Contact:

Kathleen Campbell, Marketing Director

First Citizens Community Bank

15 S. Main Street

Mansfield, PA 16933

570-662-0422

570-662-8512 (fax)

citizens financial services, inc. reports unaudited first quarter 2020 financial results

MANSFIELD, PENNSYLVANIA— April 24, 2020 – Citizens Financial Services, Inc. (OTC Pink: CZFS), parent company of First Citizens Community Bank, released today its unaudited consolidated financial results for the three months ended March 31, 2020.

Highlights

•

The acquisition of MidCoast Community Bancorp, Inc. was completed effective April 17, 2020 and the merger of computer and operating systems occurred on April 18th. The acquisition included $231.3 million of loans and $207.8 million of deposits. Based on the closing price on April 17th, the deal valuation was approximately $27.0 million.  Merger and acquisitions costs for 2020 totaled $376,000 as of March 31, 2020.

•	Net income was $4.5 million for the three months ended March 31, 2020, which is 2.9% higher than the net income for 2019’s comparable period. The effective tax rate for the first three months of 2020 was 16.4% compared to 15.7% in the comparable period in 2019.

•	Net interest income before the provision for loan losses was $12.9 million for the three months ended March 31, 2020, an increase of $975,000, or 8.2%, over the same period a year ago.

•

Return on average equity for the three months (annualized) ended March 31, 2020 was 11.48% compared to 12.12% for the three months (annualized) ended March 31, 2019. Excluding merger and acquisitions costs, the annualized return on average equity for the three months ended March 31, 2020 would have been 12.34%. (1)

•	Return on average tangible equity for the three months (annualized) ended March 31, 2020 was 13.59% compared to 14.62% for the three months (annualized) ended March 31, 2019. (1)

•

Return on average assets for the three months (annualized) ended March 31, 2020 was 1.24% compared to 1.22% for the three months (annualized) ended March 31, 2019. Excluding merger and acquisitions costs, the annualized return on average assets for the three months ended March 31, 2020 would have been 1.34%. (1)

Covid 19 pandemic response and loan profile

•

The Company participated in the Paycheck Protection Program (PPP) for loans provided under the auspices of the Small Business Administration (SBA). As of April 16th, the date where Phase I funds were allocated under the PPP program, the Company received approval from the SBA for 422 loans totaling $47.2 million, which will earn interest at 1% per annum for up to 24 months and will generate fee income of approximately $2.0 million. We will also be participating in Phase II of the PPP program. A portion of these loans may be forgiven by the SBA depending on the customers usage of the proceeds.

•	Additionally, as support for our communities, we created a payment relief program, which includes the following:

o	Waiver of late fees for March, April and May

o	Interest-only payment options for consumers and businesses for 60 to 90 days.

o	Deferral of principal payments for consumers and businesses in certain industries for 60-120 days.

o	Waiver of CD early withdrawal penalties through June 1.

•	Through April 23, we have provided relief to customers with outstanding balances of $32.5 million, or approximately 3.0% of total loans, which includes residential and commercial customers.

•

The Company tracks industry concentrations to identify risks that could lead to additional credit exposure. As a result of the Covid 19 pandemic, the Company has determined that Hotels/Motels and restaurants represent a higher level of credit risk. At March 31, 2020, the Company has limited loan concentrations to these industries as follows:

o	Hotels/Motels - $18.9 million or 1.7% of outstanding loans, and 87.6% pass rated

o	Restaurants - $13.1 million or 1.2% of outstanding loans, and 86.8% pass rated

•

Our agricultural relationships are also being strained by the pandemic as demand for certain products has declined and processing plant issues have resulted in further strains on our customers as a result of the pandemic. Agricultural lending comprises $346.8 million, or 31.7% of outstanding balances as of March 31, 2020.

Three Months Ended March 31, 2020 Compared to March 31, 2019

•

For the three months ended March 31, 2020, net income totaled $4,531,000 which compares to net income of $4,405,000 for the first three months of 2019, an increase of $126,000 or 2.9%.  Basic earnings per share of $1.29 for first three months of 2020 compares to $1.25 for the 2019 comparable period. Annualized return on equity for the three months ended March 31, 2020 and 2019 was 11.48% and 12.12%, while annualized return on assets was 1.24% and 1.22%, respectively. If merger and acquisition costs are excluded, the annualized return on average equity and average assets would be 12.34% and 1.34%, respectively. (1)

•

Net interest income before the provision for loan loss for the three months ended March 31, 2020 totaled $12,890,000 compared to $11,915,000 for the three months ended March 31, 2019, resulting in an increase of $975,000, or 8.2%. Average interest earning assets increased $11.3 million for the three months ended March 31, 2020 compared to the same period last year.  Average loans increased $21.4 million while average investment securities decreased $9.6 million. The tax effected net interest margin for the three months ended March 31, 2020 was 3.84% compared to 3.62% for the same period last year, which was impacted by the decrease in the average cost on interest bearing liabilities of 23 bps, to 0.91%.

