CITIZENS FINANCIAL SERVICES, INC. REPORTS UNAUDITED THIRD QUARTER 2022 FINANCIAL RESULTS

About this update from Citizens Financial Services, Inc.

MANSFIELD, Penn. , Oct. 24, 2022 /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 nine months ended September 30, 2022 . Highlights Citizens Financial Services, Inc. and HV Bancorp, Inc. sign definitive agreement for Citizens Financial Services, Inc. to acquire HV Bancorp, Inc. The transaction is expected to close in the first half of 2023. Two new branches are scheduled to open in November of 2022 in Ephrata, Pennsylvania and Greenville, Delaware . Net loan growth for the quarter was $141.9 million and for year-to-date was $295.4 million or 27.7% on an annualized basis. Net income was $21.2 million for the nine months ended September 30, 2022 , which is 4.5% less than the net income for 2021's comparable period. The decrease was due to life insurance proceeds received in the first quarter of 2021 due to the passing of two former employees and decreased gains on loans sold due to the rise in mortgage rates in 2022. The effective tax rate for the nine months ended September 30, 2022 was 17.9% compared to 17.3% in the comparable period in 2021, with the increase being due to life insurance proceeds being exempt from taxable income. Net income was $7.5 million for the three months ended September 30, 2022 , which is 6.8% higher than the net income for 2021's comparable period. The effective tax rate for the three months ended September 30, 2022 was 18.0% compared to 18.3% in the comparable period in 2021. Net interest income before the provision for loan losses was $52.8 million for the nine months ended September 30, 2022 , an increase of $3.6 million , or 7.3%, over the same period a year ago. Amortization associated with Paycheck Protection Program ("PPP") loans was $1,384,000 less in 2022 than 2021. Non-performing assets decreased $2,130,000 since September 30, 2021 and totaled $8,088,000 as of September 30, 2022 , which is $754,000 less than the balance at December 31, 2021 . As a percent of loans, non-performing assets totaled 0.47%, 0.61% and 0.71% as of September 30, 2022 , December 31, 2021 and September 30, 2021 , respectively. Return on average equity for the three and nine months (annualized) ended September 30, 2022 was 13.34% and 12.77% compared to 13.65% and 14.66% for the three and nine months (annualized) ended September 30, 2021 . Return on average tangible equity for the three and nine months (annualized) ended September 30, 2022 was 15.60% and 15.00% compared to 16.25% and 17.53% for the three and nine months (annualized) ended September 30, 2021 (non-GAAP). (1) Return on average assets for the three and nine months (annualized) ended September 30, 2022 was 1.31% and 1.27% compared to 1.40% and 1.49% for the three and nine months (annualized) ended September 30, 2021 . If the life insurance proceeds on a former employees are excluded, the return on average equity and average assets would have been 13.90% and 1.41%, respectively, for nine months (annualized) ended June 30, 2021 (non-GAAP). (1) Nine Months Ended September 30, 2022 Compared to 2021 For the nine months ended September 30, 2022 , net income totaled $21,185,000 which compares to net income of $22,174,000 for the first nine months of 2021, a decrease of $989,000 or 4.5%. Basic earnings per share of $5.34 for the first nine months of 2022 compares to $5.56 for the first nine months last year. Annualized return on equity for the nine months ended September 30, 2022 and 2021 was 12.77% and 14.66%, while annualized return on assets was 1.27% and 1.49%, respectively, with ratios in 2021 benefitting from life insurance proceeds on two former employees. If the life insurance proceeds associated with the passing