<PAGE>

                                 UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION

                            Washington, D.C. 20549


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

For the quarterly period ended: September 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 September 30, 2001, 1,994,816 shares of Common Stock, $5.00 par value, were
outstanding.

                                       1
<PAGE>

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

                                 Table of Contents

<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION

ITEM 1 - Financial Statements                                                    Page
                                                                                 ----
<S>                                                                              <C>
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 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
</TABLE>

                                       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>
                                                                         September 30,         December 31,
                                                                             2001                  2000
                         Assets                                           (unaudited)
                         ------                                          ------------          ------------
<S>                                                                      <C>                   <C>
Cash and due from banks                                                   $   18,256               11,385
Interest-bearing deposits with
     financial institutions                                                   24,373               10,403
Federal funds sold                                                            13,470                4,205
                                                                         -----------            ---------
                     Total cash and cash equivalents                          56,099               25,993

Securities available for sale, at fair value                                 171,858              155,693
Securities held to maturity, estimated fair value of $51,269
     in 2001 and $51,010 in 2000                                              49,978               51,245
                                                                         -----------            ---------
                                                                             221,836              206,938

Loans, net                                                                   211,461              169,882
Premises and equipment, net                                                   10,706                8,394
Accrued interest receivable                                                    3,728                4,320
Intangible assets                                                              8,428                4,087
Other assets                                                                   5,192                4,030
                                                                         -----------            ---------
                                                                          $  517,450              423,644
                                                                         ===========            =========
               Liabilities and Stockholders' Equity
               ------------------------------------
Deposits:
   Demand - non interest-bearing                                              69,525               53,111
   Interest-bearing transaction accounts                                      82,958               70,852
   Money market and savings                                                   85,785               58,361
   Certificates of deposit and other time deposits                           227,106              196,798
                                                                         -----------            ---------
                      Total deposits                                         465,374              379,122

Accrued interest payable                                                       1,760                1,803
Other borrowings                                                               2,131                1,148
Other liabilities                                                              4,572                2,449
                                                                         -----------            ---------
                                                                             473,837              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
   Additional paid in capital                                                  5,400                5,400
   Retained earnings                                                          28,542               25,894
   Accumulated other comprehensive income (loss)                               1,276                 (575)
   Treasury stock, 165,184 shares in 2001
        and 164,784 shares in 2000 at cost                                    (2,405)              (2,397)
                                                                         -----------            ---------
                        Total stockholders' equity                            43,613               39,122

                                                                         -----------            ---------
                                                                          $  517,450              423,644
                                                                         ===========            =========
</TABLE>

See accompanying notes to consolidated financial statements.

                                       3
<PAGE>

                      HENDERSON CITIZENS BANCSHARES, INC.
                       Consolidated Statements of Income
                                  (unaudited)

<TABLE>
<CAPTION>
                                                                           Three months                  Nine months
                                                                        ended September 30,          ended September 30,
                                                                         2001         2000         2001             2000
                                                                  -------------- ----------   -------------    ------------
<S>                                                               <C>            <C>          <C>              <C>
Interest income:
   Loans, including fees                                           $    4,277        3,363       11,478            9,554
   Securities:
        Taxable - available for sale                                    2,277        2,252        6,927            6,679
        Taxable - held to maturity                                        125          156          376              527
        Tax-exempt - held to maturity                                     496          506        1,476            1,547
   Federal funds sold                                                     155           28          640              198
   Interest-bearing deposits with financial institutions                  318          102          699              280
                                                                   ----------   ----------    ---------        ---------
          Total interest income                                         7,648        6,407       21,596           18,785
                                                                   ----------   ----------    ---------        ---------

Interest expense:
   Deposits:
        Transaction accounts                                              318          392        1,034            1,290
        Money market and savings                                          544          455        1,515            1,229
        Certificates of deposit and other time deposits                 3,021        2,701        9,088            7,553
   Other borrowed funds                                                    10           19           30               31
                                                                   ----------   ----------    ---------        ---------
          Total interest expense                                        3,893        3,567       11,667           10,103
                                                                   ----------   ----------    ---------        ---------

