<PAGE>

                                 UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION

                            Washington, D.C.  20549

                                   FORM 10-Q
              QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                      THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: June 30, 2001 Commission file number: 33-42286

                      HENDERSON CITIZENS BANCSHARES, INC.
            (Exact name of registrant as specified in its charter)

<TABLE>
<S>                                         <C>                                         <C>
               Texas                                    6712                                 75-2371232
------------------------------------        -------------------------------             ----------------------
    (State or other jurisdiction              (Primary Standard Industrial                  (IRS Employer
  of incorporation or organization)            Classification Code Number)               Identification No.)
</TABLE>

                      201 West Main Street, P.O. Box 1009
                          Henderson, Texas 75653-1009
                                (903) 657-8521
         (Address, including ZIP code, and telephone number, including
            area code, of registrant's principal executive offices)



Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.

                               X   Yes         No
                             -----       -----


At June 30, 2001, 1,995,216 shares of Common Stock, $5.00 par value, were
outstanding.

                                       1
<PAGE>

                      HENDERSON CITIZENS BANCSHARES, INC.
                          QUARTER ENDED JUNE 30, 2001


                               Table of Contents


PART I - FINANCIAL INFORMATION

ITEM 1 - Financial Statements                                             Page
                                                                          ----

Consolidated Balance Sheets................................................. 3

Consolidated Statements of Income........................................... 4

Consolidated Statements of Changes in Stockholders' Equity.................. 5

Condensed Consolidated Statements of Cash Flows............................. 6

Notes to the Consolidated Financial Statements ............................. 7

ITEM 2 - Management's Discussion and Analysis of Financial Condition
         and Results of Operations..........................................10

ITEM 3 - Quantitative and Qualitative Disclosure About Market Risk..........16

PART II - OTHER INFORMATION.................................................17

SIGNATURES..................................................................18

                                       2
<PAGE>

Part I. FINANCIAL INFORMATION
Item 1. Financial Statements

                      HENDERSON CITIZENS BANCSHARES, INC.
                          Consolidated Balance Sheets
                 (dollars in thousands, except share amounts)

<TABLE>
<CAPTION>
                                                                             June 30,               December 31,
                                                                               2001                     2000
                              Assets                                        (unaudited)
                              ------                                       -------------            -------------
<S>                                                                        <C>                      <C>
Cash and due from banks                                                    $       7,796                   11,385
Interest-bearing deposits with
     financial institutions                                                       17,122                   10,403
Federal funds sold                                                                26,625                    4,205
                                                                           -------------            -------------
                     Total cash and cash equivalents                              51,543                   25,993

Securities available for sale, at fair value                                     157,541                  155,189
Securities held to maturity, estimated fair value of $50,143
     in 2001 and $51,010 in 2000                                                  49,759                   51,245
                                                                           -------------            -------------
                                                                                 207,300                  206,434

Loans, net                                                                       175,362                  169,882
Premises and equipment, net                                                        8,953                    8,394
Accrued interest receivable                                                        4,010                    4,320
Intangible assets                                                                  3,907                    4,087
Other assets                                                                       4,038                    4,534
                                                                           -------------            -------------
                                                                           $     455,113                  423,644
                                                                           =============            =============
                 Liabilities and Stockholders' Equity
                 -------------------------------------
Deposits:
   Demand - non interest-bearing                                                  59,013                   53,111
   Interest-bearing transaction accounts                                          70,717                   70,852
   Money market and savings                                                       68,221                   58,361
   Certificates of deposit and other time deposits                               211,423                  196,798
                                                                           -------------            -------------
                      Total deposits                                             409,374                  379,122

Accrued interest payable                                                           1,661                    1,803
Other borrowings                                                                      48                    1,148
Other liabilities                                                                  2,227                    2,449
                                                                           -------------            -------------
                                                                                 413,310                  384,522
Stockholders' equity:
   Preferred stock, $5 par value; 2,000,000 shares authorized
     none issued or outstanding                                                        -                        -
   Common stock, $5 par value; 10,000,000 shares authorized,
     2,160,000 issued                                                             10,800                   10,800
   Surplus                                                                         5,400                    5,400
   Treasury stock, 164,784 shares in 2001
        and 164,784 shares in 2000 at cost                                        (2,397)                  (2,397)
   Retained earnings                                                              27,583                   25,894
   Accumulated other comprehensive income (loss)                                     417                     (575)
                                                                           -------------            -------------
                        Total stockholders' equity                                41,803                   39,122

                                                                           -------------            -------------
                                                                           $     455,113                  423,644
                                                                           =============            =============
</TABLE>

See accompanying notes to consolidated financial statements.

                                       3
<PAGE>

                      HENDERSON CITIZENS BANCSHARES, INC.
                       Consolidated Statements of Income
                                  (unaudited)
               (dollars in thousands, except per share amounts)

<TABLE>
<CAPTION>
                                                                          Three months                  Six months
                                                                         ended June 30,               ended June 30,
                                                                      2001           2000           2001           2000
                                                                  ------------   ------------   ------------   ------------
<S>                                                              <C>                <C>          <C>          <C>
Interest income:
   Loans, including fees                                          $      3,625          3,188          7,201          6,191
   Securities:
        Taxable - available for sale                                     2,290          2,260          4,650          4,427
        Taxable - held to maturity                                         120            175            251            371
        Tax-exempt - held to maturity                                      488            515            980          1,041
   Federal funds sold                                                      210              6            485            170
   Interest-bearing deposits with  financial institutions                  196             80            381            178
                                                                  ------------   ------------   ------------   ------------
          Total interest income                                          6,929          6,224         13,948         12,378
                                                                  ------------   ------------   ------------   ------------

