EX-99.1 2 thirdqtr19pressrelease.htm THIRD QUARTER 2019 PRESS RELEASE

Contact:  Kathleen Campbell, Marketing Director
  
First Citizens Community Bank
 
570-662-0422
    
15 S. Main Street
 
570-662-8512 (fax)
    
Mansfield, PA 16933


citizens financial services, inc. reports unaudited third quarter 2019 financial results

MANSFIELD, PENNSYLVANIA— October 23, 2019 – Citizens Financial Services, Inc. (OTC Pink: CZFS), parent company of First Citizens Community Bank, released today its unaudited consolidated financial results for the three and nine months ended September 30, 2019.

Highlights

•
Citizens Financial Services, Inc. and MidCoast Community Bancorp, Inc. sign definitive agreement for Citizens Financial Services, Inc. to acquire MidCoast Community Bancorp, Inc in the second quarter of 2020.

•
Net income for the first nine months of 2019 was $14.4 million, which is 6.9% higher than 2018’s net income through September 30, 2018. The effective tax rate for the first nine months of 2019 was 16.3% compared to 15.9% in the comparable period in 2018.

•
Net income was $5.2 million for the three months ended September 30, 2019, which is 13.4% higher than the net income for 2018’s comparable period. The effective tax rate for the three months ended September 30, 2019 and 2018 was 17.0%.

•
Net interest income before the provision for loan losses of $37.2 million for the nine months ended September 30, 2019 was an increase of $2.2 million, or 6.3%, over the same period a year ago.

•
Net loan growth totaled $32.4 million in the first three quarters of 2019, or 4.0% annualized.

•
Return on average equity for the three and nine months (annualized) ended September 30, 2019 was 13.74% and 12.99% compared to 13.08% and 13.13% for the three and nine months (annualized) ended September 30, 2018.

•
Return on average tangible equity for the three and nine months (annualized) ended September 30, 2019 was 16.42% and 15.60% compared to 15.92% and 16.06% for the three and nine months (annualized) ended September 30, 2018. (1)

•
Return on average assets for the three and nine months (annualized) ended September 30, 2019 was 1.43% and 1.33% compared to 1.30% for the three and nine months (annualized) ended September 30, 2018.

Nine Months Ended September 30, 2019 Compared to 2018

•
For the nine months ended September 30, 2019, net income totaled $14,447,000 which compares to net income of $13,519,000 for the first nine months of 2018, an increase of $928,000 or 6.9%.  Basic earnings per share of $4.10 for the first nine months of 2019 compares to $3.82 for the first nine months last year.  Annualized return on equity for the nine months ended September 30, 2019 and 2018 was 12.99% and 13.13%, while annualized return on assets was 1.33% and 1.30%, respectively.

1

•
Net interest income before the provision for loan loss for the nine months ended September 30, 2019 totaled $37,150,000 compared to $34,941,000 for the nine months ended September 30, 2018, resulting in an increase of $2,209,000, or 6.3%.    Average interest earning assets increased $56.4 million for the nine months ended September 30, 2019 compared to the same period last year.  Average loans increased $63.2 million while average investment securities decreased $10.9 million. The yield on interest earning assets increased 28 basis points to 4.61%, while the cost of interest-bearing liabilities increased 28 basis points to 1.12%. The increase in the cost of interest-bearing liabilities was due to the rise in the federal funds rate during 2018. The tax effected net interest margin for the nine months ended September 30, 2019 was 3.71% compared to 3.65% for the same period last year.

•
The provision for loan losses for the nine months ended September 30, 2019 was $1,150,000 compared to $1,300,000 for the nine months ended September 30, 2018, a decrease of $150,000.  The lower provision primarily reflects the lower level of loan growth experienced during 2019 compared to 2018.

•
Total non-interest income was $6,237,000 for the nine months ended September 30, 2019, which is $479,000 more than the non-interest income of $5,758,000 for the same period last year. The increase was driven by revenue increases in our wealth management division, which includes trust fees and brokerage and insurance commissions as well as gains on our equity security portfolio.

•
Total non-interest expenses for the nine months ended September 30, 2019 totaled $24,973,000 compared to $23,322,000 for the same period last year, which is an increase of $1,651,000, or 7.1%.  Salaries and benefits increased $878,000 primarily due to merit increases, employee commissions, health insurance costs and profit sharing.  Other expenses increased $496,000, which was primarily due to an increase in costs as a result of the decision to terminate a pension plan acquired as part the First National Bank of Fredericksburg acquisition in 2015. Merger and acquisition costs increased $275,000 as a result of the recently announced agreement to purchase MidCoast Community Bancorp, Inc. in the first half of 2020. OREO expenses have increased due to an increase in the number of OREO properties currently held by the Bank. Professional fees decreased as a result of settling a lawsuit in the first quarter of 2019 that resulted in significant expenses in 2018. FDIC insurance decreased due to receiving a credit from the FDIC in the third quarter.

