10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

Form 10-Q

☒Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

for the quarterly period ended March 31, 2019

or

◻Transition report pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934

for the transition period from

001-36388

(Commission File Number)

PEOPLES FINANCIAL SERVICES CORP.

(Exact name of registrant as specified in its charter)

Pennsylvania	23-2391852
(State of incorporation)	(IRS Employer ID Number)
150 North Washington Avenue, Scranton, PA	18503
(Address of principal executive offices)	(Zip code)

(570) 346-7741

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class:	Trading Symbol	Name of each exchange on which registered:
Common stock, $2.00 par value	PFIS	The Nasdaq Stock Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ◻ 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  ◻ 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	◻	Accelerated filer	☒
Non-accelerated filer	◻	Smaller reporting company	◻
Emerging growth company	◻		

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ◻

Indicate by check mark whether the registrant is a shell company as defined in Rule 12b-2 of the Exchange Act.    Yes  ◻    No  ☒ 

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of the registrant’s common stock, as of the latest practicable date: 7,399,054 at April 30, 2019.

PEOPLES FINANCIAL SERVICES CORP.

FORM 10-Q

For the Quarter Ended March 31, 2019

Contents		Page No.
PART I.	FINANCIAL INFORMATION:
Item 1.	Financial Statements
	Consolidated Balance Sheets at March 31, 2019 (Unaudited) and December 31, 2018	3
	Consolidated Statements of Income and Comprehensive Income for the Three Months ended March 31, 2019 and 2018 (Unaudited)	4
	Consolidated Statements of Changes in Stockholders’ Equity for the Three Months ended March 31, 2019 and 2018 (Unaudited)	5
	Consolidated Statements of Cash Flows for the Three Months ended March 31, 2019 and 2018 (Unaudited)	6
	Notes to Consolidated Financial Statements (Unaudited)	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	32
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	45
Item 4.	Controls and Procedures	46
PART II	OTHER INFORMATION
Item 1.	Legal Proceedings	47
Item 1A.	Risk Factors	47
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	47
Item 3.	Defaults upon Senior Securities	47
Item 4.	Mine Safety Disclosures	47
Item 5.	Other Information	47
Item 6.	Exhibits	48
	Signatures	48

2

Peoples Financial Services Corp.

CONSOLIDATED BALANCE SHEETS 

(Dollars in thousands, except share data)

	March 31, 2019		December 31, 2018
Assets:
Cash and due from banks:
Cash and due from banks	$	24,364	$	32,569
Interest-bearing deposits in other banks		1,688		47
Total cash and due from banks		26,052		32,616
Investment securities:
Available-for-sale		270,384		269,682
Equity investments carried at fair value		292		291
Held-to-maturity: Fair value March 31, 2019, $8,310; December 31, 2018, $8,380		8,162		8,361
Total investment securities		278,838		278,334
Loans, net		1,849,602		1,823,266
Less: allowance for loan losses		22,105		21,379
Net loans		1,827,497		1,801,887
Loans held for sale				749
Premises and equipment, net		44,728		38,889
Accrued interest receivable		7,211		7,115
Goodwill		63,370		63,370
Intangible assets, net		2,104		2,296
Other assets		68,144		63,737
Total assets	$	2,317,944	$	2,288,993
Liabilities:
Deposits:
Noninterest-bearing	$	432,830	$	410,260
Interest-bearing		1,435,400		1,464,762
Total deposits		1,868,230		1,875,022
Short-term borrowings		109,000		86,500
Long-term debt		37,446		37,906
Accrued interest payable		878		1,195
Other liabilities		17,821		9,756
Total liabilities		2,033,375		2,010,379
Stockholders’ equity:
Common stock, par value $2.00, authorized 25,000,000 shares, issued and outstanding 7,399,054 shares at March 31, 2019 and December 31, 2018		14,798		14,798
Capital surplus		135,393		135,310
Retained earnings		140,478		136,582
Accumulated other comprehensive loss		(6,100)		(8,076)
Total stockholders’ equity		284,569		278,614
Total liabilities and stockholders’ equity	$	2,317,944	$	2,288,993

See notes to unaudited consolidated financial statements

3

Peoples Financial Services Corp.

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (UNAUDITED)

(Dollars in thousands, except per share data)

For the Three Months Ended March 31,	2019		2018
Interest income:
Interest and fees on loans:
Taxable	$	20,103	$	17,509
Tax-exempt		1,099		870
Interest and dividends on investment securities:
Taxable		1,010		858
Tax-exempt		562		701
Dividends		19		16
Interest on interest-bearing deposits in other banks		8		40
Total interest income		22,801		19,994
Interest expense:
Interest on deposits		3,411		1,834
Interest on short-term borrowings		813		667
Interest on long-term debt		280		306
Total interest expense		4,504		2,807
Net interest income		18,297		17,187
Provision for loan losses		1,050		1,050
Net interest income after provision for loan losses		17,247		16,137
Noninterest income:
Service charges, fees and commissions		1,999		2,088
Merchant services income		198		250
Commission and fees on fiduciary activities		507		497
Wealth management income		377		411
Mortgage banking income		148		147
Life insurance investment income		186		187
Net gains on investment securities		1		(8)
Total noninterest income		3,416		3,572
Noninterest expense:
Salaries and employee benefits expense		7,595		6,955
Net occupancy and equipment expense		2,961		2,814
Amortization of intangible assets		192		230
Professional fees and outside services		331		623
FDIC insurance and assessments		259		286
Donations		332		313
Other expenses		1,820		1,860
Total noninterest expense		13,490		13,081
Income before income taxes		7,173		6,628
Income tax expense		761		774
Net income		6,412		5,854
Other comprehensive income (loss):
Unrealized gain (loss) on investment securities available-for-sale		2,439		(2,376)
Change in derivative fair value		63
Other comprehensive gain (loss)		2,502		(2,376)
Income tax expense (benefit)		526		(501)
Other comprehensive income (loss), net of income taxes		1,976		(1,875)
Comprehensive income	$	8,388	$	3,979
Per share data:
Net income:
Basic	$	0.87	$	0.79
Diluted	$	0.87	$	0.79
Average common shares outstanding:
Basic		7,399,054		7,396,505
Diluted		7,399,054		7,396,505
Dividends declared		0.34		0.32

See notes to unaudited consolidated financial statements

4

Peoples Financial Services Corp.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED)

(Dollars in thousands, except per share data)

							Accumulated
							Other
	Common		Capital		Retained		Comprehensive
	Stock		Surplus		Earnings		Income (Loss)		Total
Balance, January 1, 2019	$	14,798	$	135,310	$	136,582	$	(8,076)	$	278,614
Stock based compensation				83						83
Net income						6,412				6,412
Other comprehensive income, net of income taxes								1,976		1,976
Dividends declared: $0.34 per share						(2,516)				(2,516)
Balance, March 31, 2019	$	14,798	$	135,393	$	140,478	$	(6,100)	$	284,569
Balance, January 1, 2018	$	14,793	$	135,043	$	121,353	$	(6,213)	$	264,976
Stock based compensation				37						37
Net income						5,854				5,854
Other comprehensive loss, net of income taxes								(1,875)		(1,875)
Dividends declared: $0.32 per share						(2,368)				(2,368)
Reclassification related to adoption of ASU 2016-01						2		(2)
Balance, March 31, 2018	$	14,793	$	135,080	$	124,841	$	(8,090)	$	266,624

See notes to unaudited consolidated financial statements

5

Peoples Financial Services Corp.

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(Dollars in thousands, except per share data)

For the Three Months Ended March 31,	2019		2018
Cash flows from operating activities:
Net income	$	6,412	$	5,854
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation of premises and equipment		596		538
Amortization of right-of-use lease asset		92
Amortization of deferred loan costs		(107)		234
Amortization of intangibles		192		230
Amortization of low income housing partnerships		119		116
Provision for loan losses		1,050		1,050
Net unrealized (gain) loss on equity investment securities		(1)		8
Net loss (gain) on sale of other real estate owned		8		(11)
Loans originated for sale		(1,501)		(2,608)
Proceeds from sale of loans originated for sale		2,278		2,729
Net gain on sale of loans originated for sale		(28)		(15)
Net amortization of investment securities		474		623
Life insurance investment income		(186)		(187)
Stock based compensation		83		37
Net change in:
Accrued interest receivable		(96)		454
Other assets		(3,823)		517
Accrued interest payable		(317)		21
Other liabilities		2,545		295
Net cash provided by operating activities		7,790		9,885
Cash flows from investing activities:
Proceeds from repayments of investment securities:
Available-for-sale		14,287		7,919
Held-to-maturity		196		242
Purchases of investment securities:
Available-for-sale		(13,021)		(9,941)
Net purchase of restricted equity securities		(964)		(1,669)
Net increase in lending activities		(26,629)		(33,730)
Purchases of premises and equipment		(1,062)		(492)
Proceeds from the sale of premises and equipment		23
Proceeds from sale of other real estate owned		84		83
Net cash used in investing activities		(27,086)		(37,588)
Cash flows from financing activities:
Net (decrease) increase in deposits		(6,792)		1,000
Repayment of long-term debt		(460)		(469)
Net increase in short-term borrowings		22,500		18,825
Cash dividends paid		(2,516)		(2,366)
Net cash provided by financing activities		12,732		16,990
Net decrease in cash and cash equivalents		(6,564)		(10,713)
Cash and cash equivalents at beginning of period		32,616		37,488
Cash and cash equivalents at end of period	$	26,052	$	26,775

6

Peoples Financial Services Corp.

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(Dollars in thousands, except per share data)

For the Three Months Ended March 31,	2019		2018
Supplemental disclosures:
Cash paid during the period for:
Interest	$	4,821	$	2,786
Income taxes		1,100		1,800
Noncash items:
Transfers of loans to other real estate	$	85	$	495
Initial recognition of right-of-use assets		5,513
Initial recognition of lease liability		5,513

See notes to unaudited consolidated financial statements

7

Peoples Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

1. Summary of significant accounting policies:

Nature of operations:

Peoples Financial Services Corp., a bank holding company incorporated under the laws of Pennsylvania, provides a full range of financial services through its wholly-owned subsidiary, Peoples Security Bank and Trust Company (“Peoples Bank”). Unless the context indicates otherwise, all references in this quarterly report to the “Peoples”, “Company”, “Bank”, “we”, “us” and “our” refer to Peoples Financial Services Corp., its subsidiaries and its and their respective predecessors. The Company services its retail and commercial customers through twenty-seven full-service community banking offices located within the Lackawanna, Lehigh, Luzerne, Monroe, Montgomery, Northampton, Susquehanna, Wayne and Wyoming Counties of Pennsylvania and Broome County of New York.

Basis of presentation:

The accompanying unaudited consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10-01 of Regulation S-X. In the opinion of management, all normal recurring adjustments necessary for a fair presentation of the consolidated financial position and results of operations for the periods presented have been included. All significant intercompany balances and transactions have been eliminated in consolidation. Prior-period amounts are reclassified when necessary to conform to the current year’s presentation. These reclassifications did not have any effect on the consolidated operating results or financial position of the Company. The consolidated operating results and financial position of the Company for the three months ended and as of March 31, 2019, are not necessarily indicative of the results of consolidated operations and financial position that may be expected in the future.

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates that are particularly susceptible to material change in the near term relate to the determination of the allowance for loan losses, fair value of financial instruments, the valuation of real estate acquired in connection with foreclosures or in satisfaction of loans, the valuation of deferred tax assets, determination of other-than-temporary impairment losses on securities, impairment of goodwill and fair value of assets acquired and liabilities assumed in business combinations. Actual results could differ from those estimates. For additional information and disclosures required under GAAP, reference is made to the Company’s Annual Report on Form 10-K for the period ended December 31, 2018.

Recent accounting standards: .

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, “Leases”.  From the lessees’s perspective, the new standard establishes a right-of-use (“ROU”) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months.  The ROU asset and lease liability are calculated based on the present value of future lease payments using an estimated incremental borrowing rate.  The Company utilized the incremental borrowing rate of interest on a collateralized basis for the lease term as quoted by the Federal Home Bank of Pittsburgh.

Leases are classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement for a lessee.  From the lessor’s perspective, the new standard requires a lessor to classify leases as either sales-type, finance or operating.  A lease is treated as a sale if it transfers all of the risks and rewards, as well as control of the underlying asset, to the lessee.  If risks and rewards are conveyed without the transfer of control, the lease is treated as a financing.  If the lessor doesn’t convey risks and rewards or control, an operating lease results.  The amendments in this ASU are effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2018.

8

Peoples Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

The new standard provides a number of optional practical expedients in transition. We have elected the "package of practical expedients," which permit us not to reassess under the new standard our prior conclusions about lease identification, lease classification and initial direct costs. We elected the "use-of-hindsight" practical expedient which allows us to use hindsight in judgments that impact the lease term. In order to establish the value of the ROU and lease liability and in accordance with the guidance, management determined the term of the leases held by carefully evaluating and assessing each lease and applying economic and other relevant factors to determine whether the Company is reasonably certain to exercise or not to exercise a renewal option within each lease. We have also elected an accounting policy not to restate comparative periods upon adoption. The Company elected to adopt this pronouncement using the optional transition method under ASU 2018-11 as of January 1, 2019 and recorded right-of-use assets and lease liabilities for operating leases of $5,513 on its consolidated balance sheets, with no adjustment to stockholders’ equity and no material impact to its consolidated statements of income and comprehensive income.

In July 2018, the FASB issued ASU No. 2018-11, “Leases - Targeted Improvements” to provide entities with relief from the costs of implementing certain aspects of the new leasing standard, ASU No. 2016-02. Specifically, under the amendments in ASU 2018-11: (1) entities may elect not to recast the comparative periods presented when transitioning to the new leasing standard, and (2) lessors may elect not to separate lease and non-lease components when certain conditions are met. The amendments were adopted on January 1, 2019 and did not have a material impact on the Company’s consolidated financial statements.

In March 2019, the FASB issued ASU 2019-01, “Leases (Topic 842) Codification Improvements” which was issued to address lessors’ concerns about determining fair value of underlying leased assets and presentation issues in the statement of cash flows for sales-type and direct financing leases. ASU 2019-01 also clarified for both lessees and lessors that transition disclosures related to Topic 250 were not required for annual periods are also not required for interim periods. ASU 2019-01 was effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2019, with early adoption permitted. The Company early adopted this ASU 2019-01 effective January 1, 2019 and it did not have a material impact on the Company’s consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” This ASU will have a significant impact on the Company’s calculation and accounting for its allowance for loan losses as well as credit losses related to investment securities available-for-sale. A summary of significant provisions of this ASU is as follows:

	The ASU requires that a financial asset (or a group of financial assets) measured at amortized cost basis be presented, net of a valuation allowance for credit losses, at an amount expected to be collected on the financial asset(s), and that the income statement include the measurement of credit losses for newly recognized financial assets as well as changes in expected losses on previously recognized financial assets. The provisions of this ASU require measurement of expected credit losses based on relevant information including past events, historical experience, current conditions, and reasonable and supportive forecasts that affect the collectability of the asset. The provisions of this ASU differ from current GAAP in that current GAAP generally delays recognition of the full amount of credit losses until the loss is probable of occurring.
	The amendments in the ASU retain many of the disclosure requirements related to credit quality in current  GAAP, updated to reflect the change from an incurred loss methodology to an expected credit loss methodology. In addition, the ASU requires that disclosure of credit quality indicators in relation to the amortized cost of financing receivables, a current requirement, be further disaggregated by year of origination.
	This ASU requires that credit losses on available-for-sale debt securities be presented as an allowance rather than as a write-down, and limits the amount of the allowance for credit losses to the amount by which the fair value is below amortized cost. For purchased investment securities available-for-sale with a more-than-insignificant
	amount of credit deterioration since origination, the ASU requires an allowance be determined in a manner similar to other investment securities available-for-sale; however, the initial allowance would be added to the purchase price, with only subsequent changes in the allowance recorded in credit loss expense, and interest income recognized at the effective rate excluding the discount embedded in the purchase price related to estimated credit losses at acquisition.

9

Peoples Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

 This ASU will be effective for the Company for interim and annual periods beginning in the first quarter of 2020. Earlier adoption is permitted beginning in the first quarter of 2019. The Company will record the effect of implementing this ASU through a cumulative-effect adjustment through retained earnings as of the beginning of the reporting period in which Topic 326 is effective.

We are evaluating the impact of the ASU on our consolidated financial statements. In addition to our allowance for loan losses, we will also record an allowance for credit losses on debt securities instead of applying the impairment model currently utilized. The amount of the adjustments will be impacted by each portfolio’s composition and credit quality at the adoption date as well as economic conditions and forecasts at that time.

In August 2018, the FASB issued ASU 2018-13 Fair Value Measurement (Topic 820): “Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement” modifies the disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement, based on the FASB Concepts Statement, “Conceptual Framework for Financial Reporting – Chapter 8: Notes to Financial Statements”. In accordance with the Concepts Statement, this ASU removes, modifies and adds select disclosure requirements under Topic 820 after consideration of costs and benefits. ASU 2018-13 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019 for public entities, with early adoption permitted. The adoption of this guidance on January 1, 2020 is not expected to have a material effect on the Company’s consolidated financial statements.

2. Other comprehensive loss:

The components of other comprehensive loss and their related tax effects are reported in the Consolidated Statements of Income and Comprehensive Income. The accumulated other comprehensive loss included in the Consolidated Balance Sheets relates to net unrealized gains and losses on investment securities available-for-sale and benefit plan adjustments.

The components of accumulated other comprehensive loss included in stockholders’ equity at March 31, 2019 and December 31, 2018 is as follows:

		March 31, 2019		December 31, 2018
Net unrealized loss on investment securities available-for-sale	$	(812)	$	(3,251)
Income tax		(170)		(683)
Net of income taxes		(642)		(2,568)
Benefit plan adjustments		(7,218)		(7,218)
Income tax		(1,516)		(1,516)
Net of income taxes		(5,702)		(5,702)
Derivative adjustments		309		246
Income tax		65		52
Net of income taxes		244		194
Accumulated other comprehensive loss	$	(6,100)	$	(8,076)

3. Earnings per share:

Basic earnings per share represent income available to common stockholders divided by the weighted-average number of common shares outstanding during the period. Diluted earnings per share reflect additional common shares that would have been outstanding if dilutive potential common shares had been issued, as well as any adjustment to income that would result from the assumed issuance.

10

Peoples Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

There were no shares considered anti-dilutive for the three month periods ended March 31, 2019 and 2018.

	2019				2018
For the Three Months Ended March 31	Basic		Diluted		Basic		Diluted
Net income	$	6,412	$	6,412	$	5,854	$	5,854
Average common shares outstanding		7,399,054		7,399,054		7,396,505		7,396,505
Earnings per share	$	0.87	$	0.87	$	0.79	$	0.79

4. Investment securities:

The amortized cost and fair value of investment securities aggregated by investment category at March 31, 2019 and December 31, 2018 are summarized as follows:

			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
March 31, 2019	Cost		Gains		Losses		Value
Available-for-sale:
U.S. Treasury securities	$	23,954	$	35	$	232	$	23,757
U.S. Government-sponsored enterprises		93,914		9		1,373		92,550
State and municipals:
Taxable		13,017		328				13,345
Tax-exempt		83,273		471		169		83,575
Residential Mortgage-backed securities:
U.S. Government agencies		11,716		80		56		11,740
U.S. Government-sponsored enterprises		39,064		408		202		39,270
Commercial Mortgage-backed securities:
U.S. Government-sponsored enterprises		6,258				111		6,147
Total	$	271,196	$	1,331	$	2,143	$	270,384
Held-to-maturity:
Tax-exempt state and municipals	$	6,855	$	119			$	6,974
Residential Mortgage-backed securities:
U.S. Government agencies		40						40
U.S. Government-sponsored enterprises		1,267		32	$	3		1,296
Total	$	8,162	$	151	$	3	$	8,310

11

Peoples Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
December 31, 2018	Cost		Gains		Losses		Value
Available-for-sale:
U.S. Treasury securities	$	25,948		9	$	365	$	25,592
U.S. Government-sponsored enterprises		94,999	$	2		2,183		92,818
State and municipals:
Taxable		13,544		309				13,853
Tax-exempt		86,361		338		745		85,954
Residential Mortgage-backed securities:
U.S. Government agencies		12,663		50		84		12,629
U.S. Government-sponsored enterprises		33,149		49		401		32,797
Commercial Mortgage-backed securities:
U.S. Government-sponsored enterprises		6,269				230		6,039
Total	$	272,933	$	757	$	4,008	$	269,682
Held-to-maturity:
Tax-exempt state and municipals	$	6,855	$	12	$	43	$	6,824
Residential Mortgage-backed securities:
U.S. Government agencies		42						42
U.S. Government-sponsored enterprises		1,464		55		5		1,514
Total	$	8,361	$	67	$	48	$	8,380

Equity Securities

Our equity securities portfolio consists of stock of two other financial institutions. At March 31, 2019 and December 31, 2018, we had $292 and $291, respectively, in equity securities recorded at fair value. At March 31, 2019, the fair value of our equity portfolio exceeded the cost basis by $15. The following is a summary of unrealized and realized gains and losses recognized in net income on equity securities during the three months ended March 31, 2019 (in thousands):

For the Three Months Ended March 31,		2019		2018
Net gains recognized during the period on equity securities	$	1	$	(8)
Unrealized gains recognized during the reporting period on equity securities still held at the reporting date	$	1	$	(8)

Restricted Investment In Stock

Restricted investment in stock includes Federal Home Loan Bank of Pittsburgh (“FHLB”) with a carrying cost of $8,384 and $7,420 at March 31, 2019 and December 31, 2018, respectively and Atlantic Community Bankers Bank (“ACBB”) stock with a carrying cost of $42 and VISA Class B stock with a carry cost of $0 at March 31, 2019 and December 31, 2018, are included in other assets in the consolidated balance sheets. FHLB and ACBB stock was issued as a requirement to facilitate participation in borrowing and other banking services. The investment in FHLB stock may fluctuate, as it is based on the member banks’ use of FHLB’s services.

The Company owns 44,982 shares of Visa Class B stock, which was necessary to participate in Visa services in support of the Company’s credit card, debit card, and related payment programs (permissible activities under banking regulations) as a member institution. Following the resolution of Visa’s covered litigation, shares of Visa’s Class B stock will be converted to Visa Class A shares using a conversion factor (1.6298 as of March 31, 2019), which is periodically adjusted to reflect VISA’s ongoing litigation costs. There is a very limited market for this stock, as only current owners of Class B shares are permitted to transact in Class B. Due to the lack of orderly trades and public information of such trades, Visa Class B stock has no readily determinable fair value.

12

Peoples Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

These restricted investments are carried at cost and evaluated for other-than-temporary impairment (“OTTI”) periodically. As of March 31, 2019, there was no OTTI associated with these investments.

The maturity distribution of the fair value, which is the net carrying amount, of the debt securities classified as available-for-sale at March 31, 2019, is summarized as follows:

	Fair
March 31, 2019	Value
Within one year	$	41,366
After one but within five years		142,465
After five but within ten years		13,925
After ten years		15,471
		213,227
Mortgage-backed securities		57,157
Total	$	270,384

The maturity distribution of the amortized cost and fair value, of debt securities classified as held-to-maturity at March 31, 2019, is summarized as follows:

	Amortized		Fair
March 31, 2019	Cost		Value
Within one year
After one but within five years
After five but within ten years
After ten years	$	6,855	$	6,974
		6,855		6,974
Mortgage-backed securities		1,307		1,336
Total	$	8,162	$	8,310

Securities with a carrying value of $158,116 and $161,647 at March 31, 2019 and December 31, 2018, respectively, were pledged to secure public deposits and certain other deposits as required or permitted by law.

Securities and short-term investment activities are conducted with a diverse group of government entities, corporations and state and local municipalities. The counterparty’s creditworthiness and type of collateral is evaluated on a case-by-case basis. At March 31, 2019 and December 31, 2018, there were no significant concentrations of credit risk from any one issuer, with the exception of U.S. Government agencies and sponsored enterprises, that exceeded 10.0 percent of stockholders’ equity.

13

Peoples Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

The fair value and gross unrealized losses of investment securities with unrealized losses for which an OTTI has not been recognized at March 31, 2019 and December 31, 2018, aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position, are summarized as follows:

	Less Than 12 Months				12 Months or More				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
March 31, 2019	Value		Losses		Value		Losses		Value		Losses
U.S. Treasury securities					$	19,799	$	232	$	19,799	$	232
U.S. Government-sponsored enterprises						90,466		1,373		90,466		1,373
State and municipals:
Tax-exempt	$	1,854	$	3		31,468		166		33,322		169
Residential Mortgage-backed securities:
U.S. Government agencies						6,946		56		6,946		56
U.S. Government-sponsored enterprises		360		1		12,873		204		13,233		205
Commercial Mortgage-backed securities:
U.S. Government-sponsored enterprises						6,147		111		6,147		111
Total	$	2,214	$	4	$	167,699	$	2,142	$	169,913	$	2,146

	Less Than 12 Months				12 Months or More				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
December 31, 2018	Value		Losses		Value		Losses		Value		Losses
U.S. Treasury securities	$	1,995	$	2	$	19,671	$	363	$	21,666	$	365
U.S. Government-sponsored enterprises		2,037		1		89,729		2,182		91,766		2,183
State and municipals:
Tax-exempt		9,022		74		52,352		714		61,374		788
Residential Mortgage-backed securities:
U.S. Government agencies						7,800		84		7,800		84
U.S. Government-sponsored enterprises		12,851		55		13,881		351		26,732		406
Commercial Mortgage-backed securities:
U.S. Government-sponsored enterprises						6,039		230		6,039		230
Total	$	25,905	$	132	$	189,472	$	3,924	$	215,377	$	4,056

The Company had 137 investment securities, consisting of 60 tax-exempt state and municipal obligations, 7 U.S. Treasury securities, 35 U.S. Government-sponsored enterprise securities, and 35 mortgage-backed securities that were in unrealized loss positions at March 31, 2019. Of these securities, 7 U.S. Treasury securities, 35 U.S. Government-sponsored enterprise securities, 57 tax-exempt state and municipal obligations, and 32 mortgage-backed securities were in a continuous unrealized loss position for twelve months or more. Management does not consider the unrealized losses on the debt securities, as a result of changes in interest rates, to be OTTI based on historical evidence that indicates the cost of these securities is recoverable within a reasonable period of time in relation to normal cyclical changes in the market rates of interest. Moreover, because there has been no material change in the credit quality of the issuers or other events or circumstances that may cause a significant adverse impact on the fair value of these securities, and management does not intend to sell these securities and it is unlikely that the Company will be required to sell these securities before recovery of their amortized cost basis, which may be maturity, the Company does not consider the unrealized losses to be OTTI at March 31, 2019. There was no OTTI recognized for the three months ended March 31, 2019 and 2018.

14

Peoples Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

5. Loans, net and allowance for loan losses:

The major classifications of loans outstanding, net of deferred loan origination fees and costs at March 31, 2019 and December 31, 2018 are summarized as follows. Net deferred loan costs were $851 and $744 at March 31, 2019 and December 31, 2018.

		March 31, 2019		December 31, 2018
Commercial	$	516,756	$	494,134
Real estate:
Commercial		917,035		907,803
Residential		299,330		299,876
Consumer		116,481		121,453
Total	$	1,849,602	$	1,823,266

The changes in the allowance for loan losses account by major classification of loan for the three months ended March 31, 2019 and 2018 are summarized as follows:

			Real estate
March 31, 2019	Commercial		Commercial		Residential		Consumer		Total
Allowance for loan losses:
Beginning Balance January 1, 2019	$	5,516	$	10,736	$	3,892	$	1,235	$	21,379
Charge-offs		(77)		(6)		(159)		(132)		(374)
Recoveries		8				4		38		50
Provisions		508		344		143		55		1,050
Ending balance	$	5,955	$	11,074	$	3,880	$	1,196	$	22,105
			Real estate
March 31, 2018	Commercial		Commercial		Residential		Consumer		Total
Allowance for loan losses:
Beginning Balance January 1, 2018	$	5,052	$	7,548	$	4,980	$	1,380	$	18,960
Charge-offs						(299)		(127)		(426)
Recoveries		57		27		10		40		134
Provisions		297		524		148		81		1,050
Ending balance	$	5,406	$	8,099	$	4,839	$	1,374	$	19,718

15

Peoples Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

The allocation of the allowance for loan losses and the related loans by major classifications of loans at March 31, 2019 and December 31, 2018 is summarized as follows:

			Real estate
March 31, 2019	Commercial		Commercial		Residential		Consumer		Total
Allowance for loan losses:
Ending balance	$	5,955	$	11,074	$	3,880	$	1,196	$	22,105
Ending balance: individually evaluated for impairment		138		389		461				988
Ending balance: collectively evaluated for impairment	$	5,817	$	10,685	$	3,419	$	1,196	$	21,117
Loans receivable:
Ending balance	$	516,756	$	917,035	$	299,330	$	116,481	$	1,849,602
Ending balance: individually evaluated for impairment		7,012		3,535		2,895		238		13,680
Ending balance: collectively evaluated for impairment	$	509,744	$	913,500	$	296,435	$	116,243	$	1,835,922

			Real estate
December 31, 2018	Commercial		Commercial		Residential		Consumer		Total
Allowance for loan losses:
Ending balance	$	5,516	$	10,736	$	3,892	$	1,235	$	21,379
Ending balance: individually evaluated for impairment		50		403		666		60		1,179
Ending balance: collectively evaluated for impairment	$	5,466	$	10,333	$	3,226	$	1,175	$	20,200
Loans receivable:
Ending balance	$	494,134	$	907,803	$	299,876	$	121,453	$	1,823,266
Ending balance: individually evaluated for impairment		2,237		3,121		4,071		212		9,641
Ending balance: collectively evaluated for impairment	$	491,897	$	904,682	$	295,805	$	121,241	$	1,813,625

The Company segments loans into risk categories based on relevant information about the ability of borrowers to service their debt such as current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. Loans are individually analyzed for credit risk by classifying them within the Company’s internal risk rating system. The Company’s risk rating classifications are defined as follows:

· Pass- A loan to borrowers with acceptable credit quality and risk that is not adversely classified as Substandard, Doubtful, Loss nor designated as Special Mention.

· Special Mention- A loan that has potential weaknesses that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or in the institution’s credit position at some future date. Special Mention loans are not adversely classified since they do not expose the Company to sufficient risk to warrant adverse classification.

· Substandard- A loan that is inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified must have a well-defined weakness or

16

Peoples Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the bank will sustain some loss if the deficiencies are not corrected.

· Doubtful – A loan classified as Doubtful has all the weaknesses inherent in one classified Substandard with the added characteristic that the weaknesses make the collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

· Loss- A loan classified as Loss is considered uncollectible and of such little value that its continuance as bankable loan is not warranted. This classification does not mean that the loan has absolutely no recovery or salvage value, but rather it is not practical or desirable to defer writing off this basically worthless asset even though partial recovery may be affected in the future.

The following tables present the major classification of loans summarized by the aggregate pass rating and the classified ratings of special mention, substandard and doubtful within the Company’s internal risk rating system at March 31, 2019 and December 31, 2018:

			Special
March 31, 2019	Pass		Mention		Substandard		Doubtful	Total
Commercial	$	509,531	$	3,090	$	4,135	$	$	516,756
Real estate:
Commercial		894,059		5,309		17,667			917,035
Residential		296,497		355		2,478			299,330
Consumer		116,225				256			116,481
Total	$	1,816,312	$	8,754	$	24,536	$	$	1,849,602

			Special
December 31, 2018	Pass		Mention		Substandard		Doubtful	Total
Commercial	$	491,531	$	869	$	1,734	$	$	494,134
Real estate:
Commercial		886,849		8,934		12,020			907,803
Residential		295,758		357		3,761			299,876
Consumer		121,229				224			121,453
Total	$	1,795,367	$	10,160	$	17,739	$	$	1,823,266

Information concerning nonaccrual loans by major loan classification at March 31, 2019 and December 31, 2018 is summarized as follows:

		March 31, 2019		December 31, 2018
Commercial	$	5,567	$	776
Real estate:
Commercial		2,642		2,663
Residential		1,600		2,580
Consumer		238		212
Total	$	10,047	$	6,231

17

Peoples Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

The major classifications of loans by past due status are summarized as follows:

					Greater								Loans > 90
	30-59 Days		60-89 Days		than 90		Total Past						Days and
March 31, 2019	Past Due		Past Due		Days		Due		Current		Total Loans		Accruing
Commercial	$	85	$	183	$	5,567	$	5,835	$	510,921	$	516,756
Real estate:
Commercial		1,077		976		2,812		4,865		912,170		917,035	$	170
Residential		2,204		831		2,259		5,294		294,036		299,330		659
Consumer		434		135		238		807		115,674		116,481
Total	$	3,800	$	2,125	$	10,876	$	16,801	$	1,832,801	$	1,849,602	$	829

The Company classifies all nonaccrual loans in the greater than 90 days category.

