10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2018

or

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition from to

Commission file number: 0-13814

Cortland Bancorp

(Exact name of registrant as specified in its charter)

Ohio	34-1451118
(State or other jurisdiction of Incorporation or organization)	(I.R.S. Employer Identification No.)
194 West Main Street, Cortland, Ohio	44410
(Address of principal executive offices)	(Zip code)

330- 637-8040

(Registrant’s telephone number, including area code)

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 required 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  ☒    No  ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ☒    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, 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	☐
Non-accelerated filer	☐	(Do not check if a smaller reporting company)	Smaller reporting company	☒
Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐ 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ☒

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.      Yes ☐    No ☐ 

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

TITLE OF CLASS	SHARES OUTSTANDING
Common Stock, No Par Value	4,363,537 Shares August 2, 2018

PART I – FINANCIAL INFORMATION
Item 1.	Financial Statements
	Cortland Bancorp and Subsidiaries:
	Consolidated Balance Sheets (unaudited) – June 30, 2018 and December 31, 2017	2
	Consolidated Statements of Income (unaudited) – Three and six months ended June 30, 2018 and 2017	3
	Consolidated Statements of Comprehensive Income (Loss) (unaudited) – Three and six months ended June 30, 2018 and 2017	4
	Consolidated Statements of Changes in Shareholders’ Equity (unaudited) – Six months ended June 30, 2018 and 2017	5
	Consolidated Statements of Cash Flows (unaudited) – Six months ended June 30, 2018 and 2017	6
	Notes to Consolidated Financial Statements (unaudited) – June 30, 2018	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Consolidated Average Balance Sheets, Yields and Rates – Year-to-Date June 30, 2018, December 31, 2017 and June 30, 2017	34
	Consolidated Average Balance Sheets, Yields and Rates – Quarter-to-Date June 30, 2018, March 31, 2018 and June 30, 2017	35
	Selected Financial Data	36
	Financial Review	37
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	48
Item 4.	Controls and Procedures	48
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
Item 3.	Defaults Upon Senior Securities	49
Item 4.	Mine Safety Disclosures	49
Item 5.	Other Information	49
Item 6.	Exhibits	50
SIGNATURES		53

CORTLAND BANCORP AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(Amounts in thousands, except share data)

	June 30,			December 31,
	2018			2017
ASSETS
Cash and due from banks	$	6,701		$	9,741
Interest-earning deposits		4,276			9,384
Total cash and cash equivalents		10,977			19,125
Investment securities available-for-sale (Note 3)		141,538			159,841
Regulatory stock (Note 3)		2,581			2,581
Loans held for sale		2,524			2,780
Total loans (Note 4)		466,448			487,490
Less allowance for loan losses (Note 4)		(4,095	)		(4,578	)
Net loans		462,353			482,912
Premises and equipment		9,145			9,038
Bank-owned life insurance		15,550			17,650
Other assets		18,032			17,174
Total assets	$	662,700		$	711,101
LIABILITIES
Noninterest-bearing deposits	$	130,318		$	123,291
Interest-bearing deposits		427,505			462,560
Total deposits		557,823			585,851
Short-term borrowings (Note 13)		1,609			2,678
Federal Home Loan Bank advances - short term		11,000			32,000
Federal Home Loan Bank advances - long term		16,000			14,000
Subordinated debt (Note 7)		5,155			5,155
Other liabilities		9,289			9,787
Total liabilities		600,876			649,471
SHAREHOLDERS’ EQUITY
Common stock - $5.00 stated value - authorized 20,000,000 shares; issued    4,728,267 shares in 2018 and 2017; outstanding shares, 4,363,537 in 2018    and 4,420,136 in 2017		23,641			23,641
Additional paid-in capital		20,878			20,928
Retained earnings		28,270			24,403
Accumulated other comprehensive loss (Note 10)		(4,113	)		(1,825	)
Treasury stock, at cost, 364,730 shares in 2018 and 308,131 in 2017		(6,852	)		(5,517	)
Total shareholders’ equity		61,824			61,630
Total liabilities and shareholders’ equity	$	662,700		$	711,101

See accompanying notes to the unaudited consolidated financial statements of Cortland Bancorp and Subsidiaries

2

CORTLAND BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

(Amounts in thousands, except per share data)

	THREE MONTHS ENDED JUNE 30,					SIX MONTHS ENDED JUNE 30,
	2018			2017		2018			2017
INTEREST AND DIVIDEND INCOME
Interest and fees on loans	$	5,739		$	4,742	$	11,327		$	9,360
Interest and dividends on investment securities:
Taxable interest		539			539		1,031			1,105
Nontaxable interest		356			460		785			929
Dividends		40			34		74			61
Other interest income		53			30		81			46
Total interest and dividend income		6,727			5,805		13,298			11,501
INTEREST EXPENSE
Deposits		850			626		1,639			1,212
Short-term borrowings		2			2		3			3
Federal Home Loan Bank advances - short term		54			38		145			75
Federal Home Loan Bank advances - long term		66			82		124			186
Subordinated debt		48			35		88			66
Total interest expense		1,020			783		1,999			1,542
Net interest income		5,707			5,022		11,299			9,959
PROVISION FOR LOAN LOSSES		75			—		575			—
NET INTEREST INCOME AFTER PROVISION FOR LOAN    LOSSES		5,632			5,022		10,724			9,959
NON-INTEREST INCOME
Fees for customer services		584			554		1,139			1,062
Investment securities available-for-sale gains (losses), net		(41	)		22		(21	)		31
Mortgage banking gains, net		261			322		499			516
Earnings on bank-owned life insurance		1,631			82		1,708			157
Wealth management		10			7		19			14
Other non-interest income		132			145		245			252
Total non-interest income		2,577			1,132		3,589			2,032
NON-INTEREST EXPENSES
Salaries and employee benefits		2,617			2,621		5,067			5,363
Occupancy and equipment		550			588		1,147			1,203
State and local taxes		125			118		250			233
FDIC insurance		44			51		88			104
Professional fees		209			198		398			359
Advertising and marketing		89			158		163			260
Data processing fees		64			65		127			126
Other operating expenses		887			887		1,671			1,685
Total non-interest expenses		4,585			4,686		8,911			9,333
INCOME BEFORE FEDERAL INCOME TAX EXPENSE		3,624			1,468		5,402			2,658
Federal income tax expense		322			286		563			476
NET INCOME	$	3,302		$	1,182	$	4,839		$	2,182
EARNINGS PER SHARE BASIC AND DILUTED	$	0.75		$	0.26	$	1.10		$	0.49
CASH DIVIDENDS DECLARED PER SHARE	$	0.11		$	0.08	$	0.22		$	0.23

See accompanying notes to the unaudited consolidated financial statements of Cortland Bancorp and Subsidiaries

3

CORTLAND BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)

(Amounts in thousands)

	THREE MONTHS ENDED JUNE 30,						SIX MONTHS ENDED JUNE 30,
	2018			2017			2018			2017
Net income	$	3,302		$	1,182		$	4,839		$	2,182
Other comprehensive income (loss):
Securities available for sale:
Unrealized holding (losses) gains on available-for-sale securities		(83	)		1,552			(3,049	)		1,567
Tax effect		16			(528	)		641			(533	)
Reclassification adjustment for net losses (gains) realized in net    income		41			(22	)		21			(31	)
Tax effect		(8	)		8			(4	)		11
Total securities available-for-sale		(34	)		1,010			(2,391	)		1,014
Change in post-retirement obligations		111			(6	)		103			(11	)
Total other comprehensive income (loss)		77			1,004			(2,288	)		1,003
Total comprehensive  income	$	3,379		$	2,186		$	2,551		$	3,185

See accompanying notes to the unaudited consolidated financial statements of Cortland Bancorp and Subsidiaries

4

CORTLAND BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (UNAUDITED)

(Amounts in thousands, except per share data)

	Common Stock		Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Treasury Stock			Total Shareholders' Equity
SIX MONTHS ENDED June 30, 2017
Balance at December 31, 2016	$	23,641	$	20,878		$	21,485		$	(2,961	)	$	(5,373	)	$	57,670
Net income		—		—			2,182			—			—			2,182
Other comprehensive income		—		—			—			1,003			—			1,003
Cash dividend declared ($0.23 per share)		—		—			(1,018	)		—			—			(1,018	)
Equity compensation		—		(20	)		—			—			93			73
Balance at June 30, 2017	$	23,641	$	20,858		$	22,649		$	(1,958	)	$	(5,280	)	$	59,910
SIX MONTHS ENDED June 30, 2018
Balance at December 31, 2017	$	23,641	$	20,928		$	24,403		$	(1,825	)	$	(5,517	)	$	61,630
Net income		—		—			4,839			—			—			4,839
Other comprehensive loss		—		—			—			(2,288	)		—			(2,288	)
Cash dividend declared ($0.22 per share)		—		—			(972	)		—			—			(972	)
Treasury shares purchased (70,181 shares)		—		—			—			—			(1,493	)		(1,493	)
Equity compensation		—		(50	)		—			—			158			108
Balance at June 30, 2018	$	23,641	$	20,878		$	28,270		$	(4,113	)	$	(6,852	)	$	61,824

See accompanying notes to the unaudited consolidated financial statements of Cortland Bancorp and Subsidiaries

5

CORTLAND BANCORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(Amounts in thousands)

	FOR THE SIX MONTHS ENDED JUNE 30,
	2018			2017
Net cash flow from operating activities	$	5,345		$	4,056
Cash flow from investing activities
Purchases of available-for-sale securities		(13,022	)		(18,927	)
Proceeds from sale of available-for-sale securities		21,418			28,127
Proceeds from call, maturity and principal payments on available-for-sale securities		6,056			9,076
Net decrease  in loans made to customers		19,984			9,484
Proceeds from bank-owned life insurance		3,808			—
Contributions to partnership funds		(656	)		(2,235	)
Purchases of premises and equipment		(519	)		(537	)
Net cash flow from investing activities		37,069			24,988
Cash deficit from financing activities
Net decrease in deposit accounts		(28,028	)		(8,862	)
Net change in short term borrowings		(1,069	)		(599	)
Net change in Federal Home Loan Bank advances - short term		(21,000	)		(11,000	)
Repayments of Federal Home Loan Bank advances - long term		(4,000	)		(8,000	)
Proceeds from Federal Home Loan Bank advances - long term		6,000			4,000
Dividends paid		(972	)		(1,018	)
Treasury shares purchased		(1,493	)		—
Net cash deficit from financing activities		(50,562	)		(25,479	)
Net change in cash and cash equivalents		(8,148	)		3,565
Cash and cash equivalents
Beginning of period		19,125			15,351
End of period	$	10,977		$	18,916
Supplemental disclosures:
Cash paid during the period for:
Income taxes	$	400		$	650
Interest	$	2,022		$	1,548
Transfer of loans to other real estate owned	$	—		$	480

See accompanying notes to the unaudited consolidated financial statements of Cortland Bancorp and Subsidiaries

6

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1.) Basis of Presentation and Reclassifications:

The accompanying unaudited consolidated financial statements of Cortland Bancorp (the Company) and the Cortland Savings and Banking Company (the Bank) have been prepared in accordance with accounting principles generally accepted in the United States (U.S. GAAP) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring items) considered necessary for a fair presentation have been included. Operating results for the three and six months ended June 30, 2018 are not necessarily indicative of the results that may be expected for the year ending December 31, 2018. These interim unaudited consolidated financial statements should be read in conjunction with our annual audited financial statements as of December 31, 2017, included in our Form 10-K for the year ended December 31, 2017, filed with the United States Securities and Exchange Commission. The accompanying Consolidated Balance Sheets at December 31, 2017, have been derived from the audited Consolidated Balance Sheets but do not include all of the information and footnotes required by U.S. GAAP for complete financial statements.

Effective January 1, 2018, the Company adopted 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 utilizing the modified retrospective approach with a cumulative effect of adoption for the impact from uncompleted contracts at the date of adoption. 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 income on loans and investments along with noninterest revenue resulting from investment security gains, gains on the sale of loans, earnings on bank owned life insurance, wealth management and other non-interest income are not within the scope of ASC 606.  As a result, no changes were made during the period related to these sources of revenue.

The main types of non-interest 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 the account balance falls below predetermined levels defined as compensating balances. 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 non-sufficient fund fees, overdraft fees, continuous overdraft fees and other fees such as stop payment 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, namely at the completion of the requested service/transaction.

Fees, exchange, and other service charges- This is primarily comprised of debit card income, ATM fees, merchant services income, and other service charges. Debit card income is primarily comprised of interchange fees earned whenever the Company’s debit and credit cards are processed through card payment networks such as Visa. ATM fees are primarily generated when a Company cardholder uses a non-Company ATM or a non-Company cardholder uses a Company ATM. Merchant services income mainly represents fees charged to merchants to process their debit card transactions, in addition to account management fees. Other service charges include cashier’s checks, check charges and other services. The Company’s performance obligation for fees, exchange, and other service charges are largely satisfied, and related revenue recognized, when the services are rendered or upon completion. Payment is typically received immediately or in the following month.

Gains (losses) on sale of other real estate owned – Gains and losses are recognized at the completion of the property sale when the buyer obtains control of the real estate and all of the performance obligations of 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 is 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.

7

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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.

	(Amounts in thousands)
	Three Months Ended		Six Months Ended
	June 30, 2018
Revenue stream
Service charges on deposit accounts:
Overdraft fees	$	269	$	525
Service charges		100		199
Other fees		6		9
Fees, exchange, and other service charges		209		406
Non-interest income (in-scope of Topic 606)		584		1,139
Non-interest income (out-of-scope of Topic 606)		1,993		2,450
Total non-interest income	$	2,577	$	3,589

Certain items contained in the 2017 financial statements have been reclassified to conform to the presentation for 2018. Such reclassifications had no effect on the net results of operations or shareholders’ equity.

2.) Authoritative Accounting Guidance:

In January 2016, the FASB issued ASU (Accounting Standard Update) 2016-01, Financial Instruments – Overall (Subtopic 825-10):  Recognition and Measurement of Financial Assets and Financial Liabilities.  This Update applies to all entities that hold financial assets or owe financial liabilities and is intended to provide more useful information on the recognition, measurement, presentation, and disclosure of financial instruments.  Among other things, this Update (a) requires equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income; (b) simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment; (c) eliminates the requirement to disclose the fair value of financial instruments measured at amortized cost for entities that are not public business entities; (d) eliminates the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet; (e) requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; (f) requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (that is, securities or loans and receivables) on the balance sheet or the accompanying notes to the financial statements; and (g) clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets.  

The Company’s adoption of this standard during the reporting period had no effect on the Consolidated Financial Statements. On a prospective basis, the Company implemented changes to the measurement of the fair value of financial instruments using an exit price notion for disclosure purposes included in Note 9 to the financial statements. The December 31, 2017, fair value of each class of financial instruments disclosure did not utilize the exit price notion when measuring fair value and, therefore, would not be comparable to the June 30, 2018 disclosure.

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

8

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), 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. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations. We expect to recognize aone-timecumulative 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 suchone-timeadjustment or the overall impact of the new guidance on the consolidated financial statements.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230):  Classification of Certain Cash Receipts and Cash Payments (“ASU 2016-15”), which addresses eight specific cash flow issues with the objective of reducing diversity in practice.  Among these include recognizing cash payments for debt prepayment or debt extinguishment as cash outflows for financing activities; cash proceeds received from the settlement of insurance claims should be classified on the basis of the related insurance coverage; and cash proceeds received from the settlement of bank-owned life insurance policies should be classified as cash inflows from investing activities while the cash payments for premiums on bank-owned policies may be classified as cash outflows for investing activities, operating activities, or a combination of investing and operating activities.  The amendments in this Update are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. Early adoption is permitted, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. An entity that elects early adoption must adopt all of the amendments in the same period. The amendments in this Update should be applied using a retrospective transition method to each period presented. If it is impracticable to apply the amendments retrospectively for some of the issues, the amendments for those issues would be applied prospectively as of the earliest date practicable. The Company has adopted the standard. See the Company’s Consolidated Statements of Cash Flows.

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

In May 2017, the FASB issued ASU 2017-09, Compensation – Stock Compensation (Topic 718), which affects any entity that changes the terms or conditions of a share-based payment award.  This Update amends the definition of modification by qualifying that modification accounting does not apply to changes to outstanding share-based payment awards that do not affect the total fair value, vesting requirements, or equity/liability classification of the awards.  The amendments in this Update are effective for all entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted, including adoption in any interim period, for (1) public business entities for reporting periods for which financial statements have not yet been issued and (2) all other entities for reporting periods for which financial statements have not yet been made available for issuance. The amendments in this Update should be applied prospectively to an award modified on or after the adoption date. The Company has adopted this standard and has no significant impact on the Company’s financial statements.

9

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 850), the objective of which is to improve the financial reporting of hedging relationships to better portray the economic results of an entity’s risk management activities in its financial statements. In addition, the amendments in this Update make certain targeted improvements to simplify the application and disclosure of the hedge accounting guidance in current general accepted accounting principles. For public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2019, and interim periods beginning after December 15, 2020. Early application is permitted in any period after issuance. For cash flow and net investment hedges existing at the date of adoption, an entity should apply a cumulative-effect adjustment related to eliminating the separate measurement of ineffectiveness to accumulated other comprehensive income with a corresponding adjustment to the opening balance of retained earnings as of the beginning of the fiscal year that an entity adopts the amendments in this Update. The amended presentation and disclosure guidance is required only prospectively. This Update is not expected to have a significant impact on the Company’s financial statements.

In January 2018, the FASB issued ASU 2018-01, Leases (Topic 842), which provides an optional transition practical expedient to not evaluate under Topic 842 existing or expired land easements that were not previously accounted for as leases under the current lease guidance in Topic 840.  An entity that elects this practical expedient should evaluate new or modified land easements under Topic 842 beginning at the date the entity adopts Topic 842; otherwise, an entity should evaluate all existing or expired land easements in connection with the adoption of the new lease requirements in Topic 842 to assess whether they meet the definition of a lease.  The effective date and transition requirements for the amendments are the same as the effective date and transition requirements in ASU 2016-02.  This Update is not expected to have a significant impact on the Company’s financial statements.

In February 2018, the FASB issued ASU 2018-02, Income Statement – Reporting Comprehensive Income (Topic 220).  On December 22, 2017, the U.S. federal government enacted a tax bill, H.R.1, An Act to Provide for Reconciliation Pursuant to Titles II and V of the Concurrent Resolution on the Budget for Fiscal Year 2018 (Tax Cuts and Jobs Act), which requires deferred tax liabilities and assets to be adjusted for the effect of a change in tax laws.  The amendments in this Update allow a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act.  The amendments in this Update are effective for all entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption of the amendments in this Update is permitted.  The amendments in this Update should be applied either in the period of adoption or retrospectively to each period (or periods) in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act is recognized.  The Company has elected to early adopt this standard as of December 31, 2017, which resulted in a one-time cumulative effect adjustment of $294,000 between retained earnings and accumulated other comprehensive loss on the Consolidated Balance Sheets.  The adjustment had no impact on net income or any prior periods presented.

In June 2018, the FASB issued ASU 2018-07, Compensation – Stock Compensation (Topic 718), which simplified the accounting for nonemployee share-based payment transactions.  The amendments in this update expand the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees.  The amendments in this Update improve the following areas of nonemployee share-based payment accounting; (a) the overall measurement objective, (b) the measurement date, (c) awards with performance conditions, (d) classification reassessment of certain equity-classified awards, (e) calculated value (nonpublic entities only), and (f) intrinsic value (nonpublic entities only).  The amendments in this Update are effective for public business entities for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. This Update is not expected to have a significant impact on the Company’s financial statements.

ASU 2018-10, Codification Improvements to Topic 842, Leases, represents changes to clarify, correct errors in, or make minor improvements to the Codification. The amendments in this ASU affect the amendments in ASU 2016-02, which are not yet effective, but for which early adoption upon issuance is permitted. For entities that early adopted Topic 842, the amendments are effective upon issuance of this ASU, and the transition requirements are the same as those in Topic 842. For entities that have not adopted Topic 842, the effective date and transition requirements will be the same as the effective date and transition requirements in Topic 842. This Update is not expected to have a significant impact on the Company’s financial statements.

3.) Investment Securities:

Investments in debt securities are classified as held-to-maturity, available-for-sale or trading. Securities classified as held-to-maturity are those that management has the positive intent and ability to hold to maturity. Securities classified as available-for-sale are those that could be sold for liquidity, investment management, or similar reasons, even though management has no present intentions to do so. Securities classified as trading are those that management has bought principally for the purpose of selling in the near term. The Company currently has no securities classified as held-to-maturity or trading.

10

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Available-for-sale securitiesare carried at fair value with unrealized gains and losses recorded as a separate component of shareholders’ equity, net of tax. Realized gains or losses on dispositions are based on net proceeds and the adjusted carrying amount of securities sold, using the specific identification method. Interest income includes amortization of purchase premium or discount and is amortized on the level-yield method without anticipating payments, except for U.S. Government mortgage-backed and related securities where twelve months of historical prepayments are taken into consideration.

The regulatory stock is carried at cost (its redeemable value) and the Company is required to hold such investments as a condition of membership in order to transact business with the Federal Home Loan Bank (FHLB) of Cincinnati and the Federal Reserve Bank (FRB). The stock is bought from and sold to the correspondent institutions based upon its par value. The stock cannot be traded or sold in any market and as such is classified as restricted stock, carried at cost (its redeemable value) and evaluated by management. The stock’s value is determined by the ultimate recoverability of the par value rather than by recognizing temporary declines. The determination of whether the par value will ultimately be recovered is influenced by criteria such as the following: (a) the significance of the decline in net assets of the FHLB and FRB as compared to the capital stock amount and the length of time this situation has persisted, (b) commitments by the FHLB and FRB to make payments required by law or regulation and the level of such payments in relation to the operating performance, (c) the impact of legislative and regulatory changes on the customer base of the FHLB and FRB and (d) the liquidity position of the FHLB and FRB. The Company does not consider these investments to be other-than-temporarily impaired at June 30, 2018.

Securities are evaluated periodically to determine whether a decline in value is other-than-temporary. Management utilizes criteria such as the magnitude and duration of the decline, along with the reasons underlying the decline, to determine whether the loss in value is other-than-temporary. The term “other-than-temporary” is not intended to indicate that the decline in value is permanent but indicates that the prospect for a near-term recovery of value is not necessarily favorable and that there is a lack of evidence to support a realizable value equal to or greater than the carrying value of the investment. Unrealized losses on available-for-sale investments have not been recognized into income. However, once a decline in value is determined to be other-than-temporary, the credit related other-than-temporary impairment (OTTI) is recognized in earnings while the non-credit related OTTI on securities not expected to be sold is recognized in other comprehensive income (loss).

The following table is a summary of investment securities available-for-sale and regulatory stock:

	(Amounts in thousands)
June 30, 2018	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
U.S. Government agencies and corporations	$	9,235	$	—	$	283	$	8,952
Obligations of states and political subdivisions		53,452		19		1,690		51,781
U.S. Government-sponsored mortgage-backed securities		62,175		—		2,717		59,458
U.S. Government-sponsored collateralized mortgage obligations		13,119		—		236		12,883
U.S. Government-guaranteed small business administration pools		8,846		—		382		8,464
Total investment securities available-for-sale	$	146,827	$	19	$	5,308	$	141,538
Federal Home Loan Bank (FHLB) stock		2,355		—		—		2,355
Federal Reserve Bank (FRB) stock		226		—		—		226
Total regulatory stock	$	2,581	$	—	$	—	$	2,581

	(Amounts in thousands)
December 31, 2017	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
U.S. Government agencies and corporations	$	3,344	$	1	$	140	$	3,205
Obligations of states and political subdivisions		71,700		740		324		72,116
U.S. Government-sponsored mortgage-backed securities		69,066		6		1,404		67,668
U.S. Government-sponsored collateralized mortgage obligations		6,463		—		161		6,302
U.S. Government-guaranteed small business administration pools		9,911		—		256		9,655
Trust preferred securities		1,618		—		723		895
Total investment securities available-for-sale	$	162,102	$	747	$	3,008	$	159,841
Federal Home Loan Bank (FHLB) stock		2,355		—		—		2,355
Federal Reserve Bank (FRB) stock		226		—		—		226
Total regulatory stock	$	2,581	$	—	$	—	$	2,581

11

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

The amortized cost and fair value of debt securities at June 30, 2018, by contractual maturity, are shown below. Actual maturities will differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties. 

	(Amounts in thousands)
	Amortized Cost		Fair Value
Due in one year or less	$	—	$	—
Due after one year through five years		543		553
Due after five years through ten years		12,034		11,606
Due after ten years		58,956		57,038
Total		71,533		69,197
U.S. Government-sponsored mortgage-backed and related securities		75,294		72,341
Total investment securities available-for-sale	$	146,827	$	141,538

The table below sets forth the proceeds and gains or losses realized on available for sale securities sold or called for the periods presented:

	(Amounts in thousands)
	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2018		2017		2018		2017
Proceeds on securities sold	$	1,577	$	12,402	$	21,418	$	28,127
Gross realized gains		—		232		123		378
Gross realized losses		41		210		144		347

Investment securities with a carrying value of approximately $64.3 million at June 30, 2018 and $105.0 million at December 31, 2017 were pledged to secure deposits and for other purposes. The remaining securities provide an adequate level of liquidity.

The following is a summary of the fair value of available-for-sale securities with unrealized losses and an aging of those unrealized losses at June 30, 2018:  

	(Amounts in thousands)
	Less than 12 Months				12 Months or More				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
U.S. Government agencies and corporations	$	6,195	$	40	$	2,757	$	243	$	8,952	$	283
Obligations of states and political subdivisions		31,631		869		17,746		821		49,377		1,690
U.S. Government-sponsored mortgage-backed    securities		21,594		746		37,864		1,971		59,458		2,717
U.S. Government-sponsored collateralized    mortgage obligations		—		—		5,746		236		5,746		236
U.S. Government-guaranteed small business    administration pools		—		—		8,464		382		8,464		382
Total	$	59,420	$	1,655	$	72,577	$	3,653	$	131,997	$	5,308

The above table comprises 123 investment securities where the fair value is less than the related amortized cost.

12

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

The following is a summary of the fair value of available-for-sale securities with unrealized losses and an aging of those unrealized losses at December 31, 2017:

	(Amounts in thousands)
	Less than 12 Months				12 Months or More				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
U.S. Government agencies and corporations	$	—	$	—	$	2,860	$	140	$	2,860	$	140
Obligations of states and political subdivisions		7,430		24		18,066		300		25,496		324
U.S. Government-sponsored mortgage-backed    securities		24,888		241		40,968		1,163		65,856		1,404
U.S. Government-sponsored collateralized    mortgage obligations		—		—		6,302		161		6,302		161
U.S. Government-guaranteed small business    administration pools		2,532		38		7,123		218		9,655		256
Trust preferred securities		—		—		895		723		895		723
Total	$	34,850	$	303	$	76,214	$	2,705	$	111,064	$	3,008

The above table comprises 83 investment securities where the fair value is less than the related amortized cost.

The unrealized losses at June 30, 2018 on the Company’s investments were caused by changes in market rates and related spreads. The significant increase in unrealized losses beginning in 2018 is a direct result of the spike in interest rates immediately following the passage of the Tax Act. It is expected that the securities would not be settled at less than the amortized cost of the Company’s investment because the decline in fair value is attributable to changes in interest rates and relative spreads and not credit quality. Also, the Company does not intend to sell those investments and it is not more-likely-than-not that the Company will be required to sell the investments before recovery of its amortized cost basis less any current period credit loss. The Company does not consider these investments to be other-than-temporarily impaired at June 30, 2018.

Securities Deemed to be Other-Than-Temporarily Impaired

The Company reviews investment debt securities on an ongoing basis for the presence of other-than-temporary impairment (OTTI) with formal reviews performed quarterly.

For debt securities in an unrealized loss position, management assesses whether (a) it has the intent to sell the debt security or (b) it is more-likely-than-not that it will be required to sell the debt security before its anticipated recovery. If either of these conditions is met, an OTTI on the security must be recognized.

In instances in which a determination is made that a credit loss (defined as the difference between the present value of the cash flows expected to be collected and the amortized cost basis) exists but the entity does not intend to sell the debt security and it is not more-likely-than-not that the entity will be required to sell the debt security before the anticipated recovery of its remaining amortized cost basis (i.e., the amortized cost basis less any current-period credit loss), the Company presents the amount of the OTTI recognized in the Consolidated Statements of Income.

In these instances, the impairment is separated into (a) the amount of the total impairment related to the credit loss, and (b) the amount of the total impairment related to all other factors. The amount of the total OTTI related to the credit loss is recognized in earnings. The amount of the total impairment related to all other factors is recognized in other comprehensive income. The total other-than-temporary impairment is presented in the Consolidated Statements of Income with an offset for the amount of the total other-than-temporary impairment that is recognized in other comprehensive income.

As more fully disclosed in Note 9, the Company assessed the impairment of trust preferred securities currently in an illiquid market. The Company records impairment credit losses in earnings (before tax) and non-credit impairment losses in other comprehensive income (loss) (before tax). Through the impairment assessment process, there was no OTTI loss recognized in the three and six months ended June 30, 2018 and 2017.

13

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

The following provides a cumulative rollforward of credit losses recognized in earnings for trust preferred securities held.

	(Amounts in thousands)
	Three Months Ended					Six Months Ended
	June 30,					June 30,
	2018			2017		2018			2017
Beginning balance	$	140		$	140	$	140		$	140
Reduction for debt securities for which other-than-temporary    impairment has been previously recognized and there is no    related other comprehensive income		—			—		—			—
Credit losses on debt securities for which other-than-temporary    impairment has not been previously recognized		—			—		—			—
Additional credit losses on debt securities for which other-than-    temporary impairment was previously recognized		—			—		—			—
Sale of debt securities		(140	)		—		(140	)		—
Ending balance	$	—		$	140	$	—		$	140

At December 31, 2017, there was $895,000 of investment securities considered to be in non-accrual status due to the delay in the collection of interest payments. This balance was comprised of two trust preferred securities which were disposed of in the current quarter.

4.) Loans and Allowance for Loan Losses:

The Company, through the Bank, grants residential, consumer and commercial loans to customers located primarily in Northeastern Ohio and Western Pennsylvania.

The following represents the composition of the loan portfolio for the period ending:

	(Amounts in thousands)
	June 30, 2018				December 31, 2017
	Balance		%		Balance		%
Commercial	$	74,015		15.9	$	113,341		23.3
Commercial real estate		298,790		64.0		283,135		58.1
Residential real estate		64,368		13.8		62,071		12.7
Consumer - home equity		25,665		5.5		26,018		5.3
Consumer - other		3,610		0.8		2,925		0.6
Total loans	$	466,448			$	487,490

Management has an established methodology to determine the adequacy of the allowance for loan losses that assesses the risks and losses inherent in the loan portfolio. For purposes of determining the allowance for loan losses, the Company has segmented loans in the portfolio by product type. Loans are segmented into the following pools: commercial loans, commercial real estate loans, residential real estate loans and consumer loans. The pools of commercial real estate loans and commercial loans are also broken down further by industry sectors when analyzing the related pools. Using the largest concentrations as the qualifier, these industry sectors include non-residential buildings; skilled nursing and nursing care; residential real estate lessors, agents and managers; hotel and motels, and trucking. The Company also sub-segments the consumer loan portfolio into the following two classes: home equity loans and other consumer loans. Historical loss percentages for each risk category are calculated and used as the basis for calculating allowance allocations. These historical loss percentages are calculated over multiple periods for all portfolio segments. Management evaluates these results and utilizes the most reflective period in the calculation. Certain qualitative factors are then added to the historical allocation percentage to get the adjusted factor.

14

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

These factors include, but are not limited to, the following:

Factor Considered:	Risk Trend:
Levels of and trends in charge-offs, classifications and non-accruals	Stable
Trends in volume and terms	Decreasing
Changes in lending policies and procedures	Stable
Experience, depth and ability of management, including loan review function	Stable
Economic trends, including valuation of underlying collateral	Stable
Concentrations of credit	Decreasing

The following factors are analyzed and applied to loans internally graded with higher credit risk in addition to the above factors for non-classified loans:

Factor Considered:	Risk Trend:
Levels and trends in classification	Stable
Declining trends in financial performance	Stable
Structure and lack of performance measures	Stable
Migration between risk categories	Stable

The provision charged to operations can be allocated to a loan classification either as a positive or negative value as a result of any material changes to: net charge-offs or recovery which influence the historical allocation percentage, qualitative risk factors or loan balances.

The following is an analysis of changes in the allowance for loan losses for the periods ended:

Three Months Ended
	(Amounts in thousands)
June 30, 2018	Commercial		Commercial real estate		Residential real estate			Consumer - home equity			Consumer - other			Total
Balance at beginning of period	$	1,334	$	2,290	$	93		$	67		$	100		$	3,884
Loan charge-offs		—		—		—			—			(27	)		(27	)
Recoveries		—		150		1			1			11			163
Net loan recoveries (charge-offs)		—		150		1			1			(16	)		136
Provision charged to operations		60		17		(14	)		(2	)		14			75
Balance at end of period	$	1,394	$	2,457	$	80		$	66		$	98		$	4,095

	(Amounts in thousands)
June 30, 2017	Commercial		Commercial real estate			Residential real estate			Consumer - home equity			Consumer - other			Total
Balance at beginning of period	$	1,246	$	3,226		$	142		$	148		$	93		$	4,855
Loan charge-offs		—		(7	)		(13	)		—			(23	)		(43	)
Recoveries		—		—			5			2			11			18
Net loan recoveries (charge-offs)		—		(7	)		(8	)		2			(12	)		(25	)
Provision charged to operations		4		94			(21	)		(90	)		13			—
Balance at end of period	$	1,250	$	3,313		$	113		$	60		$	94		$	4,830

Six Months Ended	(Amounts in thousands)
June 30, 2018	Commercial			Commercial real estate			Residential real estate			Consumer - home equity			Consumer - other			Total
Balance at beginning of period	$	1,591		$	2,702		$	117		$	70		$	98		$	4,578
Loan charge-offs		(1,163	)		—			—			—			(77	)		(1,240	)
Recoveries		—			150			1			4			27			182
Net loan recoveries (charge-offs)		(1,163	)		150			1			4			(50	)		(1,058	)
Provision charged to operations		966			(395	)		(38	)		(8	)		50			575
Balance at end of period	$	1,394		$	2,457		$	80		$	66		$	98		$	4,095

15

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

	(Amounts in thousands)
June 30, 2017	Commercial			Commercial real estate			Residential real estate			Consumer - home equity			Consumer - other			Total
Balance at beginning of period	$	1,394		$	3,072		$	163		$	150		$	89		$	4,868
Loan charge-offs		—			(100	)		(13	)		—			(67	)		(180	)
Recoveries		108			—			5			4			25			142
Net loan recoveries (charge-offs)		108			(100	)		(8	)		4			(42	)		(38	)
Provision charged to operations		(252	)		341			(42	)		(94	)		47			—
Balance at end of period	$	1,250		$	3,313		$	113		$	60		$	94		$	4,830

The total allowance reflects management’s estimate of loan losses inherent in the loan portfolio at the consolidated balance sheet date.

The following tables present a full breakdown by portfolio classification of the allowance for loan losses and the recorded investment in loans at June 30, 2018 and December 31, 2017:

	(Amounts in thousands)
June 30, 2018	Commercial		Commercial real estate		Residential real estate		Consumer - home equity		Consumer - other		Total
Allowance for loan losses:
Ending allowance balance attributable to    loans:
Individually evaluated for impairment	$	—	$	—	$	—	$	—	$	—	$	—
Collectively evaluated for impairment		1,394		2,457		80		66		98		4,095
Total ending allowance balance	$	1,394	$	2,457	$	80	$	66	$	98	$	4,095
Loan Portfolio:
Individually evaluated for impairment	$	5,357	$	4,354	$	—	$	—	$	—	$	9,711
Collectively evaluated for impairment		68,658		294,436		64,368		25,665		3,610		456,737
Total ending loans balance	$	74,015	$	298,790	$	64,368	$	25,665	$	3,610	$	466,448

	(Amounts in thousands)
December 31, 2017	Commercial		Commercial real estate		Residential real estate		Consumer - home equity		Consumer - other		Total
Allowance for loan losses:
Ending allowance balance attributable to    loans:
Individually evaluated for impairment	$	625	$	—	$	—	$	—	$	—	$	625
Collectively evaluated for impairment		966		2,702		117		70		98		3,953
Total ending allowance balance	$	1,591	$	2,702	$	117	$	70	$	98	$	4,578
Loan Portfolio:
Individually evaluated for impairment	$	5,581	$	4,664	$	—	$	—	$	—	$	10,245
Collectively evaluated for impairment		107,760		278,471		62,071		26,018		2,925		477,245
Total ending loans balance	$	113,341	$	283,135	$	62,071	$	26,018	$	2,925	$	487,490

The decrease in commercial loan balances from year-end was due in part to 60-day or less term commercial loans for a total of $43.0 million that closed in December 2017 and were fully secured by segregated deposit accounts with the Bank. The loans matured in the first quarter of 2018. The commercial charge off related to loans that were restructured with no principal forgiveness, but with a substantial concession in interest rate.  The below market rate triggered recognition of a charge-off equivalent to the difference in present value of loan payments discounted at the market rate of interest.  The charged off amount of $1.1 million is recorded as a loan discount.  As loan payments are made, interest will be recognized at the market rate versus the negotiated rate via the amortization of the discount over the various lives of the loans. There was $625,000 in specific reserve previously allocated to these loans at December 31, 2017.  

16

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

The decrease in the provision for commercial real estate loans is due mainly to a decrease in the concentration of credit factor. The recent segmentation of the commercial real estate loan portfolio into its five largest concentrations has resulted in lower allocations to those segments. The residential real estate, consumer-home equity and other household provisions remained fairly constant. The amount of net charge-offs also impacts the provision charged to operations for any category of loans. Charge-offs affect the historical rate applied to each category, and the amount needed to replenish the amount charged-off, which impacted home equity and consumer loans as well as commercial real estate loans.

The following tables represent credit exposures by internally assigned grades for June 30, 2018 and December 31, 2017. The grading analysis estimates the capability of the borrower to repay the contractual obligations of the loan agreements as scheduled or at all. The Company’s internal credit risk grading system is based on experiences with similarly graded loans.

The Company’s internally assigned grades are as follows:

• Pass – loans which are protected by the current net worth and paying capacity of the obligor or by the value of the underlying collateral. Within this category, there are grades of exceptional, quality, acceptable and pass monitor.

• Special Mention – loans where a potential weakness or risk exists, which could cause a more serious problem if not corrected.

• Substandard – loans that have a well-defined weakness based on objective evidence and are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected.

• Doubtful – loans classified as doubtful have all the weaknesses inherent in a substandard asset but with the severity which makes collection in full highly questionable and improbable, based on existing circumstances.

• Loss – loans classified as a loss are considered uncollectible, or of such value that continuance as an asset is not warranted. This rating does not mean that the assets have no recovery or salvage value but rather that the assets should be charged off now, even though partial or full recovery may be possible in the future.