•

The provision for loan losses for the three months ended March 31, 2020 and 2019 was $400,000. While loans decreased in 2020 compared to positive net loan growth in the first quarter of 2019, the provision for 2020 was based on the potential impact the Covid-19 pandemic may have on the local and national economies.

•

Total non-interest income was $1,851,000 for the three months ended March 31, 2020, which is $182,000 less than for the comparable period last year.  The primary driver was a decrease of $254,000 in the value of equity securities during the first quarter, compared to an increase of $11,000 in the first quarter of 2019. The decrease in our equity portfolio was consistent with the decrease experienced by the stock market as a result of the pandemic.

•

Total non-interest expenses for the three months ended March 31, 2020 totaled $8,921,000 compared to $8,322,000 for the same period last year, which is an increase of $599,000, or 7.2%.  Salaries and benefits increased $385,000 primarily due to merit increases and increased health care costs. Expenses associated with MidCoast acquisition accounted for $376,000 of the increase in expenses in the first quarter. Other expenses increased $156,000, which was primarily due to fraudulent charges on customer accounts.

•	The provision for income taxes increased $68,000 when comparing the three months ended March 31, 2020 to the same period in 2019 as a result of an increase in income before income tax of $194,000 and certain merger and acquisition expenses being non-deductible for tax purposes.

Balance Sheet and Other Information:

•	At March 31, 2020, total assets were $1.45 billion, compared to $1.47 billion at December 31, 2019 and $1.45 billion at March 31, 2019.

•	Available for sale securities of $257.8 million at March 31, 2020 increased $17.1 million from December 31, 2019 and $13.4 million from March 31, 2019. The yield on the investment portfolio increased from 2.69% to 2.82% on a tax equivalent basis.

•	Net loans as of March 31, 2020 totaled $1.08 billion and decreased $22.3 million from December 31, 2019 after several large pay-offs and increased $1.6 million from March 31, 2019. The decrease in loans was driven by the early pay-offs and limited demand in the first quarter.

•

The allowance for loan losses totaled $14,247,000 at March 31, 2020 which is an increase of $402,000 from December 31, 2019.  The increase is due to recording a provision for loan losses of $400,000 and recoveries of $11,000, offset by charge-offs of $9,000. The allowance as a percent of total loans was 1.30% as of March 31, 2020 and 1.24% as of December 31, 2019.

•

Deposits decreased $6.0 million from December 31, 2019, to $1.21 billion at March 31, 2020, primarily due a decrease in brokered CD’s of $10.2 million.  Borrowed funds decreased $1.6 million from December 31, 2019 to $83.6 million at March 31, 2020. Non-interest-bearing deposits increased $696,000 from December 31, 2019 to $204.5 million at March 31, 2020.

•

Stockholders’ equity totaled $159.9 million at March 31, 2020, compared to $154.8 million at December 31, 2019, an increase of $5.1 million.  The increase was attributable to net income for the three months ended March 31, 2020 totaling $4.5 million, offset by cash dividends for the first quarter totaling $2.0 million and net treasury stock activity of $1.0 million.  As a result of decreases in market interest rates impacting the fair value of investment securities, the unrealized gain on available for sale investment securities, net of tax, improved $3.4 million from December 31, 2019.

Dividend Declared

On March 3, 2020, the Board of Directors declared a cash dividend of $0.55 per share, which included a $0.10 special dividend and was paid on March 27, 2020 to shareholders of record at the close of business on March 13, 2020. The quarterly cash dividend is an increase of 26.0% over the regular cash dividend of $0.441 per share declared one year ago, as adjusted for the 1% stock dividend declared in June 2019.

