Citizens Financial Services (CZFS) 8-K Citizens Financial Services, Inc. Reports First Quarter Earnings increased by 9.4% over one year ago

FOR IMMEDIATE RELEASE

CONTACT:Kathleen Campbell

Senior Vice President, Marketing

15 S. Main Street

Mansfield, PA 16933

570-662-0422

570-662-8512 (fax)

April 16, 2004

Citizens Financial Services, Inc. Reports First Quarter Earnings increased by 9.4% over one year ago

MANSFIELD, PENNSYLVANIA—John M. Thomas, MD, interim president of Citizens Financial Services, Inc., (OTC BB: CZFS)holding company for First Citizens National Bank, has reported 2004 first-quarter earnings. Total assets for Citizens Financial Services, Inc. surpassed $468.8 million on March 31, 2004. This figure increased 4.8% over the $447.2 million at March 31, 2003. Deposits grew 1.5% to $387.1 million while total loans increased 4.3% to $317.4 million from one year ago.

Citizens Financial Services, Inc. reported net income of $1,493 million as of March 31, 2004, compared to $1,365 million of one year ago, a 9.4% increase.

Total stockholders’ equity is $39.5 million as compared to $38.9 million one year ago – a 1.7% improvement. The market value of Citizens Financial Services stock as of March 31, 2004 was $25.13, a 10.2% increase over the $22.80 reported one year ago. Likewise, cash dividends paid increased 5.6% during the first quarter of 2004 to $.19 per share versus the $.18 per share of one year ago.

Interim President John M. Thomas, MD stated, “The 9.4% increase in earnings is a result of lower interest expense as deposits continue to reprice at a lower rate in the current interest-rate environment. Also, the purchase and assumption agreement entered into with Legacy Bank to buy the community offices in Sayre and Towanda during the first quarter of 2004 is expected to contribute positively to the financial performance of the Bank during the latter part of the year. The conversion is expected to be completed in early June pending OCC approval.”

Inquiries regarding the purchase of the company’s stock may be made through the following brokers: Ferris Baker Watts, Inc. 410-659-4600: Ryan, Beck & Co., 800-395-7926; Schwab Capital Markets LP, 201-963-9100; Monroe Securities, Inc., 800-766-5560; Boenning & Scattergood Inc., 610-828-0400; Keefe, Beuyette & Woods, Inc., 212-554-2600; Knight Equity Markets, LP, 212-336-8790; GVR Co., 800-638-8602; Hill Thompson Magid & Co., 800-631-3083; Powell (EE) & Co., Inc., 412-391-4594 and Pershing Trading Company, 201-413-3531.

Citizens Financial Services, Inc., has over 1,500 shareholders, the majority of whom reside in Potter, Tioga, and Bradford Counties.

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)
	2004	2003
Three Months Ended March 31
Net income	$ 1,493	$ 1,365
Comprehensive income	1,533	969
Per common share data:
Earnings per share	0.53	0.48
Cash dividends declared	0.19	0.18
Performance ratios:
Return on average assets	1.29%	1.28%
Return on average equity	15.72%	15.11%
At March 31
Assets	$ 468,831	$ 447,201
Investment securities:
Available-for-sale	109,618	108,408
Loans (net of unearned income)	317,423	304,342
Allowance for loan losses	3,874	3,657
Deposits	387,075	381,532
Stockholders' Equity	39,527	38,866
Non-performing assets	2,632	2,769
Average leverage ratio	8.40%	6.83%
Per common share data:
Book value	$ 14.05	$ 13.75
Market value (average of bid/ask price)	25.13	22.80
Market price to book value ratio	178.86%	165.82%

March 31, 2004

PART I - FINANCIAL INFORMATION

Item 1 - FINANCIAL STATEMENTS

CITIZENS FINANCIAL SERVICES, INC.

