Press Releases

MANSFIELD, PENNSYLVANIA— April 23, 2021 – 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, 2021.

Highlights

• The financial results of the Company continue to benefit from the acquisition of MidCoast Community Bancorp, Inc. that closed in the second quarter of 2020.
• Net income was $8.5 million for the three months ended March 31, 2021, which is 86.8% higher than the net income for 2020’s comparable period. The effective tax rate for the three months ended March 31, 2021 was 16.0% compared to 16.4% in the comparable period in 2020.  
• Net interest income before the provision for loan losses was $16.4 million for the three months ended March 31, 2021, an increase of $3.6 million, or 27.6%, over the same period a year ago.
• Non-performing assets decreased $215,000 from year end and $1,644,000 since March 31, 2020 and total $12,833,000 as of March 31, 2021. As a percent of loans, non-performing assets totaled 0.92%, 0.93% and 1.33% as of March 31, 2021, December 31, 2020 and March 31, 2020.
• Return on average equity for the three months (annualized) ended March 31, 2021 was 17.25% compared to 11.48% for the three months (annualized) ended March 31, 2020.
• Return on average tangible equity for the three months (annualized) ended March 31, 2021 was 20.74% compared to 13.59% for the three months (annualized) ended March 31, 2020 (non-GAAP). (1)
• Return on average assets for the three months (annualized) ended March 31, 2021 was 1.77% compared to 1.24% for the three months (annualized) ended March 31, 2020.
• If the life insurance proceeds on a former employees are excluded, the return on average equity and average assets would be 14.90% and 1.52%, respectively, for three months (annualized) ended March 31, 2021 (non-GAAP). (1)

Covid 19 pandemic response and loan profile

• During 2021, the Company continued to participate in the Paycheck Protection Program (PPP) for loans provided under the auspices of the Small Business Administration (SBA). From January 1, 2021 to March 31, 2021, we issued 227 loans with aggregate balances of $18.5 million. As of March 31, 2021, 99 loans that were issued under this program in 2020 remain outstanding and have a balance of $9.8 million. The loans earn interest at 1% per annum and the processing fee paid by the SBA will be accreted into income over the life of the loans. The SBA has issued guidance for forgiveness with a streamlined approach for loans of $150,000 or less. Of the PPP loans outstanding, 278 loans, or 85.3% of the remaining PPP loans, had an original balance less than $150,000. The outstanding balance for these 278 loans as of March 31, 2021 was approximately $10.3 million.

• Under our COVID loan modification program, during 2021 we provided relief to 19 customers with outstanding balances of $26.7 million, which includes residential, commercial and agricultural customers. As of March 31, 2021, there were 4 commercial loans outstanding with aggregate balances of $13.9 million that are under modified terms through August 2021.

• 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, restaurants, and amusement/theme parks represent a higher level of credit risk. At March 31, 2021, the Company had limited loan concentrations to these industries as follows:
  • Hotels/Motels - $59.3 million or 4.2% of outstanding loans
  • Restaurants - $26.8 million or 1.9% of outstanding loans
  • Amusement/Theme parks - $13.9 million, or 1.0% of outstanding loans

• Agricultural lending continues to be an area of emphasis with the Bank. As of March 31, 2021, agricultural lending comprised approximately $356.7 million, or 25.4% of total loans. Agriculture was significantly impacted in the early part of the pandemic as dairy farmers were forced to dump milk, and milk futures remain extremely volatile. Other producers experienced difficulties in getting livestock to market and reduced proceeds from sales as well as difficulty in obtaining supplies.

