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

About this update from Citizens Financial Services, Inc.

MANSFIELD, Pa. , Oct. 23, 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 nine months ended September 30, 2023 . Highlights The third quarter of 2023, represents the first full quarter that the acquisition of HV Bancorp, Inc. ("HVB") is included in the Company's financial results. The acquisition of HVB in the first half of 2023 contributed significant growth to net interest income in the third quarter of 2023. Merger and acquisitions costs for 2023 total $9.3 million through September 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 nine months of 2023 was $10.3 million , which was $10.9 million , or 51.5% less than 2022's net income through September 30, 2022 due to the one-time merger and acquisition costs and the NPC Provision. The effective tax rate for the first nine months of 2023 was 16.4% compared to 17.9% in the comparable period in 2022. Net income was $7.5 million for the three months ended September 30, 2023 and 2022. The effective tax rate for the three months ended September 30, 2023 was 17.5% compared to 18.0% in the comparable period in 2022. Net interest income before the provision for credit losses was $58.4 million for the nine months ended September 30, 2023 , an increase of $5.6 million , or 10.5%, over the same period a year ago. Return on average equity for the three and nine months (annualized) ended September 30, 2023 was 10.10% and 5.21% compared to 13.34% and 12.77% for the three and nine months (annualized) ended September 30, 2022 . If the death benefits received from life insurance on a former employee, the one-time costs associated with the acquisition and the NPC Provision are excluded, the return on average equity for the three and nine months (annualized) ended September 30, 2023 would have been 10.50% and 10.76%, respectively (1). Return on average tangible equity for the three and nine months (annualized) ended September 30, 2023 was 14.37% and 6.56% compared to 15.60% and 15.00% for the three and nine months (annualized) ended September 30, 2022 . (1) If the death benefits received from life insurance on a former employee, the one-time costs associated with the acquisition and the NPC Provision are excluded, the return on average tangible equity for the three and nine months (annualized) ended September 30, 2023 would have been 14.94% and 13.56%. (1) Return on average assets for the three and nine months (annualized) ended September 30, 2023 was 1.02% and 0.53% compared to 1.31% and 1.27% for the three and nine months (annualized) ended September 30, 2022 . If the death benefits received from life insurance on a former employee, the one-time costs associated with the acquisition and the NPC Provision are excluded, the return on average assets for the three and nine months (annualized) ended September 30, 2023 would have been 1.06% and 1.09% (1). Nine Months Ended September 30, 2023 Compared to 2022 For the nine months ended September 30, 2023 , net income totaled $10,271,000 which compares to net income of $21,185,000 for the first nine months of 2022, a decrease of $10,914,000 . Basic earnings per share of $2.40 for the first nine months of 2023 compares to $5.28 for the first nine months last year. Annualized return on equity for the nine months ended September 30, 2023 and 2022 was 5.21% and 12.77%, while annualized return on assets was 0.53% and 1.27%, respectively. If the death benefits received from life insurance on a former employee, the one-time costs associated with the acquisition and the NPC Provision are excluded, basic earnings per share, the annualized return on average equity and average assets would be $4.95 , 10.76% and 1.09%, respectively. (1) Net interest income before the provision for credit loss for the nine months ended September 30, 2023 totaled $58,405,000 compared to $52,837,000 for the nine months ended September 30, 2022 , resulting in an increase of $5,568,000 , or 10.5%. Average interest earning assets increased $319.8 million for the nine months ended September 30, 2023 compared to the same period last year, primarily due to the HVB acquisition and growth that occurred in the second half of 2022 in the Delaware market. Average loans increased $356.6 million while average investment securities increased $10.7 million . The yield on interest earning assets increased 1.13% to 4.91%, while the cost of interest-bearing liabilities increased 160 basis points to 2.11% due to the rise in market interest rates and competitive pressure. The tax effected net interest margin for the nine months ended September 30, 2023 was 3.25% compared to 3.39% for the same period last year. The provision for credit losses for the nine months ended September 30, 2023 was $5,328,000 compared to $1,425,000 for the nine months ended September 30, 2022 , an increase of $3,903,000 . 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 $688,000 when comparing the nine month period of 2023 to 2022 with the decrease being attributable to lower loan growth in 2023 compared to 2022. Total non-interest income was $8,251,000 for the nine months ended September 30, 2023 , which is $824,000 more than the non-interest income of $7,427,000 for the same period last year. The primary driver was revenues associated with the HVB acquisition, which includes additional service charge revenue, earnings on bank owned life insurance and gains on loans sold. In addition to the earnings on bank owned life insurance obtained as part of the acquisition, the Company received $195,000 of death benefits upon the passing of a former employee. Total non-interest expenses for the nine months ended September 30, 2023 totaled $49,037,000 compared to $33,045,000 for the same period last year, which is an increase of $15,992,000 , or 48.39%. The primary driver of the increase is the merger and acquisition costs of completing the HVB acquisition that total $9,269,000 . 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 $4,769,000 due to an additional 35.3 FTEs due to the acquisition, merit increases for 2023 as well as an increase in health insurance costs of $685,000 . The increases in occupancy and furniture and fixtures was due to the acquisition and additional branches as part of it. Due to growth that occurred in 2022 and the acquisition, FDIC insurance expense increased $560,000 . The provision for income taxes decreased $2,589,000 when comparing the nine months ended September 30, 2023 to the same period in 2022 as a result of a decrease in income before income tax of $13,503,000 primarily due to the one-time merger costs. Three Months Ended September 30, 2023 Compared to September 30, 2022 For the three months ended September 30, 2023 , net income totaled $7,548,000 which compares to net income of $7,544,000 for the comparable period of 2022, an increase of $4,000 . Basic earnings per share of $1.61 for the three months ended September 30, 2023 compares to $1.88 for the 2022 comparable period. Annualized return on equity for the three months ended September 30, 2023 and 2022 was 10.10% and 13.34%, while annualized return on assets was 1.02% and 1.31%, respectively. If the death benefits received from life insurance on a former employee, the one-time costs associated with the acquisition and the NPC Provision are excluded, basic earnings per share, the annualized return on average equity and average assets would be $1.67 , 10.50% and 1.06%, respectively. (1) Net interest income before the provision for credit loss for the three months ended September 30, 2023 totaled $22,404,000 compared to $18,846,000 for the three months ended September 30, 2022 , resulting in an increase of $3,558,000 , or 18.9%. Average interest earning