CITIZENS FINANCIAL SERVICES, INC. REPORTS UNAUDITED SECOND QUARTER 2023 FINANCIAL RESULTS

About this update from Citizens Financial Services, Inc.

MANSFIELD, Pa. , July 31, 2023 /PRNewswire/ -- Citizens Financial Services, Inc. (Nasdaq: CZFS), parent company of First Citizens Community Bank , released today its unaudited consolidated financial results for the three and six months ended June 30, 2023 . Highlights The acquisition of HV Bancorp, Inc.("HVB") was completed on June 16, 2023 . The acquisition included available for sale investments of $79.2 million , loans with a fair value of $486.1 million and deposits with a fair value of $533.4 million . Based on the closing price on June 16 , the deal valuation was approximately $76.7 million . Merger and acquisitions costs for 2023 total $8.6 million through June 30, 2023 . The provision for credit losses on non-purchase credit deteriorated loans (the "NPC Provision") was $4.6 million . Net income for the first six months of 2023 was $2.7 million , which was $10.9 million , or 80.0% less than 2022's net income through June 30, 2022 due to the one-time merger and acquisition costs and the NPC Provision. The effective tax rate for the first six months of 2023 was 13.4% compared to 17.8% in the comparable period in 2022. Net loss was $4.1 million for the three months ended June 30, 2023 , which was $11.1 million or 160.0% less than the net income for 2022's comparable period. The effective tax rate for the three months ended June 30, 2023 was 22.3% compared to 17.7% in the comparable period in 2022. Net interest income before the provision for credit losses was $36.0 million for the six months ended June 30, 2023 , an increase of $2.0 million , or 5.9%, over the same period a year ago. Return on average equity for the three and six months (annualized) ended June 30, 2023 was (6.62%) and 2.22% compared to 12.49% and 12.48% for the three and six months (annualized) ended June 30, 2022 . If the one-time costs associated with the acquisition and the NPC Provision are excluded, the return on average equity for the three and six months (annualized) ended June 30, 2023 would have been 10.03% and 10.92%, respectively (1). Return on average tangible equity for the three and six months (annualized) ended June 30, 2023 was (7.92%) and 2.62% compared to 14.68% and 14.69% for the three and six months (annualized) ended June 30, 2022 . (1) If the one-time costs associated with the acquisition and the NPC Provision are excluded, the return on average tangible equity for the three and six months (annualized) ended June 30, 2023 would have been 12.00% and 12.86%. (1) Return on average assets for the three and six months (annualized) ended June 30, 2023 was (0.68%) and 0.23% compared to 1.25% for the three and six months (annualized) ended June 30, 2022 . If the one-time costs associated with the acquisition and the NPC Provision are excluded, the return on average assets for the three and six months (annualized) ended June 30, 2023 would have been 1.03% and 1.11% (1). Six Months Ended June 30, 2023 Compared to 2022 For the six months ended June 30, 2023 , net income totaled $2,723,000 which compares to net income of $13,641,000 for the first six months of 2022, a decrease of $10,918,000 . Basic earnings per share of $0.67 for the first six months of 2023 compares to $3.40 for the first six months last year. Annualized return on equity for the six months ended June 30, 2023 and 2022 was 2.22% and 12.48%, while annualized return on assets was 0.23% and 1.25%, respectively. If the one time costs associated with the merger and the NPC Provision, are excluded, basic earnings per share, the annualized return on average equity and average assets would be $3.28 , 10.92% and 1.11%, respectively. (1) Net interest income before the provision for credit loss for the six months ended June 30, 2023 totaled $36,001,000 compared to $33,991,000 for the six months ended June 30, 2022 , resulting in an increase of $2,010,000 , or 5.9%. Average interest earning assets increased $206.7 million for the six months ended June 30, 2023 compared to the same period last year, primarily due to growth that occurred in the second half of 2022 in the Delaware market as the HVB acquisition was completed late in the quarter ended June 30, 2023 . Average loans increased $262.7 million while average investment securities increased $23.7 million . The yield on interest earning assets increased 97 basis points to 4.64%, while the cost of interest-bearing liabilities increased 142 basis points to 1.83% due to the rise in market interest rates and competitive pressure. The tax effected net interest margin for the six months ended June 30, 2023 was 3.23% compared to 3.35% for the same period last year. The provision for credit losses for the six months ended June 30, 2023 was $4,853,000 compared to $700,000 for the six months ended June 30, 2022 , an increase of $4,253,000 . As a result of the acquisition, the Bank recorded a $4.6 million provision for credit losses for loans acquired that did not have any credit deterioration at the time of purchase. Excluding the impact of the acquisition, the provision would have decreased $438,000 when comparing the six month period of 2023 to 2022 with the decrease being attributable to a decrease in loans in 2023. Total non-interest income was $4,454,000 for the six months ended June 30, 2023 , which is $281,000 less than the non-interest income of $4,735,000 for the same period last year. The primary drivers were a loss of $292,000 in the value of equity securities during the first half of 2023, compared to a loss of $179,000 in the first half of 2022 and a decrease in other income associated with mortgage derivative activity due to the HVB merger of $128,000 . Total non-interest expenses for the six months ended June 30, 2023 totaled $32,458,000 compared to $21,431,000 for the same period last year, which is an increase of $11,027,000 , or 51.5%. The primary driver of the increase is the merger and acquisition costs of completing the HVB acquisition that total $8,646,000 . Merger and acquisitions costs for the merger with HVB include professional and consulting fees, printing, travel, contract termination payments and severance related expenses. Salary and benefit costs increased $1,563,000 due to an additional 8.3 FTEs, which was impacted minimally by the acquisition due to it closing on June 16, 2023 and merit increases for 2023 as well as an increase in health insurance costs of $374,000 . Due to growth that occurred primarily in 2022, FDIC insurance expense increased $345,000 . The provision for income taxes decreased $2,533,000 when comparing the six months ended June 30, 2023 to the same period in 2022 as a result of a decrease in income before income tax of $13,451,000 due to the one-time merger costs. Three Months Ended June 30, 2023 Compared to June 30, 2022 For the three months ended June 30, 2023 , net loss totaled ( $4,144,000 ) which compares to net income of $6,901,000 for the comparable period of 2022, a decrease of $11,045,000 . Basic (loss) earnings per share of ( $1.01 ) for the three months ended June 30, 2023 compares to $1.72 for the 2022 comparable period. Annualized return on equity for the three months ended June 30, 2023 and 2022 was (6.62%) and 12.49%, while annualized return on assets was (0.68%) and 1.25%, respectively. If the one time costs associated with the merger and the NPC Provision are excluded, basic earnings per share, the annualized return on average equity and average assets would be $1.58 , 10.03% and 1.03%, respectively. (1) Net interest income before the provision for credit loss for the three months ended June 30, 2023 totaled $17,921,000 compared to $17,729,000 for the three months ended June 30, 2022 , resulting in an increase of $192,000 , or 1.1%. Average interest earning assets increased $202.7 million for the three months ended June 30, 2023 compared to the same