<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number: 000-25221
CITIZENS HOLDING COMPANY
State of Incorporation or other jurisdiction of I. R. S. Employer
incorporation or organization Identification Number
Mississippi 64-0666512
Citizens Holding Company
521 Main Street
Philadelphia, MS 39350
(601) 656-4692
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 of 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. |X| Yes | | No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of October 31, 2000.
Title Outstanding
Common Stock, $.20 par value 3,308,750
<PAGE>
CITIZENS HOLDING COMPANY
THIRD QUARTER 2000 INTERIM FINANCIAL STATEMENTS
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Statements of Condition
September 30, 2000 and December 31, 1999
Consolidated Statements of Income
Three and nine months ended September 30, 2000 and 1999
Consolidated Statements of Comprehensive Income
Three and nine months ended September 30, 2000 and 1999
Consolidated Statements of Cash Flows
Nine months ended September 30, 2000 and 1999
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Signatures
<PAGE>
PART 1.CONSOLIDATED FINANCIAL STATEMENTS
CITIZENS HOLDING COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CONDITION
<TABLE>
<CAPTION>
September 30, December 31,
ASSETS 2000 1999
------------- ------------
<S> <C> <C>
Cash and cash equivalents 14,923,860 13,494,070
Federal Home Loan Bank stock 2,212,700 1,284,000
Investment securities available for sale, at fair value 100,037,457 101,167,360
Loans, net of allowance for loan losses of
$3,325,000 in 2000 and $3,100,000 in 1999 247,399,764 231,248,551
Premises and equipment, net 4,387,402 4,410,976
Other real estate owned, net 150,002 291,508
Accrued interest receivable 4,191,292 3,683,849
Cash value of life insurance 2,998,274 2,828,265
Goodwill (net) 672,185 649,854
Other assets 3,628,345 3,731,269
------------ ------------
TOTAL ASSETS $380,601,281 $362,789,702
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Deposits:
Noninterest-bearing demand $ 38,457,136 $ 37,090,779
Interest-bearing NOW and money market accounts 71,390,122 74,616,711
Savings deposits 19,482,420 20,031,653
Certificates of deposit 155,904,289 152,722,496
------------ ------------
Total deposits 285,233,967 284,461,639
Accrued interest payable 1,448,883 1,242,916
Federal Home Loan Bank advances 29,000,000 23,100,000
Federal funds purchased 17,600,000 10,600,000
ABE loan liability 2,675,709 2,727,004
Treasury tax and loan note option 700,000 700,000
Directors deferred compensation payable 888,915 812,130
Other liabilities 380,151 339,403
------------ ------------
Total liabilities 337,927,625 323,983,092
------------ ------------
Minority interest in consolidated subsidiary 1,385,278 1,260,649
------------ ------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
STOCKHOLDERS' EQUITY
Common stock; $.20 par value, 15,000,000 shares
authorized, and 3,308,750 shares outstanding at September
30, 2000, and at December 31, 1999 670,750 670,750
Less: Treasury stock, at cost, 45,000 shares at
September 30, 2000 and at December 31, 1999 (239,400) (239,400)
Additional paid-in capital 3,353,127 3,353,127
Retained earnings 38,407,877 35,303,504
Unrealized gain (loss) on securities available for sale, net of
income tax benefit of $(465,684) in 2000 and $(821,577) in 1999 (903,976) (1,542,020)
----------- -----------
Total stockholders' equity 41,288,378 37,545,961
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $380,601,281 $362,789,702
============ ============
</TABLE>
See notes to consolidated financial statements.
