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Citizens Financial Services, Inc. Reports Unaudited Full Year And Fourth Quarter 2019 Financial Results

Cision

MANSFIELD, Pa. , Jan. 23, 2020 /PRNewswire/ -- 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 and year ended December 31, 2019 .

Highlights

  • Citizens Financial Services, Inc. and MidCoast Community Bancorp, Inc. continue to prepare for the merger that is expected to close in the second quarter of 2020.
  • Net income was $19.5 million for 2019, which is 8.1% higher than 2018's net income. The effective tax rate for 2019 was 16.4% compared to 15.9% for 2018 and was impacted by a reduction in tax-exempt income and non-deductible merger and acquisition-related expenses.
  • Net income was $5.0 million for the three months ended December 31, 2019 , which is 11.7% higher than the net income for 2018's comparable period. The effective tax rate for the three months ended December 31, 2019 was 16.6% compared to 15.8% in the comparable period in 2018.
  • Net interest income before the provision for loan losses was $49.9 million for the year ended December 31, 2019 , which was an increase of $2.8 million , or 5.8%, compared to 2018.
  • Net loan growth totaled $32.7 million in 2019, or 3.1%, while deposit growth was $26.0 million , or 2.2%.
  • Return on average equity for the three months (annualized) and the year ended December 31, 2019 was 13.05% and 13.00%, respectively, compared to 12.65% and 13.00% for the three months (annualized) and the year ended December 31, 2018 , respectively.
  • Return on average tangible equity for the three months (annualized) and the year ended December 31, 2019 was 15.52% and 15.58%, respectively, compared to 15.33% and 15.87% for the three months (annualized) and the year ended December 31, 2018 , respectively. (1)
  • Return on average assets for the three months (annualized) and the year ended December 31, 2019 was 1.37% and 1.34%, respectively, compared to 1.27% and 1.29% for the three months (annualized) and the year ended December 31, 2018 , respectively.

2019 Compared to 2018

  • For 2019, net income totaled $19,490,000 compared to net income of $18,034,000 for 2018, an increase of $1,456,000 or 8.1%. Basic earnings per share of $5.54 for 2019 compares to $5.09 for 2018. Return on equity for the years ended December 31, 2019 and 2018 was 13.00%, while return on assets was 1.34% and 1.29%, respectively.
  • Net interest income before the provision for loan loss for 2019 totaled $49,940,000 compared to $47,184,000 for 2018, resulting in an increase of $2,756,000 , or 5.8%. Average interest earning assets increased $52.0 million in 2019 compared to last year. Average loans increased $58.3 million while average investment securities decreased $9.4 million . The yield on interest earning assets increased 21 basis points to 4.59%, while the cost of interest-bearing liabilities increased 20 basis points to 1.09%. The increase in the cost of interest-bearing liabilities was due to the rise in the federal funds rate during 2018, which exceeded the reductions made in 2019. The tax effected net interest margin for 2019 was 3.72% compared to 3.66% for 2018.
  • The provision for loan losses for 2019 was $1,675,000 compared to $1,925,000 for 2018, a decrease of $250,000 . The decreased provision primarily reflects the lower level of loan growth experienced during 2019 compared to 2018.
  • Total non-interest income was $8,386,000 for 2019, which is $651,000 more than non-interest income of $7,735,000 for 2018. The increase was driven by revenue increases in our wealth management division, which includes trust fees and brokerage and insurance commissions, as well as gains on our equity security portfolio and loans sold.
  • Total non-interest expenses for 2019 totaled $33,341,000 compared to $31,557,000 for the same period last year, which is an increase of $1,784,000 , or 5.7%. Salaries and benefits increased $1,362,000 primarily due to merit increases, employee commissions, health insurance costs, profit sharing and deferred compensation costs. Other expenses increased $460,000 , which was primarily due to an increase in costs associated with operational charge-offs and fraud prevention. Merger and acquisition costs increased $466,000 as a result of the pending merger with MidCoast Community Bancorp, Inc. OREO expenses increased due to an increase in the number of OREO properties currently held by the Bank. Professional fees decreased as a result of settling a lawsuit in the first quarter of 2019 that resulted in significant expenses in 2018. FDIC insurance decreased due to receiving a credit from the FDIC in the third and fourth quarters.
  • The provision for income taxes increased $417,000 when comparing 2019 to 2018 as a result of an increase in income before income tax of $1,873,000 . The effective tax rate for 2019 was impacted by certain expenses being non-deductible for tax purposes.

