PR Newswire | Oct 26, 2021 07:39AM EDT

Financial Results

10/26 06:38 CDT

Citizens Financial Services, Inc. Reports Unaudited Third Quarter 2021 Financial Results MANSFIELD, Pa., Oct. 26, 2021

MANSFIELD, Pa., Oct. 26, 2021 /PRNewswire/ -- 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, 2021.

Highlights

* Net income was $22.2 million for the nine months ended September 30, 2021, which is 24.0% higher than the net income for 2020's comparable period. The effective tax rate for the nine months ended September 30, 2021 was 17.3% compared to 17.2% in the comparable period in 2020. * Net income was $7.1 million for the three months ended September 30, 2021, which is 11.8% less than the net income for 2020's comparable period. The effective tax rate for the three months ended September 30, 2021 was 18.3% compared to 18.0% in the comparable period in 2020. * Net interest income before the provision for loan losses was $49.2 million for the nine months ended September 30, 2021, an increase of $3.6 million, or 7.9%, over the same period a year ago. * Non-performing assets decreased $2.9 million from year end and $5.4 million since September 30, 2020 and totaled $10,218,000 as of September 30, 2021. As a percent of loans, non-performing assets totaled 0.71%, 0.93% and 1.14% as of September 30, 2021, December 31, 2020 and September 30, 2020. * Return on average equity for the three and nine months (annualized) ended September 30, 2021 was 13.65% and 14.66% compared to 17.36% and 13.85% for the three and nine months (annualized) ended September 30, 2020. * Return on average tangible equity for the three and nine months (annualized) ended September 30, 2021 was 16.25% and 17.53% compared to 21.11% and 16.72% for the three and nine months (annualized) ended September 30, 2020 (non-GAAP). (1) * Return on average assets for the three and nine months (annualized) ended September 30, 2021 was 1.40% and 1.49% compared to 1.75% and 1.43% for the three and nine months (annualized) ended September 30, 2020.

Covid 19 pandemic response and loan profile

* During 2021, the Company participated in the Paycheck Protection Program (PPP) for loans provided under the auspices of the Small Business Administration (SBA). As of September 30, 2021, 267 loans with a balance of $20.8 million remain outstanding under this program. From January 1, 2021 to September 30, 2021, we issued 388 loans with aggregate balances of $24.3 million. As of September 30, 2021, 26 loans that were issued under this program in 2020 remain outstanding and have a balance of $2.9 million. The loans earn interest at 1% per annum and the processing fee paid by the SBA will be accreted into income over the life of the loans. The SBA has issued guidance for forgiveness with a streamlined approach for loans of $150,000 or less. Of the PPP loans outstanding, 226 loans, or 84.6% of the remaining PPP loans, had an original balance less than $150,000. The outstanding balance for these 226 loans as of September 30, 2021 was approximately $7.1 million. * Under our COVID loan modification program, during 2021 we provided relief to 19 customers with outstanding balances of $26.7 million, which includes residential, commercial and agricultural customers. As of September 30, 2021, all loans had returned to their original terms that were modified under this program. * The Company tracks industry concentrations to identify risks that could lead to additional credit exposure. As a result of the Covid 19 pandemic, the Company has determined that Hotels/Motels, restaurants, and amusement/theme parks represent a higher level of credit risk. At September 30, 2021, the Company had limited loan concentrations to these industries as follows: * Hotels/Motels - $73.3 million or 5.1% of outstanding loans * Restaurants - $25.3 million or 1.8% of outstanding loans * Amusement/Theme parks - $9.4 million, or 0.7% of outstanding loans

