##### Table of Contents



U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549FORM 10-QSB

|      |  |                                                                                                                                     
|----- |  | ------------------------------------------------------------------------------------------------------------------------------------
|[X]   |  | Quarterly report under Section 13 or 15 (d) of the Securities Exchange
Act of 1934
For the quarterly period ended September 30, 2002
|      |  |                                                                                                                                     
|[   ] |  | Transition report under Section 13 or 15 (d) of the Exchange Act
For the transition period from _______________ to _______________  

Commission file number 333-07914

CITIZENS EFFINGHAM BANCSHARES, INC.
(Exact Name of Small Business Issuer as Specified in Its Charter)

|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|GEORGIA                                                        |  | 58-2357619                          
|                                                               |  |                                     
|(State or Other Jurisdiction of
Incorporation or Organization) |  | (I.R.S. Employer
Identification No.)

802 South Laurel Street
Post Office Box 379Springfield, Georgia 31329
(Address of Principal Executive Offices)

(912) 754-0754
(Issuers Telephone Number, Including Area Code)

Not Applicable
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.

Yes [X] No [   ]

APPLICABLE ONLY TO CORPORATE ISSUERS

State the number of shares outstanding of each of the issuers classes of
common equity, as of the latest practicable date: Common Stock $1 par value,
512,000 shares outstanding at September 30, 2002

Transitional Small Business Disclosure Format (check one):

Yes [   ] No [X]





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TABLE OF CONTENTS



|                                                                                              |                                            |  |  |  |  |  |  | 
|--------------------------------------------------------------------------------------------- | ------------------------------------------ |  |  |  |  |  |  | 
|PART I: FINANCIAL INFORMATION                                                                
|ITEM 1. FINANCIAL STATEMENTS                                                                 
|                                                                                              | Consolidated Balance Sheets               
|                                                                                              | Consolidated Statements of Income         
|                                                                                              | Consolidated Statements of Cash Flows     
|                                                                                              | Notes to Consolidated Financial Statements
|Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
|Item 3. Controls and Procedures                                                              
|PART II: OTHER INFORMATION:                                                                  
|SIGNATURES                                                                                   
|EX-99.1 SECTION 906 CERTIFICATION OF THE CEO                                                 



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##### Table of Contents



Citizens Effingham Bancshares, Inc.
and Subsidiary

INDEX







|                                                                                                                                            |  |                                                                                                                                                                  |  |      | 
|------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | 
|                                                                                                                                            |  |                                                                                                                                                                  |  | PAGE | 
|                                                                                                                                            |  |                                                                                                                                                                  |  |      | 
|PART I:                                                                                                                                     |  | FINANCIAL INFORMATION                                                                                                                                            |  |      | 
|ITEM 1.                                                                                                                                     |  | FINANCIAL STATEMENTS                                                                                                                                             |  |      | 
|                                                                                                                                            |  |                                                                                                                                                                  |  |     
|The following financial statements are provided for Citizens Effingham
Bancshares, Inc.
and the subsidiary bank, Citizens Bank of Effingham |  |                                                                                                                                                                  | 
|                                                                                                                                            |  |                                                                                                                                                                  |  |      | 
|                                                                                                                                            |  | Consolidated Balance Sheets (unaudited)  September 30, 2002 and
December 31, 2001.                                                                              |  | 2    | 
|                                                                                                                                            |  |                                                                                                                                                                  |  |      | 
|                                                                                                                                            |  | Consolidated Statements of Income (unaudited)  For the Three Months
Ended September 30, 2002 and 2001 and For the Nine Months Ended
September 30, 2002 and 2001 |  | 3    | 
|                                                                                                                                            |  |                                                                                                                                                                  |  |      | 
|                                                                                                                                            |  | Consolidated Statements of Cash Flows (unaudited)  For the Nine Months
Ended September 30, 2002 and 2001.                                                       |  | 4    | 
|                                                                                                                                            |  |                                                                                                                                                                  |  |      | 
|                                                                                                                                            |  | Notes to Consolidated Financial Statements (unaudited)                                                                                                           |  | 5    | 
|                                                                                                                                            |  |                                                                                                                                                                  |  |      | 
|ITEM 2.                                                                                                                                     |  | Managements Discussion and Analysis of Financial Condition and
Results of Operations                                                                            |  | 6    | 
|                                                                                                                                            |  |                                                                                                                                                                  |  |      | 
|ITEM 3.                                                                                                                                     |  | Controls and Procedures                                                                                                                                          |  | 9    | 
|                                                                                                                                            |  |                                                                                                                                                                  |  |      | 
|PART II:                                                                                                                                    |  | OTHER INFORMATION                                                                                                                                                |  | 10   | 

The consolidated financial statements furnished have not been
examined by independent certified public accountants, but
reflect, in the opinion of management, all adjustments
necessary for a fair presentation of the results of
operations for the periods presented.