CITIZENS HOLDING COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
For the three months For the nine months
ended September 30, ended September 30,
2000 1999 2000 1999
---------------------- ---------------------
<S> <C> <C> <C> <C>
INTEREST INCOME:
Loans $5,566,400 $4,957,478 $16,133,406 $14,331,790
Investment securities 1,508,257 1,410,879 4,518,347 4,008,032
Other interest 11,966 9,224 37,444 165,866
--------- ---------- ----------- -----------
Total interest income 7,086,623 6,377,581 20,689,197 18,505,688
INTEREST EXPENSE:
Deposits 3,017,669 2,527,228 8,585,807 7,514,690
Other borrowed funds 608,836 201,807 1,608,643 501,186
--------- ---------- ----------- -----------
Total interest expense 3,626,505 2,729,035 10,194,450 8,015,876
--------- ---------- ----------- -----------
NET INTEREST INCOME 3,460,118 3,648,546 10,494,747 10,489,812
PROVISION FOR LOAN LOSSES 316,305 156,180 598,298 538,797
--------- ---------- ----------- -----------
NET INTEREST INCOME AFTER
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
PROVISION FOR LOAN LOSSES 3,143,813 3,492,366 9,896,449 9,951,015
---------- ---------- ----------- -----------
OTHER INCOME:
Service charges on deposit accounts 614,955 603,034 1,803,660 1,753,859
Other service charges and fees 202,183 181,998 574,445 503,518
Other income 245,071 108,714 500,303 402,825
---------- ---------- ----------- -----------
Total other income 1,062,209 893,746 2,878,408 2,660,202
OTHER EXPENSES:
Salaries and employee benefits 1,188,495 1,296,181 3,661,297 3,484,278
Occupancy expense 361,070 336,669 1,081,111 969,855
Other operating expense 581,777 565,302 1,651,088 1,500,796
Earnings applicable to minority
interest 46,445 48,787 141,420 150,053
---------- ---------- ----------- -----------
Total other expenses 2,177,787 2,246,939 6,534,916 6,104,982
---------- ---------- ----------- -----------
INCOME BEFORE PROVISION
FOR INCOME TAXES 2,028,235 2,139,173 6,239,941 6,506,235
---------- ---------- ----------- -----------
PROVISION FOR INCOME TAXES 680,525 721,535 2,142,942 2,208,985
---------- ---------- ----------- -----------
NET INCOME $1,347,710 $1,417,638 $ 4,096,999 $ 4,297,250
========== ========== =========== ===========
NET INCOME PER SHARE
-Basic $0.41 $0.43 $1.24 $1.30
========== ========== =========== ===========
-Diluted $0.41 $0.43 $1.24 $1.30
========== ========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
CITIZENS HOLDING COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
For the three months For the nine months
ended September 30, ended September 30,
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net income $1,347,710 $1,417,638 $4,096,999 $ 4,297,250
Other comprehensive income, net of tax
Unrealized holding gains (losses) 644,337 (299,815) 592,350 (1,693,447)
Less reclassification adjustment for
gains (losses) included in net income 25,687 (3,364) 45,694 55
---------- ---------- ---------- -----------
Total other comprehensive income 670,024 (303,179) 638,044 (1,693,392)
---------- ---------- ---------- -----------
Comprehensive income $2,017,734 $1,114,459 $4,735,043 $ 2,603,858
========== ========== ========== ===========
</TABLE>
<PAGE>
CITIZENS HOLDING COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED SEPTEMBER 30,
2000 1999
-----------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Cash Provided by Operating Activities $ 4,484,024 $ 3,091,368
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of securities available for sale 10,297,786 13,570,711
Proceeds from sale of investment securities 15,852,410 1,499,393
Purchases of investment securities (25,069,349) (22,043,367)
Purchases of bank premises and equipment (387,276) (180,611)
Decrease in interest bearing deposits with other banks 50,789 338,652
Net (increase) decrease in federal funds sold 0 4,900,000
Net increase in loans (16,376,213) (13,040,467)
------------ ------------
Net Cash Used by Investing Activities (15,631,853) (14,955,689)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in deposits 772,328 8,230,656
Net increase (decrease) in ABE loans (51,295) 348,474
Increase in FHLB advances 5,900,000 0
Increase in federal funds purchased 7,000,000 0
Payment of dividends (992,625) (496,313)
------------ ------------
Net Cash Provided by Financing Activities 12,628,408 8,082,817
Net Increase (Decrease) in Cash and Due from Banks 1,480,579 (3,781,504)
Cash and Due From Banks, beginning of year 13,312,028 15,234,594
------------ ------------
Cash and Due from Banks, end of period $ 14,792,607 $ 11,453,090
============ ============
</TABLE>
<PAGE>
CITIZENS HOLDING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the nine months ended September 30, 2000
1. These interim consolidated financial statements have been prepared in
accordance with generally accepted accounting principles. However, these
financial statements do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. The interim consolidated financial statements are unaudited
and reflect all adjustments and reclassifications which, in the opinion of
management, are necessary for a fair presentation of the results of
operations and financial condition of the interim period. All adjustments
and reclassifications are of a normal and recurring nature. Results for
the periods ending September 30, 2000 are not necessarily indicative of the
results which may be expected for any other interim periods or for the year
as a whole.
