1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended September 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number: 000-25221
CITIZENS HOLDING COMPANY
State of Incorporation or other jurisdiction of I.R.S. Employer
incorporation or organization Identification Number
Mississippi 64-0666512
Citizens Holding Company
521 Main Street
Philadelphia, MS 39350
(601) 656-4692
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 of 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. | | Yes |X| No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of November 11, 1999.
Title Outstanding
Common Stock, $.20 par value 3,308,750
2
CITIZENS HOLDING COMPANY
THIRD QUARTER 1999 INTERIM FINANCIAL STATEMENTS
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Unaudited Consolidated Balance Sheets
September 30, 1999 and December 31, 1998
Unaudited Consolidated Statements of Income
Three months and nine months ended September 30, 1999 and 1998
Unaudited Consolidated Statements of Comprehensive Income
Three months and nine months ended September 30, 1999 and 1998
Unaudited Consolidated Statements of Cash Flows
Nine months ended September 30, 1999 and 1998
Notes to Unaudited Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Signatures
3
PART 1. CONSOLIDATED FINANCIAL STATEMENTS
CITIZENS HOLDING COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CONDITION
(UNAUDITED)
September 30, December 31,
ASSETS 1999 1998
------------- -------------
Cash and due from banks $ 14,248,781 $ 15,234,594
Interest bearing balances at Federal Home Loan Bank 591,229 1,063,244
Federal funds sold 2,500,000 4,500,000
------------- -------------
Cash and cash equivalents 17,340,010 20,797,838
Federal Home Loan Bank stock 1,039,000 918,500
Investment securities available for sale, at fair value 96,948,186 90,620,004
Loans, net of allowance for loan losses of
$3,050,000 in 1999 and $2,900,000 in 1998 225,281,011 208,449,416
Premises and equipment, net 4,330,753 4,433,652
Other real estate owned, net 277,446 57,094
Accrued interest receivable 3,888,611 3,697,109
Cash value of life insurance 2,635,691 2,516,361
Goodwill (net) 666,606 716,862
Other Assets 3,106,365 2,024,973
------------- -------------
TOTAL $ 355,513,679 $ 334,231,809
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Deposits:
Noninterest-bearing demand $ 40,785,935 $ 37,983,554
Interest-bearing NOW and money market accounts 84,998,600 68,391,505
Savings deposits 19,976,489 19,106,323
Certificates of deposit 151,906,522 156,760,846
------------- -------------
Total deposits 297,667,546 282,242,228
Accrued interest payable 1,217,123 1,274,059
Federal Home Loan Bank advances 10,000,000 10,000,000
Federal funds Purchased 3,000,000 0
ABE loan liability 2,691,125 2,416,327
Treasury tax and loan note option 700,000 700,000
Directors deferred compensation payable 787,981 718,868
Income taxes payable 275,505 0
Other liabilities 350,947 225,390
------------- -------------
Total liabilities 316,690,227 297,576,872
------------- -------------
Minority interest in consolidated subsidiaries 1,260,653 1,199,628
STOCKHOLDERS' EQUITY
Common stock; $.20 par value, 15,000,000 shares authorized,
and 3,308,750 shares outstanding at September 30, 1999, and
$1.00 par value, 750,000 shares authorized and 670,750
Shares outstanding at December 31, 1998 670,750 670,750
Less: Treasury stock, at cost 45,000 shares at
September 30, 1999 and 9,000 at December 31,1998 (239,400) (239,400)
Additional paid-in capital 3,353,127 3,353,127
Retained earnings 34,541,884 30,740,947
Unrealized gain on securities available for sale, net of
income taxes of $749,594 in 1999 and $495,909 in 1998 (763,562) 929,885
------------- -------------
Total stockholders' equity 37,562,799 35,455,309
------------- -------------
TOTAL $ 355,513,679 $ 334,231,809
============= =============
See notes to consolidated financial statements
4
CITIZENS HOLDING COMPANY
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
For the three months For the nine months
ended Sept 30, ended Sept 30,
1999 1998 1999 1998
----------- ----------- ----------- -----------
INTEREST INCOME:
Loans, including fees $ 5,025,520 $ 4,690,556 $14,534,606 $13,718,495
Federal funds sold 544 160,060 135,826 456,314
Investment securities 1,453,329 1,250,159 4,145,604 3,509,702
Other interest 8,680 15,120 30,040 71,496
----------- ----------- ----------- -----------
