10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION      

Washington, D.C. 20549

FORM 10-Q

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

SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2016

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 April 30, 2016, the latest practicable date, was 2,453,455 shares.

FIDELITY D & D BANCORP, INC.

Form 10-Q March 31, 2016

Index

Part I.  Financial Information		Page
Item 1.	Financial Statements (unaudited):
	Consolidated Balance Sheets as of March 31, 2016 and December 31, 2015	3
	Consolidated Statements of Income for the three  months ended March 31, 2016 and 2015	4
	Consolidated Statements of Comprehensive Income for the three months ended March 31, 2016 and 2015	5
	Consolidated Statements of Changes in Shareholders’ Equity for the three months ended March 31, 2016 and 2015	6
	Consolidated Statements of Cash Flows for the three months ended March 31, 2016 and 2015	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	43
Item 4.	Controls and Procedures	48
Part II.  Other Information
Item 1.	Legal Proceedings	49
Item 1A.	Risk Factors	49
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	49
Item 3.	Defaults upon Senior Securities	49
Item 4.	Mine Safety Disclosures	49
Item 5.	Other Information	49
Item 6.	Exhibits	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)	March 31, 2016		December 31, 2015
Assets:
Cash and due from banks	$	12,672	$	12,259
Interest-bearing deposits with financial institutions		28,419		18
Total cash and cash equivalents		41,091		12,277
Available-for-sale securities		128,673		125,232
Federal Home Loan Bank stock		1,420		2,120
Loans and leases, net (allowance for loan losses of
$9,384 in 2016; $9,527 in 2015)		546,707		546,682
Loans held-for-sale (fair value $1,224 in 2016, $1,444 in 2015)		1,202		1,421
Foreclosed assets held-for-sale		1,766		1,074
Bank premises and equipment, net		16,519		16,723
Cash surrender value of bank owned life insurance		11,169		11,082
Accrued interest receivable		2,202		2,210
Other assets		12,633		10,537
Total assets	$	763,382	$	729,358
Liabilities:
Deposits:
Interest-bearing	$	510,553	$	477,901
Non-interest-bearing		157,358		142,774
Total deposits		667,911		620,675
Accrued interest payable and other liabilities		4,397		4,128
Short-term borrowings		12,765		28,204
Total liabilities		685,073		653,007
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; 2,453,455 in 2016; and 2,443,405 in 2015)		26,909		26,700
Retained earnings		48,497		47,463
Accumulated other comprehensive income		2,903		2,188
Total shareholders' equity		78,309		76,351
Total liabilities and shareholders' equity	$	763,382	$	729,358
See notes to unaudited consolidated financial statements

3

Fidelity D & D Bancorp, Inc. and Subsidiary
Consolidated Statements of Income
(Unaudited)	Three months ended
(dollars in thousands except per share data)	March 31, 2016		March 31, 2015
Interest income:
Loans and leases:
Taxable	$	5,815	$	5,499
Nontaxable		191		139
Interest-bearing deposits with financial institutions		22		16
Investment securities:
U.S. government agency and corporations		370		260
States and political subdivisions (nontaxable)		317		313
Other securities		21		77
Total interest income		6,736		6,304
Interest expense:
Deposits		580		557
Securities sold under repurchase agreements		8		8
Other short-term borrowings and other		10		1
Long-term debt		-		131
Total interest expense		598		697
Net interest income		6,138		5,607
Provision for loan losses		150		150
Net interest income after provision for loan losses		5,988		5,457
Other income:
Service charges on deposit accounts		488		415
Interchange fees		356		302
Fees from trust fiduciary activities		170		217
Fees from financial services		104		127
Service charges on loans		178		176
Fees and other revenue		197		196
Earnings on bank-owned life insurance		87		85
Gain on sale or disposal of:
Loans		107		229
Investment securities		-		2
Premises and equipment		-		1
Total other income		1,687		1,750
Other expenses:
Salaries and employee benefits		2,875		2,653
Premises and equipment		918		941
Advertising and marketing		255		387
Professional services		389		338
FDIC assessment		125		107
Loan collection		44		30
Other real estate owned		22		99
Office supplies and postage		119		101
Automated transaction processing		127		120
Data processing and communication		188		105
Other		326		206
Total other expenses		5,388		5,087
Income before income taxes		2,287		2,120
Provision for income taxes		586		547
Net income	$	1,701	$	1,573
Per share data:
Net income - basic	$	0.69	$	0.65
Net income - diluted	$	0.69	$	0.64
Dividends	$	0.27	$	0.25
See notes to unaudited consolidated financial statements

4

Fidelity D & D Bancorp, Inc. and Subsidiary
Consolidated Statements of Comprehensive Income	Three months ended
(Unaudited)	March 31,
(dollars in thousands)	2016		2015
Net income	$	1,701	$	1,573
Other comprehensive income, before tax:
Unrealized holding gain on available-for-sale securities		1,084		235
Reclassification adjustment for net gains realized in income		-		(2)
Net unrealized gain		1,084		233
Tax effect		(369)		(79)
Unrealized gain, net of tax		715		154
Other comprehensive income, net of tax		715		154
Total comprehensive income, net of tax	$	2,416	$	1,727
See notes to unaudited consolidated financial statements