of the former employees in 2021 are excluded, basic earnings per share in 2021 would have been $5.20 compared to $5.34 for the first nine months of 2022 (non-GAAP) (1). Net interest income before the provision for loan loss for the nine months ended September 30, 2022 totaled $52,837,000 compared to $49,243,000 for the nine months ended September 30, 2021 , resulting in an increase of $3,594,000 , or 7.3%. Amortization on PPP loans decreased $1,384,000 during 2022 compared to 2021. Average interest earning assets increased $233.8 million for the nine months ended September 30, 2022 compared to the same period last year, as a result of growth in investment securities and organic loan growth funded by deposit growth and borrowings. Average loans increased $134.4 million , while average investment securities increased $146.8 million . The yield on interest earning assets decreased 16 basis points to 3.78%, while the cost of interest-bearing liabilities remained steady at 0.51%. The decrease in amortization on PPP loans accounts for 13 basis points of the decrease in margin and the yield on interest earning assets. A large component of the remaining decrease is due to the percentage of interest earning assets in investments in 2022 that were purchased during a lower interest rate environment. The provision for loan losses for the nine months ended September 30, 2022 was $1,425,000 , a $125,000 decrease to the comparable period in 2021. The decrease in the provision is attributable to the improved credit metrics of the loan portfolio in comparison to September 30, 2021 and less impact from the COVID-19 pandemic on the economy, both of which helped offset the impact of the organic loan growth experienced. Total non-interest income was $7,427,000 for the nine months ended September 30, 2022 , which is $2,366,000 less than the non-interest income of $9,793,000 for the same period last year. The primary drivers were the earnings of bank owned life insurance, which decreased $1,008,000 as the result of the passing of two former employees in 2021, gains on loans sold which decreased $868,000 due to a decrease in refinancing activity with the rise in market interest rates that occurred during 2022, a loss on equity securities of $486,000 as a result of market performance when comparing 2022 to 2021. Other income decreased $572,000 due to fee income on derivative transactions for customers recorded in 2021. Total non-interest expenses for the nine months ended September 30, 2022 totaled $33,045,000 compared to $30,667,000 for the same period last year, which is an increase of $2,378,000 . Salary and benefit costs increased $1,652,000 due to an addition 13.2 FTEs and merit increases for 2022. Additionally, salary and benefit costs for 2021 benefitted from a $422,000 reduction in deferred compensation due to the passing of a former executive in the first quarter of 2021. The decrease in ORE expenses of $508,000 is due to gains on the sale of ORE properties that totaled $481,000 , compared to minimal gains in 2021. Other expenses increased due charge-offs associated with fraudulent account activity, marketing expenses and the Delaware franchise tax. The provision for income taxes decreased $36,000 when comparing the nine months ended September 30, 2022 to the same period in 2021 as a result of a decrease in income before income tax of $1,025,000 . The effective tax rate was 17.9% and 17.3% for the nine months ended September 30, 2022 and 2021, respectively. The earnings on bank owned life insurance are exempt from Federal income tax and accounts for the difference in tax rates between 2021 and 2022. Third Quarter of 2022 Compared to the Third Quarter of 2021 For the three months ended September 30, 2022 , net income totaled $7,544,000 which