The results of operations for the nine-month period ended
September 30, 2002 are not necessarily indicative of the
results to be expected for the full year.

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##### Table of Contents






Citizens Effingham Bancshares, Inc. and Subsidiary
Consolidated Balance Sheets
September 30, 2002 and December 31, 2001
(Unaudited)

|                                                           |                                                                                                 |                            |                                            |                                                |           |               |            |              |           |            |  | 
|---------------------------------------------------------- | ----------------------------------------------------------------------------------------------- | -------------------------- | ------------------------------------------ | ---------------------------------------------- | --------- | ------------- | ---------- | ------------ | --------- | ---------- |  | 
|                                                           |                                                                                                 |                            |                                            |                                                |           | September 30, |            | December 31,
|                                                           |                                                                                                 |                            |                                            |                                                |           | 2002          |            | 2001        
|                                                           |                                                                                                 |                            |                                            |                                                |           |               |            |             
|                                                           |                                                                                                 |                            |                                            | Assets                                         |           |               |            |              |           |            |  | 
|Cash and due from banks                                    |                                                                                                 | $                          | 3,328,569                                  |                                                |           | $             | 2,204,384  |             
|Federal funds sold                                         |                                                                                                 |                            | 1,857,000                                  |                                                |           |               |           |             
|                                                           |                                                                                                 |                            |                                            |                                                |           |               |            |             
|                                                           |                                                                                                 |                            | Total cash and cash equivalents            |                                                |           | 5,185,569     |            |              |           | 2,204,384  | 
|                                                           |                                                                                                 |                            |                                            |                                                |           |               |            |             
|Securities available for sale, at fair value               |                                                                                                 |                            | 7,688,993                                  |                                                |           |               | 6,805,208  |             
|Federal Home Loan Bank stock, restricted, at cost          |                                                                                                 |                            | 167,200                                    |                                                |           |               | 127,000    |             
|Loans, net of unearned income                              |                                                                                                 |                            | 81,516,377                                 |                                                |           |               | 69,060,655 |             
|Less  allowance for loan losses                           |                                                                                                 |                            | (937,272                                   | )                                              |           |               | (767,268   | )           
|                                                           |                                                                                                 |                            |                                            |                                                |           |               |            |             
|                                                           |                                                                                                 |                            | Loans, net                                 |                                                |           | 80,579,105    |            |              |           | 68,293,387 | 
|                                                           |                                                                                                 |                            |                                            |                                                |           |               |            |             
|Bank premises and equipment, less accumulated depreciation |                                                                                                 |                            | 1,722,680                                  |                                                |           |               | 1,714,687  |             
|Accrued interest receivable                                |                                                                                                 |                            | 695,570                                    |                                                |           |               | 601,031    |             
|Other assets and accrued income                            |                                                                                                 |                            | 268,082                                    |                                                |           |               | 368,550    |             
|                                                           |                                                                                                 |                            |                                            |                                                |           |               |            |             
|                                                           |                                                                                                 |                            | Total Assets                               |                                                | $         | 96,307,199    |            |              | $         | 80,114,247 | 
|                                                           |                                                                                                 |                            |                                            |                                                |           |               |            |             
|                                                           |                                                                                                 |                            |                                            | Liabilities and Shareholders Equity
Deposits: |           |               |            |              |           |            |  | 
|Deposits                                                   |                                                                                                 |                            |                                            |                                                |           |               |            |             
|                                                           | Non-interest bearing demand                                                                     |                            | $                                          | 10,006,737                                     |           |               | $          | 7,588,459    |          
|                                                           | Interest-bearing demand                                                                         |                            |                                            | 76,101,416                                     |           |               |            | 65,132,989   |          
|                                                           |                                                                                                 |                            |                                            |                                                |           |               |            |             
|                                                           |                                                                                                 |                            | Total deposits                             |                                                |           | 86,108,153    |            |              |           | 72,721,448 | 
|Accrued interest payable                                   |                                                                                                 |                            | 351,649                                    |                                                |           |               | 407,025    |             
|Federal funds purchased                                    |                                                                                                 |                            |                                           |                                                |           |               | 457,000    |             
|Other borrowed funds                                       |                                                                                                 |                            | 2,500,000                                  |                                                |           |               |           |             
|Accrued expenses and other liabilities                     |                                                                                                 |                            | 105,238                                    |                                                |           |               | 72,087     |             
|                                                           |                                                                                                 |                            |                                            |                                                |           |               |            |             
|                                                           |                                                                                                 |                            | Total liabilities                          |                                                |           | 89,065,040    |            |              |           | 73,657,560 | 
|                                                           |                                                                                                 |                            |                                            |                                                |           |               |            |             
|Shareholders Equity                                       |                                                                                                 |                            |                                            |                                                |           |               |            |             
|                                                           | Common stock, $1 par value, authorized 20,000,000 shares, issued
and outstanding 512,000 shares |                            |                                            | 512,000                                        |           |               |            | 512,000      |          
|                                                           | Paid-in capital surplus                                                                         |                            |                                            | 4,608,000                                      |           |               |            | 4,608,000    |          
|                                                           | Retained earnings                                                                               |                            |                                            | 1,923,692                                      |           |               |            | 1,232,986    |          
|                                                           | Accumulated other comprehensive income                                                          |                            |                                            | 198,467                                        |           |               |            | 103,701      |          
|                                                           |                                                                                                 |                            |                                            |                                                |           |               |            |             
|                                                           |                                                                                                 | Total
shareholders equity |                                            |                                                | 7,242,159 |               |            |              | 6,456,687 |           
|                                                           |                                                                                                 |                            |                                            |                                                |           |               |            |             
|                                                           |                                                                                                 |                            | Total
Liabilities and Shareholders Equity |                                                | $         | 96,307,199    |            |              | $         | 80,114,247 | 
|                                                           |                                                                                                 |                            |                                            |                                                |           |               |            |             