The interim consolidated financial statements of Citizens Holding Company
include the accounts of its 96.63% owned subsidiary, The Citizens Bank of
Philadelphia (collectively referred to as "the Corporation"). All
significant intercompany transactions have been eliminated in
consolidation.
2. Summary of Significant Accounting Policies. See note 1 of the Notes to
Consolidated Financial Statements of the Citizens Holding Company that were
included in the Form 10-K Annual Report filed March 29, 2000.
Investment Securities -- The Corporation classifies all of its securities
as available-for-sale and carries them at fair value with unrealized gains
or losses reported as a separate component of capital, net of any
applicable income taxes. Realized gains or losses on the sale of securities
available-for-sale, if any, are determined on an identification basis. The
Corporation does not have any securities classified as Held for Trading or
Held to Maturity.
3. In the ordinary course of business, the Corporation enters into commitments
to extend credit to its customers. The unused portion of these commitments
is not reflected in the accompanying financial statements. As of September
30, 2000, the Corporation had entered into commitments with certain
customers that had an unused balance of $12,588,000 compared to $16,241,000
unused at December 31, 1999. There were $308,850 of letters of credit
outstanding at September 30, 2000, compared to $313,105 at December 31,
1999.
4. Net income per share -- Basic, has been computed based on the weighted
average number of shares outstanding during each period. Net income per
share -- Diluted, has been computed based on the weighted average number of
shares outstanding during each period plus the dilutive effect of
outstanding granted options. Basic weighted average
<PAGE>
shares have been adjusted to reflect the five-for-one stock split on the
common stock effective January 1, 1999. Earnings per share were computed as
follows:
<TABLE>
<CAPTION>
For the three months For the nine months
ended September 30, ended September 30,
2000 1999 2000 1999
--------------------- -------------------
<S> <C> <C> <C> <C>
Basic weighted average
shares outstanding 3,308,750 3,308,750 3,308,750 3,308,750
Dilutive effect of granted options 8,728 807 8,071 697
---------- ---------- ---------- ----------
Diluted weighted average
shares outstanding 3,317,478 3,309,557 3,316,821 3,309,447
========== ========== ========== ==========
Net income $1,347,710 $1,417,638 $4,096,999 $4,297,250
Net income per share-basic $ 0.41 $ 0.43 $ 1.24 $ 1.30
Net income per share-diluted $ 0.41 $ 0.43 $ 1.24 $ 1.30
</TABLE>
5. The Corporation is a party to lawsuits and other claims that arise in the
ordinary course of business, which are being vigorously contested. In the
regular course of business, Management evaluates estimated losses or costs
related to litigation, and the provision is made for anticipated losses
whenever Management believes that such losses are probable and can be
reasonably estimated. At the present time, Management believes, based on
the advice of legal counsel, that the final resolution of pending legal
proceedings will not have a material impact on the Corporation's
consolidated financial position or results of operations.
6. In June 1998, the Financial Accountings Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities." In 2000, the FASB issued
SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain
Hedging Activities (an amendment of SFAS No. 133)." These statements
provide a comprehensive and consistent standard for the recognition and
measurement of derivatives and hedging activities. During 1999, the FASB
issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging
Activities - Deferral of the Effective Date of FASB Statement No. 133-an
amendment of FASB No. 133," which concluded that it was appropriate to
defer the effective date of SFAS No. 133 to fiscal years beginning after
June 15, 2000. The effective date of SFAS No. 138 is also effective for
fiscal years beginning after June 15, 2000. The Corporation does not
anticipate that the adoption of these statements will have a material
effect on its consolidated financial statements.
