Exhibit 13 – 2022 Annual Report to Shareholders

CITIZENS HOLDING COMPANY

Philadelphia, Mississippi

Consolidated Financial Statements

As of December 31, 2022 and 2021 and for the

Years Ended December 31, 2022, 2021 and 2020

CONTENTS

Report of Independent Registered Public Accounting Firm (Horne LLP, Memphis, TN PCAOB ID #: 171)	1-2
Management’s Assessment of Internal Control over Financial Reporting	3 – 4
Consolidated Financial Statements
Consolidated Statements of Financial Condition	5
Consolidated Statements of Income	6
Consolidated Statements of Comprehensive (Loss) Income	7
Consolidated Statements of Changes in Shareholders’ Equity	8
Consolidated Statements of Cash Flows	9 – 10
Notes to Consolidated Financial Statements	11 – 67

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and the Board of Directors of Citizens Holding Company

Opinion on the Financial Statements

We have audited the accompanying consolidated statements of financial condition of Citizens Holding Company and Subsidiary (the "Company") as of December 31, 2022 and 2021, the related consolidated statements of income, comprehensive (loss) income, changes in shareholders' equity, and cash flows for each of the three years in the period ended December 31, 2022, and the related notes to the consolidated financial statements (collectively, referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting in accordance with PCAOB standards. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting in accordance with PCAOB standards. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved especially challenging, subjective, or complex judgments. The communication of this critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.

1

Allowance for Loan Losses

As described in Notes 1 and 5 to the financial statements, the Company's allowance for loan losses, (“allowance”), is a valuation allowance that reflects the Company's estimation of incurred losses in its loan portfolio to the extent they are both probable and reasonable to estimate. The allowance for loan losses was $5,264,000 at December 31, 2022, which consists of two components; the allowance for loans individually evaluated for impairment and the allowance for loans collectively evaluated for impairment ("general reserves").

The Company's general reserves include reserves based on historical charge-off factors and qualitative general reserve factors. The component for qualitative general reserve factors involves an evaluation of items which are not yet reflected in the factors for historical charge-offs including changes in: lending policies and procedures, economic and business conditions, nature and volume of the portfolio, lending staff, volume and severity of delinquent loans, loan review systems, collateral values, and concentrations of credit. The evaluation of these items results in qualitative general reserve factors, which contribute significantly to the general reserve component of the estimate of the allowance for loan losses.

We identified management’s estimate of the aggregate effect of the qualitative reserve factors on the allowance for loan losses as a critical audit matter as it involved subjective auditor judgment. Management's determination of qualitative general reserve factors involved especially subjective judgment because management's estimate relies on qualitative analysis to determine the quantitative impact the items have on the allowance.

The primary procedures we performed to address this critical audit matter included:

● Evaluation of loans excluded from the qualitative general reserve calculation for propriety of classification.

● Evaluation of the completeness and accuracy of data inputs used as a basis for the adjustments relating to the qualitative general reserve factors.

● Evaluation of the reasonableness of management's judgments related to the qualitative general reserve factors through a quantitative and quantitative assessment of the data used in the determination of qualitative general reserve factors and the resulting allocation to the allowance. Our evaluation considered the weight of confirming and disconfirming evidence from internal and external sources, loan portfolio performance and third-party data, and whether management’s significant assumptions were applied consistently period to period.

● Evaluation of how management addressed estimation uncertainty in determining the qualitative general reserve factors through considering alternative assumptions or outcomes, and how management determined the final qualitative factor adjustments were reasonable.

/s/ Horne LLP

We have served as the Company's auditor since 1998.

Memphis, Tennessee

March 16, 2023

2

Report on Management’s Assessment of Internal Control over Financial Reporting

Citizens Holding Company (the “Company”) is responsible for the preparation, integrity and fair presentation of the consolidated financial statements included in this annual report. The consolidated financial statements and notes included in this annual report have been prepared in conformity with accounting principles generally accepted in the United States and necessarily include some amounts that are based on management’s best estimates and judgments.

Management of the Company is responsible for establishing and maintaining effective internal control over financial reporting designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States. The Company’s internal control over financial reporting includes those policies and procedures that: (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.

The system of internal control over financial reporting as it relates to the financial statements is evaluated for effectiveness by management and tested for reliability through a program of internal audits. Actions are taken to correct potential deficiencies as they are identified. Any system of internal control, no matter how well designed, has inherent limitations, including the possibility that a control can be circumvented or overridden, and misstatements due to error or fraud may occur and not be detected. Also, because of changes in conditions, internal control effectiveness may vary over time. Accordingly, even an effective system of internal control will provide only reasonable assurance with respect to financial statement preparation.

3

Citizens Holding Company

Page Two

Management, with the participation of the Company’s principal executive officer and principal financial officer, conducted an assessment of the effectiveness of the Company’s system of internal control over financial reporting as of December 31, 2022, based on criteria for effective internal control over financial reporting described in the “Internal Control – Integrated Framework,” (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, management has concluded that, as of December 31, 2022, the Company’s system of internal control over financial reporting was effective.

Greg L. McKee	Phillip R. Branch
Chief Executive Officer	Treasurer and Chief Financial Officer

March 16, 2023

4

CITIZENS HOLDING COMPANY

Consolidated Statements of Financial Condition

December 31, 2022 and 2021

(in thousands, except share data)

	2022			2021
ASSETS
Cash and due from banks	$	26,948		$	10,673
Interest bearing deposits with other banks		1,646			68,563
Cash and cash equivalents		28,594			79,236
Investment securities held-to-maturity, at amortized cost		406,590			-
Securities available for sale, at fair value		201,322			631,835
Loans held for investment ("LHFI"), net of unearned income		585,591			571,847
Less allowance for loan losses, LHFI		5,264			4,513
Net LHFI		580,327			567,334
Bank premises, furniture, fixtures and equipment, net		27,705			26,661
Other real estate owned, net		1,179			2,475
Accrued interest receivable		4,864			4,171
Cash surrender value of life insurance		25,724			25,679
Deferred tax assets, net		29,574			6,279
Identifiable intangible assets, net		13,442			13,551
Other assets		4,682			4,088
Total assets	$	1,324,003		$	1,361,309
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits
Non-interest bearing deposits	$	299,112		$	302,707
Interest bearing deposits		827,290			809,185
Total deposits		1,126,402			1,111,892
Securities sold under agreement to repurchase		127,574			112,760
Borrowings on secured line of credit		18,000			18,000
Accrued interest payable		732			328
Deferred compensation payable		9,868			9,543
Other liabilities		2,402			2,886
Total liabilities		1,284,978			1,255,409
Shareholders' equity
Common stock, $.20 par value, authorized 22,500,000 shares; 5,603,570 shares issued and outstanding at December 31, 2022 and 5,595,320 shares issued and outstanding at December 31, 2021		1,122			1,120
Additional paid-in capital		18,448			18,293
Accumulated other comprehensive (loss), net of tax benefit of $29,355 in 2022 and $3,921 in 2021		(83,070	)		(11,795	)
Retained earnings		102,525			98,282
Total shareholders' equity		39,025			105,900
Total liabilities and shareholders' equity	$	1,324,003		$	1,361,309

The accompanying notes are an integral part of these statements.

5

CITIZENS HOLDING COMPANY

Consolidated Statements of Income

Years Ended December 31, 2022, 2021, and 2020

(in thousands, except share and per share data)

	2022		2021		2020
Interest income
Interest and fees on loans	$	27,198	$	31,207	$	30,941
Interest on securities
Taxable		8,075		4,440		7,837
Non-taxable		4,040		2,800		1,501
Other interest		388		62		282
Total interest income		39,701		38,509		40,561
Interest expense
Deposits		2,538		4,260		6,556
Other borrowed funds		2,254		755		871
Total interest expense		4,792		5,015		7,427
Net interest income		34,909		33,494		33,134
Provision for loan losses		124		1,409		1,485
Net interest income after provision for loan losses		34,785		32,085		31,649
Non-interest income
Service charges on deposit accounts		3,896		3,499		3,352
Other service charges and fees		4,268		4,281		3,606
Net gains on sales of securities		-		1,378		829
Other income		2,721		3,030		2,673
Total non-interest income		10,885		12,188		10,460
Non-interest expense
Salaries and employee benefits		17,649		18,460		17,476
Occupancy expense		3,195		3,193		3,105
Equipment expense		4,216		3,942		4,255
Write down on other real estate		42		914		230
Other expense		9,067		8,839		8,360
Total non-interest expense		34,169		35,348		33,426
Income before income taxes		11,501		8,925		8,683
Income tax expense		1,881		1,431		1,752
Net income	$	9,620	$	7,494	$	6,931
Net income per share – basic	$	1.72	$	1.34	$	1.24
Net income per share – diluted	$	1.72	$	1.34	$	1.24
Weighted average shares outstanding
Basic		5,592,668		5,584,396		5,577,352
Diluted		5,592,668		5,584,483		5,579,916

The accompanying notes are an integral part of these statements.

6

CITIZENS HOLDING COMPANY

Consolidated Statements of Comprehensive (Loss) Income

Years Ended December 31, 2022, 2021, and 2020

(in thousands)

	2022			2021			2020
Net income	$	9,620		$	7,494		$	6,931
Other comprehensive (loss) income
Unrealized holding (losses) gains on available-for-sale securities		(96,677	)		(22,608	)		5,736
Income tax effect		24,121			5,641			(1,431	)
Net unrealized (losses) gains		(72,556	)		(16,967	)		4,305
Amortization of net unrealized losses transferred during the period		1,707			-			-
Income tax effect		(426	)		-			-
Net unrealized losses		1,281			-			-
Reclassification adjustment for gains included in net income		-			1,378			829
Income tax effect		-			(344	)		(207	)
Net gains included in net income		-			1,034			622
Total other comprehensive (loss) income		(71,275	)		(15,933	)		4,927
Comprehensive (loss) income	$	(61,655	)	$	(8,439	)	$	11,858

The accompanying notes are an integral part of these statements.

7

CITIZENS HOLDING COMPANY

Consolidated Statements of Changes in Shareholders' Equity

Years Ended December 31, 2022, 2021, and 2020

(in thousands, except share data)

										Accumulated
	Number						Additional			Other
	of Shares			Common			Paid-In			Comprehensive			Retained
	Issued			Stock			Capital			(Loss) Income			Earnings			Total
Balance, January 1, 2020		5,578,131		$	1,116		$	17,883		$	(789	)	$	94,590		$	112,800
Net income		-			-			-			-			6,931			6,931
Dividends paid ($0.96 per share)		-			-			-			-			(5,363	)		(5,363	)
Options exercised		5,189			1			85			-			-			86
Restricted stock granted		8,250			2			(2	)		-			-			-
Restricted stock forfeited		(4,500	)		(1	)		1									-
Stock compensation expense		-			-			167			-			-			167
Other comprehensive income, net		-			-			-			4,927			-			4,927
Balance, December 31, 2020		5,587,070			1,118			18,134			4,138			96,158			119,548
Net income		-			-			-			-			7,494			7,494
Dividends paid ($0.96 per share)		-			-			-			-			(5,370	)		(5,370	)
Restricted stock granted		8,250			2			(2	)		-			-			-
Stock compensation expense		-			-			161			-			-			161
Other comprehensive loss, net		-			-			-			(15,933	)		-			(15,933	)
Balance, December 31, 2021		5,595,320			1,120			18,293			(11,795	)		98,282			105,900
Net income		-			-			-			-			9,620			9,620
Dividends paid ($0.96 per share)		-			-			-			-			(5,377	)		(5,377	)
Restricted stock granted		8,250			2			(2	)		-			-			-
Stock compensation expense		-			-			157			-			-			157
Other comprehensive loss, net		-			-			-			(71,275	)		-			(71,275	)
Balance, December 31, 2022		5,603,570		$	1,122		$	18,448		$	(83,070	)	$	102,525		$	39,025

 The accompanying notes are an integral part of these statements.

8

CITIZENS HOLDING COMPANY

Consolidated Statements of Cash Flows

Years Ended December 31, 2022, 2021, and 2020

1 of 2

(in thousands)

	2022			2021			2020
Cash flows from operating activities
Net income	$	9,620		$	7,494		$	6,931
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization		1,275			1,173			1,121
Amortization of premiums and accretion of discounts on investment securities, net		3,247			6,629			7,286
Stock compensation expense		157			161			167
Provision for loan losses		124			1,409			1,485
Gain on sale of securities		-			(1,378	)		(829	)
Gain from death benefit proceeds on BOLI		(192	)		(357	)		-
(Gain) loss on sale of fixed assets		(322	)		13			(74	)
Impairment loss on fixed assets		208			-			-
Net gain on sale of other real estate owned		(27	)		(323	)		(105	)
Deferred income tax expense		401			566			498
Writedown on other real estate owned		42			914			230
(Increase) decrease in accrued interest receivable		(694	)		1,812			(1,802	)
Increase in cash surrender value life insurance		(665	)		(670	)		(726	)
Increase (decrease) in accrued interest payable		403			(194	)		(606	)
Increase (decrease) in deferred compensation liability		325			(122	)		212
Net change in other operating assets and liabilities		(142	)		364			255
Net cash provided by operating activities		13,760			17,491			14,043
Cash flows from investing activities
Proceeds from calls, paydowns and maturities of securities available-for-sale	$	39,399		$	150,879		$	237,705
Proceeds from calls, paydowns and maturities of securities held-to-maturity		8,371			-			-
Proceeds from sales of securities available-for-sale		-			500,685			188,324
Purchases of investment securities available-for-sale		(122,120	)		(631,131	)		(640,289	)
Proceeds from sale of FHLB stock		-			4,447			2,913
Decrease in federal funds sold		-			-			1,600
Death benefit proceeds from bank-owned life insurance		812			1,162			-
Purchases of bank premises, furniture, fixtures and equipment		(2,642	)		(2,599	)		(2,019	)

9

CITIZENS HOLDING COMPANY

Consolidated Statements of Cash Flows

Years Ended December 31, 2022, 2021, and 2020

2 of 2

(in thousands)

	2022			2021			2020
Proceeds from sales of bank premises, furniture, fixtures and equipment		546			492			124
Proceeds from sale of other real estate owned		1,331			3,257			1,899
Purchases of FHLB stock		(880	)		(4,103	)		(1,025	)
Net change in loans		(13,166	)		75,527			(77,239	)
Net cash (used in) provided by investing activities		(88,349	)		98,616			(288,007	)
Cash flows from financing activities
Net change in deposits	$	14,510		$	16,703		$	196,193
Net increase (decrease) in securities sold under agreement to repurchase		14,814			(83,512	)		25,862
Proceeds from borrowings on secured line of credit		-			18,000			-
Proceeds from exercise of stock options		-			-			86
Dividends paid to shareholders		(5,377	)		(5,370	)		(5,363	)
Net (decrease) increase in FHLB advances		-			(25,000	)		25,000
Net cash provided by (used in) financing activities		23,947			(79,179	)		241,778
Net (decrease) increase in cash and due from banks		(50,642	)		36,928			(32,186	)
Cash and cash equivalents, beginning of year		79,236			42,308			74,494
Cash and cash equivalents, end of year	$	28,594		$	79,236		$	42,308
Supplemental disclosures of cash flow information
Cash paid for
Interest	$	4,388		$	5,209		$	8,033
Income taxes	$	1,490		$	515		$	1,539
Noncash disclosures
Real estate acquired by foreclosure	$	49		$	3,250		$	1,546

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

10

CITIZENS HOLDING COMPANY

Years Ended December 31, 2022, 2021 and 2020

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

(in thousands, except share and per share data)

Nature of Business

Citizens Holding Company (referred to herein as the “Holding Company”) owns and operates The Citizens Bank of Philadelphia (the “Bank”). In addition to full service commercial banking, the Bank offers title insurance services through its affiliate, Title Services LLC. During 2022, Title Services LLC ceased operations. As a state bank, the Bank is subject to regulations of the Mississippi Department of Banking and Consumer Finance and the Federal Deposit Insurance Company. The Company is also subject to the regulations of the Federal Reserve. The area served by the Bank is east central Mississippi, along with southern and northern counties of Mississippi and their surrounding areas. Services are provided at multiple branch offices.

Basis of Financial Statement Presentation

The accounting policies of the Company and its subsidiary conform to generally accepted accounting principles (“GAAP”) in the United States of America and to general practices within the banking industry. The consolidated financial statements of the Company include the accounts of the Bank and its affiliate (collectively, the “Company”). All significant intercompany transactions have been eliminated in consolidation.

Segment Reporting

We have determined that all of our lending divisions meet the aggregation criteria of Accounting Standards Codification (“ASC”) 280, Segment Reporting, since all offer similar products and services, operate with similar processes, have similar customers and are collectively reviewed by the chief operating decision maker. No other services are material for presentation as a separate segment.

Estimates

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

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

11

CITIZENS HOLDING COMPANY

Years Ended December 31, 2022, 2021 and 2020

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Continued

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

Cash, Due from Banks and Interest Bearing Deposits with Other Banks

For the purpose of reporting cash flows, cash and due from banks includes cash on hand and demand deposits. Cash flows from loans originated by the Company, deposits, and federal funds purchased and sold are reported net in the statement of cash flows. The Company is required to maintain average reserve balances with the Federal Reserve Bank based on a percentage of deposits. Effective March 26, 2021, the Federal Reserve reduced reserve requirement ratios to zero percent, eliminating the reserve requirements for all depository institutions.

Interest-bearing deposits with other banks mature within one year and are carried at cost.

Investment Securities

In accordance with the investments topic of the ASC, securities are classified as “available-for-sale (“AFS”),” “held-to-maturity (“HTM”)” or “trading”. Fair values for securities are based on quoted market prices where available. If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments. Gains or losses on the sale of securities are determined using the specific identification method. Currently, the Company has no trading securities.

Securities Available-for-Sale

Securities that are held for indefinite periods of time or used as part of the Company’s asset/liability management strategy and that may be sold in response to interest rate changes, changes in prepayment risk, the need to increase regulatory capital and other similar factors are classified as AFS. Securities available-for-sale are reported at fair value, with unrealized gains and losses reported, net of related income tax effect, as a separate component of shareholders’ equity.

12

CITIZENS HOLDING COMPANY

Years Ended December 31, 2022, 2021 and 2020

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Continued

The Company evaluates its investment portfolio for other-than-temporary-impairment (“OTTI”) on a quarterly basis in accordance with ASC 320, “Investments - Debt and Equity Securities.” Impairment is assessed at the individual security level. The Company considers an investment security impaired if the fair value of the security is less than its cost or amortized cost basis. Impairment is considered to be other-than-temporary if the Company intends to sell the investment security or if the Company does not expect to recover the entire amortized cost basis of the security before the Company is required to sell the security or the security’s maturity. When impairment of an equity security is considered to be other-than-temporary, the security is written down to its fair value and an impairment loss is recorded as a loss within noninterest income in the Consolidated Statements of Income. When impairment of a debt security is considered to be other-than-temporary, the security is written down to its fair value. The amount of OTTI recorded as a loss within noninterest income depends on whether an entity intends to sell the debt security and whether it is more likely than not that the entity will be required to sell the security before recovery of its amortized cost basis. If an entity intends to, or has decided to, sell the debt security or more likely than not will be required to sell the security before recovery of its amortized cost basis, OTTI must be recognized in earnings in an amount equal to the entire difference between the security’s amortized cost basis and its fair value. If an entity does not intend to sell the debt security and it is not more likely than not that the entity will be required to sell the security before recovery of its amortized cost basis, OTTI is separated into the amount representing credit loss and the amount related to all other market factors. The amount related to credit loss is recognized in earnings and is calculated as the difference between the estimate of discounted future cash flows and the amortized cost basis of the security. A number of qualitative and quantitative factors, including but not limited to the financial condition of the underlying issuer and current and projected deferrals or defaults, are considered by management in the estimate of the discounted future cash flows. The remaining difference between the fair value and the amortized cost basis of the security is considered the amount related to other market factors and is recognized in other comprehensive income, net of applicable taxes.

Securities Held-to-Maturity

HTM securities are carried at amortized cost and represent those securities that the Company both intends and has the ability to hold to maturity.

LHFI and Allowance for Loan Losses

LHFI are loans receivable that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at the principal amount outstanding, net of unearned income and an allowance for loan losses. The Company has no loans held-for-sale.

Unearned income includes deferred fees net of deferred direct incremental loan origination cost. Unearned income attributable to loans held with a maturity of more than one year is recognized as income or expense over the life of the loan.

