Citizens Financial Services(CZFS) - 2025 Q2 - Quarterly Report

Part I FINANCIAL INFORMATION Item 1. Financial Statements This section presents the unaudited consolidated financial statements for Citizens Financial Services, Inc. as of June 30, 2025, including balance sheet, income, comprehensive income, equity, and cash flow statements, with detailed notes Consolidated Balance Sheet Total assets decreased to $2.97 billion from $3.03 billion at year-end 2024, driven by reduced net loans, while stockholders' equity increased to $313.7 million Consolidated Balance Sheet Summary (in thousands) | Account | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Total Assets | $2,967,274 | $3,025,724 | | Cash and cash equivalents | $49,484 | $42,202 | | Available-for-sale securities | $431,649 | $425,912 | | Loans (net of allowance) | $2,219,646 | $2,291,543 | | Total Liabilities | $2,653,621 | $2,725,990 | | Total deposits | $2,292,662 | $2,382,028 | | Borrowed funds | $313,219 | $297,721 | | Total Stockholders' Equity | $313,653 | $299,734 | Consolidated Statement of Income Net income for the six months ended June 30, 2025, increased to $16.1 million from $12.3 million, with diluted EPS rising to $3.35 Statement of Income Highlights (in thousands, except per share data) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | Net Interest Income | $23,648 | $21,300 | $46,650 | $42,258 | | Provision for credit losses | $750 | $2,002 | $1,375 | $2,787 | | Net Income | $8,463 | $5,275 | $16,084 | $12,299 | | Net Income - Diluted (per share) | $1.76 | $1.10 | $3.35 | $2.56 | Notes to Consolidated Financial Statements Detailed disclosures cover accounting policies, investment and loan portfolios, allowance for credit losses, goodwill, fair value, and segment reporting - The loan portfolio is diversified, with commercial real estate representing the largest segment at $1.15 billion as of June 30, 2025[34] Allowance for Credit Losses Activity - Six Months Ended June 30, 2025 (in thousands) | Description | Amount | | :--- | :--- | | Balance at December 31, 2024 | $22,375 | | Net loans charged-off | ($727) | | Provision for credit losses | $1,375 | | Balance at June 30, 2025 | $23,023 | - As of June 30, 2025, total non-performing loans were $24.9 million, a decrease from $26.0 million at year-end 2024[44] - The company operates as a single reportable segment: Community Banking All operations are domestic[95] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial performance and condition, highlighting a 30.8% increase in net income for the first six months of 2025, driven by higher net interest income and lower credit loss provision Results of Operations Net income for the first six months of 2025 increased to $16.1 million ($3.35 per share) from $12.3 million ($2.56 per share) in the prior year, primarily due to higher net interest income and lower credit loss provision Key Performance Metrics - Six Months Ended June 30 | Metric | 2025 | 2024 | | :--- | :--- | :--- | | Net Income (in thousands) | $16,084 | $12,299 | | Basic EPS | $3.35 | $2.56 | | Annualized Return on Assets | 1.07% | 0.83% | | Annualized Return on Equity | 10.44% | 8.67% | - Net interest income for the first six months of 2025 increased by 10.4% to $46.7 million, compared to the same period in 2024[121] - The provision for credit losses decreased to $1.375 million for the first half of 2025, down from $2.787 million in the first half of 2024, primarily due to improved performance of certain commercial loans acquired from HVBC[144] Financial Condition Total assets decreased by $58.5 million to $2.97 billion at June 30, 2025, mainly due to a $71.5 million decrease in total loans, while stockholders' equity grew by $13.9 million to $313.7 million - Total loans decreased by $71.5 million (3.1%) since year-end 2024, largely due to the seasonal nature of the student loan portfolio[165][166] - The allowance for credit losses to total loans increased to 0.99% at June 30, 2025, from 0.94% at December 31, 2024[173] - Deposits decreased by $89.4 million, driven by outflows from state and political organizations and a $33.1 million reduction in brokered deposits[189] - The Bank's leverage ratio under the Community Bank Leverage Ratio (CBLR) framework was 9.22% as of June 30, 2025, meeting the 9.0% requirement to be considered 'well-capitalized'[196] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate risk, with a simulation model indicating a 100 basis point rate increase would decrease one-year net interest income by 2.89%, while a decrease would increase it by 2.43% Interest Rate Shock Analysis on Net Interest Income (as of June 30, 2025) | Change in Rates (bps) | % Change In Prospective Net Interest Income | | :--- | :--- | | +400 | (11.52)% | | +300 | (8.97)% | | +200 | (6.10)% | | +100 | (2.89)% | | Base | - | | -100 | 2.43% | | -200 | 4.06% | | -300 | 5.60% | | -400 | 10.26% | Item 4. Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of June 30, 2025, with no material changes in internal control over financial reporting during the quarter - The principal executive officer and principal financial officer concluded that the Company's disclosure controls and procedures were effective as of the end of the reporting period[210] - No material changes were made to the Company's internal control over financial reporting during the quarter ended June 30, 2025[211] Part II OTHER INFORMATION Item 1. Legal Proceedings The company reports no pending or threatened litigation that would have a material adverse effect on its consolidated financial position - Management is not aware of any pending or threatened litigation that would materially and adversely affect the company's financial position[212] Item 1A. Risk Factors There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2024 - The risk factors of the Company have not changed materially from those reported in the 2024 Annual Report on Form 10-K[213] Item 2. Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities During the second quarter of 2025, the company repurchased 821 shares at an average price of $60.25 per share, with 144,418 shares remaining available under the current authorization Issuer Purchases of Equity Securities (Q2 2025) | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | April 2025 | - | $0.00 | | May 2025 | - | $0.00 | | June 2025 | 821 | $60.25 | | Total | 821 | $58.15 | Other Items (3, 4, 5, 6) This section confirms no defaults upon senior securities, no mine safety disclosures, and no Rule 10b5-1 trading plan adoptions or terminations by directors or executive officers during the quarter, along with a list of exhibits - Items 3 (Defaults Upon Senior Securities) and 4 (Mine Safety Disclosure) are not applicable[216][218] - No directors or executive officers adopted or terminated any Rule 10b5-1 trading arrangements during the quarter[219]