Citizens Holding(CIZN) - 2020 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Consolidated Financial Statements This section presents Citizens Holding Company's unaudited consolidated financial statements and detailed accounting notes Consolidated Statements of Financial Condition The company's total assets, deposits, and shareholders' equity all significantly increased by September 30, 2020, driven by growth in investment securities and net loans Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 30, 2020 (Unaudited) (in thousands) | Dec 31, 2019 (Audited) (in thousands) | | :--- | :--- | :--- | | Total Assets | $1,374,217 | $1,195,434 | | Net Loans | $651,139 | $573,312 | | Investment Securities | $582,698 | $464,383 | | Total Liabilities | $1,256,718 | $1,082,634 | | Total Deposits | $1,049,157 | $898,996 | | Total Shareholders' Equity | $117,499 | $112,800 | Consolidated Statements of Income Net income increased for both periods, driven by higher net interest income despite increased loan loss provisions and non-interest expenses Income Statement Summary (in thousands, except per share data) | Metric | Q3 2020 (in thousands) | Q3 2019 (in thousands) | Nine Months 2020 (in thousands) | Nine Months 2019 (in thousands) | | :--- | :--- | :--- | :--- | :--- | | Net Interest Income | $8,906 | $5,918 | $24,641 | $18,335 | | Provision for Loan Losses | $247 | $12 | $1,183 | $472 | | Net Income | $2,083 | $1,333 | $4,705 | $3,930 | | Net Income Per Share - Diluted | $0.37 | $0.27 | $0.84 | $0.80 | Consolidated Statements of Comprehensive Income Comprehensive income significantly decreased for the nine months ended September 30, 2020, primarily due to a smaller increase in unrealized gains on available-for-sale securities Comprehensive Income (in thousands) | Metric | Nine Months 2020 (in thousands) | Nine Months 2019 (in thousands) | | :--- | :--- | :--- | | Net Income | $4,705 | $3,930 | | Total Other Comprehensive Income | $3,805 | $14,615 | | Comprehensive Income | $8,510 | $18,545 | Condensed Consolidated Statements of Cash Flows Operating activities provided cash, while investing activities used significant funds for securities, and financing activities provided cash from deposits, leading to a net decrease in cash Cash Flow Summary for Nine Months Ended Sep 30 (in thousands) | Activity | 2020 (in thousands) | 2019 (in thousands) | | :--- | :--- | :--- | | Net cash provided by operating activities | $10,240 | $8,868 | | Net cash used in investing activities | ($180,261) | ($71,448) | | Net cash provided by financing activities | $167,794 | $71,095 | | Net (decrease) increase in cash | ($2,227) | $8,515 | Notes to Consolidated Financial Statements This section provides detailed disclosures on accounting policies, COVID-19 impact, mergers, loan portfolio, allowance for loan losses, and fair value measurements - The company highlights significant risks from the COVID-19 pandemic, which could adversely impact fee income, interest income, and asset valuations, implementing measures like fee waivers and payment deferrals for affected customers[30][33][34] - The company is actively participating in the Paycheck Protection Program (PPP), having funded 590 loans totaling $48.83 million[41] - As of October 15, 2020, the company had 16 commercial loans with a total balance of $33.6 million in its payment deferral program for clients affected by the pandemic[40] - The acquisition of Charter Bank was completed on October 1, 2019, for approximately $19.7 million, consisting of cash and common stock[51] Loan Portfolio Composition (Non-Purchased, in thousands) | Loan Type | Sep 30, 2020 (in thousands) | Dec 31, 2019 (in thousands) | | :--- | :--- | :--- | | Total Real Estate Loans | $432,522 | $377,258 | | Total Business Loans | $137,131 | $85,294 | | Total Consumer Loans | $12,797 | $13,893 | | Total Gross Loans | $582,450 | $476,445 | - The allowance for loan losses increased to $4.49 million at September 30, 2020, from $3.76 million at year-end 2019, with a provision of $1.18 million recorded for the nine-month period[117] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial condition and results of operations, focusing on liquidity, capital resources, and an analysis of the income statement and balance sheet Liquidity Customer deposits are the primary liquidity source, growing significantly to $1.05 billion, with adequate liquidity supported by available-for-sale securities and substantial FHLB borrowing capacity - Customer deposits are the primary source of liquidity, increasing to $1.05 billion at September 