SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number: 000-25221
CITIZENS HOLDING COMPANY
(exact name of Registrant as specified in its charter)
MISSISSIPPI 64-0666512
(State or other jurisdiction of (I. R. S. Employer
incorporation or organization) Identification Number)
521 Main Street, Philadelphia, MS 39350
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 601-656-4692
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 of 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. [X] Yes [ ] No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of November 9, 2001.
Title Outstanding
Common Stock, $.20 par value 3,308,750
CITIZENS HOLDING COMPANY
THIRD QUARTER 2001 INTERIM FINANCIAL STATEMENTS
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Statements of Condition
September 30, 2001 and December 31, 2000
Consolidated Statements of Income
Three and nine months ended September 30, 2001 and 2000
Consolidated Statements of Comprehensive Income
Three and nine months ended September 30, 2001 and 2000
Consolidated Statements of Cash Flows
Nine months ended September 30, 2001 and 2000
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
Signatures
PART 1.CONSOLIDATED FINANCIAL STATEMENTS
CITIZENS HOLDING COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CONDITION
September 30, December 31,
ASSETS 2001 2000
------------- ------------
Cash and due from banks $ 16,149,680 $ 10,415,155
Interest bearing deposits with other banks 11,126,487 863,371
Federal Home Loan Bank stock 1,580,300 2,499,000
Federal Funds Sold 14,500,000 3,100,000
Investment securities available for sale, at fair value 108,930,319 101,034,174
Loans, net of allowance for loan losses of
$3,375,000 in 2001 and 2000 257,820,017 248,696,755
Premises and equipment, net 4,998,487 4,362,206
Other real estate owned, net 192,666 133,325
Accrued interest receivable 4,652,702 4,726,113
Cash value of life insurance 2,682,717 3,019,454
Goodwill and Other Intangible Assets, Net 3,113,055 654,160
Other assets 2,855,914 3,296,696
------------ ------------
TOTAL ASSETS $428,602,344 $382,800,409
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Deposits:
Noninterest-bearing demand $ 46,939,309 $ 36,961,489
Interest-bearing NOW and money market accounts 88,341,179 68,499,167
Savings deposits 21,699,124 19,053,589
Certificates of deposit 201,768,927 165,393,512
------------ ------------
Total deposits 358,748,539 289,907,757
Accrued interest payable 1,642,831 1,597,445
Federal Home Loan Bank advances 14,704,859 42,000,000
ABE loan liability 2,202,221 2,520,290
Treasury tax and loan note option 0 700,000
Directors deferred compensation payable 1,056,372 916,256
Other liabilities 885,689 329,709
------------ ------------
Total liabilities 379,240,511 337,971,457
Minority interest in consolidated subsidiary 1,596,017 1,451,991
STOCKHOLDERS' EQUITY
Common stock; $.20 par value, 15,000,000 shares authorized,
and 3,308,750 shares outstanding at September 30, 2001, and
at December 31, 2000 670,750 670,750
Less: Treasury stock, at cost, 45,000 shares at
September 30, 2001 and at December 31, 2000 -239,400 -239,400
Additional paid-in capital 3,353,127 3,353,127
Retained earnings 42,445,146 39,431,650
Unrealized gain (loss) on securities available for sale, net of
deferred tax asset (liability) of $(791,372) in 2001 and $(85,635) in 2000 1,536,193 160,834
------------ ------------
Total stockholders' equity 47,765,816 43,376,961
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $428,602,344 $382,800,409
============ ============
CITIZENS HOLDING COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
2001 2000 2001 2000
------ ------ ------ -------
INTEREST INCOME:
Loan income including fees $5,744,121 $5,696,164 $17,188,439 $16,408,950
Investment securities 1,441,421 1,644,683 4,296,145 4,708,257
Other interest 213,211 11,966 357,356 37,444
----------------------------------------------------------------
Total interest income 7,398,753 7,352,813 21,841,940 21,154,651
INTEREST EXPENSE:
Deposits 3,212,623 3,017,669 9,382,165 8,585,807
Other borrowed funds 204,264 608,837 1,009,207 1,608,644
----------------------------------------------------------------
Total interest expense 3,416,887 3,626,506 10,391,372 10,194,451
----------------------------------------------------------------
NET INTEREST INCOME 3,981,866 3,726,307 11,450,568 10,960,200
PROVISION FOR LOAN LOSSES 174,251 316,305 743,411 598,298
----------------------------------------------------------------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 3,807,615 3,410,002 10,707,157 10,361,902