					Greater								Loans > 90
	30-59 Days		60-89 Days		than 90		Total Past						Days and
December 31, 2018	Past Due		Past Due		Days		Due		Current		Total Loans		Accruing
Commercial	$	973	$	79	$	776	$	1,828	$	492,306	$	494,134
Real estate:
Commercial		1,889		218		2,736		4,843		902,960		907,803	$	73
Residential		2,486		1,545		3,430		7,461		292,415		299,876		850
Consumer		756		292		212		1,260		120,193		121,453
Total	$	6,104	$	2,134	$	7,154	$	15,392	$	1,807,874	$	1,823,266	$	923

The following tables summarize information concerning impaired loans as of and for the three months ended March 31, 2019 and March 31, 2018, and as of and for the year ended, December 31, 2018 by major loan classification:

							For the Quarter Ended
			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
March 31, 2019	Investment		Balance		Allowance		Investment		Recognized
With no related allowance:
Commercial	$	6,072	$	6,407			$	3,817	$	17
Real estate:
Commercial		2,098		2,184				2,034		13
Residential		860		1,287				1,415		7
Consumer		238		245				195
Total		9,268		10,123				7,461		37
With an allowance recorded:
Commercial		940		990		138		808		7
Real estate:
Commercial		1,437		1,563		389		1,295		5
Residential		2,035		2,078		461		2,068		11
Consumer								30
Total		4,412		4,631		988		4,201		23
Total impaired loans
Commercial		7,012		7,397		138		4,625		24
Real estate:
Commercial		3,535		3,747		389		3,329		18
Residential		2,895		3,365		461		3,483		18
Consumer		238		245				225
Total	$	13,680	$	14,754	$	988	$	11,662	$	60

18

Peoples Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

							For the Year Ended
			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
December 31, 2018	Investment		Balance		Allowance		Investment		Recognized
With no related allowance:
Commercial	$	1,562	$	1,900			$	1,318	$	67
Real estate:
Commercial		1,969		2,299				2,822		28
Residential		1,970		2,658				2,193		22
Consumer		152		160				135
Total		5,653		7,017				6,468		117
With an allowance recorded:
Commercial		675		675		50		1,006		30
Real estate:
Commercial		1,152		1,323		403		1,676		18
Residential		2,101		2,328		666		1,585		22
Consumer		60		60		60		21
Total		3,988		4,386		1,179		4,288		70
Total impaired loans
Commercial		2,237		2,575		50		2,324		97
Real estate:
Commercial		3,121		3,622		403		4,498		46
Residential		4,071		4,986		666		3,778		44
Consumer		212		220		60		156
Total	$	9,641	$	11,403	$	1,179	$	10,756	$	187

							For the Quarter Ended
			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
March 31, 2018	Investment		Balance		Allowance		Investment		Recognized
With no related allowance:
Commercial	$	1,211	$	1,375			$	1,246	$	17
Real estate:
Commercial		2,970		3,312				2,929		6
Residential		2,289		2,762				2,243		4
Consumer		151		159				160
Total		6,621		7,608				6,578		27
With an allowance recorded:
Commercial		1,133		1,158	$	144		1,159		8
Real estate:
Commercial		2,402		2,520		1,411		1,902		6
Residential		1,491		1,977		182		1,544		4
Consumer		18		18		18		13
Total		5,044		5,673		1,755		4,618		18
Total impaired loans
Commercial		2,344		2,533		144		2,405		25
Real estate:
Commercial		5,372		5,832		1,411		4,831		12
Residential		3,780		4,739		182		3,787		8
Consumer		169		177		18		173
Total	$	11,665	$	13,281	$	1,755	$	11,196	$	45

19

Peoples Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

Included in the commercial loan and commercial and residential real estate categories are troubled debt restructurings that are classified as impaired. Troubled debt restructurings totaled $3,096 at March 31, 2019, $2,779 at December 31, 2018 and $3,032 at March 31, 2018.

Troubled debt restructured loans are loans with original terms, interest rate, or both, that have been modified as a result of a deterioration in the borrower’s financial condition and a concession has been granted that the Company would not otherwise consider. Unless on nonaccrual, interest income on these loans is recognized when earned, using the interest method. The Company offers a variety of modifications to borrowers that would be considered concessions. The modification categories offered generally fall within the following categories:

· Rate Modification - A modification in which the interest rate is changed to a below market rate.

· Term Modification - A modification in which the maturity date, timing of payments or frequency of payments is changed.

· Interest Only Modification - A modification in which the loan is converted to interest only payments for a period of time.

· Payment Modification - A modification in which the dollar amount of the payment is changed, other than an interest only modification described above.

· Combination Modification - Any other type of modification, including the use of multiple categories above.

There was one commercial real estate loan modified as a troubled debt restructuring for the three months ended March 31, 2019 in the amount of $340. There were no loans modified as a troubled debt restructurings for the three months ended March 31, 2018. During the three months ended March 31, 2019, there were no payment defaults on restructured loans. During the three months ended March 31, 2018, there was one payment default on a restructured residential mortgage loan with an outstanding balance of $64. 

6. Other assets:

The components of other assets at March 31, 2019, and December 31, 2018 are summarized as follows:

		March 31, 2019		December 31, 2018
Other real estate owned	$	360	$	376
Investment in low income housing partnership		7,258		7,377
Mortgage servicing rights		709		718
Bank owned life insurance		34,474		34,288
Restricted equity securities		8,426		7,462
Net deferred tax asset		4,556		5,081
Other assets		12,361		8,435
Total	$	68,144	$	63,737

7. Fair value estimates:

The Company uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosure under GAAP. Fair value estimates are calculated without attempting to estimate the value of anticipated future business and the value of certain assets and liabilities that are not considered financial. Accordingly, such assets and liabilities are excluded from disclosure requirements.

In accordance with FASB ASC 820, “Fair Value Measurements and Disclosures,” fair value is the price that would be received to sell an asset or transfer a liability in an orderly transaction between market participants at the measurement

20

Peoples Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

date. Fair value is best determined based upon quoted market prices. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets. In many cases, these values cannot be realized in immediate settlement of the instrument.

Current fair value guidance provides a consistent definition of fair value, which focuses on exit price in an orderly transaction that is not a forced liquidation or distressed sale between participants at the measurement date under current market conditions. If there has been a significant decrease in the volume and level of activity for the asset or liability, a change in valuation technique or the use of multiple valuation techniques may be appropriate. In such instances, determining the price at which willing market participants would transact at the measurement date under current market conditions depends on the facts and circumstances and requires the use of significant judgment. The fair value is a reasonable point within the range that is most representative of fair value under current market conditions.

In accordance with GAAP, the Company groups its assets and liabilities generally measured at fair value into three levels based on market information or other fair value estimates in which the assets and liabilities are traded or valued and the reliability of the assumptions used to determine fair value. These levels include:

· Level 1: Unadjusted quoted prices of identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

· Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

· Level 3: Significant unobservable inputs that reflect a reporting entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

An asset’s or liability’s placement in the fair value hierarchy is based on the lowest level of input that is significant to the fair value estimate.

During the periods ended March 31, 2019 and December 31, 2018 there were no significant transfers between Level 1 and Level 2 and no transfers in or out of Level 3. 

The following methods and assumptions were used by the Company to calculate fair values and related carrying amounts of financial instruments:

Investment securities: The fair values of U.S. Treasury securities and marketable equity securities are based on quoted market prices from active exchange markets. The fair values of debt securities are based on pricing from a matrix pricing model.

Loans held for sale: The fair values of loans held for sale are based upon current delivery prices in the secondary mortgage market.

Interest rate swaps:  The Company’s interest rate swaps are reported at fair value utilizing Level 2 inputs. Values of these instruments are obtained through an independent pricing source utilizing information which may include market observed quotations for swaps, Libor rates, forward rates and rate volatility. Derivative contracts create exposure to interest rate movements as well as risks from the potential of non-performance of the counterparty.

21

Peoples Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

Assets and liabilities measured at fair value on a recurring basis at March 31, 2019 and December 31, 2018 are summarized as follows:

	Fair Value Measurement Using
			Quoted Prices in		Significant		Significant
			Active Markets for		Other Observable		Unobservable
			Identical Assets		Inputs		Inputs
March 31, 2019	Amount		(Level 1)		(Level 2)		(Level 3)
U.S. Treasury securities	$	23,757	$	23,757			$
U.S. Government-sponsored enterprises		92,550			$	92,550
State and Municipals:
Taxable		13,345				13,345
Tax-exempt		83,575				83,575
Mortgage-backed securities:
U.S. Government agencies		11,740				11,740
U.S. Government-sponsored enterprises		45,417				45,417
Common equity securities		292		292
Interest rate floor-other assets		597				597
Interest rate swap-other assets		1,328				1,328
Interest rate swap-other liabilities		(1,468)				(1,468)
Total	$	271,133	$	24,049	$	247,084	$

	Fair Value Measurement Using
			Quoted Prices in		Significant		Significant
			Active Markets for		Other Observable		Unobservable
			Identical Assets		Inputs		Inputs
December 31, 2018	Amount		(Level 1)		(Level 2)		(Level 3)
U.S. Treasury securities	$	25,592	$	25,592			$
U.S. Government-sponsored enterprises		92,818			$	92,818
State and Municipals:
Taxable		13,853				13,853
Tax-exempt		85,954				85,954
Mortgage-backed securities:
U.S. Government agencies		12,629				12,629
U.S. Government-sponsored enterprises		38,836				38,836
Common equity securities		291		291
Interest rate floor-other assets		553				553
Interest rate swap-other assets		108				108
Interest rate swap-other liabilities		(138)				(138)
Total	$	270,496	$	25,883	$	244,613	$

Assets and liabilities measured at fair value on a nonrecurring basis at March 31, 2019 and December 31, 2018 are summarized as follows:

	Fair Value Measurement Using
			Quoted Prices in	Significant	Significant
			Active Markets for	Other Observable	Unobservable
			Identical Assets	Inputs	Inputs
March 31, 2019	Amount		(Level 1)	(Level 2)	(Level 3)
Impaired loans	$	3,424			$	3,424
Other real estate owned	$	289			$	289

22

Peoples Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

	Fair Value Measurement Using
			Quoted Prices in	Significant Other	Significant
			Active Markets for	Observable	Unobservable
			Identical Assets	Inputs	Inputs
December 31, 2018	Amount		(Level 1)	(Level 2)	(Level 3)
Impaired loans	$	2,809			$	2,809
Other real estate owned	$	234			$	234

Fair values of impaired loans are based on the present value of expected future cash flows discounted at the loan’s effective interest rate or the fair value of the collateral if the loan is collateral dependent.

The following table presents additional quantitative information about assets measured at fair value on a nonrecurring basis and for which the Company has utilized Level 3 inputs to determine fair value:

	Quantitative Information about Level 3 Fair Value Measurements
	Fair Value				Range
March 31, 2019	Estimate		Valuation Techniques	Unobservable Input	(Weighted Average)
Impaired loans	$	3,424	Appraisal of collateral	Appraisal adjustments	7.6% to 97.0%  (49.4)%
				Liquidation expenses	3.0% to 6.0% (5.4)%
Other real estate owned	$	289	Appraisal of collateral	Appraisal adjustments	20.0% to 53.7%  (31.6)%
				Liquidation expenses	3.0% to 6.0% (5.0)%

	Quantitative Information about Level 3 Fair Value Measurements
	Fair Value				Range
December 31, 2018	Estimate		Valuation Techniques	Unobservable Input	(Weighted Average)
Impaired loans	$	2,809	Appraisal of collateral	Appraisal adjustments	7.1% to 97.0%  (61.8)%
				Liquidation expenses	3.0% to 6.0% (4.4)%
Other real estate owned	$	234	Appraisal of collateral	Appraisal adjustments	26.0% to 73.3%  (38.9)%
				Liquidation expenses	3.0% to 6.0% (5.0)%

Fair value is generally determined through independent appraisals of the underlying collateral, which generally include various Level 3 inputs which are not identifiable.

Appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated liquidation expenses. The range and weighted average of liquidation expenses and other appraisal adjustments are presented as a percent of the appraisal.

23

Peoples Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

The carrying and fair values of the Company’s financial instruments at March 31, 2019 and December 31, 2018 and their placement within the fair value hierarchy are as follows:

					Fair Value Hierarchy
					Quoted
					Prices in
					Active		Significant
					Markets for		Other		Significant
					Identical		Observable		Unobservable
	Carrying		Fair		Assets		Inputs		Inputs
March 31, 2019	Value		Value		(level 1)		(level 2)		(Level 3)
Financial assets:
Cash and cash equivalents	$	26,052	$	26,052	$	26,052
Investment securities:
Available-for-sale		270,384		270,384		23,757	$	246,627
Common equity securities		292		292		292
Held-to-maturity		8,162		8,310				8,310
Net loans		1,827,497		1,793,934					$	1,793,934
Accrued interest receivable		7,211		7,211				7,211
Mortgage servicing rights		709		1,689				1,689
Restricted equity securities		8,426		8,426				8,426
Interest rate floor		597		597				597
Interest rate swaps		1,328		1,328				1,328
Total	$	2,150,658	$	2,118,223
Financial liabilities:
Deposits	$	1,868,230	$	1,865,940			$	1,865,940
Short-term borrowings		109,000		109,000				109,000
Long-term debt		37,446		37,696				37,696
Accrued interest payable		878		878				878
Interest rate swaps		1,468		1,468				1,468
Total	$	2,017,022	$	2,014,982

24

Peoples Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

					Fair Value Hierarchy
					Quoted
					Prices in
					Active		Significant
					Markets for		Other		Significant
					Identical		Observable		Unobservable
	Carrying		Fair		Assets		Inputs		Inputs
December 31, 2018	Value		Value		(level 1)		(level 2)		(Level 3)
Financial assets:
Cash and cash equivalents	$	32,616	$	32,616	$	32,616
Investment securities:
Available-for-sale		269,682		269,682		25,952	$	244,090
Common equity securities		291		291		291
Held-to-maturity		8,361		8,380				8,380
Loans held for sale		749		749				749
Net loans		1,801,887		1,762,449					$	1,762,449
Accrued interest receivable		7,115		7,115				7,115
Mortgage servicing rights		718		1,710				1,710
Restricted equity securities		7,462		7,462				7,462
Interest rate floor		553		553				553
Interest rate swaps		108		108				108
Total	$	2,129,542	$	2,091,115
Financial liabilities:
Deposits	$	1,875,022	$	1,874,520			$	1,874,520
Short-term borrowings		86,500		86,500				86,500
Long-term debt		37,906		38,071				38,071
Accrued interest payable		1,195		1,195				1,195
Interest rate swaps		138		138				138
Total	$	2,000,761	$	2,000,424

8. Employee benefit plans:

The Company provides an Employee Stock Ownership Plan (“ESOP”) and a Retirement Profit Sharing Plan. The Company also maintains Supplemental Executive Retirement Plans (“SERPs”) and an Employees’ Pension Plan, which is currently frozen.

For the three months ended March 31, salaries and employee benefits expense includes approximately $340 in 2019 and 2018 relating to the employee benefit plans.

	Pension Benefits
Three Months Ended March 31,	2019		2018
Components of net periodic pension cost:
Interest cost	$	128	$
Expected return on plan assets		(217)
Amortization of unrecognized net gain		45
Net periodic benefit cost	$	(44)	$

The Company contributed $2,700 to the pension plan during the third quarter of 2018. This contribution reduced the unfunded portion of the pension plan and also reduced future premium costs associated with the plan. Previously, the Company paid a fixed premium cost of $18 annually with an additional $92 for the variable portion of the premium. This was reduced to $0 with the current funding status of the pension.

25

Peoples Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

The 2008 long-term incentive plan (“2008 Plan”) allowed for eligible participants to be granted equity awards. No awards may be made under the 2008 Plan after January 15, 2018.

In May 2017, the Company’s stockholders approved the 2017 equity incentive plan (“2017 Plan”). The 2017 Plan allows for eligible participants to be granted equity awards. Under the 2017 Plan the Compensation Committee of the Board of Directors has the authority to, among other things:

· Select the persons to be granted awards under the 2017 Plan.

· Determine the type, size and term of awards.

· Determine whether such performance objectives and conditions have been met.

· Accelerate the vesting or excercisability of an award.

Persons eligible to receive awards under the 2017 Plan include directors, officers, employees, consultants and other service providers of the Company and its subsidiaries.

As of March 31, 2019, there were 78,691 shares of the Company’s common stock available for grant as awards pursuant to the 2017 Plan. The 2008 Plan expired in January 2018but will remain in effect in accordance with its terms to govern outstanding awards under that plan. If any outstanding awards under the 2017 Plan are forfeited by the holder or canceled by the Company, the underlying shares would be available for regrant to others.

The 2017 Plan authorizes grants of stock options, stock appreciation rights, cash awards, performance awards, restricted stock and restricted stock units.

In the first quarters of 2019 and 2018, the Company did not make any awards under the 2017 Plan.

The non-performance restricted stock grants made in 2019 and 2018 vest equally over three years from the grant date. The performance-based restricted stock units vest three years after the grant date and include conditions based on the Company’s three year cumulative diluted earnings per share and three-year average return on equity that determines the number of restricted stock units that may vest.

The Company expenses the fair value of all-share based compensation over the requisite service period commencing at grant date. The fair value of restricted stock is expensed on a straight-line basis. The Company periodically assesses the probability of achievement of the performance criteria and adjusts the amount of compensation expense accordingly. Compensation is recognized over the vesting period. The Company classifies share-based compensation for employees within “salaries and employee benefits expense” on the consolidated statements of income and comprehensive income.

The Company recognized compensation expense of $83 for the three months ended March 31, 2019 for awards granted under the 2017 Plan. The Company recognized compensation expense of $5 for the three months ended March 31, 2018 for awards granted under the 2017 and $32 for awards granted under the 2008 Plan. As of March 31, 2019, the Company had $1,228 of unrecognized compensation expense associated with restricted stock awards. The remaining cost is expected to be recognized over a weighted average vesting period of just under 2 years.

9. Derivatives and hedging activities

Risk Management Objective of Using Derivatives

The Company is exposed to certain risk arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity, and credit risk primarily by

26

Peoples Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

managing the amount, sources, and duration of its assets and liabilities and the use of derivative financial instruments.  Specifically, the Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. The Company’s derivative financial instruments are used to manage differences in the amount, timing, and duration of the Company’s known or expected cash receipts principally related to the Company’s assets. 

Cash Flow Hedges of Interest Rate Risk

The Company’s objectives in using interest rate derivatives are to add stability to interest income and to manage its exposure to interest rate movements. To accomplish this objective, the Company primarily uses interest rate floors as part of its interest rate risk management strategy. Interest rate floors designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty if interest rates fall below the strike rate on the contract in exchange for an up-front premium.

For derivatives designated and that qualify as cash flow hedges of interest rate risk, the gain or loss on the derivative is recorded in Accumulated Other Comprehensive Loss and subsequently reclassified into interest income in the same period(s) during which the hedged transaction affects earnings. Gains and losses on the derivative representing hedge components excluded from the assessment of effectiveness are recognized over the life of the hedge on a systematic and rational basis. The earnings recognition of excluded components is presented in interest income. Amounts reported in accumulated other comprehensive loss related to derivatives will be reclassified to interest income as interest payments are received on the Company’s variable-rate assets. During 2019, the Company estimates that an additional $64 will be reclassified as a reduction to interest income. 

Non-designated Hedges

Derivatives not designated as hedges are not speculative and result from a service the Company provides to certain customers. The Company executes interest rate swaps with commercial banking customers to facilitate their respective risk management strategies. Those interest rate swaps are simultaneously hedged by offsetting interest rate swaps that the Company executes with a third party, such that the Company minimizes its net risk exposure resulting from such transactions. As the interest rate swaps associated with this program do not meet the strict hedge accounting requirements, changes in the fair value of both the customer swaps and the offsetting swaps are recognized directly in earnings. As of March 31, 2019, the Company had 12 interest rate swaps with an aggregate notional amount of $79,667 related to this program.

27

Peoples Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

Fair Values of Derivative Instruments on the Balance Sheet

The table below presents the fair value of the Company’s derivative financial instruments as well as their classification on the Consolidated Balance Sheets as of March 31, 2019 and December 31, 2018.

			Asset Derivatives			Asset Derivatives			Liability Derivatives			Liability Derivatives
			As of March 31, 2019			As of December 31, 2018 (1)			As of March 31, 2019			As of December 31, 2018 (2)
		Notional	Balance Sheet			Balance Sheet			Balance Sheet			Balance Sheet
		Amount	Location	Fair Value		Location	Fair Value		Location	Fair Value		Location	Fair Value
Derivatives designated as hedging instruments
Interest Rate Floor	$	25,000	Other Assets	$	597		$	553
Total derivatives designated as hedging instruments				$	597		$	553
Derivatives not designated as hedging instruments
Interest Rate Swaps	$	79,667	Other Assets	$	1,328	Other Assets	$	108	Other Liabilities	$	1,468	Other Liabilities	$	138
Total derivatives not designated as hedging instruments				$	1,328		$	108		$	1,468		$	138

(1) Assets amount does not include accrued interest receivable of $8

(2) Liabilities amount does not include accrued interest payable of $8

Effect of Fair Value and Cash Flow Hedge Accounting on Accumulated Other Comprehensive Loss

The table below presents the effect of fair value and cash flow hedge accounting on Accumulated Other Comprehensive Loss as of March 31, 2019. There was no cash flow hedge as of March 31, 2018.

Location of

Amount of

Amount of

Amount of

Amount of

Amount of

Gain or (Loss)

Amount of

Gain

Loss

Loss

Gain

Gain

Recognized from

Loss

Reclassified

Reclassified

Recognized in

Recognized in

Recognized in

Accumulated

Reclassified

from Accumulated

from Accumulated

Derivatives in

OCI on

OCI Included

OCI Excluded

Other Comprehensive

from Accumulated

OCI into Income

OCI into Income

Hedging

Derivative

Component

Component

Income into

OCI into Income

Included Component

Excluded Component

Relationships

March 31, 2019

Income

March 31, 2019

Derivatives in Cash Flow Hedging Relationships

Interest Rate Floor (*)

$

47

$

295

$

(248)

Interest Income

$

(15)

$

$

(15)

* Amounts disclosed are gross and not net of taxes.

28

Peoples Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

Effect of Fair Value and Cash Flow Hedge Accounting on the Consolidated Statements of Income and Comprehensive Income

The table below presents the effect of the Company’s derivative financial instruments on the Consolidated Statements of Income and Comprehensive Income for the three months ended March 31, 2019 and March 31, 2018.

		Location and Amount of Gain or (Loss) Recognized in
		Income on Fair Value and Cash Flow Hedging
		Relationships
		2019	2018
		Interest Income	Interest Income
Total amounts of income and expense line items presented in the statements of income and comprehensive income in which the effects of fair value or cash flow hedges are recorded	$	(15)
The effects of fair value and cash flow hedging:
Gain or (loss) on cash flow hedging relationships
Interest contracts
Amount of gain or (loss) reclassified from accumulated other  comprehensive income into income	$	(15)
Amount of gain or (loss) reclassified from accumulated other comprehensive income into income -  included component
Amount of gain or (loss) reclassified from accumulated other comprehensive income into income -  excluded component	$	(15)

Effect of Derivative Instruments on the Consolidated Statements of Income and Comprehensive Income

The tables below present the effect of the Company’s derivative financial instruments on the Consolidated Statements of Income and Comprehensive Income for the three months ended March 31, 2019 and 2018.

		Amount of Gain		Amount of Loss
		Recognized in		Recognized in
	Location of Gain or (Loss)	Income		Income
	Recognized in Income on	Three Months Ended		Three Months Ended
Derivatives Not Designated as Hedging Instruments	Derivative	March 31, 2019		March 31, 2018
Interest Rate Swaps	Other non-interest income	$	(110)	$	66
Fee Income	Other  income / (expense)	$	391	$

Offsetting Derivatives

The table below presents a gross presentation, the effects of offsetting, and a net presentation of the Company’s derivatives as of March 31, 2019 and December 31, 2018. The net amounts of derivative assets or liabilities can be reconciled to the

29

Peoples Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

tabular disclosure of fair value. The tabular disclosure of fair value provides the location that derivative assets and liabilities are presented on the Consolidated Balance Sheets.

Offsetting of Derivative Assets
as of March 31, 2019
						Gross Amounts Not Offset in the Balance Sheet
	Gross			Net Amounts
	Amounts of		Gross Amounts	of Assets
	Recognized		Offset in the	presented in the		Financial	Cash Collateral	Net
	Assets		Balance Sheet	Balance Sheet		Instruments	Received	Amount
Derivatives	$	1,924	$	$	1,924	$		$	1,924
Offsetting of Derivative Liabilities
as of March 31, 2019
						Gross Amounts Not Offset in the Balance Sheet
	Gross			Net Amounts
	Amounts of		Gross Amounts	of Assets
	Recognized		Offset in the	presented in the		Financial	Cash Collateral	Net
	Assets		Balance Sheet	Balance Sheet		Instruments	Received	Amount
Derivatives	$	1,457	$	$	1,457	$		$	1,457
Offsetting of Derivative Assets
as of December 31, 2018
						Gross Amounts Not Offset in the Balance Sheet
	Gross			Net Amounts
	Amounts of		Gross Amounts	of Assets
	Recognized		Offset in the	presented in the		Financial	Cash Collateral	Net
	Assets		Balance Sheet	Balance Sheet		Instruments	Received	Amount
Derivatives	$	661	$	$	661	$		$	661
Offsetting of Derivative Liabilities
as of December 31, 2018
						Gross Amounts Not Offset in the Balance Sheet
	Gross			Net Amounts
	Amounts of		Gross Amounts	of Assets
	Recognized		Offset in the	presented in the		Financial	Cash Collateral	Net
	Assets		Balance Sheet	Balance Sheet		Instruments	Received	Amount
Derivatives	$	138	$	$	138	$		$	138

Credit-risk-related Contingent Features

The Company has agreements with certain of its derivative counterparties that contain a provision where if the Company defaults on any of its indebtedness, including default where repayment of the indebtedness has not been accelerated by the lender, then the Company could also be declared in default on its derivative obligations.

The Company also has agreements with certain of its derivative counterparties that contain a provision where if the Company fails to maintain its status as a well capitalized institution, then the counterparty could terminate the derivative positions and the Company would be required to settle its obligations under the agreements.

The Company has agreements with certain of its derivative counterparties that contain provisions that require the Company’s debt to maintain an investment grade credit rating from each of the major credit rating agencies. If the Company’s credit rating is reduced below investment grade then a termination event shall be deemed to have occurred and the non-affected counterparty shall have the right but not obligation to terminate all affected transactions under the agreement.

30

Peoples Financial Services Corp.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Dollars in thousands, except per share data)

As of March 31, 2019, the termination value of derivatives in a net asset position, which includes accrued interest but excludes any adjustment for nonperformance risk, related to these agreements was $140. As of December 31, 2018, the termination value of derivatives in a net liability position, which includes accrued interest but excludes any adjustment for nonperformance risk, related to these agreements was $29. The Company has minimum collateral posting thresholds with certain of its derivative counterparties, and has posted collateral of $1,670 against its obligations under these agreements as of March 31, 2019, compared to having no posted collateral with a counterparty at December 31, 2018. If the Company had breached any of these provisions it could have been required to settle its obligations under the agreements at the termination value.

10. Short-term borrowings

Short-term borrowings consisted of FHLB advances representing overnight borrowings at March 31, 2019 and December 31, 2018:

	At and for the three months ended March 31, 2019
							Weighted		Weighted
					Maximum		Average		Average
	Ending		Average		Month-End		Rate for		Rate at
	Balance		Balance		Balance		the three monthe ended March 31,2019		March 31,2019
FHLB advances	$	109,000	$	121,954	$	133,725	2.70	%	2.70	%

	At and for the year ended December 31, 2018
							Weighted		Weighted
					Maximum		Average		Average
	Ending		Average		Month-End		Rate for		Rate at End
	Balance		Balance		Balance		the Year		of the Year
FHLB advances	$	86,500	$	133,834	$	189,275	2.05	%	2.62	%

The Company has an agreement with the FHLB which allows for borrowings up to its maximum borrowing capacity based on a percentage of qualifying collateral assets. At March 31, 2019, the maximum borrowing capacity was $706,525 of which $146,446 was outstanding in borrowings. At December 31, 2018, the maximum borrowing capacity was $700,169 of which $124,406 was outstanding in borrowings. Short-term borrowings were used to fund our loan growth during the first three months of 2019 resulting in higher average balances as deposit balances decreased due to seasonal out flows of public fund deposits. Short-term borrowings are higher by $22,500 since year end 2018. Advances with the FHLB are secured under terms of a blanket collateral agreement by a pledge of FHLB stock and certain other qualifying collateral, such as investments and mortgage-backed securities and mortgage loans. Interest accrues daily on the FHLB advances based on rates of the FHLB discount notes. This rate resets each day.  

11. Income taxes

The effective tax rate of the Company was 10.6% for the three months ended March 31, 2019 compared to 11.7% for the three months ended March 31, 2018. The three months ended March 31, 2019 includes before tax investment tax credits and other credits of $388 compared to before tax investment tax credits $270 for that same period last year.

31

Peoples Financial Services Corp.

Management’s Discussion and Analysis

(Dollars in thousands, except per share data)

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis should be read in conjunction with the unaudited consolidated interim financial statements contained in Part I, Item 1 of this report, and with our audited consolidated financial statements and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” presented in our Annual Report on Form 10-K for the year ended December 31, 2018.

Cautionary Note Regarding Forward-Looking Statements:

This report contains forward-looking statements within the meaning of Section 27A of the Securities Act, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which are subject to risks and uncertainties. These statements are based on assumptions and may describe future plans, strategies and expectations of Peoples Financial Services Corp. and its direct and indirect subsidiaries. These forward-looking statements are generally identified by use of the words “believe,” “expect,” “intend,” “anticipate,” “estimate,” “project” or similar expressions. All statements in this report, other than statements of historical facts, are forward-looking statements.

Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Important factors that could cause our actual results to differ materially from those in the forward-looking statements include, but are not limited to: risks associated with business combinations; changes in interest rates; economic conditions, particularly in our market area; legislative and regulatory changes and the ability to comply with the significant laws and regulations governing the banking and financial services business; monetary and fiscal policies of the U.S. government, including policies of the U.S. Department of Treasury and the Federal Reserve System; credit risk associated with lending activities and changes in the quality and composition of our loan and investment portfolios; demand for loan and other products; deposit flows; competition; changes in the values of real estate and other collateral securing the loan portfolio, particularly in our market area; changes in relevant accounting principles and guidelines; inability of third party service providers to perform; and our ability to prevent, detect and respond to cyberattacks. Additional factors that may affect our results are discussed in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2018, and in reports we file with the Securities and Exchange Commission from time to time.

These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. Except as required by applicable law or regulation, Peoples Financial Services Corp. does not undertake, and specifically disclaims any obligation, to release publicly the result of any revisions that may be made to any forward-looking statements to reflect events or circumstances after the date of the statements or to reflect the occurrence of anticipated or unanticipated events.

