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 March 31, 2002
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 Identification Number)
incorporation or organization)
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 May 6, 2002.
Title Outstanding
Common Stock, $.20 par value 4,963,125
CITIZENS HOLDING COMPANY
FIRST QUARTER 2002 INTERIM FINANCIAL STATEMENTS
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Statements of Condition
March 31, 2002 and December 31, 2001
Consolidated Statements of Income
Three months ended March 31, 2002 and 2001
Consolidated Statements of Comprehensive Income
Three ended March 31, 2002 and 2001
Consolidated Statements of Cash Flows
Three months ended March 31, 2002 and 2001
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
March 31, December 31,
ASSETS 2002 2001
-------------------------------
Cash and due from banks $ 23,116,276 $ 12,713,482
Interest bearing deposits with other banks 10,604,847 5,421,241
Federal Funds Sold 8,700,000 6,100,000
Investment securities available for sale, at fair value 128,076,929 122,567,180
Loans, net of allowance for loan losses of $3,375,000
in 2002 and 2001 269,819,606 260,903,091
Premises and equipment, net 5,031,859 5,143,535
Other real estate owned, net 577,497 340,657
Accrued interest receivable 4,207,071 4,121,922
Cash value of life insurance 2,874,094 2,809,410
Intangible Assets (net) 2,885,820 2,974,023
Other assets 3,921,158 4,118,333
-------------------------------
TOTAL ASSETS $459,815,157 $427,212,874
===============================
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Deposits:
Noninterest-bearing demand $ 61,866,117 $ 50,535,929
Interest-bearing NOW and money market accounts 112,699,079 91,656,150
Savings deposits 21,915,562 22,481,585
Certificates of deposit 194,611,666 194,635,343
-------------------------------
Total deposits 391,092,424 359,309,007
Accrued interest payable 1,116,945 1,415,513
Federal Home Loan Bank advances 14,402,372 14,628,788
Directors deferred compensation payable 1,104,998 1,079,191
Other liabilities 2,919,552 2,386,608
-------------------------------
Total liabilities 410,636,291 378,819,107
Minority interest in consolidated subsidiary 1,226,684 1,212,199
STOCKHOLDERS' EQUITY
Common stock; $.20 par value, 22,500,000 shares authorized,
and 4,963,125 shares outstanding at March 31, 2002, and
at December 31, 2001 1,006,125 1,006,125
Less: Treasury stock, at cost, 67,500 shares at
March 31, 2002 and at December 31, 2001 -239,400 -239,400
Additional paid-in capital 3,017,752 3,017,752
Retained earnings 44,189,812 43,240,017
Unrealized gain (loss) on securities available for sale, net of
deferred tax asset (liability) of $(11,388) in 2002 and $(89,295) in 2001 -22,107 157,074
--------------------------------
Total stockholders' equity 47,952,182 47,181,568
--------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $459,815,157 $427,212,874
================================
See notes to consolidated financial statements.
CITIZENS HOLDING COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
For the three months
ended March 31,
2002 2001
----------------------------------
INTEREST INCOME:
Loan income including fees $ 5,322,589 $ 5,745,729
Investment securities 1,628,183 1,433,589
Other interest 79,697 79,818
----------------------------------
Total interest income 7,030,469 7,259,136
INTEREST EXPENSE:
Deposits 2,271,307 3,066,090
Other borrowed funds 194,288 554,273
----------------------------------
Total interest expense 2,465,595 3,620,363
----------------------------------
NET INTEREST INCOME 4,564,874 3,638,773
PROVISION FOR LOAN LOSSES 234,496 119,769
----------------------------------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 4,330,378 3,519,004
OTHER INCOME:
Service charges on deposit accounts 705,246 661,466
Other service charges and fees 132,909 111,557
Other income 167,978 132,300
----------------------------------
Total other income 1,006,133 905,323
OTHER EXPENSES:
Salaries and employee benefits 1,673,033 1,332,173
Occupancy expense 436,425 363,352
Other operating expense 884,395 673,575
Earnings applicable to minority interest 48,381 47,642
----------------------------------
Total other expenses 3,042,234 2,416,742
----------------------------------
INCOME BEFORE PROVISION
FOR INCOME TAXES 2,294,277 2,007,585
PROVISION FOR INCOME TAXES 748,919 633,892
----------------------------------
NET INCOME $ 1,545,358 $ 1,373,693
==================================
NET INCOME PER SHARE
-Basic $ 0.31 $ 0.28
==================================
-Diluted $ 0.31 $ 0.28
==================================
See notes to consolidated financial statements.
