10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION      

Washington, D.C. 20549

FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2014

OR

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

SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______________to______________________

Commission file number: 333-90273

FIDELITY D & D BANCORP, INC.

STATE OF INCORPORATION:  IRS EMPLOYER IDENTIFICATION NO:

PENNSYLVANIA                                     23-3017653

Address of principal executive offices:

BLAKELY & DRINKER ST.

DUNMORE, PENNSYLVANIA 18512

TELEPHONE:

570-342-8281

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 subjected to such filing requirements for the past 90 days.  [X] 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). [X] YES [  ] NO

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.  (Check one):

Large accelerated filer [  ]	Accelerated filer [  ]
Non-accelerated filer   [  ]	Smaller reporting company [X]

(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). 

[  ] YES [X] NO

The number of outstanding shares of Common Stock of Fidelity D & D Bancorp, Inc. on October 31, 2014, the latest practicable date, was 2,419,587 shares.

FIDELITY D & D BANCORP, INC.

Form 10-Q September 30, 2014

Index

Part I.  Financial Information		Page
Item 1.	Financial Statements (unaudited):
	Consolidated Balance Sheets as of September 30, 2014 and December 31, 2013	3
	Consolidated Statements of Income for the three and nine months ended September 30, 2014 and 2013	4
	Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2014 and 2013	5
	Consolidated Statements of Changes in Shareholders’ Equity for the nine months ended September 30, 2014 and 2013	6
	Consolidated Statements of Cash Flows for the nine months ended September 30, 2014 and 2013	7
	Notes to Consolidated Financial Statements (Unaudited)	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	27
Item 3.	Quantitative and Qualitative Disclosure about Market Risk	44
Item 4.	Controls and Procedures	48
Part II.  Other Information
Item 1.	Legal Proceedings	48
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	49
Signatures		51
Exhibit index		52

2

PART I – Financial Information

Item 1: Financial Statements

Fidelity D & D Bancorp, Inc. and Subsidiary
Consolidated Balance Sheets
(Unaudited)
(dollars in thousands)	September 30, 2014		December 31, 2013
Assets:
Cash and due from banks	$	13,278	$	13,197
Interest-bearing deposits with financial institutions		6,407		21
Total cash and cash equivalents		19,685		13,218
Available-for-sale securities		114,425		97,246
Held-to-maturity securities (fair value of $0 in 2014, $195 in 2013)		-		177
Federal Home Loan Bank stock		2,282		2,640
Loans and leases, net (allowance for loan losses of
$9,277 in 2014; $8,928 in 2013)		493,015		469,216
Loans held-for-sale (fair value $1,184 in 2014, $937 in 2013)		1,161		917
Foreclosed assets held-for-sale		1,936		2,086
Bank premises and equipment, net		14,590		13,602
Cash surrender value of bank owned life insurance		10,654		10,402
Accrued interest receivable		2,055		2,068
Other assets		14,082		12,253
Total assets	$	673,885	$	623,825
Liabilities:
Deposits:
Interest-bearing	$	436,925	$	406,779
Non-interest-bearing		134,943		122,919
Total deposits		571,868		529,698
Accrued interest payable and other liabilities		3,734		3,425
Short-term borrowings		11,225		8,642
Long-term debt		16,000		16,000
Total liabilities		602,827		557,765
Shareholders' equity:
Preferred stock authorized 5,000,000 shares with no par value; none issued		-		-
Capital stock, no par value (10,000,000 shares authorized; shares issued and outstanding;2,419,587 in 2014; and 2,391,617 in 2013)		25,992		25,302
Retained earnings		42,417		39,519
Accumulated other comprehensive income		2,649		1,239
Total shareholders' equity		71,058		66,060
Total liabilities and shareholders' equity	$	673,885	$	623,825
See notes to unaudited consolidated financial statements

3

Fidelity D & D Bancorp, Inc. and Subsidiary
Consolidated Statements of Income
(Unaudited)	Three months ended				Nine months ended
(dollars in thousands except per share data)	September 30, 2014		September 30, 2013		September 30, 2014		September 30, 2013
Interest income:
Loans and leases:
Taxable	$	5,521	$	5,329	$	16,191	$	16,034
Nontaxable		135		126		397		346
Interest-bearing deposits with financial institutions		3		5		14		19
Investment securities:
U.S. government agency and corporations		281		167		783		483
States and political subdivisions (nontaxable)		323		303		977		893
Other securities		31		24		79		59
Federal funds sold		1		-		1		-
Total interest income		6,295		5,954		18,442		17,834
Interest expense:
Deposits		507		525		1,495		1,551
Securities sold under repurchase agreements		5		5		17		18
Other short-term borrowings and other		2		3		8		8
Long-term debt		216		215		638		638
Total interest expense		730		748		2,158		2,215
Net interest income		5,565		5,206		16,284		15,619
Provision for loan losses		210		450		810		1,600
Net interest income after provision for loan losses		5,355		4,756		15,474		14,019
Other income:
Service charges on deposit accounts		466		492		1,320		1,403
Interchange fees		333		319		970		899
Fees from trust fiduciary activities		156		139		492		480
Fees from financial services		114		148		405		444
Service charges on loans		189		162		613		744
Fees and other revenue		196		122		558		343
Earnings on bank-owned life insurance		86		85		252		251
Gain (loss) on sale, recovery, or disposal of:
Loans		209		313		462		1,207
Investment securities		-		138		301		266
Premises and equipment		(1)		(10)		(66)		(10)
Impairment losses on investment securities:
Other-than-temporary impairment on investment securities		-		-		-		(61)
Non-credit-related losses on investment securities not expected to be sold (recognized in other comprehensive income (loss))		-		-		-		61
Net impairment losses on investment securities		-		-		-		-
Total other income		1,748		1,908		5,307		6,027
Other expenses:
Salaries and employee benefits		2,460		2,248		7,424		7,145
Premises and equipment		827		837		2,620		2,496
Advertising and marketing		198		513		804		980
Professional services		405		314		1,044		891
FDIC assessment		85		105		263		353
Loan collection		60		84		177		447
Other real estate owned		187		40		276		224
Office supplies and postage		112		116		318		332
Automated transaction processing		168		186		473		426
Other		408		201		1,057		837
Total other expenses		4,910		4,644		14,456		14,131
Income before income taxes		2,193		2,020		6,325		5,915
Provision for income taxes		562		515		1,611		1,503
Net income	$	1,631	$	1,505	$	4,714	$	4,412
Per share data:
Net income - basic	$	0.68	$	0.64	$	1.96	$	1.88
Net income - diluted	$	0.67	$	0.64	$	1.95	$	1.88
Dividends	$	0.25	$	0.25	$	0.75	$	0.75
See notes to unaudited consolidated financial statements

4

Fidelity D & D Bancorp, Inc. and Subsidiary
Consolidated Statements of Comprehensive Income	Three months ended				Nine months ended
(Unaudited)	September 30,				September 30,
(dollars in thousands)	2014		2013		2014		2013
Net income	$	1,631	$	1,505	$	4,714	$	4,412
Other comprehensive income, before tax:
Unrealized holding gain (loss) on available-for-sale securities		97		925		2,437		(1,302)
Reclassification adjustment for net gains realized in income		-		(138)		(301)		(266)
Net unrealized gain (loss)		97		787		2,136		(1,568)
Tax effect		(33)		(268)		(726)		533
Unrealized gain (loss), net of tax		64		519		1,410		(1,035)
Non-credit-related impairment gain on investment securities not expected to be sold		-		168		-		221
Reclassification adjustment for net gains realized in income		-		-		-		-
Net non-credit-related impairment gain on investment securities		-		168		-		221
Tax effect		-		(57)		-		(75)
Non-credit-related impairment gain on investment securities, net of tax		-		111		-		146
Other comprehensive income (loss), net of tax		64		630		1,410		(889)
Total comprehensive income, net of tax	$	1,695	$	2,135	$	6,124	$	3,523
See notes to unaudited consolidated financial statements

5

Fidelity D & D Bancorp, Inc. and Subsidiary
Consolidated Statements of Changes in Shareholders' Equity
For the nine months ended September 30, 2014 and 2013
(Unaudited)							Accumulated
							other
	Capital stock				Retained		comprehensive
(dollars in thousands)	Shares		Amount		earnings		income (loss)		Total
Balance, December 31, 2012		2,323,248	$	23,711	$	34,999	$	236	$	58,946
Net income						4,412				4,412
Other comprehensive loss								(889)		(889)
Issuance of common stock through Employee Stock Purchase Plan		4,256		78						78
Issuance of common stock through Dividend Reinvestment Plan		43,533		928						928
Issuance of common stock from vested restricted share grants through stock compensation plans		134
Stock-based compensation expense				88						88
Cash dividends declared						(1,767)				(1,767)
Balance, September 30, 2013		2,371,171	$	24,805	$	37,644	$	(653)	$	61,796
Balance, December 31, 2013		2,391,617	$	25,302	$	39,519	$	1,239	$	66,060
Net income						4,714				4,714
Other comprehensive income								1,410		1,410
Issuance of common stock through Employee Stock Purchase Plan		4,373		80						80
Issuance of common stock through Dividend Reinvestment Plan		18,347		448						448
Issuance of common stock from vested restricted share grants through stock compensation plans		5,250
Stock-based compensation expense				162						162
Cash dividends declared						(1,816)				(1,816)
Balance, September 30, 2014		2,419,587	$	25,992	$	42,417	$	2,649	$	71,058
See notes to unaudited consolidated financial statements

6

Fidelity D & D Bancorp, Inc. and Subsidiary
Consolidated Statements of Cash Flows
(Unaudited)	Nine months ended September 30,
(dollars in thousands)	2014		2013
Cash flows from operating activities:
Net income	$	4,714	$	4,412
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation, amortization and accretion		2,321		2,546
Provision for loan losses		810		1,600
Deferred income tax (benefit) expense		(111)		598
Stock-based compensation expense		162		88
Proceeds from sale of loans held-for-sale		25,125		72,449
Originations of loans held-for-sale		(25,222)		(59,848)
Earnings on bank-owned life insurance		(252)		(251)
Net gain from sales of loans		(462)		(1,207)
Net gain from sales of investment securities		(301)		(104)
Net loss on sale and write-down of foreclosed assets held-for-sale		70		97
Net loss on disposal of equipment		64		10
Change in:
Accrued interest receivable		13		7
Other assets		(1,396)		(731)
Accrued interest payable and other liabilities		310		(351)
Net cash provided by operating activities		5,845		19,315
Cash flows from investing activities:
Held-to-maturity securities:
Proceeds from sales		187		-
Proceeds from maturities, calls and principal pay-downs		3		100
Available-for-sale securities:
Proceeds from sales		4,877		8,461
Proceeds from maturities, calls and principal pay-downs		10,350		21,771
Purchases		(30,929)		(35,098)
Decrease in FHLB stock		358		464
Net increase in loans and leases		(26,671)		(36,430)
Acquisition of bank premises and equipment		(2,159)		(810)
Proceeds from sale of foreclosed assets held-for-sale		1,142		716
Net cash used by investing activities		(42,842)		(40,826)
Cash flows from financing activities:
Net increase in deposits		42,170		30,170
Net increase in short-term borrowings		2,583		6,141
Proceeds from employee stock purchase plan participants		80		78
Dividends paid, net of dividends reinvested		(1,473)		(1,090)
Proceeds from dividend reinvestment plan participants		104		251
Net cash provided by financing  activities		43,464		35,550
Net increase in cash and cash equivalents		6,467		14,039
Cash and cash equivalents, beginning		13,218		21,846
Cash and cash equivalents, ending	$	19,685	$	35,885
See notes to unaudited consolidated financial statements

7

FIDELITY D & D BANCORP, INC.

Notesto  Consolidated Financial Statements

(Unaudited)

1.   Nature of operations and critical accounting policies

Nature of operations

Fidelity Deposit and Discount Bank (the Bank) is a commercial bank chartered under the law of the Commonwealth of Pennsylvania and a wholly-owned subsidiary of Fidelity D & D Bancorp, Inc. (the Company or collectively, the Company).  Having commenced operations in 1903, the Bank is committed to provide superior customer service, while offering a full range of banking products and financial and trust services to both our consumer and commercial customers from our main office located in Dunmore and other branches located throughout Lackawanna and Luzerne Counties.

Principles of consolidation

The accompanying unaudited consolidated financial statements of the Company and the Bank have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial information and with the instructions to this Form 10-Q and Rule 8-03 of Regulation S-X.  Accordingly, they do not include all of the information and footnote disclosures required by GAAP for complete financial statements.  In the opinion of management, all normal recurring adjustments necessary for a fair presentation of the financial condition and results of operations for the periods have been included.  All significant inter-company balances and transactions have been eliminated in consolidation.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported periods.  Actual results could differ from those estimates.  For additional information and disclosures required under GAAP, refer to the Company’s Annual Report on Form 10-K for the year ended December 31, 2013.

Management is responsible for the fairness, integrity and objectivity of the unaudited financial statements included in this report.  Management prepared the unaudited financial statements in accordance with GAAP.  In meeting its responsibility for the financial statements, management depends on the Company's accounting systems and related internal controls.  These systems and controls are designed to provide reasonable but not absolute assurance that the financial records accurately reflect the transactions of the Company, the Company’s assets are safeguarded and that the financial statements present fairly the financial condition and results of operations of the Company.

In the opinion of management, the consolidated balance sheets as of September 30, 2014 and December 31, 2013 and the related consolidated statements of income and consolidated statements of comprehensive income for the three and nine months ended September 30, 2014 and 2013, and consolidated statements of changes in shareholders’ equity and consolidated statements of cash flows for the nine months ended September 30, 2014 and 2013 present fairly the financial condition and results of operations of the Company.  All material adjustments required for a fair presentation have been made.  These adjustments are of a normal recurring nature.  Certain reclassifications have been made to the 2013 financial statements to conform to the 2014 presentation. 

In preparing these consolidated financial statements, the Company evaluated the events and transactions that occurred after September 30, 2014 through the date these consolidated financial statements were issued.

This Quarterly Report on Form 10-Q should be read in conjunction with the Company’s audited financial statements for the year ended December 31, 2013, and the notes included therein, included within the Company’s Annual Report filed on Form 10-K.

Critical accounting policies

The presentation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect many of the reported amounts and disclosures.  Actual results could differ from these estimates.

A material estimate that is particularly susceptible to significant change relates to the determination of the allowance for loan losses.  Management believes that the allowance for loan losses at September 30, 2014 is adequate and reasonable.  Given the subjective nature of identifying and valuing loan losses, it is likely that well-informed individuals could make different assumptions and could, therefore, calculate a materially different allowance value.  While management uses available information to recognize losses on loans, changes in economic conditions may necessitate revisions in the future.  In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Company’s allowance for loan losses.  Such agencies may require the Company to recognize adjustments to the allowance based on their judgment of information available to them at the time of their examination.

Another material estimate is the calculation of fair values of the Company’s investment securities.  Fair values of investment securities are determined by pricing provided by a third-party vendor, who is a provider of financial market data, analytics and related services to financial institutions.  Based on experience, management is aware that estimated fair values of investment securities tend to vary

8

among valuation services.  Accordingly, when selling investment securities, price quotes may be obtained from more than one source.  The majority of the Company’s investment securities are classified as available-for-sale (AFS).  AFS securities are carried at fair value on the consolidated balance sheets, with unrealized gains and losses, net of income tax, reported separately within shareholders’ equity as a component of accumulated other comprehensive income (loss) (OCI).

The fair value of residential mortgage loans, classified as held-for-sale (HFS), is obtained from the Federal National Mortgage Association (FNMA) or the Federal Home Loan Bank (FHLB).  Generally, the market to which the Company sells residential mortgages it originates for sale is restricted and price quotes from other sources are not typically obtained.  On occasion, the Company may transfer loans from the loan portfolio to loans HFS.  Under these circumstances, pricing may be obtained from other entities and the loans are transferred at the lower of cost or market value and simultaneously sold.  As of September 30, 2014 and December 31, 2013, loans classified as HFS consisted of residential mortgage loans. 

Financing of automobiles, provided to customers under lease arrangements of varying terms, are accounted for as direct finance leases.  Interest income on automobile direct finance leasing is determined using the interest method.  Generally, the interest method is used to arrive at a level effective yield over the life of the lease.

Foreclosed assets held-for-sale includes other real estate acquired through foreclosure (ORE) and may, from time-to-time, include repossessed assets such as automobiles.  ORE is carried at the lower of cost (principal balance at date of foreclosure) or fair value less estimated cost to sell.  Any write-downs at the date of foreclosure or within a reasonable period of time after foreclosure are charged to the allowance for loan losses.  Expenses incurred to maintain ORE properties, subsequent write downs to the asset’s fair value, any rental income received and gains or losses on disposal are included as components of other real estate owned expense in the consolidated statements of income.   

For purposes of the consolidated statements of cash flows, cash and cash equivalents includes cash on hand, amounts due from banks and interest-bearing deposits with financial institutions.  Foreach of the nine months ended September 30, 2014 and 2013, the Company paid interest of $2.2 million. The Company was required to pay income taxes of $1.1 million during both the first nine months of 2014 and 2013.  Transfers from loans to foreclosed assets held-for-sale amounted to $1.2 million and $2.2 million during the nine months ended September 30, 2014 and 2013, respectively.  During the same respective periods, transfers from loans to loans HFS amounted to $0 and $2.9 million and from loans to bank premises and equipment amounted to $1.0 million and $0.  Expenditures for construction in process, a component of other assets in the consolidated balance sheets, are included in acquisition of bank premises and equipment.

2.  New accounting pronouncements

In August 2014, the Financial Accounting Standards Board (FASB) issued an accounting standard update (ASU 2014-14) related to; Receivables – Troubled Debt Restructurings by Creditors (Subtopic 310-40) Classification of Certain Government-Guaranteed Mortgage Loans upon Foreclosure.  The update requires that a mortgage loan be derecognized and that a separate other receivable be recognized upon foreclosure if the following conditions are met: (1) The loan has a government guarantee that is not separable from the loan before foreclosure; (2) At the time of foreclosure, the creditor has the intent to convey the real estate property to the guarantor and make a claim on the guarantee, and the creditor has the ability to recover under that claim; (3) At the time of foreclosure, any amount of the claim that is determined on the basis of the fair value of the real estate is fixed.  Upon foreclosure, the separate other receivable should be measured based on the amount of the loan balance (principal and interest) expected to be recovered from the guarantor. The amendments in the update are effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2014.  Early adoption is permitted if the entity early-adopted ASU 2014-04 (see below). The Company is currently analyzing the impact of the updated guidance on its financial statements.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, which supersedes nearly all existing revenue recognition guidance under U.S. GAAP. The core principle of ASU 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services.  ASU 2014-09 defines a five step process to achieve this core principle and, in doing so, more judgment and estimates may be required within the revenue recognition process than are required under existing U.S. GAAP: identify the contract(s) with a customer; identify the performance obligations in the contract; determine the transaction price; allocate the transaction price to the performance obligations in the contract; recognize revenue when (or as) the entity satisfies a performance obligation.  The standard is effective for annual periods beginning after December 15, 2016, and interim periods therein, using either of the following transition methods: a full retrospective approach reflecting the application of the standard in each prior reporting period with the option to elect certain practical expedients, or a retrospective approach with the cumulative effect of initially adopting ASU 2014-09 recognized at the date of adoption (which includes additional footnote disclosures).  The Company is evaluating the impact of the adoption of ASU 2014-09 on its consolidated financial statements and has not yet determined the method by which it will adopt the standard in 2017.

In January 2014, the FASB issued ASU 2014-04 related to; Receivables – Troubled Debt Restructurings by Creditors (Subtopic 310-40) Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure.  The update applies to all creditors who obtain physical possession of residential real estate property collateralizing a consumer mortgage loan in satisfaction of a receivable.  The amendments in this update clarify when an in-substance repossession or foreclosure occurs and requires disclosure of both (1) the amount of foreclosed residential real estate property held by a creditor and (2) the recorded investment in consumer

9

mortgage loans collateralized by residential real estate property that are in the process of foreclosure according to local requirements of the applicable jurisdiction.  The amendments in the update are effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2014.  Early adoption is permitted.  The Company is currently analyzing the impact of the updated guidance on its financial statements. 

3.  Accumulated other comprehensive income (loss)

The following tables illustrate the changes in accumulated other comprehensive income (loss) by component and the details about the components of accumulated other comprehensive income (loss) as of and for the periods indicated:

As of  and for the nine months ended September 30, 2014
			Non-credit-related
	Unrealized gains		impairment losses
	on available-for-		on investment
(dollars in thousands)	sale securities		securities		Total
Beginning balance	$	1,239	$	-	$	1,239
Other comprehensive income before reclassifications		1,609		-		1,609
Amounts reclassified from accumulated other comprehensive income		(199)		-		(199)
Net current-period other comprehensive income		1,410		-		1,410
Ending balance	$	2,649	$	-	$	2,649

As of and for the three months ended September 30, 2014
			Non-credit-related
	Unrealized gains		impairment losses
	on available-for-		on investment
(dollars in thousands)	sale securities		securities		Total
Beginning balance	$	2,585	$	-	$	2,585
Other comprehensive income before reclassifications		64		-		64
Amounts reclassified from accumulated other comprehensive income		-		-		-
Net current-period other comprehensive income		64		-		64
Ending balance	$	2,649	$	-	$	2,649

As of and for the nine months ended September 30, 2013
			Non-credit-related
	Unrealized gains		impairment losses
	on available-for-		on investment
(dollars in thousands)	sale securities		securities		Total
Beginning balance	$	1,905	$	(1,669)	$	236
Other comprehensive (loss) income before reclassifications		(859)		146		(713)
Amounts reclassified from accumulated other comprehensive income		(176)		-		(176)
Net current-period other comprehensive (loss) income		(1,035)		146		(889)
Ending balance	$	870	$	(1,523)	$	(653)

10

As of and for the three months ended September 30, 2013
			Non-credit-related
	Unrealized gains		impairment losses
	on available-for-		on investment
(dollars in thousands)	sale securities		securities		Total
Beginning balance	$	351	$	(1,634)	$	(1,283)
Other comprehensive  income before reclassifications		610		111		721
Amounts reclassified from accumulated other comprehensive income		(91)		-		(91)
Net current-period other comprehensive income		519		111		630
Ending balance	$	870	$	(1,523)	$	(653)

In the tables above, all amounts are net of tax at 34%. Amounts in parentheses indicate debits.

Details about accumulated other
comprehensive income components	Amount reclassified from accumulated								Affected line item in the statement
(dollars in thousands)	other comprehensive income								where net income is presented
	Three months ended				Nine months ended
	September 30,				September 30,
	2014		2013		2014		2013
Unrealized gains on AFS securities	$	-	$	138	$	301	$	266	Gain on sale, recovery, or disposal of investment securities
		-		(47)		(102)		(90)	Provision for income taxes
Total reclassifications for the period	$	-	$	91	$	199	$	176	Net income

4. Investment securities

The amortized cost and fair value of investment securities at September 30, 2014 and December 31, 2013 are summarized as follows:

			Gross		Gross
	Amortized		unrealized		unrealized		Fair
(dollars in thousands)	cost		gains		losses		value
September 30, 2014
Held-to-maturity securities:
MBS - GSE residential	$	-	$	-	$	-	$	-
Available-for-sale securities:
Agency - GSE	$	17,558	$	49	$	24	$	17,583
Obligations of states and political subdivisions		33,998		2,234		15		36,217
MBS - GSE residential		58,561		1,537		55		60,043
Total debt securities		110,117		3,820		94		113,843
Equity securities - financial services		294		288		-		582
Total available-for-sale securities	$	110,411	$	4,108	$	94	$	114,425

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			Gross		Gross
	Amortized		unrealized		unrealized		Fair
(dollars in thousands)	cost		gains		losses		value
December 31, 2013
Held-to-maturity securities:
MBS - GSE residential	$	177	$	18	$	-	$	195
Available-for-sale securities:
Agency - GSE	$	14,667	$	8	$	74	$	14,601
Obligations of states and political subdivisions		32,269		912		570		32,611
MBS - GSE residential		48,137		1,476		104		49,509
Total debt securities		95,073		2,396		748		96,721
Equity securities - financial services		295		230		-		525
Total available-for-sale securities	$	95,368	$	2,626	$	748	$	97,246

The amortized cost and fair value of debt securities at September 30, 2014 by contractual maturity are summarized below:

	Amortized		Fair
(dollars in thousands)	cost		value
Held-to-maturity securities:
MBS - GSE residential	$	-	$	-
Available-for-sale securities:
Debt securities:
Due in one year or less	$	-	$	-
Due after one year through five years		14,475		14,477
Due after five years through ten years		4,807		4,980
Due after ten years		32,274		34,343
Total debt securities		51,556		53,800
MBS - GSE residential		58,561		60,043
Total available-for-sale debt securities	$	110,117	$	113,843

Actual maturities will differ from contractual maturities because issuers and borrowers may have the right to call or repay obligations with or without call or prepayment penalty.  Agency – GSE and municipal securities are included based on their original stated maturity.  MBS – GSE residential, which are based on weighted-average lives and subject to monthly principal pay-downs, are listed in total.  Most of the securities have fixed rates or have predetermined scheduled rate changes, and many have call features that allow the issuer to call the security at par before its stated maturity, without penalty.

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The following table presents the fair value and gross unrealized losses of investment securities aggregated by investment type, the length of time and the number of securities that have been in a continuous unrealized loss position as of September 30, 2014 and December 31, 2013:

	Less than 12 months				More than 12 months				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
(dollars in thousands)	value		losses		value		losses		value		losses
September 30, 2014
Agency - GSE	$	5,075	$	22	$	2,060	$	2	$	7,135	$	24
Obligations of states and political subdivisions		-		-		1,548		15		1,548		15
MBS - GSE residential		13,827		55		-		-		13,827		55
Total temporarily impaired securities	$	18,902	$	77	$	3,608	$	17	$	22,510	$	94
Number of securities		12				6				18
December 31, 2013
Agency - GSE	$	11,592	$	74	$	-	$	-	$	11,592	$	74
Obligations of states and political subdivisions		10,148		570		-		-		10,148		570
MBS - GSE residential		11,703		83		3,052		21		14,755		104
Total temporarily impaired securities	$	33,443	$	727	$	3,052	$	21	$	36,495	$	748
Number of securities		38				2				40

Management believes the cause of the unrealized losses is related to changes in interest rates, instability in the capital markets or the limited trading activity due to illiquid conditions in the debt market and is not directly related to credit quality.  Quarterly, management conducts a formal review of investment securities for the presence of other-than-temporary impairment (OTTI).  The accounting guidance related to OTTI requires the Company to assess whether OTTI is present when the fair value of a debt security is less than its amortized cost as of the balance sheet date.  Under those circumstances, OTTI is considered to have occurred if: (1) the entity has intent to sell the security; (2) more likely than not the entity will be required to sell the security before recovery of its amortized cost basis; or (3) the present value of expected cash flows is not sufficient to recover the entire amortized cost.

The accounting guidance requires that credit-related OTTI be recognized in earnings while non-credit-related OTTI on securities not expected to be sold be recognized in other comprehensive income (loss) (OCI).  Non-credit-related OTTI is based on other factors affecting market value, including illiquidity.  Presentation of OTTI is made in the consolidated statements of income on a gross basis with an offset for the amount of non-credit-related OTTI recognized in OCI.

The Company’s OTTI evaluation process also follows the guidance set forth in topics related to debt and equity securities.  The guidance set forth in the pronouncements require the Company to take into consideration current market conditions, fair value in relationship to cost, extent and nature of changes in fair value, issuer rating changes and trends, volatility of earnings, current analysts’ evaluations, all available information relevant to the collectability of debt securities, the ability and intent to hold investments until a recovery of fair value which may be to maturity and other factors when evaluating for the existence of OTTI.  The guidance requires that credit-related OTTI be recognized as a realized loss through earnings when there has been an adverse change in the holder’s expected cash flows such that the full amount (principal and interest) will probably not be received.  This requirement is consistent with the impairment model in the guidance for accounting for debt and equity securities.

For all security types, as of September 30, 2014, the Company applied the criteria provided in the recognition and presentation guidance related to OTTI.  That is, management has no intent to sell the securities and no conditions were identified by management that more likely than not would require the Company to sell the securities before recovery of their amortized cost basis.  The results indicated there was no presence of OTTI in the Company’s security portfolio.In addition, management believes the change in fair value is attributable to changes in interest rates and those instruments with unrealized losses were not caused by deterioration of credit quality.  Accordingly, as of September 30, 2014, recognition of OTTI on these securities was unnecessary. 

Agency - GSE and MBS - GSE residential

Agency – GSE and MBS – GSE residential securities consist of short- to long-term notes issued by Federal Home Loan Mortgage Corporation (FHLMC), Federal National Mortgage Association (FNMA), Federal Home Loan Bank (FHLB) and Government National Mortgage Association (GNMA).  These securities have interest rates that are fixed and adjustable, have varying short- to long-term maturity dates and have contractual cash flows guaranteed by the U.S. government or agencies of the U.S. government.

Obligations of states and political subdivisions

The municipal securities are bank qualified or bank eligible, general obligation and revenue bonds rated as investment grade by various credit rating agencies and have fixed rates of interest with mid- to long-term maturities.  Fair values of these securities are

13

highly driven by interest rates.  Management performs ongoing credit quality reviews on these issues.

5.  Loans and leases

The classifications of loans and leases at September 30, 2014 and December 31, 2013 are summarized as follows:

(dollars in thousands)	September 30, 2014		December 31, 2013
Commercial and industrial	$	76,710	$	74,551
Commercial real estate:
Non-owner occupied		93,142		89,255
Owner occupied		91,838		86,294
Construction		7,402		10,765
Consumer:
Home equity installment		32,487		34,480
Home equity line of credit		40,651		36,836
Auto loans and leases		27,867		22,261
Other		6,613		5,205
Residential:
Real estate		117,602		110,365
Construction		8,154		8,188
Total		502,466		478,200
Less:
Allowance for loan losses		(9,277)		(8,928)
Unearned lease revenue		(174)		(56)
Loans and leases, net	$	493,015	$	469,216

Net deferred loan costs of $1.3 million and $1.1 million have been added to the carrying values of loans at September 30, 2014 and December 31, 2013, respectively.

Unearned lease revenue represents the difference between the lessor’s investment in the property and the gross investment in the lease.  Unearned revenue is accrued over the life of the lease using the effective income method.

The Company services real estate loans for investors in the secondary mortgage market which are not included in the accompanying consolidated balance sheets.  The approximate amount of mortgages serviced amounted to $254.6 million as of September 30, 2014 and $250.2 million as of December 31, 2013.

The Company utilizes an external independent loan review firm that reviews and validates the credit risk program on at least an annual basis. Results of these reviews are presented to management and the board of directors. The loan review process complements and reinforces the risk identification and assessment decisions made by lenders and credit personnel, as well as the Company’s policies and procedures.

Non-accrual loans

The decision to place loans on non-accrual status is made on an individual basis after considering factors pertaining to each specific loan.  Commercial and industrial and commercial real estate loans are placed on non-accrual status when management has determined that payment of all contractual principal and interest is in doubt or the loan is past due 90 days or more as to principal and interest, unless well-secured and in the process of collection. Consumer loans secured by real estate and residential mortgage loans are placed on non-accrual status at 120 days past due as to principal and interest and unsecured consumer loans are charged off when the loan is 90 days or more past due as to principal and interest. The Company considers all non-accrual loans to be impaired loans.

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Non-accrual loans, segregated by class, at September 30, 2014 and December 31, 2013, were as follows:

(dollars in thousands)	September 30, 2014		December 31, 2013
Commercial and industrial	$	24	$	62
Commercial real estate:
Non-owner occupied		776		1,518
Owner occupied		1,884		1,422
Construction		264		635
Consumer:
Home equity installment		394		393
Home equity line of credit		584		254
Auto loans and leases		-		12
Other		20		22
Residential:
Real estate		544		1,350
Total	$	4,490	$	5,668

Troubled Debt Restructuring

A modification of a loan constitutes a troubled debt restructuring (TDR) when a borrower is experiencing financial difficulty and the modification constitutes a concession.  The Company considers all TDRs to be impaired loans.  The Company offers various types of concessions when modifying a loan, however, forgiveness of principal is rarely granted.  Commercial and industrial loans modified in a TDR often involve temporary interest-only payments, term extensions, and converting revolving credit lines to term loans.  Additional collateral, a co-borrower, or a guarantor is often requested. Commercial real estate loans modified in a TDR often involve reducing the interest rate for the remaining term of the loan, extending the maturity date at an interest rate lower than the current market rate for new debt with similar risk, or substituting or adding a new borrower or guarantor.  Commercial real estate construction loans modified in a TDR may also involve extending the interest-only payment period.  Residential mortgage loans modified in a TDR are primarily comprised of loans where monthly payments are lowered to accommodate the borrowers’ financial needs for an extended period of time.  After the lowered monthly payment period ends, the borrower would revert back to paying principal and interest pursuant to the original terms with the maturity date adjusted accordingly.  Consumer loan modifications are typically not granted and therefore standard modification terms do not exist for loans of this type.

Loans modified in a TDR may or may not be placed on non-accrual status.  As of September 30, 2014, total TDRs amounted to $1.6 million (consisting of 5 loans to 3 unrelated borrowers), of which one loan with a balance of $0.9 million was on non-accrual status, compared to $2.0 million (consisting of 7 loans to 5 unrelated borrowers) and $1.0 million, respectively, as of December 31, 2013.  Of the TDRs outstanding as of September 30, 2014 and December 31, 2013, when modified, the concessions granted consisted of temporary interest-only payments or a reduction in the rate of interest to a below-market rate for a contractual period of time.  Other than the TDR that was on non-accrual status, the TDRs were performing in accordance with their modified terms.

Loans modified in a TDR are closely monitored for delinquency as an early indicator of possible future default.  If loans modified in a TDR subsequently default, the Company evaluates the loan for possible further impairment.  There were no loans modified in a TDR during the nine and twelve months ended September 30, 2014.

The allowance for loan losses (allowance) may be increased, adjustments may be made in the allocation of the allowance or partial charge offs may be taken to further write-down the carrying value of the loan.  An allowance for impaired loans that have been modified in a TDR is measured based on the present value of expected future cash flows discounted at the loan’s effective interest rate or the loan’s observable market price.  If the loan is collateral dependent, the estimated fair value of the collateral, less any selling costs, is used to establish the allowance.

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Past due loans

Loans are considered past due when the contractual principal and/or interest is not received by the due date.  An aging analysis of past due loans, segregated by class of loans, as of the period indicated is as follows (dollars in thousands):

														Recorded
					Past due									investment  past
	30 - 59 Days		60 - 89 Days		90 days		Total				Total			due ≥ 90 days
September 30, 2014	past due		past due		or more(1)		past due		Current		loans			and accruing
Commercial and industrial	$	618	$	36	$	116	$	770	$	75,940	$	76,710		$	92
Commercial real estate:
Non-owner occupied		64		112		776		952		92,190		93,142			-
Owner occupied		253		101		1,884		2,238		89,600		91,838			-
Construction		-		-		264		264		7,138		7,402			-
Consumer:
Home equity installment		481		198		394		1,073		31,414		32,487			-
Home equity line of credit		515		136		584		1,235		39,416		40,651			-
Auto loans and leases		383		90		-		473		27,220		27,693	(2)		-
Other		13		5		20		38		6,575		6,613			-
Residential:
Real estate		40		1,194		601		1,835		115,767		117,602			57
Construction		-		-		-		-		8,154		8,154			-
Total	$	2,367	$	1,872	$	4,639	$	8,878	$	493,414	$	502,292		$	149

(1) Includes $4.5 million of non-accrual loans.  (2) Net of unearned revenue of $0.2 million.

														Recorded
					Past due									investment  past
	30 - 59 Days		60 - 89 Days		90 days		Total				Total			due ≥ 90 days
December 31, 2013	past due		past due		or more (1)		past due		Current		loans			and accruing
Commercial and industrial	$	111	$	212	$	69	$	392	$	74,159	$	74,551		$	7
Commercial real estate:
Non-owner occupied		484		35		1,518		2,037		87,218		89,255			-
Owner occupied		1,714		545		1,422		3,681		82,613		86,294			-
Construction		-		-		635		635		10,130		10,765			-
Consumer:
Home equity installment		229		72		393		694		33,786		34,480			-
Home equity line of credit		-		114		275		389		36,447		36,836			21
Auto loans and leases		165		14		23		202		22,003		22,205	(2)		11
Other		52		23		22		97		5,108		5,205			-
Residential:
Real estate		158		1,340		1,466		2,964		107,401		110,365			116
Construction		-		-		-		-		8,188		8,188			-
Total	$	2,913	$	2,355	$	5,823	$	11,091	$	467,053	$	478,144		$	155

(1) Includes $5.7 million of non-accrual loans.  (2) Net of unearned revenue of $56 thousand.

Impaired loans

A loan is considered impaired when, based on current information and events; it is probable that the Company will be unable to collect the scheduled payments in accordance with the contractual terms of the loan.  Factors considered in determining impairment include payment status, collateral value and the probability of collecting payments when due.  The significance of payment delays and/or shortfalls is determined on a case-by-case basis.  All circumstances surrounding the loan are taken into account.  Such factors include the length of the delinquency, the underlying reasons and the borrower’s prior payment record.  Impairment is measured on these loans on a loan-by-loan basis.  Impaired loans include non-accrual loans, TDRs and other loans deemed to be impaired based on the aforementioned factors.  As of September 30, 2014 and December 31, 2013, impaired loans consisted of non-accrual loans and TDRs.

At September 30, 2014, impaired loans consisted of accruing TDRs totaling $0.7 million and $4.5 million of non-accrual loans.  At December 31, 2013, impaired loans consisted of accruing TDRs totaling $1.0 million and $5.7 million of non-accrual loans.  As of September 30, 2014 and December 31, 2013, the non-accrual loans included non-accruing TDRs of $0.9 million and $1.0 million, respectively.  Payments received from impaired loans are first applied against the outstanding principal balance, then to the recovery of any charged-off amounts.  Any excess is treated as a recovery of interest income.