Interest expense:
   Deposits:
        Transaction accounts                                               319            427            716            898
        Money market and savings                                           466            416            971            774
        Certificates of deposit and other time deposits                  3,015          2,479          6,067          4,852
   Other borrowed funds                                                     10             11             20             12
                                                                  ------------   ------------   ------------   ------------
          Total interest expense                                         3,810          3,333          7,774          6,536
                                                                  ------------   ------------   ------------   ------------

          Net interest income                                            3,119          2,891          6,174          5,842

Provision for loan losses                                                  120             90            230            190
                                                                  ------------   ------------   ------------   ------------
          Net interest income after provision for loan losses            2,999          2,801          5,944          5,652
                                                                  ------------   ------------   ------------   ------------

Noninterest income:
        Service charges, commissions, and fees                           1,133          1,045          2,152          1,988
        Income from fiduciary activities                                   328            270            657            540
        Net realized gains on securities transactions                       10              -             13              -
        Other                                                              250            415            465            465
                                                                  ------------   ------------   ------------   ------------
          Total noninterest income                                       1,721          1,730          3,287          2,993
                                                                  ------------   ------------   ------------   ------------

Noninterest expenses:
        Salaries and employee benefits                                   2,078          1,986          4,122          3,737
        Occupancy and equipment                                            486            453            967            867
        Other                                                              881            938          1,744          1,845
                                                                  ------------   ------------   ------------   ------------
          Total other expenses                                           3,445          3,377          6,833          6,449
                                                                  ------------   ------------   ------------   ------------

Income before income tax expense                                         1,275          1,154          2,398          2,196
Income tax expense                                                         210            163            370            310
                                                                  ------------   ------------   ------------   ------------
Net income                                                        $      1,065            991          2,028          1,886
                                                                  ============   ============   ============   ============

Basic earnings per common share                                   $       0.53           0.50           1.02           0.94
                                                                  ============   ============   ============   ============

            Weighted average number of shares outstanding            1,995,216      1,999,775      1,995,216      2,002,687
                                                                  ============   ============   ============   ============
</TABLE>

See accompanying notes to consolidated financial statements.

                                       4
<PAGE>

                      HENDERSON CITIZENS BANCSHARES, INC.

          Consolidated Statements of Changes in Stockholders' Equity
                                  (unaudited)

                    Six months ended June 30, 2001 and 2000
          (dollars in thousands, except share and per share amounts)

<TABLE>
<CAPTION>
                                                                                            Accumulated
                                                                                              Other
                                    Preferred      Common                     Retained    Comprehensive    Treasury
                                      Stock        Stock         Surplus      Earnings    Income (Loss)     Stock         Total
                                  ------------  ------------  ------------  ------------  -------------  ------------  ------------
<S>                               <C>           <C>           <C>           <C>           <C>            <C>           <C>
Balances at January 1, 2000       $        --         10,800         5,400        23,628         (1,938)       (2,119)       35,771

Comprehensive income:
   Net Income                              --             --            --         1,886             --            --         1,886
   Other comprehensive
    income:
   Change in net unrealized
    gain (loss) on securities
     available for sale arising
      during the period,
     net of tax of $(409)                  --             --            --            --           (795)           --          (795)
                                                                                                                       ------------
Total comprehensive income                                                                                                    1,091

Purchase of 11,666 shares of
 treasury stock                            --             --            --            --             --          (204)         (204)

Cash dividends declared
 ($.34 per share)                          --             --            --          (680)            --            --          (680)
                                  ------------  ------------  ------------  ------------  -------------  ------------  ------------

Balances at June 30, 2000         $        --         10,800         5,400        24,834         (2,733)       (2,323)       35,978
                                  ============  ============  ============  ============  =============  ============  ============


Balances at January 1, 2001       $        --         10,800         5,400        25,894           (575)       (2,397)       39,122

Comprehensive income:
   Net Income                              --             --            --         2,028             --            --         2,028
   Other comprehensive income:
     Change in net unrealized
      gain (loss) on securities
     available for sale, net of
      tax of $511                          --             --            --            --            992            --           992
                                                                                                                       ------------
Total comprehensive income                                                                                                    3,020

Cash dividends declared                    --             --            --          (339)            --            --          (339)
 ($.17 per share)
                                  ------------  ------------  ------------  ------------  -------------  ------------  ------------


Balances at June 30, 2001         $        --         10,800         5,400        27,583            417        (2,397)       41,803
                                  ============  ============  ============  ============  =============  ============  ============
</TABLE>

See accompanying notes to consolidated financial statements.

                                       5
<PAGE>

                      HENDERSON CITIZENS BANCSHARES, INC.

                Condensed Consolidated Statements of Cash Flows
                                  (unaudited)

                    Six months ended June 30, 2001 and 2000
                            (dollars in thousands)

<TABLE>
<CAPTION>
                                                                                          2001                2000
                                                                                --------------       -------------

<S>                                                                             <C>                  <C>
Net cash provided by operating activities                                                3,223               2,737

Investing activities:
     Securities available for sale:
        Sales                                                                            5,009                   -
        Purchases                                                                      (42,613)            (21,836)
        Maturities and repayments                                                       36,757               4,722
     Securities held to maturity:
        Purchases                                                                            -                   -
        Maturities and repayments                                                        1,437               5,166
     Net change in loans                                                                (5,732)            (13,406)
     Proceeds from sale of premises and equipment
           and other real estate                                                            27                 205
     Purchases of bank premises, equipment and software                                 (1,032)             (1,423)
                                                                                --------------       -------------
                       Net cash from investing activities                               (6,147)            (26,572)
                                                                                --------------       -------------

