10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10‑Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2017

Or

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

For the transition period from_____________________ to ___________________

Commission file number 0‑13222

CITIZENS FINANCIAL SERVICES, INC.

(Exact name of registrant as specified in its charter)

PENNSYLVANIA                               23‑2265045

(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)

15 South Main Street

Mansfield, Pennsylvania 16933

(Address of principal executive offices)(Zip Code)

Registrant's telephone number, including area code: (570) 662‑2121

N/A

(Former Name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports 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 __X__ No_____

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes __X__ 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_X__

Non-accelerated filer____Smaller reporting company____

(Do not check if a 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 __X__

The number of outstanding shares of the Registrant's Common Stock, as of November 1, 2017, was 3,491,511.

Citizens Financial Services, Inc.

Form 10-Q

INDEX

		PAGE
Part I	FINANCIAL INFORMATION
Item 1.	Financial Statements (unaudited):
	Consolidated Balance Sheet as of September 30,2017 and December 31, 2016	1
	Consolidated Statement of Income for the Three and Nine Months Ended September 30, 2017 and 2016	2
	Consolidated Statement of Comprehensive Income for the Three and Nine Months ended September 30, 2017 and 2016	3
	Consolidated Statement of Cash Flows for the Nine Months ended September 30, 2017 and 2016	4
	Notes to Consolidated Financial Statements	5-31
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	32-54
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	54
Item 4.	Controls and Procedures	54-55
Part II	OTHER INFORMATION
Item 1.	Legal Proceedings	55
Item 1A.	Risk Factors	55
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	55
Item 3.	Defaults Upon Senior Securities	55
Item 4.	Mine Safety Disclosures	56
Item 5.	Other Information	56
Item 6.	Exhibits	56
	Signatures	57

CITIZENS FINANCIAL SERVICES, INC.
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
	September 30			December 31
(in thousands except share data)	2017			2016
ASSETS:
Cash and due from banks:
Noninterest-bearing	$	12,887		$	16,854
Interest-bearing		928			900
Total cash and cash equivalents		13,815			17,754
Interest bearing time deposits with other banks		10,031			6,955
Available-for-sale securities		263,588			314,017
Loans held for sale		1,431			1,827
Loans (net of allowance for loan losses:
2017, $10,447 and 2016, $8,886)		896,715			790,725
Premises and equipment		16,624			17,030
Accrued interest receivable		3,786			4,089
Goodwill		21,089			21,089
Bank owned life insurance		26,722			26,223
Other intangibles		1,872			2,096
Other investment sale receivable		-			7,759
Other assets		14,114			13,454
TOTAL ASSETS	$	1,269,787		$	1,223,018
LIABILITIES:
Deposits:
Noninterest-bearing	$	154,142		$	147,425
Interest-bearing		897,963			858,078
Total deposits		1,052,105			1,005,503
Borrowed funds		73,628			79,662
Accrued interest payable		731			720
Other liabilities		13,441			13,865
TOTAL LIABILITIES		1,139,905			1,099,750
STOCKHOLDERS' EQUITY:
Preferred Stock
$1.00 par value; authorized 3,000,000 shares at September 30, 2017 and
December 31, 2016; none issued in 2017 or 2016		-			-
Common stock
$1.00 par value; authorized 15,000,000 shares;  issued 3,869,939
at September 30, 2017 and  3,704,375 at December 31, 2016		3,870			3,704
Additional paid-in capital		51,091			42,250
Retained earnings		88,318			91,278
Accumulated other comprehensive loss		(1,128	)		(1,392	)
Treasury stock, at cost:  378,428 shares at September 30, 2017
and 384,671 shares at December 31, 2016		(12,269	)		(12,572	)
TOTAL STOCKHOLDERS' EQUITY		129,882			123,268
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY	$	1,269,787		$	1,223,018
The accompanying notes are an integral part of these unaudited consolidated financial statements.

1

CITIZENS FINANCIAL SERVICES, INC.
CONSOLIDATED STATEMENT OF INCOME
(UNAUDITED)
	Three Months Ended					Nine Months Ended
	September 30,					September 30,
(in thousands, except share and per share data)	2017		2016			2017		2016
INTEREST INCOME:
Interest and fees on loans	$	10,659	$	9,204		$	30,680	$	26,387
Interest-bearing deposits with banks		49		50			129		185
Investment securities:
Taxable		762		897			2,341		2,800
Nontaxable		588		733			1,857		2,259
Dividends		62		64			191		205
TOTAL INTEREST INCOME		12,120		10,948			35,198		31,836
INTEREST EXPENSE:
Deposits		1,210		1,048			3,398		3,194
Borrowed funds		293		188			782		554
TOTAL INTEREST EXPENSE		1,503		1,236			4,180		3,748
NET INTEREST INCOME		10,617		9,712			31,018		28,088
Provision for loan losses		500		500			1,740		770
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES		10,117		9,212			29,278		27,318
NON-INTEREST INCOME:
Service charges		1,145		1,115			3,323		3,345
Trust		187		161			596		539
Brokerage and insurance		154		211			459		578
Gains on loans sold		134		109			383		225
Investment securities gains, net		9		-			204		155
Earnings on bank owned life insurance		166		174			499		515
Other		126		138			380		450
TOTAL NON-INTEREST INCOME		1,921		1,908			5,844		5,807
NON-INTEREST EXPENSES:
Salaries and employee benefits		4,237		4,285			12,880		12,067
Occupancy		475		485			1,479		1,385
Furniture and equipment		159		164			444		492
Professional fees		286		283			854		836
FDIC insurance		95		175			295		492
Pennsylvania shares tax		243		240			767		630
Amortization of intangibles		74		82			223		246
ORE expenses (recoveries)		171		(71	)		343		234
Other		1,507		1,557			4,319		5,031
TOTAL NON-INTEREST EXPENSES		7,247		7,200			21,604		21,413
Income before provision for income taxes		4,791		3,920			13,518		11,712
Provision for income taxes		1,141		767			3,097		2,245
NET INCOME	$	3,650	$	3,153		$	10,421	$	9,467
PER COMMON SHARE DATA:
Net Income - Basic	$	1.05	$	0.90		$	2.99	$	2.70
Net Income - Diluted	$	1.05	$	0.90		$	2.99	$	2.69
Cash Dividends Paid	$	0.430	$	0.400		$	1.240	$	1.183
Number of shares used in computation - basic		3,482,936		3,505,526			3,480,760		3,512,187
Number of shares used in computation - diluted		3,485,221		3,507,220			3,482,634		3,513,885
The accompanying notes are an integral part of these unaudited consolidated financial statements.

2

CITIZENS FINANCIAL SERVICES, INC.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(UNAUDITED)
	Three Months Ended											Nine Months Ended
	September 30,											September 30,
(in thousands)				2017					2016						2017				2016
Net income				$	3,650				$	3,153					$	10,421			$	9,467
Other comprehensive income (loss):
Unrealized gains on available for sale securities		(288	)				(1,049	)					437				2,439
Income tax effect		98					357						(149	)			(830	)
Change in unrecognized pension cost		56					61						168				181
Income tax effect		(19	)				(21	)					(57	)			(62	)
Less:  Reclassification adjustment for investment
security gains included in net income		(9	)				-						(204	)			(155	)
Income tax effect		3					-						69				53
Other comprehensive income (loss), net of tax					(159	)				(652	)					264				1,626
Comprehensive income				$	3,491				$	2,501					$	10,685			$	11,093
The accompanying notes are an integral part of these unaudited consolidated financial statements.

3

CITIZENS FINANCIAL SERVICES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)	Nine Months Ended
	September 30,
(in thousands)	2017			2016
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	10,421		$	9,467
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses		1,740			770
Provision for off-balance sheet items		-			30
Depreciation and amortization		321			265
Amortization and accretion of investment securities		1,089			1,750
Deferred income taxes		(381	)		141
Investment securities gains, net		(204	)		(155	)
Earnings on bank owned life insurance		(499	)		(515	)
Originations of loans held for sale		(17,144	)		(15,698	)
Proceeds from sales of loans held for sale		17,789			15,950
Realized gains on loans sold		(383	)		(225	)
Increase in accrued interest receivable		303			223
Increase (decrease) in accrued interest payable		11			(98	)
Other, net		(360	)		(1,137	)
Net cash provided by operating activities		12,703			10,768
CASH FLOWS FROM INVESTING ACTIVITIES:
Available-for-sale securities:
Proceeds from sales		30,393			12,077
Proceeds from maturity and principal repayments		47,677			43,759
Purchase of securities		(20,548	)		(44,567	)
Purchase of interest bearing time deposits with other banks		(6,301	)		-
Proceeds from sale of interest bearing time deposits with other banks		2,741			-
Proceeds from matured interest bearing time deposits with other banks		496			744
Proceeds from redemption of regulatory stock		6,090			459
Purchase of regulatory stock		(5,668	)		(1,138	)
Net increase in loans		(107,864	)		(55,846	)
Purchase of premises and equipment		(179	)		(500	)
Proceeds from sale of foreclosed assets held for sale		312			900
Net cash used in investing activities		(52,851	)		(44,112	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits		46,602			20,716
Proceeds from long-term borrowings		7			541
Repayments of long-term borrowings		-			(534	)
Net (decrease) increase in short-term borrowed funds		(6,041	)		10,221
Purchase of treasury and restricted stock		(645	)		(1,713	)
Dividends paid		(3,714	)		(3,900	)
Net cash provided by financing activities		36,209			25,331
Net decrease in cash and cash equivalents		(3,939	)		(8,013	)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		17,754			24,384
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	13,815		$	16,371
Supplemental Disclosures of Cash Flow Information:
Interest paid	$	4,169		$	3,846
Income taxes paid	$	2,950		$	1,700
Loans transferred to foreclosed property	$	785		$	633
The accompanying notes are an integral part of these unaudited consolidated financial statements.

4

 CITIZENS FINANCIAL SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1 - Basis of Presentation

Citizens Financial Services, Inc. (individually and collectively with its direct and indirect subsidiaries, the "Company") is a Pennsylvania corporation and the holding company of its wholly owned subsidiary, First Citizens Community Bank (the "Bank"), and of the Bank's wholly owned subsidiary, First Citizens Insurance Agency, Inc. ("First Citizens Insurance").

The accompanying consolidated financial statements have been prepared pursuant to rules and regulations of the Securities and Exchange Commission ("SEC") and in conformity with U.S. generally accepted accounting principles.  Because this report is based on an interim period, certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles have been condensed or omitted.  Certain of the prior year amounts have been reclassified to conform with the current year presentation.  Such reclassifications had no effect on net income or stockholders' equity.  All material inter‑company balances and transactions have been eliminated in consolidation.

In the opinion of management of the Company, the accompanying interim financial statements at September 30, 2017 and for the periods ended September 30, 2017 and 2016 include all adjustments, consisting of only normal recurring adjustments, necessary for a fair presentation of the financial condition and the results of operations for the periods. In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet and revenues and expenses for the period. The financial performance reported for the Company for the nine month period ended September 30, 2017 is not necessarily indicative of the results to be expected for the full year.  This information should be read in conjunction with the Company's Annual Report on Form 10-K for the year ended December 31, 2016.

Note 2 - Earnings per Share

The following table sets forth the computation of earnings per share. Earnings per share calculations give retroactive effect to stock dividends declared by the Company.

	Three months ended				Nine months ended
	September 30,				September 30,
	2017		2016		2017		2016
Net income applicable to common stock	$	3,650,000	$	3,153,000	$	10,421,000	$	9,467,000
Basic earnings per share computation
Weighted average common shares outstanding		3,482,936		3,505,526		3,480,760		3,512,187
Earnings per share - basic	$	1.05	$	0.90	$	2.99	$	2.70
Diluted earnings per share computation
Weighted average common shares outstanding for basic earnings per share		3,482,936		3,505,526		3,480,760		3,512,187
Add: Dilutive effects of restricted stock		2,285		1,694		1,874		1,698
Weighted average common shares outstanding for dilutive earnings per share		3,485,221		3,507,220		3,482,634		3,513,885
Earnings per share - diluted	$	1.05	$	0.90	$	2.99	$	2.69

For the three months ended September 30, 2017 and 2016, there were 1,107 and 3,804 shares, respectively, related to the restricted stock plan that were excluded from the diluted earnings per share calculations since they were anti-dilutive. These anti-dilutive shares had per share prices ranging from $49.87-$53.15 for the three month period ended September 30, 2017 and per share prices ranging from $46.69-$53.15 for the three month period ended September 30, 2016. For the nine months ended September 30, 2017 and 2016, 4,162 and 3,804 shares, respectively, related to the restricted stock plan were excluded from the diluted earnings per share calculations since they were anti-dilutive. These anti-dilutive shares had prices ranging from $46.69-$53.15 for the nine month period ended September 30, 2017 and prices ranging from $46.69-$53.15 for the nine month period ended September 30, 2016.

5

Note 3 - Income Tax Expense

Income tax expense is less than the amount calculated using the statutory tax rate, primarily as a result of tax-exempt income earned from state and municipal securities and loans and the recognition of qualified affordable housing tax credits.

Investments in Qualified Affordable Housing Projects

As of September 30, 2017 and December 31, 2016, the Company was invested in four partnerships that provide affordable housing. The balance of the investments, which is included within other assets in the Consolidated Balance Sheet, was $581,000 and $700,000 as of September 30, 2017 and December 31, 2016, respectively. Investments purchased prior to January 1, 2015, are accounted for utilizing the effective yield method. As of September 30, 2017, the Company had $740,000 of tax credits remaining that will be recognized over 5.25 years. Tax credits of $36,000 and $50,000 were recognized as a reduction of tax expense during the three months ended September 30, 2017 and 2016, respectively. For the nine months ended September 30, 2017 and 2016, tax credits of $106,000 and $149,000, respectively, were recognized as a reduction of tax expense. Amortization of the investment included in other expenses on the Consolidated Statement of Income was $39,000 and $65,000 during the three months ended September 30, 2017 and 2016, respectively. Amortization of the investment included in other expenses on the Consolidated Statement of Income was $119,000 and $194,000 during the nine months ended September 30, 2017 and 2016, respectively.

Note 4 – Investments

The amortized cost, gross unrealized gains and losses, and fair value of investment securities at September 30, 2017 and December 31, 2016 were as follows (in thousands):

			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
September 30, 2017	Cost		Gains		Losses			Value
Available-for-sale securities:
U.S. agency securities	$	132,555	$	191	$	(195	)	$	132,551
Obligations of state and
political subdivisions		80,439		1,382		(98	)		81,723
Corporate obligations		3,000		101		-			3,101
Mortgage-backed securities in
government sponsored entities		44,391		83		(197	)		44,277
Equity securities in financial
institutions		992		944		-			1,936
Total available-for-sale securities	$	261,377	$	2,701	$	(490	)	$	263,588
December 31, 2016
Available-for-sale securities:
U.S. agency securities	$	170,276	$	407	$	(269	)	$	170,414
U.S. treasury securities		2,999		1		-			3,000
Obligations of state and
political subdivisions		95,956		1,463		(493	)		96,926
Corporate obligations		3,000		50		-			3,050
Mortgage-backed securities in
government sponsored entities		37,987		88		(347	)		37,728
Equity securities in financial institutions		1,821		1,078		-			2,899
Total available-for-sale securities	$	312,039	$	3,087	$	(1,109	)	$	314,017

The following table shows the Company's gross unrealized losses and fair value of the Company's investments with unrealized losses that are not deemed to be other-than-temporarily impaired, aggregated by investment category and length of time, which individual securities have been in a continuous unrealized loss position, at September 30, 2017 and December 31, 2016 (in thousands). As of September 30, 2017, the Company owned 70 securities whose fair value was less than their cost basis.

6

	Less than Twelve Months					Twelve Months or Greater					Total
			Gross					Gross					Gross
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
September 30, 2017	Value		Losses			Value		Losses			Value		Losses
U.S. agency securities	$	55,048	$	(119	)	$	7,922	$	(76	)	$	62,970	$	(195	)
Obligations of state and
political subdivisions		6,146		(21	)		8,564		(77	)		14,710		(98	)
Mortgage-backed securities in
government sponsored entities		26,683		(166	)		2,810		(31	)		29,493		(197	)
Total securities	$	87,877	$	(306	)	$	19,296	$	(184	)	$	107,173	$	(490	)
December 31, 2016
U.S. agency securities	$	50,947	$	(269	)	$	-	$	-		$	50,947	$	(269	)
Obligations of states and
political subdivisions		28,398		(472	)		767		(21	)		29,165		(493	)
Mortgage-backed securities in
government sponsored entities		26,717		(330	)		753		(17	)		27,470		(347	)
Total securities	$	106,062	$	(1,071	)	$	1,520	$	(38	)	$	107,582	$	(1,109	)

As of September 30, 2017 and December 31, 2016, the Company's investment securities portfolio contained unrealized losses on agency securities issued or backed by the full faith and credit of the United States government or are generally viewed as having the implied guarantee of the U.S. government, obligations of states and political subdivisions and mortgage backed securities issued by government sponsored entities. For fixed maturity investments management considers whether the present value of cash flows expected to be collected are less than the security's amortized cost basis (the difference defined as the credit loss), the magnitude and duration of the decline, the reasons underlying the decline and the Company's intent to sell the security or whether it is more likely than not that the Company would be required to sell the security before its anticipated recovery in market value, to determine whether the loss in value is other than temporary. Once a decline in value is determined to be other than temporary, if the Company does not intend to sell the security, and it is more likely than not that it will not be required to sell the security before recovery of the security's amortized cost basis, the charge to earnings is limited to the amount of credit loss. Any remaining difference between fair value and amortized cost (the difference defined as the non-credit portion) is recognized in other comprehensive income, net of applicable taxes. Otherwise, the entire difference between fair value and amortized cost is charged to earnings. For equity securities where the fair value has been significantly below cost for one year, the Company's policy is to recognize an impairment loss unless sufficient evidence is available that the decline is not other than temporary and a recovery period can be predicted.  The Company has concluded that any impairment of its investment securities portfolio outlined in the above table is not other than temporary and is the result of interest rate changes, sector credit rating changes, or issuer-specific rating changes that are not expected to result in the non-collection of principal and interest during the period.

Proceeds from sales of securities available-for-sale for the nine months ended September 30, 2017 and 2016 were $30,393,000 and $12,077,000, respectively.  For the three months ended September 30, 2017 there were sales of $4,986,000 of available-for-sale securities. There were no sales of available for sale securities during the three months ended September 30, 2016. The gross gains and losses were as follows (in thousands):

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2017		2016		2017			2016
Gross gains	$	9	$	-	$	211		$	155
Gross losses		-		-		(7	)		-
Net gains	$	9	$	-	$	204		$	155

7

Investment securities with an approximate carrying value of $243.9 million and $206.3 million at September 30, 2017 and December 31, 2016, respectively, were pledged to secure public funds and certain other deposits.

Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.   The amortized cost and fair value of debt securities (excludes equity securities) at September 30, 2017, by contractual maturity, are shown below (in thousands):

	Amortized
	Cost		Fair Value
Available-for-sale debt securities:
Due in one year or less	$	52,243	$	52,375
Due after one year through five years		113,014		113,722
Due after five years through ten years		35,712		35,950
Due after ten years		59,416		59,605
Total	$	260,385	$	261,652

Note 5 – Loans

The Company grants loans primarily to customers throughout north central, central and south central Pennsylvania and the southern tier of New York.  Although the Company had a diversified loan portfolio at September 30, 2017 and December 31, 2016, a substantial portion of its debtors' ability to honor their contracts is dependent on the economic conditions within these regions. The following table summarizes the primary segments of the loan portfolio and how those segments are analyzed within the allowance for loan losses as of September 30, 2017 and December 31, 2016 (in thousands):

September 30, 2017	Total Loans		Individually evaluated for impairment		Loans acquired with deteriorated credit quality		Collectively evaluated for impairment
Real estate loans:
Residential	$	206,389	$	864	$	34	$	205,491
Commercial		273,624		13,759		2,016		257,849
Agricultural		207,052		3,964		733		202,355
Construction		17,074		-		-		17,074
Consumer		10,784		4		-		10,780
Other commercial loans		56,222		4,228		538		51,456
Other agricultural loans		34,066		1,418		-		32,648
State and political subdivision loans		101,951		-		-		101,951
Total		907,162		24,237		3,321		879,604
Allowance for loan losses		10,447		442		-		10,005
Net loans	$	896,715	$	23,795	$	3,321	$	869,599
December 31, 2016
Real estate loans:
Residential	$	207,423	$	957	$	35	$	206,431
Commercial		252,577		5,742		1,969		244,866
Agricultural		123,624		3,346		738		119,540
Construction		25,441		-		-		25,441
Consumer		11,005		-		4		11,001
Other commercial loans		58,639		5,994		621		52,024
Other agricultural loans		23,388		1,654		-		21,734
State and political subdivision loans		97,514		-		-		97,514
Total		799,611		17,693		3,367		778,551
Allowance for loan losses		8,886		487		-		8,399
Net loans	$	790,725	$	17,206	$	3,367	$	770,152

8

Purchased loans acquired in The First National Bank of Fredericksburg (FNB) acquisition, completed in 2015, were recorded at fair value on their purchase date without a carryover of the related allowance for loan losses. Upon acquisition, the Company evaluated whether an acquired loan was within the scope of ASC 310-30, Receivables-Loans and Debt Securities Acquired with Deteriorated Credit Quality. Purchased credit-impaired ("PCI") loans are loans that have evidence of credit deterioration since origination and it is probable at the date of acquisition that the Company will not collect all contractually required principal and interest payments. Based upon management's review, there were no material increases or decreases in the expected cash flows of these loans between December 11, 2015 (the "acquisition date") and September 30, 2017. The fair value of PCI loans, on the acquisition date, was determined, primarily based on the fair value of the loans' collateral. The carrying value of PCI loans was $3,321,000 and $3,367,000 at September 30, 2017 and December 31, 2016, respectively.

The carrying value of the PCI loans was determined by projected discounted contractual cash flows.

Changes in the accretable yield for PCI loans were as follows for the three and nine months ended September 30, 2017 and 2016, respectively (in thousands):

	Three months ended						Nine months ended
	September 30,						September 30,
	2017			2016			2017			2016
Balance at beginning of period	$	167		$	464		$	389		$	637
Accretion		(90	)		(88	)		(312	)		(261	)
Balance at end of period	$	77		$	376		$	77		$	376

The following table presents additional information regarding loans acquired with specific evidence of deterioration in credit quality under ASC 310-30 (in thousands):

	September 30, 2017		December 31, 2016
Outstanding balance	$	6,328	$	6,487
Carrying amount		3,321		3,367

The segments of the Company's loan portfolio are disaggregated into classes to a level that allows management to monitor risk and performance. Residential real estate mortgages consist primarily of 15 to 30 year first mortgages on residential real estate, while residential real estate home equity loans are consumer purpose installment loans or lines of credit with terms of 15 years or less secured by a mortgage which is often a second lien on residential real estate. Commercial real estate loans are business purpose loans secured by a mortgage on commercial real estate. Agricultural real estate loans are loans secured by a mortgage on real estate used in agriculture production. Construction real estate loans are loans secured by residential, commercial or agricultural real estate used during the construction phase of residential, commercial or agricultural projects. Consumer loans are typically unsecured or primarily secured by assets other than real estate and overdraft lines of credit are typically secured by customer deposit accounts. Other commercial loans are loans for commercial purposes primarily secured by non-real estate collateral. Other agricultural loans are loans for agricultural purposes primarily secured by non-real estate collateral. State and political subdivision loans are loans to state and local municipalities for capital and operating expenses or tax free loans used to finance commercial development.

Management considers other commercial loans, other agricultural loans, state and political subdivision loans, commercial real estate loans and agricultural real estate loans which are 90 days or more past due to be impaired. Management will also consider a loan impaired based on other factors it becomes aware of, including the customer's results of operations and cash flows or if the loan is modified in a troubled debt restructuring. In addition, certain residential mortgages, home equity and consumer loans that are cross collateralized with commercial relationships that are determined to be impaired may also be classified as impaired. Impaired loans are analyzed to determine if it is probable that all amounts will not be collected according to the contractual terms of the loan agreement. If management determines that the value of the impaired loan is less than the recorded investment in the loan (net of previous charge-offs, deferred loan fees or costs and unamortized premium or discount), impairment is recognized through an allocation of the allowance for loan losses or a charge-off to the allowance for loan losses.

9

The following table includes the recorded investment and unpaid principal balances for impaired financing receivables by class, excluding PCI loans, with the associated allowance amount, if applicable (in thousands):

			Recorded		Recorded
	Unpaid		Investment		Investment		Total
	Principal		With No		With		Recorded		Related
September 30, 2017	Balance		Allowance		Allowance		Investment		Allowance
Real estate loans:
Mortgages	$	865	$	280	$	515	$	795	$	17
Home Equity		69		16		53		69		9
Commercial		16,240		13,329		430		13,759		67
Agricultural		3,983		1,933		2,031		3,964		99
Construction		-		-		-		-		-
Consumer		4		2		2		4		2
Other commercial loans		4,690		3,759		469		4,228		208
Other agricultural loans		1,442		1,309		109		1,418		40
State and political
subdivision loans		-		-		-		-		-
Total	$	27,293	$	20,628	$	3,609	$	24,237	$	442
December 31, 2016
Real estate loans:							$	-
Mortgages	$	953	$	570	$	330		900	$	22
Home Equity		57		-		57		57		10
Commercial		7,958		5,697		45		5,742		45
Agricultural		3,347		2,000		1,347		3,347		54
Construction		-		-		-		-		-
Consumer		-		-		-		-		-
Other commercial loans		6,159		5,135		859		5,994		326
Other agricultural loans		1,653		1,629		24		1,653		30
State and political
subdivision loans		-		-		-		-		-
Total	$	20,127	$	15,031	$	2,662	$	17,693	$	487

The following tables includes the average balance of impaired financing receivables by class and the income recognized on these receivables for the three and nine month periods ended September 30, 2017 and 2016(in thousands):

	For the Three Months Ended
	September 30, 2017						September 30, 2016
					Interest						Interest
	Average		Interest		Income		Average		Interest		Income
	Recorded		Income		Recognized		Recorded		Income		Recognized
	Investment		Recognized		Cash Basis		Investment		Recognized		Cash Basis
Real estate loans:
Mortgages	$	741	$	3	$	-	$	607	$	1	$	-
Home Equity		70		1		-		58		1		-
Commercial		13,663		122		2		5,980		35		-
Agricultural		3,799		27		-		-		2		-
Construction		-		-		-		-		-		-
Consumer		4		-		-		-		-		-
Other commercial loans		4,337		54		25		5,298		53		2
Other agricultural loans		1,443		10		-		-		-		-
State and political
subdivision loans		-		-		-		-		-		-
Total	$	24,057	$	217	$	27	$	11,943	$	92	$	2

10

	For the Nine Months ended
	September 30, 2017						September 30, 2016
					Interest						Interest
	Average		Interest		Income		Average		Interest		Income
	Recorded		Income		Recognized		Recorded		Income		Recognized
	Investment		Recognized		Cash Basis		Investment		Recognized		Cash Basis
Real estate loans:
Mortgages	$	874	$	9	$	-	$	486	$	10	$	-
Home Equity		62		3		-		59		3		-
Commercial		10,812		280		5		6,088		87		-
Agricultural		3,609		90		-		110		7		-
Construction		-		-		-		-		-		-
Consumer		2		-		-		-		-		-
Other commercial loans		4,988		131		52		5,743		187		5
Other agricultural loans		1,528		55		-		70		3		-
State and political
subdivision loans		-		-		-		-		-		-
Total	$	21,875	$	568	$	57	$	12,556	$	297	$	5

Credit Quality Information

For commercial real estate, agricultural real estate, construction, other commercial, other agricultural and state and political subdivision loans, management uses a nine grade internal risk rating system to monitor credit quality. The first five categories are considered not criticized and are aggregated as "Pass" rated. The criticized rating categories utilized by management generally follow bank regulatory definitions. The definitions of each rating are defined below:

· Pass (Grades 1-5) – These loans are to customers with credit quality ranging from an acceptable to very high quality and are protected by the current net worth and paying capacity of the obligor or by the value of the underlying collateral.

· Special Mention (Grade 6) – This loan grade is in accordance with regulatory guidance and includes loans where a potential weakness or risk exists, which could cause a more serious problem if not corrected.

· Substandard (Grade 7) – This loan grade is in accordance with regulatory guidance and includes loans that have a well-defined weakness based on objective evidence and be characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected.

· Doubtful (Grade 8) – This loan grade is in accordance with regulatory guidance and includes loans that have all the weaknesses inherent in a substandard asset. In addition, these weaknesses make collection or liquidation in full highly questionable and improbable, based on existing circumstances.

· Loss (Grade 9) – This loan grade is in accordance with regulatory guidance and includes loans that are considered uncollectible, or of such value that continuance as an asset is not warranted.

To help ensure that risk ratings are accurate and reflect the present and future capacity of borrowers to repay the loan as agreed, the Company's loan rating process includes several layers of internal and external oversight. The Company's loan officers are responsible for the timely and accurate risk rating of the loans in each of their portfolios at origination and on an ongoing basis under the supervision of management.  All commercial and agricultural loans are reviewed annually to ensure the appropriateness of the loan grade. In addition, the Company engages an external consultant on at least an annual basis to 1) review a minimum of 50% of the dollar volume of the commercial loan portfolio on an annual basis (60% for 2016), 2) review new loans originated for over $1.0 million in the last year, 3) review a majority of borrowers with commitments greater than or equal to $1.0 million,  4) review selected loan relationships over $750,000 which are over 30 days past due or classified Special Mention, Substandard, Doubtful, or Loss, and 5) such other loans which management or the consultant deems appropriate.

11

The following tables represent credit exposures by internally assigned grades as of September 30, 2017 and December 31, 2016 (in thousands):

September 30, 2017	Pass		Special Mention		Substandard		Doubtful		Loss		Ending Balance
Real estate loans:
Commercial	$	246,405	$	15,069	$	12,150	$	-	$	-	$	273,624
Agricultural		195,469		4,824		6,759		-		-		207,052
Construction		17,074		-		-		-		-		17,074
Other commercial loans		51,341		635		4,165		81		-		56,222
Other agricultural loans		31,791		198		2,077		-		-		34,066
State and political
subdivision loans		88,251		2,891		10,809		-		-		101,951
Total	$	630,331	$	23,617	$	35,960	$	81	$	-	$	689,989

December 31, 2016	Pass		Special Mention		Substandard		Doubtful		Loss		Ending Balance
Real estate loans:
Commercial	$	225,185	$	14,045	$	13,347	$	-	$	-	$	252,577
Agricultural		110,785		8,231		4,608		-		-		123,624
Construction		25,441		-		-		-		-		25,441
Other commercial loans		51,396		2,049		5,105		89		-		58,639
Other agricultural loans		20,178		1,733		1,477		-		-		23,388
State and political
subdivision loans		83,620		13,066		828		-		-		97,514
Total	$	516,605	$	39,124	$	25,365	$	89	$	-	$	581,183

For residential real estate mortgages, home equity and consumer loans, credit quality is monitored based on whether the loan is performing or non-performing, which is typically based on the aging status of the loan and payment activity, unless a specific action, such as bankruptcy, repossession, death or significant delay in payment occurs to raise awareness of a possible credit event. Non-performing loans include those loans that are considered nonaccrual, described in more detail below, and all loans past due 90 or more days and still accruing. The following table presents the recorded investment in those loan classes based on payment activity as of September 30, 2017 and December 31, 2016 (in thousands):

September 30, 2017	Performing		Non-performing		PCI		Total
Real estate loans:
Mortgages	$	147,785	$	1,254	$	34	$	149,073
Home Equity		57,148		168		-		57,316
Consumer		10,683		101		-		10,784
Total	$	215,616	$	1,523	$	34	$	217,173
December 31, 2016	Performing		Non-performing		PCI		Total
Real estate loans:
Mortgages	$	147,047	$	1,648	$	35	$	148,730
Home Equity		58,438		255		-	$	58,693
Consumer		10,892		109		4	$	11,005
Total	$	216,377	$	2,012	$	39	$	218,428

Aging Analysis of Past Due Financing Receivables

Management further monitors the performance and credit quality of the loan portfolio by analyzing the age of the portfolio as determined by the length of time a recorded payment is past due. The following table includes an aging analysis of the recorded investment of past due financing receivables as of September 30, 2017 and December 31, 2016 (in thousands):

12

													Total		90 Days or
	30-59 Days		60-89 Days		90 Days		Total Past						Financing		Greater and
September 30, 2017	Past Due		Past Due		Or Greater		Due		Current		PCI		Receivables		Accruing
Real estate loans:
Mortgages	$	1,087	$	242	$	612	$	1,941	$	147,098	$	34	$	149,073	$	49
Home Equity		347		33		80		460		56,856		-		57,316		30
Commercial		1,184		211		3,814		5,209		266,399		2,016		273,624		80
Agricultural		-		17		1,165		1,182		205,137		733		207,052		-
Construction		-		-		-		-		17,074		-		17,074		-
Consumer		115		48		100		263		10,521		-		10,784		14
Other commercial loans		230		43		2,634		2,907		52,777		538		56,222		-
Other agricultural loans		187		-		-		187		33,879		-		34,066		-
State and political
subdivision loans		-		-		-		-		101,951		-		101,951		-
Total	$	3,150	$	594	$	8,405	$	12,149	$	891,692	$	3,321	$	907,162	$	173
Loans considered non-accrual	$	317	$	67	$	8,232	$	8,616	$	3,205	$	-	$	11,821
Loans still accruing		2,833		527		173		3,533		888,487		3,321		895,341
Total	$	3,150	$	594	$	8,405	$	12,149	$	891,692	$	3,321	$	907,162
															90 Days or
	30-59 Days		60-89 Days		90 Days		Total Past						Total Financing		Greater and
December 31, 2016	Past Due		Past Due		Or Greater		Due		Current		PCI		Receivables		Accruing
Real estate loans:
Mortgages	$	630	$	36	$	1,109	$	1,775	$	146,920	$	35	$	148,730	$	173
Home Equity		384		49		209		642		58,051		-		58,693		160
Commercial		1,757		58		4,302		6,117		244,491		1,969		252,577		-
Agricultural		-		-		1,145		1,145		121,741		738		123,624		-
Construction		-		-		-		-		25,441		-		25,441		-
Consumer		115		40		83		238		10,763		4		11,005		67
Other commercial loans		95		35		4,004		4,134		53,884		621		58,639		-
Other agricultural loans		43		34		5		82		23,306		-		23,388		5
State and political
subdivision loans		-		-		-		-		97,514		-		97,514		-
Total	$	3,024	$	252	$	10,857	$	14,133	$	782,111	$	3,367	$	799,611	$	405
Loans considered non-accrual	$	172	$	105	$	10,452	$	10,729	$	725	$	-	$	11,454
Loans still accruing		2,852		147		405		3,404		781,386		3,367		788,157
Total	$	3,024	$	252	$	10,857	$	14,133	$	782,111	$	3,367	$	799,611

Nonaccrual Loans

Loans are considered for non-accrual status upon reaching 90 days delinquency, although the Company may be receiving partial payments of interest and partial repayments of principal on such loans or if full payment of principal and interest is not expected. Additionally, if management is made aware of other information including bankruptcy, repossession, death, or legal proceedings, the loan may be placed on non-accrual status. If a loan is 90 days or more past due and is well secured and in the process of collection, it may still be considered accruing.

The following table reflects the financing receivables, excluding PCI loans, on non-accrual status as of September 30, 2017 and December 31, 2016, respectively. The balances are presented by class of financing receivable (in thousands):

13

	September 30, 2017		December 31, 2016
Real estate loans:
Mortgages	$	1,205	$	1,475
Home Equity		138		95
Commercial		5,262		4,445
Agricultural		1,464		1,340
Construction		-		-
Consumer		88		42
Other commercial loans		3,008		4,057
Other agricultural loans		656		-
State and political subdivision		-		-
	$	11,821	$	11,454

Troubled Debt Restructurings

In situations where, for economic or legal reasons related to a borrower's financial difficulties, management may grant a concession for other than an insignificant period of time to the borrower that would not otherwise be considered, the related loan is classified as a Troubled Debt Restructuring (TDR). Management strives to identify borrowers in financial difficulty early and work with them to structure more affordable terms before their loan reaches nonaccrual status. These restructured terms may include rate reductions, principal forgiveness, payment forbearance and other actions intended to minimize the economic loss and to avoid foreclosure or repossession of the collateral. In cases where borrowers are granted new terms that provide for a reduction of interest or principal, or both, management measures any impairment on the restructuring by calculating the present value of the revised loan terms and comparing this balance to the Company's investment in the loan prior to the restructuring. As these loans are individually evaluated, they are excluded from pooled portfolios when calculating the allowance for loan and lease losses and a separate allocation within the allowance for loan and lease losses is provided. Management continually evaluates loans that are considered TDRs, including payment history under the modified loan terms, the borrower's ability to continue to repay the loan based on continued evaluation of their operating results and cash flows from operations.  Based on this evaluation management would no longer consider a loan to be a TDR when the relevant facts support such a conclusion. As of September 30, 2017 and December 31, 2016, included within the allowance for loan losses are reserves of $85,000 and $29,000 respectively, that are associated with loans modified as TDRs.

Loan modifications that are considered TDRs completed during the three and nine months ended September 30, 2017 and 2016 were as follows (dollars in thousands):

	For the Three Months Ended September 30, 2017
	Number of contracts				Pre-modification Outstanding Recorded Investment				Post-Modification Outstanding Recorded Investment
	Interest Modification		Term Modification		Interest Modification		Term Modification		Interest Modification		Term Modification
Real estate loans:
Agricultural		-		2	$	-	$	150	$	-	$	150
Other agricultural loans		-		1		-		161		-		161
Total		-		3	$	-	$	311	$	-	$	311

	For the Nine Months Ended September 30, 2017
	Number of contracts				Pre-modification Outstanding Recorded Investment				Post-Modification Outstanding Recorded Investment
	Interest Modification		Term Modification		Interest Modification		Term  Modification		Interest Modification		Term Modification
Real estate loans:
Commercial		-		7	$	-	$	6,797	$	-	$	6,797
Agricultural		-		2		-		150		-		150
Other agricultural loans		-		1		-		161		-		161
Total		-		10	$	-	$	7,108	$	-	$	7,108

14

	For the Three Months Ended September 30, 2016
	Number of contracts				Pre-modification Outstanding Recorded Investment				Post-Modification Outstanding Recorded Investment
	Interest Modification		Term  Modification		Interest Modification		Term Modification		Interest Modification		Term Modification
Real estate loans:
Commercial		-		1	$	-	$	750	$	-	$	750
Other commercial loans		-		3		-		3,076		-		3,076
Total		-		4	$	-	$	3,826	$	-	$	3,826

	For the Nine Months Ended September 30, 2016
	Number of contracts				Pre-modification Outstanding Recorded Investment				Post-Modification Outstanding Recorded Investment
	Interest Modification		Term Modification		Interest Modification		Term Modification		Interest Modification		Term  Modification
Real estate loans:
Commercial		-		4	$	-	$	1,188	$	-	$	1,188
Other commercial loans		-		3		-		3,076		-		3,076
Total		-		7	$	-	$	4,264	$	-	$	4,264

Recidivism, or the borrower defaulting on its obligation pursuant to a modified loan, results in the loan once again becoming a non-accrual loan. Recidivism on modified loans occurs at a notably higher rate than do defaults on new origination loans, so modified loans present a higher risk of loss than do new origination loans. There were no loans that were modified as TDRs during each 12-month period prior to the current reporting periods, which began January 1, 2017 and 2016 (nine month periods) and June 1, 2017 and 2016 (3 month periods), respectively, that subsequently defaulted during these reporting periods.