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##### Table of Contents






Citizens Effingham Bancshares, Inc. and Subsidiary
Consolidated Statements of Income
For the Three Months Ended September 30, 2002 and 2001
and For the Nine Months Ended September 30, 2002 and 2001
(Unaudited)

|                           |                                                |                                                     |         |                    |           |                   |         |           |           |      |           |           |           |   |         |           |           | 
|-------------------------- | ---------------------------------------------- | --------------------------------------------------- | ------- | ------------------ | --------- | ----------------- | ------- | --------- | --------- | ---- | --------- | --------- | --------- | - | ------- | --------- | --------- | 
|                           |                                                |                                                     |         | Three Months Ended |           | Nine Months Ended
|                           |                                                |                                                     |         | September 30,      |           | September 30,    
|                           |                                                |                                                     |         |                    |           |                  
|                           |                                                |                                                     |         | 2002               |           | 2001              |         | 2002      |           | 2001
|                           |                                                |                                                     |         |                    |           |                   |         |           |           |     
|Interest Income:           |                                                |                                                     |         |                    |           |                   |         |           |           |      |           |           |           |   |         |          
|                           | Interest and fees on loans                     |                                                     | $       | 1,456,692          |           |                   | $       | 1,326,169 |           |      | $         | 4,182,693 |           |   | $       | 3,976,935 |          
|                           | Income on federal funds sold                   |                                                     |         | 15,306             |           |                   |         | 50,900    |           |      |           | 34,928    |           |   |         | 150,348   |          
|                           | Interest on securities                         |                                                     |         | 87,014             |           |                   |         | 66,943    |           |      |           | 261,684   |           |   |         | 179,949   |          
|                           |                                                |                                                     |         |                    |           |                   |         |           |           |      |           |           |           |   |         |          
|                           |                                                | Total interest income                               |         |                    | 1,559,012 |                   |         |           | 1,444,012 |      |           |           | 4,479,305 |   |         |           | 4,307,232 | 
|                           |                                                |                                                     |         |                    |           |                   |         |           |           |      |           |           |           |   |         |          
|Interest Expense:          |                                                |                                                     |         |                    |           |                   |         |           |           |      |           |           |           |   |         |          
|                           | Interest on NOW and money market deposits      |                                                     |         | 133,276            |           |                   |         | 137,224   |           |      |           | 357,916   |           |   |         | 406,316   |          
|                           | Interest on savings deposits                   |                                                     |         | 3,239              |           |                   |         | 3,551     |           |      |           | 9,305     |           |   |         | 12,148    |          
|                           | Interest on time deposits                      |                                                     |         | 526,650            |           |                   |         | 653,558   |           |      |           | 1,621,554 |           |   |         | 1,876,784 |          
|                           | Federal funds purchased                        |                                                     |         |                   |           |                   |         |          |           |      |           | 4,268     |           |   |         |          |          
|                           | Other interest expense                         |                                                     |         | 19,895             |           |                   |         |          |           |      |           | 47,170    |           |   |         |          |          
|                           |                                                |                                                     |         |                    |           |                   |         |           |           |      |           |           |           |   |         |          
|                           |                                                | Total interest expense                              |         |                    | 683,060   |                   |         |           | 794,333   |      |           |           | 2,040,213 |   |         |           | 2,295,248 | 
|                           |                                                |                                                     |         |                    |           |                   |         |           |           |      |           |           |           |   |         |          
|                           | Net interest income before loan losses         |                                                     |         | 875,952            |           |                   |         | 649,679   |           |      |           | 2,439,092 |           |   |         | 2,011,984 |          
|                           | Less  provision for loan losses               |                                                     |         | 80,000             |           |                   |         | 51,000    |           |      |           | 240,000   |           |   |         | 153,000   |          
|                           |                                                |                                                     |         |                    |           |                   |         |           |           |      |           |           |           |   |         |          
|                           |                                                | Net interest income after provision for loan losses |         |                    | 795,952   |                   |         |           | 598,679   |      |           |           | 2,199,092 |   |         |           | 1,858,984 | 