5

Fidelity D & D Bancorp, Inc. and Subsidiary
Consolidated Statements of Changes in Shareholders' Equity
For the three months ended March 31, 2016 and 2015
(Unaudited)							Accumulated
							other
	Capital stock				Retained		comprehensive
(dollars in thousands)	Shares		Amount		earnings		income		Total
Balance, December 31, 2014		2,427,767	$	26,272	$	43,204	$	2,743	$	72,219
Net income						1,573				1,573
Other comprehensive income								154		154
Issuance of common stock through Employee Stock Purchase Plan		4,358		102						102
Issuance of common stock from vested restricted share grants through stock compensation plans		7,780
Stock-based compensation expense				87						87
Cash dividends declared						(613)				(613)
Balance, March 31, 2015		2,439,905	$	26,461	$	44,164	$	2,897	$	73,522
Balance, December 31, 2015		2,443,405	$	26,700	$	47,463	$	2,188	$	76,351
Net income						1,701				1,701
Other comprehensive income								715		715
Issuance of common stock through Employee Stock Purchase Plan		3,695		111						111
Issuance of common stock from vested restricted share grants through stock compensation plans		5,855
Issuance of common stock through exercise of stock options		500		14						14
Stock-based compensation expense				84						84
Cash dividends declared						(667)				(667)
Balance, March 31, 2016		2,453,455	$	26,909	$	48,497	$	2,903	$	78,309
See notes to unaudited consolidated financial statements

6

Fidelity D & D Bancorp, Inc. and Subsidiary
Consolidated Statements of Cash Flows
(Unaudited)	Three months ended March 31,
(dollars in thousands)	2016		2015
Cash flows from operating activities:
Net income	$	1,701	$	1,573
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation, amortization and accretion		865		806
Provision for loan losses		150		150
Deferred income tax expense		556		588
Stock-based compensation expense		118		87
Proceeds from sale of loans held-for-sale		6,563		10,318
Originations of loans held-for-sale		(5,738)		(10,227)
Earnings from bank-owned life insurance		(87)		(85)
Net gain from sales of loans		(107)		(229)
Net gain from sales of investment securities		-		(2)
Net loss from sale and write-down of foreclosed assets held-for-sale		-		36
Change in:
Accrued interest receivable		8		(4)
Other assets		(2,245)		(954)
Accrued interest payable and other liabilities		(285)		117
Net cash provided by operating activities		1,499		2,174
Cash flows from investing activities:
Available-for-sale securities:
Proceeds from sales		-		3,573
Proceeds from maturities, calls and principal pay-downs		3,873		6,772
Purchases		(6,628)		(39,025)
Decrease in FHLB stock		700		15
Net increase in loans and leases		(1,446)		(4,725)
Acquisition of bank premises and equipment		(440)		(664)
Proceeds from sale of foreclosed assets held-for-sale		-		921
Net cash used in investing activities		(3,941)		(33,133)
Cash flows from financing activities:
Net increase in deposits		47,237		14,798
Net (decrease) increase in short-term borrowings		(15,439)		9,804
Proceeds from employee stock purchase plan participants		111		102
Exercise of stock options		14		-
Dividends paid, net of dividends reinvested		(667)		(613)
Net cash provided by financing  activities		31,256		24,091
Net increase (decrease) in cash and cash equivalents		28,814		(6,868)
Cash and cash equivalents, beginning		12,277		25,851
Cash and cash equivalents, ending	$	41,091	$	18,983
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. (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.

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, 2015.

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 March 31, 2016 and December 31, 2015 and the related consolidated statements of income and consolidated statements of comprehensive income for the three months ended March 31, 2016 and 2015, and consolidated statements of changes in shareholders’ equity and consolidated statements of cash flows for the three months ended March 31, 2016 and 2015 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 2015 financial statements to conform to the 2016 presentation. 

In preparing these consolidated financial statements, the Company evaluated the events and transactions that occurred after March 31, 2016 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, 2015, and the notes included therein, included within the Company’s Annual Report filed on Form 10-K.

Critical accounting policies

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.

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 March 31, 2016 is adequate and reasonable.  Given the subjective nature of identifying and estimating loan losses, it is likely that well-informed individuals could make different assumptions and could, therefore, calculate a materially different allowance amount.  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

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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 (AOCI).

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 residential mortgage loans are transferred at the lower of cost or market value and simultaneously sold.  For other loans transferred to HFS, pricing may be obtained from other entities or modeled and the other loans are transferred at the lower of cost or market value and then sold.  As of March 31, 2016 and December 31, 2015, 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 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. For each of the three months ended March 31, 2016 and 2015, the Company paid interest of $0.6 million and $0.7 million, respectively.  The Company did not make an income tax payment in the first quarters of 2016 and 2015.  For the three months ended March 31, 2016 and 2015, the Company had a net change in unrealized gains on available for sale securities of $1.1 million and $0.2 million, respectively.

Transfers from loans to foreclosed assets held-for-sale amounted to $0.7 million and $0.4 million during the three months ended March 31, 2016 and 2015, respectively.  During the same respective periods, transfers from loans to loans held-for-sale amounted to $0.6 million and $0.  Expenditures for construction in process, a component of other assets in the consolidated balance sheets, are included in acquisition of premises and equipment.