OTHER INCOME:
Service charges on deposit accounts 740,220 614,955 2,101,513 1,803,660
Other service charges and fees 143,246 74,216 360,388 298,900
Other income 182,464 106,849 632,360 310,395
----------------------------------------------------------------
Total other income 1,065,930 796,020 3,094,261 2,412,955
OTHER EXPENSES:
Salaries and employee benefits 1,428,965 1,188,495 4,057,500 3,661,297
Occupancy expense 388,926 361,070 1,123,864 1,081,111
Other operating expense 661,130 581,777 2,020,497 1,651,088
Earnings applicable to minority interest 53,577 46,445 152,314 141,420
----------------------------------------------------------------
Total other expenses 2,532,598 2,177,787 7,354,175 6,534,916
----------------------------------------------------------------
INCOME BEFORE PROVISION
FOR INCOME TAXES 2,340,947 2,028,235 6,447,243 6,239,941
PROVISION FOR INCOME TAXES 780,821 680,525 2,027,528 2,142,942
----------------------------------------------------------------
NET INCOME $1,560,126 $1,347,710 $ 4,419,715 $ 4,096,999
================================================================
NET INCOME PER SHARE
-Basic $0.47 $0.41 $1.34 $1.24
================================================================
-Diluted $0.47 $0.41 $1.33 $1.24
================================================================
CITIZENS HOLDING COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
2001 2000 2001 2000
------ ------ ------ ------
Net income $1,560,126 $1,347,710 $4,419,715 $4,096,999
Other comprehensive income, net of tax
Unrealized holding gains (losses) 750,513 644,337 1,375,359 592,350
Less reclassification adjustment for gains
(losses) included in net income 0 25,687 0 45,694
Total other comprehensive income 750,513 670,024 1,375,359 638,044
----------------------------------------------------------------
Comprehensive income $2,310,639 $2,017,734 $5,795,074 $4,735,043
================================================================
CITIZENS HOLDING COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months
Ended September 30,
2001 2000
------ ------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net cash provided by Operating Activities $ 4,544,043 $ 4,484,024
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of securities available for sale 44,137,992 10,297,786
Proceeds from sale of investment securities 0 15,852,410
Purchases of investment securities -50,233,304 -25,069,349
Purchases of bank premises and equipment -999,181 -387,276
Decrease in interest bearing deposits with other banks -10,263,116 50,789
Net (increase) decrease in federal funds sold -11,400,000 0
Net (increase) decrease in loans -9,173,262 -16,376,213
Net Cash Used by Investing Activities -37,930,871 -15,631,853
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in deposits 68,840,782 772,328
Net increase (decrease) in ABE loans -318,069 -51,295
Increase (decrease) in TT&L Note Option -700,000 0
Increase (decrease) in FHLB advances -27,295,141 5,900,000
Increase in federal funds purchased 0 7,000,000
Payment of dividends -1,406,219 -992,625
Net Cash Provided by Financing Activities 39,121,353 12,628,408
Net Increase (Decrease) in Cash and Due from Banks 5,734,525 1,480,579
Cash and Due From Banks, beginning of year 10,415,155 13,312,028
Cash and Due from Banks, end of period 16,149,680 14,792,607
CITIZENS HOLDING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the nine months ended September 30, 2001
1. These interim consolidated financial statements have been prepared in
accordance with generally accepted accounting principles. However, these
financial statements do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. The interim consolidated financial statements are unaudited and
reflect all adjustments and reclassifications which, in the opinion of
management, are necessary for a fair presentation of the results of
operations and financial condition of the interim period. All adjustments
and reclassifications are of a normal and recurring nature. Results for the
periods ending September 30, 2001 are not necessarily indicative of the
results that may be expected for any other interim periods or for the year
as a whole.
The interim consolidated financial statements of Citizens Holding Company
include the accounts of its 96.66% owned subsidiary, The Citizens Bank of
Philadelphia (collectively referred to as "the Corporation"). All
significant intercompany transactions have been eliminated in
consolidation.
