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U. S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549
 FORM 10-QSB  þ
    Quarterly report under Section 13 or 15 (d) of the Securities Exchange Act of 1934
     For the quarterly period ended June 30, 2004  o
    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.  GEORGIA
    
    58-2357619(State or Other Jurisdiction of
Incorporation or Organization)
    
    (I.R.S. Employer
Identification No.)
 802 South Laurel Street
Post Office Box 379
Springfield, Georgia 31329 
  (912) 754-0754 
  Not Applicable 
  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 þ No o 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 August 13, 2004 Transitional Small Business Disclosure Format (check one): Yes o No þ




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Citizens Effingham Bancshares, Inc. and Subsidiary INDEX PART I: FINANCIAL INFORMATIONITEM 1. FINANCIAL STATEMENTS
    
    PAGEThe following financial statements are provided for Citizens Effingham
Bancshares, Inc. and the subsidiary bank, Citizens Bank of Effingham.Consolidated Balance Sheets (unaudited) June 30, 2004 and
December 31, 2003.
    
    
    2Consolidated Statements of Income (unaudited)  For the Three Months
Ended June 30, 2004 and 2003 and For the Six Months Ended
June 30, 2004 and 2003
    
    
    3Consolidated Statements of Cash Flows (unaudited)  For the Six Months
Ended June 30, 2004 and 2003.
    
    
    4Notes to Consolidated Financial Statements (unaudited)
    
    
    5ITEM 2. Managements Discussion and Analysis of Financial Condition and
Results of Operations
    
    
    6ITEM 3. Controls and Procedures
    
    
    11PART II: OTHER INFORMATION
    
    
    12EX-31.1 SECTION 302 CERTIFICATION OF THE CEOEX-32.1 SECTION 906 CERTIFICATION OF THE CEO
  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 six-month period ended June 30, 2004 are not
necessarily indicative of the results to be expected for the full year. - 1 -




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Citizens Effingham Bancshares, Inc. and Subsidiary
Consolidated Balance Sheets
June 30, 2004 and December 31, 2003
(Unaudited) June 30,
    
    December 31,2004
    
    2003AssetsCash and due from banks
    
    $
    3,451,889
    
    
    $
    3,523,799Interest-bearing cash
    
    
    12,963
    
    
    
    275,558Federal funds sold
    
    
    
    
    
    
    5,796,000Total cash and cash equivalents
    
    
    3,464,852
    
    
    
    9,595,357Securities available for sale, at fair value
    
    
    9,280,517
    
    
    
    9,455,000Federal Home Loan Bank stock, restricted, at cost
    
    
    258,500
    
    
    
    198,800Loans, net of unearned income
    
    
    96,418,158
    
    
    
    86,058,974Less: allowance for loan losses
    
    
    (1,278,329
    )
    
    
    (1,107,357
    )Loans, net
    
    
    95,139,829
    
    
    
    84,951,617Bank premises and equipment, net
    
    
    1,899,564
    
    
    
    1,887,624Accrued interest receivable
    
    
    570,688
    
    
    
    557,154Cash surrender value life insurance
    
    
    2,061,856
    
    
    
    2,015,364Other assets and accrued income
    
    
    981,701
    
    
    
    709,308Total Assets
    
    $
    113,657,507
    
    
    $
    109,370,224Liabilities and Shareholders EquityDeposits:Non-interest bearing
    
    $
    16,258,312
    
    
    $
    12,329,284Interest bearing
    
    
    87,659,207
    
    
    
    85,919,930Total deposits
    
    
    103,917,519
    
    
    
    98,249,214Accrued interest payable
    
    
    239,008
    
    
    
    245,497Other borrowed funds
    
    
    380,000
    
    
    
    2,333,333Other liabilities and accrued expenses
    
    
    74,538
    
    
    
    74,504Total liabilities
    
    
    104,611,065
    
    
    
    100,902,548Stockholders Equity:Common stock, $1 par value, authorized 20,000,000 shares,
issued and outstanding 512,000 shares
    
    
    512,000
    
    
    
    512,000Paid-in capital surplus
    
    
    4,608,000
    
    
    