assets increased $532.1 million for the three months ended September 30, 2023 compared to the same period last year as a result of the HVB acquisition. Average loans increased $543.4 million while average investment securities decreased $19.1 million . The tax effected net interest margin for the three months ended September 30, 2023 was 3.29% compared to 3.44% for the same period last year, which was impacted by the increase in the average cost on interest bearing liabilities of 187 basis points, to 2.56%. The provision for credit losses for the three months ended September 30, 2023 was $475,000 compared to $725,000 for the three months ended September 30, 2022 , a decrease of $250,000 . The decrease in the provision is due to lower loan growth in the third quarter of 2023 compared to the same period in 2022. Total non-interest income was $3,797,000 for the three months ended September 30, 2023 , which is $1,105,000 more than for the comparable period last year. The primary driver was the impact of the acquisition, which increased service charge revenue, gains on loans sold and earnings on bank owned life insurance. In addition to the impact of the acquisition on earnings on bank owned life insurance, the Company received $195,000 of death benefits upon the passing of a former employee. Total non-interest expenses for the three months ended September 30, 2023 totaled $16,579,000 compared to $11,614,000 for the same period last year, which is an increase of $4,965,000 . Merger and acquisition costs totaled $623,000 for the third quarter of 2023. Salaries and benefits increased $3.2 million due to an increase in headcount of 88 FTEs as a result of the acquisition. The increases in occupancy and furniture and fixtures was due to the acquisition and additional branches as part of it. Due to growth that occurred in 2022 and the acquisition, FDIC insurance expense increased $215,000 . The provision for income taxes decreased $56,000 when comparing the three months ended September 30, 2023 to the same period in 2022 as a result of a decrease in income before income tax of $52,000 and earnings on bank owned life insurance being exempt from Federal income tax. The effective tax rate was 17.5% and 18.0% for the three months ended September 30, 2023 and 2022, respectively. Balance Sheet and Other Information: At September 30, 2023 , total assets were $2.96 billion , compared to $2.33 billion at December 31, 2022 and $2.35 billion at September 30, 2022 . Available for sale securities of $417.8 million at September 30, 2023 decreased $21.7 million from December 31, 2022 and $27.4 million from September 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 1.83% to 2.18% on a tax equivalent basis. Net loans as of September 30, 2023 totaled $2.22 billion and increased $518.5 million from December 31, 2022 as a result of the acquisition. Excluding the acquisition, loans would have increased $42.2 million during 2023. The allowance for credit losses - loans totaled $21,455,000 at September 30, 2023 which is an increase of $2,903,000 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 $41,000 and $819,000 , respectively, for the nine months ended September 30, 2023 . Of the $819,000 charge-off, $763,000 was related to a loan acquired as part of the acquisition that was fully reserved at the time of the acquisition. A provision for credit losses – loans of $701,000 was recorded during 2023. The allowance as a percent of total loans was 0.96% as of September 30, 2023 and 1.05% as of December 31, 2022 . Deposits increased $490.9 million from December 31, 2022 , to $2.33 billion at September 30, 2023 , due to the acquisition, which increased deposits by $533.4 million . Excluding the acquisition, deposits decreased $42.4 million . With the rise in market 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 September 30, 2023 , the Bank estimates that