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 June 30, 2018

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 August 2, 2018, was 3,512,653.

Citizens Financial Services, Inc.

Form 10-Q

INDEX

		PAGE
Part I	FINANCIAL INFORMATION
Item 1.	Financial Statements (unaudited):
	Consolidated Balance Sheet as of June 30,2018 and December 31, 2017	1
	Consolidated Statement of Income for the Three and Six Months Ended June 30, 2018 and 2017	2
	Consolidated Statement of Comprehensive Income for the Three and Six Months ended June 30, 2018 and 2017	3
	Consolidated Statement of Cash Flows for the Six Months ended June 30, 2018 and 2017	4
	Notes to Consolidated Financial Statements	5-29
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	30-51
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	51-52
Item 4.	Controls and Procedures	52
Part II	OTHER INFORMATION
Item 1.	Legal Proceedings	52
Item 1A.	Risk Factors	52
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	52-53
Item 3.	Defaults Upon Senior Securities	53
Item 4.	Mine Safety Disclosures	53
Item 5.	Other Information	53
Item 6.	Exhibits	53
	Signatures	54

CITIZENS FINANCIAL SERVICES, INC.
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
	June 30,			December 31,
(in thousands except share data)	2018			2017
ASSETS:
Cash and due from banks:
Noninterest-bearing	$	14,521		$	16,347
Interest-bearing		1,092			2,170
Total cash and cash equivalents		15,613			18,517
Interest bearing time deposits with other banks		13,762			10,283
Equity securities		195			-
Available-for-sale securities		250,025			254,782
Loans held for sale		1,931			1,439
Loans (net of allowance for loan losses:
2018, $11,941 and 2017, $11,190)		1,028,259			989,335
Premises and equipment		16,289			16,523
Accrued interest receivable		4,285			4,196
Goodwill		23,296			23,296
Bank owned life insurance		27,189			26,883
Other intangibles		1,756			1,953
Other assets		14,994			14,679
TOTAL ASSETS	$	1,397,594		$	1,361,886
LIABILITIES:
Deposits:
Noninterest-bearing	$	169,014		$	171,840
Interest-bearing		949,578			933,103
Total deposits		1,118,592			1,104,943
Borrowed funds		133,652			114,664
Accrued interest payable		903			897
Other liabilities		12,166			12,371
TOTAL LIABILITIES		1,265,313			1,232,875
STOCKHOLDERS' EQUITY:
Preferred Stock
$1.00 par value; authorized 3,000,000 shares at June 30, 2018 and
December 31, 2017; none issued in 2018 or 2017		-			-
Common stock
$1.00 par value; authorized 25,000,000 shares at June 30, 2018 and
15,000,000 at December 31, 2017; issued 3,904,212 at June 30, 2018 and
3,869,939 at December 31, 2017		3,904			3,870
Additional paid-in capital		53,098			51,108
Retained earnings		93,717			89,982
Accumulated other comprehensive loss		(5,357	)		(3,398	)
Treasury stock, at cost:  391,559 shares at June 30, 2018
and 383,065 shares at December 31, 2017		(13,081	)		(12,551	)
TOTAL STOCKHOLDERS' EQUITY		132,281			129,011
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY	$	1,397,594		$	1,361,886
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				Six Months Ended
	June 30,				June 30,
(in thousands, except share and per share data)	2018		2017		2018		2017
INTEREST INCOME:
Interest and fees on loans	$	12,461	$	10,304	$	24,322	$	20,021
Interest-bearing deposits with banks		66		45		124		80
Investment securities:
Taxable		916		775		1,716		1,579
Nontaxable		474		601		1,001		1,269
Dividends		111		53		248		129
TOTAL INTEREST INCOME		14,028		11,778		27,411		23,078
INTEREST EXPENSE:
Deposits		1,585		1,143		2,901		2,188
Borrowed funds		692		231		1,339		489
TOTAL INTEREST EXPENSE		2,277		1,374		4,240		2,677
NET INTEREST INCOME		11,751		10,404		23,171		20,401
Provision for loan losses		325		625		825		1,240
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES		11,426		9,779		22,346		19,161
NON-INTEREST INCOME:
Service charges		1,170		1,120		2,274		2,178
Trust		150		188		401		409
Brokerage and insurance		168		114		349		305
Gains on loans sold		60		148		132		249
Equity security gains, net		7		-		13		-
Available for sale security gains, net		-		23		-		195
Earnings on bank owned life insurance		154		167		306		333
Other		133		128		273		254
TOTAL NON-INTEREST INCOME		1,842		1,888		3,748		3,923
NON-INTEREST EXPENSES:
Salaries and employee benefits		4,737		4,377		9,572		8,743
Occupancy		514		477		1,106		1,004
Furniture and equipment		122		146		264		285
Professional fees		262		258		557		568
FDIC insurance		107		95		207		200
Pennsylvania shares tax		300		243		600		524
Amortization of intangibles		74		73		150		149
Other real estate owned expenses		157		82		295		172
Other		1,429		1,415		2,783		2,712
TOTAL NON-INTEREST EXPENSES		7,702		7,166		15,534		14,357
Income before provision for income taxes		5,566		4,501		10,560		8,727
Provision for income taxes		875		1,033		1,622		1,956
NET INCOME	$	4,691	$	3,468	$	8,938	$	6,771
PER COMMON SHARE DATA:
Net Income - Basic	$	1.34	$	0.99	$	2.55	$	1.93
Net Income - Diluted	$	1.34	$	0.99	$	2.55	$	1.93
Cash Dividends Paid	$	0.435	$	0.401	$	0.870	$	0.802
Number of shares used in computation - basic		3,507,242		3,514,394		3,509,882		3,513,925
Number of shares used in computation - diluted		3,508,709		3,515,582		3,510,513		3,514,535
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										Six Months Ended
	June 30,										June 30,
(in thousands)				2018					2017					2018					2017
Net income				$	4,691				$	3,468				$	8,938				$	6,771
Other comprehensive income (loss):
Change in unrealized gains on available for sale securities		(529	)				654					(2,574	)				724
Income tax effect		112					(222	)				540					(246	)
Change in unrecognized pension cost		47					52					93					112
Income tax effect		(10	)				(17	)				(19	)				(38	)
Less:  Reclassification adjustment for investment
security gains included in net income		-					(23	)				-					(195	)
Income tax effect		-					8					-					66
Other comprehensive income (loss), net of tax					(380	)				452					(1,960	)				423
Comprehensive income				$	4,311				$	3,920				$	6,978				$	7,194
The accompanying notes are an integral part of these unaudited consolidated financial statements.

3

CITIZENS FINANCIAL SERVICES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)	Six Months Ended
	June 30,
(in thousands)	2018			2017
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	8,938		$	6,771
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses		825			1,240
Depreciation and amortization		182			199
Amortization and accretion of investment securities		569			735
Deferred income taxes		42			(105	)
Equity and available for sale securities gains, net		(13	)		(195	)
Earnings on bank owned life insurance		(306	)		(333	)
Originations of loans held for sale		(7,260	)		(10,247	)
Proceeds from sales of loans held for sale		6,849			11,840
Realized gains on loans sold		(132	)		(249	)
(Increase) decrease in accrued interest receivable		(89	)		392
Increase (decrease) in accrued interest payable		6			(92	)
Other, net		23			(166	)
Net cash provided by operating activities		9,634			9,790
CASH FLOWS FROM INVESTING ACTIVITIES:
Available-for-sale securities:
Proceeds from sales		-			25,407
Proceeds from maturity and principal repayments		31,351			36,510
Purchase of securities		(29,828	)		(13,829	)
Purchase of equity securities		(91	)		-
Purchase of interest bearing time deposits with other banks		(4,721	)		(4,069	)
Proceeds from sale of interest bearing time deposits with other banks		1,239			1,745
Proceeds from matured interest bearing time deposits with other banks		-			496
Proceeds from redemption of regulatory stock		5,138			4,303
Purchase of regulatory stock		(5,574	)		(3,487	)
Net increase in loans		(39,375	)		(88,468	)
Purchase of premises and equipment		(140	)		(131	)
Proceeds from sale of foreclosed assets held for sale		736			237
Net cash used in investing activities		(41,265	)		(41,286	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits		13,649			45,706
Proceeds from long-term borrowings		4			5
Net short-term borrowed funds		18,984			(9,669	)
Purchase of treasury and restricted stock		(850	)		(509	)
Dividends paid		(3,060	)		(2,429	)
Net cash provided by financing activities		28,727			33,104
Net (decrease) increase in cash and cash equivalents		(2,904	)		1,608
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		18,517			17,754
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	15,613		$	19,362
Supplemental Disclosures of Cash Flow Information:
Interest paid	$	4,234		$	2,769
Income taxes paid	$	1,200		$	2,075
Loans transferred to foreclosed property	$	78		$	335
Investments purchased and not settled	$	-		$	1,541
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 June 30, 2018 and for the periods ended June 30, 2018 and 2017 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 six month period ended June 30, 2018 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, 2017.

In May 2014,the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2014-09, "Revenue from Contracts with Customers" ("ASU 2014-09"), which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU replaces most existing revenue recognition guidance in GAAP. The new standard was effective for the Company on January 1, 2018. Adoption of ASU 2014-09 did not have a material impact on the Company's consolidated financial statements other than additional disclosures in note 2 as the Company's primary sources of revenues are derived from interest and dividends earned on loans, investment securities, and other financial instruments that are not within the scope of ASU 2014-09.

In January 2016, the FASB finalized ASU 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. This accounting standard (a) requires separate presentation of equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) on the balance sheet and 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.

5

The adoption resulted in the Company recognizing a one-time cumulative effect adjustment of $1,000 between accumulated other comprehensive income and retained earnings on the consolidated balance sheet for the fair value of equity securities included in accumulated other comprehensive income as of the beginning of the period. The adjustment had no impact on net income on any prior periods presented.

The Company has adopted this standard during the reporting period. On a prospective basis, the Company implemented changes to the measurement of the fair value of financial instruments using an exit price notion for disclosure purposes included in Note 12 to the financial statements. The June 30, 2018 fair value of each class of financial instruments disclosure did utilize the exit price notion when measuring fair value and, therefore, may not be comparable to the December 3l, 2017 disclosure.

In March 2017, the FASB issued ASU 2017-07, Compensation-Retirement Benefits (Topic 71S). 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 are required to be presented in the income statement separately from the service cost component. The Company adopted the standard on January 1, 2018, which resulted in a reclassification of $(53)and ($100) from Salaries and employee benefits into Other noninterest expenses on the Consolidated Statement of Income for the three and six month periods ended June 30, 2017. See note 10 for additional information on the presentation of these pension cost components.

Note 2 – Revenue Recognition

Effective January 1, 2018, the Company adopted Accounting Standards Update ASU 2014-09 Revenue from Contracts with Customers – Topic 606 and all subsequent ASUs that modified ASC 606. The Company has elected to apply the standard to all prior periods presented utilizing the full retrospective approach. The implementation of the new standard had no material impact to the measurement or recognition of revenue of prior periods. Management determined that the primary sources of revenue emanating from interest and dividend income on loans and investments along with noninterest revenue resulting from investment security gains, loan servicing, gains on loans sold and earnings on bank owned life insurances are not within the scope of ASC 606. As a result, no changes were made during the period related to these sources of revenue, which cumulatively comprise 90.13% and 89.8% of the total revenue of the Company for the three and six months ended June 30, 2018, respectively. The main types of noninterest income within the scope of the standard are as follows:

· Service charges on deposit accounts – The Company has contracts with its deposit customers where fees are charged if certain parameters are not met. These agreements can be cancelled at any time by either the Company or the deposit customer. Revenue from these transactions is recognized on a monthly basis as the Company has an unconditional right to the fee consideration. The Company also has transaction fees related to specific transactions or activities resulting from a customer request or activity that include overdraft fees, online banking fees, interchange fees, ATM fees and other transaction fees. All of these fees are attributable to specific performance obligations of the Company where the revenue is recognized at a defined point in time upon the completion of the requested service/transaction.

· Trust fees – Typical contracts for trust services are based on a fixed percentage of the assets earned ratably over a defined period and billed on a monthly basis. Fees charged to customers' accounts are recognized as revenue over the period during which the Company fulfills its performance obligation under the contract (i.e., holding client asset in a managed fiduciary trust account). For these accounts, the performance obligation of the Company is typically satisfied by holding and managing the customer's assets over time. Other fees related to specific customer requests are attributable to specific performance obligations of the Company where the revenue is recognized at a defined point in time, upon completion of the requested service/transaction.

· Gains (losses) on sale of other real estate owned – Gains and losses are recognized at the completion of the property sale when the buyer obtains control of the real estate and all of the performance obligations of the Company have been satisfied. Evidence of the buyer obtaining control of the asset include transfer of the property title, physical possession of the asset, and the buyer obtaining control of the risks and rewards related to the asset. In situations where the Company agrees to provide financing to facilitate the sale, additional analysis is performed to ensure that the contract for sale identifies the buyer and seller, the asset to be transferred, payment terms, and that the contract has a true commercial substance and that collection of amounts due from the buyer are reasonable. In situations where financing terms are not reflective of current market terms, the transaction price is discounted impacting the gain/loss and the carrying value of the asset.

6

· Brokerage and insurance – Fees includes commissions from the sales of investments and insurance products recognized on a trade date basis as the performance obligation is satisfied at the point in time in which the trade is processed. Additional fees are based on a percentage of the market value of customer accounts and billed on a monthly or quarterly basis. The Company's performance obligation under the contracts with certain customers is generally satisfied through the passage of time as the Company monitors and manages the assets in the customer's portfolio and is not dependent on certain return or performance level of the customer's portfolio. Fees for these services are billed monthly and are recorded as revenue at the end of the month for which the wealth management service has been performed. Other performance obligations (such as the delivery of account statements to customers) are generally considered immaterial to the overall transaction price.

The following table depicts the disaggregation of revenue derived from contracts with customers to depict the nature, amount, timing, and uncertainty of revenue and cash flows for the three and six months ended June 30, 2018. All revenue in the table below relates to goods and services transferred at a point in time.

Revenue stream	June 30, 2018
Service charges on deposit accounts	Three Months Ended		Six Months Ended
Overdraft fees	$	381	$	748
Statement fees		51		105
Interchange revenue		574		1,105
ATM income		101		197
Other service charges		63		119
Total Service Charges		1,170		2,274
Trust		150		401
Brokerage and insurance		168		349
Other		78		163
Total	$	1,566	$	3,187

Note 3 - 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				Six months ended
	June 30,				June 30,
	2018		2017		2018		2017
Net income applicable to common stock	$	4,691,000	$	3,468,000	$	8,938,000	$	6,771,000
Basic earnings per share computation
Weighted average common shares outstanding		3,507,242		3,514,394		3,509,882		3,513,925
Earnings per share - basic	$	1.34	$	0.99	$	2.55	$	1.93
Diluted earnings per share computation
Weighted average common shares outstanding for basic earnings per share		3,507,242		3,514,394		3,509,882		3,513,925
Add: Dilutive effects of restricted stock		1,467		1,188		631		610
Weighted average common shares outstanding for dilutive earnings per share		3,508,709		3,515,582		3,510,513		3,514,535
Earnings per share - diluted	$	1.34	$	0.99	$	2.55	$	1.93

7

For the three months ended June 30, 2018 and 2017, there were 465 and 1,562 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 $46.69-$61.04 for the three month period ended June 30, 2018 and per share prices ranging from $49.87-$53.15 for the three month period ended June 30, 2017. For the six months ended June 30, 2018 and 2017, 3,349 and 4,921 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-$61.04 for the six month period ended June 30, 2018 and prices ranging from $47.81-$53.15 for the six month period ended June 30, 2017.

Note 4 – Investments

The amortized cost, gross unrealized gains and losses, and fair value of investment securities at June 30, 2018 and December 31, 2017 were as follows (in thousands):

			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
June 30, 2018	Cost		Gains		Losses			Value
Available-for-sale securities:
U.S. agency securities	$	103,190	$	30	$	(1,232	)	$	101,988
U.S. treasury securities		33,783		-		(791	)		32,992
Obligations of state and
political subdivisions		67,763		456		(347	)		67,872
Corporate obligations		3,000		23		-			3,023
Mortgage-backed securities in
government sponsored entities		45,202		3		(1,055	)		44,150
Total available-for-sale securities	$	252,938	$	512	$	(3,425	)	$	250,025

			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
December 31, 2017	Cost		Gains		Losses			Value
Available-for-sale securities:
U.S. agency securities	$	99,454	$	26	$	(593	)	$	98,887
U.S. treasury securities		28,782		-		(178	)		28,604
Obligations of state and
political subdivisions		78,409		820		(139	)		79,090
Corporate obligations		3,000		83		-			3,083
Mortgage-backed securities in
government sponsored entities		45,385		19		(377	)		45,027
Equity securities in financial institutions		92		-		(1	)		91
Total available-for-sale securities	$	255,122	$	948	$	(1,288	)	$	254,782

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 June 30, 2018 and December 31, 2017 (in thousands). As of June 30, 2018, the Company owned 201 securities whose fair value was less than their cost basis.

8

June 30, 2018	Less than Twelve Months					Twelve Months or Greater					Total
			Gross					Gross					Gross
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Value		Losses			Value		Losses			Value		Losses
U.S. agency securities	$	76,159	$	(978	)	$	19,842	$	(254	)	$	96,001	$	(1,232	)
U.S. treasury securities		32,992		(791	)		-		-			32,992		(791	)
Obligations of state and
political subdivisions		22,564		(220	)		6,007		(127	)		28,571		(347	)
Mortgage-backed securities in
government sponsored entities		25,918		(399	)		17,677		(656	)		43,595		(1,055	)
Total securities	$	157,633	$	(2,388	)	$	43,526	$	(1,037	)	$	201,159	$	(3,425	)
December 31, 2017
U.S. agency securities	$	74,952	$	(421	)	$	16,928	$	(172	)	$	91,880	$	(593	)
U.S. treasury securities		28,604		(178	)		-		-			28,604		(178	)
Obligations of states and
political subdivisions		14,885		(85	)		5,958		(54	)		20,843		(139	)
Mortgage-backed securities in
government sponsored entities		27,154		(190	)		13,822		(187	)		40,976		(377	)
Equity securities in financial institutions		91		(1	)		-		-			91		(1	)
Total securities	$	145,686	$	(875	)	$	36,708	$	(413	)	$	182,394	$	(1,288	)

As of June 30, 2018 and December 31, 2017, 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, U.S treasury securities, 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. 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.

There were no sales of available for sale securities during the six months ended June 30, 2018. Proceeds from sales of securities available-for-sale for the six months ended June 30, 2017 were $25,407,000. There were no sales of available for sale securities during the three months ended June 30, 2018. Proceeds from sales of securities available-for-sale for the three months ended June 30, 2017 were $6,641,000. The gross gains and losses were as follows (in thousands):

	Three Months Ended					Six Months Ended
	June 30,					June 30,
	2018		2017			2018		2017
Gross gains on available for sale securities	$	-	$	30		$	-	$	202
Gross losses on available for sale securities		-		(7	)		-		(7	)
Net gains	$	-	$	23		$	-	$	195

The following table presents the net gains on the Company's equity investments recognized in earnings during the three month and six month periods ended June 30, 2018, and the portion of unrealized gains for the period that relates to equity investments held at June 30, 2018 (in thousands):

9

	Three Months Ended June 30, 2018		Six Months Ended June 30, 2018
Net gains recognized in equity securities during the period	$	7	$	13
Less: Net gains realized on the sale of equity securities during the period		-		-
Unrealized gains recognized in equity securities held at reporting date	$	7	$	13

Investment securities with an approximate carrying value of $240.8 million and $243.4 million at June 30, 2018 and December 31, 2017, 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 June 30, 2018, by contractual maturity, are shown below (in thousands):

	Amortized
	Cost		Fair Value
Available-for-sale debt securities:
Due in one year or less	$	47,012	$	47,121
Due after one year through five years		106,241		104,395
Due after five years through ten years		50,336		49,644
Due after ten years		49,349		48,865
Total	$	252,938	$	250,025

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 June 30, 2018 and December 31, 2017, 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 June 30, 2018 and December 31, 2017 (in thousands):

June 30, 2018	Total Loans		Individually evaluated for impairment		Loans acquired with deteriorated credit quality		Collectively evaluated for impairment
Real estate loans:
Residential	$	213,242	$	1,131	$	30	$	212,081
Commercial		309,571		13,791		1,388		294,392
Agricultural		262,691		5,204		683		256,804
Construction		27,901		-		-		27,901
Consumer		9,740		-		-		9,740
Other commercial loans		75,002		3,934		425		70,643
Other agricultural loans		42,131		1,471		-		40,660
State and political subdivision loans		99,922		-		-		99,922
Total		1,040,200		25,531		2,526		1,012,143
Allowance for loan losses		11,941		405		-		11,536
Net loans	$	1,028,259	$	25,126	$	2,526	$	1,000,607

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December 31, 2017	Total Loans		Individually evaluated for impairment		Loans acquired with deteriorated credit quality		Collectively evaluated for impairment
Real estate loans:
Residential	$	214,479	$	1,065	$	33	$	213,381
Commercial		308,084		13,864		1,460		292,760
Agricultural		239,957		3,901		702		235,354
Construction		13,502		-		-		13,502
Consumer		9,944		8		-		9,936
Other commercial loans		72,013		4,197		443		67,373
Other agricultural loans		37,809		1,363		-		36,446
State and political subdivision loans		104,737		-		-		104,737
Total		1,000,525		24,398		2,638		973,489
Allowance for loan losses		11,190		410		-		10,780
Net loans	$	989,335	$	23,988	$	2,638	$	962,709

Purchased loans 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 the acquisition date and June 30, 2018. 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 $2,526,000 and $2,638,000 at June 30, 2018 and December 31, 2017, respectively. The carrying value of the PCI loans was determined by projected discounted contractual cash flows and collateral valuations.

Changes in the accretable yield for PCI loans were as follows for the three and six months ended June 30, 2018 and 2017, respectively (in thousands):

	Three months ended						Six months ended
	June 30,						June 30,
	2018			2017			2018			2017
Balance at beginning of period	$	82		$	275		$	106		$	389
Accretion		(23	)		(108	)		(47	)		(222	)
Balance at end of period	$	59		$	167		$	59		$	167

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

	June 30, 2018		December 31, 2017
Outstanding balance	$	5,262	$	5,295
Carrying amount		2,526		2,638

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.

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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
June 30, 2018	Balance		Allowance		Allowance		Investment		Allowance
Real estate loans:
Mortgages	$	1,138	$	261	$	776	$	1,037	$	15
Home Equity		111		14		80		94		15
Commercial		16,576		12,442		1,349		13,791		159
Agricultural		5,210		3,648		1,556		5,204		25
Construction		-		-		-		-		-
Consumer		-		-		-		-		-
Other commercial loans		4,489		3,552		382		3,934		151
Other agricultural loans		1,514		1,295		176		1,471		40
State and political subdivision loans		-		-		-		-		-
Total	$	29,038	$	21,212	$	4,319	$	25,531	$	405

			Recorded		Recorded
	Unpaid		Investment		Investment		Total
	Principal		With No		With		Recorded		Related
December 31, 2017	Balance		Allowance		Allowance		Investment		Allowance
Real estate loans:
Mortgages	$	1,055	$	273	$	700	$	973	$	47
Home Equity		92		40		52		92		9
Commercial		16,363		13,154		710		13,864		94
Agricultural		5,231		3,283		618		3,901		3
Construction		-		-		-		-		-
Consumer		10		2		6		8		-
Other commercial loans		4,739		3,766		431		4,197		231
Other agricultural loans		1,397		1,238		125		1,363		26
State and political subdivision loans		-		-		-		-		-
Total	$	28,887	$	21,756	$	2,642	$	24,398	$	410

The following tables includes the average balance of impaired financing receivables by class and the income recognized on these receivables for the three and six month periods ended June 30, 2018 and 2017(in thousands):

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	For the Three Months Ended
	June 30, 2018						June 30, 2017
					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	$	1,045	$	3	$	-	$	986	$	3	$	-
Home Equity		95		1		-		60		1		-
Commercial		13,833		120		3		12,980		134		-
Agricultural		4,185		49		-		3,641		32		-
Construction		-		-		-		-		-		-
Consumer		-		-		-		3		-		-
Other commercial loans		4,067		26		-		5,029		37		17
Other agricultural loans		1,342		9		-		1,515		22		-
State and political subdivision loans		-		-		-		-		-		-
Total	$	24,567	$	208	$	3	$	24,214	$	229	$	17

	For the Six Months ended
	June 30, 2018						June 30, 2017
					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	$	1,034	$	7	$	-	$	940	$	6	$	-
Home Equity		101		2		-		58		2		-
Commercial		13,814		242		8		9,387		158		3
Agricultural		4,135		100		-		3,513		63		-
Construction		-		-		-		-		-		-
Consumer		2		-		-		2		-		-
Other commercial loans		4,112		52		-		5,313		77		27
Other agricultural loans		1,356		19		-		1,571		45		-
State and political subdivision loans		-		-		-		-		-		-
Total	$	24,554	$	422	$	8	$	20,784	$	351	$	30

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.

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· 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, agricultural and state and political 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, 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 June 30, 2018 and December 31, 2017 (in thousands):

June 30, 2018	Pass		Special Mention		Substandard		Doubtful		Loss		Ending Balance
Real estate loans:
Commercial	$	284,415	$	13,347	$	11,690	$	119	$	-	$	309,571
Agricultural		244,605		12,427		5,659		-		-		262,691
Construction		27,901		-		-		-		-		27,901
Other commercial loans		71,036		870		2,975		121		-		75,002
Other agricultural loans		39,753		1,048		1,330		-		-		42,131
State and political
subdivision loans		89,602		-		10,320		-		-		99,922
Total	$	757,312	$	27,692	$	31,974	$	240	$	-	$	817,218

December 31, 2017	Pass		Special Mention		Substandard		Doubtful		Loss		Ending Balance
Real estate loans:
Commercial	$	281,742	$	15,029	$	11,271	$	42	$	-	$	308,084
Agricultural		222,198		11,538		6,221		-		-		239,957
Construction		13,364		-		138		-		-		13,502
Other commercial loans		67,706		615		3,567		125		-		72,013
Other agricultural loans		34,914		1,325		1,570		-		-		37,809
State and political
subdivision loans		94,125		-		10,612		-		-		104,737
Total	$	714,049	$	28,507	$	33,379	$	167	$	-	$	776,102

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 June 30, 2018 and December 31, 2017 (in thousands):

June 30, 2018	Performing		Non-performing		PCI		Total
Real estate loans:
Mortgages	$	153,342	$	1,375	$	30	$	154,747
Home Equity		58,377		118		-		58,495
Consumer		9,683		57		-		9,740
Total	$	221,402	$	1,550	$	30	$	222,982

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December 31, 2017	Performing		Non-performing		PCI		Total
Real estate loans:
Mortgages	$	152,820	$	1,492	$	33	$	154,345
Home Equity		60,022		112		-	$	60,134
Consumer		9,895		49		-	$	9,944
Total	$	222,737	$	1,653	$	33	$	224,423

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 June 30, 2018 and December 31, 2017 (in thousands):

															90 Days or
	30-59 Days		60-89 Days		90 Days		Total Past						Total Financing		Greater and
June 30, 2018	Past Due		Past Due		Or Greater		Due		Current		PCI		Receivables		Accruing
Real estate loans:
Mortgages	$	476	$	202	$	796	$	1,474	$	153,243	$	30	$	154,747	$	-
Home Equity		220		8		94		322		58,173		-		58,495		-
Commercial		1,649		2,019		4,201		7,869		300,314		1,388		309,571		38
Agricultural		8		1,105		702		1,815		260,193		683		262,691		543
Construction		-		-		-		-		27,901		-		27,901		-
Consumer		31		26		32		89		9,651		-		9,740		32
Other commercial loans		47		8		2,324		2,379		72,198		425		75,002		-
Other agricultural loans		182		569		433		1,184		40,947		-		42,131		433
State and political
subdivision loans		-		-		-		-		99,922		-		99,922		-
Total	$	2,613	$	3,937	$	8,582	$	15,132	$	1,022,542	$	2,526	$	1,040,200	$	1,046
Loans considered non-accrual	$	617	$	790	$	7,536	$	8,943	$	1,988	$	-	$	10,931
Loans still accruing		1,996		3,147		1,046		6,189		1,020,554		2,526		1,029,269
Total	$	2,613	$	3,937	$	8,582	$	15,132	$	1,022,542	$	2,526	$	1,040,200

															90 Days or
	30-59 Days		60-89 Days		90 Days		Total Past						Total Financing		Greater and
December 31, 2017	Past Due		Past Due		Or Greater		Due		Current		PCI		Receivables		Accruing
Real estate loans:
Mortgages	$	996	$	362	$	810	$	2,168	$	152,144	$	33	$	154,345	$	218
Home Equity		277		86		78		441		59,693		-		60,134		-
Commercial		1,353		1,010		3,865		6,228		300,396		1,460		308,084		162
Agricultural		242		-		205		447		238,808		702		239,957		30
Construction		-		-		133		133		13,369		-		13,502		-
Consumer		53		33		49		135		9,809		-		9,944		7
Other commercial loans		132		-		2,372		2,504		69,066		443		72,013		32
Other agricultural loans		-		42		106		148		37,661		-		37,809		106
State and political
subdivision loans		-		-		-		-		104,737		-		104,737		-
Total	$	3,053	$	1,533	$	7,618	$	12,204	$	985,683	$	2,638	$	1,000,525	$	555
Loans considered non-accrual	$	816	$	281	$	7,063	$	8,160	$	2,011	$	-	$	10,171
Loans still accruing		2,237		1,252		555		4,044		983,672		2,638		990,354
Total	$	3,053	$	1,533	$	7,618	$	12,204	$	985,683	$	2,638	$	1,000,525

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.

15

The following table reflects the financing receivables, excluding PCI loans, on non-accrual status as of June 30, 2018 and December 31, 2017, respectively. The balances are presented by class of financing receivable (in thousands):

	June 30, 2018		December 31, 2017
Real estate loans:
Mortgages	$	1,375	$	1,274
Home Equity		118		112
Commercial		6,262		5,192
Agricultural		167		175
Construction		-		133
Consumer		25		42
Other commercial loans		2,415		2,637
Other agricultural loans		569		606
State and political subdivision		-		-
	$	10,931	$	10,171

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 June 30, 2018 and December 31, 2017, included within the allowance for loan losses are reserves of $87,000 and $41,000 respectively, that are associated with loans modified as TDRs.