Nine Months Ended September 30, 2021 Compared to 2020

* For the nine months ended September 30, 2021, net income totaled $22,174,000 which compares to net income of $17,876,000 for the first nine months of 2020, an increase of $4,298,000 or 24.0%. Basic earnings per share of $5.62 for the first nine months of 2021 compares to $4.69 for the first nine months last year. Annualized return on equity for the nine months ended September 30, 2021 and 2020 was 14.66% and 13.85%, while annualized return on assets was 1.49% and 1.43%, respectively. * Net interest income before the provision for loan loss for the nine months ended September 30, 2021 totaled $49,243,000 compared to $45,646,000 for the nine months ended September 30, 2020, resulting in an increase of $3,597,000, or 7.9%. Average interest earning assets increased $312.6 million for the nine months ended September 30, 2021 compared to the same period last year, primarily due to the assets acquired as part of the MidCoast acquisition in the second quarter of 2020 being outstanding for the entire period of 2021 and organic growth primarily in the Delaware region. Average loans increased $158.1 million while average investment securities increased $82.1 million. The yield on interest earning assets decreased 55 basis points to 3.94%, while the cost of interest-bearing liabilities decreased 17 basis points to 0.51%. The yield on interest earning assets in 2020 benefitted approximately $820,000, or 5 basis points from the pay-off of two purchase credit impaired loans acquired as part of The First National Bank of Fredericksburg acquisition in 2015. The decrease in the cost of interest-bearing liabilities was due to the Federal Reserve rate cuts made in response to the COVID-19 pandemic in the first quarter of 2020. The tax effected net interest margin for the nine months ended September 30, 2021 was 3.55% compared to 3.96% for the same period last year. * The provision for loan losses for the nine months ended September 30, 2021 was $1,550,000 compared to $1,500,000 for the nine months ended September 30, 2020, an increase of $50,000. The increase in the provision is attributable to loans maturing that were acquired as part of the MidCoast acquisition, which were refinanced with the Company and are subject to the Company's allowance calculation. * Total non-interest income was $9,793,000 for the nine months ended September 30, 2021, which is $2,335,000 more than the non-interest income of $7,458,000 for the same period last year. The primary drivers were the earnings of bank owned life insurance, which increased $1,129,000 as the result of the passing of two former employees, an increase in equity security gains of $564,000 as a result of market performance and an increase in service charge income of $372,000 as a result of waiving fees in 2020 in response to the pandemic. * Total non-interest expenses for the nine months ended September 30, 2021 totaled $30,667,000 compared to $30,026,000 for the same period last year, which is an increase of $641,000. The primary driver of the increase was salary and benefit costs and occupancy costs, which increased compared to the same period in 2020 due to the additional headcount and branches acquired as part of the MidCoast acquisition. * The provision for income taxes increased $943,000 when comparing the nine months ended September 30, 2021 to the same period in 2020 as a result of an increase in income before income tax of $5,241,000. The effective tax rate was 17.3% and 17.2% for the nine months ended September 30, 2021 and 2020, respectively. It should be noted the earnings on bank owned life insurance are exempt from federal income tax.

Third Quarter of 2021 Compared to the Third Quarter of 2020

* For the three months ended September 30, 2021, net income totaled $7,064,000 which compares to net income of $8,007,000 for the comparable period of 2020, a decrease of $943,000 or 11.9%. Basic earnings per share of $1.79 for the three months ended September 30, 2021 compares to $2.02 for the 2020 comparable period. Annualized return on equity for the three months ended September 30, 2021 and 2020 was 13.65% and 17.36%, while annualized return on assets was 1.40% and 1.75%, respectively. * Net interest income before the provision for loan losses for the three months ended September 30, 2021 totaled $16,590,000 compared to $16,470,000 for the three months ended September 30, 2020, resulting in an increase of $120,000. Average interest earning assets increased $202.9 million for the three months ended September 30, 2021 compared to the same period last year as a result of the organic loan and deposit growth. Average loans increased $66.3 million while average investment securities increased $95.1 million and average interest bearing cash holdings increased $43.4 million. The tax effected net interest margin for the three months ended September 30, 2021 was 3.47% compared to 3.88% for the same period last year, which was impacted by the decrease in the average yield on interest earning assets of 49 basis points to 3.83%. * The provision for loan losses for the three months ended September 30, 2021 was $400,000, a $150,000 decrease to the comparable period in 2020. The decrease in the provision is attributable to the impact the COVID-19 pandemic had on the local and national economy in the third quarter of 2020. * Total non-interest income was $2,852,000 for the three months ended September 30, 2021, which is $686,000 less than the comparable period last year. The primary drivers were a decrease in the gains on loans sold of $560,000 due to a decrease in the amount of loans sold compared to the third quarter of 2020 and a decrease in other income of $330,000 due to fee income on derivative transactions for customers. * Total non-interest expenses for the three months ended September 30, 2021 totaled $10,400,000 compared to $9,692,000 for the same period last year, which is an increase of $708,000, or 7.3%. The primary driver of the increase was salary and benefit costs, which increased compared to the same period in 2020 due to the additional headcount in the Delaware region. Other expenses increased $318,000 due to computer, data and appraisal expenses. * The provision for income taxes decreased $181,000 when comparing the three months ended September 30, 2021 to the same period in 2020 as a result of a decrease in income before income tax of $1,124,000. The effective tax rate was 18.3% and 18.0% for the three months ended September 30, 2021 and 2020, respectively.