Allowance for Loan Losses

The following table segregates the allowance for loan losses (ALLL) into the amount required for loans individually evaluated for impairment and the amount required for loans collectively evaluated for impairment as of September 30, 2017 and December 31, 2016, respectively (in thousands):

	September 30, 2017						December 31, 2016
	Individually evaluated for impairment		Collectively evaluated for impairment		Total		Individually  evaluated for  impairment		Collectively  evaluated for  impairment		Total
Real estate loans:
Residential	$	26	$	1,054	$	1,080	$	32	$	1,032	$	1,064
Commercial		67		3,515		3,582		45		3,544		3,589
Agricultural		99		2,595		2,694		54		1,440		1,494
Construction		-		31		31		-		47		47
Consumer		2		135		137		-		122		122
Other commercial loans		208		904		1,112		326		1,001		1,327
Other agricultural loans		40		422		462		30		282		312
State and political
subdivision loans		-		874		874		-		833		833
Unallocated		-		475		475		-		98		98
Total	$	442	$	10,005	$	10,447	$	487	$	8,399	$	8,886

15

The following tables roll forward the balance of the ALLL by portfolio segment for the three and nine month periods ended September 30, 2017 and 2016, respectively (in thousands):

	Balance at June 30, 2017		Charge-offs			Recoveries		Provision			Balance at September 30, 2017
Real estate loans:
Residential	$	1,104	$	(11	)	$	-	$	(13	)	$	1,080
Commercial		3,541		-			5		36			3,582
Agricultural		2,452		-			-		242			2,694
Construction		45		-			-		(14	)		31
Consumer		125		(45	)		13		44			137
Other commercial loans		1,131		-			5		(24	)		1,112
Other agricultural loans		431		-			1		30			462
State and political subdivision loans		838		-			-		36			874
Unallocated		312		-			-		163			475
Total	$	9,979	$	(56	)	$	24	$	500		$	10,447
	Balance at June 30, 2016		Charge-offs			Recoveries		Provision			Balance at September 30, 2016
Real estate loans:
Residential	$	990	$	(9	)	$	-	$	32		$	1,013
Commercial		3,338		(100	)		467		(90	)		3,615
Agricultural		581							410			991
Construction		18		-			-		16			34
Consumer		104		(27	)		16		16			109
Other commercial loans		1,316		(37	)		25		39			1,343
Other agricultural loans		248							51			299
State and political subdivision loans		764		-			-		7			771
Unallocated		-		-			-		19			19
Total	$	7,359	$	(173	)	$	508	$	500		$	8,194
	Balance at December 31, 2016		Charge-offs			Recoveries		Provision			Balance at September 30, 2017
Real estate loans:
Residential	$	1,064	$	(104	)	$	-	$	120		$	1,080
Commercial		3,589		(41	)		11		23			3,582
Agricultural		1,494		-			-		1,200			2,694
Construction		47		-			-		(16	)		31
Consumer		122		(90	)		35		70			137
Other commercial loans		1,327		-			14		(229	)		1,112
Other agricultural loans		312		(5	)		1		154			462
State and political subdivision loans		833		-			-		41			874
Unallocated		98		-			-		377			475
Total	$	8,886	$	(240	)	$	61	$	1,740		$	10,447
	Balance at December 31, 2015		Charge-offs			Recoveries		Provision			Balance at September 30, 2016
Real estate loans:
Residential	$	905	$	(52	)	$	-	$	160		$	1,013
Commercial		3,376		(100	)		475		(136	)		3,615
Agricultural		409		-					582			991
Construction		24		-			-		10			34
Consumer		102		(65	)		84		(12	)		109
Other commercial loans		1,183		(55	)		31		184			1,343
Other agricultural loans		122							177			299
State and political subdivision loans		593		-			-		178			771
Unallocated		392		-			-		(373	)		19
Total	$	7,106	$	(272	)	$	590	$	770		$	8,194

16

The Company allocates the ALLL based on the factors described below, which conform to the Company's loan classification policy and credit quality measurements. In reviewing risk within the Company's loan portfolio, management has determined there to be several different risk categories within the loan portfolio. The ALLL consists of amounts applicable to: (i) residential real estate loans; (ii) residential real estate home equity loans; (iii) commercial real estate loans; (iv) agricultural real estate loans; (v) real estate construction loans; (vi) other commercial and agricultural loans; (vii) consumer loans; (viii) other agricultural loans and (ix) state and political subdivision loans. Factors considered in this process include general loan terms, collateral, and availability of historical data to support the analysis. Historical loss percentages are calculated and used as the basis for calculating allowance allocations. Certain qualitative factors are evaluated to determine additional inherent risks in the loan portfolio, which are not necessarily reflected in the historical loss percentages. These factors are then added to the historical allocation percentage to get the adjusted factor to be applied to non-classified loans. The following qualitative factors are analyzed:

· Level of and trends in delinquencies and impaired/classified loans

§ Change in volume and severity of past due loans

§ Volume of non-accrual loans

§ Volume and severity of classified, adversely or graded loans;

· Level of and trends in charge-offs and recoveries;

· Trends in volume, terms and nature of the loan portfolio;

· Effects of any changes in risk selection and underwriting standards and any other changes in lending and recovery policies, procedures and practices;

· Changes in the quality of the Company's loan review system;

· Experience, ability and depth of lending management and other relevant staff;

· National, state, regional and local economic trends and business conditions

§ General economic conditions

§ Unemployment rates

§ Inflation rate/ Consumer Price Index

§ Changes in values of underlying collateral for collateral-dependent loans;

· Industry conditions including the effects of external factors such as competition, legal, and regulatory requirements on the level of estimated credit losses;

· Existence and effect of any credit concentrations, and changes in the level of such concentrations; and

· Any change in the level of board oversight.

The Company analyzes its loan portfolio each quarter to determine the adequacy of its ALLL.

Loans determined to be TDRs are impaired and for purposes of estimating the ALLL must be individually evaluated for impairment. In calculating the impairment, the Company calculates the present value utilizing an analysis of discounted cash flows. If the present value calculated is below the recorded investment of the loan, impairment is recognized by a charge to the provision for loan and lease losses and a credit to the ALLL.

For the three months ended September 30, 2017, the allowance for residential real estate increased in general reserves for pooled loans as a result of increased loss rates reflected in the charge-offs for the three month period, as well as higher loan balances. The increase was offset by a decrease in the specific reserve for individually evaluated residential loans. This was represented as a decrease to the provision.  The allowance for commercial real estate was increased in general reserves due to growth in the commercial real estate loan portfolio, which was represented as an increase in the provision. The allowance for agricultural real estate loans was increased in general reserves as a result of higher loan balances. The result of this growth was represented as an increase in the provision. The allowance for other commercial loans was reduced as a result of a decrease in the historical loss factor in the portfolio segment and decrease in specific reserves. This was represented by a decrease to the provision.  The allowance for other agricultural loans was increased in general reserves as a result of higher loan balances. It was also impacted by an increase in specific reserves during the quarter. The result of these changes was represented as an increase in the provision.

For the nine months ended September 30, 2017, the allowance for residential real estate increased in general reserves as a result of increased loss rates reflected in the charge-offs for the nine month period. This was represented as an increase to the provision.  The allowance for agricultural real estate loans was increased in general reserves as a result of higher loan balances as well as an increase in specific reserves. It was also impacted by the classified loan trend in the agricultural real estate portfolio. The result of these changes was represented as an increase in the provision. The allowance for other commercial loans was reduced as a result of lower loan balances, an improvement in the amount of classified loans and a reduction in the historical loss factor. This was represented by a decrease to the provision.  The allowance for other agricultural loans was increased in general reserves as a result of higher loan balances. It was also impacted by the classified loan trend in the other agricultural loan portfolio. The result of these changes was represented as an increase in the provision.

17

For the three months ended September 30, 2016, the allowance for commercial real estate was increased in general reserves due to the increase in the amount of classified loans. Offsetting this increase was the recovery of a previously charged-off amount during the quarter. This resulted in a decrease in the provision. The allowance for agricultural real estate loans was increased in general reserves as a result of higher loan balances. It was also impacted by the classified loan trend in the agricultural real estate portfolio. The result of these changes was represented as an increase in the provision. The allowance for other commercial loans was increased as a result of higher loan balances and an increase in the historical loss factor. This was represented by an increase to the provision.  The allowance for other agricultural loans was increased in general reserves as a result of higher loan balances. It was also impacted by the classified loan trend in the other agricultural loan portfolio. The result of these changes was represented as an increase in the provision.

For the nine months ended September 30, 2016, the allowance for agricultural real estate loans was increased in general reserves as a result of higher loan balances. It was also impacted by the classified loan trend in the agricultural real estate portfolio and the general industry conditions. The result of these changes was represented as an increase in the provision. The allowance for other commercial loans was increased as a result of the increase in the amount of classified loans and an increase in the specific reserves. This was represented by an increase to the provision. The allowance for other agricultural loans was increased in general reserves as a result of higher loan balances. It was also impacted by the classified loan trend in the other agricultural loan portfolio and in the general industry conditions. The result of these changes was represented as an increase in the provision. The allowance for state and political loans was increased for general reserves due to an increase in special mention loans during the period. This was represented as an increase in the provision. The allowance for commercial real estate was increased due to a recovery that occurred in the third quarter of 2016. As a result of the recovery, a negative provision was recorded.

Foreclosed Assets Held For Sale

Foreclosed assets acquired in settlement of loans are carried at fair value, less estimated costs to sell, and are included in other assets on the Consolidated Balance Sheet. As of September 30, 2017 and December 31, 2016, included with other assets are $1,570,000 and $1,036,000, respectively, of foreclosed assets. As of September 30, 2017, included within the foreclosed assets are $644,000 of consumer residential mortgages that were foreclosed on or received via a deed in lieu transaction prior to the period end. As of September 30, 2017, the Company has initiated formal foreclosure proceedings on $1,377,000 of consumer residential mortgages, which have not yet been transferred into foreclosed assets.

Note 6 – Goodwill and Other Intangible Assets

The following table provides the gross carrying value and accumulated amortization of intangible assets as of September 30, 2017 and December 31, 2016 (in thousands):

18

	September 30, 2017							December 31, 2016
	Gross carrying value		Accumulated amortization			Net carrying value		Gross carrying value		Accumulated amortization			Net carrying value
Amortized intangible assets (1):
MSRs	$	1,604	$	(921	)	$	683	$	1,471	$	(787	)	$	684
Core deposit intangibles		1,641		(520	)		1,121		1,641		(320	)		1,321
Covenant not to compete		125		(57	)		68		125		(34	)		91
Total amortized intangible assets	$	3,370	$	(1,498	)	$	1,872	$	3,237	$	(1,141	)	$	2,096
Unamortized intangible assets:
Goodwill	$	21,089						$	21,089
(1) Excludes fully amortized intangible assets

The following table provides the current year and estimated future amortization expense for amortized intangible assets. We based our projections of amortization expense shown below on existing asset balances at September 30, 2017. Future amortization expense may vary from these projections (in thousands):

	MSRs		Core deposit intangibles		Covenant not to compete		Total
Three months ended September 30, 2017 (actual)	$	44	$	66	$	8	$	118
Nine months ended September 30, 2017 (actual)	$	134	$	200	$	23	$	357
Three months September 30, 2016 (actual)	$	42	$	74	$	8	$	124
Nine months September 30, 2016 (actual)	$	132	$	222	$	24	$	378
Estimate for year ended December 31,
Remaining 2017		49		65		8		122
2018		138		236		30		404
2019		134		206		30		370
2020		103		177		-		280
2021		78		147		-		225

Note 7 – Federal Home Loan Bank Stock

The Bank is a member of the FHLB of Pittsburgh and, as such, is required to maintain a minimum investment in stock of the FHLB that varies with the level of advances outstanding with the FHLB. As of September 30, 2017 and December 31, 2016, the Bank's investment in FHLB stock was $4,120,200 and $4,542,000, respectively. The stock does not have a readily determinable fair value and, as such, is classified as restricted stock, carried at cost and evaluated by management for impairment.  The stock's value is determined by the ultimate recoverability of the par value rather than by recognizing temporary declines. The determination of whether the par value will ultimately be recovered is influenced by criteria such as the following: (a) a significant decline in net assets of the FHLB as compared to the capital stock amount and the length of time this situation has persisted (b) commitments by the FHLB to make payments required by law or regulation and the level of such payments in relation to the operating performance (c) the impact of legislative and regulatory changes on the customer base of the FHLB and (d) the liquidity position of the FHLB. Management evaluated the stock and concluded that the stock was not impaired for the periods presented herein.  Management considered that the FHLB's regulatory capital ratios are sufficient, liquidity appears adequate, new shares of FHLB stock continue to exchange hands at the $100 par value and the FHLB has repurchased shares of excess capital stock from its members and has paid a quarterly cash dividend.

Note 8 – Repurchase Agreements

We utilize securities sold under agreements to repurchase to facilitate the needs of our customers and to facilitate secured short-term funding needs. Securities sold under agreements to repurchase are stated at the amount of cash received in connection with the transaction. We monitor collateral levels on a continuous basis. We may be required to provide additional collateral based on the fair value of the underlying securities. Securities pledged as collateral under repurchase agreements are maintained with our safekeeping agents.

The value of the collateral segmented by the remaining contractual maturity of the repurchase agreements in the Consolidated Balance Sheets as of September 30 2017 and December 31, 2016 is presented in the following tables (in thousands):

19

	Remaining Contractual Maturity of the Agreements
	Overnight and		Up to				Greater than
September 30, 2017	Continuous		30 Days		30 - 90 Days		90 days		Total
Repurchase Agreements:
U.S. agency securities	$	18,153	$	-	$	-	$	2,061	$	20,214
Total carrying value of collateral pledged	$	18,153	$	-	$	-	$	2,061	$	20,214
Total liability recognized for repurchase agreements									$	16,643
	Remaining Contractual Maturity of the Agreements
	Overnight and		Up to				Greater than
December 31, 2016	Continuous		30 Days		30 - 90 Days		90 days		Total
Repurchase Agreements:
U.S. agency securities	$	16,118	$	-	$	-	$	2,059	$	18,177
Total carrying value of collateral pledged	$	16,118	$	-	$	-	$	2,059	$	18,177
Total liability recognized for repurchase agreements									$	14,307

Note 9 - Employee Benefit Plans

For additional detailed disclosure on the Company's pension and employee benefits plans, please refer to Note 11 of the Company's Consolidated Financial Statements included in the 2016 Annual Report on Form 10-K.

Noncontributory Defined Benefit Pension Plan

The Bank sponsors a trusteed noncontributory defined benefit pension plan ("Pension Plan") covering substantially all employees and officers hired prior to January 1, 2007.Additionally, the Bank assumed the noncontributory defined benefit pension plan of FNB when it was acquired. The FNB plan was frozen prior to the acquisition and therefore, no additional benefits will accrue for employees covered under that plan. These two plans are collectively referred to herein as "the Plans." The Bank's funding policy is to make annual contributions, if needed, based upon the funding formula developed by the plans' actuary. Any employee with a hire date of January 1, 2007 or later is not eligible to participate in the Pension Plan.

In lieu of the Pension Plan, employees with a hire date of January 1, 2007 or later are eligible to receive, after meeting certain length of service requirements, an annual discretionary 401(k) plan contribution from the Bank equal to a percentage of an employee's base compensation.  The contribution amount, if any, is placed in a separate account within the 401(k) plan and is subject to a vesting requirement.

For employees who are eligible to participate in the Pension Plan, the Pension Plan requires benefits to be paid to eligible employees based primarily upon age and compensation rates during employment.  Upon retirement or other termination of employment, employees can elect either an annuity benefit or a lump sum distribution of vested benefits in the Pension Plan.

The following sets forth the components of net periodic benefit costs of the Pension Plan for the three and nine months ended September 30, 2017 and 2016, respectively (in thousands):

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2017			2016			2017			2016
Service cost	$	87		$	90		$	262		$	269
Interest cost		168			172			503			517
Expected return on plan assets		(274	)		(260	)		(821	)		(780	)
Net amortization and deferral		56			61			168			182
Net periodic benefit cost	$	37		$	63		$	112		$	188

The Bank expects to contribute $400,000 to the Pension Plans in 2017.

20

Defined Contribution Plan

The Company sponsors a voluntary 401(k) savings plan which eligible employees can elect to contribute up to the maximum amount allowable not to exceed the limits of IRS Code Sections 401(k).  Under the plan, the Company also makes required contributions on behalf of the eligible employees.  Contributions by the Company totaled $303,000 and $269,000 for the nine months ended September 30, 2017 and 2016, respectively. For the three months ended September 30, 2017 and 2016, contributions by the Company totaled $96,000 and $89,000, respectively.

Directors' Deferred Compensation Plan

The Company's directors may elect to defer all or portions of their fees until their retirement or termination from service.  Amounts deferred under the plan earn interest based upon the highest current rate offered to certificate of deposit customers.  Amounts deferred under the plan are not guaranteed and represent a general liability of the Company.  At September 30, 2017 and December 31, 2016, an obligation of $921,000 and $940,000, respectively, was included in other liabilities for this plan in the Consolidated Balance Sheet. Amounts included in interest expense on the deferred amounts totaled $5,000 and $3,000 for three months ended September 30, 2017 and 2016, respectively. For the nine months ended September 30, 2017 and 2016, amounts included in interest expense on the deferred amounts totaled $14,000 and $11,000, respectively.

Restricted Stock Plan

The Company maintains a Restricted Stock Plan (the "Plan") whereby employees and non-employee corporate directors are eligible to receive awards of restricted stock based upon performance related requirements.  Awards granted under the Plan are in the form of the Company's common stock and are subject to certain vesting requirements including continuous employment or service with the Company.  In April of 2016, the Company's shareholders authorized a total of 150,000 shares of the Company's common stock to be made available under the Plan. As of September 30, 2017, 141,678 shares remain available to be issued under the Plan.  The Plan assists the Company in attracting, retaining and motivating employees to make substantial contributions to the success of the Company and to increase the emphasis on the use of equity as a key component of compensation.

The following table details the vesting, awarding and forfeiting of restricted shares during the three and nine month periods ended September 30, 2017:

	Three months				Nine months
			Weighted					Weighted
	Unvested		Average		Unvested			Average
	Shares		Market Price		Shares			Market Price
Outstanding, beginning of period		9,169	$	50.66		8,471		$	49.10
Granted		-		-		4,212			53.38
Forfeited		-		-		(43	)		(48.56	)
Vested		-		-		(3,471	)		(50.19	)
Outstanding, end of period		9,169	$	50.66		9,169		$	50.66

Compensation cost related to restricted stock is recognized, based on the market price of the stock at the grant date, over the vesting period. Compensation expense related to restricted stock was $158,000 and $142,000 for the nine months ended September 30, 2017 and 2016, respectively. For the three months ended September 30, 2017 and 2016, compensation expense totaled $54,000 and $50,000, respectively. At September 30, 2017, the total compensation cost related to nonvested awards that has not yet been recognized was $464,000, which is expected to be recognized over the next three years.

Supplemental Executive Retirement Plan

The Company maintains a non-qualified supplemental executive retirement plan ("SERP") for certain executives to compensate those executive participants in the Company's noncontributory defined benefit pension plan whose benefits are limited by compensation limitations under current tax law. At September 30, 2017 and December 31, 2016, an obligation of $1,544,000 and $1,460,000, respectively, was included in other liabilities for this plan in the Consolidated Balance Sheet. Expenses related to this plan totaled $84,000 and $91,000 for the nine months ended September 30, 2017 and 2016, respectively. For the three months ended September 30, 2017 and 2016, expenses totaled $28,000 and $30,000, respectively.

21

Salary Continuation Plan

The Company maintains a salary continuation plan for certain employees retained through the acquisition of FNB or that were formerly employed by FNB.  At September 30, 2017 and December 31 2016, an obligation of $720,000 was included in other liabilities for this plan in the Consolidated Balance Sheet.  Expenses related to this plan totaled $13,000 and $17,000 for the three months ended September 30, 2017 and 2016, respectively. For the nine months ended September 30, 2017 and 2016, expenses related to this plan totaled $40,000 and $49,000, respectively.

Continuation of Life Insurance Plan

The Company, as part of the acquisition of FNB, has promised a continuation of certain split-dollar life insurance policies that provide coverage to certain persons post-retirement. U.S. generally accepted accounting principles require the recording of post-retirement costs and a liability equal to the present value of the cost of post-retirement insurance during the person's term of service. The estimated present value of future benefits to be paid totaled $576,000 and $569,000 as of September 30, 2017 and December 31, 2016, respectively, which is included in other liabilities in the Consolidated Balance Sheet.

Note 10 – Accumulated Comprehensive Income (Loss)

The following tables present the changes in accumulated other comprehensive income (loss) by component net of tax for the three and nine months ended September 30, 2017 and 2016 (in thousands):

	Three months ended September 30, 2017
	Unrealized gain (loss) on available for sale securities (a)			Defined Benefit Pension Items (a)			Total
Balance as of June 30, 2017	$	1,655		$	(2,624	)	$	(969	)
Other comprehensive loss before reclassifications (net of tax)		(190	)		-			(190	)
Amounts reclassified from accumulated other
comprehensive income (loss) (net of tax)		(6	)		37			31
Net current period other comprehensive income (loss)		(196	)		37			(159	)
Balance as of September 30, 2017	$	1,459		$	(2,587	)	$	(1,128	)

	Nine months ended September 30, 2017
	Unrealized gain (loss) on available for sale securities (a)			Defined Benefit Pension Items (a)			Total
Balance as of December 31, 2016	$	1,306		$	(2,698	)	$	(1,392	)
Other comprehensive income before reclassifications (net of tax)		288			-			288
Amounts reclassified from accumulated other
comprehensive income (loss) (net of tax)		(135	)		111			(24	)
Net current period other comprehensive income		153			111			264
Balance as of September 30, 2017	$	1,459		$	(2,587	)	$	(1,128	)

22

	Three months ended September 30, 2016
	Unrealized gain (loss) on available for sale securities (a)			Defined Benefit Pension Items (a)			Total
Balance as of June 30, 2016	$	4,403		$	(2,361	)	$	2,042
Other comprehensive loss before reclassifications (net of tax)		(692	)		-			(692	)
Amounts reclassified from accumulated other
comprehensive income  (net of tax)		-			40			40
Net current period other comprehensive income (loss)		(692	)		40			(652	)
Balance as of September 30, 2016	$	3,711		$	(2,321	)	$	1,390

	Nine months ended September 30, 2016
	Unrealized gain (loss) on available for sale securities (a)			Defined Benefit Pension Items (a)			Total
Balance as of December 31, 2015	$	2,204		$	(2,440	)	$	(236	)
Other comprehensive income before reclassifications (net of tax)		1,609			-			1,609
Amounts reclassified from accumulated other
comprehensive income (loss) (net of tax)		(102	)		119			17
Net current period other comprehensive income		1,507			119			1,626
Balance as of September 30, 2016	$	3,711		$	(2,321	)	$	1,390

The following table presents the significant amounts reclassified out of each component of accumulated other comprehensive income for the three and nine months ended September 30, 2017 and 2016 (in thousands):

Details about accumulated other comprehensive income (loss)	Amount reclassified from accumulated comprehensive income (loss)						Affected line item in the Consolidated Statement of Income
	Three Months Ended September 30,
	2017			2016
Unrealized gains and losses on available for sale securities
	$	9		$	-		Investment securities gains, net
		(3	)		-		Provision for income taxes
	$	6		$	-
Defined benefit pension items
	$	(56	)	$	(61	)	Salaries and employee benefits
		19			21		Provision for income taxes
	$	(37	)	$	(40	)
Total reclassifications	$	(31	)	$	(40	)
	Nine Months Ended September 30,
		2017			2016
Unrealized gains and losses on available for sale securities
	$	204		$	155		Investment securities gains, net
		(69	)		(53	)	Provision for income taxes
	$	135		$	102
Defined benefit pension items
	$	(168	)	$	(181	)	Salaries and employee benefits
		57			62		Provision for income taxes
	$	(111	)	$	(119	)
Total reclassifications	$	24		$	(17	)

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Note 11 – Fair Value Measurements

The Company has established a hierarchal disclosure framework associated with the level of pricing observability utilized in measuring assets and liabilities at fair value. The three broad levels defined by this hierarchy are as follows:

Level I: Quoted prices are available in active markets for identical assets or liabilities as of the reported date.

Level II:	Pricing inputs are other than quoted prices in active markets, which are either directly or indirectly observable as of the reported date. The nature of these assets and liabilities include items for which quoted prices are available but traded less frequently, and items that are fair valued using other financial instruments, the parameters of which can be directly observed.
Level III:	Assets and liabilities that have little to no pricing observability as of the reported date. These items do not have two-way markets and are measured using management's best estimate of fair value, where the inputs into the determination of fair value require significant management judgment or estimation.

A description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below.

In general, fair value is based upon quoted market prices, where available. If such quoted market prices are not available, fair value is based upon internally developed models that primarily use, as inputs, observable market-based parameters. Valuation adjustments may be made to ensure that financial instruments are recorded at fair value. These adjustments may include amounts to reflect counterparty credit quality, the Company's creditworthiness, among other things, as well as unobservable parameters. Any such valuation adjustments are applied consistently over time. Our valuation methodologies may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. While management believes the Company's valuation methodologies are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date. Transfers between levels of the fair value hierarchy are recognized on the actual date of the event or circumstances that caused the transfer, which generally coincides with the Company's monthly and/or quarterly valuation process.

Financial Instruments Recorded at Fair Value on a Recurring Basis

The fair values of securities available for sale are determined by quoted prices in active markets, when available, and classified as Level I. If quoted market prices are not available, the fair value is determined by a matrix pricing, which is a mathematical technique, widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities' relationship to other benchmark quoted securities and classified as Level II. The fair values consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the bond's terms and conditions, among other things.

The following tables present the assets and liabilities reported on the Consolidated Balance Sheet at their fair value on a recurring basis as of September 30, 2017 and December 31, 2016 by level within the fair value hierarchy (in thousands). Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

24

September 30, 2017	Level I		Level II		Level III		Total
Fair value measurements on a recurring basis:
Assets
Securities available for sale:
U.S. agency securities	$	-	$	132,551	$	-	$	132,551
Obligations of state and
political subdivisions		-		81,723		-		81,723
Corporate obligations		-		3,101		-		3,101
Mortgage-backed securities in
government sponsored entities		-		44,277		-		44,277
Equity securities in financial institutions		1,936		-		-		1,936

December 31, 2016	Level I		Level II		Level III		Total
Fair value measurements on a recurring basis:
Securities available for sale:
U.S. agency securities	$	-	$	170,414	$	-	$	170,414
U.S. treasury securities		3,000		-		-		3,000
Obligations of state and
political subdivisions		-		96,926		-		96,926
Corporate obligations		-		3,050		-		3,050
Mortgage-backed securities in
government sponsored entities		-		37,728		-		37,728
Equity securities in financial institutions		2,899		-		-		2,899

Financial Instruments, Non-Financial Assets and Non-Financial Liabilities Recorded at Fair Value on a Nonrecurring Basis

The Company may be required, from time to time, to measure certain financial assets, financial liabilities, non-financial assets and non-financial liabilities at fair value on a nonrecurring basis in accordance with U.S. generally accepted accounting principles. These include assets that are measured at the lower of cost or market value that were recognized at fair value below cost at the end of the period. Certain non-financial assets measured at fair value on a non-recurring basis include foreclosed assets (upon initial recognition or subsequent impairment), non-financial assets and non-financial liabilities measured at fair value in the second step of a goodwill impairment test, and intangible assets and other non-financial long-lived assets measured at fair value for impairment assessment. Non-financial assets measured at fair value on a non-recurring basis during 2017 and 2016 include certain foreclosed assets which, upon initial recognition, were remeasured and reported at fair value through a charge-off to the allowance for possible loan losses and certain foreclosed assets which, subsequent to their initial recognition, were remeasured at fair value through a write-down included in other non-interest expense.

Assets measured at fair value on a nonrecurring basis as of September 30, 2017 and December 31, 2016 are included in the table below (in thousands):

September 30, 2017	Level I		Level II		Level III		Total
Impaired Loans	$	-	$	-	$	3,024	$	3,024
Other real estate owned		-		-		1,478		1,478
December 31, 2016
Impaired Loans	$	-	$	-	$	2,033	$	2,033
Other real estate owned		-		-		839		839

25

· Impaired Loans - The Company has measured impairment on impaired loans generally based on the fair value of the loan's collateral.  Fair value is generally determined based upon independent third-party appraisals of the properties. In some cases, management may adjust the appraised value due to the age of the appraisal, changes in market conditions, or observable deterioration of the property since the appraisal was completed.   Additionally, management makes estimates about expected costs to sell the property which are also included in the net realizable value.  If the fair value of the collateral dependent loan is less than the carrying amount of the loan a specific reserve for the loan is made in the allowance for loan losses or a charge-off is taken to reduce the loan to the fair value of the collateral (less estimated selling costs) and the loan is included in the table above as a Level III measurement.  If the fair value of the collateral exceeds the carrying amount of the loan, then the loan is not included in the table above as it is not currently being carried at its fair value. The fair values above excluded estimated selling costs of $246,000 and $188,000 at September 30, 2017 and December 31, 2016, respectively.

· Other Real Estate Owned (OREO) – OREO is carried at the lower of cost or fair value, which is measured at the date of foreclosure.  If the fair value of the collateral exceeds the carrying amount of the loan, no charge-off or adjustment is necessary, the loan is not considered to be carried at fair value, and is therefore not included in the table above. If the fair value of the collateral is less than the carrying amount of the loan, management will charge the loan down to its estimated realizable value. The fair value of OREO is based on the appraised value of the property, which is generally unadjusted by management and is based on comparable sales for similar properties in the same geographic region as the subject property, and is included in the above table as a Level II measurement.  In some cases, management may adjust the appraised value due to the age of the appraisal, changes in market conditions, or observable deterioration of the property since the appraisal was completed.  In these cases, the loans are categorized in the above table as Level III measurement since these adjustments are considered to be unobservable inputs. Income and expenses from operations and further declines in the fair value of the collateral subsequent to foreclosure are included in net expenses from OREO.

The following table provides a listing of the significant unobservable inputs used in the fair value measurement process for items valued utilizing Level III techniques (dollars in thousands).

September 30, 2017	Fair Value		Valuation Technique(s)	Unobservable input	Range		Weighted average
Impaired Loans		$ 3,024	Appraised Collateral Values	Discount for time since appraisal		0-100%		21.22%
				Selling costs		5%-9%		7.13%
				Holding period	0 - 24 months		8.31 months
Other real estate owned		1,478	Appraised Collateral Values	Discount for time since appraisal		12-47%		22.32%

December 31, 2016	Fair Value		Valuation Technique(s)	Unobservable input	Range		Weighted average
Impaired Loans		$ 2,033	Appraised Collateral Values	Discount for time since appraisal		0-65%		28.98%
				Selling costs		5%-9%		7.56%
				Holding period	6 - 12 months		11 months
Other real estate owned		839	Appraised Collateral Values	Discount for time since appraisal		10-67%		25.45%

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The fair values of the Company's financial instruments are as follows (in thousands):

	Carrying
September 30, 2017	Amount		Fair Value		Level I		Level II		Level III
Financial assets:
Cash and due from banks	$	13,815	$	13,815	$	13,815	$	-	$	-
Interest bearing time deposits with other banks		10,031		10,038		-		-		10,038
Available-for-sale securities		263,588		263,588		1,936		261,652		-
Loans held for sale		1,431		1,431		1,431		-		-
Net loans		896,715		894,706		-		-		894,706
Bank owned life insurance		26,722		26,722		26,722		-		-
Regulatory stock		4,884		4,884		4,884		-		-
Accrued interest receivable		3,786		3,786		3,786		-		-
Financial liabilities:
Deposits	$	1,052,105	$	1,050,362	$	792,133	$	-	$	258,229
Borrowed funds		73,628		71,965		32,960		-		39,005
Accrued interest payable		731		731		731		-		-

December 31, 2016
Financial assets:
Cash and due from banks	$	17,754	$	17,754	$	17,754	$	-	$	-
Interest bearing time deposits with other banks		6,955		6,960		-		-		6,960
Available-for-sale securities		314,017		314,017		5,899		308,118		-
Loans held for sale		1,827		1,827		1,827		-		-
Net loans		790,725		797,184		-		-		797,184
Bank owned life insurance		26,223		26,223		26,223		-		-
Regulatory stock		5,306		5,306		5,306		-		-
Accrued interest receivable		4,089		4,089		4,089		-		-
Financial liabilities:
Deposits	$	1,005,503	$	1,004,072	$	740,889	$	-	$	263,183
Borrowed funds		79,662		77,425		41,330		-		36,095
Accrued interest payable		720		720		720		-		-

Fair value is determined based on relevant market information and information about the financial instrument.  These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company's entire holdings of a particular financial instrument.  Because no market exists for a significant portion of the Company's financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions can significantly affect the estimates.

Fair values have been determined by the Company using historical data, as generally provided in the Company's regulatory reports, and an estimation methodology suitable for each category of financial instruments. The Company's fair value estimates, methods and assumptions are set forth below for the Company's other financial instruments.

Cash and Cash Equivalents:

The carrying amounts for cash and cash equivalents approximate fair value because they have original maturities of 90 days or less and do not present unanticipated credit concerns.

Accrued Interest Receivable and Payable:

The carrying amounts for accrued interest receivable and payable approximate fair value because they are generally received or paid in 90 days or less and do not present unanticipated credit concerns.

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Interest bearing time deposits with other banks:

The fair value of interest bearing time deposits with other banks is based on the discounted value of contractual cash flows. The discount rate is estimated using the rates currently offered for deposits of similar remaining maturities.

Available-For-Sale Securities:

The fair values of securities available for sale are determined by quoted prices in active markets, when available, and classified as Level I. If quoted market prices are not available, the fair value is determined by a matrix pricing, which is a mathematical technique, widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities' relationship to other benchmark quoted securities and classified as Level II. The fair values consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the bond's terms and conditions, among other things.

Loans held-for-sale:

The carrying amount for loans held for sale approximates fair value as the loans are only held for less than a week from origination.

Loans:

Fair values are estimated for portfolios of loans with similar financial characteristics.  The fair value of performing loans has been estimated by discounting expected future cash flows. The discount rate used in these calculations is derived from the Treasury yield curve adjusted for credit quality, operating expense and prepayment option price, and is calculated by discounting scheduled cash flows through the estimated maturity using estimated market discount rates that reflect the credit and interest rate risk inherent in the loan. The estimate of maturity is based on the Company's historical experience with repayments for each loan classification, modified as required by an estimate of the effect of current economic and lending conditions.

Bank Owned Life Insurance:

The carrying value of bank owned life insurance approximates fair value based on applicable redemption provisions.

Regulatory Stock:

The carrying value of regulatory stock approximates fair value based on applicable redemption provisions.

Deposits:

The fair value of deposits with no stated maturity, such as noninterest-bearing demand deposits, savings and NOW accounts, and money market accounts, is equal to the amount payable on demand. The fair value of certificates of deposit is based on the discounted value of contractual cash flows. The discount rate is estimated using the rates currently offered for deposits of similar remaining maturities.

The deposits' fair value estimates do not include the benefit that results from the low-cost funding provided by the deposit liabilities compared to the cost of borrowing funds in the market, commonly referred to as the core deposit intangible.

Borrowed Funds:

Rates available to the Company for borrowed funds with similar terms and remaining maturities are used to estimate the fair value of borrowed funds.

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Note 12 – Recent Accounting Pronouncements

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (a new revenue recognition standard). The Update's core principle is that a company will recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In addition, this Update specifies the accounting for certain costs to obtain or fulfill a contract with a customer and expands disclosure requirements for revenue recognition. This Update is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. Because the guidance does not apply to revenue associated with financial instruments, including loans and securities,we do not expect the new standard, or any of the amendments, to result in a material change from our current accounting for revenue because the majority of the Company's financial instruments are not within the scope of Topic 606.  However, we do expect that the standard will result in new disclosure requirements, which are currently being evaluated.

In January 2016, the FASB issued ASU 2016-01, Financial Instruments – Overall (Subtopic 825-10):  Recognition and Measurement of Financial Assets and Financial Liabilities.  This Update applies to all entities that hold financial assets or owe financial liabilities and is intended to provide more useful information on the recognition, measurement, presentation, and disclosure of financial instruments.  Among other things, this Update (a) requires equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income; (b) simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment; (c) eliminates the requirement to disclose the fair value of financial instruments measured at amortized cost for entities that are not public business entities; (d) eliminates the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet; (e) requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; (f) requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (that is, securities or loans and receivables) on the balance sheet or the accompanying notes to the financial statements; and (g) clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity's other deferred tax assets.  For public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years.  For all other entities, including not-for-profit entities and employee benefit plans within the scope of Topics 960 through 965 on plan accounting, the amendments in this Update are effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. All entities that are not public business entities may adopt the amendments in this Update earlier as of the fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company is currently evaluating the impact the adoption of the standard will have on the Company's consolidated financial position or results of operations.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842).  The standard requires lessees to recognize the assets and liabilities that arise from leases on the balance sheet.  A lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term.  A short-term lease is defined as one in which (a) the lease term is 12 months or less and (b) there is not an option to purchase the underlying asset that the lessee is reasonably certain to exercise.  For short-term leases, lessees may elect to recognize lease payments over the lease term on a straight-line basis. For public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2018, and interim periods within those years.  For all other entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2019, and for interim periods within fiscal years beginning after December 15, 2020.  The amendments should be applied at the beginning of the earliest period presented using a modified retrospective approach with earlier application permitted as of the beginning of an interim or annual reporting period. The Company is currently assessing the practical expedients it may elect at adoption, but does not anticipate the amendments will have a significant impact to the financial statements. Based on the Company's preliminary analysis of its current portfolio, the impact to the Company's balance sheet is estimated to result in less than a 1% increase in assets and liabilities. The Company also anticipates additional disclosures to be provided at adoption.

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In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments, which changes the impairment model for most financial assets. This Update is intended to improve financial reporting by requiring timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations.  The underlying premise of the Update is that financial assets measured at amortized cost should be presented at the net amount expected to be collected, through an allowance for credit losses that is deducted from the amortized cost basis. The allowance for credit losses should reflect management's current estimate of credit losses that are expected to occur over the remaining life of a financial asset.  The income statement will be effected for the measurement of credit losses for newly recognized financial assets, as well as the expected increases or decreases of expected credit losses that have taken place during the period. ASU 2016-13 is effective for annual and interim periods beginning after December 15, 2019, and early adoption is permitted for annual and interim periods beginning after December 15, 2018. With certain exceptions, transition to the new requirements will be through a cumulative effect adjustment to opening retained earnings as of the beginning of the first reporting period in which the guidance is adopted. We expect to recognize a one-time cumulative effect adjustment to the allowance for loan losses as of the beginning of the first reporting period in which the new standard is effective, but cannot yet determine the magnitude of any such one-time adjustment or the overall impact of the new guidance on the consolidated financial statements.

In January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment. To simplify the subsequent measurement of goodwill, the FASB eliminated Step 2 from the goodwill impairment test.  In computing the implied fair value of goodwill under Step 2, an entity had to perform procedures to determine the fair value at the impairment testing date of its assets and liabilities (including unrecognized assets and liabilities) following the procedure that would be required in determining the fair value of assets acquired and liabilities assumed in a business combination.  Instead, under the amendments in this Update, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting units fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit.  A public business entity that is a U.S. Securities and Exchange Commission ("SEC") filer should adopt the amendments in this Update for its annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. A public business entity that is not an SEC filer should adopt the amendments in this Update for its annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2020.  All other entities, including not-for-profit entities that are adopting the amendments in this Update should do so for their annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2021.

In March 2017, the FASB issued ASU 2017-07, Compensation—Retirement Benefits (Topic 715). The amendments in this Update require that an employer report the service cost component in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period.  The other components of net benefit cost as defined in paragraphs 715-30-35-4 and 715-60-35-9 are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations, if one is presented. If a separate line item or items are used to present the other components of net benefit cost, that line item or items must be appropriately described. If a separate line item or items are not used, the line item or items used in the income statement to present the other components of net benefit cost must be disclosed.

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In March 2017, the FASB issued ASU 2017-08, Receivables – Nonrefundable Fees and Other Costs (Subtopic 310-20). The amendments in this Update shorten the amortization period for certain callable debt securities held at a premium. Specifically, the amendments require the premium to be amortized to the earliest call date. The amendments do not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity.  For public business entities, the amendments in this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018.  For all other entities, the amendments are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020.  Early adoption is permitted, including adoption in an interim period.  If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period.  An entity should apply the amendments in this Update on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. Additionally, in the period of adoption, an entity should provide disclosures about a change in accounting principle.  The Company is currently evaluating the impact the adoption of the standard will have on the Company's consolidated financial position or results of operations.

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ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

We have made forward-looking statements in this document, and in documents that we incorporate by reference, that are subject to risks and uncertainties. Forward-looking statements include information concerning possible or expected future results of operations of Citizens Financial Services, Inc., First Citizens Community Bank, First Citizens Insurance Agency, Inc. or the combined Company. When we use words such as "believes," "expects," "anticipates," or similar expressions, we are making forward-looking statements. For a variety of reasons, actual results could differ materially from those contained in or implied by forward-looking statements.  The Company cautions readers that the following important factors, among others, could in the future affect the Company's actual results and could cause the Company's actual results for subsequent periods to differ materially from those expressed in any forward-looking statement:

· Interest rates could change more rapidly or more significantly than we expect.

· The economy could change significantly in an unexpected way, which would cause the demand for new loans and the ability of borrowers to repay outstanding loans to change in ways that our models do not anticipate.

· The financial markets could suffer a significant disruption, which may have a negative effect on our financial condition and that of our borrowers, and on our ability to raise money by issuing new securities.

· It could take us longer than we anticipate to implement strategic initiatives designed to increase revenues or manage expenses, or we may be unable to implement those initiatives at all.

· We may not be able to successfully integrate businesses we acquire or be able to fully realize the expected financial and other benefits from acquisitions.

· Acquisitions and dispositions of assets could affect us in ways that management has not anticipated.

· We may become subject to new legal obligations or the resolution of litigation may have a negative effect on our financial condition or operating results.

· We may become subject to new and unanticipated accounting, tax, or regulatory practices or requirements.

· We could experience greater loan delinquencies than anticipated, adversely affecting our earnings and financial condition.  We could also experience greater losses than expected due to the ever increasing volume of information theft and fraudulent scams impacting our customers and the banking industry.

· We could lose the services of some or all of our key personnel, which would negatively impact our business because of their business development skills, financial expertise, lending experience, technical expertise and market area knowledge.

· The agricultural economy is subject to extreme swings in both the costs of resources and the prices received from the sale of products, which could negatively impact our customers.

· A budget impasse in the Commonwealth of Pennsylvania could impact our asset values, liquidity and profitability.

· Companies providing support services related to the exploration and drilling of the natural gas reserves in our market area may be affected by federal, state and local laws and regulations such as restrictions on production, permitting, changes in taxes and environmental protection, which could negatively impact our customers and, as a result, negatively impact our loan and deposit volume and loan quality. Additionally, the activities the companies providing support services related to the exploration and drilling of the natural gas reserves may be dependent on the market price of natural gas.  As a result, decreases in the market price of natural gas could also negatively impact these companies, our customers.

Additional factors that may affect our results are discussed under "Part II – Item 1A – Risk Factors" in this report and in the Company's 2016 Annual Report on Form 10-K under "Item 1.A/ Risk Factors."  Except as required by applicable law and regulation, we assume no obligation to update or revise any forward-looking statements after the date on which they are made.

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Introduction

The following is management's discussion and analysis of the financial condition and results of operations at the dates and for the periods presented in the accompanying consolidated financial statements for the Company.  Our consolidated financial condition and results of operations consist almost entirely of the Bank's financial condition and results of operations. Management's discussion and analysis should be read in conjunction with the preceding financial statements presented under Part I.  The results of operations for the three and nine months ended September 30, 2017 are not necessarily indicative of the results you may expect for the full year.

The Company currently engages in the general business of banking throughout our service area of Potter, Tioga, Clinton and Bradford counties in north central Pennsylvania, Union county in central Pennsylvania, Lebanon, Lancaster, Berks and Schuylkill counties in south central Pennsylvania and Allegany county in southern New York. We maintain our central office in Mansfield, Pennsylvania. Presently we operate 28 banking facilities, 26 of which operate as bank branches.  In Pennsylvania, these offices are located in Mansfield, Blossburg, Ulysses, Genesee, Wellsboro, Troy, Sayre, Canton, Gillett, Millerton, LeRaysville, Towanda, Rome, the Mansfield Wal-Mart Super Center, Mill Hall, Schuylkill Haven, Friedensburg, Mt. Aetna, Fredericksburg, Mount Joy and three branches near the city of Lebanon, Pennsylvania. In New York, our office is in Wellsville. We have a limited branch office in Winfield, Pennsylvania, which primarily serves agricultural customers in the central Pennsylvania market. We also have a limited branch office in Narvon, Pennsylvania to further serve customers in Lancaster County.