compares to net income of $7,064,000 for the comparable period of 2021, an increase of $480,000 or 6.8%. Basic earnings per share of $1.90 for the three months ended September 30, 2022 compares to $1.77 for the 2021 comparable period. Annualized return on equity for the three months ended September 30, 2022 and 2021 was 13.34% and 13.65%, while annualized return on assets was 1.31% and 1.40%, respectively. Net interest income before the provision for loan losses for the three months ended September 30, 2022 totaled $18,846,000 compared to $16,590,000 for the three months ended September 30, 2021 , resulting in an increase of $2,256,000 . Average interest earning assets increased $282.0 million for the three months ended September 30, 2022 compared to the same period last year as a result of the organic loan and deposit growth. Average loans increased $241.7 million while average investment securities increased $143.0 million and average interest bearing cash holdings decreased $97.1 million . The tax effected net interest margin for the three months ended September 30, 2022 was 3.44% compared to 3.47% for the same period last year. The provision for loan losses for the three months ended September 30, 2022 was $725,000 , a $325,000 increase to the comparable period in 2021. The increase in the provision is attributable to the organic loan growth that occurred in the third quarter of 2022 compared to organic loan growth in 2021. Total non-interest income was $2,692,000 for the three months ended September 30, 2022 , which is $160,000 less than the comparable period last year. The primary drivers were gains on loans sold which decreased $200,000 due to a decrease in refinancing activity with the rise in market interest rates that occurred in 2022, and a loss on equity and available for sale securities of $91,000 and $168,000 , respectively, as a result of market performance when comparing 2022 to 2021. Service charges increased $299,000 for the three months ended September 30, 2022 compared to the same period in 2021 due to additional debit card usage and a new contract associated with interchange processing. Total non-interest expenses for the three months ended September 30, 2022 totaled $11,614,000 compared to $10,400,000 for the same period last year, which is an increase of $1,214,000 , or 11.7%. Salary and benefit costs increased $365,000 due to an addition of 14.9 FTEs and merit increases for 2022. The increase in other expenses was due to charge-offs associated with fraudulent account activity, marketing expenses and the Delaware franchise tax. The provision for income taxes increased $77,000 when comparing the three months ended September 30, 2022 to the same period in 2021 as a result of an increase in income before income tax of $557,000 . The effective tax rate was 18.0% and 18.3% for the three months ended September 30, 2022 and 2021, respectively. Balance Sheet and Other Information: At September 30, 2022 , total assets were $2.35 billion compared to $2.14 billion at December 31, 2021 and $2.05 billion at September 30, 2021 . The loan to deposit ratio as of September 30, 2022 was 93.00% compared to 78.51% as of December 31, 2021 and 82.88% as of September 30, 2021 . Available for sale securities of $445.2 million at September 30, 2022 increased $32.8 million from December 31, 2021 and $48.2 million from September 30, 2021 . The yield on the investment portfolio decreased from 2.05% for the nine months ended September 30, 2021 to 1.83% for the nine months ended September 30, 2022 on a tax equivalent basis due to the amount of securities purchased in 2020 and 2021, which was a low rate environment due to the pandemic. Purchases made in 2022 have been at higher rates than those made in 2020 and 2021 and have helped to stabilize