2.  New accounting pronouncements

In an exposure draft issued in the fourth quarter of 2012, the Financial Accounting Standards Board (FASB) proposed changes to the accounting guidance related to the impairment of financial assets and the recognition of credit losses.  The FASB proposal would require financial institutions to reserve for losses for the duration of the credit exposure as opposed to reserving for probable losses.  The new methodology would be known as the “current expected credit losses” (CECL) methodology.  The FASB is currently in the process of re-deliberating significant issues raised through feedback received from comment letters and outreach activities.  Among other things, the guidance in the proposed update regarding an entity’s estimate of expected credit losses will be clarified as follows:

· An entity should revert to a historical average loss experience for the future periods beyond which the entity is able to make or obtain reasonable and supportable forecasts;

· An entity should consider all contractual cash flows over the life of the related financial assets;

· When determining the contractual cash flows and the life of the related financial assets:

o An entity should consider expected prepayments;

o An entity should not consider expected extensions, renewals, and modifications unless the entity reasonably expects that it will execute a troubled debt restructuring with a borrower;

· An entity’s estimate of expected credit losses should always reflect the risk of loss, even when that risk is remote. However, an entity would not be required to recognize a loss on a financial asset in which the risk of nonpayment is greater than zero yet the amount of loss would be zero;

· In addition to using a discounted cash flow model to estimate expected credit losses, an entity would not be prohibited from developing an estimate of credit losses using loss-rate methods, probability-of-default methods or a provision matrix using loss factors;

· The final guidance on expected credit losses will include implementation guidance describing the factors that an entity should consider to adjust historical loss experience for current conditions and reasonable and supportable forecast.

FASB expects to issue this proposed accounting standard update in June 2016 with implementation beginning in the fiscal year following December 15, 2019 for public companies.  Upon adoption, the change in this accounting guidance could result in an increase in the Company's allowance for loan losses and require the Company to record loan losses more rapidly.  Upon final issuance of the standard, the Company will be able to better evaluate the potential impact of this new standard on its consolidated financial statements.

In June 2014, the FASB issued ASU 2014-12, Compensation – Stock Compensation (Topic 718) Accounting for Share-Based

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Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period, an amendment to the stock compensation accounting guidance to clarify that a performance target that affects vesting of a share-based payment and that could be achieved after the requisite service period be treated as a performance condition.  As such, the performance target should not be reflected in estimating the grant-date fair value of the award.  Compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the period(s) for which the requisite service has already been rendered.  This amendment is effective for annual reporting periods, including interim periods within those annual periods, beginning after December 15, 2015.  Early adoption is permitted.  Entities may apply the amendments in this update either (a) prospectively to all awards granted or modified after the effective date or (b) retrospectively to all awards with performance targets that are outstanding as of the beginning of the earliest annual period presented in the financial statements and to all new or modified awards thereafter.  The Company adopted this accounting standard update during the first quarter of 2016 and does not expect this amendment to have a material impact on its consolidated financial statements.

In March 2016, the FASB issued ASU 2016-09, Compensation – Stock Compensation (Topic 718) Improvements to Employee Share-Based Payment Accounting.  The areas for simplification in the update involve several aspects of accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows.  The amendments in this update are effective for annual reporting periods, including interim periods within those annual periods, beginning after December 15, 2016.  Early adoption is permitted.  Amendments should be applied using either a modified retrospective transition method by means of a cumulative-effect adjustment to equity as of the beginning of the period in which the guidance is adopted, retrospectively, prospectively, or using either a prospective transition method or a retrospective transition method.  The Company does not expect this amendment to have a material impact on its consolidated 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, 2017, 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 effective in the first quarter of 2018.

In January 2016, the FASB issued ASU 2016-01 related to Financial Instruments - Overall (Subtopic 825-10) Recognition and Measurement of Financial Assets and Financial Liabilities.  The update applies to all entities that hold financial assets or owe financial liabilities.  The amendments in this update make targeted improvements to U.S. GAAP as follows:

· Require equity investments to be measured at fair value with changes in fair value recognized in net income;

· Simplify the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment;

· Require public business entities to use the exit price notion when measuring fair value of financial instruments for disclosure purposes;

· Require separate presentation of financial assets and financial liabilities by measurement category and form of financial asset;

· Clarify that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities.

The amendments are effective for public business entities for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years.  The Company is evaluating the impact of the adoption of ASU 2016-01 on its consolidated financial statements, but does not expect it to have a significant impact.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements.  ASU 2016-02 requires the recognition of a right-of-use asset and related lease liability by lessees for leases classified as operating leases under GAAP.  The amendments in this update are effective for the Company for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years.  Early adoption of the amendments in this update are permitted.  A modified retroactive approach must be applied for leases existing at, or entered into after, the beginning of the earliest comparative period.  The Company is currently evaluating the impact of adopting this new guidance on the consolidated financial statements.

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3.  Accumulated other comprehensive income

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

As of and for the three months ended March 31, 2016
	Unrealized gains
	on available-for-
(dollars in thousands)	sale securities		Total
Beginning balance	$	2,188	$	2,188
Other comprehensive income before reclassifications, net of tax		715		715
Amounts reclassified from accumulated other comprehensive income, net of tax		-		-
Net current-period other comprehensive income		715		715
Ending balance	$	2,903	$	2,903

As of and for the three months ended March 31, 2015
	Unrealized gains
	on available-for-
(dollars in thousands)	sale securities		Total
Beginning balance	$	2,743	$	2,743
Other comprehensive income before reclassifications, net of tax		155		155
Amounts reclassified from accumulated other comprehensive income, net of tax		(1)		(1)
Net current-period other comprehensive income		154		154
Ending balance	$	2,897	$	2,897

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
	For the three months ended
	March 31,
	2016		2015
Unrealized gains on AFS securities	$	-	$	2	Gain on sale of investment securities
		-		(1)	Provision for income taxes
Total reclassifications for the period	$	-	$	1	Net income