balances held by customers in excess of the FDIC insurance limit ( $250,000 per insured account) totaled $1.08 billion , or 46.4% of the Bank's total deposits. Included in this balance are balances held through Intrafi, which provides customers with FDIC insurance coverage by placing customer funds with insured banks within the Intrafi network, as well as deposits collateralized by securities (almost exclusively municipal deposits). The total of these items was $491.6 million , or 21.1% of the Bank's total deposits, as of September 30, 2023 . Stockholders' equity totaled $262.7 million at September 30, 2023 , compared to $200.1 million at December 31, 2022 , an increase of $62.5 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 nine months ended September 30, 2023 totaling $10.3 million , offset by net cash dividends for the first nine months of 2023 totaling $6.2 million , net treasury stock activity of $99,000 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 increased $3.5 million from December 31, 2022 . Dividend Declared On September 1, 2023 , the Board of Directors declared a cash dividend of $0.49 per share, which was paid on September 29, 2023 to shareholders of record at the close of business on September 15, 2023 . The quarterly cash dividend is an increase of 3.1% over the regular cash dividend of $0.475 per share declared one year ago, as adjusted for the 1% stock dividend declared in June 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 Nine Months Ended September 30 , September 30 , 2023 2022 2023 2022 Income and Performance Ratios Net Income $ 7,548 $ 7,544 $ 10,271 $ 21,185 Return on average assets (annualized) 1.02 % 1.31 % 0.53 % 1.27 % Return on average equity (annualized) 10.10 % 13.34 % 5.21 % 12.77 % Return on average tangible equity (annualized) (a) 14.37 % 15.60 % 6.56 % 15.00 % Net interest margin (tax equivalent)(a) 3.29 % 3.44 % 3.25 % 3.39 % Earnings per share - basic (b) $ 1.61 $ 1.88 $ 2.40 $ 5.28 Earnings per share - diluted (b) $ 1.61 $ 1.88 $ 2.40 $ 5.28 Cash dividends paid per share (b) $ 0.490 $ 0.475 $ 1.451 $ 1.407 Number of shares used in computation - basic (b) 4,699,952 4,006,794 4,275,259 4,009,855 Number of shares used in computation - diluted (b) 4,699,952 4,007,028 4,275,259 4,009,857 Asset quality Allowance for credit losses - loans $ 21,455 $ 18,291 Non-performing assets $ 13,621 $ 8,088 Allowance for credit losses - loans/total loans 0.96 % 1.05 % Non-performing assets to total loans 0.61 % 0.47 % Annualized net charge-offs to total loans 0.14 % 0.00 % 0.05 % 0.04 % Equity Book value per share (b) $ 63.60 $ 56.67 Tangible Book value per share (a) (b) $ 44.77 $ 48.51 Market Value (Last reported trade of month) $ 47.92 $ 70.20 Common shares outstanding 4,706,111 3,971,342 Other Average Full Time Equivalent Employees 400.1 312.1 345.2 309.9 Loan to Deposit Ratio 96.20 % 93.00 % Trust assets under management $ 164,012 $ 143,297 Brokerage assets under management $ 305,951 $ 268,878 Balance Sheet Highlights September 30 , December 31 , September 30 , 2023 2022 2022 Assets $ 2,959,216 $ 2,333,393 $ 2,349,711 Investment securities 419,665 441,714 447,479 Loans (net of unearned income) 2,246,396 1,724,999 1,737,953 Allowance for credit losses - loans 21,455 18,552 18,291 Deposits 2,335,135 1,844,208 1,868,711 Stockholders' Equity 262,686 200,147 191,430 (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) September 30 , December 31 , September 30 , (in thousands except share data) 2023 2022 2022 ASSETS: Cash and due from banks: Noninterest-bearing $ 25,267 $ 24,814 $ 21,519 Interest-bearing 18,069 1,397 1,629 Total cash and cash equivalents 43,336 26,211 23,148 Interest bearing time deposits with other banks 4,566 6,055 6,055 Equity securities 1,858 2,208 2,257 Available-for-sale securities 417,807 439,506 445,222 Loans held for sale 14,155 725 1,280 Loans (net of allowance for credit