On July 27, 2017, we entered into a definitive agreement with S&T Bank to acquire its State College, Pennsylvania office. Regulatory approval was received in the fourth quarter of 2017 and the deal is expected to close in the fourth quarter of 2017.

Risk Management

Risk identification and management are essential elements for the successful management of the Company.  In the normal course of business, the Company is subject to various types of risk, including interest rate, credit, liquidity, reputational and regulatory risk.

Interest rate risk is the sensitivity of net interest income and the market value of financial instruments to the direction and frequency of changes in interest rates.  Interest rate risk results from various re-pricing frequencies and the maturity structure of the financial instruments owned by the Company.  The Company uses its asset/liability and funds management policy to control and manage interest rate risk.

Credit risk represents the possibility that a customer may not perform in accordance with contractual terms.  Credit risk results from loans with customers and the purchasing of securities.  The Company's primary credit risk is in the loan portfolio.  The Company manages credit risk by adhering to an established credit policy and through a disciplined evaluation of the adequacy of the allowance for loan losses.  Also, the investment policy limits the amount of credit risk that may be taken in the investment portfolio.

Liquidity risk represents the inability to generate or otherwise obtain funds at reasonable rates to satisfy commitments to borrowers and obligations to depositors.  The Company has established guidelines within its asset/liability and funds management policy to manage liquidity risk.  These guidelines include, among other things, contingent funding alternatives.

Reputational risk, or the risk to our business, earnings, liquidity, and capital from negative public opinion, could result from our actual or alleged conduct in a variety of areas, including legal and regulatory compliance, lending practices, corporate governance, litigation, ethical issues, or inadequate protection of customer information. We expend significant resources to comply with regulatory requirements. Failure to comply could result in reputational harm or significant legal or remedial costs. Damage to our reputation could adversely affect our ability to retain and attract new customers, and adversely impact our earnings and liquidity.

Regulatory risk represents the possibility that a change in law, regulations or regulatory policy may have a material effect on the business of the Company.  We cannot predict what legislation might be enacted or what regulations might be adopted, or if adopted, the effect thereof on our operations.

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Competition

The banking industry in the Bank's service areas continue to be extremely competitive, both among commercial banks and with financial service providers such as consumer finance companies, thrifts, investment firms, mutual funds, insurance companies, credit unions, agricultural cooperatives and internet entities. Competition in our north central Pennsylvania market has increased as a result of other financial institutions looking to expand into new markets. With larger population centers in our central and south central markets, we experience more competition to gather deposits and to make loans than in our north central Pennsylvania market. Mortgage banking firms, financial companies, financial affiliates of industrial companies, brokerage firms, retirement fund management firms and even government agencies provide additional competition for loans and other financial services.  The Bank is generally competitive with all competing financial institutions in its service areas with respect to interest rates paid on time and savings deposits, service charges on deposit accounts and interest rates charged on loans.

Trust and Investment Services; Oil and Gas Services

Our Investment and Trust Services Division offers professional trust administration, investment management services, estate planning and administration, and custody of securities.  Assets held by the Company in a fiduciary or agency capacity for its customers are not included in the Consolidated Balance Sheets since such items are not assets of the Company.  Revenues and fees of the Trust Department are reflected in trust income in the Consolidated Statement of Income. As of September 30, 2017 and December 31, 2016, the Trust Department had $116.3 million and $110.6 million of assets under management, respectively.

Our Investment Representatives offer full service brokerage services and financial planning throughout the Bank's market area. Products such as mutual funds, annuities, health and life insurance are made available through our insurance subsidiary, First Citizens Insurance Agency, Inc.  The assets associated with these products are not included in the Consolidated Balance Sheets since such items are not assets of the Company. Assets owned and invested by customers of the Bank through the Bank's Investment Representatives increased from $137.4 million at December 31, 2016 to $142.4 million at September 30, 2017. Fee income from the sale of these products is reflected in brokerage and insurance income in the Consolidated Statement of Income. Management believes that there are opportunities to increase non-interest income through these products and services, especially in our central and south central Pennsylvania markets.

In addition to traditional trust and investment services offered, we assist our customers through various oil and gas specific leasing matters from lease negotiations to establishing a successful approach to personal wealth management. As of September 30, 2017, customers owning 7,012 acres have signed agreements with the Bank that provide for the Bank to manage oil and gas matters related to the customers land, which may include negotiating lease payments and royalty percentages, resolving leasing issues, accounting for and ensuring the accuracy of royalty checks, distributing revenue to satisfy investment objectives and providing customized reports outlining payment and distribution information.

Results of Operations

Overview of the Income Statement

The Company had net income of $10,421,000 for the first nine months of 2017 compared to $9,467,000 for last year's comparable period, an increase of $954,000, or 10.1%. Basic earnings per share for the first nine months of 2017 were $2.99, compared to $2.70 last year, representing a 10.7% increase.  Annualized return on assets and return on equity for the nine months of 2017 were 1.12% and 10.81%, respectively, compared with 1.06% and 10.28% for last year's comparable period.

Net income for the three months ended September 30, 2017 was $3,650,000 compared to $3,153,000 in the comparable 2016 period, an increase of $497,000 or 15.8%. Basic earnings per share for the three months ended September 30, 2017 were $1.05, compared to $0.90 last year, representing a 16.7% increase. Annualized return on assets and return on equity for the quarter ended September 30, 2017 was 1.15% and 11.16%, respectively, compared with 1.06% and 10.18% for the same 2016 period.

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Net Interest Income

Net interest income, the most significant component of the Company's earnings, is the amount by which interest income generated from interest-earning assets exceeds interest expense on interest-bearing liabilities.

Net interest income for the first nine months of 2017 was $31,018,000, an increase of $2,930,000, or 10.4%, compared to the same period in 2016.  For the first nine months of 2017, the provision for loan losses totaled $1,740,000, an increase of $970,000 over the comparable period in 2016.  Consequently, net interest income after the provision for loan losses was $29,278,000 compared to $27,318,000 during the first nine months of 2016.

For the three months ended September 30, 2017, net interest income was $10,617,000 compared to $9,712,000, an increase of $905,000, or 9.3% over the comparable period in 2016. The provision for loan losses was $500,000 for both the 2017 and 2016 quarters ended September 30. Consequently, net interest income after the provision for loan losses was $10,117,000 for the quarter ended September 30, 2017 compared to $9,212,000 in 2016.

The following table sets forth the average balances of, and the interest earned or incurred on, for each principal category of assets, liabilities and stockholders' equity, the related rates, net interest income and interest rate spread created for the nine months and three months ended September 30, 2017 and 2016 on a tax equivalent basis (dollars in thousands):

35

	Analysis of Average Balances and Interest Rates (1)
	Nine Months Ended
	September 30, 2017							September 30, 2016
	Average				Average			Average				Average
	Balance (1)		Interest		Rate			Balance (1)		Interest		Rate
(dollars in thousands)	$				$	%		$				$	%
ASSETS
Short-term investments:
Interest-bearing deposits at banks		8,919		12		0.18			27,765		81		0.39
Total short-term investments		8,919		12		0.18			27,765		81		0.39
Interest bearing time deposits at banks		7,740		117		2.03			7,326		105		1.91
Investment securities:
Taxable		197,814		2,532		1.71			259,172		3,004		1.55
Tax-exempt (3)		86,033		2,813		4.36			100,594		3,423		4.54
Total investment securities		283,847		5,345		2.51			359,766		6,427		2.38
Loans:
Residential mortgage loans		205,860		7,967		5.17			203,387		8,038		5.28
Construction		26,804		851		4.25			12,304		471		5.11
Commercial & agricultural loans		524,088		19,155		4.89			380,190		15,004		5.27
Loans to state & political subdivisions		97,139		3,055		4.21			102,583		3,250		4.23
Other loans		10,403		621		7.98			11,075		682		8.23
Loans, net of discount (2)(3)(4)		864,294		31,649		4.90			709,539		27,445		5.17
Total interest-earning assets		1,164,800		37,123		4.26			1,104,396		34,058		4.12
Cash and due from banks		6,650							7,431
Bank premises and equipment		16,871							17,249
Other assets		55,874							57,653
Total non-interest earning assets		79,395							82,333
Total assets		1,244,195							1,186,729
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
NOW accounts		322,084		829		0.34			301,885		687		0.30
Savings accounts		178,806		141		0.11			173,108		139		0.11
Money market accounts		126,874		469		0.49			118,252		392		0.44
Certificates of deposit		262,321		1,959		1.00			273,007		1,976		0.97
Total interest-bearing deposits		890,085		3,398		0.51			866,252		3,194		0.49
Other borrowed funds		58,651		782		1.78			39,801		554		1.86
Total interest-bearing liabilities		948,736		4,180		0.59			906,053		3,748		0.55
Demand deposits		152,188							145,663
Other liabilities		14,686							12,258
Total non-interest-bearing liabilities		166,874							157,921
Stockholders' equity		128,585							122,755
Total liabilities & stockholders' equity		1,244,195							1,186,729
Net interest income				32,943							30,310
Net interest spread (5)						3.67	%						3.57	%
Net interest income as a percentage
of average interest-earning assets						3.78	%						3.67	%
Ratio of interest-earning assets
to interest-bearing liabilities						123	%						122	%
(1) Averages are based on daily averages.
(2) Includes loan origination and commitment fees.
(3) Tax exempt interest revenue is shown on a tax equivalent basis for proper comparison using
a statutory federal income tax rate of 34%.
(4) Income on non-accrual loans is accounted for on a cash basis, and the loan balances are included in interest-earning assets.
(5) Interest rate spread represents the difference between the average rate earned on interest-earning assets
and the average rate paid on interest-bearing liabilities.

36

	Analysis of Average Balances and Interest Rates (1)
	Three Months Ended
	September 30, 2017							September 30, 2016
	Average				Average			Average				Average
	Balance (1)		Interest		Rate			Balance (1)		Interest		Rate
(dollars in thousands)	$				$	%		$				$	%
ASSETS
Short-term investments:
Interest-bearing deposits at banks		8,552		3		0.16			17,864		16		0.36
Total short-term investments		8,552		3		0.16			17,864		16		0.36
Interest bearing time deposits at banks		8,953		47		2.07			6,956		34		1.92
Investment securities:
Taxable		180,004		824		1.83			244,044		961		1.58
Tax-exempt (3)		83,164		891		4.29			100,255		1,110		4.43
Total investment securities		263,168		1,715		2.61			344,299		2,071		2.41
Loans:
Residential mortgage loans		205,548		2,677		5.17			204,522		2,702		5.26
Construction		26,028		278		4.23			14,396		185		5.11
Commercial & agricultural loans		557,393		6,797		4.84			398,318		5,377		5.37
Loans to state & political subdivisions		97,771		1,029		4.18			100,359		1,048		4.16
Other loans		10,420		205		7.83			11,021		233		8.41
Loans, net of discount (2)(3)(4)		897,160		10,986		4.86			728,616		9,545		5.21
Total interest-earning assets		1,177,833		12,751		4.30			1,097,735		11,666		4.23
Cash and due from banks		6,739							7,587
Bank premises and equipment		16,722							17,220
Other assets		64,851							65,369
Total non-interest earning assets		88,312							90,176
Total assets		1,266,145							1,187,911
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
NOW accounts		327,391		295		0.36			299,091		219		0.29
Savings accounts		180,891		49		0.11			171,064		46		0.11
Money market accounts		134,610		178		0.53			125,718		136		0.43
Certificates of deposit		263,065		688		1.04			267,235		647		0.96
Total interest-bearing deposits		905,957		1,210		0.53			863,108		1,048		0.48
Other borrowed funds		61,215		293		1.90			40,397		188		1.85
Total interest-bearing liabilities		967,172		1,503		0.62			903,505		1,236		0.54
Demand deposits		153,747							148,563
Other liabilities		14,388							11,803
Total non-interest-bearing liabilities		168,135							160,366
Stockholders' equity		130,838							124,040
Total liabilities & stockholders' equity		1,266,145							1,187,911
Net interest income				11,248							10,430
Net interest spread (5)						3.68	%						3.69	%
Net interest income as a percentage
of average interest-earning assets						3.79	%						3.78	%
Ratio of interest-earning assets
to interest-bearing liabilities						122	%						121	%
(1) Averages are based on daily averages.
(2) Includes loan origination and commitment fees.
(3) Tax exempt interest revenue is shown on a tax equivalent basis for proper comparison using
a statutory federal income tax rate of 34%.
(4) Income on non-accrual loans is accounted for on a cash basis, and the loan balances are included in interest-earning assets.
(5) Interest rate spread represents the difference between the average rate earned on interest-earning assets
and the average rate paid on interest-bearing liabilities.

Tax exempt revenue is shown on a tax-equivalent basis for proper comparison using a statutory, federal income tax rate of 34%.  For purposes of the comparison, as well as the discussion that follows, this presentation facilitates performance comparisons between taxable and tax-free assets by increasing the tax-free income by an amount equivalent to the Federal income taxes that would have been paid if this income were taxable at the Company's 34% Federal statutory rate.  The following table represents the adjustment to convert net interest income to net interest income on a fully taxable equivalent basis for the periods ended September 30, 2017 and 2016(in thousands):

37

	For the Three Months				For the Nine Months
	Ended September 30,				Ended September 30,
	2017		2016		2017		2016
Interest and dividend income from investment securities
and interest bearing deposits at banks (non-tax adjusted)	$	1,461	$	1,744	$	4,518	$	5,449
Tax equivalent adjustment		304		377		956		1,164
Interest and dividend income from investment securities
and interest bearing deposits at banks (tax equivalent basis)	$	1,765	$	2,121	$	5,474	$	6,613
Interest and fees on loans (non-tax adjusted)	$	10,659	$	9,204	$	30,680	$	26,387
Tax equivalent adjustment		327		341		969		1,058
Interest and fees on loans (tax equivalent basis)	$	10,986	$	9,545	$	31,649	$	27,445
Total interest income	$	12,120	$	10,948	$	35,198	$	31,836
Total interest expense		1,503		1,236		4,180		3,748
Net interest income		10,617		9,712		31,018		28,088
Total tax equivalent adjustment		631		718		1,925		2,222
Net interest income (tax equivalent basis)	$	11,248	$	10,430	$	32,943	$	30,310

The following table shows the tax-equivalent effect of changes in volume and rate on interest income and expense (in thousands):

	Three months ended September 30, 2017 vs 2016 (1)									Nine months ended September 30, 2017 vs. 2016 (1)
	Change in			Change			Total			Change in			Change			Total
	Volume			in Rate			Change			Volume			in Rate			Change
Interest Income:
Short-term investments:
Interest-bearing deposits at banks	$	(7	)	$	(6	)	$	(13	)	$	(39	)	$	(30	)	$	(69	)
Interest bearing time deposits at banks		10			3			13			6			6			12
Investment securities:
Taxable		(360	)		223			(137	)		(844	)		372			(472	)
Tax-exempt		(184	)		(35	)		(219	)		(480	)		(130	)		(610	)
Total investments		(544	)		188			(356	)		(1,324	)		242			(1,082	)
Loans:
Residential mortgage loans		21			(46	)		(25	)		94			(165	)		(71	)
Construction		118			(25	)		93			444			(64	)		380
Commercial & agricultural loans		1,884			(464	)		1,420			5,147			(996	)		4,151
Loans to state & political subdivisions		(24	)		5			(19	)		(174	)		(21	)		(195	)
Other loans		(11	)		(17	)		(28	)		(41	)		(20	)		(61	)
Total loans, net of discount		1,988			(547	)		1,441			5,470			(1,266	)		4,204
Total Interest Income		1,447			(362	)		1,085			4,113			(1,048	)		3,065
Interest Expense:
Interest-bearing deposits:
NOW accounts		23			53			76			48			94			142
Savings accounts		3			-			3			5			(3	)		2
Money Market accounts		11			31			42			30			47			77
Certificates of deposit		(8	)		49			41			(94	)		77			(17	)
Total interest-bearing deposits		29			133			162			(11	)		215			204
Other borrowed funds		100			5			105			250			(22	)		228
Total interest expense		129			138			267			239			193			432
Net interest income	$	1,318		$	(500	)	$	818		$	3,874		$	(1,241	)	$	2,633
(1) The portion of the total change attributable to both volume and rate changes, which can not be separated, has been allocated proportionally to the change due to volume and the change due to rate prior to allocation.

Tax equivalent net interest income increased from $30,310,000 for the nine month period ended September 30, 2016 to $32,943,000 for the nine month period ended September 30, 2017, an increase of $2,633,000. The tax equivalent net interest margin increased from 3.67% for the first nine months of 2016 to 3.78% for the comparable period in 2017.

38

Total tax equivalent interest income for the 2017 nine month period increased $3,065,000 as compared to the 2016 nine month period. This increase was primarily a result of an increase of $4,113,000 due to a change in volume as average interest-bearing assets increased $60.4 million. This increase was offset by a decrease of $1,048,000 as a result of a decrease in the average yield on loans of 27 basis points from 5.17% to 4.90% for the comparable periods. As a result of converting investment assets to loans, the yield on average interest earning assets increased 14 basis points from 4.12% to 4.26%. 

Tax equivalent investment income for the nine months ended September 30, 2017 decreased $1,082,000 over the same period last year. The primary cause of the decrease was a decrease in the average outstanding balance of investments.

· The average balance of taxable securities decreased by $61.4 million, which resulted in a decrease in investment income of $844,000. The decrease in the average balance of taxable securities was due to the Bank's strategy of funding loan growth through the cashflows of the investment portfolio. The yield on taxable securities increased 16 basis points from 1.55% to 1.71% as a result of the recent rise in rates and the calls and maturities of lower yielding investments. This resulted in an increase in investment income of $372,000.

· The average balance of tax-exempt securities decreased by $14.6 million, which resulted in a decrease in investment income of $480,000. The yield on tax-exempt securities decreased 18 basis points from 4.54% to 4.36%, which corresponds to a decrease in interest income of $130,000. The yield decrease was due to higher yielding securities being called and maturing and either being replaced by lower yielding securities or not replaced and utilized to fund loan growth. For a discussion of the Company's current investment strategy, see the "Financial Condition – Investments".

Total loan interest income increased $4,204,000 for the nine months ended September 30, 2017 compared to the same period last year, primarily as a result of loan growth achieved in the last half of 2016 and throughout 2017 that was primarily due to the hiring of experienced lending teams in our central and south central Pennsylvania markets.

· The average balance of commercial and agricultural loans increased $143.9 million from a year ago. This had a positive impact of $5,147,000 on total interest income due to volume. Offsetting this increase, there was a $996,000 decrease due to rate, as the yield earned decreased from 5.27% to 4.89%. The lending teams were able to grow our agricultural and commercial loan portfolios by originating loans to new customers of the Bank in the central and south central Pennsylvania markets.

· The average balance of construction loans increased $14.5 million from a year ago. This had a positive impact of $444,000 on total interest income due to volume. Offsetting this increase, there was a $64,000 decrease due to rate, as the yield earned decreased from 5.11% to 4.25%.

· The average balance of state and political subdivision loans decreased $5.4 million from a year ago. This resulted in decrease of $174,000 on total interest income due to volume. In addition, the yield decreased 2 basis points to 4.21%, which decreased loan interest income $21,000. The decrease in this portfolio is due to fewer opportunities to loan to municipalities in 2017.

Total interest expense increased $432,000 for the nine months ended September 30, 2017 compared with the comparative period last year primarily as a result of an increase in borrowings to fund loan growth in the latter half of 2016 and the first half of 2017 and higher rates paid on deposits. Interest expense increased $239,000 as a result of volume as the average balance of interest bearing liabilities increased $42.7 million. In addition, there was an increase of $193,000 due to rate as a result of an increase in the average rate paid on interest bearing liabilities from 0.55% to 0.59%. A portion of the Bank's loan growth was funded through overnight borrowings, which resulted in the lowering of the rate paid on borrowed funds.

39

· The average balance of interest bearing deposits increased $23.8 million from September 30, 2016 to September 30, 2017. Increases were experienced in NOW accounts of $20.2 million, savings accounts of $5.7 million and money market accounts of $8.6 million. The cumulative effect of these volume changes was an increase in interest expense of $83,000. The average balance of certificates of deposit decreased $10.7 million resulting in a decrease in interest expense of $94,000. (see also "Financial Condition – Deposits"). The rate paid on interest bearing deposits increased 2 basis points to 0.510% for the first nine months of 2017 compared to 2016. As a result of small variances in interest rates paid on individual products, interest expense on deposits increased $215,000.

· The average balance of other borrowed funds increased $18.9 million from a year ago. This resulted in an increase in interest expense of $250,000. There was a decrease in the average rate on other borrowed fund from 1.86% to 1.78% due to an increase in the amount of funds borrowed overnight resulting in a decrease in interest expense of $22,000.

Tax equivalent net interest income for the three months ended September 30, 2017 was $11,248,000 which compares to $10,430,000 for the same period last year.  This represents an increase of $818,000 or 7.8%. The tax equivalent net interest margin increased from 3.78% for the three months ended September 30, 2016 to 3.79% for the comparable period in 2017.

Total tax equivalent interest income was $12,751,000 for the three months ended September 30, 2017, compared to $11,666,000 for the comparable period last year, an increase of $1,085,000. The primary driver of this increase was an increase of $1,447,000 due to a change in volume as interest bearing assets increased $80.1 million as a result loan growth attributable to the experienced loan teams hired in 2016 and 2017 in the south central and central Pennsylvania markets. This increase was offset by a decrease of $362,000 as a result of a decrease in the average yield on loans of 35 basis points from 5.21% to 4.86% for the comparable periods.

· Total investment income decreased by $356,000 compared to same period last year.  The primary cause of the decrease was a decrease of $81.1 million in the average outstanding balance of investment securities, which equates to a decrease of $544,000 in investment income. Offsetting this increase, there was a 20 point increase in rate on investments securities from 2.41% to 2.61%, which equates to a $188,000 increase in income.

· Total loan interest income increased $1,441,000 compared to the same period last year. This was primarily due to an increase in volume of $168.5 million, which corresponds to a $1,988,000 increase in interest income. This was offset by a decrease in rate of 35 points from 5.21% to 4.86%, which corresponds to a decrease in loan interest income of $547,000. Loan interest income for the third quarter of 2016 was impacted by the payoff of a non-accrual loan that resulted in the recognition of $232,000 of interest income.

Total interest expense increased $267,000 for the three months ended September 30, 2017 compared with last year as a result of the increase in the average balance of interest bearing liabilities of $63.7 million, accounting for a $129,000 increase in interest expense. The average rate on interest-bearing liabilities increased 8 basis points from 0.54% to 0.62%, which increased interest expense $138,000.

Provision for Loan Losses

For the nine month period ending September 30, 2017, we recorded a provision for loan losses of $1,740,000, which represents an increase of $970,000 from the $770,000 provision recorded in the corresponding nine months of last year. The provision was higher in 2017 than 2016 primarily due to the loan growth that occurred in 2017 (see "Financial Condition – Allowance for Loan Losses and Credit Quality Risk").

For the three months ended September 30, 2017 and 2016, we recorded a provision of $500,000. The increased provision was due to the loan growth that occurred in both the 2017 and 2016 third quarters.

Non-interest Income

The following table shows the breakdown of non-interest income for the three and nine months ended September 30, 2017 and 2016 (dollars in thousands):

40

	Nine months ended September 30,				Change
	2017		2016		Amount			%
Service charges	$	3,323	$	3,345	$	(22	)		(0.7	)
Trust		596		539		57			10.6
Brokerage and insurance		459		578		(119	)		(20.6	)
Gains on loans sold		383		225		158			70.2
Investment securities gains, net		204		155		49			31.6
Earnings on bank owned life insurance		499		515		(16	)		(3.1	)
Other		380		450		(70	)		(15.6	)
Total	$	5,844	$	5,807	$	37			0.6
	Three months ended September 30,				Change
		2017		2016	Amount			%
Service charges	$	1,145	$	1,115	$	30			2.7
Trust		187		161		26			16.1
Brokerage and insurance		154		211		(57	)		(27.0	)
Gains on loans sold		134		109		25			22.9
Investment securities gains, net		9		-		9			N/A
Earnings on bank owned life insurance		166		174		(8	)		(4.6	)
Other		126		138		(12	)		(8.7	)
Total	$	1,921	$	1,908	$	13			0.7

Non-interest income for the nine months ended September 30, 2017 totaled $5,844,000, an increase of $37,000 when compared to the same period in 2016. During the first nine months of 2017, net investment securities gains amounted to $204,000 compared to gains of $155,000 last year. We sold nine agency securities for gains totaling $15,000, two equity positions for a gain of $158,000 and a mortgage backed security for a gain of $20,000. We also sold 11 investments in time deposits for a gain of $11,000. In 2016, we sold two US treasury and one agency security for gains totaling $27,000 and $48,000, respectively, as a result of market conditions at the time of the sale. We also sold four municipal securities for gains totaling $80,000 in 2016.

For the first nine months of 2017, account service charges totaled $3,323,000, a decrease of $22,000 or 0.7%, when compared to the same period in 2016. The decrease was associated with an $110,000 decrease attributable to fees charged to customers for non-sufficient funds. The increase in gains on loans sold is due to an increase in the amount of loans sold in 2017 compared to 2016. The decrease in other income is attributable to a decrease in loan broker commissions and merchant card fees. Trust revenues have increased as the result of estate settlement fees increasing.

For the three month period ended September 30, 2017, the changes experienced from the prior year related to gains on loans sold, trust fee and other income correspond to the changes experienced for the nine month period. Service charge revenues increased as a result of increases in interchange revenue and ATM income of $32,000 and $39,000, respectively. This was offset by a decrease of $33,000 attributable to fees charged to customers for non-sufficient funds.

Non-interest Expense

The following tables reflect the breakdown of non-interest expense for the three and nine months ended September 30, 2017 and 2016 (dollars in thousands):

41

	Nine months ended
	September 30,					Change
	2017		2016			Amount			%
Salaries and employee benefits	$	12,880	$	12,067		$	813			6.7
Occupancy		1,479		1,385			94			6.8
Furniture and equipment		444		492			(48	)		(9.8	)
Professional fees		854		836			18			2.2
FDIC insurance		295		492			(197	)		(40.0	)
Pennsylvania shares tax		767		630			137			21.7
Amortization of intangibles		223		246			(23	)	NA
ORE expenses		343		234			109			46.6
Other		4,319		5,031			(712	)		(14.2	)
Total	$	21,604	$	21,413		$	191			0.9
	Three months ended
	September 30,					Change
		2017		2016		Amount			%
Salaries and employee benefits	$	4,237	$	4,285		$	(48	)		(1.1	)
Occupancy		475		485			(10	)		(2.1	)
Furniture and equipment		159		164			(5	)		(3.0	)
Professional fees		286		283			3			1.1
FDIC insurance		95		175			(80	)		(45.7	)
Pennsylvania shares tax		243		240			3			1.3
Amortization of intangibles		74		82			(8	)		(9.8	)
ORE expenses (recovery)		171		(71	)		242			(340.8	)
Other		1,507		1,557			(50	)		(3.2	)
Total	$	7,247	$	7,200		$	47			0.7

Non-interest expenses increased $191,000 for the nine months ended September 30, 2017 compared to the same period in 2016. Salaries and employee benefits increased $813,000 or 6.7%. The increase was due to merit increases effective at the beginning of 2017 and an increase in the number of full-time equivalent employees as a result of the hiring of the additional lending teams in the last three quarters of 2016.

The primary cause of the increases in occupancy expenses are due to openings of the limited branch office in Winfield, Pennsylvania and the full service branch in Mount Joy, Pennsylvania. The Winfield location was opened in the second quarter of 2016, while the Mount Joy location was opened in the third quarter of 2016. The increase in the Pennsylvania shares tax is due to an increase in the tax rate, an increase in Bank capital and a credit incurred in the first quarter of 2016 as a result of charitable contribution made as part of the Pennsylvania EITC program.

The decrease in other expenses is due to a decrease in charitable contributions of $93,000, a decrease of $420,000 in charges as a result of customers' accounts being compromised and experiencing fraudulent charges and a decrease of $97,000 in ATM operating expenses as a result of a vendor's contract enhancement fee.

The increase in ORE expenses is the result of a non-accrual loan paying off in the third quarter of 2016, which resulted in the reimbursement of $240,000 of previously paid real estate taxes and legal fees.

For the three months ended September 30, 2017, non-interest expenses increased $47,000 when compared to the same period in 2016. The primary driver of the increase was the result of a non-accrual loan paying off in the third quarter of 2016, which resulted in the reimbursement of $240,000 of previously paid real estate taxes and legal fees.

Provision for Income Taxes

The provision for income taxes was $3,097,000 for the nine months ended September 30, 2017 compared to $2,245,000 for the same period in 2016.  The increase is attributable to the increase in income before the provision for income taxes and the tax credit generation period ending for one of the investments in low income housing. Through management of our municipal loan and bond portfolios, management is focused on minimizing our effective tax rate.  Our effective tax rate was 22.9% and 19.2% for the first nine months of 2017 and 2016, respectively, compared to the statutory rate of 34%.

42

For the three months ended September 30, 2017, the provision for income taxes was $1,141,000 compared to $767,000 for the same period in 2016. The increase is attributable to the increase in income before the provision for income taxes and the tax credit generation period ending for one of the investments in low income housing. Our effective tax rate was 23.8% and 19.6% for the three months ended September 30, 2017 and 2016, respectively, compared to the statutory rate of 34%.

We are invested in four limited partnership agreements that have established low-income housing projects in our market areas. We anticipate recognizing an aggregate of $740,000 of tax credits over the next 5.25 years, with an additional $35,000 anticipated to be recognized during 2017.

Financial Condition

Total assets were $1.27 billion at September 30, 2017, an increase of $46.8 million from $1.22 billion at December 31, 2016.  Cash and cash equivalents decreased $3.9 million to $13.8 million. Investment securities decreased $50.4 million and net loans increased $106.0 million to $896.7 million at September 30, 2017.  Total deposits increased $46.6 million to $1.05 billion since year-end 2016, while borrowed funds decreased $6.0 million to $73.6 million.

Cash and Cash Equivalents

Cash and cash equivalents totaled $13.8 million at September 30, 2017 compared to $17.8 million at December 31, 2016, a decrease of $3.9 million.Management actively measures and evaluates its liquidity position through our Asset–Liability Committee and believes its liquidity needs are satisfied by the current balance of cash and cash equivalents, readily available access to traditional funding sources including the Bank's core deposits, Federal Home Loan Bank financing, federal funds lines with correspondent banks, brokered certificates of deposit and the portion of the investment and loan portfolios that mature within one year.  Management expects that these sources of funds will permit us to meet cash obligations and off-balance sheet commitments as they come due.

Investments

The following table shows the composition of the investment portfolio as of September 30, 2017 and December 31, 2016 (dollars in thousands):

	September 30, 2017				December 31, 2016
	Amount		%		Amount		%
Available-for-sale:
U. S. Agency securities	$	132,551		50.3	$	170,414		54.3
U. S. Treasury notes		-		-		3,000		0.9
Obligations of state & political subdivisions		81,723		31.0		96,926		30.9
Corporate obligations		3,101		1.2		3,050		1.0
Mortgage-backed securities in
government sponsored entities		44,277		16.8		37,728		12.0
Equity securities in financial institutions		1,936		0.7		2,899		0.9
Total	$	263,588		100.0	$	314,017		100.0

43

	September 30, 2017/
	December 31, 2016
	Change
	Amount			%
Available-for-sale:
U. S. Agency securities	$	(37,863	)		(22.2	)
U. S. Treasury notes		(3,000	)		(100.0	)
Obligations of state & political subdivisions		(15,203	)		(15.7	)
Corporate obligations		51			1.7
Mortgage-backed securities in
government sponsored entities		6,549			17.4
Equity securities in financial institutions		(963	)		(33.2	)
Total	$	(50,429	)		(16.1	)

Our investment portfolio decreased by $50.4 million, or 16.1%, from December 31, 2016 to September 30, 2017. During 2017, we purchased approximately $6.0 million of U.S. agency obligations, $12.7 million of mortgage-backed securities in government sponsored entities and $1.8 million of municipal obligations, which helped offset the $5.6 million of principal repayments and $42.1 million of calls and maturities that occurred during the nine month period. We also sold $22.6 million of various securities at a gain of $193,000. Excluding our short-term investments consisting of monies held primarily at the Federal Reserve for liquidity purposes, our investment portfolio for the nine month period ended September 30, 2017 yielded 2.51%, compared to 2.38% in the comparable period in 2016 on a tax equivalent basis.

The investment strategy for 2017 has been to utilize cashflows from the investment portfolio to fund the strong loan growth the Company has experienced, while maintaining a portfolio sufficient to support our various pledging requirements for deposits, borrowings and liquidity. Investment purchases have been focused on securities with short fixed maturities for agency securities and short repricing windows for asset backed securities. We have also focused our purchases on securities with lower risk weightings due to the loan growth experienced that carries a higher risk weight for capital adequacy purposes. We continually monitor interest rate trading ranges and try to focus purchases to times when rates are in the top third of the trading range. The Bank believes its investment strategy has appropriately mitigated its interest rate risk exposure if rates continue to rise while providing sufficient cashflows to fund loan growth expected as a result of the loan growth initiatives.

Management continues to monitor the earnings performance and the liquidity of the investment portfolio on a regular basis.  Through active balance sheet management and analysis of the securities portfolio, the Company believes it maintains sufficient liquidity to satisfy depositor requirements and various credit needs of its customers.

Loans

The following table shows the composition of the loan portfolio as of September 30, 2017 and December 31, 2016 (dollars in thousands):

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	September 30,				December 31,
	2017				2016
	Amount		%		Amount		%
Real estate:
Residential	$	206,389		22.8	$	207,423		25.9
Commercial		273,624		30.2		252,577		31.6
Agricultural		207,052		22.8		123,624		15.5
Construction		17,074		1.9		25,441		3.2
Consumer		10,784		1.2		11,005		1.4
Other commercial loans		56,222		6.2		58,639		7.3
Other agricultural loans		34,066		3.8		23,388		2.9
State & political subdivision loans		101,951		11.1		97,514		12.2
Total loans		907,162		100.0		799,611		100.0
Less allowance for loan losses		10,447				8,886
Net loans	$	896,715			$	790,725

	September 30, 2017/
	December 31, 2016
	Change
	Amount			%
Real estate:
Residential	$	(1,034	)		(0.5	)
Commercial		21,047			8.3
Agricultural		83,427			67.5
Construction		(8,367	)		(32.9	)
Consumer		(221	)		(2.0	)
Other commercial loans		(2,417	)		(4.1	)
Other agricultural loans		10,678			45.7
State & political subdivision loans		4,437			4.6
Total loans	$	107,550			13.5

The Bank's lending efforts have historically focused on north central Pennsylvania and southern New York. With the acquisition of FNB, this focus now includes opportunities in the Lebanon, Lancaster, Schuylkill and Berks County markets of south central Pennsylvania. In addition, in 2016, we opened an office in Winfield, Pennsylvania, which focuses on agricultural and commercial customers in central Pennsylvania. We also opened an office in Mount Joy, Pennsylvania to better serve Lancaster County customers. In 2017, we have opened a limited office in Narvon, Pennsylvania to increase the Lancaster County footprint. We originate loans primarily through direct loans to our existing customer base, with new customers generated through the strong relationships our new lending teams have with their customers, as well as by referrals from real estate brokers, building contractors, attorneys, accountants, corporate and advisory board members, existing customers and the Bank's website.  The Bank offers a variety of loans although historically most of our lending has focused on real estate loans including residential, commercial, agricultural, and construction loans.  All lending is governed by a lending policy that is developed and administered by management and approved by the Board of Directors. As of September 30, 2017, the Company had one industry specific loan concentration, within the dairy industry, totaling $134.7 million or 15.0% of total loans.

During the first nine months of 2017, the primary driver of growth in the loan portfolio was in commercial and agricultural real estate loans in both the central and south central Pennsylvania markets. Commercial loan demand is subject to significant competitive pressures, the yield curve, and the strengthening of the overall national, regional and local economies.

Activity associated with exploration for natural gas remains limited in 2017, but has increased slightly compared to 2016. While the Bank has lent to companies that service the exploration activities, the Bank has not originated any loans to companies performing the actual drilling and exploration activities. Loans made by the Company are to service industry customers which include trucking companies, stone quarries and other support businesses. We also have originated loans to businesses and individuals for restaurants, hotels and apartment rentals that have been developed and expanded to meet the housing and living needs of the gas workers. Due to our understanding of the industry and its cyclical nature, the loans made for natural gas-related activities have been originated in accordance with specific policies and procedures for lending to these entities, which include more stringent loan to value thresholds, shortened amortization periods, and expansion of our monitoring of loan concentrations associated with this activity.

45

Residential real estate loans decreased $1.0 million during the first nine months of 2017. Loan demand for conforming mortgages, which the Company typically sells on the secondary market has increased in 2017 when compared to 2016. For loans sold on the secondary market, the Company recognizes fee income for servicing these sold loans, which is included in non-interest income.

Allowance for Loan Losses

The allowance for loan losses is maintained at a level which in management's judgment is adequate to absorb probable future loan losses inherent in the loan portfolio.  The provision for loan losses is charged against current income.  Loans deemed not collectable are charged-off against the allowance while subsequent recoveries increase the allowance.  The following table presents an analysis of the allowance for loan losses and non-performing loans and assets as of and for the nine months ended September 30, 2017 and for the years ended December 31, 2016, 2015, 2014 and 2013 (dollars in thousands):

	September 30,			December 31,
	2017			2016			2015			2014			2013
Balance
at beginning of period	$	8,886		$	7,106		$	6,815		$	7,098		$	6,784
Charge-offs:
Real estate:
Residential		104			85			66			97			17
Commercial		41			100			84			516			62
Agricultural		-			-			-			-			-
Consumer		90			100			47			47			54
Other commercial loans		-			55			41			250			1
Other agricultural loans		5			-			-			-			-
Total loans charged-off		240			340			238			910			134
Recoveries:
Real estate:
Residential		-			-			-			-			5
Commercial		11			479			14			15			5
Agricultural		-			-			-			-			-
Consumer		35			88			33			27			33
Other commercial loans		14			33			2			-			-
Other agricultural loans		1			-			-			-			-
Total loans recovered		61			600			49			42			43
Net loans (recovered) charged-off		179			(260	)		189			868			91
Provision charged to expense		1,740			1,520			480			585			405
Balance at end of period	$	10,447		$	8,886		$	7,106		$	6,815		$	7,098
Loans outstanding at end of period	$	907,162		$	799,611		$	695,031		$	554,105		$	540,612
Average loans outstanding, net	$	864,294		$	725,881		$	577,992		$	540,541		$	516,748
Non-performing assets:
Non-accruing loans	$	11,821		$	11,454		$	6,531		$	6,599		$	8,097
Accrual loans - 90 days or more past due		173			405			623			836			697
Total non-performing loans	$	11,994		$	11,859		$	7,154		$	7,435		$	8,794
Foreclosed assets held for sale		1,570			1,036			1,354			1,792			1,360
Total non-performing assets	$	13,564		$	12,895		$	8,508		$	9,227		$	10,154
Annualized net charge-offs to average loans		0.03	%		-0.04	%		0.03	%		0.16	%		0.02	%
Allowance to total loans		1.15	%		1.11	%		1.02	%		1.23	%		1.31	%
Allowance to total non-performing loans		87.10	%		74.93	%		99.33	%		91.66	%		80.71	%
Non-performing loans as a percent of loans outstanding		1.32	%		1.48	%		1.03	%		1.34	%		1.63	%
Non-performing assets as a percent of loans outstanding		1.50	%		1.61	%		1.22	%		1.67	%		1.88	%

46

Management believes it uses the best information available when estimating the allowance for loan losses and that the allowance for loan losses is adequate as of September 30, 2017.  However, future adjustments could be required if circumstances differ substantially from assumptions and estimates used in making the initial determination.  A prolonged downturn in the economy, high unemployment rates, significant changes in the value of collateral and delays in receiving financial information from borrowers could result in increased levels of non-performing assets, charge-offs, loan loss provisions and reduction in income. Additionally, bank regulatory agencies periodically examine the Bank's allowance for loan losses.  The banking agencies could require the recognition of additions to the allowance for loan losses based upon their judgment of information available to them at the time of their examination.

On a monthly basis, problem loans are identified and updated primarily using internally prepared past due reports.  Based on data surrounding the collection process of each identified loan, the loan may be added or deleted from the monthly watch list.  The watch list includes loans graded special mention, substandard, doubtful, and loss, as well as additional loans that management may choose to include.  Watch list loans are continually monitored going forward until satisfactory conditions exist that allow management to upgrade and remove the loan.  In certain cases, loans may be placed on non-accrual status or charged-off based upon management's evaluation of the borrower's ability to pay.  All commercial loans, which include commercial real estate, agricultural real estate, state and political subdivision loans and other commercial and agricultural loans, on non-accrual are evaluated quarterly for impairment.

The allowance for loan losses was $10,447,000 or 1.15% of total loans as of September 30, 2017 as compared to $8,886,000 or 1.11% of loans as of December 31, 2016. The decrease as a percent of loans in 2015 compared to year end 2014 and 2013 is attributable to the increase in loans as part of the acquisition of FNB and the associated purchase accounting adjustments that were applied to the FNB loan portfolio.  The $1,561,000 increase in the allowance during the first nine months of 2017 is the result of a $1,740,000 provision and net charge-offs of $179,000. The following table shows the distribution of the allowance for loan losses and the percentage of loans compared to total loans by loan category as of September 30, 2017 and December 31, 2016, 2015, 2014 and 2013 (dollars in thousands):

	September 30,				December 31
	2017				2016				2015				2014				2013
	Amount		%		Amount		%		Amount		%		Amount		%		Amount		%
Real estate loans:
Residential	$	1,080		22.8	$	1,064		25.9	$	905		29.3	$	878		33.5	$	946		34.6
Commercial		3,582		30.2		3,589		31.6		3,376		34.2		3,419		34.5		3,983		35.7
Agricultural		2,694		22.8		1,494		15.5		409		8.3		451		4.4		575		4.1
Construction		31		1.9		47		3.2		24		2.2		26		1.1		50		1.7
Consumer		137		1.2		122		1.4		102		1.7		84		1.5		105		1.7
Other commercial loans		1,112		6.2		1,327		7.3		1,183		8.2		1,007		8.6		686		8.2
Other agricultural loans		462		3.8		312		2.9		122		2.0		217		2.0		256		1.8
State & political subdivision loans		874		11.1		833		12.2		593		14.1		545		14.4		330		12.2
Unallocated		475		N/A		98		N/A		392		N/A		188		N/A		167		N/A
Total allowance for loan losses	$	10,447		100.0	$	8,886		100.0	$	7,106		100.0	$	6,815		100.0	$	7,098		100.0

As a result of previous loss experiences and other risk factors utilized in determining the allowance, the Bank's allocation of the allowance does not directly correspond to the actual balances of the loan portfolio. While commercial and agricultural real estate total 53.0% of the loan portfolio, 60.1% of the allowance is assigned to this segment of the loan portfolio as these loans have more inherent risks than residential real estate or loans to state and political subdivisions.

