##### 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 March 31, 2002

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.




(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 379
Springfield, 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   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 March 31, 2002

Transitional Small Business Disclosure Format (check one):

Yes   o   
No   x





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TABLE OF CONTENTS



|                                                                                              |                                       |  |  |  |  |  |  | 
|--------------------------------------------------------------------------------------------- | ------------------------------------- |  |  |  |  |  |  | 
|                                                                                              | 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
|PART II: OTHER INFORMATION:                                                                  
|SIGNATURES                                                                                   



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##### Table of Contents



Citizens Effingham Bancshares, Inc.
and Subsidiary

INDEX

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.

|         |  |                                                                                                        |  |      |  | 
|-------- |  | ------------------------------------------------------------------------------------------------------ |  | ---- |  | 
|         |  |                                                                                                        |  | PAGE
|         |  |                                                                                                        |  |     
|         |  | Consolidated Balance Sheets (unaudited)  March 31, 2002 and
December 31, 2001                         |  | 2    | 
|         |  | Consolidated Statements of Income (unaudited)  For the Three Months
Ended March 31, 2002 and 2001     |  | 3    | 
|         |  | Consolidated Statements of Cash Flows (unaudited)  For the Three Months
Ended March 31, 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                  |  | 7    | 
|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 three-month period ended March 31, 2002 are
not necessarily indicative of the results to be expected for the full year.

-1-



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##### Table of Contents



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






|                                                           |                                                                                                 |                             |                                 |                                            |            |            |            |              |            |            |            | 
|---------------------------------------------------------- | ----------------------------------------------------------------------------------------------- | --------------------------- | ------------------------------- | ------------------------------------------ | ---------- | ---------- | ---------- | ------------ | ---------- | ---------- | ---------- | 
|                                                           |                                                                                                 |                             |                                 |                                            |            | March 31,  |            | December 31,
|                                                           |                                                                                                 |                             |                                 |                                            |            | 2002       |            | 2001        
|                                                           |                                                                                                 |                             |                                 |                                            |            |            |            |             
|Assets                                                     |                                                                                                 |                             |                                 |                                            |            |            |            |             
|Cash and due from banks                                    |                                                                                                 | $                           | 3,179,494                       |                                            |            | $          | 2,204,384  |             
|Federal funds sold                                         |                                                                                                 |                             | 3,786,000                       |                                            |            |            |           |             
|                                                           |                                                                                                 |                             |                                 |                                            |            |            |            |             
|                                                           |                                                                                                 |                             | Total cash and cash equivalents |                                            |            | 6,965,494  |            |              |            | 2,204,384  |           
|                                                           |                                                                                                 |                             |                                 |                                            |            |            |            |             
|Securities available for sale, at fair value               |                                                                                                 |                             | 6,733,169                       |                                            |            |            | 6,805,208  |             
|Federal Home Loan Bank stock, restricted, at cost          |                                                                                                 |                             | 167,200                         |                                            |            |            | 127,000    |             
|Loans, net of unearned income                              |                                                                                                 |                             | 72,687,125                      |                                            |            |            | 69,060,655 |             
|Less- allowance for loan losses                            |                                                                                                 |                             | (823,065                        | )                                          |            |            | (767,268   | )           
|                                                           |                                                                                                 |                             |                                 |                                            |            |            |            |             
|                                                           |                                                                                                 |                             | Loans, net                      |                                            |            | 71,864,060 |            |              |            | 68,293,387 |           
|                                                           |                                                                                                 |                             |                                 |                                            |            |            |            |             
|Bank premises and equipment, less accumulated depreciation |                                                                                                 |                             | 1,767,738                       |                                            |            |            | 1,714,687  |             
|Accrued interest receivable                                |                                                                                                 |                             | 614,606                         |                                            |            |            | 601,031    |             
|Other assets and accrued income                            |                                                                                                 |                             | 336,702                         |                                            |            |            | 368,550    |             
|                                                           |                                                                                                 |                             |                                 |                                            |            |            |            |             
|                                                           |                                                                                                 |                             |                                 | Total Assets                               |            | $          | 88,448,969 |              |            | $          | 80,114,247 | 
|                                                           |                                                                                                 |                             |                                 |                                            |            |            |            |             
|Liabilities and Shareholders Equity                       |                                                                                                 |                             |                                 |                                            |            |            |            |             
|Deposits:                                                  |                                                                                                 |                             |                                 |                                            |            |            |            |             
|                                                           |                                                                                                 | Non-interest bearing demand |                                 | $                                          | 8,656,222  |            |            | $            | 7,588,459  |           
|                                                           |                                                                                                 | Interest-bearing demand     |                                 |                                            | 70,291,499 |            |            |              | 65,132,989 |           
|                                                           |                                                                                                 |                             |                                 |                                            |            |            |            |             
|                                                           |                                                                                                 |                             |                                 | Total deposits                             |            |            | 78,947,721 |              |            |            | 72,721,448 | 
|Accrued interest payable                                   |                                                                                                 |                             | 370,384                         |                                            |            |            | 407,025    |             
|Other borrowed funds                                       |                                                                                                 |                             | 2,500,000                       |                                            |            |            | 457,000    |             
|Accrued expenses and other liabilities                     |                                                                                                 |                             | 41,809                          |                                            |            |            | 72,087     |             
|                                                           |                                                                                                 |                             |                                 |                                            |            |            |            |             
|                                                           |                                                                                                 |                             |                                 | Total liabilities                          |            |            | 81,859,914 |              |            |            | 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                                                                               |                             |                                 | 1,410,350                                  |            |            |            | 1,232,986    |           
|                                                           | Accumulated other comprehensive income                                                          |                             |                                 | 58,705                                     |            |            |            | 103,701      |           
|                                                           |                                                                                                 |                             |                                 |                                            |            |            |            |             
|                                                           |                                                                                                 |                             |                                 | Total shareholders equity                 |            |            | 6,589,055  |              |            |            | 6,456,687  | 
|                                                           |                                                                                                 |                             |                                 |                                            |            |            |            |             
|                                                           |                                                                                                 |                             |                                 | Total Liabilities and Shareholders Equity |            | $          | 88,448,969 |              |            | $          | 80,114,247 | 
|                                                           |                                                                                                 |                             |                                 |                                            |            |            |            |             

