Citizens Financial Services, Inc. (CZFS) is a Pennsylvania-based community bank that has been serving its customers for decades. With a focus on commercial, industrial, agricultural, residential, and consumer lending, CZFS has established a strong presence in north central, central, and south central Pennsylvania, as well as southern New York and the Wilmington and Dover markets in Delaware.
In the fiscal year 2023, CZFS reported an annual net income of $17,811,000 and annual revenue of $138,557,000. The company's annual operating cash flow stood at $23,078,000, while its annual free cash flow reached $20,461,000. These impressive financial results demonstrate CZFS's ability to generate consistent and sustainable earnings, as well as its strong liquidity position.
For the first quarter of 2024, CZFS reported net income of $7,024,000, up 2.3% from the same period in 2023. Basic earnings per share for the first three months of 2024 were $1.49, compared to $1.71 for the same period last year, representing a 12.9% decrease. Annualized return on assets and return on equity for the three months of 2024 were 0.93% and 9.10%, respectively, compared with 1.16% and 11.49% for the first three months of 2023.
BUSINESS OVERVIEW
CZFS operates a network of 48 banking facilities, 39 of which are full-service bank branches, across its market areas. The company's lending efforts have historically been focused in north central Pennsylvania, the south central Pennsylvania counties of Lebanon, Schuylkill, Berks, and Lancaster, the central Pennsylvania counties of Clinton and Centre, and southern New York. In 2020, the company expanded its footprint into the state of Delaware through the acquisition of MidCoast, and in 2023, it further expanded into southeast Pennsylvania, including the counties of Montgomery, Bucks, and Philadelphia, as well as Burlington County, New Jersey, through the acquisition of HVBC.The bank's lending portfolio is diversified, with a focus on real estate loans, including residential, commercial, agricultural, and construction loans. As of March 31, 2024, the bank's loan portfolio consisted of $357.8 million in residential real estate loans, $1.12 billion in commercial real estate loans, $318.4 million in agricultural real estate loans, and $184.5 million in construction loans. The bank also maintains a consumer loan portfolio of $53.1 million, as well as other commercial and agricultural loans totaling $153.8 million.
FINANCIAL PERFORMANCE
CZFS's financial performance has been strong, with the company reporting consistent growth in both revenue and net income over the past few years. In the fiscal year 2023, the company reported annual revenue of $138,557,000, up from $125,843,000 in the previous year. Net income for the same period was $17,811,000, compared to $16,392,000 in 2022.The company's quarterly performance has also been impressive, with net income of $7,024,000 for the first three months of 2024, up from $6,867,000 in the same period last year. This increase was driven by a 15.9% rise in net interest income, which reached $20,958,000 in the first quarter of 2024, compared to $18,080,000 in the same period of 2023.
The company's net interest margin, a key metric for banks, decreased from 3.30% in the first quarter of 2023 to 3.05% in the same period of 2024. This decline was primarily due to the increase in the cost of interest-bearing liabilities, as the Federal Reserve raised interest rates during 2022 and 2023.
CZFS's loan portfolio has remained relatively stable, with total loans reaching $2.24 billion as of March 31, 2024, compared to $2.25 billion at the end of 2023. The bank's lending efforts have been focused on its core markets, with the majority of its loan portfolio consisting of real estate loans.
The company's asset quality remains strong, with non-performing loans accounting for 0.66% of total loans as of March 31, 2024, compared to 0.54% at the end of 2023. The allowance for credit losses stood at $21.6 million, or 0.96% of total loans, as of March 31, 2024, up from $21.2 million, or 0.94% of total loans, at the end of 2023.
LIQUIDITY
CZFS maintains a strong liquidity position, with cash and cash equivalents totaling $29.6 million as of March 31, 2024, down from $52.8 million at the end of 2023. The company's investment portfolio, which includes available-for-sale securities, decreased from $417.6 million at the end of 2023 to $404.9 million as of March 31, 2024.The company's capital position also remains strong, with total stockholders' equity of $282.7 million as of March 31, 2024, up from $279.7 million at the end of 2023. The bank's regulatory capital ratios, including the Tier 1 capital ratio and the common equity Tier 1 capital ratio, were well above the well-capitalized thresholds as of March 31, 2024.
GEOGRAPHIC BREAKDOWN
CZFS's lending and deposit-gathering activities are primarily concentrated in north central, central, and south central Pennsylvania, as well as southern New York and the Wilmington and Dover markets in Delaware. The company's recent acquisitions have also expanded its presence into southeast Pennsylvania, including the counties of Montgomery, Bucks, and Philadelphia, as well as Burlington County, New Jersey.REVENUE BREAKDOWN AND TRENDS
CZFS's revenue is primarily generated from its lending activities, with interest and fees on loans accounting for the majority of its total revenue. In the first quarter of 2024, the company reported $35.1 million in interest and fees on loans, up from $22.5 million in the same period of 2023. This increase was driven by both higher loan volumes and higher yields on the loan portfolio, as the company benefited from the rising interest rate environment.The company's non-interest income also saw a significant increase, rising from $2.2 million in the first quarter of 2023 to $5.0 million in the same period of 2024. This growth was primarily attributable to higher gains on loans sold, increased earnings on bank-owned life insurance, and a one-time gain on the sale of the company's Braavo division.
RISKS AND CHALLENGES
Like any financial institution, CZFS faces a variety of risks and challenges, including interest rate risk, credit risk, and regulatory risk. The company's commercial real estate loan portfolio, which represents a significant portion of its total loan portfolio, is subject to heightened regulatory scrutiny and may require the bank to maintain higher levels of capital.Additionally, the company's geographic concentration in north central, central, and south central Pennsylvania, as well as southern New York and the Wilmington and Dover markets in Delaware, exposes it to economic conditions in these regions. Any significant downturn in these local economies could adversely impact the company's loan portfolio and financial performance.