Citizens Holding 10Q 2022 Q3 Quarterly report

Citizens Holding (CIZN) 10-Q2022 Q3 Quarterly report

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM

10-Q

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2022

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from

Commission File Number:

001-15375

CITIZENS HOLDING COMPANY

(Exact name of registrant as specified in its charter)


Mississippi		64-0666512
(State or other jurisdiction of In Company or organization)		(IRS Employer Identification No.)


521 Main Street, Philadelphia, MS		39350
(Address of principal executive offices)		(Zip Code)

601-656-4692

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of Each Class	Trading Symbol(s)	Name of Each Exchange on Which Registered
Common Stock, $0.20 par value	CIZN	NASDAQ Global Market

Securities registered pursuant to Section 12(g) of the Act:

None

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 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. ☒ Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation

S-T

during the preceding 12 months (or such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a

non-accelerated

filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule

12b-2

of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule

12b-2

of the Exchange Act). ☐ Yes ☒ No

Number of shares outstanding of each of the issuer’s classes of common stock, as of November 4, 2022:


Title		Outstanding
Common Stock, $0.20 par value		5,603,570

CITIZENS HOLDING COMPANY

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PART I.	FINANCIAL INFORMATION	1

Item 1.	Consolidated Financial Statements	1

	Consolidated Statements of Financial Condition, as of September 30, 2022 (Unaudited) and December 31, 2021 (Audited)	1

	Consolidated Statements of Income for the Three and nine months ended September 30, 2022 (Unaudited) and 2021 (Unaudited)	2

	Consolidated Statements of Comprehensive Income (Loss) for the Three and nine months ended September 30, 2022 (Unaudited) and 2021 (Unaudited)	3

	Condensed Consolidated Statements of Cash Flows for the Nine months ended September 30, 2022 (Unaudited) and 2021 (Unaudited)	4

	Notes to Consolidated Financial Statements (Unaudited)	5

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	29

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	47

Item 4.	Controls and Procedures	49

PART II.	OTHER INFORMATION	50

Item 1.	Legal Proceedings	50

Item 1A.	Risk Factors	50

Item 6.	Exhibits	50

SIGNATURES		51

PART I. FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS.

CITIZENS HOLDING COMPANY CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(in thousands, except share data)


	September 30,			December 31,
	2022			2021
	(Unaudited)			(Audited)
ASSETS
Cash and due from banks	$	13,256		$	10,673
Interest bearing deposits with other banks		22,532			68,563

Cash and cash equivalents		35,788			79,236
Investment securities held-to-maturity, at amortized cost		411,859			—
Investment securities available-for-sale, at fair value		198,547			631,835
Loans held for investment (LHFI), net of unearned income		578,665			571,847
Less allowance for loan losses, LHFI		5,068			4,513

Net LHFI		573,597			567,334
Premises and equipment, net		27,802			26,661
Other real estate owned, net		1,328			2,475
Accrued interest receivable		4,281			4,171
Cash surrender value of life insurance		25,544			25,679
Deferred tax assets, net		31,492			6,279
Identifiable intangible assets, net		13,468			13,551
Other assets		4,772			4,088

TOTAL ASSETS	$	1,328,478		$	1,361,309

LIABILITIES AND SHAREHOLDERS’ EQUITY
LIABILITIES
Deposits:
Non-interest bearing deposits	$	308,538		$	302,707
Interest bearing deposits		826,398			809,185

Total deposits		1,134,936			1,111,892
Securities sold under agreement to repurchase		129,919			112,760
Borrowings on secured line of credit		18,000			18,000
Accrued interest payable		503			328
Deferred compensation payable		9,791			9,543
Other liabilities		2,692			2,886

Total liabilities		1,295,841			1,255,409
SHAREHOLDERS’ EQUITY
Common stock, $0.20 par value, 22,500,000 shares authorized, Issued and outstanding: 5,603,570 shares - September 30, 2022; 5,595,320 shares - December 31, 2021		1,121			1,120
Additional paid-in capital		18,409			18,293
Accumulated other comprehensive loss, net of tax benefit of $29,355 at September 30, 2022 and $3,921 at December 31, 2021		(88,299	)		(11,795	)
Retained earnings		101,406			98,282

Total shareholders’ equity		32,637			105,900

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	1,328,478		$	1,361,309

The accompanying notes are an integral part of these financial statements.

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CITIZENS HOLDING COMPANY

CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

(in thousands, except per share data)


	For the Three Months					For the Nine Months
	Ended September 30,					Ended September 30,
	2022			2021		2022		2021
INTEREST INCOME
Interest and fees on loans	$	6,855		$	7,666	$	19,891	$	23,714
Interest on securities
Taxable		2,130			1,433		5,728		2,950
Nontaxable		1,057			642		2,987		1,947
Other interest		80			21		130		46

Total interest income		10,122			9,762		28,736		28,657
INTEREST EXPENSE
Deposits		496			951		1,580		3,403
Other borrowed funds		577			209		1,057		525

Total interest expense		1,073			1,160		2,637		3,928

NET INTEREST INCOME		9,049			8,602		26,099		24,729
(REVERSAL OF) PROVISION FOR LOAN LOSSES		(53	)		968		96		1,287

NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES		9,102			7,634		26,003		23,442
OTHER INCOME
Service charges on deposit accounts		1,019			952		2,931		2,534
Other service charges and fees		1,111			1,135		3,230		3,201
Net gains on sales of securities		—			459		—		1,378
Other operating income		747			748		2,012		2,402

Total other income		2,877			3,294		8,173		9,515

OTHER EXPENSES
Salaries and employee benefits		4,506			4,716		13,357		13,869
Occupancy expense		1,968			1,740		5,454		5,348
Other expense		2,462			2,285		6,858		6,974

Total other expenses		8,936			8,741		25,669		26,191

INCOME BEFORE PROVISION FOR INCOME TAXES		3,043			2,187		8,507		6,766
PROVISION FOR INCOME TAXES		463			307		1,350		1,082

NET INCOME	$	2,580		$	1,880	$	7,157	$	5,684

NET INCOME PER SHARE -Basic	$	0.46		$	0.34	$	1.28	$	1.02

-Diluted	$	0.46		$	0.34	$	1.28	$	1.02

DIVIDENDS PAID PER SHARE	$	0.24		$	0.24	$	0.72	$	0.72

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CITIZENS HOLDING COMPANY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)

(in thousands)


	For the Three Months						For the Nine Months
	Ended September 30,						Ended September 30,
	2022			2021			2022			2021
Net income	$	2,580		$	1,880		$	7,157		$	5,684
Other comprehensive income (loss)
Securities available-for-sale
Unrealized holding gains (losses) during the period		6,805			(4,149	)		(102,377	)		(19,959	)
Income tax effect		(1,698	)		1,036			25,543			4,980

Net unrealized gains (losses)		5,107			(3,113	)		(76,834	)		(14,979	)
Amortization of net unrealized losses transferred during the period		439			—			439			—
Income tax effect		(109	)		—			(109	)		—

Net unrealized losses		330			—			330			—
Reclassification adjustment for gains included in net income		—			459			—			1,378
Income tax effect		—			(115	)		—			(344	)

Net gains included in net income		—			344			—			1,034
Total other comprehensive income (loss)		5,437			(2,769	)		(76,504	)		(13,945	)

Comprehensive income (loss)	$	8,017		$	(889	)	$	(69,347	)	$	(8,261	)

The accompanying notes are an integral part of these financial statements.

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CITIZENS HOLDING COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(in thousands)


	For the Nine Months
	Ended September 30,
	2022			2021
CASH FLOWS FROM OPERATING ACTIVITIES
Net cash provided by operating activities	$	10,864		$	14,910
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from maturities, paydowns and calls of securities available-for-sale		36,692			132,774
Proceeds from maturities, paydowns and calls of securities held-to-maturity		2,332			—
Proceeds from sale of investment securities		—			500,685
Purchases of investment securities		(122,120	)		(551,765	)
Purchases of bank premises and equipment		(2,211	)		(2,232	)
Net change in FHLB stock		(784	)		503
Proceeds from sales of bank premises and equipment		—			492
Proceeds from sale of other real estate owned		1,155			3,263
Proceeds from death benefit of bank-owned life insurance		813			1,162
Net change in loans		(6,359	)		37,276

Net cash (used in) provided by investing activities		(90,482	)		122,158
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in deposits		23,044			18,789
Net change in securities sold under agreement to repurchase		17,159			(93,211	)
Proceeds from borrowings on secured line of credit		—			18,000
Payment of FHLB advances		—			(25,000	)
Payment of dividends		(4,033	)		(4,027	)

Net cash provided by (used in) financing activities		36,170			(85,449	)

Net (decrease) increase in cash and cash equivalents		(43,448	)		51,619
Cash and cash equivalents, beginning of period		79,236			42,308

Cash and cash equivalents, end of period	$	35,788		$	93,927

The accompanying notes are an integral part of these financial statements.

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CITIZENS HOLDING COMPANY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As of and for the nine months ended September 30, 2022

(Unaudited)

Note 1. Nature of Business and Summary of Significant Accounting Policies

(in thousands, except share and per share data)

Nature of Business

Citizens Holding Company (referred to herein as the “Company”) owns and operates The Citizens Bank of Philadelphia (the “Bank”). In addition to full service commercial banking, the Bank offers title insurance services through an affiliate, Title Services LLC. As a state bank, the Bank is subject to regulations of the Mississippi Department of Banking and Consumer Finance and the Federal Deposit Insurance Company. The Company is also subject to the regulations of the Federal Reserve. The area served by the Bank is east central Mississippi, along with southern and northern counties of Mississippi and their surrounding areas. Services are provided at multiple branch offices.

Basis of Presentation

These interim consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). However, these interim consolidated financial statements do not include all of the information and footnotes required by GAAP 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 as of and for the interim periods presented. All adjustments and reclassifications are of a normal and recurring nature. Results for the period ended September 30, 2022 are not necessarily indicative of the results that may be expected for any other interim period or for the year as a whole.

The interim consolidated financial statements of the Company include the accounts of its wholly owned subsidiary, The Citizens Bank of Philadelphia (the “Bank”). All significant intercompany transactions have been eliminated in consolidation.

For further information and significant accounting policies of the Company, see the Notes to Consolidated Financial Statements of Citizens Holding Company included in the Company’s Annual Report on Form

10-K

for the year ended December 31, 2021, filed with the Securities and Exchange Commission on March 11, 2022.

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Estimates

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Estimates that are particularly susceptible to significant change relate to the determination of the allowance for loan losses and the valuation of real estate acquired in connection with foreclosures or in satisfaction of loans, or other real estate owned (“OREO”). In connection with the determination of the allowance for loan losses and valuation of foreclosed real estate, management obtains independent appraisals for significant properties.

While management uses available information to recognize losses on loans and to value foreclosed real estate, future additions to the allowance or adjustments to the valuation may be necessary based on changes in local economic conditions. In addition, regulatory agencies, as an integral part of their examination process, periodically review the Company’s allowance for loan losses and valuations of foreclosed real estate. Such agencies may require the Company to recognize additions to the allowance or to make adjustments to the valuation based on their judgments about information available to them at the time of their examination. Due to these factors, it is reasonably possible that the allowance for loan losses and valuation of foreclosed real estate may change materially in the near term.

Newly Issued, But Not Yet Effective Accounting Standards

In June 2016, the FASB issued ASU

2016-13,

“Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (“ASU

2016-13”).

