<PAGE>

                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION

                            Washington, D.C.  20549

                                   FORM 10-Q
                      THE SECURITIES EXCHANGE ACT OF 1934


For the quarterly period ended: June 30, 2000  Commission file number:  33-42286

                      HENDERSON CITIZENS BANCSHARES, INC.

            (Exact name of registrant as specified in its charter)

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

                      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 July 31, 2000, 1,999,434 shares of Common Stock, $5.00 par value, were
outstanding.

                                       1
<PAGE>

                      HENDERSON CITIZENS BANCSHARES, INC.
                          QUARTER ENDED JUNE 30, 2000


                               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,
                                                                                  2000                   1999
                        Assets                                                (unaudited)
                        ------                                          ---------------------    -------------------
<S>                                                                     <C>                      <C>
Cash and due from banks                                                 $              11,341                 24,041
Interest-bearing deposits with
     other financial institutions                                                       2,881                  5,357
Federal funds sold                                                                        170                  9,285
                                                                        ---------------------    -------------------
                     Total cash and cash equivalents                                   14,392                 38,683

Securities available for sale, at fair value                                          147,610                131,675
Securities held to maturity, estimated fair value of $52,605
     in 2000 and $58,250 in 1999                                                       55,359                 60,579
Loans, net                                                                            157,268                144,197
Premises and equipment, net                                                             8,268                  7,374
Accrued interest receivable                                                             4,131                  3,664
Intangible assets                                                                       3,546                  3,883
Other assets                                                                            3,731                  3,391
                                                                        ---------------------    -------------------
                                                                        $             394,305                393,446
                                                                        =====================    ===================
                Liabilities and Stockholders' Equity
                ------------------------------------
Deposits:
   Demand - non interest-bearing                                        $              50,924                 44,807
   Interest-bearing transaction accounts                                               71,374                 79,371
   Money market and savings                                                            52,809                 47,876
   Certificates of deposit and other time deposits                                    181,087                183,369
                                                                        ---------------------    -------------------
                      Total deposits                                                  356,194                355,423

Accrued interest payable                                                                1,523                  1,177
Other liabilities                                                                         610                  1,075
                                                                        ---------------------    -------------------
                                                                                      358,327                357,675
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, 160,566 shares in 2000
        and 148,900 shares in 1999, at cost                                            (2,323)                (2,119)
   Undivided profits                                                                   24,834                 23,628
   Accumulated other comprehensive loss                                                (2,733)                (1,938)
                                                                        ---------------------    -------------------
                        Total stockholders' equity                                     35,978                 35,771

                                                                        ---------------------    -------------------
                                                                        $             394,305                393,446
                                                                        =====================    ===================
See accompanying notes to consolidated financial statements.
</TABLE>

                                       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,
                                                                       2000         1999         2000         1999
                                                                  ------------  ------------  ----------  ----------
<S>                                                               <C>              <C>          <C>         <C>
Interest income:
   Loans                                                          $     3,188        2,759        6,191        5,389
   Securities:
        Taxable - available for sale                                    2,260        2,075        4,427        4,074
        Taxable - held to maturity                                        175          309          371          686
        Tax-exempt - held to maturity                                     515          575        1,041        1,122
   Federal funds sold                                                       6           20          170          105
   Interest-bearing deposits with other financial institutions             80           86          178          215
                                                                  ------------  ------------  ----------  ----------
          Total interest income                                         6,224        5,824       12,378       11,591
                                                                  ------------  ------------  ----------  ----------

Interest expense:
   Deposits:
        Transaction accounts                                              427          432          898          899
        Money market and savings                                          416          258          774          528
        Certificates of deposit and other time deposits                 2,479        2,168        4,852        4,286
   Other borrowed funds                                                    11            2           12           11
                                                                  ------------  ------------  ----------  ----------
          Total interest expense                                        3,333        2,860        6,536        5,724
                                                                  ------------  ------------  ----------  ----------

          Net interest income                                           2,891        2,964        5,842        5,867

Provision for loan losses                                                  90          150          190          300
                                                                  ------------  ------------  ----------  ----------
          Net interest income after provision for loan losses           2,801        2,814        5,652        5,567
                                                                  ------------  ------------  ----------  ----------