|                           |                                                |                                                     |         |                    |           |                   |         |           |           |      |           |           |           |   |         |          
|Other Operating Income:    |                                                |                                                     |         |                    |           |                   |         |           |           |      |           |           |           |   |         |          
|                           | Service charges on deposit accounts            |                                                     |         | 103,672            |           |                   |         | 86,982    |           |      |           | 279,264   |           |   |         | 233,126   |          
|                           | Other service charges, commissions and fees    |                                                     |         | 44,667             |           |                   |         | 29,034    |           |      |           | 106,760   |           |   |         | 74,346    |          
|                           | Gain on sale of securities                     |                                                     |         |                   |           |                   |         |          |           |      |           |          |           |   |         | 1,325     |          
|                           | Other income                                   |                                                     |         | 5,289              |           |                   |         | 4,094     |           |      |           | 11,233    |           |   |         | 13,428    |          
|                           |                                                |                                                     |         |                    |           |                   |         |           |           |      |           |           |           |   |         |          
|                           |                                                | Total other operating income                        |         |                    | 153,628   |                   |         |           | 120,110   |      |           |           | 397,257   |   |         |           | 322,225   | 
|                           |                                                |                                                     |         |                    |           |                   |         |           |           |      |           |           |           |   |         |          
|Other Operating Expense:   |                                                |                                                     |         |                    |           |                   |         |           |           |      |           |           |           |   |         |          
|                           | Salaries                                       |                                                     |         | 215,058            |           |                   |         | 193,912   |           |      |           | 627,560   |           |   |         | 530,643   |          
|                           | Employee benefits                              |                                                     |         | 38,873             |           |                   |         | 31,973    |           |      |           | 115,872   |           |   |         | 88,598    |          
|                           | Net occupancy expenses                         |                                                     |         | 33,449             |           |                   |         | 27,195    |           |      |           | 93,467    |           |   |         | 73,730    |          
|                           | Equipment rental and depreciation of equipment |                                                     |         | 46,752             |           |                   |         | 43,432    |           |      |           | 139,789   |           |   |         | 127,050   |          
|                           | Other expenses                                 |                                                     |         | 196,188            |           |                   |         | 158,328   |           |      |           | 540,068   |           |   |         | 470,825   |          
|                           |                                                |                                                     |         |                    |           |                   |         |           |           |      |           |           |           |   |         |          
|                           |                                                | Total other operating expenses                      |         |                    | 530,320   |                   |         |           | 454,840   |      |           |           | 1,516,756 |   |         |           | 1,290,846 | 
|                           |                                                |                                                     |         |                    |           |                   |         |           |           |      |           |           |           |   |         |          
|Income Before Income Taxes |                                                |                                                     | 419,260 |                    |           |                   | 263,949 |           |           |      | 1,079,593 |           |           |   | 890,363 |          
|                           | Income tax provision                           |                                                     |         | 153,691            |           |                   |         | 111,310   |           |      |           | 388,887   |           |   |         | 329,755   |          
|                           |                                                |                                                     |         |                    |           |                   |         |           |           |      |           |           |           |   |         |          
|Net Income                 |                                                | $                                                   | 265,569 |                    |           | $                 | 152,639 |           |           | $    | 690,706   |           |           | $ | 560,608 |          
|                           |                                                |                                                     |         |                    |           |                   |         |           |           |      |           |           |           |   |         |          
|Income Per Share*          |                                                | $                                                   | 0.52    |                    |           | $                 | 0.30    |           |           | $    | 1.35      |           |           | $ | 1.09    |          
|                           |                                                |                                                     |         |                    |           |                   |         |           |           |      |           |           |           |   |         |          

     Net Income / weighted average outstanding shares of 512,000.

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##### Table of Contents






Citizens Effingham Bancshares, Inc. and Subsidiary
Consolidated Statements of Cash Flows
For the Nine Months Ended September 30, 2002 and 2001
(Unaudited)

