<PAGE>

                                   EXHIBIT 13

                            CITIZENS HOLDING COMPANY

                               2002 ANNUAL REPORT



                                   INTEGRITY

<PAGE>


Dear Stockholder:

Let me begin by thanking you for the opportunity to serve as the Chief Executive
Officer of this great company.

I recently stated that, "To have a great bank, you must have great stockholders,
great customers and great employees." We certainly enjoy all three of these
within our company.

Your management team is excited about the opportunities available to us in the
future. We are operational in our new branch in Sebastopol and are expecting
good returns on our investment in that community. We are extremely pleased with
the results thus far from our new Meridian Branch. The Lauderdale County market
is very active, and we intend to pursue our share of this activity. After ten
months of operation in the Winston County market, we are beginning to establish
a strong presence in this market. This acquisition continues our growth strategy
into contiguous markets which have historically proven successful.

Across the nation, many companies are suffering from deteriorating confidence in
their abilities and integrity. Sadly much of this deterioration has been caused
by their own actions. I take great comfort in the confidence I have in the
integrity of our company and the abilities of our employees.

I feel very honored to have been chosen to lead our company into the future. I
am very much aware of my responsibility to serve our communities while
maximizing the value of your investment. I assure you this responsibility will
never be taken lightly.

Thank you for your support.


Greg L. McKee
President and Chief Executive Officer


<PAGE>


Dear Stockholder:

My journey as your Chief Executive Officer ended December 31, 2002 as I passed
the title of Chief Executive Officer to Greg McKee. I am confident that he will
continue the growth of your company and take us to new highs in the future. Even
though I have retired from the day-to-day operations, I will remain on the Board
as Chairman and will be available for consultation when needed.

The past year presented us with the continued decline of the stock market, a
drop in interest rates to a level not seen for many years and the lack of
integrity in a few public companies. These factors along with the fear of
terrorism and the possibility of war have caused some uncertainty in our
economy.

I am most troubled by the apparent lack of integrity in some publicly traded
companies. Although when you look at The Wall Street Journal and see the
numerous pages of publicly traded companies, you realize that the percentage of
companies that have allegedly misstated their financials is very small. In the
past, some stocks were overpriced without real fundamentals to provide a basis
for being as highly priced as they were. The recent adjustment in stock prices
was going to happen at some point and hopefully that is now behind us.

I am pleased that with all of the negative factors affecting our economy, we
were able to increase our 2002 earnings 10.3% over 2001, increasing basic per
share earnings from $1.15 in 2001 to $1.27 in 2002. Our assets grew 21.4%,
deposits grew 20.4% and loans increased 16.6%. In 2002 we continued a long
tradition of improving performance every year.

During the past year, we acquired Citizens Bank & Trust Company in Louisville
and expanded our Meridian presence with the completion of our new branch
building. This rapid growth had some impact on our earnings this year but we
expect these investments to have a positive impact on earnings in the future.
Loan losses in 2002 were higher than last year, a reflection of the national
economy. There is continuing growth at the Pearl River Resort and the Nissan
Plant in Madison County will begin operation in 2003. We have increased our
presence in this area and I believe this will present a great opportunity for
the growth of our Bank.

Thank you for allowing me to serve in this great organization.


Steve Webb
Chairman of the Board


<PAGE>


Management's Discussion and Analysis of Financial Condition and Results of
--------------------------------------------------------------------------
Operations as of December 31, 2002, 2001 and 2000
-------------------------------------------------

         BACKGROUND

         Citizens Holding Company (the "Company") is a one-bank holding company
that holds 97.52% of the outstanding shares of The Citizens Bank of
Philadelphia, Mississippi (the "Bank"). The Company was incorporated under
Mississippi law on February 16, 1982.

         The Bank was opened on February 8, 1908 as The First National Bank of
Philadelphia. In 1917, the Bank surrendered its national charter and obtained a
state charter at which time the name of the Bank was changed to The Citizens
Bank of Philadelphia, Mississippi. At December 31, 2002, the Bank was the
largest bank headquartered in Neshoba County with total assets of $517,895,699
and total deposits of $433,674,581. The principal executive offices of both the
Company and the Bank are located at 521 Main Street, Philadelphia, Mississippi
39350 and its telephone number is (601) 656-4692. All references hereinafter to
the activities or operations of the Company reflect the Company's acting or
operating through the Bank.

         OVERVIEW

         In 2002, the Company had significant growth in assets, loans and
deposits in large part due to the acquisition of CB&T Capital Corporation and
it's subsidiary, Citizens Bank and Trust Company ("CB&T") in Louisville,
Mississippi for a net purchase price of $4,300,300. Assets increased $91,237,244
or 21.4%, net loans increased $43,049,436 or 16.5% and deposits increased
$73,459,168 or 20.4% over 2001 with $71.7 million of the increase in assets,
including $15.0 million in net loans and $57.9 million of the increase in
deposits attributable to the Louisville purchase.

         The Company also showed good growth in assets and loans for 2001. Total
assets at the end of 2001 were $427,212,874, an increase of 11.6% over 2000; net
loans were $260,903,091, an increase of 4.9% over 2000; and deposits increased
to $359,309,007, an increase of 24.9% over 2000. This increase was aided by the
acquisition in July 2001 of the two Union Planters branches in Forest and
Decatur for a net purchase price of $2,453,390; which added $30,506,745 in
assets, including $11,703,517 in loans and $30,284,185 in deposits.

         Net income after taxes of the Company for 2002 increased by 10.3% from
2001 to $6,297,500. Net income was affected in 2002 by a decrease in interest
paid on deposits and other borrowed money. Net income for 2001 and 2000 was up
3.2% and down 1.6%, respectively, both years' changes in net income being
influenced greatly by the fluctuating interest rate environment and asset and
loan growth. Net income for 2002 produced, on a fully diluted basis, earnings
per share of $1.26 compared to $1.15 for 2001 and $1.11 for 2000.

         The Company's Return on Average Assets (ROA) was 1.28% in 2002,
compared to 1.41% in 2001 and 1.48% in 2000, and our Return on Average Equity
(ROE) was 12.28% in 2002, 11.98% in 2001 and 13.60% in 2000. Although net income
increased in each year, ROA decreased because net income increased at a lower
rate than average assets and average equity. In 2000, ROE and ROA also decreased
due to a larger growth in assets and equity at the same time when earnings were
relatively flat. Although ROE increased somewhat in 2002, ROE has generally
declined over the last five years due to the retention of retained earnings that
caused

<PAGE>

our capital percentages to rise. During this period, leverage capital ratios
increased from 10.61% in 1998 to 10.51% in 2001 but declined to 8.83% in 2002.
The decline in leverage capital in 2002 relates to the significant increase in
assets related to the acquisition of CB&T and an increase in the Company's
dividend payout ratio from approximately 33% to 41%.

         SELECTED DATA

         The following selected data has been taken from the Company's
consolidated financial statements and should be read in conjunction with the
consolidated financial statements and related notes included elsewhere. The
major components of the Company's operating results for the past five years are
summarized in Table 1 - Five Year Financial Summary of Consolidated Statements
and Related Statistics. All dollar references in the following tables are in
thousands except for per share data. All per share data has been adjusted to
give effect to the three-for-two stock split of January 2, 2002.

TABLE 1 - FIVE YEAR SUMMARY OF CONSOLIDATED STATEMENTS AND RELATED STATISTICS
(amounts in thousands, except percent and per share data)
<TABLE>
<CAPTION>

                                         2002          2001         2000          1999          1998
                                     -----------------------------------------------------------------
<S>                                  <C>           <C>           <C>           <C>           <C>
Summary of Earnings
-------------------

Total Interest Income                $  30,197     $  29,119     $  28,638     $  25,476     $  23,956
Total Interest Expense                   9,746        13,399        14,064        10,974        10,860
Provision for loan losses                1,758         1,123           918           849           846
Non-interest income                      4,435         3,980         3,285         3,122         2,897
Non-interest expense                    13,865        10,308         8,772         8,361         7,948
Income tax expense                       2,965         2,558         2,635         2,793         2,487
Net Income                               6,298         5,711         5,534         5,621         4,712

Per Share Data
--------------

Earnings-basic                       $    1.27     $    1.15     $    1.12     $    1.13     $    0.95
Earnings-diluted                          1.26          1.15          1.11          1.13          0.95
Cash dividends                           0.520         0.383         0.283         0.213         0.160
Book value at year end                   10.81          9.51          8.74          7.57          7.15

Selected Year End Actual Balances
---------------------------------

Loans, net of unearned income        $ 308,175     $ 264,278     $ 252,022     $ 234,349     $ 211,349
Allowance for possible loan losses      (4,222)       (3,375)       (3,325)       (3,100)       (2,900)
Investment securities                  162,276       122,567       103,533       102,451        91,539
Total assets                           518,450       427,213       382,800       362,790       334,232
Deposits                               432,768       359,309       289,908       284,462       282,242
Long term borrowings                    24,606        14,629        10,000        10,000        10,000

</TABLE>


<PAGE>
<TABLE>
<CAPTION>

<S>                                     <C>           <C>           <C>           <C>           <C>
Shareholders' equity                    53,783        47,182        43,377        37,546        35,455

Selected Year End Average Balances
----------------------------------

Loans, net of unearned income        $ 289,407     $ 255,185     $ 244,307     $ 221,165     $ 202,228
Allowance for possible loan losses      (3,905)       (3,335)       (3,198)       (2,974)       (2,701)
Investment securities                  153,726       106,632       102,325        97,219        79,401
Total assets                           491,833       403,881       374,439       347,613       314,896
Deposits                               414,135       327,536       290,704       288,176       268,514
Long term borrowings                    19,301        14,815        10,000        10,000         7,630
Shareholders' equity                    51,304        47,664        40,701        37,603        33,513

Selected Ratios
---------------

Return on average assets                  1.28%         1.41%         1.48%         1.62%         1.50%
Return on average equity                 12.28%        11.98%        13.60%        14.95%        14.08%
Dividend payout ratio                    40.98%        33.31%        25.41%        18.84%        16.85%
Equity to year end assets                10.37%        11.04%        11.33%        10.35%        10.61%
Total risk-based capital to
    risk-adjusted assets                 15.57%        18.40%        18.88%        18.52%        18.13%
Leverage capital ratio                    8.83%        10.51%        11.61%        11.06%        10.61%
Efficiency ratio                         54.51%        51.32%        47.20%        45.48%        48.01%

</TABLE>

         NET INTEREST INCOME

         Net interest income is the most significant component of the Company's
earnings. Net interest income is the difference between interest and fees
realized on earning assets, primarily loans and securities, and interest paid on
deposits and other borrowed funds. The net interest margin is this difference
expressed as a percentage of average earning assets. Net interest income is
determined by several factors, including the volume of earning assets and
liabilities, the mix of earning assets and liabilities and interest rates.

         Net interest income on a tax equivalent basis was $21,014,000,
$16,047,000 and $14,403,000 and the net interest margin percentage was 4.67%,
4.32% and 4.16% for the years 2002, 2001, and 2000, respectively. In 2002, the
yield on earnings assets decreased to 6.83% from 7.91% in 2001 while the rate on
interest-bearing liabilities decreased to 2.59% from 4.35% in 2001. Earning
assets volume increased 21.0% while interest-bearing liabilities volume
increased 21.8% in 2002. The increases in volume of interest-bearing assets
combined with a smaller interest rate reduction on loans than deposits combined
to cause the rise in net interest income in 2002.

         For 2001, the yield on earning assets decreased to 7.91% from 8.22% in
2000 while the earning asset volume increased 7.4%. The rate on interest bearing
liabilities decreased to 4.35% in 2001 from 4.85% in 2000 and the interest
bearing volume increased 6.2% in 2001.

<PAGE>

         In 2000, the yield on earning assets increased to 8.22% from 7.94% in
1999 and the rate on interest-bearing liabilities increased to 4.85% from 4.11%
in 1999. Total volume of earning assets increased 8.2% while interest-bearing
liabilities increased 8.8% in 2000.

         During this three-year period, loan demand has remained strong and has
allowed the Company to continue to invest its available funds in loans that
provide the Company with yields that are greater than the yields on investment
securities. The volume increases in both interest bearing assets and liabilities
was aided by the acquisitions of CB&T in May 2002 and the Union Planters branch
acquisitions in July 2001.

<PAGE>
<TABLE>
<CAPTION>

               TABLE 2 - AVERAGE BALANCE SHEETS AND INTEREST RATES

                                           Average Balance            Income/Expense          Average Yield/Rate
                                      2002     2001      2000      2002    2001    2000      2002    2001    2000
                                   ===============================================================================
<S>                                <C>       <C>       <C>       <C>     <C>      <C>        <C>     <C>      <C>
Loans:
  Commercial Loans                 $265,178  $232,424  $221,671  $20,130 $20,275  $19,568    7.59%   8.72%    8.83%
  Installment Loans (Net)            22,747    21,521    21,572    2,506   2,503    2,319   11.02%  11.63%   10.75%
                                   -------------------------------------------------------------------------------
    Total Loans                     287,925   253,945   243,243   22,636  22,778   21,887    7.86%   8.97%    9.00%

Investment Securities
  Taxable                           115,510    78,423    79,533    5,772   4,671    5,067    5.00%   5.96%    6.37%
  Tax-exempt                         34,166    23,952    22,370    2,143   1,498    1,438    6.27%   6.25%    6.43%
                                   -------------------------------------------------------------------------------
    Total Investment Securities     149,676   102,375   101,903    7,915   6,169    6,505    5.29%   6.03%    6.38%

Federal Funds Sold and Other         12,428    15,681     1,181      198     487       75    1.59%   3.11%    6.35%
                                   -------------------------------------------------------------------------------

  Total Interest Earning Assets     450,029   372,001   346,327   30,749  29,434   28,467    6.83%   7.91%    8.22%
                                   -------------------------------------------------------------------------------

Non-Earning Assets                   41,804    31,880    28,112
                                   ----------------------------

    Total Assets                   $491,833  $403,881  $374,439
                                   ============================

Deposits:
  Interest-bearing Demand Dep      $117,989  $ 82,127  $ 75,810  $ 1,499 $ 1,930  $ 2,333    1.27%   2.35%    3.08%
  Savings                            27,653    19,828    19,271      483     521      672    1.75%   2.63%    3.49%
  Time                              209,610   183,883   158,185    6,702   9,727    8,747    3.20%   5.29%    5.53%
                                   -------------------------------------------------------------------------------
    Total Deposits                  355,252   285,838   253,266    8,684  12,178   11,752    2.44%   4.26%    4.64%

Borrowed Funds
  Short-term Borrowings                 659     9,721    26,696       12     544    1,748    1.82%   5.60%    6.55%
  Long-term Borrowings               19,301    12,407    10,000    1,039     665      564    5.38%   5.36%    5.64%
                                   -------------------------------------------------------------------------------
Total Borrowed Funds                 19,960    22,128    36,696    1,051   1,209    2,312    5.27%   5.46%    6.30%
                                   -------------------------------------------------------------------------------
   Total Interest-Bearing
        Liabilities                 375,212   307,966   289,962    9,735  13,387   14,064    2.59%   4.35%    4.85%

Non-Interest Bearing Liabilities
   Demand Deposits                   58,883    41,368    37,439
   Other Liabilities                  6,434     6,883     6,334
   Shareholders' Equity              51,304    47,664    40,704
                                   ----------------------------
     Total Liabilities and
       Shareholders' Equity        $491,833  $403,881  $374,439
                                   ============================

Interest Rate Spread                                                                         4.24%   3.56%    3.37%
                                                                                           =======================

Net Interest Income                                              $21,014 $16,047  $14,403
                                                                 ========================

Net Interest Margin                                                                          4.67%   4.32%    4.16%
                                                                                           =======================
</TABLE>

<PAGE>

Table 3 - Net Average Interest Earning Assets illustrates net interest earning
assets and liabilities for 2002, 2001, and 2000.
<TABLE>
<CAPTION>

                  TABLE 3 - NET AVERAGE INTEREST EARNING ASSETS

                                                              2002        2001        2000
                                                           ----------------------------------
<S>                                                        <C>          <C>          <C>
              Average interest earning assets              $450,029     $372,001     $346,327
              Average interest bearing liabilities          375,212      307,966      289,962
                                                           ----------------------------------

              Net average interest earning assets          $ 74,817     $ 64,035     $ 56,365
                                                           ==================================
</TABLE>


Table 4 - Volume/Rate Analysis depicts the dollar effect of volume and rate
changes from 2000 through 2002. Variances which were not specifically
attributable to volume or rate were allocated proportionately between rate and
volume using the absolute values of each for a basis for the allocation.
Non-accruing loans were included in the average loan balances used in
determining the yields. Interest income on tax-exempt securities and loans has
been adjusted to a tax equivalent basis using a marginal federal income tax rate
of 34%.
<TABLE>
<CAPTION>

                         TABLE 4 - VOLUME/RATE ANALYSIS

                                     2002 change from 2001             2001 change from 2000
                                 Volume    Rate        Total       Volume        Rate      Total
                               ------------------------------------------------------------------
<S>                               <C>       <C>           <C>         <C>          <C>        <C>
INTEREST INCOME

Loans                             2,671    -2,813        -142         960         -69         891
Taxable Securities                1,854      -753       1,101         -66        -330        -396
Non-Taxable Securities              640         5         645          99         -39          60
Federal Funds Sold and Other        -51      -238        -289         450         -38         412
                               ------------------------------------------------------------------

   TOTAL INTEREST INCOME       $  5,114   -$3,799    $  1,315    $  1,443       -$476    $    967
                               ------------------------------------------------------------------
INTEREST EXPENSE

Interest-bearing demand
   deposits                         456      -887        -431         148        -551        -403
Savings Deposits                    137      -175         -38          15        -166        -151
Time Deposits                       823    -3,848      -3,025       1,359        -379         980
Short-term borrowings              -165      -367        -532        -950        -254      -1,204
Long-term borrowings                371         3         374         129         -28         101
                               ------------------------------------------------------------------

   TOTAL INTEREST EXPENSE         1,622    -5,274      -3,652         701      -1,378        -677
                               ------------------------------------------------------------------

NET INTEREST INCOME            $  3,492  $  1,475    $  4,967    $    742    $    902    $  1,644
                               ==================================================================
</TABLE>

<PAGE>

         PROVISION FOR LOAN LOSSES AND ASSET QUALITY

         The provision for loan losses represents charges against operations to
establish reserves for probable loan losses inherent in the Company's loan
portfolio. This expense is determined by a number of factors including
historical loan losses, assessment of specific credit weaknesses within the
portfolio, assessment of the prevailing economic climate, and other factors that
may affect the overall condition of the loan portfolio. The ratio of net loans
charged off to average loans was .61% in 2002, .42% in 2001, .28% in 2000, .29%
in 1999 and .32% in 1998. These percentages are representative of normal loan
charge-offs and are not the result of an economic downturn in any particular
segment of our economy. Management evaluates the adequacy of the allowance for
loan loss on a quarterly basis and makes provisions to the allowance based on
this analysis.