    4,608,000Retained earnings
    
    
    3,984,942
    
    
    
    3,277,253Accumulated other comprehensive income
    
    
    (58,500
    )
    
    
    70,423Total stockholders equity
    
    
    9,046,442
    
    
    
    8,467,676Total Liabilities and Stockholders Equity
    
    $
    113,657,507
    
    
    $
    109,370,224
 - 2 -




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Citizens Effingham Bancshares, Inc. and Subsidiary
Consolidated Statements of Income
For the Three Months Ended June 30, 2004 and 2003
and For The Six Months Ended June 30, 2004 and 2003
(Unaudited) Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2004
    
    2003
    
    2004
    
    2003Interest Income:Interest and fees on loans
    
    $
    1,484,976
    
    
    $
    1,435,084
    
    
    $
    2,856,069
    
    
    $
    2,812,818Income on federal funds sold
    
    
    3,783
    
    
    
    10,453
    
    
    
    12,747
    
    
    
    21,633Interest on investment securities
    
    
    90,415
    
    
    
    95,582
    
    
    
    185,369
    
    
    
    194,849Total interest income
    
    
    1,579,174
    
    
    
    1,541,119
    
    
    
    3,054,185
    
    
    
    3,029,300Interest Expense:Deposits
    
    
    417,485
    
    
    
    531,449
    
    
    
    827,754
    
    
    
    1,083,396Other interest expense
    
    
    561
    
    
    
    21,414
    
    
    
    24,208
    
    
    
    41,779Total interest expense
    
    
    418,046
    
    
    
    552,863
    
    
    
    851,962
    
    
    
    1,125,175Net interest income before provision for loan losses
    
    
    1,161,128
    
    
    
    988,256
    
    
    
    2,202,223
    
    
    
    1,904,125Less  provision for loan losses
    
    
    (90,000
    )
    
    
    (90,000
    )
    
    
    (180,000
    )
    
    
    (180,000
    )Net interest income after provision for loan losses
    
    
    1,071,128
    
    
    
    898,256
    
    
    
    2,022,223
    
    
    
    1,724,125Other Operating Income:Service charges on deposit accounts
    
    
    115,462
    
    
    
    113,692
    
    
    
    223,616
    
    
    
    214,141Other service charges, commissions and fees
    
    
    60,425
    
    
    
    36,685
    
    
    
    122,601
    
    
    
    79,253Gain on sale of other real estate
    
    
    6,054
    
    
    
    
    
    
    
    6,054
    
    
    
    Other income
    
    
    27,008
    
    
    
    3,743
    
    
    
    53,305
    
    
    
    3,511Total other operating income
    
    
    208,949
    
    
    
    154,120
    
    
    
    405,576
    
    
    
    296,905Other Operating Expense:Salaries
    
    
    285,020
    
    
    
    259,393
    
    
    
    560,370
    
    
    
    504,869Employee Benefits
    
    
    62,086
    
    
    
    51,139
    
    
    
    127,565
    
    
    
    101,818Net occupancy expense
    
    
    27,981
    
    
    
    26,342
    
    
    
    55,151
    
    
    
    52,289Equipment rental and depreciation of equipment
    
    
    59,622
    
    
    
    54,966
    
    
    
    112,950
    
    
    
    105,534Other expenses
    
    
    274,159
    
    
    
    216,587
    
    
    
    494,046
    
    
    
    441,859Total other operating expenses
    
    
    708,868
    
    
    
    608,427
    
    
    
    1,350,082
    
    
    
    1,206,369Income Before Income Taxes
    
    
    571,209
    
    
    
    443,949
    
    
    
    1,077,717
    
    
    
    814,661Provision for income taxes
    
    
    (230,230
    )
    
    
    (157,477
    )
    
    
    (370,028
    )
    
    
    (289,985
    )Net Income
    
    $
    340,979
    
    
    $
    286,472
    
    
    $
    707,689
    
    
    $
    524,676Income Per Share:Basic
    
    $
    0.67
    
    
    $
    0.56
    
    
    $
    1.38
    
    
    $
    1.02Diluted
    
    $
    0.67
    
    
    $
    0.56
    
    
    $
    1.38
    
    
    $
    1.02
   *
    
    Net Income / weighted average outstanding shares of 512,000. - 3 -




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Citizens Effingham Bancshares, Inc. and Subsidiary
Consolidated Statements of Cash Flows
For the Six Months Ended June 30, 2004 and 2003
(Unaudited) Six Months EndedJune 30,
    