13

CITIZENS HOLDING COMPANY

Years Ended December 31, 2022, 2021 and 2020

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Continued

Unearned discounts on installment loans are recognized as income over the terms of the loans by a method that approximates the interest method. Unearned income and interest on commercial loans are recognized based on the principal amount outstanding. For all other loans, interest is accrued daily on the outstanding balances. For impaired loans, interest is discontinued on a loan when management believes, after considering collection efforts and other factors, that the borrower’s financial condition is such that collection of interest is doubtful. Cash collections on impaired loans are credited to the loan receivable balance, and no interest income is recognized on those loans until the principal balance has been collected. The Company generally discontinues the accrual of interest income when a loan becomes 90 days past due as to principal or interest; however, management may elect to continue the accrual when the estimated net realizable value of collateral is sufficient to cover the principal balance and the accrued interest. Interest income on other nonaccrual loans is recognized only to the extent of interest payments.

Upon discontinuance of the accrual of interest on a loan, any previously accrued but unpaid interest is reversed against interest income.

A loan is impaired when management determines that it is probable the Company will be unable to collect all contractual principal and interest payments due in accordance with the terms of the loan agreement. Impaired loans are measured based on the present value of expected future cash flows discounted at the loan’s effective interest rate or, as a practical expedient, at the loan’s observable market price or the fair value of the collateral if the loan is collateral dependent. The amount of impairment, if any, and any subsequent changes are included in the allowance for loan losses.

Troubled debt restructurings (“TDR”) are those for which concessions have been granted to the borrower due to a deterioration of the borrower’s financial condition. Such concessions may include reduction in interest rates or deferral of interest or principal payments. In evaluating whether to restructure a loan, management analyzes the long-term financial condition of the borrower, including guarantor and collateral support, to determine whether the proposed concessions will increase the likelihood of repayment of principal and interest. TDR are classified as performing, unless they are on nonaccrual status of 90 days or more delinquent, in which case they are considered nonperforming.

The allowance for loan losses is established through a provision for loan losses charged against net income. Loans determined to be uncollectible are charged against the allowance for loan losses, and subsequent recoveries, if any, are credited to the allowance. The allowance represents an amount, which, in management’s judgment, will be adequate to absorb estimated probable losses on existing loans that may become uncollectible. In order to determine an adequate level of allowance, management utilizes a model that calculates the allowance for loan loss by applying an average historical charge-off percentage by loan segment over a 20-quarter period of time with the most current quarters weighted to show the effect of the most recent chargeoff activity to the current loan balances in the corresponding loan segment. Additionally, for substandard loan relationships with balances over $100, specific reserves on an individual loan basis may be applied. The specific reserve is then added to the general reserve calculated using the model. The general reserve is calculated only on loans that have not been individually assessed for a specific reserve. This specific reserve is determined by review of the borrower’s credit history, capacity to pay, adequacy of collateral and general economic conditions related to the respective loan. This specific reserve will stay in place until such time that the borrower’s obligation is satisfied or the loan is greatly improved.

14

CITIZENS HOLDING COMPANY

Years Ended December 31, 2022, 2021 and 2020

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Continued

Large groups of small-balance homogenous loans are collectively evaluated for impairment. Accordingly, the Company does not separately identify individual consumer and residential loans for impairment disclosures.

Business Combinations, Accounting for Credit-Deteriorated Purchased Loans and Related Assets

Business combinations are accounted for by applying the acquisition method in accordance with ASC 805, “Business Combinations.” Under the acquisition method, identifiable assets acquired and liabilities assumed and any non-controlling interest in the acquiree at the acquisition date are measured at their fair values as of that date and are recognized separately from goodwill. Results of operations of the acquired entities are included in the Consolidated Statements of Income from the date of acquisition. Acquisition costs incurred by the Company are expensed as incurred.

Loans purchased in business combinations with evidence of credit deterioration since origination and for which it is probable that all contractually required payments will not be collected are considered to be credit-impaired. Purchased credit deteriorated loans are accounted for in accordance with ASC 310-30, “Loans and Debt Securities Acquired with Deteriorated Credit Quality” (“ASC 310-30”), and initially measured at fair value, which includes estimated future credit losses expected to be incurred over the life of the loans. Increases in expected cash flows to be collected on these loans are recognized as an adjustment of the loan’s yield over its remaining life, while decreases in expected cash flows are recognized as an impairment.

Bank Premises, Furniture, Fixtures and Equipment

The Company’s premises, furniture, fixtures and equipment are stated at cost less accumulated depreciation computed by straight-line methods over the estimated useful lives of the assets, which range from three to forty years. Costs of major additions and improvements are capitalized. Expenditures for maintenance and repairs are charged to expense as incurred.

Leases

ASU 2016-02, “Leases (Topic 842),” became effective for the Company on January 1, 2020. The Company adopted FASB ASC Topic 842 utilizing the modified retrospective transition approach prescribed by ASU 2018-11, “Leases (Topic 842): Targeted Improvements”. The Company did not elect to adopt the package of practical expedients, which includes reassessing whether any expired or existing contracts are or contain leases, reassessing the lease classification and reassessing initial direct costs. Also, the Company did not elect to adopt the hindsight practical expedient therefore maintaining the lease terms previously determined under FASB ASC Topic 840, “Leases”. The Company made an accounting policy election to not recognize short-term leases (12 months or less) on the balance sheet. The Company accounts for the lease and nonlease components separately as such amounts are readily determinable.

15

CITIZENS HOLDING COMPANY

Years Ended December 31, 2022, 2021 and 2020

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Continued

Once the Company identifies and determines certain contracts are leases according to FASB ASC Topic 842, the Company classifies it as an operating or a finance lease and recognizes a right-of-use asset and a lease liability at the lease commencement date. The lease liability represents the present value of the lease payments that remain unpaid as of the commencement date and the right-of-use asset is the initial lease liability recognized for the lease plus any lease payments made to the lessor at or before the commencement date as well as any initial direct costs less any lease incentives received.

The Company’s operating leases primarily consist of building and land leases. The Company recognizes lease rent expense on a straight-line basis over the term of the lease contract and records it as noninterest expense in net occupancy – premises for building and land leases. The Company’s amortization of the right-of-use asset is the difference between the straight-line lease expense and the interest expense recognized on the lease liability during the period. The Company’s lease liabilities are measured as the present value of the remaining lease payments throughout the lease term.

In order to calculate its right-of-use assets and lease liabilities, FASB ASC Topic 842 requires the Company to use the rate of interest implicit in the lease when readily determinable. If the rate implicit in the lease is not readily determinable, the Company is required to use its incremental borrowing rate, which is the rate of interest the Company would have to pay to borrow on a collateralized basis over a similar term in a similar economic environment. Since the implicit interest rate for most of its building and land leases were not readily determinable, the Company used its incremental borrowing rate.

The Company’s short-term leases primarily include automated teller machines. For short-term leases, the Company recognizes lease expense on a straight-line basis over the lease term. As previously stated, the Company has elected not to include short-term leases on its balance sheet.

Other Real Estate Owned

Other real estate owned (“OREO”) consists of properties repossessed by the Company on foreclosed loans. These assets are stated at fair value at the date acquired less estimated costs to sell. Losses arising from the acquisition of such property are charged against the allowance for loan losses. Declines in value resulting from subsequent revaluation of the property or losses resulting from disposition of such property are expensed as incurred. Revenue and expenses from operations of other real estate owned are reflected as other income (expense).

16

CITIZENS HOLDING COMPANY

Years Ended December 31, 2022, 2021 and 2020

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Continued

Cash Surrender Value of Life Insurance

The Company has purchased life insurance contracts on certain employees and directors. Certain of such policies were acquired to fund deferred compensation arrangements with employees and directors. The cash surrender value of the Company owned policies is carried at the actual cash surrender value of the policy at the balance sheet date. Changes in the value of the policies are classified in non-interest income.

Intangible Assets

Intangible assets include core deposits purchased and goodwill. Core deposit intangibles are amortized on a straight-line basis over their estimated economic lives ranging from 5 to 10 years. Goodwill and other intangible assets with indefinite lives are not amortized but are tested at least annually for impairment. Fair values are determined based on market valuation multiples for the Company and comparable businesses based on the assets and cash flow of the Bank, the Company’s only reportable segment. If impairment has occurred, the goodwill or other intangible asset is reduced to its estimated fair value through a charge to expense.

Income Taxes

Provisions for income taxes are based on taxes payable or refundable for the current year and the changes in deferred tax assets and liabilities, excluding components of other comprehensive income. Deferred tax assets and liabilities are included in the financial statements at currently enacted income tax rates applicable to the period in which the deferred tax assets and liabilities are expected to be realized or settled. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized.

Comprehensive (Loss) Income

Comprehensive (loss) income includes net earnings reported in the consolidated statements of income, changes in unrealized gain (loss) on securities available-for-sale and the amount of unrealized losses recorded upon the transfer of AFS securities to HTM securities, net of amortization, reported as a component of shareholders’ equity. Unrealized gain (loss) on AFS securities, net of related income taxes, and unrealized losses from the transfer of AFS securities to HTM securities are the primary components of accumulated other comprehensive (loss) income for the Company.

17

CITIZENS HOLDING COMPANY

Years Ended December 31, 2022, 2021 and 2020

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Continued

Net Income Per Share

Net income per share-basic is computed by dividing net income by the weighted average number of common shares outstanding during the year. Net income per share-diluted is based on the weighted average number of shares of common stock outstanding for the periods, including the dilutive effect of the Company’s outstanding stock options and restricted stock grants. The effect of the dilutive shares for the years 2022, 2021 and 2020 is illustrated in the following table.

	2022		2021		2020
Basic weighted average shares outstanding		5,592,668		5,584,396		5,577,352
Dilutive effect of stock options		-		87		2,564
Dilutive weighted average shares outstanding		5,592,668		5,584,483		5,579,916
Net income	$	9,620	$	7,494	$	6,931
Net income per share-basic	$	1.72	$	1.34	$	1.24
Net income per share-diluted	$	1.72	$	1.34	$	1.24

Advertising Costs

Advertising costs are charged to expense when incurred. Advertising expense was $610, $573 and $642 for the years ended December 31, 2022, 2021 and 2020, respectively.

Securities Sold Under Agreements to Repurchase

Securities sold under agreements to repurchase are accounted for as collateralized financing transactions and are recorded at the amounts at which the securities were sold. Securities, generally United States Government, federal agency and state county municipal securities, pledged as collateral under these financing arrangements cannot be sold or re-pledged by the secured party.

Reclassifications

Certain information for 2021 has been reclassified to conform to the financial presentation for 2022. Such reclassifications had no effect on net income or shareholders’ equity.

18

CITIZENS HOLDING COMPANY

Years Ended December 31, 2022, 2021 and 2020

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Continued

Stock-Based Compensation

At December 31, 2022, the Company had outstanding grants under two stock-based compensation plans, which are the 1999 Directors’ Stock Compensation Plan and the 2013 Incentive Compensation Plan. Compensation expense for option grants and restricted stock awards is determined based on the estimated fair value of the stock options and restricted stock on the applicable grant or award date. The Company has elected to account for forfeitures in compensation cost when they occur as permitted under the guidance in ASC 718, “Compensation - Stock Compensation” (“ASC 718”). Expense associated with the Company’s stock-based compensation is included under the line item “Salaries and benefits” on the Consolidated Statements of Income. The Company recognizes compensation expense for all share-based payments to employees in accordance with ASC 718.

Subsequent Events

The Company has evaluated, for consideration of recognition or disclosure, subsequent events that have occurred through the date of issuance of its financial statements, and has determined that no significant events occurred after December 31, 2022 but prior to the issuance of these financial statements that would have a material impact on its Consolidated Financial Statements.

Adoption of New Accounting Standards

There were no new accounting standards adopted by the Company during the year ended December 31, 2022.

19

CITIZENS HOLDING COMPANY

Years Ended December 31, 2022, 2021 and 2020

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Continued

Newly Issued Accounting Standards

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”). ASU 2016-13 makes significant changes to the accounting for credit losses on financial instruments and disclosures about them. The new current expected credit loss (CECL) impairment model will require an estimate of expected credit losses, measured over the contractual life of an instrument, which considers reasonable and supportable forecasts of future economic conditions in addition

to information about past events and current conditions. Additionally, ASU 2016-13 amends the accounting for credit losses on debt securities and purchased financial assets with credit deterioration. The amendments in ASU 2016-13 were originally effective for fiscal years beginning after December 31, 2020, and interim periods within those years for public business entities that are SEC filers. However, in October 2020, the FASB approved deferral of the effective date for ASU 2016-13 for certain companies.

The new effective date for the Company is January 1, 2023. ASU 2016-13 permits the use of estimation techniques that are practical and relevant to the Company’s circumstances, as long as they are applied consistently over time and faithfully estimate expected credit losses in accordance with the standard. The ASU lists several common credit loss methods that are acceptable such as a discounted cash flow method, loss-rate method and probability of default/loss given default (PD/LGD) method. Depending on the nature of each identified pool of financial assets with similar risk characteristics, the Company currently plans on implementing a PD/LGD method or a loss-rate method to estimate expected credit losses. The Company expects ASU 2016-13 to have a significant impact on the Company’s accounting policies, internal controls over financial reporting and footnote disclosures. The Company has chosen to utilize the loss-rate method for the majority of the loan portfolio, including commercial loans, residential real estate loans, commercial real estate loans and consumer loans. The Company will utilize the weighted average remaining maturity (“WARM”) method for the credit card and overdraft portfolios due to the nature of the loans being less complex. The Company continues to assess the impact of CECL on the financial statements but the initial impact is estimated to be between $1,000 and $1,500. This will be recorded as an adjustment to retained earnings during 2023 and the Company has elected to phase-in the impact for regulatory capital purposes over the next 3 years.

In March 2022, the Financial Accounting Standards Board (“FASB) issued Accounting Standards Update No. 2022-02, Financial Instruments (Topic 326): Troubled Debt Restructurings and Vintage Disclosures. This amendment has two main provisions, (1) eliminates the accounting guidance for TDRs by creditors in Subtopic 310-40, Receivables-Troubled Debt Restructurings by Creditors and (2) requires the Company to disclose current-period gross writeoffs by year of origination. The effective date for the Company is January 1, 2023 and the Company does not believe this update will have a material impact on the financial statements.

20

CITIZENS HOLDING COMPANY

Years Ended December 31, 2022, 2021 and 2020

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 2. Investment Securities

(in thousands)

The amortized cost and estimated fair value of securities available-for-sale and the corresponding amounts of gross unrealized gains and losses recognized in accumulated other comprehensive (loss) income at December 31, 2022 and 2021 were as follows:

			Gross		Gross
	Amortized		Unrealized		Unrealized
2022	Cost		Gains		Losses		Fair Value
Securities available-for-sale
Mortgage-backed securities	$	107,055	$	-	$	10,083	$	96,972
State, County, Municipals		134,906		-		30,993		103,913
Other securities		500		-		63		437
Total	$	242,461	$	-	$	41,139	$	201,322

			Gross		Gross
	Amortized		Unrealized		Unrealized
2021	Cost		Gains		Losses		Fair Value
Securities available-for-sale
Obligations of U.S. Government agencies	$	4,969	$	-	$	269	$	4,700
Mortgage-backed securities		411,729		42		12,180		399,591
State, County, Municipals		230,359		700		4,008		227,051
Other securities		500		-		7		493
Total	$	647,557	$	742	$	16,464	$	631,835

21

CITIZENS HOLDING COMPANY

Years Ended December 31, 2022, 2021 and 2020

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 2. Continued

The amortized cost and estimated fair value of securities HTM and the corresponding amounts of gross unrealized gains and losses at December 31, 2022 were as follows:

			Gross		Gross
	Amortized		Unrealized		Unrealized
2022	Cost		Gains		Losses		Fair Value
Securities held-to-maturity
Obligations of U.S. Government agencies	$	4,002	$	-	$	367	$	3,635
Mortgage-backed securities		309,748		-		24,654		285,094
State, County, Municipals		92,840		-		6,277		86,563
Total	$	406,590	$	-	$	31,298	$	375,292

There were no securities held-to-maturity at December 31, 2021.

The following tables show the gross unrealized losses and fair value of the Company’s investments classified as AFS and HTM investments with unrealized losses that are not deemed to be other-than-temporarily impaired, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at December 31, 2022 and 2021.

22

CITIZENS HOLDING COMPANY

Years Ended December 31, 2022, 2021 and 2020

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 2. Continued

A summary of unrealized loss information for AFS and HTM securities, categorized by security type follows:

December 31, 2022
Available-for-sale	Less than 12 months				12 months or more				Total
Description of Securities	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Mortgage backed securities	$	70,652	$	3,838	$	26,320	$	6,245	$	96,972	$	10,083
State, County, Municipal		45,200		9,027		58,713		21,966		103,913		30,993
Other securities		-		-		437		63		437		63
Total	$	115,852	$	12,865	$	85,470	$	28,274	$	201,322	$	41,139

Held-to-maturity	Less than 12 months				12 months or more				Total
Description of Securities	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Obligations of U.S. Government agencies	$	-	$	-	$	3,635	$	367	$	3,635	$	367
Mortgage backed securities		17,882		1,333		267,212		23,321		285,094		24,654
State, County, Municipal		15,059		781		71,504		5,496		86,563		6,277
Total	$	32,941	$	2,114	$	342,351	$	29,184	$	375,292	$	31,298

23

CITIZENS HOLDING COMPANY

Years Ended December 31, 2022, 2021 and 2020

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 2. Continued

December 31, 2021
Available-for-sale	Less than 12 months				12 months or more				Total
Description of Securities	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Obligations of U.S. Government agencies	$	4,700	$	269	$	-	$	-	$	4,700	$	269
Mortgage backed securities		376,644		11,535		19,986		645		396,630		12,180
State, County, Municipal		175,520		4,008		119		-		175,639		4,008
Other securities		-		-		493		7		493		7
Total	$	556,864	$	15,812	$	20,598	$	652	$	577,462	$	16,464

The unrealized losses shown above are due to increases in market rates over the yields available at the time of purchase of the underlying securities and not credit quality. The Company does not intend to sell any of the securities in an unrealized loss position, and it is more likely than not that the Company will not be required to sell any such security prior to the recovery of its amortized cost basis, which may be at maturity. None of the unrealized losses disclosed in the previous tables are related to credit deterioration. As such, the Company did not record any other-than-temporary impairment for the years ended December 31, 2022 or 2021.

The amortized cost and estimated fair value of securities at December 31, 2022, by contractual maturity and investment type, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

	Available-for-sale				Held-to-maturity
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due in one year or less	$	721	$	657	$	-	$	-
Due after one year through five years		3,152		3,042		-		-
Due after five years through ten years		5,275		4,853		-		-
Due after ten years		126,258		95,798		96,842		90,198
Residential mortgage backed securities		94,226		84,481		250,615		230,771
Commercial mortgage backed securities		12,829		12,491		59,133		54,323
Total	$	242,461	$	201,322	$	406,590	$	375,292

24

CITIZENS HOLDING COMPANY

Years Ended December 31, 2022, 2021 and 2020

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 2. Continued

	Available-for-sale				Held-to-maturity
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
December 31, 2021
Due in one year or less	$	216	$	217	$	-	$	-
Due after one year through five years		1,895		1,924		-		-
Due after five years through ten years		4,226		4,287		-		-
Due after ten years		229,491		225,816		-		-
Residential mortgage backed securities		332,779		323,736		-		-
Commercial mortgage backed securities		78,950		75,855		-		-
Total	$	647,557	$	631,835	$	-	$	-

Investment securities with carrying amounts of $462,954 and $371,190 at December 31, 2022 and December 31, 2021, respectively, were pledged as collateral for public deposits and securities sold under agreement to repurchase.

Gross realized gains and losses are included in net gains on sales of securities in the Consolidated Statements of Income. Total gross realized gains and gross realized losses from the sale of investment securities for each of the years ended December 31 were:

	2022		2021		2020
Gross realized gains	$	-	$	4,257	$	1,656
Gross realized losses		-		2,879		827
Net realized gains	$	-	$	1,378	$	829

25

CITIZENS HOLDING COMPANY

Years Ended December 31, 2022, 2021 and 2020

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 3. Federal Home Loan Bank Stock

(in thousands)

The Company, as a member of the Federal Home Loan Bank of Dallas (“FHLB”) system, owns stock in the organization. No ready market exists for the stock, and it has no quoted market value. The Company’s investment in the FHLB is carried at cost of $1,786 and $889 at December 31, 2022 and December 31, 2021, respectively, and is included in other assets in the Consolidated Statements of Financial Condition. The Company purchased stock in 2022 and 2021 at the par value of $100 per share.