In September 2000, the FASB issued SFAS No. 140, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities (a
replacement of FASB
<PAGE>
Statement No. 125)." This statement revises the standards for accounting
for securitizations and other transfers of financial assets and collateral
and requires certain disclosures, but it carries over most of the
provisions of SFAS No. 125. SFAS No. 140 is effective for transfers and
servicing of financial assets and extinguishments of liabilities occurring
after March 31, 2001. SFAS No. 140 is effective for recognition and
reclassification of collateral and for disclosures relating to
securitization transactions and collateral for fiscal years ending after
December 15, 2000. The Corporation does not anticipate that the adoption of
this statement will have a material effect on its consolidated financial
statements.
<PAGE>
CITIZENS HOLDING COMPANY AND SUBSIDIARY
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Management's discussion and analysis is written to provide greater insight into
the results of operations and the financial condition of Citizens Holding
Company, (the "Corporation").
Statements concerning future performance, developments or events, concerning
expectations for growth and market forecasts, and any other guidance on future
periods, constitute forward-looking statements which are subject to a number of
risks and uncertainties which might cause actual results to differ materially
from stated expectations. These factors include, but are not limited to, the
approval of regulatory agencies and shareholders, the effect of interest rates
changes, the expansion of the Corporation, competition in the financial services
market for both deposits and loans, and general economic conditions.
LIQUIDITY
The Corporation has an asset and liability management program that assists
management in maintaining net interest margins during times of both rising and
falling interest rates and in maintaining sufficient liquidity. Liquidity of
the Corporation at September 30, 2000 was 34.26% and at September 30, 1999 was
38.82%. Liquidity is the ratio of short-term investments to potentially
volatile liabilities. Management believes it maintains adequate liquidity for
the Corporation's current needs.
When the Corporation has more funds than it needs for its reserve requirements
or short-term liquidity needs, the Corporation increases its security
investments or sells federal funds. It is management's policy to maintain an
adequate portion of its portfolio of assets and liabilities on a short-term
basis to insure rate flexibility and to meet loan funding and liquidity needs.
The Corporation has secured and unsecured federal funds lines with correspondent
banks in the amount of $38,500,000. In addition, the Corporation has the
ability to draw on its line of credit with the Federal Home Loan Bank in excess
of $53,671,500 at September 30, 2000. At September 30, 2000, the Corporation
had unused and available $20,900,000 of its federal funds line of credit and
$24,671,500 of its line of credit with the Federal Home Loan Bank.
CAPITAL RESOURCES
The Corporation's equity capital was $41,288,378 at September 30, 2000. The
main source of capital for the Corporation has been the retention of net income.
<PAGE>
On January 1, 1999, the Corporation issued a five-for-one (5:1) split to the
shareholders of the Corporation. This split increased the number of shares
outstanding to 3,308,750 from 661,750. The number of shares authorized
increased from 750,000 to 3,750,000 after the split. Additionally, the
shareholders approved an increase in authorized shares to 15,000,000 at the
annual meeting held April 13, 1999. Cash dividends in the amount of $992,625 or
$.30 per share were paid year to date September 30, 2000. This is the first
year that the Corporation paid a quarterly dividend rather than paying a semi-
annual dividend as had been paid in the prior years.
Quantitative measures established by regulation to ensure capital adequacy
require the Corporation to maintain minimum amounts and ratios of Total and Tier
1 capital (primarily common stock and retained earnings, less goodwill) to risk
weighted assets, and of Tier 1 capital to average assets. Management believes
that as of September 30, 2000, the Corporation meets all capital adequacy
requirements to which it is subject.
