UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2010
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: 001-15375
CITIZENS HOLDING COMPANY
(Exact Name of Registrant as Specified in its Charter)
MISSISSIPPI | 64-0666512 | |
(State or Other Jurisdiction of Incorporation or Organization) |
(I. R. S. Employer Identification Number) | |
521 Main Street, Philadelphia, MS | 39350 | |
(Address of Principal Executive Offices) | (Zip Code) |
Registrants 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 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x Yes ¨ No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or such shorter period that the registrant was required to submit and post such files). ¨ Yes ¨ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of accelerated filer, large accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act
Large accelerated filer | ¨ | Accelerated filer | x | |||
Non-accelerated filer | ¨ | Smaller Reporting Company | ¨ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ¨ Yes x No
Number of shares outstanding of each of the issuers classes of common stock, as of May 6, 2010:
Title |
Outstanding | |
Common Stock, $0.20 par value | 4,831,061 |
CITIZENS HOLDING COMPANY
FIRST QUARTER 2010 INTERIM FINANCIAL STATEMENTS
PART I. | FINANCIAL INFORMATION | 1 | ||
Item 1. |
1 | |||
Consolidated Statements of Condition March 31, 2010 and December 31, 2009 |
1 | |||
Consolidated Statements of Income Three months ended March 31, 2010 and 2009 |
2 | |||
Consolidated Statements of Comprehensive Income Three months ended March 31, 2010 and 2009 |
3 | |||
Condensed Consolidated Statements of Cash Flows Three months ended March 31, 2010 and 2009 |
4 | |||
5 | ||||
Item 2. |
Managements Discussion and Analysis of Financial Condition and Results of Operations. |
18 | ||
Item 3. |
29 | |||
Item 4. |
33 | |||
PART II. | OTHER INFORMATION | 34 | ||
Item 1. |
Legal Proceedings.* |
|||
Item 1A. |
34 | |||
Item 2. |
Unregistered Sales of Equity Securities and Use of Proceeds. |
34 | ||
Item 3. |
Defaults Upon Senior Securities* |
|||
Item 4. |
[Removed and Reserved.] |
|||
Item 5. |
Other Information.* |
|||
Item 6. |
35 | |||
* |
None or Not Applicable |
|||
36 |
ITEM 1. | CONSOLIDATED FINANCIAL STATEMENTS (Unaudited). |
CITIZENS HOLDING COMPANY
CONSOLIDATED STATEMENTS OF CONDITION
(Unaudited)
March 31, 2010 |
December 31, 2009 |
||||||
ASSETS |
|||||||
Cash and due from banks |
$ | 21,489,132 | $ | 15,365,612 | |||
Interest bearing deposits with other banks |
26,157,209 | 5,232,723 | |||||
Federal funds sold |
12,500,000 | | |||||
Investment securities available for sale, at fair value |
290,492,934 | 318,403,999 | |||||
Loans, net of allowance for loan losses of $5,726,793 in 2010 and $5,525,903 in 2009 |
440,793,446 | 441,694,562 | |||||
Premises and equipment, net |
17,963,825 | 18,124,109 | |||||
Other real estate owned, net |
2,721,200 | 3,229,180 | |||||
Accrued interest receivable |
6,099,344 | 6,048,718 | |||||
Cash value of life insurance |
18,926,574 | 18,783,333 | |||||
Intangible assets, net |
3,549,821 | 3,595,994 | |||||
Other assets |
8,450,228 | 9,525,598 | |||||
TOTAL ASSETS |
$ | 849,143,713 | $ | 840,003,828 | |||
LIABILITIES AND STOCKHOLDERS EQUITY |
|||||||
LIABILITIES |
|||||||
Deposits: |
|||||||
Noninterest-bearing demand |
$ | 92,787,597 | $ | 87,116,776 | |||
Interest-bearing NOW and money market accounts |
177,938,301 | 183,971,551 | |||||
Savings deposits |
36,634,237 | 34,466,029 | |||||
Certificates of deposit |
267,915,534 | 264,248,229 | |||||
Total deposits |
575,275,669 | 569,802,585 | |||||
Federal funds purchased |
| | |||||
Securities sold under agreement to repurchase |
103,003,897 | 114,753,010 | |||||
Federal Home Loan Bank advances |
86,400,000 | 74,400,000 | |||||
Accrued interest payable |
827,612 | 778,989 | |||||
Deferred compensation payable |
3,985,365 | 3,870,344 | |||||
Other liabilities |
2,272,140 | 1,801,436 | |||||
Total liabilities |
771,764,683 | 765,406,364 | |||||
STOCKHOLDERS EQUITY |
|||||||
Common stock; $.20 par value, 22,500,000 shares authorized, 4,829,561 shares outstanding at March 31, 2010 and 4,838,187 shares outstanding at December 31, 2009 |
965,912 | 967,637 | |||||
Additional paid-in capital |
2,849,897 | 3,087,738 | |||||
Retained earnings |
72,373,733 | 71,412,383 | |||||
Accumulated other comprehensive income (loss), net of tax expense (benefit) of $707,622 in 2010 and ($517,734) in 2009 |
1,189,488 | (870,294 | ) | ||||
Total stockholders equity |
77,379,030 | 74,597,464 | |||||
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY |
$ | 849,143,713 | $ | 840,003,828 | |||
The accompanying notes are an integral part of these financial statements.
1
CITIZENS HOLDING COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
For the Three Months Ended March 31, | ||||||
2010 | 2009 | |||||
INTEREST INCOME |
||||||
Loan income, including fees |
$ | 7,253,309 | $ | 7,341,401 | ||
Investment securities |
2,611,138 | 2,631,710 | ||||
Other interest |
10,770 | 9,656 | ||||
Total interest income |
9,875,217 | 9,982,767 | ||||
INTEREST EXPENSE |
||||||
Deposits |
1,424,732 | 2,411,897 | ||||
Other borrowed funds |
885,180 | 820,039 | ||||
Total interest expense |
2,309,912 | 3,231,936 | ||||
NET INTEREST INCOME |
7,565,305 | 6,750,831 | ||||
PROVISION FOR LOAN LOSSES |
624,956 | 316,012 | ||||
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES |
6,940,349 | 6,434,819 | ||||
OTHER INCOME |
||||||
Service charges on deposit accounts |
964,778 | 914,889 | ||||
Other service charges and fees |
373,826 | 323,431 | ||||
Other income |
284,528 | 323,396 | ||||
Total other income |
1,623,132 | 1,561,716 | ||||
OTHER EXPENSES |
||||||
Salaries and employee benefits |
3,400,361 | 3,143,628 | ||||
Occupancy expense |
945,388 | 953,411 | ||||
Other operating expense |
1,677,383 | 1,526,620 | ||||
Total other expenses |
6,023,132 | 5,623,659 | ||||
INCOME BEFORE PROVISION FOR INCOME TAXES |
2,540,349 | 2,372,876 | ||||
PROVISION FOR INCOME TAXES |
564,792 | 514,232 | ||||
NET INCOME |
$ | 1,975,557 | $ | 1,858,644 | ||
NET INCOME PER SHARE |
||||||
-Basic |
$ | 0.41 | $ | 0.38 | ||
-Diluted |
$ | 0.41 | $ | 0.38 | ||
DIVIDENDS PAID PER SHARE |
$ | 0.21 | $ | 0.20 | ||
The accompanying notes are an integral part of these financial statements.
2
CITIZENS HOLDING COMPANY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
For the Three Months Ended March 31, | ||||||
2010 | 2009 | |||||
Net income |
$ | 1,975,557 | $ | 1,858,644 | ||
Other comprehensive income, net of tax |
||||||
Unrealized holding gains |
2,059,782 | 603,487 | ||||
Total other comprehensive income |
2,059,782 | 603,487 | ||||
Comprehensive income |
$ | 4,035,339 | $ | 2,462,131 | ||
The accompanying notes are an integral part of these financial statements.
