##### Table of Contents



U. S. SECURITIES AND EXCHANGE COMMISSION  FORM 10-QSB
 x
    
    Quarterly report under Section 13 or 15 (d) of the Securities Exchange Act of 1934For the quarterly period ended September 30, 2004o
    
    Transition report under Section 13 or 15 (d) of the Exchange ActFor the transition period from  to
 Commission file number 333-07914 CITIZENS EFFINGHAM BANCSHARES, INC.  GEORGIA
    
    58-2357619(State or Other Jurisdiction of
    
    (I.R.S. EmployerIncorporation or Organization)
    
    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 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 September 30, 2004 Transitional Small Business Disclosure Format (check one): Yes o No x




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Citizens Effingham Bancshares, Inc. and Subsidiary INDEX PAGEPART I: FINANCIAL INFORMATIONITEM 1. FINANCIAL STATEMENTSThe following financial statements are provided for Citizens Effingham
Bancshares, Inc. and the subsidiary bank, Citizens Bank of Effingham.Consolidated Balance Sheets (unaudited) September 30, 2004 and
December 31, 2003.
    
    
    2Consolidated Statements of Income (unaudited) - For the Three Months
Ended September 30, 2004 and 2003 and For the Nine Months Ended
September 30, 2004 and 2003
    
    
    3Consolidated Statements of Cash Flows (unaudited) - For the Nine Months
Ended September 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 nine-month period ended September 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
 September 30, 2004 and December 31, 2003
  September 30,
    
    December 31,2004
    
    2003AssetsCash and due from banks
    
    $
    3,457,212
    
    
    $
    3,523,799Interest-bearing cash
    
    
    11,801
    
    
    
    275,558Federal funds sold
    
    
    3,268,000
    
    
    
    5,796,000Total cash and cash equivalents
    
    
    6,737,013
    
    
    
    9,595,357Securities available for sale, at fair value
    
    
    9,179,112
    
    
    
    9,455,000Federal Home Loan Bank stock, restricted, at cost
    
    
    258,500
    
    
    
    198,800Loans, net of unearned income
    
    
    99,755,480
    
    
    
    86,058,974Less: allowance for loan losses
    
    
    (1,223,187
    )
    
    
    (1,107,357
    )Loans, net
    
    
    98,532,293
    
    
    
    84,951,617Bank premises and equipment, net
    
    
    1,901,473
    
    
    
    1,887,624Accrued interest receivable
    
    
    644,844
    
    
    
    557,154Cash surrender value life insurance
    
    
    
    
    
    
    2,015,364Other real estate and repossessed assets
    
    
    277,083
    
    
    
    227,000Other assets and accrued income
    
    
    2,471,629
    
    
    
    482,308Total Assets
    
    $
    120,001,947
    
    
    $
    109,370,224Liabilities and Shareholders EquityDeposits:Non-interest bearing
    
    $
    16,023,181
    
    
    $
    12,329,284Interest bearing
    
    
    92,052,296
    
    
    
    85,919,930Total deposits
    
    
    108,075,477
    
    
    
    98,249,214Accrued interest payable
    
    
    257,565
    
    
    
    245,497Other borrowed funds
    
    
    2,000,000
    
    
    
    2,333,333Other liabilities and accrued expenses
    
    
    124,042
    
    
    
    74,504Total liabilities
    
    
    110,457,084
    
    
    
    100,902,548Stotckholders 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
    
    
    4,414,042
    
    
    
    3,277,253Accumulated other comprehensive income
    
    
    10,821
    
    
    
    70,423Total stockholders equity
    
    
    9,544,863
    
    
    
    8,467,676Total Liabilities and Stockholders Equity
    
    $
    120,001,947
    
    
    $
    109,370,224
 -2-




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Citizens Effingham Bancshares, Inc. and Subsidiary 
 Consolidated Statements of Income
 For the Three Months Ended September 30, 2004 and 2003
 and For The Nine Months Ended September 30, 2004 and 2003
  Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2004
    
    2003
    
    2004
    
    2003Interest Income:Interest and fees on loans
    
    $
    1,576,183
    
    
    $
    1,377,892
    
    
    $
    4,432,252
    
    
    $
    4,190,710Income on federal funds sold
    
    
    8,136
    
    
    
