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 March 31, 2019

Or

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

EXCHANGE ACT OF 1934

For the transition period from_____________________ 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 every Interactive Data File required to be submitted 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 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_X__

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 April 30, 2019, was 3,498,803.

Securities registered pursuant to Section 12(b) of the Act:None

Citizens Financial Services, Inc.

Form 10-Q

INDEX

		PAGE
Part I	FINANCIAL INFORMATION
Item 1.	Financial Statements (unaudited):
	Consolidated Balance Sheet as of March 31, 2019 and December 31, 2018	1
	Consolidated Statement of Income for the Three Months Ended March 31, 2019 and 2018	2
	Consolidated Statement of Comprehensive Income for the Three Months ended March 31, 2019 and 2018	3
	Consolidated Statement of Changes in Stockholders’ Equity For Three Months ended March 31, 2019 and 2018	4
	Consolidated Statement of Cash Flows for the Three Months ended March 31, 2019 and 2018	5
	Notes to Consolidated Financial Statements	6-29
	Management’s Discussion and Analysis of Financial Condition and Results of Operations	30-48
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	49
Item 4.	Controls and Procedures	49
Part II	OTHER INFORMATION
Item 1.	Legal Proceedings	49
Item 1A.	Risk Factors	49
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	49-50
Item 3.	Defaults Upon Senior Securities	50
Item 4.	Mine Safety Disclosures	50
Item 5.	Other Information	50
Item 6.	Exhibits	50-51
	Signatures	52

CITIZENS FINANCIAL SERVICES, INC.
CONSOLIDATED BALANCE SHEET
(UNAUDITED)
	March 31,			December 31,
(in thousands except share data)	2019			2018
ASSETS:
Cash and due from banks:
Noninterest-bearing	$	16,384		$	15,327
Interest-bearing		1,450			1,470
Total cash and cash equivalents		17,834			16,797
Interest bearing time deposits with other banks		15,498			15,498
Equity securities		527			516
Available-for-sale securities		244,437			241,010
Loans held for sale		182			1,127
Loans (net of allowance for loan losses:
2019, $13,084 and 2018, $12,884)		1,077,833			1,068,999
Premises and equipment		16,177			16,273
Accrued interest receivable		4,769			4,452
Goodwill		23,296			23,296
Bank owned life insurance		27,656			27,505
Other intangibles		1,547			1,623
Other assets		18,298			13,616
TOTAL ASSETS	$	1,448,054		$	1,430,712
LIABILITIES:
Deposits:
Noninterest-bearing	$	184,988		$	179,971
Interest-bearing		996,666			1,005,185
Total deposits		1,181,654			1,185,156
Borrowed funds		108,263			91,194
Accrued interest payable		1,092			1,076
Other liabilities		14,200			14,057
TOTAL LIABILITIES		1,305,209			1,291,483
STOCKHOLDERS' EQUITY:
Preferred Stock
$1.00 par value; authorized 3,000,000 shares at March 31, 2019 and
December 31, 2018; none issued in 2019 or 2018		-			-
Common stock
$1.00 par value; authorized 25,000,000 shares at March 31, 2019 and December 31, 2018;
issued 3,904,212 at March 31, 2019 and December 31, 2018		3,904			3,904
Additional paid-in capital		53,102			53,099
Retained earnings		102,574			99,727
Accumulated other comprehensive loss		(2,825	)		(3,921	)
Treasury stock, at cost:  405,378 shares at March 31, 2019
and 399,616 shares at December 31, 2018		(13,910	)		(13,580	)
TOTAL STOCKHOLDERS' EQUITY		142,845			139,229
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY	$	1,448,054		$	1,430,712
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
	March 31,
(in thousands, except share and per share data)	2019		2018
INTEREST INCOME:
Interest and fees on loans	$	13,314	$	11,861
Interest-bearing deposits with banks		104		58
Investment securities:
Taxable		1,108		800
Nontaxable		357		527
Dividends		134		137
TOTAL INTEREST INCOME		15,017		13,383
INTEREST EXPENSE:
Deposits		2,314		1,316
Borrowed funds		788		647
TOTAL INTEREST EXPENSE		3,102		1,963
NET INTEREST INCOME		11,915		11,420
Provision for loan losses		400		500
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES		11,515		10,920
NON-INTEREST INCOME:
Service charges		1,099		1,104
Trust		232		251
Brokerage and insurance		293		181
Gains on loans sold		99		72
Equity security gains, net		11		6
Earnings on bank owned life insurance		151		152
Other		148		140
TOTAL NON-INTEREST INCOME		2,033		1,906
NON-INTEREST EXPENSES:
Salaries and employee benefits		5,029		4,835
Occupancy		592		592
Furniture and equipment		155		142
Professional fees		442		399
FDIC insurance		111		100
Pennsylvania shares tax		275		300
Amortization of intangibles		66		76
ORE expenses		107		34
Other		1,545		1,354
TOTAL NON-INTEREST EXPENSES		8,322		7,832
Income before provision for income taxes		5,226		4,994
Provision for income taxes		821		747
NET INCOME	$	4,405	$	4,247
PER COMMON SHARE DATA:
Net Income - Basic	$	1.26	$	1.21
Net Income - Diluted	$	1.26	$	1.21
Number of shares used in computation - basic		3,494,010		3,512,552
Number of shares used in computation - diluted		3,494,010		3,512,915
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
	March 31,
(in thousands)				2019				2018
Net income				$	4,405			$	4,247
Other comprehensive income (loss):
Change in unrealized gains (losses) on available for sale securities		1,328				(2,045	)
Income tax effect		(280	)			428
Change in unrecognized pension cost		61				46
Income tax effect		(13	)			(9	)
Other comprehensive income (loss), net of tax					1,096				(1,580	)
Comprehensive income (loss)				$	5,501			$	2,667
The accompanying notes are an integral part of these unaudited consolidated financial statements.

3

CITIZENS FINANCIAL SERVICES, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(UNAUDITED)
										Accumulated
					Additional					Other
	Common Stock				Paid-in		Retained			Comprehensive			Treasury
(in thousands, except share data)	Shares		Amount		Capital		Earnings			(Loss)			Stock			Total
Balance, December 31, 2017		3,869,939	$	3,870	$	51,108	$	89,982		$	(3,398	)	$	(12,551	)	$	129,011
Net income								4,247									4,247
Net other comprehensive income (loss)											(1,580	)					(1,580	)
Purchase of treasury stock (5,329 shares)														(331	)		(331	)
Restricted stock, executive  and Board of Director awards														13			13
Restricted stock vesting						5											5
Change in Accounting policy for equity securities								(1	)		1						-
Cash dividends, $0.431 per share								(1,515	)								(1,515	)
Balance, March 31, 2018		3,869,939	$	3,870	$	51,113	$	92,713		$	(4,977	)	$	(12,869	)	$	129,850
Balance, December 31, 2018		3,904,212		3,904		53,099		99,727			(3,921	)		(13,580	)		139,229
Net income								4,405									4,405
Net other comprehensive income											1,096						1,096
Purchase of treasury stock (5,762 shares)														(330	)		(330	)
Restricted stock vesting						3											3
Cash dividends, $0.445 per share								(1,558	)								(1,558	)
Balance, March 31, 2019		3,904,212	$	3,904	$	53,102	$	102,574		$	(2,825	)	$	(13,910	)	$	142,845
The accompanying notes are an integral part of these unaudited consolidated financial statements.

4

CITIZENS FINANCIAL SERVICES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)	Three Months Ended
	March 31,
(in thousands)	2019			2018
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	4,405		$	4,247
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses		400			500
Depreciation and amortization		183			69
Amortization and accretion of investment securities		175			306
Deferred income taxes		464			(181	)
Investment securities gains, net		(11	)		(6	)
Earnings on bank owned life insurance		(151	)		(152	)
Originations of loans held for sale		(3,880	)		(2,523	)
Proceeds from sales of loans held for sale		4,885			3,772
Realized gains on loans sold		(99	)		(72	)
Increase in accrued interest receivable		(317	)		(87	)
Increase (decrease) in accrued interest payable		16			(30	)
Other, net		(1,313	)		482
Net cash provided by operating activities		4,757			6,325
CASH FLOWS FROM INVESTING ACTIVITIES:
Available-for-sale securities:
Proceeds from maturity and principal repayments		10,581			22,872
Purchase of securities		(12,855	)		(21,963	)
Purchase of interest bearing time deposits with other banks		-			(249	)
Proceeds from redemption of regulatory stock		2,580			2,709
Purchase of regulatory stock		(2,782	)		(2,630	)
Net increase in loans		(12,908	)		(31,081	)
Purchase of premises and equipment		(105	)		(41	)
Proceeds from sale of premises and equipment		1			-
Proceeds from sale of foreclosed assets held for sale		89			195
Net cash used in investing activities		(15,399	)		(30,188	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits		(3,502	)		10,210
Proceeds from long-term borrowings		5,000			2
Repayments of long-term borrowings		(2,589	)		-
Net (decrease) increase in short-term borrowed funds		14,658			9,455
Purchase of treasury and restricted stock		(330	)		(331	)
Dividends paid		(1,558	)		(1,515	)
Net cash provided by financing activities		11,679			17,821
Net (decrease) increase in cash and cash equivalents		1,037			(6,042	)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		16,797			18,517
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	17,834		$	12,475
Supplemental Disclosures of Cash Flow Information:
Interest paid	$	3,086		$	1,993
Income taxes paid	$	-		$	-
Non-cash Transactions:
Loans transferred to foreclosed property	$	3,805		$	13
Right of use asset and liability	$	1,454		$	-
The accompanying notes are an integral part of these unaudited consolidated financial statements.

5

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 subsidiaries, First Citizens Insurance Agency, Inc. (“First Citizens Insurance”) and 1^st Realty of PA LLC (“Realty”). Realty was formed in March of 2019 to manage and sell properties acquired in the settlement of a bankruptcy filing with a commercial customer.

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 March 31, 2019 and for the periods ended March 31, 2019 and 2018 include all adjustments, consisting of only normal recurring adjustments, necessary for a fair presentation of the financial condition and the results of operations at the dates and for the periods presented. 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 covered by the Consolidated Income Statement. The financial performance reported for the Company for the three month period ended March 31, 2019 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, 2018.

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. ASU 2016-02 was effective for the Company on January 1, 2019. In July 2018, the FASB issued ASU 2018-11, “Leases (Topic 842) - Targeted Improvements,” which, among other things, provides an additional transition method that would allow entities to not apply the guidance in ASU 2016-02 in the comparative periods presented in the financial statements and instead recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. In December 2018, the FASB also issued ASU 2018-20, “Leases (Topic 842) - Narrow-Scope Improvements for Lessors,” which provides for certain policy elections and changes lessor accounting for sales and similar taxes and certain lessor costs. Upon adoption of ASU 2016-02, ASU 2018-11 and ASU 2018-20 on January 1, 2019, we recognized a right-of-use assets and related lease liabilities totaling $1,454,000 each. We elected to apply certain practical expedients provided under ASU 2016-02 whereby we did not reassess (i) whether any expired or existing contracts are or contain leases, (ii) the lease classification for any expired or existing leases and (iii) initial direct costs for any existing leases. We also elected not to apply the recognition requirements of ASU 2016-02 to any short-term leases (as defined by related accounting guidance). We account for lease and non-lease components separately because such amounts are readily determinable under our lease contracts. We expect to utilize the modified-retrospective transition approach prescribed by ASU 2018-11.  Certain of the Company’s leases contain options to renew the lease after the initial term. Management considers the Company’s historical pattern of exercising renewal options on leases and the positive performance of the leased locations, when determining whether it is reasonably certain that the leases will be renewed. If management concludes that there is reasonable certainty about the renewal it is included in the calculation of the remaining term of each applicable lease. The discount rate utilized in calculating the present value of the remaining lease payments for each lease was the Federal Home Loan Bank of Pittsburgh advance rate corresponding to the remaining maturity of the lease as of January 1, 2019. We have included additional disclosures in note 7.

6

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 89.8% and 89.4% of the total revenue of the Company for the three months ended March 31, 2019 and 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 and 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.

7

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 months ended March 31, 2019 and 2018 (in thousands). All revenue in the table below relates to goods and services transferred at a point in time.

	Three Months Ended
	March 31,
Revenue stream	2019		2018
Service charges on deposit accounts
Overdraft fees	$	358		367
Statement fees		51		54
Interchange revenue		540		531
ATM income		91		96
Other service charges		59		56
Total Service Charges		1,099		1,104
Trust		232		251
Brokerage and insurance		293		181
Other		111		85
Total	$	1,735	$	1,621

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
	March 31,
	2019		2018
Net income applicable to common stock	$	4,405,000	$	4,247,000
Basic earnings per share computation
Weighted average common shares outstanding		3,494,010		3,512,552
Earnings per share - basic	$	1.26	$	1.21
Diluted earnings per share computation
Weighted average common shares outstanding for basic earnings per share		3,494,010		3,512,552
Add: Dilutive effects of restricted stock		-		363
Weighted average common shares outstanding for dilutive earnings per share		3,494,010		3,512,915
Earnings per share - diluted	$	1.26	$	1.21

For the three months ended March 31, 2019 and 2018, there were 6,705 and 426 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 $47.81-$62.93 for the three month period ended March 31, 2019 and per share prices ranging from $49.87-$61.04 for the three month period ended March 31, 2018.

Note 4 – Investments

The amortized cost, gross unrealized gains and losses, and fair value of investment securities at March 31, 2019 and December 31, 2018 were as follows (in thousands):

8

			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
March 31, 2019	Cost		Gains		Losses			Value
Available-for-sale securities:
U.S. agency securities	$	102,388	$	940	$	(464	)	$	102,864
U.S. treasury securities		33,828		-		(321	)		33,507
Obligations of state and
political subdivisions		60,375		267		(44	)		60,598
Corporate obligations		3,000		39		-			3,039
Mortgage-backed securities in
government sponsored entities		44,751		143		(465	)		44,429
Total available-for-sale securities	$	244,342	$	1,389	$	(1,294	)	$	244,437
			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
December 31, 2018	Cost		Gains		Losses			Value
Available-for-sale securities:
U.S. agency securities	$	106,516	$	509	$	(640	)	$	106,385
U.S. treasury securities		33,813		-		(455	)		33,358
Obligations of state and
political subdivisions		52,074		150		(177	)		52,047
Corporate obligations		3,000		34		-			3,034
Mortgage-backed securities in
government sponsored entities		46,839		59		(712	)		46,186
Total available-for-sale securities	$	242,242	$	752	$	(1,984	)	$	241,010

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 March 31, 2019 and December 31, 2018 (in thousands). As of March 31, 2019, the Company owned 84 securities whose fair value was less than their cost basis.

March 31, 2019	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	$	-	$	-		$	44,321	$	(464	)	$	44,321	$	(464	)
U.S. treasury securities		-		-			33,507		(321	)		33,507		(321	)
Obligations of state and
political subdivisions		-		-			8,070		(44	)		8,070		(44	)
Mortgage-backed securities in
government sponsored entities		-		-			32,526		(465	)		32,526		(465	)
Total securities	$	-	$	-		$	118,424	$	(1,294	)	$	118,424	$	(1,294	)
December 31, 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	$	5,981	$	(5	)	$	52,673	$	(635	)	$	58,654	$	(640	)
U.S. treasury securities		4,948		(31	)		28,410		(424	)		33,358		(455	)
Obligations of states and
political subdivisions		8,979		(22	)		12,441		(155	)		21,420		(177	)
Mortgage-backed securities in
government sponsored entities		5,272		(18	)		32,570		(694	)		37,842		(712	)
Total securities	$	25,180	$	(76	)	$	126,094	$	(1,908	)	$	151,274	$	(1,984	)

9

As of March 31, 2019 and December 31, 2018, 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 three months ended March 31, 2019 and 2018.

The following table presents the net gains on the Company’s equity investments recognized in earnings during the three month ended March 31, 2019 and 2018, and the portion of unrealized gains for the period that relates to equity investments held at March 31, 2019 and 2018:

	Three Months Ended
	March 31,
Equity Securities	2019		2018
Net gains (losses) recognized in equity securities during the period	$	11	$	6
Less: Net gains realized on the sale of equity securities during the period		-		-
Net unrealized  gains (losses)	$	11	$	6

Investment securities with an approximate carrying value of $210.2 million and $221.2 million at March 31, 2019 and December 31, 2018, 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 March 31, 2019, by contractual maturity, are shown below (in thousands):

	Amortized
	Cost		Fair Value
Available-for-sale debt securities:
Due in one year or less	$	25,824	$	25,698
Due after one year through five years		110,098		110,052
Due after five years through ten years		50,487		50,803
Due after ten years		57,933		57,884
Total	$	244,342	$	244,437

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 March 31, 2019 and December 31, 2018, 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 March 31, 2019 and December 31, 2018 (in thousands):

10

March 31, 2019	Total Loans		Individually evaluated for impairment		Loans acquired with deteriorated credit quality		Collectively evaluated for impairment
Real estate loans:
Residential	$	214,635	$	1,178	$	28	$	213,429
Commercial		334,371		10,724		1,291		322,356
Agricultural		295,547		5,562		-		289,985
Construction		18,611		-		-		18,611
Consumer		9,773		-		-		9,773
Other commercial loans		74,323		2,072		486		71,765
Other agricultural loans		43,245		1,428		-		41,817
State and political subdivision loans		100,412		-		-		100,412
Total		1,090,917		20,964		1,805		1,068,148
Allowance for loan losses		13,084		721		-		12,363
Net loans	$	1,077,833	$	20,243	$	1,805	$	1,055,785

December 31, 2018	Total Loans		Individually evaluated for impairment		Loans acquired with deteriorated credit quality		Collectively evaluated for impairment
Real estate loans:
Residential	$	215,305	$	890	$	28	$	214,387
Commercial		319,265		13,327		1,321		304,617
Agricultural		284,520		5,592		-		278,928
Construction		33,913		-		-		33,913
Consumer		9,858		-		-		9,858
Other commercial loans		74,118		2,206		510		71,402
Other agricultural loans		42,186		1,435		-		40,751
State and political subdivision loans		102,718		-		-		102,718
Total		1,081,883		23,450		1,859		1,056,574
Allowance for loan losses		12,884		676		-		12,208
Net loans	$	1,068,999	$	22,774	$	1,859	$	1,044,366

Purchased loans are recorded at fair value on their purchase date without a carryover of the related allowance for loan losses. Upon acquisition, the Company evaluates 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 decreases in the expected cash flows of these loans between the acquisition date and March 31, 2019. 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 $1,805,000 and $1,859,000 at March 31, 2019 and December 31, 2018, 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 months ended March 31, 2019 and 2018, respectively (in thousands):

	Three months ended
	March 31,
	2019			2018
Balance at beginning of period	$	104		$	106
Accretion		(2	)		(24	)
Balance at end of period	$	102		$	82

11

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

	March 31,		December 31, 2018
Outstanding balance	$	4,521	$	4,529
Carrying amount		1,805		1,859

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
March 31, 2019	Balance		Allowance		Allowance		Investment		Allowance
Real estate loans:
Mortgages	$	1,239	$	856	$	238	$	1,094	$	10
Home Equity		103		11		73		84		13
Commercial		11,242		9,635		1,089		10,724		310
Agricultural		5,569		2,368		3,194		5,562		83
Construction		-		-		-		-		-
Consumer		-		-		-		-		-
Other commercial loans		2,608		1,752		320		2,072		146
Other agricultural loans		1,483		119		1,309		1,428		159
State and political
subdivision loans		-		-		-		-		-
Total	$	22,244	$	14,741	$	6,223	$	20,964	$	721

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			Recorded		Recorded
	Unpaid		Investment		Investment		Total
	Principal		With No		With		Recorded		Related
December 31, 2018	Balance		Allowance		Allowance		Investment		Allowance
Real estate loans:
Mortgages	$	932	$	515	$	288	$	803	$	10
Home Equity		106		12		75		87		14
Commercial		16,326		11,933		1,394		13,327		216
Agricultural		5,598		2,386		3,206		5,592		84
Construction		-		-		-		-		-
Consumer		-		-		-		-		-
Other commercial loans		2,711		1,836		370		2,206		193
Other agricultural loans		1,487		120		1,315		1,435		159
State and political
subdivision loans		-		-		-		-		-
Total	$	27,160	$	16,802	$	6,648	$	23,450	$	676

The following tables includes the average balance of impaired financing receivables by class and the income recognized on these receivables for the three month periods ended March 31, 2019 and 2018(in thousands):

	For the Three Months ended
	March 31, 2019						March 31, 2018
					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	$	1,103	$	4	$	-	$	1,023	$	4	$	-
Home Equity		85		1		-		107		1		-
Commercial		12,548		119		6		13,795		122		5
Agricultural		5,575		32		-		4,086		51		-
Construction		-		-		-		-		-		-
Consumer		-		-		-		4		-		-
Other commercial loans		2,137		1		-		4,156		26		-
Other agricultural loans		1,431		2		-		1,370		10		-
State and political
subdivision loans		-		-		-		-		-		-
Total	$	22,879	$	159	$	6	$	24,541	$	214	$	5

Credit Quality Information

For commercial real estate, agricultural real estate, construction, other commercial, other agricultural and state and political subdivision loans, management uses a nine grade internal risk rating system to monitor and assess  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.

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· 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 March 31, 2019 and December 31, 2018 (in thousands):

March 31, 2019	Pass		Special Mention		Substandard		Doubtful		Loss		Ending Balance
Real estate loans:
Commercial	$	316,782	$	10,140	$	7,410	$	39	$	-	$	334,371
Agricultural		273,727		11,735		10,085		-		-		295,547
Construction		18,611		-		-		-		-		18,611
Other commercial loans		71,048		736		2,469		70		-		74,323
Other agricultural loans		39,699		1,660		1,886		-		-		43,245
State and political
subdivision loans		99,873		-		539		-		-		100,412
Total	$	819,740	$	24,271	$	22,389	$	109	$	-	$	866,509

December 31, 2018	Pass		Special Mention		Substandard		Doubtful		Loss		Ending Balance
Real estate loans:
Commercial	$	297,690	$	10,792	$	10,743	$	40	$	-	$	319,265
Agricultural		264,732		10,017		9,771		-		-		284,520
Construction		33,913		-		-		-		-		33,913
Other commercial loans		70,425		777		2,800		116		-		74,118
Other agricultural loans		38,628		1,724		1,834		-		-		42,186
State and political
subdivision loans		92,666		9,481		571		-		-		102,718
Total	$	798,054	$	32,791	$	25,719	$	156	$	-	$	856,720

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 March 31, 2019 and December 31, 2018 (in thousands):

14

March 31, 2019	Performing		Non-performing		PCI		Total
Real estate loans:
Mortgages	$	155,440	$	1,032	$	28	$	156,500
Home Equity		58,041		94		-		58,135
Consumer		9,773		-		-		9,773
Total	$	223,254	$	1,126	$	28	$	224,408
December 31, 2018	Performing		Non-performing		PCI		Total
Real estate loans:
Mortgages	$	155,360	$	1,099	$	28	$	156,487
Home Equity		58,736		82		-		58,818
Consumer		9,832		26		-		9,858
Total	$	223,928	$	1,207	$	28	$	225,163

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 March 31, 2019 and December 31, 2018 (in thousands):

													Total		90 Days or
	30-59 Days		60-89 Days		90 Days		Total Past						Financing		Greater and
March 31, 2019	Past Due		Past Due		Or Greater		Due		Current		PCI		Receivables		Accruing
Real estate loans:
Mortgages	$	592	$	83	$	717	$	1,392	$	155,080	$	28	$	156,500	$	23
Home Equity		401		87		89		577		57,558		-		58,135		17
Commercial		1,888		499		2,368		4,755		328,325		1,291		334,371		4
Agricultural		991		-		3,596		4,587		290,960		-		295,547		-
Construction		-		-		-		-		18,611		-		18,611		-
Consumer		96		-		-		96		9,677		-		9,773		-
Other commercial loans		396		-		1,980		2,376		71,461		486		74,323		20
Other agricultural loans		180		36		1,196		1,412		41,833		-		43,245		-
State and political
subdivision loans		-		-		-		-		100,412		-		100,412		-
Total	$	4,544	$	705	$	9,946	$	15,195	$	1,073,917	$	1,805	$	1,090,917	$	64
Loans considered non-accrual	$	354	$	425	$	9,882	$	10,661	$	1,039	$	-	$	11,700
Loans still accruing		4,190		280		64		4,534		1,072,878		1,805		1,079,217
Total	$	4,544	$	705	$	9,946	$	15,195	$	1,073,917	$	1,805	$	1,090,917

15

															90 Days or
	30-59 Days		60-89 Days		90 Days		Total Past						Total Financing		Greater and
December 31, 2018	Past Due		Past Due		Or Greater		Due		Current		PCI		Receivables		Accruing
Real estate loans:
Mortgages	$	483	$	789	$	686	$	1,958	$	154,501	$	28	$	156,487	$	20
Home Equity		257		108		63		428		58,390		-		58,818		-
Commercial		999		631		4,706		6,336		311,608		1,321		319,265		36
Agricultural		121		-		3,184		3,305		281,215		-		284,520		-
Construction		-		-		-		-		33,913		-		33,913		-
Consumer		37		14		12		63		9,795		-		9,858		12
Other commercial loans		141		53		2,061		2,255		71,353		510		74,118		-
Other agricultural loans		-		-		1,201		1,201		40,985		-		42,186		-
State and political
subdivision loans		-		-		-		-		102,718		-		102,718		-
Total	$	2,038	$	1,595	$	11,913	$	15,546	$	1,064,478	$	1,859	$	1,081,883	$	68
Loans considered non-accrual	$	72	$	253	$	11,845	$	12,170	$	1,554	$	-	$	13,724
Loans still accruing		1,966		1,342		68		3,376		1,062,924		1,859		1,068,159
Total	$	2,038	$	1,595	$	11,913	$	15,546	$	1,064,478	$	1,859	$	1,081,883

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 March 31, 2019 and December 31, 2018, respectively. The balances are presented by class of financing receivable (in thousands):

	March 31, 2019		December 31, 2018
Real estate loans:
Mortgages	$	1,009	$	1,079
Home Equity		77		82
Commercial		3,689		5,957
Agricultural		3,607		3,206
Construction		-		-
Consumer		-		14
Other commercial loans		2,053		2,185
Other agricultural loans		1,265		1,201
State and political subdivision		-		-
	$	11,700	$	13,724

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

16

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 March 31, 2019 and December 31, 2018, included within the allowance for loan losses are reserves of $249,000 and $255,000 respectively, that are associated with loans modified as TDRs.