Loan modifications that are considered TDRs completed during the three and six months ended June 30, 2018 and 2017 were as follows (dollars in thousands):

	For the Three Months Ended June 30, 2018
	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:
Home Equity		-		1	$	-	$	1	$	-	$	1
Commercial		-		1		-		577		-		577
Agricultural		-		1		-		1,523				1,523
Other agricultural loans		-		4		-		176				176
Total		-		7	$	-	$	2,277	$	-	$	2,277

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	For the Six Months Ended June 30, 2018
	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:
Mortgages		-		1	$	-	$	7	$		$	7
Home Equity		-		1		-		1		-		1
Commercial		-		1		-		577		-		577
Agricultural		-		1		-		1,523				1,523
Other agricultural loans		-		4		-		176				176
Total		-		8	$	-	$	2,284	$	-	$	2,284

	For the Three Months Ended June 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		-		5	$	-	$	6,093	$	-	$	6,093
Total		-		5	$	-	$	6,093	$	-	$	6,093

	For the Six Months Ended June 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
Total		-		7	$	-	$	6,797	$	-	$	6,797

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, 2018 and 2017 (6 month periods) and April 1, 2018 and 2017 (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 June 30, 2018 and December 31, 2017, respectively (in thousands):

17

	June 30, 2018						December 31, 2017
	Individually evaluated for impairment		Collectively evaluated for impairment		Total		Individually evaluated for  impairment		Collectively evaluated for impairment		Total
Real estate loans:
Residential	$	30	$	1,015	$	1,045	$	56	$	993	$	1,049
Commercial		159		3,635		3,794		94		3,773		3,867
Agricultural		25		3,648		3,673		3		3,140		3,143
Construction		-		44		44		-		23		23
Consumer		-		115		115		-		124		124
Other commercial loans		151		1,115		1,266		231		1,041		1,272
Other agricultural loans		40		549		589		26		466		492
State and political
subdivision loans		-		767		767		-		816		816
Unallocated		-		648		648		-		404		404
Total	$	405	$	11,536	$	11,941	$	410	$	10,780	$	11,190

The following tables roll forward the balance of the ALLL by portfolio segment for the three and six months ended June 30, 2018 and 2017, respectively (in thousands):

	For the three months ended June 30, 2018
	Balance at March 31, 2018		Charge-offs			Recoveries		Provision			Balance at June 30, 2018
Real estate loans:
Residential	$	1,077	$	(2	)	$	69	$	(99	)	$	1,045
Commercial		4,006		-			3		(215	)		3,794
Agricultural		3,340		-			-		333			3,673
Construction		39		-			-		5			44
Consumer		123		(6	)		7		(9	)		115
Other commercial loans		1,273		(46	)		11		28			1,266
Other agricultural loans		532		(7	)		-		64			589
State and political
subdivision loans		789		-			-		(22	)		767
Unallocated		408		-			-		240			648
Total	$	11,587	$	(61	)	$	90	$	325		$	11,941

	For the six months ended June 30, 2018
	Balance at December 31, 2017		Charge-offs			Recoveries		Provision			Balance at June 30, 2018
Real estate loans:
Residential	$	1,049	$	(17	)	$	69	$	(56	)	$	1,045
Commercial		3,867		-			3		(76	)		3,794
Agricultural		3,143		-			-		530			3,673
Construction		23		-			-		21			44
Consumer		124		(19	)		17		(7	)		115
Other commercial loans		1,272		(91	)		14		71			1,266
Other agricultural loans		492		(50	)		-		147			589
State and political
subdivision loans		816		-			-		(49	)		767
Unallocated		404		-			-		244			648
Total	$	11,190	$	(177	)	$	103	$	825		$	11,941

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	For the three months ended June 30, 2017
	Balance at March 31, 2017		Charge-offs			Recoveries		Provision			Balance at June 30, 2017
Real estate loans:
Residential	$	1,042	$	(48	)	$	-	$	110		$	1,104
Commercial		3,665		-			2		(126	)		3,541
Agricultural		1,952							500			2,452
Construction		46		-			-		(1	)		45
Consumer		123		(17	)		12		7			125
Other commercial loans		1,215		-			-		(84	)		1,131
Other agricultural loans		306		-					125			431
State and political
subdivision loans		824		-			-		14			838
Unallocated		232		-			-		80			312
Total	$	9,405	$	(65	)	$	14	$	625		$	9,979

	For the six months ended June 30, 2017
	Balance at December 31, 2016		Charge-offs			Recoveries		Provision			Balance at June 30, 2017
Real estate loans:
Residential	$	1,064	$	(93	)	$	-	$	133		$	1,104
Commercial		3,589		(41	)		6		(13	)		3,541
Agricultural		1,494		-					958			2,452
Construction		47		-			-		(2	)		45
Consumer		122		(45	)		22		26			125
Other commercial loans		1,327		-			9		(205	)		1,131
Other agricultural loans		312		(5	)				124			431
State and political
subdivision loans		833		-			-		5			838
Unallocated		98		-			-		214			312
Total	$	8,886	$	(184	)	$	37	$	1,240		$	9,979

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;

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· 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 June 30, 2018, the allowance for residential real estate decreased in general reserves for pooled loans as a result of a decrease in the qualitative factor associated with unemployment rates. In addition, there was a decrease in total residential loans. This was represented as a decrease to the provision.  The allowance for commercial real estate was decreased in general reserves due to a decrease in the qualitative factor associated with unemployment rates and an improvement in the number of loans classified as special mention. This was represented as a decrease in the provision.The allowance for agricultural real estate loans was increased in general reserves as a result of higher loan balances and an increase in the amount of loans classified as special mention and substandard. The result of this was represented as an increase in the provision. The allowance for other agricultural loans was increased in general reserves as a result of higher loan balances. The result of these changes was represented as an increase in the provision.

For the six months ended June 30, 2018, the allowance for residential real estate decreased in general reserves for pooled loans as a result of a decrease in the qualitative factor associated with unemployment rates. In addition, there was a decrease in total residential loans. This was represented as a decrease to the provision.  The allowance for commercial real estate was decreased in general reserves due to a decrease in the qualitative factor associated with unemployment rates and an improvement in the number of loans classified as special mention. This was represented as a decrease in the provision.The allowance for agricultural real estate loans was increased in general reserves as a result of higher loan balances and an increase in the amount of loans classified as special mention. The result of this was represented as an increase in the provision. The allowance for other agricultural loans was increased in general reserves as a result of higher loan balances. The result of these changes was represented as an increase in the provision.

For the three months ended June 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, and an increase in the specific reserve for individually evaluated loans. This was represented as an increase to the provision.  The allowance for commercial real estate was decreased in general reserves due to the improvement in classified loans, which was represented as 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 reduced as a result of lower loan balances, an improvement in the amount of classified loans and a reduction in the 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 the classified loan trend in the other agricultural loan portfolio. The result of these changes was represented as an increase in the provision.

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For the six months ended June 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 six month period and an increase in the specific reserve. 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 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 the classified loan trend in the other agricultural loan portfolio. The result of these changes was represented as an increase in the provision.

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 June 30, 2018 and December 31, 2017, included with other assets are $471,000 and $1,119,000, respectively, of foreclosed assets. As of June 30, 2018, included within the foreclosed assets are $175,000 of consumer residential mortgages that were foreclosed on or received via a deed in lieu transaction prior to the period end. As of June 30 2018, the Company has initiated formal foreclosure proceedings on $2,023,000 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 June 30, 2018 and December 31, 2017 (in thousands):

	June 30, 2018							December 31, 2017
	Gross carrying value		Accumulated amortization			Net carrying value		Gross carrying  value		Accumulated amortization			Net carrying value
Amortized intangible assets (1):
MSRs	$	1,656	$	(1,009	)	$	647	$	1,605	$	(912	)	$	693
Core deposit intangibles		1,786		(721	)		1,065		1,786		(586	)		1,200
Covenant not to compete		125		(81	)		44		125		(65	)		60
Total amortized intangible assets	$	3,567	$	(1,811	)	$	1,756	$	3,516	$	(1,563	)	$	1,953
Unamortized intangible assets:
Goodwill	$	23,296						$	23,296
(1) Excludes fully amortized intangible assets

The following table provides the current year and estimated future amortization expense for amortized intangible assets for the next five years. We based our projections of amortization expense shown below on existing asset balances at June 30, 2018. Future amortization expense may vary from these projections (in thousands):

	MSRs		Core deposit intangibles		Covenant not to compete		Total
Three months ended June 30, 2018 (actual)	$	48	$	66	$	8	$	122
Six months  ended June 30, 2018 (actual)		97		134		16		247
Three months ended June 30, 2017 (actual)		45		66		7		118
Six months June 30, 2017 (actual)		91		134		15		240
Estimate for year ended December 31,
Remaining 2018		88		130		15		233
2019		157		230		29		416
2020		123		197		-		320
2021		94		165		-		259
2022		69		133		-		202

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Note 7 – Federal Home Loan Bank Stock

As a member of the FHLB of Pittsburgh, the Bank 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 June 30, 2018 and December 31, 2017, the Bank's investment in FHLB stock was $6,456,000 and $6,021,000, 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 June 30, 2018 and December 31, 2017 is presented in the following tables (in thousands):

	Remaining Contractual Maturity of the Agreements
	Overnight and		Up to				Greater than
June 30, 2018	Continuous		30 Days		30 - 90 Days		90 days		Total
Repurchase Agreements:
U.S. agency securities	$	18,909	$	-	$	-	$	1,998	$	20,907
Total carrying value of collateral pledged	$	18,909	$	-	$	-	$	1,998	$	20,907
Total liability recognized for repurchase agreements									$	15,061
December 31, 2017
Repurchase Agreements:
U.S. agency securities	$	16,027	$	-	$	-	$	2,035	$	18,062
Total carrying value of collateral pledged	$	16,027	$	-	$	-	$	2,035	$	18,062
Total liability recognized for repurchase agreements									$	14,989

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 2017 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.

22

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 and the line item on the Consolidated Statement of Income where such amounts are included, for the three months ended June 30, 2018 and 2017, respectively (in thousands):

	Three Months Ended						Six Months Ended
	June 30,						June 30,						Affected line item on the Consolidated
	2018			2017			2018			2017			Statement of income
Service cost	$	90		$	84		$	179		$	175		Salaries and Employee Benefits
Interest cost		162			168			325			335		Other Expenses
Expected return on plan assets		(345	)		(273	)		(689	)		(547	)	Other Expenses
Net amortization and deferral		47			52			93			112		Other Expenses
Net periodic (benefit) cost	$	(46	)	$	31		$	(92	)	$	75

The Bank does not expect to make any contributions to the Pension Plans during 2018.

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 June 30, 2018, 136,539 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 six months ended June 30, 2018:

	Three months						Six months
				Weighted						Weighted
	Unvested			Average			Unvested			Average
	Shares			Market Price			Shares			Market Price
Outstanding, beginning of period		8,691		$	51.19			8,783		$	51.20
Granted		4,869			62.91			4,869			62.91
Forfeited		-			-			-			-
Vested		(3,626	)		(50.54	)		(3,718	)		(50.58	)
Outstanding, end of period		9,934		$	57.18			9,934		$	57.18

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 $119,000 and $104,000 for the six months ended June 30, 2018 and 2017, respectively. For the three months ended June 30, 2018 and 2017, compensation expense totaled $63,000 and $54,000, respectively. At June 30, 2018, the total compensation cost related to nonvested awards that has not yet been recognized was $568,000, which is expected to be recognized over the next three years.

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Note 10 – Accumulated Comprehensive Loss

The following tables present the changes in accumulated other comprehensive loss by component net of tax for the three and six months ended June 30, 2018 and 2017 (in thousands):

	Six months ended June 30, 2018
	Unrealized gain (loss) on available for sale securities (a)			Defined Benefit Pension Items (a)			Total
Balance as of December 31, 2017	$	(269	)	$	(3,129	)	$	(3,398	)
Change in Accounting policy for equity securities		1			-			1
Other comprehensive loss before reclassifications (net of tax)		(2,034	)		-			(2,034	)
Amounts reclassified from accumulated other
comprehensive income (loss) (net of tax)		-			74			74
Net current period other comprehensive loss		(2,034	)		74			(1,960	)
Balance as of June 30, 2018	$	(2,302	)	$	(3,055	)	$	(5,357	)
	Six months ended June 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)		478			-			478
Amounts reclassified from accumulated other
comprehensive loss (net of tax)		(129	)		74			(55	)
Net current period other comprehensive income		349			74			423
Balance as of June 30, 2017	$	1,655		$	(2,624	)	$	(969	)
	Three months ended June 30, 2018
	Unrealized gain (loss) on available for sale securities (a)			Defined Benefit Pension Items (a)			Total
Balance as of March 31, 2018	$	(1,885	)	$	(3,092	)	$	(4,977	)
Other comprehensive loss before reclassifications (net of tax)		(417	)		-			(417	)
Amounts reclassified from accumulated other
comprehensive loss (net of tax)		-			37			37
Net current period other comprehensive income (loss)		(417	)		37			(380	)
Balance as of June 30, 2018	$	(2,302	)	$	(3,055	)	$	(5,357	)
	Three months ended June 30, 2017
	Unrealized gain (loss) on available for sale securities (a)			Defined Benefit Pension Items (a)			Total
Balance as of March 31, 2017	$	1,238		$	(2,659	)	$	(1,421	)
Other comprehensive income before reclassifications (net of tax)		432			-			432
Amounts reclassified from accumulated other
comprehensive income (loss) (net of tax)		(15	)		35			20
Net current period other comprehensive income (loss)		417			35			452
Balance as of June 30, 2017	$	1,655		$	(2,624	)	$	(969	)
(a) Amounts in parentheses indicate debits on the Consolidated Balalance Sheet

The following table presents the significant amounts reclassified out of each component of accumulated other comprehensive income for the three and six months ended June 30, 2018 and 2017 (in thousands):

24

Details about accumulated other comprehensive income (loss)	Amount reclassified from accumulated comprehensive income (loss) (a)						Affected line item in the Consolidated Statement of Income
	Three Months Ended June 30,
	2018			2017
Unrealized gains and losses on available for sale securities
	$	-		$	23		Available for sale securities gains, net
		-			(8	)	Provision for income taxes
	$	-		$	15		Net of tax
Defined benefit pension items
	$	(47	)	$	(52	)	Salaries and employee benefits
		10			17		Provision for income taxes
	$	(37	)	$	(35	)	Net of tax
Total reclassifications	$	(37	)	$	(20	)
	Six Months Ended June 30
		2018			2017
Unrealized gains and losses on available for sale securities
	$	-		$	195		Available for sale securities gains, net
		-			(66	)	Provision for income taxes
	$	-		$	129		Net of tax
Defined benefit pension items
	$	(93	)	$	(112	)	Salaries and employee benefits
		19			38		Provision for income taxes
	$	(74	)	$	(74	)	Net of tax
Total reclassifications	$	(74	)	$	55
(a) Amounts in parentheses indicate expenses and other amounts indicate income on the Consolidated Statement of Income

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.

25

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.

Assets and Liabilities Required to be Measured at Fair Value on a Recurring Basis

The fair values of equity securities and 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 June 30, 2018 and December 31, 2017 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.

June 30, 2018	Level I		Level II		Level III		Total
Fair value measurements on a recurring basis:
Assets
Equity securities in financial institutions	$	195	$	-	$	-	$	195
Available for sale securities:
U.S. Agency securities		-		101,988		-		101,988
U.S. Treasury securities		32,992		-		-		32,992
Obligations of state and
political subdivisions		-		67,872		-		67,872
Corporate obligations		-		3,023		-		3,023
Mortgage-backed securities in
government sponsored entities		-		44,150		-		44,150

December 31, 2017	Level I		Level II		Level III		Total
Fair value measurements on a recurring basis:
Available for sale securities:
U.S. Agency securities	$	-	$	98,887	$	-	$	98,887
U.S. Treasuries securities		28,604		-		-		28,604
Obligations of state and
political subdivisions		-		79,090		-		79,090
Corporate obligations		-		3,083		-		3,083
Mortgage-backed securities in
government sponsored entities		-		45,027		-		45,027
Equity securities in financial institutions		91		-		-		91

Assets and Liabilities Required to be Measured and Reported at Fair Value on a Nonrecurring Basis

Assets measured at fair value on a nonrecurring basis as of June 30, 2018 and December 31, 2017 are included in the table below (in thousands):

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June 30, 2018	Level I		Level II		Level III		Total
Impaired Loans	$	-	$	-	$	3,470	$	3,470
Other real estate owned		-		-		326		326
December 31, 2017
Impaired Loans	$	-	$	-	$	1,569	$	1,569
Other real estate owned		-		-		1,024		1,024

· 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 $304,000 and $163,000 at June 30, 2018 and December 31, 2017, respectively.

· Other Real Estate Owned (OREO) – OREO is carried at the lower of cost or fair value less estimated costs to sell, 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 a 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).

June 30, 2018	Fair Value		Valuation Technique(s)	Unobservable input	Range		Weighted average
Impaired Loans	$	3,470	Appraised Collateral Values	Discount for time since appraisal		0-100%		27.32	%
				Selling costs		5%-11%		7.88	%
				Holding period	0 - 12 months		11.4 months
Other real estate owned		326	Appraised Collateral Values	Discount for time since appraisal		25-35%		27.45	%
December 31, 2017	Fair Value		Valuation Technique(s)	Unobservable input	Range
Impaired Loans		1,569	Appraised Collateral Values	Discount for time since appraisal		0-100%		30.83	%
				Selling costs		5%-9%		8.35	%
				Holding period	6 - 12 months		11 months
Other real estate owned		1,024	Appraised Collateral Values	Discount for time since appraisal		15-65%		26.26	%

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Financial Instruments Not Required to be Measured or Reported at Fair Value

The carrying amount and fair value of the Company's financial instruments that are not required to be measured or reported at fair value on a recurring basis are as follows (in thousands):

	Carrying
June 30, 2018	Amount		Fair Value		Level I		Level II		Level III
Financial assets:
Cash and due from banks	$	15,613	$	15,613	$	15,613	$	-	$	-
Interest bearing time deposits with other banks		13,762		13,766		-		-		13,766
Loans held for sale		1,931		1,931		1,931		-		-
Net loans		1,028,259		1,021,166		-		-		1,021,166
Bank owned life insurance		27,189		27,189		27,189		-		-
Regulatory stock		7,220		7,220		7,220		-		-
Accrued interest receivable		4,285		4,285		4,285		-		-
Financial liabilities:
Deposits	$	1,118,592	$	1,113,001	$	847,151	$	-	$	265,850
Borrowed funds		133,652		132,322		96,566		-		35,756
Accrued interest payable		903		903		903		-		-

	Carrying
December 31, 2017	Amount		Fair Value		Level I		Level II		Level III
Financial assets:
Cash and due from banks	$	18,517	$	18,517	$	18,517	$	-	$	-
Interest bearing time deposits with other banks		10,283		10,287		-		-		10,287
Loans held for sale		1,439		1,439		1,439
Net loans		989,335		981,238		-		-		981,238
Bank owned life insurance		26,883		26,883		26,883		-		-
Regulatory stock		6,784		6,784		6,784		-		-
Accrued interest receivable		4,196		4,196		4,196		-		-
Financial liabilities:
Deposits	$	1,104,943	$	1,101,583	$	838,490	$	-	$	263,093
Borrowed funds		114,664		113,452		77,650		-		35,802
Accrued interest payable		897		897		897		-		-

Note 13 – Recent Accounting Pronouncements

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 on 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 percent 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.

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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 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.

· Loan concentrations in certain industries could negatively impact financial results, if financial results or economic conditions deteriorate.

· A budget impasse in the Commonwealth of Pennsylvania could impact our asset values, liquidity and profitability as a result of either delayed or reduced funding to school districts and municipalities who are customers of the Bank.

· 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.

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Additional factors that may affect our results are discussed under "Part II – Item 1A – Risk Factors" in this report and in the Company's 2017 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.

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 six months ended June 30, 2018 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, Bradford and Centre counties in north central Pennsylvania, Lebanon, Berks, Schuylkill and Lancaster counties in south central Pennsylvania and Allegany County in southern New York. We also have a limited branch office in Union county, Pennsylvania, which primarily serves agricultural customers in the central Pennsylvania market. We maintain our central office in Mansfield, Pennsylvania. Presently we operate 29 banking facilities, 28 of which operate as bank branches.  In Pennsylvania, the Company has full service offices 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, State College and three branches near the city of Lebanon, Pennsylvania. We also have limited branch offices in Winfield and Narvon, Pennsylvania. In New York, our office is in Wellsville.

On December 8, 2017, we closed the transaction with S&T Bank to acquire its State College, Pennsylvania office.

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, including fraudulent activity outside the Company's control. 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.

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Regulatory and compliance 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.

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. 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 June 30, 2018 and December 31, 2017, the Trust Department had $122.2 million and $122.7 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 $156.0 million at December 31, 2017 to $165.7 million at June 30, 2018. 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 June 30, 2018, 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 $8,938,000 for the first six months of 2018 compared to $6,771,000 for last year's comparable period, an increase of $2,167,000, or 32.0%. Basic earnings per share for the first six months of 2018 were $2.55, compared to $1.93 last year, representing a 32.1% increase.  Annualized return on assets and return on equity for the six months of 2018 were 1.29% and 13.15%, respectively, compared with 1.10% and 10.63% for last year's comparable period.

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Net income for the three months ended June 30, 2018 was $4,691,000 compared to $3,468,000 in the comparable 2017 period, an increase of $1,223,000 or 35.3%. Basic earnings per share for the three months ended June 30, 2018 were $1.34, compared to $0.99 last year, representing a 35.4% increase. Annualized return on assets and return on equity for the quarter ended June 30, 2018 was 1.34% and 13.68%, respectively, compared with 1.12% and 10.80% for the same 2017 period.

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 six months of 2018 was $23,171,000, an increase of $2,770,000, or 13.6%, compared to the same period in 2017.  For the first six months of 2018, the provision for loan losses totaled $825,000, a decrease of $415,000 over the comparable period in 2017.  Consequently, net interest income after the provision for loan losses was $22,346,000 compared to $19,161,000 during the first six months of 2017.

For the three months ended June 30, 2018, net interest income was $11,751,000 compared to $10,404,000, an increase of $1,347,000, or 13.0% over the comparable period in 2017. The provision for loan losses this quarter was $325,000 compared to $625,000 for last year's second quarter.  Consequently, net interest income after the provision for loan losses was $11,426,000 for the quarter ended June 30, 2018 compared to $9,779,000 in 2017.

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 six and three months ended June 30, 2018 and 2017 on a tax equivalent basis (dollars in thousands):

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	Analysis of Average Balances and Interest Rates (1)
	Six Months Ended
	June 30, 2018							June 30, 2017
	Average				Average			Average				Average
	Balance (1)		Interest		Rate			Balance (1)		Interest		Rate
(dollars in thousands)	$				$	%		$				$	%
ASSETS
Short-term investments:
Interest-bearing deposits at banks		8,609		9		0.21			9,106		9		0.20
Total short-term investments		8,609		9		0.21			9,106		9		0.20
Interest bearing time deposits at banks		10,753		115		2.16			7,123		71		2.01
Investment securities:
Taxable		187,650		1,965		2.09			202,316		1,708		1.69
Tax-exempt (3)		71,775		1,267		3.53			87,491		1,922		4.39
Total investment securities		259,425		3,232		2.49			289,807		3,630		2.51
Loans:
Residential mortgage loans		214,766		5,538		5.20			206,018		5,291		5.18
Construction		20,523		474		4.66			27,198		574		4.25
Commercial Loans		390,068		10,175		5.26			322,012		8,392		5.26
Agricultural Loans		291,030		6,324		4.38			185,160		3,966		4.32
Loans to state & political subdivisions		101,891		1,788		3.54			96,818		2,026		4.22
Other loans		9,500		368		7.81			10,394		415		8.04
Loans, net of discount (2)(3)(4)		1,027,778		24,667		4.84			847,600		20,664		4.92
Total interest-earning assets		1,306,565		28,023		4.33			1,153,636		24,374		4.26
Cash and due from banks		6,717							6,604
Bank premises and equipment		16,418							16,947
Other assets		54,590							55,850
Total non-interest earning assets		77,725							79,401
Total assets		1,384,290							1,233,037
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
NOW accounts		328,256		733		0.45			319,387		534		0.34
Savings accounts		187,361		101		0.11			177,746		92		0.10
Money market accounts		153,345		610		0.80			122,943		290		0.48
Certificates of deposit		267,407		1,457		1.10			261,942		1,272		0.98
Total interest-bearing deposits		936,369		2,901		0.62			882,018		2,188		0.50
Other borrowed funds		132,179		1,339		2.04			57,348		489		1.72
Total interest-bearing liabilities		1,068,548		4,240		0.80			939,366		2,677		0.57
Demand deposits		167,255							151,396
Other liabilities		12,577							14,846
Total non-interest-bearing liabilities		179,832							166,242
Stockholders' equity		135,910							127,429
Total liabilities & stockholders' equity		1,384,290							1,233,037
Net interest income				23,783							21,697
Net interest spread (5)						3.53	%						3.69	%
Net interest income as a percentage
of average interest-earning assets						3.67	%						3.79	%
Ratio of interest-earning assets
to interest-bearing liabilities						122	%						123	%
(1) Averages are based on daily averages.
(2) Includes loan origination and commitment fees.
(3) Tax exempt interest revenue is shown on a tax equivalent basis for proper comparison using
a statutory federal income tax rate of 21% for 2018 and 34% for 2017.
(4) Income on non-accrual loans is accounted for on a cash basis, and the loan balances are included in interest-earning assets.
(5) Interest rate spread represents the difference between the average rate earned on interest-earning assets
and the average rate paid on interest-bearing liabilities.

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	Analysis of Average Balances and Interest Rates (1)
	Three Months Ended
	June 30, 2018							June 30, 2017
	Average				Average			Average				Average
	Balance (1)		Interest		Rate			Balance (1)		Interest		Rate
(dollars in thousands)	$				$	%		$				$	%
ASSETS
Short-term investments:
Interest-bearing deposits at banks		9,112		4		0.18			10,552		7		0.23
Total short-term investments		9,112		4		0.18			10,552		7		0.23
Interest bearing time deposits at banks		11,191		62		2.19			7,374		38		2.03
Investment securities:
Taxable		180,905		1,028		2.27			186,983		828		1.77
Tax-exempt (3)		68,301		600		3.51			84,235		909		4.32
Total investment securities		249,206		1,628		2.61			271,218		1,737		2.56
Loans:
Residential mortgage loans		214,932		2,814		5.25			206,057		2,657		5.17
Construction		23,349		273		4.69			26,258		269		4.12
Commercial Loans		391,935		5,197		5.32			327,924		4,326		5.29
Agricultural Loans		298,266		3,286		4.42			200,865		2,153		4.30
Loans to state & political subdivisions		99,301		873		3.53			96,461		1,014		4.22
Other loans		9,494		184		7.82			10,294		206		8.03
Loans, net of discount (2)(3)(4)		1,037,277		12,627		4.88			867,859		10,625		4.91
Total interest-earning assets		1,306,786		14,321		4.40			1,157,003		12,407		4.30
Cash and due from banks		6,529							6,538
Bank premises and equipment		16,356							16,888
Other assets		65,473							62,907
Total non-interest earning assets		88,358							86,333
Total assets		1,395,144							1,243,336
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
NOW accounts		330,550		404		0.49			328,055		294		0.36
Savings accounts		189,457		51		0.11			180,042		47		0.10
Money market accounts		160,719		365		0.91			128,931		160		0.50
Certificates of deposit		268,526		765		1.14			261,368		642		0.98
Total interest-bearing deposits		949,252		1,585		0.67			898,396		1,143		0.51
Other borrowed funds		125,815		692		2.21			45,969		231		2.02
Total interest-bearing liabilities		1,075,067		2,277		0.85			944,365		1,374		0.58
Demand deposits		170,287							155,724
Other liabilities		12,617							14,820
Total non-interest-bearing liabilities		182,904							170,544
Stockholders' equity		137,173							128,427
Total liabilities & stockholders' equity		1,395,144							1,243,336
Net interest income				12,044							11,033
Net interest spread (5)						3.55	%						3.72	%
Net interest income as a percentage
of average interest-earning assets						3.70	%						3.82	%
Ratio of interest-earning assets
to interest-bearing liabilities						122	%						123	%
(1) Averages are based on daily averages.
(2) Includes loan origination and commitment fees.
(3) Tax exempt interest revenue is shown on a tax equivalent basis for proper comparison using
a statutory federal income tax rate of 21% for 2018 and 34% for 2017.
(4) Income on non-accrual loans is accounted for on a cash basis, and the loan balances are included in interest-earning assets.
(5) Interest rate spread represents the difference between the average rate earned on interest-earning assets
and the average rate paid on interest-bearing liabilities.

Tax exempt revenue is shown on a tax-equivalent basis for proper comparison using a statutory, federal income tax rate of 21% for the six and three months ended June 30, 2018 and 34% for the six and three months ended June 30, 2017.  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 Federal statutory rate during the corresponding period. 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 June 30, 2018 and 2017 (in thousands):

35

	For the Three Months				For the Six Months
	Ended June 30,				Ended June 30,
	2018		2017		2018		2017
Interest and dividend income from investment securities
and interest bearing deposits at banks (non-tax adjusted)	$	1,567	$	1,474	$	3,089	$	3,057
Tax equivalent adjustment		127		308		267		653
Interest and dividend income from investment securities
and interest bearing deposits at banks (tax equivalent basis)	$	1,694	$	1,782	$	3,356	$	3,710
Interest and fees on loans (non-tax adjusted)	$	12,461	$	10,304	$	24,322	$	20,021
Tax equivalent adjustment		166		321		345		643
Interest and fees on loans (tax equivalent basis)	$	12,627	$	10,625	$	24,667	$	20,664
Total interest income	$	14,028	$	11,778	$	27,411	$	23,078
Total interest expense		2,277		1,374		4,240		2,677
Net interest income		11,751		10,404		23,171		20,401
Total tax equivalent adjustment		293		629		612		1,296
Net interest income (tax equivalent basis)	$	12,044	$	11,033	$	23,783	$	21,697

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

	Three months ended June 30, 2018 vs 2017 (1)									Six months ended June 30, 2018 vs. 2017 (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	$	(2	)	$	(1	)	$	(3	)	$	-		$	-		$	-
Interest bearing time deposits at banks		20			4			24			39			5			44
Investment securities:
Taxable		(26	)		226			200			(111	)		368			257
Tax-exempt		(156	)		(153	)		(309	)		(313	)		(342	)		(655	)
Total investments		(182	)		73			(109	)		(424	)		26			(398	)
Loans:
Residential mortgage loans		115			42			157			226			21			247
Construction		(12	)		16			4			(163	)		63			(100	)
Commercial Loans		848			23			871			1,775			8			1,783
Agricultural Loans		1,071			62			1,133			2,300			58			2,358
Loans to state & political subdivisions		31			(172	)		(141	)		115			(353	)		(238	)
Other loans		(16	)		(6	)		(22	)		(35	)		(12	)		(47	)
Total loans, net of discount		2,037			(35	)		2,002			4,218			(215	)		4,003
Total Interest Income		1,873			41			1,914			3,833			(184	)		3,649
Interest Expense:
Interest-bearing deposits:
NOW accounts		2			108			110			15			184			199
Savings accounts		3			1			4			5			4			9
Money Market accounts		47			158			205			85			235			320
Certificates of deposit		18			105			123			27			158			185
Total interest-bearing deposits		70			372			442			132			581			713
Other borrowed funds		437			24			461			743			107			850
Total interest expense		507			396			903			875			688			1,563
Net interest income	$	1,366		$	(355	)	$	1,011		$	2,958		$	(872	)	$	2,086
(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 $21,697,000 for the six month period ended June 30, 2017 to $23,783,000 for the six month period ended June 30, 2018, an increase of $2,086,000. The tax equivalent net interest margin decreased from 3.79% for the first six months of 2017 to 3.67% for the comparable period in 2017. A significant portion of the decrease is attributable to a change in the corporate tax rate from 34% to 21%, which resulted in the tax equivalent yield on our tax-exempt investments and loans to decrease.