2. Summary of Significant Accounting Policies. See note 1 of the Notes to
Consolidated Financial Statements of the Citizens Holding Company that were
included in the Form 10-K Annual Report filed March 28, 2001.
Investment Securities - The Corporation classifies all of its securities as
available-for-sale and carries them at fair value with unrealized gains or
losses reported as a separate component of capital, net of any applicable
income taxes. Realized gains or losses on the sale of securities available-
for-sale, if any, are determined on an identification basis. The
Corporation does not have any securities classified as Held for Trading or
Held to Maturity.
3. In the ordinary course of business, the Corporation enters into commitments
to extend credit to its customers. The unused portion of these commitments
is not reflected in the accompanying financial statements. As of September
30, 2001, the Corporation had entered into commitments with certain
customers that had an unused balance of $11,757,793 compared to $13,745,594
unused at December 31, 2000. There were $444,500 of letters of credit
outstanding at September 30, 2001 and $452,825 at December 31, 2000.
4. Net income per share - Basic, has been computed based on the weighted
average number of shares outstanding during each period. Net income per
share - Diluted, has been computed based on the weighted average number of
shares outstanding during each period plus the dilutive effect of
outstanding granted options. Basic
weighted average shares have been adjusted to reflect the five-for-one
stock split on the common stock effective January 1, 1999. Earnings per
share were computed as follows:
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
2001 2000 2001 2000
------ ------ ------ ------
Basic weighted average
shares outstanding 3,308,750 3,308,750 3,308,750 3,308,750
Dilutive effect of granted options 11,894 8,728 9,276 8,071
---------------------------------------------------------------------
Diluted weighted average
shares outstanding 3,320,644 3,317,478 3,318,026 3,316,821
Net income $1,560,126 $1,347,710 $4,419,715 $4,096,999
Net income per share-basic $ 0.47 $ 0.41 $ 1.34 $ 1.24
Net income per share-diluted $ 0.47 $ 0.41 $ 1.33 $ 1.24
5. In July 2001 the Corporation completed the acquisition of two bank branches
located in Forest and Decatur, Mississippi from Union Planters Bank. The
Corporation acquired approximately $30.3 million in deposits, $11.7 million
in loans, and $15.4 million in cash and short-term investments. The $2.5
premium paid by the Corporation will be allocated between Goodwill and other
intangible assets in accordance with FASB Standards No. 141 and 142.
Amortization expense related to the identifiable intangible assets other
than goodwill for the period from the acquisition date to September 30, 2001
is not material.
6. The Corporation is a party to lawsuits and other claims that arise in the
ordinary course of business, which are being vigorously contested. In the
regular course of business, Management evaluates estimated losses or costs
related to litigation, and the provision is made for anticipated losses
whenever Management believes that such losses are probable and can be
reasonably estimated. At the present time, Management believes, based on the
advice of legal counsel, that the final resolution of pending legal
proceedings will not have a material impact on the Corporation's
consolidated financial position or results of operations.
7. In June 1998, the Financial Accountings Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities." In 2000, the FASB issued
SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain
Hedging Activities (an amendment of SFAS No. 133)." These statements provide
a comprehensive and consistent standard for the recognition and measurement
of derivatives and hedging activities. During 1999, the FASB issued SFAS No.
137, "Accounting for Derivative Instruments and Hedging Activities -
Deferral of the Effective Date of FASB Statement No. 133-an amendment of
FASB No. 133,"
which concluded that it was appropriate to defer the effective date of SFAS
No. 133 to fiscal years beginning after June 15, 2000. The effective date
of SFAS No. 138 is also effective for fiscal years beginning after June 15,
2000. The adoption of these statements did not have a material effect on
its consolidated financial statements of the Corporation.
In September 2000, the FASB issued SFAS No. 140, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities (a
replacement of FASB Statement No. 125)." This statement revises the
standards for accounting for securitizations and other transfers of
financial assets and collateral and requires certain disclosures, but it
carries over most of the provisions of SFAS No. 125. SFAS No. 140 is
effective for transfers and servicing of financial assets and
extinguishments of liabilities occurring after March 31, 2001. SFAS No. 140
is effective for recognition and reclassification of collateral and for
disclosures relating to securitization transactions and collateral for
fiscal years ending after December 15, 2000. The adoption of this statement
did not have a material effect on its consolidated financial statements of
the Corporation.