The following table is a summary of credit quality indicators by internally assigned grades as of June 30, 2018 and December 31, 2017:

	(Amounts in thousands)
	Commercial		Commercial real estate
June 30, 2018
Pass	$	54,453	$	264,440
Special Mention		8,398		29,043
Substandard		11,164		5,307
Doubtful		—		—
Ending Balance	$	74,015	$	298,790

	(Amounts in thousands)
	Commercial		Commercial real estate
December 31, 2017
Pass	$	100,436	$	252,960
Special Mention		4,836		24,307
Substandard		8,069		5,868
Doubtful		—		—
Ending Balance	$	113,341	$	283,135

The Company evaluates the classification of consumer, home equity and residential loans primarily on a pooled basis. If the Company becomes aware that adverse or distressed conditions exist that may affect a particular loan, the loan is downgraded following the above definitions of special mention and substandard. Nonaccrual loans in these categories are evaluated for charge off or charge down, and the remaining balance has the same allowance factor as pooled loans.

17

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

The following table is a summary of consumer credit exposure as of June 30, 2018 and December 31, 2017:

	(Amounts in thousands)
	Residential real estate		Consumer-homeequity		Consumer - other
June 30, 2018
Performing	$	64,024	$	25,541	$	3,610
Nonperforming		344		124		—
Total	$	64,368	$	25,665	$	3,610

	(Amounts in thousands)
	Residential real estate		Consumer- home equity		Consumer - other
December 31, 2017
Performing	$	61,824	$	25,889	$	2,925
Nonperforming		247		129		—
Total	$	62,071	$	26,018	$	2,925

Loans are considered to be nonperforming when they become 90 days past due or on nonaccrual status, though the Company may be receiving partial payments of interest and partial repayments of principal on such loans. When a loan is placed in non-accrual status, previously accrued but unpaid interest is deducted from interest income. Loans in foreclosure are considered nonperforming.

The following table is a summary of classes of loans on non-accrual status as of June 30, 2018 and December 31, 2017:

	(Amounts in thousands)
	June 30, 2018		December 31, 2017
Commercial	$	1,149	$	—
Commercial real estate		441		506
Residential real estate		344		247
Consumer:
Consumer - home equity		124		129
Consumer - other		—		—
Total	$	2,058	$	882

Troubled Debt Restructuring

Nonperforming loans also include certain loans that have been modified in troubled debt restructurings (TDRs) where economic concessions have been granted to borrowers who have experienced or are expected to experience financial difficulties. These concessions typically result from the Company’s loss mitigation activities and could include reductions in the interest rate, payment extensions, forgiveness of principal, forbearance or other actions. Certain TDRs are classified as nonperforming at the time of restructure and may only be returned to performing status after considering the borrower’s sustained repayment performance for a reasonable period, generally six months.

There were no loans modified as TDR’s during the period ended June 30, 2017.

18

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

The following presents, by class, information related to loans modified in a TDR during the period ending June 30, 2018.

	(Dollar amounts in thousands)
	Three Months Ended								Six Months Ended
	June 30, 2018								June 30, 2018
	Number of contracts		Pre-modification recorded investment		Post-modification recorded investment		Increase in the allowance		Number of contracts		Pre-modification recorded investment		Post-modification recorded investment		Increase in the allowance
Commercial		—	$	—	$	—	$	—		7	$	5,373	$	4,210	$	—
Commercial real estate		—		—		—		—		—		—		—		—
Total restructured loans		—	$	—	$	—	$	—	$	7	$	5,373	$	4,210	$	—
Subsequently defaulted		—		—						—		—

The seven commercial loans were all to one borrower.  The loans were restructured with no principal forgiveness, but with a substantial concession in interest rate.  The below market rate triggered recognition of a charge-off equivalent to the difference in present value of loan payments discounted at the market rate of interest.  The charged off amount of $1.1 million is recorded as loan discount.  As loan payments are made, interest will be recognized at the market rate versus the negotiated rate via the amortization of the discount over the various lives of the loans.

The following table is an aging analysis of the recorded investment of past due loans as of June 30, 2018 and December 31, 2017:

	(Amounts in thousands)
	30-59 Days Past Due		60-89 Days Past Due		90 Days Or Greater		TotalPastDue		Current		Total Loans		Recorded Investment> 90 Days and Accruing
June 30, 2018
Commercial	$	24	$	142	$	1,149	$	1,315	$	72,700	$	74,015	$	—
Commercial real estate		—		194		340		534		298,256		298,790		—
Residential real estate		94		43		187		324		64,044		64,368		—
Consumer:
Consumer - home equity		97		—		27		124		25,541		25,665		—
Consumer - other		13		—		—		13		3,597		3,610		—
Total	$	228	$	379	$	1,703	$	2,310	$	464,138	$	466,448	$	—

	(Amounts in thousands)
	30-59 Days Past Due		60-89 Days Past Due		90 Days Or Greater		TotalPastDue		Current		Total Loans		Recorded Investment> 90 Days and Accruing
December 31, 2017
Commercial	$	—	$	—	$	—	$	—	$	113,341	$	113,341	$	—
Commercial real estate		173		12		390		575		282,560		283,135		—
Residential real estate		240		29		216		485		61,586		62,071		—
Consumer:
Consumer - home equity		—		82		28		110		25,908		26,018		—
Consumer - other		15		—		—		15		2,910		2,925		—
Total	$	428	$	123	$	634	$	1,185	$	486,305	$	487,490	$	—

An impaired loan is a loan on which, based on current information and events, it is probable that a creditor will be unable to collect all amounts due (including both interest and principal) according to the contractual terms of the loan agreement. However, an insignificant delay or insignificant shortfall in amount of payments on a loan does not indicate that the loan is impaired.

19

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

When a loan is determined to be impaired, impairment should be measured based on the present value of expected future cash flows discounted at the loan’s effective interest rate. However, as a practical expedient, the Company will measure impairment based on a loan’s observable market price, or the fair value of the collateral if the loan is collateral dependent.

The following are the criteria for selecting individual loans / relationships for impairment analysis. Non-homogenous loans which meet the criteria below are evaluated quarterly.

● All borrowers whose loans are classified doubtful by examiners and internal loan review

● All loans on non-accrual status

● Any loan in foreclosure

● Any loan with a specific allowance

● Any loan determined to be collateral dependent for repayment

● Loans classified as troubled debt restructuring

Commercial loans and commercial real estate loans evaluated for impairment are excluded from the general pool of loans in the ALLL calculation regardless if a specific reserve was determined. 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 allowance estimate or a charge-off to the allowance.

The following table presents the recorded investment and unpaid principal balances for impaired loans, excluding homogenous loans for which impaired analyses are not necessarily performed, with the associated allowance amount, if applicable, at June 30, 2018 and December 31, 2017. Also presented are the average recorded investments in the impaired balances and interest income recognized after impairment for the three and six months ended June 30, 2018 and 2017.

	(Amounts in thousands)
	Recorded Investment		Unpaid Principal Balance		Related Allowance
June 30, 2018
With no related allowance recorded:
Commercial	$	5,357	$	6,473	$	—
Commercial real estate		4,354		4,432		—
With an allowance recorded:
Commercial		—		—		—
Commercial real estate		—		—		—
Total:
Commercial	$	5,357	$	6,473	$	—
Commercial real estate	$	4,354	$	4,432	$	—

	(Amounts in thousands)
	Recorded Investment		Unpaid Principal Balance		Related Allowance
December 31, 2017
With no related allowance recorded:
Commercial	$	65	$	65	$	—
Commercial real estate		4,664		4,742		—
With an allowance recorded:
Commercial		5,516		5,516		625
Commercial real estate		—		—		—
Total:
Commercial	$	5,581	$	5,581	$	625
Commercial real estate	$	4,664	$	4,742	$	—

20

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

	(Amounts in thousands)
	Three Months Ended				Six Months Ended
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
June 30, 2018
With no related allowance recorded:
Commercial	$	4,615	$	8	$	3,041	$	11
Commercial real estate		4,180		104		4,360		212
With an allowance recorded:
Commercial		—		—		1,821		46
Commercial real estate		—		—		—		—
Total:
Commercial	$	4,615	$	8	$	4,862	$	57
Commercial real estate	$	4,180	$	104	$	4,360	$	212

	(Amounts in thousands)
	Three Months Ended				Six Months Ended
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
June 30, 2017
With no related allowance recorded:
Commercial	$	90	$	2	$	94	$	4
Commercial real estate		5,248		74		5,425		148
With an allowance recorded:
Commercial		—		—		—		—
Commercial real estate		458		—		699		6
Total:
Commercial	$	90	$	2	$	94	$	4
Commercial real estate	$	5,706	$	74	$	6,124	$	154

5.) Legal Proceedings:

The Company is involved in legal actions arising in the ordinary course of business. In the opinion of management, the outcomes from these matters, either individually or in the aggregate, are not expected to have any material effect on the Company.

6.) Earnings Per Share and Capital Transactions:

Earnings per share is computed by dividing net income available to common shareholders by the weighted average number of shares of common outstanding stock, net of any treasury shares, during the period. Diluted earnings per share is calculated by dividing net income available to common shareholders by the weighted average number of shares of common stock outstanding, net of any treasury shares, after consideration of the potential dilutive effect of common stock equivalents, based upon the treasury stock method using an average market price for the period. The common stock equivalents are comprised of the restricted share awards.

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2018		2017		2018		2017
Net income (amounts in thousands)	$	3,302	$	1,182	$	4,839	$	2,182
Weighted average common shares outstanding		4,369,792		4,411,102		4,381,540		4,408,886
Net effect of dilutive common share equivalents		4,010		3,051		6,128		3,757
Adjusted average shares outstanding-dilutive		4,373,802		4,414,153		4,387,668		4,412,643
Basic earnings per share	$	0.75	$	0.26	$	1.10	$	0.49
Diluted earnings per share	$	0.75	$	0.26	$	1.10	$	0.49

21

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

7.) Subordinated Debt:

In July 2007, a trust formed by the Company issued $5.0 million of floating rate trust preferred securities as part of a pooled offering of such securities due December 2037. The Company owns all $155,000 of the common securities issued by the trust. The securities bear interest at the 3-month LIBOR rate plus 1.45%. The rates at June 30, 2018 and December 31, 2017 were 3.79% and 3.04%, respectively. The Company issued subordinated debentures to the trust in exchange for the proceeds of the trust preferred offering. The debentures represent the sole assets of this trust. The Company may redeem the subordinated debentures, in whole or in part, at par.

The trust is not consolidated with the Company’s financial statements. Accordingly, the Company does not report the securities issued by the trust as liabilities, but instead reports as liabilities the subordinated debentures issued by the Company and held by the trust. The subordinated debentures qualify as Tier 1 capital for regulatory purposes in determining and evaluating the Company’s capital adequacy.

8.) Commitments:

The Bank is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit, standby letters of credit and financial guarantees. Such instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized on the Consolidated Balance Sheets. The contract or notional amounts on those instruments reflect the extent of involvement the Company has in particular classes of financial instruments.

In the event of nonperformance by the other party, the Company’s exposure to credit loss on these financial instruments is represented by the contract or notional amount of the instrument. The Company uses the same credit policies in making commitments and conditional obligations as it does for instruments recorded on the balance sheet. The amount and nature of collateral obtained, if any, is based on management’s credit evaluation.

The following table is a summary of such contractual commitments:

	(Amounts in thousands)
	June 30, 2018		December 31, 2017
Commitments to extend credit:
Fixed rate	$	34,156	$	32,749
Variable rate		64,011		60,508
Standby letters of credit		3,775		3,600

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Generally, these financial arrangements have fixed expiration dates or other termination clauses and may require payment of a fee. Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on management’s credit evaluation of the counterparty. Collateral held varies but may include accounts receivable, inventory, property, plant and equipment and income-producing commercial properties. The increase in commitments is in line with the Company’s increased focus on commercial and industrial lending, and specifically lines of credit.

The Company also offers limited overdraft protection as a non-contractual courtesy which is available to businesses as well as individually/jointly owned accounts in good standing for personal or household use. The Company reserves the right to discontinue this service without prior notice.

22

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

The following table is a summary of overdraft protection for the periods indicated:

	(Amounts in thousands)
	June 30, 2018			December 31, 2017
Overdraft protection available on depositors' accounts	$	9,006		$	9,637
Balance of overdrafts included in loans		81			103
Average daily balance of overdrafts		99			115
Average daily balance of overdrafts as a percentage of available		1.10	%		1.19	%

Customer Derivatives - Interest Rate Swaps/Floors – The Company enters into interest rate swaps that allow our commercial loan customers to effectively convert a variable-rate commercial loan agreement to a fixed-rate commercial loan agreement. Under these agreements, the Company enters into a variable-rate loan agreement with a customer in addition to an interest rate swap agreement, which serves to effectively swap the customer’s variable-rate into a fixed-rate. The Company then enters into a corresponding swap agreement with a third party in order to economically hedge its exposure through the customer agreement. The interest rate swaps with both the customers and third party are not designated as hedges under FASB ASC 815 and are marked to market through earnings. As the interest rate swaps are structured to offset each other, changes to the underlying benchmark interest rates considered in the valuation of these instruments do not result in an impact to earnings; however, there may be fair value adjustments related to credit quality variations between counterparties, which may impact earnings as required by FASB ASC 820. There was no effect on earnings in any periods presented. At June 30, 2018, based on the contract values, it was not necessary for any collateral to be pledged on the interest rate swap, compared to December 31, 2017 where the Company had one U.S. Government-sponsored mortgage-backed security pledged for collateral on its interest rate swaps with the third party financial institution at a fair value of $1.4 million.

Summary information regarding these derivatives is presented below:

	(Amounts in thousands)
	Notional Amount						Fair Value
	June 30, 2018		December 31, 2017		Interest Rate Paid	Interest Rate Received	June 30, 2018			December 31, 2017
Customer interest rate swap
Maturing in 2020	$	2,457	$	2,504	1 Mo. Libor + Margin	Fixed	$	47		$	(16	)
Maturing in 2025		5,111		5,288	1 Mo. Libor + Margin	Fixed		98			36
Maturing in 2026		2,005		2,064	1 Mo. Libor + Margin	Fixed		98			(44	)
Maturing in 2027		13,995		14,197	1 Mo. Libor + Margin	Fixed		299			209
Maturing in 2028		1,176		—	1 Mo. Libor + Margin	Fixed		(39	)		—
Total	$	24,744	$	24,053			$	503		$	185
Third party interest rate swap
Maturing in 2020	$	2,457	$	2,504	Fixed	1 Mo. Libor + Margin	$	(47	)	$	16
Maturing in 2025		5,111		5,288	Fixed	1 Mo. Libor + Margin		(98	)		(36	)
Maturing in 2026		2,005		2,064	Fixed	1 Mo. Libor + Margin		(98	)		44
Maturing in 2027		13,995		14,197	Fixed	1 Mo. Libor + Margin		(299	)		(209	)
Maturing in 2028		1,176		—	Fixed	1 Mo. Libor + Margin		39			—
Total	$	24,744	$	24,053			$	(503	)	$	(185	)

The following table presents the fair values of derivative instruments in the balance sheet:

	(Amounts in thousands)
	Assets			Liabilities
	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
June 30, 2018
Interest rate derivatives	Other assets	$	503	Other liabilities	$	503
December 31, 2017
Interest rate derivatives	Other assets	$	185	Other liabilities	$	185

23

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

9.) Fair Value of Assets and Liabilities:

Measurements

The Company groups assets and liabilities recorded at fair value into three levels based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. A financial instrument’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement (with level 1 considered highest and level 3 considered lowest). A brief description of each level follows:

Level 1: Quoted prices are available in active markets for identical assets or liabilities as of the reported date.

Level 2: 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 which trade less frequently, and items that are fair valued using other financial instruments, the parameters of which can be directly observed.

Level 3: 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 inputs into the determination of fair value require significant management judgment or estimation.

The following table presents the assets reported on the consolidated balance sheets, on a recurring basis, at their fair value as of June 30, 2018 and December 31, 2017 by level within the fair value hierarchy. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

	(Amounts in thousands)
			Fair Value Measurements at June 30, 2018 Using
Description	June 30, 2018		Level 1		Level 2		Level 3
ASSETS
U.S. Government agencies and corporations	$	8,952	$	—	$	8,952	$	—
Obligations of states and political subdivisions		51,781		—		51,781		—
U.S. Government-sponsored mortgage-backed securities		59,458		—		59,458		—
U.S. Government-sponsored collateralized mortgage obligations		12,883		—		12,883		—
U.S. Government-guaranteed small business administration pools		8,464		—		8,464		—
Loans held for sale		2,524		2,524		—		—
Interest rate derivatives		503		—		503		—
LIABILITIES
Interest rate derivatives	$	503	$	—	$	503	$	—

	(Amounts in thousands)
			Fair Value Measurements at December 31, 2017 Using
Description	December 31, 2017		Level 1		Level 2		Level 3
ASSETS
U.S. Government agencies and corporations	$	3,205	$	—	$	3,205	$	—
Obligations of states and political subdivisions		72,116		—		72,116		—
U.S. Government-sponsored mortgage-backed securities		67,668		—		67,668		—
U.S. Government-sponsored collateralized mortgage obligations		6,302		—		6,302		—
U.S. Government-guaranteed small business administration pools		9,655		—		9,655		—
Trust preferred securities		895		—		—		895
Loans held for sale		2,780		2,780		—		—
Interest rate derivatives		185		—		185		—
LIABILITIES
Interest rate derivatives	$	185	$	—	$	185	$	—

24

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

The following tables present the changes in the Level 3 fair value category for the three and six months ended June 30, 2018 and 2017. The Company classifies financial instruments in Level 3 of the fair-value hierarchy when there is reliance on at least one significant unobservable input to the valuation model. In addition to these unobservable inputs, the valuation models for Level 3 financial instruments typically also rely on a number of inputs that are readily observable either directly or indirectly.

	(Amounts in thousands)
	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2018			2017			2018			2017
	Trust preferred securities			Trust preferred securities			Trust preferred securities			Trust preferred securities
Beginning balance	$	1,090		$	827		$	895		$	825
Net realized/unrealized losses included in:
Noninterest income		—			—			—			—
Other comprehensive income (loss)		528			(10	)		723			(7	)
Discount accretion (premium amortization)		—			—			—			—
Sales		(1,618	)		—			(1,618	)		—
Purchases, issuance, and settlements		—			—			—			(1	)
Ending balance	$	—		$	817		$	—		$	817
Losses included in net income for the period relating to assets held at    period end	$	—		$	—		$	—		$	—

The Company conducts OTTI analyses on a quarterly basis. The initial indication of other-than-temporary impairment for both debt and equity securities is a decline in the fair value below the amount recorded for an investment. A decline in value that is considered to be other-than-temporary is recorded as a loss within non-interest income in the consolidated statements of income. In determining whether an impairment is other than temporary, the Company considers a number of factors, including, but not limited to, the length of time and extent to which the market value has been less than cost, recent events specific to the issuer, including investment downgrades by rating agencies and economic conditions of its industry, and a determination that the Company does not intend to sell those investments and it is not more-likely-than-not that the Company will be required to sell the investments before recovery of its amortized cost basis less any current period credit loss. Among the factors that are considered in determining the Company’s intent and ability is a review of its capital adequacy, interest rate risk position and liquidity.

The Company also considers the issuer’s financial condition, capital strength and near-term prospects. In addition, for debt securities the Company considers the cause of the price decline (general level of interest rates and industry- and issuer-specific factors), current ability to make future payments in a timely manner and the issuer’s ability to service debt, the assessment of a security’s ability to recover any decline in market value, the ability of the issuer to meet contractual obligations and the Company’s intent and ability to retain the security. All of the foregoing require considerable judgment.

Trust Preferred Securities

Trust preferred securities, which are accounted for under FASB ASC Topic 325 Investments Other, were held in the investment portfolio until early June 2018. The Company evaluated current available information in estimating the future cash flows of securities and determined whether there had been favorable or adverse changes in estimated cash flows from the cash flows previously projected. The Company considered the structure and term of the pool and the financial condition of the underlying issuers. Specifically, the evaluation incorporated factors such as interest rates and appropriate risk premiums, the timing and amount of interest and principal payments and the allocation of payments to the various note classes. Estimates of cash flows were based on the most recent trustee reports, announcements of deferrals or defaults, expected future default rates and other relevant market information.

25

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

The following table details the breakdown of trust preferred securities for the periods indicated:

	(Dollar amounts in thousands)
	June 30, 2018		December 31, 2017
Total number of trust preferred securities		—		2
Par value	$	—	$	1,939
Number not considered OTTI		—		1
Par value	$	—	$	903
Number considered OTTI		—		1
Par value	$	—	$	1,036
Life-to-date impairment recognized in earnings	$	—	$	140
Life-to-date impairment recognized in other comprehensive income		—		723
Total life-to-date impairment	$	—	$	863

The following table details the one debt security with other-than-temporary impairment, its credit ratings at June 30, 2017 and the related losses recognized in earnings:

		(Amounts in thousands)
	Moody’s/Fitch Rating	Amount of OTTI related to credit loss at January 1, 2017		Additions in QTD March 31, 2017		Additions in QTD June 30, 2017		Amount of OTTI related to credit loss at June 30, 2017
Trapeza IX B-1	Caa2/CC	$	140	$	—	$	—	$	140
Total		$	140	$	—	$	—	$	140

The following table provides additional information related to the Company’s trust preferred securities as of December 31, 2017 used to evaluate other-than-temporary impairments:

	(Amounts in thousands)
Deal	Class	Amortized Cost		FairValue		Unrealized Gain/(Loss)			Moody’s/ Fitch Rating	Number of Issuers Currently Performing		Deferrals and Defaults as a % of Current Collateral			Excess Subordination asa % of Current Performing Collateral
PreTSL XXIII	C-2	$	758	$	336	$	(422	)	Ba1/CCC		90		20.9	%		7.12	%
Trapeza IX	B-1		860		559		(301	)	Caa2/CC		30	14				—
Total		$	1,618	$	895	$	(723	)

The market for these securities at December 31, 2017 was not active and markets for similar securities are also not active. The inactivity was evidenced first by a significant widening of the bid-ask spread in the brokered markets in which trust preferred securities trade and then by a significant decrease in the volume of trades relative to historical levels. The new issue market is also inactive as new issuance is essentially nonexistent. There are currently very few market participants who are willing and/or able to transact for these securities. The pooled market value for these securities remains very depressed relative to historical levels. Although there has been marked improvement in the credit spread premium in the corporate bond space, only modest improvement has been noted in the market for trust preferred securities.

26

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Given conditions in the debt markets and the absence of observable transactions in the secondary and the new issue markets, the Company determined the following:

● The few observable transactions and market quotations that are available are not reliable for purposes of determining fair value at December 31, 2017;

● An income valuation approach technique (present value technique) that maximizes the use of relevant observable inputs and minimizes the use of unobservable inputs will be equally or more representative of fair value than the market approach valuation technique used at measurement dates prior to 2008; and

● The trust preferred securities will be classified within Level 3 of the fair value hierarchy because the Company determined that significant judgments are required to determine fair value at the measurement date.

The Company enlisted the aid of an independent third party to perform the trust preferred security valuations. The approach to determining fair value involved the following process:

1. Estimate the credit quality of the collateral using average probability of default values for each issuer (adjusted for rating levels).

2. Consider the potential for correlation among issuers within the same industry for default probabilities (e.g. banks with other banks).

3. Forecast the cash flows for the underlying collateral and apply to each trust preferred security tranche to determine the resulting distribution among the securities, including prepayment and cures.

4. Discount the expected cash flows to calculate the present value of the security.

Financial Instruments

The Company discloses fair value information about financial instruments, whether or not recognized in the consolidated balance sheets, for which it is practicable to estimate the value. In cases where quoted market prices are not available, fair values are based on estimates using present value or other estimation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows.

Such techniques and assumptions, as they apply to individual categories of the financial instruments, are as follows:

Cash and cash equivalents – The carrying amounts for cash and cash equivalents are a reasonable estimate of those assets’ fair value.

Investment securities available-for-sale– Fair values of securities are based on quoted market prices, where available. If quoted market prices are not available, fair values are based on quoted market prices of comparable securities. Prices on trust preferred securities were calculated using a discounted cash-flow technique. Cash flows were estimated based on credit and prepayment assumptions. The present value of the projected cash flows was calculated using a discount rate equal to the current yield used to accrete the beneficial interest.

Loans held for sale – Loans held for sale consist of residential mortgage loans originated for sale. Loans held for sale are recorded at fair value based on what the secondary markets have offered on best efforts commitments.

Loans, net – Market quotations are generally not available for loan portfolios. In accordance with the prospective adoption of ASU No. 2016-01, the fair value of loans as of June 30, 2018 was measured using an exit price notion, which incorporates adjustments to the discount rate for alternate cost of funds, liquidity premiums and capital and serving charges. The fair value of loans as of December 31, 2017 was measured by discounting future cash flows using current market inputs at which loans with similar terms and qualities would be made to borrowers of similar credit quality.

Bank-owned life insurance – The fair value is based upon the cash surrender value of the underlying policies net of any split dollar obligation and matches the book value.

Accrued interest receivable – The carrying amount is a reasonable estimate of these assets’ fair value.

Interest rate derivatives – The fair value is based on settlement values adjusted for credit risks associated with the counter parties and the Company and observable market interest rate curves.

27

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Demand, savings and money market deposits – Demand, savings, and money market deposit accounts are valued at the amount payable on demand.

Time deposits – The fair value of certificates of deposit is based on the discounted value of contractual cash flows. The discount rates are estimated using market rates currently offered for similar instruments with similar remaining maturities.

Short term borrowings – Short term borrowings generally have an original term to maturity of one year or less. Consequently, their carrying value is a reasonable estimate of fair value.

FHLB advances - short term – Short term borrowings generally have an original term to maturity of one year or less. Advances of one month or less are considered to be at fair value. The fair value of notes with one to twelve month terms is based on the discounted value of contractual cash flows. The discount rates are estimated using market rates currently offered for similar instruments with similar remaining maturities.

FHLB advances - long term – The fair value for fixed rate advances is estimated by discounting the future cash flows using rates at which advances would be made to borrowers with similar credit ratings and for the same remaining maturities. The fair value for the fixed rate advances that are convertible to quarterly LIBOR floating rate advances on or after certain specified dates at the option of the FHLB and the FHLB fixed rate advances that are putable on or after certain specified dates at the option of the FHLB are priced using the FHLB of Cincinnati’s model.

Subordinated debt – The floating issuances curves to maturity are averaged to obtain an index. The spread between BBB-rated bank debt and 25-year swap rates is determined to calculate the spread on outstanding trust preferred securities. The discount margin is then added to the index to arrive at a discount rate, which determines the present value of projected cash flows.

Accrued interest payable – The carrying amount is a reasonable estimate of these liabilities’ fair value. The fair value of unrecorded commitments at June 30, 2018 and December 31, 2017 is not material.

In addition, other assets and liabilities of the Company that are not defined as financial instruments are not included in the disclosures, such as property and equipment. Also, non-financial instruments typically not recognized in financial statements nevertheless may have value but are not included in the above disclosures. These include, among other items, the estimated earning power of core deposit accounts, the trained work force, customer goodwill and similar items. Accordingly, the aggregate fair value amounts presented do not represent the underlying value of the Company.

28

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

The carrying amounts and fair values of the Company’s financial instruments are as follows:

	(Amounts in thousands)
	June 30, 2018
	Carrying Amount		Level 1		Level 2		Level 3		Fair Value
ASSETS:
Cash and cash equivalents	$	10,977	$	10,977	$	—	$	—	$	10,977
Investment securities available-for-sale		141,538		—		141,538		—		141,538
Loans held for sale		2,524		2,524		—		—		2,524
Loans		462,353		—		—		466,098		466,098
Bank-owned life insurance		15,550		15,550		—		—		15,550
Accrued interest receivable		2,137		2,137		—		—		2,137
Interest rate derivatives		503		—		503		—		503
LIABILITIES:
Demand, savings and money market deposits	$	439,229	$	439,229	$	—	$	—	$	439,229
Time deposits		118,594		—		—		119,579		119,579
Short term borrowings		1,609		1,609		—		—		1,609
Federal Home Loan Bank advances - short term		11,000		—		—		10,980		10,980
Federal Home Loan Bank advances - long term		16,000		—		—		15,799		15,799
Subordinated debt		5,155		—		—		4,723		4,723
Accrued interest payable		302		302		—		—		302
Interest rate derivatives		503		—		503		—		503

	(Amounts in thousands)
	December 31, 2017
	Carrying Amount		Level 1		Level 2		Level 3		Fair Value
ASSETS:
Cash and cash equivalents	$	19,125	$	19,125	$	—	$	—	$	19,125
Investment securities available-for-sale		159,841		—		158,946		895		159,841
Loans held for sale		2,780		2,780		—		—		2,780
Loans		482,912		—		—		486,230		486,230
Bank-owned life insurance		17,650		17,650		—		—		17,650
Accrued interest receivable		2,193		2,193		—		—		2,193
Interest rate derivatives		185		—		185		—		185
LIABILITIES:
Demand, savings and money market deposits	$	458,562	$	458,562	$	—	$	—	$	458,562
Time deposits		127,289		—		—		128,624		128,624
Short term borrowings		2,678		2,678		—		—		2,678
Federal Home Loan Bank advances - short term		32,000		—		—		31,982		31,982
Federal Home Loan Bank advances - long term		14,000		—		—		13,880		13,880
Subordinated debt		5,155		—		—		4,785		4,785
Accrued interest payable		325		325		—		—		325
Interest rate derivatives		185		—		185		—		185

29

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

The following table presents quantitative information about the Level 3 significant unobservable inputs for assets and liabilities measured at fair value on a recurring and nonrecurring basis at December 31, 2017:

	(Amounts in thousands)
	Fair value at December 31, 2017		Valuation Technique	Significant Unobservable Input	Description of Inputs
Trust preferred securities	$	895	Discounted Cash Flow	Projected Prepayments	1) Trust preferred securities issued by banks subject to Dodd-Frank's phase-out of trust preferred securities from Tier 1 Capital.  All fixed rate within one year; variable rate at increasing intervals depending on spread. 2) Trust preferred securities issued by healthy, well capitalized banks that have fixed rate coupons greater than 8%. 3) 1% annually for all other fixed rate issues and all variable rate issues. 4) Zero for collateral issued by REITs and 2% for insurance companies.
				Projected Defaults	1) All deferring issuers that do not meet the criteria for curing, as described below, are  projected to default immediately. 2) Banks with high, near team  default risk are identified using a CAMELS model and projected to default immediately.  Healthy banks are projected to default at a rate of 2% annually for 2 years, and 0.36% annually thereafter. 3) Insurance and REIT defaults are projected according to the historical default rates exhibited by companies with the same credit ratings. Historical default rates are doubled in each of the first two years of the projection to account for current economic conditions. Unrated issuers are assumed to have CCC- ratings.
				Projected Cures	1) Deferring issuers that have definitive agreements to either be acquired or  recapitalized.
				Projected Recoveries	1) Zero for insurance companies, REITs and insolvent banks, and 10% for projected bank deferrals lagged 2 years.
				Discount Rates	1) Ranging from ~9.10% to ~14.74%, depending on each bond's seniority and remaining subordination after projected losses.
Impaired loans		4,891	Cash Flow	Discount Rates	Range 4.50% to 5.38% Weighted average 4.88%

30

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

10.) Accumulated Other Comprehensive Loss:

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

	(Amounts in thousands)
	Three Months Ended												Six Months Ended
	June 30,												June 30,
	2018						2017						2018						2017
	Unrealized losses on available- for-sale securities (a)			Change in pension and postretirement obligations (a)			Unrealized gains (losses) on available- for-sale securities (a)			Change in pension and postretirement obligations (a)			Unrealized gains (losses) on available- for-sale securities (a)			Change in pension and postretirement obligations (a)			Unrealized gains (losses) on available- for-sale securities (a)			Change in pension and postretirement obligations (a)
Beginning balance	$	(4,144	)	$	(46	)	$	(2,905	)	$	(57	)	$	(1,787	)	$	(38	)	$	(2,909	)	$	(52	)
Other comprehensive income (loss)    before reclassification		(67	)		111			1,024			(6	)		(2,408	)		103			1,034			(11	)
Amount reclassified from    accumulated other    comprehensive income (loss)		33			—			(14	)		—			17			—			(20	)		—
Total other comprehensive    income (loss)		(34	)		111			1,010			(6	)		(2,391	)		103			1,014			(11	)
Ending balance	$	(4,178	)	$	65		$	(1,895	)	$	(63	)	$	(4,178	)	$	65		$	(1,895	)	$	(63	)

(a) All amounts are net of tax. Amounts in parentheses indicate debits.

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

	(Amounts in thousands)
	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2018			2017			2018			2017
	Amount reclassified from accumulated other comprehensive loss (a)			Amount reclassified from accumulated other comprehensive income (a)			Amount reclassified from accumulated other comprehensive loss (a)			Amount reclassified from accumulated other comprehensive income (a)			Affected line item in the statement where net income is presented
Details about other comprehensive    income or loss:
Unrealized gains (losses) on available-    for-sale securities	$	(41	)	$	22		$	(21	)	$	31		Investment securities available-for- sale gains (losses), net
		8			(8	)		4			(11	)	Federal income tax expense
	$	(33	)	$	14		$	(17	)	$	20		Net of tax

(a) Amounts in parentheses indicate debits to net income.

31

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

11.) Post-Retirement Obligations:

The Company accrues for the monthly benefit expense of post-retirement cost of insurance for split dollar life insurance coverage. The following table presents the changes in the accumulated liability:

	(Amounts in thousands)
	Three Months Ended					Six Months Ended
	June 30,					June 30,
	2018			2017		2018			2017
Beginning balance	$	890		$	858	$	876		$	840
Expense recorded		5			13		11			26
Other comprehensive (income) loss recorded		(111	)		6		(103	)		11
Ending balance	$	784		$	877	$	784		$	877

12.) Stock Repurchase Program:

On January 24, 2017, the Company’s Board of Directors approved a program which allowed the Company to repurchase up to 100,000 shares, or approximately 2.3% of the 4,420,055 shares outstanding at January 24, 2017, of the Company’s outstanding common stock. This program terminated on December 31, 2017. The Company purchased 12,863 shares under this program. On January 23, 2018, the Company’s Board of Directors approved a new program which allowed the Company to repurchase up to 100,000 shares, or approximately 2.3% of the 4,420,136 shares outstanding at January 23, 2018, of the Company’s outstanding common stock. This program will terminate on December 31, 2018 or upon purchase of 100,000 shares if earlier or at any time without prior notice.  On May 22, 2018 the Company’s Board of Directors approved an increase in the number of shares authorized for repurchase under the January 23, 2018 plan by 200,000 shares bringing the total to 300,000 shares authorized with 231,512 total remaining shares which was approximately 5.3% of the Company’s outstanding shares. The Company purchased 68,488 shares under this program to date. Repurchased shares are designated as treasury shares, available for general corporate purposes, including possible use in connection with the Company’s dividend reinvestment program, employee benefit plans, acquisitions or other distributions. Based on the value of the Company’s stock on June 30, 2018, the remaining authorization to repurchase the stock for the program is approximately $5.6 million.

13.) Short-Term Borrowings:

The following table provides additional detail regarding short-term borrowings:

	(Amounts in thousands)
	Repurchase Agreements (Sweep)
	Accounted for as Secured Borrowings
	At June 30, 2018		At December 31, 2017
	Remaining Contractual Maturity of the Agreements
	Overnight and Continuous		Overnight and Continuous
Repurchase agreements:
U.S. Government-sponsored mortgage-backed securities	$	3,207	$	3,414
Total collateral carrying value	$	3,207	$	3,414
Total short-term borrowings	$	1,609	$	2,678

32

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

14.) Equity Compensation:

During 2015, the Company, created the 2015 Omnibus Equity Plan and The Director Equity Plan.

The Omnibus Equity Plan permits the award of up to 340,000 shares to the Company’s employees to promote the long-term financial success of the Company, increasing shareholder value by providing employees the opportunity to acquire an ownership interest in the Company and enabling the Company and its related entities to attract and retain the services of those upon whom the successful conduct of business depends. In the first half of 2018 12,593 shares were granted to employees under the plan, compared to 12,976 shares being granted under the plan in March 2017. The Company is expensing the grant date fair value of all share-based compensation over the requisite vesting periods on a prorated straight-line basis.  In the first six months of 2018 and 2017 compensation expense of $86,000 and $53,000, respectively, was recorded in the Consolidated Statements of Income. In the second quarter of 2018 and 2017 compensation expense of $52,000 and $35,000, respectively, was recorded in the Consolidated Statements of Income. As of June 30, 2018, there was $444,000 of total unrecognized compensation expense related to the non-vested shares granted under the Plan. Shares awarded under this plan vest in equal thirds on the first three anniversaries of the award date if the employee remains employed with Cortland Bancorp. The remaining cost is expected to be recognized over a weighted average period of 23.0 months.

Granted shares are awarded upon meeting achievement of performance objectives derived from one or more of the performance criteria. The main metrics used for the periods presented were three-year earnings per share growth and three-year total shareholder return ranked versus a peer group.

The Director Equity Plan permits the award of up to 113,000 shares to nonemployee directors to promote the long-term financial success of the Company, increasing shareholder value by enabling the Company and its related entities to attract and retain the services of those directors upon whom the successful conduct of business depends.  There were 989 shares of Board approved shares granted in the first half of 2018, compared to 1,656 Board approved shares granted under the plan in March 2017. Both of these grants each had immediate vesting. In the first six months of 2017, expense of $30,000 was recorded in the Consolidated Statements of Income, and $22,000 was recorded in the second quarter of 2018.

