**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

**FORM 10 – Q**

**(Mark One)**
| **x**      | ** ** | **QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15  (d) OF THE  SECURITIES EXCHANGE ACT OF 1934**                                                                                                                                                                                                   |
|------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** ** |       |                                                                                                                                                                                                                                                                                             |
| ** ** |       | **For the quarterly period ended September 30,  2006**                                                                                                                                                                                                                                           |
| ** ** |       |                                                                                                                                                                                                                                                                                             |
| **OR**     |
| ** ** |       |                                                                                                                                                                                                                                                                                             |
| **o**      |       | **TRANSITION REPORT PURSUANT TO SECTION 13 OR 15  (d) OF THE  SECURITIES EXCHANGE ACT OF 1934**                                                                                                                                                                                                  |
| ** ** |       |                                                                                                                                                                                                                                                                                             |
| ** ** |       | **For the transition period from                     to                     ** |

 

**Commission File No:  0 - 14535**

**CITIZENS BANCSHARES CORPORATION**

(Exact name of registrant as specified in its charter)

| **Georgia**                                               |   | **58 –  1631302**             |
|-----------------------------------------------------------|--------|------------------------------------|
| (State or other  jurisdiction of                          |   | (IRS Employer  Identification No.) |
| incorporation or  organization)                           |   |                               |
|                                                      |   |                               |
| **175  John Wesley Dobbs Avenue, N.E., Atlanta, Georgia** |   | **30303**                          |
| (Address of  principal executive offices)                 |   | (Zip Code)                         |

 

Registrant’s telephone number, including area code:     **(404) 659 - 5959**
| Indicate by check mark whether the registrant  (1) has filed all reports required to be filed by Section 13 or 15 (d) of the  Securities Exchange Act of 1934 during the preceding 12 months (or for such  shorter period that the registrant was required to file such |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| reports), and (2) has been subject to such filing  requirements for the past 90 days.                                                                                                                                                                                   | x Yes o No. |

 

Indicate by check mark whether the registrant is alarge accelerated filer, an accelerated filer, or a non-accelerated filer.  See definition of “accelerated filer andlarge accelerated filer” in Rule 12b-2 of the Exchange Act)
| Large accelerated filer    o | Accelerated filer    o | Non-accelerated filer    x |
|--------------------------------------------------|--------------------------------------------|------------------------------------------------|

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

 

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY

PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
| Indicate by check mark whether 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.          | o Yes  o No. |

 
| SEC 1296 (08-03) | **Potential persons who are to respond to the  collection of information contained in this form are not required to respond  unless the form displays a currently valid OMB control number.** |
|------------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding for each ofthe issuer’s classes of common stock as of the latest practicable date:1,997,483 shares of Common Stock, $1.00 par value and 90,000 shares ofNon-Voting Common Stock, $1.00 par value outstanding on October 31, 2006.

 

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**PART 1.   FINANCIALINFORMATION**

**ITEM 1.   Financialstatements**

**CITIZENSBANCSHARES CORPORATION AND SUBSIDIARIES**

**CONSOLIDATEDBALANCE SHEETS**

**September30, 2006 AND DECEMBER 31, 2005**

**(In thousands, except share data)**
| ** **                                                                                                     | ** ** | **2006**        | ** ** | **2005**   | ** ** |
|----------------------------------------------------------------------------------------------------------------|------------|-----------------|------------|------------|------------|
| ** **                                                                                                     | ** ** | **(Unaudited)** | ** ** | ** ** | ** ** |
| **ASSETS**                                                                                                     |       |            |       |       |       |
| Cash and due  from banks                                                                                       |       | $               | 8,134      |       | $          | 11,289 |   |
| Interest-bearing  deposits with banks                                                                          |       | 5,229           |       | 398        |       |
| Certificates of  deposit                                                                                       |       | 100             |       | 100        |       |
| Investment  securities available for sale, at fair value                                                       |       | 69,613          |       | 65,766     |       |
| Investment  securities held to maturity, at cost                                                               |       | 8,806           |       | 9,411      |       |
| Other  investments                                                                                             |       | 2,219           |       | 2,835      |       |
| Loans  receivable, net                                                                                         |       | 211,252         |       | 215,645    |       |
| Premises and  equipment, net                                                                                   |       | 7,350           |       | 7,625      |       |
| Cash surrender  value of life insurance                                                                        |       | 9,271           |       | 9,105      |       |
| Foreclosed real  estate, net                                                                                   |       | 334             |       | 570        |       |
| Other assets                                                                                                   |       | 5,861           |       | 5,837      |       |
|                                                                                                           |       |            |       |       |       |
| Total assets                                                                                                   |       | $               | 328,169    |       | $          | 328,581 |   |
|                                                                                                           |       |            |       |       |       |
| **LIABILITIES AND STOCKHOLDERS’  EQUITY**                                                                 | ** ** | ** **      | ** ** | ** ** | ** ** |
|                                                                                                           |       |            |       |       |       |
| LIABILITIES:                                                                                                   |       |            |       |       |       |
| Noninterest-bearing  deposits                                                                                  |       | $               | 63,361     |       | $          | 60,087 |   |
| Interest-bearing  deposits                                                                                     |       | 201,365         |       | 194,582    |       |
|                                                                                                           |       |            |       |       |       |
| Total deposits                                                                                                 |       | 264,726         |       | 254,669    |       |
|                                                                                                           |       |            |       |       |       |
| Accrued expenses  and other liabilities                                                                        |       | 3,258           |       | 3,403      |       |
| Notes payable                                                                                                  |       | 340             |       | 440        |       |
| Junior  subordinated debentures                                                                                |       | 5,155           |       | 5,155      |       |
| Advances from  Federal Home Loan Bank                                                                          |       | 25,651          |       | 37,700     |       |
|                                                                                                           |       |            |       |       |       |
| Total  liabilities                                                                                             |       | 299,130         |       | 301,367    |       |
|                                                                                                           |       |            |       |       |       |
| COMMITMENTS AND  CONTINGENCIES                                                                                 |       |            |       |       |       |
|                                                                                                           |       |            |       |       |       |
| STOCKHOLDERS’ EQUITY:                                                                                     |       |            |       |       |       |
| Common stock -  $1 par value; 20,000,000 shares authorized; 2,230,065 shares issued                            |       | 2,230           |       | 2,230      |       |
| Nonvoting common  stock - $1 par value; 5,000,000 shares authorized; 90,000 issued and outstanding             |       | 90              |       | 90         |       |
| Additional  paid-in capital                                                                                    |       | 7,483           |       | 7,439      |       |
| Retained  earnings                                                                                             |       | 21,906          |       | 20,138     |       |
| Treasury stock  at cost, 234,442 and 231,313 shares at September 30, 2006 and December 31,  2005, respectively |       | (1,915          | )          | (1,896     | )          |
| Accumulated  other comprehensive loss, net of income taxes                                                     |       | (755            | )          | (787       | )          |
|                                                                                                           |       |            |       |       |       |
| Total  stockholders’ equity                                                                               |       | 29,039          |       | 27,214     |       |
|                                                                                                           |       |            |       |       |       |
|                                                                                                           |       | $               | 328,169    |       | $          | 328,581 |   |

 

See notes to consolidatedfinancial statements.

2

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**CITIZENS BANCSHARES CORPORATION AND SUBSIDIARIES**

**CONSOLIDATEDSTATEMENTS OF INCOME**

**(Unaudited- In thousands, except per share data)**
| ** **                                           | ** ** | **Three Months  Ended September 30,** | ** ** | **Nine Months  Ended September 30,** | ** ** |
|------------------------------------------------------|------------|------------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                           | ** ** | **2006**                                             | ** ** | **2005**                                            | ** ** | **2006** | ** ** | **2005** | ** ** |
| ** **                                           | ** ** | ** **                                           | ** ** | ** **                                          | ** ** | ** ** | ** ** | ** ** | ** ** |
| Interest income:                                     |       |                                                 |       |                                                |       |   |   |   |   |
| Loans, including fees                                |       | $                                                    | 4,461      |                                                | $          | 4,227 |   | $ | 13,439 |   | $ | 12,257 |   |
| Investment securities:                               |       |                                                 |       |                                                |       |   |   |   |   |
| Taxable                                              |       | 673                                                  |       | 541                                                 |       | 1,932 |   | 1,737 |   |
| Tax-exempt                                           |       | 226                                                  |       | 200                                                 |       | 667 |   | 594 |   |
| Interest-bearing deposits                            |       | 14                                                   |       | 15                                                  |       | 38 |   | 112 |   |
| ** **                                           | ** ** | ** **                                           | ** ** | ** **                                          | ** ** | ** ** | ** ** | ** ** | ** ** |
| Total interest income                                |       | 5,374                                                |       | 4,983                                               |       | 16,076 |   | 14,700 |   |
| ** **                                           | ** ** | ** **                                           | ** ** | ** **                                          | ** ** | ** ** | ** ** | ** ** | ** ** |
| Interest  expense:                                   |       |                                                 |       |                                                |       |   |   |   |   |
| Deposits                                             |       | 1,433                                                |       | 1,004                                               |       | 4,069 |   | 2,798 |   |
| Other borrowings                                     |       | 475                                                  |       | 400                                                 |       | 1,312 |   | 999 |   |
| Total interest expense                               |       | 1,908                                                |       | 1,404                                               |       | 5,381 |   | 3,797 |   |
| ** **                                           | ** ** | ** **                                           | ** ** | ** **                                          | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net interest income                                  |       | 3,466                                                |       | 3,579                                               |       | 10,695 |   | 10,903 |   |
| ** **                                           | ** ** | ** **                                           | ** ** | ** **                                          | ** ** | ** ** | ** ** | ** ** | ** ** |
| Provision for  loan losses                           |       | —                                               |       | 60                                                  |       | 30 |   | 228 |   |
| ** **                                           | ** ** | ** **                                           | ** ** | ** **                                          | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net interest  income after provision for loan losses |       | 3,466                                                |       | 3,519                                               |       | 10,665 |   | 10,675 |   |
| ** **                                           | ** ** | ** **                                           | ** ** | ** **                                          | ** ** | ** ** | ** ** | ** ** | ** ** |
| Noninterest  income:                                 |       |                                                 |       |                                                |       |   |   |   |   |
| Service charges on deposits                          |       | 739                                                  |       | 881                                                 |       | 2,274 |   | 2,560 |   |
| Impairment loss on equity securities                 |       | —                                               |       | —                                              |       | — |   | (346 | ) |
| Gain on sales of securities                          |       | —                                               |       | 30                                                  |       | 126 |   | 75 |   |
| Gain (loss) on sales of assets                       |       | (23                                                  | )          | 10                                                  |       | — |   | (6 | ) |
| Other operating income                               |       | 432                                                  |       | 406                                                 |       | 1,371 |   | 1,518 |   |
| ** **                                           | ** ** | ** **                                           | ** ** | ** **                                          | ** ** | ** ** | ** ** | ** ** | ** ** |
| Total noninterest income                             |       | 1,148                                                |       | 1,327                                               |       | 3,771 |   | 3,801 |   |
| ** **                                           | ** ** | ** **                                           | ** ** | ** **                                          | ** ** | ** ** | ** ** | ** ** | ** ** |
| Noninterest  expense:                                |       |                                                 |       |                                                |       |   |   |   |   |
| Salaries and employee benefits                       |       | 1,857                                                |       | 2,056                                               |       | 5,857 |   | 6,209 |   |
| Net occupancy and equipment                          |       | 568                                                  |       | 663                                                 |       | 1,738 |   | 1,996 |   |
| Other operating expenses                             |       | 1,375                                                |       | 1,410                                               |       | 4,181 |   | 4,381 |   |
| ** **                                           | ** ** | ** **                                           | ** ** | ** **                                          | ** ** | ** ** | ** ** | ** ** | ** ** |
| Total noninterest expense                            |       | 3,800                                                |       | 4,129                                               |       | 11,776 |   | 12,586 |   |
| ** **                                           | ** ** | ** **                                           | ** ** | ** **                                          | ** ** | ** ** | ** ** | ** ** | ** ** |
| Income before income taxes                           |       | 814                                                  |       | 717                                                 |       | 2,660 |   | 1,890 |   |
| ** **                                           | ** ** | ** **                                           | ** ** | ** **                                          | ** ** | ** ** | ** ** | ** ** | ** ** |
| Income tax  expense                                  |       | 151                                                  |       | 37                                                  |       | 537 |   | 278 |   |
| ** **                                           | ** ** | ** **                                           | ** ** | ** **                                          | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net income                                           |       | $                                                    | 663        |                                                | $          | 680 |   | $ | 2,123 |   | $ | 1,612 |   |
| ** **                                           | ** ** | ** **                                           | ** ** | ** **                                          | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net income per  share - basic                        |       | $                                                    | 0.32       |                                                | $          | 0.33 |   | $ | 1.02 |   | $ | 0.77 |   |
| ** **                                           | ** ** | ** **                                           | ** ** | ** **                                          | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net income per  share - diluted                      |       | $                                                    | 0.32       |                                                | $          | 0.32 |   | $ | 1.02 |   | $ | 0.77 |   |
| ** **                                           | ** ** | ** **                                           | ** ** | ** **                                          | ** ** | ** ** | ** ** | ** ** | ** ** |
| Weighted average  outstanding shares - basic         |       | 2,085                                                |       | 2,087                                               |       | 2,088 |   | 2,085 |   |
|                                                 |       |                                                 |       |                                                |       |   |   |   |   |
| Weighted average  outstanding shares - diluted       |       | 2,083                                                |       | 2,098                                               |       | 2,086 |   | 2,097 |   |
| Dividends per common  share                          |       | $                                                    | —     |                                                | $          | — |   | $ | 0.17 |   | $ | 0.15 |   |