Loan modifications that are considered TDRs completed during the three months ended March 31, 2019 and 2018 were as follows (dollars in thousands):

	For the Three Months Ended March 31, 2019
	Number of contracts				Pre-modification Outstanding Recorded Investment				Post-Modification Outstanding Recorded Investment
	Interest Modification		Term Modification		Interest Modification		Term Modification		Interest Modification		Term Modification
Real estate loans:
Commercial		-		1	$	-	$	548	$	-	$	548
Total		-		1	$	-	$	548	$	-	$	548

	For the Three Months Ended March 31, 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
Total		-		1	$	-	$	7	$	-	$	7

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. The following table presents the recorded investment in loans that were modified as TDRs during each 12-month period prior to the current reporting periods, which began January 1, 2019 and 2018 (3 month periods), respectively, and that subsequently defaulted during these reporting periods (dollars in thousands):

	For the Three Months Ended
	March 31, 2019				March 31, 2018
	Number of contracts		Recorded investment		Number of contracts		Recorded investment
Other agricultural loans		1	$	124		-	$	-
Total recidivism		1	$	124		-	$	-

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 March 31, 2019 and December 31, 2018, respectively (in thousands):

17

	March 31, 2019						December 31, 2018
	Individually evaluated for impairment		Collectively evaluated for impairment		Total		Individually evaluated for impairment		Collectively evaluated for impairment		Total
Real estate loans:
Residential	$	23	$	1,066	$	1,089	$	24	$	1,081	$	1,105
Commercial		310		3,820		4,130		216		3,899		4,115
Agricultural		83		4,309		4,392		84		4,180		4,264
Construction		-		32		32		-		58		58
Consumer		-		124		124		-		120		120
Other commercial loans		146		1,137		1,283		193		1,161		1,354
Other agricultural loans		159		597		756		159		593		752
State and political
subdivision loans		-		565		565		-		762		762
Unallocated		-		713		713		-		354		354
Total	$	721	$	12,363	$	13,084	$	676	$	12,208	$	12,884

The following tables roll forward the balance of the ALLL by portfolio segment for the three months ended March 31, 2019 and 2018, respectively (in thousands):

	For the three months ended March 31, 2019
	Balance at December 31, 2018		Charge-offs			Recoveries		Provision			Balance at March 31, 2019
Real estate loans:
Residential	$	1,105	$	-		$	-	$	(16	)	$	1,089
Commercial		4,115		(200	)		-		215			4,130
Agricultural		4,264		-			-		128			4,392
Construction		58		-			-		(26	)		32
Consumer		120		(14	)		11		7			124
Other commercial loans		1,354		-			3		(74	)		1,283
Other agricultural loans		752		-			-		4			756
State and political
subdivision loans		762		-			-		(197	)		565
Unallocated		354		-			-		359			713
Total	$	12,884	$	(214	)	$	14	$	400		$	13,084

	For the three months ended March 31, 2018
	Balance at December 31, 2017		Charge-offs			Recoveries		Provision			Balance at March 31, 2018
Real estate loans:
Residential	$	1,049	$	(15	)	$	-	$	43		$	1,077
Commercial		3,867		-			-		139			4,006
Agricultural		3,143		-					197			3,340
Construction		23		-			-		16			39
Consumer		124		(13	)		10		2			123
Other commercial loans		1,272		(45	)		3		43			1,273
Other agricultural loans		492		(43	)		-		83			532
State and political
subdivision loans		816		-			-		(27	)		789
Unallocated		404		-			-		4			408
Total	$	11,190	$	(116	)	$	13	$	500		$	11,587

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:

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· 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 at least 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 March 31, 2019, the allowance for commercial real estate was decreased in general reserves due to a decrease in the amount of non-accrual, classified and past due loans, which was offset by an specific reserves. This was represented as an increase in the provision. The allowance for agricultural real estate loans was increased in general reserves as a result of higher loan balances, an increase in the amount of loans classified as non-accrual and past due. The result of this was represented as an increase in the provision. The allowance for other commercial loans was decreased as a result of a decrease in specific reserves and a decrease in the volume of classified loans. The result of these changes was represented as a decrease in the provision. The allowance for state and political subdivision was decreased as a result a decrease in the volume of classified loans. The result of this change was represented as a decrease in the provision.

For the three months ended March 31, 2018, the allowance for residential real estate increased in general reserves for pooled loans as a result of increased loss rates reflected in the charge-offs for the three month period, as well as higher loan balances. The increase was offset by a decrease in the specific reserve for individually evaluated residential loans. This was represented as an increase to the provision.  The allowance for commercial real estate was increased in general reserves due to growth in the commercial real estate loan portfolio. It was also impacted by an increase in specific reserves during the quarter. This was represented as an increase in the provision. The allowance for agricultural real estate loans was increased in general reserves as a result of higher loan balances. The result of this growth was represented as an increase in the provision. The allowance for other 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.

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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 March 31, 2019 and December 31, 2018, included with other assets are $4,295,000 and $601,000, respectively, of foreclosed assets. As of March 31, 2019, included within the foreclosed assets are $561,000 of consumer residential mortgages that were foreclosed on or received via a deed in lieu transaction prior to the period end. As of March 31 2019, the Company has initiated formal foreclosure proceedings on $1,072,000 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 March 31, 2019 and December 31, 2018 (in thousands):

	March 31, 2019							December 31, 2018
	Gross carrying value		Accumulated amortization			Net carrying value		Gross carrying value		Accumulated amortization			Net carrying value
Amortized intangible assets (1):
MSRs	$	1,763	$	(1,114	)	$	649	$	1,725	$	(1,066	)	$	659
Core deposit intangibles		1,786		(909	)		877		1,786		(851	)		935
Covenant not to compete		125		(104	)		21		125		(96	)		29
Total amortized intangible assets	$	3,674	$	(2,127	)	$	1,547	$	3,636	$	(2,013	)	$	1,623
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 (in thousands) at March 31, 2019. Future amortization expense may vary from these projections:

	MSRs		Core deposit intangibles		Covenant not to compete		Total
Three months ended March 31, 2019 (actual)	$	48	$	58	$	8	$	114
Three months ended March 31, 2018 (actual)		49		69		8		126
Estimate for year ending December 31,
Remaining 2019		138		172		21		331
2020		150		197		-		347
2021		117		165		-		282
2022		88		133		-		221
2023		64		100		-		164

Note 7 – Leases

The following table details the Company’s right of use asset and the corresponding lease liability for the Company’s operating leases as of March 31, 2019 and the impacted line item on the Consolidated Balance Sheet(in thousands):

Lease Type	Balance at March 31, 2019		Affected line item on the Consolidated Balance Sheet
Right of Use Assets
Operating	$	1,381	Other Assets
Lease Liabilities:
Operating	$	1,383	Other Liabilities

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The following table provides information related to the Company’s lease costs for the three months ended March 31, 2019 (in thousands):

Lease Cost
Operating lease cost	$	85
Variable lease cost		23
Total lease cost	$	108

The following table displays the weighted average remaining lease term and the weighted average discount rate for the Company’s operating leases outstanding as of March 31, 2019:

	Operating
Weighted average term (years)	6.55
Weighted average discount rate	3.11%

The following table provides the undiscounted cashflows related to operating leases as of March 31, 2019 along with a reconciliation to the discounted amount recorded on the March 31, 2019 Consolidated Balance Sheet (in thousands):

Undiscounted cash flows due within	Operating
Remaining 2019	$	250
2020		279
2021		238
2022		230
2023		142
2024		105
2025 and thereafter		291
Total undiscounted cash flows		1,535
Impact of present value discount		154
Amount reported on balance sheet	$	1,381

Note 8 - 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 2018 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 the First National Bank of Fredericksburg (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. The Bank has begun proceedings to close the FNB plan, which is expected to occur in 2019. 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.

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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 March 31, 2019 and 2018, respectively (in thousands):

	Three Months Ended
	March 31,
	2019			2018			Affected line item on the Consolidated Statement of Income
Service cost	$	89		$	89		Salary and Employee Benefits
Interest cost		139			163		Other Expenses
Expected return on plan assets		(205	)		(344	)	Other Expenses
Net amortization and deferral		61			46		Other Expenses
Net periodic benefit cost (benefit)	$	84		$	(46	)

The Bank expects to contribute $250,000 to the Pension Plans during 2019.

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 March 31, 2019, 135,582 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 months ended March 31, 2019:

	Three months
				Weighted
	Unvested			Average
	Shares			Market Price
Outstanding, beginning of period		9,764		$	58.21
Granted		-			-
Forfeited		-			-
Vested		(50	)		(51.13	)
Outstanding, end of period		9,714		$	58.25

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 $67,000 and $56,000 for the three months ended March 31, 2019 and 2018, respectively. At March 31, 2019, the total compensation cost related to nonvested awards that has not yet been recognized was $566,000, which is expected to be recognized over the next three years.

Note 9 – Accumulated Comprehensive Loss

The following tables present the changes in accumulated other comprehensive loss by component net of tax for the three months ended March 31, 2019 and 2018 (in thousands):

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	Three months ended March 31, 2019
	Unrealized gain (loss) on available for sale securities (a)			Defined Benefit Pension Items (a)			Total
Balance as of December 31, 2018	$	(973	)	$	(2,948	)	$	(3,921	)
Other comprehensive income (loss) before reclassifications (net of tax)		1,048			-			1,048
Amounts reclassified from accumulated other
comprehensive income (loss) (net of tax)		-			48			48
Net current period other comprehensive income (loss)		1,048			48			1,096
Balance as of March 31, 2019	$	75		$	(2,900	)	$	(2,825	)
	Three months ended March 31, 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)		(1,617	)		-			(1,617	)
Amounts reclassified from accumulated other
comprehensive loss (net of tax)		-			37			37
Net current period other comprehensive income (loss)		(1,617	)		37			(1,580	)
Balance as of March 31, 2018	$	(1,885	)	$	(3,092	)	$	(4,977	)
(a) Amounts in parentheses indicate debits on the Consolidated Balance Sheet.

The following table presents the significant amounts reclassified out of each component of accumulated other comprehensive income for the three months ended March 31, 2019 and 2018 (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 March 31,
	2019			2018
Unrealized gains and losses on available for sale securities
	$	-		$	-		Available for sale securities gains, net
		-			-		Provision for income taxes
	$	-		$	-		Net of tax
Defined benefit pension items
	$	(61	)	$	(46	)	Other expenses
		13			9		Provision for income taxes
	$	(48	)	$	(37	)	Net of tax
Total reclassifications	$	(48	)	$	(37	)
(a) Amounts in parentheses indicate expenses and other amounts indicate income on the Consolidated Statement of Income

Note 10 – 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.

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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 March 31, 2019 and December 31, 2018 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.

March 31, 2019	Level I		Level II		Level III		Total
Fair value measurements on a recurring basis:
Assets
Equity securities	$	527	$	-	$	-	$	527
Available for sale securities:
U.S. Agency securities		-		102,864		-		102,864
U.S. Treasury securities		33,507		-		-		33,507
Obligations of state and
political subdivisions		-		60,598		-		60,598
Corporate obligations		-		3,039		-		3,039
Mortgage-backed securities in
government sponsored entities		-		44,429		-		44,429

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December 31, 2018	Level I		Level II		Level III		Total
Fair value measurements on a recurring basis:
Assets
Equity securities	$	516	$	-	$	-	$	516
Available for sale securities:
U.S. Agency securities		-		106,385		-		106,385
U.S. Treasuries securities		33,358		-		-		33,358
Obligations of state and
political subdivisions		-		52,047		-		52,047
Corporate obligations		-		3,034		-		3,034
Mortgage-backed securities in
government sponsored entities		-		46,186		-		46,186

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 March 31, 2019 and December 31, 2018 are included in the table below (in thousands):

March 31, 2019	Level I		Level II		Level III		Total
Impaired Loans	$	-	$	-	$	5,220	$	5,220
Other real estate owned		-		-		3,560		3,560
December 31, 2018	Level I		Level II		Level III		Total
Impaired Loans	$	-	$	-	$	5,815	$	5,815
Other real estate owned		-		-		532		532

· 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 $520,000 and $563,000 at March 31, 2019 and December 31, 2018, 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.

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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).

March 31, 2019	Fair Value		Valuation Technique(s)	Unobservable input	Range			Weighted average
Impaired Loans	$	5,220	Appraised Collateral Values	Discount for time since appraisal		0-100	%		18.48	%
				Selling costs		5%-12	%		8.78	%
				Holding period	0 - 12 months			11.67 months
Other real estate owned		3,560	Appraised Collateral Values	Discount for time since appraisal		15-67	%		17.90	%
December 31, 2018	Fair Value		Valuation Technique(s)	Unobservable input	Range
Impaired Loans		5,815	Appraised Collateral Values	Discount for time since appraisal		0-100	%		19.22	%
				Selling costs		5%-12	%		8.70	%
				Holding period	6 - 12 months			11.61 months
Other real estate owned		532	Appraised Collateral Values	Discount for time since appraisal		20-55	%		31.44	%

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
March 31, 2019	Amount		Fair Value		Level I		Level II		Level III
Financial assets:
Interest bearing time deposits with other banks	$	15,498	$	15,608	$	-	$	-	$	15,608
Loans held for sale		183		183		183		-		-
Net loans		1,077,833		1,068,984		-		-		1,068,984
Financial liabilities:
Deposits		1,181,654		1,178,511		889,970		-		288,541
Borrowed funds		108,263		107,602		-		-		107,602
	Carrying
December 31, 2018	Amount		Fair Value		Level I		Level II		Level III
Financial assets:
Interest bearing time deposits with other banks	$	15,498	$	15,422	$	-	$	-	$	15,422
Loans held for sale		1,127		1,126		-		-		1,126
Net loans		1,068,999		1,062,645		-		-		1,062,645
Financial liabilities:
Deposits		1,185,156		1,180,694		886,686		-		294,008
Borrowed funds		91,194		90,427		-		-		90,427

The carrying amounts for cash and due from banks, bank owned life insurance, regulatory stock, accrued interest receivable and payable approximate fair value and are considered Level I measurements.

Note 11 Legal and Regulatory Proceedings

In the ordinary course of business, the Company is subject to legal proceedings, including claims, litigation, investigations and administrative proceedings, all of which are considered incidental to the normal conduct of business. Litigation may relate to lending, deposit and other customer relationships, vendor and contractual issues, employee matters, intellectual property matters, personal injuries and torts, regulatory and legal compliance, and other matters. The Company believes it has substantial defenses to the claims asserted against it in its currently outstanding legal proceedings and, with respect to such legal proceedings, intends to defend itself vigorously. Set forth below are descriptions of certain of the Company’s legal proceedings.

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The Bank was named as a defendant in a lawsuit filed in the United States Bankruptcy Court for Western District of New York District, Arnold v. First Citizens National Bank, wherein the plaintiff sought to avoid and recover various payments to First Citizens made by Cornerstone Homes, Inc. and avoid or subordinate liens made in favor of First Citizens on property of Cornerstone on multiple grounds, including that the transfers constituted fraudulent conveyances under applicable law. This case was settled in the first quarter of 2019 at which time the Bank acquired numerous residential real estate properties which have been recorded as foreclosed asset held for sale.

The Company assesses its liabilities and contingencies in connection with outstanding legal proceedings utilizing the latest information available. Where it is probable that the Company will incur a loss and the amount of the loss can be reasonably estimated, the Company records a liability in its consolidated financial statements. These legal reserves may be increased or decreased to reflect any relevant developments. Where a loss is not probable or the amount of a probable loss is not reasonably estimable, the Company does not accrue legal reserves. Additionally, for those matters where a loss is reasonably possible and the amount of loss is reasonably estimable, the Company estimates the amount of losses that it could incur beyond the accrued legal reserves. Under U.S. GAAP, an event is “reasonably possible” if “the chance of the future event or events occurring is more than remote but less than likely” and an event is “remote" if “the chance of the future event or events occurring is slight.”

While the outcome of legal proceedings and the timing of the ultimate resolution are inherently difficult to predict, based on information currently available, advice of counsel and available insurance coverage, the Company believes that it has established adequate legal reserves. Further, based upon available information, the Company is of the opinion that these legal proceedings, individually or in the aggregate, will not have a material adverse effect on the Company’s financial condition or results of operations. However, in the event of unexpected future developments, it is reasonably possible that an adverse outcome in any of the matters discussed above could be material to the Company’s business, consolidated financial position, results of operations or cash flows for any particular reporting period of occurrence.

Note 12 – Recent Accounting Pronouncements

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments, which changes the impairment model for most financial assets. This Update is intended to improve financial reporting by requiring timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations.The underlying premise of the Update is that financial assets measured at amortized cost should be presented at the net amount expected to be collected, through an allowance for credit losses that is deducted from the amortized cost basis. The allowance for credit losses should reflect management’s current estimate of credit losses that are expected to occur over the remaining life of a financial asset.The income statement will be effected for the measurement of credit losses for newly recognized financial assets, as well as the expected increases or decreases of expected credit losses that have taken place during the period. ASU 2016-13 is effective for annual and interim periods beginning after December 15, 2019, and early adoption is permitted for annual and interim periods beginning after December 15, 2018. With certain exceptions, transition to the new requirements will be through a cumulative effect adjustment to opening retained earnings as of the beginning of the first reporting period in which the guidance is adopted.We expect to recognize a one-time cumulative effect adjustment to the allowance for loan losses as of the beginning of the first reporting period in which the new standard is effective, but cannot yet determine the magnitude of any such one-time adjustment or the overall impact of the new guidance on the consolidated financial statements. In that regard, we have formed a cross-functional working group, under the direction of our Chief Financial Officer. The working group is comprised of individuals from various functional areas including credit, loan origination and finance. We are currently working through our implementation plan which includes assessment and documentation of processes, internal controls and data sources; model development and documentation; and system configuration, among other things. We are also in the process of implementing a third-party vendor solution to assist us in the application of the ASU 2016-13. The adoption of the ASU 2016-13 could result in an increase in the allowance for loan losses as a result of changing from an “incurred loss” model, which encompasses allowances for current known and inherent losses within the portfolio, to an “expected loss” model, which encompasses allowances for losses expected to be incurred over the life of the portfolio. While we are currently unable to reasonably estimate the impact of adopting ASU 2016-13, we expect that the impact of adoption will be significantly influenced by the composition, characteristics and quality of our loan portfolio as well as the prevailing economic conditions and forecasts as of the adoption date.

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

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes the Disclosure Requirements for Fair Value Measurements.The Update removes the requirement to disclose the amount of and reasons for transfers between Level I and Level II of the fair value hierarchy; the policy for timing of transfers between levels; and the valuation processes for Level III fair value measurements. The Update requires disclosure of changes in unrealized gains and losses for the period included in other comprehensive income (loss) for recurring Level III fair value measurements held at the end of the reporting period and the range and weighted average of significant unobservable inputs used to develop Level III fair value measurements. This Update is effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019.This Update is not expected to have a significant impact on the Company’s consolidated financial statements.

In August 2018, the FASB issued ASU 2018-14, Compensation – Retirement Benefits (Topic 715-20). This Update amends ASC 715 to add, remove and clarify disclosure requirements related to defined benefit pension and other postretirement plans. The Update eliminates the requirement to disclose the amounts in accumulated other comprehensive income expected to be recognized as part of net periodic benefit cost over the next year. The Update also removes the disclosure requirements for the effects of a one-percentage-point change on the assumed health care costs and the effect of this change in rates on service cost, interest cost and the benefit obligation for postretirement health care benefits. This Update is effective for public business entities for fiscal years ending after December 15, 2020, and must be applied on a retrospective basis.For all other entities, this Update is effective for fiscal years ending after December 15, 2021.This Update is not expected to have a significant impact on the Company’s consolidated financial statements.

In March 2019, the FASB issued ASU 2019-01, Leases (Topic 842): Codification Improvements, which addressed issues lessors sometimes encounter. Specifically addressed in this Update were issues related to 1) determining the fair value of the underlying asset by the lessor that are not manufacturers or dealers (generally financial institutions and captive finance companies), and 2) lessors that are depository and lending institutions should classify principal and payments received under sales-type and direct financing leaseswithininvestingactivitiesinthecashflowstatement.TheASUalsoexemptsbothlesseesandlessors from having to provide the interim disclosures required by ASC 250-10-50-3 in the fiscal year in which a companyadoptsthenewleasesstandard.Theamendmentsaddressingthetwolessoraccountingissuesare effectiveforpublicbusinessentitiesforfiscalyearsbeginningafterDecember15,2019,andinterimperiods withinthosefiscalyears.Forallotherentities,theeffectivedateisforfiscalyearsbeginningafterDecember 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. This Update is not expectedtohaveasignificantimpactontheCompany’sfinancialstatements.

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In April 2019, the FASB issued ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments – Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments, which affects a variety of topics in the Codification and applies to all reporting entities within the scope of the affected accounting guidance. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations.

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

Forward-Looking Statements

We have made forward-looking statements in this document, and in documents that we incorporate by reference, that are subject to risks and uncertainties. Forward-looking statements include information concerning possible or expected future results of operations of Citizens Financial Services, Inc., First Citizens Community Bank, First Citizens Insurance Agency, Inc., 1^st Realty of PA LLC 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 some of our customers.

· Agricultural customers could be affected by factors outside of their control including adverse weather conditions, loss of crops or livestock due to diseases or other factors, and government policies and regulations.

· 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 2018 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 months ended March 31, 2019 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 and commercial 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, Fivepointville, State College and three branches near the city of Lebanon, Pennsylvania. The Fivepointville branch was opened in the first quarter of 2019. The limited branch office is located in Winfield, Pennsylvania. In New York, our office is in Wellsville.

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 market 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 other 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, deposits 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.  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. 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 March 31, 2019 and December 31, 2018, the Trust Department had $125.3 million and $117.6 million of assets under management, respectively.

Our Investment Representatives offer full service brokerage services and financial planning throughout the Bank’s market area. Products such as mutual funds, annuities, health and life insurance are made available through our insurance subsidiary, First Citizens Insurance Agency, Inc.  The assets associated with these products are not included in the Consolidated Balance Sheets since such items are not assets of the Company. Assets owned and invested by customers of the Bank through the Bank’s Investment Representatives increased from $178.5 million at December 31, 2018 to $196.8 million at March 31, 2019. 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.

Results of Operations

Overview of the Income Statement

The Company had net income of $4,405,000 for the first three months of 2019 compared to $4,247,000 for last year’s comparable period, an increase of $158,000, or 3.7%. Basic earnings per share for the first three months of 2019 were $1.26, compared to $1.21 last year, representing a 4.1% increase.  Annualized return on assets and return on equity for the three months of 2019 were 1.22% and 12.12%, respectively, compared with 1.24% and 12.62% for last year’s comparable 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 paid on interest-bearing liabilities.

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Net interest income for the first three months of 2019 was $11,915,000, an increase of $495,000, or 4.3%, compared to the same period in 2018.  For the first three months of 2019, the provision for loan losses totaled $400,000, a decrease of $100,000 over the comparable period in 2018.  Consequently, net interest income after the provision for loan losses was $11,515,000 compared to $10,920,000 during the first three months of 2018.

The following table sets forth the average balances of, and the interest earned or incurred on, each principal category of assets, liabilities and stockholders’ equity, the related rates, net interest income and interest rate spread created for the three months ended March 31, 2019 and 2018 on a tax equivalent basis (dollars in thousands):

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	Analysis of Average Balances and Interest Rates
	Three Months Ended
	March 31, 2019							March 31, 2018
	Average				Average			Average				Average
	Balance (1)		Interest		Rate			Balance (1)		Interest		Rate
(dollars in thousands)	$				$	%		$				$	%
ASSETS
Short-term investments:
Interest-bearing deposits at banks		8,759		7		0.32			8,100		5		0.25
Total short-term investments		8,759		7		0.32			8,100		5		0.25
Interest bearing time deposits at banks		15,498		97		2.54			10,311		53		2.11
Investment securities:
Taxable		196,187		1,242		2.53			183,155		937		2.05
Tax-exempt (3)		55,866		451		3.23			75,288		667		3.34
Total investment securities		252,053		1,693		2.69			258,443		1,604		2.48
Loans (2)(3)(4):
Residential mortgage loans		215,670		2,825		5.31			214,598		2,724		5.15
Construction		28,439		357		5.09			17,665		201		4.62
Commercial Loans		401,813		5,423		5.47			388,200		4,978		5.20
Agricultural Loans		334,520		3,739		4.53			283,714		3,037		4.34
Loans to state & political subdivisions		100,922		978		3.93			104,511		916		3.55
Other loans		9,768		184		7.64			9,507		183		7.79
Loans, net of discount		1,091,132		13,506		5.02			1,018,195		12,039		4.79
Total interest-earning assets		1,367,442		15,303		4.54			1,295,049		13,701		4.29
Cash and due from banks		6,741							6,908
Bank premises and equipment		16,263							16,481
Other assets		54,278							54,878
Total non-interest earning assets		77,282							78,267
Total assets		1,444,724							1,373,316
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
NOW accounts		328,357		578		0.71			325,937		330		0.41
Savings accounts		211,149		184		0.35			185,242		50		0.11
Money market accounts		161,424		505		1.27			145,890		245		0.68
Certificates of deposit		293,385		1,047		1.45			266,275		691		1.05
Total interest-bearing deposits		994,315		2,314		0.94			923,344		1,316		0.58
Other borrowed funds		113,829		788		2.81			138,613		647		1.89
Total interest-bearing liabilities		1,108,144		3,102		1.14			1,061,957		1,963		0.75
Demand deposits		176,989							164,189
Other liabilities		14,199							12,537
Total non-interest-bearing liabilities		191,188							176,726
Stockholders' equity		145,392							134,633
Total liabilities & stockholders' equity		1,444,724							1,373,316
Net interest income				12,201							11,738
Net interest spread (5)						3.40	%						3.54	%
Net interest income as a percentage
of average interest-earning assets						3.62	%						3.68	%
Ratio of interest-earning assets
to interest-bearing liabilities						123	%						122	%
(1) Averages are based on daily averages.
(2) Includes loan origination and commitment fees.
(3) Tax exempt interest revenue is shown on a tax equivalent basis for proper comparison using
a statutory federal income tax rate of 21%.
(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 federal statutory income tax rate of 21% for the three months ended March 31, 2019 and 2018. 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 March 31, 2019 and 2018 (in thousands):

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	For the Three Months
	Ended March 31,
	2019		2018
Interest and dividend income from investment securities
and interest bearing deposits at banks (non-tax adjusted)	$	1,703	$	1,522
Tax equivalent adjustment		94		140
Interest and dividend income from investment securities
and interest bearing deposits at banks (tax equivalent basis)	$	1,797	$	1,662
Interest and fees on loans (non-tax adjusted)	$	13,314	$	11,861
Tax equivalent adjustment		192		178
Interest and fees on loans (tax equivalent basis)	$	13,506	$	12,039
Total interest income	$	15,017	$	13,383
Total interest expense		3,102		1,963
Net interest income		11,915		11,420
Total tax equivalent adjustment		286		318
Net interest income (tax equivalent basis)	$	12,201	$	11,738

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

	Three months ended March 31, 2019 vs 2018 (1)
	Change in			Change			Total
	Volume			in Rate			Change
Interest Income:
Short-term investments:
Interest-bearing deposits at banks	$	1		$	1		$	2
Interest bearing time deposits at banks		31			13			44
Investment securities:
Taxable		70			235			305
Tax-exempt		(161	)		(55	)		(216	)
Total investments		(91	)		180			89
Loans:
Residential mortgage loans		14			87			101
Construction		134			22			156
Commercial Loans		178			267			445
Agricultural Loans		563			139			702
Loans to state & political subdivisions		(31	)		93			62
Other loans		4			(3	)		1
Total loans, net of discount		862			605			1,467
Total Interest Income		803			799			1,602
Interest Expense:
Interest-bearing deposits:
NOW accounts		2			246			248
Savings accounts		8			126			134
Money Market accounts		29			231			260
Certificates of deposit		76			280			356
Total interest-bearing deposits		115			883			998
Other borrowed funds		(83	)		224			141
Total interest expense		32			1,107			1,139
Net interest income	$	771		$	(308	)	$	463
(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 $11,738,000 for the three month period ended March 31, 2018 to $12,201,000 for the three month period ended March 31, 2019, an increase of $463,000. The tax equivalent net interest margin decreased from 3.68% for the first three months of 2018 to 3.62% for the comparable period in 2019. The decrease is primarily caused by the increase in cost of interest-bearing liabilities.

