##### Table of Contents

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SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549



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FORM 10-Q



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|x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ---------------------------------------------------------------------------------------



For the quarterly period ended September 30, 2004



OR



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | -----------------------------------------------------------------------------------------



For the transition period from  to



Commission file number: 000-25221



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CITIZENS HOLDING COMPANY

(exact name of registrant as specified in its charter)



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|                                                               |  |                                          
|-------------------------------------------------------------- |  | -----------------------------------------
|MISSISSIPPI                                                    |  | 64-0666512                               
|(State or other jurisdiction of incorporation or organization) |  | (I. R. S. Employer Identification Number)



|                                         |  |           
|---------------------------------------- |  | ----------
|521 Main Street, Philadelphia, MS        |  | 39350     
|(Address of principal executive offices) |  | (Zip Code)



Registrants
telephone number, including area code: 601-656-4692



---



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



Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule
12b-2 of the Exchange Act). ̈Yes    x  No



Indicate the number of shares outstanding of each of the issuers classes
of common stock, as of November 10, 2004.



|                             |  |            
|---------------------------- |  | -----------
|Title                        |  | Outstanding
|Common Stock, $.20 par value |  | 5,000,278  



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##### Table of Contents

CITIZENS HOLDING COMPANY

THIRD QUARTER 2004 INTERIM FINANCIAL STATEMENTS

TABLE OF CONTENTS



|                              |  |         |  |                                                                                                       
|----------------------------- |  | ------- |  | ------------------------------------------------------------------------------------------------------
|PART I.
FINANCIAL INFORMATION
|                              |  |        
|                              |  | Item 1. |  | Consolidated Financial Statements (Unaudited)                                                         
|                              |  |        
|                              |  |         |  | Consolidated Statements of ConditionSeptember 30, 2004 and December 31, 2003                          
|                              |  |        
|                              |  |         |  | Consolidated Statements of IncomeThree and nine months ended September 30, 2004 and 2003              
|                              |  |        
|                              |  |         |  | Consolidated Statements of Comprehensive IncomeThree and nine months ended September 30, 2004 and 2003
|                              |  |        
|                              |  |         |  | Consolidated Statements of Cash FlowsNine months ended September 30, 2004 and 2003                    
|                              |  |        
|                              |  |         |  | Notes to Consolidated Financial Statements                                                            
|                              |  |        
|                              |  | Item 2. |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                 
|                              |  |        
|                              |  | Item 3. |  | Quantitative and Qualitative Disclosures About Market Risk                                            
|                              |  |        
|                              |  | Item 4. |  | Controls and Procedures                                                                               
|                             
|PART II.
OTHER INFORMATION   
|                              |  |        
|                              |  | Item 2. |  | Unregistered Sales of Equity Securities and Use of Proceeds                                           
|                              |  |        
|                              |  | Item 6. |  | Exhibits                                                                                              
|                             
|SIGNATURES                   



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##### Table of Contents

PART I. FINANCIAL INFORMATION



ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)



CITIZENS HOLDING COMPANY AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CONDITION

(Unaudited)



|                                                                                                                                                         |  |                   |             |                  |   |            
|-------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------- | ----------- | ---------------- | - | -----------
|                                                                                                                                                         |  | September 30,2004 |             | December 31,2003
|ASSETS                                                                                                                                                   |  |                   |             |                  |   |            
|                                                                                                                                                         |  |                  
|Cash and due from banks                                                                                                                                  |  | $                 | 19,086,570  |                  | $ | 15,101,810 
|Interest bearing deposits with other banks                                                                                                               |  |                   | 189,701     |                  |   | 98,036     
|Federal funds sold                                                                                                                                       |  |                   | 4,500,000   |                  |   | 0          
|Investment securities available-for-sale, at fair value                                                                                                  |  |                   | 146,254,608 |                  |   | 143,181,383
|Loans, net of allowance for loan losses of $5,794,980 in 2004 and $5,126,735 in 2003                                                                     |  |                   | 363,185,897 |                  |   | 351,937,005
|Premises and equipment, net                                                                                                                              |  |                   | 9,899,659   |                  |   | 9,998,973  
|Real estate acquired by foreclosure                                                                                                                      |  |                   | 745,436     |                  |   | 695,018    
|Accrued interest receivable                                                                                                                              |  |                   | 4,652,272   |                  |   | 4,206,104  
|Cash value of life insurance                                                                                                                             |  |                   | 15,091,841  |                  |   | 14,880,618 
|Intangible assets (net)                                                                                                                                  |  |                   | 5,987,353   |                  |   | 6,390,480  
|Other assets                                                                                                                                             |  |                   | 4,964,706   |                  |   | 4,271,716  
|                                                                                                                                                         |  |                   |             |                  |   |            
|TOTAL ASSETS                                                                                                                                             |  | $                 | 574,558,043 |                  | $ | 550,761,143
|                                                                                                                                                         |  |                   |             |                  |   |            
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                     |  |                   |             |                  |   |            
|                                                                                                                                                         |  |                  
|LIABILITIES                                                                                                                                              |  |                   |             |                  |   |            
|Deposits:                                                                                                                                                |  |                   |             |                  |   |            
|Noninterest-bearing demand                                                                                                                               |  | $                 | 83,018,814  |                  | $ | 63,070,459 
|Interest-bearing NOW and money market accounts                                                                                                           |  |                   | 129,087,426 |                  |   | 117,431,141
|Interest bearing savings deposits                                                                                                                        |  |                   | 39,037,209  |                  |   | 36,436,696 
|Interest bearing time deposits                                                                                                                           |  |                   | 214,184,225 |                  |   | 221,759,002
|                                                                                                                                                         |  |                   |             |                  |   |            
|Total deposits                                                                                                                                           |  |                   | 465,327,674 |                  |   | 438,697,298
|                                                                                                                                                         |  |                  
|Accrued interest payable                                                                                                                                 |  |                   | 543,506     |                  |   | 668,538    
|Federal Home Loan Bank advances                                                                                                                          |  |                   | 42,877,863  |                  |   | 47,636,847 
|Federal funds purchased                                                                                                                                  |  |                   | 0           |                  |   | 1,500,000  
|Directors deferred compensation payable                                                                                                                  |  |                   | 1,963,048   |                  |   | 1,832,211  
|Other liabilities                                                                                                                                        |  |                   | 3,015,384   |                  |   | 2,540,822  
|                                                                                                                                                         |  |                   |             |                  |   |            
|Total liabilities                                                                                                                                        |  |                   | 513,727,475 |                  |   | 492,875,716
|Minority interest                                                                                                                                        |  |                   | 1,450,639   |                  |   | 1,383,351  
|                                                                                                                                                         |  |                  
|STOCKHOLDERS EQUITY                                                                                                                                     |  |                   |             |                  |   |            
|Common stock; $.20 par value, 22,500,000 shares authorized, 5,000,278 shares outstanding at September 30, 2004 and 4,979,628 shares at
December 31, 2003 |  |                   | 1,000,056   |                  |   | 995,926    
|Additional paid-in capital                                                                                                                               |  |                   | 3,150,246   |                  |   | 2,944,314  
|Retained earnings                                                                                                                                        |  |                   | 54,258,862  |                  |   | 51,091,798 
|Accumulated other comprehensive income, net of deferred tax liability of $419,216 in 2004 and $764,050 in 2003                                           |  |                   | 970,765     |                  |   | 1,470,038  
|                                                                                                                                                         |  |                   |             |                  |   |            
|Total stockholders equity                                                                                                                               |  |                   | 59,379,929  |                  |   | 56,502,076 
|                                                                                                                                                         |  |                   |             |                  |   |            
|TOTAL LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                               |  | $                 | 574,558,043 |                  | $ | 550,761,143
|                                                                                                                                                         |  |                   |             |                  |   |            



See
notes to consolidated financial statements.