period last year as a result of growth that occurred in the second half of 2023, and to a lesser extent, the completed acquisition. Average loans increased $247.5 million while average investment securities increased $774,000 . The tax effected net interest margin for the three months ended June 30, 2023 was 3.17% compared to 3.43% for the same period last year, which was impacted by the increase in the average cost on interest bearing liabilities of 158 basis points, to 2.00%. The provision for credit losses for the three months ended June 30, 2023 was $4,853,000 compared to $450,000 for the three months ended June 30, 2022 , an increase of $4,403,000 . As a result of the acquisition, the Bank recorded a $4.6 million provision for credit losses for loans acquired that did not have any credit deterioration at the time of purchase. If the impact of the acquisition is excluded, the provision would have decreased $188,000 when comparing the three month period of 2023 to 2022 with the decrease being attributable to a decrease in loans in 2023. Total non-interest income was $2,280,000 for the three months ended June 30, 2023 , which is $24,000 less than for the comparable period last year. The primary driver was a decrease in brokerage and insurance commissions of $59,000 . The decrease in other income was associated changes in the fair value of derivative instruments associated with mortgage activity related to the HVB merger of $86,000 , which was offset by an increase in gains on loans sold of $128,000 , primarily due to the HVB merger. Total non-interest expenses for the three months ended June 30, 2023 totaled $20,680,000 compared to $11,200,000 for the same period last year, which is an increase of $9,480,000 . Merger and acquisition costs totaled $8,402,000 and salaries and benefits increased $799,000 primarily due to additional personnel and increased health care costs as noted above. The provision for income taxes decreased $2,670,000 when comparing the three months ended June 30, 2023 to the same period in 2022 as a result of a decrease in income before income tax of $13,715,000 . Balance Sheet and Other Information: At June 30, 2023 , total assets were $2.89 billion , compared to $2.33 billion at December 31, 2022 and $2.21 billion at June 30, 2022 . Available for sale securities of $434.3 million at June 30, 2023 decreased $5.2 million from December 31, 2022 and $28.6 million from June 30, 2022 . As part of the HVB acquisition, $79.2 million of available for sale securities were acquired, of which $76.1 million were sold prior to June 30, 2023 . The yield on the investment portfolio increased from 1.77% to 2.14% on a tax equivalent basis. Net loans as of June 30, 2023 totaled $2.14 billion and increased $434.7 million from December 31, 2022 as a result of the acquisition. Excluding the acquisition, loans would have decreased $40.1 million during 2023. The decrease in organic loans was driven by expected paydowns in student loans, which are expected to increase over the second half of 2023. The allowance for credit losses - loans totaled $21,652,000 at June 30, 2023 which is an increase of $3,100,000 from December 31, 2022 and is due to the acquisition and the implementation of the CECL accounting standard effective January 1, 2023 . The impact of the acquisition was an increase of $6.3 million , of which $4.6 million was in provision with the remaining $1.7 million due to purchase credit deteriorated ("PCD") loans. The impact of adopting ASC 326 was a decrease of $3.3 million in the allowance for credit losses – loans. Loan recoveries and charge-offs were $31,000 and $11,000 , respectively, for the six months ended June 30, 2023 . A provision for credit losses – loans of $100,000 was recorded during 2023. The allowance as a percent of total loans was 1.00% as of June 30, 2023 and 1.08% as of December 31, 2022 . Deposits increased $421.6 million from December 31, 2022 , to $2.27 billion at June 30, 2023 , due to the