36

Total tax equivalent interest income for the 2018 six month period increased $3,649,000 as compared to the 2017 six month period. This increase was primarily a result of an increase of $3,833,000 due to a change in volume as average interest-bearing assets increased $152.9 million. This increase was offset by a decrease of $184,000 as a result of a decrease in the average yield on loans of 8 basis points from 4.92% to 4.84% for the comparable periods. As a result of converting investment assets to loans, the yield on average interest earning assets increased 7 basis points from 4.26% to 4.33%.

Tax equivalent investment income for the six months ended June 30, 2018 decreased $398,000 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 $14.7 million, which resulted in a decrease in investment income of $111,000. 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 40 basis points from 1.69% to 2.09% 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 $368,000.

· The average balance of tax-exempt securities decreased by $15.7 million, which resulted in a decrease in investment income of $313,000. The yield on tax-exempt securities decreased 86 basis points from 4.39% to 3.53%, which corresponds to a decrease in interest income of $342,000. The yield decrease was partially attributable to the decrease in the federal statutory income tax rate as well as 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 $4,003,000 for the six months ended June 30, 2018 compared to the same period last year, primarily as a result of loan growth achieved throughout 2017 and the first half of 2018 that was primarily due to the hiring of experienced lending teams in our central and south central Pennsylvania markets. It was also positively impacted by the acquisition of the State College branch in December of 2017.

· The average balance of commercial loans increased $68.1 million from a year ago. The growth was attributable to the State College branch acquisition and organic growth in our central and south central Pennsylvania markets. This had a positive impact of $1,775,000 on total interest income due to volume.

· Interest income on agricultural loans increased $2,358,000 from 2017 to 2018. The increase in the average balance of agricultural loans of $105.9 million is primarily attributable to the additional agricultural lenders hired in 2016 to serve the central and south central markets. The increase in the average balance of these loans resulted in an increase in interest income due to volume of $2,300,000.

· The average balance of construction loans decreased $6.7 million from a year ago. This resulted in a decrease of $163,000 on total interest income due to volume. Offsetting this decrease, there was a $63,000 increase due to rate, as the yield earned increased from 4.25% to 4.66%.

· The average balance of state and political subdivision loans increased $5.1 million from a year ago. This resulted in an increase of $115,000 on total interest income due to volume. The yield decreased 68 basis points to 3.54%, which decreased loan interest income $353,000. The decrease in the yield on this portfolio was mostly due to the decrease in the Federal statutory income tax rate from 2017 to 2018.

· Interest income on residential mortgage loans increased $247,000. The average balance of residential loans increased $8.7 million from a year ago, which resulted in an increase in loan interest income of $226,000.

37

Total interest expense increased $1,563,000 for the six months ended June 30, 2018 compared with the comparative period last year primarily as a result of an increase in borrowings to fund loan growth in 2017 and 2018 and higher rates paid on deposits and overnight borrowings. Interest expense increased $875,000 as a result of volume as the average balance of interest bearing liabilities increased $129.2 million. In addition, there was an increase of $688,000 due to rate as a result of an increase in the average rate paid on interest bearing liabilities from 0.57% to 0.80%.

· The average balance of interest bearing deposits increased $54.4 million from June 30, 2017 to June 30, 2018. Increases were experienced in NOW accounts of $8.9 million, savings accounts of $9.6 million, money market accounts of $30.4 million and certificates of deposit of $5.5 million. The cumulative effect of these volume changes was an increase in interest expense of $132,000.  (see also "Financial Condition – Deposits"). The rate paid on interest bearing deposits was 0.62% for the first six months of 2018 and 0.50% for the comparable period in 2017. This resulted in an increase in interest expense of $581,000.

· The average balance of other borrowed funds increased $74.8 million from a year ago. This resulted in an increase in interest expense of $743,000. There was also an increase in the average rate on other borrowed funds from 1.72% to 2.04% due to an increase in the overnight borrowing rate as a result of the Federal Reserve interest rate increases in 2017 resulting in an increase in interest expense of $107,000.

Tax equivalent net interest income for the three months ended June 30, 2018 was $12,044,000 which compares to $11,033,000 for the same period last year.  This represents an increase of $1,011,000 or 9.2%. The tax equivalent net interest margin decreased from 3.82% for the three months ended June 30, 2017 to 3.70% for the comparable period in 2018 with the majority of the decrease attributable to the decrease in the statutory income tax rate from 34% in 2017 to 21% in 2018.

Total tax equivalent interest income was $14,321,000 for the three month period ended June 30, 2018, compared to $12,407,000 for the comparable period last year, an increase of $1,914,000. The primary driver of this increase was an increase of $1,873,000 due to a change in volume as interest-earning assets increased $149.8 million that was primarily due to the hiring of experienced lending teams in our central and south central Pennsylvania markets. It was also positively impacted by the acquisition of the State College branch in December of 2017. In addition, the average yield on interest-earning assets increased 10 basis points from 4.30% to 4.40% for the comparable periods, resulting in an increase in tax equivalent interest income of $41,000.

· Total investment income decreased by $109,000 compared to same period last year.  The primary cause of the decrease was a decrease of $22.0 million in the average outstanding balance of investment securities, which equates to a decrease of $182,000. Offsetting this increase, there was a 5 point increase in rate on investments securities from 2.56% to 2.61%, which equates to a $73,000 increase in income.

· Total loan interest income increased $2,002,000 compared to the same period last year. This was primarily due to an increase in volume of $169.4 million, which corresponds to a $2,037,000 increase in interest income. This was offset by a decrease in rate of 3 points from 4.91% to 4.88%, which corresponds to a decrease in loan interest income of $35,000. The yield on commercial loans was impacted by a prepayment penalty received in the second quarter that was approximately $90,000. This corresponds to 0.09% increase in rate for three months ended June 30, 2018.

Total interest expense increased $903,000 for the three months ended June 30, 2018 compared with last year as a result of the increase in the average balance of interest-bearing liabilities of $130.7 million, accounting for a $507,000 increase in interest expense. The average rate on interest-bearing liabilities increased 27 basis points from 0.58% to 0.85%, which increased interest expense $396,000.

· The average balance of interest bearing deposits increased $50.9 million from June 30, 2017 to June 30, 2018. The cumulative effect of these volume changes was an increase in interest expense of $70,000.  The rate paid on interest bearing deposits was 0.67% for the first six months of 2018 and 0.51% for the comparable period in 2017. This results in an increase in interest expense of $372,000.

· The average balance of other borrowed funds increased $80.0 million from a year ago. This resulted in an increase in interest expense of $437,000. There was also an increase in the average rate on other borrowed fund from 2.02% to 2.21% due to an increase in the overnight borrowing rate as a result of the Federal Reserve interest rate moves in 2017 resulting in an increase in interest expense of $24,000.

38

Provision for Loan Losses

For the six month period ending June 30, 2018, we recorded a provision for loan losses of $825,000, which represents a decrease of $415,000 from the $1,240,000 provision recorded in the corresponding six months of last year. The provision was lower in 2018 than 2017 primarily due to the loan growth that occurred in 2017 compared to the loan growth in 2018. (see "Financial Condition – Allowance for Loan Losses and Credit Quality Risk").

For the three months ending June 30, 2018, we recorded a provision of $325,000 compared to $625,000 in 2017 with the decrease for the three month period being due to the lower level of loan growth in 2018 compared to the same period in 2017.

Non-interest Income

The following table shows the breakdown of non-interest income for the three and six months ended June 30, 2018 and 2017 (dollars in thousands):

	Six months ended June 30,				Change
	2018		2017		Amount			%
Service charges	$	2,274	$	2,178	$	96			4.4
Trust		401		409		(8	)		(2.0	)
Brokerage and insurance		349		305		44			14.4
Gains on loans sold		132		249		(117	)		(47.0	)
Equity security gains, net		13		-		13		NA
Available for sale security gains, net		-		195		(195	)		(100.0	)
Earnings on bank owned life insurance		306		333		(27	)		(8.1	)
Other		273		254		19			7.5
Total	$	3,748	$	3,923	$	(175	)		(4.5	)
	Three months ended June 30,				Change
		2018		2017	Amount			%
Service charges	$	1,170	$	1,120	$	50			4.5
Trust		150		188		(38	)		(20.2	)
Brokerage and insurance		168		114		54			47.4
Gains on loans sold		60		148		(88	)		(59.5	)
Equity security gains, net		7		-		7		NA
Available for sale security gains, net		-		23		(23	)		(100.0	)
Earnings on bank owned life insurance		154		167		(13	)		(7.8	)
Other		133		128		5			3.9
Total	$	1,842	$	1,888	$	(46	)		(2.4	)

Non-interest income for the six months ended June 30, 2018 totaled $3,748,000, a decrease of $175,000 when compared to the same period in 2017. During the first six months of 2018, there were no gains or losses from the sale of available for sale securities as there were no sales in 2018 compared to a $195,000 in 2017. In 2017, we sold seven agency securities for gains totaling $10,000, two of our equity positions for a gain of $158,000 and a mortgage backed security for a gain of $20,000. We recognized a $13,000 increase in the market value of our equity portfolio in 2018.

For the first six months of 2018, account service charges totaled $2,274,000, an increase of $96,000 or 4.4%, when compared to the same period in 2017. The increase was associated with a $69,000 increase in interchange revenue and a $38,000 increase in ATM income. The decrease in gains on loans sold is due to a decrease in the amount of loans sold in 2018 compared to 2017.

For the three month period ended June 30, 2018, the changes experienced from the prior year related to service charges and gains on loans sold correspond to the changes experienced for the six month period. The increase in brokerage and insurance revenues for the current period versus last year was the hiring of a broker in our south central market. The decrease in trust revenues is due to estate fees, which were higher in 2017.

39

Non-interest Expense

The following tables reflect the breakdown of non-interest expense for the three and six months ended June 30, 2018 and 2017 (dollars in thousands):

	Six months ended
	June 30,				Change
	2018		2017		Amount			%
Salaries and employee benefits	$	9,572	$	8,743	$	829			9.5
Occupancy		1,106		1,004		102			10.2
Furniture and equipment		264		285		(21	)		(7.4	)
Professional fees		557		568		(11	)		(1.9	)
FDIC insurance		207		200		7			3.5
Pennsylvania shares tax		600		524		76			14.5
Amortization of intangibles		150		149		1		NA
ORE expenses		295		172		123			71.5
Other		2,783		2,712		71			2.6
Total	$	15,534	$	14,357	$	1,177			8.2
	Three months ended
	June 30,				Change
		2018		2017	Amount			%
Salaries and employee benefits	$	4,737	$	4,377	$	360			8.2
Occupancy		514		477		37			7.8
Furniture and equipment		122		146		(24	)		(16.4	)
Professional fees		262		258		4			1.6
FDIC insurance		107		95		12			12.6
Pennsylvania shares tax		300		243		57			23.5
Amortization of intangibles		74		73		1			1.4
ORE expenses		157		82		75			91.5
Other		1,429		1,415		14			1.0
Total	$	7,702	$	7,166	$	536			7.5

Non-interest expenses increased $1,177,000 for the six months ended June 30, 2018 compared to the same period in 2017. Salaries and employee benefits increased $829,000 or 10.7%. The increase was due to merit increases effective at the beginning of 2018, an increase in the number of full-time equivalent employees of 9.0 as a result of staffing for additional branch locations, specifically State College, and an increase in profit sharing and retirement expenses as a result of additional headcount and financial results.

The primary cause of the increase in occupancy expenses is due to the acquisition of the State College branch and the openings of the limited branch office in Narvon, Pennsylvania. The increase in ORE expenses is the result of legal fees associated with a customer that is in foreclosure.

For the three months ended, June 30, 2018, non-interest expenses increased $536,000 when compared to the same period in 2017. The changes in salaries and employee benefits, occupancy expenses and ORE expenses for the quarter are consistent with the changes for the six month period.

Provision for Income Taxes

The provision for income taxes was $1,622,000 for the six month period ended June 30, 2018 compared to $1,956,000 for the same period in 2017. The decrease is attributable to the decrease in the Federal statutory income tax rate from 35% in 2017 to 21% in 2018. Through management of our municipal loan and bond portfolios, management is focused on minimizing our effective tax rate.  Our effective tax rate was 15.4% and 22.4% for the first six months of 2018 and 2017, respectively, compared to the statutory rate of 21% for 2018 and 34% for 2017.

40

For the three months ended June 30, 2018, the provision for income taxes was $875,000 compared to $1,033,000 for the same period in 2017. The decrease is attributable to the decrease in the Federal statutory income tax rate. Our effective tax rate was 15.7% and 23.0% for the three months ended June 30, 2018 and 2017, respectively.

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 $634,000 of tax credits over the next 4.5 years, with an additional $70,000 anticipated to be recognized during 2018.

Financial Condition

Total assets were $1.40 billion at June 30, 2018, an increase of $35.7 million from $1.36 billion at December 31, 2017.  Cash and cash equivalents decreased $2.9 million to $15.6 million. Investment securities decreased $4.8 million and net loans increased $38.9 million to $1.0 billion at June 30, 2018.  Total deposits increased $13.6 million to $1.12 billion since year-end 2017, while borrowed funds increased $19.0 million to $133.7 million.

Cash and Cash Equivalents

Cash and cash equivalents totaled $15.6 million at June 30, 2018 compared to $18.5 million at December 31, 2017, a decrease of $2.9 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 (including debt and equity securities as of June 30, 2018 and December 31, 2017 (dollars in thousands):

Fair Market Value of Investment Portfolio
	June 30, 2018						December 31, 2017
	Amount			%			Amount		%
Debt securities:
U. S. Agency securities	$	101,988			40.8		$	98,887		38.8
U. S. Treasury notes		32,992			13.2			28,604		11.2
Obligations of state & political subdivisions		67,872			27.1			79,090		31.0
Corporate obligations		3,023			1.2			3,083		1.2
Mortgage-backed securities in
government sponsored entities		44,150			17.6			45,027		17.7
Equity securities (a)		195			0.1			91		0.1
Total	$	250,220			100.0		$	254,782		100.0
	June 30, 2018/
	December 31, 2017
	Change
	Amount			%
Debt securities:
U. S. Agency securities	$	3,101			3.1
U. S. Treasury notes		4,388			15.3
Obligations of state & political subdivisions		(11,218	)		(14.2	)
Corporate obligations		(60	)		(1.9	)
Mortgage-backed securities in
government sponsored entities		(877	)		(1.9	)
Equity securities		104			114.3
Total	$	(4,562	)		(1.8	)

41

a. As of January 1, 2018, the Company adopted ASU 2016-01 resulting in the reclassification of equity securities from available for sale securities to equity securities in the Consolidated Balance Sheet.

Our investment portfolio decreased by $4.6 million, or 1.8%, from December 31, 2017 to June 30, 2018. During 2018, we purchased $5.0 million of treasury securities, $20.8 million of U.S. agency obligations, $4.1 million of mortgage-backed securities in government sponsored entities and $91,000 of equity securities, which helped offset the $4.1 million of principal repayments and $27.2 million of calls and maturities that occurred during the six month period. Excluding our short-term investments consisting of monies held primarily at the Federal Reserve for liquidity purposes, our investment portfolio for the six month period ended June 30, 2018 yielded 2.49%, compared to 2.51% in the comparable period in 2017 on a tax equivalent basis.

The investment strategy for 2018 has been to utilize cashflows from the investment portfolio to purchase agency and treasury securities to pledge against our public deposits. Investment purchases have been focused on securities with short fixed maturities for agency and treasury securities. 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 meet liquidity needs.

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 June 30, 2018 and December 31, 2017 (dollars in thousands):

	June 30,						December 31,
	2018						2017
	Amount			%			Amount		%
Real estate:
Residential	$	213,242			20.5		$	214,479		21.4
Commercial		309,571			29.8			308,084		30.8
Agricultural		262,691			25.3			239,957		24.0
Construction		27,901			2.7			13,502		1.3
Consumer		9,740			0.9			9,944		1.0
Other commercial loans		75,002			7.2			72,013		7.2
Other agricultural loans		42,131			4.1			37,809		3.8
State & political subdivision loans		99,922			9.5			104,737		10.5
Total loans		1,040,200			100.0			1,000,525		100.0
Less allowance for loan losses		11,941						11,190
Net loans	$	1,028,259					$	989,335
	June 30, 2018/
	December 31, 2017
	Change
	Amount			%
Real estate:
Residential	$	(1,237	)		(0.6	)
Commercial		1,487			0.5
Agricultural		22,734			9.5
Construction		14,399			106.6
Consumer		(204	)		(2.1	)
Other commercial loans		2,989			4.2
Other agricultural loans		4,322			11.4
State & political subdivision loans		(4,815	)		(4.6	)
Total loans	$	39,675			4.0

42

The Bank's lending efforts have historically focused on north central Pennsylvania and southern New York. The acquisition of FNB in 2015 expanded the focus into Lebanon, Lancaster, Schuylkill and Berks County markets in south central Pennsylvania. The opening of the Winfield office in 2016 and the acquisition of the State College branch in 2017 has increased our presence in the central Pennsylvania market. 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 June 30, 2018, the Company had one industry specific loan concentration, within the dairy industry, totaling $144.4 million or 13.9% of total loans.

During the first six months of 2018, the primary driver of growth in the loan portfolio continued to be commercial and agricultural real estate loans in both the central and south central Pennsylvania markets. We experienced some significant pay-offs of purchased participation loans in the second quarter, which limited our growth. Commercial and agricultural loan demand is subject to significant competitive pressures, the yield curve, and the strengthening of the overall national, regional and local economies.

While the Bank has lent to companies that service the exploration for natural gas in our market area, 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 industry 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.

Residential real estate loans decreased slightly during the first half of 2018. Loan demand for conforming mortgages, which the Company typically sells on the secondary market has decreased in 2018 when compared to 2017. 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 six months ended June 30, 2018 and for the years ended December 31, 2017, 2016, 2015 and 2014 (dollars in thousands):

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	June 30,			December 31,
	2018			2017			2016			2015			2014
Balance
at beginning of period	$	11,190		$	8,886		$	7,106		$	6,815		$	7,098
Charge-offs:
Real estate:
Residential		17			107			85			66			97
Commercial		-			41			100			84			516
Agricultural		-			30			-			-			-
Consumer		19			130			100			47			47
Other commercial loans		91			-			55			41			250
Other agricultural loans		50			5			-			-			-
Total loans charged-off		177			313			340			238			910
Recoveries:
Real estate:
Residential		69			-			-			-			-
Commercial		3			11			479			14			15
Agricultural		-			-			-			-			-
Consumer		17			49			88			33			27
Other commercial loans		14			16			33			2			-
Other agricultural loans		-			1			-			-			-
Total loans recovered		103			77			600			49			42
Net loans (recovered) charged-off		74			236			(260	)		189			868
Provision charged to expense		825			2,540			1,520			480			585
Balance at end of period	$	11,941		$	11,190		$	8,886		$	7,106		$	6,815
Loans outstanding at end of period	$	1,040,200		$	1,000,525		$	799,611		$	695,031		$	554,105
Average loans outstanding, net	$	1,027,778		$	883,355		$	725,881		$	577,992		$	540,541
Non-performing assets:
Non-accruing loans	$	10,931		$	10,171		$	11,454		$	6,531		$	6,599
Accrual loans - 90 days or more past due		1,046			555			405			623			836
Total non-performing loans	$	11,977		$	10,726		$	11,859		$	7,154		$	7,435
Foreclosed assets held for sale		471			1,119			1,036			1,354			1,792
Total non-performing assets	$	12,448		$	11,845		$	12,895		$	8,508		$	9,227
Annualized net charge-offs to average loans		0.02	%		0.03	%		-0.04	%		0.03	%		0.16	%
Allowance to total loans		1.15	%		1.12	%		1.11	%		1.02	%		1.23	%
Allowance to total non-performing loans		99.70	%		104.33	%		74.93	%		99.33	%		91.66	%
Non-performing loans as a percent of loans
net of unearned income		1.15	%		1.07	%		1.48	%		1.03	%		1.34	%
Non-performing assets as a percent of loans
net of unearned income		1.20	%		1.18	%		1.61	%		1.22	%		1.67	%

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 June 30, 2018.  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.

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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 $11,941,000 or 1.15% of total loans as of June 30, 2018 as compared to $11,190,000 or 1.12% of loans as of December 31, 2017. The $751,000 increase in the allowance during the first six months of 2018 is the result of a $825,000 provision and net charge-offs of $74,000. 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 June 30, 2018 and December 31, 2017, 2016, 2015 and 2014 (dollars in thousands):

	June 30,				December 31
	2018				2017				2016				2015				2014
	Amount		%		Amount		%		Amount		%		Amount		%		Amount		%
Real estate loans:
Residential	$	1,045		20.5	$	1,049		21.4	$	1,064		25.9	$	905		29.3	$	878		33.5
Commercial		3,794		29.8		3,867		30.8		3,589		31.6		3,376		34.2		3,419		34.5
Agricultural		3,673		25.3		3,143		24.0		1,494		15.5		409		8.3		451		4.4
Construction		44		2.7		23		1.3		47		3.2		24		2.2		26		1.1
Consumer		115		0.9		124		1.0		122		1.4		102		1.7		84		1.5
Other commercial loans		1,266		7.2		1,272		7.2		1,327		7.3		1,183		8.2		1,007		8.6
Other agricultural loans		589		4.1		492		3.8		312		2.9		122		2.0		217		2.0
State & political subdivision loans		767		9.5		816		10.5		833		12.2		593		14.1		545		14.4
Unallocated		648		N/A		404		N/A		98		N/A		392		N/A		188		N/A
Total allowance for loan losses	$	11,941		100.0	$	11,190		100.0	$	8,886		100.0	$	7,106		100.0	$	6,815		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 55.1% of the loan portfolio, 62.5% of the allowance is assigned to this segment of the loan portfolio as these loans have more inherent credit risk 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, 2017 to June 30, 2018 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.

	June 30, 2018								December 31, 2017
			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	$	905	$	-	$	1,493	$	1,493	$	1,550	$	218	$	1,386	$	1,604
Commercial		2,864		38		6,262		6,300		1,519		162		5,192		5,354
Agricultural		1,105		543		167		710		242		30		175		205
Construction		-		-		-		-		-		-		133		133
Consumer		32		32		25		57		86		7		42		49
Other commercial loans		55		-		2,415		2,415		50		32		2,637		2,669
Other agricultural loans		182		433		569		1,002		42		106		606		712
Total nonperforming loans	$	5,143	$	1,046	$	10,931	$	11,977	$	3,489	$	555	$	10,171	$	10,726

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	Change in Non-Performing Loans
	June 30, 2018 /December 31, 2017
(in thousands)	Amount			%
Real estate:
Residential	$	(111	)		(6.9	)
Commercial		946			17.7
Agricultural		505			246.3
Construction		(133	)		(100.0	)
Consumer		8			16.3
Other commercial loans		(254	)		(9.5	)
Other agricultural loans		290			40.7
Total nonperforming loans	$	1,251			11.7

For the six months ended June 30, 2018, we recorded a provision for loan losses of $825,000, which compares to $1,240,000 for the same period in 2017. The decrease was primarily attributable to the loan growth experienced during 2018 being lower than the growth experienced during the comparable period of 2017. Non-performing loans increased $1.3 million or 11.7%, from December 31, 2017 to June 30, 2018, primarily due to one customer relationship. Approximately 58.5% of the Bank's non-performing loans at June 30, 2018 are associated with the following three customer relationships:

· A commercial customer with a total loan relationship of $3.0 million, secured by undeveloped land, stone quarries and equipment, was on non-accrual status as of June 30, 2018. 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. During 2017, the Company had the underlying collateral appraised. The appraisals indicated a 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. Management determined that no specific reserve was required as of June 30, 2018.

· A commercial customer with a total loan relationship of $2.5 million, secured by residential rental properties, was on non-accrual status as of June 30, 2018. 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 June 30, 2018, there was no specific reserve for this relationship.

· An agricultural customer with a total loan relationship of $2.9 million, secured by real estate, equipment and cattle had $1.5 million in loans that were non-performing as of June 30, 2018. The remaining $1.4 million was considered performing as of June 30, 2018 as the loans were less than 90 days past due. Included within the non-performing portion of loans to this customer are $1,001,000 of loans which are subject to Farm Service Agency guarantees. Depressed milk prices have created cash flow difficulties for this customer.  Absent a sizable and sustained increase in milk prices, which is not assured, we will need to rely upon the collateral for repayment of interest and principal. As of June 30, 2018, there was no specific reserve for this relationship.

Management of the Bank believes that the allowance for loan losses as of June 30, 2018 is adequate, which is based on the following factors:

· Three loan relationships comprise 58.5% of the non-performing loan balance, whose debt is considered well collateralized and has no specific reserves as of June 30, 2018.

· The Company has a history of low charge-offs, which continued in 2018 as the net charge-offs were .02% of average loans and only $74,000. In 2016, a net recovery was experienced as the result of recovering a loan that was partially charged off in 2014.

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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 June 30, 2018 and December 31, 2017, the cash surrender value of the life insurance was $27.2 million and $26.9 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 $154,000 and $167,000 for the three month periods ended June 30, 2018 and 2017, respectively. For the six months ended June 30, 2018 and 2017, $306,000 and $333,000, respectively, was recorded in non-interest income. 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 June 30, 2018 and December 31, 2017, included in other liabilities on the Consolidated Balance Sheet was a liability of $615,000 and $578,000, respectively, for the obligation under the split-dollar benefit agreements.

Premises and Equipment

Premises and equipment decreased $234,000 to $16.3 million as of June 30, 2018 from December 31, 2017. This occurred primarily as a result of normal depreciation expense recorded in the first six months of 2018.

Deposits

The following table shows the composition of deposits as of June 30, 2018 and December 31, 2017 (dollars in thousands):

	June 30,				December 31,
	2018				2017
	Amount		%		Amount		%
Non-interest-bearing deposits	$	169,014		15.1	$	171,840		15.6
NOW accounts		321,799		28.8		337,307		30.5
Savings deposits		190,557		17.0		184,057		16.7
Money market deposit accounts		165,781		14.8		145,287		13.1
Certificates of deposit		271,441		24.3		266,452		24.1
Total	$	1,118,592		100.0	$	1,104,943		100.0

47

	June 30, 2018/
	December 31, 2017
	Change
	Amount			%
Non-interest-bearing deposits	$	(2,826	)		(1.6	)
NOW accounts		(15,508	)		(4.6	)
Savings deposits		6,500			3.5
Money market deposit accounts		20,494			14.1
Certificates of deposit		4,989			1.9
Total	$	13,649			1.2

Deposits increased $13.6 million since December 31, 2017. Customers, including local municipalities transferred balances from NOW accounts to money market accounts, which accounts for the majority of the changes in those accounts. As a result of strategic initiatives, we have increased our focus and have enhanced our cash management services.

Certificates of deposits increased $5.0 million in 2018. The rates paid on certificates of deposits have increased in the first part of 2018 making them more attractive to customers who typically utilize certificate of deposits as a means of generating income or as a longer term investment option. The rates paid on certificates of deposit by the Company remain competitive with rates paid by our competition. As of June 30, 2018, the Bank did not have any outstanding brokered certificates of deposit.

Borrowed Funds

      Borrowed funds increased $19.0 million during the first six months of 2018. The increase was the result of borrowing an additional $18.9 million of overnight advances from the FHLB as a result of the loan growth experienced in the first half of 2018. 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.

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 $132.3 million at June 30, 2018 compared to $129.0 million at December 31, 2017, an increase of $3,270,000, or 2.5%.  Excluding accumulated other comprehensive income, stockholders' equity increased $5.2 million, or 4.0%. The Company purchased 8,711 shares of treasury stock at a weighted average cost of $62.29 per share. The Company reissued 217 shares to certain employees as a reward for years of services at a weighted average cost of $62.47 per share. The Company awarded employees 4,869 shares of restricted stock at a weighted average cost of $62.91 per share during the first six months of 2018. For the first six months of 2018, the Company had net income of $8.9 million and declared cash dividends of $3.1 million, or $0.87 per share, representing a cash dividend payout ratio of 34.2%.

All of the Company's debt 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 decreased approximately $2.0 million from December 31, 2017.

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.

48

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 June 30, 2018 and December 31, 2017, that the Company and Bank meet all capital adequacy requirements to which they were subject at such dates.

As of June 30, 2018 and December 31, 2017, 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):

	Actual					For Capital Adequacy Purposes					To Be Well Capitalized Under Prompt Corrective Action Provisions
June 30, 2018	Amount		Ratio			Amount		Ratio			Amount		Ratio
Total Capital (to Risk Weighted Assets):
Company	$	134,566		13.23	%	$	81,356		8.00	%	$	101,695		10.00	%
Bank	$	128,570		12.65	%	$	81,339		8.00	%	$	101,674		10.00	%
Tier 1 Capital (to Risk Weighted Assets):
Company	$	122,460		12.04	%	$	61,017		6.00	%	$	81,356		8.00	%
Bank	$	116,464		11.45	%	$	61,004		6.00	%	$	81,339		8.00	%
Common Equity Tier 1 Capital (to Risk Weighted Assets):
Company	$	114,960		11.30	%	$	45,763		4.50	%	$	66,101		6.50	%
Bank	$	116,464		11.45	%	$	45,753		4.50	%	$	66,088		6.50	%
Tier 1 Capital (to Average Assets):
Company	$	122,460		8.94	%	$	54,767		4.00	%	$	68,459		5.00	%
Bank	$	116,464		8.51	%	$	54,748		4.00	%	$	68,435		5.00	%

	Actual					For Capital Adequacy Purposes					To Be Well Capitalized Under Prompt Corrective Action Provisions
December 31, 2017	Amount		Ratio			Amount		Ratio			Amount		Ratio
Total Capital (to Risk Weighted Assets):
Company	$	128,578		13.20	%	$	77,906		8.00	%	$	97,383		10.00	%
Bank	$	122,469		12.58	%	$	77,852		8.00	%	$	97,315		10.00	%
Tier 1 Capital (to Risk Weighted Assets):
Company	$	117,224		12.04	%	$	58,430		6.00	%	$	77,906		8.00	%
Bank	$	111,114		11.42	%	$	58,389		6.00	%	$	77,852		8.00	%
Common Equity Tier 1 Capital (to Risk Weighted Assets):
Company	$	109,724		11.27	%	$	43,822		4.50	%	$	63,299		6.50	%
Bank	$	111,114		11.42	%	$	43,792		4.50	%	$	63,255		6.50	%
Tier 1 Capital (to Average Assets):
Company	$	117,224		9.18	%	$	51,085		4.00	%	$	63,857		5.00	%
Bank	$	111,114		8.71	%	$	51,023		4.00	%	$	63,778		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 June 30, 2018 and December 31, 2017 (in thousands):

49

	June 30, 2018		December 31, 2017
Commitments to extend credit	$	209,549	$	188,482
Standby letters of credit		15,465		15,244
	$	225,014	$	203,726

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 June 30, 2018 and December 31, 2017 was $9,418,000 and $9,335,000, respectively. The Company reserves the right to discontinue this service without prior notice.

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 six months of 2018 were $140,000 compared to $131,000 during the same time period in 2017.

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 $494.4 million, of which $151.1 million was outstanding via loans and letters of credits at June 30, 2018. 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 $4.4 million, which also is not drawn upon as of June 30, 2018. 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 June 30, 2018, Citizens Financial Services, Inc. (on an unconsolidated basis) had liquid assets of $5.7 million.

50

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 0.08% of its total assets and, therefore, equity risk is not significant.