Total tax equivalent interest income for the 2019 three month period increased $1,602,000 as compared to the 2018 three month period. This increase was a result of an increase of $803,000 due to a change in volume as average interest-bearing assets increased $72.4 million and due to an increase in the yield on interest-earning assets of 25 basis points, which corresponds to an increase of $799,000.

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Tax equivalent investment income for the three months ended March 31, 2019 increased $89,000 over the same period last year. The primary cause of the increase was an increase in the average yield on investment securities  of 21 basis points.

· The average balance of taxable securities increased by $13.0 million, which resulted in an increase in investment income of $70,000. The increase in the average balance of taxable securities was due to the Bank’s strategy of reducing the Bank’s exposure to municipal securities due to the reduction in the corporate income tax rate implemented in 2017. The yield on taxable securities increased 48 basis points from 2.05% to 2.53% 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 $235,000.

· The average balance of tax-exempt securities decreased by $19.4 million, which resulted in a decrease in investment income of $161,000. The yield on tax-exempt securities decreased 9 basis points from 3.34% to 3.23%, which corresponds to a decrease in interest income of $55,000. The yield decrease was attributable to higher yielding securities being called and maturing. For a discussion of the Company’s current investment strategy, see the “Financial Condition – Investments”.

Total loan interest income increased $1,467,000 for the three months ended March 31, 2019 compared to the same period last year, primarily as a result of loan growth achieved in 2018 and the first three months of 2019 that occurred primarily in our central and south central Pennsylvania markets.

· The average balance of commercial loans increased $13.6 million from a year ago. The growth was attributable to organic growth in our central and south central Pennsylvania markets. This had a positive impact of $178,000 on total interest income due to volume. The yield increased 27 basis points to 5.47%, which increased loan interest income $267,000.

· Interest income on agricultural loans increased $702,000 from 2018 to 2019. The increase in the average balance of agricultural loans of $50.8 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 $563,000. The yield on agricultural loans increased 19 basis points to 4.53%, which increased loan interest income $139,000.

· The average balance of construction loans increased $10.8 million from a year ago as a result of several large commercial and agricultural construction projects. This resulted in an increase of $134,000 on total interest income due to volume.

· The average balance of state and political subdivision loans decreased $3.6 million from a year ago as the market was not as attractive due to the change in the Federal corporate income tax rate. This resulted in a decrease of $31,000 on total interest income due to volume. The tax effected yield increased 38 basis points to 3.93%, which increased loan interest income $93,000.

· Interest income on residential mortgage loans increased $101,000. The average yield on residential loans increased 16 basis points from a year ago, which resulted in an increase in loan interest income of $87,000.

Total interest expense increased $1,139,000 for the three months ended March 31, 2019 compared with the comparative period last year primarily as a result of an increase in the cost of interest-bearing liabilities. Interest expense increased $1,107,000 due to rate as a result of an increase in the average rate paid on interest-bearing liabilities from 0.75% to 1.14%.

· The average balance of interest-bearing deposits increased $70.8 million from March 31, 2018 to March 31, 2019. Increases were experienced in NOW accounts of $2.4 million, savings accounts of $25.9 million, money market accounts of $15.5 million and certificates of deposit of $27.1 million. The cumulative effect of these volume changes was an increase in interest expense of $115,000.  (see also “Financial Condition – Deposits”). The rate paid on interest bearing deposits was 0.94% for the first three months of 2019 and 0.58% for the comparable period in 2018. This resulted in an increase in interest expense of $883,000. The increase was due to the Fed raising interest rates and competitive pressures.

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· The average balance of other borrowed funds decreased $24.8 million from a year ago. This resulted in a decrease in interest expense of $83,000. There was an increase in the average rate on other borrowed funds from 1.89% to 2.81% due to an increase in the overnight borrowing rate as a result of the Federal Reserve interest rate increases in 2018 resulting in an increase in interest expense of $224,000.

Provision for Loan Losses

For the three months ended March 31, 2019, we recorded a provision of $400,000 compared to $500,000 in 2018. This decrease was primarily due to the lower level of loan growth in 2019 compared to the same period in 2018. (see “Financial Condition – Allowance for Loan Losses and Credit Quality Risk”).

Non-interest Income

The following table shows the breakdown of non-interest income for the three months ended March 31, 2019 and 2018 (dollars in thousands):

	Three months ended March 31,				Change
	2019		2018		Amount			%
Service charges	$	1,099	$	1,104	$	(5	)		(0.5	)
Trust		232		251		(19	)		(7.6	)
Brokerage and insurance		293		181		112			61.9
Gains on loans sold		99		72		27			37.5
Equity security gains, net		11		6		5			83.3
Earnings on bank owned life insurance		151		152		(1	)		(0.7	)
Other		148		140		8			5.7
Total	$	2,033	$	1,906	$	127			6.7

Non-interest income for the three months ended March 31, 2019 totaled $2,033,000, an increase of $127,000 when compared to the same period in 2018. During the first three months of 2019, net investment securities gains amounted to $11,000 compared to gains of $6,000 last year. We recognized increases of $11,000 and $6,000 in the market value of our equity portfolio for the three months ended March 31, 2019 and 2018, respectively. We did not sell any available for sale securities or equity securities in the first three months of 2019 or 2018.

The increase in brokerage revenues is attributable to growth in our south central market. The increase in gains on loans sold is due to an increase in the amount of loans sold in 2019 compared to 2018.

Non-interest Expense

The following tables reflect the breakdown of non-interest expense for the three months ended March 31, 2019 and 2018 (dollars in thousands):

	Three months ended
	March 31,				Change
	2019		2018		Amount			%
Salaries and employee benefits	$	5,029	$	4,835	$	194			4.0
Occupancy		592		592		-			-
Furniture and equipment		155		142		13			9.2
Professional fees		442		399		43			10.8
FDIC insurance		111		100		11			11.0
Pennsylvania shares tax		275		300		(25	)		(8.3	)
Amortization of intangibles		66		76		(10	)		(13.2	)
ORE expenses		107		34		73			214.7
Other		1,545		1,354		191			14.1
Total	$	8,322	$	7,832	$	490			6.3

37

Non-interest expenses increased $490,000 for the three months ended March 31, 2019 compared to the same period in 2018. Salaries and employee benefits increased $194,000 or 4.0%. The increase was due to merit increases effective at the beginning of 2019, higher commissions due to higher brokerage and insurances commissions, an increase in profit sharing as a result of improved financial results and an increase in health care expenses.

The increase in professional fees is the result of legal fees associated with a customer that was in bankruptcy that the Bank settled with in the first quarter of 2019.  The increase in OREO expenses is due to the increase is the number of ORE properties that occurring in 2019. The increase in other expenses is primarily attributable to the increase in other periodic pension costs of $130,000 as a result of the decision to terminate the FNB pension plan.

Provision for Income Taxes

The provision for income taxes was $821,000 for the three month period ended March 31, 2019 compared to $747,000 for the same period in 2018. The increase is primarily attributable to the increase in income before the provision for income taxes of $232,000 for the comparable periods.  Through management of our municipal loan and bond portfolios, management is focused on minimizing our effective tax rate.  Our effective tax rate was 15.7% and 15.0% for the first three months of 2019 and 2018, respectively, compared to the statutory rate of 21% for 2019 and 2018.

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 $529,000 of tax credits over the next 3.75 years, with an additional $106,000 anticipated to be recognized during 2019.

Financial Condition

Total assets were $1.45 billion at March 31, 2019, an increase of $17.3 million from $1.43 billion at December 31, 2018.  Cash and cash equivalents increased $1.0 million to $17.8 million. Investment securities increased $3.4 million and net loans increased $8.8 million to $1.08 billion at March 31, 2019.  Total deposits decreased $3.5 million to $1.18 billion since year-end 2018, while borrowed funds increased $17.1 million to $108.3 million.

Cash and Cash Equivalents

Cash and cash equivalents totaled $17.8 million at March 31, 2019 compared to $16.8 million at December 31, 2018, an increase of $1.0 million.Management actively measures and evaluates the Company’s 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 March 31, 2019 and December 31, 2018 (dollars in thousands):

	March 31, 2019				December 31, 2018
	Amount		%		Amount		%
Debt securities:
U. S. Agency securities	$	102,864		42.0	$	106,385		44.0
U. S. Treasury notes		33,507		13.7		33,358		13.8
Obligations of state & political subdivisions		60,598		24.7		52,047		21.5
Corporate obligations		3,039		1.3		3,034		1.3
Mortgage-backed securities in
government sponsored entities		44,429		18.1		46,186		19.1
Equity securities		527		0.2		516		0.3
Total	$	244,964		100.0	$	241,526		100.0

38

	March 31, 2019/
	December 31, 2018
	Change
	Amount			%
Debt securities:
U. S. Agency securities	$	(3,521	)		(3.3	)
U. S. Treasury notes		149			0.4
Obligations of state & political subdivisions		8,551			16.4
Corporate obligations		5			0.2
Mortgage-backed securities in
government sponsored entities		(1,757	)		(3.8	)
Equity securities		11			2.1
Total	$	3,438			1.4

Our investment portfolio increased by $3.4 million, or 1.4%, from December 31, 2018 to March 31, 2019. During 2019, we purchased $2.4 million of U.S. agency obligations and $10.5 million state and political securities, which partially offset the $2.0 million of principal repayments and $8.5 million of calls and maturities that occurred during the three month period. We did not sell any securities during the first three months of 2019. Excluding our short-term investments consisting of monies held primarily at the Federal Reserve for liquidity purposes, our investment portfolio for the three month period ended March 31, 2019 yielded 2.69%, compared to 2.48% in the comparable period in 2018 on a tax equivalent basis.

The investment strategy for 2019 has been to utilize cashflows from the investment portfolio to purchase agency and state and political securities to pledge against our public deposits. Investment purchases have been focused on securities with short fixed maturities for agency securities and high coupon callable municipal securities that are highly likely to be called. 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 March 31, 2019 and December 31, 2018 (dollars in thousands):

	March 31,				December 31,
	2019				2018
	Amount		%		Amount		%
Real estate:
Residential	$	214,635		19.7	$	215,305		19.9
Commercial		334,371		30.7		319,265		29.5
Agricultural		295,547		27.1		284,520		26.3
Construction		18,611		1.7		33,913		3.1
Consumer		9,773		0.9		9,858		0.9
Other commercial loans		74,323		6.8		74,118		6.9
Other agricultural loans		43,245		4.0		42,186		3.9
State & political subdivision loans		100,412		9.1		102,718		9.5
Total loans		1,090,917		100.0		1,081,883		100.0
Less allowance for loan losses		13,084				12,884
Net loans	$	1,077,833			$	1,068,999

39

	March 31, 2019/
	December 31, 2018
	Change
	Amount			%
Real estate:
Residential	$	(670	)		(0.3	)
Commercial		15,106			4.7
Agricultural		11,027			3.9
Construction		(15,302	)		(45.1	)
Consumer		(85	)		(0.9	)
Other commercial loans		205			0.3
Other agricultural loans		1,059			2.5
State & political subdivision loans		(2,306	)		(2.2	)
Total loans	$	9,034			0.8

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 lending teams have with their customers and our lenders expertise in certain areas, 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 March 31, 2019, the Company had one industry specific loan concentration to the dairy industry, totaling $156.9 million or 14.4% of total loans.

During the first three months of 2019, the primary driver of growth in the loan portfolio continued to be commercial and agricultural real estate loans, some of which is in the construction phase, in both the central and south central Pennsylvania markets. During the quarter, we completed a settlement with a customer in bankruptcy that resulted in $3.1 million of loans being transferred to OREO. 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 lends 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 quarter of 2019. Loan demand for conforming mortgages, which the Company typically sells on the secondary market has increased slightly in 2019 when compared to 2018. 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 at the balance sheet date.  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 three months ended March 31, 2019 and for the years ended December 31, 2018, 2017, 2016 and 2015 (dollars in thousands):

40

	March 31,			December 31,
	2019			2018			2017			2016			2015
Balance
at beginning of period	$	12,884		$	11,190		$	8,886		$	7,106		$	6,815
Charge-offs:
Real estate:
Residential		-			118			107			85			66
Commercial		200			66			41			100			84
Agricultural		-			-			30			-			-
Consumer		14			40			130			100			47
Other commercial loans		-			91			-			55			41
Other agricultural loans		-			50			5			-			-
Total loans charged-off		214			365			313			340			238
Recoveries:
Real estate:
Residential		-			69			-			-			-
Commercial		-			3			11			479			14
Agricultural		-			-			-			-			-
Consumer		11			31			49			88			33
Other commercial loans		3			30			16			33			2
Other agricultural loans		-			1			1			-			-
Total loans recovered		14			134			77			600			49
Net loans (recovered) charged-off		200			231			236			(260	)		189
Provision charged to expense		400			1,925			2,540			1,520			480
Balance at end of year	$	13,084		$	12,884		$	11,190		$	8,886		$	7,106
Loans outstanding at end of period	$	1,090,917		$	1,081,883		$	1,000,525		$	799,611		$	695,031
Average loans outstanding, net	$	1,091,132		$	1,044,250		$	883,355		$	725,881		$	577,992
Non-performing assets:
Non-accruing loans	$	11,700		$	13,724		$	10,171		$	11,454		$	6,531
Accrual loans - 90 days or more past due		64			68			555			405			623
Total non-performing loans	$	11,764		$	13,792		$	10,726		$	11,859		$	7,154
Foreclosed assets held for sale		4,295			601			1,119			1,036			1,354
Total non-performing assets	$	16,059		$	14,393		$	11,845		$	12,895		$	8,508
Annualized net charge-offs to average loans		0.07	%		0.02	%		0.03	%		-0.04	%		0.03	%
Allowance to total loans		1.20	%		1.19	%		1.12	%		1.11	%		1.02	%
Allowance to total non-performing loans		111.22	%		93.42	%		104.33	%		74.93	%		99.33	%
Non-performing loans as a percent of loans
net of unearned income		1.08	%		1.27	%		1.07	%		1.48	%		1.03	%
Non-performing assets as a percent of loans
net of unearned income		1.47	%		1.33	%		1.18	%		1.61	%		1.22	%

Management believes it uses the best information available when establishing the allowance for loan losses and that the allowance for loan losses is adequate as of March 31, 2019.  However, future adjustments could be required if circumstances differ substantially from assumptions and estimates used in making the initial determination.  A prolonged downturn in the economy, high unemployment rates, significant changes in the value of collateral and delays in receiving financial information from borrowers could result in increased levels of non-performing assets, charge-offs, loan loss provisions and reduction in income. Additionally, bank regulatory agencies periodically examine the Bank’s allowance for loan losses.  The banking agencies could require the recognition of additions to the allowance for loan losses based upon their judgment of information available to them at the time of their examination.

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

41

The allowance for loan losses was $13,084,000 or 1.20% of total loans as of March 31, 2019 as compared to $12,884,000 or 1.19% of loans as of December 31, 2018. The $200,000 increase in the allowance during the first three months of 2019 is the result of a $400,000 provision and net charge-offs of $200,000, which were primarily related to one customer. 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 March 31, 2019 and December 31, 2018, 2017, 2016 and 2015 (dollars in thousands):

	March 31,				December 31
	2019				2018				2017				2016				2015
	Amount		%		Amount		%		Amount		%		Amount		%		Amount		%
Real estate loans:
Residential	$	1,089		19.7	$	1,105		19.9	$	1,049		21.4	$	1,064		25.9	$	905		29.3
Commercial		4,130		30.7		4,115		29.5		3,867		30.8		3,589		31.6		3,376		34.2
Agricultural		4,392		27.1		4,264		26.3		3,143		24.0		1,494		15.5		409		8.3
Construction		32		1.7		58		3.1		23		1.3		47		3.2		24		2.2
Consumer		124		0.9		120		0.9		124		1.0		122		1.4		102		1.7
Other commercial loans		1,283		6.8		1,354		6.9		1,272		7.2		1,327		7.3		1,183		8.2
Other agricultural loans		756		4.0		752		3.9		492		3.8		312		2.9		122		2.0
State & political subdivision loans		565		9.1		762		9.5		816		10.5		833		12.2		593		14.1
Unallocated		713		N/A		354		N/A		404		N/A		98		N/A		392		N/A
Total allowance for loan losses	$	13,084		100.0	$	12,884		100.0	$	11,190		100.0	$	8,886		100.0	$	7,106		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 57.8% of the loan portfolio, 65.1% 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, 2018 to March 31, 2019 in non-performing loans((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.

	March 31, 2019								December 31, 2018
			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	$	951	$	40	$	1,086	$	1,126	$	1,624	$	20	$	1,161	$	1,181
Commercial		1,940		4		3,689		3,693		1,444		36		5,957		5,993
Agricultural		991		-		3,607		3,607		121		-		3,206		3,206
Consumer		96		-		-		-		37		12		14		26
Other commercial loans		452		20		2,053		2,073		73		-		2,185		2,185
Other agricultural loans		40		-		1,265		1,265		9		-		1,201		1,201
Total nonperforming loans	$	4,470	$	64	$	11,700	$	11,764	$	3,308	$	68	$	13,724	$	13,792

42

	Change in Non-Performing
	Loans March 31, 2019 / December 31, 2018
(dollars in thousands)	Amount			%
Real estate:
Residential	$	(55	)		(4.7	)
Commercial		(2,300	)		(38.4	)
Agricultural		401			12.5
Consumer		(26	)		(100.0	)
Other commercial loans		(112	)		(5.1	)
Other agricultural loans		64			5.3
Total nonperforming loans	$	(2,028	)		(14.7	)

For the three months ended March 31, 2019, we recorded a provision for loan losses of $400,000, which compares to $500,000 for the same period in 2018. The decrease was primarily attributable to the loan growth experienced during 2019 being lower than the growth experienced during the comparable period of 2018. Non-performing loans decreased $2.0 million or 14.7%, from December 31, 2018 to March 31, 2019, primarily due to one customer relationship, which was settled in the first quarter of 2019 and resulted in a $3.1 million increase in OREO. Approximately 62.0% of the Bank’s non-performing loans at March 31, 2019 are associated with the following three customer relationships:

· A commercial customer with a total loan relationship of $2.9 million, secured by undeveloped land, stone quarries and equipment, was on non-accrual status as of March 31, 2019. 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 March 31, 2019.

· An agricultural customer with a total loan relationship of $2.8 million, secured by real estate, equipment and cattle, was on non-accrual status as of March 31, 2019. The customer declared bankruptcy during the fourth quarter of 2018 and is in the process of developing a workout plan. Included within these loans to this customer are $1,151,000 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 March 31, 2019, there was a specific reserve of $238,000 for this relationship.

· An agricultural customer with a total loan relationship of $1.6 million, secured by real estate, equipment and cattle, was on non-accrual status as of March 31, 2019. Included within these loans to this customer are $181,000 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 expect we will need to rely upon the collateral for repayment of interest and principal. As of March 31, 2019, there was a specific reserve of $3,000 for this relationship.

Management of the Bank believes that the allowance for loan losses as of March 31, 2019 is adequate, which is based on the following factors:

· Three loan relationships comprise 62.0% of the non-performing loan balance, which has approximately $241,000 of specific reserves as of March 31, 2019.

· The Company has a history of low charge-offs, which while higher in the first quarter of 2019 are still insignificant at an annualized basis of 0.07% with net charge-offs totaling $200,000 and primarily related to one relationship. In 2018 as the net charge-offs were .02% of average loans and only $231,000, while 2017’s net charge-offs were $236,000.

43

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 March 31, 2019 and December 31, 2018, the cash surrender value of the life insurance was $27.7 million and $27.5 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 $151,000 and $152,000 for the three month periods ended March 31, 2019 and 2018, respectively. The Company evaluates annually the risks associated with the life insurance policies, including limits on the amount of coverage and an evaluation of the various carriers’ credit ratings.

The Company agreements that were purchased directly from insurance companies are structured so that any death benefits received from a policy while the insured person is an active employee of the Bank will be split with the beneficiary of the policy.  Under these agreements, the employee’s beneficiary will be entitled to receive 50% of the net amount at risk from the proceeds.  The net amount at risk is the total death benefit payable less the cash surrender value of the policy as of the date of death. The policies acquired as part of the acquisition of FNB provide a fixed split-dollar benefit for the beneficiaries estate, which is dependent on several factors including whether the covered individual was a Director of FNB or an employee of FNB and their salary level. As of March 31, 2019 and December 31, 2018, included in other liabilities on the Consolidated Balance Sheet was a liability of $657,000 and $648,000, respectively, for the obligation under the split-dollar benefit agreements.

Premises and Equipment

Premises and equipment decreased $96,000 to $16.2 million as of March 31, 2019 from December 31, 2018. This occurred primarily as a result of normal depreciation expense recorded in the first three months of 2019.

Other Assets

Other assets increased $4.7 million as of March 31, 2019 from December 31, 2018. This increase was due to OREO increasing $3.7 million to $4.3 million as of March 31, 2019. The increase was due to foreclosures and accepting deeds in lieu as settlement for loans. Of the amounts transferred, $3.1 million was the result of settling with a customer in bankruptcy. The other large increase was the result of implementing ASU 2016-02 Leases, resulting in a right of use asset being recorded that had a value of $1.4 million as of March 31, 2019.

Deposits

The following table shows the composition of deposits as of March 31, 2019 and December 31, 2018 (dollars in thousands):

	March 31,				December 31,
	2019				2018
	Amount		%		Amount		%
Non-interest-bearing deposits	$	184,988		15.7	$	179,971		15.2
NOW accounts		329,052		27.8		336,756		28.4
Savings deposits		215,951		18.3		205,334		17.3
Money market deposit accounts		159,979		13.5		164,625		13.9
Certificates of deposit		291,684		24.7		298,470		25.2
Total	$	1,181,654		100.0	$	1,185,156		100.0

44

	March 31, 2019/
	December 31, 2018
	Change
	Amount			%
Non-interest-bearing deposits	$	5,017			2.8
NOW accounts		(7,704	)		(2.3	)
Savings deposits		10,617			5.2
Money market deposit accounts		(4,646	)		(2.8	)
Certificates of deposit		(6,786	)		(2.3	)
Total	$	(3,502	)		(0.3	)

Deposits decreased $3.5 million since December 31, 2018. The decreases in money market, NOW and certificate of deposit accounts is attributable to municipal deposits, which decreased since year end and is primarily due to timing and a large municipal construction project in south central market that is being funded by the municipalities cash. The decrease in certificates of deposits is also due to two estates settling. As of March 31, 2019, the Bank had $20.0 million of brokered certificates of deposit outstanding, which is the same amount outstanding as of December 31, 2018. We continue to enhance our cash management services to improve our customer services and to grow deposits through our current customers.

Borrowed Funds

      Borrowed funds increased $17.1 million during the first three months of 2019. The increase was the result of borrowing $17.1 million of overnight advances from the FHLB and $5.0 million of long-term advances from the FHLB. We also repaid a $2.0 million long-term advance from the FHLB and experienced a decrease in repurchase agreements of $3.0 million. The Bank’s current strategy for borrowings is to consider terms and structures to manage interest rate risk and liquidity in a flat 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 to the Company. 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 $142.8 million at March 31, 2019 compared to $139.2 million at December 31, 2018, an increase of $3,616,000, or 2.6%.  Excluding accumulated other comprehensive loss, stockholders’ equity increased $2.5 million, or 1.8%. The Company purchased 5,762 shares of treasury stock at a weighted average cost of $57.47 per share. For the first three months of 2019, the Company had net income of $4.4 million and declared cash dividends of $1.6 million, or $0.445 per share, representing a cash dividend payout ratio of 35.4%.

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 due to changes in interest rates. As a result of changes in the interest rate environment and the defined benefit plan obligations, accumulated other comprehensive loss increased approximately $1.1 million from December 31, 2018.

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.

45

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 March 31, 2019 and December 31, 2018, that the Company and Bank meet all capital adequacy requirements to which they were subject at such dates.

As of March 31, 2019 and December 31, 2018, the Company and Bank were 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
March 31, 2019	Amount		Ratio			Amount		Ratio			Amount		Ratio
Total Capital (to Risk Weighted Assets):
Company	$	144,110		13.59	%	$	84,846		8.00	%	$	106,058		10.00	%
Bank	$	137,154		12.94	%	$	84,784		8.00	%	$	105,980		10.00	%
Tier 1 Capital (to Risk Weighted Assets):
Company	$	130,871		12.34	%	$	63,635		6.00	%	$	84,846		8.00	%
Bank	$	123,907		11.69	%	$	63,588		6.00	%	$	84,784		8.00	%
Common Equity Tier 1 Capital (to Risk Weighted Assets):
Company	$	123,361		11.63	%	$	47,726		4.50	%	$	68,938		6.50	%
Bank	$	123,907		11.69	%	$	47,691		4.50	%	$	68,887		6.50	%
Tier 1 Capital (to Average Assets):
Company	$	130,871		9.22	%	$	56,770		4.00	%	$	70,962		5.00	%
Bank	$	123,907		8.73	%	$	56,741		4.00	%	$	70,926		5.00	%
	Actual					For Capital Adequacy Purposes					To Be Well Capitalized Under Prompt Corrective Action Provisions
December 31, 2018	Amount		Ratio			Amount		Ratio			Amount		Ratio
Total Capital (to Risk Weighted Assets):
Company	$	141,272		13.42	%	$	84,227		8.00	%	$	105,284		10.00	%
Bank	$	134,841		12.82	%	$	84,141		8.00	%	$	105,176		10.00	%
Tier 1 Capital (to Risk Weighted Assets):
Company	$	128,224		12.18	%	$	63,171		6.00	%	$	84,227		8.00	%
Bank	$	121,792		11.58	%	$	63,106		6.00	%	$	84,141		8.00	%
Common Equity Tier 1 Capital (to Risk Weighted Assets):
Company	$	120,724		11.47	%	$	47,378		4.50	%	$	68,435		6.50	%
Bank	$	121,792		11.58	%	$	47,329		4.50	%	$	68,364		6.50	%
Tier 1 Capital (to Average Assets):
Company	$	128,224		9.15	%	$	56,041		4.00	%	$	70,051		5.00	%
Bank	$	121,792		8.70	%	$	56,018		4.00	%	$	70,023		5.00	%

46

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 March 31, 2019 and December 31, 2018 (in thousands):

	March 31, 2019		December 31, 2018
Commitments to extend credit	$	197,534	$	199,183
Standby letters of credit		15,330		16,311
	$	212,864	$	215,494

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 March 31, 2019 and December 31, 2018 was $11,884,000 and $11,855,000, 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 three months of 2019 were $105,000 compared to $41,000 during the same time period in 2018.