•
The provision for income taxes increased $259,000 when comparing the nine months ended September 30, 2019 to the same period in 2018 as a result of an increase in income before income tax of $1,187,000. The effective tax rate for 2019 is impacted by certain expenses being non-deductible for tax purposes.

Three Months Ended September 30, 2019 Compared to 2018

•
For the three months ended September 30, 2019, net income totaled $5,196,000 which compares to net income of $4,581,000 for the comparable period in 2018, an increase of $615,000 or 13.4%.  Basic earnings per share of $1.48 for three months ended September 30, 2019 compares to $1.30 for the 2018 comparable period. Annualized return on equity for the three months ended September 30, 2019 and 2018 was 13.74% and 13.08%, respectively, while annualized return on assets was 1.43% and 1.30%, respectively.

•
Net interest income before the provision for loan loss for the three months ended September 30, 2019 totaled $12,899,000 compared to $11,770,000 for the three months ended September 30, 2018, resulting in an increase of $1,129,000, or 9.6%. Average interest earning assets increased $57.7 million for the three months ended September 30, 2019 compared to the same period last year.  Average loans increased $56.0 million. The yield on interest earning assets increased 29 basis points to 4.68%, while the cost of interest-bearing liabilities increased 17 basis points to 1.08%. The increase in the cost of interest-bearing liabilities was due to the increase in the federal funds rate during 2018.  The tax effected net interest margin for the three months ended September 30, 2019 was 3.82% compared to 3.64% for the same period last year.

2

•
The provision for loan losses for the three months ended September 30, 2019 was $400,000 compared to $475,000 for comparable period in 2018, a decrease of $75,000.

•
Total non-interest income was $2,177,000 for the three months September 30, 2019, which is $167,000 more than the comparable period last year.  The increase in revenues was driven by increases in our wealth management division, which includes trust fees and brokerage and insurance commissions, as well as service charges on deposit accounts.

•
Total non-interest expenses for the three months ended September 30, 2019 totaled $8,414,000 compared to $7,788,000 for the same period last year, which is an increase of $626,000, or 8.0%.  Salaries and benefits increased $417,000 primarily due to employee commissions, health insurance costs and profit sharing. Merger and acquisition costs increased as a result of the recently announced agreement to purchase MidCoast Community Bancorp, Inc. in the first half of 2020. OREO expenses have increased due to an increase in the number of OREO properties currently held by the Bank.  Professional fees decreased as a result of settling a lawsuit in the first quarter of 2019 that resulted in significant expenses in 2018. FDIC insurance decreased due to receiving a credit from the FDIC in the third quarter.

•
The provision for income taxes increased $130,000 when comparing the three months ended September 30, 2019 to the same period in 2018.  The effective tax rate for the three months ended September 30, 2019 and 2018 was 17.0%.

Balance Sheet and Other Information:

•
At September 30, 2019, total assets were $1.48 billion, compared to $1.43 billion at December 31, 2018 and $1.41 billion at September 30, 2018.

•
Available for sale securities of $247.0 million at September 30, 2019 increased $6.0 million from December 31, 2018 and $6.6 million from September 30, 2018. The portfolio increased due to favorable yields on purchases and for pledging against municipal deposits.

•
Net loans as of September 30, 2019 totaled $1.10 billion and increased $32.4 million from December 31, 2018 and $53.4 million from September 30, 2018. Net loan growth for the third quarter was $15.0 million. Net loan growth for 2019 has been negatively impacted by transfers to other real estate owned as the result of a settlement with a customer in bankruptcy and several large loan payoffs. The growth in 2019 was in commercial and agricultural relationships, which continues the trend from 2018.

•
The allowance for loan losses totaled $13,679,000 at September 30, 2019 which is an increase of $795,000 from December 31, 2018.  The increase is due to recording a provision for loan losses of $1,150,000 and recoveries of $32,000, offset by charge-offs of $387,000.  Annualized net charge-offs as a percent of total loans through September 30, 2019 was .04%.  The allowance as a percent of total loans was 1.23% as of September 30, 2019 compared to 1.19% as of December 31, 2018.

•
Deposits increased $14.1 million from December 31, 2018, to $1.20 billion at September 30, 2019, primarily due to tax collections in the third quarter for municipal customers and new business relationships in the south central market. . Borrowed funds increased $18.6 million from December 31, 2018 to $109.8 million at September 30, 2019. Non-interest-bearing deposits have increased $19.1 million during 2019.

•
Stockholders’ equity totaled $151.7 million at September 30, 2019, compared to $139.2 million at December 31, 2018, an increase of $12,449,000.  The increase was attributable to net income for the nine months ended September 30, 2019 totaling $14.4 million, offset by cash dividends of $4.7 million.  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, increased $3.6 million from December 31, 2018.