The following table identifies amounts of loans contractually past due 30 to 89 days and non-performing loans by loan category, as well as the change from December 31, 2016 to September 30, 2017 in non-performing loans(dollars in thousands). Non-performing loans include accruing loans that are contractually past due 90 days or more and non-accrual loans. Interest does not accrue on non-accrual loans.  Subsequent cash payments received are applied to the outstanding principal balance or recorded as interest income, depending upon management's assessment of its ultimate ability to collect principal and interest.

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	September 30, 2017								December 31, 2016
			Non-Performing Loans								Non-Performing Loans
	30 - 89 Days								30 - 89 Days
	Past Due		90 Days Past		Non-		Total Non-		Past Due		90 Days Past		Non-		Total Non-
(in thousands)	Accruing		Due Accruing		accrual		Performing		Accruing		Due Accruing		accrual		Performing
Real estate:
Residential	$	1,596	$	79	$	1,343	$	1,422	$	1,010	$	333	$	1,570	$	1,903
Commercial		1,142		80		5,262		5,342		1,703		-		4,445		4,445
Agricultural		-		-		1,464		1,464		-		-		1,340		1,340
Construction		-		-		-		-		-		-		-		-
Consumer		163		14		88		102		131		67		42		109
Other commercial loans		272		-		3,008		3,008		78		-		4,057		4,057
Other agricultural loans		187		-		656		656		77		5		-		5
Total nonperforming loans	$	3,360	$	173	$	11,821	$	11,994	$	2,999	$	405	$	11,454	$	11,859

	Change in Non-Performing Loans
	September 30, 2017 /December 31, 2016
(in thousands)	Amount			%
Real estate:
Residential	$	(481	)		(25.3	)
Commercial		897			20.2
Agricultural		124			9.3
Construction		-			N/A
Consumer		(7	)		(6.4	)
Other commercial loans		(1,049	)		(25.9	)
Other agricultural loans		651			13,020.0
Total nonperforming loans	$	135			1.1

For the nine months ended September 30, 2017, we recorded a provision for loan losses of $1,740,000, which compares to $770,000 for the same period in 2016. The increase was primarily attributable to the loan growth experienced during 2017. Non-performing loans increased $135,000 or 1.1%, from December 31, 2016 to September 30, 2017, primarily due to one customer. Approximately 61.6% of the Bank's non-performing loans at September 30, 2017 are associated with the following three customer relationships:

· A commercial customer with a total loan relationship of $3.3 million, secured by undeveloped land, stone quarries, equipment and the owner's residence, was on non-accrual status as of September 30, 2017. The slowdown in the exploration for natural gas has significantly impacted the cash flows of the customer, who provides excavation services and stone for pad construction related to these activities. The collateral was appraised in the first quarter of 2017. Management assessed the collateral value and determined that no specific reserve was required as of September 30, 2017.  

· A commercial customer with a total loan relationship of $2.7 million, secured by approximately 160 residential properties, was on non-accrual status as of September 30, 2017. In the first quarter of 2011, the Company and borrower entered into a forbearance agreement to restructure the debt. In July of 2013, the customer filed for bankruptcy under Chapter 11 and a Trustee was appointed in January of 2014. In 2015, the Trustee decreased the loan payments below what was agreed to in the forbearance agreement. This decrease is currently being litigated in bankruptcy court. As a result of the decrease, the relationship has become more than 90 days past due. During 2016, the Company appraised the underlying collateral. The appraisals indicated a slight decrease in collateral values compared to the appraisals ordered for the loan origination, however, the loan is still considered well secured on a loan to value basis. We continue to monitor the bankruptcy proceedings to identify potential changes in the customer's operations and the impact these would have on the loan payments for our loans to the customer and the underlying collateral that supports these loans. As of September 30, 2017, there was no specific reserve for this relationship.  

48

· An agricultural customer with a relationship of approximately $1.3 million, secured by land, agricultural buildings and equipment, was on non-accrual status as of September 30, 2017. The customers transition to organic farming and contractual issues with a supplier have significantly impacted the cash flows from the customer's activities. The customer has entered into a sales agreement and the sale is expected to close in the fourth quarter of 2017. Management assessed the collateral value and determined that a specific reserve of $62,000 was required as of September 30, 2017.

Management of the Bank believes that the allowance for loan losses as of September 30, 2017 is adequate, which is based on the following factors:

· Two loan relationships comprise 50.6% of the non-performing loan balance, whose debt is considered well collateralized and has no specific reserves as of September 30, 2017.

· Net and gross charge-offs remain low in 2017 after a net recovery in 2016.

· Real estate values in the Bank's primary market areas have only decreased slightly with the decrease in the market price for natural gas.

Bank Owned Life Insurance

The Company holds bank owned life insurance policies to offset future employee benefit costs. These policies provide the Bank with an asset that generates earnings to partially offset the current costs of benefits, and eventually (at the death of the insureds) provide partial recovery of cash outflows associated with the benefits.  As of September 30, 2017 and December 31, 2016, the cash surrender value of the life insurance was $26.7 million and $26.2 million, respectively.  The change in cash surrender value, net of purchases and amounts acquired through acquisitions, is recognized in the results of operations.  The amounts recorded as non-interest income totaled $499,000 and $515,000 for the nine month periods ended September 30, 2017 and 2016, respectively. The Company evaluates annually the risks associated with the life insurance policies, including limits on the amount of coverage and an evaluation of the various carriers' credit ratings.

The Company agreements that were purchased directly from insurance companies are structured so that any death benefits received from a policy while the insured person is an active employee of the Bank will be split with the beneficiary of the policy.  Under these agreements, the employee's beneficiary will be entitled to receive 50% of the net amount at risk from the proceeds.  The net amount at risk is the total death benefit payable less the cash surrender value of the policy as of the date of death. The policies acquired as part of the acquisition of FNB provide a fixed split-dollar benefit for the beneficiaries estate, which is dependent on several factors including whether the covered individual was a Director of FNB or an employee of FNB and their salary level. As of September 30, 2017 and December 31, 2016, included in other liabilities on the Consolidated Balance Sheet was a liability of $576,000 and $569,000, respectively, for the obligation under the split-dollar benefit agreements.

Premises and Equipment

Premises and equipment decreased $406,000 to $16.6 million as of September 30, 2017 from December 31, 2016. This occurred primarily as a result of normal depreciation expense recorded in the first nine months of 2017.

Deposits

The following table shows the composition of deposits as of September 30, 2017 and December 31, 2016 (dollars in thousands):

49

	September 30,				December 31,
	2017				2016
	Amount		%		Amount		%
Non-interest-bearing deposits	$	154,142		14.7	$	147,425		14.7
NOW accounts		326,612		31.0		305,862		30.4
Savings deposits		179,518		17.1		170,722		17.0
Money market deposit accounts		131,861		12.5		116,880		11.6
Certificates of deposit		259,972		24.7		264,614		26.3
Total	$	1,052,105		100.0	$	1,005,503		100.0

	September 30, 2017/
	December 31, 2016
	Change
	Amount			%
Non-interest-bearing deposits	$	6,717			4.6
NOW accounts		20,750			6.8
Savings deposits		8,796			5.2
Money market deposit accounts		14,981			12.8
Certificates of deposit		(4,642	)		(1.8	)
Total	$	46,602			4.6

Deposits increased $46.6 million since December 31, 2016. As a result of timing and new account acquisition, deposits from local municipalities increased across various categories including non-interest bearing, money markets and NOW accounts. We also experienced a general increase in business related deposits, which have helped to support the loan growth the Bank has experienced. The deposit increases have been across both our northern tier and south central Pennsylvania markets.

Certificates of deposits decreased $4.6 million in 2017. The rates paid on certificates of deposits remain near historic lows due to the interest rate environment. Certain customers who typically utilize certificate of deposits as a means of generating income or as a longer term investment option, continued to move funds into money market and savings accounts that still pay interest in order to maintain flexibility for potentially rising interest rates. The rates paid on certificates of deposit by the Company remain competitive with rates paid by our competition. As of September 30, 2017, the Bank did not have any outstanding brokered certificates of deposit.

Borrowed Funds

      Borrowed funds decreased $6.0 million during the first nine months of 2017. The decrease was the result of repaying $8.4 million of overnight advances from the FHLB as a result of the deposit growth and investment portfolio cashflows. Offsetting this, there was an increase of approximately $2.3 million in the balances outstanding under repurchase agreements. The Bank's current strategy for borrowings is to consider terms and structures to manage interest rate risk and liquidity in a potential rising interest rate environment. The Company's daily cash requirements or short-term investments are primarily met by using the financial instruments available through the Federal Home Loan Bank of Pittsburgh.

In December 2003, the Company formed a special purpose entity, Citizens Financial Statutory Trust I ("the Entity"), to issue $7,500,000 of floating rate obligated mandatory redeemable securities as part of a pooled offering.  The rate is determined quarterly based on the 3 month LIBOR, plus 2.80%.  The Entity may redeem the securities, in whole or in part, at face value at any time.  The Company borrowed the proceeds of the issuance from the Entity in December 2003 in the form of a $7,500,000 note payable, which is included within "Borrowed Funds" in the liabilities section of the Company's balance sheet. Under current accounting rules, the Company's minority interest in the Entity was recorded at the initial investment amount and is included in the other assets section of the balance sheet.  The Entity is not consolidated as part of the Company's Consolidated Financial Statements.

50

Stockholders' Equity

We evaluate stockholders' equity in relation to total assets and the risks associated with those assets.  The greater the capital resource, the more likely a corporation will meet its cash obligations and absorb unforeseen losses.  For these reasons, capital adequacy has been, and will continue to be, of paramount importance. As such, the Company has implemented policies and procedures to ensure that it has adequate capital levels. As part of this process, we routinely stress test our capital levels and identify potential risk and alternative sources of additional capital should the need arise.

Total stockholders' equity was $129.9 million at September 30, 2017 compared to $123.3 million at December 31, 2016, an increase of $6.6 million or 5.4%.  Excluding accumulated other comprehensive income, stockholders' equity increased $6.4 million, or 5.1%. The Company purchased 12,453 shares of treasury stock at a weighted average cost of $51.82 per share. The Company reissued 12,383 shares as part of the dividend reinvestment program at a weighted average cost of $50.88 per share and 4,212 shares as part of the restricted stock program at a weighted average cost of $50.33 per share. In the first nine months of 2017, the Company had net income of $10.4 million and declared cash dividends of $4.4 million, or $1.24 per share, representing a cash dividend payout ratio of 41.8%.  We also issued a five percent stock dividend to the Company's shareholders, which had a market value of $9.0 million at its issuance.

All of the Company's investment securities are classified as available-for-sale, making this portion of the Company's balance sheet more sensitive to the changing market value of investments. As a result of changes in the interest rate environment and the defined benefit plan obligations, accumulated other comprehensive income increased $264,000 from December 31, 2016.

The Company and Bank are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory-and possibly additional discretionary-actions by regulators that, if undertaken, could have a direct material effect on the Company's financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and Bank must meet specific capital guidelines that involve quantitative measures of the Company and Bank's assets, liabilities, and certain off-balance-sheet items as calculated under U.S. GAAP, regulatory reporting requirements, and regulatory capital standards. The Company and Bank's capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

Quantitative measures established by regulatory capital standards to ensure capital adequacy require the Company and Bank to maintain minimum amounts and ratios  of total and Tier 1 capital (as defined) to risk-weighted assets (as defined), common equity Tier 1 capital (as defined) to total risk-weighted assets (as defined), and of Tier 1 capital (as defined) to average assets (as defined). Management believes, as of September 30, 2017 and December 31, 2016, that the Company and Bank meet all capital adequacy requirements to which they are subject.

As of September 30, 2017 and December 31, 2016, the Company and Bank are categorized as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the Company must maintain minimum total risk-based capital, Tier 1 risk-based capital, common equity Tier 1 risk-based capital, and Tier 1 leverage ratios as set forth in the table. There are no conditions or events since that notification that management believes have changed the institution's category.

The Company and Bank's computed risk‑based capital ratios are as follows (dollars in thousands):

51

	Actual					For Capital Adequacy Purposes					To Be Well Capitalized Under Prompt Corrective Action Provisions
September 30, 2017	Amount		Ratio			Amount		Ratio			Amount		Ratio
Total Capital (to Risk Weighted Assets):
Company	$	129,736		14.41	%	$	72,002		8.00	%	$	90,002		10.00	%
Bank	$	124,317		13.83	%	$	71,928		8.00	%	$	89,911		10.00	%
Tier 1 Capital (to Risk Weighted Assets):
Company	$	119,068		13.23	%	$	54,001		6.00	%	$	72,002		8.00	%
Bank	$	113,650		12.64	%	$	53,946		6.00	%	$	71,928		8.00	%
Common Equity Tier 1 Capital (to Risk Weighted Assets):
Company	$	111,568		12.40	%	$	40,501		4.50	%	$	58,501		6.50	%
Bank	$	113,650		12.64	%	$	40,460		4.50	%	$	58,442		6.50	%
Tier 1 Capital (to Average Assets):
Company	$	119,068		9.57	%	$	49,780		4.00	%	$	62,225		5.00	%
Bank	$	113,650		9.15	%	$	49,690		4.00	%	$	62,113		5.00	%

	Actual					For Capital Adequacy Purposes					To Be Well Capitalized Under Prompt Corrective Action Provisions
December 31, 2016	Amount		Ratio			Amount		Ratio			Amount		Ratio
Total Capital (to Risk Weighted Assets):
Company	$	121,717		14.93	%	$	65,217		8.00	%	$	81,522		10.00	%
Bank	$	117,537		14.46	%	$	65,020		8.00	%	$	81,275		10.00	%
Tier 1 Capital (to Risk Weighted Assets):
Company	$	112,599		13.81	%	$	48,913		6.00	%	$	65,217		8.00	%
Bank	$	108,419		13.34	%	$	48,765		6.00	%	$	65,020		8.00	%
Common Equity Tier 1 Capital (to Risk Weighted Assets):
Company	$	105,099		12.89	%	$	36,685		4.50	%	$	52,989		6.50	%
Bank	$	108,419		13.34	%	$	36,574		4.50	%	$	52,829		6.50	%
Tier 1 Capital (to Average Assets):
Company	$	112,599		9.46	%	$	47,586		4.00	%	$	59,483		5.00	%
Bank	$	108,419		9.13	%	$	39,006		4.00	%	$	48,757		5.00	%

Off-Balance Sheet Activities

Some financial instruments, such as loan commitments, credit lines, and letters of credit, are issued to meet customer financing needs.  The contractual amount of financial instruments with off-balance sheet risk was as follows at September 30, 2017 and December 31, 2016 (in thousands):

	September 30, 2017		December 31, 2016
Commitments to extend credit	$	221,492	$	206,505
Standby letters of credit		15,046		14,955
	$	236,538	$	221,460

We also offer limited overdraft protection as a non-contractual courtesy which is available to demand deposit accounts in good standing. Overdraft charges as a result of ATM withdrawals and one time point of sale (non-recurring) transactions require prior approval of the customer. The non-contractual amount of financial instruments with off-balance sheet risk at September 30, 2017 and December 31, 2016 was $9,244,000 and $9,124,000, respectively. The Company reserves the right to discontinue this service without prior notice.

52

Liquidity

Liquidity is a measure of the Company's ability to efficiently meet normal cash flow requirements of both borrowers and depositors.  To maintain proper liquidity, we use funds management policies, which include liquidity target ratios, along with our investment policies to assure we can meet our financial obligations to depositors, credit customers and stockholders.  Liquidity is needed to meet depositors' withdrawal demands, extend credit to meet borrowers' needs, provide funds for normal operating expenses and cash dividends, and to fund other capital expenditures.

Cash generated by operating activities, investing activities and financing activities influences liquidity management. Our Company's historical activity in this area can be seen in the Consolidated Statement of Cash Flows.  The most important source of funds is core deposits.  Repayment of principal on outstanding loans and cash flows created from the investment portfolio are also factors in liquidity management.  Other sources of funding include brokered certificates of deposit and the sale of loans or investments, if needed.

The Company's use of funds is shown in the investing activity section of the Consolidated Statement of Cash Flows, where the net loan activity is presented.  Other uses of funds include purchasing stock from the Federal Home Loan Bank (FHLB) of Pittsburgh, as well as capital expenditures.  Capital expenditures (including software purchases), during the first nine months of 2017 were $179,000 compared to $500,000 during the same time period in 2016.

Short-term debt from the FHLB supplements the Bank's availability of funds.  The Bank achieves liquidity primarily from temporary or short‑term investments in the Federal Reserve and the FHLB.  The Bank has a maximum borrowing capacity at the FHLB of approximately $432.5 million, of which $49.5 million was outstanding at September 30, 2017. Additionally, we have a Federal funds line totaling $10.0 million from a third party bank at market rates.  This line is not drawn upon. We also have a borrower in custody line with the Federal Reserve Bank of approximately $4.5 million, which also is not drawn upon as of September 30, 2017. The Company continues to evaluate its liquidity needs and as necessary finds additional sources.

Citizens Financial Services, Inc. is a separate legal entity from the Bank and must provide for its own liquidity.  In addition to its operating expenses, Citizens Financial Services, Inc. is responsible for paying any dividends declared to its shareholders.  Citizens Financial also has repurchased shares of its common stock.  Citizens Financial Services, Inc.'s primary source of income is dividends received from the Bank.  Both federal and state laws impose restrictions on the ability of the Bank to pay dividends. In particular, the Bank may not, as a state-chartered bank which is a member of the Federal Reserve System, declare a dividend without approval of the Federal Reserve, unless the dividend to be declared by the Bank's Board of Directors does not exceed the total of:  (i) the Bank's net profits for the current year to date, plus (ii) its retained net profits for the preceding two current years, less any required transfers to surplus.  The Federal Reserve Board and the FDIC have formal and informal policies which provide that insured banks and bank holding companies should generally pay dividends only out of current operating earnings, with some exceptions.  The Prompt Corrective Action Rules, described above, further limit the ability of banks to pay dividends, because banks which are not classified as well capitalized or adequately capitalized may not pay dividends and no dividend may be paid which would make the Bank undercapitalized after the dividend.  At September 30, 2017, Citizens Financial Services, Inc. (on an unconsolidated basis) had liquid assets of $4.1 million.

Interest Rate and Market Risk Management

      The objective of interest rate sensitivity management is to maintain an appropriate balance between the stable growth of income and the risks associated with maximizing income through interest sensitivity imbalances and the market value risk of assets and liabilities.

      Because of the nature of our operations, we are not subject to foreign currency exchange or commodity price risk and, because we have no trading portfolio, we are not subject to trading risk. Currently, the Company has equity securities that represent only 0.7% of its investment portfolio and, therefore, equity risk is not significant.

53

The primary components of interest-sensitive assets include adjustable-rate loans and investments, loan repayments, investment maturities and money market investments.  The primary components of interest-sensitive liabilities include maturing certificates of deposit, IRA certificates of deposit and short-term borrowings.  Savings deposits, NOW accounts and money market investor accounts are considered core deposits and are not short-term interest sensitive (except for the top-tier money market investor accounts, typically help by local governments, which are paid current market interest rates).

      Gap analysis, one of the methods used by us to analyze interest rate risk, does not necessarily show the precise impact of specific interest rate movements on our Company's net interest income because the re-pricing of certain assets and liabilities is discretionary and is subject to competitive and other pressures.  In addition, assets and liabilities within the same period may, in fact, be repaid at different times and at different rate levels.  We have not experienced the kind of earnings volatility that might be indicated from gap analysis.

The Company currently uses a computer simulation model to better measure the impact of interest rate changes on net interest income. We use the model as part of our risk management and asset liability management processes that we believe will effectively identify, measure, and monitor the Company's risk exposure.  In this analysis, the Company examines the results of movements in interest rates with additional assumptions made concerning prepayment speeds on mortgage loans and mortgage securities.   Shock scenarios, which assume a parallel shift in interest rates and is instantaneous, typically have the greatest impact on net interest income. The following is a rate shock analysis and the impact on net interest income as of September 30, 2017 (dollars in thousands):

			Change In			% Change In
	Prospective One-Year		Prospective			Prospective
Changes in Rates	Net Interest Income		Net Interest Income			Net Interest Income
-100 Shock	$	41,024	$	(957	)		(2.28	)
Base		41,981		-			-
+100 Shock		41,014		(967	)		(2.30	)
+200 Shock		39,873		(2,108	)		(5.02	)
+300 Shock		38,708		(3,273	)		(7.80	)
+400 Shock		37,428		(4,553	)		(10.85	)

The model makes estimates, at each level of interest rate change, regarding cash flows from principal repayments on loans and mortgage backed securities, call activity of other investment securities, and deposit selection, re-pricing and maturity structure.  Because of these assumptions, actual results could differ significantly from these estimates which would result in significant differences in the calculated projected change on net interest income. Additionally, the changes above do not necessarily represent the level of change under which management would undertake specific measures to realign its portfolio in order to reduce the projected level of change. It should be noted that the changes in net interest income noted above are in line with Company policy for interest rate risk.

Item 3-Quantitative and Qualitative Disclosure about Market Risk

      In the normal course of conducting business activities, the Company is exposed to market risk, principally interest rate risk, through the operations of its banking subsidiary.  Interest rate risk arises from market driven fluctuations in interest rates that affect cash flows, income, expense and values of financial instruments and was discussed previously in this Form 10-Q.  Management and a committee of the Board of Directors manage interest rate risk (see also "Interest Rate and Market Risk Management").

Item 4-Control and Procedures

(a) Disclosure Controls and Procedures

      The Company's management, including the Company's principal executive officer and principal financial officer, have evaluated the effectiveness of the Company's "disclosure controls and procedures," as such term is defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended, (the "Exchange Act").  Based upon their evaluation, the principal executive officer and principal financial officer concluded that, as of the end of the period covered by this report, the Company's disclosure controls and procedures were effective for the purpose of ensuring that the information required to be disclosed in the reports that the Company files or submits under the Exchange Act with the SEC (1) is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and (2) is accumulated and communicated to the Company's management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.

54

(b) Changes to Internal Control over Financial Reporting

      There were no changes in the Company's internal control over financial reporting during the quarter ended September 30, 2017 that have materially affected, or are reasonable likely to materially affect, the Company's internal control over financial reporting.

PART II ‑ OTHER INFORMATION

Item 1 ‑ Legal Proceedings

      Management is not aware of any pending or threatened litigation that would have a material adverse effect on the consolidated financial position of the Company.  Any pending proceedings are ordinary, routine litigation incidental to the business of the Company and its subsidiary.  In addition, no material proceedings are pending or are known to be threatened or contemplated against the Company and its subsidiary by government authorities.

Item 1A – Risk Factors

      In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, "Item 1.A. Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2016, which could materially affect our business, financial condition or future results. At September 30, 2017, the risk factors of the Company have not changed materially from those reported in our Annual Report on Form 10-K.  However, the risks described in our Annual Report on Form 10-K are not the only risks that we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.

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

ISSUER PURCHASES OF EQUITY SECURITIES
Period	Total Number of Shares (or units Purchased)		Average Price Paid per Share (or Unit)		Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans of Programs		Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs (1)
7/1/17 to 7/31/17		-	$	0.00		-		97,529
8/1/17 to 8/31/17		2,233	$	53.51		2,233		95,296
9/30/17 to 9/30/17		320	$	53.99		320		94,976
Total		2,553	$	53.57		2,553		94,976

(1) On October 20, 2015, the Company announced that the Board of Directors authorized the Company to repurchase up to an additional 150,000 shares.  The repurchases will be conducted through open-market purchases or privately negotiated transactions and will be made from time to time depending on market conditions and other factors.  No time limit was placed on the duration of the share repurchase program.  Any repurchased shares will be held as treasury stock and will be available for general corporate purposes.

Item 3 ‑ Defaults Upon Senior Securities

Not applicable.

55

Item 4 – Mine Safety Disclosure

Not applicable.

Item 5 ‑ Other Information

None

Item 6 ‑ Exhibits

(a)  The following documents are filed as a part of this report:

3.1	Articles of Incorporation of Citizens Financial Services, Inc., as amended (1)
3.2	Bylaws of Citizens Financial Services, Inc.(2)
4.1	Form of Common Stock Certificate.(3)
31.1	Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer
31.2	Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer
32.1	Section 1350 Certification of Chief Executive Officer and Chief Financial Officer
101 **	The following materials from the Company's Quarterly Report on Form 10-Q for the period ended  September 30, 2017, formatted in XBRL (Extensible Business Reporting Language): (i) The Consolidated Balance Sheet (unaudited), (ii) the Consolidated Statement of Income (unaudited), (iii) the Consolidated Statement of Comprehensive Income (unaudited), (iv) the Consolidated Statement of Cash Flows (unaudited) and (v) related notes (unaudited).

⁽¹⁾ Incorporated by reference to Exhibit 3.1 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2010, as filed with the Commission on May 12, 2010.

⁽²⁾Incorporated by reference to Exhibit 3.2 to the Company's Current Report on Form 8-K, as filed with the Commission on December 24, 2009.

⁽³⁾Incorporated by reference to Exhibit 4 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2005, as filed with the Commission on March 14, 2006.

** Furnished, not filed.

56

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.

	Citizens Financial Services, Inc. (Registrant)
November 9, 2017	By:	/s/ Randall E. Black
		Randall E. Black
		President and Chief Executive Officer (Principal Executive Officer)

November 9, 2017	By:	/s/ Mickey L. Jones
		Mickey L. Jones
		Chief Financial Officer (Principal Financial and Accounting Officer)

57

EX-31.1

Exhibit 31.1

Certification of Chief Executive Officer

I, Randall E. Black, certify that:

1.    I have reviewed this Form 10-Q of Citizens Financial Services, Inc.;

2.    Based on my knowledge, this 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 report;

3.    Based on my knowledge, the financial statements, and other financial information included in this 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 report;

4.    The registrant's other certifying officer(s) 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, or caused such disclosure controls and procedures to be designed under our supervision, 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 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 this 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; and

5.    The registrant's other certifying officer(s) 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 the 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 control 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.

November 9, 2017	By:	/s/ Randall E. Black
		Randall E. Black
		President and Chief Executive Officer (Principal Executive Officer)

EX-31.2

Exhibit 31.2

Certification of Chief Financial Officer

I, Mickey L. Jones, certify that:

1.    I have reviewed this Form 10-Q of Citizens Financial Services, Inc.;

2.    Based on my knowledge, this 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 report;

3.    Based on my knowledge, the financial statements, and other financial information included in this 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 report;

4.    The registrant's other certifying officer(s) 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, or caused such disclosure controls and procedures to be designed under our supervision, 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 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 this 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; and

5.    The registrant's other certifying officer(s) 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 the 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 control 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.

November 9, 2017	By:	/s/ Mickey L. Jones
		Mickey L. Jones
		Chief Financial Officer (Principal Financial and Accounting Officer)

EX-32.1

EXHIBIT 32.1

Section 1350 Certification

of Chief Executive Officer and

Chief Financial Officer

In connection with the Quarterly Report of Citizens Financial Services, Inc. (the "Company") on Form 10-Q (the "Report") for the period ending September 30, 2017 as filed with the Securities and Exchange Commission, the undersigned 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.   The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the dates and for the periods covered in the Report.

November 9, 2017	By:	/s/ Randall E. Black
		Randall E. Black
		President and Chief Executive Officer (Principal Executive Officer)

November 9, 2017	By:	/s/ Mickey L. Jones
		Mickey L. Jones
		Chief Financial Officer (Principal Financial and Accounting Officer)

XML

Document and Entity Information - shares	9 Months Ended
	Sep. 30, 2017	Nov. 01, 2017
Document and Entity Information [Abstract]
Entity Registrant Name	CITIZENS FINANCIAL SERVICES INC
Entity Central Index Key	0000739421
Current Fiscal Year End Date	--12-31
Entity Well-known Seasoned Issuer	No
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Filer Category	Accelerated Filer
Entity Common Stock, Shares Outstanding		3,491,511
Document Fiscal Year Focus	2017
Document Fiscal Period Focus	Q3
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Sep. 30, 2017

XML

CONSOLIDATED BALANCE SHEET (UNAUDITED) - USD ($) $ in Thousands	Sep. 30, 2017	Dec. 31, 2016
Cash and due from banks:
Noninterest-bearing	$ 12,887	$ 16,854
Interest-bearing	928	900
Total cash and cash equivalents	13,815	17,754
Interest bearing time deposits with other banks	10,031	6,955
Available-for-sale securities	263,588	314,017
Loans held for sale	1,431	1,827
Loans (net of allowance for loan losses: 2017, $10,447 and 2016, $8,886)	896,715	790,725
Premises and equipment	16,624	17,030
Accrued interest receivable	3,786	4,089
Goodwill	21,089	21,089
Bank owned life insurance	26,722	26,223
Other intangibles	1,872	2,096
Other investment sale receivable	0	7,759
Other assets	14,114	13,454
TOTAL ASSETS	1,269,787	1,223,018
Deposits:
Noninterest-bearing	154,142	147,425
Interest-bearing	897,963	858,078
Total deposits	1,052,105	1,005,503
Borrowed funds	73,628	79,662
Accrued interest payable	731	720
Other liabilities	13,441	13,865
TOTAL LIABILITIES	1,139,905	1,099,750
STOCKHOLDERS' EQUITY:
Preferred Stock $1.00 par value; authorized 3,000,000 shares at September 30, 2017 and December 31, 2016; none issued in 2017 or 2016	0	0
Common stock $1.00 par value; authorized 15,000,000 shares; issued 3,869,939 at September 30, 2017 and 3,704,375 at December 31, 2016	3,870	3,704
Additional paid-in capital	51,091	42,250
Retained earnings	88,318	91,278
Accumulated other comprehensive loss	(1,128)	(1,392)
Treasury stock, at cost: 378,428 shares at September 30, 2017 and 384,671 shares at December 31, 2016	(12,269)	(12,572)
TOTAL STOCKHOLDERS' EQUITY	129,882	123,268
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$ 1,269,787	$ 1,223,018

XML

CONSOLIDATED BALANCE SHEET (UNAUDITED) (Parenthetical) - USD ($) $ in Thousands	Sep. 30, 2017	Dec. 31, 2016
ASSETS:
Loans, allowance for loan losses	$ 10,447	$ 8,886
STOCKHOLDERS' EQUITY:
Preferred Stock, par value (in dollars per share)	$ 1.00	$ 1.00
Preferred Stock, authorized (in shares)	3,000,000	3,000,000
Preferred Stock, issued (in shares)	0	0
Common Stock, par value (in dollars per share)	$ 1.00	$ 1.00
Common Stock, authorized (in shares)	15,000,000	15,000,000
Common Stock, issued (in shares)	3,869,939	3,704,375
Treasury stock, shares (in shares)	378,428	384,671

XML

CONSOLIDATED STATEMENT OF INCOME (UNAUDITED) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016	Sep. 30, 2017	Sep. 30, 2016
INTEREST INCOME:
Interest and fees on loans	$ 10,659	$ 9,204	$ 30,680	$ 26,387
Interest-bearing deposits with banks	49	50	129	185
Investment securities:
Taxable	762	897	2,341	2,800
Nontaxable	588	733	1,857	2,259
Dividends	62	64	191	205
TOTAL INTEREST INCOME	12,120	10,948	35,198	31,836
INTEREST EXPENSE:
Deposits	1,210	1,048	3,398	3,194
Borrowed funds	293	188	782	554
TOTAL INTEREST EXPENSE	1,503	1,236	4,180	3,748
NET INTEREST INCOME	10,617	9,712	31,018	28,088
Provision for loan losses	500	500	1,740	770
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES	10,117	9,212	29,278	27,318
NON-INTEREST INCOME:
Service charges	1,145	1,115	3,323	3,345
Trust	187	161	596	539
Brokerage and insurance	154	211	459	578
Gains on loans sold	134	109	383	225
Investment securities gains, net	9	0	204	155
Earnings on bank owned life insurance	166	174	499	515
Other	126	138	380	450
TOTAL NON-INTEREST INCOME	1,921	1,908	5,844	5,807
NON-INTEREST EXPENSES:
Salaries and employee benefits	4,237	4,285	12,880	12,067
Occupancy	475	485	1,479	1,385
Furniture and equipment	159	164	444	492
Professional fees	286	283	854	836
FDIC insurance	95	175	295	492
Pennsylvania shares tax	243	240	767	630
Amortization of intangibles	74	82	223	246
ORE expenses (recoveries)	171	(71)	343	234
Other	1,507	1,557	4,319	5,031
TOTAL NON-INTEREST EXPENSES	7,247	7,200	21,604	21,413
Income before provision for income taxes	4,791	3,920	13,518	11,712
Provision for income taxes	1,141	767	3,097	2,245
NET INCOME	$ 3,650	$ 3,153	$ 10,421	$ 9,467
PER COMMON SHARE DATA:
Net Income - Basic (in dollars per share)	$ 1.05	$ 0.90	$ 2.99	$ 2.70
Net Income - Diluted (in dollars per share)	1.05	0.90	2.99	2.69
Cash Dividends Paid (in dollars per share)	$ 0.430	$ 0.400	$ 1.240	$ 1.183
Number of shares used in computation - basic (in shares)	3,482,936	3,505,526	3,480,760	3,512,187
Number of shares used in computation - diluted (in shares)	3,485,221	3,507,220	3,482,634	3,513,885

XML

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016	Sep. 30, 2017	Sep. 30, 2016
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED) [Abstract]
Net income	$ 3,650	$ 3,153	$ 10,421	$ 9,467
Other comprehensive income (loss):
Unrealized gains on available for sale securities	(288)	(1,049)	437	2,439
Income tax effect	98	357	(149)	(830)
Change in unrecognized pension cost	56	61	168	181
Income tax effect	(19)	(21)	(57)	(62)
Less: Reclassification adjustment for investment security gains included in net income	(9)	0	(204)	(155)
Income tax effect	3	0	69	53
Other comprehensive income (loss), net of tax	(159)	(652)	264	1,626
Comprehensive income	$ 3,491	$ 2,501	$ 10,685	$ 11,093

XML

CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$ 10,421	$ 9,467
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses	1,740	770
Provision for off-balance sheet items	0	30
Depreciation and amortization	321	265
Amortization and accretion of investment securities	1,089	1,750
Deferred income taxes	(381)	141
Investment securities gains, net	(204)	(155)
Earnings on bank owned life insurance	(499)	(515)
Originations of loans held for sale	(17,144)	(15,698)
Proceeds from sales of loans held for sale	17,789	15,950
Realized gains on loans sold	(383)	(225)
Increase in accrued interest receivable	303	223
Increase (decrease) in accrued interest payable	11	(98)
Other, net	(360)	(1,137)
Net cash provided by operating activities	12,703	10,768
Available-for-sale securities:
Proceeds from sales	30,393	12,077
Proceeds from maturity and principal repayments	47,677	43,759
Purchase of securities	(20,548)	(44,567)
Purchase of interest bearing time deposits with other banks	(6,301)	0
Proceeds from sale of interest bearing time deposits with other banks	2,741	0
Proceeds from matured interest bearing time deposits with other banks	496	744
Proceeds from redemption of regulatory stock	6,090	459
Purchase of regulatory stock	(5,668)	(1,138)
Net increase in loans	(107,864)	(55,846)
Purchase of premises and equipment	(179)	(500)
Proceeds from sale of foreclosed assets held for sale	312	900
Net cash used in investing activities	(52,851)	(44,112)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits	46,602	20,716
Proceeds from long-term borrowings	7	541
Repayments of long-term borrowings	0	(534)
Net (decrease) increase in short-term borrowed funds	(6,041)	10,221
Purchase of treasury and restricted stock	(645)	(1,713)
Dividends paid	(3,714)	(3,900)
Net cash provided by financing activities	36,209	25,331
Net decrease in cash and cash equivalents	(3,939)	(8,013)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD	17,754	24,384
CASH AND CASH EQUIVALENTS AT END OF PERIOD	13,815	16,371
Supplemental Disclosures of Cash Flow Information:
Interest paid	4,169	3,846
Income taxes paid	2,950	1,700
Loans transferred to foreclosed property	$ 785	$ 633

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Basis of Presentation

9 Months Ended

Sep. 30, 2017

Basis of Presentation [Abstract]

Basis of Presentation

Note 1 - Basis of Presentation

Citizens Financial Services, Inc. (individually and collectively with its direct and indirect subsidiaries, the "Company") is a Pennsylvania corporation and the holding company of its wholly owned subsidiary, First Citizens Community Bank (the "Bank"), and of the Bank's wholly owned subsidiary, First Citizens Insurance Agency, Inc. ("First Citizens Insurance").

The accompanying consolidated financial statements have been prepared pursuant to rules and regulations of the Securities and Exchange Commission ("SEC") and in conformity with U.S. generally accepted accounting principles.  Because this report is based on an interim period, certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles have been condensed or omitted.  Certain of the prior year amounts have been reclassified to conform with the current year presentation.  Such reclassifications had no effect on net income or stockholders' equity.  All material inter‑company balances and transactions have been eliminated in consolidation.

In the opinion of management of the Company, the accompanying interim financial statements at September 30, 2017 and for the periods ended September 30, 2017 and 2016 include all adjustments, consisting of only normal recurring adjustments, necessary for a fair presentation of the financial condition and the results of operations for the periods. In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet and revenues and expenses for the period. The financial performance reported for the Company for the nine month period ended September 30, 2017 is not necessarily indicative of the results to be expected for the full year.  This information should be read in conjunction with the Company's Annual Report on Form 10-K for the year ended December 31, 2016.

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Earnings per Share

9 Months Ended

Sep. 30, 2017

Earnings per Share [Abstract]

Earnings per Share

Note 2 - Earnings per Share

The following table sets forth the computation of earnings per share. Earnings per share calculations give retroactive effect to stock dividends declared by the Company.

	Three months ended				Nine months ended
	September 30,				September 30,
	2017		2016		2017		2016
Net income applicable to common stock	$	3,650,000	$	3,153,000	$	10,421,000	$	9,467,000
Basic earnings per share computation
Weighted average common shares outstanding		3,482,936		3,505,526		3,480,760		3,512,187
Earnings per share - basic	$	1.05	$	0.90	$	2.99	$	2.70
Diluted earnings per share computation
Weighted average common shares outstanding for basic earnings per share		3,482,936		3,505,526		3,480,760		3,512,187
Add: Dilutive effects of restricted stock		2,285		1,694		1,874		1,698
Weighted average common shares outstanding for dilutive earnings per share		3,485,221		3,507,220		3,482,634		3,513,885
Earnings per share - diluted	$	1.05	$	0.90	$	2.99	$	2.69

For the three months ended September 30, 2017 and 2016, there were 1,107 and 3,804 shares, respectively, related to the restricted stock plan that were excluded from the diluted earnings per share calculations since they were anti-dilutive. These anti-dilutive shares had per share prices ranging from $49.87-$53.15 for the three month period ended September 30, 2017 and per share prices ranging from $46.69-$53.15 for the three month period ended September 30, 2016. For the nine months ended September 30, 2017 and 2016, 4,162 and 3,804 shares, respectively, related to the restricted stock plan were excluded from the diluted earnings per share calculations since they were anti-dilutive. These anti-dilutive shares had prices ranging from $46.69-$53.15 for the nine month period ended September 30, 2017 and prices ranging from $46.69-$53.15 for the nine month period ended September 30, 2016.

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Income Tax Expense

9 Months Ended

Sep. 30, 2017

Income Tax Expense [Abstract]

Income Tax Expense

Note 3 - Income Tax Expense

Income tax expense is less than the amount calculated using the statutory tax rate, primarily as a result of tax-exempt income earned from state and municipal securities and loans and the recognition of qualified affordable housing tax credits.

Investments in Qualified Affordable Housing Projects

As of September 30, 2017 and December 31, 2016, the Company was invested in four partnerships that provide affordable housing. The balance of the investments, which is included within other assets in the Consolidated Balance Sheet, was $581,000 and $700,000 as of September 30, 2017 and December 31, 2016, respectively. Investments purchased prior to January 1, 2015, are accounted for utilizing the effective yield method. As of September 30, 2017, the Company had $740,000 of tax credits remaining that will be recognized over 5.25 years. Tax credits of $36,000 and $50,000 were recognized as a reduction of tax expense during the three months ended September 30, 2017 and 2016, respectively. For the nine months ended September 30, 2017 and 2016, tax credits of $106,000 and $149,000, respectively, were recognized as a reduction of tax expense. Amortization of the investment included in other expenses on the Consolidated Statement of Income was $39,000 and $65,000 during the three months ended September 30, 2017 and 2016, respectively. Amortization of the investment included in other expenses on the Consolidated Statement of Income was $119,000 and $194,000 during the nine months ended September 30, 2017 and 2016, respectively.

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Investments

9 Months Ended

Sep. 30, 2017

Investments [Abstract]

Investments

Note 4 – Investments

The amortized cost, gross unrealized gains and losses, and fair value of investment securities at September 30, 2017 and December 31, 2016 were as follows (in thousands):

			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
September 30, 2017	Cost		Gains		Losses			Value
Available-for-sale securities:
U.S. agency securities	$	132,555	$	191	$	(195	)	$	132,551
Obligations of state and
political subdivisions		80,439		1,382		(98	)		81,723
Corporate obligations		3,000		101		-			3,101
Mortgage-backed securities in
government sponsored entities		44,391		83		(197	)		44,277
Equity securities in financial
institutions		992		944		-			1,936
Total available-for-sale securities	$	261,377	$	2,701	$	(490	)	$	263,588
December 31, 2016
Available-for-sale securities:
U.S. agency securities	$	170,276	$	407	$	(269	)	$	170,414
U.S. treasury securities		2,999		1		-			3,000
Obligations of state and
political subdivisions		95,956		1,463		(493	)		96,926
Corporate obligations		3,000		50		-			3,050
Mortgage-backed securities in
government sponsored entities		37,987		88		(347	)		37,728
Equity securities in financial institutions		1,821		1,078		-			2,899
Total available-for-sale securities	$	312,039	$	3,087	$	(1,109	)	$	314,017

The following table shows the Company's gross unrealized losses and fair value of the Company's investments with unrealized losses that are not deemed to be other-than-temporarily impaired, aggregated by investment category and length of time, which individual securities have been in a continuous unrealized loss position, at September 30, 2017 and December 31, 2016 (in thousands). As of September 30, 2017, the Company owned 70 securities whose fair value was less than their cost basis.