Citizens Financial Services, Inc. has nearly 2,000 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 non-gaap measures at the end of the press release

---

Balance Sheet Highlights		March 31,				December 31,				March 31,
		2020				2019				2019
Assets		$	1,464,729			$	1,466,339			$	1,448,054
Investment securities			258,437				241,407				244,964
Loans (net of unearned income)			1,093,720				1,115,569				1,090,917
Allowance for loan losses			14,247				13,845				13,084
Deposits			1,205,150				1,211,118				1,181,654
Stockholders' Equity			159,923				154,774				142,845
(a) See reconcilation of 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)
		March 31,				December 31,				March 31,
(in thousands except share data)		2020				2019				2019
ASSETS:
Cash and due from banks:
Noninterest-bearing		$	20,663			$	17,727			$	16,384
Interest-bearing			858				793				1,450
Total cash and cash equivalents			21,521				18,520				17,834
Interest bearing time deposits with other banks			14,506				14,256				15,498
Equity securities			649				701				527
Available-for-sale securities			257,788				240,706				244,437
Loans held for sale			2,006				815				182
Loans (net of allowance for loan losses: $14,247 at March 31, 2020;
$13,845 at December 31, 2019 and $13,084 at March 31, 2019)			1,079,473				1,101,724				1,077,833
Premises and equipment			16,222				15,933				16,177
Accrued interest receivable			4,587				4,555				4,769
Goodwill			23,296				23,296				23,296
Bank owned life insurance			28,284				28,128				27,656
Other intangibles			1,294				1,346				1,547
Other assets			15,103				16,359				18,298
TOTAL ASSETS		$	1,464,729			$	1,466,339			$	1,448,054
LIABILITIES:
Deposits:
Noninterest-bearing		$	204,489			$	203,793			$	184,988
Interest-bearing			1,000,661				1,007,325				996,666
Total deposits			1,205,150				1,211,118				1,181,654
Borrowed funds			83,563				85,117				108,263
Accrued interest payable			906				1,088				1,092
Other liabilities			15,187				14,242				14,200
TOTAL LIABILITIES			1,304,806				1,311,565				1,305,209
STOCKHOLDERS' EQUITY:
Preferred Stock $1.00 par value; authorized
3,000,000 shares; none issued in 2020 or 2019			-				-				-
Common stock
$1.00 par value; authorized 25,000,000 shares at March 31, 2019, December 31, 2019 and
March 31, 2019: issued 3,938,668 at March 31, 2019 and December 31, 2019 and
3,904,212 at March 31, 2019			3,939				3,939				3,904
Additional paid-in capital			55,129				55,089				53,102
Retained earnings			113,374				110,800				102,574
Accumulated other comprehensive income (loss)			2,918				(629	)			(2,825	)
Treasury stock, at cost:  432,659 at March 31, 2020 and 413,607 shares
at December 31, 2019 and 405,378 shares at March 31, 2019			(15,437	)			(14,425	)			(13,910	)
TOTAL STOCKHOLDERS' EQUITY			159,923				154,774				142,845
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY		$	1,464,729			$	1,466,339			$	1,448,054

CITIZENS FINANCIAL SERVICES, INC.
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
		Three Months Ended
		March 31,
(in thousands, except per share data)		2020				2019
INTEREST INCOME:
Interest and fees on loans		$	13,638			$	13,314
Interest-bearing deposits with banks			95				104
Investment securities:
Taxable			1,107				1,108
Nontaxable			389				357
Dividends			110				134
TOTAL INTEREST INCOME			15,339				15,017
INTEREST EXPENSE:
Deposits			1,987				2,314
Borrowed funds			462				788
TOTAL INTEREST EXPENSE			2,449				3,102
NET INTEREST INCOME			12,890				11,915
Provision for loan losses			400				400
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES			12,490				11,515
NON-INTEREST INCOME:
Service charges			1,081				1,099
Trust			198				232
Brokerage and insurance			340				293
Gains on loans sold			167				99
Equity security gains (losses), net			(254	)			11
Earnings on bank owned life insurance			156				151
Other			163				148
TOTAL NON-INTEREST INCOME			1,851				2,033
NON-INTEREST EXPENSES:
Salaries and employee benefits			5,414				5,029
Occupancy			526				592
Furniture and equipment			131				155
Professional fees			325				442
FDIC insurance expense			71				111
Pennsylvania shares tax			275				275
Amortization of intangibles			50				66
Merger and acquisition			376				-
Software expenses			247				227
ORE expenses			32				107
Other			1,474				1,318
TOTAL NON-INTEREST EXPENSES			8,921				8,322
Income before provision for income taxes			5,420				5,226
Provision for income taxes			889				821
NET INCOME		$	4,531			$	4,405
PER COMMON SHARE DATA:
Net Income - Basic		$	1.29			$	1.25
Net Income - Diluted		$	1.29			$	1.25
Cash Dividends Paid		$	0.550			$	0.441
Number of shares used in computation - basic			3,515,500				3,528,466
Number of shares used in computation - diluted			3,515,500				3,528,466