ASU

2016-13

makes significant changes to the accounting for credit losses on financial instruments and disclosures about them. The new current expected credit loss (“CECL”) impairment model will require an estimate of expected credit losses, measured over the contractual life of an instrument, which considers reasonable and supportable forecasts of future economic conditions in addition to information about past events and current conditions. The standard provides significant flexibility and requires a high degree of judgment with regards to pooling financial assets with similar risk characteristics, determining the contractual terms of said financial assets and adjusting the relevant historical loss information in order to develop an estimate of expected lifetime losses. In addition, ASU

2016-13

amends the accounting for credit losses on debt securities and purchased financial assets with credit deterioration. The amendments in ASU

2016-13

are currently effective for fiscal years beginning after December 31, 2019, and interim periods within those years for public business entities that are SEC filers. However, in October 2019, the FASB approved deferral of the effective date for ASU

2016-13

for certain companies. The new effective date for the Company is January 1, 2023. ASU

2016-13

permits the use of estimation techniques that are practical and relevant to the Company’s circumstances, as long as they are applied consistently over time and faithfully estimate expected credit losses in accordance with the standard. ASU

2016-13

lists several common credit loss methods that are acceptable such as a discounted cash flow method, loss-rate method and probability of default/loss given default (PD/LGD) method. Depending on the nature of each identified pool of

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financial assets with similar risk characteristics, the Company currently plans on implementing a discounted cash flow method or a loss-rate method to estimate expected credit losses. The Company expects ASU

2016-13

to have a significant impact on the Company’s accounting policies, internal controls over financial reporting and footnote disclosures. The Company has assessed its data and system needs and has begun designing its financial models to estimate expected credit losses in accordance with the standard. Further development, testing and evaluation is required to determine the impact that adoption of this standard will have on the financial condition and results of operations of the Company.

Note 2. Commitments and Contingent Liabilities

(in thousands)

In the ordinary course of business, the Company 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, 2022, the Company had entered into loan commitments with certain customers with an aggregate unused balance of $78,535 compared to an aggregate unused balance of $112,292 at December 31, 2021. There were $5,432 of letters of credit outstanding at September 30, 2022 and $4,432 at December 31, 2021. The fair value of such commitments is not considered material because letters of credit and loan commitments often are not used in their entirety, if at all, before they expire. The balances of such letters and commitments should not be used to project actual future liquidity requirements. However, the Company does incorporate expectations about the utilization under its credit-related commitments into its asset and liability management program.

The Company is a party to lawsuits and other claims that arise in the ordinary course of business, all of which are being vigorously contested. In the regular course of business, management evaluates estimated losses or costs related to litigation, and provisions are 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 likely have a material impact on the Company’s consolidated financial condition or results of operations.

Note 3. Net Income per Share

(in thousands, except share and per share data)

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 stock options and restricted stock using the treasury stock method. Net income per share was computed as follows:

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	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2022		2021		2022		2021
Basic weighted average shares outstanding		5,595,320		5,587,070		5,591,771		5,583,491
Dilutive effect of granted options		—		—		—		244
Diluted weighted average shares outstanding		5,595,320		5,587,070		5,591,771		5,583,735
Net income	$	2,580	$	1,880	$	7,157	$	5,684
Net income per share-basic	$	0.46	$	0.34	$	1.28	$	1.02
Net income per share-diluted	$	0.46	$	0.34	$	1.28	$	1.02

Note 4. Equity Compensation Plans

(in thousands, except per share data)

The Company has adopted the 2013 Incentive Compensation Plan (the “2013 Plan”), which the Company intends to use for future equity grants to employees, directors or consultants until the termination or expiration of the 2013 Plan.

Prior to the adoption of the 2013 Plan, the Company issued awards to directors from the 1999 Directors’ Stock Compensation Plan (the “Directors’ Plan”), which has expired.

The following table is a summary of the stock option activity for the nine months ended September 30, 2022:


	Directors’ Plan					2013 Plan
	Number of Shares			Weighted Average Exercise Price		Number of Shares		Weighted Average Exercise Price
Outstanding at December 31, 2021		9,000		$	18.76		—	$	—
Granted		—			—		—		—
Exercised		—			—		—		—
Expired		(9,000	)		18.76		—		—

Outstanding at September 30, 2022		—		$	—		—	$	—

The remaining outstanding options under the Directors’ Plan expired on April 25, 2022. No options were outstanding under the 2013 Plan as of September 30, 2022.

During 2022, the Company’s directors received restricted stock grants totaling 8,250 shares of common stock under the 2013 Plan. These grants vest over a

one-year

period ending April 27, 2023 during which time the recipients have rights to vote the shares and to receive dividends. The grant date fair value of these shares was $157 and is expensed ratably over the

one-year

vesting period.

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Note 5. Income Taxes

(in thousands)

For the three months ended September 30, 2022 and 2021, the Company recorded a provision for income taxes totaling $

463

and $

307

, respectively. The effective tax rate was

15.22

% and

14.04

% for the three months ending September 30, 2022 and 2021, respectively.

For the nine months ended September 30, 2022 and 2021, the Company recorded a provision for income taxes totaling $1,350 and $1,082, respectively. The effective tax rate was 15.87% and 15.99% for the nine months ending September 30, 2022 and 2021, respectively.

The provision for income taxes includes both federal and state income taxes and differs from the statutory rate due to favorable permanent differences primarily related to tax free municipal investments.

Note 6. Securities

(in thousands)

The amortized cost and estimated fair value of securities

available-for-sale

and the corresponding amounts of gross unrealized gains and losses recognized were as follows:


			Gross		Gross
September 30, 2022	Amortized		Unrealized		Unrealized		Estimated
	Cost		Gains		Losses		Fair Value
Securities available-for-sale
Mortgage backed securities	$	109,734	$	—	$	11,314	$	98,420
State, County, Municipals		135,147		2		35,461		99,688
Other securities		500	$	—	$	61	$	439

Total	$	245,381	$	2	$	46,836	$	198,547


			Gross		Gross
December 31, 2021	Amortized		Unrealized		Unrealized		Estimated
	Cost		Gains		Losses		Fair Value
Securities available-for-sale
Obligations of U.S.
Government agencies	$	4,969	$	—	$	269	$	4,700
Mortgage backed securities		411,729		42		12,180		399,591
State, County, Municipals		230,359		700		4,008		227,051
Other securities		500		—		7		493

Total	$	647,557	$	742	$	16,464	$	631,835

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The amortized cost and estimated fair value of securities

held-to-maturity

and the corresponding amounts of gross unrealized gains and losses recognized were as follows:


			Gross		Gross
September 30, 2022	Amortized		Unrealized		Unrealized		Estimated
	Cost		Gains		Losses		Fair Value
Securities held-to-maturity
Obligations of U.S.
Government agencies	$	3,986	$	—	$	351	$	3,635
Mortgage backed securities		315,055		—		27,947		287,108
State, County, Municipals		92,818		—		10,828		81,990

Total	$	411,859	$	—	$	39,126	$	372,733

During the third quarter of 2022, the Company reclassified $413,921 of securities

available-for-sale

to securities

held-to-maturity.

At the date of this transfer, the net unrealized holding loss on the transferred securities totaled approximately $71,319 ($53,525 net of tax).

The securities were transferred at fair value, which became the cost basis for the securities

held-to-maturity.

The net unrealized holding loss is amortized over the remaining life of the securities in a manner consistent with the amortization or accretion of the original purchase premium or discount on the associated security. There were no gains or losses recognized as a result of the transfer. At September 30, 2022, the net unamortized, unrealized loss on transferred securities included in accumulated other comprehensive income (loss) in the accompanying balance sheet totaled approximately $70,880 ($53,195, net of tax) compared to

$-0-

at December 31, 2021.

At September 30, 2022 and December 31, 2021, securities with a carrying value of $515,029 and $371,190, respectively, were pledged to secure government and public deposits and securities sold under agreement to repurchase.

The amortized cost and estimated fair value of securities by contractual maturity at September 30, 2022 are shown below. Actual maturities may differ from contractual maturities because issuers have the right to call or prepay certain obligations.


	Available-for-sale				Held-to-maturity
	Amortized		Estimated		Amortized		Estimated
	Cost		Fair Value		Cost		Fair Value
Due in one year or less	$	222	$	220	$	—	$	—
Due after one year through five years		3,150		3,018		—		—
Due after five years through ten years		4,927		4,360		—		—
Due after ten years		127,348		92,529		96,804		85,625
Residential mortgage backed securities		96,910		85,914		253,051		229,505
Commercial mortgage backed securities		12,824		12,506		62,004		57,603

Total	$	245,381	$	198,547	$	411,859	$	372,733

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The tables below show the Company’s gross unrealized losses and fair value of

available-for-sale

and

held-to-maturity

investments, aggregated by investment category and length of time that individual investments were in a continuous loss position at September 30, 2022 and December 31, 2021. There were no

held-to-maturity

securities at December 31, 2021.

A summary of unrealized loss information for securities

available-for-sale

and

held-to-maturity,

categorized by security type follows:


September 30, 2022
Available-for-sale	Less than 12 months				12 months or more				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
Description of Securities	Value		Losses		Value		Losses		Value		Losses
Mortgage backed securities	$	72,062	$	4,596	$	26,358	$	6,718	$	98,420	$	11,314
State, County, Municipal		58,858		17,787		39,300		17,674		98,158		35,461

Total	$	130,920	$	22,383	$	65,658	$	24,392	$	196,578	$	46,775


Held-to-maturity	Less than 12 months				12 months or more				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
Description of Securities	Value		Losses		Value		Losses		Value		Losses
Obligations of U.S. government agencies	$	—	$	—	$	3,635	$	351	$	3,635	$	351
Mortgage backed securities		47,295		4,688		239,815		23,259		287,110		27,947
State, County, Municipal		59,325		8,193		22,665		2,635		81,990		10,828

Total	$	106,620	$	12,881	$	266,115	$	26,245	$	372,735	$	39,126


December 31, 2021
Available-for-sale	Less than 12 months				12 months or more				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
Description of Securities	Value		Losses		Value		Losses		Value		Losses
Obligations of U.S. government agencies	$	4,700	$	269	$	—	$	—	$	4,700	$	269
Mortgage backed securities		376,644		11,535		19,986		645		396,630		12,180
State, County, Municipal		175,520		3,997		119		11		175,639		4,008

Total	$	556,864	$	15,801	$	20,105	$	656	$	576,969	$	16,457

The Company’s unrealized losses on its obligations of United States government agencies, mortgage-backed securities, other securities and state, county and municipal bonds are the result of an upward trend in interest rates since purchase, mainly in the

mid-term

sector. None of the unrealized losses disclosed in the previous table are related to credit deterioration. The Company does not intend to sell any securities in an unrealized loss position that it holds, and it is not more likely than not that the Company will be required to sell any such security prior to the recovery of its amortized cost basis, which may be at maturity. The Company has determined that none of the securities were other-than-temporarily impaired at September 30, 2022 nor at December 31, 2021.

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Note 7. Loans held for investment

(in thousands, except number of loans)

The composition of net loans at September 30, 2022 and December 31, 2021 was as follows:


	September 30, 2022			December 31, 2021
Real Estate:
Land Development and Construction	$	96,143		$	71,898
Farmland		12,012			13,114
1-4 Family Mortgages		92,111			98,525
Commercial Real Estate		274,300			281,239

Total Real Estate Loans		474,566			464,776
Business Loans:
Commercial and Industrial Loans (1)		88,012			92,501
Farm Production and Other Farm Loans		523			621

Total Business Loans		88,535			93,122
Consumer Loans:
Credit Cards		2,531			1,963
Other Consumer Loans		13,033			11,986

Total Consumer Loans		15,564			13,949

Total Gross Loans		578,665			571,847
Allowance for Loan Losses		(5,068	)		(4,513	)

Loans, net	$	573,597		$	567,334

(1)	Includes PPP loans of $274 and $5,789 as of September 30, 2022 and December 31, 2021, respectively.