Notes to the Consolidated Financial Statements referred to in the Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) are incorporated by reference into the MD&A. Certain prior period amounts may have been reclassified to conform with the current year’s presentation. Any reclassifications did not have any effect on the operating results or financial position of the Company.

Critical Accounting Policies:

Disclosure of our significant accounting policies are included in Note 1 to the consolidated financial statements of the Annual Report on Form 10-K for the year ended December 31, 2018. Some of these policies are particularly sensitive requiring significant judgments, estimates and assumptions.

Operating Environment:

The Federal Open Market Committee (“FOMC”), has maintained the target range for federal funds at 2.25% to 2.50% since their last 25 basis point rate increase in December 2018. The FOMC noted solid monthly job gains as well as low unemployment. Overall inflation has declined and remains near the committee’s long-term desired 2 percent level for items other than food and energy. The consumer price index (“CPI”) registered 2.0% for the 12 months ended March 31, 2019. This is down from 2.2% for the 12 months ended December 31, 2018 and from 2.1% for 2017. Gross domestic product (“GDP”), the value of all goods and services produced in the nation, came in with an initial first quarter reading of 3.2% annualized rate, above all forecasts for the quarter which came in at a consensus rate of 2.3%.

32

Peoples Financial Services Corp.

Management’s Discussion and Analysis

(Dollars in thousands, except per share data)

Review of Financial Position:

Total assets increased $28,951, or 5.1% annualized, to $2,317,944 at March 31, 2019, from $2,288,993 at December 31, 2018. Loans, net increased to $1,849,602 at March 31, 2019, compared to $1,823,266 at December 31, 2018, an increase of $26,336 or 5.9% annualized. The increase in loans, net during 2019 has been funded primarily by short-term borrowings due to a slight decline of deposits since year end. Deposits decreased $6,792 or 1.5% annualized in the first quarter of 2019 due to seasonal run-off of our public deposits. Interest-bearing deposits increased $22,570 while noninterest-bearing deposits decreased $29,362. Premises and equipment, net increased $5,839 and other liabilities increased $8,065, primarily due to the adoption of Accounting Standards Update (“ASU”) 2016-02 using the optional transition method under ASU 2018-11 on January 1, 2019. With the adoption of this ASU, we recognized a right-of-use asset and corresponding lease liability in the amount of $5,513 related to leased properties. Total stockholders’ equity increased $5,955 or 2.1%, from $278,614 at year-end 2018 to $284,569 at March 31, 2019. For the three months ended March 31, 2019, total assets averaged $2,311,078, an increase of $114,497 from $2,196,581 for the same period of 2018.

Investment Portfolio:

The majority of the investment portfolio is classified as available-for-sale, which allows for greater flexibility in using the investment portfolio for liquidity purposes by allowing securities to be sold when market opportunities occur. Investment securities available-for-sale totaled $270,384 at March 31, 2019, a marginal increase of $702, or 0.2% from $269,682 at December 31, 2018. The increase was primarily due to an increase in the market value of the available-for-sale portfolio due to a decline in short-term market rates, and to a lesser extent the re-investment of securities cash flows back into the portfolio to maintain an adequate liquidity position. Investment securities held-to-maturity totaled $8,162 at March 31, 2019, a decrease of $199 or 2.4% from $8,361 at December 31, 2018 due to payments received from mortgage backed holdings.

For the three months ended March 31, 2019, the investment portfolio averaged $276,657, a decrease of $2,894 or 1.0% compared to $279,551 for the same period last year. The tax-equivalent yield on the investment portfolio decreased 6 basis points to 2.55% for the three months ended March 31, 2019, from 2.61% for the comparable period of 2018. The decrease in yield is due to lower reinvestment rates for cash flow from matured and called higher yielding municipal bonds.

Securities available-for-sale are carried at fair value, with unrealized gains or losses net of deferred income taxes reported in the accumulated other comprehensive income (loss) component of stockholders’ equity. We reported net unrealized losses, included as a separate component of stockholders’ equity of $642, net of deferred income taxes of $170, at March 31, 2019, and of $2,568, net of deferred income taxes of $683, at December 31, 2018.

Our Asset/Liability Committee (“ALCO”) reviews the performance and risk elements of the investment portfolio quarterly. Through active balance sheet management and analysis of the securities portfolio, we endeavor to maintain sufficient liquidity to satisfy depositor requirements and meet the credit needs of our customers.

Loan Portfolio:

Loan growth during the three months ended March 31, 2019 was strong. Loans, net increased to $1,849,602 at March 31, 2019 from $1,823,266 at December 31, 2018, an increase of $26,336 or 5.9% annualized. The growth was primarily from commercial and industrial loans and to a lesser extent from commercial real estate loans. Partially offsetting the increases were reductions to consumer loans, primarily dealer indirect auto loans, and a slight decline to the residential real estate portfolio.  Commercial loans increased $22,622 or 18.6% annualized, to $516,756 at March 31, 2019 compared to $494,134 at December 31, 2018 due to growth in loans to both small businesses and tax-exempt entities as we focus on developing total banking relationships with these market segments. Commercial real estate loans increased $9,232, or 4.1% annualized, to $917,035 at March 31, 2019 compared to $907,803 at December 31, 2018.  Our growth in commercial  and commercial real estate loans is due in part to our continued success in executing the strategic market expansion initiative in the Lehigh Valley and Greater Delaware Valley. Consumer loans decreased $4,972, or 16.6% on an annualized basis, to $116,481 at March 31, 2019 compared to $121,453 at December 31, 2018. The decrease in consumer loans was primarily due to lower dealer indirect auto loan origination volumes resulting from the Bank’s change to the structure of its loan pricing which began during 2018.   

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Peoples Financial Services Corp.

Management’s Discussion and Analysis

(Dollars in thousands, except per share data)

Residential real estate loans decreased $546, or 0.7% on an annualized basis, to $299,330 at March 31, 2019 compared to $299,876 at December 31, 2018. The residential real estate loans decrease was due to principal reductions in our home equity line of credit portfolio and a slight increase in first lien residential mortgages as a majority of new loan originations are being underwritten based on the Bank’s guidelines and being held in portfolio.  The residential mortgage portfolio increased during the quarter despite the sale of $1,038 of non-performing mortgage loans.

For the three months ended March 31, 2019, loans, net averaged $1,845,856, an increase of $124,221 or 7.2% compared to $1,721,635 for the same period of 2018. The tax-equivalent yield on the loan portfolio was 4.72% for the three months ended March 31, 2019, a 34 basis point increase from the comparable period last year and a 6 basis point increase from the fourth quarter of 2018. The increase in yield is due to higher market rates and loan yields resulting from the FOMC’s actions to increase the Federal Funds rate 100 basis points during 2018, coupled with adjustable rate loans repricing at higher rates.

In addition to the risks inherent in our loan portfolio, in the normal course of business, we are also a party to financial instruments with off-balance sheet risk to meet the financing needs of our customers. These instruments include legally binding commitments to extend credit, unused portions of lines of credit and commercial letters of credit made under the same underwriting standards as on-balance sheet instruments, and may involve, to varying degrees, elements of credit risk and interest rate risk (“IRR”) in excess of the amount recognized in the financial statements.

Unused commitments at March 31, 2019, totaled $383,533, consisting of $354,159 in unfunded commitments of existing loan facilities and $29,374 in standby letters of credit. Due to fixed maturity dates, specified conditions within these instruments, and the ultimate needs of our customers, many will expire without being drawn upon. We believe that amounts actually drawn upon can be funded in the normal course of operations and therefore, do not represent a significant liquidity risk to us. In comparison, unused commitments at December 31, 2018 totaled $379,187, consisting of $345,912 in unfunded commitments of existing loans and $33,275 in standby letters of credit.

Asset Quality:

National, Pennsylvania, New York and market area unemployment rates at March 31, 2019 and 2018, are summarized as follows:

	2019		2018
United States	3.9	%	4.1	%
New York (statewide)	4.4		4.9
Pennsylvania (statewide)	4.1		4.8
Broome County	5.1		6.3
Bucks County	3.6		4.2
Lackawanna County	4.6		5.1
Lehigh County	4.3		5.0
Luzerne County	5.5		6.1
Monroe County	5.0		6.0
Montgomery County	3.2		3.7
Northampton County	4.3		5.0
Schuylkill County	5.2		5.9
Susquehanna County	4.7		5.2
Wayne County	5.4		6.4
Wyoming County	5.0	%	5.5	%

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Peoples Financial Services Corp.

Management’s Discussion and Analysis

(Dollars in thousands, except per share data)

The employment conditions improved for the nation, Pennsylvania, and New York and in all of the twelve counties representing our market areas in Pennsylvania and New York from one year ago. Unemployment rates have fallen to multi year lows.

Distribution of nonperforming assets

		March 31, 2019			December 31, 2018
Nonaccrual loans:
Commercial	$	5,567		$	776
Real estate:
Commercial		2,307			2,328
Residential		1,595			2,574
Consumer		238			212
Total nonaccrual loans		9,707			5,890
Troubled debt restructured loans:
Commercial		1,422			1,438
Real estate:
Commercial		1,057			719
Residential		617			622
Total troubled debt restructured loans		3,096			2,779
Accruing loans past due 90 days or more:
Real estate:
Commercial		170			73
Residential		659			850
Consumer
Total accruing loans past due 90 days or more		829			923
Total nonperforming loans		13,632			9,592
Foreclosed assets		360			376
Total nonperforming assets	$	13,992		$	9,968
Nonperforming loans as a percentage of loans, net		0.74	%		0.53	%
Nonperforming assets as a percentage of loans, net and foreclosed assets		0.76	%		0.55	%

We experienced a decline in our asset quality in the first quarter of 2019 as evidenced by an increase of $4,024 in nonperforming assets.  Nonperforming assets totaled $13,992 or 0.76% of loans, net and foreclosed assets at March 31, 2019, from $9,968 or 0.55% of loans, net and foreclosed assets at December 31, 2018. An increase in nonaccrual and restructured loans was partially offset by a decrease in accruing loans past due ninety days or more and foreclosed assets.

Loans on nonaccrual status increased $3,817 to $9,707 at March 31, 2019 from $5,890 at December 31, 2018. The majority of the increase from year end was due to an increase of $4,791 in commercial and industrial loans resulting from the placement of one large credit relationship on nonaccrual totaling $4,718. At March 31, 2019, the value of the collateral is sufficient to support the debt of this credit. A decrease in nonaccrual residential real estate loans due to a sale of a pool of non-performing loans partially offset the increase. Restructured loans increased $317 to $3,096 at March 31, 2019 from $2,779 at December 31, 2018 due in part to the addition of one commercial real estate loan totaling $340 during the first quarter of 2019. Foreclosed assets decreased $16 to $360 at March 31, 2019 from $376 at December 31, 2018.  Other real estate owned comprised seven properties at March 31, 2019 and December 31, 2018, respectively.

Generally, maintaining a high loan to deposit ratio is our primary goal in order to drive profitability. However, this objective is superseded by our attempts to ensure that asset quality remains strong. We continued our efforts to maintain sound underwriting standards for both commercial and consumer credit. Most commercial lending is done primarily with locally owned small businesses.

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Peoples Financial Services Corp.

Management’s Discussion and Analysis

(Dollars in thousands, except per share data)

We maintain the allowance for loan losses at a level we believe adequate to absorb probable credit losses related to specifically identified loans, as well as probable incurred loan losses inherent in the remainder of the loan portfolio as of the balance sheet date. The allowance for loan losses is based on past events and current economic conditions. We employ the Federal Financial Institutions Examination Council Interagency Policy Statement, as amended December 13, 2006, and GAAP in assessing the adequacy of the allowance account. Under GAAP, the adequacy of the allowance account is determined based on the provisions of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 310, “Receivables,” for loans specifically identified to be individually evaluated for impairment and the requirements of FASB ASC 450, “Contingencies,” for large groups of smaller-balance homogeneous loans to be collectively evaluated for impairment.

We follow our systematic methodology in accordance with procedural discipline by applying it in the same manner regardless of whether the allowance is being determined at a high point or a low point in the economic cycle. Each quarter, credit administration identifies those loans to be individually evaluated for impairment and those loans collectively evaluated for impairment utilizing a standard criteria. We consistently use loss experience from the latest twelve quarters in determining the historical loss factor for each pool collectively evaluated for impairment. Qualitative factors are evaluated in the same manner each quarter and are adjusted within a relevant range of values based on current conditions. For additional disclosure related to the allowance for loan losses refer to the note entitled, “Loans, net and Allowance for Loan Losses,” in the Notes to Consolidated Financial Statements to this Quarterly Report.

The allowance for loan losses increased $726 to $22,105, or 1.20% of loans, net at March 31, 2019, from $21,379, or 1.17% of loans, net at the end of 2018. For the three months ended March 31, 2019, net charge-offs were $324 or 0.07% of average loans outstanding, a $32 increase compared to $292 or 0.07% of average loans outstanding in the same period of 2018. The increase in the current period is due to the sale of a pool of non-performing residential real estate loans and subsequent charge-off totaling $39.

Deposits:

We attract the majority of our deposits from within our eleven county market area that stretches from Montgomery County in southeastern Pennsylvania to Broome County in the Southern Tier of New York State through the offering of various deposit instruments including demand deposit accounts, NOW accounts, money market deposit accounts, savings accounts, and time deposits, including certificates of deposit and IRA’s. For the three months ended March 31, 2019, total deposits decreased $6,792 or 1.5% annualized, to $1,868,230 from $1,875,022 at December 31, 2018. Interest-bearing deposits decreased $29,362 due to seasonal outflows of public deposits, while noninterest-bearing deposits increased $22,570. Interest-bearing transaction accounts, including NOW and money market accounts, experienced the majority of the municipal deposit ouflow decreasing $51,315, or 27.7% annualized, to $699,048 at March 31, 2019, from $750,363 at December 31, 2018, savings accounts increased $3,392, or 3.6% annualized to $381,549 as of March 31, 2019 from $378,157 at December 31, 2018 and time deposits less than $250 decreased $1,548, or 2.5% annualized, to $248,908 at March 31, 2019, from $250,456 at December 31, 2018. Time deposits $250 or more increased $8,473, or 40.0% annualized to $94,259 at March 31, 2019 from $85,786 at year end 2018.

For the three months ended March 31, interest-bearing deposits averaged $1,445,861 in 2019 compared to $1,323,993 in 2018, an increase of $121,868, or 9.3%. The cost of interest-bearing deposits was 0.96% in 2019 compared to 0.56% for the same period last year. For the first three months, the overall cost of interest-bearing liabilities including the cost of borrowed funds, was 1.14% in 2019 and 0.74% in 2018. The higher costs are due primarily to higher short-term market rates, the result of the FOMC’s action to increase the overnight borrowing rate 100 basis points during 2018.   

Borrowings:

The Bank utilizes borrowings as a secondary source of liquidity for its asset/liability management. Advances are available from the Federal Home Loan Bank of Pittsburgh (“FHLB”) provided certain standards related to credit worthiness have been met. Repurchase and term agreements are also available from the FHLB.

Total short-term borrowings at March 31, 2019, totaled $109,000 compared to $86,500 at December 31, 2018, an increase of $22,500. Long-term debt was $37,446 at March 31, 2019, compared to $37,906 at year end 2018. Higher short-term borrowings were the result of funding loan growth during the first quarter of 2019 as our deposit balances

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Peoples Financial Services Corp.

Management’s Discussion and Analysis

(Dollars in thousands, except per share data)

decreased. The decline in long-term debt was a product of monthly contractual amortized payments made during the three months ended March 31, 2019.

Market Risk Sensitivity:

Market risk is the risk to our earnings or financial position resulting from adverse changes in market rates or prices, such as interest rates, foreign exchange rates or equity prices. Our exposure to market risk is primarily interest rate risk (“IRR”) associated with our lending, investing and deposit-gathering activities. During the normal course of business, we are not exposed to foreign exchange risk or commodity price risk. Our exposure to IRR can be explained as the potential for change in our reported earnings and/or the market value of our net worth. Variations in interest rates affect earnings by changing net interest income and the level of other interest-sensitive income and operating expenses. Interest rate changes also affect the underlying economic value of our assets, liabilities and off-balance sheet items. These changes arise because the present value of future cash flows, and often the cash flows themselves, change with interest rates. The effects of the changes in these present values reflect the change in our underlying economic value and provide a basis for the expected change in future earnings related to interest rates. IRR is inherent in the role of banks as financial intermediaries. However, a bank with a high degree of IRR may experience lower earnings, impaired liquidity and capital positions, and most likely, a greater risk of insolvency. Therefore, banks must carefully evaluate IRR to promote safety and soundness in their activities.

As a result of economic uncertainty, a prolonged era of historically low market rates and the recent increases to short-term market rates, it has become challenging to manage IRR. Due to these factors, IRR and effectively managing it are very important to both bank management and regulators. Bank regulations require us to develop and maintain an IRR management program, overseen by the Board of Directors and senior management, that involves a comprehensive risk management process in order to effectively identify, measure, monitor and control risk. Should bank regulatory agencies identify a material weakness in our risk management process or high exposure relative to our capital, bank regulatory agencies may take action to remedy these shortcomings. Moreover, the level of IRR exposure and the quality of our risk management process is a determining factor when evaluating capital adequacy.

The ALCO, comprised of members of our Board of Directors, senior management and other appropriate officers, oversees our IRR management program. Specifically, ALCO analyzes economic data and market interest rate trends, as well as competitive pressures, and utilizes computerized modeling techniques to reveal potential exposure to IRR. This allows us to monitor and attempt to control the influence these factors may have on our rate-sensitive assets (“RSA”) and rate-sensitive liabilities (“RSL”), and overall operating results and financial position. One such technique utilizes a static gap model that considers repricing frequencies of RSA and RSL in order to monitor IRR. Gap analysis attempts to measure our interest rate exposure by calculating the net amount of RSA and RSL that reprice within specific time intervals. A positive gap occurs when the amount of RSA repricing in a specific period is greater than the amount of RSL repricing within that same time frame and is indicated by a RSA/RSL ratio greater than 1.0. A negative gap occurs when the amount of RSL repricing is greater than the amount of RSA and is indicated by a RSA/RSL ratio of less than 1.0. A positive gap implies that earnings will be impacted favorably if interest rates rise and adversely if interest rates fall during the period. A negative gap tends to indicate that earnings will be affected inversely to interest rate changes.

Our cumulative one-year RSA/RSL ratio equaled 1.34% at March 31, 2019. Given the length of time that market rates have been at historical lows and the potential for rates to increase in the future, the focus of ALCO has been to create a positive static gap position. With regard to RSA, we predominantly offer medium-term, fixed-rate loans as well as adjustable rate loans. With respect to RSL, we offer longer term promotional certificates of deposit in an attempt to increase duration. The current position at March 31, 2019, indicates that the amount of RSA repricing within one year would exceed that of RSL, thereby causing net interest income to increase as market rates increase. However, these forward-looking statements are qualified in the aforementioned section entitled “Cautionary Note Regarding Forward-Looking Statements” in this Management’s Discussion and Analysis.

Static gap analysis, although a standard measuring tool, does not fully illustrate the impact of interest rate changes on future earnings. First, market rate changes normally do not equally or simultaneously affect all categories of assets and liabilities. Second, assets and liabilities that can contractually reprice within the same period may not do so at the same time or to the same magnitude. Third, the interest rate sensitivity table presents a one-day position. Variations occur

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Peoples Financial Services Corp.

Management’s Discussion and Analysis

(Dollars in thousands, except per share data)

daily as we adjust our rate sensitivity throughout the year. Finally, assumptions must be made in constructing such a table.

As the static gap report fails to address the dynamic changes in the balance sheet composition or prevailing interest rates, we utilize a simulation model to enhance our asset/liability management. This model is used to create pro forma net interest income scenarios under various interest rate shocks. Model results at March 31, 2019, produced results similar to those indicated by the one-year static gap position. In addition, parallel and instantaneous shifts in interest rates under various interest rate shocks resulted in changes in net interest income that were well within ALCO policy limits during the first year of simulation. We will continue to monitor our IRR throughout 2019 and endeavor to employ deposit and loan pricing strategies and direct the reinvestment of loan and investment repayments in order to manage our IRR position.

Financial institutions are affected differently by inflation than commercial and industrial companies that have significant investments in fixed assets and inventories. Most of our assets are monetary in nature and change correspondingly with variations in the inflation rate. It is difficult to precisely measure the impact inflation has on us, however we believe that our exposure to inflation can be mitigated through asset/liability management.

Liquidity:

Liquidity management is essential to our continuing operations and enables us to meet financial obligations as they come due, as well as to take advantage of new business opportunities as they arise. Financial obligations include, but are not limited to, the following:

· Funding new and existing loan commitments;

· Payment of deposits on demand or at their contractual maturity;

· Repayment of borrowings as they mature;

· Payment of lease obligations; and

· Payment of operating expenses.

These obligations are managed daily, thus enabling us to effectively monitor fluctuations in our liquidity position and to adapt that position according to market influences and balance sheet trends. Future liquidity needs are forecasted and strategies are developed to ensure adequate liquidity at all times.

Historically, core deposits have been the primary source of liquidity because of their stability and lower cost, in general, than other types of funding. Providing additional sources of funds are loan and investment payments and prepayments and the ability to sell both available for sale securities and mortgage loans held for sale. We believe liquidity is adequate to meet both present and future financial obligations and commitments on a timely basis.

We employ a number of analytical techniques in assessing the adequacy of our liquidity position. One such technique is the use of ratio analysis to determine the extent of our reliance on noncore funds to fund our investments and loans maturing after March 31, 2019. Our noncore funds at March 31, 2019, were comprised of time deposits in denominations of $100 or more and other borrowings. These funds are not considered to be a strong source of liquidity because they are very interest rate sensitive and are considered to be highly volatile. At March 31, 2019, our net noncore funding dependence ratio, the difference between noncore funds and short-term investments to long-term assets, was 17.1%, while our net short-term noncore funding dependence ratio, noncore funds maturing within one-year, less short-term investments to long-term assets equaled 8.3%. Comparatively, our overall noncore dependence ratio at year-end 2018 was 15.0% and our net short-term noncore funding dependence ratio was 6.3%, indicating that our reliance on noncore funds has increased overall.

The Consolidated Statements of Cash Flows present the changes in cash and cash equivalents from operating, investing and financing activities. Cash and cash equivalents, consisting of cash on hand, cash items in the process of collection, deposit balances with other banks and federal funds sold, decreased $6,564 during the three months ended March 31,

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Peoples Financial Services Corp.

Management’s Discussion and Analysis

(Dollars in thousands, except per share data)

2019. Cash and cash equivalents decreased $10,713 for the same period last year. For the three months ended March 31, 2019, net cash inflows of $7,790 from operating activities and $12,732 from financing activities were more than offset by net cash outflows of $27,086 from investing activities. For the same period of 2018, net cash inflows of $9,885 from operating activities and $16,990 from financing activities were more than offset by net cash outflows of $37,588 from investing activities.

Operating activities provided net cash of $7,790 for the three months ended March 31, 2019, and $9,885 for the corresponding three months of 2018. Net income, adjusted for the effects of gains and losses along with noncash transactions such as depreciation and the provision for loan losses, is the primary source of funds from operations.

Investing activities primarily include transactions related to our lending activities and investment portfolio. Investing activities used net cash of $27,086 for the three months ended March 31, 2019, compared to using net cash of $37,588 for the same period of 2018. In 2019 and 2018, an increase in lending activities was the primary factor causing the net cash outflow from investing activities.

Financing activities provided net cash of $12,732 for the three months ended March 31, 2019, and provided net cash of $16,990 for the corresponding three months of 2018. Deposit gathering is our predominant financing activity. In the event that loan growth should exceed the growth in deposits, short-term borrowings fill in the gap in funding. Deposits used cash of $6,792 for the three months ended March 31, 2019. Comparatively, deposits increased $1,000 for the same period of 2018. We continue to seek deposits from new markets and customers as well as existing customers, including municipalities and school districts. Short term borrowings increased $22,500 in the three months ended March 31, 2019 compared to an increase of $18,825 for the comparable period in 2018.

We believe that our future liquidity needs will be satisfied through maintaining an adequate level of cash and cash equivalents, by maintaining readily available access to traditional funding sources, and through proceeds received from the investment and loan portfolios. The current sources of funds will enable us to meet all cash obligations as they come due.

Capital:

Stockholders’ equity totaled $284,569 or $38.46 per share at March 31, 2019, compared to $278,614 or $37.66 per share at December 31, 2018. Net income of $6,412 for the three months ended March 31, 2019 was the primary factor leading to the improved capital position. Stockholders’ equity was also affected by cash dividends declared of $2,516, stock based compensation of $83, and other comprehensive income resulting from market value fluctuations in the investment portfolio of $1,976.

Dividends declared equaled $0.34 per share through the three months ended March 31, 2019 and $0.32 per share for the same period of 2018. The dividend payout ratio was 39.1% for the three months ended March 31, 2019 and 40.5% for the same period of 2018. It is the intention of the Board of Directors to continue to pay cash dividends in the future. However, these decisions are affected by operating results, financial and economic decisions, capital and growth objectives, appropriate dividend restrictions and other relevant factors.

In July 2013, the federal banking agencies issued final rules to implement the Basel III regulatory capital reforms and changes required by the Dodd-Frank Act. The phase-in period for community banking organizations began January 1, 2015, while larger institutions (generally those with assets of $250 billion or more) began compliance on January 1, 2014. The final rules call for the following capital requirements: (i) a minimum ratio of common equity tier 1 capital to risk-weighted assets of 4.5%; (ii) a minimum ratio of tier 1 capital to risk-weighted assets of 6%; (iii) a minimum ratio of total capital to risk-weighted assets of 8%; and (iv) a minimum leverage ratio of 4%. In addition, the final rules establish a common equity tier 1 capital conservation buffer of 2.5% of risk-weighted assets applicable to all banking organizations. If a banking organization fails to hold capital above the minimum capital ratios and the capital conservation buffer, it will be subject to certain restrictions on capital distributions and discretionary bonus payments.  The capital conservation buffer for all banking organizations was phased in beginning on Janury 1, 2016, and was fully phased in on January 1, 2019.

The adequacy of capital is reviewed on an ongoing basis with reference to the size, composition and quality of resources and regulatory guidelines. We seek to maintain a level of capital sufficient to support existing assets and anticipated

39

Peoples Financial Services Corp.

Management’s Discussion and Analysis

(Dollars in thousands, except per share data)

asset growth, maintain favorable access to capital markets, and preserve high quality credit ratings. At March 31, 2019, the Bank’s Tier 1 capital to total average assets was 9.72% as compared to 9.78% at December 31, 2018. The Bank’s Tier 1 capital to risk weighted asset ratio was 11.60% and the total capital to risk weighted asset ratio was 12.77% at March 31, 2019. These ratios were 11.64% and 12.80% at December 31, 2018. The Bank’s common equity Tier 1 to risk weighted asset ratio was 11.60% at March 31, 2019 compared to 11.64% at December 31, 2018. The Bank was deemed to be well-capitalized under regulatory standards at March 31, 2019. Additionally, as of March 31, 2019, the Bank met all capital adequacy requirements under the Basel III Capital Rules on a fully phased-in basis.

Review of Financial Performance:

Net income for the first quarter of 2019 equaled $6,412 or $0.87 per share compared to $5,854 or $0.79 per share for the first quarter of 2018. The increase in earnings for the current period is the product of higher net interest income of $1,110 due to growth in our average earning assets of $121.9 million since the year ago period driven primarily from growth in average loan balances of $124.2 million. Partially offsetting the increase was lower noninterest income and higher non-interest expenses in support of our market expansion initiative. Return on average assets (“ROA”) measures our net income in relation to total assets. Our ROA was 1.13% for the first quarter of 2019 compared to 1.08% for the same period of 2018. Return on average equity (“ROE”) indicates how effectively we can generate net income on the capital invested by stockholders. Our ROE was 9.26% for the first quarter of 2019 compared to 8.89% for the comparable period in 2018.

Net Interest Income:

Net interest income is the fundamental source of earnings for commercial banks. Fluctuations in the level of net interest income can have the greatest impact on net profits. Net interest income is defined as the difference between interest revenue, interest and fees earned on interest-earning assets, and interest expense, the cost of interest-bearing liabilities supporting those assets. The primary sources of earning assets are loans and investment securities, while interest-bearing deposits, short-term and long-term borrowings comprise interest-bearing liabilities. Net interest income is impacted by:

· Variations in the volume, rate and composition of earning assets and interest-bearing liabilities;

· Changes in general market rates; and

· The level of nonperforming assets.

Changes in net interest income are measured by the net interest spread and net interest margin. Net interest spread, the difference between the average yield earned on earning assets and the average rate incurred on interest-bearing liabilities, illustrates the effects changing interest rates have on profitability. Net interest margin, net interest income as a percentage of earning assets, is a more comprehensive ratio, as it reflects not only the spread, but also the change in the composition of interest-earning assets and interest-bearing liabilities. Tax-exempt loans and investments carry pre-tax yields lower than their taxable counterparts. Therefore, in order to make the analysis of net interest income more comparable, tax-exempt income and yields are reported herein on a tax-equivalent basis using the prevailing federal statutory tax rate of 21.0% in 2019 and 2018.

For the three months ended March 31, tax-equivalent net interest income increased $1,134 to $18,738 in 2019 from $17,604 in 2018. The net interest spread decreased to 3.30% for the three months ended March 31, 2019 from 3.40% for the three months ended March 31, 2018 as the average rate paid on interest bearing liabilities increased 40 basis points while the earning asset yield increased 30 basis points. The tax-equivalent net interest margin increased to 3.58% for the first quarter of 2019 from 3.57% for the comparable period of 2018. The tax-equivalent net interest margin for the fourth quarter of 2018 was 3.63%.

For the three months ended March 31, tax-equivalent interest income on earning assets increased $2,831, to $23,242 in 2019 as compared to $20,411 in 2018. The overall yield on earning assets, on a fully tax-equivalent basis, increased 30 basis points for the three months ended March 31, 2019 to 4.44% as compared to 4.14% for the three months ended March 31, 2018. The increase in the yield on earning assets resulted from a 34 basis point increase in loan yields, 4.72% for the first quarter of 2019 compared to 4.38% for the same period last year. Loan yields increased due to higher rates

40

Peoples Financial Services Corp.

Management’s Discussion and Analysis

(Dollars in thousands, except per share data)

on new loan originations, coupled with adjustable rate loans repricing in a higher rate environment due to the Federal Open Market Committee (“FOMC”) actions to increase the effective federal funds rate 100 basis points in 2018. The overall yield earned on investments decreased 6 basis points in the first quarter of 2019 to 2.55% from 2.61% for the first quarter of 2018 as investment cashflow from high yielding matured and pre-refunded municipal bonds are being deployed into lower yielding bonds.  Average investment balances were $2,894 lower when comparing the current and year ago quarter.  

Total interest expense increased $1,697, to $4,504 for the three months ended March 31, 2019 from $2,807 for the three months ended March 31, 2018. An increase in the average balance of interest bearing liabilities of $69,034 combined with a 40 basis point increase in the cost of funds comparing the three months ended March 31, 2019 and 2018 caused the increase. Average short-term borrowings decreased $41,011 to $121,954 for the quarter ended March 31, 2019 compared to $162,965 for the corresponding year ago period as growth in deposits resulted in a reduction to short-term borrowings. The increase in interest expense for the three months ended March 31, 2019 was primarily due to higher deposit and borrowing costs which were impacted directly by the actions of the FOMC to increase the targeted federal funds rate 100 basis points during 2018, ending at a range of 2.25% to 2.50%.  

41

Peoples Financial Services Corp.

Management’s Discussion and Analysis

(Dollars in thousands, except per share data)

The average balances of assets and liabilities, corresponding interest income and expense and resulting average yields or rates paid are summarized as follows. Averages for earning assets include nonaccrual loans. Investment averages include available-for-sale securities at amortized cost. Income on investment securities and loans is adjusted to a tax equivalent basis using the prevailing federal statutory tax rate of 21%.