CITIZENS HOLDING COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the three months
ended March 31,
2002 2001
--------------------------
Net income $ 1,545,358 $ 1,373,693
Other comprehensive income, net of tax
Unrealized holding gains (losses) -179,181 354,837
Less reclassification adjustment for gains
(losses) included in net income 0 0
Total other comprehensive income -179,181 354,837
--------------------------
Comprehensive income $ 1,366,177 $ 1,728,530
==========================
CITIZENS HOLDING COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three months
ended March 31,
2002 2001
-----------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Cash Provided by Operating Activities $ 1,722,163 $ 2,017,855
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of securities available for sale 11,723,006 15,286,313
Proceeds from sale of investment securities 0 0
Purchases of investment securities -17,320,395 -8,873,292
Purchases of bank premises and equipment -44,924 -133,977
Decrease in interest bearing deposits with other banks -5,183,606 223,056
Net (increase) decrease in federal funds sold -2,600,000 -15,700,000
Net increase in loans -8,916,515 1,735,691
Net Cash Used by Investing Activities -22,342,434 -7,462,209
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in deposits 31,783,417 16,595,017
Net increase (decrease) in ABE loans 61,639 -132,207
Increase (decrease) in TT&L Note Option 0 -700,000
Increase in FHLB advances -226,416 -8,000,000
Increase in federal funds purchased 0 0
Payment of dividends -595,575 -413,594
Net Cash Provided by Financing Activities 31,023,065 7,349,216
Net Increase (Decrease) in Cash and Due from Banks 10,402,794 1,904,862
Cash and Due From Banks, beginning of year 12,713,482 10,415,155
Cash and Due from Banks, end of period 23,116,276 12,320,017
CITIZENS HOLDING COMPANY AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the three months ended March 31, 2002
1. These interim consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the United
States of America. 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 March 31, 2002 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 97.44% 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, 2002.
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 March 31,
2002, the Corporation had entered into commitments with certain customers
that had an unused balance of $11,926,909 compared to $12,155,738 unused at
December 31, 2001. There were $529,600 of letters of credit outstanding at
March 31, 2002 and $444,500 at December 31, 2001.
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 and the
three-for-two stock split that was effective January 2, 2002. Earnings per
share were computed as follows:
March 31, March 31,
2002 2001
--------------------------
Basic weighted average
shares outstanding 4,963,125 4,963,125
Dilutive effect of granted options 31,910 10,391
--------------------------
Diluted weighted average
shares outstanding 4,995,035 4,973,516
Net income $1,545,358 $1,373,693
Net income per share-basic $ 0.31 $ 0.28
Net income per share-diluted $ 0.31 $ 0.28
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
million premium paid by the Corporation was allocated primarily to a core
deposit intangible asset. Amortization expense related to the core deposit
intangible asset for the quarter ended March 31, 2002 was $88,203.
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 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 accounted for according to FAS No. 141 is not
amortized, and the amortization of goodwill related to business
combinations entered into prior to June 30, 2001 is discontinued effective,
January 1, 2002. The Company adopted the provisions of FAS No. 141 on July
1,
2001, and the provisions of FAS No. 142 related to discontinuation of
goodwill amortization effective January 1, 2002
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 March 31, 2002 was 53.40% and at March 31, 2001 was 46.54%.
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 March 31, 2002. At March 31, 2002, the Corporation had unused and
available $38,500,000 of its federal funds line of credit and $39,845,878 of its
line of credit with the Federal Home Loan Bank.
CAPITAL RESOURCES
The Corporation's equity capital was $47,952,182 at March 31, 2002. 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.
On January 2, 2002, the Corporation issued a three-for-two (3:2) split to the
shareholders of the Corporation. This split increased the number of outstanding
shares to 4,963,125 and increased the authorized shares from 15,000,000 to
22,500,000. Cash dividends in the amount of $595,575 or $0.12 per share were
paid in the quarter ended March 31, 2002.