Financing activities:
     Net increase in deposits                                                           30,252                 771
     Repayment of other borrowed funds                                                  (1,100)                  -
     Cash dividends paid                                                                  (678)             (1,023)
     Purchase of treasury stock                                                              0                (204)
                                                                                --------------       -------------
                       Net cash from financing activities                               28,474                (456)
                                                                                --------------       -------------

                       Change in cash and cash equivalents                              25,550             (24,291)
Cash and cash equivalents at beginning of period                                        25,993              38,683
                                                                                --------------       -------------

Cash and cash equivalents at end of period                                      $       51,543              14,392
                                                                                ==============       =============

SUPPLEMENTAL DISCLOSURES OF CASH FLOW ACTIVITIES
Income taxes paid, net of refunds                                               $          627                 515
                                                                                ==============       =============

Interest paid                                                                   $        7,916               6,190
                                                                                ==============       =============
</TABLE>

See accompanying notes to consolidated financial statements.

                                       6
<PAGE>

                      HENDERSON CITIZENS BANCSHARES, INC.

                  Notes to Consolidated Financial Statements

                                 June 30, 2001

(1)   Basis of Presentation
      ---------------------

      The accompanying consolidated financial statements are unaudited, but
         include all adjustments, consisting of normal recurring accruals, which
         management considers necessary for a fair presentation of the financial
         position, results of operations, and cash flows.

      Certain information and footnote disclosures normally included in
         financial statements prepared in accordance with generally accepted
         accounting principles have been condensed or omitted pursuant to
         Securities and Exchange Commission rules and regulations. The
         consolidated financial statements and footnotes included herein should
         be read in conjunction with the Company's annual consolidated financial
         statements as of December 31, 2000 and 1999, and for each of the years
         in the three year period ended December 31, 2000 included in the
         Company's 2000 Form 10-K.

      The accompanying consolidated financial statements of the Company include
         the accounts of its wholly owned subsidiary, Citizens National Bank.
         The financial statements of Citizens National Bank are consolidated
         with its wholly owned Subsidiaries, HCB Insurance Agency, Inc. and
         Community Development Corporation ("CDC"). Prior to the quarter ended
         June 30, 2000, these two subsidiaries were not part of the consolidated
         entity.

      Certain amounts in the prior financial statements have been reclassified
         to conform to the current presentation.

(2)   Securities
      ----------

      The amortized cost and estimated fair values (carrying value) of
        securities available for sale at June 30, 2001 and December 31, 2000,
        are summarized as follows (in thousands of dollars):

<TABLE>
<CAPTION>
                                                                                June 30, 2001
                                         --------------------------------------------------------------------------------------
                                                                      Gross                 Gross               Estimated
                                                Amortized           Unrealized            Unrealized              Fair
                                                  Cost                Gains                 Losses               Value
                                         --------------------  --------------------  --------------------  --------------------
<S>                                     <C>                    <C>                   <C>                    <C>
U.S. Treasury                            $              9,003                   207                     -                 9,210
U.S. Government agencies                               47,592                   593                     -                48,185
Mortgage-backed securities and
   collateralized mortgage
    obligations                                       100,313                   333                  (500)              100,146
                                         --------------------  --------------------  --------------------  --------------------
                                         $            156,908                 1,133                  (500)              157,541
                                         ====================  ====================  ====================  ====================

                                                                              December 31, 2000
                                         --------------------------------------------------------------------------------------
                                                                      Gross                 Gross               Estimated
                                                Amortized           Unrealized            Unrealized              Fair
                                                  Cost                Gains                 Losses               Value
                                         --------------------  --------------------  --------------------  --------------------
U.S. Treasury                            $             18,015                    66                   (17)               18,064
U.S. Government agencies                               63,468                   116                  (434)               63,150
Mortgage-backed securities and
   collateralized mortgage
    obligations                                        74,578                   181                  (784)               73,975
                                         --------------------  --------------------  --------------------  --------------------
                                         $            156,061                   363                (1,235)              155,189
                                         ====================  ====================  ====================  ====================
</TABLE>

                                       7
<PAGE>

      The amortized cost and estimated fair values of securities held-to-
         maturity at June 30, 2001 and December 31, 2000 are summarized as
         follows (in thousands of dollars):

<TABLE>
<CAPTION>

                                                                                June 30, 2001
                                         --------------------------------------------------------------------------------------
                                                                      Gross                 Gross               Estimated
                                                Amortized           Unrealized            Unrealized              Fair
                                                  Cost                Gains                 Losses               Value
                                         --------------------  --------------------  --------------------  --------------------
<S>                                      <C>                   <C>                   <C>                   <C>
State and municipal                     $              42,202                   633                  (292)               42,543
Mortgage-backed securities and
   collateralized mortgage
    obligations                                         5,320                    20                    (4)                5,336
Corporate                                               2,036                    31                     -                 2,067
Other securities                                          201                     -                    (4)                  197
                                         --------------------  --------------------  --------------------  --------------------
                                        $              49,759                   684                  (300)               50,143
                                         =====================  ===================  ====================  ====================

                                                                              December 31, 2000
                                         --------------------------------------------------------------------------------------
                                                                      Gross                 Gross               Estimated
                                                Amortized           Unrealized            Unrealized              Fair
                                                  Cost                Gains                 Losses               Value
                                         --------------------  --------------------  --------------------  --------------------
State and municipal                     $              42,563                   344                  (519)               42,388
Mortgage-backed securities and
   collateralized mortgage
    obligations                                         6,423                     -                   (33)                6,390
Corporate                                               2,047                     -                   (22)                2,025
Other securities                                          212                     -                    (5)                  207
                                         --------------------  --------------------  --------------------  --------------------
                                        $              51,245                   344                  (579)               51,010
                                         =====================  ===================  ====================  ====================
</TABLE>

                                       8
<PAGE>

                      HENDERSON CITIZENS BANCSHARES, INC.