3
CITIZENS HOLDING COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Three Months Ended March 31, |
||||||||
2010 | 2009 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES |
||||||||
Net cash provided by operating activities |
$ | 4,669,641 | $ | 3,408,292 | ||||
CASH FLOWS FROM INVESTING ACTIVITIES |
||||||||
Proceeds from maturities of securities available for sale |
42,977,236 | 41,940,317 | ||||||
Proceeds from sales of securities available for sale |
29,454,187 | 3,114,536 | ||||||
Purchases of investment securities available for sale |
(42,233,286 | ) | (60,437,415 | ) | ||||
Net change in securities sold under agreement to repurchase |
(11,749,113 | ) | 21,978,629 | |||||
Purchases of bank premises and equipment |
(137,130 | ) | (1,274,394 | ) | ||||
Increase in interest bearing deposits with other banks |
(20,924,486 | ) | 326,796 | |||||
Net increase in federal funds sold |
(12,500,000 | ) | (4,200,000 | ) | ||||
Proceeds from sale of other real estate acquired by foreclosure |
206,000 | 340,434 | ||||||
Net decrease (increase) in loans |
141,160 | (13,142,680 | ) | |||||
Net cash used by investing activities |
(14,765,432 | ) | (11,353,777 | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES |
||||||||
Net increase in deposits |
5,473,085 | 18,670,646 | ||||||
Proceeds from exercising stock options |
55,980 | 191,640 | ||||||
Increase in Federal Home Loan Bank advances |
12,000,000 | | ||||||
Repurchase of stock |
(295,546 | ) | (248,591 | ) | ||||
Decrease in federal funds purchased |
| (21,000,000 | ) | |||||
Payment of dividends |
(1,014,208 | ) | (970,679 | ) | ||||
Net cash provided (used) by financing activities |
16,219,311 | (3,356,984 | ) | |||||
Net increase (decrease) in cash and due from banks |
6,123,520 | (11,302,469 | ) | |||||
Cash and due from banks, beginning of period |
15,365,612 | 28,844,221 | ||||||
Cash and due from banks, end of period |
$ | 21,489,132 | $ | 17,541,752 | ||||
The accompanying notes are an integral part of these financial statements.
4
CITIZENS HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of and for the three months ended March 31, 2010
(Unaudited)
Note 1. Basis of Presentation
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 (GAAP) for complete financial statements. The interim consolidated financial statements are unaudited and reflect all adjustments and reclassifications, which, in the opinion of management, are necessary for a fair presentation of the results of operations and financial condition as of and for the interim periods presented. All adjustments and reclassifications are of a normal and recurring nature. Results for the period ended March 31, 2010 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 wholly-owned subsidiary, The Citizens Bank of Philadelphia (the Bank and collectively with Citizens Holding Company, the Corporation). All significant intercompany transactions have been eliminated in consolidation.
For further information and significant accounting policies of the Corporation, see the Notes to Consolidated Financial Statements of Citizens Holding Company included in the Corporations Annual Report on Form 10-K for the year ended December 31, 2009, filed with the Securities and Exchange Commission on March 15, 2010.
Note 2. Commitments and Contingent Liabilities
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, 2010, the Corporation had entered into loan commitments with certain customers with an aggregate unused balance of $39,788,524 compared to an aggregate unused balance of $35,605,204 at December 31, 2009. There were $3,222,209 of letters of credit outstanding at March 31, 2010 and $8,592,050 at December 31, 2009. The fair value of such contracts is not considered material because letters of credit and loan commitments often are not used in their entirety, if at all, before they expire. The balances of such letters and commitments should not be used to project actual future liquidity requirements. However, the Corporation does incorporate expectations about the level of draws under its credit-related commitments into its asset and liability management program.
The Corporation is a party to lawsuits and other claims that arise in the ordinary course of business, all of which are being vigorously contested. In the regular course of business, management evaluates estimated losses or costs related to litigation, and provisions are made for anticipated losses whenever management believes that such losses are probable
5
CITIZENS HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
As of and for the three months ended March 31, 2010
(Unaudited)
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 Corporations consolidated financial condition or results of operations.
Note 3. Net Income per Share
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 stock options using the treasury stock method. Earnings per share was computed as follows:
For the Three Months Ended March 31, | ||||||
2010 | 2009 | |||||
Basic weighted average shares outstanding |
4,831,879 | 4,851,339 | ||||
Dilutive effect of granted options |
38,178 | 36,138 | ||||
Diluted weighted average shares outstanding |
4,870,057 | 4,887,477 | ||||
Net income |
$ | 1,975,557 | $ | 1,858,644 | ||
Net income per share-basic |
$ | 0.41 | $ | 0.38 | ||
Net income per share-diluted |
$ | 0.41 | $ | 0.38 |
Note 4. Stock Option Plan
At March 31, 2010, the Corporation had one stock-based compensation plan, which is the 1999 Directors Stock Compensation Plan. Prior to it expiration, the Corporation also had the 1999 Employees Long-Term Incentive Plan, or the Employees Plan. The Corporation accounts for these plans under the stock compensation topic of the FASB Accounting Standards Codification (ASC). This topic provides guidance related to share-based payment transactions, including valuation methods (including assumptions such as expected volatility and expected term), the classification of compensation expense, non-GAAP financial measures, first time adoption in an interim period and disclosure in Managements Discussion and Analysis subsequent to adoption.
To determine the expected term of the options granted, the Corporation chose to use the simplified method for plain vanilla options as detailed in the stock compensation topic of the ASC for those options granted prior to December 31, 2007. Beginning with options granted after that date, the Corporation uses the Black-Scholes option pricing model. Volatility is determined by using the standard deviation of the differences of the closing stock price of the Corporations common stock as quoted on the American Stock Exchange (through November 15, 2006, the date of the transfer of the listing of the Corporations common stock to The NASDAQ Global Market) or The NASDAQ Global Market (since November 16, 2006) on or about the 15th of each month starting January 15, 2002. Stock prices prior to that date experienced volatility that is not representative of the volatility experienced since that time and therefore are not used in this calculation.
6
CITIZENS HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
As of and for the three months ended March 31, 2010
(Unaudited)
Although the option grants are not subject to an explicit vesting schedule, the Corporation recognizes that the restriction on exercising options before six months and one day after the grant date constitutes a de facto vesting schedule and must be considered. The stock compensation topic of the ASC states that a requisite service period may be explicit, implicit or derived and that an implicit service period is one that may be inferred from an analysis of the awards terms. Based on its analysis of the terms of the option awards, management concluded that the restriction on exercising options until six months and one day have passed since the date of grant constitutes a service period and the compensation costs should be amortized over this six month period.
On April 29, 2009, the members of the Board of Directors were granted a total of 13,500 options as specified in the 1999 Directors Stock Compensation Plan, or the Directors Plan. These options were granted at an exercise price of $21.75 per option, which was the closing price of Citizens Holding Company stock on that day. These options were first exercisable on October 30, 2009 and must be exercised no later than April 29, 2019. No options were granted to officers during 2009.
The fair value of each option granted is estimated on the date of the grant using the Black-Scholes option-pricing model. The following assumptions were used in estimating the fair value of the options granted to the directors in the second quarter of 2009.
Assumption |
Directors | |||
Dividend Yield |
3.70 | % | ||
Risk-Free Interest Rate |
2.23 | % | ||
Expected Life |
7.8 years | |||
Expected Volatility |
64.24 | % | ||
Calculated Value per Option |
$ | 9.96 | ||
Forfeitures |
0.00 | % |
Using the Black-Scholes option-pricing model with the foregoing assumptions, it was determined that the cost of options granted under the Directors Plan in April 2009 was $134,952 and should be recognized as an expense of $22,492 per month over the six month requisite service period, beginning in April 2009. This was recorded as salary expense with a credit to paid-in capital. A deferred tax on these options was recorded in the aggregate amount of $49,932, or $8,322 per month, over the six month requisite service period, beginning in April 2009.
7
CITIZENS HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
As of and for the three months ended March 31, 2010
(Unaudited)
The following table below is a summary of the stock option activity for the three months ended March 31, 2010.
Directors Plan | Employees Plan | |||||||||||
Number of Shares |
Weighted Average Exercise Price |
Number of Shares |
Weighted Average Exercise Price | |||||||||
Outstanding at December 31, 2009 |
88,500 | $ | 18.96 | 151,650 | $ | 19.63 | ||||||
Granted |
| | | | ||||||||
Exercised |
(1,500 | ) | 11.00 | (3,000 | ) | 13.16 | ||||||
Expired |
| | | | ||||||||
Outstanding at March 31, 2010 |
87,000 | $ | 19.10 | 148,650 | $ | 19.76 | ||||||
The intrinsic value of options granted under the Directors Plan at March 31, 2010 was $485,460 and the intrinsic value of options granted under the Employees Plan at March 31, 2010 was $731,358 for a total intrinsic value at March 31, 2010 of $1,216,818.