|                                             |                                                                                   |                                                   |                                           |             |                   |             |           |             |         |             |  
|-------------------------------------------- | --------------------------------------------------------------------------------- | ------------------------------------------------- | ----------------------------------------- | ----------- | ----------------- | ----------- | --------- | ----------- | ------- | ----------- | -
|                                             |                                                                                   |                                                   |                                           |             | Nine Months Ended
|                                             |                                                                                   |                                                   |                                           |             | September 30,    
|                                             |                                                                                   |                                                   |                                           |             | 2002              |             | 2001     
|                                             |                                                                                   |                                                   |                                           |             |                   |             |          
|Cash
Flows from Operating Activities:        |                                                                                   |                                                   |                                           |             |                   |             |           |            
|                                             | Net income                                                                        |                                                   | $                                         | 690,706     |                   |             | $         | 560,608     |        
|                                             | Adjustments to reconcile net income to net cash provided by
operating activities: |                                                   |                                           |             |                   |             |           |             |        
|                                             |                                                                                   | Provision for loan losses                         |                                           |             | 240,000           |             |           |             | 153,000 |            
|                                             |                                                                                   | Depreciation                                      |                                           |             | 102,987           |             |           |             | 94,689  |            
|                                             |                                                                                   | Gain on calls of securities available for sale    |                                           |             |                  |             |           |             | 1,325   |            
|                                             |                                                                                   | Changes in accrued income and other assets        |                                           |             | (42,889           | )           |           |             | 166,620 |            
|                                             |                                                                                   | Changes in accrued expenses and other liabilities |                                           |             | (22,226           | )           |           |             | 86,022  |            
|                                             |                                                                                   |                                                   |                                           |             |                   |             |           |            
|                                             |                                                                                   |                                                   | Net cash provided by operating activities |             |                   | 968,578     |           |             |         | 1,062,264   |  
|                                             |                                                                                   |                                                   |                                           |             |                   |             |           |            
|Cash
Flows from Investing Activities:        |                                                                                   |                                                   |                                           |             |                   |             |           |            
|                                             | Net change in loans made to customers                                             |                                                   |                                           | (12,525,718 | )                 |             |           | (11,072,765 | )      
|                                             | Purchase of securities available for sale                                         |                                                   |                                           | (1,001,149  | )                 |             |           | (4,216,160  | )      
|                                             | Purchase of Federal Home Loan Bank stock                                          |                                                   |                                           | (40,200     | )                 |             |           | (12,200     | )      
|                                             | Proceeds from calls and maturities of securities available for sale               |                                                   |                                           | 260,949     |                   |             |           | 1,500,000   |        
|                                             | Purchases of property and equipment                                               |                                                   |                                           | (110,980    | )                 |             |           | (20,557     | )      
|                                             |                                                                                   |                                                   |                                           |             |                   |             |           |            
|                                             |                                                                                   |                                                   | Net cash used in investing activities     |             |                   | (13,417,098 | )         |             |         | (13,821,682 | )
|                                             |                                                                                   |                                                   |                                           |             |                   |             |           |            
|Cash
Flows from Financing Activities:        |                                                                                   |                                                   |                                           |             |                   |             |           |            
|                                             | Net change in demand and savings account                                          |                                                   |                                           | 9,802,528   |                   |             |           | 919,374     |        
|                                             | Net change in other time deposits                                                 |                                                   |                                           | 3,584,177   |                   |             |           | 12,975,660  |        
|                                             | Payments of federal funds purchased                                               |                                                   |                                           | (457,000    | )                 |             |           |            |        
|                                             | Proceeds from short-term borrowings                                               |                                                   |                                           | 1,000,000   |                   |             |           |            |        
|                                             | Proceeds from long-term borrowings                                                |                                                   |                                           | 1,500,000   |                   |             |           |            |        
|                                             |                                                                                   |                                                   |                                           |             |                   |             |           |            
|                                             |                                                                                   |                                                   | Net cash provided by financing activities |             |                   | 15,429,705  |           |             |         | 13,895,034  |  
|                                             |                                                                                   |                                                   |                                           |             |                   |             |           |            
|Net Increase in Cash and Cash Equivalents    |                                                                                   |                                                   | 2,981,185                                 |             |                   |             | 1,135,616 |            
|Cash and Cash Equivalents, Beginning of Year |                                                                                   |                                                   | 2,204,384                                 |             |                   |             | 4,654,676 |            
|                                             |                                                                                   |                                                   |                                           |             |                   |             |           |            
|Cash and Cash Equivalents, End of Year       |                                                                                   | $                                                 | 5,185,569                                 |             |                   | $           | 5,790,292 |            
|                                             |                                                                                   |                                                   |                                           |             |                   |             |           |            
|Supplement cash flow information:            |                                                                                   |                                                   |                                           |             |                   |             |           |            
|Cash paid for interest                       |                                                                                   | $                                                 | 2,095,589                                 |             |                   | $           | 2,205,752 |            
|                                             |                                                                                   |                                                   |                                           |             |                   |             |           |            
|Cash paid for income taxes                   |                                                                                   | $                                                 | 341,535                                   |             |                   | $           | 337,313   |            
|                                             |                                                                                   |                                                   |                                           |             |                   |             |           |            

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Citizens Effingham Bancshares, Inc. and Subsidiary
Notes to Consolidated Financial Statements
(Unaudited)

(1) Basis of Presentation



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim
financial information, and with the instructions to Form 10-QSB and Item 310
(b) of Regulation S-B of the Securities and Exchange Commission.
Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting of
normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the nine-month period ended September
30, 2002, are not necessarily indicative of the results that may be expected
for the year ended December 31, 2002. For further information refer to the
consolidated financial statements and footnotes thereto included in the
Companys Annual Report on Form 10-KSB for the year ended December 31, 2001.

