Citizens Financial Services (CZFS) 8-K Citizens Financial Services, Inc. Releases 2003 Year-end Earnings

FOR IMMEDIATE RELEASE

CONTACT:	Kathleen Campbell, CFMP
	Senior Vice President, Marketing
	15 S. Main Street
	Mansfield, PA 16933
	570-662-0422
	570-662-8512 (fax)

January 21, 2004

CITIZENS FINANCIAL SERVICES, INC. RELEASES 2003 YEAR-END EARNINGS

MANSFIELD, PENNSYLVANIA – Citizens Financial Services, Inc. (OTC BB: CZFS), the holding company for First Citizens National Bank, releases 2003 year-end earnings. Total assets, total loans and total deposits for the year 2003 all increased. Total assets grew $31.2 million or 7.2% to $463.9 million while total loans increased by $19.2 million or 6.4% to reach $317.7 million and total deposits of $385.7 million represented an increase of $12.6 million or 3.4%. Net income for the fourth quarter 2003 was $1.3 million, a 4.5% decrease over the comparable quarter in 2002.

Net income for the year was $4.9 million as compared to $5.6 million in 2002, a 12.8% decrease. Earnings per share for the year ended December 31, 2003 was $1.72, a 12.2% decrease over one year ago. Even though loans, deposits and total assets grew, overall net income was considerably impacted by the consulting and non-compete agreement provided to the organization’s retiring president. The Board of Directors entered into a consulting and non-compete agreement with Richard E. Wilber, President and CEO of Citizens Financial Services, Inc. and First Citizens National Bank which went into effect upon Mr. Wilber’s retirement on September 30, 2003. As part of the consulting and non-compete agreement, Mr. Wilber will provide consulting services at the request of the Board of Directors and wi ll adhere to certain non-compete provisions. The financial impact of this agreement was an after-tax charge to earnings of approximately $554,500 in the third quarter of 2003. Without the effect of this charge to the 2003 earnings, earnings per share for the year ended December 31, 2003 would have been approximately $1.91.

Cash dividends declared in the fourth quarter 2003 were $.19 (a $.76 annualized rate) versus $.175 (a $.70 annualized rate) in the comparable quarter of 2002, an 8.6% increase. In addition, the common stock price has improved approximately 13.1% over the past year and 71.1% over the past two years.

Interim President, John M. Thomas, M.D. stated, "We are pleased with the 2003 year-end earnings especially in light of the facts that the low interest rates continue to be challenging and that a significant charge against earnings was made in the third quarter. The strength of the Bank lies with hardworking, dedicated employees, who, I am sure, will make it possible for the Bank to meet any and all challenges that lie ahead."

Note: This press release may contain forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Actual results and trends could differ materially from those set forth in such statements due to various factors. These factors include operating legal and regulatory risks; changing economic and competitive conditions and other risks and uncertainties.

Financial Highlights(In thousands, except per share and ratio data.)
(Unaudited)
		2003			2002
Twelve Months Ended December 31
Net income	$	4,879		$	5,595
Comprehensive income		3,282			6,935
Per common share data:
Earnings per share		1.72			1.96
Cash dividends declared		0.74			0.68
Performance ratios:
Return on average assets		1.11	%		1.30	%
Return on average equity		13.22	%		16.53	%
Three Months Ended December 31
Net income	$	1,326		$	1,389
Per common share data:
Earnings per share		0.47			0.49
Cash dividends declared		0.19			0.175
Performance ratios:
Return on average assets		1.20	%		1.28	%
Return on average equity		14.29	%		15.77	%
At December 31
Assets	$	463,878		$	432,658
Investment securities:
Available-for-sale		106,587			100,725
Loans (net of unearned income)		317,657			298,457
Allowance for loan losses		3,620			3,621
Deposits		385,691			373,051
Stockholders' Equity		38,529			38,406
Non-performing assets		2,994			3,293
Average leverage ratio		6.75	%		6.48	%
Per common share data:
Book value	$	13.70		$	13.59
Market value (average of bid/ask price)		24.00			21.23
Market price to book value ratio		175.18	%		156.22	%