Loans are considered to be past due if the required principal and interest payments have not been received as of the date such payments were due. Loans are placed on nonaccrual status, when, in management’s opinion, the borrower may be unable to meet payment obligations as they become due, as well as when required by regulatory provisions. Loans may be placed on nonaccrual status regardless of whether such loans are considered past due. When interest accruals are discontinued, all unpaid accrued interest is reversed. Interest income is subsequently recognized only to the extent cash payments are received in excess of principal due. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

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Period-end,

nonaccrual loans, segregated by class, were as follows:


	September 30, 2022		December 31, 2021
Real Estate:
Land Development and Construction	$	—	$	171
Farmland		97		118
1-4 Family Mortgages		1,726		1,891
Commercial Real Estate		968		1,249

Total Real Estate Loans		2,791		3,429
Business Loans:
Commercial and Industrial Loans		270		386
Farm Production and Other Farm Loans		—		3

Total Business Loans		270		389
Consumer Loans:
Other Consumer Loans		26		8

Total Consumer Loans		26		8

Total Nonaccrual Loans	$	3,087	$	3,826

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An aging analysis of past due loans, segregated by class, as of September 30, 2022, was as follows:


											Accruing
	Loans 30-89 Days Past Due		Loans 90 or more Days Past Due		Total Past Due Loans		Current Loans		Total Loans		Loans 90 or more Days Past Due
Real Estate:
Land Development and Construction	$	392	$	—	$	392	$	95,751	$	96,143	$	—
Farmland		170		—		170		11,842		12,012		—
1-4 Family Mortgages		1,397		210		1,607		90,504		92,111		—
Commercial Real Estate		347		574		921		273,379		274,300		—

Total Real Estate Loans		2,306		784		3,090		471,476		474,566		—
Business Loans:
Commercial and Industrial Loans		190		266		456		87,556		88,012		—
Farm Production and Other Farm Loans		5		—		5		518		523		—

Total Business Loans		195		266		461		88,074		88,535		—
Consumer Loans:
Credit Cards		61		14		75		2,456		2,531		14
Other Consumer Loans		142		23		165		12,868		13,033		—

Total Consumer Loans		203		37		240		15,324		15,564		14

Total Loans	$	2,704	$	1,087	$	3,791	$	574,874	$	578,665	$	14

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An aging analysis of past due loans, segregated by class, as of December 31, 2021 was as follows:


	Loans 30-89 Days Past Due		Loans 90 or more Days Past Due		Total Past Due Loans		Current Loans		Total Loans		Accruing Loans 90 or more Days Past Due
Real Estate:
Land Development and Construction	$	6	$	—	$	6	$	71,892	$	71,898	$	—
Farmland		130		33		163		12,951		13,114		—
1-4 Family Mortgages		1,678		292		1,970		96,555		98,525		140
Commercial Real Estate		157		570		727		280,512		281,239		—

Total Real Estate Loans		1,971		895		2,866		461,910		464,776		140
Business Loans:
Commercial and Industrial Loans		205		376		581		91,920		92,501		—
Farm Production and Other Farm Loans		3		—		3		618		621		—

Total Business Loans		208		376		584		92,538		93,122		—
Consumer Loans:
Credit Cards		35		12		47		1,916		1,963		12
Other Consumer Loans		76		2		78		11,908		11,986		2

Total Consumer Loans		111		14		125		13,824		13,949		14

Total Loans	$	2,290	$	1,285	$	3,575	$	568,272	$	571,847	$	154

Loans are considered impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due in accordance with the original contractual terms of the loan agreement, including scheduled principal and interest payments. In determining which loans to evaluate for impairment, management looks at all loans over $100 that are past due loans, bankruptcy filings and any situation that might lend itself to cause a borrower to be unable to repay the loan according to the original agreement terms. If a loan is determined to be impaired and the collateral is deemed to be insufficient to fully repay the loan, a specific reserve will be established. Interest payments on impaired loans are typically applied to principal unless collectability of the principal amount is reasonably assured by the impaired loan having sufficient collateral, in which case interest is recognized on a cash basis. Impaired loans or portions thereof, are

charged-off

when deemed uncollectible.

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Impaired loans as of September 30, 2022, segregated by class, were as follows:


	Unpaid Principal Balance		Recorded Investment With No Allowance		Recorded Investment With Allowance		Total Recorded Investment		Related Allowance		Average Recorded Investment
Real Estate:
Land Development and Construction	$	—	$	—	$	—	$	—	$	—	$	86
Farmland		30		30		—		30		—		32
1-4 Family Mortgages		343		343		—		343		—		555
Commercial Real Estate		1,075		913		—		913		—		1,022

Total Real Estate Loans		1,448		1,286		—		1,286		—	$	1,695
Business Loans:
Commercial and Industrial Loans		304		196		—		196		—	$	214

Total Business Loans		304		196		—		196		—	$	214

Total Loans	$	1,752	$	1,482	$	—	$	1,482	$	—	$	1,909

Impaired loans as of December 31, 2021, segregated by class, were as follows:


	Unpaid Principal Balance		Recorded Investment With No Allowance		Recorded Investment With Allowance		Total Recorded Investment		Related Allowance		Average Recorded Investment
Real Estate:
Land Development and Construction	$	171	$	171	$	—	$	171	$	—	$	240
Farmland		33		33		—		33		—		72
1-4 Family Mortgages		767		767		—		767		—		892
Commercial Real Estate		1,294		1,019		112		1,131		3		3,479

Total Real Estate Loans		2,265		1,990		112		2,102		3	$	4,683
Business Loans:
Commercial and Industrial Loans		304		72		160		232		36	$	323

Total Business Loans		304		72		160		232		36	$	323

Total Loans	$	2,569	$	2,062	$	272	$	2,334	$	39	$	5,006

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The Company did not have any new troubled debt restructurings as of September 30, 2022 or December 31, 2021.

Changes in the Company’s troubled debt restructurings are set forth in the table below:


	Number of Loans		Recorded Investment
Totals at January 1, 2021		3	$	2,113
Reductions due to:
Principal paydowns				(112	)
Reclassification to OREO		2		(1,788	)

Totals at December 31, 2021		1	$	213
Reductions due to:
Principal paydowns				(73	)

Total at September 30, 2022		1	$	140

The allocated allowance for loan losses attributable to restructured loans was

$-0-

at September 30, 2022 and December 31, 2021. The Company had no commitments to lend additional funds on this troubled debt restructuring as of September 30, 2022.

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The Company utilizes a risk grading matrix to assign a risk grade to each of its loans when originated and is updated as factors related to the strength of the loan changes. Loans are graded on a scale of 1 to 9. A description of the general characteristics of the 9 risk grades is as follows.

Grade 1. MINIMAL RISK - These loans are without loss exposure to the Company. This classification is reserved for only the best, well secured loans to borrowers with significant capital strength, low leverage, stable earnings and growth and other readily available financing alternatives. This type of loan would also include loans secured by a program of the government.

Grade 2. MODEST RISK - These loans include borrowers with solid credit quality and moderate risk of loss. These loans may be fully secured by certificates of deposit with another reputable financial institution or secured by readily marketable securities with acceptable margins.

Grade 3. AVERAGE RISK - This is the rating assigned to most of the loans held by the Company. This includes loans with average loss exposure and average overall quality. These loans should liquidate through possessing adequate collateral and adequate earnings of the borrower. In addition, these loans are properly documented and are in accordance with all aspects of the current loan policy.

Grade 4. ACCEPTABLE RISK - Borrower generates sufficient cash flow to fund debt service but most working asset and capital expansion needs are provided from external sources. Profitability and key balance sheet ratios are usually close to peers but one or more may not align with peers.

Grade 5. MANAGEMENT ATTENTION - Borrower has potential weaknesses resulting from performance trends or management concerns. The financial condition of the borrower has taken a negative turn and may be temporarily strained. Cash flow is weak but cash reserves remain adequate to meet debt service. Management weakness is evident.

Grade 6. OTHER LOANS ESPECIALLY MENTIONED (“OLEM”) - Loans in this category are fundamentally sound but possess some weaknesses. OLEM loans have weaknesses, which may, if not checked or corrected, weaken the asset or inadequately protect the Bank’s credit position at some future date. These loans have an identifiable weakness in credit, collateral, or repayment ability but there is no expectation of loss.

Grade 7. SUBSTANDARD ASSETS - Assets classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Assets classified as substandard must have a well-defined weakness based upon objective evidence. Assets classified as substandard are characterized by the distinct possibility that the insured institution will sustain some loss if the deficiencies are not corrected. The possibility that liquidation would not be timely requires a substandard classification even if there is little likelihood of total loss.

Grade 8. DOUBTFUL - A loan classified as doubtful has all the weaknesses of a substandard classification and the added characteristic that the weakness makes collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable or improbable. The possibility of loss is extremely high, but because of certain important and reasonable specific pending factors that may work to the advantage and strengthening of the asset, its classification as an estimated loss is deferred until its more exact status may be determined. A doubtful classification could reflect the fact that the primary source of repayment is gone and serious doubt exists as to the quality of a secondary source of repayment.

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Grade 9. LOSS - Loans classified loss are considered uncollectible and of such little value that their continuance as bankable assets is not warranted. This classification does not mean that the asset has absolutely no recovery or salvage value, but rather it is not practical or desirable to defer writing off this basically worthless asset even though partial recovery may occur in the future. Also included in this classification is the defined loss portion of loans rated substandard assets and doubtful assets.

These internally assigned grades are updated on a continual basis throughout the course of the year and represent management’s most updated judgment regarding grades at September 30, 2022.

The following table details the amount of gross loans, segregated by loan grade and class, as of September 30, 2022:


	Satisfactory 1,2,3,4		Special Mention 5,6		Substandard 7		Doubtful 8		Loss 9		Total Loans
Real Estate:
Land Development and Construction	$	94,219	$	1,620	$	304	$	—	$	—	$	96,143
Farmland		11,394		275		343		—		—		12,012
1-4 Family Mortgages		85,672		1,975		4,464		—		—		92,111
Commercial Real Estate		234,368		5,746		34,186		—		—		274,300

Total Real Estate Loans		425,653		9,616		39,297		—		—		474,566
Business Loans:
Commercial and Industrial Loans		86,664		751		597		—		—		88,012
Farm Production and Other Farm Loans		518		—		5		—		—		523

Total Business Loans		87,182		751		602		—		—		88,535
Consumer Loans:
Credit Cards		2,456		—		75		—		—		2,531
Other Consumer Loans		12,965		10		58		—		—		13,033

Total Consumer Loans		15,421		10		133		—		—		15,564

Total Loans	$	528,256	$	10,377	$	40,032	$	—	$	—	$	578,665

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The following table details the amount of gross loans segregated by loan grade and class, as of December 31, 2021:


	Satisfactory 1,2,3,4		Special Mention 5,6		Substandard 7		Doubtful 8		Loss 9		Total Loans
Real Estate:
Land Development and Construction	$	69,758	$	1,547	$	593	$	—	$	—	$	71,898
Farmland		12,365		297		452		—		—		13,114
1-4 Family Mortgages		89,120		3,590		5,815		—		—		98,525
Commercial Real Estate		238,561		8,055		34,623		—		—		281,239

Total Real Estate Loans		409,804		13,489		41,483		—		—		464,776
Business Loans:
Commercial and Industrial Loans		85,138		1,483		5,877		—		3		92,501
Farm Production and Other Farm Loans		606		—		12		—		3		621

Total Business Loans		85,744		1,483		5,889		—		6		93,122
Consumer Loans:
Credit Cards		1,916		—		47		—		—		1,963
Other Consumer Loans		11,903		20		58		3		2		11,986

Total Consumer Loans		13,819		20		105		3		2		13,949

Total Loans	$	509,367	$	14,992	$	47,477	$	3	$	8	$	571,847

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Note 8. Allowance for Loan Losses

(in thousands)

The allowance for loan losses is established through a provision for loan losses charged to expense, which represents management’s best estimate of probable losses within the existing portfolio of loans. The allowance, in the judgment of management, is necessary to reserve for estimated loan losses and risks inherent in the loan portfolio.