    June 30,2004
    
    2003Cash Flows from Operating Activities:Net income
    
    $
    707,689
    
    
    $
    524,676Adjustments to reconcile net loss to net
cash provided by operating activities:Provision for loan losses
    
    
    180,000
    
    
    
    180,000Depreciation
    
    
    73,097
    
    
    
    76,922Gain on sale of ORE
    
    
    (6,054
    )
    
    
    Changes in accrued income and other assets
    
    
    (432,365
    )
    
    
    120,444Changes in accrued expenses and other liabilities
    
    
    59,960
    
    
    
    6,643Net cash provided by (used in) operating activities
    
    
    582,327
    
    
    
    908,685Cash Flows from Investing Activities:Net change in loans to customers
    
    
    (10,407,212
    )
    
    
    (4,375,280
    )Purchase of available for sale securities
    
    
    (1,500,000
    )
    
    
    (1,796,554
    )Proceeds from maturities, calls and paydowns of
available for sale securities
    
    
    1,479,145
    
    
    
    2,904,370Proceeds from sale of other real estate
    
    
    145,000
    
    
    
    Purchase of Federal Home Loan Bank stock
    
    
    (59,700
    )
    
    
    (31,600
    )Property and equipment expenditures
    
    
    (85,037
    )
    
    
    (79,287
    )Net cash provided by (used in) investing activities
    
    
    (10,427,804
    )
    
    
    (3,378,351
    )Cash Flows from Financing Activities:Net change in deposits
    
    
    5,668,305
    
    
    
    7,135,825Net increase in fed funds purchased
    
    
    380,000
    
    
    
    Net change in long-term borrowings
    
    
    (2,333,333
    )
    
    
    (66,667
    )Net cash provided by (used in) financing activities
    
    
    3,714,972
    
    
    
    7,069,158Net Increase in Cash and Cash Equivalents
    
    
    (6,130,505
    )
    
    
    4,599,492Cash and Cash Equivalents, Beginning of Period
    
    
    9,595,357
    
    
    
    7,108,453Cash and Cash Equivalents, End of Period
    
    $
    3,464,852
    
    
    $
    11,707,945Supplement Cash Flow Information:Cash paid for interest
    
    $
    858,451
    
    
    $
    1,117,238Cash paid for income taxes
    
    $
    360,000
    
    
    $
    295,200
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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 six-month period ended June 30,
2004, are not necessarily indicative of the results that may be expected for
the year ended December 31, 2004. 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, 2003.  (2)
    
    Other Comprehensive Income  During the six months ended June 30, 2004, 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, 2003
follows: Accumulated other comprehensive income (loss) at December 31, 2003
    
    
    70,423Other comprehensive income, net of tax:Change in unrealized loss on securities available for sale
net of deferred income tax expense of $(66,415)
    
    
    (128,923
    )Less: Reclassification adjustment for gains realized
in net income
    
    
    Accumulated other comprehensive income (loss) at June 30, 2004
    
    $
    (58,500
    )
  (3)
    
    Supplemental Financial Data  Components of other operating expenses greater than 1% of total interest
income and other income for the periods ended June 30, 2004 and 2003 are: Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2004
    
    2003
    
    2004
    
    2003Directors fees
    
    $
    19,400
    
    
    $
    19,100
    
    
    $
    38,400
    
    
    $
    38,540Supplies/printing
    
    
    25,824
    
    
    
    15,137
    
    
    
    44,327
    
    
    
    35,666Data processing
    
    
    43,096
    
    
    
    38,076
    
    
    
    86,192
    
    
    
    78,595ATM expense
    
    
    20,076
    
    
    
    20,772
    
    
    
    42,388
    
    
    
    40,363Other Losses
    
    
    23,344
    
    
    
    21
    
    
    