losses - loans: $21,455 at September 30, 2023 ; $18,552 at December 31, 2022 and $18,291 at September 30, 2023 ) 2,224,941 1,706,447 1,719,662 Premises and equipment 21,421 17,619 17,367 Accrued interest receivable 10,327 7,332 6,544 Goodwill 84,758 31,376 31,376 Bank owned life insurance 49,586 39,355 39,137 Other intangibles 3,866 1,272 1,371 Fair value of derivative instruments - asset 18,144 16,599 17,674 Deferred tax asset 21,384 12,886 13,486 Other assets 43,067 25,802 25,132 TOTAL ASSETS $ 2,959,216 $ 2,333,393 $ 2,349,711 LIABILITIES: Deposits: Noninterest-bearing $ 542,144 $ 396,260 $ 381,380 Interest-bearing 1,792,991 1,447,948 1,487,331 Total deposits 2,335,135 1,844,208 1,868,711 Borrowed funds 316,151 257,278 258,922 Accrued interest payable 2,726 1,232 922 Fair value of derivative instruments - liability 10,694 9,726 10,450 Other liabilities 31,824 20,802 19,276 TOTAL LIABILITIES 2,696,530 2,133,246 2,158,281 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 September 30, 2023 , December 31, 2022 and September 30, 2022 : issued 5,160,754 at September 30, 2023 and 4,427,687 at December 31, 2022 and September 30, 2022 5,161 4,428 4,428 Additional paid-in capital 143,302 80,911 80,869 Retained earnings 167,740 164,922 158,953 Accumulated other comprehensive loss (36,643) (33,141) (35,855) Treasury stock, at cost: 454,643 at September 30, 2023 and 456,478 shares at December 31, 2022 and 456,345 shares at September 30, 2022 (16,874) (16,973) (16,965) TOTAL STOCKHOLDERS' EQUITY 262,686 200,147 191,430 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,959,216 $ 2,333,393 $ 2,349,711 CITIZENS FINANCIAL SERVICES, INC. CONSOLIDATED STATEMENT OF INCOME (UNAUDITED) Three Months Ended Nine Months Ended September 30 , September 30 , (in thousands, except share and per share data) 2023 2022 2023 2022 INTEREST INCOME: Interest and fees on loans $ 33,772 $ 19,396 $ 80,438 $ 52,436 Interest-bearing deposits with banks 264 61 462 333 Investment securities: Taxable 1,734 1,514 4,973 4,050 Nontaxable 540 630 1,729 1,830 Dividends 379 182 1,004 356 TOTAL INTEREST INCOME 36,689 21,783 88,606 59,005 INTEREST EXPENSE: Deposits 10,100 1,838 19,519 4,469 Borrowed funds 4,185 1,099 10,682 1,699 TOTAL INTEREST EXPENSE 14,285 2,937 30,201 6,168 NET INTEREST INCOME 22,404 18,846 58,405 52,837 Provision for credit losses 475 725 737 1,425 Provision for credit losses - acquisition day 1 non-PCD - - 4,591 - NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES 21,929 18,121 53,077 51,412 NON-INTEREST INCOME: Service charges 1,692 1,509 4,196 4,081 Trust 172 187 583 620 Brokerage and insurance 473 446 1,429 1,428 Gains on loans sold 595 95 809 241 Equity security gains (losses), net 69 (19) (223) (198) Available for sale security losses, net - (6) (51) (6) Earnings on bank owned life insurance 489 216 941 635 Other 307 264 567 626 TOTAL NON-INTEREST INCOME 3,797 2,692 8,251 7,427 NON-INTEREST EXPENSES: Salaries and employee benefits 10,140 6,933 25,733 20,964 Occupancy 1,221 779 2,870 2,327 Furniture and equipment 255 122 568 416 Professional fees 506 588 1,274 1,321 FDIC insurance expense 375 160 1,000 440 Pennsylvania shares tax 297 339 893 1,017 Amortization of intangibles 157 40 219 120 Software expenses 551 370 1,274 1,069 ORE expenses (income) 111 122 126 (125) Merger and acquisition expenses 623 - 9,269 - Other 2,343 2,161 5,811 5,496 TOTAL NON-INTEREST EXPENSES 16,579 11,614 49,037 33,045 Income before provision for income taxes 9,147 9,199 12,291 25,794 Provision for income tax expense 1,599 1,655 2,020 4,609 NET INCOME $ 7,548 $ 7,544 $ 10,271 $ 21,185 PER COMMON SHARE DATA: Net Income - Basic $ 1.61 $ 1.88 $ 2.40 $ 5.28 Net Income - Diluted $ 1.61 $ 1.88 $ 2.40 $ 5.28 Cash Dividends Paid $ 0.490 $ 0.475 $ 1.451 $ 1.407 Number of shares used in computation - basic 4,699,952 4,006,794 4,275,259 4,009,855 Number of shares used in