Citizens Financial Services, Inc. Reports Unaudited Third Quarter 2017 Financial Results

MANSFIELD, Pa., Oct. 26, 2017

Highlights

• Year-to-date net income of $10.4 million, which is 10.1% higher than 2016's year-to-date income through September 30, 2016.
• Net interest income before the provision for loan losses of $31.0 million for the nine months ended September 30, 2017, which is a $2.9 million, or 10.4%, increase over the same period a year ago.
• Net loan growth of $106.0 million since December 31, 2016, or 13.4%.
• Annualized return on average equity for the three and nine months ended September 30, 2017 was 11.16% and 10.81%, compared to 10.17% and 10.28% for the three and nine months ended September 30, 2016.
• Annualized return on average assets for the three and nine months ended September 30, 2017 was 1.15% and 1.12%, compared to 1.06% for both the three and nine months ended September 30, 2016.

Nine Months Ended September 30, 2017 Compared to 2016

• For the nine months ended September 30 2017, net income totaled $10,421,000 which compares to net income of $9,467,000 for the first nine months of 2016, an increase of $954,000 or 10.1%. Basic earnings per share of $2.99 for the first nine months of 2017 compares to $2.70 for the first nine months last year. Annualized return on equity for the nine months ended September 30, 2017 and 2016 was 10.81% and 10.28%, while annualized return on assets was 1.12% and 1.06%, respectively.
• Net interest income before the provision for loan loss for the nine months ended September 30, 2017 totaled $31,018,000 compared to $28,088,000 for the nine months ended September 30, 2016, resulting in an increase of $2,930,000, or 10.4%. Average interest bearing assets increased $60.4 million for the nine months ended September 30, 2017 compared to the same period last year. Average loans increased $154.8 million while average investment securities decreased $75.9 million. The net interest margin for the nine months ended September 30, 2017 was 3.78% compared to 3.67% for the same period last year.
• The provision for loan losses for the nine months ended September 30, 2017 was $1,740,000 compared to $770,000 for the nine months ended September 30, 2016, an increase of $970,000. The increased provision primarily reflects the loan growth experienced during 2017.
• Total non-interest income was $5,844,000 for the nine months ended September 30, 2017, which is comparable to $5,807,000 for the same period last year. Increases in gains on loans sold, trust income, and investment securities gains were offset by decreases in brokerage and insurance.
• Total non-interest expenses for the nine months ended September 30, 2017 totaled $21,604,000 compared to $21,413,000 for the same period last year, which is an increase of $191,000, or .9%. Salaries and benefits increased $813,000 primarily due to the increased costs associated with the additional lending teams hired during the second and third quarters of 2016, branch and loan production office expansion, and normal employee merit increases. Other expenses decreased $712,000, which was primarily due to a decrease in the number of customers' accounts being compromised and experiencing fraudulent charges.

Third Quarter of 2017 Compared to the Third Quarter of 2016

• For the three months ended September 30, 2017, net income totaled $3,650,000 which compares to net income of $3,153,000 for the third quarter of 2016, an increase of $497,000, or 15.8%. Basic earnings per share of $1.05 for the third quarter of 2017 compares to $.90 for the third quarter last year. Annualized return on equity for the three months ended September 30 2017 and 2016 was 11.16% and 10.17%, while annualized return on assets was 1.15% and 1.06%, respectively.
• Net interest income before the provision for loan loss was $10,617,000 compared to $9,712,000 for the third quarter last year, an increase of $905,000. Average interest bearing assets increased $80.1 million, including an increase in average loans of $168.5 million. This was offset by a decrease in average investment securities of $81.1 million. The net interest margin for the three months ended September 30, 2017 was 3.79% compared to 3.78% for the same period last year.
• Total non-interest income was $1,921,000 for the three months ended September 30, 2017, which is essentially unchanged from $1,908,000 a year ago. Increases in gains on loans sold and trust income were offset by decreases in brokerage and insurance revenues.
• Total non-interest expenses for the three months ended September 30, 2017 totaled $7,247,000 compared to $7,200,000 for the same period last year. Generally, decreases in most categories were offset by an increase in ORE expenses. This increase was primarily due to a recovery of ORE expenses in the third quarter last year.

Balance Sheet and Other Information:

• At September 30, 2017, total assets were $1.27 billion which compares to $1.22 billion at December 31, 2016 and $1.20 billion at September 30, 2016.
• Available for sale securities of $263.6 million at September 30, 2017 decreased $50.4 million from December 31, 2016 and $85.6 million from September 30, 2016. The decrease was utilized to fund growth in the loan portfolio, which is part of the balance sheet strategy to shift interest earning assets into loans.
• Net loans as of September 30, 2017 totaled $896.7 million and have increased $106.0 million from December 31, 2016 and $153.6 million from September 30, 2016. The growth was driven primarily by agricultural real estate loans and other agricultural loans, which since December 31, 2016 have increased $94.1 million.
• The allowance for loan losses totaled $10,447,000 at September 30, 2017 which is an increase of $1,561,000. The increase is due to recording a provision for loan loss of $1,740,000 and recoveries of $61,000, offset by charge-offs of $240,000. Annualized net charge-offs through September 30, 2017 was .03%. The allowance as a percent of total loans was 1.15% as of September 30, 2017 compared to 1.11% as of December 31, 2016.
• Deposit growth has increased $46.6 million from December 31, 2016, to $1.05 billion at September 30, 2017. Borrowed funds have decreased $6.0 million from December 31, 2016 to September 30 2017. This decrease is attributable to the increase in deposits and decrease in investment securities, which have funded the loan growth in 2017.
• Stockholders' equity totaled $129.9 million at September 30, 2017, which compares to $123.3 million at December 31, 2016, an increase of $6.6 million. The increase was attributable to net income for the nine months ended September 30, 2017 totaling $10.4 million and net treasury share transactions of $300,000. As a result of changes in interest rates impacting the fair value of investment securities, the unrealized gain on available for sale investment securities increased $.3 million from the end of 2016. These were offset by cash dividends of $4.4 million.

Dividend Declared

On September 5, 2017, the Board of Directors declared a cash dividend of $0.43 per share, which was paid on September 29, 2017 to shareholders of record at the close of business on September 15, 2017. The quarterly cash dividend is an increase of 7.5% over the regular cash dividend of $0.40 per share declared one year ago, as adjusted for the 5% stock dividend declared in June 2017.