In June 2001, the FASB issued Statement of Financial Accounting Standards
No. 141 "Business Combinations" and Statement No. 142, "Goodwill and other
Intangible Assets". FAS No. 141 requires that all business combinations
entered into after June 30, 2001 be accounted for under the purchase
method. FAS No. 142 requires that all intangible assets, including
goodwill, that result from business combinations be periodically (at least
annually) evaluated for impairment, with any resulting impairment loss
being charged against earnings. Also, under FAS No. 142, goodwill resulting
from any business combination accounting for according to FAS No. 141 will
not be amortized, and the amortization of goodwill related to business
combinations entered into prior to June 30, 2001 will be discontinued
effective, for the Company, January 1, 2002. The Company will adopt the
provisions of FAS No. 141 immediately and the provisions of FAS No. 142
related to discontinuation of goodwill amortization effective January 1,
2002. Goodwill amortization expense for the nine months ended September 30,
2001 and 2000 was $54,077 and $54,085 respectively.
In June 2001, the FASB issued Standard No. 143 related to accounting for
asset retirement obligations. The new standard establishes accounting
standards for recognition and measurement of a liability for an asset
retirement obligation and associated asset retirement cost. The standard is
effective for fiscal years beginning after June 15, 2002. Adoption of this
statement will not have a material effect on the Company's financial
statements.
In August 2001, the FASB issued Standard No. 144 related to accounting for
the impairment or disposal of long-lived assets. The standard establishes
specific accounting standards related to long-lived assets to be held and
used, sold, or abandoned and those to be disposed of by exchange for
similar assets or distributed to owners. The standard is effective for
fiscal years beginning after December 31, 2001. Adoption of this standard
by the company is not expected to have a material effect on the Company's
financial statements.
CITIZENS HOLDING COMPANY AND SUBSIDIARY
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Management's discussion and analysis is written to provide greater insight into
the results of operations and the financial condition of Citizens Holding
Company, (the "Corporation").
LIQUIDITY
The Corporation has an asset and liability management program that assists
management in maintaining net interest margins during times of both rising and
falling interest rates and in maintaining sufficient liquidity. Liquidity of the
Corporation at September 30, 2001 was 51.18% and at September 30, 2000 was
34.26%. Liquidity is the ratio of net deposits and short term liabilities
divided by net cash, short-term investments and marketable assets. Management
believes it maintains adequate liquidity for the Corporation's current needs.
When the Corporation has more funds than it needs for its reserve requirements
or short-term liquidity needs, the Corporation increases its security
investments or sells federal funds. It is management's policy to maintain an
adequate portion of its portfolio of assets and liabilities on a short-term
basis to insure rate flexibility and to meet loan funding and liquidity needs.
The Corporation has secured and unsecured federal funds lines with correspondent
banks in the amount of $38,500,000. In addition, the Corporation has the ability
to draw on its line of credit with the Federal Home Loan Bank in excess of
$54,248,250 at September 30, 2001. At September 30, 2001, the Corporation had
unused and available $38,500,000 of its federal funds line of credit and
$39,543,391 of its line of credit with the Federal Home Loan Bank.
CAPITAL RESOURCES
The Corporation's equity capital was $47,765,816 at September 30, 2001. The main
source of capital for the Corporation has been the retention of net income.
On January 1, 1999, the Corporation issued a five-for-one (5:1) split to the
shareholders of the Corporation. This split increased the number of shares
outstanding to 3,308,750 from 661,750. The number of shares authorized increased
from 750,000 to 3,750,000 after the split. Additionally, the shareholders
approved an increase in authorized shares to 15,000,000 at the annual meeting
held April 13, 1999. Cash dividends in the amount of $1,406,219 or $.425 per
share were paid year to date September 30, 2001.
Quantitative measures established by regulation to ensure capital adequacy
require the Corporation to maintain minimum amounts and ratios of Total and Tier
1 capital (primarily common stock and retained earnings, less goodwill) to risk
weighted assets, and
of Tier 1 capital to average assets. Management believes that as of September
30, 2001, the Corporation meets all capital adequacy requirements to which it is
subject.
To Be Well
Capitalized Under
For Capital prompt Corrective
Actual Adequacy Purposes Actions Provisions
-------------------------------------------------------------------------
Amount Ratio Amount Ratio Amount Ratio
-------------------------------------------------------------------------
As of September 30, 2001
Total Capital $46,362,115 17.86% $20,761,146 *8.00% $25,951,433 *10.00%
(to Risk-Weighted Assets)
Tier 1 Capital 43,116,568 16.61% 10,380,573 *4.00% 15,570,860 *6.00%
(to Risk-Weighted Assets)
Tier 1 Capital 43,116,568 10.44% 16,520,604 *4.00% 20,650,755 *5.00%
( to Average Assets)
- -----------
* greater than
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated, certain items in the
consolidated statements of income of the Corporation and the related changes
between those periods:
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
2001 2000 2001 2000
------ ------ ------ ------
Interest Income, including fees $7,398,753 $7,352,813 $21,841,940 $21,154,651
Interest Expense 3,416,887 3,626,506 10,391,372 10,194,451
----------------------------------------------------------------------
Net Interest Income 3,981,866 3,726,307 11,450,568 10,960,200
Provision for Loan Losses 174,251 316,305 743,411 598,298
Net Interest Income after
Provision for Loan Losses 3,807,615 3,410,002 10,707,157 10,361,902
Other Income 1,065,930 796,020 3,094,261 2,412,955
Other Expense 2,532,598 2,177,787 7,354,175 6,534,916
----------------------------------------------------------------------
Income before Provision For
Income Taxes 2,340,947 2,028,235 6,447,243 6,239,941
Provision for Income Taxes 780,821 680,525 2,027,528 2,142,942
----------------------------------------------------------------------
Net Income $1,560,126 $1,347,710 $ 4,419,715 $ 4,096,999
======================================================================
Net Income Per share - Basic $ 0.47 $ 0.41 $ 1.34 $ 1.24
======================================================================
Net Income Per Share - Diluted $ 0.47 $ 0.41 $ 1.33 $ 1.24
======================================================================
Net Income Per Share - Basic is calculated using weighted average number of
shares outstanding for the period. Net Income Per Share - Diluted is calculated
using the weighted average number of shares outstanding for the period, plus the
net dilutive effect of granted stock options determined using the treasury stock
method.
Annualized return on average equity (ROE) was 12.95% and 12.76% for the three
and nine months ended September 30, 2001, and 13.60% and 13.77% for the three
and nine months ended September 30, 2000. The decrease in ROE for this period
was the result of earnings growth that was less than the rate of growth for
equity.
The book value per share increased to $14.44 at September 30, 2001 compared to
$13.11 at December 31, 2000. This increase is due to earnings exceeding
dividends paid during this period. Average assets for the nine months ended
September 30, 2001, were $393,873,685 compared to $374,439,282 for the year
ended December 31, 2000, and average equity increased to $46,192,830 for the
nine months ended September 30, 2001, from $40,700,668 for the year ended
December 31, 2000.
NET INTEREST INCOME/NET INTEREST MARGIN
One component of the Corporation's earnings is net interest income, which is the
difference between the interest and fees earned on loans and investments and the
interest paid for deposits and borrowed funds. The net interest margin is net
interest income expressed as a percentage of average earning assets.
The annualized net interest margin was 4.27% for the nine months ended September
30, 2001, compared to an annualized net interest margin of 4.20% for the nine
months ended September 30, 2000. Earnings assets averaged $363,631,335 for the
nine months ended September 30, 2001. This represented an increase of
$22,258,525 or 6.5%, over average earning assets of $341,372,264 for the nine
months ended September 30, 2000.
Net interest income was $3,981,866 and $11,450,568 for the three and nine-month
periods in 2001, an increase of $255,559 and $490,368 respectively over the same
periods in 2000. Loan volume and yield increases in these periods contributed to
this increase along with a lower cost of deposits and other borrowed funds
during 2001 over the same period in 2000. Income from investment securities
declined in both the three and nine-month periods in 2001 as a result of both a
reduction in the principal balance of investment securities because of called
bonds and a reduction in yield from falling interest rates. The added liquidity
that resulted from the acquisition of the two Union Planters Bank branches
together with a general increase in deposits permitted the Corporation to pay
off a large portion of it borrowings from the Federal Home Loan Bank,
significantly decreasing interest expense on other borrowings.