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 $515.9 million, of which $128.9 million was outstanding via loans and letters of credits at March 31, 2019. The Bank also has two federal funds lines with third party providers in the total amount of $34.0 million as of March 31, 2019, which are unsecured and undrawn upon. We also have a borrower in custody line with the Federal Reserve Bank of approximately $10.7 million, which also is not drawn upon as of March 31, 2019. 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 March 31, 2019, Citizens Financial Services, Inc. (on an unconsolidated basis) had liquid assets of $6.3 million.

47

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 0.2% 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 March 31, 2019 (dollars in thousands):

			Change In			% Change In
	Prospective One-Year		Prospective			Prospective
Changes in Rates	Net Interest Income		Net Interest Income			Net Interest Income
-200 Shock	$	48,652	$	(466	)		(0.95	)
-100 Shock		49,799		681			1.39
Base		49,118		-			-
+100 Shock		47,705		(1,413	)		(2.88	)
+200 Shock		46,169		(2,949	)		(6.00	)
+300 Shock		44,597		(4,521	)		(9.20	)
+400 Shock		43,007		(6,111	)		(12.44	)

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. The changes in net interest income noted above are in line with Company policy for interest rate risk.

48

Item 3-Quantitative and Qualitative Disclosure about Market Risk

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

Item 4-Control and Procedures

(a) Disclosure Controls and Procedures

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

(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 March 31, 2019 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.  Other than as disclosed in Note 11 of the accompanying consolidated financial statements, any other 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, 2018, which could materially affect our business, financial condition or future results. At March 31, 2019, the risk factors of the Company have not changed materially from those reported in our most recently filed Annual Report on Form 10-K.  However, the risks described in our most recently filed 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 

49

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)
1/1/19 to 1/31/19		950	$	61.00		950		69,579
2/1/19 to 2/28/19		3,797	$	56.62		3,797		65,782
3/1/19 to 3/31/18		1,015	$	57.35		1,015		64,767
Total		5,762	$	57.47		5,762		64,767

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

Item 3 ‑ Defaults Upon Senior Securities

Not applicable.

Item 4 – Mine Safety Disclosure

Not applicable.

Item 5 ‑ Other Information

None

Item 6 ‑ Exhibits

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

3.1	Articles of Incorporation of Citizens Financial Services, Inc., as amended (1)
3.2	Bylaws of Citizens Financial Services, Inc. (2)
4.1	Form of Common Stock Certificate. (3)
31.1	Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer
31.2	Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer
32.1	Section 1350 Certification of Chief Executive Officer and Chief Financial Officer
101 **	The following materials from the Company’s Quarterly Report on Form 10-Q for the period ended  March 31, 2019, 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).

50

⁽¹⁾ Incorporated by reference to Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2018, as filed with the Commission on August 9, 2018.

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

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

** Furnished, not filed.

51

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)
May 9, 2019	By:	/s/ Randall E. Black
		Randall E. Black
		President and Chief Executive Officer (Principal Executive Officer)

May 9, 2019	By:	/s/ Mickey L. Jones
		Mickey L. Jones
		Chief Financial Officer (Principal Financial and Accounting Officer)

52

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.

May 9, 2019	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.

May 9, 2019	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 March 31, 2019 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.

May 9, 2019	By:	/s/ Randall E. Black
		Randall E. Black
		President and Chief Executive Officer (Principal Executive Officer)

May 9, 2019	By:	/s/ Mickey L. Jones
		Mickey L. Jones
		Chief Financial Officer (Principal Financial and Accounting Officer)

XML

Document and Entity Information - shares	3 Months Ended
	Mar. 31, 2019	Apr. 30, 2019
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 Filer Category	Accelerated Filer
Entity Small Business	true
Entity Emerging Growth Company	false
Entity Ex Transition Period	false
Entity Common Stock, Shares Outstanding		3,498,803
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Mar. 31, 2019
Document Fiscal Year Focus	2019
Document Fiscal Period Focus	Q1

XML

CONSOLIDATED BALANCE SHEET (UNAUDITED) - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018
Cash and due from banks:
Noninterest-bearing	$ 16,384	$ 15,327
Interest-bearing	1,450	1,470
Total cash and cash equivalents	17,834	16,797
Interest bearing time deposits with other banks	15,498	15,498
Equity securities	527	516
Available-for-sale securities	244,437	241,010
Loans held for sale	182	1,127
Loans (net of allowance for loan losses: 2019, $13,084 and 2018, $12,884)	1,077,833	1,068,999
Premises and equipment	16,177	16,273
Accrued interest receivable	4,769	4,452
Goodwill	23,296	23,296
Bank owned life insurance	27,656	27,505
Other intangibles	1,547	1,623
Other assets	18,298	13,616
TOTAL ASSETS	1,448,054	1,430,712
Deposits:
Noninterest-bearing	184,988	179,971
Interest-bearing	996,666	1,005,185
Total deposits	1,181,654	1,185,156
Borrowed funds	108,263	91,194
Accrued interest payable	1,092	1,076
Other liabilities	14,200	14,057
TOTAL LIABILITIES	1,305,209	1,291,483
STOCKHOLDERS' EQUITY:
Preferred Stock $1.00 par value; authorized 3,000,000 shares at March 31, 2019 and December 31, 2018; none issued in 2019 or 2018	0	0
Common stock $1.00 par value; authorized 25,000,000 shares at March 31, 2019 and December 31, 2018; issued 3,904,212 at March 31, 2019 and December 31, 2018	3,904	3,904
Additional paid-in capital	53,102	53,099
Retained earnings	102,574	99,727
Accumulated other comprehensive loss	(2,825)	(3,921)
Treasury stock, at cost: 405,378 shares at March 31, 2019 and 399,616 shares at December 31, 2018	(13,910)	(13,580)
TOTAL STOCKHOLDERS' EQUITY	142,845	139,229
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$ 1,448,054	$ 1,430,712

XML

CONSOLIDATED BALANCE SHEET (UNAUDITED) (Parenthetical) - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018
ASSETS:
Loans, allowance for loan losses	$ 13,084	$ 12,884
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	25,000,000
Common Stock, issued (in shares)	3,904,212	3,904,212
Treasury stock, shares (in shares)	405,378	399,616

XML

CONSOLIDATED STATEMENT OF INCOME (UNAUDITED) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
INTEREST INCOME:
Interest and fees on loans	$ 13,314	$ 11,861
Interest-bearing deposits with banks	104	58
Investment securities:
Taxable	1,108	800
Nontaxable	357	527
Dividends	134	137
TOTAL INTEREST INCOME	15,017	13,383
INTEREST EXPENSE:
Deposits	2,314	1,316
Borrowed funds	788	647
TOTAL INTEREST EXPENSE	3,102	1,963
NET INTEREST INCOME	11,915	11,420
Provision for loan losses	400	500
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES	11,515	10,920
NON-INTEREST INCOME:
Revenue from customers	1,735	1,621
Gains on loans sold	99	72
Equity security gains, net	11	6
Earnings on bank owned life insurance	151	152
Other	148	140
TOTAL NON-INTEREST INCOME	2,033	1,906
NON-INTEREST EXPENSES:
Salaries and employee benefits	5,029	4,835
Occupancy	592	592
Furniture and equipment	155	142
Professional fees	442	399
FDIC insurance	111	100
Pennsylvania shares tax	275	300
Amortization of intangibles	66	76
ORE expenses	107	34
Other	1,545	1,354
TOTAL NON-INTEREST EXPENSES	8,322	7,832
Income before provision for income taxes	5,226	4,994
Provision for income taxes	821	747
NET INCOME	$ 4,405	$ 4,247
PER COMMON SHARE DATA:
Net Income - Basic (in dollars per share)	$ 1.26	$ 1.21
Net Income - Diluted (in dollars per share)	$ 1.26	$ 1.21
Number of shares used in computation - basic (in shares)	3,494,010	3,512,552
Number of shares used in computation - diluted (in shares)	3,494,010	3,512,915
Service Charges [Member]
NON-INTEREST INCOME:
Revenue from customers	$ 1,099	$ 1,104
Trust [Member]
NON-INTEREST INCOME:
Revenue from customers	232	251
Brokerage and Insurance [Member]
NON-INTEREST INCOME:
Revenue from customers	$ 293	$ 181

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CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED) [Abstract]
Net income	$ 4,405	$ 4,247
Other comprehensive income (loss):
Change in unrealized gains (losses) on available for sale securities	1,328	(2,045)
Income tax effect	(280)	428
Change in unrecognized pension cost	61	46
Income tax effect	(13)	(9)
Other comprehensive income (loss), net of tax	1,096	(1,580)
Comprehensive income (loss)	$ 5,501	$ 2,667

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Consolidated Statement of Changes in Stockholders' Equity - USD ($) $ in Thousands	Common Stock [Member]	Additional Paid-in Capital [Member]	Retained Earnings [Member]	Accumulated Other Comprehensive Income (Loss) [Member]	Treasury Stock [Member]	Total
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Change in Accounting policy for equity securities			$ (1)	$ 1		$ 0
Balance at Dec. 31, 2017	$ 3,870	$ 51,108	89,982	(3,398)	$ (12,551)	129,011
Balance (in shares) at Dec. 31, 2017	3,869,939
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income			4,247			4,247
Net other comprehensive income (loss)				(1,580)		(1,580)
Purchase of treasury stock					(331)	(331)
Restricted stock, executive and Board of Director awards		0			13	13
Restricted stock vesting		5				5
Cash dividends			(1,515)			(1,515)
Balance at Mar. 31, 2018	$ 3,870	51,113	92,713	(4,977)	(12,869)	129,850
Balance (in shares) at Mar. 31, 2018	3,869,939
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Change in Accounting policy for equity securities				1
Balance at Dec. 31, 2018	$ 3,904	53,099	99,727	(3,921)	(13,580)	139,229
Balance (in shares) at Dec. 31, 2018	3,904,212
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income			4,405			4,405
Net other comprehensive income (loss)				1,096		1,096
Purchase of treasury stock					(330)	(330)
Restricted stock vesting		3				3
Cash dividends			(1,558)			(1,558)
Balance at Mar. 31, 2019	$ 3,904	$ 53,102	$ 102,574	$ (2,825)	$ (13,910)	$ 142,845
Balance (in shares) at Mar. 31, 2019	3,904,212

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Consolidated Statement of Changes in Stockholders' Equity (Parenthetical) - $ / shares	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Consolidated Statement of Changes in Stockholders' Equity [Abstract]
Purchase of treasury stock (in shares)	5,762	5,329
Cash dividends (in dollars per share)	$ 0.445	$ 0.431

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CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$ 4,405	$ 4,247
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses	400	500
Depreciation and amortization	183	69
Amortization and accretion on investment securities	175	306
Deferred income taxes	464	(181)
Investment securities gains, net	(11)	(6)
Earnings on bank owned life insurance	(151)	(152)
Originations of loans held for sale	(3,880)	(2,523)
Proceeds from sales of loans held for sale	4,885	3,772
Realized gains on loans sold	(99)	(72)
Increase in accrued interest receivable	(317)	(87)
Increase (decrease) in accrued interest payable	16	(30)
Other, net	(1,313)	482
Net cash provided by operating activities	4,757	6,325
Available-for-sale securities:
Proceeds from maturity and principal repayments	10,581	22,872
Purchase of securities	(12,855)	(21,963)
Purchase of interest bearing time deposits with other banks	0	(249)
Proceeds from redemption of regulatory stock	2,580	2,709
Purchase of regulatory stock	(2,782)	(2,630)
Net increase in loans	(12,908)	(31,081)
Purchase of premises and equipment	(105)	(41)
Proceeds from sale of premises and equipment	1	0
Proceeds from sale of foreclosed assets held for sale	89	195
Net cash used in investing activities	(15,399)	(30,188)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits	(3,502)	10,210
Proceeds from long-term borrowings	5,000	2
Repayments of long-term borrowings	(2,589)	0
Net (decrease) increase in short-term borrowed funds	14,658	9,455
Purchase of treasury and restricted stock	(330)	(331)
Dividends paid	(1,558)	(1,515)
Net cash provided by financing activities	11,679	17,821
Net (decrease) increase in cash and cash equivalents	1,037	(6,042)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD	16,797	18,517
CASH AND CASH EQUIVALENTS AT END OF PERIOD	17,834	12,475
Supplemental Disclosures of Cash Flow Information:
Interest paid	3,086	1,993
Income taxes paid	0	0
Non-cash Transactions [Abstract]
Loans transferred to foreclosed property	3,805	13
Right of use asset and liability	$ 1,454	$ 0

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Basis of Presentation

3 Months Ended

Mar. 31, 2019

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 subsidiaries, First Citizens Insurance Agency, Inc. (“First Citizens Insurance”) and 1^st Realty of PA LLC (“Realty”). Realty was formed in March of 2019 to manage and sell properties acquired in the settlement of a bankruptcy filing with a commercial customer.

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 March 31, 2019 and for the periods ended March 31, 2019 and 2018 include all adjustments, consisting of only normal recurring adjustments, necessary for a fair presentation of the financial condition and the results of operations at the dates and for the periods presented. 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 covered by the Consolidated Income Statement. The financial performance reported for the Company for the three month period ended March 31, 2019 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, 2018.

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. ASU 2016-02 was effective for the Company on January 1, 2019. In July 2018, the FASB issued ASU 2018-11, “Leases (Topic 842) - Targeted Improvements,” which, among other things, provides an additional transition method that would allow entities to not apply the guidance in ASU 2016-02 in the comparative periods presented in the financial statements and instead recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. In December 2018, the FASB also issued ASU 2018-20, “Leases (Topic 842) - Narrow-Scope Improvements for Lessors,” which provides for certain policy elections and changes lessor accounting for sales and similar taxes and certain lessor costs. Upon adoption of ASU 2016-02, ASU 2018-11 and ASU 2018-20 on January 1, 2019, we recognized a right-of-use assets and related lease liabilities totaling $1,454,000 each. We elected to apply certain practical expedients provided under ASU 2016-02 whereby we did not reassess (i) whether any expired or existing contracts are or contain leases, (ii) the lease classification for any expired or existing leases and (iii) initial direct costs for any existing leases. We also elected not to apply the recognition requirements of ASU 2016-02 to any short-term leases (as defined by related accounting guidance). We account for lease and non-lease components separately because such amounts are readily determinable under our lease contracts. We expect to utilize the modified-retrospective transition approach prescribed by ASU 2018-11.  Certain of the Company’s leases contain options to renew the lease after the initial term. Management considers the Company’s historical pattern of exercising renewal options on leases and the positive performance of the leased locations, when determining whether it is reasonably certain that the leases will be renewed. If management concludes that there is reasonable certainty about the renewal it is included in the calculation of the remaining term of each applicable lease. The discount rate utilized in calculating the present value of the remaining lease payments for each lease was the Federal Home Loan Bank of Pittsburgh advance rate corresponding to the remaining maturity of the lease as of January 1, 2019. We have included additional disclosures in note 7.

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Revenue Recognition

3 Months Ended

Mar. 31, 2019

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 89.8% and 89.4% of the total revenue of the Company for the three months ended March 31, 2019 and 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 and 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 months ended March 31, 2019 and 2018 (in thousands). All revenue in the table below relates to goods and services transferred at a point in time.

	Three Months Ended
	March 31,
Revenue stream	2019		2018
Service charges on deposit accounts
Overdraft fees	$	358		367
Statement fees		51		54
Interchange revenue		540		531
ATM income		91		96
Other service charges		59		56
Total Service Charges		1,099		1,104
Trust		232		251
Brokerage and insurance		293		181
Other		111		85
Total	$	1,735	$	1,621

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Earnings per Share

3 Months Ended

Mar. 31, 2019

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
	March 31,
	2019		2018
Net income applicable to common stock	$	4,405,000	$	4,247,000
Basic earnings per share computation
Weighted average common shares outstanding		3,494,010		3,512,552
Earnings per share - basic	$	1.26	$	1.21
Diluted earnings per share computation
Weighted average common shares outstanding for basic earnings per share		3,494,010		3,512,552
Add: Dilutive effects of restricted stock		-		363
Weighted average common shares outstanding for dilutive earnings per share		3,494,010		3,512,915
Earnings per share - diluted	$	1.26	$	1.21

For the three months ended March 31, 2019 and 2018, there were 6,705 and 426 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 $47.81-$62.93 for the three month period ended March 31, 2019 and per share prices ranging from $49.87-$61.04 for the three month period ended March 31, 2018.

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Investments

3 Months Ended

Mar. 31, 2019

Investments [Abstract]

Investments

Note 4 – Investments

The amortized cost, gross unrealized gains and losses, and fair value of investment securities at March 31, 2019 and December 31, 2018 were as follows (in thousands):

			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
March 31, 2019	Cost		Gains		Losses			Value
Available-for-sale securities:
U.S. agency securities	$	102,388	$	940	$	(464	)	$	102,864
U.S. treasury securities		33,828		-		(321	)		33,507
Obligations of state and
political subdivisions		60,375		267		(44	)		60,598
Corporate obligations		3,000		39		-			3,039
Mortgage-backed securities in
government sponsored entities		44,751		143		(465	)		44,429
Total available-for-sale securities	$	244,342	$	1,389	$	(1,294	)	$	244,437
			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
December 31, 2018	Cost		Gains		Losses			Value
Available-for-sale securities:
U.S. agency securities	$	106,516	$	509	$	(640	)	$	106,385
U.S. treasury securities		33,813		-		(455	)		33,358
Obligations of state and
political subdivisions		52,074		150		(177	)		52,047
Corporate obligations		3,000		34		-			3,034
Mortgage-backed securities in
government sponsored entities		46,839		59		(712	)		46,186
Total available-for-sale securities	$	242,242	$	752	$	(1,984	)	$	241,010

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 March 31, 2019 and December 31, 2018 (in thousands). As of March 31, 2019, the Company owned 84 securities whose fair value was less than their cost basis.

March 31, 2019	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	$	-	$	-		$	44,321	$	(464	)	$	44,321	$	(464	)
U.S. treasury securities		-		-			33,507		(321	)		33,507		(321	)
Obligations of state and
political subdivisions		-		-			8,070		(44	)		8,070		(44	)
Mortgage-backed securities in
government sponsored entities		-		-			32,526		(465	)		32,526		(465	)
Total securities	$	-	$	-		$	118,424	$	(1,294	)	$	118,424	$	(1,294	)
December 31, 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	$	5,981	$	(5	)	$	52,673	$	(635	)	$	58,654	$	(640	)
U.S. treasury securities		4,948		(31	)		28,410		(424	)		33,358		(455	)
Obligations of states and
political subdivisions		8,979		(22	)		12,441		(155	)		21,420		(177	)
Mortgage-backed securities in
government sponsored entities		5,272		(18	)		32,570		(694	)		37,842		(712	)
Total securities	$	25,180	$	(76	)	$	126,094	$	(1,908	)	$	151,274	$	(1,984	)

As of March 31, 2019 and December 31, 2018, 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 three months ended March 31, 2019 and 2018.

The following table presents the net gains on the Company’s equity investments recognized in earnings during the three month ended March 31, 2019 and 2018, and the portion of unrealized gains for the period that relates to equity investments held at March 31, 2019 and 2018:

	Three Months Ended
	March 31,
Equity Securities	2019		2018
Net gains (losses) recognized in equity securities during the period	$	11	$	6
Less: Net gains realized on the sale of equity securities during the period		-		-
Net unrealized  gains (losses)	$	11	$	6

Investment securities with an approximate carrying value of $210.2 million and $221.2 million at March 31, 2019 and December 31, 2018, 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 March 31, 2019, by contractual maturity, are shown below (in thousands):

	Amortized
	Cost		Fair Value
Available-for-sale debt securities:
Due in one year or less	$	25,824	$	25,698
Due after one year through five years		110,098		110,052
Due after five years through ten years		50,487		50,803
Due after ten years		57,933		57,884
Total	$	244,342	$	244,437

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Loans

3 Months Ended

Mar. 31, 2019

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 March 31, 2019 and December 31, 2018, 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 March 31, 2019 and December 31, 2018 (in thousands):

March 31, 2019	Total Loans		Individually evaluated for impairment		Loans acquired with deteriorated credit quality		Collectively evaluated for impairment
Real estate loans:
Residential	$	214,635	$	1,178	$	28	$	213,429
Commercial		334,371		10,724		1,291		322,356
Agricultural		295,547		5,562		-		289,985
Construction		18,611		-		-		18,611
Consumer		9,773		-		-		9,773
Other commercial loans		74,323		2,072		486		71,765
Other agricultural loans		43,245		1,428		-		41,817
State and political subdivision loans		100,412		-		-		100,412
Total		1,090,917		20,964		1,805		1,068,148
Allowance for loan losses		13,084		721		-		12,363
Net loans	$	1,077,833	$	20,243	$	1,805	$	1,055,785

December 31, 2018	Total Loans		Individually evaluated for impairment		Loans acquired with deteriorated credit quality		Collectively evaluated for impairment
Real estate loans:
Residential	$	215,305	$	890	$	28	$	214,387
Commercial		319,265		13,327		1,321		304,617
Agricultural		284,520		5,592		-		278,928
Construction		33,913		-		-		33,913
Consumer		9,858		-		-		9,858
Other commercial loans		74,118		2,206		510		71,402
Other agricultural loans		42,186		1,435		-		40,751
State and political subdivision loans		102,718		-		-		102,718
Total		1,081,883		23,450		1,859		1,056,574
Allowance for loan losses		12,884		676		-		12,208
Net loans	$	1,068,999	$	22,774	$	1,859	$	1,044,366

Purchased loans are recorded at fair value on their purchase date without a carryover of the related allowance for loan losses. Upon acquisition, the Company evaluates 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 decreases in the expected cash flows of these loans between the acquisition date and March 31, 2019. 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 $1,805,000 and $1,859,000 at March 31, 2019 and December 31, 2018, 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 months ended March 31, 2019 and 2018, respectively (in thousands):

	Three months ended
	March 31,
	2019			2018
Balance at beginning of period	$	104		$	106
Accretion		(2	)		(24	)
Balance at end of period	$	102		$	82

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

	March 31,		December 31, 2018
Outstanding balance	$	4,521	$	4,529
Carrying amount		1,805		1,859

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
March 31, 2019	Balance		Allowance		Allowance		Investment		Allowance
Real estate loans:
Mortgages	$	1,239	$	856	$	238	$	1,094	$	10
Home Equity		103		11		73		84		13
Commercial		11,242		9,635		1,089		10,724		310
Agricultural		5,569		2,368		3,194		5,562		83
Construction		-		-		-		-		-
Consumer		-		-		-		-		-
Other commercial loans		2,608		1,752		320		2,072		146
Other agricultural loans		1,483		119		1,309		1,428		159
State and political
subdivision loans		-		-		-		-		-
Total	$	22,244	$	14,741	$	6,223	$	20,964	$	721

			Recorded		Recorded
	Unpaid		Investment		Investment		Total
	Principal		With No		With		Recorded		Related
December 31, 2018	Balance		Allowance		Allowance		Investment		Allowance
Real estate loans:
Mortgages	$	932	$	515	$	288	$	803	$	10
Home Equity		106		12		75		87		14
Commercial		16,326		11,933		1,394		13,327		216
Agricultural		5,598		2,386		3,206		5,592		84
Construction		-		-		-		-		-
Consumer		-		-		-		-		-
Other commercial loans		2,711		1,836		370		2,206		193
Other agricultural loans		1,487		120		1,315		1,435		159
State and political
subdivision loans		-		-		-		-		-
Total	$	27,160	$	16,802	$	6,648	$	23,450	$	676

The following tables includes the average balance of impaired financing receivables by class and the income recognized on these receivables for the three month periods ended March 31, 2019 and 2018(in thousands):

	For the Three Months ended
	March 31, 2019						March 31, 2018
					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	$	1,103	$	4	$	-	$	1,023	$	4	$	-
Home Equity		85		1		-		107		1		-
Commercial		12,548		119		6		13,795		122		5
Agricultural		5,575		32		-		4,086		51		-
Construction		-		-		-		-		-		-
Consumer		-		-		-		4		-		-
Other commercial loans		2,137		1		-		4,156		26		-
Other agricultural loans		1,431		2		-		1,370		10		-
State and political
subdivision loans		-		-		-		-		-		-
Total	$	22,879	$	159	$	6	$	24,541	$	214	$	5

Credit Quality Information

For commercial real estate, agricultural real estate, construction, other commercial, other agricultural and state and political subdivision loans, management uses a nine grade internal risk rating system to monitor and assess  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 March 31, 2019 and December 31, 2018 (in thousands):

March 31, 2019	Pass		Special Mention		Substandard		Doubtful		Loss		Ending Balance
Real estate loans:
Commercial	$	316,782	$	10,140	$	7,410	$	39	$	-	$	334,371
Agricultural		273,727		11,735		10,085		-		-		295,547
Construction		18,611		-		-		-		-		18,611
Other commercial loans		71,048		736		2,469		70		-		74,323
Other agricultural loans		39,699		1,660		1,886		-		-		43,245
State and political
subdivision loans		99,873		-		539		-		-		100,412
Total	$	819,740	$	24,271	$	22,389	$	109	$	-	$	866,509

December 31, 2018	Pass		Special Mention		Substandard		Doubtful		Loss		Ending Balance
Real estate loans:
Commercial	$	297,690	$	10,792	$	10,743	$	40	$	-	$	319,265
Agricultural		264,732		10,017		9,771		-		-		284,520
Construction		33,913		-		-		-		-		33,913
Other commercial loans		70,425		777		2,800		116		-		74,118
Other agricultural loans		38,628		1,724		1,834		-		-		42,186
State and political
subdivision loans		92,666		9,481		571		-		-		102,718
Total	$	798,054	$	32,791	$	25,719	$	156	$	-	$	856,720

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 March 31, 2019 and December 31, 2018 (in thousands):

March 31, 2019	Performing		Non-performing		PCI		Total
Real estate loans:
Mortgages	$	155,440	$	1,032	$	28	$	156,500
Home Equity		58,041		94		-		58,135
Consumer		9,773		-		-		9,773
Total	$	223,254	$	1,126	$	28	$	224,408
December 31, 2018	Performing		Non-performing		PCI		Total
Real estate loans:
Mortgages	$	155,360	$	1,099	$	28	$	156,487
Home Equity		58,736		82		-		58,818
Consumer		9,832		26		-		9,858
Total	$	223,928	$	1,207	$	28	$	225,163

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 March 31, 2019 and December 31, 2018 (in thousands):

													Total		90 Days or
	30-59 Days		60-89 Days		90 Days		Total Past						Financing		Greater and
March 31, 2019	Past Due		Past Due		Or Greater		Due		Current		PCI		Receivables		Accruing
Real estate loans:
Mortgages	$	592	$	83	$	717	$	1,392	$	155,080	$	28	$	156,500	$	23
Home Equity		401		87		89		577		57,558		-		58,135		17
Commercial		1,888		499		2,368		4,755		328,325		1,291		334,371		4
Agricultural		991		-		3,596		4,587		290,960		-		295,547		-
Construction		-		-		-		-		18,611		-		18,611		-
Consumer		96		-		-		96		9,677		-		9,773		-
Other commercial loans		396		-		1,980		2,376		71,461		486		74,323		20
Other agricultural loans		180		36		1,196		1,412		41,833		-		43,245		-
State and political
subdivision loans		-		-		-		-		100,412		-		100,412		-
Total	$	4,544	$	705	$	9,946	$	15,195	$	1,073,917	$	1,805	$	1,090,917	$	64
Loans considered non-accrual	$	354	$	425	$	9,882	$	10,661	$	1,039	$	-	$	11,700
Loans still accruing		4,190		280		64		4,534		1,072,878		1,805		1,079,217
Total	$	4,544	$	705	$	9,946	$	15,195	$	1,073,917	$	1,805	$	1,090,917

															90 Days or
	30-59 Days		60-89 Days		90 Days		Total Past						Total Financing		Greater and
December 31, 2018	Past Due		Past Due		Or Greater		Due		Current		PCI		Receivables		Accruing
Real estate loans:
Mortgages	$	483	$	789	$	686	$	1,958	$	154,501	$	28	$	156,487	$	20
Home Equity		257		108		63		428		58,390		-		58,818		-
Commercial		999		631		4,706		6,336		311,608		1,321		319,265		36
Agricultural		121		-		3,184		3,305		281,215		-		284,520		-
Construction		-		-		-		-		33,913		-		33,913		-
Consumer		37		14		12		63		9,795		-		9,858		12
Other commercial loans		141		53		2,061		2,255		71,353		510		74,118		-
Other agricultural loans		-		-		1,201		1,201		40,985		-		42,186		-
State and political
subdivision loans		-		-		-		-		102,718		-		102,718		-
Total	$	2,038	$	1,595	$	11,913	$	15,546	$	1,064,478	$	1,859	$	1,081,883	$	68
Loans considered non-accrual	$	72	$	253	$	11,845	$	12,170	$	1,554	$	-	$	13,724
Loans still accruing		1,966		1,342		68		3,376		1,062,924		1,859		1,068,159
Total	$	2,038	$	1,595	$	11,913	$	15,546	$	1,064,478	$	1,859	$	1,081,883

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 March 31, 2019 and December 31, 2018, respectively. The balances are presented by class of financing receivable (in thousands):

	March 31, 2019		December 31, 2018
Real estate loans:
Mortgages	$	1,009	$	1,079
Home Equity		77		82
Commercial		3,689		5,957
Agricultural		3,607		3,206
Construction		-		-
Consumer		-		14
Other commercial loans		2,053		2,185
Other agricultural loans		1,265		1,201
State and political subdivision		-		-
	$	11,700	$	13,724

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 March 31, 2019 and December 31, 2018, included within the allowance for loan losses are reserves of $249,000 and $255,000 respectively, that are associated with loans modified as TDRs.