3
Dividend Declared

On September 3, 2019, the Board of Directors declared a cash dividend of $0.450 per share, which was paid on September 27, 2019 to shareholders of record at the close of business on September 13, 2019. The quarterly cash dividend is an increase of 3.3% over the quarterly cash dividend of $0.436 per share declared one year ago, as adjusted for the 1% stock dividend declared in June 2019.

Citizens Financial Services, Inc. has nearly 1,700 shareholders, the majority of whom reside in markets where First Citizens Community Bank’s 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 non-gaap measures at the end of the press release


4
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,
  
   
2019
    
2018
    
2019
    
2018
  
Income and Performance Ratios
                        
Net Income
  
$
5,196
    
$
4,581
    
$
14,447
    
$
13,519
  
Return on average assets (annualized)
    
1.43
%
    
1.30
%
    
1.33
%
    
1.30
%
Return on average equity (annualized)
    
13.74
%
    
13.08
%
    
12.99
%
    
13.13
%
Return on average tangible equity (annualized) (b)
    
16.42
%
    
15.92
%
    
15.60
%
    
16.06
%
Net interest margin (tax equivalent)(b)
    
3.82
%
    
3.64
%
    
3.71
%
    
3.65
%
Earnings per share - basic (c)
  
$
1.48
    
$
1.30
    
$
4.10
    
$
3.82
  
Earnings per share - diluted (c)
  
$
1.48
    
$
1.30
    
$
4.10
    
$
3.81
  
Cash dividends paid per share
  
$
0.450
    
$
0.436
    
$
1.331
    
$
1.289
  
                                 
                                 
Asset quality
                                
Allowance for loan and lease losses
  
$
13,679
    
$
12,383
    
$
13,679
    
$
12,383
  
Non-performing assets
  
$
16,823
    
$
15,460
    
$
16,823
    
$
15,460
  
Allowance for loan and lease losses/total loans
    
1.23
%
    
1.17
%
    
1.23
%
    
1.17
%
Non-performing assets to total loans
    
1.51
%
    
1.46
%
    
1.51
%
    
1.46
%
Annualized net charge-offs to total loans
    
0.01
%
    
0.01
%
    
0.04
%
    
0.01
%
                                 
                                 
Equity
                                
Book value per share (c)
  
$
43.11
    
$
39.64
    
$
43.11
    
$
39.64
  
Tangible Book value per share (b) (c)
  
$
36.10
    
$
32.59
    
$
36.10
    
$
32.59
  
Market Value (Last reported trade of month)
  
$
58.40
    
$
62.55
    
$
58.40
    
$
62.55
  
Common shares outstanding
    
3,525,315
      
3,509,142
      
3,525,315
      
3,509,142
  
Number of shares used in computation - basic (c)
    
3,515,678
      
3,537,315
      
3,522,377
      
3,541,971
  
Number of shares used in computation - diluted (c)
    
3,515,678
      
3,537,476
      
3,524,657
      
3,544,132
  
                                 
                                 
Other
                                
Total Risk Based Capital Ratio (a)
    
13.85
%
    
13.40
%
    
13.85
%
    
13.40
%
Tier 1 Risk Based Capital Ratio (a)
    
12.59
%
    
12.18
%
    
12.59
%
    
12.18
%
Common Equity Tier 1 Risk Based Capital Ratio (a)
    
11.91
%
    
11.45
%
    
11.91
%
    
11.45
%
Leverage Ratio
    
9.63
%
    
9.09
%
    
9.63
%
    
9.09
%
Average Full Time Equivalent Employees
    
257.5
      
260.9
      
260.4
      
262.2
  
Loan to Deposit Ratio
    
92.97
%
    
90.25
%
    
92.97
%
    
90.25
%
Trust assets under management
   $ 130,383
    $
127,170
    $ 130,383
    $ 127,170
 
Brokerage assets under management
   $ 208,969
    $ 182,711
    $ 208,969
    $ 182,711
 

Balance Sheet Highlights
  
September 30,
    
December 31
    
September 30,
  
   
2019
    
2018
    
2018
  
                   
Assets
  
$
1,475,005
    
$
1,430,712
    
$
1,407,880
  
Investment securities
    
247,677
      
241,526
      
240,717
  
Loans (net of unearned income)
    
1,115,034
      
1,081,883
      
1,060,331
  
Allowance for loan losses
    
13,679
      
12,884
      
12,383
  
Deposits
    
1,199,304
      
1,185,156
      
1,174,843
  
Stockholders' Equity
    
151,678
      
139,229
      
134,400
  
                         
(a) Presented as projected for June 30, 2019 and actual for the remaining period
          
(b) See reconcilation of Non-GAAP measures at the end of the press release
                  
(c) Prior period amounts were adjusted to reflect stock dividends.
                  