CITIZENS FINANCIAL SERVICES, INC.
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
	December 31			December 31
(in thousands)	2003			2002
ASSETS:
Cash and due from banks:
Noninterest-bearing	$	9,624		$	11,173
Interest-bearing		327			421
Total cash and cash equivalents		9,951			11,594
Available-for-sale securities		106,587			100,725
Loans (net of allowance for loan losses 2003, $3,620;
2002, $3,621)		314,037			294,836
Premises and equipment		10,645			11,134
Accrued interest receivable		1,703			1,976
Goodwill		6,905			6,905
Core deposit intangible		978			1,413
Bank owned life insurance		7,142			-
Other assets		5,930			4,075
TOTAL ASSETS	$	463,878		$	432,658
LIABILITIES:
Deposits:
Noninterest-bearing	$	46,820		$	40,143
Interest-bearing		338,871			332,908
Total deposits		385,691			373,051
Borrowed funds		27,796			17,027
Subordinate debentures		7,500			-
Accrued interest payable		1,888			2,077
Other liabilities		2,474			2,097
TOTAL LIABILITIES		425,349			394,252
STOCKHOLDERS' EQUITY:
Common Stock
$1.00 par value; authorized 10,000,000 shares;
issued 2,909,849 shares in 2003 and
2,882,070 shares in 2002, respectively		2,910			2,882
Additional paid-in capital		10,213			9,473
Retained earnings		26,455			24,447
TOTAL		39,578			36,802
Accumulated other comprehensive income		956			2,553
Less: Treasury Stock, at cost
96,962 and 55,162 shares in 2003 and 2002, respectively		(2,005	)		(949	)
TOTAL STOCKHOLDERS' EQUITY		38,529			38,406
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY	$	463,878		$	432,658

CITIZENS FINANCIAL SERVICES, INC.
CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
	Three Months Ended				Twelve Months Ended
(in thousands, except per share data)	December 31				December 31
	2003		2002		2003		2002
INTEREST INCOME:
Interest and fees on loans	$	5,435	$	5,530	$	21,593	$	21,600
Interest-bearing deposits with banks		2		7		29		65
Investment securities:
Taxable		755		1,027		3,222		4,711
Nontaxable		94		139		457		634
Dividends		79		88		314		367
TOTAL INTEREST INCOME		6,365		6,791		25,615		27,377
INTEREST EXPENSE:
Deposits		1,997		2,389		8,501		10,012
Borrowed funds		103		102		325		392
TOTAL INTEREST EXPENSE		2,100		2,491		8,826		10,404
NET INTEREST INCOME		4,265		4,300		16,789		16,973
Provision for loan losses		60		135		435		435
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES		4,205		4,165		16,354		16,538
NON-INTEREST INCOME:
Service charges		757		795		3,018		3,130
Trust		185		132		622		562
Gains on Loans Sold		23		99		349		185
Realized securities gains, net		39		-		553		254
Other		217		234		770		915
TOTAL NON-INTEREST INCOME		1,221		1,260		5,312		5,046
NON-INTEREST EXPENSES:
Salaries and employee benefits		1,788		1,693		8,304		7,120
Occupancy		254		253		1,025		998
Furniture and equipment		180		193		713		881
Professional fees		208		238		694		667
Amortization		109		109		435		457
Other		1,210		1,112		4,330		4,103
TOTAL NON-INTEREST EXPENSES		3,749		3,598		15,501		14,226
Income before provision for income taxes		1,677		1,827		6,165		7,358
Provision for income taxes		351		438		1,286		1,763
NET INCOME	$	1,326	$	1,389	$	4,879	$	5,595
Earnings Per Share	$	0.47	$	0.49	$	1.72	$	1.96
Cash Dividend Declared	$	0.190	$	0.175	$	0.740	$	0.680