Balance Sheet and Other Information:

* At September 30, 2021, total assets were $2.05 billion compared to $1.89 billion at December 31, 2020 and $1.86 billion at September 30, 2020. The loan to deposit ratio as of September 30, 2021 was 82.88% compared to 88.45% as of December 31, 2020 and 87.96% as of September 30, 2020. * Available for sale securities of $397.0 million at September 30, 2021 increased $101.9 million from December 31, 2020 and $109.2 million from September 30, 2020. The yield on the investment portfolio decreased from 2.66% to 2.05% on a tax equivalent basis due to securities purchased at a discount that were called in the first quarter of 2020 and purchases made in a lower rate environment in the second half of 2020 and all of 2021. * Net loans as of September 30, 2021 totaled $1.43 billion and increased $36.1 million from December 31, 2020 as a result of organic growth in the Delaware market offset by PPP forgiveness. * The allowance for loan losses totaled $17,334,000 at September 30, 2021 which is an increase of $1,519,000 from December 31, 2020. The increase is due to recording a provision for loan losses of $1,550,000 and recoveries of $118,000, offset by charge-offs of $149,000. The allowance as a percent of total loans was 1.20% as of September 30, 2021 and 1.13% as of December 31, 2020. * Deposits increased $152.1 million from December 31, 2020, to $1.74 billion at September 30, 2021, primarily due to customers holding more cash due to the pandemic and government stimulus funds provided to customers. Brokered CD's decreased $23.8 million. Non-interest-bearing deposits increased $53.3 million due to the PPP program and additional cash holdings by customers. * Stockholders' equity totaled $209.0 million at September 30, 2021, compared to $194.3 million at December 31, 2020, an increase of $14.7 million. The increase was attributable to net income for the nine months ended September 30, 2021 totaling $22.2 million, offset by cash dividends totaling $5.5 million and net treasury stock activity of $468,000. As a result of changes in interest rates impacting the fair value of investment securities and derivative instruments, accumulated other comprehensive income, decreased $1.6 million from December 31, 2020.

Dividend Declared

On September 7, 2021, the Board of Directors declared a cash dividend of $0.470 per share, which was paid on September 30, 2021 to shareholders of record at the close of business on September 16, 2021. This quarterly cash dividend is an increase of 3.10% over the regular cash dividend of $0.456 per share declared one year ago, as adjusted for the 1% stock dividend declared in June 2021.

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 inthousands,except shareand per sharedata)

As of or For The As of or For The

Three Months Ended Nine Months Ended

September 30, September 30,

2021 2020 2021 2020

Income andPerformanceRatios

Net Income $ 7,064 $ 8,007 $ 22,174 $ 17,876

Return onaverage assets 1.40% 1.75% 1.49% 1.43%(annualized)

Return onaverage equity 13.65% 17.36% 14.66% 13.85%(annualized)

Return onaveragetangible 16.25% 21.11% 17.53% 16.72%equity(annualized)(a)

Net interestmargin (tax 3.47% 3.88% 3.55% 3.96%equivalent)(a)

Earnings pershare - basic $ 1.79 $ 2.02 $ 5.62 $ 4.69(b)

Earnings pershare - $ 1.79 $ 2.02 $ 5.62 $ 4.69diluted (b)

