CITIZENS FINANCIAL SERVICES, INC. REPORTS UNAUDITED THIRD QUARTER 2024 FINANCIAL RESULTS
MANSFIELD, Penn., Oct. 30, 2024 /PRNewswire/ -- Citizens Financial Services, Inc. (NASDAQ:CZFS), parent company of First Citizens Community Bank, released today its unaudited consolidated financial results for the three and nine months ended September 30, 2024.
Highlights
Net income for the first nine months of 2024 was $19.8 million, which was $9.6 million, or 93.1% more than net income for the nine months ended September 30, 2023 due to the one-time merger and acquisition costs and the provision for credit losses on non-purchase credit deteriorated loans (the "NPC Provision") recorded in the second quarter of 2023. The effective tax rate for the first nine months of 2024 was 17.8% compared to 16.4% in the comparable period in 2023.
Net income was $7.5 million for the three months ended September 30, 2024 and 2023. The effective tax rate for the three months ended September 30, 2024 was 18.5% compared to 17.5% in the comparable period in 2023.
During the first quarter of 2024, the Company completed the sale of certain assets acquired as part of the HVB acquisition, which included loans and accrued interest, and software, as well as transferring certain contracts, processes and employees of a division internally known as Braavo. The proceeds from the sale totaled approximately $7.2 million and generated a pre-tax gain of approximately $1.1 million. Legal fees associated with the sale totaled approximately $201,000.
Net interest income before the provision for credit losses was $63.6 million for the nine months ended September 30, 2024, an increase of $5.2 million, or 8.9%, over the same period a year ago.
The provision for credit losses for the nine months ended September 30, 2024 was $2.6 million. The provision was significantly impacted by loans that were not sold as part of the Braavo sale that was completed in the first quarter of 2024. The provision for the nine months ended September 30, 2024, directly attributable to these loans was $1,806,000. During the three months ended September 30, 2024, a negative provision for credit losses of $200,000 was recorded. As of September 30, 2024, the Company had approximately $884,000 of Braavo loans all of which were considered performing as of September 30, 2024.
Return on average equity for the three and nine months ended September 30, 2024 (annualized) was 9.53% and 8.45% compared to 10.10% and 5.21% for the three and nine months ended September 30, 2023 (annualized). If the provision for the credit losses attributable to the Braavo loans and the gain on the sale of Braavo are excluded, the return on average equity for the nine months ended September 30, 2024 would have been 8.76% (annualized) (1).
Return on average tangible equity for the three and nine months ended September 30, 2024 (annualized) was 14.82% and 13.39% compared to 14.37% and 6.56% for the three and nine months ended September 30, 2023 (annualized). If the provision for the credit losses attributable to the Braavo loans and the gain on the sale of Braavo are excluded, the return on average tangible equity for the nine months ended September 30, 2024 would have been 13.87% (annualized) (1).
Return on average assets for the three and nine months ended September 30, 2024 (annualized) was 1.00% and 0.88% compared to 1.02% and 0.53% for the three and nine months ended September 30, 2023 (annualized). If the provision for the credit losses attributable to the Braavo loans and the gain on the sale of Braavo are excluded, the return on average assets for the nine months ended September 30, 2024 would have been 0.91% (annualized) (1).
Nine Months Ended September 30, 2024 Compared to 2023
For the nine months ended September 30, 2024, net income totaled $19,835,000 which compares to net income of $10,271,000 for the first nine months of 2023, an increase of $9,564,000. Basic earnings per share of $4.18 for the first nine months of 2024 compared to $2.38 for the first nine months last year. Annualized return on equity for the nine months ended September 30, 2024 and 2023 was 8.45% and 5.21%, while annualized return on assets was 0.88% and 0.53%, respectively. The increase in performance when comparing 2024 to 2023 was due to the one time costs associated with the acquisition of HV Bancorp, Inc., ("HVB") and the NPC Provision recorded in 2023.
Net interest income before the provision for credit loss for the nine months ended September 30, 2024 totaled $63,582,000 compared to $58,405,000 for the nine months ended September 30, 2023, resulting in an increase of $5,177,000, or 8.9%. Average interest earning assets increased $345.6 million for the nine months ended September 30, 2024 compared to the same period last year, primarily due to the HVB acquisition. Average loans increased $376.7 million while average investment securities decreased $36.9 million. The yield on interest earning assets increased 63 basis points to 5.54%, while the cost of interest-bearing liabilities increased 91 basis points to 3.02% due to the rise in market interest rates and competitive pressure. The tax effected net interest margin for the nine months ended September 30, 2024 was 3.09% compared to 3.25% for the same period last year.
