Citizens Financial Services, Inc. Reports Unaudited Second Quarter 2021 Financial Results

About this update from Citizens Financial Services, Inc.

MANSFIELD, Pa. , July 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 six months ended June 30, 2021 . Highlights The financial results of the Company continue to benefit from the acquisition of MidCoast Community Bancorp, Inc. that closed in the second quarter of 2020. Net income was $15.1 million for the six months ended June 30, 2021 , which is 53.1% higher than the net income for 2020's comparable period. The effective tax rate for the six months ended June 30, 2021 was 16.9% compared to 16.4% in the comparable period in 2020. Net income was $6.6 million for the three months ended June 30, 2021 , which is 24.5% higher than the net income for 2020's comparable period. The effective tax rate for the three months ended June 30, 2021 was 17.9% compared to 16.5% in the comparable period in 2020. Net interest income before the provision for loan losses was $32.7 million for the six months ended June 30, 2021 , an increase of $3.5 million , or 11.9%, over the same period a year ago. Non-performing assets decreased $2.2 million from year end and $3.3 million since June 30, 2020 and totaled $10,942,000 as of June 30, 2021 . As a percent of loans, non-performing assets totaled 0.77%, 0.93% and 1.04% as of June 30, 2021 , December 31, 2020 and June 30, 2020 . Return on average equity for the three and six months (annualized) ended June 30, 2021 was 13.19% and 15.19% compared to 12.28% and 11.90% for the three and six months (annualized) ended June 30, 2020 . Return on average tangible equity for the three and six months (annualized) ended June 30, 2021 was 15.77% and 18.22% compared to 14.98% and 14.31% for the three and six months (annualized) ended June 30, 2020 (non-GAAP). (1) Return on average assets for the three and six months (annualized) ended June 30, 2021 was 1.32% and 1.54% compared to 1.25% and 1.24% for the three and six months (annualized) ended June 30, 2020 . If the life insurance proceeds on a former employees are excluded, the return on average equity and average assets would be 14.03% and 1.42%, respectively, for six months (annualized) ended June 30, 2021 (non-GAAP). (1) COVID-19 pandemic response and loan profile During 2021, the Company continued to participate in the Paycheck Protection Program (PPP) for loans provided under the auspices of the Small Business Administration (SBA). As of June 30, 2021 , 419 loans with a balance of $27.1 million remain outstanding under this program. From January 1, 2021 to June 30, 2021 , we issued 388 loans with aggregate balances of $24.3 million . As of June 30, 2021 , 44 loans that were issued under this program in 2020 remain outstanding and have a balance of $3.9 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, 372 loans, or 88.8% of the remaining PPP loans, had an original balance less than $150,000 . The outstanding balance for these 372 loans as of June 30, 2021 was approximately $11.4 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 June 30, 2021 , there was 1 commercial loan outstanding with a balance of $6.2 million that is under modified terms through August 2021 . 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 June 30, 2021 , the Company had limited loan concentrations to these industries as follows: Hotels/Motels - $70.9 million or 5.0% of outstanding loans Restaurants - $26.7 million or 1.9% of outstanding loans Amusement/Theme parks - $9.4 million , or 0.7% of outstanding loans Six Months Ended June 30, 2021 Compared to 2020 For the six months ended June 30, 2021 , net income totaled $15,110,000 which compares to net income of $9,869,000 for the first six months of 2020, an increase of $5,241,000 or 53.1%. Basic earnings per share of $3.83 for the first six months of 2021 compares to $2.64 for the first six months last year. Annualized return on equity for the six months ended June 30, 2021 and 2020 was 15.19% and 11.90%, while annualized return on assets