Fourth Quarter of 2019 Compared to the Fourth Quarter of 2018

  • For the three months ended December 31, 2019 , net income totaled $5,043,000 which compares to net income of $4,515,000 for the comparable period in 2018, an increase of $528,000 or 11.7%. Basic earnings per share of $1.43 for three months ended December 31, 2019 compares to $1.28 for the 2018 comparable period. Annualized return on equity for the three months ended December 31, 2019 and 2018 was 13.05% and 12.65%, respectively, while annualized return on assets was 1.37% and 1.27%, respectively.
  • Net interest income before the provision for loan loss for the three months ended December 31, 2019 totaled $12,790,000 compared to $12,243,000 for the three months ended December 31, 2018 , resulting in an increase of $547,000 , or 4.5%. Average interest earning assets increased $53.9 million for the three months ended December 31, 2019 compared to the same period last year. Average loans increased $44.0 million while average investment securities increased $10.1 million . The tax effected net interest margin for the three months ended December 31, 2019 was 3.74% compared to 3.73% for the same period last year.
  • The provision for loan losses for the three months ended December 31, 2019 was $525,000 compared to $625,000 for the comparable period in 2018, a decrease of $100,000 . The decreased provision primarily reflects the lower net loan growth experienced during the fourth quarter of 2019 compared to the same period in 2018.
  • Total non-interest income was $2,149,000 for the three months ended December 31, 2019 , which is $172,000 more than the comparable period last year. The increase was driven by revenue increases in our wealth management division, which includes trust fees and brokerage and insurance commissions, as well as gains on our equity security portfolio and on loans sold.
  • Total non-interest expenses for the three months ended December 31, 2019 totaled $8,368,000 compared to $8,235,000 for the same period last year, which is an increase of $133,000 , or 1.6%. Salaries and benefits increased $484,000 primarily due to merit increases, employee commissions, health insurance costs, profit sharing and deferred compensation costs. Merger and acquisition costs increased as a result of the pending merger with MidCoast Community Bancorp, Inc. Professional fees decreased as a result of settling a lawsuit in the first quarter of 2019 that resulted in significant expenses in 2018. FDIC insurance decreased due to receiving a credit from the FDIC in the fourth quarter of 2019.
  • The provision for income taxes increased $158,000 when comparing the three months ended December 31, 2019 to the same period in 2018. The effective tax rate for the three months ended December 31, 2019 and 2018 was 16.6% and 15.8%, respectively.

Balance Sheet and Other Information:

  • At December 31, 2019 , total assets were $1.47 billion , compared to $1.43 billion at December 31, 2018 . The loan to deposit ratio as of December 31, 2019 was 92.11% compared to 91.29% as of December 31, 2018 .
  • Available for sale securities of $240.7 million at December 31, 2019 decreased $304,000 from December 31, 2018 . Interest bearing time deposits with other banks decreased $1.2 million to $14.3 million at December 31, 2019 .
  • Net loans as of December 31, 2019 totaled $1.10 billion and increased $32.7 million from December 31, 2018 . Net loan growth for 2019 was negatively impacted by transfers to other real estate owned as the result of a settlement with a customer in bankruptcy and several large loan payoffs. The growth in 2019 was in commercial and agricultural relationships, which continued the trend from 2018.
  • The allowance for loan losses totaled $13,845,000 at December 31, 2019 which is an increase of $961,000 from December 31, 2018 . The increase is due to recording a provision for loan losses of $1,625,000 and recoveries of $43,000 , offset by charge-offs of $757,000 . Net charge-offs as a percent of total loans for 2019 and 2018 was .06% and .02%, respectively. The allowance as a percent of total loans was 1.24% as of December 31, 2019 compared to 1.19% as of December 31, 2018 . For the year, non-performing assets increased $1.0 million .
  • Deposits increased $26.0 million from December 31, 2018 , to $1.21 billion at December 31, 2019 as a result of growth in our south central Pennsylvania market. Borrowed funds decreased $6.1 million from December 31, 2018 to $85.1 million at December 31, 2019 as a result of the growth in deposits and equity.
  • Stockholders' equity totaled $154.8 million at December 31, 2019 , compared to $139.2 million at December 31, 2018 , an increase of $15,545,000 . The increase was attributable to net income of $19.5 million for 2019, offset by cash dividends of $6.3 million and net treasury stock activity of $845,000 . As a result of changes in interest rates impacting the fair value of investment securities, the unrealized loss on available for sale investment securities, net of tax, increased $3.3 million from December 31, 2018 .

