Citizens Holding Company (the “Company”) (OTCQX:CIZN) announced today results of operations for the three and twelve months ended December 31, 2023.

(in thousands, except share and per share data)

Net loss for the three months ended December 31, 2023 was ($794), or ($0.14) per share-basic and diluted, a linked-quarter decrease of ($2,001), or (165.78%) from net income of $1,207, or $0.22 per share-basic and diluted, for the three months ended September 30, 2023. Net income also decreased ($3,257), or (132.24%) from net income of $2,463, or $0.44 per share-basic and diluted for the same quarter in 2022.

Net income for the twelve months ended December 31, 2023 was $1,854, or $0.33 per share-basic and diluted, a decrease of ($7,766), or (80.73%) from net income of $9,620, or $1.72 per share-basic and diluted for the same period in 2022.

Fourth Quarter Highlights

• Total revenues, or interest and non-interest income, for the three months ended December 31, 2023 totaled $17,178, an increase of $1,170, or 7.31% from the prior quarter. The increase in total revenue is primarily attributed to an increase of $1,455, or 11.35% in interest income attributed to loan growth and higher interest rates.
• Yields on earning assets increased 34 basis point (“bps”) to 442 bps for the three months ended December 31, 2023 compared to 408 bps for the three months ended September 30, 2023 and increased 88 bps compared to 354 bps for the three months ended December 31, 2022.
• Loans held for investment (“LHFI”) increased $54,790, or 9.33%, to $642,028 at December 31, 2023, compared to $587,238 at September 30, 2023. With the Company’s strong on-balance sheet liquidity, the Company is in an opportune position, relative to the banking industry, to continue to fund loan demand.
• Credit quality continues to remain solid with total non-performing assets (“NPA”) to loans at 60 bps at December 31, 2023 compared to 73 bps at December 31, 2022. Total non-performing assets decreased ($167), or (4.18%), to $3,826 at December 31, 2023, compared to $3,993 at September 30, 2023, and decreased ($452), or (10.57%), compared to $4,278 at December 31, 2022.
• Allowance for credit losses (“ACL”) to loans was 1.02% at December 31, 2023 compared to 1.09% in the prior quarter and 0.90% the same period a year ago.

Chief Executive Officer (“CEO”) Commentary

Stacy Brantley, President and Chief Executive Officer of the Company, stated, “The Citizens Bank of Philadelphia (the “Bank”), the wholly owned subsidiary of the Company, accelerated the strategic restructuring of our balance sheet during the quarter through expansion of lending and reallocation of the investment securities portfolio. The bank realized a pre-tax loss of $1,986 on the sale of bonds reinvesting the proceeds in higher yielding assets.”

“The company’s strong loan growth of $54,790 in the quarter represents a 9.33% increase in LHFI over the prior quarter end and a 9.64% increase over the prior year end. This growth is the result of internal realignment in the lending and credit functions in the second and third quarters of the year. In addition to loan growth, credit metrics remain strong with past dues at historically low levels. Our stable deposit base contracted slightly over the quarter but experienced solid growth over the course of the year.”

“Although we experienced slight margin compression over the prior quarter, we were encouraged by margin expansion for the month of December and anticipate continued margin expansion in the subsequent quarter.”

“Through execution of strategic planning, improved operational structure, and repositioning of our balance sheet we believe we are well positioned for further growth and able to add long-term value for our shareholders.”

Financial Condition and Results of Operations

Loans and Deposits

Total loans outstanding, net of unearned income, as of December 31, 2023 totaled $642,028 compared to $587,238 at September 30, 2023 and $585,591 as of December 31, 2022.

Total deposits as of December 31, 2023 were $1,170,077 compared to $1,194,697 at September 30, 2023 and $1,126,402 as of December 31, 2022. With the pressure throughout the banking system in regards to deposits, the Company has not experienced material outflows in deposits, but continues to see a shift from noninterest bearing deposits to interest bearing deposits.

Net Interest Income

Net interest income for the three months ended December 31, 2023 was $7,354, a decrease of ($78), or (1.05%), compared to $7,432 for the three months ended September 30, 2023, and a decrease of ($1,456), or (16.53%), compared to $8,810 for the three months ended December 31, 2022. The net interest margin (“NIM”) was 2.35% for the three months ended December 31, 2023 compared to 2.40% for the three months ended September 30, 2023 and 2.87% for the same period in 2022.

The linked-quarter decrease in net interest income is primarily a result of the increase in interest expense of $1,533 or 28.45%, partially offset by an increase in loan interest income of $919, or 10.81%, compared to the three months ended September 30, 2023. The decrease from the same period ended December 31, 2022 is due to an increase in funding cost of $4,765 or 221.09%. This increase in funding costs is partially offset by an increase in total interest income of $3,309, or 30.18%, when compared to the same period in 2022.

Net interest income for the twelve months ended December 31, 2023 decreased ($5,031), or (14.41%), to $29,878 from $34,909 for the same period in 2022. The year-to-date NIM was 2.45% as of December 31, 2023 compared to 2.49% at September 30, 2023 and 2.80% for the same period in 2022.

Net interest income for the twelve months ended December 31, 2023 decreased compared to the prior year due to interest expense increasing $14,614, or 304.97%. This increase is the direct result of increased deposit competition primarily caused by higher short-term rates. This was partially offset as loans and investment securities repriced also. Total interest income increased by $9,583, or 24.14%, compared to the same period in 2022. Management expects continued pressure on NIM given the current interest rate environment.