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 March 31, 2002, 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 March 31, 2002
Total Capital $49,690,153 17.95% $22,152,018 **8.00% $27,690,023 **10.00%
(to Risk-Weighted Assets)
Tier 1 Capital 46,315,153 16.73% 11,076,009 **4.00% 16,614,014 **6.00%
(to Risk-Weighted Assets)
Tier 1 Capital 46,315,153 10.57% 17,530,447 **4.00% 21,913,059 **5.00%
( to Average Assets)
** denotes more 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:
2002 2001
-------------------------
Interest Income, including fees $7,030,469 $7,259,136
Interest Expense 2,465,595 3,620,363
-------------------------
Net Interest Income 4,564,874 3,638,773
Provision for Loan Losses 234,496 119,769
Net Interest Income after
Provision for Loan Losses 4,330,378 3,519,004
Other Income 1,006,133 905,323
Other Expense 3,042,234 2,416,742
-------------------------
Income before Provision For
Income Taxes 2,294,277 2,007,585
Provision for Income Taxes 748,919 633,892
-------------------------
Net Income $1,545,358 $1,373,693
=========================
Net Income Per share - Basic $0.31 $0.28
===================================
Net Income Per Share-Diluted $0.31 $0.28
===================================
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 12.79% and for the three months
ended March 31, 2002, and 12.37% for the three months ended March 31, 2001. The
increase in ROE for this period was the result of earnings growth that was
greater than the rate of growth for equity.
The book value per share increased to $9.66 at March 31, 2002 compared to $9.51
at December 31, 2001. This increase is due to earnings exceeding dividends paid
during this period. Average assets for the three months ended March 31, 2002,
were $441,147,000 compared to $403,881,314 for the year ended December 31, 2001,
and average equity increased to $48,331,226 for the three months ended March 31,
2002, from $47,663,502 for the year ended December 31, 2001.
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 4.61% for the three months ended March
31, 2002, compared to an annualized net interest margin of 4.26% for the three
months ended March 31, 2001. Earnings assets averaged $406,903,466 for the three
months ended March 31, 2002. This represented an increase of $53,023,961, or
14.98%, over average earning assets of $353,879,505 for the three months ended
March 31, 2001.
Net interest income was $4,564,874 for the three-month period in 2002, an
increase of $926,101 over the same period in 2001. Loan volume and increases in
investments in this period contributed to this increase. A lower cost of
deposits and other borrowed funds during 2002 over the same period in 2001 also
contributed to the increase in Net Interest Income. Income from investment
securities increased in the three-month period in 2002 as a result of both an
increase in the principal balance of investment securities and a shift in the
mix of investments from lower yielding U. S. Treasury Securities into higher
yield mortgage backed products.
The added liquidity that resulted from the acquisition of the two Union Planters
Bank branches in the third quarter of 2001, 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 month period 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 ended,
2002 2001
--------------------------------------
Interest and Fees $ 5,322,589 $ 5,745,729
Average Loans 265,479,157 251,081,564
Annualized Yield 8.02% 9.27%
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:
Quarter Ended Year to Date Amount of Percent of
March 31, December 31, Increase Increase
2002 2001 (Decrease) (Decrease)
-------------------------------------------------------------------------
BALANCES:
Gross Loans $275,782,323 $266,932,966 $8,849,357 3.32%
Allowance for Loan Losses 3,375,000 3,375,000 0 0.00%
Nonaccrual Loans 1,079,931 418,813 661,118 157.86%
Ratios:
Allowance for loan losses to
gross loans 1.22% 1.28%
Net loans charged off to
allowance for loan losses 6.95% 31.80%
The provision for loan losses for the three months ended March 31, 2002 was
$234,496, an increase of $114,727 over the $119,769 for the same period in 2001.
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 3.4% for the three months in 2002.
For the three months ended March 31, 2002, net loan losses charged to the
allowance for loan losses totaled $234,496, an increase of $114,727 over the
same period in 2001. Increased net losses in consumer loans, commercial and
industrial loans and 1-4 family housing accounted for the majority of the
increased net loss in the three-month period.