                  Notes to Consolidated Financial Statements

                                 June 30, 2001

(3)  Loans and Allowance for Loan Losses
     -----------------------------------

     The composition of the Company's loan portfolio is as follows (in thousands
          of dollars)

<TABLE>
<CAPTION>
                                                                      June 30,            December 31,
                                                                        2001                  2000
                                                                -------------------    ------------------
<S>                                                             <C>                    <C>
               Real estate mortgage                             $            93,691                88,055
               Commercial and industrial                                     48,972                51,026
               Installment and other                                         35,103                33,219
                                                                -------------------    ------------------
                         Total                                              177,766               172,300

               Less:
                  Allowance for loan losses                                  (2,376)               (2,355)
                  Unearned discount                                             (28)                  (63)
                                                                -------------------    ------------------

                         Loans, net                             $           175,362               169,882
                                                                ===================    ==================
</TABLE>

     Changes in the allowance for loan losses for the three months and six
         months ended June 30, 2001 and 2000 are summarized as follows (in
         thousands of dollars):

<TABLE>
<CAPTION>
                                                          Three months ended June 30,               Six months ended June 30,
                                                    ------------------------------------      -----------------------------------
<S>                                                 <C>                <C>                    <C>                <C>
                                                          2001               2000                   2001              2000
                                                    -----------------  -----------------      -----------------  ----------------
     Balance, beginning of period                   $           2,324              2,295      $           2,355             2,200
     Provision charged to operating expense                       120                 90                    230               190
     Charge offs:
          Commercial, financial, and agriculture                  (19)               (21)                   (77)              (33)
          Real estate-mortgage                                      -                 (6)                   (31)              (19)
          Installment loans to individuals                        (99)              (105)                  (212)             (188)
     Recoveries:
          Commercial, financial, and agriculture                    2                 41                      6                85
          Real estate-mortgage                                      -                  9                      -                 9
          Installment loans to individuals                         48                 49                    105               108
                                                    -----------------  -----------------      -----------------  ----------------

     Balance, June 30                               $           2,376              2,352      $           2,376             2,352
                                                    =================  =================      =================  =================
</TABLE>

                                       9
<PAGE>

Item 2.

        MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION
       AND RESULTS OF OPERATIONS OF HENDERSON CITIZENS BANCSHARES, INC.
       FOR THE SIX MONTHS AND THREE MONTHS ENDED JUNE 30, 2001 AND 2000


The following discussion and analysis of the consolidated financial condition
and results of operations of the Company should be read in conjunction with the
consolidated financial statements and the notes thereto, and other financial and
statistical information appearing elsewhere in this report.

Recent Developments
-------------------

On February 6, 2001, the Company entered into an Agreement and Plan of
Reorganization to acquire Rusk County Bancshares, Inc., Henderson, Texas
("RCBI"), and its wholly owned indirect banking subsidiary, Peoples State Bank.
Peoples State Bank operates three banking offices in East Texas, one each in
Henderson, Longview and Tatum.

On July 2, 2001, the Company acquired all of the outstanding shares of RCBI
common stock (including shares acquired upon exercise of stock options) for a
purchase price of $12,550,000 in cash, representing 1.57 times RCBI's book value
at December 31, 2000, and 20.95 times 2000 earnings. The transaction was
accounted for using the purchase method of accounting and will result in an
approximate increase in total assets of $56,400,000 and total deposits of
$50,900,000. Following completion of the transaction, it is anticipated that
Peoples State Bank will be merged into Citizens National Bank during the fourth
quarter of 2001.

On July 10, 2001, Citizens National Bank entered into a Branch Purchase and
Assumption Agreement with Jefferson Heritage Bank to purchase the Spring Hill
and White Oak facilities at Longview and White Oak, Texas.

Results of Operations
---------------------

Net income for the first six months of 2001 increased to $2,028,000 compared to
$1,886,000 for the same period in 2000. Net interest income for the six months
ended June 30, 2001 was $6,174,000 compared to $5,842,000 for the same period in
2000. The Company made a provision of $230,000 to the allowance for loan losses
during the first six months of 2001. A provision of $190,000 was made for loan
losses during the same period in 2000. The Company experienced a net gain on
securities transactions of $13,000 in the first six months of 2001 compared to
no net gain or loss on securities transactions in the first six months of 2000.
Noninterest income, excluding net gains on securities transactions, for the
first six months of 2001 was $3,274,000 compared to $2,993,000 for the same
period in 2000. Total noninterest expenses for the first six months of 2001 were
$6,833,000 compared to $6,449,000 for the same period in 2000. Income tax
expense for the first six months of 2001 and 2000 was $370,000 and $310,000,
respectively.

          Net Interest Income. For the six months ended June 30, 2001, net
          -------------------
interest income was $6,174,000 compared to $5,842,000 for the first six months
of 2000. Interest income was up $1,570,000 during the six months ended June 30,
2001, primarily due to an increase in loan volumes and a slight increase
attributable to rates. Interest expense increased $1,238,000 due to the higher
volume of time deposits combined with average rates paid that were approximately
26 basis points higher in the first six months of 2001 as compared to the same
period in 2000.

Net interest income for the three-month period ended June 30, 2001 was
$3,119,000 compared to $2,891,000 in 2000. Interest income was up $705,000 for
the three months ended June 30, 2001, due largely to an increase in the volume
of loans and interest bearing deposits with other financial institutions.
Interest expense increased $477,000 due to the higher volume of time deposits in
the three-month period ended June 30, 2001, as compared to the same period in
2000.