16

Impaired loans, segregated by class, as of the period indicated are detailed below:

			Recorded		Recorded										Cash basis
	Unpaid		investment		investment		Total				Average		Interest		interest
	principal		with		with no		recorded		Related		recorded		income		income
(dollars in thousands)	balance		allowance		allowance		investment		allowance		investment		recognized		recognized
September 30, 2014
Commercial & industrial	$	52	$	-	$	49	$	49	$	-	$	84	$	1	$	-
Commercial real estate:
Non-owner occupied		1,416		865		382		1,247		148		1,492		18		-
Owner occupied		2,243		720		1,422		2,142		67		1,975		11		-
Construction		351		-		264		264		-		446		-		-
Consumer:
Home equity installment		538		-		394		394		-		356		11		-
Home equity line of credit		601		83		501		584		4		377		20		-
Auto loans and leases		-		-		-		-		-		5		-		-
Other		32		-		20		20		-		19		-		-
Residential:
Real estate		625		186		358		544		51		940		1		-
Construction		-		-		-		-		-		-		-		-
Total	$	5,858	$	1,854	$	3,390	$	5,244	$	270	$	5,694	$	62	$	-

			Recorded		Recorded										Cash basis
	Unpaid		investment		investment		Total				Average		Interest		interest
	principal		with		with no		recorded		Related		recorded		income		income
(dollars in thousands)	balance		allowance		allowance		investment		allowance		investment		recognized		recognized
December 31, 2013
Commercial & industrial	$	134	$	64	$	33	$	97	$	31	$	80	$	2	$	-
Commercial real estate:
Non-owner occupied		2,146		174		1,827		2,001		27		2,173		31		78
Owner occupied		2,136		622		1,327		1,949		90		3,203		36		-
Construction		1,024		-		635		635		-		903		-		-
Consumer:
Home equity installment		501		125		268		393		23		723		37		-
Home equity line of credit		340		-		254		254		-		355		2		-
Auto		12		12		-		12		1		5		-		-
Other		22		-		22		22		-		29		-		-
Residential:
Real estate		1,511		437		913		1,350		110		1,682		71		-
Construction		-		-		-		-		-		-		-		-
Total	$	7,826	$	1,434	$	5,279	$	6,713	$	282	$	9,153	$	179	$	78

Credit Quality Indicators

Commercial and industrial and commercial real estate

The Company utilizes a loan grading system and assigns a credit risk grade to its loans in the commercial and industrial and commercial real estate portfolios.  The grading system provides a means to measure portfolio quality and aids in the monitoring of the credit quality of the overall loan portfolio.  The credit risk grades are arrived at using a risk rating matrix to assign a grade to each of the loans in the commercial and industrial and commercial real estate portfolios. 

The following is a description of each risk rating category the Company uses to classify each of its commercial and industrial and commercial real estate loans:

Pass

Loans in this category have an acceptable level of risk and are graded in a range of one to five.  Secured loans generally have good collateral coverage.  Current financial statements reflect acceptable balance sheet ratios, sales and earnings trends.  Management is considered to be good, and there is some depth existing.  Payment experience on the loans has been good with minor or no delinquency experience.  Loans with a grade of one are of the highest quality in the range.  Those graded five are of marginally acceptable quality.

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Special Mention

Loans in this category are graded a six and may be protected but are potentially weak.  They constitute a credit risk to the Company, but have not yet reached the point of adverse classification.  Some of the following conditions may exist: little or no collateral coverage; lack of current financial information; delinquency problems; highly leveraged; available financial information reflects poor balance sheet ratios and profit and loss statements reflect uncertain trends; and document exceptions.  Cash flow may not be sufficient to support total debt service requirements.  Loans in this category should not remain on the list for an inordinate period of time (no more than one year) and then the loan should be passed or classified appropriately.

Substandard

Loans in this category are graded a seven and have a well-defined weakness which may jeopardize the ultimate collectability of the debt.  The collateral pledged may be lacking in quality or quantity.  Financial statements may indicate insufficient cash flow to service the debt; and/or do not reflect a sound net worth.  The payment history indicates chronic delinquency problems.  Management is considered to be weak.  There is a distinct possibility that the Company may sustain a loss.  All loans on non-accrual are rated substandard.  Other loans that are included in the substandard category can be accruing, as well as loans that are current or past due.  Loans 90 days or more past due, unless otherwise fully supported, are classified substandard. Also, borrowers that are bankrupt or have loans categorized as troubled debt restructures can be graded substandard. 

Doubtful

Loans in this category are graded an eight and have a better than 50% possibility of the Company sustaining a loss, but the loss cannot be determined because of specific reasonable factors which may strengthen credit in the near-term.  Many of the weaknesses present in a substandard loan exist.  Liquidation of collateral, if any, is likely.  Any loan graded lower than an eight is considered to be uncollectible and charged-off.

Consumer and residential

The consumer and residential loan segments are regarded as homogeneous loan pools and as such are not risk rated.  For these portfolios, the Company utilizes payment activity, history and recency of payment.  Non-performing loans are considered to be loans past due 90 days or more and accruing and non-accrual loans.  All loans not classified as non-performing are considered performing.

The following table presents loans, segregated by class, categorized into the appropriate credit quality indicator category as of the period indicated:

Commercial credit exposure

Credit risk profile by creditworthiness category

					Commercial real estate -				Commercial real estate -				Commercial real estate -
	Commercial and industrial				non-owner occupied				owner occupied				construction
(dollars in thousands)	9/30/2014		12/31/2013		9/30/2014		12/31/2013		9/30/2014		12/31/2013		9/30/2014		12/31/2013
Pass	$	72,961	$	71,122	$	83,014	$	78,069	$	86,145	$	82,975	$	6,585	$	9,026
Special mention		2,540		2,244		2,544		2,734		2,271		656		481		1,037
Substandard		1,209		1,185		7,584		8,452		3,422		2,663		336		702
Doubtful		-		-		-		-		-		-		-		-
Total	$	76,710	$	74,551	$	93,142	$	89,255	$	91,838	$	86,294	$	7,402	$	10,765

Consumer credit exposure

Credit risk profile based on payment activity

	Home equity installment				Home equity line of credit				Auto loans and leases				Other
(dollars in thousands)	9/30/2014		12/31/2013		9/30/2014		12/31/2013		9/30/2014		12/31/2013		9/30/2014		12/31/2013
Performing	$	32,093	$	34,087	$	40,067	$	36,561	$	27,693	$	22,182	$	6,593	$	5,183
Non-performing		394		393		584		275		-		23		20		22
Total	$	32,487	$	34,480	$	40,651	$	36,836	$	27,693	$	22,205	$	6,613	$	5,205

Mortgage lending credit exposure

Credit risk profile based on payment activity

	Residential real estate					Residential construction
(dollars in thousands)	9/30/2014		12/31/2013		9/30/2014		12/31/2013
Performing	$	117,001	$	108,899	$	8,154	$	8,188
Non-performing		601		1,466		-		-
Total	$	117,602	$	110,365	$	8,154	$	8,188

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Allowance for loan losses

Management continually evaluates the credit quality of the Company’s loan portfolio and performs a formal review of the adequacy of the allowance for loan losses (the allowance) on a quarterly basis.  The allowance reflects management’s best estimate of the amount of credit losses in the loan portfolio.  Management’s judgment is based on the evaluation of individual loans, past experience, the assessment of current economic conditions and other relevant factors including the amounts and timing of cash flows expected to be received on impaired loans.  Those estimates may be susceptible to significant change.  Loan losses are charged directly against the allowance when loans are deemed to be uncollectible.  Recoveries from previously charged-off loans are added to the allowance when received.

Management applies two primary components during the loan review process to determine proper allowance levels.  The two components are a specific loan loss allocation for loans that are deemed impaired and a general loan loss allocation for those loans not specifically allocated.  The methodology to analyze the adequacy of the allowance for loan losses is as follows:

§ identification of specific impaired loans by loan category;

§ identification of specific loans that are not impaired, but have an identified potential for loss;

§ calculation of specific allowances where required for the impaired loans based on collateral and other objective and quantifiable evidence;

§ determination of loans with similar credit characteristics within each class of the loan portfolio segment and eliminating the impaired loans;

§ application of historical loss percentages (trailing twelve-quarter average) to pools to determine the allowance allocation;

§ application of qualitative factor adjustment percentages to historical losses for trends or changes in the loan portfolio.

§ Qualitative factor adjustments include:

o levels of and trends in delinquencies and non-accrual loans;

o levels of and trends in charge-offs and recoveries;

o trends in volume and terms of loans;

o changes in risk selection and underwriting standards;

o changes in lending policies, procedures and practices;

o experience, ability and depth of lending management;

o national and local economic trends and conditions; and

o changes in credit concentrations.

Allocation of the allowance for different categories of loans is based on the methodology as explained above.  A key element of the methodology to determine the allowance is the Company’s credit risk evaluation process, which includes credit risk grading of individual commercial and industrial and commercial real estate loans.  Commercial and industrial and commercial real estate loans are assigned credit risk grades based on the Company’s assessment of conditions that affect the borrower’s ability to meet its contractual obligations under the loan agreement.  That process includes reviewing borrowers’ current financial information, historical payment experience, credit documentation, public information and other information specific to each individual borrower.  Upon review, the commercial loan credit risk grade is revised or reaffirmed as the case may be.  The credit risk grades may be changed at any time management feels an upgrade or downgrade may be warranted.  The credit risk grades for the commercial and industrial and commercial real estate loan portfolios are taken into account in the reserve methodology and loss factors are applied based upon the credit risk grades.  The loss factors applied are based upon the Company’s historical experience as well as what we believe to be best practices and common industry standards.  Historical experience reveals there is a direct correlation between the credit risk grades and loan charge-offs.  The changes in allocations in the commercial and industrial and commercial real estate loan portfolio from period to period are based upon the credit risk grading system and from periodic reviews of the loan portfolio.  An unallocated component is maintained to cover uncertainties that could affect management’s estimate of probable losses.  The unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies. 

Each quarter, management performs an assessment of the allowance for loan losses.  The Company’s Special Assets Committee meets monthly and the applicable lenders discuss each relationship under review and reach a consensus on the appropriate estimated loss amount, if applicable, based on current accounting guidance.  The Special Assets Committee’s focus is on ensuring the pertinent facts are considered regarding not only loans considered for specific reserves, but also the collectability of loans that may be past due in payment.  The assessment process also includes the review of all loans on a non-accruing basis as well as a review of certain loans to which the lenders or the Company’s Credit Administration function have assigned a criticized or classified risk rating. 

During the fourth quarter of 2013, the Company changed its methodology to determine historical loss percentages – from a two-year average, calculated annually, to a trailing twelve-quarter average.    Management determined that utilizing a trailing twelve-quarter average minimizes the impact of certain anomalies caused by irregular occurrences such as infrequent large loan charge offs.  Analyzing historical loss data over a longer period provides a more accurate measurement of factors to be used in estimating future loan loss estimates. 

In addition, during the fourth quarter of 2013, the Company changed its methodology used to calculate the allowance for loan losses from the methodology used in the first three quarters of 2013.  Beginning in the fourth quarter of 2013, certain loans were eliminated from the allowance for loan loss calculation.  The loans eliminated include the following:  the guaranteed portion of all commercial

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loans that carry a guarantee by the Small Business Administration and loans in all loan categories that are fully secured by cash collateral.  Management has determined that these loans have very little risk of not being fully collected.  Therefore, upon origination, these loans have been eliminated from allowance for loan loss calculations.

The Company’s policy is to charge off unsecured consumer loans when they become 90 days or more past due as to principal and interest.  In the other portfolio segments, amounts are charged off at the point in time when the Company deems the balance, or a portion thereof, to be uncollectible.

Information related to the change in the allowance for loan losses and the Company’s recorded investment in loans by portfolio segment as of the period indicated is as follows: 

As of and for the nine months ended September 30, 2014
	Commercial &		Commercial				Residential
(dollars in thousands)	industrial		real estate		Consumer		real estate		Unallocated		Total
Allowance for Loan Losses:
Beginning balance	$	944	$	4,253	$	1,482	$	1,613	$	636	$	8,928
Charge-offs		39		217		287		93		-		636
Recoveries		25		90		26		34		-		175
Provision		49		282		382		(55)		152		810
Ending balance	$	979	$	4,408	$	1,603	$	1,499	$	788	$	9,277
Ending balance: individually evaluated for impairment	$	-	$	215	$	4	$	51			$	270
Ending balance: collectively evaluated for impairment	$	979	$	4,193	$	1,599	$	1,448			$	8,219
Loans Receivables:
Ending balance	$	76,710	$	192,382	$	107,444	$	125,756			$	502,292
Ending balance: individually evaluated for impairment	$	49	$	3,653	$	998	$	544			$	5,244
Ending balance: collectively evaluated for impairment	$	76,661	$	188,729	$	106,446	$	125,212			$	497,048

As of and for the three months ended September 30, 2014
	Commercial &		Commercial				Residential
(dollars in thousands)	industrial		real estate		Consumer		real estate		Unallocated		Total
Allowance for Loan Losses:
Beginning balance	$	1,036	$	4,342	$	1,570	$	1,578	$	503	$	9,029
Charge-offs		3		-		47		16		-		66
Recoveries		11		89		4		-		-		104
Provision		(65)		(23)		76		(63)		285		210
Ending balance	$	979	$	4,408	$	1,603	$	1,499	$	788	$	9,277

As of and for the year ended December 31, 2013
	Commercial &		Commercial				Residential
(dollars in thousands)	industrial		real estate		Consumer		real estate		Unallocated		Total
Allowance for Loan Losses:
Beginning balance	$	922	$	4,908	$	1,639	$	1,503	$	-	$	8,972
Charge-offs		56		2,091		400		218		-		2,765
Recoveries		30		30		110		1		-		171
Provision		48		1,406		133		327		636		2,550
Ending balance	$	944	$	4,253	$	1,482	$	1,613	$	636	$	8,928
Ending balance: individually evaluated for impairment	$	31	$	117	$	24	$	110			$	282
Ending balance: collectively evaluated for impairment	$	913	$	4,136	$	1,458	$	1,503			$	8,010
Loans Receivables:
Ending balance	$	74,551	$	186,314	$	98,726	$	118,553			$	478,144
Ending balance: individually evaluated for impairment	$	97	$	4,585	$	681	$	1,350			$	6,713
Ending balance: collectively evaluated for impairment	$	74,454	$	181,729	$	98,045	$	117,203			$	471,431

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Information related to the change in the allowance for loan losses as of and for the three and nine months ended September 30, 2013 is as follows:

As of and for the nine months ended September 30, 2013
	Commercial &		Commercial				Residential
(dollars in thousands)	industrial		real estate		Consumer		real estate		Unallocated		Total
Allowance for Loan Losses:
Beginning balance	$	922	$	4,908	$	1,639	$	1,503	$	-	$	8,972
Charge-offs		56		1,815		274		158		-		2,303
Recoveries		8		28		99		1		-		136
Provision		32		702		189		335		342		1,600
Ending balance	$	906	$	3,823	$	1,653	$	1,681	$	342	$	8,405

As of and for the three months ended September 30, 2013
	Commercial &		Commercial				Residential
(dollars in thousands)	industrial		real estate		Consumer		real estate		Unallocated		Total
Allowance for Loan Losses:
Beginning balance	$	919	$	3,521	$	1,647	$	1,718	$	491	$	8,296
Charge-offs		8		188		94		94		-		384
Recoveries		2		16		24		1		-		43
Provision		(7)		474		76		56		(149)		450
Ending balance	$	906	$	3,823	$	1,653	$	1,681	$	342	$	8,405

6.  Earnings per share

Basic earnings per share (EPS) is computed by dividing net income available to common shareholders by the weighted-average number of common shares outstanding for the period.  Diluted EPS is computed in the same manner as basic EPS but also reflects the potential dilution that could occur from the grant of stock-based compensation awards.  The Company maintains two active share-based compensation plans that may generate additional potentially dilutive common shares.  For granted and unexercised stock options, dilution would occur if Company-issued stock options were exercised and converted into common stock.  As of the three and nine months ended September 30, 2014, there were 434 and 57 potentially dilutive shares related to issued and unexercised stock options.  There were no potentially dilutive shares related to stock options as of the three and nine months ended September 30, 2013.  For restricted stock, dilution would occur from the Company’s previously granted but unvested shares.  There were 5,799 and 4,632 potentially dilutive shares related to unvested restricted share grants as of the three months ended September 30, 2014 and 2013, respectively.  There were 4,514 and 4,407 potentially dilutive shares related to unvested restricted share grants as of the nine months ended September 30, 2014 and 2013, respectively.

In the computation of diluted EPS, the Company uses the treasury stock method to determine the dilutive effect of its granted but unexercised stock options and unvested restricted stock.  Under the treasury stock method, the assumed proceeds, as defined, received from shares issued in a hypothetical stock option exercise or restricted stock grant, are assumed to be used to purchase treasury stock.  Proceeds include: amounts received from the exercise of outstanding stock options; compensation cost for future service that the Company has not yet recognized in earnings; and any windfall tax benefits that would be credited directly to shareholders’ equity when the grant generates a tax deduction (or a reduction in proceeds if there is a charge to equity).  The Company does not consider awards from share-based grants in the computation of basic EPS.

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The following table illustrates the data used in computing basic and diluted EPS for the periods indicated:

	Three months ended September 30,				Nine months ended September 30,
	2014		2013			2014		2013
(dollars in thousands except per share data)
Basic EPS:
Net income available to common shareholders	$	1,631	$	1,505		$	4,714	$	4,412
Weighted-average common shares outstanding		2,419,587		2,359,947			2,410,100		2,345,453
Basic EPS	$	0.68	$	0.64		$	1.96	$	1.88
Diluted EPS:
Net income available to common shareholders	$	1,631	$	1,505		$	4,714	$	4,412
Weighted-average common shares outstanding		2,419,587		2,359,947			2,410,100		2,345,453
Potentially dilutive common shares		6,233		4,632			4,571		4,407
Weighted-average common and potentially dilutive shares outstanding		2,425,820		2,364,579			2,414,671		2,349,860
Diluted EPS	$	0.67	$	0.64		$	1.95	$	1.88

7.  Stock plans

The Company has two stock-based compensation plans (the stock compensation plans) from which it can grant stock-based compensation awards, and applies the fair value method of accounting for stock-based compensation provided under current accounting guidance.  The guidelines require the cost of share-based payment transactions (including those with employees and non-employees) be recognized in the financial statements.  The Company’s stock compensation plans were shareholder-approved and permit the grant of share-based compensation awards to its employees and directors.  The Company believes that the stock-based compensation plans will advance the development, growth and financial condition of the Company by providing incentives through participation in the appreciation in the value of the Company’s common stock.  In return, the Company hopes to secure, retain and motivate the employees and directors who are responsible for the operation and the management of the affairs of the Company by aligning the interest of its employees and directors with the interest of its shareholders.  In the stock compensation plans, employees and directors are eligible to be awarded stock-based compensation grants which can consist of stock options (qualified and non-qualified), stock appreciation rights (SARs) and restricted stock. 

At the 2012 annual shareholders’ meeting, the Company’s shareholders approved and the Company adopted the 2012 Omnibus Stock Incentive Plan and the 2012 Director Stock Incentive Plan (collectively, the 2012 stock incentive plans).  The 2012 stock incentive plans replaced both the expired 2000 Independent Directors Stock Option Plan and the 2000 Stock Incentive Plan (collectively, the 2000 stock incentive plans).  Unless terminated by the Company’s board of directors, the 2012 stock incentive plans will expire on, and no stock-based awards shall be granted after the plans’ tenth anniversary – or in the year 2022.  As of September 30, 2014, the Company had 19,000 of previously issued and unexercised stock options outstanding.  Also, as of September 30, 2014, the intrinsic value for outstanding stock options with market prices that exceeded their strike price amounted to $53,400.  The Company has not issued stock options since 2008.

In each of the 2012 stock incentive plans, the Company has reserved 500,000 shares of its no-par common stock for future issuance.  The Company recognizes share-based compensation expense over the requisite service or vesting period. 

The following table summarizes the weighted-average fair value and vesting of restricted stock grants awarded during the nine months ended September 30, 2014 and 2013 under the 2012 stock incentive plans:

	2014				2013
		Weighted-				Weighted-
	Shares	average grant		Vesting	Shares	average grant		Vesting
	granted	date fair value		period	granted	date fair value		period
Director plan	2,000	$	27.00	1 year	8,000	$	21.20	2 yrs - 50% per year
Omnibus plan	2,120		27.00	4 yrs - 25% per year	6,000		21.20	4 yrs - 25% per year
Total	4,120	$	27.00		14,000	$	21.20

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A summary of the status of the Company’s restricted stock grants as of and changes during the periods indicated are presented in the following table:

	2012 Stock incentive plans
	Director	Omnibus	Total
Balance at December 31, 2013	8,000	5,000	13,000
Granted	2,000	2,120	4,120
Forfeited	-	-	-
Vested	(4,000)	(1,250)	(5,250)
Balance at September 30, 2014	6,000	5,870	11,870

For restricted stock, intrinsic value represents the closing price of the underlying stock at the end of the period.  As of September 30, 2014, the intrinsic value of the Company’s restricted stock under the Director and Omnibus plans was $31.50 per share.  

Share-based compensation is included as a component of salaries and employee benefits in the consolidated statements of income.  The following tables illustrate stock-based compensation expense recognized during the three and nine months ended September 30, 2014 and 2013 and the unrecognized stock-based compensation expense as of September 30, 2014:

		Three months ended			Nine months ended
		September 30,			September 30,
(dollars in thousands)	2014		2013		2014		2013
Stock-based compensation expense:
Director plan	$	35	$	22	$	100	$	57
Omnibus plan		10		7		29		21
Total stock-based compensation expense	$	45	$	29	$	129	$	78

	As of September 30,
(dollars in thousands)	2014
Unrecognized stock-based compensation expense:
Director plan	$	46
Omnibus plan		110
Total unrecognized stock-based compensation expense	$	156

The unrecognized stock-based compensation expense as of September 30, 2014 will be recognized ratably over the periods ended January 2015 and January 2018 for the Director Plan and the Omnibus Plan, respectively.

In addition to the 2012 stock incentive plans, the Company established the 2002 Employee Stock Purchase Plan (the ESPP) and reserved 110,000 shares of its un-issued capital stock for issuance under the plan.  The ESPP was designed to promote broad-based employee ownership of the Company’s stock and to motivate employees to improve job performance and enhance the financial results of the Company.  Under the ESPP, participation is voluntary whereby employees use automatic payroll withholdings to purchase the Company’s capital stock at a discounted price based on the fair market value of the capital stock as measured on either the commencement or termination dates, as defined.  As of September 30, 2014, 34,329 shares have been issued under the ESPP.  The ESPP is considered a compensatory plan and is required to comply with the provisions of current accounting guidance.  The Company recognizes compensation expense on its ESPP on the date the shares are purchased.  For the nine months ended September 30, 2014 and 2013, compensation expense related to the ESPP approximated $33 thousand and $10 thousand, respectively, and is included as a component of salaries and employee benefits in the consolidated statements of income.

8.  Fair value measurements

The accounting guidelines establish a framework for measuring and disclosing information about fair value measurements.  The guidelines of fair value reporting instituted a valuation hierarchy for disclosure of the inputs used to measure fair value.  This hierarchy prioritizes the inputs into three broad levels as follows:

Level 1 - inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities; 

Level 2 - inputs are quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument;

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Level 3 - inputs are unobservable and are based on the Company’s own assumptions to measure assets and liabilities at fair value.  Level 3 pricing for securities may also include unobservable inputs based upon broker-traded transactions.

A financial asset or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.

The Company uses fair value to measure certain assets and, if necessary, liabilities on a recurring basis when fair value is the primary measure for accounting.  Thus, the Company uses fair value for AFS securities.  Fair value is used on a non-recurring basis to measure certain assets when adjusting carrying values to market values, such as impaired loans,  other real estate owned (ORE) and other repossessed assets.

The following table represents the carrying amount and estimated fair value of the Company’s financial instruments as of the periods indicated:

September 30, 2014
					Quoted prices		Significant		Significant
					in active		other		other
	Carrying		Estimated		markets		observable inputs		unobservable inputs
(dollars in thousands)	amount		fair value		(Level 1)		(Level 2)		(Level 3)
Financial assets:
Cash and cash equivalents	$	19,685	$	19,685	$	19,685	$	-	$	-
Available-for-sale securities		114,425		114,425		582		113,843		-
FHLB stock		2,282		2,282		-		2,282		-
Loans and leases, net		493,015		493,447		-		-		493,447
Loans held-for-sale		1,161		1,184		-		1,184		-
Financial liabilities:
Deposit liabilities		571,868		571,751		-		571,751		-
Short-term borrowings		11,225		11,225		-		11,225		-
Long-term debt		16,000		17,367		-		17,367		-

December 31, 2013
					Quoted prices		Significant		Significant
					in active		other		other
	Carrying		Estimated		markets		observable inputs		unobservable inputs
(dollars in thousands)	amount		fair value		(Level 1)		(Level 2)		(Level 3)
Financial assets:
Cash and cash equivalents	$	13,218	$	13,218	$	13,218	$	-	$	-
Held-to-maturity securities		177		195		-		195		-
Available-for-sale securities		97,246		97,246		525		96,721		-
FHLB stock		2,640		2,640		-		2,640		-
Loans and leases, net		469,216		467,381		-		-		467,381
Loans held-for-sale		917		937		-		937		-
Financial liabilities:
Deposit liabilities		529,698		529,968		-		529,968		-
Short-term borrowings		8,642		8,642		-		8,642		-
Long-term debt		16,000		17,904		-		17,904		-

The carrying value of short-term financial instruments, as listed below, approximates their fair value.  These instruments generally have limited credit exposure, no stated or short-term maturities, carry interest rates that approximate market and generally are recorded at amounts that are payable on demand :

· Cash and cash equivalents;

· Non-interest bearing deposit accounts;

· Savings, interest-bearing checking and money market accounts and

24

· Short-term borrowings.

Securities:  Fair values on investment securities are determined by prices provided by a third-party vendor, who is a provider of financial market data, analytics and related services to financial institutions. 

FHLB stock:  The Company considers the fair value of FHLB stock equal to its carrying value or cost since there is no market value available and investments in and transactions for the stock are restricted and limited to the FHLB and its member-banks.

Loans:  The fair value of loans is estimated by the net present value of the future expected cash flows discounted at current offering rates for similar loans.  Current offering rates consider, among other things, credit risk.  The carrying value that fair value is compared to is net of the allowance for loan losses and since there is significant judgment included in evaluating credit quality, loans are classified within Level 3 of the fair value hierarchy.

Loans held-for-sale:  The fair value of loans held-for-sale is estimated using rates currently offered for similar loans and is typically obtained from the Federal National Mortgage Association (FNMA) or the Federal Home Loan Bank of Pittsburgh (FHLB). 

Certificates of deposit:  The fair value of certificates of deposit is based on discounted cash flows using rates which approximate market rates for deposits of similar maturities.

Long-term debt:  Fair value is estimated using the rates currently offered for similar borrowings.

The following tables illustrate the financial instruments measured at fair value on a recurring basis segregated by hierarchy fair value levels as of the periods indicated:

			Quoted prices
			in active		Significant other		Significant other
	Total carrying value		markets		observable inputs		unobservable inputs
(dollars in thousands)	September 30, 2014		(Level 1)		(Level 2)		(Level 3)
Available-for-sale securities:
Agency - GSE	$	17,583	$	-	$	17,583	$	-
Obligations of states and political subdivisions		36,217		-		36,217		-
MBS - GSE residential		60,043		-		60,043		-
Equity securities - financial services		582		582		-		-
Total available-for-sale securities	$	114,425	$	582	$	113,843	$	-

			Quoted prices
			in active		Significant other		Significant other
	Total carrying value		markets		observable inputs		unobservable inputs
(dollars in thousands)	December 31, 2013		(Level 1)		(Level 2)		(Level 3)
Available-for-sale securities:
Agency - GSE	$	14,601	$	-	$	14,601	$	-
Obligations of states and political subdivisions		32,611		-		32,611		-
MBS - GSE residential		49,509		-		49,509		-
Equity securities - financial services		525		525		-		-
Total available-for-sale securities	$	97,246	$	525	$	96,721	$	-

Equity securities in the AFS portfolio are measured at fair value using quoted market prices for identical assets and are classified within Level 1 of the valuation hierarchy.  Debt securities in the AFS portfolio are measured at fair value using market quotations provided by a third-party vendor, who is a provider of financial market data, analytics and related services to financial institutions.  Assets classified as Level 2 use valuation techniques that are common to bond valuations.  That is, in active markets whereby bonds of similar characteristics frequently trade, quotes for similar assets are obtained.  For the nine months ended September 30, 2014 and the year ended December 31, 2013, there were no transfers to or from Level 1 and Level 2 fair value measurements for financial assets measured on a recurring basis.

The following table illustrates the changes in Level 3 financial instruments measured at fair value on a recurring basis during the first nine months of 2013.  Prior to December 31, 2013, Level 3 financial instruments measured at fair value consisted of the Company’s investment in pooled trust preferred securities.  The Company sold its entire portfolio of pooled trust preferred securities in the fourth quarter of 2013.  See Note 4, “Investment Securities”, and Note 13, “Fair Value Measurements” within the notes to the audited consolidated financial statements, incorporated by reference to the Company’s 2013 Annual Report on Form 10-K, filed with the SEC

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on March 19, 2014 for an expanded discussion on the Company’s investment, fair value determination and activity of its portfolio of pooled trust preferred securities:

(dollars in thousands)
As of and for the nine months ended September 30, 2013
Balance at beginning of period	$	1,825
Realized gains (losses) in earnings		-
Unrealized gains (losses) in OCI:
Gains		1,519
Losses		(193)
Pay down / settlement		(216)
Interest paid-in-kind		6
Accretion		2
Balance at end of period	$	2,943

The following table illustrates the financial instruments measured at fair value on a non-recurring basis segregated by hierarchy fair value levels as of the periods indicated:

			Quoted prices in		Significant other		Significant other
	Total carrying value		active markets		observable inputs		unobservable inputs
(dollars in thousands)	at September 30, 2014		(Level 1)		(Level 2)		(Level 3)
Impaired loans	$	1,584	$	-	$	-	$	1,584
Other real estate owned		1,587		-		-		1,587
Total	$	3,171	$	-	$	-	$	3,171

			Quoted prices in		Significant other		Significant other
	Total carrying value		active markets		observable inputs		unobservable inputs
(dollars in thousands)	at December 31, 2013		(Level 1)		(Level 2)		(Level 3)
Impaired loans	$	1,152	$	-	$	-	$	1,152
Other real estate owned		1,642		-		-		1,642
Other repossessed assets		8		-		-		8
Total	$	2,802	$	-	$	-	$	2,802

From time-to-time, the Company may be required to record at fair value financial instruments on a non-recurring basis, such as impaired loans, ORE and other repossessed assets. These non-recurring fair value adjustments involve the application of lower-of-cost-or-market accounting on write downs of individual assets.

The following describes valuation methodologies used for financial instruments measured at fair value on a non-recurring basis.

A loan is considered impaired when, based upon current information and events; it is probable that the Company will be unable to collect all scheduled payments in accordance with the contractual terms of the loan.  Impaired loans that are collateral dependent are written down to fair value through the establishment of specific reserves, a component of the allowance for loan losses, and as such are carried at the lower of net recorded investment or the estimated fair value. 

Estimates of fair value of the collateral are determined based on a variety of information, including available valuations from certified appraisers for similar assets, present value of discounted cash flows and inputs that are estimated based on commonly used and generally accepted industry liquidation advance rates and estimates and assumptions developed by management.  

Valuation techniques for impaired loans are typically determined through independent appraisals of the underlying collateral or may be determined through present value of discounted cash flows.  Both techniques include various Level 3 inputs which are not identifiable.  The valuation technique may be adjusted by management for estimated liquidation expenses and qualitative factors such as economic conditions.  If real estate is not the primary source of repayment, present value of discounted cash flows and estimates using generally accepted industry liquidation advance rates and other factors may be utilized to determine fair value.  For example,

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from time-to-time, the Company may refer to the National Automobile Dealers Association (NADA) guide to estimate a vehicle’s fair value for an impaired auto loan.  At September 30, 2014 and December 31, 2013, the range of liquidation expenses and other valuation adjustments applied to impaired loans ranged from -9.00%  to -42.41% and from -16.00% to -36.15%, respectively.  The weighted-average of liquidation expenses and other valuation adjustments applied to impaired loans amounted to -27.51% and ‑24.84% as of September 30, 2014 and December 31, 2013, respectively.Due to the multitude of assumptions, many of which are subjective in nature, and the varying inputs and techniques used to determine fair value, the Company recognizes that valuations could differ across a wide spectrum of techniques employed.  Accordingly, fair value estimates for impaired loans are classified as Level 3.

For ORE, fair value is generally determined through independent appraisals of the underlying properties which generally include various Level 3 inputs which are not identifiable.  Appraisals form the basis for determining the net realizable value from these properties.  Net realizable value is the result of the appraised value less certain costs or discounts associated with liquidation which occurs in the normal course of business.  Management’s assumptions may include consideration of the location and occupancy of the property, along with current economic conditions.  Subsequently, as these properties are actively marketed, the estimated fair values may be periodically adjusted through incremental subsequent write-downs.  These write-downs usually reflect decreases in estimated values resulting from sales price observations as well as changing economic and market conditions.  At September 30, 2014 and December 31, 2013, the discounts applied to the appraised value of other real estate owned ranged from -19.00% to -64.30% and from -18.22% to -72.17%, respectively.  As of September 30, 2014 and December 31, 2013, the weighted-average of discount to the appraisal values for other real estate owned amounted to -27.43% and -30.79%, respectively.

As of September 30, 2014 and December 31, 2013, there were no adjustments to the carrying value of other repossessed assets, consisting of automobiles.  The Company refers to the NADA guide to determine a vehicle’s fair value.

Item 2:  Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following is management's discussion and analysis of the significant changes in the consolidated financial condition of the Company as of September 30, 2014 compared to December 31, 2013 and a comparison of the results of operations for the three and nine months ended September 30, 2014 and 2013.  Current performance may not be indicative of future results.  This discussion should be read in conjunction with the Company’s 2013 Annual Report filed on Form 10-K.

Forward-looking statements

Certain of the matters discussed in this Quarterly Report on Form 10-Q may constitute forward-looking statements for purposes of the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended, and as such may involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements.  The words “expect,” “anticipate,” “intend,” “plan,” “believe,” “estimate,” and similar expressions are intended to identify such forward-looking statements.

The Company’s actual results may differ materially from the results anticipated in these forward-looking statements due to a variety of factors, including, without limitation:

§ the effects of economic conditions on current customers, specifically the effect of the economy on loan customers’ ability to repay loans;

§ the costs and effects of litigation and of unexpected or adverse outcomes in such litigation;

§ the impact of new laws and regulations, including the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 and the regulations promulgated thereunder;

§ the adequacy of the allowance for loan losses;

§ impacts of the new capital and liquidity requirements of the Basel III standards and other regulatory pronouncements, regulations and rules;

§ governmental monetary and fiscal policies, as well as legislative and regulatory changes;

§ effects of short- and long-term federal budget and tax negotiations and their effect on economic and business conditions;

§ the effect of changes in accounting policies and practices, as may be adopted by the regulatory agencies, as well as the Financial Accounting Standards Board and other accounting standard setters;

§ the risks of changes in interest rates on the level and composition of deposits, loan demand, and the values of loan collateral, securities and interest rate protection agreements, as well as interest rate risks;

§ the effects of competition from other commercial banks, thrifts, mortgage banking firms, consumer finance companies, credit unions, securities brokerage firms, insurance companies, money market and other mutual funds and other financial institutions operating in our market area and elsewhere, including institutions operating locally, regionally, nationally and internationally, together with such competitors offering banking products and services by mail, telephone, computer and the internet;

§ technological changes;

§ acquisitions and integration of acquired businesses;

§ the failure of assumptions underlying the establishment of reserves for loan losses and estimations of values of collateral and various financial assets and liabilities;

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§ volatilities in the securities markets;

§ disruptions due to flooding, severe weather conditions, or other natural disasters or Acts of God;

§ acts of war or terrorism; and

§ disruption of credit and equity markets.

The Company cautions readers not to place undue reliance on forward-looking statements, which reflect analyses only as of the date of this document.  The Company has no obligation to update any forward-looking statements to reflect events or circumstances after the date of this document.

Readers should review the risk factors described in other documents that we file or furnish, from time to time, with the Securities and Exchange Commission, including Annual Reports to Shareholders, Annual Reports filed on Form 10-K and other current reports filed or furnished on Form 8-K.

Executive Summary

The Company is a Pennsylvania corporation and is a bank holding company, whose wholly-owned state chartered commercial bank is The Fidelity Deposit and Discount Bank.  The Company is headquartered in Dunmore, Pennsylvania.  We consider Lackawanna and Luzerne Counties our primary marketplace.

As a leading Northeastern Pennsylvania community bank, our goals are to enhance shareholder value while continuing to build a full-service community bank.  We focus on growing our core business of retail and business lending and deposit gathering while maintaining strong asset quality and controlling operating expenses.  We continue to implement strategies to diversify earning assets and to increase low cost core deposits.  These strategies include a greater level of commercial lending and the ancillary business products and services supporting our commercial customers’ needs as well as residential lending strategies and an array of consumer products.  We focus on developing a full banking relationship with existing, as well as new, small- and middle-sized business prospects.  In addition, we explore opportunities to selectively expand our physical presence, consisting presently of our 11-branch network, with construction underway to improve our footprint in Luzerne County.