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##### Table of Contents

CITIZENS HOLDING COMPANY AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)



|                                                    |  |                                          |           |                                         |   |           |  |      |            |  |   |           
|--------------------------------------------------- |  | ---------------------------------------- | --------- | --------------------------------------- | - | --------- |  | ---- | ---------- |  | - | ----------
|                                                    |  | For the Three Months Ended September 30, |           | For the Nine Months Ended September 30,
|                                                    |  | 2004                                     |           | 2003                                    |   | 2004      |  | 2003
|INTEREST INCOME                                     |  |                                          |           |                                         |   |           |  |      |            |  |   |           
|Interest and fees on loans                          |  | $                                        | 5,972,998 |                                         | $ | 5,941,778 |  | $    | 17,850,801 |  | $ | 17,690,267
|Interest on securities                              |  |                                          | 1,505,360 |                                         |   | 1,564,871 |  |      | 4,196,486  |  |   | 4,537,942 
|Other interest                                      |  |                                          | 23,582    |                                         |   | 3,998     |  |      | 53,928     |  |   | 28,360    
|                                                    |  |                                          |           |                                         |   |           |  |      |            |  |   |           
|Total interest income                               |  |                                          | 7,501,940 |                                         |   | 7,510,647 |  |      | 22,101,215 |  |   | 22,256,569
|                                                    |  |                                          |           |                                        
|INTEREST EXPENSE                                    |  |                                          |           |                                         |   |           |  |      |            |  |   |           
|Deposits                                            |  |                                          | 1,433,549 |                                         |   | 1,572,462 |  |      | 4,226,224  |  |   | 5,160,080 
|Other borrowed funds                                |  |                                          | 475,454   |                                         |   | 454,840   |  |      | 1,313,420  |  |   | 1,117,450 
|                                                    |  |                                          |           |                                         |   |           |  |      |            |  |   |           
|Total interest expense                              |  |                                          | 1,909,003 |                                         |   | 2,027,302 |  |      | 5,539,644  |  |   | 6,277,530 
|                                                    |  |                                          |           |                                         |   |           |  |      |            |  |   |           
|NET INTEREST INCOME                                 |  |                                          | 5,592,937 |                                         |   | 5,483,345 |  |      | 16,561,571 |  |   | 15,979,039
|                                                    |  |                                          |           |                                        
|PROVISION FOR LOAN LOSSES                           |  |                                          | 121,691   |                                         |   | 717,400   |  |      | 1,021,691  |  |   | 1,467,400 
|                                                    |  |                                          |           |                                         |   |           |  |      |            |  |   |           
|NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES |  |                                          | 5,471,246 |                                         |   | 4,765,945 |  |      | 15,539,880 |  |   | 14,511,639
|                                                    |  |                                          |           |                                        
|NON-INTEREST INCOME                                 |  |                                          |           |                                         |   |           |  |      |            |  |   |           
|Service charges on deposit accounts                 |  |                                          | 880,417   |                                         |   | 858,633   |  |      | 2,534,623  |  |   | 2,416,354 
|Other service charges and fees                      |  |                                          | 116,532   |                                         |   | 217,221   |  |      | 529,640    |  |   | 530,845   
|Other income                                        |  |                                          | 368,274   |                                         |   | 598,545   |  |      | 1,092,503  |  |   | 1,185,339 
|                                                    |  |                                          |           |                                         |   |           |  |      |            |  |   |           
|Total non-interest income                           |  |                                          | 1,365,223 |                                         |   | 1,674,399 |  |      | 4,156,766  |  |   | 4,132,538 
|                                                    |  |                                          |           |                                        
|NON-INTEREST EXPENSE                                |  |                                          |           |                                         |   |           |  |      |            |  |   |           
|Salaries and employee benefits                      |  |                                          | 2,275,272 |                                         |   | 2,016,484 |  |      | 6,628,989  |  |   | 5,907,636 
|Occupancy expense                                   |  |                                          | 759,316   |                                         |   | 717,913   |  |      | 2,205,972  |  |   | 2,072,222 
|Other operating expense                             |  |                                          | 1,106,545 |                                         |   | 1,038,874 |  |      | 3,339,741  |  |   | 3,094,964 
|Earnings applicable to minority interest            |  |                                          | 48,949    |                                         |   | 48,588    |  |      | 137,037    |  |   | 132,350   
|                                                    |  |                                          |           |                                         |   |           |  |      |            |  |   |           
|Total non-interest expense                          |  |                                          | 4,190,082 |                                         |   | 3,821,859 |  |      | 12,311,739 |  |   | 11,207,172
|                                                    |  |                                          |           |                                         |   |           |  |      |            |  |   |           
|INCOME BEFORE INCOME TAXES                          |  |                                          | 2,646,387 |                                         |   | 2,618,485 |  |      | 7,384,907  |  |   | 7,437,005 
|                                                    |  |                                          |           |                                        
|INCOME TAX EXPENSE                                  |  |                                          | 708,018   |                                         |   | 705,488   |  |      | 1,971,564  |  |   | 2,232,739 
|                                                    |  |                                          |           |                                         |   |           |  |      |            |  |   |           
|NET INCOME                                          |  | $                                        | 1,938,369 |                                         | $ | 1,912,997 |  | $    | 5,413,343  |  | $ | 5,204,266 
|                                                    |  |                                          |           |                                         |   |           |  |      |            |  |   |           
|NET INCOME PER SHARE                                |  |                                          |           |                                         |   |           |  |      |            |  |   |           
|-Basic                                              |  | $                                        | 0.39      |                                         | $ | 0.38      |  | $    | 1.08       |  | $ | 1.05      
|                                                    |  |                                          |           |                                         |   |           |  |      |            |  |   |           
|-Diluted                                            |  | $                                        | 0.38      |                                         | $ | 0.38      |  | $    | 1.07       |  | $ | 1.04      
|                                                    |  |                                          |           |                                         |   |           |  |      |            |  |   |           



See notes to consolidated financial
statements.