Cash dividendspaid per share $ 0.470 $ 0.456 $ 1.391 $ 1.445(b)

Number ofshares used in 3,949,508 3,956,997 3,945,962 3,808,264computation -basic (b)

Number ofshares used in 3,949,603 3,956,997 3,945,969 3,810,289computation -diluted (b)

Asset quality

Allowance forloan and lease $ 17,334 $ 15,169losses

Non-performing $ 10,218 $ 15,631assets

Allowance forloan and lease 1.20% 1.11%losses/totalloans

Non-performingassets to 0.71% 1.14%total loans

Annualizednet charge-offs 0.00% 0.06% 0.00% 0.02%(recoveries)to total loans

Equity

Book value per $ 52.63 $ 47.02share (b)

Tangible Bookvalue per $ 44.27 $ 38.71share (a) (b)

Market Value(Last reported $ 62.50 $ 44.00trade ofmonth)

Common shares 3,952,081 3,921,408outstanding

Other

Average FullTime 297.2 289.6EquivalentEmployees

Loan to 82.88% 87.96%Deposit Ratio

Trust assetsunder $ 148,360 $ 137,127management

Brokerageassets under $ 273,488 $ 227,134management

Balance Sheet September 30, December 31, September 30,Highlights

2021 2020 2020

Assets $ 2,047,203 $ 1,891,674 $ 1,858,344

Investment 399,262 297,120 289,534securities

Loans (net ofunearned 1,442,908 1,405,281 1,365,879income)

Allowance for 17,334 15,815 15,169loan losses

Deposits 1,740,969 1,588,858 1,552,753

Stockholders' 208,967 194,259 189,051Equity

(a) See reconcilation of GAAP and Non-GAAP measures at the end of the pressrelease

(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 2021 2020 2020share data)

ASSETS:

Cash and due from banks:

Noninterest-bearing $ 17,466 $ 16,374 $ 15,922

Interest-bearing 84,505 52,333 59,387

Total cash and cash 101,971 68,707 75,309equivalents

Interest bearing timedeposits with other 11,274 13,758 13,758banks

Equity securities 2,219 1,931 1,696

Available-for-sale 397,043 295,189 287,838securities

Loans held for sale 3,199 14,640 19,320

Loans (net of allowancefor loan losses: $17,334at September 30, 2021;

$15,815 at December31, 2020 and $15,169 at 1,425,574 1,389,466 1,350,710September 30, 2020)

Premises and equipment 17,201 16,948 17,720

Accrued interest 5,231 5,998 6,164receivable

Goodwill 31,376 31,376 31,376

Bank owned life 30,518 32,589 32,408insurance

Other intangibles 1,677 1,668 1,538

Other assets 19,920 19,404 20,507

TOTAL ASSETS $ 2,047,203 $ 1,891,674 $ 1,858,344

LIABILITIES:

Deposits:

Noninterest-bearing $ 357,078 $ 303,762 $ 276,286

Interest-bearing 1,383,891 1,285,096 1,276,467

Total deposits 1,740,969 1,588,858 1,552,753

Borrowed funds 78,200 88,838 99,602

Accrued interest payable 823 1,017 1,006

Other liabilities 18,244 18,702 15,932

TOTAL LIABILITIES 1,838,236 1,697,415 1,669,293

STOCKHOLDERS' EQUITY:

Preferred Stock $1.00par value; authorized

3,000,000 shares; none - - -issued in 2021 or 2020

Common stock

$1.00 par value;authorized 25,000,000shares at September 30,2021, December 31, 2020and

September 30, 2020:issued 4,388,901 atSeptember 30, 2021 and4,350,342 at December31, 2020 and

September 30, 2020 4,389 4,350 4,350

Additional paid-in 78,370 75,908 75,867capital

Retained earnings 140,920 126,627 121,203

Accumulated other 969 2,587 2,865comprehensive income

Treasury stock, atcost: 436,820 atSeptember 30, 2021 and428,492 shares

at December 31, 2020and 428,934 shares at (15,681) (15,213) (15,234)September 30, 2020

TOTAL STOCKHOLDERS' 208,967 194,259 189,051EQUITY

TOTAL LIABILITIES AND

STOCKHOLDERS' EQUITY $ 2,047,203 $ 1,891,674 $ 1,858,344

CITIZENS FINANCIAL SERVICES, INC.