acquisition, which increased deposits by $533.4 million . Excluding the acquisition, deposits decreased $111.5 million . With the rise in interest rates, competitive pressure for deposits has increased. Additionally, we have numerous state and political organizations as customers who utilized funds during the first half of 2023 for various projects and bond payments. At June 30, 2023 , the Bank estimates that balances held by customers in excess of the FDIC insurance limit ( $250,000 per insured account) totaled $986.4 million , or 43.5% of the Bank's total deposits. Included in this balance are balances held through Intrafi, which provides customers with additional FDIC insurance, as well as deposits collateralized by securities (almost exclusively municipal deposits). The total of these items was $577.6 million , or 25.5% of the Bank's total deposits, as of June 30, 2023 . Stockholders' equity totaled $263.2 million at June 30, 2023 , compared to $200.1 million at December 31, 2022 , an increase of $63.0 million . The increase was attributable to issuing 693,858 shares with a value of $60.1 million as part of the acquisition and net income for the six months ended June 30, 2023 totaling $2.7 million , offset by net cash dividends for the first half of 2023 totaling $3.9 million , net treasury stock activity of $170,000 and an increase of $1.8 million attributable to the CECL adjustment made effective January 1, 2023 . As a result of changes in market interest rates impacting the fair value of investment securities and swaps, accumulated other comprehensive loss decreased $2.2 million from December 31, 2022 . Dividend Declared On May 30, 2023 , the Board of Directors declared a cash dividend of $0.485 per share, which was paid on June 30, 2023 to shareholders of record at the close of business on June 9, 2023 . The quarterly cash dividend is an increase of 3.0% over the regular cash dividend of $0.466 per share declared one year ago, as adjusted for the 1% stock dividend declared in June 2023 , payable on June 30, 2023 to shareholders of record at the close of business on June 9, 2023 . Citizens Financial Services, Inc. has nearly 1,925 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 , 2023 2022 2023 2022 Income and Performance Ratios Net Income (loss) $ (4,144) $ 6,901 $ 2,723 $ 13,641 Return on average assets (annualized) (0.68 %) 1.25 % 0.23 % 1.25 % Return on average equity (annualized) (6.62 %) 12.49 % 2.22 % 12.48 % Return on average tangible equity (annualized) (a) (7.92 %) 14.68 % 2.62 % 14.69 % Net interest margin (tax equivalent)(a) 3.17 % 3.43 % 3.23 % 3.35 % Earnings per share - basic (b) $ (1.01) $ 1.72 $ 0.67 $ 3.40 Earnings per share - diluted (b) $ (1.01) $ 1.72 $ 0.67 $ 3.40 Cash dividends paid per share (b) $ 0.480 $ 0.466 $ 0.961 $ 0.930 Number of shares used in computation - basic (b) 4,113,377 4,012,611 4,059,416 4,008,830 Number of shares used in computation - diluted (b) 4,113,377 4,012,626 4,059,416 4,008,934 Asset quality Allowance for credit losses - loans $ 21,652 $ 17,570 Non-performing assets $ 13,638 $ 8,362 Allowance for credit losses - loans/total loans 1.00 % 1.10 % Non-performing assets to total loans 0.63 % 0.52 % Annualized net charge-offs to total loans 0.00 % 0.11 % 0.00 % 0.06 % Equity Book value per share (b) $ 62.50 $ 55.27 Tangible Book value per share (a) (b) $ 43.63 $ 47.08 Market Value (Last reported trade of month) $ 74.47 $ 70.00 Common shares outstanding 4,706,768 3,970,153 Other Average Full Time Equivalent Employees 322.2 312.8 317.7 308.8 Loan to Deposit Ratio 95.44 % 84.92 % Trust assets under management $ 169,956 $ 143,015 Brokerage assets under management $ 307,336 $ 269,744 Balance Sheet Highlights June 30 , December 31 , June 30 , 2023 2022 2022 Assets $ 2,891,808 $ 2,333,393 $ 2,212,862 Investment securities 436,164 441,714 465,192 Loans (net of unearned income) 2,162,842 1,724,999 1,595,376 Allowance for credit losses - loans 21,652 18,552 17,570 Deposits 2,266,100 