We are impacted by both national and regional economic factors, with commercial, commercial real estate and residential mortgage loans concentrated in Northeastern Pennsylvania.  Although the U.S. economy has shown signs of modest improvement, the operating environment continues to remain challenging.  Interest rates have been at or near historical lows and we expect them to remain low in the near-term.  Long-term interest rates moved higher during the latter half of 2013 but receded in 2014, with the ten-year U.S. Treasury rate decreasing from 3.04% at the end of December 2013 to 2.52% at the end of September 2014, 12 basis points lower than the rate from one year ago.  The national unemployment rate for September 2014 was 5.9%, down from 6.7% at December 2013 with new job growth in 2014 continuing at its slow pace.  In our region (Scranton, Wilkes-Barre Metropolitan Statistical Area), the unemployment rate has decreased to 5.9% at September 30, 2014 from 7.7% as of December 31, 2013 and 8.3% at September 30, 2013.  Despite the continued decline, the region continues to have the highest unemployment rate among the state’s 14 metropolitan areas, and the falling rate is due to the shrinking labor force rather than the emergence of new jobs.  While the local unemployment rate has declined more than two percentage points from September 30, 2013, 1,390 fewer people are employed than a year ago.  The median home values in the region declined 0.5% from a year ago, but are expected to rise within the next year.  We believe market conditions are slowly improving in our region; however they continue to lag behind the national recovery rate.  In light of these statistics, we will continue to monitor the economic climate in our region and scrutinize growth prospects with credit quality as a principal consideration.

In addition to the challenging economic environment in which we compete, the regulation and oversight of our business has changed significantly in recent years.  As described more fully in Part I, Item 1A, “Risk Factors,” and in the “Supervisory and Regulation” section of management’s discussion and analysis of financial condition and results of operations in our 2013 Annual Report filed on Form 10-K, certain aspects of the Dodd-Frank Wall Street Reform Act (Dodd-Frank Act) continue to have a significant impact on us.  In addition, final rules to implement Basel III regulatory capital reform, approved by the federal bank regulatory agencies in 2013, subject many banks including the Company, to capital requirements which will be phased in.  The initial provisions effective for us begin on January 1, 2015.  The rules also revise the minimum risk-based and leverage capital ratio requirements applicable to the Company and revise the calculation of risk-weighted assets to enhance their risk sensitivity.  We will continue to prepare for the impacts that the Dodd-Frank Act and the Basel III capital standards, and related rulemaking will have on our business, financial condition and results of operations.

General

The Company’s earnings depend primarily on net interest income.  Net interest income is the difference between interest income and interest expense.  Interest income is generated from yields earned on interest-earning assets, which consist principally of loans and investment securities.  Interest expense is incurred from rates paid on interest-bearing liabilities, which consist of deposits and borrowings.  Net interest income is determined by the Company’s interest rate spread (the difference between the yields earned on its interest-earning assets and the rates paid on its interest-bearing liabilities) and the relative amounts of interest-earning assets and interest-bearing liabilities.  Interest rate spread is significantly impacted by: changes in interest rates and market yield curves and their related impact on cash flows; the composition and characteristics of interest-earning assets and interest-bearing liabilities; differences in the maturity and re-pricing characteristics of assets compared to the maturity and re-pricing characteristics of the liabilities that fund

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them and by the competition in the marketplace. 

The Company’s earnings are also affected by the level of its non-interest income and expenses and by the provisions for loan losses and income taxes.  Non-interest income consists of: service charges on the Company’s loan and deposit products; interchange fees; trust and asset management service fees; increases in the cash surrender value of the bank owned life insurance and from net gains or losses from sales of loans and securities.  Non-interest expense consists of: compensation and related employee benefit costs; occupancy; equipment; data processing; advertising and marketing; FDIC insurance premiums; professional fees; loan collection; net other real estate owned (ORE) expenses; supplies and other operating overhead.

Comparison of the results of operations

Three and nine months ended September 30, 2014 and 2013

Overview

Net income for the third quarter of 2014 increased $0.1 million, or 8%, to $1.6 million, or $0.67 per diluted share, compared to $1.5 million, or $0.64 per diluted share, in the same 2013 quarter.  For the nine months ended September 30, 2014, the Company generated net income of $4.7 million, or $1.95 per diluted share, compared to $4.4 million, or $1.88 per diluted share, for the nine months ended September 30, 2013.  In both the quarter and year-to-date comparisons, the increase in net income was caused by higher net interest income and lower provisions for loan losses which were partially offset by a decline in non-interest income and higher non-interest expenses. 

Return on average assets (ROA) was 0.98% and 0.96% for the third quarters of 2014 and 2013, respectively and 0.97%  and 0.96% for the nine months ended September 30, 2014 and 2013, respectively.  ROA increased in the quarter and year-to-date periods because the increase in net income had a greater positive impact thanthe impact of the increase in average assets.  Return on average shareholders’ equity (ROE) was 9.17% and 9.85% for the three months ended September 30, 2014 and 2013, respectively and 9.15% and 9.78% for the nine months ended September 30, 2014 and 2013, respectively.  The decrease in ROE in the three- and nine-month comparison was caused by an increase in shareholders’ equity that was boosted mostly by 2013 earnings. 

Net interest income and interest sensitive assets / liabilities

Net interest income increased $0.4 million, or 7%, from $5.2 million for the quarter ended September 30, 2013 to $5.6 million for the quarter ended September 30, 2014, with increased interest income and to a lesser extent, reduced interest expense combining for the net increase.  The Company experienced a $24.0 million net increase in average interest-bearing deposits, but  a five basis point decline on average rates paid due to a  12 basis point decline on rates paid on certificates of deposit, or CDs.  The lower rates paid on CDs in conjunction with a $12.9 million decline in their average balances resulted in a $70 thousand decrease in interest expense from time deposits.  Interest expense from interest-bearing transaction deposits increased $51 thousand mostly due to higher average balances, from successful efforts in generating interest-bearing checking and money market deposits and also from higher rates paid on promotional deposit-gathering offerings and negotiated rates.  The portfolio of interest-earning assets increased $34.6 million and helped offset the negative impact of a one basis point net reduction in their yields – the negative impact stemming from the loan portfolio.  The loan portfolio increased $35.0 million on average, which boosted its earnings despite a 17 basis point reduction in yield.  The increase in interest income was also driven by a 56 basis point increase in the yields earned on investment securities. 

Net interest income for the nine months ended September 30, 2014 increased $0.7 million, or 4%, from $15.6 million in the first nine months of 2013 to $16.3 million in the first nine months of 2014.  Although total average investment securities decreased by $71 thousand, interest income from securities increased $0.5 million due to a 62 basis point higher yield.  The higher average balances in the loan portfolio drove an additional increase in interest income despite a decline in yield of 26 basis points in total.  Similar to the quarterly comparison, interest expense declined due to lower time deposit rates and average balances more than offsetting the impact of higher rates and balances on interest-bearing transaction accounts.

The fully-taxable equivalent (FTE) net interest rate spread and margin both increased by four basis points for the three months ended September 30, 2014 compared to the threemonths ended September 30, 2013.  The increase in the interest rate spread was caused by a more rapid decline in rates paid on interest-bearing liabilities compared to the minimal decrease in yields of interest-earning assets, while the margin increased due mostly to higher net interest income.  For the nine months ended September 30, 2014 compared to the same period in 2013, interest rate spread and margin decreased by one and two basis points, respectively.  The decrease in the spread was due to the year-to-date yields on interest-earning assets declining faster than the rates paid on interest-bearing liabilities while the decline in margin was due to lower yields earned on a higher average balance of interest-earning assets.  The overall cost of funds, which includes the impact of non-interest bearing deposits, was reduced by four basis points for the quarter and nine months ended September 30, 2014 compared to the same periods in 2013 because of lower rates paid notwithstanding higher balances of average interest-bearing liabilities and non-interest bearing deposits.

During 2014, the Company expects to continue to operate in a low interest rate environment, with volatility continuing at the mid- to long-end of the curve and stable, but near zero at the shortest end.  A rate environment with rising long-term interest rates positions the Company to improve its interest income performance from new and maturing long-term earning assets.  Until there is a sustained period of yield curve steepening, with rates rising at the long end, the interest rate margin may experience compression. However for

29

2014, the Company anticipates net interest income to stabilize or improve marginally as growth in interest-earning assets would help mitigate the impact of lower rates.  The Federal Open Market Committee (FOMC) has not adjusted the short-term federal funds rate upward and is not expected to do so well into 2015, helping contain funding costs.  Continued growth in the commercial and consumer loan portfolios will be the Company’s strategy, and when coupled with historically low funding costs, should help contain the interest rate margin.

The Company’s cost of interest-bearing liabilities was 64basis points for both the three and nine months ended September 30, 2014 or five and six basis points lower than the cost for the three and nine months ended September 30, 2013, respectively.  Other than retaining maturing long-term CDs, further reductions in deposit rates from the current historic low levels would have an insignificant cost-savings impact.  As noted, interest rates along the treasury yield curve have been volatile with stability existing only at the short end.  Competition could pressure banks to increase deposit rates.  On the asset side, the prime interest rate, the benchmark rate that banks use as a base rate for adjustable rate loans, is not expected to rise in the near-term thereby further pressuring net interest income should deposit rates begin to steadily rise.  To help mitigate the impact of the imminent change to the economic landscape, the Company has successfully developed and will continue to strengthen its association with existing customers, develop new business relationships, generate new loan volumes, retain and generate higher levels of average non-interest bearing deposit balances. Strategically deploying no- and low-cost deposits into interest earning-assets is an effective margin-enhancing strategy that the Company expects to continue to pursue and expand to help stabilize net interest margin.

The Company’s Asset Liability Management (ALM) team meets regularly to discuss among other things,  interest rate risk and when deemed necessary adjusts interest rates.  ALM also discusses revenue enhancing strategies to help combat the potential for a decline in net interest income. The Company’s marketing department, together with ALM, lenders and deposit gatherers, continue to develop prudent strategies that will grow the loan portfolio and accumulate low-cost deposits to improve net interest income performance.

The tables that follow set forth a comparison of average balances of assets and liabilities and their related net tax equivalent yields and rates for the periods indicated.  Interest income was adjusted to a tax-equivalent basis (FTE), using the corporate federal tax rate of 34% to recognize the income from tax-exempt interest-earning assets as if the interest was taxable.  This treatment allows a uniform comparison among yields on interest-earning assets.  Loans include loans HFS and non-accrual loans but exclude the allowance for loan losses. In the 2013 periods, securities include non-accrual securities. In 2014, the Company did not have non-accrual securities.  Net deferred loan cost amortization of $64.9 thousand and $73.6 thousand for the third quarters of 2014 and 2013, respectively, and $212.5 thousand and$211.5 thousand for the first nine months of 2014 and 2013, respectively, are included in interest income from loans.  Average balances are based on amortized cost and do not reflect net unrealized gains or losses.  Net interest margin is calculated by dividing annualized net interest income - FTE by total average interest-earning assets.  Cost of funds includes the effect of average non-interest bearing deposits as a funding source:

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	Three months ended
(dollars in thousands)	September 30, 2014						September 30, 2013
	Average				Yield /		Average				Yield /
Assets	balance		Interest		rate		balance		Interest		rate
Interest-earning assets
Interest-bearing deposits	$	3,388	$	3	0.31	%	$	6,540	$	5	0.29	%
Investments:
Agency - GSE		16,618		60	1.43			16,184		40	0.98
MBS - GSE residential		54,574		222	1.61			48,242		126	1.04
State and municipal		33,341		505	6.01			30,932		471	6.04
Other		2,892		33	4.54			9,249		26	1.11
Total investments		107,425		820	3.03			104,607		663	2.47
Loans and leases:
Commercial		267,530		3,130	4.64			251,341		3,097	4.89
Consumer		67,024		953	5.64			60,357		871	5.73
Residential real estate		165,406		1,642	3.94			153,279		1,553	4.02
Total loans and leases		499,960		5,725	4.54			464,977		5,521	4.71
Federal funds sold		162		-	0.25			241		-	0.25
Total interest-earning assets		610,935		6,548	4.25	%		576,365		6,189	4.26	%
Non-interest earning assets		49,452						44,490
Total assets	$	660,387					$	620,855
Liabilities and shareholders' equity
Interest-bearing liabilities
Deposits:
Savings	$	115,765	$	56	0.19	%	$	108,684	$	56	0.21	%
Interest-bearing checking		103,414		48	0.18			90,245		34	0.15
MMDA		96,495		145	0.60			79,904		108	0.54
CDs < $100,000		65,078		145	0.88			77,172		198	1.01
CDs > $100,000		41,236		112	1.08			42,081		129	1.21
Clubs		2,268		1	0.14			2,219		1	0.14
Total interest-bearing deposits		424,256		507	0.47			400,305		526	0.52
Repurchase agreements		11,630		5	0.18			10,648		5	0.17
Borrowed funds		18,441		218	4.68			20,615		218	4.20
Total interest-bearing liabilities		454,327		730	0.64	%		431,568		749	0.69	%
Non-interest bearing deposits		131,201						124,794
Non-interest bearing liabilities		4,285						3,892
Total liabilities		589,813						560,254
Shareholders' equity		70,574						60,601
Total liabilities and shareholders' equity	$	660,387					$	620,855
Net interest income - FTE			$	5,818					$	5,440
Net interest spread					3.61	%					3.57	%
Net interest margin					3.78	%					3.74	%
Cost of funds					0.49	%					0.53	%

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	Nine months ended
(dollars in thousands)	September 30, 2014						September 30, 2013
	Average				Yield /		Average				Yield /
Assets	balance		Interest		rate		balance		Interest		rate
Interest-earning assets
Interest-bearing deposits	$	7,147	$	14	0.27	%	$	8,768	$	19	0.29	%
Investments:
Agency - GSE		15,947		170	1.42			16,277		98	0.80
MBS - GSE residential		51,152		614	1.60			48,968		385	1.05
State and municipal		33,735		1,523	6.04			29,276		1,365	6.23
Other		2,783		85	4.07			9,167		64	0.94
Total investments		103,617		2,392	3.09			103,688		1,912	2.47
Loans and leases:
Commercial		265,913		9,260	4.66			247,022		9,207	4.98
Consumer		64,840		2,697	5.56			57,793		2,655	6.14
Residential real estate		160,074		4,835	4.04			153,510		4,697	4.09
Total loans and leases		490,827		16,792	4.57			458,325		16,559	4.83
Federal funds sold		261		-	0.26			234		-	0.25
Total interest-earning assets		601,852		19,198	4.26	%		571,015		18,490	4.33	%
Non-interest earning assets		48,520						44,883
Total assets	$	650,372					$	615,898
Liabilities and shareholders' equity
Interest-bearing liabilities
Deposits:
Savings	$	111,944	$	165	0.20	%	$	108,990	$	168	0.21	%
Interest-bearing checking		101,954		130	0.17			84,534		80	0.13
MMDA		91,355		389	0.57			80,392		317	0.53
CDs < $100,000		68,443		471	0.92			76,328		595	1.04
CDs > $100,000		41,189		338	1.10			41,572		389	1.25
Clubs		1,832		2	0.14			1,824		2	0.15
Total interest-bearing deposits		416,717		1,495	0.48			393,640		1,551	0.53
Repurchase agreements		11,967		17	0.19			12,253		18	0.19
Borrowed funds		19,518		646	4.43			19,765		646	4.37
Total interest-bearing liabilities		448,202		2,158	0.64	%		425,658		2,215	0.70	%
Non-interest bearing deposits		129,348						126,132
Non-interest bearing liabilities		3,943						3,787
Total liabilities		581,493						555,577
Shareholders' equity		68,879						60,321
Total liabilities and shareholders' equity	$	650,372					$	615,898
Net interest income - FTE			$	17,040					$	16,275
Net interest spread					3.62	%					3.63	%
Net interest margin					3.79	%					3.81	%
Cost of funds					0.50	%					0.54	%

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Provision for loan losses

The provision for loan losses represents the necessary amount to charge against current earnings, the purpose of which is to increase the allowance for loan losses (the allowance) to a level that represents management’s best estimate of known and inherent losses in the Company’s loan portfolio.  Loans determined to be uncollectible are charged off against the allowance. The required amount of the provision for loan losses, based upon the adequate level of the allowance, is subject to the ongoing analysis of the loan portfolio.  The Company’s Special Assets Committee meets periodically to review problem loans.  The committee is comprised of management, including credit administration officers, loan officers, loan workout officers and collection personnel.  The committee reports quarterly to the Credit Administration Committee of the board of directors.

Management continuously reviews the risks inherent in the loan portfolio.  Specific factors used to evaluate the adequacy of the loan loss provision during the formal process include:

•specific loans that could have loss potential;

•levels of and trends in delinquencies and non-accrual loans;

•levels of and trends in charge-offs and recoveries;

•trends in volume and terms of loans;

•changes in risk selection and underwriting standards;

•changes in lending policies, procedures and practices;

•experience, ability and depth of lending management;

•national and local economic trends and conditions; and

•changes in credit concentrations.

Provisions for loan losses of $0.2 million were recorded during the third quarter of 2014, compared to provisions of $0.5 million in the third quarter of 2013, a decline of $0.3 million.  For the first nine months of 2013 compared with the first nine months of 2014, provisions for loan losses declined from $1.6 million to $0.8 million, a $0.8 million decrease.  Management elected to reduce provision expense in 2014 because of improved credit quality as evidenced by a reduction in non-performing loans.  Although the volume of loans increased during the nine months ended September 30, 2014, in 2013 the portfolio contained some large commercial loans during which time specific reserves were provided.  Those loans are no longer present.  Non-performing loans declined from $6.5 million as of September 30, 2013 to $4.6 million as of September 30, 2014, a $1.9 million decrease.  The $0.8 million provision expense through September 30, 2014 was made to support loan growth in the period, protect against inherent losses that exist in the portfolio and reinforce the allowance for the potential credit risks that still exist from an uncertain local economic climate.  The allowance for loan losses was $9.3 million as of September 30, 2014 compared to $8.9 million as of December 31, 2013.  For a discussion on the allowance for loan losses, see “Allowance for loan losses,” located in the comparison of financial condition section of management’s discussion and analysis contained herein.

Other income

For the three months ended September 30, 2014, non-interest income amounted to $1.7 million, a $0.2 million, or 8%, decrease compared to $1.9 million recorded during the three months ended September 30, 2013.  A decline in the mortgage loan origination and refinance activities resulted in $0.1 million less gains recognized from the sales of fewer mortgage loans in the current year quarter compared to the same quarter of 2013.  In addition, there were no gains on investment securities recognized for the quarter ended September 30, 2014 compared to $0.1 million in gains recognized in the same period of 2013.

For the nine months ended September 30, 2014, non-interest income decreased $0.7 million, or 12%, to $5.3 million recorded in the first nine months of 2014 compared to $6.0 million recorded in the first nine months of 2013.  The high volume of residential loan refinance activity, molded by the prevailing low interest rate environment, has subsided as many existing mortgage holders as well as new home owners have previously availed themselves to this rare economic occurrence.  Accordingly, the volume of residential loans sold into the secondary market has declined resulting in a $0.7 million decline in gains from their sales in the first nine months of 2014 compared to the same 2013 period.  In tandem with this decline were lower mortgage service charges of approximately $0.2 million.  In addition, service charges on deposit accounts declined by $0.1 million during the first nine months of 2014 compared to the same period in 2013 due to less overdraft fees.  Partially offsetting these items were higher net service charges on sold loans, interchange fees, and rental income of $0.3 million in total.

Other operating expenses

For the three months ended September 30, 2014, total other operating expenses increased $0.3 million, or 6%, compared to the three months ended September 30, 2013. Salary and employee benefits increased $0.2 million, or 9%, in the third quarter of 2014 compared to the third quarter of 2013.  The basis of the increase includes annual merit increases, one-time salary increases and incentives awarded to select employees in the normal course of performance management and a temporary increase to group health insurance caused by a large payment of a reimbursable claim; the reimbursement of which is pending.  Professional services were up $0.1 million, or 29%, during the third quarter of 2014 compared to the third quarter of 2013 because more corporate legal  related services were required during the 2014 quarter.  Other real estate owned (ORE) expense increased $0.1 million during the third quarter of 2014 compared to the same 2013 quarter due to $0.1 million in write downs taken on ORE properties in the third quarter of 2014 compared to none taken in the 2013 third quarter.  The other component of other operating expenses increased due to a higher shares tax

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expense.  The higher shares tax was caused by a delay of shares tax credits to the fourth quarter of 2014 from the Company’s participation in a state sponsored educational improvement program.  In 2013, the shares tax credits were applied in the third quarter.  These increases were offset by a decline of $0.3 million in advertising and marketing expense due mostly to the delay until the fourth quarter of donations to participating organizations under the state sponsored educational improvement program and also to a large multi-media marketing campaign and highly visible public relations initiative that took place in 2013 that was not repeated in 2014.

For the nine months ended September 30, 2014, total other operating expenses increased by $0.3 million, or 2%, compared to the nine months ended September 30, 2013.  Salary and employee benefits increased $0.3 million, or 4%, during the first nine months of 2014 compared to the first nine months of 2013.  The basis of the increase includes select staff replacements at a higher level early in the year, the replacement of a senior level position, annual merit increases and one-time salary increases awarded to employees in the normal course of performance management.   These items were offset by lower expenses incurred for commissions and group insurance, the latter due to reduced medical claims net of increased administrative expenses.  Premises and equipment increased during the period by $0.1 million, or 5%.  New technology, core system maintenance increases and the extreme winter weather conditions in the current year all required additional expenditures for equipment and facility maintenance.  ORE expenses grew by nearly $0.1 million, or by 23%, in the current year.  In  2014, real estate taxes, insurance, maintenance and demolition costs of ORE properties has been more costly than what was incurred on the properties held during the same 2013 period.  The $0.2 million higher professional services fees are related to a 2013 legal over-accrual adjustment and additional corporate legal related services performed in 2014.  These items were partially offset by a decrease of $0.3 million, or 60%, in loan collection expenses.  Collection expense has decreased in the current year because the Company required less legal related services from outside attorneys in resolving problematic loans than in 2013.  The $0.2 million, or 18%, decrease in advertising and marketing during the nine months ended September 30, 2014 compared to the nine months ended September 30, 2013 was essentially caused by the delay in educational contributions, lower spending for multi-media Company branding and the community initiative project in 2013 that did not repeat in 2014.  A lower assessment rate caused the FDIC insurance premium to decrease $90 thousand, or 25%, during the nine months ended September 30, 2014 compared to the same 2013 period.

Comparison of financial condition at

September 30, 2014 and December 31, 2013

Overview

Consolidated assets increased $50.1 million, or 8%, to $673.9 million as of September 30, 2014 from $623.8 million at December 31, 2013.  The increase in assets was funded through growth in deposits of $42.2 million, short-term borrowings of $2.6 million and a $5.0 million increase in shareholders’ equity.  Net income of $4.7 million and $1.4 million in other comprehensive income partially offset by $1.4 million of dividends declared net of activity in the Company’s dividend reinvestment plan drove equity growth.  The increase in the funding sources was used to fund loan and investment growth.  

Funds Deployed:

Investment securities

At the time of purchase, management classifies investment securities into one of three categories: trading, available-for-sale (AFS) or held-to-maturity (HTM).  To date, management has not purchased any securities for trading purposes.  Most of the securities the Company purchases are classified as AFS even though there is no immediate intent to sell them.  The AFS designation affords management the flexibility to sell securities and position the balance sheet in response to capital levels, liquidity needs or changes in market conditions.  Securities AFS are carried at fair value on the consolidated balance sheets with unrealized gains and losses, net of deferred income taxes, reported separately within shareholders’ equity as a component of accumulated other comprehensive income (loss) (OCI).  Securities designated as HTM are carried at amortized cost and represent debt securities that the Company has the ability and intent to hold until maturity.

As of September 30, 2014, the carrying value of investment securities amounted to $114.4 million, or 17% of total assets, compared to $97.4 million, or 16% of total assets, at December 31, 2013.  On September 30, 2014, 53% of the carrying value of the investment portfolio was comprised of U.S. Government Sponsored Enterprise residential mortgage-backed securities (MBS – GSE residential or mortgage-backed securities) that amortize and provide monthly cash flow that the Company can use for reinvestment, loan demand, unexpected deposit outflow, facility expansion or operations.

Investment securities were comprised of AFS securities as of September 30, 2014.  The AFS securities were recorded with a net unrealized gain of $4.0 million as of September 30, 2014 compared to a net unrealized gain of $1.9 million as of December 31, 2013, or a net improvement of $2.1 million during the first nine months of 2014.  The direction and magnitude of the change in value of the Company’s investment portfolio is attributable to the direction and magnitude of the change in interest rates along the treasury yield curve.  Generally, the values of debt securities move in the opposite direction of the changes in interest rates.  As interest rates along the treasury yield curve rise, especially at the intermediate and long end, the value of bonds tend to decline.  Whether or not the value of the Company’s investment portfolio will continue to exceed its amortized cost will be dependent on the direction and magnitude of interest rate movements and the duration of the Company’s bonds.  Thus, if interest rates rise, the market values of the Company’s debt securities portfolio could be subject to market value declines.

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Quarterly, management performs a review of the investment portfolio to determine the causes of declines in the fair value of each security.  The Company uses inputs provided by independent third parties to determine the fair value of its investment securities portfolio.  Inputs provided by the third parties are reviewed and corroborated by management.  Evaluations of the causes of the unrealized losses are performed to determine whether impairment exists and whether the impairment is temporary or other-than-temporary.  Considerations such as the Company’s intent and ability to hold the securities to maturity, recoverability of the invested amounts over the intended holding period, the length of time and the severity in pricing decline below cost, the interest rate environment, the receipt of amounts contractually due and whether or not there is an active market for the securities, for example, are applied, along with an analysis of the financial condition of the issuer for management to make a realistic judgment of the probability that the Company will be unable to collect all amounts (principal and interest) due in determining whether a security is other-than-temporarily impaired.  If a decline in value is deemed to be other-than-temporary, the amortized cost of the security is reduced by the credit impairment amount and a corresponding charge to current earnings is recognized.  During the three and nine months ended September 30, 2014 and 2013 the Company did not incur other-than-temporary impairment charges in current earnings from its investment securities portfolio.

During the first nine months of 2014, the carrying value of total investments increased $17.0 million, or 17%.  The net increase included the investment of the proceeds from the sale of the Company’s corporate bonds thatconsisted of pooled trust preferred securities that occurred late in the fourth quarter of 2013, reinvestment of portfolio cash flow and from significant deposit growth during the current year.  For the remainder of 2014, the Company expects marginal growth in the investment portfolio which will be used to complement loan growth, the latter providing the potential for stronger earnings performance.  The Company expects to maintain a diverse and, in terms of total assets, a proportionately level investment portfolio throughout 2014.

A comparison of investment securities at September 30, 2014 and December 31, 2013 is as follows:

	September 30, 2014				December 31, 2013
(dollars in thousands)	Amount		%		Amount		%
MBS - GSE residential	$	60,043	52.5	%	$	49,686	51.0	%
State & municipal subdivisions		36,217	31.6			32,611	33.5
Agency - GSE		17,583	15.4			14,601	15.0
Equity securities - financial services		582	0.5			525	0.5
Total	$	114,425	100.0	%	$	97,423	100.0	%

Federal Home Loan Bank Stock

Investment in Federal Home Loan Bank (FHLB) stock is required for membership in the organization and is carried at cost since there is no market value available.  The amount the Company is required to invest is dependent upon the relative size of outstanding borrowings the Company has with the FHLB of Pittsburgh.  Excess stock is repurchased from the Company at par if the amount of borrowings decline to a predetermined level.  In addition, the Company earns a return or dividend based on the amount invested.  The dividends received from the FHLB totaled $63 thousand and $11 thousand for the nine months ended September 30, 2014 and 2013, respectively.  The dividend rate has continued to rise in each of the quarters of 2013 and into 2014.  The balance in FHLB stock was $2.3 million and $2.6 million as of September 30, 2014 and December 31, 2013, respectively.

Loans held-for-sale (HFS)

Upon origination, most residential mortgages and certain small business administration (SBA) guaranteed loans may be classified as held-for-sale (HFS).  In the event of market rate increases, fixed-rate loans and loans not immediately scheduled to re-price would no longer produce yields consistent with the current market.  In low interest rate environments, the Company would be exposed to prepayment risk and, as rates on adjustable-rate loans decrease, interest income would be negatively affected.  Consideration is given to the Company’s current liquidity position and projected future liquidity needs.  To better manage prepayment and interest rate risk, loans that meet these conditions may be classified as HFS.  The carrying value of loans HFS is based on the lower of cost or estimated fair value.  If the fair values of these loans decline below their original cost, the difference is written down and charged to current earnings.  Subsequent appreciation in the portfolio is credited to current earnings but only to the extent of previous write-downs.  As of September 30, 2014 and December 31, 2013, loans HFS consisted of residential mortgage loans.

As of September 30, 2014 and December 31, 2013, loans HFS had a carrying amount of $1.2 million and $0.9 million, respectively, which approximated their fair values.  During the nine months ended September 30, 2014, residential mortgage loans with principal balances of $25.0 million were sold into the secondary market and the Company recognized net gains of $0.5 million, compared to $72.0 million and $1.2 million, respectively during the nine months ended September 30, 2013.  With a decline in residential mortgage origination, refinance and modification activities, the Company does not expect to achieve the same level of gains from loan sales in 2014 as it had in 2013. 

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The Company retains mortgage servicing rights (MSRs) on loans sold into the secondary market.  MSRs are retained so that the Company can foster personal relationships with its loyal customer base.  At September 30, 2014 and December 31, 2013, the servicing portfolio balance of sold residential mortgage loans was $254.6 million and $250.2 million, respectively.

Loans and leases

We have a team of business relationship managers, several of which are new to our bank, that offer a high level of knowledge and expertise.  We continue to provide our business relationship managers with the best products and services to assist and enhance our clients with their business.  This provides us with the opportunity to grow and expand our relationships.  We emphasize customer loyalty by being a trusted financial advisor to our clients. 

For the first three quarters of 2014, the Bank has seen a reduction in non-performing loans of $1.2 million, or 20%.  We remain focused on practices that accent asset quality.  Our continued utilization of loan participations (sharing loans with other financial institutions) and various government guaranty programs helps us by further reducing our risk.

Commercial and industrial

The commercial and industrial (C&I) loan portfolio increased $2.1 million, or 3%, from $74.6 million at December 31, 2013 to $76.7 million at September 30, 2014.  Growth in this category through September, although modest, was impacted by the payoff of several large loans.  For the remainder of 2014, the Company expects nominal growth in the C&I portfolio. 

Commercial real estate

The commercial real estate loan portfolio increased $6.1 million, or 3%, from $186.3 million at December 31, 2013 to $192.4 million as of September 30, 2014.  This level of growth has come from growing relationships with our existing customers and emphasizing our desire to grow owner occupied commercial real estate.  We believe both of these strategies will help manage loan portfolio risk.

Consumer

The consumer loan portfolio increased by $8.8 million, or 9%, from $98.8 million at December 31, 2013 to $107.6 million at September 30, 2014.  The increase in this portfolio was primarily attributable to the auto loans and leases category.  During the first three quarters of 2014, the Company’s strategy of building on its existing relationships with automobile dealerships for loans and leases enabled the Company to grow this portfolio segment.  Steady growth here as well as seasonal promotions of home equity lines of credit accounted for the consumer loan growth in the first nine months of 2014.  Continued emphasis on this segment is expected for the remainder of the year.

Residential

The residential loan portfolio grew $7.2 million, or 6%, from $118.6 million at December 31, 2013 to $125.8 million at September 30, 2014.  Incremental originations, primarily within the scope of the Company’s residential mortgage loan modification program targeting loans of relatively short duration – 15 years or less, has had reasonable success in light of contravening market factors including an extended low interest rate environment.  Residential mortgage loan activity with purchases of real estate is expected to continue, albeit limited, throughout remainder of year.

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The composition of the loan portfolio at September 30, 2014 and December 31, 2013, is summarized as follows:

	September 30, 2014				December 31, 2013
(dollars in thousands)	Amount		%		Amount		%
Commercial and industrial	$	76,710	15.3	%	$	74,551	15.6	%
Commercial real estate:
Non-owner occupied		93,142	18.5			89,255	18.7
Owner occupied		91,838	18.3			86,294	18.0
Construction		7,402	1.5			10,765	2.2
Consumer:
Home equity installment		32,487	6.5			34,480	7.2
Home equity line of credit		40,651	8.1			36,836	7.7
Auto and leases		27,867	5.5			22,261	4.7
Other		6,613	1.3			5,205	1.1
Residential:
Real estate		117,602	23.4			110,365	23.1
Construction		8,154	1.6			8,188	1.7
Gross loans		502,466	100.0	%		478,200	100.0	%
Less:
Allowance for loan losses		(9,277)				(8,928)
Unearned lease revenue		(174)				(56)
Net loans	$	493,015			$	469,216
Loans held-for-sale	$	1,161			$	917

Allowance for loan losses

Management evaluates the credit quality of the Company’s loan portfolio and performs a formal review of the adequacy of the allowance for loan losses (the allowance) on a quarterly basis.  The allowance reflects management’s best estimate of the amount of credit losses in the loan portfolio.  Management’s judgment is based on the evaluation of individual loans, past experience, the assessment of current economic conditions and other relevant factors including the amounts and timing of cash flows expected to be received on impaired loans.  Those estimates may be susceptible to significant change.  The provision for loan losses represents the amount necessary to maintain an appropriate allowance.  Loan losses are charged directly against the allowance when loans are deemed to be uncollectible.  Recoveries from previously charged-off loans are added to the allowance when received.

Management applies two primary components during the loan review process to determine proper allowance levels.  The two components are a specific loan loss allocation for loans that are deemed impaired and a general loan loss allocation for those loans not specifically allocated.  The methodology to analyze the adequacy of the allowance for loan losses is as follows:

•identification of specific impaired loans by loan category;

•calculation of specific allowances where required for the impaired loans based on collateral and other objective and quantifiable evidence;

•determination of loans with similar credit characteristics within each class of the loan portfolio segment and eliminating the impaired loans;

•application of historical loss percentages (trailing twelve-quarter average) to pools to determine the allowance allocation;

•application of qualitative factor adjustment percentages to historical losses for trends or changes in the loan portfolio, and/or current economic conditions.

Allocation of the allowance for different categories of loans is based on the methodology as explained above.  A key element of the methodology to determine the allowance is the Company’s credit risk evaluation process, which includes credit risk grading of individual commercial loans.  Commercial loans are assigned credit risk grades based on the Company’s assessment of conditions that affect the borrower’s ability to meet its contractual obligations under the loan agreement.  That process includes reviewing borrowers’ current financial information, historical payment experience, credit documentation, public information and other information specific to each individual borrower.  Upon review, the commercial loan credit risk grade is revised or reaffirmed.  The credit risk grades may be changed at any time management determines an upgrade or downgrade may be warranted.  The credit risk grades for the commercial loan portfolio are taken into account in the reserve methodology and loss factors are applied based upon the credit risk grades.  The loss factors applied are based upon the Company’s historical experience as well as what management believes to be best practices and within common industry standards.  Historical experience reveals there is a direct correlation between the credit risk grades and loan charge-offs.  The changes in allocations in the commercial loan portfolio from period-to-period are based upon the credit risk grading system and from periodic reviews of the loan portfolio.

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Each quarter, management performs an assessment of the allowance for loan losses.  The Company’s Special Assets Committee meets monthly and the applicable lenders discuss each relationship under review and reach a consensus on the appropriate estimated loss amount, if applicable, based on current accounting guidance.  The Special Assets Committee’s focus is on ensuring the pertinent facts are considered regarding not only loans considered for specific reserves, but also the collectability of loans that may be past due.  The assessment process also includes the review of all loans onnon-accrualstatus as well as a review of certain loans to which the lenders or the Company’s Credit Administration function have assigned a criticized or classified risk rating.

Net charge-offs for the nine months ended September 30, 2014 were $0.5 million compared to $2.2 million for the nine months ended September 30, 2013, an improvement of $1.7 million.  The year-over-year improvement was the result of improved overall credit quality.  During the third quarter of 2014, charge-offs were taken on a variety of consumer, residential and commercial loans.  For a discussion on the provision for loan losses, see the “Provision for loan losses,” located in the results of operations section of management’s discussion and analysis contained herein.

The allowance for loan losses was $9.3 million as of September 30, 2014, $8.9 million as of December 31, 2013 and $8.4 million as of September 30, 2013.  Management believes that the current balance in the allowance for loan losses is sufficient to withstand the identified potential credit quality issues that may arise and others unidentified but inherent to the portfolio.  Potential problem loans are those where there is known information that leads management to believe repayment of principal and/or interest is in jeopardy and the loans are currently neither on non-accrual status nor past due 90 days or more.  There could be additional instances which become identified in future periods that may require additional charge-offs and/or increases to the allowance due to continued sluggishness in the economy and pressure on property values.

The allowance for loan losses can generally absorb losses throughout the loan portfolio.  However, in some instances an allocation is made for specific loans or groups of loans.  Allocation of the allowance for loan losses for different categories of loans is based on the methodology used by the Company, as previously explained.  The changes in the allocations from period-to-period are based upon quarter-end reviews of the loan portfolio.

During the fourth quarter of 2013, the Company changed its methodology to determine historical loss percentages from a two-year average that was calculated annually to a trailing twelve-quarter average. Management determined that utilizing a trailing twelve-quarter average minimizes the impact of certain anomalies caused by irregular occurrences such as infrequent large loan charge-offs.  In addition, during the fourth quarter of 2013, management changed its methodology used to calculate the allowance for loan losses by eliminating certain loans from the calculation that have very little risk of not being collected.  Such loans would include the guaranteed portion of all commercial loans that carry a guarantee by the SBA and all loan categories that are fully secured by cash collateral.  The change in the averaging convention had an immaterial impact on the September 30, 2014 and December 31, 2013 allowance calculations.  In addition, by excluding the cash secured and guarantee portion of SBA loans, the Company was able to reduce the allowance requirement by approximately $0.1 million as of September 30, 2014 and $0.2 million as of December 31, 2013.