	Three months ended
	March 31, 2019						March 31, 2018
	Average		Interest Income/		Yield/		Average		Interest Income/		Yield/
	Balance		Expense		Rate		Balance		Expense		Rate
Assets:
Earning assets:
Loans:
Taxable	$	1,701,737	$	20,103	4.79	%	$	1,596,493	$	17,509	4.45	%
Tax-exempt		144,119		1,391	3.91			125,142		1,101	3.57
Total loans		1,845,856		21,494	4.72			1,721,635		18,610	4.38
Investments:
Taxable		185,696		1,031	2.25			171,634		912	2.15
Tax-exempt		90,961		711	3.17			107,917		887	3.33
Total investments		276,657		1,742	2.55			279,551		1,799	2.61
Interest-bearing deposits		1,028		6	2.37			467		2	1.74
Federal funds sold
Total earning assets		2,123,541		23,242	4.44	%		2,001,653		20,411	4.14	%
Less: allowance for loan losses		21,665						19,220
Other assets		209,202						214,148
Total assets	$	2,311,078	$	23,242			$	2,196,581	$	20,411
Liabilities and Stockholders’ Equity:
Interest-bearing liabilities:
Money market accounts	$	331,240	$	1,031	1.26	%	$	284,084	$	469	0.67	%
NOW accounts		391,038		707	0.73			369,737		469	0.51
Savings accounts		382,668		119	0.13			391,167		121	0.13
Time deposits less than $100		136,020		465	1.39			152,753		423	1.12
Time deposits $100 or more		204,895		1,089	2.16			126,252		352	1.13
Short-term borrowings		121,954		813	2.70			162,965		667	1.66
Long-term debt		37,663		280	3.02			49,486		306	2.51
Total interest-bearing liabilities		1,605,478		4,504	1.14			1,536,444		2,807	0.74
Noninterest-bearing deposits		406,733						377,124
Other liabilities		17,977						16,054
Stockholders’ equity		280,890						266,959
Total liabilities and stockholders’ equity	$	2,311,078		4,504			$	2,196,581		2,807
Net interest income/spread			$	18,738	3.30	%			$	17,604	3.40	%
Net interest margin					3.58	%					3.57	%
Tax-equivalent adjustments:
Loans			$	292					$	231
Investments				149						186
Total adjustments			$	441					$	417

42

Peoples Financial Services Corp.

Management’s Discussion and Analysis

(Dollars in thousands, except per share data)

Provision for Loan Losses:

We evaluate the adequacy of the allowance for loan losses account on a quarterly basis utilizing our systematic analysis in accordance with procedural discipline. We take into consideration certain factors such as composition of the loan portfolio, volumes of nonperforming loans, volumes of net charge-offs, prevailing economic conditions and other relevant factors when determining the adequacy of the allowance for loan losses account. We make monthly provisions to the allowance for loan losses account in order to maintain the allowance at the appropriate level indicated by our evaluations. Based on our most current evaluation, we believe that the allowance is adequate to absorb any known and inherent losses in the portfolio as of March 31, 2019.

The provision for loan losses totaled $1,050 for the three months ended March 31, 2019 and 2018.

Noninterest Income:

Noninterest income for the first quarter decreased $156 or 4.4% to $3,416 in 2019 from $3,572 in 2018. Service charges, fees and commissions decreased $89 to $1,999 in 2019 from $2,088 in 2018.The year ago period included bank owned life insurance proceeds in the amount of $365 which were not replicated in the first quarter of 2019. Offsetting this decrease, income related to interest rate swaps, included in service charges, fees, commissions, was $66 in the year ago period but increased to $280 in the current period due to the addition of a back-to-back interest rate swap transaction. Merchant services income decreased by $52 in a year over year comparison of the first quarter of 2019 to the same time period in 2018, $198 versus $250 while wealth management revenue decreased $34 to $377 during the three months ended March 31, 2019 from $411 in the year ago period. Commissions and fees on fiduciary activities increased $10 to $507 during the first quarter of 2019 compared to $497 for the first quarter of 2018.

Noninterest Expenses:

In general, noninterest expense is categorized into three main groups: employee-related expenses, occupancy and equipment expenses and other expenses. Employee-related expenses are costs associated with providing salaries, including payroll taxes and benefits, to our employees. Occupancy and equipment expenses, the costs related to the maintenance of facilities and equipment, include depreciation, general maintenance and repairs, real estate taxes, rental expense offset by any rental income, and utility costs. Other expenses include general operating expenses such as advertising, contractual services, insurance, including FDIC assessment, other taxes and supplies. Several of these costs and expenses are variable while the remainder are fixed. We utilize budgets and other related strategies in an effort to control the variable expenses.

For the first quarter, noninterest expense increased $409 or 3.1% to $13,490 in 2019 from $13,081 in 2018. Personnel costs increased 9.2%, net occupancy and equipment costs increased 5.2%, and all other expense categories combined, which include, professional fees and outside services, FDIC insurance and assessments, donations and other miscellaneous expenses decreased by 11.4% comparing the three months ended March 31, 2019 and 2018.

Salaries and employee benefits expense, which comprise the majority of noninterest expense, totaled $7,595 for the first quarter of 2019, an increase of $640 or 9.2% when compared to $6,955 for the first quarter of 2018. Costs related to the build out of our market expansion coupled with annual merit increases contributed to the increase. Additional professionals have been added to support our expansion in the Lehigh Valley and greater Delaware Valley markets as well as Schuylkill County. Our newest office located on West Market Street in Orwigsburg opened in December of 2018.

We experienced a $147 or 5.2% increase in net occupancy and equipment expense comparing the first quarter of 2019 at $2,961 and 2018 at $2,814. Additional expenses related to investments in our legacy offices and our market expansion into our newest markets was the primary reason for the increase. In general, as we expand and increase our presence in new markets, the depreciation expenses and technology costs associated with the maintenance and operations of new infrastructure within those markets increases.

43

Peoples Financial Services Corp.

Management’s Discussion and Analysis

(Dollars in thousands, except per share data)

For the first quarter, all other expense categories decreased $378 or 11.4% to $2,934 from $3,312 comparing 2019 to 2018. For the three months ended March 31, 2019, professional fees and outside services were lower due to insurance proceeds in the amount of $181 received as settlement to legal costs previously incurred. FDIC assessments decreased $27, or 9.4% when comparing the three month period ending March 31, 2019 to the same period in 2018, the result of an  accrual adjustment in the first quarter of 2018. Donations increased $19, or 6.1% in the three months ended March 31, 2019 when compared to the same period in 2018 as the Company has increased its support to charitable and civic organizations due to market expansion. Amortization of intangible assets decreased $27 or 9.4% as the balance of intangible assets continue to decrease, and all other expenses decreased $36 or 1.9% as we continually strive to lower overhead expenses and improve efficiencies.

Income Taxes:

We recorded income tax expense of $761 or 10.6% of pre-tax income, and $774 or 11.7% of pre-tax income for the three months ended March 31, 2019 and 2018. The three months ended March 31, 2019 includes before tax investment tax credits and other credits totaling $388 while the three months ended March 31, 2018 includes before tax investment tax credits of $270.

44

Peoples Financial Services Corp.

Item 3. Quantitative and Qualitative Disclosures about Market Risk.

Market risk is the risk to our earnings and/or financial position resulting from adverse changes in market rates or prices, such as interest rates, foreign exchange rates or equity prices. Our exposure to market risk is primarily interest rate risk (“IRR”), which arises from our lending, investing and deposit gathering activities. Our market risk sensitive instruments consist of derivative and non-derivative financial instruments, none of which are entered into for trading purposes. During the normal course of business, we are not exposed to foreign exchange risk or commodity price risk. Our exposure to IRR can be explained as the potential for change in reported earnings and/or the market value of net worth. Variations in interest rates affect the underlying economic value of assets, liabilities and off-balance sheet items. These changes arise because the present value of future cash flows, and often the cash flows themselves, change with interest rates. The effects of the changes in these present values reflect the change in our underlying economic value, and provide a basis for the expected change in future earnings related to interest rates. Interest rate changes affect earnings by changing net interest income and the level of other interest-sensitive income and operating expenses. IRR is inherent in the role of banks as financial intermediaries.

A bank with a high degree of IRR may experience lower earnings, impaired liquidity and capital positions, and most likely, a greater risk of insolvency. Therefore, banks must carefully evaluate IRR to promote safety and soundness in their activities.

Interest rate risk is the risk of loss to future earnings due to changes in interest rates.  The Asset Liability Committee (“ALCO”) is responsible for establishing policy guidelines on liquidity and acceptable exposure to interest rate risk.  Generally quarterly, the ALCO reports on the status of liquidity and interest rate risk matters to the Company’s Board of Directors. The objective of the ALCO is to manage assets and funding sources to produce results that are consistent with the Corporation’s liquidity, capital adequacy, growth, risk and profitability goals and are within policy limits.

The Company utilizes the pricing and structure of loans and deposits, the size and duration of the investment securities portfolio, the size and duration of the wholesale funding portfolio, and off-balance sheet interest rate contracts to manage interest rate risk. The off-balance sheet interest rate contracts may include interest rate swaps, caps and floors.  These interest rate contracts involve, to varying degrees, credit risk and interest rate risk.  Credit risk is the possibility that a loss may occur if a counterparty to a transaction fails to perform according to terms of the contract.  The notional amount of the interest rate contracts is the amount upon which interest and other payments are based.  The notional amount is not exchanged, and therefore, should not be taken as a measure of credit risk.  See Note 9 to the Unaudited Consolidated Financial Statements for additional information.

The ALCO uses income simulation to measure interest rate risk inherent in the Company’s on-balance sheet and off-balance sheet financial instruments at a given point in time by showing the effect of interest rate shifts on net interest income over a 24-month horizon and a 60-month horizon.  The simulations assume that the size and general composition of the Company’s balance sheet remain static over the simulation horizons, with the exception of certain deposit mix shifts from low-cost time deposits to higher-cost time deposits in selected interest rate scenarios.  Additionally, the simulations take into account the specific repricing, maturity, call options, and prepayment characteristics of differing financial instruments that may vary under different interest rate scenarios.  The characteristics of financial instrument classes are reviewed typically quarterly by the ALCO to ensure their accuracy and consistency.

The ALCO reviews simulation results to determine whether the Company’s exposure to a decline in net interest income remains within established tolerance levels over the simulation horizons and to develop appropriate strategies to manage this exposure.  As of March 31, 2019 and December 31, 2018, net interest income simulations indicated that exposure to changing interest rates over the simulation horizons remained within tolerance levels established by the Company. All changes are measured in comparison to the projected net interest income that would result from an “unchanged” rate scenario where both interest rates and the composition of the Company’s balance sheet remain stable for a 60-month period.  In addition to measuring the change in net interest income as compared to an unchanged interest rate scenario,

45

Peoples Financial Services Corp.

the ALCO also measures the trend of both net interest income and net interest margin over a 60-month horizon to ensure the stability and adequacy of this source of earnings in different interest rate scenarios.

The ALCO regularly reviews a wide variety of interest rate shift scenario results to evaluate interest rate risk exposure, including scenarios showing the effect of steepening or flattening changes in the yield curve of up to 500 basis points as well as parallel changes in interest rates of up to 400 basis points.  Because income simulations assume that the Company’s balance sheet will remain static over the simulation horizon, the results do not reflect adjustments in strategy that the ALCO could implement in response to rate shifts.

The projected impacts of instantaneous changes in interest rates on our net interest income and economic value of equity at March 31, 2019, based on our simulation model, as compared to our ALCO policy limits are summarized as follows:

	March 31, 2019
	% Change in
Changes in Interest Rates (basis points)	Net Interest Income		Economic Value of Equity
	Metric	Policy	Metric	Policy
+400	(2.6)	(20.0)	2.1	(40.0)
+300	(1.6)	(20.0)	2.5	(30.0)
+200	(0.9)	(10.0)	2.4	(20.0)
+100	(0.2)	(10.0)	2.2	(10.0)
Static
(100)	(1.6)	(10.0)	(6.9)	(10.0)

Our simulation model creates pro forma net interest income scenarios under various interest rate shocks. Given instantaneous and parallel shifts in general market rates of plus 100 basis points, our projected net interest income for the 12 months ending March 31, 2020, would decrease slightly at 0.2 percent from model results using current interest rates. Additional disclosures about market risk are included in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2018, and in Part I, Item 2 of this quarterly report, in each case under the heading “Market Risk Sensitivity,” and are incorporated into this Item 3 by reference. There were no material changes in our market risk from December 31, 2018.

The Alternative Reference Rates Committee ("ARRC") has proposed that the Secured Overnight Funding Rate ("SOFR") replace USD-LIBOR. ARRC has proposed that the transition to SOFR from USD-LIBOR will take place by the end of 2021. The Company has material contracts that are indexed to USD-LIBOR. Industry organizations are currently working on the transition plan. The Company is currently monitoring this activity and evaluating the risks involved.

Item 4. Controls and Procedures.

(a) Evaluation of disclosure controls and procedures.

At March 31, 2019, the end of the period covered by this Quarterly Report on Form 10-Q, the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”) evaluated the effectiveness of the Company’s disclosure controls and procedures as defined in Rule 13a-15(e) under the Exchange Act. Based upon that evaluation, the CEO and CFO concluded that the disclosure controls and procedures, at March 31, 2019, were effective to provide reasonable assurance that information required to be disclosed in the Company’s reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and to provide reasonable assurance that information required to be disclosed in such reports is accumulated and communicated to the CEO and CFO to allow timely decisions regarding required disclosure.

46

Peoples Financial Services Corp.

(b) Changes in internal control.

There were no changes made in the Company’s internal control over financial reporting that occurred during the Company’s most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II—OTHER INFORMATION 

Item 1. Legal Proceedings.

The nature of the Company’s business generates a certain amount of litigation involving matters arising out of the ordinary course of business. In the opinion of management, there were no legal proceedings that had or might have a material effect on the consolidated results of operations, liquidity, or the financial position of the Company during the three-months ended March 31, 2019 and through the date of this quarterly report on Form 10-Q.

Item 1A. Risk Factors.  

There have been no material changes from the risk factors previously disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

On April 28, 2017 and February 1, 2019, our board of directors reauthorized a common stock repurchase plan whereby we are authorized to repurchase up to 225,000 shares of our outstanding common stock through open market purchases.

There were no purchases made by or on behalf of the Company or any “affiliated purchaser,” as defined in the Exchange Act Rule 10b-18(a)(3), of the Company’s common stock during each of the months for the quarter ended March 31, 2019.

			Total Number of	Maximum Number
			Shares Purchased	of Shares that may
			as Part of Publicly	yet be Purchased
	Total Number of	Average Price	Announced	Under the
Month Ending	Shares Purchased	Paid Per Share	Programs	Programs
January 31, 2019		$		225,000
February 28, 2019		$		225,000
March 31, 2019		$		225,000

Item 3. Defaults upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.  

None.

47

Peoples Financial Services Corp.

Item 6. Exhibits.  

Item Number	Description	Page
31.1	CEO Certification Pursuant to Rule 13a-14 (a) /15d-14 (a).	49
31.2	CFO Certification Pursuant to Rule 13a-14 (a) /15d-14 (a).	50
32	CEO and CFO Certifications Pursuant to Section 1350.	51
101	The following materials from Peoples Financial Services Corp. Quarterly Report on Form 10-Q for the period ended March 31, 2019, formatted in XBRL: (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Income and Comprehensive Income, (iii) the Consolidated Statements of Changes in Stockholders’ Equity, (iv) the Consolidated Statements of Cash Flows and (v) the Notes to the Consolidated Financial Statements.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto, duly authorized.

	Peoples Financial Services Corp.
	(Registrant)
Date: May 9, 2019	/s/ Craig W. Best
	Craig W. Best
	President and Chief Executive Officer
	(Principal Executive Officer)
Date: May 9, 2019	/s/ John R. Anderson, III
	John R. Anderson, III
	Executive Vice President and Chief Financial Officer
	(Principal Financial Officer and Principal Accounting Officer)

48

EX-31.1

Peoples Financial Services Corp.

Exhibit 31.1

CERTIFICATION

I, Craig W. Best, certify that:

1. I have reviewed this quarterly report on Form 10-Q for the period ended March 31, 2019, of Peoples Financial Services Corp.;

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13A-15(f) and 15d-15(f)) for the registrant and have:

a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in the quarterly report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s Board of Directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/ Craig W. Best

President and Chief Executive Officer

(Principal Executive Officer)

Date: May 9, 2019

49

EX-31.2

Peoples Financial Services Corp.

Exhibit 31.2

CERTIFICATION

I, John R. Anderson, III, certify that:

1. I have reviewed this quarterly report on Form 10-Q for the period ended March 31, 2019, of Peoples Financial Services Corp.;

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13A-15(f) and 15d-15(f)) for the registrant and have:

a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in the quarterly report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s Board of Directors (or persons performing the equivalent functions):

a) all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/ John R. Anderson, III

Executive Vice President and Chief Financial  Officer

(Principal Financial Officer)

Date: May 9, 2019

50

EX-32

Peoples Financial Services Corp.

Exhibit 32

SECTION 1350 CERTIFICATIONS

In connection with the Quarterly Report on Form 10-Q of Peoples Financial Services Corp. (the “Company”) for the period ended March 31, 2019, as filed with the Securities and Exchange Commission (the “Report”), I, Craig W. Best, President and Chief Executive Officer, of the Company, certify, pursuant to 18 U.S.C. Section 1350, as added by Section 906 of the Sarbanes-Oxley Act of 2002, that:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. To my knowledge, the information contained in the Report fairly represents, in all material respects, the financial condition and results of operations of the Company as of and for the period covered by the Report.

/s/ Craig W. Best

President and Chief Executive Officer

(Principal Executive Officer)

Date: May 9, 2019

/s/ John R. Anderson, III

Executive Vice President and Chief Financial Officer

(Principal Financial Officer)

Date: May 9, 2019

A signed copy of this written statement required by Section 906 of the Sarbanes-Oxley Act of 2002 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

51

XML

Document and Entity Information - shares	3 Months Ended
	Mar. 31, 2019	Apr. 30, 2019
Document And Entity Information
Entity Registrant Name	PEOPLES FINANCIAL SERVICES CORP.
Trading Symbol	pfis
Entity Central Index Key	0001056943
Document Type	10-Q
Document Period End Date	Mar. 31, 2019
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Entity Current Reporting Status	Yes
Entity Filer Category	Accelerated Filer
Entity Small Business	false
Entity Emerging Growth Company	false
Entity Common Stock, Shares Outstanding		7,399,054
Document Fiscal Year Focus	2019
Document Fiscal Period Focus	Q1

XML

Consolidated Balance Sheets - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018
Cash and due from banks:
Cash and due from banks	$ 24,364	$ 32,569
Interest-bearing deposits in other banks	1,688	47
Total cash and due from banks	26,052	32,616
Investment securities:
Available-for-sale	270,384	269,682
Equity investments carried at fair value	292	291
Held-to-maturity: Fair value March 31, 2019, $8,310; December 31, 2018, $8,380	8,162	8,361
Total investment securities	278,838	278,334
Loans, net	1,849,602	1,823,266
Less: allowance for loan losses	22,105	21,379
Net loans	1,827,497	1,801,887
Loans held for sale		749
Premises and equipment, net	44,728	38,889
Accrued interest receivable	7,211	7,115
Goodwill	63,370	63,370
Intangible assets, net	2,104	2,296
Other assets	68,144	63,737
Total assets	2,317,944	2,288,993
Deposits:
Noninterest-bearing	432,830	410,260
Interest-bearing	1,435,400	1,464,762
Total deposits	1,868,230	1,875,022
Short-term borrowings	109,000	86,500
Long-term debt	37,446	37,906
Accrued interest payable	878	1,195
Other liabilities	17,821	9,756
Total liabilities	2,033,375	2,010,379
Stockholders’ equity:
Common stock, par value $2.00, authorized 25,000,000 shares, issued and outstanding 7,399,054 shares at March 31, 2019 and December 31, 2018	14,798	14,798
Capital surplus	135,393	135,310
Retained earnings	140,478	136,582
Accumulated other comprehensive loss	(6,100)	(8,076)
Total stockholders’ equity	284,569	278,614
Total liabilities and stockholders’ equity	$ 2,317,944	$ 2,288,993

XML

Consolidated Balance Sheets (Parenthetical) - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018
Statement of Financial Position
Held-to-maturity, Fair value	$ 8,310	$ 8,380
Common stock, par value	$ 2.00	$ 2.00
Common stock, shares authorized	25,000,000	25,000,000
Common stock, shares issued	7,399,054	7,399,054
Common stock, shares outstanding	7,399,054	7,399,054

XML

Consolidated Statements of Income and Comprehensive Income - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Interest and fees on loans:
Taxable	$ 20,103	$ 17,509
Tax-exempt	1,099	870
Interest and dividends on investment securities:
Taxable	1,010	858
Tax-exempt	562	701
Dividends	19	16
Interest on interest-bearing deposits in other banks	8	40
Total interest income	22,801	19,994
Interest expense:
Interest on deposits	3,411	1,834
Interest on short-term borrowings	813	667
Interest on long-term debt	280	306
Total interest expense	4,504	2,807
Net interest income	18,297	17,187
Provision for loan losses	1,050	1,050
Net interest income after provision for loan losses	17,247	16,137
Noninterest income:
Mortgage banking income	148	147
Life insurance investment income	186	187
Net gains on investment securities	1	(8)
Total noninterest income	3,416	3,572
Noninterest expense:
Salaries and employee benefits expense	7,595	6,955
Net occupancy and equipment expense	2,961	2,814
Amortization of intangible assets	192	230
Professional fees and outside services	331	623
FDIC insurance and assessments	259	286
Donations	332	313
Other expenses	1,820	1,860
Total noninterest expense	13,490	13,081
Income before income taxes	7,173	6,628
Income tax expense	761	774
Net income	6,412	5,854
Other comprehensive income (loss)
Unrealized gain (loss) on investment securities available-for-sale	2,439	(2,376)
Change in derivative fair value	63
Other comprehensive gain (loss)	2,502	(2,376)
Income tax expense (benefit)	526	(501)
Other comprehensive loss, net of income taxes	1,976	(1,875)
Comprehensive income	$ 8,388	$ 3,979
Net income:
Basic	$ 0.87	$ 0.79
Diluted	$ 0.87	$ 0.79
Average common shares outstanding:
Basic	7,399,054	7,396,505
Diluted	7,399,054	7,396,505
Dividends declared	$ 0.34	$ 0.32
Service charges, fees and commissions
Noninterest income:
Revenue from contracts with customers	$ 1,999	$ 2,088
Merchant services income
Noninterest income:
Revenue from contracts with customers	198	250
Commission and fees on fiduciary activities
Noninterest income:
Revenue from contracts with customers	507	497
Wealth management income
Noninterest income:
Revenue from contracts with customers	$ 377	$ 411

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Consolidated Statements of Changes in Stockholders' Equity - USD ($) $ in Thousands	Common Stock	Capital Surplus	Retained Earnings	Accumulated Other Comprehensive Income (Loss)	Total
Balance at Dec. 31, 2017	$ 14,793	$ 135,043	$ 121,353	$ (6,213)	$ 264,976
Stock based compensation		37			37
Net income			5,854		5,854
Other comprehensive income (loss), net of income taxes				(1,875)	(1,875)
Dividends declared			(2,368)		(2,368)
Balance at Mar. 31, 2018	14,793	135,080	124,841	(8,090)	266,624
Reclassification related to adoption of ASU 2016-01			2	(2)
Balance at Dec. 31, 2018	14,798	135,310	136,582	(8,076)	278,614
Stock based compensation		83			83
Net income			6,412		6,412
Other comprehensive income (loss), net of income taxes				1,976	1,976
Dividends declared			(2,516)		(2,516)
Balance at Mar. 31, 2019					284,569
Balance	$ 14,798	$ 135,393	$ 140,478	$ (6,100)	$ 284,569

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Consolidated Statements of Changes in Stockholders' Equity (Parenthetical) - $ / shares	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Statement of Stockholders' Equity
Dividends declared (in dollars per share)	$ 0.34	$ 0.32

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Consolidated Statements of Cash Flows - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Cash flows from operating activities:
Net income	$ 6,412	$ 5,854
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation of premises and equipment	596	538
Amortization of right-of-use lease asset	92
Amortization of deferred loan costs	(107)	234
Amortization of intangibles	192	230
Amortization of low income housing partnerships	119	116
Provision for loan losses	1,050	1,050
Net unrealized (gain) loss on equity investment securities	(1)	8
Net loss (gain) on sale of other real estate owned	8	(11)
Loans originated for sale	(1,501)	(2,608)
Proceeds from sale of loans originated for sale	2,278	2,729
Net gain on sale of loans originated for sale	(28)	(15)
Net amortization of investment securities	474	623
Life insurance investment income	(186)	(187)
Stock based compensation	83	37
Net change in:
Accrued interest receivable	(96)	454
Other assets	(3,823)	517
Accrued interest payable	(317)	21
Other liabilities	2,545	295
Net cash provided by operating activities	7,790	9,885
Proceeds from repayments of investment securities:
Available-for-sale	14,287	7,919
Held-to-maturity	196	242
Purchases of investment securities:
Available-for-sale	(13,021)	(9,941)
Net purchase of restricted equity securities	(964)	(1,669)
Net increase in lending activities	(26,629)	(33,730)
Purchases of premises and equipment	(1,062)	(492)
Proceeds from the sale of premises and equipment	23
Proceeds from sale of other real estate owned	84	83
Net cash used in investing activities	(27,086)	(37,588)
Cash flows from financing activities:
Net (decrease) increase in deposits	(6,792)	1,000
Repayment of long-term debt	(460)	(469)
Net increase in short-term borrowings	22,500	18,825
Cash dividends paid	(2,516)	(2,366)
Net cash provided by financing activities	12,732	16,990
Net increase (decrease) in cash and cash equivalents	(6,564)	(10,713)
Cash and cash equivalents at beginning of period	32,616	37,488
Cash and cash equivalents at end of period	26,052	26,775
Cash paid during the period for:
Interest	4,821	2,786
Income taxes	1,100	1,800
Noncash items:
Transfers of loans to other real estate	85	$ 495
Initial recognition of right-of-use assets	5,513
Initial recognition of lease liability	$ 5,513

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Summary of significant accounting policies

3 Months Ended

Mar. 31, 2019

Summary of significant accounting policies

Summary of significant accounting policies

1. Summary of significant accounting policies:

Nature of operations:

Peoples Financial Services Corp., a bank holding company incorporated under the laws of Pennsylvania, provides a full range of financial services through its wholly-owned subsidiary, Peoples Security Bank and Trust Company (“Peoples Bank”). Unless the context indicates otherwise, all references in this quarterly report to the “Peoples”, “Company”, “Bank”, “we”, “us” and “our” refer to Peoples Financial Services Corp., its subsidiaries and its and their respective predecessors. The Company services its retail and commercial customers through twenty-seven full-service community banking offices located within the Lackawanna, Lehigh, Luzerne, Monroe, Montgomery, Northampton, Susquehanna, Wayne and Wyoming Counties of Pennsylvania and Broome County of New York. 

Basis of presentation:

The accompanying unaudited consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10-01 of Regulation S-X. In the opinion of management, all normal recurring adjustments necessary for a fair presentation of the consolidated financial position and results of operations for the periods presented have been included. All significant intercompany balances and transactions have been eliminated in consolidation. Prior-period amounts are reclassified when necessary to conform to the current year’s presentation. These reclassifications did not have any effect on the consolidated operating results or financial position of the Company. The consolidated operating results and financial position of the Company for the three months ended and as of March 31, 2019, are not necessarily indicative of the results of consolidated operations and financial position that may be expected in the future.

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates that are particularly susceptible to material change in the near term relate to the determination of the allowance for loan losses, fair value of financial instruments, the valuation of real estate acquired in connection with foreclosures or in satisfaction of loans, the valuation of deferred tax assets, determination of other-than-temporary impairment losses on securities, impairment of goodwill and fair value of assets acquired and liabilities assumed in business combinations. Actual results could differ from those estimates. For additional information and disclosures required under GAAP, reference is made to the Company’s Annual Report on Form 10-K for the period ended December 31, 2018.

Recent accounting standards: .

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, “Leases”.  From the lessees’s perspective, the new standard establishes a right-of-use (“ROU”) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months.  The ROU asset and lease liability are calculated based on the present value of future lease payments using an estimated incremental borrowing rate.  The Company utilized the incremental borrowing rate of interest on a collateralized basis for the lease term as quoted by the Federal Home Bank of Pittsburgh.

Leases are classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement for a lessee.  From the lessor’s perspective, the new standard requires a lessor to classify leases as either sales-type, finance or operating.  A lease is treated as a sale if it transfers all of the risks and rewards, as well as control of the underlying asset, to the lessee.  If risks and rewards are conveyed without the transfer of control, the lease is treated as a financing.  If the lessor doesn’t convey risks and rewards or control, an operating lease results.  The amendments in this ASU are effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2018.

The new standard provides a number of optional practical expedients in transition. We have elected the "package of practical expedients," which permit us not to reassess under the new standard our prior conclusions about lease identification, lease classification and initial direct costs. We elected the "use-of-hindsight" practical expedient which allows us to use hindsight in judgments that impact the lease term. In order to establish the value of the ROU and lease liability and in accordance with the guidance, management determined the term of the leases held by carefully evaluating and assessing each lease and applying economic and other relevant factors to determine whether the Company is reasonably certain to exercise or not to exercise a renewal option within each lease. We have also elected an accounting policy not to restate comparative periods upon adoption. The Company elected to adopt this pronouncement using the optional transition method under ASU 2018-11 as of January 1, 2019 and recorded right-of-use assets and lease liabilities for operating leases of $5,513 on its consolidated balance sheets, with no adjustment to stockholders’ equity and no material impact to its consolidated statements of income and comprehensive income.

In July 2018, the FASB issued ASU No. 2018-11, “Leases - Targeted Improvements” to provide entities with relief from the costs of implementing certain aspects of the new leasing standard, ASU No. 2016-02. Specifically, under the amendments in ASU 2018-11: (1) entities may elect not to recast the comparative periods presented when transitioning to the new leasing standard, and (2) lessors may elect not to separate lease and non-lease components when certain conditions are met. The amendments were adopted on January 1, 2019 and did not have a material impact on the Company’s consolidated financial statements.

In March 2019, the FASB issued ASU 2019-01, “Leases (Topic 842) Codification Improvements” which was issued to address lessors’ concerns about determining fair value of underlying leased assets and presentation issues in the statement of cash flows for sales-type and direct financing leases. ASU 2019-01 also clarified for both lessees and lessors that transition disclosures related to Topic 250 were not required for annual periods are also not required for interim periods. ASU 2019-01 was effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2019, with early adoption permitted. The Company early adopted this ASU 2019-01 effective January 1, 2019 and it did not have a material impact on the Company’s consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” This ASU will have a significant impact on the Company’s calculation and accounting for its allowance for loan losses as well as credit losses related to investment securities available-for-sale. A summary of significant provisions of this ASU is as follows:

	The ASU requires that a financial asset (or a group of financial assets) measured at amortized cost basis be presented, net of a valuation allowance for credit losses, at an amount expected to be collected on the financial asset(s), and that the income statement include the measurement of credit losses for newly recognized financial assets as well as changes in expected losses on previously recognized financial assets. The provisions of this ASU require measurement of expected credit losses based on relevant information including past events, historical experience, current conditions, and reasonable and supportive forecasts that affect the collectability of the asset. The provisions of this ASU differ from current GAAP in that current GAAP generally delays recognition of the full amount of credit losses until the loss is probable of occurring.
	The amendments in the ASU retain many of the disclosure requirements related to credit quality in current  GAAP, updated to reflect the change from an incurred loss methodology to an expected credit loss methodology. In addition, the ASU requires that disclosure of credit quality indicators in relation to the amortized cost of financing receivables, a current requirement, be further disaggregated by year of origination.
	This ASU requires that credit losses on available-for-sale debt securities be presented as an allowance rather than as a write-down, and limits the amount of the allowance for credit losses to the amount by which the fair value is below amortized cost. For purchased investment securities available-for-sale with a more-than-insignificant
	amount of credit deterioration since origination, the ASU requires an allowance be determined in a manner similar to other investment securities available-for-sale; however, the initial allowance would be added to the purchase price, with only subsequent changes in the allowance recorded in credit loss expense, and interest income recognized at the effective rate excluding the discount embedded in the purchase price related to estimated credit losses at acquisition.
	This ASU will be effective for the Company for interim and annual periods beginning in the first quarter of 2020. Earlier adoption is permitted beginning in the first quarter of 2019. The Company will record the effect of implementing this ASU through a cumulative-effect adjustment through retained earnings as of the beginning of the reporting period in which Topic 326 is effective.