 

See notes to consolidatedfinancial statements.

3

----

**CITIZENS BANCSHARES CORPORATION ANDSUBSIDIARIES**

**CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY ANDCOMPREHENSIVE INCOME (LOSS)**

**FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2006 AND 2005**

**(Unaudited - In thousands, exceptparenthetical footnotes)**
| ** **                                                                                                    | ** ** | ** **            | ** ** | ** **            | ** ** | ** **    | ** ** | ** **     | ** ** | ** **              | ** ** | ** **        | ** ** | ** ** | ** ** | ** ** | ** ** | **Accumulated**        | ** ** | ** ** | ** ** |
|---------------------------------------------------------------------------------------------------------------|------------|-----------------------|------------|-----------------------|------------|---------------|------------|----------------|------------|-------------------------|------------|-------------------|------------|------------|------------|------------|------------|------------------------|------------|------------|------------|
| ** **                                                                                                    | ** ** | ** **            | ** ** | ** **            | ** ** | **Nonvoting** | ** ** | **Additional** | ** ** | ** **              | ** ** | ** **        | ** ** | ** ** | ** ** | **Other**  | ** ** | ** **             | ** ** |
| ** **                                                                                                    | ** ** | **Common Stock** | ** ** | **Common Stock** | ** ** | **Paid-in**   | ** ** | **Retained**   | ** ** | **Treasury Stock** | ** ** | **Comprehensive** | ** ** | ** ** | ** ** |
| ** **                                                                                                    | ** ** | **Shares**            | ** ** | **Amount**            | ** ** | **Shares**    | ** ** | **Amount**     | ** ** | **Capital**             | ** ** | **Earnings**      | ** ** | **Shares** | ** ** | **Amount** | ** ** | **Income (Loss)** | ** ** | **Total**  | ** ** |
| ** **                                                                                                    | ** ** | ** **            | ** ** | ** **            | ** ** | ** **    | ** ** | ** **     | ** ** | ** **              | ** ** | ** **        | ** ** | ** ** | ** ** | ** ** | ** ** | ** **             | ** ** | ** ** | ** ** |
| Balance—December 31, 2004                                                                                |       | 2,230                 |       | $                     | 2,230      |          | 90         |           | $          | 90                      |       | $                 | 7,442      |       | $          | 18,108     |       | (241                   | )          | $          | (1,955     | ) | $ | (34 | ) | $ | 25,881 |   |
|                                                                                                          |       |                  |       |                  |       |          |       |           |       |                    |       |              |       |       |       |       |       |                   |       |       |       |
| Net income                                                                                                    |       | —                |       | —                |       | —        |       | —         |       | —                  |       | 1,612             |       | —     |       | —     |       | —                 |       | 1,612      |       |
| Unrealized holding losses on investment securities  available for sale—net of taxes of $10,780           |       | —                |       | —                |       | —        |       | —         |       | —                  |       | —            |       | —     |       | —     |       | (529                   | )          | (529       | )          |
| Less reclassification adjustment for holding  gains included in net income—net of taxes  of $15,541 |       | —                |       | —                |       | —        |       | —         |       | —                  |       | —            |       | —     |       | —     |       | 179                    |       | 179        |       |
|                                                                                                          |       |                  |       |                  |       |          |       |           |       |                    |       |              |       |       |       |       |       |                   |       |       |       |
| Comprehensive loss                                                                                            |       | —                |       | —                |       | —        |       | —         |       | —                  |       | —            |       | —     |       | —     |       | —                 |       | 1,262      |       |
| Sale of treasury stock                                                                                        |       | —                |       | —                |       | —        |       | —         |       | (3                      | )          | —            |       | 8          |       | 59         |       | —                 |       | 56         |       |
| Dividends declared                                                                                            |       | —                |       | —                |       | —        |       | —         |       | —                  |       | (313              | )          | —     |       | —     |       | —                 |       | (313       | )          |
|                                                                                                          |       |                  |       |                  |       |          |       |           |       |                    |       |              |       |       |       |       |       |                   |       |       |       |
| **Balance—September 30, 2005**                                                                           | ** ** | **2,230**             | ** ** | **$**                 | **2,230**  | ** **    | **90**     | ** **     | **$**      | **90**                  | ** ** | **$**             | **7,439**  | ** ** | **$**      | **19,407** | ** ** | **(233**               | **)**      | **$**      | **(1,896** | **)** | **$** | **(384** | **)** | **$** | **26,886** | ** ** |
| ** **                                                                                                    | ** ** | ** **            | ** ** | ** **            | ** ** | ** **    | ** ** | ** **     | ** ** | ** **              | ** ** | ** **        | ** ** | ** ** | ** ** | ** ** | ** ** | ** **             | ** ** | ** ** | ** ** |
| Balance—December 31, 2005                                                                                |       | 2,230                 |       | $                     | 2,230      |          | 90         |           | $          | 90                      |       | $                 | 7,439      |       | $          | 20,138     |       | (231                   | )          | $          | (1,896     | ) | $ | (787 | ) | $ | 27,214 |   |
|                                                                                                          |       |                  |       |                  |       |          |       |           |       |                    |       |              |       |       |       |       |       |                   |       |       |       |
| Net income                                                                                                    |       | —                |       | —                |       | —        |       | —         |       | —                  |       | 2,123             |       | —     |       | —     |       | —                 |       | 2,123      |       |
| Unrealized holding losses on investment securities  available for sale—net of taxes of $59,592           |       | —                |       | —                |       | —        |       | —         |       | —                  |       | —            |       | —     |       | —     |       | 116                    |       | 116        |       |
| Less reclassification adjustment for holding gains  included in net income—net of taxes of $42,017       |       | —                |       | —                |       | —        |       | —         |       | —                  |       | —            |       | —     |       | —     |       | (84                    | )          | (84        | )          |
|                                                                                                          |       |                  |       |                  |       |          |       |           |       |                    |       |              |       |       |       |       |       |                   |       |       |       |
| Comprehensive loss                                                                                            |       |                  |       |                  |       |          |       |           |       |                    |       |              |       |       |       |       |       |                   |       | 2,155      |       |
| Purchase of treasury stock                                                                                    |       | —                |       | —                |       | —        |       | —         |       | 2                       |       | —            |       | (3         | )          | (33        | )          | —                 |       | (31        | )          |
| Stock based compensation expense                                                                              |       | —                |       | —                |       | —        |       | —         |       | 36                      |       | —            |       | —     |       | —     |       | —                 |       | 36         |       |
| Reclassification adjustment of treasury stock                                                                 |       | —                |       | —                |       | —        |       | —         |       | 6                       |       | —            |       | —     |       | 14         |       | —                 |       | 20         |       |
| Dividends declared                                                                                            |       | —                |       | —                |       | —        |       | —         |       | —                  |       | (355              | )          | —     |       | —     |       | —                 |       | (355       | )          |
|                                                                                                          |       |                  |       |                  |       |          |       |           |       |                    |       |              |       |       |       |       |       |                   |       |       |       |
| **Balance—September  30, 2006**                                                                          | ** ** | **2,230**             | ** ** | **$**                 | **2,230**  | ** **    | **90**     | ** **     | **$**      | **90**                  | ** ** | **$**             | **7,483**  | ** ** | **$**      | **21,906** | ** ** | **(234**               | **)**      | **$**      | **(1,915** | **)** | **$** | **(755** | **)** | **$** | **29,039** | ** ** |

 

See notes toconsolidated financial statements.

4

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**CITIZENS BANCSHARES CORPORATION AND SUBSIDIARIES**

**CONSOLIDATED STATEMENTS OF CASH FLOWS**

**FOR THE NINEMONTHS ENDED SEPTEMBER 30, 2006 AND 2005**

**(In thousands)**
| ** **                                                                                  | ** ** | **September 30,** | ** ** |
|---------------------------------------------------------------------------------------------|------------|------------------------|------------|
| ** **                                                                                  | ** ** | **2006**               | ** ** | **2005** | ** ** |
| ** **                                                                                  | ** ** | **(Unaudited)**        | ** ** |
| **OPERATING ACTIVITIES:**                                                                   |       |                   |       |   |   |
| Net income                                                                                  |       | $                      | 2,123      |   | $ | 1,612 |   |
| **Adjustments  to reconcile net income to net cash provided by operating activities:**      |       |                   |       |   |   |
| Provision for  loan losses                                                                  |       | 30                     |       | 228 |   |
| Depreciation                                                                                |       | 487                    |       | 711 |   |
| Amortization and  accretion, net                                                            |       | 296                    |       | 761 |   |
| Provision for  deferred income taxes (benefit)                                              |       | 204                    |       | (172 | ) |
| Gain on sale of  assets and investments                                                     |       | (126                   | )          | (69 | ) |
| Write-down of  equity securities                                                            |       | —                 |       | 346 |   |
| Stock based  compensation expense                                                           |       | 36                     |       | — |   |
| Change in other  assets                                                                     |       | (494                   | )          | 529 |   |
| Change in  accrued expenses and other liabilities                                           |       | (186                   | )          | (38 | ) |
| Net cash  provided by operating activities                                                  |       | 2,370                  |       | 3,908 |   |
|                                                                                        |       |                   |       |   |   |
| **INVESTING ACTIVITIES:**                                                                   |       |                   |       |   |   |
| Proceeds from  calls and maturities of investment securities held to maturity               |       | 598                    |       | 294 |   |
| Proceeds from  sales and maturities of investment securities available for sale             |       | 10,875                 |       | 14,643 |   |
| Purchases of  investment securities available for sale                                      |       | (14,717                | )          | (6,889 | ) |
| Net change in  other investments                                                            |       | 616                    |       | 466 |   |
| Net change in  loans receivable                                                             |       | 3,714                  |       | (2,703 | ) |
| Net proceeds  (premiums paid) on life insurance policy                                      |       | 84                     |       | (70 | ) |
| Net proceeds  from the sale of foreclosed properties                                        |       | 762                    |       | 1,251 |   |
| Purchases of  premises and equipment, net                                                   |       | (204                   | )          | (107 | ) |
| Net change in  interest bearing deposits with banks                                         |       | (4,831                 | )          | (580 | ) |
| Net change in  certificates of deposit                                                      |       | —                 |       | 700 |   |
| Net cash  provided by (used in) investing activities                                        |       | (3,103                 | )          | 7,005 |   |
|                                                                                        |       |                   |       |   |   |
| **FINANCING ACTIVITIES:**                                                                   |       |                   |       |   |   |
| Net change in  deposits                                                                     |       | 10,057                 |       | 984 |   |
| Sale (purchase)  of treasury stock activity                                                 |       | (19                    | )          | 59 |   |
| Net change in  additional paid-in-capital                                                   |       | 44                     |       | (2 | ) |
| Principal  payments on debt                                                                 |       | (100                   | )          | (100 | ) |
| Net change in  advances from Federal Home Loan Bank                                         |       | (12,049                | )          | (9,050 | ) |
| Dividends paid                                                                              |       | (355                   | )          | (313 | ) |
| Net cash used in  financing activities                                                      |       | (2,422                 | )          | (8,422 | ) |
| Net change in  cash and cash equivalents                                                    |       | (3,155                 | )          | 2,491 |   |
| Cash and and cash  equivalents, beginning of period                                         |       | 11,289                 |       | 10,875 |   |
| Cash and and cash  equivalents at end of period                                             |       | $                      | 8,134      |   | $ | 13,366 |   |
|                                                                                        |       |                   |       |   |   |
| **Supplemental disclosures of  cash paid during the period for:**                           |       |                   |       |   |   |
| Interest                                                                                    |       | $                      | 5,429      |   | $ | 3,738 |   |
| Income taxes                                                                                |       | $                      | 677        |   | $ | 186 |   |
|                                                                                        |       |                   |       |   |   |
| **Supplemental disclosures of  noncash transactions:**                                      |       |                   |       |   |   |
| Change in unrealized gain (loss) on investment securities available  for sale, net of taxes |       | $                      | 32         |   | $ | (350 | ) |