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The following tables set forth the activity in the allowance for loan losses and certain key ratios for the period indicated:

	As of and for the			As of and for the			As of and for the
	nine months ended			twelve months ended			nine months ended
(dollars in thousands)	September 30, 2014			December 31, 2013			September 30, 2013
Balance at beginning of period	$	8,928		$	8,972		$	8,972
Charge-offs:
Commercial and industrial		39			56			56
Commercial real estate		217			2,091			1,815
Consumer		287			400			274
Residential		93			218			158
Total		636			2,765			2,303
Recoveries:
Commercial and industrial		25			30			8
Commercial real estate		90			30			28
Consumer		26			110			99
Residential		34			1			1
Total		175			171			136
Net charge-offs		461			2,594			2,167
Provision for loan losses		810			2,550			1,600
Balance at end of period	$	9,277		$	8,928		$	8,405
Net charge-offs (annualized) to average total loans outstanding		0.13	%		0.56	%		0.95	%
Allowance for loan losses to net charge-offs (annualized)		15.09	x		3.44	x		1.94	x
Allowance for loan losses to total loans		1.84	%		1.86	%		1.81	%
Loans 30 - 89 days past due and accruing	$	4,239		$	5,268		$	3,276
Loans 90 days or more past due and accruing	$	149		$	155		$	345
Non-accrual loans	$	4,490		$	5,668		$	6,148
Allowance for loan losses to loans 90 days or more past due and accruing		62.26	x		57.60	x		24.36	x
Allowance for loan losses to non-accrual loans		2.07	x		1.58	x		1.37	x
Allowance for loan losses to non-performing loans		2.00	x		1.53	x		1.29	x
Average total loans	$	490,827		$	461,539		$	458,325

Non-performing assets

The Company defines non-performing assets as accruing loans past due 90 days or more, non-accrual loans, troubled debt restructured loans (TDRs), other real estate owned (ORE), repossessed assets and non-accrual investment securities.  At September 30, 2014, non-performing assets represented 1.09% of total assets compared with 1.82% of total assets as of September 30, 2013 and 1.44% as of December 31, 2013.  The improvement resulted from a significant reduction in non-performing loans, elimination of the non-accrual securities (pooled trust preferred securities), and a reduction in troubled debt restructurings.  Most of the non-performing loans are collateralized, thereby mitigating the Company’s potential for loss.

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The following table sets forth non-performing assets data as of the period indicated:

(dollars in thousands)	September 30, 2014		December 31, 2013		September 30, 2013
Loans past due 90 days or more and accruing	$	149	$	155	$	345
Non-accrual loans *		4,490		5,668		6,148
Total non-performing loans		4,639		5,823		6,493
Troubled debt restructurings		754		1,045		1,059
Other real estate owned and repossessed assets		1,936		2,086		2,966
Non-accrual securities		-		-		1,166
Total non-performing assets	$	7,329	$	8,954	$	11,684
Total loans, including loans held-for-sale	$	503,453	$	479,061	$	464,008
Total assets	$	673,885	$	623,825	$	640,294
Non-accrual loans to total loans		0.89%		1.18%		1.32%
Non-performing loans to total loans		0.92%		1.22%		1.40%
Non-performing assets to total assets		1.09%		1.44%		1.82%

* In the table above, the amount includes non-accrual TDRs of $0.9 million as of September 30, 2014, $1.0 million as of December 31, 2013 and $1.0 million as of September 30, 2013.

In the review of loans for both delinquency and collateral sufficiency, management concluded that there were a number of loans that lacked the ability to repay in accordance with contractual terms.  The decision to place loans on non-accrual status is made on an individual basis after considering factors pertaining to each specific loan.  Generally, commercial loans are placed on non-accrual status when management has determined that payment of all contractual principal and interest is in doubt or the loan is past due 90 days or more as to principal and interest, unless well-secured and in the process of collection.  Consumer loans secured by residential real estate and residential mortgage loans are placed on non-accrual status at 120 days past due as to principal and interest, and unsecured consumer loans are charged-off when the loan is 90 days or more past due as to principal and interest.  Uncollected interest income accrued on all loans placed on non-accrual is reversed and charged to interest income.

Non-performing loans, which consists of accruing loans that are over 90 days past due as well as all non-accrual loans, decreased from $5.8 million on December 31, 2013 to $4.6 million on September 30, 2014, a $1.2 million decrease (20%).  As of December 31, 2013, the portion of accruing loans that was over 90 days past due totaled $0.2 million and consisted of four loans to four unrelated borrowers, ranging from $7 thousand to $0.1 million.  At September 30, 2014, the portion of accruing loans that was over 90 days past due totaled $0.1 million and consisted of four loans to four unrelated borrowers ranging from $2 thousand to $83 thousand.  The Company seeks payments from all past due customers through an aggressive customer communication process.  A past due loan will be placed on non-accrual at the 90 day point when it is deemed that a customer is non-responsive and uncooperative to collection efforts.

At December 31, 2013, there were 47 loans to 37 unrelated borrowers ranging from less than $1 thousand to $1.0 million in the non-accrual category.  At September 30, 2014 there were 44 loans to 40 unrelated borrowers on non-accrual ranging from less than $1 thousand to $0.9 million.  The decrease in non-accrual loans was related to loans that were charged off, paid off, transferred to ORE or moved back to accrual status.

At September 30, 2014, non-accrual loans totaled $4.5 million compared with $5.7 million at December 31, 2013, a decrease of $1.2 million.  Non-accrual loans decreased during the period ending September 30, 2014 for the following reasons:  $2.2 million in new non-accrual loans plus capitalized expenditures on these loans were added; $0.6 million were reduced or paid off; $0.4 million were charged-off; $1.2 million were transferred to ORE; $0.2 million of loans were returned to performing status.  In addition, $1.0 million of non-accrual loans were transferred from loans to premises and equipment as more fully described under the caption “Premises and equipment”, contained in this management’s discussion and analysis below.  The ratio of non-performing loans to total loans was 0.92% at September 30, 2014 compared to 1.22% at December 31, 2013.

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The composition of non-performing loans as of September 30, 2014 is as follows:

	Gross		Past due 90		Non-		Total non-		% of
	loan		days or more		accrual		performing		gross
(dollars in thousands)	balances		and still accruing		loans		loans		loans
Commercial and industrial	$	76,710	$	92	$	24	$	116	0.15%
Commercial real estate:
Non-owner occupied		93,142		-		776		776	0.83%
Owner occupied		91,838		-		1,884		1,884	2.05%
Construction		7,402		-		264		264	3.57%
Consumer:
Home equity installment		32,487		-		394		394	1.21%
Home equity line of credit		40,651		-		584		584	1.44%
Auto loans and leases		27,693		-		-		-	0.00%
Other		6,613		-		20		20	0.30%
Residential:
Real estate		117,602		57		544		601	0.51%
Construction		8,154		-		-		-	-
Loans held-for-sale		1,161		-		-		-	-
Total	$	503,453	$	149	$	4,490	$	4,639	0.92%

Payments received from non-accrual loans are recognized on a cash method.  Payments are first applied to the outstanding principal balance, then to the recovery of any charged-off loan amounts.  Any excess is treated as a recovery of interest income.  If the non-accrual loans that were outstanding as of September 30, 2014 had been performing in accordance with their original terms, the Company would have recognized interest income with respect to such loans of $125 thousand.

The Company, on a regular basis, reviews changes to loans to determine if they meet the definition of a TDR. TDRs arise when a borrower experiences financial difficulty and the Company grants a concession that it would not otherwise grant based on current underwriting standards in order to maximize the Company’s recovery.  TDRs aggregated $1.6 million at September 30, 2014, which was a decrease from the December 31, 2013 total of $2.0 million, the result of loan payoffs during the first nine months of 2014.

The following tables set forth the activity in TDRs as and for the periods indicated:

As of and for the nine months ended September 30, 2014
	Accruing				Non-accruing
	Commercial &		Commercial		Commercial
(dollars in thousands)	industrial		real estate		real estate		Total
Troubled Debt Restructures:
Beginning balance	$	35	$	1,010	$	967	$	2,012
Pay downs / payoffs		10		281		92		383
Ending balance	$	25	$	729	$	875	$	1,629

As of and for the year ended December 31, 2013
	Accruing				Non-accruing
	Commercial &		Commercial		Commercial
(dollars in thousands)	industrial		real estate		real estate		Total
Troubled Debt Restructures:
Beginning balance	$	42	$	1,061	$	1,066	$	2,169
Pay downs / payoffs		7		51		99		157
Ending balance	$	35	$	1,010	$	967	$	2,012

If applicable, a TDR loan classified as non-accrual would require a minimum of six months of payments before consideration for a return to accrual status.  The concessions granted consisted of temporary interest-only payments or a reduction in the rate of interest to

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a below-market rate for a contractual period of time.  The Company believes concessions have been made in the best interests of the borrower and the Company.  If loans characterized as a TDR perform according to the restructured terms for a satisfactory period of time, the TDR designation may be removed in a new calendar year if the loan yields a market rate of interest.

Foreclosedassets held-for-sale

Foreclosed assets held-for-sale aggregated $1.9 million at September 30, 2014 and $2.1 million at December 31, 2013. The following table sets forth the activity in the ORE component of foreclosed assets held-for-sale:

	September 30, 2014			December 31, 2013
(dollars in thousands)	Amount		#	Amount		#
Balance at beginning of period	$	2,078	15	$	1,600	12
Additions		1,038	6		2,381	15
Pay downs		-			(34)
Write downs		(126)			(443)
Sold		(1,066)	(10)		(1,426)	(12)
Balance at end of period	$	1,924	11	$	2,078	15

As of September 30, 2014, ORE consisted of eleven properties from ten unrelated borrowers totaling $1.9 million.  Five of these properties ($1.0 million) were added in 2014; two were added in 2013 ($0.2 million); two were added in 2012 ($0.3 million); one was added in 2011 ($0.2 million) and one was added in 2010 ($0.3 million).  In addition, of the elven properties, seven ($1.8 million) were listed for sale, while the remaining properties (four of approximately $0.1 million in total) are in litigation, awaiting appraisals and disposition plans or undergoing eviction proceedings.

Other repossessed assets held-for-sale included an automobile with a book value of $12 thousand at September 30, 2014.  At December 31, 2013, other repossessed assets consisted of an automobile with a book value of $8 thousand which was sold during 2014.

Premises and equipment

Net of depreciation, premises and equipment increased $1.0 million during the first nine months of 2014.  During the 2014 first quarter, the Company received through foreclosure the deed that secured the collateral for a non-owner occupied commercial real estate loan that was on non-accrual status.  The loan, in the amount $1.0 million, was transferred from loans to foreclosed assets held-for-sale and then to bank premises.  The Company expects to use the property for future facility expansion.

Other assets

The $1.8 million increase in other assets was due mostly to progress payments on facility remodeling and branch relocation, residual values associated with recording new automobile leases, net of lease disposals, normal cyclical changes to prepaid expenses, amounts due from borrowers for their loan escrow accounts, partially offset by income tax refunds and a decline in the net deferred tax asset.

Funds Provided:

Deposits

The Company is a community based commercial depository financial institution, member FDIC, which offers a variety of deposit products with varying ranges of interest rates and terms.  Generally, deposits are obtained from consumers, businesses and public entities within the communities that surround the Company’s 11 branch offices and all deposits are insured by the FDIC up to the full extent permitted by law.  Deposit products consist of transaction accounts including: savings; clubs; interest-bearing checking; money market and non-interest bearing checking (DDA).  The Company also offers short- and long-term time deposits or certificates of deposit (CDs). CDs are deposits with stated maturities which can range from seven days to ten years.  Deposit inflow and outflow are influenced by economic conditions, changes in the interest rate environment, pricing and competition.  To determine interest rates on its deposit products, the Company considers local competition, spreads to earning-asset yields, liquidity position and rates charged for alternative sources of funding such as short-term borrowings and FHLB advances.

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The following table represents the components of deposits as of the date indicated:

	September 30, 2014				December 31, 2013
(dollars in thousands)	Amount		%		Amount		%
Money market	$	102,779	18.0	%	$	83,512	15.8	%
Interest-bearing checking		118,323	20.7			100,315	18.9
Savings and clubs		112,018	19.5			109,253	20.6
Certificates of deposit		103,805	18.2			113,699	21.5
Total interest-bearing		436,925	76.4			406,779	76.8
Non-interest bearing		134,943	23.6			122,919	23.2
Total deposits	$	571,868	100.0	%	$	529,698	100.0	%

Total deposits increased $42.2 million, or  8%, from $529.7 million at December 31, 2013 to $571.9 million at September 30, 2014.  Growth in transaction accounts of $52.1 million, or 13%, offset declines in CDs.  The increase in these transaction accounts was driven by an increase of $33.8 million in public deposits from negotiated contracts.  Success in deposit gathering strategies including periodic promotions and business relationship development helped boost money market accounts andnon-interest bearing deposits for both retail and business customers.  The Company will continue to execute on its relationship development strategy, explore the demographics within its marketplace and tailor creative programs to continue to grow within the market.  For the remainder of 2014, moderate deposit growth is expected.

The market interest rate profile had not changed significantly from year-end with the long end of the treasury yield curve actually receding to year-ago rate levels.  Thus, customers’ preference is for non-maturing deposits and for the Company, CDs continue to decrease; having declined $9.9 million, or almost 9%, from year-end 2013.  The current environment continues to cause business and retail customers to seek short-term alternatives for their deposits.  When rates begin to rise, there is no assurance that customers will continue to hold their deposits with the Company or they may seek higher rates from term CDs, thereby increasing funding costs.  The Company will continue to pursue strategies to grow and retain retail and business customers including the development of a creative CD campaign with an emphasis on deepening and broadening existing and creating new relationships. 

The Company uses the Certificate of Deposit Account Registry Service (CDARS) reciprocal program to obtain FDIC insurance protection for customers who have large deposits that at times may exceed the FDIC maximum amount of $250,000 per person.  In the CDARS program, deposits with varying terms and interest rates, originated in the Company’s own markets, are exchanged for deposits of other financial institutions that are members in the CDARS network.  By placing the deposits in other participating institutions, the deposits of our customers are fully insured by the FDIC.  In return for deposits placed with network institutions, the Company receives from network institutions deposits that are approximately equal in amount and are comprised of terms similar to those placed for our customers.  Deposits the Company receives, or reciprocal deposits, from other institutions are considered brokered deposits by regulatory definitions.  As of September 30, 2014 and December 31, 2013, CDARS represented $7.7 million, or 1%, and $10.3 million, or 2%, respectively, of total deposits.

Excluding CDARS, certificates of deposit accounts of $100,000 or more amounted to $40.2 million and $41.2 million at September 30, 2014 and December 31, 2013,  respectively.  Certificates of deposit of $250,000 or more amounted to $16.4 million and $15.7 million as of September 30, 2014 and December 31, 2013, respectively.

Including CDARS, approximately 17% of the CDs, with a weighted-average interest rate of 0.60%, are scheduled to mature in 2014 and an additional 38%, with a weighted-average interest rate of 0.91%, are scheduled to mature in 2015.  Renewing CDs may re-price to lower or higher market rates depending on the rate on the maturing CD, the pace and direction of interest rate movements, the shape of the yield curve, competition, the rate profile of the maturing accounts and depositor preference for alternative, non-term products.  The widespread preference has been for customers with maturing CDs to hold their deposits in readily available transaction accounts.  The Company does not expect significant net CD growth during the remainder of 2014, but is poised to develop a CD promotional program when economic demand is more forthcoming.  As with all promotions, the Company will consider the needs of the customers and simultaneously will be mindful of the liquidity levels and the interest rate sensitivity exposure of the Company.

Borrowings

Borrowings are used as a complement to deposit generation as an alternative funding source whereby the Company will borrow under customer repurchase agreements in the local market, advances from the FHLB and other correspondent banks for asset growth and liquidity needs.

Repurchase agreements are non-insured interest-bearing liabilities that have a perfected security interest in qualified investments of the Company as required by the FDIC Depositor Protection Act of 2009.  Repurchase agreements are offered through a sweep product.  A sweep account is designed to ensure that on a daily basis, an attached DDA is adequately funded and excess funds are transferred, or swept, into an interest-bearing overnight repurchase agreement account.  Due to the constant inflow and outflow of funds of the sweep product, their balances tend to be somewhat volatile, similar to a DDA.  Customer liquidity is the typical cause for

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variances in repurchase agreements, which during the first nine months of 2014increased $5.1 million, or 82%, from year-end December 31, 2013.  In addition, short-term borrowings may include overnight balances which the Company may require to fund daily liquidity needs such as deposit and repurchase agreement cash outflow, loan demand and operations.  At September 30, 2014 and December 31, 2013,  the Company had balances in overnight borrowings of $0 and $2.5 million, respectively.

The following table represents the components of borrowings as of the date indicated:

	September 30, 2014				December 31, 2013
(dollars in thousands)	Amount		%		Amount		%
Overnight borrowings	$	-	-	%	$	2,472	10.0	%
Securities sold under repurchase agreements		11,225	41.2			6,171	25.0
Long-term FHLB advances		16,000	58.8			16,000	65.0
Total	$	27,225	100.0	%	$	24,643	100.0	%

Item 3.  Quantitative and Qualitative Disclosure About Market Risk

Management of interest rate risk and market risk analysis.

The adequacy and effectiveness of an institution’s interest rate risk management process and the level of its exposures are critical factors in the regulatory evaluation of an institution’s sensitivity to changes in interest rates and capital adequacy.  Management believes the Company’s interest rate risk measurement framework is sound and provides an effective means to measure, monitor, analyze, identify and control interest rate risk in the balance sheet.

The Company is subject to the interest rate risks inherent in its lending, investing and financing activities.  Fluctuations of interest rates will impact interest income and interest expense along with affecting market values of all interest-earning assets and interest-bearing liabilities, except for those assets or liabilities with a short term remaining to maturity.  Interest rate risk management is an integral part of the asset/liability management process.  The Company has instituted certain procedures and policy guidelines to manage the interest rate risk position.  Those internal policies enable the Company to react to changes in market rates to protect net interest income from significant fluctuations.  The primary objective in managing interest rate risk is to minimize the adverse impact of changes in interest rates on net interest income along with creating an asset/liability structure that maximizes earnings.

Asset/Liability Management.  One major objective of the Company when managing the rate sensitivity of its assets and liabilities is to stabilize net interest income.  The management of and authority to assume interest rate risk is the responsibility of the Company’s Asset/Liability Committee (ALCO), which is comprised of senior management and members of the board of directors.  ALCO meets quarterly to monitor the relationship of interest sensitive assets to interest sensitive liabilities.  The process to review interest rate risk is a regular part of managing the Company.  Consistent policies and practices of measuring and reporting interest rate risk exposure, particularly regarding the treatment of non-contractual assets and liabilities, are in effect.  In addition, there is an annual process to review the interest rate risk policy with the board of directors which includes limits on the impact to earnings from shifts in interest rates.

Interest Rate Risk Measurement. Interest rate risk is monitored through the use of three complementary measures: static gap analysis, earnings at risk simulation and economic value at risk simulation.  While each of the interest rate risk measurements has limitations, collectively, they represent a reasonably comprehensive view of the magnitude of interest rate risk in the Company and the distribution of risk along the yield curve, the level of risk through time and the amount of exposure to changes in certain interest rate relationships.

Static Gap.  The ratio between assets and liabilities re-pricing in specific time intervals is referred to as an interest rate sensitivity gap.  Interest rate sensitivity gaps can be managed to take advantage of the slope of the yield curve as well as forecasted changes in the level of interest rate changes.

To manage this interest rate sensitivity gap position, an asset/liability model commonly known as cumulative gap analysis is used to monitor the difference in the volume of the Company’s interest sensitive assets and liabilities that mature or re-price within given time intervals.  A positive gap (asset sensitive) indicates that more assets will re-price during a given period compared to liabilities, while a negative gap (liability sensitive) indicates the opposite effect.  The Company employs computerized net interest income simulation modeling to assist in quantifying interest rate risk exposure.  This process measures and quantifies the impact on net interest income through varying interest rate changes and balance sheet compositions.  The use of this model assists the ALCO to gauge the effects of the interest rate changes on interest-sensitive assets and liabilities in order to determine what impact these rate changes will have upon the net interest spread.  At September 30, 2014, the Company maintained a one-year cumulative gap of positive (asset sensitive) $62.6 million, or 9%, of total assets.  The effect of this positive gap position provided a mismatch of assets and liabilities which may expose the Company to interest rate risk during periods of falling interest rates.  Conversely, in an increasing interest rate environment, net interest income could be positively impacted because more assets than liabilities will re-price upward during the one-year period.

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Certain shortcomings are inherent in the method of analysis discussed above and presented in the next table.  Although certain assets and liabilities may have similar maturities or periods of re-pricing, they may react in different degrees to changes in market interest rates.  The interest rates on certain types of assets and liabilities may fluctuate in advance of changes in market interest rates, while interest rates on other types of assets and liabilities may lag behind changes in market interest rates.  Certain assets, such as adjustable-rate mortgages, have features which restrict changes in interest rates on a short-term basis and over the life of the asset.  In the event of a change in interest rates, prepayment and early withdrawal levels may deviate significantly from those assumed in calculating the table amounts.  The ability of many borrowers to service their adjustable-rate debt may decrease in the event of an interest rate increase.

The following table illustrates the Company’s interest sensitivity gap position at September 30, 2014:

			More than		More than
	Three months		three months to		one year		More than
(dollars in thousands)	or less		twelve months		to three years		three years		Total
Cash and cash equivalents	$	6,429	$	-	$	-	$	13,256	$	19,685
Investment securities (1)(2)		3,479		12,263		27,863		73,102		116,707
Loans and leases(2)		186,416		70,326		115,536		121,898		494,176
Fixed and other assets		-		10,654		-		32,663		43,317
Total assets	$	196,324	$	93,243	$	143,399	$	240,919	$	673,885
Total cumulative assets	$	196,324	$	289,567	$	432,966	$	673,885
Non-interest-bearing transaction deposits (3)	$	-	$	13,508	$	37,083	$	84,352	$	134,943
Interest-bearing transaction deposits (3)		131,677		19,295		120,041		62,107		333,120
Certificates of deposit		17,901		33,393		42,811		9,700		103,805
Repurchase agreements		11,225		-		-		-		11,225
Long-term debt		-		-		16,000		-		16,000
Other liabilities		-		-		-		3,734		3,734
Total liabilities	$	160,803	$	66,196	$	215,935	$	159,893	$	602,827
Total cumulative liabilities	$	160,803	$	226,999	$	442,934	$	602,827
Interest sensitivity gap	$	35,521	$	27,047	$	(72,536)	$	81,026
Cumulative gap	$	35,521	$	62,568	$	(9,968)	$	71,058
Cumulative gap to total assets		5.3%		9.3%		-1.5%		10.5%

(1)   Includes FHLB stock and the net unrealized gains/losses on available-for-sale securities.

(2)   Investments and loans are included in the earlier of the period in which interest rates were next scheduled to adjust or the period in which they are due.  In addition, loans were included in the periods in which they are scheduled to be repaid based on scheduled amortization.  For amortizing loans and MBS – GSE residential, annual prepayment rates are assumed reflecting historical experience as well as management’s knowledge and experience of its loan products.

(3)  The Company’s demand and savings accounts were generally subject to immediate withdrawal.  However, management considers a certain amount of such accounts to be core accounts having significantly longer effective maturities based on the retention experiences of such deposits in changing interest rate environments.  The effective maturities presented are the recommended maturity distribution limits for non-maturing deposits based on historical deposit studies.

Earnings at Risk and Economic Value at Risk Simulations.  The Company recognizes that more sophisticated tools exist for measuring the interest rate risk in the balance sheet that extend beyond static re-pricing gap analysis.  Although it will continue to measure its re-pricing gap position, the Company utilizes additional modeling for identifying and measuring the interest rate risk in the overall balance sheet.  The ALCO is responsible for focusing on “earnings at risk” and “economic value at risk”, and how both relate to the risk-based capital position when analyzing the interest rate risk.

Earnings at Risk.  An earnings at risk simulation measures the change in net interest income and net income should interest rates rise and fall.  The simulation recognizes that not all assets and liabilities re-price one-for-one with market rates (e.g., savings rate).  The ALCO looks at “earnings at risk” to determine income changes from a base case scenario under an increase and decrease of 200 basis points in interest rate simulation models.

Economic Value at Risk. An earnings at risk simulation measures the short-term risk in the balance sheet.  Economic value (or portfolio equity) at risk measures the long-term risk by finding the net present value of the future cash flows from the Company’s existing assets and liabilities.  The ALCO examines this ratio quarterly utilizing an increase and decrease of 200 basis points in interest rate simulation models.  The ALCO recognizes that, in some instances, this ratio may contradict the “earnings at risk” ratio.

The following table illustrates the simulated impact of an immediate 200 basis points upward or downward movement in interest rates on net interest income, net income and the change in the economic value (portfolio equity).  This analysis assumed that interest-

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earning asset and interest-bearing liability levels at September 30, 2014 remained constant.  The impact of the rate movements was developed by simulating the effect of the rate change over a twelve-month period from the September 30, 2014 levels:

	% change
	Rates +200		Rates -200
Earnings at risk:
Net interest income	5.5	%	(2.6)	%
Net income	16.5		(7.7)
Economic value at risk:
Economic value of equity	(9.8)		(15.8)
Economic value of equity as a percent of total assets	(1.3)		(2.1)

Economic value has the most meaning when viewed within the context of risk-based capital.  Therefore, the economic value may normally change beyond the Company’s policy guideline for a short period of time as long as the risk-based capital ratio (after adjusting for the excess equity exposure) is greater than 10%.  At September 30, 2014, the Company’s risk-based capital ratio was 15.3%.

The table below summarizes estimated changes in net interest income over a twelve-month period beginning October 1, 2014, under alternate interest rate scenarios using the income simulation model described above:

	Net interest		$		%
(dollars in thousands)	income		variance		variance
Simulated change in interest rates
+200 basis points	$	23,491	$	1,230	5.5	%
+100 basis points		22,723		462	2.1
Flat rate		22,261		-	-
-100 basis points		22,070		(191)	(0.9)
-200 basis points		21,674		(587)	(2.6)

Simulation models require assumptions about certain categories of assets and liabilities.  The models schedule existing assets and liabilities by their contractual maturity, estimated likely call date or earliest re-pricing opportunity.  MBS – GSE residential securities and amortizing loans are scheduled based on their anticipated cash flow including estimated prepayments.  For investment securities, the Company uses a third-party service to provide cash flow estimates in the various rate environments.  Savings, money market and interest-bearing checking accounts do not have stated maturities or re-pricing terms and can be withdrawn or re-price at any time.  This may impact the margin if more expensive alternative sources of deposits are required to fund loans or deposit runoff.  Management projects the re-pricing characteristics of these accounts based on historical performance and assumptions that it believes reflect their rate sensitivity.  The model reinvests all maturities, repayments and prepayments for each type of asset or liability into the same product for a new like term at current product interest rates.  As a result, the mix of interest-earning assets and interest bearing-liabilities is held constant.

Liquidity

Liquidity management ensures that adequate funds will be available to meet customers’ needs for borrowings, deposit withdrawals and maturities, facility expansion and normal operating expenses.  Sources of liquidity are cash and cash equivalents, asset maturities and pay-downs within one year, loans HFS, investments AFS, growth of core deposits and repurchase agreements, utilization of borrowing capacities from the FHLB, correspondent banks, CDARs, the Discount Window of the Federal Reserve Bank of Philadelphia (FRB)  and proceeds from the issuance of capital stock.  Though regularly scheduled investment and loan payments are dependable sources of daily liquidity, sales of both loans HFS and investments AFS, deposit activity and investment and loan prepayments are significantly influenced by general economic conditions including the interest rate environment.  During low and declining interest rate environments, prepayments from interest-sensitive assets tend to accelerate and provide significant liquidity that can be used to invest in other interest-earning assets but at lower market rates.  Conversely, in periods of high or rising interest rates, prepayments from interest-sensitive assets tend to decelerate causing prepayment cash flows from mortgage loans and mortgage-backed securities to decrease.  Rising interest rates may also cause deposit inflow but priced at higher market interest rates or could also cause deposit outflow due to higher rates offered by the Company’s competition for similar products.  The Company closely monitors activity in the capital markets and takes appropriate action to ensure that the liquidity levels are adequate for funding, investing and operating activities.

The Company’s contingency funding plan (CFP) sets a framework for handling liquidity issues in the event circumstances arise which the Company deems to be less than normal.  The Company established guidelines for identifying, measuring, monitoring and managing the resolution of potentially serious liquidity crises.  The CFP outlines required monitoring tools, acceptable alternative funding sources and required actions during various liquidity scenarios.  Thus, the Company has implemented a proactive means for

46

the measurement and resolution for handling potentially significant adverse liquidity conditions.  At least quarterly, the CFP monitoring tools, current liquidity position and monthly projected liquidity sources and uses are presented and reviewed by the Company’s ALCO.  As of September 30, 2014, the Company had not experienced any adverse issues that would give rise to its inability to raise liquidity in an emergency situation.

During the nine months ended September 30, 2014, the Company generated $6.5 million of cash.  During the period, the Company’s operations provided approximately $5.8 million mostly from$16.3 million of net cash inflow from the components of net interest income, a $0.9 million income tax refund in the second quarter of 2014; partially offset by net non-interest expense /income related payments of $8.7 million, $1.1 million of estimated income tax payments  and a $1.6 million increase in the residual value from the Company’s automobile leasing activities.  Cash proceeds from the sale of the pooled trust preferred securities portfolio in the fourth quarter of 2013 along with cash inflow from interest-earning assets and growth in deposits and short-term borrowings were used to fund loan demand growth, security investments and net dividend payments.  The growth in the loan portfolio occurred in all sectors and the Company expects to continue growth in the loan portfolio during the remainder of 2014 funded by deposits, repos, operations and if necessary short-term borrowings.  The seasonal nature of deposits  from municipalities and other public funding sources requires the Company to be prepared for the inherent volatility and the unpredictable timing of cash outflow from this customer base.  Accordingly, the use of short-term overnight borrowings could be used to fulfill funding gap needs.  The CFP is a tool to help the Company ensure that alternative funding sources are available to meet its liquidity needs.

The Company is a party to financial instruments with off-balance sheet risk in the normal course of business in order to meet the financing needs of its customers and in connection with the overall interest rate management strategy.  These instruments involve, to a varying degree, elements of credit, interest rate and liquidity risk.  In accordance with GAAP, these instruments are either not recorded in the consolidated financial statements or are recorded in amounts that differ from the notional amounts.  Such instruments primarily include lending commitments and lease obligations.

Lending commitments include commitments to originate loans and commitments to fund unused lines of credit.  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.  Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee.  Since some of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements.

In addition to lending commitments, the Company has contractual obligations related to operating lease commitments.  Operating lease commitments are obligations under various non-cancelable operating leases on buildings and land used for office space and banking purposes. The Company’s position with respect to lending commitments and significant contractual lease obligations, both on a short- and long-term basis has not changed materially from December 31, 2013.  

As of September 30, 2014, the Company maintained $19.7 million in cash and cash equivalents and $115.6 million of investments AFS and loans HFS.  Also as of September 30, 2014, the Company had approximately $175.3 million available to borrow from the FHLB, $21.0 million from correspondent banks, $30.2 million from the FRB and $32.5 million from the CDARS program.  The combined total of $394.3 million represented 59% of total assets at September 30, 2014.  Management believes this level of liquidity to be strong and adequate to support current operations.

Capital

During the nine months ended September 30, 2014, total shareholders' equity increased $5.0 million, or 8%, due principally from the $4.7 million in net income added into retained earnings and to a lesser extent, the $1.4 million, after-tax improvement in the net unrealized gain position in the Company’s investment portfolio.  Capital was further enhanced by $0.5 million from investments in the Company’s common stock via the Employee Stock Purchase (ESPP) and Dividend Reinvestment (DRP) plans.  These items were partially offset by $1.8 million of cash dividends declared on the Company’s common stock.  The Company’s dividend payout ratio, defined as the rate at which current earnings is paid to shareholders, was 38.5% for the nine months ended September 30, 2014.  The balance of earnings is retained to further strengthen the Company’s capital position.

As of September 30, 2014, the Company reported a net unrealized gain position of $2.6 million, net of tax, from the securities AFS portfolio compared to a net unrealized gain of $1.2 million as of December 31, 2013.  The improvement during the first nine months of 2014 was from all security types.  Management believes that changes in fair value of the Company’s securities are due to changes in interest rates and not in the creditworthiness of the issuers.  Generally, when U.S. Treasury rates rise, investment securities’ pricing declines and fair values of investment securities also decline.  While volatility has existed in the yield curve within the past twelve months, a rising rate environment is inevitable and during said period the Company expects pricing in the bond portfolio to decline.  There is no assurance that future realized and unrealized losses will not be recognized from the Company’s portfolio of investment securities.  To help maintain a healthy capital position, the Company can issue stock to participants in the DRP and ESPP plans.  The DRP affords the Company the option to acquire shares in open market purchases and/or issue shares directly from the Company to plan participants.  During the first nine months of 2014, the Company utilized both methods of fulfilling the needs of the DRP.  Both the DRP and the ESPP plans have been a consistent source of capital from the Company’s loyal employees and shareholders and their participation in these plans will continue to help strengthen the Company’s balance sheet.Beginning in 2009, the Company’s board of directors had allowed a benefit to our loyal shareholders as a discount on the purchase price for shares issued directly from the Company through the DRP and voluntary cash feature.  During the first quarter of 2014, the DRP was amended to discontinue a

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portion of the discount on the voluntary cash feature as the board of directors had determined that the Company’s capital position achieved sufficient levels.

The Company (on a consolidated basis) and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies.  Failure to meet minimum capital requirements can initiate certain mandatory and possible additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s and the Bank’s financial statements.  Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and the Bank must meet specific capital guidelines that involve quantitative measures of their assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices.  The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk-weightings and other factors.  Prompt corrective action provisions are not applicable to bank holding companies.

Under these guidelines, assets and certain off-balance sheet items are assigned to broad risk categories, each with appropriate weights.  The resulting capital ratios represent capital as a percentage of total risk-weighted assets.  The guidelines require all banks and bank holding companies to maintain a minimum ratio of total risk-based capital to total risk-weighted assets (Total Risk Adjusted Capital) of 8%, including Tier I capital to total risk-weighted assets (Tier I Capital) of 4% and Tier I capital to average total assets (Leverage Ratio) of at least 4%.  As of September 30, 2014, the Company and the Bank exceeded all capital adequacy requirements to which it was subject.

The Company continues to closely monitor and evaluate alternatives to enhance its capital ratios as the regulatory and economic environments change.  The following table depicts the capital amounts and ratios of the Company and the Bank as of September 30, 2014:

									To be well capitalized
				For capital					under prompt corrective
	Actual			adequacy purposes					action provisions
(dollars in thousands)	Amount		Ratio	Amount			Ratio		Amount			Ratio
As of September 30, 2014
Total capital (to risk-weighted assets)
Consolidated	$	74,584	15.3%	≥	$	39,083	≥	8.0%			N/A		N/A
Bank	$	74,142	15.2%	≥	$	39,073	≥	8.0%	≥	$	48,842	≥	10.0%
Tier I capital (to risk-weighted assets)
Consolidated	$	68,307	14.0%	≥	$	19,541	≥	4.0%			N/A		N/A
Bank	$	67,996	13.9%	≥	$	19,537	≥	4.0%	≥	$	29,305	≥	6.0%
Tier I capital (to average assets)
Consolidated	$	68,307	10.3%	≥	$	26,416	≥	4.0%			N/A		N/A
Bank	$	67,996	10.3%	≥	$	26,395	≥	4.0%	≥	$	32,994	≥	5.0%

The Company advises readers to refer to the Supervision and Regulation section of Management’s Discussion and Analysis of Financial Condition and Results of Operation, of its 2013 Form 10-K for a discussion on the regulatory environment and recent legislation and rulemaking.

Item 4.  Controls and Procedures

As of the end of the period covered by this Quarterly Report on Form 10-Q, an evaluation was carried out by the Company’s management, with the participation of its President and Chief Executive Officer and Chief Financial Officer, of the effectiveness of the Company’s disclosure controls and procedures, as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934.  Based on such evaluation, the President and Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports the Company files or furnishes under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and regulations, and are effective.  The Company made no changes in its internal controls over financial reporting or in other factors that materially affected, or are reasonably likely to materially affect, these controls during the last fiscal quarter ended September 30, 2014.

PART II - Other Information

Item 1.  Legal Proceedings

The nature of the Company’s business generates some litigation involving matters arising in the ordinary course of business.  However, in the opinion of the Company after consultation with legal counsel, no legal proceedings are pending, which, if determined

48

adversely to the Company or the Bank, would have a material adverse effect on the Company’s undivided profits or financial condition.  No legal proceedings are pending other than ordinary routine litigation incidental to the business of the Company and the Bank.  In addition, to management’s knowledge, no governmental authorities have initiated or contemplated any material legal actions against the Company or the Bank.

Item 1A.  Risk Factors

Management of the Company does not believe there have been any material changes to the risk factors that were disclosed in the 2013 Form 10-K filed with the Securities and Exchange Commission on March 19, 2014.

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds

                        None

Item 3.  Default Upon Senior Securities

None                                                                                               

Item 4.  Mine Safety Disclosures

                       Not applicable                                                                                               

Item 5.  Other Information

                       None                                                                                               

Item 6.  Exhibits

The following exhibits are filed herewith or incorporated by reference as a part of this Form 10-Q:

3(i) Amended and Restated Articles of Incorporation of Registrant. Incorporated by reference to Annex B of the Proxy Statement/Prospectus included in Registrant’s Amendment 4 to its Registration Statement No. 333-90273 on Form S-4, filed with the SEC on April 6, 2000.

3(ii) Amended and Restated Bylaws of Registrant. Incorporated by reference to Exhibit 3(ii) to Registrant’s Form 8-K filed with the SEC on November 21, 2007.

*10.1 Registrant’s 2012 Dividend Reinvestment and Stock Repurchase Plan.  Incorporated by reference to Exhibit 4.1 to Registrant’s Registration Statement No. 333-183216 on Form S-3 filed with the SEC on August 10, 2012 as amended February 3, 2014.