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##### Table of Contents



Citizens Effingham Bancshares, Inc. and Subsidiary
Consolidated Statements of IncomeFor the Three Months Ended March 31, 2002 and 2001
(Unaudited)






|                           |                                                |                                |                                                     |           |                    |           |         |           |         |           | 
|-------------------------- | ---------------------------------------------- | ------------------------------ | --------------------------------------------------- | --------- | ------------------ | --------- | ------- | --------- | ------- | --------- | 
|                           |                                                |                                |                                                     |           | Three Months Ended
|                           |                                                |                                |                                                     |           | March 31,         
|                           |                                                |                                |                                                     |           |                   
|                           |                                                |                                |                                                     |           | 2002               |           | 2001   
|                           |                                                |                                |                                                     |           |                    |           |        
|Interest Income:           |                                                |                                |                                                     |           |                    |           |         |          
|                           | Interest and fees on loans                     |                                | $                                                   | 1,301,778 |                    |           | $       | 1,321,633 |        
|                           | Income on federal funds sold                   |                                |                                                     | 6,288     |                    |           |         | 41,479    |        
|                           | Interest on securities                         |                                |                                                     | 87,926    |                    |           |         | 59,692    |        
|                           |                                                |                                |                                                     |           |                    |           |         |          
|                           |                                                |                                | Total interest income                               |           |                    | 1,395,992 |         |           |         | 1,422,804 | 
|                           |                                                |                                |                                                     |           |                    |           |         |          
|Interest Expense:          |                                                |                                |                                                     |           |                    |           |         |          
|                           | Interest on NOW and money market deposits      |                                |                                                     | 101,850   |                    |           |         | 125,882   |        
|                           | Interest on savings deposits                   |                                |                                                     | 2,838     |                    |           |         | 4,415     |        
|                           | Interest on time deposits                      |                                |                                                     | 561,770   |                    |           |         | 600,021   |        
|                           | Federal funds purchased                        |                                |                                                     | 4,268     |                    |           |         |          |        
|                           |                                                |                                |                                                     |           |                    |           |         |          
|                           |                                                |                                | Total interest expense                              |           |                    | 670,726   |         |           |         | 730,318   | 
|                           |                                                |                                |                                                     |           |                    |           |         |          
|                           | Net interest income before loan losses         |                                |                                                     | 725,266   |                    |           |         | 692,486   |        
|                           | Less  provision for loan losses               |                                |                                                     | 70,000    |                    |           |         | 51,000    |        
|                           |                                                |                                |                                                     |           |                    |           |         |          
|                           |                                                |                                | Net interest income after provision for loan losses |           |                    | 655,266   |         |           |         | 641,486   | 
|                           |                                                |                                |                                                     |           |                    |           |         |          
|Other Operating Income:    |                                                |                                |                                                     |           |                    |           |         |          
|                           | Service charges on deposit accounts            |                                |                                                     | 84,551    |                    |           |         | 65,460    |        
|                           | Other service charges, commissions and fees    |                                |                                                     | 26,822    |                    |           |         | 24,397    |        
|                           | Gain on calls of securities                    |                                |                                                     |          |                    |           |         | 1,325     |        
|                           | Other income                                   |                                |                                                     | 1,778     |                    |           |         | 3,935     |        
|                           |                                                |                                |                                                     |           |                    |           |         |          
|                           |                                                |                                | Total other operating income                        |           |                    | 113,151   |         |           |         | 95,117    | 
|                           |                                                |                                |                                                     |           |                    |           |         |          
|Other Operating Expense:   |                                                |                                |                                                     |           |                    |           |         |          
|                           | Salaries                                       |                                |                                                     | 202,383   |                    |           |         | 164,422   |        
|                           | Employee benefits                              |                                |                                                     | 37,280    |                    |           |         | 27,770    |        
|                           | Net occupancy expenses                         |                                |                                                     | 29,306    |                    |           |         | 23,179    |        
|                           | Equipment rental and depreciation of equipment |                                |                                                     | 46,082    |                    |           |         | 39,982    |        
|                           | Other expenses                                 |                                |                                                     | 169,260   |                    |           |         | 154,357   |        
|                           |                                                |                                |                                                     |           |                    |           |         |          
|                           |                                                | Total other operating expenses |                                                     |           | 484,311            |           |         |           | 409,710 |          
|                           |                                                |                                |                                                     |           |                    |           |         |          
|Income Before Income Taxes |                                                |                                | 284,106                                             |           |                    |           | 326,893 |          
|                           | Income tax provision                           |                                |                                                     | 106,742   |                    |           |         | 106,580   |        
|                           |                                                |                                |                                                     |           |                    |           |         |          
|Net Income                 |                                                | $                              | 177,364                                             |           |                    | $         | 220,313 |          
|                           |                                                |                                |                                                     |           |                    |           |         |          
|Income Per Share*          |                                                | $                              | 0.35                                                |           |                    | $         | 0.43    |          
|                           |                                                |                                |                                                     |           |                    |           |         |          



