $23.6 million and $27.3 million in loans to area convenience stores at December 31, 2004 and 2003, respectively. The balance of churches and convenience stores loans represents the accounting loss the Company could incur if any party to these loans failed completely to perform according to the terms of the contract and the collateral proved to be of no value.

18

        The following table sets forth certain information at December 31, 2004, regarding the contractual maturities and interest rate sensitivity of certain categories of the Company's loans (amounts in thousands):

			Due after
			One year or less		Between one and five years		After five years		Total
Commercial, financial, and agricultural			$	9,576	$	9,880	$	2,871	$	22,327
Installment				1,309		5,366		990		7,665
Real estate—mortgage				76,257		47,233		50,845		174,335
Real estate—construction				2,567		1,943		—		4,510
Other				829		1,645		136		2,610
			$	90,538	$	66,067	$	54,842	$	211,447
Loans due after one year:
	Having predetermined interest rates								$	106,424
	Having floating interest rates									14,485
		Total							$	120,909

        Actual repayments of loans may differ from the contractual maturities reflected above because borrowers may have the right to prepay obligations with or without prepayment penalties. Additionally, the refinancing of such loans or the potential delinquency of such loans could also cause differences between the contractual maturities reflected above and the actual repayments of such loans.

Nonperforming Assets

        Nonperforming assets include nonperforming loans and real estate acquired through foreclosure. Nonperforming loans consist of loans which are past due with respect to principal or interest more than 90 days ("past-due loans") or have been placed on nonaccrual of interest status ("nonaccrual loans"). Generally, past-due loans and nonaccrual loans which are delinquent more than 90 days will be charged off against the Company's allowance for possible loan losses unless management determines that the loan has sufficient collateral to allow for the recovery of unpaid principal and interest or reasonable prospects for the resumption of principal and interest payments.

        Accrual of interest on loans is discontinued when reasonable doubt exists as to the full, timely collection of interest or principal or when loans become contractually in default for 90 days or more as to either interest or principal unless the loan is well secured and in the process of collection. When a loan is placed on nonaccrual status, previously accrued and uncollected interest is charged-off against interest income on loans unless management believes that the accrued interest is recoverable through the liquidation of collateral.

        Nonperforming loans decreased to $2,652,000 at December 31, 2004, from $6,477,000 at December 31, 2003. Real estate acquired through foreclosure decreased by $622,000 to $1,431,000 at December 31, 2004. Nonperforming loans represent 1.93% of loans net of unearned income, discounts and real estate acquired through foreclosure at December 31, 2004, as compared to 3.98% at December 31, 2003.

        At December 31, 2004 and 2003, the recorded investment in loans rated substandard, doubtful and loss was $9,935,000 and $10,301,000, respectively. The related allowance for loan losses for these loans was $1,499,000 and $1,977,000 at December 31, 2004 and 2003, respectively. The average investment in loans rated substandard, doubtful and loss during 2004 and 2003 was approximately $10,892,000 and $8,698,000, respectively. Interest income recognized on these loans was approximately $1,038,000,

19

$1,393,000, and $1,059,000 in 2004, 2003, and 2002, respectively. Interest income recognized on a cash basis was approximately $73,000, $300,000, and $246,000 in 2004, 2003, and 2002, respectively.

        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 material credits about which management is aware of any information which causes management to have serious doubts as to the abilities of such borrower to comply with the loan repayment terms.

        The table below presents a summary of the Company's nonperforming assets at December 31, as follows (amounts in thousands, except financial ratios):

		2004			2003			2002			2001			2000
Nonperforming assets:
Nonperforming loans:
	Nonaccrual loans	$	2,652		$	6,477		$	4,333		$	1,761		$	1,832
	Past-due loans		—			—			—			442			11
Nonperforming loans			2,652			6,477			4,333			2,203			1,843
Real estate acquired through foreclosure			1,431			2,053			730			29			—
Total nonperforming assets		$	4,083		$	8,530		$	5,063		$	2,232		$	1,843
Ratios:
Nonperforming loans to loans, net of unearned income and discounts			1.26	%		3.05	%		2.49	%		1.40	%		1.15	%
Nonperforming assets to loans, net of unearned income, discounts and real estate acquired through foreclosure			1.93	%		3.98	%		2.89	%		1.41	%		1.15	%
Nonperforming assets to total assets			1.23	%		2.37	%		1.81	%		0.76	%		0.69	%
Allowance for loan losses to nonperforming loans			120.02	%		50.02	%		60.69	%		90.92	%		145.04	%
Allowance for loan losses to nonperforming assets			77.95	%		37.98	%		51.94	%		89.74	%		145.04	%

        Interest income on nonaccrual loans, which would have been reported, is summarized as follows:

		December 31,
		2004		2003		2002		2001		2000
Interest at contracted rate		$	214,000	$	1,093,000	$	354,000	$	235,000	$	147,000
Interest recorded as income			73,000		300,000		246,000		48,000		85,000
	Reduction of interest income	$	141,000	$	793,000	$	108,000	$	187,000	$	62,000

20

Allowance for Loan Losses

        The following table summarizes loans at the end of each year and average loans during the year, changes in the allowance for loan losses arising from loans charged off and recoveries on loans previously charged off by loan category, and additions to the allowance which have been charged to expense:

			December 31,
			2004			2003			2002			2001			2000
			(Amounts in thousands, except financial rations)
Loans, net of unearned income and discounts			$	210,537		$	212,054		$	174,707		$	157,972		$	160,026
Average loans, net of unearned income, discounts and the allowance for loan losses			$	205,508		$	198,296		$	157,867		$	158,289		$	159,583
Allowance for loans losses at the beginning of year			$	3,240		$	2,630		$	2,003		$	2,673		$	1,612
Loans charged-off:
	Commercial, financial, and agricultural			956			1,437			840			2,510			457
	Real estate—loans			408			765			245			570			658
	Installment loans to individuals and other			175			402			751			276			777
		Total loans charged off		1,539			2,604			1,836			3,356			1,892
Recoveries of loans previously charged off:
	Commercial, financial, and agricultural			250			256			503			359			62
	Real estate—loans			129			464			151			343			438
	Installment loans to individuals and other			253			243			149			174			309
		Total loans recovered		632			963			803			876			809
Net loans charged-off				907			1,641			1,033			2,480			1,083
Allocation of discount on purchased loans				—			—			—			—			1,400
Allowance acquired in acquisition				—			608			—			—			—
Additions to allowance for loan losses charged to expense				850			1,643			1,660			1,810			744
Allowance for loan losses at end of year			$	3,183		$	3,240		$	2,630		$	2,003		$	2,673
Ratio of net loans charged-off to average loans, net of unearned income, discounts and the allowance for loan losses				0.44	%		0.83	%		0.65	%		1.57	%		0.68	%
Allowance for loan losses to loans, net of unearned income and discounts				1.51	%		1.52	%		1.51	%		1.27	%		1.67	%

        The allowance for loan losses is primarily available to absorb losses inherent in the loan portfolio. Credit exposures deemed uncorrectable are charged against the allowance for loan losses. Recoveries of previously charged-off amounts are credited to 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 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 quarterly basis a comprehensive 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, performance trends within specific portfolio segments, and individual concentrations of credit.

        Loans are charged against the allowance when, in the opinion of management, such loans are deemed to be uncollectible and subsequent recoveries are added to the allowance. For the year ended

21

2004, provisions for loan losses totaled $850,000 compared to $1,643,000 in 2003. The reduction in the provision for loan losses in 2004 resulted from improvements in the quality of the loan portfolio as well as improved oversight of the Company's classified assets. Also, in the prior year, the Company charged off $1.3 million of a $2.2 million loan that was in default necessitating a higher provision for loan losses in 2003.

        The allowance for loan losses at year ended December 31, 2004 was approximately $3,183,000, representing 1.51% of total loans, net of unearned income and discounts compared to approximately $3,240,000 at December 31, 2003, which represented 1.52% of total loans, net of unearned income and discounts.

        Management believes the allowance for loan losses is adequate. While management uses available information to recognize losses on loans, future additions to the allowance may be necessary based on changes in economic conditions, particularly in the metropolitan Atlanta area. 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.

Allocation of Allowance for Loan Losses

        The Company has allocated the allowance for loan losses according to the amount deemed to be reasonably necessary to provide for the possibility of losses being incurred within the categories of loans set forth in the table below. This allocation is based on management's evaluation of the loan portfolio under current economic conditions, past loan loss experience, adequacy and nature of collateral, and such other factors that, in the judgment of management, deserve recognition in estimating loan losses. Regulatory agencies, as an integral part of their examination process, periodically review the Company's allowance for loan losses and the Company's valuation of real estate acquired through foreclosure. Such agencies may require the Company to recognize additions to the allowance or adjustments to the valuations based on their judgments about information available to them at the time of their examination. Because the allocation is based on estimates and subjective judgment, it is not necessarily indicative of the specific amounts or loan categories in which charge-offs may occur. The amount of such components of the allowance for loan losses and the ratio of each loan category to total loans outstanding are presented below (amounts in thousands, except financial ratios):

	Commercial, financial, and agricultural			Installment and other			Real estate			Total
December 31, 2004 Allowance	$	2,483		$	57		$	643		$	3,183
Percent of loans in each category to total loans		9.4	%		16.3	%		74.3	%		100.0	%
December 31, 2003 Allowance	$	1,923		$	368		$	949		$	3,240
Percent of loans in each category to total loans		10.0	%		7.0	%		83.0	%		100.0	%
December 31, 2002 Allowance	$	806		$	165		$	1,659		$	2,630
Percent of loans in each category to total loans		30.9	%		3.5	%		65.6	%		100.0	%
December 31, 2001 Allowance	$	966		$	318		$	719		$	2,003
Percent of loans in each category to total loans		31.7	%		5.9	%		62.4	%		100.0	%
December 31, 2000 Allowance	$	1,487		$	120		$	1,066		$	2,673
Percent of loans in each category to total loans		31.4	%		7.4	%		61.2	%		100.0	%

22

Deposits

        The average amount of and average rate paid on deposits by category for the last three years are presented below:

	Years Ended December 31,
	2004				2003				2002
	Amount		Rate		Amount		Rate		Amount		Rate
Noninterest-bearing deposits	$	61,763,028	—	%	$	58,682,302	—	%	$	53,537,843	—	%
Savings and interest-bearing demand deposits		101,340,866	0.79	%		104,944,894	0.78	%		89,701,455	1.79	%
Time deposits		111,348,714	1.83	%		119,713,363	2.02	%		91,350,483	3.06	%
Total average deposits	$	274,452,608	1.03	%	$	283,340,559	1.14	%	$	234,589,781	1.88	%

        The maturities of time deposits of $100,000 or more are presented below in thousands as of December 31, 2004:

3 months or less	$	4,244
Over 3 months through 6 months		24,337
Over 6 months through 12 months		32,014
Over 12 months		4,443
Total	$	65,038

Short Term Borrowings

        There were no short-term borrowings for which the average balance outstanding during the period was more than 30% of stockholders' equity for each of the years ended December 31, 2004, 2003, and 2002.

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. For conservative purposes, 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 lag 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 over a one year horizon as of December 31, 2004.

			Cumulative amounts as of December 31, 2004 Maturing and repricing within
			3 Months			3 to 12 Months			1 to 5 Years			Over 5 Years			Total
			(amounts in thousands, except ratios)
Interest-sensitive assets:
	Investments		$	—		$	200		$	10,182		$	74,285		$	84,667
	Loans			73,848			16,690			66,067			54,842			211,447
	Certificates of deposit			100			—			700			—			800
	Interest-bearing deposits with banks			734			—			—			—			734
		Total interest-sensitive assets	$	74,682		$	16,890		$	76,949		$	129,127		$	297,648
Investment-sensitive liabilities:
	Interest-bearing deposits(a)		$	114,761		$	75,047		$	19,138		$	17		$	208,963
	Other borrowings			15,250			540			10,155			10,000			35,945
		Total interest-sensitive liabilities	$	130,011		$	75,587		$	29,293		$	10,017		$	244,908
Interest-sensitivity gap			$	(55,329	)	$	(58,697	)	$	47,656		$	119,110		$	52,740
Cumulative interest-sensitivity gap to total interest-sensitive assets				(18.59	)%		(38.31	)%		(22.30	)%		17.72	%		17.72	%

(a)

Savings, NOW, and money market deposits totaling $99,368 are included in the maturing in 3 months classification.

ITEM 2.    DESCRIPTION OF PROPERTIES

        The Bank's main office building is located at 75 Piedmont Avenue, N.E., Atlanta,, Georgia. In addition to its main branch, the Bank also operates eleven other branch offices: the office located at 2727 Panola Road, Lithonia, Georgia, which is owned by the Bank; the office located at 965 M.L. King Jr. Drive, Atlanta, Georgia, which is owned by the bank; the office located at 2840 East Point Street, East Point, Georgia, which is owned by the bank; the office located at 2592 S. Hairston Road, Decatur, Georgia, which is owned by the bank; the office located at Rockbridge Plaza, 5771 Rockbridge Road, Stone Mountain, Georgia, which is owned by the Bank; the office located at 3705 Cascade Road, Atlanta, Georgia, which is owned by the bank; the office located at Stonecrest Mall, 2929 Turner Hill Road, Lithonia, Georgia, which is leased (the lease expires in February 2006); the office located at 6 Eleventh Street, Columbus, Georgia, which is leased (the lease expired in November 2004 and the bank assumed a month to month lease which is subject to renewal in 2005); the office located at 1700 Third Avenue North, Birmingham, Alabama, which is owned by the Bank; the office located at Bessemer Road, Birmingham, Alabama, which is owned by the Bank; and the office located at 213 Main Street, Eutaw, Alabama, which is owned by the Bank.

        Other than normal commercial lending activities of the Bank, the Company generally does not invest in real estate, interests in real estate, real estate mortgages, or securities of or interests in entities primarily engaged in real estate activities.

ITEM 3.    LEGAL PROCEEDINGS

        On September 24, 2003, a jury awarded $250,000 against the Company in a dispute involving a foreclosure. The Company is appealing the ruling to have the jury award reversed and its accrual for this loss is reflected in the December 31, 2004 and 2003 Consolidated Financial Statements. There are

24

no other material pending legal proceedings to which the Company is a party or of which any of its properties are subject; nor are there material proceedings known to the Company to be contemplated by any governmental authority; nor are there material proceedings known to the Company, pending or contemplated, in which any director, officer or affiliate or any principal security holder of the Company, or any associate of any of the foregoing, is a party or has an interest adverse to the Company.

ITEM 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

        None.

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PART II

ITEM 5.    MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER MATTERS

        The Company's common stock, $1.00 par value ("Common Stock"), is traded on the Nasdaq Bulletin Board, but there is limited trading. The following table sets forth high and low bid information for the Common Stock for each of the quarters in which trading has occurred since January 1, 2003. The prices set forth below reflect only information that has come to management's attention and do not include retail mark-ups, markdowns or commissions and may not represent actual transactions.

Quarter Ended:	High Bid		Low Bid
March 31, 2003	$	7.20	$	6.20
June 30, 2003	$	11.25	$	6.70
September 30, 2003	$	12.00	$	10.00
December 31, 2003	$	13.00	$	11.00
March 31, 2004	$	13.25	$	10.75
June 30, 2004	$	11.00	$	8.30
September 30, 2004	$	10.24	$	8.75
December 31, 2004	$	14.00	$	10.00

        As of March 15, 2005, there were approximately 1,472 holders of record of Common Stock. The Company also has outstanding 90,000 shares of Non-Voting Common Stock, all of which is held by one shareholder.

        The Company paid an annual cash dividend of $0.15 per share in 2003 and 2004. The Company's dividend policy in the future will depend on the Bank's earnings, capital requirements, financial condition, and other factors considered relevant by the Board of Directors of the Company. Further, the Company and the Bank must receive approval from the Federal Reserve Bank of Atlanta and the Georgia Department of Banking and Finance, respectively, prior to the payment of dividends. See "Description of Business—Bank Regulation."

        In 2004, the Company paid each of its directors a retainer for board service which was payable in common stock; as a result, the Company issued 3,329 shares of unregistered common stock from treasury stock to its directors in 2004. 1,994 shares were issued at $6.70 per shares and 1,335 shares were issued at $10.00 per share.

ITEM 6.    SELECTED FINANCIAL DATA

        The information required by this item is included herein in the Company's Annual Report on Form 10-K for the year ended December 31, 2004 under Part I, Item 1, "Description of Business."