*10.2 Registrant’s 2000 Independent Directors Stock Option Plan.  Incorporated by reference to Exhibit 4.3 to Registrant’s Registration Statement No. 333-64356 on Form S-8 filed with the SEC on July 2, 2001.

*10.3 Amendment, dated October 2, 2007, to the Registrant’s 2000 Independent Directors Stock Option Plan.  Incorporated by reference to Exhibit 10.2 to Registrant’s Form 8-K filed with the SEC on October 4, 2007.

*10.4 Registrant’s 2000 Stock Incentive Plan.  Incorporated by reference to Exhibit 4.4 to Registrant’s Registration Statement No. 333-64356 on Form S-8 filed with the SEC on July 2, 2001.

*10.5 Amendment, dated October 2, 2007, to the Registrant’s 2000 Stock Incentive Plan.  Incorporated by reference to Exhibit 10.1 to Registrant’s Form 8-K filed with the SEC on October 4, 2007.

*10.6 Registrant’s 2002 Employee Stock Purchase Plan.  Incorporated by reference to Appendix A to Definitive proxy Statement filed with the SEC on March 28, 2002.

*10.7 Change of Control Agreement with Salvatore R. DeFrancesco, the Registrant and The Fidelity Deposit and Discount Bank, dated March 21, 2006.  Incorporated by reference to Exhibit 99.2 to Registrant’s Current Report on Form 8-K filed with the SEC on March 27, 2006.

*10.8 Amended and Restated Executive Employment Agreement between the Registrant, The Fidelity Deposit and Discount Bank and Daniel J. Santaniello, dated March 23, 2011.Incorporated by reference to Exhibit 99.1 to Registrant’s Current Report on Form 8-K filed with the SEC on March 29, 2011.

*10.9 Amended and Restated Executive Employment Agreement between the Registrant, The Fidelity Deposit and Discount Bankand Timothy P. O’Brien, dated March 23, 2011.  Incorporated by reference to Exhibit 99.2 to Registrant’s Current Report on Form 8-K filed with the SEC on March 29, 2011.

*10.10 2012 Omnibus Stock Incentive Plan.  Incorporated by reference to Appendix A to Registrant’s Definitive Proxy Statement filed with the SEC on March 30, 2012.

*10.11 2012 Director Stock Incentive Plan.  Incorporated by reference to Appendix B to Registrant’s Definitive Proxy Statement filed with the SEC on March 30, 2012.

11Statement regarding computation of earnings per share.  Included herein in Note No. 6, “Earnings per share,” contained within the Notes to Consolidated Financial Statements, and incorporated herein by reference.

49

31.1 Rule 13a-14(a) Certification of Principal Executive Officer, filed herewith.

31.2 Rule 13a-14(a) Certification of Principal Financial Officer, filed herewith.

32.1 Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350,

  as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, filed herewith.

32.2 Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350,

  as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, filed herewith.

101 Interactive data files: The following, from Fidelity D&D Bancorp, Inc.’s. Quarterly Report on Form 10-Q for the quarter ended September 30, 2014, is formatted in XBRL (eXtensible Business Reporting Language): Consolidated Balance Sheets as of September 30, 2014 and December 31, 2013;  Consolidated Statements of Income for the three and nine months ended September 30, 2014 and 2013; Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2014 and 2013; Consolidated Statements of Changes in Shareholders’ Equity for the nine months ended September 30, 2014 and 2013; Consolidated Statements of Cash Flows for the nine months ended September 30, 2014 and 2013 and the Notes to the Consolidated Financial Statements.

________________________________________________

 *   Management contract or compensatory plan or arrangement.

50

Signatures

FIDELITY D & D BANCORP, INC.

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.

	Fidelity D & D Bancorp, Inc.
Date: November 6, 2014	/s/Daniel J. Santaniello
	Daniel J. Santaniello, President and Chief Executive Officer
	Fidelity D & D Bancorp, Inc.
Date: November 6, 2014	/s/Salvatore R. DeFrancesco, Jr.
	Salvatore R. DeFrancesco, Jr., Treasurer and Chief Financial Officer

51

EXHIBIT INDEX

3(i) Amended and Restated Articles of Incorporation of Registrant. Incorporated by reference to Annex B of the Proxy Statement/Prospectus included in Registrant’s Amendment 4 to its Registration Statement No. 333-90273 on Form S-4, filed with the SEC on April 6, 2000.	*
3(ii) Amended and Restated Bylaws of Registrant. Incorporated by reference to Exhibit 3(ii) to Registrant’s Form 8-K filed with the SEC on November 21, 2007.	*
10.1 Registrant’s Dividend Reinvestment and Stock Repurchase Plan.  Incorporated by reference to Exhibit 4.1 to Registrant’s Registration Statement No. 333-183216 on Form S-3 filed with the SEC on August 10, 2012 as amended February 3, 2014.	*
10.2 Registrant’s 2000 Independent Directors Stock Option Plan.  Incorporated by reference to Exhibit 4.3 to Registrant’s Registration Statement No. 333-64356 on Form S-8 filed with the SEC on July 2, 2001.	*
10.3 Amendment, dated October 2, 2007, to the Registrant’s 2000 Independent Directors Stock Option Plan.  Incorporated by reference to Exhibit 10.2 to Registrant’s Form 8-K filed with the SEC on October 4, 2007.	*
10.4 Registrant’s 2000 Stock Incentive Plan.  Incorporated by reference to Exhibit 4.4 to Registrant’s Registration Statement No. 333-64356 on Form S-8 filed with the SEC on July 2, 2001.	*
10.5 Amendment, dated October 2, 2007, to the Registrant’s 2000 Stock Incentive Plan.  Incorporated by reference to Exhibit 10.1 to Registrant’s Form 8-K filed with the SEC on October 4, 2007.	*
10.6 Registrant’s 2002 Employee Stock Purchase Plan. Incorporated by reference to Appendix A to Registrant’s Definitive Proxy Statement filed with the SEC on March 28, 2002.	*
10.7 Change of Control Agreement with Salvatore R. DeFrancesco, the Registrant and The Fidelity Deposit and Discount Bank, dated March 21, 2006.  Incorporated by reference to Exhibit 99.2 to Registrant’s Current Report on Form 8-K filed with the SEC on March 27, 2006.	*
10.8 Amended and Restated Executive Employment Agreement between the Registrant, The Fidelity Deposit and Discount Bank and Daniel J. Santaniello, dated March 23, 2011.Incorporated by reference to Exhibit 99.1 to Registrant’s Current Report on Form 8-K filed with the SEC on March 29, 2011.	*
10.9 Amended and Restated Executive Employment Agreement between the Registrant, The Fidelity Deposit and Discount Bankand Timothy P. O’Brien, dated March 23, 2011.  Incorporated by reference to Exhibit 99.2 to Registrant’s Current Report on Form 8-K filed with the SEC on March 29, 2011.	*
10.10 2012 Omnibus Stock Incentive Plan.  Incorporated by reference to Appendix A to Registrant’s Definitive Proxy Statement filed with the SEC on March 30, 2012.	*
10.11 2012 Director Stock Incentive Plan.  Incorporated by reference to Appendix B to Registrant’s Definitive Proxy Statement filed with the SEC on March 30, 2012.	*
11Statement regarding computation of earnings per share.	21
31.1 Rule 13a-14(a) Certification of Principal Executive Officer, filed herewith.
31.2 Rule 13a-14(a) Certification of Principal Financial Officer, filed herewith.
32.1 Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, filed herewith.

52

32.2 Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, filed herewith.

101 Interactive data files: The following, from the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2014, is formatted in XBRL (eXtensible Business Reporting Language): Consolidated Balance Sheets as of September 30, 2014 and December 31, 2013;  Consolidated Statements of Income for the threeand nine months ended September 30, 2014 and 2013; Consolidated Statements of Comprehensive Income for the three and nine months endedSeptember 30, 2014 and 2013; Consolidated Statements of Changes in Shareholders’ Equity for the nine months ended September 30, 2014 and 2013; Consolidated Statements of Cash Flows for the nine months ended September 30, 2014 and 2013 and the Notes to the Consolidated Financial Statements. **

* Incorporated by Reference

** Pursuant to Rule 406T of Regulation S-T, the interactive data files in Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.

53

EX-31.1

Exhibit 31.1

CERTIFICATION

I, Daniel J. Santaniello, certify that:

1.I have reviewed this quarterly report on Form 10-Q of Fidelity D & D Bancorp, Inc.;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions);

(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)Any fraud, whether or not material, that involves management or other employees, who have a significant role in the registrant’s internal control over financial reporting.

Date:  November  6, 2014
	/s/Daniel J. Santaniello
	Daniel J. Santaniello,
	President and Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION

I, Salvatore R. DeFrancesco, Jr., certify that:

1.I have reviewed this quarterly report on Form 10-Q of Fidelity D & D Bancorp, Inc.;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions);

(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)Any fraud, whether or not material, that involves management or other employees, who have a significant role in the registrant’s internal control over financial reporting.

Date:   November 6, 2014	/s/Salvatore R. DeFrancesco, Jr.
	Salvatore R. DeFrancesco, Jr.,
	Treasurer and Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350

AS ADDED BY

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of Fidelity D & D Bancorp, Inc. (the “Company”) for the period ended September 30, 2014, as filed with the Securities and Exchange Commission (the “Report”), I, Daniel J. Santaniello, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as added by §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.To my knowledge, the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of and for the period covered by the Report.

Date:November 6, 2014	By:/s/ Daniel J. Santaniello
	Daniel J. Santaniello
	President and Chief Executive Officer

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350

AS ADDED BY

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of Fidelity D & D Bancorp, Inc. (the “Company”) for the period ended September 30, 2014, as filed with the Securities and Exchange Commission (the “Report”), I, Salvatore R. DeFrancesco, Jr.,Treasurer and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as added by §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.To my knowledge, the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of and for the period covered by the Report.

Date:November 6, 2014	By:/s/ Salvatore R. DeFrancesco, Jr.
	Salvatore R. DeFrancesco, Jr.,
	Treasurer and Chief Financial

XML

Earnings Per Share (Narrative) (Details)	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014 item	Sep. 30, 2013	Dec. 31, 2013
Earnings Per Share, Basic, by Common Class, Including Two Class Method [Line Items]
Common Stock, Shares, Outstanding	2,419,587		2,419,587		2,391,617
Number of active share-based compensation plans			2
Potentially dilutive common shares	6,233	4,632	4,571	4,407
Employee Stock Option [Member]
Earnings Per Share, Basic, by Common Class, Including Two Class Method [Line Items]
Potentially dilutive common shares	434	0	57	0
Restricted Stock [Member]
Earnings Per Share, Basic, by Common Class, Including Two Class Method [Line Items]
Potentially dilutive common shares	5,799	4,632	4,514	4,407

XML

Fair Value Measurements (Fair Value, Assets And Liabilities Measured On Recurring Basis) (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2014	Dec. 31, 2013
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total Available-for-sale securities, Fair value	$ 114,425	$ 97,246
Agency - GSE [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total Available-for-sale securities, Fair value	17,583	14,601
Obligations Of States And Political Subdivisions [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total Available-for-sale securities, Fair value	36,217	32,611
MBS - GSE Residential [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total Available-for-sale securities, Fair value	60,043	49,509
Equity Securities - Financial Services [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total Available-for-sale securities, Fair value	582	525
Quoted prices in active markets (Level 1) [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total Available-for-sale securities, Fair value	582	525
Quoted prices in active markets (Level 1) [Member] | Equity Securities - Financial Services [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total Available-for-sale securities, Fair value	582	525
Significant other observable inputs (Level 2) [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total Available-for-sale securities, Fair value	113,843	96,721
Significant other observable inputs (Level 2) [Member] | Agency - GSE [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total Available-for-sale securities, Fair value	17,583	14,601
Significant other observable inputs (Level 2) [Member] | Obligations Of States And Political Subdivisions [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total Available-for-sale securities, Fair value	36,217	32,611
Significant other observable inputs (Level 2) [Member] | MBS - GSE Residential [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total Available-for-sale securities, Fair value	$ 60,043	$ 49,509

XML

Fair Value Measurements (Narrative) (Details) (USD $)	9 Months Ended	12 Months Ended
	Sep. 30, 2014	Dec. 31, 2013
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair Value, Assets, Level 1 to Level 2 Transfers, Amount	$ 0	$ 0
Fair Value, Assets, Level 2 to Level 1 Transfers, Amount	$ 0	$ 0
Other Repossessed Assets [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair value inputs, comparability adjustments	0.00%	0.00%
Minimum [Member] | Impaired Loans [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair value inputs, comparability adjustments	(9.00%)	(16.00%)
Minimum [Member] | Other Real Estate Owned [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair value inputs, comparability adjustments	(19.00%)	(18.22%)
Maximum [Member] | Impaired Loans [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair value inputs, comparability adjustments	(42.41%)	(36.15%)
Maximum [Member] | Other Real Estate Owned [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair value inputs, comparability adjustments	(64.30%)	(72.17%)
Weighted Average [Member] | Impaired Loans [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair value inputs, comparability adjustments	(27.51%)	(24.84%)
Weighted Average [Member] | Other Real Estate Owned [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair value inputs, comparability adjustments	(27.43%)	(30.79%)

XML

Loans And Leases (Loan Classifications) (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2014	Jun. 30, 2014	Dec. 31, 2013	Sep. 30, 2013	Jun. 30, 2013	Dec. 31, 2012
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total	$ 502,466		$ 478,200
Less: Allowance for loan losses	(9,277)	(9,029)	(8,928)	(8,405)	(8,296)	(8,972)
Less: Unearned lease revenue	(174)		(56)
Loans and leases, net	493,015		469,216
Commercial & Industrial [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total	76,710		74,551
Less: Allowance for loan losses	(979)	(1,036)	(944)	(906)	(919)	(922)
Commercial Real Estate: Non-Owner Occupied [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total	93,142		89,255
Commercial Real Estate: Owner Occupied [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total	91,838		86,294
Commercial Real Estate: Construction [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total	7,402		10,765
Consumer: Home Equity Installment [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total	32,487		34,480
Consumer: Home Equity Line Of Credit [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total	40,651		36,836
Consumer: Auto Loans And Leases [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total	27,867		22,261
Consumer: Other [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total	6,613		5,205
Residential: Real Estate [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total	117,602		110,365
Residential: Construction [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total	$ 8,154		$ 8,188

XML

Nature Of Operations And Critical Accounting Policies (Narrative) (Details) (USD $) In Millions, unless otherwise specified	9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013
Nature Of Operations And Critical Accounting Policies [Abstract]
Year founded	1903
Interest paid	$ 2.2	$ 2.2
Income taxes paid	1.1	1.1
Transfers from loans to foreclosed assets held-for-sale	1.2	2.2
Transfers from loans to loans held-for-sale	0	2.9
Transfers from loans to bank premises and equipment	$ 1.0	$ 0

XML

Fair Value Measurements (Fair Value Measurements At Fair Value Segregated By Hierarchy Fair Value Levels) (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2014	Dec. 31, 2013
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, Fair Value Disclosure, Nonrecurring	$ 3,171	$ 2,802
Impaired Loans [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, Fair Value Disclosure, Nonrecurring	1,584	1,152
Other Real Estate Owned [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, Fair Value Disclosure, Nonrecurring	1,587	1,642
Other Repossessed Assets [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, Fair Value Disclosure, Nonrecurring		8
Significant other unobservable inputs (Level 3) [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, Fair Value Disclosure, Nonrecurring	3,171	2,802
Significant other unobservable inputs (Level 3) [Member] | Impaired Loans [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, Fair Value Disclosure, Nonrecurring	1,584	1,152
Significant other unobservable inputs (Level 3) [Member] | Other Real Estate Owned [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, Fair Value Disclosure, Nonrecurring	1,587	1,642
Significant other unobservable inputs (Level 3) [Member] | Other Repossessed Assets [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, Fair Value Disclosure, Nonrecurring		$ 8

XML

Stock Plans (Disclosure Of Share-Based Compensation Arrangements By Share-based Payment Award) (Details) (USD $)	9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Shares granted	4,120	14,000
Weighted-average grant date fair value	$ 27.00	$ 21.20
Director Stock Incentive Plan - 2012 [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Shares granted	2,000	8,000
Weighted-average grant date fair value	$ 27.00	$ 21.20
Vesting period	1 year	2 years
Vesting period, percentage per year		50.00%
The 2012 Omnibus Stock Incentive Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Shares granted	2,120	6,000
Weighted-average grant date fair value	$ 27.00	$ 21.20
Vesting period	4 years	4 years
Vesting period, percentage per year	25.00%	25.00%

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Loans And Leases (Credit Quality Indicator Loan Categories) (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2014	Dec. 31, 2013
Commercial & Industrial [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivable, net	$ 76,710	$ 74,551
Commercial Real Estate: Non-Owner Occupied [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivable, net	93,142	89,255
Commercial Real Estate: Owner Occupied [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivable, net	91,838	86,294
Commercial Real Estate: Construction [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivable, net	7,402	10,765
Consumer: Home Equity Installment [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivable, net	32,487	34,480
Consumer: Home Equity Line Of Credit [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivable, net	40,651	36,836
Consumer: Auto Loans And Leases [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivable, net	27,693	22,205
Consumer: Other [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivable, net	6,613	5,205
Residential: Real Estate [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivable, net	117,602	110,365
Residential: Construction [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivable, net	8,154	8,188
Pass [Member] | Commercial & Industrial [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivable, net	72,961	71,122
Pass [Member] | Commercial Real Estate: Non-Owner Occupied [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivable, net	83,014	78,069
Pass [Member] | Commercial Real Estate: Owner Occupied [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivable, net	86,145	82,975
Pass [Member] | Commercial Real Estate: Construction [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivable, net	6,585	9,026
Special mention [Member] | Commercial & Industrial [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivable, net	2,540	2,244
Special mention [Member] | Commercial Real Estate: Non-Owner Occupied [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivable, net	2,544	2,734
Special mention [Member] | Commercial Real Estate: Owner Occupied [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivable, net	2,271	656
Special mention [Member] | Commercial Real Estate: Construction [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivable, net	481	1,037
Substandard [Member] | Commercial & Industrial [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivable, net	1,209	1,185
Substandard [Member] | Commercial Real Estate: Non-Owner Occupied [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivable, net	7,584	8,452
Substandard [Member] | Commercial Real Estate: Owner Occupied [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivable, net	3,422	2,663
Substandard [Member] | Commercial Real Estate: Construction [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivable, net	336	702
Performing [Member] | Consumer: Home Equity Installment [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivable, net	32,093	34,087
Performing [Member] | Consumer: Home Equity Line Of Credit [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivable, net	40,067	36,561
Performing [Member] | Consumer: Auto Loans And Leases [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivable, net	27,693	22,182
Performing [Member] | Consumer: Other [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivable, net	6,593	5,183
Performing [Member] | Residential: Real Estate [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivable, net	117,001	108,899
Performing [Member] | Residential: Construction [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivable, net	8,154	8,188
Non-performing [Member] | Consumer: Home Equity Installment [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivable, net	394	393
Non-performing [Member] | Consumer: Home Equity Line Of Credit [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivable, net	584	275
Non-performing [Member] | Consumer: Auto Loans And Leases [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivable, net		23
Non-performing [Member] | Consumer: Other [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivable, net	20	22
Non-performing [Member] | Residential: Real Estate [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivable, net	$ 601	$ 1,466

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Fair Value Measurements (Carrying Amount And Estimated Fair Value By Balance Sheet Grouping) (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2014	Dec. 31, 2013
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Held-to-maturity securities	$ 0	$ 195
Available-for-sale securities	114,425	97,246
Loans held-for-sale	1,184	937
Carrying Amount [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Cash and cash equivalents	19,685	13,218
Held-to-maturity securities		177
Available-for-sale securities	114,425	97,246
FHLB stock	2,282	2,640
Loans and leases, net	493,015	469,216
Loans held-for-sale	1,161	917
Deposit liabilities	571,868	529,698
Short-term borrowings	11,225	8,642
Long-term debt	16,000	16,000
Estimated Fair Value [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Cash and cash equivalents	19,685	13,218
Held-to-maturity securities		195
Available-for-sale securities	114,425	97,246
FHLB stock	2,282	2,640
Loans and leases, net	493,447	467,381
Loans held-for-sale	1,184	937
Deposit liabilities	571,751	529,968
Short-term borrowings	11,225	8,642
Long-term debt	17,367	17,904
Quoted prices in active markets (Level 1) [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Cash and cash equivalents	19,685	13,218
Available-for-sale securities	582	525
Significant other observable inputs (Level 2) [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Held-to-maturity securities		195
Available-for-sale securities	113,843	96,721
FHLB stock	2,282	2,640
Loans held-for-sale	1,184	937
Deposit liabilities	571,751	529,968
Short-term borrowings	11,225	8,642
Long-term debt	17,367	17,904
Significant other unobservable inputs (Level 3) [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Loans and leases, net	$ 493,447	$ 467,381

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New Accounting Pronouncements

9 Months Ended

Sep. 30, 2014

New Accounting Pronouncements [Abstract]

New Accounting Pronouncements

2.  New accounting pronouncements

In August 2014, the Financial Accounting Standards Board (FASB) issued an accounting standard update (ASU 2014-14) related to; Receivables – Troubled Debt Restructurings by Creditors (Subtopic 310-40) Classification of Certain Government-Guaranteed Mortgage Loans upon Foreclosure.  The update requires that a mortgage loan be derecognized and that a separate other receivable be recognized upon foreclosure if the following conditions are met: (1) The loan has a government guarantee that is not separable from the loan before foreclosure; (2) At the time of foreclosure, the creditor has the intent to convey the real estate property to the guarantor and make a claim on the guarantee, and the creditor has the ability to recover under that claim; (3) At the time of foreclosure, any amount of the claim that is determined on the basis of the fair value of the real estate is fixed.  Upon foreclosure, the separate other receivable should be measured based on the amount of the loan balance (principal and interest) expected to be recovered from the guarantor. The amendments in the update are effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2014.  Early adoption is permitted if the entity early-adopted ASU 2014-04 (see below). The Company is currently analyzing the impact of the updated guidance on its financial statements.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, which supersedes nearly all existing revenue recognition guidance under U.S. GAAP. The core principle of ASU 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services.  ASU 2014-09 defines a five step process to achieve this core principle and, in doing so, more judgment and estimates may be required within the revenue recognition process than are required under existing U.S. GAAP: identify the contract(s) with a customer; identify the performance obligations in the contract; determine the transaction price; allocate the transaction price to the performance obligations in the contract; recognize revenue when (or as) the entity satisfies a performance obligation.  The standard is effective for annual periods beginning after December 15, 2016, and interim periods therein, using either of the following transition methods: a full retrospective approach reflecting the application of the standard in each prior reporting period with the option to elect certain practical expedients, or a retrospective approach with the cumulative effect of initially adopting ASU 2014-09 recognized at the date of adoption (which includes additional footnote disclosures).  The Company is evaluating the impact of the adoption of ASU 2014-09 on its consolidated financial statements and has not yet determined the method by which it will adopt the standard in 2017.

In January 2014, the FASB issued ASU 2014-04 related to; Receivables – Troubled Debt Restructurings by Creditors (Subtopic 310-40) Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure.  The update applies to all creditors who obtain physical possession of residential real estate property collateralizing a consumer mortgage loan in satisfaction of a receivable.  The amendments in this update clarify when an in-substance repossession or foreclosure occurs and requires disclosure of both (1) the amount of foreclosed residential real estate property held by a creditor and (2) the recorded investment in consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure according to local requirements of the applicable jurisdiction.  The amendments in the update are effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2014.  Early adoption is permitted.  The Company is currently analyzing the impact of the updated guidance on its financial statements. 

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Stock Plans (Summary Of Restricted Stock Changes) (Details)	9 Months Ended
	Sep. 30, 2014
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Beginning Balance	13,000
Granted	4,120
Vested	(5,250)
Ending Balance	11,870
Director Stock Incentive Plan - 2012 [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Beginning Balance	8,000
Granted	2,000
Vested	(4,000)
Ending Balance	6,000
The 2012 Omnibus Stock Incentive Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Beginning Balance	5,000
Granted	2,120
Vested	(1,250)
Ending Balance	5,870

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Investment Securities (Unrealized Gain/Loss On Investments Table) (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2014	Dec. 31, 2013
Schedule of Held-to-maturity Securities And Available-for-sale Securities [Line Items]
Total Held-to-maturity Securities, Amortized Cost		$ 177
Held-to-maturity securities	0	195
Total Available-for-sale securities, Amortized cost	110,411	95,368
Available-for-sale securities, Gross unrealized gains	4,108	2,626
Available-for-sale securities, Gross unrealized losses	94	748
Total Available-for-sale securities, Fair value	114,425	97,246
Agency - GSE [Member]
Schedule of Held-to-maturity Securities And Available-for-sale Securities [Line Items]
Total Available-for-sale securities, Amortized cost	17,558	14,667
Available-for-sale securities, Gross unrealized gains	49	8
Available-for-sale securities, Gross unrealized losses	24	74
Total Available-for-sale securities, Fair value	17,583	14,601
Obligations Of States And Political Subdivisions [Member]
Schedule of Held-to-maturity Securities And Available-for-sale Securities [Line Items]
Total Available-for-sale securities, Amortized cost	33,998	32,269
Available-for-sale securities, Gross unrealized gains	2,234	912
Available-for-sale securities, Gross unrealized losses	15	570
Total Available-for-sale securities, Fair value	36,217	32,611
MBS - GSE Residential [Member]
Schedule of Held-to-maturity Securities And Available-for-sale Securities [Line Items]
Total Held-to-maturity Securities, Amortized Cost		177
Held-to-maturity securities, Gross unrealized gains		18
Held-to-maturity securities		195
Total Available-for-sale securities, Amortized cost	58,561	48,137
Available-for-sale securities, Gross unrealized gains	1,537	1,476
Available-for-sale securities, Gross unrealized losses	55	104
Total Available-for-sale securities, Fair value	60,043	49,509
Debt Securities [Member]
Schedule of Held-to-maturity Securities And Available-for-sale Securities [Line Items]
Total Available-for-sale securities, Amortized cost	110,117	95,073
Available-for-sale securities, Gross unrealized gains	3,820	2,396
Available-for-sale securities, Gross unrealized losses	94	748
Total Available-for-sale securities, Fair value	113,843	96,721
Equity Securities - Financial Services [Member]
Schedule of Held-to-maturity Securities And Available-for-sale Securities [Line Items]
Total Available-for-sale securities, Amortized cost	294	295
Available-for-sale securities, Gross unrealized gains	288	230
Total Available-for-sale securities, Fair value	$ 582	$ 525

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Investment Securities (Narrative) (Details)	9 Months Ended
	Sep. 30, 2014
Agency - GSE [Member]
Schedule of Available-for-sale Securities [Line Items]
Available-for-sale securities, qualitative disclosure, nature	Agency - GSE and MBS - GSE residential Agency – GSE and MBS – GSE residential securities consist of short- to long-term notes issued by Federal Home Loan Mortgage Corporation (FHLMC), Federal National Mortgage Association (FNMA), Federal Home Loan Bank (FHLB) and Government National Mortgage Association (GNMA). These securities have interest rates that are fixed and adjustable, have varying short- to long-term maturity dates and have contractual cash flows guaranteed by the U.S. government or agencies of the U.S. government.
Obligations Of States And Political Subdivisions [Member]
Schedule of Available-for-sale Securities [Line Items]
Available-for-sale securities, qualitative disclosure, nature	Obligations of states and political subdivisions The municipal securities are bank qualified or bank eligible, general obligation and revenue bonds rated as investment grade by various credit rating agencies and have fixed rates of interest with mid- to long-term maturities. Fair values of these securities are highly driven by interest rates. Management performs ongoing credit quality reviews on these issues.

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Stock Plans (Schedule Of Compensation Cost For Share-Based Payment Arrangements, Allocation Of Share-Based Compensation Costs By Plan) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Allocated Share-based Compensation Expense	$ 45	$ 29	$ 129	$ 78
Director Stock Incentive Plan - 2012 [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Allocated Share-based Compensation Expense	35	22	100	57
The 2012 Omnibus Stock Incentive Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Allocated Share-based Compensation Expense	$ 10	$ 7	$ 29	$ 21

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Investment Securities (Investment Classified By Contractual Maturity Date Table) (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2014
Investment Securities [Abstract]
Amortized cost: Due after one year through five years	$ 14,475
Amortized cost: Due after five years through ten years	4,807
Amortized cost: Due after ten years	32,274
Total debt securities, Amortized Cost	51,556
MBS - GSE residental, Amortized cost	58,561
Total available-for-sale securities, Amortized cost	110,117
Fair value: Due after one year through five years	14,477
Fair value: Due after five years through ten years	4,980
Fair value: Due after ten years	34,343
Total debt securities, Fair value	53,800
MBS - GSE residental, Fair value	60,043
Total available-for-sale securities, Fair value	$ 113,843

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Investment Securities (Available-For-Sale Securities, Continuous Unrealized Loss Position, Fair Value Table) (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2014 security	Dec. 31, 2013 security
Schedule of Available-for-sale Securities [Line Items]
Less than 12 months: Fair value	$ 18,902	$ 33,443
Less than 12 months: Unrealized losses	77	727
More than 12 months: Fair value	3,608	3,052
More than 12 months: Unrealized losses	17	21
Total: Fair value	22,510	36,495
Total: Unrealized losses	94	748
Less than 12 months: Number of securities	12	38
More than 12 months: Number of securities	6	2
Total: Number of securities	18	40
Agency - GSE [Member]
Schedule of Available-for-sale Securities [Line Items]
Less than 12 months: Fair value	5,075	11,592
Less than 12 months: Unrealized losses	22	74
More than 12 months: Fair value	2,060
More than 12 months: Unrealized losses	2
Total: Fair value	7,135	11,592
Total: Unrealized losses	24	74
Obligations Of States And Political Subdivisions [Member]
Schedule of Available-for-sale Securities [Line Items]
Less than 12 months: Fair value		10,148
Less than 12 months: Unrealized losses		570
More than 12 months: Fair value	1,548
More than 12 months: Unrealized losses	15
Total: Fair value	1,548	10,148
Total: Unrealized losses	15	570
MBS - GSE Residential [Member]
Schedule of Available-for-sale Securities [Line Items]
Less than 12 months: Fair value	13,827	11,703
Less than 12 months: Unrealized losses	55	83
More than 12 months: Fair value		3,052
More than 12 months: Unrealized losses		21
Total: Fair value	13,827	14,755
Total: Unrealized losses	$ 55	$ 104

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Nature Of Operations And Critical Accounting Policies

9 Months Ended

Sep. 30, 2014

Nature Of Operations And Critical Accounting Policies [Abstract]

Nature Of Operations And Critical Accounting Policies

1.   Nature of operations and critical accounting policies

Nature of operations

Fidelity Deposit and Discount Bank (the Bank) is a commercial bank chartered under the law of the Commonwealth of Pennsylvania and a wholly-owned subsidiary of Fidelity D & D Bancorp, Inc. (the Company or collectively, the Company).  Having commenced operations in 1903, the Bank is committed to provide superior customer service, while offering a full range of banking products and financial and trust services to both our consumer and commercial customers from our main office located in Dunmore and other branches located throughout Lackawanna and Luzerne Counties.

Principles of consolidation

The accompanying unaudited consolidated financial statements of the Company and the Bank have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial information and with the instructions to this Form 10-Q and Rule 8-03 of Regulation S-X.  Accordingly, they do not include all of the information and footnote disclosures required by GAAP for complete financial statements.  In the opinion of management, all normal recurring adjustments necessary for a fair presentation of the financial condition and results of operations for the periods have been included.  All significant inter-company balances and transactions have been eliminated in consolidation.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported periods.  Actual results could differ from those estimates.  For additional information and disclosures required under GAAP, refer to the Company’s Annual Report on Form 10-K for the year ended December 31, 2013.

Management is responsible for the fairness, integrity and objectivity of the unaudited financial statements included in this report.  Management prepared the unaudited financial statements in accordance with GAAP.  In meeting its responsibility for the financial statements, management depends on the Company's accounting systems and related internal controls.  These systems and controls are designed to provide reasonable but not absolute assurance that the financial records accurately reflect the transactions of the Company, the Company’s assets are safeguarded and that the financial statements present fairly the financial condition and results of operations of the Company.

In the opinion of management, the consolidated balance sheets as of September 30, 2014 and December 31, 2013 and the related consolidated statements of income and consolidated statements of comprehensive income for the three and nine months ended September 30, 2014 and 2013, and consolidated statements of changes in shareholders’ equity and consolidated statements of cash flows for the nine months ended September 30, 2014 and 2013 present fairly the financial condition and results of operations of the Company.  All material adjustments required for a fair presentation have been made.  These adjustments are of a normal recurring nature.  Certain reclassifications have been made to the 2013 financial statements to conform to the 2014 presentation. 

In preparing these consolidated financial statements, the Company evaluated the events and transactions that occurred after September 30, 2014 through the date these consolidated financial statements were issued.

This Quarterly Report on Form 10-Q should be read in conjunction with the Company’s audited financial statements for the year ended December 31, 2013, and the notes included therein, included within the Company’s Annual Report filed on Form 10-K.

Critical accounting policies

The presentation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect many of the reported amounts and disclosures.  Actual results could differ from these estimates.

A material estimate that is particularly susceptible to significant change relates to the determination of the allowance for loan losses.  Management believes that the allowance for loan losses at September 30, 2014 is adequate and reasonable.  Given the subjective nature of identifying and valuing loan losses, it is likely that well-informed individuals could make different assumptions and could, therefore, calculate a materially different allowance value.  While management uses available information to recognize losses on loans, changes in economic conditions may necessitate revisions in the future.  In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Company’s allowance for loan losses.  Such agencies may require the Company to recognize adjustments to the allowance based on their judgment of information available to them at the time of their examination.

Another material estimate is the calculation of fair values of the Company’s investment securities.  Fair values of investment securities are determined by pricing provided by a third-party vendor, who is a provider of financial market data, analytics and related services to financial institutions.  Based on experience, management is aware that estimated fair values of investment securities tend to vary among valuation services.  Accordingly, when selling investment securities, price quotes may be obtained from more than one source.  The majority of the Company’s investment securities are classified as available-for-sale (AFS).  AFS securities are carried at fair value on the consolidated balance sheets, with unrealized gains and losses, net of income tax, reported separately within shareholders’ equity as a component of accumulated other comprehensive income (loss) (OCI).

The fair value of residential mortgage loans, classified as held-for-sale (HFS), is obtained from the Federal National Mortgage Association (FNMA) or the Federal Home Loan Bank (FHLB).  Generally, the market to which the Company sells residential mortgages it originates for sale is restricted and price quotes from other sources are not typically obtained.  On occasion, the Company may transfer loans from the loan portfolio to loans HFS.  Under these circumstances, pricing may be obtained from other entities and the loans are transferred at the lower of cost or market value and simultaneously sold.  As of September 30, 2014 and December 31, 2013, loans classified as HFS consisted of residential mortgage loans. 

Financing of automobiles, provided to customers under lease arrangements of varying terms, are accounted for as direct finance leases.  Interest income on automobile direct finance leasing is determined using the interest method.  Generally, the interest method is used to arrive at a level effective yield over the life of the lease.

Foreclosed assets held-for-sale includes other real estate acquired through foreclosure (ORE) and may, from time-to-time, include repossessed assets such as automobiles.  ORE is carried at the lower of cost (principal balance at date of foreclosure) or fair value less estimated cost to sell.  Any write-downs at the date of foreclosure or within a reasonable period of time after foreclosure are charged to the allowance for loan losses.  Expenses incurred to maintain ORE properties, subsequent write downs to the asset’s fair value, any rental income received and gains or losses on disposal are included as components of other real estate owned expense in the consolidated statements of income.   

For purposes of the consolidated statements of cash flows, cash and cash equivalents includes cash on hand, amounts due from banks and interest-bearing deposits with financial institutions.  Foreach of the nine months ended September 30, 2014 and 2013, the Company paid interest of $2.2 million. The Company was required to pay income taxes of $1.1 million during both the first nine months of 2014 and 2013.  Transfers from loans to foreclosed assets held-for-sale amounted to $1.2 million and $2.2 million during the nine months ended September 30, 2014 and 2013, respectively.  During the same respective periods, transfers from loans to loans HFS amounted to $0 and $2.9 million and from loans to bank premises and equipment amounted to $1.0 million and $0.  Expenditures for construction in process, a component of other assets in the consolidated balance sheets, are included in acquisition of bank premises and equipment.