5
CITIZENS FINANCIAL SERVICES, INC.
                  
CONSOLIDATED BALANCE SHEET
                  
(UNAUDITED)
                  
                   
   
September 30
    
December 31
    
September 30
  
(in thousands except share data)
  
2019
    
2018
    
2018
  
ASSETS:
                  
Cash and due from banks:
                  
  Noninterest-bearing
  
$
19,005
    
$
15,327
    
$
15,496
  
  Interest-bearing
    
1,081
      
1,470
      
1,004
  
Total cash and cash equivalents
    
20,086
      
16,797
      
16,500
  
                         
Interest bearing time deposits with other banks
    
14,256
      
15,498
      
14,754
  
                         
Equity securities
    
650
      
516
      
291
  
                         
Available-for-sale securities
    
247,027
      
241,010
      
240,426
  
                         
Loans held for sale
    
1,430
      
1,127
      
960
  
                         
Loans (net of allowance for loan losses: $13,679 at September 30, 2019;
                        
    $12,884 at December 31, 2018 and $12,383 at September 30, 2018)
    
1,101,355
      
1,068,999
      
1,047,948
  
                         
Premises and equipment
    
15,881
      
16,273
      
16,189
  
Accrued interest receivable
    
4,476
      
4,452
      
4,480
  
Goodwill
    
23,296
      
23,296
      
23,296
  
Bank owned life insurance
    
27,968
      
27,505
      
27,350
  
Other intangibles
    
1,400
      
1,623
      
1,703
  
Other assets
    
17,180
      
13,616
      
13,983
  
                         
TOTAL ASSETS
  
$
1,475,005
    
$
1,430,712
    
$
1,407,880
  
                         
LIABILITIES:
                        
Deposits:
                        
  Noninterest-bearing
  
$
199,046
    
$
179,971
    
$
173,379
  
  Interest-bearing
    
1,000,258
      
1,005,185
      
1,001,464
  
Total deposits
    
1,199,304
      
1,185,156
      
1,174,843
  
Borrowed funds
    
109,840
      
91,194
      
86,097
  
Accrued interest payable
    
1,052
      
1,076
      
979
  
Other liabilities
    
13,131
      
14,057
      
11,561
  
TOTAL LIABILITIES
    
1,323,327
      
1,291,483
      
1,273,480
  
STOCKHOLDERS' EQUITY:
                        
Preferred Stock $1.00 par value; authorized
                        
  3,000,000 shares; none issued in 2019 or 2018
    
-
      
-
      
-
  
Common stock
                        
$1.00 par value; authorized 25,000,000 shares at September30, 2019, December 31, 2018 and
                  
September30, 2018: issued 3,938,668 at September 30 2019 and 3,904,212 at December 31, 2018
                  
  and September 30, 2018
    
3,939
      
3,904
      
3,904
  
Additional paid-in capital
    
55,096
      
53,099
      
53,122
  
Retained earnings
    
107,342
      
99,727
      
96,754
  
Accumulated other comprehensive loss
    
(289
)
    
(3,921
)
    
(6,081
)
Treasury stock, at cost:  413,353 at September 30, 2019; 399,616 shares
                        
  at December 31, 2018 and 395,070 shares at September 30, 2018
    
(14,410
)
    
(13,580
)
    
(13,299
)
TOTAL STOCKHOLDERS' EQUITY
    
151,678
      
139,229
      
134,400
  
TOTAL LIABILITIES AND
                        
   STOCKHOLDERS' EQUITY
  
$
1,475,005
    
$
1,430,712
    
$
1,407,880
  


6
CITIZENS FINANCIAL SERVICES, INC.
                        
CONSOLIDATED STATEMENT OF INCOME
                        
(UNAUDITED)
                        
   
Three Months Ended
    
Nine Months Ended
  
   
September 30,
    
September 30,
  
(in thousands, except per share data)
  
2019
    
2018
    
2019
    
2018
  
INTEREST INCOME:
                        
Interest and fees on loans
  
$
13,915
    
$
12,666
    
$
41,005
    
$
36,988
  
Interest-bearing deposits with banks
    
103
      
94
      
311
      
218
  
Investment securities:
                                
    Taxable
    
1,361
      
967
      
3,597
      
2,683
  
    Nontaxable
    
378
      
425
      
1,109
      
1,426
  
    Dividends
    
117
      
107
      
371
      
355
  
TOTAL INTEREST INCOME
    
15,874
      
14,259
      
46,393
      
41,670
  
INTEREST EXPENSE:
                                
Deposits
    
2,315
      
1,794
      
7,027
      
4,695
  
Borrowed funds
    
660
      
695
      
2,216
      
2,034
  
TOTAL INTEREST EXPENSE
    
2,975
      
2,489
      
9,243
      
6,729
  
NET INTEREST INCOME
    
12,899
      
11,770
      
37,150
      
34,941
  
Provision for loan losses
    
400
      
475
      
1,150
      
1,300
  
NET INTEREST INCOME AFTER
                                
    PROVISION FOR LOAN LOSSES
    
12,499
      
11,295
      
36,000
      
33,641
  
NON-INTEREST INCOME:
                                