We are evaluating the impact of the ASU on our consolidated financial statements. In addition to our allowance for loan losses, we will also record an allowance for credit losses on debt securities instead of applying the impairment model currently utilized. The amount of the adjustments will be impacted by each portfolio’s composition and credit quality at the adoption date as well as economic conditions and forecasts at that time.

In August 2018, the FASB issued ASU 2018-13 Fair Value Measurement (Topic 820): “Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement” modifies the disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement, based on the FASB Concepts Statement, “Conceptual Framework for Financial Reporting – Chapter 8: Notes to Financial Statements”. In accordance with the Concepts Statement, this ASU removes, modifies and adds select disclosure requirements under Topic 820 after consideration of costs and benefits. ASU 2018-13 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019 for public entities, with early adoption permitted. The adoption of this guidance on January 1, 2020 is not expected to have a material effect on the Company’s consolidated financial statements.

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Other comprehensive loss

3 Months Ended

Mar. 31, 2019

Other comprehensive loss

Other comprehensive loss

2. Other comprehensive loss:

The components of other comprehensive loss and their related tax effects are reported in the Consolidated Statements of Income and Comprehensive Income. The accumulated other comprehensive loss included in the Consolidated Balance Sheets relates to net unrealized gains and losses on investment securities available-for-sale and benefit plan adjustments.

The components of accumulated other comprehensive loss included in stockholders’ equity at March 31,  2019 and December 31,  2018 is as follows:

		March 31, 2019		December 31, 2018
Net unrealized loss on investment securities available-for-sale	$	(812)	$	(3,251)
Income tax		(170)		(683)
Net of income taxes		(642)		(2,568)
Benefit plan adjustments		(7,218)		(7,218)
Income tax		(1,516)		(1,516)
Net of income taxes		(5,702)		(5,702)
Derivative adjustments		309		246
Income tax		65		52
Net of income taxes		244		194
Accumulated other comprehensive loss	$	(6,100)	$	(8,076)

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Earnings per share

3 Months Ended

Mar. 31, 2019

Earnings per share

Earnings per share

3. Earnings per share:

Basic earnings per share represent income available to common stockholders divided by the weighted-average number of common shares outstanding during the period. Diluted earnings per share reflect additional common shares that would have been outstanding if dilutive potential common shares had been issued, as well as any adjustment to income that would result from the assumed issuance.

There were no shares considered anti-dilutive for the three month periods ended March 31, 2019 and 2018.

	2019				2018
For the Three Months Ended March 31	Basic		Diluted		Basic		Diluted
Net income	$	6,412	$	6,412	$	5,854	$	5,854
Average common shares outstanding		7,399,054		7,399,054		7,396,505		7,396,505
Earnings per share	$	0.87	$	0.87	$	0.79	$	0.79

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Investment securities

3 Months Ended

Mar. 31, 2019

Investment securities

Investment securities

4. Investment securities:

The amortized cost and fair value of investment securities aggregated by investment category at March 31, 2019 and December 31, 2018 are summarized as follows:

			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
March 31, 2019	Cost		Gains		Losses		Value
Available-for-sale:
U.S. Treasury securities	$	23,954	$	35	$	232	$	23,757
U.S. Government-sponsored enterprises		93,914		9		1,373		92,550
State and municipals:
Taxable		13,017		328				13,345
Tax-exempt		83,273		471		169		83,575
Residential Mortgage-backed securities:
U.S. Government agencies		11,716		80		56		11,740
U.S. Government-sponsored enterprises		39,064		408		202		39,270
Commercial Mortgage-backed securities:
U.S. Government-sponsored enterprises		6,258				111		6,147
Total	$	271,196	$	1,331	$	2,143	$	270,384
Held-to-maturity:
Tax-exempt state and municipals	$	6,855	$	119			$	6,974
Residential Mortgage-backed securities:
U.S. Government agencies		40						40
U.S. Government-sponsored enterprises		1,267		32	$	3		1,296
Total	$	8,162	$	151	$	3	$	8,310

			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
December 31, 2018	Cost		Gains		Losses		Value
Available-for-sale:
U.S. Treasury securities	$	25,948		9	$	365	$	25,592
U.S. Government-sponsored enterprises		94,999	$	2		2,183		92,818
State and municipals:
Taxable		13,544		309				13,853
Tax-exempt		86,361		338		745		85,954
Residential Mortgage-backed securities:
U.S. Government agencies		12,663		50		84		12,629
U.S. Government-sponsored enterprises		33,149		49		401		32,797
Commercial Mortgage-backed securities:
U.S. Government-sponsored enterprises		6,269				230		6,039
Total	$	272,933	$	757	$	4,008	$	269,682
Held-to-maturity:
Tax-exempt state and municipals	$	6,855	$	12	$	43	$	6,824
Residential Mortgage-backed securities:
U.S. Government agencies		42						42
U.S. Government-sponsored enterprises		1,464		55		5		1,514
Total	$	8,361	$	67	$	48	$	8,380

Equity Securities

Our equity securities portfolio consists of stock of two other financial institutions. At March 31, 2019 and December 31, 2018, we had $292 and $291, respectively, in equity securities recorded at fair value. At March 31, 2019, the fair value of our equity portfolio exceeded the cost basis by $15.  The following is a summary of unrealized and realized gains and losses recognized in net income on equity securities during the three months ended March 31, 2019 (in thousands):

For the Three Months Ended March 31,		2019		2018
Net gains recognized during the period on equity securities	$	1	$	(8)
Unrealized gains recognized during the reporting period on equity securities still held at the reporting date	$	1	$	(8)

Restricted Investment In Stock

Restricted investment in stock includes Federal Home Loan Bank of Pittsburgh (“FHLB”) with a carrying cost of $8,384 and $7,420 at March 31, 2019 and December 31, 2018, respectively and Atlantic Community Bankers Bank (“ACBB”) stock with a carrying cost of $42 and VISA Class B stock with a carry cost of $0 at March 31, 2019 and December 31, 2018, are included in other assets in the consolidated balance sheets. FHLB and ACBB stock was issued as a requirement to facilitate participation in borrowing and other banking services. The investment in FHLB stock may fluctuate, as it is based on the member banks’ use of FHLB’s services.

The Company owns 44,982 shares of Visa Class B stock, which was necessary to participate in Visa services in support of the Company’s credit card, debit card, and related payment programs (permissible activities under banking regulations) as a member institution. Following the resolution of Visa’s covered litigation, shares of Visa’s Class B stock will be converted to Visa Class A shares using a conversion factor (1.6298 as of March 31, 2019), which is periodically adjusted to reflect VISA’s ongoing litigation costs. There is a very limited market for this stock, as only current owners of Class B shares are permitted to transact in Class B. Due to the lack of orderly trades and public information of such trades, Visa Class B stock has no readily determinable fair value.

These restricted investments are carried at cost and evaluated for other-than-temporary impairment (“OTTI”) periodically. As of March 31, 2019, there was no OTTI associated with these investments.

The maturity distribution of the fair value, which is the net carrying amount, of the debt securities classified as available-for-sale at March 31, 2019, is summarized as follows:

	Fair
March 31, 2019	Value
Within one year	$	41,366
After one but within five years		142,465
After five but within ten years		13,925
After ten years		15,471
		213,227
Mortgage-backed securities		57,157
Total	$	270,384

The maturity distribution of the amortized cost and fair value, of debt securities classified as held-to-maturity at March 31, 2019, is summarized as follows:

	Amortized		Fair
March 31, 2019	Cost		Value
Within one year
After one but within five years
After five but within ten years
After ten years	$	6,855	$	6,974
		6,855		6,974
Mortgage-backed securities		1,307		1,336
Total	$	8,162	$	8,310

Securities with a carrying value of $158,116 and $161,647 at March 31, 2019 and December 31, 2018, respectively, were pledged to secure public deposits and certain other deposits as required or permitted by law.

Securities and short-term investment activities are conducted with a diverse group of government entities, corporations and state and local municipalities. The counterparty’s creditworthiness and type of collateral is evaluated on a case-by-case basis. At March 31, 2019 and December 31, 2018, there were no significant concentrations of credit risk from any one issuer, with the exception of U.S. Government agencies and sponsored enterprises, that exceeded 10.0 percent of stockholders’ equity.

The fair value and gross unrealized losses of investment securities with unrealized losses for which an OTTI has not been recognized at March 31, 2019 and December 31, 2018, aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position, are summarized as follows:

	Less Than 12 Months				12 Months or More				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
March 31, 2019	Value		Losses		Value		Losses		Value		Losses
U.S. Treasury securities					$	19,799	$	232	$	19,799	$	232
U.S. Government-sponsored enterprises						90,466		1,373		90,466		1,373
State and municipals:
Tax-exempt	$	1,854	$	3		31,468		166		33,322		169
Residential Mortgage-backed securities:
U.S. Government agencies						6,946		56		6,946		56
U.S. Government-sponsored enterprises		360		1		12,873		204		13,233		205
Commercial Mortgage-backed securities:
U.S. Government-sponsored enterprises						6,147		111		6,147		111
Total	$	2,214	$	4	$	167,699	$	2,142	$	169,913	$	2,146

	Less Than 12 Months				12 Months or More				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
December 31, 2018	Value		Losses		Value		Losses		Value		Losses
U.S. Treasury securities	$	1,995	$	2	$	19,671	$	363	$	21,666	$	365
U.S. Government-sponsored enterprises		2,037		1		89,729		2,182		91,766		2,183
State and municipals:
Tax-exempt		9,022		74		52,352		714		61,374		788
Residential Mortgage-backed securities:
U.S. Government agencies						7,800		84		7,800		84
U.S. Government-sponsored enterprises		12,851		55		13,881		351		26,732		406
Commercial Mortgage-backed securities:
U.S. Government-sponsored enterprises						6,039		230		6,039		230
Total	$	25,905	$	132	$	189,472	$	3,924	$	215,377	$	4,056

The Company had 137 investment securities, consisting of 60 tax-exempt state and municipal obligations, 7 U.S. Treasury securities, 35 U.S. Government-sponsored enterprise securities, and 35 mortgage-backed securities that were in unrealized loss positions at March 31, 2019. Of these securities, 7 U.S. Treasury securities, 35 U.S. Government-sponsored enterprise securities, 57 tax-exempt state and municipal obligations, and 32 mortgage-backed securities were in a continuous unrealized loss position for twelve months or more. Management does not consider the unrealized losses on the debt securities, as a result of changes in interest rates, to be OTTI based on historical evidence that indicates the cost of these securities is recoverable within a reasonable period of time in relation to normal cyclical changes in the market rates of interest. Moreover, because there has been no material change in the credit quality of the issuers or other events or circumstances that may cause a significant adverse impact on the fair value of these securities, and management does not intend to sell these securities and it is unlikely that the Company will be required to sell these securities before recovery of their amortized cost basis, which may be maturity, the Company does not consider the unrealized losses to be OTTI at March 31, 2019. There was no OTTI recognized for the three months ended March 31, 2019 and 2018.

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Loans, net and allowance for loan losses

3 Months Ended

Mar. 31, 2019

Loans, net and allowance for loan losses

Loans, net and allowance for loan losses

5. Loans, net and allowance for loan losses:

The major classifications of loans outstanding, net of deferred loan origination fees and costs at March 31, 2019 and December 31, 2018 are summarized as follows. Net deferred loan costs were $851 and $744 at March 31, 2019 and December 31, 2018.

		March 31, 2019		December 31, 2018
Commercial	$	516,756	$	494,134
Real estate:
Commercial		917,035		907,803
Residential		299,330		299,876
Consumer		116,481		121,453
Total	$	1,849,602	$	1,823,266

The changes in the allowance for loan losses account by major classification of loan for the three months ended March 31, 2019 and 2018 are summarized as follows:

			Real estate
March 31, 2019	Commercial		Commercial		Residential		Consumer		Total
Allowance for loan losses:
Beginning Balance January 1, 2019	$	5,516	$	10,736	$	3,892	$	1,235	$	21,379
Charge-offs		(77)		(6)		(159)		(132)		(374)
Recoveries		8				4		38		50
Provisions		508		344		143		55		1,050
Ending balance	$	5,955	$	11,074	$	3,880	$	1,196	$	22,105
			Real estate
March 31, 2018	Commercial		Commercial		Residential		Consumer		Total
Allowance for loan losses:
Beginning Balance January 1, 2018	$	5,052	$	7,548	$	4,980	$	1,380	$	18,960
Charge-offs						(299)		(127)		(426)
Recoveries		57		27		10		40		134
Provisions		297		524		148		81		1,050
Ending balance	$	5,406	$	8,099	$	4,839	$	1,374	$	19,718

The allocation of the allowance for loan losses and the related loans by major classifications of loans at March 31, 2019 and December 31, 2018 is summarized as follows:

			Real estate
March 31, 2019	Commercial		Commercial		Residential		Consumer		Total
Allowance for loan losses:
Ending balance	$	5,955	$	11,074	$	3,880	$	1,196	$	22,105
Ending balance: individually evaluated for impairment		138		389		461				988
Ending balance: collectively evaluated for impairment	$	5,817	$	10,685	$	3,419	$	1,196	$	21,117
Loans receivable:
Ending balance	$	516,756	$	917,035	$	299,330	$	116,481	$	1,849,602
Ending balance: individually evaluated for impairment		7,012		3,535		2,895		238		13,680
Ending balance: collectively evaluated for impairment	$	509,744	$	913,500	$	296,435	$	116,243	$	1,835,922

			Real estate
December 31, 2018	Commercial		Commercial		Residential		Consumer		Total
Allowance for loan losses:
Ending balance	$	5,516	$	10,736	$	3,892	$	1,235	$	21,379
Ending balance: individually evaluated for impairment		50		403		666		60		1,179
Ending balance: collectively evaluated for impairment	$	5,466	$	10,333	$	3,226	$	1,175	$	20,200
Loans receivable:
Ending balance	$	494,134	$	907,803	$	299,876	$	121,453	$	1,823,266
Ending balance: individually evaluated for impairment		2,237		3,121		4,071		212		9,641
Ending balance: collectively evaluated for impairment	$	491,897	$	904,682	$	295,805	$	121,241	$	1,813,625

The Company segments loans into risk categories based on relevant information about the ability of borrowers to service their debt such as current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. Loans are individually analyzed for credit risk by classifying them within the Company’s internal risk rating system. The Company’s risk rating classifications are defined as follows:

· Pass- A loan to borrowers with acceptable credit quality and risk that is not adversely classified as Substandard, Doubtful, Loss nor designated as Special Mention.

· Special Mention- A loan that has potential weaknesses that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or in the institution’s credit position at some future date. Special Mention loans are not adversely classified since they do not expose the Company to sufficient risk to warrant adverse classification.

· Substandard- A loan that is inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified must have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the bank will sustain some loss if the deficiencies are not corrected.

· Doubtful – A loan classified as Doubtful has all the weaknesses inherent in one classified Substandard with the added characteristic that the weaknesses make the collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

· Loss- A loan classified as Loss is considered uncollectible and of such little value that its continuance as bankable loan is not warranted. This classification does not mean that the loan has absolutely no recovery or salvage value, but rather it is not practical or desirable to defer writing off this basically worthless asset even though partial recovery may be affected in the future.

The following tables present the major classification of loans summarized by the aggregate pass rating and the classified ratings of special mention, substandard and doubtful within the Company’s internal risk rating system at March 31, 2019 and December 31, 2018:

			Special
March 31, 2019	Pass		Mention		Substandard		Doubtful	Total
Commercial	$	509,531	$	3,090	$	4,135	$	$	516,756
Real estate:
Commercial		894,059		5,309		17,667			917,035
Residential		296,497		355		2,478			299,330
Consumer		116,225				256			116,481
Total	$	1,816,312	$	8,754	$	24,536	$	$	1,849,602

			Special
December 31, 2018	Pass		Mention		Substandard		Doubtful	Total
Commercial	$	491,531	$	869	$	1,734	$	$	494,134
Real estate:
Commercial		886,849		8,934		12,020			907,803
Residential		295,758		357		3,761			299,876
Consumer		121,229				224			121,453
Total	$	1,795,367	$	10,160	$	17,739	$	$	1,823,266

Information concerning nonaccrual loans by major loan classification at March 31, 2019 and December 31, 2018 is summarized as follows:

		March 31, 2019		December 31, 2018
Commercial	$	5,567	$	776
Real estate:
Commercial		2,642		2,663
Residential		1,600		2,580
Consumer		238		212
Total	$	10,047	$	6,231

The major classifications of loans by past due status are summarized as follows:

					Greater								Loans > 90
	30-59 Days		60-89 Days		than 90		Total Past						Days and
March 31, 2019	Past Due		Past Due		Days		Due		Current		Total Loans		Accruing
Commercial	$	85	$	183	$	5,567	$	5,835	$	510,921	$	516,756
Real estate:
Commercial		1,077		976		2,812		4,865		912,170		917,035	$	170
Residential		2,204		831		2,259		5,294		294,036		299,330		659
Consumer		434		135		238		807		115,674		116,481
Total	$	3,800	$	2,125	$	10,876	$	16,801	$	1,832,801	$	1,849,602	$	829

The Company classifies all nonaccrual loans in the greater than 90 days category.

					Greater								Loans > 90
	30-59 Days		60-89 Days		than 90		Total Past						Days and
December 31, 2018	Past Due		Past Due		Days		Due		Current		Total Loans		Accruing
Commercial	$	973	$	79	$	776	$	1,828	$	492,306	$	494,134
Real estate:
Commercial		1,889		218		2,736		4,843		902,960		907,803	$	73
Residential		2,486		1,545		3,430		7,461		292,415		299,876		850
Consumer		756		292		212		1,260		120,193		121,453
Total	$	6,104	$	2,134	$	7,154	$	15,392	$	1,807,874	$	1,823,266	$	923

The following tables summarize information concerning impaired loans as of and for the three months ended March 31, 2019 and March 31, 2018, and as of and for the year ended, December 31, 2018 by major loan classification:

							For the Quarter Ended
			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
March 31, 2019	Investment		Balance		Allowance		Investment		Recognized
With no related allowance:
Commercial	$	6,072	$	6,407			$	3,817	$	17
Real estate:
Commercial		2,098		2,184				2,034		13
Residential		860		1,287				1,415		7
Consumer		238		245				195
Total		9,268		10,123				7,461		37
With an allowance recorded:
Commercial		940		990		138		808		7
Real estate:
Commercial		1,437		1,563		389		1,295		5
Residential		2,035		2,078		461		2,068		11
Consumer								30
Total		4,412		4,631		988		4,201		23
Total impaired loans
Commercial		7,012		7,397		138		4,625		24
Real estate:
Commercial		3,535		3,747		389		3,329		18
Residential		2,895		3,365		461		3,483		18
Consumer		238		245				225
Total	$	13,680	$	14,754	$	988	$	11,662	$	60

							For the Year Ended
			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
December 31, 2018	Investment		Balance		Allowance		Investment		Recognized
With no related allowance:
Commercial	$	1,562	$	1,900			$	1,318	$	67
Real estate:
Commercial		1,969		2,299				2,822		28
Residential		1,970		2,658				2,193		22
Consumer		152		160				135
Total		5,653		7,017				6,468		117
With an allowance recorded:
Commercial		675		675		50		1,006		30
Real estate:
Commercial		1,152		1,323		403		1,676		18
Residential		2,101		2,328		666		1,585		22
Consumer		60		60		60		21
Total		3,988		4,386		1,179		4,288		70
Total impaired loans
Commercial		2,237		2,575		50		2,324		97
Real estate:
Commercial		3,121		3,622		403		4,498		46
Residential		4,071		4,986		666		3,778		44
Consumer		212		220		60		156
Total	$	9,641	$	11,403	$	1,179	$	10,756	$	187

							For the Quarter Ended
			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
March 31, 2018	Investment		Balance		Allowance		Investment		Recognized
With no related allowance:
Commercial	$	1,211	$	1,375			$	1,246	$	17
Real estate:
Commercial		2,970		3,312				2,929		6
Residential		2,289		2,762				2,243		4
Consumer		151		159				160
Total		6,621		7,608				6,578		27
With an allowance recorded:
Commercial		1,133		1,158	$	144		1,159		8
Real estate:
Commercial		2,402		2,520		1,411		1,902		6
Residential		1,491		1,977		182		1,544		4
Consumer		18		18		18		13
Total		5,044		5,673		1,755		4,618		18
Total impaired loans
Commercial		2,344		2,533		144		2,405		25
Real estate:
Commercial		5,372		5,832		1,411		4,831		12
Residential		3,780		4,739		182		3,787		8
Consumer		169		177		18		173
Total	$	11,665	$	13,281	$	1,755	$	11,196	$	45

Included in the commercial loan and commercial and residential real estate categories are troubled debt restructurings that are classified as impaired. Troubled debt restructurings totaled $3,096 at March 31, 2019, $2,779 at December 31, 2018 and $3,032 at March 31, 2018.

Troubled debt restructured loans are loans with original terms, interest rate, or both, that have been modified as a result of a deterioration in the borrower’s financial condition and a concession has been granted that the Company would not otherwise consider. Unless on nonaccrual, interest income on these loans is recognized when earned, using the interest method. The Company offers a variety of modifications to borrowers that would be considered concessions. The modification categories offered generally fall within the following categories:

· Rate Modification - A modification in which the interest rate is changed to a below market rate.

· Term Modification - A modification in which the maturity date, timing of payments or frequency of payments is changed.

· Interest Only Modification - A modification in which the loan is converted to interest only payments for a period of time.

· Payment Modification - A modification in which the dollar amount of the payment is changed, other than an interest only modification described above.

· Combination Modification - Any other type of modification, including the use of multiple categories above.

There was one commercial real estate loan modified as a troubled debt restructuring for the three months ended March 31, 2019 in the amount of $340. There were no loans modified as a troubled debt restructurings for the three months ended March 31, 2018. During the three months ended March 31, 2019, there were no payment defaults on restructured loans. During the three months ended March 31, 2018, there was one payment default on a restructured residential mortgage loan with an outstanding balance of $64. 

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Other assets

3 Months Ended

Mar. 31, 2019

Other assets.

Other assets

6. Other assets:

The components of other assets at March 31, 2019, and December 31, 2018 are summarized as follows:

		March 31, 2019		December 31, 2018
Other real estate owned	$	360	$	376
Investment in low income housing partnership		7,258		7,377
Mortgage servicing rights		709		718
Bank owned life insurance		34,474		34,288
Restricted equity securities		8,426		7,462
Net deferred tax asset		4,556		5,081
Other assets		12,361		8,435
Total	$	68,144	$	63,737

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Fair value estimates

3 Months Ended

Mar. 31, 2019

Fair value estimates

Fair value estimates

7. Fair value estimates:

The Company uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosure under GAAP. Fair value estimates are calculated without attempting to estimate the value of anticipated future business and the value of certain assets and liabilities that are not considered financial. Accordingly, such assets and liabilities are excluded from disclosure requirements.

In accordance with FASB ASC 820, “Fair Value Measurements and Disclosures,” fair value is the price that would be received to sell an asset or transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is best determined based upon quoted market prices. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets. In many cases, these values cannot be realized in immediate settlement of the instrument.

Current fair value guidance provides a consistent definition of fair value, which focuses on exit price in an orderly transaction that is not a forced liquidation or distressed sale between participants at the measurement date under current market conditions. If there has been a significant decrease in the volume and level of activity for the asset or liability, a change in valuation technique or the use of multiple valuation techniques may be appropriate. In such instances, determining the price at which willing market participants would transact at the measurement date under current market conditions depends on the facts and circumstances and requires the use of significant judgment. The fair value is a reasonable point within the range that is most representative of fair value under current market conditions.

In accordance with GAAP, the Company groups its assets and liabilities generally measured at fair value into three levels based on market information or other fair value estimates in which the assets and liabilities are traded or valued and the reliability of the assumptions used to determine fair value. These levels include:

· Level 1: Unadjusted quoted prices of identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

· Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

· Level 3: Significant unobservable inputs that reflect a reporting entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

An asset’s or liability’s placement in the fair value hierarchy is based on the lowest level of input that is significant to the fair value estimate.

During the periods ended March 31, 2019 and December 31, 2018 there were no significant transfers between Level 1 and Level 2 and no transfers in or out of Level 3. 

The following methods and assumptions were used by the Company to calculate fair values and related carrying amounts of financial instruments:

Investment securities: The fair values of U.S. Treasury securities and marketable equity securities are based on quoted market prices from active exchange markets. The fair values of debt securities are based on pricing from a matrix pricing model.

Loans held for sale: The fair values of loans held for sale are based upon current delivery prices in the secondary mortgage market.

Interest rate swaps:  The Company’s interest rate swaps are reported at fair value utilizing Level 2 inputs. Values of these instruments are obtained through an independent pricing source utilizing information which may include market observed quotations for swaps, Libor rates, forward rates and rate volatility. Derivative contracts create exposure to interest rate movements as well as risks from the potential of non-performance of the counterparty.

Assets and liabilities measured at fair value on a recurring basis at March 31, 2019 and December 31, 2018 are summarized as follows:

	Fair Value Measurement Using
			Quoted Prices in		Significant		Significant
			Active Markets for		Other Observable		Unobservable
			Identical Assets		Inputs		Inputs
March 31, 2019	Amount		(Level 1)		(Level 2)		(Level 3)
U.S. Treasury securities	$	23,757	$	23,757			$
U.S. Government-sponsored enterprises		92,550			$	92,550
State and Municipals:
Taxable		13,345				13,345
Tax-exempt		83,575				83,575
Mortgage-backed securities:
U.S. Government agencies		11,740				11,740
U.S. Government-sponsored enterprises		45,417				45,417
Common equity securities		292		292
Interest rate floor-other assets		597				597
Interest rate swap-other assets		1,328				1,328
Interest rate swap-other liabilities		(1,468)				(1,468)
Total	$	271,133	$	24,049	$	247,084	$

	Fair Value Measurement Using
			Quoted Prices in		Significant		Significant
			Active Markets for		Other Observable		Unobservable
			Identical Assets		Inputs		Inputs
December 31, 2018	Amount		(Level 1)		(Level 2)		(Level 3)
U.S. Treasury securities	$	25,592	$	25,592			$
U.S. Government-sponsored enterprises		92,818			$	92,818
State and Municipals:
Taxable		13,853				13,853
Tax-exempt		85,954				85,954
Mortgage-backed securities:
U.S. Government agencies		12,629				12,629
U.S. Government-sponsored enterprises		38,836				38,836
Common equity securities		291		291
Interest rate floor-other assets		553				553
Interest rate swap-other assets		108				108
Interest rate swap-other liabilities		(138)				(138)
Total	$	270,496	$	25,883	$	244,613	$

Assets and liabilities measured at fair value on a nonrecurring basis at March 31, 2019 and December 31, 2018 are summarized as follows:

	Fair Value Measurement Using
			Quoted Prices in	Significant	Significant
			Active Markets for	Other Observable	Unobservable
			Identical Assets	Inputs	Inputs
March 31, 2019	Amount		(Level 1)	(Level 2)	(Level 3)
Impaired loans	$	3,424			$	3,424
Other real estate owned	$	289			$	289

	Fair Value Measurement Using
			Quoted Prices in	Significant Other	Significant
			Active Markets for	Observable	Unobservable
			Identical Assets	Inputs	Inputs
December 31, 2018	Amount		(Level 1)	(Level 2)	(Level 3)
Impaired loans	$	2,809			$	2,809
Other real estate owned	$	234			$	234

Fair values of impaired loans are based on the present value of expected future cash flows discounted at the loan’s effective interest rate or the fair value of the collateral if the loan is collateral dependent.

The following table presents additional quantitative information about assets measured at fair value on a nonrecurring basis and for which the Company has utilized Level 3 inputs to determine fair value:

	Quantitative Information about Level 3 Fair Value Measurements
	Fair Value				Range
March 31, 2019	Estimate		Valuation Techniques	Unobservable Input	(Weighted Average)
Impaired loans	$	3,424	Appraisal of collateral	Appraisal adjustments	7.6% to 97.0%   (49.4)%
				Liquidation expenses	3.0% to 6.0% (5.4)%
Other real estate owned	$	289	Appraisal of collateral	Appraisal adjustments	20.0% to 53.7%   (31.6)%
				Liquidation expenses	3.0% to 6.0% (5.0)%

	Quantitative Information about Level 3 Fair Value Measurements
	Fair Value				Range
December 31, 2018	Estimate		Valuation Techniques	Unobservable Input	(Weighted Average)
Impaired loans	$	2,809	Appraisal of collateral	Appraisal adjustments	7.1% to 97.0%   (61.8)%
				Liquidation expenses	3.0% to 6.0% (4.4)%
Other real estate owned	$	234	Appraisal of collateral	Appraisal adjustments	26.0% to 73.3%   (38.9)%
				Liquidation expenses	3.0% to 6.0% (5.0)%

Fair value is generally determined through independent appraisals of the underlying collateral, which generally include various Level 3 inputs which are not identifiable.

Appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated liquidation expenses. The range and weighted average of liquidation expenses and other appraisal adjustments are presented as a percent of the appraisal.

The carrying and fair values of the Company’s financial instruments at March 31, 2019 and December 31, 2018 and their placement within the fair value hierarchy are as follows:

					Fair Value Hierarchy
					Quoted
					Prices in
					Active		Significant
					Markets for		Other		Significant
					Identical		Observable		Unobservable
	Carrying		Fair		Assets		Inputs		Inputs
March 31, 2019	Value		Value		(level 1)		(level 2)		(Level 3)
Financial assets:
Cash and cash equivalents	$	26,052	$	26,052	$	26,052
Investment securities:
Available-for-sale		270,384		270,384		23,757	$	246,627
Common equity securities		292		292		292
Held-to-maturity		8,162		8,310				8,310
Net loans		1,827,497		1,793,934					$	1,793,934
Accrued interest receivable		7,211		7,211				7,211
Mortgage servicing rights		709		1,689				1,689
Restricted equity securities		8,426		8,426				8,426
Interest rate floor		597		597				597
Interest rate swaps		1,328		1,328				1,328
Total	$	2,150,658	$	2,118,223
Financial liabilities:
Deposits	$	1,868,230	$	1,865,940			$	1,865,940
Short-term borrowings		109,000		109,000				109,000
Long-term debt		37,446		37,696				37,696
Accrued interest payable		878		878				878
Interest rate swaps		1,468		1,468				1,468
Total	$	2,017,022	$	2,014,982

					Fair Value Hierarchy
					Quoted
					Prices in
					Active		Significant
					Markets for		Other		Significant
					Identical		Observable		Unobservable
	Carrying		Fair		Assets		Inputs		Inputs
December 31, 2018	Value		Value		(level 1)		(level 2)		(Level 3)
Financial assets:
Cash and cash equivalents	$	32,616	$	32,616	$	32,616
Investment securities:
Available-for-sale		269,682		269,682		25,952	$	244,090
Common equity securities		291		291		291
Held-to-maturity		8,361		8,380				8,380
Loans held for sale		749		749				749
Net loans		1,801,887		1,762,449					$	1,762,449
Accrued interest receivable		7,115		7,115				7,115
Mortgage servicing rights		718		1,710				1,710
Restricted equity securities		7,462		7,462				7,462
Interest rate floor		553		553				553
Interest rate swaps		108		108				108
Total	$	2,129,542	$	2,091,115
Financial liabilities:
Deposits	$	1,875,022	$	1,874,520			$	1,874,520
Short-term borrowings		86,500		86,500				86,500
Long-term debt		37,906		38,071				38,071
Accrued interest payable		1,195		1,195				1,195
Interest rate swaps		138		138				138
Total	$	2,000,761	$	2,000,424

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Employee benefit plans

3 Months Ended

Mar. 31, 2019

Employee benefit plans

Employee benefit plans

8. Employee benefit plans:

The Company provides an Employee Stock Ownership Plan (“ESOP”) and a Retirement Profit Sharing Plan. The Company also maintains Supplemental Executive Retirement Plans (“SERPs”) and an Employees’ Pension Plan, which is currently frozen.