    14,855
    
    
    
    20,883
    
    
    
    36,488Interest on investment securities
    
    
    90,635
    
    
    
    98,989
    
    
    
    276,004
    
    
    
    293,838Total interest income
    
    
    1,674,954
    
    
    
    1,491,736
    
    
    
    4,729,139
    
    
    
    4,521,036Interest Expense:Deposits
    
    
    437,588
    
    
    
    502,008
    
    
    
    1,265,342
    
    
    
    1,585,404Other interest expense
    
    
    3,591
    
    
    
    21,017
    
    
    
    27,799
    
    
    
    62,796Total interest expense
    
    
    441,179
    
    
    
    523,025
    
    
    
    1,293,141
    
    
    
    1,648,200Net interest income before provision for loan losses
    
    
    1,233,775
    
    
    
    968,711
    
    
    
    3,435,998
    
    
    
    2,872,836Less - provision for loan losses
    
    
    (110,000
    )
    
    
    (90,000
    )
    
    
    (290,000
    )
    
    
    (270,000
    )Net interest income after provision for loan losses
    
    
    1,123,775
    
    
    
    878,711
    
    
    
    3,145,998
    
    
    
    2,602,836Other Operating Income:Service charges on deposit accounts
    
    
    114,565
    
    
    
    117,712
    
    
    
    338,181
    
    
    
    331,853Other service charges, commissions and fees
    
    
    65,384
    
    
    
    39,308
    
    
    
    187,985
    
    
    
    118,561Gain on sale of other real estate
    
    
    
    
    
    
    
    
    
    
    6,054
    
    
    
    Other income
    
    
    25,870
    
    
    
    5,439
    
    
    
    79,175
    
    
    
    8,950Total other operating income
    
    
    205,819
    
    
    
    162,459
    
    
    
    611,395
    
    
    
    459,364Other Operating Expense:Salaries
    
    
    287,799
    
    
    
    270,217
    
    
    
    848,169
    
    
    
    775,086Employee Benefits
    
    
    66,164
    
    
    
    54,993
    
    
    
    193,729
    
    
    
    156,811Net occupancy expense
    
    
    28,623
    
    
    
    27,426
    
    
    
    83,774
    
    
    
    79,715Equipment rental and depreciation of equipment
    
    
    62,126
    
    
    
    55,627
    
    
    
    175,076
    
    
    
    161,161Other expenses
    
    
    225,284
    
    
    
    219,741
    
    
    
    719,330
    
    
    
    661,600Total other operating expenses
    
    
    669,996
    
    
    
    628,004
    
    
    
    2,020,078
    
    
    
    1,834,373Income Before Income Taxes
    
    
    659,598
    
    
    
    413,166
    
    
    
    1,737,315
    
    
    
    1,227,827Provision for income taxes
    
    
    (230,498
    )
    
    
    (170,500
    )
    
    
    (600,526
    )
    
    
    (460,485
    )Net Income
    
    $
    429,100
    
    
    $
    242,666
    
    
    $
    1,136,789
    
    
    $
    767,342Income Per Share:Basic
    
    $
    0.84
    
    
    $
    0.47
    
    
    $
    2.22
    
    
    $
    1.50Diluted
    
    $
    0.84
    
    
    $
    0.47
    
    
    $
    2.22
    
    
    $
    1.50
 * 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 Nine Months Ended September 30, 2004 and 2003
  Nine Months EndedSeptember 30,
    
    September 30,2004
    
    2003Cash Flows from Operating Activities:Net income
    
    $
    1,136,789
    
    
    $
    767,342Adjustments to reconcile net loss to net
cash provided by operating activities:Provision for loan losses
    
    
    290,000
    
    
    
    270,000Depreciation
    
    
    111,095
    
    
    
    76,921Gain on the sale of other real estate
    
    
    (6,054
    )
    
    
    Changes in accrued income and other assets
    
    
    (61,647
    )
    
    
    (161,084
    )Changes in accrued expenses and other liabilities
    
    
    92,310
    
    
    
    55,781Net cash provided by operating activities
    
    
    1,562,493
    
    
    
    1,008,960Cash Flows from Investing Activities:Net change in loans to customers
    
    
    (14,059,705
    )
    