CONSOLIDATED STATEMENT OF INCOME

(UNAUDITED)

Three Months Ended Nine Months Ended

September 30, September 30,

(in thousands,except share and 2021 2020 2021 2020per share data)

INTEREST INCOME:

Interest and fees $ 16,505 $ 16,718 $ 49,569 $ 46,763on loans

Interest-bearing 118 106 335 298deposits with banks

Investmentsecurities:

Taxable 1,074 979 2,865 3,212

Nontaxable 561 485 1,652 1,337

Dividends 84 98 291 275

TOTAL INTEREST 18,342 18,386 54,712 51,885INCOME

INTEREST EXPENSE:

Deposits 1,422 1,635 4,545 5,279

Borrowed funds 330 281 924 960

TOTAL INTEREST 1,752 1,916 5,469 6,239EXPENSE

NET INTEREST INCOME 16,590 16,470 49,243 45,646

Provision for loan 400 550 1,550 1,500losses

NET INTEREST INCOMEAFTER

PROVISION FOR 16,190 15,920 47,693 44,146LOAN LOSSES

NON-INTERESTINCOME:

Service charges 1,210 1,112 3,479 3,107

Trust 182 199 674 542

Brokerage and 408 352 1,190 941insurance

Gains on loans sold 295 855 1,109 1,282

Equity security 72 (33) 288 (276)gains (losses), net

Available for sale 162 185 212 302security gains, net

Earnings on bankowned life 165 180 1,643 514insurance

Other 358 688 1,198 1,046

TOTAL NON-INTEREST 2,852 3,538 9,793 7,458INCOME

NON-INTERESTEXPENSES:

Salaries and 6,568 6,102 19,312 17,411employee benefits

Occupancy 728 714 2,222 1,891

Furniture and 123 267 407 587equipment

Professional fees 310 417 1,153 1,180

FDIC insurance 129 135 387 341expense

Pennsylvania shares 339 275 856 809tax

Amortization of 48 57 146 162intangibles

Merger and - - - 2,179acquisition

Software expenses 336 324 1,003 817

ORE expenses 130 30 383 221

Other 1,689 1,371 4,798 4,428

TOTAL NON-INTEREST 10,400 9,692 30,667 30,026EXPENSES

Income beforeprovision for 8,642 9,766 26,819 21,578income taxes

Provision for 1,578 1,759 4,645 3,702income taxes

NET INCOME $ 7,064 $ 8,007 $ 22,174 $ 17,876

PER COMMON SHAREDATA:

Net Income - Basic $ 1.79 $ 2.02 $ 5.62 $ 4.69

Net Income - $ 1.79 $ 2.02 $ 5.62 $ 4.69Diluted

Cash Dividends $ 0.470 $ 0.456 $ 1.391 $ 1.445Paid

Number of sharesused in computation 3,949,508 3,956,997 3,945,962 3,808,264- basic

Number of sharesused in computation 3,949,603 3,956,997 3,945,969 3,810,289- diluted

CITIZENS FINANCIAL SERVICES, INC.

QUARTERLY CONDENSED, CONSOLIDATED INCOME STATEMENT INFORMATION

(UNAUDITED)

(in thousands, except Three Months Ended,per share data)

Sept 30, June 30, March 31, Dec 31, Sept 30,

2021 2021 2021 2020 2020

Interest income $ 18,342 $ 18,075 $ 18,295 $ 18,411 $ 18,386

Interest expense 1,752 1,863 1,854 1,866 1,916

Net interest income 16,590 16,212 16,441 16,545 16,470

Provision for loan 400 500 650 900 550losses

Net interest incomeafter provision for 16,190 15,712 15,791 15,645 15,920loan losses

Non-interest income 2,618 2,677 3,998 3,726 3,386

Investment securities 234 29 237 238 152gains (losses), net

Non-interest expenses 10,400 10,320 9,947 10,821 9,692

Income before provision 8,642 8,098 10,079 8,788 9,766for income taxes

Provision for income 1,578 1,451 1,616 1,561 1,759taxes

Net income $ 7,064 $ 6,647 $ 8,463 $ 7,227 $ 8,007

Earnings Per Share $ 1.79 $ 1.69 $ 2.14 $ 1.83 $ 2.02Basic

Earnings Per Share $ 1.79 $ 1.69 $ 2.14 $ 1.83 $ 2.02Diluted

CITIZENS FINANCIAL SERVICES, INC.