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##### Table of Contents

CITIZENS HOLDING COMPANY AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)



|                                                                      |  |                                          |           |                                         |   |            |  |      |           |  |   |           
|--------------------------------------------------------------------- |  | ---------------------------------------- | --------- | --------------------------------------- | - | ---------- |  | ---- | --------- |  | - | ----------
|                                                                      |  | For the Three Months Ended September 30, |           | For the Nine Months Ended September 30,
|                                                                      |  | 2004                                     |           | 2003                                    |   | 2004       |  | 2003
|Net income                                                            |  | $                                        | 1,938,369 |                                         | $ | 1,912,997  |  | $    | 5,413,343 |  | $ | 5,204,266 
|Other comprehensive income (loss), net of tax                         |  |                                          |           |                                         |   |            |  |      |           |  |   |           
|Unrealized holding gains (losses)                                     |  |                                          | 2,172,095 |                                         |   | -1,514,282 |  |      | -506,293  |  |   | -1,322,606
|Reclassification adjustment for (gains) losses included in net income |  |                                          | 959       |                                         |   | 271,018    |  |      | -7,020    |  |   | 471,167   
|                                                                      |  |                                          |           |                                         |   |            |  |      |           |  |   |           
|Total other comprehensive income (loss)                               |  |                                          | 2,171,136 |                                         |   | -1,785,300 |  |      | -499,273  |  |   | -1,793,773
|                                                                      |  |                                          |           |                                         |   |            |  |      |           |  |   |           
|Comprehensive income                                                  |  | $                                        | 4,109,505 |                                         | $ | 127,697    |  | $    | 4,914,070 |  | $ | 3,410,493 
|                                                                      |  |                                          |           |                                         |   |            |  |      |           |  |   |           



See
notes to consolidated financial statements.



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##### Table of Contents

CITIZENS HOLDING COMPANY AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)



|                                                               |  |                                         |             |      |   |             
|-------------------------------------------------------------- |  | --------------------------------------- | ----------- | ---- | - | ------------
|                                                               |  | For the Nine Months Ended September 30,
|                                                               |  | 2004                                    |             | 2003
|CASH FLOWS FROM OPERATING ACTIVITIES                           |  |                                         |             |      |   |             
|                                                               |  |                                        
|Net Cash Provided by Operating Activities                      |  | $                                       | 8,562,513   |      | $ | 8,676,283   
|                                                               |  |                                        
|CASH FLOWS FROM INVESTING ACTIVITIES                           |  |                                         |             |      |   |             
|Proceeds from maturities of securities available-for-sale      |  |                                         | 30,927,404  |      |   | 52,797,166  
|Proceeds from sale of investment securities available-for-sale |  |                                         | 21,852,802  |      |   | 35,061,984  
|Purchases of investment securities available-for-sale          |  |                                         | -57,700,736 |      |   | -101,141,113
|Purchases of bank premises and equipment                       |  |                                         | -729,686    |      |   | -1,285,328  
|Increase in interest bearing deposits with other banks         |  |                                         | -91,665     |      |   | -2,622,376  
|Decrease in Federal funds purchased                            |  |                                         | -1,500,000  |      |   | 0           
|Increase in Federal funds sold                                 |  |                                         | -4,500,000  |      |   | -7,100,000  
|Sale of real estate acquired by foreclosure                    |  |                                         | 1,129,611   |      |   | 0           
|Net increase in loans                                          |  |                                         | -13,636,028 |      |   | -37,452,946 
|                                                               |  |                                         |             |      |   |             
|Net Cash Used by Investing Activities                          |  |                                         | -24,248,298 |      |   | -61,742,613 
|                                                               |  |                                        
|CASH FLOWS FROM FINANCING ACTIVITIES                           |  |                                         |             |      |   |             
|Net increase in deposits                                       |  |                                         | 26,630,376  |      |   | 27,993,510  
|Increase (Decrease) in FHLB advances                           |  |                                         | -4,758,984  |      |   | 24,277,533  
|Proceeds from exercise of stock options                        |  |                                         | 45,993      |      |   | 0           
|Payment of dividends                                           |  |                                         | -2,246,840  |      |   | -2,089,333  
|                                                               |  |                                         |             |      |   |             
|Net Cash Provided by Financing Activities                      |  |                                         | 19,670,545  |      |   | 50,181,710  
|                                                               |  |                                         |             |      |   |             
|Net Increase (Decrease) in Cash and Due from Banks             |  |                                         | 3,984,760   |      |   | -2,884,620  
|                                                               |  |                                        
|Cash and Due From Banks, beginning of year                     |  |                                         | 15,101,810  |      |   | 19,769,712  
|                                                               |  |                                         |             |      |   |             
|Cash and Due from Banks, end of period                         |  | $                                       | 19,086,570  |      | $ | 16,885,092  
|                                                               |  |                                         |             |      |   |             



See
notes to consolidated financial statements.



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##### Table of Contents

CITIZENS HOLDING COMPANY AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)



For the three and nine months ended September 30, 2004



|1. | These interim consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States. However, these financial
statements do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. The interim consolidated financial statements are unaudited and reflect all adjustments and
reclassifications which, in the opinion of management, are necessary for a fair presentation of the results of operations and financial condition of the interim period. All adjustments and reclassifications are of a normal and recurring nature.
Results for the period ending September 30, 2004 are not necessarily indicative of the results that may be expected for any other interim periods or for the year as a whole.
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The interim consolidated financial statements of Citizens Holding Company
include the accounts of its 97.53% owned subsidiary, The Citizens Bank of Philadelphia (collectively referred to as the Corporation). All significant intercompany transactions have been eliminated in consolidation.



|2. | Summary of Significant Accounting Policies. See note 1 of the Notes to Consolidated Financial Statements of the Citizens Holding Company that were included in the Form 10-K Annual
Report for the year ended December 31, 2003, filed March 31, 2004.
|-- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|3. | In the ordinary course of business, the Corporation enters into commitments to extend credit to its customers. The unused portion of these commitments is not reflected in the
accompanying financial statements. As of September 30, 2004, the Corporation had entered into commitments with certain customers that had an unused balance of $23,940,717 compared to $19,669,825 unused at December 31, 2003. There were $4,490,978 of
letters of credit outstanding at September 30, 2004 and $1,199,800 at December 31, 2003. Because letters of credit and loan commitments often are not used in their entirety, if at all, before they expire, the balances of such letters and commitments
should not be used to project actual future liquidity requirements. However, the Corporation does incorporate expectations about the level of draws under the credit-related commitments into its asset and liability management program.
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|4. | Net income per share-Basic, has been computed based on the weighted average number of shares outstanding during each period. Net income per share-Diluted, has been computed based on
the weighted average number of shares outstanding during each period plus the dilutive effect of outstanding granted options using the
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

treasury stock method. Stock options have a dilutive effect when the current market price exceeds the
option exercise price and have an anti-dilutive effect when the exercise price exceeds the current market price. Net income per share was computed as follows:



|                                            |  |                                          |           |                                         |   |           |  |      |           |  |   |          
|------------------------------------------- |  | ---------------------------------------- | --------- | --------------------------------------- | - | --------- |  | ---- | --------- |  | - | ---------
|                                            |  | For the Three Months Ended September 30, |           | For the Nine Months Ended September 30,
|                                            |  | 2004                                     |           | 2003                                    |   | 2004      |  | 2003
|Basic weighted average shares outstanding   |  |                                          | 4,997,099 |                                         |   | 4,974,578 |  |      | 4,990,279 |  |   | 4,974,578
|Dilutive effect of granted options          |  |                                          | 58,744    |                                         |   | 28,776    |  |      | 66,860    |  |   | 38,036   
|                                            |  |                                          |           |                                         |   |           |  |      |           |  |   |          
|Diluted weighted average shares outstanding |  |                                          | 5,055,843 |                                         |   | 5,003,354 |  |      | 5,057,139 |  |   | 5,012,614
|                                            |  |                                          |           |                                        
|Net income                                  |  | $                                        | 1,938,369 |                                         | $ | 1,912,997 |  | $    | 5,413,343 |  | $ | 5,204,266
|Net income per share-basic                  |  | $                                        | 0.39      |                                         | $ | 0.38      |  | $    | 1.08      |  | $ | 1.05     
|Net income per share-diluted                |  | $                                        | 0.38      |                                         | $ | 0.38      |  | $    | 1.07      |  | $ | 1.04     