1,844,208 1,878,711 Stockholders' Equity 263,228 200,147 195,032 (a) See reconcilation 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) 2023 2022 2022 ASSETS: Cash and due from banks: Noninterest-bearing $ 28,740 $ 24,814 $ 18,306 Interest-bearing 15,969 1,397 2,366 Total cash and cash equivalents 44,709 26,211 20,672 Interest bearing time deposits with other banks 4,814 6,055 8,048 Equity securities 1,849 2,208 2,309 Available-for-sale securities 434,315 439,506 462,883 Loans held for sale 14,940 725 1,205 Loans (net of allowance for credit losses - loans: $21,652 at June 30, 2023 ; $18,552 at December 31, 2022 and $17,570 at June 30, 2023 ) 2,141,190 1,706,447 1,577,806 Premises and equipment 21,382 17,619 17,476 Accrued interest receivable 9,283 7,332 5,874 Goodwill 84,758 31,376 31,376 Bank owned life insurance 50,194 39,355 38,922 Other intangibles 4,071 1,272 1,449 Fair value of derivative instruments - asset 16,395 16,599 14,639 Deferred tax asset 20,108 12,886 10,807 Other assets 43,800 25,802 19,396 TOTAL ASSETS $ 2,891,808 $ 2,333,393 $ 2,212,862 LIABILITIES: Deposits: Noninterest-bearing $ 553,097 $ 396,260 $ 382,155 Interest-bearing 1,713,003 1,447,948 1,496,556 Total deposits 2,266,100 1,844,208 1,878,711 Borrowed funds 318,200 257,278 110,540 Accrued interest payable 2,256 1,232 566 Fair value of derivative instruments - liability 9,303 9,726 9,197 Other liabilities 32,721 20,802 18,816 TOTAL LIABILITIES 2,628,580 2,133,246 2,017,830 STOCKHOLDERS' EQUITY: Preferred Stock $1.00 par value; authorized 3,000,000 shares; none issued in 2023 or 2022 - - - Common stock $1.00 par value; authorized 25,000,000 shares at June 30, 2023 , December 31, 2022 and June 30, 2022 : issued 5,160,754 at June 30, 2023 and 4,427,687 at December 31, 2022 and June 30, 2022 5,161 4,428 4,428 Additional paid-in capital 143,351 80,911 80,892 Retained earnings 162,499 164,922 153,315 Accumulated other comprehensive loss (30,980) (33,141) (26,559) Treasury stock, at cost: 453,986 at June 30, 2023 and 456,478 shares at December 31, 2022 and 457,534 shares at June 30, 2022 (16,803) (16,973) (17,044) TOTAL STOCKHOLDERS' EQUITY 263,228 200,147 195,032 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,891,808 $ 2,333,393 $ 2,212,862 CITIZENS FINANCIAL SERVICES, INC. CONSOLIDATED STATEMENT OF INCOME (LOSS) (UNAUDITED) Three Months Ended Six Months Ended June 30 , June 30 , (in thousands, except share and per share data) 2023 2022 2023 2022 INTEREST INCOME: Interest and fees on loans $ 24,117 $ 17,120 $ 46,666 $ 33,040 Interest-bearing deposits with banks 127 156 198 272 Investment securities: Taxable 1,683 1,424 3,239 2,536 Nontaxable 572 617 1,189 1,200 Dividends 311 90 625 174 TOTAL INTEREST INCOME 26,810 19,407 51,917 37,222 INTEREST EXPENSE: Deposits 5,480 1,356 9,419 2,631 Borrowed funds 3,409 322 6,497 600 TOTAL INTEREST EXPENSE 8,889 1,678 15,916 3,231 NET INTEREST INCOME 17,921 17,729 36,001 33,991 Provision for credit losses 262 450 262 700 Provision for credit losses - acquisition day 1 non-PCD 4,591 - 4,591 - NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES 13,068 17,279 31,148 33,291 NON-INTEREST INCOME: Service charges 1,293 1,324 2,504 2,572 Trust 181 184 411 433 Brokerage and insurance 442 501 956 982 Gains on loans sold 169 41 214 146 Equity security losses, net (74) (134) (292) (179) Available for sale security losses, net (51) - (51) - Earnings on bank owned life insurance 234 212 452 419 Other 86 176 260 362 TOTAL NON-INTEREST INCOME 2,280 2,304 4,454 4,735 NON-INTEREST EXPENSES: Salaries and employee benefits 7,916 7,117 15,593 14,030 Occupancy 814 754 1,649 1,548 Furniture and equipment 162 166 313 295 Professional fees 387 394 768 733 FDIC insurance expense 325 145 625 280 Pennsylvania shares tax 298 339 596 678 Amortization of intangibles 31 40 62 80 Software expenses 372 358 723 699 ORE expenses (income) (11) 120 15 (247) Merger and acquisition expenses 8,402 - 8,646 - Other 1,984 1,767 3,468 3,335 TOTAL