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Actions Provisions
Amount Ratio Amount Ratio Amount Ratio
------ ----- -------- -------- ----------- -----------
As of September 30, 2000
<S> <C> <C> <C> <C> <C> <C>
Total Capital $45,937,839 18.94% $19,407,310 >8.00% $24,259,138 >10.00%
(to Risk-Weighted Assets)
Tier 1 Capital $42,905,446 17.69% $ 9,703,655 >4.00% $14,555,483 >6.00%
(to Risk-Weighted Assets)
Tier 1 Capital $42,905,446 11.51% $14,905,721 >4.00% $18,632,151 >5.00%
(to Average Assets)
</TABLE>
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated, certain items in the
consolidated statements of income of the Corporation and the related changes
between those periods:
<TABLE>
<CAPTION>
For the three months For the nine months
ended September 30, ended September 30,
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Interest Income $7,086,623 $6,377,581 $20,689,197 $18,505,688
Interest Expense 3,626,505 2,729,035 10,194,450 8,015,876
---------- ---------- ----------- -----------
Net Interest Income 3,460,118 3,648,546 10,494,747 10,489,812
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Provision for Loan Losses 316,305 156,180 598,298 538,797
---------- ---------- ----------- -----------
Net Interest Income after
Provision for Loan Losses 3,143,813 3,492,366 9,896,449 9,951,015
Other Income 1,062,209 893,746 2,878,408 2,660,202
Other Expense 2,177,787 2,246,939 6,534,916 6,104,982
---------- ---------- ----------- -----------
Income before Provision For
Income Taxes 2,028,235 2,139,173 6,239,941 6,506,235
Provision for Income Taxes 680,525 721,535 2,142,942 2,208,985
---------- ---------- ----------- -----------
Net Income $1,347,710 $1,417,638 $ 4,096,999 $ 4,297,250
========== ========== =========== ===========
Net Income Per share - Basic $ 0.41 $ 0.43 $ 1.24 $ 1.30
========== ========== =========== ===========
Net Income Per Share-Diluted $ 0.41 $ 0.43 $ 1.24 $ 1.30
========== ========== =========== ===========
</TABLE>
Net Income Per Share -- Basic is calculated using weighted average number of
shares outstanding for the period. Net Income Per Share -- Diluted is calculated
using the weighted average number of shares outstanding for the period, plus the
net dilutive effect of granted stock options determined using the treasury stock
method.
Annualized return on average equity was 13.60% and 13.77% for the three and nine
months ended September 30, 2000, and 15.43% and 15.58% for the three and nine
months ended September 30, 1999.
The book value per share increased to $12.48 at September 30, 2000 compared to
$11.35 at December 31, 1999. This increase is due to earnings exceeding
dividends paid during this period. Average assets for the nine months ended
September 30, 2000, were $372,643,028 compared to $347,613,000 for the year
ended December 31, 1999; average equity increased to $39,675,423 for the nine
months ended September 30, 2000, from $37,603,000 for the year ended December
31, 1999.
NET INTEREST INCOME/NET INTEREST MARGIN
One component of the Corporation's earnings is net interest income, which is the
difference between the interest and fees earned on loans and investments and the
interest paid for deposits and borrowed funds. The net interest margin is net
interest income expressed as a percentage of average earning assets.
The annualized net interest margin was 4.20% for the nine months ended September
30, 2000, compared to an annualized net interest margin of 4.55% for the nine
months ended September 30, 1999. Earnings assets averaged $341,372,264 for the
nine months ended
<PAGE>
September 30, 2000. This represented an increase of $25,146,102 or 7.95%, over
average earning assets of $316,226,162 for the nine months ended September 30,
1999. This increase was from normal growth of the Corporation and not from any
special program or promotion.
The net interest income figures above include income from the Corporation's
securities. The following table shows the interest and fees and corresponding
yields for loans only.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
2000 1999 2000 1999
-------------------- -------------------
<S> <C> <C> <C> <C>
Interest and Fees $ 5,696,164 $ 5,025,520 $ 16,408,950 $ 14,534,606
Average Loans 244,147,385 222,397,124 239,954,633 215,452,856
Annualized Yield 9.33% 9.04% 9.12% 8.99%
</TABLE>
CREDIT LOSS EXPERIENCE
As a natural corollary to the Corporation's lending activities, some loan losses
are to be expected. The risk of loss varies with the type of loan being made
and the creditworthiness of the borrower over the term of the loan. The degree
of perceived risk is taken into account in establishing the structure of, and
interest rates and security for, specific loans and for various types of loans.
The Corporation attempts to minimize its credit risk exposure by use of thorough
loan application and approval procedures.
The Corporation maintains a program of systematic review of its existing loans.