(2) Other Comprehensive Income



| |                                                                                                                                                                                                                                                       
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | During the nine months ended September 30, 2002, the Company had
unrealized holding gains on investment securities which were reported as
comprehensive income. An analysis of accumulated other comprehensive income
since December 31, 2001 follows:

|                                                             |                                                                                                                  |   |         |        | 
|------------------------------------------------------------ | ---------------------------------------------------------------------------------------------------------------- | - | ------- | ------ | 
|Accumulated other comprehensive income at December 31, 2001  |                                                                                                                  | $ | 103,701 |       
|Other comprehensive income, net of tax:                      |                                                                                                                  |   |         |       
|                                                             | Change in unrealized gain (loss)
on securities available for sale, net
of deferred income tax expense of $48,819 |   |         | 94,766 | 
|                                                             | Less: Reclassification adjustment for (gains) losses
realized in net income                                      |   |         |       | 
|                                                             |                                                                                                                  |   |         |       
|                                                             |                                                                                                                  |   | 94,766  |       
|                                                             |                                                                                                                  |   |         |       
|Accumulated other comprehensive income at September 30, 2002 |                                                                                                                  | $ | 198,467 |       

(3) Supplemental Financial Data



| |                                                                                                                                                        
| | -------------------------------------------------------------------------------------------------------------------------------------------------------
| | Components of other operating expenses greater than 1% of total interest
income and other income for the periods ended September 30, 2002 and 2001
are:

|                      |  |                    |        |                   |  |      |        |      |  |   |         |  |  |   |        | 
|--------------------- |  | ------------------ | ------ | ----------------- |  | ---- | ------ | ---- |  | - | ------- |  |  | - | ------ | 
|                      |  | Three Months Ended |        | Nine Months Ended
|                      |  | September 30,      |        | September 30,    
|                      |  |                    |        |                  
|                      |  | 2002               |        | 2001              |  | 2002 |        | 2001
|                      |  |                    |        |                   |  |      |        |     
|Data Processing       |  | $                  | 38,859 |                   |  | $    | 30,616 |      |  | $ | 107,418 |  |  | $ | 91,599 | 
|Supplies and Printing |  | $                  | 19,631 |                   |  | $    | 18,212 |      |  | $ | 60,193  |  |  | $ | 47,618 | 

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##### Table of Contents






Citizens Effingham Bancshares, Inc. and Subsidiary
Item 2. Managements Discussion and Analysis of Financial Condition
and Results of Operations
For Each of the Nine Months in the Period Ended
September 30, 2002 and 2001

Interim Financial Condition

Citizens Effingham Bancshares, Inc. (the Company) reported total assets
of $96,307,199 as of September 30, 2002, compared to $80,114,247 at December
31, 2001. The most significant change in the composition of assets was an
increase in net loans from $68,293,387 to $80,579,105. In addition, cash and
cash equivalents increased from $2,204,384 to $5,185,569.

Liquidity

The Banks liquid assets as a percentage of total deposits were 9.9% at
September 30, 2002, compared to 3.0% at December 31, 2001. The Company has
approximately $2,900,000 in available federal fund lines of credit with
correspondent banks. The Company had $457,000 advanced on these lines as of
December 31, 2001. In addition, the Bank has a $6,700,000 line of credit with
the Federal Home Loan Bank of which $2,500,000 had been drawn against as of
September 30, 2002. At least monthly, management analyzes the level of
off-balance sheet commitments such as unfunded loan equivalents, loan
repayments, maturity of investment securities, liquid investment, and available
fund lines in an attempt to minimize the possibility that a potential shortfall
will exist.

Capital

The capital of the Company totaled $7,242,159 as of September 30, 2002.
The capital of the Company and the Bank exceeded all prescribed regulatory
capital guidelines. Regulations require that the most highly rated banks
maintain a Tier 1 leverage ratio of 3% plus an additional cushion of at least 1
to 2 percentage points. Tier 1 capital consists of common shareholders
equity, less certain intangibles. The Banks Tier 1 leverage ratio was 7.77% at
September 30, 2002, compared to 8.1% at December 31, 2001. Regulations require
that the Bank maintain a minimum total risk weighted capital ratio of 8%, with
one-half of this amount, or 4%, made up of Tier 1 capital. Risk-weighted assets
consist of balance sheet assets adjusted by risk category, and off-balance
sheet assets or equivalents similarly adjusted. At September 30, 2002, the Bank
had a risk-weighted total capital ratio of 9.64% compared to 9.9% at December
31, 2001, and a Tier I risk-weighted capital ratio of 8.50%, compared to 8.9%
at December 31, 2001. The decrease is primarily caused by the continued growth
in the loans.