Other income:
        Service charges, commissions, and fees                          1,045          909        1,988        1,731
        Income from fiduciary activities                                  270          259          540          506
        Gains (losses) on securities transactions, net                     --           --           --          187
        Insurance commissions                                             284           --          289           --
        Other                                                             131          103          176          195
                                                                  ------------  ------------  ----------  ----------
          Total other income                                            1,730        1,271        2,993        2,619
                                                                  ------------  ------------  ----------  ----------

Other expenses:
        Salaries and employee benefits                                  1,986        1,716        3,737        3,341
        Occupancy and equipment                                           453          391          867          744
        Other                                                             938          854        1,845        1,703
                                                                  ------------  ------------  ----------  ----------
          Total other expenses                                          3,377        2,961        6,449        5,788
                                                                  ------------  ------------  ----------  ----------

          Income before income tax expense                              1,154        1,124        2,196        2,398

Income tax expense                                                        163          158          310          387
                                                                  ------------  ------------  ----------  ----------
               Net income                                         $       991          966        1,886        2,011
                                                                  ============  ============  ==========  ==========

               Basic and diluted income per common share          $      0.50         0.48         0.94         1.00
                                                                  ============  ============  ==========  ==========

               Weighted average number of shares outstanding        1,999,775    2,015,674    2,002,687    2,015,841
                                                                  ============  ============  ==========  ==========
</TABLE>
See accompanying notes to consolidated financial statements.

                                       4
<PAGE>

                      HENDERSON CITIZENS BANCSHARES, INC.

                Consolidated Statements of Stockholders' Equity
                                  (unaudited)

                    Six months ended June 30, 2000 and 1999
           (dollars in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
                                                                                    Accumulated
                                                                                       Other                          Total
                                   Preferred    Common               Undivided     Comprehensive     Treasury     Stockholders'
                                     Stock      Stock     Surplus     Profits      Income (Loss)       Stock          Equity
                               -------------  --------  ----------  -----------  ----------------   -----------  ---------------
<S>                              <C>          <C>       <C>         <C>           <C>               <C>          <C>
Balances at January 1, 1999        $      --    10,800      5,400       21,089               649       (2,027)           35,911

Comprehensive income:
     Net Income                           --        --         --        2,011                --           --             2,011
     Other comprehensive
      income:
     Change in net unrealized
      gain (loss) on securities
        available for sale,
         net of tax
         of $(1,174)                      --        --         --           --            (2,279)          --            (2,279)
                                                                                                                 --------------

     Total comprehensive
      income                                                                                                               (268)

     Purchase of 700 shares of
      treasury stock                      --        --         --           --                --          (11)              (11)

     Cash dividends declared
      ($.34 per share)                    --        --         --         (685)               --           --              (685)
                               -------------  --------  ----------  -----------  ----------------   -----------  ---------------

Balances at June 30, 1999       $         --    10,800      5,400       22,415            (1,630)      (2,038)           34,947
                               =============  ========  ==========  ===========  ================   ===========  ===============


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,
         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
                               =============  ========  ==========  ===========  ================   ===========  ===============

See accompanying notes to consolidated financial statements.
</TABLE>

                                       5
<PAGE>

                      HENDERSON CITIZENS BANCSHARES, INC.

                Condensed Consolidated Statements of Cash Flows
                                  (unaudited)

                    Six months ended June 30, 2000 and 1999
                             (dollars in thousands)
<TABLE>
<CAPTION>
                                                                                         2000                  1999
                                                                                ---------------       ---------------
<S>                                                                             <C>                   <C>

                       Net cash provided by operating activities                          2,737                   557

Investing activities:
     Securities available for sale:
        Sales                                                                                --                13,093
        Purchases                                                                       (21,836)               (8,426)
        Maturities and repayments                                                         4,722                31,124
     Securities held to maturity:
        Purchases                                                                            --                18,351
        Maturities and repayments                                                         5,166               (64,685)
     Net change in loans                                                                (13,406)               (8,586)
     Proceeds from sale of premises and equipment
           and other real estate                                                            205                    --
     Purchases of bank premises, equipment and software                                  (1,423)                 (553)
                                                                                ---------------       ---------------
                       Net cash used in investing activities                            (26,572)              (19,682)
                                                                                ---------------       ---------------

Financing activities:
     Net change in deposits                                                                 771                 2,140
     Payment on notes payable                                                                --                (2,282)
     Cash dividends paid                                                                 (1,023)               (1,008)
     Purchase of treasury stock                                                            (204)                  (11)
                                                                                ---------------       ---------------
                       Net cash used in financing activities                               (456)               (1,161)
                                                                                ---------------       ---------------