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Loans And Leases (Narrative) (Details) (USD $)			9 Months Ended	12 Months Ended	9 Months Ended	12 Months Ended	9 Months Ended	12 Months Ended
	Sep. 30, 2014	Dec. 31, 2013	Sep. 30, 2014 Troubled Debt Status [Member] item loan	Dec. 31, 2013 Troubled Debt Status [Member] item loan	Sep. 30, 2014 Nonaccrual Status [Member] loan	Dec. 31, 2013 Nonaccrual Status [Member] loan	Sep. 30, 2014 Impaired Loan Status [Member] loan	Sep. 30, 2014 Impaired Loan Status [Member] loan
Accounts, Notes, Loans and Financing Receivable [Line Items]
Deferred loan costs	$ 1,300,000	$ 1,100,000
Mortgages serviced	254,600,000	250,200,000
Troubled Debt Restructuring balance			1,600,000	2,000,000	900,000	1,000,000
Non-accrual balance	$ 4,490,000	$ 5,668,000
Number of contracts modified			5	7	1	1	0	0
Number of unrelated borrowers			3	5

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Earnings Per Share (Schedule Of Earnings Per Share, Basic And Diluted) (Details) (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013
Earnings Per Share [Abstract]
Net income (loss) available to common shareholders	$ 1,631	$ 1,505	$ 4,714	$ 4,412
Weighted-average common shares outstanding	2,419,587	2,359,947	2,410,100	2,345,453
Basic EPS	$ 0.68	$ 0.64	$ 1.96	$ 1.88
Potentially dilutive common shares	6,233	4,632	4,571	4,407
Weighted-average common and potentially dilutive shares outstanding	2,425,820	2,364,579	2,414,671	2,349,860
Diluted EPS	$ 0.67	$ 0.64	$ 1.95	$ 1.88

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Consolidated Balance Sheets (USD $) In Thousands, unless otherwise specified	Sep. 30, 2014	Dec. 31, 2013
Assets:
Cash and due from banks	$ 13,278	$ 13,197
Interest-bearing deposits with financial institutions	6,407	21
Total cash and cash equivalents	19,685	13,218
Available-for-sale securities	114,425	97,246
Held-to-maturity securities (fair value of $0 in 2014, $195 in 2013)		177
Federal Home Loan Bank stock	2,282	2,640
Loans and leases, net (allowance for loan losses of $9,277 in 2014; $8,928 in 2013)	493,015	469,216
Loans held-for-sale (fair value $1,184 in 2014, $937 in 2013)	1,161	917
Foreclosed assets held-for-sale	1,936	2,086
Bank premises and equipment, net	14,590	13,602
Cash surrender value of bank owned life insurance	10,654	10,402
Accrued interest receivable	2,055	2,068
Other assets	14,082	12,253
Total assets	673,885	623,825
Liabilities:
Deposits: Interest-bearing	436,925	406,779
Deposits: Non-interest-bearing	134,943	122,919
Total deposits	571,868	529,698
Accrued interest payable and other liabilities	3,734	3,425
Short-term borrowings	11,225	8,642
Long-term debt	16,000	16,000
Total liabilities	602,827	557,765
Shareholders' Equity:
Preferred stock authorized 5,000,000 shares with no par value; none issued
Capital stock, no par value (10,000,000 shares authorized; shares issued and outstanding; 2,419,587 in 2014; and 2,391,617 in 2013)	25,992	25,302
Retained earnings	42,417	39,519
Accumulated other comprehensive income	2,649	1,239
Total shareholders' equity	71,058	66,060
Total liabilities and shareholders' equity	$ 673,885	$ 623,825

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Stock Plans (Schedule Of Unrecognized Compensation Cost, Nonvested Awards) (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2014
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized	$ 156
Director Stock Incentive Plan - 2012 [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized	46
The 2012 Omnibus Stock Incentive Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized	$ 110

XML

Consolidated Statements of Changes in Shareholders' Equity (USD $) In Thousands, except Share data	Capital Stock [Member]	Retained earnings [Member]	Accumulated other comprehensive income (loss) [Member]	Total
Balance (value) at Dec. 31, 2012	$ 23,711	$ 34,999	$ 236	$ 58,946
Balance (shares) at Dec. 31, 2012	2,323,248
Net income		4,412		4,412
Other comprehensive income (loss)			(889)	(889)
Issuance of common stock through Employee Stock Purchase Plan	78			78
Issuance of common stock, shares, through Employee Stock Purchase Plan	4,256
Issuance of common stock through Dividend Reinvestment Plan	928			928
Issuance of common stock, shares, through Dividend Reinvestment Plan	43,533
Issuance of common stock from vested restricted share grants through stock compensation plans	134
Stock-based compensation expense	88			88
Cash dividends declared		(1,767)		(1,767)
Balance (value) at Sep. 30, 2013	24,805	37,644	(653)	61,796
Balance (shares) at Sep. 30, 2013	2,371,171
Balance (value) at Dec. 31, 2013	25,302	39,519	1,239	66,060
Balance (shares) at Dec. 31, 2013	2,391,617
Net income		4,714		4,714
Other comprehensive income (loss)			1,410	1,410
Issuance of common stock through Employee Stock Purchase Plan	80			80
Issuance of common stock, shares, through Employee Stock Purchase Plan	4,373
Issuance of common stock through Dividend Reinvestment Plan	448			448
Issuance of common stock, shares, through Dividend Reinvestment Plan	18,347
Issuance of common stock from vested restricted share grants through stock compensation plans	5,250			5,250
Stock-based compensation expense	162			162
Cash dividends declared		(1,816)		(1,816)
Balance (value) at Sep. 30, 2014	$ 25,992	$ 42,417	$ 2,649	$ 71,058
Balance (shares) at Sep. 30, 2014	2,419,587

XML

Loans And Leases (Past Due Loans) (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2014		Dec. 31, 2013
Financing Receivable, Recorded Investment, Past Due [Line Items]
30 - 59 Days past due	$ 2,367		$ 2,913
60 - 89 Days past due	1,872		2,355
Past due 90 days or more	4,639	[1]	5,823	[2]
Total past due	8,878		11,091
Current	493,414		467,053
Total loans	502,292		478,144
Recorded investment past due >=90 days and accruing	149		155
Non-accrual loans	4,490		5,668
Unearned lease revenue	174		56
Commercial & Industrial [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
30 - 59 Days past due	618		111
60 - 89 Days past due	36		212
Past due 90 days or more	116	[1]	69	[2]
Total past due	770		392
Current	75,940		74,159
Total loans	76,710		74,551
Recorded investment past due >=90 days and accruing	92		7
Non-accrual loans	24		62
Commercial Real Estate: Non-Owner Occupied [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
30 - 59 Days past due	64		484
60 - 89 Days past due	112		35
Past due 90 days or more	776	[1]	1,518	[2]
Total past due	952		2,037
Current	92,190		87,218
Total loans	93,142		89,255
Non-accrual loans	776		1,518
Commercial Real Estate: Owner Occupied [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
30 - 59 Days past due	253		1,714
60 - 89 Days past due	101		545
Past due 90 days or more	1,884	[1]	1,422	[2]
Total past due	2,238		3,681
Current	89,600		82,613
Total loans	91,838		86,294
Non-accrual loans	1,884		1,422
Commercial Real Estate: Construction [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past due 90 days or more	264	[1]	635	[2]
Total past due	264		635
Current	7,138		10,130
Total loans	7,402		10,765
Non-accrual loans	264		635
Consumer: Home Equity Installment [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
30 - 59 Days past due	481		229
60 - 89 Days past due	198		72
Past due 90 days or more	394	[1]	393	[2]
Total past due	1,073		694
Current	31,414		33,786
Total loans	32,487		34,480
Non-accrual loans	394		393
Consumer: Home Equity Line Of Credit [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
30 - 59 Days past due	515
60 - 89 Days past due	136		114
Past due 90 days or more	584	[1]	275	[2]
Total past due	1,235		389
Current	39,416		36,447
Total loans	40,651		36,836
Recorded investment past due >=90 days and accruing			21
Non-accrual loans	584		254
Consumer: Auto Loans And Leases [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
30 - 59 Days past due	383		165
60 - 89 Days past due	90		14
Past due 90 days or more			23	[2]
Total past due	473		202
Current	27,220		22,003
Total loans	27,693	[3]	22,205	[4]
Recorded investment past due >=90 days and accruing			11
Non-accrual loans			12
Consumer: Other [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
30 - 59 Days past due	13		52
60 - 89 Days past due	5		23
Past due 90 days or more	20	[1]	22	[2]
Total past due	38		97
Current	6,575		5,108
Total loans	6,613		5,205
Non-accrual loans	20		22
Residential: Real Estate [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
30 - 59 Days past due	40		158
60 - 89 Days past due	1,194		1,340
Past due 90 days or more	601	[1]	1,466	[2]
Total past due	1,835		2,964
Current	115,767		107,401
Total loans	117,602		110,365
Recorded investment past due >=90 days and accruing	57		116
Non-accrual loans	544		1,350
Residential: Construction [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Current	8,154		8,188
Total loans	$ 8,154		$ 8,188

[1] Includes $4.5 million of non-accrual loans.

[2] Includes $5.7 million of non-accrual loans.

[3] Net of unearned revenue of $0.2 million.

[4] Net of unearned revenue of $56 thousand.

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Earnings Per Share (Tables)

9 Months Ended

Sep. 30, 2014

Earnings Per Share [Abstract]

Schedule Of Earnings Per Share, Basic And Diluted

	Three months ended September 30,				Nine months ended September 30,
	2014		2013			2014		2013
(dollars in thousands except per share data)
Basic EPS:
Net income available to common shareholders	$	1,631	$	1,505		$	4,714	$	4,412
Weighted-average common shares outstanding		2,419,587		2,359,947			2,410,100		2,345,453
Basic EPS	$	0.68	$	0.64		$	1.96	$	1.88
Diluted EPS:
Net income available to common shareholders	$	1,631	$	1,505		$	4,714	$	4,412
Weighted-average common shares outstanding		2,419,587		2,359,947			2,410,100		2,345,453
Potentially dilutive common shares		6,233		4,632			4,571		4,407
Weighted-average common and potentially dilutive shares outstanding		2,425,820		2,364,579			2,414,671		2,349,860
Diluted EPS	$	0.67	$	0.64		$	1.95	$	1.88

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Loans And Leases (Impaired Loans) (Details) (USD $)	9 Months Ended	12 Months Ended
	Sep. 30, 2014	Dec. 31, 2013
Financing Receivable, Impaired [Line Items]
Non-accrual balance	$ 4,490,000	$ 5,668,000
Unpaid principal balance	5,858,000	7,826,000
Recorded investment with allowance	1,854,000	1,434,000
Recorded investment with no allowance	3,390,000	5,279,000
Total recorded investment	5,244,000	6,713,000
Related allowance	270,000	282,000
Average recorded investment	5,694,000	9,153,000
Interest income recognized	62,000	179,000
Cash basis interest income recognized		78,000
Commercial & Industrial [Member]
Financing Receivable, Impaired [Line Items]
Non-accrual balance	24,000	62,000
Unpaid principal balance	52,000	134,000
Recorded investment with allowance		64,000
Recorded investment with no allowance	49,000	33,000
Total recorded investment	49,000	97,000
Related allowance		31,000
Average recorded investment	84,000	80,000
Interest income recognized	1,000	2,000
Commercial Real Estate: Non-Owner Occupied [Member]
Financing Receivable, Impaired [Line Items]
Non-accrual balance	776,000	1,518,000
Unpaid principal balance	1,416,000	2,146,000
Recorded investment with allowance	865,000	174,000
Recorded investment with no allowance	382,000	1,827,000
Total recorded investment	1,247,000	2,001,000
Related allowance	148,000	27,000
Average recorded investment	1,492,000	2,173,000
Interest income recognized	18,000	31,000
Cash basis interest income recognized		78,000
Commercial Real Estate: Owner Occupied [Member]
Financing Receivable, Impaired [Line Items]
Non-accrual balance	1,884,000	1,422,000
Unpaid principal balance	2,243,000	2,136,000
Recorded investment with allowance	720,000	622,000
Recorded investment with no allowance	1,422,000	1,327,000
Total recorded investment	2,142,000	1,949,000
Related allowance	67,000	90,000
Average recorded investment	1,975,000	3,203,000
Interest income recognized	11,000	36,000
Commercial Real Estate: Construction [Member]
Financing Receivable, Impaired [Line Items]
Non-accrual balance	264,000	635,000
Unpaid principal balance	351,000	1,024,000
Recorded investment with no allowance	264,000	635,000
Total recorded investment	264,000	635,000
Average recorded investment	446,000	903,000
Consumer: Home Equity Installment [Member]
Financing Receivable, Impaired [Line Items]
Non-accrual balance	394,000	393,000
Unpaid principal balance	538,000	501,000
Recorded investment with allowance		125,000
Recorded investment with no allowance	394,000	268,000
Total recorded investment	394,000	393,000
Related allowance		23,000
Average recorded investment	356,000	723,000
Interest income recognized	11,000	37,000
Consumer: Home Equity Line Of Credit [Member]
Financing Receivable, Impaired [Line Items]
Non-accrual balance	584,000	254,000
Unpaid principal balance	601,000	340,000
Recorded investment with allowance	83,000
Recorded investment with no allowance	501,000	254,000
Total recorded investment	584,000	254,000
Related allowance	4,000
Average recorded investment	377,000	355,000
Interest income recognized	20,000	2,000
Consumer: Auto Loans And Leases [Member]
Financing Receivable, Impaired [Line Items]
Non-accrual balance		12,000
Unpaid principal balance		12,000
Recorded investment with allowance		12,000
Total recorded investment		12,000
Related allowance		1,000
Average recorded investment	5,000	5,000
Consumer: Other [Member]
Financing Receivable, Impaired [Line Items]
Non-accrual balance	20,000	22,000
Unpaid principal balance	32,000	22,000
Recorded investment with no allowance	20,000	22,000
Total recorded investment	20,000	22,000
Average recorded investment	19,000	29,000
Residential: Real Estate [Member]
Financing Receivable, Impaired [Line Items]
Non-accrual balance	544,000	1,350,000
Unpaid principal balance	625,000	1,511,000
Recorded investment with allowance	186,000	437,000
Recorded investment with no allowance	358,000	913,000
Total recorded investment	544,000	1,350,000
Related allowance	51,000	110,000
Average recorded investment	940,000	1,682,000
Interest income recognized	1,000	71,000
Nonaccrual Status [Member]
Financing Receivable, Impaired [Line Items]
Troubled Debt Restructuring balance	900,000	1,000,000
Accruing TDR Balance [Member]
Financing Receivable, Impaired [Line Items]
Troubled Debt Restructuring balance	$ 700,000	$ 1,000,000

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Fair Value Measurements (Tables)

9 Months Ended

Sep. 30, 2014

Fair Value Measurements [Abstract]

Carrying Amount And Estimated Fair Value By Balance Sheet Grouping

The following table represents the carrying amount and estimated fair value of the Company’s financial instruments as of the periods indicated:

September 30, 2014
					Quoted prices		Significant		Significant
					in active		other		other
	Carrying		Estimated		markets		observable inputs		unobservable inputs
(dollars in thousands)	amount		fair value		(Level 1)		(Level 2)		(Level 3)
Financial assets:
Cash and cash equivalents	$	19,685	$	19,685	$	19,685	$	-	$	-
Available-for-sale securities		114,425		114,425		582		113,843		-
FHLB stock		2,282		2,282		-		2,282		-
Loans and leases, net		493,015		493,447		-		-		493,447
Loans held-for-sale		1,161		1,184		-		1,184		-
Financial liabilities:
Deposit liabilities		571,868		571,751		-		571,751		-
Short-term borrowings		11,225		11,225		-		11,225		-
Long-term debt		16,000		17,367		-		17,367		-

December 31, 2013
					Quoted prices		Significant		Significant
					in active		other		other
	Carrying		Estimated		markets		observable inputs		unobservable inputs
(dollars in thousands)	amount		fair value		(Level 1)		(Level 2)		(Level 3)
Financial assets:
Cash and cash equivalents	$	13,218	$	13,218	$	13,218	$	-	$	-
Held-to-maturity securities		177		195		-		195		-
Available-for-sale securities		97,246		97,246		525		96,721		-
FHLB stock		2,640		2,640		-		2,640		-
Loans and leases, net		469,216		467,381		-		-		467,381
Loans held-for-sale		917		937		-		937		-
Financial liabilities:
Deposit liabilities		529,698		529,968		-		529,968		-
Short-term borrowings		8,642		8,642		-		8,642		-
Long-term debt		16,000		17,904		-		17,904		-

Fair Value, Assets And Liabilities Measured On Recurring Basis

The following tables illustrate the financial instruments measured at fair value on a recurring basis segregated by hierarchy fair value levels as of the periods indicated:

			Quoted prices
			in active		Significant other		Significant other
	Total carrying value		markets		observable inputs		unobservable inputs
(dollars in thousands)	September 30, 2014		(Level 1)		(Level 2)		(Level 3)
Available-for-sale securities:
Agency - GSE	$	17,583	$	-	$	17,583	$	-
Obligations of states and political subdivisions		36,217		-		36,217		-
MBS - GSE residential		60,043		-		60,043		-
Equity securities - financial services		582		582		-		-
Total available-for-sale securities	$	114,425	$	582	$	113,843	$	-

			Quoted prices
			in active		Significant other		Significant other
	Total carrying value		markets		observable inputs		unobservable inputs
(dollars in thousands)	December 31, 2013		(Level 1)		(Level 2)		(Level 3)
Available-for-sale securities:
Agency - GSE	$	14,601	$	-	$	14,601	$	-
Obligations of states and political subdivisions		32,611		-		32,611		-
MBS - GSE residential		49,509		-		49,509		-
Equity securities - financial services		525		525		-		-
Total available-for-sale securities	$	97,246	$	525	$	96,721	$	-

Changes In Level 3 Financial Instruments

(dollars in thousands)
As of and for the nine months ended September 30, 2013
Balance at beginning of period	$	1,825
Realized gains (losses) in earnings		-
Unrealized gains (losses) in OCI:
Gains		1,519
Losses		(193)
Pay down / settlement		(216)
Interest paid-in-kind		6
Accretion		2
Balance at end of period	$	2,943

Fair Value Measurements At Fair Value Segregated By Hierarchy Fair Value Levels

The following table illustrates the financial instruments measured at fair value on a non-recurring basis segregated by hierarchy fair value levels as of the periods indicated:

			Quoted prices in		Significant other		Significant other
	Total carrying value		active markets		observable inputs		unobservable inputs
(dollars in thousands)	at September 30, 2014		(Level 1)		(Level 2)		(Level 3)
Impaired loans	$	1,584	$	-	$	-	$	1,584
Other real estate owned		1,587		-		-		1,587
Total	$	3,171	$	-	$	-	$	3,171

			Quoted prices in		Significant other		Significant other
	Total carrying value		active markets		observable inputs		unobservable inputs
(dollars in thousands)	at December 31, 2013		(Level 1)		(Level 2)		(Level 3)
Impaired loans	$	1,152	$	-	$	-	$	1,152
Other real estate owned		1,642		-		-		1,642
Other repossessed assets		8		-		-		8
Total	$	2,802	$	-	$	-	$	2,802

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Consolidated Statements of Cash Flows (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013
Cash flows from operating activities:
Net income	$ 4,714	$ 4,412
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, amortization, and accretion	2,321	2,546
Provision for loan losses	810	1,600
Deferred income tax (benefit) expense	(111)	598
Stock-based compensation expense	162	88
Proceeds from sale of loans held-for-sale	25,125	72,449
Originations of loans held-for-sale	(25,222)	(59,848)
Earnings on bank-owned life insurance	(252)	(251)
Net gain from sales of loans	(462)	(1,207)
Net gain from sales of investment securities	(301)	(104)
Net loss on sale and write-down of foreclosed assets held-for-sale	70	97
Net loss on disposal of equipment	64	10
Change in:
Accrued interest receivable	13	7
Other assets	(1,396)	(731)
Accrued interest payable and other liabilities	310	(351)
Net cash provided by operating activities	5,845	19,315
Cash flows from investing activities:
Held-to-maturity securities: Proceeds from sales	187
Held-to-maturity securities: Proceeds from maturities, calls, and principal pay-downs	3	100
Available-for-sale securities: Proceeds from sales	4,877	8,461
Available-for-sale securities: Proceeds from maturities, calls and principal pay-downs	10,350	21,771
Available-for-sale securities: Purchases	(30,929)	(35,098)
Decrease in FHLB stock	358	464
Net increase in loans and leases	(26,671)	(36,430)
Acquisition of bank premises and equipment	(2,159)	(810)
Proceeds from sale of foreclosed assets held-for-sale	1,142	716
Net cash used by investing activities	(42,842)	(40,826)
Cash flows from financing activities:
Net increase in deposits	42,170	30,170
Net increase in short-term borrowings	2,583	6,141
Proceeds from employee stock purchase plan participants	80	78
Dividends paid, net of dividends reinvested	(1,473)	(1,090)
Proceeds from dividend reinvestment plan participants	104	251
Net cash provided by financing activities	43,464	35,550
Net increase in cash and cash equivalents	6,467	14,039
Cash and cash equivalents, beginning	13,218	21,846
Cash and cash equivalents, ending	$ 19,685	$ 35,885

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Consolidated Balance Sheets (Parenthetical) (USD $) In Thousands, except Share data, unless otherwise specified	Sep. 30, 2014	Dec. 31, 2013
Consolidated Balance Sheets [Abstract]
Held-to-maturity securities	$ 0	$ 195
Loans, allowance for loan losses	9,277	8,928
Loans held-for-sale	$ 1,184	$ 937
Preferred stock, shares authorized	5,000,000	5,000,000
Preferred stock, no par value
Preferred stock, shares issued	0	0
Common stock, no par value
Common stock, shares authorized	10,000,000	10,000,000
Common stock, shares issued	2,419,587	2,391,617
Common stock, shares outstanding	2,419,587	2,391,617

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Earnings Per Share (Policy)

9 Months Ended

Sep. 30, 2014

Earnings Per Share [Abstract]

Earnings Per Share

Basic earnings per share (EPS) is computed by dividing net income available to common shareholders by the weighted-average number of common shares outstanding for the period.  Diluted EPS is computed in the same manner as basic EPS but also reflects the potential dilution that could occur from the grant of stock-based compensation awards.  The Company maintains two active share-based compensation plans that may generate additional potentially dilutive common shares.  For granted and unexercised stock options, dilution would occur if Company-issued stock options were exercised and converted into common stock.  As of the three and nine months ended September 30, 2014, there were 434 and 57 potentially dilutive shares related to issued and unexercised stock options.  There were no potentially dilutive shares related to stock options as of the three and nine months ended September 30, 2013.  For restricted stock, dilution would occur from the Company’s previously granted but unvested shares.  There were 5,799 and 4,632 potentially dilutive shares related to unvested restricted share grants as of the three months ended September 30, 2014 and 2013, respectively.  There were 4,514 and 4,407 potentially dilutive shares related to unvested restricted share grants as of the nine months ended September 30, 2014 and 2013, respectively.

In the computation of diluted EPS, the Company uses the treasury stock method to determine the dilutive effect of its granted but unexercised stock options and unvested restricted stock.  Under the treasury stock method, the assumed proceeds, as defined, received from shares issued in a hypothetical stock option exercise or restricted stock grant, are assumed to be used to purchase treasury stock.  Proceeds include: amounts received from the exercise of outstanding stock options; compensation cost for future service that the Company has not yet recognized in earnings; and any windfall tax benefits that would be credited directly to shareholders’ equity when the grant generates a tax deduction (or a reduction in proceeds if there is a charge to equity).  The Company does not consider awards from share-based grants in the computation of basic EPS.

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Document and Entity Information	9 Months Ended
	Sep. 30, 2014	Oct. 31, 2014
Document and Entity Information [Abstract]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Sep. 30, 2014
Document Fiscal Year Focus	2014
Document Fiscal Period Focus	Q3
Entity Registrant Name	FIDELITY D & D BANCORP INC
Entity Central Index Key	0001098151
Current Fiscal Year End Date	--12-31
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		2,419,587

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Stock Plans (Policy)

9 Months Ended

Sep. 30, 2014

Stock Plans [Abstract]

Stock Plans

The Company has two stock-based compensation plans (the stock compensation plans) from which it can grant stock-based compensation awards, and applies the fair value method of accounting for stock-based compensation provided under current accounting guidance.  The guidelines require the cost of share-based payment transactions (including those with employees and non-employees) be recognized in the financial statements.  The Company’s stock compensation plans were shareholder-approved and permit the grant of share-based compensation awards to its employees and directors.  The Company believes that the stock-based compensation plans will advance the development, growth and financial condition of the Company by providing incentives through participation in the appreciation in the value of the Company’s common stock.  In return, the Company hopes to secure, retain and motivate the employees and directors who are responsible for the operation and the management of the affairs of the Company by aligning the interest of its employees and directors with the interest of its shareholders.  In the stock compensation plans, employees and directors are eligible to be awarded stock-based compensation grants which can consist of stock options (qualified and non-qualified), stock appreciation rights (SARs) and restricted stock. 

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Consolidated Statements of Income (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013
Interest income:
Loans and leases: Taxable	$ 5,521	$ 5,329	$ 16,191	$ 16,034
Loans and leases: Nontaxable	135	126	397	346
Interest-bearing deposits with financial institutions	3	5	14	19
Investment securities:
U.S. government agency and corporations	281	167	783	483
States and political subdivisions (nontaxable)	323	303	977	893
Other securities	31	24	79	59
Federal funds sold	1		1
Total interest income	6,295	5,954	18,442	17,834
Interest expense:
Deposits	507	525	1,495	1,551
Securities sold under repurchase agreements	5	5	17	18
Other short-term borrowings and other	2	3	8	8
Long-term debt	216	215	638	638
Total interest expense	730	748	2,158	2,215
Net interest income	5,565	5,206	16,284	15,619
Provision for loan losses	210	450	810	1,600
Net interest income after provision for loan losses	5,355	4,756	15,474	14,019
Other income:
Service charges on deposit accounts	466	492	1,320	1,403
Interchange fees	333	319	970	899
Fees from trust fiduciary activities	156	139	492	480
Fees from financial services	114	148	405	444
Service charges on loans	189	162	613	744
Fees and other revenue	196	122	558	343
Earnings on bank-owned life insurance	86	85	252	251
Gain (loss) on sale, recovery, or disposal of:
Loans	209	313	462	1,207
Investment securities		138	301	266
Premises and equipment	(1)	(10)	(66)	(10)
Impairment losses on investment securities:
Other-than-temporary impairment on investment securities				(61)
Non-credit-related losses on investment securities not expected to be sold (recognized in other comprehensive income(loss))				61
Net impairment losses on investment securities
Total other income	1,748	1,908	5,307	6,027
Other expenses:
Salaries and employee benefits	2,460	2,248	7,424	7,145
Premises and equipment	827	837	2,620	2,496
Advertising and marketing	198	513	804	980
Professional services	405	314	1,044	891
FDIC assessment	85	105	263	353
Loan collection	60	84	177	447
Other real estate owned	187	40	276	224
Office supplies and postage	112	116	318	332
Automated transaction processing	168	186	473	426
Other	408	201	1,057	837
Total other expenses	4,910	4,644	14,456	14,131
Income before income taxes	2,193	2,020	6,325	5,915
Provision for income taxes	562	515	1,611	1,503
Net income	$ 1,631	$ 1,505	$ 4,714	$ 4,412
Per share data:
Net income - basic	$ 0.68	$ 0.64	$ 1.96	$ 1.88
Net income - diluted	$ 0.67	$ 0.64	$ 1.95	$ 1.88
Dividends	$ 0.25	$ 0.25	$ 0.75	$ 0.75

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Loans And Leases

9 Months Ended

Sep. 30, 2014

Loans And Leases [Abstract]

Loans And Leases

5.  Loans and leases

The classifications of loans and leases at September 30, 2014 and December 31, 2013 are summarized as follows:

(dollars in thousands)	September 30, 2014		December 31, 2013
Commercial and industrial	$	76,710	$	74,551
Commercial real estate:
Non-owner occupied		93,142		89,255
Owner occupied		91,838		86,294
Construction		7,402		10,765
Consumer:
Home equity installment		32,487		34,480
Home equity line of credit		40,651		36,836
Auto loans and leases		27,867		22,261
Other		6,613		5,205
Residential:
Real estate		117,602		110,365
Construction		8,154		8,188
Total		502,466		478,200
Less:
Allowance for loan losses		(9,277)		(8,928)
Unearned lease revenue		(174)		(56)
Loans and leases, net	$	493,015	$	469,216

Net deferred loan costs of $1.3 million and $1.1 million have been added to the carrying values of loans at September 30, 2014 and December 31, 2013, respectively.

Unearned lease revenue represents the difference between the lessor’s investment in the property and the gross investment in the lease.  Unearned revenue is accrued over the life of the lease using the effective income method.

The Company services real estate loans for investors in the secondary mortgage market which are not included in the accompanying consolidated balance sheets.  The approximate amount of mortgages serviced amounted to $254.6 million as of September 30, 2014 and $250.2 million as of December 31, 2013.

The Company utilizes an external independent loan review firm that reviews and validates the credit risk program on at least an annual basis. Results of these reviews are presented to management and the board of directors. The loan review process complements and reinforces the risk identification and assessment decisions made by lenders and credit personnel, as well as the Company’s policies and procedures.

Non-accrual loans

The decision to place loans on non-accrual status is made on an individual basis after considering factors pertaining to each specific loan.  Commercial and industrial and commercial real estate loans are placed on non-accrual status when management has determined that payment of all contractual principal and interest is in doubt or the loan is past due 90 days or more as to principal and interest, unless well-secured and in the process of collection. Consumer loans secured by real estate and residential mortgage loans are placed on non-accrual status at 120 days past due as to principal and interest and unsecured consumer loans are charged off when the loan is 90 days or more past due as to principal and interest. The Company considers all non-accrual loans to be impaired loans.

Non-accrual loans, segregated by class, at September 30, 2014 and December 31, 2013, were as follows:

(dollars in thousands)	September 30, 2014		December 31, 2013
Commercial and industrial	$	24	$	62
Commercial real estate:
Non-owner occupied		776		1,518
Owner occupied		1,884		1,422
Construction		264		635
Consumer:
Home equity installment		394		393
Home equity line of credit		584		254
Auto loans and leases		-		12
Other		20		22
Residential:
Real estate		544		1,350
Total	$	4,490	$	5,668

Troubled Debt Restructuring

A modification of a loan constitutes a troubled debt restructuring (TDR) when a borrower is experiencing financial difficulty and the modification constitutes a concession.  The Company considers all TDRs to be impaired loans.  The Company offers various types of concessions when modifying a loan, however, forgiveness of principal is rarely granted.  Commercial and industrial loans modified in a TDR often involve temporary interest-only payments, term extensions, and converting revolving credit lines to term loans.  Additional collateral, a co-borrower, or a guarantor is often requested. Commercial real estate loans modified in a TDR often involve reducing the interest rate for the remaining term of the loan, extending the maturity date at an interest rate lower than the current market rate for new debt with similar risk, or substituting or adding a new borrower or guarantor.  Commercial real estate construction loans modified in a TDR may also involve extending the interest-only payment period.  Residential mortgage loans modified in a TDR are primarily comprised of loans where monthly payments are lowered to accommodate the borrowers’ financial needs for an extended period of time.  After the lowered monthly payment period ends, the borrower would revert back to paying principal and interest pursuant to the original terms with the maturity date adjusted accordingly.  Consumer loan modifications are typically not granted and therefore standard modification terms do not exist for loans of this type.

Loans modified in a TDR may or may not be placed on non-accrual status.  As of September 30, 2014, total TDRs amounted to $1.6 million (consisting of 5 loans to 3 unrelated borrowers), of which one loan with a balance of $0.9 million was on non-accrual status, compared to $2.0 million (consisting of 7 loans to 5 unrelated borrowers) and $1.0 million, respectively, as of December 31, 2013.  Of the TDRs outstanding as of September 30, 2014 and December 31, 2013, when modified, the concessions granted consisted of temporary interest-only payments or a reduction in the rate of interest to a below-market rate for a contractual period of time.  Other than the TDR that was on non-accrual status, the TDRs were performing in accordance with their modified terms.

Loans modified in a TDR are closely monitored for delinquency as an early indicator of possible future default.  If loans modified in a TDR subsequently default, the Company evaluates the loan for possible further impairment.  There were no loans modified in a TDR during the nine and twelve months ended September 30, 2014.

The allowance for loan losses (allowance) may be increased, adjustments may be made in the allocation of the allowance or partial charge offs may be taken to further write-down the carrying value of the loan.  An allowance for impaired loans that have been modified in a TDR is measured based on the present value of expected future cash flows discounted at the loan’s effective interest rate or the loan’s observable market price.  If the loan is collateral dependent, the estimated fair value of the collateral, less any selling costs, is used to establish the allowance.

Past due loans

Loans are considered past due when the contractual principal and/or interest is not received by the due date.  An aging analysis of past due loans, segregated by class of loans, as of the period indicated is as follows (dollars in thousands):

														Recorded
					Past due									investment  past
	30 - 59 Days		60 - 89 Days		90 days		Total				Total			due ≥ 90 days
September 30, 2014	past due		past due		or more(1)		past due		Current		loans			and accruing
Commercial and industrial	$	618	$	36	$	116	$	770	$	75,940	$	76,710		$	92
Commercial real estate:
Non-owner occupied		64		112		776		952		92,190		93,142			-
Owner occupied		253		101		1,884		2,238		89,600		91,838			-
Construction		-		-		264		264		7,138		7,402			-
Consumer:
Home equity installment		481		198		394		1,073		31,414		32,487			-
Home equity line of credit		515		136		584		1,235		39,416		40,651			-
Auto loans and leases		383		90		-		473		27,220		27,693	(2)		-
Other		13		5		20		38		6,575		6,613			-
Residential:
Real estate		40		1,194		601		1,835		115,767		117,602			57
Construction		-		-		-		-		8,154		8,154			-
Total	$	2,367	$	1,872	$	4,639	$	8,878	$	493,414	$	502,292		$	149

(1) Includes $4.5 million of non-accrual loans.  (2) Net of unearned revenue of $0.2 million.

														Recorded
					Past due									investment  past
	30 - 59 Days		60 - 89 Days		90 days		Total				Total			due ≥ 90 days
December 31, 2013	past due		past due		or more (1)		past due		Current		loans			and accruing
Commercial and industrial	$	111	$	212	$	69	$	392	$	74,159	$	74,551		$	7
Commercial real estate:
Non-owner occupied		484		35		1,518		2,037		87,218		89,255			-
Owner occupied		1,714		545		1,422		3,681		82,613		86,294			-
Construction		-		-		635		635		10,130		10,765			-
Consumer:
Home equity installment		229		72		393		694		33,786		34,480			-
Home equity line of credit		-		114		275		389		36,447		36,836			21
Auto loans and leases		165		14		23		202		22,003		22,205	(2)		11
Other		52		23		22		97		5,108		5,205			-
Residential:
Real estate		158		1,340		1,466		2,964		107,401		110,365			116
Construction		-		-		-		-		8,188		8,188			-
Total	$	2,913	$	2,355	$	5,823	$	11,091	$	467,053	$	478,144		$	155

(1)Includes $5.7 million of non-accrual loans.  (2) Net of unearned revenue of $56 thousand.

Impaired loans

A loan is considered impaired when, based on current information and events; it is probable that the Company will be unable to collect the scheduled payments in accordance with the contractual terms of the loan.  Factors considered in determining impairment include payment status, collateral value and the probability of collecting payments when due.  The significance of payment delays and/or shortfalls is determined on a case-by-case basis.  All circumstances surrounding the loan are taken into account.  Such factors include the length of the delinquency, the underlying reasons and the borrower’s prior payment record.  Impairment is measured on these loans on a loan-by-loan basis.  Impaired loans include non-accrual loans, TDRs and other loans deemed to be impaired based on the aforementioned factors.  As of September 30, 2014 and December 31, 2013, impaired loans consisted of non-accrual loans and TDRs.

At September 30, 2014, impaired loans consisted of accruing TDRs totaling $0.7 million and $4.5 million of non-accrual loans.  At December 31, 2013, impaired loans consisted of accruing TDRs totaling $1.0 million and $5.7 million of non-accrual loans.  As of September 30, 2014 and December 31, 2013, the non-accrual loans included non-accruing TDRs of $0.9 million and $1.0 million, respectively.  Payments received from impaired loans are first applied against the outstanding principal balance, then to the recovery of any charged-off amounts.  Any excess is treated as a recovery of interest income.

Impaired loans, segregated by class, as of the period indicated are detailed below:

			Recorded		Recorded										Cash basis
	Unpaid		investment		investment		Total				Average		Interest		interest
	principal		with		with no		recorded		Related		recorded		income		income
(dollars in thousands)	balance		allowance		allowance		investment		allowance		investment		recognized		recognized
September 30, 2014
Commercial & industrial	$	52	$	-	$	49	$	49	$	-	$	84	$	1	$	-
Commercial real estate:
Non-owner occupied		1,416		865		382		1,247		148		1,492		18		-
Owner occupied		2,243		720		1,422		2,142		67		1,975		11		-
Construction		351		-		264		264		-		446		-		-
Consumer:
Home equity installment		538		-		394		394		-		356		11		-
Home equity line of credit		601		83		501		584		4		377		20		-
Auto loans and leases		-		-		-		-		-		5		-		-
Other		32		-		20		20		-		19		-		-
Residential:
Real estate		625		186		358		544		51		940		1		-
Construction		-		-		-		-		-		-		-		-
Total	$	5,858	$	1,854	$	3,390	$	5,244	$	270	$	5,694	$	62	$	-

			Recorded		Recorded										Cash basis
	Unpaid		investment		investment		Total				Average		Interest		interest
	principal		with		with no		recorded		Related		recorded		income		income
(dollars in thousands)	balance		allowance		allowance		investment		allowance		investment		recognized		recognized
December 31, 2013
Commercial & industrial	$	134	$	64	$	33	$	97	$	31	$	80	$	2	$	-
Commercial real estate:
Non-owner occupied		2,146		174		1,827		2,001		27		2,173		31		78
Owner occupied		2,136		622		1,327		1,949		90		3,203		36		-
Construction		1,024		-		635		635		-		903		-		-
Consumer:
Home equity installment		501		125		268		393		23		723		37		-
Home equity line of credit		340		-		254		254		-		355		2		-
Auto		12		12		-		12		1		5		-		-
Other		22		-		22		22		-		29		-		-
Residential:
Real estate		1,511		437		913		1,350		110		1,682		71		-
Construction		-		-		-		-		-		-		-		-
Total	$	7,826	$	1,434	$	5,279	$	6,713	$	282	$	9,153	$	179	$	78

Credit Quality Indicators

Commercial and industrial and commercial real estate

The Company utilizes a loan grading system and assigns a credit risk grade to its loans in the commercial and industrial and commercial real estate portfolios.  The grading system provides a means to measure portfolio quality and aids in the monitoring of the credit quality of the overall loan portfolio.  The credit risk grades are arrived at using a risk rating matrix to assign a grade to each of the loans in the commercial and industrial and commercial real estate portfolios. 