          Provision for Loan Losses. The provision for loan losses was $230,000
          -------------------------
for the first six months of 2001 compared to $190,000 for the first six months
of 2000. See "Management's Discussion and Analysis of the Financial Condition
and Results of Operations of the Company--Allowance for Loan Losses" for a more
detailed discussion relative to the provision for loan losses.

For the three-month period ended June 30, 2001, the Company increased its
allowance through a provision of $120,000. The Company increased its allowance
for loan losses during the same period in 2000 by a provision of $90,000.

          Noninterest Income. Noninterest income, excluding securities gains/
          ------------------
losses, was $3,274,000 for the first six months of 2001 as compared to
$2,993,000 in the first six months of 2000. This increase is the result of
increases in service charges primarily due to an increase in fees collected for
insufficient funds and increases in trust fee income. The Company experienced a
net gain on securities transactions of $13,000 for the first six months of 2001
compared to no net gain or loss on securities transactions for the first six
months of 2000.

                                       10
<PAGE>

For the three months ended June 30, 2001, noninterest income, excluding
securities gains was $1,711,000 compared to $1,730,000 for the same period in
2000. The Company experienced a net gain on securities of $10,000 for the three
months ended June 30, 2001, compared to no net gain/loss on securities during
the same period in 2000.

          Noninterest Expenses. Noninterest expenses for the six-month period
          --------------------
ended June 30, 2001 were $6,833,000 compared to $6,449,000 during the same
period in 2000. The increase in other expenses is due to the increase in salary
and related benefits expense resulting from normal year-end salary increases in
the current year combined with the continued growth of the Marshall branch that
opened in December of 1999, the acquisition of the Preston Insurance Agency in
April of 2000 and the opening of the Athens branch in December of 2000.
Occupancy expenses continue to increase with the addition of new facilities and
the remodeling of existing properties.

Noninterest expenses for the three-month period ended June 30, 2001 were
$3,445,000 compared to $3,377,000 during the same period in 2000. The increase
is a result of the same activities noted in the previous paragraph for the first
six months of 2001.

          Income Taxes. Income tax expense for the first six months of 2001 was
          ------------
$370,000, compared to $310,000 in the same period in 2000. The effective tax
rates for the first six months of 2001 and 2000 were 15.4% and 14.1%. The
effective rates are less than the statutory rate of 34% primarily because of
tax-free income provided from state and municipal bonds, leases and obligations.

Income taxes for the three-month periods ended June 30, 2001 and June 30, 2000
were $210,000 and $163,000 respectively. The effective tax rates for the three-
month periods ended June 30, 2001 and June 30, 2000 were 16.5% and 14.1%.

Financial Condition
-------------------

The Company's total assets at June 30, 2001 of $455,113,000 increased from the
total assets at December 31, 2000 of $423,644,000. The Company's loan portfolio
grew to $175,362,000 at June 30, 2001, up from $169,882,000 at December 31,
2000. Total deposits were $409,374,000 at June 30, 2001, compared to the
December 31, 2000 total of $379,122,000.

Deposits and Other Borrowings
-----------------------------

Total deposits at June 30, 2001 increased from the December 31, 2000 balances by
$30,252,000. The Athens branch, which opened in December 2000, accounted for
approximately $7,250,000 of this increase. There were also increases to money
market accounts and time deposits as customers took advantage of the tiered
money market account that is indexed to the three-month Treasury bill.

During July 2000, the Company changed from the Treasury Tax and Loan Daily
Remittance Option to the Treasury Tax and Loan Note Option, which allows the
Company to keep on deposit customer tax payments for short periods of time until
withdrawn by the Treasury. At June 30, 2001, amounts payable under this note
totaled $48,000.

Liquidity
---------

Liquidity is the ability of the company to fund customers' needs for borrowing
and deposit withdrawals. The purpose of liquidity management is to assure
sufficient cash flow to meet all of the financial commitments and to capitalize
on opportunities for business expansion. This ability depends on the
institution's financial strength, asset quality and types of deposit and
investment instruments offered by the Company to its customers. The Company's
principal sources of funds are deposits, loan and securities repayments,
maturities of securities, sales of securities available for sale and other funds
provided by operations. The Company also has various federal funds sources from
correspondent banks. While scheduled loan repayments and maturing investments
are relatively predictable, deposit flows and early loan and mortgage-backed
security prepayments are more influenced by interest rates, general economic
conditions and competition. The Company maintains investments in liquid assets
based upon management's assessment of (1) need for funds, (2) expected deposit
flows, (3) yields available on short-term liquid assets and (4) objectives of
the asset/liability management program.

Cash and cash equivalents increased $25,550,000 from $25,993,000 at December 31,
2000 to $51,543,000 at June 30, 2001. Cash and cash equivalents represented
11.3% of total assets at June 30, 2001 compared to 6.1% of total assets at
December 31, 2000. This increase was due mainly to an increase in deposits of
$30,252,000. The Company has the ability to borrow federal funds from various
correspondent banks should the Company need to supplement its future liquidity
needs in order to meet deposit flows, loan demand or to fund investment
opportunities. Management believes the Company's liquidity position is strong
based on its level of cash and cash equivalents, core deposits, the stability of
its other funding sources and the support provided by its capital base.

As summarized in the Consolidated Statements of Cash Flows, the most significant
transactions that affected the Company's level of cash and cash equivalents,
cash flows and liquidity during the first six months of 2001 were the net
increase in deposits of $30,252,000, securities purchases of $42,613,000 and
securities maturities and repayments of $38,194,000.