                       Change in cash and cash equivalents                              (24,291)              (20,286)
Cash and cash equivalents at beginning of period                                         38,683                36,897
                                                                                ---------------       ---------------

Cash and cash equivalents at end of period                                      $        14,392                16,611
                                                                                ===============       ===============

SUPPLEMENTAL DISCLOSURES OF CASH FLOW ACTIVITIES
Income taxes paid, net of refunds                                               $           515                   445
                                                                                ===============       ===============

Interest paid                                                                   $         6,190                 5,796
                                                                                ===============       ===============
</TABLE>

                                       6
<PAGE>

                      HENDERSON CITIZENS BANCSHARES, INC.

                   Notes to Consolidated Financial Statements

                                 June 30, 2000

(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,
     1999 and 1998, and for each of the years in the three year period ended
     December 31, 1999 included in the Company's 1999 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 the 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.


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

    The amortized cost and estimated fair values (carrying value) of securities
     available for sale at June 30, 2000 and December 31, 1999, are summarized
     as follows (in thousands of dollars):

<TABLE>
<CAPTION>
                                                              June 30, 2000
                                         -----------------------------------------------------
                                                          Gross          Gross       Estimated
                                           Amortized    Unrealized    Unrealized       Fair
                                             Cost         Gains         Losses         Value
                                         -----------  ------------  -------------  -----------
<S>                                      <C>          <C>           <C>            <C>
U.S. Treasury                            $    18,032            --          (225)       17,807
U.S. Government agencies                      63,356            --        (1,924)       61,432
State and municipal                               --            --            --            --
Mortgage-backed securities and
     collateralized mortgage
      obligations                             69,869            66        (2,058)       67,877
Other securities                                 494            --            --           494
                                         -----------  ------------  -------------  -----------
                                         $   151,751            66        (4,207)      147,610
                                         -----------  ------------  -------------  -----------

                                                            December 31, 1999
                                         -----------------------------------------------------
                                                          Gross         Gross        Estimated
                                           Amortized    Unrealized    Unrealized       Fair
                                             Cost         Gains         Losses         Value
                                         -----------  ------------  -------------  -----------
U.S. Treasury                            $    18,049            --          (135)       17,916
U.S. Government agencies                      50,432            --        (1,500)       48,932
State and municipal                               --            --            --            --
Mortgage-backed securities and
     collateralized mortgage
      obligations                             65,638           101        (1,405)       64,334
Other securities                                 493            --            --           493
                                         -----------  ------------  -------------  -----------
                                         $   134,612           101        (3,040)      131,675
                                         -----------  ------------  -------------  -----------

</TABLE>

                                       7
<PAGE>

                      HENDERSON CITIZENS BANCSHARES, INC.

                   Notes to Consolidated Financial Statements

                                 June 30, 2000

The amortized cost and estimated fair values (carrying value) of securities held
 to maturity at June 30, 2000and December 31, 1999, are summarized as follows
 (in thousands of dollars):

<TABLE>
<CAPTION>
                                                                 June 30, 2000
                                          ---------------------------------------------------------
                                                              Gross          Gross        Estimated
                                              Amortized     Unrealized      Unrealized        Fair
                                               Cost           Gains          Losses         Value
                                          ------------  --------------  --------------  -----------
<S>                                       <C>            <C>            <C>             <C>
U.S. Treasury                              $       --               --             --            --
U.S. Government agencies                           --               --             --            --
State and municipal                              44,731             84         (2,512)       42,303
Mortgage-backed securities and
     collateralized mortgage
      obligations                                 8,357             --           (234)         (234)
Corporate                                         2,058             --            (87)        1,971
Other securities                                    213             --             (5)          208
                                          -------------  -------------  --------------  -----------
                                          $      55,359             84         (2,838)       52,605
                                          -------------  -------------  --------------  -----------

                                                               December 31, 1999
                                          ---------------------------------------------------------
                                                              Gross          Gross        Estimated
                                             Amortized     Unrealized     Unrealized        Fair
                                               Cost           Gains         Losses          Value
                                          -------------  -------------  -------------  ------------
U.S. Treasury                             $          --             --             --            --
U.S. Government agencies                             --             --             --            --
State and municipal                              46,895            132         (2,197)       44,830
Mortgage-backed securities and
     collateralized mortgage
      obligations                                11,388             --           (193)       11,195
Corporate                                         2,068             --            (68)        2,000
Other securities                                    228             --             (5)          223
                                          -------------  -------------  --------------  -----------
                                          $      60,579            132         (2,463)       58,248
                                          -------------  -------------  --------------  -----------
</TABLE>

                                       8
<PAGE>

                      HENDERSON CITIZENS BANCSHARES, INC.