          Net interest income                                           3,755        2,840        9,929            8,682

Provision for loan losses                                                 159           90          389              280
                                                                   ----------   ----------    ---------        ---------
          Net interest income after provision for loan losses           3,596        2,750        9,540            8,402
                                                                   ----------   ----------    ---------        ---------

Noninterest income:
        Service charges, commissions, and fees                          1,287        1,016        3,439            3,004
        Income from fiduciary activities                                  328          270          985              810
        Net realized gains on securities transactions                      52            -           65                -
        Other                                                             318           39          783              504
                                                                   ----------   ----------    ---------        ---------
          Total noninterest income                                      1,985        1,325        5,272            4,318
                                                                   ----------   ----------    ---------        ---------

Noninterest expenses:
        Salaries and employee benefits                                  2,444        1,875        6,566            5,612
        Occupancy and equipment                                           607          451        1,574            1,318
        Other                                                           1,002          795        2,746            2,640
                                                                   ----------   ----------    ---------        ---------
          Total other expenses                                          4,053        3,121       10,886            9,570
                                                                   ----------   ----------    ---------        ---------

Income before income tax expense                                        1,528          954        3,926            3,150

Income tax expense                                                        228           86          598              396
                                                                   ----------   ----------    ---------        ---------
Net income                                                         $    1,300          868        3,328            2,754
                                                                   ==========   ==========    =========        =========

Basic earnings per common share                                    $     0.65         0.43         1.67             1.38
                                                                   ==========   ==========    =========        =========

               Weighted average number of shares outstanding        1,995,016    1,999,162    1,995,149        2,001,496
                                                                   ==========   ==========    =========        =========
</TABLE>

See accompanying notes to consolidated financial statements.

                                       4
<PAGE>

                      HENDERSON CITIZENS BANCSHARES, INC.
           Consolidated Statements of Changes in Stockholders' Equity
                                  (unaudited)

                 Nine months ended September 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                                     -            -          -       2,754                 -            -      2,754
     Other comprehensive income:
        Change in net unrealized
        gain (loss) on securities
        available for sale arising
        during the period,
        net of tax of $5                            -            -          -           -                 8            -          8
                                                                                                                           --------
         Total comprehensive income                                                                                           2,762

     Purchase of 12,666 shares of
       treasury stock                               -            -          -           -                 -         (221)      (221)

     Cash dividends declared ($.51
       per share)                                   -            -          -      (1,021)                -            -     (1,021)
                                             --------     --------    -------   ---------         ---------     --------   --------
Balances at September 30, 2000               $      -       10,800      5,400      25,361            (1,930)      (2,340)    37,291
                                             ========    =========    =======   =========         =========     ========   ========

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

Comprehensive income:

     Net Income                                     -            -          -       3,328                 -            -      3,328
     Other comprehensive income:
       Change in net unrealized
        gain (loss) on securities
        available for sale, net of tax
        of $954                                     -            -          -           -             1,851            -      1,851
                                                                                                                           --------
          Total comprehensive income                                                                                          5,179

     Purchase of 400 shares of
       treasury stock                               -            -          -           -                 -           (8)        (8)

     Cash dividends declared ($.34
       per share)                                   -            -          -        (680)                -            -       (680)
                                             --------     --------    -------   ---------         ---------     --------   --------
Balances at September 30, 2001               $      -       10,800      5,400      28,542             1,276       (2,405)    43,613
                                             ========     ========    =======   =========         =========     ========   ========
</TABLE>

See accompanying notes to consolidated financial statements.

                                       5
<PAGE>

                      HENDERSON CITIZENS BANCSHARES, INC.

                Condensed Consolidated Statements of Cash Flows
                                  (unaudited)

                 Nine months ended September 30, 2001 and 2000
                            (dollars in thousands)

<TABLE>
<CAPTION>
                                                                                          2001                2000
                                                                              ----------------         -----------
<S>                                                                           <C>                      <C>
Net cash provided by operating activities                                       $        5,476               2,737

Investing activities:
     Securities available for sale:
        Sales                                                                           12,680                   -
        Purchases                                                                      (77,547)            (21,836)
        Maturities and repayments                                                       54,371               4,722
     Securities held to maturity:
        Purchases                                                                         (231)                  -
        Maturities and repayments                                                        2,754               5,166
     Net change in loans                                                               (11,810)            (13,406)
     Proceeds from sale of premises and equipment
           and other real estate                                                            59                 205
     Purchases of bank premises, equipment and software                                 (1,537)             (1,423)
     Net cash received from acquisition                                                  9,653                   -
                                                                                --------------         -----------
                       Net cash from investing activities                              (11,608)            (26,572)
                                                                                --------------         -----------

Financing activities:
     Net increase in deposits                                                           35,603                 771
     Other borrowed funds                                                                  983                   -
     Cash dividends paid                                                                (1,018)             (1,023)
     Purchase of treasury stock                                                             (8)               (204)
                                                                                --------------         -----------
                       Net cash from financing activities                               35,560                (456)
                                                                                --------------         -----------

                       Change in cash and cash equivalents                              30,106             (24,291)
Cash and cash equivalents at beginning of period                                        25,993              38,683
                                                                                --------------         -----------

Cash and cash equivalents at end of period                                      $       56,099              14,392
                                                                                ==============         ===========

SUPPLEMENTAL DISCLOSURES OF CASH FLOW ACTIVITIES
Income taxes paid, net of refunds                                               $          936                 515
                                                                                ==============         ===========

Interest paid                                                                   $       11,710               6,190
                                                                                ==============         ===========
</TABLE>

See accompanying notes to consolidated financial statements.

                                       6
<PAGE>

                      HENDERSON CITIZENS BANCSHARES, INC.

                  Notes to Consolidated Financial Statements

                              September 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 subsidiaries, Citizens National Bank
        and Peoples State 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 September 30, 2001, Peoples State Bank was not part of the
        consolidated entity. See Note 3.

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

(2)  Recent Accounting Pronouncements
     --------------------------------

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

     In July 2001, the Financial Accounting Standards Board issued two
        statements--SFAS 141, Business Combinations, and SFAS 142, Goodwill and
        Other Intangible Assets, which will potentially impact the Company's
        accounting for its reported goodwill and other intangible assets.

     SFAS 141, Business Combinations--This statement eliminates the pooling
        method for accounting for business combinations. It requires that
        intangible assets that meet certain criteria be reported separately from
        goodwill and that negative goodwill arising from a business combination
        be recorded as an extraordinary gain.

     SFAS 142, Goodwill and Other Intangible Assets--This statement eliminates
        the amortization of goodwill and other intangibles that are determined
        to have an indefinite life. It requires, at a minimum, annual impairment
        tests for goodwill and other intangible assets that are determined to
        have an indefinite life.

     The Company has not yet completed its full assessment of the effects of
        these new pronouncements on its financial statements. The standards are
        generally required to be implemented by the Company in its 2002
        financial statements. In accordance with the new standards, goodwill
        recorded in connection with the Rusk County Bancshares, Inc. acquisition
        is not being amortized (see Note 3).