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 June 30, 2018 (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	$	46,316	$	(1,069	)		(2.26	)
Base		47,385		-			-
+100 Shock		46,074		(1,311	)		(2.77	)
+200 Shock		44,564		(2,821	)		(5.95	)
+300 Shock		43,090		(4,295	)		(9.06	)
+400 Shock		41,595		(5,790	)		(12.22	)

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").

51

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.

(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 June 30, 2018 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, 2017, which could materially affect our business, financial condition or future results. At June 30, 2018, 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)
4/1/18 to 4/30/18		75	$	61.00		75		84,068
5/1/18 to 5/31/18		-	$	0.00		-		84,068
6/1/18 to 6/30/18		3,307	$	62.66		3,307		80,761
Total		3,382	$	62.62		3,382		80,761

(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.

52

Item 3 ‑ Defaults Upon Senior Securities

Not applicable.

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
3.2	Bylaws of Citizens Financial Services, Inc. (1)
4.1	Form of Common Stock Certificate. (2)
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  June 30, 2018, 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 3.2 to the Company's Current Report on Form 8-K, as filed with the Commission on December 24, 2009.

⁽²⁾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.

53

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)
August 9, 2018	By:	/s/ Randall E. Black
		Randall E. Black
		President & Chief Executive Officer (Principal Executive Officer)

August 9, 2018	By:	/s/ Mickey L. Jones
		Mickey L. Jones
		Chief Financial Officer (Principal Financial and Accounting Officer)

54

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.

August 9, 2018	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.

August 9, 2018	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 June 30, 2018 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.

August 9, 2018	By:	/s/ Randall E. Black
		Randall E. Black
		President and Chief Executive Officer (Principal Executive Officer)

August 9, 2018	By:	/s/ Mickey L. Jones
		Mickey L. Jones
		Chief Financial Officer (Principal Financial and Accounting Officer)

EX-3.1

RESTATED

ARTICLES OF INCORPORATION

CITIZENS FINANCIAL SERVICES, INC.

FIRST.The name of Corporation is Citizens Financial Services, Inc.

SECOND.The address of the Corporation=s registered office in the Commonwealth of Pennsylvania is:

15 South Main Street

Mansfield, Pennsylvania 16933

THIRD.The corporation was incorporated on April 30, 1984, under the provisions of the Business Corporation Law of the Commonwealth of Pennsylvania (Act of May 5, 1933, P.L. 364, as amended).  The purpose of the Corporation is and it shall have unlimited power to engage in and do any lawful act concerning any or all lawful business for which corporations may be incorporated under the provisions of the Business Corporation Law of the Commonwealth of Pennsylvania.

FOURTH.A.Authorized Amount.  The aggregate number of shares of capital stock that the Corporation has authority to issue is 28,000,000, of which 25,000,000 shall be common stock, par value $1.00 per share ("Common Stock") and 3,000,000 shall be preferred stock, par value $1.00 per share ("Preferred Stock").

B.Common Stock.  Except as provided in this Article Fourth (or in any resolution or resolutions adopted by the Board of Directors pursuant hereto), the exclusive voting power shall be vested in the Common Stock, with each holder thereof being entitled to one vote for each share of such Common Stock standing in the holder's name on the books of the Corporation. Subject to any rights and preferences of any class of stock having preference over the Common Stock, holders of Common Stock shall be entitled to such dividends as may be declared by the Board of Directors out of funds lawfully available therefore. Upon any liquidation, dissolution, or winding up of the affairs of the Corporation, whether voluntary or involuntary, holders of Common Stock shall be entitled to receive pro rata the remaining assets of the Corporation after the holders of any class of stock having preference over the Common Stock have been paid in full any sums to which they may be entitled.

C.Authority of Board to Fix Terms of Preferred Stock.  A description of each class of shares and a statement of the voting rights, designations, preferences, qualifications, privileges, limitations, options, conversion rights, and other special rights granted to or imposed upon the shares of each class and of the authority vested in the Board of Directors to establish series of Preferred Stock or to determine that Preferred Stock will be issued as a class without series and to fix and determine the voting rights, designations, preferences, and other special rights of the Preferred Stock as a class or of the series thereof are as follows:

Preferred Stock may be issued from time to time as a class without series or in one or more series.  Each series shall be designated in supplementary sections or amendments to these Articles of Incorporation by the Board of Directors so as to distinguish the shares thereof from the shares of all other series and classes.  The Board of Directors may, by resolution and amendment to these Articles of Incorporation from time to time, divide shares of Preferred Stock into series, or determine that the Preferred Stock shall be issued as a class without series, fix and determine the number of shares in a series and the terms and conditions of the issuance of the class or the series, and, subject to the provisions of this Article Fourth, fix and determine the rights, preferences, qualifications, privileges, limitations, and other special rights, if any, of the class (if none of such shares of the class have been issued) or of any series so established, including but not limited to, voting rights (which may be limited, multiple, fractional, or non-voting rights), the rate of dividend, if any, and whether or to what extent, if any, such dividends shall be cumulative (including the date from which dividends shall be cumulative, if any), the price at and the terms and conditions on which shares may be redeemed, if any, the preference and the amounts payable on shares in the event of voluntary or involuntary liquidation, sinking fund provisions for the redemption or purchase of shares in the event shares of the class or of any series are issued with sinking fund provisions, and the terms and conditions on which the shares of the class or of any series may be converted in the event the shares of the class or of any series are issued with the privilege of conversion.

The Board of Directors may, in its discretion, at any time or from time to time, issue or cause to be issued all or any part of the authorized and unissued shares of Preferred Stock for consideration of such character and value as the Board of Directors shall from time to time fix or determine.

FIFTH.The term of the Corporation=s existence is perpetual.

SIXTH.[Intentionally omitted.]

SEVENTH.Cumulative voting rights shall not exist with respect to the election of directors.

EIGHTH.A. The Board of Directors may, if it deems it advisable, oppose a tender, or other offer for the Corporation=s securities, whether the offer is in cash or in securities of a corporation or otherwise.  When considering whether to oppose an offer, the Board of Directors may, but it is not legally obligated to, consider any pertinent issues; by way of illustration, but not of limitation, the Board of Directors may, but shall not be legally obligated to, consider any and all of the following:

(1) Whether the offer price is acceptable based on the historical and present operating results or financial condition of the Corporation.

(2) Whether a more favorable price could be obtained for the Corporation=s securities in the future.

(3) The impact which an acquisition of the Corporation would have on its employees, depositors and customers of the Corporation and its subsidiaries in the community which they serve.

(4) The reputation and business practices of the offeror and its management and affiliates as they would affect the employees, depositors and customers of the Corporation and its subsidiaries and the future value of the Corporation's stock.

(5) The value of the securities, if any, which the offeror is offering in exchange for the Corporation's securities, based on an analysis of the worth of the Corporation as compared to the corporation or other entity whose securities are being offered.

(6) Any antitrust or other legal and regulatory issues that are raised by the offer.

B.  If the Board of Directors determines that an offer should be rejected, it may take any lawful action to accomplish its purpose including, but not limited to, any and all of the following: advising shareholders not to accept the offer; litigation against the offeror; filing complaints with all governmental and regulatory authorities; acquiring the authorized but unissued securities or treasury stock or granting options with respect thereto; acquiring a company to create an antitrust or other regulatory problem for the offeror; and obtaining a more favorable offer from another individual or entity.

NINTH.The Directors shall be divided into three (3) classes, as nearly equal in number as possible, known as Class 1, consisting of not more than eight (8) Directors; Class 2, consisting of not more than eight (8) Directors; and Class 3, consisting of not more than nine (9) Directors.  The initial Directors of Class 1 shall serve until the third (3rd) annual meeting of shareholders.  At the third (3rd) annual meeting of the shareholders, the Directors of Class 1 shall be elected for a term of three (3) years and, after expiration of such term, shall thereafter be elected every three (3) years for three (3) year terms.  The initial Directors of Class 2 shall serve until the second (2nd) annual meeting of shareholders.  At the second annual meeting of the shareholders, the Directors of Class 2 shall be elected for a term of three (3) years and, after the expiration of such term, shall thereafter be elected every three (3) years for three (3) terms.  The initial Directors of Class 3 shall serve until the first (1st) annual meeting of shareholders.  At the first (1st) annual meeting of the shareholders the Directors of Class 3 shall be elected for a term of three (3) years and, after the expiration of such term, shall thereafter be elected every three (3) years for three (3) year terms.  Each director shall serve until his/her successor shall have been elected and shall qualify, even though his/her term of office as herein provided has otherwise expired, except in the event of his/her earlier resignation, removal or disqualification.

TENTH.The Board shall consist of not less than five nor more than twenty-five shareholders, the exact number within such minimum and maximum limits to be fixed and determined from time to time by resolution of a majority of the full Board or by resolution of the shareholders at any meeting thereof; provided, however, that a majority of the full Board of Directors may not increase the number of directors to a number which; (i) exceeds by more than two, the number of directors last elected by shareholder, (ii) in no event shall the number of directors exceed twenty-five.

ELEVENTH.Any directorship to be filled by reason of an increase in the number of directors may be filled by the Board of Directors.  The Board of Directors shall specify the class in which a director so elected shall serve.  Any director elected by the Board of Directors shall hold office only until the next annual meeting of the shareholders and until his successor shall have been elected and qualified, notwithstanding that the term of office of the other directors in the class of which he is a member does not expire at the time of such meeting.  His successor shall be elected by the shareholders to a term of office which shall expire at the same time as the term of office of the other directors in the class to which he is elected.

TWELFTH.[RESERVED].

THIRTEENTH.No shareholder of this Corporation shall be entitled to preemptive rights and preemptive rights shall not exist with respect to shares or securities of this Corporation.

FOURTEENTH.The Corporation shall have authority to borrow money and the Board of Directors, without the approval of the shareholders and acting within their sole discretion, shall have the authority to issue debt instruments of the Corporation upon such terms and conditions and with such limitation as the Board of Directors deems advisable.  The authority of the Board of Directors shall include, but not be limited to, the power to issue convertible debentures.

FIFTEENTH.A.  To the extent permitted by Section 410 of the Pennsylvania Business Corporation Law, and any amendments thereto, and sections relating thereto, including the Directors= Liability Act, subject to Federal regulatory restrictions, the Board of Directors of the Corporation shall cause the Corporation to indemnify any person who was or is threatened to be made a party to any threatened, pending, or completed actions, suit, or proceeding, whether civil, criminal, administrative, or investigative by reason of the fact that he or she is or was a director, officer, employee or agent of the Corporation against expenses (including attorneys= fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him or her in connection with such action, suit, or proceeding, including any amount paid to the institution itself as a result of an action or suit by or in the right of the Corporation.

To the extent permitted by law, the Board of Directors of the Corporation shall cause the Corporation to purchase and maintain insurance on behalf of any person who is or was against any liability asserted against him or her and incurred by him or her in any such capacity, and arising out of his or her status as such.

B.  A director of the Corporation shall not be personally liable for monetary damages as such for any action taken, or any failure to take any action, unless:

(1) the director has breached or failed to perform the duties of his or her office under Section 8363 of the Directors= Liability Act (relating to standard of care and justifiable reliance); and

(2) the breach or failure to perform constitutes self-dealing, willful misconduct or recklessness.

Exception

The provisions of this section shall not apply to:

(1) the responsibility or liability of a director pursuant to any criminal statute; or

(2) the liability of a director for the payment of taxes pursuant to local, State or Federal law.

SIXTEENTH.No merger, consolidation, liquidation or dissolution of the Corporation nor any action that would result in the sale of other disposition of all or substantially all of the assets of the Corporation shall be valid unless first approved by the affirmative vote of the holders of at least sixty-six and two-thirds percent (66 2/3%) of the outstanding shares of Common Stock.  This Article may not be amended unless first approved by the affirmative vote of the holders of at least sixty-six and two-thirds percent (66 2/3%) of the outstanding shares of Common Stock.

The above Bylaws are effective as of April 17, 2018.

XML

Document and Entity Information - shares	6 Months Ended
	Jun. 30, 2018	Aug. 02, 2018
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		3,512,653
Document Fiscal Year Focus	2018
Document Fiscal Period Focus	Q2
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Jun. 30, 2018

XML

CONSOLIDATED BALANCE SHEET (UNAUDITED) - USD ($) $ in Thousands	Jun. 30, 2018	Dec. 31, 2017
Cash and due from banks:
Noninterest-bearing	$ 14,521	$ 16,347
Interest-bearing	1,092	2,170
Total cash and cash equivalents	15,613	18,517
Interest bearing time deposits with other banks	13,762	10,283
Equity securities	195	0
Available-for-sale securities	250,025	254,782
Loans held for sale	1,931	1,439
Loans (net of allowance for loan losses: 2018, $11,941 and 2017, $11,190)	1,028,259	989,335
Premises and equipment	16,289	16,523
Accrued interest receivable	4,285	4,196
Goodwill	23,296	23,296
Bank owned life insurance	27,189	26,883
Other intangibles	1,756	1,953
Other assets	14,994	14,679
TOTAL ASSETS	1,397,594	1,361,886
Deposits:
Noninterest-bearing	169,014	171,840
Interest-bearing	949,578	933,103
Total deposits	1,118,592	1,104,943
Borrowed funds	133,652	114,664
Accrued interest payable	903	897
Other liabilities	12,166	12,371
TOTAL LIABILITIES	1,265,313	1,232,875
STOCKHOLDERS' EQUITY:
Preferred Stock $1.00 par value; authorized 3,000,000 shares at June 30, 2018 and December 31, 2017; none issued in 2018 or 2017	0	0
Common stock $1.00 par value; authorized 25,000,000 shares at June 30 2018 and 15,000,000 at December 31, 2017; issued 3,904,212 at June 30, 2018 and 3,869,939 at December 31, 2017	3,904	3,870
Additional paid-in capital	53,098	51,108
Retained earnings	93,717	89,982
Accumulated other comprehensive loss	(5,357)	(3,398)
Treasury stock, at cost: 391,559 shares at June 30, 2018 and 383,065 shares at December 31, 2017	(13,081)	(12,551)
TOTAL STOCKHOLDERS' EQUITY	132,281	129,011
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$ 1,397,594	$ 1,361,886

XML

CONSOLIDATED BALANCE SHEET (UNAUDITED) (Parenthetical) - USD ($) $ in Thousands	Jun. 30, 2018	Dec. 31, 2017
ASSETS:
Loans, allowance for loan losses	$ 11,941	$ 11,190
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)	25,000,000	15,000,000
Common Stock, issued (in shares)	3,904,212	3,869,939
Treasury stock, shares (in shares)	391,559	383,065

XML

CONSOLIDATED STATEMENT OF INCOME (UNAUDITED) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
INTEREST INCOME:
Interest and fees on loans	$ 12,461	$ 10,304	$ 24,322	$ 20,021
Interest-bearing deposits with banks	66	45	124	80
Investment securities:
Taxable	916	775	1,716	1,579
Nontaxable	474	601	1,001	1,269
Dividends	111	53	248	129
TOTAL INTEREST INCOME	14,028	11,778	27,411	23,078
INTEREST EXPENSE:
Deposits	1,585	1,143	2,901	2,188
Borrowed funds	692	231	1,339	489
TOTAL INTEREST EXPENSE	2,277	1,374	4,240	2,677
NET INTEREST INCOME	11,751	10,404	23,171	20,401
Provision for loan losses	325	625	825	1,240
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES	11,426	9,779	22,346	19,161
Non Interest Income [Abstract]
Revenue from customers	1,566		3,187
Gains on loans sold	60	148	132	249
Equity security gains, net	7	0	13	0
Available for sale security gains, net	0	23	0	195
Earnings on bank owned life insurance	154	167	306	333
Other	133	128	273	254
TOTAL NON-INTEREST INCOME	1,842	1,888	3,748	3,923
NON-INTEREST EXPENSES:
Salaries and employee benefits	4,737	4,377	9,572	8,743
Occupancy	514	477	1,106	1,004
Furniture and equipment	122	146	264	285
Professional fees	262	258	557	568
FDIC insurance	107	95	207	200
Pennsylvania shares tax	300	243	600	524
Amortization of intangibles	74	73	150	149
Other real estate owned expenses	157	82	295	172
Other	1,429	1,415	2,783	2,712
TOTAL NON-INTEREST EXPENSES	7,702	7,166	15,534	14,357
Income before provision for income taxes	5,566	4,501	10,560	8,727
Provision for income taxes	875	1,033	1,622	1,956
NET INCOME	$ 4,691	$ 3,468	$ 8,938	$ 6,771
PER COMMON SHARE DATA:
Net Income - Basic (in dollars per share)	$ 1.34	$ 0.99	$ 2.55	$ 1.93
Net Income - Diluted (in dollars per share)	1.34	0.99	2.55	1.93
Cash Dividends Paid (in dollars per share)	$ 0.435	$ 0.401	$ 0.870	$ 0.802
Number of shares used in computation - basic (in shares)	3,507,242	3,514,394	3,509,882	3,513,925
Number of shares used in computation - diluted (in shares)	3,508,709	3,515,582	3,510,513	3,514,535
Service Charges [Member]
Non Interest Income [Abstract]
Revenue from customers	$ 1,170	$ 1,120	$ 2,274	$ 2,178
Trust [Member]
Non Interest Income [Abstract]
Revenue from customers	150	188	401	409
Brokerage and Insurance [Member]
Non Interest Income [Abstract]
Revenue from customers	$ 168	$ 114	$ 349	$ 305

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CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED) [Abstract]
Net income	$ 4,691	$ 3,468	$ 8,938	$ 6,771
Other comprehensive income (loss):
Change in unrealized gains on available for sale securities	(529)	654	(2,574)	724
Income tax effect	112	(222)	540	(246)
Change in unrecognized pension cost	47	52	93	112
Income tax effect	(10)	(17)	(19)	(38)
Less: Reclassification adjustment for investment security gains included in net income	0	(23)	0	(195)
Income tax effect	0	8	0	66
Other comprehensive income (loss), net of tax	(380)	452	(1,960)	423
Comprehensive income	$ 4,311	$ 3,920	$ 6,978	$ 7,194

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CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$ 8,938	$ 6,771
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses	825	1,240
Depreciation and amortization	182	199
Amortization and accretion of investment securities	569	735
Deferred income taxes	42	(105)
Equity and available for sale securities gains, net	(13)	(195)
Earnings on bank owned life insurance	(306)	(333)
Originations of loans held for sale	(7,260)	(10,247)
Proceeds from sales of loans held for sale	6,849	11,840
Realized gains on loans sold	(132)	(249)
(Increase) decrease in accrued interest receivable	(89)	392
Increase (decrease) in accrued interest payable	6	(92)
Other, net	23	(166)
Net cash provided by operating activities	9,634	9,790
Available-for-sale securities:
Proceeds from sales	0	25,407
Proceeds from maturity and principal repayments	31,351	36,510
Purchase of securities	(29,828)	(13,829)
Purchase of equity securities	(91)	0
Purchase of interest bearing time deposits with other banks	(4,721)	(4,069)
Proceeds from sale of interest bearing time deposits with other banks	1,239	1,745
Proceeds from matured interest bearing time deposits with other banks	0	496
Proceeds from redemption of regulatory stock	5,138	4,303
Purchase of regulatory stock	(5,574)	(3,487)
Net increase in loans	(39,375)	(88,468)
Purchase of premises and equipment	(140)	(131)
Proceeds from sale of foreclosed assets held for sale	736	237
Net cash used in investing activities	(41,265)	(41,286)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits	13,649	45,706
Proceeds from long-term borrowings	4	5
Net short-term borrowed funds	18,984	(9,669)
Purchase of treasury and restricted stock	(850)	(509)
Dividends paid	(3,060)	(2,429)
Net cash provided by financing activities	28,727	33,104
Net (decrease) increase in cash and cash equivalents	(2,904)	1,608
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD	18,517	17,754
CASH AND CASH EQUIVALENTS AT END OF PERIOD	15,613	19,362
Supplemental Disclosures of Cash Flow Information:
Interest paid	4,234	2,769
Income taxes paid	1,200	2,075
Loans transferred to foreclosed property	78	335
Investments purchased and not settled	$ 0	$ 1,541

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Basis of Presentation

6 Months Ended

Jun. 30, 2018

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 June 30, 2018 and for the periods ended June 30, 2018 and 2017 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 six month period ended June 30, 2018 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, 2017.

In May 2014,the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2014-09, "Revenue from Contracts with Customers" ("ASU 2014-09"), which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU replaces most existing revenue recognition guidance in GAAP. The new standard was effective for the Company on January 1, 2018. Adoption of ASU 2014-09 did not have a material impact on the Company's consolidated financial statements other than additional disclosures in note 2 as the Company's primary sources of revenues are derived from interest and dividends earned on loans, investment securities, and other financial instruments that are not within the scope of ASU 2014-09.

In January 2016, the FASB finalized ASU 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. This accounting standard (a) requires separate presentation of equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) on the balance sheet and 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.

The adoption resulted in the Company recognizing a one-time cumulative effect adjustment of $1,000 between accumulated other comprehensive income and retained earnings on the consolidated balance sheet for the fair value of equity securities included in accumulated other comprehensive income as of the beginning of the period. The adjustment had no impact on net income on any prior periods presented.

The Company has adopted this standard during the reporting period. On a prospective basis, the Company implemented changes to the measurement of the fair value of financial instruments using an exit price notion for disclosure purposes included in Note 12 to the financial statements. The June 30, 2018 fair value of each class of financial instruments disclosure did utilize the exit price notion when measuring fair value and, therefore, may not be comparable to the December 3l, 2017 disclosure.

In March 2017, the FASB issued ASU 2017-07, Compensation-Retirement Benefits (Topic 71S). 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 are required to be presented in the income statement separately from the service cost component. The Company adopted the standard on January 1, 2018, which resulted in a reclassification of $(53)and ($100) from Salaries and employee benefits into Other noninterest expenses on the Consolidated Statement of Income for the three and six month periods ended June 30, 2017. See note 10 for additional information on the presentation of these pension cost components.

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Revenue Recognition

6 Months Ended

Jun. 30, 2018

Revenue Recognition [Abstract]

Revenue Recognition

Note 2 – Revenue Recognition

Effective January 1, 2018, the Company adopted Accounting Standards Update ASU 2014-09 Revenue from Contracts with Customers – Topic 606 and all subsequent ASUs that modified ASC 606. The Company has elected to apply the standard to all prior periods presented utilizing the full retrospective approach. The implementation of the new standard had no material impact to the measurement or recognition of revenue of prior periods. Management determined that the primary sources of revenue emanating from interest and dividend income on loans and investments along with noninterest revenue resulting from investment security gains, loan servicing, gains on loans sold and earnings on bank owned life insurances are not within the scope of ASC 606. As a result, no changes were made during the period related to these sources of revenue, which cumulatively comprise 90.13% and 89.8% of the total revenue of the Company for the three and six months ended June 30, 2018, respectively. The main types of noninterest income within the scope of the standard are as follows:

· Service charges on deposit accounts – The Company has contracts with its deposit customers where fees are charged if certain parameters are not met. These agreements can be cancelled at any time by either the Company or the deposit customer. Revenue from these transactions is recognized on a monthly basis as the Company has an unconditional right to the fee consideration. The Company also has transaction fees related to specific transactions or activities resulting from a customer request or activity that include overdraft fees, online banking fees, interchange fees, ATM fees and other transaction fees. All of these fees are attributable to specific performance obligations of the Company where the revenue is recognized at a defined point in time upon the completion of the requested service/transaction.

· Trust fees – Typical contracts for trust services are based on a fixed percentage of the assets earned ratably over a defined period and billed on a monthly basis. Fees charged to customers' accounts are recognized as revenue over the period during which the Company fulfills its performance obligation under the contract (i.e., holding client asset in a managed fiduciary trust account). For these accounts, the performance obligation of the Company is typically satisfied by holding and managing the customer's assets over time. Other fees related to specific customer requests are attributable to specific performance obligations of the Company where the revenue is recognized at a defined point in time, upon completion of the requested service/transaction.

· Gains (losses) on sale of other real estate owned – Gains and losses are recognized at the completion of the property sale when the buyer obtains control of the real estate and all of the performance obligations of the Company have been satisfied. Evidence of the buyer obtaining control of the asset include transfer of the property title, physical possession of the asset, and the buyer obtaining control of the risks and rewards related to the asset. In situations where the Company agrees to provide financing to facilitate the sale, additional analysis is performed to ensure that the contract for sale identifies the buyer and seller, the asset to be transferred, payment terms, and that the contract has a true commercial substance and that collection of amounts due from the buyer are reasonable. In situations where financing terms are not reflective of current market terms, the transaction price is discounted impacting the gain/loss and the carrying value of the asset.

· Brokerage and insurance – Fees includes commissions from the sales of investments and insurance products recognized on a trade date basis as the performance obligation is satisfied at the point in time in which the trade is processed. Additional fees are based on a percentage of the market value of customer accounts and billed on a monthly or quarterly basis. The Company's performance obligation under the contracts with certain customers is generally satisfied through the passage of time as the Company monitors and manages the assets in the customer's portfolio and is not dependent on certain return or performance level of the customer's portfolio. Fees for these services are billed monthly and are recorded as revenue at the end of the month for which the wealth management service has been performed. Other performance obligations (such as the delivery of account statements to customers) are generally considered immaterial to the overall transaction price.

The following table depicts the disaggregation of revenue derived from contracts with customers to depict the nature, amount, timing, and uncertainty of revenue and cash flows for the three and six months ended June 30, 2018. All revenue in the table below relates to goods and services transferred at a point in time.

Revenue stream	June 30, 2018
Service charges on deposit accounts	Three Months Ended		Six Months Ended
Overdraft fees	$	381	$	748
Statement fees		51		105
Interchange revenue		574		1,105
ATM income		101		197
Other service charges		63		119
Total Service Charges		1,170		2,274
Trust		150		401
Brokerage and insurance		168		349
Other		78		163
Total	$	1,566	$	3,187

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Earnings per Share

6 Months Ended

Jun. 30, 2018

Earnings per Share [Abstract]

Earnings per Share

Note 3 - 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				Six months ended
	June 30,				June 30,
	2018		2017		2018		2017
Net income applicable to common stock	$	4,691,000	$	3,468,000	$	8,938,000	$	6,771,000
Basic earnings per share computation
Weighted average common shares outstanding		3,507,242		3,514,394		3,509,882		3,513,925
Earnings per share - basic	$	1.34	$	0.99	$	2.55	$	1.93
Diluted earnings per share computation
Weighted average common shares outstanding for basic earnings per share		3,507,242		3,514,394		3,509,882		3,513,925
Add: Dilutive effects of restricted stock		1,467		1,188		631		610
Weighted average common shares outstanding for dilutive earnings per share		3,508,709		3,515,582		3,510,513		3,514,535
Earnings per share - diluted	$	1.34	$	0.99	$	2.55	$	1.93

For the three months ended June 30, 2018 and 2017, there were 465 and 1,562 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 $46.69-$61.04 for the three month period ended June 30, 2018 and per share prices ranging from $49.87-$53.15 for the three month period ended June 30, 2017. For the six months ended June 30, 2018 and 2017, 3,349 and 4,921 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-$61.04 for the six month period ended June 30, 2018 and prices ranging from $47.81-$53.15 for the six month period ended June 30, 2017.

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Investments

6 Months Ended

Jun. 30, 2018

Investments [Abstract]

Investments

Note 4 – Investments

The amortized cost, gross unrealized gains and losses, and fair value of investment securities at June 30, 2018 and December 31, 2017 were as follows (in thousands):

			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
June 30, 2018	Cost		Gains		Losses			Value
Available-for-sale securities:
U.S. agency securities	$	103,190	$	30	$	(1,232	)	$	101,988
U.S. treasury securities		33,783		-		(791	)		32,992
Obligations of state and
political subdivisions		67,763		456		(347	)		67,872
Corporate obligations		3,000		23		-			3,023
Mortgage-backed securities in
government sponsored entities		45,202		3		(1,055	)		44,150
Total available-for-sale securities	$	252,938	$	512	$	(3,425	)	$	250,025

			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
December 31, 2017	Cost		Gains		Losses			Value
Available-for-sale securities:
U.S. agency securities	$	99,454	$	26	$	(593	)	$	98,887
U.S. treasury securities		28,782		-		(178	)		28,604
Obligations of state and
political subdivisions		78,409		820		(139	)		79,090
Corporate obligations		3,000		83		-			3,083
Mortgage-backed securities in
government sponsored entities		45,385		19		(377	)		45,027
Equity securities in financial institutions		92		-		(1	)		91
Total available-for-sale securities	$	255,122	$	948	$	(1,288	)	$	254,782

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 June 30, 2018 and December 31, 2017 (in thousands). As of June 30, 2018, the Company owned 201 securities whose fair value was less than their cost basis.

June 30, 2018	Less than Twelve Months					Twelve Months or Greater					Total
			Gross					Gross					Gross
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Value		Losses			Value		Losses			Value		Losses
U.S. agency securities	$	76,159	$	(978	)	$	19,842	$	(254	)	$	96,001	$	(1,232	)
U.S. treasury securities		32,992		(791	)		-		-			32,992		(791	)
Obligations of state and
political subdivisions		22,564		(220	)		6,007		(127	)		28,571		(347	)
Mortgage-backed securities in
government sponsored entities		25,918		(399	)		17,677		(656	)		43,595		(1,055	)
Total securities	$	157,633	$	(2,388	)	$	43,526	$	(1,037	)	$	201,159	$	(3,425	)
December 31, 2017
U.S. agency securities	$	74,952	$	(421	)	$	16,928	$	(172	)	$	91,880	$	(593	)
U.S. treasury securities		28,604		(178	)		-		-			28,604		(178	)
Obligations of states and
political subdivisions		14,885		(85	)		5,958		(54	)		20,843		(139	)
Mortgage-backed securities in
government sponsored entities		27,154		(190	)		13,822		(187	)		40,976		(377	)
Equity securities in financial institutions		91		(1	)		-		-			91		(1	)
Total securities	$	145,686	$	(875	)	$	36,708	$	(413	)	$	182,394	$	(1,288	)

As of June 30, 2018 and December 31, 2017, 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, U.S treasury securities, 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. 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.