The following is the activity under the two plans during the six months ended June 30, 2018:

	Shares			Weighted Average Grant Date Fair Value
Nonvested at January 1, 2018		20,814		$	17.02
Granted		12,593			22.01
Vested		(8,359	)		16.71
Forfeited		—			—
Nonvested at June 30, 2018		25,048		$	19.63

33

CONSOLIDATED AVERAGE BALANCE SHEETS, YIELDS AND RATES (UNAUDITED)

	(Fully taxable equivalent basis in thousands of dollars)
	YEAR-TO-DATE AS OF
	JUNE 30, 2018							DECEMBER 31, 2017							JUNE 30, 2017
	Average				Average			Average				Average			Average				Average
	Balance		Interest		Rate			Balance		Interest		Rate			Balance		Interest		Rate
ASSETS
Interest earning deposits	$	9,286	$	81		1.75	%	$	8,668	$	98		1.13	%	$	9,618	$	46		0.96	%
Investment securities (1) (2) (3)		151,037		2,079		2.75	%		168,654		5,082		3.01	%		170,661		2,551		2.99	%
Loans (1) (2) (3)		465,993		11,330		4.88	%		415,251		19,257		4.64	%		410,221		9,367		4.58	%
Total interest-earning assets		626,316	$	13,490		4.32	%		592,573	$	24,437		4.12	%		590,500	$	11,964		4.07	%
Cash and due from banks		7,313							7,804							7,803
Bank premises and equipment		9,036							9,193							9,258
Other assets		26,034							27,345							25,899
Total noninterest-earning assets		42,383							44,342							42,960
Total assets	$	668,699						$	636,915						$	633,460
LIABILITIES AND SHAREHOLDERS'    EQUITY
Interest-bearing demand deposits	$	199,706	$	618		0.62	%	$	168,536	$	751		0.45	%	$	164,022	$	329		0.40	%
Savings		113,941		48		0.09	%		114,261		90		0.08	%		115,008		43		0.08	%
Time		122,522		973		1.60	%		128,251		1,730		1.35	%		131,928		840		1.28	%
Total interest-bearing deposits		436,169		1,639		0.76	%		411,048		2,571		0.63	%		410,958		1,212		0.59	%
Other borrowings		33,594		272		1.63	%		33,777		481		1.42	%		36,010		264		1.48	%
Subordinated debt		5,155		88		3.39	%		5,155		138		2.68	%		5,155		66		2.54	%
Total interest-bearing liabilities		474,918	$	1,999		0.85	%		449,980	$	3,190		0.71	%		452,123	$	1,542		0.69	%
Demand deposits		123,057							116,605							112,846
Other liabilities		10,031							10,332							10,037
Shareholders' equity		60,693							59,998							58,454
Total liabilities and shareholders' equity	$	668,699						$	636,915						$	633,460
Net interest income			$	11,491						$	21,247						$	10,422
Net interest rate spread (4)						3.47	%						3.41	%						3.38	%
Net interest margin (5)						3.68	%						3.59	%						3.54	%
Ratio of interest-earning assets    to interest-bearing liabilities						1.32							1.32							1.31

(1) Includes both taxable and tax-exempt loans and investment securities.

(2) The amounts are presented on a fully taxable equivalent basis using the statutory rate of 21% in 2018 and 34% in 2017 and have been adjusted to reflect the effect of disallowed interest expenses related to carrying tax-exempt assets. The tax equivalent income adjustment for loans and investment securities was $3,000 and $189,000, respectively, for June 30, 2018; $14,000 and $931,000, respectively, for December 31, 2017; and $7,000 and $456,000, respectively, for June 30, 2017.

(3) Average balance outstanding includes the average amount outstanding of all non-accrual investment securities and loans. Investment securities consist of average total principal adjusted for amortization of premium and accretion of discount and includes both taxable and tax-exempt securities. Loans consist of average total loans, including loans held for sale, less average unearned income.

(4) Interest rate spread represents the difference between the yield on earning assets and the rate paid on interest-bearing liabilities.

(5) Net interest margin is calculated by dividing net interest income by total interest-earning assets.

34

CONSOLIDATED AVERAGE BALANCE SHEETS, YIELDS AND RATES (UNAUDITED)

	(Fully taxable equivalent basis in thousands of dollars)
	QUARTER-TO-DATE AS OF
	JUNE 30, 2018							MARCH 31, 2018							JUNE 30, 2017
	Average				Average			Average				Average			Average				Average
	Balance		Interest		Rate			Balance		Interest		Rate			Balance		Interest		Rate
ASSETS
Interest earning deposits	$	11,665	$	53		1.81	%	$	6,881	$	28		1.65	%	$	12,459	$	30		0.96	%
Investment securities (1) (2) (3)		147,194		1,020		2.76	%		154,923		1,059		2.74	%		167,515		1,256		2.99	%
Loans (1) (2) (3)		461,086		5,740		4.99	%		470,957		5,590		4.78	%		410,137		4,745		4.63	%
Total interest-earning assets		619,945	$	6,813		4.40	%		632,761	$	6,677		4.25	%		590,111	$	6,031		4.09	%
Cash and due from banks		7,542							7,080							8,142
Bank premises and equipment		9,016							9,056							9,271
Other assets		24,799							27,281							27,177
Total non-interest-earning assets		41,357							43,417							44,590
Total assets	$	661,302						$	676,178						$	634,701
LIABILITIES AND SHAREHOLDERS'    EQUITY
Interest-bearing demand deposits	$	196,499	$	332		0.68	%	$	202,950	$	286		0.57	%	$	165,906	$	181		0.44	%
Savings		113,984		24		0.09	%		113,896		24		0.09	%		115,803		23		0.08	%
Time		119,780		494		1.65	%		125,296		479		1.55	%		130,441		422		1.30	%
Total interest-bearing deposits		430,263		850		0.79	%		442,142		789		0.72	%		412,150		626		0.61	%
Other borrowings		28,291		122		1.73	%		38,957		150		1.56	%		32,600		122		1.49	%
Subordinated debt		5,155		48		3.65	%		5,155		40		3.13	%		5,155		35		2.63	%
Total interest-bearing liabilities		463,709	$	1,020		0.88	%		486,254	$	979		0.82	%		449,905	$	783		0.70	%
Demand deposits		126,931							119,141							115,360
Other liabilities		9,985							10,118							10,209
Shareholders' equity		60,677							60,665							59,227
Total liabilities and shareholders' equity	$	661,302						$	676,178						$	634,701
Net interest income			$	5,793						$	5,698						$	5,248
Net interest rate spread (4)						3.52	%						3.43	%						3.39	%
Net interest margin (5)						3.74	%						3.62	%						3.56	%
Ratio of interest-earning assets to    interest-bearing liabilities						1.34							1.30							1.31

(1) Includes both taxable and tax-exempt loans and investment securities.

(2) The amounts are presented on a fully taxable equivalent basis using the statutory rate of 21% in 2018 and 34% in 2017 and have been adjusted to reflect the effect of disallowed interest expenses related to carrying tax-exempt assets. The tax equivalent income adjustment for loans and investment securities was $1,000 and $85,000, respectively, for June 30, 2018; $2,000 and $104,000, respectively, for March 31, 2018; and $3,000 and $223,000, respectively, for June 30, 2017.

(3) Average balance outstanding includes the average amount outstanding of all non-accrual investment securities and loans. Investment securities consist of average total principal adjusted for amortization of premium and accretion of discount and includes both taxable and tax-exempt securities. Loans consist of average total loans, including loans held for sale, less average unearned income.

(4) Interest rate spread represents the difference between the yield on earning assets and the rate paid on interest-bearing liabilities.

(5) Net interest margin is calculated by dividing net interest income by total interest-earning assets.

35

SELECTED FINANCIAL DATA FOR THE QUARTER ENDED

(In thousands of dollars, except for ratios and per share amounts)

	June 30,			March 31,			December 31,			September 30,			June 30,
Unaudited	2018			2018			2017			2017			2017
SUMMARY OF OPERATIONS
Total interest income	$	6,727		$	6,571		$	6,129		$	5,862		$	5,805
Total interest expense		(1,020	)		(979	)		(848	)		(800	)		(783	)
NET INTEREST INCOME (NII)		5,707			5,592			5,281			5,062			5,022
Provision for loan losses		(75	)		(500	)		—			(100	)		—
NII after loss provision		5,632			5,092			5,281			4,962			5,022
Investment securities gains (losses)		(41	)		20			(17	)		(7	)		22
Mortgage banking gains		261			238			243			315			322
Other income		2,357			754			721			1,879			788
Total non-interest expense		(4,585	)		(4,326	)		(4,603	)		(4,665	)		(4,686	)
Income before tax expense		3,624			1,778			1,625			2,484			1,468
Federal income tax expense		322			241			1,604			337			286
Net income	$	3,302		$	1,537		$	21		$	2,147		$	1,182
PER COMMON SHARE DATA (1)
Earnings per share, basic and diluted	$	0.75		$	0.35		$	0.01		$	0.49		$	0.26
Book value		14.17			13.63			13.94			13.96			13.51
Cash dividends declared per share		0.11			0.11			0.08			0.08			0.08
BALANCE SHEET DATA
Assets	$	662,700		$	663,138		$	711,101		$	631,984		$	634,736
Investments		144,119			141,717			162,422			165,049			162,677
Loans		466,448			451,914			487,490			411,417			409,766
Allowance for loan losses		4,095			3,884			4,578			4,777			4,830
Deposits		557,823			554,539			585,851			526,484			530,988
Borrowings		33,764			39,217			53,833			33,620			32,758
Shareholders' equity		61,824			60,127			61,630			61,734			59,910
AVERAGE BALANCES
Assets	$	661,302		$	676,178		$	648,887		$	631,727		$	634,701
Investments		147,194			154,923			166,121			167,239			167,515
Loans		458,334			468,892			427,452			407,371			407,138
Deposits		557,194			561,283			537,587			525,279			527,510
Borrowings		33,446			44,112			38,655			34,817			37,755
Shareholders' equity		60,677			60,665			62,343			60,690			59,227
ASSET QUALITY RATIOS
Net recoveries (charge-offs)	$	136		$	(1,194	)	$	(199	)	$	(153	)	$	(25	)
Net recoveries (charge-offs) as a percentage    of average total loans		0.12	%		(1.02	)%		(0.19	)%		(0.15	)%		(0.02	)%
Loans 30 days or more beyond their contractual    due date as a percent of total loans		0.50	%		0.24	%		0.24	%		0.35	%		0.49	%
Nonperforming loans	$	10,188		$	9,258		$	5,114		$	5,328		$	5,886
Nonperforming securities		—			1,090			895			837			817
Other real estate owned		—			—			—			—			480
Total nonperforming assets	$	10,188		$	10,348		$	6,009		$	6,165		$	7,183
Nonperforming assets as a percentage of:
Total assets		1.54	%		1.56	%		0.85	%		0.98	%		1.13	%
Equity plus allowance for loan losses		15.46			16.17			9.08			9.27			11.10
Tier I capital		14.36			14.93			8.78			9.00			10.74
FINANCIAL RATIOS
Return on average equity		21.77	%		10.13	%		0.13	%		14.15	%		7.98	%
Return on average assets		2.00			0.91			0.01			1.36			0.74
Efficiency ratio		54.51			64.66			71.13			70.71			73.70
Effective tax rate		8.89			13.55			98.71			13.57			19.48
Net interest margin		3.74			3.62			3.65			3.61			3.56

(1) Basic earnings per common share are based on weighted average shares outstanding. Diluted earnings per share is after consideration of common stock equivalent. Cash dividends per common share are based on actual dividends declared. Book value per common share is based on shares outstanding at each period end.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

Financial Review

The following is management’s discussion and analysis of the financial condition and results of operations of Cortland Bancorp (the Company). The discussion should be read in conjunction with the Consolidated Financial Statements and related notes and summary financial information included elsewhere in this quarterly report.

Note Regarding Forward-looking Statements

The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for forward-looking statements. In addition to historical information, certain information included in this discussion and other material filed or to be filed by the Company with the Securities and Exchange Commission (as well as information included in oral statements or other written statements made or to be made by the Company) may contain forward-looking statements that involve risks and uncertainties. The words “believes,” “expects,” “may,” “will,” “should,” “projects,” “contemplates,” “anticipates,” “forecasts,” “intends,” or similar terminology identify forward-looking statements. These statements reflect management’s beliefs and assumptions, and are based on information currently available to management.

Economic circumstances, the Company’s operations and actual results could differ significantly from those discussed in any forward-looking statements. Some of the factors that could cause or contribute to such differences are changes in the economy and interest rates either nationally or in the Company’s market area, including the impact of the impairment of securities; political actions, including failure of the United States Congress to raise the federal debt ceiling or the imposition of changes in the federal budget; changes in customer preferences and consumer behavior; increased competitive pressures or changes in either the nature or composition of competitors; changes in the legal and regulatory environment; changes in factors influencing liquidity, such as expectations regarding the rate of inflation or deflation, currency exchange rates, and other factors influencing market volatility; changes in assumptions underlying the establishment of reserves for possible loan losses, reserves for repurchase of mortgage loans sold and other estimates; and risks associated with other global economic, political and financial factors.

While actual results may differ significantly from the results discussed in the forward-looking statements, the Company undertakes no obligation to update publicly any forward-looking statement for any reason, even if new information becomes available.

Analysis of Assets, Liabilities and Shareholders’ Equity

Due to the seasonality of the loan and deposit balances in the year-end balance sheet, a comparison of June 30, 2017 is included in the analysis of assets and liabilities, in addition to the usual comparison to December 31, 2017. The following table contains the loan and deposit balances referenced in the discussions:

	(Amounts in thousands)
	June 30, 2018		December 31, 2017		June 30, 2017
Loans:
Commercial	$	74,015	$	113,341	$	65,877
Commercial real estate		298,790		283,135		256,610
Residential real estate		64,368		62,071		59,086
Consumer - home equity		25,665		26,018		25,125
Consumer - other		3,610		2,925		3,068
Total loans	$	466,448	$	487,490	$	409,766
Total earning assets	$	617,367	$	662,076	$	586,969
Total assets	$	662,700	$	711,101	$	634,736
Deposits:
Noninterest-bearing deposits	$	130,318	$	123,291	$	113,200
Interest-bearing demand deposits		308,911		335,271		288,238
Time deposits		118,594		127,289		129,550
Total deposits	$	557,823	$	585,851	$	530,988
Total interest bearing liabilities	$	461,269	$	516,393	$	450,546

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Earning assets are comprised of deposits at financial institutions, including the Federal Reserve Bank, investment securities and loans. Earning assets were $617.4 million at June 30, 2018, a decrease of 6.8% from the December 31, 2017 balance of $662.1 million. The decrease from December 31, 2017 was mainly due to a decrease in loans of $21.0 million, and a decrease of $18.3 million in investment securities available-for-sale and a decrease in interest-earning deposits of $5.1 million.  Earning assets increased 5.2% from the June 30, 2017 balance of $587.0 million, which was due mainly to an increase in loans of $56.7 million offset by adecrease in interest-earning deposits of $7.1 million and a decrease in investment securities available-for-sale of $18.6 million. Total assets of $662.7 million at June 30, 2018 decreased by $48.4 million, or 6.8%, from the asset total of $711.1 million at December 31, 2017, and increased $28.0 million, or 4.4%, from the asset total of $634.7 million at June 30, 2017.

At June 30, 2018, the investment securities available-for-sale portfolio was $141.5 million compared to $159.8 million at December 31, 2017, a decrease of $18.3 million, or 11.5%. Investment securities available-for-sale represented 22.9% of earning assets at June 30, 2018, compared to 24.1% at December 31, 2017. As the Company manages its balance sheet for loan growth, asset mix, liquidity and current interest rates and interest rate forecasts, the investment portfolio is a primary source of liquidity and therefore reflects variation in balances accordingly. The investment securities available-for-sale portfolio represented 25.4% of each deposit dollar at June 30, 2018, down 1.9% from year-end levels.

The investment securities available-for-sale portfolio had net unrealized losses, net of tax, of $4.2 million and $1.8 million at June 30, 2018 and December 31, 2017, respectively. The increase in unrealized losses is reflective of the increase in interest rates during this first half of 2018 and its effect on securities valuation.

Loans held for sale decreased by $256,000 to $2.5 million at June 30, 2018 from $2.8 million at December 31, 2017, reflecting minor variation of the mortgage loan processing and origination activity.

Total loans at June 30, 2018 were $466.4 million compared to $487.5 million at December 31, 2017, a 4.3% decrease, and $409.8 million at June 30, 2017, a 13.8% increase. Year-end loan balances included 60-day or less term commercial loans totaling $43.0 million that closed in December 2017 and were fully secured by segregated deposit accounts with the Bank, and matured in the first quarter of 2018. Excluding these seasonal loans at December 31, 2017, total loans actually increased $21.9 million, or 4.7% through June 30, 2018. The Company continues its objective of shifting its asset mix into in-market commercial loans with the intent of improving net interest margin. Total gross loans as a percentage of earning assets stood at 76.0% as of June 30, 2018, 74.1% as of December 31, 2017, and 70.3% as of June 30, 2017. The total loan-to-deposit ratio was 84.1% at June 30, 2018 and 83.7% at December 31, 2017 and 77.8% June 30, 2017.

The allowance for loan losses of $4.1 million, $4.6 million and $4.8 million, respectively, represented approximately 0.9% of outstanding loans at June 30, 2018 and at December 31, 2017 and 1.2% at June 30, 2017.

During the first six months, loan charge-offs were $1.2 million in 2018 compared to $180,000 for the same period in 2017, while the recovery of previously charged-off loans amounted to $182,000 in 2018 and $142,000 in 2017. The net charge-offs represent 46 basis points of average loans for 2018 and less than 10 basis points for 2017. Charge-offs of specific problem loans, as well as for smaller balance homogeneous loans, are recorded periodically during the year. The number of loan accounts and the amount of charge-offs associated with account balances vary from period to period as loans are deemed uncollectible by management. In the first six months of 2018 there was a commercial charge off related to loans to one customer that were restructured with no principal forgiveness, but with a substantial concession in interest rate. The below market rate triggered recognition of a charge-off equivalent to the difference in present value of loan payments discounted at the market rate of interest. The charged off amount of $1.2 million is recorded as loan discount. As loan payments are made, interest is recognized at the market rate versus the negotiated rate via the amortization of the discount over the various lives of the loans. There was $625,000 in specific reserve previously allocated on these loans at December 31, 2017. Nonaccrual loans were $2.1 million at June 30, 2018, $1.0 million at December 31, 2017 and $1.7 million at June 30, 2017 or 0.4% ,0.2% and 0.4%, respectively, of total loans. The decrease in nonaccrual loans from the previous year was partially attributable to the payoff of one loan for over $1.0 million.

Bank-owned life insurance had a cash surrender value of $15.6 million at June 30, 2018 and $17.7 million at December 31, 2017. The decrease from year end is due mainly to a $2.3 million reduction in the cash value of the policy triggered by the death of a former executive named on the policies. Comprising approximately 20% of Tier 1capital plus the allowance for loan losses, management may consider additional insurance purchases not to exceed a 25% ratio.

Other assets increased to $18.0 million at June 30, 2018 from $17.2 million at December 31, 2017. At June 30, 2018, a $4.5 million investment in a partnership fund is included in other assets compared to $4.8 million at December 31, 2017, with an offsetting $2.3 million at June 30, 2018 and $2.9 million December 31, 2017 in other liabilities, which is the commitment to fund this affordable housing investment. Also included in other assets is a partnership investment of $5.5 million into a privately managed pooled fund of small business administration loans at June 30, 2018 and December 31, 2017.

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Noninterest-bearing deposits measured $130.3 million at June 30, 2018 compared to $123.3 million at December 31, 2017 and $113.2 million at June 30, 2017. Interest-bearing deposits decreased $35.1 million to $427.5 million at June 30, 2018 from $462.6 million at December 31, 2017 and increased $9.7 million from $417.8 million at June 30, 2017. The decrease in interest-bearing deposits from year end is net of segregated money market deposit accounts with the Bank which fully collateralized $43.0 million in 60-day or less term commercial loans that closed in December 2017. The loans matured and the deposits withdrew in the first quarter of 2018. Absent the collateral deposits, interest-bearing deposits increased $7.9 million, or 1.9%, over the first six months of 2018.

Federal Home Loan Bank advances and short-term borrowings decreased to $28.6 million at June 30, 2018 from $48.7 million at December 31, 2017. Management continues to use short-term borrowings to bridge its current cash flow needs resulting in variations from period to period. Wholesale deposits, when cheaper than FHLB funds, are sometimes used in lieu of borrowings. Other liabilities measured $9.3 million at June 30, 2018 and $9.8 million at December 31, 2017. Included is the commitment to fund the affordable housing investment described above.

The Company’s total shareholders’ equity measured $61.8 million at June 30, 2018 and $61.6 million on December 31, 2017. Unrealized securities losses, which are recorded in shareholders’ equity net of tax, offset the growth in capital from earnings. The Company’s capital continues to meet the requirements to be deemed well-capitalized under all regulatory measures.

Cash dividends of $0.22 per share were paid to shareholders in the first half of 2018. Cash dividends of $0.23 per share were paid in the first six months of 2017, which included a one-time special dividend of $0.07 per share. Cash dividends of $0.11 per share were paid to shareholders in the second quarter of 2018, compared to cash dividends of $0.08 per share in the second quarter of 2017.

Capital Resources

The Company and the Bank are subject to regulatory capital requirements administered by federal banking agencies. Capital adequacy guidelines and prompt corrective action regulations involve quantitative measures of assets, liabilities, and certain off-balance-sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators about components, risk weightings, and other factors, and the regulators can lower classifications in certain cases. Failure to meet various capital requirements can initiate regulatory action that could have a direct material effect on the financial statements.

The prompt corrective action regulations provide five categories, including well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized, although these terms are not used to represent overall financial condition. If a bank is only adequately capitalized, regulatory approval is required to, among other things, accept, renew or roll-over brokered deposits. If a bank is undercapitalized, capital distributions and growth and expansion are limited, and plans for capital restoration are required.

The Board of Governors of the Federal Reserve Board and the FDIC approved the final rules implementing the Basel Committee on Banking Supervision's capital guidelines for U.S. banks (commonly known as Basel III). Under the final rules, which began for the Company and the Bank on January 1, 2015 and are subject to a phase-in period through January 1, 2019, minimum requirements will increase for both the quantity and quality of capital held by the Company and the Bank. The rules include a new common equity Tier 1 capital to risk-weighted assets ratio (CET1 ratio) of 4.5% and a capital conservation buffer of 2.5% of risk-weighted assets, which when fully phased-in, effectively results in a minimum CET1 ratio of 7.0%. Basel III raises the minimum ratio of Tier 1 capital to risk-weighted assets from 4.0% to 6.0% (which, with the capital conservation buffer, effectively results in a minimum Tier 1 capital ratio of 8.5% when fully phased-in), effectively results in a minimum total capital to risk-weighted assets ratio of 10.5% (with the capital conservation buffer fully phased-in), and requires a minimum leverage ratio of 4.0%. Basel III also makes changes to risk weights for certain assets and off-balance-sheet exposures. Management expects that the capital ratios for the Company and the Bank under Basel III will continue to exceed the well capitalized minimum capital requirements, as they currently exceed the fully phased in 2019 requirements.

39

At June 30, 2018 and December 31, 2017, actual capital levels and minimum required levels were:

	(Dollars in thousands)
	Actual					Minimum required for capital adequacy purposes					To be well-capitalized under prompt corrective action regulations
June 30, 2018	Amount		Ratio			Amount		Ratio			Amount		Ratio
CET1 capital (to risk-weighted assets)
Company	$	65,936		12.56	%	$	26,914		4.5	%	N/A		N/A
Bank		62,443		11.97	%		26,745		4.5	%	$	33,921		6.5	%
Tier 1 capital (to risk-weighted assets)
Company		70,936		13.51	%		34,791		6.0	%	N/A		N/A
Bank		62,443		11.97	%		34,573		6.0	%		41,749		8.0	%
Total capital (to risk-weighted assets)
Company		75,115		14.30	%		45,294		8.0	%	N/A		N/A
Bank		72,621		13.92	%		45,011		8.0	%		52,186		10.0	%
Tier 1 capital (to average assets)
Company		70,936		10.65	%		26,636		4.0	%	N/A		N/A
Bank		62,443		9.43	%		26,491		4.0	%		33,113		5.0	%

	(Dollars in thousands)
	Actual					Minimum required for capital adequacy purposes					To be well-capitalized under prompt corrective action regulations
December 31, 2017	Amount		Ratio			Amount		Ratio			Amount		Ratio
CET1 capital (to risk-weighted assets)
Company	$	63,455		12.37	%	$	23,082		4.5	%	N/A		N/A
Bank		59,853		11.75	%		22,931		4.5	%	$	33,123		6.5	%
Tier 1 capital (to risk-weighted assets)
Company		68,455		13.35	%		30,776		6.0	%	N/A		N/A
Bank		59,853		11.75	%		30,575		6.0	%		40,767		8.0	%
Total capital (to risk-weighted assets)
Company		73,116		14.26	%		41,033		8.0	%	N/A		N/A
Bank		70,514		13.84	%		40,767		8.0	%		50,959		10.0	%
Tier 1 capital (to average assets)
Company		68,455		10.77	%		25,416		4.0	%	N/A		N/A
Bank		59,853		9.25	%		25,879		4.0	%		32,348		5.0	%

The Company had $5.0 million of trust preferred securities at both June 30, 2018 and December 31, 2017 that qualified as Tier 1 capital. Refer to Note 7, “Subordinated Debt.”

The Bank was categorized as "well capitalized" at June 30, 2018 and December 31, 2017.

Certain Non-GAAP Measures

Certain financial information can be determined by methods other than Generally Accepted Accounting Principles (GAAP). Specifically, certain financial measures are based on core earnings rather than net income. Core earnings exclude income, expense, gains and losses that either are not reflective of ongoing operations or that are not expected to reoccur with any regularity or reoccur with a high degree of uncertainty and volatility. Such information may be useful to both investors and management and can aid them in understanding the Company’s current performance trends and financial condition. Core earnings are a supplemental tool for analysis and not a substitute for GAAP net income. Reconciliation from GAAP net income to the non-GAAP measure of core earnings can be referenced as part of management’s discussion and analysis of financial condition and results of operations.

40

Core earnings, which exclude certain non-recurring items, increased for the six months ended June 30, 2018 as compared to the six months ended June 30, 2017. Core earnings for the first six months of 2018 were $3.3 million, or $0.75 per share, compared to $2.2 million, or $0.49 per share, for the six months of 2017. Core earnings for the second quarter of 2018 were $1.7 million, or $0.40 per share, compared to $1.2 million, or $0.26 per share, for the second quarter of 2017.

	(Amounts in thousands, except per share amounts)
	Three Months Ended					Six Months Ended
	June 30,					June 30,
	2018			2017		2018			2017
GAAP earnings	$	3,302		$	1,182	$	4,839		$	2,182
Gain recognized on Bank Owned Life Insurance    (tax free)*		(1,557	)		—		(1,557	)		—
Core earnings	$	1,745		$	1,182	$	3,282		$	2,182
GAAP earnings per share	$	0.75		$	0.26	$	1.10		$	0.49
Gain recognized on Bank Owned Life Insurance    (tax free)*		(0.35	)		—		(0.35	)		—
Core earnings per share	$	0.40		$	0.26	$	0.75		$	0.49

*  This is the amount of proceeds received on a life insurance policy upon the death of a former executive that exceeded the cash value of the policy.

Analysis of Net Interest Income

	(Amounts in thousands)
	Three months ended				Six months ended
	June 30,				June 30,
	2018		2017		2018		2017
Net interest income	$	5,707	$	5,022	$	11,299	$	9,959
Tax equivalent income adjustment for investment securities		85		223		189		456
Tax equivalent income adjustment for loans		1		3		3		7
Net interest income on a fully taxable equivalent basis	$	5,793	$	5,248	$	11,491	$	10,422
Interest and dividends on investment securities	$	935	$	1,033	$	1,890	$	2,095
Tax equivalent income adjustment for investment securities		85		223		189		456
Investment securities income on a fully taxable equivalent basis	$	1,020	$	1,256	$	2,079	$	2,551
Interest and fees on loans	$	5,739	$	4,742	$	11,327	$	9,360
Tax equivalent income adjustment for loans		1		3		3		7
Loan income on a fully taxable equivalent basis	$	5,740	$	4,745	$	11,330	$	9,367

Six months ended June 30, 2018 and 2017

Net interest income, the principal source of the Company’s earnings, is the amount by which interest and fees generated by interest-earning assets, primarily loans and investment securities, exceed the interest cost of deposits and borrowed funds. On a fully taxable equivalent basis, net interest income measured $11.5 million for June 30, 2018 and $10.4 million for June 30, 2017. The resulting net interest margin was 3.68% for June 30, 2018 and 3.54% for June 30, 2017.

The increase in interest income, on a fully taxable equivalent basis, of $1.5 million is the product of a 6.1% year-over-year increase in average earning assets and a 25 basis point increase in yield. The increase in interest expense of $457,000 was a product of a 16 basis point increase in rates paid and a 5.0% increase in average interest-bearing liabilities. The net result was a 10.3% increase in net interest income on a fully taxable equivalent basis, and a 14 basis point increase in the Company’s net interest margin on a growing asset base with a different mix.

41

On a fully taxable equivalent basis, income on investment securities decreased by $472,000, or 18.5%. The average invested balances in these securities decreased by $19.6 million, or 11.5%, from the levels of a year ago. The decrease in the average balance of investment securities was accompanied by a 24 basis point decrease in the tax equivalent yield of the portfolio. The Company will continue attempting to redeploy liquidity into loans which generate greater yields than securities, thus sacrificing securities balances when beneficial. The lower corporate tax rate effective in 2018 had a 24 basis point impact on the tax equivalent yield, otherwise security yields were comparable among the periods.

On a fully taxable equivalent basis, income on loans increased by $2.0 million, or 21.0%, for June 30, 2018 compared to the same period in 2017. A $55.8 million increase in the average balance of the loan portfolio, or 13.6%, was accompanied by a 30 basis point increase in the portfolio’s tax equivalent yield. Despite the recent rise in short-term interest rates, strong competition for good credits continued to put pressure on offering rates. In addition, the amortization of the existing portfolio at higher rates decreases the effective yield. The commercial loan portfolio housed the majority of the increase in balances.

Other interest income increased by $35,000, or 76.1%, from the same period a year ago. The average balance of interest-earning deposits decreased by $332,000, or 3.5%. The yield increased by 79 points from 2017 to 2018, reflecting the recent increases in the federal funds rate. Management intends to remain fully invested, minimizing on-balance sheet liquidity.

Average interest-bearing demand deposits and money market accounts increased by $35.7 million, or 21.8%, for the six months ended June 30, 2018 compared to the same period of 2017, while average savings balances decreased by $1.1 million, or 0.9%. Promotional rates offered on money market products, along with the continuing marketing of the Kasasa suite of products, drew in core deposits, thus producing the substantial increase in the demand balances. Total interest paid on interest-bearing demand deposits and money market accounts was $618,000, a $289,000 increase from last year. The yield increased 22 basis points from the six months ended June 30, 2017 to June 30, 2018. Total interest paid on savings accounts was $48,000, a $5,000 increase from last year. The average rate paid on savings accounts was 0.09% for the six months ended June 30, 2018 and 0.08% for the same period in 2017. The average balance of time deposit products decreased by $9.4 million, or 7.1%, as the average rate paid increased by 32 basis points, from 1.28% to 1.60%. Interest expense increased on time deposits by $133,000 from the prior year. The current low-rate environment offers little opportunity for time deposit customers, except for periodic special rates offered on a limited basis. Time deposits also include wholesale funds obtained at generally higher rates than in-market accounts, but beneficial versus rates on borrowings.

Average borrowings and subordinated debt decreased by $2.4 million while the average rate paid increased by 26 basis points. Cost of borrowings continues to rise in tandem with the Federal funds rate, thus offsetting any decline in borrowed balances. Management continues to utilize short-term borrowings to bridge liquidity gaps, along with wholesale deposit alternatives.

Three months ended June 30, 2018 and 2017

Net interest income, the principal source of the Company’s earnings, is the amount by which interest and fees generated by interest-earning assets, primarily loans and investment securities, exceed the interest cost of deposits and borrowed funds. On a fully taxable equivalent basis, net interest income measured $5.8 million for June 30, 2018 and $5.2 million for June 30, 2017. The resulting net interest margin was 3.74% for June 30, 2018 and 3.56% for June 30, 2017.

The increase in interest income, on a fully taxable equivalent basis, of $782,000 is the product of a 5.1% year-over-year increase in average earning assets and a 31 basis point increase in yield. The increase in interest expense of $237,000 was a product of an 18 basis point increase in rates paid and a 3.1% increase in average interest-bearing liabilities. The net result was a 10.4% increase in net interest income on a fully taxable equivalent basis, and an 18 basis point increase in the Company’s net interest margin on a growing asset base with a different mix.

On a fully taxable equivalent basis, income on investment securities decreased by $236,000, or 18.8%. The average invested balances in these securities decreased by $20.3 million, or 12.1%, from the levels of a year ago. The decrease in the average balance of investment securities was accompanied by a 23 basis point decrease in the tax equivalent yield of the portfolio. The Company will continue attempting to redeploy liquidity into loans which generate greater yields than securities, thus sacrificing securities balances when beneficial. The lower corporate tax rate effective in 2018 had a 22 basis point impact on the tax equivalent yield, otherwise security yields were comparable among the periods.

On a fully taxable equivalent basis, income on loans increased by $995,000, or 21.0%, for June 30, 2018 compared to the same period in 2017. A $50.9 million increase in the average balance of the loan portfolio, or 12.4%, was accompanied by a 36 basis point increase in the portfolio’s tax equivalent yield. Despite the recent rise in short-term interest rates, strong competition for good credits continued to put pressure on offering rates. In addition, the amortization of the existing portfolio at higher rates decreases the effective yield. The commercial loan portfolio housed the majority of the increase in balances.

42

Other interest income increased by $23,000, or 76.7%, from the same period a year ago. The average balance of interest-earning deposits decreased by $794,000, or 6.4%. The yield increased by 85 points from 2017 to 2018, reflecting the recent increases in the federal funds rate. Management intends to remain fully invested, minimizing on-balance sheet liquidity.

Average interest-bearing demand deposits and money market accounts increased by $30.6 million, or 18.4%, for the quarter ended June 30, 2018 compared to the same period of 2017, while average savings balances decreased by $1.8 million, or 1.6%. Promotional rates offered on money market products, along with the continuing marketing of the Kasasa suite of products, drew in core deposits, thus producing the substantial increase in the demand balances. Total interest paid on interest-bearing demand deposits and money market accounts was $332,000, a $151,000 increase from last year. The yield increased 24 basis points from the quarter ended June 30, 2017 to June 30, 2018. Total interest paid on savings accounts was $24,000, a $1,000 increase from last year. The average rate paid on savings accounts was 0.09% for the quarter ended June 30, 2018 and 0.08% for the same period in 2017. The average balance of time deposit products decreased by $10.7 million, or 8.2%, as the average rate paid increased by 35 basis points, from 1.30% to 1.65%. Interest expense increased on time deposits by $72,000 from the prior year. The current low-rate environment offers little opportunity for time deposit customers, except for periodic special rates offered on a limited basis. Time deposits also include wholesale funds obtained at generally higher rates than in-market accounts, but beneficial versus rates on borrowings.

Average borrowings and subordinated debt decreased by $4.3 million while the average rate paid increased by 38 basis points. Cost of borrowings continues to rise in tandem with the Federal funds rate, thus offsetting any decline in borrowed balances. Management continues to utilize short-term borrowings to bridge liquidity gaps, along with wholesale deposit alternatives.

Analysis of Provision for Loan Losses, Non-Interest Income, Non-Interest Expense and Federal Income Tax - Six Months Ended June 30, 2018 and 2017

During the first half of both 2018 and 2017, the amount charged to operations as a provision for loan losses was adjusted to account for charge-offs against the allowance, as well as an increase in loan balances recorded in the portfolio, expected losses on specific problem loans and several qualitative factors, including factors specific to the local economy and to industries operating in the local market. The Company had allocated a portion of the allowance for a select few specific problem loans in 2017 and 2018, and has not experienced significant deterioration in any loan type, including the residential real estate portfolios or the commercial loan portfolio, and accordingly has not added any special provision for these loan types. Past due loans, potential problem loans, as well as loans on non-accrual have all been steady, helping to require a provision of only $575,000 in the first six months of 2018 which is lower than the net charge-off of $1.1 million (of which previously had a specific reserve of $625,000) and required no provision in the first half of 2017. There was a favorable ruling in a bankruptcy court surrounding the eventual sale of a business to which the Company lent funds, resulting in a large recovery of amounts previously charged off in 2017. These recoveries displaced provisions throughout 2017. Provision expense levels are in recognition of loan growth and a changing composition of the loan portfolio as the Company manages its balance sheet with a commercially-oriented focus.

Total non-interest income increased by $1.6 million, or 76.6%, for June 30, 2018 compared to June 30, 2017.

Gains on securities called and net gains on the sale of available-for-sale investment securities decreased by $52,000 in the first six months of 2018 from year ago levels, reflecting the sale of the final two corporate securities that were significantly devalued since 2008.

For the first half of June 30, 2018, fees for customer services increased by $77,000, or 7.3%, from the same period a year ago, driven by customer transactions on deposit accounts.  Mortgage banking gains remained steady at $499,000 in 2018 compared to $516,000 in 2017, a decrease of $17,000, reflective of a mortgage origination increase of $2.1 million off set by the tightening of margins on loan sales since the November election. Earnings on bank-owned life insurance increased by $1.6 million. Proceeds received on a policy upon the death of a former executive exceeded the cash value of the policy by $1.6 million.  Other sources of non-interest income decreased by $2,000 from the same period a year ago. This latter income category is subject to fluctuation due to the non-recurring nature of some of the items.  

Total non-interest expenses in the first six months were $8.9 million in 2018 compared to $9.3 million in 2017, a decrease of $422,000 or 4.5%. During the first six months of 2018, expenditures for salaries and employee benefits decreased by $296,000 or 5.5%, from the similar period a year ago. This is mainly a result of a workforce realignment and a branch consolidation in latter 2017. Full time equivalent employment averaged 159 during the first six months of 2018 and 161 during the first six months of 2017.

All other expense categories decreased by $126,000 or 3.2%, in the aggregate.

43

The effective tax rate for the first six months was 10.4% in 2018 and 17.9% in 2017, resulting in income tax expense of $563,000 in 2018 and $476,000 in 2017. The effective rate is affected by the current rate of profitability and tax-free components of the revenue stream. The lower rate in 2018 is primarily affected by the change in corporate tax rate from 34% to 21%. The $1.6 million gain on bank-owned life insurance mentioned above was tax free which contributed to the lower effective tax rate in 2018.

The provision for income taxes differs from the amount of income tax determined applying the applicable U.S. statutory federal income tax rate (21% in 2018 and 34% in 2017) to pre-tax income as a result of the following differences:

	(Amounts in thousands)
	June 30,
	2018						2017
	Balance			%			Balance			%
Provision at statutory rate	$	1,134			21.0		$	904			34.0
Add (Deduct) tax effects of:
Earnings on bank-owned life insurance-net		(369	)		(6.8	)		(58	)		(2.2	)
Non-taxable interest income		(167	)		(3.1	)		(321	)		(12.1	)
Low income housing tax credits		(69	)		(1.3	)		(89	)		(3.3	)
Non-deductible expenses		34			0.6			40			1.5
Federal income tax expense	$	563			10.4		$	476			17.9

Analysis of Provision for Loan Losses, Non-Interest Income, Non-Interest Expense and Federal Income Tax - Three Months Ended June 30, 2018 and 2017

For the second quarter ended June 30, 2018, there were net recoveries of $136,000, and for the similar period of 2017 there were net charge offs of $25,000. Past due loans, potential problem loans, as well as loans on nonaccrual have all been steady requiring a provision for loan losses of only $75,000 for the second quarter of 2018 and none in 2017. The increase in substandard loans is primarily due to a single credit paying as agreed and requiring no reserve allocation. Provision expense levels are in recognition of loan growth and a changing composition of the loan portfolio as the Company manages its balance sheet with a commercially-oriented focus.

Total non-interest income increased by $1.4 million, or 127.7%, for the quarter ending June 30, 2018 compared to the same quarter of 2017. Gains on securities called and net gains on the sale of available-for-sale investment securities decreased by $63,000 in the second quarter of 2018 from year ago levels, reflecting the sale of the final two corporate securities that were significantly devalued since 2008.