    
    (4,024,650
    )Purchase of available for sale securities
    
    
    (2,000,000
    )
    
    
    (6,900,167
    )Proceeds from maturities, calls and paydowns of
available for sale securities
    
    
    2,185,582
    
    
    
    6,082,712Purchase of Federal Home Loan Bank stock
    
    
    (59,700
    )
    
    
    (31,600
    )Proceeds from sale of other real estate
    
    
    145,000
    
    
    
    Property and equipment expenditures
    
    
    (124,944
    )
    
    
    (80,963
    )Net cash used in investing activities
    
    
    (13,913,767
    )
    
    
    (4,954,668
    )Cash Flows from Financing Activities:Net change in deposits
    
    
    9,826,263
    
    
    
    7,963,696Net decrease in fed funds purchased
    
    
    
    
    
    
    Proceeds from short-term borrowings
    
    
    (333,333
    )
    
    
    Proceeds from long-term borrowings
    
    
    
    
    
    
    (116,667
    )Net cash provided by financing activities
    
    
    9,492,930
    
    
    
    7,847,029Net Increase (Decrease) in Cash and Cash Equivalents
    
    
    (2,858,344
    )
    
    
    3,901,321Cash and Cash Equivalents, Beginning of Period
    
    
    9,595,357
    
    
    
    7,108,453Cash and Cash Equivalents, End of Period
    
    $
    6,737,013
    
    
    $
    11,009,774Supplement Cash Flow Information:Cash paid for interest
    
    $
    1,281,073
    
    
    $
    1,669,251Cash paid for income taxes
    
    $
    530,000
    
    
    $
    475,700
 -4-




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Citizens Effingham Bancshares, Inc. and Subsidiary 
 Notes to Consolidated Financial Statements
 (Unaudited)
  (1)
    
    Basis of PresentationThe accompanying unaudited financial statements have been prepared in
accordance with U.S. 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 U.S. generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the nine-month period
ended September 30, 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 IncomeDuring the nine months ended September 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 is as follows: Accumulated other comprehensive income (loss) at December 31, 2003
    
    $
    70,423Other comprehensive income, net of tax:Change in unrealized loss on securities availible for sale
net of deferred income tax expense of $(30,704)
    
    
    (59,602
    )Less: Reclassification adjustment for gains realized
in net income
    
    
    Accumulated other comprehensive income (loss) at September 30, 2004
    
    $
    10,821
  (3)
    
    Supplemental Financial DataComponents of other operating expenses greater than 1% of total interest
income and other income for the periods ended September 30, 2004 and 2003
are: Three Months Ended
    
    Nine Months EndedSeptember 30,
    
    September 30,2004
    
    2003
    
    2004
    
    2003Directors fees
    
    $
    18,500
    
    
    $
    18,900
    
    
    $
    56,900
    
    
    $
    57,440Supplies/printing
    
    
    18,531
    
    
    
    21,312
    
    
    
    62,858
    
    
    
    56,978Data processing
    
    
    43,096
    
    
    
    37,401
    
    
    
    129,288
    
    
    
    115,996ATM expense
    
    
    19,964
    
    
    
    21,318
    
    
    
    62,352
    
    
    
    61,681
 -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 Nine Months in the Periods Ended
September 30, 2004 and 2003
 The following discussion of financial condition as of September 30, 2004
compared to December 31, 2003, and the results of operations for the nine
months ended September 30, 2004 compared to the nine months ended September 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 -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 Nine Months in the Periods Ended
September 30, 2004 and 2003  through alternative delivery
channels such as the Internet;  
    
    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
$120,001,947 as of September 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 $99,755,480 and a decrease in federal funds sold
from $5,796,000 to $3,268,000. -7-




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##### Table of Contents



Citizens Effingham Bancshares, Inc. and Subsidiary
Item 2. Managements Discussion and Analysis of Financial Condition
and Results of Operations
For Each of the Nine Months in the Periods Ended
September 30, 2004 and 2003 Asset Quality Nonperforming assets which includes non-accruing loans, repossessed collateral
and loans for which payments are more than 90 days past due totaled $724,000 at
September 30, 2004, an increase of $175,000 from December 31, 2003. There were
no related party loans which were considered nonperforming at September 30,
2004. The composition of the nonperforming assets is presented in the
following table: September 30,
    