Loan modifications that are considered TDRs completed during the three months ended March 31, 2019 and 2018 were as follows (dollars in thousands):

	For the Three Months Ended March 31, 2019
	Number of contracts				Pre-modification Outstanding Recorded Investment				Post-Modification Outstanding Recorded Investment
	Interest Modification		Term Modification		Interest Modification		Term Modification		Interest Modification		Term Modification
Real estate loans:
Commercial		-		1	$	-	$	548	$	-	$	548
Total		-		1	$	-	$	548	$	-	$	548

	For the Three Months Ended March 31, 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
Total		-		1	$	-	$	7	$	-	$	7

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. The following table presents the recorded investment in loans that were modified as TDRs during each 12-month period prior to the current reporting periods, which began January 1, 2019 and 2018 (3 month periods), respectively, and that subsequently defaulted during these reporting periods (dollars in thousands):

	For the Three Months Ended
	March 31, 2019				March 31, 2018
	Number of contracts		Recorded investment		Number of contracts		Recorded investment
Other agricultural loans		1	$	124		-	$	-
Total recidivism		1	$	124		-	$	-

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 March 31, 2019 and December 31, 2018, respectively (in thousands):

	March 31, 2019						December 31, 2018
	Individually evaluated for impairment		Collectively evaluated for impairment		Total		Individually evaluated for impairment		Collectively evaluated for impairment		Total
Real estate loans:
Residential	$	23	$	1,066	$	1,089	$	24	$	1,081	$	1,105
Commercial		310		3,820		4,130		216		3,899		4,115
Agricultural		83		4,309		4,392		84		4,180		4,264
Construction		-		32		32		-		58		58
Consumer		-		124		124		-		120		120
Other commercial loans		146		1,137		1,283		193		1,161		1,354
Other agricultural loans		159		597		756		159		593		752
State and political
subdivision loans		-		565		565		-		762		762
Unallocated		-		713		713		-		354		354
Total	$	721	$	12,363	$	13,084	$	676	$	12,208	$	12,884

The following tables roll forward the balance of the ALLL by portfolio segment for the three months ended March 31, 2019 and 2018, respectively (in thousands):

	For the three months ended March 31, 2019
	Balance at December 31, 2018		Charge-offs			Recoveries		Provision			Balance at March 31, 2019
Real estate loans:
Residential	$	1,105	$	-		$	-	$	(16	)	$	1,089
Commercial		4,115		(200	)		-		215			4,130
Agricultural		4,264		-			-		128			4,392
Construction		58		-			-		(26	)		32
Consumer		120		(14	)		11		7			124
Other commercial loans		1,354		-			3		(74	)		1,283
Other agricultural loans		752		-			-		4			756
State and political
subdivision loans		762		-			-		(197	)		565
Unallocated		354		-			-		359			713
Total	$	12,884	$	(214	)	$	14	$	400		$	13,084

	For the three months ended March 31, 2018
	Balance at December 31, 2017		Charge-offs			Recoveries		Provision			Balance at March 31, 2018
Real estate loans:
Residential	$	1,049	$	(15	)	$	-	$	43		$	1,077
Commercial		3,867		-			-		139			4,006
Agricultural		3,143		-					197			3,340
Construction		23		-			-		16			39
Consumer		124		(13	)		10		2			123
Other commercial loans		1,272		(45	)		3		43			1,273
Other agricultural loans		492		(43	)		-		83			532
State and political
subdivision loans		816		-			-		(27	)		789
Unallocated		404		-			-		4			408
Total	$	11,190	$	(116	)	$	13	$	500		$	11,587

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 at least 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 March 31, 2019, the allowance for commercial real estate was decreased in general reserves due to a decrease in the amount of non-accrual, classified and past due loans, which was offset by an specific reserves. This was represented as an increase in the provision. The allowance for agricultural real estate loans was increased in general reserves as a result of higher loan balances, an increase in the amount of loans classified as non-accrual and past due. The result of this was represented as an increase in the provision. The allowance for other commercial loans was decreased as a result of a decrease in specific reserves and a decrease in the volume of classified loans. The result of these changes was represented as a decrease in the provision. The allowance for state and political subdivision was decreased as a result a decrease in the volume of classified loans. The result of this change was represented as a decrease in the provision.

For the three months ended March 31, 2018, the allowance for residential real estate increased in general reserves for pooled loans as a result of increased loss rates reflected in the charge-offs for the three month period, as well as higher loan balances. The increase was offset by a decrease in the specific reserve for individually evaluated residential loans. This was represented as an increase to the provision.  The allowance for commercial real estate was increased in general reserves due to growth in the commercial real estate loan portfolio. It was also impacted by an increase in specific reserves during the quarter. This was represented as an increase in the provision. The allowance for agricultural real estate loans was increased in general reserves as a result of higher loan balances. The result of this growth was represented as an increase in the provision. The allowance for other 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.

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 March 31, 2019 and December 31, 2018, included with other assets are $4,295,000 and $601,000, respectively, of foreclosed assets. As of March 31, 2019, included within the foreclosed assets are $561,000 of consumer residential mortgages that were foreclosed on or received via a deed in lieu transaction prior to the period end. As of March 31 2019, the Company has initiated formal foreclosure proceedings on $1,072,000 of consumer residential mortgages, which have not yet been transferred into foreclosed assets.

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Goodwill and Other Intangible Assets

3 Months Ended

Mar. 31, 2019

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 March 31, 2019 and December 31, 2018 (in thousands):

	March 31, 2019							December 31, 2018
	Gross carrying value		Accumulated amortization			Net carrying value		Gross carrying value		Accumulated amortization			Net carrying value
Amortized intangible assets (1):
MSRs	$	1,763	$	(1,114	)	$	649	$	1,725	$	(1,066	)	$	659
Core deposit intangibles		1,786		(909	)		877		1,786		(851	)		935
Covenant not to compete		125		(104	)		21		125		(96	)		29
Total amortized intangible assets	$	3,674	$	(2,127	)	$	1,547	$	3,636	$	(2,013	)	$	1,623
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 (in thousands) at March 31, 2019. Future amortization expense may vary from these projections:

	MSRs		Core deposit intangibles		Covenant not to compete		Total
Three months ended March 31, 2019 (actual)	$	48	$	58	$	8	$	114
Three months ended March 31, 2018 (actual)		49		69		8		126
Estimate for year ending December 31,
Remaining 2019		138		172		21		331
2020		150		197		-		347
2021		117		165		-		282
2022		88		133		-		221
2023		64		100		-		164

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Leases

3 Months Ended

Mar. 31, 2019

Leases [Abstract]

Leases

Note 7 – Leases

The following table details the Company’s right of use asset and the corresponding lease liability for the Company’s operating leases as of March 31, 2019 and the impacted line item on the Consolidated Balance Sheet(in thousands):

Lease Type	Balance at March 31, 2019		Affected line item on the Consolidated Balance Sheet
Right of Use Assets
Operating	$	1,381	Other Assets
Lease Liabilities:
Operating	$	1,383	Other Liabilities

The following table provides information related to the Company’s lease costs for the three months ended March 31, 2019 (in thousands):

Lease Cost
Operating lease cost	$	85
Variable lease cost		23
Total lease cost	$	108

The following table displays the weighted average remaining lease term and the weighted average discount rate for the Company’s operating leases outstanding as of March 31, 2019:

	Operating
Weighted average term (years)	6.55
Weighted average discount rate	3.11%

The following table provides the undiscounted cashflows related to operating leases as of March 31, 2019 along with a reconciliation to the discounted amount recorded on the March 31, 2019 Consolidated Balance Sheet (in thousands):

Undiscounted cash flows due within	Operating
Remaining 2019	$	250
2020		279
2021		238
2022		230
2023		142
2024		105
2025 and thereafter		291
Total undiscounted cash flows		1,535
Impact of present value discount		154
Amount reported on balance sheet	$	1,381

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Employee Benefit Plans

3 Months Ended

Mar. 31, 2019

Employee Benefit Plans [Abstract]

Employee Benefit Plans

Note 8 - 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 2018 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 the First National Bank of Fredericksburg (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. The Bank has begun proceedings to close the FNB plan, which is expected to occur in 2019. 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 March 31, 2019 and 2018, respectively (in thousands):

	Three Months Ended
	March 31,
	2019			2018			Affected line item on the Consolidated Statement of Income
Service cost	$	89		$	89		Salary and Employee Benefits
Interest cost		139			163		Other Expenses
Expected return on plan assets		(205	)		(344	)	Other Expenses
Net amortization and deferral		61			46		Other Expenses
Net periodic benefit cost (benefit)	$	84		$	(46	)

The Bank expects to contribute $250,000 to the Pension Plans during 2019.

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 March 31, 2019, 135,582 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 months ended March 31, 2019:

	Three months
				Weighted
	Unvested			Average
	Shares			Market Price
Outstanding, beginning of period		9,764		$	58.21
Granted		-			-
Forfeited		-			-
Vested		(50	)		(51.13	)
Outstanding, end of period		9,714		$	58.25

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 $67,000 and $56,000 for the three months ended March 31, 2019 and 2018, respectively. At March 31, 2019, the total compensation cost related to nonvested awards that has not yet been recognized was $566,000, which is expected to be recognized over the next three years.

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Accumulated Comprehensive Loss

3 Months Ended

Mar. 31, 2019

Accumulated Comprehensive Loss [Abstract]

Accumulated Comprehensive Loss

Note 9 – Accumulated Comprehensive Loss

The following tables present the changes in accumulated other comprehensive loss by component net of tax for the three months ended March 31, 2019 and 2018 (in thousands):

	Three months ended March 31, 2019
	Unrealized gain (loss) on available for sale securities (a)			Defined Benefit Pension Items (a)			Total
Balance as of December 31, 2018	$	(973	)	$	(2,948	)	$	(3,921	)
Other comprehensive income (loss) before reclassifications (net of tax)		1,048			-			1,048
Amounts reclassified from accumulated other
comprehensive income (loss) (net of tax)		-			48			48
Net current period other comprehensive income (loss)		1,048			48			1,096
Balance as of March 31, 2019	$	75		$	(2,900	)	$	(2,825	)
	Three months ended March 31, 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)		(1,617	)		-			(1,617	)
Amounts reclassified from accumulated other
comprehensive loss (net of tax)		-			37			37
Net current period other comprehensive income (loss)		(1,617	)		37			(1,580	)
Balance as of March 31, 2018	$	(1,885	)	$	(3,092	)	$	(4,977	)
(a) Amounts in parentheses indicate debits on the Consolidated Balance Sheet.

The following table presents the significant amounts reclassified out of each component of accumulated other comprehensive income for the three months ended March 31, 2019 and 2018 (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 March 31,
	2019			2018
Unrealized gains and losses on available for sale securities
	$	-		$	-		Available for sale securities gains, net
		-			-		Provision for income taxes
	$	-		$	-		Net of tax
Defined benefit pension items
	$	(61	)	$	(46	)	Other expenses
		13			9		Provision for income taxes
	$	(48	)	$	(37	)	Net of tax
Total reclassifications	$	(48	)	$	(37	)
(a) Amounts in parentheses indicate expenses and other amounts indicate income on the Consolidated Statement of Income

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Fair Value Measurements

3 Months Ended

Mar. 31, 2019

Fair Value Measurements [Abstract]

Fair Value Measurements

Note 10 – 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 March 31, 2019 and December 31, 2018 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.

March 31, 2019	Level I		Level II		Level III		Total
Fair value measurements on a recurring basis:
Assets
Equity securities	$	527	$	-	$	-	$	527
Available for sale securities:
U.S. Agency securities		-		102,864		-		102,864
U.S. Treasury securities		33,507		-		-		33,507
Obligations of state and
political subdivisions		-		60,598		-		60,598
Corporate obligations		-		3,039		-		3,039
Mortgage-backed securities in
government sponsored entities		-		44,429		-		44,429

December 31, 2018	Level I		Level II		Level III		Total
Fair value measurements on a recurring basis:
Assets
Equity securities	$	516	$	-	$	-	$	516
Available for sale securities:
U.S. Agency securities		-		106,385		-		106,385
U.S. Treasuries securities		33,358		-		-		33,358
Obligations of state and
political subdivisions		-		52,047		-		52,047
Corporate obligations		-		3,034		-		3,034
Mortgage-backed securities in
government sponsored entities		-		46,186		-		46,186

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 March 31, 2019 and December 31, 2018 are included in the table below (in thousands):

March 31, 2019	Level I		Level II		Level III		Total
Impaired Loans	$	-	$	-	$	5,220	$	5,220
Other real estate owned		-		-		3,560		3,560
December 31, 2018	Level I		Level II		Level III		Total
Impaired Loans	$	-	$	-	$	5,815	$	5,815
Other real estate owned		-		-		532		532

· 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 $520,000 and $563,000 at March 31, 2019 and December 31, 2018, 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).

March 31, 2019	Fair Value		Valuation Technique(s)	Unobservable input	Range			Weighted average
Impaired Loans	$	5,220	Appraised Collateral Values	Discount for time since appraisal		0-100	%		18.48	%
				Selling costs		5%-12	%		8.78	%
				Holding period	0 - 12 months			11.67 months
Other real estate owned		3,560	Appraised Collateral Values	Discount for time since appraisal		15-67	%		17.90	%
December 31, 2018	Fair Value		Valuation Technique(s)	Unobservable input	Range
Impaired Loans		5,815	Appraised Collateral Values	Discount for time since appraisal		0-100	%		19.22	%
				Selling costs		5%-12	%		8.70	%
				Holding period	6 - 12 months			11.61 months
Other real estate owned		532	Appraised Collateral Values	Discount for time since appraisal		20-55	%		31.44	%

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
March 31, 2019	Amount		Fair Value		Level I		Level II		Level III
Financial assets:
Interest bearing time deposits with other banks	$	15,498	$	15,608	$	-	$	-	$	15,608
Loans held for sale		183		183		183		-		-
Net loans		1,077,833		1,068,984		-		-		1,068,984
Financial liabilities:
Deposits		1,181,654		1,178,511		889,970		-		288,541
Borrowed funds		108,263		107,602		-		-		107,602
	Carrying
December 31, 2018	Amount		Fair Value		Level I		Level II		Level III
Financial assets:
Interest bearing time deposits with other banks	$	15,498	$	15,422	$	-	$	-	$	15,422
Loans held for sale		1,127		1,126		-		-		1,126
Net loans		1,068,999		1,062,645		-		-		1,062,645
Financial liabilities:
Deposits		1,185,156		1,180,694		886,686		-		294,008
Borrowed funds		91,194		90,427		-		-		90,427

The carrying amounts for cash and due from banks, bank owned life insurance, regulatory stock, accrued interest receivable and payable approximate fair value and are considered Level I measurements.

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Legal and Regulatory Proceedings

3 Months Ended

Mar. 31, 2019

Legal and Regulatory Proceedings [Abstract]

Legal and Regulatory Proceedings

Note 11 Legal and Regulatory Proceedings

In the ordinary course of business, the Company is subject to legal proceedings, including claims, litigation, investigations and administrative proceedings, all of which are considered incidental to the normal conduct of business. Litigation may relate to lending, deposit and other customer relationships, vendor and contractual issues, employee matters, intellectual property matters, personal injuries and torts, regulatory and legal compliance, and other matters. The Company believes it has substantial defenses to the claims asserted against it in its currently outstanding legal proceedings and, with respect to such legal proceedings, intends to defend itself vigorously. Set forth below are descriptions of certain of the Company’s legal proceedings.

The Bank was named as a defendant in a lawsuit filed in the United States Bankruptcy Court for Western District of New York District, Arnold v. First Citizens National Bank, wherein the plaintiff sought to avoid and recover various payments to First Citizens made by Cornerstone Homes, Inc. and avoid or subordinate liens made in favor of First Citizens on property of Cornerstone on multiple grounds, including that the transfers constituted fraudulent conveyances under applicable law. This case was settled in the first quarter of 2019 at which time the Bank acquired numerous residential real estate properties which have been recorded as foreclosed asset held for sale.

The Company assesses its liabilities and contingencies in connection with outstanding legal proceedings utilizing the latest information available. Where it is probable that the Company will incur a loss and the amount of the loss can be reasonably estimated, the Company records a liability in its consolidated financial statements. These legal reserves may be increased or decreased to reflect any relevant developments. Where a loss is not probable or the amount of a probable loss is not reasonably estimable, the Company does not accrue legal reserves. Additionally, for those matters where a loss is reasonably possible and the amount of loss is reasonably estimable, the Company estimates the amount of losses that it could incur beyond the accrued legal reserves. Under U.S. GAAP, an event is “reasonably possible” if “the chance of the future event or events occurring is more than remote but less than likely” and an event is “remote" if “the chance of the future event or events occurring is slight.”

While the outcome of legal proceedings and the timing of the ultimate resolution are inherently difficult to predict, based on information currently available, advice of counsel and available insurance coverage, the Company believes that it has established adequate legal reserves. Further, based upon available information, the Company is of the opinion that these legal proceedings, individually or in the aggregate, will not have a material adverse effect on the Company’s financial condition or results of operations. However, in the event of unexpected future developments, it is reasonably possible that an adverse outcome in any of the matters discussed above could be material to the Company’s business, consolidated financial position, results of operations or cash flows for any particular reporting period of occurrence.

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Recent Accounting Pronouncements

3 Months Ended

Mar. 31, 2019

Recent Accounting Pronouncements [Abstract]

Recent Accounting Pronouncements

Note 12 – Recent Accounting Pronouncements

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments, which changes the impairment model for most financial assets. This Update is intended to improve financial reporting by requiring timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations.  The underlying premise of the Update is that financial assets measured at amortized cost should be presented at the net amount expected to be collected, through an allowance for credit losses that is deducted from the amortized cost basis. The allowance for credit losses should reflect management’s current estimate of credit losses that are expected to occur over the remaining life of a financial asset.  The income statement will be effected for the measurement of credit losses for newly recognized financial assets, as well as the expected increases or decreases of expected credit losses that have taken place during the period. ASU 2016-13 is effective for annual and interim periods beginning after December 15, 2019, and early adoption is permitted for annual and interim periods beginning after December 15, 2018. With certain exceptions, transition to the new requirements will be through a cumulative effect adjustment to opening retained earnings as of the beginning of the first reporting period in which the guidance is adopted.  We expect to recognize a one-time cumulative effect adjustment to the allowance for loan losses as of the beginning of the first reporting period in which the new standard is effective, but cannot yet determine the magnitude of any such one-time adjustment or the overall impact of the new guidance on the consolidated financial statements. In that regard, we have formed a cross-functional working group, under the direction of our Chief Financial Officer. The working group is comprised of individuals from various functional areas including credit, loan origination and finance. We are currently working through our implementation plan which includes assessment and documentation of processes, internal controls and data sources; model development and documentation; and system configuration, among other things. We are also in the process of implementing a third-party vendor solution to assist us in the application of the ASU 2016-13. The adoption of the ASU 2016-13 could result in an increase in the allowance for loan losses as a result of changing from an “incurred loss” model, which encompasses allowances for current known and inherent losses within the portfolio, to an “expected loss” model, which encompasses allowances for losses expected to be incurred over the life of the portfolio. While we are currently unable to reasonably estimate the impact of adopting ASU 2016-13, we expect that the impact of adoption will be significantly influenced by the composition, characteristics and quality of our loan portfolio as well as the prevailing economic conditions and forecasts as of the adoption date.

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

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes the Disclosure Requirements for Fair Value Measurements.  The Update removes the requirement to disclose the amount of and reasons for transfers between Level I and Level II of the fair value hierarchy; the policy for timing of transfers between levels; and the valuation processes for Level III fair value measurements. The Update requires disclosure of changes in unrealized gains and losses for the period included in other comprehensive income (loss) for recurring Level III fair value measurements held at the end of the reporting period and the range and weighted average of significant unobservable inputs used to develop Level III fair value measurements. This Update is effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019.  This Update is not expected to have a significant impact on the Company’s consolidated financial statements.

In August 2018, the FASB issued ASU 2018-14, Compensation – Retirement Benefits (Topic 715-20). This Update amends ASC 715 to add, remove and clarify disclosure requirements related to defined benefit pension and other postretirement plans. The Update eliminates the requirement to disclose the amounts in accumulated other comprehensive income expected to be recognized as part of net periodic benefit cost over the next year. The Update also removes the disclosure requirements for the effects of a one-percentage-point change on the assumed health care costs and the effect of this change in rates on service cost, interest cost and the benefit obligation for postretirement health care benefits. This Update is effective for public business entities for fiscal years ending after December 15, 2020, and must be applied on a retrospective basis.  For all other entities, this Update is effective for fiscal years ending after December 15, 2021.  This Update is not expected to have a significant impact on the Company’s consolidated financial statements.

In March 2019, the FASB issued ASU 2019-01, Leases (Topic 842): Codification Improvements, which addressed issues lessors sometimes encounter. Specifically addressed in this Update were issues related to 1) determining the fair value of the underlying asset by the lessor that are not manufacturers or dealers (generally financial institutions and captive finance companies), and 2) lessors that are depository and lending institutions should classify principal and payments received under sales-type and direct financing leases within investing activities in the cash flow statement. The ASU also exempts both lessees and lessors from having to provide the interim disclosures required by ASC 250-10-50-3 in the fiscal year in which a company adopts the new leases standard. The amendments addressing the two lessor accounting issues are effective for public business entities for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. For all other entities, the effective date is for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. This Update is not expected to have a significant impact on the Company’s financial statements.

In April 2019, the FASB issued ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments – Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments, which affects a variety of topics in the Codification and applies to all reporting entities within the scope of the affected accounting guidance. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations.

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Basis of Presentation (Policies)

3 Months Ended

Mar. 31, 2019

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 subsidiaries, First Citizens Insurance Agency, Inc. (“First Citizens Insurance”) and 1^st Realty of PA LLC (“Realty”). Realty was formed in March of 2019 to manage and sell properties acquired in the settlement of a bankruptcy filing with a commercial customer.

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 March 31, 2019 and for the periods ended March 31, 2019 and 2018 include all adjustments, consisting of only normal recurring adjustments, necessary for a fair presentation of the financial condition and the results of operations at the dates and for the periods presented. 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 covered by the Consolidated Income Statement. The financial performance reported for the Company for the three month period ended March 31, 2019 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, 2018.