         The provision was $1,757,516 in 2002, $1,123,166 in 2001, $917,519 in
2000, $849,344 in 1999 and $846,466 in 1998. At the end of 2002, the allowance
for loan losses was $4,222,342, an amount that management believes to be
sufficient to protect against future loan losses.

         Activity in the allowance for loan losses is reflected in Table 5 -
Analysis of Allowance for Loan Losses. The Company's policy is to charge-off
loans, when, in management's opinion, the loan is deemed uncollectable, although
concerted efforts are made to maximize recovery of the loan after it is charged
off.


<PAGE>
<TABLE>
<CAPTION>

                 TABLE 5 - ANALYSIS OF ALLOWANCE FOR LOAN LOSSES

                                               2002        2001        2000        1999       1998
                                            --------------------------------------------------------
<S>                                         <C>         <C>         <C>         <C>         <C>
BALANCE AT BEGINNING OF YEAR                $  3,375    $  3,325    $  3,100    $  2,900    $  2,700

LOANS CHARGED-OFF

     Commercial, financial and
     agricultural                                935         612         186         320         364
     Real estate - construction                   23           0           0           0           0
     Real estate - mortgage                      122          36          26          74          10
     Consumer                                    957         675         801         522         505
                                            --------------------------------------------------------

          TOTAL CHARGE-OFFS                    2,037       1,323       1,013         916         879
                                            --------------------------------------------------------
CHARGE-OFFS RECOVERED

     Commercial, financial and
     agricultural                                 54          22         121         122          55
     Real estate - construction                    0           0           0           0           0
     Real estate - mortgage                        4          26          24           0           3
     Consumer                                    221         202         175         145         175
                                            --------------------------------------------------------

          TOTAL RECOVERIES                       279         250         320         267         233
                                            --------------------------------------------------------

Net loans charged-off                          1,758       1,073         693         649         646
Current year provision                         1,758       1,123         918         849         846
Other increases attributed to acquisition        847           0           0           0           0
                                            --------------------------------------------------------

BALANCE AT END OF YEAR                      $  4,222    $  3,375    $  3,325    $  3,100    $  2,900
                                            ========================================================

Loans at year end                           $308,175    $264,278    $252,022    $234,349    $211,349

Ratio of allowance to loans
     at year end                               1.37%       1.28%       1.32%       1.32%       1.37%

Average loans - net of unearned             $289,407    $255,185    $244,307    $221,165    $202,228

Ratio of net loans charged-off
     to average loans                          0.61%       0.42%       0.28%       0.29%       0.32%
</TABLE>

<PAGE>

<TABLE>
<CAPTION>

             ALLOCATION OF ALLOWANCE FOR LOAN LOSSES AT DECEMBER 31,

                                           2002     2001       2000      1999      1998
                                         ----------------------------------------------
<S>                                      <C>       <C>       <C>       <C>       <C>
Commercial, financial and agricultural   $1,700    $1,200    $1,000    $  900    $  850
Real estate - construction                  200       250       250       225       225
Real estate - mortgage                      800       700       650       600       575
Consumer                                  1,475     1,175     1,075     1,050       950
Unallocated                                  47        50       350       325       300
                                         ----------------------------------------------

          Total                          $4,222    $3,375    $3,325    $3,100    $2,900
                                         ==============================================
</TABLE>


              COMPOSITION OF LOAN PORTFOLIO BY TYPE AT DECEMBER 31,
<TABLE>
<CAPTION>

                                           2002     2001       2000      1999      1998
                                         ----------------------------------------------
<S>                                       <C>       <C>       <C>       <C>       <C>
Commercial, financial and agricultural    48.22%    47.25%    48.02%    47.52%    46.25%
Real estate - construction                 3.77%     2.26%     2.08%     3.02%     3.11%
Real estate - mortgage                    28.80%    30.18%    29.35%    28.43%    27.40%
Consumer                                  19.21%    20.31%    20.55%    21.03%    23.24%
                                         ----------------------------------------------

                                         100.00%   100.00%   100.00%   100.00%   100.00%
                                         ==============================================

</TABLE>

         Non-performing assets and relative percentages to loan balances are
presented in Table 6 - Non-performing Assets. Non-performing loans include
non-accrual loans, restructured loans, and loans delinquent 90 days or more.
Loans are classified as non-accrual when management believes that collection of
interest is doubtful, typically when payments are past due over 90 days, unless
well secured and in the process of collection. Another element associated with
asset quality is other real estate owned (OREO), which represents properties
acquired by the Company through loan defaults by customers.

         Loans on non-accrual status amounted to $357,640 in 2002. Interest
income forgone on loans classified as non-accrual is $69,888. All interest
accrued on these loans at the time they are classified as non-accrual is
reversed and interest accruals are suspended until such time that the loan is in
compliance with its terms.

<PAGE>
<TABLE>
<CAPTION>

                         TABLE 6 - NON-PERFORMING ASSETS

                               As of December 31,

                                            2002      2001       2000     1999      1998
                                           ----------------------------------------------
<S>                                        <C>       <C>       <C>       <C>       <C>
PRINCIPAL BALANCE - DOMESTIC

Non-accrual                                $  358    $  419    $  590    $  390    $  649
90 days or more past due                    5,117     2,918     1,746     1,643     1,641
Troubled debt restructuring                     0         0         0         0         0
                                           ----------------------------------------------

     TOTAL DOMESTIC LOANS                  $5,475    $3,337    $2,336    $2,033    $2,290
                                           ----------------------------------------------


PRINCIPAL BALANCE - FOREIGN

Non-accrual                                $    0    $    0    $    0    $    0    $    0
90 days or more past due                        0         0         0         0         0
Troubled debt restructuring                     0         0         0         0         0
                                           ----------------------------------------------

     TOTAL FOREIGN LOANS                   $    0    $    0    $    0    $    0    $    0
                                           ----------------------------------------------


   TOTAL NON-PERFORMING LOANS              $5,475    $3,337    $2,336    $2,033    $2,290
                                           ==============================================


Income on non-accrual loans not recorded   $   69    $   31    $  147    $  110    $  135

Non-performing as a percent of loans        1.78%     1.27%     0.93%     0.87%     1.08%

Other real estate owned                    $1,286    $  340    $  133    $  292    $   57

OREO as a percent of loans                  0.42%     0.13%     0.05%     0.15%     0.03%

Allowance as a percent of
     non-performing loans                  77.11%   101.14%   142.34%   152.48%   126.64%
</TABLE>


         Statements of Financial Accounting Standard No. 114 and 118,
"Accounting by Creditors for Impairment of a Loan," became effective January 1,
1995. These statements changed the way loan loss allowance estimates were to be
made for problem loans. In general, when it is determined that principal and
interest due under the contractual terms of a loan are not fully collectible,
management must value the loan using discounted future expected cash flows.
Management has not recognized any loans as being impaired in conformity with
FASB 114 and 118 for the years 2002, 2001, 2000, 1999 and 1998.

         Management believes loans classified for regulatory purposes as loss,
doubtful or substandard that are not included in non-performing or impaired
loans do not represent or result from trends or uncertainties which will have a
material impact on future operating results,

<PAGE>

liquidity, or capital resources. In addition to loans classified for regulatory
purposes, management also designates certain loans for internal monitoring
purposes in a watch category. Loans may be placed on management's watch list as
a result of delinquent status, concern about the borrower's financial condition
or the value of the collateral securing the loan, substandard classification
during regulatory examinations, or simply as a result of management's desire to
monitor more closely a borrower's financial condition and performance. Watch
category loans may include loans with loss potential that are still performing
and accruing interest and may be current under the terms of the loan agreement;
however, management may have a significant degree of concern about the
borrowers' ability to continue to perform according to the terms of the loan.
Loss exposure on these loans is typically evaluated based primarily upon the
estimated liquidation value of the collateral securing the loan. Also, watch
category loans may include credits which, although adequately secured and
performing, reflect a past delinquency problem or unfavorable financial trends
exhibited by the borrower.

         NON-INTEREST INCOME AND EXPENSE

         A listing of non-interest income and expense from 2000 through 2002 and
percentage changes between years is included in Table 7 - Non-interest Income
and Expense.
<TABLE>
<CAPTION>

                     TABLE 7 - NON-INTEREST INCOME & EXPENSE

                                              % CHANGE           % CHANGE
                                        2002   FROM '01    2001   FROM '00    2000
                                      ---------------------------------------------
<S>                                   <C>       <C>      <C>        <C>     <C>
NON-INTEREST INCOME
Income from fiduciary activities      $     3   50.00%   $     2    0.00%   $     2
Service charges on deposit accounts     3,027    7.72%     2,810   13.77%     2,470
Other operating income                  1,405   20.29%     1,168   43.79%       813
                                      ---------------------------------------------

     TOTAL NON-INTEREST INCOME        $ 4,435   11.43%   $ 3,980   21.19%   $ 3,285
                                      =============================================

NON-INTEREST EXPENSE
Salaries and employee benefits        $ 7,103   26.91%   $ 5,597   14.18%   $ 4,902
Occupancy expense                       2,312   41.75%     1,631   17.68%     1,386
Other operating expense                 4,450   44.48%     3,080   23.99%     2,484
                                      ---------------------------------------------

     TOTAL NON-INTEREST EXPENSE       $13,865   34.51%   $10,308   17.51%   $ 8,772
                                      =============================================
</TABLE>

         Non-interest income typically consists of service charges on checking
accounts and other financial services. With continued pressure on interest
rates, the Company has sought to increase its non-interest income through the
expansion of fee income and the development of new services. Currently, the
Company's main sources of non-interest income are service charges on checking,
safe deposit box rentals, credit life insurance premiums, title insurance
service fees and income contributions from the Company's credit life insurance
subsidiary.

         Non-interest income for 2002 increased 11.43% over 2001. The increase
in the customer base and the resulting fee income was the main reason for the
increase. The acquisition of

<PAGE>

CB&T in May 2002 and the effect of a full year's income from the Decatur and
Forest branches acquired in July 2001 are responsible for this increase.

         Non-interest income for 2001 was $3,980,612, an increase of $695,792 or
21.2% over 2000. This increase was attributable to increases in checking account
service charges related to volume increases, an increase in the number of safe
deposit boxes rented, and another year of increased income from its credit life
and title insurance subsidiaries and fees from its mortgage origination
department.

         Non-interest expenses consist of salaries and benefits, occupancy
expense and other overhead expenses incurred by the Company in the transaction
of its business. Non-interest expense increased $3,556,715 or 34.51% in 2002 and
$1,536,558 or 17.5% in 2001 over 2000. The increases in both years were mainly
from normal growth activity in the Company although the purchase of the Decatur
and Forest branches acquired in July 20001 contributed significantly to the
increase in 2001 and the acquisition of CB&T in May 2002 contributed to the
increase in 2002.

         In 2002, the Company's efficiency ratio was 54.51% compared to 51.32%
in 2001 and 47.20% in 2000. The efficiency ratio is calculated by dividing
non-interest expense by the sum of net interest income, on a fully tax
equivalent basis, and non-interest income. The increase in the efficiency ratio
over the past three years reflects the increases in non-interest expense
required to manage the growth in assets during the period and the additional
personnel costs associated with the CB&T and Union Planters branch acquisitions.

         INCOME TAXES

         The Company records a provision for income taxes currently payable,
along with a provision for deferred taxes to be realized in the future. Such
deferred taxes arise from differences in timing of certain items for financial
statement reporting rather than income tax reporting. The major difference
between the effective tax rate applied to the Company's financial statement
income and the federal statutory rate of 34% is interest on tax-exempt
securities and loans.

         The Company's effective tax rate was 32.01%, 30.93% and 32.26% in 2002,
2001, and 2000, respectively. Further tax information is disclosed in Note 5 to
the consolidated financial statements.

         SECURITIES

         At December 2002, the Company classified all of its securities as
available-for-sale. Securities available-for-sale are reported at fair value,
with unrealized gains and losses included as a separate component of equity, net
of tax. The Company does not classify any securities as held to maturity or held
for trading purposes.

<PAGE>

         Table 8 - Securities and Securities Maturity Schedule summarizes the
carrying value of securities from 2000 through 2002 and the maturity
distribution at December 31, 2002, by classification.
<TABLE>
<CAPTION>

                              TABLE 8 - SECURITIES

                                                     2002       2001        2000
                                                   ------------------------------
<S>                                                <C>        <C>        <C>
         SECURITIES AVAILABLE FOR SALE

         U. S. Treasury                            $ 19,093   $ 31,014   $ 41,341
         U. S. Agencies                              11,921     10,676     20,147
         Mortgage Backed                             87,687     52,362     15,925
         State, Municipal and Other                  43,575     28,515     26,120
                                                   ------------------------------

            TOTAL SECURITIES AVAILABLE FOR SALE    $162,276   $122,567   $103,533
                                                   ------------------------------
         SECURITIES HELD TO MATURITY

            TOTAL SECURITIES HELD TO MATURITY      $      0   $      0   $      0
                                                   ------------------------------

                TOTAL SECURITIES                   $162,276   $122,567   $103,533
                                                   ==============================
</TABLE>

<PAGE>
<TABLE>
<CAPTION>

                          SECURITIES MATURITY SCHEDULE


                                      1 year or less      1 to 5 years     5 to 10 years    over 10 years
                                      Actual   Average  Actual   Average  Actual  Average  Actual  Average
                                      Balance   Yield   Balance   Yield   Balance  Yield   Balance   Yield
                                      -------------------------------------------------------------------
<S>                                   <C>       <C>    <C>        <C>   <C>        <C>    <C>        <C>
AVAILABLE-FOR-SALE
   U. S. Treasury                     $3,083    4.98%  $16,010    4.36% $     0    0.00%  $      0   0.00%
   U. S. Agencies                         37    9.56%    1,631    6.00%   9,691    6.16%       562   5.39%
   Mortgage Backed                        17    5.91%      800    7.14%   2,897    5.03%    83,973   5.29%
   State, Municipal and Other (1)      3,408    4.02%    5,917    5.99%  10,392    6.62%    23,858   7.38%
                                      -------------------------------------------------------------------

TOTAL AVAILABLE-FOR-SALE              $6,545    4.51%  $24,358    4.96% $22,980    6.23%  $108,393   5.75%
                                      ===================================================================

TOTAL HELD-TO-MATURITY                $    0    0.00%  $     0    0.00% $     0    0.00%  $      0   0.00%
                                      ===================================================================
</TABLE>


(1) Average rates were calculated on tax equivalent basis using a marginal
federal income tax rate of 34% and a state tax rate of 5%.

         Although the change in equity due to market value fluctuations in the
available-for-sale portfolio is not used in the Tier 1 capital calculation, the
change which occurred in the unrealized gain/loss on securities between 2002 and
2001 was a result of the changing in the interest rate environment during that
period, in conjunction with the change in the portfolio mix.

         LOANS

         The loan portfolio constitutes the major earning asset of the Company
and, in the opinion of management, offers the best alternative for maximizing
interest spread above the cost of funds. The Company's loan personnel has the
authority to extend credit under guidelines established and approved by the
Board of Directors. Any aggregate credit that exceeds the authority of the loan
officer is forwarded to the loan committee for approval. The loan committee is
composed of various directors, including the Chairman. All aggregate credits
which exceed the loan committee's lending authority are presented to the full
Board of Directors for ultimate approval or denial. The loan committee not only
acts as an approval body to ensure consistent application of the Company's loan
policy but also provides valuable insight through communication and pooling of
knowledge, judgment, and experience of its members.

         The Company has stated in its Loan Policy the following objectives for
its loan portfolio: (a) to make loans on sound and thorough credit analysis, (b)
proper documentation of all loans, (c) to eliminate loans from the portfolio
that are under-priced, high risk or difficult and costly to administer, (d) to
seek good relationships with the customer, (e) to avoid undue concentrations of
loans, and (f) to keep non-accrual loans to a minimum by aggressive collection
policies.