26

CITIZENS HOLDING COMPANY

Years Ended December 31, 2022, 2021 and 2020

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 4. Loans

(In Thousands, Except Number of Loans)

The composition of LHFI, net at December 31, 2022 and 2021 is as follows:

	2022			2021
Real Estate:
Land Development and Construction	$	52,731		$	71,898
Farmland		11,437			13,114
1-4 Family Mortgages		92,148			98,525
Commercial Real Estate		316,541			281,239
Total Real Estate Loans		472,857			464,776
Business Loans:
Commercial and Industrial Loans (1)		96,500			92,501
Farm Production and Other Farm Loans		504			621
Total Business Loans		97,004			93,122
Consumer Loans:
Credit Cards		2,738			1,963
Other Consumer Loans		12,992			11,986
Total Consumer Loans		15,730			13,949
Total Gross Loans		585,591			571,847
Unearned Income		-			-
Allowance for Loan Losses		(5,264	)		(4,513	)
Loans, net	$	580,327		$	567,334

⁽¹⁾ Includes Paycheck Protection Program ("PPP") loans of $80 and $5,789 as of December 31, 2022 and December 31, 2021, respectively.

footnote

27

CITIZENS HOLDING COMPANY

Years Ended December 31, 2022, 2021 and 2020

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 4. Continued

The Company has certain lending policies and procedures in place that are designed to maximize loan income within an acceptable level of risk. Management reviews these policies and procedures and submits them to the Company’s Board of Directors for its approval when needed, but no less frequently than annually. A reporting system supplements the review process by providing management with frequent reports related to loan production, loan quality, concentrations of credit, loan delinquencies and non-performing and potential problem loans. Diversification in the loan portfolio is a means of managing risk associated with fluctuations in economic conditions.

The Company maintains an independent loan review department that reviews and validates the credit risk program on a periodic basis. Results of this review are presented to management with quarterly reports made to the board of directors. The loan review process complements and reinforces the risk identification and assessment decisions made by the lenders and credit personnel, as well as the Company’s policies and procedures.

Loans are made principally to customers in the Company’s market. The Company’s lending policy provides that loans collateralized by real estate are normally made with loan-to-value (“LTV”) ratios of 80 percent or less. Commercial loans are typically collateralized by property, equipment, inventories or receivables with LTV ratios from 50 percent to 80 percent. Residential real estate mortgage loans are collateralized by personal residences with LTV ratios of 80 percent or less. Consumer loans are typically collateralized by real estate, vehicles and other consumer durable goods. Approximately $104,261 and $105,251 of the loans outstanding at December 31, 2022 and 2021, respectively, were variable rate loans.

In the ordinary course of business, the Company has granted loans to certain directors, significant shareholders and their affiliates (collectively referred to as “related parties”). These loans were made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other unaffiliated persons and do not involve more than normal risk of collectability. Activity in related party loans during 2022 is presented in the following table.

Balance outstanding at December 31, 2021	$	3,884
Principal additions		145
Principal reductions		(3,106	)
Balance outstanding at December 31, 2022	$	923

28

CITIZENS HOLDING COMPANY

Years Ended December 31, 2022, 2021 and 2020

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 4. Continued

In addition to the loans outstanding above, the Company has an outstanding letter of credit with one of the Company’s directors with availability of $2,275 at December 31, 2022 and 2021. The letter of credit was not drawn on during 2022 or 2021. The letter of credit was made on substantially the same terms as comparable transactions with other unaffiliated persons.

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

Year-end non-accrual loans, segregated by class of loans, were as follows:

	2022		2021
Real Estate:
Land Development and Construction	$	-	$	171
Farmland		117		118
1-4 Family Mortgages		1,720		1,891
Commercial Real Estate		846		1,249
Total Real Estate Loans		2,683		3,429
Business Loans:
Commercial and Industrial Loans		281		386
Farm Production and Other Farm Loans		-		3
Total Business Loans		281		389
Consumer Loans:
Other Consumer Loans		24		8
Total Consumer Loans		24		8
Total Non-accrual Loans	$	2,988	$	3,826

In the event that non-accrual loans had performed in accordance with their original terms, the Company would have recognized additional interest income of approximately $354, $281 and $383 in 2022, 2021 and 2020, respectively.

29

CITIZENS HOLDING COMPANY

Years Ended December 31, 2022, 2021 and 2020

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 4. Continued

An age analysis of past due loans, segregated by class of loans, as of December 31, 2022 is as follows:

											Accruing
			Loans								Loans
	Loans		90 or more								90 or more
	30-89 Days		Days		Total Past		Current		Total		Days
	Past Due		Past Due		Due Loans		Loans		Loans		Past Due
Real Estate:
Land Development and Construction	$	-	$	4	$	4	$	52,727	$	52,731	$	4
Farmland		38		30		68		11,369		11,437		-
1-4 Family Mortgages		1,799		439		2,238		89,910		92,148		95
Commercial Real Estate		933		486		1,419		315,122		316,541		-
Total Real Estate Loans		2,770		959		3,729		469,128		472,857		99
Business Loans:
Commercial and Industrial Loans		109		277		386		96,114		96,500		-
Farm Production and Other Farm Loans		4		-		4		500		504		-
Total Business Loans		113		277		390		96,614		97,004		-
Consumer Loans:
Credit Cards		56		12		68		2,670		2,738		12
Other Consumer Loans		66		23		89		12,903		12,992		-
Total Consumer Loans		122		35		157		15,573		15,730		12
Total Loans	$	3,005	$	1,271	$	4,276	$	581,315	$	585,591	$	111

30

CITIZENS HOLDING COMPANY

Years Ended December 31, 2022, 2021 and 2020

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 4. Continued

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

											Accruing
			Loans								Loans
	Loans		90 or more								90 or more
	30-89 Days		Days		Total Past		Current		Total		Days
	Past Due		Past Due		Due Loans		Loans		Loans		Past Due
Real Estate:
Land Development and Construction	$	6	$	-	$	6	$	71,892	$	71,898	$	-
Farmland		130		33		163		12,951		13,114		-
1-4 Family Mortgages		1,678		292		1,970		96,555		98,525		140
Commercial Real Estate		157		570		727		280,512		281,239		-
Total Real Estate Loans		1,971		895		2,866		461,910		464,776		140
Business Loans:
Commercial and Industrial Loans		205		376		581		91,920		92,501		-
Farm Production and Other Farm Loans		3		-		3		618		621		-
Total Business Loans		208		376		584		92,538		93,122		-
Consumer Loans:
Credit Cards		35		12		47		1,916		1,963		12
Other Consumer Loans		76		2		78		11,908		11,986		2
Total Consumer Loans		111		14		125		13,824		13,949		14
Total Loans	$	2,290	$	1,285	$	3,575	$	568,272	$	571,847	$	154

31

CITIZENS HOLDING COMPANY

Years Ended December 31, 2022, 2021 and 2020

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 4. Continued

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

Impaired loans as of December 31, by class of loans, are as follows:

			Recorded		Recorded
	Unpaid		Investment		Investment		Total				Average
	Principal		With No		With		Recorded		Related		Recorded
2022	Balance		Allowance		Allowance		Investment		Allowance		Investment
Real Estate:
Land Development and Construction	$	-	$	-	$	-	$	-	$	-	$	86
Farmland		30		30		-		30		-		32
1-4 Family Mortgages		190		190		-		190		-		479
Commercial Real Estate		3,023		795		2,066		2,861		116		1,996
Total Real Estate Loans		3,243		1,015		2,066		3,081		116		2,593
Business:
Commercial and Industrial		304		196		-		196		-		214
Total Business Loans		304		196		-		196		-		214
Total Loans	$	3,547	$	1,211	$	2,066	$	3,277	$	116	$	2,807

32

CITIZENS HOLDING COMPANY

Years Ended December 31, 2022, 2021 and 2020

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 4. Continued

			Recorded		Recorded
	Unpaid		Investment		Investment		Total				Average
	Principal		With No		With		Recorded		Related		Recorded
2021	Balance		Allowance		Allowance		Investment		Allowance		Investment
Real Estate:
Land Development and Construction	$	171	$	171	$	-	$	171	$	-	$	240
Farmland		33		33		-		33		-		72
1-4 Family Mortgages		767		767		-		767		-		892
Commercial Real Estate		1,294		1,019		112		1,131		3		3,479
Total Real Estate Loans		2,265		1,990		112		2,102		3		4,683
Business:
Commercial and Industrial		304		72		160		232		36		323
Total Business Loans		304		72		160		232		36		323
Total Loans	$	2,569	$	2,062	$	272	$	2,334	$	39	$	5,006

33

CITIZENS HOLDING COMPANY

Years Ended December 31, 2022, 2021 and 2020

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 4. Continued

The Company classified one new commercial real estate loan as a TDR for the year ended December 31, 2022 and no new TDRs were added in 2021 and 2020, respectively.

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

	Number		Recorded
	of Loans		Investment
Total at January 1, 2021		3	$	2,495
Reductions due to:
Principal paydowns				(382	)
Total at December 31, 2021		3		2,113
Reductions due to:
Reclassification to OREO		2		(1,788	)
Principal paydowns				(112	)
Total at December 31, 2022		1		213
Additions		1		2,078
Reductions due to:
Principal paydowns				(109	)
Total at December 31, 2023		1	$	2,182

The allocated allowance for loan losses attributable to restructured loans was $116 and -0- at December 31, 2022 and 2021, respectively.

The Company had no commitments to lend additional funds on these TDRs at December 31, 2022.

34

CITIZENS HOLDING COMPANY

Years Ended December 31, 2022, 2021 and 2020

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 4. Continued

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

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

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

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

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

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

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

35

CITIZENS HOLDING COMPANY

Years Ended December 31, 2022, 2021 and 2020

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 4. Continued

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

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

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

These internally assigned grades are updated on a continual basis throughout the course of the year and represent management’s most updated judgment regarding grades at December 31, 2022.

36

CITIZENS HOLDING COMPANY

Years Ended December 31, 2022, 2021 and 2020

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 4. Continued

The following table details the amount of gross loans by loan grade and class for the year ended December 31, 2022:

			Special
	Satisfactory		Mention		Substandard		Doubtful		Loss		Total
	1,2,3,4		5,6		7		8		9		Loans
Real Estate:
Land Development and Construction	$	50,015	$	2,427	$	289	$	-	$	-	$	52,731
Farmland		10,832		269		336		-		-		11,437
1-4 Family Mortgages		85,861		1,816		4,471		-		-		92,148
Commercial Real Estate		274,901		7,975		33,665		-		-		316,541
Total Real Estate Loans		421,609		12,487		38,761		-		-		472,857
Business Loans:
Commercial and Industrial Loans		91,016		4,902		577		-		5		96,500
Farm Production and Other Farm Loans		491		-		13		-		-		504
Total Business Loans		91,507		4,902		590		-		5		97,004
Consumer Loans:
Credit Cards		2,670		-		68		-		-		2,738
Other Consumer Loans		12,934		7		51		-		-		12,992
Total Consumer Loans		15,604		7		119		-		-		15,730
Total Loans	$	528,720	$	17,396	$	39,470	$	-	$	5	$	585,591

37

CITIZENS HOLDING COMPANY

Years Ended December 31, 2022, 2021 and 2020

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 4. Continued

The following table details the amount of gross loans by loan grade and class for the year ended December 31, 2021:

			Special
	Satisfactory		Mention		Substandard		Doubtful		Loss		Total
	1,2,3,4		5,6		7		8		9		Loans
Real Estate:
Land Development and Construction	$	69,758	$	1,547	$	593	$	-	$	-	$	71,898
Farmland		12,365		297		452		-		-		13,114
1-4 Family Mortgages		89,120		3,590		5,815		-		-		98,525
Commercial Real Estate		238,561		8,055		34,623		-		-		281,239
Total Real Estate Loans		409,804		13,489		41,483		-		-		464,776
Business Loans:
Commercial and Industrial Loans		85,138		1,483		5,877		-		3		92,501
Farm Production and Other Farm Loans		606		-		12		-		3		621
Total Business Loans		85,744		1,483		5,889		-		6		93,122
Consumer Loans:
Credit Cards		1,916		-		47		-		-		1,963
Other Consumer Loans		11,903		20		58		3		2		11,986
Total Consumer Loans		13,819		20		105		3		2		13,949
Total Loans	$	509,367	$	14,992	$	47,477	$	3	$	8	$	571,847

38

CITIZENS HOLDING COMPANY

Years Ended December 31, 2022, 2021 and 2020

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 5. Allowance for Loan Losses

(in thousands)

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

The allowance on the majority of the loan portfolio is calculated using a historical chargeoff percentage applied to the current loan balances by loan segment. This historical period is the average of the previous 20 quarters with the most current quarters weighted to show the effect of the most recent chargeoff activity. This percentage is also adjusted for economic factors such as unemployment and general business conditions, both local and nationwide.

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

39

CITIZENS HOLDING COMPANY

Years Ended December 31, 2022, 2021 and 2020

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 5. Continued

The following table details activity in the allowance for loan losses by portfolio segment for the years ended December 31:

	Real			Business
2022	Estate			Loans		Consumer			Total
Beginning Balance	$	3,622		$	645	$	246		$	4,513
Provision for loan losses		279			96		(251	)		124
Chargeoffs		8			61		110			179
Recoveries		261			33		512			806
Net chargeoffs		(253	)		28		(402	)		(627	)
Ending Balance	$	4,154		$	713	$	397		$	5,264
Period end allowance allocated to:
Loans individually evaluated for impairment	$	116		$	-	$	-		$	116
Loans collectively evaluated for impairment		4,038			713		397			5,148
Ending Balance	$	4,154		$	713	$	397		$	5,264

	Real		Business
2021	Estate		Loans		Consumer		Total
Beginning Balance	$	3,885	$	611	$	239	$	4,735
Provision for loan losses		231		199		979		1,409
Chargeoffs		628		183		1,327		2,138
Recoveries		134		18		355		507
Net chargeoffs		494		165		972		1,631
Ending Balance	$	3,622	$	645	$	246	$	4,513
Period end allowance allocated to:
Loans individually evaluated for impairment	$	3	$	36	$	-	$	39
Loans collectively evaluated for impairment		3,619		609		246		4,474
Ending Balance	$	3,622	$	645	$	246	$	4,513

40

CITIZENS HOLDING COMPANY

Years Ended December 31, 2022, 2021 and 2020

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 5. Continued

	Real		Business
2020	Estate		Loans		Consumer			Total
Beginning Balance	$	3,075	$	371	$	309		$	2,334
Provision for loan losses		1,072		422		(9	)		1,485
Chargeoffs		384		229		104			717
Recoveries		122		47		43			212
Net chargeoffs		262		182		61			505
Ending Balance	$	3,885	$	611	$	239		$	4,735
Period end allowance allocated to:
Loans individually evaluated for impairment	$	782	$	125	$	-		$	907
Loans collectively evaluated for impairment		3,103		486		239			3,828
Ending Balance	$	3,885	$	611	$	239		$	4,735

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

	Real		Business
2022	Estate		Loans		Consumer		Total
Loans individually evaluated for impairment	$	3,081	$	196	$	-	$	3,277
Loans collectively evaluated for impairment		469,776		96,808		15,730		582,314
	$	472,857	$	97,004	$	15,730	$	585,591

	Real		Business
2021	Estate		Loans		Consumer		Total
Loans individually evaluated for impairment	$	2,102	$	232	$	-	$	2,334
Loans collectively evaluated for impairment		462,674		92,890		13,949		569,513
	$	464,776	$	93,122	$	13,949	$	571,847

41

CITIZENS HOLDING COMPANY

Years Ended December 31, 2022, 2021 and 2020

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 5. Continued

Net chargeoffs (recoveries), segregated by class of loans, were as follows:

	2022			2021			2020
Real Estate:
Land Development and Construction	$	(14	)	$	27		$	(6	)
Farmland		(1	)		(1	)		-
1-4 Family Mortgages		(71	)		(76	)		243
Commercial Real Estate		(167	)		544			25
Total Real Estate Loans		(253	)		494			262
Business Loans:
Commercial and Industrial Loans		31			165			182
Farm Production and Other Farm Loans		(3	)		-			-
Total Business Loans		28			165			182
Consumer Loans:
Credit Cards		46			19			39
Other Consumer Loans		(448	)		953			22
Total Consumer Loans		(402	)		972			61
Total net (recoveries) chargeoffs	$	(627	)	$	1,631		$	505

42

CITIZENS HOLDING COMPANY

Years Ended December 31, 2022, 2021 and 2020

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 6. Bank Premises, Furniture, Fixtures and Equipment

(in thousands)

Bank premises, furniture, fixtures and equipment consist of the following at December 31, 2022 and December 31, 2021:

	2022		2021
Land and buildings	$	35,120	$	35,108
Furniture, fixtures and equipment		8,522		6,911
		43,642		42,019
Less accumulated depreciation		15,937		15,358
Total	$	27,705	$	26,661

Depreciation expense for the years ended December 31, 2022, 2021 and 2020, respectively, was $1,166, $1,064, and $1,012.

The Company leases certain premises and equipment under operating leases. At December 31, 2022, the Company had lease liabilities and right-of-use (“ROU”) assets totaling $316 related to these leases. Lease liabilities and ROU assets are reflected in other liabilities and other assets, respectively. For the year ended December 31, 2022, the weighted average remaining lease term for operating leases was 2.5 years and the weighted average discount rate used in the measurement of operating lease liabilities was 1.86%.

Lease costs were as follows:

	December 31, 2022		December 31, 2021
(in thousands)
Operating lease cost	$	144	$	364
Short-term lease cost		-		23
Variable lease cost		-		-
	$	144	$	387

There were no sale and leaseback transactions, leverage leases or lease transactions with related parties during the year ended December 31, 2022 and 2021.

43

CITIZENS HOLDING COMPANY

Years Ended December 31, 2022, 2021 and 2020

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 6. Continued

A maturity analysis of operating lease liabilities and reconciliation of the undiscounted cash flows to the total operating lease liability is as follows:

	December 31, 2022
Lease payments due:
Within one year	$	62
After one year but within two years		64
After two years but within three years		65
After three year but within four years		66
After four years but within five years		67
After five years		6
Total undiscounted cash flows		330
Discount on cash flows		(14	)
Total lease liability	$	316

Note 7. Goodwill and Other Intangible Assets

(in thousands)

Changes in the carrying amount of goodwill during the years ended December 31, 2022 were as follows:

	Total
Balance at December 31, 2020	$	13,030
Addition to goodwill from acquisition		-
Balance at December 31, 2021		13,030
Addition to goodwill from acquisition		-
Balance at December 31, 2022	$	13,030

44

CITIZENS HOLDING COMPANY

Years Ended December 31, 2022, 2021 and 2020

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 7. Continued

There were no changes to goodwill during the year ended December 31, 2022. The Company performed a goodwill impairment test for 2022 and concluded that no impairment charge was required.

The following table provides a summary of finite-lived intangible assets as of the dates presented:

	2022			2021
Core deposit intangible	$	521		$	630
Accumulated amortization		(109	)		(109	)
Total finite-lived intangible assets	$	412		$	521

Core deposit intangible amortization expense for the years ended December 31, 2022, 2021 and 2020 was $109, $109 and $27, respectively. The estimated amortization expense of finite-lived intangible assets for the five succeeding fiscal years is summarized as follows:

Year Ending
December 31,	Amount
2023		109
2024		109
2025		109
2026		85
	$	412

45

CITIZENS HOLDING COMPANY

Years Ended December 31, 2022, 2021 and 2020

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 8. Deposits

(in thousands)

The composition of deposits as of December 31, 2022 and December 31, 2021 is as follows:

	2022		2021
Non-interest bearing	$	299,112	$	302,707
NOW and money market accounts		515,337		451,809
Savings deposits		133,030		127,217
Time deposits, $250,000 or more		44,370		68,270
Other time deposits		134,553		161,889
Total	$	1,126,402	$	1,111,892

The scheduled maturities of time deposits at December 31, 2022 are as follows:

Year Ending
December 31,	Amount
2023	$	108,238
2024		52,258
2025		12,101
2026		3,340
2027		2,986
	$	178,923

Note 9. Short-Term Borrowings

(in thousands)

Short-term borrowings as of December 31 are summarized as follows:

	2022		2021
Securities sold under agreements to repurchase	$	127,574	$	112,760
Federal funds purchased		-		-
Federal Home Loan Bank short-term advances		-		-
Total short-term borrowings	$	127,574	$	112,760

Securities sold under agreements to repurchase (“repurchase agreements”) represent funds received from customers, generally on an overnight or continuous basis, which are collateralized by investment securities owned or, at times, borrowed and re-hypothecated by the Company. The securities used as collateral consist primarily of U.S. Government agency mortgage-backed securities, U.S. Government agency collateralized mortgage obligations, obligations of U.S. Government agencies, and obligations of states and political subdivisions. All securities are maintained by the Company’s safekeeping agents. These securities are reviewed by the Company on a daily basis, and the Company may be required to provide additional collateral due to changes in the fair market value of these securities. The terms of the Company’s repurchase agreements are continuous but may be canceled at any time by the Company or the customer.