Total interest income 6,488,073 6,115,895 18,846,076 17,756,007
INTEREST EXPENSE:
Deposits 2,527,228 2,673,734 7,514,690 7,759,923
Other borrowed funds 201,807 150,433 501,186 312,305
----------- ----------- ----------- -----------
Total interest expense 2,729,035 2,824,167 8,015,876 8,072,228
----------- ----------- ----------- -----------
NET INTEREST INCOME 3,759,038 3,291,728 10,830,200 9,683,779
PROVISION FOR LOAN LOSSES 156,180 236,689 538,797 405,670
----------- ----------- ----------- -----------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 3,602,858 3,055,039 10,291,403 9,278,109
----------- ----------- ----------- -----------
OTHER INCOME:
Service charges on deposit accounts 603,034 538,077 1,753,859 1,547,894
Other service charges and fees 116,057 114,629 300,702 285,181
Other income 64,163 94,099 265,253 247,350
----------- ----------- ----------- -----------
Total other income 783,254 746,805 2,319,814 2,080,425
OTHER EXPENSES:
Salaries and employee benefits 1,296,181 1,101,180 3,484,278 3,275,596
Occupancy expense 336,669 301,096 969,855 918,696
Other operating expense 565,302 505,870 1,500,796 1,388,433
Earnings applicable to minority interest 48,787 40,719 150,053 126,404
----------- ----------- ----------- -----------
Total other expenses 2,246,939 1,948,865 6,104,982 5,709,129
----------- ----------- ----------- -----------
INCOME BEFORE PROVISION
FOR INCOME TAXES 2,139,173 1,852,979 6,506,235 5,649,405
----------- ----------- ----------- -----------
PROVISION FOR INCOME TAXES 721,535 664,989 2,208,985 1,988,997
----------- ----------- ----------- -----------
NET INCOME $ 1,417,638 $ 1,187,990 $ 4,297,250 $ 3,660,408
=========== =========== =========== ===========
NET INCOME PER SHARE $ 0.43 $ 0.36 $ 1.30 $ 1.11
=========== =========== =========== ===========
See notes to consolidated financial statements
5
CITIZENS HOLDING COMPANY AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
For the three months For the nine months
ended September 30, ended September 30,
1999 1998 1999 1998
----------- ----------- ----------- -----------
Net Income $ 1,417,638 $ 1,187,990 $ 4,297,250 $ 3,660,408
Other comprehensive income, net of tax (299,815) 754,687 (1,693,447) 695,540
Unrealized gains (losses)
Less reclassification adjustment (3,364) (18,941) 55 (18,941)
Total other comprehensive income (303,179) 735,746 (1,693,392) 676,599
Comprehensive income $ 1,114,459 $ 1,923,736 $ 2,603,858 $ 4,337,007
=========== =========== =========== ===========
6
CITIZENS HOLDING COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the nine months
Ended September 30
1999 1998
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Cash Provided by Operating Activities $ 4,361,380 $ 4,397,752
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of securities avail for sale 15,114,418 7,208,529
Proceeds from sale of investment securities 2,518,913 4,019,908
Purchases of investment securities (26,225,348) (34,342,798)
Purchases of bank premises, furniture, fixtures and
equipment (449,399) (873,137)
Decrease in interest bearing deposits with other banks 472,015 (1,043,746)
Net (increase) decrease in federal funds 5,000,000 (4,100,000)
Net increase in loans (16,981,595) (12,959,352)
Net Cash Used by Investing Activities (20,550,996) (42,090,596)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in deposits 15,425,318 30,351,080
Net increase (decrease) in ABE loans 274,798 (128,876)
Increase in FHLB advances 0 10,000,000
Payment of dividends (496,313) (397,050)
Net Cash Provided by Financing Activities 15,203,803 39,825,154
Net Increase (Decrease) in Cash and Due from Banks (985,813) 2,132,310
Cash and Due From Banks, beginning of year 15,234,594 10,025,883
Cash and Due from Banks, end of period 14,248,781 12,158,193
7
For the nine months ended September 30, 1999
1. 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 or a normal and recurring nature. Results for the
period ending September 30, 1999 are not necessarily indicative for results
which may be expected for any other interim period or for the year as a
whole.
2. Summary of Significant Account Policies. See note 1 of the Notes to
Consolidated Financial Statements in the Citizens Holding Company 1998
Audit Report that was included as an exhibit to the Form-10 Registration
Application filed June 21, 1999. Registration with the Securities and
Exchange Commission was effective August 20, 1999.