 

Seenotes to consolidated financial statements.

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**CITIZENS BANCSHARES CORPORATIONAND SUBSIDIARIES**

**Notes to the Consolidated Financial Statements**

(Unaudited)

**1.  SUMMARYOF SIGNIFICANT ACCOUNTING POLICIES**

**Basis of Presentation**

Citizens Bancshares Corporation (the “Company”) is aholding company that provides a full range of commercial banking and mortgagebrokerage services to individual and corporate customers in metropolitanAtlanta and Columbus, Georgia, and in Birmingham and Eutaw, Alabama, throughits wholly owned subsidiary, Citizens Trust Bank (the “Bank”).  The Bank operates under a state charter andserves its customers through seven full-service financial centers inmetropolitan Atlanta, Georgia, one full-service financial center in Columbus,Georgia, one full-service financial center in Birmingham, Alabama, and onefull-service financial center in Eutaw, Alabama.  The Company also owns and operates a whollyowned subsidiary grantor trust, Citizens (GA) Statutory Trust I (the “Trust”)through the issuance of pooled trust preferred securities.  However, in accordance with currentaccounting guidance, the Trust has not been consolidated in the financialstatements.

The accompanying unaudited consolidated financialstatements have been prepared pursuant to the rules and regulations forreporting on Form 10-Q.  Accordingly,certain disclosures required by generally accepted accounting principles arenot included herein. These interim statements should be read in conjunctionwith the financial statements and notes thereto included in the Company’slatest Annual Report on Form 10-K filed with the Securities and ExchangeCommission for the year ended December 31, 2005.  The results of operations for the interimperiods reported herein are not necessarily representative of the resultsexpected for the full 2006 fiscal year.

The consolidated financial statements of the Companyfor the three and nine month periods ended September 30, 2006 and 2005 areunaudited.  In the opinion of management,all adjustments necessary for a fair presentation of the financial position andresults of operations, changes in stockholders’ equity and cash flows for thenine month periods have been included. All adjustments are of a normal recurring nature.  All significant intercompany accounts andtransactions have been eliminated in consolidation.

**Accounting Policies**

The Company’s consolidated financial statements havebeen prepared in accordance with accounting principles generally accepted inthe United States of America (“GAAP”), which often require the judgment ofmanagement in the selection and application of certain accounting principlesand methods.  Reference is made to theaccounting policies of the Company described in the notes to the consolidatedfinancial statements contained in the Company’s Annual Report on Form 10-K forthe year ended December 31, 2005.  TheCompany has followed those policies in preparing this report.  Management believes that the quality andreasonableness of its most critical policies enable the fair presentation ofits financial position and of its results of operations.

**RecentlyIssued Accounting Standards**

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

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In February 2006, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 155, “Accounting for Certain Hybrid Financial Instruments—an amendment of FASB Statements No. 133 and 140.” This Statement amends SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” and SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.” This Statement resolves issues addressed in SFAS No. 133 Implementation Issue No. D1, “Application of Statement 133 to Beneficial Interests in Securitized Financial Assets.” SFAS No. 155 is effective for all financial instruments acquired or issued after the beginning of an entity’s first fiscal year that begins after September 15, 2006. The Company does not believe that the adoption of SFAS No. 155 will have a material impact on its financial position, results of operations and cash flows.

In March 2006, the FASBissued SFAS No. 156, “**Accountingfor Servicing of Financial Assets—an amendment of FASB Statement No. 140.” **This Statement amendsFASB No. 140, “Accounting for Transfers and Servicing of Financial Assets andExtinguishments of Liabilities,” with respect to the accounting for separatelyrecognized servicing assets and servicing liabilities. SFAS No. 156 requires anentity to recognize a servicing asset or servicing liability each time itundertakes an obligation to service a financial asset by entering into aservicing contract; requires all separately recognized servicing assets andservicing liabilities to be initially measured at fair value, if practicable;permits an entity to choose its subsequent measurement methods for each classof separately recognized servicing assets and servicing liabilities; at itsinitial adoption, permits a one-time reclassification of available-for-salesecurities to trading securities by entities with recognized servicing rights,without calling into question the treatment of other available-for-salesecurities under Statement 115, provided that the available-for-sale securitiesare identified in some manner as offsetting the entity’s exposure to changes infair value of servicing assets or servicing liabilities that a servicer electsto subsequently measure at fair value; and requires separate presentation ofservicing assets and servicing liabilities subsequently measured at fair valuein the statement of financial position and additional disclosures for allseparately recognized servicing assets and servicing liabilities. An entityshould adopt SFAS No. 156 as of the beginning of its first fiscal year thatbegins after September 15, 2006. The Company does not believe the adoption ofSFAS No. 156 will have a material impact on its financial position, results ofoperations and cash flows.

In July 2006, the FASB issued FASB Interpretation No. 48 (“FIN 48”), “Accountingfor Uncertainty in Income Taxes”. FIN 48 clarifies the accounting foruncertainty in income taxes recognized in an enterprise’s financial statementsin accordance with FASB Statement No. 109, “Accounting for Income Taxes”. FIN48 prescribes a recognition threshold and measurement attributable for thefinancial statement recognition and measurement of a tax position taken orexpected to be taken in a tax return. FIN 48 also provides guidance onderecognition, classification, interest and penalties, accounting in interimperiods, disclosures and transitions. FIN 48 is effective for fiscal yearsbeginning after December 15, 2006. The Company is currently analyzing theeffects of FIN 48.

In September 2006, the FASBissued SFAS No. 157, “Fair Value Measurements.” SFAS 157 defines fair value,establishes a framework for measuring fair value in generally acceptedaccounting principles, and expands disclosures about fair value measurements.SFAS 157 is effective for the Company on January 1, 2008 and is not expected tohave a significant impact on the Company’s financial statements.

In September 2006, the FASBissued SFAS No. 158, “Employers’Accounting for Defined Benefit Pension and Other Postretirement Plans”**(“SFAS 158”), which amends SFAS 87and SFAS 106 to require recognition of the overfunded or underfunded status ofpension and other postretirement benefit plans on the balance sheet. Under SFAS158, gains and losses, prior service costs and credits, and any remainingtransition amounts under SFAS 87 and SFAS 106 that have not yet been

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recognized through netperiodic benefit cost will be recognized in accumulated other comprehensiveincome, net of tax effects, until they are amortized as a component of netperiodic cost. The measurement date — the date at which the benefit obligationand plan assets are measured — is required to be the company’s fiscal year end.SFAS 158 is effective for publicly held companies for fiscal years ending afterDecember 15, 2006, except for the measurement date provisions, which areeffective for fiscal years ending after December 15, 2008. The Company iscurrently analyzing the effects of SFAS 158 but does not expect itsimplementation will have a significant impact on the Company’s financialconditions or results of operations.

In September, 2006, The FASB ratified the consensuses reached by theFASB’s Emerging Issues Task Force (EITF) relating to EITF 06-4 “Accounting forthe Deferred Compensation and Postretirement Benefit Aspects of EndorsementSplit-Dollar Life Insurance Arrangements”. EITF 06-4 addresses employer accounting for endorsement split-dollarlife insurance arrangements that provide a benefit to an employee that extendsto postretirement periods should recognize a liability for future benefits inaccordance with FASB Statement of Financial Accounting Standards (SFAS) No.106, “**Employers’ Accounting forPostretirement Benefits Other Than Pensions”*,*orAccounting Principles Board (APB) Opinion No. 12, “**Omnibus Opinion—1967”*. *EITF 06-4 is effective for fiscal yearsbeginning after December 15, 2006. Entities should recognize the effects ofapplying this Issue through either (a) a change in accounting principle througha cumulative-effect adjustment to retained earnings or to other components ofequity or net assets in the statement of financial position as of the beginningof the year of adoption or (b) a change in accounting principle throughretrospective application to all prior periods. The Company does not believe the adoption of EITF 06-4 will have amaterial impact on its financial position, results of operations and cashflows.

On September 13, 2006, theSEC issued Staff Accounting Bulleting No. 108 (“SAB 108”). SAB 108 providesinterpretive guidance on how the effects of the carryover or reversal of prioryear misstatements should be considered in quantifying a potential current yearmisstatement. Prior to SAB 108, Companies might evaluate the materiality offinancial statement misstatements using either the income statement or balancesheet approach, with the income statement approach focusing on newmisstatements added in the current year, and the balance sheet approachfocusing on the cumulative amount of misstatement present in a company’sbalance sheet. Misstatements that would be material under one approach could beviewed as immaterial under another approach, and not be corrected. SAB 108 nowrequires that companies view financial statement misstatements as material ifthey are material according to either the income statement or balance sheetapproach. The Company has analyzed SAB 108 and determined that upon adoption itwill have no impact on the reported results of operations or financialconditions.

Other accounting standards that have been issued or proposed by theFASB or other standards-setting bodies are not expected to have a material impacton the Company’s financial position, results of operations and cash flows.

**2.  STOCK BASED COMPENSATION**

# On January 1, 2006, the Company adopted the fair valuerecognition provisions of Financial Accounting Standards Board (“FASB”)Statement of Financial Accounting Standards (“SFAS”) No. 123(R), *Accounting for Stock-Based Compensation*,to account for compensation costs under its stock option plans.  The Company previously utilized the intrinsicvalue method under Accounting Principles Board Opinion No. 25, *Accounting for Stock Issued to Employees (as amended)*(“APB 25”).  Under the intrinsic valuemethod prescribed by APB 25, no compensation costs were recognized for theCompany’s stock options because the option exercise price in its plans equalsthe market price on the

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# date of grant. Prior to January 1, 2006, the Company only disclosed the pro formaeffects on net income and earnings per share as if the fair value recognitionprovisions of SFAS 123(R) had been utilized.