was 1.54% and 1.24%, respectively. Net interest income before the provision for loan loss for the six months ended June 30, 2021 totaled $32,653,000 compared to $29,176,000 for the six months ended June 30, 2020 , resulting in an increase of $3,477,000 , or 11.9%. Average interest earning assets increased $368.2 million for the six months ended June 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. Average loans increased $204.5 million while average investment securities increased $75.5 million . The yield on interest earning assets decreased 60 basis points to 3.99%, while the cost of interest-bearing liabilities decreased 21 basis points to 0.53%. The yield on interest earning assets in 2020 benefitted approximately $600,000 or 10 basis points from the pay-off of a purchase credit impaired loan 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 six months ended June 30, 2021 was 3.59% compared to 4.01% for the same period last year. The provision for loan losses for the six months ended June 30, 2021 was $1,150,000 compared to $950,000 for the six months ended June 30, 2020 , an increase of $200,000 . 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 $6,941,000 for the six months ended June 30, 2021 , which is $3,021,000 more than the non-interest income of $3,920,000 for the same period last year. The primary drivers were the earnings of bank owned life insurance, which increased $1,144,000 as the result of the passing of two former employees, gains on loans sold which increased $387,000 and an increase in equity security gains of $459,000 as a result of market performance. Other income increased $482,000 due to fee income on derivative transactions for customers. Total non-interest expenses for the six months ended June 30, 2021 totaled $20,267,000 compared to $20,334,000 for the same period last year, which is a decrease of $67,000 . The primary driver of the decrease was the merger and acquisition costs incurred in 2020 of $2,179,000 as a result of the MidCoast acquisition. Salary and benefit costs and occupancy costs 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 $1,124,000 when comparing the six months ended June 30, 2021 to the same period in 2020 as a result of an increase in income before income tax of $6,365,000 . The effective tax rate was 16.9% and 16.4% for the six months ended June 30, 2021 and 2020, respectively. It should be noted the earnings on bank owned life insurance are exempt from Federal income tax. Second Quarter of 2021 Compared to the Second Quarter of 2020 For the three months ended June 30, 2021 , net income totaled $6,647,000 which compares to net income of $5,338,000 for the comparable period of 2020, an increase of $1,309,000 or 24.5%. Basic earnings per share of $1.69 for the three months ended June 30, 2021 compares to $1.37 for the 2020 comparable period. Annualized return on equity for the three months ended June 30, 2021 and 2020 was 13.19% and 12.28%, while annualized return on assets was 1.32% and 1.25%, respectively. Net interest income before the provision for loan losses for the three months ended June 30, 2021 totaled $16,212,000 compared to $16,286,000 for the three months ended June 30, 2020 , resulting in a decrease of $74,000 . Average interest earning assets increased $301.5 million for the three months ended June 30, 2021 compared to the same period last year as a result of the organic loan and deposit growth. Average loans increased $117.5 million while average investment securities increased $92.2 million and average interest bearing cash holdings increased $93.1 million . The tax effected net interest margin for the three months ended June 30, 2021 was 3.46% compared to 4.15% for the same period last year, which was impacted by the decrease in the average yield on interest earning assets of 77 basis points to 3.85% of which 15 basis points was due to the $600,000 recognized on the payoff of the purchase impaired loan. The provision for loan losses for the three months ended June 30, 2021 was $500,000 , a $50,000 