Citizens Financial Services (CZFS) 8-K Results of Operations and Financial Condition

Contact:	Kathleen Campbell, Marketing Director	first Citizens Community Bank
	570-662-0422		15 s. Main Street
	570-662-8512 (fax)		Mansfield, PA 16933

citizens financial services, inc. reports unaudited second quarter 2018 financial results

MANSFIELD, PENNSYLVANIA— July 25, 2018 – Citizens Financial Services, Inc. (OTC Pink: CZFS), parent company of First Citizens Community Bank, released today its unaudited consolidated financial results for the three and six months ended June 30, 2018.

Highlights

· Net income for the first six months of 2018 was $8.9 million, which is 32.0% higher than 2017's  income through June 30, 2017. The first half of 2018 was positively impacted by the Tax Cuts and Jobs Act, enacted on December 22, 2017, which lowered the federal corporate income tax rate from 35% to 21% effective January 1, 2018. The effective tax rate for the first six months of 2018 was 15.4% compared to 22.4% in the comparable period in 2017.

· Net income was $4.7 million for the three months ended June 30, 2018, which is 35.3% higher than the net income for 2017's comparable period. The effective tax rate for the three months ended June 30, 2018 was 15.7% compared to 23.0% in the comparable period in 2017.

· Net interest income before the provision for loan losses of $23.2 million for the six months ended June 30, 2018 was an increase of $2.8 million, or 13.6%, over the same period a year ago.

· Net loan growth totaled $38.9 million in the first half of 2018, or 7.9% annualized. During the second quarter of 2018, the Bank experienced approximately $15.0 million of payoffs from participation loans.

· Return on average equity for the three and six months (annualized) ended June 30, 2018 was 13.68% and 13.15% compared to 10.80% and 10.63% for the three and six months (annualized) ended June 30, 2017.

· Return on average tangible equity for the three and six months (annualized) ended March 31, 2018 was 16.74% and 16.14% compared to 13.16% and 12.98% for the three and six months (annualized) ended June 30, 2017. (See reconciliation of Non-GAAP measures at the end of the press release.)

· Return on average assets for the three and six months (annualized) ended June 30, 2018 was 1.34% and 1.29% compared to 1.12% and 1.10% for the three and six months (annualized) ended June 30, 2017.

Six Months Ended June 30, 2018 Compared to 2017

· For the six months ended June 30, 2018, net income totaled $8,938,000 which compares to net income of $6,771,000 for the first six months of 2017, an increase of $2,167,000 or 32.0%.  Basic earnings per share of $2.55 for the first six months of 2018 compares to $1.93 for the first six months last year.  Annualized return on equity for the six months ended June 30, 2018 and 2017 was 13.15% and 10.63%, while annualized return on assets was 1.29% and 1.10%, respectively.

1

· Net interest income before the provision for loan loss for the six months ended June 30, 2018 totaled $23,171,000 compared to $20,401,000 for the six months ended June 30, 2017, resulting in an increase of $2,770,000, or 13.6%.    Average interest bearing assets increased $152.9 million for the six months ended June 30, 2018 compared to the same period last year.  Average loans increased $180.2 million while average investment securities decreased $30.4 million. The tax effected net interest margin for the six months ended June 30, 2018 was 3.67% compared to 3.79% for the same period last year. A significant portion of the margin decrease from 2017 to 2018 is attributable to the change in our corporate tax rate from 34% to 21%.

· The provision for loan losses for the six months ended June 30, 2018 was $825,000 compared to $1,240,000 for the six months ended June 30, 2017, a decrease of $415,000.  The decreased provision primarily reflects the lower level of loan growth experienced during 2018 compared to 2017.

· Total non-interest income was $3,748,000 for the six months ended June 30, 2018, which is $175,000 less than the non-interest income of $3,923,000 for the same period last year. Decreases in security gains and gains on loans sold were offset by increases in service charge income and brokerage and insurance commissions.