The provision for credit losses for the nine months ended September 30, 2024 was $2,587,000 compared to $5,328,000 for the nine months ended September 30, 2023, a decrease of $2,741,000. The provision for 2024 was impacted by the Braavo loans as previously mentioned and an increase in past due, non-accrual and classified loans during the second quarter of 2024. As a result of the HVB acquisition during 2023, the Company recorded a $4.6 million provision for credit losses for loans acquired that did not have any credit deterioration at the time of purchase. Excluding the impact of the acquisition from 2023, the provision would have increased $1,850,000 when comparing the nine month period of 2024 to 2023 with the increase being attributable to the Braavo loans and the increase in past due, non-accrual and substandard loans in 2024.
Total non-interest income was $12,062,000 for the nine months ended September 30, 2024, which is $3,946,000 more than the non-interest income of $8,116,000 for the same period last year. The primary drivers were the gain on the sale of assets associated with Braavo and activity due to the HVB acquisition. As a result of the acquisition, service charges, gains on loans sold, earnings on bank owned life insurance and other income all increased. Earnings on bank owned life insurance also increased due to the passing of a former employee in the first quarter of 2024. During the first nine months of 2024, the Company experienced a gain on its equity investment portfolio compared to a loss during the comparable period in 2023.
Total non-interest expenses for the nine months ended September 30, 2024 totaled $48,918,000 compared to $48,902,000 for the same period last year, which is an increase of $16,000. Salary and benefit costs increased $4,024,000 due to an additional 47.8 FTEs as a result of the acquisition, merit increases for 2024, as well as an increase in health insurance costs due to additional headcount and claims. The increases in occupancy, furniture and fixtures, software expenses and amortization expenses was due to the HVB acquisition and additional branches as part of it. FDIC insurance expense increased $589,000 due to the Company's increased size and the Bank's lower leverage capital ratio during the first half of 2024 compared to 2023. Professional fees increased due to increased legal expenses, of which $201,000 was related to the sale of certain Braavo assets. Other expenses increased primarily due to the acquisition, with increases experienced in subscriptions, marketing and advertising, postage, printing, data communication expenses and FHLB letter of credit fees. Independent of the HVB acquisition, other expenses increased due to insurance reimbursement received in 2023 to cover amounts previously charged-off through expense. Merger and acquisitions costs for the HVB acquisition totaled $9,269,000 in 2023 and included professional and consulting fees, printing, travel, contract termination payments and severance-related expenses.
The provision for income taxes increased $2,284,000 when comparing the nine months ended September 30, 2024 to the same period in 2023 as a result of an increase in income before income tax of $11,848,000.
Three Months Ended September 30, 2024 Compared to September 30, 2023
For the three months ended September 30, 2024, net income totaled $7,536,000 which compares to net income of $7,548,000 for the comparable period of 2023, a decrease of $12,000. Basic earnings per share was $1.59 for the three months ended September 30, 2024 and 2023. Annualized return on equity for the three months ended September 30, 2024 and 2023 was 9.53% and 10.10%, while annualized return on assets was 1.00% and 1.02%, respectively.
Net interest income before the provision for credit loss for the three months ended September 30, 2024 totaled $21,324,000 compared to $22,404,000 for the three months ended September 30, 2023, resulting in a decrease of $1,080,000, or 4.8%. Charged-off interest for three month period ended September 30, 2024 was $345,000 compared to $34,000 for the three months ended September 30, 2023. Average interest earning assets increased $39.4 million for the three months ended September 30, 2024 compared to the same period last year due to organic growth. Average loans increased $85.0 million while average investment securities decreased $39.0 million. The tax effected net interest margin for the three months ended September 30, 2024 was 3.09% compared to 3.29% for the same period last year, which was impacted by the increase in the average cost on interest bearing liabilities of 50 basis points, to 3.06%.
During the three months ended September 30, 2024, there was a negative provision for credit losses of $200,000 compared to a provision for credit losses for the three months ended September 30, 2023 of was $475,000. The decrease in the provision was primarily due to changes in qualitative factors in the calculation related to inflation.
Total non-interest income was $3,755,000 for the three months ended September 30, 2024, which is $93,000 more than for the comparable period last year. The primary driver was the increase in gains on loans sold. The decrease in earnings on bank owned life insurance was due to the Company receiving $195,000 of death benefits upon the passing of a former employee in the third quarter of 2023.