Note 5. Income Taxes
The income tax topic of the ASC defines the threshold for recognizing the benefits of tax return positions in the financial statements as more-likely-than-not to be sustained by the taxing authority. This topic also provides guidance on the derecognition, measurement and classification of income tax uncertainties, along with any related interest and penalties, and includes guidance concerning accounting for income tax uncertainties in interim periods. As of March 31, 2010, the Corporation had no unrecognized tax benefits related to federal and state income tax matters. Therefore, the Corporation does not anticipate any material increase or decrease in the effective tax rate during 2010 relative to any tax positions taken. It is the Corporations policy to recognize interest and/or penalties related to income tax matters in income tax expense.
The Corporation and its subsidiaries file a consolidated United States federal income tax return. The Corporation is currently open to audit under the statute of limitations by the Internal Revenue Service for the years ending December 31, 2006 through 2009. The Corporation and its subsidiaries state income tax returns are open to audit under the statute of limitations for the years ended December 31, 2006 through 2009.
Note 6. Recent Accounting Pronouncements
In December 2007, the FASB issued SFAS 160, Non-controlling Interests in Consolidated Financial Statements-an Amendment of ARB 51, (SFAS 160), codified in the Consolidation Topic of the ASC. This standard amends ARB No. 51, Consolidated Financial Statements, to establish accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. The Corporation adopted the provisions of SFAS 160 effective January 1, 2009. The adoption of this statement did not have a material effect on our financial position or results of operations.
8
CITIZENS HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
As of and for the three months ended March 31, 2010
(Unaudited)
Effective January 1, 2008, the Company adopted the provisions of Statement of Financial Accounting Standards (SFAS) No. 157, Fair Value Measurements and Disclosures, (SFAS 157), as codified in the Fair Value Measurements and Disclosures Topic (Fair Value Topic) of the ASC. This statement defines fair value, establishes a hierarchal disclosure framework for measuring fair value, and requires expanded disclosures about fair value measurements. The provisions of this statement apply to all financial instruments that are being measured and reported on a fair value basis. The partial adoption of SFAS 157 did not have any impact on our financial position or results of operations. Effective January 1, 2009, the Corporation adopted the remaining provisions of SFAS 157 that were delayed by the issuance of FSP FAS 157-2, Effective Date of SFAS 157. The adoption of the remaining provisions of the Fair Value Topic, relating to nonfinancial assets and liabilities, did not have a material impact on our financial position or results of operations.
In March 2008, the FASB issued SFAS 161, Disclosure about Derivative Instruments and Hedging Activities-an Amendment of FAS 153, (SFAS 161), codified in the Derivatives and Hedging Topic of the ASC. This update changes the existing disclosure requirements. SFAS 161 now requires enhanced disclosures about an entitys derivative and hedging activities. The Corporation adopted SFAS 161 effective January 1, 2009. The adoption of this statement did not have a material effect on our financial position or results of operations.
In December 2008, the FASB issued FAS FSP No. 132(R)-1, Employers Disclosures about Postretirement Benefit Plan Assets (FSP 132-1), codified in the Compensation-Retirement Benefits Topic of the ASC. FSP 132-1 requires further disclosures about the fair value measurements of an employers benefit plan assets, including disclosures about the following: how investment allocation decisions are made, including the factors material to an understanding of investment policies and strategies; major categories of plan assets; information about inputs and valuation techniques, including the fair value hierarchy classifications, as defined by Fair Value Topic of the ASC, of the major categories of plan assets; the effect of fair value measurements using significant unobservable inputs (Level 3 inputs) on changes in plan assets; and significant concentrations of risk within plan assets. FSP 132-1 is effective for fiscal years beginning on or after December 15, 2009, with early adoption permitted. The Corporation is currently in the process of evaluating the impact of adopting FSP 132-1 on its financial statements.
In January 2009, the FASB issued Staff Position No. EITF 99-20-1, Amendments to the Impairment Guidance of EITF Issue No. 99-20 (EITF 99-20-1), as codified in the Investments Topic of the ASC, which amends the existing guidance to achieve a more consistent determination of whether an other-than-temporary impairment has occurred. EITF 99-20-1 also retains and emphasizes the objective of an other-than-temporary impairment assessment and the related disclosure requirements. EITF 99-20-1 was effective for interim and annual reporting periods ending after December 15, 2008, and was to be applied prospectively. Retroactive application was not permitted. The Corporation adopted EITF 99-20-1 on January 1, 2009 with no material impact on its financial statements.
9
CITIZENS HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
As of and for the three months ended March 31, 2010
(Unaudited)
In April 2009, the FASB issued Staff Position No. 141(R)-1, Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies (FSP 141(R)-1), codified in the Business Combinations Topic of the ASC. FSP 141(R)-1 amends and clarifies existing guidance to address the initial recognition and measurement of an asset acquired or a liability assumed in a business combination that arises from a contingency provided the asset or liabilitys fair value on the date of acquisition can be determined. When the fair value, at the acquisition date, of an asset acquired or liability assumed cannot be determined, FSP 141(R)-1 requires using the guidance under the Contingencies Topic of the ASC. FSP 141(R)-1 is effective for assets or liabilities arising from contingencies in business combinations that occur following the start of the first annual reporting period beginning on or after December 15, 2008. The adoption of FSP 141(R)-1 will impact the Corporations accounting for and reporting of acquisitions completed after January 1, 2009.
In April 2009, the FASB issued three FASB Staff Positions (FSP):
| FSP FAS 157-4 as codified in the Fair Value Topic of the ASC |
| FSP FAS 115-2 and 124-2 as codified in the investments topic of the ASC |
| FSP FAS 107-1 and APB 28-1 as codified in the financial instruments topic of the ASC |
FSP FAS 157-4 indicates that when determining the fair value of an asset or liability that is not a Level 1 fair value measurement, an entity should assess whether the volume and level of activity for the asset or liability have significantly decreased when compared with normal market conditions. If the entity concludes that there has been a significant decrease in the volume and level of activity, a quoted price (e.g., observed transaction) may not be determinative of fair value and may require a significant adjustment. FSP FAS 115-2 and 124-2 modifies the requirements for recognizing other-than-temporarily impaired debt securities and changes the existing impairment model for such securities. These statements also modify the presentation of other-than-temporary impairment losses and increase the frequency of and expand already required disclosures about other-than-temporary impairment for debt and equity securities. FSP FAS 107-1 and APB 28-1 requires publicly traded companies to disclose the fair value of financial instruments within the scope of the Financial Instruments Topic of the ASC in interim financial statements, adding to the current requirement to make those disclosures in annual financial statements. This staff position also requires that companies disclose the method or methods and significant assumptions used to estimate the fair value of financial instruments and a discussion of changes, if any, in the method or methods and significant assumptions during the period. The Corporation adopted the provisions these staff positions effective for the second quarter ended June 30, 2009. The adoption of these staff positions did not have a material effect on our financial position or results of operations.
In May 2009, the FASB issued FAS 165, Subsequent Events (FAS 165), codified in the Subsequent Events Topic of the ASC. This statement requires management to evaluate subsequent events through the date the financial statements are either issued, or available
10
CITIZENS HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
As of and for the three months ended March 31, 2010
(Unaudited)
to be issued. Companies will be required to disclose the date through which subsequent events have been evaluated. The Corporation adopted the provisions of FAS 165 effective in June 2009. The adoption of this statement did not have a material effect on our financial position or results of operations. The Corporation evaluated subsequent events through the date of issuance of the financial statements.
In June 2009, the FASB issued SFAS 166, Accounting for Transfers of Financial Assets-an Amendment of FAS 140, (SFAS 166), codified in the Transfers and Servicing Topic of the ASC. The objective of this standard is to provide implementation guidance on accounting for a transfer of a financial asset and repurchase financing. The amendment presumes that an initial transfer of a financial asset and a repurchase financing are considered part of the same arrangement (linked transaction) under SFAS 166. However, if certain criteria are met, the initial transfer and repurchase financing shall not be evaluated as a linked transaction and shall not be evaluated under SFAS 166. We do not believe that the adoption of this statement will have a material effect on our financial position or results of operations.
In June 2009, the FASB issued FAS No.168, The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles-a replacement of FASB Statement No. 162, which created the FASB ASC. This codification is the source of authoritative GAAP recognized by the FASB to be applied by nongovernmental entities. Rules and interpretive releases of the SEC under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. The Corporation adopted the provisions of the ASC effective September 30, 2009. The adoption of this statement did not have a material effect on our financial position or results of operations.