                                       11
<PAGE>

Capital Resources
-----------------

At June 30, 2001, stockholders' equity totaled $41,803,000, or 9.2% of total
assets, compared to $39,122,000, or 9.2% of total assets, at December 31, 2000.

The Company and its Bank subsidiary, Citizens National Bank, are subject to
regulatory capital requirements administered by federal banking agencies. Bank
regulators monitor capital adequacy very closely and consider it an important
factor in ensuring the safety of depositors' accounts. As a result, bank
regulators have established standard risk based capital ratios that measure the
amount of an institution's capital in relation to the degree of risk contained
in the balance sheet, as well as off-balance sheet exposure. Federal law
requires each federal banking regulatory agency to take prompt corrective action
to resolve problems of insured depository institutions including, but not
limited to, those that fall below one or more prescribed capital ratios.
According to the regulations, institutions whose Tier 1 and total capital ratios
meet or exceed 6.0% and 10.0% of risk-weighted assets, respectively, are
considered "well capitalized." Tier 1 capital is shareholders' equity excluding
the unrealized gain or loss on securities classified as available for sale and
intangible assets. Tier 2 capital, or total capital, includes Tier 1 capital
plus the allowance for loan losses not to exceed 1.25% of risk weighted assets.
Risk weighted assets are the Company's total assets after such assets are
assessed for risk and assigned a weighting factor based on their inherent risk.
In addition to the risk-weighted ratios, all institutions are required to
maintain Tier 1 leverage ratios of at least 5.0% to be considered "well
capitalized" and 4.0% to be considered "adequately capitalized." The leverage
ratio is defined as Tier 1 capital divided by adjusted average assets for the
most recent quarter.

The tables below set forth the Consolidated and Citizens National Bank only
capital ratios as of June 30, 2001 and December 31, 2000.

<TABLE>
<CAPTION>
                                                Consolidated   Bank Only
                                                ------------   ---------
<S>                                             <C>            <C>
June 30, 2001
-------------
Tier 1 capital to risk-weighted assets ratio        18.2%         13.3%
Total capital to risk-weighted assets ratio         19.4          14.5
Leverage ratio                                       8.5           6.2

December 31, 2000
-----------------
Tier 1 capital to risk-weighted assets ratio        17.5%         17.0%
Total capital to risk-weighted assets ratio         18.6          18.1
Leverage ratio                                       8.8           8.7
</TABLE>

As of June 30, 2001 and December 31, 2000, Citizens National Bank met the level
of capital required to be categorized as well capitalized under prompt
corrective action regulations. Management is not aware of any conditions
subsequent to June 30, 2001 and December 31, 2000 that would change the
Company's or the Citizens National Bank's capital categories.

Loans
-----

The Company's loan portfolio consists primarily of real estate, commercial and
industrial, and consumer loans. Gross loans were $177,766,000 at June 30, 2001
compared to $172,300,000 at December 31, 2000.

As can be seen in the table in Note 3 above, a slight decrease of approximately
4.0% in commercial and industrial loans, an increase of approximately 6.4% in
real estate loans, and an increase of 5.7% in installment loans occurred during
the first six months of 2001. The opening of the Athens branch in December 2000
has contributed to an increase in total loans of approximately $3,189,000.

Allowance for Loan Losses
-------------------------

The allowance for loan losses at June 30, 2001 and December 31, 2000 was 1.34%
and 1.37% of outstanding loans, respectively. By its nature, the process through
which management determines the appropriate level of the allowance requires
considerable judgment. The determination of the necessary allowance, and
correspondingly the provision for loan losses, involves assumptions about
projections of national and local economic conditions, the composition of the
loan portfolio, and prior loss experience, in addition to other considerations.
As a result, no assurance can be given that future losses will not vary from the
current estimates. However, the allowance at June 30, 2001 represents
management's best estimate of probable losses that have been incurred within the
existing portfolio of loans. A migration analysis and an internal classification
system for loans also help identify potential problems, if any, which are not
identified otherwise. From these analyses, management determines which loans are
potential candidates for nonaccrual status, including impaired loan status, or
charge-off. Management continually reviews loans and classifies them consistent
with the guidelines established by the Office of the Comptroller of Currency to
help ensure that an adequate allowance is maintained.

                                       12
<PAGE>

The provision for loan losses is determined by management as the amount to be
added to the allowance for loan losses after net charge-offs have been deducted
to bring the allowance to a level which is considered adequate to absorb losses
inherent in the loan portfolio. The amount of the provision is based on
management's review of the loan portfolio, and the consideration of such factors
as historical loss experience, general prevailing economic conditions, changes
in the size and composition of the loan portfolio and specific borrower
considerations, including the ability of the borrower to repay the loan and the
estimated value of the underlying collateral.

The provision for loan losses for the three and six months ended June 30, 2001
totaled $120,000 and $230,000 compared to $90,000 and $190,000 for the three and
six months ended June 30, 2000. Management anticipates it will continue its
provisions to the allowance for loan losses at current levels for the near
future, providing the volume of nonperforming loans remains insignificant, to
compensate for loan growth, particularly higher risk commercial and installment
loans.

Non Accrual, Past Due and Restructured Loans
--------------------------------------------

The Company's policy is to discontinue the accrual of interest income on loans
whenever it is determined that reasonable doubt exists with respect to timely
collectibility of interest and principal. Loans are placed on nonaccrual status
if either material deterioration occurs in the financial position of the
borrower, payment in full of interest or principal is not anticipated, payment
in full of interest or principal is past due 90 days or more unless well
secured, payment in full of interest or principal on a loan is past due 180 days
or more, regardless of collateral, or the loan in whole or in part is classified
as doubtful. A loan may remain on accrual status if it is in the process of
collection and is either guaranteed or well secured. When a loan is placed on
nonaccrual status, interest is no longer accrued or included in interest income
and previously accrued income is reversed.