    December 31,2004
    
    2003Loans on nonaccrual
    
    $
    361,000
    
    
    $
    242,000Loans greater than 90 days past due
    
    
    86,000
    
    
    
    89,000Other real estate owned
    
    
    274,000
    
    
    
    218,000Other repossessed collateral
    
    
    3,000
    
    
    
    Total nonperforming assets
    
    $
    724,000
    
    
    $
    549,000Total nonperforming assets as a percentage
of total loans (gross) and other real estate
    
    
    0.72
    %
    
    
    0.64
    %
 The allowance for loan losses totaled $1,223,187 at September 30, 2004, a net
increase of $115,830 from December 31, 2003. The allowance for loan losses
represented 1.2% and 1.3% of total loans at September 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
    
    
    93,000Real Estate
    
    
    127,000Installment
    
    
    46,000Total
    
    
    266,000Recoveries:Commercial
    
    
    49,000Real Estate
    
    
    18,000Installment
    
    
    24,830Total
    
    
    91,830Provision charged to income
    
    
    290,000Allowance for loan losses at September 30, 2004
    
    $
    1,223,187
 -8-




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##### Table of Contents



Citizens Effingham Bancshares, Inc. and Subsidiary
Item 2. Managements Discussion and Analysis of Financial Condition
and Results of Operations
For Each of the Nine Months in the Periods Ended
September 30, 2004 and 2003 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 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 before provision for loan losses for the third quarter of
2004 was $3,435,998, an increase of $563,162 (19.6%) compared to the same
period for 2003. Interest income for the third quarter of 2004 was $4,729,139
representing an increase of $208,103 (4.6%) over the same period in 2003. The
increase in interest income was due to increased interest rates on loans.
Interest expense for the third quarter of 2004 decreased $355,059 (21.5%)
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. Amounts charged to expense related to the allowance for loan losses for the
nine months ended September 30, 2004 and 2003 were $290,000 and $270,000,
respectively. Other operating income for the third quarter of 2004 was $611,395, an increase
of $152,031 compared to the same period in 2003. Other operating expenses for the third quarter of 2004 were $2,020,078, an
increase of $185,705 (1%) compared to the same period for 2003. The increase
is primarily attributable to an increase of employee salaries, benefits, and
equipment rentals of $123,916 (11.3%). Liquidity The Banks liquid assets as a percentage of total deposits were 9.60% at
September 30, 2004, compared to 9.77% at December 31, 2003. The Company has
approximately $5,000,000 in available federal fund lines of credit with
correspondent banks, no advances were outstanding on these lines as of
September 30, 2004 and December 31, 2003. The Company also has approximately
$2,000,000 in an available line of credit with the Federal Home Loan Bank. The
Company had $2,000,000 and $2,333,333 advanced on these lines as of September
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. -9-




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##### Table of Contents



Citizens Effingham Bancshares, Inc. and Subsidiary
Item 2. Managements Discussion and Analysis of Financial Condition
and Results of Operations
For Each of the Nine Months in the Periods Ended
September 30, 2004 and 2003 Capital The capital of the Company totaled $9,544,863 as of September 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 8.20% at September 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-weighted assets consist of balance sheet assets
adjusted by risk category, and off-balance sheet assets or equivalents
similarly adjusted. At September 30, 2004, the Bank had a risk-weighted total
capital ratio of 10.44% compared to 10.64% at December 31, 2003, and a Tier I
risk-weighted capital ratio of 9.25%, compared to 9.4% at December 31, 2003.
The decrease is primarily caused by the continued growth in the loans. Investment Securities At September 30, 2004, the Bank had $9,179,112 in investment securities
available-for-sale. The net unrealized gain on available for sale securities,
net of deferred tax benefit, was $(59,602) on September 30, 2004. During the
period ended September 30, 2004, the bank purchased $2,000,000 in investment
securities available for sale. Also, as of September 30, 2004, the maturities
and calls of investment securities totaled $2,185,582 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 Nine Months Ended September 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 Nine Months Ended September 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 September 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 September 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 Officer
 Date: October 29, 2004 -12-