investment yields. Net loans as of September 30, 2022 totaled $1.72 billion and increased $295.4 million from December 31, 2021 , which is 27.7% on an annualized basis. In comparison to September 30, 2021 , net loans have grown $296.4 million , or 20.6%. The allowance for loan losses totaled $18,291,000 at September 30, 2022 which is an increase of $987,000 from December 31, 2021 . The increase is due to recording a provision for loan losses of $1,425,000 and recoveries of $27,000 , offset by charge-offs of $465,000 . The allowance as a percent of total loans was 1.05% as of September 30, 2022 and 1.20% as of December 31, 2021 . Deposits increased $32.6 million from December 31, 2021 , to $1.87 billion at September 30, 2022 , primarily due to customers holding more cash and new customer relationships in the Delaware market. Borrowings increased $184.9 million from December 31, 2021 to $258.9 million at September 30, 2022 to fund organic loan growth. Stockholders' equity totaled $191.4 million at September 30, 2022 , compared to $212.5 million at December 31, 2021 , a decrease of $21.1 million . Excluding accumulated other comprehensive loss (AOCI), stockholders equity increased $14.6 million and totals $227.3 million . The increase in stockholders equity, excluding AOCI, was attributable to net income for the nine months ended September 30, 2022 totaling $21.2 million , offset by cash dividends for the first three quarters of 2022 totaling $5.7 million and net treasury stock activity of $818,000 . As a result of increases in market interest rates decreasing the fair value of investment securities, the unrealized loss on available for sale investment securities, net of tax, increased $40.0 million from December 31, 2021 . Dividend Declared On September 6, 2022 , the Board of Directors declared a cash dividend of $0.480 per share, which was paid on September 30, 2022 to shareholders of record at the close of business on September 16, 2022 . This quarterly cash dividend is an increase of 3.13% over the regular cash dividend of $0.465 per share declared one year ago, as adjusted for the 1% stock dividend declared in June 2022 . 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 Nine Months Ended September 30 , September 30 , 2022 2021 2022 2021 Income and Performance Ratios Net Income $ 7,544 $ 7,064 $ 21,185 $ 22,174 Return on average assets (annualized) 1.31 % 1.40 % 1.27 % 1.49 % Return on average equity (annualized) 13.34 % 13.65 % 12.77 % 14.66 % Return on average tangible equity (annualized) (a) 15.60 % 16.25 % 15.00 % 17.53 % Net interest margin (tax equivalent)(a) 3.44 % 3.47 % 3.39 % 3.55 % Earnings per share - basic (b) $ 1.90 $ 1.77 $ 5.34 $ 5.56 Earnings per share - diluted (b) $ 1.90 $ 1.77 $ 5.34 $ 5.56 Cash dividends paid per share (b) $ 0.480 $ 0.465 $ 1.421 $ 1.377 Number of shares used in computation - basic (b) 3,967,585 3,988,294 3,970,646 3,984,748 Number of shares used in computation - diluted (b) 3,967,819 3,988,389 3,970,648 3,984,755 Asset quality Allowance for loan and lease losses $ 18,291 $ 17,334 Non-performing assets $ 8,088 $ 10,218 Allowance for loan and lease losses/total loans 1.05 % 1.20 % Non-performing assets to total loans 0.47 % 0.71 % Annualized net charge-offs to total loans 0.00 % 0.00 % 0.04 % 0.00 % Equity Book value per share (b) $ 57.23 $ 52.12 Tangible Book value per share (a) (b) $ 48.99 $ 43.84 Market Value (Last reported trade of month) $ 70.20 $ 62.50 Common shares outstanding 3,971,342 3,952,081 Other Average Full Time Equivalent Employees 312.1 297.2 309.9 296.7 Loan to Deposit Ratio 93.00 % 82.88 % Trust assets under management $ 143,297 $ 148,360 Brokerage assets under management $ 268,878 $ 273,488 Balance Sheet Highlights September 30 , December 31 , September 30 , 2022 