· Total non-interest expenses for the six months ended June 30, 2018 totaled $15,534,000 compared to $14,357,000 for the same period last year, which is an increase of $1,177,000, or 8.2%.  Salaries and benefits increased $829,000 primarily due to merit increases and branch and loan production office expansion in our central and south central market areas. Occupancy expenses increased as a result of branch expansions. The efficiency ratio for 2018 is 55.12% compared to 55.39% for the comparable 2017 period.

· The provision for income taxes decreased $334,000 when comparing the six months ended June 30, 2018 to the same period in 2017. The decrease is attributable to the Tax Cuts and Jobs Act, which lowered the statutory tax rate from 34% to 21%, partially offset by an increase in pre-tax income.  The effective tax rate for the first six months of 2018 was 15.4% compared to 22.4% in the comparable period in 2017.

Three Months Ended June 30, 2018 Compared to 2017

· For the three months ended June 30, 2018, net income totaled $4,691,000 which compares to net income of $3,468,000 for the comparable period in 2017, an increase of $1,223,000 or 35.3%.  Basic earnings per share of $1.34 for three months ended June 30, 2018 compares to $0.99 for the 2017 comparable period. Annualized return on equity for the three months ended June 30, 2018 and 2017 was 13.68% and 10.80%, while annualized return on assets was 1.34% and 1.12%, respectively.

· Net interest income before the provision for loan loss for the three months ended June 30, 2018 totaled $11,751,000 compared to $10,404,000 for the three months ended June 30, 2017, resulting in an increase of $1,347,000, or 12.9%. Average interest earning assets increased $149.8 million for the three months ended June 30, 2018 compared to the same period last year.  Average loans increased $169.4 million while average investment securities decreased $22.0 million. The tax effected net interest margin for the three months ended June 30, 2018 was 3.70% compared to 3.82% for the same period last year, which was primarily impacted by the change in tax rates between periods.

2

· The provision for loan losses for the three months ended June 30, 2018 was $325,000 compared to $625,000 for comparable period in 2017, a decrease of $300,000.  The decreased provision primarily reflects the lower net loan growth experienced during the comparable three months of 2018 to 2017.

· Total non-interest income was $1,842,000 for the three months June 30, 2018, which is $46,000 less than the comparable period last year.  Decreases in investment securities gains and gains on loans sold were partially offset by increases in service charges and brokerage and insurance commissions.

· Total non-interest expenses for the three months ended June 30, 2018 totaled $7,702,000 compared to $7,166,000 for the same period last year, which is an increase of $536,000, or 7.5%.  Salaries and benefits increased $360,000 primarily due to the increased costs associated with merit increases and branch and loan production office expansion.

· The provision for income taxes decreased $158,000 when comparing the three months ended June 30, 2018 to the same period in 2017.  The effective tax rate for the three months ended June 30, 2018 was 15.7% compared to 23.0% in the comparable period in 2017.

Balance Sheet and Other Information:

· At June 30, 2018, total assets were $1.40 billion, compared to $1.36 billion at December 31, 2017 and $1.26 billion at June 30, 2017.

· Available for sale securities of $250.0 million at June 30, 2018 decreased $4.8 million from December 31, 2017 and $25.2 million from June 30, 2017. The decrease was utilized to fund growth in the loan portfolio.

· Net loans as of June 30, 2018 totaled $1.03 billion and increased $38.9 million from December 31, 2017 and $150.2 million from June 30, 2017. Net loan growth for the second quarter was $8.1 million. Loan originations for the Bank remained strong in the second quarter, but growth was impacted by the pay-off of several large participation loans. The growth in 2018 was in commercial and agricultural relationships, which continues the trend from 2017.