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. ASU 2016-02 was effective for the Company on January 1, 2019. In July 2018, the FASB issued ASU 2018-11, “Leases (Topic 842) - Targeted Improvements,” which, among other things, provides an additional transition method that would allow entities to not apply the guidance in ASU 2016-02 in the comparative periods presented in the financial statements and instead recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. In December 2018, the FASB also issued ASU 2018-20, “Leases (Topic 842) - Narrow-Scope Improvements for Lessors,” which provides for certain policy elections and changes lessor accounting for sales and similar taxes and certain lessor costs. Upon adoption of ASU 2016-02, ASU 2018-11 and ASU 2018-20 on January 1, 2019, we recognized a right-of-use assets and related lease liabilities totaling $1,454,000 each. We elected to apply certain practical expedients provided under ASU 2016-02 whereby we did not reassess (i) whether any expired or existing contracts are or contain leases, (ii) the lease classification for any expired or existing leases and (iii) initial direct costs for any existing leases. We also elected not to apply the recognition requirements of ASU 2016-02 to any short-term leases (as defined by related accounting guidance). We account for lease and non-lease components separately because such amounts are readily determinable under our lease contracts. We expect to utilize the modified-retrospective transition approach prescribed by ASU 2018-11.  Certain of the Company’s leases contain options to renew the lease after the initial term. Management considers the Company’s historical pattern of exercising renewal options on leases and the positive performance of the leased locations, when determining whether it is reasonably certain that the leases will be renewed. If management concludes that there is reasonable certainty about the renewal it is included in the calculation of the remaining term of each applicable lease. The discount rate utilized in calculating the present value of the remaining lease payments for each lease was the Federal Home Loan Bank of Pittsburgh advance rate corresponding to the remaining maturity of the lease as of January 1, 2019. We have included additional disclosures in note 7.

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Revenue Recognition (Policies)

3 Months Ended

Mar. 31, 2019

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 89.8% and 89.4% of the total revenue of the Company for the three months ended March 31, 2019 and 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 and 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)

3 Months Ended

Mar. 31, 2019

Recent Accounting Pronouncements [Abstract]

Recent Accounting Pronouncements

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments, which changes the impairment model for most financial assets. This Update is intended to improve financial reporting by requiring timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations.  The underlying premise of the Update is that financial assets measured at amortized cost should be presented at the net amount expected to be collected, through an allowance for credit losses that is deducted from the amortized cost basis. The allowance for credit losses should reflect management’s current estimate of credit losses that are expected to occur over the remaining life of a financial asset.  The income statement will be effected for the measurement of credit losses for newly recognized financial assets, as well as the expected increases or decreases of expected credit losses that have taken place during the period. ASU 2016-13 is effective for annual and interim periods beginning after December 15, 2019, and early adoption is permitted for annual and interim periods beginning after December 15, 2018. With certain exceptions, transition to the new requirements will be through a cumulative effect adjustment to opening retained earnings as of the beginning of the first reporting period in which the guidance is adopted.  We expect to recognize a one-time cumulative effect adjustment to the allowance for loan losses as of the beginning of the first reporting period in which the new standard is effective, but cannot yet determine the magnitude of any such one-time adjustment or the overall impact of the new guidance on the consolidated financial statements. In that regard, we have formed a cross-functional working group, under the direction of our Chief Financial Officer. The working group is comprised of individuals from various functional areas including credit, loan origination and finance. We are currently working through our implementation plan which includes assessment and documentation of processes, internal controls and data sources; model development and documentation; and system configuration, among other things. We are also in the process of implementing a third-party vendor solution to assist us in the application of the ASU 2016-13. The adoption of the ASU 2016-13 could result in an increase in the allowance for loan losses as a result of changing from an “incurred loss” model, which encompasses allowances for current known and inherent losses within the portfolio, to an “expected loss” model, which encompasses allowances for losses expected to be incurred over the life of the portfolio. While we are currently unable to reasonably estimate the impact of adopting ASU 2016-13, we expect that the impact of adoption will be significantly influenced by the composition, characteristics and quality of our loan portfolio as well as the prevailing economic conditions and forecasts as of the adoption date.

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

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes the Disclosure Requirements for Fair Value Measurements.  The Update removes the requirement to disclose the amount of and reasons for transfers between Level I and Level II of the fair value hierarchy; the policy for timing of transfers between levels; and the valuation processes for Level III fair value measurements. The Update requires disclosure of changes in unrealized gains and losses for the period included in other comprehensive income (loss) for recurring Level III fair value measurements held at the end of the reporting period and the range and weighted average of significant unobservable inputs used to develop Level III fair value measurements. This Update is effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019.  This Update is not expected to have a significant impact on the Company’s consolidated financial statements.

In August 2018, the FASB issued ASU 2018-14, Compensation – Retirement Benefits (Topic 715-20). This Update amends ASC 715 to add, remove and clarify disclosure requirements related to defined benefit pension and other postretirement plans. The Update eliminates the requirement to disclose the amounts in accumulated other comprehensive income expected to be recognized as part of net periodic benefit cost over the next year. The Update also removes the disclosure requirements for the effects of a one-percentage-point change on the assumed health care costs and the effect of this change in rates on service cost, interest cost and the benefit obligation for postretirement health care benefits. This Update is effective for public business entities for fiscal years ending after December 15, 2020, and must be applied on a retrospective basis.  For all other entities, this Update is effective for fiscal years ending after December 15, 2021.  This Update is not expected to have a significant impact on the Company’s consolidated financial statements.

In March 2019, the FASB issued ASU 2019-01, Leases (Topic 842): Codification Improvements, which addressed issues lessors sometimes encounter. Specifically addressed in this Update were issues related to 1) determining the fair value of the underlying asset by the lessor that are not manufacturers or dealers (generally financial institutions and captive finance companies), and 2) lessors that are depository and lending institutions should classify principal and payments received under sales-type and direct financing leases within investing activities in the cash flow statement. The ASU also exempts both lessees and lessors from having to provide the interim disclosures required by ASC 250-10-50-3 in the fiscal year in which a company adopts the new leases standard. The amendments addressing the two lessor accounting issues are effective for public business entities for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. For all other entities, the effective date is for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. This Update is not expected to have a significant impact on the Company’s financial statements.

In April 2019, the FASB issued ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments – Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments, which affects a variety of topics in the Codification and applies to all reporting entities within the scope of the affected accounting guidance. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations.

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Revenue Recognition (Tables)

3 Months Ended

Mar. 31, 2019

Revenue Recognition [Abstract]

Disaggregation of Revenue Derived from Contracts with Customers

All revenue in the table below relates to goods and services transferred at a point in time.

	Three Months Ended
	March 31,
Revenue stream	2019		2018
Service charges on deposit accounts
Overdraft fees	$	358		367
Statement fees		51		54
Interchange revenue		540		531
ATM income		91		96
Other service charges		59		56
Total Service Charges		1,099		1,104
Trust		232		251
Brokerage and insurance		293		181
Other		111		85
Total	$	1,735	$	1,621

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Earnings per Share (Tables)

3 Months Ended

Mar. 31, 2019

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
	March 31,
	2019		2018
Net income applicable to common stock	$	4,405,000	$	4,247,000
Basic earnings per share computation
Weighted average common shares outstanding		3,494,010		3,512,552
Earnings per share - basic	$	1.26	$	1.21
Diluted earnings per share computation
Weighted average common shares outstanding for basic earnings per share		3,494,010		3,512,552
Add: Dilutive effects of restricted stock		-		363
Weighted average common shares outstanding for dilutive earnings per share		3,494,010		3,512,915
Earnings per share - diluted	$	1.26	$	1.21

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Investments (Tables)

3 Months Ended

Mar. 31, 2019

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 March 31, 2019 and December 31, 2018 were as follows (in thousands):

			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
March 31, 2019	Cost		Gains		Losses			Value
Available-for-sale securities:
U.S. agency securities	$	102,388	$	940	$	(464	)	$	102,864
U.S. treasury securities		33,828		-		(321	)		33,507
Obligations of state and
political subdivisions		60,375		267		(44	)		60,598
Corporate obligations		3,000		39		-			3,039
Mortgage-backed securities in
government sponsored entities		44,751		143		(465	)		44,429
Total available-for-sale securities	$	244,342	$	1,389	$	(1,294	)	$	244,437
			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
December 31, 2018	Cost		Gains		Losses			Value
Available-for-sale securities:
U.S. agency securities	$	106,516	$	509	$	(640	)	$	106,385
U.S. treasury securities		33,813		-		(455	)		33,358
Obligations of state and
political subdivisions		52,074		150		(177	)		52,047
Corporate obligations		3,000		34		-			3,034
Mortgage-backed securities in
government sponsored entities		46,839		59		(712	)		46,186
Total available-for-sale securities	$	242,242	$	752	$	(1,984	)	$	241,010

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 March 31, 2019 and December 31, 2018 (in thousands). As of March 31, 2019, the Company owned 84 securities whose fair value was less than their cost basis.

March 31, 2019	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	$	-	$	-		$	44,321	$	(464	)	$	44,321	$	(464	)
U.S. treasury securities		-		-			33,507		(321	)		33,507		(321	)
Obligations of state and
political subdivisions		-		-			8,070		(44	)		8,070		(44	)
Mortgage-backed securities in
government sponsored entities		-		-			32,526		(465	)		32,526		(465	)
Total securities	$	-	$	-		$	118,424	$	(1,294	)	$	118,424	$	(1,294	)
December 31, 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	$	5,981	$	(5	)	$	52,673	$	(635	)	$	58,654	$	(640	)
U.S. treasury securities		4,948		(31	)		28,410		(424	)		33,358		(455	)
Obligations of states and
political subdivisions		8,979		(22	)		12,441		(155	)		21,420		(177	)
Mortgage-backed securities in
government sponsored entities		5,272		(18	)		32,570		(694	)		37,842		(712	)
Total securities	$	25,180	$	(76	)	$	126,094	$	(1,908	)	$	151,274	$	(1,984	)

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 ended March 31, 2019 and 2018, and the portion of unrealized gains for the period that relates to equity investments held at March 31, 2019 and 2018:

	Three Months Ended
	March 31,
Equity Securities	2019		2018
Net gains (losses) recognized in equity securities during the period	$	11	$	6
Less: Net gains realized on the sale of equity securities during the period		-		-
Net unrealized  gains (losses)	$	11	$	6

Amortized Cost and Fair Value of Debt Securities by Contractual Maturity

The amortized cost and fair value of debt securities (excludes equity securities) at March 31, 2019, by contractual maturity, are shown below (in thousands):

	Amortized
	Cost		Fair Value
Available-for-sale debt securities:
Due in one year or less	$	25,824	$	25,698
Due after one year through five years		110,098		110,052
Due after five years through ten years		50,487		50,803
Due after ten years		57,933		57,884
Total	$	244,342	$	244,437

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Loans (Tables)

3 Months Ended

Mar. 31, 2019

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 March 31, 2019 and December 31, 2018 (in thousands):

March 31, 2019	Total Loans		Individually evaluated for impairment		Loans acquired with deteriorated credit quality		Collectively evaluated for impairment
Real estate loans:
Residential	$	214,635	$	1,178	$	28	$	213,429
Commercial		334,371		10,724		1,291		322,356
Agricultural		295,547		5,562		-		289,985
Construction		18,611		-		-		18,611
Consumer		9,773		-		-		9,773
Other commercial loans		74,323		2,072		486		71,765
Other agricultural loans		43,245		1,428		-		41,817
State and political subdivision loans		100,412		-		-		100,412
Total		1,090,917		20,964		1,805		1,068,148
Allowance for loan losses		13,084		721		-		12,363
Net loans	$	1,077,833	$	20,243	$	1,805	$	1,055,785

December 31, 2018	Total Loans		Individually evaluated for impairment		Loans acquired with deteriorated credit quality		Collectively evaluated for impairment
Real estate loans:
Residential	$	215,305	$	890	$	28	$	214,387
Commercial		319,265		13,327		1,321		304,617
Agricultural		284,520		5,592		-		278,928
Construction		33,913		-		-		33,913
Consumer		9,858		-		-		9,858
Other commercial loans		74,118		2,206		510		71,402
Other agricultural loans		42,186		1,435		-		40,751
State and political subdivision loans		102,718		-		-		102,718
Total		1,081,883		23,450		1,859		1,056,574
Allowance for loan losses		12,884		676		-		12,208
Net loans	$	1,068,999	$	22,774	$	1,859	$	1,044,366

Accretable Yield for Purchased Credit Impaired Loans

Changes in the accretable yield for PCI loans were as follows for the three months ended March 31, 2019 and 2018, respectively (in thousands):

	Three months ended
	March 31,
	2019			2018
Balance at beginning of period	$	104		$	106
Accretion		(2	)		(24	)
Balance at end of period	$	102		$	82

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):

	March 31,		December 31, 2018
Outstanding balance	$	4,521	$	4,529
Carrying amount		1,805		1,859

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
March 31, 2019	Balance		Allowance		Allowance		Investment		Allowance
Real estate loans:
Mortgages	$	1,239	$	856	$	238	$	1,094	$	10
Home Equity		103		11		73		84		13
Commercial		11,242		9,635		1,089		10,724		310
Agricultural		5,569		2,368		3,194		5,562		83
Construction		-		-		-		-		-
Consumer		-		-		-		-		-
Other commercial loans		2,608		1,752		320		2,072		146
Other agricultural loans		1,483		119		1,309		1,428		159
State and political
subdivision loans		-		-		-		-		-
Total	$	22,244	$	14,741	$	6,223	$	20,964	$	721

			Recorded		Recorded
	Unpaid		Investment		Investment		Total
	Principal		With No		With		Recorded		Related
December 31, 2018	Balance		Allowance		Allowance		Investment		Allowance
Real estate loans:
Mortgages	$	932	$	515	$	288	$	803	$	10
Home Equity		106		12		75		87		14
Commercial		16,326		11,933		1,394		13,327		216
Agricultural		5,598		2,386		3,206		5,592		84
Construction		-		-		-		-		-
Consumer		-		-		-		-		-
Other commercial loans		2,711		1,836		370		2,206		193
Other agricultural loans		1,487		120		1,315		1,435		159
State and political
subdivision loans		-		-		-		-		-
Total	$	27,160	$	16,802	$	6,648	$	23,450	$	676

The following tables includes the average balance of impaired financing receivables by class and the income recognized on these receivables for the three month periods ended March 31, 2019 and 2018(in thousands):

	For the Three Months ended
	March 31, 2019						March 31, 2018
					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	$	1,103	$	4	$	-	$	1,023	$	4	$	-
Home Equity		85		1		-		107		1		-
Commercial		12,548		119		6		13,795		122		5
Agricultural		5,575		32		-		4,086		51		-
Construction		-		-		-		-		-		-
Consumer		-		-		-		4		-		-
Other commercial loans		2,137		1		-		4,156		26		-
Other agricultural loans		1,431		2		-		1,370		10		-
State and political
subdivision loans		-		-		-		-		-		-
Total	$	22,879	$	159	$	6	$	24,541	$	214	$	5

Financing Receivable Credit Exposures by Internally Assigned Grades

The following tables represent credit exposures by internally assigned grades as of March 31, 2019 and December 31, 2018 (in thousands):

March 31, 2019	Pass		Special Mention		Substandard		Doubtful		Loss		Ending Balance
Real estate loans:
Commercial	$	316,782	$	10,140	$	7,410	$	39	$	-	$	334,371
Agricultural		273,727		11,735		10,085		-		-		295,547
Construction		18,611		-		-		-		-		18,611
Other commercial loans		71,048		736		2,469		70		-		74,323
Other agricultural loans		39,699		1,660		1,886		-		-		43,245
State and political
subdivision loans		99,873		-		539		-		-		100,412
Total	$	819,740	$	24,271	$	22,389	$	109	$	-	$	866,509

December 31, 2018	Pass		Special Mention		Substandard		Doubtful		Loss		Ending Balance
Real estate loans:
Commercial	$	297,690	$	10,792	$	10,743	$	40	$	-	$	319,265
Agricultural		264,732		10,017		9,771		-		-		284,520
Construction		33,913		-		-		-		-		33,913
Other commercial loans		70,425		777		2,800		116		-		74,118
Other agricultural loans		38,628		1,724		1,834		-		-		42,186
State and political
subdivision loans		92,666		9,481		571		-		-		102,718
Total	$	798,054	$	32,791	$	25,719	$	156	$	-	$	856,720

The following table presents the recorded investment in those loan classes based on payment activity as of March 31, 2019 and December 31, 2018 (:

March 31, 2019	Performing		Non-performing		PCI		Total
Real estate loans:
Mortgages	$	155,440	$	1,032	$	28	$	156,500
Home Equity		58,041		94		-		58,135
Consumer		9,773		-		-		9,773
Total	$	223,254	$	1,126	$	28	$	224,408
December 31, 2018	Performing		Non-performing		PCI		Total
Real estate loans:
Mortgages	$	155,360	$	1,099	$	28	$	156,487
Home Equity		58,736		82		-		58,818
Consumer		9,832		26		-		9,858
Total	$	223,928	$	1,207	$	28	$	225,163

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 March 31, 2019 and December 31, 2018

													Total		90 Days or
	30-59 Days		60-89 Days		90 Days		Total Past						Financing		Greater and
March 31, 2019	Past Due		Past Due		Or Greater		Due		Current		PCI		Receivables		Accruing
Real estate loans:
Mortgages	$	592	$	83	$	717	$	1,392	$	155,080	$	28	$	156,500	$	23
Home Equity		401		87		89		577		57,558		-		58,135		17
Commercial		1,888		499		2,368		4,755		328,325		1,291		334,371		4
Agricultural		991		-		3,596		4,587		290,960		-		295,547		-
Construction		-		-		-		-		18,611		-		18,611		-
Consumer		96		-		-		96		9,677		-		9,773		-
Other commercial loans		396		-		1,980		2,376		71,461		486		74,323		20
Other agricultural loans		180		36		1,196		1,412		41,833		-		43,245		-
State and political
subdivision loans		-		-		-		-		100,412		-		100,412		-
Total	$	4,544	$	705	$	9,946	$	15,195	$	1,073,917	$	1,805	$	1,090,917	$	64
Loans considered non-accrual	$	354	$	425	$	9,882	$	10,661	$	1,039	$	-	$	11,700
Loans still accruing		4,190		280		64		4,534		1,072,878		1,805		1,079,217
Total	$	4,544	$	705	$	9,946	$	15,195	$	1,073,917	$	1,805	$	1,090,917

															90 Days or
	30-59 Days		60-89 Days		90 Days		Total Past						Total Financing		Greater and
December 31, 2018	Past Due		Past Due		Or Greater		Due		Current		PCI		Receivables		Accruing
Real estate loans:
Mortgages	$	483	$	789	$	686	$	1,958	$	154,501	$	28	$	156,487	$	20
Home Equity		257		108		63		428		58,390		-		58,818		-
Commercial		999		631		4,706		6,336		311,608		1,321		319,265		36
Agricultural		121		-		3,184		3,305		281,215		-		284,520		-
Construction		-		-		-		-		33,913		-		33,913		-
Consumer		37		14		12		63		9,795		-		9,858		12
Other commercial loans		141		53		2,061		2,255		71,353		510		74,118		-
Other agricultural loans		-		-		1,201		1,201		40,985		-		42,186		-
State and political
subdivision loans		-		-		-		-		102,718		-		102,718		-
Total	$	2,038	$	1,595	$	11,913	$	15,546	$	1,064,478	$	1,859	$	1,081,883	$	68
Loans considered non-accrual	$	72	$	253	$	11,845	$	12,170	$	1,554	$	-	$	13,724
Loans still accruing		1,966		1,342		68		3,376		1,062,924		1,859		1,068,159
Total	$	2,038	$	1,595	$	11,913	$	15,546	$	1,064,478	$	1,859	$	1,081,883

Financing Receivables on Nonaccrual Status

The following table reflects the financing receivables, excluding PCI loans, on non-accrual status as of March 31, 2019 and December 31, 2018, respectively. The balances are presented by class of financing receivable (in thousands):

	March 31, 2019		December 31, 2018
Real estate loans:
Mortgages	$	1,009	$	1,079
Home Equity		77		82
Commercial		3,689		5,957
Agricultural		3,607		3,206
Construction		-		-
Consumer		-		14
Other commercial loans		2,053		2,185
Other agricultural loans		1,265		1,201
State and political subdivision		-		-
	$	11,700	$	13,724

Troubled Debt Restructurings on Financing Receivables

Loan modifications that are considered TDRs completed during the three months ended March 31, 2019 and 2018 were as follows (dollars in thousands):

	For the Three Months Ended March 31, 2019
	Number of contracts				Pre-modification Outstanding Recorded Investment				Post-Modification Outstanding Recorded Investment
	Interest Modification		Term Modification		Interest Modification		Term Modification		Interest Modification		Term Modification
Real estate loans:
Commercial		-		1	$	-	$	548	$	-	$	548
Total		-		1	$	-	$	548	$	-	$	548

	For the Three Months Ended March 31, 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
Total		-		1	$	-	$	7	$	-	$	7

Subsequent Default Recorded Investment

The following table presents the recorded investment in loans that were modified as TDRs during each 12-month period prior to the current reporting periods, which began January 1, 2019 and 2018 (3 month periods), respectively, and that subsequently defaulted during these reporting periods (dollars in thousands):

	For the Three Months Ended
	March 31, 2019				March 31, 2018
	Number of contracts		Recorded investment		Number of contracts		Recorded investment
Other agricultural loans		1	$	124		-	$	-
Total recidivism		1	$	124		-	$	-

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 March 31, 2019 and December 31, 2018, respectively (in thousands):

	March 31, 2019						December 31, 2018
	Individually evaluated for impairment		Collectively evaluated for impairment		Total		Individually evaluated for impairment		Collectively evaluated for impairment		Total
Real estate loans:
Residential	$	23	$	1,066	$	1,089	$	24	$	1,081	$	1,105
Commercial		310		3,820		4,130		216		3,899		4,115
Agricultural		83		4,309		4,392		84		4,180		4,264
Construction		-		32		32		-		58		58
Consumer		-		124		124		-		120		120
Other commercial loans		146		1,137		1,283		193		1,161		1,354
Other agricultural loans		159		597		756		159		593		752
State and political
subdivision loans		-		565		565		-		762		762
Unallocated		-		713		713		-		354		354
Total	$	721	$	12,363	$	13,084	$	676	$	12,208	$	12,884

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 months ended March 31, 2019 and 2018, respectively (in thousands):

	For the three months ended March 31, 2019
	Balance at December 31, 2018		Charge-offs			Recoveries		Provision			Balance at March 31, 2019
Real estate loans:
Residential	$	1,105	$	-		$	-	$	(16	)	$	1,089
Commercial		4,115		(200	)		-		215			4,130
Agricultural		4,264		-			-		128			4,392
Construction		58		-			-		(26	)		32
Consumer		120		(14	)		11		7			124
Other commercial loans		1,354		-			3		(74	)		1,283
Other agricultural loans		752		-			-		4			756
State and political
subdivision loans		762		-			-		(197	)		565
Unallocated		354		-			-		359			713
Total	$	12,884	$	(214	)	$	14	$	400		$	13,084

	For the three months ended March 31, 2018
	Balance at December 31, 2017		Charge-offs			Recoveries		Provision			Balance at March 31, 2018
Real estate loans:
Residential	$	1,049	$	(15	)	$	-	$	43		$	1,077
Commercial		3,867		-			-		139			4,006
Agricultural		3,143		-					197			3,340
Construction		23		-			-		16			39
Consumer		124		(13	)		10		2			123
Other commercial loans		1,272		(45	)		3		43			1,273
Other agricultural loans		492		(43	)		-		83			532
State and political
subdivision loans		816		-			-		(27	)		789
Unallocated		404		-			-		4			408
Total	$	11,190	$	(116	)	$	13	$	500		$	11,587

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Goodwill and Other Intangible Assets (Tables)

3 Months Ended

Mar. 31, 2019

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 March 31, 2019 and December 31, 2018 (in thousands):

	March 31, 2019							December 31, 2018
	Gross carrying value		Accumulated amortization			Net carrying value		Gross carrying value		Accumulated amortization			Net carrying value
Amortized intangible assets (1):
MSRs	$	1,763	$	(1,114	)	$	649	$	1,725	$	(1,066	)	$	659
Core deposit intangibles		1,786		(909	)		877		1,786		(851	)		935
Covenant not to compete		125		(104	)		21		125		(96	)		29
Total amortized intangible assets	$	3,674	$	(2,127	)	$	1,547	$	3,636	$	(2,013	)	$	1,623
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 (in thousands) at March 31, 2019. Future amortization expense may vary from these projections:

	MSRs		Core deposit intangibles		Covenant not to compete		Total
Three months ended March 31, 2019 (actual)	$	48	$	58	$	8	$	114
Three months ended March 31, 2018 (actual)		49		69		8		126
Estimate for year ending December 31,
Remaining 2019		138		172		21		331
2020		150		197		-		347
2021		117		165		-		282
2022		88		133		-		221
2023		64		100		-		164

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Leases (Tables)

3 Months Ended

Mar. 31, 2019

Leases [Abstract]

Right of Use Assets and Lease Liabilities

The following table details the Company’s right of use asset and the corresponding lease liability for the Company’s operating leases as of March 31, 2019 and the impacted line item on the Consolidated Balance Sheet(in thousands):

Lease Type	Balance at March 31, 2019		Affected line item on the Consolidated Balance Sheet
Right of Use Assets
Operating	$	1,381	Other Assets
Lease Liabilities:
Operating	$	1,383	Other Liabilities

Lease Cost

The following table provides information related to the Company’s lease costs for the three months ended March 31, 2019 (in thousands):

Lease Cost
Operating lease cost	$	85
Variable lease cost		23
Total lease cost	$	108

Weighted Average Remaining Lease Term and Discount Rate

The following table displays the weighted average remaining lease term and the weighted average discount rate for the Company’s operating leases outstanding as of March 31, 2019:

	Operating
Weighted average term (years)	6.55
Weighted average discount rate	3.11%

Undiscounted Cashflows Due Related to Operating Leases

The following table provides the undiscounted cashflows related to operating leases as of March 31, 2019 along with a reconciliation to the discounted amount recorded on the March 31, 2019 Consolidated Balance Sheet (in thousands):

Undiscounted cash flows due within	Operating
Remaining 2019	$	250
2020		279
2021		238
2022		230
2023		142
2024		105
2025 and thereafter		291
Total undiscounted cash flows		1,535
Impact of present value discount		154
Amount reported on balance sheet	$	1,381

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Employee Benefit Plans (Tables)

3 Months Ended

Mar. 31, 2019

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 March 31, 2019 and 2018, respectively (in thousands):

	Three Months Ended
	March 31,
	2019			2018			Affected line item on the Consolidated Statement of Income
Service cost	$	89		$	89		Salary and Employee Benefits
Interest cost		139			163		Other Expenses
Expected return on plan assets		(205	)		(344	)	Other Expenses
Net amortization and deferral		61			46		Other Expenses
Net periodic benefit cost (benefit)	$	84		$	(46	)

Restricted Stock Activity

The following table details the vesting, awarding and forfeiting of restricted shares during the three months ended March 31, 2019:

	Three months
				Weighted
	Unvested			Average
	Shares			Market Price
Outstanding, beginning of period		9,764		$	58.21
Granted		-			-
Forfeited		-			-
Vested		(50	)		(51.13	)
Outstanding, end of period		9,714		$	58.25

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Accumulated Comprehensive Loss (Tables)

3 Months Ended

Mar. 31, 2019

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 months ended March 31, 2019 and 2018 (in thousands):

	Three months ended March 31, 2019
	Unrealized gain (loss) on available for sale securities (a)			Defined Benefit Pension Items (a)			Total
Balance as of December 31, 2018	$	(973	)	$	(2,948	)	$	(3,921	)
Other comprehensive income (loss) before reclassifications (net of tax)		1,048			-			1,048
Amounts reclassified from accumulated other
comprehensive income (loss) (net of tax)		-			48			48
Net current period other comprehensive income (loss)		1,048			48			1,096
Balance as of March 31, 2019	$	75		$	(2,900	)	$	(2,825	)
	Three months ended March 31, 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)		(1,617	)		-			(1,617	)
Amounts reclassified from accumulated other
comprehensive loss (net of tax)		-			37			37
Net current period other comprehensive income (loss)		(1,617	)		37			(1,580	)
Balance as of March 31, 2018	$	(1,885	)	$	(3,092	)	$	(4,977	)
(a) Amounts in parentheses indicate debits on the Consolidated Balance 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 months ended March 31, 2019 and 2018 (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 March 31,
	2019			2018
Unrealized gains and losses on available for sale securities
	$	-		$	-		Available for sale securities gains, net
		-			-		Provision for income taxes
	$	-		$	-		Net of tax
Defined benefit pension items
	$	(61	)	$	(46	)	Other expenses
		13			9		Provision for income taxes
	$	(48	)	$	(37	)	Net of tax
Total reclassifications	$	(48	)	$	(37	)
(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)

3 Months Ended

Mar. 31, 2019

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 March 31, 2019 and December 31, 2018 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.