# In adopting SFAS No. 123, the Company elected to usethe modified prospective method to account for the transition from theintrinsic value method to the fair value recognition method.  Under the modified prospective method,compensation cost is recognized from the adoption date forward for all newstock options granted and for any outstanding unvested awards as if the fairvalue method had been applied to those awards as of the date of grant. Thefollowing table illustrates the effect on net income and earnings per share asif the fair value based method had been applied to all outstanding and unvestedawards in each period (in thousands, except per share amounts):

| ** **                                                                                                   | ** ** | **For the three months  ended September 30,** | ** ** | **For the nine months  ended September 30,** | ** ** |
|--------------------------------------------------------------------------------------------------------------|------------|------------------------------------------------------------------------|------------|-----------------------------------------------------------------------|------------|
| ** **                                                                                                   | ** ** | **2006**                                                               | ** ** | **2005**                                                              | ** ** | **2006** | ** ** | **2005** | ** ** |
|                                                                                                         |       |                                                                   |       |                                                                  |       |   |   |   |   |
| Net income as  reported                                                                                      |       | $                                                                      | 663        |                                                                  | $          | 680 |   | $ | 2,123 |   | $ | 1,612 |   |
| Add: stock-based  compensation expense included in reported net income, net of tax                           |       | 8                                                                      |       | —                                                                |       | 25 |   | — |   |
| Less: total  stock-based compensation expense determined under fair value method for all  awards, net of tax |       | (8                                                                     | )          | (6                                                                    | )          | (25 | ) | (18 | ) |
|                                                                                                         |       |                                                                   |       |                                                                  |       |   |   |   |   |
| Pro forma net  income                                                                                        |       | $                                                                      | 663        |                                                                  | $          | 674 |   | $ | 2,123 |   | $ | 1,594 |   |
|                                                                                                         |       |                                                                   |       |                                                                  |       |   |   |   |   |
| Earnings per  share:                                                                                         |       |                                                                   |       |                                                                  |       |   |   |   |   |
| Basic—as reported                                                                                       |       | $                                                                      | 0.32       |                                                                  | $          | 0.33 |   | $ | 1.02 |   | $ | 0.77 |   |
| Basic—pro forma                                                                                         |       | $                                                                      | 0.32       |                                                                  | $          | 0.32 |   | $ | 1.02 |   | $ | 0.76 |   |
|                                                                                                         |       |                                                                   |       |                                                                  |       |   |   |   |   |
| Diluted—as reported                                                                                     |       | $                                                                      | 0.32       |                                                                  | $          | 0.32 |   | $ | 1.02 |   | $ | 0.77 |   |
| Diluted—pro  forma                                                                                      |       | $                                                                      | 0.32       |                                                                  | $          | 0.32 |   | $ | 1.02 |   | $ | 0.76 |   |

 

**3.  INTANGIBLE ASSETS**

Finitelived intangible assets of the Company represent deposit assumption premiumsrecorded upon the purchase of certain assets and liabilities from otherfinancial institutions.  Depositassumption premiums are amortized over seven years, the estimated average livesof the deposit bases acquired, using the straight-line method and are includedwithin other assets on the Consolidated Balance Sheets.

The Company applies a fair value-based impairment testto the carrying value of goodwill on an annual basis and on an interim basis ifcertain events or circumstances indicate that an impairment loss may have beenincurred.

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The following table presents information about theCompany’s intangible assets at (in thousands):
| ** **                                             | ** ** | **September 30, 2006** | ** ** | **December 31, 2005** | ** ** |
|--------------------------------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **                                             | ** ** | **Gross Carrying  Amount**  | ** ** | **Accumulated  Amortization**   | ** ** | **Gross Carrying  Amount** | ** ** | **Accumulated  Amortization** | ** ** |
|                                                   |       |                             |       |                            |       |   |   |   |   |
| Unamortized  intangible asset: Goodwill                |       | $                                | 362        |                            | $          | — |   | $ | 362 |   | $ | — |   |
|                                                   |       |                             |       |                            |       |   |   |   |   |
| Amortized intangible  assets: Core deposit intangibles |       | $                                | 2,836      |                            | $          | 2,498 |   | $ | 2,836 |   | $ | 2,195 |   |

 

Thefollowing table presents information about aggregate amortization expense (inthousands):
| ** **                                                   | ** ** | **For the 3  months ended  September 30,  2006** | ** ** | **For the 9  months ended  September 30,  2006** | ** ** | **For the 3 months  ended  September 30,  2005** | ** ** | **For the 9  months ended  September 30,  2005** | ** ** |
|--------------------------------------------------------------|------------|----------------------------------------------------------------------|------------|----------------------------------------------------------------------|------------|----------------------------------------------------------------------|------------|----------------------------------------------------------------------|------------|
|                                                         |       |                                                                 |       |                                                                 |       |                                                                 |       |                                                                 |       |
| Aggregate amortization  expense of core deposit intangibles: |       | $                                                                    | 101        |                                                                 | $          | 303                                                                  |       | $                                                                    | 101        |   | $ | 303 |   |
|                                                              |            |                                                                      |            |                                                                      |            |                                                                      |            |                                                                      |            |  |  |  |  |

 

Estimated aggregateamortization expense of core deposit intangibles for the years ending December31:
| 2006 |   | $ | 404 |   |
|------|--------|---|-----|--------|
| 2007 |   | $ | 112 |   |
| 2008 |   | $ | 53  |   |
| 2009 |   | $ | 53  |   |
| 2010 |   | $ | 19  |   |

 

**4.  COMPREHENSIVE INCOME**

Comprehensiveincome includes: (1) reported net income and (2) unrealized gains and losses onmarketable securities.  The followingtable shows our comprehensive income (in thousands):
|                                    | ** ** | **Three Months Ended  September 30,** | ** ** | **Nine Months Ended  September 30,** | ** ** |
|------------------------------------|------------|------------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                         | ** ** | **2006**                                             | ** ** | **2005**                                            | ** ** | **2006** | ** ** | **2005** | ** ** |
|                               |       |                                                 |       |                                                |       |   |   |   |   |
| Net Income                         |       | $                                                    | 663        |                                                | $          | 680 |   | $ | 2,123 |   | $ | 1,612 |   |
|                               |       |                                                 |       |                                                |       |   |   |   |   |
| Other  comprehensive income (loss) |       | 712                                                  |       | (341                                                | )          | 32 |   | (350 | ) |
|                               |       |                                                 |       |                                                |       |   |   |   |   |
| Comprehensive income               |       | $                                                    | 1,375      |                                                | $          | 339 |   | $ | 2,155 |   | $ | 1,262 |   |

 

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**5.**                      STOCK OPTIONS

**2005 Option**—OnApril 25, 2005, the Company granted its president and certain officers optionsto purchase 21,000 shares of common stock of the Company at an exercise priceof $13.41 per share (the “2005 Option”), as compared to trades of stock at$13.00 per share on the date of grant. The 2005 Option vests at a rate of 33.3% per year, commencing on April24, 2006. The option’s term is ten years from the date of grant, and atSeptember 30, 2006, 14,500 options to purchase shares under the 2005 Optionremained outstanding.

The fair value of the2005 Option grant was estimated on the date of grant using the Black-Scholesoption-pricing model with the following assumptions: dividend yield of 1.36%;expected volatility of 39%; risk free interest rate of 4.26% and an expectedlife of six years. The fair value of the 2005 Option grant was approximately$62,000.

**2006 Option**—OnMay 1, 2006, the Company granted its president and certain officers options topurchase 16,000 shares of common stock of the Company at an exercise price of$11.45 per share (the “2006 Option”), as compared to trades of stock at $11.40per share on the date of grant.  The 2006Option vests at a rate of 33.3% per year, commencing on May 1, 2007. The option’sterm is ten years from the date of grant, and at September 30, 2006, 16,000options to purchase shares under the 2006 Option remained outstanding.

The fair value of the2006 Option grant was estimated on the date of grant using the Black-Scholesoption-pricing model with the following assumptions: dividend yield of 1.48%;expected volatility of 32%; risk free interest rate of 5.14% and an expectedlife of six years. The fair value of the 2006 Option grant was approximately$38,000.

A summary of the statusof the Company’s stock options for the three and nine months ended September30, 2006 is presented below:
| ** **                            | ** ** | **For the 3 months ended** | ** ** | **For the 9 months ended** | ** ** |
|---------------------------------------|------------|------------------------------------------------|------------|------------------------------------------------|------------|
| ** **                            | ** ** | **September 30, 2006**               | ** ** | **September 30, 2006**               | ** ** |
| ** **                            | ** ** | ** **                                     | ** ** | **Weighted**                                   | ** ** | **Weighted** | ** ** | ** ** | ** ** | ** ** | ** ** | **Weighted** | ** ** |
| ** **                            | ** ** | ** **                                     | ** ** | **Weighted**                                   | ** ** | **Average** | ** ** | ** ** | ** ** | **Weighted** | ** ** | **Average** | ** ** |
| ** **                            | ** ** | ** **                                     | ** ** | **Average**                                    | ** ** | **Remaining** | ** ** | ** ** | ** ** | **Average** | ** ** | **Remaining** | ** ** |
| ** **                            | ** ** | ** **                                     | ** ** | **Exercise**                                   | ** ** | **Contractual** | ** ** | ** ** | ** ** | **Exercise** | ** ** | **Contractual** | ** ** |
| ** **                            | ** ** | **Shares**                                     | ** ** | **Price**                                      | ** ** | **Life** | ** ** | **Shares** | ** ** | **Price** | ** ** | **Life** | ** ** |
|                                  |       |                                           |       |                                           |       |   |   |   |   |   |   |   |   |
| Outstanding—beginning  of period |       | 73,176                                         |       | $                                              | 10.93      |   | 6.92 years |   | 60,176 |   | $ | 10.92 |   | 8.99 years |   |
|                                  |       |                                           |       |                                           |       |   |   |   |   |   |   |   |   |
| Granted                               |       | —                                         |       | —                                         |       |   |   | 16,000 |   | 11.45 |   |   |   |
|                                  |       |                                           |       |                                           |       |   |   |   |   |   |   |   |   |
| Expired/Terminated                    |       | —                                         |       | —                                         |       |   |   | (3,000 | ) | 13.41 |   |   |   |
|                                  |       |                                           |       |                                           |       |   |   |   |   |   |   |   |   |
| Outstanding—end  of period       |       | 73,176                                         |       | $                                              | 10.93      |   | 6.92 years |   | 73,176 |   | $ | 10.93 |   | 6.92 years |   |
|                                  |       |                                           |       |                                           |       |   |   |   |   |   |   |   |   |
| Options exercisable at  year-end      |       | 52,299                                         |       | $                                              | 9.76       |   |   |   | 52,299 |   | $ | 9.76 |   |   |   |

 