Other interest income increased in the three and nine month periods due to an
increase in the amount of Federal Funds Sold.
The following table shows the interest and fees and corresponding yields for
loans only.
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
2001 2000 2001 2000
------ ------ ------ ------
Interest and Fees $ 5,744,121 $ 5,696,164 $ 17,188,439 $ 16,408,950
Average Loans, Net of Unearned 255,065,732 244,147,385 251,942,868 239,954,633
Annualized Yield 9.01% 9.33% 9.09% 9.12%
CREDIT LOSS EXPERIENCE
As a natural corollary to the Corporation's lending activities, some loan losses
are to be expected. The risk of loss varies with the type of loan being made and
the creditworthiness of the borrower over the term of the loan. The degree of
perceived risk is taken into account in establishing the structure of, and
interest rates and security for, specific loans and for various types of loans.
The Corporation attempts to minimize its credit risk exposure by use of thorough
loan application and approval procedures.
The Corporation maintains a program of systematic review of its existing loans.
Loans are graded for their overall quality. Those loans which the Corporation's
management determines require further monitoring and supervision are segregated
and reviewed on a periodic basis. Significant problem loans are reviewed on a
monthly basis by the Corporation's Board of Directors.
The Corporation charges off that portion of any loan which management considers
to represent a loss. A loan is generally considered by management to represent a
loss in whole or in part when an exposure beyond the collateral value is
apparent, servicing of the unsecured portion has been discontinued or collection
is not anticipated based on the borrower's financial condition and general
economic conditions in the borrower's industry. The principal amount of any loan
which is declared a loss is charged against the Corporation's allowance for loan
losses.
The Corporation's allowance for loan losses is designed to provide for loan
losses which can be reasonably anticipated. The allowance for loan losses is
established through charges to operating expenses in the form of provisions for
loan losses. Actual loan losses or recoveries are charged or credited to the
allowance for loan losses. The amount of the allowance is determined by
management of the Corporation. Among the factors considered in determining the
allowance for loan losses are the current financial condition of the
Corporation's borrowers and the value of security, if any, for their loans.
Estimates of future economic conditions and their impact on various industries
and individual
borrowers are also taken into consideration, as are the Corporation's historical
loan loss experience and reports of banking regulatory authorities. Because
these estimates, factors and evaluations are primarily judgmental, no assurance
can be given as to whether or not the Corporation will sustain loan losses in
excess or below its allowance or that subsequent evaluation of the loan
portfolio may not require material increases or decreases in such allowance.
The following table summarizes the Corporation's allowance for loan loss for the
dates indicated:
Amount of Percent of
September 30, December 31, Increase Increase
2001 2000 (Decrease) (Decrease)
------ ------ ---------- ----------
BALANCES:
Gross Loans $263,929,746 $254,940,076 $8,989,670 3.53%
Allowance for Loan Losses 3,375,000 3,325,000 50,000 1.50%
Nonaccrual Loans 508,803 589,788 -80,985 -13.73%
Ratios:
Allowance for loan losses to
gross loans 1.28% 1.30%
Net loans charged off to allowance
for loan losses 20.55% 20.83%
The provision for loan losses for the three months ended September 30, 2001 was
$174,251, a decrease of $142,054 over the $316,305 for the same period in 2000.
The provision for the nine months ended September 30, 2001 was $743,411, an
increase of $145,113 or 24.3% over the $598,298 for the nine months ended
September 30, 2000. The increase in the provision was made to bring the
allowance back to the desired level after the net charge-offs for these periods.
Net loans outstanding increased 3.7% for the nine months in 2001.
For the three months ended September 30, 2001, net loan losses charged to the
allowance for loan losses totaled $124,251, a decrease of $117,054 over the same
period in 2000. For the nine months ended September 30, 2001, net loan losses
totaled $693,411 compared to $373,298 for the nine months ended September 30,
2000. Increased net losses in consumer loans, commercial and industrial loans
and a large agricultural production loss were the main reasons for the increased
net loss in the nine-month periods.