· The allowance for loan losses totaled $11,941,000 at June 30, 2018 which is an increase of $751,000 from December 31, 2017.  The increase is due to recording a provision for loan losses of $825,000 and recoveries of $103,000, offset by charge-offs of $177,000.  Annualized net charge-offs as a percent of total loans through June 30, 2018 was .02%.  The allowance as a percent of total loans was 1.15% as of June 30, 2018 compared to 1.12% as of December 31, 2017.

· Deposits increased $13.6 million from December 31, 2017, to $1.12 billion at June 30, 2018. Borrowed funds increased $19.0 million from December 31, 2017 to $133.7 million at June 30, 2018.

· Stockholders' equity totaled $132.3 million at June 30, 2018, compared to $129.0 million at December 31, 2017, an increase of $3,270,000.  The increase was attributable to net income for the six months ended June 30, 2018 totaling $8.9 million, offset by cash dividends of $3.0 million.  As a result of changes in interest rates impacting the fair value of investment securities, the unrealized loss on available for sale investment securities, net of tax, increased $2.0 million from December 31, 2017.

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Dividend Declared

On June 5, 2018, the Board of Directors declared a cash dividend of $0.435 per share, which was paid on June 29, 2018 to shareholders of record at the close of business on June 15, 2018. The quarterly cash dividend is an increase of 7.5% over the regular cash dividend of $0.405 per share declared one year ago, as adjusted for the 5% stock dividend declared in June 2017. The Board also declared a 1% stock dividend, payable on June 29, 2018 to shareholders of record at the close of business on June 15, 2018.

Citizens Financial Services, Inc. has nearly 1,700 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.

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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						Six Months Ended
	June 30						June 30
	2018			2017			2018			2017
Income and Performance Ratios
Net Income	$	4,691		$	3,468		$	8,938		$	6,771
Return on average assets (annualized)		1.34	%		1.12	%		1.29	%		1.10	%
Return on average equity (annualized)		13.68	%		10.80	%		13.15	%		10.63	%
Return on average tangible equity (annualized) (b)		16.74	%		13.16	%		16.14	%		12.98	%
Net interest margin (tax equivalent)		3.70	%		3.82	%		3.67	%		3.79	%
Earnings per share - basic (c)	$	1.34		$	0.99		$	2.55		$	1.93
Earnings per share - diluted (c)	$	1.34		$	0.99		$	2.55		$	1.93
Cash dividends paid per share	$	0.435		$	0.401		$	0.870		$	0.802
Asset quality
Allowance for loan and lease losses	$	11,941		$	9,979		$	11,941		$	9,979
Non-performing assets	$	12,448		$	13,517		$	12,448		$	13,517
Allowance for loan and lease losses/total loans		1.15	%		1.12	%		1.15	%		1.12	%
Non-performing assets to total loans		1.20	%		1.52	%		1.20	%		1.52	%
Annualized net charge-offs (recoveries) to total loans		(0.01	%)		0.02	%		0.02	%		0.03	%
Equity
Book value per share (c)	$	39.18		$	36.54		$	39.18		$	36.54
Tangible Book value per share (b) (c)	$	32.05		$	30.00		$	32.05		$	30.00
Market Value (Last trade of month)	$	63.00		$	53.46		$	63.00		$	53.46
Common shares outstanding		3,512,653			3,489,164			3,512,653			3,489,164
Number of shares used in computation - basic (c)		3,507,242			3,514,394			3,509,882			3,513,925
Number of shares used in computation - diluted (c)		3,508,709			3,515,582			3,510,513			3,514,535
Other
Total Risk Based Capital Ratio (a)		13.23	%		14.32	%		13.23	%		14.32	%
Tier 1 Risk Based Capital Ratio (a)		12.04	%		13.17	%		12.04	%		13.17	%
Common Equity Tier 1 Risk Based Capital Ratio (a)		11.30	%		12.33	%		11.30	%		12.33	%
Leverage Ratio		8.94	%		9.55	%		8.94	%		9.55	%
Average Full Time Equivalent Employees		263.8			252.8			262.9			253.9
Loan to Deposit Ratio		92.99	%		84.48	%		92.99	%		84.48	%