ITEM 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The Company

        Citizens Bancshares Corporation and subsidiaries (the "Company") is a holding company that provides a full range of commercial banking and mortgage brokerage services to individual and corporate customers in metropolitan Atlanta and Columbus, Georgia, through its wholly owned subsidiary, Citizens Trust Bank (the "Bank"). The Bank operates under a state charter and serves its customers through its home office and eight full-service branches in metropolitan Atlanta, one full-service branch in Columbus, Georgia, and as of February 28, 2003, two full-service branches in Birmingham, Alabama, and one full-service branch in Eutaw, Alabama. The Company also owns and operates a wholly owned subsidiary grantor trust, Citizens (GA) Statutory Trust I (the "Trust") through

26

the issuance of pooled trust preferred securities. All significant intercompany accounts and transactions have been eliminated in consolidation. In accordance with current accounting guidance, the Trust has not been consolidated in the financial statements.

        The following discussions of the Company's financial condition and results of operations should be read in conjunction with the Company's consolidated financial statements and related notes, appearing in other sections of this Annual Report.

Forward Looking Statements

        In addition to historical information, this Annual Report on Form 10-K 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 "intend," "seek," "estimate," "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. All written or oral forward-looking statements attributable to the Company are expressly qualified in the entirety by these cautionary statements.

Critical 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. Management believes the quality and reasonableness of its most critical policies enable the fair presentation of its financial position and results of operations.

        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 by the Company's management. The Company's most critical accounting policies are:

        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 2004, 2003 or 2002.

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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. Amortization and accretion of premiums and discounts is presented within investment securities interest income on the Consolidated Statements of Income. 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 resulting in the establishment of a new cost basis for the security.

        Loans—Loans are reported at principal amounts outstanding less unearned income, discounts 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. The accretion and amortization of loan fees, origination costs, and premiums and discounts are presented as a component of loan interest income on the Consolidated Statements of Income.

        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 related 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 necessary provisions, estimates are based on loan types, history of chargeoffs, 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 quarterly basis a comprehensive 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, performance trends within specific portfolio segments, and individual concentrations of credit. Loans are charged against the allowance when, in the opinion of management, such loans are deemed to be uncollectible and subsequent recoveries are added to the allowance.

        A description of the Company's other accounting policies are summarized in Note 1, Summary of Significant Accounting Policies in the Notes to the Consolidated Financial Statements.

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Selected Financial Data

        The following selected financial data for Citizens Bancshares Corporation and subsidiaries should be read in conjunction with the Consolidated Financial Statements and related Notes appearing in another section of this Annual Report.

		Years ended December 31,
		2004			2003			2002			2001			2000
		(amounts in thousands, except per share data and financial ratios)
Statement of income data:
	Net interest income	$	15,223		$	14,279		$	12,097		$	11,447		$	11,778
	Provision for loan losses	$	850		$	1,643		$	1,660		$	1,810		$	744
	Net income	$	2,305		$	1,505		$	1,436		$	1,290		$	2,101
Per share data:
	Net income—basic	$	1.11		$	0.73		$	0.68		$	0.59		$	0.95
	Book value	$	12.45		$	11.56		$	11.08		$	10.23		$	9.98
	Cash dividends declared	$	0.15		$	0.15		$	0.16		$	0.17		$	0.16
Balance sheet data:
	Loans, net of unearned income and discounts	$	210,537		$	212,054		$	174,707		$	157,914		$	160,026
	Deposits	$	266,502		$	276,780		$	228,611		$	259,619		$	230,863
	Notes payable	$	540		$	540		$	740		$	1,270		$	640
	Advances from Federal Home Loan Bank	$	30,250		$	46,961		$	18,750		$	10,000		$	10,000
	Junior subordinated debentures	$	5,155		$	5,155		$	5,155		$	—		$	—
	Total assets	$	331,384		$	360,598		$	279,645		$	296,261		$	267,278
	Average stockholders' equity	$	24,708		$	23,941		$	22,600		$	22,348		$	20,006
	Average assets	$	340,712		$	352,514		$	278,277		$	260,083		$	249,272
Ratios:
	Net income to average assets		0.68	%		0.43	%		0.52	%		0.50	%		0.84	%
	Net income to average stockholders' equity		9.33	%		6.29	%		6.35	%		5.77	%		10.50	%
	Dividend payout ratio		13.49	%		20.72	%		23.54	%		29.00	%		16.97	%
	Average stockholders' equity to average assets		7.25	%		6.79	%		8.12	%		8.59	%		8.03	%

        In 2004, the Company reported net income of $2,305,000, a 53 percent increase over net income of $1,505,000 in 2003, which represented a 5 percent increase over 2002. Basic and diluted earnings per share for 2004 was $1.11, compared with basic and diluted earnings per share of $0.73 and $0.72 in 2003, respectively, and $0.68 per share in 2002, representing a 52 percent increase in 2004 and a 7 percent increase in 2003, for basic net income per share. Pretax income for 2004 increased $1,187,000 or 67 percent over 2003 while income tax expense increased 147 percent over the same period. The statutory federal rate was 34 percent for both 2004 and 2003.

        In 2004, average interest earning assets decreased 3 percent from 2003. This decrease is primarily due to the sales and principal pay-downs of investments net of purchases, totaling $23 million. Average investment securities decreased 15 percent, and average interest bearing deposits with other banks decreased by 63 percent. These decreases were partially offset by a 5 percent increase in average loans receivable, net over 2003. The average earning asset mix in 2004 changed from 2003 with loans, net at 68 percent and 63 percent for 2004 and 2003, respectively, and total investment securities at 31 percent and 36 percent for 2004 and 2003, respectively. Management on a continuous basis monitors the mix of

29

earning assets in order to place the Company in a position to react to interest rate movements and to maximize the return on earning assets.

        The ratio of average stockholders' equity to average assets is one measure used to determine capital strength. Overall, the Company's capital position remains strong as the ratio of average stockholders' equity to average assets for 2004 and 2003 was 7.2 and 6.8 percent respectively, compared to 8.1 percent in 2002. Another key capital ratio, the Company's net income to average stockholders' equity (return on equity), was 9.3 percent in 2004, and 6.3 percent in 2003, and 2002.

Financial Condition

        At December 31, 2004, The Company's total assets decreased by $29,214,000, or 8 percent to $331,384,000 compared to total assets of $360,598,000 in 2003. The decrease is primarily due to investments securities which declined by $23,187,000 to $84,667,000 at December 31, 2004. In March 2004, the Company sold approximately $11,400,000 of investments available for sale for a gain of $58,000 to restructure and reduce the interest rate risk of its investment portfolio. The sale of these investments also allowed the Company to reduce its public funds deposits which have higher yields than other deposit products offered by the Company. Investment securities are pledged as collateral for public funds held as deposits. The remaining decrease in investments is attributable to called securities, and principal pay downs of mortgage backed securities.

        Interest bearing deposits with banks increased by $626,000 to $734,000 at December 31, 2004 compared to the same period in 2003. This increase was offset by a decrease in certificates of deposit. Certificates of Deposits decreased $2,183,000 as the Company's commitment in the Community Development Financial Institution Program (the CDFI) expires. The CDFI program required the Company to place certificates of deposit in other CDFI institutions to fund economic development in local communities. The Company is not renewing the certificates of deposits as they mature.

        Premises and equipment decreased $782,000 or 9 percent at December 31, 2004 as compared to December 31, 2003. During 2004, the Company sold various fixed assets and property that did not fit into the Company's future strategy. The Company realized gains of $188,000 from these transactions during 2004.

        Cash value of life insurance, a comprehensive compensation program for directors and certain senior managers of the Company, increased $589,000 or 7 percent at December 31, 2004. The increase is due to additional premiums paid and earnings on such premiums throughout the year.

        Foreclosed real estate, net, decreased $622,000 or 30 percent as the Company liquidated properties throughout the year and reinvested the funds into interest bearing assets. The Company realized net gains of $120,000 from these transactions during 2004.

Investment Portfolio

        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 objectives of the Company's investment strategy are 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 December 31, 2004, investment securities comprised approximately 26 percent of the Company's assets. The investment portfolio had a fair market value of $84,813,000 and an amortized cost of $84,718,000, resulting in a net unrealized gain of $95,000. Investment securities comprised approximately 30 percent of the Company's assets at December 31, 2003. As of December 31, 2003, the investment portfolio had a fair market value of $108,028,000 and an amortized cost of $107,718,000, resulting in a net unrealized gain of $310,000.

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        Investments classified as held-to-maturity as of December 31, 2004, were $9,980,000 at amortized cost ($10,126,000 estimated fair value), compared to $10,553,000, at amortized cost ($10,727,000 estimated fair value) as of December 31, 2003. Total investments classified as available-for-sale were $74,687,000, at fair value ($74,738,000 amortized cost) as of December 31, 2004, compared to $97,301,000 at fair value ($97,165,000 amortized cost) as of December 31, 2003.

        The following table shows the contractual maturities of all investment securities at December 31, 2004 and the weighted average yields (on a fully taxable basis assuming a 34 percent tax rate) of such securities. 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 (amounts in thousands, except yields):

		Maturing
		Within 1 Year				Between 1 and 5 Years				Between 5 and 10 Years				After 10 Years
		Amount		Yield		Amount		Yield		Amount		Yield		Amount			Yield
U.S. Government agencies		$	—	—		$	6,426	3.14	%	$	6,441	4.12	%	$	—		—
Mortgage-backed securities(a)			20	5.31	%		2,894	4.03	%		14,935	3.75	%		33,020		3.94	%
State, County, and Municipal Securities			180	4.90	%		862	4.82	%		6,532	4.59	%		12,307		4.19	%
Other equity securities(b)			—				—				—				1,050	(b)
	Totals	$	200			$	10,182			$	27,908			$	46,377

(a)

Mortgage-backed securities have been categorized at their average life according to their projected speed of repayment. Principal repayments will occur at varying dates throughout the terms of the mortgages.

(b)

Other equity securities are primarily comprised of investments in preferred stock of the Fannie Mae Corporation and Federal Home Loan Mortgage Corporation. These investments have no specific maturity date or yield.

Provision and Allowance for Loan Losses

        The allowance for loan losses is based on management's evaluation of the loan portfolio under current economic conditions, historical loan loss experience, adequacy of collateral, and such other factors which, in management's judgment, deserve recognition in estimating loan losses. The Company's process for determining an appropriate allowance for loan losses includes management's judgement and use of estimates.

        Reviews of nonperforming loans, designed to identify potential charges to the reserve for possible loan losses, as well as to determine the adequacy of the reserve, are made on a continuous basis during the year. These reviews are conducted by the responsible lending officers, a separate independent review process, and the internal audit division. They consider such factors as trends in portfolio volume, quality, maturity and composition; industry concentrations; lending policies; new products; adequacy of collateral; historical loss experience; the status and amount of non-performing and past-due loans; specific known risks; and current, as well as anticipated specific and general economic factors that may affect certain borrowers. The conclusions are reviewed and approved by senior management. When a loan, or a portion thereof, is considered by management to be uncollectible, it is charged against the reserve. Any recoveries on loans previously charged off are added to the reserve.

        The provision for loan losses is the periodic cost of increasing the allowance or reserve for the estimated losses on loans in the portfolio. A charge against operating earnings is necessary to maintain the allowance for loan losses at an adequate level as determined by management. The provision is determined based on growth of the loan portfolio, the amount of net loans charged-off, and management's estimation of potential future loan losses based on an evaluation of loan portfolio risks, adequacy of underlying collateral, and economic conditions. 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

31

judgments about information available to them at the time of their examination. In 2004, the provision for loan losses charged against operating earnings were $850,000 compared to $1,643,000 in 2003, and is reflective of the improvements in the quality of the Company's loan portfolio. In 2003, the Company incurred a significant charge-off of $1.3 million against a $2.2 million loan to a single borrower that was in default.

        The Company's allowance for loan losses was approximately $3,183,000 or 1.51 percent of loans receivable, net of unearned income and discounts at December 31, 2004, and $3,240,000 or 1.52 percent of loans receivable, net of unearned income and discounts at December 31, 2003. Management believes that the allowance for loan losses at December 31, 2004 is adequate to provide for potential loan losses given past experience and the underlying strength of the loan portfolio.

Deposits

        Deposits remain the Company's primary source for funding loan growth. Total deposits at December 31, 2004 decreased by $10,278,000, or 4 percent to $266,502,000 compared to $276,780,000 at December 31, 2003. The Company has Corporate and Governmental customers that have significant deposit and withdrawal activities that impact deposit balances significantly.

        Average interest-bearing deposits at December 31, 2004 totaled $212,690,000, an $11,968,000 or 5 percent decrease when compared to $224,658,000 at December 31, 2003. The decrease in average interest-bearing deposits was primarily attributable to a planned decline in interest-bearing deposits with governmental customers. In 2004, the Company elected not to renew several certificates of deposit accounts due to the required collateralization of the deposits in the form of pledged investment securities. By not renewing some of its governmental deposits, the Company mitigated its exposure to rising interest rates by reducing its investment portfolio and effectively reduced its cost of funds by relying more on deposits acquired through the open market. Noninterest-bearing deposits increased by $1,706,000 or 3 percent to $57,539,000 at December 31, 2004 compared to $55,833,000 at December 31, 2003. For additional information about deposit maturities and composition, see Note 6, Deposits, in the Notes to Consolidated Financial Statements.

Other Borrowed Funds

        While the Company continues to emphasize funding earning asset growth through deposits, average loan growth has exceeded deposit growth. As a result, the Company relied on other borrowings as a supplemental funding source. During 2004, the Company's average borrowed funds decreased $3,591,000 to $38,680,000 when compared to 2003. The average interest rate on other borrowings was 3.17 percent in 2004 and 2.89 percent in 2003. Other borrowings primarily consist of Federal funds purchased, Federal Home Loan Bank (the "FHLB") advances, notes payable and junior subordinated debentures. The Bank had an average outstanding advance from the FHLB of $32,999,000 in 2004 and $36,191,000 in 2003. These advances are collateralized by FHLB stock, a blanket lien on the Bank's 1-4 family mortgages and commercial real estate loans.

        In 2002, the Company issued $5,000,000 of pooled trust preferred securities to increase its capital position to purchase CFS Bancshares, Inc., a bank holding company which wholly owns Citizens Federal Savings Bank of Birmingham, Alabama. The Company completed the purchase of CFS Bancshares, Inc. on February 28, 2003. The outstanding pooled trust preferred securities at December 31, 2004 and 2003 was $5,000,000. These securities are reported in the Company's consolidated balance sheet as Junior Subordinated Debentures, which includes a wholly owned subsidiary grantor trust amount of $155,000 in accordance with FASB interpretation No. 46 (FIN 46R) "Consolidation of Variable Interest Entities"—an interpretation of ARB 51 (revised December 2003)." For additional information regarding the Company's other borrowings, see Note 7, Other Borrowings, in the Notes to Consolidated Financial Statements.

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Disclosure about Contractual Obligations and Commitments

        The following tables identify the Company's aggregated information about contractual obligations and loan commitments at December 31, 2004.

	Payments Due by Period
Contractual Obligations	Less than 1 year		1 - 3 years		3 - 5 years		After 5 years		Total
FHLB advances	$	15,250,000	$	5,000,000	$	—	$	10,000,000	$	30,250,000
Notes payable		539,647		—		—		—		539,647
Junior subordinated debentures		—		—		—		5,155,000		5,155,000
Operating leases		350,891		14,133		2,100		—		367,124
	$	16,140,538	$	5,014,133	$	2,100	$	15,155,000	$	36,311,771

	Amount of Commitment Expiration Per Period
Other Commitments	Less than 1 year		1 - 3 years		3 - 5 years		After 5 years		Total
Commitments to extend credit	$	26,025,329	$	6,696,301	$	3,663,391	$	3,759,773	$	40,144,794
Commercial letters of credit		252,200		—		—		—		252,200
	$	26,277,529	$	6,696,301	$	3,663,391	$	3,759,773	$	40,396,994

Liquidity Management

        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 subsidiaries; the servicing of debt; and the payment of general corporate expenses. The Company has access to various capital markets. However, the primary source of liquidity for the Company is dividends from its bank subsidiary. The Georgia Department of Banking and Finance regulates the 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 to maintain adequate capital above regulatory guidelines. Currently, the payment of dividends by the Bank requires the prior approval of the Georgia Department of Banking and Finance. The Company does not anticipate any liquidity requirements in the near future that it will not be able to meet.

        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 of investment securities available for sale and trading account securities. Other short-term investments such as federal funds sold, securities purchased under agreements to resell and maturing interest bearing deposits with other banks, are additional sources of liquidity funding.

33

        The liability portion of the balance sheet provides liquidity through various customers' interest bearing and noninterest bearing deposit accounts. Federal funds purchased, securities sold under agreements to repurchase and other short-term borrowings are additional sources of liquidity and, basically, represent the Company's incremental borrowing capacity. These sources of liquidity are short-term in nature and are used as necessary to fund asset growth and meet short-term liquidity needs.