Loans are graded for their overall quality. Those loans which the Corporation's
management determines require further monitoring and supervision are segregated
and reviewed on a periodic basis. Significant problem loans are reviewed on a
monthly basis by the Corporation's Board of Directors.
The Corporation charges off that portion of any loan which management considers
to represent a loss. A loan is generally considered by management to represent
a loss in whole or in part when an exposure beyond the collateral value is
apparent, servicing of the unsecured portion has been discontinued or collection
is not anticipated based on the borrower's financial condition and general
economic conditions in the borrower's industry. The principal amount of any loan
which is declared a loss is charged against the Corporation's allowance for loan
losses.
The Corporation's allowance for loan losses is designed to provide for loan
losses which can be reasonably anticipated. The allowance for loan losses is
established through charges to operating expenses in the form of provisions for
loan losses. Actual loan losses or recoveries are charged or credited to the
allowance for loan losses. The amount of the allowance is determined by
management of the Corporation. Among the factors considered in determining the
allowance for loan losses are the current financial condition of the
Corporation's borrowers and the value of security, if any, for their loans.
Estimates
<PAGE>
of future economic conditions and their impact on various industries and
individual borrowers are also taken into consideration, as are the Corporation's
historical loan loss experience and reports of banking regulatory authorities.
Because these estimates, factors and evaluations are primarily judgmental, no
assurance can be given as to whether or not the Corporation will sustain loan
losses in excess or below its allowance or that subsequent evaluation of the
loan portfolio may not require material increases or decreases in such
allowance.
The following table summarizes the Corporation's allowance for loan loss for the
dates indicated:
<TABLE>
<CAPTION>
AMOUNT OF PERCENT OF
SEPTEMBER 30, DECEMBER 31, INCREASE INCREASE
2000 1999 (DECREASE) (DECREASE)
------------- ------------ ---------- -----------
<S> <C> <C> <C> <C>
BALANCES:
Gross Loans $253,534,373 $237,007,080 $16,527,293 6.97%
Allowance for Loan Losses 3,325,000 3,100,000 225,000 7.26%
Nonaccrual Loans 670,425 389,876 280,549 71.96%
Ratios:
Allowance for loan losses to
gross loans 1.31% 1.31%
Net loans charged off to
allowance for loan losses 11.23% 20.95%
</TABLE>
The provision for loan losses for the three months ended September 30, 2000 was
$316,305, an increase of $160,125 over the $156,180 for the same period in 1999.
The provision for the nine months ended September 30, 2000 was $598,298; an
increase of $59,501 or 11.04%, over the $538,797 for the nine months ended
September 30, 1999. Gross loans outstanding increased 6.97% for the nine months
in 2000. For the three months ended September 30, 2000, net loan losses charged
to the allowance for loan losses totaled $241,305, an increase of $135,125 over
the same period in 1999. For the nine months ended September 30, 2000, net loan
losses charged to the allowance totaled $373,298 compared to $388,797 for the
nine months ended September 30, 1999.
Management of the Corporation reviews with the Board of Directors the adequacy
of the allowance for possible loan losses on a quarterly basis. The loan loss
provision is adjusted when specific items reflect a need for such an adjustment.
Management believes that there were no material loan losses during the last
fiscal year that have not been charged off. Management also believes that the
Corporation's allowance will be adequate to absorb probable losses inherent in
the Corporation's loan portfolio.
<PAGE>
OTHER INCOME
Other operating income includes service charges on deposit accounts, wire
transfer fees, safe deposit box rentals and other revenue not derived from
interest on earning assets. Other operating income for the three months ended
September 30, 2000, increased $168,463 or 18.85% and increased $218,206 or 8.20%
over the respective periods ended September 30, 1999. Especially in periods of
declining net interest margins, the Corporation has sought to increase the
income derived from these sources and will continue to seek opportunities to do
so.
OTHER EXPENSE
Other expenses include salaries and employee benefits, occupancy and equipment,
and other operating expenses. The continued growth of the Corporation has put
pressure on Management to control overhead expenses.
Other operating expenses for the three and nine months ended September 30, 2000
were $2,177,787 and $6,534,916 compared to the $2,246,939 and $6,104,982 for the
three and nine months ended September 30, 1999. This represents a decrease of
$69,152 for the three months and an increase for the nine months of $429,934.