March 31, 2019	Level I		Level II		Level III		Total
Fair value measurements on a recurring basis:
Assets
Equity securities	$	527	$	-	$	-	$	527
Available for sale securities:
U.S. Agency securities		-		102,864		-		102,864
U.S. Treasury securities		33,507		-		-		33,507
Obligations of state and
political subdivisions		-		60,598		-		60,598
Corporate obligations		-		3,039		-		3,039
Mortgage-backed securities in
government sponsored entities		-		44,429		-		44,429

December 31, 2018	Level I		Level II		Level III		Total
Fair value measurements on a recurring basis:
Assets
Equity securities	$	516	$	-	$	-	$	516
Available for sale securities:
U.S. Agency securities		-		106,385		-		106,385
U.S. Treasuries securities		33,358		-		-		33,358
Obligations of state and
political subdivisions		-		52,047		-		52,047
Corporate obligations		-		3,034		-		3,034
Mortgage-backed securities in
government sponsored entities		-		46,186		-		46,186

Assets Measured at Fair Value on Non-recurring Basis

Assets measured at fair value on a nonrecurring basis as of March 31, 2019 and December 31, 2018 are included in the table below (in thousands):

March 31, 2019	Level I		Level II		Level III		Total
Impaired Loans	$	-	$	-	$	5,220	$	5,220
Other real estate owned		-		-		3,560		3,560
December 31, 2018	Level I		Level II		Level III		Total
Impaired Loans	$	-	$	-	$	5,815	$	5,815
Other real estate owned		-		-		532		532

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).

March 31, 2019	Fair Value		Valuation Technique(s)	Unobservable input	Range			Weighted average
Impaired Loans	$	5,220	Appraised Collateral Values	Discount for time since appraisal		0-100	%		18.48	%
				Selling costs		5%-12	%		8.78	%
				Holding period	0 - 12 months			11.67 months
Other real estate owned		3,560	Appraised Collateral Values	Discount for time since appraisal		15-67	%		17.90	%
December 31, 2018	Fair Value		Valuation Technique(s)	Unobservable input	Range
Impaired Loans		5,815	Appraised Collateral Values	Discount for time since appraisal		0-100	%		19.22	%
				Selling costs		5%-12	%		8.70	%
				Holding period	6 - 12 months			11.61 months
Other real estate owned		532	Appraised Collateral Values	Discount for time since appraisal		20-55	%		31.44	%

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
March 31, 2019	Amount		Fair Value		Level I		Level II		Level III
Financial assets:
Interest bearing time deposits with other banks	$	15,498	$	15,608	$	-	$	-	$	15,608
Loans held for sale		183		183		183		-		-
Net loans		1,077,833		1,068,984		-		-		1,068,984
Financial liabilities:
Deposits		1,181,654		1,178,511		889,970		-		288,541
Borrowed funds		108,263		107,602		-		-		107,602
	Carrying
December 31, 2018	Amount		Fair Value		Level I		Level II		Level III
Financial assets:
Interest bearing time deposits with other banks	$	15,498	$	15,422	$	-	$	-	$	15,422
Loans held for sale		1,127		1,126		-		-		1,126
Net loans		1,068,999		1,062,645		-		-		1,062,645
Financial liabilities:
Deposits		1,185,156		1,180,694		886,686		-		294,008
Borrowed funds		91,194		90,427		-		-		90,427

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Basis of Presentation (Details) - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018
New Accounting Pronouncements and Changes in Accounting Principles [Abstract]
Lease liabilities	$ 1,381
ASU 2016-02 [Member]
New Accounting Pronouncements and Changes in Accounting Principles [Abstract]
Right-of-use assets		$ 1,454
Lease liabilities		$ 1,454

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Revenue Recognition (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Revenue from Customers [Abstract]
Revenue from customers	$ 1,735	$ 1,621
Service Charges [Member]
Revenue from Customers [Abstract]
Revenue from customers	1,099	1,104
Overdraft Fees [Member]
Revenue from Customers [Abstract]
Revenue from customers	358	367
Statement Fees [Member]
Revenue from Customers [Abstract]
Revenue from customers	51	54
Interchange Revenue [Member]
Revenue from Customers [Abstract]
Revenue from customers	540	531
ATM Income [Member]
Revenue from Customers [Abstract]
Revenue from customers	91	96
Other Service Charges [Member]
Revenue from Customers [Abstract]
Revenue from customers	59	56
Trust [Member]
Revenue from Customers [Abstract]
Revenue from customers	232	251
Brokerage and Insurance [Member]
Revenue from Customers [Abstract]
Revenue from customers	293	181
Other [Member]
Revenue from Customers [Abstract]
Revenue from customers	$ 111	$ 85
Revenue [Member] | Product Concentration Risk [Member] | Products and Services Not within the Scope of ASC 606 [Member]
Concentration Risk [Abstract]
Concentration risk percentage	89.80%	89.40%

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Earnings per Share (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Earnings per share basic and diluted [Abstract]
Net income applicable to common stock	$ 4,405	$ 4,247
Basic earnings per share computation [Abstract]
Weighted average common shares outstanding (in shares)	3,494,010	3,512,552
Earnings per share - basic (in dollars per share)	$ 1.26	$ 1.21
Diluted earnings per share computation [Abstract]
Weighted average common shares outstanding for basic earnings per share (in shares)	3,494,010	3,512,552
Add: Dilutive effects of restricted stock (in shares)	0	363
Weighted average common shares outstanding for dilutive earnings per share (in shares)	3,494,010	3,512,915
Earnings per share - diluted (in dollars per share)	$ 1.26	$ 1.21
Restricted Stock [Member]
Antidilutive Securities [Abstract]
Antidilutive restricted stock excluded from net income per share calculations (in shares)	6,705	426
Restricted Stock [Member] | Minimum [Member]
Antidilutive Securities [Abstract]
Antidilutive stock share price range (in dollars per share)	$ 47.81	$ 49.87
Restricted Stock [Member] | Maximum [Member]
Antidilutive Securities [Abstract]
Antidilutive stock share price range (in dollars per share)	$ 62.93	$ 61.04

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Investments (Details) $ in Thousands	3 Months Ended
	Mar. 31, 2019 USD ($) Security	Mar. 31, 2018 USD ($)	Dec. 31, 2018 USD ($)
Debt Securities [Abstract]
Amortized cost	$ 244,342		$ 242,242
Gross unrealized gains	1,389		752
Gross unrealized losses	(1,294)		(1,984)
Fair value	$ 244,437		241,010
Number of securities owned with fair value less than cost | Security	84
Available-for-sale, Debt Securities, Fair Value and Gross Unrealized Losses [Abstract]
Less than twelve months, Fair value	$ 0		25,180
Twelve months or greater, Fair value	118,424		126,094
Total, Fair value	118,424		151,274
Less than twelve months, Gross unrealized losses	0		(76)
Twelve months or greater, Gross unrealized losses	(1,294)		(1,908)
Total, Gross Unrealized Losses	(1,294)		(1,984)
Proceeds from sale of securities available-for-sale	0	$ 0
Equity Securities [Abstract]
Net gains (losses) recognized in equity securities during the period	11	6
Less: Net gains realized on the sale of equity securities during the period	0	0
Net unrealized gains (losses)	11	$ 6
Investment securities pledged as collateral	210,200		221,200
Available-for-Sale Debt Securities, Amortized Cost [Abstract]
Due in one year or less	25,824
Due after one year through five years	110,098
Due after five years through ten years	50,487
Due after ten years	57,933
Amortized cost	244,342		242,242
Available-for-Sale Debt Securities, Fair Value [Abstract]
Due in one year or less	25,698
Due after one year through five years	110,052
Due after five years through ten years	50,803
Due after ten years	57,884
Fair value	244,437		241,010
U.S. Agency Securities [Member]
Debt Securities [Abstract]
Amortized cost	102,388		106,516
Gross unrealized gains	940		509
Gross unrealized losses	(464)		(640)
Fair value	102,864		106,385
Available-for-sale, Debt Securities, Fair Value and Gross Unrealized Losses [Abstract]
Less than twelve months, Fair value	0		5,981
Twelve months or greater, Fair value	44,321		52,673
Total, Fair value	44,321		58,654
Less than twelve months, Gross unrealized losses	0		(5)
Twelve months or greater, Gross unrealized losses	(464)		(635)
Total, Gross Unrealized Losses	(464)		(640)
Available-for-Sale Debt Securities, Amortized Cost [Abstract]
Amortized cost	102,388		106,516
Available-for-Sale Debt Securities, Fair Value [Abstract]
Fair value	102,864		106,385
U.S. Treasury Securities [Member]
Debt Securities [Abstract]
Amortized cost	33,828		33,813
Gross unrealized gains	0		0
Gross unrealized losses	(321)		(455)
Fair value	33,507		33,358
Available-for-sale, Debt Securities, Fair Value and Gross Unrealized Losses [Abstract]
Less than twelve months, Fair value	0		4,948
Twelve months or greater, Fair value	33,507		28,410
Total, Fair value	33,507		33,358
Less than twelve months, Gross unrealized losses	0		(31)
Twelve months or greater, Gross unrealized losses	(321)		(424)
Total, Gross Unrealized Losses	(321)		(455)
Available-for-Sale Debt Securities, Amortized Cost [Abstract]
Amortized cost	33,828		33,813
Available-for-Sale Debt Securities, Fair Value [Abstract]
Fair value	33,507		33,358
Obligations of State and Political Subdivisions [Member]
Debt Securities [Abstract]
Amortized cost	60,375		52,074
Gross unrealized gains	267		150
Gross unrealized losses	(44)		(177)
Fair value	60,598		52,047
Available-for-sale, Debt Securities, Fair Value and Gross Unrealized Losses [Abstract]
Less than twelve months, Fair value	0		8,979
Twelve months or greater, Fair value	8,070		12,441
Total, Fair value	8,070		21,420
Less than twelve months, Gross unrealized losses	0		(22)
Twelve months or greater, Gross unrealized losses	(44)		(155)
Total, Gross Unrealized Losses	(44)		(177)
Available-for-Sale Debt Securities, Amortized Cost [Abstract]
Amortized cost	60,375		52,074
Available-for-Sale Debt Securities, Fair Value [Abstract]
Fair value	60,598		52,047
Corporate Obligations [Member]
Debt Securities [Abstract]
Amortized cost	3,000		3,000
Gross unrealized gains	39		34
Gross unrealized losses	0		0
Fair value	3,039		3,034
Available-for-Sale Debt Securities, Amortized Cost [Abstract]
Amortized cost	3,000		3,000
Available-for-Sale Debt Securities, Fair Value [Abstract]
Fair value	3,039		3,034
Mortgage-backed Securities in Government Sponsored Entities [Member]
Debt Securities [Abstract]
Amortized cost	44,751		46,839
Gross unrealized gains	143		59
Gross unrealized losses	(465)		(712)
Fair value	44,429		46,186
Available-for-sale, Debt Securities, Fair Value and Gross Unrealized Losses [Abstract]
Less than twelve months, Fair value	0		5,272
Twelve months or greater, Fair value	32,526		32,570
Total, Fair value	32,526		37,842
Less than twelve months, Gross unrealized losses	0		(18)
Twelve months or greater, Gross unrealized losses	(465)		(694)
Total, Gross Unrealized Losses	(465)		(712)
Available-for-Sale Debt Securities, Amortized Cost [Abstract]
Amortized cost	44,751		46,839
Available-for-Sale Debt Securities, Fair Value [Abstract]
Fair value	$ 44,429		$ 46,186

XML

Loans, Primary Segments Portfolio and Accretable Yield for PCI Loans (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018	Dec. 31, 2018
Segments of loan portfolio and allowance for loan losses [Abstract]
Total financing receivables	$ 1,090,917		$ 1,081,883
Individually evaluated for impairment	20,964		23,450
Loans acquired with deteriorated credit quality	1,805		1,859
Collectively evaluated for impairment	1,068,148		1,056,574
Allowance for loan losses	13,084		12,884
Individually evaluated for impairment	721		676
Allowance for loan losses related to loans acquired with deteriorated credit quality	0		0
Collectively evaluated for impairment	12,363		12,208
Net loans	1,077,833		1,068,999
Net loans, individually evaluated for impairment	20,243		22,774
Net loans, loans acquired with deteriorated credit quality	1,805		1,859
Net loans, collectively evaluated for impairment	$ 1,055,785		1,044,366
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	$ 214,635		215,305
Individually evaluated for impairment	1,178		890
Loans acquired with deteriorated credit quality	28		28
Collectively evaluated for impairment	213,429		214,387
Individually evaluated for impairment	23		24
Collectively evaluated for impairment	1,066		1,081
Real Estate Loans [Member] | Commercial [Member]
Segments of loan portfolio and allowance for loan losses [Abstract]
Total financing receivables	334,371		319,265
Individually evaluated for impairment	10,724		13,327
Loans acquired with deteriorated credit quality	1,291		1,321
Collectively evaluated for impairment	322,356		304,617
Individually evaluated for impairment	310		216
Collectively evaluated for impairment	3,820		3,899
Real Estate Loans [Member] | Agricultural [Member]
Segments of loan portfolio and allowance for loan losses [Abstract]
Total financing receivables	295,547		284,520
Individually evaluated for impairment	5,562		5,592
Loans acquired with deteriorated credit quality	0		0
Collectively evaluated for impairment	289,985		278,928
Individually evaluated for impairment	83		84
Collectively evaluated for impairment	4,309		4,180
Real Estate Loans [Member] | Construction [Member]
Segments of loan portfolio and allowance for loan losses [Abstract]
Total financing receivables	18,611		33,913
Individually evaluated for impairment	0		0
Loans acquired with deteriorated credit quality	0		0
Collectively evaluated for impairment	18,611		33,913
Individually evaluated for impairment	0		0
Collectively evaluated for impairment	32		58
Consumer [Member]
Segments of loan portfolio and allowance for loan losses [Abstract]
Total financing receivables	9,773		9,858
Individually evaluated for impairment	0		0
Loans acquired with deteriorated credit quality	0		0
Collectively evaluated for impairment	9,773		9,858
Individually evaluated for impairment	0		0
Collectively evaluated for impairment	124		120
Other Commercial Loans [Member]
Segments of loan portfolio and allowance for loan losses [Abstract]
Total financing receivables	74,323		74,118
Individually evaluated for impairment	2,072		2,206
Loans acquired with deteriorated credit quality	486		510
Collectively evaluated for impairment	71,765		71,402
Individually evaluated for impairment	146		193
Collectively evaluated for impairment	1,137		1,161
Other Agricultural Loans [Member]
Segments of loan portfolio and allowance for loan losses [Abstract]
Total financing receivables	43,245		42,186
Individually evaluated for impairment	1,428		1,435
Loans acquired with deteriorated credit quality	0		0
Collectively evaluated for impairment	41,817		40,751
Individually evaluated for impairment	159		159
Collectively evaluated for impairment	597		593
State and Political Subdivision Loans [Member]
Segments of loan portfolio and allowance for loan losses [Abstract]
Total financing receivables	100,412		102,718
Individually evaluated for impairment	0		0
Loans acquired with deteriorated credit quality	0		0
Collectively evaluated for impairment	100,412		102,718
Individually evaluated for impairment	0		0
Collectively evaluated for impairment	565		762
First National Bank of Fredericksburg [Member]
Changes in the accretable yield for purchased credit-impaired loans [Roll Forward]
Balance at beginning of period	104	$ 106
Accretion	(2)	(24)
Balance at end of period	102	$ 82
Loans acquired with specific evidence of deterioration in credit quality [Abstract]
Outstanding balance	4,521		4,529
Carrying amount	$ 1,805		$ 1,859

XML

Loans, Impaired Financing Receivable (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018	Dec. 31, 2018
Impaired Financing Receivable [Abstract]
Unpaid Principal Balance	$ 22,244		$ 27,160
Recorded Investment With No Allowance	14,741		16,802
Recorded Investment With Allowance	6,223		6,648
Total Recorded Investment	20,964		23,450
Related Allowance	721		676
Average Recorded Investment	22,879	$ 24,541
Interest Income Recognized	159	214
Interest Income Recognized Cash Basis	6	5
Real Estate Loans [Member] | Mortgages [Member]
Impaired Financing Receivable [Abstract]
Unpaid Principal Balance	1,239		932
Recorded Investment With No Allowance	856		515
Recorded Investment With Allowance	238		288
Total Recorded Investment	1,094		803
Related Allowance	10		10
Average Recorded Investment	1,103	1,023
Interest Income Recognized	4	4
Interest Income Recognized Cash Basis	0	0
Real Estate Loans [Member] | Home Equity [Member]
Impaired Financing Receivable [Abstract]
Unpaid Principal Balance	103		106
Recorded Investment With No Allowance	11		12
Recorded Investment With Allowance	73		75
Total Recorded Investment	84		87
Related Allowance	13		14
Average Recorded Investment	85	107
Interest Income Recognized	1	1
Interest Income Recognized Cash Basis	0	0
Real Estate Loans [Member] | Commercial [Member]
Impaired Financing Receivable [Abstract]
Unpaid Principal Balance	11,242		16,326
Recorded Investment With No Allowance	9,635		11,933
Recorded Investment With Allowance	1,089		1,394
Total Recorded Investment	10,724		13,327
Related Allowance	310		216
Average Recorded Investment	12,548	13,795
Interest Income Recognized	119	122
Interest Income Recognized Cash Basis	6	5
Real Estate Loans [Member] | Agricultural [Member]
Impaired Financing Receivable [Abstract]
Unpaid Principal Balance	5,569		5,598
Recorded Investment With No Allowance	2,368		2,386
Recorded Investment With Allowance	3,194		3,206
Total Recorded Investment	5,562		5,592
Related Allowance	83		84
Average Recorded Investment	5,575	4,086
Interest Income Recognized	32	51
Interest Income Recognized Cash Basis	0	0
Real Estate Loans [Member] | Construction [Member]
Impaired Financing Receivable [Abstract]
Unpaid Principal Balance	0		0
Recorded Investment With No Allowance	0		0
Recorded Investment With Allowance	0		0
Total Recorded Investment	0		0
Related Allowance	0		0
Average Recorded Investment	0	0
Interest Income Recognized	0	0
Interest Income Recognized Cash Basis	0	0
Consumer [Member]
Impaired Financing Receivable [Abstract]
Unpaid Principal Balance	0		0
Recorded Investment With No Allowance	0		0
Recorded Investment With Allowance	0		0
Total Recorded Investment	0		0
Related Allowance	0		0
Average Recorded Investment	0	4
Interest Income Recognized	0	0
Interest Income Recognized Cash Basis	0	0
Other Commercial Loans [Member]
Impaired Financing Receivable [Abstract]
Unpaid Principal Balance	2,608		2,711
Recorded Investment With No Allowance	1,752		1,836
Recorded Investment With Allowance	320		370
Total Recorded Investment	2,072		2,206
Related Allowance	146		193
Average Recorded Investment	2,137	4,156
Interest Income Recognized	1	26
Interest Income Recognized Cash Basis	0	0
Other Agricultural Loans [Member]
Impaired Financing Receivable [Abstract]
Unpaid Principal Balance	1,483		1,487
Recorded Investment With No Allowance	119		120
Recorded Investment With Allowance	1,309		1,315
Total Recorded Investment	1,428		1,435
Related Allowance	159		159
Average Recorded Investment	1,431	1,370
Interest Income Recognized	2	10
Interest Income Recognized Cash Basis	0	0
State and Political Subdivision Loans [Member]
Impaired Financing Receivable [Abstract]
Unpaid Principal Balance	0		0
Recorded Investment With No Allowance	0		0
Recorded Investment With Allowance	0		0
Total Recorded Investment	0		0
Related Allowance	0		$ 0
Average Recorded Investment	0	0
Interest Income Recognized	0	0
Interest Income Recognized Cash Basis	$ 0	$ 0