Capital Resources

        Stockholders' equity increased by $1,938,000 during 2004. The increase is primarily due to increases in retained earnings of $1,994,000; partially offset by $124,000 decrease in accumulated other comprehensive income.

        Dividends of $311,000 were paid on the Company's common stock in 2004, which was consistent with the $312,000 paid in 2003. The annual dividend payout rate was $0.15 per common share in 2004 and 2003. The dividend payout ratio was 14 percent and 21 percent for 2004 and 2003 respectively. The Company intends to continue a dividend payout ratio that is competitive in the banking industry while maintaining an adequate level of retained earnings to support continued growth.

        A strong capital position, which is vital to the continued profitability of the Company, also promotes depositor and investor confidence and provides a solid foundation for the future growth of the organization. The Company has satisfied its capital requirements principally through the retention of earnings. In 2002, the Company raised $5 million through the single issuance of a trust preferred security. The trust preferred security qualifies as Tier 1 capital under Federal Reserve Board guidelines. The ratio of average shareholders' equity as a percentage of total average assets is one measure used to determine capital strength. Overall, the Company's capital position remains strong as the ratio of average stockholders' equity to average assets for 2004 was 7.25 percent compared with 6.79 percent in 2003.

        In addition to the capital ratios mentioned above, banking industry regulators have defined minimum regulatory capital ratios that the Company and the Bank are required to maintain. These risk-based capital guidelines take into consideration risk factors, as defined by the regulators, associated with various categories of assets, both on and off of the balance sheet. The minimum guideline for the ratio of total capital to risk-weighted assets is 8 percent. Total capital consists of two components, Tier 1 Capital and Tier 2 Capital. Tier 1 Capital generally consists of common shareholders' equity, minority interests in the equity accounts of consolidated subsidiaries, qualifying noncumulative perpetual preferred stock, and a limited amount of qualifying cumulative perpetual preferred stock, less goodwill and other specified intangible assets. Tier 1 Capital must equal at least 4 percent of risk-weighted assets. Tier 2 Capital generally consists of subordinated debt, other preferred stock and hybrid capital and a limited amount of loan loss reserves. The total amount of Tier 2 Capital is limited to 100 percent of Tier 1 Capital. Also, the Federal Reserve has established minimum leverage ratio guidelines for bank holding companies. These guidelines provide for a minimum ratio of Tier 1 Capital to average assets, less goodwill and other specified intangible assets, of 3 percent for bank holding companies that meet specified criteria, including having the highest regulatory rating and implementing the Federal Reserve's risk-based capital measure for market risk. All other bank holding companies, including the Company, generally are required to maintain a leverage ratio of at least 4 percent.

        On March 17, 2004, at the request of the Federal Reserve Bank of Atlanta and the Georgia Department of Banking and Finance, the Boards of Directors of the Company and the Bank adopted resolutions regarding certain actions to be taken to strengthen the capital position and enhance the financial performance of the Company and the Bank. The acquisition of CFS Bancshares, Inc. in 2003, which was a cash transaction, decreased the Company's capital. At December 31, 2004 our ratio of total capital to risk-weighted assets was 14 percent, our ratio of Tier 1 Capital to risk-weighted assets was 13 percent and our leverage ratio was 9 percent. Management believes that all actions required by the resolutions have been successfully completed.

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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.

        Net interest income, on a fully tax-equivalent basis, accounted for 72 percent of net interest income and noninterest income before provision for loan losses in 2004, 73 percent in 2003 and 68 percent in 2002. The level of such income is influenced primarily by changes in volume and mix of earning assets, sources of noninterest income and sources of funding, market rates of interest, and income tax rates. The Company's Asset/Liability Management Committee ("ALCO") is responsible for managing changes in net interest income and net worth resulting from changes in interest rates based on acceptable limits established by the Board of Directors. The ALCO reviews economic conditions, interest rate forecasts, the demand for loans, the availability of deposits, current operating results, liquidity, capital, and interest rate exposures. Based on such reviews, the ALCO formulates a strategy that is intended to implement objectives set forth in the asset/liability management policy.

        The following table represents the Company's net interest income on a tax-equivalent basis to facilitate performance comparisons among various taxable and tax-exempt assets. Interest income on tax-exempt investment securities was adjusted to reflect the income on a tax-equivalent basis (considering the effect of the disallowed interest expense related to carrying these tax-exempt investment securities) using a nominal tax rate of 34 percent for 2004, 2003, 2002.

	December 31,
	2004			2003			2002
Interest Income	$	19,282		$	18,733		$	17,012
Tax-equivalent adjustment		427			487			488
Interest income, tax-equivalent basis		19,709			19,220			17,500
Interest expense		(4,060	)		(4,454	)		(4,916	)
Net interest income, tax equivalent basis		15,649			14,766			12,584
Provision for loan losses		(850	)		(1,643	)		(1,660	)
Noninterest income		5,964			5,545			6,012
Noninterest expense		(17,382	)		(16,413	)		(14,884	)
Income before income taxes		3,381			2,255			2,052
Income tax expense		(649	)		(263	)		(128	)
Tax-equivalent adjustment		(427	)		(487	)		(488	)
Income tax expense, tax-equivalant basis		(1,076	)		(750	)		(616	)
Net income	$	2,305		$	1,505		$	1,436

        Net interest income on a tax-equivalent basis for 2004 increased $883,000 or 6 percent over 2003 after increasing $2,182,000 or 17 percent in 2003 as compared to 2002. The increase in 2004 was due to the Company's ability to increase earning assets through the growth of its loan portfolio and its ability to manage the average rate paid on interest-bearing liabilities. The increase in 2003 was primarily due to the increase in earning assets acquired from the acquisition of CFS Bancshares, Inc.

        The average rate paid on interest-bearing liabilities decreased 5 basis points to 1.62 percent in 2004 from 1.67 percent in 2003, while yields on earning assets increased 37 basis points to 6.44 percent

35

over the same period. The average rate paid on interest-bearing liabilities decreased 79 basis points in 2003 from 2002, while yields on earning assets decreased 96 basis points over the same period. The Company's net interest yield on interest earning assets in 2004, 2003 and 2002 was 5.12 percent, 4.67 percent, and 5.05 percent, respectively.

        The 2004 yield on average earning assets increased due to increases in yields on all asset categories, except for interest bearing deposits with banks. As a result of rising interest rates during latter 2004, the Company's investment securities and loan portfolios prepaid at a slower rate resulting in higher yields.

        In 2003, average earning assets increased $67,358,000 primarily due to a $36,762,000 increase in average investment securities and a $40,429,000 increase in average loans receivable, net, partially offset by a $10,322,000 decrease in average interest bearing deposits with banks. For the year ended December 31, 2003, total interest income increased $1,720,000 or 10 percent over 2002 due primarily to a $2,033,000 or 16 percent increase in interest income on loans receivable, net, partially offset by a $136,000 decrease in investment securities income.

        Total interest expense decreased $395,000 or 9 percent in 2004 due to a 5 basis point decrease in the average rate paid. Interest expense on deposits decreased $399,000 or 12 percent, partially offset by a $4,000 increase in interest paid on other borrowings.

Noninterest Income

        Noninterest income consists of revenues generated from a broad range of financial services and activities, including deposit and service fees, gains and losses realized from the sale of securities and assets, as well as various other components that comprise other noninterest income. Noninterest income totaled $5,964,000 in 2004, an increase of $418,000 or 8 percent compared to 2003.

        Fee income from service charges on deposit accounts increased 4 percent in 2004 and 3 percent in 2003. A large component of the Company's service charges on deposit accounts is related to insufficient funds, returned check charges, and other customer service fees. The volume of insufficient funds and returned check charges fluctuates monthly.

        Gains on sales of securities were $58,000, $716,000 and $1,164,000 in 2004, 2003 and 2002, respectively. During 2004, the bank sold investments in order to restructure its investment portfolio to take advantage of the rising interest rate environment and to reduce it collateralized public funds deposits. In 2003, the Company liquidated portions of its investment portfolio in anticipation of changes in market conditions and to offset increases in the provision for loan losses. Gains on sale of assets were $308,000 in 2004, $58,000 in 2003, and $2,000 in 2002. The gains in 2004 represent the sale of an unused building from the Company's fixed asset portfolio as well as gains realized from the sale of foreclosed properties. Gains realized in 2003 primarily represent the sale of non-strategic branches.

        Other operating income increased $685,000 or 59 percent in 2004, and decreased $59,000 or 5 percent in 2003. The increase in 2004 is primarily attributed to recoveries totaling $334,000 of non-performing assets that were charged-off in prior years.

Noninterest Expense

        Noninterest expense totaled $17,382,000 in 2004, an increase of $969,000 or 6 percent compared to $16,413,000 in the previous year. The increase in 2004 is primarily due to salaries and employee benefits. Noninterest expense increased $1,529,000 in 2003, an increase of 10 percent compared to 2002. This increase was primarily attributable to the acquisition of CFS Bancshares, Inc. in 2003. The Company acquired 3 full service branches in Alabama and the associated expenses of operating the acquired branch network.

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        Salaries and employee benefits expense increased $872,000 or by 12 percent due to an increase in full-time employees, salary increases and rising health benefits. In 2004, average full time employees increased to 166 at December 31, 2004 from 156 at December 31, 2003. The Company hired several senior and executive officers in 2004 to establish a commercial lending presence in its Alabama Division acquired in 2003. Also, the Company accrued $133,000 in bonus expenses for the 2004 fiscal year. In 2003, salaries and employee benefits expense increased $274,000 or 4 percent due to the growth of the Bank's employee base after acquiring CFS Bancshares, Inc.

        Net occupancy and equipment expense includes depreciation expense and repairs and maintenance costs relating to the Company's premises and equipment. Net occupancy and equipment expense remained fairly consistent during the comparative years ended December 31, 2004 and 2003, increasing by $19,000. In 2003, net occupancy and equipment expense increased 12 percent due to the acquisition of CFS Bancshares, Inc., as the Company obtained a three branch network in Alabama. This increase was partially offset by the closure of a branch and the sale of a branch building.

        Other operating expenses increased slightly by $78,000 or 1 percent in 2004 to $6,443,000. In 2003, other operating expenses increased $963,000 or 18 percent to $6,365,000. This increase is due to the acquisition of CFS Bancshares, Inc., and a $250,000 jury award that the Company is appealing. An outcome is still pending.

Income Taxes

        Income tax expense increased $386,000 or 147 percent to $649,000 for the year ended December 31, 2004. The effective tax rate as a percentage of pretax income was 22 percent in 2004, 15 percent in 2003, and 8 percent in 2002. The statutory federal rate was 34 percent during 2004, 2003, and 2002. The increase in the effective tax rate in 2004 is due to a 67 percent increase in pretax income over 2003. For further information concerning the provision for income taxes, refer to Note 8, Income Taxes, in the Notes to Consolidated Financial Statements.

Quarterly Financial Data (Unaudited)

        The following table presents the Company's quarterly financial data for the years ended December 31, 2004 and 2003 (amounts in thousands):

	First Quarter 2004		Second Quarter 2004		Third Quarter 2004		Fourth Quarter 2004		First Quarter 2003		Second Quarter 2003		Third Quarter 2003		Fourth Quarter 2003
Interest Income	$	4,980	$	4,779	$	4,566	$	4,957	$	4,395	$	5,023	$	4,554	$	4,761
Interest expense		981		940		1,011		1,127		1,181		1,346		1,051		876
Net Interest income		3,999		3,839		3,555		3,830		3,214		3,677		3,503		3,885
Provision for loans loss		300		250		225		75		215		65		100		1,263	(1)
Non-interest income		1,198		1,688		1,444		1,634		1,149		1,392		1,717		1,288
Non-interest expense		4,037		4,478		4,327		4,540		3,386		4,066		4,416		4,546
Income before income taxes		860		799		447		849		762		938		704		(636	)
Income tax expense (benefit)		198		185		66		201		158		219		135		(249	)
Net income (loss)	$	662	$	614	$	381	$	648	$	604	$	719	$	569	$	(387	)
Basic net income (loss) per common and common equivalent share outstanding	$	0.32	$	0.30	$	0.18	$	0.31	$	0.29	$	0.35	$	0.27	$	(0.18	)
Diluted net income (loss) per common and common equivalent share outstanding	$	0.32	$	0.30	$	0.18	$	0.31	$	0.29	$	0.35	$	0.27	$	(0.19	)

(1)

In the fourth quarter of 2003, the Company charged-off $1.3 million due to a $2.2 million loan that was in default, resulting in an increase in its provision for loans loss.

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Stock Based Compensation

        In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation-Transition and Disclosure—an Amendment of FASB Statement No. 123." This Statement amends SFAS No. 123, "Accounting for Stock-Based Compensation," to provide alternative methods of transition for a voluntary change to the fair value method of accounting for stock-based employee compensation. In addition, this Statement amends the disclosure requirements of SFAS No. 123 to require more prominent disclosures about the method of accounting for stock-based employee compensation and the effect of the method used on reported results in both annual and interim financial statements. This Statement was effective for financial statements for fiscal years ending after December 15, 2002. As permitted by SFAS No. 148, during 2004 the Company continued to apply the provisions of APB Opinion No. 25, "Accounting for Stock-Based Compensation," for all employee stock option grants and has elected to disclose pro forma net income and earnings per share amounts as if the fair-value based method had been applied in measuring compensation costs.

        The following table presents the Company's as reported and pro forma information, including stock-based compensation expense, as if the fair-value based method had been applied, for the years ended December 31:

	2004			2003			2002
As reported net income available to common stockholders	$	2,305,165		$	1,505,040		$	1,435,537
Less: stock-based compensation expense determined under fair value method, net of tax		(30,242	)		(15,165	)		(15,145	)
Pro forma net income		2,274,923			1,489,875			1,420,392
As reported earnings per share	$	1.11		$	0.73		$	0.68
Pro forma earnings per share	$	1.10		$	0.72		$	0.68
As reported earnings per diluted share	$	1.11		$	0.72		$	0.68
Pro forma earnings per diluted share	$	1.09		$	0.72		$	0.68

        Compensation expense in the pro forma disclosures is not indicative of future amounts, as options vest over several years and additional grants could be made each year.

        The fair values of the options granted in 2004 were estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions: dividend yield of 1.40%; expected volatility of 42%; risk free interest rate of 4.05% and an expected life of six years. The fair value of the 2004 Option grant was approximately $67,000. Similarly, the fair values of the options granted in 2002 were estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions: dividend yield of 2.37%; expected volatility of 46%; risk free interest rate of 4.88% and an expected life of four years. The fair value of the 2002 Option grant was approximately $52,000. No options were granted in 2003 or 2001.

Recently Issued Accounting Standards

        In December 2003, the FASB issued SFAS No. 132 (Revised 2003), "Employers' Disclosures about Pensions and Other Postretirement Benefits." This Statement expands upon the existing disclosure requirements as prescribed under the original SFAS No. 132 by requiring more details about pension plan assets, benefit obligations, cash flows, benefit costs and related information. SFAS No. 132(R) also requires companies to disclose various elements of pension and postretirement benefit costs in interim-period financial statements beginning after December 15, 2003. This Statement is effective for financial statements with fiscal years ending after December 15, 2003. The Company adopted this Standard and all of its required disclosures. For additional information, see Note 9, Employee Benefits.

38

        In January 2003, the FASB issued Interpretation No. 46 (FIN 46), "Consolidation of Variable Interest Entities." This Interpretation clarifies the application of ARB No. 51, "Consolidated Financial Statements," for certain entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated support from other parties. This Interpretation requires variable interest entities (VIE's) to be consolidated by the primary beneficiary which represents the enterprise that will absorb the majority of the VIE's expected losses if they occur, receive a majority of the VIE's residual returns if they occur, or both. Qualifying Special Purpose Entities (QSPE) are exempt from the consolidation requirements of FIN 46. This Interpretation was effective for VIE's created after January 31, 2003 and for VIE's in which an enterprise obtains an interest after that date. In December 2003, the FASB issued Staff Interpretation No. 46R (FIN 46R), "Consolidation of Variable Interest Entities—an interpretation of ARB 51 (revised December 2003)," which replaces FIN 46. FIN 46R was primarily issued to clarify the required accounting for interests in VIE's. Additionally, this Interpretation exempts certain entities from its requirements and provides for special effective dates for enterprises that have fully or partially applied FIN 46 as of December 24, 2003. Application of FIN 46R is required in financial statements of public enterprises that have interests in structures that are commonly referred to as special-purpose entities, or SPE's, for periods ending after December 15, 2003. Application by public enterprises, other than small business issuers, for all other types of VIE's (i.e., non-SPE's) is required in financial statements for periods ending after March 15, 2004, with earlier adoption permitted. The adoption of FIN 46 did not have a material effect on the Company's Consolidated Financial Statements.