Mortgage banking gains decreased to $261,000 in the second quarter of 2018 from $322,000 the same quarter of 2017, a decrease of $61,000 reflecting the tightening of margins on loan sales since the November election. Earnings on bank-owned life insurance increased by $1.5 million.  Proceeds received on a policy upon the death of a former executive exceeded the cash value of the policy by $1.6 million.  Other sources of non-interest income increased by $20,000 from the same period a year ago. This latter income category is subject to fluctuation due to the non-recurring nature of some of the items.  

Total non-interest expenses in the second quarter were $4.6 million in 2018 and $4.7 million in 2017, a decrease of 2.2%. During the second quarter of 2018, expenditures for salaries and employee benefits decreased by $4,000, or 0.2%, from the similar period a year ago. Full time equivalent employment averaged 159 during the second quarter of 2018 and 2017. All other expense categories decreased by $97,000, or 4.7%, in the aggregate.

Liquidity

The central role of the Company’s liquidity management is to (1) ensure sufficient liquid funds to meet the normal transaction requirements of its customers, (2) take advantage of market opportunities requiring flexibility and speed, and (3) provide a cushion against unforeseen liquidity needs.

Liquidity risk arises from the possibility that the Company may not be able to satisfy current or future financial commitments or may become unduly reliant on alternative funding sources. The objective of liquidity management is to ensure the Company has the ability to fund balance sheet growth and meet deposit and debt obligations in a timely and cost-effective manner. Management monitors liquidity through a regular review of asset and liability maturities, funding sources, and loan and deposit forecasts. The Company maintains strategic and contingency liquidity plans to ensure sufficient available funding to satisfy requirements for balance sheet growth, proper management of capital markets funding sources and addressing unexpected liquidity requirements.

44

Principal sources of liquidity available to the Company include assets considered relatively liquid, such as interest-bearing deposits in other banks, federal funds sold and, cash and due from banks, as well as cash flows from maturities and repayments of loans, investment securities and mortgage-backed securities.

Principal repayments on mortgage-backed securities, collateralized mortgage obligations and small business administration pools, along with investment securities maturing or called amounted to $6.1 million in the first six months of 2018, which annualized represents 8.8% of the total combined portfolio, compared to $9.1 million, or 10.2%, of the portfolio a year ago. A large portion of the investment portfolio is allocated to amortizing debt in order to provide cash flows to supplement loan growth.

In order to address the concern of FDIC insurance of larger depositors, the Bank is a member of the Certificate of Deposit Account Registry Service (CDARS^®) program and the Insured Cash Sweep (ICS) program. Through CDARS^®, the Bank’s customers can increase their FDIC insurance by up to $50 million through reciprocal certificate of deposit accounts and likewise through ICS, they can accomplish the same through money market savings accounts. This is accomplished by the Bank entering into reciprocal depository relationships with other member banks. The individual customer’s large deposit is broken into amounts below $250,000 and placed with other banks that are members of the network. The reciprocal member bank issues certificates of deposit or money market savings accounts in amounts that ensure that the entire deposit is eligible for FDIC insurance. At June 30, 2018, the Bank had $8.7 million of deposits in the CDARS^® program, of which $6.4 million was executed as one-way buy transactions and the Bank had $15.7 million of deposits in the ICS money market program, of which $1.0 million was executed as one-way buy transactions. Prospectively, for regulatory purposes, reciprocal CDARS^® and ICS are no longer considered a brokered deposit.

Along with its liquid assets, the Bank has other sources of liquidity available to it which help to ensure that adequate funds are available as needed. These other sources include, but are not limited to, the ability to obtain deposits through the adjustment of interest rates, the purchasing of federal funds, correspondent bank lines of credit and access to the Federal Reserve Discount Window. The Bank is also a member of the Federal Home Loan Bank of Cincinnati, which provides its largest source of liquidity. At June 30, 2018, the Bank had approximately $23.7 million available of collateral-based borrowing capacity at FHLB of Cincinnati, supplementing the $5.1 million of availability with the Federal Reserve Discount window. Additionally, the FHLB has committed a $31.6 million cash management line, of which nothing has been disbursed, subject to posting additional collateral. The Bank, by policy, has access to approximately 20% of total deposits in various forms of wholesale deposits that could be used as an additional source of liquidity. At June 30, 2018, there was $40.0 million in outstanding balances in wholesale deposits including internet-based deposits with access to an additional $73.5 million. The Company was also granted a total of $13.5 million in unsecured, discretionary Federal Funds lines of credit with correspondent banks with no funds drawn upon as of June 30, 2018. Unpledged securities of $77.3 million are also available for borrowing under repurchase agreements or as additional collateral for FHLB lines of credit or to sell to generate liquidity.

The Company has other more limited sources of liquidity. In addition to its existing liquid assets, it can raise funds in the securities market through debt or equity offerings or it can receive dividends from its bank subsidiary. Generally, the Bank may pay dividends without prior approval as long as the dividend is not more than the total of the current calendar year-to-date earnings plus any earnings from the previous two years not already paid out in dividends, as long as the Bank remains well-capitalized after the dividend payment. The amount available for dividends at June 30, 2018 is $9.4 million. Future dividend payments by the Bank to the Company are based upon future earnings. The Holding Company had cash of $176,000 at June 30, 2018 available to meet cash needs. It also held a $6.0 million note receivable, the cash flow from which approximates the debt service on the Junior Subordinated Debentures. Cash is generally used by the Holding Company to pay quarterly interest payments on the debentures, pay dividends to common shareholders, repurchase shares, and to fund operating expenses.

Cash and cash equivalents totaled $11.0 million at June 30, 2018 compared to $18.9 million at June 30, 2017 and $19.1 million at December 31, 2017, as the Company strives to be fully invested, minimizing on balance sheet liquidity.

45

The following table details the cash flow from operating activities for the three months ended:

	(Amounts in thousands)
	June 30,
	2018			2017
Net income	$	4,839		$	2,182
Adjustments to reconcile net income to net cash flow from operating activities:
Depreciation, amortization and accretion		1,215			1,364
Provision for loan losses		575			—
Investment securities available-for-sale losses (gains), net		21			(31	)
Originations of mortgage banking loans held for sale		(25,333	)		(23,209	)
Proceeds from the sale of mortgage banking loans		26,088			25,154
Mortgage banking gains, net		(499	)		(516	)
Earnings on bank-owned life insurance		(1,708	)		(157	)
Equity compensation		108			73
Changes in:
Deferred taxes		112			(54	)
Other assets and liabilities		(73	)		(750	)
Net cash flow from operating activities	$	5,345		$	4,056

Key variations stem from: 1) Substantial recoveries throughout 2017 displaced the need for a provision in 2017. The 2018 provision is reflective of the restructured loan previously referenced. 2) Earnings on bank-owned life insurance increased by $1.6 million due to gain on proceeds from a policy. Refer to the Consolidated Statements of Cash Flows for a summary of the sources and uses of cash for 2018 and 2017.

Critical Accounting Policies and Estimates

The discussion and analysis of the Company’s financial condition and results of operation are based upon the Consolidated Financial Statements, which have been prepared in accordance with U.S. Generally Accepted Accounting Principles (GAAP). The preparation of these consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities at the date of the Company’s consolidated financial statements. Actual results may differ from these estimates under different assumptions or conditions.

Certain accounting policies involve significant judgments and assumptions by management which has a material impact on the carrying value of certain assets and liabilities; management considers such accounting policies to be critical accounting policies. The judgments and assumptions used by management are based on historical experience and other factors, which are believed to be reasonable under the circumstances.

Management believes the following are critical accounting policies that require the most significant judgments and estimates used in the preparation of the Company’s consolidated financial statements.

Accounting for the Allowance for Loan Losses

The determination of the allowance for loan losses and the resulting amount of the provision for loan losses charged to operations reflects management’s current judgment about the credit quality of the loan portfolio and takes into consideration changes in lending policies and procedures, changes in economic and business conditions, changes in the nature and volume of the portfolio and, in the terms of loans, changes in the experience, ability and depth of lending management, changes in the volume and severity of past due, non-accrual and adversely classified or graded loans, changes in the quality of the loan review system, changes in the value of underlying collateral for collateral-dependent loans, the existence and effect of any concentrations of credit and the effect of competition, legal and regulatory requirements and other external factors. The nature of the process by which we determine the appropriate allowance for loan losses requires the exercise of considerable judgment. While management utilizes its best judgment and information available, the ultimate adequacy of the allowance is dependent upon a variety of factors beyond our control, including the performance of the loan portfolio, the economy, changes in interest rates and the view of the regulatory authorities toward loan classifications. The allowance is increased by the provision for loan losses and decreased by charge-offs when management believes the uncollectibility of a loan is confirmed. Subsequent recoveries, if any, are credited to the allowance. A weakening of the economy or other factors that adversely affect asset quality could result in an increase in the number of delinquencies, bankruptcies or defaults and a higher level of non-performing assets, net charge offs, and provision for loan losses in future periods.

46

The Company’s allowance for loan losses methodology consists of three elements: specific valuation allowances based on probable losses on specific loans; valuation allowances based on historical loan loss experience for similar loans with similar characteristics and trends; and general valuation allowances based on general economic conditions and other qualitative risk factors both internal and external to the Company. These elements support the basis for determining allocations between the various loan categories and the overall adequacy of our allowance to provide for probable losses inherent in the loan portfolio.

With these methodologies, a general allowance is established for each loan type based on historical losses for each loan type in the portfolio. Additionally, management allocates a specific allowance for “Impaired Credits,” which is based on current information and events; it is probable the Company will not collect all amounts due according to the original contractual terms of the loan agreement. The level of the general allowance is established to provide coverage for management’s estimate of the credit risk in the loan portfolio by various loan segments not covered by the specific allowance. Additional information regarding allowance for credit losses can be found in the Notes to the Consolidated Financial Statements (Note 4) and elsewhere in this Management’s Discussion and Analysis.

Investment Securities and Impairment

The classification and accounting for investment securities is discussed in detail in Note 3 of the Consolidated Financial Statements. Investment securities must be classified as held-to-maturity, available-for-sale, or trading. The appropriate classification is based partially on our ability to hold the securities to maturity and largely on management’s intentions, if any, with respect to either holding or selling the securities. The classification of investment securities is significant since it directly impacts the accounting for unrealized gains and losses on securities. Unrealized gains and losses on trading securities, if any, flow directly through earnings during the periods in which they arise, whereas available-for-sale securities are recorded as a separate component of shareholders’ equity (accumulated other comprehensive income or loss) and do not affect earnings until realized. The fair values of our investment securities are generally determined by reference to quoted market prices and reliable independent sources. At each reporting date, the Company assesses whether there is an “other-than-temporary” impairment to the Company’s investment securities. Such impairment must be recognized in current earnings rather than in other comprehensive income (loss).

The Company reviews investment debt securities on an ongoing basis for the presence of other-than-temporary impairment (OTTI) with formal reviews performed quarterly. OTTI losses on individual investment securities are recognized in accordance with FASB ASC topic 320, Investments – Debt and Equity Securities. The purpose of this ASC is to provide greater clarity to investors about the credit and noncredit component of an OTTI event and to communicate more effectively when an OTTI event has occurred. This ASC amends the OTTI guidance in GAAP for debt securities, improves the presentation and disclosure of OTTI on investment securities and changes the calculation of the OTTI recognized in earnings in the financial statements. This ASC does not amend existing recognition and measurement guidance related to OTTI of equity securities.

For debt securities, ASC topic 320 requires an entity to assess whether it has the intent to sell the debt security or it is more-likely-than-not that it will be required to sell the debt security before its anticipated recovery. If either of these conditions is met, an OTTI on the security must be recognized.

In instances in which a determination is made that a credit loss (defined as the difference between the present value of the cash flows expected to be collected and the amortized cost basis) exists but the entity does not intend to sell the debt security and it is not more-likely-than-not that the entity will be required to sell the debt security before the anticipated recovery of its remaining amortized cost basis (i.e., the amortized cost basis less any current-period credit loss), ASC topic 320 changes the presentation and amount of the OTTI recognized in the income statement.

In these instances, the impairment is separated into the amount of the total impairment related to the credit loss and the amount of the total impairment related to all other factors. The amount of the total other-than-temporary impairment related to the credit loss is recognized in earnings. The amount of the total impairment related to all other factors is recognized in other comprehensive income (loss). The total OTTI is presented in the income statement with an offset for the amount of the total OTTI that is recognized in other comprehensive income (loss). In determining the amount of impairment related to credit loss, the Company uses a third party discounted cash flow model, several inputs for which require estimation and judgment. Among these inputs are projected deferral and default rates and estimated recovery rates. Realization of events different than that projected could result in a large variance in the values of the securities.

Income Taxes

The provision for income taxes is based on income reported for financial statement purposes and differs from the amount of taxes currently payable, since certain income and expense items are reported for financial statement purposes in different periods than those for tax reporting purposes. Accrued taxes represent the net estimated amount due or to be received from taxing authorities. In estimating accrued taxes, the Company assesses the relative merits and risks of the appropriate tax treatment of transactions taking into account statutory, judicial and regulatory guidance in the context of the Company’s tax position.

47

The Company accounts for income taxes using the asset and liability approach, the objective of which is to establish deferred tax assets and liabilities for the temporary differences between the financial reporting basis and tax basis of our assets and liabilities at enacted tax rates expected to be in effect when such amounts are realized or settled. The Company conducts periodic assessments of deferred tax assets, including net operating loss carryforwards, to determine if it is more-likely-than-not that they will be realized. In making these assessments, the Company considers taxable income in prior periods, projected future taxable income, potential tax planning strategies and projected future reversals of deferred tax items. These assessments involve a certain degree of subjectivity which may change significantly depending on the related circumstances.

Available Information

The Company files an annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports with the Securities and Exchange Commission (SEC) pursuant to Section 13(a) or 15(d) of the Exchange Act of 1934 Amended (the Exchange Act). The Company’s website is www.cortlandbank.com. The Company makes available through its website, free of charge, the reports filed with the SEC, as soon as reasonably practicable after such material is electronically filed, or furnished to, the SEC. The SEC also maintains a website that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC at www.sec.gov. The public may read and copy any materials filed with the Commission at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549, on official business days during the hours of 10:00 am to 3:00 pm. The public may obtain information on the operation of the Public Reference Room by calling the Commission at 1-800-SEC-0330.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes in the quantitative and qualitative information about market risk from the information provided in the Company’s Form 10-K for the year ended December 31, 2017.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures. With the supervision and participation by management, including the Company’s principal executive officer and principal financial officer, the effectiveness of disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)) has been evaluated as of the end of the period covered by this report. Based upon that evaluation, the Company’s principal executive officer and principal financial officer have concluded that these controls and procedures were effective.

Changes in Internal Control Over Financial Reporting. Our Chief Executive Officer and Chief Financial Officer have concluded that there have been no significant changes during the period covered by this report in the Company’s internal control over financial reporting (as defined in Rules 13a-13 and 15d-15 of the Exchange Act) that have materially affected, or are reasonably likely to materially affect, internal control over financial reporting.

48

PART II—OTHER INFORMATION

Item 1. Legal Proceedings

See Note (5) of the financial statements.

Item 1A. Risk Factors

There have been no material changes in the risk factors disclosed by the Company in its Report on Form 10-K for the fiscal year ended December 31, 2017.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds—Not applicable

Company’s Common Stock. The following table shows information relating to the repurchase of shares of the Company’s common stock during the three months ended June 30, 2018:

	Total Number of Shares  Purchased		Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Maximum Number of Shares That May Yet Be Purchased Under the Plans or Programs*
April		—	$	—		—		89,512
May		59,693		21.29		58,000		231,512
June		—		—		—		231,512
Total		59,693	$	21.29		58,000		231,512

*On January 23, 2018 the Company’s Board of Directors approved a Stock Repurchase Program. The program allows the Company to purchase up to 100,000 shares and expires at December 31, 2018.  On May 22, 2018 the Company’s Board of Directors approved an increase in the number of shares allowed to 300,000 shares. (See footnote 12)

Item 3. Defaults upon Senior Securities—Not applicable

Item 4. Mine Safety Disclosures—Not applicable

Item 5. Other Information—Not applicable

49

CORTLAND BANCORP AND SUBSIDIARIES

INDEX TO EXHIBITS

Item 6. Exhibits—The following exhibits are filed or incorporated by reference as part of this report:

		Incorporated by Reference
Exhibit No.	Exhibit Description	Form**		Exhibit	Filing Date		Filed Herewith
3.1	Restated Amended Articles of Cortland Bancorp reflecting amendment dated June 25, 1999. Note: filed for purposes of SEC reporting compliance only. This restated document has not been filed with the State of Ohio.		10-K(1)	3.1		03/16/06
3.2	Code of Regulations, as amended.		8-K	3.2		05/30/17
4.1	The rights of holders of equity securities are defined in portions of the Articles of Incorporation as referenced in Exhibit 3.1		10-K(1)	4.1		03/16/06
	and the Code of Regulations as referenced in Exhibit 3.2		8-K	4.1		05/30/17
4.2	Agreement to furnish instruments and agreements defining rights of holders of long-term debt							✓
*10.1	Group Term Carve Out Plan dated February 23, 2001, by The Cortland Savings and Banking Company with each executive officer other than Rodger W. Platt and with selected other officers, as amended by the August 2002 letter amendment		10-K(1)	10.1		03/16/06
*10.1.1	Amendment of Group Term Carve Out Plan, dated October 28, 2014		8-K	10.1.1		11/03/14
10.2	[Reserved]
10.3	[Reserved]
*10.4	Amended Director Retirement Agreement between Cortland Bancorp and David C. Cole, dated as of December 18, 2007		10-K	10.4		03/17/08
10.5	[Reserved]
10.6	[Reserved]
*10.7	Amended Director Retirement Agreement between Cortland Bancorp and James E. Hoffman III, dated as of December 18, 2007		10-K	10.7		03/17/08
*10.8	Amended Director Retirement Agreement between Cortland Bancorp and Neil J. Kaback, dated as of December 18, 2007		10-K	10.8		03/17/08
10.9	[Reserved]
*10.10	Amended Director Retirement Agreement between Cortland Bancorp and Richard B. Thompson, dated as of December 18, 2007		10-K	10.10		03/17/08
*10.11	Amended Director Retirement Agreement between Cortland Bancorp and Timothy K. Woofter, dated as of December 18, 2007		10-K	10.11		03/17/08
*10.12	Form of Split Dollar Agreement entered into by Cortland Bancorp and each of Directors David C. Cole, James E. Hoffman III, and Timothy K. Woofter as of February 23, 2001, as of March 1, 2004, with Director Neil J. Kaback, and as of October 1, 2001, with Director Richard B. Thompson;		10-K(1)	10.12		03/16/06
	as amended on December 26, 2006, for Directors Cole, Hoffman, Thompson, and Woofter;		10-K	10.12		03/15/07
*10.13	Director’s Retirement Agreement between Cortland Bancorp and Director Joseph E. Koch, dated as of April 19, 2011		8-K	10.13		04/22/11

50

		Incorporated by Reference
Exhibit No.	Exhibit Description	Form**		Exhibit	Filing Date		Filed Herewith
*10.14	Split Dollar Agreement and Endorsement between Cortland Bancorp and Director Joseph E. Koch, dated as of April 19, 2011		8-K	10.14		04/22/11
*10.15	Form of Indemnification Agreement entered into by Cortland Bancorp with each of its directors		10-K(1)	10.15		03/16/06
*10.16	Endorsement Split Dollar Agreement between The Cortland Savings and Banking Company and David J. Lucido, dated as of March 27, 2012		10-K	10.16		03/29/12
*10.17	Seventh Amended Salary Continuation Agreement between The Cortland Savings and Banking Company and Timothy Carney, dated as of November 24, 2015		8-K	10.17		12/01/15
*10.18	Third Amended Salary Continuation Agreement between The Cortland Savings and Banking Company and Lawrence A. Fantauzzi, dated as of December 3, 2008		8-K	10.18		12/12/08
*10.19	Seventh Amended Salary Continuation Agreement between The Cortland Savings and Banking Company and James M. Gasior, dated as of November 24, 2015		8-K	10.19		12/01/15
10.20	[Reserved]
10.21	[Reserved]
10.22	[Reserved]
*10.23	Salary Continuation Agreement between The Cortland Savings and Banking Company and David J. Lucido, dated as of November 24, 2015		8-K	10.23		12/01/15
*10.24	Fourth Amended Split Dollar Agreement and Endorsement between The Cortland Savings and Banking Company and Timothy Carney, dated as of April 19, 2011		8-K	10.24		04/22/11
*10.25	Salary Continuation Agreement between The Cortland Savings and Banking Company and Stanley P. Feret, dated as of November 24, 2015		8-K	10.25		12/01/15
*10.26	Fourth Amended Split Dollar Agreement and Endorsement between The Cortland Savings and Banking Company and James M. Gasior, dated as of April 19, 2011		8-K	10.26		04/22/11
10.27	[Reserved]
10.28	[Reserved]
10.29	[Reserved]
*10.30	Endorsement Split Dollar Agreement between The Cortland Savings and Banking Company and Stanley P. Feret, dated as of July 23, 2013		10-Q	10.30		08/13/13
*10.31.1	Severance Agreement between Cortland Bancorp and Tim Carney, dated as of September 28, 2012, as amended November 24, 2015		10-K	10.31.1		12/01/15
*10.31.2	Severance Agreement between Cortland Bancorp and James Gasior, dated as of September 28, 2012, as amended November 24, 2015		8-K	10.31.2		12/01/15
*10.31.3	Severance Agreement between Cortland Bancorp and David J. Lucido, dated as of September 28, 2012, as amended November 24, 2015		8-K	10.31.3		12/01/15

51

		Incorporated by Reference
Exhibit No.	Exhibit Description	Form**		Exhibit	Filing Date		Filed Herewith
10.32	[Reserved]
10.33	[Reserved]
*10.34	Severance Agreement between Cortland Bancorp and Stanley P. Feret, dated as of September 28, 2012, as amended November 24, 2015		8-K	10.34		12/01/15
*10.35	Annual Incentive Plan for Executive Officers		8-K	10.35		08/03/15
*10.36	2015 Omnibus Equity Plan		10-Q	10.36		08/11/15
10.36.1	Form of incentive stock option award under the 2015 Omnibus Equity Plan		10-Q	10.36.1		08/11/15
10.36.2	Form of nonqualified stock option award under the 2015 Omnibus Equity Plan		10-Q	10.36.2		08/11/15
10.36.3	Form of restricted stock award under the 2015 Omnibus Equity Plan		10-Q	10.36.3		08/11/15
*10.37	2015 Director Equity Plan		10-Q	10.37		08/11/15
10.37.1	Form of nonqualified stock option award under the 2015 Director Equity Plan		10-Q	10.37.1		08/11/15
10.37.2	Form of incentive stock option award under the 2015 Director Equity Plan		10-Q	10.37.2		08/11/15
11	Statement of re-computation of per share earnings		See Note 6 of Financial Statements
31.1	Certification of the Chief Executive Officer under Rule 13a-14(a)							✓
31.2	Certification of Chief Financial Officer under Rule 13a-14(a)							✓
32	Section 1350 Certification of Chief Executive Officer and Chief Financial Officer required under section 906 of the Sarbanes-Oxley Act of 2002							✓
101	The following materials from Cortland Bancorp’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2018, formatted in Extensible Business Reporting Language (XBRL): (a) Consolidated Balance Sheets; (b) Consolidated Statements of Income; (c) Consolidated Statements of Comprehensive Income; (d) Consolidated Statements of Changes in Shareholders’ Equity; (e) Consolidated Statements of Cash Flows; and (f) the Notes to Consolidated Financial Statements tagged as blocks of text and in detail (included with this filing)							✓

(1) Film number 06691632

* Management contract or compensatory plan or arrangement

** SEC File No. 000-13814

52

CORTLAND BANCORP AND SUBSIDIARIES

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.

CORTLAND BANCORP

(Registrant)

/s/ James M. Gasior	Date: August 9, 2018
James M. Gasior President and Chief Executive Officer (Principal Executive Officer)

/s/ David J. Lucido	Date: August 9, 2018
David J. Lucido Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)

53

EX-4.2

Exhibit 4.2

CORTLAND BANCORP

194 West Main Street

Cortland, OH 44410

August 9, 2018

Securities and Exchange Commission

100 F Street, NE

Washington, D.C. 20549

Re:  Cortland Bancorp Quarterly Report on Form 10-Q for the quarter ended June 30, 2018

Ladies and Gentlemen:

Cortland Bancorp, an Ohio corporation, is today filing a Quarterly Report on Form 10-Q for the quarter ended June 30, 2018 (the "Form 10-Q"), as executed on August 9, 2018.

Pursuant to the instructions relating to the Exhibits in Item 601(b)(4)(iii) of Regulation S-K, Cortland Bancorp hereby agrees to furnish the Commission, upon request, copies of instruments and agreements defining the rights of holders of its long-term debt and of the long-term debt of its consolidated subsidiaries, which are not being filed as exhibits to the Form 10-Q.  No such instrument or agreement represents long-term debt exceeding 10% of the total assets of Cortland Bancorp and its subsidiaries on a consolidated basis.

Very truly yours,

/s/ James M. Gasior

James M. Gasior

President and CEO

EX-31.1

Exhibit 31.1

CERTIFICATION

I, James M. Gasior, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Cortland Bancorp;

2. Based on my knowledge, this quarterly 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 quarterly 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 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 controls 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 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 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 controls 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.

Date:  August 9, 2018	/s/ James M. Gasior
	James M. Gasior
	President and
	Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION

I, David J. Lucido, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Cortland Bancorp;

2. Based on my knowledge, this quarterly 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 quarterly 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 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 controls 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 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 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 controls 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.

Date:  August 9, 2018	/s/ David J. Lucido
	David J. Lucido
	Senior Vice President and
	Chief Financial Officer

EX-32

Exhibit 32

CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND

CHIEF FINANCIAL OFFICER PURSUANT TO TITLE 18, UNITED

STATES CODE, SECTION 1350, AS ADOPTED PURSUANT

TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Cortland Bancorp (the “Company”) on Form 10-Q for the quarterly period ended June 30, 2018 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, James M. Gasior, the President and Chief Executive Officer of the Company, certify, pursuant to Title 18, United States Code, Section 1350, as adopted pursuant to 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.

/s/ James M. Gasior

Print name:  James M. Gasior

Title: President and

Chief Executive Officer

Date:  August 9, 2018

In connection with the Quarterly Report of Cortland Bancorp (the “Company”) on Form 10-Q for the quarterly period ended June 30, 2018 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, David J. Lucido, the Senior Vice President and Chief Financial Officer of the Company, certify, pursuant to Title 18, United States Code, Section 1350, as adopted pursuant to 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.

/s/ David J. Lucido

Print name:  David J. Lucido

Title:  Senior Vice President and Chief

Financial Officer

Date:  August 9, 2018

*This certification is being furnished as required by Rule 13a-14(b) under the Securities Exchange Act of 1934 (the “Exchange Act”) and Section 1350 of Chapter 63 of Title 18 of the United States Code, and shall not be deemed “filed” for purposes of Section 18 of the Exchange Act or otherwise subject to the liability of that Section. This certification shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Exchange Act, except as otherwise stated in such filing.

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to and is being retained by Cortland Bancorp and will be forwarded to the Securities and Exchange Commission or its staff upon request.

XML

Document and Entity Information - shares	6 Months Ended
	Jun. 30, 2018	Aug. 02, 2018
Document And Entity Information [Abstract]
Entity Registrant Name	CORTLAND BANCORP INC
Entity Central Index Key	0000774569
Document Type	10-Q
Trading Symbol	CLDB
Document Period End Date	Jun. 30, 2018
Amendment Flag	false
Document Fiscal Year Focus	2018
Document Fiscal Period Focus	Q2
Current Fiscal Year End Date	--12-31
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		4,363,537

XML

Consolidated Balance Sheets (Unaudited) - USD ($) $ in Thousands	Jun. 30, 2018	Dec. 31, 2017
ASSETS
Cash and due from banks	$ 6,701	$ 9,741
Interest-earning deposits	4,276	9,384
Total cash and cash equivalents	10,977	19,125
Investment securities available-for-sale (Note 3)	141,538	159,841
Regulatory stock (Note 3)	2,581	2,581
Loans held for sale	2,524	2,780
Total loans (Note 4)	466,448	487,490
Less allowance for loan losses (Note 4)	(4,095)	(4,578)
Net loans	462,353	482,912
Premises and equipment	9,145	9,038
Bank-owned life insurance	15,550	17,650
Other assets	18,032	17,174
Total assets	662,700	711,101
LIABILITIES
Noninterest-bearing deposits	130,318	123,291
Interest-bearing deposits	427,505	462,560
Total deposits	557,823	585,851
Short-term borrowings (Note 13)	1,609	2,678
Federal Home Loan Bank advances - short term	11,000	32,000
Federal Home Loan Bank advances - long term	16,000	14,000
Subordinated debt (Note 7)	5,155	5,155
Other liabilities	9,289	9,787
Total liabilities	600,876	649,471
SHAREHOLDERS’ EQUITY
Common stock - $5.00 stated value - authorized 20,000,000 shares; issued 4,728,267 shares in 2018 and 2017; outstanding shares, 4,363,537 in 2018 and 4,420,136 in 2017	23,641	23,641
Additional paid-in capital	20,878	20,928
Retained earnings	28,270	24,403
Accumulated other comprehensive loss (Note 10)	(4,113)	(1,825)
Treasury stock, at cost, 364,730 shares in 2018 and 308,131 in 2017	(6,852)	(5,517)
Total shareholders’ equity	61,824	61,630
Total liabilities and shareholders’ equity	$ 662,700	$ 711,101

XML

Consolidated Balance Sheets (Parenthetical) (Unaudited) - $ / shares	Jun. 30, 2018	Dec. 31, 2017
Statement Of Financial Position [Abstract]
Common stock, shares authorized	20,000,000	20,000,000
Common stock, stated value	$ 5.00	$ 5.00
Common stock, shares issued	4,728,267	4,728,267
Common stock, shares outstanding	4,363,537	4,420,136
Treasury stock, shares	364,730	308,131

XML

Consolidated Statements of Income (Unaudited) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
INTEREST AND DIVIDEND INCOME
Interest and fees on loans	$ 5,739	$ 4,742	$ 11,327	$ 9,360
Interest and dividends on investment securities:
Taxable interest	539	539	1,031	1,105
Nontaxable interest	356	460	785	929
Dividends	40	34	74	61
Other interest income	53	30	81	46
Total interest and dividend income	6,727	5,805	13,298	11,501
INTEREST EXPENSE
Deposits	850	626	1,639	1,212
Short-term borrowings	2	2	3	3
Federal Home Loan Bank advances - short term	54	38	145	75
Federal Home Loan Bank advances - long term	66	82	124	186
Subordinated debt	48	35	88	66
Total interest expense	1,020	783	1,999	1,542
Net interest income	5,707	5,022	11,299	9,959
PROVISION FOR LOAN LOSSES	75		575
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES	5,632	5,022	10,724	9,959
NON-INTEREST INCOME
Investment securities available-for-sale gains (losses), net	(41)	22	(21)	31
Mortgage banking gains, net	261	322	499	516
Earnings on bank-owned life insurance	1,631	82	1,708	157
Wealth management	10	7	19	14
Other non-interest income	132	145	245	252
Total non-interest income	2,577	1,132	3,589	2,032
NON-INTEREST EXPENSES
Salaries and employee benefits	2,617	2,621	5,067	5,363
Occupancy and equipment	550	588	1,147	1,203
State and local taxes	125	118	250	233
FDIC insurance	44	51	88	104
Professional fees	209	198	398	359
Advertising and marketing	89	158	163	260
Data processing fees	64	65	127	126
Other operating expenses	887	887	1,671	1,685
Total non-interest expenses	4,585	4,686	8,911	9,333
INCOME BEFORE FEDERAL INCOME TAX EXPENSE	3,624	1,468	5,402	2,658
Federal income tax expense	322	286	563	476
NET INCOME	$ 3,302	$ 1,182	$ 4,839	$ 2,182
EARNINGS PER SHARE BASIC AND DILUTED	$ 0.75	$ 0.26	$ 1.10	$ 0.49
CASH DIVIDENDS DECLARED PER SHARE	$ 0.11	$ 0.08	$ 0.22	$ 0.23
Fees for customer services
NON-INTEREST INCOME
Revenue	$ 584	$ 554	$ 1,139	$ 1,062

XML

Consolidated Statements of Comprehensive Income (Loss) (Unaudited) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Statement Of Income And Comprehensive Income [Abstract]
Net income	$ 3,302	$ 1,182	$ 4,839	$ 2,182
Securities available for sale:
Unrealized holding (losses) gains on available-for-sale securities	(83)	1,552	(3,049)	1,567
Tax effect	16	(528)	641	(533)
Reclassification adjustment for net losses (gains) realized in net income	41	(22)	21	(31)
Tax effect	(8)	8	(4)	11
Total securities available-for-sale	(34)	1,010	(2,391)	1,014
Change in post-retirement obligations	111	(6)	103	(11)
Total other comprehensive income (loss)	77	1,004	(2,288)	1,003
Total comprehensive income	$ 3,379	$ 2,186	$ 2,551	$ 3,185

XML

Consolidated Statements of Changes in Shareholders' Equity (Unaudited) - USD ($) $ in Thousands	Total	Common Stock	Additional Paid-in Capital	Retained Earnings	Accumulated Other Comprehensive Income (Loss)	Treasury Stock
Beginning balance at Dec. 31, 2016	$ 57,670	$ 23,641	$ 20,878	$ 21,485	$ (2,961)	$ (5,373)
Net income	2,182			2,182
Other comprehensive income (loss)	1,003				1,003
Cash dividend declared	(1,018)			(1,018)
Equity compensation	73		(20)			93
Ending balance at Jun. 30, 2017	59,910	23,641	20,858	22,649	(1,958)	(5,280)
Net income	1,182
Other comprehensive income (loss)	1,004
Ending balance at Jun. 30, 2017	59,910	23,641	20,858	22,649	(1,958)	(5,280)
Beginning balance at Dec. 31, 2017	61,630	23,641	20,928	24,403	(1,825)	(5,517)
Net income	4,839			4,839
Other comprehensive income (loss)	(2,288)				(2,288)
Cash dividend declared	(972)			(972)
Treasury shares purchased (70,181 shares)	(1,493)					(1,493)
Equity compensation	108		(50)			158
Ending balance at Jun. 30, 2018	61,824	23,641	20,878	28,270	(4,113)	(6,852)
Net income	3,302
Other comprehensive income (loss)	77
Ending balance at Jun. 30, 2018	$ 61,824	$ 23,641	$ 20,878	$ 28,270	$ (4,113)	$ (6,852)

XML

Consolidated Statements of Changes in Shareholders' Equity (Parenthetical) (Unaudited) - $ / shares	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Statement Consolidated Statements Of Changes In Shareholders Equity Parenthetical Unaudited [Abstract]
Cash dividend declared per share	$ 0.11	$ 0.08	$ 0.22	$ 0.23
Treasury shares purchased shares			70,181

XML

Consolidated Statements of Cash Flows (Unaudited) - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017
Net cash flow from operating activities
Net cash flow from operating activities	$ 5,345	$ 4,056
Cash flow from investing activities
Purchases of available-for-sale securities	(13,022)	(18,927)
Proceeds from sale of available-for-sale securities	21,418	28,127
Proceeds from call, maturity and principal payments on available-for-sale securities	6,056	9,076
Net decrease in loans made to customers	19,984	9,484
Proceeds from bank-owned life insurance	3,808
Contributions to partnership funds	(656)	(2,235)
Purchases of premises and equipment	(519)	(537)
Net cash flow from investing activities	37,069	24,988
Cash deficit from financing activities
Net decrease in deposit accounts	(28,028)	(8,862)
Net change in short term borrowings	(1,069)	(599)
Net change in Federal Home Loan Bank advances - short term	(21,000)	(11,000)
Repayments of Federal Home Loan Bank advances - long term	(4,000)	(8,000)
Proceeds from Federal Home Loan Bank advances - long term	6,000	4,000
Dividends paid	(972)	(1,018)
Treasury shares purchased	(1,493)
Net cash deficit from financing activities	(50,562)	(25,479)
Net change in cash and cash equivalents	(8,148)	3,565
Cash and cash equivalents
Beginning of period	19,125	15,351
End of period	10,977	18,916
Cash paid during the period for:
Income taxes	400	650
Interest	$ 2,022	1,548
Transfer of loans to other real estate owned		$ 480

XML

Basis of Presentation and Reclassifications

6 Months Ended

Jun. 30, 2018

Organization Consolidation And Presentation Of Financial Statements [Abstract]

Basis of Presentation and Reclassifications

1.) Basis of Presentation and Reclassifications:

The accompanying unaudited consolidated financial statements of Cortland Bancorp (the Company) and the Cortland Savings and Banking Company (the Bank) have been prepared in accordance with accounting principles generally accepted in the United States (U.S. GAAP) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring items) considered necessary for a fair presentation have been included. Operating results for the three and six months ended June 30, 2018 are not necessarily indicative of the results that may be expected for the year ending December 31, 2018. These interim unaudited consolidated financial statements should be read in conjunction with our annual audited financial statements as of December 31, 2017, included in our Form 10-K for the year ended December 31, 2017, filed with the United States Securities and Exchange Commission. The accompanying Consolidated Balance Sheets at December 31, 2017, have been derived from the audited Consolidated Balance Sheets but do not include all of the information and footnotes required by U.S. GAAP for complete financial statements.

Effective January 1, 2018, the Company adopted 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 utilizing the modified retrospective approach with a cumulative effect of adoption for the impact from uncompleted contracts at the date of adoption. 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 income on loans and investments along with noninterest revenue resulting from investment security gains, gains on the sale of loans, earnings on bank owned life insurance, wealth management and other non-interest income are not within the scope of ASC 606.  As a result, no changes were made during the period related to these sources of revenue.

The main types of non-interest 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 the account balance falls below predetermined levels defined as compensating balances. 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 non-sufficient fund fees, overdraft fees, continuous overdraft fees and other fees such as stop payment 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, namely at the completion of the requested service/transaction.

Fees, exchange, and other service charges- This is primarily comprised of debit card income, ATM fees, merchant services income, and other service charges. Debit card income is primarily comprised of interchange fees earned whenever the Company’s debit and credit cards are processed through card payment networks such as Visa. ATM fees are primarily generated when a Company cardholder uses a non-Company ATM or a non-Company cardholder uses a Company ATM. Merchant services income mainly represents fees charged to merchants to process their debit card transactions, in addition to account management fees. Other service charges include cashier’s checks, check charges and other services. The Company’s performance obligation for fees, exchange, and other service charges are largely satisfied, and related revenue recognized, when the services are rendered or upon completion. Payment is typically received immediately or in the following month.

Gains (losses) on sale of other real estate owned – Gains and losses are recognized at the completion of the property sale when the buyer obtains control of the real estate and all of the performance obligations of 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 is 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.

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.