In August 2009, the FASB issued Accounting Standards Update (ASU) 2009-05, Fair Value Measurements and Disclosures, (ASU 2009-05) which provides additional guidance on the measurement of liabilities at fair value. Specifically, when a quoted price in an active market for the identical liability is not available, ASU 2009-05 requires that the fair value of a liability be measured using one or more of the valuation techniques that should maximize the use of relevant observable inputs and minimize the use of unobservable inputs. In addition, an entity is not required to include a separate input or adjustment to other inputs relating to the existence of a restriction that prevents the transfer of a liability. The Corporation adopted ASU 2009-05 effective October 1, 2009 and the adoption did not have a material impact on our consolidated financial statements.
In January 2010, the FASB issued ASU 2010-06, Fair Value Measurement and Disclosures, (ASU 2010-06) which requires the addition of new disclosures and clarifies existing disclosure requirements already included in the guidance for fair value measurements. The new disclosures related to significant transfers in and out of Level 1 and Level 2 fair value measurements and the reasons for the transfers, as well as the clarifications of existing disclosures are effective for interim or annual reporting periods beginning after December 15, 2009. The new disclosures about purchases, sales, issuances and settlements in the roll forward of activity in Level 3 fair value measurements are effective for interim or annual reporting periods beginning after December 15, 2010. ASU 2010-06 clarifies and increases the disclosure requirements for fair value measurements and will not have a material effect on our financial position, results of operations or stockholders equity.
11
CITIZENS HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
As of and for the three months ended March 31, 2010
(Unaudited)
Note 7. Fair Value of Financial Instruments
The Financial Instruments Topic of the ASC requires disclosure of financial instruments fair values, as well as the methodology and significant assumptions used in estimating fair values. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the instrument. The Financial Instruments Topic of the ASC excludes certain financial instruments from its disclosure requirements. Accordingly, the aggregate fair value amounts presented do not represent the underlying value of the Corporation and may not be indicative of amounts that might ultimately be realized upon disposition or settlement of those assets and liabilities.
The Fair Value Topic of the ASC establishes a framework for measuring fair value and required enhanced disclosures about fair value measurements. This topic clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. This topic also requires disclosure about how fair value was determined for assets and liabilities and established a hierarchy for which these assets and liabilities must be grouped, based on significant levels of inputs as follows:
Level 1 | Quoted prices in active markets for identical assets or liabilities; | |||
Level 2 | Quoted prices in active markets for similar assets and liabilities and inputs that are observable for the asset or liability; or | |||
Level 3 | Unobservable inputs, such as discounted cash flow models or valuations. |
The determination of where assets and liabilities fall within this hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The fair value estimates, methods and assumptions used by the Corporation in estimating its fair value disclosures for financial instruments were:
Cash and Due from Banks and Interest Bearing Deposits with Banks
The carrying amounts reported in the balance sheet for these instruments approximate fair value because of their immediate and shorter-term maturities.
12
CITIZENS HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
As of and for the three months ended March 31, 2010
(Unaudited)
Securities Available-for-Sale
Fair values for investment securities are based on quoted market prices, when available. If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments. When neither quoted prices nor comparable instruments are available, unobservable inputs are needed to form an expected future cash flow analysis to establish fair values. Level 2 securities include debt securities including obligations of United States government agencies and corporations, mortgage-backed securities and state, county and municipal bonds. Level 3 securities consist of a pooled trust preferred security.
The following table presents assets and liabilities that are measured at fair value on a recurring basis as of March 31, 2010:
Quoted Prices in Active Markets for Identical Assets |
Significant Other Observable Inputs |
Significant Unobservable Inputs |
||||||||||
(Level 1) | (Level 2) | (Level 3) | Totals | |||||||||
Securities available for sale |
$ | | $ | 288,298,619 | $ | 2,194,315 | $ | 290,492,934 | ||||
The following table presents assets and liabilities that are measured at fair value on a recurring basis as of December 31, 2009:
Quoted Prices in Active Markets for Identical Assets |
Significant Other Observable Inputs |
Significant Unobservable Inputs |
||||||||||
(Level 1) | (Level 2) | (Level 3) | Totals | |||||||||
Securities available for sale |
$ | | $ | 316,258,603 | $ | 2,145,396 | $ | 318,403,999 | ||||
13
CITIZENS HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
As of and for the three months ended March 31, 2010
(Unaudited)
The following table reports the activity for 2010 in assets measured at fair value on a recurring basis using significant unobservable inputs.
Fair Value
Measurements Using Significant Unobservable Inputs (Level 3) | |||
Structured Financial Product | |||
Balance at January 1, 2010 |
$ | 2,145,396 | |
Total gains or losses (realized or unrealized) |
|||
Other-than-temporary impairment included in earnings |
| ||
Other-than-temporary impairment included in other comprehensive income |
| ||
Other gains/losses included in other comprehensive income |
48,919 | ||
Purchases, issuances and settlements |
| ||
Transfers in and/or out of Level 3 |
| ||
Balance at March 31, 2010 |
$ | 2,194,315 | |
The amount of total gains or losses for the period included in earnings attributable to the change in unrealized gains or losses relating to assets still held at reporting date |
$ | |
As of March 31, 2010, management determined, based on the current credit ratings, known defaults and deferrals by the underlying banks and the degree to which future defaults and deferrals would be required to occur before the cash flow for the Corporations tranche is negatively impacted, that no other than temporary impairment exists.
The Corporation recorded no gains or losses in earnings for the period that were attributable to the change in unrealized gains or losses relating to assets still held at the reporting date.
Net Loans
For variable-rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values. The fair values for other loans (i.e., commercial real estate and rental property mortgage loans, commercial and industrial loans, financial institution loans, and agricultural loans) are estimated using discounted cash flow analyses, using interest rates currently being offered for loans with similar terms to borrowers of similar credit quality. The carrying amount of accrued interest receivable approximates its fair value.
Impaired Loans
Loans considered impaired as defined in the Receivables topic of the ASC, are reserved for at the time the loan is identified as impaired taking into account the fair value of the collateral less estimated selling costs. Collateral may be real estate and/or business assets including but not limited to, equipment, inventory and accounts receivable. The fair value of real estate is determined based on appraisals by qualified licensed appraisers.
14
CITIZENS HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
As of and for the three months ended March 31, 2010
(Unaudited)
The fair value of the business assets is generally based on amounts reported on the businesss financial statements. Appraised and reported values may be adjusted based on managements historical knowledge, changes in market conditions from the time of valuation and managements knowledge of the client and the clients business. Since not all valuation inputs are observable, these nonrecurring fair value determinations are classified Level 3. Impaired loans are reviewed and evaluated on at least a quarterly basis for additional impairment and adjusted accordingly, based on the same factors previously identified.
Other real estate owned
Other real estate owned (OREO) is comprised of commercial and residential real estate obtained in partial and total satisfaction of loan obligations. OREO acquired in settlement of indebtedness is recorded at fair value of the real estate, less costs to sell. Subsequently, it may be necessary to record nonrecurring fair value adjustments for decline in fair value. Fair value, when recorded, is determined based on appraisals by qualified licensed appraisers and adjusted for managements estimates of costs to sell. As such, values for OREO are classified as Level 3.
For assets measured at fair value on a nonrecurring basis during 2010 that were still held in the balance sheet at March 31, 2010, the following table provides the hierarchy level and the fair value of the related assets:
Quoted Prices in Active Markets for Identical Assets |
Significant Other Observable Inputs |
Significant Unobservable Inputs |
||||||||||
(Level 1) | (Level 2) | (Level 3) | Totals | |||||||||
Impaired loans |
$ | | $ | | $ | 10,312,419 | $ | 10,312,419 | ||||
Other real estate owned |
| | 2,721,200 | 2,721,200 | ||||||||
$ | | $ | | $ | 13,033,619 | $ | 13,033,619 | |||||
15
CITIZENS HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
As of and for the three months ended March 31, 2010
(Unaudited)
For assets measured at fair value on a nonrecurring basis during 2009 that were still held in the balance sheet at December 31, 2009, the following table provides the hierarchy level and the fair value of the related assets:
Quoted Prices in Active Markets for Identical Assets |
Significant Other Observable Inputs |
Significant Unobservable Inputs |
||||||||||
(Level 1) | (Level 2) | (Level 3) | Totals | |||||||||
Impaired loans |
$ | | $ | | $ | 9,899,113 | $ | 9,899,113 | ||||
Other real estate owned |
| | 3,229,180 | 3,229,180 | ||||||||
$ | | $ | | $ | 13,128,293 | $ | 13,128,293 | |||||
Impaired loans with a carrying value of $10,312,419 had an allocated allowance for loan losses of $1,115,359 at March 31, 2010. The allocated allowance is based on the carrying value of the impaired loan and the fair value of the underlying collateral less estimated costs to sell.