NON-INTEREST EXPENSES 20,680 11,200 32,458 21,431 Income (loss) before provision for income taxes (5,332) 8,383 3,144 16,595 Provision for income tax expense (benefit) (1,188) 1,482 421 2,954 NET INCOME (LOSS) $ (4,144) $ 6,901 $ 2,723 $ 13,641 PER COMMON SHARE DATA: Net (Loss) Income - Basic $ (1.01) $ 1.72 $ 0.67 $ 3.40 Net (Loss) Income - Diluted $ (1.01) $ 1.72 $ 0.67 $ 3.40 Cash Dividends Paid $ 0.480 $ 0.466 $ 0.961 $ 0.930 Number of shares used in computation - basic 4,113,377 4,012,611 4,059,416 4,008,830 Number of shares used in computation - diluted 4,113,377 4,012,626 4,059,416 4,008,934 CITIZENS FINANCIAL SERVICES, INC. QUARTERLY CONDENSED, CONSOLIDATED INCOME (LOSS) STATEMENT INFORMATION (UNAUDITED) (in thousands, except per share data) Three Months Ended, June 30 , March 31 , Dec 31 , Sept 30 , June 30 , 2023 2023 2022 2022 2022 Interest income $ 26,810 $ 25,107 $ 24,352 $ 21,783 $ 19,407 Interest expense 8,889 7,027 5,055 2,937 1,678 Net interest income 17,921 18,080 19,297 18,846 17,729 Provision for credit losses 262 - 258 725 450 Provision for credit losses - acquisition day 1 non-PCD 4,591 - - - - Net interest income after provision for credit losses 13,068 18,080 19,039 18,121 17,279 Non-interest income 2,405 2,392 2,368 2,717 2,438 Investment securities losses, net (125) (218) (57) (25) (134) Non-interest expenses 20,680 11,778 11,649 11,614 11,200 Income (loss) before provision for income taxes (5,332) 8,476 9,701 9,199 8,383 Provision for income tax expense (benefit) (1,188) 1,609 1,826 1,655 1,482 Net income (loss) $ (4,144) $ 6,867 $ 7,875 $ 7,544 $ 6,901 Earnings (Loss) Per Share Basic $ (1.01) $ 1.71 $ 1.97 $ 1.88 $ 1.72 Earnings (Loss) Per Share Diluted $ (1.01) $ 1.71 $ 1.97 $ 1.88 $ 1.72 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 , 2023 2022 Average Average Average Average Balance (1) Interest Rate Balance (1) Interest Rate (dollars in thousands) $ $ % $ $ % ASSETS Interest-bearing deposits at banks 18,193 82 1.79 59,943 91 0.61 Interest bearing time deposits at banks 6,000 45 2.99 9,827 65 2.65 Investment securities: Taxable 388,327 1,994 2.05 379,060 1,514 1.60 Tax-exempt (3) 113,674 725 2.55 122,167 782 2.56 Investment securities 502,001 2,719 2.17 501,227 2,296 1.83 Loans: (2)(3)(4) Residential mortgage loans 236,167 3,168 5.38 203,338 2,381 4.70 Construction loans 90,635 1,353 5.99 69,689 721 4.15 Commercial Loans 983,666 13,772 5.62 818,517 9,494 4.65 Agricultural Loans 345,467 4,221 4.90 346,199 3,706 4.29 Loans to state & political subdivisions 60,395 582 3.87 57,933 457 3.16 Other loans 60,770 1,136 7.50 33,907 446 5.28 Loans, net of discount (2)(3)(4) 1,777,100 24,232 5.47 1,529,583 17,205 4.51 Total interest-earning assets 2,303,294 27,078 4.72 2,100,580 19,657 3.75 Cash and due from banks 8,386 6,805 Bank premises and equipment 18,960 17,179 Other assets 102,155 83,164 Total non-interest earning assets 129,501 107,148 Total assets 2,432,795 2,207,728 LIABILITIES AND STOCKHOLDERS' EQUITY Interest-bearing liabilities: NOW accounts 545,527 2,067 1.52 530,596 398 0.30 Savings accounts 314,745 265 0.34 325,649 80 0.10 Money market accounts 330,453 1,847 2.24 348,718 300 0.35 Certificates of deposit 283,694 1,301 1.84 306,213 578 0.76 Total interest-bearing deposits 1,474,419 5,480 1.49 1,511,176 1,356 0.36 Other borrowed funds 307,523 3,409 4.45 78,948 322 1.64 Total interest-bearing liabilities 1,781,942 8,889 2.00 1,590,124 1,678 0.42 Demand deposits 397,084 375,542 Other liabilities 3,379 21,134 Total non-interest-bearing liabilities 400,463 396,676 Stockholders' equity 250,390 220,928 Total liabilities & stockholders' equity 2,432,795 2,207,728 Net interest income 18,189 17,979 Net interest spread (5) 2.71 % 3.33 % Net interest income as a percentage of average interest-earning assets 3.17 % 3.43 % Ratio of interest-earning assets to interest-bearing liabilities 129 % 132 % (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 2023 and 2022. 