Citizens Financial Services (CZFS) 8-K Citizens Financial Services, Inc. Announces 2004 Earnings

PRESS RELEASE

First Citizens National Bank - 15 South Main Street - Mansfield, PA 16933 - 570-662-0422 - Fax: 570-662-8512

For Immediate Release

Contact: Kathleen Campbell, Senior Vice President, Marketing Director

570-662-0422

Fax: 570-662-8512

CITIZENS FINANCIAL SERVICES, INC. ANNOUNCES 2004 EARNINGS

MANSFIELD, PENNSYLVANIA - January 25, 2005 - Mr. Randall E. Black, President and Chief Executive Officer, announced 2004 financial results for Citizens Financial Services, Inc. (OTC BB: CZFS), the holding company for First Citizens National Bank.

Consolidated net income for the twelve months ended December 31, 2004 was $5,267,000 compared to $4,879,000 for the same period in 2003, an increase of 8.0%. Earnings per share was $1.85, which represents an 8.8% increase over 2003 earnings per share of $1.70. Return on average equity (ROE) and return on average assets (ROA) for the twelve months ended December 31, 2004 were 13.40% and 1.09%, respectively. A non-cash after-tax charge relating to an other-than-temporary impairment of $479,000 was recorded in the quarter ended December 31, 2004 related to a $3.8 million face value of perpetual preferred stock issued by Freddie Mac, a Government sponsored entity. The decision to record this charge was based on a very conservative interpretation of the accounting literature and guidance, and does not reflect the expect ed long-term value of these investment grade securities. This had the effect of decreasing earnings per share by 17 cents.

Total assets, total loans and total deposits all increased in 2004 as a result of internal growth and the second quarter 2004 acquisition of two branches in Bradford County from The Legacy Bank. Total assets grew $35.5 million or 7.6% to $499.3 million, total net loans increased by $41.7 million or 13.3% to reach $355.8 million and total deposits of $419.1 increased $33.4 million representing an increase of 8.7%.

Excluding the non-cash impairment charge referred to above, return on average equity and assets was 14.62% and 1.19%, respectively, representing a 10.6% and 7.2% increase over the 2003 ratios. Net income for 2004 was $5.7 million with earnings per share of $2.02, absent the non-cash impairment charge, which represents an 18.8% increase over last year.

Citizens Financial Services, Inc. paid a dividend of $.20 in the fourth quarter of 2004, bringing the year-to-date total to $.78 per share. This represents a 5.4% increase in our payout compared to the dividends paid in the four quarters of 2003. Shareholders’ equity per share was $14.30 and $13.70 at December 31, 2004 and 2003, respectively, an increase of 4.4%.

Citizens Financial Services, Inc. has over 1,500 shareholders and is the parent company of First Citizens National Bank, which operates fifteen branch offices providing financial services in Bradford, Tioga and Potter Counties.

NOTE:  This press release contains financial information determined by methods other than in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”).  Management uses the non-GAAP measure of Operating Earnings in its analysis of the company’s performance. This measure, as used byCitizens Financial Services, Inc. (CZFS.OB), adjusts net income determined in accordance with GAAP to exclude the effects of special items, including significant gains or losses that are unusual in nature. Because certain of these items and their impact onCZFS.OB’s performance are difficult to predict, management believes presentation of financial measures excluding the impact of such items provides useful supplemental information in evaluating the operating results ofCZFS.OB’s core businesses. These disclosures should not be viewed as a substitute for net income determined in accordance with GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other companies.

This press release may contain certain “forward-looking statements” including statements concerning plans, objectives, future events or performance and assumptions and other statements which are other than statements of historical fact. CZFS.OB cautions readers that the following important factors, among others, may have affected and could in the future affect actual results and could cause actual results for subsequent periods to differ materially from those expressed in any forward-looking statement made by or on behalf ofCZFS.OB herein:  (i) the effect of changes in laws and regulations, including federal and state banking laws and regulations, and the associated costs of compliance with such laws and regulations either currently or in the future as applicable; (ii) the effect of changes in accounting policies and practices, as may be adopted by the regulatory agencies as well as by the Financial Accounting Standards Board, or of changes in the Company’s organization, compensation and benefit plans; (iii) the effect onCZFS.OB’s competitive position within its market area of the increasing consolidation within the banking and fi nancial services industries, including the increased competition from larger regional and out-of-state banking organizations as well as non-bank providers of various financial services; (iv) the effect of changes in interest rates; and (v) the effect of changes in the business cycle and downturns in the local, regional or national economies.