Service charges
    
1,225
      
1,181
      
3,498
      
3,455
  
Trust
    
148
      
147
      
589
      
548
  
Brokerage and insurance
    
289
      
222
      
843
      
571
  
Gains on loans sold
    
176
      
170
      
339
      
302
  
Equity security gains (losses), net
    
29
      
(4
)
    
70
      
9
  
Available for sale security gains (losses), net
    
8
      
(8
)
    
8
      
(8
)
Earnings on bank owned life insurance
    
158
      
161
      
463
      
467
  
Other
    
144
      
141
      
427
      
414
  
TOTAL NON-INTEREST INCOME
    
2,177
      
2,010
      
6,237
      
5,758
  
NON-INTEREST EXPENSES:
                                
Salaries and employee benefits
    
5,096
      
4,679
      
15,129
      
14,251
  
Occupancy
    
530
      
500
      
1,639
      
1,606
  
Furniture and equipment
    
165
      
130
      
501
      
394
  
Professional fees
    
343
      
507
      
1,101
      
1,273
  
FDIC insurance expense (credit)
    
(20
)
    
120
      
196
      
327
  
Pennsylvania shares tax
    
275
      
250
      
825
      
850
  
Amortization of intangibles
    
66
      
74
      
198
      
224
  
Merger and acquisition
    
275
      
-
      
275
      
-
  
ORE expenses
    
92
      
6
      
308
      
92
  
Other
    
1,592
      
1,522
      
4,801
      
4,305
  
TOTAL NON-INTEREST EXPENSES
    
8,414
      
7,788
      
24,973
      
23,322
  
Income before provision for income taxes
    
6,262
      
5,517
      
17,264
      
16,077
  
Provision for income taxes
    
1,066
      
936
      
2,817
      
2,558
  
NET INCOME
  
$
5,196
    
$
4,581
    
$
14,447
    
$
13,519
  
                                 
PER COMMON SHARE DATA:
                                
Net Income - Basic
  
$
1.48
    
$
1.30
    
$
4.10
    
$
3.82
  
Net Income - Diluted
  
$
1.48
    
$
1.30
    
$
4.10
    
$
3.81
  
Cash Dividends Paid
  
$
0.450
    
$
0.436
    
$
1.331
    
$
1.289
  
                                 
Number of shares used in computation - basic
    
3,515,678
      
3,537,315
      
3,522,377
      
3,541,971
  
Number of shares used in computation - diluted
    
3,515,678
      
3,537,476
      
3,524,657
      
3,544,132
  

7
CITIZENS FINANCIAL SERVICES, INC.
                              
QUARTERLY CONDENSED, CONSOLIDATED INCOME STATEMENT INFORMATION
                          
(UNAUDITED)
                              
(in thousands, except share data)
        
Three Months Ended,
              
   
Sept 30,
    
June 30,
    
March 31,
    
Dec 31
    
Sept 30
  
   
2019
    
2019
    
2019
    
2018
    
2018
  
Interest income
  
$
15,874
    
$
15,502
    
$
15,017
    
$
15,088
    
$
14,259
  
Interest expense
    
2,975
      
3,166
      
3,102
      
2,845
      
2,489
  
Net interest income
    
12,899
      
12,336
      
11,915
      
12,243
      
11,770
  
Provision for loan losses
    
400
      
350
      
400
      
625
      
475
  
Net interest income after provision for loan losses
    
12,499
      
11,986
      
11,515
      
11,618
      
11,295
  
Non-interest income
    
2,140
      
1,997
      
2,022
      
1,997
      
2,022
  
Investment securities gains (losses), net
    
37
      
30
      
11
      
(20
)
    
(12
)
Non-interest expenses
    
8,414
      
8,237
      
8,322
      
8,235
      
7,788
  
Income before provision for income taxes
    
6,262
      
5,776
      
5,226
      
5,360
      
5,517
  
Provision for income taxes
    
1,066
      
930
      
821
      
845
      
936
  
Net income
  
$
5,196
    
$
4,846
    
$
4,405
    
$
4,515
    
$
4,581
  
Earnings Per Share Basic
  
$
1.48
    
$
1.38
    
$
1.24
    
$
1.28
    
$
1.30
  
Earnings Per Share Diluted
  
$
1.48
    
$
1.38
    
$
1.24
    
$
1.28
    
$
1.30
  

8
CITIZENS FINANCIAL SERVICES, INC.
                                    
CONSOLIDATED AVERAGE BALANCES, INTEREST, YIELDS AND RATES, AND NET INTEREST MARGIN ON A FULLY TAX-EQUIVALENT BASIS
  
(UNAUDITED)
                                    
   
Three Months Ended September 30,
              
   
2019
                
2018
              
   
Average
          
Average
    
Average
          
Average
  
   
Balance (1)
    
Interest
    
Rate
    
Balance (1)
    
Interest
    
Rate
  
(dollars in thousands)
  
$
            
$
%
    
$
            
$
%
  
ASSETS
                                            
Short-term investments:
                                            