The following is a summary of the Company's problem loans as of June 30, 2001
and December 31, 2000.

<TABLE>
<CAPTION>
                                                                    June 30,             December 31,
                                                                      2001                   2000
                                                               --------------------    -------------------
                                                                          (dollars in thousands)
<S>                                                            <C>                     <C>
Nonaccrual loans                                               $                 75                    241
Restructured loans                                                                -                  1,216
Other impaired loans                                                              -                      -
Loans past due 90+ days and still accruing                                       60                     18
                                                               --------------------    -------------------
          Total non-performing loans                           $                135                  1,475
                                                               ====================    ===================

Other potential problem loans                                  $                  -                      -
                                                               ====================    ===================

Other non-performing assets, other real estate owned           $                 90                     10
                                                               ====================    ===================
</TABLE>


Concentration of Credit Risk
----------------------------

The Company grants real estate, commercial, and industrial loans to customers
primarily in Henderson, Texas, and surrounding areas of east Texas. Although the
Company has a diversified loan portfolio, a substantial portion (approximately
52.7% at June 30, 2001) of its loans are secured by real estate and its ability
to fully collect its loans is dependent upon the real estate market in this
region. The Company typically requires collateral sufficient in value to cover
the principal amount of the loan. Such collateral is evidenced by mortgages on
property held and readily accessible to the Company. See additional information
related to the composition of the Company's loan portfolio included in Note 3 to
the consolidated financial statements.

                                       13
<PAGE>

Securities
----------

The Investment Committee, under the guidance of the Company's Investment Policy,
assesses the short and long-term needs of the Company after consideration of
loan demand, interest rate factors, and prevailing market conditions.
Recommendations for purchases and other transactions are then made considering
safety, liquidity, and maximization of return to the Company. Management
determines the proper classification of securities at the time of purchase.
Securities that management does not intend to hold to maturity or that might be
sold under certain circumstances are classified as available for sale. If
management has the intent and the Company has the ability at the time of
purchase to hold the securities until maturity, the securities will be
classified as held to maturity.

The management strategy for securities is to maintain a very high quality
portfolio with generally short duration. The quality of the portfolio is
maintained with 79% of the total as of June 30, 2001 comprised of U.S. Treasury,
federal agency securities, and agency issued mortgage securities. The
collateralized mortgage obligations (CMOs) and mortgage backed securities (MBS)
held by the company are backed by agency collateral which consists of loans
issued by the Federal Home Loan Mortgage Corporation (FHLMC), Federal National
Mortgage Corporation (FNMA), and the Government National Mortgage Association
(GNMA) with a blend of fixed and floating rate coupons.

Credit risk is minimized through agency backing, however, there are other risks
associated with MBS and CMOs. These other risks include prepayment, extension,
and interest rate risk. MBS are securities that represent an undivided interest
in a pool of mortgage loans. CMOs are structured obligations that are derived
from a pool of mortgage loans or agency mortgage backed securities. CMOs in
general have widely varying degrees of risk, which results from the prepayment
risk on the underlying mortgage loans and its effect on the cash flows of the
security.

Prepayment risk is the risk of borrowers paying off their loans sooner than
expected in a falling rate environment by either refinancing or curtailment.
Extension risk is the risk that the underlying pool of loans will not exhibit
the expected prepayment speeds thus resulting in a longer average life and
slower cash flows than anticipated at purchase. Interest rate risk is based on
the sensitivity of yields on assets that change in a different time period or in
a different proportion from that of current market interest rates. Changes in
average life due to prepayments and changes in interest rates in general will
cause the market value of MBS and CMOs to fluctuate.

The Company's MBS portfolio consists of fixed rate balloon maturity pools with
short stated final maturities and adjustable rate mortgage (ARM) pools with
coupons that reset annually and have longer maturities. Investments in CMOs
consist mainly of Planned Amortization Classes (PAC), Targeted Amortization
Classes (TAC), and sequential classes. As of June 30, 2001, floating rate
securities made up 75% of the CMO portfolio. Support and liquidity classes with
longer average lives and floating rate coupons comprise a relatively small
portion of the portfolio.

To maximize after-tax income, investments in tax-exempt municipal securities are
utilized but with somewhat longer maturities.

Securities are the Company's single largest interest-earning asset representing
approximately 46% of total assets at June 30, 2001. The investment portfolio
totaled $207,300,000 at June 30, 2001, up slightly from $206,938,000 at December
31, 2000. This increase resulted due to excess cash and fed funds being invested
in available for sale securities for increased yields

Recent Accounting Pronouncements
---------------------------------

The following pronouncements have been issued, and are listed together with the
expected impact on the Company.

SFAS 133, Accounting for Derivative Instruments and Hedging Activities - This
Statement establishes accounting and reporting standards for derivative
instruments, including certain derivatives embedded in other contracts, and for
hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities in the balance sheet and measure those instruments
at fair value. The Statement was effective for the Company in the year ending in
2001. Due to the Company's limited use of derivative instruments, the effect of
implementation of this new pronouncement did not have a significant effect on
the financial position or results of operations of the Company.