CONSOLIDATED AVERAGE BALANCES, INTEREST, YIELDS AND RATES, AND NET INTERESTMARGIN ON A FULLY TAX-EQUIVALENT BASIS

(UNAUDITED)

Three Months Ended September 30,

2021 2020

Average Average Average Average Balance Balance (1) Interest Rate (1) Interest Rate

(dollars in thousands) $ $ % $ $ %

ASSETS

Short-term investments:

Interest-bearing 111,392 40 0.14 67,954 14 0.08deposits at banks

Total short-term 111,392 40 0.14 67,954 14 0.08investments

Interest bearing time 12,129 78 2.55 14,143 92 2.59deposits at banks

Investment securities:

Taxable 264,740 1,158 1.75 192,641 1,077 2.24

Tax-exempt (3) 107,125 709 2.65 84,097 614 2.92

Investment securities 371,865 1,867 2.01 276,738 1,691 2.45

Loans: (2)(3)(4)

Residential mortgage 203,426 2,417 4.71 209,161 2,807 5.34loans

Construction loans 67,780 671 3.93 29,087 356 4.87

Commercial Loans 745,313 8,976 4.78 652,380 8,472 5.17

Agricultural Loans 344,365 3,728 4.29 356,164 3,971 4.44

Loans to state & 49,673 437 3.49 83,671 872 4.15political subdivisions

Other loans 16,678 347 8.25 30,460 401 5.24

Loans, net of 1,427,235 16,576 4.61 1,360,923 16,879 4.93discount (2)(3)(4)

Total interest-earning 1,922,621 18,561 3.83 1,719,758 18,676 4.32assets

Cash and due from banks 6,542 7,350

Bank premises and 17,259 17,802equipment

Other assets 71,329 90,238

Total non-interest 95,130 115,390earning assets

Total assets 2,017,751 1,835,148

LIABILITIES ANDSTOCKHOLDERS' EQUITY

Interest-bearingliabilities:

NOW accounts 466,981 383 0.33 406,635 211 0.21

Savings accounts 297,470 74 0.10 247,414 96 0.15

Money market accounts 258,872 163 0.25 218,682 215 0.39

Certificates of 336,782 802 0.94 382,551 1,113 1.16deposit

Total interest-bearing 1,360,105 1,422 0.41 1,255,282 1,635 0.52deposits

Other borrowed funds 80,275 330 1.63 98,350 281 1.14

Total interest-bearing 1,440,380 1,752 0.48 1,353,632 1,916 0.56liabilities

Demand deposits 358,716 280,457

Other liabilities 11,683 16,611

Totalnon-interest-bearing 370,399 297,068liabilities

Stockholders' equity 206,972 184,448

Total liabilities & 2,017,751 1,835,148stockholders' equity

Net interest income 16,809 16,760

Net interest spread (5) 3.35% 3.76%

Net interest income asa percentage

of average 3.47% 3.88%interest-earning assets

Ratio ofinterest-earning assets

to interest-bearing 133% 127%liabilities

(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 forproper comparison using a statutory federal income tax rate of 21% for 2021and 2020. See reconciliation of GAAP and non-gaap measures at the end of thepress release

(4) Income on non-accrual loans is accounted for on a cash basis, and theloan balances are included in interest-earning assets.

(5) Interest rate spread represents the difference between the average rateearned on interest-earning assets and the average rate paid oninterest-bearing liabilities.

CITIZENS FINANCIAL SERVICES, INC.