	(Amounts in thousands)
	Three Months Ended		Six Months Ended
	June 30, 2018
Revenue stream
Service charges on deposit accounts:
Overdraft fees	$	269	$	525
Service charges		100		199
Other fees		6		9
Fees, exchange, and other service charges		209		406
Non-interest income (in-scope of Topic 606)		584		1,139
Non-interest income (out-of-scope of Topic 606)		1,993		2,450
Total non-interest income	$	2,577	$	3,589

Certain items contained in the 2017 financial statements have been reclassified to conform to the presentation for 2018. Such reclassifications had no effect on the net results of operations or shareholders’ equity.

XML

Authoritative Accounting Guidance

6 Months Ended

Jun. 30, 2018

New Accounting Pronouncements And Changes In Accounting Principles [Abstract]

Authoritative Accounting Guidance

2.) Authoritative Accounting Guidance:

In January 2016, the FASB issued ASU (Accounting Standard Update) 2016-01, Financial Instruments – Overall (Subtopic 825-10):  Recognition and Measurement of Financial Assets and Financial Liabilities.  This Update applies to all entities that hold financial assets or owe financial liabilities and is intended to provide more useful information on the recognition, measurement, presentation, and disclosure of financial instruments.  Among other things, this Update (a) requires equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income; (b) simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment; (c) eliminates the requirement to disclose the fair value of financial instruments measured at amortized cost for entities that are not public business entities; (d) eliminates the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet; (e) requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; (f) requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (that is, securities or loans and receivables) on the balance sheet or the accompanying notes to the financial statements; and (g) clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets.  

The Company’s adoption of this standard during the reporting period had no effect on the Consolidated Financial Statements. On a prospective basis, the Company implemented changes to the measurement of the fair value of financial instruments using an exit price notion for disclosure purposes included in Note 9 to the financial statements. The December 31, 2017, fair value of each class of financial instruments disclosure did not utilize the exit price notion when measuring fair value and, therefore, would not be comparable to the June 30, 2018 disclosure.

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

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), 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. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations. 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 August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230):  Classification of Certain Cash Receipts and Cash Payments (“ASU 2016-15”), which addresses eight specific cash flow issues with the objective of reducing diversity in practice.  Among these include recognizing cash payments for debt prepayment or debt extinguishment as cash outflows for financing activities; cash proceeds received from the settlement of insurance claims should be classified on the basis of the related insurance coverage; and cash proceeds received from the settlement of bank-owned life insurance policies should be classified as cash inflows from investing activities while the cash payments for premiums on bank-owned policies may be classified as cash outflows for investing activities, operating activities, or a combination of investing and operating activities.  The amendments in this Update are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. Early adoption is permitted, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. An entity that elects early adoption must adopt all of the amendments in the same period. The amendments in this Update should be applied using a retrospective transition method to each period presented. If it is impracticable to apply the amendments retrospectively for some of the issues, the amendments for those issues would be applied prospectively as of the earliest date practicable. The Company has adopted the standard. See the Company’s Consolidated Statements of Cash Flows.

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

In May 2017, the FASB issued ASU 2017-09, Compensation – Stock Compensation (Topic 718), which affects any entity that changes the terms or conditions of a share-based payment award.  This Update amends the definition of modification by qualifying that modification accounting does not apply to changes to outstanding share-based payment awards that do not affect the total fair value, vesting requirements, or equity/liability classification of the awards.  The amendments in this Update are effective for all entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted, including adoption in any interim period, for (1) public business entities for reporting periods for which financial statements have not yet been issued and (2) all other entities for reporting periods for which financial statements have not yet been made available for issuance. The amendments in this Update should be applied prospectively to an award modified on or after the adoption date. The Company has adopted this standard and has no significant impact on the Company’s financial statements.

In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 850), the objective of which is to improve the financial reporting of hedging relationships to better portray the economic results of an entity’s risk management activities in its financial statements. In addition, the amendments in this Update make certain targeted improvements to simplify the application and disclosure of the hedge accounting guidance in current general accepted accounting principles. For public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2019, and interim periods beginning after December 15, 2020. Early application is permitted in any period after issuance. For cash flow and net investment hedges existing at the date of adoption, an entity should apply a cumulative-effect adjustment related to eliminating the separate measurement of ineffectiveness to accumulated other comprehensive income with a corresponding adjustment to the opening balance of retained earnings as of the beginning of the fiscal year that an entity adopts the amendments in this Update. The amended presentation and disclosure guidance is required only prospectively. This Update is not expected to have a significant impact on the Company’s financial statements.

In January 2018, the FASB issued ASU 2018-01, Leases (Topic 842), which provides an optional transition practical expedient to not evaluate under Topic 842 existing or expired land easements that were not previously accounted for as leases under the current lease guidance in Topic 840.  An entity that elects this practical expedient should evaluate new or modified land easements under Topic 842 beginning at the date the entity adopts Topic 842; otherwise, an entity should evaluate all existing or expired land easements in connection with the adoption of the new lease requirements in Topic 842 to assess whether they meet the definition of a lease.  The effective date and transition requirements for the amendments are the same as the effective date and transition requirements in ASU 2016-02.  This Update is not expected to have a significant impact on the Company’s financial statements.

In February 2018, the FASB issued ASU 2018-02, Income Statement – Reporting Comprehensive Income (Topic 220).  On December 22, 2017, the U.S. federal government enacted a tax bill, H.R.1, An Act to Provide for Reconciliation Pursuant to Titles II and V of the Concurrent Resolution on the Budget for Fiscal Year 2018 (Tax Cuts and Jobs Act), which requires deferred tax liabilities and assets to be adjusted for the effect of a change in tax laws.  The amendments in this Update allow a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act.  The amendments in this Update are effective for all entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption of the amendments in this Update is permitted.  The amendments in this Update should be applied either in the period of adoption or retrospectively to each period (or periods) in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act is recognized.  The Company has elected to early adopt this standard as of December 31, 2017, which resulted in a one-time cumulative effect adjustment of $294,000 between retained earnings and accumulated other comprehensive loss on the Consolidated Balance Sheets.  The adjustment had no impact on net income or any prior periods presented.

In June 2018, the FASB issued ASU 2018-07, Compensation – Stock Compensation (Topic 718), which simplified the accounting for nonemployee share-based payment transactions.  The amendments in this update expand the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees.  The amendments in this Update improve the following areas of nonemployee share-based payment accounting; (a) the overall measurement objective, (b) the measurement date, (c) awards with performance conditions, (d) classification reassessment of certain equity-classified awards, (e) calculated value (nonpublic entities only), and (f) intrinsic value (nonpublic entities only).  The amendments in this Update are effective for public business entities for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. This Update is not expected to have a significant impact on the Company’s financial statements.

ASU 2018-10, Codification Improvements to Topic 842, Leases, represents changes to clarify, correct errors in, or make minor improvements to the Codification. The amendments in this ASU affect the amendments in ASU 2016-02, which are not yet effective, but for which early adoption upon issuance is permitted. For entities that early adopted Topic 842, the amendments are effective upon issuance of this ASU, and the transition requirements are the same as those in Topic 842. For entities that have not adopted Topic 842, the effective date and transition requirements will be the same as the effective date and transition requirements in Topic 842. This Update is not expected to have a significant impact on the Company’s financial statements.

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Investment Securities

6 Months Ended

Jun. 30, 2018

Investments Debt And Equity Securities [Abstract]

Investment Securities

3.) Investment Securities:

Investments in debt securities are classified as held-to-maturity, available-for-sale or trading. Securities classified as held-to-maturity are those that management has the positive intent and ability to hold to maturity. Securities classified as available-for-sale are those that could be sold for liquidity, investment management, or similar reasons, even though management has no present intentions to do so. Securities classified as trading are those that management has bought principally for the purpose of selling in the near term. The Company currently has no securities classified as held-to-maturity or trading.

Available-for-sale securities are carried at fair value with unrealized gains and losses recorded as a separate component of shareholders’ equity, net of tax. Realized gains or losses on dispositions are based on net proceeds and the adjusted carrying amount of securities sold, using the specific identification method. Interest income includes amortization of purchase premium or discount and is amortized on the level-yield method without anticipating payments, except for U.S. Government mortgage-backed and related securities where twelve months of historical prepayments are taken into consideration.

The regulatory stock is carried at cost (its redeemable value) and the Company is required to hold such investments as a condition of membership in order to transact business with the Federal Home Loan Bank (FHLB) of Cincinnati and the Federal Reserve Bank (FRB). The stock is bought from and sold to the correspondent institutions based upon its par value. The stock cannot be traded or sold in any market and as such is classified as restricted stock, carried at cost (its redeemable value) and evaluated by management. The stock’s value is determined by the ultimate recoverability of the par value rather than by recognizing temporary declines. The determination of whether the par value will ultimately be recovered is influenced by criteria such as the following: (a) the significance of the decline in net assets of the FHLB and FRB as compared to the capital stock amount and the length of time this situation has persisted, (b) commitments by the FHLB and FRB to make payments required by law or regulation and the level of such payments in relation to the operating performance, (c) the impact of legislative and regulatory changes on the customer base of the FHLB and FRB and (d) the liquidity position of the FHLB and FRB. The Company does not consider these investments to be other-than-temporarily impaired at June 30, 2018.

Securities are evaluated periodically to determine whether a decline in value is other-than-temporary. Management utilizes criteria such as the magnitude and duration of the decline, along with the reasons underlying the decline, to determine whether the loss in value is other-than-temporary. The term “other-than-temporary” is not intended to indicate that the decline in value is permanent but indicates that the prospect for a near-term recovery of value is not necessarily favorable and that there is a lack of evidence to support a realizable value equal to or greater than the carrying value of the investment. Unrealized losses on available-for-sale investments have not been recognized into income. However, once a decline in value is determined to be other-than-temporary, the credit related other-than-temporary impairment (OTTI) is recognized in earnings while the non-credit related OTTI on securities not expected to be sold is recognized in other comprehensive income (loss).

The following table is a summary of investment securities available-for-sale and regulatory stock:

	(Amounts in thousands)
June 30, 2018	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
U.S. Government agencies and corporations	$	9,235	$	—	$	283	$	8,952
Obligations of states and political subdivisions		53,452		19		1,690		51,781
U.S. Government-sponsored mortgage-backed securities		62,175		—		2,717		59,458
U.S. Government-sponsored collateralized mortgage obligations		13,119		—		236		12,883
U.S. Government-guaranteed small business administration pools		8,846		—		382		8,464
Total investment securities available-for-sale	$	146,827	$	19	$	5,308	$	141,538
Federal Home Loan Bank (FHLB) stock		2,355		—		—		2,355
Federal Reserve Bank (FRB) stock		226		—		—		226
Total regulatory stock	$	2,581	$	—	$	—	$	2,581

	(Amounts in thousands)
December 31, 2017	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
U.S. Government agencies and corporations	$	3,344	$	1	$	140	$	3,205
Obligations of states and political subdivisions		71,700		740		324		72,116
U.S. Government-sponsored mortgage-backed securities		69,066		6		1,404		67,668
U.S. Government-sponsored collateralized mortgage obligations		6,463		—		161		6,302
U.S. Government-guaranteed small business administration pools		9,911		—		256		9,655
Trust preferred securities		1,618		—		723		895
Total investment securities available-for-sale	$	162,102	$	747	$	3,008	$	159,841
Federal Home Loan Bank (FHLB) stock		2,355		—		—		2,355
Federal Reserve Bank (FRB) stock		226		—		—		226
Total regulatory stock	$	2,581	$	—	$	—	$	2,581

The amortized cost and fair value of debt securities at June 30, 2018, by contractual maturity, are shown below. Actual maturities will differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties. 

	(Amounts in thousands)
	Amortized Cost		Fair Value
Due in one year or less	$	—	$	—
Due after one year through five years		543		553
Due after five years through ten years		12,034		11,606
Due after ten years		58,956		57,038
Total		71,533		69,197
U.S. Government-sponsored mortgage-backed and related securities		75,294		72,341
Total investment securities available-for-sale	$	146,827	$	141,538

The table below sets forth the proceeds and gains or losses realized on available for sale securities sold or called for the periods presented:

	(Amounts in thousands)
	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2018		2017		2018		2017
Proceeds on securities sold	$	1,577	$	12,402	$	21,418	$	28,127
Gross realized gains		—		232		123		378
Gross realized losses		41		210		144		347

Investment securities with a carrying value of approximately $64.3 million at June 30, 2018 and $105.0 million at December 31, 2017 were pledged to secure deposits and for other purposes. The remaining securities provide an adequate level of liquidity.

The following is a summary of the fair value of available-for-sale securities with unrealized losses and an aging of those unrealized losses at June 30, 2018:  

	(Amounts in thousands)
	Less than 12 Months				12 Months or More				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
U.S. Government agencies and corporations	$	6,195	$	40	$	2,757	$	243	$	8,952	$	283
Obligations of states and political subdivisions		31,631		869		17,746		821		49,377		1,690
U.S. Government-sponsored mortgage-backed    securities		21,594		746		37,864		1,971		59,458		2,717
U.S. Government-sponsored collateralized    mortgage obligations		—		—		5,746		236		5,746		236
U.S. Government-guaranteed small business    administration pools		—		—		8,464		382		8,464		382
Total	$	59,420	$	1,655	$	72,577	$	3,653	$	131,997	$	5,308

The above table comprises 123 investment securities where the fair value is less than the related amortized cost.

The following is a summary of the fair value of available-for-sale securities with unrealized losses and an aging of those unrealized losses at December 31, 2017:

	(Amounts in thousands)
	Less than 12 Months				12 Months or More				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
U.S. Government agencies and corporations	$	—	$	—	$	2,860	$	140	$	2,860	$	140
Obligations of states and political subdivisions		7,430		24		18,066		300		25,496		324
U.S. Government-sponsored mortgage-backed    securities		24,888		241		40,968		1,163		65,856		1,404
U.S. Government-sponsored collateralized    mortgage obligations		—		—		6,302		161		6,302		161
U.S. Government-guaranteed small business    administration pools		2,532		38		7,123		218		9,655		256
Trust preferred securities		—		—		895		723		895		723
Total	$	34,850	$	303	$	76,214	$	2,705	$	111,064	$	3,008

The above table comprises 83 investment securities where the fair value is less than the related amortized cost.

The unrealized losses at June 30, 2018 on the Company’s investments were caused by changes in market rates and related spreads. The significant increase in unrealized losses beginning in 2018 is a direct result of the spike in interest rates immediately following the passage of the Tax Act. It is expected that the securities would not be settled at less than the amortized cost of the Company’s investment because the decline in fair value is attributable to changes in interest rates and relative spreads and not credit quality. Also, the Company does not intend to sell those investments and it is not more-likely-than-not that the Company will be required to sell the investments before recovery of its amortized cost basis less any current period credit loss. The Company does not consider these investments to be other-than-temporarily impaired at June 30, 2018.

Securities Deemed to be Other-Than-Temporarily Impaired

The Company reviews investment debt securities on an ongoing basis for the presence of other-than-temporary impairment (OTTI) with formal reviews performed quarterly.

For debt securities in an unrealized loss position, management assesses whether (a) it has the intent to sell the debt security or (b) it is more-likely-than-not that it will be required to sell the debt security before its anticipated recovery. If either of these conditions is met, an OTTI on the security must be recognized.

In instances in which a determination is made that a credit loss (defined as the difference between the present value of the cash flows expected to be collected and the amortized cost basis) exists but the entity does not intend to sell the debt security and it is not more-likely-than-not that the entity will be required to sell the debt security before the anticipated recovery of its remaining amortized cost basis (i.e., the amortized cost basis less any current-period credit loss), the Company presents the amount of the OTTI recognized in the Consolidated Statements of Income.

In these instances, the impairment is separated into (a) the amount of the total impairment related to the credit loss, and (b) the amount of the total impairment related to all other factors. The amount of the total OTTI related to the credit loss is recognized in earnings. The amount of the total impairment related to all other factors is recognized in other comprehensive income. The total other-than-temporary impairment is presented in the Consolidated Statements of Income with an offset for the amount of the total other-than-temporary impairment that is recognized in other comprehensive income.

As more fully disclosed in Note 9, the Company assessed the impairment of trust preferred securities currently in an illiquid market. The Company records impairment credit losses in earnings (before tax) and non-credit impairment losses in other comprehensive income (loss) (before tax). Through the impairment assessment process, there was no OTTI loss recognized in the three and six months ended June 30, 2018 and 2017.

The following provides a cumulative rollforward of credit losses recognized in earnings for trust preferred securities held.

	(Amounts in thousands)
	Three Months Ended					Six Months Ended
	June 30,					June 30,
	2018			2017		2018			2017
Beginning balance	$	140		$	140	$	140		$	140
Reduction for debt securities for which other-than-temporary    impairment has been previously recognized and there is no    related other comprehensive income		—			—		—			—
Credit losses on debt securities for which other-than-temporary    impairment has not been previously recognized		—			—		—			—
Additional credit losses on debt securities for which other-than-    temporary impairment was previously recognized		—			—		—			—
Sale of debt securities		(140	)		—		(140	)		—
Ending balance	$	—		$	140	$	—		$	140

At December 31, 2017, there was $895,000 of investment securities considered to be in non-accrual status due to the delay in the collection of interest payments. This balance was comprised of two trust preferred securities which were disposed of in the current quarter.

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Loans and Allowance for Loan Losses

6 Months Ended

Jun. 30, 2018

Receivables [Abstract]

Loans and Allowance for Loan Losses

4.) Loans and Allowance for Loan Losses:

The Company, through the Bank, grants residential, consumer and commercial loans to customers located primarily in Northeastern Ohio and Western Pennsylvania.

The following represents the composition of the loan portfolio for the period ending:

	(Amounts in thousands)
	June 30, 2018				December 31, 2017
	Balance		%		Balance		%
Commercial	$	74,015		15.9	$	113,341		23.3
Commercial real estate		298,790		64.0		283,135		58.1
Residential real estate		64,368		13.8		62,071		12.7
Consumer - home equity		25,665		5.5		26,018		5.3
Consumer - other		3,610		0.8		2,925		0.6
Total loans	$	466,448			$	487,490

Management has an established methodology to determine the adequacy of the allowance for loan losses that assesses the risks and losses inherent in the loan portfolio. For purposes of determining the allowance for loan losses, the Company has segmented loans in the portfolio by product type. Loans are segmented into the following pools: commercial loans, commercial real estate loans, residential real estate loans and consumer loans. The pools of commercial real estate loans and commercial loans are also broken down further by industry sectors when analyzing the related pools. Using the largest concentrations as the qualifier, these industry sectors include non-residential buildings; skilled nursing and nursing care; residential real estate lessors, agents and managers; hotel and motels, and trucking. The Company also sub-segments the consumer loan portfolio into the following two classes: home equity loans and other consumer loans. Historical loss percentages for each risk category are calculated and used as the basis for calculating allowance allocations. These historical loss percentages are calculated over multiple periods for all portfolio segments. Management evaluates these results and utilizes the most reflective period in the calculation. Certain qualitative factors are then added to the historical allocation percentage to get the adjusted factor.

These factors include, but are not limited to, the following:

Factor Considered:	Risk Trend:
Levels of and trends in charge-offs, classifications and non-accruals	Stable
Trends in volume and terms	Decreasing
Changes in lending policies and procedures	Stable
Experience, depth and ability of management, including loan review function	Stable
Economic trends, including valuation of underlying collateral	Stable
Concentrations of credit	Decreasing

The following factors are analyzed and applied to loans internally graded with higher credit risk in addition to the above factors for non-classified loans:

Factor Considered:	Risk Trend:
Levels and trends in classification	Stable
Declining trends in financial performance	Stable
Structure and lack of performance measures	Stable
Migration between risk categories	Stable

The provision charged to operations can be allocated to a loan classification either as a positive or negative value as a result of any material changes to: net charge-offs or recovery which influence the historical allocation percentage, qualitative risk factors or loan balances.

The following is an analysis of changes in the allowance for loan losses for the periods ended:

Three Months Ended
	(Amounts in thousands)
June 30, 2018	Commercial		Commercial real estate		Residential real estate			Consumer - home equity			Consumer - other			Total
Balance at beginning of period	$	1,334	$	2,290	$	93		$	67		$	100		$	3,884
Loan charge-offs		—		—		—			—			(27	)		(27	)
Recoveries		—		150		1			1			11			163
Net loan recoveries (charge-offs)		—		150		1			1			(16	)		136
Provision charged to operations		60		17		(14	)		(2	)		14			75
Balance at end of period	$	1,394	$	2,457	$	80		$	66		$	98		$	4,095

	(Amounts in thousands)
June 30, 2017	Commercial		Commercial real estate			Residential real estate			Consumer - home equity			Consumer - other			Total
Balance at beginning of period	$	1,246	$	3,226		$	142		$	148		$	93		$	4,855
Loan charge-offs		—		(7	)		(13	)		—			(23	)		(43	)
Recoveries		—		—			5			2			11			18
Net loan recoveries (charge-offs)		—		(7	)		(8	)		2			(12	)		(25	)
Provision charged to operations		4		94			(21	)		(90	)		13			—
Balance at end of period	$	1,250	$	3,313		$	113		$	60		$	94		$	4,830

Six Months Ended	(Amounts in thousands)
June 30, 2018	Commercial			Commercial real estate			Residential real estate			Consumer - home equity			Consumer - other			Total
Balance at beginning of period	$	1,591		$	2,702		$	117		$	70		$	98		$	4,578
Loan charge-offs		(1,163	)		—			—			—			(77	)		(1,240	)
Recoveries		—			150			1			4			27			182
Net loan recoveries (charge-offs)		(1,163	)		150			1			4			(50	)		(1,058	)
Provision charged to operations		966			(395	)		(38	)		(8	)		50			575
Balance at end of period	$	1,394		$	2,457		$	80		$	66		$	98		$	4,095

	(Amounts in thousands)
June 30, 2017	Commercial			Commercial real estate			Residential real estate			Consumer - home equity			Consumer - other			Total
Balance at beginning of period	$	1,394		$	3,072		$	163		$	150		$	89		$	4,868
Loan charge-offs		—			(100	)		(13	)		—			(67	)		(180	)
Recoveries		108			—			5			4			25			142
Net loan recoveries (charge-offs)		108			(100	)		(8	)		4			(42	)		(38	)
Provision charged to operations		(252	)		341			(42	)		(94	)		47			—
Balance at end of period	$	1,250		$	3,313		$	113		$	60		$	94		$	4,830

The total allowance reflects management’s estimate of loan losses inherent in the loan portfolio at the consolidated balance sheet date.

The following tables present a full breakdown by portfolio classification of the allowance for loan losses and the recorded investment in loans at June 30, 2018 and December 31, 2017:

	(Amounts in thousands)
June 30, 2018	Commercial		Commercial real estate		Residential real estate		Consumer - home equity		Consumer - other		Total
Allowance for loan losses:
Ending allowance balance attributable to    loans:
Individually evaluated for impairment	$	—	$	—	$	—	$	—	$	—	$	—
Collectively evaluated for impairment		1,394		2,457		80		66		98		4,095
Total ending allowance balance	$	1,394	$	2,457	$	80	$	66	$	98	$	4,095
Loan Portfolio:
Individually evaluated for impairment	$	5,357	$	4,354	$	—	$	—	$	—	$	9,711
Collectively evaluated for impairment		68,658		294,436		64,368		25,665		3,610		456,737
Total ending loans balance	$	74,015	$	298,790	$	64,368	$	25,665	$	3,610	$	466,448

	(Amounts in thousands)
December 31, 2017	Commercial		Commercial real estate		Residential real estate		Consumer - home equity		Consumer - other		Total
Allowance for loan losses:
Ending allowance balance attributable to    loans:
Individually evaluated for impairment	$	625	$	—	$	—	$	—	$	—	$	625
Collectively evaluated for impairment		966		2,702		117		70		98		3,953
Total ending allowance balance	$	1,591	$	2,702	$	117	$	70	$	98	$	4,578
Loan Portfolio:
Individually evaluated for impairment	$	5,581	$	4,664	$	—	$	—	$	—	$	10,245
Collectively evaluated for impairment		107,760		278,471		62,071		26,018		2,925		477,245
Total ending loans balance	$	113,341	$	283,135	$	62,071	$	26,018	$	2,925	$	487,490

The decrease in commercial loan balances from year-end was due in part to 60-day or less term commercial loans for a total of $43.0 million that closed in December 2017 and were fully secured by segregated deposit accounts with the Bank. The loans matured in the first quarter of 2018. The commercial charge off related to loans that were restructured with no principal forgiveness, but with a substantial concession in interest rate.  The below market rate triggered recognition of a charge-off equivalent to the difference in present value of loan payments discounted at the market rate of interest.  The charged off amount of $1.1 million is recorded as a loan discount.  As loan payments are made, interest will be recognized at the market rate versus the negotiated rate via the amortization of the discount over the various lives of the loans. There was $625,000 in specific reserve previously allocated to these loans at December 31, 2017.  

The decrease in the provision for commercial real estate loans is due mainly to a decrease in the concentration of credit factor. The recent segmentation of the commercial real estate loan portfolio into its five largest concentrations has resulted in lower allocations to those segments. The residential real estate, consumer-home equity and other household provisions remained fairly constant. The amount of net charge-offs also impacts the provision charged to operations for any category of loans. Charge-offs affect the historical rate applied to each category, and the amount needed to replenish the amount charged-off, which impacted home equity and consumer loans as well as commercial real estate loans.

The following tables represent credit exposures by internally assigned grades for June 30, 2018 and December 31, 2017. The grading analysis estimates the capability of the borrower to repay the contractual obligations of the loan agreements as scheduled or at all. The Company’s internal credit risk grading system is based on experiences with similarly graded loans.

The Company’s internally assigned grades are as follows:

• Pass – loans which are protected by the current net worth and paying capacity of the obligor or by the value of the underlying collateral. Within this category, there are grades of exceptional, quality, acceptable and pass monitor.

• Special Mention – loans where a potential weakness or risk exists, which could cause a more serious problem if not corrected.

• Substandard – loans that have a well-defined weakness based on objective evidence and are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected.

• Doubtful – loans classified as doubtful have all the weaknesses inherent in a substandard asset but with the severity which makes collection in full highly questionable and improbable, based on existing circumstances.

• Loss – loans classified as a loss are considered uncollectible, or of such value that continuance as an asset is not warranted. This rating does not mean that the assets have no recovery or salvage value but rather that the assets should be charged off now, even though partial or full recovery may be possible in the future.

The following table is a summary of credit quality indicators by internally assigned grades as of June 30, 2018 and December 31, 2017:

	(Amounts in thousands)
	Commercial		Commercial real estate
June 30, 2018
Pass	$	54,453	$	264,440
Special Mention		8,398		29,043
Substandard		11,164		5,307
Doubtful		—		—
Ending Balance	$	74,015	$	298,790

	(Amounts in thousands)
	Commercial		Commercial real estate
December 31, 2017
Pass	$	100,436	$	252,960
Special Mention		4,836		24,307
Substandard		8,069		5,868
Doubtful		—		—
Ending Balance	$	113,341	$	283,135

The Company evaluates the classification of consumer, home equity and residential loans primarily on a pooled basis. If the Company becomes aware that adverse or distressed conditions exist that may affect a particular loan, the loan is downgraded following the above definitions of special mention and substandard. Nonaccrual loans in these categories are evaluated for charge off or charge down, and the remaining balance has the same allowance factor as pooled loans.

The following table is a summary of consumer credit exposure as of June 30, 2018 and December 31, 2017:

	(Amounts in thousands)
	Residential real estate		Consumer-homeequity		Consumer - other
June 30, 2018
Performing	$	64,024	$	25,541	$	3,610
Nonperforming		344		124		—
Total	$	64,368	$	25,665	$	3,610

	(Amounts in thousands)
	Residential real estate		Consumer- home equity		Consumer - other
December 31, 2017
Performing	$	61,824	$	25,889	$	2,925
Nonperforming		247		129		—
Total	$	62,071	$	26,018	$	2,925

Loans are considered to be nonperforming when they become 90 days past due or on nonaccrual status, though the Company may be receiving partial payments of interest and partial repayments of principal on such loans. When a loan is placed in non-accrual status, previously accrued but unpaid interest is deducted from interest income. Loans in foreclosure are considered nonperforming.

The following table is a summary of classes of loans on non-accrual status as of June 30, 2018 and December 31, 2017:

	(Amounts in thousands)
	June 30, 2018		December 31, 2017
Commercial	$	1,149	$	—
Commercial real estate		441		506
Residential real estate		344		247
Consumer:
Consumer - home equity		124		129
Consumer - other		—		—
Total	$	2,058	$	882

Troubled Debt Restructuring

Nonperforming loans also include certain loans that have been modified in troubled debt restructurings (TDRs) where economic concessions have been granted to borrowers who have experienced or are expected to experience financial difficulties. These concessions typically result from the Company’s loss mitigation activities and could include reductions in the interest rate, payment extensions, forgiveness of principal, forbearance or other actions. Certain TDRs are classified as nonperforming at the time of restructure and may only be returned to performing status after considering the borrower’s sustained repayment performance for a reasonable period, generally six months.

There were no loans modified as TDR’s during the period ended June 30, 2017.

The following presents, by class, information related to loans modified in a TDR during the period ending June 30, 2018.

	(Dollar amounts in thousands)
	Three Months Ended								Six Months Ended
	June 30, 2018								June 30, 2018
	Number of contracts		Pre-modification recorded investment		Post-modification recorded investment		Increase in the allowance		Number of contracts		Pre-modification recorded investment		Post-modification recorded investment		Increase in the allowance
Commercial		—	$	—	$	—	$	—		7	$	5,373	$	4,210	$	—
Commercial real estate		—		—		—		—		—		—		—		—
Total restructured loans		—	$	—	$	—	$	—	$	7	$	5,373	$	4,210	$	—
Subsequently defaulted		—		—						—		—

The seven commercial loans were all to one borrower.  The loans were restructured with no principal forgiveness, but with a substantial concession in interest rate.  The below market rate triggered recognition of a charge-off equivalent to the difference in present value of loan payments discounted at the market rate of interest.  The charged off amount of $1.1 million is recorded as loan discount.  As loan payments are made, interest will be recognized at the market rate versus the negotiated rate via the amortization of the discount over the various lives of the loans.

The following table is an aging analysis of the recorded investment of past due loans as of June 30, 2018 and December 31, 2017:

	(Amounts in thousands)
	30-59 Days Past Due		60-89 Days Past Due		90 Days Or Greater		TotalPastDue		Current		Total Loans		Recorded Investment> 90 Days and Accruing
June 30, 2018
Commercial	$	24	$	142	$	1,149	$	1,315	$	72,700	$	74,015	$	—
Commercial real estate		—		194		340		534		298,256		298,790		—
Residential real estate		94		43		187		324		64,044		64,368		—
Consumer:
Consumer - home equity		97		—		27		124		25,541		25,665		—
Consumer - other		13		—		—		13		3,597		3,610		—
Total	$	228	$	379	$	1,703	$	2,310	$	464,138	$	466,448	$	—

	(Amounts in thousands)
	30-59 Days Past Due		60-89 Days Past Due		90 Days Or Greater		TotalPastDue		Current		Total Loans		Recorded Investment> 90 Days and Accruing
December 31, 2017
Commercial	$	—	$	—	$	—	$	—	$	113,341	$	113,341	$	—
Commercial real estate		173		12		390		575		282,560		283,135		—
Residential real estate		240		29		216		485		61,586		62,071		—
Consumer:
Consumer - home equity		—		82		28		110		25,908		26,018		—
Consumer - other		15		—		—		15		2,910		2,925		—
Total	$	428	$	123	$	634	$	1,185	$	486,305	$	487,490	$	—

An impaired loan is a loan on which, based on current information and events, it is probable that a creditor will be unable to collect all amounts due (including both interest and principal) according to the contractual terms of the loan agreement. However, an insignificant delay or insignificant shortfall in amount of payments on a loan does not indicate that the loan is impaired.

When a loan is determined to be impaired, impairment should be measured based on the present value of expected future cash flows discounted at the loan’s effective interest rate. However, as a practical expedient, the Company will measure impairment based on a loan’s observable market price, or the fair value of the collateral if the loan is collateral dependent.

The following are the criteria for selecting individual loans / relationships for impairment analysis. Non-homogenous loans which meet the criteria below are evaluated quarterly.

● All borrowers whose loans are classified doubtful by examiners and internal loan review

● All loans on non-accrual status

● Any loan in foreclosure

● Any loan with a specific allowance

● Any loan determined to be collateral dependent for repayment

● Loans classified as troubled debt restructuring

Commercial loans and commercial real estate loans evaluated for impairment are excluded from the general pool of loans in the ALLL calculation regardless if a specific reserve was determined. 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 allowance estimate or a charge-off to the allowance.

The following table presents the recorded investment and unpaid principal balances for impaired loans, excluding homogenous loans for which impaired analyses are not necessarily performed, with the associated allowance amount, if applicable, at June 30, 2018 and December 31, 2017. Also presented are the average recorded investments in the impaired balances and interest income recognized after impairment for the three and six months ended June 30, 2018 and 2017.

	(Amounts in thousands)
	Recorded Investment		Unpaid Principal Balance		Related Allowance
June 30, 2018
With no related allowance recorded:
Commercial	$	5,357	$	6,473	$	—
Commercial real estate		4,354		4,432		—
With an allowance recorded:
Commercial		—		—		—
Commercial real estate		—		—		—
Total:
Commercial	$	5,357	$	6,473	$	—
Commercial real estate	$	4,354	$	4,432	$	—

	(Amounts in thousands)
	Recorded Investment		Unpaid Principal Balance		Related Allowance
December 31, 2017
With no related allowance recorded:
Commercial	$	65	$	65	$	—
Commercial real estate		4,664		4,742		—
With an allowance recorded:
Commercial		5,516		5,516		625
Commercial real estate		—		—		—
Total:
Commercial	$	5,581	$	5,581	$	625
Commercial real estate	$	4,664	$	4,742	$	—

	(Amounts in thousands)
	Three Months Ended				Six Months Ended
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
June 30, 2018
With no related allowance recorded:
Commercial	$	4,615	$	8	$	3,041	$	11
Commercial real estate		4,180		104		4,360		212
With an allowance recorded:
Commercial		—		—		1,821		46
Commercial real estate		—		—		—		—
Total:
Commercial	$	4,615	$	8	$	4,862	$	57
Commercial real estate	$	4,180	$	104	$	4,360	$	212

	(Amounts in thousands)
	Three Months Ended				Six Months Ended
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
June 30, 2017
With no related allowance recorded:
Commercial	$	90	$	2	$	94	$	4
Commercial real estate		5,248		74		5,425		148
With an allowance recorded:
Commercial		—		—		—		—
Commercial real estate		458		—		699		6
Total:
Commercial	$	90	$	2	$	94	$	4
Commercial real estate	$	5,706	$	74	$	6,124	$	154

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Legal Proceedings

6 Months Ended

Jun. 30, 2018

Commitments And Contingencies Disclosure [Abstract]

Legal Proceedings

5.) Legal Proceedings:

The Company is involved in legal actions arising in the ordinary course of business. In the opinion of management, the outcomes from these matters, either individually or in the aggregate, are not expected to have any material effect on the Company.

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Earnings Per Share and Capital Transactions

6 Months Ended

Jun. 30, 2018

Earnings Per Share [Abstract]

Earnings Per Share and Capital Transactions

6.) Earnings Per Share and Capital Transactions:

Earnings per share is computed by dividing net income available to common shareholders by the weighted average number of shares of common outstanding stock, net of any treasury shares, during the period. Diluted earnings per share is calculated by dividing net income available to common shareholders by the weighted average number of shares of common stock outstanding, net of any treasury shares, after consideration of the potential dilutive effect of common stock equivalents, based upon the treasury stock method using an average market price for the period. The common stock equivalents are comprised of the restricted share awards.

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2018		2017		2018		2017
Net income (amounts in thousands)	$	3,302	$	1,182	$	4,839	$	2,182
Weighted average common shares outstanding		4,369,792		4,411,102		4,381,540		4,408,886
Net effect of dilutive common share equivalents		4,010		3,051		6,128		3,757
Adjusted average shares outstanding-dilutive		4,373,802		4,414,153		4,387,668		4,412,643
Basic earnings per share	$	0.75	$	0.26	$	1.10	$	0.49
Diluted earnings per share	$	0.75	$	0.26	$	1.10	$	0.49

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Subordinated Debt

6 Months Ended

Jun. 30, 2018

Debt Disclosure [Abstract]

Subordinated Debt

7.) Subordinated Debt:

In July 2007, a trust formed by the Company issued $5.0 million of floating rate trust preferred securities as part of a pooled offering of such securities due December 2037. The Company owns all $155,000 of the common securities issued by the trust. The securities bear interest at the 3-month LIBOR rate plus 1.45%. The rates at June 30, 2018 and December 31, 2017 were 3.79% and 3.04%, respectively. The Company issued subordinated debentures to the trust in exchange for the proceeds of the trust preferred offering. The debentures represent the sole assets of this trust. The Company may redeem the subordinated debentures, in whole or in part, at par.

The trust is not consolidated with the Company’s financial statements. Accordingly, the Company does not report the securities issued by the trust as liabilities, but instead reports as liabilities the subordinated debentures issued by the Company and held by the trust. The subordinated debentures qualify as Tier 1 capital for regulatory purposes in determining and evaluating the Company’s capital adequacy.

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Commitments

6 Months Ended

Jun. 30, 2018

Commitments And Contingencies Disclosure [Abstract]

Commitments

8.) Commitments:

The Bank is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit, standby letters of credit and financial guarantees. Such instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized on the Consolidated Balance Sheets. The contract or notional amounts on those instruments reflect the extent of involvement the Company has in particular classes of financial instruments.

In the event of nonperformance by the other party, the Company’s exposure to credit loss on these financial instruments is represented by the contract or notional amount of the instrument. The Company uses the same credit policies in making commitments and conditional obligations as it does for instruments recorded on the balance sheet. The amount and nature of collateral obtained, if any, is based on management’s credit evaluation.

The following table is a summary of such contractual commitments:

	(Amounts in thousands)
	June 30, 2018		December 31, 2017
Commitments to extend credit:
Fixed rate	$	34,156	$	32,749
Variable rate		64,011		60,508
Standby letters of credit		3,775		3,600

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Generally, these financial arrangements have fixed expiration dates or other termination clauses and may require payment of a fee. Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on management’s credit evaluation of the counterparty. Collateral held varies but may include accounts receivable, inventory, property, plant and equipment and income-producing commercial properties. The increase in commitments is in line with the Company’s increased focus on commercial and industrial lending, and specifically lines of credit.

The Company also offers limited overdraft protection as a non-contractual courtesy which is available to businesses as well as individually/jointly owned accounts in good standing for personal or household use. The Company reserves the right to discontinue this service without prior notice.