4. Investment securities

Agency – Government-sponsored enterprise (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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The amortized cost and fair value of investment securities at March 31, 2016 and December 31, 2015 are summarized as follows:

			Gross		Gross
	Amortized		unrealized		unrealized		Fair
(dollars in thousands)	cost		gains		losses		value
March 31, 2016
Available-for-sale securities:
Agency - GSE	$	18,369	$	169	$	(10)	$	18,528
Obligations of states and political subdivisions		35,122		2,500		(13)		37,609
MBS - GSE residential		70,488		1,540		(26)		72,002
Total debt securities		123,979		4,209		(49)		128,139
Equity securities - financial services		294		240		-		534
Total available-for-sale securities	$	124,273	$	4,449	$	(49)	$	128,673

			Gross		Gross
	Amortized		unrealized		unrealized		Fair
(dollars in thousands)	cost		gains		losses		value
December 31, 2015
Available-for-sale securities:
Agency - GSE	$	18,374	$	36	$	(24)	$	18,386
Obligations of states and political subdivisions		34,599		2,310		(24)		36,885
MBS - GSE residential		68,648		1,066		(299)		69,415
Total debt securities		121,621		3,412		(347)		124,686
Equity securities - financial services		295		251		-		546
Total available-for-sale securities	$	121,916	$	3,663	$	(347)	$	125,232

The amortized cost and fair value of debt securities at March 31, 2016 by contractual maturity are summarized below:

	Amortized		Fair
(dollars in thousands)	cost		value
Available-for-sale securities:
Debt securities:
Due in one year or less	$	3,434	$	3,439
Due after one year through five years		13,290		13,455
Due after five years through ten years		3,712		3,902
Due after ten years		33,055		35,341
Total debt securities		53,491		56,137
MBS - GSE residential		70,488		72,002
Total available-for-sale debt securities	$	123,979	$	128,139

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 March 31, 2016 and December 31, 2015:  

	Less than 12 months				More than 12 months				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
(dollars in thousands)	value		losses		value		losses		value		losses
March 31, 2016
Agency - GSE	$	1,036	$	(10)	$	-	$	-	$	1,036	$	(10)
Obligations of states and political subdivisions		543		(9)		1,534		(4)		2,077		(13)
MBS - GSE residential		8,255		(22)		1,288		(4)		9,543		(26)
Total	$	9,834	$	(41)	$	2,822	$	(8)	$	12,656	$	(49)
Number of securities		6				3				9
December 31, 2015
Agency - GSE	$	8,156	$	(24)	$	-	$	-	$	8,156	$	(24)
Obligations of states and political subdivisions		3,656		(20)		485		(4)		4,141		(24)
MBS - GSE residential		36,899		(299)		-		-		36,899		(299)
Total	$	48,711	$	(343)	$	485	$	(4)	$	49,196	$	(347)
Number of securities		32				1				33

The Company had nine securities in an unrealized loss position at March 31, 2016, including one agency security, five mortgage-backed securities and three municipal securities. The severity of these unrealized losses based on their underlying cost basis were as follows at March 31, 2016: 0.98% for agencies; 0.27% for MBS - GSE; and 0.62% for the municipals. In addition, only three of these securities have been in an unrealized loss position in excess of 12 months. The changes in the prices on these securities are the result of interest rate movement and are temporary in nature.

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 (OCI).  Non-credit-related OTTI is based on other factors affecting market value, including illiquidity.

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 March 31, 2016, 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.

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5.  Loans and leases

The classifications of loans and leases at March 31, 2016 and December 31, 2015 are summarized as follows:

(dollars in thousands)	March 31, 2016		December 31, 2015
Commercial and industrial	$	103,703	$	102,653
Commercial real estate:
Non-owner occupied		95,303		95,745
Owner occupied		98,523		101,652
Construction		4,904		4,481
Consumer:
Home equity installment		30,017		30,935
Home equity line of credit		48,331		48,060
Auto loans and leases		29,556		29,758
Other		5,770		6,208
Residential:
Real estate		130,270		126,992
Construction		10,109		10,060
Total		556,486		556,544
Less:
Allowance for loan losses		(9,384)		(9,527)
Unearned lease revenue		(395)		(335)
Loans and leases, net	$	546,707	$	546,682

Net deferred loan costs of $1.5 million have been included in the carrying values of loans at March 31, 2016 and December 31, 2015, 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 interest 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 unpaid principal balance of mortgages serviced amounted to $269.6 million as of March 31, 2016 and $269.5 million as of December 31, 2015.  Mortgage servicing rights amounted to $1.2 million both as of March 31, 2016 and December 31, 2015, respectively.

Management is responsible for conducting 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 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 (C&I) and commercial real estate (CRE) 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 March 31, 2016 and December 31, 2015, were as follows:

(dollars in thousands)	March 31, 2016		December 31, 2015
Commercial and industrial	$	32	$	30
Commercial real estate:
Non-owner occupied		6,178		6,193
Owner occupied		559		988
Construction		218		226
Consumer:
Home equity installment		92		167
Home equity line of credit		438		512
Auto loans and leases		23		45
Other		6		6
Residential:
Real estate		760		836
Total	$	8,306	$	9,003

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.  C&I 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.  CRE loans modified in a TDR can 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 March 31, 2016, total TDRs amounted to $3.0 million, consisting of 10 loans (7 CRE loans, 2  C&I loans and 1 HELOC to 6 unrelated borrowers), of which 2 of the CRE loans, totaling $0.2 million, were on non-accrual status.  The first quarter 2016 balance represents a $0.6 million increase over the December 31, 2015 balance, which amounted to $2.4 million (consisting of 7 CRE loans and 2 C&I loans to 5 unrelated borrowers), with none of these loans on non-accrual status.  The increase in the first quarter of 2016 was attributed to the addition of a $0.7 million HELOC into the TDR classification.  Of the TDRs outstanding as of March 31, 2016 and December 31, 2015, when modified, the concessions granted consisted of temporary interest-only payments, extensions of maturity date, or a reduction in the rate of interest to a below-market rate for a contractual period of time.  Other than the TDRs that were placed on non-accrual status, the TDRs were performing in accordance with their modified terms.