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 , 2023 2022 Average Average Average Average Balance (1) Interest Rate Balance (1) Interest Rate (dollars in thousands) $ $ % $ $ % ASSETS Interest-bearing deposits at banks 16,395 108 1.33 91,687 137 0.30 Interest bearing time deposits at banks 6,028 90 3.00 10,389 135 2.62 Investment securities: Taxable 384,453 3,864 2.01 359,189 2,710 1.51 Tax-exempt (3) 117,025 1,505 2.57 118,613 1,519 2.56 Investment securities 501,478 5,369 2.14 477,802 4,229 1.77 Loans: (2)(3)(4) Residential mortgage loans 224,059 5,872 5.28 202,095 4,712 4.70 Construction loans 88,048 2,492 5.71 65,626 1,327 4.08 Commercial Loans 959,221 26,097 5.49 793,313 18,076 4.59 Agricultural Loans 344,882 8,474 4.95 348,479 7,455 4.31 Loans to state & political subdivisions 59,860 1,125 3.79 52,489 824 3.17 Other loans 79,199 2,828 7.20 30,568 796 5.25 Loans, net of discount (2)(3)(4) 1,755,269 46,888 5.39 1,492,570 33,190 4.48 Total interest-earning assets 2,279,170 52,455 4.64 2,072,448 37,691 3.67 Cash and due from banks 7,716 6,600 Bank premises and equipment 18,292 17,078 Other assets 96,542 81,077 Total non-interest earning assets 122,550 104,755 Total assets 2,401,720 2,177,203 LIABILITIES AND STOCKHOLDERS' EQUITY Interest-bearing liabilities: NOW accounts 527,960 3,584 1.37 516,129 717 0.28 Savings accounts 317,063 471 0.30 321,436 154 0.10 Money market accounts 325,841 3,121 1.93 347,403 523 0.30 Certificates of deposit 281,482 2,243 1.61 314,494 1,237 0.79 Total interest-bearing deposits 1,452,346 9,419 1.31 1,499,462 2,631 0.35 Other borrowed funds 303,344 6,497 4.32 73,651 600 1.64 Total interest-bearing liabilities 1,755,690 15,916 1.83 1,573,113 3,231 0.41 Demand deposits 386,104 366,046 Other liabilities 15,157 19,360 Total non-interest-bearing liabilities 401,261 385,406 Stockholders' equity 244,769 218,684 Total liabilities & stockholders' equity 2,401,720 2,177,203 Net interest income 36,539 34,460 Net interest spread (5) 2.81 % 3.26 % Net interest income as a percentage of average interest-earning assets 3.23 % 3.35 % Ratio of interest-earning assets to interest-bearing liabilities 130 % 132 % (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 2020 and 2019. 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 CREDIT LOSSES (UNAUDITED) (Excludes Loans Held for Sale) (In Thousands) June 30 , March 31 , December 31 , September 30 , June 30 , 2023 2023 2022 2022 2022 Real estate: Residential $ 358,025 $ 212,793 $ 210,213 $ 203,673 $ 203,323 Commercial 1,080,513 878,972 876,569 857,314 798,528 Agricultural 312,302 312,793 313,614 317,761 313,700 Construction 156,927 75,745 80,691 79,154 71,414 Consumer 42,701 87,101 86,650 124,375 50,319 Other commercial loans 120,288 64,133 63,222 66,241 65,772 Other agricultural loans 30,615 32,052 34,832 29,509 32,870 State & political subdivision loans 61,471 59,886 59,208 59,926 59,450 Total loans 2,162,842 1,723,475 1,724,999 1,737,953 1,595,376 Less: allowance for credit losses - loans 21,652 15,250 18,552 18,291 17,570 Net loans $ 2,141,190 $ 1,708,225 $ 1,706,447 $ 1,719,662 $ 1,577,806 Past due and non-performing assets Total Loans past due 30-89 days and still accruing $ 4,811 $ 1,336 $ 3,317 $ 2,616 $ 2,070 Non-accrual loans $ 13,073 $ 10,404 $ 6,938 $ 7,118 $ 7,251 Loans past due 90 days or more and accruing 139 41 7 93 139 Non-performing loans $ 13,212 $ 10,445 $ 6,945 $ 7,211 $ 7,390 OREO 426 428 543 877 972 Total Non-performing assets $ 13,638 $ 10,873 $ 7,488 $ 8,088 $ 8,362 Three Months Ended March 31 , Analysis of the Allowance for Credit Losses - Loans June 30 , March 31 , December 31 , September 30 , June 30 , (In Thousands) 2023 2023 2022 2022 2022 Balance, beginning of period $ 15,250 $ 18,552 $ 18,291 $ 17,570 $ 17,556 Impact of Adopting ASC 326 - (3,300) - - - Charge-offs (4) (7) (7) (14) (446) Recoveries 26 5 10 10 10 Net (charge-offs) recoveries 22 (2) 3 (4) (436) PCD allowance for credit loss at acquisition 1,689 - - - - Provision for credit losses - loans 100 - 258 