Statements concerning future performance, developments or events,
concerning expectations for growth and market forecasts, and any other
guidance on future periods, constitute forward-looking statements which are
subject to a number of risks and uncertainties which might cause actual
results to differ materially from stated expectations. These factors
include, but are not limited to, the approval of regulatory agencies and
shareholders, the effect of interest rates changes, the expansion of the
Corporation, competition in the financial services market for both deposits
and loans, and general economic conditions.
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.
3. In the ordinary course of business, the Corporation enters into commitments
to extend credit to its customers. These commitments are not reflected in
the accompanying financial statements. As of September 30, 1999, the
Corporation had entered into commitments with certain customers amounting
to $23,211,000 compared to $19,350,000 at December 31, 1998. There were
$319,025 of letters of credit outstanding at September 30, 1999, compared
to $290,000 at December 31, 1998.
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 B 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 for 1998 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:
September 30, December 31,
1999 1998
---------- ----------
Basic weighted average shares outstanding 3,308,750 3,308,750
Dilutive effect of granted options 19,300 0
---------- ----------
Diluted weighted average shares outstanding 3,328,050 3,308,750
Net Income $4,297,250 $3,660,408
Net income per share - Basic
$ 1.30 $ 1.11
Net income per share - Diluted
$ 1.29 $ 1.11
8
CITIZENS HOLDING COMPANY
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 it interest margins during times of both rising and
falling interest rates and in maintaining sufficient liquidity. Liquidity of the
Corporation at September 30, 1999 was 38.82% and at December 31, 1998 was
38.21%. Liquidity is the ratio of short-term investments to potentially volatile
liabilities. Management believes it maintains adequate liquidity for the
Corporation's current needs.
When the Corporation has more funds than it needs for its reserve requirements
or short-term liquidity needs, the Corporation increases its security
investments or sells federal funds. It is management's policy to maintain an
adequate portion of its portfolio of assets and liabilities on a short-term
basis to insure rate flexibility and to meet loan funding and liquidity needs.
The Corporation has federal funds lines with correspondent banks in the amount
of $28,500,000. In addition, the Corporation has the ability to draw on its line
of credit with the Federal Home Loan Bank in excess of $20,000,000 at September
30, 1999.
CAPITAL RESOURCES
The Corporation's equity capital was $37,562,799 at September 30, 1999. 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 $496,312 or $.15 per share
were paid June 30, 1999, compared to $397,050 or $.12 per share in the same
period in 1998.
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, 1999, the Corporation meets all capital adequacy
requirements to which it is subject.
9
To Be Well
Capitalized Under
For Capital prompt Corrective
Actual Adequacy Purposes Actions Provisions
Amount Ratio Amount Ratio Amount Ratio
----------- ----------- ----------- ----------- ----------- -----------
As of September 30, 1999
Total Capital $40,427,786 18.51% $17,715,397 >8.00% $22,144,246 >10.00%
(to Risk-Weighted Assets)
Tier 1 Capital $37,659,755 17.26% $ 8,857,698 >4.00% $13,286,548 >6.00%
(to Risk-Weighted Assets)
Tier 1 Capital $37,659,755 10.79% $13,963,978 >4.00% $17,454,972 >5.00%
( to Average Assets)
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 nine Months Ended September 30,
Difference
1999 1998 Amount %
----------- ----------- ----------- -----------
Interest Income $18,846,076 $17,756,007 $ 1,090,069 6.14%
Interest Expense 8,015,876 8,072,228 (56,352) (1.07%)
----------- ----------- ----------- -----------
Net Interest Income 10,830,200 9,683,779 1,146,421 11.83%
Provision for Loan Losses 538,797 405,670 133,127 32.82%
----------- ----------- ----------- -----------
Net Interest Income after
Provision for Loan Losses 10,291,403 9,278,109 1,013,294 10.92%
Other Income 2,319,814 2,080,425 239,389 11.51%
Other Expense 6,104,982 5,709,129 395,853 6.93%
----------- ----------- ----------- -----------
Income before Provision For
Income Taxes 6,506,235 5,649,405 856,830 15.17%
Provision for Income Taxes 2,208,985 1,988,997 219,988 11.06%
----------- ----------- ----------- -----------
Net Income $ 4,297,250 $ 3,660,408 636,842 17.40%
=========== =========== =========== ===========
Net Income Per share - Basic $ 1.30 $ 1.11 $ 0.19 17.12%
=========== =========== =========== ===========
Net Income Per Share-Diluted $ 1.29 $ 1.11 $ 0.18 16.22%
=========== =========== =========== ===========
10
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 effect of granted stock options.