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**6.  NET INCOME PER COMMON AND COMMON EQUIVALENTSHARE**

Basic and diluted net income per common and potentialcommon share has been calculated based on the weighted average number of sharesoutstanding.  The following schedulereconciles the numerator and denominator of the basic and diluted net incomeper common and potential common share for the three and nine months endedSeptember 30, 2006 and 2005 (in thousands, except per share data):
|                                                                   | ** ** | **Net Income** | ** ** | **Shares**        | ** ** | **Per Share** | ** ** |
|-------------------------------------------------------------------|------------|---------------------|------------|-------------------|------------|--------------------|------------|
| ** **                                                        | ** ** | **(Numerator)**     | ** ** | **(Denominator)** | ** ** | **Amount**         | ** ** |
|                                                              |       |                |       |              |       |               |       |
| **Three  Months ended September 30, 2006**                        | ** ** | ** **          | ** ** | ** **        | ** ** | ** **         | ** ** |
|                                                              |       |                |       |              |       |               |       |
| Basic earnings  per share                                         |       | $                   | 663        |              | 2,085      |               | $          | 0.32 |   |
| Effect of  dilutive securities: options to purchase common shares |       | —              |       | —            |       | —             |       |
|                                                              |       |                |       |              |       |               |       |
| Diluted earnings  per share                                       |       | $                   | 663        |              | 2,085      |               | $          | 0.32 |   |
|                                                              |       |                |       |              |       |               |       |
| **Three  Months ended September 30, 2005**                        | ** ** | ** **          | ** ** | ** **        | ** ** | ** **         | ** ** |
|                                                              |       |                |       |              |       |               |       |
| Basic earnings  per share                                         |       | $                   | 680        |              | 2,087      |               | $          | 0.33 |   |
| Effect of  dilutive securities: options to purchase common shares |       | —              |       | 11                |       | (0.01              | )          |
|                                                              |       |                |       |              |       |               |       |
| Diluted earnings  per share                                       |       | $                   | 680        |              | 2,098      |               | $          | 0.32 |   |
|                                                              |       |                |       |              |       |               |       |
| **Nine  Months ended September 30, 2006**                         | ** ** | ** **          | ** ** | ** **        | ** ** | ** **         | ** ** |
|                                                              |       |                |       |              |       |               |       |
| Basic earnings  per share                                         |       | $                   | 2,123      |              | 2,088      |               | $          | 1.02 |   |
| Effect of  dilutive securities: options to purchase common shares |       | —              |       | —            |       | —             |       |
|                                                              |       |                |       |              |       |               |       |
| Diluted earnings  per share                                       |       | $                   | 2,123      |              | 2,088      |               | $          | 1.02 |   |
|                                                              |       |                |       |              |       |               |       |
| **Nine  Months ended September 30, 2005**                         | ** ** | ** **          | ** ** | ** **        | ** ** | ** **         | ** ** |
|                                                              |       |                |       |              |       |               |       |
| Basic earnings  per share                                         |       | $                   | 1,612      |              | 2,085      |               | $          | 0.77 |   |
| Effect of  dilutive securities: options to purchase common shares |       | —              |       | 12                |       | —             |       |
|                                                              |       |                |       |              |       |               |       |
| Diluted earnings per  share                                       |       | $                   | 1,612      |              | 2,097      |               | $          | 0.77 |   |

 

**RECLASSIFICATIONS**

Certain 2005 amounts have been reclassified to conformto the 2006 presentation.

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**ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS**

**INTRODUCTION**

Citizens Bancshares Corporation (the “Company”) is aholding company that provides a full range of commercial banking and mortgagebrokerage services to individuals and corporate customers in its primary marketareas, metropolitan Atlanta and Columbus, Georgia, and Birmingham and Eutaw,Alabama through its wholly owned subsidiary, Citizens Trust Bank (the“Bank”).  The Bank is a member of theFederal Reserve System and operates under a state charter.  The Company serves its customers through 10full-service financial centers in Georgia and Alabama.  The Company also owns and operates a whollyowned subsidiary grantor trust, Citizens (GA) Statutory Trust I (the “Trust”)through the issuance of pooled trust preferred securities. However, inaccordance with current accounting guidance, the Trust has not beenconsolidated in the financial statements.

**Forward Looking Statements**

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

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

The following discussion is of the Company’s financialcondition as of September 30, 2006 and the changes in the financial conditionand results of operations for the three and nine month periods ended September30, 2006 and 2005.

**Critical Accounting Policies**

In response to the Securities and ExchangeCommission’s (“SEC”) Release No. 33-8040, Cautionary Advice RegardingDisclosure About Critical Accounting Policies, the Company has identified thefollowing as the most critical accounting policies upon which its financialstatus depends.  The critical policieswere determined by considering accounting policies that involve the mostcomplex or subjective decisions or assessments. The Company’s most critical accounting policies relate to:

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**InvestmentSecurities**- The Companyclassifies investments in one of three categories based on management’s intentupon purchase: held to maturity securities which are reported at amortizedcost, trading securities which are reported at fair value with unrealizedholding gains and losses included in earnings, and available for salesecurities which are recorded at fair value with unrealized holding gains andlosses included as a component of accumulated other comprehensive income.  The Company had no investment securitiesclassified as trading securities during 2006 or 2005.

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

Gains and losses onsales of investment securities are recognized upon disposition, based on theadjusted cost of the specific security. A decline in market value of any security below cost that is deemedother than temporary is charged to earnings resulting in the establishment of anew cost basis for the security.

**Loans**  - Loans are reportedat principal amounts outstanding less unearned income and the allowance forloan losses.  Interest income on loans isrecognized on a level-yield basis. Loan fees and certain direct originationcosts are deferred and amortized over the estimated terms of the loans usingthe level-yield method.  Discounts onloans purchased are accreted using the level-yield method over the estimatedremaining life of the loan purchased.

**Allowancefor Loan Losses** - The Company provides for estimated losseson loans receivable when any significant and permanent decline in valueoccurs.  These estimates for losses arebased, not only on individual assets and their related cash flow forecasts,sales values, and independent appraisals, but also on the volatility of certainreal estate markets, and the concern for disposing of real estate in distressedmarkets.  For loans that are pooled forpurposes of determining the necessary provisions, estimates are based on loantypes, history of charge-offs, and other delinquency analyses.  Therefore, the value used to determine theprovision for losses is subject to the reasonableness of these estimates.  The adequacy of the allowance for loan lossesis reviewed on a monthly basis by management and the Board of Directors.  On a quarterly basis a comprehensive reviewof the adequacy of the allowance for loan losses is performed.  This assessment is made in the context ofhistorical losses as well as existing economic conditions, and individualconcentrations of credit.  Loans arecharged against the allowance when, in the opinion of management, such loansare deemed uncollectible and subsequent recoveries are added to the allowance.

A description of other accounting policies aresummarized in Note 1, Summary of Significant Accounting Policies in the Notesto Consolidated Financial Statements of the Company’s Annual Report on Form10-K for the year ended December 31, 2005. The Company has followed those policies in preparing this report.

**FINANCIAL CONDITION**

Citizens Bancshares Corporation’s total assets atSeptember 30, 2006 were $328 million compared to $324 million a year ago andare consistent with December 31, 2005. Compared to December 2005, interest bearing deposits with banksincreased by $4,831,000 to $5,229,000 and investment securities classified asavailable for sale increased by $3,847,000, partially offset by a $605,000decrease in investment securities held to maturity. Other investments, whichconsist of the Company’s investment in the stock of the Federal Reserve Bankand the Federal Home Loan Bank of Atlanta (FHLB),

14

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decreased by $616,000 and fluctuate daily due to theamount of advances outstanding at the FHLB. The increases in interest bearingdeposits and investments securities were partially offset by a decrease inloans receivable, net of $4,393,000. While total production of new loans was $49 million in the first nine months of 2006, the Companyexperienced an unusually heavy paydown and payoff trend of $21 million in thethird quarter of 2006, resulting in a decrease of $4,393,000 in loans receivable,net for the year. Management considers this level of paydown and payoffs to bean isolated incident and is not the norm of the Company’s loan portfolio. Totalearning assets for the nine months ending September 30, 2006 increased by $3million compared to December 31, 2005.

Total liabilities decreased by $2 million to $299million at September 30, 2006 compared to $301 million at December 31, 2005.This decrease is primarily due to a $12,049,000 decrease in advances from theFHLB, partially offset by a $10,057,000 increase in total deposits. The Companyused the excess liquidity generated by its deposit growth to reduce itsoutstanding borrowings with the FHLB, thereby reducing the yield paid on itsinterest-bearing liabilities.

**INVESTMENT SECURITIES**

The Company invests a portion of its assets in U.S.government sponsored agency securities, state, county and municipal securities,mortgage backed bonds, as well as certain equity securities.  At September 30, 2006 and December 31, 2005,the Company’s investment securities portfolio represented approximately 25% and24% of total assets, respectively.

Investment securities available for sale aresummarized as follows (in thousands):
| At September 30, 2006     | ** ** | **Amortized Cost** | ** ** | **Gross  Unrealized  Gains** | ** ** | **Gross  Unrealized  Losses** | ** ** | **Fair Value** | ** ** |
|------------------------------------------|------------|-------------------------|------------|------------------------------|------------|-------------------------------|------------|---------------------|------------|
|                                     |       |                    |       |                         |       |                          |       |                |       |
| U.S. Government  agencies                |       | $                       | 6,938      |                         | $          | —                        |       | $                   | 148        |   | $ | 6,790 |   |
| State, county,  and municipal securities |       | 17,152                  |       | 178                          |       | 65                            |       | $                   | 17,265     |   |
| Mortgage-backed  securities              |       | 46,666                  |       | 50                           |       | 1,158                         |       | $                   | 45,558     |   |
| Totals                                   |       | $                       | 70,756     |                         | $          | 228                           |       | $                   | 1,371      |   | $ | 69,613 |   |

 
| At December 31, 2005      | ** ** | **Amortized  Cost** | ** ** | **Gross  Unrealized  Gains** | ** ** | **Gross  Unrealized  Losses** | ** ** | **Fair Value** | ** ** |
|------------------------------------------|------------|---------------------|------------|------------------------------|------------|-------------------------------|------------|---------------------|------------|
|                                     |       |                |       |                         |       |                          |       |                |       |
| U.S. Government  agencies                |       | $                   | 7,937      |                         | $          | 2                             |       | $                   | 153        |   | $ | 7,786 |   |
| State, county,  and municipal securities |       | 14,266              |       | 159                          |       | 124                           |       | 14,301              |       |
| Mortgage-backed  securities              |       | 43,703              |       | 11                           |       | 1,103                         |       | 42,611              |       |
| Equity  securities (1)                   |       | 1,054               |       | 24                           |       | 10                            |       | 1,068               |       |
| Totals                                   |       | $                   | 66,960     |                         | $          | 196                           |       | $                   | 1,390      |   | $ | 65,766 |   |

 

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(1) The equity securities represent agency dividendsreceived deduction (DRD) preferred stock issued by Fannie Mae Corporation(FNMA) and the Federal Home Loan Mortgage Corporation (FHLMC).  These securities are callable at par andreprice every two years.  The interestearned on these equity securities is 70 percent tax free.

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Investment securitiesheld to maturity are summarized as follows (in thousands):
| At September 30, 2006     | ** ** | **Amortized  Cost** | ** ** | **Gross  Unrealized  Gains** | ** ** | **Gross  Unrealized  Losses** | ** ** | **Fair  Value** | ** ** |
|------------------------------------------|------------|---------------------|------------|------------------------------|------------|-------------------------------|------------|-----------------|------------|
|                                     |       |                |       |                         |       |                          |       |            |       |
| U.S. Government  agencies                |       | $                   | 3,000      |                         | $          | —                        |       | $               | 77         |   | $ | 2,923 |   |
| State, county,  and municipal securities |       | 4,834               |       | 88                           |       | 1                             |       | 4,921           |       |
| Mortgage-backed  securities              |       | 972                 |       | —                       |       | 46                            |       | 926             |       |
|                                     |       |                |       |                         |       |                          |       |            |       |
| Totals                                   |       | $                   | 8,806      |                         | $          | 88                            |       | $               | 124        |   | $ | 8,770 |   |

 
| At December 31, 2005      | ** ** | **Amortized  Cost** | ** ** | **Gross  Unrealized  Gains** | ** ** | **Gross  Unrealized  Losses** | ** ** | **Fair  Value** | ** ** |
|------------------------------------------|------------|---------------------|------------|------------------------------|------------|-------------------------------|------------|-----------------|------------|
|                                     |       |                |       |                         |       |                          |       |            |       |
| U.S. Government  agencies                |       | $                   | 3,000      |                         | $          | —                        |       | $               | 75         |   | $ | 2,925 |   |
| State, county,  and municipal securities |       | 5,212               |       | 75                           |       | 3                             |       | 5,284           |       |
| Mortgage-backed  securities              |       | 1,199               |       | 3                            |       | 42                            |       | 1,160           |       |
|                                     |       |                |       |                         |       |                          |       |            |       |
| Totals                                   |       | $                   | 9,411      |                         | $          | 78                            |       | $               | 120        |   | $ | 9,369 |   |

 

Securities classified as available-for-sale are recorded at fair marketvalue and held-to-maturity securities are recorded at amortized cost.  The Company evaluates its investmentportfolio periodically to identify any impairment that is other thantemporary.  At September 30, 2006, theCompany had several debt securities that have been in an unrealized lossposition for twelve months or more.  TheCompany has the ability and intent to hold these securities until such time asthe value recovers or the securities mature. The Company believes, based on industry analyst reports and creditratings, that the deterioration in value is attributable to changes in marketinterest rates and is not in the credit quality of the issuer and therefore,these losses are not considered other-than-temporary.

