Contact:
Kathleen Campbell, Marketing Director
First Citizens Community Bank
15 S. Main Street
Mansfield, PA 16933
570-662-0422
570-662-8512 (fax)
citizens financial services, inc. reports unaudited first quarter 2020 financial results
MANSFIELD, PENNSYLVANIA— April 24, 2020 – Citizens Financial Services, Inc. (OTC Pink: CZFS), parent company of First Citizens Community Bank, released today its unaudited consolidated financial results for the three months ended March 31, 2020.
Highlights
| • | The acquisition of MidCoast Community Bancorp, Inc. was completed effective April 17, 2020 and the merger of computer and operating systems occurred on April 18th. The acquisition included $231.3 million of loans and $207.8 million of deposits. Based on the closing price on April 17th, the deal valuation was approximately $27.0 million. Merger and acquisitions costs for 2020 totaled $376,000 as of March 31, 2020. |
| • | Net income was $4.5 million for the three months ended March 31, 2020, which is 2.9% higher than the net income for 2019’s comparable period. The effective tax rate for the first three months of 2020 was 16.4% compared to 15.7% in the comparable period in 2019. |
| • | Net interest income before the provision for loan losses was $12.9 million for the three months ended March 31, 2020, an increase of $975,000, or 8.2%, over the same period a year ago. |
| • | Return on average equity for the three months (annualized) ended March 31, 2020 was 11.48% compared to 12.12% for the three months (annualized) ended March 31, 2019. Excluding merger and acquisitions costs, the annualized return on average equity for the three months ended March 31, 2020 would have been 12.34%. (1) |
| • | Return on average tangible equity for the three months (annualized) ended March 31, 2020 was 13.59% compared to 14.62% for the three months (annualized) ended March 31, 2019. (1) |
| • | Return on average assets for the three months (annualized) ended March 31, 2020 was 1.24% compared to 1.22% for the three months (annualized) ended March 31, 2019. Excluding merger and acquisitions costs, the annualized return on average assets for the three months ended March 31, 2020 would have been 1.34%. (1) |
Covid 19 pandemic response and loan profile
| • | The Company participated in the Paycheck Protection Program (PPP) for loans provided under the auspices of the Small Business Administration (SBA). As of April 16th, the date where Phase I funds were allocated under the PPP program, the Company received approval from the SBA for 422 loans totaling $47.2 million, which will earn interest at 1% per annum for up to 24 months and will generate fee income of approximately $2.0 million. We will also be participating in Phase II of the PPP program. A portion of these loans may be forgiven by the SBA depending on the customers usage of the proceeds. |
| • | Additionally, as support for our communities, we created a payment relief program, which includes the following: |
| o | Waiver of late fees for March, April and May |
| o | Interest-only payment options for consumers and businesses for 60 to 90 days. |
| o | Deferral of principal payments for consumers and businesses in certain industries for 60-120 days. |
| o | Waiver of CD early withdrawal penalties through June 1. |
| • | Through April 23, we have provided relief to customers with outstanding balances of $32.5 million, or approximately 3.0% of total loans, which includes residential and commercial customers. |
| • | The Company tracks industry concentrations to identify risks that could lead to additional credit exposure. As a result of the Covid 19 pandemic, the Company has determined that Hotels/Motels and restaurants represent a higher level of credit risk. At March 31, 2020, the Company has limited loan concentrations to these industries as follows: |
| o | Hotels/Motels - $18.9 million or 1.7% of outstanding loans, and 87.6% pass rated |
| o | Restaurants - $13.1 million or 1.2% of outstanding loans, and 86.8% pass rated |
| • | Our agricultural relationships are also being strained by the pandemic as demand for certain products has declined and processing plant issues have resulted in further strains on our customers as a result of the pandemic. Agricultural lending comprises $346.8 million, or 31.7% of outstanding balances as of March 31, 2020. |
Three Months Ended March 31, 2020 Compared to March 31, 2019
| • | For the three months ended March 31, 2020, net income totaled $4,531,000 which compares to net income of $4,405,000 for the first three months of 2019, an increase of $126,000 or 2.9%. Basic earnings per share of $1.29 for first three months of 2020 compares to $1.25 for the 2019 comparable period. Annualized return on equity for the three months ended March 31, 2020 and 2019 was 11.48% and 12.12%, while annualized return on assets was 1.24% and 1.22%, respectively. If merger and acquisition costs are excluded, the annualized return on average equity and average assets would be 12.34% and 1.34%, respectively. (1) |
| • | Net interest income before the provision for loan loss for the three months ended March 31, 2020 totaled $12,890,000 compared to $11,915,000 for the three months ended March 31, 2019, resulting in an increase of $975,000, or 8.2%. Average interest earning assets increased $11.3 million for the three months ended March 31, 2020 compared to the same period last year. Average loans increased $21.4 million while average investment securities decreased $9.6 million. The tax effected net interest margin for the three months ended March 31, 2020 was 3.84% compared to 3.62% for the same period last year, which was impacted by the decrease in the average cost on interest bearing liabilities of 23 bps, to 0.91%. |