Balance Sheet Highlights	June 30,		December 31		June 30,
	2018		2017		2017
Assets	$	1,397,594	$	1,361,886	$	1,264,856
Equity and available for sale securities		250,220		254,782		275,208
Loans (net of unearned income)		1,040,200		1,000,525		888,049
Allowance for loan losses		11,941		11,190		9,979
Deposits		1,118,592		1,104,943		1,051,209
Stockholders' Equity		132,281		129,011		127,770
(a) Presented as projected for June 30, 2018 and actual for the remaining period
(b) See reconcilation of Non-GAAP measures at the end of the press release
(c) Amounts were adjusted to reflect stock dividends.

5

CITIZENS FINANCIAL SERVICES, INC.
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
	June 30,			December 31			June 30,
(in thousands except share data)	2018			2017			2017
ASSETS:
Cash and due from banks:
Noninterest-bearing	$	14,521		$	16,347		$	18,298
Interest-bearing		1,092			2,170			1,064
Total cash and cash equivalents		15,613			18,517			19,362
Interest bearing time deposits with other banks		13,762			10,283			8,791
Equity securities		195			-			-
Available-for-sale securities		250,025			254,782			275,208
Loans held for sale		1,931			1,439			393
Loans (net of allowance for loan losses: $11,941 at June 30, 2018;
$11,190 at December 31, 2017 and $9,979 at June 30, 2017)		1,028,259			989,335			878,070
Premises and equipment		16,289			16,523			16,771
Accrued interest receivable		4,285			4,196			3,697
Goodwill		23,296			23,296			21,089
Bank owned life insurance		27,189			26,883			26,556
Other intangibles		1,756			1,953			1,945
Other assets		14,994			14,679			12,974
TOTAL ASSETS	$	1,397,594		$	1,361,886		$	1,264,856
LIABILITIES:
Deposits:
Noninterest-bearing	$	169,014		$	171,840		$	156,374
Interest-bearing		949,578			933,103			894,835
Total deposits		1,118,592			1,104,943			1,051,209
Borrowed funds		133,652			114,664			69,998
Accrued interest payable		903			897			628
Other liabilities		12,166			12,371			15,251
TOTAL LIABILITIES		1,265,313			1,232,875			1,137,086
STOCKHOLDERS' EQUITY:
Preferred Stock $1.00 par value; authorized
3,000,000 shares; none issued in 2018 or 2017		-			-			-
Common stock
$1.00 par value; authorized 25,000,000 shares at June 30, 2018; 15,000,000 at
December 31, 2017 and June 30, 2017: issued 3,904,212 at June 30, 2018 and 3,869,939
at December 31, 2017 and June 30, 2017		3,904			3,870			3,870
Additional paid-in capital		53,098			51,108			51,085
Retained earnings		93,717			89,982			86,170
Accumulated other comprehensive loss		(5,357	)		(3,398	)		(969	)
Treasury stock, at cost:  391,559 at June 30, 2018; 383,065 shares at December 31, 2017
and 380,775 shares at June 30, 2017		(13,081	)		(12,551	)		(12,386	)
TOTAL STOCKHOLDERS' EQUITY		132,281			129,011			127,770
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY	$	1,397,594		$	1,361,886		$	1,264,856