The following table is a summary of overdraft protection for the periods indicated:

	(Amounts in thousands)
	June 30, 2018			December 31, 2017
Overdraft protection available on depositors' accounts	$	9,006		$	9,637
Balance of overdrafts included in loans		81			103
Average daily balance of overdrafts		99			115
Average daily balance of overdrafts as a percentage of available		1.10	%		1.19	%

Customer Derivatives - Interest Rate Swaps/Floors – The Company enters into interest rate swaps that allow our commercial loan customers to effectively convert a variable-rate commercial loan agreement to a fixed-rate commercial loan agreement. Under these agreements, the Company enters into a variable-rate loan agreement with a customer in addition to an interest rate swap agreement, which serves to effectively swap the customer’s variable-rate into a fixed-rate. The Company then enters into a corresponding swap agreement with a third party in order to economically hedge its exposure through the customer agreement. The interest rate swaps with both the customers and third party are not designated as hedges under FASB ASC 815 and are marked to market through earnings. As the interest rate swaps are structured to offset each other, changes to the underlying benchmark interest rates considered in the valuation of these instruments do not result in an impact to earnings; however, there may be fair value adjustments related to credit quality variations between counterparties, which may impact earnings as required by FASB ASC 820. There was no effect on earnings in any periods presented. At June 30, 2018, based on the contract values, it was not necessary for any collateral to be pledged on the interest rate swap, compared to December 31, 2017 where the Company had one U.S. Government-sponsored mortgage-backed security pledged for collateral on its interest rate swaps with the third party financial institution at a fair value of $1.4 million.

Summary information regarding these derivatives is presented below:

	(Amounts in thousands)
	Notional Amount						Fair Value
	June 30, 2018		December 31, 2017		Interest Rate Paid	Interest Rate Received	June 30, 2018			December 31, 2017
Customer interest rate swap
Maturing in 2020	$	2,457	$	2,504	1 Mo. Libor + Margin	Fixed	$	47		$	(16	)
Maturing in 2025		5,111		5,288	1 Mo. Libor + Margin	Fixed		98			36
Maturing in 2026		2,005		2,064	1 Mo. Libor + Margin	Fixed		98			(44	)
Maturing in 2027		13,995		14,197	1 Mo. Libor + Margin	Fixed		299			209
Maturing in 2028		1,176		—	1 Mo. Libor + Margin	Fixed		(39	)		—
Total	$	24,744	$	24,053			$	503		$	185
Third party interest rate swap
Maturing in 2020	$	2,457	$	2,504	Fixed	1 Mo. Libor + Margin	$	(47	)	$	16
Maturing in 2025		5,111		5,288	Fixed	1 Mo. Libor + Margin		(98	)		(36	)
Maturing in 2026		2,005		2,064	Fixed	1 Mo. Libor + Margin		(98	)		44
Maturing in 2027		13,995		14,197	Fixed	1 Mo. Libor + Margin		(299	)		(209	)
Maturing in 2028		1,176		—	Fixed	1 Mo. Libor + Margin		39			—
Total	$	24,744	$	24,053			$	(503	)	$	(185	)

The following table presents the fair values of derivative instruments in the balance sheet:

	(Amounts in thousands)
	Assets			Liabilities
	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
June 30, 2018
Interest rate derivatives	Other assets	$	503	Other liabilities	$	503
December 31, 2017
Interest rate derivatives	Other assets	$	185	Other liabilities	$	185

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Fair Value of Assets and Liabilities

6 Months Ended

Jun. 30, 2018

Fair Value Disclosures [Abstract]

Fair Value of Assets and Liabilities

9.) Fair Value of Assets and Liabilities:

Measurements

The Company groups assets and liabilities recorded at fair value into three levels based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. A financial instrument’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement (with level 1 considered highest and level 3 considered lowest). A brief description of each level follows:

Level 1: Quoted prices are available in active markets for identical assets or liabilities as of the reported date.

Level 2: 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 which trade less frequently, and items that are fair valued using other financial instruments, the parameters of which can be directly observed.

Level 3: 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 inputs into the determination of fair value require significant management judgment or estimation.

The following table presents the assets reported on the consolidated balance sheets, on a recurring basis, at their fair value as of June 30, 2018 and December 31, 2017 by level within the fair value hierarchy. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

	(Amounts in thousands)
			Fair Value Measurements at June 30, 2018 Using
Description	June 30, 2018		Level 1		Level 2		Level 3
ASSETS
U.S. Government agencies and corporations	$	8,952	$	—	$	8,952	$	—
Obligations of states and political subdivisions		51,781		—		51,781		—
U.S. Government-sponsored mortgage-backed securities		59,458		—		59,458		—
U.S. Government-sponsored collateralized mortgage obligations		12,883		—		12,883		—
U.S. Government-guaranteed small business administration pools		8,464		—		8,464		—
Loans held for sale		2,524		2,524		—		—
Interest rate derivatives		503		—		503		—
LIABILITIES
Interest rate derivatives	$	503	$	—	$	503	$	—

	(Amounts in thousands)
			Fair Value Measurements at December 31, 2017 Using
Description	December 31, 2017		Level 1		Level 2		Level 3
ASSETS
U.S. Government agencies and corporations	$	3,205	$	—	$	3,205	$	—
Obligations of states and political subdivisions		72,116		—		72,116		—
U.S. Government-sponsored mortgage-backed securities		67,668		—		67,668		—
U.S. Government-sponsored collateralized mortgage obligations		6,302		—		6,302		—
U.S. Government-guaranteed small business administration pools		9,655		—		9,655		—
Trust preferred securities		895		—		—		895
Loans held for sale		2,780		2,780		—		—
Interest rate derivatives		185		—		185		—
LIABILITIES
Interest rate derivatives	$	185	$	—	$	185	$	—

The following tables present the changes in the Level 3 fair value category for the three and six months ended June 30, 2018 and 2017. The Company classifies financial instruments in Level 3 of the fair-value hierarchy when there is reliance on at least one significant unobservable input to the valuation model. In addition to these unobservable inputs, the valuation models for Level 3 financial instruments typically also rely on a number of inputs that are readily observable either directly or indirectly.

	(Amounts in thousands)
	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2018			2017			2018			2017
	Trust preferred securities			Trust preferred securities			Trust preferred securities			Trust preferred securities
Beginning balance	$	1,090		$	827		$	895		$	825
Net realized/unrealized losses included in:
Noninterest income		—			—			—			—
Other comprehensive income (loss)		528			(10	)		723			(7	)
Discount accretion (premium amortization)		—			—			—			—
Sales		(1,618	)		—			(1,618	)		—
Purchases, issuance, and settlements		—			—			—			(1	)
Ending balance	$	—		$	817		$	—		$	817
Losses included in net income for the period relating to assets held at    period end	$	—		$	—		$	—		$	—

The Company conducts OTTI analyses on a quarterly basis. The initial indication of other-than-temporary impairment for both debt and equity securities is a decline in the fair value below the amount recorded for an investment. A decline in value that is considered to be other-than-temporary is recorded as a loss within non-interest income in the consolidated statements of income. In determining whether an impairment is other than temporary, the Company considers a number of factors, including, but not limited to, the length of time and extent to which the market value has been less than cost, recent events specific to the issuer, including investment downgrades by rating agencies and economic conditions of its industry, and a determination that the Company does not intend to sell those investments and it is not more-likely-than-not that the Company will be required to sell the investments before recovery of its amortized cost basis less any current period credit loss. Among the factors that are considered in determining the Company’s intent and ability is a review of its capital adequacy, interest rate risk position and liquidity.

The Company also considers the issuer’s financial condition, capital strength and near-term prospects. In addition, for debt securities the Company considers the cause of the price decline (general level of interest rates and industry- and issuer-specific factors), current ability to make future payments in a timely manner and the issuer’s ability to service debt, the assessment of a security’s ability to recover any decline in market value, the ability of the issuer to meet contractual obligations and the Company’s intent and ability to retain the security. All of the foregoing require considerable judgment.

Trust Preferred Securities

Trust preferred securities, which are accounted for under FASB ASC Topic 325 Investments Other, were held in the investment portfolio until early June 2018. The Company evaluated current available information in estimating the future cash flows of securities and determined whether there had been favorable or adverse changes in estimated cash flows from the cash flows previously projected. The Company considered the structure and term of the pool and the financial condition of the underlying issuers. Specifically, the evaluation incorporated factors such as interest rates and appropriate risk premiums, the timing and amount of interest and principal payments and the allocation of payments to the various note classes. Estimates of cash flows were based on the most recent trustee reports, announcements of deferrals or defaults, expected future default rates and other relevant market information.

The following table details the breakdown of trust preferred securities for the periods indicated:

	(Dollar amounts in thousands)
	June 30, 2018		December 31, 2017
Total number of trust preferred securities		—		2
Par value	$	—	$	1,939
Number not considered OTTI		—		1
Par value	$	—	$	903
Number considered OTTI		—		1
Par value	$	—	$	1,036
Life-to-date impairment recognized in earnings	$	—	$	140
Life-to-date impairment recognized in other comprehensive income		—		723
Total life-to-date impairment	$	—	$	863

The following table details the one debt security with other-than-temporary impairment, its credit ratings at June 30, 2017 and the related losses recognized in earnings:

		(Amounts in thousands)
	Moody’s/Fitch Rating	Amount of OTTI related to credit loss at January 1, 2017		Additions in QTD March 31, 2017		Additions in QTD June 30, 2017		Amount of OTTI related to credit loss at June 30, 2017
Trapeza IX B-1	Caa2/CC	$	140	$	—	$	—	$	140
Total		$	140	$	—	$	—	$	140

The following table provides additional information related to the Company’s trust preferred securities as of December 31, 2017 used to evaluate other-than-temporary impairments:

	(Amounts in thousands)
Deal	Class	Amortized Cost		FairValue		Unrealized Gain/(Loss)			Moody’s/ Fitch Rating	Number of Issuers Currently Performing		Deferrals and Defaults as a % of Current Collateral			Excess Subordination asa % of Current Performing Collateral
PreTSL XXIII	C-2	$	758	$	336	$	(422	)	Ba1/CCC		90		20.9	%		7.12	%
Trapeza IX	B-1		860		559		(301	)	Caa2/CC		30	14				—
Total		$	1,618	$	895	$	(723	)

The market for these securities at December 31, 2017 was not active and markets for similar securities are also not active. The inactivity was evidenced first by a significant widening of the bid-ask spread in the brokered markets in which trust preferred securities trade and then by a significant decrease in the volume of trades relative to historical levels. The new issue market is also inactive as new issuance is essentially nonexistent. There are currently very few market participants who are willing and/or able to transact for these securities. The pooled market value for these securities remains very depressed relative to historical levels. Although there has been marked improvement in the credit spread premium in the corporate bond space, only modest improvement has been noted in the market for trust preferred securities.

Given conditions in the debt markets and the absence of observable transactions in the secondary and the new issue markets, the Company determined the following:

● The few observable transactions and market quotations that are available are not reliable for purposes of determining fair value at December 31, 2017;

● An income valuation approach technique (present value technique) that maximizes the use of relevant observable inputs and minimizes the use of unobservable inputs will be equally or more representative of fair value than the market approach valuation technique used at measurement dates prior to 2008; and

● The trust preferred securities will be classified within Level 3 of the fair value hierarchy because the Company determined that significant judgments are required to determine fair value at the measurement date.

The Company enlisted the aid of an independent third party to perform the trust preferred security valuations. The approach to determining fair value involved the following process:

1. Estimate the credit quality of the collateral using average probability of default values for each issuer (adjusted for rating levels).

2. Consider the potential for correlation among issuers within the same industry for default probabilities (e.g. banks with other banks).

3. Forecast the cash flows for the underlying collateral and apply to each trust preferred security tranche to determine the resulting distribution among the securities, including prepayment and cures.

4. Discount the expected cash flows to calculate the present value of the security.

Financial Instruments

The Company discloses fair value information about financial instruments, whether or not recognized in the consolidated balance sheets, for which it is practicable to estimate the value. In cases where quoted market prices are not available, fair values are based on estimates using present value or other estimation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows.

Such techniques and assumptions, as they apply to individual categories of the financial instruments, are as follows:

Cash and cash equivalents – The carrying amounts for cash and cash equivalents are a reasonable estimate of those assets’ fair value.

Investment securities available-for-sale– Fair values of securities are based on quoted market prices, where available. If quoted market prices are not available, fair values are based on quoted market prices of comparable securities. Prices on trust preferred securities were calculated using a discounted cash-flow technique. Cash flows were estimated based on credit and prepayment assumptions. The present value of the projected cash flows was calculated using a discount rate equal to the current yield used to accrete the beneficial interest.

Loans held for sale – Loans held for sale consist of residential mortgage loans originated for sale. Loans held for sale are recorded at fair value based on what the secondary markets have offered on best efforts commitments.

Loans, net – Market quotations are generally not available for loan portfolios. In accordance with the prospective adoption of ASU No. 2016-01, the fair value of loans as of June 30, 2018 was measured using an exit price notion, which incorporates adjustments to the discount rate for alternate cost of funds, liquidity premiums and capital and serving charges. The fair value of loans as of December 31, 2017 was measured by discounting future cash flows using current market inputs at which loans with similar terms and qualities would be made to borrowers of similar credit quality.

Bank-owned life insurance – The fair value is based upon the cash surrender value of the underlying policies net of any split dollar obligation and matches the book value.

Accrued interest receivable – The carrying amount is a reasonable estimate of these assets’ fair value.

Interest rate derivatives – The fair value is based on settlement values adjusted for credit risks associated with the counter parties and the Company and observable market interest rate curves.

Demand, savings and money market deposits – Demand, savings, and money market deposit accounts are valued at the amount payable on demand.

Time deposits – The fair value of certificates of deposit is based on the discounted value of contractual cash flows. The discount rates are estimated using market rates currently offered for similar instruments with similar remaining maturities.

Short term borrowings – Short term borrowings generally have an original term to maturity of one year or less. Consequently, their carrying value is a reasonable estimate of fair value.

FHLB advances - short term – Short term borrowings generally have an original term to maturity of one year or less. Advances of one month or less are considered to be at fair value. The fair value of notes with one to twelve month terms is based on the discounted value of contractual cash flows. The discount rates are estimated using market rates currently offered for similar instruments with similar remaining maturities.

FHLB advances - long term – The fair value for fixed rate advances is estimated by discounting the future cash flows using rates at which advances would be made to borrowers with similar credit ratings and for the same remaining maturities. The fair value for the fixed rate advances that are convertible to quarterly LIBOR floating rate advances on or after certain specified dates at the option of the FHLB and the FHLB fixed rate advances that are putable on or after certain specified dates at the option of the FHLB are priced using the FHLB of Cincinnati’s model.

Subordinated debt – The floating issuances curves to maturity are averaged to obtain an index. The spread between BBB-rated bank debt and 25-year swap rates is determined to calculate the spread on outstanding trust preferred securities. The discount margin is then added to the index to arrive at a discount rate, which determines the present value of projected cash flows.

Accrued interest payable – The carrying amount is a reasonable estimate of these liabilities’ fair value. The fair value of unrecorded commitments at June 30, 2018 and December 31, 2017 is not material.

In addition, other assets and liabilities of the Company that are not defined as financial instruments are not included in the disclosures, such as property and equipment. Also, non-financial instruments typically not recognized in financial statements nevertheless may have value but are not included in the above disclosures. These include, among other items, the estimated earning power of core deposit accounts, the trained work force, customer goodwill and similar items. Accordingly, the aggregate fair value amounts presented do not represent the underlying value of the Company.

The carrying amounts and fair values of the Company’s financial instruments are as follows:

	(Amounts in thousands)
	June 30, 2018
	Carrying Amount		Level 1		Level 2		Level 3		Fair Value
ASSETS:
Cash and cash equivalents	$	10,977	$	10,977	$	—	$	—	$	10,977
Investment securities available-for-sale		141,538		—		141,538		—		141,538
Loans held for sale		2,524		2,524		—		—		2,524
Loans		462,353		—		—		466,098		466,098
Bank-owned life insurance		15,550		15,550		—		—		15,550
Accrued interest receivable		2,137		2,137		—		—		2,137
Interest rate derivatives		503		—		503		—		503
LIABILITIES:
Demand, savings and money market deposits	$	439,229	$	439,229	$	—	$	—	$	439,229
Time deposits		118,594		—		—		119,579		119,579
Short term borrowings		1,609		1,609		—		—		1,609
Federal Home Loan Bank advances - short term		11,000		—		—		10,980		10,980
Federal Home Loan Bank advances - long term		16,000		—		—		15,799		15,799
Subordinated debt		5,155		—		—		4,723		4,723
Accrued interest payable		302		302		—		—		302
Interest rate derivatives		503		—		503		—		503

	(Amounts in thousands)
	December 31, 2017
	Carrying Amount		Level 1		Level 2		Level 3		Fair Value
ASSETS:
Cash and cash equivalents	$	19,125	$	19,125	$	—	$	—	$	19,125
Investment securities available-for-sale		159,841		—		158,946		895		159,841
Loans held for sale		2,780		2,780		—		—		2,780
Loans		482,912		—		—		486,230		486,230
Bank-owned life insurance		17,650		17,650		—		—		17,650
Accrued interest receivable		2,193		2,193		—		—		2,193
Interest rate derivatives		185		—		185		—		185
LIABILITIES:
Demand, savings and money market deposits	$	458,562	$	458,562	$	—	$	—	$	458,562
Time deposits		127,289		—		—		128,624		128,624
Short term borrowings		2,678		2,678		—		—		2,678
Federal Home Loan Bank advances - short term		32,000		—		—		31,982		31,982
Federal Home Loan Bank advances - long term		14,000		—		—		13,880		13,880
Subordinated debt		5,155		—		—		4,785		4,785
Accrued interest payable		325		325		—		—		325
Interest rate derivatives		185		—		185		—		185

The following table presents quantitative information about the Level 3 significant unobservable inputs for assets and liabilities measured at fair value on a recurring and nonrecurring basis at December 31, 2017:

	(Amounts in thousands)
	Fair value at December 31, 2017		Valuation Technique	Significant Unobservable Input	Description of Inputs
Trust preferred securities	$	895	Discounted Cash Flow	Projected Prepayments	1) Trust preferred securities issued by banks subject to Dodd-Frank's phase-out of trust preferred securities from Tier 1 Capital.  All fixed rate within one year; variable rate at increasing intervals depending on spread. 2) Trust preferred securities issued by healthy, well capitalized banks that have fixed rate coupons greater than 8%. 3) 1% annually for all other fixed rate issues and all variable rate issues. 4) Zero for collateral issued by REITs and 2% for insurance companies.
				Projected Defaults	1) All deferring issuers that do not meet the criteria for curing, as described below, are  projected to default immediately. 2) Banks with high, near team  default risk are identified using a CAMELS model and projected to default immediately.  Healthy banks are projected to default at a rate of 2% annually for 2 years, and 0.36% annually thereafter. 3) Insurance and REIT defaults are projected according to the historical default rates exhibited by companies with the same credit ratings. Historical default rates are doubled in each of the first two years of the projection to account for current economic conditions. Unrated issuers are assumed to have CCC- ratings.
				Projected Cures	1) Deferring issuers that have definitive agreements to either be acquired or  recapitalized.
				Projected Recoveries	1) Zero for insurance companies, REITs and insolvent banks, and 10% for projected bank deferrals lagged 2 years.
				Discount Rates	1) Ranging from ~9.10% to ~14.74%, depending on each bond's seniority and remaining subordination after projected losses.
Impaired loans		4,891	Cash Flow	Discount Rates	Range 4.50% to 5.38% Weighted average 4.88%

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Accumulated Other Comprehensive Loss

6 Months Ended

Jun. 30, 2018

Equity [Abstract]

Accumulated Other Comprehensive Loss

10.) Accumulated Other Comprehensive Loss:

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

	(Amounts in thousands)
	Three Months Ended												Six Months Ended
	June 30,												June 30,
	2018						2017						2018						2017
	Unrealized losses on available- for-sale securities (a)			Change in pension and postretirement obligations (a)			Unrealized gains (losses) on available- for-sale securities (a)			Change in pension and postretirement obligations (a)			Unrealized gains (losses) on available- for-sale securities (a)			Change in pension and postretirement obligations (a)			Unrealized gains (losses) on available- for-sale securities (a)			Change in pension and postretirement obligations (a)
Beginning balance	$	(4,144	)	$	(46	)	$	(2,905	)	$	(57	)	$	(1,787	)	$	(38	)	$	(2,909	)	$	(52	)
Other comprehensive income (loss)    before reclassification		(67	)		111			1,024			(6	)		(2,408	)		103			1,034			(11	)
Amount reclassified from    accumulated other    comprehensive income (loss)		33			—			(14	)		—			17			—			(20	)		—
Total other comprehensive    income (loss)		(34	)		111			1,010			(6	)		(2,391	)		103			1,014			(11	)
Ending balance	$	(4,178	)	$	65		$	(1,895	)	$	(63	)	$	(4,178	)	$	65		$	(1,895	)	$	(63	)

(a) All amounts are net of tax. Amounts in parentheses indicate debits.

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

	(Amounts in thousands)
	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2018			2017			2018			2017
	Amount reclassified from accumulated other comprehensive loss (a)			Amount reclassified from accumulated other comprehensive income (a)			Amount reclassified from accumulated other comprehensive loss (a)			Amount reclassified from accumulated other comprehensive income (a)			Affected line item in the statement where net income is presented
Details about other comprehensive    income or loss:
Unrealized gains (losses) on available-    for-sale securities	$	(41	)	$	22		$	(21	)	$	31		Investment securities available-for- sale gains (losses), net
		8			(8	)		4			(11	)	Federal income tax expense
	$	(33	)	$	14		$	(17	)	$	20		Net of tax

(a) Amounts in parentheses indicate debits to net income.

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Post-Retirement Obligations

6 Months Ended

Jun. 30, 2018

Compensation And Retirement Disclosure [Abstract]

Post-Retirement Obligations

11.) Post-Retirement Obligations:

The Company accrues for the monthly benefit expense of post-retirement cost of insurance for split dollar life insurance coverage. The following table presents the changes in the accumulated liability:

	(Amounts in thousands)
	Three Months Ended					Six Months Ended
	June 30,					June 30,
	2018			2017		2018			2017
Beginning balance	$	890		$	858	$	876		$	840
Expense recorded		5			13		11			26
Other comprehensive (income) loss recorded		(111	)		6		(103	)		11
Ending balance	$	784		$	877	$	784		$	877

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Stock Repurchase Program

6 Months Ended

Jun. 30, 2018

Stock Repurchase Program [Abstract]

Stock Repurchase Program

12.) Stock Repurchase Program:

On January 24, 2017, the Company’s Board of Directors approved a program which allowed the Company to repurchase up to 100,000 shares, or approximately 2.3% of the 4,420,055 shares outstanding at January 24, 2017, of the Company’s outstanding common stock. This program terminated on December 31, 2017. The Company purchased 12,863 shares under this program. On January 23, 2018, the Company’s Board of Directors approved a new program which allowed the Company to repurchase up to 100,000 shares, or approximately 2.3% of the 4,420,136 shares outstanding at January 23, 2018, of the Company’s outstanding common stock. This program will terminate on December 31, 2018 or upon purchase of 100,000 shares if earlier or at any time without prior notice.  On May 22, 2018 the Company’s Board of Directors approved an increase in the number of shares authorized for repurchase under the January 23, 2018 plan by 200,000 shares bringing the total to 300,000 shares authorized with 231,512 total remaining shares which was approximately 5.3% of the Company’s outstanding shares. The Company purchased 68,488 shares under this program to date. Repurchased shares are designated as treasury shares, available for general corporate purposes, including possible use in connection with the Company’s dividend reinvestment program, employee benefit plans, acquisitions or other distributions. Based on the value of the Company’s stock on June 30, 2018, the remaining authorization to repurchase the stock for the program is approximately $5.6 million.

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Short-Term Borrowings

6 Months Ended

Jun. 30, 2018

Debt Disclosure [Abstract]

Short-Term Borrowings

13.) Short-Term Borrowings:

The following table provides additional detail regarding short-term borrowings:

	(Amounts in thousands)
	Repurchase Agreements (Sweep)
	Accounted for as Secured Borrowings
	At June 30, 2018		At December 31, 2017
	Remaining Contractual Maturity of the Agreements
	Overnight and Continuous		Overnight and Continuous
Repurchase agreements:
U.S. Government-sponsored mortgage-backed securities	$	3,207	$	3,414
Total collateral carrying value	$	3,207	$	3,414
Total short-term borrowings	$	1,609	$	2,678

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Equity Compensation

6 Months Ended

Jun. 30, 2018

Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]

Equity Compensation

14.) Equity Compensation:

During 2015, the Company, created the 2015 Omnibus Equity Plan and The Director Equity Plan.

The Omnibus Equity Plan permits the award of up to 340,000 shares to the Company’s employees to promote the long-term financial success of the Company, increasing shareholder value by providing employees the opportunity to acquire an ownership interest in the Company and enabling the Company and its related entities to attract and retain the services of those upon whom the successful conduct of business depends. In the first half of 2018 12,593 shares were granted to employees under the plan, compared to 12,976 shares being granted under the plan in March 2017. The Company is expensing the grant date fair value of all share-based compensation over the requisite vesting periods on a prorated straight-line basis.  In the first six months of 2018 and 2017 compensation expense of $86,000 and $53,000, respectively, was recorded in the Consolidated Statements of Income. In the second quarter of 2018 and 2017 compensation expense of $52,000 and $35,000, respectively, was recorded in the Consolidated Statements of Income. As of June 30, 2018, there was $444,000 of total unrecognized compensation expense related to the non-vested shares granted under the Plan. Shares awarded under this plan vest in equal thirds on the first three anniversaries of the award date if the employee remains employed with Cortland Bancorp. The remaining cost is expected to be recognized over a weighted average period of 23.0 months.

Granted shares are awarded upon meeting achievement of performance objectives derived from one or more of the performance criteria. The main metrics used for the periods presented were three-year earnings per share growth and three-year total shareholder return ranked versus a peer group.

The Director Equity Plan permits the award of up to 113,000 shares to nonemployee directors to promote the long-term financial success of the Company, increasing shareholder value by enabling the Company and its related entities to attract and retain the services of those directors upon whom the successful conduct of business depends.  There were 989 shares of Board approved shares granted in the first half of 2018, compared to 1,656 Board approved shares granted under the plan in March 2017. Both of these grants each had immediate vesting. In the first six months of 2017, expense of $30,000 was recorded in the Consolidated Statements of Income, and $22,000 was recorded in the second quarter of 2018.

The following is the activity under the two plans during the six months ended June 30, 2018:

	Shares			Weighted Average Grant Date Fair Value
Nonvested at January 1, 2018		20,814		$	17.02
Granted		12,593			22.01
Vested		(8,359	)		16.71
Forfeited		—			—
Nonvested at June 30, 2018		25,048		$	19.63

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Authoritative Accounting Guidance (Policies)

6 Months Ended

Jun. 30, 2018

New Accounting Pronouncements And Changes In Accounting Principles [Abstract]

Authoritative Accounting Guidance

2.) Authoritative Accounting Guidance:

In January 2016, the FASB issued ASU (Accounting Standard Update) 2016-01, Financial Instruments – Overall (Subtopic 825-10):  Recognition and Measurement of Financial Assets and Financial Liabilities.  This Update applies to all entities that hold financial assets or owe financial liabilities and is intended to provide more useful information on the recognition, measurement, presentation, and disclosure of financial instruments.  Among other things, this Update (a) requires equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income; (b) simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment; (c) eliminates the requirement to disclose the fair value of financial instruments measured at amortized cost for entities that are not public business entities; (d) eliminates the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet; (e) requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; (f) requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (that is, securities or loans and receivables) on the balance sheet or the accompanying notes to the financial statements; and (g) clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets.  

The Company’s adoption of this standard during the reporting period had no effect on the Consolidated Financial Statements. On a prospective basis, the Company implemented changes to the measurement of the fair value of financial instruments using an exit price notion for disclosure purposes included in Note 9 to the financial statements. The December 31, 2017, fair value of each class of financial instruments disclosure did not utilize the exit price notion when measuring fair value and, therefore, would not be comparable to the June 30, 2018 disclosure.

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

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), 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. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations. 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 August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230):  Classification of Certain Cash Receipts and Cash Payments (“ASU 2016-15”), which addresses eight specific cash flow issues with the objective of reducing diversity in practice.  Among these include recognizing cash payments for debt prepayment or debt extinguishment as cash outflows for financing activities; cash proceeds received from the settlement of insurance claims should be classified on the basis of the related insurance coverage; and cash proceeds received from the settlement of bank-owned life insurance policies should be classified as cash inflows from investing activities while the cash payments for premiums on bank-owned policies may be classified as cash outflows for investing activities, operating activities, or a combination of investing and operating activities.  The amendments in this Update are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. Early adoption is permitted, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. An entity that elects early adoption must adopt all of the amendments in the same period. The amendments in this Update should be applied using a retrospective transition method to each period presented. If it is impracticable to apply the amendments retrospectively for some of the issues, the amendments for those issues would be applied prospectively as of the earliest date practicable. The Company has adopted the standard. See the Company’s Consolidated Statements of Cash Flows.

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

In May 2017, the FASB issued ASU 2017-09, Compensation – Stock Compensation (Topic 718), which affects any entity that changes the terms or conditions of a share-based payment award.  This Update amends the definition of modification by qualifying that modification accounting does not apply to changes to outstanding share-based payment awards that do not affect the total fair value, vesting requirements, or equity/liability classification of the awards.  The amendments in this Update are effective for all entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted, including adoption in any interim period, for (1) public business entities for reporting periods for which financial statements have not yet been issued and (2) all other entities for reporting periods for which financial statements have not yet been made available for issuance. The amendments in this Update should be applied prospectively to an award modified on or after the adoption date. The Company has adopted this standard and has no significant impact on the Company’s financial statements.

In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 850), the objective of which is to improve the financial reporting of hedging relationships to better portray the economic results of an entity’s risk management activities in its financial statements. In addition, the amendments in this Update make certain targeted improvements to simplify the application and disclosure of the hedge accounting guidance in current general accepted accounting principles. For public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2019, and interim periods beginning after December 15, 2020. Early application is permitted in any period after issuance. For cash flow and net investment hedges existing at the date of adoption, an entity should apply a cumulative-effect adjustment related to eliminating the separate measurement of ineffectiveness to accumulated other comprehensive income with a corresponding adjustment to the opening balance of retained earnings as of the beginning of the fiscal year that an entity adopts the amendments in this Update. The amended presentation and disclosure guidance is required only prospectively. This Update is not expected to have a significant impact on the Company’s financial statements.

In January 2018, the FASB issued ASU 2018-01, Leases (Topic 842), which provides an optional transition practical expedient to not evaluate under Topic 842 existing or expired land easements that were not previously accounted for as leases under the current lease guidance in Topic 840.  An entity that elects this practical expedient should evaluate new or modified land easements under Topic 842 beginning at the date the entity adopts Topic 842; otherwise, an entity should evaluate all existing or expired land easements in connection with the adoption of the new lease requirements in Topic 842 to assess whether they meet the definition of a lease.  The effective date and transition requirements for the amendments are the same as the effective date and transition requirements in ASU 2016-02.  This Update is not expected to have a significant impact on the Company’s financial statements.

In February 2018, the FASB issued ASU 2018-02, Income Statement – Reporting Comprehensive Income (Topic 220).  On December 22, 2017, the U.S. federal government enacted a tax bill, H.R.1, An Act to Provide for Reconciliation Pursuant to Titles II and V of the Concurrent Resolution on the Budget for Fiscal Year 2018 (Tax Cuts and Jobs Act), which requires deferred tax liabilities and assets to be adjusted for the effect of a change in tax laws.  The amendments in this Update allow a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act.  The amendments in this Update are effective for all entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption of the amendments in this Update is permitted.  The amendments in this Update should be applied either in the period of adoption or retrospectively to each period (or periods) in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Cuts and Jobs Act is recognized.  The Company has elected to early adopt this standard as of December 31, 2017, which resulted in a one-time cumulative effect adjustment of $294,000 between retained earnings and accumulated other comprehensive loss on the Consolidated Balance Sheets.  The adjustment had no impact on net income or any prior periods presented.

In June 2018, the FASB issued ASU 2018-07, Compensation – Stock Compensation (Topic 718), which simplified the accounting for nonemployee share-based payment transactions.  The amendments in this update expand the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees.  The amendments in this Update improve the following areas of nonemployee share-based payment accounting; (a) the overall measurement objective, (b) the measurement date, (c) awards with performance conditions, (d) classification reassessment of certain equity-classified awards, (e) calculated value (nonpublic entities only), and (f) intrinsic value (nonpublic entities only).  The amendments in this Update are effective for public business entities for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. This Update is not expected to have a significant impact on the Company’s financial statements.

ASU 2018-10, Codification Improvements to Topic 842, Leases, represents changes to clarify, correct errors in, or make minor improvements to the Codification. The amendments in this ASU affect the amendments in ASU 2016-02, which are not yet effective, but for which early adoption upon issuance is permitted. For entities that early adopted Topic 842, the amendments are effective upon issuance of this ASU, and the transition requirements are the same as those in Topic 842. For entities that have not adopted Topic 842, the effective date and transition requirements will be the same as the effective date and transition requirements in Topic 842. This Update is not expected to have a significant impact on the Company’s financial statements.

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Basis of Presentation and Reclassifications (Tables)

6 Months Ended

Jun. 30, 2018

Organization Consolidation And Presentation Of Financial Statements [Abstract]

Disaggregation of Revenue Derived From Contracts with Customers

The following table depicts the disaggregation of revenue derived from contracts with customers to depict the nature, amount, timing, and uncertainty of revenue and cash flows.

	(Amounts in thousands)
	Three Months Ended		Six Months Ended
	June 30, 2018
Revenue stream
Service charges on deposit accounts:
Overdraft fees	$	269	$	525
Service charges		100		199
Other fees		6		9
Fees, exchange, and other service charges		209		406
Non-interest income (in-scope of Topic 606)		584		1,139
Non-interest income (out-of-scope of Topic 606)		1,993		2,450
Total non-interest income	$	2,577	$	3,589

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Investment Securities (Tables)

6 Months Ended

Jun. 30, 2018

Investments Debt And Equity Securities [Abstract]

Summary of Investment Securities Available-for-Sale and Regulatory Stock

The following table is a summary of investment securities available-for-sale and regulatory stock:

	(Amounts in thousands)
June 30, 2018	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
U.S. Government agencies and corporations	$	9,235	$	—	$	283	$	8,952
Obligations of states and political subdivisions		53,452		19		1,690		51,781
U.S. Government-sponsored mortgage-backed securities		62,175		—		2,717		59,458
U.S. Government-sponsored collateralized mortgage obligations		13,119		—		236		12,883
U.S. Government-guaranteed small business administration pools		8,846		—		382		8,464
Total investment securities available-for-sale	$	146,827	$	19	$	5,308	$	141,538
Federal Home Loan Bank (FHLB) stock		2,355		—		—		2,355
Federal Reserve Bank (FRB) stock		226		—		—		226
Total regulatory stock	$	2,581	$	—	$	—	$	2,581

	(Amounts in thousands)
December 31, 2017	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
U.S. Government agencies and corporations	$	3,344	$	1	$	140	$	3,205
Obligations of states and political subdivisions		71,700		740		324		72,116
U.S. Government-sponsored mortgage-backed securities		69,066		6		1,404		67,668
U.S. Government-sponsored collateralized mortgage obligations		6,463		—		161		6,302
U.S. Government-guaranteed small business administration pools		9,911		—		256		9,655
Trust preferred securities		1,618		—		723		895
Total investment securities available-for-sale	$	162,102	$	747	$	3,008	$	159,841
Federal Home Loan Bank (FHLB) stock		2,355		—		—		2,355
Federal Reserve Bank (FRB) stock		226		—		—		226
Total regulatory stock	$	2,581	$	—	$	—	$	2,581

Amortized Cost and Fair Value of Debt Securities by Contractual Maturity

The amortized cost and fair value of debt securities at June 30, 2018, by contractual maturity, are shown below. Actual maturities will differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties. 

	(Amounts in thousands)
	Amortized Cost		Fair Value
Due in one year or less	$	—	$	—
Due after one year through five years		543		553
Due after five years through ten years		12,034		11,606
Due after ten years		58,956		57,038
Total		71,533		69,197
U.S. Government-sponsored mortgage-backed and related securities		75,294		72,341
Total investment securities available-for-sale	$	146,827	$	141,538

Proceeds and Gains or Losses Realized on Available for Sale Securities Sold or Called

The table below sets forth the proceeds and gains or losses realized on available for sale securities sold or called for the periods presented:

	(Amounts in thousands)
	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2018		2017		2018		2017
Proceeds on securities sold	$	1,577	$	12,402	$	21,418	$	28,127
Gross realized gains		—		232		123		378
Gross realized losses		41		210		144		347

Fair Value of Securities with Unrealized Losses and an Aging of those Unrealized Losses

The following is a summary of the fair value of available-for-sale securities with unrealized losses and an aging of those unrealized losses at June 30, 2018:  

	(Amounts in thousands)
	Less than 12 Months				12 Months or More				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
U.S. Government agencies and corporations	$	6,195	$	40	$	2,757	$	243	$	8,952	$	283
Obligations of states and political subdivisions		31,631		869		17,746		821		49,377		1,690
U.S. Government-sponsored mortgage-backed    securities		21,594		746		37,864		1,971		59,458		2,717
U.S. Government-sponsored collateralized    mortgage obligations		—		—		5,746		236		5,746		236
U.S. Government-guaranteed small business    administration pools		—		—		8,464		382		8,464		382
Total	$	59,420	$	1,655	$	72,577	$	3,653	$	131,997	$	5,308

The above table comprises 123 investment securities where the fair value is less than the related amortized cost.

The following is a summary of the fair value of available-for-sale securities with unrealized losses and an aging of those unrealized losses at December 31, 2017:

	(Amounts in thousands)
	Less than 12 Months				12 Months or More				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
U.S. Government agencies and corporations	$	—	$	—	$	2,860	$	140	$	2,860	$	140
Obligations of states and political subdivisions		7,430		24		18,066		300		25,496		324
U.S. Government-sponsored mortgage-backed    securities		24,888		241		40,968		1,163		65,856		1,404
U.S. Government-sponsored collateralized    mortgage obligations		—		—		6,302		161		6,302		161
U.S. Government-guaranteed small business    administration pools		2,532		38		7,123		218		9,655		256
Trust preferred securities		—		—		895		723		895		723
Total	$	34,850	$	303	$	76,214	$	2,705	$	111,064	$	3,008

Other than Temporary Impairment Credit Losses Recognized in Earnings

The following provides a cumulative rollforward of credit losses recognized in earnings for trust preferred securities held.