46

CITIZENS HOLDING COMPANY

Years Ended December 31, 2022, 2021 and 2020

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 9. Continued

Federal funds purchased are short term borrowings, generally overnight borrowings, between financial institutions that are generally used to maintain reserve requirements at the Federal Reserve Bank or elsewhere.

FHLB short-term advances are borrowings with original maturities of less than one year. Interest is payable monthly. Pursuant to collateral agreements with the FHLB, advances are collateralized by all of the Bank’s FHLB stock and qualifying first mortgages and other loans. As of December 31, 2022 and 2021, the balance in qualifying first mortgages and other loans was $160,488 and $221,088 respectively.

The average balances and cost of funds of short-term borrowings for the years ending December 31 are summarized as follows:

	Average Balances				Cost of Funds
	2022		2021		2022			2021
Securities sold under agreements to repurchase	$	113,893	$	129,207		1.06	%		0.30	%
Federal funds purchased		779		19		2.70	%		0.72	%
Federal Home Loan Bank short-term advances		7,111		6,056		1.50	%		0.14	%
Total short-term borrowings	$	121,783	$	135,282		1.10	%		0.30	%

Note 10. Long-Term Debt

(in thousands)

Long-term debt as of December 31, 2022 and 2021 is summarized as follows:

	2022		2021
Secured line of credit	$	18,000	$	18,000
Total long-term debt	$	18,000	$	18,000

Secured line of credit

On June 9, 2021, the Company obtained a secured revolving line of credit (“Line”) in the amount of $20,000 with First Horizon Bank. The proceeds of the Line were used to enhance the Bank’s capital structure. The Line bears interest at a floating interest rate linked to WSJ Prime Rate with an initial interest rate of 3.25%, which is payable quarterly on the first day of each calendar quarter, commencing on July 1, 2022, with the final installment of interest being due and payable concurrently on the same date that the principal balance is due. The Line also bears an unused line fee at a rate equal to 0.25%, applied to the unused balance of the Line. The Line is fully secured by the common stock of the Bank. The Line matures on June 9, 2023, at which time all unpaid interest and principal is due and payable. The Company had availability of $2,000 of unused funds of the secured line of credit at December 31, 2022.

47

CITIZENS HOLDING COMPANY

Years Ended December 31, 2022, 2021 and 2020

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 10. Continued

The aggregate stated maturities of long-term debt outstanding at December 31, 2022, are summarized as follows:

Year Ending
December 31,	Amount
2023	$	18,000
Thereafter		-
	$	18,000

Note 11. Other Income and Other Expense

(in thousands)

The following is a detail of the major income classifications that are included in other income under non-interest income on the income statement for the year ended December 31:

Other Income	2022		2021		2020
BOLI Insurance	$	444	$	517	$	506
Mortgage Loan Origination Income		652		1,305		1,310
Other Income		1,625		1,208		857
Total Other Income	$	2,721	$	3,030	$	2,673

48

CITIZENS HOLDING COMPANY

Years Ended December 31, 2022, 2021 and 2020

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 11. Continued

The following is a detail of the major expense classifications that comprise the other expense line item in the income statement for the years ended December 31:

Other Expense	2022		2021		2020
Advertising	$	610	$	573	$	642
Office supplies		1,016		1,007		1,171
Professional fees		1,144		1,039		1,027
FDIC and state assessment		830		879		669
Technology expense		441		520		578
Postage and freight		588		618		548
Loan collection expense		28		89		236
Other losses		442		295		291
Debit card/ATM expense		799		733		612
Other expenses		3,169		3,086		2,586
Total Other Expense	$	9,067	$	8,839	$	8,360

Note 12. Income Taxes

(in thousands)

Income tax expense consists of the following:

	2022		2021		2020
Current payable
Federal	$	993	$	525	$	872
State		487		340		382
		1,480		865		1,254
Deferred tax expense		401		566		498
Income tax expense	$	1,881	$	1,431	$	1,752

49

CITIZENS HOLDING COMPANY

Years Ended December 31, 2022, 2021 and 2020

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 12. Continued

The differences between income taxes calculated at the federal statutory rate and income tax expense were as follows:

	2022			2021			2020
Federal taxes based on statutory rate	$	2,415		$	1,874		$	1,823
State income taxes, net of federal benefit		384			336			326
Tax-exempt investment interest		(836	)		(593	)		(280	)
Income related to bank-owned life insurance		(159	)		(218	)		(126	)
Other, net		77			32			9
Income tax expense	$	1,881		$	1,431		$	1,752

At December 31, 2022 and December 31, 2021, net deferred tax assets consist of the following:

	2022		2021
Deferred tax assets
Allowance for loan losses	$	1,313	$	1,293
Deferred compensation liability		2,491		2,429
Net operating loss carryforward		-		94
Other real estate owned		261		469
Acquisition fair value adjustments		-		23
Unrealized loss on securities available-for-sale		27,617		3,921
Other		51		-
Total		31,733		8,229
Deferred tax liabilities
Premises and equipment		1,908		1,686
Core deposit intangible		102		130
Other		147		134
Total		2,159		1,950
Net deferred tax asset	$	29,574	$	6,279

The Company has evaluated the need for a valuation allowance related to the above deferred tax assets and, based on the weight of the available evidence, has determined that it is more likely than not that all deferred tax assets will be realized.

50

CITIZENS HOLDING COMPANY

Years Ended December 31, 2022, 2021 and 2020

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 12. Continued

As of December 31, 2022, the Company has no unrecognized tax benefits related to federal and state income tax matters. As of December 31, 2022, the Company has not accrued for interest and penalties related to uncertain tax positions. It is the Company’s policy to recognize interest or penalties related to income tax matters in income tax expense.

The Company and the Bank file a consolidated United States federal income tax return. The Company is currently open to audit under the statute of limitations by the Internal Revenue Service for the years ended December 31, 2019 through 2021. The Company and Bank’s state income tax returns are open to audit under the statute of limitations for the years ended December 31, 2019 through 2021.

The Company acquired federal net operating losses as part of its Charter acquisition, with varying expiration periods. The federal net operating losses (“NOLs”) acquired were $2,302. The Company used $447 and $671 of the NOL during 2022 and 2021, respectively.

Note 13. Summarized Financial Information of Citizens Holding Company

Summarized financial information of Citizens Holding Company, excluding the Bank, at December 31, 2022 and December 31, 2021, and for the years ended December 31, 2022, 2021 and 2020, is as follows:

Balance Sheets

December 31, 2022 and 2021

	2022		2021
Assets
Cash (1)	$	526	$	427
Investment in bank subsidiary (1)		56,373		123,140
Other assets (1)		444		333
Total assets	$	57,343	$	123,900
Liabilities
Secured line of credit	$	18,000	$	18,000
Accrued interest payable		318		-
Total liabilities	$	18,318	$	18,000
Shareholders’ equity		39,025		105,900
Total liabilities and shareholders’ equity	$	57,343	$	123,900

⁽¹⁾ Fully or partially eliminates in consolidation.

51

CITIZENS HOLDING COMPANY

Years Ended December 31, 2022, 2021 and 2020

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 13. Continued

Income Statements

Years Ended December 31, 2022, 2021 and 2020

	2022			2021			2020
Interest income(1)	$	-		$	1		$	2
Other income
Dividends from bank subsidiary(1)		6,128			4,104			6,099
Equity in undistributed earnings of bank subsidiary(1)		4,546			3,995			1,260
Other income		21			-			-
Total other income		10,695			8,099			7,359
Other expense		1,417			820			526
Income before income taxes		9,278			7,280			6,835
Income tax benefit		(342	)		(214	)		(96	)
Net income	$	9,620		$	7,494		$	6,931

⁽¹⁾ Eliminates in consolidation.

52

CITIZENS HOLDING COMPANY

Years Ended December 31, 2022, 2021 and 2020

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 13. Continued

Statements of Cash Flows

Years Ended December 31, 2022, 2021 and 2020

	2022			2021			2020
Cash flows from operating activities
Net income	$	9,620		$	7,494		$	6,931
Adjustments to reconcile net income to net cash provided by operating activities
Equity in undistributed earnings of the Bank		(4,546	)		(3,995	)		(1,260	)
Stock compensation expense		157			161			167
Increase in other assets		(94	)		(60	)		(100	)
Increase in other liabilities		318			-			-
Net cash provided by operating activities		5,455			3,600			5,738
Cash flows from investing activities
Decrease (increase) in ownership in subsidiary	$	38		$	(18,000	)	$	-
Increase in other real estate owned		(38	)		-			-
Proceeds from sale of other real estate owned		21			-			-
Net cash provided by (used in) investing activities		21			(18,000	)		-
Cash flows from financing activities
Dividends paid to shareholders	$	(5,377	)	$	(5,370	)	$	(5,363	)
Proceeds from borrowings on secured line of credit		-			18,000			-
Proceeds from stock options		-			-			86
Net cash (used in) provided by financing activities		(5,377	)		12,630			(5,277	)
Net increase (decrease) in cash		99			(1,770	)		461
Cash, beginning of year		427			2,197			1,736
Cash, end of year	$	526		$	427		$	2,197

The Bank is required to obtain approval from state regulators before paying dividends.

53

CITIZENS HOLDING COMPANY

Years Ended December 31, 2022, 2021 and 2020

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 14. Related Party Transactions

(in thousands)

The Company had, and may have in the future, banking transactions in the ordinary course of business with directors, significant shareholders, principal officers, their immediate families, and affiliated companies in which they are principal shareholders (commonly referred to as related parties). In management’s opinion, such loans are made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with unrelated parties, and do not involve more than the normal risk of collectability at the time of the transaction.

Activity in related party loans is detailed in tabular form in Note 4 of the notes to the Financial Statements.

Deposits from related parties at December 31, 2022 and December 31, 2021 approximated $157,642 and $133,441, respectively.

The Company and its subsidiary have business dealings with companies owned by directors and beneficial shareholders of the Company. One director is a partner of the law firm that provides general counsel to the Company. Legal and other fees paid to this law firm for the years ended December 31, 2022, 2021, and 2020 were $49, $128, and $79, respectively. Additionally, one director is associated with a business which provides insurance to the Company in which the amounts paid for this service in 2022, 2021, and 2020 were $273, $280, and $229, respectively.

Note 15. Off-Balance Sheet Financial Instruments, Commitments and Contingencies and Concentrations of Risks

(in thousands)

Commitments to Extend Credit

In the ordinary course of business, the Company makes various commitments and incurs certain contingent liabilities to fulfill the financing needs of its customers. These commitments and contingent liabilities include commitments to extend credit and issue standby letters of credit. They involve, to varying degrees, elements of credit risk in excess of the amount recognized in the balance sheets. The Company’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual amount of those instruments. At December 31, 2022 and December 31, 2021, commitments related to unused lines of credit were $75,602 and $112,292, respectively, and standby letters of credit were $5,438 and $4,432, respectively. The fair value of such commitments is not materially different than stated values.

54

CITIZENS HOLDING COMPANY

Years Ended December 31, 2022, 2021 and 2020

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 15. Continued

As some of these commitments are expected to expire without being drawn upon, the total commitment amount does not necessarily represent future cash requirements. The Company applies the same credit policies and standards as it does in the lending process when making these commitments. The collateral obtained is based upon the assessed credit worthiness of the borrower. Collateral held varies, but may include accounts receivable, crops, livestock, inventory, property and equipment, residential real estate and income-producing commercial properties.

Interest Rate Risk

The Company is principally engaged in providing short-term and medium-term installment, commercial and agricultural loans with interest rates that are fixed or fluctuate with the prime lending rate. These assets are primarily funded through short-term demand deposits and long-term certificates of deposit with variable and fixed rates. Accordingly, the Company is exposed to interest rate risk because in changing interest rate environments interest rate adjustments on assets and liabilities may not occur at the same time or in the same amount. The Company manages the overall rate sensitivity and mix of its asset and liability portfolio and attempts to minimize the effects that interest rate fluctuations will have on its net interest margin.

Legal Proceedings

We are a party to various legal proceedings such as claims and lawsuits arising in the course of our normal business activities. Although the ultimate outcome of all claims and lawsuits outstanding as of December 31, 2022 cannot be ascertained at this time, it is the opinion of management that these matters, when resolved, will not have a material adverse effect on our business, results of operations or financial condition.

Concentration of Risk

The Company makes commercial, residential and consumer loans throughout the state of Mississippi. A substantial portion of the customers’ abilities to honor their contracts is dependent on their business and the agricultural economy in the state.

Although the Company’s loan portfolio is diversified, there is a relationship in this state and our operating regions between the agricultural economy and the economic performance of loans made to nonagricultural customers. The Company’s lending policies for agricultural and nonagricultural customers require loans to be well-collateralized and supported by cash flows. Credit losses from loans related to the agricultural economy are consistent with credit losses experienced in the portfolio as a whole. The concentration of credit in the regional agricultural economy is taken into consideration by management in determining the allowance for loan losses. See Note 4 for a summary of loans by type.

55

CITIZENS HOLDING COMPANY

Years Ended December 31, 2022, 2021 and 2020

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 16. Benefit Plans

(in thousands)

The Company provides its employees with a profit sharing and savings plan, which allows employees to direct a percentage of their compensation into a tax deferred retirement account, subject to statutory limitations. To encourage participation, the Company provides a 50 percent matching contribution for up to a maximum of 3 percent of each participant’s compensation, plus discretionary non-matching contributions. Employees are eligible after one year of service. For 2022, 2021 and 2020, the Company’s contributions were $696, $720 and $712, respectively.

Deferred Compensation Plans

The Company provides a deferred compensation plan covering its directors. Participants in the deferred compensation plan can defer a portion of their compensation for payment after attaining age 70. Life insurance contracts have been purchased which may be used to fund payments under the plan. Expenses related to this plan were $162, $146 and $142 for the plan years ended December 31, 2022, 2021 and 2020, respectively.

The Company has also entered into deferred compensation arrangements with certain officers that provide for payments to such officers or their survivors after retirement. Life insurance policies have been purchased that may be used to fund all or a portion of the payments under these arrangements. The obligations of the Company under both the directors and officers deferred compensation arrangements are expensed on a systematic basis over the remaining expected service period of the individual directors and officers. Expenses related to this plan were $725, $788 and $607 for the plan years ended December 31, 2022, 2021 and 2020, respectively.

56

CITIZENS HOLDING COMPANY

Years Ended December 31, 2022, 2021 and 2020

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 17. Regulatory Matters

(in thousands)

The Company (on a consolidated basis) and the Bank are subject to various regulatory capital requirements administered by federal banking agencies. Failure to meet the minimum regulatory capital requirements can initiate certain mandatory and possible additional discretionary actions by regulators that, if undertaken, could have a direct material adverse effect on the Company.

Under the regulatory capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company must meet specific capital guidelines involving quantitative measures of the Company’s assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. The Company’s capital amounts and classification under the prompt corrective action guidelines are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Quantitative measures established by regulation to ensure capital adequacy require the Company to maintain minimum amounts and ratios of total capital and Tier I capital to risk-weighted assets (as defined in the regulations) and Tier I capital to average assets (as defined in the regulations). Management believes, as of December 31, 2022, that the Company and the Bank meet all capital adequacy requirements to which they are subject.

The Federal Reserve Bank (“FRB”), Federal Deposit Insurance Corporation (“FDIC”) and other federal banking agencies have established risk-based capital adequacy guidelines. These guidelines are intended to provide a measure of a bank’s capital adequacy that reflects the degree of risk associated with a bank’s operations.

A banking organization’s risk-based capital ratios are obtained by dividing its qualifying capital by its total risk-adjusted assets and off-balance sheet items. Since December 31, 1992, the federal banking agencies have required a minimum ratio of qualifying total capital to risk-adjusted assets and off-balance sheet items of 8%, and a minimum ratio of Tier 1 capital to risk-adjusted assets and off-balance sheet items of 4%.

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

57

CITIZENS HOLDING COMPANY

Years Ended December 31, 2022, 2021 and 2020

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 17. Continued

Beginning January 1, 2015, the Bank began to comply with the Basel III rules, which became effective on January 1, 2020. Among other things, the Basel III rules impact regulatory capital ratios of banking organizations in the following manner:

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

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

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

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

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

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

58

CITIZENS HOLDING COMPANY

Years Ended December 31, 2022, 2021 and 2020

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 17. Continued

As of December 31, 2022 and 2021, the most recent regulatory notification categorized the Bank as well capitalized. There have been no conditions or events that would cause changes to the capital structure of the Company since this notification. To continue to be categorized as well capitalized under the regulatory framework for prompt corrective action, the Company would have to maintain minimum total risk-based, Tier I risk-based, and Tier I leverage ratios as disclosed below, in comparison with actual capital amounts and ratios:

											Minimum Capital
						Minimum Capital					Requirement to be
						Requirement to be					Adequately
	Actual					Well Capitalized					Capitalized
	Amount		Ratio			Amount		Ratio			Amount		Ratio
December 31, 2022
Citizens Holding Company
Tier 1 leverage ratio	$	108,756		7.96	%	$	68,352		5.00	%	$	54,682		4.00	%
Common Equity tier 1 capital ratio		108,756		13.19	%		88,858		6.50	%		61,517		4.50	%
Tier 1 risk-based capital ratio		108,756		13.19	%		65,951		8.00	%		49,463		6.00	%
Total risk-based capital ratio		114,020		13.83	%		82,438		10.00	%		65,951		8.00	%
The Citizens Bank of Philadelphia
Tier 1 leverage ratio	$	126,105		9.23	%	$	68,333		5.00	%	$	54,667		4.00	%
Common Equity tier 1 capital ratio		126,105		15.34	%		88,833		6.50	%		61,500		4.50	%
Tier 1 risk-based capital ratio		126,105		15.34	%		65,759		8.00	%		49,320		6.00	%
Total risk-based capital ratio		131,370		15.98	%		82,199		10.00	%		65,759		8.00	%
December 31, 2021
Citizens Holding Company
Tier 1 leverage ratio	$	104,181		7.80	%	$	66,789		5.00	%	$	53,431		4.00	%
Common Equity tier 1 capital ratio		104,181		13.16	%		86,826		6.50	%		60,110		4.50	%
Tier 1 risk-based capital ratio		104,181		13.16	%		63,322		8.00	%		47,492		6.00	%
Total risk-based capital ratio		108,694		13.73	%		79,153		10.00	%		63,322		8.00	%
The Citizens Bank of Philadelphia
Tier 1 leverage ratio	$	121,421		9.09	%	$	66,776		5.00	%	$	53,421		4.00	%
Common Equity tier 1 capital ratio		121,421		15.34	%		86,808		6.50	%		60,098		4.50	%
Tier 1 risk-based capital ratio		121,421		15.34	%		63,314		8.00	%		47,486		6.00	%
Total risk-based capital ratio		125,934		15.91	%		79,143		10.00	%		63,314		8.00	%

59

CITIZENS HOLDING COMPANY

Years Ended December 31, 2022, 2021 and 2020

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 18. Fair Values of Financial Instruments

(in thousands)

Under the authoritative guidance on fair value measurements, fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In determining fair value, the Company uses various methods including market, income and cost approaches. Based on these approaches, the Company often utilizes certain assumptions about risk and or the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated, or generally unobservable inputs. The Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. Based on the observability of the inputs used in the valuation techniques, the Company is required to provide the following information according to the fair value hierarchy. The fair value hierarchy ranks the quality and reliability of the information used to determine fair values. Financial assets and liabilities carried at fair value will be classified and disclosed in one of the three following categories:

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 Company used the following methods and assumptions to estimate the fair value of financial instruments that are measured at fair value on a recurring basis:

Investment Securities

The fair values of debt securities available for sale are determined by third party matrix pricing, which is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities (Level 2 inputs).