For the three months ended March 31, salaries and employee benefits expense includes approximately $340 in 2019 and 2018 relating to the employee benefit plans.

	Pension Benefits
Three Months Ended March 31,	2019		2018
Components of net periodic pension cost:
Interest cost	$	128	$
Expected return on plan assets		(217)
Amortization of unrecognized net gain		45
Net periodic benefit cost	$	(44)	$

The Company contributed $2,700 to the pension plan during the third quarter of 2018. This contribution reduced the unfunded portion of the pension plan and also reduced future premium costs associated with the plan. Previously, the Company paid a fixed premium cost of $18 annually with an additional $92 for the variable portion of the premium. This was reduced to $0 with the current funding status of the pension.

The 2008 long-term incentive plan (“2008 Plan”) allowed for eligible participants to be granted equity awards. No awards may be made under the 2008 Plan after January 15, 2018.

In May 2017, the Company’s stockholders approved the 2017 equity incentive plan (“2017 Plan”). The 2017 Plan allows for eligible participants to be granted equity awards. Under the 2017 Plan the Compensation Committee of the Board of Directors has the authority to, among other things:

· Select the persons to be granted awards under the 2017 Plan.

· Determine the type, size and term of awards.

· Determine whether such performance objectives and conditions have been met.

· Accelerate the vesting or excercisability of an award.

Persons eligible to receive awards under the 2017 Plan include directors, officers, employees, consultants and other service providers of the Company and its subsidiaries.

As of March 31, 2019, there were 78,691 shares of the Company’s common stock available for grant as awards pursuant to the 2017 Plan. The 2008 Plan expired in January 2018but will remain in effect in accordance with its terms to govern outstanding awards under that plan. If any outstanding awards under the 2017 Plan are forfeited by the holder or canceled by the Company, the underlying shares would be available for regrant to others.

The 2017 Plan authorizes grants of stock options, stock appreciation rights, cash awards, performance awards, restricted stock and restricted stock units.

In the first quarters of 2019 and 2018, the Company did not make any awards under the 2017 Plan.

The non-performance restricted stock grants made in 2019 and 2018 vest equally over three years from the grant date. The performance-based restricted stock units vest three years after the grant date and include conditions based on the Company’s three year cumulative diluted earnings per share and three-year average return on equity that determines the number of restricted stock units that may vest.

The Company expenses the fair value of all-share based compensation over the requisite service period commencing at grant date. The fair value of restricted stock is expensed on a straight-line basis. The Company periodically assesses the probability of achievement of the performance criteria and adjusts the amount of compensation expense accordingly. Compensation is recognized over the vesting period. The Company classifies share-based compensation for employees within “salaries and employee benefits expense” on the consolidated statements of income and comprehensive income.

The Company recognized compensation expense of $83 for the three months ended March 31, 2019 for awards granted under the 2017 Plan. The Company recognized compensation expense of $5 for the three months ended March 31, 2018 for awards granted under the 2017 and $32 for awards granted under the 2008 Plan. As of March 31, 2019, the Company had $1,228 of unrecognized compensation expense associated with restricted stock awards. The remaining cost is expected to be recognized over a weighted average vesting period of just under 2 years.

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Derivatives and hedging activities

3 Months Ended

Mar. 31, 2019

Derivatives and hedging activities

Derivatives and hedging activities

9. Derivatives and hedging activities

Risk Management Objective of Using Derivatives

The Company is exposed to certain risk arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity, and credit risk primarily by managing the amount, sources, and duration of its assets and liabilities and the use of derivative financial instruments.  Specifically, the Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. The Company’s derivative financial instruments are used to manage differences in the amount, timing, and duration of the Company’s known or expected cash receipts principally related to the Company’s assets. 

Cash Flow Hedges of Interest Rate Risk

The Company’s objectives in using interest rate derivatives are to add stability to interest income and to manage its exposure to interest rate movements. To accomplish this objective, the Company primarily uses interest rate floors as part of its interest rate risk management strategy. Interest rate floors designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty if interest rates fall below the strike rate on the contract in exchange for an up-front premium.

For derivatives designated and that qualify as cash flow hedges of interest rate risk, the gain or loss on the derivative is recorded in Accumulated Other Comprehensive Loss and subsequently reclassified into interest income in the same period(s) during which the hedged transaction affects earnings. Gains and losses on the derivative representing hedge components excluded from the assessment of effectiveness are recognized over the life of the hedge on a systematic and rational basis. The earnings recognition of excluded components is presented in interest income. Amounts reported in accumulated other comprehensive loss related to derivatives will be reclassified to interest income as interest payments are received on the Company’s variable-rate assets. During 2019, the Company estimates that an additional $64 will be reclassified as a reduction to interest income. 

Non-designated Hedges

Derivatives not designated as hedges are not speculative and result from a service the Company provides to certain customers. The Company executes interest rate swaps with commercial banking customers to facilitate their respective risk management strategies. Those interest rate swaps are simultaneously hedged by offsetting interest rate swaps that the Company executes with a third party, such that the Company minimizes its net risk exposure resulting from such transactions. As the interest rate swaps associated with this program do not meet the strict hedge accounting requirements, changes in the fair value of both the customer swaps and the offsetting swaps are recognized directly in earnings. As of March 31, 2019, the Company had 12 interest rate swaps with an aggregate notional amount of $79,667 related to this program.

Fair Values of Derivative Instruments on the Balance Sheet

The table below presents the fair value of the Company’s derivative financial instruments as well as their classification on the Consolidated Balance Sheets as of March 31, 2019 and December 31, 2018.

			Asset Derivatives			Asset Derivatives			Liability Derivatives			Liability Derivatives
			As of March 31, 2019			As of December 31, 2018 (1)			As of March 31, 2019			As of December 31, 2018 (2)
		Notional	Balance Sheet			Balance Sheet			Balance Sheet			Balance Sheet
		Amount	Location	Fair Value		Location	Fair Value		Location	Fair Value		Location	Fair Value
Derivatives designated as hedging instruments
Interest Rate Floor	$	25,000	Other Assets	$	597		$	553
Total derivatives designated as hedging instruments				$	597		$	553
Derivatives not designated as hedging instruments
Interest Rate Swaps	$	79,667	Other Assets	$	1,328	Other Assets	$	108	Other Liabilities	$	1,468	Other Liabilities	$	138
Total derivatives not designated as hedging instruments				$	1,328		$	108		$	1,468		$	138

(1) Assets amount does not include accrued interest receivable of $8

(2) Liabilities amount does not include accrued interest payable of $8

Effect of Fair Value and Cash Flow Hedge Accounting on Accumulated Other Comprehensive Loss

The table below presents the effect of fair value and cash flow hedge accounting on Accumulated Other Comprehensive Loss as of March 31, 2019. There was no cash flow hedge as of March 31, 2018.

Location of

Amount of

Amount of

Amount of

Amount of

Amount of

Gain or (Loss)

Amount of

Gain

Loss

Loss

Gain

Gain

Recognized from

Loss

Reclassified

Reclassified

Recognized in

Recognized in

Recognized in

Accumulated

Reclassified

from Accumulated

from Accumulated

Derivatives in

OCI on

OCI Included

OCI Excluded

Other Comprehensive

from Accumulated

OCI into Income

OCI into Income

Hedging

Derivative

Component

Component

Income into

OCI into Income

Included Component

Excluded Component

Relationships

March 31, 2019

Income

March 31, 2019

Derivatives in Cash Flow Hedging Relationships

Interest Rate Floor (*)

$

47

$

295

$

(248)

Interest Income

$

(15)

$

$

(15)

* Amounts disclosed are gross and not net of taxes.

Effect of Fair Value and Cash Flow Hedge Accounting on the Consolidated Statements of Income and Comprehensive Income

The table below presents the effect of the Company’s derivative financial instruments on the Consolidated Statements of Income and Comprehensive Income for the three months ended March 31, 2019 and March 31, 2018.

		Location and Amount of Gain or (Loss) Recognized in
		Income on Fair Value and Cash Flow Hedging
		Relationships
		2019	2018
		Interest Income	Interest Income
Total amounts of income and expense line items presented in the statements of income and comprehensive income in which the effects of fair value or cash flow hedges are recorded	$	(15)
The effects of fair value and cash flow hedging:
Gain or (loss) on cash flow hedging relationships
Interest contracts
Amount of gain or (loss) reclassified from accumulated other  comprehensive income into income	$	(15)
Amount of gain or (loss) reclassified from accumulated other comprehensive income into income -  included component
Amount of gain or (loss) reclassified from accumulated other comprehensive income into income -  excluded component	$	(15)

Effect of Derivative Instruments on the Consolidated Statements of Income and Comprehensive Income

The tables below present the effect of the Company’s derivative financial instruments on the Consolidated Statements of Income and Comprehensive Income for the three months ended March 31, 2019 and 2018.

		Amount of Gain		Amount of Loss
		Recognized in		Recognized in
	Location of Gain or (Loss)	Income		Income
	Recognized in Income on	Three Months Ended		Three Months Ended
Derivatives Not Designated as Hedging Instruments	Derivative	March 31, 2019		March 31, 2018
Interest Rate Swaps	Other non-interest income	$	(110)	$	66
Fee Income	Other  income / (expense)	$	391	$

Offsetting Derivatives

The table below presents a gross presentation, the effects of offsetting, and a net presentation of the Company’s derivatives as of March 31, 2019 and December 31, 2018. The net amounts of derivative assets or liabilities can be reconciled to the tabular disclosure of fair value. The tabular disclosure of fair value provides the location that derivative assets and liabilities are presented on the Consolidated Balance Sheets.

Offsetting of Derivative Assets
as of March 31, 2019
						Gross Amounts Not Offset in the Balance Sheet
	Gross			Net Amounts
	Amounts of		Gross Amounts	of Assets
	Recognized		Offset in the	presented in the		Financial	Cash Collateral	Net
	Assets		Balance Sheet	Balance Sheet		Instruments	Received	Amount
Derivatives	$	1,924	$	$	1,924	$		$	1,924
Offsetting of Derivative Liabilities
as of March 31, 2019
						Gross Amounts Not Offset in the Balance Sheet
	Gross			Net Amounts
	Amounts of		Gross Amounts	of Assets
	Recognized		Offset in the	presented in the		Financial	Cash Collateral	Net
	Assets		Balance Sheet	Balance Sheet		Instruments	Received	Amount
Derivatives	$	1,457	$	$	1,457	$		$	1,457
Offsetting of Derivative Assets
as of December 31, 2018
						Gross Amounts Not Offset in the Balance Sheet
	Gross			Net Amounts
	Amounts of		Gross Amounts	of Assets
	Recognized		Offset in the	presented in the		Financial	Cash Collateral	Net
	Assets		Balance Sheet	Balance Sheet		Instruments	Received	Amount
Derivatives	$	661	$	$	661	$		$	661
Offsetting of Derivative Liabilities
as of December 31, 2018
						Gross Amounts Not Offset in the Balance Sheet
	Gross			Net Amounts
	Amounts of		Gross Amounts	of Assets
	Recognized		Offset in the	presented in the		Financial	Cash Collateral	Net
	Assets		Balance Sheet	Balance Sheet		Instruments	Received	Amount
Derivatives	$	138	$	$	138	$		$	138

Credit-risk-related Contingent Features

The Company has agreements with certain of its derivative counterparties that contain a provision where if the Company defaults on any of its indebtedness, including default where repayment of the indebtedness has not been accelerated by the lender, then the Company could also be declared in default on its derivative obligations.

The Company also has agreements with certain of its derivative counterparties that contain a provision where if the Company fails to maintain its status as a well capitalized institution, then the counterparty could terminate the derivative positions and the Company would be required to settle its obligations under the agreements.

The Company has agreements with certain of its derivative counterparties that contain provisions that require the Company’s debt to maintain an investment grade credit rating from each of the major credit rating agencies. If the Company’s credit rating is reduced below investment grade then a termination event shall be deemed to have occurred and the non-affected counterparty shall have the right but not obligation to terminate all affected transactions under the agreement.

As of March 31, 2019, the termination value of derivatives in a net asset position, which includes accrued interest but excludes any adjustment for nonperformance risk, related to these agreements was $140. As of December 31, 2018, the termination value of derivatives in a net liability position, which includes accrued interest but excludes any adjustment for nonperformance risk, related to these agreements was $29. The Company has minimum collateral posting thresholds with certain of its derivative counterparties, and has posted collateral of $1,670 against its obligations under these agreements as of March 31, 2019, compared to having no posted collateral with a counterparty at December 31, 2018. If the Company had breached any of these provisions it could have been required to settle its obligations under the agreements at the termination value.

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Short-term borrowings

3 Months Ended

Mar. 31, 2019

Short-term borrowings

Short-term borrowings

10. Short-term borrowings

Short-term borrowings consisted of FHLB advances representing overnight borrowings at March 31, 2019 and December 31, 2018:

	At and for the three months ended March 31, 2019
							Weighted		Weighted
					Maximum		Average		Average
	Ending		Average		Month-End		Rate for		Rate at
	Balance		Balance		Balance		the three monthe ended March 31,2019		March 31,2019
FHLB advances	$	109,000	$	121,954	$	133,725	2.70	%	2.70	%

	At and for the year ended December 31, 2018
							Weighted		Weighted
					Maximum		Average		Average
	Ending		Average		Month-End		Rate for		Rate at End
	Balance		Balance		Balance		the Year		of the Year
FHLB advances	$	86,500	$	133,834	$	189,275	2.05	%	2.62	%

The Company has an agreement with the FHLB which allows for borrowings up to its maximum borrowing capacity based on a percentage of qualifying collateral assets. At March 31, 2019, the maximum borrowing capacity was $706,525 of which $146,446 was outstanding in borrowings. At December 31, 2018, the maximum borrowing capacity was $700,169 of which $124,406 was outstanding in borrowings. Short-term borrowings were used to fund our loan growth during the first three months of 2019 resulting in higher average balances as deposit balances decreased due to seasonal out flows of public fund deposits. Short-term borrowings are higher by $22,500 since year end 2018. Advances with the FHLB are secured under terms of a blanket collateral agreement by a pledge of FHLB stock and certain other qualifying collateral, such as investments and mortgage-backed securities and mortgage loans. Interest accrues daily on the FHLB advances based on rates of the FHLB discount notes. This rate resets each day.  

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Income taxes

3 Months Ended

Mar. 31, 2019

Income taxes

Income taxes

11. Income taxes

The effective tax rate of the Company was 10.6% for the three months ended March 31, 2019 compared to 11.7% for the three months ended March 31, 2018. The three months ended March 31, 2019 includes before tax investment tax credits and other credits of $388 compared to before tax investment tax credits $270 for that same period last year.

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Summary of significant accounting policies (Policies)

3 Months Ended

Mar. 31, 2019

Summary of significant accounting policies

Nature of operations

Nature of operations:

Peoples Financial Services Corp., a bank holding company incorporated under the laws of Pennsylvania, provides a full range of financial services through its wholly-owned subsidiary, Peoples Security Bank and Trust Company (“Peoples Bank”). Unless the context indicates otherwise, all references in this quarterly report to the “Peoples”, “Company”, “Bank”, “we”, “us” and “our” refer to Peoples Financial Services Corp., its subsidiaries and its and their respective predecessors. The Company services its retail and commercial customers through twenty-seven full-service community banking offices located within the Lackawanna, Lehigh, Luzerne, Monroe, Montgomery, Northampton, Susquehanna, Wayne and Wyoming Counties of Pennsylvania and Broome County of New York. 

Basis of presentation

Basis of presentation:

The accompanying unaudited consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10-01 of Regulation S-X. In the opinion of management, all normal recurring adjustments necessary for a fair presentation of the consolidated financial position and results of operations for the periods presented have been included. All significant intercompany balances and transactions have been eliminated in consolidation. Prior-period amounts are reclassified when necessary to conform to the current year’s presentation. These reclassifications did not have any effect on the consolidated operating results or financial position of the Company. The consolidated operating results and financial position of the Company for the three months ended and as of March 31, 2019, are not necessarily indicative of the results of consolidated operations and financial position that may be expected in the future.

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates that are particularly susceptible to material change in the near term relate to the determination of the allowance for loan losses, fair value of financial instruments, the valuation of real estate acquired in connection with foreclosures or in satisfaction of loans, the valuation of deferred tax assets, determination of other-than-temporary impairment losses on securities, impairment of goodwill and fair value of assets acquired and liabilities assumed in business combinations. Actual results could differ from those estimates. For additional information and disclosures required under GAAP, reference is made to the Company’s Annual Report on Form 10-K for the period ended December 31, 2018.

Recent accounting standards

Recent accounting standards: .

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-02, “Leases”.  From the lessees’s perspective, the new standard establishes a right-of-use (“ROU”) model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months.  The ROU asset and lease liability are calculated based on the present value of future lease payments using an estimated incremental borrowing rate.  The Company utilized the incremental borrowing rate of interest on a collateralized basis for the lease term as quoted by the Federal Home Bank of Pittsburgh.

Leases are classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement for a lessee.  From the lessor’s perspective, the new standard requires a lessor to classify leases as either sales-type, finance or operating.  A lease is treated as a sale if it transfers all of the risks and rewards, as well as control of the underlying asset, to the lessee.  If risks and rewards are conveyed without the transfer of control, the lease is treated as a financing.  If the lessor doesn’t convey risks and rewards or control, an operating lease results.  The amendments in this ASU are effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2018.

The new standard provides a number of optional practical expedients in transition. We have elected the "package of practical expedients," which permit us not to reassess under the new standard our prior conclusions about lease identification, lease classification and initial direct costs. We elected the "use-of-hindsight" practical expedient which allows us to use hindsight in judgments that impact the lease term. In order to establish the value of the ROU and lease liability and in accordance with the guidance, management determined the term of the leases held by carefully evaluating and assessing each lease and applying economic and other relevant factors to determine whether the Company is reasonably certain to exercise or not to exercise a renewal option within each lease. We have also elected an accounting policy not to restate comparative periods upon adoption. The Company elected to adopt this pronouncement using the optional transition method under ASU 2018-11 as of January 1, 2019 and recorded right-of-use assets and lease liabilities for operating leases of $5,513 on its consolidated balance sheets, with no adjustment to stockholders’ equity and no material impact to its consolidated statements of income and comprehensive income.

In July 2018, the FASB issued ASU No. 2018-11, “Leases - Targeted Improvements” to provide entities with relief from the costs of implementing certain aspects of the new leasing standard, ASU No. 2016-02. Specifically, under the amendments in ASU 2018-11: (1) entities may elect not to recast the comparative periods presented when transitioning to the new leasing standard, and (2) lessors may elect not to separate lease and non-lease components when certain conditions are met. The amendments were adopted on January 1, 2019 and did not have a material impact on the Company’s consolidated financial statements.

In March 2019, the FASB issued ASU 2019-01, “Leases (Topic 842) Codification Improvements” which was issued to address lessors’ concerns about determining fair value of underlying leased assets and presentation issues in the statement of cash flows for sales-type and direct financing leases. ASU 2019-01 also clarified for both lessees and lessors that transition disclosures related to Topic 250 were not required for annual periods are also not required for interim periods. ASU 2019-01 was effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2019, with early adoption permitted. The Company early adopted this ASU 2019-01 effective January 1, 2019 and it did not have a material impact on the Company’s consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” This ASU will have a significant impact on the Company’s calculation and accounting for its allowance for loan losses as well as credit losses related to investment securities available-for-sale. A summary of significant provisions of this ASU is as follows:

	The ASU requires that a financial asset (or a group of financial assets) measured at amortized cost basis be presented, net of a valuation allowance for credit losses, at an amount expected to be collected on the financial asset(s), and that the income statement include the measurement of credit losses for newly recognized financial assets as well as changes in expected losses on previously recognized financial assets. The provisions of this ASU require measurement of expected credit losses based on relevant information including past events, historical experience, current conditions, and reasonable and supportive forecasts that affect the collectability of the asset. The provisions of this ASU differ from current GAAP in that current GAAP generally delays recognition of the full amount of credit losses until the loss is probable of occurring.
	The amendments in the ASU retain many of the disclosure requirements related to credit quality in current  GAAP, updated to reflect the change from an incurred loss methodology to an expected credit loss methodology. In addition, the ASU requires that disclosure of credit quality indicators in relation to the amortized cost of financing receivables, a current requirement, be further disaggregated by year of origination.
	This ASU requires that credit losses on available-for-sale debt securities be presented as an allowance rather than as a write-down, and limits the amount of the allowance for credit losses to the amount by which the fair value is below amortized cost. For purchased investment securities available-for-sale with a more-than-insignificant
	amount of credit deterioration since origination, the ASU requires an allowance be determined in a manner similar to other investment securities available-for-sale; however, the initial allowance would be added to the purchase price, with only subsequent changes in the allowance recorded in credit loss expense, and interest income recognized at the effective rate excluding the discount embedded in the purchase price related to estimated credit losses at acquisition.
	This ASU will be effective for the Company for interim and annual periods beginning in the first quarter of 2020. Earlier adoption is permitted beginning in the first quarter of 2019. The Company will record the effect of implementing this ASU through a cumulative-effect adjustment through retained earnings as of the beginning of the reporting period in which Topic 326 is effective.

We are evaluating the impact of the ASU on our consolidated financial statements. In addition to our allowance for loan losses, we will also record an allowance for credit losses on debt securities instead of applying the impairment model currently utilized. The amount of the adjustments will be impacted by each portfolio’s composition and credit quality at the adoption date as well as economic conditions and forecasts at that time.

In August 2018, the FASB issued ASU 2018-13 Fair Value Measurement (Topic 820): “Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement” modifies the disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement, based on the FASB Concepts Statement, “Conceptual Framework for Financial Reporting – Chapter 8: Notes to Financial Statements”. In accordance with the Concepts Statement, this ASU removes, modifies and adds select disclosure requirements under Topic 820 after consideration of costs and benefits. ASU 2018-13 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019 for public entities, with early adoption permitted. The adoption of this guidance on January 1, 2020 is not expected to have a material effect on the Company’s consolidated financial statements.

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Other comprehensive loss (Tables)

3 Months Ended

Mar. 31, 2019

Other comprehensive loss

Schedule of components of accumulated other comprehensive loss

		March 31, 2019		December 31, 2018
Net unrealized loss on investment securities available-for-sale	$	(812)	$	(3,251)
Income tax		(170)		(683)
Net of income taxes		(642)		(2,568)
Benefit plan adjustments		(7,218)		(7,218)
Income tax		(1,516)		(1,516)
Net of income taxes		(5,702)		(5,702)
Derivative adjustments		309		246
Income tax		65		52
Net of income taxes		244		194
Accumulated other comprehensive loss	$	(6,100)	$	(8,076)

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Earnings per share (Tables)

3 Months Ended

Mar. 31, 2019

Earnings per share

Schedule of earnings per share

	2019				2018
For the Three Months Ended March 31	Basic		Diluted		Basic		Diluted
Net income	$	6,412	$	6,412	$	5,854	$	5,854
Average common shares outstanding		7,399,054		7,399,054		7,396,505		7,396,505
Earnings per share	$	0.87	$	0.87	$	0.79	$	0.79

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Investment securities (Tables)

3 Months Ended

Mar. 31, 2019

Schedule of amortized cost and fair value of investment securities aggregated by investment category

			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
March 31, 2019	Cost		Gains		Losses		Value
Available-for-sale:
U.S. Treasury securities	$	23,954	$	35	$	232	$	23,757
U.S. Government-sponsored enterprises		93,914		9		1,373		92,550
State and municipals:
Taxable		13,017		328				13,345
Tax-exempt		83,273		471		169		83,575
Residential Mortgage-backed securities:
U.S. Government agencies		11,716		80		56		11,740
U.S. Government-sponsored enterprises		39,064		408		202		39,270
Commercial Mortgage-backed securities:
U.S. Government-sponsored enterprises		6,258				111		6,147
Total	$	271,196	$	1,331	$	2,143	$	270,384
Held-to-maturity:
Tax-exempt state and municipals	$	6,855	$	119			$	6,974
Residential Mortgage-backed securities:
U.S. Government agencies		40						40
U.S. Government-sponsored enterprises		1,267		32	$	3		1,296
Total	$	8,162	$	151	$	3	$	8,310

			Gross		Gross
	Amortized		Unrealized		Unrealized		Fair
December 31, 2018	Cost		Gains		Losses		Value
Available-for-sale:
U.S. Treasury securities	$	25,948		9	$	365	$	25,592
U.S. Government-sponsored enterprises		94,999	$	2		2,183		92,818
State and municipals:
Taxable		13,544		309				13,853
Tax-exempt		86,361		338		745		85,954
Residential Mortgage-backed securities:
U.S. Government agencies		12,663		50		84		12,629
U.S. Government-sponsored enterprises		33,149		49		401		32,797
Commercial Mortgage-backed securities:
U.S. Government-sponsored enterprises		6,269				230		6,039
Total	$	272,933	$	757	$	4,008	$	269,682
Held-to-maturity:
Tax-exempt state and municipals	$	6,855	$	12	$	43	$	6,824
Residential Mortgage-backed securities:
U.S. Government agencies		42						42
U.S. Government-sponsored enterprises		1,464		55		5		1,514
Total	$	8,361	$	67	$	48	$	8,380

Schedule of fair value and unrealized losses of investment securities in continuous unrealized loss position

	Less Than 12 Months				12 Months or More				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
March 31, 2019	Value		Losses		Value		Losses		Value		Losses
U.S. Treasury securities					$	19,799	$	232	$	19,799	$	232
U.S. Government-sponsored enterprises						90,466		1,373		90,466		1,373
State and municipals:
Tax-exempt	$	1,854	$	3		31,468		166		33,322		169
Residential Mortgage-backed securities:
U.S. Government agencies						6,946		56		6,946		56
U.S. Government-sponsored enterprises		360		1		12,873		204		13,233		205
Commercial Mortgage-backed securities:
U.S. Government-sponsored enterprises						6,147		111		6,147		111
Total	$	2,214	$	4	$	167,699	$	2,142	$	169,913	$	2,146

	Less Than 12 Months				12 Months or More				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
December 31, 2018	Value		Losses		Value		Losses		Value		Losses
U.S. Treasury securities	$	1,995	$	2	$	19,671	$	363	$	21,666	$	365
U.S. Government-sponsored enterprises		2,037		1		89,729		2,182		91,766		2,183
State and municipals:
Tax-exempt		9,022		74		52,352		714		61,374		788
Residential Mortgage-backed securities:
U.S. Government agencies						7,800		84		7,800		84
U.S. Government-sponsored enterprises		12,851		55		13,881		351		26,732		406
Commercial Mortgage-backed securities:
U.S. Government-sponsored enterprises						6,039		230		6,039		230
Total	$	25,905	$	132	$	189,472	$	3,924	$	215,377	$	4,056

Summary of unrealized and realized gains and losses

The following is a summary of unrealized and realized gains and losses recognized in net income on equity securities during the three months ended March 31, 2019 (in thousands):

For the Three Months Ended March 31,		2019		2018
Net gains recognized during the period on equity securities	$	1	$	(8)
Unrealized gains recognized during the reporting period on equity securities still held at the reporting date	$	1	$	(8)

Available-for-Sale Securities.

Schedule of maturity distribution of fair value

	Fair
March 31, 2019	Value
Within one year	$	41,366
After one but within five years		142,465
After five but within ten years		13,925
After ten years		15,471
		213,227
Mortgage-backed securities		57,157
Total	$	270,384

Held-to-maturity Securities.

Schedule of maturity distribution of fair value

	Amortized		Fair
March 31, 2019	Cost		Value
Within one year
After one but within five years
After five but within ten years
After ten years	$	6,855	$	6,974
		6,855		6,974
Mortgage-backed securities		1,307		1,336
Total	$	8,162	$	8,310

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Loans, net and allowance for loan losses (Tables)

3 Months Ended

Mar. 31, 2019

Loans, net and allowance for loan losses

Schedule of major classifications of loans outstanding

		March 31, 2019		December 31, 2018
Commercial	$	516,756	$	494,134
Real estate:
Commercial		917,035		907,803
Residential		299,330		299,876
Consumer		116,481		121,453
Total	$	1,849,602	$	1,823,266

Schedule of changes in allowance for loan losses account by major classification of loans

The changes in the allowance for loan losses account by major classification of loan for the three months ended March 31, 2019 and 2018 are summarized as follows:

			Real estate
March 31, 2019	Commercial		Commercial		Residential		Consumer		Total
Allowance for loan losses:
Beginning Balance January 1, 2019	$	5,516	$	10,736	$	3,892	$	1,235	$	21,379
Charge-offs		(77)		(6)		(159)		(132)		(374)
Recoveries		8				4		38		50
Provisions		508		344		143		55		1,050
Ending balance	$	5,955	$	11,074	$	3,880	$	1,196	$	22,105
			Real estate
March 31, 2018	Commercial		Commercial		Residential		Consumer		Total
Allowance for loan losses:
Beginning Balance January 1, 2018	$	5,052	$	7,548	$	4,980	$	1,380	$	18,960
Charge-offs						(299)		(127)		(426)
Recoveries		57		27		10		40		134
Provisions		297		524		148		81		1,050
Ending balance	$	5,406	$	8,099	$	4,839	$	1,374	$	19,718

The allocation of the allowance for loan losses and the related loans by major classifications of loans at March 31, 2019 and December 31, 2018 is summarized as follows:

			Real estate
March 31, 2019	Commercial		Commercial		Residential		Consumer		Total
Allowance for loan losses:
Ending balance	$	5,955	$	11,074	$	3,880	$	1,196	$	22,105
Ending balance: individually evaluated for impairment		138		389		461				988
Ending balance: collectively evaluated for impairment	$	5,817	$	10,685	$	3,419	$	1,196	$	21,117
Loans receivable:
Ending balance	$	516,756	$	917,035	$	299,330	$	116,481	$	1,849,602
Ending balance: individually evaluated for impairment		7,012		3,535		2,895		238		13,680
Ending balance: collectively evaluated for impairment	$	509,744	$	913,500	$	296,435	$	116,243	$	1,835,922

			Real estate
December 31, 2018	Commercial		Commercial		Residential		Consumer		Total
Allowance for loan losses:
Ending balance	$	5,516	$	10,736	$	3,892	$	1,235	$	21,379
Ending balance: individually evaluated for impairment		50		403		666		60		1,179
Ending balance: collectively evaluated for impairment	$	5,466	$	10,333	$	3,226	$	1,175	$	20,200
Loans receivable:
Ending balance	$	494,134	$	907,803	$	299,876	$	121,453	$	1,823,266
Ending balance: individually evaluated for impairment		2,237		3,121		4,071		212		9,641
Ending balance: collectively evaluated for impairment	$	491,897	$	904,682	$	295,805	$	121,241	$	1,813,625

Schedule of major classification of loans portfolio summarized by credit quality

			Special
March 31, 2019	Pass		Mention		Substandard		Doubtful	Total
Commercial	$	509,531	$	3,090	$	4,135	$	$	516,756
Real estate:
Commercial		894,059		5,309		17,667			917,035
Residential		296,497		355		2,478			299,330
Consumer		116,225				256			116,481
Total	$	1,816,312	$	8,754	$	24,536	$	$	1,849,602

			Special
December 31, 2018	Pass		Mention		Substandard		Doubtful	Total
Commercial	$	491,531	$	869	$	1,734	$	$	494,134
Real estate:
Commercial		886,849		8,934		12,020			907,803
Residential		295,758		357		3,761			299,876
Consumer		121,229				224			121,453
Total	$	1,795,367	$	10,160	$	17,739	$	$	1,823,266

Schedule of information concerning nonaccrual loans by major loan classification

		March 31, 2019		December 31, 2018
Commercial	$	5,567	$	776
Real estate:
Commercial		2,642		2,663
Residential		1,600		2,580
Consumer		238		212
Total	$	10,047	$	6,231

Schedule of major classifications of loans by past due status

					Greater								Loans > 90
	30-59 Days		60-89 Days		than 90		Total Past						Days and
March 31, 2019	Past Due		Past Due		Days		Due		Current		Total Loans		Accruing
Commercial	$	85	$	183	$	5,567	$	5,835	$	510,921	$	516,756
Real estate:
Commercial		1,077		976		2,812		4,865		912,170		917,035	$	170
Residential		2,204		831		2,259		5,294		294,036		299,330		659
Consumer		434		135		238		807		115,674		116,481
Total	$	3,800	$	2,125	$	10,876	$	16,801	$	1,832,801	$	1,849,602	$	829

The Company classifies all nonaccrual loans in the greater than 90 days category.