computation - diluted 4,699,952 4,007,028 4,275,259 4,009,857 CITIZENS FINANCIAL SERVICES, INC. QUARTERLY CONDENSED, CONSOLIDATED INCOME (LOSS) STATEMENT INFORMATION (UNAUDITED) (in thousands, except per share data) Three Months Ended, Sept 30 , June 30 , March 31 , Dec 31 , Sept 30 , 2023 2023 2023 2022 2022 Interest income $ 36,689 $ 26,810 $ 25,107 $ 24,352 $ 21,783 Interest expense 14,285 8,889 7,027 5,055 2,937 Net interest income 22,404 17,921 18,080 19,297 18,846 Provision for credit losses 475 262 - 258 725 Provision for credit losses - acquisition day 1 non-PCD - 4,591 - - - Net interest income after provision for credit losses 21,929 13,068 18,080 19,039 18,121 Non-interest income 3,728 2,405 2,392 2,368 2,717 Investment securities gains (losses), net 69 (125) (218) (57) (25) Non-interest expenses 16,579 20,680 11,778 11,649 11,614 Income (loss) before provision for income taxes 9,147 (5,332) 8,476 9,701 9,199 Provision for income tax expense (benefit) 1,599 (1,188) 1,609 1,826 1,655 Net income (loss) $ 7,548 $ (4,144) $ 6,867 $ 7,875 $ 7,544 Earnings (Loss) Per Share Basic $ 1.61 $ (1.01) $ 1.71 $ 1.97 $ 1.88 Earnings (Loss) Per Share Diluted $ 1.61 $ (1.01) $ 1.71 $ 1.97 $ 1.88 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 , 2023 2022 Average Average Average Average Balance (1) Interest Rate Balance (1) Interest Rate (dollars in thousands) $ $ % $ $ % ASSETS Short-term investments: Interest-bearing deposits at banks 24,096 225 3.70 14,255 12 0.33 Total short-term investments 24,096 225 3.70 14,255 12 0.33 Interest bearing time deposits at banks 4,579 39 3.38 6,640 49 2.93 Investment securities: Taxable 386,806 2,113 2.19 391,774 1,696 1.73 Tax-exempt (3) 108,959 683 2.51 123,046 797 2.59 Investment securities 495,765 2,796 2.26 514,820 2,493 1.94 Loans: (2)(3)(4) Residential mortgage loans 357,388 4,925 5.47 204,352 2,416 4.69 Construction loans 166,204 3,339 7.97 76,934 885 4.56 Commercial Loans 1,196,675 18,983 6.29 900,297 10,732 4.73 Agricultural Loans 342,499 4,285 4.96 346,380 3,887 4.45 Loans to state & political subdivisions 60,820 611 3.99 59,454 502 3.35 Other loans 88,710 1,750 7.83 81,499 1,074 5.23 Loans, net of discount (2)(3)(4) 2,212,296 33,893 6.08 1,668,916 19,496 4.63 Total interest-earning assets 2,736,736 36,953 5.36 2,204,631 22,050 3.96 Cash and due from banks 10,696 6,755 Bank premises and equipment 21,401 17,437 Other assets 190,431 82,012 Total non-interest earning assets 222,528 106,204 Total assets 2,959,264 2,310,835 LIABILITIES AND STOCKHOLDERS' EQUITY Interest-bearing liabilities: NOW accounts 789,513 4,468 2.25 530,234 675 0.51 Savings accounts 326,452 426 0.52 328,056 106 0.13 Money market accounts 403,628 2,682 2.64 347,460 515 0.59 Certificates of deposit 347,783 2,524 2.88 288,926 542 0.74 Total interest-bearing deposits 1,867,376 10,100 2.15 1,494,676 1,838 0.49 Other borrowed funds 347,326 4,185 4.78 189,174 1,099 2.30 Total interest-bearing liabilities 2,214,702 14,285 2.56 1,683,850 2,937 0.69 Demand deposits 408,531 380,110 Other liabilities 37,118 20,618 Total non-interest-bearing liabilities 445,649 400,728 Stockholders' equity 298,913 226,257 Total liabilities & stockholders' equity 2,959,264 2,310,835 Net interest income 22,668 19,113 Net interest spread (5) 2.80 % 3.27 % Net interest income as a percentage of average interest-earning assets 3.29 % 3.44 % Ratio of interest-earning assets to interest-bearing liabilities 124 % 131 % (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) Nine Months Ended September 30 , 2023 2022 Average Average Average Average Balance (1) Interest Rate Balance (1) Interest Rate (dollars in thousands) $ $ % $ $ % ASSETS Short-term investments: Interest-bearing deposits at banks 21,772 333 2.04 65,727 150 0.31 Total short-term investments 21,772 333 2.04 65,727 150 0.31 Interest bearing time deposits at banks 5,540 129 3.11 9,126 183 2.70 