30, 2020[154] - The company has access to a $45 million federal funds line and an FHLB line of credit with $206.3 million unused and available as of September 30, 2020[155] Capital Resources Total shareholders' equity increased to $117.5 million, and the company remains well-capitalized under all regulatory measures, demonstrating strong capital adequacy Capital Adequacy Ratios (September 30, 2020) | Ratio | Actual | Minimum to be Well Capitalized | | :--- | :--- | :--- | | Tier 1 leverage ratio | 7.31% | 5.00% | | Common Equity tier 1 capital ratio | 13.01% | 6.50% | | Tier 1 risk-based capital ratio | 13.01% | 8.00% | | Total risk-based capital ratio | 13.59% | 10.00% | - The company paid cash dividends of $0.72 per share during the first nine months of 2020, consistent with the same period in 2019[158] Results of Operations Net income increased for both periods, driven by net interest income growth from a larger loan portfolio, partially offset by higher loan loss provisions and increased non-interest expenses - Net interest income for the nine months ended Sep 30, 2020, was $24.6 million, a substantial increase from $18.3 million in 2019, primarily due to loan portfolio growth[171][178] - The provision for loan losses for the nine months of 2020 was $1.18 million, a significant increase from $472 thousand in 2019, reflecting management's assessment of economic conditions, including the impact of COVID-19[188] - Non-interest expenses for the nine months of 2020 rose to $25.1 million from $19.8 million in 2019, an increase of 26.4%, largely due to increased salaries and occupancy costs following the Charter merger[197] - The loan portfolio grew by 13.6% to $651.1 million in the first nine months of 2020, driven by strong demand and approximately $48.8 million in PPP loans[202] - Total deposits increased by 16.7% to $1.05 billion, with significant growth in non-time deposits, reflecting a savings trend related to the COVID-19 pandemic[204] Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate volatility, managed via a simulation model, indicating asset-sensitive net interest income and significant economic value of equity sensitivity to rate changes Simulated Change in Net Interest Income (Next 12 Months, as of Sep 30, 2020) | Rate Shock (bps) | % Change in NII | | :--- | :--- | | +300 bps | 15.5% | | +100 bps | 14.0% | | -100 bps | -10.4% | Economic Value of Equity at Risk (as of Sep 30, 2020) | Rate Shock (bps) | % Change in EVE | | :--- | :--- | | +300 bps | 31.7% | | +100 bps | 25.7% | | -100 bps | -31.0% | - Management's strategy to mitigate interest rate risk includes originating shorter-duration and variable-rate loans and acquiring low-cost non-maturity deposit accounts[212] Controls and Procedures Management concluded that disclosure controls and procedures were effective as of September 30, 2020, with no material changes to internal control over financial reporting during the third quarter - The principal executive officer and principal financial officer concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by this report[213] - No changes occurred in the company's internal control over financial reporting during the third quarter of 2020 that have materially affected, or are reasonably likely to materially affect, these controls[214] PART II. OTHER INFORMATION Legal Proceedings The company is involved in various ordinary course lawsuits and claims, which management believes will not materially impact its financial condition or results of operations - The Corporation is a party to lawsuits and claims arising in the ordinary course of business, which are being vigorously contested[217] - Management does not believe the final resolution of pending legal proceedings will likely have a material impact on the Corporation's financial condition or results of operations[217] Risk Factors This section refers readers to detailed risk factors disclosed in previous Annual and Quarterly Reports, with no new risk factors presented in this report - The report refers to the risk factors disclosed in its Annual Report on Form 10-K for the year ended December 31, 2019, and its Q1 2020 Form 10-Q for a comprehensive understanding of the risks and uncertainties affecting the business[218] Exhibits This section lists exhibits filed with the Form 10-Q, including CEO and CFO certifications and financial statements in XBRL format - The exhibits filed with this report include CEO and CFO certifications pursuant to Rule 13a-14(a)/15d-14(a) and 18 U.S.C. § 1350, as well as financial statements in XBRL format[221]