        In December 2004, the FASB issued SFAS No.153, "Exchanges of Nonmonetary Assets, an amendment of APB Opinion No. 29, Accounting for Nonmonetary Transactions." The amendments made by SFAS No. 153 are based on the principle that exchanges of nonmonetary assets should be measured based on the fair value of the assets exchanged. Further, the amendments eliminate the narrow exception for nonmonetary exchanges of similar productive assets and replace it with a broader exception for exchanges of nonmonetary assets that do not have commercial substance. Previously, Accounting Principles Board ("APB") Opinion No. 29 required that the accounting for an exchange of a productive asset for a similar productive asset or an equivalent interest in the same or similar productive asset should be based on the recorded amount of the asset relinquished. APB Opinion No. 29 provided an exception to its basic measurement principle (fair value) for exchanges of similar productive assets. SFAS No. 153 is effective for nonmonetary asset exchanges occurring in fiscal periods beginning after June 15, 2005. Earlier application is permitted for nonmonetary asset exchanges occurring in fiscal periods beginning after the date of issuance. The provisions of this statement shall be applied prospectively. The adoption of this statement is not expected to have a material impact on the financial condition or operating results of the Company.

        In December 2004, the FASB issued SFAS No. 123 (revised 2004), "Share-Based Payment" ("SFAS No. 123(R)"). SFAS No. 123(R) will require companies to measure all employee stock-based compensation awards using a fair value method and record such expense in its financial statements. In addition, the adoption of SFAS No. 123(R) requires additional accounting and disclosure related to the income tax and cash flow effects resulting from share-based payment arrangements. SFAS No. 123(R) is effective beginning as of the first interim or annual reporting period beginning after June 15, 2005. The Company is currently evaluating the impact that the adoption of SFAS No. 123(R) will have on its financial position, results of operations and cash flows.

        In November 2003, the Emerging Issues Task Force ("EITF") reached a consensus that certain quantitative and qualitative disclosures should be required for debt and marketable equity securities classified as available-for-sale or held-to-maturity under SFAS No. 115 and SFAS No. 124 that are impaired at the balance sheet date but for which other-than-temporary impairment has not been recognized. Accordingly the EITF issued EITF No. 03-1, "The Meaning of Other-Than-Temporary

39

Impairment and Its Application to Certain Investments." This issue addresses the meaning of other-than-temporary impairment and its application to investments classified as either available-for-sale or held-to-maturity under SFAS No. 115 and provides guidance on quantitative and qualitative disclosures. The disclosure requirements of EITF No. 03-1 are effective for annual financial statements for fiscal years ending after June 15, 2004. The effective date for the measurement and recognition guidance of EITF No. 03-1 has been delayed. The FASB staff has issued a proposed Board-directed FASB Staff Position ("FSP"), FSP EITF 03-1-a, "Implementation Guidance for the Application of Paragraph 16 of Issue No. 03-1." The proposed FSP would provide implementation guidance with respect to debt securities that are impaired solely due to interest rates and/or sector spreads and analyzed for other-than-temporary impairment under the measurement and recognition requirements of EITF No. 03-1. The delay of the effective date for the measurement and recognition requirements of EITF No. 03-1 will be superseded concurrent with the final issuance of FSP EITF 03-1-a. Adopting the disclosure provisions of EITF No. 03-1 did not have any impact on the Company's financial position or results of operations.

Impact of Inflation and Changing Prices

        A bank's asset and liability structure is substantially different from that of an industrial company in that virtually all assets and liabilities of a bank are monetary in nature. Management believes the impact of inflation on financial results depends upon the Company's ability to react to changes in interest rates and, by such reaction, reduce the inflationary impact on performance. Interest rates do not necessarily move in the same direction, or at the same magnitude, as the prices of other goods and services. Management seeks to manage the relationship between interest-sensitive assets and liabilities in order to protect against wide interest rate fluctuations, including those resulting from inflation.

        The Company has adopted an asset/liability management program to monitor the Company's interest rate sensitivity and to ensure the Company is competitive in the loans and deposit market. Secondly, the Company performs periodic reviews to ensure its banking services and products are priced appropriately. Various information shown elsewhere in the Company's 10-K and in the Notes to Consolidated Financial Statements, should be considered in the understanding of how well the Company is positioned to react to changing interest rates and inflationary trends.

ITEM 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

        The Company has adopted an asset liability management program to monitor the Company's interest rate sensitivity risk and to ensure that the Company is competitive in the lending and deposit markets. Management seeks to manage the relationship between interest-sensitive assets and liabilities in order to protect against wide interest rate fluctuations, including those resulting from inflation. During the three year period ended December 31, 2004, the Company did not enter into any derivative financial instruments such as futures, forwards, swaps or options. Additionally, refer to our interest sensitive management and liquidity disclosures included in the Company's Annual Report to Shareholders for the year ended December 31, 2004 under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations." The following table presents the effect of a

40

100 basis points positive and negative interest rate fluctuation on the Company's interest-rate sensitive assets and liabilities at December 31, 2004 (in thousands):

		2004
		Carrying Value		Estimated Fair Value		Down 100 bp		Up 100 bp
		(in thousands)
Financial assets:
	Interest-bearing deposits with banks	$	734	$	734	—	%	—	%
	Cetificates of deposit		800		800	—		—
	Investment securities		84,667		84,813	1.93		(3.34	)
	Loans—net		207,354		207,267	1.12		(1.44	)
Financial liabilities:
	Deposits		208,963		199,883	1.48		(1.36	)
	Notes payable		540		540	—		—
	Advances from Federal Home Loan Bank		30,250		31,042	1.70		(1.62	)
	Junior subordinated debentures		5,155		5,194	—		—

ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

        The financial statements and supplementary data required by Regulation S-X and by Item 302 of Regulation S-K are set forth in the pages listed below.

41

CITIZENS BANCSHARES CORPORATION AND SUBSIDIARIES

TABLE OF CONTENTS

		Page
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM		43-44
CITIZENS BANCSHARES CORPORATION AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS:
	Consolidated Balance Sheets as of December 31, 2004 and 2003	45
	Consolidated Statements of Income for the Years Ended December 31, 2004, 2003, and 2002	46
	Consolidated Statements of Stockholders' Equity and Comprehensive Income (Loss) for the Years Ended December 31, 2004, 2003, and 2002	47
	Consolidated Statements of Cash Flows for the Years Ended December 31, 2004, 2003, and 2002	48-49
	Notes to Consolidated Financial Statements	50-73

42

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors
Citizens Bancshares Corporation
Atlanta, Georgia

        We have audited the accompanying consolidated balance sheet of Citizens Bancshares Corporation and its subsidiaries as of December 31, 2004, and the related consolidated statement of income, changes in stockholders' equity and comprehensive income (loss), and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit.

        We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and the significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

        In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of Citizens Bancshares Corporation and its subsidiaries as of December 31, 2004, and the consolidated results of their operations and their cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.

Elliott Davis, LLC
Columbia, South Carolina
February 18, 2005

43

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors
Citizens Bancshares Corporation
Atlanta, Georgia

        We have audited the accompanying consolidated balance sheet of Citizens Bancshares Corporation and subsidiaries as of December 31, 2003, and the related consolidated statements of income, changes in shareholders' equity and comprehensive income (loss), and cash flows for each of the two years in the period then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

        We conducted our audits in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

        In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Company and its subsidiaries as of December 31, 2003 and the results of their operations and their cash flows for the years ended December 31, 2003 and 2002, in conformity with accounting principles generally accepted in the United States of America.

Deloitte & Touche LLP

Atlanta, Georgia
April 12, 2004

44

CITIZENS BANCSHARES CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

DECEMBER 31, 2004 AND 2003

			2004			2003
ASSETS
	Cash and due from banks, including reserve requirements of $3,339,000 and $5,024,000 at December 31, 2004 and 2003, respectively		$	10,874,537		$	11,693,534
	Interest-bearing deposits with banks			734,051			108,065
	Certificates of deposit			800,000			2,983,328
	Investment securities available for sale, at fair value (amortized cost of $74,738,254 and $97,164,826 at December 31, 2004 and 2003, respectively)			74,687,292			97,301,392
	Investment securities held to maturity, at cost (estimated fair value of $10,125,902 and $10,726,802 at December 31, 2004 and 2003, respectively)			9,980,179			10,552,696
	Other investments			2,468,850			2,733,950
	Loans receivable—net			207,354,002			208,813,877
	Premises and equipment—net			8,378,928			9,160,961
	Cash surrender value of life insurance			8,739,508			8,150,075
	Foreclosed real estate—net			1,430,541			2,052,587
	Other assets			5,936,024			7,047,301
			$	331,383,912		$	360,597,766
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
	Noninterest-bearing deposits		$	57,538,694		$	55,832,587
	Interest-bearing deposits			208,963,002			220,946,964
		Total deposits		266,501,696			276,779,551
	Accrued expenses and other liabilities			3,056,078			3,218,840
	Federal funds purchased			—			4,000,000
	Notes payable			539,647			539,647
	Junior subordinated debentures			5,155,000			5,155,000
	Advances from Federal Home Loan Bank			30,250,000			46,961,150
Total liabilities				305,502,421			336,654,188
COMMITMENTS AND CONTINGENCIES (Note 10)
STOCKHOLDERS' EQUITY:
	Common stock—$1 par value; 15,000,000 shares authorized; 2,230,065 shares issued and outstanding			2,230,065			2,230,065
	Nonvoting common stock—$1 par value; 5,000,000 shares authorized; 90,000 shares issued and outstanding			90,000			90,000
	Additional paid-in capital			7,442,206			7,444,693
	Retained earnings			18,108,133			16,114,049
	Treasury stock at cost, 240,643 and 249,518 shares at December 31, 2004 and 2003, respectively			(1,955,278	)		(2,025,363	)
	Accumulated other comprehensive income (loss), net of income taxes			(33,635	)		90,134
		Total stockholders' equity		25,881,491			23,943,578
			$	331,383,912		$	360,597,766

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

45

CITIZENS BANCSHARES CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

FOR THE YEARS ENDED DECEMBER 31, 2004, 2003, AND 2002

				2004		2003		2002
Interest income:
	Loans, including fees			$	15,659,089	$	14,781,046	$	12,748,511
	Investment securities:
		Taxable			2,649,261		2,668,512		2,814,364
		Tax-exempt			827,727		945,149		947,865
		Dividends			112,263		183,692		169,590
	Federal funds sold				—		10,640		7,612
	Interest-bearing deposits				34,012		143,964		324,524
			Total interest income		19,282,352		18,733,003		17,012,466
Interest expense:
	Deposits				2,831,956		3,230,852		4,049,159
	Other borrowings				1,227,508		1,223,499		866,676
			Total interest expense		4,059,464		4,454,351		4,915,835
			Net interest income		15,222,888		14,278,652		12,096,631
Provision for loan losses					850,000		1,643,200		1,660,165
Net interest income after provision for loan losses					14,372,888		12,635,452		10,436,466
Noninterest income:
	Service charges on deposits				3,745,865		3,604,889		3,498,771
	Gains on sales of securities				58,464		716,435		1,164,196
	Gains on sales of assets				308,294		57,633		2,496
	Mortgage origination fees				—		—		121,048
	Other operating income				1,851,222		1,166,641		1,225,415
			Total noninterest income		5,963,845		5,545,598		6,011,926
Noninterest expense:
	Salaries and employee benefits				8,245,438		7,373,399		7,099,256
	Occupancy and equipment				2,694,241		2,674,745		2,382,591
	Other operating expenses				6,442,547		6,365,000		5,402,364
			Total noninterest expense		17,382,226		16,413,144		14,884,211
			Income before income taxes		2,954,507		1,767,906		1,564,181
Income tax expense					649,342		262,866		128,644
			Net income	$	2,305,165	$	1,505,040	$	1,435,537
Net income per share—basic				$	1.11	$	0.73	$	0.68
Net income per share—diluted				$	1.11	$	0.72	$	0.68
Weighted average outstanding shares:
	Basic				2,075,040		2,075,313		2,101,555
	Diluted				2,084,599		2,079,877		2,101,675

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

46

CITIZENS BANCSHARES CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME (LOSS)

FOR THE YEARS ENDED DECEMBER 31, 2004, 2003, AND 2002

				Nonvoting Common Stock
	Common Stock												Treasury Stock					Accumulated Other Comprehensive Income (Loss)
							Additional Paid-in Capital			Retained Earnings
	Shares	Amount		Shares	Amount								Shares		Amount						Total
Balance—December 31, 2001	2,230,065	$	2,230,065	90,000	$	90,000	$	7,444,693		$	13,823,230		(191,852	)	$	(1,665,344	)	$	(149,761	)	$	21,772,883
Net income	—		—	—		—		—			1,435,537		—			—			—			1,435,537
Unrealized holding gains on investment securities available for sale—net of taxes of $680,185	—		—	—		—		—			—		—			—			1,320,358			1,320,358
Less reclassification adjustment for holding gains included in net income—net of taxes of $395,827	—		—	—		—		—			—		—			—			(768,369	)		(768,369	)
Comprehensive income																						1,987,526
Purchase of treasury stock	—		—	—		—		—			—		(49,144	)		(380,683	)		—			(380,683	)
Dividends declared—$0.16 per share	—		—	—		—		—			(337,897	)	—			—			—			(337,897	)
Balance—December 31, 2002	2,230,065	$	2,230,065	90,000	$	90,000	$	7,444,693		$	14,920,870		(240,996	)	$	(2,046,027	)		402,228		$	23,041,829
Net income	—		—	—		—		—			1,505,040		—			—			—			1,505,040
Unrealized holding gains on investment securities available for sale—net of taxes of $82,812	—		—	—		—		—			—		—			—			160,753			160,753
Less reclassification adjustment for holding gains included in net income—net of taxes of $243,588	—		—	—		—		—			—		—			—			(472,847	)		(472,847	)
Comprehensive income																						1,192,946
Donated treasury stock	—		—	—		—		—			—		(10,953	)		—			—			—
Sale of treasury stock	—		—	—		—		—			—		2,431			20,664			—			20,664
Dividends declared—$0.15 per share	—		—	—		—		—			(311,861	)	—			—			—			(311,861	)
Balance—December 31, 2003	2,230,065	$	2,230,065	90,000	$	90,000	$	7,444,693		$	16,114,049		(249,518	)	$	(2,025,363	)	$	90,134		$	23,943,578
Net income	—		—	—		—		—			2,305,165		—			—			—			2,305,165
Unrealized holding losses on investment securities available for sale—net of taxes of $43,882	—		—	—		—		—			—		—			—			(85,183	)		(85,183	)
Less reclassification adjustment for holding gains included in net income—net of taxes of $19,878	—		—	—		—		—			—		—			—			(38,586	)		(38,586	)
Comprehensive income																						2,181,396
Sale of treasury stock	—		—	—		—		(2,487	)		—		8,875			70,085			—			67,598
Dividends declared—$0.15 per share	—		—	—		—		—			(311,081	)	—			—			—			(311,081	)
Balance—December 31, 2004	2,230,065	$	2,230,065	90,000	$	90,000	$	7,442,206		$	18,108,133		(240,643	)	$	(1,955,278	)	$	(33,635	)	$	25,881,491

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

47

CITIZENS BANCSHARES CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2004, 2003, AND 2002

				2004			2003			2002
OPERATING ACTIVITIES:
	Net income			$	2,305,165		$	1,505,040		$	1,435,537
	Adjustments to reconcile net income to net cash provided by operating activities:
		Provision for loan losses			850,000			1,643,200			1,660,165
		Provision for losses on foreclosed real estate			—			271,332			29,987
		Depreciation			1,060,675			1,083,601			971,255
		Amortization and accretion—net			1,124,134			1,627,790			(232,685	)
		Provision for deferred income taxes			(191,746	)		51,492			(252,098	)
		Gains on sales and disposals of investments and property—net			(366,758	)		(682,136	)		(1,166,692	)
	Changes in assets and liabilities, net of acquisition:
		Change in mortgage loans held for sale			—			—			422,500
		Change in other assets			809,894			(1,424,902	)		1,073,387
		Change in accrued expenses and other liabilities			(162,762	)		(1,113,811	)		(909,230	)
			Net cash provided by operating activities		5,428,602			2,961,606			3,032,126
INVESTING ACTIVITIES:
	Decrease (increase) in interest-bearing deposits with banks				(625,986	)		15,236,956			22,066,222
	Net change in certificates of deposit				2,183,328			111,672			—
	Proceeds from the sales and maturities of investments:
		Securities available for sale			32,235,654			54,225,637			68,324,691
		Securities held to maturity			548,419			603,721			300,000
	Purchases of securities available for sale				(10,409,498	)		(40,902,201	)		(54,323,294	)
	Purchases of securities held for maturity				—			(7,228,747	)		—
	Purchase of other investments				(4,458,200	)		(5,449,849	)		(715,000	)
	Proceeds from sales of other investments				4,723,300			4,941,749			—
	Net cash and cash equivalents acquired from CFS Bancshares				—			2,090,789			—
	Net change in loans				(444,058	)		(5,441,050	)		(23,431,139	)
	Purchases of premises and equipment				(367,169	)		(535,943	)		(929,440	)
	Proceeds from sale of premises and equipment				285,895			231,388			—
	Premuims (paid) and policies surrendered				(298,000	)		(993,000	)		137,071
	Net proceeds from sale of foreclosed real estate				1,611,203			395,179			375,000
		Net cash provided by (used in) investing activities			24,984,888			17,286,301			11,804,111
(continued)