Total non-interest expenses for the three months ended September 30, 2024 totaled $16,029,000 compared to $16,444,000 for the same period last year, which is a decrease of $415,000. Salaries and benefits decreased $290,000 due to a decrease in headcount of 4.4 FTEs and commission expense for the comparable periods. FDIC insurance expense increased $180,000 due to the Company's increased size and the Bank's lower leverage capital ratio. Merger and acquisition costs totaled $623,000 for the third quarter of 2023.
The provision for income taxes increased $115,000 when comparing the three months ended September 30, 2024 to the same period in 2023 as a result of an increase in income before income tax of $103,000 and earnings on bank owned life insurance being exempt from Federal income tax. The effective tax rate was 18.5% and 17.5% for the three months ended September 30, 2024 and 2023, respectively.
Balance Sheet and Other Information:
At September 30, 2024, total assets were $3.03 billion, compared to $2.98 billion at December 31, 2023 and $2.96 billion at September 30, 2023. The loan to deposit ratio as of September 30, 2024 was 95.14% compared to 96.87% as of December 31, 2023 and 96.20% as of September 30, 2023.
Available for sale securities of $419.2 million at September 30, 2024 increased $1.6 million from December 31, 2023 and $1.4 million from September 30, 2023. The yield on the investment portfolio increased from 2.18% to 2.36% on a tax equivalent basis due to securities purchased during a higher rate environment and lower yielding securities maturing. During 2024, we have purchased $36.2 million of investments, which have helped to offset the $42.7 million of investments that have matured or have been called during 2024.
Net loans as of September 30, 2024 totaled $2.31 billion an increase of $81.6 million from December 31, 2023, due to primarily to an increase in student loans outstanding. Loans would have increased an additional $6.1 million, if not for the Braavo disposition. In comparison to September 30, 2023, loans have grown $84.6 million with increases experienced in multiple portfolio sectors.
The allowance for credit losses - loans totaled $21,695,000 at September 30, 2024 which is an increase of $542,000 from December 31, 2023. The increase is due to change in expected prepayment speeds, changes in economic forecasts and an increase in past due and substandard loans. The provision for credit losses on loans was $3,086,000 for the first nine months of 2024. Loan recoveries and charge-offs were $24,000 and $2,568,000, respectively, for the nine months ended September 30, 2024 with the majority of the charge-offs associated with loans acquired as part of the HVB acquisition. The allowance as a percent of total loans was 0.93% as of September 30, 2024 and 0.94% as of December 31, 2023.
Non-performing assets totaled $24.0 million as of September 30, 2024, an increase of $10.9 million since December 31, 2023. The increase was driven by four large commercial relationships being placed on non-accrual status during the first nine months of 2024. These loans were acquired as part of the HVB acquisition with three of the loans maturing that are still in the process of being underwritten and extended in accordance with Company policies. Of these relationships, only one required a specific reserve as of September 30, 2024, which was approximately $355,000. Accruing loans past due 30-89 days totaled $7.4 million, a decrease of $3.0 million from December 31, 2023 that was driven by loans transferred to non-accrual status during 2024.
Deposits increased $128.7 million from December 31, 2023, to $2.45 billion at September 30, 2024. With the rise in market interest rates, competitive pressure for deposits continues to be at the forefront. Additionally, we have numerous state and political organization depositors with seasonal funding timelines, which resulted in an increase in balances in the first nine months of the year. We also increased the amount of outstanding brokered deposits as of September 30, 2024 in comparison to December 31, 2023. At September 30, 2024, brokered deposits totaled $141.6 million compared to $109.3 million at December 31, 2024. At September 30, 2024, the Bank estimates that balances held by customers in excess of the FDIC insurance limit ($250,000 per insured account) totaled $1.24 billion, or 50.5% of the Bank's total deposits. Included in this balance are balances held through Intrafi, which provides customers with additional FDIC insurance, as well as deposits collateralized by securities or letters of credit (almost exclusively municipal deposits). The total of these items was $695.0 million, or 28.4% of the Bank's total deposits, as of September 30, 2024.
Stockholders' equity totaled $298.7 million at September 30, 2024, compared to $279.7 million at December 31, 2023, an increase of $19.0 million. Excluding accumulated other comprehensive loss (AOCI), stockholders' equity increased $13.0 million and totals $317.6 million. The increase in stockholders' equity, excluding AOCI, was attributable to net income for the nine months ended September 30, 2024 totaling $19.8 million, offset by cash dividends for 2024 totaling $7.0 million, net treasury and restricted stock activity of $293,000. As a result of decreases in market interest rates impacting the fair value of investment securities and swaps, AOCI decreased $6.0 million from December 31, 2023.