(3)  Acquisition
     -----------

     On July 2, 2001, the Company acquired all of the outstanding shares of Rusk
        County Bancshares, Inc. Henderson, Texas, ("RCBI") and its wholly owned
        indirect banking subsidiary, Peoples State Bank for a purchase price of
        $12,550,000 in cash. The results of operations of Peoples State Bank
        have been included in the Company's consolidated income statement since
        that date. This transaction was accounted for using the purchase method
        of accounting and initially resulted in goodwill of $4,580,000 being
        recorded. The process of obtaining third-party valuations of certain
        intangible assets has not been completed; thus, the allocation of the
        purchase price is subject to refinement. The following is condensed pro-
        forma information for the acquisition of RCBI. Had this transaction
        occurred previously on January 1, 2000, net interest income for the
        periods ended September 30, 2001 and 2000 would have been $11,775,000
        and $10,704,000 respectively while net income for the same periods would
        have been $3,815,000 and $3,250,000. Basic earnings per share for the
        periods ended September 30, 2001 and 2000 would have been $1.91 and
        $1.62.

                                       7
<PAGE>

(4)  Securities
     ----------

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

<TABLE>
<CAPTION>
                                                                  September 30, 2001
                                        -----------------------------------------------------------------
                                                                Gross            Gross         Estimated
                                          Amortized          Unrealized       Unrealized          Fair
                                             Cost               Gains           Losses           Value
                                        --------------       -----------      ----------       ----------
<S>                                     <C>                  <C>              <C>              <C>
     U.S. Treasury                       $       9,003               339               -            9,342
     U.S. Government agencies                   51,051               890             (24)          51,917
     Mortgage-backed securities and
       collateralized mortgage                 109,789             1,038            (228)         110,599
        obligations
                                        --------------       -----------      ----------       ----------
                                         $     169,843             2,267            (252)         171,858
                                         =============       ===========      ==========       ==========

<CAPTION>
                                                                  December 31, 2000
                                        -----------------------------------------------------------------
                                                                Gross            Gross         Estimated
                                          Amortized          Unrealized       Unrealized          Fair
                                             Cost               Gains           Losses           Value
                                        --------------       -----------      ----------       ----------
<S>                                     <C>                  <C>              <C>              <C>
     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                  74,578               181            (784)          73,975
        obligations
     Other securities                              504                 -               -              504
                                        --------------       -----------      ----------       ----------
                                         $     156,565               363          (1,235)         155,693
                                         =============       ===========      ==========       ==========
</TABLE>

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

<TABLE>
<CAPTION>
                                                                  September 30, 2001
                                        -----------------------------------------------------------------
                                                                Gross            Gross         Estimated
                                          Amortized          Unrealized       Unrealized          Fair
                                             Cost               Gains           Losses           Value
                                        --------------       -----------      ----------       ----------
<S>                                     <C>                  <C>              <C>              <C>
     State and municipal                 $      42,190             1,170             (41)          43,319
     Mortgage-backed securities and
       collateralized mortgage                   5,570               104               -            5,674
        obligations
     Corporate                                   2,031                61               -            2,092
     Other securities                              187                 -              (3)             184
                                        --------------       -----------      ----------       ----------
                                         $      49,978             1,335             (44)          51,269
                                         =============       ===========      ==========       ==========

<CAPTION>

                                                                  December 31, 2000
                                        -----------------------------------------------------------------
                                                                Gross            Gross         Estimated
                                          Amortized          Unrealized       Unrealized          Fair
                                             Cost               Gains           Losses           Value
                                        --------------       -----------      ----------       ----------
<S>                                     <C>                  <C>              <C>              <C>
     State and municipal                 $      42,563               344            (519)          42,388
     Mortgage-backed securities and
       collateralized mortgage                   6,423                 -             (33)           6,390
        obligations
     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

                              September 30, 2001

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

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

                                                   September 30,  December 31,
                                                       2001          2000
                                                   ------------   ------------
               Real estate mortgage                $    112,590         88,055
               Commercial and industrial                 60,756         51,026
               Installment and other                     41,065         33,219
                                                   ------------   ------------
                         Total                          214,411        172,300

               Less:
                  Allowance for loan losses              (2,932)        (2,355)
                  Unearned discount                         (18)           (63)
                                                   ------------   ------------
                         Loans, net                $    211,461        169,882
                                                   ============   ============