725 450 Provision for credit losses - acquisition day 1 non-PCD 4,591 - - - - Balance, end of period $ 21,652 $ 15,250 $ 18,552 $ 18,291 $ 17,570 CITIZENS FINANCIAL SERVICES, INC. Reconciliation of GAAP and Non-GAAP Financial Measures (UNAUDITED) (Dollars in thousands, except per share data) As of June 30 , 2023 2022 Tangible Equity Stockholders Equity - GAAP $ 263,228 $ 195,032 Accumulated other comprehensive loss 30,980 26,559 Intangible Assets (88,829) (32,825) Tangible Equity - Non-GAAP 205,379 188,766 Shares outstanding adjusted for June 2022 stock Dividend 4,706,768 4,009,362 Tangible Book value per share $ 43.63 $ 47.08 As of June 30 , 2023 2022 Tangible Equity per share Stockholders Equity per share - GAAP $ 55.92 $ 48.65 Adjustments for accumulated other comprehensive loss 6.58 6.62 Book value per share 62.50 55.27 Adjustment for intangible assets (18.87) (8.19) Tangible Book value per share - Non-GAAP $ 43.63 $ 47.08 For the Three Months Ended For the Six Months Ended June 30 June 30 2023 2022 2023 2022 Return on Average Tangible Equity Average Stockholders Equity - GAAP $ 221,557 $ 199,864 $ 214,753 $ 206,155 Average Accumulated Other Comprehensive Loss 28,833 21,064 30,016 12,529 Average Intangible Assets (41,189) (32,876) (36,922) (32,916) Average Tangible Equity - Non-GAAP 209,201 188,052 207,847 185,768 Net Income (loss) $ (4,144) $ 6,901 $ 2,723 $ 13,641 Annualized Return on Average Tangible Equity -7.92 % 14.68 % 2.62 % 14.69 % For the Three Months Ended For the Six Months Ended June 30 June 30 2023 2022 2023 2022 Return on Average Assets and Equity Excluding merger and acquisition costs and provision for credit losses - acquisition day 1 non-PCD Net Income (loss) $ (4,144) $ 6,901 $ 2,723 $ 13,641 After tax provision for credit losses - acquisition day 1 non-PCD 3,627 - 3,627 - After Tax merger and acquisition costs 6,793 - 7,017 - Net Income excluding merger and acquisition costs $ 6,276 $ 6,901 $ 13,367 $ 13,641 Average Assets 2,432,795 2,207,728 2,401,720 2,177,203 Annualized Return on Average stockholders equity, Excluding merger and acquisition costs and provision for credit losses - acquisition day 1 non-PCD 1.03 % 1.25 % 1.11 % 1.25 % Average Stockholders Equity - GAAP $ 250,390 $ 220,928 $ 244,769 $ 218,684 Annualized Return on Average stockholders equity, Excluding merger and acquisition costs and provision for credit losses - acquisition day 1 non-PCD 10.03 % 12.49 % 10.92 % 12.48 % Average Tangible Equity - Non-GAAP 209,201 188,052 207,847 185,768 Annualized Return on Average Tangible Equity Excluding merger and acquisition costs and provision for credit losses - acquisition day 1 non-PCD 12.00 % 14.68 % 12.86 % 14.69 % Earnings per share, Excluding merger and acquisition costs and provision for credit losses - acquisition day 1 non-PCD Net Income (Loss) $ (4,144) $ 6,901 $ 2,723 $ 13,641 After tax provision for credit losses - acquisition day 1 non-PCD 3,627 - 3,627 - After Tax merger and acquisition costs 6,793 - 7,017 - Net income excluding one time items $ 6,276 $ 6,901 $ 13,367 $ 13,641 Number of shares used in computation - basic 4,113,377 4,012,626 4,059,416 4,008,934 Earnings per share, excluding merger and acquisition costs and provision for credit losses - acquisition day 1 non-PCD 1.53 1.72 3.28 3.40 For the Three Months Ended For the Six Months Ended June 30 June 30 Reconciliation of net interest income on fully taxable equivalent basis 2023 2022 2023 2022 Total interest income $ 26,810 $ 19,407 $ 37,222 $ 36,370 Total interest expense 8,889 1,678 3,231 3,717 Net interest income 17,921 17,729 33,991 32,653 Tax equivalent adjustment 268 250 469 485 Net interest income (fully taxable equivalent) $ 18,189 $ 17,979 $ 34,460 $ 33,138 View original content: https://www.prnewswire.com/news-releases/citizens-financial-services-inc-reports-unaudited-second-quarter-2023-financial-results-301889669.html SOURCE Citizens Financial Services, Inc.

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