<PAGE>

         Loan demand has remained strong in the Company's market area over the
past three years. In general, the loan growth experienced in 2002 and 2001 was
due to a continuation of the overall growth in the area that is served by the
Company. However, the acquisitions of CB&T in 2002 and the Decatur and Forest
branches in 2001 added approximately $15.0 million and $11.7 million in loans,
respectively. The continued success of the casino on the nearby Choctaw Indian
Reservation caused an increase in the number of businesses to serve the visitors
drawn by the casino. The increase of jobs in the area also helped to tighten the
housing market in the area and caused a large number of new houses to be built.
This is evidenced by the fact that real estate mortgage loans grew by $8,904,468
or 11.1% in 2002, $5,724,725 or 7.7% in 2001 and $7,447,552 or 11.1% in 2000.

         Commercial and agricultural loans also showed large growth during this
period. These loans grew $23,630,697 or 18.7% in 2002, $3,718,912 or 3.0% in
2001, and $9,777,317 or 8.7% in 2000. This increase was not caused solely by the
influence of the casino in the area, but was due in part to an increase in the
number of loans to poultry producers originated during this period.

         Consumer loans have shown moderate growth during the period. This
category increased $5,441,264 or 10.0% in 2002, $1,824,679 or 3.5% in 2001 and
$2,554,094 or 5.1% in 2000. Changes in consumer purchasing habits and the
increase in loan sources have affected the growth of this segment of loans. Low
unemployment has insured that more people have jobs and that some people have
improved their employment and in turn has lessened the dependence on consumer
loans for some purchases.

         Commercial and agricultural loans are the largest segment of the loan
portfolio and, by nature, bear a higher degree of risk. Management is aware of
the growth of loans in this category and believes the lending practices,
policies, and procedures surrounding this loan category are adequate to manage
this risk.

         Table 9 - Loans Outstanding reflects outstanding balances by loan type
for the past five years. Additional loan information is presented in Note 4 to
the consolidated financial statements.

                           TABLE 9 - LOANS OUTSTANDING
                                 AT DECEMBER 31,
<TABLE>
<CAPTION>

                                              2002         2001        2000         1999        1998
                                            ---------------------------------------------------------
<S>                                         <C>         <C>          <C>         <C>          <C>
Commercial, financial and agricultural      $149,762    $126,131     $122,412    $112,634    $ 98,956
Real estate - construction                    11,708       6,036        5,310       7,157       6,645
Real estate - mortgage                        89,452      80,548       74,824      67,376      58,637
Consumer                                      59,660      54,218       52,394      49,840      49,734
                                            ---------------------------------------------------------

          TOTAL LOANS                       $310,582    $266,933     $254,940    $237,007    $213,972
                                            =========================================================
</TABLE>

<PAGE>

Table 10 - Loan Liquidity and Sensitivity to Changes in Interest Rates reflects
the maturity schedule or repricing frequency of all loans. Also indicated are
fixed and variable rate loans maturing after one year for all loans.
<TABLE>
<CAPTION>

                            TABLE 10 - LOAN LIQUIDITY
                      LOAN MATURITIES AT DECEMBER 31, 2002

                                          1 YEAR     1 - 5      OVER 5
                                          OR LESS    YEARS      YEARS      Total
                                         -----------------------------------------
<S>                                      <C>        <C>        <C>        <C>
Commercial, financial and agricultural   $ 47,712   $ 77,191   $ 24,859   $149,762
Real estate - construction                 11,102        565         41   $ 11,708
Real estate - mortgage                      9,427     58,889     21,136   $ 89,452
Consumer                                   25,128     32,192      2,340   $ 59,660
                                         -----------------------------------------

   Total loans                           $ 93,369   $168,837   $ 48,376   $310,582
                                         =========================================
</TABLE>

                    SENSITIVITY TO CHANGES IN INTEREST RATES

                                                      1 - 5      OVER 5
                                                      YEARS      YEARS
                                                    -------------------

Fixed rates                                         $164,970   $ 35,244
Variable rates                                         3,867     13,132
                                                    -------------------

   Total loans                                      $168,837   $ 48,376
                                                    ===================

         DEPOSITS

         The Company offers a wide variety of deposit services to individual and
commercial customers, such as non-interest-bearing and interest-bearing checking
accounts, savings accounts, money market deposit accounts, and certificates of
deposit. The deposit base provides the major funding source for earning assets.
Time deposits continue to be the largest single source of the Company's deposit
base.

         A three-year schedule of deposits by type and maturities of time
deposits greater than $100,000 is presented in Table 11 - Deposit Information.

<PAGE>
<TABLE>
<CAPTION>

                         TABLE 11 - DEPOSIT INFORMATION

                                          2002                     2001                    2000
                                   --------------------------------------------------------------------
                                    Average    Average       Average     Average     Average    Average
                                    Balance     Rate         Balance      Rate       Balance     Rate
                                   --------------------------------------------------------------------
<S>                                 <C>          <C>          <C>         <C>         <C>          <C>
Noninterest-bearing                $ 58,883                 $ 41,698                $ 37,438
Interest-bearing demand             117,989      1.27%        82,127      2.35%       75,810       3.08%
Savings                              27,653      1.75%        19,828      2.63%       19,271       3.43%
Certificates of deposit             209,610      3.20%       183,883      5.29%      158,185       5.53%
                                   --------------------------------------------------------------------

                                   $414,135      2.10%      $327,536      3.72%     $290,704       4.04%
                                   ====================================================================
</TABLE>
<TABLE>
<CAPTION>

              MATURITY RANGES OF TIME DEPOSITS OF $100,000 OR MORE
                                 AT DECEMBER 31,

                                                                                      2002
                                                                                    --------
<S>                                                                                  <C>
             3 months or less                                                        $36,644
             3 through 6 months                                                       15,152
             6 through 12 months                                                      19,055
             over 12 months                                                            6,548
                                                                                    --------

                                                                                     $77,399
                                                                                    ========
</TABLE>

         The Company in its normal course of business will acquire large
certificates of deposit, generally from public entities, for a variety of
maturities. These funds are acquired on a bid basis and are considered to be
part of the deposit base of the Company.

BORROWINGS

         Aside from the core deposit base and large denomination certificates of
deposit mentioned above, the remaining funding sources include short-term and
long-term borrowings. Short-term borrowings consist of federal funds purchased
from other financial institutions on an overnight basis, short-term and
long-term borrowings from the Federal Home Loan Bank of Dallas (FHLB), and U.S.
Treasury demand notes for treasury, tax and loan (TT&L).

<PAGE>

                        TABLE 12 - SHORT-TERM BORROWINGS

                                          As of December 31,
                                       2002      2001      2000
                                    -----------------------------
Federal Home Loan Bank borrowings
  Year-end balance                  $     0    $     0    $32,000
  Weighted average rate               0.00%      0.00%      6.39%

  Maximum month-end balance         $     0    $34,300    $32,000

  Year to date average balance      $     0    $ 7,862    $14,389
  Weighted average rate               0.00%      5.38%      6.61%

         The Company foresees short-term borrowings to be a continued source of
liquidity and will continue to use these borrowings as a method to fund
short-term needs. The Company has the capacity to borrow up to $176,959,051 from
the FHLB and other financial institutions in the form of federal funds purchased
and will use these borrowings if circumstances warrant such action.

         The Company, at the end of 2002, had long-term debt in the amount of
$24,606,135 to the Federal Home Loan Bank for advances and $2,319,558 payable to
the State of Mississippi for advances under the Agribusiness Enterprise Loan
Program. This program provides monies to banks to be extended to qualifying
farmers at no interest. Farmers that qualify for the program receive 20% of
their loan at zero interest. When the loan is repaid, the State receives its
pro-rata share of 20% of the principal payment. The remaining maturity schedule
of the long-term debt at December 31, 2002 is listed below.



                                                  2002
                                               -------
         Less than one year                    $   969
         One year to three years                 2,132
         Over three years                       23,825
                                               -------

            Total Long-term borrowings         $26,926
                                               =======


         LIQUIDITY AND RATE SENSITIVITY

         Liquidity management is the process by which the Company ensures that
adequate liquid funds are available to meet financial commitments on a timely
basis. These commitments include honoring withdrawals by depositors, funding
credit obligations to borrowers, servicing long-term obligations, making
shareholder dividend payments, paying operating expenses, funding capital
expenditures, and maintaining reserve requirements.

         Interest rate risk is the exposure of Company earnings and capital to
changes in interest rates. All financial institutions assume interest rate risk
as an integral part of

<PAGE>

normal operations. Managing and measuring the interest rate risk is the process
that ranges from reducing the exposure of the Company's interest margin to
swings in interest rates to assuring that there is sufficient capital and
liquidity to support future balance sheet growth.

         The Bank's source of funding is predominantly core deposits consisting
of both commercial and individual deposits, proceeds from maturities of
securities, repayments of loan principal and interest, federal funds purchased,
and short-term and long-term borrowing from the FHLB. The growth of core
deposits has been at a lower growth rate than that of loans. As a result, the
Company is increasingly dependent upon non-core sources of funding such as
federal funds purchased and short and long term borrowings from the FHLB.

         The deposit base is diversified between individual and commercial
accounts which help avoid dependence on large concentrations of funds. The
Company does not solicit certificates of deposit from brokers. The primary
sources of liquidity on the asset side of the balance sheet are federal funds
sold and securities classified as available-for-sale. All of the investment
securities portfolio are classified in the available-for-sale category, and are
available to be sold, should liquidity needs arise.

         Table 13 - Funding Uses and Sources details the main components of cash
flows for 2002 and 2001.

<PAGE>
<TABLE>
<CAPTION>

                       TABLE 13 - FUNDING USES AND SOURCES

                                                 2002                            2001
                                   ---------------------------------------------------------------

                                   Average   Increase/(decrease)     Average    Increase/(decrease)
                                   Balance    Amount      Percent    Balance    Amount    Percent
                                   ---------------------------------------------------------------
<S>                                <C>        <C>           <C>      <C>        <C>           <C>
FUNDING USES
------------

   Loans, net of unearned income   $289,407   $ 34,222      13.41%   $255,185   $ 10,878      4.45%
   Taxable securities               115,510   $ 37,087      47.29%     78,423     -1,110     -1.40%
   Tax-exempt securities             34,166   $ 10,214      42.64%     23,952      1,582      7.07%
   Federal funds sold and other      12,428    -$3,253     -20.74%     15,681     14,500   1227.77%
                                   ---------------------------------------------------------------

   TOTAL USES                      $451,511   $ 78,270      20.97%   $373,241   $ 25,850      7.44%
                                   ===============================================================

FUNDING SOURCES
---------------

   Noninterest-bearing deposits    $ 58,452   $ 16,754      40.18%   $ 41,698   $  3,929     10.49%
   Interest-bearing demand and
     savings deposits               145,642   $ 43,687      42.85%    101,955      6,874      7.23%
   Time Deposits                    209,610   $ 25,727      13.99%    183,883     25,698     16.25%
   Short-term borrowings                659    -$9,062     -93.22%      9,721    -16,975    -63.59%
   Long-term debt                    19,301   $  2,345      13.83%     16,956      4,285     33.82%
                                   ---------------------------------------------------------------

   TOTAL SOURCES                   $433,664   $ 79,451      22.43%   $354,213   $ 23,811      7.21%
                                   ===============================================================
</TABLE>

         Rate sensitivity gap is defined as the difference between the repricing
of interest earning assets and the repricing of interest bearing liabilities
within certain defined time frames. The Company's interest rate sensitivity
position is influenced by the distribution of interest earning assets and
interest-bearing liabilities among the maturity categories. Table 14 - Liquidity
and Interest Rate Sensitivity reflects interest earning assets and
interest-bearing liabilities by maturity distribution as of December 31, 2002.
Product lines repricing in time periods predetermined by contractual agreements
are included in the respective maturity categories.


<PAGE>
<TABLE>
<CAPTION>

               TABLE 14 - LIQUIDITY AND INTEREST RATE SENSITIVITY

                                                                      AT DECEMBER 31, 2002

                                         1 - 90   91 - 365    1 - 5       Over
                                          Days      Days      Years      5 years     Total
                                       ------------------------------------------------------
<S>                                    <C>        <C>        <C>         <C>         <C>
INTEREST EARNING ASSETS
-----------------------

   Loans                               $ 69,790   $ 75,635   $143,940    $ 10,692    $300,057
   Investment securities                  4,320     10,789    111,203      33,957     160,269
   Federal Home Loan Bank Account         1,366          0          0           0       1,366
   Federal Funds Sold                     2,300          0          0           0       2,300
                                       ------------------------------------------------------

TOTAL INTEREST BEARING ASSETS          $ 77,776   $ 86,424   $255,143    $ 44,649    $463,992
                                       ======================================================

INTEREST BEARING LIABILITIES
----------------------------

   Interest bearing demand deposits    $107,439   $      0   $      0    $      0    $107,439
   Savings and Money Market deposits     48,351          0          0           0      48,351
   Time deposits                         89,018    108,859     19,195           0     217,072
   Short term borrowings                                                                    0
   Long term borrowings                     238        731     17,737       5,900      24,606
                                       ------------------------------------------------------

TOTAL INTEREST BEARING LIABILITIES     $245,046   $109,590   $ 36,932    $  5,900    $397,468
                                       ======================================================

Rate sensitive gap                    -$167,270   -$23,166   $218,211    $ 38,749    $ 66,524
Rate sensitive cumulative gap          -167,270   -190,436     27,775      66,524
Cumulative gap as a percentage of
     total earning assets               -36.05%    -41.04%      5.99%      14.34%

</TABLE>

         The purpose of the above table is to measure interest rate risk
utilizing the repricing intervals of interest sensitive assets and liabilities.
Rate sensitive gaps constantly change as funds are acquired and invested and as
rates change. Rising interest rates are likely to increase net interest income
in a positive gap position while falling interest rates are beneficial in a
negative gap position.

         The above rate sensitivity analysis places interest-bearing demand and
savings deposits in the shortest maturity category because these liabilities do
not have defined maturities. If these deposits were placed in a maturity
distribution representative of the Company's deposit base history, the shortfall
of the negative rate sensitive gap position would be reduced in the 1-to-90 day
time frame.

<PAGE>

         The Company's large negative cumulative gap position in the one-year
period ending December 31, 2002 was mainly due to: (1) the interest-bearing and
savings deposits being classified in the 1-90 day category; (2) approximately
91% of certificates of deposit maturing during the next twelve months; and (3) a
significant portion of the Company's loans maturing after one year. A decline in
the interest rate environment would enhance earnings, while an increase in
interest rates would have the opposite effect on corporate earnings. The effect
would be mitigated by the fact that interest-bearing demand and savings deposits
may not be immediately affected by changes in general interest rates.

         CAPITAL RESOURCES

         The Company and Bank are subject to various regulatory capital
guidelines as required by federal and state banking agencies. These guidelines
define the various components of core capital and assign risk weights to various
categories of assets.

         The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA") requires federal regulatory agencies to define capital tiers. These
are: well capitalized, adequately capitalized, undercapitalized, significantly
undercapitalized, and critically undercapitalized. Under these regulations, a
"well-capitalized" institution must achieve a Tier 1 risk-based capital ratio of
at least 6.00%, a total capital ratio of at least 10.00%, a leverage ratio of at
least 5.00% and not be under a capital directive order. Failure to meet capital
requirements can initiate regulatory action that could have a direct material
effect on the Company's financial statements. If adequately capitalized,
regulatory approval is required to accept brokered deposits. If
undercapitalized, capital distributions, asset growth, and expansion are
limited, and the institution is required to submit a capital restoration plan.

         Management believes the Company and the Bank meet all the capital
requirements to be well-capitalized under the guidelines established by the
banking regulators as of December 31, 2002, as noted below in Table 15 - Capital
Ratios. To be well-capitalized, the Company and Bank must maintain the prompt
corrective action capital guidelines described above.

         Management has sought in the past to maintain a high level of capital
to allow the Company to respond to growth and acquisition opportunities in our
service area. This strategy has allowed us to purchase the Decatur and Forest
branches from Union Planters in July 2001 and to purchase CB&T in May 2002
without having to raise additional capital. Because the Company has been able to
increase capital through the retention of earnings, the Company has not
implemented a plan to raise additional capital at this time nor does it have any
plans to do so.

<PAGE>

                            TABLE 15 - CAPITAL RATIOS
<TABLE>
<CAPTION>

                                                               At December 31,
                                                        2002        2001        2000
                                                      --------------------------------
<S>                                                   <C>         <C>         <C>
Tier 1 capital
     Shareholders' equity                             $ 53,783    $ 47,182    $ 43,377
     Less:  Intangibles                                 -6,814      -2,974        -654
     Add/less: Unrealized loss/(gain) on securities     -2,931        -157        -161
     Add:  Minority interest in equity accounts of
          unconsolidated subsidiaries                    1,376       1,212       1,452
                                                      --------------------------------

     TOTAL TIER 1 CAPITAL                             $ 45,414    $ 45,263    $ 44,014
                                                      ================================

Total capital
     Tier 1 capital                                   $ 45,414    $ 45,263    $ 44,014
     Allowable allowance for loan losses                 3,849       3,299       3,124
                                                      --------------------------------

     TOTAL CAPITAL                                    $ 49,263    $ 48,562    $ 47,138
                                                      ================================

RISK WEIGHTED ASSETS                                  $307,573    $263,901    $249,683
                                                      ================================

AVERAGE ASSETS  (FOURTH QUARTER)                      $514,249    $430,607    $379,130
                                                      ================================

RISK BASED RATIOS
     TIER 1                                             14.77%      17.15%      17.63%
                                                      ================================

     TOTAL CAPITAL                                      16.02%      18.40%      18.88%
                                                      ================================

LEVERAGE RATIOS                                          8.83%      10.51%      11.61%
                                                      ================================
</TABLE>

<PAGE>

         INFLATION

         For a financial institution, effects of price changes and inflation
vary considerably from an industrial organization. Changes in the prices of
goods and services are the primary determinant of the industrial company's
profit, whereas changes in interest rates have a major impact on a financial
institution's profitability. Inflation affects the growth of total assets, but
it is difficult to assess its impact because neither the timing nor the
magnitude of the changes in the consumer price index directly coincide with
changes in interest rates.