|* |  | 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 FlowsFor the Three Months Ended March 31, 2002 and 2001
(Unaudited)






|                                             |                                                                                   |                                                   |                                           |            |                    |            |           |            |         |            |  
|-------------------------------------------- | --------------------------------------------------------------------------------- | ------------------------------------------------- | ----------------------------------------- | ---------- | ------------------ | ---------- | --------- | ---------- | ------- | ---------- | -
|                                             |                                                                                   |                                                   |                                           |            | Three Months Ended
|                                             |                                                                                   |                                                   |                                           |            | March 31,         
|                                             |                                                                                   |                                                   |                                           |            | 2002               |            | 2001     
|                                             |                                                                                   |                                                   |                                           |            |                   
|Cash Flows from Operating Activities:        |                                                                                   |                                                   |                                           |            |                    |            |           |           
|                                             | Net income                                                                        |                                                   | $                                         | 177,364    |                    |            | $         | 220,313    |        
|                                             | Adjustments to reconcile net income to net cash provided by
operating activities: |                                                   |                                           |            |                    |            |           |            |        
|                                             |                                                                                   | Provision for loan losses                         |                                           |            | 70,000             |            |           |            | 51,000  |           
|                                             |                                                                                   | Depreciation                                      |                                           |            | 32,151             |            |           |            | 31,563  |           
|                                             |                                                                                   | Gain on calls of securities available for sale    |                                           |            |                   |            |           |            | 1,325   |           
|                                             |                                                                                   | Changes in accrued income and other assets        |                                           |            | 41,454             |            |           |            | 157,472 |           
|                                             |                                                                                   | Changes in accrued expenses and other liabilities |                                           |            | (66,920            | )          |           |            | (76,528 | )         
|                                             |                                                                                   |                                                   |                                           |            |                    |            |           |           
|                                             |                                                                                   |                                                   | Net cash provided by operating activities |            |                    | 254,049    |           |            |         | 385,145    |  
|                                             |                                                                                   |                                                   |                                           |            |                    |            |           |           
|Cash Flows from Investing Activities:        |                                                                                   |                                                   |                                           |            |                    |            |           |           
|                                             | Net change in loans made to customers                                             |                                                   |                                           | (3,640,673 | )                  |            |           | (3,118,718 | )      
|                                             | Purchase of securities available for sale                                         |                                                   |                                           |           |                    |            |           | (1,030,355 | )      
|                                             | Purchase of Federal Home Loan Bank stock                                          |                                                   |                                           | (40,200    | )                  |            |           | (12,200    | )      
|                                             | Proceeds from calls of securities available for sale                              |                                                   |                                           | 3,863      |                    |            |           | 747,741    |        
|                                             | Purchases of property and equipment                                               |                                                   |                                           | (85,202    | )                  |            |           | (5,391     | )      
|                                             |                                                                                   |                                                   |                                           |            |                    |            |           |           
|                                             |                                                                                   |                                                   | Net cash used in investing activities     |            |                    | (3,762,212 | )         |            |         | (3,418,923 | )
|                                             |                                                                                   |                                                   |                                           |            |                    |            |           |           