DECEMBER 31, 2004
PART I - FINANCIAL INFORMATION
Item 1 - FINANCIAL STATEMENTS
CITIZENS FINANCIAL SERVICES, INC.
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
	December 31			December 31
(in thousands)	2004			2003
ASSETS:
Cash and due from banks:
Noninterest-bearing	$	9,162		$	9,624
Interest-bearing		177			327
Total cash and cash equivalents		9,339			9,951
Available-for-sale securities		95,747			106,587
Loans (net of allowance for loan losses of $3,919 and $3,620
at December 31, 2004 and 2003, respectively)		355,774			314,037
Premises and equipment		11,833			10,645
Accrued interest receivable		1,736			1,703
Goodwill		8,605			6,905
Core deposit intangible		1,262			978
Bank owned life insurance		7,449			7,142
Other assets		7,602			5,930
TOTAL ASSETS	$	499,347		$	463,878
LIABILITIES:
Deposits:
Noninterest-bearing	$	46,866		$	46,820
Interest-bearing		372,208			338,871
Total deposits		419,074			385,691
Borrowed funds		27,475			27,796
Notes payable		7,500			7,500
Accrued interest payable		1,870			1,888
Other liabilities		2,639			2,474
TOTAL LIABILITIES		458,558			425,349
STOCKHOLDERS' EQUITY:
Common Stock
$1.00 par value; authorized 10,000,000 shares;
issued 2,937,519 and 2,909,849 shares
in 2004 and 2003, respectively		2,938			2,910
Additional paid-in capital		10,804			10,213
Retained earnings		28,894			26,455
TOTAL		42,636			39,578
Accumulated other comprehensive income		164			956
Less: Treasury Stock, at cost
97,262 and 96,962 shares for 2004 and 2003, respectively		(2,011	)		(2,005	)
TOTAL STOCKHOLDERS' EQUITY		40,789			38,529
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY	$	499,347		$	463,878

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
	2004			2003		2004			2003
INTEREST INCOME:
Interest and fees on loans	$	5,953		$	5,435	$	22,600		$	21,593
Interest-bearing deposits with banks		1			2		10			29
Investment securities:
Taxable		823			755		3,413			3,222
Nontaxable		78			94		301			457
Dividends		72			79		282			314
TOTAL INTEREST INCOME		6,927			6,365		26,606			25,615
INTEREST EXPENSE:
Deposits		2,202			1,997		8,283			8,501
Borrowed funds		268			103		952			325
TOTAL INTEREST EXPENSE		2,470			2,100		9,235			8,826
NET INTEREST INCOME		4,457			4,265		17,371			16,789
Provision for loan losses		-			60		-			435
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES		4,457			4,205		17,371			16,354
NON-INTEREST INCOME:
Service charges		752			757		3,017			3,018
Trust		102			145		434			422
Brokerage		33			40		185			200
Gains on loans sold		17			23		54			349
Realized securities gains (loss), net		(726	)		39		(235	)		553
Earnings on bank owned life insurance		74			75		307			142
Other		117			142		530			628
TOTAL NON-INTEREST INCOME		369			1,221		4,292			5,312
NON-INTEREST EXPENSES:
Salaries and employee benefits		1,958			1,788		7,636			8,304
Occupancy		260			254		1,072			1,025
Furniture and equipment		179			180		695			713
Professional fees		187			208		630			694
Amortization		144			109		506			435
Other		1,068			1,210		4,383			4,330
TOTAL NON-INTEREST EXPENSES		3,796			3,749		14,922			15,501
Income before provision for income taxes		1,030			1,677		6,741			6,165
Provision for income taxes		145			351		1,474			1,286
NET INCOME	$	885		$	1,326	$	5,267		$	4,879
Earnings Per Share	$	0.31		$	0.47	$	1.85		$	1.70
Cash Dividend Declared	$	0.200		$	0.190	$	0.780		$	0.740

Financial Highlights
	2004			2003
Twelve Months Ended December 31
Net Income	$	5,267		$	4,879
Comprehensive Income		4,475			3,282
Per common share data:
Earnings per share		1.85			1.70
Cash Dividends declared		0.78			0.74
Performance Ratios:
Return on average assets		1.09	%		1.11	%
Return on average equity		13.40	%		13.22	%
Three Months Ended December 31
Net Income	$	885		$	1,326
Per common share data:
Earnings per share		0.31			0.47
Cash Dividends declared		0.20			0.19
Performance Ratios:
Return on average assets (annualized)		0.71	%		1.20	%
Return on average equity (annualized)		8.70	%		14.29	%
At December 31
Assets	$	499,347		$	463,878
Investment securities:
Available for sale		95,747			106,587
Loans (net of unearned income)		359,693			317,657
Allowance for loan losses		3,919			3,620
Deposits		419,074			385,691
Stockholders' Equity		40,789			38,529
Non-performing assets		2,932			2,994
Average Leverage Ratio		7.84	%		8.50	%
Per common share data:
Book value	$	14.30		$	13.70
Market value (average of bid/ask price)		23.83			24.00
Market price to book value ratio		166.57	%		175.18	%

					Cash Dividends
Common Stock Information:	Bid		Ask		Paid
Quarter Ended:
December 31, 2004	$	23.65	$	24.00	$	0.200
September 30, 2004	$	21.50	$	22.15	$	0.195
June 30, 2004	$	22.20	$	22.75	$	0.195
March 31, 2004	$	25.00	$	25.25	$	0.190
December 31, 2003	$	23.85	$	24.15	$	0.190
September 30, 2003	$	24.75	$	25.50	$	0.185
June 30, 2003	$	27.75	$	28.00	$	0.185
March 31, 2003	$	22.70	$	22.90	$	0.180