					Greater								Loans > 90
	30-59 Days		60-89 Days		than 90		Total Past						Days and
December 31, 2018	Past Due		Past Due		Days		Due		Current		Total Loans		Accruing
Commercial	$	973	$	79	$	776	$	1,828	$	492,306	$	494,134
Real estate:
Commercial		1,889		218		2,736		4,843		902,960		907,803	$	73
Residential		2,486		1,545		3,430		7,461		292,415		299,876		850
Consumer		756		292		212		1,260		120,193		121,453
Total	$	6,104	$	2,134	$	7,154	$	15,392	$	1,807,874	$	1,823,266	$	923

Summarized information concerning impaired loans

							For the Quarter Ended
			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
March 31, 2019	Investment		Balance		Allowance		Investment		Recognized
With no related allowance:
Commercial	$	6,072	$	6,407			$	3,817	$	17
Real estate:
Commercial		2,098		2,184				2,034		13
Residential		860		1,287				1,415		7
Consumer		238		245				195
Total		9,268		10,123				7,461		37
With an allowance recorded:
Commercial		940		990		138		808		7
Real estate:
Commercial		1,437		1,563		389		1,295		5
Residential		2,035		2,078		461		2,068		11
Consumer								30
Total		4,412		4,631		988		4,201		23
Total impaired loans
Commercial		7,012		7,397		138		4,625		24
Real estate:
Commercial		3,535		3,747		389		3,329		18
Residential		2,895		3,365		461		3,483		18
Consumer		238		245				225
Total	$	13,680	$	14,754	$	988	$	11,662	$	60

							For the Year Ended
			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
December 31, 2018	Investment		Balance		Allowance		Investment		Recognized
With no related allowance:
Commercial	$	1,562	$	1,900			$	1,318	$	67
Real estate:
Commercial		1,969		2,299				2,822		28
Residential		1,970		2,658				2,193		22
Consumer		152		160				135
Total		5,653		7,017				6,468		117
With an allowance recorded:
Commercial		675		675		50		1,006		30
Real estate:
Commercial		1,152		1,323		403		1,676		18
Residential		2,101		2,328		666		1,585		22
Consumer		60		60		60		21
Total		3,988		4,386		1,179		4,288		70
Total impaired loans
Commercial		2,237		2,575		50		2,324		97
Real estate:
Commercial		3,121		3,622		403		4,498		46
Residential		4,071		4,986		666		3,778		44
Consumer		212		220		60		156
Total	$	9,641	$	11,403	$	1,179	$	10,756	$	187

							For the Quarter Ended
			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
March 31, 2018	Investment		Balance		Allowance		Investment		Recognized
With no related allowance:
Commercial	$	1,211	$	1,375			$	1,246	$	17
Real estate:
Commercial		2,970		3,312				2,929		6
Residential		2,289		2,762				2,243		4
Consumer		151		159				160
Total		6,621		7,608				6,578		27
With an allowance recorded:
Commercial		1,133		1,158	$	144		1,159		8
Real estate:
Commercial		2,402		2,520		1,411		1,902		6
Residential		1,491		1,977		182		1,544		4
Consumer		18		18		18		13
Total		5,044		5,673		1,755		4,618		18
Total impaired loans
Commercial		2,344		2,533		144		2,405		25
Real estate:
Commercial		5,372		5,832		1,411		4,831		12
Residential		3,780		4,739		182		3,787		8
Consumer		169		177		18		173
Total	$	11,665	$	13,281	$	1,755	$	11,196	$	45

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Other assets (Tables)

3 Months Ended

Mar. 31, 2019

Other assets.

Schedule of components of other assets

		March 31, 2019		December 31, 2018
Other real estate owned	$	360	$	376
Investment in low income housing partnership		7,258		7,377
Mortgage servicing rights		709		718
Bank owned life insurance		34,474		34,288
Restricted equity securities		8,426		7,462
Net deferred tax asset		4,556		5,081
Other assets		12,361		8,435
Total	$	68,144	$	63,737

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Fair value estimates (Tables)

3 Months Ended

Mar. 31, 2019

Fair value estimates

Schedule of assets and liabilities measured at fair value on a recurring basis

	Fair Value Measurement Using
			Quoted Prices in		Significant		Significant
			Active Markets for		Other Observable		Unobservable
			Identical Assets		Inputs		Inputs
March 31, 2019	Amount		(Level 1)		(Level 2)		(Level 3)
U.S. Treasury securities	$	23,757	$	23,757			$
U.S. Government-sponsored enterprises		92,550			$	92,550
State and Municipals:
Taxable		13,345				13,345
Tax-exempt		83,575				83,575
Mortgage-backed securities:
U.S. Government agencies		11,740				11,740
U.S. Government-sponsored enterprises		45,417				45,417
Common equity securities		292		292
Interest rate floor-other assets		597				597
Interest rate swap-other assets		1,328				1,328
Interest rate swap-other liabilities		(1,468)				(1,468)
Total	$	271,133	$	24,049	$	247,084	$

	Fair Value Measurement Using
			Quoted Prices in		Significant		Significant
			Active Markets for		Other Observable		Unobservable
			Identical Assets		Inputs		Inputs
December 31, 2018	Amount		(Level 1)		(Level 2)		(Level 3)
U.S. Treasury securities	$	25,592	$	25,592			$
U.S. Government-sponsored enterprises		92,818			$	92,818
State and Municipals:
Taxable		13,853				13,853
Tax-exempt		85,954				85,954
Mortgage-backed securities:
U.S. Government agencies		12,629				12,629
U.S. Government-sponsored enterprises		38,836				38,836
Common equity securities		291		291
Interest rate floor-other assets		553				553
Interest rate swap-other assets		108				108
Interest rate swap-other liabilities		(138)				(138)
Total	$	270,496	$	25,883	$	244,613	$

Schedule of assets and liabilities measured at fair value on a nonrecurring basis

	Fair Value Measurement Using
			Quoted Prices in	Significant	Significant
			Active Markets for	Other Observable	Unobservable
			Identical Assets	Inputs	Inputs
March 31, 2019	Amount		(Level 1)	(Level 2)	(Level 3)
Impaired loans	$	3,424			$	3,424
Other real estate owned	$	289			$	289

	Fair Value Measurement Using
			Quoted Prices in	Significant Other	Significant
			Active Markets for	Observable	Unobservable
			Identical Assets	Inputs	Inputs
December 31, 2018	Amount		(Level 1)	(Level 2)	(Level 3)
Impaired loans	$	2,809			$	2,809
Other real estate owned	$	234			$	234

Schedule of additional quantitative information about assets measured at fair value on a nonrecurring basis

	Quantitative Information about Level 3 Fair Value Measurements
	Fair Value				Range
March 31, 2019	Estimate		Valuation Techniques	Unobservable Input	(Weighted Average)
Impaired loans	$	3,424	Appraisal of collateral	Appraisal adjustments	7.6% to 97.0%   (49.4)%
				Liquidation expenses	3.0% to 6.0% (5.4)%
Other real estate owned	$	289	Appraisal of collateral	Appraisal adjustments	20.0% to 53.7%   (31.6)%
				Liquidation expenses	3.0% to 6.0% (5.0)%

	Quantitative Information about Level 3 Fair Value Measurements
	Fair Value				Range
December 31, 2018	Estimate		Valuation Techniques	Unobservable Input	(Weighted Average)
Impaired loans	$	2,809	Appraisal of collateral	Appraisal adjustments	7.1% to 97.0%   (61.8)%
				Liquidation expenses	3.0% to 6.0% (4.4)%
Other real estate owned	$	234	Appraisal of collateral	Appraisal adjustments	26.0% to 73.3%   (38.9)%
				Liquidation expenses	3.0% to 6.0% (5.0)%

Schedule of carrying and fair values of financial instruments

					Fair Value Hierarchy
					Quoted
					Prices in
					Active		Significant
					Markets for		Other		Significant
					Identical		Observable		Unobservable
	Carrying		Fair		Assets		Inputs		Inputs
March 31, 2019	Value		Value		(level 1)		(level 2)		(Level 3)
Financial assets:
Cash and cash equivalents	$	26,052	$	26,052	$	26,052
Investment securities:
Available-for-sale		270,384		270,384		23,757	$	246,627
Common equity securities		292		292		292
Held-to-maturity		8,162		8,310				8,310
Net loans		1,827,497		1,793,934					$	1,793,934
Accrued interest receivable		7,211		7,211				7,211
Mortgage servicing rights		709		1,689				1,689
Restricted equity securities		8,426		8,426				8,426
Interest rate floor		597		597				597
Interest rate swaps		1,328		1,328				1,328
Total	$	2,150,658	$	2,118,223
Financial liabilities:
Deposits	$	1,868,230	$	1,865,940			$	1,865,940
Short-term borrowings		109,000		109,000				109,000
Long-term debt		37,446		37,696				37,696
Accrued interest payable		878		878				878
Interest rate swaps		1,468		1,468				1,468
Total	$	2,017,022	$	2,014,982

					Fair Value Hierarchy
					Quoted
					Prices in
					Active		Significant
					Markets for		Other		Significant
					Identical		Observable		Unobservable
	Carrying		Fair		Assets		Inputs		Inputs
December 31, 2018	Value		Value		(level 1)		(level 2)		(Level 3)
Financial assets:
Cash and cash equivalents	$	32,616	$	32,616	$	32,616
Investment securities:
Available-for-sale		269,682		269,682		25,952	$	244,090
Common equity securities		291		291		291
Held-to-maturity		8,361		8,380				8,380
Loans held for sale		749		749				749
Net loans		1,801,887		1,762,449					$	1,762,449
Accrued interest receivable		7,115		7,115				7,115
Mortgage servicing rights		718		1,710				1,710
Restricted equity securities		7,462		7,462				7,462
Interest rate floor		553		553				553
Interest rate swaps		108		108				108
Total	$	2,129,542	$	2,091,115
Financial liabilities:
Deposits	$	1,875,022	$	1,874,520			$	1,874,520
Short-term borrowings		86,500		86,500				86,500
Long-term debt		37,906		38,071				38,071
Accrued interest payable		1,195		1,195				1,195
Interest rate swaps		138		138				138
Total	$	2,000,761	$	2,000,424

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Employee benefit plans (Tables)

3 Months Ended

Mar. 31, 2019

Employee benefit plans

Schedule of components of net periodic benefit cost

	Pension Benefits
Three Months Ended March 31,	2019		2018
Components of net periodic pension cost:
Interest cost	$	128	$
Expected return on plan assets		(217)
Amortization of unrecognized net gain		45
Net periodic benefit cost	$	(44)	$

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Derivatives and hedging activities (Tables)

3 Months Ended

Mar. 31, 2019

Derivatives and hedging activities

Schedule of fair value of derivative financial instruments and balance sheet classification

			Asset Derivatives			Asset Derivatives			Liability Derivatives			Liability Derivatives
			As of March 31, 2019			As of December 31, 2018 (1)			As of March 31, 2019			As of December 31, 2018 (2)
		Notional	Balance Sheet			Balance Sheet			Balance Sheet			Balance Sheet
		Amount	Location	Fair Value		Location	Fair Value		Location	Fair Value		Location	Fair Value
Derivatives designated as hedging instruments
Interest Rate Floor	$	25,000	Other Assets	$	597		$	553
Total derivatives designated as hedging instruments				$	597		$	553
Derivatives not designated as hedging instruments
Interest Rate Swaps	$	79,667	Other Assets	$	1,328	Other Assets	$	108	Other Liabilities	$	1,468	Other Liabilities	$	138
Total derivatives not designated as hedging instruments				$	1,328		$	108		$	1,468		$	138

(1) Assets amount does not include accrued interest receivable of $8

(2) Liabilities amount does not include accrued interest payable of $8

Schedule of effect of fair value and cash flow hedge accounting on Accumulated Other Comprehensive Income

Location of

Amount of

Amount of

Amount of

Amount of

Amount of

Gain or (Loss)

Amount of

Gain

Loss

Loss

Gain

Gain

Recognized from

Loss

Reclassified

Reclassified

Recognized in

Recognized in

Recognized in

Accumulated

Reclassified

from Accumulated

from Accumulated

Derivatives in

OCI on

OCI Included

OCI Excluded

Other Comprehensive

from Accumulated

OCI into Income

OCI into Income

Hedging

Derivative

Component

Component

Income into

OCI into Income

Included Component

Excluded Component

Relationships

March 31, 2019

Income

March 31, 2019

Derivatives in Cash Flow Hedging Relationships

Interest Rate Floor (*)

$

47

$

295

$

(248)

Interest Income

$

(15)

$

$

(15)

* Amounts disclosed are gross and not net of taxes.

Schedule of effect of derivative financial instruments on Income Statement

		Location and Amount of Gain or (Loss) Recognized in
		Income on Fair Value and Cash Flow Hedging
		Relationships
		2019	2018
		Interest Income	Interest Income
Total amounts of income and expense line items presented in the statements of income and comprehensive income in which the effects of fair value or cash flow hedges are recorded	$	(15)
The effects of fair value and cash flow hedging:
Gain or (loss) on cash flow hedging relationships
Interest contracts
Amount of gain or (loss) reclassified from accumulated other  comprehensive income into income	$	(15)
Amount of gain or (loss) reclassified from accumulated other comprehensive income into income -  included component
Amount of gain or (loss) reclassified from accumulated other comprehensive income into income -  excluded component	$	(15)

Schedule of gain (loss) on derivative instruments not designated as hedging instruments

		Amount of Gain		Amount of Loss
		Recognized in		Recognized in
	Location of Gain or (Loss)	Income		Income
	Recognized in Income on	Three Months Ended		Three Months Ended
Derivatives Not Designated as Hedging Instruments	Derivative	March 31, 2019		March 31, 2018
Interest Rate Swaps	Other non-interest income	$	(110)	$	66
Fee Income	Other  income / (expense)	$	391	$

Schedule of offsetting derivatives

Offsetting of Derivative Assets
as of March 31, 2019
						Gross Amounts Not Offset in the Balance Sheet
	Gross			Net Amounts
	Amounts of		Gross Amounts	of Assets
	Recognized		Offset in the	presented in the		Financial	Cash Collateral	Net
	Assets		Balance Sheet	Balance Sheet		Instruments	Received	Amount
Derivatives	$	1,924	$	$	1,924	$		$	1,924
Offsetting of Derivative Liabilities
as of March 31, 2019
						Gross Amounts Not Offset in the Balance Sheet
	Gross			Net Amounts
	Amounts of		Gross Amounts	of Assets
	Recognized		Offset in the	presented in the		Financial	Cash Collateral	Net
	Assets		Balance Sheet	Balance Sheet		Instruments	Received	Amount
Derivatives	$	1,457	$	$	1,457	$		$	1,457
Offsetting of Derivative Assets
as of December 31, 2018
						Gross Amounts Not Offset in the Balance Sheet
	Gross			Net Amounts
	Amounts of		Gross Amounts	of Assets
	Recognized		Offset in the	presented in the		Financial	Cash Collateral	Net
	Assets		Balance Sheet	Balance Sheet		Instruments	Received	Amount
Derivatives	$	661	$	$	661	$		$	661
Offsetting of Derivative Liabilities
as of December 31, 2018
						Gross Amounts Not Offset in the Balance Sheet
	Gross			Net Amounts
	Amounts of		Gross Amounts	of Assets
	Recognized		Offset in the	presented in the		Financial	Cash Collateral	Net
	Assets		Balance Sheet	Balance Sheet		Instruments	Received	Amount
Derivatives	$	138	$	$	138	$		$	138

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Short-term borrowings (Tables)

3 Months Ended

Mar. 31, 2019

Short-term borrowings

Summary of short-term borrowings

	At and for the three months ended March 31, 2019
							Weighted		Weighted
					Maximum		Average		Average
	Ending		Average		Month-End		Rate for		Rate at
	Balance		Balance		Balance		the three monthe ended March 31,2019		March 31,2019
FHLB advances	$	109,000	$	121,954	$	133,725	2.70	%	2.70	%

	At and for the year ended December 31, 2018
							Weighted		Weighted
					Maximum		Average		Average
	Ending		Average		Month-End		Rate for		Rate at End
	Balance		Balance		Balance		the Year		of the Year
FHLB advances	$	86,500	$	133,834	$	189,275	2.05	%	2.62	%

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Summary of significant accounting policies (Details) $ in Thousands	3 Months Ended
	Mar. 31, 2019 USD ($) Office	Jan. 01, 2019 USD ($)
Summary of significant accounting policies
Number of full-service community banking offices | Office	27
Lease liabilities for operating leases	$ 5,513	$ 5,513
Right-of-use assets	$ 5,513	$ 5,513

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Other comprehensive loss - Components of Accumulated Other Comprehensive Loss (Details) - USD ($) $ in Thousands	3 Months Ended	12 Months Ended
	Mar. 31, 2019	Dec. 31, 2018
Other comprehensive loss
Net unrealized loss on investment securities available-for-sale	$ (812)	$ (3,251)
Income tax	(170)	(683)
Net of income taxes	(642)	(2,568)
Benefit plan adjustments	(7,218)	(7,218)
Income tax	1,516	1,516
Net of income taxes	(5,702)	(5,702)
Derivative adjustments	309	246
Income tax	65	52
Net of income taxes	244	194
Accumulated other comprehensive loss	$ (6,100)	$ (8,076)

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Other comprehensive loss - Other Comprehensive Loss and Related Tax Effects (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Other comprehensive loss
Unrealized (loss) gain on investment securities available-for-sale	$ 2,439	$ (2,376)
Other comprehensive loss	2,502	(2,376)
Income tax	526	(501)
Other comprehensive loss	$ 1,976	$ (1,875)

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Earnings per share - Shares Considered Anti-dilutive (Details) - shares	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Earnings per share
Anti-dilutive shares	0	0

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Earnings per share - Schedule of Earnings per Share (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Earnings per share
Net income, Basic	$ 6,412	$ 5,854
Average common shares outstanding, Basic	7,399,054	7,396,505
Earnings per share, Basic	$ 0.87	$ 0.79
Net income, Diluted	$ 6,412	$ 5,854
Average common shares outstanding, Diluted	7,399,054	7,396,505
Earnings per share, Diluted	$ 0.87	$ 0.79

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Investment securities - Amortized Cost and Fair Value of Investment Securities Aggregated by Investment Category (Details) $ in Thousands	Mar. 31, 2019 USD ($) company	Dec. 31, 2018 USD ($)
Schedule of Trading Securities and Other Trading Assets
Available-for-sale, Amortized Cost	$ 271,196	$ 272,933
Available-for-sale, Gross Unrealized Gains	1,331	757
Available-for-sale, Gross Unrealized Losses	2,143	4,008
Available-for-sale, Fair Value	270,384	269,682
Held-to-maturity, Amortized Cost	8,162	8,361
Held-to-maturity, Gross Unrealized Gains	151	67
Held-to-maturity, Gross Unrealized Losses	3	48
Held-to-maturity, Fair value	8,310	8,380
Equity investments carried at fair value	$ 292	291
Number of equity securities portfolio consisting of stock of other financial institutions | company	2
Fair value of equity portfolio in excess of cost basis	$ 15
Mortgage-backed Securities, U.S. Government agencies
Schedule of Trading Securities and Other Trading Assets
Available-for-sale, Amortized Cost	11,716	12,663
Available-for-sale, Gross Unrealized Gains	80	50
Available-for-sale, Gross Unrealized Losses	56	84
Available-for-sale, Fair Value	11,740	12,629
Held-to-maturity, Amortized Cost	40	42
Held-to-maturity, Fair value	40	42
Mortgage-backed Securities, U.S. Government-sponsored enterprises
Schedule of Trading Securities and Other Trading Assets
Available-for-sale, Amortized Cost	39,064	33,149
Available-for-sale, Gross Unrealized Gains	408	49
Available-for-sale, Gross Unrealized Losses	202	401
Available-for-sale, Fair Value	39,270	32,797
Held-to-maturity, Amortized Cost	1,267	1,464
Held-to-maturity, Gross Unrealized Gains	32	55
Held-to-maturity, Gross Unrealized Losses	3	5
Held-to-maturity, Fair value	1,296	1,514
Commercial mortgage-backed Securities, U.S. Government-sponsored enterprises
Schedule of Trading Securities and Other Trading Assets
Available-for-sale, Amortized Cost	6,258	6,269
Available-for-sale, Gross Unrealized Losses	111	230
Available-for-sale, Fair Value	6,147	6,039
U.S. Government-sponsored enterprises state and municipals
Schedule of Trading Securities and Other Trading Assets
Available-for-sale, Amortized Cost	93,914	94,999
Available-for-sale, Gross Unrealized Gains	9	2
Available-for-sale, Gross Unrealized Losses	1,373	2,183
Available-for-sale, Fair Value	92,550	92,818
U.S. Treasuries
Schedule of Trading Securities and Other Trading Assets
Available-for-sale, Amortized Cost	23,954	25,948
Available-for-sale, Gross Unrealized Gains	35	9
Available-for-sale, Gross Unrealized Losses	232	365
Available-for-sale, Fair Value	23,757	25,592
Common equity securities.
Schedule of Trading Securities and Other Trading Assets
Equity investments carried at fair value	292	291
State and Municipals, Taxable
Schedule of Trading Securities and Other Trading Assets
Available-for-sale, Amortized Cost	13,017	13,544
Available-for-sale, Gross Unrealized Gains	328	309
Available-for-sale, Fair Value	13,345	13,853
State and Municipals, Tax-exempt
Schedule of Trading Securities and Other Trading Assets
Available-for-sale, Amortized Cost	83,273	86,361
Available-for-sale, Gross Unrealized Gains	471	338
Available-for-sale, Gross Unrealized Losses	169	745
Available-for-sale, Fair Value	83,575	85,954
Held-to-maturity, Amortized Cost	6,855	6,855
Held-to-maturity, Gross Unrealized Gains	119	12
Held-to-maturity, Gross Unrealized Losses		43
Held-to-maturity, Fair value	$ 6,974	$ 6,824

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Investment securities - Unrealized and realized gains and losses (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Investment securities
Net gains recognized during the period on equity securities	$ 1	$ (8)
Unrealized gains and (losses) recognized during the reporting period on equity securities still held at the reporting date	$ 1	$ (8)

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Investment securities - Restricted Investment In Stock (Details) $ in Thousands	3 Months Ended
	Mar. 31, 2019 USD ($) security	Mar. 31, 2018 USD ($)
Available-for-sale and Held-to-maturity securities
Number of securities in continuous unrealized loss position	137
Other-than-temporary impairments recognized | $	$ 0
State and Municipals, Tax-exempt
Available-for-sale and Held-to-maturity securities
Number of securities in continuous unrealized loss position	60
Number of securities in continuous unrealized loss positions 12 months or longer	57
U.S. Treasuries
Available-for-sale and Held-to-maturity securities
Number of securities in continuous unrealized loss position	7
Number of securities in continuous unrealized loss positions 12 months or longer	7
U.S. Government-sponsored enterprises state and municipals
Available-for-sale and Held-to-maturity securities
Number of securities in continuous unrealized loss position	35
Number of securities in continuous unrealized loss positions 12 months or longer	35
Other-than-temporary impairments recognized | $	$ 0	$ 0
Mortgage-backed Securities, U.S. Government-sponsored enterprises
Available-for-sale and Held-to-maturity securities
Number of securities in continuous unrealized loss position	35
Number of securities in continuous unrealized loss positions 12 months or longer	32

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Investment securities - Maturity Distribution of Debt Securities Classified as Available-for-Sale (Details) - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018
Investment securities
Within one year	$ 41,366
After one but within five years	142,465
After five but within ten years	13,925
After ten years	15,471
Available for sale securities	213,227
Mortgage-backed securities	57,157
Total	$ 270,384	$ 269,682

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Investment securities - Summary of Amortized Cost and Fair Value of Securities by Contractual Maturity (Details) - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018
Amortized Cost of Held-to-maturity Securities
Amortized Cost, After ten years, Held to maturity	$ 6,855
Amortized Cost, Held to maturity	6,855
Amortized Cost, Mortgage-backed securities, Held to maturity	1,307
Held-to-maturity, Amortized Cost	8,162	$ 8,361
Fair Value of Held-to-maturity Securities
Fair Value, After ten years, Held to maturity	6,974
Fair Value, Held to maturity	6,974
Fair Value, Mortgage-backed securities, Held to maturity	1,336
Held to maturity, Fair Value	$ 8,310	$ 8,380

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Investment securities - Pledged Securities (Details) - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018
Available-for-sale and Held-to-maturity securities
Carrying value of securities pledged	us-gaap:AssetPledgedAsCollateralMember	us-gaap:AssetPledgedAsCollateralMember
Collateral Pledged
Available-for-sale and Held-to-maturity securities
Carrying value of securities pledged	$ 158,116	$ 161,647

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Investment securities - Fair Value and Unrealized Losses of Investment Securities in Continuous Unrealized Loss Position (Details) - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018
Available-for-sale and Held-to-maturity securities
Less Than 12 Months, Fair Value	$ 2,214	$ 25,905
12 Months or More, Fair Value	167,699	189,472
Less Than 12 Months, Unrealized Losses	4	132
12 Months or More, Unrealized Losses	2,142	3,924
Total, Fair Value	169,913	215,377
Total, Unrealized Losses	2,146	4,056
State and Municipals, Tax-exempt
Available-for-sale and Held-to-maturity securities
Less Than 12 Months, Fair Value	1,854	9,022
12 Months or More, Fair Value	31,468	52,352
Less Than 12 Months, Unrealized Losses	3	74
12 Months or More, Unrealized Losses	166	714
Total, Fair Value	33,322	61,374
Total, Unrealized Losses	169	788
U.S. Treasuries
Available-for-sale and Held-to-maturity securities
Less Than 12 Months, Fair Value		1,995
12 Months or More, Fair Value	19,799	19,671
Less Than 12 Months, Unrealized Losses		2
12 Months or More, Unrealized Losses	232	363
Total, Fair Value	19,799	21,666
Total, Unrealized Losses	232	365
U.S. Government-sponsored enterprises state and municipals
Available-for-sale and Held-to-maturity securities
Less Than 12 Months, Fair Value		2,037
12 Months or More, Fair Value	90,466	89,729
Less Than 12 Months, Unrealized Losses		1
12 Months or More, Unrealized Losses	1,373	2,182
Total, Fair Value	90,466	91,766
Total, Unrealized Losses	1,373	2,183
Mortgage-backed Securities, U.S. Government agencies
Available-for-sale and Held-to-maturity securities
12 Months or More, Fair Value	6,946	7,800
12 Months or More, Unrealized Losses	56	84
Total, Fair Value	6,946	7,800
Total, Unrealized Losses	56	84
Commercial mortgage-backed Securities, U.S. Government-sponsored enterprises
Available-for-sale and Held-to-maturity securities
Less Than 12 Months, Fair Value	360
12 Months or More, Fair Value	12,873	6,039
Less Than 12 Months, Unrealized Losses	1
12 Months or More, Unrealized Losses	204	230
Total, Fair Value	13,233	6,039
Total, Unrealized Losses	205	230
Mortgage-backed Securities, U.S. Government-sponsored enterprises
Available-for-sale and Held-to-maturity securities
Less Than 12 Months, Fair Value		12,851
12 Months or More, Fair Value	6,147	13,881
Less Than 12 Months, Unrealized Losses		55
12 Months or More, Unrealized Losses	111	351
Total, Fair Value	6,147	26,732
Total, Unrealized Losses	$ 111	$ 406

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Investment securities - Additional Information (Details) $ in Thousands	3 Months Ended	12 Months Ended
	Mar. 31, 2019 USD ($) shares	Dec. 31, 2018 USD ($)
Value of common stock	$ 14,798	$ 14,798
Visa Class A stock
Conversion ratio of common stock	1.6298
Visa Class B stock
Shares held | shares	44,982
Value of common stock		0
Federal Home Loan Bank of Pittsburgh (FHLB)
Value of common stock	$ 8,384	$ 7,420
Atlantic Community Bankers Bank (ACBB)
Value of common stock	$ 42
U.S. Government-sponsored enterprises state and municipals
Maximum percentage of stockholders' equity exceeded for securities of any individual issuer	10.00%	10.00%

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Loans, net and allowance for loan losses - Net Deferred Loan Costs (Details) - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018
Loans, net and allowance for loan losses
Net deferred loan costs	$ 851	$ 744

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Loans, net and allowance for loan losses - Major Classifications of Loans Outstanding (Details) - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018
Accounts, Notes, Loans and Financing Receivable
Loans, net	$ 1,849,602	$ 1,823,266
Commercial
Accounts, Notes, Loans and Financing Receivable
Loans, net	516,756	494,134
Real estate Commercial
Accounts, Notes, Loans and Financing Receivable
Loans, net	917,035	907,803
Real estate Residential
Accounts, Notes, Loans and Financing Receivable
Loans, net	299,330	299,876
Consumer
Accounts, Notes, Loans and Financing Receivable
Loans, net	$ 116,481	$ 121,453