    23,229
    
    
    
    36
 - 5 -




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Citizens Effingham Bancshares, Inc. and Subsidiary
Item 2. Managements Discussion and Analysis of Financial Condition
and Results of Operations
For Each of the Six Months in the Periods Ended
June 30, 2004 and 2003 The following discussion of financial condition as of June 30, 2004 compared to
December 31, 2003, and the results of operations for the six months ended June
30, 2004 compared to the six months ended June 30, 2003 should be read in
conjunction with the condensed financial statements and accompanying footnotes
appearing in this report. Advisory Note Regarding Forward-Looking Statements The statements contained in this report on Form 10-QSB that are not historical
facts are forward-looking statements subject to the safe harbor created by the
Private Securities Litigation Reform Act of 1995. We caution readers of this
report that such forward-looking statements involve known and unknown risks,
uncertainties and other factors which may cause the actual results, performance
or achievements of us to be materially different from those expressed or
implied by such forward-looking statements. Although we believe that our
expectations of future performance is based on reasonable assumptions within
the bounds of our knowledge of our business and operations, there can be no
assurance that actual results will not differ materially from our expectations. Factors which could cause actual results to differ from expectations include,
among other things:  
    
    the challenges, costs and complications associated with the continued
development of our branches;
    
    the potential that loan charge-offs may exceed the allowance for loan
losses or that such allowance will be increased as a result of factors
beyond the control of us;
    
    our dependence on senior management;
    
    competition from existing financial institutions operating in our
market areas as well as the entry into such areas of new competitors
with greater resources, broader branch networks and more comprehensive
services;
    
    adverse conditions in the stock market, the public debt market, and
other capital markets (including changes in interest rate conditions);
    
    changes in deposit rates, the net interest margin, and funding sources;
    
    inflation, interest rate, market, and monetary fluctuations;
    
    risks inherent in making loans including repayment risks and value of collateral;
    
    the strength of the United States economy in general and the strength
of the local economies in which we conduct operations may be different
than expected resulting in, among other things, a deterioration in
credit quality or a reduced demand for credit, including the resultant
effect on our loan portfolio and allowance for loan losses;
    
    fluctuations in consumer spending and saving habits;
    
    the demand for our products and services;
    
    technological changes;
    
    the challenges and uncertainties in the implementation of our expansion and development strategies;
    
    the ability to increase market share;
    
    the adequacy of expense projections and estimates of impairment loss;
    
    the impact of changes in accounting policies by the Securities and Exchange Commission;
    
    unanticipated regulatory or judicial proceedings;
    
    the potential negative effects of future legislation affecting
financial institutions (including without limitation laws concerning
taxes, banking, securities, and insurance);
    
    the effects of, and changes in, trade, monetary and fiscal policies
and laws, including interest rate policies
of the Board of Governors of the Federal Reserve System;
    
    the timely development and acceptance of products and services,
including products and services offered through alternative delivery
channels such as the Internet; -6-




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Citizens Effingham Bancshares, Inc. and Subsidiary
Item 2. Managements Discussion and Analysis of Financial Condition
and Results of Operations
For Each of the Six Months in the Periods Ended
June 30, 2004 and 2003  
    
    the impact on our business, as well as on the risks set forth above,
of various domestic or international military or terrorist activities or
conflicts;
    
    other factors described in this report and in other reports we have
filed with the Securities and Exchange Commission; and
    