The allowance on the majority of the loan portfolio is calculated using a historical chargeoff percentage applied to the current loan balances by loan segment. This historical period is the average of the previous twenty quarters with the most current quarters weighted more heavily to show the effect of the most recent chargeoff activity. This percentage is also adjusted for economic factors such as local unemployment and general business conditions, both local and nationwide.

The group of loans that are considered to be impaired are individually evaluated for possible loss and a specific reserve is established to cover any loss contingency. Loans that are determined to be a loss with no benefit of remaining in the portfolio are charged off to the allowance. These specific reserves are reviewed periodically for continued impairment and adequacy of the specific reserve and are adjusted when necessary.

The following table details activity in the allowance for loan losses by portfolio segment for the nine months ended September 30, 2022:


September 30, 2022	Real Estate			Business Loans		Consumer			Total
Beginning Balance, January 1, 2022	$	3,622		$	645	$	246		$	4,513
Provision for (reversal of) loan losses		231			38		(173	)		96
Chargeoffs		7			61		57			125
Recoveries		133			26		425			584

Net (recoveries) chargeoffs		(126	)		35		(368	)		(459	)

Ending Balance	$	3,979		$	648	$	441		$	5,068

Period end allowance allocated to:
Loans individually evaluated for impairment	$	—		$	—	$	—		$	—
Loans collectively evaluated for impairment		3,979			648		441			5,068

Ending Balance, September 30, 2022	$	3,979		$	648	$	441		$	5,068

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The following table details activity in the allowance for loan losses by portfolio segment for the nine months ended September 30, 2021:


September 30, 2021	Real Estate		Business Loans		Consumer		Total
Beginning Balance, January 1, 2021	$	3,885	$	611	$	239	$	4,735
Provision for loan losses		21		155		1,111		1,287
Chargeoffs		685		179		30		894
Recoveries		168		15		7		190

Net chargeoffs (recoveries)		517		164		23		704

Ending Balance	$	3,389	$	602	$	1,327	$	5,318

Period end allowance allocated to:
Loans individually evaluated for impairment	$	6	$	36	$	1,200	$	1,242
Loans collectively evaluated for impairment		3,383		566		127		4,076

Ending Balance, September 30, 2021	$	3,389	$	602	$	1,327	$	5,318

The Company’s recorded investment in loans as of September 30, 2022 and December 31, 2021 related to each balance in the allowance for loan losses by portfolio segment and disaggregated on the basis of the Company’s impairment methodology was as follows:


September 30, 2022	Real Estate		Business Loans		Consumer		Total
Loans individually evaluated for specific impairment	$	1,286	$	196	$	—	$	1,482
Loans collectively evaluated for general impairment		473,280		88,339		15,564		577,183

	$	474,566	$	88,535	$	15,564	$	578,665


December 31, 2021	Real Estate		Business Loans		Consumer		Total
Loans individually evaluated for specific impairment	$	2,102	$	232	$	—	$	2,334
Loans collectively evaluated for general impairment		462,674		92,890		13,949		569,513

	$	464,776	$	93,122	$	13,949	$	571,847

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Note 9. Secured Line of Credit

(in thousands)

On June 9, 2021, the Company obtained a secured revolving line of credit (“Line”) in the amount of $20,000 with First Horizon Bank. The proceeds of the Line were used to enhance the Bank’s capital structure. The Line bears interest at a floating interest rate linked to WSJ Prime Rate with an initial interest rate of 3.25%, which is payable quarterly on the first day of each calendar quarter, commencing on July 1, 2021, with the final installment of interest being due and payable concurrently on the same date that the principal balance is due. As of September 30, 2022, the interest rate was 5.50%. The Line also bears an unused line fee at a rate equal to 0.25%, applied to the unused balance of the Line. The Line is fully secured by the common stock of the Bank. The Line matures on June 9, 2023, at which time all unpaid interest and principal is due and payable.


	September 30, 2022		December 31, 2021
Funded balance	$	18,000	$	18,000
Unfunded balance		2,000		2,000

Total credit facility	$	20,000	$	20,000

Note 10. Shareholders’ Equity

(in thousands, except share data)

The following summarizes the activity in the capital structure of the Company:


	Number of Shares Issued		Common Stock		Additional Paid-In Capital			Accumulated Other Comprehensive (Loss) Income			Retained Earnings			Total
Balance, January 1, 2022		5,595,320	$	1,120	$	18,293		$	(11,795	)	$	98,282		$	105,900
Net income		—		—		—			—			2,036			2,036
Dividends paid ($0.24 per share)		—		—		—			—			(1,343	)		(1,343	)
Stock compensation expense		—		—		39			—			—			39
Other comprehensive loss, net		—		—		—			(43,682	)		—			(43,682	)

Balance, March 31, 2022		5,595,320	$	1,120	$	18,332		$	(55,477	)	$	98,975		$	62,950
Net income		—		—		—			—			2,541			2,541
Dividends paid ($0.24 per share)		—		—		—			—			(1,345	)		(1,345	)
Restricted stock granted		8,250		1		(1	)		—			—			—
Stock compensation expense		—		—		39			—			—			39
Other comprehensive loss, net		—		—		—			(38,259	)		—			(38,259	)

Balance, June 30, 2022		5,603,570	$	1,121	$	18,370		$	(93,736	)	$	100,171		$	25,926
Net income		—		—		—			—			2,580			2,580
Dividends paid ($0.24 per share)		—		—		—			—			(1,345	)		(1,345	)
Stock compensation expense		—		—		39			—			—			39
Other comprehensive income, net		—		—		—			5,437			—			5,437

Balance, September 30, 2022		5,603,570	$	1,121	$	18,409		$	(88,299	)	$	101,406		$	32,637

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	Number of Shares Issued		Common Stock		Additional Paid-In Capital			Accumulated Other Comprehensive Income (Loss)			Retained Earnings			Total
Balance, January 1, 2021		5,587,070	$	1,118	$	18,134		$	4,138		$	96,158		$	119,548
Net income		—		—		—			—			1,897			1,897
Dividends paid ($0.24 per share)		—		—		—			—			(1,341	)		(1,341	)
Stock compensation expense		—		—		42			—			—			42
Other comprehensive loss, net		—		—		—			(13,668	)		—			(13,668	)

Balance, March 31, 2021		5,587,070	$	1,118	$	18,176		$	(9,530	)	$	96,714		$	106,478
Net income		—		—		—			—			1,907			1,907
Dividends paid ($0.24 per share)		—		—		—			—			(1,343	)		(1,343	)
Restricted stock granted		8,250		2		(2	)		—			—			—
Stock compensation expense		—		—		40			—			—			40
Other comprehensive income, net		—		—		—			2,492			—			2,492

Balance, June 30, 2021		5,595,320	$	1,120	$	18,214		$	(7,038	)	$	97,278		$	109,574
Net income		—		—		—			—			1,880			1,880
Dividends paid ($0.24 per share)		—		—		—			—			(1,343	)		(1,343	)
Stock compensation expense		—		—		40			—			—			40
Other comprehensive loss, net		—		—		—			(2,769	)		—			(2,769	)

Balance, September 30, 2021		5,595,320	$	1,120	$	18,254		$	(9,807	)	$	97,815		$	107,382

Note 11. Fair Value of Financial Instruments

(in thousands)

The fair value topic of the ASC establishes a framework for measuring fair value and requires enhanced disclosures about fair value measurements. This topic clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. This topic also requires disclosure about how fair value was determined for assets and liabilities and establishes a hierarchy for which these assets and liabilities must be grouped, based on significant levels of inputs as follows:


Level 1		Quoted prices (unadjusted) in active markets for identical assets or liabilities;

Level 2		Inputs other than quoted prices in active markets for identical assets and liabilities included in Level 1 that are observable for the asset or liability, either directly or indirectly, such as quoted prices for similar assets or liabilities in active markets, or quoted prices for identical or similar assets or liabilities in markets that are not active; or

Level 3		Unobservable inputs for an asset or liability, such as discounted cash flow models or valuations.

The determination of where assets and liabilities fall within this hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

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The following table presents assets and liabilities that were measured at fair value on a recurring basis as of September 30, 2022:


	Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
	(Level 1)		(Level 2)		(Level 3)		Totals
Securities available-for-sale
Mortgage-backed securities	$	—	$	98,420	$	—	$	98,420
State, county and municipal		—		99,688		—		99,688
Other securities		439		—		—		439

Total	$	439	$	198,108	$	—	$	198,547

The following table presents assets and liabilities that were measured at fair value on a recurring basis as of December 31, 2021:


	Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Unobservable Inputs
	(Level 1)		(Level 2)		(Level 3)		Totals
Securities available-for-sale
Obligations of U.S. Government Agencies	$	—	$	4,700	$	—	$	4,700
Mortgage-backed securities		—		399,591		—		399,591
State, county and municipal		—		227,051		—		227,051
Other securities		493		—		—		493

Total	$	493	$	631,342	$	—	$	631,835

The Company recorded no gains or losses in earnings for the period ended September 30, 2022 or December 31, 2021 that were attributable to the change in unrealized gains or losses relating to assets still held at the reporting date.

Impaired Loans

Loans considered impaired are reserved for at the time the loan is identified as impaired taking into account the fair value of the collateral less estimated selling costs. Collateral may be real estate and/or business assets including but not limited to, equipment, inventory and accounts receivable. The fair value of real estate is determined based on appraisals by qualified licensed appraisers. The fair value of the business assets is generally based on amounts reported on the business’s financial statements. Appraised and reported values may be adjusted based on management’s historical

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knowledge, changes in market conditions from the time of valuation and management knowledge of the client and the client’s business. Since not all valuation inputs are observable, these nonrecurring fair value determinations are classified Level 3. The unobservable inputs may vary depending on the individual assets with the fair value of real estate based on appraised value being the predominant approach. The Company reviews the certified appraisals for appropriateness and adjusts the value downward to consider selling, closing and liquidation costs, which typically approximates 25% of the appraised value. Impaired loans are reviewed and evaluated on at least a quarterly basis for additional impairment and adjusted accordingly, based on the same factors previously identified.

Other real estate owned

OREO is primarily comprised of real estate acquired in partial or full satisfaction of loans. OREO is recorded at its estimated fair value less estimated selling and closing costs at the date of transfer, with any excess of the related loan balance over the fair value less expected selling costs charged to the allowance for loan losses. Subsequent changes in fair value are reported as adjustments to the carrying amount and are recorded against earnings. The Company outsources the valuation of OREO with material balances to third party appraisers. The Company reviews the third-party appraisal for appropriateness and adjusts the value downward to consider selling and closing costs, which typically approximate 25% of the appraised value.

The Company did not have any assets measured at fair value on a nonrecurring basis during 2022 that were still held on the Company’s balance sheet at September 30, 2022.

For assets measured at fair value on a nonrecurring basis during 2021 that were still held on the Company’s balance sheet at December 31, 2021, the following table provides the hierarchy level and the fair value of the related assets:


	Quoted Prices in Active Markets for Identical		Significant Other Observable		Significant Unobservable
	Assets		Inputs		Inputs
	(Level 1)		(Level 2)		(Level 3)		Totals
Impaired loans	$	—	$	—	$	109	$	109
Other real estate owned		—		—		1,121		1,121

Total	$	—	$	—	$	1,230	$	1,230

Impaired loans, whose fair value was remeasured during the period, with a carrying value of

$-0-

and $112, had an allocated allowance for loan losses of

$-0-

and $3 at September 30, 2022 and December 31, 2021, respectively. The allocated allowance is based on the carrying value of the impaired loan and the fair value of the underlying collateral less estimated costs to sell.