|5. | The Corporation is a party to lawsuits and other claims that arise in the ordinary course of business, all of which are being vigorously contested. In the regular course of
business, Management evaluates estimated losses or costs related to litigation, and provision is made for anticipated losses whenever Management believes that such losses are probable and can be reasonably estimated. At the present time, Management
believes, based on the advice of legal counsel, that the final resolution of pending legal proceedings will not have a material impact on the Corporations consolidated financial position or results of operations.
|-- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|6. | At September 30, 2004, the Corporation had two stock-based compensation plans, which are the 1999 Employees Long-Term Incentive Plan and the 1999 Directors Stock
Compensation Plan. The Corporation accounts for those plans under the recognition and measurement principles of Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees, and related
interpretations. No stock-based employee compensation cost is reflected in net income, as all options granted under those plans had an exercise price equal to the market value of the underlying common stock on the date of the grant. The fair value
of each option granted is estimated on the date of the grant using the Black-Sholes option-pricing model. The following table illustrates the effect on net income and earnings per share if the Corporation had applied the fair value recognition
provisions of Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for Stock-Based Compensation, for the three and nine months ended September 30, 2004 and 2003.
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

|                                                                                                                                      |  |                                          |           |                                         |   |           |  |      |           |  |   |          
|------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------------------- | --------- | --------------------------------------- | - | --------- |  | ---- | --------- |  | - | ---------
|                                                                                                                                      |  | For the Three Months Ended September 30, |           | For the Nine Months Ended September 30,
|                                                                                                                                      |  | 2004                                     |           | 2003                                    |   | 2004      |  | 2003
|Net income, as reported                                                                                                               |  | $                                        | 1,938,369 |                                         | $ | 1,912,996 |  | $    | 5,413,343 |  | $ | 5,204,266
|                                                                                                                                      |  |                                          |           |                                        
|Deduct: Stock based employee compensation expense determined under fair value based method for all awards, net of related tax
effects |  |                                          | 0         |                                         |   | 118,260   |  |      | 201,610   |  |   | 118,260  
|                                                                                                                                      |  |                                          |           |                                         |   |           |  |      |           |  |   |          
|Pro forma net income                                                                                                                  |  | $                                        | 1,938,369 |                                         | $ | 1,794,736 |  | $    | 5,211,733 |  | $ | 5,086,006
|                                                                                                                                      |  |                                          |           |                                         |   |           |  |      |           |  |   |          
|Basic earnings per share: As reported                                                                                                 |  | $                                        | 0.39      |                                         | $ | 0.38      |  | $    | 1.08      |  | $ | 1.05     
|Pro forma                                                                                                                             |  |                                          | 0.39      |                                         |   | 0.36      |  |      | 1.04      |  |   | 1.02     
|                                                                                                                                      |  |                                          |           |                                        
|Diluted earnings per share: As reported                                                                                               |  | $                                        | 0.38      |                                         | $ | 0.38      |  | $    | 1.07      |  | $ | 1.04     
|Pro forma                                                                                                                             |  |                                          | 0.38      |                                         |   | 0.36      |  |      | 1.03      |  |   | 1.01     



|7. | In January 2003, FIN No. 46, Consolidation of Variable Interest Entities, was issued. FIN 46 sets forth the criteria used in determining whether an investment in a
variable interest entity (VIE) should be consolidated. FIN 46 (as revised in December 2003) is effective for interest in VIEs created or obtained by publicly traded entities after January 31, 2003. For variable interests in
VIEs created before February 1, 2003, the provisions of FIN No. 46 must be applied in the first interim or annual period ending after March 15, 2004. The adoption of FIN No. 46 by the Corporation did not have a material impact on the financial
position or results of operations of the Corporation.
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



On March 9, 2004, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin No. 105, Application of Accounting Principles to Loan Commitments. This bulletin summarizes the views of the SEC staff regarding the
application of generally accepted accounting principles to loan commitments accounted for as derivative instruments. The adoption of this bulletin did not impact the Corporations consolidated financial statements.



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##### Table of Contents

CITIZENS HOLDING COMPANY AND SUBSIDIARY

ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS



Managements discussion and analysis is written to provide greater insight into the results of operations and the financial condition of Citizens Holding Company and
its 97.53% owned subsidiary, The Citizens Bank of Philadelphia (the Bank and collectively with Citizens Holding Company, the Corporation).



LIQUIDITY



The Corporation has an asset and liability management program that assists management in maintaining net interest margins during times of both rising and falling interest
rates and in maintaining sufficient liquidity. Liquidity is the ratio of net deposits and short-term liabilities divided by net cash, short-term investments and marketable assets. Liquidity of the Corporation was 60.51% at September 30, 2004, 56.99%
at December 31, 2003 and 62.28% at September 30, 2003. Management believes it maintains adequate liquidity for the Corporations current needs.



When the Corporation has more funds than it needs for its reserve requirements or short-term liquidity needs, the Corporation increases its security investments or sells
federal funds. It is managements policy to maintain an adequate portion of its portfolio of assets and liabilities on a short-term basis to insure rate flexibility and to meet loan funding and liquidity needs. Deposits are the chief source of
the Corporations liquidity. In addition, the Corporation has secured and unsecured federal funds lines with correspondent banks in the amount of $35,000,000. In addition, the Corporation has the ability to draw on its line of credit with the
Federal Home Loan Bank in excess of $154,250,296 at September 30, 2004. At September 30, 2004, the Corporation had unused and available $35,000,000 of its federal funds line of credit and $111,372,433 of its line of credit with the Federal Home Loan
Bank.



CAPITAL RESOURCES



The Corporations equity capital was $59,379,929 at September 30, 2004, as compared to
$56,502,076 at December 31, 2003. The main source of capital for the Corporation has been the retention of net income.



The Corporation does not anticipate any capital expenditures on expansion, new services, equipment or personnel in the near future other than what that may be necessary
to accommodate normal growth of the Corporation.



In 2003, certain employees
and directors exercised stock options for 5,050 shares. In 2004, officer and directors exercised options for an aggregate of 8,200 shares of stock in the first quarter, 7,950 shares in the second quarter and 4,500 shares in the third quarter.



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##### Table of Contents

These option exercises brought the number of shares outstanding to 5,000,278 at September 30, 2004. Cash dividends in the
amount of $2,246,840, or $0.45 per share, have been paid in 2004 as of the end of the third quarter.