CONSOLIDATED AVERAGE BALANCES, INTEREST, YIELDS AND RATES, AND NET INTERESTMARGIN ON A FULLY TAX-EQUIVALENT BASIS

(UNAUDITED)

Nine Months Ended September 30,

2021 2020

Average Average Average Average Balance Balance (1) Interest Rate (1) Interest Rate

(dollars in thousands) $ $ % $ $ %

ASSETS

Short-term investments:

Interest-bearing deposits 109,272 86 0.11 35,580 23 0.09at banks

Total short-term 109,272 86 0.11 35,580 23 0.09investments

Interest bearing time 12,952 249 2.57 14,266 275 2.57deposits at banks

Investment securities:

Taxable 238,438 3,156 1.76 185,220 3,487 2.51

Tax-exempt (3) 103,559 2,091 2.69 74,664 1,693 3.02

Investment securities 341,997 5,247 2.05 259,884 5,180 2.66

Loans: (2)(3)(4)

Residential mortgage 203,300 7,464 4.91 212,912 8,450 5.30loans

Construction loans 52,409 1,602 4.09 25,715 952 4.95

Commercial Loans 732,554 26,914 4.91 556,133 22,282 5.35

Agricultural Loans 351,478 11,322 4.31 357,498 12,096 4.52

Loans to state & 54,994 1,505 3.66 89,407 2,709 4.05political subdivisions

Other loans 22,912 1,028 6.00 17,878 794 5.93

Loans, net of discount 1,417,647 49,835 4.70 1,259,543 47,283 5.01(2)(3)(4)

Total interest-earning 1,881,868 55,417 3.94 1,569,273 52,761 4.49assets

Cash and due from banks 6,560 7,643

Bank premises and 17,212 17,152equipment

Other assets 75,818 75,238

Total non-interest 99,590 100,033earning assets

Total assets 1,981,458 1,669,306

LIABILITIES ANDSTOCKHOLDERS' EQUITY

Interest-bearingliabilities:

NOW accounts 450,636 1,086 0.32 374,347 904 0.32

Savings accounts 285,124 249 0.12 237,873 387 0.22

Money market accounts 248,495 502 0.27 196,985 810 0.55

Certificates of deposit 357,460 2,708 1.01 333,044 3,178 1.27

Total interest-bearing 1,341,715 4,545 0.45 1,142,249 5,279 0.62deposits

Other borrowed funds 87,200 924 1.42 92,120 960 1.39

Total interest-bearing 1,428,915 5,469 0.51 1,234,369 6,239 0.68liabilities

Demand deposits 335,188 246,424

Other liabilities 15,724 16,390

Totalnon-interest-bearing 350,912 262,814liabilities

Stockholders' equity 201,631 172,123

Total liabilities & 1,981,458 1,669,306stockholders' equity

Net interest income 49,948 46,522

Net interest spread (5) 3.43% 3.81%

Net interest income as apercentage of averageinterest-earning assets 3.55% 3.96%

Ratio of interest-earningassets tointerest-bearing 132% 127%liabilities

(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 propercomparison using a statutory federal income tax rate of 21% for 2021 and2020. See reconciliation of GAAP and non-gaap measures at the end of thepress release

(4) Income on non-accrual loans is accounted for on a cash basis, and the loanbalances are included in interest-earning assets.

(5) Interest rate spread represents the difference between the average rateearned on interest-earning assets and the average rate paid oninterest-bearing liabilities.

CITIZENS FINANCIAL SERVICES, INC.

CONSOLIDATED SUMMARY OF LOANS BY TYPE; NON-PERFORMING ASSETS; and ALLOWANCE FORLOAN LOSSES

(UNAUDITED)

(ExcludesLoans Held forSale)

(In Thousands)

September 30, June 30, March 31, December 31, September 30,

2021 2021 2021 2020 2020

Real estate:

Residential $ 204,853 $ 202,171 $ 203,273 $ 201,911 $ 208,084

Commercial 657,485 641,633 605,547 596,255 535,456

Agricultural 312,442 310,274 315,313 315,158 310,702

Construction 68,408 63,065 42,651 35,404 28,656

Consumer 31,042 8,684 26,181 30,277 30,625

Othercommercial 92,188 104,349 109,168 114,169 129,731loans

Otheragricultural 28,562 33,720 41,378 48,779 40,790loans

State &political 47,928 51,213 60,890 63,328 81,835subdivisionloans

Total loans 1,442,908 1,415,109 1,404,401 1,405,281 1,365,879

Less:allowance for 17,334 16,931 16,560 15,815 15,169loan losses

Net loans $ 1,425,574 $ 1,398,178 $ 1,387,841 $ 1,389,466 $ 1,350,710

Past due andnon-performingassets

Total Loanspast due 30-89 $ 1,482 $ 1,495 $ 2,383 $ 4,120 $ 3,449days and stillaccruing

Non-accrual $ 8,858 $ 9,082 $ 10,680 $ 10,732 $ 11,711loans

Loans past due90 days or 83 49 478 525 1,194more andaccruing

Non-performing $ 8,941 $ 9,131 $ 11,158 $ 11,257 $ 12,905loans

OREO 1,277 1,811 1,720 1,836 2,726

TotalNon-performing $ 10,218 $ 10,942 $ 12,878 $ 13,093 $ 15,631assets

3 Months 3 Months 3 Months 3 Months 3 Months

Ended Ended Ended Ended Ended

Analysis ofthe Allowance September 30, June 30, March 31, December 31, September 30,for loanLosses

(In Thousands) 2021 2021 2021 2020 2020

Balance,beginning of $ 16,931 $ 16,560 $ 15,815 $ 15,169 $ 14,827period

Charge-offs (7) (138) (4) (276) (237)

Recoveries 10 9 99 22 29

Net(charge-offs) 3 (129) 95 (254) (208)recoveries

Provision for 400 500 650 900 550loan losses

Balance, end $ 17,334 $ 16,931 $ 16,560 $ 15,815 $ 15,169of period

CITIZENS FINANCIAL SERVICES, INC.

Reconciliation of GAAP and Non-GAAP Financial Measures

(UNAUDITED)

(Dollars inthousands,except shareand per sharedata)

As of

September 30

2021 2020

TangibleEquity

Stockholders $ 208,967 $ 189,051Equity - GAAP

Accumulatedother (969) (2,865)comprehensiveincome

Intangible (33,053) (32,914)Assets

TangibleEquity - 174,945 153,272Non-GAAP

Sharesoutstandingadjusted for 3,952,081 3,959,967June 2021stock Dividend

Tangible Bookvalue per $ 44.27 $ 38.71share

As of

September 30

2021 2020

TangibleEquity pershare

StockholdersEquity per $ 52.88 $ 47.74share - GAAP

Adjustmentsforaccumulated (0.25) (0.72)othercomprehensiveincome

Book value per 52.63 47.02share

Adjustmentsfor intangible (8.36) (8.31)assets

Tangible Bookvalue per $ 44.27 $ 38.71share -Non-GAAP

For the Three Months Ended For the Nine Months Ended

September 30 September 30

2021 2020 2021 2020

Return onAverageTangibleEquity

AverageStockholders $ 209,181 $ 187,486 $ 203,645 $ 173,979Equity - GAAP

AverageAccumulatedOther (2,209) (3,038) (2,014) (1,856)Comprehensiveincome

AverageIntangible (33,038) (32,730) (33,021) (29,548)Assets

AverageTangible 173,934 151,718 168,610 142,575Equity -Non-GAAP

Net Income $ 7,064 8,007 $ 22,174 $ 17,876

AnnualizedReturn onAverage 16.25% 21.11% 17.53% 16.72%TangibleEquity

For the Three Months Ended For the Nine Months Ended

September 30 September 30

Reconciliationof netinterestincome on 2021 2020 2021 2020fully taxableequivalentbasis

Total interest $ 18,342 $ 18,386 $ 54,712 $ 51,885income

Total interest 1,752 1,916 5,469 6,239expense

Net interest 16,590 16,470 49,243 45,646income

Tax equivalent 219 290 705 876adjustment

Net interestincome (fully $ 16,809 $ 16,760 $ 49,948 $ 46,522taxableequivalent)

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SOURCE Citizens Financial Services, Inc.