Investment securities: Taxable 385,246 5,977 2.07 368,702 4,406 1.59 Tax-exempt (3) 114,307 2,188 2.55 120,107 2,316 2.57 Investment securities 499,553 8,165 2.18 488,809 6,722 1.83 Loans: (2)(3)(4) Residential mortgage loans 268,562 10,797 5.38 202,856 7,128 4.70 Construction loans 114,386 5,831 6.82 69,437 2,213 4.26 Commercial Loans 1,039,006 45,079 5.80 829,366 28,808 4.64 Agricultural Loans 344,079 12,759 4.96 347,771 11,342 4.36 Loans to state & political subdivisions 60,183 1,736 3.86 54,836 1,327 3.24 Other loans 82,405 4,579 7.43 47,732 1,868 5.23 Loans, net of discount (2)(3)(4) 1,908,621 80,781 5.66 1,551,998 52,686 4.54 Total interest-earning assets 2,435,486 89,408 4.91 2,115,660 59,741 3.78 Cash and due from banks 8,709 6,652 Bank premises and equipment 19,340 17,199 Other assets 126,075 82,726 Total non-interest earning assets 154,124 106,577 Total assets 2,589,610 2,222,237 LIABILITIES AND STOCKHOLDERS' EQUITY Interest-bearing liabilities: NOW accounts 616,103 8,052 1.75 520,882 1,392 0.36 Savings accounts 320,227 897 0.37 323,667 260 0.11 Money market accounts 352,055 5,802 2.20 347,422 1,037 0.40 Certificates of deposit 303,825 4,768 2.10 305,878 1,780 0.78 Total interest-bearing deposits 1,592,210 19,519 1.64 1,497,849 4,469 0.40 Other borrowed funds 318,180 10,682 4.49 112,582 1,699 2.02 Total interest-bearing liabilities 1,910,390 30,201 2.11 1,610,431 6,168 0.51 Demand deposits 380,638 370,785 Other liabilities 35,566 19,785 Total non-interest-bearing liabilities 416,204 390,570 Stockholders' equity 263,016 221,236 Total liabilities & stockholders' equity 2,589,610 2,222,237 Net interest income 59,207 53,573 Net interest spread (5) 2.80 % 3.27 % Net interest income as a percentage of average interest-earning assets 3.25 % 3.39 % Ratio of interest-earning assets to interest-bearing liabilities 127 % 131 % (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) September 30 , June 30 , March 31 , December 31 , September 30 , 2023 2023 2023 2022 2022 Real estate: Residential $ 356,381 $ 358,025 $ 212,793 $ 210,213 $ 203,673 Commercial 1,081,123 1,080,513 878,972 876,569 857,314 Agricultural 314,164 312,302 312,793 313,614 317,761 Construction 175,320 156,927 75,745 80,691 79,154 Consumer 115,753 42,701 87,101 86,650 124,375 Other commercial loans 120,347 120,288 64,133 63,222 66,241 Other agricultural loans 26,648 30,615 32,052 34,832 29,509 State & political subdivision loans 56,660 61,471 59,886 59,208 59,926 Total loans 2,246,396 2,162,842 1,723,475 1,724,999 1,737,953 Less: allowance for credit losses - loans 21,455 21,652 15,250 18,552 18,291 Net loans $ 2,224,941 $ 2,141,190 $ 1,708,225 $ 1,706,447 $ 1,719,662 Past due and non-performing assets Total Loans past due 30-89 days and still accruing $ 5,960 $ 4,811 $ 1,336 $ 3,317 $ 2,616 Non-accrual loans $ 13,139 $ 13,073 $ 10,404 $ 6,938 $ 7,118 Loans past due 90 days or more and accruing 8 139 41 7 93 Non-performing loans $ 13,147 $ 13,212 $ 10,445 $ 6,945 $ 7,211 OREO 474 426 428 543 877 Total Non-performing assets $ 13,621 $ 13,638 $ 10,873 $ 7,488 $ 8,088 Three Months Ended March 31 , Analysis of the Allowance for Credit Losses - Loans September 30 , June 30 , March 31 , December 31 , September 30 , (In Thousands) 2023 2023 2023 2022 2022 Balance, beginning of period $ 21,652 $ 15,250 $ 18,552 $ 18,291 $ 17,570 Impact of Adopting ASC 326 - - (3,300) - - Charge-offs (808) (4) (7) (7) (14) Recoveries 10 26 5 10 10 Net (charge-offs) recoveries (798) 22 (2) 3 (4) PCD allowance for credit loss at acquisition - 1,689 - - - Provision for credit losses - loans 601 100 - 258 725 Provision for credit losses - acquisition day 1 non-PCD - 4,591 - - - Balance, end of period $ 21,455 $ 21,652 $ 15,250 $ 18,552 $ 18,291 CITIZENS FINANCIAL SERVICES, INC. Reconciliation of GAAP and Non-GAAP Financial Measures (UNAUDITED) (Dollars in thousands, except per share data) As of September 