Quantitative measures established by Federal Deposit Insurance Corporation regulations to ensure capital adequacy require the Corporation to maintain minimum amounts and ratios of Total and Tier 1 capital (primarily
common stock and retained earnings, less goodwill) to risk weighted assets, and of Tier 1 capital to average assets. Management believes that as of September 30, 2004, the Corporation meets all capital adequacy requirements to which it is subject.
The Bank was rated as well capitalized under FDIC regulations at September 30, 2004.



|                                         |  |        |            |       |                               |   |        |                                                                 |            |  |       |        |  |       |            |  |        |  
|---------------------------------------- |  | ------ | ---------- | ----- | ----------------------------- | - | ------ | --------------------------------------------------------------- | ---------- |  | ----- | ------ |  | ----- | ---------- |  | ------ | -
|                                         |  | Actual |            |       | For Capital Adequacy Purposes |   |        | To Be Well Capitalized UnderPrompt CorrectiveActions Provisions |           
|                                         |  | Amount |            | Ratio |                               |   | Amount |                                                                 | Ratio      |  |       | Amount |  | Ratio |           
|As of September 30, 2004                 |  |        |            |       |                               |   |        |                                                                 |            |  |       |        |  |       |            |  |        |  
|                                         |  |        |            |       |                               |  
|Total Capital (to Risk-Weighted Assets)  |  | $      | 58,735,080 |       | 15.13                         | % |        | $                                                               | 31,046,238 |  | >8.00 | %      |  | $     | 38,807,797 |  | >10.00 | %
|                                         |  |        |            |       |                               |  
|Tier 1 Capital (to Risk-Weighted Assets) |  |        | 53,872,451 |       | 13.88                         | % |        |                                                                 | 15,523,119 |  | >4.00 | %      |  |       | 23,284,678 |  | >6.00  | %
|                                         |  |        |            |       |                               |  
|Tier 1 Capital ( to Average Assets)      |  |        | 53,872,451 |       | 9.51                          | % |        |                                                                 | 22,656,036 |  | >4.00 | %      |  |       | 28,320,045 |  | >5.00  | %



RESULTS OF OPERATIONS



The following table sets forth for the periods
indicated, certain items in the consolidated statements of income of the Corporation and the related changes between those periods:



|                                                    |  |                                          |           |                                         |   |           |  |      |            |  |   |           
|--------------------------------------------------- |  | ---------------------------------------- | --------- | --------------------------------------- | - | --------- |  | ---- | ---------- |  | - | ----------
|                                                    |  | For the Three Months Ended September 30, |           | For the Nine Months Ended September 30,
|                                                    |  | 2004                                     |           | 2003                                    |   | 2004      |  | 2003
|Interest Income, including fees                     |  | $                                        | 7,501,940 |                                         | $ | 7,510,647 |  | $    | 22,101,215 |  | $ | 22,256,569
|Interest Expense                                    |  |                                          | 1,909,003 |                                         |   | 2,027,302 |  |      | 5,539,644  |  |   | 6,277,530 
|                                                    |  |                                          |           |                                         |   |           |  |      |            |  |   |           
|Net Interest Income                                 |  |                                          | 5,592,937 |                                         |   | 5,483,345 |  |      | 16,561,571 |  |   | 15,979,039
|Provision for Loan Losses                           |  |                                          | 121,691   |                                         |   | 717,400   |  |      | 1,021,691  |  |   | 1,467,400 
|                                                    |  |                                          |           |                                         |   |           |  |      |            |  |   |           
|Net Interest Income after Provision for Loan Losses |  |                                          | 5,471,246 |                                         |   | 4,765,945 |  |      | 15,539,880 |  |   | 14,511,639
|Other Income                                        |  |                                          | 1,365,223 |                                         |   | 1,674,399 |  |      | 4,156,766  |  |   | 4,132,538 
|Other Expense                                       |  |                                          | 4,190,082 |                                         |   | 3,821,859 |  |      | 12,311,739 |  |   | 11,207,172
|                                                    |  |                                          |           |                                         |   |           |  |      |            |  |   |           
|Income before income taxes                          |  |                                          | 2,646,387 |                                         |   | 2,618,485 |  |      | 7,384,907  |  |   | 7,437,005 
|Income Tax expense                                  |  |                                          | 708,018   |                                         |   | 705,488   |  |      | 1,971,564  |  |   | 2,232,739 
|                                                    |  |                                          |           |                                         |   |           |  |      |            |  |   |           
|Net Income                                          |  | $                                        | 1,938,369 |                                         | $ | 1,912,997 |  | $    | 5,413,343  |  | $ | 5,204,266 
|                                                    |  |                                          |           |                                         |   |           |  |      |            |  |   |           
|Net Income Per share - Basic                        |  | $                                        | 0.39      |                                         | $ | 0.38      |  | $    | 1.08       |  | $ | 1.05      
|                                                    |  |                                          |           |                                         |   |           |  |      |            |  |   |           
|Net Income Per Share-Diluted                        |  | $                                        | 0.38      |                                         | $ | 0.38      |  | $    | 1.07       |  | $ | 1.04      
|                                                    |  |                                          |           |                                         |   |           |  |      |            |  |   |           



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##### Table of Contents

Net Income Per Share-Basic is calculated using weighted average number of shares outstanding for the period. Net Income
Per Share-Diluted is calculated using the weighted average number of shares outstanding for the period, plus the net dilutive effect of granted stock options determined using the treasury stock method, as described in Note 4 to the financial
statements.



Annualized return on average equity (ROE) was 13.33% and 12.40%
for the three and nine months ended September 30, 2004, compared to 13.37% and 12.37% for the three and nine months ended September 30, 2003.



The book value per share increased to $11.88 at September 30, 2004 compared to $11.35 at December 31, 2003 and to $11.08 at September 30, 2003. The increase in book value
at September 30, 2004 as compared to December 31, 2003 and September 30, 2003 is due to earnings exceeding dividends paid during these periods, offset in part by the decline in the market value of the security portfolio due to the rise in interest
rates. Average assets for the nine months ended September 30, 2004, were $562,440,841 compared to $549,519,773 for the year ended December 31, 2003 and $547,435,590 at September 30, 2003. Average equity increased to $58,186,523 for the nine months
ended September 30, 2004, from $56,121,211 for the year ended December 31, 2003 and $56,100,776 at September 30, 2003. Normal growth in both assets and equity were the reason for the increase in average year to date assets and average year to date
equity.



NET INTEREST INCOME/NET INTEREST MARGIN



One component of the Corporations earnings is net interest income, which is the
difference between the interest and fees earned on loans and investments and the interest paid for deposits and borrowed funds. The net interest margin is net interest income expressed as a percentage of average earning assets.



Net interest income was $5,592,937 and $16,561,571 for the three and nine month periods ended
September 30, 2004, an increase of $109,592 and $582,532, respectively, over the same periods in 2003. Increases in loan volume accounted for a large part of the net interest income increase while the yield on the loan portfolio declined slightly as
did the rates paid on deposits.



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##### Table of Contents

The annualized net interest margin was 4.53% and 4.56% for the three and nine month periods ended September 30, 2004,
compared to an annualized net interest margin of 4.42% and 4.44% for the three and nine months ended September 30, 2003. The increase in net interest margin is the result of continuing loan demand and the continued decline in rates paid on deposits.
Earning assets averaged $504,058,412 for the nine months ended September 30, 2004. This represented an increase of $4,350,533, or .9%, over average earning assets of $499,707,879 for the nine months ended September 30, 2003. The increase in earning
assets is the result of the normal growth pattern of the Corporation and not due to any special investments or acquisitions.