The following table reports the activity for 2010 in impaired assets measured at fair value on a recurring basis using significant unobservable inputs.
Fair Value
Measurements Using Significant Unobservable Inputs (Level 3) |
||||
Impaired Assets | ||||
Balance at January 1, 2010 |
$ | 13,128,293 | ||
Total gains or losses (realized or unrealized) |
||||
Other-than-temporary impairment included in earnings |
(432,880 | ) | ||
Other-than-temporary impairment included in other comprehensive income |
| |||
Other gains/losses included in other comprehensive income |
| |||
Purchases, issuances and settlements |
| |||
Transfers in and/or out of Level 3 |
338,206 | |||
Balance at March 31, 2010 |
$ | 13,033,619 | ||
The amount of total gains or losses for the period included in earnings attributable to the change in unrealized gains or losses relating to assets still held at reporting date |
$ | 432,880 |
After monitoring the carrying amounts for subsequent declines or impairment after foreclosure, management determined that an impairment charge for four parcels of OREO in the total amount of $1,016,854 was necessary and was recorded during the year ended December 31, 2009. Prior to an auction of OREO on April15, 2010, the Corporation evaluated the properties scheduled for sale and took an impairment charge on those properties in the amount of $432,880.
16
CITIZENS HOLDING COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
As of and for the three months ended March 31, 2010
(Unaudited)
Federal Funds Sold and Purchased; Commercial Repurchase Agreements; Accrued Interest Receivable and Payable
Due to the short term nature of these instruments, the carrying amount is equal to the fair value.
Deposits
The fair values for demand deposits, NOW and money market accounts and savings accounts are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amounts). The carrying amounts for variable-rate, fixed-term money market accounts and time deposits approximate their fair values at the reporting date. Fair values for fixed-rate time deposits are estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities on time deposits. The carrying amount of accrued interest payable approximates its fair value.
Federal Home Loan Bank Borrowings
The fair value of FHLB advances is based on discounted cash flow analysis.
Off-Balance Sheet Instruments
The fair value of commitments to extend credit and letters of credit are estimated using fees currently charged to enter into similar agreements. The fees associated with these financial instruments are not material.
The following represents the carrying value and estimated fair value of the Corporations financial instruments at March 31, 2010 and December 31, 2009:
March 31, 2010 | December 31, 2009 | |||||||||||
Carrying Amount |
Fair Value |
Carrying Amount |
Fair Value | |||||||||
Financial assets |
||||||||||||
Cash and due from banks |
$ | 21,489,132 | $ | 21,489,132 | $ | 15,365,612 | $ | 15,365,612 | ||||
Interest bearing deposits with banks |
26,157,209 | 26,157,209 | 5,232,723 | 5,232,723 | ||||||||
Securities available-for-sale |
290,492,934 | 290,492,934 | 318,403,999 | 318,403,999 | ||||||||
Net loans |
440,793,446 | 441,097,587 | 441,694,562 | 442,075,445 | ||||||||
Accrued interest receivable |
6,099,344 | 6,099,344 | 6,048,718 | 6,048,718 | ||||||||
Financial liabilities |
||||||||||||
Deposits |
$ | 575,275,669 | $ | 575,466,438 | $ | 569,802,585 | $ | 570,022,820 | ||||
Federal Home Loan Bank advances |
86,400,000 | 89,458,936 | 74,400,000 | 77,219,245 | ||||||||
Accrued interest payable |
827,612 | 827,612 | 778,989 | 778,989 | ||||||||
Securities Sold under Agreement to Repurchase |
103,003,897 | 103,003,897 | 114,753,010 | 114,753,010 |
17
CITIZENS HOLDING COMPANY
ITEM 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. |
Managements discussion and analysis is written to provide greater insight into the results of operations and the financial condition of Citizens Holding Company and its wholly owned subsidiary, The Citizens Bank of Philadelphia (the Bank, and collectively with 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. A measurement of liquidity is the ratio of net deposits and short-term liabilities divided by the sum of net cash, short-term investments and marketable assets. This measurement for liquidity of the Corporation at March 31, 2010 was 34.37% and at December 31, 2009 was 36.93%. Management believes it maintains adequate liquidity for the Corporations current needs.
The Corporations primary source of liquidity is customer deposits, which were $575,275,669 at March 31, 2010 and $569,802,585 at December 31, 2009. Other sources of liquidity include investment securities, the Corporations line of credit with the Federal Home Loan Bank (FHLB) and federal funds lines with correspondent banks. The Corporation had $290,492,934 invested in investment securities at March 31, 2010 and $318,403,999 at December 31, 2009. The Corporation had secured and unsecured federal funds lines with correspondent banks in the amount of $40,500,000 at March 31, 2010 and at December 31, 2009. In addition, the Corporation has the ability to draw on its line of credit with the FHLB. At March 31, 2010, the Corporation had unused and available $100,420,079 of its line of credit with the FHLB and at December 31, 2009, the Corporation had unused and available $154,754,830 of its line of credit with the FHLB. The decrease in the amount available under the Corporations line of credit with the FHLB from the end of 2009 to March 31, 2010 was the result of a decrease in collateral available as calculated quarterly by the FHLB and the issuance of $12 million advance.
At March 31, 2010 had $12,500,000 in federal funds sold and at December 31, 2009 the Corporation had no funds in federal funds sold. The Corporation usually invests its excess liquidity in federal funds sold on a daily basis but during these two periods left its excess funds on deposit at the Federal Reserve Bank. This placement was due to the Federal Reserve Bank paying a rate on deposits that was higher than the current Federal Funds Rate offered by commercial banks.
When the Corporation has more funds than it needs for its reserve requirements or short-term liquidity needs, the Corporation increases its investment portfolio, increases the balances in interest bearing due from accounts or sells federal funds. It is managements 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. When deposits decline or do not grow sufficiently to fund loan demand, management will seek funding either through federal funds purchased or advances from the FHLB.
18
CAPITAL RESOURCES
The Corporations equity capital was $77,379,030 at March 31, 2010 as compared to $74,597,464 at December 31, 2009. The main reason for the increase in equity capital was net earnings in excess of dividends paid. Equity capital was also positively impacted by the investment securities market value adjustment due to an increase in the market value of the Corporations investment portfolio. This market value increase was due to general market conditions, specifically the decrease in short term interest rates, which caused an increase in the market price of the investment portfolio.
Certain employees and directors exercised stock options for 37,150 shares of stock in 2009. These option exercises brought the number of shares outstanding to 4,838,187 at December 31, 2009. In the first three months of 2010, one director and one officer exercised stock options for 4,500 shares of stock. Commencing March 1, 2007, the Corporation implemented a stock repurchase program under which the Corporation may repurchase up to 250,000 shares of its stock on the open market. At the end of the program, February 29, 2008, the Corporation had purchased 160,186 shares at an average price of $21.66.
Commencing May 1, 2008 the Corporation implemented a stock repurchase program under which the Corporation could repurchase up to 250,000 shares of the Companys common stock on the open market. At the end of the program, April 30, 2009, the Corporation had purchased 47,284 shares at an average price of $21.17.
Commencing May 1, 2009 the Corporation renewed its stock repurchase program whereby the Corporation may purchase up to 250,000 shares of the Corporations common stock on the open market. This plan will terminate no later than April 30, 2010. At March 31, 2010, the Corporation had purchased 46,326 shares at an average price of $22.69. This reduced the number of shares outstanding at March 31, 2010 to 4,829,561.
Cash dividends in the amount of $1,014,208, or $0.21 per share, have been paid in 2010 as of the end of the first quarter.
Quantitative measures established by federal regulations 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, 2010, the Corporation meets all capital adequacy requirements to which it is subject.