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 second quarter of 2020. Total non-interest income was $2,706,000 for the three months ended June 30, 2021 , which is $637,000 more than the comparable period last year. The primary drivers were service charges of $249,000 as a result of waiving fees in the second quarter of 2020 in response to the pandemic and brokerage and insurance commissions, which increased $157,000 due to growth in our south central Pennsylvania market. Other income increased due to $254,000 due to fee income on derivative transactions for customers. Total non-interest expenses for the three months ended June 30, 2021 totaled $10,320,000 compared to $11,413,000 for the same period last year, which is a decrease of $1,093,000 , or 9.6%. The primary driver of the decrease was the merger and acquisition costs of completing the MidCoast acquisition that totaled $1,803,000 in 2020. Salary and employee benefit costs increased $586,000 due to the additional salary and benefit costs of employees added as a result of the MidCoast acquisition, as well as merit increases for employees. The provision for income taxes increased $397,000 when comparing the three months ended June 30, 2021 to the same period in 2020 as a result of an increase in income before income tax of $1,706,000 . The effective tax rate was 17.9% and 16.5% for the three months ended June 30, 2021 and 2020, respectively. Balance Sheet and Other Information: At June 30, 2021 , total assets were $2.00 billion compared to $1.89 billion at December 31, 2020 and $1.80 billion at June 30, 2020 . The loan to deposit ratio as of June 30, 2021 was 84.11% compared to 88.45% as of December 31, 2020 and 90.11% as of June 30, 2020 . Available for sale securities of $369.0 million at June 30, 2021 increased $73.8 million from December 31, 2020 and $96.6 million from June 30, 2020 . The yield on the investment portfolio decreased from 2.78% to 2.07% 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 the first half of 2021. Net loans as of June 30, 2021 totaled $1.40 billion and increased $8.7 million from December 31, 2020 as a result of organic growth in the Delaware market offset by PPP forgiveness and a decrease in student loan balances. The allowance for loan losses totaled $16,931,000 at June 30, 2021 which is an increase of $1,116,000 from December 31, 2020 . The increase is due to recording a provision for loan losses of $1,150,000 and recoveries of $108,000 , offset by charge-offs of $142,000 . The allowance as a percent of total loans was 1.20% as of June 30, 2021 and 1.13% as of December 31, 2020 . Deposits increased $93.5 million from December 31, 2020 , to $1.68 billion at June 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 $35.7 million due to the PPP program and additional cash holdings by customers. Stockholders' equity totaled $204.4 million at June 30, 2021 , compared to $194.3 million at December 31, 2020 , an increase of $10.2 million . The increase was attributable to net income for the six months ended June 30, 2021 totaling $15.1 million , offset by cash dividends totaling $3.7 million and net treasury stock activity of $493,000 . As a result of changes in interest rates impacting the fair value of investment securities and derivative instruments, accumulated other comprehensive income, decreased $1.0 million from December 31, 2020 . Dividend Declared On June 1, 2021 , the Board of Directors declared a cash dividend of $0.465 per share, which was paid on June 25, 2021 to shareholders of record at the close of business on June 11, 2021 . This quarterly cash dividend is an increase of 3.20% over the regular cash dividend of $0.446 per share declared one year ago, as adjusted for the 1% stock dividend declared in June 2021 . The Board declared a 1% stock dividend, payable on June 25, 2021 to shareholders of record at the close of business on June 11, 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 in thousands, except per share data) As of or For The As of or For The Three Months Ended Six Months