Asset Quality

Nonperforming assets which includes nonaccruing loans, repossessed
collateral and loans for which payments are more than 90 days past due totaled
$172,000 at September 30, 2002, an increase of $165,000 from December 31, 2001.
There were no related party loans, which were considered nonperforming at
September 30, 2002. The composition of the nonperforming assets is presented
in the following table:

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##### Table of Contents



Citizens Effingham Bancshares, Inc. and Subsidiary
Item 2. Managements Discussion and Analysis of Financial Condition
and Results of Operations
For Each of the Nine Months in the Period Ended
September 30, 2002 and 2001

|                                                                                        |                            |   |               |         |              |   |       |       | 
|--------------------------------------------------------------------------------------- | -------------------------- | - | ------------- | ------- | ------------ | - | ----- | ----- | 
|                                                                                        |                            |   | September 30, |         | December 31,
|                                                                                        |                            |   | 2002          |         | 2001        
|                                                                                        |                            |   |               |         |             
|Loans on nonaccrual                                                                     |                            | $ |              |         |              | $ |      |      
|Loans more than 90 days past due                                                        |                            |   | 165,000       |         |              |   | 7,000 |      
|Other real estate owned                                                                 |                            |   |              |         |              |   |      |      
|Other repossessed collateral                                                            |                            |   | 7,000         |         |              |   |      |      
|                                                                                        |                            |   |               |         |              |   |       |      
|                                                                                        | Total nonperforming assets |   | $             | 172,000 |              |   | $     | 7,000 | 
|                                                                                        |                            |   |               |         |              |   |       |      
|Total nonperforming assets as a percentage
of total loans (gross) and other real estate |                            |   | 0.21          | %       |              |   | 0.01  | %    

The allowance for loan losses totaled $937,272 at September 30, 2002, a
net increase of $170,004 from December 31, 2001. The allowance for loan losses
represented 1.2% and 1.1% of total loans at September 30, 2002 and December 31,
2001, respectively. An analysis of the allowance for loan losses since December
31, 2001 follows:

|                                                |             |       |         |        |        | 
|----------------------------------------------- | ----------- | ----- | ------- | ------ | ------ | 
|Allowance for loan losses at December 31, 2001  |             | $     | 767,268 |       
|Charge-offs:                                    |             |       |         |       
|                                                | Commercial  |       |         | 12,752 |       
|                                                | Real Estate |       |         |       |       
|                                                | Installment |       |         | 80,291 |       
|                                                |             |       |         |       
|                                                |             | Total |         |        | 93,043 | 
|                                                |             |       |         |       
|Recoveries:                                     |             |       |         |       
|                                                | Commercial  |       |         | 207    |       
|                                                | Real Estate |       |         |       |       
|                                                | Installment |       |         | 22,840 |       
|                                                |             |       |         |       
|                                                |             | Total |         |        | 23,047 | 
|                                                |             |       |         |       
|Provision charged to income                     |             |       | 240,000 |       
|                                                |             |       |         |       
|Allowance for loan losses at September 30, 2002 |             | $     | 937,272 |       
|                                                |             |       |         |       

The loan portfolio is reviewed periodically to evaluate the outstanding
loans and to measure the performance of the portfolio and the adequacy of the
allowance for loan losses. This analysis includes a review of delinquency
trends, actual losses, and internal credit ratings. Managements judgment as
to the adequacy of the allowance is based upon a number of assumptions about
future events which it believes to be reasonable, but which may or may not be
reasonable. However, because of the inherent uncertainty of assumptions made
during the evaluation

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##### Table of Contents



Citizens Effingham Bancshares, Inc. and Subsidiary
Item 2. Managements Discussion and Analysis of Financial Condition
and Results of Operations
For Each of the Nine Months in the Period Ended
September 30, 2002 and 2001

process, there can be no assurance that loan losses in
future periods will not exceed the allowance for loan losses of that additional
allocations to the allowance will not be required.

The Bank was most recently examined by its primary regulatory authority in
November 2000. There were no recommendations by the regulatory authority that
in managements opinion will have material effects on the Banks liquidity,
capital resources or operations.

Investment Securities

At September 30, 2002, the Bank had $7,688,993 in investment securities
available-for-sale as compared to $6,805,208 at December 31, 2001. The net
unrealized gain on available for sale securities, net of deferred taxes, was
$198,467 on September 30, 2002 and $103,701 on December 31, 2001. During the
period ended September 30, 2002, calls of investments were $250,000.