The following table shows the interest and fees and corresponding yields for loans only.



|                  |  |                                          |             |   |                                         |   |             |      |  |   |             |   |  |   |             |  
|----------------- |  | ---------------------------------------- | ----------- | - | --------------------------------------- | - | ----------- | ---- |  | - | ----------- | - |  | - | ----------- | -
|                  |  | For the Three Months Ended September 30, |             |   | For the Nine Months Ended September 30, |  
|                  |  | 2004                                     |             |   | 2003                                    |   |             | 2004 |  |   | 2003        |  
|Interest and Fees |  | $                                        | 5,972,998   |   |                                         | $ | 5,941,778   |      |  | $ | 17,850,801  |   |  | $ | 17,690,267  |  
|Average Loans     |  |                                          | 362,276,421 |   |                                         |   | 342,553,750 |      |  |   | 358,124,868 |   |  |   | 333,319,170 |  
|Annualized Yield  |  |                                          | 6.59        | % |                                         |   | 6.94        | %    |  |   | 6.65        | % |  |   | 7.08        | %



The decrease in rates in both the
three and nine month periods ended September 30, 2004 as compared to the same periods in prior periods reflect the decrease in all loan rates for both new and refinanced loans in the periods.



CREDIT LOSS EXPERIENCE



As a natural corollary to the Corporations lending activities, some loan losses are to be expected. The risk of loss varies with the
type of loan being made and the creditworthiness of the borrower over the term of the loan. The degree of perceived risk is taken into account in establishing the structure of, and interest rates and security for, specific loans and for various
types of loans. The Corporation attempts to minimize its credit risk exposure by use of thorough loan application and approval procedures.



The Corporation maintains a program of systematic review of its existing loans. Loans are graded for their overall quality. Those loans which the Corporations
management determines require further monitoring and supervision are segregated and reviewed on a periodic basis. Significant problem loans are reviewed on a monthly basis by the Corporations Board of Directors.



The Corporation charges off that portion of any loan which management considers to represent
a loss. A loan is generally considered by management to represent a loss in



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##### Table of Contents

whole or in part when an exposure beyond the collateral value is apparent, servicing of the unsecured portion has been
discontinued or collection is not anticipated based on the borrowers financial condition and general economic conditions in the borrowers industry. The principal amount of any loan which is declared a loss is charged against the
Corporations allowance for loan losses.



The Corporations allowance
for loan losses is designed to provide for loan losses which can be reasonably anticipated. The allowance for loan losses is established through charges to operating expenses in the form of provisions for loan losses. Actual loan losses or
recoveries are charged or credited to the allowance for loan losses. The amount of the allowance is determined by management of the Corporation. Among the factors considered in determining the allowance for loan losses are the current financial
condition of the Corporations borrowers and the value of security, if any, for their loans. Estimates of future economic conditions and their impact on various industries and individual borrowers are also taken into consideration, as are the
Corporations historical loan loss experience and reports of banking regulatory authorities. Because these estimates, factors and evaluations are primarily judgmental, no assurance can be given as to whether or not the Corporation will sustain
loan losses in excess or below its allowance or that subsequent evaluation of the loan portfolio may not require material increases or decreases in such allowance.



The following table summarizes the Corporations allowance for loan losses for the dates indicated:



|                                                   |  |                                |             |   |                              |   |             |                             |  |                              |            |  |        |  
|-------------------------------------------------- |  | ------------------------------ | ----------- | - | ---------------------------- | - | ----------- | --------------------------- |  | ---------------------------- | ---------- |  | ------ | -
|                                                   |  | Quarter EndedSeptember 30,2004 |             |   | Year to DateDecember 31,2003 |   |             | Amount ofIncrease(Decrease) |  | Percent ofIncrease(Decrease) |           
|BALANCES:                                          |  |                                |             |   |                              |   |             |                             |  |                              |            |  |        |  
|Gross Loans                                        |  | $                              | 370,727,510 |   |                              | $ | 359,080,337 |                             |  | $                            | 11,647,173 |  | 3.24   | %
|Allowance for Loan Losses                          |  |                                | 5,794,980   |   |                              |   | 5,126,735   |                             |  |                              | 668,245    |  | 13.03  | %
|Nonaccrual Loans                                   |  |                                | 4,034,955   |   |                              |   | 1,502,971   |                             |  |                              | 2,531,984  |  | 168.47 | %
|Ratios:                                            |  |                                |             |   |                              |   |             |                             |  |                              |            |  |        |  
|Allowance for loan losses to gross loans           |  |                                | 1.56        | % |                              |   | 1.43        | %                           |  |                              |            |  |        |  
|Net loans charged off to allowance for loan losses |  |                                | 6.10        | % |                              |   | 41.62       | %                           |  |                              |            |  |        |  



The increase in nonaccrual loans from
December 31, 2003 to September 30, 2004 was the result of the deterioration in credit quality for a single borrower and is not an indication of any downward trend in overall credit quality. The balance of this credit at September 30, 2004 totaled
$3,612,219, and there is a related specific reserve of $1,163,666. Management believes that adequate allowances have been made to offset the loss, if any, associated with this particular credit.



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##### Table of Contents

The provision for loan losses for the three months ended September 30, 2004 was $121,691, a decrease of $595,709, or
83.0%, over the $717,400 for the same period in 2003. The provision for the nine months ended September 30, 2004, was $1,021,691, a decrease of $445,709 or 30.4% over the $1,467,400 for the nine months ended September 30, 2003. The decrease in the
provision was made to bring the allowance back to a level deemed sufficient by Management (based on the factors discussed above in this section) to cover anticipated loan losses after the net charge-offs for these periods and to cover the increases
in the loan portfolio. The Corporation used an in-depth analysis of the Corporations current loan portfolio, using a loan grading system and the assignment of specific reserves to certain loans, to determine what would represent a reasonable
and adequate allowance for loan loss.



For the three months ended September 30,
2004, net loan losses charged to the allowance for loan losses totaled $94,027, a decrease of $273,407 over the net loan losses charged to the allowance in the same period in 2003. For the nine months ended September 30, 2003, net loan losses
charged to the allowance for loan losses totaled $353,445, a decrease of $467,999 over the same period in 2003.



Management of the Corporation reviews with the Board of Directors the adequacy of the allowance for possible loan losses on a quarterly basis. The loan loss provision is
adjusted when specific items reflect a need for such an adjustment. Management believes that there were no material loan losses during the last three months that have not been charged off. Management also believes that the Corporations
allowance will be adequate to absorb probable losses inherent in the Corporations loan portfolio based on an analysis of the portfolio on an individual loan basis with the loans of lesser quality receiving a higher allowance for possible loss.
However, in light of overall economic conditions in the Corporations geographic area and the nation as a whole, it is possible that additional provisions for loan loss may be required.



OTHER OPERATING INCOME



Other operating income includes service charges on deposit accounts, wire transfer fees, safe deposit box rental fees and other revenue not
derived from interest on earning assets such as income received from the sale of investment securities.



Other operating income for the three months ended September 30, 2004 decreased $309,176, or 18.5%, to $1,365,223 over the same period in 2003 and for the nine months ended September 30, 2004, increased $24,228, or
..6%, to $4,156,766 over the same period in 2003. The decrease in 2004 for the three month period was due mainly to a reduction in the income received from the sale of investment securities and the recognition of the proceeds of a bank owned life
insurance policy on a director in the third quarter of 2003.