Ended June 30 , June 30 , 2021 2020 2021 2020 Income and Performance Ratios Net Income $ 6,647 $ 5,338 $ 15,110 $ 9,869 Return on average assets (annualized) 1.32% 1.25% 1.54% 1.24% Return on average equity (annualized) 13.19% 12.28% 15.19% 11.90% Return on average tangible equity (annualized) (a) 15.77% 14.98% 18.22% 14.31% Net interest margin (tax equivalent)(a) 3.46% 4.15% 3.59% 4.01% Earnings per share - basic (b) $ 1.69 $ 1.37 $ 3.83 $ 2.64 Earnings per share - diluted (b) $ 1.69 $ 1.37 $ 3.83 $ 2.64 Cash dividends paid per share (b) $ 0.460 $ 0.446 $ 0.920 $ 0.989 Number of shares used in computation - basic (b) 3,944,488 3,883,734 3,946,184 3,737,759 Number of shares used in computation - diluted (b) 3,944,560 3,884,763 3,946,219 3,738,273 Asset quality Allowance for loan and lease losses $ 16,931 $ 14,827 Non-performing assets $ 10,942 $ 14,200 Allowance for loan and lease losses/total loans 1.20% 1.09% Non-performing assets to total loans 0.77% 1.04% Annualized net charge-offs (recoveries) to total loans 0.04% (0.01%) 0.00% (0.01%) Equity Book value per share (b) $ 51.32 $ 45.45 Tangible Book value per share (a) (b) $ 42.95 $ 37.18 Market Value (Last reported trade of month) $ 63.00 $ 49.75 Common shares outstanding 3,951,573 3,925,745 Other Average Full Time Equivalent Employees 295.4 283.3 Loan to Deposit Ratio 84.11% 90.11% Trust assets under management $ 155,394 $ 129,507 Brokerage assets under management $ 262,158 $ 212,636 Balance Sheet Highlights June 30 , December 31 , June 30 , 2021 2020 2020 Assets $ 2,003,300 $ 1,891,674 $1,800,116 Investment securities 371,150 297,120 273,063 Loans (net of unearned income) 1,415,109 1,405,281 1,363,633 Allowance for loan losses 16,931 15,815 14,827 Deposits 1,682,387 1,588,858 1,513,284 Stockholders' Equity 204,419 194,259 183,095 (a) See reconciliation of GAAP and Non-GAAP measures at the end of the press release (b) Prior period amounts were adjusted to reflect stock dividends. CITIZENS FINANCIAL SERVICES, INC. CONSOLIDATED BALANCE SHEET (UNAUDITED) June 30 , December 31 , June 30 , (in thousands except share data) 2021 2020 2020 ASSETS: Cash and due from banks: Noninterest-bearing $ 17,403 $ 16,374 $ 19,543 Interest-bearing 90,791 52,333 19,487 Total cash and cash equivalents 108,194 68,707 39,030 Interest bearing time deposits with other banks 12,266 13,758 14,256 Equity securities 2,148 1,931 703 Available-for-sale securities 369,002 295,189 272,360 Loans held for sale 5,282 14,640 17,468 Loans (net of allowance for loan losses: $16,931 at June 30, 2021 ; $15,815 at December 31, 2020 and $14,827 at June 30, 2020 ) 1,398,178 1,389,466 1,348,806 Premises and equipment 17,243 16,948 17,832 Accrued interest receivable 5,564 5,998 5,950 Goodwill 31,376 31,376 31,376 Bank owned life insurance 30,353 32,589 32,228 Other intangibles 1,705 1,668 1,421 Other assets 21,989 19,404 18,686 TOTAL ASSETS $ 2,003,300 $ 1,891,674 $ 1,800,116 LIABILITIES: Deposits: Noninterest-bearing $ 339,414 $ 303,762 $ 278,612 Interest-bearing 1,342,973 1,285,096 1,234,672 Total deposits 1,682,387 1,588,858 1,513,284 Borrowed funds 97,830 88,838 85,135 Accrued interest payable 789 1,017 888 Other liabilities 17,875 18,702 17,714 TOTAL LIABILITIES 1,798,881 1,697,415 1,617,021 STOCKHOLDERS' EQUITY: Preferred Stock $1.00 par value; authorized 3,000,000 shares; none issued in 2021 or 2020 - - - Common stock $1.00 par value; authorized 25,000,000 shares at June 30, 2021 , December 31, 2020 and June 30, 2020 : issued 4,388,901 at June 30, 2021 and 4,350,342 at December 31, 2020 and June 30, 2020 4,389 4,350 4,350 Additional paid-in capital 78,412 75,908 75,863 Retained earnings 135,714 126,627 115,000 Accumulated other comprehensive income 1,610 2,587 2,907 Treasury stock, at cost: 437,328 at June 30, 2021 and 428,492 shares at December 31, 2020 and 424,597 shares at June 30, 2020 (15,706) (15,213) (15,025) TOTAL STOCKHOLDERS' EQUITY 204,419 194,259 183,095 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,003,300 $ 1,891,674 $ 1,800,116 CITIZENS FINANCIAL