60

CITIZENS HOLDING COMPANY

Years Ended December 31, 2022, 2021 and 2020

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 18. Continued

The following table presents investment securities that are measured at fair value on a recurring basis as of December 31, 2022:

	Quoted Prices
	in Active		Significant
	Markets for		Other		Significant
	Identical		Observable		Unobservable
	Assets		Inputs		Inputs
	(Level 1)		(Level 2)		(Level 3)		Totals
Securities available for sale
Mortgage-backed securities	$	-	$	96,972	$	-	$	96,972
State, County, Municipals		-		103,913		-		103,913
Other securities		-		437		-		437
	$	-	$	201,322	$	-	$	201,322

The following table presents investment securities that are measured at fair value on a recurring basis as of December 31, 2021:

	Quoted Prices
	in Active		Significant
	Markets for		Other		Significant
	Identical		Observable		Unobservable
	Assets		Inputs		Inputs
	(Level 1)		(Level 2)		(Level 3)		Totals
Securities available for sale
Obligations of U.S. Government agencies	$	-	$	4,700	$	-	$	4,700
Mortgage-backed securities		-		399,591		-		399,591
State, County, Municipals		-		227,051		-		227,051
Other securities		-		493		-		493
	$	-	$	631,835	$	-	$	631,835

61

CITIZENS HOLDING COMPANY

Years Ended December 31, 2022, 2021 and 2020

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 18. Continued

Impaired Loans

Loans considered impaired are reserved for at the time the loan is identified as impaired taking into account the fair value of the collateral less estimated selling costs. Collateral may be real estate and/or business assets including but not limited to, equipment, inventory and accounts receivable. The fair value of real estate is determined based on appraisals by qualified licensed appraisers. The fair value of the business assets is generally based on amounts reported on the business’s financial statements. Appraised and reported values may be adjusted based on management’s historical knowledge, changes in market conditions from the time of valuation and management knowledge of the client and the client’s business. Since not all valuation inputs are observable, these nonrecurring fair value determinations are classified Level 3. The unobservable inputs may vary depending on the individual assets with the fair value of real estate based on appraised value being the predominant approach. The Company reviews the certified appraisals for appropriateness and adjusts the value downward to consider selling, closing and liquidation costs, which typically approximates 25% of the appraised value. Impaired loans are reviewed and evaluated on at least a quarterly basis for additional impairment and adjusted accordingly, based on the same factors previously identified.

Other real estate owned

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

62

CITIZENS HOLDING COMPANY

Years Ended December 31, 2022, 2021 and 2020

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 18. Continued

The following table presents assets measured at fair value on a nonrecurring basis during December 31, 2022 and 2021 and were still held at those respective dates:

	Quoted Prices
	in Active		Significant
	Markets for		Other		Significant
	Identical		Observable		Unobservable
	Assets		Inputs		Inputs
	(Level 1)		(Level 2)		(Level 3)		Totals
December 31, 2022
Impaired loans	$	-	$	-	$	2,074	$	2,074
	$	-	$	-	$	2,074	$	2,074
December 31, 2021
Impaired loans	$	-	$	-	$	109	$	109
Other real estate owned		-		-		1,121		1,121
	$	-	$	-	$	1,230	$	1,230

Impaired loans with a carrying value of $2,190 and $112 had an allocated allowance for loan losses of $116 and $3 at December 31, 2022 and December 31, 2021, respectively. The allocated allowance is based on the carrying value of the impaired loan and the fair value of the underlying collateral less estimated costs to sell.

After monitoring the carrying amounts for subsequent declines or impairment after foreclosure, management determined that a fair value adjustments to OREO in the amount of $-0- and $836 was necessary and recorded during the year ended December 31, 2022 and December 31, 2021, respectively.

63

CITIZENS HOLDING COMPANY

Years Ended December 31, 2022, 2021 and 2020

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 18. Continued

The following represents the carrying value and estimated fair value of the Company’s financial instruments at December 31, 2022 and December 31, 2021:

			Quoted Prices
			in Active		Significant
			Markets for		Other		Significant		Total
	Carrying		Identical		Observable		Unobservable		Fair
	Value		Assets		Inputs		Inputs		Value
2022			(Level 1)		(Level 2)		(Level 3)
Financial assets
Cash and due from banks	$	26,948	$	26,948	$	-	$	-	$	26,948
Interest bearing deposits with banks		1,646		1,646		-		-		1,646
Securities held-to-maturity		406,590		-		375,292		-		375,292
Securities available-for-sale		201,322		-		201,322		-		201,322
Net loans		580,327		-		-		541,173		541,173
Financial liabilities
Deposits		1,126,402		947,479		178,902		-		1,126,381
Securities Sold under Agreement to Repurchase		127,574		127,574		-		-		127,574
Borrowings on secured line of credit		18,000		18,000		-		-		18,000

			Quoted Prices
			in Active		Significant
			Markets for		Other		Significant		Total
	Carrying		Identical		Observable		Unobservable		Fair
	Value		Assets		Inputs		Inputs		Value
2021			(Level 1)		(Level 2)		(Level 3)
Financial assets
Cash and due from banks	$	10,673	$	10,673	$	-	$	-	$	10,673
Interest bearing deposits with banks		68,563		68,563		-		-		68,563
Securities held-to-maturity		-		-		-		-		-
Securities available-for-sale		631,835		-		631,835		-		631,835
Net loans		567,334		-		-		554,351		554,351
Financial liabilities
Deposits		1,111,892		881,733		230,590		-		1,112,323
Securities Sold under Agreement to Repurchase		112,760		112,760		-		-		112,760
Borrowings on secured line of credit		18,000		18,000		-		-		18,000

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CITIZENS HOLDING COMPANY

Years Ended December 31, 2022, 2021 and 2020

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 19. Stock Based Compensation

(in thousands, except share data)

The Company has a directors’ stock compensation plan and had an employees’ long-term incentive plan. Under the directors’ plan, the Company may grant options for up to 210,000 shares of common stock. The price of each option is equal to the market price determined as of the option grant date. Options granted are exercisable after six months and expire after 10 years. The employee plan expired on April 13, 2009, no options have been granted since this date and all previously granted options either expired or were exercised as of December 31, 2022. The options previously granted under the employee plan expire 10 years from the grant date. The exercise price is equal to the market price of the Company’s stock on the date of grant.

The fair value of each option granted is estimated on the date of the grant using the Black-Sholes option-pricing model. No options were granted in 2022 or 2021, therefore no calculations were required in 2022 or 2021 to determine fair values.

The Company has adopted the 2013 Incentive Compensation Plan (the “2013 Plan”), which the Company has used for all equity grants after the adoption and approval of the 2013 Plan.

During 2022, the Company’s directors received restricted stock grants totaling 8,250 shares of common stock at a then market value of $19.05 per share and in 2021 received 8,250 shares of common stock at a then market value of $18.96 per share. These grants vest over a one-year period during which time the recipients have rights to vote the shares and to receive dividends. The grant date fair value of these shares granted in 2022 was $157 and will be recognized ratably over the one-year vesting period. The grant date fair value of the shares granted in 2021 was $156 and was recognized ratably over the one-year vesting period.

During 2022 and 2021, the Company recorded expense of $157 and $161 related to all of the restricted shares.

At December 31, 2022, there were 8,250 shares non-vested with $52 in unrecognized stock-based compensation expense related to the 2013 Plan.

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CITIZENS HOLDING COMPANY

Years Ended December 31, 2022, 2021 and 2020

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 19. Continued

Following is a summary of the status of the stock options remaining under the plans for the years ending December 31, 2022, 2021 and 2020:

	Directors’ Plan
				Weighted
	Number			Average
	of			Exercise
	Shares			Price
Outstanding at January 1, 2020		40,500		$	21.49
Granted		-			-
Exercised		(7,500	)		19.26
Expired		(13,500	)		25.72
Outstanding at December 31, 2020		19,500		$	19.42
Granted		-			-
Exercised		-			-
Expired		(10,500	)		20.02
Outstanding at December 31, 2021		9,000		$	18.76
Granted		-			-
Exercised		-			-
Expired		(9,000	)		18.76
Outstanding at December 31, 2022		-		$	-
Options exercisable at:
December 31, 2022		-		$	-

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CITIZENS HOLDING COMPANY

Years Ended December 31, 2022, 2021 and 2020

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 19. Continued

The intrinsic value of options outstanding under the Directors’ Plan at December 31, 2022 was $-0-. Additionally, the total intrinsic value of options exercised during 2022 and 2021 was $-0- and $-0-, respectively.

There were no options granted during 2022 or 2021 under the 2013 Plan.

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Management’s Discussion and Analysis of Financial Condition and Results of Operations as of December 31, 2022, 2021 and 2020

(in thousands)

OVERVIEW

The following information discusses the financial condition and results of operations of Citizens Holding Company (the “Company”) as of December 31, 2022, 2021 and 2020. In this discussion, all references to the activities, operations or financial performance of the Company reflect the Company’s activities, operations and financial performance through its wholly-owned subsidiary, The Citizens Bank of Philadelphia, Mississippi (the “Bank”), unless otherwise specifically noted. The Company’s financial statements and accompanying notes should be read in conjunction with this Management’s Discussion and Analysis.

Net income for the year ended December 31, 2022 was $9,620, an increase of $2,126, or 28.37% compared to $7,494 at December 31, 2021. Net income increased year-over-year primarily due to the aggressive interest rate increases by the Federal Reserve Bank during 2022. Management was able to increase net interest margin (“NIM”) by 20 bps year-over-year.

The Company continued to maintain and expand customer relationships as reflected by the deposit growth of $14,510 or 1.30% to $1,126,402 at December 31, 2022 compared to $1,111,892 at December 31, 2021. The deposit increase was primarily driven by Negotiable Order of Withdrawal (“NOW”) accounts which grew $72,278, or 18.20%, when compared to December 31, 2021. Along with increasing deposits for the year, management was able to maintain a low cost of funds even as rates rose significantly, with 50 bps at December 31, 2021 compared to 49 bps at December 31, 2022. Year-over-year interest expense decreased by $224, or (4.50%) as a result of management’s repricing and reduction of higher cost interest-bearing deposits.

The actions taken to mitigate the economic impact of the COVID-19 pandemic during 2020 and 2021, including but not limited to the Paycheck Protection Program, the Federal Reserve Bank (“FRB”) slashing rates to 0 bps immediately, multiple rounds of economic stimulus in the trillions of dollars all while limiting the amount of economic output that could occur caught up with the economy in 2022 causing record levels of inflation across the globe. This created a situation in which both the FRB and the legislature had to act quickly to reverse course by cutting off the stimulus and hiking interest rates at historic levels. Throughout 2022, the FRB hiked the federal funds rate by 425 bps in addition to methodically shrinking its balance sheet in an effort to slow the economy and ultimately inflation. While the Company’s balance sheet was well positioned for rising rates and did ultimately benefit, the amount of uncertainty that was created throughout the year has and will continue to slow economic activity in the markets we serve. The housing market came to a halt in the fourth quarter of 2022 and there was minimal commercial activity as well. While we were ultimately able to grow loans year over year, this was primarily from construction projects that were started in 2020 and 2021. As the Company heads into 2023, there is still uncertainty around the economic outlook and the activity may be somewhat sparse in the Company’s operating markets due to the current interest rates.

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Additionally, at the end of 2022 and heading into 2023, deposit competition has increased dramatically, driving up the cost of funding. The Company could see decreased margins in 2023 as a result of these increased costs coupled with lower loan demand and lower bond yields. 2023 could be a challenging year but the Company is well positioned should economic activity pick back up.

The Company and Bank remain well capitalized with all capital ratios above the regulatory requirements. The Bank’s leverage capital ratio increased from 9.09% at December 31, 2021 to 9.23% at December 31, 2022. The Tier 1 capital ratio for the Company and Bank was 13.34% and 15.34%, respectively, at December 31, 2022. The Company’s capital position reflects the consistent profitability of its diversified financial services businesses.

The Company’s return on average assets (“ROA”) was 0.72% in 2022, compared to 0.53% in 2021 and 0.52% in 2020. The Company’s return on average equity (“ROE”) was 15.30% in 2022, 6.74% in 2021 and 5.89% in 2020. During the 2020 to 2022 period, the Company’s leverage capital ratios (the ratio of equity to average total assets) increased from 7.22% in 2020 to 7.80% in 2021 to 7.96% in 2022. The ROE in 2022, 2021 and 2020 is a function of the level of net income and equity balances during those years. The changes in ROA were also a result of the Company’s net income in those years and also affected by the increase or decrease in total assets during these time periods. The Company set the annual dividend payout rate to approximately 55.81% of 2022 earnings per share, as compared to 71.64% in 2021 and 77.42% in 2020.

Management has continued its practice of maintaining excess funding capacity to provide the Company with adequate liquidity for its ongoing operations. In this regard, the Company benefits from its strong deposit base, its liquid investment portfolio, and its access to funding from a variety of external funding sources such as federal funds lines and FHLB advances. Liquidity is discussed in more detail under the heading, Liquidity and Rate Sensitivity. The Company’s only commitment at December 31, 2022 that would require a material expenditure of capital resources is the outstanding $18,000 FHN secured line of credit balance.

The Company is not aware of any developments that would have a material impact on its revenues or net income outside of the recessionary risks inherent entering 2023. Interest rates are currently projected to remain relatively flat over the next year to help mitigate inflation that has affected the economy due to the amount of money supply injected into the economy as a result of the COIVD-19 pandemic. The Company works to be proactive in monitoring the recessionary risks and impacts to its employees, customers and communities. Although the ultimate outcome cannot be accurately predicted at this point, the Company believes that it is well-capitalized and has the financial stability to continue to serve its customers and communities.

CRITICAL ACCOUNTING POLICIES

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

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Allowance for Loan Losses

The accounting policy most important to the presentation of the Company’s financial statements relates to the allowance for loan loss and the related provision for loan losses. The allowance for loan losses is available to absorb probable credit losses inherent in the entire loan portfolio. The appropriate level of the allowance is based on a monthly analysis of the loan portfolio and represents an amount that management deems adequate to provide for inherent losses, including collective impairment as recognized under ASC Subtopic 450-20, Loss Contingencies. The collective impairment is calculated based on loans grouped by similar risk characteristics. Another component of the allowance is losses on loans assessed as impaired under ASC Subtopic 310-10, Loan Impairments. The balance of these loans determined to be impaired under ASC Subtopic 310-10 and their related allowance is included in management's estimation and analysis of the allowance for loan losses. For a discussion of other considerations in establishing the allowance for loan losses and the Company’s and the Bank’s loan policies and procedures for addressing credit risk, please refer to the disclosures in this Item under the heading “Provision for Loan Losses and Asset Quality.”

Please refer to Note 1, “Nature of Business and Summary of Significant Accounting Policies,” to the Consolidated Financial Statements of the Company included in this Annual Report for a detailed discussion of other significant accounting policies affecting the Company.

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DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

In addition to historical information, this report contains statements that constitute forward-looking statements 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, that are based on management’s beliefs, plans, expectations, assumptions and on information currently available to management. The words “may,” “should,” “expect,” “anticipate,” “intend,” “plan,” “continue,” “believe,” “seek,” “estimate” and similar expressions used in this report that do not relate to historical facts are intended to identify forward-looking statements. These statements appear in a number of places in this report, including, but not limited to, statements found in Item 1, “Business,” and in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Citizens Holding Company (the “Company”) notes that a variety of factors could cause its actual results or experience to differ materially from the anticipated results or other expectations described or implied by such forward-looking statements. The risks and uncertainties that may affect the operation, performance, development and results of the business of the Company and the Company’s wholly-owned subsidiary, The Citizens Bank of Philadelphia, Mississippi (the “Bank”), include, but are not limited to, the following:

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

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

● the risk of adverse changes in business conditions in the banking industry generally and in the specific markets in which the Company operates including, but not limited to, the negative impacts and disruptions resulting from the COVID-19 pandemic;

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

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

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

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

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

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

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

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

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

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

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

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

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

The Company undertakes no obligation to update or revise any forward-looking statements subsequent to the date on which they are made.

NET INCOME

Net income for 2022 increased by 28.37% to $9,620 or $1.72 per share-basic and -diluted, from $7,494 or $1.34 per share-basic and -diluted for 2021. The provision for loan losses for 2022 was $124 as compared to $1,409 in 2021. The decrease in the provision is mainly attributed to the fact that the Company was in a large net recovery position for the year ended December 31, 2022 partially offset with increases in qualitative factors due to the FRB’s restrictive monetary policy coupled with recessionary risks for the near future. Noninterest income decreased by $1,304, or (10.70%), and non-interest expense decreased by $1,180 or (3.34%), in 2022. Non-interest income for 2022 decreased primarily as a result of a decrease in the net gains on sales of securities partially offset by increased interchange fees and overdraft fees. Noninterest expense decreased mainly due to a decrease in salaries and benefits and write-downs of OREO partially offset by the continued investment in customer facing and internal technology.

Net income for 2021 increased by 8.12% to $7,494 or $1.34 per share-basic and -diluted, from $6,931 or $1.24 per share-basic and -diluted for 2020. The provision for loan losses for 2021 was $1,409 as compared to $1,485 in 2020. The decrease in the provision is mainly attributed to negative loan growth offset due to the reclassification of the purchased loans to LHFI and specific provisioning required for one impaired relationship coupled with increases in qualitative factors due to the continued effects of the pandemic. Noninterest income increased by $1,728, or 16.52%, and non-interest expense increased by $1,922 or 5.75%, in 2021.  Non-interest income for 2021 increased primarily as a result of increased interchange fees coupled with gains on the sale of OREO and investment securities. Noninterest expense increased mainly due to an increase in salaries and benefits, regulatory related expenses, the write-down of OREO, and the continued investment in customer facing and internal technology.

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NET INTEREST INCOME

Net interest income is the most significant component of the Company’s earnings. Net interest income is the difference between interest and fees realized on earning assets, primarily loans and securities, and interest paid on deposits and other borrowed funds. The net interest margin is this difference expressed as a percentage of average earning assets. Net interest income is affected by several factors, including the volume of earning assets and liabilities, the mix of earning assets and liabilities, and interest rates. The discussion below is presented on a tax equivalent basis which management believes to be the best way to analyze net interest income.

Net interest income on a tax equivalent basis was $36,049, $34,340 and $33,699 for the years 2022, 2021 and 2020, respectively. Net interest margin was 2.80%, 2.60% and 2.72% for the same periods. In 2022 as compared to 2021, interest-bearing assets decreased by $81,283, or (6.38%) and interest-bearing liabilities increased by $29,324, or 2.39%. For the year ended December 31, 2022, the average yield on earnings assets was 3.17%, an increase of 19 basis points compared to the average yield at December 31, 2021. The average rate paid on interest-bearing liabilities was 0.49%, a decrease of 1 basis point compared to the average rate at December 31, 2021.

During 2021, the yields on interest earning assets and the rates paid on interest bearing deposits decreased. In 2021 as compared to 2020, interest-bearing assets increased by $83,771, or 6.78% and interest-bearing liabilities increased by $19,562, or 2.02%. For the year ended December 31, 2021, the average yield on earnings assets was 2.98%, a decrease of 35 basis points compared to the average yield at December 31, 2020. The average rate paid on interest-bearing liabilities was 0.50%, a decrease of 26 basis points compared to the average rate at December 31, 2020.

During this three-year period, loans outstanding increased in 2020 and 2022. In 2021 loans decreased significantly due to increased competition and stagnant loan demand due to the continued effects of the pandemic. Loans generally provide the Company with yields that are greater than the yields on typical investment securities. Additionally, the taxable securities yield drove a majority of the increase in the interest earning assets yield with the yield increasing significantly due to historic rate increases during 2022 which drove decreased prepayments on mortgage-backed securities.

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Table 1 – Average Balance Sheets and Interest Rates sets forth average balance sheet data, including all major categories of interest-earning assets and interest-bearing liabilities, together with the interest earned or interest paid and the average yield or average rate paid on each such category for the fiscal years ended December 31, 2022, 2021 and 2020.