48

FINANCING ACTIVITIES:
	Net change in deposits		$	(10,277,854	)	$	(32,441,787	)	$	(30,656,103	)
	Increase (decrease) in Federal Funds Purchased			(4,000,000	)		—			—
	Principal payments on note payable			—			(200,021	)		(530,574	)
	Proceeds from junior subordinated debentures, net			—			—			5,000,000
	Net increase (decrease) in Federal Home Loan Bank advances			(16,711,150	)		13,261,150			8,750,000
	Dividends paid			(311,081	)		(311,861	)		(337,897	)
	Sale of treasury stock			67,598			20,664
	Purchase of treasury stock			—			—			(380,683	)
		Net cash (used in) financing activities		(31,232,487	)		(19,671,855	)		(18,155,257	)
		Net change in cash and cash equivalents		(818,997	)		576,052			(3,319,020	)
CASH AND CASH EQUIVALENTS
	Beginning of year			11,693,534			11,117,482			14,436,502
	End of year		$	10,874,537		$	11,693,534		$	11,117,482
Supplemental disclosures of cash paid during the year for:
	Interest		$	4,156,457		$	4,458,021		$	6,251,210
	Income taxes			638,000			628,000			568,195
Supplemental disclosures of noncash investing activities:
	Real estate acquired through foreclosure			1,035,880			1,516,693			1,137,144
	Securitized loans			—			—			4,669,289
	Change in unrealized gain (loss) on investment securities available for sale—net of tax			(123,769	)		(312,094	)		551,989
Supplemental disclosures of acquisition of CFS Bancshares:
	Loans			—			32,874,972			—
	Other assets			—			65,359,722			—
	Deposits assumed			—			(80,610,109	)		—
	Other liabilities			—			(19,715,374	)		—
		Net cash and cash equivalents acquired from acquistion	$	—		$	(2,090,789	)	$	—

(concluded)

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

49

CITIZENS BANCSHARES CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

AS OF DECEMBER 31, 2004 AND 2003 AND FOR EACH OF THE THREE YEARS
IN THE PERIOD ENDED DECEMBER 31, 2004

1.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

        Business—Citizens Bancshares Corporation and subsidiaries (the "Company") is a holding company that provides a full range of commercial banking and mortgage brokerage services to individual and corporate customers in metropolitan Atlanta and Columbus, Georgia, through its wholly owned subsidiary, Citizens Trust Bank (the "Bank"). The Bank operates under a state charter and serves its customers through eight full-service branches in metropolitan Atlanta, one full-service branch in Columbus, Georgia, two full-service branches in Birmingham, Alabama, and one full-service branch in Eutaw, Alabama. The Company also owns and operates a wholly owned subsidiary grantor trust, Citizens (GA) Statutory Trust I (the "Trust") through the issuance of pooled trust preferred securities. All significant intercompany accounts and transactions have been eliminated in consolidation. In accordance with current accounting guidance, the Trust has not been consolidated in the financial statements.

        Basis of Presentation—The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America and with general practices within the banking industry. In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts in the consolidated financial statements. Actual results could differ significantly from those estimates. Material estimates common to the banking industry that are particularly susceptible to significant change in the near term are the allowance for loan losses, the valuation of allowances associated with the recognition of deferred tax assets and the value of foreclosed real estate and goodwill.

        Cash and Cash Equivalents—Cash and cash equivalents includes cash on hand and amounts due from banks and federal funds sold. The Federal Reserve Bank (the "FRB") requires the Company to maintain a required cash reserve balance on deposit with the FRB, based on the Company's daily average balance with the FRB. This reserve requirement represents 3% of the Company's daily average demand deposit balance between $7 million and $40.6 million and 10% of the Company's daily average demand deposit balance above $40.6 million.

        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 2004, 2003, or 2002.

        Premiums and discounts on available for sale and held to maturity securities are amortized or accreted using a method which approximates a level yield. Amortization and accretion of premiums and discounts is presented within investment securities interest income on the Consolidated Statements of Income.

        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 resulting in the establishment of a new cost basis for the security. The determination of whether an other than temporary impairment has occurred involves significant assumptions, estimates, changes in economic conditions and judgment by

50

management. There was no other than temporary impairment for securities recorded during 2004, 2003, and 2002.

        Other Investments—Other investments consist of Federal Home Loan Bank stock and Federal Reserve Bank stock which are restricted and have no readily determinable market value. These investments are carried at cost.

        Loans and Allowance for Loan Losses—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. Premiums and discounts on loans purchased are amortized and accreted using the level yield method over the estimated remaining life of the loan purchased. The accretion and amortization of loan fees, origination costs, and premiums and discounts are presented as a component of loan interest income on the Consolidated Statements of Income.

        Management considers a loan to be impaired when, based on current information and events, it is probable that all amounts due according to the contractual terms of the loan will not be collected. Impaired loans are measured based on the present value of expected future cash flows, discounted at the loan's effective interest rate, or at the loan's observable market price, or the fair value of the collateral if the loan is collateral dependent.

        Loans are generally placed on nonaccrual status when the full and timely collection of principal or interest becomes uncertain or the loan becomes contractually in default for 90 days or more as to either principal or interest, unless the loan is well collateralized and in the process of collection. When a loan is placed on nonaccrual status, current period accrued and uncollected interest is charged-off against interest income on loans unless management believes the accrued interest is recoverable through the liquidation of collateral. Interest income, if any, on impaired loans is recognized on the cash basis.

        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 related 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 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. This assessment is made in the context of historical losses as well as existing economic conditions, performance trends within specific portfolio segments, and individual concentrations of credit.

        Loans are charged-off against the allowance when, in the opinion of management, such loans are deemed to be uncollectible and subsequent recoveries are added to the allowance.

        Mortgage Servicing Rights—The Company allocates the total cost of a whole mortgage loan originated or purchased to mortgage servicing rights and loans based on relative fair values. Amounts capitalized as mortgage servicing rights are amortized over the period of, and in proportion to, estimated future net servicing income. The Company assesses its capitalized mortgage servicing rights for impairment based on independent appraisals of the market values of those rights. Impairments are recognized as a valuation allowance. The independent appraisals value such rights in consideration of prevailing interest rates, prepayment and default rates, and other relevant factors as appropriate. At December 31, 2004 and 2003, the fair values of mortgage servicing rights were $51,568 and $81,568, respectively, and are presented as a component of other assets in the consolidated balance sheets.

51

        Premises and Equipment—Premises and equipment are stated at cost less accumulated depreciation which is computed using the straight-line method over the estimated useful lives of the related assets. When assets are retired or otherwise disposed, the cost and related accumulated depreciation are removed from the accounts, and any resulting gain or loss is reflected in earnings for the period. The costs of maintenance and repairs, which do not improve or extend the useful life of the respective assets, are charged to earnings as incurred, whereas significant renewals and improvements are capitalized. The range of estimated useful lives for premises and equipment is as follows:

Buildings and improvements	5-40 years
Furniture and equipment	3-10 years

        Foreclosed Real Estate—Foreclosed real estate 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.

        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 deposits acquired, using the straight-line method and are included within other assets on the Consolidated Balance Sheets.

        The Company reviews 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. An impairment charge is recognized if the carrying value of the reporting unit's goodwill exceeds its implied fair value.

        The following table presents information about our intangible assets:

		December 31, 2004				December 31, 2003
		Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization
Unamortized intangible asset:
	Goodwill	$	362,139	$	—	$	362,139	$	—
Amortized intangible asset:
	Core deposit intangibles	$	2,836,345	$	1,789,836	$	2,836,345	$	1,384,644

52

        The following table presents information about aggregate amortization expense for each of the five succeeding fiscal years as follows:

		For the Years Ended December 31,
		2004		2003		2002
Aggregate amortization expense of core deposit intangibles		$	405,192	$	387,446	$	351,952
Estimated aggregate amortization expense of core deposit intangibles for the year ending December 31:
	2005		405,192
	2006		405,192
	2007		111,900
	2008		53,240
	2009		53,240

        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.

        Net Income Per Share—Basic net income per common share ("EPS") is computed based on net income divided by the weighted average number of common shares outstanding. Diluted EPS is computed based on net income divided by the weighted average number of common and potential common shares. The only potential common share equivalents are those related to stock options. Stock options which are anti-dilutive are excluded from the calculation of diluted EPS.

        Stock Options—Stock options are accounted for using the intrinsic value method in accordance with Accounting Principles Board Opinion No. 25 ("APB 25"), Accounting for Stock Issued to Employees, and related interpretations. Stock option compensation expense was not recognized in the Company's consolidated statements of income as all stock options granted had an exercise price greater than the fair value of the underlying common stock on the grant date.

        Stock Based Compensation—In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation-Transition and Disclosure—an Amendment of FASB Statement No. 123." This Statement amends SFAS No. 123, "Accounting for Stock-Based Compensation," to provide alternative methods of transition for a voluntary change to the fair value method of accounting for stock-based employee compensation. In addition, this Statement amends the disclosure requirements of SFAS No. 123 to require more prominent disclosures about the method of accounting for stock-based employee compensation and the effect of the method used on reported results in both annual and interim financial statements. This Statement was effective for financial statements for fiscal years ending after December 15, 2002. As permitted by SFAS No. 148, during 2004 the Company continued

53

to apply the provisions of APB Opinion No. 25, "Accounting for Stock-Based Compensation," for all employee stock option grants and has elected to disclose pro forma net income and earnings per share amounts as if the fair-value based method had been applied in measuring compensation costs.

        The following table presents the Company's as reported and pro forma information, including stock-based compensation expense, as if the fair-value based method had been applied, for the years ended December 31:

	2004			2003			2002
As reported net income available to common stockholders	$	2,305,165		$	1,505,040		$	1,435,537
Less: stock-based compensation expense determined under fair value method, net of tax		(30,242	)		(15,165	)		(15,145	)
Pro forma net income	$	2,274,923		$	1,489,875		$	1,420,392
As reported earnings per share	$	1.11		$	0.73		$	0.68
Pro forma earnings per share	$	1.10		$	0.72		$	0.68
As reported earnings per diluted share	$	1.11		$	0.72		$	0.68
Pro forma earnings per diluted share	$	1.09		$	0.72		$	0.68

        Compensation expense in the pro forma disclosures is not indicative of future amounts, as options vest over several years and additional grants could be made each year.

        The fair values of the options granted in 2004 were estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions: dividend yield of 1.40%; expected volatility of 42%; risk free interest rate of 4.05% and an expected life of six years. The fair value of the 2004 Option grant was approximately $67,000. Similarly, the fair values of the options granted in 2002 were estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions: dividend yield of 2.37%; expected volatility of 46%; risk free interest rate of 4.88% and an expected life of four years. The fair value of the 2002 Option grant was approximately $52,000. No options were granted in 2003.

        Recently Issued Accounting Standards—In December 2003, the FASB issued SFAS No. 132 (Revised 2003), "Employers' Disclosures about Pensions and Other Postretirement Benefits." This Statement expands upon the existing disclosure requirements as prescribed under the original SFAS No. 132 by requiring more details about pension plan assets, benefit obligations, cash flows, benefit costs and related information. SFAS No. 132(R) also requires companies to disclose various elements of pension and postretirement benefit costs in interim-period financial statements beginning after December 15, 2003. This Statement is effective for financial statements with fiscal years ending after December 15, 2003. The Company adopted this Standard and all of its required disclosures. For additional information, see Note 9, Employee Benefits.

        In January 2003, the FASB issued Interpretation No. 46 (FIN 46), "Consolidation of Variable Interest Entities." This Interpretation clarifies the application of ARB No. 51, "Consolidated Financial Statements," for certain entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated support from other parties. This Interpretation requires variable interest entities (VIE's) to be consolidated by the primary beneficiary which represents the enterprise that will absorb the majority of the VIE's expected losses if they occur, receive a majority of the VIE's residual returns if they occur, or both. Qualifying Special Purpose Entities (QSPE) are exempt from the consolidation requirements of FIN 46. This Interpretation was effective for VIE's created after January 31, 2003 and for VIE's in which an enterprise obtains an interest after that date. In December 2003, the FASB issued Staff Interpretation No. 46R (FIN 46R), "Consolidation of Variable Interest Entities—an interpretation of ARB 51 (revised December 2003)," which replaces FIN 46. FIN 46R

54

was primarily issued to clarify the required accounting for interests in VIE's. Additionally, this Interpretation exempts certain entities from its requirements and provides for special effective dates for enterprises that have fully or partially applied FIN 46 as of December 24, 2003. Application of FIN 46R is required in financial statements of public enterprises that have interests in structures that are commonly referred to as special-purpose entities, or SPE's, for periods ending after December 15, 2003. Application by public enterprises, other than small business issuers, for all other types of VIE's (i.e., non-SPE's) is required in financial statements for periods ending after March 15, 2004, with earlier adoption permitted. The adoption of FIN 46 did not have a material effect on the Company's Consolidated Financial Statements.

        In December 2004, the FASB issued SFAS No.153, "Exchanges of Nonmonetary Assets, an amendment of APB Opinion No. 29, Accounting for Nonmonetary Transactions." The amendments made by SFAS No. 153 are based on the principle that exchanges of nonmonetary assets should be measured based on the fair value of the assets exchanged. Further, the amendments eliminate the narrow exception for nonmonetary exchanges of similar productive assets and replace it with a broader exception for exchanges of nonmonetary assets that do not have commercial substance. Previously, Accounting Principles Board ("APB") Opinion No. 29 required that the accounting for an exchange of a productive asset for a similar productive asset or an equivalent interest in the same or similar productive asset should be based on the recorded amount of the asset relinquished. APB Opinion No. 29 provided an exception to its basic measurement principle (fair value) for exchanges of similar productive assets. SFAS No. 153 is effective for nonmonetary asset exchanges occurring in fiscal periods beginning after June 15, 2005. Earlier application is permitted for nonmonetary asset exchanges occurring in fiscal periods beginning after the date of issuance. The provisions of this statement shall be applied prospectively. The adoption of this statement is not expected to have a material impact on the financial condition or operating results of the Company.

        In December 2004, the FASB issued SFAS No. 123 (revised 2004), "Share-Based Payment" ("SFAS No. 123(R)"). SFAS No. 123(R) will require companies to measure all employee stock-based compensation awards using a fair value method and record such expense in its financial statements. In addition, the adoption of SFAS No. 123(R) requires additional accounting and disclosure related to the income tax and cash flow effects resulting from share-based payment arrangements. SFAS No. 123(R) is effective beginning as of the first interim or annual reporting period beginning after June 15, 2005. The Company is currently evaluating the impact that the adoption of SFAS No. 123(R) will have on its financial position, results of operations and cash flows.

        In November 2003, the Emerging Issues Task Force ("EITF") reached a consensus that certain quantitative and qualitative disclosures should be required for debt and marketable equity securities classified as available-for-sale or held-to-maturity under SFAS No. 115 and SFAS No. 124 that are impaired at the balance sheet date but for which other-than-temporary impairment has not been recognized. Accordingly the EITF issued EITF No. 03-1, "The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments." This issue addresses the meaning of other-than-temporary impairment and its application to investments classified as either available-for-sale or held-to-maturity under SFAS No. 115 and provides guidance on quantitative and qualitative disclosures. The disclosure requirements of EITF No. 03-1 are effective for annual financial statements for fiscal years ending after June 15, 2004. The effective date for the measurement and recognition guidance of EITF No. 03-1 has been delayed. The FASB staff has issued a proposed Board-directed FASB Staff Position ("FSP"), FSP EITF 03-1-a, "Implementation Guidance for the Application of Paragraph 16 of Issue No. 03-1." The proposed FSP would provide implementation guidance with respect to debt securities that are impaired solely due to interest rates and/or sector spreads and analyzed for other-than-temporary impairment under the measurement and recognition requirements of EITF No. 03-1. The delay of the effective date for the measurement and recognition requirements of EITF No. 03-1 will be superseded concurrent with the final issuance of FSP

55

EITF 03-1-a. Adopting the disclosure provisions of EITF No. 03-1 did not have any impact on the Company's financial position or results of operations.