2021 2021 Assets $ 2,349,711 $ 2,143,863 $ 2,047,203 Investment securities 447,479 414,672 399,262 Loans (net of unearned income) 1,737,953 1,441,533 1,442,908 Allowance for loan losses 18,291 17,304 17,334 Deposits 1,868,711 1,836,151 1,740,969 Stockholders' Equity 191,430 212,492 208,967 (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) September 30 , December 31 , September 30 , (in thousands except share data) 2022 2021 2021 ASSETS: Cash and due from banks: Noninterest-bearing $ 21,519 $ 14,051 $ 17,466 Interest-bearing 1,629 158,782 84,505 Total cash and cash equivalents 23,148 172,833 101,971 Interest bearing time deposits with other banks 6,055 11,026 11,274 Equity securities 2,257 2,270 2,219 Available-for-sale securities 445,222 412,402 397,043 Loans held for sale 1,280 4,554 3,199 Loans (net of allowance for loan losses: $18,291 at September 30, 2022 ; $17,304 at December 31, 2021 and $17,334 at September 30, 2021 ) 1,719,662 1,424,229 1,425,574 Premises and equipment 17,367 17,016 17,201 Accrued interest receivable 6,544 5,235 5,231 Goodwill 31,376 31,376 31,376 Bank owned life insurance 39,138 38,503 30,518 Other intangibles 1,371 1,627 1,677 Fair value of derivative instruments 17,674 4,011 3,390 Other assets 38,617 18,781 16,530 TOTAL ASSETS $ 2,349,711 $ 2,143,863 $ 2,047,203 LIABILITIES: Deposits: Noninterest-bearing $ 381,380 $ 358,073 $ 357,078 Interest-bearing 1,487,331 1,478,078 1,383,891 Total deposits 1,868,711 1,836,151 1,740,969 Borrowed funds 258,922 73,977 78,200 Accrued interest payable 922 711 823 Other liabilities 29,726 20,532 18,244 TOTAL LIABILITIES 2,158,281 1,931,371 1,838,236 STOCKHOLDERS' EQUITY: Preferred Stock $1.00 par value; authorized 3,000,000 shares; none issued in 2022 or 2021 - - - Common stock $1.00 par value; authorized 25,000,000 shares at September 30, 2022 , December 31, 2021 and September 30, 2021 : issued 4,427,687 at September 30, 2022 and 4,388,901 at December 31, 2021 and September 30, 2021 4,428 4,389 4,389 Additional paid-in capital 80,869 78,395 78,370 Retained earnings 158,953 146,010 140,920 Accumulated other comprehensive (loss) income (35,855) (155) 969 Treasury stock, at cost: 456,345 at September 30, 2022 and 444,481 shares at December 31, 2021 and 436,820 shares at September 30, 2021 (16,965) (16,147) (15,681) TOTAL STOCKHOLDERS' EQUITY 191,430 212,492 208,967 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,349,711 $ 2,143,863 $ 2,047,203 CITIZENS FINANCIAL SERVICES, INC. CONSOLIDATED STATEMENT OF INCOME (UNAUDITED) Three Months Ended Nine Months Ended September 30 , September 30 , (in thousands, except per share data) 2022 2021 2022 2021 INTEREST INCOME: Interest and fees on loans $ 19,396 $ 16,505 $ 52,436 $ 49,569 Interest-bearing deposits with banks 61 118 333 335 Investment securities: Taxable 1,514 1,074 4,050 2,865 Nontaxable 630 561 1,830 1,652 Dividends 182 84 356 291 TOTAL INTEREST INCOME 21,783 18,342 59,005 54,712 INTEREST EXPENSE: Deposits 1,838 1,422 4,469 4,545 Borrowed funds 1,099 330 1,699 924 TOTAL INTEREST EXPENSE 2,937 1,752 6,168 5,469 NET INTEREST INCOME 18,846 16,590 52,837 49,243 Provision for loan losses 725 400 1,425 1,550 NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 18,121 16,190 51,412 47,693 NON-INTEREST INCOME: Service charges 1,509 1,210 4,081 3,479 Trust 187 182 620 674 Brokerage and insurance 446 408 1,428 1,190 Gains on loans sold 95 295 241 1,109 Equity security (losses) gains, net (19) 72 (198) 288 Available for sale security (losses) gains, net (6) 162 (6) 212 Earnings on bank owned life insurance 216 165 635 1,643 Other 264 358 626 1,198 TOTAL NON-INTEREST INCOME 2,692 2,852 7,427 9,793 NON-INTEREST EXPENSES: Salaries and employee benefits 6,933 6,568 20,964 19,312 Occupancy 779 728 2,327 2,222 Furniture and