The following presents by class, information related to loans modified in a TDR:

	Loans modified as TDRs for the:
(dollars in thousands)	Three months ended March 31, 2016						Three months ended March 31, 2015
				Recorded		Increase in			Recorded		Increase in
		Number		investment		allowance	Number		investment		allowance
		of		(as of		(as of	of		(as of		(as of
		contracts		period end)		period end)	contracts		period end)		period end)
Commercial and industrial			$	-	$	-	1	$	500	$	331
Commercial real estate - owner occupied				-		-	2		1,107		251
Consumer home equity line of credit		1		650		128			-		-
Total		1	$	650	$	128	3	$	1,607	$	582

In the above table, the period end balances are inclusive of all partial pay downs and charge-offs since the modification date.

The following presents by class, loans modified as a TDR that subsequently defaulted (i.e. 90 days or more past due following a modification) during the periods indicated:

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Loans modified as a TDR within the previous twelve months that subsequently defaulted during the:
(dollars in thousands)	Three months ended March 31, 2016
		Number of		Recorded
		contracts		investment
Commercial real estate - owner occupied		2	$	156

In the above table, the period end balances are inclusive of all partial pay downs and charge-offs since the modification date.

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.  Two CRE loans that were classified as TDRs in fourth quarter of 2015 subsequently defaulted during the first quarter of 2016.  Both loans defaulted due to inability to meet contractual payments and the Company continued workout efforts to collect from the owners.There were no loans modified as a TDR within the previous twelve months that subsequently defaulted during the three months ended March 31, 2015.

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 is used to establish the allowance.  As of March 31, 2016 and 2015, the allowance for impaired loans that have been modified in a TDR was $0.8 million and $0.6 million, respectively.

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
March 31, 2016	past due		past due		or more(1)		past due		Current		loans (3)			and accruing
Commercial and industrial	$	63	$	6	$	59	$	128	$	103,575	$	103,703		$	27
Commercial real estate:
Non-owner occupied		643		210		6,178		7,031		88,272		95,303			-
Owner occupied		237		-		594		831		97,692		98,523			35
Construction		-		-		218		218		4,686		4,904			-
Consumer:
Home equity installment		370		22		92		484		29,533		30,017			-
Home equity line of credit		177		-		438		615		47,716		48,331			-
Auto loans and leases		232		42		580		854		28,307		29,161	(2)		557
Other		29		5		6		40		5,730		5,770			-
Residential:
Real estate		59		295		760		1,114		129,156		130,270			-
Construction		-		-		-		-		10,109		10,109			-
Total	$	1,810	$	580	$	8,925	$	11,315	$	544,776	$	556,091		$	619

(1) Includes $8.3 million of non-accrual loans.  (2) Net of unearned lease revenue of $0.4million. (3) Includes net deferred loan costs of $1.5 million.

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														Recorded
					Past due									investment past
	30 - 59 Days		60 - 89 Days		90 days		Total				Total			due ≥ 90 days
December 31, 2015	past due		past due		or more (1)		past due		Current		loans (3)			and accruing
Commercial and industrial	$	38	$	32	$	42	$	112	$	102,541	$	102,653		$	12
Commercial real estate:
Non-owner occupied		549		1,282		6,476		8,307		87,438		95,745			283
Owner occupied		-		85		988		1,073		100,579		101,652			-
Construction		-		-		226		226		4,255		4,481			-
Consumer:
Home equity installment		189		92		167		448		30,487		30,935			-
Home equity line of credit		109		650		512		1,271		46,789		48,060			-
Auto loans and leases		394		44		76		514		28,909		29,423	(2)		31
Other		66		-		36		102		6,106		6,208			30
Residential:
Real estate		46		131		836		1,013		125,979		126,992			-
Construction		-		-		-		-		10,060		10,060			-
Total	$	1,391	$	2,316	$	9,359	$	13,066	$	543,143	$	556,209		$	356

(1) Includes $9.0 million of non-accrual loans.  (2) Net of unearned lease revenue of $0.3million. (3) Includes net deferred loan costs of $1.5 million.

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.

At March 31, 2016, impaired loans consisted of accruing TDRs of $2.8 million, $8.3 million in non-accrual loans and $2.7 million in accruing loans.  At December 31, 2015, impaired loans consisted of accruing TDRs totaling $2.4 million, $9.0 million of non-accrual loans and a $1.2 million accruing loan.  As of December 31, 2015, the non-accrual loans did not include any TDRs compared with two TDRs with a $0.2 million balance as of March 31, 2016.  Payments received from non-accruing 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.  Payments received from accruing impaired loans are applied to principal and interest, as contractually agreed upon.