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After monitoring the carrying amounts for subsequent declines or impairments after foreclosure, management determined that a fair value adjustment to OREO in the amount of

$-0-

and $836 was necessary and recorded during the three-month period ended September 30, 2022 and the year ended December 31, 2021, respectively.

The financial instruments topic of the ASC requires disclosure of financial instruments’ fair values, as well as the methodology and significant assumptions used in estimating fair values. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the instrument. The financial instruments topic of the ASC excludes certain financial instruments from its disclosure requirements. The following represents the carrying value and estimated fair value of the Company’s financial instruments at September 30, 2022:


			Quoted Prices
			in Active		Significant
			Markets for		Other		Significant		Total
	Carrying		Identical		Observable		Unobservable		Fair
September 30, 2022	Value		Assets		Inputs		Inputs		Value
			(Level 1)		(Level 2)		(Level 3)
Financial assets
Cash and due from banks	$	13,256	$	13,256	$	—	$	—	$	13,256
Interest bearing deposits with banks		22,532		22,532		—		—		22,532
Securities held-to-maturity		411,859		—		372,733		—		372,733
Securities available-for-sale		198,547		—		198,547		—		198,547
Net LHFI		573,597		—		—		537,515		537,515
Financial liabilities
Deposits	$	1,134,936	$	944,513	$	190,805	$	—	$	1,135,318
Securities sold under agreement to repurchase		129,919		129,919		—		—		129,919
Borrowings on secured line of credit		18,000		18,000		—		—		18,000

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The following represents the carrying value and estimated fair value of the Company’s financial instruments at December 31, 2021:


			Quoted Prices
			in Active		Significant
			Markets for		Other		Significant		Total
	Carrying		Identical		Observable		Unobservable		Fair
December 31, 2021	Value		Assets		Inputs		Inputs		Value
			(Level 1)		(Level 2)		(Level 3)
Financial assets
Cash and due from banks	$	10,673	$	10,673	$	—	$	—	$	10,673
Interest bearing deposits with banks		68,563		68,563		—		—		68,563
Securities available-for-sale		631,835		493		631,342		—		631,835
Net LHFI		567,334		—		—		554,351		554,351
Financial liabilities
Deposits	$	1,111,892	$	861,552	$	230,590	$	—	$	1,092,142
Securities sold under agreement to repurchase		112,760		112,760		—		—		112,760
Borrowings on secured line of credit		18,000		18,000		—		—		18,000

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

(in thousands, except share and per share data)

FORWARD-LOOKING STATEMENTS

In addition to historical information, this Quarterly Report on Form 10-Q (the “Quarterly Report”) contains statements that constitute forward-looking statements and information within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which are based on management’s beliefs, plans, expectations and assumptions and on information currently available to management. The words “may,” “should,” “expect,” “anticipate,” “intend,” “plan,” “continue,” “believe,” “seek,” “estimate” and similar expressions used in this Quarterly Report that do not relate to historical facts are intended to identify forward-looking statements. These statements appear in a number of places in this Quarterly Report. The Company notes that a variety of factors could cause the actual results or experience to differ materially from the anticipated results or other expectations described or implied by such forward-looking statements.

The risks and uncertainties that may affect the operation, performance, development and results of the business of Citizens Holding Company (the “Company”) and the Company’s wholly owned subsidiary, The Citizens Bank of Philadelphia, Mississippi (the “Bank” and collectively with the Company, the “Company”), include, but are not limited to, the following:

•

expectations about the movement of interest rates, including actions that may be taken by the Federal Reserve Board in response to changing economic conditions;

•

adverse changes in asset quality and loan demand, and the potential insufficiency of the allowance for loan losses and our ability to foreclose on delinquent mortgages;

•

natural disasters, civil unrest, epidemics (including the re-emergence of the COVID-19 pandemic) and other catastrophic events in the Company’s geographic area;

•

the impact of increasing inflation rates on the general economic, market or business conditions;

•

extensive regulation, changes in the legislative and regulatory environment that negatively impact the Company and the Bank through increased operating expenses and the potential for regulatory enforcement actions, claims, or litigation;

•

increased competition from other financial institutions and the risk of failure to achieve our business strategies;

•

events affecting our business operations, including the effectiveness of our risk management framework, the accuracy of our estimates, our reliance on third party vendors, the risk of security breaches and potential fraud, and the impact of technological advances;

•

climate change and societal responses to climate change could adversely affect the Company’s business and results of operations, including indirectly through impact to its customers;

•

our ability to maintain sufficient capital and to raise additional capital when needed;

•

our ability to maintain adequate liquidity to conduct business and meet our obligations;

•

events affecting our ability to compete effectively and achieve our strategies, such as the risk of failure to achieve the revenue increases expected to result from our acquisitions, branch additions and in new product and service offerings, our ability to control expenses and our ability to attract and retain skilled people;

•

events that adversely affect our reputation, and the resulting potential adverse impact on our business operations;

•

increased cybersecurity risk, including network breaches, business disruptions or financial losses;

•

risks arising from owning our common stock, such as the volatility and trading volume, our ability to pay dividends, the regulatory limitations on stock ownership, and provisions in our governing documents that may make it more difficult for another party to obtain control of us; and

•

other risks detailed from time-to-time in the Company’s filings with the Securities and Exchange Commission.

Except as required by law, the Company does not undertake any obligation to update or revise any forward-looking statements subsequent to the date of this Quarterly Report, or if earlier, the date on which such statements were made.

Management’s discussion and analysis is intended to provide greater insight into the results of operations and the financial condition of the Company. The following discussion should be read in conjunction with the consolidated financial statements and notes appearing elsewhere in this Quarterly Report. All dollar amounts appearing in this section of our Quarterly Report are in thousands unless otherwise noted or the context otherwise requires.

OVERVIEW

The Company is a one-bank holding company incorporated under the laws of the State of Mississippi on February 16, 1982. The Company is the sole shareholder of the Bank. The Company does not have any direct subsidiaries other than the Bank.

The Bank was opened on February 8, 1908 as The First National Bank of Philadelphia. In 1917, the Bank surrendered its national charter and obtained a state charter, at which time the name of the Bank was changed to The Citizens Bank of Philadelphia, Mississippi. At September 30, 2022, the Bank was the largest bank headquartered in Neshoba County, Mississippi, with total assets of $1,328,121 and total deposits of $1,135,468. In addition to full service commercial banking, the Bank offers title insurance services through its affiliate, Title Services LLC. All significant intercompany transactions have been eliminated in consolidation. The principal executive offices of both the Company and the Bank are located at 521 Main Street, Philadelphia, Mississippi 39350, and the main telephone number is (601) 656-4692. All references hereinafter to the activities or operations of the Company reflect the Company’s activities or operations through the Bank.

CRITICAL ACCOUNTING POLICIES

For an overview of the Company’s critical accounting policies, see the section captioned “Critical Accounting Policies” included in Part II. Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, of the Company’s 2021 Annual Report. There have been no significant changes in the Company’s critical accounting policies during the nine months of 2022.

LIQUIDITY

The Company 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. A measurement of liquidity is the ratio of net deposits and short-term liabilities divided by the sum of net cash, short-term investments and marketable assets. This measurement for liquidity of the Company at September 30, 2022, was 15.00% and at December 31, 2021, was 39.71%. The decrease was due to a decrease in interest bearing cash and cash equivalents and a decline in the fair market value of investment securities coupled with increased pledging requirements to collateralize public deposit funds as of September 30, 2022. Management believes it maintains adequate liquidity for the Company’s current needs.

The Company’s primary source of liquidity is customer deposits, which were $1,134,936 at September 30, 2022, and $1,111,892 at December 31, 2021. Other sources of liquidity include investment securities, the Company’s line of credit with the Federal Home Loan Bank (“FHLB”), the Company’s secured line of credit with First Horizon Bank (“FHN”) and federal funds lines with correspondent banks. The Company had $245,381 invested in available-for-sale investment securities at September 30, 2022, and $647,557 at December 31, 2021. The decrease in securities available-for-sale is the result of the transfer of securities available-for-sale to held-to-maturity during the third quarter to help further mitigate any negative impacts on shareholders’ equity that could result from continued interest rate hikes. See Note 6 to the Company’s Consolidated Financial Statements for more details of the transfer.

The Company also had $22,532 in interest bearing deposits at other banks at September 30, 2022 and $68,563 at December 31, 2021. The Company had secured and unsecured federal funds lines with correspondent banks in the amount of $45,000 at both September 30, 2022 and December 31, 2021. In addition, the Company has the ability to draw on its line of credit with the FHLB and FHN. At September 30, 2022, the Company had unused and available $168,109 of its line of credit with the FHLB and at December 31, 2021, the Company had unused and available $221,088 of its line of credit with the FHLB. The decrease in the amount available under the Company’s line of credit with the FHLB from the end of 2021 to September 30, 2022, was the result of a decrease in the amount of loans eligible for the collateral pool securing the Company’s line of credit with the FHLB. The secured line of credit with FHN was originated on June 9, 2021. At September 30, 2022, the Company had unused and available $2,000 of its secured line of credit with FHN. The Company had federal funds purchased of $-0- as of September 30, 2022 and December 31, 2021. The Company may purchase federal funds from correspondent banks on a temporary basis to meet short term funding needs.

When the Company has more funds than it needs for its reserve requirements or short-term liquidity needs, the Company increases its investment portfolio, increases the balances in interest bearing due from bank accounts 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 ensure rate flexibility and to meet loan funding and liquidity needs. When deposits decline or do not grow sufficiently to fund loan demand, management will seek funding either through federal funds purchased or advances from the FHLB.

CAPITAL RESOURCES

Total shareholders’ equity was $32,637 at September 30, 2022, as compared to $105,900 at December 31, 2021. The decrease in shareholders’ equity was the result of the accumulated other comprehensive income (“AOCI”) brought about by the investment securities market value adjustment partially offset by earnings in excess of dividends paid. The AOCI is a result of an increase in the medium-term interest rates that has occurred since the purchase of securities. As mentioned earlier, the Company transferred securities to held-to-maturity during the third quarter to help further mitigate any future negative impacts on shareholders’ equity that could result from continued interest rate hikes. The unrealized loss that was frozen in AOCI at the time of the transfer will be amortized out of AOCI back into shareholders’ equity over the remaining life of the securities. See Note 6 to the Company’s Consolidated Financial Statements for more details of the transfer. Management does not intend to sell any securities at an unrealized loss position. Additionally, as noted in the Liquidity section of Item 2. of this Quarterly Report, the Company has sufficient liquidity options available if the need for short-term funds arises.

The Company paid aggregate cash dividends in the amount of $4,033, or $0.72 per share, during the nine-month period ended September 30, 2022 compared to $4,027, or $0.72 per share, for the same period in 2021.

Quantitative measures established by federal regulations to ensure capital adequacy require the Company and Bank 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, 2022, the Company and Bank meets all capital adequacy requirements to which it is subject and according to these requirements the Company and Bank is considered to be well capitalized.