equipment 122 123 416 407 Professional fees 588 310 1,321 1,153 FDIC insurance expense 160 129 440 387 Pennsylvania shares tax 339 339 1,017 856 Amortization of intangibles 40 48 120 146 Software expenses 370 336 1,069 1,003 ORE expenses (income) 122 130 (125) 383 Other 2,161 1,689 5,496 4,798 TOTAL NON-INTEREST EXPENSES 11,614 10,400 33,045 30,667 Income before provision for income taxes 9,199 8,642 25,794 26,819 Provision for income taxes 1,655 1,578 4,609 4,645 NET INCOME $ 7,544 $ 7,064 $ 21,185 $ 22,174 PER COMMON SHARE DATA: Net Income - Basic $ 1.90 $ 1.77 $ 5.34 $ 5.56 Net Income - Diluted $ 1.90 $ 1.77 $ 5.34 $ 5.56 Cash Dividends Paid $ 0.480 $ 0.465 $ 1.421 $ 1.377 Number of shares used in computation - basic 3,967,585 3,988,294 3,970,646 3,984,748 Number of shares used in computation - diluted 3,967,819 3,988,389 3,970,648 3,984,755 CITIZENS FINANCIAL SERVICES, INC. QUARTERLY CONDENSED, CONSOLIDATED INCOME STATEMENT INFORMATION (UNAUDITED) (in thousands, except share data) Three Months Ended, Sept 30 , June 30 , March 31 , Dec 31 , Sept 30 , 2022 2022 2022 2021 2021 Interest income $ 21,783 $ 19,407 $ 17,815 $ 18,505 $ 18,342 Interest expense 2,937 1,678 1,553 1,636 1,752 Net interest income 18,846 17,729 16,262 16,869 16,590 Provision for loan losses 725 450 250 - 400 Net interest income after provision for loan losses 18,121 17,279 16,012 16,869 16,190 Non-interest income 2,717 2,438 2,476 2,461 2,618 Investment securities (losses) gains, net (25) (134) (45) 51 234 Non-interest expenses 11,614 11,200 10,231 10,883 10,400 Income before provision for income taxes 9,199 8,383 8,212 8,498 8,642 Provision for income taxes 1,655 1,482 1,472 1,554 1,578 Net income $ 7,544 $ 6,901 $ 6,740 $ 6,944 $ 7,064 Earnings Per Share Basic $ 1.90 $ 1.74 $ 1.69 $ 1.74 $ 1.77 Earnings Per Share Diluted $ 1.90 $ 1.74 $ 1.69 $ 1.74 $ 1.77 CITIZENS FINANCIAL SERVICES, INC. CONSOLIDATED AVERAGE BALANCES, INTEREST, YIELDS AND RATES, AND NET INTEREST MARGIN ON A FULLY TAX-EQUIVALENT BASIS (UNAUDITED) Three Months Ended September 30 , 2022 2021 Average Average Average Average Balance (1) Interest Rate Balance (1) Interest Rate (dollars in thousands) $ $ % $ $ % ASSETS Interest-bearing deposits at banks 14,255 12 0.33 111,392 40 0.14 Interest bearing time deposits at banks 6,640 49 2.93 12,129 78 2.55 Investment securities: Taxable 391,774 1,696 1.73 264,740 1,158 1.75 Tax-exempt (3) 123,046 797 2.59 107,125 709 2.65 Investment securities 514,820 2,493 1.94 371,865 1,867 2.01 Loans: (2)(3)(4) Residential mortgage loans 204,352 2,416 4.69 203,426 2,417 4.71 Construction loans 76,934 885 4.56 67,780 671 3.93 Commercial Loans 900,297 10,732 4.73 745,313 8,976 4.78 Agricultural Loans 346,380 3,887 4.45 344,365 3,728 4.29 Loans to state & political subdivisions 59,454 502 3.35 49,673 437 3.49 Other loans 81,499 1,074 5.23 16,678 347 8.25 Loans, net of discount (2)(3)(4) 1,668,916 19,496 4.63 1,427,235 16,576 4.61 Total interest-earning assets 2,204,631 22,050 3.96 1,922,621 18,561 3.83 Cash and due from banks 6,755 6,542 Bank premises and equipment 17,437 17,259 Other assets 82,012 71,329 Total non-interest earning assets 106,204 95,130 Total assets 2,310,835 2,017,751 LIABILITIES AND STOCKHOLDERS' EQUITY Interest-bearing liabilities: NOW accounts 530,234 675 0.51 466,981 383 0.33 Savings accounts 328,056 106 0.13 297,470 74 0.10 Money market accounts 347,460 515 0.59 258,872 163 0.25 Certificates of deposit 288,926 542 0.74 336,782 802 0.94 Total interest-bearing deposits 1,494,676 1,838 0.49 1,360,105 1,422 0.41 Other borrowed funds 189,174 1,099 2.30 80,275 330 1.63 Total interest-bearing liabilities 1,683,850 2,937 0.69 1,440,380 1,752 0.48 Demand deposits 380,110 358,716 Other liabilities 20,618 11,683 Total non-interest-bearing liabilities 400,728 370,399 Stockholders' equity 226,257 206,972 Total liabilities & stockholders' equity 2,310,835 2,017,751 Net interest income 19,113 16,809 Net interest spread (5) 3.28 % 3.35 % Net interest income as a percentage of average interest-earning assets 3.44 % 3.47 % Ratio of interest-earning assets to interest-bearing liabilities 131 % 133 % (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 2022 and 2021. 