TABLE 1 – AVERAGE BALANCE SHEETS AND INTEREST RATES

(in thousands)

	Average Balance						Income/Expense						Average Yield/Rate
	2022		2021		2020		2022		2021		2020		2022			2021			2020
Loans:
Loans, net of unearned(1)	$	586,435	$	628,618	$	622,309	$	27,311	$	31,327	$	30,980		4.66	%		4.98	%		4.98	%
Investment Securities
Taxable		465,386		496,946		498,016		8,066		4,441		7,837		1.73	%		0.89	%		1.57	%
Tax-exempt		210,895		148,977		69,591		5,059		3,498		2,027		2.40	%		2.35	%		2.91	%
Total Investment Securities		676,281		645,923		567,607		13,125		7,939		9,864		1.94	%		1.23	%		1.74	%
Federal Funds Sold and Other		23,574		44,451		45,305		370		55		250		1.57	%		0.12	%		0.55	%
Total Interest Earning Assets(1)(2)		1,286,290		1,318,992		1,235,221		40,806		39,321		41,094		3.17	%		2.98	%		3.33	%
Non-Earning Assets		56,944		93,090		101,292
Total Assets	$	1,343,234	$	1,412,082	$	1,336,513
Deposits:
Interest-bearing Demand Deposits (3)	$	486,636	$	487,894	$	449,828	$	929	$	1,324	$	3,062		0.19	%		0.27	%		0.68	%
Savings		133,739		118,063		93,886		133		120		111		0.10	%		0.10	%		0.12	%
Time		202,315		245,886		231,832		1,442		2,783		3,351		0.71	%		1.13	%		1.45	%
Total Deposits		822,690		851,843		775,546		2,504		4,227		6,524		0.30	%		0.50	%		0.84	%
Borrowed Funds
Short-term Borrowings		121,783		135,282		192,017		1,338		401		871		1.10	%		0.30	%		0.45	%
Long-term Borrowings		18,000		9,692		-		915		353		-		5.08	%		3.64	%		0.00	%
Total Borrowed Funds		139,783		144,974		192,017		2,253		754		871		1.61	%		0.52	%		0.45	%
Total Interest-Bearing Liabilities (3)		962,473		996,817		967,563		4,757		4,981		7,395		0.49	%		0.50	%		0.76	%
Non-Interest Bearing Liabilities
Demand Deposits		305,247		289,883		236,881
Other Liabilities		12,624		14,193		14,294
Shareholders' Equity		62,890		111,189		117,775
Total Liabilities and Shareholders' Equity	$	1,343,234	$	1,412,082	$	1,336,513
Interest Rate Spread														2.68	%		2.48	%		2.56	%
Net Interest Margin							$	36,049	$	34,340	$	33,699		2.80	%		2.60	%		2.72	%
Less
Tax Equivalent Adjustment								1,140		846		565
Net Interest Income							$	34,909	$	33,494	$	33,134

⁽¹⁾ Overdrafts on demand deposit accounts are not included in the average volume calculation as they are not considered interest earning assets by the Company. They are included in the “Non-Earning Assets” balance above.

⁽²⁾ Earning Assets in Table 1 does not include the dividend paying stock of the Federal Home Loan Bank.

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

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Table 2 – Net Average Interest Earning Assets illustrates net interest earning assets and liabilities for 2022, 2021, and 2020.

TABLE 2 – NET AVERAGE INTEREST EARNING ASSETS

	(in thousands)
	2022		2021		2020
Average interest earning assets	$	1,286,290	$	1,318,992	$	1,235,221
Average interest bearing liabilities		962,473		996,817		967,563
Net average interest earning assets	$	323,817	$	322,175	$	267,658

Table 3 – Volume/Rate Analysis depicts the effect on interest income and interest expense of changes in volume and changes in rate from 2020 through 2022. Variances, which were attributable to both volume and rate, are allocated proportionately between rate and volume using the absolute values of each for a basis for the allocation. Non-accruing loans are included in the average loan balances used in determining the yields. Interest income on tax‑exempt securities and loans has been adjusted to a tax equivalent basis using a federal income tax rate of 21% and a state tax rate of 5% in 2022 and 2021, respectively.

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TABLE 3 – VOLUME/RATE ANALYSIS

(in thousands)

	2022 Change from 2021									2021 Change from 2020
	Volume			Rate			Total			Volume			Rate			Total
INTEREST INCOME
Loans	$	(2,102	)	$	(1,914	)	$	(4,016	)	$	314		$	33		$	347
Taxable securities		(282	)		3,907			3,625			(10	)		(3,386	)		(3,396	)
Non-Taxable securities		1,454			107			1,561			1,864			(393	)		1,471
Federal funds sold and other		(26	)		341			315			(1	)		(194	)		(195	)
TOTAL INTEREST INCOME	$	(956	)	$	2,441		$	1,485		$	2,167		$	(3,940	)	$	(1,773	)
INTEREST EXPENSE
Interest-bearing demand deposits	$	(3	)	$	(392	)	$	(395	)	$	103		$	(1,841	)	$	(1,738	)
Savings deposits		16			(3	)		13			25			(16	)		9
Time deposits		(493	)		(848	)		(1,341	)		159			(727	)		(568	)
Short-term borrowings		(40	)		977			937			(168	)		(302	)		(470	)
Long-term borrowings		303			259			562			353			-			353
TOTAL INTEREST EXPENSE	$	(218	)	$	(6	)	$	(224	)	$	472		$	(2,886	)	$	(2,414	)
NET INTEREST INCOME	$	(738	)	$	2,447		$	1,709		$	1,696		$	(1,055	)	$	641

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LOANS

The loan portfolio constitutes the major earning asset of the Company and, in the opinion of management, offers the best alternative for maximizing net interest margin. The Company’s loan personnel have the authority to extend credit under guidelines established and approved by the Board of Directors. Any aggregate credit that exceeds the authority of the loan officer is forwarded to the Board’s loan committee for approval. The loan committee is composed of certain directors, including the Chairman of the Board of Directors. All aggregate loans that exceed the loan committee’s lending authority are presented to the full Board of Directors for ultimate approval or denial. The loan committee not only acts as an approval body to ensure consistent application of the Company’s loan policy but also provides valuable insight through communication and pooling of knowledge, judgment, and experience of its members.

The Company has stated in its loan policy the following objectives for its loan portfolio:

● to make loans after sound and thorough credit analysis;

● to properly document all loans;

● to eliminate loans from the portfolio that are underpriced, high risk or difficult and costly to administer;

● to seek good relationships with the customer;

● to avoid undue concentrations of loans; and

● to keep non-accrual loans to a minimum by aggressive collection policies.

Loan demand in some of the Company’s market was robust but remained stagnant in other markets. The Company continues to face intense competition with aggressive loan terms for available loans from other financial institutions. However, the Company had positive loan growth for 2022 with loans outstanding increasing year-over-year. A majority of the increase in loans is in the commercial, financial and agricultural segment, with an increase in loans of $37,732, or 9.74%, in 2022. Commercial, financial and agricultural loans are the largest segment of the loan portfolio and, by nature, bear a higher degree of risk. Management believes the lending practices, policies and procedures applicable to this loan category are adequate to manage any risk represented by the current demand and terms of this loan segment.

Real estate mortgage loans originated by the Company decreased by (6.70%), or $6,602 in 2022 and decreased by (16.21%), or $19,059, in 2021, and decreased by (3.63%), or $4,430, in 2020 when compared to the prior years. The decrease in 2022 reflects the impact of higher loan rates and the decrease in 2021 and 2020 reflects the weakness in some of the Company’s local housing markets coupled with increased competition in the mortgage market.

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Real estate construction loans decreased by $19,167, or (26.66%) in 2022 to $52,731 when compared to the $71,898 at December 31, 2021 and increased by $23,067 or 47.24% when compared to 2020. Of the overall decrease for 2022, a number of large construction projects were completed during the year and reclassified to other loan types. Real estate construction loans are usually short term in nature and are dependent on construction activity in the Company’s service area. Demand has started to recover for construction loans during the 2022 fiscal year despite the recessionary concerns.

Consumer loans increased by $1,781 or 12.77% in 2022 and increased by $201 or 1.46% in 2021, and decreased by $2,327, or (14.48%) in 2020, compared to the prior years. The Company believes inflation pressure, supply chain issues and the spend down of consumer savings has caused consumer spending to start to pick up.

Table 4 – Loans Outstanding reflects outstanding balances by loan type for the past five years. Additional loan information is presented in Note 4, “Loans,” to the Company’s Consolidated Financial Statements included in this Annual Report.

TABLE 4 – LOANS OUTSTANDING

(in thousands)

	AT DECEMBER 31,
	2022		2021		2020		2019		2018
Commercial, financial and agricultural	$	425,207	$	387,475	$	472,093	$	357,781	$	285,375
Real estate - construction		52,731		71,898		48,831		81,197		41,134
Real estate - mortgage		91,923		98,525		117,584		122,014		88,747
Consumer		15,730		13,949		13,748		16,075		14,021
TOTAL LOANS	$	585,591	$	571,847	$	652,256	$	577,067	$	429,277

Table 5 – Loan Liquidity and Sensitivity to Changes in Interest Rates reflects the maturity schedule or repricing frequency of all loans. Also presented are fixed and variable rate loans maturing after one year.         

TABLE 5 – LOAN LIQUIDITY

LOAN MATURITIES AT DECEMBER 31, 2022

	1 YEAR		1 - 5		5 - 15		AFTER 15
	OR LESS		YEARS		YEARS		YEARS		Total
Commercial, financial and agricultural	$	66,697	$	265,366	$	59,141	$	34,003	$	425,207
Real estate - construction		24,380		28,351		-		-	$	52,731
Real estate - mortgage		11,744		65,465		14,714		-	$	91,923
Consumer		5,488		9,207		1,035		-	$	15,730
Total loans	$	108,309	$	368,389	$	74,890	$	34,003	$	585,591

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SENSITIVITY TO CHANGES IN INTEREST RATES

	1 - 5		OVER 5
	YEARS		YEARS
Fixed rates	$	426,161	$	55,169
Variable rates		50,902		53,358
Total loans	$	477,063	$	108,528

Each loan the Company makes either has a stated maturity as to when the loan is to be repaid or is subject to an agreement between the Company and the customer governing its progressive reduction. The Company’s policy is that every loan is to be repaid by its stated maturity and not carried as a continuing debt. Generally, the Company requires that principal reductions on a loan must have begun prior to the second renewal date of the loan.

PROVISION FOR LOAN LOSSES AND ASSET QUALITY

The allowance for loan losses represents an amount that in management’s judgment will be adequate to absorb estimated probable losses within the existing loan portfolio. Loans that management determines to be uncollectible are charged against the allowance for loan losses, and subsequent recoveries, if any, are credited to the allowance. Management’s judgment in determining the adequacy of the allowance is based on evaluations of the collectability of specific loans and prior loss experience. Other factors considered by management include specific economic events, general economic conditions and trends, and loan portfolio mix and growth. The allowance for loan losses is subject to close regulatory review from the FDIC and the Mississippi Department of Banking and Consumer Finance and is also a factor in each agency’s determination of the Company’s capital adequacy. The estimation of losses in the Company’s loan portfolio is susceptible to changes resulting from changes in the financial condition of individual borrowers and economic conditions in the Company’s market area.

The allowance for loan losses is established through a provision for loan losses charged against net income. This expense is determined by a number of factors, including historical loan losses, assessment of specific credit weaknesses within the portfolio, assessment of the prevailing economic climate, and other factors that may affect the overall condition of the loan portfolio. Management utilized these factors to determine the provision for loan losses for each of 2022, 2021 and 2020. The ratio of net loans charged off (recovered) to average loans was (0.11%) in 2022, 0.26% in 2021 and 0.08% in 2020. Management evaluates the adequacy of the allowance for loan loss on a monthly basis and makes adjustments to the allowance based on this analysis.

The provision for loan losses in 2022 was an expense of $124 compared to $1,409 in 2021 and $1,485 in 2020. The change in the provision for all three years was mainly due to management’s assessment of inherent losses in the loan portfolio, including the impact caused by current local and national economic conditions. The Company uses a model that takes into account historical charge-offs and recoveries and applies that to certain loan segments of the Company’s portfolio. The current year’s lower provision is mainly attributed to a large amount of recoveries on a relationship that was deemed impaired in the third quarter of 2021. At the end of 2022, the total allowance for loan losses was $5,264, an amount that management believes to be sufficient to cover estimated probable losses in the loan portfolio.

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Activity in the allowance for loan losses is reflected in Table 6 – Analysis of Allowance for Loan Losses. The Company’s policy is to charge-off loans when in management’s opinion the loan is deemed uncollectible. Even after it is charged off, however, the Company makes concerted efforts to maximize recovery of such loan.

TABLE 6 – ANALYSIS OF ALLOWANCE FOR LOAN LOSSES

(in thousands except for percentage amounts)

	2022			2021			2020			2019			2018
BALANCE AT BEGINNING OF YEAR	$	4,513		$	4,735		$	3,755		$	3,372		$	3,019
LOANS CHARGED-OFF
Commercial, financial and agricultural		65			775			272			176			35
Real estate - construction		-			36			37			-			74
Real estate - mortgage		4			-			304			46			133
Consumer		110			1,327			104			138			146
TOTAL CHARGE-OFFS		179			2,138			717			360			388
CHARGE-OFFS RECOVERED
Commercial, financial and agricultural		205			67			65			91			219
Real estate - construction		14			9			43			18			19
Real estate - mortgage		75			76			61			14			81
Consumer		512			355			43			47			88
TOTAL RECOVERIES		806			507			212			170			407
Net loans charged-off		(627	)		1,631			505			190			(19	)
Additions charged to operating expense		124			1,409			1,485			573			334
BALANCE AT END OF YEAR	$	5,264		$	4,513		$	4,735		$	3,755		$	3,372
Loans, net of unearned, at year end	$	585,591		$	571,847		$	652,256		$	577,067		$	429,277
Ratio of allowance to loans at year end		0.90	%		0.79	%		0.73	%		0.65	%		0.79	%
Average loans - net of unearned	$	587,034		$	629,186		$	622,805		$	561,483		$	418,136
Ratio of net loans charged-off to average loans		-0.11	%		0.26	%		0.08	%		0.03	%		0.00	%

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ALLOCATION OF ALLOWANCE FOR LOAN LOSSES

(in thousands)

	AT DECEMBER 31,
	2022		2021		2020		2019		2018
Commercial, financial and agricultural	$	3,524	$	3,009	$	3,576	$	2,692	$	2,295
Real estate - construction		478		464		267		192		139
Real estate - mortgage		865		794		653		566		417
Consumer		397		246		239		305		521
Total	$	5,264	$	4,513	$	4,735	$	3,755	$	3,372

COMPOSITION OF LOAN PORTFOLIO BY TYPE

	AT DECEMBER 31,
	2022			2021			2020			2019			2018
Commercial, financial and agricultural		72.61	%		67.76	%		72.38	%		62.00	%		66.48	%
Real estate - construction		9.00	%		12.57	%		7.49	%		14.07	%		9.58	%
Real estate - mortgage		15.70	%		17.23	%		18.03	%		21.14	%		20.67	%
Consumer		2.69	%		2.44	%		2.11	%		2.79	%		3.27	%
		100.00	%		100.00	%		100.00	%		100.00	%		100.00	%

Loan balances outstanding, as illustrated in Table 4, increased in 2022 as a result of the increased demand in our high growth markets. All loan segments except commercial, financial and agricultural decreased in 2021 except for a slight increase in consumer loans. The allowance for loan losses is allocated to the various categories based on the historical loss percentage for each segment of loan and any specific reserves that might be assigned to those loans.

Non-performing assets and the relative percentages of such assets to loan balances are presented in Table 7 – Non-performing Assets. Non-performing loans include non-accrual loans, loans delinquent 90 days or more based on contractual terms and troubled debt restructurings. Management classifies loans as non-accrual when it believes that collection of interest is doubtful. This typically occurs when payments are past due over 90 days, unless the loans are well secured and in the process of collection. Another measurement of asset quality is OREO, which represents properties acquired by the Company through foreclosure following loan defaults by customers. The percentage of OREO to total loans at December 31, 2022 was 0.20% compared to 0.43% in 2021. OREO decreased in 2022 and in 2021 due to sales of several parcels in both 2022 and 2021 partially offset by foreclosures. The Company also had OREO write-downs of $42 for 2022 and $914 for 2021.

Loans on non-accrual status amounted to $2,988 in 2022 as compared to $3,826 in 2021 and $12,026 in 2020. Interest income forgone on loans classified as non-accrual in 2022 was $354 as compared to $281 in 2021 and $395 in 2020. Upon the classification of a loan as non-accrual, all interest accrued on the loan prior to the time it is classified as non-accrual is reversed and interest accruals are suspended until such time that the loan is in compliance with its terms and deemed collectable.

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TABLE 7 – NON-PERFORMING ASSETS

(in thousands, except percentages)

	As of December 31,
	2022			2021			2020			2019			2018
PRINCIPAL BALANCE
Non-accrual	$	2,988		$	3,826		$	8,484		$	12,026		$	9,839
Accruing loans 90 days or more past due		111			154			14			274			73
Troubled debt restructurings		2,182			213			2,113			2,495			2,782
TOTAL NON-PERFORMING LOANS	$	5,281		$	4,193		$	10,611		$	14,795		$	12,694
Income on non-accrual loans not recorded	$	354		$	281		$	383		$	555		$	429
Non-performing as a percent of loans		0.90	%		0.73	%		1.63	%		2.56	%		2.96	%
Non-accrual as a percent of loans		0.51	%		0.67	%		1.30	%		2.08	%		2.29	%
Other real estate owned	$	1,179		$	2,475		$	3,073		$	3,552		$	3,440
OREO as a percent of loans		0.20	%		0.43	%		0.47	%		0.62	%		0.80	%
Allowance as a percent of non-performing loans		99.68	%		107.63	%		44.62	%		25.38	%		26.56	%
Allowance as a percent of non-accrual loans		176.17	%		117.96	%		55.81	%		31.22	%		34.27	%

ASC Subtopic 310-10, Loan Impairments outlines the guidance for evaluating impaired loans. These statements changed the methods of estimating the loan loss allowance for problem loans. In general, when management determines that principal and interest due under the contractual terms of a loan are not fully collectible, management must value the loan using discounted future expected cash flows. Management evaluates the Company’s loans for impairment under ASC Subtopic 310-10. The balances of impaired loans for the years 2022, 2021 and 2020 were $3,277, $2,334 and $7,675, respectively.

This table details the impaired loans by category for years ending 2022, 2021 and 2020.

		AT DECEMBER 31,
	2022		2021		2020
Commercial, financial and agricultural	$	3,088	$	1,396	$	6,659
Real estate - construction		-		171		-
Real estate - mortgage		189		767		1,016
Total loans	$	3,277	$	2,334	$	7,675

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Management monitors any loans that are classified under FDIC regulations as loss, doubtful or substandard, even if management has not classified the loans as non-performing or impaired. In addition to loans classified for regulatory purposes, management also designates certain loans for internal monitoring purposes in a “watch” category. Loans may be placed on management’s watch list as a result of delinquent status, management’s concern about the borrower’s financial condition or the value of the collateral securing the loan, a substandard classification during regulatory examinations, or simply as a result of management’s desire to monitor more closely a borrower’s financial condition and performance. Watch category loans may include loans that are still performing and accruing interest and may be current under the terms of the loan agreement but which management has a significant degree of concern about the borrowers’ ability to continue to perform according to the terms of the loan agreement. Watch category loans may also include loans, which, although adequately secured and performing, reflect a past delinquency problem or unfavorable financial trends exhibited by the borrower. Loss exposure on these loans is typically evaluated based primarily upon the estimated liquidation value of the collateral securing the loan.

At December 31, 2022, loans totaling $39,451 were included on the Company’s watch list compared to $47,500 at December 31, 2021. The majority of these loans are real estate loans that, although adequately collateralized, have experienced frequent delinquencies in scheduled payments. The inclusion of loans on this list does not indicate a greater risk of loss; rather it indicates that the loan possesses one of the several characteristics described above warranting increased oversight by management.

SECURITIES

At December 31, 2022, the Company classified its securities as AFS or HTM. AFS securities are reported at fair value, with unrealized gains and losses included as a separate component of equity, net of tax. HTM securities are reported at book value. The Company does not hold any securities classified as held for trading purposes.

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Table 8 – Securities and Securities Maturity Schedule summarizes the amortized cost of securities from 2020 through 2022 and the maturity distribution at December 31, 2022, by classification.