	Actual					Minimum Capital Requirement to be Well Capitalized					Minimum Capital Requirement to be Adequately Capitalized
	Amount		Ratio			Amount		Ratio			Amount		Ratio
September 30, 2022
Citizens Holding Company
Tier 1 leverage ratio	$	107,555		7.84	%	$	68,560		5.00	%	$	54,848		4.00	%
Common Equity tier 1 capital ratio		107,555		13.10	%		89,127		6.50	%		61,704		4.50	%
Tier 1 risk-based capital ratio		107,555		13.10	%		65,689		8.00	%		49,267		6.00	%
Total risk-based capital ratio		112,624		13.72	%		82,112		10.00	%		65,689		8.00	%
The Citizens Bank of Philadelphia
Tier 1 leverage ratio	$	124,916		9.11	%	$	68,548		5.00	%	$	54,839		4.00	%
Common Equity tier 1 capital ratio		124,916		9.11	%		89,113		6.50	%		61,694		4.50	%
Tier 1 risk-based capital ratio		124,916		15.22	%		65,660		8.00	%		49,245		6.00	%
Total risk-based capital ratio		129,985		15.84	%		82,076		10.00	%		65,660		8.00	%
December 31, 2021
Citizens Holding Company
Tier 1 leverage ratio	$	104,181		7.80	%	$	66,789		5.00	%	$	53,431		4.00	%
Common Equity tier 1 capital ratio		104,181		13.16	%		86,826		6.50	%		60,110		4.50	%
Tier 1 risk-based capital ratio		104,181		13.16	%		63,322		8.00	%		47,492		6.00	%
Total risk-based capital ratio		108,694		13.73	%		79,153		10.00	%		63,322		8.00	%
The Citizens Bank of Philadelphia
Tier 1 leverage ratio	$	121,421		9.09	%	$	66,776		5.00	%	$	53,421		4.00	%
Common Equity tier 1 capital ratio		121,421		9.09	%		86,808		6.50	%		60,098		4.50	%
Tier 1 risk-based capital ratio		121,421		15.34	%		63,314		8.00	%		47,486		6.00	%
Total risk-based capital ratio		125,934		15.91	%		79,143		10.00	%		63,314		8.00	%

The Dodd-Frank Act requires the Federal Reserve Bank (“FRB”), the Office of the Comptroller of the Currency (“OCC”) and the Federal Deposit Insurance Company (“FDIC”) to adopt regulations imposing a continuing “floor” on the risk based capital requirements. In December 2010, the Basel Committee released a final framework for a strengthened set of capital requirements, known as “Basel III”. In early July 2013, each of the U.S. federal banking agencies adopted final rules relevant to us: (1) the Basel III regulatory capital reforms; and (2) the “standardized approach of Basel II for non-core banks and bank holding companies”, such as the Bank and the Company. The capital framework under Basel III replaced the existing regulatory capital rules for all banks, savings associations and U.S. bank holding companies with greater than $500 million in total assets, and all savings and loan holding companies.

Beginning January 1, 2015, the Company and the Bank began to comply with the final Basel III rules, which became effective on January 1, 2019. Among other things, the final Basel III rules impact regulatory capital ratios of banking organizations in the following manner:

•

Create a requirement to maintain a ratio of common equity Tier 1 capital to total risk-weighted assets of not less than 4.5%;

•

Increase the minimum leverage capital ratio to 4% for all banking organizations (currently 3% for certain banking organizations);

•

Increase the minimum Tier 1 risk-based capital ratio from 4% to 6%; and

•

Maintain the minimum total risk-based capital ratio at 8%.

In addition, the final Basel III rules subject banking organizations to certain limitations on capital distributions and discretionary bonus payments to executive officers if the organization does not maintain a capital conservation buffer of common equity Tier 1 capital in an amount greater than 2.5% of its total risk-weighted assets. The effect of the capital conservation buffer increases the minimum common equity Tier 1 capital ratio to 7%, the minimum Tier 1 risk-based capital ratio to 8.5% and the minimum total risk-based capital ratio to 10.5% for banking organizations seeking to avoid the limitations on capital distributions and discretionary bonus payments to executive officers.

The final Basel III rules also changed the capital categories for insured depository institutions for purposes of prompt corrective action. Under the final rules, to be well capitalized, an insured depository institution must maintain a minimum common equity Tier 1 capital ratio of at least 6.5%, a Tier 1 risk-based capital ratio of at least 8%, a total risk-based capital ratio of at least 10.0%, and a leverage capital ratio of at least 5%. In addition, the final Basel III rules established more conservative standards for including an instrument in regulatory capital and imposed certain deductions from and adjustments to the measure of common equity Tier 1 capital.

Management believes that, as of September 30, 2022, the Company and the Bank met all capital adequacy requirements under Basel III.

RESULTS OF OPERATIONS

The following table sets forth for the periods indicated, certain items in the consolidated statements of income of the Company and the related changes between those periods:


	For the Three Months Ended September 30,					For the Nine Months Ended September 30,
	2022			2021		2022		2021
Interest Income, including fees	$	10,122		$	9,762	$	28,736	$	28,657
Interest Expense		1,073			1,160		2,637		3,928

Net Interest Income		9,049			8,602		26,099		24,729
(Reversal of) provision for loan losses		(53	)		968		96		1,287

Net Interest Income after
(Reversal of) provision for loan losses		9,102			7,634		26,003		23,442
Other Income		2,877			3,294		8,173		9,515
Other Expense		8,936			8,741		25,669		26,191

Income Before Provision For
Income Taxes		3,043			2,187		8,507		6,766
Provision for Income Taxes		463			307		1,350		1,082

Net Income	$	2,580		$	1,880	$	7,157	$	5,684

Net Income Per share - Basic	$	0.46		$	0.34	$	1.28	$	1.02

Net Income Per Share-Diluted	$	0.46		$	0.34	$	1.28	$	1.02

See Note 3 to the Company’s Consolidated Financial Statements for an explanation regarding the Company’s calculation of Net Income Per Share - basic and - diluted.

Annualized return on average equity (“ROE”) was 13.36% for the three months ended September 30, 2022, and 6.60% for the corresponding period in 2021. Annualized ROE was 12.12% for the nine months ended September 30, 2022, and 6.69% for the corresponding period in 2021. The increase in ROE for the three and nine months ended September 30, 2022 compared to the same period in 2021 was a result of an increase in earnings compared to prior period coupled with a decline in equity due to the unrealized losses on investments in AOCI.

Book value per share decreased to $5.83 at September 30, 2022, compared to $18.95 at December 31, 2021. The decrease in book value per share is directly attributable to the decrease in shareholders’ equity resulting from the AOCI caused by the increase in medium-term interest rates. Average assets for the nine months ended September 30, 2022 were $1,348,574 compared to $1,412,082 for the year ended December 31, 2021. This decrease was due mainly to the increase in the unrealized loss on investment securities.

NET INTEREST INCOME / NET INTEREST MARGIN

The main component of the Company’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 primary concerns in managing net interest income are the volume, mix and repricing of assets and liabilities.

Net interest income was $9,049 and $26,099 for the three and nine months ended September 30, 2022, respectively, as compared to $8,602 and $24,729 for the same respective time periods in 2021.

The annualized net interest margin was 2.90% for the three months ended September 30, 2022, compared to 2.74% for the corresponding period of 2021. Additionally, the annualized net interest margin was 2.79% for the nine months ended September 30, 2022, compared to 2.53% for the corresponding period of 2021. The increase in net interest margin for both the three and nine months ended September 30, 2022, when compared to the same period in 2021, was mainly due to management’s reallocation of the investment portfolio into higher yielding securities throughout 2021. In addition, management’s deposit repricing campaign and reduction of higher interest-bearing deposit balances throughout 2021 decreased the cost of funds to 45 basis point (“bps”) for the three months ended September 30, 2022 and 37 bps for the nine months ended September 30, 2022 compared to 50 and 51 bps for the three and nine months ended September 30, 2021, respectively. The increase in interest on securities coupled with the decrease in the cost of funds offset the decline in interest income on loans which decreased for the three and nine months ended September 30, 2022 by $811, or (10.58%), and $3,823, or (16.12%) when compared to the same periods in 2021.

Overall, the Company has benefited from the raising interest rate environment as shown by the overall increase in interest income and decrease in interest expense year-over-year. However, management expects cost of funds to start to increase as further interest rate hikes are expected. Management also expects any increase in the cost of funds will be partially offset with an increase in interest income as a result of higher yields on both new loan origination and security purchases.

The following table sets forth average balance sheet data, including all major categories of interest-earning assets and interest-bearing liabilities, together with the interest earned or interest paid and the average yield or average rate paid on each such category for the periods presented:

TABLE 1 - AVERAGE BALANCE SHEETS AND INTEREST RATES


			Three Months Ended September 30,
	Average Balance				Income/Expense					Average Yield/Rate
	2022		2021		2022		2021			2022			2021
Loans:
Loans, net of unearned⁽¹⁾	$	582,989	$	622,721	$	6,883	$	7,677			4.72	%		4.93	%
Investment Securities
Taxable		474,032		478,968		2,131		1,625			1.80	%		1.36	%
Tax-exempt		215,825		108,082		1,320		427			2.45	%		1.58	%

Total Investment Securities		689,857		587,050		3,451		2,052			2.00	%		1.40	%
Federal Funds Sold and Other		15,627		44,640		73		15			1.87	%		0.13	%

Total Interest Earning Assets⁽¹⁾⁽²⁾		1,288,474		1,254,412		10,407		9,744			3.23	%		3.11	%

Non-Earning Assets		69,953		88,148

Total Assets	$	1,358,427	$	1,342,560

Deposits:
Interest-bearing Demand Deposits ⁽³⁾	$	479,234	$	463,319	$	139	$	205			0.12	%		0.18	%
Savings		135,260		122,841		34		31			0.10	%		0.10	%
Time		195,438		246,875		323		715			0.66	%		1.16	%

Total Deposits		809,932		833,035		496		951			0.24	%		0.46	%
Borrowed Funds
Short-term Borrowings		132,430		90,490		323		209			0.98	%		0.92	%
Long-term Borrowings		18,000		—		254		—			5.64	%		—

Total Borrowed Funds		150,430		90,490		577		209			1.53	%		0.92	%

Total Interest-Bearing Liabilities ⁽³⁾		960,362		923,525		1,073		1,160			0.45	%		0.50	%
Non-Interest Bearing Liabilities
Demand Deposits		309,913		294,790
Other Liabilities		10,931		10,327
Shareholders’ Equity		77,221		113,918

Total Liabilities and Shareholders’ Equity	$	1,358,427	$	1,342,560

Interest Rate Spread											2.78	%		2.60	%

Net Interest Margin					$	9,334	$	8,584			2.90	%		2.74	%

Less
Tax Equivalent Adjustment						285		(18	)

Net Interest Income					$	9,049	$	8,602


			Nine Months Ended September 30,
	Average Balance				Income/Expense				Average Yield/Rate
	2022		2021		2022		2021		2022			2021
Loans:
Loans, net of unearned⁽¹⁾	$	583,859	$	638,675	$	19,976	$	23,805		4.56	%		4.97	%
Investment Securities
Taxable		470,223		516,661		5,729		2,950		1.62	%		0.76	%
Tax-exempt		213,708		134,233		3,732		2,433		2.33	%		2.42	%

Total Investment Securities		683,931		650,894		9,461		5,383		1.84	%		1.10	%
Federal Funds Sold and Other		23,621		45,746		123		40		0.69	%		0.12	%

Total Interest Earning Assets⁽¹⁾⁽²⁾		1,291,411		1,335,315		29,560		29,228		3.05	%		2.92	%

Non-Earning Assets		57,163		97,914

Total Assets	$	1,348,574	$	1,433,229

Deposits:
Interest-bearing Demand Deposits ⁽³⁾	$	482,405	$	503,576	$	534	$	1,138		0.15	%		0.30	%
Savings		133,263		115,579		98		88		0.10	%		0.10	%
Time		205,661		249,149		948		2,177		0.61	%		1.17	%

Total Deposits		821,329		868,304		1,580		3,403		0.26	%		0.52	%
Borrowed Funds
Short-term Borrowings		112,723		151,196		466		525		0.55	%		0.46	%
Long-term Borrowings		18,000		—		591		—		4.38	%		—

Total Borrowed Funds		130,723		151,196		1,057		525		1.08	%		0.46	%

Total Interest-Bearing Liabilities ⁽³⁾		952,052		1,019,500		2,637		3,928		0.37	%		0.51	%
Non-Interest Bearing Liabilities
Demand Deposits		305,374		286,667
Other Liabilities		12,438		13,811
Shareholders’ Equity		78,710		113,251

Total Liabilities and Shareholders’ Equity	$	1,348,574	$	1,433,229

Interest Rate Spread										2.68	%		2.40	%

Net Interest Margin					$	26,923	$	25,300		2.79	%		2.53	%

Less
Tax Equivalent Adjustment						824		571

Net Interest Income					$	26,099	$	24,729

(1)	Overdrafts, while not considered an earning asset, are included in Loans, net of unearned in the average volume calculation due to the immaterial impact on the yield.