Dividend Declared

On December 3, 2019 , the Board of Directors declared a cash dividend of $0.450 per share, which was paid on December 27, 2019 to shareholders of record at the close of business on December 13, 2019 . The quarterly cash dividend is an increase of 3.3% over the regular cash dividend of $0.436 per share declared one year ago, as adjusted for the 1% stock dividend declared in June 2019 .

Citizens Financial Services, Inc. has nearly 1,700 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 to Gaap measures at the end of the press release

 

CITIZENS FINANCIAL SERVICES, INC.





CONSOLIDATED FINANCIAL HIGHLIGHTS





(UNAUDITED)





(Dollars in thousands, except per share data)






As of or For The

As of or For The


Three Months Ended

Year Ended


December 31,

December 31,


2019

2018

2019

2018

Income and Performance Ratios





Net Income 

$              5,043

$          4,515

$          19,490

$        18,034

Return on average assets (annualized)

1.37%

1.27%

1.34%

1.29%

Return on average equity (annualized)

13.05%

12.65%

13.00%

13.00%

Return on average tangible equity (annualized) (a)

15.52%

15.33%

15.58%

15.87%

Net interest margin (tax equivalent)(a)

3.74%

3.73%

3.72%

3.66%

Earnings per share - basic (b)

$                1.43

$            1.28

$               5.54

$            5.09

Earnings per share - diluted (b)

$                1.43

$            1.28

$               5.53

$            5.09

Cash dividends paid per share (b)

$              0.450

$          0.436

$            1.781

$          1.725











Asset quality





Allowance for loan and lease losses

$            13,845

$        12,884

$          13,845

$        12,884

Non-performing assets

$            15,427

$        14,393

$          15,427

$        14,393

Allowance for loan and lease losses/total loans

1.24%

1.19%

1.24%

1.19%

Non-performing assets to total loans

1.38%

1.33%

1.38%

1.33%

Annualized net charge-offs to total loans

0.13%

0.05%

0.06%

0.02%











Equity





Book value per share (b)

$              44.08

$          40.45

$            44.08

$          40.45

Tangible Book value per share (a) (b)

$              37.09

$          33.41

$            37.09

$          33.41

Market Value (Last reported trade of month)

$              61.50

$          55.55

$            61.50

$          55.55

Common shares outstanding

3,525,061

3,504,596

3,525,061

3,504,596

Number of shares used in computation - basic (b)

3,515,962

3,532,858

3,520,832

3,539,674

Number of shares used in computation - diluted (b)

3,516,076

3,533,021

3,522,928

3,541,662











Other





Total Risk Based Capital Ratio 

14.04%

13.42%

14.04%

13.42%

Tier 1 Risk Based Capital Ratio 

12.79%

12.18%

12.79%

12.18%

Common Equity Tier 1 Risk Based Capital Ratio 

12.11%

11.47%

12.11%

11.47%

Leverage Ratio

9.77%

9.15%

9.77%

9.15%

Average Full Time Equivalent Employees

255.6

258.7

259.2

261.3

Loan to Deposit Ratio

92.11%

91.29%

92.11%

91.29%

Trust assets under management

$         134,298

$      117,587

$        134,298

$      117,587

Brokerage assets under management

$         215,383

$      178,546

$        215,383

$      178,546











Balance Sheet Highlights 

December 31,

December 31,




2019

2018








Assets

$      1,466,339

$   1,430,712



Investment securities

241,407

241,526



Loans (net of unearned income)

1,115,569

1,081,883



Allowance for loan losses

13,845

12,884



Deposits

1,211,118

1,185,156



Stockholders' Equity

154,774

139,229













(a) See reconcilation of Non-GAAP measures at the end of the press release




(b) Prior period amounts were adjusted to reflect stock dividends.