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CITIZENS FINANCIAL SERVICES, INC.
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
	Three Months Ended				Six Months Ended
	June 30,				June 30,
(in thousands, except per share data)	2018		2017		2018		2017
INTEREST INCOME:
Interest and fees on loans	$	12,461	$	10,304	$	24,322	$	20,021
Interest-bearing deposits with banks		66		45		124		80
Investment securities:
Taxable		916		775		1,716		1,579
Nontaxable		474		601		1,001		1,269
Dividends		111		53		248		129
TOTAL INTEREST INCOME		14,028		11,778		27,411		23,078
INTEREST EXPENSE:
Deposits		1,585		1,143		2,901		2,188
Borrowed funds		692		231		1,339		489
TOTAL INTEREST EXPENSE		2,277		1,374		4,240		2,677
NET INTEREST INCOME		11,751		10,404		23,171		20,401
Provision for loan losses		325		625		825		1,240
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES		11,426		9,779		22,346		19,161
NON-INTEREST INCOME:
Service charges		1,170		1,120		2,274		2,178
Trust		150		188		401		409
Brokerage and insurance		168		114		349		305
Gains on loans sold		60		148		132		249
Equity security gains, net		7		-		13		-
Available for sale security gains, net		-		23		-		195
Earnings on bank owned life insurance		155		167		307		333
Other		132		128		272		254
TOTAL NON-INTEREST INCOME		1,842		1,888		3,748		3,923
NON-INTEREST EXPENSES:
Salaries and employee benefits		4,737		4,377		9,572		8,743
Occupancy		514		477		1,106		1,004
Furniture and equipment		122		146		264		285
Professional fees		262		258		557		568
FDIC insurance		107		95		207		200
Pennsylvania shares tax		300		243		600		524
Amortization of intangibles		74		73		150		149
ORE expenses		157		82		295		172
Other		1,429		1,415		2,783		2,712
TOTAL NON-INTEREST EXPENSES		7,702		7,166		15,534		14,357
Income before provision for income taxes		5,566		4,501		10,560		8,727
Provision for income taxes		875		1,033		1,622		1,956
NET INCOME	$	4,691	$	3,468	$	8,938	$	6,771
PER COMMON SHARE DATA:
Net Income - Basic	$	1.34	$	0.99	$	2.55	$	1.93
Net Income - Diluted	$	1.34	$	0.99	$	2.55	$	1.93
Cash Dividends Paid	$	0.435	$	0.401	$	0.870	$	0.802
Number of shares used in computation - basic		3,507,242		3,514,394		3,509,882		3,513,925
Number of shares used in computation - diluted		3,508,709		3,515,582		3,510,513		3,514,535

1

CITIZENS FINANCIAL SERVICES, INC.
QUARTERLY CONDENSED, CONSOLIDATED INCOME STATEMENT INFORMATION
(UNAUDITED)
(in thousands, except per share data)			Three Months Ended,
	June 30,		March 31,		Dec 31		Sep 30		June 30
	2018		2018		2017		2017		2017
Interest income	$	14,028	$	13,383	$	12,895	$	12,120	$	11,778
Interest expense		2,277		1,963		1,659		1,503		1,374
Net interest income		11,751		11,420		11,236		10,617		10,404
Provision for loan losses		325		500		800		500		625
Net interest income after provision for loan losses		11,426		10,920		10,436		10,117		9,779
Non-interest income		1,838		1,900		1,981		1,912		1,865
Investment securities gains, net		4		6		831		9		23
Non-interest expenses		7,702		7,832		7,710		7,247		7,166
Income before provision for income taxes		5,566		4,994		5,538		4,791		4,501
Provision for income taxes		875		747		2,934		1,141		1,033
Net income	$	4,691	$	4,247	$	2,604	$	3,650	$	3,468
Earnings Per Share Basic	$	1.34	$	1.21	$	0.74	$	1.04	$	0.99
Earnings Per Share Diluted	$	1.34	$	1.21	$	0.74	$	1.04	$	0.99