Interest-bearing deposits at banks
    
10,047
      
6
      
0.24
      
9,195
      
5
      
0.22
  
Interest bearing time deposits at banks
    
15,100
      
97
      
2.55
      
14,369
      
89
      
2.47
  
Investment securities
    
241,577
      
1,955
      
3.24
      
241,404
      
1,612
      
2.67
  
Loans: (2)(3)(4)
                                                
  Residential mortgage loans
    
215,748
      
2,892
      
5.32
      
212,891
      
2,808
      
5.23
  
  Construction loans
    
13,149
      
176
      
5.31
      
29,184
      
355
      
4.82
  
  Commercial Loans
    
424,662
      
5,863
      
5.48
      
382,417
      
5,098
      
5.29
  
  Agricultural Loans
    
344,897
      
4,018
      
4.62
      
314,307
      
3,489
      
4.40
  
  Loans to state & political subdivisions
    
96,192
      
958
      
3.95
      
99,807
      
906
      
3.60
  
  Other loans
    
9,566
      
196
      
8.13
      
9,618
      
185
      
7.65
  
  Loans, net of discount (2)(3)(4)
    
1,104,214
      
14,103
      
5.07
      
1,048,224
      
12,841
      
4.86
  
Total interest-earning assets
    
1,370,938
      
16,161
      
4.68
      
1,313,192
      
14,547
      
4.39
  
Cash and due from banks
    
5,944
                      
7,039
                  
Bank premises and equipment
    
15,967
                      
16,266
                  
Other assets
    
58,869
                      
69,708
                  
Total non-interest earning assets
    
80,780
                      
93,013
                  
Total assets
    
1,451,718
                      
1,406,205
                  
LIABILITIES AND STOCKHOLDERS' EQUITY
                                                
Interest-bearing liabilities:
                                                
  NOW accounts
    
335,279
      
590
      
0.70
      
320,574
      
394
      
0.49
  
  Savings accounts
    
221,771
      
218
      
0.39
      
194,110
      
84
      
0.17
  
  Money market accounts
    
167,229
      
505
      
1.20
      
181,449
      
480
      
1.05
  
  Certificates of deposit
    
266,385
      
1,002
      
1.49
      
271,355
      
836
      
1.22
  
Total interest-bearing deposits
    
990,664
      
2,315
      
0.93
      
967,488
      
1,794
      
0.74
  
Other borrowed funds
    
102,622
      
660
      
2.56
      
114,314
      
695
      
2.41
  
Total interest-bearing liabilities
    
1,093,286
      
2,975
      
1.08
      
1,081,802
      
2,489
      
0.91
  
Demand deposits
    
194,024
                      
172,288
                  
Other liabilities
    
13,139
                      
12,022
                  
Total non-interest-bearing liabilities
    
207,163
                      
184,310
                  
Stockholders' equity
    
151,269
                      
140,093
                  
Total liabilities & stockholders' equity
    
1,451,718
                      
1,406,205
                  
Net interest income
            
13,186
                      
12,058
          
Net interest spread (5)
                    
3.60
%
                    
3.48
%
Net interest income as a percentage
                                                
  of average interest-earning assets
                    
3.82
%
                    
3.64
%
Ratio of interest-earning assets
                                                
  to interest-bearing liabilities
                    
125
%
                    
121
%
                                                 
(1) Averages are based on daily averages.
                                                
(2) Includes loan origination and commitment fees.
                                                
(3) Tax exempt interest revenue is shown on a tax equivalent basis for proper comparison using
          
a statutory federal income tax rate of 21% for 2019 and 2018.
                                  
(4) Income on non-accrual loans is accounted for on a cash basis, and the loan balances are included in interest-earning assets.
  
(5) Interest rate spread represents the difference between the average rate earned on interest-earning assets
  
and the average rate paid on interest-bearing liabilities.
                                          


9
CITIZENS FINANCIAL SERVICES, INC.
                                    
CONSOLIDATED AVERAGE BALANCES, INTEREST, YIELDS AND RATES, AND NET INTEREST MARGIN ON A FULLY TAX-EQUIVALENT BASIS
  
(UNAUDITED)
                                    
   
Nine Months Ended September 30,
              
   
2019
                
2018
              
   
Average
          
Average
    
Average
          
Average
  
   
Balance (1)
    
Interest
    
Rate
    
Balance (1)
    
Interest
    
Rate
  
(dollars in thousands)
  
$
            
$
%
    
$
            
$
%
  
ASSETS
                                            
Short-term investments:
                                            
Interest-bearing deposits at banks
    
9,546
      
19
      
0.27
      
8,806
      
14
      
0.21
  
Interest bearing time deposits at banks
    
15,364
      
292
      
2.54
      
11,972
      
204
      
2.28
  
Investment securities
    
247,307
      
5,372
      
2.90
      
258,195
      
4,843
      
2.50
  
Loans: (2)(3)(4)
                                                