The following is a description of each risk rating category the Company uses to classify each of its commercial and industrial and commercial real estate loans:

Pass

Loans in this category have an acceptable level of risk and are graded in a range of one to five.  Secured loans generally have good collateral coverage.  Current financial statements reflect acceptable balance sheet ratios, sales and earnings trends.  Management is considered to be good, and there is some depth existing.  Payment experience on the loans has been good with minor or no delinquency experience.  Loans with a grade of one are of the highest quality in the range.  Those graded five are of marginally acceptable quality.

Special Mention

Loans in this category are graded a six and may be protected but are potentially weak.  They constitute a credit risk to the Company, but have not yet reached the point of adverse classification.  Some of the following conditions may exist: little or no collateral coverage; lack of current financial information; delinquency problems; highly leveraged; available financial information reflects poor balance sheet ratios and profit and loss statements reflect uncertain trends; and document exceptions.  Cash flow may not be sufficient to support total debt service requirements.  Loans in this category should not remain on the list for an inordinate period of time (no more than one year) and then the loan should be passed or classified appropriately.

Substandard

Loans in this category are graded a seven and have a well-defined weakness which may jeopardize the ultimate collectability of the debt.  The collateral pledged may be lacking in quality or quantity.  Financial statements may indicate insufficient cash flow to service the debt; and/or do not reflect a sound net worth.  The payment history indicates chronic delinquency problems.  Management is considered to be weak.  There is a distinct possibility that the Company may sustain a loss.  All loans on non-accrual are rated substandard.  Other loans that are included in the substandard category can be accruing, as well as loans that are current or past due.  Loans 90 days or more past due, unless otherwise fully supported, are classified substandard. Also, borrowers that are bankrupt or have loans categorized as troubled debt restructures can be graded substandard. 

Doubtful

Loans in this category are graded an eight and have a better than 50% possibility of the Company sustaining a loss, but the loss cannot be determined because of specific reasonable factors which may strengthen credit in the near-term.  Many of the weaknesses present in a substandard loan exist.  Liquidation of collateral, if any, is likely.  Any loan graded lower than an eight is considered to be uncollectible and charged-off.

Consumer and residential

The consumer and residential loan segments are regarded as homogeneous loan pools and as such are not risk rated.  For these portfolios, the Company utilizes payment activity, history and recency of payment.  Non-performing loans are considered to be loans past due 90 days or more and accruing and non-accrual loans.  All loans not classified as non-performing are considered performing.

The following table presents loans, segregated by class, categorized into the appropriate credit quality indicator category as of the period indicated:

Commercial credit exposure

Credit risk profile by creditworthiness category

					Commercial real estate -				Commercial real estate -				Commercial real estate -
	Commercial and industrial				non-owner occupied				owner occupied				construction
(dollars in thousands)	9/30/2014		12/31/2013		9/30/2014		12/31/2013		9/30/2014		12/31/2013		9/30/2014		12/31/2013
Pass	$	72,961	$	71,122	$	83,014	$	78,069	$	86,145	$	82,975	$	6,585	$	9,026
Special mention		2,540		2,244		2,544		2,734		2,271		656		481		1,037
Substandard		1,209		1,185		7,584		8,452		3,422		2,663		336		702
Doubtful		-		-		-		-		-		-		-		-
Total	$	76,710	$	74,551	$	93,142	$	89,255	$	91,838	$	86,294	$	7,402	$	10,765

Consumer credit exposure

Credit risk profile based on payment activity

	Home equity installment				Home equity line of credit				Auto loans and leases				Other
(dollars in thousands)	9/30/2014		12/31/2013		9/30/2014		12/31/2013		9/30/2014		12/31/2013		9/30/2014		12/31/2013
Performing	$	32,093	$	34,087	$	40,067	$	36,561	$	27,693	$	22,182	$	6,593	$	5,183
Non-performing		394		393		584		275		-		23		20		22
Total	$	32,487	$	34,480	$	40,651	$	36,836	$	27,693	$	22,205	$	6,613	$	5,205

Mortgage lending credit exposure

Credit risk profile based on payment activity

	Residential real estate					Residential construction
(dollars in thousands)	9/30/2014		12/31/2013		9/30/2014		12/31/2013
Performing	$	117,001	$	108,899	$	8,154	$	8,188
Non-performing		601		1,466		-		-
Total	$	117,602	$	110,365	$	8,154	$	8,188

Allowance for loan losses

Management continually evaluates the credit quality of the Company’s loan portfolio and performs a formal review of the adequacy of the allowance for loan losses (the allowance) on a quarterly basis.  The allowance reflects management’s best estimate of the amount of credit losses in the loan portfolio.  Management’s judgment is based on the evaluation of individual loans, past experience, the assessment of current economic conditions and other relevant factors including the amounts and timing of cash flows expected to be received on impaired loans.  Those estimates may be susceptible to significant change.  Loan losses are charged directly against the allowance when loans are deemed to be uncollectible.  Recoveries from previously charged-off loans are added to the allowance when received.

Management applies two primary components during the loan review process to determine proper allowance levels.  The two components are a specific loan loss allocation for loans that are deemed impaired and a general loan loss allocation for those loans not specifically allocated.  The methodology to analyze the adequacy of the allowance for loan losses is as follows:

§ identification of specific impaired loans by loan category;

§ identification of specific loans that are not impaired, but have an identified potential for loss;

§ calculation of specific allowances where required for the impaired loans based on collateral and other objective and quantifiable evidence;

§ determination of loans with similar credit characteristics within each class of the loan portfolio segment and eliminating the impaired loans;

§ application of historical loss percentages (trailing twelve-quarter average) to pools to determine the allowance allocation;

§ application of qualitative factor adjustment percentages to historical losses for trends or changes in the loan portfolio.

§ Qualitative factor adjustments include:

o levels of and trends in delinquencies and non-accrual loans;

o levels of and trends in charge-offs and recoveries;

o trends in volume and terms of loans;

o changes in risk selection and underwriting standards;

o changes in lending policies, procedures and practices;

o experience, ability and depth of lending management;

o national and local economic trends and conditions; and

o changes in credit concentrations.

Allocation of the allowance for different categories of loans is based on the methodology as explained above.  A key element of the methodology to determine the allowance is the Company’s credit risk evaluation process, which includes credit risk grading of individual commercial and industrial and commercial real estate loans.  Commercial and industrial and commercial real estate loans are assigned credit risk grades based on the Company’s assessment of conditions that affect the borrower’s ability to meet its contractual obligations under the loan agreement.  That process includes reviewing borrowers’ current financial information, historical payment experience, credit documentation, public information and other information specific to each individual borrower.  Upon review, the commercial loan credit risk grade is revised or reaffirmed as the case may be.  The credit risk grades may be changed at any time management feels an upgrade or downgrade may be warranted.  The credit risk grades for the commercial and industrial and commercial real estate loan portfolios are taken into account in the reserve methodology and loss factors are applied based upon the credit risk grades.  The loss factors applied are based upon the Company’s historical experience as well as what we believe to be best practices and common industry standards.  Historical experience reveals there is a direct correlation between the credit risk grades and loan charge-offs.  The changes in allocations in the commercial and industrial and commercial real estate loan portfolio from period to period are based upon the credit risk grading system and from periodic reviews of the loan portfolio.  An unallocated component is maintained to cover uncertainties that could affect management’s estimate of probable losses.  The unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies. 

Each quarter, management performs an assessment of the allowance for loan losses.  The Company’s Special Assets Committee meets monthly and the applicable lenders discuss each relationship under review and reach a consensus on the appropriate estimated loss amount, if applicable, based on current accounting guidance.  The Special Assets Committee’s focus is on ensuring the pertinent facts are considered regarding not only loans considered for specific reserves, but also the collectability of loans that may be past due in payment.  The assessment process also includes the review of all loans on a non-accruing basis as well as a review of certain loans to which the lenders or the Company’s Credit Administration function have assigned a criticized or classified risk rating. 

During the fourth quarter of 2013, the Company changed its methodology to determine historical loss percentages – from a two-year average, calculated annually, to a trailing twelve-quarter average.    Management determined that utilizing a trailing twelve-quarter average minimizes the impact of certain anomalies caused by irregular occurrences such as infrequent large loan charge offs.  Analyzing historical loss data over a longer period provides a more accurate measurement of factors to be used in estimating future loan loss estimates. 

In addition, during the fourth quarter of 2013, the Company changed its methodology used to calculate the allowance for loan losses from the methodology used in the first three quarters of 2013.  Beginning in the fourth quarter of 2013, certain loans were eliminated from the allowance for loan loss calculation.  The loans eliminated include the following:  the guaranteed portion of all commercial loans that carry a guarantee by the Small Business Administration and loans in all loan categories that are fully secured by cash collateral.  Management has determined that these loans have very little risk of not being fully collected.  Therefore, upon origination, these loans have been eliminated from allowance for loan loss calculations.

The Company’s policy is to charge off unsecured consumer loans when they become 90 days or more past due as to principal and interest.  In the other portfolio segments, amounts are charged off at the point in time when the Company deems the balance, or a portion thereof, to be uncollectible.

Information related to the change in the allowance for loan losses and the Company’s recorded investment in loans by portfolio segment as of the period indicated is as follows: 

As of and for the nine months ended September 30, 2014
	Commercial &		Commercial				Residential
(dollars in thousands)	industrial		real estate		Consumer		real estate		Unallocated		Total
Allowance for Loan Losses:
Beginning balance	$	944	$	4,253	$	1,482	$	1,613	$	636	$	8,928
Charge-offs		39		217		287		93		-		636
Recoveries		25		90		26		34		-		175
Provision		49		282		382		(55)		152		810
Ending balance	$	979	$	4,408	$	1,603	$	1,499	$	788	$	9,277
Ending balance: individually evaluated for impairment	$	-	$	215	$	4	$	51			$	270
Ending balance: collectively evaluated for impairment	$	979	$	4,193	$	1,599	$	1,448			$	8,219
Loans Receivables:
Ending balance	$	76,710	$	192,382	$	107,444	$	125,756			$	502,292
Ending balance: individually evaluated for impairment	$	49	$	3,653	$	998	$	544			$	5,244
Ending balance: collectively evaluated for impairment	$	76,661	$	188,729	$	106,446	$	125,212			$	497,048

As of and for the three months ended September 30, 2014
	Commercial &		Commercial				Residential
(dollars in thousands)	industrial		real estate		Consumer		real estate		Unallocated		Total
Allowance for Loan Losses:
Beginning balance	$	1,036	$	4,342	$	1,570	$	1,578	$	503	$	9,029
Charge-offs		3		-		47		16		-		66
Recoveries		11		89		4		-		-		104
Provision		(65)		(23)		76		(63)		285		210
Ending balance	$	979	$	4,408	$	1,603	$	1,499	$	788	$	9,277

As of and for the year ended December 31, 2013
	Commercial &		Commercial				Residential
(dollars in thousands)	industrial		real estate		Consumer		real estate		Unallocated		Total
Allowance for Loan Losses:
Beginning balance	$	922	$	4,908	$	1,639	$	1,503	$	-	$	8,972
Charge-offs		56		2,091		400		218		-		2,765
Recoveries		30		30		110		1		-		171
Provision		48		1,406		133		327		636		2,550
Ending balance	$	944	$	4,253	$	1,482	$	1,613	$	636	$	8,928
Ending balance: individually evaluated for impairment	$	31	$	117	$	24	$	110			$	282
Ending balance: collectively evaluated for impairment	$	913	$	4,136	$	1,458	$	1,503			$	8,010
Loans Receivables:
Ending balance	$	74,551	$	186,314	$	98,726	$	118,553			$	478,144
Ending balance: individually evaluated for impairment	$	97	$	4,585	$	681	$	1,350			$	6,713
Ending balance: collectively evaluated for impairment	$	74,454	$	181,729	$	98,045	$	117,203			$	471,431

Information related to the change in the allowance for loan losses as of and for the three and nine months ended September 30, 2013 is as follows:

As of and for the nine months ended September 30, 2013
	Commercial &		Commercial				Residential
(dollars in thousands)	industrial		real estate		Consumer		real estate		Unallocated		Total
Allowance for Loan Losses:
Beginning balance	$	922	$	4,908	$	1,639	$	1,503	$	-	$	8,972
Charge-offs		56		1,815		274		158		-		2,303
Recoveries		8		28		99		1		-		136
Provision		32		702		189		335		342		1,600
Ending balance	$	906	$	3,823	$	1,653	$	1,681	$	342	$	8,405

As of and for the three months ended September 30, 2013
	Commercial &		Commercial				Residential
(dollars in thousands)	industrial		real estate		Consumer		real estate		Unallocated		Total
Allowance for Loan Losses:
Beginning balance	$	919	$	3,521	$	1,647	$	1,718	$	491	$	8,296
Charge-offs		8		188		94		94		-		384
Recoveries		2		16		24		1		-		43
Provision		(7)		474		76		56		(149)		450
Ending balance	$	906	$	3,823	$	1,653	$	1,681	$	342	$	8,405

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Investment Securities

9 Months Ended

Sep. 30, 2014

Investment Securities [Abstract]

Investment Securities

4. Investment securities

The amortized cost and fair value of investment securities at September 30, 2014 and December 31, 2013 are summarized as follows:

			Gross		Gross
	Amortized		unrealized		unrealized		Fair
(dollars in thousands)	cost		gains		losses		value
September 30, 2014
Held-to-maturity securities:
MBS - GSE residential	$	-	$	-	$	-	$	-
Available-for-sale securities:
Agency - GSE	$	17,558	$	49	$	24	$	17,583
Obligations of states and political subdivisions		33,998		2,234		15		36,217
MBS - GSE residential		58,561		1,537		55		60,043
Total debt securities		110,117		3,820		94		113,843
Equity securities - financial services		294		288		-		582
Total available-for-sale securities	$	110,411	$	4,108	$	94	$	114,425

			Gross		Gross
	Amortized		unrealized		unrealized		Fair
(dollars in thousands)	cost		gains		losses		value
December 31, 2013
Held-to-maturity securities:
MBS - GSE residential	$	177	$	18	$	-	$	195
Available-for-sale securities:
Agency - GSE	$	14,667	$	8	$	74	$	14,601
Obligations of states and political subdivisions		32,269		912		570		32,611
MBS - GSE residential		48,137		1,476		104		49,509
Total debt securities		95,073		2,396		748		96,721
Equity securities - financial services		295		230		-		525
Total available-for-sale securities	$	95,368	$	2,626	$	748	$	97,246

The amortized cost and fair value of debt securities at September 30, 2014 by contractual maturity are summarized below:

	Amortized		Fair
(dollars in thousands)	cost		value
Held-to-maturity securities:
MBS - GSE residential	$	-	$	-
Available-for-sale securities:
Debt securities:
Due in one year or less	$	-	$	-
Due after one year through five years		14,475		14,477
Due after five years through ten years		4,807		4,980
Due after ten years		32,274		34,343
Total debt securities		51,556		53,800
MBS - GSE residential		58,561		60,043
Total available-for-sale debt securities	$	110,117	$	113,843

Actual maturities will differ from contractual maturities because issuers and borrowers may have the right to call or repay obligations with or without call or prepayment penalty.  Agency – GSE and municipal securities are included based on their original stated maturity.  MBS – GSE residential, which are based on weighted-average lives and subject to monthly principal pay-downs, are listed in total.  Most of the securities have fixed rates or have predetermined scheduled rate changes, and many have call features that allow the issuer to call the security at par before its stated maturity, without penalty.

The following table presents the fair value and gross unrealized losses of investment securities aggregated by investment type, the length of time and the number of securities that have been in a continuous unrealized loss position as of September 30, 2014 and December 31, 2013:

	Less than 12 months				More than 12 months				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
(dollars in thousands)	value		losses		value		losses		value		losses
September 30, 2014
Agency - GSE	$	5,075	$	22	$	2,060	$	2	$	7,135	$	24
Obligations of states and political subdivisions		-		-		1,548		15		1,548		15
MBS - GSE residential		13,827		55		-		-		13,827		55
Total temporarily impaired securities	$	18,902	$	77	$	3,608	$	17	$	22,510	$	94
Number of securities		12				6				18
December 31, 2013
Agency - GSE	$	11,592	$	74	$	-	$	-	$	11,592	$	74
Obligations of states and political subdivisions		10,148		570		-		-		10,148		570
MBS - GSE residential		11,703		83		3,052		21		14,755		104
Total temporarily impaired securities	$	33,443	$	727	$	3,052	$	21	$	36,495	$	748
Number of securities		38				2				40

Management believes the cause of the unrealized losses is related to changes in interest rates, instability in the capital markets or the limited trading activity due to illiquid conditions in the debt market and is not directly related to credit quality.  Quarterly, management conducts a formal review of investment securities for the presence of other-than-temporary impairment (OTTI).  The accounting guidance related to OTTI requires the Company to assess whether OTTI is present when the fair value of a debt security is less than its amortized cost as of the balance sheet date.  Under those circumstances, OTTI is considered to have occurred if: (1) the entity has intent to sell the security; (2) more likely than not the entity will be required to sell the security before recovery of its amortized cost basis; or (3) the present value of expected cash flows is not sufficient to recover the entire amortized cost.

The accounting guidance requires that credit-related OTTI be recognized in earnings while non-credit-related OTTI on securities not expected to be sold be recognized in other comprehensive income (loss) (OCI).  Non-credit-related OTTI is based on other factors affecting market value, including illiquidity.  Presentation of OTTI is made in the consolidated statements of income on a gross basis with an offset for the amount of non-credit-related OTTI recognized in OCI.

The Company’s OTTI evaluation process also follows the guidance set forth in topics related to debt and equity securities.  The guidance set forth in the pronouncements require the Company to take into consideration current market conditions, fair value in relationship to cost, extent and nature of changes in fair value, issuer rating changes and trends, volatility of earnings, current analysts’ evaluations, all available information relevant to the collectability of debt securities, the ability and intent to hold investments until a recovery of fair value which may be to maturity and other factors when evaluating for the existence of OTTI.  The guidance requires that credit-related OTTI be recognized as a realized loss through earnings when there has been an adverse change in the holder’s expected cash flows such that the full amount (principal and interest) will probably not be received.  This requirement is consistent with the impairment model in the guidance for accounting for debt and equity securities.

For all security types, as of September 30, 2014, the Company applied the criteria provided in the recognition and presentation guidance related to OTTI.  That is, management has no intent to sell the securities and no conditions were identified by management that more likely than not would require the Company to sell the securities before recovery of their amortized cost basis.  The results indicated there was no presence of OTTI in the Company’s security portfolio.In addition, management believes the change in fair value is attributable to changes in interest rates and those instruments with unrealized losses were not caused by deterioration of credit quality.  Accordingly, as of September 30, 2014, recognition of OTTI on these securities was unnecessary. 

Agency - GSE and MBS - GSE residential

Agency – GSE and MBS – GSE residential securities consist of short- to long-term notes issued by Federal Home Loan Mortgage Corporation (FHLMC), Federal National Mortgage Association (FNMA), Federal Home Loan Bank (FHLB) and Government National Mortgage Association (GNMA).  These securities have interest rates that are fixed and adjustable, have varying short- to long-term maturity dates and have contractual cash flows guaranteed by the U.S. government or agencies of the U.S. government.

Obligations of states and political subdivisions

The municipal securities are bank qualified or bank eligible, general obligation and revenue bonds rated as investment grade by various credit rating agencies and have fixed rates of interest with mid- to long-term maturities.  Fair values of these securities are highly driven by interest rates.  Management performs ongoing credit quality reviews on these issues.

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Stock Plans (Tables)

9 Months Ended

Sep. 30, 2014

Stock Plans [Abstract]

Disclosure Of Share-Based Compensation Arrangements By Share-Based Payment Award

	2014				2013
		Weighted-				Weighted-
	Shares	average grant		Vesting	Shares	average grant		Vesting
	granted	date fair value		period	granted	date fair value		period
Director plan	2,000	$	27.00	1 year	8,000	$	21.20	2 yrs - 50% per year
Omnibus plan	2,120		27.00	4 yrs - 25% per year	6,000		21.20	4 yrs - 25% per year
Total	4,120	$	27.00		14,000	$	21.20

Schedule Of Nonvested Restricted Stock Units Activity

	2012 Stock incentive plans
	Director	Omnibus	Total
Balance at December 31, 2013	8,000	5,000	13,000
Granted	2,000	2,120	4,120
Forfeited	-	-	-
Vested	(4,000)	(1,250)	(5,250)
Balance at September 30, 2014	6,000	5,870	11,870

Schedule Of Compensation Cost For Share-Based Payment Arrangements, Allocation Of Share-Based Compensation Costs By Plan

		Three months ended			Nine months ended
		September 30,			September 30,
(dollars in thousands)	2014		2013		2014		2013
Stock-based compensation expense:
Director plan	$	35	$	22	$	100	$	57
Omnibus plan		10		7		29		21
Total stock-based compensation expense	$	45	$	29	$	129	$	78

Schedule Of Unrecognized Compensation Cost, Nonvested Awards

	As of September 30,
(dollars in thousands)	2014
Unrecognized stock-based compensation expense:
Director plan	$	46
Omnibus plan		110
Total unrecognized stock-based compensation expense	$	156

The unrecognized stock-based compensation expense as of September 30, 2014 will be recognized ratably over the periods ended January 2015 and January 2018 for the Director Plan and the Omnibus Plan, respectively.

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Accumulated Other Comprehensive Income (Loss) (Tables)

9 Months Ended

Sep. 30, 2014

Accumulated Other Comprehensive Income (Loss) [Abstract]

Schedule Of Accumulated Other Comprehensive Income Loss

As of  and for the nine months ended September 30, 2014
			Non-credit-related
	Unrealized gains		impairment losses
	on available-for-		on investment
(dollars in thousands)	sale securities		securities		Total
Beginning balance	$	1,239	$	-	$	1,239
Other comprehensive income before reclassifications		1,609		-		1,609
Amounts reclassified from accumulated other comprehensive income		(199)		-		(199)
Net current-period other comprehensive income		1,410		-		1,410
Ending balance	$	2,649	$	-	$	2,649

As of and for the three months ended September 30, 2014
			Non-credit-related
	Unrealized gains		impairment losses
	on available-for-		on investment
(dollars in thousands)	sale securities		securities		Total
Beginning balance	$	2,585	$	-	$	2,585
Other comprehensive income before reclassifications		64		-		64
Amounts reclassified from accumulated other comprehensive income		-		-		-
Net current-period other comprehensive income		64		-		64
Ending balance	$	2,649	$	-	$	2,649

As of and for the nine months ended September 30, 2013
			Non-credit-related
	Unrealized gains		impairment losses
	on available-for-		on investment
(dollars in thousands)	sale securities		securities		Total
Beginning balance	$	1,905	$	(1,669)	$	236
Other comprehensive (loss) income before reclassifications		(859)		146		(713)
Amounts reclassified from accumulated other comprehensive income		(176)		-		(176)
Net current-period other comprehensive (loss) income		(1,035)		146		(889)
Ending balance	$	870	$	(1,523)	$	(653)

As of and for the three months ended September 30, 2013
			Non-credit-related
	Unrealized gains		impairment losses
	on available-for-		on investment
(dollars in thousands)	sale securities		securities		Total
Beginning balance	$	351	$	(1,634)	$	(1,283)
Other comprehensive  income before reclassifications		610		111		721
Amounts reclassified from accumulated other comprehensive income		(91)		-		(91)
Net current-period other comprehensive income		519		111		630
Ending balance	$	870	$	(1,523)	$	(653)

Reclassification Out Of Accumulated Other Comprehensive Income

Details about accumulated other
comprehensive income components	Amount reclassified from accumulated								Affected line item in the statement
(dollars in thousands)	other comprehensive income								where net income is presented
	Three months ended				Nine months ended
	September 30,				September 30,
	2014		2013		2014		2013
Unrealized gains on AFS securities	$	-	$	138	$	301	$	266	Gain on sale, recovery, or disposal of investment securities
		-		(47)		(102)		(90)	Provision for income taxes
Total reclassifications for the period	$	-	$	91	$	199	$	176	Net income

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Fair Value Measurements

9 Months Ended

Sep. 30, 2014

Fair Value Measurements [Abstract]

Fair Value Measurements

8.  Fair value measurements

The accounting guidelines establish a framework for measuring and disclosing information about fair value measurements.  The guidelines of fair value reporting instituted a valuation hierarchy for disclosure of the inputs used to measure fair value.  This hierarchy prioritizes the inputs into three broad levels as follows:

Level 1 - inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities; 

Level 2 - inputs are quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration, for substantially the full term of the financial instrument;

Level 3 - inputs are unobservable and are based on the Company’s own assumptions to measure assets and liabilities at fair value.  Level 3 pricing for securities may also include unobservable inputs based upon broker-traded transactions.

A financial asset or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement.

The Company uses fair value to measure certain assets and, if necessary, liabilities on a recurring basis when fair value is the primary measure for accounting.  Thus, the Company uses fair value for AFS securities.  Fair value is used on a non-recurring basis to measure certain assets when adjusting carrying values to market values, such as impaired loans,  other real estate owned (ORE) and other repossessed assets.

The following table represents the carrying amount and estimated fair value of the Company’s financial instruments as of the periods indicated:

September 30, 2014
					Quoted prices		Significant		Significant
					in active		other		other
	Carrying		Estimated		markets		observable inputs		unobservable inputs
(dollars in thousands)	amount		fair value		(Level 1)		(Level 2)		(Level 3)
Financial assets:
Cash and cash equivalents	$	19,685	$	19,685	$	19,685	$	-	$	-
Available-for-sale securities		114,425		114,425		582		113,843		-
FHLB stock		2,282		2,282		-		2,282		-
Loans and leases, net		493,015		493,447		-		-		493,447
Loans held-for-sale		1,161		1,184		-		1,184		-
Financial liabilities:
Deposit liabilities		571,868		571,751		-		571,751		-
Short-term borrowings		11,225		11,225		-		11,225		-
Long-term debt		16,000		17,367		-		17,367		-

December 31, 2013
					Quoted prices		Significant		Significant
					in active		other		other
	Carrying		Estimated		markets		observable inputs		unobservable inputs
(dollars in thousands)	amount		fair value		(Level 1)		(Level 2)		(Level 3)
Financial assets:
Cash and cash equivalents	$	13,218	$	13,218	$	13,218	$	-	$	-
Held-to-maturity securities		177		195		-		195		-
Available-for-sale securities		97,246		97,246		525		96,721		-
FHLB stock		2,640		2,640		-		2,640		-
Loans and leases, net		469,216		467,381		-		-		467,381
Loans held-for-sale		917		937		-		937		-
Financial liabilities:
Deposit liabilities		529,698		529,968		-		529,968		-
Short-term borrowings		8,642		8,642		-		8,642		-
Long-term debt		16,000		17,904		-		17,904		-

The carrying value of short-term financial instruments, as listed below, approximates their fair value.  These instruments generally have limited credit exposure, no stated or short-term maturities, carry interest rates that approximate market and generally are recorded at amounts that are payable on demand :

· Cash and cash equivalents;

· Non-interest bearing deposit accounts;

· Savings, interest-bearing checking and money market accounts and

· Short-term borrowings.

Securities:  Fair values on investment securities are determined by prices provided by a third-party vendor, who is a provider of financial market data, analytics and related services to financial institutions. 

FHLB stock:  The Company considers the fair value of FHLB stock equal to its carrying value or cost since there is no market value available and investments in and transactions for the stock are restricted and limited to the FHLB and its member-banks.

Loans:  The fair value of loans is estimated by the net present value of the future expected cash flows discounted at current offering rates for similar loans.  Current offering rates consider, among other things, credit risk.  The carrying value that fair value is compared to is net of the allowance for loan losses and since there is significant judgment included in evaluating credit quality, loans are classified within Level 3 of the fair value hierarchy.

Loans held-for-sale:  The fair value of loans held-for-sale is estimated using rates currently offered for similar loans and is typically obtained from the Federal National Mortgage Association (FNMA) or the Federal Home Loan Bank of Pittsburgh (FHLB). 

Certificates of deposit:  The fair value of certificates of deposit is based on discounted cash flows using rates which approximate market rates for deposits of similar maturities.

Long-term debt:  Fair value is estimated using the rates currently offered for similar borrowings.

The following tables illustrate the financial instruments measured at fair value on a recurring basis segregated by hierarchy fair value levels as of the periods indicated:

			Quoted prices
			in active		Significant other		Significant other
	Total carrying value		markets		observable inputs		unobservable inputs
(dollars in thousands)	September 30, 2014		(Level 1)		(Level 2)		(Level 3)
Available-for-sale securities:
Agency - GSE	$	17,583	$	-	$	17,583	$	-
Obligations of states and political subdivisions		36,217		-		36,217		-
MBS - GSE residential		60,043		-		60,043		-
Equity securities - financial services		582		582		-		-
Total available-for-sale securities	$	114,425	$	582	$	113,843	$	-

			Quoted prices
			in active		Significant other		Significant other
	Total carrying value		markets		observable inputs		unobservable inputs
(dollars in thousands)	December 31, 2013		(Level 1)		(Level 2)		(Level 3)
Available-for-sale securities:
Agency - GSE	$	14,601	$	-	$	14,601	$	-
Obligations of states and political subdivisions		32,611		-		32,611		-
MBS - GSE residential		49,509		-		49,509		-
Equity securities - financial services		525		525		-		-
Total available-for-sale securities	$	97,246	$	525	$	96,721	$	-

Equity securities in the AFS portfolio are measured at fair value using quoted market prices for identical assets and are classified within Level 1 of the valuation hierarchy.  Debt securities in the AFS portfolio are measured at fair value using market quotations provided by a third-party vendor, who is a provider of financial market data, analytics and related services to financial institutions.  Assets classified as Level 2 use valuation techniques that are common to bond valuations.  That is, in active markets whereby bonds of similar characteristics frequently trade, quotes for similar assets are obtained.  For the nine months ended September 30, 2014 and the year ended December 31, 2013, there were no transfers to or from Level 1 and Level 2 fair value measurements for financial assets measured on a recurring basis.

The following table illustrates the changes in Level 3 financial instruments measured at fair value on a recurring basis during the first nine months of 2013.  Prior to December 31, 2013, Level 3 financial instruments measured at fair value consisted of the Company’s investment in pooled trust preferred securities.  The Company sold its entire portfolio of pooled trust preferred securities in the fourth quarter of 2013.  See Note 4, “Investment Securities”, and Note 13, “Fair Value Measurements” within the notes to the audited consolidated financial statements, incorporated by reference to the Company’s 2013 Annual Report on Form 10-K, filed with the SEC on March 19, 2014 for an expanded discussion on the Company’s investment, fair value determination and activity of its portfolio of pooled trust preferred securities:

(dollars in thousands)
As of and for the nine months ended September 30, 2013
Balance at beginning of period	$	1,825
Realized gains (losses) in earnings		-
Unrealized gains (losses) in OCI:
Gains		1,519
Losses		(193)
Pay down / settlement		(216)
Interest paid-in-kind		6
Accretion		2
Balance at end of period	$	2,943

The following table illustrates the financial instruments measured at fair value on a non-recurring basis segregated by hierarchy fair value levels as of the periods indicated:

			Quoted prices in		Significant other		Significant other
	Total carrying value		active markets		observable inputs		unobservable inputs
(dollars in thousands)	at September 30, 2014		(Level 1)		(Level 2)		(Level 3)
Impaired loans	$	1,584	$	-	$	-	$	1,584
Other real estate owned		1,587		-		-		1,587
Total	$	3,171	$	-	$	-	$	3,171

			Quoted prices in		Significant other		Significant other
	Total carrying value		active markets		observable inputs		unobservable inputs
(dollars in thousands)	at December 31, 2013		(Level 1)		(Level 2)		(Level 3)
Impaired loans	$	1,152	$	-	$	-	$	1,152
Other real estate owned		1,642		-		-		1,642
Other repossessed assets		8		-		-		8
Total	$	2,802	$	-	$	-	$	2,802

From time-to-time, the Company may be required to record at fair value financial instruments on a non-recurring basis, such as impaired loans, ORE and other repossessed assets. These non-recurring fair value adjustments involve the application of lower-of-cost-or-market accounting on write downs of individual assets.

The following describes valuation methodologies used for financial instruments measured at fair value on a non-recurring basis.

A loan is considered impaired when, based upon current information and events; it is probable that the Company will be unable to collect all scheduled payments in accordance with the contractual terms of the loan.  Impaired loans that are collateral dependent are written down to fair value through the establishment of specific reserves, a component of the allowance for loan losses, and as such are carried at the lower of net recorded investment or the estimated fair value. 

Estimates of fair value of the collateral are determined based on a variety of information, including available valuations from certified appraisers for similar assets, present value of discounted cash flows and inputs that are estimated based on commonly used and generally accepted industry liquidation advance rates and estimates and assumptions developed by management.  

Valuation techniques for impaired loans are typically determined through independent appraisals of the underlying collateral or may be determined through present value of discounted cash flows.  Both techniques include various Level 3 inputs which are not identifiable.  The valuation technique may be adjusted by management for estimated liquidation expenses and qualitative factors such as economic conditions.  If real estate is not the primary source of repayment, present value of discounted cash flows and estimates using generally accepted industry liquidation advance rates and other factors may be utilized to determine fair value.  For example, from time-to-time, the Company may refer to the National Automobile Dealers Association (NADA) guide to estimate a vehicle’s fair value for an impaired auto loan.  At September 30, 2014 and December 31, 2013, the range of liquidation expenses and other valuation adjustments applied to impaired loans ranged from -9.00%  to -42.41% and from -16.00% to -36.15%, respectively.  The weighted-average of liquidation expenses and other valuation adjustments applied to impaired loans amounted to -27.51% and ‑24.84% as of September 30, 2014 and December 31, 2013, respectively.Due to the multitude of assumptions, many of which are subjective in nature, and the varying inputs and techniques used to determine fair value, the Company recognizes that valuations could differ across a wide spectrum of techniques employed.  Accordingly, fair value estimates for impaired loans are classified as Level 3.

For ORE, fair value is generally determined through independent appraisals of the underlying properties which generally include various Level 3 inputs which are not identifiable.  Appraisals form the basis for determining the net realizable value from these properties.  Net realizable value is the result of the appraised value less certain costs or discounts associated with liquidation which occurs in the normal course of business.  Management’s assumptions may include consideration of the location and occupancy of the property, along with current economic conditions.  Subsequently, as these properties are actively marketed, the estimated fair values may be periodically adjusted through incremental subsequent write-downs.  These write-downs usually reflect decreases in estimated values resulting from sales price observations as well as changing economic and market conditions.  At September 30, 2014 and December 31, 2013, the discounts applied to the appraised value of other real estate owned ranged from -19.00% to -64.30% and from -18.22% to -72.17%, respectively.  As of September 30, 2014 and December 31, 2013, the weighted-average of discount to the appraisal values for other real estate owned amounted to -27.43% and -30.79%, respectively.

As of September 30, 2014 and December 31, 2013, there were no adjustments to the carrying value of other repossessed assets, consisting of automobiles.  The Company refers to the NADA guide to determine a vehicle’s fair value.

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Earnings Per Share

9 Months Ended

Sep. 30, 2014

Earnings Per Share [Abstract]

Earnings Per Share

6.  Earnings per share

Basic earnings per share (EPS) is computed by dividing net income available to common shareholders by the weighted-average number of common shares outstanding for the period.  Diluted EPS is computed in the same manner as basic EPS but also reflects the potential dilution that could occur from the grant of stock-based compensation awards.  The Company maintains two active share-based compensation plans that may generate additional potentially dilutive common shares.  For granted and unexercised stock options, dilution would occur if Company-issued stock options were exercised and converted into common stock.  As of the three and nine months ended September 30, 2014, there were 434 and 57 potentially dilutive shares related to issued and unexercised stock options.  There were no potentially dilutive shares related to stock options as of the three and nine months ended September 30, 2013.  For restricted stock, dilution would occur from the Company’s previously granted but unvested shares.  There were 5,799 and 4,632 potentially dilutive shares related to unvested restricted share grants as of the three months ended September 30, 2014 and 2013, respectively.  There were 4,514 and 4,407 potentially dilutive shares related to unvested restricted share grants as of the nine months ended September 30, 2014 and 2013, respectively.

In the computation of diluted EPS, the Company uses the treasury stock method to determine the dilutive effect of its granted but unexercised stock options and unvested restricted stock.  Under the treasury stock method, the assumed proceeds, as defined, received from shares issued in a hypothetical stock option exercise or restricted stock grant, are assumed to be used to purchase treasury stock.  Proceeds include: amounts received from the exercise of outstanding stock options; compensation cost for future service that the Company has not yet recognized in earnings; and any windfall tax benefits that would be credited directly to shareholders’ equity when the grant generates a tax deduction (or a reduction in proceeds if there is a charge to equity).  The Company does not consider awards from share-based grants in the computation of basic EPS.

The following table illustrates the data used in computing basic and diluted EPS for the periods indicated:

	Three months ended September 30,				Nine months ended September 30,
	2014		2013			2014		2013
(dollars in thousands except per share data)
Basic EPS:
Net income available to common shareholders	$	1,631	$	1,505		$	4,714	$	4,412
Weighted-average common shares outstanding		2,419,587		2,359,947			2,410,100		2,345,453
Basic EPS	$	0.68	$	0.64		$	1.96	$	1.88
Diluted EPS:
Net income available to common shareholders	$	1,631	$	1,505		$	4,714	$	4,412
Weighted-average common shares outstanding		2,419,587		2,359,947			2,410,100		2,345,453
Potentially dilutive common shares		6,233		4,632			4,571		4,407
Weighted-average common and potentially dilutive shares outstanding		2,425,820		2,364,579			2,414,671		2,349,860
Diluted EPS	$	0.67	$	0.64		$	1.95	$	1.88

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Stock Plans

9 Months Ended

Sep. 30, 2014

Stock Plans [Abstract]

Stock Plans

7.  Stock plans

The Company has two stock-based compensation plans (the stock compensation plans) from which it can grant stock-based compensation awards, and applies the fair value method of accounting for stock-based compensation provided under current accounting guidance.  The guidelines require the cost of share-based payment transactions (including those with employees and non-employees) be recognized in the financial statements.  The Company’s stock compensation plans were shareholder-approved and permit the grant of share-based compensation awards to its employees and directors.  The Company believes that the stock-based compensation plans will advance the development, growth and financial condition of the Company by providing incentives through participation in the appreciation in the value of the Company’s common stock.  In return, the Company hopes to secure, retain and motivate the employees and directors who are responsible for the operation and the management of the affairs of the Company by aligning the interest of its employees and directors with the interest of its shareholders.  In the stock compensation plans, employees and directors are eligible to be awarded stock-based compensation grants which can consist of stock options (qualified and non-qualified), stock appreciation rights (SARs) and restricted stock. 

