Citizens Holding Company

What they do

Citizens Holding Company operates through its sole subsidiary, The Citizens Bank of Philadelphia, a Mississippi-chartered bank founded in 1908. The bank takes demand, savings and time deposits and makes secured and unsecured loans across Mississippi and contiguous states. It also originates mortgage loans, issues letters of credit, and provides personal and corporate trust services, plus credit life and title insurance through third-party relationships. At December 31, 2023, it had total deposits of $1,170,311 thousand and total assets of $1,405,202 thousand, and it was the largest bank headquartered in Neshoba County, Mississippi.

Revenue drivers

• Loan interest and fees — The largest revenue source, at 56.5% of gross revenues in 2023, 53.8% in 2022 and 61.6% in 2021. Lending is primarily real estate: 82.7% of the portfolio at year-end 2023, with commercial, industrial and agricultural production loans at 14.6% and consumer loans at 2.7%.
• Net interest income from securities and deposits — Earnings come from the spread between interest earned on loans and securities and the cost of interest-bearing deposits and borrowings. Net interest income was $7,432 thousand for the three months ended September 30, 2023.
• Non-interest income and trust/insurance services — Includes personal and corporate trust services and credit life and title insurance offered to loan customers through third-party relationships. Total revenues, combining interest and non-interest income, were $16,008 thousand for the three months ended September 30, 2023.

Recent performance

Net income for the three months ended September 30, 2023 was $1,207 thousand, or $0.22 per diluted share, up $907 thousand from $300 thousand in the prior quarter but down 53.22% from $2,580 thousand a year earlier. For the nine months ended September 30, 2023, net income was $2,647 thousand, or $0.47 per diluted share, down 63.02% from $7,157 thousand. Full-year 2023 net income fell to $1.9 million from $9.6 million in 2022, and diluted EPS dropped to $0.33 from $1.72. The net interest margin compressed to 2.40% in the third quarter of 2023 from 2.55% in the prior quarter and 2.90% a year earlier. Total deposits grew 8.31% linked-quarter to $1,194,698 thousand, and non-performing assets fell to $3,993 thousand at September 30, 2023.

Strategy

Management executed a swap of $66,600 thousand of the securities book from fixed to floating rates to protect capital and hedge against rising rates, keeping the swaps in a three-year range. The bank continues to fund loan demand from on-balance-sheet liquidity and expects loan production and renewals to push loan yields higher. It looks for growth within Mississippi and surrounding states while occasionally extending out-of-area credit to low-risk borrowers. Management states it will weigh opportunities to reposition the balance sheet, improve liquidity, and hedge against rising rates in the short term.

Risks

• Interest rate risk — Earnings and cash flows depend on net interest income, which is exposed to the timing and extent of repricing of assets and liabilities and the resulting margin compression.
• Credit quality — The loan portfolio is concentrated in real estate (82.7% at year-end 2023), and the allowance for credit losses was 1.09% of loans at September 30, 2023, so deterioration in real estate could require higher provisions.
• Deposit funding pressure — Rising deposit costs are expected to continue and could further compress the net interest margin, which fell to 2.40% in the third quarter of 2023.
• Earnings volatility — Net income fell 63.02% for the first nine months of 2023 versus 2022, and full-year 2023 net income was $1.9 million, down from $9.6 million in 2022.

Outlook

Management expects deposit costs to rise slightly over the remainder of the year, while loan production and renewal of the loan book should push loan yields higher and place upward pressure on the net interest margin. The company plans to continue weighing balance-sheet repositioning, liquidity improvement, and hedging against rising rates in the short term.