                   Notes to Consolidated Financial Statements

                                 June 30, 2000

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


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

                                                                      June 30,             December 31,
                                                                        2000                   1999
                                                                ------------------     ------------------
<S>                                                             <C>                    <C>
               Real estate mortgage                             $           83,752                 77,935
               Commercial and industrial                                    43,895                 37,639
               Installment and other                                        32,008                 30,955
                                                                ------------------     ------------------
                         Total                                             159,655                146,529

               Less:
                  Allowance for loan losses                                 (2,352)                (2,200)
                  Unearned discount                                            (35)                  (132)
                                                                ------------------     ------------------

                         Loans, net                             $          157,268                144,197
                                                                ==================     ==================
</TABLE>

Changes in the allowance for loan losses for the three months and six months
 ended June 30, 2000 and 1999 summarized as follows (in thousands of dollars):

<TABLE>
<CAPTION>


                                                            Three months ended June 30,               Six months ended June 30,
                                                         ----------------------------------          ---------------------------
                                                              2000                 1999                 2000             1999
                                                         ------------           -----------          ----------       ----------
<S>                                                      <C>                    <C>                  <C>              <C>
     Balance, beginning of period                              $2,295                 1,799               2,200            1,701
     Provision charged to operating expense                        90                   150                 190              300
     Adjustment for consolidation of CDC                            9                    --                   9               --
     Charge offs:
          Commercial, financial, and agriculture                  (21)                   (1)                (33)              (4)
          Real estate-mortgage                                     (6)                   --                 (19)              (9)
          Installment loans to individuals                       (105)                 (136)               (188)            (241)
     Recoverie
          Commercial, financial, and agriculture                   41                    34                  85               42
          Installment loans to individuals                         49                    70                 108              127
                                                         ------------           -----------          ----------       ----------

      Balance, June 30                                         $2,352                 1,916               2,352            1,916
                                                         ============           ===========          ==========       ==========
</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, 2000 AND 1999


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 March 14, 2000, the Comptroller of Currency approved the establishment of a
branch location for the Citizens National Bank located at 739 E. Tyler Street in
Athens, Texas.

On April 5, 2000, HCB Insurance Agency, Inc., a wholly owned subsidiary of
Citizens National Bank, completed the purchase of the Preston Insurance Agency
in Henderson, Texas, for the purchase price of $650,000.

During the second quarter of 2000, the Company purchased 1,000 shares of its
common stock from six shareholders at an average cost of $17.50.  The purchase
price of these privately negotiated transactions was paid in cash using
available cash resources, and the Company did not incur any debt in connection
with these stock repurchases.

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

Net income for the first six months of 2000 decreased to $1,886,000 compared to
$2,011,000 for the same period in 1999. Net interest income for the six months
ended June 30, 2000 was $5,842,000 compared to $5,867,000 for the same period in
1999.  The Company made a provision of $190,000 to the allowance for loan losses
during the first six months of 2000.  A provision of $300,000 was made for loan
losses during the same period in 1999. The Company experienced no net gain or
loss on securities transactions in the first six months of 2000 compared to a
net gain of $187,000 in the first six months of 1999.  Other income, excluding
net gains on securities transactions, for the first six months of 2000 was
$2,993,000 compared to $2,432,000 for the same period in 1999.  Total other
expenses for the first six months of 2000 were $6,449,000 compared to $5,788,000
for the same period in 1999.  Income tax expense for the first six months of
2000 and 1999 was $310,000 and $387,000, respectively.

        Net Interest Income.  For the six months ended June 30, 2000, net
        -------------------
interest income was $5,842,000 compared to $5,867,000 for the first six months
of 1999. Interest income was up $787,000 during the six months ended June 30,
2000, primarily due to interest on loans as average loan balances were up by 12%
compared to the same period in 1999.  The increase is largely the result of
continued loan growth combined with growth in loans as a result of the opening
of the Marshall branch in December 1999.  Interest expense increased $812,000
due mostly to average rates paid that were approximately 40 basis points higher
in the first six months of 2000 as compared to the same period in 1999.