| • | The provision for loan losses for the three months ended March 31, 2020 and 2019 was $400,000. While loans decreased in 2020 compared to positive net loan growth in the first quarter of 2019, the provision for 2020 was based on the potential impact the Covid-19 pandemic may have on the local and national economies. |
| • | Total non-interest income was $1,851,000 for the three months ended March 31, 2020, which is $182,000 less than for the comparable period last year. The primary driver was a decrease of $254,000 in the value of equity securities during the first quarter, compared to an increase of $11,000 in the first quarter of 2019. The decrease in our equity portfolio was consistent with the decrease experienced by the stock market as a result of the pandemic. |
| • | Total non-interest expenses for the three months ended March 31, 2020 totaled $8,921,000 compared to $8,322,000 for the same period last year, which is an increase of $599,000, or 7.2%. Salaries and benefits increased $385,000 primarily due to merit increases and increased health care costs. Expenses associated with MidCoast acquisition accounted for $376,000 of the increase in expenses in the first quarter. Other expenses increased $156,000, which was primarily due to fraudulent charges on customer accounts. |
| • | The provision for income taxes increased $68,000 when comparing the three months ended March 31, 2020 to the same period in 2019 as a result of an increase in income before income tax of $194,000 and certain merger and acquisition expenses being non-deductible for tax purposes. |
Balance Sheet and Other Information:
| • | At March 31, 2020, total assets were $1.45 billion, compared to $1.47 billion at December 31, 2019 and $1.45 billion at March 31, 2019. |
| • | Available for sale securities of $257.8 million at March 31, 2020 increased $17.1 million from December 31, 2019 and $13.4 million from March 31, 2019. The yield on the investment portfolio increased from 2.69% to 2.82% on a tax equivalent basis. |
| • | Net loans as of March 31, 2020 totaled $1.08 billion and decreased $22.3 million from December 31, 2019 after several large pay-offs and increased $1.6 million from March 31, 2019. The decrease in loans was driven by the early pay-offs and limited demand in the first quarter. |
| • | The allowance for loan losses totaled $14,247,000 at March 31, 2020 which is an increase of $402,000 from December 31, 2019. The increase is due to recording a provision for loan losses of $400,000 and recoveries of $11,000, offset by charge-offs of $9,000. The allowance as a percent of total loans was 1.30% as of March 31, 2020 and 1.24% as of December 31, 2019. |
| • | Deposits decreased $6.0 million from December 31, 2019, to $1.21 billion at March 31, 2020, primarily due a decrease in brokered CD’s of $10.2 million. Borrowed funds decreased $1.6 million from December 31, 2019 to $83.6 million at March 31, 2020. Non-interest-bearing deposits increased $696,000 from December 31, 2019 to $204.5 million at March 31, 2020. |
| • | Stockholders’ equity totaled $159.9 million at March 31, 2020, compared to $154.8 million at December 31, 2019, an increase of $5.1 million. The increase was attributable to net income for the three months ended March 31, 2020 totaling $4.5 million, offset by cash dividends for the first quarter totaling $2.0 million and net treasury stock activity of $1.0 million. As a result of decreases in market interest rates impacting the fair value of investment securities, the unrealized gain on available for sale investment securities, net of tax, improved $3.4 million from December 31, 2019. |
Dividend Declared
On March 3, 2020, the Board of Directors declared a cash dividend of $0.55 per share, which included a $0.10 special dividend and was paid on March 27, 2020 to shareholders of record at the close of business on March 13, 2020. The quarterly cash dividend is an increase of 26.0% over the regular cash dividend of $0.441 per share declared one year ago, as adjusted for the 1% stock dividend declared in June 2019.
Citizens Financial Services, Inc. has nearly 2,000 shareholders, the majority of whom reside in markets where its offices are located.
Note: This press release may contain forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. These statements are not historical facts; rather, they are statements based on the Company's current expectations regarding its business strategies and their intended results and its future performance. Forward-looking statements are preceded by terms such as "expects," "believes," "anticipates," "intends" and similar expressions. Forward-looking statements are not guarantees of future performance. Numerous risks and uncertainties could cause or contribute to the Company's actual results, performance and achievements to be materially different from those expressed or implied by the forward-looking statements. Factors that may cause or contribute to these differences include, without limitation, changes in general economic conditions, including changes in market interest rates and changes in monetary and fiscal policies of the federal government; legislative and regulatory changes; and other factors disclosed periodically in the Company's filings with the Securities and Exchange Commission. Because of the risks and uncertainties inherent in forward-looking statements, readers are cautioned not to place undue reliance on them, whether included in this press release or made elsewhere periodically by the Company or on its behalf. The Company assumes no obligation to update any forward-looking statements except as may be required by applicable law or regulation.
| (1) | See reconciliation of non-gaap measures at the end of the press release |