19
Actual | For Capital Adequacy Purposes |
To Be Well Capitalized Under Prompt Corrective Actions Provisions |
||||||||||||||||
Amount | Ratio | Amount | Ratio | Amount | Ratio | |||||||||||||
As of March 31, 2010 |
||||||||||||||||||
Total Capital |
$ | 78,366,513 | 15.01 | % | $ | 41,758,054 | >8.00 | % | $ | 52,197,568 | >10.00 | % | ||||||
Tier 1 Capital |
72,639,721 | 13.92 | % | 20,879,027 | >4.00 | % | 31,318,541 | >6.00 | % | |||||||||
Tier 1 Capital |
72,639,721 | 8.68 | % | 33,475,672 | >4.00 | % | 41,844,590 | >5.00 | % |
20
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 Ended March 31, | ||||||
2010 | 2009 | |||||
Interest Income, including fees |
$ | 9,875,217 | $ | 9,982,767 | ||
Interest Expense |
2,309,912 | 3,231,936 | ||||
Net Interest Income |
7,565,305 | 6,750,831 | ||||
Provision for Loan Losses |
624,956 | 316,012 | ||||
Net Interest Income after |
||||||
Provision for Loan Losses |
6,940,349 | 6,434,819 | ||||
Other Income |
1,623,131 | 1,561,716 | ||||
Other Expense |
6,023,131 | 5,623,659 | ||||
Income before Provision For |
||||||
Income Taxes |
2,540,349 | 2,372,876 | ||||
Provision for Income Taxes |
564,792 | 514,232 | ||||
Net Income |
$ | 1,975,557 | $ | 1,858,644 | ||
Net Income Per share-Basic |
$ | 0.41 | $ | 0.38 | ||
Net Income Per Share-Diluted |
$ | 0.41 | $ | 0.38 | ||
See Note 3 to the Corporations Consolidated Financial Statements for an explanation regarding the Corporations calculation of Net Income Per Share - basic and - diluted.
Annualized return on average equity (ROE) was 10.35% for the three months ended March 31, 2010 and 10.23% for the corresponding period in 2009. The increase in ROE was caused by the increase in net income for the first three months of 2010.
The book value per share increased to $15.99 at March 31, 2010 compared to $15.42 at December 31, 2009. The increase in book value per share reflects the increase in equity due to the amount of earnings in excess of dividends and the increase in other comprehensive income due to the increase in market value of the Corporations investment securities. Average assets for the three months ended March 31, 2010 were $840,441,615 compared to $806,213,076 for the year ended December 31, 2009.
21
NET INTEREST INCOME / NET INTEREST MARGIN
One component of the Corporations 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 4.18% for the first quarter of 2010 compared to 4.09% for the corresponding period of 2009. The increase in net interest margin from 2009 to 2010 is the result of a lesser decrease in yields on earning assets compared to the decrease in rates paid on deposits and borrowed funds, as detailed below. Earning assets averaged $762,840,688 for the three months ended March 31, 2010. This represents an increase of $69,868,533, or 10.1%, over average earning assets of $692,972,155 for the three month period ended March 31, 2009. The increase in earning assets for the three months ended March 31, 2010 is the result of the normal growth pattern of the Corporation and not due to any special investments or acquisitions.
Interest bearing deposits averaged $472,734,185 for the three months ended March 31, 2010. This represents an increase of $9,094,369, or 2.0%, over the average of interest bearing deposits of $463,639,816 for the three month period ended March 31, 2009. This was due to an increase in interest bearing deposits and in certificates of deposit outstanding. Other borrowed funds averaged $196,154,557 for the three months ended March 31, 2010. This represents an increase of $56,439,915, or 40.4%, over the other borrowed funds of $139,714,642 for the three month period ended March 31, 2009. This increase in other borrowed funds was due to a $48,253,626 increase in the Commercial Repo Liability, a $239,267 decrease in the ABE Loan Liability, a $3,158,889 increase in Federal Funds Purchased and a increase in the Federal Home Loan Bank advances of $5,266,667 for the three month period ended March 31, 2010 when compared to the three month period ended March 31, 2009.
Net interest income was $7,565,305 for the three month period ended March 31, 2010, an increase of $814,474 from $6,750,831 for the three month period ended March 31, 2009, primarily due to changes in both volume and rate. The changes in volume in earning assets and in deposits and in borrowed funds are discussed above. As to changes in rate, in the three month period ended March 31, 2010, the rates paid on deposits and borrowed funds decreased faster than the yield on earning assets as compared to the changes in rates and yields in the same period in 2009. The yield on all interest bearing assets decreased 58 basis points to 5.39% in the first quarter of 2010 from 5.97% for the same period in 2009. At the same time, the rate paid on all interest bearing liabilities for the first quarter of 2010 decreased by 78 basis points to 1.39% from 2.17% in the same period of 2009. As longer term interest bearing assets and liabilities mature and reprice, management believes that the yields on interest bearing assets and rates on interest bearing liabilities will both decrease.
22
The following table shows the interest and fees and corresponding yields for loans only.
For the Three Months Ended March 31, |
||||||||
2010 | 2009 | |||||||
Interest and Fees |
$ | 7,253,309 | $ | 7,341,401 | ||||
Average Loans |
451,829,997 | 433,990,307 | ||||||
Annualized Yield |
6.42 | % | 6.77 | % |
The decrease in interest rates in the three month period ended March 31, 2010 reflects the decrease in all loan interest rates for both new and refinanced loans in the period.
CREDIT LOSS EXPERIENCE
As a natural corollary to the Corporations lending activities, some loan losses are to be expected. The risk of loss varies with the type of loan being made and the overall creditworthiness of the borrower over the term of the loan. The degree of perceived risk is taken into account in establishing the structure of, and interest rates and security for, specific loans and for various types of loans. The 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 Corporations management determines require further monitoring and supervision, are segregated and reviewed on a regular basis. Significant problem loans are reviewed on a monthly basis by the Corporations Board of Directors.
The Corporation charges off that portion of any loan that management has determined to be a loss. A loan is generally considered by management to represent a loss in whole or in part when exposure beyond the collateral value is apparent, servicing of the unsecured portion has been discontinued or collection is not anticipated based on the borrowers financial condition. The general economic conditions in the borrowers industry influence this determination. The principal amount of any loan which is declared a loss is charged against the Corporations allowance for loan losses.
The Corporations allowance for loan losses is designed to provide for loan losses that can be reasonably anticipated. The allowance for loan losses is established through charges to operating expenses in the form of provisions for loan losses. Actual loan losses or recoveries are charged or credited to the allowance for loan losses. Management of the Corporation determines the amount of the allowance. Among the factors considered in determining the allowance for loan losses are the current financial condition of the Corporations 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 Corporations historical loan loss experience and reports of banking regulatory authorities. As these estimates, factors and evaluations are primarily judgmental, no assurance can be given as to whether the 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.
23
The following table summarizes the Corporations allowance for loan losses for the dates indicated:
Quarter
Ended March 31, 2010 |
Year Ended December 31, 2009 |
Amount of Increase (Decrease) |
Percent of Increase (Decrease) |
||||||||||||
BALANCES: |
|||||||||||||||
Gross Loans |
$ | 446,833,925 | $ | 447,519,944 | $ | (686,019 | ) | -0.15 | % | ||||||
Allowance for Loan Losses |
5,726,793 | 5,525,903 | 200,890 | 3.64 | % | ||||||||||
Nonaccrual Loans |
10,312,419 | 9,899,113 | 413,306 | 4.18 | % | ||||||||||
Ratios: |
|||||||||||||||
Allowance for loan losses to gross loans |
1.28 | % | 1.23 | % | |||||||||||
Net loans charged off to allowance for loan losses |
7.41 | % | 35.60 | % |
The provision for loan losses for the three months ended March 31, 2010 was $624,956, an increase of $308,944 from the $316,012 provision for the same period in 2009. The increase in our loan loss provisions is a result of slightly higher loan losses and managements assessment of inherent loss in the loan portfolio including the impact caused by current local and national economic conditions. The Corporations model used to calculate the provision is based on the percentage of historical charge-offs applied to the current loan balances by loan segment and specific reserves applied to certain impaired loans.
For the three months ended March 31, 2010, net loan losses charged to the allowance for loan losses totaled $424,066, an increase of $265,780 from the $158,286 charged off in the same period in 2009.
Management of the Corporation reviews with the Board of Directors the adequacy of the allowance for 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 first three months of 2010 that have not been charged off. Management also believes that the Corporations allowance will be adequate to absorb probable losses inherent in the Corporations loan portfolio. However, in light of overall economic conditions in the Corporations geographic area and the nation as a whole, it is possible that additional provisions for loan loss may be required.
NON-INTEREST INCOME
Non-interest income includes service charges on deposit accounts, wire transfer fees, safe deposit box rentals and other revenue not derived from interest on earning assets. Non-interest income for the three months ended March 31, 2010 was $1,623,132, an increase of $61,416, or 3.9%, over the same period in 2009. Service charges on deposit accounts increased by $49,889, or 5.5%, to $964,778 in the three months ended March 31, 2010
24
compared to $914,889 for the same period in 2009. Other service charges and fees increased by $50,395, or 15.6%, in the three months ended March 31, 2010 compared to the same period in 2009. The difference in fee income was the result of fluctuations in volume and not a direct result of fee changes.