Net interest income for the three-month period ended June 30, 2000 was
$2,891,000 compared to $2,964,000 in 1999.  The decrease is a result of the
increase in average rates paid on deposits was greater than the increase of the
average rates earned on interest-earning assets.

        Provision for Loan Losses.  The provision for loan losses was $190,000
        -------------------------
for the first six months of 2000 compared to $300,000 for the first six months
of 1999.  See "Management's Discussion and Analysis of the Financial Condition
and Results of Operations of the Company--Allowance for Loan Losses" for more
detailed discussion relative to the provision for loan losses.

For the three-month period ended June 30, 2000, the Company increased its
allowance through a provision of $90,000.  The Company increased it allowance
for loan losses during the same period in 1999 by a provision of $150,000.

        Other Income.  Non-interest income, excluding securities gains/losses,
        ------------
was $2,993,000 for the first six months of 1999 as compared to $2,432,000 in the
first six months of 1999. This increase is due to increases in service charges
primarily through an increase in fees collected for insufficient funds,
increases in trust fee income and the recognition of insurance commission income
as a result of the acquisition of the Preston Insurance Agency in April of 2000.
The Company experienced no net gains or losses on securities transactions for
the first six months of 2000 compared to a net gain on securities transactions
for the first six months of 1999 of $187,000.

                                       10
<PAGE>

For the three months ended June 30, 2000, non-interest income, excluding
security gains was $1,730,000 compared to $1,271,000 for the same period in
1999, with the majority of the increase due to increased fees collected on
insufficient funds, increased trust revenues, insurance commission income
recognized from the acquisition discussed above, and net gains realized from the
sale of other real estate.  The Company experienced no net gain/loss on
securities for the three months ended June 30, 2000 or during the same period in
1999.

        Other Expenses.  Other expenses for the six-month period ended June 30,
        --------------
2000 were $6,449,000 compared to $5,788,000 during the same period in 1999. 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 opening of the Marshall branch in December of 1999 and the
acquisition of the Preston Insurance Agency in April of 2000. Occupancy expenses
continue to increase with the addition of new facilities and the remodeling of
existing properties.

For the three-month period ended June 30, 2000, other expenses were $3,377,000
compared to $2,961,000 during the same period in 1999.  The increase is a result
of the same activities noted in the previous paragraph for the first six months
of 2000 and 1999.

        Income Taxes.  Income tax expense for the first six months of 2000 was
        ------------
$310,000, compared to $387,000 in the same period in 1999. The effective tax
rates for the first six months of 2000 and 1999 were 14.1% and 16.1%.  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, 2000 and June 30, 1999
were $163,000 and $158,000 respectively.  The effective tax rates for the three-
month periods ended June 30, 2000 and June 30, 1999 were 13.8% and 14.1%.

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

The Company's total assets at June 30, 2000 of $394,305,000 increased from the
total assets at December 31, 1999 of $393,446,000. The Company's loan portfolio
grew 9.1% to $157,268,000 at June 30, 2000, up from $144,197,000 at December 31,
1999. Total deposits were $356,194,000 at June 30, 2000, compared to the
December 31, 1999 total of $355,423,000.

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 decreased $388,000, or 4.0%, from $9.8 million at
December 31, 1999 to $9.4 million at March 31, 2000.  Cash and cash equivalents
represented 9.3% of total assets at March 31, 2000 compared to 9.4% of total
assets at December 31, 1999. 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 2000 were the net
increase in loans of $13,406,000, securities purchases of $21,836,000 and
securities maturities and repayments of $9,888,000.

                                       11
<PAGE>

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

At June 30, 2000, stockholders' equity totaled $35,978,000, or 9.1% of total
assets, compared to $35,771,000, or 9.1% of total assets, at December 31, 1999.
The increase in stockholders' equity is the result of earnings retained net of
treasury stock purchases of $204,000.