    Our success at managing the risks involved in the foregoing. Forward-looking statements speak only as of the date on which they are made.
We undertake no obligation to update any forward-looking statement to reflect
events or circumstances after the date on which the statement is made to
reflect the occurrence of unanticipated events. CRITICAL ACCOUNTING POLICIES Allowance for Loan Losses  A loan is considered impaired, based on current
information and events, if it is probable that the Company will be unable to
collect the scheduled payments of principal or interest when due according to
the contractual terms of the loan agreement. Uncollateralized loans are
measured for impairment based on the present value of expected future cash
flows discounted at the historical effective interest rate, while all
collateral-dependent loans are measured for impairment based on the fair value
of the collateral. The Bank uses several factors in determining if a loan is
impaired. The internal asset classification procedures include a thorough
review of significant loans and lending relationships and include the
accumulation of related data. This data includes loan payment status,
borrowers financial data, and borrowers operating factors such as cash flows,
operating income or loss, etc. The allowance for loan losses is established through charges to earnings in the
form of a provision for loan losses. Increases and decreases in the allowance
due to changes in the measurement of the impaired loans are included in the
provision for loan losses. Loans continue to be classified as impaired unless
they are brought fully current and the collection of scheduled interest and
principal is considered probable. When a loan or portion of a loan is
determined to be uncollectible, the portion deemed uncollectible is charged
against the allowance and subsequent recoveries, if any, are credited to the
allowance. Managements periodic evaluation of the adequacy of the allowance also
considers impaired loans and takes into consideration the Banks past loan loss
experience, known and inherent risks in the portfolio, adverse situations that
may affect the borrowers ability to repay, estimated value of any underlying
collateral, and current economic conditions. While management believes that it
has established the allowance in accordance with generally accepted accounting
principles and has taken into account the views of its regulators and the
current economic environment, there can be no assurance that in the future the
Banks regulators or its economic environment will not require further
increases in the allowance. Interim Financial Condition Citizens Effingham Bancshares, Inc. (the Company) reported total assets of
$113,657,507 as of June 30, 2004, compared to $109,370,224 at December 31,
2003. The most significant change in the composition of assets was an increase
in loans from $86,058,974 to $96,418,158 and a decrease in federal funds sold
from $5,796,000 to $-0-. Asset Quality Nonperforming assets which includes non-accruing loans, repossessed collateral
and loans for which payments are more than 90 days past due totaled $1,213,000
at June 30, 2004, an increase of $664,000 from December 31, -7-




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Citizens Effingham Bancshares, Inc. and Subsidiary
Item 2. Managements Discussion and Analysis of Financial Condition
and Results of Operations
For Each of the Six Months in the Periods Ended
June 30, 2004 and 2003 2003. There were no related party loans which were considered nonperforming at
June 30, 2004. The composition of the nonperforming assets is presented in the
following table: June 30,
    
    December 31,2004
    
    2003Loans on nonaccrual
    
    $
    347,000
    
    
    $
    242,000Loans greater than 90 days past due
    
    
    537,000
    
    
    
    89,000Other real estate owned
    
    
    329,000
    
    
    
    218,000Other repossessed collateral
    
    
    
    
    
    
    Total nonperforming assets
    
    $
    1,213,000
    
    
    $
    549,000Total nonperforming assets as a percentage
of total loans (gross) and other real estate
    
    
    1.25
    %
    
    
    0.64
    %
 The allowance for loan losses totaled $1,278,329 at June 30, 2004, a net
increase of $170,972 from December 31, 2003. The allowance for loan losses
represented 1.3% and 1.3% of total loans at June 30, 2004 and December 31,
2003, respectively. An analysis of the allowance for loan losses since December
31, 2003 follows: Allowance for loan losses at December 31, 2003
    