Annualized return on average equity was 15.58% for the nine months ended
September 30, 1999, and 14.27% for the nine months ended September 30, 1998.
The book value per share increased to $11.35 at September 30, 1999 compared to
$10.72 at December 31, 1998. This increase is due to the increased earnings
during this period. Average assets for the nine months ended September 30, 1999,
were $343,776,868 compared to $330,565,876 for the same period in 1998; average
equity increased to $36,271,531 for the nine months ended September 30, 1999,
from $35,160,438 for the same period in 1998.
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 4.55% for the nine months ended September
30, 1999, compared to an annualized net interest margin of 4.48% for the nine
months ended September 30, 1998. Earnings assets averaged $316,226,162 for the
nine months ended September 30, 1999. This represented an increase of
$29,956,633 or 10.46%, over average earning assets of $286,269,529 for the nine
months ended September 30, 1998. This increase was from normal growth of the
Corporation and not from any special program or promotion.
The net interest income figures above include income from the Corporation's
securities. The following table shows the interest and fees and corresponding
yields for loans only.
For the Nine Months Ended September 30,
1999 1998
------------ ------------
Interest and Fees $ 14,331,994 $ 13,593,443
Average Loans $217,527,682 $198,932,666
Annualized Yield 8.81% 9.13%
11
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 borrowers 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 charges 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 or that subsequent evaluation of the loan portfolio may not
require substantial changes in such allowance.
12
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
1999 1998 (Decrease) (Decrease)
---------------- ---------------- ---------------- ---------------
BALANCES:
Gross Loans $231,016,650 $213,972,111 $ 17,044,539 7.97%
Allowance for Loan Losses 3,050,000 2,900,000 150,000 5.17%
Nonaccrual Loans 422,001 649,000 (226,999) (34.98)%
Ratios:
Allowance for loan losses to
gross loans 1.32% 1.36%
Net loans charged off to
allowance for loan losses 12.75% 22.28%
The provision for loan losses was $538,797 for the nine months ended September
30, 1999. This is an increase of $133,127 or 32.82%, over the $405,670 for the
nine months ended September 30, 1998. This increase of 32.82% is due to the
change in the timing of management's additions to the allowance for loan loss.
Prior to 1999, this provision was made at year-end where now the provision is
adjusted quarterly. In addition to the quarterly addition to the allowance, the
Corporation adds an amount to the allowance in the amount of the net charge offs
each month. Gross loans outstanding increased 7.97% for the nine months in 1999.
For the nine months ended September 30, 1999, losses charged to the allowance
for loan losses totaled $578,652. This was offset by recoveries of $189,855,
with the net effect being $388,797 in loans charged to the allowance.
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 has not been charged off. Management also believes that the
Corporation has adequately reserved for all credits in its portfolio that may
result in a loss to the Corporation.
OTHER OPERATING 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 nine months ended
September 30, 1999, increased $239,389 or 11.51% over the nine months ended
September 30, 1998. Especially in periods of declining net interest margins, the
Corporation has sought to increase the income derived from these sources and
will continue to seek opportunities to do so.
13
OTHER OPERATING EXPENSE
Other expenses include salaries and employee benefits, occupancy and equipment,
and other operating expenses. The continued growth of the Corporation has put
pressure on Management to control overhead expenses. This desire to control
overhead has resulted in a modest increase in other operating expenses in the
nine months ended September 30, 1999 compared to the nine months ended September
30, 1998 of $395,853 or 6.93%. The Corporation's efficiency ratio at September
30, 1999 was 44.67%.
BALANCE SHEET ANALYSIS
Amount of Percent of
September 30, December 31, Increase Increase
1999 1998 (Decrease) (Decrease)
------------ ------------ ------------- ---------------
Cash and Cash Equivalents $ 17,340,010 $ 20,797,838 $ (3,457,828) (16.63)%
Investment Securities 96,948,186 90,620,004 6,328,182 6.98%
Loans 225,281,011 208,449,416 16,831,595 8.07%
Total Assets 355,513,679 334,231,809 21,281,870 6.37%
Total Deposits 297,667,546 282,242,228 15,425,318 5.47%
Total Stockholders' Equity 37,562,799 35,455,309 2,107,490 5.94%
CASH AND CASH EQUIVALENTS
Cash and cash equivalents are made up of cash and federal funds sold. The
decrease of 16.63% is partly because of a continuing effort by the Corporation
to reduce the float on cash letters sent to clearing banks. During this period
federal funds sold were reduced to fund the strong loan demand and the increase
in investment securities.