         During periods of high inflation there are normally corresponding
increases in the money supply. During such times financial institutions often
experience above average growth in loans and deposits. Also, general increases
in the price of goods and services will result in increased operating expenses.
Over the past few years the rate of inflation has been relatively low, and its
impact on the growth in the balance sheets and increased levels of income and
expense has been nominal.

         RECENT PRONOUNCEMENTS

         In September 2001, the FASB issued SFAS No. 140, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of Liabilities
(a replacement of FASB Statement No. 125)." SFAS No. 140 replaces SFAS No. 125,
"Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities." SFAS No. 140 revises the standard for accounting for
securitizations and other transfers of financial assets and collateral and
requires certain disclosures, but it carries over most of SFAS No. 125's
provisions without reconsideration. SFAS No. 140 is effective for recognition
and reclassification of collateral and for disclosures relating to
securitization transactions and collateral for fiscal years ending after
December 15, 2001. The adoption of this statement did not have a material effect
on the Company's financial position or results of operations.

         During 2001, the FASB issued SFAS No. 141 "Business Combinations" and
SFAS No. 142, "Goodwill and other Intangible Assets". SFAS No. 141 requires that
all business combinations entered into after June 30, 2001 be accounted for
under the purchase method. SFAS No. 142 requires that all intangible assets,
including goodwill, that result from business combinations be periodically (at
least annually) evaluated for impairment, with any resulting impairment loss
being charged against earnings. Also, under SFAS No. 142, goodwill resulting
from any business combination accounted for according to SFAS No. 141 is not
amortized, and the amortization of goodwill related to business combinations
entered into prior to June 30, 2001 was discontinued effective, for the Company,
January 1, 2002. The Company adopted the provisions of SFAS No. 141 immediately
and the provisions of SFAS No. 142 related to discontinuation of goodwill
amortization effective January 1, 2002. See Note 2 to the Company's consolidated
financial statements for additional information concerning the Company's
goodwill and other intangible assets.

<PAGE>

         Also during 2001, the FASB issued SFAS No. 143 "Accounting for Asset
Retirement Obligations." SFAS No. 143 requires estimated future asset retirement
costs to be are recognized as a liability, recorded at their fair value and
capitalized as part of the asset and depreciated. Under the new pronouncement,
the resulting retirement obligation liability is discounted and accretion
expense is recognized using the credit-adjusted risk- free interest rate. The
pronouncement is effective for years beginning after June 15, 2002 although
early application is permitted. The Company will adopt the provisions of SFAS
No. 143 effective January 1, 2003. Management does not expect the adoption of
this pronouncement to have a material effect on the Company's financial
statements.

         SFAS No. 144 "Accounting for the Impairment or Disposal of Long-Lived
Assets" was also issued by the FASB during 2001 and is effective for years
beginning after December 31, 2001. The new pronouncement sets forth requirements
for testing and accounting for impairment or disposal of assets to be held and
used, assets to be disposed of other than by sale, and assets to be sold. The
Company adopted SFAS No. 144 on January 1, 2002. Its adoption did not have a
material impact on the Company's financial statements.

         In October 2002, the FASB issued Standard No. 147 related to
Acquisitions of Certain Financial Institutions. The standard clarifies the
requirements of Standards No. 141 and 142 as they relate to business
combinations between financial institutions and makes the provisions of Standard
No. 144 applicable to long-term customer relationship intangible assets. The
standard is effective for transactions on or after October 1, 2002. Adopting the
standard by the Company did not have a material effect on the Company's
financial statements.

         FORWARD-LOOKING STATEMENTS

         In addition to historical information, this report contains statements
which constitute forward-looking statements and information 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. The Company 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 Company's and the Bank'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 Company operates; (b) changes in the legislative
and regulatory environment that negatively impact the Company and Bank 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

<PAGE>

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 economy in the Company's market
area; and (h) other risks detailed from time to time in the Company's filings
with the Securities and Exchange Commission. The Company does not undertake any
obligation to update or revise any forward-looking statements subsequent to the
date on which they are made.



<PAGE>

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 Company has taken steps to
assess the amount of risk that is associated with its asset and liability
structure. The Company measures the potential risk on a regular basis and makes
changes to its strategies to manage these risks. The Board of Directors reviews
important policy limits each month with a more detailed risk analysis completed
on a quarterly basis. These measurement tools are important in allowing the
Company to manage market risk and to plan effective strategies to respond to any
adverse changes in risk. The Company 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 Company
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. This report utilizes a 200
basis point rate shock up and down and measures the effect on earnings and the
value of equity.

Static gap analysis is also used in measuring interest rate risk. Although
management believes that this does not provide a complete picture of the
Company's exposure to interest rate risk, it does highlight significant
short-term repricing volume mismatches. The following table presents the
Company's rate sensitivity static gap analysis at December 31, 2002 ($ in
thousands):

                                       Interest Sensitive Within
                                       ------------------------
                                         90 days       One year
                                       ------------------------

Total rate sensitive assets            $  77,776      $  86,424
Total rate sensitive liabilities         245,046        109,590
                                       ------------------------

     Net gap                           ($167,270)     ($ 23,166)
                                       ========================

The analysis indicates a negative gap position over the next three- and twelve
-month periods which indicates that the Company would benefit somewhat from a
decrease in market interest rates. Although rate increases would be detrimental
to the interest rate risk of the Company, management believes there is adequate
flexibility to alter the overall rate sensitivity structure as necessary to
minimize exposure to these changes.

<PAGE>

The static gap analysis does not fully capture the impact of interest rate
movements on interest sensitive assets and liabilities. The interest rate
sensitivity table that follows provides additional information about the
financial instruments that are sensitive to changes in interest rates. This
tabular disclosure is limited by its failure to depict accurately the effect on
assumptions of significant changes in the economy or interest rates as well as
changes in management's expectations or intentions. The information in the
interest rate sensitivity table below reflects contractual interest rate pricing
dates and contractual maturity dates. For indeterminate maturity deposit
products (money market, NOW and savings accounts), the tables present principal
cash flows in the shortest term. Although these deposits may not reprice within
this time frame, they certainly have the opportunity to do so. Weighted average
floating rates are based on the rate for that product as of December 31, 2002
and 2001.
<TABLE>
<CAPTION>

                            INTEREST RATE SENSITIVITY

December 31, 2002
                                                                                                                Carrying     Fair
                                  2003         2004         2005         2006         2007       Thereafter      Value       Value
                             -------------------------------------------------------------------------------------------------------
<S>                          <C>           <C>            <C>        <C>           <C>           <C>            <C>         <C>
Loans
   Fixed Rate                $   111,290   $    48,344    $ 34,487   $   33,729    $   31,801    $    12,297    $271,948    $273,472
     Average Int Rate              7.46%         7.97%       7.82%        7.49%         7.02%          7.31%       7.54%
   Floating Rate             $    15,325   $     5,067    $  3,570   $    3,149    $    2,955    $     8,568    $ 38,634    $ 38,634
     Average Int Rate              5.07%         5.15%       5.31%        5.31%         5.39%          5.12%       5.16%
Investment securities
   Fixed Rate                $     6,545   $    13,734    $  4,816   $    4,007    $    1,801    $   131,373    $162,276    $162,276
     Average Int Rate              4.51%         4.54%       5.11%        5.61%         6.27%          5.84%       5.65%
   Floating Rate
     Average Int Rate
Other earning assets
   Fixed Rate                $     2,300                                                                        $  2,300    $  2,300
     Average Int Rate              1.13%                                                                           1.13%
   Floating Rate
     Average Int Rate

Interest-bearing  deposits
   Fixed Rate                $   324,420   $    18,691    $  8,092   $    1,362    $    1,235    $         0    $353,800    $354,591
     Average Int Rate              1.81%         3.10%       3.83%        5.39%         4.47%          0.00%       1.95%
   Floating Rate             $     4,991   $     6,704    $  7,475   $       12    $       22    $         3    $ 19,207    $ 19,207
     Average Int Rate              3.00%         3.00%       3.00%        3.00%          3.00%         3.00%       3.00%
Other int-bearing
     liabilities
   Fixed Rate                $    10,969   $     6,018    $  1,070   $      649    $        0    $     5,900    $ 24,606    $ 24,606
     Average Int Rate              5.50%         5.21%       4.94%        4.94%          0.00%         4.65%       5.03%
   Floating Rate
     Average Int Rate

</TABLE>

<PAGE>
<TABLE>
<CAPTION>

December 31, 2001
                                                                                                                Carrying     Fair
                                  2003         2004         2005         2006         2007       Thereafter      Value       Value
                             -------------------------------------------------------------------------------------------------------
<S>                          <C>           <C>            <C>        <C>           <C>           <C>            <C>         <C>
Loans
   Fixed Rate                $    91,835   $    35,445    $ 33,870   $   23,071    $   27,102    $    27,820    $239,143    $237,451
     Average Int Rate              8.30%         8.15%       7.95%        8.09%         7.66%          7.50%       8.04%
   Floating Rate             $     8,912   $     4,222    $  2,520   $    2,649    $    2,004    $     4,828    $ 25,135    $ 24,957
     Average Int Rate              5.34%         6.04%       6.15%        6.12%         6.16%          6.13%       5.84%
Investment securities
   Fixed Rate                $    14,632   $    10,709    $ 13,021   $    6,008    $    6,212    $    71,985    $122,567    $122,567
     Average Int Rate              6.35%         6.18%       4.41%        5.76%         5.66%          6.49%       6.15%
   Floating Rate
     Average Int Rate
Other earning assets
   Fixed Rate                $     6,100                                                                        $  6,100    $  6,100
     Average Int Rate              1.63%                                                                           1.63%
   Floating Rate
     Average Int Rate

Interest-bearing  deposits
   Fixed Rate                $   272,200   $    19,298    $  1,735   $      181    $       11                   $293,425    $294,221
     Average Int Rate              3.00%         4.65%       4.89%        5.85%         4.56%                      3.12%
   Floating Rate             $     6,513   $     5,414    $  3,401   $        9    $       11                   $ 15,348    $ 15,390
     Average Int Rate              3.15%         3.15%       3.15%        3.15%         3.15%                      3.15%
Other int-bearing
     liabilities
   Fixed Rate                $       923   $    10,969    $  1,018   $    1,070    $      649                   $ 14,629    $ 14,629
     Average Int Rate              4.94%         5.51%       4.94%        4.94%         4.94%                      5.36%
   Floating Rate
     Average Int Rate
</TABLE>


<PAGE>

QUARTERLY FINANCIAL TRENDS

                                                2002
                            -----------------------------------------------
                              First    Second    Third    Fourth     Year
                             Quarter   Quarter   Quarter  Quarter   to Date
                            -----------------------------------------------
Interest Income             $ 7,030   $ 7,574   $ 7,891   $ 7,702   $30,197
Interest Expense              2,465     2,380     2,507     2,394     9,746
                            -----------------------------------------------
Net Interest Income           4,565     5,194     5,384     5,308    20,451
Provision for Loan Losses       234       436       337       751   $ 1,758
Non-interest Income           1,006     1,043     1,154     1,232   $ 4,435
Non-interest Expense          3,043     3,364     3,721     3,737   $13,865
Income Taxes                    749       775       800       641   $ 2,965
                            -----------------------------------------------
Net Income                  $ 1,545   $ 1,662   $ 1,680   $ 1,411   $ 6,298
                            ===============================================
Per common share:
     Basic                  $  0.31   $  0.33   $  0.34   $  0.28   $  1.27
     Diluted                $  0.31   $  0.33   $  0.34   $  0.28   $  1.26
                            -----------------------------------------------
     Cash Dividends         $  0.12   $  0.12   $  0.14   $  0.14   $  0.52


                                                2001
                            -----------------------------------------------
                              First    Second    Third    Fourth     Year
                             Quarter   Quarter   Quarter  Quarter   to Date
                            -----------------------------------------------
Interest Income             $ 7,259   $ 7,184   $ 7,399   $ 7,277   $29,119
Interest Expense              3,620     3,354     3,417     3,008    13,399
                            -----------------------------------------------
Net Interest Income           3,639     3,830     3,982     4,269    15,720
Provision for Loan Losses       120       449       174       380   $ 1,123
Non-interest Income             905     1,123     1,066       886   $ 3,980
Non-interest Expense          2,417     2,405     2,533     2,953   $10,308
Income Taxes                    633       613       781       531   $ 2,558
                            -----------------------------------------------
Net Income                  $ 1,374   $ 1,486   $ 1,560   $ 1,291   $ 5,711
                            ===============================================
Per common share:
     Basic                  $  0.28   $  0.30   $  0.31   $  0.26   $  1.15
     Diluted                $  0.28   $  0.30   $  0.31   $  0.26   $  1.15
                            -----------------------------------------------
     Cash Dividends         $ 0.083   $ 0.100   $ 0.100   $ 0.100   $ 0.383


<PAGE>

MARKET PRICE AND DIVIDEND INFORMATION

Market Price.

         The Company's Common Stock is traded on the American Stock Exchange
("AMEX") under the symbol "CIZ". The stock began trading on the AMEX on October
19, 1999 and prior to that date was sold by private transactions between
parties. On December 31, 2002, the Common Stock's closing price was $16.00.

                                                            Dividends Declared
      2001                     High              Low         (per common share)
-------------------------------------------------------------------------------

January - March                11.17            10.33            0.083
April - June                   11.83            10.77            0.100
July - September               13.17            11.50            0.100
October - December             16.60            12.17            0.100


                                                            Dividends Declared
      2002                     High              Low         (per common share)
-------------------------------------------------------------------------------

January - March                16.26            14.25            0.120
April - June                   16.00            14.65            0.120
July - September               16.85            15.75            0.140
October - December             17.35            15.70            0.140


         Per share information included in the above table has been adjusted to
reflect the three-for-two (3:2) common stock split effective January 2, 2002.

         On March 10, 2003, the shares of Common Stock were held of record by
approximately 454 shareholders.

         Dividends

         Dividends, retroactively adjusted to give effect to the three-for-two
stock split, totaled $0.52 per share for 2002 compared to $0.383 in 2001 and
$.283 in 2000. These dividends reflect a 36% increase in 2002 over 2001 and a
35% increase in 2001 over 2000.

         The Company declares dividends on a quarterly basis in March, June,
September and December with payment following at the end of the month in which
the dividend was declared.

<PAGE>

         Funds for the payment by the Company of cash dividends are obtained
from dividends received by the Company from the Bank. Accordingly, the
declaration and payment of dividends by the Company depend upon the Bank's
earnings and financial condition, general economic conditions, compliance with
regulatory requirements, and other factors.

<PAGE>

                                     NOTES

<PAGE>
                            CITIZENS HOLDING COMPANY
                                 AND SUBSIDIARY

                           Philadelphia, Mississippi

                       Consolidated Financial Statements

                  Years Ended December 31, 2002, 2001 and 2000

<PAGE>

         CONTENTS


--------------------------------------------------------------------------------

Independent Auditor's Report                                                  1

--------------------------------------------------------------------------------

Consolidated Financial Statements

  Consolidated Balance Sheets                                                 2

  Consolidated Statements of Income                                           3

  Consolidated Statements of Comprehensive Income                             4

  Consolidated Statements of Changes in Stockholders' Equity                  5

  Consolidated Statements of Cash Flows                                   6 - 7

  Notes to Consolidated Financial Statements                             8 - 32

--------------------------------------------------------------------------------

<PAGE>



         INDEPENDENT AUDITOR'S REPORT


Board of Directors
Citizens Holding Company and Subsidiary
Philadelphia, Mississippi


We have audited the accompanying consolidated balance sheets of Citizens Holding
Company and Subsidiary as of December 31, 2002 and 2001 and the related
consolidated statements of income, comprehensive income, changes in
stockholders' equity and cash flows for each of the years in the three year
period ended December 31, 2002. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall consolidated financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Citizens Holding
Company and Subsidiary as of December 31, 2002 and 2001 and the results of their
operations and their cash flows for each of the years in the three year period
ended December 31, 2002 in conformity with accounting principles generally
accepted in the United States of America.