	Less than Twelve Months					Twelve Months or Greater					Total
			Gross					Gross					Gross
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
September 30, 2017	Value		Losses			Value		Losses			Value		Losses
U.S. agency securities	$	55,048	$	(119	)	$	7,922	$	(76	)	$	62,970	$	(195	)
Obligations of state and
political subdivisions		6,146		(21	)		8,564		(77	)		14,710		(98	)
Mortgage-backed securities in
government sponsored entities		26,683		(166	)		2,810		(31	)		29,493		(197	)
Total securities	$	87,877	$	(306	)	$	19,296	$	(184	)	$	107,173	$	(490	)
December 31, 2016
U.S. agency securities	$	50,947	$	(269	)	$	-	$	-		$	50,947	$	(269	)
Obligations of states and
political subdivisions		28,398		(472	)		767		(21	)		29,165		(493	)
Mortgage-backed securities in
government sponsored entities		26,717		(330	)		753		(17	)		27,470		(347	)
Total securities	$	106,062	$	(1,071	)	$	1,520	$	(38	)	$	107,582	$	(1,109	)

As of September 30, 2017 and December 31, 2016, the Company's investment securities portfolio contained unrealized losses on agency securities issued or backed by the full faith and credit of the United States government or are generally viewed as having the implied guarantee of the U.S. government, obligations of states and political subdivisions and mortgage backed securities issued by government sponsored entities. For fixed maturity investments management considers whether the present value of cash flows expected to be collected are less than the security's amortized cost basis (the difference defined as the credit loss), the magnitude and duration of the decline, the reasons underlying the decline and the Company's intent to sell the security or whether it is more likely than not that the Company would be required to sell the security before its anticipated recovery in market value, to determine whether the loss in value is other than temporary. Once a decline in value is determined to be other than temporary, if the Company does not intend to sell the security, and it is more likely than not that it will not be required to sell the security before recovery of the security's amortized cost basis, the charge to earnings is limited to the amount of credit loss. Any remaining difference between fair value and amortized cost (the difference defined as the non-credit portion) is recognized in other comprehensive income, net of applicable taxes. Otherwise, the entire difference between fair value and amortized cost is charged to earnings. For equity securities where the fair value has been significantly below cost for one year, the Company's policy is to recognize an impairment loss unless sufficient evidence is available that the decline is not other than temporary and a recovery period can be predicted.  The Company has concluded that any impairment of its investment securities portfolio outlined in the above table is not other than temporary and is the result of interest rate changes, sector credit rating changes, or issuer-specific rating changes that are not expected to result in the non-collection of principal and interest during the period.

Proceeds from sales of securities available-for-sale for the nine months ended September 30, 2017 and 2016 were $30,393,000 and $12,077,000, respectively.  For the three months ended September 30, 2017 there were sales of $4,986,000 of available-for-sale securities. There were no sales of available for sale securities during the three months ended September 30, 2016. The gross gains and losses were as follows (in thousands):

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2017		2016		2017			2016
Gross gains	$	9	$	-	$	211		$	155
Gross losses		-		-		(7	)		-
Net gains	$	9	$	-	$	204		$	155

Investment securities with an approximate carrying value of $243.9 million and $206.3 million at September 30, 2017 and December 31, 2016, respectively, were pledged to secure public funds and certain other deposits.

Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.   The amortized cost and fair value of debt securities (excludes equity securities) at September 30, 2017, by contractual maturity, are shown below (in thousands):

	Amortized
	Cost		Fair Value
Available-for-sale debt securities:
Due in one year or less	$	52,243	$	52,375
Due after one year through five years		113,014		113,722
Due after five years through ten years		35,712		35,950
Due after ten years		59,416		59,605
Total	$	260,385	$	261,652

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Loans

9 Months Ended

Sep. 30, 2017

Loans [Abstract]

Loans

Note 5 – Loans

The Company grants loans primarily to customers throughout north central, central and south central Pennsylvania and the southern tier of New York.  Although the Company had a diversified loan portfolio at September 30, 2017 and December 31, 2016, a substantial portion of its debtors' ability to honor their contracts is dependent on the economic conditions within these regions. The following table summarizes the primary segments of the loan portfolio and how those segments are analyzed within the allowance for loan losses as of September 30, 2017 and December 31, 2016 (in thousands):

September 30, 2017	Total Loans		Individually evaluated for impairment		Loans acquired with deteriorated credit quality		Collectively evaluated for impairment
Real estate loans:
Residential	$	206,389	$	864	$	34	$	205,491
Commercial		273,624		13,759		2,016		257,849
Agricultural		207,052		3,964		733		202,355
Construction		17,074		-		-		17,074
Consumer		10,784		4		-		10,780
Other commercial loans		56,222		4,228		538		51,456
Other agricultural loans		34,066		1,418		-		32,648
State and political subdivision loans		101,951		-		-		101,951
Total		907,162		24,237		3,321		879,604
Allowance for loan losses		10,447		442		-		10,005
Net loans	$	896,715	$	23,795	$	3,321	$	869,599
December 31, 2016
Real estate loans:
Residential	$	207,423	$	957	$	35	$	206,431
Commercial		252,577		5,742		1,969		244,866
Agricultural		123,624		3,346		738		119,540
Construction		25,441		-		-		25,441
Consumer		11,005		-		4		11,001
Other commercial loans		58,639		5,994		621		52,024
Other agricultural loans		23,388		1,654		-		21,734
State and political subdivision loans		97,514		-		-		97,514
Total		799,611		17,693		3,367		778,551
Allowance for loan losses		8,886		487		-		8,399
Net loans	$	790,725	$	17,206	$	3,367	$	770,152

Purchased loans acquired in The First National Bank of Fredericksburg (FNB) acquisition, completed in 2015, were recorded at fair value on their purchase date without a carryover of the related allowance for loan losses. Upon acquisition, the Company evaluated whether an acquired loan was within the scope of ASC 310-30, Receivables-Loans and Debt Securities Acquired with Deteriorated Credit Quality. Purchased credit-impaired ("PCI") loans are loans that have evidence of credit deterioration since origination and it is probable at the date of acquisition that the Company will not collect all contractually required principal and interest payments. Based upon management's review, there were no material increases or decreases in the expected cash flows of these loans between December 11, 2015 (the "acquisition date") and September 30, 2017. The fair value of PCI loans, on the acquisition date, was determined, primarily based on the fair value of the loans' collateral. The carrying value of PCI loans was $3,321,000 and $3,367,000 at September 30, 2017 and December 31, 2016, respectively.

The carrying value of the PCI loans was determined by projected discounted contractual cash flows.

Changes in the accretable yield for PCI loans were as follows for the three and nine months ended September 30, 2017 and 2016, respectively (in thousands):

	Three months ended						Nine months ended
	September 30,						September 30,
	2017			2016			2017			2016
Balance at beginning of period	$	167		$	464		$	389		$	637
Accretion		(90	)		(88	)		(312	)		(261	)
Balance at end of period	$	77		$	376		$	77		$	376

The following table presents additional information regarding loans acquired with specific evidence of deterioration in credit quality under ASC 310-30 (in thousands):

	September 30, 2017		December 31, 2016
Outstanding balance	$	6,328	$	6,487
Carrying amount		3,321		3,367

The segments of the Company's loan portfolio are disaggregated into classes to a level that allows management to monitor risk and performance. Residential real estate mortgages consist primarily of 15 to 30 year first mortgages on residential real estate, while residential real estate home equity loans are consumer purpose installment loans or lines of credit with terms of 15 years or less secured by a mortgage which is often a second lien on residential real estate. Commercial real estate loans are business purpose loans secured by a mortgage on commercial real estate. Agricultural real estate loans are loans secured by a mortgage on real estate used in agriculture production. Construction real estate loans are loans secured by residential, commercial or agricultural real estate used during the construction phase of residential, commercial or agricultural projects. Consumer loans are typically unsecured or primarily secured by assets other than real estate and overdraft lines of credit are typically secured by customer deposit accounts. Other commercial loans are loans for commercial purposes primarily secured by non-real estate collateral. Other agricultural loans are loans for agricultural purposes primarily secured by non-real estate collateral. State and political subdivision loans are loans to state and local municipalities for capital and operating expenses or tax free loans used to finance commercial development.

Management considers other commercial loans, other agricultural loans, state and political subdivision loans, commercial real estate loans and agricultural real estate loans which are 90 days or more past due to be impaired. Management will also consider a loan impaired based on other factors it becomes aware of, including the customer's results of operations and cash flows or if the loan is modified in a troubled debt restructuring. In addition, certain residential mortgages, home equity and consumer loans that are cross collateralized with commercial relationships that are determined to be impaired may also be classified as impaired. Impaired loans are analyzed to determine if it is probable that all amounts will not be collected according to the contractual terms of the loan agreement. If management determines that the value of the impaired loan is less than the recorded investment in the loan (net of previous charge-offs, deferred loan fees or costs and unamortized premium or discount), impairment is recognized through an allocation of the allowance for loan losses or a charge-off to the allowance for loan losses.

The following table includes the recorded investment and unpaid principal balances for impaired financing receivables by class, excluding PCI loans, with the associated allowance amount, if applicable (in thousands):

			Recorded		Recorded
	Unpaid		Investment		Investment		Total
	Principal		With No		With		Recorded		Related
September 30, 2017	Balance		Allowance		Allowance		Investment		Allowance
Real estate loans:
Mortgages	$	865	$	280	$	515	$	795	$	17
Home Equity		69		16		53		69		9
Commercial		16,240		13,329		430		13,759		67
Agricultural		3,983		1,933		2,031		3,964		99
Construction		-		-		-		-		-
Consumer		4		2		2		4		2
Other commercial loans		4,690		3,759		469		4,228		208
Other agricultural loans		1,442		1,309		109		1,418		40
State and political
subdivision loans		-		-		-		-		-
Total	$	27,293	$	20,628	$	3,609	$	24,237	$	442
December 31, 2016
Real estate loans:							$	-
Mortgages	$	953	$	570	$	330		900	$	22
Home Equity		57		-		57		57		10
Commercial		7,958		5,697		45		5,742		45
Agricultural		3,347		2,000		1,347		3,347		54
Construction		-		-		-		-		-
Consumer		-		-		-		-		-
Other commercial loans		6,159		5,135		859		5,994		326
Other agricultural loans		1,653		1,629		24		1,653		30
State and political
subdivision loans		-		-		-		-		-
Total	$	20,127	$	15,031	$	2,662	$	17,693	$	487

The following tables includes the average balance of impaired financing receivables by class and the income recognized on these receivables for the three and nine month periods ended September 30, 2017 and 2016(in thousands):

	For the Three Months Ended
	September 30, 2017						September 30, 2016
					Interest						Interest
	Average		Interest		Income		Average		Interest		Income
	Recorded		Income		Recognized		Recorded		Income		Recognized
	Investment		Recognized		Cash Basis		Investment		Recognized		Cash Basis
Real estate loans:
Mortgages	$	741	$	3	$	-	$	607	$	1	$	-
Home Equity		70		1		-		58		1		-
Commercial		13,663		122		2		5,980		35		-
Agricultural		3,799		27		-		-		2		-
Construction		-		-		-		-		-		-
Consumer		4		-		-		-		-		-
Other commercial loans		4,337		54		25		5,298		53		2
Other agricultural loans		1,443		10		-		-		-		-
State and political
subdivision loans		-		-		-		-		-		-
Total	$	24,057	$	217	$	27	$	11,943	$	92	$	2

	For the Nine Months ended
	September 30, 2017						September 30, 2016
					Interest						Interest
	Average		Interest		Income		Average		Interest		Income
	Recorded		Income		Recognized		Recorded		Income		Recognized
	Investment		Recognized		Cash Basis		Investment		Recognized		Cash Basis
Real estate loans:
Mortgages	$	874	$	9	$	-	$	486	$	10	$	-
Home Equity		62		3		-		59		3		-
Commercial		10,812		280		5		6,088		87		-
Agricultural		3,609		90		-		110		7		-
Construction		-		-		-		-		-		-
Consumer		2		-		-		-		-		-
Other commercial loans		4,988		131		52		5,743		187		5
Other agricultural loans		1,528		55		-		70		3		-
State and political
subdivision loans		-		-		-		-		-		-
Total	$	21,875	$	568	$	57	$	12,556	$	297	$	5

Credit Quality Information

For commercial real estate, agricultural real estate, construction, other commercial, other agricultural and state and political subdivision loans, management uses a nine grade internal risk rating system to monitor credit quality. The first five categories are considered not criticized and are aggregated as "Pass" rated. The criticized rating categories utilized by management generally follow bank regulatory definitions. The definitions of each rating are defined below:

· Pass (Grades 1-5) – These loans are to customers with credit quality ranging from an acceptable to very high quality and are protected by the current net worth and paying capacity of the obligor or by the value of the underlying collateral.

· Special Mention (Grade 6) – This loan grade is in accordance with regulatory guidance and includes loans where a potential weakness or risk exists, which could cause a more serious problem if not corrected.

· Substandard (Grade 7) – This loan grade is in accordance with regulatory guidance and includes loans that have a well-defined weakness based on objective evidence and be characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected.

· Doubtful (Grade 8) – This loan grade is in accordance with regulatory guidance and includes loans that have all the weaknesses inherent in a substandard asset. In addition, these weaknesses make collection or liquidation in full highly questionable and improbable, based on existing circumstances.

· Loss (Grade 9) – This loan grade is in accordance with regulatory guidance and includes loans that are considered uncollectible, or of such value that continuance as an asset is not warranted.

To help ensure that risk ratings are accurate and reflect the present and future capacity of borrowers to repay the loan as agreed, the Company's loan rating process includes several layers of internal and external oversight. The Company's loan officers are responsible for the timely and accurate risk rating of the loans in each of their portfolios at origination and on an ongoing basis under the supervision of management.  All commercial and agricultural loans are reviewed annually to ensure the appropriateness of the loan grade. In addition, the Company engages an external consultant on at least an annual basis to 1) review a minimum of 50% of the dollar volume of the commercial loan portfolio on an annual basis (60% for 2016), 2) review new loans originated for over $1.0 million in the last year, 3) review a majority of borrowers with commitments greater than or equal to $1.0 million,  4) review selected loan relationships over $750,000 which are over 30 days past due or classified Special Mention, Substandard, Doubtful, or Loss, and 5) such other loans which management or the consultant deems appropriate.

The following tables represent credit exposures by internally assigned grades as of September 30, 2017 and December 31, 2016 (in thousands):

September 30, 2017	Pass		Special Mention		Substandard		Doubtful		Loss		Ending Balance
Real estate loans:
Commercial	$	246,405	$	15,069	$	12,150	$	-	$	-	$	273,624
Agricultural		195,469		4,824		6,759		-		-		207,052
Construction		17,074		-		-		-		-		17,074
Other commercial loans		51,341		635		4,165		81		-		56,222
Other agricultural loans		31,791		198		2,077		-		-		34,066
State and political
subdivision loans		88,251		2,891		10,809		-		-		101,951
Total	$	630,331	$	23,617	$	35,960	$	81	$	-	$	689,989

December 31, 2016	Pass		Special Mention		Substandard		Doubtful		Loss		Ending Balance
Real estate loans:
Commercial	$	225,185	$	14,045	$	13,347	$	-	$	-	$	252,577
Agricultural		110,785		8,231		4,608		-		-		123,624
Construction		25,441		-		-		-		-		25,441
Other commercial loans		51,396		2,049		5,105		89		-		58,639
Other agricultural loans		20,178		1,733		1,477		-		-		23,388
State and political
subdivision loans		83,620		13,066		828		-		-		97,514
Total	$	516,605	$	39,124	$	25,365	$	89	$	-	$	581,183

For residential real estate mortgages, home equity and consumer loans, credit quality is monitored based on whether the loan is performing or non-performing, which is typically based on the aging status of the loan and payment activity, unless a specific action, such as bankruptcy, repossession, death or significant delay in payment occurs to raise awareness of a possible credit event. Non-performing loans include those loans that are considered nonaccrual, described in more detail below, and all loans past due 90 or more days and still accruing. The following table presents the recorded investment in those loan classes based on payment activity as of September 30, 2017 and December 31, 2016 (in thousands):

September 30, 2017	Performing		Non-performing		PCI		Total
Real estate loans:
Mortgages	$	147,785	$	1,254	$	34	$	149,073
Home Equity		57,148		168		-		57,316
Consumer		10,683		101		-		10,784
Total	$	215,616	$	1,523	$	34	$	217,173
December 31, 2016	Performing		Non-performing		PCI		Total
Real estate loans:
Mortgages	$	147,047	$	1,648	$	35	$	148,730
Home Equity		58,438		255		-	$	58,693
Consumer		10,892		109		4	$	11,005
Total	$	216,377	$	2,012	$	39	$	218,428

Aging Analysis of Past Due Financing Receivables

Management further monitors the performance and credit quality of the loan portfolio by analyzing the age of the portfolio as determined by the length of time a recorded payment is past due. The following table includes an aging analysis of the recorded investment of past due financing receivables as of September 30, 2017 and December 31, 2016 (in thousands):

													Total		90 Days or
	30-59 Days		60-89 Days		90 Days		Total Past						Financing		Greater and
September 30, 2017	Past Due		Past Due		Or Greater		Due		Current		PCI		Receivables		Accruing
Real estate loans:
Mortgages	$	1,087	$	242	$	612	$	1,941	$	147,098	$	34	$	149,073	$	49
Home Equity		347		33		80		460		56,856		-		57,316		30
Commercial		1,184		211		3,814		5,209		266,399		2,016		273,624		80
Agricultural		-		17		1,165		1,182		205,137		733		207,052		-
Construction		-		-		-		-		17,074		-		17,074		-
Consumer		115		48		100		263		10,521		-		10,784		14
Other commercial loans		230		43		2,634		2,907		52,777		538		56,222		-
Other agricultural loans		187		-		-		187		33,879		-		34,066		-
State and political
subdivision loans		-		-		-		-		101,951		-		101,951		-
Total	$	3,150	$	594	$	8,405	$	12,149	$	891,692	$	3,321	$	907,162	$	173
Loans considered non-accrual	$	317	$	67	$	8,232	$	8,616	$	3,205	$	-	$	11,821
Loans still accruing		2,833		527		173		3,533		888,487		3,321		895,341
Total	$	3,150	$	594	$	8,405	$	12,149	$	891,692	$	3,321	$	907,162
															90 Days or
	30-59 Days		60-89 Days		90 Days		Total Past						Total Financing		Greater and
December 31, 2016	Past Due		Past Due		Or Greater		Due		Current		PCI		Receivables		Accruing
Real estate loans:
Mortgages	$	630	$	36	$	1,109	$	1,775	$	146,920	$	35	$	148,730	$	173
Home Equity		384		49		209		642		58,051		-		58,693		160
Commercial		1,757		58		4,302		6,117		244,491		1,969		252,577		-
Agricultural		-		-		1,145		1,145		121,741		738		123,624		-
Construction		-		-		-		-		25,441		-		25,441		-
Consumer		115		40		83		238		10,763		4		11,005		67
Other commercial loans		95		35		4,004		4,134		53,884		621		58,639		-
Other agricultural loans		43		34		5		82		23,306		-		23,388		5
State and political
subdivision loans		-		-		-		-		97,514		-		97,514		-
Total	$	3,024	$	252	$	10,857	$	14,133	$	782,111	$	3,367	$	799,611	$	405
Loans considered non-accrual	$	172	$	105	$	10,452	$	10,729	$	725	$	-	$	11,454
Loans still accruing		2,852		147		405		3,404		781,386		3,367		788,157
Total	$	3,024	$	252	$	10,857	$	14,133	$	782,111	$	3,367	$	799,611

Nonaccrual Loans

Loans are considered for non-accrual status upon reaching 90 days delinquency, although the Company may be receiving partial payments of interest and partial repayments of principal on such loans or if full payment of principal and interest is not expected. Additionally, if management is made aware of other information including bankruptcy, repossession, death, or legal proceedings, the loan may be placed on non-accrual status. If a loan is 90 days or more past due and is well secured and in the process of collection, it may still be considered accruing.

The following table reflects the financing receivables, excluding PCI loans, on non-accrual status as of September 30, 2017 and December 31, 2016, respectively. The balances are presented by class of financing receivable (in thousands):

	September 30, 2017		December 31, 2016
Real estate loans:
Mortgages	$	1,205	$	1,475
Home Equity		138		95
Commercial		5,262		4,445
Agricultural		1,464		1,340
Construction		-		-
Consumer		88		42
Other commercial loans		3,008		4,057
Other agricultural loans		656		-
State and political subdivision		-		-
	$	11,821	$	11,454

Troubled Debt Restructurings

In situations where, for economic or legal reasons related to a borrower's financial difficulties, management may grant a concession for other than an insignificant period of time to the borrower that would not otherwise be considered, the related loan is classified as a Troubled Debt Restructuring (TDR). Management strives to identify borrowers in financial difficulty early and work with them to structure more affordable terms before their loan reaches nonaccrual status. These restructured terms may include rate reductions, principal forgiveness, payment forbearance and other actions intended to minimize the economic loss and to avoid foreclosure or repossession of the collateral. In cases where borrowers are granted new terms that provide for a reduction of interest or principal, or both, management measures any impairment on the restructuring by calculating the present value of the revised loan terms and comparing this balance to the Company's investment in the loan prior to the restructuring. As these loans are individually evaluated, they are excluded from pooled portfolios when calculating the allowance for loan and lease losses and a separate allocation within the allowance for loan and lease losses is provided. Management continually evaluates loans that are considered TDRs, including payment history under the modified loan terms, the borrower's ability to continue to repay the loan based on continued evaluation of their operating results and cash flows from operations.  Based on this evaluation management would no longer consider a loan to be a TDR when the relevant facts support such a conclusion. As of September 30, 2017 and December 31, 2016, included within the allowance for loan losses are reserves of $85,000 and $29,000 respectively, that are associated with loans modified as TDRs.

Loan modifications that are considered TDRs completed during the three and nine months ended September 30, 2017 and 2016 were as follows (dollars in thousands):

	For the Three Months Ended September 30, 2017
	Number of contracts				Pre-modification Outstanding Recorded Investment				Post-Modification Outstanding Recorded Investment
	Interest Modification		Term Modification		Interest Modification		Term Modification		Interest Modification		Term Modification
Real estate loans:
Agricultural		-		2	$	-	$	150	$	-	$	150
Other agricultural loans		-		1		-		161		-		161
Total		-		3	$	-	$	311	$	-	$	311

	For the Nine Months Ended September 30, 2017
	Number of contracts				Pre-modification Outstanding Recorded Investment				Post-Modification Outstanding Recorded Investment
	Interest Modification		Term Modification		Interest Modification		Term  Modification		Interest Modification		Term Modification
Real estate loans:
Commercial		-		7	$	-	$	6,797	$	-	$	6,797
Agricultural		-		2		-		150		-		150
Other agricultural loans		-		1		-		161		-		161
Total		-		10	$	-	$	7,108	$	-	$	7,108

	For the Three Months Ended September 30, 2016
	Number of contracts				Pre-modification Outstanding Recorded Investment				Post-Modification Outstanding Recorded Investment
	Interest Modification		Term  Modification		Interest Modification		Term Modification		Interest Modification		Term Modification
Real estate loans:
Commercial		-		1	$	-	$	750	$	-	$	750
Other commercial loans		-		3		-		3,076		-		3,076
Total		-		4	$	-	$	3,826	$	-	$	3,826

	For the Nine Months Ended September 30, 2016
	Number of contracts				Pre-modification Outstanding Recorded Investment				Post-Modification Outstanding Recorded Investment
	Interest Modification		Term Modification		Interest Modification		Term Modification		Interest Modification		Term  Modification
Real estate loans:
Commercial		-		4	$	-	$	1,188	$	-	$	1,188
Other commercial loans		-		3		-		3,076		-		3,076
Total		-		7	$	-	$	4,264	$	-	$	4,264

Recidivism, or the borrower defaulting on its obligation pursuant to a modified loan, results in the loan once again becoming a non-accrual loan. Recidivism on modified loans occurs at a notably higher rate than do defaults on new origination loans, so modified loans present a higher risk of loss than do new origination loans. There were no loans that were modified as TDRs during each 12-month period prior to the current reporting periods, which began January 1, 2017 and 2016 (nine month periods) and June 1, 2017 and 2016 (3 month periods), respectively, that subsequently defaulted during these reporting periods.

Allowance for Loan Losses

The following table segregates the allowance for loan losses (ALLL) into the amount required for loans individually evaluated for impairment and the amount required for loans collectively evaluated for impairment as of September 30, 2017 and December 31, 2016, respectively (in thousands):

	September 30, 2017						December 31, 2016
	Individually evaluated for impairment		Collectively evaluated for impairment		Total		Individually  evaluated for  impairment		Collectively  evaluated for  impairment		Total
Real estate loans:
Residential	$	26	$	1,054	$	1,080	$	32	$	1,032	$	1,064
Commercial		67		3,515		3,582		45		3,544		3,589
Agricultural		99		2,595		2,694		54		1,440		1,494
Construction		-		31		31		-		47		47
Consumer		2		135		137		-		122		122
Other commercial loans		208		904		1,112		326		1,001		1,327
Other agricultural loans		40		422		462		30		282		312
State and political
subdivision loans		-		874		874		-		833		833
Unallocated		-		475		475		-		98		98
Total	$	442	$	10,005	$	10,447	$	487	$	8,399	$	8,886

The following tables roll forward the balance of the ALLL by portfolio segment for the three and nine month periods ended September 30, 2017 and 2016, respectively (in thousands):

	Balance at June 30, 2017		Charge-offs			Recoveries		Provision			Balance at September 30, 2017
Real estate loans:
Residential	$	1,104	$	(11	)	$	-	$	(13	)	$	1,080
Commercial		3,541		-			5		36			3,582
Agricultural		2,452		-			-		242			2,694
Construction		45		-			-		(14	)		31
Consumer		125		(45	)		13		44			137
Other commercial loans		1,131		-			5		(24	)		1,112
Other agricultural loans		431		-			1		30			462
State and political subdivision loans		838		-			-		36			874
Unallocated		312		-			-		163			475
Total	$	9,979	$	(56	)	$	24	$	500		$	10,447
	Balance at June 30, 2016		Charge-offs			Recoveries		Provision			Balance at September 30, 2016
Real estate loans:
Residential	$	990	$	(9	)	$	-	$	32		$	1,013
Commercial		3,338		(100	)		467		(90	)		3,615
Agricultural		581							410			991
Construction		18		-			-		16			34
Consumer		104		(27	)		16		16			109
Other commercial loans		1,316		(37	)		25		39			1,343
Other agricultural loans		248							51			299
State and political subdivision loans		764		-			-		7			771
Unallocated		-		-			-		19			19
Total	$	7,359	$	(173	)	$	508	$	500		$	8,194
	Balance at December 31, 2016		Charge-offs			Recoveries		Provision			Balance at September 30, 2017
Real estate loans:
Residential	$	1,064	$	(104	)	$	-	$	120		$	1,080
Commercial		3,589		(41	)		11		23			3,582
Agricultural		1,494		-			-		1,200			2,694
Construction		47		-			-		(16	)		31
Consumer		122		(90	)		35		70			137
Other commercial loans		1,327		-			14		(229	)		1,112
Other agricultural loans		312		(5	)		1		154			462
State and political subdivision loans		833		-			-		41			874
Unallocated		98		-			-		377			475
Total	$	8,886	$	(240	)	$	61	$	1,740		$	10,447
	Balance at December 31, 2015		Charge-offs			Recoveries		Provision			Balance at September 30, 2016
Real estate loans:
Residential	$	905	$	(52	)	$	-	$	160		$	1,013
Commercial		3,376		(100	)		475		(136	)		3,615
Agricultural		409		-					582			991
Construction		24		-			-		10			34
Consumer		102		(65	)		84		(12	)		109
Other commercial loans		1,183		(55	)		31		184			1,343
Other agricultural loans		122							177			299
State and political subdivision loans		593		-			-		178			771
Unallocated		392		-			-		(373	)		19
Total	$	7,106	$	(272	)	$	590	$	770		$	8,194

The Company allocates the ALLL based on the factors described below, which conform to the Company's loan classification policy and credit quality measurements. In reviewing risk within the Company's loan portfolio, management has determined there to be several different risk categories within the loan portfolio. The ALLL consists of amounts applicable to: (i) residential real estate loans; (ii) residential real estate home equity loans; (iii) commercial real estate loans; (iv) agricultural real estate loans; (v) real estate construction loans; (vi) other commercial and agricultural loans; (vii) consumer loans; (viii) other agricultural loans and (ix) state and political subdivision loans. Factors considered in this process include general loan terms, collateral, and availability of historical data to support the analysis. Historical loss percentages are calculated and used as the basis for calculating allowance allocations. Certain qualitative factors are evaluated to determine additional inherent risks in the loan portfolio, which are not necessarily reflected in the historical loss percentages. These factors are then added to the historical allocation percentage to get the adjusted factor to be applied to non-classified loans. The following qualitative factors are analyzed:

· Level of and trends in delinquencies and impaired/classified loans

§ Change in volume and severity of past due loans

§ Volume of non-accrual loans

§ Volume and severity of classified, adversely or graded loans;

· Level of and trends in charge-offs and recoveries;

· Trends in volume, terms and nature of the loan portfolio;

· Effects of any changes in risk selection and underwriting standards and any other changes in lending and recovery policies, procedures and practices;

· Changes in the quality of the Company's loan review system;

· Experience, ability and depth of lending management and other relevant staff;

· National, state, regional and local economic trends and business conditions

§ General economic conditions

§ Unemployment rates

§ Inflation rate/ Consumer Price Index

§ Changes in values of underlying collateral for collateral-dependent loans;

· Industry conditions including the effects of external factors such as competition, legal, and regulatory requirements on the level of estimated credit losses;

· Existence and effect of any credit concentrations, and changes in the level of such concentrations; and

· Any change in the level of board oversight.

The Company analyzes its loan portfolio each quarter to determine the adequacy of its ALLL.

Loans determined to be TDRs are impaired and for purposes of estimating the ALLL must be individually evaluated for impairment. In calculating the impairment, the Company calculates the present value utilizing an analysis of discounted cash flows. If the present value calculated is below the recorded investment of the loan, impairment is recognized by a charge to the provision for loan and lease losses and a credit to the ALLL.

For the three months ended September 30, 2017, the allowance for residential real estate increased in general reserves for pooled loans as a result of increased loss rates reflected in the charge-offs for the three month period, as well as higher loan balances. The increase was offset by a decrease in the specific reserve for individually evaluated residential loans. This was represented as a decrease to the provision.  The allowance for commercial real estate was increased in general reserves due to growth in the commercial real estate loan portfolio, which was represented as an increase in the provision. The allowance for agricultural real estate loans was increased in general reserves as a result of higher loan balances. The result of this growth was represented as an increase in the provision. The allowance for other commercial loans was reduced as a result of a decrease in the historical loss factor in the portfolio segment and decrease in specific reserves. This was represented by a decrease to the provision.  The allowance for other agricultural loans was increased in general reserves as a result of higher loan balances. It was also impacted by an increase in specific reserves during the quarter. The result of these changes was represented as an increase in the provision.

For the nine months ended September 30, 2017, the allowance for residential real estate increased in general reserves as a result of increased loss rates reflected in the charge-offs for the nine month period. This was represented as an increase to the provision.  The allowance for agricultural real estate loans was increased in general reserves as a result of higher loan balances as well as an increase in specific reserves. It was also impacted by the classified loan trend in the agricultural real estate portfolio. The result of these changes was represented as an increase in the provision. The allowance for other commercial loans was reduced as a result of lower loan balances, an improvement in the amount of classified loans and a reduction in the historical loss factor. This was represented by a decrease to the provision.  The allowance for other agricultural loans was increased in general reserves as a result of higher loan balances. It was also impacted by the classified loan trend in the other agricultural loan portfolio. The result of these changes was represented as an increase in the provision.

For the three months ended September 30, 2016, the allowance for commercial real estate was increased in general reserves due to the increase in the amount of classified loans. Offsetting this increase was the recovery of a previously charged-off amount during the quarter. This resulted in a decrease in the provision. The allowance for agricultural real estate loans was increased in general reserves as a result of higher loan balances. It was also impacted by the classified loan trend in the agricultural real estate portfolio. The result of these changes was represented as an increase in the provision. The allowance for other commercial loans was increased as a result of higher loan balances and an increase in the historical loss factor. This was represented by an increase to the provision.  The allowance for other agricultural loans was increased in general reserves as a result of higher loan balances. It was also impacted by the classified loan trend in the other agricultural loan portfolio. The result of these changes was represented as an increase in the provision.

For the nine months ended September 30, 2016, the allowance for agricultural real estate loans was increased in general reserves as a result of higher loan balances. It was also impacted by the classified loan trend in the agricultural real estate portfolio and the general industry conditions. The result of these changes was represented as an increase in the provision. The allowance for other commercial loans was increased as a result of the increase in the amount of classified loans and an increase in the specific reserves. This was represented by an increase to the provision. The allowance for other agricultural loans was increased in general reserves as a result of higher loan balances. It was also impacted by the classified loan trend in the other agricultural loan portfolio and in the general industry conditions. The result of these changes was represented as an increase in the provision. The allowance for state and political loans was increased for general reserves due to an increase in special mention loans during the period. This was represented as an increase in the provision. The allowance for commercial real estate was increased due to a recovery that occurred in the third quarter of 2016. As a result of the recovery, a negative provision was recorded.

Foreclosed Assets Held For Sale

Foreclosed assets acquired in settlement of loans are carried at fair value, less estimated costs to sell, and are included in other assets on the Consolidated Balance Sheet. As of September 30, 2017 and December 31, 2016, included with other assets are $1,570,000 and $1,036,000, respectively, of foreclosed assets. As of September 30, 2017, included within the foreclosed assets are $644,000 of consumer residential mortgages that were foreclosed on or received via a deed in lieu transaction prior to the period end. As of September 30, 2017, the Company has initiated formal foreclosure proceedings on $1,377,000 of consumer residential mortgages, which have not yet been transferred into foreclosed assets.

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Goodwill and Other Intangible Assets

9 Months Ended

Sep. 30, 2017

Goodwill and Other Intangible Assets [Abstract]

Goodwill and Other Intangible Assets

Note 6 – Goodwill and Other Intangible Assets

The following table provides the gross carrying value and accumulated amortization of intangible assets as of September 30, 2017 and December 31, 2016 (in thousands):

	September 30, 2017							December 31, 2016
	Gross carrying value		Accumulated amortization			Net carrying value		Gross carrying value		Accumulated amortization			Net carrying value
Amortized intangible assets (1):
MSRs	$	1,604	$	(921	)	$	683	$	1,471	$	(787	)	$	684
Core deposit intangibles		1,641		(520	)		1,121		1,641		(320	)		1,321
Covenant not to compete		125		(57	)		68		125		(34	)		91
Total amortized intangible assets	$	3,370	$	(1,498	)	$	1,872	$	3,237	$	(1,141	)	$	2,096
Unamortized intangible assets:
Goodwill	$	21,089						$	21,089
(1) Excludes fully amortized intangible assets

The following table provides the current year and estimated future amortization expense for amortized intangible assets. We based our projections of amortization expense shown below on existing asset balances at September 30, 2017. Future amortization expense may vary from these projections (in thousands):

	MSRs		Core deposit intangibles		Covenant not to compete		Total
Three months ended September 30, 2017 (actual)	$	44	$	66	$	8	$	118
Nine months ended September 30, 2017 (actual)	$	134	$	200	$	23	$	357
Three months September 30, 2016 (actual)	$	42	$	74	$	8	$	124
Nine months September 30, 2016 (actual)	$	132	$	222	$	24	$	378
Estimate for year ended December 31,
Remaining 2017		49		65		8		122
2018		138		236		30		404
2019		134		206		30		370
2020		103		177		-		280
2021		78		147		-		225

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Federal Home Loan Bank Stock

9 Months Ended

Sep. 30, 2017

Federal Home Loan Bank Stock [Abstract]

Federal Home Loan Bank Stock

Note 7 – Federal Home Loan Bank Stock

The Bank is a member of the FHLB of Pittsburgh and, as such, is required to maintain a minimum investment in stock of the FHLB that varies with the level of advances outstanding with the FHLB. As of September 30, 2017 and December 31, 2016, the Bank's investment in FHLB stock was $4,120,200 and $4,542,000, respectively. The stock does not have a readily determinable fair value and, as such, is classified as restricted stock, carried at cost and evaluated by management for impairment.  The stock's value is determined by the ultimate recoverability of the par value rather than by recognizing temporary declines. The determination of whether the par value will ultimately be recovered is influenced by criteria such as the following: (a) a significant decline in net assets of the FHLB as compared to the capital stock amount and the length of time this situation has persisted (b) commitments by the FHLB to make payments required by law or regulation and the level of such payments in relation to the operating performance (c) the impact of legislative and regulatory changes on the customer base of the FHLB and (d) the liquidity position of the FHLB. Management evaluated the stock and concluded that the stock was not impaired for the periods presented herein.  Management considered that the FHLB's regulatory capital ratios are sufficient, liquidity appears adequate, new shares of FHLB stock continue to exchange hands at the $100 par value and the FHLB has repurchased shares of excess capital stock from its members and has paid a quarterly cash dividend.

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Repurchase Agreements

9 Months Ended

Sep. 30, 2017

Repurchase Agreements [Abstract]

Repurchase Agreements

Note 8 – Repurchase Agreements

We utilize securities sold under agreements to repurchase to facilitate the needs of our customers and to facilitate secured short-term funding needs. Securities sold under agreements to repurchase are stated at the amount of cash received in connection with the transaction. We monitor collateral levels on a continuous basis. We may be required to provide additional collateral based on the fair value of the underlying securities. Securities pledged as collateral under repurchase agreements are maintained with our safekeeping agents.

The value of the collateral segmented by the remaining contractual maturity of the repurchase agreements in the Consolidated Balance Sheets as of September 30 2017 and December 31, 2016 is presented in the following tables (in thousands):

	Remaining Contractual Maturity of the Agreements
	Overnight and		Up to				Greater than
September 30, 2017	Continuous		30 Days		30 - 90 Days		90 days		Total
Repurchase Agreements:
U.S. agency securities	$	18,153	$	-	$	-	$	2,061	$	20,214
Total carrying value of collateral pledged	$	18,153	$	-	$	-	$	2,061	$	20,214
Total liability recognized for repurchase agreements									$	16,643
	Remaining Contractual Maturity of the Agreements
	Overnight and		Up to				Greater than
December 31, 2016	Continuous		30 Days		30 - 90 Days		90 days		Total
Repurchase Agreements:
U.S. agency securities	$	16,118	$	-	$	-	$	2,059	$	18,177
Total carrying value of collateral pledged	$	16,118	$	-	$	-	$	2,059	$	18,177
Total liability recognized for repurchase agreements									$	14,307

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Employee Benefit Plans

9 Months Ended

Sep. 30, 2017

Employee Benefit Plans [Abstract]

Employee Benefit Plans

Note 9 - Employee Benefit Plans

For additional detailed disclosure on the Company's pension and employee benefits plans, please refer to Note 11 of the Company's Consolidated Financial Statements included in the 2016 Annual Report on Form 10-K.

Noncontributory Defined Benefit Pension Plan

The Bank sponsors a trusteed noncontributory defined benefit pension plan ("Pension Plan") covering substantially all employees and officers hired prior to January 1, 2007.Additionally, the Bank assumed the noncontributory defined benefit pension plan of FNB when it was acquired. The FNB plan was frozen prior to the acquisition and therefore, no additional benefits will accrue for employees covered under that plan. These two plans are collectively referred to herein as "the Plans." The Bank's funding policy is to make annual contributions, if needed, based upon the funding formula developed by the plans' actuary. Any employee with a hire date of January 1, 2007 or later is not eligible to participate in the Pension Plan.

In lieu of the Pension Plan, employees with a hire date of January 1, 2007 or later are eligible to receive, after meeting certain length of service requirements, an annual discretionary 401(k) plan contribution from the Bank equal to a percentage of an employee's base compensation.  The contribution amount, if any, is placed in a separate account within the 401(k) plan and is subject to a vesting requirement.

For employees who are eligible to participate in the Pension Plan, the Pension Plan requires benefits to be paid to eligible employees based primarily upon age and compensation rates during employment.  Upon retirement or other termination of employment, employees can elect either an annuity benefit or a lump sum distribution of vested benefits in the Pension Plan.

The following sets forth the components of net periodic benefit costs of the Pension Plan for the three and nine months ended September 30, 2017 and 2016, respectively (in thousands):

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2017			2016			2017			2016
Service cost	$	87		$	90		$	262		$	269
Interest cost		168			172			503			517
Expected return on plan assets		(274	)		(260	)		(821	)		(780	)
Net amortization and deferral		56			61			168			182
Net periodic benefit cost	$	37		$	63		$	112		$	188

The Bank expects to contribute $400,000 to the Pension Plans in 2017.

Defined Contribution Plan

The Company sponsors a voluntary 401(k) savings plan which eligible employees can elect to contribute up to the maximum amount allowable not to exceed the limits of IRS Code Sections 401(k).  Under the plan, the Company also makes required contributions on behalf of the eligible employees.  Contributions by the Company totaled $303,000 and $269,000 for the nine months ended September 30, 2017 and 2016, respectively. For the three months ended September 30, 2017 and 2016, contributions by the Company totaled $96,000 and $89,000, respectively.

Directors' Deferred Compensation Plan

The Company's directors may elect to defer all or portions of their fees until their retirement or termination from service.  Amounts deferred under the plan earn interest based upon the highest current rate offered to certificate of deposit customers.  Amounts deferred under the plan are not guaranteed and represent a general liability of the Company.  At September 30, 2017 and December 31, 2016, an obligation of $921,000 and $940,000, respectively, was included in other liabilities for this plan in the Consolidated Balance Sheet. Amounts included in interest expense on the deferred amounts totaled $5,000 and $3,000 for three months ended September 30, 2017 and 2016, respectively. For the nine months ended September 30, 2017 and 2016, amounts included in interest expense on the deferred amounts totaled $14,000 and $11,000, respectively.