Dividend Declared
On September 3, 2024, the Board of Directors declared a cash dividend of $0.49 per share, which was paid on September 27, 2024 to shareholders of record at the close of business on September 13, 2024. The quarterly cash dividend is an increase of 1.0% over the regular cash dividend of $0.485 per share declared one year ago, as adjusted for the 1% stock dividend declared in June 2024.
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 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 GAAP and non-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
Nine Months Ended
September 30,
September 30,
2024
2023
2024
2023
Income and Performance Ratios
Net Income
$ 7,536
$ 7,548
$ 19,835
$ 10,271
Return on average assets (annualized)
1.00 %
1.02 %
0.88 %
0.53 %
Return on average equity (annualized)
9.53 %
10.10 %
8.45 %
5.21 %
Return on average tangible equity (annualized) (a)
14.82 %
14.37 %
13.39 %
6.56 %
Net interest margin (tax equivalent) (a)
3.09 %
3.29 %
3.09 %
3.25 %
Earnings per share - basic (b)
$ 1.59
$ 1.59
$ 4.18
$ 2.38
Earnings per share - diluted (b)
$ 1.59
$ 1.59
$ 4.17
$ 2.38
Cash dividends paid per share (b)
$ 0.490
$ 0.485
$ 1.460
$ 1.435
Number of shares used in computation - basic (b)
4,749,679
4,746,541
4,748,988
4,321,848
Number of shares used in computation - diluted (b)
4,751,224
4,746,541
4,753,927
4,321,848
Asset quality
Allowance for credit losses - loans
$ 21,695
$ 21,455
Non-performing assets
$ 24,045
$ 13,621
Allowance for credit losses - loans to total loans
0.93 %
0.96 %
Non-performing assets to total loans
1.03 %
0.61 %
Annualized net charge-offs to total loans
0.21 %
0.14 %
0.15 %
0.05 %
Equity
Book value per share (b)
$ 62.75
$ 55.27
Tangible Book value per share (a) (b)
$ 44.08
$ 36.62
Market Value (Last reported trade of month)
$ 58.75
$ 47.92
Common shares outstanding
4,759,730
4,706,111
Other
Average Full Time Equivalent Employees
395.7
400.1
393.0
345.2
Loan to Deposit Ratio
95.14 %
96.20 %
Trust assets under management
$ 181,052
$ 164,012
Brokerage assets under management
$ 388,594
$ 305,951
Balance Sheet Highlights
September 30,
December 31,
September 30,
2024
2023
2023
Assets
$ 3,026,468
$ 2,975,321
$ 2,959,216
Investment securities
420,920
419,539
419,665
Loans (net of unearned income)
2,331,002
2,248,836
2,246,396
Allowance for credit losses - loans
21,695
21,153
21,455
Deposits
2,450,149
2,321,481
2,335,135
Stockholders' Equity
298,654
279,666
262,686
(a) See reconcilation of GAAP and 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)
September 30,
December 31,
September 30,
(in thousands except share data)
2024
2023
2023
ASSETS:
Cash and due from banks:
Noninterest-bearing
$ 26,780
$ 37,733
$ 25,267
Interest-bearing
9,983
15,085
18,069
Total cash and cash equivalents
36,763
52,818
43,336
Interest bearing time deposits with other banks
3,820
4,070
4,566
Equity securities
1,730
1,938
1,858
Available-for-sale securities
419,190
417,601
417,807
Loans held for sale
13,520
9,379
14,155
Loans (net of allowance for credit losses - loans: $21,695 at September 30, 2024;
$21,153 at December 31, 2023 and $21,455 at September 30, 2023)
2,309,307
2,227,683
2,224,941
Premises and equipment
21,237
21,384
21,421
Accrued interest receivable
10,803
11,043
10,327
Goodwill
85,758
85,758
84,758
Bank owned life insurance
50,084
49,897
49,586
Other intangibles
3,083
3,650
3,866
Fair value of derivative instruments - asset
8,993
13,687
18,144
Deferred tax asset
14,449
17,339
21,384
Other assets
47,731
59,074
43,067
TOTAL ASSETS
$ 3,026,468
$ 2,975,321
$ 2,959,216
LIABILITIES:
Deposits:
