8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C., 20549

FORM 8-K

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Date of Report (Date of earliest event reported) October 20, 2006

CITIZENS FINANCIAL SERVICES, INC.

Pennsylvania	0-13222	23-2265045
(State or other jurisdiction of incorporation)	(Commission File Number)	(I.R.S. Employer Identification Number)
15 South Main Street, Mansfield, PA		16933
(Address of Principal Executive Office)		(Zip Code)
Registrant’s telephone number, including area code:		(570) 662-2121
N/A
(Former name or former address, if changes since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

ITEM 2.02 RESULTS OF OPERATIONS AND FINANCIAL CONDITION.

Randall E. Black, Chief Executive Officer, recently announced the consolidated financial results from Citizens Financial Services, Inc. and Subsidiaries for the third quarter 2006.

On October 20, 2006, Citizens Financial Services, Inc. issued a press release titled “Citizens Financial Services, Inc. Reports Record Third Quarter 2006 Earnings”, attached as Exhibit 99.1 to this Current Report on Form 8-K and incorporated herein by reference. The information furnished under Item 2.02 of this Current Report on an 8-K shall not be deemed “filed” for any purpose.

ITEM 9.01 FINANCIAL STATEMENTS AND EXHIBITS.

(c) Exhibits.

Exhibit Number	Description
99.1	Press Release issued by Citizens Financial services, Inc. on October 20, 2006, titled “Citizens Financial Services, Inc. Reports Record Third Quarter 2006 Earnings”.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Current Report on Form 8-K to be signed on its behalf by the undersigned, thereunto duly authorized.

	CITIZENS FINANCIAL SERVICES, INC.
Date: October 20, 2005	By:	/s/ Mickey L. Jones
		Title:  Chief Financial Officer

EX-99

Exhibit 99.1

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

Citizens Financial Services, Inc. Reports Record Third Quarter 2006 Earnings

MANSFIELD, PENNSYLVANIA—October 20, 2006 - Citizens Financial Services, Incorporated (OTC BB: CZFS), parent company of First Citizens National Bank, has released its unaudited financial performance for the third quarter of 2006.

Net income for the three months ended September 30, 2006 was $1,548,000, which compares to $1,318,000 for the same period last year. This represents an increase of 17.5%. On a year to date basis, net income was $4,310,000 compared with $3,898,000 last year, an increase of 10.6%. Earnings per share for the year are $1.51 compared with $1.35 for the first nine months of 2005, representing an increase of 11.9%.

CEO and President Randall E. Black stated, “the current banking environment continues to remain a difficult and challenging one. Despite the recent pause in the Federal Reserve’s monetary tightening policy during the second quarter, which has occurred steadily during the last two years, the sustained flat yield curve remains in effect. This has impacted our net interest margin as well as most financial institutions across the country and within our local service area.”

Return on equity for the nine months ended September 30, 2006 and 2005 was 13.18% and 12.53%, respectively. For the three months ended September 30, 2006, return on equity was 14.03% compared with 12.55% for the same period in 2005. Mr. Black noted, “these results reflect our continued focus on managing our administrative costs and the implementation of tax planning strategies using tax-exempt investments and loans. In fact, our non-interest expenses for the nine months ended September 30, 2006 totaled $11,326,000 compared with $11,506,000 for 2005, a decrease of $180,000. For that same period, the provision for income taxes has decreased $245,000 even though income before taxes has increased $167,000.”

Since September of last year, total assets have increased $51.1 million, or 10.0%. At the end of September, total assets were $560.7 million compared to $509.6 million last September. Net loans have increased $35.9 million since last September, an increase of 9.7%. Deposits have increased $17.5 million and borrowed funds have increased $31.5 million to fund the overall growth in assets.

Stockholders’ Equity, excluding accumulated other comprehensive income, has increased $2.3 million, or 5.4% since last September. Book value per share at September 30, 2006 was $15.76 compared with $14.87 last year, an increase of 6.0%. In September, a cash dividend of $.22 per share was declared and will be paid to shareholders on October 27, 2006 to record holders as of October 13, 2006. This represents an increase of 4.8% over 2005’s quarterly dividend.

Mr. Black also noted that “as planned, the construction of our new branch in Wellsville, New York is nearly completed and will be open for business on October 30, 2006. We continue to be optimistic about our potential to grow our bank in New York.”

Citizens Financial Services, Inc., has over 1,500 shareholders, the majority of whom reside in Potter, Tioga, and Bradford Counties, Pennsylvania and Allegany County, New York, where their 16 offices are located.

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.