There were no sales of available for sale securities during the six months ended June 30, 2018. Proceeds from sales of securities available-for-sale for the six months ended June 30, 2017 were $25,407,000. There were no sales of available for sale securities during the three months ended June 30, 2018. Proceeds from sales of securities available-for-sale for the three months ended June 30, 2017 were $6,641,000. The gross gains and losses were as follows (in thousands):

	Three Months Ended					Six Months Ended
	June 30,					June 30,
	2018		2017			2018		2017
Gross gains on available for sale securities	$	-	$	30		$	-	$	202
Gross losses on available for sale securities		-		(7	)		-		(7	)
Net gains	$	-	$	23		$	-	$	195

The following table presents the net gains on the Company's equity investments recognized in earnings during the three month and six month periods ended June 30, 2018, and the portion of unrealized gains for the period that relates to equity investments held at June 30, 2018 (in thousands):

	Three Months Ended June 30, 2018		Six Months Ended June 30, 2018
Net gains recognized in equity securities during the period	$	7	$	13
Less: Net gains realized on the sale of equity securities during the period		-		-
Unrealized gains recognized in equity securities held at reporting date	$	7	$	13

Investment securities with an approximate carrying value of $240.8 million and $243.4 million at June 30, 2018 and December 31, 2017, 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 June 30, 2018, by contractual maturity, are shown below (in thousands):

	Amortized
	Cost		Fair Value
Available-for-sale debt securities:
Due in one year or less	$	47,012	$	47,121
Due after one year through five years		106,241		104,395
Due after five years through ten years		50,336		49,644
Due after ten years		49,349		48,865
Total	$	252,938	$	250,025

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Loans

6 Months Ended

Jun. 30, 2018

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 June 30, 2018 and December 31, 2017, 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 June 30, 2018 and December 31, 2017 (in thousands):

June 30, 2018	Total Loans		Individually evaluated for impairment		Loans acquired with deteriorated credit quality		Collectively evaluated for impairment
Real estate loans:
Residential	$	213,242	$	1,131	$	30	$	212,081
Commercial		309,571		13,791		1,388		294,392
Agricultural		262,691		5,204		683		256,804
Construction		27,901		-		-		27,901
Consumer		9,740		-		-		9,740
Other commercial loans		75,002		3,934		425		70,643
Other agricultural loans		42,131		1,471		-		40,660
State and political subdivision loans		99,922		-		-		99,922
Total		1,040,200		25,531		2,526		1,012,143
Allowance for loan losses		11,941		405		-		11,536
Net loans	$	1,028,259	$	25,126	$	2,526	$	1,000,607

December 31, 2017	Total Loans		Individually evaluated for impairment		Loans acquired with deteriorated credit quality		Collectively evaluated for impairment
Real estate loans:
Residential	$	214,479	$	1,065	$	33	$	213,381
Commercial		308,084		13,864		1,460		292,760
Agricultural		239,957		3,901		702		235,354
Construction		13,502		-		-		13,502
Consumer		9,944		8		-		9,936
Other commercial loans		72,013		4,197		443		67,373
Other agricultural loans		37,809		1,363		-		36,446
State and political subdivision loans		104,737		-		-		104,737
Total		1,000,525		24,398		2,638		973,489
Allowance for loan losses		11,190		410		-		10,780
Net loans	$	989,335	$	23,988	$	2,638	$	962,709

Purchased loans 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 the acquisition date and June 30, 2018. 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 $2,526,000 and $2,638,000 at June 30, 2018 and December 31, 2017, respectively. The carrying value of the PCI loans was determined by projected discounted contractual cash flows and collateral valuations.

Changes in the accretable yield for PCI loans were as follows for the three and six months ended June 30, 2018 and 2017, respectively (in thousands):

	Three months ended						Six months ended
	June 30,						June 30,
	2018			2017			2018			2017
Balance at beginning of period	$	82		$	275		$	106		$	389
Accretion		(23	)		(108	)		(47	)		(222	)
Balance at end of period	$	59		$	167		$	59		$	167

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

	June 30, 2018		December 31, 2017
Outstanding balance	$	5,262	$	5,295
Carrying amount		2,526		2,638

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
June 30, 2018	Balance		Allowance		Allowance		Investment		Allowance
Real estate loans:
Mortgages	$	1,138	$	261	$	776	$	1,037	$	15
Home Equity		111		14		80		94		15
Commercial		16,576		12,442		1,349		13,791		159
Agricultural		5,210		3,648		1,556		5,204		25
Construction		-		-		-		-		-
Consumer		-		-		-		-		-
Other commercial loans		4,489		3,552		382		3,934		151
Other agricultural loans		1,514		1,295		176		1,471		40
State and political subdivision loans		-		-		-		-		-
Total	$	29,038	$	21,212	$	4,319	$	25,531	$	405

			Recorded		Recorded
	Unpaid		Investment		Investment		Total
	Principal		With No		With		Recorded		Related
December 31, 2017	Balance		Allowance		Allowance		Investment		Allowance
Real estate loans:
Mortgages	$	1,055	$	273	$	700	$	973	$	47
Home Equity		92		40		52		92		9
Commercial		16,363		13,154		710		13,864		94
Agricultural		5,231		3,283		618		3,901		3
Construction		-		-		-		-		-
Consumer		10		2		6		8		-
Other commercial loans		4,739		3,766		431		4,197		231
Other agricultural loans		1,397		1,238		125		1,363		26
State and political subdivision loans		-		-		-		-		-
Total	$	28,887	$	21,756	$	2,642	$	24,398	$	410

The following tables includes the average balance of impaired financing receivables by class and the income recognized on these receivables for the three and six month periods ended June 30, 2018 and 2017(in thousands):

	For the Three Months Ended
	June 30, 2018						June 30, 2017
					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	$	1,045	$	3	$	-	$	986	$	3	$	-
Home Equity		95		1		-		60		1		-
Commercial		13,833		120		3		12,980		134		-
Agricultural		4,185		49		-		3,641		32		-
Construction		-		-		-		-		-		-
Consumer		-		-		-		3		-		-
Other commercial loans		4,067		26		-		5,029		37		17
Other agricultural loans		1,342		9		-		1,515		22		-
State and political subdivision loans		-		-		-		-		-		-
Total	$	24,567	$	208	$	3	$	24,214	$	229	$	17

	For the Six Months ended
	June 30, 2018						June 30, 2017
					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	$	1,034	$	7	$	-	$	940	$	6	$	-
Home Equity		101		2		-		58		2		-
Commercial		13,814		242		8		9,387		158		3
Agricultural		4,135		100		-		3,513		63		-
Construction		-		-		-		-		-		-
Consumer		2		-		-		2		-		-
Other commercial loans		4,112		52		-		5,313		77		27
Other agricultural loans		1,356		19		-		1,571		45		-
State and political subdivision loans		-		-		-		-		-		-
Total	$	24,554	$	422	$	8	$	20,784	$	351	$	30

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, agricultural and state and political 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, 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 June 30, 2018 and December 31, 2017 (in thousands):

June 30, 2018	Pass		Special Mention		Substandard		Doubtful		Loss		Ending Balance
Real estate loans:
Commercial	$	284,415	$	13,347	$	11,690	$	119	$	-	$	309,571
Agricultural		244,605		12,427		5,659		-		-		262,691
Construction		27,901		-		-		-		-		27,901
Other commercial loans		71,036		870		2,975		121		-		75,002
Other agricultural loans		39,753		1,048		1,330		-		-		42,131
State and political
subdivision loans		89,602		-		10,320		-		-		99,922
Total	$	757,312	$	27,692	$	31,974	$	240	$	-	$	817,218

December 31, 2017	Pass		Special Mention		Substandard		Doubtful		Loss		Ending Balance
Real estate loans:
Commercial	$	281,742	$	15,029	$	11,271	$	42	$	-	$	308,084
Agricultural		222,198		11,538		6,221		-		-		239,957
Construction		13,364		-		138		-		-		13,502
Other commercial loans		67,706		615		3,567		125		-		72,013
Other agricultural loans		34,914		1,325		1,570		-		-		37,809
State and political
subdivision loans		94,125		-		10,612		-		-		104,737
Total	$	714,049	$	28,507	$	33,379	$	167	$	-	$	776,102

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 June 30, 2018 and December 31, 2017 (in thousands):

June 30, 2018	Performing		Non-performing		PCI		Total
Real estate loans:
Mortgages	$	153,342	$	1,375	$	30	$	154,747
Home Equity		58,377		118		-		58,495
Consumer		9,683		57		-		9,740
Total	$	221,402	$	1,550	$	30	$	222,982

December 31, 2017	Performing		Non-performing		PCI		Total
Real estate loans:
Mortgages	$	152,820	$	1,492	$	33	$	154,345
Home Equity		60,022		112		-	$	60,134
Consumer		9,895		49		-	$	9,944
Total	$	222,737	$	1,653	$	33	$	224,423

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 June 30, 2018 and December 31, 2017 (in thousands):

															90 Days or
	30-59 Days		60-89 Days		90 Days		Total Past						Total Financing		Greater and
June 30, 2018	Past Due		Past Due		Or Greater		Due		Current		PCI		Receivables		Accruing
Real estate loans:
Mortgages	$	476	$	202	$	796	$	1,474	$	153,243	$	30	$	154,747	$	-
Home Equity		220		8		94		322		58,173		-		58,495		-
Commercial		1,649		2,019		4,201		7,869		300,314		1,388		309,571		38
Agricultural		8		1,105		702		1,815		260,193		683		262,691		543
Construction		-		-		-		-		27,901		-		27,901		-
Consumer		31		26		32		89		9,651		-		9,740		32
Other commercial loans		47		8		2,324		2,379		72,198		425		75,002		-
Other agricultural loans		182		569		433		1,184		40,947		-		42,131		433
State and political
subdivision loans		-		-		-		-		99,922		-		99,922		-
Total	$	2,613	$	3,937	$	8,582	$	15,132	$	1,022,542	$	2,526	$	1,040,200	$	1,046
Loans considered non-accrual	$	617	$	790	$	7,536	$	8,943	$	1,988	$	-	$	10,931
Loans still accruing		1,996		3,147		1,046		6,189		1,020,554		2,526		1,029,269
Total	$	2,613	$	3,937	$	8,582	$	15,132	$	1,022,542	$	2,526	$	1,040,200

															90 Days or
	30-59 Days		60-89 Days		90 Days		Total Past						Total Financing		Greater and
December 31, 2017	Past Due		Past Due		Or Greater		Due		Current		PCI		Receivables		Accruing
Real estate loans:
Mortgages	$	996	$	362	$	810	$	2,168	$	152,144	$	33	$	154,345	$	218
Home Equity		277		86		78		441		59,693		-		60,134		-
Commercial		1,353		1,010		3,865		6,228		300,396		1,460		308,084		162
Agricultural		242		-		205		447		238,808		702		239,957		30
Construction		-		-		133		133		13,369		-		13,502		-
Consumer		53		33		49		135		9,809		-		9,944		7
Other commercial loans		132		-		2,372		2,504		69,066		443		72,013		32
Other agricultural loans		-		42		106		148		37,661		-		37,809		106
State and political
subdivision loans		-		-		-		-		104,737		-		104,737		-
Total	$	3,053	$	1,533	$	7,618	$	12,204	$	985,683	$	2,638	$	1,000,525	$	555
Loans considered non-accrual	$	816	$	281	$	7,063	$	8,160	$	2,011	$	-	$	10,171
Loans still accruing		2,237		1,252		555		4,044		983,672		2,638		990,354
Total	$	3,053	$	1,533	$	7,618	$	12,204	$	985,683	$	2,638	$	1,000,525

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 June 30, 2018 and December 31, 2017, respectively. The balances are presented by class of financing receivable (in thousands):

	June 30, 2018		December 31, 2017
Real estate loans:
Mortgages	$	1,375	$	1,274
Home Equity		118		112
Commercial		6,262		5,192
Agricultural		167		175
Construction		-		133
Consumer		25		42
Other commercial loans		2,415		2,637
Other agricultural loans		569		606
State and political subdivision		-		-
	$	10,931	$	10,171

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 June 30, 2018 and December 31, 2017, included within the allowance for loan losses are reserves of $87,000 and $41,000 respectively, that are associated with loans modified as TDRs.

Loan modifications that are considered TDRs completed during the three and six months ended June 30, 2018 and 2017 were as follows (dollars in thousands):

	For the Three Months Ended June 30, 2018
	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:
Home Equity		-		1	$	-	$	1	$	-	$	1
Commercial		-		1		-		577		-		577
Agricultural		-		1		-		1,523				1,523
Other agricultural loans		-		4		-		176				176
Total		-		7	$	-	$	2,277	$	-	$	2,277

	For the Six Months Ended June 30, 2018
	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:
Mortgages		-		1	$	-	$	7	$		$	7
Home Equity		-		1		-		1		-		1
Commercial		-		1		-		577		-		577
Agricultural		-		1		-		1,523				1,523
Other agricultural loans		-		4		-		176				176
Total		-		8	$	-	$	2,284	$	-	$	2,284

	For the Three Months Ended June 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		-		5	$	-	$	6,093	$	-	$	6,093
Total		-		5	$	-	$	6,093	$	-	$	6,093

	For the Six Months Ended June 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
Total		-		7	$	-	$	6,797	$	-	$	6,797

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, 2018 and 2017 (6 month periods) and April 1, 2018 and 2017 (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 June 30, 2018 and December 31, 2017, respectively (in thousands):

	June 30, 2018						December 31, 2017
	Individually evaluated for impairment		Collectively evaluated for impairment		Total		Individually evaluated for  impairment		Collectively evaluated for impairment		Total
Real estate loans:
Residential	$	30	$	1,015	$	1,045	$	56	$	993	$	1,049
Commercial		159		3,635		3,794		94		3,773		3,867
Agricultural		25		3,648		3,673		3		3,140		3,143
Construction		-		44		44		-		23		23
Consumer		-		115		115		-		124		124
Other commercial loans		151		1,115		1,266		231		1,041		1,272
Other agricultural loans		40		549		589		26		466		492
State and political
subdivision loans		-		767		767		-		816		816
Unallocated		-		648		648		-		404		404
Total	$	405	$	11,536	$	11,941	$	410	$	10,780	$	11,190

The following tables roll forward the balance of the ALLL by portfolio segment for the three and six months ended June 30, 2018 and 2017, respectively (in thousands):

	For the three months ended June 30, 2018
	Balance at March 31, 2018		Charge-offs			Recoveries		Provision			Balance at June 30, 2018
Real estate loans:
Residential	$	1,077	$	(2	)	$	69	$	(99	)	$	1,045
Commercial		4,006		-			3		(215	)		3,794
Agricultural		3,340		-			-		333			3,673
Construction		39		-			-		5			44
Consumer		123		(6	)		7		(9	)		115
Other commercial loans		1,273		(46	)		11		28			1,266
Other agricultural loans		532		(7	)		-		64			589
State and political
subdivision loans		789		-			-		(22	)		767
Unallocated		408		-			-		240			648
Total	$	11,587	$	(61	)	$	90	$	325		$	11,941

	For the six months ended June 30, 2018
	Balance at December 31, 2017		Charge-offs			Recoveries		Provision			Balance at June 30, 2018
Real estate loans:
Residential	$	1,049	$	(17	)	$	69	$	(56	)	$	1,045
Commercial		3,867		-			3		(76	)		3,794
Agricultural		3,143		-			-		530			3,673
Construction		23		-			-		21			44
Consumer		124		(19	)		17		(7	)		115
Other commercial loans		1,272		(91	)		14		71			1,266
Other agricultural loans		492		(50	)		-		147			589
State and political
subdivision loans		816		-			-		(49	)		767
Unallocated		404		-			-		244			648
Total	$	11,190	$	(177	)	$	103	$	825		$	11,941

	For the three months ended June 30, 2017
	Balance at March 31, 2017		Charge-offs			Recoveries		Provision			Balance at June 30, 2017
Real estate loans:
Residential	$	1,042	$	(48	)	$	-	$	110		$	1,104
Commercial		3,665		-			2		(126	)		3,541
Agricultural		1,952							500			2,452
Construction		46		-			-		(1	)		45
Consumer		123		(17	)		12		7			125
Other commercial loans		1,215		-			-		(84	)		1,131
Other agricultural loans		306		-					125			431
State and political
subdivision loans		824		-			-		14			838
Unallocated		232		-			-		80			312
Total	$	9,405	$	(65	)	$	14	$	625		$	9,979

	For the six months ended June 30, 2017
	Balance at December 31, 2016		Charge-offs			Recoveries		Provision			Balance at June 30, 2017
Real estate loans:
Residential	$	1,064	$	(93	)	$	-	$	133		$	1,104
Commercial		3,589		(41	)		6		(13	)		3,541
Agricultural		1,494		-					958			2,452
Construction		47		-			-		(2	)		45
Consumer		122		(45	)		22		26			125
Other commercial loans		1,327		-			9		(205	)		1,131
Other agricultural loans		312		(5	)				124			431
State and political
subdivision loans		833		-			-		5			838
Unallocated		98		-			-		214			312
Total	$	8,886	$	(184	)	$	37	$	1,240		$	9,979

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 June 30, 2018, the allowance for residential real estate decreased in general reserves for pooled loans as a result of a decrease in the qualitative factor associated with unemployment rates. In addition, there was a decrease in total residential loans. This was represented as a decrease to the provision.  The allowance for commercial real estate was decreased in general reserves due to a decrease in the qualitative factor associated with unemployment rates and an improvement in the number of loans classified as special mention. This was represented as a decrease in the provision.The allowance for agricultural real estate loans was increased in general reserves as a result of higher loan balances and an increase in the amount of loans classified as special mention and substandard. The result of this was represented as an increase in the provision. The allowance for other agricultural loans was increased in general reserves as a result of higher loan balances. The result of these changes was represented as an increase in the provision.

For the six months ended June 30, 2018, the allowance for residential real estate decreased in general reserves for pooled loans as a result of a decrease in the qualitative factor associated with unemployment rates. In addition, there was a decrease in total residential loans. This was represented as a decrease to the provision.  The allowance for commercial real estate was decreased in general reserves due to a decrease in the qualitative factor associated with unemployment rates and an improvement in the number of loans classified as special mention. This was represented as a decrease in the provision.The allowance for agricultural real estate loans was increased in general reserves as a result of higher loan balances and an increase in the amount of loans classified as special mention. The result of this was represented as an increase in the provision. The allowance for other agricultural loans was increased in general reserves as a result of higher loan balances. The result of these changes was represented as an increase in the provision.

For the three months ended June 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, and an increase in the specific reserve for individually evaluated loans. This was represented as an increase to the provision.  The allowance for commercial real estate was decreased in general reserves due to the improvement in classified loans, which was represented as 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 reduced as a result of lower loan balances, an improvement in the amount of classified loans and a reduction in the 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 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 six months ended June 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 six month period and an increase in the specific reserve. 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 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 the classified loan trend in the other agricultural loan portfolio. The result of these changes was represented as an increase in the provision.

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 June 30, 2018 and December 31, 2017, included with other assets are $471,000 and $1,119,000, respectively, of foreclosed assets. As of June 30, 2018, included within the foreclosed assets are $175,000 of consumer residential mortgages that were foreclosed on or received via a deed in lieu transaction prior to the period end. As of June 30 2018, the Company has initiated formal foreclosure proceedings on $2,023,000 of consumer residential mortgages, which have not yet been transferred into foreclosed assets.

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Goodwill and Other Intangible Assets

6 Months Ended

Jun. 30, 2018

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 June 30, 2018 and December 31, 2017 (in thousands):

	June 30, 2018							December 31, 2017
	Gross carrying value		Accumulated amortization			Net carrying value		Gross carrying  value		Accumulated amortization			Net carrying value
Amortized intangible assets (1):
MSRs	$	1,656	$	(1,009	)	$	647	$	1,605	$	(912	)	$	693
Core deposit intangibles		1,786		(721	)		1,065		1,786		(586	)		1,200
Covenant not to compete		125		(81	)		44		125		(65	)		60
Total amortized intangible assets	$	3,567	$	(1,811	)	$	1,756	$	3,516	$	(1,563	)	$	1,953
Unamortized intangible assets:
Goodwill	$	23,296						$	23,296
(1) Excludes fully amortized intangible assets

The following table provides the current year and estimated future amortization expense for amortized intangible assets for the next five years. We based our projections of amortization expense shown below on existing asset balances at June 30, 2018. Future amortization expense may vary from these projections (in thousands):

	MSRs		Core deposit intangibles		Covenant not to compete		Total
Three months ended June 30, 2018 (actual)	$	48	$	66	$	8	$	122
Six months  ended June 30, 2018 (actual)		97		134		16		247
Three months ended June 30, 2017 (actual)		45		66		7		118
Six months June 30, 2017 (actual)		91		134		15		240
Estimate for year ended December 31,
Remaining 2018		88		130		15		233
2019		157		230		29		416
2020		123		197		-		320
2021		94		165		-		259
2022		69		133		-		202

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Federal Home Loan Bank Stock

6 Months Ended

Jun. 30, 2018

Federal Home Loan Bank Stock [Abstract]

Federal Home Loan Bank Stock

Note 7 – Federal Home Loan Bank Stock

As a member of the FHLB of Pittsburgh, the Bank 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 June 30, 2018 and December 31, 2017, the Bank's investment in FHLB stock was $6,456,000 and $6,021,000, 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

6 Months Ended

Jun. 30, 2018

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 June 30, 2018 and December 31, 2017 is presented in the following tables (in thousands):

	Remaining Contractual Maturity of the Agreements
	Overnight and		Up to				Greater than
June 30, 2018	Continuous		30 Days		30 - 90 Days		90 days		Total
Repurchase Agreements:
U.S. agency securities	$	18,909	$	-	$	-	$	1,998	$	20,907
Total carrying value of collateral pledged	$	18,909	$	-	$	-	$	1,998	$	20,907
Total liability recognized for repurchase agreements									$	15,061
December 31, 2017
Repurchase Agreements:
U.S. agency securities	$	16,027	$	-	$	-	$	2,035	$	18,062
Total carrying value of collateral pledged	$	16,027	$	-	$	-	$	2,035	$	18,062
Total liability recognized for repurchase agreements									$	14,989

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Employee Benefit Plans

6 Months Ended

Jun. 30, 2018

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 2017 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 and the line item on the Consolidated Statement of Income where such amounts are included, for the three months ended June 30, 2018 and 2017, respectively (in thousands):

	Three Months Ended						Six Months Ended
	June 30,						June 30,						Affected line item on the Consolidated
	2018			2017			2018			2017			Statement of income
Service cost	$	90		$	84		$	179		$	175		Salaries and Employee Benefits
Interest cost		162			168			325			335		Other Expenses
Expected return on plan assets		(345	)		(273	)		(689	)		(547	)	Other Expenses
Net amortization and deferral		47			52			93			112		Other Expenses
Net periodic (benefit) cost	$	(46	)	$	31		$	(92	)	$	75

The Bank does not expect to make any contributions to the Pension Plans during 2018.

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 June 30, 2018, 136,539 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 six months ended June 30, 2018:

	Three months						Six months
				Weighted						Weighted
	Unvested			Average			Unvested			Average
	Shares			Market Price			Shares			Market Price
Outstanding, beginning of period		8,691		$	51.19			8,783		$	51.20
Granted		4,869			62.91			4,869			62.91
Forfeited		-			-			-			-
Vested		(3,626	)		(50.54	)		(3,718	)		(50.58	)
Outstanding, end of period		9,934		$	57.18			9,934		$	57.18

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 $119,000 and $104,000 for the six months ended June 30, 2018 and 2017, respectively. For the three months ended June 30, 2018 and 2017, compensation expense totaled $63,000 and $54,000, respectively. At June 30, 2018, the total compensation cost related to nonvested awards that has not yet been recognized was $568,000, which is expected to be recognized over the next three years.

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Accumulated Comprehensive Loss

6 Months Ended

Jun. 30, 2018

Accumulated Comprehensive Loss [Abstract]

Accumulated Comprehensive Loss

Note 10 – Accumulated Comprehensive Loss

The following tables present the changes in accumulated other comprehensive loss by component net of tax for the three and six months ended June 30, 2018 and 2017 (in thousands):

	Six months ended June 30, 2018
	Unrealized gain (loss) on available for sale securities (a)			Defined Benefit Pension Items (a)			Total
Balance as of December 31, 2017	$	(269	)	$	(3,129	)	$	(3,398	)
Change in Accounting policy for equity securities		1			-			1
Other comprehensive loss before reclassifications (net of tax)		(2,034	)		-			(2,034	)
Amounts reclassified from accumulated other
comprehensive income (loss) (net of tax)		-			74			74
Net current period other comprehensive loss		(2,034	)		74			(1,960	)
Balance as of June 30, 2018	$	(2,302	)	$	(3,055	)	$	(5,357	)
	Six months ended June 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)		478			-			478
Amounts reclassified from accumulated other
comprehensive loss (net of tax)		(129	)		74			(55	)
Net current period other comprehensive income		349			74			423
Balance as of June 30, 2017	$	1,655		$	(2,624	)	$	(969	)
	Three months ended June 30, 2018
	Unrealized gain (loss) on available for sale securities (a)			Defined Benefit Pension Items (a)			Total
Balance as of March 31, 2018	$	(1,885	)	$	(3,092	)	$	(4,977	)
Other comprehensive loss before reclassifications (net of tax)		(417	)		-			(417	)
Amounts reclassified from accumulated other
comprehensive loss (net of tax)		-			37			37
Net current period other comprehensive income (loss)		(417	)		37			(380	)
Balance as of June 30, 2018	$	(2,302	)	$	(3,055	)	$	(5,357	)
	Three months ended June 30, 2017
	Unrealized gain (loss) on available for sale securities (a)			Defined Benefit Pension Items (a)			Total
Balance as of March 31, 2017	$	1,238		$	(2,659	)	$	(1,421	)
Other comprehensive income before reclassifications (net of tax)		432			-			432
Amounts reclassified from accumulated other
comprehensive income (loss) (net of tax)		(15	)		35			20
Net current period other comprehensive income (loss)		417			35			452
Balance as of June 30, 2017	$	1,655		$	(2,624	)	$	(969	)
(a) Amounts in parentheses indicate debits on the Consolidated Balalance Sheet

The following table presents the significant amounts reclassified out of each component of accumulated other comprehensive income for the three and six months ended June 30, 2018 and 2017 (in thousands):

Details about accumulated other comprehensive income (loss)	Amount reclassified from accumulated comprehensive income (loss) (a)						Affected line item in the Consolidated Statement of Income
	Three Months Ended June 30,
	2018			2017
Unrealized gains and losses on available for sale securities
	$	-		$	23		Available for sale securities gains, net
		-			(8	)	Provision for income taxes
	$	-		$	15		Net of tax
Defined benefit pension items
	$	(47	)	$	(52	)	Salaries and employee benefits
		10			17		Provision for income taxes
	$	(37	)	$	(35	)	Net of tax
Total reclassifications	$	(37	)	$	(20	)
	Six Months Ended June 30
		2018			2017
Unrealized gains and losses on available for sale securities
	$	-		$	195		Available for sale securities gains, net
		-			(66	)	Provision for income taxes
	$	-		$	129		Net of tax
Defined benefit pension items
	$	(93	)	$	(112	)	Salaries and employee benefits
		19			38		Provision for income taxes
	$	(74	)	$	(74	)	Net of tax
Total reclassifications	$	(74	)	$	55
(a) Amounts in parentheses indicate expenses and other amounts indicate income on the Consolidated Statement of Income

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Fair Value Measurements

6 Months Ended

Jun. 30, 2018

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.

Assets and Liabilities Required to be Measured at Fair Value on a Recurring Basis

The fair values of equity securities and 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 June 30, 2018 and December 31, 2017 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.

June 30, 2018	Level I		Level II		Level III		Total
Fair value measurements on a recurring basis:
Assets
Equity securities in financial institutions	$	195	$	-	$	-	$	195
Available for sale securities:
U.S. Agency securities		-		101,988		-		101,988
U.S. Treasury securities		32,992		-		-		32,992
Obligations of state and
political subdivisions		-		67,872		-		67,872
Corporate obligations		-		3,023		-		3,023
Mortgage-backed securities in
government sponsored entities		-		44,150		-		44,150

December 31, 2017	Level I		Level II		Level III		Total
Fair value measurements on a recurring basis:
Available for sale securities:
U.S. Agency securities	$	-	$	98,887	$	-	$	98,887
U.S. Treasuries securities		28,604		-		-		28,604
Obligations of state and
political subdivisions		-		79,090		-		79,090
Corporate obligations		-		3,083		-		3,083
Mortgage-backed securities in
government sponsored entities		-		45,027		-		45,027
Equity securities in financial institutions		91		-		-		91

Assets and Liabilities Required to be Measured and Reported at Fair Value on a Nonrecurring Basis

Assets measured at fair value on a nonrecurring basis as of June 30, 2018 and December 31, 2017 are included in the table below (in thousands):

June 30, 2018	Level I		Level II		Level III		Total
Impaired Loans	$	-	$	-	$	3,470	$	3,470
Other real estate owned		-		-		326		326
December 31, 2017
Impaired Loans	$	-	$	-	$	1,569	$	1,569
Other real estate owned		-		-		1,024		1,024

· 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 $304,000 and $163,000 at June 30, 2018 and December 31, 2017, respectively.

· Other Real Estate Owned (OREO) – OREO is carried at the lower of cost or fair value less estimated costs to sell, 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 a 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).

June 30, 2018	Fair Value		Valuation Technique(s)	Unobservable input	Range		Weighted average
Impaired Loans	$	3,470	Appraised Collateral Values	Discount for time since appraisal		0-100%		27.32	%
				Selling costs		5%-11%		7.88	%
				Holding period	0 - 12 months		11.4 months
Other real estate owned		326	Appraised Collateral Values	Discount for time since appraisal		25-35%		27.45	%
December 31, 2017	Fair Value		Valuation Technique(s)	Unobservable input	Range
Impaired Loans		1,569	Appraised Collateral Values	Discount for time since appraisal		0-100%		30.83	%
				Selling costs		5%-9%		8.35	%
				Holding period	6 - 12 months		11 months
Other real estate owned		1,024	Appraised Collateral Values	Discount for time since appraisal		15-65%		26.26	%

Financial Instruments Not Required to be Measured or Reported at Fair Value

The carrying amount and fair value of the Company's financial instruments that are not required to be measured or reported at fair value on a recurring basis are as follows (in thousands):

	Carrying
June 30, 2018	Amount		Fair Value		Level I		Level II		Level III
Financial assets:
Cash and due from banks	$	15,613	$	15,613	$	15,613	$	-	$	-
Interest bearing time deposits with other banks		13,762		13,766		-		-		13,766
Loans held for sale		1,931		1,931		1,931		-		-
Net loans		1,028,259		1,021,166		-		-		1,021,166
Bank owned life insurance		27,189		27,189		27,189		-		-
Regulatory stock		7,220		7,220		7,220		-		-
Accrued interest receivable		4,285		4,285		4,285		-		-
Financial liabilities:
Deposits	$	1,118,592	$	1,113,001	$	847,151	$	-	$	265,850
Borrowed funds		133,652		132,322		96,566		-		35,756
Accrued interest payable		903		903		903		-		-

	Carrying
December 31, 2017	Amount		Fair Value		Level I		Level II		Level III
Financial assets:
Cash and due from banks	$	18,517	$	18,517	$	18,517	$	-	$	-
Interest bearing time deposits with other banks		10,283		10,287		-		-		10,287
Loans held for sale		1,439		1,439		1,439
Net loans		989,335		981,238		-		-		981,238
Bank owned life insurance		26,883		26,883		26,883		-		-
Regulatory stock		6,784		6,784		6,784		-		-
Accrued interest receivable		4,196		4,196		4,196		-		-
Financial liabilities:
Deposits	$	1,104,943	$	1,101,583	$	838,490	$	-	$	263,093
Borrowed funds		114,664		113,452		77,650		-		35,802
Accrued interest payable		897		897		897		-		-

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Recent Accounting Pronouncements

6 Months Ended

Jun. 30, 2018

Recent Accounting Pronouncements [Abstract]

Recent Accounting Pronouncements

Note 12 – Recent Accounting Pronouncements

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 on 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 percent 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.

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Basis of Presentation (Policies)

6 Months Ended

Jun. 30, 2018

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 June 30, 2018 and for the periods ended June 30, 2018 and 2017 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 six month period ended June 30, 2018 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, 2017.