The following is a detail of the other major income classifications that are included in Other Income under Non-Interest Income on the income statement:
Three months ended March 31, | ||||||
Other Income |
2010 | 2009 | ||||
BOLI Insurance |
$ | 105,000 | $ | 181,409 | ||
Mortgage Loan Origination Income |
26,795 | 59,248 | ||||
Other Income |
152,733 | 82,739 | ||||
Total Other Income |
$ | 284,528 | $ | 323,396 | ||
NON-INTEREST EXPENSE
Non-interest expenses include salaries and employee benefits, occupancy and equipment, and other operating expenses. Aggregate non-interest expenses for the three month period ended March 31, 2010 and 2009 were $6,023,132 and $5,623,659, respectively, an increase of $399,473, or 7.1%, from 2009 to 2010. Salaries and benefits increased to $3,400,361 for the three months ended March 31, 2010 from $3,143,628 for the same period in 2009. This represents an increase of $256,733, or 8.2%. This increase was the result of an increase in staffing related to expansion and normal yearly increases to staff. Occupancy expense decreased by $8,023, or 0.8%, to $945,388 for the three months ended March 31, 2010 when compared to the same period of 2009. This also reflects the increase in expenses due to the addition of new branches.
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The following is a detail of the major expense classifications that make up the other operating expense line item in the income statement:
Three months ended March 31, | ||||||
Other Operating Expense |
2010 | 2009 | ||||
Intangible Amortization |
$ | 46,173 | $ | 46,173 | ||
Advertising |
129,953 | 172,196 | ||||
Office Supplies |
111,667 | 125,126 | ||||
Legal and Audit Fees |
118,352 | 128,499 | ||||
Telephone expense |
140,309 | 139,796 | ||||
Postage and Freight |
76,611 | 89,454 | ||||
Loan Collection Expense |
146,033 | 58,267 | ||||
Other Losses |
17,147 | 69,077 | ||||
Other expenses |
891,138 | 698,032 | ||||
Total Other Expense |
$ | 1,677,383 | $ | 1,526,620 | ||
The Corporations efficiency ratio for the three months ended March 31, 2010 was 63.26% compared to the 65.36% for the same period in 2009. The efficiency ratio is the ratio of non-interest expenses divided by the sum of net interest income (on a fully tax equivalent basis) and non-interest income.
BALANCE SHEET ANALYSIS
March 31, 2010 |
December 31, 2009 |
Amount
of Increase (Decrease) |
Percent
of Increase (Decrease) |
||||||||||
Cash and Due From Banks |
$ | 47,646,341 | $ | 20,598,335 | $ | 27,048,006 | 131.31 | % | |||||
Investment Securities |
290,492,934 | 318,403,999 | (27,911,065 | ) | -8.77 | % | |||||||
Loans, net |
440,793,446 | 441,694,562 | (901,116 | ) | -0.20 | % | |||||||
Total Assets |
849,143,713 | 840,003,828 | 9,139,885 | 1.09 | % | ||||||||
Total Deposits |
575,275,669 | 569,802,585 | 5,473,084 | 0.96 | % | ||||||||
Total Stockholders Equity |
77,379,030 | 74,597,464 | 2,781,566 | 3.73 | % |
CASH AND CASH EQUIVALENTS
Cash and cash equivalents are made up of cash, balances at correspondent banks and items in process of collection. The balance at March 31, 2010 was $47,646,341, an increase of $27,048,006 from the balance of $20,598,335 at December 31, 2009 due to an increase in the availability of cash letters sent for collection on the last day of the period and an increase in interest bearing accounts. The rate paid on deposit at the Federal Reserve Bank was greater than the Federal Funds Sold rate paid by correspondent banks.
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PREMISES AND EQUIPMENT
During the quarter ended March 31, 2010, premises and equipment decreased by $160,284, or 0.9%, to $17,963,825 when compared to $18,124,109 at December 31, 2009. The decrease was due to the amount of depreciation exceeding the addition of property and equipment in the normal course of business.
INVESTMENT SECURITIES
The investment securities portfolio is made up of United States Treasury Notes, United States Agency debentures, mortgage-backed securities, obligations of states, counties and municipal governments and FHLB stock. Investments at March 31, 2010 decreased $27,911,065, or 8.8%, to $290,492,934 from the balance at December 31, 2009. This decrease is due to sales, maturities and calls of securities in our investment portfolio that were not reinvested, as a strategy to reallocate some funds to more liquid assets as part of our on-going management of liquidity sources and needs.
LOANS
The loan balance decreased by $901,116 during the quarter ended March 31, 2010 to $440,793,446 from $441,694,562 at December 31, 2009. Loan demand, especially in the commercial and industrial loan category was weak during the quarter. No material changes were made to the loan products offered by the Corporation during this period.
DEPOSITS
The following table shows the balance and percentage change in the various deposits:
March 31, 2010 |
December 31, 2009 |
Amount
of Increase (Decrease) |
Percent
of Increase (Decrease) |
||||||||||
Noninterest-bearing Deposits |
$ | 92,787,597 | $ | 87,116,776 | $ | 5,670,821 | 6.51 | % | |||||
Interest-bearing Deposits |
177,938,301 | 183,971,551 | (6,033,250 | ) | -3.28 | % | |||||||
Savings |
36,634,237 | 34,466,029 | 2,168,208 | 6.29 | % | ||||||||
Certificates of Deposit |
267,915,534 | 264,248,229 | 3,667,305 | 1.39 | % | ||||||||
Total Deposits |
$ | 575,275,669 | $ | 569,802,585 | $ | 5,473,084 | 0.96 | % | |||||
All classifications of deposits, with the exception of interest-bearing deposits, increased during the quarter ended March 31, 2010. The Corporation decreased its rates paid on interest bearing deposits in response to the rates paid in our market area brought about by the increases in deposits. Management continually monitors the interest rates on loan and deposit products to ensure that the Corporation is in line with the rates dictated by the market.
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OFF-BALANCE SHEET ARRANGEMENTS
Refer to Note 2 to the consolidated financial statements included in this report for a discussion of the nature and extent of the Corporations off-balance sheet arrangements, which consist of commitments to fund loans and letters of credit.
CONTRACTUAL OBLIGATIONS
There have been no material changes outside of the ordinary course of the Corporations business to the contractual obligations set forth in Note 12 to the Corporations financial statements contained in the Corporations Annual Report on Form 10-K for the year ended December 31, 2009.
FORWARD LOOKING STATEMENTS
In addition to historical information, this report contains statements which constitute forward-looking statements and information within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which are based on managements beliefs, plans, expectations and assumptions and on information currently available to management. The words may, should, expect, anticipate, intend, plan, continue, believe, seek, estimate, and similar expressions used in this 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, Managements 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 Corporations 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 operates; (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 economies in the Corporations market area and (h) other risks detailed from time to time in the Corporations 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.
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ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. |
The following discussion outlines specific risks that could affect the Corporations ability to compete, change the Corporations risk profile, or eventually impact the Corporations financial results. The risks the Corporation faces generally are similar to those experienced, to varying degrees, by all financial services companies.
Our strategies and managements ability to react to changing competitive and economic environments have enabled us historically to compete effectively and manage risks to acceptable levels. The Corporation has outlined potential risk factors below that we presently believe could be important; however, other risks may prove to be important in the future. New risks may emerge at any time and the Corporation cannot predict with certainty all potential developments which could affect the Corporations financial performance. The following discussion highlights potential risks which could intensify over time or shift dynamically in a way that might change the Corporations risk profile.
Competition Risks
The market in which the Corporation competes is saturated with community banks seeking to provide a service oriented banking experience to individuals and businesses compared with what the Corporation believes, is the more rigid and less friendly environment found in large banks. This requires us to offer most, if not all, of the products and conveniences that are offered by the larger banks with a service differentiation. In doing so, it is imperative that the Corporation identify the lines of business that the Corporation can excel in, prudently utilize the Corporations available capital to acquire the people and platforms required thereof and execute on the strategy.
Credit Risks
Like all lenders, the Corporation faces the risk that the Corporations customers may not repay their loans and that the realizable value of collateral may be insufficient to avoid a loss of principal. In the Corporations business, some level of credit loss is unavoidable and overall levels of credit loss can vary over time. Our ability to manage credit risks depends primarily upon the Corporations ability to assess the creditworthiness of customers and the value of collateral, including real estate. The Corporation controls credit risk by diversifying the Corporations loan portfolio and managing its composition, and by recording and managing an allowance for expected loan losses in accordance with applicable accounting rules. At the end of March 2010, the Corporation had $5.727 million of available reserves to cover such losses. The models and approaches the Corporation uses to originate and manage loans are regularly updated to take into account changes in the competitive environment, in real estate prices and other collateral values, and in the economy, among other things based on the Corporations experience originating loans and servicing loan portfolios.