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

<TABLE>
<CAPTION>
                                                            Three months ended               Nine months ended
                                                               September 30,                    September 30,
                                                        ---------------------------      ---------------------------
                                                          2001              2000          2001              2000
                                                        ---------          --------      --------        ----------
<S>                                                     <C>                <C>           <C>             <C>
     Balance, beginning of period                       $   2,376             2,352      $  2,355             2,200
       Provision charged to operating expense                 159                90           389               280
       Addition from acquisition                              536                 -           536                 9
       Charge offs:
          Commercial, financial, and agriculture                -                (6)          (77)              (39)
          Real estate-mortgage                                  -                 -           (31)              (19)
          Installment loans to individuals                   (221)             (142)         (433)             (330)
     Recoveries:
          Commercial, financial, and agriculture                -                17             6               102
          Real estate-mortgage                                  -                 -             -                 -
          Installment loans to individuals                     82                57           187               165
                                                        ---------          --------      --------        ----------
               Balance, September 30                    $   2,932             2,368      $  2,932             2,368
                                                        =========          ========      ========        ==========
</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 NINE MONTHS AND THREE MONTHS ENDED SEPTEMBER 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 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.  At the close of
business on October 5, 2001, these two facilities were converted to full-service
branch locations of Citizens National Bank.

On July 2, 2001, the Company acquired all of the outstanding shares of Rusk
County Bancshares, Inc., Henderson, Texas ("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 resulted in an increase in total assets of
$61,889,000 and total deposits of $50,649,000.  The three banking offices of
Peoples State Bank, Henderson, Texas, previously a wholly owned subsidiary but
separate bank charter, are now being operated as full-service branches of
Citizens National Bank since completion of the merger on October 25, 2001.  It
is not anticipated that the merger will result in any diminution of products and
services currently available to customers of Peoples State Bank or Citizens
National Bank.  It is anticipated, however, that the merger will generate
certain operational efficiencies by operating under one bank charter rather than
two separate charters regulated by different regulatory authorities.

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

Net income for the first nine months of 2001 increased to $3,328,000 compared to
$2,754,000 for the same period in 2000. Net interest income for the nine months
ended September 30, 2001 was $9,929,000 compared to $8,682,000 for the same
period in 2000.  The Company made a provision of $389,000 to the allowance for
loan losses during the first nine months of 2001.  A provision of $280,000 was
made for loan losses during the same period in 2000. The Company experienced a
net gain on securities transactions of $65,000 in the first nine months of 2001
compared to no net gain or loss on securities transactions in the first nine
months of 2000.  Noninterest income, excluding net gains on securities
transactions, for the first nine months of 2001 was $5,207,000 compared to
$4,318,000 for the same period in 2000.  Total noninterest expenses for the
first nine months of 2001 were $10,886,000 compared to $9,570,000 for the same
period in 2000.  Income tax expense for the first nine months of 2001 and 2000
was $598,000 and $396,000, respectively.

        Net Interest Income.  For the nine months ended September 30, 2001, net
        -------------------
interest income was $9,929,000 compared to $8,682,000 for the first nine months
of 2000. Interest income was up $2,811,000 during the nine months ended
September 30, 2001, primarily due to growth as a result of the acquisition of
Peoples State Bank in July of 2001 and an increase in loan volumes.  Interest
expense increased $1,564,000 due to the higher volume of time deposits in the
first nine months of 2001 as compared to the same period in 2000 combined with
the growth as a result of the acquisition of Peoples State Bank.

Net interest income for the three-month period ended September 30, 2001 was
$3,755,000 compared to $2,840,000 in 2000.  Interest income was up $1,241,000
for the three months ended September 30, 2001, due largely to the growth from
the acquisition of Peoples State Bank in July of 2001 combined with an increase
in the volume of loans and interest bearing deposits with other financial
institutions.  Interest expense increased $326,000 due to growth resulting from
the acquisition of Peoples State Bank offset by interest rates that were
approximately 64 basis points lower in the three-month period ended September
30, 2001, as compared to the same period in 2000.