  Residential mortgage loans
    
215,325
      
8,584
      
5.33
      
214,134
      
8,347
      
5.21
  
  Construction loans
    
20,576
      
796
      
5.17
      
23,441
      
829
      
4.73
  
  Commercial Loans
    
415,287
      
17,064
      
5.49
      
387,482
      
15,273
      
5.27
  
  Agricultural Loans
    
338,266
      
11,657
      
4.61
      
298,875
      
9,812
      
4.39
  
  Loans to state & political subdivisions
    
98,680
      
2,910
      
3.94
      
101,189
      
2,693
      
3.56
  
  Other loans
    
9,680
      
562
      
7.76
      
9,540
      
553
      
7.75
  
  Loans, net of discount (2)(3)(4)
    
1,097,814
      
41,573
      
5.06
      
1,034,661
      
37,507
      
4.85
  
Total interest-earning assets
    
1,370,031
      
47,256
      
4.61
      
1,313,634
      
42,568
      
4.33
  
Cash and due from banks
    
6,243
                      
6,826
                  
Bank premises and equipment
    
16,120
                      
16,367
                  
Other assets
    
56,978
                      
54,849
                  
Total non-interest earning assets
    
79,341
                      
78,042
                  
Total assets
    
1,449,372
                      
1,391,676
                  
LIABILITIES AND STOCKHOLDERS' EQUITY
                                                
Interest-bearing liabilities:
                                                
  NOW accounts
    
331,084
      
1,756
      
0.71
      
325,667
      
1,127
      
0.46
  
  Savings accounts
    
216,858
      
608
      
0.37
      
189,635
      
185
      
0.13
  
  Money market accounts
    
163,443
      
1,520
      
1.24
      
162,816
      
1,091
      
0.90
  
  Certificates of deposit
    
282,754
      
3,143
      
1.49
      
268,737
      
2,292
      
1.14
  
Total interest-bearing deposits
    
994,139
      
7,027
      
0.95
      
946,855
      
4,695
      
0.66
  
Other borrowed funds
    
108,975
      
2,216
      
2.72
      
126,158
      
2,034
      
2.16
  
Total interest-bearing liabilities
    
1,103,114
      
9,243
      
1.12
      
1,073,013
      
6,729
      
0.84
  
Demand deposits
    
184,159
                      
168,951
                  
Other liabilities
    
13,817
                      
12,392
                  
Total non-interest-bearing liabilities
    
197,976
                      
181,343
                  
Stockholders' equity
    
148,282
                      
137,320
                  
Total liabilities & stockholders' equity
    
1,449,372
                      
1,391,676
                  
Net interest income
            
38,013
                      
35,839
          
Net interest spread (5)
                    
3.49
%
                    
3.49
%
Net interest income as a percentage
                                                
  of average interest-earning assets
                    
3.71
%
                    
3.65
%
Ratio of interest-earning assets
                                                
  to interest-bearing liabilities
                    
124
%
                    
122
%
                                                 
(1) Averages are based on daily averages.
                                                
(2) Includes loan origination and commitment fees.
                                                
(3) Tax exempt interest revenue is shown on a tax equivalent basis for proper comparison using
                  
a statutory federal income tax rate of 21% for 2019 and 2018.
                                          
(4) Income on non-accrual loans is accounted for on a cash basis, and the loan balances are included in interest-earning assets.
  
(5) Interest rate spread represents the difference between the average rate earned on interest-earning assets
          
      and the average rate paid on interest-bearing liabilities.
                                                


10
CITIZENS FINANCIAL SERVICES, INC.
                              
CONSOLIDATED SUMMARY OF LOANS BY TYPE; NON-PERFORMING ASSETS; and ALLOWANCE FOR LOAN LOSSES
  
(UNAUDITED)
                              
(Excludes Loans Held for Sale)
                              
(In Thousands)
                              
   
September 30,
    
June 30,
    
March 31,
    
December 31,
    
September 30,
  
   
2019
    
2019
    
2019
    
2018
    
2018
  
Real estate:
                              