|Cash Flows from Financing Activities:        |                                                                                   |                                                   |                                           |            |                    |            |           |           
|                                             | Net change in demand and savings account                                          |                                                   |                                           | 358,837    |                    |            |           | 308,528    |        
|                                             | Net change in other time deposits                                                 |                                                   |                                           | 5,867,436  |                    |            |           | 5,539,300  |        
|                                             | 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 |            |                    | 8,269,273  |           |            |         | 5,847,828  |  
|                                             |                                                                                   |                                                   |                                           |            |                    |            |           |           
|Net Increase in Cash and Cash Equivalents    |                                                                                   |                                                   | 4,761,110                                 |            |                    |            | 2,814,050 |           
|Cash and Cash Equivalents, Beginning of Year |                                                                                   |                                                   | 2,204,384                                 |            |                    |            | 4,654,676 |           
|                                             |                                                                                   |                                                   |                                           |            |                    |            |           |           
|Cash and Cash Equivalents, End of Year       |                                                                                   | $                                                 | 6,965,494                                 |            |                    | $          | 7,468,726 |           
|                                             |                                                                                   |                                                   |                                           |            |                    |            |           |           
|Supplement cash flow information:            |                                                                                   |                                                   |                                           |            |                    |            |           |           
|Cash paid for interest                       |                                                                                   | $                                                 | 707,367                                   |            |                    | $          | 697,889   |           
|                                             |                                                                                   |                                                   |                                           |            |                    |            |           |           
|Cash paid for income taxes                   |                                                                                   | $                                                 | 78,535                                    |            |                    | $          | 105,667   |           
|                                             |                                                                                   |                                                   |                                           |            |                    |            |           |           

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##### Table of Contents



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 three-month period ended March 31,
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 three months ended March 31, 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 benefit of $30,242 |         |   | (44,996 | )
|                                                            | Less: Reclassification adjustment for (gains) losses
realized in net income |                                                                                                                  |         |  |        
|                                                            |                                                                             |                                                                                                                  |         |  
|                                                            |                                                                             |                                                                                                                  | (44,996 | )
|                                                            |                                                                             |                                                                                                                  |         |  
|Accumulated other comprehensive income at March 31, 2002    |                                                                             | $                                                                                                                | 58,705  |  
|                                                            |                                                                             |                                                                                                                  |         |  

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##### Table of Contents



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




(4)   Supplemental Financial Data



| |                                                                                                                                                    
| | ---------------------------------------------------------------------------------------------------------------------------------------------------
| | Components of other operating expenses greater than 1% of total interest
income and other income for the periods ended March 31, 2002 and 2001 are:

|                  |  |                    |        |      |  |   |        | 
|----------------- |  | ------------------ | ------ | ---- |  | - | ------ | 
|                  |  | Three Months Ended
|                  |  | March 31,         
|                  |  | 2002               |        | 2001
|                  |  |                    |        |     
|Data Processing   |  | $                  | 38,940 |      |  | $ | 30,616 | 
|Supplies/Printing |  | $                  | 19,441 |      |  | $ | 17,224 | 

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##### Table of Contents



Citizens Effingham Bancshares, Inc. and Subsidiary
Item 2. Managements Discussion and Analysis of
Financial Conditionand Results of OperationsFor Each of the Three Months in the Period EndedMarch 31,
2002 and 2001




Interim Financial Condition

Citizens Effingham Bancshares, Inc. (the Company) reported total assets
of $88,448,969 as of March 31, 2002, compared to $80,114,247 at December 31,
2001. The most significant change in the composition of assets was an increase
in cash and cash equivalents from $2,204,384 to $6,965,494. During the first
quarter, net loans increased from $68,293,387 to $71,864,411. Also, additional
Federal Home Loan Bank stock was purchased during the first quarter at a cost
of $40,200.