At the 2012 annual shareholders’ meeting, the Company’s shareholders approved and the Company adopted the 2012 Omnibus Stock Incentive Plan and the 2012 Director Stock Incentive Plan (collectively, the 2012 stock incentive plans).  The 2012 stock incentive plans replaced both the expired 2000 Independent Directors Stock Option Plan and the 2000 Stock Incentive Plan (collectively, the 2000 stock incentive plans).  Unless terminated by the Company’s board of directors, the 2012 stock incentive plans will expire on, and no stock-based awards shall be granted after the plans’ tenth anniversary – or in the year 2022.  As of September 30, 2014, the Company had 19,000 of previously issued and unexercised stock options outstanding.  Also, as of September 30, 2014, the intrinsic value for outstanding stock options with market prices that exceeded their strike price amounted to $53,400.  The Company has not issued stock options since 2008.

In each of the 2012 stock incentive plans, the Company has reserved 500,000 shares of its no-par common stock for future issuance.  The Company recognizes share-based compensation expense over the requisite service or vesting period. 

The following table summarizes the weighted-average fair value and vesting of restricted stock grants awarded during the nine months ended September 30, 2014 and 2013 under the 2012 stock incentive plans:

	2014				2013
		Weighted-				Weighted-
	Shares	average grant		Vesting	Shares	average grant		Vesting
	granted	date fair value		period	granted	date fair value		period
Director plan	2,000	$	27.00	1 year	8,000	$	21.20	2 yrs - 50% per year
Omnibus plan	2,120		27.00	4 yrs - 25% per year	6,000		21.20	4 yrs - 25% per year
Total	4,120	$	27.00		14,000	$	21.20

A summary of the status of the Company’s restricted stock grants as of and changes during the periods indicated are presented in the following table:

	2012 Stock incentive plans
	Director	Omnibus	Total
Balance at December 31, 2013	8,000	5,000	13,000
Granted	2,000	2,120	4,120
Forfeited	-	-	-
Vested	(4,000)	(1,250)	(5,250)
Balance at September 30, 2014	6,000	5,870	11,870

For restricted stock, intrinsic value represents the closing price of the underlying stock at the end of the period.  As of September 30, 2014, the intrinsic value of the Company’s restricted stock under the Director and Omnibus plans was $31.50 per share.  

Share-based compensation is included as a component of salaries and employee benefits in the consolidated statements of income.  The following tables illustrate stock-based compensation expense recognized during the three and nine months ended September 30, 2014 and 2013 and the unrecognized stock-based compensation expense as of September 30, 2014:

		Three months ended			Nine months ended
		September 30,			September 30,
(dollars in thousands)	2014		2013		2014		2013
Stock-based compensation expense:
Director plan	$	35	$	22	$	100	$	57
Omnibus plan		10		7		29		21
Total stock-based compensation expense	$	45	$	29	$	129	$	78

	As of September 30,
(dollars in thousands)	2014
Unrecognized stock-based compensation expense:
Director plan	$	46
Omnibus plan		110
Total unrecognized stock-based compensation expense	$	156

The unrecognized stock-based compensation expense as of September 30, 2014 will be recognized ratably over the periods ended January 2015 and January 2018 for the Director Plan and the Omnibus Plan, respectively.

In addition to the 2012 stock incentive plans, the Company established the 2002 Employee Stock Purchase Plan (the ESPP) and reserved 110,000 shares of its un-issued capital stock for issuance under the plan.  The ESPP was designed to promote broad-based employee ownership of the Company’s stock and to motivate employees to improve job performance and enhance the financial results of the Company.  Under the ESPP, participation is voluntary whereby employees use automatic payroll withholdings to purchase the Company’s capital stock at a discounted price based on the fair market value of the capital stock as measured on either the commencement or termination dates, as defined.  As of September 30, 2014, 34,329 shares have been issued under the ESPP.  The ESPP is considered a compensatory plan and is required to comply with the provisions of current accounting guidance.  The Company recognizes compensation expense on its ESPP on the date the shares are purchased.  For the nine months ended September 30, 2014 and 2013, compensation expense related to the ESPP approximated $33 thousand and $10 thousand, respectively, and is included as a component of salaries and employee benefits in the consolidated statements of income.

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Nature Of Operations And Critical Accounting Policies (Policy)

9 Months Ended

Sep. 30, 2014

Nature Of Operations And Critical Accounting Policies [Abstract]

Nature Of Operations

Nature of operations

Fidelity Deposit and Discount Bank (the Bank) is a commercial bank chartered under the law of the Commonwealth of Pennsylvania and a wholly-owned subsidiary of Fidelity D & D Bancorp, Inc. (the Company or collectively, the Company).  Having commenced operations in 1903, the Bank is committed to provide superior customer service, while offering a full range of banking products and financial and trust services to both our consumer and commercial customers from our main office located in Dunmore and other branches located throughout Lackawanna and Luzerne Counties.

Principles Of Consolidation

The accompanying unaudited consolidated financial statements of the Company and the Bank have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial information and with the instructions to this Form 10-Q and Rule 8-03 of Regulation S-X.  Accordingly, they do not include all of the information and footnote disclosures required by GAAP for complete financial statements.  In the opinion of management, all normal recurring adjustments necessary for a fair presentation of the financial condition and results of operations for the periods have been included.  All significant inter-company balances and transactions have been eliminated in consolidation.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported periods.  Actual results could differ from those estimates.  For additional information and disclosures required under GAAP, refer to the Company’s Annual Report on Form 10-K for the year ended December 31, 2013.

Management is responsible for the fairness, integrity and objectivity of the unaudited financial statements included in this report.  Management prepared the unaudited financial statements in accordance with GAAP.  In meeting its responsibility for the financial statements, management depends on the Company's accounting systems and related internal controls.  These systems and controls are designed to provide reasonable but not absolute assurance that the financial records accurately reflect the transactions of the Company, the Company’s assets are safeguarded and that the financial statements present fairly the financial condition and results of operations of the Company.

In the opinion of management, the consolidated balance sheets as of September 30, 2014 and December 31, 2013 and the related consolidated statements of income and consolidated statements of comprehensive income for the three and nine months ended September 30, 2014 and 2013, and consolidated statements of changes in shareholders’ equity and consolidated statements of cash flows for the nine months ended September 30, 2014 and 2013 present fairly the financial condition and results of operations of the Company.  All material adjustments required for a fair presentation have been made.  These adjustments are of a normal recurring nature.  Certain reclassifications have been made to the 2013 financial statements to conform to the 2014 presentation. 

In preparing these consolidated financial statements, the Company evaluated the events and transactions that occurred after September 30, 2014 through the date these consolidated financial statements were issued.

This Quarterly Report on Form 10-Q should be read in conjunction with the Company’s audited financial statements for the year ended December 31, 2013, and the notes included therein, included within the Company’s Annual Report filed on Form 10-K.

Use Of Estimates

The presentation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect many of the reported amounts and disclosures.  Actual results could differ from these estimates.

A material estimate that is particularly susceptible to significant change relates to the determination of the allowance for loan losses.  Management believes that the allowance for loan losses at September 30, 2014 is adequate and reasonable.  Given the subjective nature of identifying and valuing loan losses, it is likely that well-informed individuals could make different assumptions and could, therefore, calculate a materially different allowance value.  While management uses available information to recognize losses on loans, changes in economic conditions may necessitate revisions in the future.  In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Company’s allowance for loan losses.  Such agencies may require the Company to recognize adjustments to the allowance based on their judgment of information available to them at the time of their examination.

Another material estimate is the calculation of fair values of the Company’s investment securities.  Fair values of investment securities are determined by pricing provided by a third-party vendor, who is a provider of financial market data, analytics and related services to financial institutions.

Investment Securities

Based on experience, management is aware that estimated fair values of investment securities tend to vary among valuation services.  Accordingly, when selling investment securities, price quotes may be obtained from more than one source.  The majority of the Company’s investment securities are classified as available-for-sale (AFS).  AFS securities are carried at fair value on the consolidated balance sheets, with unrealized gains and losses, net of income tax, reported separately within shareholders’ equity as a component of accumulated other comprehensive income (loss) (OCI).

Loans

Financing of automobiles, provided to customers under lease arrangements of varying terms, are accounted for as direct finance leases.  Interest income on automobile direct finance leasing is determined using the interest method.  Generally, the interest method is used to arrive at a level effective yield over the life of the lease.

Loans Held-For-Sale

The fair value of residential mortgage loans, classified as held-for-sale (HFS), is obtained from the Federal National Mortgage Association (FNMA) or the Federal Home Loan Bank (FHLB).  Generally, the market to which the Company sells residential mortgages it originates for sale is restricted and price quotes from other sources are not typically obtained.  On occasion, the Company may transfer loans from the loan portfolio to loans HFS.  Under these circumstances, pricing may be obtained from other entities and the loans are transferred at the lower of cost or market value and simultaneously sold.  As of September 30, 2014 and December 31, 2013, loans classified as HFS consisted of residential mortgage loans. 

Foreclosed Assets Held-For-Sale

Foreclosed assets held-for-sale includes other real estate acquired through foreclosure (ORE) and may, from time-to-time, include repossessed assets such as automobiles.  ORE is carried at the lower of cost (principal balance at date of foreclosure) or fair value less estimated cost to sell.  Any write-downs at the date of foreclosure or within a reasonable period of time after foreclosure are charged to the allowance for loan losses.  Expenses incurred to maintain ORE properties, subsequent write downs to the asset’s fair value, any rental income received and gains or losses on disposal are included as components of other real estate owned expense in the consolidated statements of income.   

Cash Flows

For purposes of the consolidated statements of cash flows, cash and cash equivalents includes cash on hand, amounts due from banks and interest-bearing deposits with financial institutions.  Foreach of the nine months ended September 30, 2014 and 2013, the Company paid interest of $2.2 million. The Company was required to pay income taxes of $1.1 million during both the first nine months of 2014 and 2013.  Transfers from loans to foreclosed assets held-for-sale amounted to $1.2 million and $2.2 million during the nine months ended September 30, 2014 and 2013, respectively.  During the same respective periods, transfers from loans to loans HFS amounted to $0 and $2.9 million and from loans to bank premises and equipment amounted to $1.0 million and $0.  Expenditures for construction in process, a component of other assets in the consolidated balance sheets, are included in acquisition of bank premises and equipment.

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Loans And Leases (Non-Accrual Loans) (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2014	Dec. 31, 2013
Financing Receivable, Recorded Investment, Past Due [Line Items]
Non-accrual loans	$ 4,490	$ 5,668
Commercial & Industrial [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Non-accrual loans	24	62
Commercial Real Estate: Non-Owner Occupied [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Non-accrual loans	776	1,518
Commercial Real Estate: Owner Occupied [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Non-accrual loans	1,884	1,422
Commercial Real Estate: Construction [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Non-accrual loans	264	635
Consumer: Home Equity Installment [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Non-accrual loans	394	393
Consumer: Home Equity Line Of Credit [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Non-accrual loans	584	254
Consumer: Auto Loans And Leases [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Non-accrual loans		12
Consumer: Other [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Non-accrual loans	20	22
Residential: Real Estate [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Non-accrual loans	$ 544	$ 1,350

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Loans And Leases (Tables)

9 Months Ended

Sep. 30, 2014

Loans And Leases [Abstract]

Loan Classifications

The classifications of loans and leases at September 30, 2014 and December 31, 2013 are summarized as follows:

(dollars in thousands)	September 30, 2014		December 31, 2013
Commercial and industrial	$	76,710	$	74,551
Commercial real estate:
Non-owner occupied		93,142		89,255
Owner occupied		91,838		86,294
Construction		7,402		10,765
Consumer:
Home equity installment		32,487		34,480
Home equity line of credit		40,651		36,836
Auto loans and leases		27,867		22,261
Other		6,613		5,205
Residential:
Real estate		117,602		110,365
Construction		8,154		8,188
Total		502,466		478,200
Less:
Allowance for loan losses		(9,277)		(8,928)
Unearned lease revenue		(174)		(56)
Loans and leases, net	$	493,015	$	469,216

Non-Accrual Loans

Non-accrual loans, segregated by class, at September 30, 2014 and December 31, 2013, were as follows:

(dollars in thousands)	September 30, 2014		December 31, 2013
Commercial and industrial	$	24	$	62
Commercial real estate:
Non-owner occupied		776		1,518
Owner occupied		1,884		1,422
Construction		264		635
Consumer:
Home equity installment		394		393
Home equity line of credit		584		254
Auto loans and leases		-		12
Other		20		22
Residential:
Real estate		544		1,350
Total	$	4,490	$	5,668

Past Due Loans

														Recorded
					Past due									investment  past
	30 - 59 Days		60 - 89 Days		90 days		Total				Total			due ≥ 90 days
September 30, 2014	past due		past due		or more(1)		past due		Current		loans			and accruing
Commercial and industrial	$	618	$	36	$	116	$	770	$	75,940	$	76,710		$	92
Commercial real estate:
Non-owner occupied		64		112		776		952		92,190		93,142			-
Owner occupied		253		101		1,884		2,238		89,600		91,838			-
Construction		-		-		264		264		7,138		7,402			-
Consumer:
Home equity installment		481		198		394		1,073		31,414		32,487			-
Home equity line of credit		515		136		584		1,235		39,416		40,651			-
Auto loans and leases		383		90		-		473		27,220		27,693	(2)		-
Other		13		5		20		38		6,575		6,613			-
Residential:
Real estate		40		1,194		601		1,835		115,767		117,602			57
Construction		-		-		-		-		8,154		8,154			-
Total	$	2,367	$	1,872	$	4,639	$	8,878	$	493,414	$	502,292		$	149

(1) Includes $4.5 million of non-accrual loans.  (2) Net of unearned revenue of $0.2 million.

														Recorded
					Past due									investment  past
	30 - 59 Days		60 - 89 Days		90 days		Total				Total			due ≥ 90 days
December 31, 2013	past due		past due		or more (1)		past due		Current		loans			and accruing
Commercial and industrial	$	111	$	212	$	69	$	392	$	74,159	$	74,551		$	7
Commercial real estate:
Non-owner occupied		484		35		1,518		2,037		87,218		89,255			-
Owner occupied		1,714		545		1,422		3,681		82,613		86,294			-
Construction		-		-		635		635		10,130		10,765			-
Consumer:
Home equity installment		229		72		393		694		33,786		34,480			-
Home equity line of credit		-		114		275		389		36,447		36,836			21
Auto loans and leases		165		14		23		202		22,003		22,205	(2)		11
Other		52		23		22		97		5,108		5,205			-
Residential:
Real estate		158		1,340		1,466		2,964		107,401		110,365			116
Construction		-		-		-		-		8,188		8,188			-
Total	$	2,913	$	2,355	$	5,823	$	11,091	$	467,053	$	478,144		$	155

(1)Includes $5.7 million of non-accrual loans.  (2) Net of unearned revenue of $56 thousand.

Impaired Loans

Impaired loans, segregated by class, as of the period indicated are detailed below:

			Recorded		Recorded										Cash basis
	Unpaid		investment		investment		Total				Average		Interest		interest
	principal		with		with no		recorded		Related		recorded		income		income
(dollars in thousands)	balance		allowance		allowance		investment		allowance		investment		recognized		recognized
September 30, 2014
Commercial & industrial	$	52	$	-	$	49	$	49	$	-	$	84	$	1	$	-
Commercial real estate:
Non-owner occupied		1,416		865		382		1,247		148		1,492		18		-
Owner occupied		2,243		720		1,422		2,142		67		1,975		11		-
Construction		351		-		264		264		-		446		-		-
Consumer:
Home equity installment		538		-		394		394		-		356		11		-
Home equity line of credit		601		83		501		584		4		377		20		-
Auto loans and leases		-		-		-		-		-		5		-		-
Other		32		-		20		20		-		19		-		-
Residential:
Real estate		625		186		358		544		51		940		1		-
Construction		-		-		-		-		-		-		-		-
Total	$	5,858	$	1,854	$	3,390	$	5,244	$	270	$	5,694	$	62	$	-

			Recorded		Recorded										Cash basis
	Unpaid		investment		investment		Total				Average		Interest		interest
	principal		with		with no		recorded		Related		recorded		income		income
(dollars in thousands)	balance		allowance		allowance		investment		allowance		investment		recognized		recognized
December 31, 2013
Commercial & industrial	$	134	$	64	$	33	$	97	$	31	$	80	$	2	$	-
Commercial real estate:
Non-owner occupied		2,146		174		1,827		2,001		27		2,173		31		78
Owner occupied		2,136		622		1,327		1,949		90		3,203		36		-
Construction		1,024		-		635		635		-		903		-		-
Consumer:
Home equity installment		501		125		268		393		23		723		37		-
Home equity line of credit		340		-		254		254		-		355		2		-
Auto		12		12		-		12		1		5		-		-
Other		22		-		22		22		-		29		-		-
Residential:
Real estate		1,511		437		913		1,350		110		1,682		71		-
Construction		-		-		-		-		-		-		-		-
Total	$	7,826	$	1,434	$	5,279	$	6,713	$	282	$	9,153	$	179	$	78

Credit Quality Indicator Loan Categories

Commercial credit exposure

Credit risk profile by creditworthiness category

					Commercial real estate -				Commercial real estate -				Commercial real estate -
	Commercial and industrial				non-owner occupied				owner occupied				construction
(dollars in thousands)	9/30/2014		12/31/2013		9/30/2014		12/31/2013		9/30/2014		12/31/2013		9/30/2014		12/31/2013
Pass	$	72,961	$	71,122	$	83,014	$	78,069	$	86,145	$	82,975	$	6,585	$	9,026
Special mention		2,540		2,244		2,544		2,734		2,271		656		481		1,037
Substandard		1,209		1,185		7,584		8,452		3,422		2,663		336		702
Doubtful		-		-		-		-		-		-		-		-
Total	$	76,710	$	74,551	$	93,142	$	89,255	$	91,838	$	86,294	$	7,402	$	10,765

Consumer credit exposure

Credit risk profile based on payment activity

	Home equity installment				Home equity line of credit				Auto loans and leases				Other
(dollars in thousands)	9/30/2014		12/31/2013		9/30/2014		12/31/2013		9/30/2014		12/31/2013		9/30/2014		12/31/2013
Performing	$	32,093	$	34,087	$	40,067	$	36,561	$	27,693	$	22,182	$	6,593	$	5,183
Non-performing		394		393		584		275		-		23		20		22
Total	$	32,487	$	34,480	$	40,651	$	36,836	$	27,693	$	22,205	$	6,613	$	5,205

Mortgage lending credit exposure

Credit risk profile based on payment activity

	Residential real estate					Residential construction
(dollars in thousands)	9/30/2014		12/31/2013		9/30/2014		12/31/2013
Performing	$	117,001	$	108,899	$	8,154	$	8,188
Non-performing		601		1,466		-		-
Total	$	117,602	$	110,365	$	8,154	$	8,188

Allowance For Loan Losses

As of and for the nine months ended September 30, 2014
	Commercial &		Commercial				Residential
(dollars in thousands)	industrial		real estate		Consumer		real estate		Unallocated		Total
Allowance for Loan Losses:
Beginning balance	$	944	$	4,253	$	1,482	$	1,613	$	636	$	8,928
Charge-offs		39		217		287		93		-		636
Recoveries		25		90		26		34		-		175
Provision		49		282		382		(55)		152		810
Ending balance	$	979	$	4,408	$	1,603	$	1,499	$	788	$	9,277
Ending balance: individually evaluated for impairment	$	-	$	215	$	4	$	51			$	270
Ending balance: collectively evaluated for impairment	$	979	$	4,193	$	1,599	$	1,448			$	8,219
Loans Receivables:
Ending balance	$	76,710	$	192,382	$	107,444	$	125,756			$	502,292
Ending balance: individually evaluated for impairment	$	49	$	3,653	$	998	$	544			$	5,244
Ending balance: collectively evaluated for impairment	$	76,661	$	188,729	$	106,446	$	125,212			$	497,048

As of and for the three months ended September 30, 2014
	Commercial &		Commercial				Residential
(dollars in thousands)	industrial		real estate		Consumer		real estate		Unallocated		Total
Allowance for Loan Losses:
Beginning balance	$	1,036	$	4,342	$	1,570	$	1,578	$	503	$	9,029
Charge-offs		3		-		47		16		-		66
Recoveries		11		89		4		-		-		104
Provision		(65)		(23)		76		(63)		285		210
Ending balance	$	979	$	4,408	$	1,603	$	1,499	$	788	$	9,277

As of and for the year ended December 31, 2013
	Commercial &		Commercial				Residential
(dollars in thousands)	industrial		real estate		Consumer		real estate		Unallocated		Total
Allowance for Loan Losses:
Beginning balance	$	922	$	4,908	$	1,639	$	1,503	$	-	$	8,972
Charge-offs		56		2,091		400		218		-		2,765
Recoveries		30		30		110		1		-		171
Provision		48		1,406		133		327		636		2,550
Ending balance	$	944	$	4,253	$	1,482	$	1,613	$	636	$	8,928
Ending balance: individually evaluated for impairment	$	31	$	117	$	24	$	110			$	282
Ending balance: collectively evaluated for impairment	$	913	$	4,136	$	1,458	$	1,503			$	8,010
Loans Receivables:
Ending balance	$	74,551	$	186,314	$	98,726	$	118,553			$	478,144
Ending balance: individually evaluated for impairment	$	97	$	4,585	$	681	$	1,350			$	6,713
Ending balance: collectively evaluated for impairment	$	74,454	$	181,729	$	98,045	$	117,203			$	471,431

Information related to the change in the allowance for loan losses as of and for the three and nine months ended September 30, 2013 is as follows:

As of and for the nine months ended September 30, 2013
	Commercial &		Commercial				Residential
(dollars in thousands)	industrial		real estate		Consumer		real estate		Unallocated		Total
Allowance for Loan Losses:
Beginning balance	$	922	$	4,908	$	1,639	$	1,503	$	-	$	8,972
Charge-offs		56		1,815		274		158		-		2,303
Recoveries		8		28		99		1		-		136
Provision		32		702		189		335		342		1,600
Ending balance	$	906	$	3,823	$	1,653	$	1,681	$	342	$	8,405

As of and for the three months ended September 30, 2013
	Commercial &		Commercial				Residential
(dollars in thousands)	industrial		real estate		Consumer		real estate		Unallocated		Total
Allowance for Loan Losses:
Beginning balance	$	919	$	3,521	$	1,647	$	1,718	$	491	$	8,296
Charge-offs		8		188		94		94		-		384
Recoveries		2		16		24		1		-		43
Provision		(7)		474		76		56		(149)		450
Ending balance	$	906	$	3,823	$	1,653	$	1,681	$	342	$	8,405

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Accumulated Other Comprehensive Income (Loss) (Schedule Of Accumulated Other Comprehensive Income (Loss) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013
Accumulated Other Comprehensive Income (Loss) [Line Items]
Beginning balance	$ 2,585	$ (1,283)	$ 1,239	$ 236
Other comprehensive (loss) income before reclassifications	64	721	1,609	(713)
Amounts reclassified from accumulated other comprehensive income		(91)	(199)	(176)
Other comprehensive income (loss)	64	630	1,410	(889)
Ending balance	2,649	(653)	2,649	(653)
Federal statutory income tax rate	34.00%	34.00%	34.00%	34.00%
Unrealized Gains On Available-For-Sale Securities [Member]
Accumulated Other Comprehensive Income (Loss) [Line Items]
Beginning balance	2,585	351	1,239	1,905
Other comprehensive (loss) income before reclassifications	64	610	1,609	(859)
Amounts reclassified from accumulated other comprehensive income		(91)	(199)	(176)
Other comprehensive income (loss)	64	519	1,410	(1,035)
Ending balance	2,649	870	2,649	870
Non-Credit-Related Imapirment Losses On Investment Securities [Member]
Accumulated Other Comprehensive Income (Loss) [Line Items]
Beginning balance		(1,634)		(1,669)
Other comprehensive (loss) income before reclassifications		111		146
Other comprehensive income (loss)		111		146
Ending balance		$ (1,523)		$ (1,523)

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Fair Value Measurements (Changes In Level 3 Financial Instruments) (Details) (Pooled Trust Preferred Securities [Member], USD $) In Thousands, unless otherwise specified	9 Months Ended
	Sep. 30, 2013
Pooled Trust Preferred Securities [Member]
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Balance at beginning of period	$ 1,825
Gains	1,519
Losses	(193)
Pay down / settlement	(216)
Interest paid-in-kind	6
Accretion	2
Balance at end of period	$ 2,943

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Stock Plans (Narrative) (Details) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014 item	Sep. 30, 2013
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of active share-based compensation plans			2
Intrinsic value, amount per share	$ 31.50		$ 31.50
Allocated compensation expense	$ 45,000	$ 29,000	$ 129,000	$ 78,000
Director Stock Incentive Plan - 2012 [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of shares authorized	500,000		500,000
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period			1 year	2 years
Allocated compensation expense	35,000	22,000	100,000	57,000
The 2012 Omnibus Stock Incentive Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of shares authorized	500,000		500,000
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period			4 years	4 years
Allocated compensation expense	10,000	7,000	29,000	21,000
The 2000 Stock Option Plans [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Unexercised stock options	19,000		19,000
Unexercised stock options, intrinsic value	53,400		53,400
Employee Stock Purchase Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of shares authorized	110,000		110,000
Number of shares issued			34,329
Allocated compensation expense			$ 33,000	$ 10,000

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Consolidated Statements of Comprehensive Income (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013
Consolidated Statements of Comprehensive Income [Abstract]
Net income	$ 1,631	$ 1,505	$ 4,714	$ 4,412
Other comprehensive income, before tax:
Unrealized holding gain (loss) on available-for-sale securities	97	925	2,437	(1,302)
Reclassification adjustment for net gains realized in income		(138)	(301)	(266)
Net unrealized gain (loss)	97	787	2,136	(1,568)
Tax effect	(33)	(268)	(726)	533
Unrealized gain (loss), net of tax	64	519	1,410	(1,035)
Non-credit-related impairment gain on investment securities not expected to be sold		168		221
Reclassification adjustment for net gains realized in income
Net non-credit-related impairment gain on investment securities		168		221
Tax effect		(57)		(75)
Net non-credit-related impairment loss on investment securities, net of tax		111		146
Other comprehensive income (loss), net of tax	64	630	1,410	(889)
Total comprehensive income, net of tax	$ 1,695	$ 2,135	$ 6,124	$ 3,523

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Accumulated Other Comprehensive Income (Loss)

9 Months Ended

Sep. 30, 2014

Accumulated Other Comprehensive Income (Loss) [Abstract]

Accumulated Other Comprehensive Income (Loss)

3.  Accumulated other comprehensive income (loss)

The following tables illustrate the changes in accumulated other comprehensive income (loss) by component and the details about the components of accumulated other comprehensive income (loss) as of and for the periods indicated:

As of  and for the nine months ended September 30, 2014
			Non-credit-related
	Unrealized gains		impairment losses
	on available-for-		on investment
(dollars in thousands)	sale securities		securities		Total
Beginning balance	$	1,239	$	-	$	1,239
Other comprehensive income before reclassifications		1,609		-		1,609
Amounts reclassified from accumulated other comprehensive income		(199)		-		(199)
Net current-period other comprehensive income		1,410		-		1,410
Ending balance	$	2,649	$	-	$	2,649

As of and for the three months ended September 30, 2014
			Non-credit-related
	Unrealized gains		impairment losses
	on available-for-		on investment
(dollars in thousands)	sale securities		securities		Total
Beginning balance	$	2,585	$	-	$	2,585
Other comprehensive income before reclassifications		64		-		64
Amounts reclassified from accumulated other comprehensive income		-		-		-
Net current-period other comprehensive income		64		-		64
Ending balance	$	2,649	$	-	$	2,649

As of and for the nine months ended September 30, 2013
			Non-credit-related
	Unrealized gains		impairment losses
	on available-for-		on investment
(dollars in thousands)	sale securities		securities		Total
Beginning balance	$	1,905	$	(1,669)	$	236
Other comprehensive (loss) income before reclassifications		(859)		146		(713)
Amounts reclassified from accumulated other comprehensive income		(176)		-		(176)
Net current-period other comprehensive (loss) income		(1,035)		146		(889)
Ending balance	$	870	$	(1,523)	$	(653)

As of and for the three months ended September 30, 2013
			Non-credit-related
	Unrealized gains		impairment losses
	on available-for-		on investment
(dollars in thousands)	sale securities		securities		Total
Beginning balance	$	351	$	(1,634)	$	(1,283)
Other comprehensive  income before reclassifications		610		111		721
Amounts reclassified from accumulated other comprehensive income		(91)		-		(91)
Net current-period other comprehensive income		519		111		630
Ending balance	$	870	$	(1,523)	$	(653)

In the tables above, all amounts are net of tax at 34%. Amounts in parentheses indicate debits.

Details about accumulated other
comprehensive income components	Amount reclassified from accumulated								Affected line item in the statement
(dollars in thousands)	other comprehensive income								where net income is presented
	Three months ended				Nine months ended
	September 30,				September 30,
	2014		2013		2014		2013
Unrealized gains on AFS securities	$	-	$	138	$	301	$	266	Gain on sale, recovery, or disposal of investment securities
		-		(47)		(102)		(90)	Provision for income taxes
Total reclassifications for the period	$	-	$	91	$	199	$	176	Net income

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Accumulated Other Comprehensive Income (Loss) (Schedule Of Reclassifications From Accumulated Other Comprehensive Income) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items]
Gain on sale, recovery, or disposal of investment securities		$ 138	$ 301	$ 266
Provision for income taxes	(562)	(515)	(1,611)	(1,503)
Net income	1,631	1,505	4,714	4,412
Unrealized Gains On Available-For-Sale Securities [Member] | Reclassification Out Of Accumulated Other Comprehensive Income [Member]
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items]
Gain on sale, recovery, or disposal of investment securities		138	301	266
Provision for income taxes		(47)	(102)	(90)
Net income		$ 91	$ 199	$ 176

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Loans And Leases (Allowance For Loan Losses) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended			9 Months Ended		12 Months Ended
	Sep. 30, 2014	Dec. 31, 2013	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013	Dec. 31, 2013
Financing Receivable, Allowance for Credit Losses [Line Items]
Average period used to determine historical loss percentages		36 months			2 years
Allowance for Loan Losses: Beginning balance	$ 9,029	$ 8,405	$ 8,296	$ 8,928	$ 8,972	$ 8,972
Charge-offs	66		384	636	2,303	2,765
Recoveries	104		43	175	136	171
Provisions	210		450	810	1,600	2,550
Allowance for Loan Losses: Ending balance	9,277	8,928	8,405	9,277	8,405	8,928
Allowance for Loan Losses: Ending balance: individually evaluated for impairment	270	282		270		282
Allowance for Loan Losses: Ending balance: collectively evaluated for impairment	8,219	8,010		8,219		8,010
Loan Receivables: Ending balance	502,292	478,144		502,292		478,144
Loans Receivable: Ending balance: individually evaluated for impairment	5,244	6,713		5,244		6,713
Loans Receivable: Ending balance: collectively evaluated for impairment	497,048	471,431		497,048		471,431
Commercial & Industrial [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Allowance for Loan Losses: Beginning balance	1,036		919	944	922	922
Charge-offs	3		8	39	56	56
Recoveries	11		2	25	8	30
Provisions	(65)		(7)	49	32	48
Allowance for Loan Losses: Ending balance	979	944	906	979	906	944
Allowance for Loan Losses: Ending balance: individually evaluated for impairment		31				31
Allowance for Loan Losses: Ending balance: collectively evaluated for impairment	979	913		979		913
Loan Receivables: Ending balance	76,710	74,551		76,710		74,551
Loans Receivable: Ending balance: individually evaluated for impairment	49	97		49		97
Loans Receivable: Ending balance: collectively evaluated for impairment	76,661	74,454		76,661		74,454
Commercial Real Estate [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Allowance for Loan Losses: Beginning balance	4,342		3,521	4,253	4,908	4,908
Charge-offs			188	217	1,815	2,091
Recoveries	89		16	90	28	30
Provisions	(23)		474	282	702	1,406
Allowance for Loan Losses: Ending balance	4,408	4,253	3,823	4,408	3,823	4,253
Allowance for Loan Losses: Ending balance: individually evaluated for impairment	215	117		215		117
Allowance for Loan Losses: Ending balance: collectively evaluated for impairment	4,193	4,136		4,193		4,136
Loan Receivables: Ending balance	192,382	186,314		192,382		186,314
Loans Receivable: Ending balance: individually evaluated for impairment	3,653	4,585		3,653		4,585
Loans Receivable: Ending balance: collectively evaluated for impairment	188,729	181,729		188,729		181,729
Consumer [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Allowance for Loan Losses: Beginning balance	1,570		1,647	1,482	1,639	1,639
Charge-offs	47		94	287	274	400
Recoveries	4		24	26	99	110
Provisions	76		76	382	189	133
Allowance for Loan Losses: Ending balance	1,603	1,482	1,653	1,603	1,653	1,482
Allowance for Loan Losses: Ending balance: individually evaluated for impairment	4	24		4		24
Allowance for Loan Losses: Ending balance: collectively evaluated for impairment	1,599	1,458		1,599		1,458
Loan Receivables: Ending balance	107,444	98,726		107,444		98,726
Loans Receivable: Ending balance: individually evaluated for impairment	998	681		998		681
Loans Receivable: Ending balance: collectively evaluated for impairment	106,446	98,045		106,446		98,045
Residential Real Estate [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Allowance for Loan Losses: Beginning balance	1,578		1,718	1,613	1,503	1,503
Charge-offs	16		94	93	158	218
Recoveries			1	34	1	1
Provisions	(63)		56	(55)	335	327
Allowance for Loan Losses: Ending balance	1,499	1,613	1,681	1,499	1,681	1,613
Allowance for Loan Losses: Ending balance: individually evaluated for impairment	51	110		51		110
Allowance for Loan Losses: Ending balance: collectively evaluated for impairment	1,448	1,503		1,448		1,503
Loan Receivables: Ending balance	125,756	118,553		125,756		118,553
Loans Receivable: Ending balance: individually evaluated for impairment	544	1,350		544		1,350
Loans Receivable: Ending balance: collectively evaluated for impairment	125,212	117,203		125,212		117,203
Unallocated [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Allowance for Loan Losses: Beginning balance	503		491	636
Provisions	285		(149)	152	342	636
Allowance for Loan Losses: Ending balance	$ 788	$ 636	$ 342	$ 788	$ 342	$ 636

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Investment Securities (Tables)

9 Months Ended

Sep. 30, 2014

Investment Securities [Abstract]

Unrealized Gain (Loss) On Investments

The amortized cost and fair value of investment securities at September 30, 2014 and December 31, 2013 are summarized as follows:

			Gross		Gross
	Amortized		unrealized		unrealized		Fair
(dollars in thousands)	cost		gains		losses		value
September 30, 2014
Held-to-maturity securities:
MBS - GSE residential	$	-	$	-	$	-	$	-
Available-for-sale securities:
Agency - GSE	$	17,558	$	49	$	24	$	17,583
Obligations of states and political subdivisions		33,998		2,234		15		36,217
MBS - GSE residential		58,561		1,537		55		60,043
Total debt securities		110,117		3,820		94		113,843
Equity securities - financial services		294		288		-		582
Total available-for-sale securities	$	110,411	$	4,108	$	94	$	114,425

			Gross		Gross
	Amortized		unrealized		unrealized		Fair
(dollars in thousands)	cost		gains		losses		value
December 31, 2013
Held-to-maturity securities:
MBS - GSE residential	$	177	$	18	$	-	$	195
Available-for-sale securities:
Agency - GSE	$	14,667	$	8	$	74	$	14,601
Obligations of states and political subdivisions		32,269		912		570		32,611
MBS - GSE residential		48,137		1,476		104		49,509
Total debt securities		95,073		2,396		748		96,721
Equity securities - financial services		295		230		-		525
Total available-for-sale securities	$	95,368	$	2,626	$	748	$	97,246

Investments Classified By Contractual Maturity Date

	Amortized		Fair
(dollars in thousands)	cost		value
Held-to-maturity securities:
MBS - GSE residential	$	-	$	-
Available-for-sale securities:
Debt securities:
Due in one year or less	$	-	$	-
Due after one year through five years		14,475		14,477
Due after five years through ten years		4,807		4,980
Due after ten years		32,274		34,343
Total debt securities		51,556		53,800
MBS - GSE residential		58,561		60,043
Total available-for-sale debt securities	$	110,117	$	113,843

Available-For-Sale Securities, Continuous Unrealized Loss Position, Fair Value

	Less than 12 months				More than 12 months				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
(dollars in thousands)	value		losses		value		losses		value		losses
September 30, 2014
Agency - GSE	$	5,075	$	22	$	2,060	$	2	$	7,135	$	24
Obligations of states and political subdivisions		-		-		1,548		15		1,548		15
MBS - GSE residential		13,827		55		-		-		13,827		55
Total temporarily impaired securities	$	18,902	$	77	$	3,608	$	17	$	22,510	$	94
Number of securities		12				6				18
December 31, 2013
Agency - GSE	$	11,592	$	74	$	-	$	-	$	11,592	$	74
Obligations of states and political subdivisions		10,148		570		-		-		10,148		570
MBS - GSE residential		11,703		83		3,052		21		14,755		104
Total temporarily impaired securities	$	33,443	$	727	$	3,052	$	21	$	36,495	$	748
Number of securities		38				2				40