Credit Quality

The Company’s NPAs decreased by ($167), or (4.18%), to $3,826 at December 31, 2023 compared to $3,993 at September 30, 2023, and decreased ($452), or (10.57%), compared to $4,278 at December 31, 2022. The primary cause of the decrease year-over-year was due the decrease in non-accrual loans of ($412), or (13.79%).

Net recoveries were $24 and $200 for the quarter and the twelve months ended December 31, 2023, respectively. Year-to-date net recoveries to average loans were (0.03%) at December 31, 2023 compared to (0.11%) at December 31, 2022.

The provision for credit losses (“PCL”) for the three months ended December 31, 2023 was $107 compared to $97 for the linked quarter and $28 for the same period a year ago. The PCL was primarily driven by loan growth and qualitative factor adjustments due to declining commercial real estate (“CRE”) valuations on the national scale. The Company has not observed material deterioration in local CRE valuations. The ACL to LHFI was 1.02% and 0.90% at December 31, 2023 and 2022, respectively, and 1.09% at September 30, 2023, representing a level management considers commensurate with the risk in the loan portfolio.

Liquidity and Capital

Given the events within the banking industry over the past year, investment securities portfolios, interest rate risk, liquidity and capital have become much more of a focus for the Company’s management team and Board, regulators and investors. As a result of this, the Company is providing additional information on our liquidity and capital position as of December 31, 2023 to disclose the more traditional and stable nature of the Company’s banking model.

The Company currently has limited reliance on the wholesale funding market. The Company had $-0- in overnight Federal Funds borrowings at December 31, 2023, September 30, 2023, and December 31, 2022. The Company currently has capacity to borrow $179,000 from the Federal Home Loan Bank of Dallas (“FHLB”), approximately $150,000 in brokered deposit availability and $50,000 in availability with our correspondent Fed Funds lines. Additionally, the Company could provide additional collateral to the FHLB to increase the capacity there, should that avenue be needed.

The Company and the Bank, remain in a strong capital position and well-capitalized. A comparison of the various regulatory ratios for the Company and the Bank are noted below:

Noninterest Income

Noninterest income decreased for the three months ended December 31, 2023, by ($285), or (8.94%) compared to the three months ended September 30, 2023, and increased by $193 or 7.12% compared to the same period in 2022.

The decrease quarter-over-quarter is primarily due to other noninterest income decreasing ($409), or (37.56%), primarily driven by a one-time gain on the sale of three loans of $488 in the prior quarter.

Noninterest Expense

Noninterest expense increased for the three months ended December 31, 2023 by $2,272, or 25.05%, compared to the three months ended September 30, 2023 and increased by $2,843, or 33.45%, compared to the same period in 2022.

The year-over-year and linked quarter increases are primarily being driven by the sale of approximately $15,400 of investment securities, resulting in a one-time loss on sale of securities of $1,986. This loss was taken in order to reposition some of the securities portfolio into higher yielding assets.

Dividends

The Company paid aggregate cash dividends in the amount of $4,042 or $0.72 per share, during the twelve-month period ended December 31, 2023 compared to $5,377, or $0.96 per share, for the same period in 2022.

At $0.16 per share, the Company’s current quarterly dividend yield is approximately 8% which reflects the Company’s continued commitment to returning shareholder value.

Citizens Holding Company is a one-bank holding company and the parent company of the Bank, both headquartered in Philadelphia, Mississippi. The Bank currently has twenty-seven banking locations in fourteen counties throughout the state of Mississippi. In addition to full service commercial banking, the Company offers mortgage loans, title insurance services through third party partnerships and a full range of Internet banking services including online banking, bill pay and cash management services for businesses. Internet services are available at the Bank web site, www.thecitizensbankphila.com. Citizens Holding Company stock is listed on the OTCQX Best Market and is traded under the symbol CIZN. The Company's transfer agent is American Stock Transfer & Trust Company. Investor relations information may be obtained at the corporate website, https://www.thecitizensbankphila.com/investor-relations.

Cautionary Note Regarding Forward-Looking Statements

This press release includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements other than statements of historical facts included in this release regarding the Company’s financial position, results of operations, business strategies, plans, objectives and expectations for future operations, are forward looking statements. The Company can give no assurances that the assumptions upon which such forward-looking statements are based will prove to have been correct. Forward-looking statements speak only as of the date they are made. The Company does not undertake a duty to update forward-looking statements to reflect circumstances or events that occur after the date the forward-looking statements are made. Such forward-looking statements are subject to certain risks, uncertainties and assumptions. The risks and uncertainties that may affect the operation, performance, development and results of the Company’s and the Bank’s business include, but are not limited to, the following: (a) the risk of adverse changes in business conditions in the banking industry generally and in the specific markets in which the Company operates; (b) our ability to mitigate our risk exposures; (c) changes in the legislative and regulatory environment that negatively impact the Company and Bank through increased operating expenses; (d) increased competition from other financial institutions; (e) the impact of technological advances; (f) expectations about the movement of interest rates, including actions that may be taken by the Federal Reserve Board in response to changing economic conditions; (g) changes in asset quality and loan demand; (h) expectations about overall economic strength and the performance of the economics in the Company’s market area; and (i) other risks detailed from time to time in the Company’s filings with the Securities and Exchange Commission. Should one or more of these risks materialize or should any such underlying assumptions prove to be significantly different, actual results may vary significantly from those anticipated, estimated, projected or expected.

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