(2)	Earnings Assets in the table above does include the dividend paying stock of the Federal Home Loan Bank.

(3)	Demand deposits are not included in the average volume calculation as they are not interest bearing liabilities. They are included within the non-interest bearing liabilities section above.

The average balances of nonaccruing assets are included in the tables above. Interest income and weighted average yields on tax-exempt loans and securities have been computed on a fully tax equivalent basis assuming a federal tax rate of 21% and a state tax rate of 3.95%, which is net of federal tax benefit.

Net interest margin and net interest income are influenced by internal and external factors. Internal factors include balance sheet changes in volume, mix and pricing decisions. External factors include changes in market interest rates, competition and the shape of the interest rate yield curve. For the three and nine months ended September 30, 2022, management’s disciplined deposit pricing coupled with increasing interest rates and corresponding yields on both new loans originated and securities purchased were the largest contributing factors to the increase in net interest income over these periods. Management believes net interest margin should continue to expand by continuing its disciplined deposit pricing and continued focus on loan growth coupled with reallocating excess funds into higher yielding securities as the Federal Reserve continues interest rate hikes.

The following table sets forth a summary of the changes in interest earned, on a tax equivalent basis, and interest paid resulting from changes in volume and rates for the Company for the three and nine months ended September 30, 2022 compared to the same respective period in 2021:


	TABLE 2 - VOLUME/RATE ANALYSIS
	(in thousands)
	Three Months Ended September 30, 2022
	2022 Change from 2021
	Volume			Rate			Total
INTEREST INCOME
Loans	$	(490	)		(304	)	$	(794	)
Taxable Securities		(17	)		523			506
Non-Taxable Securities		426			467			893
Federal Funds Sold and Other		(10	)		68			58

TOTAL INTEREST INCOME	$	(91	)	$	754		$	663

INTEREST EXPENSE
Interest-bearing demand deposits	$	7			(73	)		(66	)
Savings Deposits		3			(0	)		3
Time Deposits		(149	)		(243	)		(392	)
Short-term borrowings		97			17			114
Long-term borrowings		—			254			254

TOTAL INTEREST EXPENSE	$	(42	)	$	(45	)		(87	)

NET INTEREST INCOME	$	(49	)	$	799		$	750


	Nine Months Ended September 30, 2022
	2022 Change from 2021
	Volume			Rate			Total
INTEREST INCOME
Loans	$	(2,043	)		(1,786	)	$	(3,829	)
Taxable Securities		(265	)		3,044			2,779
Non-Taxable Securities		1,441			(142	)		1,299
Federal Funds Sold and Other		(19	)		102			83

TOTAL INTEREST INCOME	$	(887	)	$	1,219		$	332

INTEREST EXPENSE
Interest-bearing demand deposits	$	(48	)		(556	)		(604	)
Savings Deposits		13			(3	)		10
Time Deposits		(380	)		(849	)		(1,229	)
Short-term borrowings		(134	)		75			(59	)
Long-term borrowings		—			591			591

TOTAL INTEREST EXPENSE	$	(548	)	$	(743	)		(1,291	)

NET INTEREST INCOME	$	(339	)	$	1,962		$	1,623

CREDIT LOSS EXPERIENCE

As a natural corollary to the Company’s lending activities, some loan losses are to be expected. The risk of loss varies with the type of loan being made and the overall 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 Company attempts to minimize its credit risk exposure by use of thorough loan application and approval procedures.

The Company maintains a program of systematic review of its existing loans. Loans are graded for their overall quality. Those loans, which management determines require further monitoring and supervision, are segregated and reviewed on a regular basis. Significant problem loans are reviewed monthly by the Company’s management and Board of Directors.

The Company charges off that portion of any loan that the Company’s management and Board of Directors has determined to be a loss. A loan is generally considered by management to represent a loss, in whole or in part, when 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. The general economic conditions in the borrower’s industry influence this determination. The principal amount of any loan that is declared a loss is charged against the Company’s allowance for loan losses.

The Company’s allowance for loan losses is designed to provide for loan losses that 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. Management determines the amount of the allowance, and the Board of Directors reviews and approves the allowance for loan losses. Among the factors considered in determining the allowance for loan losses are the current financial condition of the Company’s borrowers and the value of security, if any, for their loans. Estimates of future economic conditions and their impact on various industries and individual borrowers are also taken into consideration, as are the Company’s historical loan loss experience and reports of banking regulatory authorities. As these estimates, factors and evaluations are primarily judgmental, no assurance can be given as to whether the Company 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 Company’s allowance for loan losses for the dates indicated:


	Quarter Ended September 30, 2022			Year Ended December 31, 2021			Amount of Increase (Decrease)			Percent of Increase (Decrease)
BALANCES:
Gross Loans	$	578,665		$	571,847		$	6,818			1.19	%
Allowance for Loan Losses		5,068			4,513			555			12.30	%
Nonaccrual Loans		3,087			3,826			(739	)		(19.32	%)
Ratios:
Allowance for loan losses to gross loans		0.88	%		0.79	%
Net loans (recovered) charged off to allowance for loan losses		(9.06	%)		20.56	%

The reversal of provision for loan losses for the three months ended September 30, 2022 was $53. The release in provision for loan losses was primarily driven by a net decrease in loan balances of $10,876 during the quarter partially offset with qualitative factor adjustments due to continued inflationary risk concerns to both the local and national economy. The Company’s model used to calculate the provision is based on the percentage of historical charge-offs, increased for certain qualitative factors within the regulatory framework, applied to the current loan balances by loan segment and specific reserves applied to certain impaired loans. The allowance for loan losses to LHFI was 0.88% and 0.87% at September 30, 2022 and 2021, respectively, and 0.79% at December 31, 2021 representing a level management considers commensurate with the present risk in the loan portfolio.

For the three months ended September 30, 2022, net loan losses recovered to the allowance for loan losses totaled $75, an increase of $1,163 in net recoveries from the $1,088 charged off in the same period in 2021. For the nine months ended September 30, 2022, net loan losses recovered to the allowance for loan losses totaled $459, an increase of $1,163 in net recoveries from the $704 charged off in the same period in 2021. The increase in net recoveries was primarily due to one significant charged off credit that occurred in the fourth quarter of 2021 and has since paid a total of $387 during the nine-month period ended September 30, 2022.

Management reviews quarterly with the Company’s Board of Directors the adequacy of the allowance for loan losses. 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 nine months ended September 30, 2022 that have not been charged off or specifically reserved for in the allowance. Management also believes that the Company’s allowance will be adequate to absorb probable losses inherent in the Company’s loan portfolio. However, it remains possible that additional provisions for loan loss may be required.

OTHER INCOME

Other 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 income for the three months ended September 30, 2022 was $2,877, a decrease of $417, or (12.66%), from $3,294 in the same period in 2021. Service charges on deposit accounts were $1,019 in the three months ended September 30, 2022, compared to $952 for the same period in 2021. As inflationary pressures continue throughout both the national and local economy, spending and overdraft income have continued to trend upward. Included in the service charges on deposit accounts line item for the three months ended September 30, 2022, overdraft income increased by $75, or 11.17% from the same period in 2021. Interchange fees which are included in the other service charges and fees line item on the Comprehensive Statements of Income decreased marginally by $21, or (2.23%), to $912 for the three months ended September 30, 2022, compared to $933 for the same period in 2021. Other operating income not derived from service charges or fees decreased $1, or (0.13%) to $747 in the three months ended September 30, 2022, compared to $748 for the same period in 2021. This decrease was primarily due to the decline in mortgage loan origination income due to increased mortgage interest rates. Mortgage loan origination income decreased for the three months ended September 30, 2022 by $150, or (49.50%), to $152 compared to $301 for the same period in 2021.

Other income for the nine months ended September 30, 2022 was $8,173, a decrease of $1,342, or (14.10%), from $9,515 in the same period in 2021. Service charges on deposit accounts were $2,931 in the nine months ended September 30, 2022, compared to $2,534 for the same period in 2021. The increase in service charges on deposit accounts year-over-year is primarily due to overdraft income increasing by $396, or 23.02% compared to the same period in 2021. Other service charges and fees were $3,230 for the nine months ended September 30, 2022 slightly up from the same period in 2021 due to interchange fees increasing slightly by $3, or 0.09% and other miscellaneous service charges increasing by $43, or 16.63%. Other operating income not derived from service charges or fees decreased $390, or (16.24%) to $2,012 in the nine months ended September 30, 2022, compared to $2,402 for the same period in 2021. This decrease, as stated earlier, was primarily due to the decline in mortgage loan origination income due to increased mortgage interest rates. Mortgage loan origination income decreased for the nine months ended September 30, 2022 by $453, or (44.46%), to $566 compared to $1,019 for the same period in 2021.

The following is a detail of the other major income classifications that were included in other operation income on the income statement:


	For the Three Months				For the Nine Months
	Ended September 30,				Ended September 30,
Other operating income	2022		2021		2022		2021
BOLI Income	$	98	$	306	$	339	$	746
Mortgage Loan Origination Income		152		323		566		1,019
Gain on sale of OREO		5		—		86		323
Other Income		492		119		1,021		314

Total Other Income	$	747	$	748	$	2,012	$	2,402

OTHER EXPENSES

Other expenses include salaries and employee benefits, occupancy and equipment, and other operating expenses. Aggregate non-interest expenses for the three months ended September 30, 2022 and 2021 were $8,936 and $8,741, respectively, an increase of $195, or 2.23%. Salaries and benefits decreased $210, or (4.45%), to $4,506 for the three months ended September 30, 2022 when compared to the same period in 2021. Occupancy expense increased by $228, or 13.10%, to $1,968 for the three months ended September 30, 2022, compared to $1,740 for the same period of 2021. The increase in occupancy expense is the result of the Company replacing ATMs and ITMs at several branch locations throughout the quarter. For the three months ended September 30, 2022, other expense increased $177, or 7.75% to $2,462 compared to $2,285 for the same period in 2021. The increase in other expense is the result of an additional write-down of $85 of a bank owned property due to storm damage that occurred during the second quarter of 2022.

Aggregate non-interest expenses for the nine months ended September 30, 2022 and 2021 were $25,669 and $26,191, respectively, a decrease of $522 or (1.99%). Salaries and benefits decreased $512, or (3.69%), to $13,357 for the nine months ended September 30, 2022, when compared to the same period in 2021. Occupancy expense increased by $106, or 1.98%, to $5,454 for the nine months ended September 30, 2022, compared to $5,348 for the same period of 2021. Other operating expenses decreased by $116, or (1.66%), to $6,858 for the nine months ended September 30, 2022, compared to $6,974 for the same period of 2021. Overall, other expenses have decreased for the nine months ended September 30, 2022 compared to the same period in 2021 as a result of management’s focus on expense management that started in 2020 due to the uncertainty stemming from the pandemic.