        Reclassifications—Certain 2003 and 2002 amounts have been reclassified to conform to the 2004 presentation.

2.     ACQUISITION

        On February 28, 2003, the Company acquired CFS Bancshares, Inc., a savings and loan holding company located in Birmingham, Alabama, whose banking subsidiary, Citizens Federal Savings Bank, simultaneously merged into the Bank. The Company has paid approximately $8,751,000 in cash for all outstanding shares of CFS Bancshares, Inc. tendered through December 31, 2004 and expects to pay an additional $304,000 upon the tender of the remaining outstanding shares, for a total purchase price of $9,055,000. This acquisition has resulted in a significant expansion of the Company's market area and allows it to begin serving customers in the Birmingham metropolitan area.

        The acquisition of CFS Bancshares, Inc. was accounted for as a purchase. The fair value of the assets and liabilities acquired were determined by management and independent valuation specialists, and were recorded as of the date of purchase. Goodwill of $362,139 was recorded as the purchase price exceeded the net fair value of the assets and liabilities acquired. The Company recorded a finite lived intangible asset related to the value of deposit accounts acquired of approximately $373,000 and is amortizing the amount over 7 years. As of December 31, 2004, the unamortized value of that intangible asset is approximately $284,000.

        A summary of the assets acquired and liabilities assumed in the acquisition follows (in thousands):

Assets acquired
	Cash and Cash Equivalents		$	11,146
	Investment Securities			59,265
	Loans			32,875
	Premises and Equipment			3,223
	Other Assets			2,871
		Total Assets		109,380
Liabilities assumed
	Deposits			80,610
	Federal Home Loan Bank Advances			18,950
	Other Liabilities			765
		Total Liabilities	$	100,325

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3.     INVESTMENT SECURITIES

        Investment securities held to maturity are summarized as follows:

			Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
At December 31, 2004:
	U.S. Government agency securities		$	3,000,000	$	—	$	20,911	$	2,979,089
	State, county, and municipal securities			5,389,779		189,656		—		5,579,435
	Mortgage-backed securities			1,590,400		3,811		26,833		1,567,378
		Totals	$	9,980,179	$	193,467	$	47,744	$	10,125,902
At December 31, 2003:
	U.S. Government agency securities		$	3,000,000	$	9,094	$	22,727	$	2,986,367
	State, county, and municipal securities			5,548,350		212,744		—		5,761,094
	Mortgage-backed securities			2,004,346		10,620		35,625		1,979,341
		Totals	$	10,552,696	$	232,458	$	58,352	$	10,726,802

        Investment securities available for sale are summarized as follows:

			Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
At December 31, 2004:
	U.S. Government agency securities		$	9,879,855	$	12,419	$	25,586	$	9,866,688
	State, county, and municipal securities			14,074,291		423,997		7,210		14,491,078
	Mortgage-backed securities			49,384,108		144,463		249,365		49,279,206
	Equity securities			1,400,000		—		349,680		1,050,320
		Totals	$	74,738,254	$	580,879	$	631,841	$	74,687,292
At December 31, 2003:
	U.S. Government agency securities		$	14,820,019	$	95,518	$	7,754	$	14,907,783
	State, county, and municipal securities			13,601,456		450,172		13,668		14,037,960
	Mortgage-backed securities			67,343,351		240,792		397,094		67,187,049
	Equity securities			1,400,000		—		231,400		1,168,600
		Totals	$	97,164,826	$	786,482	$	649,916	$	97,301,392

        The amortized costs and fair values of investment securities at December 31, 2004, 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.

	Held to Maturity				Available for Sale
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due in one year or less	$	199,713	$	204,508	$	52	$	53
Due after one year through five years		494,344		519,853		9,667,677		9,687,424
Due after five years through ten years		5,886,483		5,905,813		21,858,712		22,022,634
Due after ten years		3,399,639		3,495,728		41,811,813		41,926,861
Equity securities						1,400,000		1,050,320
	$	9,980,179	$	10,125,902	$	74,738,254	$	74,687,292

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        Gross realized gains on securities were $138,218, $781,435, and $1,165,622 in 2004, 2003, and 2002, respectively. Gross realized losses on securities were $79,754, $65,000 and $1,426 in 2004, 2003 and 2002, respectively.

        Investment securities with carrying values of approximately $77,443,000, $76,773,000 and $42,704,000 at December 31, 2004, 2003 and 2002, respectively, were pledged to secure public funds on deposit and for other purposes as required by law.

        Those investment securities held to maturity and available for sale which have an unrealized loss position at December 31, 2004 are detailed below:

Securties Held-to-Maturity

		Securities in a loss position for less than twelve months					Securities in a loss position for twelve months or more					Total
		Fair value		Unrealized losses			Fair value		Unrealized losses			Fair value		Unrealized losses
U.S. Government agencies		$	2,979,089	$	(20,911	)	$	—	$	—		$	2,979,089	$	(20,911	)
Mortgage-backed securites			—		—			1,197,386		(26,833	)		1,197,386		(26,833	)
	Total	$	2,979,089	$	(20,911	)	$	1,197,386	$	(26,833	)	$	4,176,475	$	(47,744	)

Securities Available-for-Sale

		Securities in a loss position for less than twelve months					Securities in a loss position for twelve months or more					Total
		Fair value		Unrealized losses			Fair value		Unrealized losses			Fair value		Unrealized losses
U.S. Government agencies		$	5,015,058	$	(25,586	)	$	—	$	—		$	5,015,058	$	(25,586	)
Mortgage-backed securites			27,627,917		(211,187	)		2,180,371		(38,178	)		29,808,288		(249,365	)
Municipal securities			1,411,434		(7,210	)		—		—			1,411,434		(7,210	)
Equity Securities(1)			—		—			1,050,320		(349,680	)		1,050,320		(349,680	)
	Total	$	34,054,409	$	(243,983	)	$	3,230,691	$	(387,858	)	$	37,285,100	$	(631,841	)

(1)

Equity securities represent agency dividends received deductions (DRD) preferred stock issued by the Fannie Mae Corporation and the Federal Home Loan Mortgage Corporation. These securities are callable at par and reprice every two years. The interest earned on these equity securities is 70 percent tax free.

        Management evaluates its investment portfolio periodically to identify any impairment that is other than temporary. At December 31, 2004, the Company had several debt securities that have been in an unrealized loss position for more than twelve months. Management believes these losses are temporary and are a result of the current interest rate environment.

        The fair values of equity securities are highly correlated with the level of short term interest rates and the shape of the yield curve. Since December 31, 2004 to February 28, 2005, these securities have recovered approximately $64,000 of their fair values reported at year end. Therefore, management believes these securities are not impaired and the Company has the intent and ability to hold the securities for a reasonable period of time for a forecasted recovery of the fair values up to and beyond the cost of the investments or until the securities are called at par.

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4.     LOANS RECEIVABLE AND ALLOWANCE FOR LOAN LOSSES

        Loans outstanding, by classification, are summarized as follows:

		December 31,
		2004		2003
Commercial, financial, and agricultural		$	22,326,651	$	21,258,932
Installment			7,665,954		13,570,748
Real estate—mortgage			174,335,435		174,140,038
Real estate—construction			4,509,731		2,856,718
Other			2,609,407		1,388,343
			211,447,178		213,214,779
Less: Net deferred loan fees			554,117		589,563
	Allowance for loan losses		3,182,697		3,239,703
	Discount on loans acquired		356,362		571,636
		$	207,354,002	$	208,813,877

        Concentrations—The Company's concentrations of credit risk are as follows:

•

A substantial portion of the Company's loan portfolio is collateralized by real estate in metropolitan Atlanta. Accordingly, the ultimate collectibility of a substantial portion of the Company's loan portfolio is susceptible to changes in market conditions in the metropolitan Atlanta area.



•

The Company's loans to area churches were approximately $46.1 million and $36.6 million at December 31, 2004 and 2003, respectively, which are generally secured by real estate.



•

The Company's loans to area convenience stores were approximately $23.6 million and $27.3 million at December 31, 2004 and 2003, respectively. Loans to convenience stores are generally secured by real estate.

        Allowance for Loan Losses—Activity in the allowance for loan losses is summarized as follows:

	Years Ended December 31,
	2004			2003			2002
Balance at beginning of year	$	3,239,703		$	2,629,753		$	2,002,842
Provision for loan losses		850,000			1,643,200			1,660,165
Allowance acquired in acquisition		—			607,745			—
Loans charged off		(1,539,360	)		(2,604,420	)		(1,836,652	)
Recoveries on loans previously charged off		632,354			963,425			803,398
Balance—end of year	$	3,182,697		$	3,239,703		$	2,629,753

        Nonaccrual loans amounted to $2,652,445 and $6,477,268 at December 31, 2004 and 2003, respectively.

        At December 31, 2004 and 2003, the recorded investment in loans rated substandard, doubtful and loss was $9,935,000 and $10,301,000, respectively. The related allowance for loan losses for these loans was $1,499,000 and $1,977,000 at December 31, 2004 and 2003, respectively. The average investment in loans rated substandard, doubtful and loss during 2004 and 2003 was approximately $10,892,000 and $8,698,000, respectively. Interest income recognized on these loans was approximately $1,038,000, $1,393,000, and $1,059,000 in 2004, 2003, and 2002, respectively. Interest income recognized on a cash basis was approximately $73,000, $300,000, and $246,000 in 2004, 2003, and 2002, respectively.

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5.     PREMISES AND EQUIPMENT

        Premises and equipment are summarized as follows:

	December 31,
	2004		2003
Land	$	1,910,142	$	1,969,642
Buildings and improvements		6,860,923		6,838,468
Furniture and equipment		5,868,427		5,601,182
		14,639,492		14,409,292
Less accumulated depreciation		6,260,564		5,248,331
	$	8,378,928	$	9,160,961

6.     DEPOSITS

        The following is a summary of interest-bearing deposits:

	December 31,
	2004		2003
Demand deposit and money market accounts	$	55,748,260	$	54,840,031
Savings accounts		43,620,002		43,523,694
Time deposits of $100,000 or more		65,038,481		77,186,914
Other time deposits		44,556,259		45,396,325
	$	208,963,002	$	220,946,964

        At December 31, 2004, maturities of time deposits are approximately as follows:

2005		90,440,036
2006		10,087,493
2007		4,144,847
2008		2,643,210
2009 and thereafter		2,279,154
	$	109,594,740

7.     OTHER BORROWINGS

        Federal Funds Purchased—Federal funds purchased represent unsecured borrowings from other banks and generally mature daily. At December 31, 2004, the Company had no amounts outstanding. At December 31, 2003 the company had $4,000,000 outstanding at a rate of 1.28%.

        Notes Payable—At December 31, 2002, the Company had $739,668 outstanding under an unsecured note payable. The note bore interest at a rate of 50 basis points below the lender's prime rate and was due in full on May 1, 2003. During 2003, the note was refinanced as part of a new unsecured note. At December 31, 2003 and 2004, the note payable had an outstanding principal balance of $539,647. The note bore interest at a rate of 50 basis points below the lender's prime rate (3.50% at December 31, 2003 and 4.75% at December 31, 2004) and is payable quarterly. The principal balance is due in full on June 30, 2005.

        Junior Subordinated Debentures—During 2002, Citizens Bancshares Corporation issued $5 million of pooled trust preferred securities through one issuance by a wholly owned subsidiary grantor trust,

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Citizens (GA) Statutory Trust I (the "Trust"). The trust preferred securities accrue and pay distributions periodically at an annual rate as provided in the indentures of the London Interbank Offered Rate plus 3.45%. The Trust used the net proceeds from the offering to purchase a like amount of Junior Subordinated Debentures (the "Debentures") of the Company. These securities are reported on our consolidated balance sheet as Junior Subordinated Debentures. The trust preferred securities are mandatorily redeemable upon the maturity of the Debentures on June 26, 2032, or upon earlier redemption as provided in the indentures beginning June 26, 2007. The Company has the right to redeem the Debentures in whole or in part or after specific dates, at a redemption price specified in the indentures plus any accrued but unpaid interest to the redemption date. At December 31, 2004, the interest rate on the junior subordinated debenture was 5.40%.

        Federal Home Loan Bank Advances—The Company has outstanding a $10 million convertible advance at December 31, 2004 and 2003 bearing interest at a fixed rate of 5.82% due April 5, 2010. The convertible advance is callable by the lender at the end of each fiscal quarter. If called, the advance will convert into a flat three month LIBOR based floating rate advance. At December 31, 2004 and 2003, the Company has variable rate advances of approximately $20.25 million and $37 million outstanding with a weighted average interest rate of 2.44% and 1.15%, respectively. These advances are collateralized by FHLB stock, a blanket lien on the Bank's 1-4 family mortgages and commercial real estate loans. As of December 31, 2004, total loans pledged as collateral was $57,000,000.

        As of December 31, 2004, maturities of the Company's Federal Home Loan Bank Advances are approximately as follows:

		December 31,
Maturity	Rate
		2004		2003
July-05	Variable (2.44% at December 31, 2004)	$	15,250,000	$	36,961,150
September-06	Variable (2.45% at December 31, 2004)		5,000,000		—
April-10	Fixed (5.82%)		10,000,000		10,000,000
		$	30,250,000	$	46,961,150

8.     INCOME TAXES

        The components of income tax expense consist of:

	2004			2003		2002
Current tax expense	$	841,088		$	211,374	$	380,742
Deferred tax (benefit) expense		(191,746	)		51,492		(252,098	)
	$	649,342		$	262,866	$	128,644

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        Income tax expense for the years ended December 31, 2004, 2003, and 2002 differed from the amounts computed by applying the statutory federal income tax rate of 34% to earnings before income taxes as follows:

		2004			2003			2002
Income tax expense at statutory rate		$	1,004,532		$	600,759		$	531,822
Tax-exempt interest income—net of disallowed interest expense			(267,038	)		(297,186	)		(300,267	)
Nondeductible expenses			13,101			23,105			18,095
Cash surrender value of life insurance income			(99,087	)		(94,260	)		(134,462	)
Other—net			(2,166	)		30,448			13,456
	Income tax expense	$	649,342		$	262,866		$	128,644

        The tax effects of temporary differences that give rise to significant amounts of deferred tax assets and deferred tax liabilities are presented below:

			2004			2003
Deferred tax assets:
	Net operating losses and credits		$	896,196		$	890,035
	Loans, principally due to difference in allowance for loan losses and deferred loan fees			1,090,790			1,100,768
	Nonaccrual loan interest			56,509			15,264
	Postretirement benefit accrual			415,245			374,111
	Premises and equipment			66,079			31,416
	Net unrealized loss on securities available for sale			17,326			—
	Other			263,994			407,751
		Gross deferred tax asset		2,806,139			2,819,345
	Valuation allowance			(974,708	)		(974,708	)
		Total deferred tax assets		1,831,431			1,844,637
Deferred tax liabilities:
	Purchased loan discount			480,000			320,000
	Net unrealized gain on securities available for sale			—			46,432
	Other			459,071			777,591
		Total deferred tax liabilities		939,071			1,144,023
		Net deferred tax assets	$	892,360		$	700,614

        The Company has, at December 31, 2004, net operating loss carryforwards of approximately $7,005,000 for state income tax purposes, which expire in years 2005 through 2021. Due to the uncertainty relating to the realizability of these carryforwards, management currently considers it more likely than not that all related deferred tax assets will not be realized; thus, a full valuation allowance has been provided for all state tax carryforwards.

9.     EMPLOYEE BENEFITS

        Defined Contribution Plan—The Company sponsors a defined contribution 401(k) plan covering substantially all full-time employees. Employee contributions are voluntary. The Company matches 50% of the employee contributions up to a maximum of 6% of compensation. During the years ended December 31, 2004, 2003, and 2001, the Company recognized $125,556, $102,062, and $91,164, respectively, in expenses related to this plan.

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        Other Postretirement Benefits—In addition to the Company's defined contribution plan, the Company sponsors postretirement medical and life insurance benefit plans for full-time employees who meet certain minimum age and service requirements. The plans contain cost sharing features with retirees and the Company funds benefit payments in the period incurred.