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) Nine Months Ended September 30 , 2022 2021 Average Average Average Average Balance (1) Interest Rate Balance (1) Interest Rate (dollars in thousands) $ $ % $ $ % ASSETS Interest-bearing deposits at banks 65,727 150 0.31 109,272 86 0.11 Interest bearing time deposits at banks 9,126 183 2.70 12,952 249 2.57 Investment securities: Taxable 368,702 4,406 1.59 238,438 3,156 1.76 Tax-exempt (3) 120,107 2,316 2.57 103,559 2,091 2.69 Investment securities 488,809 6,722 1.83 341,997 5,247 2.05 Loans: (2)(3)(4) Residential mortgage loans 202,856 7,128 4.70 203,300 7,464 4.91 Construction loans 69,437 2,213 4.26 52,409 1,602 4.09 Commercial Loans 829,366 28,808 4.64 732,554 26,914 4.91 Agricultural Loans 347,771 11,342 4.36 351,478 11,322 4.31 Loans to state & political subdivisions 54,836 1,327 3.24 54,994 1,505 3.66 Other loans 47,732 1,868 5.23 22,912 1,028 6.00 Loans, net of discount (2)(3)(4) 1,551,998 52,686 4.54 1,417,647 49,835 4.70 Total interest-earning assets 2,115,660 59,741 3.78 1,881,868 55,417 3.94 Cash and due from banks 6,652 6,560 Bank premises and equipment 17,199 17,212 Other assets 82,726 75,818 Total non-interest earning assets 106,577 99,590 Total assets 2,222,237 1,981,458 LIABILITIES AND STOCKHOLDERS' EQUITY Interest-bearing liabilities: NOW accounts 520,882 1,392 0.36 450,636 1,086 0.32 Savings accounts 323,667 260 0.11 285,124 249 0.12 Money market accounts 347,422 1,037 0.40 248,495 502 0.27 Certificates of deposit 305,878 1,780 0.78 357,460 2,708 1.01 Total interest-bearing deposits 1,497,849 4,469 0.40 1,341,715 4,545 0.45 Other borrowed funds 112,582 1,699 2.02 87,200 924 1.42 Total interest-bearing liabilities 1,610,431 6,168 0.51 1,428,915 5,469 0.51 Demand deposits 370,785 335,188 Other liabilities 19,785 15,724 Total non-interest-bearing liabilities 390,570 350,912 Stockholders' equity 221,236 201,631 Total liabilities & stockholders' equity 2,222,237 1,981,458 Net interest income 53,573 49,948 Net interest spread (5) 3.27 % 3.43 % Net interest income as a percentage of average interest-earning assets 3.39 % 3.55 % Ratio of interest-earning assets to interest-bearing liabilities 131 % 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 2022 and 2021. 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) September 30 , June 30 , March 31 , December 31 , September 30 , 2022 2022 2022 2021 2021 Real estate: Residential $ 203,673 $ 203,323 $ 201,567 $ 201,097 $ 204,853 Commercial 857,314 798,528 724,876 687,338 657,485 Agricultural 317,761 313,700 305,517 312,011 312,442 Construction 79,154 71,414 66,738 55,036 68,408 Consumer 124,375 50,319 21,460 25,858 31,042 Other commercial loans 66,241 65,772 69,051 74,585 92,188 Other agricultural loans 29,509 32,870 39,904 39,852 28,562 State & political subdivision loans 59,926 59,450 49,582 45,756 47,928 Total loans 1,737,953 1,595,376 1,478,695 1,441,533 1,442,908 Less: allowance for loan losses 18,291 17,570 17,556 17,304 17,334 Net loans $ 1,719,662 $ 1,577,806 $ 1,461,139 $ 1,424,229 $ 1,425,574 Past due and non-performing assets Total Loans past due 30-89 days and still accruing $ 2,616 $ 2,070 $ 2,096 $ 967 $ 1,482 Non-accrual loans $ 7,118 $ 7,251 $ 7,810 $ 7,616 $ 8,858 Loans past due 90 days or more and accruing 93 139 12 46 83 Non-performing loans $ 7,211 $ 7,390 $ 7,822 $ 7,662 $ 8,941 OREO 877 