Liquidity

The Banks liquid assets as a percentage of total deposits were 8.8% at
March 31, 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. 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 $6,589,055 as of March 31, 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 7.7% at March
31, 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 March 31, 2002, the Bank had a
risk-weighted total capital ratio of 9.8% compared to 9.9% at December 31,
2001, and a Tier I risk-weighted capital ratio of 8.7%, 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
$28,000 at March 31, 2002, an increase of $21,000 from December 31, 2001.
There were no related party loans which were considered nonperforming at March
31, 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 Three Months in the Period Ended
March 31, 2002 and 2001




|                                                                                        |                            |   |           |        |              |   |       |       | 
|--------------------------------------------------------------------------------------- | -------------------------- | - | --------- | ------ | ------------ | - | ----- | ----- | 
|                                                                                        |                            |   | March 31, |        | December 31,
|                                                                                        |                            |   | 2002      |        | 2001        
|                                                                                        |                            |   |           |        |             
|Loans on nonaccrual                                                                     |                            | $ |          |        |              | $ |      |      
|Loans greater than 90 days past due                                                     |                            |   | 28,000    |        |              |   | 7,000 |      
|Other real estate owned                                                                 |                            |   |          |        |              |   |      |      
|Other repossessed collateral                                                            |                            |   |          |        |              |   |      |      
|                                                                                        |                            |   |           |        |              |   |       |      
|                                                                                        | Total nonperforming assets |   | $         | 28,000 |              |   | $     | 7,000 | 
|                                                                                        |                            |   |           |        |              |   |       |      
|Total nonperforming assets as a percentage
of total loans (gross) and other real estate |                            |   | 0.04      | %      |              |   | 0.01  | %    
|                                                                                        |                            |   |           |        |              |   |       |      

The allowance for loan losses totaled $823,065 at March 31, 2002, a net
increase of $66,797 from December 31, 2001. The allowance for loan losses
represented 1.1% and 1.1% of total loans at March 31, 2002 and December 31,
2001, respectively. An analysis of the allowance for loan losses since December
31, 200 follows:

|                                               |             |       |         |        |       |        | 
|---------------------------------------------- | ----------- | ----- | ------- | ------ | ----- | ------ | 
|Allowance for loan losses at December 31, 2001 |             | $     | 767,268 |       
|Charge-offs:                                   |             |       |         |       
|                                               | Commercial  |       |         |       |      
|                                               | Real Estate |       |         |       |      
|                                               | Installment |       |         | 17,842 |      
|                                               |             |       |         |       
|                                               |             |       | Total   |        |       | 17,842 | 
|                                               |             |       |         |       
|Recoveries:                                    |             |       |         |       
|                                               | Commercial  |       |         |       |      
|                                               | Real Estate |       |         |       |      
|                                               | Installment |       |         | 3,639  |      
|                                               |             |       |         |       
|                                               |             | Total |         |        | 3,639 |       
|                                               |             |       |         |       
|Provision charged to income                    |             |       | 70,000  |       
|                                               |             |       |         |       
|Allowance for loan losses at March 31, 2002    |             | $     | 823,065 |       
|                                               |             |       |         |       

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 Three Months in the Period EndedMarch 31, 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 March 31, 2002, the Bank had $6,733,169 in investment securities
available-for-sale. The net unrealized gain on available for sale securities,
net of deferred taxes, was $58,705 on March 31, 2002. During the period ended
March 31, 2002, there were no calls of investment.

Results of Operations

Net interest income for the first three months of 2002 was $655,266, an
increase of $13,780 (2.1%) compared to the same period for 2001. Interest
income for the first three months of 2002 was $1,395,992, representing a
decrease of $26,812 (1.9%) over the same period in 2001. The decrease in
interest income was due to a decrease in interest income on federal funds sold.
Interest expense for the first three months of 2002 decreased $59,592 (8.2%)
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 first three months of 2002 and 20001 were $70,000 and $51,000,
respectively.

Other operating income for the first three months of 2002 was $113,151, an
increase of $18,034 (19.0%) compared to the same period in 2001. The increase
is primarily attributable to an increase in service charges on deposit accounts
of $19,091 (29.2%) due to an increase in the number of accounts and deposit
activity.

Other operating expenses for the first three months of 2002 were $484,311,
an increase of $74,601 (18.2%) compared to the same period for 2001. The
increase is primarily attributable to an increase of employee salaries and
benefits of $47,471 (24.7%) and an increase in other expenses of $14,903
(9.7%).

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##### Table of Contents



Citizens Effingham Bancshares,
Inc.and Subsidiary







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 March 31, 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 March 31, 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 / Chief Executive Officer

Date: April 24, 2002

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