        Provision for Loan Losses.  The provision for loan losses was $389,000
        -------------------------
for the first nine months of 2001 compared to $280,000 for the first nine 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 September 30, 2001, the Company increased its
allowance through a provision of $159,000.  The Company increased its allowance
for loan losses during the same period in 2000 by a provision of $90,000.

                                       10
<PAGE>

        Noninterest Income.  Noninterest income, excluding securities
        ------------------
gains/losses, was $5,207,000 for the first nine months of 2001 as compared to
$4,318,000 in the first nine 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 $65,000 for the first nine months of
2001 compared to no net gain or loss on securities transactions for the first
nine months of 2000.

For the three months ended September 30, 2001, noninterest income, excluding
securities gains was $1,933,000 compared to $1,325,000 for the same period in
2000.  The Company experienced a net gain on securities of $52,000 for the three
months ended September 30, 2001, compared to no net gain/loss on securities
during the same period in 2000.

        Noninterest Expenses.  Noninterest expenses for the nine-month period
        --------------------
ended September 30, 2001 were $10,886,000 compared to $9,570,000 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, the opening of the Athens branch in December of 2000, and the
acquisition of Peoples State Bank in July of 2001.  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 September 30, 2001 were
$4,053,000 compared to $3,121,000 during the same period in 2000.  The increase
is a result of the same activities noted in the previous paragraph for the first
nine months of 2001.

        Income Taxes.  Income tax expense for the first nine months of 2001 was
        ------------
$598,000, compared to $396,000 in the same period in 2000. The effective tax
rates for the first nine months of 2001 and 2000 were 15.2% and 12.6%.  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 September 30, 2001 and September
30, 2000 were $228,000 and $86,000 respectively.  The effective tax rates for
the three-month periods ended September 30, 2001 and September 30, 2000 were
14.9% and 9.0%.

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

The Company's total assets at September 30, 2001 of $517,450,000 increased from
the total assets at December 31, 2000 of $423,644,000. The acquisition of
Peoples State Bank in July of 2001 accounted for approximately $60,146,000 of
the increase in total assets.  The Company's loan portfolio grew to $211,461,000
at September 30, 2001, up from $169,882,000 at December 31, 2000.   The
acquisition of Peoples State Bank accounted for $29,266,000 of the increase in
total loans. Total deposits were $465,374,000 at September 30, 2001, compared to
the December 31, 2000 total of $379,122,000.  The acquisition of Peoples State
Bank accounted for $48,619,000 of the increase in total deposits as of September
30, 2001.

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

Total deposits at September 30, 2001 increased from the December 31, 2000
balances by $86,252,000.  The acquisition of Peoples State Bank accounted for
approximately $48,619,000 of the increase as of September 30, 2001. Growth at
the Marshall branch, which opened in December 1999, combined with growth at the
Athens branch, which opened in December 2000, accounted for approximately
$16,075,000 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 September 30, 2001, amounts payable under this
note totaled $2,131,000.

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.

                                       11
<PAGE>

Cash and cash equivalents increased $30,106,000 from $25,993,000 at December 31,
2000 to $56,099,000 at September 30, 2001.  Cash and cash equivalents
represented 10.8% of total assets at September 30, 2001 compared to 6.1% of
total assets at December 31, 2000. This increase was due mainly to an increase
in deposits of $35,603,000 combined with additional deposits of $50,649,000 due
to the acquisition of Peoples State Bank.  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 nine months of 2001 were the net
increase in deposits of $35,603,000, securities purchases of $77,778,000 and
securities maturities and repayments of $57,125,000.

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

At September 30, 2001, stockholders' equity totaled $43,613,000, or 8.4% 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 September 30, 2001 and December 31, 2000.