/s/ HOWE CPA GROUP


Jackson, Mississippi
January 31, 2003

<PAGE>

                     CITIZENS HOLDING COMPANY AND SUBSIDIARY
                           Consolidated Balance Sheets
                           December 31, 2002 and 2001
<TABLE>
<CAPTION>

                                                                         2002           2001
-----------------------------------------------------------------------------------------------
<S>                                                                 <C>            <C>
ASSETS
Cash and due from banks                                             $ 19,769,712   $ 12,713,482

Interest bearing deposits with other banks                             1,365,649      5,421,241

Federal funds sold                                                     2,300,000      6,100,000
Securities available for sale, at fair value (amortized cost

  of $157,718,929 in 2002 and $122,304,542 in 2001)                  162,276,305    122,567,180
Loans, net of allowance for loan losses of

  $4,222,342 in 2002 and $3,375,000 in 2001                          303,952,527    260,903,091

Bank premises, furniture, fixtures and equipment, net                  9,399,942      5,143,535

Real estate acquired by foreclosure                                    1,286,409        340,657

Accrued interest receivable                                            4,111,199      4,121,922

Cash value of life insurance                                           3,162,848      2,809,410
Intangible assets, net of accumulated amortization of

  $1,081,027 in 2002 and $620,480 in 2001                              6,813,774      2,974,023

Other assets                                                           4,011,753      4,118,333
                                                                    ------------   ------------
      Total Assets                                                  $518,450,118   $427,212,874
                                                                    ============   ============

LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits

  Non-interest bearing demand deposits                              $ 59,761,550   $ 50,535,929

  Interest bearing NOW and money market accounts                     122,717,966     91,656,150

  Interest bearing time deposits                                     217,072,653    194,635,343

  Interest bearing savings deposits                                   33,216,006     22,481,585
                                                                    ------------   ------------
       Total Deposits                                                432,768,175    359,309,007

Federal Home Loan Bank advances                                       24,606,135     14,628,788
</TABLE>

<PAGE>

<TABLE>
<CAPTION>

<S>                                                                 <C>            <C>
Accrued interest payable                                                 955,720      1,415,513

Directors deferred compensation payable                                1,182,406      1,079,191

Other liabilities                                                      3,779,163      2,386,608
                                                                    ------------   ------------
      Total Liabilities                                              463,291,599    378,819,107
                                                                    ------------   ------------

Commitments and Contingencies


Minority interest                                                      1,375,960      1,212,199
                                                                    ------------   ------------

Stockholders' Equity
  Common stock, $.20 par value, authorized 22,500,000
  shares; 4,974,578 shares issued at 2002 and 4,963,028 at 2001          994,916        992,606

  Additional paid-in capital                                           2,899,331      2,791,871
  Accumulated other comprehensive income, net of
  deferred tax liability of $1,549,508 in 2002 an $89,295 in 2001      2,931,674        157,074

  Retained earnings                                                   46,956,638     43,240,017
                                                                    ------------   ------------

      Total Stockholders' Equity                                      53,782,559     47,181,568
                                                                    ------------   ------------

      Total Liabilities and Stockholders' Equity                    $518,450,118   $427,212,874
                                                                    ============   ============
</TABLE>

The accompanying notes are an integral part of these
statements.

                                        2

<PAGE>

                     CITIZENS HOLDING COMPANY AND SUBSIDIARY
                        Consolidated Statements of Income
                  Years Ended December 31, 2002, 2001, and 2000
<TABLE>
<CAPTION>

                                                 2002            2001            2000
----------------------------------------------------------------------------------------
<S>                                         <C>             <C>             <C>
Interest Income

 Interest and fees on loans                 $ 22,628,364    $ 22,770,622    $ 22,280,018
 Interest on securities

  Taxable                                      5,771,707       4,670,987       5,066,547

  Non-taxable                                  1,598,983       1,117,874       1,073,142

   Other interest                                197,476         558,961         218,392
                                            ------------    ------------    ------------
        Total Interest Income                 30,196,530      29,118,444      28,638,099
                                            ------------    ------------    ------------

Interest Expense

 Deposits                                      8,696,134      12,189,194      11,751,889

 Other borrowed funds                          1,050,209       1,209,409       2,312,030
                                            ------------    ------------    ------------

    Total Interest Expense                     9,746,343      13,398,603      14,063,919
                                            ------------    ------------    ------------

    Net Interest Income                       20,450,187      15,719,841      14,574,180

Provision for loan losses                     (1,757,516)     (1,123,166)       (917,519)
                                            ------------    ------------    ------------

    Net Interest Income After Provision

     for Loan Losses                          18,692,671      14,596,675      13,656,661
                                            ------------    ------------    ------------

Non-Interest Income

 Service charges on deposit accounts           3,026,976       2,810,403       2,470,018

 Other service charges and fees                  749,786         572,187         383,558

 Other income                                    658,400         598,022         431,244
                                            ------------    ------------    ------------

    Total Non-Interest Income                  4,435,162       3,980,612       3,284,820
                                            ------------    ------------    ------------

Non-Interest Expense

 Salaries and employee benefits                7,102,641       5,597,105       4,901,589
 Occupancy expense                             1,014,510         741,912         654,037
</TABLE>

<PAGE>

<TABLE>
<CAPTION>

<S>                                         <C>             <C>             <C>
 Equipment expense                             1,297,232         888,648         731,878

 Earnings applicable to minority interest        172,196         166,196         190,393

 Other expense                                 4,278,599       2,914,602       2,294,008
                                            ------------    ------------    ------------

    Total Non-Interest Expense                13,865,178      10,308,463       8,771,905
                                            ------------    ------------    ------------

Income before income taxes                     9,262,655       8,268,824       8,169,576

Income tax expense                             2,965,155       2,557,926       2,635,211
                                            ------------    ------------    ------------

    Net Income                              $  6,297,500    $  5,710,898    $  5,534,365
                                            ============    ============    ============

    Net Income Per Share - Basic            $       1.27    $       1.15    $       1.12
                                            ============    ============    ============

    Net Income Per Share - Diluted          $       1.26    $       1.15    $       1.11
                                            ============    ============    ============

    Average Shares Outstanding

         Basic                                 4,963,448       4,963,028       4,963,028
                                            ============    ============    ============
         Diluted                               4,999,168       4,980,568       4,975,232
                                            ============    ============    ============
</TABLE>


The accompanying notes are an integral part of these
statements.

                                        3

<PAGE>

                     CITIZENS HOLDING COMPANY AND SUBSIDIARY
                 Consolidated Statements of Comprehensive Income
                  Years Ended December 31, 2002, 2001, and 2000

<TABLE>
<CAPTION>
                                                      2002           2001           2000
-------------------------------------------------------------------------------------------
<S>                                               <C>            <C>            <C>
Net Income                                        $ 6,297,500    $ 5,710,898    $ 5,534,365
                                                  -----------    -----------    -----------

Other Comprehensive Income (Loss), Net of Tax

    Unrealized holding gains (losses)
                                                                                  1,748,548
        during year                                 2,933,318         (3,760)
    Reclassification adjustment for (gains)
                                                                          --
        losses included in net income                (158,718)                      (45,694)
                                                  -----------    -----------    -----------


        Total Other Comprehensive Income (Loss)     2,774,600         (3,760)     1,702,854
                                                  -----------    -----------    -----------


        Comprehensive Income                      $ 9,072,100    $ 5,707,138    $ 7,237,219
                                                  ===========    ===========    ===========
</TABLE>

                                        4

<PAGE>

                     CITIZENS HOLDING COMPANY AND SUBSIDIARY
           Consolidated Statements of Changes in Stockholders' Equity
                  Years Ended December 31, 2002, 2001, and 2000

<TABLE>
<CAPTION>
                                                                                     Accumulated
                                           Number                     Additional       Other
                                          of Shares      Common         Paid-In      Comprehensive     Retained
                                           Issued         Stock         Capital      Income (Loss)     Earnings          Total
---------------------------------------------------------------------------------------------------------------------------------
<S>                                       <C>         <C>            <C>             <C>             <C>             <C>
Balance, December 31, 1999                3,353,750   $    670,750   $  3,113,727    $ (1,542,020)   $ 35,303,504    $ 37,545,961


  Net income                                     --             --             --              --       5,534,365       5,534,365


  Dividends paid                                 --             --             --              --      (1,406,219)     (1,406,219)


  Other comprehensive income, net                --             --             --       1,702,854              --       1,702,854
                                       ------------   ------------   ------------    ------------    ------------    ------------

Balance, December 31, 2000                3,353,750        670,750      3,113,727         160,834      39,431,650      43,376,961


  Net income                                     --             --             --              --       5,710,898       5,710,898


                                                 --             --             --              --      (1,902,531)     (1,902,531)

  Dividends paid 3 for 2 stock split      1,609,278        321,856       (321,856)             --              --              --


  Other comprehensive (loss), net                --             --             --          (3,760)             --          (3,760)
                                       ------------   ------------   ------------    ------------    ------------    ------------

Balance, December 31, 2001                4,963,028        992,606      2,791,871         157,074      43,240,017      47,181,568

  Net income                                     --             --             --              --       6,297,500       6,297,500
</TABLE>

<PAGE>

<TABLE>
<CAPTION>

<S>                                       <C>         <C>            <C>             <C>             <C>             <C>
  Dividends paid                                 --             --             --              --      (2,580,879)     (2,580,879)


  Options exercised                          11,550          2,310        107,460              --              --         109,770


  Other comprehensive income, net                --                                     2,774,600              --       2,774,600
                                       ------------   ------------   ------------    ------------    ------------    ------------

Balance, December 31, 2002                4,974,578   $    994,916   $  2,899,331    $  2,931,674    $ 46,956,638    $ 53,782,559
                                       ============   ============   ============    ============    ============    ============
</TABLE>


The accompanying notes are an integral part of these financial statements.

                                        5

<PAGE>

                     CITIZENS HOLDING COMPANY AND SUBSIDIARY
                      Consolidated Statements of Cash Flows
                  Years Ended December 31, 2002, 2001, and 2000
                                     1 of 2

<TABLE>
<CAPTION>
                                                           2002             2001             2000
----------------------------------------------------------------------------------------------------
<S>                                                  <C>              <C>              <C>
Cash Flows from Operating Activities
  Net income                                         $   6,297,500    $   5,710,898    $   5,534,365
  Adjustments to reconcile net income to net
    cash provided by operating activities
      Depreciation                                         851,977          546,479          476,585
      Amortization of intangibles                          460,548          193,109           72,110
      Amortization of premiums and accretion
        of discounts on investment securities             (119,776)        (131,470)        (108,863)
      Provision for loan losses                          1,757,516        1,123,166          917,519
      Investment securities (gains) losses                (158,718)              --          (45,694)
      Deferred income tax benefit                          (99,596)          23,188          (79,528)
      Net earnings applicable to minority interest         172,196          166,196          190,393
      (Increase) decrease in real estate
        acquired by foreclosure                           (945,752)        (207,332)         158,183
      (Increase) decrease in accrued interest
        receivable                                         505,876          604,191       (1,042,264)
      (Increase) decrease in cash value of life
        insurance                                         (353,438)         210,044         (191,189)
      (Increase) decrease in other assets                  129,726         (577,722)        (302,300)
      Increase (decrease) in income taxes
        payable                                           (568,552)        (224,387)          30,577
      Increase (decrease) in accrued interest
        payable                                           (582,954)        (181,932)         354,529
      Increase in directors deferred
        compensation                                       103,215          162,935          104,126
      Increase (decrease) in other liabilities             433,132         (463,391)        (398,390)
                                                     -------------    -------------    -------------
        Net Cash Provided by Operating Activities        7,882,900        6,953,972        5,670,159
                                                     -------------    -------------    -------------

Cash Flows from Investing Activities
  Proceeds from maturities of securities
     available-for-sale                                 75,936,011       56,903,832       15,705,000
  Proceeds from sales of securities
     available-for-sale                                 38,131,901               --       12,442,879
  Purchases of investment securities
    available-for-sale                                (100,225,119)     (75,852,844)     (26,479,943)
  Purchases of bank premises, furniture,
    fixtures and equipment                              (3,458,384)      (1,327,808)        (427,815)
  Net decrease (increase) in interest bearing
     deposits with other banks                           4,055,592       (4,557,870)        (681,329)
  Net (increase) decrease in federal funds sold          5,900,000       (3,000,000)      (3,100,000)
  Net increase in loans                                (29,787,550)     (13,329,502)     (18,365,723)
  Cash acquired in CB&T acquisition                      2,879,581               --               --
  Cash  paid for acquisitions                          (12,284,319)      (2,918,960)              --
  Proceeds from exercise of stock options                  109,770               --               --
                                                     -------------    -------------    -------------
      Net Cash Used by Investing Activities            (18,742,517)     (44,083,152)     (20,906,931)
                                                     -------------    -------------    -------------
</TABLE>

                                        6

<PAGE>

                     CITIZENS HOLDING COMPANY AND SUBSIDIARY
                      Consolidated Statements of Cash Flows
                  Years Ended December 31, 2002, 2001, and 2000
                                     2 of 2
<TABLE>
<CAPTION>

                                                             2002            2001            2000
----------------------------------------------------------------------------------------------------
<S>                                                     <C>             <C>             <C>
Cash Flows from Financing Activities
  Net increase (decrease) in federal funds
    purchased                                           $         --    $         --    $(10,600,000)
  Net increase in deposits                                15,519,379      69,401,250       5,446,118
  Net decrease in Treasury tax and loan advances                  --        (700,000)             --
  Dividends paid to stockholders                          (2,580,879)     (1,902,531)     (1,406,219)
  Net increase in Federal Home Loan Bank
    advances                                               4,977,347     (27,371,212)     18,900,000
                                                        ------------    ------------    ------------

      Net Cash Provided by Financing
        Activities                                        17,915,847      39,427,507      12,339,899
                                                        ------------    ------------    ------------

      Net Increase (Decrease) in Cash
        and Due from Banks                                 7,056,230       2,298,327      (2,896,873)

Cash and due from banks, beginning of year                12,713,482      10,415,155      13,312,028
                                                        ------------    ------------    ------------

Cash and due from banks, end of year                    $ 19,769,712    $ 12,713,482    $ 10,415,155
                                                        ============    ============    ============

Supplemental Disclosures of Cash Flow
   Information
     Cash paid for
       Interest                                         $ 10,206,139    $ 13,580,534    $ 13,717,444
                                                        ============    ============    ============

       Income taxes                                     $  3,390,278    $  2,805,550    $  2,744,590
                                                        ============    ============    ============

Supplemental Schedule of Noncash Activities
  Unrealized gain (loss) on securities
    available-for-sale                                  $  4,294,738    $    (46,476)   $  2,594,191
                                                        ============    ============    ============

  Increase (decrease) in deferred income tax
    liability on unrealized gain (loss) on securities   $ (1,462,213)   $     42,716    $   (891,340)
                                                        ============    ============    ============

  Minority interest in unrealized gain (loss) on
    securities                                          $    114,670    $     (1,194)   $     87,113
                                                        ============    ============    ============
</TABLE>

The accompanying notes are an integral part of these financial statements.

                                        7

<PAGE>

                     CITIZENS HOLDING COMPANY AND SUBSIDIARY

                  Years Ended December 31, 2002, 2001 and 2000


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

Note 1.  Summary of Significant Accounting Policies

Basis of Financial Statement Presentation
-----------------------------------------

The accounting policies of Citizens Holding Company and Subsidiary conform to
accounting principles generally accepted in the United States of America and to
general practices within the banking industry. The consolidated financial
statements of Citizens Holding Company include the accounts of its approximately
97 percent-owned subsidiary, The Citizens Bank of Philadelphia, Mississippi
(collectively referred to as "the Company"). All significant intercompany
transactions have been eliminated in consolidation.

Nature of Business
------------------

The Citizens Bank of Philadelphia, Mississippi ("Citizens Bank") operates under
a state bank charter and provides general banking services. As a state bank, the
bank is subject to regulations of the Mississippi Department of Banking and
Consumer Finance and the Federal Deposit Insurance Corporation. Citizens Holding
Company is subject to the regulations of the Federal Reserve. The area served by
Citizens Bank is Neshoba County, Mississippi, and the immediately surrounding
areas. Services are provided at several branch offices.

Estimates
---------

The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.

Estimates that are particularly susceptible to significant change relate to the
determination of the allowance for losses on loans and the valuation of real
estate acquired in connection with foreclosures or in satisfaction of loans. In
connection with the determination of the allowance for losses on loans and
valuation of foreclosed real estate, management obtains independent appraisals
for significant properties.

While management uses available information to recognize losses on loans and
foreclosed real estate, future additions to the allowances may be necessary
based on changes in local economic conditions. In addition, regulatory agencies,
as an integral part of their examination process, periodically review the
Company's allowances for losses on loans and foreclosed real estate. Such
agencies may require the Company to recognize additions to the allowances based
on their judgments about information available to them at the time of their
examination. Because of these factors, it is reasonably possible that the
allowance for losses on loans and valuation of foreclosed real estate may change
materially in the near term.

                                        8

<PAGE>

                     CITIZENS HOLDING COMPANY AND SUBSIDIARY

                  Years Ended December 31, 2002, 2001 and 2000


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

Note 1.  Continued

Cash and Due from Banks
-----------------------

For the purpose of reporting cash flows, cash and due from banks include cash on
hand, demand deposits and interest bearing deposits with banks. Cash flows from
loans originated by the Company, deposits, and federal funds purchased and sold
are reported at net in the statement of cash flows. The Company is required to
maintain average reserve balances with the Federal Reserve Bank based on a
percentage of deposits. The total of those reserves for the years ended December
31, 2002 and 2001 was $616,000 and $227,000, respectively.

At December 31, 2002, the Company had deposits in financial institutions in
excess of federally insured limits. Management monitors the soundness of the
financial institutions and believes there is minimal risk.

Investment Securities
---------------------

In accordance with SFAS No. 115, "Accounting for Certain Investments in Debt and
Equity Securities," securities are classified as available-for-sale,
held-to-maturity or trading. Fair values for securities are based on quoted
market prices where available. If quoted market prices are not available, fair
values are based on quoted market prices of comparable instruments. Gains or
losses on the sale of securities are determined using the specific
identification method.

Securities Available-for-Sale
-----------------------------

Securities available-for-sale are reported at fair value with unrealized gains
and losses reported as a separate component of stockholders' equity. Securities
that are held for indefinite periods of time or used as part of the Company's
asset/liability management strategy and that may be sold in response to interest
rate changes, changes in prepayment risk, the need to increase regulatory
capital, and other similar factors are classified as available-for-sale. The
Company classifies its portfolio of U.S. Treasury notes, U.S. Government and
Agency securities, taxable state and municipal obligations, and mortgage-backed
securities as securities available-for-sale.