	(Amounts in thousands)
	Three Months Ended					Six Months Ended
	June 30,					June 30,
	2018			2017		2018			2017
Beginning balance	$	140		$	140	$	140		$	140
Reduction for debt securities for which other-than-temporary    impairment has been previously recognized and there is no    related other comprehensive income		—			—		—			—
Credit losses on debt securities for which other-than-temporary    impairment has not been previously recognized		—			—		—			—
Additional credit losses on debt securities for which other-than-    temporary impairment was previously recognized		—			—		—			—
Sale of debt securities		(140	)		—		(140	)		—
Ending balance	$	—		$	140	$	—		$	140

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Loans and Allowance for Loan Losses (Tables)

6 Months Ended

Jun. 30, 2018

Receivables [Abstract]

Composition of the Loan Portfolio

The following represents the composition of the loan portfolio for the period ending:

	(Amounts in thousands)
	June 30, 2018				December 31, 2017
	Balance		%		Balance		%
Commercial	$	74,015		15.9	$	113,341		23.3
Commercial real estate		298,790		64.0		283,135		58.1
Residential real estate		64,368		13.8		62,071		12.7
Consumer - home equity		25,665		5.5		26,018		5.3
Consumer - other		3,610		0.8		2,925		0.6
Total loans	$	466,448			$	487,490

Certain Qualitative Factors Considered in Measuring Risk Trends

These factors include, but are not limited to, the following:

Factor Considered:	Risk Trend:
Levels of and trends in charge-offs, classifications and non-accruals	Stable
Trends in volume and terms	Decreasing
Changes in lending policies and procedures	Stable
Experience, depth and ability of management, including loan review function	Stable
Economic trends, including valuation of underlying collateral	Stable
Concentrations of credit	Decreasing

Factors Analyzed and Applied to Loans Internally Graded with Higher Credit Risk

The following factors are analyzed and applied to loans internally graded with higher credit risk in addition to the above factors for non-classified loans:

Factor Considered:	Risk Trend:
Levels and trends in classification	Stable
Declining trends in financial performance	Stable
Structure and lack of performance measures	Stable
Migration between risk categories	Stable

Analysis of Changes in the Allowance for Loan Losses

The following is an analysis of changes in the allowance for loan losses for the periods ended:

Three Months Ended
	(Amounts in thousands)
June 30, 2018	Commercial		Commercial real estate		Residential real estate			Consumer - home equity			Consumer - other			Total
Balance at beginning of period	$	1,334	$	2,290	$	93		$	67		$	100		$	3,884
Loan charge-offs		—		—		—			—			(27	)		(27	)
Recoveries		—		150		1			1			11			163
Net loan recoveries (charge-offs)		—		150		1			1			(16	)		136
Provision charged to operations		60		17		(14	)		(2	)		14			75
Balance at end of period	$	1,394	$	2,457	$	80		$	66		$	98		$	4,095

	(Amounts in thousands)
June 30, 2017	Commercial		Commercial real estate			Residential real estate			Consumer - home equity			Consumer - other			Total
Balance at beginning of period	$	1,246	$	3,226		$	142		$	148		$	93		$	4,855
Loan charge-offs		—		(7	)		(13	)		—			(23	)		(43	)
Recoveries		—		—			5			2			11			18
Net loan recoveries (charge-offs)		—		(7	)		(8	)		2			(12	)		(25	)
Provision charged to operations		4		94			(21	)		(90	)		13			—
Balance at end of period	$	1,250	$	3,313		$	113		$	60		$	94		$	4,830

Six Months Ended	(Amounts in thousands)
June 30, 2018	Commercial			Commercial real estate			Residential real estate			Consumer - home equity			Consumer - other			Total
Balance at beginning of period	$	1,591		$	2,702		$	117		$	70		$	98		$	4,578
Loan charge-offs		(1,163	)		—			—			—			(77	)		(1,240	)
Recoveries		—			150			1			4			27			182
Net loan recoveries (charge-offs)		(1,163	)		150			1			4			(50	)		(1,058	)
Provision charged to operations		966			(395	)		(38	)		(8	)		50			575
Balance at end of period	$	1,394		$	2,457		$	80		$	66		$	98		$	4,095

	(Amounts in thousands)
June 30, 2017	Commercial			Commercial real estate			Residential real estate			Consumer - home equity			Consumer - other			Total
Balance at beginning of period	$	1,394		$	3,072		$	163		$	150		$	89		$	4,868
Loan charge-offs		—			(100	)		(13	)		—			(67	)		(180	)
Recoveries		108			—			5			4			25			142
Net loan recoveries (charge-offs)		108			(100	)		(8	)		4			(42	)		(38	)
Provision charged to operations		(252	)		341			(42	)		(94	)		47			—
Balance at end of period	$	1,250		$	3,313		$	113		$	60		$	94		$	4,830

Allowance for Loan Losses and the Recorded Investment in Loans

The following tables present a full breakdown by portfolio classification of the allowance for loan losses and the recorded investment in loans at June 30, 2018 and December 31, 2017:

	(Amounts in thousands)
June 30, 2018	Commercial		Commercial real estate		Residential real estate		Consumer - home equity		Consumer - other		Total
Allowance for loan losses:
Ending allowance balance attributable to    loans:
Individually evaluated for impairment	$	—	$	—	$	—	$	—	$	—	$	—
Collectively evaluated for impairment		1,394		2,457		80		66		98		4,095
Total ending allowance balance	$	1,394	$	2,457	$	80	$	66	$	98	$	4,095
Loan Portfolio:
Individually evaluated for impairment	$	5,357	$	4,354	$	—	$	—	$	—	$	9,711
Collectively evaluated for impairment		68,658		294,436		64,368		25,665		3,610		456,737
Total ending loans balance	$	74,015	$	298,790	$	64,368	$	25,665	$	3,610	$	466,448

	(Amounts in thousands)
December 31, 2017	Commercial		Commercial real estate		Residential real estate		Consumer - home equity		Consumer - other		Total
Allowance for loan losses:
Ending allowance balance attributable to    loans:
Individually evaluated for impairment	$	625	$	—	$	—	$	—	$	—	$	625
Collectively evaluated for impairment		966		2,702		117		70		98		3,953
Total ending allowance balance	$	1,591	$	2,702	$	117	$	70	$	98	$	4,578
Loan Portfolio:
Individually evaluated for impairment	$	5,581	$	4,664	$	—	$	—	$	—	$	10,245
Collectively evaluated for impairment		107,760		278,471		62,071		26,018		2,925		477,245
Total ending loans balance	$	113,341	$	283,135	$	62,071	$	26,018	$	2,925	$	487,490

Summary of Credit Quality Indicators by Internally Assigned Grades

The following table is a summary of credit quality indicators by internally assigned grades as of June 30, 2018 and December 31, 2017:

	(Amounts in thousands)
	Commercial		Commercial real estate
June 30, 2018
Pass	$	54,453	$	264,440
Special Mention		8,398		29,043
Substandard		11,164		5,307
Doubtful		—		—
Ending Balance	$	74,015	$	298,790

	(Amounts in thousands)
	Commercial		Commercial real estate
December 31, 2017
Pass	$	100,436	$	252,960
Special Mention		4,836		24,307
Substandard		8,069		5,868
Doubtful		—		—
Ending Balance	$	113,341	$	283,135

Summary of Consumer Credit Exposure

The following table is a summary of consumer credit exposure as of June 30, 2018 and December 31, 2017:

	(Amounts in thousands)
	Residential real estate		Consumer-homeequity		Consumer - other
June 30, 2018
Performing	$	64,024	$	25,541	$	3,610
Nonperforming		344		124		—
Total	$	64,368	$	25,665	$	3,610

	(Amounts in thousands)
	Residential real estate		Consumer- home equity		Consumer - other
December 31, 2017
Performing	$	61,824	$	25,889	$	2,925
Nonperforming		247		129		—
Total	$	62,071	$	26,018	$	2,925

Summary of Classes of Loans on Non-Accrual Status

The following table is a summary of classes of loans on non-accrual status as of June 30, 2018 and December 31, 2017:

	(Amounts in thousands)
	June 30, 2018		December 31, 2017
Commercial	$	1,149	$	—
Commercial real estate		441		506
Residential real estate		344		247
Consumer:
Consumer - home equity		124		129
Consumer - other		—		—
Total	$	2,058	$	882

Information Related to Loans Modified in a TDR

The following presents, by class, information related to loans modified in a TDR during the period ending June 30, 2018.

	(Dollar amounts in thousands)
	Three Months Ended								Six Months Ended
	June 30, 2018								June 30, 2018
	Number of contracts		Pre-modification recorded investment		Post-modification recorded investment		Increase in the allowance		Number of contracts		Pre-modification recorded investment		Post-modification recorded investment		Increase in the allowance
Commercial		—	$	—	$	—	$	—		7	$	5,373	$	4,210	$	—
Commercial real estate		—		—		—		—		—		—		—		—
Total restructured loans		—	$	—	$	—	$	—	$	7	$	5,373	$	4,210	$	—
Subsequently defaulted		—		—						—		—

Aging Analysis of the Recorded Investment of Past Due Loans

The following table is an aging analysis of the recorded investment of past due loans as of June 30, 2018 and December 31, 2017:

	(Amounts in thousands)
	30-59 Days Past Due		60-89 Days Past Due		90 Days Or Greater		TotalPastDue		Current		Total Loans		Recorded Investment> 90 Days and Accruing
June 30, 2018
Commercial	$	24	$	142	$	1,149	$	1,315	$	72,700	$	74,015	$	—
Commercial real estate		—		194		340		534		298,256		298,790		—
Residential real estate		94		43		187		324		64,044		64,368		—
Consumer:
Consumer - home equity		97		—		27		124		25,541		25,665		—
Consumer - other		13		—		—		13		3,597		3,610		—
Total	$	228	$	379	$	1,703	$	2,310	$	464,138	$	466,448	$	—

	(Amounts in thousands)
	30-59 Days Past Due		60-89 Days Past Due		90 Days Or Greater		TotalPastDue		Current		Total Loans		Recorded Investment> 90 Days and Accruing
December 31, 2017
Commercial	$	—	$	—	$	—	$	—	$	113,341	$	113,341	$	—
Commercial real estate		173		12		390		575		282,560		283,135		—
Residential real estate		240		29		216		485		61,586		62,071		—
Consumer:
Consumer - home equity		—		82		28		110		25,908		26,018		—
Consumer - other		15		—		—		15		2,910		2,925		—
Total	$	428	$	123	$	634	$	1,185	$	486,305	$	487,490	$	—

Recorded Investment, Unpaid Principal Balances, Average Recorded Investments and Interest Recognized on Impaired Loans, Excluding Homogenous Loans for Which Impaired Analyses are Not Necessarily Performed

The following table presents the recorded investment and unpaid principal balances for impaired loans, excluding homogenous loans for which impaired analyses are not necessarily performed, with the associated allowance amount, if applicable, at June 30, 2018 and December 31, 2017. Also presented are the average recorded investments in the impaired balances and interest income recognized after impairment for the three and six months ended June 30, 2018 and 2017.

	(Amounts in thousands)
	Recorded Investment		Unpaid Principal Balance		Related Allowance
June 30, 2018
With no related allowance recorded:
Commercial	$	5,357	$	6,473	$	—
Commercial real estate		4,354		4,432		—
With an allowance recorded:
Commercial		—		—		—
Commercial real estate		—		—		—
Total:
Commercial	$	5,357	$	6,473	$	—
Commercial real estate	$	4,354	$	4,432	$	—

	(Amounts in thousands)
	Recorded Investment		Unpaid Principal Balance		Related Allowance
December 31, 2017
With no related allowance recorded:
Commercial	$	65	$	65	$	—
Commercial real estate		4,664		4,742		—
With an allowance recorded:
Commercial		5,516		5,516		625
Commercial real estate		—		—		—
Total:
Commercial	$	5,581	$	5,581	$	625
Commercial real estate	$	4,664	$	4,742	$	—

	(Amounts in thousands)
	Three Months Ended				Six Months Ended
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
June 30, 2018
With no related allowance recorded:
Commercial	$	4,615	$	8	$	3,041	$	11
Commercial real estate		4,180		104		4,360		212
With an allowance recorded:
Commercial		—		—		1,821		46
Commercial real estate		—		—		—		—
Total:
Commercial	$	4,615	$	8	$	4,862	$	57
Commercial real estate	$	4,180	$	104	$	4,360	$	212

	(Amounts in thousands)
	Three Months Ended				Six Months Ended
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
June 30, 2017
With no related allowance recorded:
Commercial	$	90	$	2	$	94	$	4
Commercial real estate		5,248		74		5,425		148
With an allowance recorded:
Commercial		—		—		—		—
Commercial real estate		458		—		699		6
Total:
Commercial	$	90	$	2	$	94	$	4
Commercial real estate	$	5,706	$	74	$	6,124	$	154

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Earnings Per Share and Capital Transactions (Tables)

6 Months Ended

Jun. 30, 2018

Earnings Per Share [Abstract]

Computation of Basic Earnings Per Common Share

Earnings per share is computed by dividing net income available to common shareholders by the weighted average number of shares of common outstanding stock, net of any treasury shares, during the period. Diluted earnings per share is calculated by dividing net income available to common shareholders by the weighted average number of shares of common stock outstanding, net of any treasury shares, after consideration of the potential dilutive effect of common stock equivalents, based upon the treasury stock method using an average market price for the period. The common stock equivalents are comprised of the restricted share awards.

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2018		2017		2018		2017
Net income (amounts in thousands)	$	3,302	$	1,182	$	4,839	$	2,182
Weighted average common shares outstanding		4,369,792		4,411,102		4,381,540		4,408,886
Net effect of dilutive common share equivalents		4,010		3,051		6,128		3,757
Adjusted average shares outstanding-dilutive		4,373,802		4,414,153		4,387,668		4,412,643
Basic earnings per share	$	0.75	$	0.26	$	1.10	$	0.49
Diluted earnings per share	$	0.75	$	0.26	$	1.10	$	0.49

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Commitments (Tables)

6 Months Ended

Jun. 30, 2018

Commitments And Contingencies Disclosure [Abstract]

Summary of Contractual Commitments

The following table is a summary of such contractual commitments:

	(Amounts in thousands)
	June 30, 2018		December 31, 2017
Commitments to extend credit:
Fixed rate	$	34,156	$	32,749
Variable rate		64,011		60,508
Standby letters of credit		3,775		3,600

Summary of Overdraft Protection

The following table is a summary of overdraft protection for the periods indicated:

	(Amounts in thousands)
	June 30, 2018			December 31, 2017
Overdraft protection available on depositors' accounts	$	9,006		$	9,637
Balance of overdrafts included in loans		81			103
Average daily balance of overdrafts		99			115
Average daily balance of overdrafts as a percentage of available		1.10	%		1.19	%

Summary of Information Regarding Derivatives

Summary information regarding these derivatives is presented below:

	(Amounts in thousands)
	Notional Amount						Fair Value
	June 30, 2018		December 31, 2017		Interest Rate Paid	Interest Rate Received	June 30, 2018			December 31, 2017
Customer interest rate swap
Maturing in 2020	$	2,457	$	2,504	1 Mo. Libor + Margin	Fixed	$	47		$	(16	)
Maturing in 2025		5,111		5,288	1 Mo. Libor + Margin	Fixed		98			36
Maturing in 2026		2,005		2,064	1 Mo. Libor + Margin	Fixed		98			(44	)
Maturing in 2027		13,995		14,197	1 Mo. Libor + Margin	Fixed		299			209
Maturing in 2028		1,176		—	1 Mo. Libor + Margin	Fixed		(39	)		—
Total	$	24,744	$	24,053			$	503		$	185
Third party interest rate swap
Maturing in 2020	$	2,457	$	2,504	Fixed	1 Mo. Libor + Margin	$	(47	)	$	16
Maturing in 2025		5,111		5,288	Fixed	1 Mo. Libor + Margin		(98	)		(36	)
Maturing in 2026		2,005		2,064	Fixed	1 Mo. Libor + Margin		(98	)		44
Maturing in 2027		13,995		14,197	Fixed	1 Mo. Libor + Margin		(299	)		(209	)
Maturing in 2028		1,176		—	Fixed	1 Mo. Libor + Margin		39			—
Total	$	24,744	$	24,053			$	(503	)	$	(185	)

Schedule of Fair Values of Derivative Instruments

The following table presents the fair values of derivative instruments in the balance sheet:

	(Amounts in thousands)
	Assets			Liabilities
	Balance Sheet Location	Fair Value		Balance Sheet Location	Fair Value
June 30, 2018
Interest rate derivatives	Other assets	$	503	Other liabilities	$	503
December 31, 2017
Interest rate derivatives	Other assets	$	185	Other liabilities	$	185

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Fair Value of Assets and Liabilities (Tables)

6 Months Ended

Jun. 30, 2018

Fair Value Disclosures [Abstract]

Assets Reported on Consolidated Balance Sheets on a Recurring Basis at their Fair Value

The following table presents the assets reported on the consolidated balance sheets, on a recurring basis, at their fair value as of June 30, 2018 and December 31, 2017 by level within the fair value hierarchy. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

	(Amounts in thousands)
			Fair Value Measurements at June 30, 2018 Using
Description	June 30, 2018		Level 1		Level 2		Level 3
ASSETS
U.S. Government agencies and corporations	$	8,952	$	—	$	8,952	$	—
Obligations of states and political subdivisions		51,781		—		51,781		—
U.S. Government-sponsored mortgage-backed securities		59,458		—		59,458		—
U.S. Government-sponsored collateralized mortgage obligations		12,883		—		12,883		—
U.S. Government-guaranteed small business administration pools		8,464		—		8,464		—
Loans held for sale		2,524		2,524		—		—
Interest rate derivatives		503		—		503		—
LIABILITIES
Interest rate derivatives	$	503	$	—	$	503	$	—

	(Amounts in thousands)
			Fair Value Measurements at December 31, 2017 Using
Description	December 31, 2017		Level 1		Level 2		Level 3
ASSETS
U.S. Government agencies and corporations	$	3,205	$	—	$	3,205	$	—
Obligations of states and political subdivisions		72,116		—		72,116		—
U.S. Government-sponsored mortgage-backed securities		67,668		—		67,668		—
U.S. Government-sponsored collateralized mortgage obligations		6,302		—		6,302		—
U.S. Government-guaranteed small business administration pools		9,655		—		9,655		—
Trust preferred securities		895		—		—		895
Loans held for sale		2,780		2,780		—		—
Interest rate derivatives		185		—		185		—
LIABILITIES
Interest rate derivatives	$	185	$	—	$	185	$	—

Changes in the Level 3 Fair Value Category

The following tables present the changes in the Level 3 fair value category for the three and six months ended June 30, 2018 and 2017. The Company classifies financial instruments in Level 3 of the fair-value hierarchy when there is reliance on at least one significant unobservable input to the valuation model. In addition to these unobservable inputs, the valuation models for Level 3 financial instruments typically also rely on a number of inputs that are readily observable either directly or indirectly.

	(Amounts in thousands)
	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2018			2017			2018			2017
	Trust preferred securities			Trust preferred securities			Trust preferred securities			Trust preferred securities
Beginning balance	$	1,090		$	827		$	895		$	825
Net realized/unrealized losses included in:
Noninterest income		—			—			—			—
Other comprehensive income (loss)		528			(10	)		723			(7	)
Discount accretion (premium amortization)		—			—			—			—
Sales		(1,618	)		—			(1,618	)		—
Purchases, issuance, and settlements		—			—			—			(1	)
Ending balance	$	—		$	817		$	—		$	817
Losses included in net income for the period relating to assets held at    period end	$	—		$	—		$	—		$	—

Breakdown of Trust Preferred Securities

The following table details the breakdown of trust preferred securities for the periods indicated:

	(Dollar amounts in thousands)
	June 30, 2018		December 31, 2017
Total number of trust preferred securities		—		2
Par value	$	—	$	1,939
Number not considered OTTI		—		1
Par value	$	—	$	903
Number considered OTTI		—		1
Par value	$	—	$	1,036
Life-to-date impairment recognized in earnings	$	—	$	140
Life-to-date impairment recognized in other comprehensive income		—		723
Total life-to-date impairment	$	—	$	863

Trust Preferred Security with OTTI, its Credit Rating at Period End and Related Losses Recognized in Earnings

The following table details the one debt security with other-than-temporary impairment, its credit ratings at June 30, 2017 and the related losses recognized in earnings:

		(Amounts in thousands)
	Moody’s/Fitch Rating	Amount of OTTI related to credit loss at January 1, 2017		Additions in QTD March 31, 2017		Additions in QTD June 30, 2017		Amount of OTTI related to credit loss at June 30, 2017
Trapeza IX B-1	Caa2/CC	$	140	$	—	$	—	$	140
Total		$	140	$	—	$	—	$	140

Additional Information Related to the Company's Trust Preferred Securities

The following table provides additional information related to the Company’s trust preferred securities as of December 31, 2017 used to evaluate other-than-temporary impairments:

	(Amounts in thousands)
Deal	Class	Amortized Cost		FairValue		Unrealized Gain/(Loss)			Moody’s/ Fitch Rating	Number of Issuers Currently Performing		Deferrals and Defaults as a % of Current Collateral			Excess Subordination asa % of Current Performing Collateral
PreTSL XXIII	C-2	$	758	$	336	$	(422	)	Ba1/CCC		90		20.9	%		7.12	%
Trapeza IX	B-1		860		559		(301	)	Caa2/CC		30	14				—
Total		$	1,618	$	895	$	(723	)

Carrying Amounts and Fair Values of the Company's Financial Instruments

The carrying amounts and fair values of the Company’s financial instruments are as follows:

	(Amounts in thousands)
	June 30, 2018
	Carrying Amount		Level 1		Level 2		Level 3		Fair Value
ASSETS:
Cash and cash equivalents	$	10,977	$	10,977	$	—	$	—	$	10,977
Investment securities available-for-sale		141,538		—		141,538		—		141,538
Loans held for sale		2,524		2,524		—		—		2,524
Loans		462,353		—		—		466,098		466,098
Bank-owned life insurance		15,550		15,550		—		—		15,550
Accrued interest receivable		2,137		2,137		—		—		2,137
Interest rate derivatives		503		—		503		—		503
LIABILITIES:
Demand, savings and money market deposits	$	439,229	$	439,229	$	—	$	—	$	439,229
Time deposits		118,594		—		—		119,579		119,579
Short term borrowings		1,609		1,609		—		—		1,609
Federal Home Loan Bank advances - short term		11,000		—		—		10,980		10,980
Federal Home Loan Bank advances - long term		16,000		—		—		15,799		15,799
Subordinated debt		5,155		—		—		4,723		4,723
Accrued interest payable		302		302		—		—		302
Interest rate derivatives		503		—		503		—		503

	(Amounts in thousands)
	December 31, 2017
	Carrying Amount		Level 1		Level 2		Level 3		Fair Value
ASSETS:
Cash and cash equivalents	$	19,125	$	19,125	$	—	$	—	$	19,125
Investment securities available-for-sale		159,841		—		158,946		895		159,841
Loans held for sale		2,780		2,780		—		—		2,780
Loans		482,912		—		—		486,230		486,230
Bank-owned life insurance		17,650		17,650		—		—		17,650
Accrued interest receivable		2,193		2,193		—		—		2,193
Interest rate derivatives		185		—		185		—		185
LIABILITIES:
Demand, savings and money market deposits	$	458,562	$	458,562	$	—	$	—	$	458,562
Time deposits		127,289		—		—		128,624		128,624
Short term borrowings		2,678		2,678		—		—		2,678
Federal Home Loan Bank advances - short term		32,000		—		—		31,982		31,982
Federal Home Loan Bank advances - long term		14,000		—		—		13,880		13,880
Subordinated debt		5,155		—		—		4,785		4,785
Accrued interest payable		325		325		—		—		325
Interest rate derivatives		185		—		185		—		185

Significant Unobservable Inputs for Assets and Liabilities Measured at Fair Value on a Recurring and Nonrecurring Basis

The following table presents quantitative information about the Level 3 significant unobservable inputs for assets and liabilities measured at fair value on a recurring and nonrecurring basis at December 31, 2017:

	(Amounts in thousands)
	Fair value at December 31, 2017		Valuation Technique	Significant Unobservable Input	Description of Inputs
Trust preferred securities	$	895	Discounted Cash Flow	Projected Prepayments	1) Trust preferred securities issued by banks subject to Dodd-Frank's phase-out of trust preferred securities from Tier 1 Capital.  All fixed rate within one year; variable rate at increasing intervals depending on spread. 2) Trust preferred securities issued by healthy, well capitalized banks that have fixed rate coupons greater than 8%. 3) 1% annually for all other fixed rate issues and all variable rate issues. 4) Zero for collateral issued by REITs and 2% for insurance companies.
				Projected Defaults	1) All deferring issuers that do not meet the criteria for curing, as described below, are  projected to default immediately. 2) Banks with high, near team  default risk are identified using a CAMELS model and projected to default immediately.  Healthy banks are projected to default at a rate of 2% annually for 2 years, and 0.36% annually thereafter. 3) Insurance and REIT defaults are projected according to the historical default rates exhibited by companies with the same credit ratings. Historical default rates are doubled in each of the first two years of the projection to account for current economic conditions. Unrated issuers are assumed to have CCC- ratings.
				Projected Cures	1) Deferring issuers that have definitive agreements to either be acquired or  recapitalized.
				Projected Recoveries	1) Zero for insurance companies, REITs and insolvent banks, and 10% for projected bank deferrals lagged 2 years.
				Discount Rates	1) Ranging from ~9.10% to ~14.74%, depending on each bond's seniority and remaining subordination after projected losses.
Impaired loans		4,891	Cash Flow	Discount Rates	Range 4.50% to 5.38% Weighted average 4.88%

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Accumulated Other Comprehensive Loss (Tables)

6 Months Ended

Jun. 30, 2018

Equity [Abstract]

Schedule of Changes in Accumulated Other Comprehensive Loss

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

	(Amounts in thousands)
	Three Months Ended												Six Months Ended
	June 30,												June 30,
	2018						2017						2018						2017
	Unrealized losses on available- for-sale securities (a)			Change in pension and postretirement obligations (a)			Unrealized gains (losses) on available- for-sale securities (a)			Change in pension and postretirement obligations (a)			Unrealized gains (losses) on available- for-sale securities (a)			Change in pension and postretirement obligations (a)			Unrealized gains (losses) on available- for-sale securities (a)			Change in pension and postretirement obligations (a)
Beginning balance	$	(4,144	)	$	(46	)	$	(2,905	)	$	(57	)	$	(1,787	)	$	(38	)	$	(2,909	)	$	(52	)
Other comprehensive income (loss)    before reclassification		(67	)		111			1,024			(6	)		(2,408	)		103			1,034			(11	)
Amount reclassified from    accumulated other    comprehensive income (loss)		33			—			(14	)		—			17			—			(20	)		—
Total other comprehensive    income (loss)		(34	)		111			1,010			(6	)		(2,391	)		103			1,014			(11	)
Ending balance	$	(4,178	)	$	65		$	(1,895	)	$	(63	)	$	(4,178	)	$	65		$	(1,895	)	$	(63	)

(a) All amounts are net of tax. Amounts in parentheses indicate debits.

Schedule of Reclassifications out of Each Component of Accumulated Other Comprehensive Loss

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

	(Amounts in thousands)
	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2018			2017			2018			2017
	Amount reclassified from accumulated other comprehensive loss (a)			Amount reclassified from accumulated other comprehensive income (a)			Amount reclassified from accumulated other comprehensive loss (a)			Amount reclassified from accumulated other comprehensive income (a)			Affected line item in the statement where net income is presented
Details about other comprehensive    income or loss:
Unrealized gains (losses) on available-    for-sale securities	$	(41	)	$	22		$	(21	)	$	31		Investment securities available-for- sale gains (losses), net
		8			(8	)		4			(11	)	Federal income tax expense
	$	(33	)	$	14		$	(17	)	$	20		Net of tax

(a) Amounts in parentheses indicate debits to net income.

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Post-Retirement Obligations (Tables)

6 Months Ended

Jun. 30, 2018

Compensation And Retirement Disclosure [Abstract]

Changes in Accumulated Liability

The following table presents the changes in the accumulated liability:

	(Amounts in thousands)
	Three Months Ended					Six Months Ended
	June 30,					June 30,
	2018			2017		2018			2017
Beginning balance	$	890		$	858	$	876		$	840
Expense recorded		5			13		11			26
Other comprehensive (income) loss recorded		(111	)		6		(103	)		11
Ending balance	$	784		$	877	$	784		$	877

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Short-Term Borrowings (Table)

6 Months Ended

Jun. 30, 2018

Debt Disclosure [Abstract]

Additional Detail Regarding Short-Term Borrowings

The following table provides additional detail regarding short-term borrowings:

	(Amounts in thousands)
	Repurchase Agreements (Sweep)
	Accounted for as Secured Borrowings
	At June 30, 2018		At December 31, 2017
	Remaining Contractual Maturity of the Agreements
	Overnight and Continuous		Overnight and Continuous
Repurchase agreements:
U.S. Government-sponsored mortgage-backed securities	$	3,207	$	3,414
Total collateral carrying value	$	3,207	$	3,414
Total short-term borrowings	$	1,609	$	2,678

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Equity Compensation (Tables)

6 Months Ended

Jun. 30, 2018

Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]

Schedule of Nonvested Restricted Stock Units Activity

The following is the activity under the two plans during the six months ended June 30, 2018:

	Shares			Weighted Average Grant Date Fair Value
Nonvested at January 1, 2018		20,814		$	17.02
Granted		12,593			22.01
Vested		(8,359	)		16.71
Forfeited		—			—
Nonvested at June 30, 2018		25,048		$	19.63

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Basis of Presentation and Reclassifications (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
NON-INTEREST INCOME
Total non-interest income	$ 2,577	$ 1,132	$ 3,589	$ 2,032
Non-interest income (out-of-scope of Topic 606)
NON-INTEREST INCOME
Total non-interest income	1,993		2,450
Accounting Standards Update 2014-09
NON-INTEREST INCOME
Non-interest income (in-scope to Topic 606)	584		1,139
Accounting Standards Update 2014-09 | Overdraft Fees
NON-INTEREST INCOME
Non-interest income (in-scope to Topic 606)	269		525
Accounting Standards Update 2014-09 | Service Charges
NON-INTEREST INCOME
Non-interest income (in-scope to Topic 606)	100		199
Accounting Standards Update 2014-09 | Other Fees
NON-INTEREST INCOME
Non-interest income (in-scope to Topic 606)	6		9
Accounting Standards Update 2014-09 | Fees, Exchange, and Other Service Charges
NON-INTEREST INCOME
Non-interest income (in-scope to Topic 606)	$ 209		$ 406

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Authoritative Accounting Guidance (Details Textual) - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2018	Dec. 31, 2017
New Accounting Pronouncement, Early Adoption, Effect
New Accounting Pronouncements Or Change In Accounting Principle [Line Items]
Cumulative effect adjustment between retained earnings and accumulated other comprehensive loss		$ 294,000
Maximum | ASU 2016-02
New Accounting Pronouncements Or Change In Accounting Principle [Line Items]
Anticipated increase in assets, in percent	1.00%
Anticipated increase in liabilities, in percent	1.00%

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Investment Securities (Details) - USD ($) $ in Thousands	Jun. 30, 2018	Dec. 31, 2017
Summary of investment securities
Available-for-sale Securities and Regulatory Stock, Amortized Cost	$ 146,827	$ 162,102
Available-for-sale Securities and Regulatory Stock, Gross Unrealized Gains	19	747
Available-for-sale Securities and Regulatory Stock, Gross Unrealized Losses	5,308	3,008
Available-for-sale securities and Regulatory Stock, Fair Value	141,538	159,841
U.S. Government agencies and corporations
Summary of investment securities
Available-for-sale Securities and Regulatory Stock, Amortized Cost	9,235	3,344
Available-for-sale Securities and Regulatory Stock, Gross Unrealized Gains		1
Available-for-sale Securities and Regulatory Stock, Gross Unrealized Losses	283	140
Available-for-sale securities and Regulatory Stock, Fair Value	8,952	3,205
Obligations of states and political subdivisions
Summary of investment securities
Available-for-sale Securities and Regulatory Stock, Amortized Cost	53,452	71,700
Available-for-sale Securities and Regulatory Stock, Gross Unrealized Gains	19	740
Available-for-sale Securities and Regulatory Stock, Gross Unrealized Losses	1,690	324
Available-for-sale securities and Regulatory Stock, Fair Value	51,781	72,116
U.S. Government-sponsored mortgage-backed securities
Summary of investment securities
Available-for-sale Securities and Regulatory Stock, Amortized Cost	62,175	69,066
Available-for-sale Securities and Regulatory Stock, Gross Unrealized Gains		6
Available-for-sale Securities and Regulatory Stock, Gross Unrealized Losses	2,717	1,404
Available-for-sale securities and Regulatory Stock, Fair Value	59,458	67,668
U.S. Government-sponsored collateralized mortgage obligations
Summary of investment securities
Available-for-sale Securities and Regulatory Stock, Amortized Cost	13,119	6,463
Available-for-sale Securities and Regulatory Stock, Gross Unrealized Losses	236	161
Available-for-sale securities and Regulatory Stock, Fair Value	12,883	6,302
U.S. Government-guaranteed small business administration pools
Summary of investment securities
Available-for-sale Securities and Regulatory Stock, Amortized Cost	8,846	9,911
Available-for-sale Securities and Regulatory Stock, Gross Unrealized Losses	382	256
Available-for-sale securities and Regulatory Stock, Fair Value	8,464	9,655
Trust preferred securities
Summary of investment securities
Available-for-sale Securities and Regulatory Stock, Amortized Cost		1,618
Available-for-sale Securities and Regulatory Stock, Gross Unrealized Losses		723
Available-for-sale securities and Regulatory Stock, Fair Value		895
Federal Home Loan Bank (FHLB) stock
Summary of investment securities
Available-for-sale Securities and Regulatory Stock, Amortized Cost	2,355	2,355
Available-for-sale securities and Regulatory Stock, Fair Value	2,355	2,355
Federal Reserve Bank (FRB) stock
Summary of investment securities
Available-for-sale Securities and Regulatory Stock, Amortized Cost	226	226
Available-for-sale securities and Regulatory Stock, Fair Value	226	226
Total regulatory stock
Summary of investment securities
Available-for-sale Securities and Regulatory Stock, Amortized Cost	2,581	2,581
Available-for-sale securities and Regulatory Stock, Fair Value	$ 2,581	$ 2,581

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Investment Securities (Details 1) $ in Thousands	Jun. 30, 2018 USD ($)
Amortized cost and fair value of debt securities by contractual maturity
Amortized Cost, Due after one year through five years	$ 543
Amortized Cost, Due after five years through ten years	12,034
Amortized Cost, Due after ten years	58,956
Amortized Cost, Total	71,533
Total investment securities available-for-sale, Amortized Cost	146,827
Fair Value, Due after one year through five years	553
Fair Value, Due after five years through ten years	11,606
Fair Value, Due after ten years	57,038
Fair Value, Total	69,197
Total investment securities available-for-sale, Fair Value	141,538
U.S. Government-sponsored mortgage-backed and related securities
Amortized cost and fair value of debt securities by contractual maturity
Total investment securities available-for-sale, Amortized Cost	75,294
Total investment securities available-for-sale, Fair Value	$ 72,341

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Investment Securities (Details 2) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Proceeds, gains and losses realized on securities sold or called
Proceeds on securities sold	$ 1,577	$ 12,402	$ 21,418	$ 28,127
Gross realized gains		232	123	378
Gross realized losses	$ 41	$ 210	$ 144	$ 347

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Investment Securities (Details Textual)	3 Months Ended		6 Months Ended		12 Months Ended
	Jun. 30, 2018 USD ($) Investment	Jun. 30, 2017 USD ($)	Jun. 30, 2018 USD ($) Security Investment	Jun. 30, 2017 USD ($)	Dec. 31, 2017 USD ($) Security
Investments Debt And Equity Securities [Abstract]
Carrying value of investment securities for pledge	$ 64,300,000		$ 64,300,000		$ 105,000,000
Investment securities with fair value less than amortized cost | Security			123		83
OTTI loss recognized through impairment assessment process	$ 0	$ 0	$ 0	$ 0
Non-accrual investment securities					$ 895,000
Trust preferred securities in nonaccrual status | Investment	2		2

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Investment Securities (Details 3) - USD ($) $ in Thousands	Jun. 30, 2018	Dec. 31, 2017
Fair Value
Fair Value, Less than 12 Months	$ 59,420	$ 34,850
Fair Value, 12 Months or More	72,577	76,214
Fair Value, Total	131,997	111,064
Unrealized Losses
Unrealized Losses, Less than 12 Months	1,655	303
Unrealized Losses, 12 Months or More	3,653	2,705
Unrealized Losses, Total	5,308	3,008
U.S. Government agencies and corporations
Fair Value
Fair Value, Less than 12 Months	6,195
Fair Value, 12 Months or More	2,757	2,860
Fair Value, Total	8,952	2,860
Unrealized Losses
Unrealized Losses, Less than 12 Months	40
Unrealized Losses, 12 Months or More	243	140
Unrealized Losses, Total	283	140
Obligations of states and political subdivisions
Fair Value
Fair Value, Less than 12 Months	31,631	7,430
Fair Value, 12 Months or More	17,746	18,066
Fair Value, Total	49,377	25,496
Unrealized Losses
Unrealized Losses, Less than 12 Months	869	24
Unrealized Losses, 12 Months or More	821	300
Unrealized Losses, Total	1,690	324
U.S. Government-sponsored mortgage-backed securities
Fair Value
Fair Value, Less than 12 Months	21,594	24,888
Fair Value, 12 Months or More	37,864	40,968
Fair Value, Total	59,458	65,856
Unrealized Losses
Unrealized Losses, Less than 12 Months	746	241
Unrealized Losses, 12 Months or More	1,971	1,163
Unrealized Losses, Total	2,717	1,404
U.S. Government-sponsored collateralized mortgage obligations
Fair Value
Fair Value, 12 Months or More	5,746	6,302
Fair Value, Total	5,746	6,302
Unrealized Losses
Unrealized Losses, 12 Months or More	236	161
Unrealized Losses, Total	236	161
U.S. Government-guaranteed small business administration pools
Fair Value
Fair Value, Less than 12 Months		2,532
Fair Value, 12 Months or More	8,464	7,123
Fair Value, Total	8,464	9,655
Unrealized Losses
Unrealized Losses, Less than 12 Months		38
Unrealized Losses, 12 Months or More	382	218
Unrealized Losses, Total	$ 382	256
Trust preferred securities
Fair Value
Fair Value, 12 Months or More		895
Fair Value, Total		895
Unrealized Losses
Unrealized Losses, 12 Months or More		723
Unrealized Losses, Total		$ 723

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Investment Securities (Details 4) - USD ($) $ in Thousands	3 Months Ended			6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Mar. 31, 2017	Jun. 30, 2018	Jun. 30, 2017
Cumulative roll forward of credit losses recognized in earnings for trust preferred securities
Beginning balance, Amount of OTTI related to credit loss			$ 140		$ 140
Additional credit losses on debt securities for which other-than- temporary impairment was previously recognized		$ 0	0
Ending balance, Amount of OTTI related to credit loss		140			140
Trust preferred securities
Cumulative roll forward of credit losses recognized in earnings for trust preferred securities
Beginning balance, Amount of OTTI related to credit loss	$ 140	140	140	$ 140	140
Additional credit losses on debt securities for which other-than- temporary impairment was previously recognized	0	0		0	0
Sale of debt securities	$ (140)			$ (140)
Ending balance, Amount of OTTI related to credit loss		$ 140	$ 140		$ 140