Restricted Stock Plan

The Company maintains a Restricted Stock Plan (the "Plan") whereby employees and non-employee corporate directors are eligible to receive awards of restricted stock based upon performance related requirements.  Awards granted under the Plan are in the form of the Company's common stock and are subject to certain vesting requirements including continuous employment or service with the Company.  In April of 2016, the Company's shareholders authorized a total of 150,000 shares of the Company's common stock to be made available under the Plan. As of September 30, 2017, 141,678 shares remain available to be issued under the Plan.  The Plan assists the Company in attracting, retaining and motivating employees to make substantial contributions to the success of the Company and to increase the emphasis on the use of equity as a key component of compensation.

The following table details the vesting, awarding and forfeiting of restricted shares during the three and nine month periods ended September 30, 2017:

	Three months				Nine months
			Weighted					Weighted
	Unvested		Average		Unvested			Average
	Shares		Market Price		Shares			Market Price
Outstanding, beginning of period		9,169	$	50.66		8,471		$	49.10
Granted		-		-		4,212			53.38
Forfeited		-		-		(43	)		(48.56	)
Vested		-		-		(3,471	)		(50.19	)
Outstanding, end of period		9,169	$	50.66		9,169		$	50.66

Compensation cost related to restricted stock is recognized, based on the market price of the stock at the grant date, over the vesting period. Compensation expense related to restricted stock was $158,000 and $142,000 for the nine months ended September 30, 2017 and 2016, respectively. For the three months ended September 30, 2017 and 2016, compensation expense totaled $54,000 and $50,000, respectively. At September 30, 2017, the total compensation cost related to nonvested awards that has not yet been recognized was $464,000, which is expected to be recognized over the next three years.

Supplemental Executive Retirement Plan

The Company maintains a non-qualified supplemental executive retirement plan ("SERP") for certain executives to compensate those executive participants in the Company's noncontributory defined benefit pension plan whose benefits are limited by compensation limitations under current tax law. At September 30, 2017 and December 31, 2016, an obligation of $1,544,000 and $1,460,000, respectively, was included in other liabilities for this plan in the Consolidated Balance Sheet. Expenses related to this plan totaled $84,000 and $91,000 for the nine months ended September 30, 2017 and 2016, respectively. For the three months ended September 30, 2017 and 2016, expenses totaled $28,000 and $30,000, respectively.

Salary Continuation Plan

The Company maintains a salary continuation plan for certain employees retained through the acquisition of FNB or that were formerly employed by FNB.  At September 30, 2017 and December 31 2016, an obligation of $720,000 was included in other liabilities for this plan in the Consolidated Balance Sheet.  Expenses related to this plan totaled $13,000 and $17,000 for the three months ended September 30, 2017 and 2016, respectively. For the nine months ended September 30, 2017 and 2016, expenses related to this plan totaled $40,000 and $49,000, respectively.

Continuation of Life Insurance Plan

The Company, as part of the acquisition of FNB, has promised a continuation of certain split-dollar life insurance policies that provide coverage to certain persons post-retirement. U.S. generally accepted accounting principles require the recording of post-retirement costs and a liability equal to the present value of the cost of post-retirement insurance during the person's term of service. The estimated present value of future benefits to be paid totaled $576,000 and $569,000 as of September 30, 2017 and December 31, 2016, respectively, which is included in other liabilities in the Consolidated Balance Sheet.

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Accumulated Comprehensive Income (Loss)

9 Months Ended

Sep. 30, 2017

Accumulated Comprehensive Income (Loss) [Abstract]

Accumulated Comprehensive Income (Loss)

Note 10 – Accumulated Comprehensive Income (Loss)

The following tables present the changes in accumulated other comprehensive income (loss) by component net of tax for the three and nine months ended September 30, 2017 and 2016 (in thousands):

	Three months ended September 30, 2017
	Unrealized gain (loss) on available for sale securities (a)			Defined Benefit Pension Items (a)			Total
Balance as of June 30, 2017	$	1,655		$	(2,624	)	$	(969	)
Other comprehensive loss before reclassifications (net of tax)		(190	)		-			(190	)
Amounts reclassified from accumulated other
comprehensive income (loss) (net of tax)		(6	)		37			31
Net current period other comprehensive income (loss)		(196	)		37			(159	)
Balance as of September 30, 2017	$	1,459		$	(2,587	)	$	(1,128	)

	Nine months ended September 30, 2017
	Unrealized gain (loss) on available for sale securities (a)			Defined Benefit Pension Items (a)			Total
Balance as of December 31, 2016	$	1,306		$	(2,698	)	$	(1,392	)
Other comprehensive income before reclassifications (net of tax)		288			-			288
Amounts reclassified from accumulated other
comprehensive income (loss) (net of tax)		(135	)		111			(24	)
Net current period other comprehensive income		153			111			264
Balance as of September 30, 2017	$	1,459		$	(2,587	)	$	(1,128	)

	Three months ended September 30, 2016
	Unrealized gain (loss) on available for sale securities (a)			Defined Benefit Pension Items (a)			Total
Balance as of June 30, 2016	$	4,403		$	(2,361	)	$	2,042
Other comprehensive loss before reclassifications (net of tax)		(692	)		-			(692	)
Amounts reclassified from accumulated other
comprehensive income  (net of tax)		-			40			40
Net current period other comprehensive income (loss)		(692	)		40			(652	)
Balance as of September 30, 2016	$	3,711		$	(2,321	)	$	1,390

	Nine months ended September 30, 2016
	Unrealized gain (loss) on available for sale securities (a)			Defined Benefit Pension Items (a)			Total
Balance as of December 31, 2015	$	2,204		$	(2,440	)	$	(236	)
Other comprehensive income before reclassifications (net of tax)		1,609			-			1,609
Amounts reclassified from accumulated other
comprehensive income (loss) (net of tax)		(102	)		119			17
Net current period other comprehensive income		1,507			119			1,626
Balance as of September 30, 2016	$	3,711		$	(2,321	)	$	1,390

The following table presents the significant amounts reclassified out of each component of accumulated other comprehensive income for the three and nine months ended September 30, 2017 and 2016 (in thousands):

Details about accumulated other comprehensive income (loss)	Amount reclassified from accumulated comprehensive income (loss)						Affected line item in the Consolidated Statement of Income
	Three Months Ended September 30,
	2017			2016
Unrealized gains and losses on available for sale securities
	$	9		$	-		Investment securities gains, net
		(3	)		-		Provision for income taxes
	$	6		$	-
Defined benefit pension items
	$	(56	)	$	(61	)	Salaries and employee benefits
		19			21		Provision for income taxes
	$	(37	)	$	(40	)
Total reclassifications	$	(31	)	$	(40	)
	Nine Months Ended September 30,
		2017			2016
Unrealized gains and losses on available for sale securities
	$	204		$	155		Investment securities gains, net
		(69	)		(53	)	Provision for income taxes
	$	135		$	102
Defined benefit pension items
	$	(168	)	$	(181	)	Salaries and employee benefits
		57			62		Provision for income taxes
	$	(111	)	$	(119	)
Total reclassifications	$	24		$	(17	)

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Fair Value Measurements

9 Months Ended

Sep. 30, 2017

Fair Value Measurements [Abstract]

Fair Value Measurements

Note 11 – Fair Value Measurements

The Company has established a hierarchal disclosure framework associated with the level of pricing observability utilized in measuring assets and liabilities at fair value. The three broad levels defined by this hierarchy are as follows:

Level I: Quoted prices are available in active markets for identical assets or liabilities as of the reported date.

Level II:	Pricing inputs are other than quoted prices in active markets, which are either directly or indirectly observable as of the reported date. The nature of these assets and liabilities include items for which quoted prices are available but traded less frequently, and items that are fair valued using other financial instruments, the parameters of which can be directly observed.
Level III:	Assets and liabilities that have little to no pricing observability as of the reported date. These items do not have two-way markets and are measured using management's best estimate of fair value, where the inputs into the determination of fair value require significant management judgment or estimation.

A description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below.

In general, fair value is based upon quoted market prices, where available. If such quoted market prices are not available, fair value is based upon internally developed models that primarily use, as inputs, observable market-based parameters. Valuation adjustments may be made to ensure that financial instruments are recorded at fair value. These adjustments may include amounts to reflect counterparty credit quality, the Company's creditworthiness, among other things, as well as unobservable parameters. Any such valuation adjustments are applied consistently over time. Our valuation methodologies may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. While management believes the Company's valuation methodologies are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date. Transfers between levels of the fair value hierarchy are recognized on the actual date of the event or circumstances that caused the transfer, which generally coincides with the Company's monthly and/or quarterly valuation process.

Financial Instruments Recorded at Fair Value on a Recurring Basis

The fair values of securities available for sale are determined by quoted prices in active markets, when available, and classified as Level I. If quoted market prices are not available, the fair value is determined by a matrix pricing, which is a mathematical technique, widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities' relationship to other benchmark quoted securities and classified as Level II. The fair values consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the bond's terms and conditions, among other things.

The following tables present the assets and liabilities reported on the Consolidated Balance Sheet at their fair value on a recurring basis as of September 30, 2017 and December 31, 2016 by level within the fair value hierarchy (in thousands). Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

September 30, 2017	Level I		Level II		Level III		Total
Fair value measurements on a recurring basis:
Assets
Securities available for sale:
U.S. agency securities	$	-	$	132,551	$	-	$	132,551
Obligations of state and
political subdivisions		-		81,723		-		81,723
Corporate obligations		-		3,101		-		3,101
Mortgage-backed securities in
government sponsored entities		-		44,277		-		44,277
Equity securities in financial institutions		1,936		-		-		1,936

December 31, 2016	Level I		Level II		Level III		Total
Fair value measurements on a recurring basis:
Securities available for sale:
U.S. agency securities	$	-	$	170,414	$	-	$	170,414
U.S. treasury securities		3,000		-		-		3,000
Obligations of state and
political subdivisions		-		96,926		-		96,926
Corporate obligations		-		3,050		-		3,050
Mortgage-backed securities in
government sponsored entities		-		37,728		-		37,728
Equity securities in financial institutions		2,899		-		-		2,899

Financial Instruments, Non-Financial Assets and Non-Financial Liabilities Recorded at Fair Value on a Nonrecurring Basis

The Company may be required, from time to time, to measure certain financial assets, financial liabilities, non-financial assets and non-financial liabilities at fair value on a nonrecurring basis in accordance with U.S. generally accepted accounting principles. These include assets that are measured at the lower of cost or market value that were recognized at fair value below cost at the end of the period. Certain non-financial assets measured at fair value on a non-recurring basis include foreclosed assets (upon initial recognition or subsequent impairment), non-financial assets and non-financial liabilities measured at fair value in the second step of a goodwill impairment test, and intangible assets and other non-financial long-lived assets measured at fair value for impairment assessment. Non-financial assets measured at fair value on a non-recurring basis during 2017 and 2016 include certain foreclosed assets which, upon initial recognition, were remeasured and reported at fair value through a charge-off to the allowance for possible loan losses and certain foreclosed assets which, subsequent to their initial recognition, were remeasured at fair value through a write-down included in other non-interest expense.

Assets measured at fair value on a nonrecurring basis as of September 30, 2017 and December 31, 2016 are included in the table below (in thousands):

September 30, 2017	Level I		Level II		Level III		Total
Impaired Loans	$	-	$	-	$	3,024	$	3,024
Other real estate owned		-		-		1,478		1,478
December 31, 2016
Impaired Loans	$	-	$	-	$	2,033	$	2,033
Other real estate owned		-		-		839		839

· Impaired Loans - The Company has measured impairment on impaired loans generally based on the fair value of the loan's collateral.  Fair value is generally determined based upon independent third-party appraisals of the properties. In some cases, management may adjust the appraised value due to the age of the appraisal, changes in market conditions, or observable deterioration of the property since the appraisal was completed.   Additionally, management makes estimates about expected costs to sell the property which are also included in the net realizable value.  If the fair value of the collateral dependent loan is less than the carrying amount of the loan a specific reserve for the loan is made in the allowance for loan losses or a charge-off is taken to reduce the loan to the fair value of the collateral (less estimated selling costs) and the loan is included in the table above as a Level III measurement.  If the fair value of the collateral exceeds the carrying amount of the loan, then the loan is not included in the table above as it is not currently being carried at its fair value. The fair values above excluded estimated selling costs of $246,000 and $188,000 at September 30, 2017 and December 31, 2016, respectively.

· Other Real Estate Owned (OREO) – OREO is carried at the lower of cost or fair value, which is measured at the date of foreclosure.  If the fair value of the collateral exceeds the carrying amount of the loan, no charge-off or adjustment is necessary, the loan is not considered to be carried at fair value, and is therefore not included in the table above. If the fair value of the collateral is less than the carrying amount of the loan, management will charge the loan down to its estimated realizable value. The fair value of OREO is based on the appraised value of the property, which is generally unadjusted by management and is based on comparable sales for similar properties in the same geographic region as the subject property, and is included in the above table as a Level II measurement.  In some cases, management may adjust the appraised value due to the age of the appraisal, changes in market conditions, or observable deterioration of the property since the appraisal was completed.  In these cases, the loans are categorized in the above table as Level III measurement since these adjustments are considered to be unobservable inputs. Income and expenses from operations and further declines in the fair value of the collateral subsequent to foreclosure are included in net expenses from OREO.

The following table provides a listing of the significant unobservable inputs used in the fair value measurement process for items valued utilizing Level III techniques (dollars in thousands).

September 30, 2017	Fair Value		Valuation Technique(s)	Unobservable input	Range		Weighted average
Impaired Loans		$ 3,024	Appraised Collateral Values	Discount for time since appraisal		0-100%		21.22%
				Selling costs		5%-9%		7.13%
				Holding period	0 - 24 months		8.31 months
Other real estate owned		1,478	Appraised Collateral Values	Discount for time since appraisal		12-47%		22.32%

December 31, 2016	Fair Value		Valuation Technique(s)	Unobservable input	Range		Weighted average
Impaired Loans		$ 2,033	Appraised Collateral Values	Discount for time since appraisal		0-65%		28.98%
				Selling costs		5%-9%		7.56%
				Holding period	6 - 12 months		11 months
Other real estate owned		839	Appraised Collateral Values	Discount for time since appraisal		10-67%		25.45%

The fair values of the Company's financial instruments are as follows (in thousands):

	Carrying
September 30, 2017	Amount		Fair Value		Level I		Level II		Level III
Financial assets:
Cash and due from banks	$	13,815	$	13,815	$	13,815	$	-	$	-
Interest bearing time deposits with other banks		10,031		10,038		-		-		10,038
Available-for-sale securities		263,588		263,588		1,936		261,652		-
Loans held for sale		1,431		1,431		1,431		-		-
Net loans		896,715		894,706		-		-		894,706
Bank owned life insurance		26,722		26,722		26,722		-		-
Regulatory stock		4,884		4,884		4,884		-		-
Accrued interest receivable		3,786		3,786		3,786		-		-
Financial liabilities:
Deposits	$	1,052,105	$	1,050,362	$	792,133	$	-	$	258,229
Borrowed funds		73,628		71,965		32,960		-		39,005
Accrued interest payable		731		731		731		-		-

December 31, 2016
Financial assets:
Cash and due from banks	$	17,754	$	17,754	$	17,754	$	-	$	-
Interest bearing time deposits with other banks		6,955		6,960		-		-		6,960
Available-for-sale securities		314,017		314,017		5,899		308,118		-
Loans held for sale		1,827		1,827		1,827		-		-
Net loans		790,725		797,184		-		-		797,184
Bank owned life insurance		26,223		26,223		26,223		-		-
Regulatory stock		5,306		5,306		5,306		-		-
Accrued interest receivable		4,089		4,089		4,089		-		-
Financial liabilities:
Deposits	$	1,005,503	$	1,004,072	$	740,889	$	-	$	263,183
Borrowed funds		79,662		77,425		41,330		-		36,095
Accrued interest payable		720		720		720		-		-

Fair value is determined based on relevant market information and information about the financial instrument.  These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company's entire holdings of a particular financial instrument.  Because no market exists for a significant portion of the Company's financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions can significantly affect the estimates.

Fair values have been determined by the Company using historical data, as generally provided in the Company's regulatory reports, and an estimation methodology suitable for each category of financial instruments. The Company's fair value estimates, methods and assumptions are set forth below for the Company's other financial instruments.

Cash and Cash Equivalents:

The carrying amounts for cash and cash equivalents approximate fair value because they have original maturities of 90 days or less and do not present unanticipated credit concerns.

Accrued Interest Receivable and Payable:

The carrying amounts for accrued interest receivable and payable approximate fair value because they are generally received or paid in 90 days or less and do not present unanticipated credit concerns.

Interest bearing time deposits with other banks:

The fair value of interest bearing time deposits with other banks is based on the discounted value of contractual cash flows. The discount rate is estimated using the rates currently offered for deposits of similar remaining maturities.

Available-For-Sale Securities:

The fair values of securities available for sale are determined by quoted prices in active markets, when available, and classified as Level I. If quoted market prices are not available, the fair value is determined by a matrix pricing, which is a mathematical technique, widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities' relationship to other benchmark quoted securities and classified as Level II. The fair values consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the bond's terms and conditions, among other things.

Loans held-for-sale:

The carrying amount for loans held for sale approximates fair value as the loans are only held for less than a week from origination.

Loans:

Fair values are estimated for portfolios of loans with similar financial characteristics.  The fair value of performing loans has been estimated by discounting expected future cash flows. The discount rate used in these calculations is derived from the Treasury yield curve adjusted for credit quality, operating expense and prepayment option price, and is calculated by discounting scheduled cash flows through the estimated maturity using estimated market discount rates that reflect the credit and interest rate risk inherent in the loan. The estimate of maturity is based on the Company's historical experience with repayments for each loan classification, modified as required by an estimate of the effect of current economic and lending conditions.

Bank Owned Life Insurance:

The carrying value of bank owned life insurance approximates fair value based on applicable redemption provisions.

Regulatory Stock:

The carrying value of regulatory stock approximates fair value based on applicable redemption provisions.

Deposits:

The fair value of deposits with no stated maturity, such as noninterest-bearing demand deposits, savings and NOW accounts, and money market accounts, is equal to the amount payable on demand. The fair value of certificates of deposit is based on the discounted value of contractual cash flows. The discount rate is estimated using the rates currently offered for deposits of similar remaining maturities.

The deposits' fair value estimates do not include the benefit that results from the low-cost funding provided by the deposit liabilities compared to the cost of borrowing funds in the market, commonly referred to as the core deposit intangible.

Borrowed Funds:

Rates available to the Company for borrowed funds with similar terms and remaining maturities are used to estimate the fair value of borrowed funds.

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Recent Accounting Pronouncements

9 Months Ended

Sep. 30, 2017

Recent Accounting Pronouncements [Abstract]

Recent Accounting Pronouncements

Note 12 – Recent Accounting Pronouncements

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (a new revenue recognition standard). The Update's core principle is that a company will recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In addition, this Update specifies the accounting for certain costs to obtain or fulfill a contract with a customer and expands disclosure requirements for revenue recognition. This Update is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. Because the guidance does not apply to revenue associated with financial instruments, including loans and securities,we do not expect the new standard, or any of the amendments, to result in a material change from our current accounting for revenue because the majority of the Company's financial instruments are not within the scope of Topic 606.  However, we do expect that the standard will result in new disclosure requirements, which are currently being evaluated.

In January 2016, the FASB issued ASU 2016-01, Financial Instruments – Overall (Subtopic 825-10):  Recognition and Measurement of Financial Assets and Financial Liabilities.  This Update applies to all entities that hold financial assets or owe financial liabilities and is intended to provide more useful information on the recognition, measurement, presentation, and disclosure of financial instruments.  Among other things, this Update (a) requires equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income; (b) simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment; (c) eliminates the requirement to disclose the fair value of financial instruments measured at amortized cost for entities that are not public business entities; (d) eliminates the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet; (e) requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; (f) requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (that is, securities or loans and receivables) on the balance sheet or the accompanying notes to the financial statements; and (g) clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity's other deferred tax assets.  For public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years.  For all other entities, including not-for-profit entities and employee benefit plans within the scope of Topics 960 through 965 on plan accounting, the amendments in this Update are effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. All entities that are not public business entities may adopt the amendments in this Update earlier as of the fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company is currently evaluating the impact the adoption of the standard will have on the Company's consolidated financial position or results of operations.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842).  The standard requires lessees to recognize the assets and liabilities that arise from leases on the balance sheet.  A lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term.  A short-term lease is defined as one in which (a) the lease term is 12 months or less and (b) there is not an option to purchase the underlying asset that the lessee is reasonably certain to exercise.  For short-term leases, lessees may elect to recognize lease payments over the lease term on a straight-line basis. For public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2018, and interim periods within those years.  For all other entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2019, and for interim periods within fiscal years beginning after December 15, 2020.  The amendments should be applied at the beginning of the earliest period presented using a modified retrospective approach with earlier application permitted as of the beginning of an interim or annual reporting period. The Company is currently assessing the practical expedients it may elect at adoption, but does not anticipate the amendments will have a significant impact to the financial statements. Based on the Company's preliminary analysis of its current portfolio, the impact to the Company's balance sheet is estimated to result in less than a 1% increase in assets and liabilities. The Company also anticipates additional disclosures to be provided at adoption.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments, which changes the impairment model for most financial assets. This Update is intended to improve financial reporting by requiring timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations.  The underlying premise of the Update is that financial assets measured at amortized cost should be presented at the net amount expected to be collected, through an allowance for credit losses that is deducted from the amortized cost basis. The allowance for credit losses should reflect management's current estimate of credit losses that are expected to occur over the remaining life of a financial asset.  The income statement will be effected for the measurement of credit losses for newly recognized financial assets, as well as the expected increases or decreases of expected credit losses that have taken place during the period. ASU 2016-13 is effective for annual and interim periods beginning after December 15, 2019, and early adoption is permitted for annual and interim periods beginning after December 15, 2018. With certain exceptions, transition to the new requirements will be through a cumulative effect adjustment to opening retained earnings as of the beginning of the first reporting period in which the guidance is adopted. We expect to recognize a one-time cumulative effect adjustment to the allowance for loan losses as of the beginning of the first reporting period in which the new standard is effective, but cannot yet determine the magnitude of any such one-time adjustment or the overall impact of the new guidance on the consolidated financial statements.

In January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment. To simplify the subsequent measurement of goodwill, the FASB eliminated Step 2 from the goodwill impairment test.  In computing the implied fair value of goodwill under Step 2, an entity had to perform procedures to determine the fair value at the impairment testing date of its assets and liabilities (including unrecognized assets and liabilities) following the procedure that would be required in determining the fair value of assets acquired and liabilities assumed in a business combination.  Instead, under the amendments in this Update, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting units fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit.  A public business entity that is a U.S. Securities and Exchange Commission ("SEC") filer should adopt the amendments in this Update for its annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. A public business entity that is not an SEC filer should adopt the amendments in this Update for its annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2020.  All other entities, including not-for-profit entities that are adopting the amendments in this Update should do so for their annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2021.

In March 2017, the FASB issued ASU 2017-07, Compensation—Retirement Benefits (Topic 715). The amendments in this Update require that an employer report the service cost component in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period.  The other components of net benefit cost as defined in paragraphs 715-30-35-4 and 715-60-35-9 are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations, if one is presented. If a separate line item or items are used to present the other components of net benefit cost, that line item or items must be appropriately described. If a separate line item or items are not used, the line item or items used in the income statement to present the other components of net benefit cost must be disclosed.

In March 2017, the FASB issued ASU 2017-08, Receivables – Nonrefundable Fees and Other Costs (Subtopic 310-20). The amendments in this Update shorten the amortization period for certain callable debt securities held at a premium. Specifically, the amendments require the premium to be amortized to the earliest call date. The amendments do not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity.  For public business entities, the amendments in this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018.  For all other entities, the amendments are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020.  Early adoption is permitted, including adoption in an interim period.  If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period.  An entity should apply the amendments in this Update on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. Additionally, in the period of adoption, an entity should provide disclosures about a change in accounting principle.  The Company is currently evaluating the impact the adoption of the standard will have on the Company's consolidated financial position or results of operations.

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Basis of Presentation (Policies)

9 Months Ended

Sep. 30, 2017

Basis of Presentation [Abstract]

Basis of Presentation

Citizens Financial Services, Inc. (individually and collectively with its direct and indirect subsidiaries, the "Company") is a Pennsylvania corporation and the holding company of its wholly owned subsidiary, First Citizens Community Bank (the "Bank"), and of the Bank's wholly owned subsidiary, First Citizens Insurance Agency, Inc. ("First Citizens Insurance").

The accompanying consolidated financial statements have been prepared pursuant to rules and regulations of the Securities and Exchange Commission ("SEC") and in conformity with U.S. generally accepted accounting principles.  Because this report is based on an interim period, certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles have been condensed or omitted.  Certain of the prior year amounts have been reclassified to conform with the current year presentation.  Such reclassifications had no effect on net income or stockholders' equity.  All material inter‑company balances and transactions have been eliminated in consolidation.

In the opinion of management of the Company, the accompanying interim financial statements at September 30, 2017 and for the periods ended September 30, 2017 and 2016 include all adjustments, consisting of only normal recurring adjustments, necessary for a fair presentation of the financial condition and the results of operations for the periods. In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet and revenues and expenses for the period. The financial performance reported for the Company for the nine month period ended September 30, 2017 is not necessarily indicative of the results to be expected for the full year.  This information should be read in conjunction with the Company's Annual Report on Form 10-K for the year ended December 31, 2016.

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Recent Accounting Pronouncements (Policies)

9 Months Ended

Sep. 30, 2017

Recent Accounting Pronouncements [Abstract]

Recent Accounting Pronouncements

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (a new revenue recognition standard). The Update's core principle is that a company will recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In addition, this Update specifies the accounting for certain costs to obtain or fulfill a contract with a customer and expands disclosure requirements for revenue recognition. This Update is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. Because the guidance does not apply to revenue associated with financial instruments, including loans and securities,we do not expect the new standard, or any of the amendments, to result in a material change from our current accounting for revenue because the majority of the Company's financial instruments are not within the scope of Topic 606.  However, we do expect that the standard will result in new disclosure requirements, which are currently being evaluated.

In January 2016, the FASB issued ASU 2016-01, Financial Instruments – Overall (Subtopic 825-10):  Recognition and Measurement of Financial Assets and Financial Liabilities.  This Update applies to all entities that hold financial assets or owe financial liabilities and is intended to provide more useful information on the recognition, measurement, presentation, and disclosure of financial instruments.  Among other things, this Update (a) requires equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income; (b) simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment; (c) eliminates the requirement to disclose the fair value of financial instruments measured at amortized cost for entities that are not public business entities; (d) eliminates the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet; (e) requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; (f) requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (that is, securities or loans and receivables) on the balance sheet or the accompanying notes to the financial statements; and (g) clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity's other deferred tax assets.  For public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years.  For all other entities, including not-for-profit entities and employee benefit plans within the scope of Topics 960 through 965 on plan accounting, the amendments in this Update are effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. All entities that are not public business entities may adopt the amendments in this Update earlier as of the fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company is currently evaluating the impact the adoption of the standard will have on the Company's consolidated financial position or results of operations.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842).  The standard requires lessees to recognize the assets and liabilities that arise from leases on the balance sheet.  A lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term.  A short-term lease is defined as one in which (a) the lease term is 12 months or less and (b) there is not an option to purchase the underlying asset that the lessee is reasonably certain to exercise.  For short-term leases, lessees may elect to recognize lease payments over the lease term on a straight-line basis. For public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2018, and interim periods within those years.  For all other entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2019, and for interim periods within fiscal years beginning after December 15, 2020.  The amendments should be applied at the beginning of the earliest period presented using a modified retrospective approach with earlier application permitted as of the beginning of an interim or annual reporting period. The Company is currently assessing the practical expedients it may elect at adoption, but does not anticipate the amendments will have a significant impact to the financial statements. Based on the Company's preliminary analysis of its current portfolio, the impact to the Company's balance sheet is estimated to result in less than a 1% increase in assets and liabilities. The Company also anticipates additional disclosures to be provided at adoption.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments, which changes the impairment model for most financial assets. This Update is intended to improve financial reporting by requiring timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations.  The underlying premise of the Update is that financial assets measured at amortized cost should be presented at the net amount expected to be collected, through an allowance for credit losses that is deducted from the amortized cost basis. The allowance for credit losses should reflect management's current estimate of credit losses that are expected to occur over the remaining life of a financial asset.  The income statement will be effected for the measurement of credit losses for newly recognized financial assets, as well as the expected increases or decreases of expected credit losses that have taken place during the period. ASU 2016-13 is effective for annual and interim periods beginning after December 15, 2019, and early adoption is permitted for annual and interim periods beginning after December 15, 2018. With certain exceptions, transition to the new requirements will be through a cumulative effect adjustment to opening retained earnings as of the beginning of the first reporting period in which the guidance is adopted. We expect to recognize a one-time cumulative effect adjustment to the allowance for loan losses as of the beginning of the first reporting period in which the new standard is effective, but cannot yet determine the magnitude of any such one-time adjustment or the overall impact of the new guidance on the consolidated financial statements.

In January 2017, the FASB issued ASU 2017-04, Simplifying the Test for Goodwill Impairment. To simplify the subsequent measurement of goodwill, the FASB eliminated Step 2 from the goodwill impairment test.  In computing the implied fair value of goodwill under Step 2, an entity had to perform procedures to determine the fair value at the impairment testing date of its assets and liabilities (including unrecognized assets and liabilities) following the procedure that would be required in determining the fair value of assets acquired and liabilities assumed in a business combination.  Instead, under the amendments in this Update, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting units fair value; however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting unit.  A public business entity that is a U.S. Securities and Exchange Commission ("SEC") filer should adopt the amendments in this Update for its annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019. A public business entity that is not an SEC filer should adopt the amendments in this Update for its annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2020.  All other entities, including not-for-profit entities that are adopting the amendments in this Update should do so for their annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2021.

In March 2017, the FASB issued ASU 2017-07, Compensation—Retirement Benefits (Topic 715). The amendments in this Update require that an employer report the service cost component in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period.  The other components of net benefit cost as defined in paragraphs 715-30-35-4 and 715-60-35-9 are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations, if one is presented. If a separate line item or items are used to present the other components of net benefit cost, that line item or items must be appropriately described. If a separate line item or items are not used, the line item or items used in the income statement to present the other components of net benefit cost must be disclosed.

In March 2017, the FASB issued ASU 2017-08, Receivables – Nonrefundable Fees and Other Costs (Subtopic 310-20). The amendments in this Update shorten the amortization period for certain callable debt securities held at a premium. Specifically, the amendments require the premium to be amortized to the earliest call date. The amendments do not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity.  For public business entities, the amendments in this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018.  For all other entities, the amendments are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020.  Early adoption is permitted, including adoption in an interim period.  If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period.  An entity should apply the amendments in this Update on a modified retrospective basis through a cumulative-effect adjustment directly to retained earnings as of the beginning of the period of adoption. Additionally, in the period of adoption, an entity should provide disclosures about a change in accounting principle.  The Company is currently evaluating the impact the adoption of the standard will have on the Company's consolidated financial position or results of operations.

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Earnings per Share (Tables)

9 Months Ended

Sep. 30, 2017

Earnings per Share [Abstract]

Computation of earnings per share

The following table sets forth the computation of earnings per share. Earnings per share calculations give retroactive effect to stock dividends declared by the Company.

	Three months ended				Nine months ended
	September 30,				September 30,
	2017		2016		2017		2016
Net income applicable to common stock	$	3,650,000	$	3,153,000	$	10,421,000	$	9,467,000
Basic earnings per share computation
Weighted average common shares outstanding		3,482,936		3,505,526		3,480,760		3,512,187
Earnings per share - basic	$	1.05	$	0.90	$	2.99	$	2.70
Diluted earnings per share computation
Weighted average common shares outstanding for basic earnings per share		3,482,936		3,505,526		3,480,760		3,512,187
Add: Dilutive effects of restricted stock		2,285		1,694		1,874		1,698
Weighted average common shares outstanding for dilutive earnings per share		3,485,221		3,507,220		3,482,634		3,513,885
Earnings per share - diluted	$	1.05	$	0.90	$	2.99	$	2.69

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Investments (Tables)

9 Months Ended

Sep. 30, 2017

Investments [Abstract]

Summary of amortized cost, gross unrealized gains and losses, and fair value of investment securities

The amortized cost, gross unrealized gains and losses, and fair value of investment securities at September 30, 2017 and December 31, 2016 were as follows (in thousands):

			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
September 30, 2017	Cost		Gains		Losses			Value
Available-for-sale securities:
U.S. agency securities	$	132,555	$	191	$	(195	)	$	132,551
Obligations of state and
political subdivisions		80,439		1,382		(98	)		81,723
Corporate obligations		3,000		101		-			3,101
Mortgage-backed securities in
government sponsored entities		44,391		83		(197	)		44,277
Equity securities in financial
institutions		992		944		-			1,936
Total available-for-sale securities	$	261,377	$	2,701	$	(490	)	$	263,588
December 31, 2016
Available-for-sale securities:
U.S. agency securities	$	170,276	$	407	$	(269	)	$	170,414
U.S. treasury securities		2,999		1		-			3,000
Obligations of state and
political subdivisions		95,956		1,463		(493	)		96,926
Corporate obligations		3,000		50		-			3,050
Mortgage-backed securities in
government sponsored entities		37,987		88		(347	)		37,728
Equity securities in financial institutions		1,821		1,078		-			2,899
Total available-for-sale securities	$	312,039	$	3,087	$	(1,109	)	$	314,017

Unrealized losses and fair value of investments

The following table shows the Company's gross unrealized losses and fair value of the Company's investments with unrealized losses that are not deemed to be other-than-temporarily impaired, aggregated by investment category and length of time, which individual securities have been in a continuous unrealized loss position, at September 30, 2017 and December 31, 2016 (in thousands). As of September 30, 2017, the Company owned 70 securities whose fair value was less than their cost basis.

	Less than Twelve Months					Twelve Months or Greater					Total
			Gross					Gross					Gross
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
September 30, 2017	Value		Losses			Value		Losses			Value		Losses
U.S. agency securities	$	55,048	$	(119	)	$	7,922	$	(76	)	$	62,970	$	(195	)
Obligations of state and
political subdivisions		6,146		(21	)		8,564		(77	)		14,710		(98	)
Mortgage-backed securities in
government sponsored entities		26,683		(166	)		2,810		(31	)		29,493		(197	)
Total securities	$	87,877	$	(306	)	$	19,296	$	(184	)	$	107,173	$	(490	)
December 31, 2016
U.S. agency securities	$	50,947	$	(269	)	$	-	$	-		$	50,947	$	(269	)
Obligations of states and
political subdivisions		28,398		(472	)		767		(21	)		29,165		(493	)
Mortgage-backed securities in
government sponsored entities		26,717		(330	)		753		(17	)		27,470		(347	)
Total securities	$	106,062	$	(1,071	)	$	1,520	$	(38	)	$	107,582	$	(1,109	)

Gross gains and losses on available-for-sale securities

The gross gains and losses were as follows (in thousands):

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2017		2016		2017			2016
Gross gains	$	9	$	-	$	211		$	155
Gross losses		-		-		(7	)		-
Net gains	$	9	$	-	$	204		$	155

Summary of amortized cost and fair value of debt securities by contractual maturity

The amortized cost and fair value of debt securities (excludes equity securities) at September 30, 2017, by contractual maturity, are shown below (in thousands):

	Amortized
	Cost		Fair Value
Available-for-sale debt securities:
Due in one year or less	$	52,243	$	52,375
Due after one year through five years		113,014		113,722
Due after five years through ten years		35,712		35,950
Due after ten years		59,416		59,605
Total	$	260,385	$	261,652

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Loans (Tables)

9 Months Ended

Sep. 30, 2017

Loans [Abstract]

Summary of loan portfolio and allowance for loan losses

The following table summarizes the primary segments of the loan portfolio and how those segments are analyzed within the allowance for loan losses as of September 30, 2017 and December 31, 2016 (in thousands):

September 30, 2017	Total Loans		Individually evaluated for impairment		Loans acquired with deteriorated credit quality		Collectively evaluated for impairment
Real estate loans:
Residential	$	206,389	$	864	$	34	$	205,491
Commercial		273,624		13,759		2,016		257,849
Agricultural		207,052		3,964		733		202,355
Construction		17,074		-		-		17,074
Consumer		10,784		4		-		10,780
Other commercial loans		56,222		4,228		538		51,456
Other agricultural loans		34,066		1,418		-		32,648
State and political subdivision loans		101,951		-		-		101,951
Total		907,162		24,237		3,321		879,604
Allowance for loan losses		10,447		442		-		10,005
Net loans	$	896,715	$	23,795	$	3,321	$	869,599
December 31, 2016
Real estate loans:
Residential	$	207,423	$	957	$	35	$	206,431
Commercial		252,577		5,742		1,969		244,866
Agricultural		123,624		3,346		738		119,540
Construction		25,441		-		-		25,441
Consumer		11,005		-		4		11,001
Other commercial loans		58,639		5,994		621		52,024
Other agricultural loans		23,388		1,654		-		21,734
State and political subdivision loans		97,514		-		-		97,514
Total		799,611		17,693		3,367		778,551
Allowance for loan losses		8,886		487		-		8,399
Net loans	$	790,725	$	17,206	$	3,367	$	770,152

Accretable yield for purchased credit impaired loans

Changes in the accretable yield for PCI loans were as follows for the three and nine months ended September 30, 2017 and 2016, respectively (in thousands):

	Three months ended						Nine months ended
	September 30,						September 30,
	2017			2016			2017			2016
Balance at beginning of period	$	167		$	464		$	389		$	637
Accretion		(90	)		(88	)		(312	)		(261	)
Balance at end of period	$	77		$	376		$	77		$	376

Loans acquired with specific evidence of deterioration in credit quality

The following table presents additional information regarding loans acquired with specific evidence of deterioration in credit quality under ASC 310-30 (in thousands):

	September 30, 2017		December 31, 2016
Outstanding balance	$	6,328	$	6,487
Carrying amount		3,321		3,367

Impaired financing receivables with associated allowance amount

The following table includes the recorded investment and unpaid principal balances for impaired financing receivables by class, excluding PCI loans, with the associated allowance amount, if applicable (in thousands):

			Recorded		Recorded
	Unpaid		Investment		Investment		Total
	Principal		With No		With		Recorded		Related
September 30, 2017	Balance		Allowance		Allowance		Investment		Allowance
Real estate loans:
Mortgages	$	865	$	280	$	515	$	795	$	17
Home Equity		69		16		53		69		9
Commercial		16,240		13,329		430		13,759		67
Agricultural		3,983		1,933		2,031		3,964		99
Construction		-		-		-		-		-
Consumer		4		2		2		4		2
Other commercial loans		4,690		3,759		469		4,228		208
Other agricultural loans		1,442		1,309		109		1,418		40
State and political
subdivision loans		-		-		-		-		-
Total	$	27,293	$	20,628	$	3,609	$	24,237	$	442
December 31, 2016
Real estate loans:							$	-
Mortgages	$	953	$	570	$	330		900	$	22
Home Equity		57		-		57		57		10
Commercial		7,958		5,697		45		5,742		45
Agricultural		3,347		2,000		1,347		3,347		54
Construction		-		-		-		-		-
Consumer		-		-		-		-		-
Other commercial loans		6,159		5,135		859		5,994		326
Other agricultural loans		1,653		1,629		24		1,653		30
State and political
subdivision loans		-		-		-		-		-
Total	$	20,127	$	15,031	$	2,662	$	17,693	$	487

The following tables includes the average balance of impaired financing receivables by class and the income recognized on these receivables for the three and nine month periods ended September 30, 2017 and 2016(in thousands):

	For the Three Months Ended
	September 30, 2017						September 30, 2016
					Interest						Interest
	Average		Interest		Income		Average		Interest		Income
	Recorded		Income		Recognized		Recorded		Income		Recognized
	Investment		Recognized		Cash Basis		Investment		Recognized		Cash Basis
Real estate loans:
Mortgages	$	741	$	3	$	-	$	607	$	1	$	-
Home Equity		70		1		-		58		1		-
Commercial		13,663		122		2		5,980		35		-
Agricultural		3,799		27		-		-		2		-
Construction		-		-		-		-		-		-
Consumer		4		-		-		-		-		-
Other commercial loans		4,337		54		25		5,298		53		2
Other agricultural loans		1,443		10		-		-		-		-
State and political
subdivision loans		-		-		-		-		-		-
Total	$	24,057	$	217	$	27	$	11,943	$	92	$	2

	For the Nine Months ended
	September 30, 2017						September 30, 2016
					Interest						Interest
	Average		Interest		Income		Average		Interest		Income
	Recorded		Income		Recognized		Recorded		Income		Recognized
	Investment		Recognized		Cash Basis		Investment		Recognized		Cash Basis
Real estate loans:
Mortgages	$	874	$	9	$	-	$	486	$	10	$	-
Home Equity		62		3		-		59		3		-
Commercial		10,812		280		5		6,088		87		-
Agricultural		3,609		90		-		110		7		-
Construction		-		-		-		-		-		-
Consumer		2		-		-		-		-		-
Other commercial loans		4,988		131		52		5,743		187		5
Other agricultural loans		1,528		55		-		70		3		-
State and political
subdivision loans		-		-		-		-		-		-
Total	$	21,875	$	568	$	57	$	12,556	$	297	$	5

Summary of financing receivable credit exposures by internally assigned grades

The following tables represent credit exposures by internally assigned grades as of September 30, 2017 and December 31, 2016 (in thousands):

September 30, 2017	Pass		Special Mention		Substandard		Doubtful		Loss		Ending Balance
Real estate loans:
Commercial	$	246,405	$	15,069	$	12,150	$	-	$	-	$	273,624
Agricultural		195,469		4,824		6,759		-		-		207,052
Construction		17,074		-		-		-		-		17,074
Other commercial loans		51,341		635		4,165		81		-		56,222
Other agricultural loans		31,791		198		2,077		-		-		34,066
State and political
subdivision loans		88,251		2,891		10,809		-		-		101,951
Total	$	630,331	$	23,617	$	35,960	$	81	$	-	$	689,989