In May 2014,the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2014-09, "Revenue from Contracts with Customers" ("ASU 2014-09"), which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The ASU replaces most existing revenue recognition guidance in GAAP. The new standard was effective for the Company on January 1, 2018. Adoption of ASU 2014-09 did not have a material impact on the Company's consolidated financial statements other than additional disclosures in note 2 as the Company's primary sources of revenues are derived from interest and dividends earned on loans, investment securities, and other financial instruments that are not within the scope of ASU 2014-09.

In January 2016, the FASB finalized ASU 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. This accounting standard (a) requires separate presentation of equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) on the balance sheet and 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.

The adoption resulted in the Company recognizing a one-time cumulative effect adjustment of $1,000 between accumulated other comprehensive income and retained earnings on the consolidated balance sheet for the fair value of equity securities included in accumulated other comprehensive income as of the beginning of the period. The adjustment had no impact on net income on any prior periods presented.

The Company has adopted this standard during the reporting period. On a prospective basis, the Company implemented changes to the measurement of the fair value of financial instruments using an exit price notion for disclosure purposes included in Note 12 to the financial statements. The June 30, 2018 fair value of each class of financial instruments disclosure did utilize the exit price notion when measuring fair value and, therefore, may not be comparable to the December 3l, 2017 disclosure.

In March 2017, the FASB issued ASU 2017-07, Compensation-Retirement Benefits (Topic 71S). 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 are required to be presented in the income statement separately from the service cost component. The Company adopted the standard on January 1, 2018, which resulted in a reclassification of $(53)and ($100) from Salaries and employee benefits into Other noninterest expenses on the Consolidated Statement of Income for the three and six month periods ended June 30, 2017. See note 10 for additional information on the presentation of these pension cost components.

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Revenue Recognition (Policies)

6 Months Ended

Jun. 30, 2018

Revenue Recognition [Abstract]

Revenue Recognition

Effective January 1, 2018, the Company adopted Accounting Standards Update ASU 2014-09 Revenue from Contracts with Customers – Topic 606 and all subsequent ASUs that modified ASC 606. The Company has elected to apply the standard to all prior periods presented utilizing the full retrospective approach. The implementation of the new standard had no material impact to the measurement or recognition of revenue of prior periods. Management determined that the primary sources of revenue emanating from interest and dividend income on loans and investments along with noninterest revenue resulting from investment security gains, loan servicing, gains on loans sold and earnings on bank owned life insurances are not within the scope of ASC 606. As a result, no changes were made during the period related to these sources of revenue, which cumulatively comprise 90.13% and 89.8% of the total revenue of the Company for the three and six months ended June 30, 2018, respectively. The main types of noninterest income within the scope of the standard are as follows:

· Service charges on deposit accounts – The Company has contracts with its deposit customers where fees are charged if certain parameters are not met. These agreements can be cancelled at any time by either the Company or the deposit customer. Revenue from these transactions is recognized on a monthly basis as the Company has an unconditional right to the fee consideration. The Company also has transaction fees related to specific transactions or activities resulting from a customer request or activity that include overdraft fees, online banking fees, interchange fees, ATM fees and other transaction fees. All of these fees are attributable to specific performance obligations of the Company where the revenue is recognized at a defined point in time upon the completion of the requested service/transaction.

· Trust fees – Typical contracts for trust services are based on a fixed percentage of the assets earned ratably over a defined period and billed on a monthly basis. Fees charged to customers' accounts are recognized as revenue over the period during which the Company fulfills its performance obligation under the contract (i.e., holding client asset in a managed fiduciary trust account). For these accounts, the performance obligation of the Company is typically satisfied by holding and managing the customer's assets over time. Other fees related to specific customer requests are attributable to specific performance obligations of the Company where the revenue is recognized at a defined point in time, upon completion of the requested service/transaction.

· Gains (losses) on sale of other real estate owned – Gains and losses are recognized at the completion of the property sale when the buyer obtains control of the real estate and all of the performance obligations of the Company have been satisfied. Evidence of the buyer obtaining control of the asset include transfer of the property title, physical possession of the asset, and the buyer obtaining control of the risks and rewards related to the asset. In situations where the Company agrees to provide financing to facilitate the sale, additional analysis is performed to ensure that the contract for sale identifies the buyer and seller, the asset to be transferred, payment terms, and that the contract has a true commercial substance and that collection of amounts due from the buyer are reasonable. In situations where financing terms are not reflective of current market terms, the transaction price is discounted impacting the gain/loss and the carrying value of the asset.

· Brokerage and insurance – Fees includes commissions from the sales of investments and insurance products recognized on a trade date basis as the performance obligation is satisfied at the point in time in which the trade is processed. Additional fees are based on a percentage of the market value of customer accounts and billed on a monthly or quarterly basis. The Company's performance obligation under the contracts with certain customers is generally satisfied through the passage of time as the Company monitors and manages the assets in the customer's portfolio and is not dependent on certain return or performance level of the customer's portfolio. Fees for these services are billed monthly and are recorded as revenue at the end of the month for which the wealth management service has been performed. Other performance obligations (such as the delivery of account statements to customers) are generally considered immaterial to the overall transaction price.

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Recent Accounting Pronouncements (Policies)

6 Months Ended

Jun. 30, 2018

Recent Accounting Pronouncements [Abstract]

Recent Accounting Pronouncements

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 on 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 percent 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.

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Revenue Recognition (Tables)

6 Months Ended

Jun. 30, 2018

Revenue Recognition [Abstract]

Disaggregation of Revenue Derived from Contracts with Customers

The following table depicts the disaggregation of revenue derived from contracts with customers to depict the nature, amount, timing, and uncertainty of revenue and cash flows for the three and six months ended June 30, 2018. All revenue in the table below relates to goods and services transferred at a point in time.

Revenue stream	June 30, 2018
Service charges on deposit accounts	Three Months Ended		Six Months Ended
Overdraft fees	$	381	$	748
Statement fees		51		105
Interchange revenue		574		1,105
ATM income		101		197
Other service charges		63		119
Total Service Charges		1,170		2,274
Trust		150		401
Brokerage and insurance		168		349
Other		78		163
Total	$	1,566	$	3,187

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Earnings per Share (Tables)

6 Months Ended

Jun. 30, 2018

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				Six months ended
	June 30,				June 30,
	2018		2017		2018		2017
Net income applicable to common stock	$	4,691,000	$	3,468,000	$	8,938,000	$	6,771,000
Basic earnings per share computation
Weighted average common shares outstanding		3,507,242		3,514,394		3,509,882		3,513,925
Earnings per share - basic	$	1.34	$	0.99	$	2.55	$	1.93
Diluted earnings per share computation
Weighted average common shares outstanding for basic earnings per share		3,507,242		3,514,394		3,509,882		3,513,925
Add: Dilutive effects of restricted stock		1,467		1,188		631		610
Weighted average common shares outstanding for dilutive earnings per share		3,508,709		3,515,582		3,510,513		3,514,535
Earnings per share - diluted	$	1.34	$	0.99	$	2.55	$	1.93

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Investments (Tables)

6 Months Ended

Jun. 30, 2018

Investments [Abstract]

Amortized Cost and Fair Value of Investment Securities

The amortized cost, gross unrealized gains and losses, and fair value of investment securities at June 30, 2018 and December 31, 2017 were as follows (in thousands):

			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
June 30, 2018	Cost		Gains		Losses			Value
Available-for-sale securities:
U.S. agency securities	$	103,190	$	30	$	(1,232	)	$	101,988
U.S. treasury securities		33,783		-		(791	)		32,992
Obligations of state and
political subdivisions		67,763		456		(347	)		67,872
Corporate obligations		3,000		23		-			3,023
Mortgage-backed securities in
government sponsored entities		45,202		3		(1,055	)		44,150
Total available-for-sale securities	$	252,938	$	512	$	(3,425	)	$	250,025

			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
December 31, 2017	Cost		Gains		Losses			Value
Available-for-sale securities:
U.S. agency securities	$	99,454	$	26	$	(593	)	$	98,887
U.S. treasury securities		28,782		-		(178	)		28,604
Obligations of state and
political subdivisions		78,409		820		(139	)		79,090
Corporate obligations		3,000		83		-			3,083
Mortgage-backed securities in
government sponsored entities		45,385		19		(377	)		45,027
Equity securities in financial institutions		92		-		(1	)		91
Total available-for-sale securities	$	255,122	$	948	$	(1,288	)	$	254,782

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 June 30, 2018 and December 31, 2017 (in thousands). As of June 30, 2018, the Company owned 201 securities whose fair value was less than their cost basis.

June 30, 2018	Less than Twelve Months					Twelve Months or Greater					Total
			Gross					Gross					Gross
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Value		Losses			Value		Losses			Value		Losses
U.S. agency securities	$	76,159	$	(978	)	$	19,842	$	(254	)	$	96,001	$	(1,232	)
U.S. treasury securities		32,992		(791	)		-		-			32,992		(791	)
Obligations of state and
political subdivisions		22,564		(220	)		6,007		(127	)		28,571		(347	)
Mortgage-backed securities in
government sponsored entities		25,918		(399	)		17,677		(656	)		43,595		(1,055	)
Total securities	$	157,633	$	(2,388	)	$	43,526	$	(1,037	)	$	201,159	$	(3,425	)
December 31, 2017
U.S. agency securities	$	74,952	$	(421	)	$	16,928	$	(172	)	$	91,880	$	(593	)
U.S. treasury securities		28,604		(178	)		-		-			28,604		(178	)
Obligations of states and
political subdivisions		14,885		(85	)		5,958		(54	)		20,843		(139	)
Mortgage-backed securities in
government sponsored entities		27,154		(190	)		13,822		(187	)		40,976		(377	)
Equity securities in financial institutions		91		(1	)		-		-			91		(1	)
Total securities	$	145,686	$	(875	)	$	36,708	$	(413	)	$	182,394	$	(1,288	)

Gross Gains and Losses on Available-for-sale Securities

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

	Three Months Ended					Six Months Ended
	June 30,					June 30,
	2018		2017			2018		2017
Gross gains on available for sale securities	$	-	$	30		$	-	$	202
Gross losses on available for sale securities		-		(7	)		-		(7	)
Net gains	$	-	$	23		$	-	$	195

Unrealized Gains (Losses) Related to Equity Securities

The following table presents the net gains on the Company's equity investments recognized in earnings during the three month and six month periods ended June 30, 2018, and the portion of unrealized gains for the period that relates to equity investments held at June 30, 2018 (in thousands):

	Three Months Ended June 30, 2018		Six Months Ended June 30, 2018
Net gains recognized in equity securities during the period	$	7	$	13
Less: Net gains realized on the sale of equity securities during the period		-		-
Unrealized gains recognized in equity securities held at reporting date	$	7	$	13

Amortized Cost and Fair Value of Debt Securities by Contractual Maturity

The amortized cost and fair value of debt securities (excludes equity securities) at June 30, 2018, by contractual maturity, are shown below (in thousands):

	Amortized
	Cost		Fair Value
Available-for-sale debt securities:
Due in one year or less	$	47,012	$	47,121
Due after one year through five years		106,241		104,395
Due after five years through ten years		50,336		49,644
Due after ten years		49,349		48,865
Total	$	252,938	$	250,025

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Loans (Tables)

6 Months Ended

Jun. 30, 2018

Loans [Abstract]

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 June 30, 2018 and December 31, 2017 (in thousands):

June 30, 2018	Total Loans		Individually evaluated for impairment		Loans acquired with deteriorated credit quality		Collectively evaluated for impairment
Real estate loans:
Residential	$	213,242	$	1,131	$	30	$	212,081
Commercial		309,571		13,791		1,388		294,392
Agricultural		262,691		5,204		683		256,804
Construction		27,901		-		-		27,901
Consumer		9,740		-		-		9,740
Other commercial loans		75,002		3,934		425		70,643
Other agricultural loans		42,131		1,471		-		40,660
State and political subdivision loans		99,922		-		-		99,922
Total		1,040,200		25,531		2,526		1,012,143
Allowance for loan losses		11,941		405		-		11,536
Net loans	$	1,028,259	$	25,126	$	2,526	$	1,000,607

December 31, 2017	Total Loans		Individually evaluated for impairment		Loans acquired with deteriorated credit quality		Collectively evaluated for impairment
Real estate loans:
Residential	$	214,479	$	1,065	$	33	$	213,381
Commercial		308,084		13,864		1,460		292,760
Agricultural		239,957		3,901		702		235,354
Construction		13,502		-		-		13,502
Consumer		9,944		8		-		9,936
Other commercial loans		72,013		4,197		443		67,373
Other agricultural loans		37,809		1,363		-		36,446
State and political subdivision loans		104,737		-		-		104,737
Total		1,000,525		24,398		2,638		973,489
Allowance for loan losses		11,190		410		-		10,780
Net loans	$	989,335	$	23,988	$	2,638	$	962,709

Accretable Yield for Purchased Credit Impaired Loans

Changes in the accretable yield for PCI loans were as follows for the three and six months ended June 30, 2018 and 2017, respectively (in thousands):

	Three months ended						Six months ended
	June 30,						June 30,
	2018			2017			2018			2017
Balance at beginning of period	$	82		$	275		$	106		$	389
Accretion		(23	)		(108	)		(47	)		(222	)
Balance at end of period	$	59		$	167		$	59		$	167

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):

	June 30, 2018		December 31, 2017
Outstanding balance	$	5,262	$	5,295
Carrying amount		2,526		2,638

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
June 30, 2018	Balance		Allowance		Allowance		Investment		Allowance
Real estate loans:
Mortgages	$	1,138	$	261	$	776	$	1,037	$	15
Home Equity		111		14		80		94		15
Commercial		16,576		12,442		1,349		13,791		159
Agricultural		5,210		3,648		1,556		5,204		25
Construction		-		-		-		-		-
Consumer		-		-		-		-		-
Other commercial loans		4,489		3,552		382		3,934		151
Other agricultural loans		1,514		1,295		176		1,471		40
State and political subdivision loans		-		-		-		-		-
Total	$	29,038	$	21,212	$	4,319	$	25,531	$	405

			Recorded		Recorded
	Unpaid		Investment		Investment		Total
	Principal		With No		With		Recorded		Related
December 31, 2017	Balance		Allowance		Allowance		Investment		Allowance
Real estate loans:
Mortgages	$	1,055	$	273	$	700	$	973	$	47
Home Equity		92		40		52		92		9
Commercial		16,363		13,154		710		13,864		94
Agricultural		5,231		3,283		618		3,901		3
Construction		-		-		-		-		-
Consumer		10		2		6		8		-
Other commercial loans		4,739		3,766		431		4,197		231
Other agricultural loans		1,397		1,238		125		1,363		26
State and political subdivision loans		-		-		-		-		-
Total	$	28,887	$	21,756	$	2,642	$	24,398	$	410

The following tables includes the average balance of impaired financing receivables by class and the income recognized on these receivables for the three and six month periods ended June 30, 2018 and 2017(in thousands):

	For the Three Months Ended
	June 30, 2018						June 30, 2017
					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	$	1,045	$	3	$	-	$	986	$	3	$	-
Home Equity		95		1		-		60		1		-
Commercial		13,833		120		3		12,980		134		-
Agricultural		4,185		49		-		3,641		32		-
Construction		-		-		-		-		-		-
Consumer		-		-		-		3		-		-
Other commercial loans		4,067		26		-		5,029		37		17
Other agricultural loans		1,342		9		-		1,515		22		-
State and political subdivision loans		-		-		-		-		-		-
Total	$	24,567	$	208	$	3	$	24,214	$	229	$	17

	For the Six Months ended
	June 30, 2018						June 30, 2017
					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	$	1,034	$	7	$	-	$	940	$	6	$	-
Home Equity		101		2		-		58		2		-
Commercial		13,814		242		8		9,387		158		3
Agricultural		4,135		100		-		3,513		63		-
Construction		-		-		-		-		-		-
Consumer		2		-		-		2		-		-
Other commercial loans		4,112		52		-		5,313		77		27
Other agricultural loans		1,356		19		-		1,571		45		-
State and political subdivision loans		-		-		-		-		-		-
Total	$	24,554	$	422	$	8	$	20,784	$	351	$	30

Financing Receivable Credit Exposures by Internally Assigned Grades

The following tables represent credit exposures by internally assigned grades as of June 30, 2018 and December 31, 2017 (in thousands):

June 30, 2018	Pass		Special Mention		Substandard		Doubtful		Loss		Ending Balance
Real estate loans:
Commercial	$	284,415	$	13,347	$	11,690	$	119	$	-	$	309,571
Agricultural		244,605		12,427		5,659		-		-		262,691
Construction		27,901		-		-		-		-		27,901
Other commercial loans		71,036		870		2,975		121		-		75,002
Other agricultural loans		39,753		1,048		1,330		-		-		42,131
State and political
subdivision loans		89,602		-		10,320		-		-		99,922
Total	$	757,312	$	27,692	$	31,974	$	240	$	-	$	817,218

December 31, 2017	Pass		Special Mention		Substandard		Doubtful		Loss		Ending Balance
Real estate loans:
Commercial	$	281,742	$	15,029	$	11,271	$	42	$	-	$	308,084
Agricultural		222,198		11,538		6,221		-		-		239,957
Construction		13,364		-		138		-		-		13,502
Other commercial loans		67,706		615		3,567		125		-		72,013
Other agricultural loans		34,914		1,325		1,570		-		-		37,809
State and political
subdivision loans		94,125		-		10,612		-		-		104,737
Total	$	714,049	$	28,507	$	33,379	$	167	$	-	$	776,102

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 June 30, 2018 and December 31, 2017 (in thousands):

June 30, 2018	Performing		Non-performing		PCI		Total
Real estate loans:
Mortgages	$	153,342	$	1,375	$	30	$	154,747
Home Equity		58,377		118		-		58,495
Consumer		9,683		57		-		9,740
Total	$	221,402	$	1,550	$	30	$	222,982

December 31, 2017	Performing		Non-performing		PCI		Total
Real estate loans:
Mortgages	$	152,820	$	1,492	$	33	$	154,345
Home Equity		60,022		112		-	$	60,134
Consumer		9,895		49		-	$	9,944
Total	$	222,737	$	1,653	$	33	$	224,423

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 June 30, 2018 and December 31, 2017 (in thousands):

															90 Days or
	30-59 Days		60-89 Days		90 Days		Total Past						Total Financing		Greater and
June 30, 2018	Past Due		Past Due		Or Greater		Due		Current		PCI		Receivables		Accruing
Real estate loans:
Mortgages	$	476	$	202	$	796	$	1,474	$	153,243	$	30	$	154,747	$	-
Home Equity		220		8		94		322		58,173		-		58,495		-
Commercial		1,649		2,019		4,201		7,869		300,314		1,388		309,571		38
Agricultural		8		1,105		702		1,815		260,193		683		262,691		543
Construction		-		-		-		-		27,901		-		27,901		-
Consumer		31		26		32		89		9,651		-		9,740		32
Other commercial loans		47		8		2,324		2,379		72,198		425		75,002		-
Other agricultural loans		182		569		433		1,184		40,947		-		42,131		433
State and political
subdivision loans		-		-		-		-		99,922		-		99,922		-
Total	$	2,613	$	3,937	$	8,582	$	15,132	$	1,022,542	$	2,526	$	1,040,200	$	1,046
Loans considered non-accrual	$	617	$	790	$	7,536	$	8,943	$	1,988	$	-	$	10,931
Loans still accruing		1,996		3,147		1,046		6,189		1,020,554		2,526		1,029,269
Total	$	2,613	$	3,937	$	8,582	$	15,132	$	1,022,542	$	2,526	$	1,040,200

															90 Days or
	30-59 Days		60-89 Days		90 Days		Total Past						Total Financing		Greater and
December 31, 2017	Past Due		Past Due		Or Greater		Due		Current		PCI		Receivables		Accruing
Real estate loans:
Mortgages	$	996	$	362	$	810	$	2,168	$	152,144	$	33	$	154,345	$	218
Home Equity		277		86		78		441		59,693		-		60,134		-
Commercial		1,353		1,010		3,865		6,228		300,396		1,460		308,084		162
Agricultural		242		-		205		447		238,808		702		239,957		30
Construction		-		-		133		133		13,369		-		13,502		-
Consumer		53		33		49		135		9,809		-		9,944		7
Other commercial loans		132		-		2,372		2,504		69,066		443		72,013		32
Other agricultural loans		-		42		106		148		37,661		-		37,809		106
State and political
subdivision loans		-		-		-		-		104,737		-		104,737		-
Total	$	3,053	$	1,533	$	7,618	$	12,204	$	985,683	$	2,638	$	1,000,525	$	555
Loans considered non-accrual	$	816	$	281	$	7,063	$	8,160	$	2,011	$	-	$	10,171
Loans still accruing		2,237		1,252		555		4,044		983,672		2,638		990,354
Total	$	3,053	$	1,533	$	7,618	$	12,204	$	985,683	$	2,638	$	1,000,525

Financing Receivables on Nonaccrual Status

The following table reflects the financing receivables, excluding PCI loans, on non-accrual status as of June 30, 2018 and December 31, 2017, respectively. The balances are presented by class of financing receivable (in thousands):

	June 30, 2018		December 31, 2017
Real estate loans:
Mortgages	$	1,375	$	1,274
Home Equity		118		112
Commercial		6,262		5,192
Agricultural		167		175
Construction		-		133
Consumer		25		42
Other commercial loans		2,415		2,637
Other agricultural loans		569		606
State and political subdivision		-		-
	$	10,931	$	10,171

Troubled Debt Restructurings on Financing Receivables

Loan modifications that are considered TDRs completed during the three and six months ended June 30, 2018 and 2017 were as follows (dollars in thousands):

	For the Three Months Ended June 30, 2018
	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:
Home Equity		-		1	$	-	$	1	$	-	$	1
Commercial		-		1		-		577		-		577
Agricultural		-		1		-		1,523				1,523
Other agricultural loans		-		4		-		176				176
Total		-		7	$	-	$	2,277	$	-	$	2,277

	For the Six Months Ended June 30, 2018
	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:
Mortgages		-		1	$	-	$	7	$		$	7
Home Equity		-		1		-		1		-		1
Commercial		-		1		-		577		-		577
Agricultural		-		1		-		1,523				1,523
Other agricultural loans		-		4		-		176				176
Total		-		8	$	-	$	2,284	$	-	$	2,284

	For the Three Months Ended June 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		-		5	$	-	$	6,093	$	-	$	6,093
Total		-		5	$	-	$	6,093	$	-	$	6,093

	For the Six Months Ended June 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
Total		-		7	$	-	$	6,797	$	-	$	6,797

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 June 30, 2018 and December 31, 2017, respectively (in thousands):

	June 30, 2018						December 31, 2017
	Individually evaluated for impairment		Collectively evaluated for impairment		Total		Individually evaluated for  impairment		Collectively evaluated for impairment		Total
Real estate loans:
Residential	$	30	$	1,015	$	1,045	$	56	$	993	$	1,049
Commercial		159		3,635		3,794		94		3,773		3,867
Agricultural		25		3,648		3,673		3		3,140		3,143
Construction		-		44		44		-		23		23
Consumer		-		115		115		-		124		124
Other commercial loans		151		1,115		1,266		231		1,041		1,272
Other agricultural loans		40		549		589		26		466		492
State and political
subdivision loans		-		767		767		-		816		816
Unallocated		-		648		648		-		404		404
Total	$	405	$	11,536	$	11,941	$	410	$	10,780	$	11,190

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 six months ended June 30, 2018 and 2017, respectively (in thousands):

	For the three months ended June 30, 2018
	Balance at March 31, 2018		Charge-offs			Recoveries		Provision			Balance at June 30, 2018
Real estate loans:
Residential	$	1,077	$	(2	)	$	69	$	(99	)	$	1,045
Commercial		4,006		-			3		(215	)		3,794
Agricultural		3,340		-			-		333			3,673
Construction		39		-			-		5			44
Consumer		123		(6	)		7		(9	)		115
Other commercial loans		1,273		(46	)		11		28			1,266
Other agricultural loans		532		(7	)		-		64			589
State and political
subdivision loans		789		-			-		(22	)		767
Unallocated		408		-			-		240			648
Total	$	11,587	$	(61	)	$	90	$	325		$	11,941

	For the six months ended June 30, 2018
	Balance at December 31, 2017		Charge-offs			Recoveries		Provision			Balance at June 30, 2018
Real estate loans:
Residential	$	1,049	$	(17	)	$	69	$	(56	)	$	1,045
Commercial		3,867		-			3		(76	)		3,794
Agricultural		3,143		-			-		530			3,673
Construction		23		-			-		21			44
Consumer		124		(19	)		17		(7	)		115
Other commercial loans		1,272		(91	)		14		71			1,266
Other agricultural loans		492		(50	)		-		147			589
State and political
subdivision loans		816		-			-		(49	)		767
Unallocated		404		-			-		244			648
Total	$	11,190	$	(177	)	$	103	$	825		$	11,941

	For the three months ended June 30, 2017
	Balance at March 31, 2017		Charge-offs			Recoveries		Provision			Balance at June 30, 2017
Real estate loans:
Residential	$	1,042	$	(48	)	$	-	$	110		$	1,104
Commercial		3,665		-			2		(126	)		3,541
Agricultural		1,952							500			2,452
Construction		46		-			-		(1	)		45
Consumer		123		(17	)		12		7			125
Other commercial loans		1,215		-			-		(84	)		1,131
Other agricultural loans		306		-					125			431
State and political
subdivision loans		824		-			-		14			838
Unallocated		232		-			-		80			312
Total	$	9,405	$	(65	)	$	14	$	625		$	9,979

	For the six months ended June 30, 2017
	Balance at December 31, 2016		Charge-offs			Recoveries		Provision			Balance at June 30, 2017
Real estate loans:
Residential	$	1,064	$	(93	)	$	-	$	133		$	1,104
Commercial		3,589		(41	)		6		(13	)		3,541
Agricultural		1,494		-					958			2,452
Construction		47		-			-		(2	)		45
Consumer		122		(45	)		22		26			125
Other commercial loans		1,327		-			9		(205	)		1,131
Other agricultural loans		312		(5	)				124			431
State and political
subdivision loans		833		-			-		5			838
Unallocated		98		-			-		214			312
Total	$	8,886	$	(184	)	$	37	$	1,240		$	9,979

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Goodwill and Other Intangible Assets (Tables)

6 Months Ended

Jun. 30, 2018

Goodwill and Other Intangible Assets [Abstract]

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 June 30, 2018 and December 31, 2017 (in thousands):

	June 30, 2018							December 31, 2017
	Gross carrying value		Accumulated amortization			Net carrying value		Gross carrying  value		Accumulated amortization			Net carrying value
Amortized intangible assets (1):
MSRs	$	1,656	$	(1,009	)	$	647	$	1,605	$	(912	)	$	693
Core deposit intangibles		1,786		(721	)		1,065		1,786		(586	)		1,200
Covenant not to compete		125		(81	)		44		125		(65	)		60
Total amortized intangible assets	$	3,567	$	(1,811	)	$	1,756	$	3,516	$	(1,563	)	$	1,953
Unamortized intangible assets:
Goodwill	$	23,296						$	23,296
(1) Excludes fully amortized intangible assets

Future Amortization Expense for Amortized Intangible Assets

The following table provides the current year and estimated future amortization expense for amortized intangible assets for the next five years. We based our projections of amortization expense shown below on existing asset balances at June 30, 2018. Future amortization expense may vary from these projections (in thousands):

	MSRs		Core deposit intangibles		Covenant not to compete		Total
Three months ended June 30, 2018 (actual)	$	48	$	66	$	8	$	122
Six months  ended June 30, 2018 (actual)		97		134		16		247
Three months ended June 30, 2017 (actual)		45		66		7		118
Six months June 30, 2017 (actual)		91		134		15		240
Estimate for year ended December 31,
Remaining 2018		88		130		15		233
2019		157		230		29		416
2020		123		197		-		320
2021		94		165		-		259
2022		69		133		-		202

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Repurchase Agreements (Tables)

6 Months Ended

Jun. 30, 2018

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 June 30, 2018 and December 31, 2017 is presented in the following tables (in thousands):

	Remaining Contractual Maturity of the Agreements
	Overnight and		Up to				Greater than
June 30, 2018	Continuous		30 Days		30 - 90 Days		90 days		Total
Repurchase Agreements:
U.S. agency securities	$	18,909	$	-	$	-	$	1,998	$	20,907
Total carrying value of collateral pledged	$	18,909	$	-	$	-	$	1,998	$	20,907
Total liability recognized for repurchase agreements									$	15,061
December 31, 2017
Repurchase Agreements:
U.S. agency securities	$	16,027	$	-	$	-	$	2,035	$	18,062
Total carrying value of collateral pledged	$	16,027	$	-	$	-	$	2,035	$	18,062
Total liability recognized for repurchase agreements									$	14,989

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Employee Benefit Plans (Tables)

6 Months Ended

Jun. 30, 2018

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 and the line item on the Consolidated Statement of Income where such amounts are included, for the three months ended June 30, 2018 and 2017, respectively (in thousands):

	Three Months Ended						Six Months Ended
	June 30,						June 30,						Affected line item on the Consolidated
	2018			2017			2018			2017			Statement of income
Service cost	$	90		$	84		$	179		$	175		Salaries and Employee Benefits
Interest cost		162			168			325			335		Other Expenses
Expected return on plan assets		(345	)		(273	)		(689	)		(547	)	Other Expenses
Net amortization and deferral		47			52			93			112		Other Expenses
Net periodic (benefit) cost	$	(46	)	$	31		$	(92	)	$	75

Restricted Stock Activity

The following table details the vesting, awarding and forfeiting of restricted shares during the three and six months ended June 30, 2018:

	Three months						Six months
				Weighted						Weighted
	Unvested			Average			Unvested			Average
	Shares			Market Price			Shares			Market Price
Outstanding, beginning of period		8,691		$	51.19			8,783		$	51.20
Granted		4,869			62.91			4,869			62.91
Forfeited		-			-			-			-
Vested		(3,626	)		(50.54	)		(3,718	)		(50.58	)
Outstanding, end of period		9,934		$	57.18			9,934		$	57.18

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Accumulated Comprehensive Loss (Tables)

6 Months Ended

Jun. 30, 2018

Accumulated Comprehensive Loss [Abstract]

Changes in Accumulated Other Comprehensive Loss by Component, Net of Tax

The following tables present the changes in accumulated other comprehensive loss by component net of tax for the three and six months ended June 30, 2018 and 2017 (in thousands):

	Six months ended June 30, 2018
	Unrealized gain (loss) on available for sale securities (a)			Defined Benefit Pension Items (a)			Total
Balance as of December 31, 2017	$	(269	)	$	(3,129	)	$	(3,398	)
Change in Accounting policy for equity securities		1			-			1
Other comprehensive loss before reclassifications (net of tax)		(2,034	)		-			(2,034	)
Amounts reclassified from accumulated other
comprehensive income (loss) (net of tax)		-			74			74
Net current period other comprehensive loss		(2,034	)		74			(1,960	)
Balance as of June 30, 2018	$	(2,302	)	$	(3,055	)	$	(5,357	)
	Six months ended June 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)		478			-			478
Amounts reclassified from accumulated other
comprehensive loss (net of tax)		(129	)		74			(55	)
Net current period other comprehensive income		349			74			423
Balance as of June 30, 2017	$	1,655		$	(2,624	)	$	(969	)
	Three months ended June 30, 2018
	Unrealized gain (loss) on available for sale securities (a)			Defined Benefit Pension Items (a)			Total
Balance as of March 31, 2018	$	(1,885	)	$	(3,092	)	$	(4,977	)
Other comprehensive loss before reclassifications (net of tax)		(417	)		-			(417	)
Amounts reclassified from accumulated other
comprehensive loss (net of tax)		-			37			37
Net current period other comprehensive income (loss)		(417	)		37			(380	)
Balance as of June 30, 2018	$	(2,302	)	$	(3,055	)	$	(5,357	)
	Three months ended June 30, 2017
	Unrealized gain (loss) on available for sale securities (a)			Defined Benefit Pension Items (a)			Total
Balance as of March 31, 2017	$	1,238		$	(2,659	)	$	(1,421	)
Other comprehensive income before reclassifications (net of tax)		432			-			432
Amounts reclassified from accumulated other
comprehensive income (loss) (net of tax)		(15	)		35			20
Net current period other comprehensive income (loss)		417			35			452
Balance as of June 30, 2017	$	1,655		$	(2,624	)	$	(969	)
(a) Amounts in parentheses indicate debits on the Consolidated Balalance Sheet

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 six months ended June 30, 2018 and 2017 (in thousands):

Details about accumulated other comprehensive income (loss)	Amount reclassified from accumulated comprehensive income (loss) (a)						Affected line item in the Consolidated Statement of Income
	Three Months Ended June 30,
	2018			2017
Unrealized gains and losses on available for sale securities
	$	-		$	23		Available for sale securities gains, net
		-			(8	)	Provision for income taxes
	$	-		$	15		Net of tax
Defined benefit pension items
	$	(47	)	$	(52	)	Salaries and employee benefits
		10			17		Provision for income taxes
	$	(37	)	$	(35	)	Net of tax
Total reclassifications	$	(37	)	$	(20	)
	Six Months Ended June 30
		2018			2017
Unrealized gains and losses on available for sale securities
	$	-		$	195		Available for sale securities gains, net
		-			(66	)	Provision for income taxes
	$	-		$	129		Net of tax
Defined benefit pension items
	$	(93	)	$	(112	)	Salaries and employee benefits
		19			38		Provision for income taxes
	$	(74	)	$	(74	)	Net of tax
Total reclassifications	$	(74	)	$	55
(a) Amounts in parentheses indicate expenses and other amounts indicate income on the Consolidated Statement of Income

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Fair Value Measurements (Tables)

6 Months Ended

Jun. 30, 2018

Fair Value Measurements [Abstract]

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 June 30, 2018 and December 31, 2017 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.