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 institutions capital n 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 Bank only capital
ratios as of June 30, 2000 and December 31, 1999.
<TABLE>
<CAPTION>


                                                Consolidated   Bank Only
                                                -------------  ----------
<S>                                             <C>            <C>
June 30, 2000
-------------
Tier 1 capital to risk-weighted assets ratio            18.0%       18.0%
Total capital to risk-weighted assets ratio             19.2        19.1
Leverage ratio                                           9.1         9.0

December 31, 1999
-----------------
Tier 1 capital to risk-weighted assets ratio            18.4%       18.8%
Total capital to risk-weighted assets ratio             19.6        19.8
Leverage ratio                                           9.0         8.3
</TABLE>

As of June 30, 2000 and December 31, 1999, the Company and its Bank subsidiary,
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, 2000 and December 31, 1999 that
would change the Company's or the Citizen National Bank's capital categories.

                                       12
<PAGE>

Loans
-----

The Company's loan portfolio consists primarily of real estate, commercial and
industrial, and consumer loans.  Total loans were $159,655,000 at June 30, 2000
compared to $146,529,000 at December 31, 1999.

As can be seen in the table in Note 3 above, a strong increase of approximately
16.6% in commercial and industrial loans, an increase of approximately 7.5% in
real estate loans, and a slight increase of 3.4% in installment loans occurred
during the first six months of 2000.  The overall increase during the six months
ended June 30, 2000 is largely the result of strong market demand for home loans
and commercial properties, including leases.  The opening of the Marshall branch
in December 1999 has contributed to an increase in total loans of approximately
$3,196,000 while the consolidation of the Bank with its subsidiary, CDC,
increased total loans by approximately $802,000 during the first six months of
2000.

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

The allowance for loan losses at June 30, 2000 and December 31, 1999 was 1.47%
and 1.50% 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, management believes that the allowance at June 30,
2000 is adequate to cover losses inherent in its loan portfolio.  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.  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, 2000
totaled $90,000 and $190,000 compared to $150,000 and $300,000 for the three and
six months ended June 30, 1999.  The amount of the provision for loan losses
over the comparable periods has declined based on the relatively low levels of
net charge-offs experienced combined with a high level of credit quality within
the Company's loan portfolio.  Notwithstanding the low level of charge-offs,
management believes it is prudent to continue increasing the allowance for loan
losses as total loans, particularly higher risk commercial loans, increase.
Accordingly, management anticipates it will continue its provisions to the
allowance for loan losses at current levels for the near future, providing
volume of nonperforming loans remains insignificant.

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.

During the three months ended June 30, 2000, the Company restructured a single
loan relationship totaling approximately $1,217,000. The restructured loan,
secured by commercial real estate, is a manufacturing company that was adversely
affected by a down turn in the oil and gas market.

                                       13
<PAGE>

The following is a summary of the Company's problem loans as of June 30, 2000
and December 31,1999.

<TABLE>
<CAPTION>
                                                                       June 30,            December 31,
                                                                         2000                 1999
                                                                   ---------------     -------------------
                                                                            (dollars in thousands)
<S>                                                                 <C>                 <C>
Nonaccrual loans                                                   $            63                      --
Restructured loans                                                           1,217                      --
Other impaired loans                                                            --                      --
Loans past due 90+ days and still accruing                                     195                     183
                                                                   ---------------     -------------------
          Total non-performing loans                               $         1,475                     183
                                                                   ===============     ===================

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

Other non-performing assets, other real estate owned               $           145                     150
                                                                   ===============     ===================
</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
52.5% at June 30, 2000) 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.

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, 2000 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.

                                       14
<PAGE>

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, 2000, floating rate
securities made up 68% 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 51% of total assets at June 30, 2000. The investment portfolio
totaled $202,969,000 at June 30, 2000, up from $192,254,000 at December 31,
1999.  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 pronouncement has been issued, but has not yet become effective,
and is listed together with the expected impact on the Company.

FASB 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 will be 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 is not expected to have a
significant effect on the financial position or results of operations of the
Company.

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 is 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 13% 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 1999 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, 1999.  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, 1999 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

   None

                                       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 11, 2000               By:  Milton S. McGee, Jr.
       ---------------                    -------------------------------

                                          Milton S. McGee, Jr., CPA
                                          President





Date:  August 11, 2000               By:  Rebecca G. Tanner
       ---------------                    -------------------------------

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












                                      18
<PAGE>

                                 EXHIBIT INDEX




Exhibit
--------------------------------------------------------------------------------

27.1  Financial Data Schedule.














































                                      19