SFAS 140, Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities--This Statement replaces SFAS 125 and resolves
various implementation issues while carrying forward most of the provisions of
SFAS 125 without change. SFAS 140 revises standards for transfers of financial
assets by clarifying criteria and expanding guidance for determining whether the
transfers of financial assets by clarifying criteria and expanding guidance for
determining whether the transferor has relinquished control and the transfer is
therefore accounted for as a sale. SFAS 140 also adopts new accounting
requirements for pledged collateral and requires new disclosures about
securitization and pledge collateral. SFAS 140 is effective for transfers
occurring after March 31, 2001 and for disclosures relating to securitization
transactions and collateral for fiscal years ending after December 15, 2000.
Management does not expect this standard to have a material effect on the
Company's consolidated financial statements.

                                       14
<PAGE>

Corporate Objectives
--------------------

It is the philosophy of the Company to continue to remain independent in
ownership, to foster its image as the community leader in banking, to increase
its market share through selected acquisitions and aggressive marketing, to
maintain a sound earning-asset portfolio, and to assess liquidity needs while
maximizing its profitability and return to its shareholders.

Forward-Looking Information
---------------------------

Statements and financial discussion and analysis by management contained
throughout this Form 10-Q that are not historical facts are forward-looking
statements made pursuant to the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995. Forward-looking statements involve a number of
risks and uncertainties. Various factors could cause actual results to differ
materially from the forward-looking statements, including, without limitation,
changes in interest rates and economic conditions, increased competition for
deposits and loans adversely affecting rates and terms, changes in availability
of funds increasing costs or reducing liquidity, changes in applicable statutes
and governmental regulations, and the loss of any member of senior management or
operating personnel and the potential inability to hire qualified personnel at
reasonable compensation levels.

                                       15
<PAGE>

Item 3.

          QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company's primary market risk exposures are interest rate risk and, to a
lesser extent, liquidity risk. The Company does not maintain a trading account
for any class of financial instrument and the Company is not affected by foreign
currency exchange rate risk or commodity price risk.

Interest rate risk is the risk that the Company's financial condition will be
adversely affected due to movements in interest rates. The Company, like other
financial institutions, is subject to interest rate risk to the extent that its
interest-earning assets reprice differently than its interest-bearing
liabilities. The income of financial institutions is primarily derived from the
excess of interest earned on interest-earning assets over the interest paid on
interest-bearing liabilities. A high ratio of interest sensitive liabilities
tends to benefit net interest income during periods of falling interest rates as
the average rate paid on interest-bearing liabilities declines faster than the
average rate earned on interest-earning assets. The opposite holds true during
periods of rising interest rates. One of the Company's principal financial
objectives is to achieve long-term profitability while reducing its exposure to
fluctuations in interest rates. Management recognizes certain risks are inherent
and that the goal is to measure the effect on net interest income and to adjust
the balance sheet to minimize the risk while at the same time maximize income.
Accordingly, the Company places great importance on monitoring and controlling
interest rate risk.

There are several methods employed by the Company to monitor and control
interest rate risk. One such method is using a simulation model to analyze net
interest income sensitivity to movements in interest rates. The simulation model
projects net interest income based on both an immediate rise or fall in interest
rates (rate shock) over a twelve-month period. The model is based on the actual
maturity and repricing characteristics of interest rate sensitive assets and
liabilities. The repricing can occur due to changes in rates on variable rate
products as well as maturities of interest-earning assets and interest-bearing
liabilities. The model incorporates assumptions regarding the impact of changing
interest rates on the prepayment rate of certain assets and liabilities as well
as projections for anticipated activity levels by product lines offered by the
Company. The simulation model also takes into account the Company's historical
core deposits. Management considers the Company's market risk to be acceptable
at this time.

One strategy used by the Company to reduce the volatility of its net interest
income is to originate variable rate loans tied to market indices. Such loans
reprice on an annual, quarterly, monthly or daily basis as the underlying market
index change. Currently, approximately 10% of the Company's loan portfolio
reprices on at least an annual basis.

The Company has also structured the securities portfolio so that most of the
mortgage-backed securities reprice on at least an annual basis. The Company also
maintains most of its securities in the available for sale portfolio to take
advantage of changes in interest rates and to maintain liquidity for loan
funding and deposit withdrawals. The mortgage-backed and related securities also
provide the Company with a constant cash flow stream from principal repayments.
The Company invests short-term excess funds in overnight federal funds that
mature and reprice on a daily basis.

The Company's 2000 annual report details a table that provides information about
the Company's financial instruments that are sensitive to changes in interest
rates as of December 31, 2000. The table is based on information and assumptions
set forth in the discussion. The Company believes the assumptions utilized are
reasonable. Management believes that no events have occurred since December 31,
2000 which would significantly change the ratio of rate sensitive assets to rate
sensitive liabilities for the given time horizons in the table.

                                       16
<PAGE>

Part II - OTHER INFORMATION

Item 1.   Legal Proceedings

     None


Item 2.   Changes in Securities and Use of Proceeds

     None


Item 3.   Defaults Upon Senior Securities

     None


Item 4.   Submission of Matters to a Vote of Security Holders

     None


Item 5.   Other Information

     None


Item 6.   Exhibits and Reports on Form 8-K

     Form 8-K, reflecting the acquisition of Rusk County Bancshares, Inc. and
its subsidiary Peoples State Bank, was filed on July 16, 2001.


                                       17
<PAGE>

Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.



                                   HENDERSON CITIZENS BANCSHARES, INC.


Date: August 10, 2001                   By: /s/ Milton S. McGee, Jr.
      ---------------                       ----------------------------------

                                            Milton S. McGee, Jr., CPA
                                            President




Date: August 10, 2001                   By: /s/ Rebecca G. Tanner
      ---------------                       ----------------------------------

                                            Rebecca G. Tanner, CPA
                                            Vice President, Treasurer, Chief
                                            Financial Officer and Chief
                                            Accounting Officer

                                       18