December 31, 2016	Pass		Special Mention		Substandard		Doubtful		Loss		Ending Balance
Real estate loans:
Commercial	$	225,185	$	14,045	$	13,347	$	-	$	-	$	252,577
Agricultural		110,785		8,231		4,608		-		-		123,624
Construction		25,441		-		-		-		-		25,441
Other commercial loans		51,396		2,049		5,105		89		-		58,639
Other agricultural loans		20,178		1,733		1,477		-		-		23,388
State and political
subdivision loans		83,620		13,066		828		-		-		97,514
Total	$	516,605	$	39,124	$	25,365	$	89	$	-	$	581,183

For residential real estate mortgages, home equity and consumer loans, credit quality is monitored based on whether the loan is performing or non-performing, which is typically based on the aging status of the loan and payment activity, unless a specific action, such as bankruptcy, repossession, death or significant delay in payment occurs to raise awareness of a possible credit event. Non-performing loans include those loans that are considered nonaccrual, described in more detail below, and all loans past due 90 or more days and still accruing. The following table presents the recorded investment in those loan classes based on payment activity as of September 30, 2017 and December 31, 2016 (in thousands):

September 30, 2017	Performing		Non-performing		PCI		Total
Real estate loans:
Mortgages	$	147,785	$	1,254	$	34	$	149,073
Home Equity		57,148		168		-		57,316
Consumer		10,683		101		-		10,784
Total	$	215,616	$	1,523	$	34	$	217,173
December 31, 2016	Performing		Non-performing		PCI		Total
Real estate loans:
Mortgages	$	147,047	$	1,648	$	35	$	148,730
Home Equity		58,438		255		-	$	58,693
Consumer		10,892		109		4	$	11,005
Total	$	216,377	$	2,012	$	39	$	218,428

Aging analysis of past due financing receivables

The following table includes an aging analysis of the recorded investment of past due financing receivables as of September 30, 2017 and December 31, 2016 (in thousands):

													Total		90 Days or
	30-59 Days		60-89 Days		90 Days		Total Past						Financing		Greater and
September 30, 2017	Past Due		Past Due		Or Greater		Due		Current		PCI		Receivables		Accruing
Real estate loans:
Mortgages	$	1,087	$	242	$	612	$	1,941	$	147,098	$	34	$	149,073	$	49
Home Equity		347		33		80		460		56,856		-		57,316		30
Commercial		1,184		211		3,814		5,209		266,399		2,016		273,624		80
Agricultural		-		17		1,165		1,182		205,137		733		207,052		-
Construction		-		-		-		-		17,074		-		17,074		-
Consumer		115		48		100		263		10,521		-		10,784		14
Other commercial loans		230		43		2,634		2,907		52,777		538		56,222		-
Other agricultural loans		187		-		-		187		33,879		-		34,066		-
State and political
subdivision loans		-		-		-		-		101,951		-		101,951		-
Total	$	3,150	$	594	$	8,405	$	12,149	$	891,692	$	3,321	$	907,162	$	173
Loans considered non-accrual	$	317	$	67	$	8,232	$	8,616	$	3,205	$	-	$	11,821
Loans still accruing		2,833		527		173		3,533		888,487		3,321		895,341
Total	$	3,150	$	594	$	8,405	$	12,149	$	891,692	$	3,321	$	907,162
															90 Days or
	30-59 Days		60-89 Days		90 Days		Total Past						Total Financing		Greater and
December 31, 2016	Past Due		Past Due		Or Greater		Due		Current		PCI		Receivables		Accruing
Real estate loans:
Mortgages	$	630	$	36	$	1,109	$	1,775	$	146,920	$	35	$	148,730	$	173
Home Equity		384		49		209		642		58,051		-		58,693		160
Commercial		1,757		58		4,302		6,117		244,491		1,969		252,577		-
Agricultural		-		-		1,145		1,145		121,741		738		123,624		-
Construction		-		-		-		-		25,441		-		25,441		-
Consumer		115		40		83		238		10,763		4		11,005		67
Other commercial loans		95		35		4,004		4,134		53,884		621		58,639		-
Other agricultural loans		43		34		5		82		23,306		-		23,388		5
State and political
subdivision loans		-		-		-		-		97,514		-		97,514		-
Total	$	3,024	$	252	$	10,857	$	14,133	$	782,111	$	3,367	$	799,611	$	405
Loans considered non-accrual	$	172	$	105	$	10,452	$	10,729	$	725	$	-	$	11,454
Loans still accruing		2,852		147		405		3,404		781,386		3,367		788,157
Total	$	3,024	$	252	$	10,857	$	14,133	$	782,111	$	3,367	$	799,611

Summary of financing receivables on nonaccrual status

The following table reflects the financing receivables, excluding PCI loans, on non-accrual status as of September 30, 2017 and December 31, 2016, respectively. The balances are presented by class of financing receivable (in thousands):

	September 30, 2017		December 31, 2016
Real estate loans:
Mortgages	$	1,205	$	1,475
Home Equity		138		95
Commercial		5,262		4,445
Agricultural		1,464		1,340
Construction		-		-
Consumer		88		42
Other commercial loans		3,008		4,057
Other agricultural loans		656		-
State and political subdivision		-		-
	$	11,821	$	11,454

Summary of troubled debt restructurings on financing receivables

Loan modifications that are considered TDRs completed during the three and nine months ended September 30, 2017 and 2016 were as follows (dollars in thousands):

	For the Three Months Ended September 30, 2017
	Number of contracts				Pre-modification Outstanding Recorded Investment				Post-Modification Outstanding Recorded Investment
	Interest Modification		Term Modification		Interest Modification		Term Modification		Interest Modification		Term Modification
Real estate loans:
Agricultural		-		2	$	-	$	150	$	-	$	150
Other agricultural loans		-		1		-		161		-		161
Total		-		3	$	-	$	311	$	-	$	311

	For the Nine Months Ended September 30, 2017
	Number of contracts				Pre-modification Outstanding Recorded Investment				Post-Modification Outstanding Recorded Investment
	Interest Modification		Term Modification		Interest Modification		Term  Modification		Interest Modification		Term Modification
Real estate loans:
Commercial		-		7	$	-	$	6,797	$	-	$	6,797
Agricultural		-		2		-		150		-		150
Other agricultural loans		-		1		-		161		-		161
Total		-		10	$	-	$	7,108	$	-	$	7,108

	For the Three Months Ended September 30, 2016
	Number of contracts				Pre-modification Outstanding Recorded Investment				Post-Modification Outstanding Recorded Investment
	Interest Modification		Term  Modification		Interest Modification		Term Modification		Interest Modification		Term Modification
Real estate loans:
Commercial		-		1	$	-	$	750	$	-	$	750
Other commercial loans		-		3		-		3,076		-		3,076
Total		-		4	$	-	$	3,826	$	-	$	3,826

	For the Nine Months Ended September 30, 2016
	Number of contracts				Pre-modification Outstanding Recorded Investment				Post-Modification Outstanding Recorded Investment
	Interest Modification		Term Modification		Interest Modification		Term Modification		Interest Modification		Term  Modification
Real estate loans:
Commercial		-		4	$	-	$	1,188	$	-	$	1,188
Other commercial loans		-		3		-		3,076		-		3,076
Total		-		7	$	-	$	4,264	$	-	$	4,264

Allowance for loan losses by impairment method

The following table segregates the allowance for loan losses (ALLL) into the amount required for loans individually evaluated for impairment and the amount required for loans collectively evaluated for impairment as of September 30, 2017 and December 31, 2016, respectively (in thousands):

	September 30, 2017						December 31, 2016
	Individually evaluated for impairment		Collectively evaluated for impairment		Total		Individually  evaluated for  impairment		Collectively  evaluated for  impairment		Total
Real estate loans:
Residential	$	26	$	1,054	$	1,080	$	32	$	1,032	$	1,064
Commercial		67		3,515		3,582		45		3,544		3,589
Agricultural		99		2,595		2,694		54		1,440		1,494
Construction		-		31		31		-		47		47
Consumer		2		135		137		-		122		122
Other commercial loans		208		904		1,112		326		1,001		1,327
Other agricultural loans		40		422		462		30		282		312
State and political
subdivision loans		-		874		874		-		833		833
Unallocated		-		475		475		-		98		98
Total	$	442	$	10,005	$	10,447	$	487	$	8,399	$	8,886

Roll forward of allowance for loan losses by portfolio segment

The following tables roll forward the balance of the ALLL by portfolio segment for the three and nine month periods ended September 30, 2017 and 2016, respectively (in thousands):

	Balance at June 30, 2017		Charge-offs			Recoveries		Provision			Balance at September 30, 2017
Real estate loans:
Residential	$	1,104	$	(11	)	$	-	$	(13	)	$	1,080
Commercial		3,541		-			5		36			3,582
Agricultural		2,452		-			-		242			2,694
Construction		45		-			-		(14	)		31
Consumer		125		(45	)		13		44			137
Other commercial loans		1,131		-			5		(24	)		1,112
Other agricultural loans		431		-			1		30			462
State and political subdivision loans		838		-			-		36			874
Unallocated		312		-			-		163			475
Total	$	9,979	$	(56	)	$	24	$	500		$	10,447
	Balance at June 30, 2016		Charge-offs			Recoveries		Provision			Balance at September 30, 2016
Real estate loans:
Residential	$	990	$	(9	)	$	-	$	32		$	1,013
Commercial		3,338		(100	)		467		(90	)		3,615
Agricultural		581							410			991
Construction		18		-			-		16			34
Consumer		104		(27	)		16		16			109
Other commercial loans		1,316		(37	)		25		39			1,343
Other agricultural loans		248							51			299
State and political subdivision loans		764		-			-		7			771
Unallocated		-		-			-		19			19
Total	$	7,359	$	(173	)	$	508	$	500		$	8,194
	Balance at December 31, 2016		Charge-offs			Recoveries		Provision			Balance at September 30, 2017
Real estate loans:
Residential	$	1,064	$	(104	)	$	-	$	120		$	1,080
Commercial		3,589		(41	)		11		23			3,582
Agricultural		1,494		-			-		1,200			2,694
Construction		47		-			-		(16	)		31
Consumer		122		(90	)		35		70			137
Other commercial loans		1,327		-			14		(229	)		1,112
Other agricultural loans		312		(5	)		1		154			462
State and political subdivision loans		833		-			-		41			874
Unallocated		98		-			-		377			475
Total	$	8,886	$	(240	)	$	61	$	1,740		$	10,447
	Balance at December 31, 2015		Charge-offs			Recoveries		Provision			Balance at September 30, 2016
Real estate loans:
Residential	$	905	$	(52	)	$	-	$	160		$	1,013
Commercial		3,376		(100	)		475		(136	)		3,615
Agricultural		409		-					582			991
Construction		24		-			-		10			34
Consumer		102		(65	)		84		(12	)		109
Other commercial loans		1,183		(55	)		31		184			1,343
Other agricultural loans		122							177			299
State and political subdivision loans		593		-			-		178			771
Unallocated		392		-			-		(373	)		19
Total	$	7,106	$	(272	)	$	590	$	770		$	8,194

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Goodwill and Other Intangible Assets (Tables)

9 Months Ended

Sep. 30, 2017

Goodwill and Other Intangible Assets [Abstract]

Schedule of gross carrying value and accumulated amortization of intangible assets

The following table provides the gross carrying value and accumulated amortization of intangible assets as of September 30, 2017 and December 31, 2016 (in thousands):

	September 30, 2017							December 31, 2016
	Gross carrying value		Accumulated amortization			Net carrying value		Gross carrying value		Accumulated amortization			Net carrying value
Amortized intangible assets (1):
MSRs	$	1,604	$	(921	)	$	683	$	1,471	$	(787	)	$	684
Core deposit intangibles		1,641		(520	)		1,121		1,641		(320	)		1,321
Covenant not to compete		125		(57	)		68		125		(34	)		91
Total amortized intangible assets	$	3,370	$	(1,498	)	$	1,872	$	3,237	$	(1,141	)	$	2,096
Unamortized intangible assets:
Goodwill	$	21,089						$	21,089
(1) Excludes fully amortized intangible assets

Schedule of future amortization expense for amortized intangible assets

The following table provides the current year and estimated future amortization expense for amortized intangible assets. We based our projections of amortization expense shown below on existing asset balances at September 30, 2017. Future amortization expense may vary from these projections (in thousands):

	MSRs		Core deposit intangibles		Covenant not to compete		Total
Three months ended September 30, 2017 (actual)	$	44	$	66	$	8	$	118
Nine months ended September 30, 2017 (actual)	$	134	$	200	$	23	$	357
Three months September 30, 2016 (actual)	$	42	$	74	$	8	$	124
Nine months September 30, 2016 (actual)	$	132	$	222	$	24	$	378
Estimate for year ended December 31,
Remaining 2017		49		65		8		122
2018		138		236		30		404
2019		134		206		30		370
2020		103		177		-		280
2021		78		147		-		225

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Repurchase Agreements (Tables)

9 Months Ended

Sep. 30, 2017

Repurchase Agreements [Abstract]

Remaining contractual maturity of the repurchase agreements

The value of the collateral segmented by the remaining contractual maturity of the repurchase agreements in the Consolidated Balance Sheets as of September 30 2017 and December 31, 2016 is presented in the following tables (in thousands):

	Remaining Contractual Maturity of the Agreements
	Overnight and		Up to				Greater than
September 30, 2017	Continuous		30 Days		30 - 90 Days		90 days		Total
Repurchase Agreements:
U.S. agency securities	$	18,153	$	-	$	-	$	2,061	$	20,214
Total carrying value of collateral pledged	$	18,153	$	-	$	-	$	2,061	$	20,214
Total liability recognized for repurchase agreements									$	16,643
	Remaining Contractual Maturity of the Agreements
	Overnight and		Up to				Greater than
December 31, 2016	Continuous		30 Days		30 - 90 Days		90 days		Total
Repurchase Agreements:
U.S. agency securities	$	16,118	$	-	$	-	$	2,059	$	18,177
Total carrying value of collateral pledged	$	16,118	$	-	$	-	$	2,059	$	18,177
Total liability recognized for repurchase agreements									$	14,307

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Employee Benefit Plans (Tables)

9 Months Ended

Sep. 30, 2017

Employee Benefit Plans [Abstract]

Components of net periodic benefit costs

The following sets forth the components of net periodic benefit costs of the Pension Plan for the three and nine months ended September 30, 2017 and 2016, respectively (in thousands):

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2017			2016			2017			2016
Service cost	$	87		$	90		$	262		$	269
Interest cost		168			172			503			517
Expected return on plan assets		(274	)		(260	)		(821	)		(780	)
Net amortization and deferral		56			61			168			182
Net periodic benefit cost	$	37		$	63		$	112		$	188

Schedule of restricted stock activity

The following table details the vesting, awarding and forfeiting of restricted shares during the three and nine month periods ended September 30, 2017:

	Three months				Nine months
			Weighted					Weighted
	Unvested		Average		Unvested			Average
	Shares		Market Price		Shares			Market Price
Outstanding, beginning of period		9,169	$	50.66		8,471		$	49.10
Granted		-		-		4,212			53.38
Forfeited		-		-		(43	)		(48.56	)
Vested		-		-		(3,471	)		(50.19	)
Outstanding, end of period		9,169	$	50.66		9,169		$	50.66

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Accumulated Comprehensive Income (Loss) (Tables)

9 Months Ended

Sep. 30, 2017

Accumulated Comprehensive Income (Loss) [Abstract]

Changes in accumulated other comprehensive income by component, net of tax

The following tables present the changes in accumulated other comprehensive income (loss) by component net of tax for the three and nine months ended September 30, 2017 and 2016 (in thousands):

	Three months ended September 30, 2017
	Unrealized gain (loss) on available for sale securities (a)			Defined Benefit Pension Items (a)			Total
Balance as of June 30, 2017	$	1,655		$	(2,624	)	$	(969	)
Other comprehensive loss before reclassifications (net of tax)		(190	)		-			(190	)
Amounts reclassified from accumulated other
comprehensive income (loss) (net of tax)		(6	)		37			31
Net current period other comprehensive income (loss)		(196	)		37			(159	)
Balance as of September 30, 2017	$	1,459		$	(2,587	)	$	(1,128	)

	Nine months ended September 30, 2017
	Unrealized gain (loss) on available for sale securities (a)			Defined Benefit Pension Items (a)			Total
Balance as of December 31, 2016	$	1,306		$	(2,698	)	$	(1,392	)
Other comprehensive income before reclassifications (net of tax)		288			-			288
Amounts reclassified from accumulated other
comprehensive income (loss) (net of tax)		(135	)		111			(24	)
Net current period other comprehensive income		153			111			264
Balance as of September 30, 2017	$	1,459		$	(2,587	)	$	(1,128	)

	Three months ended September 30, 2016
	Unrealized gain (loss) on available for sale securities (a)			Defined Benefit Pension Items (a)			Total
Balance as of June 30, 2016	$	4,403		$	(2,361	)	$	2,042
Other comprehensive loss before reclassifications (net of tax)		(692	)		-			(692	)
Amounts reclassified from accumulated other
comprehensive income  (net of tax)		-			40			40
Net current period other comprehensive income (loss)		(692	)		40			(652	)
Balance as of September 30, 2016	$	3,711		$	(2,321	)	$	1,390

	Nine months ended September 30, 2016
	Unrealized gain (loss) on available for sale securities (a)			Defined Benefit Pension Items (a)			Total
Balance as of December 31, 2015	$	2,204		$	(2,440	)	$	(236	)
Other comprehensive income before reclassifications (net of tax)		1,609			-			1,609
Amounts reclassified from accumulated other
comprehensive income (loss) (net of tax)		(102	)		119			17
Net current period other comprehensive income		1,507			119			1,626
Balance as of September 30, 2016	$	3,711		$	(2,321	)	$	1,390

Significant amounts reclassified out of each component of accumulated other comprehensive income

The following table presents the significant amounts reclassified out of each component of accumulated other comprehensive income for the three and nine months ended September 30, 2017 and 2016 (in thousands):

Details about accumulated other comprehensive income (loss)	Amount reclassified from accumulated comprehensive income (loss)						Affected line item in the Consolidated Statement of Income
	Three Months Ended September 30,
	2017			2016
Unrealized gains and losses on available for sale securities
	$	9		$	-		Investment securities gains, net
		(3	)		-		Provision for income taxes
	$	6		$	-
Defined benefit pension items
	$	(56	)	$	(61	)	Salaries and employee benefits
		19			21		Provision for income taxes
	$	(37	)	$	(40	)
Total reclassifications	$	(31	)	$	(40	)
	Nine Months Ended September 30,
		2017			2016
Unrealized gains and losses on available for sale securities
	$	204		$	155		Investment securities gains, net
		(69	)		(53	)	Provision for income taxes
	$	135		$	102
Defined benefit pension items
	$	(168	)	$	(181	)	Salaries and employee benefits
		57			62		Provision for income taxes
	$	(111	)	$	(119	)
Total reclassifications	$	24		$	(17	)

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Fair Value Measurements (Tables)

9 Months Ended

Sep. 30, 2017

Fair Value Measurements [Abstract]

Summary of assets measured at fair value on a recurring basis

The following tables present the assets and liabilities reported on the Consolidated Balance Sheet at their fair value on a recurring basis as of September 30, 2017 and December 31, 2016 by level within the fair value hierarchy (in thousands). Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

September 30, 2017	Level I		Level II		Level III		Total
Fair value measurements on a recurring basis:
Assets
Securities available for sale:
U.S. agency securities	$	-	$	132,551	$	-	$	132,551
Obligations of state and
political subdivisions		-		81,723		-		81,723
Corporate obligations		-		3,101		-		3,101
Mortgage-backed securities in
government sponsored entities		-		44,277		-		44,277
Equity securities in financial institutions		1,936		-		-		1,936

December 31, 2016	Level I		Level II		Level III		Total
Fair value measurements on a recurring basis:
Securities available for sale:
U.S. agency securities	$	-	$	170,414	$	-	$	170,414
U.S. treasury securities		3,000		-		-		3,000
Obligations of state and
political subdivisions		-		96,926		-		96,926
Corporate obligations		-		3,050		-		3,050
Mortgage-backed securities in
government sponsored entities		-		37,728		-		37,728
Equity securities in financial institutions		2,899		-		-		2,899

Summary of assets measured at fair value on non-recurring basis

Assets measured at fair value on a nonrecurring basis as of September 30, 2017 and December 31, 2016 are included in the table below (in thousands):

September 30, 2017	Level I		Level II		Level III		Total
Impaired Loans	$	-	$	-	$	3,024	$	3,024
Other real estate owned		-		-		1,478		1,478
December 31, 2016
Impaired Loans	$	-	$	-	$	2,033	$	2,033
Other real estate owned		-		-		839		839

Significant unobservable inputs used in fair value measurement process

The following table provides a listing of the significant unobservable inputs used in the fair value measurement process for items valued utilizing Level III techniques (dollars in thousands).

September 30, 2017	Fair Value		Valuation Technique(s)	Unobservable input	Range		Weighted average
Impaired Loans		$ 3,024	Appraised Collateral Values	Discount for time since appraisal		0-100%		21.22%
				Selling costs		5%-9%		7.13%
				Holding period	0 - 24 months		8.31 months
Other real estate owned		1,478	Appraised Collateral Values	Discount for time since appraisal		12-47%		22.32%

December 31, 2016	Fair Value		Valuation Technique(s)	Unobservable input	Range		Weighted average
Impaired Loans		$ 2,033	Appraised Collateral Values	Discount for time since appraisal		0-65%		28.98%
				Selling costs		5%-9%		7.56%
				Holding period	6 - 12 months		11 months
Other real estate owned		839	Appraised Collateral Values	Discount for time since appraisal		10-67%		25.45%

Fair value of financial instruments

The fair values of the Company's financial instruments are as follows (in thousands):

	Carrying
September 30, 2017	Amount		Fair Value		Level I		Level II		Level III
Financial assets:
Cash and due from banks	$	13,815	$	13,815	$	13,815	$	-	$	-
Interest bearing time deposits with other banks		10,031		10,038		-		-		10,038
Available-for-sale securities		263,588		263,588		1,936		261,652		-
Loans held for sale		1,431		1,431		1,431		-		-
Net loans		896,715		894,706		-		-		894,706
Bank owned life insurance		26,722		26,722		26,722		-		-
Regulatory stock		4,884		4,884		4,884		-		-
Accrued interest receivable		3,786		3,786		3,786		-		-
Financial liabilities:
Deposits	$	1,052,105	$	1,050,362	$	792,133	$	-	$	258,229
Borrowed funds		73,628		71,965		32,960		-		39,005
Accrued interest payable		731		731		731		-		-

December 31, 2016
Financial assets:
Cash and due from banks	$	17,754	$	17,754	$	17,754	$	-	$	-
Interest bearing time deposits with other banks		6,955		6,960		-		-		6,960
Available-for-sale securities		314,017		314,017		5,899		308,118		-
Loans held for sale		1,827		1,827		1,827		-		-
Net loans		790,725		797,184		-		-		797,184
Bank owned life insurance		26,223		26,223		26,223		-		-
Regulatory stock		5,306		5,306		5,306		-		-
Accrued interest receivable		4,089		4,089		4,089		-		-
Financial liabilities:
Deposits	$	1,005,503	$	1,004,072	$	740,889	$	-	$	263,183
Borrowed funds		79,662		77,425		41,330		-		36,095
Accrued interest payable		720		720		720		-		-

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Earnings per Share (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016	Sep. 30, 2017	Sep. 30, 2016
Earnings per share basic and diluted [Abstract]
Net income applicable to common stock	$ 3,650	$ 3,153	$ 10,421	$ 9,467
Basic earnings per share computation [Abstract]
Weighted average common shares outstanding (in shares)	3,482,936	3,505,526	3,480,760	3,512,187
Earnings per share - basic (in dollars per share)	$ 1.05	$ 0.90	$ 2.99	$ 2.70
Diluted earnings per share computation [Abstract]
Weighted average common shares outstanding for basic earnings per share (in shares)	3,482,936	3,505,526	3,480,760	3,512,187
Add: Dilutive effects of restricted stock (in shares)	2,285	1,694	1,874	1,698
Weighted average common shares outstanding for dilutive earnings per share (in shares)	3,485,221	3,507,220	3,482,634	3,513,885
Earnings per share - diluted (in dollars per share)	$ 1.05	$ 0.90	$ 2.99	$ 2.69
Restricted Stock [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Antidilutive restricted stock excluded from net income per share calculations (in shares)	1,107	3,804	4,162	3,804
Restricted Stock [Member] | Minimum [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Antidilutive stock share price range (in dollars per share)	$ 49.87	$ 46.69	$ 46.69	$ 46.69
Restricted Stock [Member] | Maximum [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Antidilutive stock share price range (in dollars per share)	$ 53.15	$ 53.15	$ 53.15	$ 53.15

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Income Tax Expense (Details)	3 Months Ended		9 Months Ended		12 Months Ended
	Sep. 30, 2017 USD ($)	Sep. 30, 2016 USD ($)	Sep. 30, 2017 USD ($) Partnership	Sep. 30, 2016 USD ($)	Dec. 31, 2016 USD ($) Partnership
Income Tax Expense [Abstract]
Number of investments in partnerships | Partnership			4		4
Investment amount in partnerships	$ 581,000		$ 581,000		$ 700,000
Investment Tax Credit Carryforward [Member]
Tax Credit Carryforward [Line Items]
Investment tax credits	740,000		$ 740,000
Tax credits recognition period			5 years 3 months
Tax credits recognized as reduction of tax expense amount	36,000	$ 50,000	$ 106,000	$ 149,000
Amortization of investment in other expenses	$ 39,000	$ 65,000	$ 119,000	$ 194,000

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Investments (Details) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2017 USD ($) Security	Sep. 30, 2016 USD ($)	Sep. 30, 2017 USD ($) Security	Sep. 30, 2016 USD ($)	Dec. 31, 2016 USD ($)
Available for Sale Securities Amortized Cost, Gross Unrealized Gains and Losses, and Fair Value [Abstract]
Amortized cost	$ 261,377		$ 261,377		$ 312,039
Gross unrealized gains	2,701		2,701		3,087
Gross unrealized losses	(490)		(490)		(1,109)
Fair value	$ 263,588		$ 263,588		314,017
Number of securities owned with fair value less than cost | Security	70		70
Available-For-Sale Securities, Fair Value and Gross Unrealized Losses [Abstract]
Less than twelve months, Fair value	$ 87,877		$ 87,877		106,062
Twelve months or greater, Fair value	19,296		19,296		1,520
Total, Fair value	107,173		107,173		107,582
Less than twelve months, Gross unrealized losses	(306)		(306)		(1,071)
Twelve months or greater, Gross unrealized losses	(184)		(184)		(38)
Total, Gross Unrealized Losses	(490)		(490)		(1,109)
Proceeds from sale of securities available-for-sale	4,986	$ 0	30,393	$ 12,077
Realized investment gains (losses) [Abstract]
Gross gains	9	0	211	155
Gross losses	0	0	(7)	0
Net gains	9	$ 0	204	$ 155
Investment securities pledged as collateral	243,900		243,900		206,300
Available-for-Sale Debt Securities, Amortized Cost [Abstract]
Due in one year or less	52,243		52,243
Due after one year through five years	113,014		113,014
Due after five years through ten years	35,712		35,712
Due after ten years	59,416		59,416
Total	260,385		260,385
Available-for-Sale Debt Securities, Fair Value [Abstract]
Due in one year or less	52,375		52,375
Due after one year through five years	113,722		113,722
Due after five years through ten years	35,950		35,950
Due after ten years	59,605		59,605
Total	261,652		261,652
U.S. Agency Securities [Member]
Available for Sale Securities Amortized Cost, Gross Unrealized Gains and Losses, and Fair Value [Abstract]
Amortized cost	132,555		132,555		170,276
Gross unrealized gains	191		191		407
Gross unrealized losses	(195)		(195)		(269)
Fair value	132,551		132,551		170,414
Available-For-Sale Securities, Fair Value and Gross Unrealized Losses [Abstract]
Less than twelve months, Fair value	55,048		55,048		50,947
Twelve months or greater, Fair value	7,922		7,922		0
Total, Fair value	62,970		62,970		50,947
Less than twelve months, Gross unrealized losses	(119)		(119)		(269)
Twelve months or greater, Gross unrealized losses	(76)		(76)		0
Total, Gross Unrealized Losses	(195)		(195)		(269)
U.S. Treasury Securities [Member]
Available for Sale Securities Amortized Cost, Gross Unrealized Gains and Losses, and Fair Value [Abstract]
Amortized cost					2,999
Gross unrealized gains					1
Gross unrealized losses					0
Fair value					3,000
Obligations of State and Political Subdivisions [Member]
Available for Sale Securities Amortized Cost, Gross Unrealized Gains and Losses, and Fair Value [Abstract]
Amortized cost	80,439		80,439		95,956
Gross unrealized gains	1,382		1,382		1,463
Gross unrealized losses	(98)		(98)		(493)
Fair value	81,723		81,723		96,926
Available-For-Sale Securities, Fair Value and Gross Unrealized Losses [Abstract]
Less than twelve months, Fair value	6,146		6,146		28,398
Twelve months or greater, Fair value	8,564		8,564		767
Total, Fair value	14,710		14,710		29,165
Less than twelve months, Gross unrealized losses	(21)		(21)		(472)
Twelve months or greater, Gross unrealized losses	(77)		(77)		(21)
Total, Gross Unrealized Losses	(98)		(98)		(493)
Corporate Obligations [Member]
Available for Sale Securities Amortized Cost, Gross Unrealized Gains and Losses, and Fair Value [Abstract]
Amortized cost	3,000		3,000		3,000
Gross unrealized gains	101		101		50
Gross unrealized losses	0		0		0
Fair value	3,101		3,101		3,050
Mortgage-backed Securities in Government Sponsored Entities [Member]
Available for Sale Securities Amortized Cost, Gross Unrealized Gains and Losses, and Fair Value [Abstract]
Amortized cost	44,391		44,391		37,987
Gross unrealized gains	83		83		88
Gross unrealized losses	(197)		(197)		(347)
Fair value	44,277		44,277		37,728
Available-For-Sale Securities, Fair Value and Gross Unrealized Losses [Abstract]
Less than twelve months, Fair value	26,683		26,683		26,717
Twelve months or greater, Fair value	2,810		2,810		753
Total, Fair value	29,493		29,493		27,470
Less than twelve months, Gross unrealized losses	(166)		(166)		(330)
Twelve months or greater, Gross unrealized losses	(31)		(31)		(17)
Total, Gross Unrealized Losses	(197)		(197)		(347)
Equity Securities in Financial Institutions [Member]
Available for Sale Securities Amortized Cost, Gross Unrealized Gains and Losses, and Fair Value [Abstract]
Amortized cost	992		992		1,821
Gross unrealized gains	944		944		1,078
Gross unrealized losses	0		0		0
Fair value	$ 1,936		$ 1,936		$ 2,899

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Loans (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016	Sep. 30, 2017	Sep. 30, 2016	Dec. 31, 2016
Segments of loan portfolio and allowance for loan losses [Abstract]
Total financing receivables	$ 907,162		$ 907,162		$ 799,611
Individually evaluated for impairment	24,237		24,237		17,693
Loans acquired with deteriorated credit quality	3,321		3,321		3,367
Collectively evaluated for impairment	879,604		879,604		778,551
Allowance for loan losses	10,447		10,447		8,886
Allowance for loan losses related to individually evaluated for impairment	442		442		487
Allowance for loan losses related to loans acquired with deteriorated credit quality	0		0		0
Allowance for loan losses related to collectively evaluated for impairment	10,005		10,005		8,399
Net loans	896,715		896,715		790,725
Net loans, individually evaluated for impairment	23,795		23,795		17,206
Net loans, loans acquired with deteriorated credit quality	3,321		3,321		3,367
Net loans, collectively evaluated for impairment	869,599		$ 869,599		770,152
Minimum [Member]
Segments of loan portfolio and allowance for loan losses [Abstract]
Number of days past for loan to be considered impaired, Minimum			90 days
First Mortgage [Member] | Minimum [Member]
Segments of loan portfolio and allowance for loan losses [Abstract]
Period of mortgage on real estate			15 years
First Mortgage [Member] | Maximum [Member]
Segments of loan portfolio and allowance for loan losses [Abstract]
Period of mortgage on real estate			30 years
Second Mortgage [Member] | Maximum [Member]
Segments of loan portfolio and allowance for loan losses [Abstract]
Period of mortgage on real estate			15 years
Real Estate Loans [Member] | Residential [Member]
Segments of loan portfolio and allowance for loan losses [Abstract]
Total financing receivables	206,389		$ 206,389		207,423
Individually evaluated for impairment	864		864		957
Loans acquired with deteriorated credit quality	34		34		35
Collectively evaluated for impairment	205,491		205,491		206,431
Real Estate Loans [Member] | Commercial [Member]
Segments of loan portfolio and allowance for loan losses [Abstract]
Total financing receivables	273,624		273,624		252,577
Individually evaluated for impairment	13,759		13,759		5,742
Loans acquired with deteriorated credit quality	2,016		2,016		1,969
Collectively evaluated for impairment	257,849		257,849		244,866
Real Estate Loans [Member] | Agricultural [Member]
Segments of loan portfolio and allowance for loan losses [Abstract]
Total financing receivables	207,052		207,052		123,624
Individually evaluated for impairment	3,964		3,964		3,346
Loans acquired with deteriorated credit quality	733		733		738
Collectively evaluated for impairment	202,355		202,355		119,540
Real Estate Loans [Member] | Construction [Member]
Segments of loan portfolio and allowance for loan losses [Abstract]
Total financing receivables	17,074		17,074		25,441
Individually evaluated for impairment	0		0		0
Loans acquired with deteriorated credit quality	0		0		0
Collectively evaluated for impairment	17,074		17,074		25,441
Consumer [Member]
Segments of loan portfolio and allowance for loan losses [Abstract]
Total financing receivables	10,784		10,784		11,005
Individually evaluated for impairment	4		4		0
Loans acquired with deteriorated credit quality	0		0		4
Collectively evaluated for impairment	10,780		10,780		11,001
Other Commercial Loans [Member]
Segments of loan portfolio and allowance for loan losses [Abstract]
Total financing receivables	56,222		56,222		58,639
Individually evaluated for impairment	4,228		4,228		5,994
Loans acquired with deteriorated credit quality	538		538		621
Collectively evaluated for impairment	51,456		51,456		52,024
Other Agricultural Loans [Member]
Segments of loan portfolio and allowance for loan losses [Abstract]
Total financing receivables	34,066		34,066		23,388
Individually evaluated for impairment	1,418		1,418		1,654
Loans acquired with deteriorated credit quality	0		0		0
Collectively evaluated for impairment	32,648		32,648		21,734
State and Political Subdivision Loans [Member]
Segments of loan portfolio and allowance for loan losses [Abstract]
Total financing receivables	101,951		101,951		97,514
Individually evaluated for impairment	0		0		0
Loans acquired with deteriorated credit quality	0		0		0
Collectively evaluated for impairment	101,951		101,951		97,514
First National Bank of Fredericksburg [Member]
Changes in the accretable yield for purchased credit-impaired loans [Roll Forward]
Balance at beginning of period	167	$ 464	389	$ 637
Accretion	(90)	(88)	(312)	(261)
Balance at end of period	77	$ 376	77	$ 376
Loans acquired with specific evidence of deterioration in credit quality [Abstract]
Outstanding balance	6,328		6,328		6,487
Carrying amount	$ 3,321		$ 3,321		$ 3,367

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Loans, Impaired Financing Receivable (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016	Sep. 30, 2017	Sep. 30, 2016	Dec. 31, 2016
Impaired Financing Receivable [Abstract]
Unpaid Principal Balance	$ 27,293		$ 27,293		$ 20,127
Recorded Investment With No Allowance	20,628		20,628		15,031
Recorded Investment With Allowance	3,609		3,609		2,662
Total Recorded Investment	24,237		24,237		17,693
Related Allowance	442		442		487
Average Recorded Investment	24,057	$ 11,943	21,875	$ 12,556
Interest Income Recognized	217	92	568	297
Interest Income Recognized Cash Basis	27	2	57	5
Real Estate Loans [Member] | Mortgages [Member]
Impaired Financing Receivable [Abstract]
Unpaid Principal Balance	865		865		953
Recorded Investment With No Allowance	280		280		570
Recorded Investment With Allowance	515		515		330
Total Recorded Investment	795		795		900
Related Allowance	17		17		22
Average Recorded Investment	741	607	874	486
Interest Income Recognized	3	1	9	10
Interest Income Recognized Cash Basis	0	0	0	0
Real Estate Loans [Member] | Home Equity [Member]
Impaired Financing Receivable [Abstract]
Unpaid Principal Balance	69		69		57
Recorded Investment With No Allowance	16		16		0
Recorded Investment With Allowance	53		53		57
Total Recorded Investment	69		69		57
Related Allowance	9		9		10
Average Recorded Investment	70	58	62	59
Interest Income Recognized	1	1	3	3
Interest Income Recognized Cash Basis	0	0	0	0
Real Estate Loans [Member] | Commercial [Member]
Impaired Financing Receivable [Abstract]
Unpaid Principal Balance	16,240		16,240		7,958
Recorded Investment With No Allowance	13,329		13,329		5,697
Recorded Investment With Allowance	430		430		45
Total Recorded Investment	13,759		13,759		5,742
Related Allowance	67		67		45
Average Recorded Investment	13,663	5,980	10,812	6,088
Interest Income Recognized	122	35	280	87
Interest Income Recognized Cash Basis	2	0	5	0
Real Estate Loans [Member] | Agricultural [Member]
Impaired Financing Receivable [Abstract]
Unpaid Principal Balance	3,983		3,983		3,347
Recorded Investment With No Allowance	1,933		1,933		2,000
Recorded Investment With Allowance	2,031		2,031		1,347
Total Recorded Investment	3,964		3,964		3,347
Related Allowance	99		99		54
Average Recorded Investment	3,799	0	3,609	110
Interest Income Recognized	27	2	90	7
Interest Income Recognized Cash Basis	0	0	0	0
Real Estate Loans [Member] | Construction [Member]
Impaired Financing Receivable [Abstract]
Unpaid Principal Balance	0		0		0
Recorded Investment With No Allowance	0		0		0
Recorded Investment With Allowance	0		0		0
Total Recorded Investment	0		0		0
Related Allowance	0		0		0
Average Recorded Investment	0	0	0	0
Interest Income Recognized	0	0	0	0
Interest Income Recognized Cash Basis	0	0	0	0
Consumer [Member]
Impaired Financing Receivable [Abstract]
Unpaid Principal Balance	4		4		0
Recorded Investment With No Allowance	2		2		0
Recorded Investment With Allowance	2		2		0
Total Recorded Investment	4		4		0
Related Allowance	2		2		0
Average Recorded Investment	4	0	2	0
Interest Income Recognized	0	0	0	0
Interest Income Recognized Cash Basis	0	0	0	0
Other Commercial Loans [Member]
Impaired Financing Receivable [Abstract]
Unpaid Principal Balance	4,690		4,690		6,159
Recorded Investment With No Allowance	3,759		3,759		5,135
Recorded Investment With Allowance	469		469		859
Total Recorded Investment	4,228		4,228		5,994
Related Allowance	208		208		326
Average Recorded Investment	4,337	5,298	4,988	5,743
Interest Income Recognized	54	53	131	187
Interest Income Recognized Cash Basis	25	2	52	5
Other Agricultural Loans [Member]
Impaired Financing Receivable [Abstract]
Unpaid Principal Balance	1,442		1,442		1,653
Recorded Investment With No Allowance	1,309		1,309		1,629
Recorded Investment With Allowance	109		109		24
Total Recorded Investment	1,418		1,418		1,653
Related Allowance	40		40		30
Average Recorded Investment	1,443	0	1,528	70
Interest Income Recognized	10	0	55	3
Interest Income Recognized Cash Basis	0	0	0	0
State and Political Subdivision Loans [Member]
Impaired Financing Receivable [Abstract]
Unpaid Principal Balance	0		0		0
Recorded Investment With No Allowance	0		0		0
Recorded Investment With Allowance	0		0		0
Total Recorded Investment	0		0		0
Related Allowance	0		0		$ 0
Average Recorded Investment	0	0	0	0
Interest Income Recognized	0	0	0	0
Interest Income Recognized Cash Basis	$ 0	$ 0	$ 0	$ 0