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Loans and Allowance for Loan Losses (Details) - USD ($) $ in Thousands	Jun. 30, 2018	Dec. 31, 2017
Composition of the loan portfolio
Total loans	$ 466,448	$ 487,490
Commercial
Composition of the loan portfolio
Total loans	$ 74,015	$ 113,341
Percentage of loans	15.90%	23.30%
Commercial real estate
Composition of the loan portfolio
Total loans	$ 298,790	$ 283,135
Percentage of loans	64.00%	58.10%
Residential real estate
Composition of the loan portfolio
Total loans	$ 64,368	$ 62,071
Percentage of loans	13.80%	12.70%
Consumer | Home equity
Composition of the loan portfolio
Total loans	$ 25,665	$ 26,018
Percentage of loans	5.50%	5.30%
Consumer | Other
Composition of the loan portfolio
Total loans	$ 3,610	$ 2,925
Percentage of loans	0.80%	0.60%

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Loans and Allowance for Loan Losses (Details 1)	6 Months Ended
	Jun. 30, 2018
Factor Considered:
Levels of and trends in charge-offs, classifications and non-accruals	Stable
Trends in volume and terms	Decreasing
Changes in lending policies and procedures	Stable
Experience, depth and ability of management, including loan review function	Stable
Economic trends, including valuation of underlying collateral	Stable
Concentrations of credit	Decreasing

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Loans and Allowance for Loan Losses (Details 2)	6 Months Ended
	Jun. 30, 2018
Factor Considered:
Levels and trends in classification	Stable
Declining trends in financial performance	Stable
Structure and lack of performance measures	Stable
Migration between risk categories	Stable

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Loans and Allowance for Loan Losses (Details 3) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Analysis of changes in the allowance for loan losses
Balance at beginning of period	$ 3,884	$ 4,855	$ 4,578	$ 4,868
Loan charge-offs	(27)	(43)	(1,240)	(180)
Recoveries	163	18	182	142
Net loan recoveries (charge-offs)	136	(25)	(1,058)	(38)
Provision charged to operations	75		575
Balance at end of period	4,095	4,830	4,095	4,830
Commercial
Analysis of changes in the allowance for loan losses
Balance at beginning of period	1,334	1,246	1,591	1,394
Loan charge-offs			(1,163)
Recoveries				108
Net loan recoveries (charge-offs)			(1,163)	108
Provision charged to operations	60	4	966	(252)
Balance at end of period	1,394	1,250	1,394	1,250
Commercial real estate
Analysis of changes in the allowance for loan losses
Balance at beginning of period	2,290	3,226	2,702	3,072
Loan charge-offs		(7)		(100)
Recoveries	150		150
Net loan recoveries (charge-offs)	150	(7)	150	(100)
Provision charged to operations	17	94	(395)	341
Balance at end of period	2,457	3,313	2,457	3,313
Residential real estate
Analysis of changes in the allowance for loan losses
Balance at beginning of period	93	142	117	163
Loan charge-offs		(13)		(13)
Recoveries	1	5	1	5
Net loan recoveries (charge-offs)	1	(8)	1	(8)
Provision charged to operations	(14)	(21)	(38)	(42)
Balance at end of period	80	113	80	113
Consumer | Home equity
Analysis of changes in the allowance for loan losses
Balance at beginning of period	67	148	70	150
Recoveries	1	2	4	4
Net loan recoveries (charge-offs)	1	2	4	4
Provision charged to operations	(2)	(90)	(8)	(94)
Balance at end of period	66	60	66	60
Consumer | Other
Analysis of changes in the allowance for loan losses
Balance at beginning of period	100	93	98	89
Loan charge-offs	(27)	(23)	(77)	(67)
Recoveries	11	11	27	25
Net loan recoveries (charge-offs)	(16)	(12)	(50)	(42)
Provision charged to operations	14	13	50	47
Balance at end of period	$ 98	$ 94	$ 98	$ 94

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Loans and Allowance for Loan Losses (Details 4) - USD ($) $ in Thousands	Jun. 30, 2018	Mar. 31, 2018	Dec. 31, 2017	Jun. 30, 2017	Mar. 31, 2017	Dec. 31, 2016
Ending allowance balance attributable to loans:
Individually evaluated for impairment			$ 625
Collectively evaluated for impairment	$ 4,095		3,953
Total ending allowance balance	4,095	$ 3,884	4,578	$ 4,830	$ 4,855	$ 4,868
Loan Portfolio:
Individually evaluated for impairment	9,711		10,245
Collectively evaluated for impairment	456,737		477,245
Total ending loans balance	466,448		487,490
Commercial
Ending allowance balance attributable to loans:
Individually evaluated for impairment			625
Collectively evaluated for impairment	1,394		966
Total ending allowance balance	1,394	1,334	1,591	1,250	1,246	1,394
Loan Portfolio:
Individually evaluated for impairment	5,357		5,581
Collectively evaluated for impairment	68,658		107,760
Total ending loans balance	74,015		113,341
Commercial real estate
Ending allowance balance attributable to loans:
Collectively evaluated for impairment	2,457		2,702
Total ending allowance balance	2,457	2,290	2,702	3,313	3,226	3,072
Loan Portfolio:
Individually evaluated for impairment	4,354		4,664
Collectively evaluated for impairment	294,436		278,471
Total ending loans balance	298,790		283,135
Residential real estate
Ending allowance balance attributable to loans:
Collectively evaluated for impairment	80		117
Total ending allowance balance	80	93	117	113	142	163
Loan Portfolio:
Collectively evaluated for impairment	64,368		62,071
Total ending loans balance	64,368		62,071
Consumer | Home equity
Ending allowance balance attributable to loans:
Collectively evaluated for impairment	66		70
Total ending allowance balance	66	67	70	60	148	150
Loan Portfolio:
Collectively evaluated for impairment	25,665		26,018
Total ending loans balance	25,665		26,018
Consumer | Other
Ending allowance balance attributable to loans:
Collectively evaluated for impairment	98		98
Total ending allowance balance	98	$ 100	98	$ 94	$ 93	$ 89
Loan Portfolio:
Collectively evaluated for impairment	3,610		2,925
Total ending loans balance	$ 3,610		$ 2,925

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Loans and Allowance for Loan Losses (Details Textual)	3 Months Ended		6 Months Ended
	Jun. 30, 2018 USD ($)	Jun. 30, 2017 USD ($)	Jun. 30, 2018 USD ($) Contract Borrower	Jun. 30, 2017 USD ($) Loan	Dec. 31, 2017 USD ($)
Accounts Notes And Loans Receivable [Line Items]
Current Loans	$ 464,138,000		$ 464,138,000		$ 486,305,000
Charge off amount recorded as loan discount	$ 27,000	$ 43,000	$ 1,240,000	$ 180,000
Period after which loans considered nonperforming			90 days
Number of loans modified as TDRs			7	0
Number of commercial loan borrowers | Borrower			1
60-day or less term commercial loans
Accounts Notes And Loans Receivable [Line Items]
Current Loans					43,000,000
Financing receivables, maturity			First quarter of 2018
Charge off amount recorded as loan discount			$ 1,100,000
Reserve previously allocated to loans					$ 625,000

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Loans and Allowance for Loan Losses (Details 5) - USD ($) $ in Thousands	Jun. 30, 2018	Dec. 31, 2017
Summary of credit quality indicators by internally assigned grade
Total loans	$ 466,448	$ 487,490
Commercial
Summary of credit quality indicators by internally assigned grade
Total loans	74,015	113,341
Commercial | Pass
Summary of credit quality indicators by internally assigned grade
Total loans	54,453	100,436
Commercial | Special Mention
Summary of credit quality indicators by internally assigned grade
Total loans	8,398	4,836
Commercial | Substandard
Summary of credit quality indicators by internally assigned grade
Total loans	11,164	8,069
Commercial real estate
Summary of credit quality indicators by internally assigned grade
Total loans	298,790	283,135
Commercial real estate | Pass
Summary of credit quality indicators by internally assigned grade
Total loans	264,440	252,960
Commercial real estate | Special Mention
Summary of credit quality indicators by internally assigned grade
Total loans	29,043	24,307
Commercial real estate | Substandard
Summary of credit quality indicators by internally assigned grade
Total loans	$ 5,307	$ 5,868

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Loans and Allowance for Loan Losses (Details 6) - USD ($) $ in Thousands	Jun. 30, 2018	Dec. 31, 2017
Summary of consumer credit exposure
Total loans	$ 466,448	$ 487,490
Residential real estate
Summary of consumer credit exposure
Total loans	64,368	62,071
Consumer | Home equity
Summary of consumer credit exposure
Total loans	25,665	26,018
Consumer | Other
Summary of consumer credit exposure
Total loans	3,610	2,925
Performing | Residential real estate
Summary of consumer credit exposure
Total loans	64,024	61,824
Performing | Consumer | Home equity
Summary of consumer credit exposure
Total loans	25,541	25,889
Performing | Consumer | Other
Summary of consumer credit exposure
Total loans	3,610	2,925
Nonperforming | Residential real estate
Summary of consumer credit exposure
Total loans	344	247
Nonperforming | Consumer | Home equity
Summary of consumer credit exposure
Total loans	$ 124	$ 129

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Loans and Allowance for Loan Losses (Details 7) - USD ($) $ in Thousands	Jun. 30, 2018	Dec. 31, 2017
Summary of classes of loans on non-accrual status
Total	$ 2,058	$ 882
Commercial
Summary of classes of loans on non-accrual status
Total	1,149
Commercial real estate
Summary of classes of loans on non-accrual status
Total	441	506
Residential real estate
Summary of classes of loans on non-accrual status
Total	344	247
Consumer | Home equity
Summary of classes of loans on non-accrual status
Total	$ 124	$ 129

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Loans and Allowance for Loan Losses (Details 8) $ in Thousands	6 Months Ended
	Jun. 30, 2018 USD ($) Contract	Jun. 30, 2017 Loan
Information related to loans modified in a TDR
Number of contracts	7	0
Pre-modification recorded investment	$ 5,373
Post-modification recorded investment	$ 4,210
Commercial
Information related to loans modified in a TDR
Number of contracts | Contract	7
Pre-modification recorded investment	$ 5,373
Post-modification recorded investment	$ 4,210

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Loans and Allowance for Loan Losses (Details 9) - USD ($) $ in Thousands	Jun. 30, 2018	Dec. 31, 2017
Aging analysis of the recorded investment of past due loans
Total Past Due	$ 2,310	$ 1,185
Current	464,138	486,305
Total ending loans balance	466,448	487,490
30-59 Days Past Due
Aging analysis of the recorded investment of past due loans
Total Past Due	228	428
60-89 Days Past Due
Aging analysis of the recorded investment of past due loans
Total Past Due	379	123
90 Days Or Greater
Aging analysis of the recorded investment of past due loans
Total Past Due	1,703	634
Commercial
Aging analysis of the recorded investment of past due loans
Total Past Due	1,315
Current	72,700	113,341
Total ending loans balance	74,015	113,341
Commercial | 30-59 Days Past Due
Aging analysis of the recorded investment of past due loans
Total Past Due	24
Commercial | 60-89 Days Past Due
Aging analysis of the recorded investment of past due loans
Total Past Due	142
Commercial | 90 Days Or Greater
Aging analysis of the recorded investment of past due loans
Total Past Due	1,149
Commercial real estate
Aging analysis of the recorded investment of past due loans
Total Past Due	534	575
Current	298,256	282,560
Total ending loans balance	298,790	283,135
Commercial real estate | 30-59 Days Past Due
Aging analysis of the recorded investment of past due loans
Total Past Due		173
Commercial real estate | 60-89 Days Past Due
Aging analysis of the recorded investment of past due loans
Total Past Due	194	12
Commercial real estate | 90 Days Or Greater
Aging analysis of the recorded investment of past due loans
Total Past Due	340	390
Residential real estate
Aging analysis of the recorded investment of past due loans
Total Past Due	324	485
Current	64,044	61,586
Total ending loans balance	64,368	62,071
Residential real estate | 30-59 Days Past Due
Aging analysis of the recorded investment of past due loans
Total Past Due	94	240
Residential real estate | 60-89 Days Past Due
Aging analysis of the recorded investment of past due loans
Total Past Due	43	29
Residential real estate | 90 Days Or Greater
Aging analysis of the recorded investment of past due loans
Total Past Due	187	216
Consumer | Home equity
Aging analysis of the recorded investment of past due loans
Total Past Due	124	110
Current	25,541	25,908
Total ending loans balance	25,665	26,018
Consumer | Home equity | 30-59 Days Past Due
Aging analysis of the recorded investment of past due loans
Total Past Due	97
Consumer | Home equity | 60-89 Days Past Due
Aging analysis of the recorded investment of past due loans
Total Past Due		82
Consumer | Home equity | 90 Days Or Greater
Aging analysis of the recorded investment of past due loans
Total Past Due	27	28
Consumer | Other
Aging analysis of the recorded investment of past due loans
Total Past Due	13	15
Current	3,597	2,910
Total ending loans balance	3,610	2,925
Consumer | Other | 30-59 Days Past Due
Aging analysis of the recorded investment of past due loans
Total Past Due	$ 13	$ 15

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Loans and Allowance for Loan Losses (Details 10) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017	Dec. 31, 2017
Commercial
Loans evaluated for impairment by loan segment
Recorded Investment, With no related allowance recorded	$ 5,357		$ 5,357		$ 65
Recorded Investment, With related allowance recorded					5,516
Recorded Investment, Total	5,357		5,357		5,581
Unpaid Principal Balance, with no related allowance	6,473		6,473		65
Unpaid Principal Balance, with related allowance					5,516
Unpaid Principal Balance, Total	6,473		6,473		5,581
Related Allowance, with related allowance					625
Related Allowance, Total					625
Average Recorded Investment, with no related allowance recorded	4,615	$ 90	3,041	$ 94
Average Recorded Investment, with related allowance recorded			1,821
Average Recorded Investment, Total	4,615	90	4,862	94
Interest Income Recognized, with no related allowance	8	2	11	4
Interest Income Recognized, with related allowance			46
Interest Income Recognized, Total	8	2	57	4
Commercial real estate
Loans evaluated for impairment by loan segment
Recorded Investment, With no related allowance recorded	4,354		4,354		4,664
Recorded Investment, Total	4,354		4,354		4,664
Unpaid Principal Balance, with no related allowance	4,432		4,432		4,742
Unpaid Principal Balance, Total	4,432		4,432		$ 4,742
Average Recorded Investment, with no related allowance recorded	4,180	5,248	4,360	5,425
Average Recorded Investment, with related allowance recorded		458		699
Average Recorded Investment, Total	4,180	5,706	4,360	6,124
Interest Income Recognized, with no related allowance	104	74	212	148
Interest Income Recognized, with related allowance				6
Interest Income Recognized, Total	$ 104	$ 74	$ 212	$ 154

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Earnings Per Share and Capital Transactions (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Computation of basic earnings per common share
Net income	$ 3,302	$ 1,182	$ 4,839	$ 2,182
Weighted average common shares outstanding	4,369,792	4,411,102	4,381,540	4,408,886
Net effect of dilutive common share equivalents	4,010	3,051	6,128	3,757
Adjusted average shares outstanding-dilutive	4,373,802	4,414,153	4,387,668	4,412,643
Basic earnings per share	$ 0.75	$ 0.26	$ 1.10	$ 0.49
Diluted earnings per share	$ 0.75	$ 0.26	$ 1.10	$ 0.49

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Subordinated Debt (Details Textual) - USD ($)	1 Months Ended	6 Months Ended
	Jul. 31, 2007	Jun. 30, 2018	Dec. 31, 2017
Debt Instrument [Line Items]
Floating rate trust preferred securities issued	$ 5,000,000
Maturity date of floating rate trust preferred securities	2037-12
Investment in common securities issued by trust	$ 155,000
Subordinated Debt
Debt Instrument [Line Items]
Interest rate description		3-month LIBOR rate plus 1.45%
LIBOR Rate Points	1.45%
Interest rate		3.79%	3.04%

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Commitments (Details) - USD ($) $ in Thousands	Jun. 30, 2018	Dec. 31, 2017
Commitments to extend credit:
Fixed rate	$ 34,156	$ 32,749
Variable rate	64,011	60,508
Standby letters of credit	$ 3,775	$ 3,600

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Commitments (Details 1) - USD ($) $ in Thousands	Jun. 30, 2018	Dec. 31, 2017
Summary of overdraft protection
Overdraft protection available on depositors' accounts	$ 9,006	$ 9,637
Balance of overdrafts included in loans	81	103
Average daily balance of overdrafts	$ 99	$ 115
Average daily balance of overdrafts as a percentage of available	1.10%	1.19%

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Commitments (Details Textual) - Third party interest rate swap $ in Millions	Dec. 31, 2017 USD ($) Security
Commitments (Textual) [Abstract]
Security pledged for collateral | $	$ 1.4
U.S. Government-sponsored mortgage-backed securities
Commitments (Textual) [Abstract]
Number of security owned and pledged as collateral | Security	1

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Commitments (Details 2) - USD ($)	6 Months Ended
	Jun. 30, 2018	Dec. 31, 2017
Customer interest rate swap, Maturing in 2020
Derivative [Line Items]
Maturity	2020
Notional Amount	$ 2,457,000	$ 2,504,000
Interest Rate Paid	1 Mo. Libor + Margin
Interest Rate Received	Fixed
Fair Value	$ 47,000	(16,000)
Customer interest rate swap, Maturing in 2025
Derivative [Line Items]
Maturity	2025
Notional Amount	$ 5,111,000	5,288,000
Interest Rate Paid	1 Mo. Libor + Margin
Interest Rate Received	Fixed
Fair Value	$ 98,000	36,000
Customer interest rate swap, Maturing in 2026
Derivative [Line Items]
Maturity	2026
Notional Amount	$ 2,005,000	2,064,000
Interest Rate Paid	1 Mo. Libor + Margin
Interest Rate Received	Fixed
Fair Value	$ 98,000	(44,000)
Customer interest rate swap, Maturing in 2027
Derivative [Line Items]
Maturity	2027
Notional Amount	$ 13,995,000	14,197,000
Interest Rate Paid	1 Mo. Libor + Margin
Interest Rate Received	Fixed
Fair Value	$ 299,000	209,000
Customer interest rate swap, Maturing in 2028
Derivative [Line Items]
Maturity	2028
Notional Amount	$ 1,176,000
Interest Rate Paid	1 Mo. Libor + Margin
Interest Rate Received	Fixed
Fair Value	$ (39,000)
Customer interest rate swap
Derivative [Line Items]
Notional Amount	24,744,000	24,053,000
Fair Value	$ 503,000	185,000
Third party interest rate swap, Maturing in 2020
Derivative [Line Items]
Maturity	2020
Notional Amount	$ 2,457,000	2,504,000
Interest Rate Paid	Fixed
Interest Rate Received	1 Mo. Libor + Margin
Fair Value	$ (47,000)	16,000
Third party interest rate swap, Maturing in 2025
Derivative [Line Items]
Maturity	2025
Notional Amount	$ 5,111,000	5,288,000
Interest Rate Paid	Fixed
Interest Rate Received	1 Mo. Libor + Margin
Fair Value	$ (98,000)	(36,000)
Third party interest rate swap, Maturing in 2026
Derivative [Line Items]
Maturity	2026
Notional Amount	$ 2,005,000	2,064,000
Interest Rate Paid	Fixed
Interest Rate Received	1 Mo. Libor + Margin
Fair Value	$ (98,000)	44,000
Third party interest rate swap, Maturing in 2027
Derivative [Line Items]
Maturity	2027
Notional Amount	$ 13,995,000	14,197,000
Interest Rate Paid	Fixed
Interest Rate Received	1 Mo. Libor + Margin
Fair Value	$ (299,000)	(209,000)
Third party interest rate swap, Maturing in 2028
Derivative [Line Items]
Maturity	2028
Notional Amount	$ 1,176,000
Interest Rate Paid	Fixed
Interest Rate Received	1 Mo. Libor + Margin
Fair Value	$ 39,000
Third party interest rate swap
Derivative [Line Items]
Notional Amount	24,744,000	24,053,000
Fair Value	$ (503,000)	$ (185,000)

XML

Commitments (Details 3) - USD ($) $ in Thousands	Jun. 30, 2018	Dec. 31, 2017
Derivatives Fair Value [Line Items]
Assets, Fair Value	$ 503	$ 185
Liabilities, Fair Value	503	185
Other assets
Derivatives Fair Value [Line Items]
Assets, Fair Value	503	185
Other liabilities
Derivatives Fair Value [Line Items]
Liabilities, Fair Value	$ 503	$ 185

XML

Fair Value of Assets and Liabilities (Details) - USD ($) $ in Thousands	Jun. 30, 2018	Dec. 31, 2017
ASSETS
Total debt securities, Fair Value	$ 141,538	$ 159,841
Loans held for sale	2,524	2,780
Interest rate derivatives	503	185
LIABILITIES
Liabilities, Fair Value	503	185
Trust preferred securities
ASSETS
Total debt securities, Fair Value		895
Level 2
ASSETS
Total debt securities, Fair Value	141,538	158,946
Interest rate derivatives	503	185
LIABILITIES
Liabilities, Fair Value	503	185
Level 3
ASSETS
Total debt securities, Fair Value		895
Fair Value, Measurements, Recurring
ASSETS
Loans held for sale	2,524	2,780
Interest rate derivatives	503	185
LIABILITIES
Liabilities, Fair Value	503	185
Fair Value, Measurements, Recurring | Trust preferred securities
ASSETS
Total debt securities, Fair Value		895
Fair Value, Measurements, Recurring | Level 1
ASSETS
Loans held for sale	2,524	2,780
Fair Value, Measurements, Recurring | Level 2
ASSETS
Interest rate derivatives	503	185
LIABILITIES
Liabilities, Fair Value	503	185
Fair Value, Measurements, Recurring | Level 3 | Trust preferred securities
ASSETS
Total debt securities, Fair Value		895
Fair Value, Measurements, Recurring | U.S. Government agencies and corporations
ASSETS
Total debt securities, Fair Value	8,952	3,205
Fair Value, Measurements, Recurring | U.S. Government agencies and corporations | Level 2
ASSETS
Total debt securities, Fair Value	8,952	3,205
Fair Value, Measurements, Recurring | Obligations of states and political subdivisions
ASSETS
Total debt securities, Fair Value	51,781	72,116
Fair Value, Measurements, Recurring | Obligations of states and political subdivisions | Level 2
ASSETS
Total debt securities, Fair Value	51,781	72,116
Fair Value, Measurements, Recurring | U.S. Government-sponsored mortgage-backed securities
ASSETS
Total debt securities, Fair Value	59,458	67,668
Fair Value, Measurements, Recurring | U.S. Government-sponsored mortgage-backed securities | Level 2
ASSETS
Total debt securities, Fair Value	59,458	67,668
Fair Value, Measurements, Recurring | U.S. Government-sponsored collateralized mortgage obligations
ASSETS
Total debt securities, Fair Value	12,883	6,302
Fair Value, Measurements, Recurring | U.S. Government-sponsored collateralized mortgage obligations | Level 2
ASSETS
Total debt securities, Fair Value	12,883	6,302
Fair Value, Measurements, Recurring | U.S. Government-guaranteed small business administration pools
ASSETS
Total debt securities, Fair Value	8,464	9,655
Fair Value, Measurements, Recurring | U.S. Government-guaranteed small business administration pools | Level 2
ASSETS
Total debt securities, Fair Value	$ 8,464	$ 9,655

XML

Fair Value of Assets and Liabilities (Details 1) - Trust preferred securities - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Changes in the Level 3 fair value category
Beginning balance	$ 1,090	$ 827	$ 895	$ 825
Net realized/unrealized losses included in:
Other comprehensive income (loss)	528	(10)	723	(7)
Sales	$ (1,618)		$ (1,618)
Purchases, issuance, and settlements				(1)
Ending balance		$ 817		$ 817

XML

Fair Value of Assets and Liabilities (Details 2) $ in Thousands	6 Months Ended	12 Months Ended
	Jun. 30, 2017 USD ($) Security	Dec. 31, 2017 USD ($) Security	Mar. 31, 2018 USD ($)	Mar. 31, 2017 USD ($)	Dec. 31, 2016 USD ($)
Breakdown of trust preferred securities
Number considered OTTI | Security	1
Life-to-date impairment recognized in earnings	$ 140				$ 140
Trust preferred securities
Breakdown of trust preferred securities
Total number of trust preferred securities | Security		2
Par value, trust preferred securities		$ 1,939
Number not considered OTTI | Security		1
Par value, trust preferred securities not considered OTTI		$ 903
Number considered OTTI | Security		1
Par value, trust preferred securities considered OTTI		$ 1,036
Life-to-date impairment recognized in earnings	$ 140	140	$ 140	$ 140	$ 140
Life-to-date impairment recognized in other comprehensive income		723
Total life-to-date impairment		$ 863

XML

Fair Value of Assets and Liabilities (Details Textual) - Security	6 Months Ended		12 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Dec. 31, 2017
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Number of debt securities with other-than-temporary impairment		1
Maturity period of short-term borrowings	one year or less
Period of swap rate	25 years
Minimum
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Fair value input discount rate			9.10%
Maximum
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Fair value input discount rate			14.74%
Trust preferred securities
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Number of debt securities with other-than-temporary impairment			1
Period frequency of projected prepayment rate			1 year
Projected Prepayments, minimum fixed rate coupons			8.00%
Projected Prepayments, percentage of fair value input for banks			1.00%
Projected prepayment, percentage of fair value for collateral by REITs			0.00%
Projected prepayment, percentage of fair value for collateral for insurance companies			2.00%
Annually projected defaults percentage for healthy banks			2.00%
Period frequency of projected default rate			2 years
Projected defaults rate for healthy banks			0.36%
Projected Recoveries, percentage for insurance companies, REITs and insolvent banks			0.00%
Projected recovery, percentage for projected bank deferrals			10.00%
Projected Bank Deferrals lagged			2 years
Trust preferred securities | Minimum
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Fair value input discount rate			9.10%
Trust preferred securities | Maximum
Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Line Items]
Fair value input discount rate			14.74%

XML

Fair Value of Assets and Liabilities (Details 3) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2017	Mar. 31, 2017	Jun. 30, 2017
Losses recognized in earnings for trust preferred securities held
Beginning balance, Amount of OTTI related to credit loss		$ 140	$ 140
Additions in QTD	$ 0	0
Ending balance, Amount of OTTI related to credit loss	140		140
Trapeza IX B-1 | Moodys Caa2 Rating | Fitch CC Rating
Losses recognized in earnings for trust preferred securities held
Beginning balance, Amount of OTTI related to credit loss		140	140
Additions in QTD	0	$ 0
Ending balance, Amount of OTTI related to credit loss	$ 140		$ 140

XML

Fair Value of Assets and Liabilities (Details 4) $ in Thousands	12 Months Ended
	Dec. 31, 2017 USD ($) Issurers_Currently_Performing	Jun. 30, 2018 USD ($)
Additional information related to the Company's trust preferred securities
Available-for-sale Securities and Regulatory Stock, Amortized Cost	$ 162,102	$ 146,827
Total debt securities, Fair Value	$ 159,841	$ 141,538
PreTSL XXIII | Moodys Ba1 Rating | Fitch CCC Rating
Additional information related to the Company's trust preferred securities
Class	C-2
Available-for-sale Securities and Regulatory Stock, Amortized Cost	$ 758
Total debt securities, Fair Value	336
Unrealized Gain/(Loss)	$ (422)
Number of Issuers Currently Performing | Issurers_Currently_Performing	90
Deferrals and Defaults as a % of Current Collateral	20.90%
Excess Subordination as a % of Current Performing Collateral	7.12%
Trapeza IX | Moodys Caa2 Rating | Fitch CC Rating
Additional information related to the Company's trust preferred securities
Class	B-1
Available-for-sale Securities and Regulatory Stock, Amortized Cost	$ 860
Total debt securities, Fair Value	559
Unrealized Gain/(Loss)	$ (301)
Number of Issuers Currently Performing | Issurers_Currently_Performing	30
Deferrals and Defaults as a % of Current Collateral	14.00%
Trust preferred securities
Additional information related to the Company's trust preferred securities
Available-for-sale Securities and Regulatory Stock, Amortized Cost	$ 1,618
Total debt securities, Fair Value	895
Unrealized Gain/(Loss)	$ (723)

XML

Fair Value of Assets and Liabilities (Details 5) - USD ($) $ in Thousands	Jun. 30, 2018	Dec. 31, 2017	Jun. 30, 2017	Dec. 31, 2016
ASSETS
Cash and cash equivalents, carrying value	$ 10,977	$ 19,125	$ 18,916	$ 15,351
Investment securities available-for-sale, carrying value	141,538	159,841
Loans held for sale	2,524	2,780
Loans, carrying value	462,353	482,912
Bank-owned life insurance	15,550	17,650
Accrued interest receivable, carrying value	2,137	2,193
Interest rate derivative assets, carrying value	503	185
LIABILITIES
Demand, savings and money market deposits, carrying value	439,229	458,562
Time deposits, carrying value	118,594	127,289
Short-term borrowings	1,609	2,678
Federal Home Loan Bank advances - short term	11,000	32,000
Federal Home Loan Bank advances - long term	16,000	14,000
Subordinated debt, carrying value	5,155	5,155
Accrued interest payable, carrying value	302	325
Interest rate derivative liabilities, carrying value	503	185
ASSETS:
Cash and cash equivalents, fair value	10,977	19,125
Investment securities available-for-sale, fair value	141,538	159,841
Loans held for sale, fair value	2,524	2,780
Loans, fair value	466,098	486,230
Bank-owned life insurance, fair value	15,550	17,650
Accrued interest receivable, fair value	2,137	2,193
Interest rate derivative assets, fair value	503	185
LIABILITIES:
Demand, savings and money market deposits, fair value	439,229	458,562
Time deposits, fair value	119,579	128,624
Short-term borrowings, fair value	1,609	2,678
Federal Home Loan Bank advances - short term, fair value	10,980	31,982
Federal Home Loan Bank advances - long term, fair value	15,799	13,880
Subordinated debt, fair value	4,723	4,785
Accrued interest payable, fair value	302	325
Interest rate derivative liabilities, fair value	503	185
Level 1
ASSETS:
Cash and cash equivalents, fair value	10,977	19,125
Loans held for sale, fair value	2,524	2,780
Bank-owned life insurance, fair value	15,550	17,650
Accrued interest receivable, fair value	2,137	2,193
LIABILITIES:
Demand, savings and money market deposits, fair value	439,229	458,562
Short-term borrowings, fair value	1,609	2,678
Accrued interest payable, fair value	302	325
Level 2
ASSETS:
Investment securities available-for-sale, fair value	141,538	158,946
Interest rate derivative assets, fair value	503	185
LIABILITIES:
Interest rate derivative liabilities, fair value	503	185
Level 3
ASSETS:
Investment securities available-for-sale, fair value		895
Loans, fair value	466,098	486,230
LIABILITIES:
Time deposits, fair value	119,579	128,624
Federal Home Loan Bank advances - short term, fair value	10,980	31,982
Federal Home Loan Bank advances - long term, fair value	15,799	13,880
Subordinated debt, fair value	$ 4,723	$ 4,785

XML

Fair Value of Assets and Liabilities (Details 6) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2017	Jun. 30, 2018
Significant unobservable inputs for assets and liabilities measured at fair value on a recurring and nonrecurring basis
Total debt securities, Fair Value	$ 159,841	$ 141,538
Minimum
Significant unobservable inputs for assets and liabilities measured at fair value on a recurring and nonrecurring basis
Fair value input discount rate	9.10%
Maximum
Significant unobservable inputs for assets and liabilities measured at fair value on a recurring and nonrecurring basis
Fair value input discount rate	14.74%
Trust preferred securities
Significant unobservable inputs for assets and liabilities measured at fair value on a recurring and nonrecurring basis
Total debt securities, Fair Value	$ 895
Trust preferred securities | Minimum
Significant unobservable inputs for assets and liabilities measured at fair value on a recurring and nonrecurring basis
Fair value input discount rate	9.10%
Trust preferred securities | Maximum
Significant unobservable inputs for assets and liabilities measured at fair value on a recurring and nonrecurring basis
Fair value input discount rate	14.74%
Trust preferred securities | Discounted Cash Flow
Significant unobservable inputs for assets and liabilities measured at fair value on a recurring and nonrecurring basis
Total debt securities, Fair Value	$ 895
Impaired Loans | Minimum
Significant unobservable inputs for assets and liabilities measured at fair value on a recurring and nonrecurring basis
Fair value input discount rate	4.50%
Impaired Loans | Maximum
Significant unobservable inputs for assets and liabilities measured at fair value on a recurring and nonrecurring basis
Fair value input discount rate	5.38%
Impaired Loans | Weighted average
Significant unobservable inputs for assets and liabilities measured at fair value on a recurring and nonrecurring basis
Fair value input discount rate	4.88%
Impaired Loans | Appraisal Of Collateral
Significant unobservable inputs for assets and liabilities measured at fair value on a recurring and nonrecurring basis
Total debt securities, Fair Value	$ 4,891

XML

Accumulated Other Comprehensive Loss (Details) - USD ($) $ in Thousands		3 Months Ended		6 Months Ended
		Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Accumulated Other Comprehensive Income (Loss), Net of Tax [Abstract]
Beginning balance				$ 61,630	$ 57,670
Total other comprehensive income (loss)		$ 77	$ 1,004	(2,288)	1,003
Ending balance		61,824	59,910	61,824	59,910
Accumulated Net Unrealized Investment Gain (Loss)
Accumulated Other Comprehensive Income (Loss), Net of Tax [Abstract]
Beginning balance	[1]	(4,144)	(2,905)	(1,787)	(2,909)
Other comprehensive income (loss) before reclassification	[1]	(67)	1,024	(2,408)	1,034
Amount reclassified from accumulated other comprehensive income (loss)	[1]	33	(14)	17	(20)
Total other comprehensive income (loss)	[1]	(34)	1,010	(2,391)	1,014
Ending balance	[1]	(4,178)	(1,895)	(4,178)	(1,895)
Accumulated Defined Benefit Plans Adjustment
Accumulated Other Comprehensive Income (Loss), Net of Tax [Abstract]
Beginning balance	[1]	(46)	(57)	(38)	(52)
Other comprehensive income (loss) before reclassification	[1]	111	(6)	103	(11)
Total other comprehensive income (loss)	[1]	111	(6)	103	(11)
Ending balance	[1]	$ 65	$ (63)	$ 65	$ (63)

[1] All amounts are net of tax. Amounts in parentheses indicate debits.

XML

Accumulated Other Comprehensive Loss (Details 1) - USD ($) $ in Thousands		3 Months Ended		6 Months Ended
		Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Unrealized gains on available-for-sale securities
Federal income tax expense		$ (322)	$ (286)	$ (563)	$ (476)
NET INCOME		3,302	1,182	4,839	2,182
Reclassification out of Accumulated Other Comprehensive Income (Loss) | Accumulated Net Unrealized Investment Gain (Loss)
Unrealized gains on available-for-sale securities
Unrealized gains (losses) on available- for-sale securities	[1]	(41)	22	(21)	31
Federal income tax expense	[1]	8	(8)	4	(11)
NET INCOME	[1]	$ (33)	$ 14	$ (17)	$ 20

[1] Amounts in parentheses indicate debits to net income.

XML

Post-Retirement Obligations (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Compensation And Retirement Disclosure [Abstract]
Beginning balance	$ 890	$ 858	$ 876	$ 840
Expense recorded	5	13	11	26
Other comprehensive (income) loss recorded	(111)	6	(103)	11
Ending balance	$ 784	$ 877	$ 784	$ 877

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Stock Repurchase Program (Details Textual) - USD ($)				6 Months Ended
	May 22, 2018	Jan. 23, 2018	Jan. 24, 2017	Jun. 30, 2018	Dec. 31, 2017
Equity Class Of Treasury Stock [Line Items]
Common stock, shares outstanding				4,363,537	4,420,136
Common stock, shares authorized				20,000,000	20,000,000
Stock repurchase program, shares repurchased				70,181
Stock Repurchase Program on January 24, 2017
Equity Class Of Treasury Stock [Line Items]
Percentage of shares authorized to be repurchased to common stock outstanding			2.30%
Common stock, shares outstanding			4,420,055
Stock repurchase program, remaining authorized amount				$ 5,600,000
Stock repurchase program expiration date				Dec. 31, 2017
Stock repurchase program, shares repurchased				12,863
Stock Repurchase Program on January 24, 2017 | Maximum
Equity Class Of Treasury Stock [Line Items]
Shares authorized to be repurchased			100,000
Stock Repurchase Program on January 23, 2018
Equity Class Of Treasury Stock [Line Items]
Shares authorized to be repurchased	200,000
Percentage of shares authorized to be repurchased to common stock outstanding	5.30%	2.30%
Common stock, shares outstanding		4,420,136
Common stock, shares authorized	300,000
Stock repurchase program, remaining authorized shares	231,512
Stock repurchase program expiration date				Dec. 31, 2018
Stock repurchase program, shares repurchased				68,488
Stock Repurchase Program on January 23, 2018 | Maximum
Equity Class Of Treasury Stock [Line Items]
Shares authorized to be repurchased		100,000

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Short-Term Borrowings (Details) - USD ($) $ in Thousands	Jun. 30, 2018	Dec. 31, 2017
Short Term Debt [Line Items]
Short-term borrowings	$ 1,609	$ 2,678
Repurchase Agreements
Short Term Debt [Line Items]
Total collateral carrying value	3,207	3,414
Repurchase Agreements | U.S. Government-sponsored mortgage-backed securities
Short Term Debt [Line Items]
Total collateral carrying value	$ 3,207	$ 3,414

XML

Equity Compensation (Details Textual) - USD ($)	1 Months Ended	3 Months Ended		6 Months Ended
	Mar. 31, 2017	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Restricted Stock Units
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Shares granted to employees under the plan				12,593
Shares granted under the plan immediately vested				8,359
Omnibus Equity Plan
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Number of shares authorized		340,000		340,000
Equity compensation expense recorded		$ 52,000	$ 35,000	$ 86,000	$ 53,000
Unrecognized compensation expense		444,000		$ 444,000
Unrecognized compensation expense, expected to be recognized				23 months
Shares awarded under the plan, vesting description				Shares awarded under this plan vest in equal thirds on the first three anniversaries of the award date if the employee remains employed with Cortland Bancorp.
Omnibus Equity Plan | Restricted Stock Units
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Shares granted to employees under the plan	12,976			12,593
Director Equity Plan
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Equity compensation expense recorded		$ 22,000			$ 30,000
Director Equity Plan | Restricted Stock Units
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Number of shares authorized		113,000		113,000
Shares granted under the plan immediately vested	1,656			989

XML

Equity Compensation (Details) - Restricted Stock Units	6 Months Ended
	Jun. 30, 2018 $ / shares shares
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Units, Nonvested, beginning balance | shares	20,814
Units, Granted | shares	12,593
Units, Vested | shares	(8,359)
Units, Nonvested, ending balance | shares	25,048
Price at Grant Date, Nonvested, beginning balance | $ / shares	$ 17.02
Price at Grant Date, Granted | $ / shares	22.01
Price at Grant Date, Vested | $ / shares	16.71
Price at Grant Date, Nonvested, ending balance | $ / shares	$ 19.63