SERVICES, INC. CONSOLIDATED STATEMENT OF INCOME (UNAUDITED) Three Months Ended Six Months Ended June 30 , June 30 , (in thousands, except per share data) 2021 2020 2021 2020 INTEREST INCOME: Interest and fees on loans $ 16,370 $ 16,407 $ 33,064 $ 30,045 Interest-bearing deposits with banks 111 97 217 192 Investment securities: Taxable 941 1,126 1,791 2,233 Nontaxable 547 463 1,091 852 Dividends 106 67 207 177 TOTAL INTEREST INCOME 18,075 18,160 36,370 33,499 INTEREST EXPENSE: Deposits 1,525 1,657 3,123 3,644 Borrowed funds 338 217 594 679 TOTAL INTEREST EXPENSE 1,863 1,874 3,717 4,323 NET INTEREST INCOME 16,212 16,286 32,653 29,176 Provision for loan losses 500 550 1,150 950 NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 15,712 15,736 31,503 28,226 NON-INTEREST INCOME: Service charges 1,163 914 2,269 1,995 Trust 185 145 492 343 Brokerage and insurance 406 249 782 589 Gains on loans sold 311 260 814 427 Equity security gains (losses), net 29 11 216 (243) Available for sale security gains, net - 117 50 117 Earnings on bank owned life insurance 163 178 1,478 334 Other 449 195 840 358 TOTAL NON-INTEREST INCOME 2,706 2,069 6,941 3,920 NON-INTEREST EXPENSES: Salaries and employee benefits 6,481 5,895 12,744 11,309 Occupancy 711 651 1,494 1,177 Furniture and equipment 141 189 284 320 Professional fees 395 438 843 763 FDIC insurance expense 129 135 258 206 Pennsylvania shares tax 178 259 517 534 Amortization of intangibles 49 55 98 105 Merger and acquisition - 1,803 - 2,179 Software expenses 354 246 667 493 ORE expenses 167 159 253 191 Other 1,715 1,583 3,109 3,057 TOTAL NON-INTEREST EXPENSES 10,320 11,413 20,267 20,334 Income before provision for income taxes 8,098 6,392 18,177 11,812 Provision for income taxes 1,451 1,054 3,067 1,943 NET INCOME $ 6,647 $ 5,338 $ 15,110 $ 9,869 PER COMMON SHARE DATA: Net Income - Basic $ 1.69 $ 1.37 $ 3.83 $ 2.64 Net Income - Diluted $ 1.69 $ 1.37 $ 3.83 $ 2.64 Cash Dividends Paid $ 0.460 $ 0.446 $ 0.920 $ 0.989 Number of shares used in computation - basic 3,944,488 3,883,734 3,946,184 3,737,759 Number of shares used in computation - diluted 3,944,560 3,884,763 3,946,219 3,738,273 CITIZENS FINANCIAL SERVICES, INC. QUARTERLY CONDENSED, CONSOLIDATED INCOME STATEMENT INFORMATION (UNAUDITED) (in thousands, except share data) Three Months Ended, June 30 , March 31 , Dec 31 , Sept 30 , June 30 , 2021 2021 2020 2020 2020 Interest income $ 18,075 $ 18,295 $ 18,411 $ 18,386 $ 18,160 Interest expense 1,863 1,854 1,866 1,916 1,874 Net interest income 16,212 16,441 16,545 16,470 16,286 Provision for loan losses 500 650 900 550 550 Net interest income after provision for loan losses 15,712 15,791 15,645 15,920 15,736 Non-interest income 2,677 3,998 3,726 3,386 1,941 Investment securities gains (losses), net 29 237 238 152 128 Non-interest expenses 10,320 9,947 10,821 9,692 11,413 Income before provision for income taxes 8,098 10,079 8,788 9,766 6,392 Provision for income taxes 1,451 1,616 1,561 1,759 1,054 Net income $ 6,647 $ 8,463 $ 7,227 $ 8,007 $ 5,338 Earnings Per Share Basic $ 1.69 $ 2.14 $ 1.83 $ 2.02 $ 1.37 Earnings Per Share Diluted $ 1.69 $ 2.14 $ 1.83 $ 2.02 $ 1.37 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 June 30 , 2021 2020 Average Average Average Average Balance (1) Interest Rate Balance (1) Interest Rate (dollars in thousands) $ $ % $ $ % ASSETS Interest-bearing deposits at banks 121,319 28 0.09 28,182 5 0.07 Interest bearing time deposits at banks 13,016 83 2.59 14,385 92 2.57 Investment securities 352,499 1,740 1.97 260,281 1,780 2.74 Loans: (2)(3)(4) Residential mortgage loans 202,537 2,494 4.94 213,780 2,800 5.27 Construction loans 50,807 521 4.11 30,296 373 4.95 Commercial Loans 738,136 8,875 4.82 599,800 8,276 5.55 Agricultural Loans 351,660 3,763 4.29 356,166 4,012 4.53 Loans to state & political subdivisions 52,934 470 3.56 90,491 898 3.99 Other loans 25,567 335 5.26 13,572 223 6.91 Loans, net of discount (2)(3)(4) 1,421,641 16,458 4.64 1,304,105 16,582 5.11 Total interest-earning assets 1,908,475 18,309 3.85 1,606,953 18,459 4.62 Cash