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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 June 30,
	2018							2017
	Average				Average			Average				Average
	Balance (1)		Interest		Rate			Balance (1)		Interest		Rate
(dollars in thousands)	$				$	%		$				$	%
ASSETS
Interest-bearing deposits at banks		9,112		4		0.18			10,552		7		0.23
Interest bearing time deposits at banks		11,191		62		2.19			7,374		38		2.03
Investment securities		249,206		1,628		2.61			271,218		1,737		2.56
Loans:
Residential mortgage loans		214,932		2,814		5.25			206,057		2,657		5.17
Construction loans		23,349		273		4.69			26,258		269		4.12
Commercial Loans		391,935		5,197		5.32			327,924		4,326		5.29
Agricultural Loans		298,266		3,286		4.42			200,865		2,153		4.30
Loans to state & political subdivisions		99,301		873		3.53			96,461		1,014		4.22
Other loans		9,494		184		7.82			10,294		206		8.03
Loans, net of discount (2)(3)(4)		1,037,277		12,627		4.88			867,859		10,625		4.91
Total interest-earning assets		1,306,786		14,321		4.40			1,157,003		12,407		4.30
Cash and due from banks		6,529							6,538
Bank premises and equipment		16,356							16,888
Other assets		65,473							62,907
Total non-interest earning assets		88,358							86,333
Total assets		1,395,144							1,243,336
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
NOW accounts		330,550		404		0.49			328,055		294		0.36
Savings accounts		189,457		51		0.11			180,042		47		0.10
Money market accounts		160,719		365		0.91			128,931		160		0.50
Certificates of deposit		268,526		765		1.14			261,368		642		0.98
Total interest-bearing deposits		949,252		1,585		0.67			898,396		1,143		0.51
Other borrowed funds		125,815		692		2.21			45,969		231		2.02
Total interest-bearing liabilities		1,075,067		2,277		0.85			944,365		1,374		0.58
Demand deposits		170,287							155,724
Other liabilities		12,617							14,820
Total non-interest-bearing liabilities		182,904							170,544
Stockholders' equity		137,173							128,427
Total liabilities & stockholders' equity		1,395,144							1,243,336
Net interest income				12,044							11,033
Net interest spread (5)						3.55	%						3.72	%
Net interest income as a percentage
of average interest-earning assets						3.70	%						3.82	%
Ratio of interest-earning assets
to interest-bearing liabilities						122	%						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 2018 and 34% for 2017.
(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.

	Three Months Ended
	June 30,
Reconciliation of net interest income on fully taxable equivalent basis	2018		2017
Total interest income	$	14,028	$	11,778
Total interest expense		2,277		1,374
Net interest income		11,751		10,404
Tax equivalent adjustment		293		629
Net interest income (fully taxable equivalent)	$	12,044	$	11,033

3

CITIZENS FINANCIAL SERVICES, INC.
CONSOLIDATED AVERAGE BALANCES, INTEREST, YIELDS AND RATES, AND NET INTEREST MARGIN ON A FULLY TAX-EQUIVALENT BASIS
(UNAUDITED)
	Six Months Ended June 30,
	2018							2017
	Average				Average			Average				Average
	Balance (1)		Interest		Rate			Balance (1)		Interest		Rate
(dollars in thousands)	$				$	%		$				$	%
ASSETS
Interest-bearing deposits at banks		8,609		9		0.21			9,106		9		0.20
Interest bearing time deposits at banks		10,753		115		2.16			7,123		71		2.01
Investment securities		259,425		3,232		2.49			289,807		3,630		2.51
Loans, net of discount (2)(3)(4)		1,027,778		24,667		4.84			847,600		20,664		4.92
Total interest-earning assets		1,306,565		28,023		4.33			1,153,636		24,374		4.26
Cash and due from banks		6,717							6,604
Bank premises and equipment		16,418							16,947
Other assets		54,590							55,850
Total non-interest earning assets		77,725							79,401
Total assets		1,384,290							1,233,037
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
NOW accounts		328,256		733		0.45			319,387		534		0.34
Savings accounts		187,361		101		0.11			177,746		92		0.10
Money market accounts		153,345		610		0.80			122,943		290		0.48
Certificates of deposit		267,407		1,457		1.10			261,942		1,272		0.98
Total interest-bearing deposits		936,369		2,901		0.62			882,018		2,188		0.50
Other borrowed funds		132,179		1,339		2.04			57,348		489		1.72
Total interest-bearing liabilities		1,068,548		4,240		0.80			939,366		2,677		0.57
Demand deposits		167,255							151,396
Other liabilities		12,577							14,846
Total non-interest-bearing liabilities		179,832							166,242
Stockholders' equity		135,910							127,429
Total liabilities & stockholders' equity		1,384,290							1,233,037
Net interest income				23,783							21,697
Net interest spread (5)						3.53	%						3.69	%
Net interest income as a percentage
of average interest-earning assets						3.67	%						3.79	%
Ratio of interest-earning assets
to interest-bearing liabilities						122	%						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 2018 and 34% for 2017.
(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.