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Loans, net and allowance for loan losses - Changes in Allowance for Loan Losses Account by Major Classification of Loans (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018	Mar. 31, 2019	Dec. 31, 2018
Allowance for loan losses:
Beginning Balance	$ 21,379	$ 18,960
Charge-offs	(374)	(426)
Recoveries	50	134
Provisions	1,050	1,050
Ending balance	22,105	19,718
Beginning Balance	21,379	18,960
Ending balance: individually evaluated for impairment			$ 988	$ 1,179
Charge-offs	(374)	(426)
Ending balance: collectively evaluated for impairment			21,117	20,200
Recoveries	50	134
Ending balance: loans acquired with deteriorated credit quality	21,379	18,960	22,105	21,379
Provisions	1,050	1,050
Loans receivable:
Total Loans			1,849,602	1,823,266
Ending balance: individually evaluated for impairment			13,680	9,641
Ending balance: collectively evaluated for impairment			1,835,922	1,813,625
Total Loans			1,849,602	1,823,266
Ending balance	22,105	19,718
Ending balance: individually evaluated for impairment			13,680	9,641
Ending balance: collectively evaluated for impairment			1,835,922	1,813,625
Commercial
Allowance for loan losses:
Beginning Balance	5,516	5,052
Charge-offs	(77)
Recoveries	8	57
Provisions	508	297
Ending balance	5,955	5,406
Beginning Balance	5,516	5,052
Ending balance: individually evaluated for impairment			138	50
Charge-offs	(77)
Ending balance: collectively evaluated for impairment			5,817	5,466
Recoveries	8	57
Ending balance: loans acquired with deteriorated credit quality	5,516	5,052	5,955	5,516
Provisions	508	297
Loans receivable:
Total Loans			516,756	494,134
Ending balance: individually evaluated for impairment			7,012	2,237
Ending balance: collectively evaluated for impairment			509,744	491,897
Total Loans			516,756	494,134
Ending balance	5,955	5,406
Ending balance: individually evaluated for impairment			7,012	2,237
Ending balance: collectively evaluated for impairment			509,744	491,897
Real estate Commercial
Allowance for loan losses:
Beginning Balance	10,736	7,548
Charge-offs	(6)
Recoveries		27
Provisions	344	524
Ending balance	11,074	8,099
Beginning Balance	10,736	7,548
Ending balance: individually evaluated for impairment			389	403
Charge-offs	(6)
Ending balance: collectively evaluated for impairment			10,685	10,333
Recoveries		27
Ending balance: loans acquired with deteriorated credit quality	10,736	7,548	11,074	10,736
Provisions	344	524
Loans receivable:
Total Loans			917,035	907,803
Ending balance: individually evaluated for impairment			3,535	3,121
Ending balance: collectively evaluated for impairment			913,500	904,682
Total Loans			917,035	907,803
Ending balance	11,074	8,099
Ending balance: individually evaluated for impairment			3,535	3,121
Ending balance: collectively evaluated for impairment			913,500	904,682
Real estate Residential
Allowance for loan losses:
Beginning Balance	3,892	4,980
Charge-offs	(159)	(299)
Recoveries	4	10
Provisions	143	148
Ending balance	3,880	4,839
Beginning Balance	3,892	4,980
Ending balance: individually evaluated for impairment			461	666
Charge-offs	(159)	(299)
Ending balance: collectively evaluated for impairment			3,419	3,226
Recoveries	4	10
Ending balance: loans acquired with deteriorated credit quality	3,892	4,980	3,880	3,892
Provisions	143	148
Loans receivable:
Total Loans			299,330	299,876
Ending balance: individually evaluated for impairment			2,895	4,071
Ending balance: collectively evaluated for impairment			296,435	295,805
Total Loans			299,330	299,876
Ending balance	3,880	4,839
Ending balance: individually evaluated for impairment			2,895	4,071
Ending balance: collectively evaluated for impairment			296,435	295,805
Real estate Residential
Loans receivable:
Total Loans			299,330	299,876
Total Loans			299,330	299,876
Consumer
Allowance for loan losses:
Beginning Balance	1,235	1,380
Charge-offs	(132)	(127)
Recoveries	38	40
Provisions	55	81
Ending balance	1,196	1,374
Beginning Balance	1,235	1,380
Ending balance: individually evaluated for impairment				60
Charge-offs	(132)	(127)
Ending balance: collectively evaluated for impairment			1,196	1,175
Recoveries	38	40
Ending balance: loans acquired with deteriorated credit quality	1,235	1,380	1,196	1,235
Provisions	55	81
Loans receivable:
Total Loans			116,481	121,453
Ending balance: individually evaluated for impairment			238	212
Ending balance: collectively evaluated for impairment			116,243	121,241
Total Loans			116,481	121,453
Ending balance	$ 1,196	$ 1,374
Ending balance: individually evaluated for impairment			238	212
Ending balance: collectively evaluated for impairment			$ 116,243	$ 121,241

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Loans, net and allowance for loan losses - Allocation of Allowance for Loan Losses and Related Loans by Major Classification of Loans (Details) - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018	Mar. 31, 2018	Dec. 31, 2017
Allowance for loan losses:
Ending balance	$ 22,105	$ 21,379	$ 19,718	$ 18,960
Ending balance: individually evaluated for impairment	988	1,179
Ending balance: collectively evaluated for impairment	21,117	20,200
Loans receivable:
Ending balance	1,849,602	1,823,266
Ending balance: individually evaluated for impairment	13,680	9,641
Ending balance: collectively evaluated for impairment	1,835,922	1,813,625
Commercial
Allowance for loan losses:
Ending balance	5,955	5,516	5,406	5,052
Ending balance: individually evaluated for impairment	138	50
Ending balance: collectively evaluated for impairment	5,817	5,466
Loans receivable:
Ending balance	516,756	494,134
Ending balance: individually evaluated for impairment	7,012	2,237
Ending balance: collectively evaluated for impairment	509,744	491,897
Real estate Commercial
Allowance for loan losses:
Ending balance	11,074	10,736	8,099	7,548
Ending balance: individually evaluated for impairment	389	403
Ending balance: collectively evaluated for impairment	10,685	10,333
Loans receivable:
Ending balance	917,035	907,803
Ending balance: individually evaluated for impairment	3,535	3,121
Ending balance: collectively evaluated for impairment	913,500	904,682
Real estate Residential
Allowance for loan losses:
Ending balance	3,880	3,892	4,839	4,980
Ending balance: individually evaluated for impairment	461	666
Ending balance: collectively evaluated for impairment	3,419	3,226
Loans receivable:
Ending balance	299,330	299,876
Ending balance: individually evaluated for impairment	2,895	4,071
Ending balance: collectively evaluated for impairment	296,435	295,805
Consumer
Allowance for loan losses:
Ending balance	1,196	1,235	$ 1,374	$ 1,380
Ending balance: individually evaluated for impairment		60
Ending balance: collectively evaluated for impairment	1,196	1,175
Loans receivable:
Ending balance	116,481	121,453
Ending balance: individually evaluated for impairment	238	212
Ending balance: collectively evaluated for impairment	$ 116,243	$ 121,241

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Loans, net and allowance for loan losses - Major Classification of Loans Portfolio Summarized by Credit Quality (Details) - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018
Accounts, Notes, Loans and Financing Receivable
Loans, net	$ 1,849,602	$ 1,823,266
Commercial
Accounts, Notes, Loans and Financing Receivable
Loans, net	516,756	494,134
Real estate Commercial
Accounts, Notes, Loans and Financing Receivable
Loans, net	917,035	907,803
Real estate Residential
Accounts, Notes, Loans and Financing Receivable
Loans, net	299,330	299,876
Real estate Residential
Accounts, Notes, Loans and Financing Receivable
Loans, net	299,330	299,876
Consumer
Accounts, Notes, Loans and Financing Receivable
Loans, net	116,481	121,453
Pass
Accounts, Notes, Loans and Financing Receivable
Loans, net	1,816,312	1,795,367
Pass | Commercial
Accounts, Notes, Loans and Financing Receivable
Loans, net	509,531	491,531
Pass | Real estate Commercial
Accounts, Notes, Loans and Financing Receivable
Loans, net	894,059	886,849
Pass | Real estate Residential
Accounts, Notes, Loans and Financing Receivable
Loans, net	296,497	295,758
Pass | Consumer
Accounts, Notes, Loans and Financing Receivable
Loans, net	116,225	121,229
Special Mention
Accounts, Notes, Loans and Financing Receivable
Loans, net	8,754	10,160
Special Mention | Commercial
Accounts, Notes, Loans and Financing Receivable
Loans, net	3,090	869
Special Mention | Real estate Commercial
Accounts, Notes, Loans and Financing Receivable
Loans, net	5,309	8,934
Special Mention | Real estate Residential
Accounts, Notes, Loans and Financing Receivable
Loans, net	355	357
Substandard
Accounts, Notes, Loans and Financing Receivable
Loans, net	24,536	17,739
Substandard | Commercial
Accounts, Notes, Loans and Financing Receivable
Loans, net	4,135	1,734
Substandard | Real estate Commercial
Accounts, Notes, Loans and Financing Receivable
Loans, net	17,667	12,020
Substandard | Real estate Residential
Accounts, Notes, Loans and Financing Receivable
Loans, net	2,478	3,761
Substandard | Consumer
Accounts, Notes, Loans and Financing Receivable
Loans, net	$ 256	$ 224

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Loans, net and allowance for loan losses - Information Concerning Nonaccrual Loans by Major Loan Classification (Details) - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018
Financing Receivable, Recorded Investment, Past Due
Nonaccrual loans, Total	$ 10,047	$ 6,231
Commercial
Financing Receivable, Recorded Investment, Past Due
Nonaccrual loans, Total	5,567	776
Real estate Commercial
Financing Receivable, Recorded Investment, Past Due
Nonaccrual loans, Total	2,642	2,663
Real estate Residential
Financing Receivable, Recorded Investment, Past Due
Nonaccrual loans, Total	1,600	2,580
Consumer
Financing Receivable, Recorded Investment, Past Due
Nonaccrual loans, Total	$ 238	$ 212

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Loans, net and allowance for loan losses - Major Classification of Loans by Past Due Status (Details) - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018
Financing Receivable, Recorded Investment, Past Due
Total Past Due	$ 16,801	$ 15,392
Current	1,832,801	1,807,874
Total Loans	1,849,602	1,823,266
Loans > 90 Days and Accruing	829	923
30-59 Days Past Due
Financing Receivable, Recorded Investment, Past Due
Total Past Due	3,800	6,104
60-89 Days Past Due
Financing Receivable, Recorded Investment, Past Due
Total Past Due	2,125	2,134
Greater than 90 Days
Financing Receivable, Recorded Investment, Past Due
Total Past Due	10,876	7,154
Commercial
Financing Receivable, Recorded Investment, Past Due
Total Past Due	5,835	1,828
Current	510,921	492,306
Total Loans	516,756	494,134
Commercial | 30-59 Days Past Due
Financing Receivable, Recorded Investment, Past Due
Total Past Due	85	973
Commercial | 60-89 Days Past Due
Financing Receivable, Recorded Investment, Past Due
Total Past Due	183	79
Commercial | Greater than 90 Days
Financing Receivable, Recorded Investment, Past Due
Total Past Due	5,567	776
Real estate Commercial
Financing Receivable, Recorded Investment, Past Due
Total Past Due	4,865	4,843
Current	912,170	902,960
Total Loans	917,035	907,803
Loans > 90 Days and Accruing	170	73
Real estate Commercial | 30-59 Days Past Due
Financing Receivable, Recorded Investment, Past Due
Total Past Due	1,077	1,889
Real estate Commercial | 60-89 Days Past Due
Financing Receivable, Recorded Investment, Past Due
Total Past Due	976	218
Real estate Commercial | Greater than 90 Days
Financing Receivable, Recorded Investment, Past Due
Total Past Due	2,812	2,736
Real estate Residential
Financing Receivable, Recorded Investment, Past Due
Total Loans	299,330	299,876
Real estate Residential
Financing Receivable, Recorded Investment, Past Due
Total Past Due	5,294	7,461
Current	294,036	292,415
Total Loans	299,330	299,876
Loans > 90 Days and Accruing	659	850
Real estate Residential | 30-59 Days Past Due
Financing Receivable, Recorded Investment, Past Due
Total Past Due	2,204	2,486
Real estate Residential | 60-89 Days Past Due
Financing Receivable, Recorded Investment, Past Due
Total Past Due	831	1,545
Real estate Residential | Greater than 90 Days
Financing Receivable, Recorded Investment, Past Due
Total Past Due	2,259	3,430
Consumer
Financing Receivable, Recorded Investment, Past Due
Total Past Due	807	1,260
Current	115,674	120,193
Total Loans	116,481	121,453
Consumer | 30-59 Days Past Due
Financing Receivable, Recorded Investment, Past Due
Total Past Due	434	756
Consumer | 60-89 Days Past Due
Financing Receivable, Recorded Investment, Past Due
Total Past Due	135	292
Consumer | Greater than 90 Days
Financing Receivable, Recorded Investment, Past Due
Total Past Due	$ 238	$ 212

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Loans, net and allowance for loan losses - Summarized Information in Concerning to Impaired Loans (Details) - USD ($) $ in Thousands	3 Months Ended		12 Months Ended
	Mar. 31, 2019	Mar. 31, 2018	Dec. 31, 2018
Financing Receivable, Impaired
Recorded Investment, With no related allowance, Total	$ 9,268	$ 6,621	$ 5,653
Unpaid Principal Balance, With no related allowance, Total	10,123	7,608	7,017
Average Recorded Investment, With no related allowance, Total	7,461	6,578	6,468
Interest Income Recognized, With no related allowance, Total	37	27	117
Recorded Investment, With an allowance recorded, Total	4,412	5,044	3,988
Unpaid Principal Balance, With an allowance recorded, Total	4,631	5,673	4,386
Related Allowance, With an allowance recorded, Total	988	1,755	1,179
Average Recorded Investment, With an allowance recorded, Total	4,201	4,618	4,288
Interest Income Recognized, With an allowance recorded, Total	23	18	70
Recorded Investment, Total	13,680	11,665	9,641
Unpaid Principal Balance, Total	14,754	13,281	11,403
Related Allowance, With an allowance recorded, Total	988	1,755	1,179
Average Recorded Investment, Total	11,662	11,196	10,756
Interest Income Recognized, Total	60	45	187
Commercial
Financing Receivable, Impaired
Recorded Investment, With no related allowance, Total	6,072	1,211	1,562
Unpaid Principal Balance, With no related allowance, Total	6,407	1,375	1,900
Average Recorded Investment, With no related allowance, Total	3,817	1,246	1,318
Interest Income Recognized, With no related allowance, Total	17	17	67
Recorded Investment, With an allowance recorded, Total	940	1,133	675
Unpaid Principal Balance, With an allowance recorded, Total	990	1,158	675
Related Allowance, With an allowance recorded, Total	138	144	50
Average Recorded Investment, With an allowance recorded, Total	808	1,159	1,006
Interest Income Recognized, With an allowance recorded, Total	7	8	30
Recorded Investment, Total	7,012	2,344	2,237
Unpaid Principal Balance, Total	7,397	2,533	2,575
Related Allowance, With an allowance recorded, Total	138	144	50
Average Recorded Investment, Total	4,625	2,405	2,324
Interest Income Recognized, Total	24	25	97
Real estate Commercial
Financing Receivable, Impaired
Recorded Investment, With no related allowance, Total	2,098	2,970	1,969
Unpaid Principal Balance, With no related allowance, Total	2,184	3,312	2,299
Average Recorded Investment, With no related allowance, Total	2,034	2,929	2,822
Interest Income Recognized, With no related allowance, Total	13	6	28
Recorded Investment, With an allowance recorded, Total	1,437	2,402	1,152
Unpaid Principal Balance, With an allowance recorded, Total	1,563	2,520	1,323
Related Allowance, With an allowance recorded, Total	389	1,411	403
Average Recorded Investment, With an allowance recorded, Total	1,295	1,902	1,676
Interest Income Recognized, With an allowance recorded, Total	5	6	18
Recorded Investment, Total	3,535	5,372	3,121
Unpaid Principal Balance, Total	3,747	5,832	3,622
Related Allowance, With an allowance recorded, Total	389	1,411	403
Average Recorded Investment, Total	3,329	4,831	4,498
Interest Income Recognized, Total	18	12	46
Real estate Residential
Financing Receivable, Impaired
Recorded Investment, With no related allowance, Total	860	2,289	1,970
Unpaid Principal Balance, With no related allowance, Total	1,287	2,762	2,658
Average Recorded Investment, With no related allowance, Total	1,415	2,243	2,193
Interest Income Recognized, With no related allowance, Total	7	4	22
Recorded Investment, With an allowance recorded, Total	2,035	1,491	2,101
Unpaid Principal Balance, With an allowance recorded, Total	2,078	1,977	2,328
Related Allowance, With an allowance recorded, Total	461	182	666
Average Recorded Investment, With an allowance recorded, Total	2,068	1,544	1,585
Interest Income Recognized, With an allowance recorded, Total	11	4	22
Recorded Investment, Total	2,895	3,780	4,071
Unpaid Principal Balance, Total	3,365	4,739	4,986
Related Allowance, With an allowance recorded, Total	461	182	666
Average Recorded Investment, Total	3,483	3,787	3,778
Interest Income Recognized, Total	18	8	44
Consumer
Financing Receivable, Impaired
Recorded Investment, With no related allowance, Total	238	151	152
Unpaid Principal Balance, With no related allowance, Total	245	159	160
Average Recorded Investment, With no related allowance, Total	195	160	135
Recorded Investment, With an allowance recorded, Total		18	60
Unpaid Principal Balance, With an allowance recorded, Total		18	60
Related Allowance, With an allowance recorded, Total		18	60
Average Recorded Investment, With an allowance recorded, Total	30	13	21
Recorded Investment, Total	238	169	212
Unpaid Principal Balance, Total	245	177	220
Related Allowance, With an allowance recorded, Total		18	60
Average Recorded Investment, Total	$ 225	$ 173	$ 156

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Loans, net and allowance for loan losses - Loans Modified Resulting in Troubled Debt Restructurings (Details) $ in Thousands	3 Months Ended		12 Months Ended
	Mar. 31, 2019 USD ($) loan	Mar. 31, 2018 USD ($) loan payment	Dec. 31, 2018 USD ($)
Pre-Modification Outstanding Recorded Investment	$ 3,096	$ 3,032	$ 2,779
Number of defaults on loans restructured | payment		1
Number of loans modified as troubled debt restructuring | loan		0
Real estate Commercial
Number of loans modified | loan	1
Loans modified as troubled debt restructuring	$ 340
Real estate Residential
Loans modified as troubled debt restructuring		$ 64

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Other assets - Components of Other Assets (Details) - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018
Other assets.
Other real estate owned	$ 360	$ 376
Investment in low income housing partnership	7,258	7,377
Mortgage servicing rights	709	718
Bank owned life insurance	34,474	34,288
Restricted equity securities	8,426	7,462
Net deferred tax asset	4,556	5,081
Other assets	12,361	8,435
Total	$ 68,144	$ 63,737

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Fair value estimates - Transfers Between Levels (Details) - USD ($) $ in Thousands	3 Months Ended	12 Months Ended
	Mar. 31, 2019	Dec. 31, 2018
Fair value estimates
Fair value of assets transfers from level 1 to level 2	$ 0	$ 0
Fair value of assets transfers from level 2 to level 1	0	0
Fair value of liabilities transfers from level 1 to level 2	0	0
Fair value of liabilities transfers from level 2 to level 1	0	0
Fair value of assets transfers into level 3	0	0
Fair value of assets transfers out of level 3	0	0
Fair value of liabilities transfers into level 3	0	0
Fair value of liabilities transfers out of level 3	$ 0	$ 0

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Fair value estimates - Schedule of Assets and Liabilities Measured at Fair Value on Recurring Basis (Details) - Recurring Basis - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Assets, Fair Value Estimate	$ 271,133	$ 270,496
U.S. Treasuries
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Assets, Fair Value Estimate	23,757	25,592
U.S. Government-sponsored enterprises state and municipals
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Assets, Fair Value Estimate	92,550	92,818
State and Municipals, Taxable
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Assets, Fair Value Estimate	13,345	13,853
State and Municipals, Tax-exempt
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Assets, Fair Value Estimate	83,575	85,954
Mortgage-backed Securities, U.S. Government agencies
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Assets, Fair Value Estimate	11,740	12,629
Mortgage-backed Securities, U.S. Government-sponsored enterprises
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Assets, Fair Value Estimate	45,417	38,836
Common equity securities.
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Assets, Fair Value Estimate	292	291
Interest rate floor - other assets
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Assets, Fair Value Estimate	597	553
Interest rate swap-other assets
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Assets, Fair Value Estimate	1,328	108
Interest rate swap-other liabilities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Liabilities measured at fair value	(1,468)	(138)
Level 1
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Assets, Fair Value Estimate	24,049	25,883
Level 1 | U.S. Treasuries
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Assets, Fair Value Estimate	23,757	25,592
Level 1 | Common equity securities.
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Assets, Fair Value Estimate	292	291
Level 2
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Assets, Fair Value Estimate	247,084	244,613
Level 2 | U.S. Government-sponsored enterprises state and municipals
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Assets, Fair Value Estimate	92,550	92,818
Level 2 | State and Municipals, Taxable
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Assets, Fair Value Estimate	13,345	13,853
Level 2 | State and Municipals, Tax-exempt
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Assets, Fair Value Estimate	83,575	85,954
Level 2 | Mortgage-backed Securities, U.S. Government agencies
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Assets, Fair Value Estimate	11,740	12,629
Level 2 | Mortgage-backed Securities, U.S. Government-sponsored enterprises
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Assets, Fair Value Estimate	45,417	38,836
Level 2 | Interest rate floor - other assets
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Assets, Fair Value Estimate	597	553
Level 2 | Interest rate swap-other assets
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Assets, Fair Value Estimate	1,328	108
Level 2 | Interest rate swap-other liabilities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Liabilities measured at fair value	$ (1,468)	$ (138)

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Fair value estimates - Schedule of Assets and Liabilities Measured at Fair Value on Nonrecurring Basis (Details) - Nonrecurring Basis - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Impaired loans	$ 3,424	$ 2,809
Other real estate owned	289	234
Level 3
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis
Impaired loans	3,424	2,809
Other real estate owned	$ 289	$ 234

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Fair value estimates - Additional Quantitative Information about Assets Measured at Fair Value on Nonrecurring Basis (Details) - Level 3 - Nonrecurring Basis - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018
Other real estate owned
Fair Value Inputs, Assets, Quantitative Information
Assets, Fair Value Estimate	$ 289	$ 234
Range and weighted average of appraisal adjustments	31.60%	38.90%
Range and weighted average of liquidation expenses	5.00%	5.00%
Other real estate owned | Minimum
Fair Value Inputs, Assets, Quantitative Information
Range and weighted average of appraisal adjustments	20.00%	26.00%
Range and weighted average of liquidation expenses	3.00%	3.00%
Other real estate owned | Maximum
Fair Value Inputs, Assets, Quantitative Information
Range and weighted average of appraisal adjustments	53.70%	73.30%
Range and weighted average of liquidation expenses	6.00%	6.00%
Impaired loans
Fair Value Inputs, Assets, Quantitative Information
Assets, Fair Value Estimate	$ 3,424	$ 2,809
Range and weighted average of appraisal adjustments	49.40%	61.80%
Range and weighted average of liquidation expenses	5.40%	4.40%
Impaired loans | Minimum
Fair Value Inputs, Assets, Quantitative Information
Range and weighted average of appraisal adjustments	7.60%	7.10%
Range and weighted average of liquidation expenses	3.00%	3.00%
Impaired loans | Maximum
Fair Value Inputs, Assets, Quantitative Information
Range and weighted average of appraisal adjustments	97.00%	97.00%
Range and weighted average of liquidation expenses	6.00%	6.00%

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Fair value estimates - Carrying and Fair Values of Financial Instruments (Details) - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018
Investment securities:
Available-for-sale	$ 270,384	$ 269,682
Common equity securities	292	291
Held-to-maturity	8,310	8,380
Loans held for sale		749
Mortgage servicing rights	709	718
Other assets	68,144	63,737
Carrying Value
Financial assets:
Cash and cash equivalents	26,052	32,616
Investment securities:
Available-for-sale	270,384	269,682
Common equity securities	292	291
Held-to-maturity	8,162	8,361
Loans held for sale		749
Net loans	1,827,497	1,801,887
Accrued interest receivable	7,211	7,115
Mortgage servicing rights	709	718
Restricted equity securities	8,426	7,462
Interest rate floor	597	553
Interest rate swaps	1,328	108
Total assets	2,150,658	2,129,542
Financial liabilities:
Deposits	1,868,230	1,875,022
Short-term borrowings	109,000	86,500
Long-term debt	37,446	37,906
Accrued interest payable	878	1,195
Interest rate swap	1,468	138
Total liabilities	2,017,022	2,000,761
Fair Value
Financial assets:
Cash and cash equivalents	26,052	32,616
Investment securities:
Available-for-sale	270,384	269,682
Common equity securities	292	291
Held-to-maturity	8,310	8,380
Loans held for sale		749
Net loans	1,793,934	1,762,449
Accrued interest receivable	7,211	7,115
Mortgage servicing rights	1,689	1,710
Restricted equity securities	8,426	7,462
Interest rate floor	597	553
Interest rate swaps	1,328	108
Total assets	2,118,223	2,091,115
Financial liabilities:
Deposits	1,865,940	1,874,520
Short-term borrowings	109,000	86,500
Long-term debt	37,696	38,071
Accrued interest payable	878	1,195
Interest rate swap	1,468	138
Total liabilities	2,014,982	2,000,424
Level 1
Financial assets:
Cash and cash equivalents	26,052	32,616
Investment securities:
Available-for-sale	23,757	25,952
Common equity securities	292	291
Level 2
Investment securities:
Available-for-sale	246,627	244,090
Held-to-maturity	8,310	8,380
Loans held for sale		749
Accrued interest receivable	7,211	7,115
Mortgage servicing rights	1,689	1,710
Restricted equity securities	8,426	7,462
Interest rate floor	597	553
Interest rate swaps	1,328	108
Financial liabilities:
Deposits	1,865,940	1,874,520
Short-term borrowings	109,000	86,500
Long-term debt	37,696	38,071
Accrued interest payable	878	1,195
Interest rate swap	1,468	138
Level 3
Investment securities:
Net loans	$ 1,793,934	$ 1,762,449

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Employee benefit plans - Components of Net Periodic Benefit Cost (Detail) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Net periodic pension cost:
Labor and Related Expense	$ 7,595	$ 6,955
Pension Benefits
Net periodic pension cost:
Interest cost	128
Expected return on plan assets	(217)
Amortization of prior service cost	45
Net periodic benefit cost	$ (44)

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Employee benefit plans - Salaries and Employee Benefits Expense - Profit Sharing (Details) - Retirement Profit Sharing Plan - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2019	Sep. 30, 2018
Profit Sharing plan
Company contribution		$ 2,700
Safe harbor contribution	$ 18
Discretionary contributions	92
Future annual premium	$ 0

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Employee benefit plans - Additional Information (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended	12 Months Ended	15 Months Ended
	Mar. 31, 2019	Mar. 31, 2018	Sep. 30, 2018	Dec. 31, 2018	Mar. 31, 2019
Employee Benefit Plans
Share-based Compensation Arrangement by Share-based Payment Award
Salaries and employee benefits expense	$ 340	$ 340
2008 Plan
Share-based Compensation Arrangement by Share-based Payment Award
Salaries and employee benefits expense		32
2017 Plan
Share-based Compensation Arrangement by Share-based Payment Award
Salaries and employee benefits expense	$ 83	$ 5	$ 5
Common stock available for grant as awards	78,691				78,691
Non-Performance-based restricted stock | 2017 Plan
Share-based Compensation Arrangement by Share-based Payment Award
Shares or units vesting period	3 years			3 years
Performance-based restricted stock units | 2017 Plan
Share-based Compensation Arrangement by Share-based Payment Award
Shares or units vesting period	3 years			3 years
Cumulative diluted earnings per share period used for conditions for vesting of performance-based restricted stock units					3 years
Average return on equity period used for conditions for vesting of performance-based restricted stock units	3 years			3 years
Restricted Stock | 2017 Plan
Share-based Compensation Arrangement by Share-based Payment Award
Unrecognized compensation expense	$ 1,228				$ 1,228
Weighted average vesting period	2 years

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Derivatives and hedging activities - Fair Values of Derivative Instruments on the Balance Sheet (Details) $ in Thousands	12 Months Ended
	Dec. 31, 2019 USD ($)	Mar. 31, 2019 USD ($) security	Dec. 31, 2018 USD ($)
Derivatives, Fair Value
Asset Derivatives		$ 1,924	$ 661
Liability Derivatives		1,457	138
Interest Receivable		7,211	7,115
Interest Payable		878	1,195
Derivatives designated as hedging instruments
Derivatives, Fair Value
Asset Derivatives		597	553
Derivatives designated as hedging instruments | Interest Rate Floor
Derivatives, Fair Value
Notional amount		25
Asset Derivatives			553
Derivatives designated as hedging instruments | Interest Rate Floor | Other Assets.
Derivatives, Fair Value
Asset Derivatives		597
Derivatives designated as hedging instruments | Interest Rate Swaps | Other Assets.
Derivatives, Fair Value
Asset Derivatives		1,328	108
Derivatives designated as hedging instruments | Interest Rate Swaps | Other Liabilities.
Derivatives, Fair Value
Liability Derivatives		1,468	138
Derivatives not designated as hedging instruments
Derivatives, Fair Value
Asset Derivatives		1,328	108
Liability Derivatives		$ 1,468	138
Derivatives not designated as hedging instruments | Interest Rate Swaps
Derivatives, Fair Value
Number of instruments held | security		12
Notional amount		$ 79,667
Interest Receivable			8
Interest Payable			$ 8
Forecast | Cash Flow Hedge | Interest income
Derivatives, Fair Value
Derivative Instruments, Gain (Loss) Reclassified from Accumulated OCI into Income, Effective Portion, Net	$ 64

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Derivatives and hedging activities - Effect of Fair Value and Cash Flow Hedge Accounting on Accumulated Other Comprehensive Income (Details) - Interest income $ in Thousands	3 Months Ended
	Mar. 31, 2019 USD ($)
Derivative Instruments, Gain (Loss) [Line Items]
Amount of Loss Reclassified from Accumulated OCI into Income	$ (15)
Cash Flow Hedge | Interest Rate Floor
Derivative Instruments, Gain (Loss) [Line Items]
Amount of Loss Recognized in OCI on Derivative	47
Amount of Gain Recognized in OCI Included Component	295
Amount of Gain Recognized in OCI Excluded Component	(248)
Amount of Loss Reclassified from Accumulated OCI into Income	(15)
Amount of Loss Reclassified from Accumulated OCI into Income Excluded Component	$ (15)

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Derivatives and hedging activities - Effect of Fair Value and Cash Flow Hedge Accounting on the Income Statement (Details) $ in Thousands	3 Months Ended
	Mar. 31, 2019 USD ($)
Derivative Instruments, Gain (Loss)
Total amounts of income and expense line items presented in the statements of income and comprehensive income in which the effects of fair value or cash flow hedges are recorded	$ 63
Interest income
Derivative Instruments, Gain (Loss)
Total amounts of income and expense line items presented in the statements of income and comprehensive income in which the effects of fair value or cash flow hedges are recorded	(15)
Amount of gain or (loss) reclassified from accumulated other comprehensive income into income	(15)
Amount of gain or (loss) reclassified from accumulated other comprehensive income into income - excluded component	$ (15)

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Derivatives and hedging activities - Effect of Other Derivative Instruments on the Income Statement (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Fee Income | Other income/(expense)
Derivative Instruments, Gain (Loss)
Derivative Instruments Not Designated as Hedging Instruments, Gain (Loss), Net	$ 391
Derivatives not designated as hedging instruments | Interest Rate Swaps | Other non-interest income
Derivative Instruments, Gain (Loss)
Derivative Instruments Not Designated as Hedging Instruments, Gain (Loss), Net	$ (110)	$ 66

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Derivatives and hedging activities - Credit-risk-related Contingent Features (Details) - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018
Derivatives
Derivative Liability	$ 1,457	$ 138
Credit-risk contract
Derivatives
Derivative Liability	140	$ 29
Derivative, Collateral, Obligation to Return Cash	$ 1,670

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Derivatives and hedging activities - Offsetting Derivatives (Details) - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018
Offsetting of Derivative Assets
Gross Amounts of Recognized Assets	$ 1,924	$ 661
Net Amounts of Assets presented in the Balance Sheet	1,924	661
Net Amount	1,924	661
Offsetting of Derivative Liabilities
Gross Amounts of Recognized Liabilities	1,457	138
Net Amounts of Assets presented in the Balance Sheet	1,457	138
Net Amount	$ 1,457	$ 138

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Short-term borrowings - Summary of Short-term Borrowings (Details) - USD ($)	3 Months Ended	12 Months Ended
	Mar. 31, 2019	Dec. 31, 2018
Short-term Debt
Ending Balance	$ 109,000,000	$ 86,500,000
FHLB advances
Short-term Debt
Ending Balance	109,000,000	86,500
Average Balance	121,954,000	133,834
Maximum Month-End Balance	$ 133,725,000	$ 189,275
Weighted Average Rate for	2.70%	2.05%
Weighted Average Rate at	2.70%	2.62%

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Short-term borrowings - Additional Information (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2019	Dec. 31, 2018
Short-term Debt
Decrease in borrowings	$ 22,500
Peoples Bank
Short-term Debt
Maximum borrowing capacity	706,525	$ 700,169
Outstanding amount in borrowings	$ 146,446	$ 124,406

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Income taxes (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Income taxes
Federal statutory rate	10.60%	11.70%
Investment and other tax credits	$ 388	$ 270