Realized gains or losses, determined on the basis of the cost of specific
securities sold, are included in earnings. The amortization of premiums and
accretion of discounts are recognized in interest income.

Securities Held-to-Maturity

The Company has no held-to-maturity securities.

Trading Securities
------------------

The Company has no trading securities.

                                        9

<PAGE>

                     CITIZENS HOLDING COMPANYAND SUBSIDIARY
                  Years Ended December 31, 2002, 2001 and 2000


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

Note 1.  Continued

Loans Held-for-Sale
-------------------

Loans held-for-sale are those loans the Company has the intent to sell in the
foreseeable future. They are carried at the lower of aggregate cost or market
value. Gains and losses on sales of loans are recognized at settlement dates and
are determined by the difference between the sales proceeds and the carrying
value of the loans. All sales are made without recourse.

Effective for reporting periods beginning with the quarter ending September 30,
2002, commitments to originate or acquire mortgage loans that will be
held-for-sale must be accounted for as derivative financial instruments under
FAS No. 133. Therefore, the fair value of the commitments must be determined and
recorded in the Company's financial statements at the end of each reporting
period. As of December 31, 2002, the Company had no loans held-for-sale.

Loans and Allowance for Loan Losses
-----------------------------------

Loans receivable that management has the intent and ability to hold for the
foreseeable future or until maturity or payoff are reported at the principal
amount outstanding, net of unearned discounts and unearned finance charges.

Loan origination and commitment fees and direct loan origination costs
attributable to loans held with a maturity of more than one year are not
significant and are, therefore, recognized as income or expense, as applicable
in the period received or incurred.

Unearned discounts on installment loans are recognized as income over the terms
of the loans by a method that approximates the interest method. Unearned finance
charges and interest on commercial loans are recognized based on the principal
amount outstanding. For all other loans, interest is accrued daily on the
outstanding balances. For impaired loans, interest is discontinued on a loan
when management believes, after considering collection efforts and other
factors, that the borrower's financial condition is such that collection of
interest is doubtful. Cash collections on impaired loans are credited to the
loan receivable balance, and no interest income is recognized on those loans
until the principal balance has been collected. The Company generally
discontinues the accrual of interest income when a loan becomes 90 days past due
as to principal or interest; however, management may elect to continue the
accrual when the estimated net realizable value of collateral is sufficient to
cover the principal balance and the accrued interest. Interest income on other
nonaccrual loans is recognized only to the extent of interest payments received.

A loan is impaired when it is probable the Company will be unable to collect all
contractual principal and interest payments due in accordance with the terms of
the loan agreement. Impaired loans are measured based on the present value of
expected future cash flows discounted at the loan's effective interest rate or,
as a practical expedient, at the loan's observable market price or the fair
value of the collateral if the loan is collateral dependent. The amount of
impairment, if any, and any subsequent changes are included in the allowance for
loan losses.

                                       10

<PAGE>

                     CITIZENS HOLDING COMPANY AND SUBSIDIARY
                  Years Ended December 31, 2002, 2001 and 2000


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

Note 1.  Continued

The allowance for loan losses is established through a provision for loan losses
charged against net income. Loans declared to be uncollectible are charged
against the allowance for loan losses, and subsequent recoveries, if any, are
credited to the allowance. The allowance represents an amount, which in
management's judgment, will be adequate to absorb estimated probable losses on
existing loans that may become uncollectible. Management's judgment in
determining the adequacy of the allowance is based on evaluations of the
collectibility of loans and prior loss experience. These evaluations take into
consideration such factors as changes in the nature and volume of the loan
portfolio, review of specific problem loans, the Company's past loan loss
experience, adverse situations that may affect the borrowers' ability to pay,
the estimated value of any underlying collateral, current economic conditions,
and other relevant factors. While management uses the best information available
to make its evaluation, this evaluation is inherently subjective, as it requires
material estimates that may be susceptible to significant change. As a result,
future adjustments may be necessary if there are significant changes in economic
conditions. In addition, regulatory agencies, as an integral part of their
examination process, periodically review the Company's allowance for loan
losses, and may require additions to the allowance based on their judgment about
information available to them at the time of their examinations.

Premises and Equipment
----------------------

The Company's premises and equipment are stated at cost less accumulated
depreciation computed primarily by straight-line methods over the estimated
useful lives of the assets. Costs of major additions and improvements are
capitalized. Expenditures for maintenance and repairs are charged to expense as
incurred.

Real Estate Acquired by Foreclosure
-----------------------------------

Real estate acquired by foreclosure consists of properties repossessed by the
Company on foreclosed loans. These assets are stated at the lower of the
outstanding loan amount (including accrued interest, if any) or fair value based
on the fair value at the date acquired less estimated costs to sell. Losses
arising from the acquisition of such property are charged against the allowance
for loan losses. Declines in value resulting from subsequent revaluation of the
property or losses resulting from disposition of such property are expensed.
Revenue and expenses from operations of other real estate owned are reflected as
other income (expense). At December 31, 2002 and 2001, real estate acquired by
foreclosure totaled $1,286,409 and $340,657, respectively.

Intangibles

Intangibles include core deposits purchased and goodwill. Core deposits
intangibles are amortized on a straight-line basis over their estimated economic
lives ranging from 5 to 10 years. Prior to 2002, goodwill was amortized over 40
years. Effective in 2002, pursuant to Statement of Financial Accounting
Standards No. 142, goodwill and other intangible assets with indefinite

                                       11

<PAGE>

                     CITIZENS HOLDING COMPANY AND SUBSIDIARY
                  Years Ended December 31, 2002, 2001 and 2000


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

Note 1.  Continued

lives are not amortized, but are tested at least annually for impairment. If
impairment has occurred, the goodwill or other intangible asset is reduced to
its estimated fair value through a charge to expense.

Trust Assets
------------

Assets held by the Trust Department of the Company in fiduciary or agency
capacities are not assets of the Company and are not included in the
consolidated financial statements.

Income Taxes
------------

Provisions for income taxes are based on taxes payable or refundable for the
current year (after exclusion of nontaxable income such as interest on state and
municipal securities) and deferred taxes on temporary differences between the
tax bases of assets and liabilities and their reported amounts in the
consolidated financial statements. Deferred tax assets and liabilities are
included in the financial statements at currently enacted income tax rates
applicable to the period in which the deferred tax assets and liabilities are
expected to be realized or settled as described in SFAS No. 109, "Accounting for
Income Taxes." As changes in tax laws or rates are enacted, deferred tax assets
and liabilities are adjusted through the provision for income taxes. Deferred
tax assets are reduced by a valuation allowance when, in the opinion of
management, it is more likely than not that some portion or all of the deferred
tax assets will not be realized.

Advertising Costs
-----------------

Advertising costs are charged to expense when incurred. Advertising expense was
$331,239, $228,078 and $211,011 for the years ended December 31, 2002, 2001 and
2000, respectively.

Comprehensive Income
--------------------

Comprehensive income includes net earnings reported in the statements of income
and changes in unrealized gain (loss) on securities available-for-sale reported
as a component of stockholders' equity. Unrealized gain on securities
available-for-sale, net of related deferred income taxes, is the only component
of accumulated other comprehensive income for the Company.

Net Income Per Share
--------------------

Basic net income per share is computed by dividing net income by the weighted
average number of common shares outstanding during the year. The weighted
average number of shares outstanding was 4,963,448 for the year ended December
31, 2002 and 4,963,028 for each of the years ended December 31, 2001 and 2000.
Diluted net income per share is based on the weighted average number of shares
of common stock outstanding for the periods, including the dilutive effect of
the Company's outstanding stock options. Dilutive common equivalent shares

                                       12

<PAGE>

                     CITIZENS HOLDING COMPANY AND SUBSIDIARY
                  Years Ended December 31, 2002, 2001 and 2000


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

Note 1.  Continued

for the years ended December 31, 2002, 2001 and 2000 were 35,720, 17,540 and
12,204, respectively, all attributable to stock options.

Stock Split
-----------

In October 2001, the Board of Directors of the Company declared a three-for-two
stock split for all shareholders of record as of December 14, 2001, and
increased the number of authorized shares of common stock to 22,500,000.
Accordingly, all share and per share information in these financial statements
and related footnotes has been restated to give effect to the three-for-two
split.

Stock Based Compensation

Stock option grants are accounted for in accordance with Accounting Principles
Board (APB) Opinion No. 25, "Accounting for Stock Issued to Employees," and,
accordingly, no compensation expense is recognized for stock options granted.
See Note 16.

Fair Value of Financial Instruments
-----------------------------------

Statement of Financial Accounting Standards (SFAS) No. 107, "Disclosures about
Fair Value of Financial Instruments," requires disclosure of financial
instruments' fair values, as well as the methodology and significant assumptions
used in estimating fair values. These requirements have been incorporated in
Note 15. In cases where quoted market prices are not available, fair values are
based on estimates using present value or other valuation techniques. Those
techniques are significantly affected by the assumptions used, including the
discount rate and estimates of future cash flows. In that regard, the derived
fair value estimates cannot be substantiated by comparison to independent
markets and, in many cases, could not be realized in immediate settlement of the
instrument. SFAS No. 107 excludes certain financial instruments from its
disclosure requirements. Accordingly, the aggregate fair value amounts presented
do not represent the underlying value of the Company and may not be indicative
of amounts that might ultimately be realized upon disposition or settlement of
those assets and liabilities.

Investment - Insurance Company
------------------------------

The Company is accounting for its investment in New South Life Insurance Company
("New South"), a 20 percent owned affiliate, by the equity method of accounting.
The Company's share of the net income of the affiliate is recognized as income
in the Company's income statement and added to the investment account, and
dividends received from New South would be treated as a reduction of the
investment account. New South has not paid dividends.

The fiscal year of New South ends on November 30 and the Company follows the
practice of recognizing the net income of New South on that basis.

                                       13

<PAGE>

                     CITIZENS HOLDING COMPANY AND SUBSIDIARY
                  Years Ended December 31, 2002, 2001 and 2000


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

Note 1.  Continued

The investment, which is included in other assets, totaled $1,499,679 and
$1,389,795 at December 31, 2002 and 2001, respectively. Income from the
investment for the years ended December 31, 2002, 2001, and 2000 included in
other income totaled $109,884, $151,590 and $127,927, respectively.

Reclassifications
-----------------

Certain reclassifications were made to the financial statement amounts from the
prior year in order to facilitate comparability.

Recent Pronouncements
---------------------

In September 2000 the FASB issued SFAS No. 140, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities (A Replacement
of SFAS No. 125)." SFAS No. 140 replaces SFAS No. 125, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities." SFAS No.
140 revises the standard for accounting for securitizations and other transfers
of financial assets and collateral and requires certain disclosures, but it
carries over most of SFAS No. 125's provisions without reconsideration. The
Company adopted this statement effective January 1, 2001. The adoption had no
effect on the Company's financial statements.

During 2001, the FASB issued SFAS No. 141 "Business Combinations" and Statement
No. 142, "Goodwill and Other Intangible Assets". SFAS No. 141 requires that all
business combinations entered into after June 30, 2001 be accounted for under
the purchase method. SFAS No. 142 requires that all intangible assets, including
goodwill, that result from business combinations be periodically (at least
annually) evaluated for impairment, with any resulting impairment loss being
charged against earnings. Also, under SFAS No. 142, goodwill resulting from any
business combination accounted for according to SFAS No. 141 will not be
amortized, and the amortization of goodwill related to business combinations
entered into prior to June 30, 2001 will be discontinued effective, for the
Company, January 1, 2002. The Company adopted the provisions of SFAS No. 141
immediately and the provisions of SFAS No. 142 related to discontinuation of
goodwill amortization effective January 1, 2002. Amortization of goodwill for
the years ended December 31, 2001 and 2000 was not material to the Company's
financial statements. Therefore, the effect on previously reported net income
for those periods was not material.

Also during 2001, the FASB issued SFAS No. 143 "Accounting for Asset Retirement
Obligations", SFAS No. 143 requires estimated future asset retirement costs to
be recognized as a liability, recorded at their fair value and capitalized as
part of the asset and depreciated. Under the new statement, the resulting
retirement obligation liability is discounted and accretion expense is
recognized using the credit-adjusted risk-free interest rate. The statement is
effective for years beginning after June 15, 2001 although early application is
permitted. The Company adopted the provisions of SFAS No. 143 effective January
1, 2002. The adoption of this statement did not have a material effect on the
Company's financial statements.

                                       14

<PAGE>

                     CITIZENS HOLDING COMPANY AND SUBSIDIARY
                  Years Ended December 31, 2002, 2001 and 2000


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

Note 1.  Continued

SFAS No. 144 "Accounting for the Impairment or Disposal of Long-Lived Assets"
was also issued by the FASB during 2001 and is effective for years beginning
after December 31, 2001. The new statement sets forth requirements for testing
and accounting for impairment or disposal of assets to be held and used, assets
to be disposed of other than by sale, and assets to be sold. The Company adopted
SFAS No. 144 on January 1, 2002. Its adoption did not have a material impact on
the Company's financial statements.

In October 2002, the FASB issued SFAS No. 147, "Acquisitions of Certain
Financial Institutions", which clarifies the requirements of SFAS No. 141 and
142 as they relate to business combinations between financial institutions and
makes the provisions of SFAS No. 144 applicable to long-term customer
relationship intangible assets. The standard is effective for transactions on or
after October 1, 2002. The Company's adoption of this statement did not have a
material effect on the Company's financial statements.


Note 2.  Acquisitions

In May 2002, the Company acquired CB&T Capital Corporation, a one-bank holding
company, whose wholly-owned subsidiary was Citizens Bank & Trust Company in
Louisville, MS. The acquisition was undertaken by the Company in order to gain
entry into a geographic section of the State of Mississippi that is contiguous
to the Company's current markets and in which the Company had very little market
presence. The purchase price of the net assets totaled approximately $12.3
million cash and was based on a multiple of approximately 1.505 times the book
value, subject to certain adjustments, of the acquired company. The Company
based its purchase price on several factors, including comparable transactions
and management's estimate of the value of entry into a strategically targeted
geographic area.

The following is a summary of the assets and liabilities acquired:

                                                                    In Thousands
--------------------------------------------------------------------------------

Cash                                                                 $    2,880
Investments                                                              50,620
Loans                                                                    15,019
Bank premises and other assets                                            3,137
Deposits                                                                (57,939)
Other liabilities                                                        (5,814)
                                                                     ----------
Net assets acquired                                                       7,903
Goodwill and other intangible assets                                      4,381
                                                                     ----------

Purchase price                                                       $   12,284
                                                                     ==========

                                       15

<PAGE>

                     CITIZENS HOLDING COMPANY AND SUBSIDIARY
                  Years Ended December 31, 2002, 2001 and 2000


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

Note 2.  Continued

The Company has completed its evaluation of the assets and liabilities acquired
and has allocated $1,846,909 of the $4,380,869 total intangible asset to core
deposit intangibles and the remaining $2,533,960 to goodwill. The core deposit
intangible is to be amortized at the rate of $15,391 per month until fully
amortized, representing an estimated economic life of 10 years. The amount of
core deposit amortization expense related to the Louisville purchase was
$107,736 through December 31, 2002. The operations of CB&T Capital Corporation
are included in the consolidated financial statements since the acquisition
date. The pro forma effect, had the acquisition occurred on January 1, 2001, is
not significant to the operation of the Company.

In July 2001, the Company completed the acquisition of two bank branches located
in Forest and Decatur, Mississippi from Union Planters Bank. The Company
acquired approximately $30.3 million in deposits, $11.7 million in loans, and
$15.4 million in cash and short-term investments. The $2.5 million purchase
price was allocated primarily to a core deposit intangible asset.

Total amortization expense related to intangible assets for the years ended
December 31, 2002, 2001 and 2000 was $460,548, $193,109 and $72,110,
respectively.

Amortization expense attributable to core deposit intangible assets is estimated
to be approximately $537,000 for each of the next five years.


Note 3.  Investment Securities

The amortized cost and estimated fair value of investment securities at December
31, 2002 is as follows:

<TABLE>
<CAPTION>
                                                    Gross          Gross
                                   Amortized      Unrealized     Unrealized    Estimated
                                      Cost          Gains          Losses      Fair Value
------------------------------------------------------------------------------------------
<S>                              <C>            <C>            <C>            <C>
Securities Available-for-Sale
    Obligations of U.S.
      Government agencies        $ 11,261,352   $    660,005   $         --   $ 11,921,357
    U.S. Treasuries                18,280,614        812,656             --     19,093,270
    Mortgage-backed securities     85,828,126      1,871,959         13,223     87,686,862
    Other investments              42,348,837      1,299,090         73,111     43,574,816
                                 ------------   ------------   ------------   ------------

        Total                    $157,718,929   $  4,643,710   $     86,334   $162,276,305
                                 ============   ============   ============   ============
</TABLE>

                                       16

<PAGE>

                     CITIZENS HOLDING COMPANY AND SUBSIDIARY
                  Years Ended December 31, 2002, 2001 and 2000


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

Note 3.  Continued

The amortized cost and estimated fair value of investment securities at December
31, 2001 is as follows:

<TABLE>
<CAPTION>
                                                    Gross          Gross
                                   Amortized      Unrealized     Unrealized    Estimated
                                      Cost          Gains          Losses      Fair Value
------------------------------------------------------------------------------------------
<S>                              <C>            <C>            <C>            <C>
Securities Available-for-Sale
    Obligations of U.S.
      Government agencies        $ 10,397,698   $    290,959   $     12,131   $ 10,676,526
    U.S. Treasuries                30,438,629        575,151             --     31,013,780
    Mortgage-backed securities     52,741,929        204,137        583,891     52,362,175
    Other investments              28,726,286        332,578        544,165     28,514,699
                                 ------------   ------------   ------------   ------------

        Total                    $122,304,542   $  1,402,825   $  1,140,187   $122,567,180
                                 ============   ============   ============   ============
</TABLE>

The amortized cost and estimated fair value of securities at December 31, 2002,
by contractual maturity, are shown below. Expected maturities will differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.