and due from banks 6,757 9,319 Bank premises and equipment 17,371 17,584 Other assets 75,575 79,001 Total non-interest earning assets 99,703 105,904 Total assets 2,008,178 1,712,857 LIABILITIES AND STOCKHOLDERS' EQUITY Interest-bearing liabilities: NOW accounts 462,299 383 0.33 383,985 257 0.27 Savings accounts 289,328 85 0.12 240,116 107 0.18 Money market accounts 247,606 164 0.27 197,742 202 0.41 Certificates of deposit 355,292 893 1.01 354,759 1,091 1.24 Total interest-bearing deposits 1,354,525 1,525 0.45 1,176,602 1,657 0.57 Other borrowed funds 95,166 338 1.42 84,092 217 1.04 Total interest-bearing liabilities 1,449,691 1,863 0.52 1,260,694 1,874 0.60 Demand deposits 339,896 261,839 Other liabilities 16,977 16,471 Total non-interest-bearing liabilities 356,873 278,310 Stockholders' equity 201,614 173,853 Total liabilities & stockholders' equity 2,008,178 1,712,857 Net interest income 16,446 16,585 Net interest spread (5) 3.33% 4.02% Net interest income as a percentage of average interest-earning assets 3.46% 4.15% Ratio of interest-earning assets to interest-bearing liabilities 132% 127% (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 2021 and 2020. See reconciliation of GAAP and non-gaap measures at the end of the press release (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. CITIZENS FINANCIAL SERVICES, INC. CONSOLIDATED AVERAGE BALANCES, INTEREST, YIELDS AND RATES, AND NET INTEREST MARGIN ON A FULLY TAX-EQUIVALENT BASIS (UNAUDITED) Six Months Ended June 30 , 2021 2020 Average Average Average Average Balance (1) Interest Rate Balance (1) Interest Rate (dollars in thousands) $ $ % $ $ % ASSETS Interest-bearing deposits at banks 108,196 46 0.09 19,013 9 0.10 Interest bearing time deposits at banks 13,371 171 2.58 14,329 183 2.57 Investment securities 326,849 3,379 2.07 251,365 3,489 2.78 Loans: (2)(3)(4) Residential mortgage loans 203,235 5,047 5.01 214,809 5,643 5.28 Construction loans 44,595 931 4.21 24,011 596 4.99 Commercial Loans 726,077 17,938 4.98 507,490 13,809 5.47 Agricultural Loans 355,094 7,593 4.31 358,173 8,124 4.56 Loans to state & political subdivisions 57,698 1,068 3.73 92,306 1,837 4.00 Other loans 26,083 682 5.27 11,517 395 6.90 Loans, net of discount (2)(3)(4) 1,412,782 33,259 4.75 1,208,306 30,404 5.06 Total interest-earning assets 1,861,198 36,855 3.99 1,493,013 34,085 4.59 Cash and due from banks 6,569 7,791 Bank premises and equipment 17,188 16,823 Other assets 78,055 67,847 Total non-interest earning assets 101,812 92,461 Total assets 1,963,010 1,585,474 LIABILITIES AND STOCKHOLDERS' EQUITY Interest-bearing liabilities: NOW accounts 442,328 703 0.32 358,026 694 0.39 Savings accounts 278,848 175 0.13 233,050 291 0.25 Money market accounts 243,221 339 0.28 186,018 595 0.64 Certificates of deposit 367,971 1,906 1.04 308,019 2,064 0.35 Total interest-bearing deposits 1,332,368 3,123 0.47 1,085,113 3,644 0.68 Other borrowed funds 90,721 594 1.32 88,971 679 1.53 Total interest-bearing liabilities 1,423,089 3,717 0.53 1,174,084 4,323 0.74 Demand deposits 323,229 229,221 Other liabilities 17,775 16,277 Total non-interest-bearing liabilities 341,004 245,498 Stockholders' equity 198,917 165,892 Total liabilities & stockholders' equity 1,963,010 1,585,474 Net interest income 33,138 29,762 Net interest spread (5) 3.46% 3.85% Net interest income as a percentage of average interest-earning assets 3.59% 4.01% Ratio of interest-earning assets to interest-bearing liabilities 131% 127% (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 2021 and 2020. See reconciliation of GAAP and non-gaap measures at the end of the press release (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. 