        The following table presents the plans' changes in accumulated benefit obligation for the years ended December 31, 2004 and 2003:

	2004			2003
Accumulated benefit obligation—beginning of year	$	4,087		$	238,004
Service cost		—			—
Interest cost		190			197
Actuarial gain (loss)		2,636			(233,675	)
Company contributions for retirees		(439	)		(439	)
Accumulated benefit obligation—end of year	$	6,474		$	4,087

        The following table presents the plans' funded status reconciled with amounts recognized in the consolidated balance sheets at December 31, 2004 and 2003:

	2004			2003
Funded status	$	(6,474	)	$	(4,087	)
Unrecognized transition obligation		—			—
Effects of curtailment					255,100
Unrecognized prior service cost		—			—
Unrecognized actuarial (loss)		(80,893	)		(344,612	)
Accrued postretirement benefit cost included in accrued expenses and other liabilities	$	(87,367	)	$	(93,599	)

        Net periodic postretirement benefit cost includes the following components:

	Years Ended December 31,
	2004			2003			2002
Service cost	$	—		$	—		$	28,445
Interest cost		190			197			16,116
Net amortization		(5,983	)		(8,650	)		(7,179	)
Net periodic postretirement benefit cost	$	(5,793	)	$	(8,453	)	$	37,382

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        The Company used the following actuarial assumptions to determine our benefit obligations at December 31, 2004 and 2003, and our net periodic benefit cost for the years ended December 31, 2004, 2003, and 2002, as measured at December 31:

	2004		2003		2002
Benefit Obligations
Weighted average discount rate	5.66	%	6.01	%	6.75	%
Assumed healthcare cost trend rate(1)	—		—		5.00	%

	2004		2003		2002
Net Periodic Benefit Cost
Weighted average discount rate	6.01	%	6.75	%	7.25	%
Assumed healthcare cost trend rate(1)	—		—		5.50	%

(1)

The healthcare cost trend rate is assumed to decrease gradually to 5%. As a result of the Company's curtailment of its postretirement medical plan during 2003, an assumed healthcare cost trend rate was not considered for the years ending December 31, 2004 and 2003.

        Benefit payments in 2005 to 2015 are not expected to be material to the Company's Consolidated Financial Statements.

        On April 1, 2003, the Company curtailed its postretirement medical and life benefit plans. The curtailment resulted in the discontinuation of the Company subsidizing life insurance benefits and providing postretirement medical care for all participants in the plans. Those retirees who wish to continue to receive these benefits must pay the entire cost of the benefits. The curtailment reduced the Company's associated plan liabilities by $255,100 in 2003. There was no termination, acquisition or other events that significantly reduce the expected years of future service of employees.

        The Bank also has a postretirement benefit plan which provides retirement benefits to its key officers and Board members and provides death benefits for their designated beneficiaries. Under the plan, the Bank purchased whole life insurance contracts on the lives of certain key officers and Board members.

        The increase in cash surrender value of the contracts, less the Bank's premiums, constitutes the Bank's contribution to the plan each year. In the event the insurance contracts fail to produce positive returns, the Bank has no obligation to contribute to the plan. At December 31, 2004 and 2003, the cash surrender value of these insurance contracts was $8,739,508 and $8,150,075, respectively.

10.   COMMITMENTS AND CONTINGENCIES

        Credit Commitments and Commercial Letters—The Company, in the normal course of business, is a party to financial instruments with off-balance-sheet risk used to meet the financing needs of its customers. These financial instruments include commitments to extend credit and commercial letters of credit.

        Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Collateral held varies but may include accounts receivable, inventory, property, plant and equipment, and residential and commercial real estate. Commercial letters of credit are commitments issued by the Company to guarantee funding to a third party on behalf of a customer. These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated balance sheets. The contract amounts of

64

those instruments reflect the extent of involvement the Company has in particular classes of financial instruments.

        The Company's exposure to credit loss in the event of nonperformance by the other party of the financial instrument for commitments to extend credit and commercial letters of credit is represented by the contractual amount of those instruments. The Company uses the same credit policies in making commitments and conditional obligations related to off-balance-sheet financial instruments as it does for the financial instruments recorded in the Consolidated Balance Sheet.

		Approximate Contractual Amount
		2004		2003
Financial instruments whose contract amounts represent credit risk:
	Commitments to extend credit	$	40,144,794	$	35,314,000
	Commercial letters of credit		252,200		201,000

        Mortgage-Backed Securities—In connection with servicing mortgage-backed securities guaranteed by Fannie Mae, the Company advances certain principal and interest payments to security holders prior to their collection from specific mortgagors. Additionally, the Company must remit certain payments of property taxes and insurance premiums in advance of collecting them from specific mortgagors and make certain payments of attorneys' fees and other costs related to loans in foreclosure. These amounts are included as receivables within other assets in the consolidated balance sheets.

        Leases—As of December 31, 2004, future minimum lease payments under all noncancelable lease agreements inclusive of sales tax and maintenance costs for the next five years and thereafter are as follows:

2005		350,891
2006		6,933
2007		3,600
2008		3,600
2009		2,100
	$	367,124

        The Company's main office lease expires in December 2005. The Company plans to issue a request for proposal to several property management companies to solicit offers for the Bank's headquarters location. The Company anticipates either renewing its current lease or signing a new lease at substantially the same terms.

        Rent expense in 2004, 2003, and 2002 was approximately $411,000, $389,000, and $435,000, respectively.

        Legal—During 2003, a jury awarded a $250,000 judgment against the Company for lenders' liability. The Company is appealing the ruling to have the jury award reversed and its accrual for this loss is reflected in the December 31, 2004 and 2003 Consolidated Financial Statements. Other than that discussed above, 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 statements.

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11.   STOCK OPTIONS

        1998 Option—On January 30, 1998, the Company granted its president an option to purchase 17,500 shares of common stock of the Company at an exercise price of $9.88 per share (the "1998 Option") as compared to trades of stock at $5.00 per share around the date of grant. The 1998 Option vests at a rate of 20% per year, commencing on January 30, 1999. The option's term is ten years from the date of vesting, and at December 31, 2004, all options granted under the 1998 Option remained outstanding.

        The fair value of the 1998 Option grant was estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions: dividend yield of 0.26%; expected volatility of 13%; risk free interest rate of 4% and an expected life of six years. The fair value of the 1998 Option grant was immaterial since the exercise price significantly exceeded the market price of the stock.

        2002 Option—On January 16, 2002, the Company granted its president and certain senior officers options to purchase 21,100 shares of common stock of the Company at an exercise price of $7.00 per share (the "2002 Option"), which equaled the market price of the stock on the date of grant. The 2002 Option vests at a rate of 33.3% per year, commencing on January 16, 2003. The option's term is ten years from the date of grant, and at December 31, 2004, 14,976 options to purchase shares under the 2002 Option remained outstanding.

        The fair value of the 2002 Option grant was estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions: dividend yield of 2.37%; expected volatility of 46%; risk free interest rate of 4.88% and an expected life of four years. The fair value of the 2002 Option grant was approximately $52,000.

        2004 Option—On January 21, 2004, the Company granted its president options to purchase 15,000 shares of common stock of the Company at an exercise price of $11.89 per share (the "2004 Option"), as compared to trades of stock at $11.20 per share on the date of grant. The 2004 Option vests at a rate of 33.3% per year, commencing on January 21, 2005. The option's term is ten years from the date of grant, and at December 31, 2004, 15,000 options to purchase shares under the 2004 Option remained outstanding.

        The fair value of the 2004 Option grant was estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions: dividend yield of 1.40%; expected volatility of 42%; risk free interest rate of 4.05% and an expected life of six years. The fair value of the 2004 Option grant was approximately $67,000.

66

        A summary of the status of the Company's stock options as of December 31, 2004, 2003, and 2002, and changes during the years ended on those dates is presented below:

	2004					2003					2002
	Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life	Shares		Weighted Average Exercise Price			Shares		Weighted Average Exercise Price
Outstanding—beginning of year	35,300		$	8.43	5.98 years	38,708		$	8.29		20,516		$	9.40
Granted	15,000			11.89		—			—		21,100			7.00
Expired/Terminated	(2,824	)		7.00		(3,408	)		6.84	(1)	(2,908	)		6.81
Outstanding—end of year	47,476		$	9.61	6.84 years	35,300		$	8.43		38,708		$	8.29
Options exercisable at year-end	29,366		$	8.72		23,433		$	9.15		15,508		$	9.56

(1)

The options expiring in 2003 and 2002 includes options from the 1993 plan with an exercise price of $6.63

12.   NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE

        Basic and diluted net income per common and potential common share have been calculated based on the weighted average number of shares outstanding. The following schedule reconciles the numerators and denominator of the basic and diluted net income per common and potential common share for the years ended December 31, 2004, 2003, 2002.

	Net Income (Numerator)		Shares (Denominator)	Per Share Amount
Year ended December 31, 2004
Basic earnings per share	$	2,305,165	2,075,040	$	1.11
Effect of dilutive securities: option to purchase common shares		—	9,559		—
Diluted earnings per share	$	2,305,165	2,084,599	$	1.11
Year ended December 31, 2003
Basic earnings per share	$	1,505,040	2,075,313	$	0.73
Effect of dilutive securities: option to purchase common shares		—	4,564		(0.01	)
Diluted earnings per share	$	1,505,040	2,079,877	$	0.72
Year ended December 31, 2002
Basic earnings per share	$	1,435,537	2,101,555	$	0.68
Effect of dilutive securities: option to purchase common shares		—	120		—
Diluted earnings per share	$	1,435,537	2,101,675	$	0.68

13.   FAIR VALUE OF FINANCIAL INSTRUMENTS

        Following are disclosures of fair value information about financial instruments, whether or 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 a surrogate of the liquidation value of the Company, but rather a good-faith estimate

67

of the increase or decrease in the value of financial instruments held by the Company since purchase, origination, or issuance.

        Cash, Due From Banks, Federal Funds Sold, Interest-Bearing Deposits With Banks, and Certificates of Deposits—Carrying amount is a reasonable estimate of fair value due to the short-term nature of such items.

        Investment Securities—Fair value of investment securities are based on quoted market prices.

        Other Investments—The carrying amount of other investments approximates its fair value.

        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. For variable rate loans, the carrying amount is a reasonable estimate of fair value.

        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.

        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.

        Federal Funds Purchased—The carrying value of federal funds purchased approximates its carrying value.

        Notes Payable—Notes payable bear a variable interest rate and the carrying value approximates fair value.

        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.

        Junior Subordinated Debentures—The fair value of the issuance is estimated by discounting future cash flows using the rates currently available to the Bank for debt with similar remaining maturities and terms.

        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 carrying values and estimated fair values of the Company's financial instruments at December 31, 2004 and 2003 are as follows:

		2004				2003
		Carrying Value		Estimated Fair Value		Carrying Value		Estimated Fair Value
		(in thousands)				(in thousands)
Financial assets:
	Cash and due from banks	$	10,875	$	10,875	$	11,694	$	11,694
	Interest-bearing deposits with banks		734		734		108		108
	Cetificates of deposit		800		800		2,983		2,983
	Investment securities		84,667		84,813		107,854		108,028
	Other investments		2,469		2,469		2,734		2,734
	Loans—net		207,354		207,267		208,814		208,830
	Cash surrender value of life insurance		8,740		8,740		8,150		8,150
Financial liabilities:
	Deposits		266,502		250,065		276,780		263,496
	Federal funds purchased		—		—		4,000		4,000
	Notes payable		540		540		540		540
	Advances from Federal Home Loan Bank		30,250		31,042		46,961		48,071
	Junior subordinated debentures		5,155		5,194		5,155		5,200
Off-balance-sheet financial instruments:		Notional amount		Estimated fair value		Notional amount		Estimated fair value
	Commitments to extend credit		40,144		—		35,314		—
	Commercial letters of credit		252		—		201		—

14.   SHAREHOLDERS' EQUITY

        Capital Adequacy—The Company and the Bank are subject to various regulatory capital requirements administered by state and federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company must meet specific capital guidelines that involve quantitative measures of the Company's assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The Company's capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

        Quantitative measures established by regulation to ensure capital adequacy require the Company to maintain minimum amounts and ratios (set forth in the table below) of total and Tier I capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier I capital (as defined) to average assets (as defined). Management believes, as of December 31, 2004, the Company meets all capital adequacy requirements to which it is subject.

        As of December 31, 2004, the most recent notification from the various regulators categorized the Bank as "well capitalized" under the regulatory framework for prompt corrective action. To be categorized as "well capitalized," the Bank must maintain minimum total risk-based, Tier I risk-based, and Tier I leverage ratios as set forth in the table. There are no conditions or events since that notification that management believes have changed the institution's category.

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        The Company's and the Bank's actual capital amounts and ratios are also presented in the table below.

	Actual				For Capital Adequacy Purposes				To Be Well Capitalized Under Prompt Corrective Action Provisions
	Amount		Ratio		Amount		Ratio		Amount		Ratio
As of December 31, 2004
Total capital (to risk weighted assets):
Consolidated	$	31,549	14	%	$	17,546	8	%		N/A	N/A
Bank		31,687	14	%		17,514	8	%	$	21,893	10	%
Tier I capital (to risk weighted assets):
Consolidated		28,802	13	%		8,773	4	%		N/A	N/A
Bank		28,945	13	%		8,757	4	%		13,136	6	%
Tier I capital (to average assets):
Consolidated		28,802	9	%		13,170	4	%		N/A	N/A
Bank		28,945	9	%		13,149	4	%		16,437	5	%
As of December 31, 2003
Total capital (to risk weighted assets):
Consolidated	$	24,637	12	%	$	16,623	8	%		N/A	N/A
Bank		29,431	14	%		16,565	8	%	$	20,707	10	%
Tier I capital (to risk weighted assets):
Consolidated		22,032	11	%		8,311	4	%		N/A	N/A
Bank		26,384	13	%		8,283	4	%		12,424	6	%
Tier I capital (to average assets):
Consolidated		22,032	6	%		14,342	4	%		N/A	N/A
Bank		26,384	8	%		14,311	4	%		17,888	5	%

        Dividend Limitation—The amount of dividends paid by the Bank to the Company is limited by various banking regulatory agencies. Any such dividends will be subject to maintenance of required capital levels. The Georgia Department of Banking and Finance requires prior approval for a bank to pay dividends in excess of 50% of its prior year's earnings. Currently, the payment of dividends by the Bank requires the prior approval of the Georgia Department of Banking and Finance.

15.   RELATED-PARTY TRANSACTIONS

        Certain of the Company's directors, officers, principal shareholders, and their associates were customers of, or had transactions with, the Company or the Bank in the ordinary course of business during 2004. Some of the Company's directors are directors, officers, trustees, or principal securities holders of corporations or other organizations that also were customers of, or had transactions with, the Company or the Bank in the ordinary course of business during 2004.

        All outstanding loans and other transactions with the Company's directors, officers, and principal shareholders were made in the ordinary course of business on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other persons and, when made, did not involve more than the normal risk of collectibility or present other unfavorable features.