XML

Loans, Credit Quality Indicator (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2019	Dec. 31, 2018
Financing Receivable by credit exposure [Abstract]
Total	$ 224,408	$ 225,163
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	334,371	319,265
Real Estate Loans [Member] | Agricultural [Member]
Financing Receivable by credit exposure [Abstract]
Total	295,547	284,520
Real Estate Loans [Member] | Construction [Member]
Financing Receivable by credit exposure [Abstract]
Total	18,611	33,913
Real Estate Loans [Member] | Mortgages [Member]
Financing Receivable by credit exposure [Abstract]
Total	156,500	156,487
Real Estate Loans [Member] | Home Equity [Member]
Financing Receivable by credit exposure [Abstract]
Total	58,135	58,818
Consumer [Member]
Financing Receivable by credit exposure [Abstract]
Total	9,773	9,858
Other Commercial Loans [Member]
Financing Receivable by credit exposure [Abstract]
Total	74,323	74,118
Other Agricultural Loans [Member]
Financing Receivable by credit exposure [Abstract]
Total	43,245	42,186
State and Political Subdivision Loans [Member]
Financing Receivable by credit exposure [Abstract]
Total	100,412	102,718
Pass [Member]
Financing Receivable by credit exposure [Abstract]
Total	819,740	798,054
Pass [Member] | Real Estate Loans [Member] | Commercial [Member]
Financing Receivable by credit exposure [Abstract]
Total	316,782	297,690
Pass [Member] | Real Estate Loans [Member] | Agricultural [Member]
Financing Receivable by credit exposure [Abstract]
Total	273,727	264,732
Pass [Member] | Real Estate Loans [Member] | Construction [Member]
Financing Receivable by credit exposure [Abstract]
Total	18,611	33,913
Pass [Member] | Other Commercial Loans [Member]
Financing Receivable by credit exposure [Abstract]
Total	71,048	70,425
Pass [Member] | Other Agricultural Loans [Member]
Financing Receivable by credit exposure [Abstract]
Total	39,699	38,628
Pass [Member] | State and Political Subdivision Loans [Member]
Financing Receivable by credit exposure [Abstract]
Total	99,873	92,666
Special Mention [Member]
Financing Receivable by credit exposure [Abstract]
Total	24,271	32,791
Special Mention [Member] | Real Estate Loans [Member] | Commercial [Member]
Financing Receivable by credit exposure [Abstract]
Total	10,140	10,792
Special Mention [Member] | Real Estate Loans [Member] | Agricultural [Member]
Financing Receivable by credit exposure [Abstract]
Total	11,735	10,017
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	736	777
Special Mention [Member] | Other Agricultural Loans [Member]
Financing Receivable by credit exposure [Abstract]
Total	1,660	1,724
Special Mention [Member] | State and Political Subdivision Loans [Member]
Financing Receivable by credit exposure [Abstract]
Total	0	9,481
Substandard [Member]
Financing Receivable by credit exposure [Abstract]
Total	22,389	25,719
Substandard [Member] | Real Estate Loans [Member] | Commercial [Member]
Financing Receivable by credit exposure [Abstract]
Total	7,410	10,743
Substandard [Member] | Real Estate Loans [Member] | Agricultural [Member]
Financing Receivable by credit exposure [Abstract]
Total	10,085	9,771
Substandard [Member] | Real Estate Loans [Member] | Construction [Member]
Financing Receivable by credit exposure [Abstract]
Total	0	0
Substandard [Member] | Other Commercial Loans [Member]
Financing Receivable by credit exposure [Abstract]
Total	2,469	2,800
Substandard [Member] | Other Agricultural Loans [Member]
Financing Receivable by credit exposure [Abstract]
Total	1,886	1,834
Substandard [Member] | State and Political Subdivision Loans [Member]
Financing Receivable by credit exposure [Abstract]
Total	539	571
Doubtful [Member]
Financing Receivable by credit exposure [Abstract]
Total	109	156
Doubtful [Member] | Real Estate Loans [Member] | Commercial [Member]
Financing Receivable by credit exposure [Abstract]
Total	39	40
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	70	116
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	866,509	856,720
Performing [Member]
Financing Receivable by credit exposure [Abstract]
Total	223,254	223,928
Performing [Member] | Real Estate Loans [Member] | Mortgages [Member]
Financing Receivable by credit exposure [Abstract]
Total	155,440	155,360
Performing [Member] | Real Estate Loans [Member] | Home Equity [Member]
Financing Receivable by credit exposure [Abstract]
Total	58,041	58,736
Performing [Member] | Consumer [Member]
Financing Receivable by credit exposure [Abstract]
Total	9,773	9,832
Nonperforming [Member]
Financing Receivable by credit exposure [Abstract]
Total	1,126	1,207
Nonperforming [Member] | Real Estate Loans [Member] | Mortgages [Member]
Financing Receivable by credit exposure [Abstract]
Total	1,032	1,099
Nonperforming [Member] | Real Estate Loans [Member] | Home Equity [Member]
Financing Receivable by credit exposure [Abstract]
Total	94	82
Nonperforming [Member] | Consumer [Member]
Financing Receivable by credit exposure [Abstract]
Total	0	26
PCI [Member]
Financing Receivable by credit exposure [Abstract]
Total	28	28
PCI [Member] | Real Estate Loans [Member] | Mortgages [Member]
Financing Receivable by credit exposure [Abstract]
Total	28	28
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	3 Months Ended
	Mar. 31, 2019	Dec. 31, 2018
Recorded investment of past due [Abstract]
Total past due	$ 15,195	$ 15,546
Current	1,073,917	1,064,478
PCI	1,805	1,859
Total financing receivables	1,090,917	1,081,883
90 Days or greater and accruing	64	68
Financing receivables on nonaccrual status [Abstract]
Total past due and non-accrual	10,661	12,170
Current and non-accrual	1,039	1,554
PCI Loans considered non accrual	0	0
Financing receivable nonaccrual status	11,700	13,724
Financing receivables on accrual status [Abstract]
Total past due and still accruing	4,534	3,376
Current and still accruing	1,072,878	1,062,924
PCI Loans still accruing	1,805	1,859
Total financing receivables and still accruing	$ 1,079,217	1,068,159
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	$ 4,544	2,038
Financing receivables on nonaccrual status [Abstract]
Total past due and non-accrual	354	72
Financing receivables on accrual status [Abstract]
Total past due and still accruing	4,190	1,966
60 to 89 Days Past Due [Member]
Recorded investment of past due [Abstract]
Total past due	705	1,595
Financing receivables on nonaccrual status [Abstract]
Total past due and non-accrual	425	253
Financing receivables on accrual status [Abstract]
Total past due and still accruing	280	1,342
90 Days Or Greater [Member]
Recorded investment of past due [Abstract]
Total past due	9,946	11,913
Financing receivables on nonaccrual status [Abstract]
Total past due and non-accrual	9,882	11,845
Financing receivables on accrual status [Abstract]
Total past due and still accruing	64	68
Real Estate Loans [Member] | Mortgages [Member]
Recorded investment of past due [Abstract]
Total past due	1,392	1,958
Current	155,080	154,501
PCI	28	28
Total financing receivables	156,500	156,487
90 Days or greater and accruing	23	20
Financing receivables on nonaccrual status [Abstract]
Financing receivable nonaccrual status	1,009	1,079
Real Estate Loans [Member] | Mortgages [Member] | 30 to 59 Days Past Due [Member]
Recorded investment of past due [Abstract]
Total past due	592	483
Real Estate Loans [Member] | Mortgages [Member] | 60 to 89 Days Past Due [Member]
Recorded investment of past due [Abstract]
Total past due	83	789
Real Estate Loans [Member] | Mortgages [Member] | 90 Days Or Greater [Member]
Recorded investment of past due [Abstract]
Total past due	717	686
Real Estate Loans [Member] | Home Equity [Member]
Recorded investment of past due [Abstract]
Total past due	577	428
Current	57,558	58,390
PCI	0	0
Total financing receivables	58,135	58,818
90 Days or greater and accruing	17	0
Financing receivables on nonaccrual status [Abstract]
Financing receivable nonaccrual status	77	82
Real Estate Loans [Member] | Home Equity [Member] | 30 to 59 Days Past Due [Member]
Recorded investment of past due [Abstract]
Total past due	401	257
Real Estate Loans [Member] | Home Equity [Member] | 60 to 89 Days Past Due [Member]
Recorded investment of past due [Abstract]
Total past due	87	108
Real Estate Loans [Member] | Home Equity [Member] | 90 Days Or Greater [Member]
Recorded investment of past due [Abstract]
Total past due	89	63
Real Estate Loans [Member] | Commercial [Member]
Recorded investment of past due [Abstract]
Total past due	4,755	6,336
Current	328,325	311,608
PCI	1,291	1,321
Total financing receivables	334,371	319,265
90 Days or greater and accruing	4	36
Financing receivables on nonaccrual status [Abstract]
Financing receivable nonaccrual status	3,689	5,957
Real Estate Loans [Member] | Commercial [Member] | 30 to 59 Days Past Due [Member]
Recorded investment of past due [Abstract]
Total past due	1,888	999
Real Estate Loans [Member] | Commercial [Member] | 60 to 89 Days Past Due [Member]
Recorded investment of past due [Abstract]
Total past due	499	631
Real Estate Loans [Member] | Commercial [Member] | 90 Days Or Greater [Member]
Recorded investment of past due [Abstract]
Total past due	2,368	4,706
Real Estate Loans [Member] | Agricultural [Member]
Recorded investment of past due [Abstract]
Total past due	4,587	3,305
Current	290,960	281,215
PCI	0	0
Total financing receivables	295,547	284,520
90 Days or greater and accruing	0	0
Financing receivables on nonaccrual status [Abstract]
Financing receivable nonaccrual status	3,607	3,206
Real Estate Loans [Member] | Agricultural [Member] | 30 to 59 Days Past Due [Member]
Recorded investment of past due [Abstract]
Total past due	991	121
Real Estate Loans [Member] | Agricultural [Member] | 60 to 89 Days Past Due [Member]
Recorded investment of past due [Abstract]
Total past due	0	0
Real Estate Loans [Member] | Agricultural [Member] | 90 Days Or Greater [Member]
Recorded investment of past due [Abstract]
Total past due	3,596	3,184
Real Estate Loans [Member] | Construction [Member]
Recorded investment of past due [Abstract]
Total past due	0	0
Current	18,611	33,913
PCI	0	0
Total financing receivables	18,611	33,913
90 Days or greater and accruing	0	0
Financing receivables on nonaccrual status [Abstract]
Financing receivable nonaccrual status	0	0
Real Estate Loans [Member] | Construction [Member] | 30 to 59 Days Past Due [Member]
Recorded investment of past due [Abstract]
Total past due	0	0
Real Estate Loans [Member] | Construction [Member] | 60 to 89 Days Past Due [Member]
Recorded investment of past due [Abstract]
Total past due	0	0
Real Estate Loans [Member] | Construction [Member] | 90 Days Or Greater [Member]
Recorded investment of past due [Abstract]
Total past due	0	0
Consumer [Member]
Recorded investment of past due [Abstract]
Total past due	96	63
Current	9,677	9,795
PCI	0	0
Total financing receivables	9,773	9,858
90 Days or greater and accruing	0	12
Financing receivables on nonaccrual status [Abstract]
Financing receivable nonaccrual status	0	14
Consumer [Member] | 30 to 59 Days Past Due [Member]
Recorded investment of past due [Abstract]
Total past due	96	37
Consumer [Member] | 60 to 89 Days Past Due [Member]
Recorded investment of past due [Abstract]
Total past due	0	14
Consumer [Member] | 90 Days Or Greater [Member]
Recorded investment of past due [Abstract]
Total past due	0	12
Other Commercial Loans [Member]
Recorded investment of past due [Abstract]
Total past due	2,376	2,255
Current	71,461	71,353
PCI	486	510
Total financing receivables	74,323	74,118
90 Days or greater and accruing	20	0
Financing receivables on nonaccrual status [Abstract]
Financing receivable nonaccrual status	2,053	2,185
Other Commercial Loans [Member] | 30 to 59 Days Past Due [Member]
Recorded investment of past due [Abstract]
Total past due	396	141
Other Commercial Loans [Member] | 60 to 89 Days Past Due [Member]
Recorded investment of past due [Abstract]
Total past due	0	53
Other Commercial Loans [Member] | 90 Days Or Greater [Member]
Recorded investment of past due [Abstract]
Total past due	1,980	2,061
Other Agricultural Loans [Member]
Recorded investment of past due [Abstract]
Total past due	1,412	1,201
Current	41,833	40,985
PCI	0	0
Total financing receivables	43,245	42,186
90 Days or greater and accruing	0	0
Financing receivables on nonaccrual status [Abstract]
Financing receivable nonaccrual status	1,265	1,201
Other Agricultural Loans [Member] | 30 to 59 Days Past Due [Member]
Recorded investment of past due [Abstract]
Total past due	180	0
Other Agricultural Loans [Member] | 60 to 89 Days Past Due [Member]
Recorded investment of past due [Abstract]
Total past due	36	0
Other Agricultural Loans [Member] | 90 Days Or Greater [Member]
Recorded investment of past due [Abstract]
Total past due	1,196	1,201
State and Political Subdivision Loans [Member]
Recorded investment of past due [Abstract]
Total past due	0	0
Current	100,412	102,718
PCI	0	0
Total financing receivables	100,412	102,718
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
	Mar. 31, 2019 USD ($) Contract	Mar. 31, 2018 USD ($) Contract	Dec. 31, 2018 USD ($)
Loans [Abstract]
Reserves of allowance for loan losses	$ 249		$ 255
Recidivism receivables [Abstract]
Number of contract, subsequently defaults | Contract	1	0
Total recidivism, Recorded investment	$ 124	$ 0
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
Term Modification [Member]
Financing receivable modifications [Abstract]
Number of contracts | Contract	1	1
Pre-modification outstanding recorded investment	$ 548	$ 7
Post-modification outstanding recorded investment	$ 548	$ 7
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
Pre-modification outstanding recorded investment	$ 0
Post-modification outstanding recorded investment	$ 0
Real Estate Loans [Member] | Commercial [Member] | Term Modification [Member]
Financing receivable modifications [Abstract]
Number of contracts | Contract	1
Pre-modification outstanding recorded investment	$ 548
Post-modification outstanding recorded investment	$ 548
Other Agricultural Loans [Member]
Recidivism receivables [Abstract]
Number of contract, subsequently defaults | Contract	1	0
Total recidivism, Recorded investment	$ 124	$ 0

XML

Loans, Allowance for Loan Losses (Details) - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018	Mar. 31, 2018	Dec. 31, 2017
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	$ 721	$ 676
Collectively evaluated for impairment	12,363	12,208
Total	13,084	12,884	$ 11,587	$ 11,190
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	23	24
Collectively evaluated for impairment	1,066	1,081
Total	1,089	1,105	1,077	1,049
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	310	216
Collectively evaluated for impairment	3,820	3,899
Total	4,130	4,115	4,006	3,867
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	83	84
Collectively evaluated for impairment	4,309	4,180
Total	4,392	4,264	3,340	3,143
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	32	58
Total	32	58	39	23
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	124	120
Total	124	120	123	124
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	146	193
Collectively evaluated for impairment	1,137	1,161
Total	1,283	1,354	1,273	1,272
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	159	159
Collectively evaluated for impairment	597	593
Total	756	752	532	492
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	565	762
Total	565	762	789	816
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	713	354
Total	$ 713	$ 354	$ 408	$ 404

XML

Loans, Allowance for Loan Losses by Portfolio Segment (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Financing Receivable, Allowance for Credit Losses [Roll Forward]
Balance at beginning of period	$ 12,884	$ 11,190
Charge-offs	(214)	(116)
Recoveries	14	13
Provision	400	500
Balance at end of period	13,084	11,587
Real Estate Loans [Member] | Residential [Member]
Financing Receivable, Allowance for Credit Losses [Roll Forward]
Balance at beginning of period	1,105	1,049
Charge-offs	0	(15)
Recoveries	0	0
Provision	(16)	43
Balance at end of period	1,089	1,077
Real Estate Loans [Member] | Commercial [Member]
Financing Receivable, Allowance for Credit Losses [Roll Forward]
Balance at beginning of period	4,115	3,867
Charge-offs	(200)	0
Recoveries	0	0
Provision	215	139
Balance at end of period	4,130	4,006
Real Estate Loans [Member] | Agricultural [Member]
Financing Receivable, Allowance for Credit Losses [Roll Forward]
Balance at beginning of period	4,264	3,143
Charge-offs	0	0
Recoveries	0	0
Provision	128	197
Balance at end of period	4,392	3,340
Real Estate Loans [Member] | Construction [Member]
Financing Receivable, Allowance for Credit Losses [Roll Forward]
Balance at beginning of period	58	23
Charge-offs	0	0
Recoveries	0	0
Provision	(26)	16
Balance at end of period	32	39
Consumer [Member]
Financing Receivable, Allowance for Credit Losses [Roll Forward]
Balance at beginning of period	120	124
Charge-offs	(14)	(13)
Recoveries	11	10
Provision	7	2
Balance at end of period	124	123
Other Commercial Loans [Member]
Financing Receivable, Allowance for Credit Losses [Roll Forward]
Balance at beginning of period	1,354	1,272
Charge-offs	0	(45)
Recoveries	3	3
Provision	(74)	43
Balance at end of period	1,283	1,273
Other Agricultural Loans [Member]
Financing Receivable, Allowance for Credit Losses [Roll Forward]
Balance at beginning of period	752	492
Charge-offs	0	(43)
Recoveries	0	0
Provision	4	83
Balance at end of period	756	532
State and Political Subdivision Loans [Member]
Financing Receivable, Allowance for Credit Losses [Roll Forward]
Balance at beginning of period	762	816
Charge-offs	0	0
Recoveries	0	0
Provision	(197)	(27)
Balance at end of period	565	789
Unallocated [Member]
Financing Receivable, Allowance for Credit Losses [Roll Forward]
Balance at beginning of period	354	404
Charge-offs	0	0
Recoveries	0	0
Provision	359	4
Balance at end of period	$ 713	$ 408

XML

Loans, Foreclosed Assets Held for Sale (Details) - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018
Foreclosed assets held for sale [Abstract]
Foreclosed assets held for sale	$ 4,295	$ 601
Consumer Residential Mortgages [Member]
Foreclosed assets held for sale [Abstract]
Foreclosed assets held for sale	561
Formal foreclosure proceedings on potential foreclosure assets	$ 1,072

XML

Goodwill and Other Intangible Assets (Details) - USD ($) $ in Thousands		3 Months Ended
		Mar. 31, 2019	Mar. 31, 2018	Dec. 31, 2018
Amortized intangible assets [Abstract]
Gross carrying value	[1]	$ 3,674		$ 3,636
Accumulated amortization	[1]	(2,127)		(2,013)
Net carrying value	[1]	1,547		1,623
Unamortized intangible assets [Abstract]
Goodwill		23,296		23,296
Actual and Estimated Future Amortization Expense [Abstract]
Amortization expense		114	$ 126
Estimated Amortization Expense [Abstract]
Remaining 2019		331
2020		347
2021		282
2022		221
2023		164
MSRs [Member]
Amortized intangible assets [Abstract]
Gross carrying value	[1]	1,763		1,725
Accumulated amortization	[1]	(1,114)		(1,066)
Net carrying value	[1]	649		659
Actual and Estimated Future Amortization Expense [Abstract]
Amortization expense		48	49
Estimated Amortization Expense [Abstract]
Remaining 2019		138
2020		150
2021		117
2022		88
2023		64
Core Deposit Intangibles [Member]
Amortized intangible assets [Abstract]
Gross carrying value	[1]	1,786		1,786
Accumulated amortization	[1]	(909)		(851)
Net carrying value	[1]	877		935
Actual and Estimated Future Amortization Expense [Abstract]
Amortization expense		58	69
Estimated Amortization Expense [Abstract]
Remaining 2019		172
2020		197
2021		165
2022		133
2023		100
Covenant not to Compete [Member]
Amortized intangible assets [Abstract]
Gross carrying value	[1]	125		125
Accumulated amortization	[1]	(104)		(96)
Net carrying value	[1]	21		$ 29
Actual and Estimated Future Amortization Expense [Abstract]
Amortization expense		8	$ 8
Estimated Amortization Expense [Abstract]
Remaining 2019		21
2020		0
2021		0
2022		0
2023		$ 0

[1] Excludes fully amortized intangible assets.

XML

Leases (Details) $ in Thousands	3 Months Ended
	Mar. 31, 2019 USD ($)
Lease Liabilities [Abstract]
Operating	$ 1,381
Lease Cost [Abstract]
Operating lease cost	85
Variable lease cost	23
Total lease cost	$ 108
Remaining Lease Term and Discount Rate [Abstract]
Weighted average term (years)	6 years 6 months 18 days
Weighted average discount rate	3.11%
Undiscounted Cash Flows Due Within Operating [Abstract]
Remaining 2019	$ 250
2020	279
2021	238
2022	230
2023	142
2024	105
2025 and thereafter	291
Total undiscounted cash flows	1,535
Impact of present value discount	154
Amount reported on balance sheet	1,381
Other Assets [Member]
Right of Use Assets [Abstract]
Operating	1,381
Other Liabilities [Member]
Lease Liabilities [Abstract]
Operating	1,383
Undiscounted Cash Flows Due Within Operating [Abstract]
Amount reported on balance sheet	$ 1,383

XML

Employee Benefit Plans, Noncontributory Defined Benefit Pension Plan (Details) $ in Thousands	3 Months Ended
	Mar. 31, 2019 USD ($) Plan	Mar. 31, 2018 USD ($)
Employee Benefit Plans [Abstract]
Number of plans | Plan	2
Pension Plan [Member]
Components of net periodic benefit cost [Abstract]
Net periodic benefit cost (benefit)	$ 84	$ (46)
Expected employer contribution to pension plan	250
Pension Plan [Member] | Salary and Employee Benefits [Member]
Components of net periodic benefit cost [Abstract]
Service cost	89	89
Pension Plan [Member] | Other Expenses [Member]
Components of net periodic benefit cost [Abstract]
Interest cost	139	163
Expected return on plan assets	(205)	(344)
Net amortization and deferral	$ 61	$ 46

XML

Employee Benefit Plans, Restricted Stock Plan (Details) - Restricted Stock [Member] - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Deferred Compensation Arrangements [Abstract]
Number of shares authorized (in shares)	150,000
Number of shares available for grant (in shares)	135,582
Unvested Shares [Roll Forward]
Outstanding, beginning of period (in shares)	9,764
Granted (in shares)	0
Forfeited (in shares)	0
Vested (in shares)	(50)
Outstanding, end of period (in shares)	9,714
Weighted Average Market Price [Roll Forward]
Outstanding, beginning of period (in dollars per share)	$ 58.21
Granted (in dollars per share)	0
Forfeited (in dollars per share)	0
Vested (in dollars per share)	(51.13)
Outstanding, end of period (in dollars per share)	$ 58.25
Additional General Disclosures [Abstract]
Share-based compensation expense	$ 67	$ 56
Compensation cost related to nonvested awards that has not yet been recognized	$ 566
Period over which compensation cost is expected to be recognized	3 years

XML

Accumulated Comprehensive Loss (Details) - USD ($) $ in Thousands		3 Months Ended
		Mar. 31, 2019	Mar. 31, 2018	Dec. 31, 2017
AOCI Attributable to Parent, Net of Tax [Roll Forward]
Balance		$ 139,229	$ 129,011
Change in Accounting policy for equity securities				$ 0
Other comprehensive loss before reclassifications (net of tax)		1,048	(1,617)
Amounts reclassified from accumulated other comprehensive loss (net of tax)		48	37
Other comprehensive income (loss), net of tax		1,096	(1,580)
Balance		142,845	129,850
Accumulated Other Comprehensive Loss [Member]
AOCI Attributable to Parent, Net of Tax [Roll Forward]
Balance		(3,921)	(3,398)
Change in Accounting policy for equity securities			1	$ 1
Other comprehensive income (loss), net of tax		1,096	(1,580)
Balance		(2,825)	(4,977)
Unrealized Gain (Loss) on Available for Sale Securities [Member]
AOCI Attributable to Parent, Net of Tax [Roll Forward]
Balance	[1]	(973)	(269)
Change in Accounting policy for equity securities	[1]		1
Other comprehensive loss before reclassifications (net of tax)	[1]	1,048	(1,617)
Amounts reclassified from accumulated other comprehensive loss (net of tax)	[1]	0	0
Other comprehensive income (loss), net of tax	[1]	1,048	(1,617)
Balance	[1]	75	(1,885)
Defined Benefit Pension Items [Member]
AOCI Attributable to Parent, Net of Tax [Roll Forward]
Balance	[1]	(2,948)	(3,129)
Change in Accounting policy for equity securities	[1]		0
Other comprehensive loss before reclassifications (net of tax)	[1]	0	0
Amounts reclassified from accumulated other comprehensive loss (net of tax)	[1]	48	37
Other comprehensive income (loss), net of tax	[1]	48	37
Balance	[1]	$ (2,900)	$ (3,092)

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

XML

Accumulated Comprehensive Loss, Reclassification (Details) - USD ($) $ in Thousands		3 Months Ended
		Mar. 31, 2019	Mar. 31, 2018
AOCI Attributable to Parent [Abstract]
Available for sale securities gains, net		$ 11	$ 6
Provision for income taxes		(821)	(747)
NET INCOME		4,405	4,247
Amount Reclassified from Accumulated Comprehensive Income (Loss) [Member]
AOCI Attributable to Parent [Abstract]
NET INCOME	[1]	(48)	(37)
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	0
Provision for income taxes	[1]	0	0
NET INCOME	[1]	0	0
Defined Benefit Pension Items [Member] | Amount Reclassified from Accumulated Comprehensive Income (Loss) [Member]
AOCI Attributable to Parent [Abstract]
Other expenses	[1]	(61)	(46)
Provision for income taxes	[1]	13	9
NET INCOME	[1]	$ (48)	$ (37)

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

XML

Fair Value Measurements, Measured On A Recurring And Nonrecurring Basis (Details) - USD ($) $ in Thousands	3 Months Ended	12 Months Ended
	Mar. 31, 2019	Dec. 31, 2018
Fair value assets and liabilities measured on non-recurring basis [Abstract]
Impaired loans, estimated selling cost	$ 520	$ 563
Recurring [Member]
Fair Value, Net Asset (Liability) [Abstract]
Equity securities	527	516
Available for sale securities [Abstract]
U.S. Agency Securities	102,864	106,385
U.S. Treasury securities	33,507	33,358
Obligations of state and political subdivisions	60,598	52,047
Corporate obligations	3,039	3,034
Mortgage-backed securities in government sponsored entities	44,429	46,186
Recurring [Member] | Level I [Member]
Fair Value, Net Asset (Liability) [Abstract]
Equity securities	527	516
Available for sale securities [Abstract]
U.S. Agency Securities	0	0
U.S. Treasury securities	33,507	33,358
Obligations of state and political subdivisions	0	0
Corporate obligations	0	0
Mortgage-backed securities in government sponsored entities	0	0
Recurring [Member] | Level II [Member]
Fair Value, Net Asset (Liability) [Abstract]
Equity securities	0	0
Available for sale securities [Abstract]
U.S. Agency Securities	102,864	106,385
U.S. Treasury securities	0	0
Obligations of state and political subdivisions	60,598	52,047
Corporate obligations	3,039	3,034
Mortgage-backed securities in government sponsored entities	44,429	46,186
Recurring [Member] | Level III [Member]
Fair Value, Net Asset (Liability) [Abstract]
Equity securities	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
Nonrecurring [Member]
Fair value assets and liabilities measured on non-recurring basis [Abstract]
Impaired Loans	5,220	5,815
Other real estate owned	3,560	532
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	5,220	5,815
Other real estate owned	$ 3,560	$ 532

XML

Fair Value Measurements, Quantitative Information (Details) - Appraised Collateral Values [Member] $ in Thousands	3 Months Ended	12 Months Ended
	Mar. 31, 2019 USD ($)	Dec. 31, 2018 USD ($)
Impaired Loans [Member]
Fair Value Measurement Inputs and Valuation Techniques [Abstract]
Impaired Loans	$ 5,220	$ 5,815
Impaired Loans [Member] | Minimum [Member]
Fair Value Measurement Inputs and Valuation Techniques [Abstract]
Holding period	0 months	6 months
Impaired Loans [Member] | Maximum [Member]
Fair Value Measurement Inputs and Valuation Techniques [Abstract]
Holding period	12 months	12 months
Impaired Loans [Member] | Weighted Average [Member]
Fair Value Measurement Inputs and Valuation Techniques [Abstract]
Holding period	11 months 20 days	11 months 18 days
Impaired Loans [Member] | Discount for Time Since Appraisal [Member] | Minimum [Member]
Fair Value Measurement Inputs and Valuation Techniques [Abstract]
Impaired loans, Measurement input	0	0
Impaired Loans [Member] | Discount for Time Since Appraisal [Member] | Maximum [Member]
Fair Value Measurement Inputs and Valuation Techniques [Abstract]
Impaired loans, Measurement input	1	1
Impaired Loans [Member] | Discount for Time Since Appraisal [Member] | Weighted Average [Member]
Fair Value Measurement Inputs and Valuation Techniques [Abstract]
Impaired loans, Measurement input	0.1848	0.1922
Impaired Loans [Member] | Selling Costs [Member] | Minimum [Member]
Fair Value Measurement Inputs and Valuation Techniques [Abstract]
Impaired loans, Measurement input	0.05	0.05
Impaired Loans [Member] | Selling Costs [Member] | Maximum [Member]
Fair Value Measurement Inputs and Valuation Techniques [Abstract]
Impaired loans, Measurement input	0.12	0.12
Impaired Loans [Member] | Selling Costs [Member] | Weighted Average [Member]
Fair Value Measurement Inputs and Valuation Techniques [Abstract]
Impaired loans, Measurement input	0.0878	0.0870
Other Real Estate Owned [Member]
Fair Value Measurement Inputs and Valuation Techniques [Abstract]
Impaired Loans	$ 3,560	$ 532
Other Real Estate Owned [Member] | Discount for Time Since Appraisal [Member] | Minimum [Member]
Fair Value Measurement Inputs and Valuation Techniques [Abstract]
Other real estate owned, Measurement input	0.15	0.2
Other Real Estate Owned [Member] | Discount for Time Since Appraisal [Member] | Maximum [Member]
Fair Value Measurement Inputs and Valuation Techniques [Abstract]
Other real estate owned, Measurement input	0.67	0.55
Other Real Estate Owned [Member] | Discount for Time Since Appraisal [Member] | Weighted Average [Member]
Fair Value Measurement Inputs and Valuation Techniques [Abstract]
Other real estate owned, Measurement input	0.1790	0.3144

XML

Fair Value Measurements, By Balance Sheet Grouping (Details) - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018
Financial assets [Abstract]
Interest bearing time deposits with other banks	$ 15,498	$ 15,498
Level I [Member] | Recurring [Member]
Financial assets [Abstract]
Interest bearing time deposits with other banks	0	0
Loans held for sale	183	0
Net loans	0	0
Financial liabilities [Abstract]
Deposits	889,970	886,686
Borrowed funds	0	0
Level II [Member] | Recurring [Member]
Financial assets [Abstract]
Interest bearing time deposits with other banks	0	0
Loans held for sale	0	0
Net loans	0	0
Financial liabilities [Abstract]
Deposits	0	0
Borrowed funds	0	0
Level III [Member] | Recurring [Member]
Financial assets [Abstract]
Interest bearing time deposits with other banks	15,608	15,422
Loans held for sale	0	1,126
Net loans	1,068,984	1,062,645
Financial liabilities [Abstract]
Deposits	288,541	294,008
Borrowed funds	107,602	90,427
Carrying Amount [Member] | Recurring [Member]
Financial assets [Abstract]
Interest bearing time deposits with other banks	15,498	15,498
Loans held for sale	183	1,127
Net loans	1,077,833	1,068,999
Financial liabilities [Abstract]
Deposits	1,181,654	1,185,156
Borrowed funds	108,263	91,194
Fair Value [Member] | Recurring [Member]
Financial assets [Abstract]
Interest bearing time deposits with other banks	15,608	15,422
Loans held for sale	183	1,126
Net loans	1,068,984	1,062,645
Financial liabilities [Abstract]
Deposits	1,178,511	1,180,694
Borrowed funds	$ 107,602	$ 90,427