June 30, 2018	Level I		Level II		Level III		Total
Fair value measurements on a recurring basis:
Assets
Equity securities in financial institutions	$	195	$	-	$	-	$	195
Available for sale securities:
U.S. Agency securities		-		101,988		-		101,988
U.S. Treasury securities		32,992		-		-		32,992
Obligations of state and
political subdivisions		-		67,872		-		67,872
Corporate obligations		-		3,023		-		3,023
Mortgage-backed securities in
government sponsored entities		-		44,150		-		44,150

December 31, 2017	Level I		Level II		Level III		Total
Fair value measurements on a recurring basis:
Available for sale securities:
U.S. Agency securities	$	-	$	98,887	$	-	$	98,887
U.S. Treasuries securities		28,604		-		-		28,604
Obligations of state and
political subdivisions		-		79,090		-		79,090
Corporate obligations		-		3,083		-		3,083
Mortgage-backed securities in
government sponsored entities		-		45,027		-		45,027
Equity securities in financial institutions		91		-		-		91

Summary of Assets Measured at Fair Value on Non-recurring Basis

Assets measured at fair value on a nonrecurring basis as of June 30, 2018 and December 31, 2017 are included in the table below (in thousands):

June 30, 2018	Level I		Level II		Level III		Total
Impaired Loans	$	-	$	-	$	3,470	$	3,470
Other real estate owned		-		-		326		326
December 31, 2017
Impaired Loans	$	-	$	-	$	1,569	$	1,569
Other real estate owned		-		-		1,024		1,024

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).

June 30, 2018	Fair Value		Valuation Technique(s)	Unobservable input	Range		Weighted average
Impaired Loans	$	3,470	Appraised Collateral Values	Discount for time since appraisal		0-100%		27.32	%
				Selling costs		5%-11%		7.88	%
				Holding period	0 - 12 months		11.4 months
Other real estate owned		326	Appraised Collateral Values	Discount for time since appraisal		25-35%		27.45	%
December 31, 2017	Fair Value		Valuation Technique(s)	Unobservable input	Range
Impaired Loans		1,569	Appraised Collateral Values	Discount for time since appraisal		0-100%		30.83	%
				Selling costs		5%-9%		8.35	%
				Holding period	6 - 12 months		11 months
Other real estate owned		1,024	Appraised Collateral Values	Discount for time since appraisal		15-65%		26.26	%

Fair Value of Financial Instruments

The carrying amount and fair value of the Company's financial instruments that are not required to be measured or reported at fair value on a recurring basis are as follows (in thousands):

	Carrying
June 30, 2018	Amount		Fair Value		Level I		Level II		Level III
Financial assets:
Cash and due from banks	$	15,613	$	15,613	$	15,613	$	-	$	-
Interest bearing time deposits with other banks		13,762		13,766		-		-		13,766
Loans held for sale		1,931		1,931		1,931		-		-
Net loans		1,028,259		1,021,166		-		-		1,021,166
Bank owned life insurance		27,189		27,189		27,189		-		-
Regulatory stock		7,220		7,220		7,220		-		-
Accrued interest receivable		4,285		4,285		4,285		-		-
Financial liabilities:
Deposits	$	1,118,592	$	1,113,001	$	847,151	$	-	$	265,850
Borrowed funds		133,652		132,322		96,566		-		35,756
Accrued interest payable		903		903		903		-		-

	Carrying
December 31, 2017	Amount		Fair Value		Level I		Level II		Level III
Financial assets:
Cash and due from banks	$	18,517	$	18,517	$	18,517	$	-	$	-
Interest bearing time deposits with other banks		10,283		10,287		-		-		10,287
Loans held for sale		1,439		1,439		1,439
Net loans		989,335		981,238		-		-		981,238
Bank owned life insurance		26,883		26,883		26,883		-		-
Regulatory stock		6,784		6,784		6,784		-		-
Accrued interest receivable		4,196		4,196		4,196		-		-
Financial liabilities:
Deposits	$	1,104,943	$	1,101,583	$	838,490	$	-	$	263,093
Borrowed funds		114,664		113,452		77,650		-		35,802
Accrued interest payable		897		897		897		-		-

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Basis of Presentation (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
New Accounting Pronouncements and Changes in Accounting Principles [Abstract]
Cumulative effect adjustment from accumulated other comprehensive income to retained earnings	$ 1		$ 1
Salaries and employee benefits	4,737	$ 4,377	9,572	$ 8,743
Other noninterest expense	(1,429)	$ (1,415)	(2,783)	$ (2,712)
ASU 2016-01 [Member] | Accumulated Other Comprehensive Income (Loss) [Member]
New Accounting Pronouncements and Changes in Accounting Principles [Abstract]
Cumulative effect adjustment from accumulated other comprehensive income to retained earnings	1		1
ASU 2016-01 [Member] | Retained Earnings [Member]
New Accounting Pronouncements and Changes in Accounting Principles [Abstract]
Cumulative effect adjustment from accumulated other comprehensive income to retained earnings	(1)		(1)
ASU 2017-07 [Member]
New Accounting Pronouncements and Changes in Accounting Principles [Abstract]
Salaries and employee benefits	53		100
Other noninterest expense	$ (53)		$ (100)

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Revenue Recognition (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Revenue from Customers [Abstract]
Revenue from customers	$ 1,566		$ 3,187
Service Charges [Member]
Revenue from Customers [Abstract]
Revenue from customers	1,170		2,274
Overdraft Fees [Member]
Revenue from Customers [Abstract]
Revenue from customers	381		748
Statement Fees [Member]
Revenue from Customers [Abstract]
Revenue from customers	51		105
Interchange Revenue [Member]
Revenue from Customers [Abstract]
Revenue from customers	574		1,105
ATM Income [Member]
Revenue from Customers [Abstract]
Revenue from customers	101		197
Other Service Charges [Member]
Revenue from Customers [Abstract]
Revenue from customers	63		119
Trust [Member]
Revenue from Customers [Abstract]
Revenue from customers	150	$ 188	401	$ 409
Brokerage and Insurance [Member]
Revenue from Customers [Abstract]
Revenue from customers	168	$ 114	349	$ 305
Other [Member]
Revenue from Customers [Abstract]
Revenue from customers	$ 78		$ 163
Revenue [Member] | Product Concentration Risk [Member] | Products and Services Not within the Scope of ASC 606 [Member]
Concentration Risk [Abstract]
Concentration risk percentage	90.13%		89.80%

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Earnings per Share (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Earnings per share basic and diluted [Abstract]
Net income applicable to common stock	$ 4,691	$ 3,468	$ 8,938	$ 6,771
Basic earnings per share computation [Abstract]
Weighted average common shares outstanding (in shares)	3,507,242	3,514,394	3,509,882	3,513,925
Earnings per share - basic (in dollars per share)	$ 1.34	$ 0.99	$ 2.55	$ 1.93
Diluted earnings per share computation [Abstract]
Weighted average common shares outstanding for basic earnings per share (in shares)	3,507,242	3,514,394	3,509,882	3,513,925
Add: Dilutive effects of restricted stock (in shares)	1,467	1,188	631	610
Weighted average common shares outstanding for dilutive earnings per share (in shares)	3,508,709	3,515,582	3,510,513	3,514,535
Earnings per share - diluted (in dollars per share)	$ 1.34	$ 0.99	$ 2.55	$ 1.93
Restricted Stock [Member]
Antidilutive Securities [Abstract]
Antidilutive restricted stock excluded from net income per share calculations (in shares)	465	1,562	3,349	4,921
Restricted Stock [Member] | Minimum [Member]
Antidilutive Securities [Abstract]
Antidilutive stock share price range (in dollars per share)	$ 46.69	$ 49.87	$ 46.69	$ 47.81
Restricted Stock [Member] | Maximum [Member]
Antidilutive Securities [Abstract]
Antidilutive stock share price range (in dollars per share)	$ 61.04	$ 53.15	$ 61.04	$ 53.15

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Investments (Details) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2018 USD ($) Security	Jun. 30, 2017 USD ($)	Jun. 30, 2018 USD ($) Security	Jun. 30, 2017 USD ($)	Dec. 31, 2017 USD ($)
Debt Securities [Abstract]
Amortized cost	$ 252,938		$ 252,938
Gross unrealized gains	512		512
Gross unrealized losses	(3,425)		(3,425)
Fair value	$ 250,025		$ 250,025		$ 254,782
Equity Securities [Abstract]
Amortized cost					92
Gross unrealized gains					0
Gross unrealized losses					(1)
Fair value					91
Total Available-for-sale Securities [Abstract]
Amortized cost					255,122
Gross unrealized gains					948
Gross unrealized losses					(1,288)
Fair value					254,782
Number of securities owned with fair value less than cost | Security	201		201
Available-for-sale, Debt Securities, Fair Value and Gross Unrealized Losses [Abstract]
Less than twelve months, Fair value	$ 157,633		$ 157,633
Twelve months or greater, Fair value	43,526		43,526
Total, Fair value	201,159		201,159
Less than twelve months, Gross unrealized losses	(2,388)		(2,388)
Twelve months or greater, Gross unrealized losses	(1,037)		(1,037)
Total, Gross Unrealized Losses	(3,425)		(3,425)
Available-for-sale Securities, Fair Value and Gross Unrealized Losses [Abstract]
Less than twelve months, Fair value					145,686
Twelve months or greater, Fair value					36,708
Total, Fair value					182,394
Less than twelve months, Gross unrealized losses					(875)
Twelve months or greater, Gross unrealized losses					(413)
Total, Gross Unrealized Losses					(1,288)
Proceeds from sale of securities available-for-sale	0	$ 6,641	0	$ 25,407
Realized investment gains (losses) [Abstract]
Gross gains on available for sale securities	0	30	0	202
Gross losses on available for sale securities	0	(7)	0	(7)
Net gains	0	23	0	195
Equity Securities Fv Ni Gain (Loss) [Abstract]
Net gains recognized in equity securities during the period	7	$ 0	13	$ 0
Less: Net gains realized on the sale of equity securities during the period	0		0
Unrealized gains recognized in equity securities held at reporting date	7		13
Investment securities pledged as collateral	240,800		240,800		243,400
Available-for-Sale Debt Securities, Amortized Cost [Abstract]
Due in one year or less	47,012		47,012
Due after one year through five years	106,241		106,241
Due after five years through ten years	50,336		50,336
Due after ten years	49,349		49,349
Amortized cost	252,938		252,938
Available-for-Sale Debt Securities, Fair Value [Abstract]
Due in one year or less	47,121		47,121
Due after one year through five years	104,395		104,395
Due after five years through ten years	49,644		49,644
Due after ten years	48,865		48,865
Fair value	250,025		250,025		254,782
U.S. Agency Securities [Member]
Debt Securities [Abstract]
Amortized cost	103,190		103,190		99,454
Gross unrealized gains	30		30		26
Gross unrealized losses	(1,232)		(1,232)		(593)
Fair value	101,988		101,988		98,887
Available-for-sale, Debt Securities, Fair Value and Gross Unrealized Losses [Abstract]
Less than twelve months, Fair value	76,159		76,159		74,952
Twelve months or greater, Fair value	19,842		19,842		16,928
Total, Fair value	96,001		96,001		91,880
Less than twelve months, Gross unrealized losses	(978)		(978)		(421)
Twelve months or greater, Gross unrealized losses	(254)		(254)		(172)
Total, Gross Unrealized Losses	(1,232)		(1,232)		(593)
Available-for-Sale Debt Securities, Amortized Cost [Abstract]
Amortized cost	103,190		103,190		99,454
Available-for-Sale Debt Securities, Fair Value [Abstract]
Fair value	101,988		101,988		98,887
U.S. Treasury Securities [Member]
Debt Securities [Abstract]
Amortized cost	33,783		33,783		28,782
Gross unrealized gains	0		0		0
Gross unrealized losses	(791)		(791)		(178)
Fair value	32,992		32,992		28,604
Available-for-sale, Debt Securities, Fair Value and Gross Unrealized Losses [Abstract]
Less than twelve months, Fair value	32,992		32,992		28,604
Twelve months or greater, Fair value	0		0		0
Total, Fair value	32,992		32,992		28,604
Less than twelve months, Gross unrealized losses	(791)		(791)		(178)
Twelve months or greater, Gross unrealized losses	0		0		0
Total, Gross Unrealized Losses	(791)		(791)		(178)
Available-for-Sale Debt Securities, Amortized Cost [Abstract]
Amortized cost	33,783		33,783		28,782
Available-for-Sale Debt Securities, Fair Value [Abstract]
Fair value	32,992		32,992		28,604
Obligations of State and Political Subdivisions [Member]
Debt Securities [Abstract]
Amortized cost	67,763		67,763		78,409
Gross unrealized gains	456		456		820
Gross unrealized losses	(347)		(347)		(139)
Fair value	67,872		67,872		79,090
Available-for-sale, Debt Securities, Fair Value and Gross Unrealized Losses [Abstract]
Less than twelve months, Fair value	22,564		22,564		14,885
Twelve months or greater, Fair value	6,007		6,007		5,958
Total, Fair value	28,571		28,571		20,843
Less than twelve months, Gross unrealized losses	(220)		(220)		(85)
Twelve months or greater, Gross unrealized losses	(127)		(127)		(54)
Total, Gross Unrealized Losses	(347)		(347)		(139)
Available-for-Sale Debt Securities, Amortized Cost [Abstract]
Amortized cost	67,763		67,763		78,409
Available-for-Sale Debt Securities, Fair Value [Abstract]
Fair value	67,872		67,872		79,090
Corporate Obligations [Member]
Debt Securities [Abstract]
Amortized cost	3,000		3,000		3,000
Gross unrealized gains	23		23		83
Gross unrealized losses	0		0		0
Fair value	3,023		3,023		3,083
Available-for-Sale Debt Securities, Amortized Cost [Abstract]
Amortized cost	3,000		3,000		3,000
Available-for-Sale Debt Securities, Fair Value [Abstract]
Fair value	3,023		3,023		3,083
Mortgage-backed Securities in Government Sponsored Entities [Member]
Debt Securities [Abstract]
Amortized cost	45,202		45,202		45,385
Gross unrealized gains	3		3		19
Gross unrealized losses	(1,055)		(1,055)		(377)
Fair value	44,150		44,150		45,027
Available-for-sale, Debt Securities, Fair Value and Gross Unrealized Losses [Abstract]
Less than twelve months, Fair value	25,918		25,918		27,154
Twelve months or greater, Fair value	17,677		17,677		13,822
Total, Fair value	43,595		43,595		40,976
Less than twelve months, Gross unrealized losses	(399)		(399)		(190)
Twelve months or greater, Gross unrealized losses	(656)		(656)		(187)
Total, Gross Unrealized Losses	(1,055)		(1,055)		(377)
Available-for-Sale Debt Securities, Amortized Cost [Abstract]
Amortized cost	45,202		45,202		45,385
Available-for-Sale Debt Securities, Fair Value [Abstract]
Fair value	$ 44,150		$ 44,150		45,027
Equity Securities in Financial Institutions [Member]
Available-for-sale Securities, Fair Value and Gross Unrealized Losses [Abstract]
Less than twelve months, Fair value					91
Twelve months or greater, Fair value					0
Total, Fair value					91
Less than twelve months, Gross unrealized losses					(1)
Twelve months or greater, Gross unrealized losses					0
Total, Gross Unrealized Losses					$ (1)

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Loans (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017	Dec. 31, 2017
Segments of loan portfolio and allowance for loan losses [Abstract]
Total financing receivables	$ 1,040,200		$ 1,040,200		$ 1,000,525
Individually evaluated for impairment	25,531		25,531		24,398
Loans acquired with deteriorated credit quality	2,526		2,526		2,638
Collectively evaluated for impairment	1,012,143		1,012,143		973,489
Allowance for loan losses	11,941		11,941		11,190
Allowance for loan losses related to individually evaluated for impairment	405		405		410
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	11,536		11,536		10,780
Net loans	1,028,259		1,028,259		989,335
Net loans, individually evaluated for impairment	25,126		25,126		23,988
Net loans, loans acquired with deteriorated credit quality	2,526		2,526		2,638
Net loans, collectively evaluated for impairment	1,000,607		$ 1,000,607		962,709
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	213,242		$ 213,242		214,479
Individually evaluated for impairment	1,131		1,131		1,065
Loans acquired with deteriorated credit quality	30		30		33
Collectively evaluated for impairment	212,081		212,081		213,381
Real Estate Loans [Member] | Commercial [Member]
Segments of loan portfolio and allowance for loan losses [Abstract]
Total financing receivables	309,571		309,571		308,084
Individually evaluated for impairment	13,791		13,791		13,864
Loans acquired with deteriorated credit quality	1,388		1,388		1,460
Collectively evaluated for impairment	294,392		294,392		292,760
Real Estate Loans [Member] | Agricultural [Member]
Segments of loan portfolio and allowance for loan losses [Abstract]
Total financing receivables	262,691		262,691		239,957
Individually evaluated for impairment	5,204		5,204		3,901
Loans acquired with deteriorated credit quality	683		683		702
Collectively evaluated for impairment	256,804		256,804		235,354
Real Estate Loans [Member] | Construction [Member]
Segments of loan portfolio and allowance for loan losses [Abstract]
Total financing receivables	27,901		27,901		13,502
Individually evaluated for impairment	0		0		0
Loans acquired with deteriorated credit quality	0		0		0
Collectively evaluated for impairment	27,901		27,901		13,502
Consumer [Member]
Segments of loan portfolio and allowance for loan losses [Abstract]
Total financing receivables	9,740		9,740		9,944
Individually evaluated for impairment	0		0		8
Loans acquired with deteriorated credit quality	0		0		0
Collectively evaluated for impairment	9,740		9,740		9,936
Other Commercial Loans [Member]
Segments of loan portfolio and allowance for loan losses [Abstract]
Total financing receivables	75,002		75,002		72,013
Individually evaluated for impairment	3,934		3,934		4,197
Loans acquired with deteriorated credit quality	425		425		443
Collectively evaluated for impairment	70,643		70,643		67,373
Other Agricultural Loans [Member]
Segments of loan portfolio and allowance for loan losses [Abstract]
Total financing receivables	42,131		42,131		37,809
Individually evaluated for impairment	1,471		1,471		1,363
Loans acquired with deteriorated credit quality	0		0		0
Collectively evaluated for impairment	40,660		40,660		36,446
State and Political Subdivision Loans [Member]
Segments of loan portfolio and allowance for loan losses [Abstract]
Total financing receivables	99,922		99,922		104,737
Individually evaluated for impairment	0		0		0
Loans acquired with deteriorated credit quality	0		0		0
Collectively evaluated for impairment	99,922		99,922		104,737
First National Bank of Fredericksburg [Member]
Changes in the accretable yield for purchased credit-impaired loans [Roll Forward]
Balance at beginning of period	82	$ 275	106	$ 389
Accretion	(23)	(108)	(47)	(222)
Balance at end of period	59	$ 167	59	$ 167
Loans acquired with specific evidence of deterioration in credit quality [Abstract]
Outstanding balance	5,262		5,262		5,295
Carrying amount	$ 2,526		$ 2,526		$ 2,638

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Loans, Impaired Financing Receivable (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017	Dec. 31, 2017
Impaired Financing Receivable [Abstract]
Unpaid Principal Balance	$ 29,038		$ 29,038		$ 28,887
Recorded Investment With No Allowance	21,212		21,212		21,756
Recorded Investment With Allowance	4,319		4,319		2,642
Total Recorded Investment	25,531		25,531		24,398
Related Allowance	405		405		410
Average Recorded Investment	24,567	$ 24,214	24,554	$ 20,784
Interest Income Recognized	208	229	422	351
Interest Income Recognized Cash Basis	3	17	8	30
Real Estate Loans [Member] | Mortgages [Member]
Impaired Financing Receivable [Abstract]
Unpaid Principal Balance	1,138		1,138		1,055
Recorded Investment With No Allowance	261		261		273
Recorded Investment With Allowance	776		776		700
Total Recorded Investment	1,037		1,037		973
Related Allowance	15		15		47
Average Recorded Investment	1,045	986	1,034	940
Interest Income Recognized	3	3	7	6
Interest Income Recognized Cash Basis	0	0	0	0
Real Estate Loans [Member] | Home Equity [Member]
Impaired Financing Receivable [Abstract]
Unpaid Principal Balance	111		111		92
Recorded Investment With No Allowance	14		14		40
Recorded Investment With Allowance	80		80		52
Total Recorded Investment	94		94		92
Related Allowance	15		15		9
Average Recorded Investment	95	60	101	58
Interest Income Recognized	1	1	2	2
Interest Income Recognized Cash Basis	0	0	0	0
Real Estate Loans [Member] | Commercial [Member]
Impaired Financing Receivable [Abstract]
Unpaid Principal Balance	16,576		16,576		16,363
Recorded Investment With No Allowance	12,442		12,442		13,154
Recorded Investment With Allowance	1,349		1,349		710
Total Recorded Investment	13,791		13,791		13,864
Related Allowance	159		159		94
Average Recorded Investment	13,833	12,980	13,814	9,387
Interest Income Recognized	120	134	242	158
Interest Income Recognized Cash Basis	3	0	8	3
Real Estate Loans [Member] | Agricultural [Member]
Impaired Financing Receivable [Abstract]
Unpaid Principal Balance	5,210		5,210		5,231
Recorded Investment With No Allowance	3,648		3,648		3,283
Recorded Investment With Allowance	1,556		1,556		618
Total Recorded Investment	5,204		5,204		3,901
Related Allowance	25		25		3
Average Recorded Investment	4,185	3,641	4,135	3,513
Interest Income Recognized	49	32	100	63
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	0		0		10
Recorded Investment With No Allowance	0		0		2
Recorded Investment With Allowance	0		0		6
Total Recorded Investment	0		0		8
Related Allowance	0		0		0
Average Recorded Investment	0	3	2	2
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	4,489		4,489		4,739
Recorded Investment With No Allowance	3,552		3,552		3,766
Recorded Investment With Allowance	382		382		431
Total Recorded Investment	3,934		3,934		4,197
Related Allowance	151		151		231
Average Recorded Investment	4,067	5,029	4,112	5,313
Interest Income Recognized	26	37	52	77
Interest Income Recognized Cash Basis	0	17	0	27
Other Agricultural Loans [Member]
Impaired Financing Receivable [Abstract]
Unpaid Principal Balance	1,514		1,514		1,397
Recorded Investment With No Allowance	1,295		1,295		1,238
Recorded Investment With Allowance	176		176		125
Total Recorded Investment	1,471		1,471		1,363
Related Allowance	40		40		26
Average Recorded Investment	1,342	1,515	1,356	1,571
Interest Income Recognized	9	22	19	45
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

XML

Loans, Credit Quality Indicator (Details) - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2018	Dec. 31, 2017
Financing Receivable by credit exposure [Abstract]
Total	$ 222,982	$ 224,423
Minimum [Member]
Financing Receivable [Abstract]
Percentage of dollar volume of commercial loan portfolio to be reviewed	50.00%
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	309,571	308,084
Real Estate Loans [Member] | Agricultural [Member]
Financing Receivable by credit exposure [Abstract]
Total	262,691	239,957
Real Estate Loans [Member] | Construction [Member]
Financing Receivable by credit exposure [Abstract]
Total	27,901	13,502
Real Estate Loans [Member] | Mortgages [Member]
Financing Receivable by credit exposure [Abstract]
Total	154,747	154,345
Real Estate Loans [Member] | Home Equity [Member]
Financing Receivable by credit exposure [Abstract]
Total	58,495	60,134
Consumer [Member]
Financing Receivable by credit exposure [Abstract]
Total	9,740	9,944
Other Commercial Loans [Member]
Financing Receivable by credit exposure [Abstract]
Total	75,002	72,013
Other Agricultural Loans [Member]
Financing Receivable by credit exposure [Abstract]
Total	42,131	37,809
State and Political Subdivision Loans [Member]
Financing Receivable by credit exposure [Abstract]
Total	99,922	104,737
Pass [Member]
Financing Receivable by credit exposure [Abstract]
Total	757,312	714,049
Pass [Member] | Real Estate Loans [Member] | Commercial [Member]
Financing Receivable by credit exposure [Abstract]
Total	284,415	281,742
Pass [Member] | Real Estate Loans [Member] | Agricultural [Member]
Financing Receivable by credit exposure [Abstract]
Total	244,605	222,198
Pass [Member] | Real Estate Loans [Member] | Construction [Member]
Financing Receivable by credit exposure [Abstract]
Total	27,901	13,364
Pass [Member] | Other Commercial Loans [Member]
Financing Receivable by credit exposure [Abstract]
Total	71,036	67,706
Pass [Member] | Other Agricultural Loans [Member]
Financing Receivable by credit exposure [Abstract]
Total	39,753	34,914
Pass [Member] | State and Political Subdivision Loans [Member]
Financing Receivable by credit exposure [Abstract]
Total	89,602	94,125
Special Mention [Member]
Financing Receivable by credit exposure [Abstract]
Total	27,692	28,507
Special Mention [Member] | Real Estate Loans [Member] | Commercial [Member]
Financing Receivable by credit exposure [Abstract]
Total	13,347	15,029
Special Mention [Member] | Real Estate Loans [Member] | Agricultural [Member]
Financing Receivable by credit exposure [Abstract]
Total	12,427	11,538
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	870	615
Special Mention [Member] | Other Agricultural Loans [Member]
Financing Receivable by credit exposure [Abstract]
Total	1,048	1,325
Special Mention [Member] | State and Political Subdivision Loans [Member]
Financing Receivable by credit exposure [Abstract]
Total	0	0
Substandard [Member]
Financing Receivable by credit exposure [Abstract]
Total	31,974	33,379
Substandard [Member] | Real Estate Loans [Member] | Commercial [Member]
Financing Receivable by credit exposure [Abstract]
Total	11,690	11,271
Substandard [Member] | Real Estate Loans [Member] | Agricultural [Member]
Financing Receivable by credit exposure [Abstract]
Total	5,659	6,221
Substandard [Member] | Real Estate Loans [Member] | Construction [Member]
Financing Receivable by credit exposure [Abstract]
Total	0	138
Substandard [Member] | Other Commercial Loans [Member]
Financing Receivable by credit exposure [Abstract]
Total	2,975	3,567
Substandard [Member] | Other Agricultural Loans [Member]
Financing Receivable by credit exposure [Abstract]
Total	1,330	1,570
Substandard [Member] | State and Political Subdivision Loans [Member]
Financing Receivable by credit exposure [Abstract]
Total	10,320	10,612
Doubtful [Member]
Financing Receivable by credit exposure [Abstract]
Total	240	167
Doubtful [Member] | Real Estate Loans [Member] | Commercial [Member]
Financing Receivable by credit exposure [Abstract]
Total	119	42
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	121	125
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	817,218	776,102
Performing [Member]
Financing Receivable by credit exposure [Abstract]
Total	221,402	222,737
Performing [Member] | Real Estate Loans [Member] | Mortgages [Member]
Financing Receivable by credit exposure [Abstract]
Total	153,342	152,820
Performing [Member] | Real Estate Loans [Member] | Home Equity [Member]
Financing Receivable by credit exposure [Abstract]
Total	58,377	60,022
Performing [Member] | Consumer [Member]
Financing Receivable by credit exposure [Abstract]
Total	9,683	9,895
Nonperforming [Member]
Financing Receivable by credit exposure [Abstract]
Total	1,550	1,653
Nonperforming [Member] | Real Estate Loans [Member] | Mortgages [Member]
Financing Receivable by credit exposure [Abstract]
Total	1,375	1,492
Nonperforming [Member] | Real Estate Loans [Member] | Home Equity [Member]
Financing Receivable by credit exposure [Abstract]
Total	118	112
Nonperforming [Member] | Consumer [Member]
Financing Receivable by credit exposure [Abstract]
Total	57	49
PCI [Member]
Financing Receivable by credit exposure [Abstract]
Total	30	33
PCI [Member] | Real Estate Loans [Member] | Mortgages [Member]
Financing Receivable by credit exposure [Abstract]
Total	30	33
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	$ 0