CITIZENS FINANCIAL SERVICES, INC.
QUARTERLY CONDENSED, CONSOLIDATED INCOME STATEMENT INFORMATION
(UNAUDITED)
(in thousands, except share data)						Three Months Ended,
		March 31,				Dec 31,				Sept 30,				June 30,				March 31,
		2020				2019				2019				2019				2019
Interest income		$	15,339			$	15,587			$	15,874			$	15,502			$	15,017
Interest expense			2,449				2,797				2,975				3,166				3,102
Net interest income			12,890				12,790				12,899				12,336				11,915
Provision for loan losses			400				525				400				350				400
Net interest income after provision for loan losses			12,490				12,265				12,499				11,986				11,515
Non-interest income			2,105				2,083				2,140				1,997				2,022
Investment securities gains (losses), net			(254	)			66				37				30				11
Non-interest expenses			8,921				8,368				8,414				8,237				8,322
Income before provision for income taxes			5,420				6,046				6,262				5,776				5,226
Provision for income taxes			889				1,003				1,066				930				821
Net income		$	4,531			$	5,043			$	5,196			$	4,846			$	4,405
Earnings Per Share Basic		$	1.29			$	1.43			$	1.48			$	1.38			$	1.25
Earnings Per Share Diluted		$	1.29			$	1.43			$	1.48			$	1.38			$	1.25

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 March 31,
		2020												2019
		Average								Average				Average								Average
		Balance (1)				Interest				Rate				Balance (1)				Interest				Rate
(dollars in thousands)		$								$	%			$								$	%
ASSETS
Interest-bearing deposits at banks			9,538				3				0.17				8,759				7				0.32
Interest bearing time deposits at banks			14,272				92				2.59				15,498				97				2.54
Investment securities			242,448				1,710				2.82				252,053				1,693				2.69
Loans: (2)(3)(4)
Residential mortgage loans			215,838				2,843				5.30				215,670				2,825				5.31
Construction loans			17,726				223				5.06				28,439				357				5.09
Commercial Loans			415,199				5,534				5.36				401,813				5,423				5.47
Agricultural Loans			360,179				4,112				4.59				334,520				3,739				4.53
Loans to state & political subdivisions			94,122				939				4.01				100,922				978				3.93
Other loans			9,461				171				7.27				9,768				184				7.64
Loans, net of discount (2)(3)(4)			1,112,525				13,822				5.00				1,091,132				13,506				5.02
Total interest-earning assets			1,378,783				15,627				4.56				1,367,442				15,303				4.54
Cash and due from banks			6,263												6,741
Bank premises and equipment			16,062												16,263
Other assets			56,983												54,278
Total non-interest earning assets			79,308												77,282
Total assets			1,458,091												1,444,724
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
NOW accounts			332,068				437				0.53				328,357				578				0.71
Savings accounts			225,985				184				0.33				211,149				184				0.35
Money market accounts			174,294				393				0.91				161,424				505				1.27
Certificates of deposit			261,278				973				1.50				293,385				1,047				1.45
Total interest-bearing deposits			993,625				1,987				0.80				994,315				2,314				0.94
Other borrowed funds			93,849				462				1.98				113,829				788				2.81
Total interest-bearing liabilities			1,087,474				2,449				0.91				1,108,144				3,102				1.14
Demand deposits			196,604												176,989
Other liabilities			16,082												14,199
Total non-interest-bearing liabilities			212,686												191,188
Stockholders' equity			157,931												145,392
Total liabilities & stockholders' equity			1,458,091												1,444,724
Net interest income							13,178												12,201
Net interest spread (5)											3.65	%											3.40	%
Net interest income as a percentage
of average interest-earning assets											3.84	%											3.62	%
Ratio of interest-earning assets
to interest-bearing liabilities											127	%											123	%
(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 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)
		March 31,				December 31,				September 30,				June 30,				March 31,
		2020				2019				2019				2019				2019
Real estate:
Residential		$	216,179			$	217,088			$	215,717			$	213,014			$	214,635
Commercial			338,490				342,023				349,269				347,430				334,371
Agricultural			300,606				311,464				305,948				294,332				295,547
Construction			17,926				15,519				11,448				20,950				18,611
Consumer			9,533				9,947				9,709				9,854				9,773
Other commercial loans			71,038				69,970				76,785				76,179				74,323
Other agricultural loans			46,170				55,112				50,334				41,689				43,245
State & political subdivision loans			93,778				94,446				95,824				96,174				100,412
Total loans			1,093,720				1,115,569				1,115,034				1,099,622				1,090,917
Less: allowance for loan losses			14,247				13,845				13,679				13,304				13,084
Net loans		$	1,079,473			$	1,101,724			$	1,101,355			$	1,086,318			$	1,077,833
Past due and non-performing assets
Total Loans past due 30-89 days and still accruing		$	3,159			$	2,711			$	2,672			$	2,599			$	4,470
Non-accrual loans		$	11,302			$	11,536			$	13,223			$	12,534			$	11,700
Loans past due 90 days or more and accruing			164				487				103				175				64
Non-performing loans		$	11,466			$	12,023			$	13,326			$	12,709			$	11,764
OREO			3,056				3,404				3,497				3,853				4,295
Total Non-performing assets		$	14,522			$	15,427			$	16,823			$	16,562			$	16,059
		3 Months				3 Months				3 Months				3 Months				3 Months
		Ended				Ended				Ended				Ended				Ended
Analysis of the Allowance for loan Losses		March 31,				December 31,				September 30,				June 30,				March 31,
(In Thousands)			2020				2019				2019				2019				2019
Balance, beginning of period		$	13,845			$	13,679			$	13,304			$	13,084			$	12,884
Charge-offs			(9	)			(370	)			(34	)			(139	)			(214	)
Recoveries			11				11				9				9				14
Net (charge-offs) recoveries			2				(359	)			(25	)			(130	)			(200	)
Provision for loan losses			400				525				400				350				400
Balance, end of period		$	14,247			$	13,845			$	13,679			$	13,304			$	13,084