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##### Table of Contents

OTHER EXPENSE



Other expense includes salaries and employee benefits, occupancy and equipment, and other operating expenses such as legal and accounting, office supplies, postage and
other expenses necessary for the operation of a business. Other expense for the three and nine months ended September 30, 2004 were $4,190,082 and $12,311,739 compared to $3,821,859 and $11,207,172 for the three and nine months ended September 30,
2003, an increase of $368,223, or 9.6%, and $1,104,567, or 9.9%, respectively. Salaries and benefits increased to $2,275,272 and $6,628,989 for the three and nine months of 2004 from $2,016,484 and $5,907,636 for the same period in 2003, an increase
of $258,788, or 12.8%, and $721,353, or 12.2%, respectively. Normal growth in the Corporation, along with annual increases in salaries and increased cost of employee benefits, were the main reasons for the increase in salaries and benefits. These
increases in salaries and employee benefits are primarily responsible for the overall increase in other expense. The remainder of this increase is due to increased expenses related to normal growth and inflation. The Corporations efficiency
ratio (the ratio of operating expenses to net interest income and other operating income) for the three and nine month periods ended September 30, 2004 was 58.07% and 57.44%, compared to 51.88% and 54.26% for the same periods in 2003.



The Corporation anticipates the expenditures it will make in the fourth quarter in order to
comply with Section 404 of the Sarbanes-Oxley Act of 2002 will have a material effect on the Companys earnings, but the Corporation is unable to quantify the amount of these anticipated expenditures.



BALANCE SHEET ANALYSIS



|                           |  |                   |             |                  |   |                             |  |                              |            |  |       |  
|-------------------------- |  | ----------------- | ----------- | ---------------- | - | --------------------------- |  | ---------------------------- | ---------- |  | ----- | -
|                           |  | September 30,2004 |             | December 31,2003 |   | Amount ofIncrease(Decrease) |  | Percent ofIncrease(Decrease) |           
|Cash and Cash Equivalents  |  | $                 | 19,276,271  |                  | $ | 15,199,846                  |  | $                            | 4,076,425  |  | 26.82 | %
|Investment Securities      |  |                   | 146,254,608 |                  |   | 143,181,383                 |  |                              | 3,073,225  |  | 2.15  | %
|Loans, net                 |  |                   | 363,185,897 |                  |   | 351,937,005                 |  |                              | 11,248,892 |  | 3.20  | %
|Total Assets               |  |                   | 574,558,043 |                  |   | 550,761,143                 |  |                              | 23,796,900 |  | 4.32  | %
|                           |  |                   |             |                 
|Total Deposits             |  |                   | 465,327,674 |                  |   | 438,697,298                 |  |                              | 26,630,376 |  | 6.07  | %
|                           |  |                   |             |                 
|Total Stockholders Equity |  |                   | 59,379,929  |                  |   | 56,502,076                  |  |                              | 2,877,853  |  | 5.09  | %



CASH
AND CASH EQUIVALENTS



Cash and cash equivalents are made up of cash, balances
at correspondent banks and items in process of collection. The balance as of the end of the third quarter of 2004 increased $4,076,425 compared to $15,199,846 as of December 31, 2003 due to normal fluctuations in cash letters sent for collection on
the last day of the quarter.



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##### Table of Contents

INVESTMENT SECURITIES



The Corporations investment securities portfolio is made up of U. S. Treasury Notes, U. S. Agency debentures, mortgage-backed securities, obligations of states,
counties and municipal governments and Federal Home Loan Bank stock. Investments increased $3,073,225, or 2.2%, from the balance at December 31, 2003 due to the investment of excess funds that were not used to fund new loans.



LOANS



Loan demand in the Corporations service area began to strengthen as in the first nine months of 2004. Net loans increased by
$11,248,892, or 3.2%, during the nine month period ended September 30, 2004 as compared to $351,937,005 at December 31, 2003. Commercial, financial and agricultural loans increased $14,317,978, or 7.7%, consumer loans increased $1,919,155, or 3.2%,
real estate mortgage loans increased $500,699, or .5% while real estate construction loans decreased $5,090,659, or 33.0%.No special loan programs were initiated during this period.



DEPOSITS



The following shows the balance and percentage change in the various deposits:



|                                |  |                   |             |                  |   |                             |  |                              |            |  |       |  
|------------------------------- |  | ----------------- | ----------- | ---------------- | - | --------------------------- |  | ---------------------------- | ---------- |  | ----- | -
|                                |  | September 30,2004 |             | December 31,2003 |   | Amount ofIncrease(Decrease) |  | Percent ofIncrease(Decrease) |           
|Noninteresting-bearing Deposits |  | $                 | 83,018,814  |                  | $ | 63,070,459                  |  | $                            | 19,948,355 |  | 31.63 | %
|Interest-bearing Deposits       |  |                   | 129,087,426 |                  |   | 117,431,141                 |  |                              | 11,656,285 |  | 9.93  | %
|Savings                         |  |                   | 39,037,209  |                  |   | 36,436,696                  |  |                              | 2,600,513  |  | 7.14  | %
|Certificates of Deposit         |  |                   | 214,184,225 |                  |   | 221,759,002                 |  |                              | -7,574,777 |  | -3.42 | %
|                                |  |                   |             |                  |   |                             |  |                              |            |  |       |  
|Total Deposits                  |  | $                 | 465,327,674 |                  | $ | 438,697,298                 |  | $                            | 26,630,376 |  | 6.07  | %
|                                |  |                   |             |                  |   |                             |  |                              |            |  |       |  



The increase in total deposits is the
result of normal deposit growth. The Corporation believes that deposit growth was influenced by the decline in the stock market and the need for more conservative investments by our depositors. The Corporation does not have any brokered deposits.
There were no special deposit programs or incentives in place during this period. Certificates of deposit declined due to competitive pressure from financial institutions in our market area.



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##### Table of Contents

OFF-BALANCE SHEET ARRANGEMENTS



The Corporation has no off-balance sheet arrangements except as set forth in Note 3 in the notes to the consolidated financial statements included in this report,
which provides a discussion of the nature and extent of the Corporations off-balance sheet arrangements.



FORWARD LOOKING STATEMENTS



In addition to
historical information, this report contains statements which constitute forward-looking statements and information within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended, which are based on managements beliefs, plans, expectations, assumptions and on information currently available to management. The words may, should, expect, anticipate,
intend, plan, continue, believe, seek, estimate, and similar expressions used in this report that do not relate to historical facts are intended to identify forward-looking
statements. These statements appear in a number of places in this report, including, but not limited to, statements found in Item 1 Notes to Consolidated Financial Statements and in Item 2 Managements Discussion and Analysis
of Financial Condition and Results of Operations. The Corporation notes that a variety of factors could cause the actual results or experience to differ materially from the anticipated results or other expectations described or implied by such
forward-looking statements. The risks and uncertainties that may affect the operation, performance, development and results of the Corporations business include, but are not limited to, the following: (a) the risk of adverse changes in
business conditions in the banking industry generally and in the specific markets in which the Corporation operates; (b) changes in the legislative and regulatory environment that negatively impact the Corporation through increased operating
expenses; (c) increased competition from other financial institutions; (d) the impact of technological advances; (e) expectations about the movement of interest rates, including actions that may be taken by the Federal Reserve Board in response to
changing economic conditions; (f) changes in asset quality and loan demand; (g) expectations about overall economic strength and the performance of the economics in the Corporations market area and (h) other risks detailed from time to time in
the Corporations filings with the Securities and Exchange Commission. The Corporation does not undertake any obligation to update or revise any forward-looking statements subsequent to the date on which they are made.