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. The increase of 6.98%
was caused by the need for additional pledging for governmental deposit accounts
and the desire to move surplus funds from the traditionally lower yielding
federal funds sold into higher yielding investments.
LOANS
Loan demand continued to be strong in the service area of the Corporation as
evidenced by the 8.07% increase in loans. Residential housing loans continue to
be in demand along with commercial and industrial loans. No special loan
programs were initiated during this period to add to this growth.
14
DEPOSITS
The following shows the balance and percentage change in the various deposits:
Amount of Percent of
September 30, December 31, Increase Increase
1999 1998 (Decrease) (Decrease)
--------------- --------------- --------------- ---------------
Noninterest-bearing Deposits $ 40,785,935 $ 37,983,554 $ 2,802,381 7.38%
Interest-bearing Deposits 84,998,600 68,391,505 16,607,095 24.28%
Savings 19,976,489 19,106,323 870,166 4.55%
Certificates of Deposit 151,906,522 156,760,846 (4,854,324) (3.10)%
--------------- --------------- --------------- ---------------
Total Deposits $ 297,667,546 $ 282,242,228 $ 15,425,318 5.47%
=============== =============== =============== ===============
The increase in deposits reflected in the above table is solely the result of
normal deposit growth for our service area. The Corporation does not have any
brokered deposits. There were no special deposit programs or incentives in place
during this period.
YEAR 2000
The Corporation has been diligent in preparing for the possible consequences of
the date change on January 1, 2000. The Board reviewed these anticipated
consequences and assigned a Y2K Coordinator to coordinate the review of the
Corporation's systems to make a determination of what adjustments were required.
The Board approved a budget for the solutions of these potential problems in the
amount of $376,713, and at the time of this filing, all hardware and software
purchases related to Y2K have been made. The Corporation continues to devote a
large part of its advertising budget to customer education about the progress of
our Y2K compliance. This advertising is being done in the form of radio and
newspaper advertisements and pamphlets inserted in the mailed out bank
statements and will continue until after the date change. Although some other
benefits were obtained from the upgrades to the computer system, the main force
behind the upgrade at this time was the need to address the Y2K issue.
Although our computer hardware and software were certified Y2K compliant by the
respective vendors, the Corporation engaged the services of an outside
consultant to conduct an on-site test of the computer systems. Testing of the
system was accomplished by forward dating the system into the year 2000 and
running sample transactions on these dates. During this test, no abnormalities
in processing were discovered due to this date change. During the third quarter,
this consultant simulated a complete year-end processing to determine any
problems that might be associated with the date change. All applications passed
this testing without problems. We have made provisions to have this
15
consultant on site at year-end to address any problems that might surface during
processing. The Corporation will continue to monitor shared application software
reviews to keep abreast of the software's compliance with the Y2K event.
The Corporation's personal computers have been evaluated and replaced or updated
as needed. All other identified date sensitive equipment has been replaced or
converted as required to maintain Y2K compliance. The Corporation believes that
it achieved its goal to have identified and corrected all potential Y2K problems
by June 30, 1999, but will continue to search for potential problem areas and
address them immediately, if any is found.
The Corporation currently requires that Y2K readiness be considered in the
credit decision process on all new loan customers. Loan customers that have
potential exposure would pose a credit risk if they have not addressed the
possibility of business interruptions due to Y2K. The Corporation's loan
personnel have identified the current loan customers with potential exposure and
have surveyed them to check on their progress in resolving any problems. This
process did not identify any problem area that might be of concern for the
Corporation.
Several problems could result for the Corporation as a result of Y2K failures.
Loss of electrical power, loss of communications and panic among the general
public would require special operating procedures. The Corporation has set a
policy that employees cannot take leave from the middle of December until after
the year-end. All employees will be required to work on Monday, January 2, 2000.
The Corporation has formulated detailed plans to continue business in the event
that any of these situations occur. Special procedures are in place to handle
customer requests manually in case use of the computer is lost. Plans for
clearing checks and other cash items also have been made. Additional cash will
be added to the vault to handle the anticipated cash withdrawals in the fourth
quarter of 1999.
16
CITIZENS HOLDING COMPANY
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
There have been no material change in the Corporation's market risk since the
end of the last fiscal year end of December 31, 1998.
PART II. - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
1. The following exhibit is included herein:
(27) Financial Data Schedule
17
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, 1999 DATE: November 13, 1999
18
INDEX TO EXHIBITS
Exhibit
Number Description
- ------ -----------------------
27 Financial Data Schedule