First Quarter of 2021 Compared to the First Quarter of 2020

• For the three months ended March 31, 2021, net income totaled $8,463,000 which compares to net income of $4,531,000 for the comparable period of 2020, an increase of $3,932,000 or 86.8%.  Basic earnings per share of $2.16 for the three months ended March 31, 2021 compares to $1.27 for the 2020 comparable period. Annualized return on equity for the three months ended March 31, 2021 and 2020 was 17.25% and 11.48%, while annualized return on assets was 1.77% and 1.24%, respectively.
• Net interest income before the provision for loan losses for the three months ended March 31, 2021 totaled $16,441,000 compared to $12,890,000 for the three months ended March 31, 2020, resulting in an increase of $3,551,000, or 27.6%. Average interest earning assets increased $434.2 million for the three months ended March 31, 2021 compared to the same period last year as a result of the acquisition and organic loan and deposit growth.  Average loans increased $291.3 million while average investment securities increased $58.5 million. The tax effected net interest margin for the three months ended March 31, 2021 was 3.73% compared to 3.84% for the same period last year, which was impacted by the decrease in the average yield on interest earning assets of 41 basis points to 4.15%.
• The provision for loan losses for the three months ended March 31, 2021 was $650,000, a $250,000 increase to the comparable period in 2020. The increase in the provision is attributable to loans maturing that were acquired as part of the MidCoast acquisition, which were refinanced with the Company and are subject to the Company’s allowance calculation.  
• Total non-interest income was $4,235,000 for the three months ended March 31, 2021, which is $2,384,000 more than the comparable period last year.  The primary drivers were the earnings of bank owned life insurance, which increased $1,155,000 as the result of the passing of two former employees, gains on loans sold which increased $336,000 and an increase in equity security gains of $441,000 as a result of market performance. Other income increased due to $228,000 due to fee income on derivative transactions for customers.
• Total non-interest expenses for the three months ended March 31, 2021 totaled $9,947,000 compared to $8,921,000 for the same period last year, which is an increase of $1,026,000, or 11.5%. The increase was due to the additional salary and benefit costs of employees added as a result of the MidCoast acquisition, as well as merit increases for employees, and occupancy expenses associated with the new branches acquired as part of the merger. The decrease in merger and acquisition expenses is due to expenses incurred in the first quarter of 2020 related to the MidCoast acquisition.
• The provision for income taxes increased $727,000 when comparing the three months ended March 31, 2021 to the same period in 2020 as a result of an increase in income before income tax of $4,659,000.  The effective tax rate was 16.0% and 16.4% for the three months ended March 31, 2021 and 2020, respectively. It should be noted the earnings on bank owned life insurance are exempt from Federal income tax.

Balance Sheet and Other Information:

• At March 31, 2021, total assets were $2.00 billion compared to $1.89 billion at December 31, 2020 and $1.45 billion at March 31, 2020. The loan to deposit ratio as of March 31, 2021 was 83.23% compared to 88.45% as of December 31, 2020 and 90.75% as of March 31, 2020.
• Available for sale securities of $322.0 million at March 31, 2021 increased $26.8 million from December 31, 2020 and $64.2 million from March 31, 2020. The yield on the investment portfolio decreased from 2.82% to 2.18% on a tax equivalent basis due to securities purchased at a discount that were called in the first quarter of 2020 and purchases made in a lower rate environment in the last three quarters of 2020 and the first quarter of 2021.
• Net loans as of March 31, 2021 totaled $1.39 billion and decreased $1.6 million from December 31, 2020 as a result of PPP forgiveness and a decrease in student loan balances.
• The allowance for loan losses totaled $16,560,000 at March 31, 2021 which is an increase of $745,000 from December 31, 2020.  The increase is due to recording a provision for loan losses of $650,000 and recoveries of $99,000, offset by charge-offs of $4,000. The allowance as a percent of total loans was 1.18% as of March 31, 2021 and 1.13% as of December 31, 2020.
• Deposits increased $98.6 million from December 31, 2020, to $1.69 billion at March 31, 2021, primarily due to customers holding more cash due to the pandemic and government stimulus funds provided to customers. Brokered CD’s decreased $4.8 million.  Non-interest-bearing deposits increased $32.7 million due to the PPP program and additional cash holdings by customers.
• Stockholders’ equity totaled $198.8 million at March 31, 2021, compared to $194.3 million at December 31, 2020, an increase of $4.5 million. The increase was attributable to net income for the three months ended March 31, 2021 totaling $8.5 million, offset by cash dividends for the first quarter totaling $1.8 million and net treasury stock activity of $510,000.  As a result of changes in interest rates impacting the fair value of investment securities, the unrealized gain on available for sale investment securities, net of tax, decreased $1.6 million from December 31, 2020.

Dividend Declared

On March 2, 2021, the Board of Directors declared a cash dividend of $0.465 per share, which was paid on March 26, 2021 to shareholders of record at the close of business on March 12, 2021. This quarterly cash dividend is an increase of 3.31% over the regular cash dividend of $0.450 per share declared one year ago, as adjusted for the 1% stock dividend declared in June 2020.  Citizens Financial Services, Inc. paid an additional $0.10 special dividend in the first quarter of 2020.  

Citizens Financial Services, Inc. has nearly 1,900 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