Results of Operations

Net interest income for the third quarter of 2002 was $795,952, an
increase of $197,273 (32.9%) compared to the same period for 2001. Interest
income for the third quarter of 2002 was $1,559,012, representing an increase
of $115,000 (8.0%) over the same period in 2001. The increase in interest
income was due to an increase in total loans outstanding as a result of the
Companys growth. Interest expense for the third quarter of 2002 decreased
$111,273 (14.0%) compared to the same period in 2001. The decrease in interest
expense is primarily due to a decrease in average interest rates charged to
interest bearing deposits.

Amounts charged to expense related to the allowance for loan losses for
the three months ended September 30, 2002 and 2001 were $80,000 and $51,000,
respectively.

Other operating income for the third quarter of 2002 was $153,628, an
increase of $33,518 (27.9%) compared to the same period in 2001. The increase
is primarily attributable to an increase in service charges on deposit accounts
of $16,690 (11.4%) due to an increase in the number of accounts and deposit
activity.

Other operating expenses for the third quarter of 2002 were $530,320, an
increase of $75,480 (16.6%) compared to the same period for 2001. The increase
is primarily attributable to an increase of employee salaries and benefits of
$21,146 (10.9%) and an increase in other expenses of $37,860 (23.9%).

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##### Table of Contents






Citizens Effingham Bancshares, Inc.
and Subsidiary
Item 3. Controls and Procedures
For the Nine Months Ended September 30, 2002

Within 90 days prior to the date of this report, the Company carried out an
evaluation, under the supervision and with the participation of the Companys
management, including the Companys Chief Executive Officer who
also acts as the Companys chief accounting officer, of the
effectiveness of the design and operation of the Companys disclosure controls
and procedures pursuant to Exchange Act Rule 13a-14. Based upon that
evaluation, the Companys Chief Executive Officer concluded that the Companys
disclosure controls and procedures are effective in timely alerting them to
material information relating to the Company (including its consolidated
subsidiaries) that is required to be included in the Companys periodic filings
with the Securities and Exchange Commission. There have been no significant
changes in the Companys internal controls or, to the Companys knowledge, in
other factors that could significantly affect those internal controls
subsequent to the date the Company carried out its evaluation, and there have
been no corrective actions with respect to significant deficiencies and
material weaknesses.

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##### Table of Contents



Citizens Effingham Bancshares, Inc.
and Subsidiary
Part II. Other Information
For the Nine Months Ended September 30, 2002




PART II: OTHER INFORMATION:

Item 1. Legal Proceedings



| |                                                                                                                   
| | ------------------------------------------------------------------------------------------------------------------
| | There are no material legal proceedings to which the Company is a party or of
which their property is the subject.

Item 2. Changes in Securities

(a)  Not Applicable

(b)  Not Applicable

(c)  Not Applicable

(d)  Not Applicable

Item 3. Defaults Upon Senior Securities

Not Applicable

Item 4. Submission of Matters to a Vote of Security-Holders



| |                                                                                                                 
| | ----------------------------------------------------------------------------------------------------------------
| | There were no matters submitted to security holders for a vote during the
three months ended September 30, 2002.

Item 5. Other Information

None

Item 6. Exhibits and Reports on Form 8-K.

A.     There have been no reports filed on form 8-K for the three months
ended September 30, 2002.

B.     Exhibit 99.1
- 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 Securities Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.

Citizens Effingham Bancshares, Inc.

/s/Harry H. Shearouse

Harry H. Shearouse
President and Chief Executive Officer
(Also acting as chief accounting officer)

Date: November 8, 2002

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##### Table of Contents



Citizens Effingham Bancshares, Inc.
and SubsidiaryCertification Pursuant to 18 U.S.C. Section 1350 as Adopted
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
For the Nine Months Ended September 30, 2002

I, Harry H. Shearouse, President/Chief Executive
Officer and as the chief accounting officer, certify that:



|1. |  | I have reviewed this quarterly report on Form 10-QSB of Citizens Effingham
Bancshares, Inc.;                                                                                                                                                                                                                                  
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report.
|  
|3. |  | Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for the periods presented in this
quarterly report;                    
|  
|4. |  | I am responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the
registrant and I have:                                                                                                                                                      



| | a). |  | designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report
is being prepared.
| | --- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b). |  | evaluated the effectiveness of the registrants disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the Evaluation Date); and                                                                                                  
|
| | c). |  | presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;                                                                                                                        



|5. |  | I have disclosed, based on our most recent evaluation, to the
registrants auditors and the audit committee of registrants board of
directors (or persons performing the equivalent function):
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a). |  | all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrants ability to
record, process, summarize and report financial data and have identified
for the registrants auditors any material weaknesses in internal
controls; and
| | --- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b). |  | any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal
controls; and                                                                                                                                        



|6. |  | I have indicated in this quarterly report whether or not there were
significant changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date of our most
recent evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Date: November 8, 2002

/s/Harry H. Shearouse

Harry H. Shearouse
President and Chief Executive Officer

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