Management of the Corporation reviews with the Board of Directors the adequacy
of the allowance for possible loan losses on a quarterly basis. The loan loss
provision is adjusted when specific items reflect a need for such an adjustment.
Management believes that there were no material loan losses during the last
fiscal year that have not been charged off. Management also believes that the
Corporation's allowance will be adequate to absorb probable losses inherent in
the Corporation's loan portfolio.
OTHER INCOME
Other operating income includes service charges on deposit accounts, wire
transfer fees, safe deposit box rentals and other revenue not derived from
interest on earning assets.
Other operating income for the three and nine months ended September 30,2001,
increased $269,910 or 33.9% and $681,306 or 28.2% over the respective periods
ended September 30, 2000. The increase in the three and nine month periods was
the result of increased overdraft, returned check income and other service
charges and mortgage loan origination income. The increase in other operating
income for the nine-month period was also due to the receipt of the net proceeds
from a bank owned life insurance death claim. This claim arose from the death of
a retired director that was a participant in the Corporation's Directors
Deferred Compensation Plan, which is funded by life insurance policies.
OTHER EXPENSE
Other expenses include salaries and employee benefits, occupancy and equipment,
and other operating expenses. Other expenses for the three and nine months ended
September 30, 2001 were $2,532,598 and $7,354,175 compared to the $2,177,787 and
$6,534,916 for the three and nine months ended September 30, 2000 for an
increase of $354,811 and $819,259 respectively. Salaries and benefits increased
to $4,057,500 in 2001 from $3,661,297 in 2000, an increase of $396,203 or 10.8%.
Other expenses rose in the three and nine month periods primarily as a result of
the cost of acquiring and operating the two Union Planters branches since July
2001. Although expenses increased in these periods, the Corporation's efficiency
ratio for the three and nine-month periods ended September 30, 2001 was 48.25%
and 48.57% compared to 46.45% and 47.01% for the same periods in 2000.
BALANCE SHEET ANALYSIS
Amount of Percent of
September 30, December 31, Increase Increase
2001 2000 (Decrease) (Decrease)
------ ------ ---------- ----------
Cash and Cash Equivalents $ 27,276,167 $ 11,278,526 $15,997,641 141.84%
Investment Securities 108,930,319 101,034,174 7,896,145 7.82%
Loans, net 257,820,017 248,696,755 9,123,262 3.67%
Total Assets 428,602,344 382,800,409 45,801,935 11.96%
Total Deposits 358,748,359 289,907,757 68,840,602 23.75%
Total Stockholders' Equity 47,765,816 43,376,961 4,388,855 10.12%
CASH AND CASH EQUIVALENTS
Cash and cash equivalents are made up of cash, balances at correspondent banks
and federal funds sold. At September 30, 2001, due from bank balances increased
due to a large cash letter sent for collection on the last day of the month that
contained deposited items that were drawn on banks outside of the area in which
we receive immediate credit.
INVESTMENT SECURITIES
The investment securities are made up of U. S. Treasury Notes, U. S. Agency
debentures, mortgage-backed securities, obligations of states, counties and
municipal governments and Federal Home Loan Bank Stock. Investments increased
$7,896,145 or 7.8% as a result of the need to invest excess liquidity at a
higher yield.
LOANS
Loan demand in the Corporation's service area was basically flat even though net
loans increased by $9,123,262 or 3.7% during the nine-month period ended
September 30, 2001. This increase was primarily the result of the purchase of
$11.7 million in loans in connection with of the purchase of the two Union
Planters branches in the quarter. Poultry related loans declined due to the
refinancing with other sources. Residential housing loans continue to be in
demand along with commercial and industrial loans. No special loan programs were
initiated during this period.
DEPOSITS
The following shows the balance and percentage change in the various deposits:
Amount of Percent of
September 30, December 31, Increase Increase
2001 2000 (Decrease) (Decrease)
------ ------ ---------- ----------
Noninteresting-bearing Deposits $ 46,939,309 $ 36,961,489 $ 9,977,820 27.00%
Interest-bearing Deposits 88,341,179 68,499,167 19,842,012 28.97%
Savings 21,699,124 19,053,589 2,645,535 13.88%
Certificates of Deposit 201,768,927 165,393,512 36,375,415 21.99%
-------------------------------------------------------------------------
Total Deposits $358,748,539 $289,907,757 $68,840,782 23.75%
=========================================================================
Approximately $30 million of the increase in deposits is the result of the
acquisition of two branches from Union Planters Bank in the third quarter of
2001. The remainder of the increase is the result of normal deposit growth for
our service area. The Corporation does not have any brokered deposits. There
were no special deposit programs or incentives in place during this period.