CONSOLIDATED BALANCE SHEET

(UNAUDITED)

	March 31	December 31	March 31
(in thousands)	2004	2003	2003
ASSETS:
Cash and due from banks:
Noninterest-bearing	$ 8,731	$ 9,624	$ 12,264
Interest-bearing	3,349	327	203
Total cash and cash equivalents	12,080	9,951	12,467
Available-for-sale securities	109,618	106,587	108,408
Loans (net of allowance for loan losses 2004, $3,874; December 31,
2003, $3,620 and March 31, 2003, $3,657)	313,549	314,037	300,685
Premises and equipment	10,479	10,645	11,018
Accrued interest receivable	1,790	1,703	1,978
Goodwill	6,905	6,905	6,905
Core deposit intangible	869	978	1,304
Bank owned life insurance	7,221	7,142	-
Other assets	6,320	5,930	4,436
TOTAL ASSETS	$ 468,831	$ 463,878	$ 447,201
LIABILITIES:
Deposits:
Noninterest-bearing	$ 44,377	$ 46,820	$ 41,624
Interest-bearing	342,698	338,871	339,908
Total deposits	387,075	385,691	381,532
Borrowed funds	26,444	27,796	23,130
Notes payable	7,500	7,500	-
Accrued interest payable	1,547	1,888	1,664
Commitment to purchase investment securities	4,094	-	-
Other liabilities	2,644	2,474	2,009
TOTAL LIABILITIES	429,304	425,349	408,335
STOCKHOLDERS' EQUITY:
Common Stock
$1.00 par value; authorized 10,000,000 shares;
issued 2,909,849 shares in 2004 and at December 31, 2003,
and 2,882,070 shares at March 31, 2003, respectively	2,910	2,910	2,882
Additional paid-in capital	10,213	10,213	9,474
Retained earnings	27,413	26,455	25,302
TOTAL	40,536	39,578	37,658
Accumulated other comprehensive income	996	956	2,157
Less: Treasury Stock, at cost
55,162 shares in 2003 and 2002	(2,005)	(2,005)	(949)
TOTAL STOCKHOLDERS' EQUITY	39,527	38,529	38,866
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY	$ 468,831	$ 463,878	$ 477,201

CITIZENS FINANCIAL SERVICES, INC.
CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
	Three Months Ended
(in thousands, except per share data)	March 31
	2004	2003
INTEREST INCOME:
Interest and fees on loans	$ 5,348	$ 5,403
Interest-bearing deposits with banks	5	4
Investment securities:
Taxable	892	894
Nontaxable	85	137
Dividends	62	82
TOTAL INTEREST INCOME	6,392	6,520
INTEREST EXPENSE:
Deposits	1,964	2,238
Borrowed funds	213	75
TOTAL INTEREST EXPENSE	2,177	2,313
NET INTEREST INCOME	4,215	4,207
Provision for loan losses	-	135
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES	4,215	4,072
NON-INTEREST INCOME:
Service charges	731	711
Trust	181	124
Gains on Loans Sold	9	96
Realized securities gains, net	287	259
Bank Owned Life Insurance	79	-
Other	109	164
TOTAL NON-INTEREST INCOME	1,396	1,354
NON-INTEREST EXPENSES:
Salaries and employee benefits	1,925	1,897
Occupancy	286	278
Furniture and equipment	169	177
Professional fees	154	162
Amortization	109	109
Other	1,028	1,008
TOTAL NON-INTEREST EXPENSES	3,671	3,631
Income before provision for income taxes	1,940	1,795
Provision for income taxes	447	430
NET INCOME	$ 1,493	$ 1,365
OPERATING CASH EARNINGS**	$ 1,564	$ 1,436
Earnings Per Share	$ 0.53	$ 0.48
Operating Cash Earnings Per Share**	$ 0.56	$ 0.50
Cash Dividend Declared	$ 0.190	$ 0.180
**Operating cash earnings are net income before amortization of intangible assets and merger and acquisition costs, net of tax.
Weighted average number shares outstanding	2,812,888	2,854,688