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

			Recorded		Recorded
	Unpaid		investment		investment		Total
	principal		with		with no		recorded		Related
(dollars in thousands)	balance		allowance		allowance		investment		allowance
March 31, 2016
Commercial and industrial	$	868	$	824	$	44	$	868	$	614
Commercial real estate:
Non-owner occupied		7,959		7,470		566		8,036		1,467
Owner occupied		2,878		1,832		885		2,717		560
Construction		416		-		218		218		-
Consumer:
Home equity installment		142		60		32		92		5
Home equity line of credit		1,129		755		333		1,088		193
Auto loans and leases		23		22		1		23		5
Other		6		6		-		6		2
Residential:
Real estate		894		475		285		760		38
Construction		-		-		-		-		-
Total	$	14,315	$	11,444	$	2,364	$	13,808	$	2,884

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			Recorded		Recorded
	Unpaid		investment		investment		Total
	principal		with		with no		recorded		Related
(dollars in thousands)	balance		allowance		allowance		investment		allowance
December 31, 2015
Commercial and industrial	$	555	$	500	$	55	$	555	$	331
Commercial real estate:
Non-owner occupied		7,960		7,209		630		7,839		1,237
Owner occupied		2,588		922		1,505		2,427		337
Construction		422		-		226		226		-
Consumer:
Home equity installment		230		-		167		167		-
Home equity line of credit		607		28		484		512		1
Auto		47		43		2		45		7
Other		6		6		-		6		1
Residential:
Real estate		891		433		403		836		95
Construction		-		-		-		-		-
Total	$	13,306	$	9,141	$	3,472	$	12,613	$	2,009

	March 31, 2016						March 31, 2015
					Cash basis						Cash basis
	Average		Interest		interest		Average		Interest		interest
	recorded		income		income		recorded		income		income
(dollars in thousands)	investment		recognized		recognized		investment		recognized		recognized
Commercial and industrial	$	675	$	6	$	-	$	206	$	6	$	-
Commercial real estate:
Non-owner occupied		3,859		24		-		1,596		14		-
Owner occupied		2,825		38		-		2,174		13		-
Construction		234		-		-		265		-		-
Consumer:
Home equity installment		195		2		-		326		-		-
Home equity line of credit		606		11		-		428		1		-
Auto		29		-		-		1		-		-
Other		9		-		-		22		-		-
Residential:
Real estate		671		2		-		605		-		-
Construction		-		-		-		-		-		-
Total	$	9,103	$	83	$	-	$	5,623	$	34	$	-

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 C&I and CRE 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 C&I and CRE portfolios. 

The following is a description of each risk rating category the Company uses to classify each of its C&I and CRE 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 competent, and a reasonable succession plan is evident.  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

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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.

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 TDRs 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 in assessing performance.  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 including $1.5 million of deferred costs, segregated by class, categorized into the appropriate credit quality indicator category as of March 31, 2016 and December 31, 2015, respectively:

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)	3/31/2016		12/31/2015		3/31/2016		12/31/2015		3/31/2016		12/31/2015		3/31/2016		12/31/2015
Pass	$	96,513	$	101,342	$	82,087	$	82,152	$	94,694	$	96,401	$	4,686	$	4,255
Special mention		6,007		189		1,382		1,480		649		657		-		-
Substandard		1,183		1,122		11,834		12,113		3,180		4,594		218		226
Doubtful		-		-		-		-		-		-		-		-
Total	$	103,703	$	102,653	$	95,303	$	95,745	$	98,523	$	101,652	$	4,904	$	4,481

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)	3/31/2016		12/31/2015		3/31/2016		12/31/2015		3/31/2016			12/31/2015			3/31/2016		12/31/2015
Performing	$	29,925	$	30,768	$	47,893	$	47,548	$	28,581		$	29,347		$	5,764	$	6,172
Non-performing		92		167		438		512		580			76			6		36
Total	$	30,017	$	30,935	$	48,331	$	48,060	$	29,161	(1)	$	29,423	(2)	$	5,770	$	6,208

(1)Net of unearned lease revenue of $0.4 million. (2) Net of unearned revenue of $0.3 million.

Mortgage lending credit exposure

Credit risk profile based on payment activity

	Residential real estate					Residential construction
(dollars in thousands)	3/31/2016		12/31/2015		3/31/2016		12/31/2015
Performing	$	129,510	$	126,156	$	10,109	$	10,060
Non-performing		760		836		-		-
Total	$	130,270	$	126,992	$	10,109	$	10,060

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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 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 C&I and CRE loans.  C&I and CRE 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 C&I and CRE 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 C&I and CRE 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.  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.

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.

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

As of and for the three months ended March 31, 2016
	Commercial &		Commercial					Residential
(dollars in thousands)	industrial		real estate		Consumer			real estate		Unallocated		Total
Allowance for Loan Losses:
Beginning balance	$	1,336	$	5,014	$	1,533		$	1,407	$	237	$	9,527
Charge-offs		(14)		(85)		(175)			(60)		-		(334)
Recoveries		9		4		28			-		-		41
Provision		309		(350)		292			32		(133)		150
Ending balance	$	1,640	$	4,583	$	1,678		$	1,379	$	104	$	9,384
Ending balance: individually evaluated for impairment	$	614	$	2,027	$	205		$	38	$	-	$	2,884
Ending balance: collectively evaluated for impairment	$	1,026	$	2,556	$	1,473		$	1,341	$	104	$	6,500
Loans Receivables:
Ending balance (2)	$	103,703	$	198,730	$	113,279	(1)	$	140,379	$	-	$	556,091
Ending balance: individually evaluated for impairment	$	868	$	10,971	$	1,209		$	760	$	-	$	13,808
Ending balance: collectively evaluated for impairment	$	102,835	$	187,759	$	112,070		$	139,619	$	-	$	542,283

(1) Net of unearned lease revenue of $0.4 million.  (2) Includes $1.5 million of net deferred loan costs.