TABLE 8 – SECURITIES

(in thousands)

	2022		2021		2020
SECURITIES AVAILABLE-FOR-SALE
U. S. Government Agencies	$	-	$	4,969	$	11,870
Mortgage Backed Securities		107,055		411,729		560,033
State, County and Municipal Obligations		134,906		230,359		100,823
Other Securities		500		500		500
TOTAL SECURITIES AVAILABLE-FOR-SALE	$	242,461	$	647,557	$	673,226

	2022		2021		2020
SECURITIES HELD-TO-MATURITY
U. S. Government Agencies	$	4,002	$	-	$	-
Mortgage Backed Securities		309,748		-		-
State, County and Municipal Obligations		92,840		-		-
TOTAL SECURITIES HELD-TO-MATURITY	$	406,590	$	-	$	-

SECURITIES MATURITY SCHEDULE

	1 year or less					1 to 5 years					5 to 10 years					over 10 years
	Actual		Average			Actual		Average			Actual		Average			Actual		Average
	Balance		Yield			Balance		Yield			Balance		Yield			Balance		Yield
AVAILABLE-FOR-SALE
Mortgage Backed Securities(1)	$	-		-		$	6,896		4.12	%	$	14,772		3.13	%	$	85,387		2.68	%
State, County and Municipal(2)		221		1.82	%		3,152		4.04	%		5,275		3.15	%		126,258		2.54	%
Other Securities		500		0.00	%		-		0.00	%		-		0.00	%		-		0.00	%
TOTAL AVAILABLE-FOR-SALE	$	721		0.56	%	$	10,048		4.10	%	$	20,047		3.14	%	$	211,645		2.60	%
HELD-TO-MATURITY
U. S. Government Agencies(1)	$	-		0.00	%	$	-		0.00	%	$	-		0.00	%	$	4,002		1.74	%
Mortgage Backed Securities(1)		-		0.00	%		-		0.00	%		18,726		1.21	%		291,022		1.49	%
State, County and Municipal(2)		-		0.00	%		-		0.00	%		-		0.00	%		92,840		1.89	%
TOTAL HELD-TO-MATURITY	$	-		0.00	%	$	-		0.00	%	$	18,726		1.21	%	$	387,864		1.59	%

⁽¹⁾ The maturities for the mortgage backed securities included in this line item are based on final maturity.

⁽²⁾ Average yields were calculated on tax equivalent basis using a marginal federal income tax rate of 21% and a state tax rate of 5%.

84

The change in the carrying value of the securities portfolio is due to market value fluctuations resulting from the changing interest rate environment during 2022. This change is not used in the Tier 1 capital calculation.

As detailed in Table 8, the security portfolio increased $1,495 or 0.23% in 2022, decreased $25,669 or (3.81%) in 2021 and increased $207,792 or 44.64% in 2020. The Company strives to maximize the yields on its portfolio while balancing pledging needs and managing risk. The Company seeks to invest most of its funds not needed for loan demand or the reduction of other borrowings in higher yielding securities and not in the lower yielding federal funds sold.

DEPOSITS

The Company offers a wide variety of deposit services to individual and commercial customers, such as non-interest-bearing and interest-bearing checking accounts, savings accounts, money market deposit accounts and time deposits. The deposit base is the Company’s major funding source for earning assets. Time deposits decreased in 2022 as a result of customers repositioning their deposits to liquid accounts in anticipation of rate increases. Management anticipates a reallocation of transactional deposits to time deposits in the first half of 2023. Time deposits increased in 2021 compared to 2020 due to a deposit special the Company issued during the first half of 2021.

A three-year schedule of average deposits by type and maturities of time deposits greater than $250 is presented in Table 9 – Deposit Information.

TABLE 9 – DEPOSIT INFORMATION

(in thousands, except percentages)

	2022					2021					2020
	Average		Average			Average		Average			Average		Average
	Balance		Rate			Balance		Rate			Balance		Rate
Noninterest-bearing	$	305,247				$	289,883				$	236,881
Interest-bearing demand		486,636		0.19	%		487,894		0.27	%		449,828		0.68	%
Savings		133,739		0.10	%		118,063		0.10	%		93,886		0.12	%
Time deposits		202,315		0.71	%		245,886		1.13	%		231,832		1.45	%
	$	1,127,937		0.30	%	$	1,141,726		0.50	%	$	1,012,427		0.84	%

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MATURITY RANGES OF TIME DEPOSITS

OF $250 OR MORE  

	AS OF DECEMBER 31, 2022
3 months or less	$	9,092
3 through 12 months		18,973
1 year to 3 years		14,762
over 3 years		1,543
	$	44,370

The Company, in its normal course of business, will acquire large time deposits, generally from public entities, with a variety of maturities. These funds are acquired on a bid basis and are considered to be part of the deposit base of the Company.        

BORROWINGS

Aside from the core deposit base and large denomination time deposits mentioned above, the remaining funding sources utilized by the Company include short-term and long-term borrowings. Short-term borrowings consist of Federal Funds Purchased from other financial institutions on an overnight basis, short-term advances from the FHLB and securities sold under agreement to repurchase. Long-term borrowings are advances from the FHLB with an initial maturity of greater than one year and the FHN secured line of credit.

TABLE 10 ‑ SHORT‑TERM BORROWINGS

(in thousands)

	As of December 31,
	2022			2021			2020
Short-term borrowings
Year-end balance	$	127,574		$	112,760		$	221,272
Weighted average rate		1.05	%		0.36	%		0.39	%
Maximum month-end balance	$	161,319		$	219,876		$	265,177
Year to date average balance	$	121,783		$	135,282		$	192,017
Weighted average rate		1.10	%		0.30	%		0.45	%

The Company borrows funds for short periods from the FHLB as an alternative to Federal Funds Purchased. The Company foresees short-term borrowings to be a continued source of liquidity and likely will continue to use these borrowings as a method to fund short-term needs. At December 31, 2022, the Company had the capacity to borrow up to $205,488 from the FHLB and other financial institutions in the form of Federal Funds Purchased. The Company generally will use these types of borrowings if loan demand is greater than the growth in deposits. At December 31, 2022 the Company had borrowed $-0- from the FHLB and $-0- in Federal Funds Purchased. At December 31, 2021, the Company had borrowed $-0- from the FHLB and $-0- in Federal Funds Purchased. In 2022, the balances in Securities Sold Under Agreement to Repurchase increased $14,814, or 13,14%, to $127,574 from 2021. In 2021, these balances decreased to $112,760, a decrease of ($83,512), or (42.55%), from 2020.

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	(in thousands)
	2022
Less than one year	$	18,000
One year to three years		-
Over three years		-
Total long-term borrowings	$	18,000

At the end of 2022, the Company had $-0- in long-term debt to the FHLB for advances. The Company did have long-term debt of $18,000 outstanding and an additional $2,000 available balance at December 31, 2022 to FHN through a secured line of credit. See Note 10 for details of the long-term debt.

NON-INTEREST INCOME AND EXPENSE

Table 11 - Non-Interest Income and Expense illustrates the Company’s non-interest income and expense from 2020 through 2022 and percentage changes between such years.

TABLE 11 ‑ NON-INTEREST INCOME & EXPENSE

(in thousands)

			% CHANGE					% CHANGE
	2022		FROM '21			2021		FROM '20			2020
NON-INTEREST INCOME
Service charges on deposit accounts	$	3,896		11.35	%	$	3,499		4.39	%	$	3,352
Other operating income		6,989		-19.56	%		8,689		22.24	%		7,108
TOTAL NON-INTEREST INCOME	$	10,885		-10.69	%	$	12,188		16.52	%	$	10,460
NON-INTEREST EXPENSE
Salaries and employee benefits	$	17,649		-4.39	%	$	18,460		5.63	%	$	17,476
Occupancy expense, including equipment		7,411		3.87	%		7,135		-3.06	%		7,360
Other operating expense		9,109		-6.60	%		9,753		13.54	%		8,590
TOTAL NON-INTEREST EXPENSE	$	34,169		-3.34	%	$	35,348		5.75	%	$	33,426

Non-interest income typically consists of service charges on checking accounts, including debit card fees, and other financial services. With continued pressure on interest rates, the Company has sought to increase its non-interest income through the expansion of fee income and the development of new services. Currently, the Company’s main sources of non-interest income are service charges on checking accounts, interchange fees, safe deposit box rentals, mortgage loan origination income, credit life insurance premiums and title insurance service fees.

During 2022 as compared to 2021, non-interest income decreased by ($1,303), or (10.70%). The decrease in other operating income mainly attributed to decreases in net gains on sales of securities, partially offset by an increase in service charges on deposit accounts, primarily interchange fees and overdraft fees.

87

During 2021 as compared to 2020, non-interest income increased by $1,728, or 16.52%. An increase in other operating income mainly attributed to increases in interchange fees and net gains on sales of securities, partially offset by a decrease in mortgage loan origination income.

Non-interest expenses consist of salaries and benefits, occupancy expense and other overhead expenses incurred by the Company in the transaction of its business. In 2022 as compared to 2021, non-interest expense decreased by ($1,179), or (3.34%), to $34,169. Included in this increase was a decrease in salaries and benefits in the amount of ($811), or (4.39%) and other expense in the amount of ($645) or (6.61%). Write-downs on OREO of $42, a decrease of $872 from 2021 of $914 makes up a majority of the increase in other expense. Occupancy expense increased in 2022 compared to 2021 for $276, or 3.87% to $7,411 from $7,135.

In 2021 as compared to 2020, non-interest expense increased by $1,922, or 5.75%, to $35,348. Included in this increase was an increase in salaries and benefits in the amount of $984, or 5.63% and other expense in the amount of $1,163 or 13.54%. Write-downs on OREO of $914, an increase of $684 from 2021 of $230 makes up a majority of the increase in other expense. Occupancy expense decreased in 2022 compared to 2021 for $225, or (3.06%) to $7,135 from $7,360.

In 2022, the Company’s efficiency ratio was 78.24%, compared to 78.29% in 2021 and 77.88% in 2020. The efficiency ratio is calculated to measure the cost of generating one dollar of revenue. The efficiency ratio is calculated by dividing non-interest expense by the sum of net interest income, on a fully tax equivalent basis, and non-interest income.

INCOME TAXES

The Company records a provision for income taxes currently payable, along with a provision for deferred taxes to be realized in the future. Such deferred taxes arise from differences in timing of certain items for financial statement reporting rather than income tax reporting. The deferred tax amount of $29,574 is considered realizable and no valuation allowance is considered necessary.

The Company’s effective tax rate was 16.36%, 16.03% and 20.18% % in 2022, 2021 and 2020, respectively. The major difference between the effective tax rate applied to the Company’s financial statement income and the federal statutory rate of 21% in 2022, 2021 and 2020, respectively, is interest on tax-exempt securities and loans. Further tax information is disclosed in Note 12, “Income Taxes” to the Company’s Consolidated Financial Statements included in this Annual Report.

LIQUIDITY AND RATE SENSITIVITY

Liquidity management is the process by which the Company ensures that adequate liquid funds are available to meet its financial commitments on a timely basis. These commitments include honoring withdrawals by depositors, funding credit obligations to borrowers, servicing long-term obligations, making shareholder dividend payments, paying operating expenses, funding capital expenditures and maintaining reserve requirements.

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The Company’s predominant sources of funding include: core deposits (consisting of both commercial and individual deposits); proceeds from maturities of securities; repayments of loan principal and interest; commercial repurchase agreements; Federal Funds Purchased; and short-term and long-term borrowings from the FHLB. In both 2022 and 2021, the Company experienced an increase in deposits and repurchase agreements in excess of the increase in loans outstanding. The increase in investment securities is mainly the result of the need to invest excess funds outside of new loans. The Company relies upon non-core sources of funding, such as commercial repurchase agreements, Federal Funds Purchased and short and long-term borrowings from the FHLB, when deposit growth is not adequate to meet its short-term needs. While the strategy of using these wholesale funding sources is adequate to cover liquidity deficiencies in the short term, the Company’s goal is to increase core deposits as a source of long-term funding. Management does not intend to rely on borrowings from the FHLB as the first choice as a source of funds but prefers to increase core deposits through increased competition for available deposits. Management believes that core deposits will increase by offering competitive rates and superior service to the Bank’s customers.

The Company had $-0- of FHLB advances outstanding at year end of 2022 and 2021. The Company will continue to use advances if they are needed to maintain the Company’s liquidity position.

The deposit base is diversified between individual and commercial accounts, which the Company believes helps it avoid dependence on large concentrations of funds. The Company does not currently solicit certificates of deposit from brokers. The primary sources of liquidity on the asset side of the balance sheet are securities classified as AFS. $201,322 of the total investment securities of $607,912 is classified in the AFS category at December 31, 2022, and any securities not pledged are available to be sold, should liquidity needs arise. Management, through its Asset Liability Committee (“ALCO”), and the Board review the Company’s liquidity position on a monthly basis. At December 31, 2022, both the ALCO and the Board of Directors determined that the Company’s liquidity position was adequate.

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Table 12 - Funding Uses and Sources details the main components of cash flows for 2022 and 2021.

TABLE 12 – FUNDING USES AND SOURCES

(in thousands)

	2022								2021
	Average		Increase/(decrease)						Average		Increase/(decrease)
	Balance		Amount			Percent			Balance		Amount			Percent
FUNDING USES
Loans, net of unearned income	$	586,435	$	(42,183	)		-6.71	%	$	628,618	$	6,309			1.00	%
Taxable securities		465,386		(31,560	)		-6.35	%		496,946		(1,070	)		-0.22	%
Tax-exempt securities		210,895		61,918			41.56	%		148,977		79,386			53.29	%
Federal funds sold and other		23,574		(20,877	)		-46.97	%		44,451		(854	)		-1.92	%
TOTAL USES	$	1,286,290	$	(32,702	)		-2.48	%	$	1,318,992		83,771			6.35	%
FUNDING SOURCES
Noninterest-bearing deposits	$	305,247	$	15,364			5.30	%	$	289,883		53,002			18.28	%
Interest-bearing demand and savings deposits		620,375		14,418			2.38	%		605,957		62,243			10.27	%
Time deposits		202,315		(43,571	)		-17.72	%		245,886		14,054			5.72	%
Short-term borrowings		7,890		1,815			29.88	%		6,075		(4,242	)		-69.83	%
Commercial repo		113,893		(15,314	)		-11.85	%		129,207		(52,492	)		-40.63	%
Long-term debt		18,000		8,308			-			9,692		9,692			100.00	%
TOTAL SOURCES	$	1,267,720	$	(18,980	)		-1.47	%	$	1,288,065	$	83,622			6.49	%

The Company’s liquidity depends substantially on the ability of the Bank to transfer funds to the Company in the form of dividends. The information under the heading “Market Price and Dividend Information” in this Annual Report discusses federal and state statutory and regulatory restrictions on the ability of the Bank to transfer funds to the Company in the form of dividends.

CAPITAL RESOURCES

The Company and Bank are subject to various regulatory capital guidelines as required by federal and state banking agencies. These guidelines define the various components of core capital and assign risk weights to various categories of assets.

The Federal Deposit Insurance Corporation Improvement Act of 1991, as amended (“FDICIA”), required federal regulatory agencies to define capital tiers. These tiers are: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized. Under FDICIA, a “well-capitalized” institution must achieve a Tier 1 risk-based capital ratio of at least 6.00%, a total capital ratio of at least 10.00%, a leverage ratio of at least 5.00% and not be under a capital directive order. These ratios generally measure the percentage of a bank’s capital to all or certain categories of assets. Failure to meet capital requirements can initiate regulatory action that could have a direct material effect on the Company’s financial statements. If a bank is only adequately capitalized, regulatory approval is required before the bank may accept brokered deposits. If undercapitalized, capital distributions, asset growth, and expansion are limited, and the institution is required to submit a capital restoration plan.

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During 2022 as compared to 2021, total risk-based capital increased due to increased earnings.

Management believes the Company and the Bank meet all the capital requirements to be well-capitalized under the guidelines established by FDICIA as of December 31, 2022, as noted below in Table 13 - Capital Ratios. To be classified as well-capitalized, the Company and Bank must maintain the ratios described above.

TABLE 13 – CAPITAL RATIOS

(in thousands, except percentage amounts)

	At December 31,
	2022			2021			2020
Tier 1 capital
Shareholders' equity	$	39,025		$	105,900		$	119,548
Less: Intangibles		(13,340	)		(13,420	)		(13,502	)
Less: DTA related to NOLs		-			(94	)		(267	)
Add/less: Unrealized loss/(gain) on securities		83,071			11,795			(4,139	)
TOTAL TIER 1 CAPITAL	$	108,756		$	104,181		$	101,640
Total capital
Tier 1 capital	$	108,756		$	104,181		$	101,640
Allowable allowance for loan losses		5,264			4,513			4,735
TOTAL CAPITAL	$	114,020		$	108,694		$	106,375
RISK WEIGHTED ASSETS	$	824,382		$	791,529		$	809,754
AVERAGE ASSETS (FOURTH QUARTER)	$	1,367,042		$	1,335,780		$	1,406,885
TIER 1 LEVERAGE RATIO		7.96	%		7.80	%		7.22	%
COMMON EQUITY TIER 1 CAPITAL RATIO		13.19	%		13.16	%		12.55	%
TIER 1 RISK-BASED CAPITAL RATIO		13.19	%		13.16	%		12.55	%
TOTAL RISK-BASED CAPITAL RATIO		13.83	%		13.73	%		13.14	%

Management’s strategy with respect to capital levels is to maintain a sufficient amount of capital to allow the Company to respond to growth and acquisition opportunities in the Bank’s service area. Over the past three years, the Company has been able to increase the amount of its capital, through retention of earnings, while still maintaining a reasonable dividend payout ratio, which is 56%, 71% and 77% in years ending 2022, 2021, 2020, respectively. The Company does have the secured line of credit commitment due in 2023 that will require the Company to make strategic decisions in regards to refinancing the line of credit or raising additional capital to pay off the debt. The Company is currently weighing a variety of options in regards to the upcoming commitment.

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OFF-BALANCE SHEET ARRANGEMENTS

In the ordinary course of business, the Company makes various commitments and incurs certain contingent liabilities to fulfill the financing needs of its customers. These commitments and contingent liabilities include commitments to extend credit and issue standby letters of credit. These off-balance sheet arrangements are further detailed in Note 15, “Off-Balance Sheet Financial Instruments, Commitments and Contingencies and Concentrations of Risks,” in the notes to the Company’s Consolidated Financial Statements included in this Annual Report.

CONTRACTUAL OBLIGATIONS

Long-term debt obligations represent borrowings from the FHLB that have an original maturity in excess of one year along with the secured line of credit described in Note 10. The only other significant obligations, other than obligations under deposit contracts and short-term borrowings, were for operating leases for banking facilities. Operating leases are primarily for the lease of branches, ATM machines and other necessary equipment. The equipment leases are for various terms.

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QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

OVERVIEW

The definition of market risk is the possibility of loss that could result from adverse changes in market prices or interest rates. The Company has taken steps to assess the amount of risk that is associated with its asset and liability structure. The Company measures the potential risk on a regular basis and makes changes to its strategies to manage these risks. The Board of Directors reviews important policy limits each month, with a more detailed risk analysis completed on a quarterly basis. These measurement tools are important in allowing the Company to manage market risk and to plan effective strategies to respond to any adverse changes in risk. The Company does not participate in some of the financial instruments that are inherently subject to substantial market risk. All of the financial instruments entered into by the Company are for purposes other than trading. All information presented in this report are denominated in U.S. dollars.

MARKET/INTEREST RATE RISK MANAGEMENT

Interest rate risk is the primary market risk that management must address. Interest rate risk is the exposure of Company earnings and capital to changes in interest rates. All financial institutions assume interest rate risk as an integral part of normal operations.

The primary purpose in managing interest rate risk is to effectively invest capital and preserve the value created by the core banking business of the Company. The Company utilizes an investment portfolio to manage the interest rate risk naturally created through its business activities. The process of managing interest rate risk generally involves both reducing the exposure of the Company’s net interest margin to swings in interest rates and concurrently ensuring that there is sufficient capital and liquidity to support balance sheet growth. The Company uses a quarterly interest rate risk report to evaluate its exposure to interest rate risk, project earnings and manage the composition of the balance sheet and its growth.

In addition to the quarterly interest rate risk report, the Company employs a number of tools to measure interest rate risk. One tool is static gap analysis, which matches assets with specified maturities to liabilities with corresponding maturities. Although management believes that this does not provide a complete picture of the Company’s exposure to interest rate risk, it does highlight significant short-term repricing volume mismatches. The following table presents the Company’s rate sensitivity static gap analysis at December 31, 2022 ($ in thousands):

	Interest Sensitive Within
	90 days			One year
Total rate sensitive assets	$	106,667		$	135,446
Total rate sensitive liabilities		238,808			72,038
Net gap	$	(132,141	)	$	63,408

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The analysis shows a negative gap position over the next three-month period, which would typically indicate that the Company would benefit somewhat from a decrease in market interest rates in the very short term. However, this is primarily due to repricing assumptions surrounding interest-bearing transaction accounts that don’t necessarily reprice statically and, therefore; rate increases would be beneficial to the Company. Management believes the Company is well positioned from an interest rate risk perspective for any rate movements, up or down.