                                             Consolidated   Bank Only
                                             -------------  ----------
September 30, 2001
------------------
Tier 1 capital to risk-weighted assets ratio      13.9%       13.4%
Total capital to risk-weighted assets ratio       15.1        14.6
Leverage ratio                                     6.9         6.4

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


As of September 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 September 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 $214,411,000 at September 30,
2001 compared to $172,300,000 at December 31, 2000.

As can be seen in the table in Note 4 above, an increase of approximately 19.1%
in commercial and industrial loans, an increase of approximately 27.9% in real
estate loans, and an increase of 23.6% in installment loans occurred during the
first nine months of 2001. As of September 30, 2001, the acquisition of Peoples
State Bank in July 2001 has contributed to an increase in total loans of
approximately $28,760,000.  The opening of the Athens branch in December 2000
has contributed to an increase in total loans of approximately $6,477,000.

                                       12
<PAGE>

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

The allowance for loan losses at September 30, 2001 and December 31, 2000 was
1.37% and 1.38% 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 September 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.

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 nine months ended September 30,
2001 totaled $159,000 and $389,000 compared to $90,000 and $280,000 for the
three and nine months ended September 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 September 30,
2001 and December 31, 2000.

                                                 September 30,     December 31,
                                                     2001               2000
                                                 -------------    ------------
                                                   (dollars in thousands)

Nonaccrual loans                                         $  74              241
Restructured loans                                           -            1,216
Other impaired loans                                         -                -
Loans past due 90+ days and still accruing                  95               18
                                                 -------------     ------------
          Total non-performing loans                     $ 169            1,475
                                                 =============     ============

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

Other non-performing assets, other
 real estate owned                                       $  90               10
                                                 =============     ============

                                       13
<PAGE>

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
52.5% at September 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 4 to the consolidated financial statements.

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 80% of the total as of September 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 September 30, 2001, floating rate
securities made up 74% 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 43% of total assets at September 30, 2001. The investment
portfolio totaled $221,836,000 at September 30, 2001, up from $206,938,000 at
December 31, 2000.  This increase resulted due to the combination of excess cash
and fed funds being invested in available for sale securities for increased
yields and the acquisition of Peoples State Bank.

                                       14
<PAGE>

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

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

In July 2001, the Financial Accounting Standards Board issued two statements--
SFAS 141, Business Combinations, and SFAS 142, Goodwill and Other Intangible
Assets, which will potentially impact the Company's accounting for its reported
goodwill and other intangible assets.

SFAS 141, Business Combinations--This statement eliminates the pooling method
for accounting for business combinations.  It requires that intangible assets
that meet certain criteria be reported separately from goodwill and that
negative goodwill arising from a business combination be recorded as an
extraordinary gain.

SFAS 142, Goodwill and Other Intangible Assets--This statement eliminates the
amortization of goodwill and other intangibles that are determined to have an
indefinite life.  It requires, at a minimum, annual impairment tests for
goodwill and other intangible assets that are determined to have an indefinite
life.

The Company has not yet completed its full assessment of the effects of these
new pronouncements on its financial statements. The standards are generally
required to be implemented by the Company in its 2002 financial statements.  In
accordance with the new standards, goodwill of $4,580,000 recorded in connection
with the Rusk County Bancshares, Inc. acquisition is not being amortized.

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.

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, and Form 8-KA was
filed on September 20, 2001.   Form 8-K, reflecting the Company's change in
accountant, was filed on October 26, 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: November 13, 2001        By: /s/ Milton S. McGee, Jr.
      -----------------            ------------------------------
                                   Milton S. McGee, Jr., CPA
                                   President




Date: November 13, 2001        By: /s/ Rebecca G. Tanner
      -----------------           -------------------------------
                                  Rebecca G. Tanner, CPA
                                  Vice President, Treasurer, Chief
                                  Financial Officer and Chief Accounting Officer

                                       18