XML

Loans, Past Due (Details) - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2018	Dec. 31, 2017
Recorded investment of past due [Abstract]
Total past due	$ 15,132	$ 12,204
Current	1,022,542	985,683
PCI	2,526	2,638
Total financing receivables	1,040,200	1,000,525
90 Days or greater and accruing	1,046	555
Financing receivables on nonaccrual status [Abstract]
Total past due and non-accrual	8,943	8,160
Current and non-accrual	1,988	2,011
PCI Loans considered non accrual	0	0
Financing receivable nonaccrual status	10,931	10,171
Financing receivables on accrual status [Abstract]
Total past due and still accruing	6,189	4,044
Current and still accruing	1,020,554	983,672
PCI Loans still accruing	2,526	2,638
Total financing receivables and still accruing	$ 1,029,269	990,354
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	$ 2,613	3,053
Financing receivables on nonaccrual status [Abstract]
Total past due and non-accrual	617	816
Financing receivables on accrual status [Abstract]
Total past due and still accruing	1,996	2,237
60 to 89 Days Past Due [Member]
Recorded investment of past due [Abstract]
Total past due	3,937	1,533
Financing receivables on nonaccrual status [Abstract]
Total past due and non-accrual	790	281
Financing receivables on accrual status [Abstract]
Total past due and still accruing	3,147	1,252
90 Days Or Greater [Member]
Recorded investment of past due [Abstract]
Total past due	8,582	7,618
Financing receivables on nonaccrual status [Abstract]
Total past due and non-accrual	7,536	7,063
Financing receivables on accrual status [Abstract]
Total past due and still accruing	1,046	555
Real Estate Loans [Member] | Mortgages [Member]
Recorded investment of past due [Abstract]
Total past due	1,474	2,168
Current	153,243	152,144
PCI	30	33
Total financing receivables	154,747	154,345
90 Days or greater and accruing	0	218
Financing receivables on nonaccrual status [Abstract]
Financing receivable nonaccrual status	1,375	1,274
Real Estate Loans [Member] | Mortgages [Member] | 30 to 59 Days Past Due [Member]
Recorded investment of past due [Abstract]
Total past due	476	996
Real Estate Loans [Member] | Mortgages [Member] | 60 to 89 Days Past Due [Member]
Recorded investment of past due [Abstract]
Total past due	202	362
Real Estate Loans [Member] | Mortgages [Member] | 90 Days Or Greater [Member]
Recorded investment of past due [Abstract]
Total past due	796	810
Real Estate Loans [Member] | Home Equity [Member]
Recorded investment of past due [Abstract]
Total past due	322	441
Current	58,173	59,693
PCI	0	0
Total financing receivables	58,495	60,134
90 Days or greater and accruing	0	0
Financing receivables on nonaccrual status [Abstract]
Financing receivable nonaccrual status	118	112
Real Estate Loans [Member] | Home Equity [Member] | 30 to 59 Days Past Due [Member]
Recorded investment of past due [Abstract]
Total past due	220	277
Real Estate Loans [Member] | Home Equity [Member] | 60 to 89 Days Past Due [Member]
Recorded investment of past due [Abstract]
Total past due	8	86
Real Estate Loans [Member] | Home Equity [Member] | 90 Days Or Greater [Member]
Recorded investment of past due [Abstract]
Total past due	94	78
Real Estate Loans [Member] | Commercial [Member]
Recorded investment of past due [Abstract]
Total past due	7,869	6,228
Current	300,314	300,396
PCI	1,388	1,460
Total financing receivables	309,571	308,084
90 Days or greater and accruing	38	162
Financing receivables on nonaccrual status [Abstract]
Financing receivable nonaccrual status	6,262	5,192
Real Estate Loans [Member] | Commercial [Member] | 30 to 59 Days Past Due [Member]
Recorded investment of past due [Abstract]
Total past due	1,649	1,353
Real Estate Loans [Member] | Commercial [Member] | 60 to 89 Days Past Due [Member]
Recorded investment of past due [Abstract]
Total past due	2,019	1,010
Real Estate Loans [Member] | Commercial [Member] | 90 Days Or Greater [Member]
Recorded investment of past due [Abstract]
Total past due	4,201	3,865
Real Estate Loans [Member] | Agricultural [Member]
Recorded investment of past due [Abstract]
Total past due	1,815	447
Current	260,193	238,808
PCI	683	702
Total financing receivables	262,691	239,957
90 Days or greater and accruing	543	30
Financing receivables on nonaccrual status [Abstract]
Financing receivable nonaccrual status	167	175
Real Estate Loans [Member] | Agricultural [Member] | 30 to 59 Days Past Due [Member]
Recorded investment of past due [Abstract]
Total past due	8	242
Real Estate Loans [Member] | Agricultural [Member] | 60 to 89 Days Past Due [Member]
Recorded investment of past due [Abstract]
Total past due	1,105	0
Real Estate Loans [Member] | Agricultural [Member] | 90 Days Or Greater [Member]
Recorded investment of past due [Abstract]
Total past due	702	205
Real Estate Loans [Member] | Construction [Member]
Recorded investment of past due [Abstract]
Total past due	0	133
Current	27,901	13,369
PCI	0	0
Total financing receivables	27,901	13,502
90 Days or greater and accruing	0	0
Financing receivables on nonaccrual status [Abstract]
Financing receivable nonaccrual status	0	133
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	133
Consumer [Member]
Recorded investment of past due [Abstract]
Total past due	89	135
Current	9,651	9,809
PCI	0	0
Total financing receivables	9,740	9,944
90 Days or greater and accruing	32	7
Financing receivables on nonaccrual status [Abstract]
Financing receivable nonaccrual status	25	42
Consumer [Member] | 30 to 59 Days Past Due [Member]
Recorded investment of past due [Abstract]
Total past due	31	53
Consumer [Member] | 60 to 89 Days Past Due [Member]
Recorded investment of past due [Abstract]
Total past due	26	33
Consumer [Member] | 90 Days Or Greater [Member]
Recorded investment of past due [Abstract]
Total past due	32	49
Other Commercial Loans [Member]
Recorded investment of past due [Abstract]
Total past due	2,379	2,504
Current	72,198	69,066
PCI	425	443
Total financing receivables	75,002	72,013
90 Days or greater and accruing	0	32
Financing receivables on nonaccrual status [Abstract]
Financing receivable nonaccrual status	2,415	2,637
Other Commercial Loans [Member] | 30 to 59 Days Past Due [Member]
Recorded investment of past due [Abstract]
Total past due	47	132
Other Commercial Loans [Member] | 60 to 89 Days Past Due [Member]
Recorded investment of past due [Abstract]
Total past due	8	0
Other Commercial Loans [Member] | 90 Days Or Greater [Member]
Recorded investment of past due [Abstract]
Total past due	2,324	2,372
Other Agricultural Loans [Member]
Recorded investment of past due [Abstract]
Total past due	1,184	148
Current	40,947	37,661
PCI	0	0
Total financing receivables	42,131	37,809
90 Days or greater and accruing	433	106
Financing receivables on nonaccrual status [Abstract]
Financing receivable nonaccrual status	569	606
Other Agricultural Loans [Member] | 30 to 59 Days Past Due [Member]
Recorded investment of past due [Abstract]
Total past due	182	0
Other Agricultural Loans [Member] | 60 to 89 Days Past Due [Member]
Recorded investment of past due [Abstract]
Total past due	569	42
Other Agricultural Loans [Member] | 90 Days Or Greater [Member]
Recorded investment of past due [Abstract]
Total past due	433	106
State and Political Subdivision Loans [Member]
Recorded investment of past due [Abstract]
Total past due	0	0
Current	99,922	104,737
PCI	0	0
Total financing receivables	99,922	104,737
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		6 Months Ended
	Jun. 30, 2018 USD ($) Contract	Jun. 30, 2017 USD ($) Contract	Jun. 30, 2018 USD ($) Contract	Jun. 30, 2017 USD ($) Contract	Dec. 31, 2017 USD ($)
Loans [Abstract]
Reserves of allowance for loan losses	$ 87		$ 87		$ 41
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	7	5	8	7
Pre-modification outstanding recorded investment	$ 2,277	$ 6,093	$ 2,284	$ 6,797
Post-modification outstanding recorded investment	$ 2,277	$ 6,093	$ 2,284	$ 6,797
Real Estate Loans [Member] | Home Equity [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] | Home Equity [Member] | Term Modification [Member]
Financing receivable modifications [Abstract]
Number of contracts | Contract	1		1
Pre-modification outstanding recorded investment	$ 1		$ 1
Post-modification outstanding recorded investment	$ 1		$ 1
Real Estate Loans [Member] | Mortgages [Member] | Interest Modification [Member]
Financing receivable modifications [Abstract]
Number of contracts | Contract			0
Pre-modification outstanding recorded investment			$ 0
Post-modification outstanding recorded investment			$ 0
Real Estate Loans [Member] | Mortgages [Member] | Term Modification [Member]
Financing receivable modifications [Abstract]
Number of contracts | Contract			1
Pre-modification outstanding recorded investment			$ 7
Post-modification outstanding recorded investment			$ 7
Real Estate Loans [Member] | Commercial [Member] | 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
Real Estate Loans [Member] | Commercial [Member] | Term Modification [Member]
Financing receivable modifications [Abstract]
Number of contracts | Contract	1	5	1	7
Pre-modification outstanding recorded investment	$ 577	$ 6,093	$ 577	$ 6,797
Post-modification outstanding recorded investment	$ 577	$ 6,093	$ 577	$ 6,797
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	1		1
Pre-modification outstanding recorded investment	$ 1,523		$ 1,523
Post-modification outstanding recorded investment	$ 1,523		$ 1,523
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	4		4
Pre-modification outstanding recorded investment	$ 176		$ 176
Post-modification outstanding recorded investment	$ 176		$ 176

XML

Loans, Allowance for Loan Losses (Details) - USD ($) $ in Thousands	Jun. 30, 2018	Mar. 31, 2018	Dec. 31, 2017	Jun. 30, 2017	Mar. 31, 2017	Dec. 31, 2016
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	$ 405		$ 410
Collectively evaluated for impairment	11,536		10,780
Total	11,941	$ 11,587	11,190	$ 9,979	$ 9,405	$ 8,886
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	30		56
Collectively evaluated for impairment	1,015		993
Total	1,045	1,077	1,049	1,104	1,042	1,064
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	159		94
Collectively evaluated for impairment	3,635		3,773
Total	3,794	4,006	3,867	3,541	3,665	3,589
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	25		3
Collectively evaluated for impairment	3,648		3,140
Total	3,673	3,340	3,143	2,452	1,952	1,494
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	44		23
Total	44	39	23	45	46	47
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	0		0
Collectively evaluated for impairment	115		124
Total	115	123	124	125	123	122
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	151		231
Collectively evaluated for impairment	1,115		1,041
Total	1,266	1,273	1,272	1,131	1,215	1,327
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		26
Collectively evaluated for impairment	549		466
Total	589	532	492	431	306	312
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	767		816
Total	767	789	816	838	824	833
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	648		404
Total	$ 648	$ 408	$ 404	$ 312	$ 232	$ 98

XML

Loans, Allowance for Loan Losses by Portfolio Segment (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Financing Receivable, Allowance for Credit Losses [Roll Forward]
Balance at beginning of period	$ 11,587	$ 9,405	$ 11,190	$ 8,886
Charge-offs	(61)	(65)	(177)	(184)
Recoveries	90	14	103	37
Provision	325	625	825	1,240
Balance at end of period	11,941	9,979	11,941	9,979
Real Estate Loans [Member] | Residential [Member]
Financing Receivable, Allowance for Credit Losses [Roll Forward]
Balance at beginning of period	1,077	1,042	1,049	1,064
Charge-offs	(2)	(48)	(17)	(93)
Recoveries	69	0	69	0
Provision	(99)	110	(56)	133
Balance at end of period	1,045	1,104	1,045	1,104
Real Estate Loans [Member] | Commercial [Member]
Financing Receivable, Allowance for Credit Losses [Roll Forward]
Balance at beginning of period	4,006	3,665	3,867	3,589
Charge-offs	0	0	0	(41)
Recoveries	3	2	3	6
Provision	(215)	(126)	(76)	(13)
Balance at end of period	3,794	3,541	3,794	3,541
Real Estate Loans [Member] | Agricultural [Member]
Financing Receivable, Allowance for Credit Losses [Roll Forward]
Balance at beginning of period	3,340	1,952	3,143	1,494
Charge-offs	0	0	0	0
Recoveries	0	0	0	0
Provision	333	500	530	958
Balance at end of period	3,673	2,452	3,673	2,452
Real Estate Loans [Member] | Construction [Member]
Financing Receivable, Allowance for Credit Losses [Roll Forward]
Balance at beginning of period	39	46	23	47
Charge-offs	0	0	0	0
Recoveries	0	0	0	0
Provision	5	(1)	21	(2)
Balance at end of period	44	45	44	45
Consumer [Member]
Financing Receivable, Allowance for Credit Losses [Roll Forward]
Balance at beginning of period	123	123	124	122
Charge-offs	(6)	(17)	(19)	(45)
Recoveries	7	12	17	22
Provision	(9)	7	(7)	26
Balance at end of period	115	125	115	125
Other Commercial Loans [Member]
Financing Receivable, Allowance for Credit Losses [Roll Forward]
Balance at beginning of period	1,273	1,215	1,272	1,327
Charge-offs	(46)	0	(91)	0
Recoveries	11	0	14	9
Provision	28	(84)	71	(205)
Balance at end of period	1,266	1,131	1,266	1,131
Other Agricultural Loans [Member]
Financing Receivable, Allowance for Credit Losses [Roll Forward]
Balance at beginning of period	532	306	492	312
Charge-offs	(7)	0	(50)	(5)
Recoveries	0	0	0	0
Provision	64	125	147	124
Balance at end of period	589	431	589	431
State and Political Subdivision Loans [Member]
Financing Receivable, Allowance for Credit Losses [Roll Forward]
Balance at beginning of period	789	824	816	833
Charge-offs	0	0	0	0
Recoveries	0	0	0	0
Provision	(22)	14	(49)	5
Balance at end of period	767	838	767	838
Unallocated [Member]
Financing Receivable, Allowance for Credit Losses [Roll Forward]
Balance at beginning of period	408	232	404	98
Charge-offs	0	0	0	0
Recoveries	0	0	0	0
Provision	240	80	244	214
Balance at end of period	$ 648	$ 312	$ 648	$ 312

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Loans, Foreclosed Assets Held for Sale (Details) - USD ($) $ in Thousands	Jun. 30, 2018	Dec. 31, 2017
Foreclosed assets held for sale [Abstract]
Foreclosed assets held for sale	$ 471	$ 1,119
Consumer Residential Mortgages [Member]
Foreclosed assets held for sale [Abstract]
Foreclosed assets held for sale	175
Formal foreclosure proceedings on potential foreclosure assets	$ 2,023

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Goodwill and Other Intangible Assets (Details) - USD ($) $ in Thousands		3 Months Ended		6 Months Ended
		Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017	Dec. 31, 2017
Amortized intangible assets [Abstract]
Gross carrying value	[1]	$ 3,567		$ 3,567		$ 3,516
Accumulated amortization	[1]	(1,811)		(1,811)		(1,563)
Net carrying value	[1]	1,756		1,756		1,953
Unamortized intangible assets [Abstract]
Goodwill		23,296		23,296		23,296
Actual and Estimated Future Amortization Expense [Abstract]
Amortization expense		122	$ 118	247	$ 240
Estimated Amortization Expense [Abstract]
Remaining 2018		233		233
2019		416		416
2020		320		320
2021		259		259
2022		202		202
MSRs [Member]
Amortized intangible assets [Abstract]
Gross carrying value	[1]	1,656		1,656		1,605
Accumulated amortization	[1]	(1,009)		(1,009)		(912)
Net carrying value	[1]	647		647		693
Actual and Estimated Future Amortization Expense [Abstract]
Amortization expense		48	45	97	91
Estimated Amortization Expense [Abstract]
Remaining 2018		88		88
2019		157		157
2020		123		123
2021		94		94
2022		69		69
Core Deposit Intangibles [Member]
Amortized intangible assets [Abstract]
Gross carrying value	[1]	1,786		1,786		1,786
Accumulated amortization	[1]	(721)		(721)		(586)
Net carrying value	[1]	1,065		1,065		1,200
Actual and Estimated Future Amortization Expense [Abstract]
Amortization expense		66	66	134	134
Estimated Amortization Expense [Abstract]
Remaining 2018		130		130
2019		230		230
2020		197		197
2021		165		165
2022		133		133
Covenant not to Compete [Member]
Amortized intangible assets [Abstract]
Gross carrying value	[1]	125		125		125
Accumulated amortization	[1]	(81)		(81)		(65)
Net carrying value	[1]	44		44		$ 60
Actual and Estimated Future Amortization Expense [Abstract]
Amortization expense		8	$ 7	16	$ 15
Estimated Amortization Expense [Abstract]
Remaining 2018		15		15
2019		29		29
2020		0		0
2021		0		0
2022		$ 0		$ 0

[1] Excludes fully amortized intangible assets.

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Federal Home Loan Bank Stock (Details) - USD ($)	Jun. 30, 2018	Dec. 31, 2017
Federal Home Loan Bank Stock [Abstract]
Federal home loan bank stock	$ 6,456,000	$ 6,021,000
FHLB Stock, at par value (in dollars per share)	$ 100

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Repurchase Agreements (Details) - USD ($) $ in Thousands	Jun. 30, 2018	Dec. 31, 2017
Securities Sold under Agreements to Repurchase [Abstract]
Total carrying value of collateral pledged	$ 20,907	$ 18,062
Total liability recognized for repurchase agreements	15,061	14,989
U.S. Agency Securities [Member]
Securities Sold under Agreements to Repurchase [Abstract]
Total carrying value of collateral pledged	20,907	18,062
Overnight and Continuous [Member]
Securities Sold under Agreements to Repurchase [Abstract]
Total carrying value of collateral pledged	18,909	16,027
Overnight and Continuous [Member] | U.S. Agency Securities [Member]
Securities Sold under Agreements to Repurchase [Abstract]
Total carrying value of collateral pledged	18,909	16,027
Up to 30 Days [Member]
Securities Sold under Agreements to Repurchase [Abstract]
Total carrying value of collateral pledged	0	0
Up to 30 Days [Member] | U.S. Agency Securities [Member]
Securities Sold under Agreements to Repurchase [Abstract]
Total carrying value of collateral pledged	0	0
30 - 90 Days [Member]
Securities Sold under Agreements to Repurchase [Abstract]
Total carrying value of collateral pledged	0	0
30 - 90 Days [Member] | U.S. Agency Securities [Member]
Securities Sold under Agreements to Repurchase [Abstract]
Total carrying value of collateral pledged	0	0
Greater than 90 Days [Member]
Securities Sold under Agreements to Repurchase [Abstract]
Total carrying value of collateral pledged	1,998	2,035
Greater than 90 Days [Member] | U.S. Agency Securities [Member]
Securities Sold under Agreements to Repurchase [Abstract]
Total carrying value of collateral pledged	$ 1,998	$ 2,035

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Employee Benefit Plans, Noncontributory Defined Benefit Pension Plan (Details) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2018 USD ($)	Jun. 30, 2017 USD ($)	Jun. 30, 2018 USD ($) Plan	Jun. 30, 2017 USD ($)
Employee Benefit Plans [Abstract]
Number of plans | Plan			2
Pension Plan [Member]
Components of net periodic benefit cost [Abstract]
Net periodic benefit cost	$ (46)	$ 31	$ (92)	$ 75
Employer contributions			0
Pension Plan [Member] | Salaries and Employee Benefits [Member]
Components of net periodic benefit cost [Abstract]
Service cost	90	84	179	175
Pension Plan [Member] | Other Expenses [Member]
Components of net periodic benefit cost [Abstract]
Interest cost	162	168	325	335
Expected return on plan assets	(345)	(273)	(689)	(547)
Net amortization and deferral	$ 47	$ 52	$ 93	$ 112

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Employee Benefit Plans, Restricted Stock Plan (Details) - Restricted Stock [Member] - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Deferred Compensation Arrangements [Abstract]
Number of shares authorized (in shares)	150,000		150,000
Number of shares available for grant (in shares)	136,539		136,539
Unvested Shares [Roll Forward]
Outstanding, beginning of period (in shares)	8,691		8,783
Granted (in shares)	4,869		4,869
Forfeited (in shares)	0		0
Vested (in shares)	(3,626)		(3,718)
Outstanding, end of period (in shares)	9,934		9,934
Weighted Average Market Price [Roll Forward]
Outstanding, beginning of period (in dollars per share)	$ 51.19		$ 51.20
Granted (in dollars per share)	62.91		62.91
Forfeited (in dollars per share)	0		0
Vested (in dollars per share)	(50.54)		(50.58)
Outstanding, end of period (in dollars per share)	$ 57.18		$ 57.18
Additional General Disclosures [Abstract]
Share-based compensation expense	$ 63	$ 54	$ 119	$ 104
Compensation cost related to nonvested awards that has not yet been recognized	$ 568		$ 568
Period over which compensation cost is expected to be recognized			3 years

XML

Accumulated Comprehensive Loss (Details) - USD ($) $ in Thousands		3 Months Ended		6 Months Ended
		Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
AOCI Attributable to Parent, Net of Tax [Roll Forward]
Beginning Balance				$ 129,011
Change in Accounting policy for equity securities		$ 1		1
Other comprehensive income (loss) before reclassifications (net of tax)		(417)	$ 432	(2,034)	$ 478
Amounts reclassified from accumulated other comprehensive income (loss) (net of tax)		37	20	74	(55)
Other comprehensive income (loss), net of tax		(380)	452	(1,960)	423
Ending Balance		132,281		132,281
Accumulated Other Comprehensive Income (Loss) [Member]
AOCI Attributable to Parent, Net of Tax [Roll Forward]
Beginning Balance		(4,977)	(1,421)	(3,398)	(1,392)
Ending Balance		(5,357)	(969)	(5,357)	(969)
Unrealized Gain (Loss) on Available for Sale Securities [Member]
AOCI Attributable to Parent, Net of Tax [Roll Forward]
Beginning Balance	[1]	(1,885)	1,238	(269)	1,306
Change in Accounting policy for equity securities	[1]	1		1
Other comprehensive income (loss) before reclassifications (net of tax)	[1]	(417)	432	(2,034)	478
Amounts reclassified from accumulated other comprehensive income (loss) (net of tax)	[1]	0	(15)	0	(129)
Other comprehensive income (loss), net of tax	[1]	(417)	417	(2,034)	349
Ending Balance	[1]	(2,302)	1,655	(2,302)	1,655
Defined Benefit Pension Items [Member]
AOCI Attributable to Parent, Net of Tax [Roll Forward]
Beginning Balance	[1]	(3,092)	(2,659)	(3,129)	(2,698)
Change in Accounting policy for equity securities	[1]	0		0
Other comprehensive income (loss) before reclassifications (net of tax)	[1]	0	0	0	0
Amounts reclassified from accumulated other comprehensive income (loss) (net of tax)	[1]	37	35	74	74
Other comprehensive income (loss), net of tax	[1]	37	35	74	74
Ending Balance	[1]	$ (3,055)	$ (2,624)	$ (3,055)	$ (2,624)

[1] Amounts in parentheses indicate debits on the Consolidated Balance Sheet.

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Accumulated Comprehensive Loss, Reclassification (Details) - USD ($) $ in Thousands		3 Months Ended		6 Months Ended
		Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
AOCI Attributable to Parent [Abstract]
Available for sale securities gains, net				$ 13	$ 195
Salaries and employee benefits		$ (4,737)	$ (4,377)	(9,572)	(8,743)
Provision for income taxes		(875)	(1,033)	(1,622)	(1,956)
NET INCOME		4,691	3,468	8,938	6,771
Amount Reclassified from Accumulated Comprehensive Income (Loss) [Member]
AOCI Attributable to Parent [Abstract]
NET INCOME	[1]	(37)	(20)	(74)	55
Unrealized Gains and Losses on Available for Sale Securities [Member] | Amount Reclassified from Accumulated Comprehensive Income (Loss) [Member]
AOCI Attributable to Parent [Abstract]
Available for sale securities gains, net	[1]	0	23	0	195
Provision for income taxes	[1]	0	(8)	0	(66)
NET INCOME	[1]	0	15	0	129
Defined Benefit Pension Items [Member] | Amount Reclassified from Accumulated Comprehensive Income (Loss) [Member]
AOCI Attributable to Parent [Abstract]
Salaries and employee benefits	[1]	(47)	(52)	(93)	(112)
Provision for income taxes	[1]	10	17	19	38
NET INCOME	[1]	$ (37)	$ (35)	$ (74)	$ (74)

[1] Amounts in parentheses indicate expenses and other amounts indicate income on the Consolidated Statement of Income.

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Fair Value Measurements, Measured On A Recurring And Nonrecurring Basis (Details) - USD ($) $ in Thousands	6 Months Ended	12 Months Ended
	Jun. 30, 2018	Dec. 31, 2017
Fair value assets and liabilities measured on non-recurring basis [Abstract]
Impaired loans, estimated selling cost	$ 304	$ 163
Recurring [Member]
Assets [Abstract]
Equity securities in financial institutions	195	91
Available for sale securities [Abstract]
U.S. Agency Securities	101,988	98,887
U.S. Treasury securities	32,992	28,604
Obligations of state and political subdivisions	67,872	79,090
Corporate obligations	3,023	3,083
Mortgage-backed securities in government sponsored entities	44,150	45,027
Equity securities in financial institutions	195	91
Recurring [Member] | Level I [Member]
Assets [Abstract]
Equity securities in financial institutions	195	91
Available for sale securities [Abstract]
U.S. Agency Securities	0	0
U.S. Treasury securities	32,992	28,604
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	195	91
Recurring [Member] | Level II [Member]
Assets [Abstract]
Equity securities in financial institutions	0	0
Available for sale securities [Abstract]
U.S. Agency Securities	101,988	98,887
U.S. Treasury securities	0	0
Obligations of state and political subdivisions	67,872	79,090
Corporate obligations	3,023	3,083
Mortgage-backed securities in government sponsored entities	44,150	45,027
Equity securities in financial institutions	0	0
Recurring [Member] | Level III [Member]
Assets [Abstract]
Equity securities in financial institutions	0	0
Available for sale securities [Abstract]
U.S. Agency Securities	0	0
U.S. Treasury securities	0	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	3,470	1,569
Other real estate owned	326	1,024
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	3,470	1,569
Other real estate owned	$ 326	$ 1,024

XML

Fair Value Measurements, Quantitative Information (Details) $ in Thousands	6 Months Ended	12 Months Ended
	Jun. 30, 2018 USD ($)	Dec. 31, 2017 USD ($)
Fair Value Measurement Inputs and Valuation Techniques [Abstract]
Available-for-sale debt securities	$ 250,025	$ 254,782
Impaired Loans [Member] | Appraised Collateral Values [Member]
Fair Value Measurement Inputs and Valuation Techniques [Abstract]
Available-for-sale debt securities	$ 3,470	$ 1,569
Impaired Loans [Member] | Appraised Collateral Values [Member] | Minimum [Member]
Fair Value Measurement Inputs and Valuation Techniques [Abstract]
Holding period	0 months	6 months
Impaired Loans [Member] | Appraised Collateral Values [Member] | Maximum [Member]
Fair Value Measurement Inputs and Valuation Techniques [Abstract]
Holding period	12 months	12 months
Impaired Loans [Member] | Appraised Collateral Values [Member] | Weighted Average [Member]
Fair Value Measurement Inputs and Valuation Techniques [Abstract]
Holding period	11 months 13 days	11 months
Impaired Loans [Member] | Appraised Collateral Values [Member] | Discount for Time Since Appraisal [Member] | Minimum [Member]
Fair Value Measurement Inputs and Valuation Techniques [Abstract]
Available-for-sale, Measurement input	0	0
Impaired Loans [Member] | Appraised Collateral Values [Member] | Discount for Time Since Appraisal [Member] | Maximum [Member]
Fair Value Measurement Inputs and Valuation Techniques [Abstract]
Available-for-sale, Measurement input	1	1
Impaired Loans [Member] | Appraised Collateral Values [Member] | Discount for Time Since Appraisal [Member] | Weighted Average [Member]
Fair Value Measurement Inputs and Valuation Techniques [Abstract]
Available-for-sale, Measurement input	0.2732	0.3083
Impaired Loans [Member] | Appraised Collateral Values [Member] | Selling Costs [Member] | Minimum [Member]
Fair Value Measurement Inputs and Valuation Techniques [Abstract]
Available-for-sale, Measurement input	0.05	0.05
Impaired Loans [Member] | Appraised Collateral Values [Member] | Selling Costs [Member] | Maximum [Member]
Fair Value Measurement Inputs and Valuation Techniques [Abstract]
Available-for-sale, Measurement input	0.11	0.09
Impaired Loans [Member] | Appraised Collateral Values [Member] | Selling Costs [Member] | Weighted Average [Member]
Fair Value Measurement Inputs and Valuation Techniques [Abstract]
Available-for-sale, Measurement input	0.0788	0.0835
Other Real Estate Owned [Member] | Appraised Collateral Values [Member]
Fair Value Measurement Inputs and Valuation Techniques [Abstract]
Available-for-sale debt securities	$ 326	$ 1,024
Other Real Estate Owned [Member] | Appraised Collateral Values [Member] | Discount for Time Since Appraisal [Member] | Minimum [Member]
Fair Value Measurement Inputs and Valuation Techniques [Abstract]
Available-for-sale, Measurement input	0.25	0.15
Other Real Estate Owned [Member] | Appraised Collateral Values [Member] | Discount for Time Since Appraisal [Member] | Maximum [Member]
Fair Value Measurement Inputs and Valuation Techniques [Abstract]
Available-for-sale, Measurement input	0.35	0.65
Other Real Estate Owned [Member] | Appraised Collateral Values [Member] | Discount for Time Since Appraisal [Member] | Weighted Average [Member]
Fair Value Measurement Inputs and Valuation Techniques [Abstract]
Available-for-sale, Measurement input	0.2745	0.2626

XML

Fair Value Measurements, By Balance Sheet Grouping (Details) - USD ($) $ in Thousands	Jun. 30, 2018	Dec. 31, 2017
Financial assets [Abstract]
Interest bearing time deposits with other banks	$ 13,762	$ 10,283
Level I [Member] | Recurring [Member]
Financial assets [Abstract]
Cash and due from banks	15,613	18,517
Interest bearing time deposits with other banks	0	0
Loans held for sale	1,931	1,439
Net loans	0	0
Bank owned life insurance	27,189	26,883
Regulatory stock	7,220	6,784
Accrued interest receivable	4,285	4,196
Financial liabilities [Abstract]
Deposits	847,151	838,490
Borrowed funds	96,566	77,650
Accrued interest payable	903	897
Level II [Member] | Recurring [Member]
Financial assets [Abstract]
Cash and due from banks	0	0
Interest bearing time deposits with other banks	0	0
Loans held for sale	0
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] | Recurring [Member]
Financial assets [Abstract]
Cash and due from banks	0	0
Interest bearing time deposits with other banks	13,766	10,287
Loans held for sale	0
Net loans	1,021,166	981,238
Bank owned life insurance	0	0
Regulatory stock	0	0
Accrued interest receivable	0	0
Financial liabilities [Abstract]
Deposits	265,850	263,093
Borrowed funds	35,756	35,802
Accrued interest payable	0	0
Carrying Amount [Member] | Recurring [Member]
Financial assets [Abstract]
Cash and due from banks	15,613	18,517
Interest bearing time deposits with other banks	13,762	10,283
Loans held for sale	1,931	1,439
Net loans	1,028,259	989,335
Bank owned life insurance	27,189	26,883
Regulatory stock	7,220	6,784
Accrued interest receivable	4,285	4,196
Financial liabilities [Abstract]
Deposits	1,118,592	1,104,943
Borrowed funds	133,652	114,664
Accrued interest payable	903	897
Fair Value [Member] | Recurring [Member]
Financial assets [Abstract]
Cash and due from banks	15,613	18,517
Interest bearing time deposits with other banks	13,766	10,287
Loans held for sale	1,931	1,439
Net loans	1,021,166	981,238
Bank owned life insurance	27,189	26,883
Regulatory stock	7,220	6,784
Accrued interest receivable	4,285	4,196
Financial liabilities [Abstract]
Deposits	1,113,001	1,101,583
Borrowed funds	132,322	113,452
Accrued interest payable	$ 903	$ 897