The Company’s investment portfolio consists principally of obligationsof the United States, its agencies or its corporations and general obligationmunicipal securities. In the opinion of management, there is no concentrationof credit risk in its investment portfolio. The company places its deposits and correspondent accounts with andsells its federal funds to high quality institutions.   Management believes credit risk associatedwith correspondent accounts is not significant.

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##### **LOANS**

Loans outstanding, by classification, are summarizedas follows (in thousands):
|                                                | ** ** | **September 30,** | ** ** | **December 31,** | ** ** |
|------------------------------------------------|------------|-------------------|------------|------------------|------------|
| ** **                                     | ** ** | **2006**          | ** ** | **2005**         | ** ** |
|                                           |       |              |       |             |       |
| Commercial, financial,  and agricultural       |       | $                 | 15,177     |             | $          | 12,647 |   |
| Installment                                    |       | 12,432            |       | 10,132           |       |
| Real estate - mortgage                         |       | 157,577           |       | 175,739          |       |
| Real estate -  construction                    |       | 27,318            |       | 18,830           |       |
| Other                                          |       | 2,249             |       | 2,164            |       |
| Loans receivable                               |       | 214,753           |       | 219,512          |       |
| Less:   Net  deferred loan fees |       | 282               |       | 399              |       |
| Allowance for  loan losses                     |       | 3,219             |       | 3,327            |       |
| Discount on  loans acquired                    |       | —            |       | 141              |       |
|                                           |       |              |       |             |       |
| Loans  receivable, net                         |       | $                 | 211,252    |             | $          | 215,645 |   |

 

**NONPERFORMING ASSETS**

Nonperforming assets include nonperforming loans, realestate acquired through foreclosure, and repossessed assets.  Nonperforming loans consist of loans that arepast due with respect to principal or interest more than 90 days or have beenplaced on nonaccrual status.

With the exception of the loans included withinnonperforming assets in the table below, management is not aware of any loansclassified for regulatory purposes as loss, doubtful, substandard, or specialmention that have not been disclosed which (1) represent or result from trendsor uncertainties which management reasonably expects will materially impactfuture operating results, liquidity, or capital resources, or (2) represent anyinformation on material credits which management is aware that causesmanagement to have serious doubts as to the abilities of such borrowers tocomply with the loan repayment terms.

Nonperforming assets increased by $1.2 million to$5,901,000 at September 30, 2006 from $4,713,000 at December 31, 2005.  At September 30, a convenience store loan inthe amount of $1.3 million became 90 days past-due and accordingly, was placedon nonaccrued status. The loan is adequately secured by real estate and 71% ofthe loan is guaranteed.  In November2006, the customer made all past due payments needed to remove the loan fromnonaccrued status and bring it current. At September 30, 2006, $3,164,000 of the outstanding balance innonperforming assets is wholly or partially guaranteed by the U.S. Governmentthrough the Small Business Administration Program.

Nonperforming assets represents 2.75% of loans, net ofunearned income, discounts, and real estate acquired through foreclosure atSeptember 30, 2006 as compared to 2.15% at December 31, 2005.

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The table below presents a summary of theCompany’s nonperforming assets at September 30, 2006 and December 31, 2005.
|                                                                                                                  | ** ** | **September 30,**              | ** ** | **December 31,** | ** ** |
|------------------------------------------------------------------------------------------------------------------|------------|-------------------------------------|------------|-----------------------|------------|
| ** **                                                                                                       | ** ** | **2006**                            | ** ** | **2005**              | ** ** |
| ** **                                                                                                       | ** ** | **(in thousands, except** | ** ** |
| ** **                                                                                                       | ** ** | **financial ratios)**          | ** ** |
| Nonperforming  assets:                                                                                           |       |                                |       |                  |       |
| Nonperforming  loans:                                                                                            |       |                                |       |                  |       |
| Nonaccrual loans                                                                                                 |       | $                                   | 5,569      |                  | $          | 4,143 |   |
| Past-due loans of 90 days or more                                                                                |       | —                              |       | —                |       |
| Nonperforming loans                                                                                              |       | 5,569                               |       | 4,143                 |       |
|                                                                                                             |       |                                |       |                  |       |
| Real estate  acquired through foreclosure                                                                        |       | 332                                 |       | 570                   |       |
| Total nonperforming assets                                                                                       |       | $                                   | 5,901      |                  | $          | 4,713 |   |
|                                                                                                             |       |                                |       |                  |       |
| Ratios:                                                                                                          |       |                                |       |                  |       |
| Nonperforming  loans to loans, net of unearned income and discount on loans                                      |       | 2.60                                | %          | 1.89                  | %          |
|                                                                                                             |       |                                |       |                  |       |
| Nonperforming  assets to loans, net of unearned income, discounts, and real estate acquired  through foreclosure |       | 2.75                                | %          | 2.15                  | %          |
|                                                                                                             |       |                                |       |                  |       |
| Nonperforming  assets to total assets                                                                            |       | 1.80                                | %          | 1.43                  | %          |
|                                                                                                             |       |                                |       |                  |       |
| Allowance for  loan losses to nonperforming loans                                                                |       | 57.80                               | %          | 80.29                 | %          |
|                                                                                                             |       |                                |       |                  |       |
| Allowance for loan  losses to nonperforming assets                                                               |       | 54.55                               | %          | 70.58                 | %          |

 

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**ALLOWANCE FOR LOAN LOSSES**

The allowance for loan losses is primarily availableto absorb losses inherent in the loan portfolio. Credit exposures deemeduncorrectable are charged against the allowance for loan losses. Recoveries ofpreviously charged-off amounts are credited to the allowance for loan losses.

The Company provides for estimated losses on loansreceivable when any significant and permanent decline in value occurs.  These estimates for losses are based onindividual assets and their cash flow forecasts, sales values, independentappraisals, the volatility of certain real estate markets, and concern for disposingof real estate in distressed markets. For loans that are pooled for purposes of determining the necessaryprovisions, estimates are based on loan types, history of charge-offs, andother delinquency analyses.  Therefore,the value used to determine the provision for losses is subject to thereasonableness of these estimates. The adequacy of the allowance for loanlosses is reviewed on a monthly basis by management and the Board ofDirectors.  On a quarterly basis acomprehensive review of the adequacy of allowance for loan losses isperformed.  This assessment is made inthe context of historical losses as well as existing economic conditions, andindividual concentrations of credit.

Loans are charged against the allowance when, in theopinion of management, such loans are deemed uncollectible and subsequentrecoveries are added to the allowance. For the nine month period ended September 30, 2006 provisions for loanlosses totaled $30,000 compared to $228,000 for the same period in 2005,representing an 87 percent decrease over the previous year.  The reduction in the provision expense isattributed to the continuing improvement in the credit quality of the Company’sloan portfolio.

The allowance for loan losses at September 30, 2006was approximately $3,219,000, representing 1.50% of total loans, net ofunearned income and discounts compared to approximately $3,327,000 at December31, 2005, which represented 1.52% of total loans, net of unearned income anddiscounts.

Managementbelieves the allowance for loan losses is adequate. While management usesavailable information to recognize losses on loans, future additions to theallowance may be necessary based on changes in economic conditions,particularly in the metropolitan Atlanta area. In addition, regulatoryagencies, as an integral part of their examination process, periodically reviewthe Company’s allowance for loan losses. Such agencies may require the Companyto recognize additions to the allowance based on their judgments aboutinformation available to them at the time of their examination.

A substantial portion of the Company’s loan portfoliois secured by real estate in the metropolitan Atlanta market, including aconcentration of loans to churches and convenience stores.  The Company’s outstanding church loans wereapproximately $38 million at September 30, 2006 and at December 31, 2005,respectively.  The Company’s loans toarea convenience stores were approximately $13 million at September 30, 2006and $21 million at December 31, 2005. Accordingly, the ultimate collectability of the substantial portion ofthe Company’s loan portfolio is susceptible to changes in market conditions inthe metropolitan Atlanta area.

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The following table summarizes loans, changes in theallowance for loan losses arising from loans charged off, recoveries on loanspreviously charged off by loan category, and additions to the allowance whichhave been charged to operating expense as of and for the nine month periodsended September 30, 2006 and 2005 (amount in thousands, except financialratios):
|                                                                                                                         | ** ** | **2006** | ** ** | **2005** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|
|                                                                                                                    |       |     |       |     |       |
| Loans, net of unearned income and discounts                                                                             |       | $        | 214,471    |     | $          | 212,436 |   |
|                                                                                                                    |       |     |       |     |       |
| Average loans,  net of unearned income, discounts and the allowance for loan losses                                     |       | $        | 215,232    |     | $          | 207,284 |   |
|                                                                                                                    |       |     |       |     |       |
| Allowance for  loan losses at the beginning of period                                                                   |       | $        | 3,327      |     | $          | 3,183 |   |
|                                                                                                                    |       |     |       |     |       |
| Loans  charged-off:                                                                                                     |       |     |       |     |       |
| Commercial, financial, and agricultural                                                                                 |       | 17       |       | 40       |       |
| Real estate - loans                                                                                                     |       | 160      |       | 55       |       |
| Installment loans to individuals                                                                                        |       | 162      |       | 264      |       |
| Total loans charged-off                                                                                                 |       | 339      |       | 359      |       |
|                                                                                                                    |       |     |       |     |       |
| Recoveries of  loans previously charged off:                                                                            |       |     |       |     |       |
| Commercial, financial, and agricultural                                                                                 |       | 66       |       | 119      |       |
| Real estate - loans                                                                                                     |       | 84       |       | 70       |       |
| Installment loans to individuals                                                                                        |       | 51       |       | 53       |       |
| Total loans  recovered                                                                                                  |       | 201      |       | 242      |       |
|                                                                                                                    |       |     |       |     |       |
| Net loans charged-off  (recovered)                                                                                      |       | 138      |       | 117      |       |
|                                                                                                                    |       |     |       |     |       |
| Additions to  allowance for loan losses charged to operating expense                                                    |       | 30       |       | 228      |       |
|                                                                                                                    |       |     |       |     |       |
| Allowance for  loan losses at period end                                                                                |       | $        | 3,219      |     | $          | 3,294 |   |
|                                                                                                                    |       |     |       |     |       |
| Ratio of net  loans charged-off to average loans, net of unearned income, discounts, and  the allowance for loan losses |       | 0.06     | %          | 0.06     | %          |
|                                                                                                                    |       |     |       |     |       |
| Ratio of allowance for  loan losses to loans, net of unearned income and discounts                                      |       | 1.50     | %          | 1.55     | %          |

 

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**DEPOSITS**

Deposits are the Company’s primary source of fundingloan growth.  Total deposits at September30, 2006 increased 4% or $10,057,000 to $264,726,000 from December 31, 2005.Noninterest-bearing deposits increased by $3,274,000 or 5%, andinterest-bearing deposits increased by $6,783,000 or 3%.  The increase in total deposits is primarilyattributed to Corporate and Governmental customers who make significant monthlydeposits and withdrawals based on their budgetary needs.  In addition, the Company implemented a newsales program which places specific emphasis on deposit growth.

