Citizens Financial Services Earnings 2019-03-31

CZFS 10Q Quarterly Report

Balance Sheet	Income Statement	Cash Flow

10-Q 1 firstqtr2019.htm FORM 10-Q FOR FIRST QUARTER 2019

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

[ ] 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.

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.

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.

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.

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.

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.

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

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):

			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

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

Average

Interest

Income

Average

Interest

Income

Recorded

Income

Recognized

Recorded

Income

Recognized

Investment

Recognized

Cash Basis

Investment

Recognized

10-Q	2019-03-31	Quarter: 2019-03-31
10-K	2018-12-31	Annual: 2018-12-31
10-Q	2018-09-30	Quarter: 2018-09-30
10-Q	2018-06-30	Quarter: 2018-06-30
10-Q	2018-03-31	Quarter: 2018-03-31
10-K	2017-12-31	Annual: 2017-12-31
10-Q	2017-09-30	Quarter: 2017-09-30
10-Q	2017-06-30	Quarter: 2017-06-30
10-Q	2017-03-31	Quarter: 2017-03-31
10-K	2016-12-31	Annual: 2016-12-31
10-Q	2016-09-30	Quarter: 2016-09-30
10-Q	2016-06-30	Quarter: 2016-06-30
10-Q	2016-03-31	Quarter: 2016-03-31
10-K	2015-12-31	Annual: 2015-12-31
10-Q	2015-09-30	Quarter: 2015-09-30
10-Q	2015-06-30	Quarter: 2015-06-30
10-Q	2015-03-31	Quarter: 2015-03-31
10-K	2014-12-31	Annual: 2014-12-31
10-Q	2014-09-30	Quarter: 2014-09-30
10-Q	2014-06-30	Quarter: 2014-06-30
10-Q	2014-03-31	Quarter: 2014-03-31
10-K	2013-12-31	Annual: 2013-12-31

8-K	2019-04-25	Earnings, Exhibits
8-K	2019-04-18	Officers, Shareholder Vote, Regulation FD, Other Events, Exhibits
8-K	2019-01-25	Earnings, Exhibits
8-K	2019-01-25	Earnings, Exhibits
8-K	2018-12-20	Officers, Other Events
8-K	2018-10-23	Earnings, Exhibits
8-K	2018-08-14	Regulation FD, Exhibits
8-K	2018-07-25	Earnings, Exhibits
8-K	2018-04-26	Earnings, Exhibits
8-K	2018-04-19	Shareholder Vote, Regulation FD, Other Events, Exhibits
8-K	2018-02-26	Regulation FD, Exhibits
8-K	2018-01-30	Earnings, Exhibits

AGCO	AGCO	5,590
RLI	RLI	3,700
IPHI	Inphi	2,280
MSTR	Microstrategy	1,410
CMCM	Cheetah Mobile	797
ODT	Odonate Therapeutics	553
DSPG	DSP Group	344
YRIV	Yangtze River Port & Logistics	153
CLOK	Cipherloc	0
KERX	Keryx Biopharmaceuticals	0

EX-31.1	ceocert.htm
EX-31.2	cfocert.htm
EX-32.1	certification.htm