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##### Table of Contents

CITIZENS HOLDING COMPANY AND SUBSIDIARY

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES

ABOUT MARKET RISK



Overview



The definition of market risk is the possibility of loss that could result from adverse changes in market prices and rates. The Corporation has taken steps to assess the amount of risk that is associated with its
asset and liability structure. The Corporation measures the potential risk on a regular basis and makes changes to its strategies to manage these risks. The Corporation does not participate in some of the financial instruments that are inherently
subject to substantial market risk.



Market/Interest Rate Risk Management



The primary purpose in managing interest rate risk is to effectively invest
capital and preserve the value created by the core banking business. The Corporation utilizes an investment portfolio to manage the interest rate risk naturally created through its business activities. The quarterly interest rate risk report is used
to evaluate exposure to interest rate risk, project earnings and manage the composition of the balance sheet and its growth.



Static gap analysis is also used in measuring interest rate risk. An analysis of the Corporations repricing opportunities indicates a negative gap position over the
next three- and twelvemonth periods. This indicates that the Corporation would benefit somewhat from a decrease in market interest rates. Although the Federal Reserve Bank raised key interest rates during the quarter ended September 30, 2004,
this rate increase has had little affect on the Corporations net interest margin. Market rates on NOW accounts, money market deposit accounts and savings deposits have not responded immediately to the Feds interest rate increase and the
Corporation believes that when local market pressure causes these rates to increase, they will not increase the full amount of the Fed rate increase. Certificates of deposit will not reprice until their respective maturities and therefore any
increase in rates paid will occur over the remaining maturity schedule of the certificate of deposit. If the increase in interest rates is carried out over a period of time, the Corporation believes that the effect on its earnings will be minimized.
The Corporation believes that a substantial increase in rates over a short period of time would have a negative effect on the net interest income of the Corporation due to its liability sensitive position. The Corporation will continue to monitor
the upward movement in interest rates and will adjust our rates accordingly to compete with our markets interest rate structure.



Although the Fed has begun to increase key interest rates, the Corporations market risk has not changed materially since the end of the last fiscal year end of
December 31, 2003. Any more Fed interest rate increases in the near future could have the effect of changing the Corporations market risk.



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CITIZENS HOLDING COMPANY AND SUBSIDIARY

ITEM 4. CONTROLS AND PROCEDURES



The Corporation carried out an evaluation, under the supervision and with the participation
of our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Securities Exchange Act of
1934, as amended) as of the end of the fiscal quarter covered by this report. Based on this evaluation, the Corporations principal executive officer and principal financial officer concluded that our disclosure controls and procedures are
effective in timely alerting them to material information required to be included in our periodic SEC reports. There have been no changes in the Corporations internal controls over financial reporting (as defined in Rule 13(a)-15(f) and Rule
15(d)-15(f) under the Securities Exchange Act of 1934, as amended) that have materially affected, or are reasonably likely to materially affect, the Corporations internal control over financial reporting.



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PART II. - OTHER INFORMATION



ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS



Capital Standards



The FRB, FDIC and other
federal banking agencies have established risk-based capital adequacy guidelines intended to provide a measure of capital adequacy that reflects the degree of risk associated with a banks operations.



A banking organizations risk-based capital ratios are obtained by dividing its
qualifying capital by its total risk-adjusted assets and off-balance sheet items. Since December 31, 1992, the federal banking agencies have required a minimum ratio of qualifying total capital to risk-adjusted assets and off-balance sheet items of
8%, and a minimum ratio of Tier 1 capital to risk-adjusted assets and off-balance sheet items of 4%.



In addition to the risk-based guidelines, federal banking regulators require banking organizations to maintain a minimum amount of Tier 1 capital to total assets, referred to as the leverage ratio. For a banking
organization rated in the highest of the five categories used by regulators to rate banking organizations, the minimum leverage ratio of Tier 1 capital to total assets is 3%.



Stock Repurchase Plan



The Corporation does not have a plan in effect to repurchase its shares of common stock. In the third quarter of 2004, there were no stock repurchases of Corporation
stock. There have been no sales of unregistered securities during 2004.



Restrictions on Dividends and Other Distributions



The power of the
board of directors of an insured depository institution to declare a cash dividend or other distribution with respect to capital is subject to statutory and regulatory restrictions which limit the amount available for such distribution depending
upon the earnings, financial condition and cash needs of the institution, as well as general business conditions.



The Corporations ability to pay dividends depends in large part on the ability of the Bank to pay dividends to the Corporation. The approval of the Mississippi
Department of Banking and Consumer Finance is required prior to the Bank paying dividends; dividends are limited to earned surplus in excess of three times the Banks capital stock. At September 30, 2004 the maximum amount available for
transfer from the Bank to the Corporation in the form of cash dividends was $50,942,000.



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FRB regulations limit the amount the Bank may loan to the Corporation unless those loans are collateralized by specific
obligations. At September 30, 2004, the maximum amount available for transfer from the Bank in the form of loans was $57,455,804. The maximum amount available for transfer from the Bank in the form of both cash dividends and loans was $108,397,804
(which represents 19% of the Banks consolidated net assets).



|        |  |          |  |                                                                                    |  |  
|------- |  | -------- |  | ---------------------------------------------------------------------------------- |  | -
|ITEM 6. |  | EXHIBITS |  |                                                                                   
|        |  |          | 
|        |  | 3(i)     |  | Amended Articles of Incorporation of the Corporation                               |  | *
|        |  |          | 
|        |  | 3(ii)    |  | Amended and Restated Bylaws of the Corporation                                     |  | *
|        |  |          | 
|        |  | 31(a)    |  | Certification of the Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a). |  |  
|        |  |          | 
|        |  | 31(b)    |  | Certification of the Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a). |  |  
|        |  |          | 
|        |  | 32(a)    |  | Certification of the Chief Executive Officer pursuant to 18 U.S.C. § 1350.         |  |  
|        |  |          | 
|        |  | 32(b)    |  | Certification of the Chief Financial Officer pursuant to 18 U.S.C. § 1350.         |  |  

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|* | Filed as an exhibit to the Form 10 Registration Statement of the Corporation (File No. 000-25221) filed on December 30, 1998 and incorporated herein by reference.
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------



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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.



|                         |  |                         |  |     |  |                    
|------------------------ |  | ----------------------- |  | --- |  | -------------------
|CITIZENS HOLDING COMPANY
|                         |  |                         | 
|BY:                      |  | /s/ Greg L. McKee       |  | BY: |  | /s/ Robert T. Smith
|                         |  | Greg L. McKee           |  |     |  | Robert T. Smith    
|                         |  | President and Chief     |  |     |  | Treasurer and Chief
|                         |  | Executive Officer       |  |     |  | Financial Officer  
|                         | 
|DATE: November 12, 2004  |  | DATE: November 12, 2004



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EXHIBIT INDEX



EXHIBITS



|      |  |                                                                                   
|----- |  | ----------------------------------------------------------------------------------
|      | 
|31(a) |  | Certification of the Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a).
|      | 
|31(b) |  | Certification of the Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a).
|      | 
|32(a) |  | Certification of the Chief Executive Officer pursuant to 18 U.S.C. § 1350.        
|      | 
|32(b) |  | Certification of the Chief Financial Officer pursuant to 18 U.S.C. § 1350.