 

 

CITIZENS FINANCIAL SERVICES, INC.



CONSOLIDATED BALANCE SHEET



(UNAUDITED)







December 31,

December 31,

(in thousands except share data)

2019

2018

ASSETS:



Cash and due from banks:



  Noninterest-bearing

$           17,727

$         15,327

  Interest-bearing

793

1,470

Total cash and cash equivalents

18,520

16,797




Interest bearing time deposits with other banks

14,256

15,498




Equity securities

701

516




Available-for-sale securities

240,706

241,010




Loans held for sale

815

1,127




Loans (net of allowance for loan losses: $13,845 at December 31, 2019 and 



    $12,884 at December 31, 2018)

1,101,724

1,068,999




Premises and equipment

15,933

16,273

Accrued interest receivable

4,555

4,452

Goodwill

23,296

23,296

Bank owned life insurance

28,128

27,505

Other intangibles

1,346

1,623

Other assets

16,359

13,616




TOTAL ASSETS

$      1,466,339

$    1,430,712




LIABILITIES:



Deposits:



  Noninterest-bearing

$         203,793

$       179,971

  Interest-bearing

1,007,325

1,005,185

Total deposits

1,211,118

1,185,156

Borrowed funds

85,117

91,194

Accrued interest payable

1,088

1,076

Other liabilities

14,242

14,057

TOTAL LIABILITIES

1,311,565

1,291,483

STOCKHOLDERS' EQUITY:



Preferred Stock $1.00 par value; authorized



  3,000,000 shares; none issued in 2019 or 2018

-

-

Common stock



  $1.00 par value; authorized 25,000,000 shares at December 31, 2019 and December 31, 2018:  



  issued 3,938,668 at December 31 2019 and 3,904,212 at December 31, 2018 

3,939

3,904

Additional paid-in capital

55,089

53,099

Retained earnings

110,800

99,727

Accumulated other comprehensive loss

(629)

(3,921)

Treasury stock, at cost:  413,607 at December 31, 2019 and 399,616 shares 



  at December 31, 2018

(14,425)

(13,580)

TOTAL STOCKHOLDERS' EQUITY

154,774

139,229

TOTAL LIABILITIES AND



   STOCKHOLDERS' EQUITY

$      1,466,339

$    1,430,712

 

 

CITIZENS FINANCIAL SERVICES, INC.





CONSOLIDATED STATEMENT OF INCOME





(UNAUDITED)






Three Months Ended

Year  Ended


December 31, 

December 31, 

(in thousands, except per share data)

2019

2018

2019

2018

INTEREST INCOME:





Interest and fees on loans

$     13,906

$    13,470

$     54,911

$    50,458

Interest-bearing deposits with banks

96

101

407

319

Investment securities:





    Taxable

1,076

1,107

4,673

3,790

    Nontaxable

383

318

1,492

1,744

    Dividends

126

92

497

447

TOTAL INTEREST INCOME

15,587

15,088

61,980

56,758

INTEREST EXPENSE:





Deposits

2,192

2,215

9,219

6,910

Borrowed funds

605

630

2,821

2,664

TOTAL INTEREST EXPENSE

2,797

2,845

12,040

9,574

NET INTEREST INCOME

12,790

12,243

49,940

47,184

Provision for loan losses

525

625

1,675

1,925

NET INTEREST INCOME AFTER





    PROVISION FOR LOAN LOSSES

12,265

11,618

48,265

45,259

NON-INTEREST INCOME:





Service charges

1,189

1,212

4,687

4,667

Trust

161

157

750

705

Brokerage and insurance

298

219

1,141

790

Gains on loans sold

134

80

473

382

Equity security gains (losses), net

50

(9)

120

-

Available for sale security gains (losses), net

16

(11)

24

(19)

Earnings on bank owned life insurance

160

155

623

622

Other

141

174

568

588

TOTAL NON-INTEREST INCOME

2,149

1,977

8,386

7,735

NON-INTEREST EXPENSES:





Salaries and employee benefits

5,327

4,843

20,456

19,094

Occupancy 

535

520

2,174

2,126

Furniture and equipment

173

142

674

536

Professional fees

322

652

1,423

1,925

FDIC insurance expense (credit)

(121)

90

75

417

Pennsylvania shares tax (credit)

(17)

(15)

808

835

Amortization of intangibles

61

72

259

296

Merger and acquisition

191

-

466

-

ORE expenses

68

66

376

158

Other

1,829

1,865

6,630

6,170

TOTAL NON-INTEREST EXPENSES

8,368

8,235

33,341

31,557

Income before provision for income taxes

6,046

5,360

23,310

21,437

Provision for income taxes

1,003

845

3,820

3,403

NET INCOME

$       5,043

$      4,515

$     19,490

$    18,034






PER COMMON SHARE DATA:





Net Income - Basic

$          1.43

$        1.28

$          5.54

$        5.09

Net Income - Diluted

$          1.43

$        1.28

$          5.53

$        5.09

Cash Dividends Paid 

$       0.450

$      0.436

$       1.781

$      1.725






Number of shares used in computation - basic

3,515,962

3,532,858

3,520,832

3,539,674

Number of shares used in computation - diluted

3,516,076

3,533,021

3,522,928

3,541,662

 

 

CITIZENS FINANCIAL SERVICES, INC.






QUARTERLY CONDENSED, CONSOLIDATED INCOME STATEMENT INFORMATION

(UNAUDITED)






(in thousands, except share data)


Three Months Ended,




Dec 31,

Sept 30,

June 30,

March 31,

Dec 31,


2019

2019

2019

2019

2018

Interest income

$     15,587

$      15,874

$      15,502

$      15,017

$      15,088

Interest expense

2,797

2,975

3,166

3,102

2,845

Net interest income

12,790

12,899

12,336

11,915

12,243

Provision for loan losses

525

400

350

400

625

Net interest income after provision for loan losses

12,265

12,499

11,986

11,515

11,618

Non-interest income

2,083

2,140

1,997

2,022

1,997

Investment securities gains (losses), net

66

37

30

11

(20)

Non-interest expenses

8,368

8,414

8,237

8,322

8,235

Income before provision for income taxes

6,046

6,262

5,776

5,226

5,360

Provision for income taxes

1,003

1,066

930

821

845

Net income

$       5,043

$        5,196

$        4,846

$        4,405

$        4,515

Earnings Per Share Basic

$         1.43

$          1.48

$          1.38

$          1.24

$          1.28

Earnings Per Share Diluted

$         1.43

$          1.48

$          1.38

$          1.24

$          1.28

 

 

CITIZENS FINANCIAL SERVICES, INC.

CONSOLIDATED AVERAGE BALANCES, INTEREST, YIELDS AND RATES, AND NET INTEREST MARGIN ON A FULLY TAX-EQUIVALENT BASIS

(UNAUDITED)



Three Months Ended December 31,


2019

2018


Average


Average

Average


Average


Balance (1)

Interest

Rate

Balance (1)

Interest

Rate

(dollars in thousands)

$

$

%

$

$

%

ASSETS







Interest-bearing deposits at banks

9,876

4

0.16

9,294

6

0.26

Interest bearing time deposits at banks

14,256

92

2.59

14,997

95

2.50

Investment securities

247,416

1,687

2.73

237,342

1,602

2.70

Loans: (2)(3)(4)







  Residential mortgage loans

217,007

2,889

5.28

215,418

2,859

5.29

  Construction loans

14,659

188

5.09

32,393

406

4.97

  Commercial Loans

...