CITIZENS FINANCIAL SERVICES, INC.
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
	September 30			December 31			September 30
(in thousands except share data)	2006			2005			2005
ASSETS:
Cash and due from banks:
Noninterest-bearing	$	9,616		$	8,498		$	7,868
Interest-bearing		26			111			540
Total cash and cash equivalents		9,642			8,609			8,408
Available-for-sale securities		103,301			102,602			90,512
Loans (net of allowance for loan losses:		407,769			379,139			371,852
2006, $3,841; December 31, 2005, $3,664; and September 30, 2005, $3,666)
Premises and equipment		12,574			12,305			12,316
Accrued interest receivable		2,407			2,164			2,037
Goodwill		8,605			8,605			8,605
Bank owned life insurance		7,967			7,743			7,669
Other assets		8,389			8,074			8,184
TOTAL ASSETS	$	560,654		$	529,241		$	509,583
LIABILITIES:
Deposits:
Noninterest-bearing	$	49,741		$	50,600		$	52,246
Interest-bearing		398,418			379,199			378,436
Total deposits		448,159			429,799			430,682
Borrowed funds		64,295			52,674			32,814
Accrued interest payable		1,994			1,862			1,627
Commitment to purchase investments		-			752			300
Other liabilities		2,628			2,593			2,718
TOTAL LIABILITIES		517,076			487,680			468,141
STOCKHOLDERS' EQUITY:
Common Stock
$1.00 par value; authorized 10,000,000 shares; issued
2,992,896 shares in 2006 and 2,965,257 in 2005, respectively		2,993			2,965			2,965
Additional paid-in capital		11,933			11,359			11,359
Retained earnings		33,140			31,251			30,472
TOTAL		48,066			45,575			44,796
Accumulated other comprehensive loss		(1,018	)		(1,540	)		(880	)
Less: Treasury Stock, at cost 162,674 shares for
2006 and 118,715 for 2005, respectively		(3,470	)		(2,474	)		(2,474	)
TOTAL STOCKHOLDERS' EQUITY		43,578			41,561			41,442
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY	$	560,654		$	529,241		$	509,583

CITIZENS FINANCIAL SERVICES, INC.
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
	Three Months Ended				Nine Months Ended
	September 30,				September 30,
(in thousands, except per share data)	2006		2005		2006		2005
INTEREST INCOME:
Interest and fees on loans	$	7,226	$	6,362	$	20,639	$	18,386
Interest-bearing deposits with banks		-		3		-		2
Investment securities:
Taxable		851		698		2,549		2,240
Nontaxable		232		153		679		394
Dividends		74		50		223		156
TOTAL INTEREST INCOME		8,383		7,266		24,090		21,178
INTEREST EXPENSE:
Deposits		3,067		2,416		8,390		6,840
Borrowed funds		849		383		2,388		1,140
TOTAL INTEREST EXPENSE		3,916		2,799		10,778		7,980
NET INTEREST INCOME		4,467		4,467		13,312		13,198
Provision for loan losses		105		30		225		30
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES		4,362		4,437		13,087		13,168
NON-INTEREST INCOME:
Service charges		827		784		2,342		2,203
Trust		135		161		372		368
Brokerage		45		45		142		138
Insurance		32		61		88		205
Investment securities gains, net		5		-		4		-
Earnings on bank owned life insurance		78		71		224		220
Other		91		109		364		334
TOTAL NON-INTEREST INCOME		1,213		1,231		3,536		3,468
NON-INTEREST EXPENSES:
Salaries and employee benefits		2,055		1,993		6,078		5,888
Occupancy		261		262		845		846
Furniture and equipment		146		156		442		491
Professional fees		125		132		371		408
Amortization		36		145		216		434
Other		1,075		1,133		3,374		3,439
TOTAL NON-INTEREST EXPENSES		3,698		3,821		11,326		11,506
Income before provision for income taxes		1,877		1,847		5,297		5,130
Provision for income taxes		329		529		987		1,232
NET INCOME	$	1,548	$	1,318	$	4,310	$	3,898
Earnings Per Share	$	0.55	$	0.46	$	1.51	$	1.35
Cash Dividends Paid Per Share	$	0.215	$	0.205	$	0.640	$	0.580
Weighted average number of shares outstanding		2,835,763		2,874,181		2,850,211		2,887,619

FINANCIAL HIGHLIGHTS
(UNAUDITED - IN THOUSANDS, EXCEPT PER SHARE AND RATIO DATA)
	2006			2005
Nine Months Ended Sepetember 30
Net Income	$	4,310		$	3,898
Comprehensive Income		4,833			2,855
Per common share data:
Earnings per share	$	1.51		$	1.35
Cash dividends paid per share	$	0.64		$	0.61
Performance Ratios:
Return on average assets (annualized)		1.06	%		1.03	%
Return on average equity (annualized)		13.18	%		12.53	%
Three Months Ended September 30
Net Income	$	1,548		$	1,318
Per common share data:
Earnings per share	$	0.55		$	0.46
Cash dividends paid per share	$	0.215		$	0.205
Performance Ratios:
Return on average assets (annualized)		1.12	%		1.03	%
Return on average equity (annualized)		14.03	%		12.55	%
At September 30
Assets	$	560,654		$	509,583
Investment securities:
Available for sale		103,301			90,512
Loans (net of unearned income)		411,610			375,518
Allowance for loan losses		3,841			3,666
Deposits		448,159			430,682
Stockholders' Equity		43,578			41,442
Non-performing assets		2,954			2,857
Average Leverage Ratio		7.91	%		8.03	%
Per common share data:
Book value	$	15.76		$	14.87
Market value (average of bid/ask price)	$	22.50		$	20.30
Market price to book value ratio		142.79	%		136.53	%

					Cash Dividends
Common Stock Information:	Bid		Ask		Paid
Quarter Ended:
September 30, 2006	$	22.00	$	23.00	$	0.215
June 30, 2006	$	21.60	$	23.00	$	0.215
March 31, 2006	$	21.35	$	23.25	$	0.210
December 31, 2005	$	20.80	$	21.00	$	0.210
September 30, 2005	$	20.10	$	20.50	$	0.205
June 30, 2005	$	21.00	$	21.70	$	0.205
March 31, 2005	$	23.50	$	24.25	$	0.200
December 31, 2004	$	23.65	$	24.00	$	0.200