CITIZENS FINANCIAL SERVICES, INC.
Reconciliation of GAAP and Non-GAAP Financial Measures
(UNAUDITED)
(Dollars in thousands, except per share data)
		As of
		March 31
		2020				2019
Tangible Equity
Stockholders Equity - GAAP		$	159,923			$	142,845
Accumulated other comprehensive (gain) loss			(2,918	)			2,825
Intangible Assets			(24,590	)			(24,843	)
Tangible Equity - Non-GAAP			132,415				120,827
Shares outstanding adjusted for June 2019 stock Dividend			3,506,009				3,533,290
Tangible Book value per share (a)		$	37.77			$	34.20
		As of
		March 31
			2020				2019
Tangible Equity per share
Stockholders Equity per share - GAAP		$	45.61			$	40.43
Adjustments for accumulated other comprehensive loss			(0.83	)			0.80
Book value per share			44.78				41.23
Adjustments for intangible assets			(7.01	)			(7.03	)
Tangible Book value per share - Non-GAAP		$	37.77			$	34.20
		For the Three Months Ended
		March 31
			2020				2019
Return on Average Tangible Equity
Average Stockholders Equity - GAAP		$	157,905			$	141,578
Average Accumulated Other Comprehensive Loss			(26	)			(3,814	)
Average Intangible Assets			24,603				24,872
Average Tangible Equity - Non-GAAP			133,328				120,520
Net Income		$	4,531			$	4,405
Annualized Return on Average Tangible Equity			13.59	%			14.62	%
		For the Three Months Ended March 31, 2020
Return on Average Assets and Equity Excluding Merger and Acquisition Costs
Net Income		$	4,531
After Tax merger and acquisition costs			339
Net Income excluding merger and acquisition costs		$	4,870
Average Assets			1,458,091
Annualized Return on Average stockholders equity, excluding Merger and Acquisition costs			1.34	%
Average Stockholders Equity - GAAP		$	157,905
Annualized Return on Average stockholders equity, excluding Merger and Acquisition costs			12.34	%
		For the Three Months Ended
		March 31
Reconciliation of net interest income on fully taxable equivalent basis			2020				2019
Total interest income		$	15,339			$	15,017
Total interest expense			2,449				3,102
Net interest income			12,890				11,915
Tax equivalent adjustment			288				286
Net interest income (fully taxable equivalent)		$	13,178			$	12,201