30 , 2023 2022 Tangible Equity Stockholders Equity - GAAP $ 262,686 $ 191,430 Accumulated other comprehensive loss 36,643 35,855 Intangible Assets (88,624) (32,747) Tangible Equity - Non-GAAP 210,705 194,538 Shares outstanding adjusted for June 2023 stock Dividend 4,706,768 4,010,551 Tangible Book value per share - Non-GAAP $ 44.77 $ 48.51 As of September 30 , 2023 2022 Tangible Equity per share Stockholders Equity per share - GAAP $ 55.82 $ 47.73 Adjustments for accumulated other comprehensive loss 7.78 8.94 Book value per share 63.60 56.67 Adjustment for intangible assets (18.83) (8.16) Tangible Book value per share - Non-GAAP $ 44.77 $ 48.51 For the Three Months Ended For the Nine Months Ended September 30 , September 30 , 2023 2022 2023 2022 Return on Average Tangible Equity Average Stockholders Equity - GAAP $ 266,899 $ 199,981 $ 232,326 $ 204,075 Average Accumulated Other Comprehensive Loss 32,014 26,276 30,690 17,161 Average Intangible Assets (88,743) (32,781) (54,386) (32,870) Average Tangible Equity - Non-GAAP 210,170 193,476 208,630 188,366 Net Income $ 7,548 $ 7,544 $ 10,271 $ 21,185 Annualized Return on Average Tangible Equity 14.37 % 15.60 % 6.56 % 15.00 % For the Three Months Ended For the Nine Months Ended September 30 , September 30 , 2023 2022 2023 2022 Return on Average Assets and Equity Excluding boli death benefits, merger and acquisition costs and provision for credit losses - acquisition day 1 non-PCD Net Income $ 7,548 $ 7,544 $ 10,271 $ 21,185 Boli death benefits (195) - (195) - After tax provision for credit losses - acquisition day 1 non-PCD - - 3,627 - After Tax merger and acquisition costs 496 - 7,513 - Net Income excluding merger and acquisition costs $ 7,849 $ 7,544 $ 21,216 $ 21,185 Average Assets 2,959,264 2,310,835 2,589,610 2,222,237 Annualized Return on Average stockholders equity, Excluding boli death benefits, merger and acquisition costs and provision for credit losses - acquisition day 1 non-PCD 1.06 % 1.31 % 1.09 % 1.27 % Average Stockholders Equity - GAAP $ 298,913 $ 226,257 $ 263,016 $ 221,236 Annualized Return on Average stockholders equity, Excluding boli death benefits, merger and acquisition costs and provision for credit losses - acquisition day 1 non-PCD 10.50 % 13.34 % 10.76 % 12.77 % Average Tangible Equity - Non-GAAP 210,170 193,476 208,630 188,366 Annualized Return on Average Tangible Equity Excluding boli death benefits, merger and acquisition costs and provision for credit losses - acquisition day 1 non-PCD 14.94 % 15.60 % 13.56 % 15.00 % Earnings per share, Excluding boli death benefits, merger and acquisition costs and provision for credit losses - acquisition day 1 non-PCD Net Income $ 7,548 $ 7,544 $ 10,271 $ 21,185 Boli death benefits (195) (195) After tax provision for credit losses - acquisition day 1 non-PCD - - 3,627 - After Tax merger and acquisition costs 496 - 7,513 - Net income excluding one time items $ 7,849 $ 7,544 $ 21,216 $ 21,185 Number of shares used in computation - basic 4,699,952 4,007,028 4,275,259 4,009,857 Earnings per share, excluding merger and acquisition costs and provision for credit losses - acquisition day 1 non-PCD $ 1.67 $ 1.88 $ 4.95 $ 5.28 For the Three Months Ended For the Nine Months Ended September 30 , September 30 , Reconciliation of net interest income on fully taxable equivalent basis 2023 2022 2023 2022 Total interest income $ 36,689 $ 21,783 $ 37,222 $ 36,370 Total interest expense 14,285 2,937 3,231 3,717 Net interest income 22,404 18,846 33,991 32,653 Tax equivalent adjustment 264 267 469 485 Net interest income (fully taxable equivalent) $ 22,668 $ 19,113 $ 34,460 $ 33,138 View original content: https://www.prnewswire.com/news-releases/citizens-financial-services-inc-reports-unaudited-third-quarter-2023-financial-results-301964555.html SOURCE Citizens Financial Services, Inc.

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