  Residential
  
$
215,717
    
$
213,014
    
$
214,635
    
$
215,305
    
$
213,255
  
  Commercial
    
349,269
      
347,430
      
334,371
      
319,265
      
312,982
  
  Agricultural
    
305,948
      
294,332
      
295,547
      
284,520
      
280,569
  
  Construction
    
11,448
      
20,950
      
18,611
      
33,913
      
30,262
  
Consumer
    
9,709
      
9,854
      
9,773
      
9,858
      
9,702
  
Other commercial loans
    
76,785
      
76,179
      
74,323
      
74,118
      
72,219
  
Other agricultural loans
    
50,334
      
41,689
      
43,245
      
42,186
      
39,917
  
State & political subdivision loans
    
95,824
      
96,174
      
100,412
      
102,718
      
101,425
  
Total loans
    
1,115,034
      
1,099,622
      
1,090,917
      
1,081,883
      
1,060,331
  
Less: allowance for loan losses
    
13,679
      
13,304
      
13,084
      
12,884
      
12,383
  
Net loans
  
$
1,101,355
    
$
1,086,318
    
$
1,077,833
    
$
1,068,999
    
$
1,047,948
  
                                         
Past due and non-performing assets
                                        
                                         
Total Loans past due 30-89 days and still accruing
  
$
2,672
    
$
2,599
    
$
4,470
    
$
3,308
    
$
3,127
  
                                         
Non-accrual loans
  
$
13,223
    
$
12,534
    
$
11,700
    
$
13,724
    
$
14,530
  
Loans past due 90 days or more and accruing
    
103
      
175
      
64
      
68
      
302
  
Non-performing loans
  
$
13,326
    
$
12,709
    
$
11,764
    
$
13,792
    
$
14,832
  
OREO
    
3,497
      
3,853
      
4,295
      
601
      
628
  
Total Non-performing assets
  
$
16,823
    
$
16,562
    
$
16,059
    
$
14,393
    
$
15,460
  
                                         
                                         
                                         
   
3 Months
    
3 Months
    
3 Months
    
3 Months
    
3 Months
  
   
Ended
    
Ended
    
Ended
    
Ended
    
Ended
  
Analysis of the Allowance for loan Losses
  
September 30,
    
June 30,
    
March 31,
    
December 31,
    
September 30,
  
(In Thousands)
    
2019
      
2019
      
2018
      
2018
      
2018
  
Balance, beginning of period
  
$
13,304
    
$
13,084
    
$
12,884
    
$
12,383
    
$
11,941
  
Charge-offs
    
(34
)
    
(139
)
    
(214
)
    
(140
)
    
(48
)
Recoveries
    
9
      
9
      
14
      
16
      
15
  
Net (charge-offs) recoveries
    
(25
)
    
(130
)
    
(200
)
    
(124
)
    
(33
)
Provision for loan losses
    
400
      
350
      
400
      
625
      
475
  
Balance, end of period
  
$
13,679
    
$
13,304
    
$
13,084
    
$
12,884
    
$
12,383
  


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CITIZENS FINANCIAL SERVICES, INC.
            
Reconciliation of GAAP and Non-GAAP Financial Measures
        
(Dollars in thousands, except per share data)
            
             
   
As of
  
   
September 30,
  
   
2019
    
2018
  
Tangible Equity
            
Stockholders Equity - GAAP
  
$
151,678
    
$
134,400
  
Accumulated other comprehensive loss
    
289

   
6,081

Intangible Assets
    
(24,696
 )
   
(24,999
 )
Non-GAAP Tangible Equity
    
127,271
      
115,482
  
Shares outstanding adjusted for June 2019 stock Dividend
    
3,525,315
      
3,543,598
  
Tangible Book value per share (a)
  
$
36.10
    
$
32.59
  
                 
   
As of
  
   
September 30,
  
     
2019
      
2018
  
Tangible Equity per share
                
Stockholders Equity - GAAP
  
$
43.02
    
$
37.93
  
Adjustments for accumulated other comprehensive loss
    
0.08

   
1.72

Book value per share
    
43.10
  
    
39.65
  
Adjustments for intangible assets
    
(7.00
 )
    
(7.06
 )
Tangible Book value per share
  
$
36.10
    
$
32.59
  

   
For the Three Months Ended
    
For the Nine Months Ended
  
   
September 30,
    
September 30,
        
   
2019
    
2018
    
2019
    
2018
  
Return on Average Tangible Equity
                        
Average Stockholders Equity - GAAP
  
$
151,054
    
$
134,710
    
$
146,124
    
$
132,334
  
Average Accumulated Other Comprehensive Loss
    
(215
)
    
(5,383
)
    
(2,158
)
    
(4,986
)
Average Intangible Assets
    
24,710
      
25,003
      
24,792
      
25,100
  
Average Non-GAAP Tangible Equity
    
126,559
      
115,090
      
123,490
      
112,220
  
Net Income
  
$
5,196
    
$
4,581
    
$
14,447
    
$
13,519
  
Annualized Return on Average Tangible Equity
    
16.42
%
    
15.92
%
    
15.60
%
    
16.06
%
                                 
                                 
   
For the Three Months Ended
    
For the Nine Months Ended
  
   
September 30,
    
September 30,
          
Reconciliation of net interest income on fully taxable equivalent basis
    
2019
      
2018
      
2019
      
2018
  
Total interest income
  
$
15,874
    
$
14,259
    
$
46,393
    
$
41,670
  
Total interest expense
    
2,975
      
2,489
      
9,243
      
6,729
  
Net interest income
    
12,899
      
11,770
      
37,150
      
34,941
  
Tax equivalent adjustment
    
287
      
288
      
863
      
898
  
Net interest income (fully taxable equivalent)
  
$
13,186
    
$
12,058
    
$
38,013
    
$
35,839
  
                                 
                                 
                                 
(a) Prior period amounts were adjusted to reflect stock dividends.
                                






12