                                                     Amortized       Estimated
                                                        Cost         Fair Value
--------------------------------------------------------------------------------

Securities Available-for-Sale
  Due in one year or less                          $  6,450,167     $  6,544,985
  Due after one year through five years              23,183,733       24,357,914
  Due after five years through ten years             21,953,333       22,980,407
  Due after ten years                               106,131,696      108,392,999
                                                   ------------     ------------

        Total                                      $157,718,929     $162,276,305
                                                   ============     ============

Investment securities with carrying values of $95,774,053 and $84,485,282 at
December 31, 2002 and 2001, respectively, were pledged as collateral for public
deposits.

Gross realized gains and losses are included in other income. Total gross
realized gains and gross realized losses from the sale of investment securities
for each of the years ended December 31 were:

                                          2002           2001            2000
--------------------------------------------------------------------------------

Gross realized gains                   $ 164,364       $      --      $  64,880
Gross realized losses                     (5,646)             --        (19,186)
                                       ---------       ---------      ---------

                                       $ 158,718       $      --      $  45,694
                                       =========       =========      =========

                                       17

<PAGE>

                     CITIZENS HOLDING COMPANY AND SUBSIDIARY
                  Years Ended December 31, 2002, 2001 and 2000


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

Note 4.  Loans

The composition of net loans at December 31, 2002 and 2001 is as follows:

                                                        2002           2001
                                                   (In Thousands) (In Thousands)
--------------------------------------------------------------------------------

Commercial, financial and agricultural loans        $   149,762    $   126,131
Real estate - construction loans                         11,708          6,036
Real estate - mortgage loans                             89,452         80,548
Consumer loans                                           59,660         54,218
                                                    -----------    -----------
                                                        310,582        266,933
      Unearned discount                                  (2,407)        (2,655)
      Allowance for loan losses                          (4,222)        (3,375)
                                                    -----------    -----------

      Loans, net                                    $   303,953    $   260,903
                                                    ===========    ===========

Changes in the allowance for loan losses at December 31, 2002, 2001 and 2000 is
as follows:

<TABLE>
<CAPTION>
                                                     2002           2001           2000
------------------------------------------------------------------------------------------
<S>                                              <C>            <C>            <C>
Balance, beginning of year                       $ 3,375,000    $ 3,325,000    $ 3,100,000
Provision for loan losses                          1,757,516      1,123,166        917,519
Loans charged off                                 (2,036,933)    (1,322,714)    (1,012,406)
Recoveries of loans previously charged off           279,417        249,548        319,887
Other increases attributed to Bank acquisition       847,341             --             --
                                                 -----------    -----------    -----------

Balance, end of year                             $ 4,222,341    $ 3,375,000    $ 3,325,000
                                                 ===========    ===========    ===========
</TABLE>

Loans on nonaccrual status were $357,640, $418,413 and $589,788 at December 31,
2002, 2001 and 2000, respectively. Interest income forgone on loans classified
as non-accrued during the years ended December 31, 2002, 2001 and 2000 was
$69,888, $123,804 and $146,797, respectively.

                                       18

<PAGE>

                     CITIZENS HOLDING COMPANY AND SUBSIDIARY
                  Years Ended December 31, 2002, 2001 and 2000


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

Note 5.  Premises and Equipment

Premises and equipment consists of the following at December 31, 2002 and 2001:

                                                       2002              2001
--------------------------------------------------------------------------------

Land and buildings                                 $ 9,643,349       $ 6,246,477
Furniture, fixtures and equipment                    7,107,499         5,395,987
                                                   -----------       -----------
                                                    16,750,848        11,642,464
  Less accumulated depreciation                      7,350,906         6,498,929
                                                   -----------       -----------

     Total                                         $ 9,399,942       $ 5,143,535
                                                   ===========       ===========

Depreciation expense for the years ended December 31, 2002, 2001 and 2000 was
$851,977, $546,479 and $476,585, respectively.


Note 6.   Deposits

The composition of deposits is as follows:

                                                      2002              2001
--------------------------------------------------------------------------------

Non-interest bearing                              $ 59,761,550      $ 50,535,929
NOW and money market accounts                      122,717,966        91,656,150
Savings deposits                                    33,216,006        22,481,585
Time certificates, $100,000 or more                 77,399,749        73,246,704
Other time certificates                            139,672,904       121,388,939
                                                  ------------      ------------
      Total                                       $432,768,175      $359,309,307
                                                  ============      ============

The scheduled maturities of certificates of deposit at December 31, 2002 are as
follows:

Year Ending                                                           Amount
December 31,                                                            (In
                                                                     Thousands)
--------------------------------------------------------------------------------

2003                                                                $    184,215
2004                                                                      16,938
2005                                                                      13,300
2006                                                                       1,369
2007                                                                       1,251
                                                                    ------------

                                                                    $    217,073
                                                                    ============

Interest expense for certificates of deposit over $100,000 was $2,346,000,
$4,094,000 and $3,453,000 for the years ended December 31, 2002, 2001 and 2000,
respectively.

                                       19

<PAGE>

                     CITIZENS HOLDING COMPANY AND SUBSIDIARY
                  Years Ended December 31, 2002, 2001 and 2000


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

Note 7.  Federal Home Loan Bank Borrowings

Pursuant to collateral agreements with the Federal Home Loan Bank (FHLB),
advances are collateralized by all the Company's stock, FHLB Securities
($7,726,135 included in securities available-for-sale at December 31, 2002) and
qualifying first mortgage loans. As of December 31, 2002 the balance in
qualifying first mortgage loans was $124,241,623. Advances at December 31, 2002
consist of the following:


                             Interest
       Amount                  Rate                               Maturity
-------------------------------------------------------------------------------

 $   5,000,000                 5.457%                         February 26, 2008
     5,000,000                 6.600%                            April 28, 2008
     6,706,135                 4.941%                              July 3, 2006
     3,000,000                 5.240%                            April 20, 2009
     2,000,000                 5.290%                            April 20, 2009
     2,000,000                 4.880%                           August 22, 2011
     1,000,000                 4.759%                           August 29, 2011
     2,000,000                 4.470%                         September 7, 2010
       900,000                 4.430%                        September 19, 2011

The scheduled payments for the next five years are as follows:

Year
Due                                                                    Payment
--------------------------------------------------------------------------------

2003                                                                 $   969,288
2004                                                                   1,018,280
2005                                                                   1,069,749
2006                                                                     648,818
2007                                                                          --
Thereafter                                                            20,900,000
                                                                     -----------

                                                                     $24,606,135
                                                                     ===========

                                       21

<PAGE>

                     CITIZENS HOLDING COMPANY AND SUBSIDIARY
                  Years Ended December 31, 2002, 2001 and 2000


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

Note 8.  Income Taxes

The consolidated provision for income taxes consists of the following:

                                           2002          2001           2000
--------------------------------------------------------------------------------

Currently payable
  Federal                              $ 2,556,030   $ 2,356,645    $ 2,491,383
  State                                    309,529       224,469        223,356
                                       -----------   -----------    -----------
                                         2,865,559     2,581,114      2,714,739
Deferred tax expense (benefit)              99,596       (23,188)       (79,528)
                                       -----------   -----------    -----------

     Income Tax Expense                $ 2,965,155   $ 2,557,926    $ 2,635,211
                                       ===========   ===========    ===========

The differences between the federal statutory rate and the effective tax rates
were as follows:

                                          2002           2001           2000
--------------------------------------------------------------------------------

Federal tax based on statutory rate   $ 3,149,303    $ 2,811,400    $ 2,777,656
State income tax                          204,690        157,142        147,415
Change due to
  Tax-exempt investment interest         (495,872)      (321,389)      (303,191)
  Other, net                              107,034        (89,227)        13,331
                                      -----------    -----------    -----------

     Income Tax Expense               $ 2,965,155    $ 2,557,926    $ 2,635,211
                                      ===========    ===========    ===========

At December 31, 2002 and 2001, net deferred tax asset consists of the following:

                                                          2002           2001
--------------------------------------------------------------------------------

Deferred Tax Assets
  Allowance for loan losses                           $   992,501    $   863,225
  Deferred compensation liability                         402,018        366,925
  Other real estate                                       181,270         11,735
  Other                                                    46,824             --
                                                      -----------    -----------

      Total                                           $ 1,622,613    $ 1,241,885
                                                      -----------    -----------

                                       21

<PAGE>

                     CITIZENS HOLDING COMPANY AND SUBSIDIARY
                  Years Ended December 31, 2002, 2001 and 2000


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

Note 8.  Continued

                                                        2002             2001
--------------------------------------------------------------------------------

Deferred Tax Liabilities
  Investment securities basis                       $    32,118      $   216,869
  Unrealized gain on available
    for sale securities                               1,549,508           89,295
  Premises and equipment                                396,988               --
  Intangible assets                                     591,319               --
                                                    -----------      -----------

     Total                                            2,569,933          306,164
                                                    -----------      -----------
     Net Deferred Tax Asset (Liability)             $  (947,320)     $   935,721
                                                    ===========      ===========

The net deferred tax liability at December 31, 2002 of $947,320 is included in
other liabilities. At December 31, 2001, the net deferred tax asset of $935,721
is included in other assets. The Company has evaluated the need for a valuation
allowance related to the above deferred tax assets and, based on the weight of
the available evidence, has determined that it is more likely than not that all
deferred tax assets will be realized.


Note 9.  Summarized Financial Information of Citizens Holding Company

Summarized financial information of Citizens Holding Company, parent company
only, at December 31, 2002 and 2001, and for the years ended December 31, 2002,
2001 and 2000, is as follows:

                                 Balance Sheets
                           December 31, 2002 and 2001

                                                           2002          2001
--------------------------------------------------------------------------------

Assets
   Cash                                                $   906,403   $   756,159
   Securities available-for-sale, at fair value            548,750       524,530
   Investment in bank subsidiary                        52,360,312    45,907,322
   Other assets                                             10,417        11,897
                                                       -----------   -----------

     Total Assets                                      $53,825,882   $47,199,908
                                                       ===========   ===========

Liabilities                                            $    43,323   $    18,340


Stockholders' equity                                    53,782,559    47,181,568
                                                       -----------   -----------

      Total Liabilities and Stockholders' Equity       $53,825,882   $47,199,908
                                                       ===========   ===========

                                       22

<PAGE>

                     CITIZENS HOLDING COMPANY AND SUBSIDIARY
                  Years Ended December 31, 2002, 2001 and 2000


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

Note 9.  Continued

                                Income Statements
                  Years Ended December 31, 2002, 2001 and 2000

                                            2002          2001           2000
--------------------------------------------------------------------------------

Interest income                         $    42,465   $    74,085    $    86,053
                                        -----------   -----------    -----------

Other Income
   Other                                     35,843        34,815         46,062
   Dividends from bank subsidiary         2,592,317     1,986,540      1,406,219
   Equity in undistributed earnings
     of bank subsidiary                   3,693,570     3,721,802      4,069,658
                                        -----------   -----------    -----------
       Total Other Income                 6,321,730     5,743,157      5,521,939
                                        -----------   -----------    -----------
Other expense                                61,030       107,824         42,625
                                        -----------   -----------    -----------
         Income before Income Taxes       6,303,165     5,709,418      5,565,367
Income tax expense (benefit)                  5,665        (1,480)        31,002
                                        -----------   -----------    -----------
       Net Income                       $ 6,297,500   $ 5,710,898    $ 5,534,365
                                        ===========   ===========    ===========

                            Statements of Cash Flows
                  Years Ended December 31, 2002, 2001 and 2000

<TABLE>
<CAPTION>
                                                      2002           2001           2000
-------------------------------------------------------------------------------------------
<S>                                               <C>            <C>            <C>
Cash Flows from Operating Activities
   Net income                                     $ 6,297,500    $ 5,710,898    $ 5,534,365
   Adjustments to reconcile net income to
     net cash provided by operating
     activities
       Equity in undistributed earnings of
         Bank                                      (3,693,570)    (3,721,802)    (4,069,658)
       Decrease in other assets                         1,480          7,004         15,874
       Increase (decrease) in other liabilities        24,983        (76,249)       (28,844)
                                                  -----------    -----------    -----------
             Net Cash Provided by Operating
            Activities                              2,630,393      1,919,851      1,451,737
                                                  -----------    -----------    -----------
Cash Flows from Investing Activities
   Proceeds from sale of investments                       --        800,000             --
   Other                                               (9,040)      (422,352)        69,801
                                                  -----------    -----------    -----------
             Net Cash Provided (Used) by
            Investing Activities                  $    (9,040)   $   377,648    $    69,801
                                                  -----------    -----------    -----------
</TABLE>

                                       23

<PAGE>

                     CITIZENS HOLDING COMPANY AND SUBSIDIARY
                  Years Ended December 31, 2002, 2001 and 2000


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

Note 9.  Continued

<TABLE>
<CAPTION>
                                              2002           2001           2000
-----------------------------------------------------------------------------------
<S>                                       <C>            <C>            <C>
Cash Flows from Financing Activities
   Dividends paid to stockholders         $(2,580,879)   $(1,902,531)   $(1,406,219)
   Exercise of stock options                  109,770             --             --
                                          -----------    -----------    -----------
             Net Cash Used by Financing
               Activities                  (2,471,109)    (1,902,531)    (1,406,219)
                                          -----------    -----------    -----------
             Net Increase in Cash             150,244        394,968        115,319
                                          -----------    -----------    -----------

Cash, beginning of year                       756,159        361,191        245,872
                                          -----------    -----------    -----------

Cash, end of year                         $   906,403    $   756,159    $   361,191
                                          ===========    ===========    ===========
</TABLE>

The Company is required to obtain approval from state regulators before paying
dividends. The Citizens Bank paid dividends of $2,592,317, $1,986,540 and
$1,406,219 to the Company during the years ended December 31, 2002, 2001 and
2000, respectively.


Note 10.  Related Party Transactions

The Company has had, and may be expected to have in the future, banking
transactions in the ordinary course of business with directors, significant
stockholders, principal officers, their immediate families, and affiliated
companies in which they are principal stockholders (commonly referred to as
related parties). In management's opinion, such loans are made on substantially
the same terms, including interest rates and collateral, as those prevailing at
the time for comparable transactions with unrelated parties, and does not
involve more than the normal risk of collectibility at the time of the
transaction.

The balance of loans made to related parties at December 31, 2002 and 2001 was
$1,740,496 and $2,068,168, respectively. Advances to related parties during the
year ended December 31, 2002 totaled $3,168,658. Payments received from related
parties during the year ended December 31, 2002 totaled $3,496,330.

                                       24

<PAGE>

                     CITIZENS HOLDING COMPANY AND SUBSIDIARY
                  Years Ended December 31, 2002, 2001 and 2000


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

Note 11.  Off-Balance Sheet Financial Instruments, Commitments and Contingencies
          and Concentrations of Risks

Commitments to Extend Credit
----------------------------

In the ordinary course of business, the Company makes various commitments and
incurs certain contingent liabilities to fulfill the financing needs of its
customers. These commitments and contingent liabilities include commitments to
extend credit and issue standby letters of credit. They involve, to varying
degrees, elements of credit risk in excess of the amount recognized in the
balance sheets. The Company's exposure to credit loss in the event of
nonperformance by the other party to the financial instrument for commitments to
extend credit and standby letters of credit is represented by the contractual
amount of those instruments. At December 31, 2002 and 2001, commitments related
to unused lines of credit were $29,079,857 and standby letters of credit were
$479,850 and $444,500, respectively. As some of these commitments are expected
to expire without being drawn upon, the total commitment amount does not
necessarily represent future cash requirements. The Company applies the same
credit policies and standards as it does in the lending process when making
these commitments. The collateral obtained is based upon the assessed credit
worthiness of the borrower. Collateral held varies, but may include accounts
receivable, crops, livestock, inventory, property and equipment, residential
real estate and income-producing commercial properties.

Interest Rate Risk
------------------

The Company is principally engaged in providing short-term and medium-term
installment, commercial and agricultural loans with interest rates that are
fixed or fluctuate with the prime lending rate. These assets are primarily
funded through short-term demand deposits and long-term certificates of deposit
with variable and fixed rates. Accordingly, the Company is exposed to interest
rate risk because, in changing interest rate environments, interest rate
adjustments on assets and liabilities may not occur at the same time or in the
same amount. The Company manages the overall rate sensitivity and mix of its
asset and liability portfolio and attempts to minimize the effects that interest
rate fluctuations will have on its net interest margin.

Legal Proceedings

The Company is party to lawsuits and other claims that arise in the ordinary
course of business. The lawsuits assert claims related to the general business
activities of the Company. The cases 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. While management believes that the final resolution of pending legal
proceedings will not have a material impact on the Company's financial position
or results of operations, the final resolution of such proceedings could have a
material adverse effect on the Company's financial position or results of
operations.