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) June 30 , March 31 , December 31 , September 30 , June 30 , 2021 2021 2020 2020 2020 Real estate: Residential $ 202,171 $ 203,273 $ 201,911 $ 208,084 $ 210,789 Commercial 641,633 605,547 596,255 535,456 513,598 Agricultural 310,274 315,313 315,158 310,702 313,136 Construction 63,065 42,651 35,404 28,656 31,744 Consumer 8,684 26,181 30,277 30,625 30,973 Other commercial loans 104,349 109,168 114,169 129,731 132,503 Other agricultural loans 33,720 41,378 48,779 40,790 44,912 State & political subdivision loans 51,213 60,890 63,328 81,835 85,978 Total loans 1,415,109 1,404,401 1,405,281 1,365,879 1,363,633 Less: allowance for loan losses 16,931 16,560 15,815 15,169 14,827 Net loans $ 1,398,178 $ 1,387,841 $ 1,389,466 $ 1,350,710 $ 1,348,806 Past due and non-performing assets Total Loans past due 30-89 days and still accruing $ 1,495 $ 2,383 $ 4,120 $ 3,449 $ 4,986 Non-accrual loans $ 9,082 $ 10,680 $ 10,732 $ 11,711 $ 10,693 Loans past due 90 days or more and accruing 49 478 525 1,194 654 Non-performing loans $ 9,131 $ 11,158 $ 11,257 $ 12,905 $ 11,347 OREO 1,811 1,720 1,836 2,726 2,853 Total Non-performing assets $ 10,942 $ 12,878 $ 13,093 $ 15,631 $ 14,200 3 Months 3 Months 3 Months 3 Months 3 Months Ended Ended Ended Ended Ended Analysis of the Allowance for loan Losses June 30 , March 31 , December 31 , September 30 , June 30 , (In Thousands) 2021 2021 2020 2020 2020 Balance, beginning of period $ 16,560 $ 15,815 $ 15,169 $ 14,827 $ 14,247 Charge-offs (138) (4) (276) (237) (10) Recoveries 9 99 22 29 40 Net (charge-offs) recoveries (129) 95 (254) (208) 30 Provision for loan losses 500 650 900 550 550 Balance, end of period $ 16,931 $ 16,560 $ 15,815 $ 15,169 $ 14,827 CITIZENS FINANCIAL SERVICES, INC. Reconciliation of GAAP and Non-GAAP Financial Measures (UNAUDITED) (Dollars in thousands, except per share data) As of June 30 2021 2020 Tangible Equity Stockholders Equity - GAAP $ 204,419 $ 183,095 Accumulated other comprehensive income (1,610) (2,907) Intangible Assets (33,081) (32,797) Tangible Equity - Non-GAAP 169,728 147,391 Shares outstanding adjusted for June 2021 stock Dividend 3,951,573 3,964,304 Tangible Book value per share (a) $ 42.95 $ 37.18 As of June 30 2021 2020 Tangible Equity per share Stockholders Equity per share - GAAP $ 51.73 $ 46.18 Adjustments for accumulated other comprehensive income (0.41) (0.73) Book value per share 51.32 45.45 Adjustments for intangible assets (8.37) (8.27) Tangible Book value per share - Non-GAAP $ 42.95 $ 37.18 For the Three Months Ended For the Six Months Ended June 30 June 30 2021 2020 2021 2020 Return on Average Tangible Equity Average Stockholders Equity - GAAP $ 203,023 $ 176,397 $ 200,832 $ 167,151 Average Accumulated Other Comprehensive income (1,409) (2,544) (1,915) (1,259) Average Intangible Assets (33,027) (31,265) (33,012) (27,934) Average Tangible Equity - Non-GAAP 168,587 142,588 165,905 137,958 Net Income $ 6,647 5,338 $ 15,110 $ 9,869 Annualized Return on Average Tangible Equity 15.77% 14.98% 18.22% 14.31% For the Three Months Ended For the Six Months Ended June 30 June 30 Return on Average Assets and Equity Excluding BOLI Death Benefits 2021 2020 2021 2020 Net Income $ 6,647 $ 5,338 $ 15,110 $ 9,869 BOLI death benefits - - 1,155 - Net Income excluding merger and acquisition costs $ 6,647 $ 5,338 $ 13,955 $ 9,869 Average Assets 2,008,178 1,712,857 1,963,010 1,585,474 Annualized Return on Average stockholders equity, excluding Merger and Acquisition costs 1.32% 1.25% 1.42% 1.24% Average Stockholders Equity - GAAP $ 201,614 $ 173,853 $ 198,917 $ 165,892 Annualized Return on Average stockholders equity, excluding Merger and Acquisition costs 13.19% 12.28% 14.03% 11.90% For the Three Months Ended For the Six Months Ended June 30 June 30 Reconciliation of net interest income on fully taxable equivalent basis 2021 2020 2021 2020 Total interest income $ 18,075 $ 18,160 $ 36,370 $ 33,499 Total interest expense 1,863 1,874 3,717 4,323 Net interest income 16,212 16,286 32,653 29,176 Tax equivalent adjustment 234 299 485 586 Net interest income (fully taxable equivalent) $ 16,446 $ 16,585 $ 33,138 $ 29,762 View original content: https://www.prnewswire.com/news-releases/citizens-financial-services-inc-reports-unaudited-second-quarter-2021-financial-results-301341220.html SOURCE Citizens Financial Services, Inc.

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