Management believes that static gap analysis does not fully capture the impact of interest rate movements on interest sensitive assets and liabilities. Thus, the Company also measures interest rate risk by analyzing interest rate sensitivity and the rate sensitivity gap. Table 14 - Interest Rate Sensitivity provides additional information about the financial instruments that are sensitive to changes in interest rates. This tabular disclosure is limited by its failure to depict accurately the effect on assumptions of significant changes in the economy or interest rates or changes in management’s expectations or intentions relating to the Company’s financial statements. The information in the interest rate sensitivity table below reflects contractual interest rate pricing dates and contractual maturity dates. For indeterminate maturity deposit products (money market, NOW and savings accounts), the tables present the majority of principal cash flows in the shortest term. Although these deposits may not reprice within this time frame, the depositors of such funds have the ability to reprice. Weighted average floating rates are based on the rate for that product as of December 31, 2022 and December 31, 2021.

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TABLE 14 - INTEREST RATE SENSITIVITY

AS OF DECEMBER 31, 2022

(in thousands)

																			Carrying			Fair
	2023			2024			2025			2026			2027			Thereafter			Value			Value
Loans
Fixed Rate	$	102,366		$	64,629		$	94,071		$	78,136		$	86,960		$	55,169		$	481,330		$	436,912
Average Int Rate		4.82	%		5.15	%		4.49	%		4.34	%		4.40	%		4.29	%		4.58	%
Floating Rate	$	6,308		$	28,622		$	1,430		$	7,637		$	6,905		$	53,358		$	104,261		$	104,261
Average Int Rate		6.82	%		6.84	%		6.42	%		7.23	%		5.95	%		5.32	%		6.03	%
Investment securities
Fixed Rate	$	657		$	6,893			2,180		$	832		$	140		$	638,284		$	648,987		$	576,614
Average Int Rate		1.82	%		4.12	%		0.04			3.61	%		2.75	%		3.36	%		3.37	%
Floating Rate
Average Int Rate
Other earning assets
Fixed Rate
Average Int Rate
Floating Rate	$	1,646																	$	1,646		$	1,646
Average Int Rate		1.57	%																	1.57	%
Interest-bearing deposits
Fixed Rate	$	756,606		$	52,258		$	12,101		$	3,340		$	2,985					$	827,290		$	827,269
Average Int Rate		0.29	%		1.96	%		0.43	%		0.49	%		0.63	%					0.40	%
Floating Rate
Average Int Rate
Other int-bearing liabilities
Fixed Rate
Average Int Rate
Floating Rate	$	145,574																	$	145,574		$	145,574
Average Int Rate		1.61	%																	1.61	%

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AS OF DECEMBER 31, 2021

(in thousands)

																			Carrying			Fair
	2022			2023			2024			2025			2026			Thereafter			Value			Value
Loans
Fixed Rate	$	86,477		$	70,633		$	72,739		$	84,030		$	87,820		$	64,897		$	466,596		$	453,886
Average Int Rate		4.50	%		4.61	%		5.01	%		4.05	%		3.77	%		3.96	%		0.00	%
Floating Rate	$	4,892		$	6,893		$	22,578		$	1,737		$	8,379		$	60,772		$	105,251		$	105,251
Average Int Rate		4.31	%		3.62	%		3.96	%		4.24	%		3.90	%		4.57	%		0.00	%
Investment securities
Fixed Rate	$	217		$	225			-		$	1,535		$	136		$	644,947		$	647,060		$	631,835
Average Int Rate		1.73	%		1.87	%		-			4.66	%		2.78	%		2.39	%		0.00	%
Floating Rate
Average Int Rate
Other earning assets
Fixed Rate
Average Int Rate
Floating Rate	$	68,563																	$	68,563		$	68,563
Average Int Rate		0.08	%																	0.08	%
Interest-bearing deposits
Fixed Rate	$	731,503		$	37,498		$	32,734		$	3,057		$	4,393					$	809,185		$	809,276
Average Int Rate		0.32	%		0.78	%		1.00	%		0.66	%		0.48	%					0.00	%
Floating Rate
Average Int Rate
Other int-bearing liabilities
Fixed Rate
Average Int Rate
Floating Rate	$	112,760		$	18,000														$	130,760		$	130,760
Average Int Rate		0.36	%		3.59	%														0.80	%

Rate sensitivity gap analysis is another tool management uses to measure interest rate risk. The rate sensitivity gap is the difference between the repricing of interest-earning assets and the repricing of interest-bearing liabilities within certain defined time frames. The Company’s interest rate sensitivity position is influenced by the distribution of interest-earning assets and interest-bearing liabilities among the maturity categories. Table 15 - Rate Sensitivity Gap reflects interest-earning assets and interest-bearing liabilities by maturity distribution as of December 31, 2022. Product lines repricing in time periods predetermined by contractual agreements are included in the respective maturity categories.

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TABLE 15 ‑ RATE SENSITIVITY GAP AT DECEMBER 31, 2022

(in thousands, except percentage amounts)

	1 - 90			91 - 365			1 - 5			Over
	Days			Days			Years			5 years			Total
INTEREST EARNING ASSETS
Loans	$	91,921		$	103,288		$	363,708		$	26,674		$	585,591
Investment securities		13,100			32,158			159,729			516,319			721,306
Interest bearing deposits with other banks		1,646			-			-			-			1,646
TOTAL INTEREST BEARING ASSETS	$	106,667		$	135,446		$	523,437		$	542,993		$	1,308,543
INTEREST BEARING LIABILITIES
Interest bearing demand deposits	$	116,834		$	-		$	156,477		$	195,597		$	468,908
Savings and Money Market deposits		55,016			-			91,629			32,814			179,459
Time deposits		36,200			72,038			70,685			-			178,923
Short term borrowings		12,758			-			76,544			38,272			127,574
Long term borrowings		18,000			-			-			-			18,000
TOTAL INTEREST BEARING LIABILITIES	$	238,808		$	72,038		$	395,335		$	266,683		$	972,864
Rate sensitive gap	$	(132,141	)	$	63,408		$	128,102		$	276,310		$	335,679
Rate sensitive cumulative gap		(132,141	)		(68,733	)		59,369			335,679			-
Cumulative gap as a percentage of total earning assets		-10.10	%		-5.25	%		4.54	%		25.65	%

The purpose of the above table is to measure interest rate risk utilizing the repricing intervals of interest sensitive assets and liabilities. Rate sensitive gaps constantly change as funds are acquired and invested and as rates change. Rising interest rates are likely to increase net interest income in a positive gap position while falling interest rates are beneficial in a negative gap position.

The above rate sensitivity analysis places interest-bearing demand and savings deposits in the shortest maturity category because these liabilities do not have defined maturities. If these deposits were placed in a maturity distribution representative of the Company’s deposit base history, the shortfall of the negative rate sensitive gap position would be reduced in the 1-to-90 day time frame. It is the goal of the Company to achieve a cumulative gap ratio of plus or minus 15% for all periods under one year, with maximum acceptable limits of plus or minus 20%. Quarterly, management discusses with the ALCO and the board of directors the gap position in relation to the established goals, highlights any reasons for variances from the goals and suggests changes to better align the Company’s position with the established goals. When reviewing the Company’s position, impacting factors and suggested changes, the board of directors also considers other corporate objectives, including increasing core deposits and increasing profitability, before implementing changes intended to align the Company’s position with the established goals. While the board of directors continues to closely monitor the Company’s negative gap position, at this time, management does not anticipate making any significant changes to the Company’s operating practices in order to mitigate the negative gap position.

97

The rate sensitivity gap table illustrates that the Company had a large negative cumulative gap position for the 1 to 90-day period as of December 31, 2022. This negative gap position was mainly due to: (1) a significant amount of non-maturity deposits classified within that period and (2) approximately 20.23% of certificates of deposit maturing during that period.

The interest rate sensitivity and rate sensitivity gap tables, taken together, indicate that the Company to be in a liability sensitive position when evaluating the maturities of interest-bearing items. Thus, an increase in the interest rate environment would have a negative impact to earnings, while a decrease in interest rates would have the opposite effect on the Company’s earnings. At the current stage of the economy with interest rates having increased quicker than any time in the past few decades and inflation pressure starting to subside, the Company foresees interest rates will remain fairly flat in the coming year. During 2022, the Company raised interest bearing asset rates but was able to hold interest bearing liabilities low until the fourth quarter and as a result, the Company will likely see margin compression during 2023 as deposit costs have started to increase and will likely continue through the first half of 2023.

The COVID-19 pandemic during 2020 and 2021 required some quick actions by the FRB to attempt to limit the recessionary impact of the pandemic. As a result of the actions taken during those years, the FRB had to reverse course in 2022 in a significant way to reduce the money supply in the economy and take a more restrictive stance. Market interest rates have increased 425 bps during 2022, which is the fastest rate increases on a percentage basis in decades. At the beginning of 2022, the ten-year Treasury yield was 1.63%. As of December 31, 2022, the ten-year Treasury yield was 3.88%. This was a result of the aforementioned 425 bps of tightening the FRB did throughout 2022. The movement in the short-term interest rates impact the Company’s decisions in regards to pricing the Company’s products and services. The short-term interest rates have had an impact on the Company’s earnings as we were able to reprice a majority of our interest-bearing assets while holding deposit costs down for most of 2022. The Company is focused on positioning the balance sheet to become more rate neutral to interest rates due to the expectation of relatively flat interest rates in the coming year as the data is showing the FRB’s aggressive actions have helped reduce inflation. In 2022, the Company was able take advantage of rate hikes and the Company’s net interest margin in 2022 was 2.80% compared to 2.60% in 2021.

98

Market Price and Dividend Information

MARKET PRICE INFORMATION

The Company’s common stock trades on the NASDAQ Global Market (“NASDAQ”) under the symbol “CIZN”. On February 28, 2023, the common stock’s closing price on NASDAQ was $15.50.

On February 28, 2023, shares of the Company’s common stock were held of record by approximately 466 shareholders.

DIVIDENDS

Dividends totaled $0.96 per share for 2022 and 2021.

If funds are available, the Board of Directors of the Company typically declares dividends on a quarterly basis in March, June, September and December with payment following at the end of the month in which the dividend was declared. Funds for the payment by the Company of cash dividends are obtained from dividends, loans or advances received by the Company from the Bank. Accordingly, the declaration and payment of dividends by the Company depend upon the Bank’s earnings and financial condition, general economic conditions, compliance with regulatory requirements, and other factors. The Bank must also receive the approval of the Mississippi Department of Banking and Consumer Finance prior to the payment of a dividend.

99

STOCK PERFORMANCE GRAPH

The following graph shows a comparison of the cumulative total stockholder return on our common stock with the cumulative total returns of the NASDAQ Composite Index and the S&P 500 Regional Banks index. The S&P 500 Regional Banks index replaces the Morningstar Regional Banks Index in this analysis and going forward, as Morningstar has changed its methodology for its index. The graph tracks the performance of a $100 investment in our common stock and in each of the indexes during the last five fiscal years ended December 31, 2022. Data for the NASDAQ Composite Index and S&P 500 Regional Banks index assume reinvestment of dividends. Stockholder returns over the indicated period are based on historical data and should not be considered indicative of future stockholder returns.

Performance Graph

December 31, 2017 - December 31, 2023

	2017		2018		2019		2020		2021		2022
Citizens Holding Company		100.00		94.99		103.69		103.69		97.67		75.63
NASDAQ Market Index		100.00		97.16		132.81		192.47		235.15		158.65
S&P 500 Regional Banks		100.00		81.82		110.80		105.77		148.65		110.72

There can be no assurance that the Company’s common stock performance will continue in the future with the same or similar trends depicted in the performance graph above. The Company does not and will not make or endorse any predictions as to future stock performance.

100

THE CITIZENS BANK OFFICERS

Stacy M. Brantley	Pam Garrett
President and CEO	Network Services Manager
Phillip R. Branch	Pat Stokes
Senior Vice President, CFO	Assistant Vice President, Operations Officer
Mark Taylor	Scott Lewis
Senior Vice President, COO, Trust Officer	Vice President, Information Security Officer
Ray Stone	Shon Kirkland
Senior Vice President, Chief Credit Officer	Assistant Vice President, Security Officer/
	Facilities Manager
Ledale Reynolds
Senior Vice President and CIO	Charles Wilkerson
	Assistant Vice President, Loan Operations Officer
Liz Owen
Senior Vice President, Director of	Greg Jackson
Human Resources, Chief Risk Officer	Accounting Officer
Jackie Hester	Reaghan Jenkins
Vice President, Marketing Officer	Accounting Officer
Pam Lewis	Deborah Ladd
Assistant Vice President, Collections Manager	Item Processing Officer
Jean T. Fulton	Sandra Curtis
Vice President, Internal Auditor	Assistant Vice President, Teller Administrator
Brad Copeland	Temika Triplett
Vice President, Branch Manager	Assistant Vice President, Electronic Services Officer
Mark Majure	Grant Comans
Vice President, Loan Review Officer	Assistance Vice President, Branch Manager
Bob Posey	Jamie Shotts
Vice President	Vice President, Appraisal Review Officer
Brice Richardson	Carthage Branch
Vice President, Branch Manager
	Billy Cook
Stacy Arnold	Vice President
Vice President, Compliance Officer
	Tonya Dorman
Tabbetha Calvert	Deposit Operations Officer
Vice President, BSA Officer
	Sebastopol Branch
Joshua Sullivan
Vice President, Senior Credit Analyst	Connie Comans
	Branch President
Ashley Peebles
Vice President, Director of Deposit Services	Union and Decatur Branches
Sommer Vick	Susan Brown
Vice President, Controller	Assistant Vice President, Deposit Operations Officer
Mitch Peden	Kosciusko Branch
Vice President, Information Services Manager
	Teresa Patterson
Stacy Chisolm	Vice President, Branch Manager
IT Service Desk Manager

101

Scooba and DeKalb Branches	Biloxi Cedar Lake and Lemoyne Branches
Reggie Moore	Travis Moore
Assistant Vice President, Branch Manager	Vice President, Regional Commercial Lender
Jan White	Tammy Warren
Assistant Vice President, Branch Operations Officer	Assistant Vice President, Mortgage Loan Officer
Forest Branch	Katie Hancock
	Vice President, Branch Manager
Lawanda McCaughn
Deposit Operations Officer	Mandy Dawson
	Treasury Management Officer
Louisville Branch
	Mortgage Loan Department
Bruce Lee
Market President – Winston County	Charlene Deweese
	Assistant Vice President, Mortgage Loan Officer
Lynn Graham
Assistant Vice President, Branch Operations Officer	Oxford Branch
Starkville Branch	Marion Boyd
	Oxford City President
Rhonda Edmonson
Assistant Vice President, Branch Manager	Larry Veasey
	Vice President, Regional Commercial Lender
Collinsville Branch
	Pascagoula Branch
Mike Shelby
Vice President, Branch Manager	Gregory E. Cronin
	Gulf Coast President
Meridian Eastgate Branch
	Ford Kinsey
Jay Hines	Vice President, Senior Credit & Special Assets Officer
Vice President, Loan Officer
	Amber Thomas
Tammara Hopson,	Vice President, Commercial Lender
Deposit Operations Officer
	Julius Bosco III
Hattiesburg Branch	BSA Specialist
Chad Hill	Theresa Jenkins
Vice President, Branch Manager	Community Retail Officer
Tammy McAlpin	Ocean Springs Branch
Commercial Loan Portfolio Manager
	Melissa Ceasar
Flowood Branch	Assistant Vice President, Community Retail Officer
George Gammon III	Sharon Wetzel
Metro Jackson President	Vice President, Information Technology Officer
Ridgeland Branch	Reagan Bridley
	Vice President, Commercial Lender
Daniel Webb
Assistance Vice President	Thomas Graham
	Vice President, Mortgage Loan Officer
Katrena Thompson
Branch Operation Officer

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BOARD OF DIRECTORS

Stacy M. Brantley	Craig Dungan, MD
President & Chief Executive Officer	Physician
The Citizens Bank	Meridian Gastroenterology PLLC
Donald L. Kilgore	Greg L. McKee
Special Assistant Attorney General	President & Chief Executive Officer
State of Mississippi	Citizens Holding Company
David A. King	David P. Webb
Proprietor	Attorney
Philadelphia Motor Company	Baker, Donelson, Bearman, Caldwell &
	Berkowitz, PC
Herbert A. King
Civil Engineer	Jane Crosswhite
King Engineering Associates, Inc.	Executive Vice President
	Williams Brothers Inc.
Adam Mars
Business Manager	Terrell E. Winstead
Mars, Mars & Mars	Executive Vice President
	Molpus Woodlands Group
Gregory E. Cronin
Gulf Coast President	Jason Voyles
Citizens Holding Company and	President & Chief Executive Officer
The Citizens Bank	Spectrum Capital, LLC

CITIZENS HOLDING COMPANY OFFICERS

Herbert A. King

Chairman

Greg L. McKee

President and Chief Executive Officer

Mark Taylor

Secretary

Phillip R. Branch

Treasurer and Chief Financial Officer

Gregory E. Cronin

Gulf Coast President

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BANKING LOCATIONS

Philadelphia Main Office	Collinsville Branch	Decatur Branch
521 Main Street	9065 Collinsville Road	15330 Hwy 15 South
Philadelphia, MS 39350	Collinsville, MS 39325	Decatur, MS 39327
601.656.4692	601.626.7608	601.635.2321
Westside Branch	Flowood Branch	Forest Branch
912 West Beacon Street	2845 Lakeland Drive	247 Woodland Drive North
Philadelphia, MS 39350	Flowood, MS 39232	Forest, MS 39074
601.656.4692	601.992.7688	601.469.3424
Northside Branch	Sebastopol Branch	Louisville-Main Branch
802 Pecan Avenue	24 Pine Street	906 South Columbus Avenue
Philadelphia, MS 39350	Sebastopol, MS 39359	Louisville, MS 39339
601.656.4692	601.625.7447	662.773.6261
Eastside Branch	DeKalb Branch	Noxapater Branch
599 East Main Street	176 Main Avenue	45 East Main Street
Philadelphia, MS 39350	DeKalb, MS 39328	Noxapater, MS 39346
601.656.4692	601.743.2115	662.724.4261
Union Branch	Kosciusko Branch	Louisville-Industrial Branch
502 Bank Street	775 North Jackson Street	1760 South Church Avenue
Union, MS 39365	Kosciusko, MS 39090	Louisville, MS 39339
601.656.4879	662.289.4356	662.773.6261
Starkville Branch	Scooba Branch	Biloxi Lemoyne Boulevard
201 Highway 12 West	27597 Highway 16 East	15309 Lemoyne Boulevard
Starkville, MS 39759	Scooba, MS 39358	Biloxi, MS 39532
662.323.1420	662.476.8431	228.207.2343
Carthage Main Office	Meridian Eastgate	Ocean Springs Branch
301 West Main Street	1825 Hwy 39 North	2702 Bienville Blvd
Carthage, MS 39051	Meridian, MS 39301	Ocean Springs, MS 39564
601.257.4525	601.693.8367	228.875.3933
Biloxi Cedar Lakes	Hattiesburg Branch	Ridgeland Branch
1830 Popps Ferry Road	6222 Highway 98	320 Highway 51 North
Biloxi, MS 39532	Hattiesburg, MS 39402	Ridgeland, MS 39157
228.594.6913	601.264.4425	601.519.4020
Oxford Branch	Gulfport Branch	Pascagoula Branch
902 Sisk Avenue, Ste E	12008 Hwy 49	1519 Jackson Ave
Oxford, MS 38655	Gulfport, MS 39503	Pascagoula, MS 39567

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BANKING LOCATIONS - Continued

Phone Teller                                                                                                              

1.800.397.0344         

Internet and Mobile Banking

http.//www.thecitizensbankphila.com                                    

105

FINANCIAL INFORMATION

CORPORATE HEADQUARTERS                  

521 Main Street

P.O. Box 209

Philadelphia, MS 39350

601.656.4692

ANNUAL SHAREHOLDER MEETING

The Annual Shareholder meeting of the Citizens Holding Company, Inc. will be held Tuesday, April 26, 2022, at 4:30 P.M. in the lobby of the main office of The Citizens Bank, 521 Main Street, Philadelphia, Mississippi.

STOCK REGISTRAR AND TRANSFER AGENT

American Stock Transfer & Trust Company

59 Maiden Lane

New York, NY 10038

FORM 10-K

The Company’s most recent Annual Report on Form 10-K, filed with the Securities and Exchange Commission, is available without charge to shareholders upon request to the Treasurer of the Citizens Holding Company.

FINANCIAL CONTACT

Phillip R. Branch

Treasurer and Chief Financial Officer

P.O. 209

Philadelphia, Mississippi 39350

Additional information can be obtained from the Company’s website at https://www.thecitizensbankphila.com/investor-relations/.

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