    $
    1,107,357Charge-offs:Commercial
    
    
    Real Estate
    
    
    70,000Installment
    
    
    15,000Total
    
    
    85,000Recoveries:Commercial
    
    
    49,000Real Estate
    
    
    7,972Installment
    
    
    19,000Total
    
    
    75,972Provision charged to income
    
    
    180,000Allowance for loan losses at June 30, 2004
    
    $
    1,278,329
 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 -8-




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Citizens Effingham Bancshares, Inc. and Subsidiary
Item 2. Managements Discussion and Analysis of Financial Condition
and Results of Operations
For Each of the Six Months in the Periods Ended
June 30, 2004 and 2003 may not be reasonable. However, because of the inherent uncertainty of
assumptions made during the evaluation 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
September, 2003. 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. Results of Operations Net interest income for the second quarter of 2004 was $2,202,223, an increase
of $298,098 (15.7%) compared to the same period for 2003. Interest income for
the second quarter of 2004 was $1,579,174 representing an increase of $38,055
(2.5%) over the same period in 2003. The increase in interest income was due
to increased loan volume. Interest expense for the second quarter
of 2004 decreased $134,817 (24.3%) compared to the same period in 2003. The
decrease in interest expense is primarily due to a decrease in average interest
rates charged on interest bearing deposits and reduced interest paid on the
FHLB advance due to its payoff during the second quarter of 2004. Amounts charged to expense related to the allowance for loan losses for the
three months ended June 30, 2004 and 2003 were $180,000 and $180,000,
respectively. Other operating income for the second quarter of 2004 was $202,895, an increase
of $48,775 compared to the same period in 2003. Other operating expenses for the second quarter of 2004 were $702,814, an
increase of $94,387 (15.5%) compared to the same period for 2003. The increase
is primarily attributable to an increase in other expenses of $57,572 (26.6%). Liquidity The Banks liquid assets as a
percentage of total deposits were 6.92% at June
30, 2004, compared to 9.77% at December 31, 2003. The Company has approximately
$4,900,000 in available federal fund lines of credit with correspondent banks,
no advances were outstanding on these lines as of June 30, 2004 and December
31, 2003. The Company also has approximately $2,400,000 in an available line
of credit with the Federal Home Loan Bank. The Company had $ -0- and $2,333,333
advanced on these lines as of June 30, 2004 and December 31, 2003,
respectively. 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 $9,046,442 as of June 30, 2004. 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 7.97% at June
30, 2004,
compared to 7.61% at December 31, 2003. 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- -9-




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Citizens Effingham Bancshares, Inc. and Subsidiary
Item 2. Managements Discussion and Analysis of Financial Condition
and Results of Operations
For Each of the Six Months in the Periods Ended
June 30, 2004 and 2003 weighted assets consist of balance sheet assets adjusted by risk category, and
off-balance sheet assets or equivalents similarly adjusted. At June 30, 2004,
the Bank had a risk-weighted total capital ratio of 10.42% compared to 10.64%
at December 31, 2003, and a Tier I risk-weighted capital ratio of 9.17%,
compared to 9.4% at December 31, 2003. The decrease is primarily caused by the
continued growth in loans. Investment Securities At June 30, 2004, the Bank had $9,280,517 in investment securities
available-for-sale. The net unrealized gain on available for sale securities,
net of deferred tax benefit, was $(128,923) on June 30, 2004. During the
period ended June 30, 2004, the bank purchased $1,500,000 in investment
securities available for sale. During the same period, the maturities and
calls of investment securities totaled $1,479,145, resulting in neither a gain
nor a loss. The bank invests primarily in obligations of the United States or
obligations guaranteed as to principal and interest by the United States and
other taxable and tax-exempt securities. -10-




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Citizens Effingham Bancshares, Inc. and Subsidiary
Item 3. Controls and Procedures
For the Six Months Ended June 30, 2004 The Corporations management, including the Chief Executive Officer and
Chief Financial Officer, supervised and participated in an evaluation of the
effectiveness of its disclosure controls and procedures (as defined in federal
securities rules) as of the end of the period covered by this report. Based
on, and as of the date of, that evaluation, the Corporations Chief Executive
Officer and Chief Financial Officer have concluded that the Corporations
disclosure controls and procedures were effective in accumulating and
communicating information to management, including the Chief Executive Officer
and Chief Financial Officer, as appropriate to allow timely decisions regarding
required disclosures of that information under the Securities and Exchange
Commissions rules and forms and that the Corporations disclosure controls and
procedures are designed to ensure that the information required to be disclosed
in reports that are filed or submitted by the Corporation under the Securities
Exchange Act is recorded, processed, summarized and reported within the time
periods specified in the Securities and Exchange Commissions rules and forms. There were no significant changes in the Corporations internal controls
or in other factors that could significantly affect these controls subsequent
to the date of their evaluation. -11-




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Citizens Effingham Bancshares, Inc. and Subsidiary
Part II. Other Information
For the Six Months Ended June 30, 2004 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 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 June 30, 2004 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 June 30, 2004.B.
    
    Exhibit 31.1C.
    
    Exhibit 32.1 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. ShearouseHarry H. ShearousePresident and Chief Executive OfficerDate: August 13, 2004
 -12-