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        The following table summarizes the activity in these loans during 2004:

Balance—December 31, 2003		$	5,856,060
	New loans		1,350,795
	Repayments		(2,202,754	)
Balance—December 31, 2004		$	5,004,101

16.   SUPPLEMENTARY INCOME STATEMENT INFORMATION

        Components of other operating expenses in excess of 1% of total interest income and other income in any of the respective years are approximately as follows:

	For the years ended
	2004		2003		2002
Professional services—legal	$	480,107	$	243,538	$	179,195
Professional services—other		976,815		646,033		521,540
Stationery and supplies		241,287		317,770		259,230
Advertising		383,386		358,101		197,166
Data processing		677,115		653,883		1,221,228
ATM Charges		288,720		229,602		205,677
Postage		270,458		186,251		139,968
Telephone		379,746		417,985		440,476
Amortization of core deposit intangible		405,192		387,446		351,952
Security and protection expense		389,157		387,286		320,493
Other benefit expenses		360,012		271,132		217,072
Other losses		115,414		535,514		195,302
Other miscellaneous expenses		1,475,138		1,730,459		1,153,065
	$	6,442,547	$	6,365,000	$	5,402,364

17.   CONDENSED FINANCIAL INFORMATION OF CITIZENS BANCSHARES CORPORATION (PARENT ONLY)

		December 31, 2004		December 31, 2003
Balance Sheets
Assets:
	Cash	$	62,713	$	114,305
	Investment in Bank		31,024,657		28,746,339
	Investment in Trust		155,000		155,000
	Other assets		394,884		707,347
		$	31,637,254	$	29,722,991
Liabilities and stockholders' equity:
	Note payable	$	539,647	$	539,647
	Junior subordinated debentures		5,155,000		5,155,000
	Other liabilities		61,116		84,766
	Total liabilities		5,755,763		5,779,413
	Stockholders' equity		25,881,491		23,943,578
		$	31,637,254	$	29,722,991

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	For the Years Ended December 31,
	2004			2003			2002
Statements of Income and Comprehensive Income
Dividends from subsidiaries	$	311,081		$	928,173		$	941,489
Other revenue		148			145			15,341
Total revenue		311,229			928,318			956,830
Interest expense		269,586			257,389			187,653
Other expense		349,928			402,572			225,293
Total expenses		619,514			659,961			412,946
Income before income tax benefit and equity in undistributed earnings of the subsidiaries		(308,285	)		268,357			543,884
Income tax benefit		211,364			224,186			146,887
Income before equity in undistributed earnings of the subsidiaries		(96,921	)		492,543			690,771
Equity in undistributed earnings of the subsidiaries		2,402,086			1,012,497			744,766
Net income		2,305,165			1,505,040			1,435,537
Other comprehensive income (loss)		(123,769	)		(312,094	)		551,989
Comprehensive income	$	2,181,396		$	1,192,946		$	1,987,526

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			Years Ended December 31,
			2004			2003			2002
Statements of Cash Flows
Cash flows from operating activities—
	Net income		$	2,305,165		$	1,505,040		$	1,435,537
Adjustments to reconcile net income to net cash used in operating activities:
	Equity in undistributed earnings of the subsidiaries			(2,402,087	)		(1,012,497	)		(744,766	)
	Change in other assets			312,463			32,355			(701,442	)
	Change in other liabilities			(23,650	)		(75,016	)		209,556
Net cash used in operating activities				191,891			449,882			198,885
Cash flows from investing activities:
	Investment in subsidiaries			—			—			(4,261,253	)
Net cash provided by (used in) investing activities				—			—			(4,261,253	)
Cash flows from financing activities:
	Payment on note payable			—			(200,021	)		(200,000	)
	Dividends paid			(311,081	)		(311,861	)		(337,897	)
	Proceeds from note payable			—			—			—
	Proceeds from junior subordinated debentures, net			—			—			5,000,000
	Sale of treasury stock			67,598			20,664			—
	Purchase of treasury stock			—			—			(380,683	)
Net cash provided by (used in) financing activities				(243,483	)		(491,218	)		4,081,420
Net change in cash				(51,592	)		(41,336	)		19,052
Cash:
	Beginning of year			114,305			155,641			136,589
	End of year		$	62,713		$	114,305		$	155,641
Supplemental disclosures of cash flow information:
	Cash paid during the year for:
		Interest	$	273,489		$	229,720		$	183,892
		Income taxes	$	628,000		$	628,000		$	568,195
Noncash investing activity—
	Change in Bank's unrealized gain (loss) on investment securities available for sale—net of tax		$	123,768		$	312,094		$	(551,989	)

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ITEM 9.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

        On August 12, 2004, Deloitte & Touche, LLP ("Deloitte") notified the Company that it would not stand for reappointment as the Company's independent accountants.

        Deloitte was the Company's principal auditors for the purpose of auditing its financial statements for the fiscal years ended December 31, 2003 and December 31, 2002. The reports on the financial statements for the aforementioned fiscal years did not contain an adverse opinion or a disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope or accounting principles. In the fiscal years ended December 31, 2003 and December 31, 2002, and the subsequent interim period through the date of termination on August 12, 2004, the Company had no disagreements with Deloitte on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure which, if not resolved to the satisfaction of Deloitte, would have caused Deloitte to make reference to the matter in their reports. Deloitte furnished the Company with a letter addressed to the Securities and Exchange Commission stating that it agreed with the above statements. A copy of that letter was filed as Exhibit 16.1 to the Current Report on Form 8-K filed on August 17, 2004.

        On September 29, 2004, the Audit Committee of the Board of Directors of the Company engaged Elliott Davis, LLC to serve as its principal auditors. Prior to its engagement, the Company had not consulted with Elliott Davis, LLC with respect to: (1) the application of accounting principles to a specified transaction, either completed or proposed; (2) the type of audit opinion that might be rendered on the Company's financial statements; or (3) any matter that was either the subject of a disagreement or a reportable event.

ITEM 9A.    CONTROLS AND PROCEDURES

        As of the end of the period covered by this report, the Company carried out an evaluation, under the supervision and with the participation of the Company's management, including the Company's Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures pursuant to Exchange Act Rule 13a-14. Based upon that evaluation, the Company's Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures are effective in timely alerting them to material information relating to the Company (including its consolidated subsidiaries) that is required to be included in the Company's periodic filings with the Securities and Exchange Commission. There have been no significant changes in the Company's internal controls or, to the Company's knowledge, in other factors that could significantly affect those internal controls subsequent to the date the Company carried out its evaluation, and there have been no corrective actions with respect to significant deficiencies and material weaknesses.

ITEM 9B.    OTHER INFORMATION

        None.

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PART III

ITEM 10.    DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT

        The responses to this Item are included in the Company's Proxy Statement for the Annual Meeting of Shareholders to be held on May 25, 2005, under the headings "Election of Directors," "Executive Officers," "Beneficial Ownership of Common Stock" and "Compliance With Section 16(a) of the Securities Exchange Act of 1934" and are incorporated herein by reference.

        The Company has adopted a Code of Ethics that applies to its principal executive, financial and accounting officers. A copy may also be obtained, without charge, upon written request addressed to Citizens Bancshares Corporation, 75 Piedmont Avenue, N.E., Atlanta, Georgia 30303, Attention: Corporate Secretary. The request may also be delivered by fax to the Corporate Secretary at (404) 653-2883.

ITEM 11.    EXECUTIVE COMPENSATION

        The responses to this Item are included in the Company's Proxy Statement for the Annual Meeting of Shareholders to be held on May 25, 2005 under the heading "Executive Compensation" and are incorporated herein by reference.

ITEM 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

        The responses to this item are included in the Company's Proxy Statement for the Annual Meeting of Shareholders to be held on May 25, 2005 under the heading "Beneficial Ownership of Common Stock" and are incorporated herein by reference.

Equity Compensation Plan Table
	(a)	(b)		(c)
Plan category	Number of securities to be issued upon exercise of outstanding options, warrants and rights	Weighted-average exercise price of outstanding options, warrants and rights		Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
Equity compensation plans approved by security holders	34,200 shares	$	9.14	290,410 shares
Equity compensation plans not approved by security holders	17,500 shares	$	9.88	None
Total	51,700 shares	$	9.39

ITEM 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

        The responses to this Item are included in the Company's Proxy Statement for the Annual Meeting of Shareholders to be held on May 25, 2005 under the heading "Certain Transactions" and are incorporated herein by reference.

ITEM 14.    PRINCIPAL ACCOUNTANT FEES AND SERVICES

        Information relating to the fees paid to the Company's independent accountants is set forth in the Company's Proxy Statement for the Annual Meeting of Shareholders to be held on May 25, 2005 under the heading "Accounting Matters" and are incorporated herein by reference.

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PART IV

ITEM 15.    EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a)(1)	The following financial statements are included herein:
	Report of Independent Registered Public Accounting Firm
	Consolidated Balance Sheets as of December 31, 2004 and 2003
	Consolidated Statements of Income for the years ended December 31, 2004, 2003 and 2002
	Consolidated Statements of Stockholders' Equity for the years ended December 31, 2004, 2003 and 2002
	Consolidated Statements of Cash Flows for the years ended December 31, 2004, 2003 and 2002
	Notes to Consolidated Financial Statements
(a)(2)	The financial statement schedules are either included in the financial statements or are not applicable.
(a)(3)	Exhibit List

Exhibit Number	Exhibit
3.1	The Articles of Incorporation.(1)
3.2	Bylaws.(2)
4.1	Instruments Defining the Rights of Security Holders.(3)
10.1*	Employment Agreement dated January 30, 1998 between James E. Young and the Company.(4)
10.2*	Citizens Bancshares Corporation Employee Stock Purchase Plan.(4)
10.3*	Citizens Bancshares Corporation 1999 Incentive Stock Option Plan.(4)
10.5	Stock Purchase Agreement by and between Citizens Bancshares Corporation and Fannie Mae dated September 10, 1999 and amended as of October 12, 1999.(5)
10.6	Stock Exchange Agreement between Citizens Bancshares Corporation and Fannie Mae dated November 10, 1999.(5)
21.1	List of subsidiaries.(6)
23.1	Consent of Elliott Davis, LLC.
23.2	Consent of Deloitte & Touche, LLP.
31.1	Certification by Chief Executive Officer under Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification by Chief Operating Officer under Section 302 of the Sarbanes-Oxley Act of 2002
31.3	Certification by Director of Management Services under Section 302 of the Sarbanes-Oxley Act of 2002

76

31.4	Certification by Chief Financial Officer under Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certifications by Chief Executive Officer, Chief Operating Officer, Director of Management Services and Chief Financial Officer under Section 906 of the Sarbanes-Oxley Act of 2002

*

Compensatory plan or arrangement.

(1)

Incorporated by reference to exhibit of same number in the Company's Form 10-QSB for the quarter ending September 30, 2001.

(2)

Incorporated by reference to exhibit of same number in the Company's Registration Statement on Form 10, File No. 0-14535.

(3)

See the Articles of Incorporation of the Company at Exhibit 3.1 hereto and the Bylaws of the Company at Exhibit 3.2 hereto.

(4)

Incorporated by reference to exhibit of same number in the Company's 2000 Form 10-KSB.

(5)

Incorporated by reference to exhibit of same number in the Company's Registration Statement on Form S-3, File No. 333-91003.

(6)

Incorporated by reference to exhibits of same number in the Company's 2003 Form 10-K.

(b)

Reports on Form 8-K filed during the Fourth Quarter of 2004

(c)

The Exhibits not incorporated herein by reference are submitted as a separate part of this report.

(d)

Financial Statement Schedules: The financial statement schedules are either included in the financial statements or are not applicable.

77

SIGNATURES

        Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

CITIZENS BANCSHARES CORPORATION
By:	/s/  JAMES E. YOUNG James E. Young President and Chief Executive Officer
Date:	March 30, 2005

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears on the signature page to this Report constitutes and appoints James E. Young and Willard C. Lewis and each of them, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place, and stead, in any and all capacities, to sign any and all amendments to this Report, and to file the same, with all exhibits hereto, and other documents in connection herewith with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

        Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

Signature	Title	Date
/s/  RAY ROBINSON Ray Robinson	Chairman of the Board	March 30, 2005
/s/  ROBERT L. BROWN Robert L. Brown	Director	March 30, 2005
/s/  STEPHEN ELMORE Stephen Elmore	Director	March 30, 2005
/s/  C. DAVID MOODY C. David Moody	Director	March 30, 2005
/s/  MERCY P. OWENS Mercy P. Owens	Director	March 30, 2005

78

/s/  DONALD RATAJCZAK Donald Ratajczak	Director	March 30, 2005
/s/  H. JEROME RUSSELL H. Jerome Russell	Director	March 30, 2005
/s/  JAMES E. WILLIAMS James E. Williams	Director	March 30, 2005
/s/  JAMES E. YOUNG James E. Young	Director and President*	March 30, 2005
/s/  WILLARD C. LEWIS Willard C. Lewis	Senior Executive Vice President and Chief Operating Officer**	March 30, 2005
/s/  CYNTHIA DAY Cynthia Day	Executive Vice President and Director of Management Services**	March 30, 2005
/s/  SAMUEL J. COX Samuel J. Cox	Senior Vice President and Chief Financial Officer***	March 30, 2005

*

Principal executive officer

**

Principal operating officer

***

Principal accounting and financial officer

79

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DOCUMENTS INCORPORATED BY REFERENCE
SPECIAL CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
PART I

ITEM 1. DESCRIPTION OF BUSINESS

The Company
SELECTED STATISTICAL INFORMATION

ITEM 2. DESCRIPTION OF PROPERTIES
ITEM 3. LEGAL PROCEEDINGS
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER MATTERS
ITEM 6. SELECTED FINANCIAL DATA
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

RESULTS OF OPERATIONS

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

TABLE OF CONTENTS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
CITIZENS BANCSHARES CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2004 AND 2003
CITIZENS BANCSHARES CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31, 2004, 2003, AND 2002
CITIZENS BANCSHARES CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME (LOSS) FOR THE YEARS ENDED DECEMBER 31, 2004, 2003, AND 2002
CITIZENS BANCSHARES CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2004, 2003, AND 2002
CITIZENS BANCSHARES CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2004 AND 2003 AND FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED DECEMBER 31, 2004

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
ITEM 9A. CONTROLS AND PROCEDURES
ITEM 9B. OTHER INFORMATION

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
ITEM 11. EXECUTIVE COMPENSATION
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

SIGNATURES
POWER OF ATTORNEY

EX-23.1

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Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

        We consent to the incorporation by reference in Registration Statement Nos. 33-86599 and 33-91003 of Citizens Bancshares Corporation on Form S-8 and Form S-3, respectively, of our report dated February 28, 2005, appearing in the Annual Report on Form 10-K of Citizens Bancshares Corporation for the year ended December 31, 2004.

/s/ Elliott Davis, LLC

Columbia, South Carolina
March 30, 2005

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Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

EX-23.2

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Exhibit 23.2

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

        We consent to the incorporation by reference in Registration Statement Nos. 33-86599 and 33-91003 of Citizens Bancshares Corporation on Form S-8 and Form S-3, respectively, of our report dated April 12, 2004, appearing in the Annual Report on Form 10-K of Citizens Bancshares Corporation for the year ended December 31, 2004.

/s/ Deloitte & Touché, LLP

Atlanta, Georgia
March 30, 2005

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Exhibit 23.2

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

EX-31.1

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Exhibit 31.1

Certification

I, James E. Young, Chief Executive Officer of Citizens Bancshares Corporation, certify that:

1.

I have reviewed the annual report on Form 10-K of Citizens Bancshares Corporation;

2.

Based on my knowledge, this 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 report;

3.

Based on my knowledge, the financial statements, and other financial information included in this 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 report;

4.

The registrants other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a)

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 subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)

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

c)

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

5.

The registrant's other certifying officer(s) and I 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):

a)

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

b)

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: March 30, 2005

/s/  JAMES E. YOUNG James E. Young
Chief Executive Officer

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Exhibit 31.1

Certification

EX-31.2

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Exhibit 31.2

Certification

I, Willard C. Lewis, Senior Executive Vice President and Chief Operating Officer of Citizens Bancshares Corporation, certify that:

1.

I have reviewed the annual report on Form 10-K of Citizens Bancshares Corporation;

2.

Based on my knowledge, this 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 report;

3.

Based on my knowledge, the financial statements, and other financial information included in this 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 report;

4.

The registrants other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a)

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 subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)

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

c)

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

5.

The registrant's other certifying officer(s) and I 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):

a)

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

b)

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: March 30, 2005

/s/  WILLARD C. LEWIS Willard C. Lewis
Chief Operating Officer

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Exhibit 31.2

Certification

EX-31.3

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Exhibit 31.3

Certification

I, Cynthia N. Day, Director of Management Services of Citizens Bancshares Corporation, certify that:

1.

I have reviewed this annual report on Form 10-K of Citizens Bancshares Corporation;

2.

Based on my knowledge, this 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 report;

3.

Based on my knowledge, the financial statements, and other financial information included in this 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 report;

4.

The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a)

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 subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)

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

c)

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

5.

The registrant's other certifying officer(s) and I 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):

a)

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

b)

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: March 30, 2005

/s/  CYNTHIA N. DAY Cynthia Day
Director of Management Services

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Exhibit 31.3

Certification

EX-31.4

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Exhibit 31.4

Certification

I, Samuel J. Cox, Chief Financial Officer of Citizens Bancshares Corporation, certify that:

1.

I have reviewed this annual report on Form 10-K of Citizens Bancshares Corporation;

2.

Based on my knowledge, this 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 report;

3.

Based on my knowledge, the financial statements, and other financial information included in this 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 report;

4.

The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a)

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 subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)

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

c)

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

5.

The registrant's other certifying officer(s) and I 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):

a)

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

b)

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: March 30, 2005

/s/  SAMUEL J. COX Samuel J. Cox
Chief Financial Officer

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Exhibit 31.4

Certification

EX-32.1

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Exhibit 32.1

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

        Each of the undersigned hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that this Annual Report on Form 10-K for the year ended December 31, 2004 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and the information contained in such report fairly presents, in all material respects, the financial condition and results of operations of the Company.

        This 30 day of March, 2005.

/s/  JAMES E. YOUNG Chief Executive Officer
Citizens Bancshares Corporation

/s/  WILLARD C. LEWIS Chief Operating Officer
Citizens Bancshares Corporation

/s/  CYNTHIA N. DAY Director of Management Services
Citizens Bancshares Corporation

/s/  SAMUEL J. COX Chief Financial Officer
Citizens Bancshares Corporation

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Exhibit 32.1

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