The following is a detail of the major expense classifications that make up the other expense line item in the income statement:


	For the Three Months				For the Nine Months
	Ended September 30,				Ended September 30,
Other Expense	2022		2021		2022		2021
Advertising	$	172	$	126	$	475	$	429
Office Supplies		284		256		743		740
Professional Fees		346		320		788		774
Technology expense		111		128		336		424
Postage and Freight		132		135		438		465
Loan Collection Expense		5		15		25		85
Regulatory and related expense		208		231		620		703
Debit Card/ATM expense		200		186		590		546
Write down on OREO		—		—		42		390
Travel and Convention		53		33		168		91
Other expenses		951		855		2,633		2,327

Total Other Expense	$	2,462	$	2,285	$	6,858	$	6,974

The Company’s efficiency ratio for the three months ended September 30, 2022 was 72.79%, compared to 75.48% for the same period in 2021. The Company’s efficiency ratio for the nine months ended September 30, 2022 was 73.26%, compared to 76.36% for the same period in 2021. The efficiency ratio is the ratio of non-interest expenses divided by the sum of net interest income (on a fully tax equivalent basis) and non-interest income.

BALANCE SHEET ANALYSIS


	September 30, 2022		December 31, 2021		Amount of Increase (Decrease)			Percent of Increase (Decrease)
Cash and due from banks	$	13,256	$	10,673	$	2,583			24.20	%
Interest bearing deposits with other banks		22,532		68,563		(46,031	)		(67.14	%)
Investment securities held to maturity		411,859		—		411,859			—
Investment securities available for sale		198,547		631,835		(433,288	)		(68.58	%)
Net LHFI		573,597		567,334		6,263			1.10	%
Premises and equipment		27,802		26,661		1,141			4.28	%
Total assets		1,328,478		1,361,309		(32,831	)		(2.41	%)
Total deposits		1,134,936		1,111,892		23,044			2.07	%

CASH AND CASH EQUIVALENTS

Cash and due from banks, which consist of cash, balances at correspondent banks and items in process of collection, balance at September 30, 2022 was $13,256, which was an increase of $2,583 from the balance of $10,673 at December 31, 2021. Interest bearing deposits with other banks decreased by $46,031, or (67.14%), to $22,532 at September 30, 2022 compared to $68,563 at December 31, 2021.

INVESTMENT SECURITIES

The Company’s investment securities portfolio primarily consists of United States agency debentures, mortgage-backed securities and obligations of states, counties and municipalities. Due to recent increases in the medium-term interest rates, the fair value of the Company’s investment securities on the balance sheet represents a decrease in investment securities as of September 30, 2022 when compared to the balance of investment securities at December 31, 2021. Additionally, the Company transferred $413,921 from available-for-sale to held-to-maturity to help limit any further negative impacts on shareholders’ equity that could result from continued interest rate hikes. The impact of the related unrealized losses transferred net of the tax benefit was $53,195 as presented on the consolidated statements of comprehensive income. However, as disclosed in Note 6 of the Notes to the Consolidated Financial Statements, the Company’s investments securities portfolio at September 30, 2022 increased by $9,683, or 1.50%, to $657,240 from $647,557 at December 31, 2021 when comparing the amortized cost of the Company’s investments securities. The increase is a result of the Company deploying excess cash into higher yielding investment securities.

LOANS

The Company’s gross loan balance increased by $6,818, or 1.19%, during the nine months ended September 30, 2022, to $578,665 from $571,847 at December 31, 2021. Excluding PPP loans with a total balance of $274 at September 30, 2022 and $5,789 at December 31, 2021, total loans increased $12,333, or 2.18%, compared to $566,058 at December 31, 2021. The year-to-date growth primarily reflects increases in construction and development and consumer loans. No material changes were made to the loan products offered by the Company during this period.

DEPOSITS

The following table shows the balance and percentage change in the various deposits:


	September 30, 2022		December 31, 2021		Amount of Increase (Decrease)			Percent of Increase (Decrease)
Noninterest-Bearing Deposits	$	308,538	$	302,707	$	5,831			1.93	%
Interest-Bearing Deposits		497,842		451,809		46,033			10.19	%
Savings Deposits		138,133		127,217		10,916			8.58	%
Certificates of Deposit		190,423		230,159		(39,736	)		(17.26	%)

Total deposits	$	1,134,936	$	1,111,892	$	23,044			2.07	%

All deposit accounts except for certificates of deposits increased during the nine months ended September 30, 2022. The modest increase in deposit accounts is primarily due to excess liquidity in the financial markets coupled with increased inflationary pressures causing increased precautionary saving by households and businesses. The decrease in certificates of deposit accounts is a result of management strategically reducing higher interest-bearing accounts to help improve both interest margin and the Bank’s capital ratios. Additionally, some customers have moved from renewing their time deposits to keeping their funds in transactional accounts due to low time deposits rates and inflationary pressures. As a result of the Federal Reserve interest rate hikes throughout 2022, management has started increasing time deposit rates marginally to remain competitive within the Company’s markets. Management continually monitors the interest rates on time deposit products to ensure that the Company is managing liquidity in line with our asset and liability management objectives. These rate adjustments impact deposit balances.

OFF-BALANCE SHEET ARRANGEMENTS

Please refer to Note 2 to the Consolidated Financial Statements included in this Quarterly Report for a discussion of the nature and extent of the Company’s off-balance sheet arrangements, which consist solely of commitments to fund loans and letters of credit.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Asset/Liability Management and Interest Rate Risk

The principal objective of our asset and liability management function is to evaluate the interest rate risk within the balance sheet and pursue a controlled assumption of interest rate risk while maximizing net income and preserving adequate levels of liquidity and capital. The Board of Directors of the Bank has oversight of our asset and liability management function, which is managed by our Chief Financial Officer. Our Chief Financial Officer meets with our senior executive management team regularly to review, among other things, the sensitivity of our assets and liabilities to market rate changes, local and national market conditions and market interest rates. That group also reviews our liquidity, capital, deposit mix, loan mix and investment positions.

As a financial institution, our primary component of market risk is interest rate volatility. Fluctuations in interest rates will ultimately impact both the level of income and expense recorded on most of our assets and liabilities, and the fair value of all interest earning assets and interest-bearing liabilities, other than those which have a short term to maturity. Interest rate risk is the potential of economic losses due to future interest rate changes. These economic losses can be reflected as a loss of future net interest income and/or a loss of current fair values. We manage our exposure to interest rates primarily by structuring our balance sheet in the ordinary course of business. We do not typically enter into derivative contracts for the purpose of managing interest rate risk, but we may elect to do so should the situation warrant. Based upon the nature of our operations, we are not subject to material foreign exchange or commodity price risk. We do not own any trading assets.

We use an interest rate risk simulation model to test the interest rate sensitivity of net interest income and the balance sheet. Instantaneous parallel rate shift scenarios are modeled and utilized to evaluate risk and establish exposure limits for acceptable changes in projected net interest margin. These scenarios, known as rate shocks, simulate an instantaneous change in interest rates and use various assumptions, including, but not limited to, prepayments on loans and securities, deposit decay rates, pricing decisions on loans and deposits, and reinvestment and replacement of asset and liability cash flows. We also analyze the economic value of equity as a secondary measure of interest rate risk. This is a complementary measure to net interest income where the calculated value is the result of the fair value of assets less the fair value of liabilities. The economic value of equity is a longer-term view of interest rate risk because it measures the present value of all future cash flows. The impact of changes in interest rates on this calculation is analyzed for the risk to our future earnings and is used in conjunction with the analyses on net interest income.

The following table summarizes the simulated change in net interest income assuming a static balance sheet versus unchanged rates as of September 30, 2022 and December 31, 2021:


	September 30, 2022						December 31, 2021
	Following 12 months			Months 13-24			Following 12 months			Months 13-24
+400 basis points		-10.2	%		-2.2	%		-3.7	%		6.6	%
+300 basis points		-7.4	%		-1.4	%		-1.3	%		6.9	%
+200 basis points		-4.6	%		-0.6	%		-0.1	%		5.8	%
+100 basis points		-1.9	%		0.1	%		-0.8	%		2.6	%
Flat rates		—			—			—			—
-100 basis points		-0.8	%		-2.7	%		-5.5	%		-7.7	%
-200 basis points		-5.1	%		-10.5	%		-10.9	%		-13.6	%

The following table presents the change in our economic value of equity as of September 30, 2022 and December 31, 2021, assuming immediate parallel shifts in interest rates:


	Economic Value of Equity at Risk (%)
	September 30, 2022			December 31, 2021
+400 basis points		-31.7	%		-20.4	%
+300 basis points		-24.6	%		-13.8	%
+200 basis points		-16.8	%		-7.8	%
+100 basis points		-8.4	%		-3.1	%
Flat rates		—			—
-100 basis points		6.8	%		-13.0	%
-200 basis points		3.3	%		-33.1	%

Many assumptions are used to calculate the impact of interest rate fluctuations. Actual results may be significantly different than our projections due to several factors, including the timing and frequency of rate changes, market conditions and the shape of the yield curve. The computations of interest rate risk shown above do not include actions that our management may undertake to manage the risks in response to anticipated changes in interest rates, and actual results may also differ due to any actions taken in response to the changing rates.

As part of our asset/liability management strategy, our management has emphasized the origination of shorter duration loans as well as variable rate loans to limit the negative exposure to a rate increase. We also desire to acquire deposit transaction accounts, particularly noninterest or low interest-bearing non-maturity deposit accounts, whose cost is less sensitive to changes in interest rates.

ITEM 4. CONTROLS AND PROCEDURES.

The management of the Company, with the participation of our principal executive officer and principal financial officer, has evaluated the effectiveness of our disclosure controls and procedures in ensuring that the information required to be disclosed in our filings under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, including ensuring that such information is accumulated and communicated to the Company’s management as appropriate to allow timely decision regarding required disclosure. Based on such evaluation, our principal executive officer and principal financial officer have concluded that such disclosure controls and procedures were effective as of September 30, 2022 (the end of the period covered by this Quarterly Report).

There were no changes to the Company’s internal control over financial reporting that occurred in the nine months ended September 30, 2022, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1.

LEGAL PROCEEDINGS.

ITEM 1A.

RISK FACTORS.

The Company’s business, future financial condition and results of operations are subject to a number of factors, risks and uncertainties, which are disclosed in Item 1A, “Risk Factors,” in Part I of our Annual Report on Form 10-K for the year ended December 31, 2021, which the Company filed with the Securities and Exchange Commission on March 11, 2022. Additional information regarding some of those risks and uncertainties is contained in the notes to the consolidated financial statements appearing in Part I, Item 1 of this Quarterly Report, in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” appearing in Part I, Item 2 of this Quarterly Report and in “Quantitative and Qualitative Disclosures About Market Risk” appearing in Part I, Item 3 of this Quarterly Report. The risks and uncertainties disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, the Company’s quarterly reports on Form 10-Q and other reports and forms filed with the SEC are not necessarily all of the risks and uncertainties that may affect the Company’s business, financial condition and results of operations in the future.

ITEM 6.

EXHIBITS.


Exhibits

10(1)		Citizens Holding Company Revolving Credit Loan Agreement⁽¹⁾

31(a)		Certification of the Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a).

31(b)		Certification of the Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a).

32(a)		Certification of the Chief Executive Officer pursuant to 18 U.S.C. § 1350.

32(b)		Certification of the Chief Financial Officer pursuant to 18 U.S.C. § 1350.

101		Financial Statements submitted in Inline XBRL format.

104		Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

(1)	Filed as exhibit 10(1) to the Current Report on Form 8-K of the Company filed with the SEC on June 14, 2021 and incorporated herein by reference.

SIGNATURES

Pursuant to the requirements 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

BY:		/s/ Greg L. McKee
Greg L. McKee
President and Chief Executive Officer
(Principal Executive Officer)

BY:		/s/ Phillip R. Branch
Phillip R. Branch
Treasurer and Chief Financial Officer
(Principal Financial Officer and Chief Accounting Officer)

DATE: November 4, 2022

Positive
Negative
Uncertain
Constraining
Legalese
Litigious
Readability	H.S. freshman Avg

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller Reporting Company

Emerging growth company