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Financing, Funding and Liquidity Risks
One of the most important aspects of managements efforts to sustain long-term profitability for the Corporation is the management of interest rate risk. Managements goal is to maximize net interest income within acceptable levels of interest-rate risk and liquidity.
The Corporations assets and liabilities are principally financial in nature and the resulting earnings thereon are subject to significant variability due to the timing and extent to which the Corporation can reprice the yields on interest-earning assets and the costs of interest bearing liabilities as a result of changes in market interest rates. Interest rates in the financial markets affect the Corporations decisions on pricing its assets and liabilities which impacts net interest income, an important cash flow stream for the Corporation. As a result, a substantial part of the Corporations risk-management activities are devoted to managing interest-rate risk. There is also focus on managing the risks associated with the volatility of fair value in both mortgage loan servicing rights and mortgage banking assets. Currently, the Corporation does not have any significant risks related to foreign exchange, commodities or equity risk exposures.
Interest Rate and Yield Curve Risks
A significant portion of the Corporations business involves borrowing and lending money. Accordingly, changes in interest rates directly impact the Corporations revenues and expenses, and potentially could compress the Corporations net interest margin. The Corporation actively manages its balance sheet to control the risks of a reduction in net interest margin brought about by ordinary fluctuations in rates.
The Corporations mortgage lending and servicing businesses also are affected by changes in interest rates. Generally, when rates increase demand for mortgage loans decreases (and the Corporations revenues from new originations fall), and when rates decrease, demand increases (and the Corporations origination revenues increase). In a contrary fashion, when interest rates increase the value of mortgage servicing rights (MSR) that the Corporation retains generally increases, and when rates decline the value of MSR declines. Within the Corporations mortgage businesses, therefore, there is a partial natural hedge against ordinary interest rate changes.
Like all financial services companies, the Corporation faces the risks of abnormalities in the yield curve. The yield curve simply shows the interest rates applicable to short and long term debt. The curve is steep when short-term rates are much lower than long-term rates: it is flat when short-term rates are equal, or nearly equal, to long-term rates: and it is inverted when short-term rates exceed long-term rates. Historically, the yield curve is positively sloped. A flat or inverted yield curve tends to decrease net interest margin, as funding costs increase relative to the yield on assets. Currently the yield curve is
Regulatory and Legal Risks
We operate in a heavily regulated industry and therefore are subject to many banking,
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deposit, and consumer lending regulations in addition to the rules applicable to all companies publicly traded in the U.S. securities markets. Failure to comply with applicable regulations could result in financial, structural, and operational penalties. In addition, efforts to comply with applicable regulations may increase the Corporations costs and, or limit the Corporations ability to pursue certain business opportunities. Federal and state regulations significantly limit the types of activities in which the Corporation, as a financial institution, may engage. In addition, the Corporation is subject to a wide array of other regulations that govern other aspects of how the Corporation conducts the Corporations business, such as in the areas of employment and intellectual property. Federal and state legislative and regulatory authorities occasionally consider changing these regulations or adopting new ones. Such actions could limit the amount of interest or fees the Corporation can charge, could restrict the Corporations ability to collect loans or realize on collateral, or could materially affect us in other ways. Additional federal and state consumer protection regulations also could expand the privacy protections afforded to customers of financial institutions, restricting the Corporations ability to share or receive customer information and increasing the Corporations costs. In addition, changes in accounting rules can significantly affect how the Corporation records and reports assets, liabilities, revenues, expenses, and earnings.
The Corporationalso face litigation risks from customers (singly or in class actions) and from federal or state regulators. Litigation is an unavoidable part of doing business, and the Corporation manages those risks through internal controls, personnel training, insurance, litigation management, the Corporations compliance and ethics processes and other means. However, the commencement, outcome, and magnitude of litigation cannot be predicted or controlled with certainty.
Accounting Estimate Risks
The preparation of the Corporations consolidated financial statements in conformity with United States generally accepted accounting principles requires management to make significant estimates that affect the financial statements. Two of the Corporations most critical estimates are the level of the allowance for credit losses and the valuation of mortgage servicing rights. However, other estimates occasionally become highly significant, especially in volatile situations such as litigation and other loss contingency matters. Estimates are made at specific points in time; as actual events unfold, estimates are adjusted accordingly. Due to the inherent nature of these estimates, it is possible that, at some time in the future, the Corporation may significantly increase the allowance for credit losses and/or sustain credit losses that are significantly higher than the provided allowance, or the Corporation may recognize a significant provision for impairment of the Corporations mortgage servicing rights, or the Corporation may make some other adjustment that will differ materially from the estimates that the Corporation make today.
Expense Control
Expenses and other costs directly affect the Corporations earnings. Our ability to successfully manage expenses is important to the Corporations long-term profitability. Many factors can influence the amount of the Corporations expenses, as well as how
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quickly they grow. As the Corporations businesses change or expand, additional expenses can arise from asset purchases, structural reorganization evolving business strategies, and changing regulations, among other things. The Corporation manages expense growth and risk through a variety of means, including actual versus budget management, imposition of expense authorization, and procurement coordination and processes.
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ITEM 4. | CONTROLS AND PROCEDURES. |
The management of the Corporation, with the participation of our principal executive and financial officers, has evaluated the effectiveness of our disclosure controls and procedures in ensuring that the information required to be disclosed in our filings under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commissions rules and forms, including ensuring that such information is accumulated and communicated to the Corporations management as appropriate to allow timely decision regarding required disclosure. Based on such evaluation, our principal executive and financial officers have concluded that such disclosure controls and procedures were effective as of March 31, 2010 (the end of the period covered by this Quarterly Report on Form 10-Q).
There were no changes to the Corporations internal control over financial reporting that occurred in the three months ended March 31, 2010 that have materially affected, or are reasonably likely to materially affect, the Corporations internal control over financial reporting.
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ITEM 1A. | RISK FACTORS. |
Information regarding risk factors appears in Part I, Item 1A, Risk Factors, of the Corporations Annual Report on Form 10-K for the year ended December 31, 2009. There have been no material changes in the risk factors previously disclosed in such Annual Report on Form 10-K.
ITEM 2. | UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS. |
Repurchases of Securities
The following table summarizes the Corporations purchases of its own securities for the three-month period ended March 31, 2010:
Period |
( a
) Total Number of Shares Purchased (1) |
( b ) Average Price Paid per Share |
( c
) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1) (2) |
( d ) Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs (2) | |||||
January 1 to January 31 |
5,126 | $ | 22.53 | 5,126 | | ||||
February 1 to February 28 |
5,600 | 22.10 | 5,600 | | |||||
March 1 to March 31 |
2,400 | 23.45 | 2,400 | 203,674 | |||||
Total |
13,126 | $ | 22.51 | 13,126 | 203,674 | ||||
(1) | All shares were purchased through the Corporations publicly announced share buy-back plan. |
(2) | On April 28, 2009, the Corporations board of directors adopted a stock repurchase program which authorizes the Corporation to repurchase up to 250,000 shares of its outstanding common stock. The plan is effective May 1, 2009 and will terminate no later than April 30, 2010. As of March 31, 2010, 46,326 shares of the Corporations common stock had been purchased and 203,674 shares under the plan were not purchased. All share purchases during 2009 and 2010 were made pursuant to open market transactions. |
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ITEM 6. | EXHIBITS. |
Exhibits
31(a) | Certification of the Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a). | |
31(b) | Certification of the Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a). | |
32(a) | Certification of the Chief Executive Officer pursuant to 18 U.S.C. § 1350. | |
32(b) | Certification of the Chief Financial Officer pursuant to 18 U.S.C. § 1350. |
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Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
CITIZENS HOLDING COMPANY
BY: | /S/ GREG L. MCKEE | BY: | /S/ ROBERT T. SMITH | |||||
Greg L. McKee | Robert T. Smith | |||||||
President and Chief Executive Officer | Treasurer and Chief Financial Officer | |||||||
DATE: May 6, 2010 | DATE: May 6, 2010 |
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EXHIBIT INDEX
Exhibit Number |
Description of Exhibit | |
31(a) | Certification of the Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) | |
31(b) | Certification of the Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) | |
32(a) | Certification of the Chief Executive Officer pursuant to 18 U.S.C. §1350. | |
32(b) | Certification of the Chief Financial Officer pursuant to 18 U.S.C. §1350. |
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