                                       25

<PAGE>

                     CITIZENS HOLDING COMPANY AND SUBSIDIARY
                  Years Ended December 31, 2002, 2001 and 2000


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

Note 11.  Continued

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

The Company makes agricultural, agribusiness, commercial, residential and
consumer loans primarily in the eastern region of Mississippi. A substantial
portion of the Company's customers' abilities to honor their contracts is
dependent on the business and agricultural economy in that area.

Although the Company's loan portfolio is diversified, there is a relationship in
this region between the agricultural economy and the economic performance of
loans made to nonagricultural customers. The Company's lending policies for
agricultural and nonagricultural customers require loans to be
well-collateralized and supported by cash flows. Collateral for agricultural
loans includes equipment, crops, livestock, and land. Credit losses from loans
related to the agricultural economy are consistent with credit losses
experienced in the portfolio as a whole. The concentration of credit in the
regional agricultural economy is taken into consideration by management in
determining the allowance for loan losses.

See Note 3 for a summary of loans by type.

The nature of the Company's business requires that it maintain amounts due from
banks, which at times may exceed federally insured limits. The Company has not
experienced any losses in such accounts.


Note 12.  Lease Commitment and Total Rental Expense

The Company has operating leases under noncancellable operating lease agreements
for banking facilities and equipment. Future minimum rental payments due under
the leases are as follows:

Years Ending
December 31,                                                           Amounts
--------------------------------------------------------------------------------

2003                                                                 $    62,604
2004                                                                      62,604
2005                                                                      62,604
2006                                                                      62,604
2007                                                                      58,644
                                                                     -----------

                                                                     $   309,060
                                                                     ===========

The total rental expense included in the income statements for the years ended
December 31, 2002, 2001 and 2000 is $64,281, and $66,962 and $26,913,
respectively.

                                       26

<PAGE>

                     CITIZENS HOLDING COMPANY AND SUBSIDIARY
                  Years Ended December 31, 2002, 2001 and 2000


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

Note 13.  Benefit Plan

The Company provides its employees with a profit sharing and savings plan, which
allows employees to direct a percentage of their compensation into a tax
deferred retirement account, subject to statutory limitations. To encourage
participation, the Company provides a 100 percent matching contribution for up
to 6 percent of each participant's compensation, plus discretionary non-matching
contributions. Employees are eligible after one year of service. For 2002, 2001
and 2000, the Company's contributions were $358,520, $288,283 and $261,153,
respectively.

Deferred Compensation Plan
--------------------------

The Company provides a deferred compensation plan covering its directors.
Participants in the deferred compensation plan can defer a portion of their
compensation for payment after retirement. Life insurance contracts have been
purchased which may be used to fund payments under the plan. Net expenses
related to this plan were $103,570, $81,456 and $74,972 for the plan years ended
December 31, 2002, 2001 and 2000, respectively.


Note 14.  Regulatory Matters

The Company is subject to various regulatory capital requirements administered
by its primary federal regulator, the Federal Deposit Insurance Corporation
(FDIC). Failure to meet the minimum regulatory capital requirements can initiate
certain mandatory, and possible additional discretionary actions by regulators
that, if undertaken, could have a direct material affect on the Company. Under
the regulatory capital adequacy guidelines and the regulatory framework for
prompt corrective action, the Company must meet specific capital guidelines
involving quantitative measures of the Company's assets, liabilities and certain
off-balance sheet items as calculated under regulatory accounting practices. The
Company's capital amounts and classification under the prompt corrective action
guidelines are also subject to qualitative judgments by the regulators about
components, risk weightings, and other factors. Quantitative measures
established by regulation to ensure capital adequacy require the Company to
maintain minimum amounts and ratios of total Tier I capital to risk-weighted
assets (as defined in the regulations) and Tier I capital to average assets (as
defined in the regulations).

                                       27

<PAGE>

                     CITIZENS HOLDING COMPANY AND SUBSIDIARY
                  Years Ended December 31, 2002, 2001 and 2000


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

Note 14.  Continued

To be categorized as well capitalized under the regulatory framework for prompt
corrective action, the Company would have to maintain minimum total risk-based,
Tier I risk-based, and Tier I leverage ratios as disclosed below, in comparison
with actual capital amounts and ratios:

<TABLE>
<CAPTION>
                                                                                               To Be Well
                                                                     For Capital       Capitalized under Prompt
                                          Actual                  Adequacy Purposes   Corrective Action Provisions
                               -----------------------------------------------------------------------------------
                                  Amount          Ratio        Amount          Ratio       Amount        Ratio
------------------------------------------------------------------------------------------------------------------
<S>                            <C>                <C>       <C>                 <C>     <C>               <C>
As of December 31, 2002
  Total Capital
  (to Risk-Weighted Assets)
    Citizens Holding Company   $ 49,262,962       16.02%    $ 24,605,856        8.00%   $         N/A        --%
    Citizens Bank                47,794,683       15.55       24,596,462        8.00       30,745,577     10.00
  Tier I Capital
  (to Risk-Weighted Assets)
    Citizens Holding Company     45,413,634       14.77       12,302,928        4.00              N/A        --
    Citizens Bank                43,946,805       14.29       12,298,231        4.00       18,447,346      6.00
  Tier I Capital
  (to average Assets)
    Citizens Holding Company     45,413,634        8.83       20,569,960        4.00              N/A        --
    Citizens Bank                43,946,805        8.59       20,474,027        4.00       25,592,534      5.00
</TABLE>


<TABLE>
<CAPTION>
                                                                                               To Be Well
                                                                     For Capital       Capitalized under Prompt
                                          Actual                  Adequacy Purposes   Corrective Action Provisions
                               -----------------------------------------------------------------------------------
                                  Amount          Ratio        Amount          Ratio       Amount        Ratio
------------------------------------------------------------------------------------------------------------------
<S>                            <C>                <C>       <C>                 <C>     <C>               <C>
As of December 31, 2001
  Total Capital
  (to Risk-Weighted Assets)
    Citizens Holding Company   $ 48,562,374       18.40%    $ 21,112,077        8.00%   $         N/A        --%
    Citizens Bank                47,286,697       17.93       21,103,291        8.00       26,379,114     10.00
  Tier I Capital
  (to Risk-Weighted Assets)
    Citizens Holding Company     45,262,671       17.15       10,556,038        4.00              N/A        --
    Citizens Bank                43,988,350       16.68       10,551,646        4.00       15,827,468      6.00
  Tier I Capital
  (to average Assets)
    Citizens Holding Company     45,262,671       10.51       17,224,286        4.00              N/A        --
    Citizens Bank                43,988,350       10.33       17,028,839        4.00       21,286,049      5.00
</TABLE>

                                       28

<PAGE>

                     CITIZENS HOLDING COMPANY AND SUBSIDIARY
                  Years Ended December 31, 2002, 2001 and 2000


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

Note 15.  Fair Values of Financial Instruments

The following represents the carrying value and estimated fair market value of
the Company's financial instruments at December 31, 2002 and 2001:

<TABLE>
<CAPTION>
                                              2002                          2001
                                  ---------------------------   ---------------------------
                                     Carrying        Fair          Carrying        Fair
                                      Amount         Value          Amount         Value
-------------------------------------------------------------------------------------------
<S>                               <C>            <C>            <C>            <C>
Financial Assets
  Cash and due from banks         $ 19,769,712   $ 19,769,712   $ 12,713,482   $ 12,713,482
  Interest bearing deposits
    with banks                       1,365,649      1,365,649      5,421,241      5,421,241
  Securities available-for-sale    162,276,305    162,276,305    122,567,180    122,567,180
  Net loans                        303,952,527    305,656,861    260,903,091    262,408,345
  Federal funds sold                 2,300,000      2,300,000      6,100,000      6,100,000

Financial Liabilities
  Deposits                        $432,768,175   $433,735,968   $359,309,007   $360,147,682
  Federal Home Loan Bank
    borrowings                      24,606,135     24,606,135     14,628,788     14,628,788
</TABLE>

The fair value estimates, methods and assumptions used by the Company in
estimating its fair value disclosures for financial instruments were:

Cash and Due from Banks
-----------------------

The carrying amounts reported in the balance sheet for these instruments
approximate those assets' fair values because of their immediate and
shorter-term maturities.

Securities Available-for-Sale
-----------------------------

Fair values for investment securities are based on quoted market prices, where
available. If quoted market prices are not available, fair values are based on
quoted market prices of comparable instruments.

Net Loans
---------

For variable-rate loans that reprice frequently and with no significant change
in credit risk, fair values are based on carrying values. The fair values for
other loans (i.e., commercial real estate and rental property mortgage loans,
commercial and industrial loans, financial institution loans, and agricultural
loans) are estimated using discounted cash flow analyses, using interest rates
currently being offered for loans with similar terms to borrowers of similar
credit quality. The carrying amount of accrued interest receivable approximates
its fair value.

                                       29

<PAGE>

                     CITIZENS HOLDING COMPANY AND SUBSIDIARY
                  Years Ended December 31, 2002, 2001 and 2000


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

Note 15.  Continued

Deposits
--------

The fair values for demand deposits, NOW and money market accounts and savings
accounts are, by definition, equal to the amount payable on demand at the
reporting date (i.e., their carrying amounts). The carrying amounts for
variable-rate, fixed-term money market accounts and time deposits approximate
their fair values at the reporting date. Fair values for fixed-rate time
deposits are estimated using a discounted cash flow calculation that applies
interest rates currently being offered on certificates to a schedule of
aggregated expected monthly maturities on time deposits. The carrying amount of
accrued interest payable approximates its fair value.

Federal Home Loan Bank Borrowings
---------------------------------

The fair value of the portion of Federal Home Loan Bank advances that matures
within 90 days approximates its fair value. For longer term maturities, the fair
value is based on discounted cash flow analysis.

Off-Balance Sheet Instruments
-----------------------------

The fair value of commitments to extend credit and letters of credit are
estimated using fees currently charged to enter into similar agreements. The
fees associated with these financial instruments are not material.


Note 16.  Stock Options

The Company has a directors' stock compensation plan and employees' long-term
incentive plan. Under the directors' plan the Company may grant options up to
105,000 shares of common stock. The price of each option shall be equal to the
market price determined as of the option grant date. Options granted are
exercisable after 6 months and shall expire after 10 years. Under the employees'
incentive plan the Company may grant options up to 7 percent of the total number
of shares of common stock, which may be issued and outstanding. Incentive
options must be granted within 10 years of the adoption of the plan and shall
expire no later than 10 years from the grant date. The exercise price shall be
equal to the market price of the Company's stock on the date of grant.

                                       30

<PAGE>

                     CITIZENS HOLDING COMPANY AND SUBSIDIARY
                  Years Ended December 31, 2002, 2001 and 2000


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

Note 16.  Continued

The Company applies APB Opinion 25 in accounting for the compensation and
long-term incentive plan. Accordingly, there was no compensation cost related to
options granted during the years ending December 31, 2002, 2001 and 2000. Had
compensation cost been determined on the basis of fair value pursuant to FASB
Statement No. 123 using publicly traded share prices as a basis of determining
fair values, net income and earnings per share would have been reduced as
follows:

                                                        2002             2001
--------------------------------------------------------------------------------

Net Income
  As reported                                     $   6,298,064    $   5,710,898
  Pro forma                                       $   6,187,674    $   5,657,245

Basic Earnings Per Share
  As reported                                     $        1.27    $        1.15
  Pro forma                                       $        1.25    $        1.14

Diluted Earnings Per Share
  As reported                                     $        1.26    $        1.15
  Pro forma                                       $        1.24    $        1.14

The fair value of each option is estimated on the grant date using the
Black-Scholes option pricing model. The following assumptions were made in
estimating fair values in 2002 and 2001:

Assumption                                              2002            2001
--------------------------------------------------------------------------------

Dividend yield                                           1.5%           1.5%
Risk-free interest rate                                    4%           6.25%
Expected life                                           7 years        10 years
Expected volatility                                    15.00%          16.05%

<PAGE>

                     CITIZENS HOLDING COMPANY AND SUBSIDIARY
                  Years Ended December 31, 2002, 2001 and 2000


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

Note 16.  Continued

Following is a summary of the status of the plans for the years ending December
31, 2002 and 2001:

<TABLE>
<CAPTION>
                                              Directors' Plan               Employees' Plan
                                        ---------------------------   ----------------------------
                                                         Weighted                       Weighted
                                             Number      Average          Number        Average
                                               of        Exercise           of          Exercise
                                             Shares       Price           Shares         Price
--------------------------------------------------------------------------------------------------
<S>                                           <C>      <C>                  <C>       <C>
Outstanding at January 1, 2001                40,800   $       8.49         22,950    $       9.51
  Granted                                     15,000          10.83          6,000           11.25
  Exercised                                       --             --             --              --
  Forfeited                                       --             --         (1,500)          10.33
                                        ------------   ------------   ------------    ------------

Outstanding at December 31, 2001              55,800   $       9.12         27,450    $       9.85
  Granted                                     15,000          15.00         38,000           14.68
  Exercised                                       --             --        (11,550)           9.51
  Forfeited                                       --                            --              --
                                        ------------   ------------   ------------    ------------

Outstanding at December 31, 2002              70,800   $      10.37         53,900    $      13.33

Options exercisable at:
  December 31, 2001                           55,800   $       9.12         26,700    $       9.85
                                        ============   ============   ============    ============

  December 31, 2002                           70,800   $      10.37         53,900    $      13.33
                                        ============   ============   ============    ============

Weighted average fair value of
  options granted during years ended:
    December 31, 2001                                  $       3.83                   $       4.13
                                                       ============                   ============

    December 31, 2002                                  $       5.22                   $       5.10
                                                       ============                   ============
</TABLE>

<PAGE>

Financial Information:



Corporate Headquarters
521 Main Street
P. O. Box 209
Philadelphia, MS 39350
601-656-4692


Annual Stockholders Meeting

The Annual Stockholder meeting of the Citizens Holding Company, Inc. will be
held Tuesday, April 23, 2002 at 3:30 P.M. at the main office of The Citizens
Bank, 521 Main Street, Philadelphia, Mississippi.


Stock Registrar and Transfer Agent
American Stock Transfer & Trust Company
40 Wall Street - 46th Floor
New York, NY  10005


Form l0-K

The Corporation's most recent Annual Report on Form 10-K, filed with the
Securities and Exchange Commission, is available to stockholders upon request to
the Treasurer of the Citizens Holding Company.


Financial Contact

Robert T. Smith
Treasurer
P.O. Box 209
Philadelphia, MS 39350
601-656-4692

<PAGE>


Bank Officers


Greg McKee
President & CEO

Danny Hicks
Sr. Vice President

Robert T. Smith
Sr.Vice President & CFO

Erdis Chaney
Vice President  & Cashier

Tim Lofton
Vice President  & CIO

Randy Cheatham
Vice President

Mike Guthrie
Vice President

Joe Foster
Vice President & Trust

Murray Johnson
Vice President

Jackie Hester
Vice President & Marketing

Kaye Johnson
Vice President

Stanley Salter
Vice President

Darrell Bates
Vice President

David Sharp
Vice President

Jean T. Fulton
Vice President

Gayle Sharp
Vice President

Lucille M. Myatt
Assistant to the President

Carolyn K. McKee
Student Loan Officer

Mark Majure
Assistant Cashier

Beth Branning
Assistant Cashier

<PAGE>

Pat Stokes
Assistant Cashier

Adriana Burt
Assistant Cashier

Mitch Peden
Data Processing Officer

Brad Copeland
Assistant Cashier

Sommer Vick
Accounting Officer

Mark Flake
Data Processing Officer

Barbara Lewis
         Assistant Cashier

         Carthage Branch

Mike Brooks
President

J. Michael Ellis
Vice President

Billie Nell Dowdle
Vice President

Byron Hines
Vice President

Margaret Thompson
Assistant Cashier

Carol Wright
Assistant Cashier


Sebastopol Branch

Linda Bennett
         President

         Union Branch

Robert C. Palmer, Jr.
President

Karen Foster
Assistant Vice President


         DeKalb Branch

Steven Lockley
Vice President

<PAGE>

         Kosciusko Branch

Charlie Hudson
 President

Joanne Sanders
Assistant Cashier

         Scooba Branch

Fran Knight
Vice President

Meridian Branch

Charles Young
President

Mac Hodges
Vice President

         Forest Branch

Richard Latham
Vice President

Dymple Winstead
Assistant Vice President

         Decatur Branch

Ken Jones
Vice President

Louisville Branch

Terry Woods
President

Edna Bell
Vice President

Marion Gardner
Assistant Cashier

Danny Parker
Assistant Cashier

Bruce Lee
Assistant Cashier

Mortgage Loan Department

David Blair, Jr.
Vice President

Citizens Holding Company Officers:

Steve Webb
Chairman

<PAGE>

Greg McKee
President & CEO

Carolyn K. McKee
Secretary

Robert T. Smith
Treasurer

Directors:

M. G. Bond
Retired Mississippi State Senator

Karl Brantley
Plant Manager
U. S. Electrical Motors

W. W. Dungan
Partner
McDaniel Timber Company

Don Fulton
President & General Manager
Nemanco, Inc.

Don L. Kilgore
Attorney
Alford, Thomas & Kilgore, P.A.

David A. King
Proprietor
Philadelphia Motor Company

Herbert A. King
Civil Engineer
King Engineering Associates, Inc.

George R. Mars
Retired Proprietor
Mars Department Store

William M. Mars
Attorney
Mars, Mars, Mars & Chalmers,  P.A.

Greg McKee
President & CEO
Citizens Holding Company and
The Citizens Bank

David P. Webb
Attorney
Phelps Dunbar, LLP

<PAGE>

Steve Webb
Chairman
Citizens Holding Company and
The Citizens Bank