Thefollowing is a summary of interest-bearing deposits (in thousands):
|                                    | ** ** | **September 30,** | ** ** | **December 31,** | ** ** |
|------------------------------------|------------|------------------------|------------|-----------------------|------------|
| ** **                         | ** ** | **2006**               | ** ** | **2005**              | ** ** |
|                               |       |                   |       |                  |       |
| NOW and money  market accounts     |       | $                      | 67,281     |                  | $          | 49,889 |   |
| Savings accounts                   |       | 37,309                 |       | 41,013                |       |
| Time deposits of  $100,000 or more |       | 55,437                 |       | 46,722                |       |
| Other time  deposits               |       | 41,338                 |       | 56,958                |       |
|                               |       | $                      | 201,365    |                  | $          | 194,582 |   |

 

**OTHER BORROWED FUNDS**

Whilethe Company continues to emphasize funding earning asset growth throughdeposits, the Company has relied on other borrowings as a supplemental fundingsource.  Other borrowings consist ofFederal Home Loan Bank (the “FHLB”) advances and short-term borrowings.  The Bank had outstanding advances from theFHLB of $25,651,000 at September 30, 2006 and $37,700,000 at December 31,2005.   The outstanding advances at the FHLB fluctuatedaily depending on the liquidity needs of the Company.  The following advances are collateralized bya blanket lien on the Company’s 1-4 family mortgage loans.
| Maturity                             | ** ** | **Callable** | ** ** | **Type**   | ** ** | **September 30, 2006** | ** ** | **December 31, 2005** | ** ** |
|--------------------------------------|------------|--------------|------------|------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **                           | ** ** | ** **   | ** ** | ** ** | ** ** | ** **                       | ** ** | ** **                      | ** ** | ** ** | ** ** | ** ** | ** ** |
| July 2007                            |       | Daily        |       | Variable   |       | 5.61                             | %          | $                               | 15,251,000 |   | 4.44 | % | $ | 27,700,000 |   |
| April 2010                           |       | Quarterly    |       | Fixed      |       | 5.82                             | %          | 10,000,000                      |       | 5.82 | % | 10,000,000 |   |
| August 2026                          |       |         |       | Fixed      | (1)        | —                           |       | 400,000                         |       |   |   | — |   |
|                                 |       |         |       |       |       |                             |       |                            |       |   |   |   |   |
| Total Principal  Outstanding         |       |         |       |       |       |                             |       | $                               | 25,651,000 |   |   |   | $ | 37,700,000 |   |
|                                 |       |         |       |       |       |                             |       |                            |       |   |   |   |   |
| Weighted Average Rate  at Period End |       |         |       |       |       | 5.60                             | %          |                            |       | 4.81 | % |   |   |

 

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(1)       Represents an Affordable Housing Program (AHP) award used to subsidizedloans for homeownership or rental initiatives. The AHP is a principal reducing credit, scheduled to mature on August17, 2006 with an interest rate of zero.

The Company has an unsecured note payable ofapproximately $340,000 at September 30, 2006, reduced from $440,000 at December31, 2005.  The note bears interest at arate of 7.75% (the lender’s prime rate minus 50 basis points).

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During 2002, the Company issued $5 million of pooled trust preferredsecurities through one issuance by a wholly owned subsidiary grantor trust,Citizens (GA) Statutory Trust I (the “Trust”). The trust preferred securitiesaccrue and pay distributions periodically at an annual rate as provided in theindentures of the London Interbank Offered Rate plus 3.45%. The Trust used thenet proceeds from the offering to purchase a like amount of Junior SubordinatedDebentures (the “Debentures”) of the Company. These securities are reported inour consolidated balance sheet as Junior Subordinated Debentures.  The trust preferred securities aremandatorily redeemable upon the maturity of the Debentures on September 26,2032, or upon earlier redemption as provided in the indentures beginningSeptember 26, 2007.  The Company has theright to redeem the Debentures in whole or in part or after specific dates, ata redemption price specified in the indentures plus any accrued but unpaidinterest to the redemption date.  AtSeptember 30, 2006, the interest rate on the junior subordinated debenture was8.82%.

**RESULTSOF OPERATIONS**

**NetInterest Income:**

Net interest income is the principal componentof a financial institution’s income stream and represents the difference, orspread, between interest and fee income generated from earning assets and theinterest expense paid on deposits and borrowed funds.  Fluctuations in interest rates as well asvolume and mix changes in earning assets and interest bearing liabilities canmaterially impact net interest income.

Net interest income decreased $113,000 to$3,466,000 for the third quarter of 2006 from $3,579,000 for the third quarterof 2005.  This decrease is due to theCompany operating in a difficult interest rate environment of a flat to inverted yield curve throughoutthe quarterand three more rate hikes this year thathave increased the Company’s funding cost.

In the third quarter of 2006, the Companyimproved the yield on its earning assets as interest income on loans andinvestments increased $234,000 and $158,000, respectively, partially offset bya $504,000 increase in total interest expense compared to the third quarter of2005.

For the nine month period ended September 30,2006, net interest income decreased $208,000 or 2% as compared to the sameperiod of the previous year.  Thedecrease in net interest income is primarily due to the increase in totalinterest expense resulting from rising interest rates. For the nine monthperiod ending September 30, 2006, total interest expense increased $1,584,000while total interest income increased $1,376,000 as compared to the same periodin 2005.

**Provisionfor loan losses**

The Companyimproved its credit quality during the first nine months of 2006. Only $30,000in provision for loan losses was taken in 2006 resulting in a decrease of$60,000 and $198,000, respectively, in the quarterly and year-to-datecomparisons to the previous year. No provision for loan losses was deemednecessary for the third quarter.  Theprovision for loan losses and the resulting allowance for loan losses are basedon changes in the size and character of the Company’s loan portfolio, changesin nonperforming and past due loans, the existing risk of individual loans,concentrations of loans to specific borrowers or industries, and economicconditions.  The allowance for loanlosses was $3,219,000 in the third quarter of 2006, compared to $3,327,000 atDecember 31, 2005.  At September 30,2006, the allowance for loan losses was 55% of the nonperforming assets

22

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compared to 71% atDecember 31, 2005.  At September 30,2006, the Company considered its allowance for loan losses to be adequate.

**Noninterestincome:**

Noninterest income consists of revenuesgenerated from a broad range of financial services and activities, includingfee-based services, and profits and commissions earned through securities andinsurance sales.  In addition, gains andlosses realized from the sale of investment portfolio securities and sales ofassets are included in noninterest income.

Noninterest income decreased $179,000 or 13% to$1,148,000 for the three month period ended September 30, 2006 compared to thesame period ended September 30, 2005. Overdraft and checking account fees are significant components ofservice charges on deposit have decreased $74,000 and $66,000, respectively,compared to the same three month period last year.  Overdrafts fees, due to their nature,fluctuates monthly and checking accounts fees are being impacted by theCompany’s free checking account products created to compete against similarproducts in the Company’s target market area. For the nine month period ended September 30, 2006, noninterest incomewas consistent with the previous year, decreasing by less than 1% or $30,000.

**Noninterestexpense**:

Noninterestexpense includes compensation and benefits, occupancy expenses, advertising andmarketing, professional fees, office supplies, data processing, telephoneexpenses, miscellaneous items and other losses.

Noninterest expense decreased 8% for the thirdquarter and 6% for the first nine months of 2006 compared to the same periodslast year.  The decrease is due to theCompany’s strategy started last year to reduce overhead cost and improve theefficiency throughout its financial centers network.

Last year, theCompany consolidated and closed two branches, and reduced its average full-timeemployee base. During the third quarter of 2006, the Company had an average of136 full-time employees compared to an average of 148 full-time employeesduring the same period last year.  Forthe third quarter of 2006, salaries and employee benefits decreased $199,000,occupancy and equipment expenses decreased $95,000 and other operating expensesdecreased $35,000 compared to the same period last year.

For the ninemonths ending September 30, 2006, the Company had an average of 140 full-timeemployees compared to an average of 154 full-time employees during the sameperiod last year.  Also, in 2006 tocombat the increased cost of providing healthcare, the Company increased themedical deductibles to its employees, enacted certain preventive care and,consequently, has experienced a reduction in the amount of medical claims filedcompared to the same period last year. As a result of these changes and other expense cost measures, salariesand employee benefits decreased $352,000, occupancy and equipment expensesdecreased $258,000 and other operating expenses decreased $200,000 compared tothe same period last year.

**INTEREST RATE SENSITIVITY MANAGEMENT**

Interest rate sensitivity management involves managingthe potential impact of interest rate movements on net interest income withinacceptable levels of risk.  The Companyseeks to accomplish this by structuring the balance sheet so that repricingopportunities exist for both assets

23

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and liabilities in equivalent amounts and timeintervals.  Imbalances in these repricingopportunities at any point in time constitute a financial institution’sinterest rate risk.  The Company’sability to reprice assets and liabilities in the same dollar amounts and at thesame time minimizes interest rate risk.

One method of measuring the impact of interest ratesensitivity is the cumulative gap analysis. The difference between interest rate sensitive assets and interest ratesensitive liabilities at various time intervals is referred to as the gap.  The Company is liability sensitive on ashort-term basis as reflected in the following table.  Generally, a net liability sensitive positionindicates that there would be a negative impact on net interest income in anincreasing rate environment.  However,interest rate sensitivity gap does not necessarily indicate the impact ofgeneral interest rate movements on the net interest margin, since all interestrates and yields do not adjust at the same velocity and the repricing ofvarious categories of assets and liabilities is subject to competitivepressures and the needs of the Company’s customers.  In addition, various assets and liabilitiesindicated as repricing within the same period may in fact reprice at differenttimes within such period and at different rates. The following table shows thecontractual maturities of all investment securities at September 30, 2006.  Expected maturities may differ fromcontractual maturities because issuers may have the right to call or prepayobligations with or without call or prepayment penalties.  For conservative purposes, the Company hasincluded demand deposits such as NOW, money market, and savings accounts in thethree month category.  However, theactual repricing of these accounts may extend beyond twelve months.  The interest rate sensitivity gap is only ageneral indicator of potential effects of interest rate changes on net interestincome.