The Corporation's efficiency ratios for the three and nine months ended
September 30, 2000 were 46.45% and 47.01% respectively.
BALANCE SHEET ANALYSIS
<TABLE>
<CAPTION>
Amount of Percent of
September 30, December 31, Increase Increase
2000 1999 (Decrease) (Decrease)
------------ ------------ --------- -----------
<S> <C> <C> <C> <C>
Cash and Cash $ 14,923,860 $ 13,494,070 $ 1,429,790 10.60%
Equivalents
Investment Securities 102,250,157 102,451,360 (201,203) -0.20%
Loans, net 247,399,764 231,248,551 16,151,213 6.98%
Total Assets 380,601,281 362,789,702 17,811,579 4.91%
------------ ------------ ----------- -----
Total Deposits 285,233,967 284,461,639 772,328 0.27%
------------ ------------ ----------- -----
Total Stockholders' Equity 41,288,378 37,545,961 3,742,417 9.97%
------------ ------------ ----------- -----
</TABLE>
<PAGE>
CASH AND CASH EQUIVALENTS
Cash and cash equivalents are made up of cash, balances at correspondent banks
and federal funds sold. The increase at September 30, 2000 was due to a
temporary increase in correspondent bank accounts. The Corporation did not have
any federal funds sold at this date due to continued strong loan demand.
INVESTMENT SECURITIES
The investment securities are made up of U. S. Treasury Notes, U. S. Agency
debentures, mortgage-backed securities, obligations of states, counties and
municipal governments and Federal Home Loan Bank Stock.
Investments decreased $201,203 or .2% as a result of the need for liquidity to
fund the strong loan demand.
LOANS
Loan demand continued to be strong in the service area of the Corporation as
evidenced by the 6.97% increase in gross loans. Residential housing loans
continue to be in demand along with commercial and industrial loans. No special
loan programs were initiated during this period to add to this growth.
DEPOSITS
The following shows the balance and percentage change in the various deposits:
<TABLE>
<CAPTION>
Amount of Percent of
September 30, December 31, Increase Increase
2000 1999 (Decrease) (Decrease)
------------- ------------ ---------- ----------
<S> <C> <C> <C> <C>
Noninteresting-bearing $ 38,457,136 $ 37,090,779 $ 1,366,357 3.68%
Deposits
Interest-bearing 71,390,122 74,616,711 (3,226,589) -4.32%
Deposits
Savings 19,482,420 20,031,653 (549,233) -2.74%
Certificates of Deposit 155,904,289 152,722,496 3,181,793 2.08%
------------ ------------ ----------- -----
Total Deposits $285,233,967 $284,461,639 $ 772,328 0.27%
============ ============ =========== =====
</TABLE>
The increase in deposits reflected in the above table is solely the result of
normal deposit growth for our service area. The Corporation does not have any
brokered deposits. There were no special deposit programs or incentives in
place during this period.
<PAGE>
CITIZENS HOLDING COMPANY
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
There have been no material change in the Corporation's market risk since the
end of the last fiscal year end of December 31, 1999.
PART II. - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Corporation is a party to lawsuits and other claims that arise in
the ordinary course of business, which are being vigorously contested.
In the regular course of business, Management evaluates estimated
losses or costs related to litigation, and a provision is made for
anticipated losses whenever Management believes that such losses are
probable and can be reasonably estimated. At the present time,
Management believes, based on the advice of legal counsel, that the
final resolution of pending legal proceedings will not have a material
impact on the Corporation's consolidated financial position or results
of operations.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
1. The following exhibit is included herein:
(27) Financial Data Schedule
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
CITIZENS HOLDING COMPANY
/s/ Steve Webb /s/ Robert T. Smith
BY:_________________________ BY:__________________________
Steve Webb Robert T. Smith
Chairman, President and Treasurer (Chief Financial
Chief Executive Officer and Accounting Officer)
DATE: November 10, 2000 DATE: November 10, 2000
<PAGE>
EXHIBIT INDEX
Exhibit Number Description
-------------- -----------
27 Financial Data Schedule