As of and for the three months ended March 31, 2015
	Commercial &		Commercial				Residential
(dollars in thousands)	industrial		real estate		Consumer		real estate		Unallocated		Total
Allowance for Loan Losses:
Beginning balance	$	1,052	$	4,672	$	1,519	$	1,316	$	614	$	9,173
Charge-offs		(24)		(67)		(92)		-		-		(183)
Recoveries		9		7		24		28		-		68
Provision		177		(97)		62		(1)		9		150
Ending balance	$	1,214	$	4,515	$	1,513	$	1,343	$	623	$	9,208

As of and for the year ended December 31, 2015
	Commercial &		Commercial					Residential
(dollars in thousands)	industrial		real estate		Consumer			real estate		Unallocated		Total
Allowance for Loan Losses:
Beginning balance	$	1,052	$	4,672	$	1,519		$	1,316	$	614	$	9,173
Charge-offs		(25)		(432)		(437)			(15)		-		(909)
Recoveries		47		18		95			28		-		188
Provision		262		756		356			78		(377)		1,075
Ending balance	$	1,336	$	5,014	$	1,533		$	1,407	$	237	$	9,527
Ending balance: individually evaluated for impairment	$	331	$	1,574	$	9		$	95	$	-	$	2,009
Ending balance: collectively evaluated for impairment	$	1,005	$	3,440	$	1,524		$	1,312	$	237	$	7,518
Loans Receivables:
Ending balance (2)	$	102,653	$	201,878	$	114,626	(1)	$	137,052	$	-	$	556,209
Ending balance: individually evaluated for impairment	$	555	$	10,492	$	730		$	836	$	-	$	12,613
Ending balance: collectively evaluated for impairment	$	102,098	$	191,386	$	113,896		$	136,216	$	-	$	543,596

(1) Net of unearned lease revenue of $0.3 million.  (2) Includes $1.5 million of net deferred loan costs.

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

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share-based compensation plans that may generate additional potentially dilutive common shares.  For granted and unexercised stock options and stock-settled stock appreciation rights (SSARs), dilution would occur if Company-issued stock options or SSARs were exercised and converted into common stock.  As of the three months ended March 31, 2016 and 2015, there were 1,638 and 2,545 potentially dilutive shares related to issued and unexercised stock options.  There were no potentially dilutive shares related to issued and unexercised SSARs.  For restricted stock, dilution would occur from the Company’s previously granted but unvested shares.  There were 4,983, and 3,887 potentially dilutive shares related to unvested restricted share grants as of the three months ended March 31, 2016 and 2015, 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 SSARs 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 March 31,
	2016		2015
(dollars in thousands except per share data)
Basic EPS:
Net income available to common shareholders	$	1,701	$	1,573
Weighted-average common shares outstanding		2,450,771		2,435,884
Basic EPS	$	0.69	$	0.65
Diluted EPS:
Net income available to common shareholders	$	1,701	$	1,573
Weighted-average common shares outstanding		2,450,771		2,435,884
Potentially dilutive common shares		6,621		6,432
Weighted-average common and potentially dilutive shares outstanding		2,457,392		2,442,316
Diluted EPS	$	0.69	$	0.64

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 year 2022.

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.  During 2015, the Company created a Long-Term Incentive Plan (LTIP) that awards restricted stock and stock-settled stock appreciation rights (SSARs) to senior officers based on the attainment of performance goals.  The service requirement is the participant’s continued employment throughout the LTIP with a three-year vesting period.  The restricted stock has a two-year post vesting holding requirement. The SSAR awards have a ten year term from the date of each grant.  The Company granted restricted stock and SSARs in February 2016 based on 2015 performance.

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The following table summarizes the weighted-average fair value and vesting of restricted stock grants awarded during the periods ended March 31, 2016 and 2015 under the 2012 stock incentive plans:

	March 31, 2016				March 31, 2015
			Weighted-				Weighted-
			average				average
	Shares		grant date		Shares		grant date
	granted		fair value		granted		fair value
Director plan	5,600	(1)	$	32.40	3,200	(1)	$	32.25
Omnibus plan	3,155	(3)		29.22	3,300	(2)		32.25
Omnibus plan	50	(1)		31.50	50	(1)		32.50
Total	8,805		$	31.26	6,550		$	32.25

(1) Vest after 1 year  (2) Vest after 4 years – 25% each year(3)Vest after 3 years – 33% each year

The fair value of the 3,155 shares granted on February 2, 2016 was calculated using the grant date stock price with a discount valuation.  The Chaffe model was used to calculate the discount. Since the shares vest over three years and then have a further two-year holding period, the historical volatility of the five years prior to the issue date was used to estimate volatility.  The five year treasury yield was used as the interest rate. The Company does pay a dividend, but since the shareholder will receive the dividends during vesting and the post-vest restriction period, no dividend yield was used in the calculation as not to inflate the discount.  The grant date stock price was $32.40 and the discount was calculated using an interest rate of 1.276% and a 5 year historical volatility of 9.809%.