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Loans, Credit Quality Indicator (Details) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016	Dec. 31, 2016
Financing Receivable by credit exposure [Abstract]
Total	$ 217,173		$ 218,428
Minimum [Member]
Financing Receivable, Recorded Investment [Line Items]
Percentage of dollar volume of commercial loan portfolio to be reviewed	50.00%	60.00%
Amount over which all new loans to be reviewed	$ 1,000
Amount over which all relationships to be reviewed	1,000
Amount which is 30 days past due to be reviewed for all aggregate loan relationships	750
Real Estate Loans [Member] | Commercial [Member]
Financing Receivable by credit exposure [Abstract]
Total	273,624		252,577
Real Estate Loans [Member] | Agricultural [Member]
Financing Receivable by credit exposure [Abstract]
Total	207,052		123,624
Real Estate Loans [Member] | Construction [Member]
Financing Receivable by credit exposure [Abstract]
Total	17,074		25,441
Real Estate Loans [Member] | Mortgages [Member]
Financing Receivable by credit exposure [Abstract]
Total	149,073		148,730
Real Estate Loans [Member] | Home Equity [Member]
Financing Receivable by credit exposure [Abstract]
Total	57,316		58,693
Consumer [Member]
Financing Receivable by credit exposure [Abstract]
Total	10,784		11,005
Other Commercial Loans [Member]
Financing Receivable by credit exposure [Abstract]
Total	56,222		58,639
Other Agricultural Loans [Member]
Financing Receivable by credit exposure [Abstract]
Total	34,066		23,388
State and Political Subdivision Loans [Member]
Financing Receivable by credit exposure [Abstract]
Total	101,951		97,514
Pass [Member]
Financing Receivable by credit exposure [Abstract]
Total	630,331		516,605
Pass [Member] | Real Estate Loans [Member] | Commercial [Member]
Financing Receivable by credit exposure [Abstract]
Total	246,405		225,185
Pass [Member] | Real Estate Loans [Member] | Agricultural [Member]
Financing Receivable by credit exposure [Abstract]
Total	195,469		110,785
Pass [Member] | Real Estate Loans [Member] | Construction [Member]
Financing Receivable by credit exposure [Abstract]
Total	17,074		25,441
Pass [Member] | Other Commercial Loans [Member]
Financing Receivable by credit exposure [Abstract]
Total	51,341		51,396
Pass [Member] | Other Agricultural Loans [Member]
Financing Receivable by credit exposure [Abstract]
Total	31,791		20,178
Pass [Member] | State and Political Subdivision Loans [Member]
Financing Receivable by credit exposure [Abstract]
Total	88,251		83,620
Special Mention [Member]
Financing Receivable by credit exposure [Abstract]
Total	23,617		39,124
Special Mention [Member] | Real Estate Loans [Member] | Commercial [Member]
Financing Receivable by credit exposure [Abstract]
Total	15,069		14,045
Special Mention [Member] | Real Estate Loans [Member] | Agricultural [Member]
Financing Receivable by credit exposure [Abstract]
Total	4,824		8,231
Special Mention [Member] | Real Estate Loans [Member] | Construction [Member]
Financing Receivable by credit exposure [Abstract]
Total	0		0
Special Mention [Member] | Other Commercial Loans [Member]
Financing Receivable by credit exposure [Abstract]
Total	635		2,049
Special Mention [Member] | Other Agricultural Loans [Member]
Financing Receivable by credit exposure [Abstract]
Total	198		1,733
Special Mention [Member] | State and Political Subdivision Loans [Member]
Financing Receivable by credit exposure [Abstract]
Total	2,891		13,066
Substandard [Member]
Financing Receivable by credit exposure [Abstract]
Total	35,960		25,365
Substandard [Member] | Real Estate Loans [Member] | Commercial [Member]
Financing Receivable by credit exposure [Abstract]
Total	12,150		13,347
Substandard [Member] | Real Estate Loans [Member] | Agricultural [Member]
Financing Receivable by credit exposure [Abstract]
Total	6,759		4,608
Substandard [Member] | Real Estate Loans [Member] | Construction [Member]
Financing Receivable by credit exposure [Abstract]
Total	0		0
Substandard [Member] | Other Commercial Loans [Member]
Financing Receivable by credit exposure [Abstract]
Total	4,165		5,105
Substandard [Member] | Other Agricultural Loans [Member]
Financing Receivable by credit exposure [Abstract]
Total	2,077		1,477
Substandard [Member] | State and Political Subdivision Loans [Member]
Financing Receivable by credit exposure [Abstract]
Total	10,809		828
Doubtful [Member]
Financing Receivable by credit exposure [Abstract]
Total	81		89
Doubtful [Member] | Real Estate Loans [Member] | Commercial [Member]
Financing Receivable by credit exposure [Abstract]
Total	0		0
Doubtful [Member] | Real Estate Loans [Member] | Agricultural [Member]
Financing Receivable by credit exposure [Abstract]
Total	0		0
Doubtful [Member] | Real Estate Loans [Member] | Construction [Member]
Financing Receivable by credit exposure [Abstract]
Total	0		0
Doubtful [Member] | Other Commercial Loans [Member]
Financing Receivable by credit exposure [Abstract]
Total	81		89
Doubtful [Member] | Other Agricultural Loans [Member]
Financing Receivable by credit exposure [Abstract]
Total	0		0
Doubtful [Member] | State and Political Subdivision Loans [Member]
Financing Receivable by credit exposure [Abstract]
Total	0		0
Loss [Member]
Financing Receivable by credit exposure [Abstract]
Total	0		0
Loss [Member] | Real Estate Loans [Member] | Commercial [Member]
Financing Receivable by credit exposure [Abstract]
Total	0		0
Loss [Member] | Real Estate Loans [Member] | Agricultural [Member]
Financing Receivable by credit exposure [Abstract]
Total	0		0
Loss [Member] | Real Estate Loans [Member] | Construction [Member]
Financing Receivable by credit exposure [Abstract]
Total	0		0
Loss [Member] | Other Commercial Loans [Member]
Financing Receivable by credit exposure [Abstract]
Total	0		0
Loss [Member] | Other Agricultural Loans [Member]
Financing Receivable by credit exposure [Abstract]
Total	0		0
Loss [Member] | State and Political Subdivision Loans [Member]
Financing Receivable by credit exposure [Abstract]
Total	0		0
Internally Assigned Grade [Member]
Financing Receivable by credit exposure [Abstract]
Total	689,989		581,183
Performing [Member]
Financing Receivable by credit exposure [Abstract]
Total	215,616		216,377
Performing [Member] | Real Estate Loans [Member] | Mortgages [Member]
Financing Receivable by credit exposure [Abstract]
Total	147,785		147,047
Performing [Member] | Real Estate Loans [Member] | Home Equity [Member]
Financing Receivable by credit exposure [Abstract]
Total	57,148		58,438
Performing [Member] | Consumer [Member]
Financing Receivable by credit exposure [Abstract]
Total	10,683		10,892
Nonperforming [Member]
Financing Receivable by credit exposure [Abstract]
Total	1,523		2,012
Nonperforming [Member] | Real Estate Loans [Member] | Mortgages [Member]
Financing Receivable by credit exposure [Abstract]
Total	1,254		1,648
Nonperforming [Member] | Real Estate Loans [Member] | Home Equity [Member]
Financing Receivable by credit exposure [Abstract]
Total	168		255
Nonperforming [Member] | Consumer [Member]
Financing Receivable by credit exposure [Abstract]
Total	101		109
PCI [Member]
Financing Receivable by credit exposure [Abstract]
Total	34		39
PCI [Member] | Real Estate Loans [Member] | Mortgages [Member]
Financing Receivable by credit exposure [Abstract]
Total	34		35
PCI [Member] | Real Estate Loans [Member] | Home Equity [Member]
Financing Receivable by credit exposure [Abstract]
Total	0		0
PCI [Member] | Consumer [Member]
Financing Receivable by credit exposure [Abstract]
Total	$ 0		$ 4

XML

Loans, Past Due (Details) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2017	Dec. 31, 2016
Recorded investment of past due [Abstract]
Total past due	$ 12,149	$ 14,133
Current	891,692	782,111
PCI	3,321	3,367
Total financing receivables	907,162	799,611
90 Days or greater and accruing	173	405
Financing receivables on nonaccrual status [Abstract]
Total past due and non-accrual	8,616	10,729
Current and non-accrual	3,205	725
PCI Loans considered non accrual	0	0
Financing receivable nonaccrual status	11,821	11,454
Financing receivables on accrual status [Abstract]
Total past due and still accruing	3,533	3,404
Current and still accruing	888,487	781,386
PCI Loans still accruing	3,321	3,367
Total financing receivables and still accruing	$ 895,341	788,157
Minimum [Member]
Financing receivables on nonaccrual status [Abstract]
Period of past due after which loans considered as non accrual	90 days
30 to 59 Days Past Due [Member]
Recorded investment of past due [Abstract]
Total past due	$ 3,150	3,024
Financing receivables on nonaccrual status [Abstract]
Total past due and non-accrual	317	172
Financing receivables on accrual status [Abstract]
Total past due and still accruing	2,833	2,852
60 to 89 Days Past Due [Member]
Recorded investment of past due [Abstract]
Total past due	594	252
Financing receivables on nonaccrual status [Abstract]
Total past due and non-accrual	67	105
Financing receivables on accrual status [Abstract]
Total past due and still accruing	527	147
90 Days Or Greater [Member]
Recorded investment of past due [Abstract]
Total past due	8,405	10,857
Financing receivables on nonaccrual status [Abstract]
Total past due and non-accrual	8,232	10,452
Financing receivables on accrual status [Abstract]
Total past due and still accruing	173	405
Real Estate Loans [Member] | Mortgages [Member]
Recorded investment of past due [Abstract]
Total past due	1,941	1,775
Current	147,098	146,920
PCI	34	35
Total financing receivables	149,073	148,730
90 Days or greater and accruing	49	173
Financing receivables on nonaccrual status [Abstract]
Financing receivable nonaccrual status	1,205	1,475
Real Estate Loans [Member] | Mortgages [Member] | 30 to 59 Days Past Due [Member]
Recorded investment of past due [Abstract]
Total past due	1,087	630
Real Estate Loans [Member] | Mortgages [Member] | 60 to 89 Days Past Due [Member]
Recorded investment of past due [Abstract]
Total past due	242	36
Real Estate Loans [Member] | Mortgages [Member] | 90 Days Or Greater [Member]
Recorded investment of past due [Abstract]
Total past due	612	1,109
Real Estate Loans [Member] | Home Equity [Member]
Recorded investment of past due [Abstract]
Total past due	460	642
Current	56,856	58,051
PCI	0	0
Total financing receivables	57,316	58,693
90 Days or greater and accruing	30	160
Financing receivables on nonaccrual status [Abstract]
Financing receivable nonaccrual status	138	95
Real Estate Loans [Member] | Home Equity [Member] | 30 to 59 Days Past Due [Member]
Recorded investment of past due [Abstract]
Total past due	347	384
Real Estate Loans [Member] | Home Equity [Member] | 60 to 89 Days Past Due [Member]
Recorded investment of past due [Abstract]
Total past due	33	49
Real Estate Loans [Member] | Home Equity [Member] | 90 Days Or Greater [Member]
Recorded investment of past due [Abstract]
Total past due	80	209
Real Estate Loans [Member] | Commercial [Member]
Recorded investment of past due [Abstract]
Total past due	5,209	6,117
Current	266,399	244,491
PCI	2,016	1,969
Total financing receivables	273,624	252,577
90 Days or greater and accruing	80	0
Financing receivables on nonaccrual status [Abstract]
Financing receivable nonaccrual status	5,262	4,445
Real Estate Loans [Member] | Commercial [Member] | 30 to 59 Days Past Due [Member]
Recorded investment of past due [Abstract]
Total past due	1,184	1,757
Real Estate Loans [Member] | Commercial [Member] | 60 to 89 Days Past Due [Member]
Recorded investment of past due [Abstract]
Total past due	211	58
Real Estate Loans [Member] | Commercial [Member] | 90 Days Or Greater [Member]
Recorded investment of past due [Abstract]
Total past due	3,814	4,302
Real Estate Loans [Member] | Agricultural [Member]
Recorded investment of past due [Abstract]
Total past due	1,182	1,145
Current	205,137	121,741
PCI	733	738
Total financing receivables	207,052	123,624
90 Days or greater and accruing	0	0
Financing receivables on nonaccrual status [Abstract]
Financing receivable nonaccrual status	1,464	1,340
Real Estate Loans [Member] | Agricultural [Member] | 30 to 59 Days Past Due [Member]
Recorded investment of past due [Abstract]
Total past due	0	0
Real Estate Loans [Member] | Agricultural [Member] | 60 to 89 Days Past Due [Member]
Recorded investment of past due [Abstract]
Total past due	17	0
Real Estate Loans [Member] | Agricultural [Member] | 90 Days Or Greater [Member]
Recorded investment of past due [Abstract]
Total past due	1,165	1,145
Real Estate Loans [Member] | Construction [Member]
Recorded investment of past due [Abstract]
Total past due	0	0
Current	17,074	25,441
PCI	0	0
Total financing receivables	17,074	25,441
90 Days or greater and accruing	0	0
Financing receivables on nonaccrual status [Abstract]
Financing receivable nonaccrual status	0	0
Real Estate Loans [Member] | Construction [Member] | 30 to 59 Days Past Due [Member]
Recorded investment of past due [Abstract]
Total past due	0	0
Real Estate Loans [Member] | Construction [Member] | 60 to 89 Days Past Due [Member]
Recorded investment of past due [Abstract]
Total past due	0	0
Real Estate Loans [Member] | Construction [Member] | 90 Days Or Greater [Member]
Recorded investment of past due [Abstract]
Total past due	0	0
Consumer [Member]
Recorded investment of past due [Abstract]
Total past due	263	238
Current	10,521	10,763
PCI	0	4
Total financing receivables	10,784	11,005
90 Days or greater and accruing	14	67
Financing receivables on nonaccrual status [Abstract]
Financing receivable nonaccrual status	88	42
Consumer [Member] | 30 to 59 Days Past Due [Member]
Recorded investment of past due [Abstract]
Total past due	115	115
Consumer [Member] | 60 to 89 Days Past Due [Member]
Recorded investment of past due [Abstract]
Total past due	48	40
Consumer [Member] | 90 Days Or Greater [Member]
Recorded investment of past due [Abstract]
Total past due	100	83
Other Commercial Loans [Member]
Recorded investment of past due [Abstract]
Total past due	2,907	4,134
Current	52,777	53,884
PCI	538	621
Total financing receivables	56,222	58,639
90 Days or greater and accruing	0	0
Financing receivables on nonaccrual status [Abstract]
Financing receivable nonaccrual status	3,008	4,057
Other Commercial Loans [Member] | 30 to 59 Days Past Due [Member]
Recorded investment of past due [Abstract]
Total past due	230	95
Other Commercial Loans [Member] | 60 to 89 Days Past Due [Member]
Recorded investment of past due [Abstract]
Total past due	43	35
Other Commercial Loans [Member] | 90 Days Or Greater [Member]
Recorded investment of past due [Abstract]
Total past due	2,634	4,004
Other Agricultural Loans [Member]
Recorded investment of past due [Abstract]
Total past due	187	82
Current	33,879	23,306
PCI	0	0
Total financing receivables	34,066	23,388
90 Days or greater and accruing	0	5
Financing receivables on nonaccrual status [Abstract]
Financing receivable nonaccrual status	656	0
Other Agricultural Loans [Member] | 30 to 59 Days Past Due [Member]
Recorded investment of past due [Abstract]
Total past due	187	43
Other Agricultural Loans [Member] | 60 to 89 Days Past Due [Member]
Recorded investment of past due [Abstract]
Total past due	0	34
Other Agricultural Loans [Member] | 90 Days Or Greater [Member]
Recorded investment of past due [Abstract]
Total past due	0	5
State and Political Subdivision Loans [Member]
Recorded investment of past due [Abstract]
Total past due	0	0
Current	101,951	97,514
PCI	0	0
Total financing receivables	101,951	97,514
90 Days or greater and accruing	0	0
Financing receivables on nonaccrual status [Abstract]
Financing receivable nonaccrual status	0	0
State and Political Subdivision Loans [Member] | 30 to 59 Days Past Due [Member]
Recorded investment of past due [Abstract]
Total past due	0	0
State and Political Subdivision Loans [Member] | 60 to 89 Days Past Due [Member]
Recorded investment of past due [Abstract]
Total past due	0	0
State and Political Subdivision Loans [Member] | 90 Days Or Greater [Member]
Recorded investment of past due [Abstract]
Total past due	$ 0	$ 0

XML

Loans, Trouble Debt Restructuring (Details) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2017 USD ($) Contract	Sep. 30, 2016 USD ($) Contract	Sep. 30, 2017 USD ($) Contract	Sep. 30, 2016 USD ($) Contract	Dec. 31, 2016 USD ($)
Loans [Abstract]
Reserves of allowance for loan losses	$ 85		$ 85		$ 29
Financing receivable modifications [Abstract]
Number of contract, subsequently defaults | Contract	0	0	0	0
Interest Modification [Member]
Financing receivable modifications [Abstract]
Number of contracts | Contract	0	0	0	0
Pre-modification outstanding recorded investment	$ 0	$ 0	$ 0	$ 0
Post-modification outstanding recorded investment	$ 0	$ 0	$ 0	$ 0
Term Modification [Member]
Financing receivable modifications [Abstract]
Number of contracts | Contract	3	4	10	7
Pre-modification outstanding recorded investment	$ 311	$ 3,826	$ 7,108	$ 4,264
Post-modification outstanding recorded investment	$ 311	$ 3,826	$ 7,108	$ 4,264
Real Estate Loans [Member] | Commercial [Member] | Interest Modification [Member]
Financing receivable modifications [Abstract]
Number of contracts | Contract		0	0	0
Pre-modification outstanding recorded investment		$ 0	$ 0	$ 0
Post-modification outstanding recorded investment		$ 0	$ 0	$ 0
Real Estate Loans [Member] | Commercial [Member] | Term Modification [Member]
Financing receivable modifications [Abstract]
Number of contracts | Contract		1	7	4
Pre-modification outstanding recorded investment		$ 750	$ 6,797	$ 1,188
Post-modification outstanding recorded investment		$ 750	$ 6,797	$ 1,188
Real Estate Loans [Member] | Agricultural [Member] | Interest Modification [Member]
Financing receivable modifications [Abstract]
Number of contracts | Contract	0		0
Pre-modification outstanding recorded investment	$ 0		$ 0
Post-modification outstanding recorded investment	$ 0		$ 0
Real Estate Loans [Member] | Agricultural [Member] | Term Modification [Member]
Financing receivable modifications [Abstract]
Number of contracts | Contract	2		2
Pre-modification outstanding recorded investment	$ 150		$ 150
Post-modification outstanding recorded investment	$ 150		$ 150
Other Commercial Loans [Member] | Interest Modification [Member]
Financing receivable modifications [Abstract]
Number of contracts | Contract		0		0
Pre-modification outstanding recorded investment		$ 0		$ 0
Post-modification outstanding recorded investment		$ 0		$ 0
Other Commercial Loans [Member] | Term Modification [Member]
Financing receivable modifications [Abstract]
Number of contracts | Contract		3		3
Pre-modification outstanding recorded investment		$ 3,076		$ 3,076
Post-modification outstanding recorded investment		$ 3,076		$ 3,076
Other Agricultural Loans [Member] | Interest Modification [Member]
Financing receivable modifications [Abstract]
Number of contracts | Contract	0		0
Pre-modification outstanding recorded investment	$ 0		$ 0
Post-modification outstanding recorded investment	$ 0		$ 0
Other Agricultural Loans [Member] | Term Modification [Member]
Financing receivable modifications [Abstract]
Number of contracts | Contract	1		1
Pre-modification outstanding recorded investment	$ 161		$ 161
Post-modification outstanding recorded investment	$ 161		$ 161

XML

Loans, Allowance for Loan Losses (Details) - USD ($) $ in Thousands	Sep. 30, 2017	Jun. 30, 2017	Dec. 31, 2016	Sep. 30, 2016	Jun. 30, 2016	Dec. 31, 2015
Summary of allowance for loan losses into amount required for loans individually evaluated for impairment and the amount required for loans collectively evaluated for impairment [Abstract]
Individually evaluated for impairment	$ 442		$ 487
Collectively evaluated for impairment	10,005		8,399
Total	10,447	$ 9,979	8,886	$ 8,194	$ 7,359	$ 7,106
Real Estate Loans [Member] | Residential [Member]
Summary of allowance for loan losses into amount required for loans individually evaluated for impairment and the amount required for loans collectively evaluated for impairment [Abstract]
Individually evaluated for impairment	26		32
Collectively evaluated for impairment	1,054		1,032
Total	1,080	1,104	1,064	1,013	990	905
Real Estate Loans [Member] | Commercial [Member]
Summary of allowance for loan losses into amount required for loans individually evaluated for impairment and the amount required for loans collectively evaluated for impairment [Abstract]
Individually evaluated for impairment	67		45
Collectively evaluated for impairment	3,515		3,544
Total	3,582	3,541	3,589	3,615	3,338	3,376
Real Estate Loans [Member] | Agricultural [Member]
Summary of allowance for loan losses into amount required for loans individually evaluated for impairment and the amount required for loans collectively evaluated for impairment [Abstract]
Individually evaluated for impairment	99		54
Collectively evaluated for impairment	2,595		1,440
Total	2,694	2,452	1,494	991	581	409
Real Estate Loans [Member] | Construction [Member]
Summary of allowance for loan losses into amount required for loans individually evaluated for impairment and the amount required for loans collectively evaluated for impairment [Abstract]
Individually evaluated for impairment	0		0
Collectively evaluated for impairment	31		47
Total	31	45	47	34	18	24
Consumer [Member]
Summary of allowance for loan losses into amount required for loans individually evaluated for impairment and the amount required for loans collectively evaluated for impairment [Abstract]
Individually evaluated for impairment	2		0
Collectively evaluated for impairment	135		122
Total	137	125	122	109	104	102
Other Commercial Loans [Member]
Summary of allowance for loan losses into amount required for loans individually evaluated for impairment and the amount required for loans collectively evaluated for impairment [Abstract]
Individually evaluated for impairment	208		326
Collectively evaluated for impairment	904		1,001
Total	1,112	1,131	1,327	1,343	1,316	1,183
Other Agricultural Loans [Member]
Summary of allowance for loan losses into amount required for loans individually evaluated for impairment and the amount required for loans collectively evaluated for impairment [Abstract]
Individually evaluated for impairment	40		30
Collectively evaluated for impairment	422		282
Total	462	431	312	299	248	122
State and Political Subdivision Loans [Member]
Summary of allowance for loan losses into amount required for loans individually evaluated for impairment and the amount required for loans collectively evaluated for impairment [Abstract]
Individually evaluated for impairment	0		0
Collectively evaluated for impairment	874		833
Total	874	838	833	771	764	593
Unallocated [Member]
Summary of allowance for loan losses into amount required for loans individually evaluated for impairment and the amount required for loans collectively evaluated for impairment [Abstract]
Individually evaluated for impairment	0		0
Collectively evaluated for impairment	475		98
Total	$ 475	$ 312	$ 98	$ 19	$ 0	$ 392

XML

Loans, Allowance for Loan Losses by Portfolio Segment (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016	Sep. 30, 2017	Sep. 30, 2016
Financing Receivable, Allowance for Credit Losses [Roll Forward]
Balance at beginning of period	$ 9,979	$ 7,359	$ 8,886	$ 7,106
Charge-offs	(56)	(173)	(240)	(272)
Recoveries	24	508	61	590
Provision	500	500	1,740	770
Balance at end of period	10,447	8,194	10,447	8,194
Real Estate Loans [Member] | Residential [Member]
Financing Receivable, Allowance for Credit Losses [Roll Forward]
Balance at beginning of period	1,104	990	1,064	905
Charge-offs	(11)	(9)	(104)	(52)
Recoveries	0	0	0	0
Provision	(13)	32	120	160
Balance at end of period	1,080	1,013	1,080	1,013
Real Estate Loans [Member] | Commercial [Member]
Financing Receivable, Allowance for Credit Losses [Roll Forward]
Balance at beginning of period	3,541	3,338	3,589	3,376
Charge-offs	0	(100)	(41)	(100)
Recoveries	5	467	11	475
Provision	36	(90)	23	(136)
Balance at end of period	3,582	3,615	3,582	3,615
Real Estate Loans [Member] | Agricultural [Member]
Financing Receivable, Allowance for Credit Losses [Roll Forward]
Balance at beginning of period	2,452	581	1,494	409
Charge-offs	0	0	0	0
Recoveries	0	0	0	0
Provision	242	410	1,200	582
Balance at end of period	2,694	991	2,694	991
Real Estate Loans [Member] | Construction [Member]
Financing Receivable, Allowance for Credit Losses [Roll Forward]
Balance at beginning of period	45	18	47	24
Charge-offs	0	0	0	0
Recoveries	0	0	0	0
Provision	(14)	16	(16)	10
Balance at end of period	31	34	31	34
Consumer [Member]
Financing Receivable, Allowance for Credit Losses [Roll Forward]
Balance at beginning of period	125	104	122	102
Charge-offs	(45)	(27)	(90)	(65)
Recoveries	13	16	35	84
Provision	44	16	70	(12)
Balance at end of period	137	109	137	109
Other Commercial Loans [Member]
Financing Receivable, Allowance for Credit Losses [Roll Forward]
Balance at beginning of period	1,131	1,316	1,327	1,183
Charge-offs	0	(37)	0	(55)
Recoveries	5	25	14	31
Provision	(24)	39	(229)	184
Balance at end of period	1,112	1,343	1,112	1,343
Other Agricultural Loans [Member]
Financing Receivable, Allowance for Credit Losses [Roll Forward]
Balance at beginning of period	431	248	312	122
Charge-offs	0	0	(5)	0
Recoveries	1	0	1	0
Provision	30	51	154	177
Balance at end of period	462	299	462	299
State and Political Subdivision Loans [Member]
Financing Receivable, Allowance for Credit Losses [Roll Forward]
Balance at beginning of period	838	764	833	593
Charge-offs	0	0	0	0
Recoveries	0	0	0	0
Provision	36	7	41	178
Balance at end of period	874	771	874	771
Unallocated [Member]
Financing Receivable, Allowance for Credit Losses [Roll Forward]
Balance at beginning of period	312	0	98	392
Charge-offs	0	0	0	0
Recoveries	0	0	0	0
Provision	163	19	377	(373)
Balance at end of period	$ 475	$ 19	$ 475	$ 19

XML

Loans, Foreclosed Assets Held for Sale (Details) - USD ($) $ in Thousands	Sep. 30, 2017	Dec. 31, 2016
Foreclosed assets held for sale [Abstract]
Foreclosed assets held for sale	$ 1,570	$ 1,036
Consumer Residential Mortgages [Member]
Foreclosed assets held for sale [Abstract]
Foreclosed assets held for sale	644
Formal foreclosure proceedings on potential foreclosure assets	$ 1,377

XML

Goodwill and Other Intangible Assets (Details) - USD ($) $ in Thousands		3 Months Ended		9 Months Ended
		Sep. 30, 2017	Sep. 30, 2016	Sep. 30, 2017	Sep. 30, 2016	Dec. 31, 2016
Amortized intangible assets [Abstract]
Gross carrying value	[1]	$ 3,370		$ 3,370		$ 3,237
Accumulated amortization	[1]	(1,498)		(1,498)		(1,141)
Net carrying value	[1]	1,872		1,872		2,096
Unamortized intangible assets [Abstract]
Goodwill		21,089		21,089		21,089
Actual and Estimated Future Amortization Expense [Abstract]
Amortization expense		118	$ 124	357	$ 378
Estimated Amortization Expense [Abstract]
Remaining 2017		122		122
2018		404		404
2019		370		370
2020		280		280
2021		225		225
MSRs [Member]
Amortized intangible assets [Abstract]
Gross carrying value	[1]	1,604		1,604		1,471
Accumulated amortization	[1]	(921)		(921)		(787)
Net carrying value	[1]	683		683		684
Actual and Estimated Future Amortization Expense [Abstract]
Amortization expense		44	42	134	132
Estimated Amortization Expense [Abstract]
Remaining 2017		49		49
2018		138		138
2019		134		134
2020		103		103
2021		78		78
Core Deposit Intangibles [Member]
Amortized intangible assets [Abstract]
Gross carrying value	[1]	1,641		1,641		1,641
Accumulated amortization	[1]	(520)		(520)		(320)
Net carrying value	[1]	1,121		1,121		1,321
Actual and Estimated Future Amortization Expense [Abstract]
Amortization expense		66	74	200	222
Estimated Amortization Expense [Abstract]
Remaining 2017		65		65
2018		236		236
2019		206		206
2020		177		177
2021		147		147
Covenant not to Compete [Member]
Amortized intangible assets [Abstract]
Gross carrying value	[1]	125		125		125
Accumulated amortization	[1]	(57)		(57)		(34)
Net carrying value	[1]	68		68		$ 91
Actual and Estimated Future Amortization Expense [Abstract]
Amortization expense		8	$ 8	23	$ 24
Estimated Amortization Expense [Abstract]
Remaining 2017		8		8
2018		30		30
2019		30		30
2020		0		0
2021		$ 0		$ 0

[1] Excludes fully amortized intangible assets

XML

Federal Home Loan Bank Stock (Details) - USD ($)	Sep. 30, 2017	Dec. 31, 2016
Federal Home Loan Bank Stock [Abstract]
Federal home loan bank stock	$ 4,120,200	$ 4,542,000
FHLB Stock, at par value (in dollars per share)	$ 100

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Repurchase Agreements (Details) - USD ($) $ in Thousands	Sep. 30, 2017	Dec. 31, 2016
Transfer of Certain Financial Assets Accounted for as Secured Borrowings [Line Items]
Total carrying value of collateral pledged	$ 20,214	$ 18,177
Total liability recognized for repurchase agreements	16,643	14,307
U.S. Agency Securities [Member]
Transfer of Certain Financial Assets Accounted for as Secured Borrowings [Line Items]
Total carrying value of collateral pledged	20,214	18,177
Overnight and Continuous [Member]
Transfer of Certain Financial Assets Accounted for as Secured Borrowings [Line Items]
Total carrying value of collateral pledged	18,153	16,118
Overnight and Continuous [Member] | U.S. Agency Securities [Member]
Transfer of Certain Financial Assets Accounted for as Secured Borrowings [Line Items]
Total carrying value of collateral pledged	18,153	16,118
Up to 30 Days [Member]
Transfer of Certain Financial Assets Accounted for as Secured Borrowings [Line Items]
Total carrying value of collateral pledged	0	0
Up to 30 Days [Member] | U.S. Agency Securities [Member]
Transfer of Certain Financial Assets Accounted for as Secured Borrowings [Line Items]
Total carrying value of collateral pledged	0	0
30 - 90 Days [Member]
Transfer of Certain Financial Assets Accounted for as Secured Borrowings [Line Items]
Total carrying value of collateral pledged	0	0
30 - 90 Days [Member] | U.S. Agency Securities [Member]
Transfer of Certain Financial Assets Accounted for as Secured Borrowings [Line Items]
Total carrying value of collateral pledged	0	0
Greater than 90 Days [Member]
Transfer of Certain Financial Assets Accounted for as Secured Borrowings [Line Items]
Total carrying value of collateral pledged	2,061	2,059
Greater than 90 Days [Member] | U.S. Agency Securities [Member]
Transfer of Certain Financial Assets Accounted for as Secured Borrowings [Line Items]
Total carrying value of collateral pledged	$ 2,061	$ 2,059

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Employee Benefit Plans, Noncontributory Defined Benefit Pension Plan (Details) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2017 USD ($)	Sep. 30, 2016 USD ($)	Sep. 30, 2017 USD ($) Plan	Sep. 30, 2016 USD ($)
Employee Benefit Plans [Abstract]
Number of plans | Plan			2
Pension Plan [Member]
Components of net periodic benefit cost [Abstract]
Service cost	$ 87	$ 90	$ 262	$ 269
Interest cost	168	172	503	517
Expected return on plan assets	(274)	(260)	(821)	(780)
Net amortization and deferral	56	61	168	182
Net periodic benefit cost	$ 37	$ 63	112	$ 188
Employer contributions			$ 400

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Employee Benefit Plans, Defined Contribution Plan (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016	Sep. 30, 2017	Sep. 30, 2016
Defined Contribution Plan [Abstract]
Employer contribution to 401 (k) defined contribution plan	$ 96	$ 89	$ 303	$ 269

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Employee Benefit Plans, Directors' Deferred Compensation Plan (Details) - Directors [Member] - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016	Sep. 30, 2017	Sep. 30, 2016	Dec. 31, 2016
Deferred Compensation Arrangement with Individual, Postretirement Benefits [Line Items]
Deferred compensation liability	$ 921		$ 921		$ 940
Deferred interest expense	$ 5	$ 3	$ 14	$ 11

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Employee Benefit Plans, Restricted Stock Plan (Details) - Restricted Stock [Member] - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016	Sep. 30, 2017	Sep. 30, 2016
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of shares authorized (in shares)	150,000		150,000
Number of shares available for grant (in shares)	141,678		141,678
Unvested Shares [Roll Forward]
Outstanding, beginning of period (in shares)	9,169		8,471
Granted (in shares)	0		4,212
Forfeited (in shares)	0		(43)
Vested (in shares)	0		(3,471)
Outstanding, end of period (in shares)	9,169		9,169
Weighted Average Market Price [Roll Forward]
Outstanding, beginning of period (in dollars per share)	$ 50.66		$ 49.10
Granted (in dollars per share)	0		53.38
Forfeited (in dollars per share)	0		(48.56)
Vested (in dollars per share)	0		(50.19)
Outstanding, end of period (in dollars per share)	$ 50.66		$ 50.66
Additional General Disclosures [Abstract]
Share-based compensation expense	$ 54	$ 50	$ 158	$ 142
Compensation cost related to nonvested awards that has not yet been recognized	$ 464		$ 464
Period over which compensation cost is expected to be recognized			3 years

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Employee Benefit Plans, Other Plans (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016	Sep. 30, 2017	Sep. 30, 2016	Dec. 31, 2016
Supplemental Executive Retirement Plan [Member]
Defined Benefit Plan Disclosure [Line Items]
Obligation included in other liabilities	$ 1,544		$ 1,544		$ 1,460
Cost recognized	28	$ 30	84	$ 91
Salary Continuation Plan [Member]
Defined Benefit Plan Disclosure [Line Items]
Obligation included in other liabilities	720		720		720
Cost recognized	13	$ 17	40	$ 49
Continuation of Life Insurance Plan [Member]
Defined Benefit Plan Disclosure [Line Items]
Obligation included in other liabilities	$ 576		$ 576		$ 569

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Accumulated Comprehensive Income (Loss) (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016	Sep. 30, 2017	Sep. 30, 2016
Accumulated Other Comprehensive Income Loss [Line Items]
Beginning Balance			$ 123,268
Other comprehensive income (loss) before reclassifications (net of tax)	$ (190)	$ (692)	288	$ 1,609
Amounts reclassified from accumulated other comprehensive income (loss) (net of tax)	31	40	(24)	17
Other comprehensive income (loss), net of tax	(159)	(652)	264	1,626
Ending Balance	129,882		129,882
Accumulated Other Comprehensive Income (Loss) [Member]
Accumulated Other Comprehensive Income Loss [Line Items]
Beginning Balance	(969)	2,042	(1,392)	(236)
Ending Balance	(1,128)	1,390	(1,128)	1,390
Unrealized Gain (Loss) on Available for Sale Securities [Member]
Accumulated Other Comprehensive Income Loss [Line Items]
Beginning Balance	1,655	4,403	1,306	2,204
Other comprehensive income (loss) before reclassifications (net of tax)	(190)	(692)	288	1,609
Amounts reclassified from accumulated other comprehensive income (loss) (net of tax)	(6)	0	(135)	(102)
Other comprehensive income (loss), net of tax	(196)	(692)	153	1,507
Ending Balance	1,459	3,711	1,459	3,711
Defined Benefit Pension Items [Member]
Accumulated Other Comprehensive Income Loss [Line Items]
Beginning Balance	(2,624)	(2,361)	(2,698)	(2,440)
Other comprehensive income (loss) before reclassifications (net of tax)	0	0	0	0
Amounts reclassified from accumulated other comprehensive income (loss) (net of tax)	37	40	111	119
Other comprehensive income (loss), net of tax	37	40	111	119
Ending Balance	$ (2,587)	$ (2,321)	$ (2,587)	$ (2,321)

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Accumulated Comprehensive Income (Loss), Reclassification (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016	Sep. 30, 2017	Sep. 30, 2016
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items]
Investment securities gains, net	$ 9	$ 0	$ 204	$ 155
Salaries and employee benefits	(4,237)	(4,285)	(12,880)	(12,067)
Provision for income taxes	(1,141)	(767)	(3,097)	(2,245)
NET INCOME	3,650	3,153	10,421	9,467
Amount Reclassified from Accumulated Comprehensive Income (Loss) [Member]
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items]
NET INCOME	(31)	(40)	24	(17)
Unrealized Gains and Losses on Available for Sale Securities [Member] | Amount Reclassified from Accumulated Comprehensive Income (Loss) [Member]
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items]
Investment securities gains, net	9	0	204	155
Provision for income taxes	(3)	0	(69)	(53)
NET INCOME	6	0	135	102
Defined Benefit Pension Items [Member] | Amount Reclassified from Accumulated Comprehensive Income (Loss) [Member]
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items]
Salaries and employee benefits	(56)	(61)	(168)	(181)
Provision for income taxes	19	21	57	62
NET INCOME	$ (37)	$ (40)	$ (111)	$ (119)

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Fair Value Measurements, Measured On A Recurring And Nonrecurring Basis (Details) - USD ($) $ in Thousands	9 Months Ended	12 Months Ended
	Sep. 30, 2017	Dec. 31, 2016
Fair value assets and liabilities measured on non-recurring basis [Abstract]
Impaired loans, estimated selling cost	$ 246	$ 188
Recurring [Member]
Securities available for sale [Abstract]
U.S. agency securities	132,551	170,414
U.S. treasury securities		3,000
Obligations of state and political subdivisions	81,723	96,926
Corporate obligations	3,101	3,050
Mortgage-backed securities in government sponsored entities	44,277	37,728
Equity securities in financial institutions	1,936	2,899
Recurring [Member] | Level I [Member]
Securities available for sale [Abstract]
U.S. agency securities	0	0
U.S. treasury securities		3,000
Obligations of state and political subdivisions	0	0
Corporate obligations	0	0
Mortgage-backed securities in government sponsored entities	0	0
Equity securities in financial institutions	1,936	2,899
Recurring [Member] | Level II [Member]
Securities available for sale [Abstract]
U.S. agency securities	132,551	170,414
U.S. treasury securities		0
Obligations of state and political subdivisions	81,723	96,926
Corporate obligations	3,101	3,050
Mortgage-backed securities in government sponsored entities	44,277	37,728
Equity securities in financial institutions	0	0
Recurring [Member] | Level III [Member]
Securities available for sale [Abstract]
U.S. agency securities	0	0
U.S. treasury securities		0
Obligations of state and political subdivisions	0	0
Corporate obligations	0	0
Mortgage-backed securities in government sponsored entities	0	0
Equity securities in financial institutions	0	0
Nonrecurring [Member]
Fair value assets and liabilities measured on non-recurring basis [Abstract]
Impaired Loans	3,024	2,033
Other real estate owned	1,478	839
Nonrecurring [Member] | Level I [Member]
Fair value assets and liabilities measured on non-recurring basis [Abstract]
Impaired Loans	0	0
Other real estate owned	0	0
Nonrecurring [Member] | Level II [Member]
Fair value assets and liabilities measured on non-recurring basis [Abstract]
Impaired Loans	0	0
Other real estate owned	0	0
Nonrecurring [Member] | Level III [Member]
Fair value assets and liabilities measured on non-recurring basis [Abstract]
Impaired Loans	3,024	2,033
Other real estate owned	$ 1,478	$ 839

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Fair Value Measurements, Quantitative Information (Details) - Appraised Collateral Values [Member] - USD ($) $ in Thousands	9 Months Ended	12 Months Ended
	Sep. 30, 2017	Dec. 31, 2016
Impaired Loans [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Fair Value	$ 3,024	$ 2,033
Valuation Technique(s)	Appraised Collateral Values	Appraised Collateral Values
Impaired Loans [Member] | Minimum [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Discount for time since appraisal	0.00%	0.00%
Selling costs	5.00%	5.00%
Holding period	0 months	6 months
Impaired Loans [Member] | Maximum [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Discount for time since appraisal	100.00%	65.00%
Selling costs	9.00%	9.00%
Holding period	24 months	12 months
Impaired Loans [Member] | Weighted Average [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Discount for time since appraisal	21.22%	28.98%
Selling costs	7.13%	7.56%
Holding period	8 months 9 days	11 months
Other Real Estate Owned [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Fair Value	$ 1,478	$ 839
Valuation Technique(s)	Appraised Collateral Values	Appraised Collateral Values
Other Real Estate Owned [Member] | Minimum [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Discount for time since appraisal	12.00%	10.00%
Other Real Estate Owned [Member] | Maximum [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Discount for time since appraisal	47.00%	67.00%
Other Real Estate Owned [Member] | Weighted Average [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Discount for time since appraisal	22.32%	25.45%

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Fair Value Measurements, By Balance Sheet Grouping (Details) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2017	Dec. 31, 2016
Financial assets [Abstract]
Interest bearing time deposits with other banks	$ 10,031	$ 6,955
Available-for-sale securities	$ 263,588	314,017
Financial liabilities [Abstract]
Consideration period for recognition of cash and due from banks	90 days
Consideration period for recognition of accrued interest receivable and payable	90 days
Level I [Member]
Financial assets [Abstract]
Cash and due from banks	$ 13,815	17,754
Interest bearing time deposits with other banks	0	0
Available-for-sale securities	1,936	5,899
Loans held for sale	1,431	1,827
Net loans	0	0
Bank owned life insurance	26,722	26,223
Regulatory stock	4,884	5,306
Accrued interest receivable	3,786	4,089
Financial liabilities [Abstract]
Deposits	792,133	740,889
Borrowed funds	32,960	41,330
Accrued interest payable	731	720
Level II [Member]
Financial assets [Abstract]
Cash and due from banks	0	0
Interest bearing time deposits with other banks	0	0
Available-for-sale securities	261,652	308,118
Net loans	0	0
Bank owned life insurance	0	0
Regulatory stock	0	0
Accrued interest receivable	0	0
Financial liabilities [Abstract]
Deposits	0	0
Borrowed funds	0	0
Accrued interest payable	0	0
Level III [Member]
Financial assets [Abstract]
Cash and due from banks	0	0
Interest bearing time deposits with other banks	10,038	6,960
Available-for-sale securities		0
Net loans	894,706	797,184
Bank owned life insurance	0	0
Regulatory stock	0	0
Accrued interest receivable	0	0
Financial liabilities [Abstract]
Deposits	258,229	263,183
Borrowed funds	39,005	36,095
Accrued interest payable	0
Carrying Amount [Member]
Financial assets [Abstract]
Cash and due from banks	13,815	17,754
Interest bearing time deposits with other banks	10,031	6,955
Available-for-sale securities	263,588	314,017
Loans held for sale	1,431	1,827
Net loans	896,715	790,725
Bank owned life insurance	26,722	26,223
Regulatory stock	4,884	5,306
Accrued interest receivable	3,786	4,089
Financial liabilities [Abstract]
Deposits	1,052,105	1,005,503
Borrowed funds	73,628	79,662
Accrued interest payable	731	720
Fair Value [Member]
Financial assets [Abstract]
Cash and due from banks	13,815	17,754
Interest bearing time deposits with other banks	10,038	6,960
Available-for-sale securities	263,588	314,017
Loans held for sale	1,431	1,827
Net loans	894,706	797,184
Bank owned life insurance	26,722	26,223
Regulatory stock	4,884	5,306
Accrued interest receivable	3,786	4,089
Financial liabilities [Abstract]
Deposits	1,050,362	1,004,072
Borrowed funds	71,965	77,425
Accrued interest payable	$ 731	$ 720