972 1,131 1,180 1,277 Total Non-performing assets $ 8,088 $ 8,362 $ 8,953 $ 8,842 $ 10,218 Three Months Ended Analysis of the Allowance for loan Losses September 30 , June 30 , March 31 , December 31 , September 30 , (In Thousands) 2022 2022 2022 2021 2021 Balance, beginning of period $ 17,570 $ 17,556 $ 17,304 $ 17,334 $ 16,931 Charge-offs (14) (446) (5) (65) (7) Recoveries 10 10 7 35 10 Net (charge-offs) recoveries (4) (436) 2 (30) 3 Provision for loan losses 725 450 250 - 400 Balance, end of period $ 18,291 $ 17,570 $ 17,556 $ 17,304 $ 17,334 CITIZENS FINANCIAL SERVICES, INC. Reconciliation of GAAP and Non-GAAP Financial Measures (UNAUDITED) (Dollars in thousands, except per share data) As of September 30 2022 2021 Tangible Equity Stockholders Equity - GAAP $ 191,430 $ 208,967 Accumulated other comprehensive loss (income) 35,855 (969) Intangible Assets (32,747) (33,053) Tangible Equity - Non-GAAP 194,538 174,945 Shares outstanding adjusted for June 2022 stock Dividend 3,971,342 3,990,867 Tangible Book value per share - Non-GAAP $ 48.99 $ 43.84 As of September 30 2022 2021 Tangible Equity per share Stockholders Equity per share - GAAP $ 48.20 $ 52.36 Adjustments for accumulated other comprehensive loss (income) 9.03 (0.24) Book value per share 57.23 52.12 Adjustments for intangible assets (8.24) (8.28) Tangible Book value per share - Non-GAAP $ 48.99 $ 43.84 For the Three Months Ended For the Nine Months Ended September 30 September 30 2022 2021 2022 2021 Return on Average Tangible Equity Average Stockholders Equity - GAAP $ 199,981 $ 209,181 $ 204,075 $ 203,645 Average Accumulated Other Comprehensive Loss (Income) 26,276 (2,209) 17,161 (2,014) Average Intangible Assets (32,781) (33,038) (32,870) (33,021) Average Tangible Equity - Non-GAAP 193,476 173,934 188,366 168,610 Net Income $ 7,544 $ 7,064 $ 21,185 $ 22,174 Annualized Return on Average Tangible Equity 15.60 % 16.25 % 15.00 % 17.53 % For the Three Months Ended For the Nine Months Ended September 30 September 30 2022 2021 2022 2021 Return on Average Assets and Equity Excluding BOLI Death Benefits Net Income $ 7,544 $ 7,064 $ 21,185 $ 22,174 BOLI death benefits - - - (1,155) Net Income excluding BOLI death benefits $ 7,544 $ 7,064 $ 21,185 $ 21,019 Average Assets 2,310,835 2,017,751 2,222,237 1,981,458 Annualized Return on Average stockholders equity, excluding BOLI Death Benefits 1.31 % 1.40 % 1.27 % 1.41 % Average Stockholders Equity $ 226,257 $ 206,972 $ 221,236 $ 201,631 Annualized Return on Average stockholders equity, excluding BOLI Death Benefits 13.34 % 13.65 % 12.77 % 13.90 % Earnings per share, excluding death activity of former employees Net Income $ 7,544 $ 7,064 $ 21,185 $ 22,174 BOLI death benefits - - - (1,155) After Tax deferred compensation reversal for former employee - - - (316) Net income excluding one time items $ 7,544 $ 7,064 $ 21,185 $ 20,703 Number of shares used in computation - basic adjusted for June 2022 stock Dividend 3,967,585 3,988,294 3,970,646 3,984,748 Earnings per share, excluding death activity of former employees non-GAAP 1.90 1.77 5.34 5.20 For the Three Months Ended For the Nine Months Ended September 30 September 30 Reconciliation of net interest income on fully taxable equivalent basis 2022 2021 2022 2021 Total interest income $ 21,783 $ 18,342 $ 59,005 $ 54,712 Total interest expense 2,937 1,752 6,168 5,469 Net interest income 18,846 16,590 52,837 49,243 Tax equivalent adjustment 267 219 736 705 Net interest income (fully taxable equivalent) $ 19,113 $ 16,809 $ 53,573 $ 49,948 View original content: https://www.prnewswire.com/news-releases/citizens-financial-services-inc-reports-unaudited-third-quarter-2022-financial-results-301657570.html SOURCE Citizens Financial Services, Inc.

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