The following table sets forth the distribution of therepricing of the Company’s interest rate sensitive assets and interest ratesensitive liabilities as of September 30, 2006.
|                                                                         | ** ** | **Cumulative amounts as of September 30, 2006** | ** ** |
|-------------------------------------------------------------------------|------------|-------------------------------------------------------------------------------|------------|
| ** **                                                              | ** ** | **Maturing and repricing within**                              | ** ** |
| ** **                                                              | ** ** | **3**                                                                         | ** ** | **3 to 12** | ** ** | **1 to 5** | ** ** | **Over** | ** ** | ** ** | ** ** |
| ** **                                                              | ** ** | **Months**                                                                    | ** ** | **Months** | ** ** | **Years** | ** ** | **5 Years** | ** ** | **Total** | ** ** |
| ** **                                                              | ** ** | **(amounts in thousands, except ratios)**                 | ** ** |
| Interest-sensitive  assets:                                             |       |                                                                          |       |   |   |   |   |   |   |   |   |
| Investments                                                             |       | $                                                                             | 946        |   | $ | 813 |   | $ | 48,067 |   | $ | 28,593 |   | 78,419 |   |
| Certificates of deposit                                                 |       | —                                                                        |       | 100 |   | — |   | — |   | 100 |   |
| Loans                                                                   |       | 67,766                                                                        |       | 14,736 |   | 78,347 |   | 53,904 |   | 214,753 |   |
| Interest-bearing deposits with other banks                              |       | 5,229                                                                         |       | — |   | — |   | — |   | 5,229 |   |
| Total interest-sensitive assets                                         |       | $                                                                             | 73,941     |   | $ | 15,649 |   | $ | 126,414 |   | $ | 82,497 |   | $ | 298,501 |   |
|                                                                    |       |                                                                          |       |   |   |   |   |   |   |   |   |
| Interest-sensitive  liabilities:                                        |       |                                                                          |       |   |   |   |   |   |   |   |   |
| Deposits (a)                                                            |       | $                                                                             | 131,454    |   | $ | 56,014 |   | $ | 13,893 |   | $ | 4 |   | $ | 201,365 |   |
| Notes payable                                                           |       | —                                                                        |       | 340 |   | — |   | — |   | 340 |   |
| Junior subordinated debentures                                          |       | —                                                                        |       | 5,155 |   | — |   | — |   | 5,155 |   |
| Other borrowings                                                        |       | —                                                                        |       | 15,251 |   | 10,000 |   | 400 |   | 25,651 |   |
| Total interest-sensitive liabilities                                    |       | $                                                                             | 131,454    |   | $ | 76,760 |   | $ | 23,893 |   | $ | 404 |   | $ | 232,511 |   |
|                                                                    |       |                                                                          |       |   |   |   |   |   |   |   |   |
| Interest-sensitivity  gap                                               |       | $                                                                             | (57,513    | ) | $ | (61,111 | ) | $ | 102,521 |   | $ | 82,093 |   | $ | 65,990 |   |
|                                                                    |       |                                                                          |       |   |   |   |   |   |   |   |   |
| Cumulative  interest-sensitivity gap to total interest-sensitive assets |       | (19.27                                                                        | )%         | (39.74 | )% | (5.39 | )% | 22.11 | % | 22.11 | % |

 

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(a) Savings, Now, and money market deposits totaling $104,590 areincluded in the maturing in 3 months classification.

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**LIQUIDITY**

Liquidity is the ability of the Company toconvert assets into cash or cash equivalents without significant loss and toraise additional funds by increasing liabilities.  Liquidity management involves maintaining theCompany’s ability to meet the day-to-day cash flow requirements of itscustomers, whether they are depositors wishing to withdraw funds or borrowersrequiring funds to meet their credit needs. Without proper liquidity management, the Company would not be able toperform the primary function of a financial intermediary and would, therefore,not be able to meet the needs of the communities it serves. Additionally, theCompany requires cash for various operating needs including: dividends toshareholders; business combinations; capital injections to its subsidiaries;the servicing of debt; and the payment of general corporate expenses. TheCompany has access to various capital markets. However, the primary source of liquidity for the Company is dividendsfrom its bank subsidiary.  The GeorgiaDepartment of Banking and Finance regulates the dividend payments and mustapprove dividend payments that exceed 50 percent of the Bank’s prior year netincome.  As of September 30, 2006, thisamount was approximately $1,374,000.  Thepayment of dividends may also be affected or limited by other factors, such asthe requirement to maintain adequate capital above regulatory guidelines.  The Company does not anticipate any liquidityrequirements in the near future that it will not be able to meet.

Asset and liability management functions notonly serve to assure adequate liquidity in order to meet the needs of theCompany’s customers, but also to maintain an appropriate balance betweeninterest-sensitive assets and interest-sensitive liabilities so that theCompany can earn a return that meets the investment requirements of itsshareholders.  Daily monitoring of thesources and uses of funds is necessary to maintain an acceptable cash positionthat meets both requirements.

The asset portion of the balance sheet providesliquidity primarily through loan principal repayments, maturities of investmentsecurities and, to a lesser extent, sales or paydowns of investment securitiesavailable for sale and held to maturity. Other short-term investments such as federal funds sold and maturinginterest bearing deposits with other banks, are additional sources of liquidityfunding.

The liability portion of the balance sheetprovides liquidity through various customers’ interest bearing and noninterestbearing deposit accounts.  Federal fundspurchased and other short-term borrowings are additional sources of liquidityand, basically, represent the Company’s incremental borrowing capacity.  These sources of liquidity are short-term innature and are used as necessary to fund asset growth and meet short-termliquidity needs.

**CAPITALRESOURCES**

Stockholders’ equity increased $1,825,000 for the ninemonths ended September 30, 2006, primarily due to earnings, partially offset byaccumulated other comprehensive losses on available for sale securities.  Retained earnings increased by $1,768,000 to$21,906,000 for the nine month period due to net earnings of $2,123,000 reducedby dividend payments of $355,000. Accumulated other comprehensive loss, net oftaxes decreased $32,000 to $755,000 during the nine month period endingSeptember 30, 2006.  These losses are dueto the impact of changing economic conditions and changes in market interestrates on the Company’s available for sale securities.

Quantitative measures established by regulation toensure capital adequacy require the Company to maintain minimum amounts andratios of total and Tier 1 capital to risk weighted assets, and Tier 1 capitalto average assets.  As of September 30,2006, the Bank’s total and Tier 1 capital to risk weighted assets and Tier 1 toaverage assets were 16%, 15% and 11%, respectively.  As of

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September 30, 2006, the Company met all capitaladequacy requirements to which it is subject.

**ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**

Market risk is the risk of loss from adverse changesin market prices and interest rates.  Ourmarket risk arises principally from interest rate risk inherent in our lending,deposit, and borrowing activities. Although we manage certain other risks, such as credit quality andliquidity risk, in the normal course of business we consider interest rate riskto be our most significant market risk and the risk that could potentially havethe largest material effect on our financial condition and results ofoperations.  We do not maintain a tradingportfolio or deal in international instruments, and therefore, other types ofmarket risks, such as foreign currency risk and commodity price risk, do notarise in the normal course of our business activities.

Quantitativeinformation about the Company’s market risk at September 30, 2006 is as follows(in thousands):
|                                            | ** ** | **2006**     | ** ** |
|--------------------------------------------|------------|--------------|------------|
| ** **                                 | ** ** | **Carrying** | ** ** | **Estimated** | ** ** | **Down** | ** ** | **Up** | ** ** |
| ** **                                 | ** ** | **Value**    | ** ** | **Fair Value** | ** ** | **100 bp** | ** ** | **100 bp** | ** ** |
|                                       |       |         |       |   |   |   |   |   |   |
| Financial  assets:                         |       |         |       |   |   |   |   |   |   |
|  Interest-bearing deposits with banks |       | $            | 5,229      |   | $ | 5,229 |   | — | % | — | % |
|  Certificates  of deposit             |       | 100          |       | 100 |   | — |   | — |   |
|  Investment  securities               |       | 78,383       |       | 78,419 |   | 2.73 |   | (3.49 | ) |
|  Loans  receivable                    |       | 211,252      |       | 207,985 |   | 1.55 |   | (1.54 | ) |
|                                       |       |         |       |   |   |   |   |   |   |
| Financial  liabilities:                    |       |         |       |   |   |   |   |   |   |
|  Interest-bearing deposits            |       | 201,365      |       | 189,471 |   | 1.08 |   | (1.13 | ) |
|  Notes payable                        |       | 340          |       | 340 |   | — |   | — |   |
|  Junior  subordinated debentures      |       | 5,155        |       | 5,112 |   | — |   | — |   |
|  Advances from Federal Home Loan Bank |       | 25,651       |       | 25,952 |   | 2.32 |   | (0.30 | ) |
|                                            |            |              |            |  |  |  |  |  |  |  |  |

 

The Company has adopted an asset/liability managementprogram to monitor the Company’s interest rate sensitivity and to ensure thatthe Company is competitive in the loan and deposit markets.  Management seeks to manage the relationshipbetween interest-sensitive assets and liabilities in order to protect againstwide interest rate fluctuations, including those resulting from inflation.  The Company has not entered into anyderivative financial instruments such as futures, forwards, swaps or options.  Additionally, refer to our interest ratesensitivity management and liquidity disclosures within Part 1, Item 2, of thisForm 10-Q.

**ITEM 4.  CONTROLS AND PROCEDURES**

As of the end of the period covered by this report, weconducted, under the supervision of and with the participation of ourmanagement, including the Company’s Chief Executive Officer, Chief OperatingOfficer, and Chief Financial Officer, an evaluation of the effectiveness of ourdisclosure controls and procedures as defined in Exchange Act Rule 13g-15(e).Based on this evaluation, the Company’s Chief Executive Officer, ChiefOperating Officer, and Chief Financial Officer have concluded that our

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disclosure controls and procedures were effective asof September 30, 2006 in timely alerting them to material information requiredto be included in our reports filed with or furnished to the Securities andExchange Commission and that the Company’s disclosure controls and proceduresare designed to ensure that the information required to be in those reports isrecorded, processed, summarized and reported within the time periods specifiedin the Securities and Exchange Commission’s rules and forms.  There have been no changes in the Company’sinternal controls over financial reporting or, to the Company’s knowledge, inother factors that could significantly affect those internal controls thatoccurred during the quarter ended September 30, 2006 that have materiallyaffected, or are reasonably likely to materially affect, our internal controlover financial reporting, and there have been no corrective actions withrespect to significant deficiencies or material weaknesses.
| **PART II.** | **OTHER INFORMATION**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
|--------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** **   | ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
| **ITEM 1.**  | **LEGAL PROCEEDINGS**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| ** **   | ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|         | The Company is not aware of any material pending  legal proceedings to which the Company or its subsidiary is a party or to  which any of their property is subject.                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| **ITEM 1A.** | **RISK FACTORS**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
| ** **   | ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|         | In addition to the other information set forth in  this report, you should carefully consider the factors discussed in Part I,  “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended  December 31, 2005, which could materially affect our business, financial  condition or future results. The risks described in our Annual Report on Form  10-K are not the only risks we face. Additional risks and uncertainties not  currently known to us or that we currently deem to be immaterial also may  materially adversely affect our business, financial condition and/or  operating results. |
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| **ITEM 2.**  | **UNREGISTERED SALE OF EQUITY SECURITIES AND USE  OF PROCEEDS**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   |
| ** **   | ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|         | None                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| **ITEM 3.**  | **DEFAULTS UPON SENIOR SECURITIES**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |
| ** **   | ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|         | None                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| **ITEM 4.**  | **SUBMISSION OF MATTERS TO VOTE OF SECURITY  HOLDERS**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| ** **   | ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|         | None                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| **ITEM 5.**  | **OTHER INFORMATION**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |
| ** **   | ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|         | None                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|         |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| **ITEM 6.**  | **EXHIBITS**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
| ** **   | ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|         | **Exhibit 31**                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|         | ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |
|         | Certification pursuant to 18 U.S.C. Section 1350 as  adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |

 

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|        | **Exhibit 32**                                                                                                          |
|--------|-------------------------------------------------------------------------------------------------------------------------|
|   | ** **                                                                                                              |
|   | Certification pursuant to 18 U.S.C. Section 1350 as  adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |

 

**SIGNATURES**

In accordance with the requirements of the ExchangeAct, the registrant caused this report to be signed on its behalf by theundersigned, thereunto duly authorized.
| **CITIZENS BANCSHARES CORPORATION**       |
|-------------------------------------------|
|                                      | ** ** |   |
|                                      | ** ** |   |
| Date:   November  13, 2006 | By: | /s/ James E. Young |   |
|                                      | James E. Young |
|                                      | President and  Chief Executive Officer |
|                                      |   |
|                                      |   |
| Date:   November  13, 2006 | By: | /s/ Cynthia N. Day |   |
|                                      | Cynthia N. Day |
|                                      | Senior Executive  Vice President and |
|                                      | Chief Operating  Officer |
|                                      |   |
|                                      |   |
| Date:   November  13, 2006 | By: | /s/ Samuel J. Cox |   |
|                                      | Samuel J. Cox |
|                                      | Senior Executive  Vice President and |
|                                      | Chief Financial  Officer |
|                                           |  |  |  |  |  |

 

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