	Six Months Ended
	June 30,
Reconciliation of net interest income on fully taxable equivalent basis	2018		2017
Total interest income	$	27,411	$	23,078
Total interest expense		4,240		2,677
Net interest income		23,171		20,401
Tax equivalent adjustment		612		1,296
Net interest income (fully taxable equivalent)	$	23,783	$	21,697

4

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)
	June 30,			March 31,			December 31,			September 30,			June 30,
	2018			2018			2017			2017			2017
Real estate:
Residential	$	213,242		$	215,349		$	214,479		$	206,389		$	205,725
Commercial		309,571			320,381			308,084			273,624			271,342
Agricultural		262,691			248,710			239,957			207,052			188,547
Construction		27,901			22,239			13,502			17,074			25,569
Consumer		9,740			9,672			9,944			10,784			10,603
Other commercial loans		75,002			74,930			72,013			56,222			56,952
Other agricultural loans		42,131			40,396			37,809			34,066			32,974
State & political subdivision loans		99,922			100,061			104,737			101,951			96,337
Total loans		1,040,200			1,031,738			1,000,525			907,162			888,049
Less allowance for loan losses		11,941			11,587			11,190			10,447			9,979
Net loans	$	1,028,259		$	1,020,151		$	989,335		$	896,715		$	878,070
Past due and non-performing assets
Total Loans past due 30-89 days and still accruing	$	5,143		$	5,660		$	3,489		$	3,360		$	2,927
Non-accrual loans	$	10,931		$	11,433		$	10,171		$	11,821		$	11,511
Loans past due 90 days or more and accruing		1,046			429			555			173			812
Non-performing loans	$	11,977		$	11,862		$	10,726		$	11,994		$	12,323
OREO		471			952			1,119			1,570			1,194
Total Non-performing assets	$	12,448		$	12,814		$	11,845		$	13,564		$	13,517
	3 Months			3 Months			3 Months			3 Months			3 Months
	Ended			Ended			Ended			Ended			Ended
Analysis of the Allowance for loan Losses	June 30,			March 31,			December 31,			September 30,			June 30,
(In Thousands)		2018			2018			2017			2017			2017
Balance, beginning of period	$	11,587		$	11,190		$	10,447		$	9,979		$	9,405
Charge-offs		(61	)		(116	)		(73	)		(56	)		(65	)
Recoveries		90			13			16			24			14
Net (charge-offs) recoveries		29			(103	)		(57	)		(32	)		(51	)
Provision for loan losses		325			500			800			500			625
Balance, end of period	$	11,941		$	11,587		$	11,190		$	10,447		$	9,979

5

CITIZENS FINANCIAL SERVICES, INC.
Reconciliation of GAAP and Non-GAAP Financial Measures
(Dollars in thousands, except per share data)
	As of
	June 30,
	2018			2017
Tangible Equity
Stockholders Equity - GAAP	$	132,281		$	127,770
Accumulated other comprehensive loss		(5,357	)		(969	)
Intangible Assets		25,052			23,034
Non-GAAP Total Tangible Book Value		112,586			105,705
Shares outstanding adjusted for June 2018 stock Dividend		3,512,653			3,523,437
Tangible Book value per share		32.05			30.00

6