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 months ended March 31, 2002, increased
$110,725, or 12.2% over the period ended March 31, 2001. The increase was the
result of increased overdraft, returned check income and other service charges
and mortgage loan origination income.
OTHER EXPENSE
Other expenses include salaries and employee benefits, occupancy and equipment,
and other operating expenses. Other expenses for the three months ended March
31, 2002 were $3,042,234 compared to the $2,416,742 for the three months ended
March 31, 2001 for an increase of $625,492. Salaries and benefits increased to
$1,673,033 in 2002 from $1,332,173 in 2001, an increase of $340,860 or 25.6%.
Both the increase in Other Expenses as a whole and salaries and benefits
specifically, are the result of the growth of the Corporation, both from the
acquisition of the Union Planters branches and internal growth of the deposit
base. Although expenses increased, the Corporation's efficiency ratio for the
three-month period ended March 31, 2002 was 53.54% compared to 51.04% for the
same period in 2001.
BALANCE SHEET ANALYSIS
Amount of Percent of
March 31, December 31, Increase Increase
2002 2001 (Decrease) (Decrease)
-------------------------------------------------------------------------
Cash and Cash Equivalents $ 33,721,123 $ 18,134,723 $15,586,400 85.95%
Investment Securities 128,076,929 122,567,180 5,509,749 4.50%
Loans, net 269,819,606 260,903,091 8,916,515 3.42%
Total Assets 459,815,157 427,212,874 32,602,283 7.63%
Total Deposits 391,092,424 359,309,007 31,783,417 8.85%
Total Stockholders' Equity 47,952,182 47,181,568 770,614 1.63%
CASH AND CASH EQUIVALENTS
Cash and cash equivalents are made up of cash, balances at correspondent banks
and federal funds sold. The increase in cash and cash equivalents at March 31,
2002 of $15,586,400 was caused by a $5,183,606 increase in interest bearing
balances with other banks and the remaining increase was the result of large
month end cash letters that were in the process of collection.
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
$5,509,749 or 4.5% as a result of the need to invest excess liquidity at a
higher yield.
LOANS
Loan demand in the Corporation's service area began to strengthen as net loans
increased by $8,916,515 or 3.4% during the three-month period ended March 31,
2002. 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
March 31, December 31, Increase Increase
2002 2001 (Decrease) (Decrease)
---------------------------------------------------------------
Noninteresting-bearing Deposits $ 61,866,117 $ 50,535,929 $11,330,188 22.42%
Interest-bearing Deposits 112,699,079 91,656,150 21,042,929 22.96%
Savings 21,915,562 22,481,585 -566,023 -2.52%
Certificates of Deposit 194,611,666 194,635,343 -23,677 -0.01%
---------------------------------------------------------------
Total Deposits $ 391,092,424 $359,309,007 $31,783,417 8.85%
===============================================================
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. While interest
rates remained stable during the quarter ended March 31, 2002, during 2001 the
Corporation experienced an increased number of called investment securities
related to the decrease in rates that occurred throughout 2001. These called
securities generally were re-invested at lower yields. The Corporation's
interest bearing deposit liabilities have been substantially repriced to reflect
the current interest rate environment.
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, 2001.
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.
The following reports on form 8-K were filed by the Corporation during the
last quarter of the period covered by this Form 10-Q:
On January 22, 2002, the Corporation filed on Form 8-K under Item 7(a)
and Item 9 a press release announcing that a Letter of Intent had been
signed with CB&T Capital Corporation and Citizens Bank and Trust for the
purchase of these two companies.
On January 30, 2002, the Corporation filed on Form 8-K under Item 7(a)
and Item 9 a press release announcing the financial results of the
Corporation for the quarter ended December 31, 2001.
On March 13, 2002, the Corporation filed on Form 8-K under Item 7(a)
and Item 9 a press release announcing that its subsidiary, The Citizens
Bank of Philadelphia (the "Bank") signed an Agreement and Plan of Share
Exchange on March 12, 2002 with CB&T Capital Corporation and Citizens Bank
and Trust Company pursuant to which the Bank will acquire CB&T Capital
Corporation and Citizens Bank and Trust Company.
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
Chief Executive Officer Financial and Accounting
Officer)
DATE: May 10, 2002 DATE: May 10, 2002