FORWARD LOOKING STATEMENTS
In addition to historical information, this report contains statements which
constitute forward-looking statements and information within the meaning of the
Private Securities Litigation Reform Act of 1995 which are based on management's
beliefs, plans, expectations, 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 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 report, including, but not limited to, statements found in Item 1 "Notes to
Consolidated Financial Statements" and in Item 2 "Management's Discussion and
Analysis of Financial Condition and Results of Operations." The Corporation
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
Corporation's business include, but are not limited to, the following: (a) the
risk of adverse changes in business conditions in the banking industry generally
and in the specific markets in which the Corporation operate; (b) changes in the
legislative and regulatory environment that negatively impact the Corporation
through increased operating expenses; (c) increased competition from other
financial institutions; (d) the impact of technological advances; (e)
expectations about the movement of interest rates, including actions that may be
taken by the federal Reserve Board in response to changing economic conditions;
(f) changes in asset quality and loan demand; (g) expectations about overall
economic strength and the performance of the economics in the Corporation's
market area and (h) other risks detailed from time to time in the Corporation's
filings with the Securities and Exchange Commission. The Corporation does not
undertake any obligation to update or revise any forward-looking statements
subsequent to the date on which they are made.
CITIZENS HOLDING COMPANY
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
Overview
The definition of market risk is the possibility of loss that could result from
adverse changes in market prices and rates. The Corporation has taken steps to
assess the amount of risk that is associated with its asset and liability
structure. The Corporation measures the potential risk on a regular basis and
makes changes to its strategies to manage these risks. The Corporation does not
participate in some of the financial instruments that are inherently subject to
substantial market risk.
Market/Interest Rate Risk Management
The primary purpose in managing interest rate risk is to effectively invest
capital and preserve the value created by the core banking business. The
Corporation utilizes an investment portfolio to manage the interest rate risk
naturally created through its business activities. The quarterly interest rate
risk report is used to evaluate exposure to interest rate risk, project earnings
and manage the composition of the balance sheet and its growth.
Static gap analysis is also used in measuring interest rate risk. An analysis of
the Corporation's repricing opportunities indicates a negative gap position over
the next three- and twelve -month periods which indicates that the Corporation
would benefit somewhat from a decrease in market interest rates, such as the
recent interest rate reductions ordered by the Federal Reserve Board. The
Corporation has experienced an increased number of called investment securities
related to the decrease in rates. These called securities generally are re-
invested at lower yields that in turn causes investment interest income to be
less.
Other than the recent interest rate decreases, there have been no material
change in the Corporation's market risk since the end of the last fiscal year
end of December 31, 2000.
PART II. - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
3(i) Amended Articles of Incorporation of the Corporation *
3(ii) Amended and Restated Bylaws of the Corporation *
4 Rights Agreement between Citizens Holding Company *
and The Citizens Bank of Philadelphia, Mississippi
10 Directors' Deferred Compensation Plan - Form of Agreement *
10(a) Citizens Holding Company 1999 Directors' Stock *
Compensation Plan
10(b) Citizens Holding Company 1999 Employees' Long-Term *
Incentive Plan
* Filed as an exhibit to the Form 10 Registration Statement of the
Corporation (File No. 000-25221) filed on December 30, 1998 and
incorporated herein by reference, and also filed as an exhibit to
Amendment No. 1 to Form 10 Registration Statement of the Corporation (File
No. 000-25221) filed on June 21, 1999 and incorporated herein by reference.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the quarter for which this report
on Form 10-Q is being filed with the Securities and Exchange Commission.
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
CITIZENS HOLDING COMPANY
BY: /s/ Steve Webb BY: /s/ Robert T. Smith
------------------------------- --------------------------------
Steve Webb Robert T. Smith
Chairman, President and Treasurer (Chief Financial
Chief Executive Officer and Accounting Officer)
DATE: November 13, 2001 DATE: November 13, 2001