Company Quick10K Filing
Quick10K
Citizens Financial Services
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
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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
CZFS 2019-03-31
Note 1 - Basis of Presentation
Note 2 - Revenue Recognition
Note 3 - Earnings per Share
Note 4 - Investments
Note 5 - Loans
Note 6 - Goodwill and Other Intangible Assets
Note 7 - Leases
Note 8 - Employee Benefit Plans
Note 9 - Accumulated Comprehensive Loss
Note 10 - Fair Value Measurements
Note 11 Legal and Regulatory Proceedings
Note 12 - Recent Accounting Pronouncements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3-Quantitative and Qualitative Disclosure About Market Risk
Item 4-Control and Procedures
Part II ‑ Other Information
Item 1 ‑ Legal Proceedings
Item 1A - Risk Factors
Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds
Item 3 ‑ Defaults Upon Senior Securities
Item 4 - Mine Safety Disclosure
Item 5 ‑ Other Information
Item 6 ‑ Exhibits
EX-31.1 ceocert.htm
EX-31.2 cfocert.htm
EX-32.1 certification.htm

Citizens Financial Services Earnings 2019-03-31

CZFS 10Q Quarterly Report

Balance SheetIncome StatementCash 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
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 1st 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
 


12



 
       
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