A summary of the status of the Company’s non-vested restricted stock as of and changes during the period indicated are presented in the following table:

	2012 Stock incentive plans
	Director	Omnibus	Total		Weighted- average grant date fair value
Non-vested balance at December 31, 2015	3,200	8,840	12,040	$	29.50
Granted	5,600	3,205	8,805		31.26
Vested	(3,200)	(2,655)	(5,855)		29.42
Non-vested balance at March 31, 2016	5,600	9,390	14,990	$	30.56

The Company granted SSARs under the Omnibus Plan in February 2016.  The Company estimated the fair value of SSARs using the Black-Scholes-Merton valuation model on the grant date.  The Company used the following assumptions: the risk-free interest rate is the rate equivalent to the expected term of the option interpolated from the U.S. Treasury Yield Curve on the valuation date and historical volatility is calculated by taking the standard deviation of historical returns using weekly and monthly data.  The fair value of these SSARs was $5.21 per share, based on a risk-free interest rate of 1.861%, a dividend yield of 3.577% and a volatility of 23.402% using an expected term of ten years.

A summary of the status of the Company’s SSARs as of and changes during the period indicated are presented in the following table:

	Awards		Weighted-average grant date fair value	Weighted-average remaining contractual term (years)
Outstanding December 31, 2015	-		-	-
Granted	19,341	$	5.21	10.0
Exercised	-		-
Forfeited	-		-
Outstanding March 31, 2016	19,341	$	5.21	9.8

None of the SSARs were exercisable at March 31, 2016. SSARs vest over a three year period – 33% per year.

Share-based compensation expense 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 on non-vested equity awards during the three

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months ended March 31, 2016 and 2015 and the unrecognized stock-based compensation expense as of March 31, 2016:

	Three months ended March 31,
(dollars in thousands)	2016			2015
Stock-based compensation expense:
Director stock incentive plan	$	39	$	28
Omnibus stock incentive plan		31		15
Total stock-based compensation expense	$	70	$	43

	As of
(dollars in thousands)	March 31, 2016
Unrecognized stock-based compensation expense:
Director plan		$	151
Omnibus plan			345
Total unrecognized stock-based compensation expense		$	496

The unrecognized stock-based compensation expense as of March 31, 2016 will be recognized ratably over the periods ended January 2017 and May 2019 for the Director Plan and the Omnibus Plan, respectively.

Transactions under the Company’s stock option plan for the three months ended March 31, 2016 are presented in the following table:

	Options		Weighted-average exercise price	Weighted-average remaining contractual term (years)
Outstanding and exercisable, December 31, 2015	15,500		28.64	2.0
Granted	-		-
Exercised	(500)		27.75
Forfeited	-		-
Outstanding and exercisable, March 31, 2016	15,000	$	28.67	1.7

During the first quarter of 2016, there were 500 stock options exercised at a price of $27.75 per share.  The intrinsic value of these stock options was $2,585.  The tax deduction realized from the exercise of these options was $808.There were no stock options exercised during the first quarter of 2015.

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 March 31, 2016,  42,382 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 three months ended March 31, 2016 and 2015, compensation expense related to the ESPP approximated $15 thousand and$44 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;

Level 3 - inputs are unobservable and are based on the Company’s own assumptions to measure assets and liabilities at fair value. 

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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:

March 31, 2016
					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	$	41,091	$	41,091	$	41,091	$	-	$	-
Available-for-sale securities		128,673		128,673		534		128,139		-
FHLB stock		1,420		1,420		-		1,420		-
Loans and leases, net		546,707		546,123		-		-		546,123
Loans held-for-sale		1,202		1,224		-		1,224		-
Accrued interest receivable		2,202		2,202		-		2,202		-
Financial liabilities:
Deposits with no stated maturities		568,182		568,182		-		568,182		-
Time deposits		99,729		99,428		-		99,428		-
Short-term borrowings		12,765		12,765		-		12,765		-
Accrued interest payable		210		210		-		210		-

December 31, 2015
					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	$	12,277	$	12,277	$	12,277	$	-	$	-
Available-for-sale securities		125,232		125,232		546		124,686		-
FHLB stock		2,120		2,120		-		2,120		-
Loans and leases, net		546,682		545,523		-		-		545,523
Loans held-for-sale		1,421		1,444		-		1,444		-
Accrued interest receivable		2,210		2,210		-		2,210		-
Financial liabilities:
Deposits with no stated maturities		516,473		516,473		-		516,473		-
Time deposits		104,202		103,403		-		103,403		-
Short-term borrowings		28,204		28,204		-		28,204		-
Accrued interest payable		189		189		-		189		-

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;

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· 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. 

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.

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)	March 31, 2016		(Level 1)		(Level 2)		(Level 3)
Available-for-sale securities:
Agency - GSE	$	18,528	$	-	$	18,528	$	-
Obligations of states and political subdivisions		37,609		-		37,609		-
MBS - GSE residential		72,002		-		72,002		-
Equity securities - financial services		534		534		-		-
Total available-for-sale securities	$	128,673	$	534	$	128,139	$	-

			Quoted prices
			in active		Significant other		Significant other
	Total carrying value		markets		observable inputs		unobservable inputs
(dollars in thousands)	December 31, 2015		(Level 1)		(Level 2)		(Level 3)
Available-for-sale securities:
Agency - GSE	$	18,386	$	-	$	18,386	$	-
Obligations of states and political subdivisions		36,885		-		36,885		-
MBS - GSE residential		69,415		-		69,415		-
Equity securities - financial services		546		546		-		-
Total available-for-sale securities	$	125,232	$	546	$	124,686	$	-

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 periods ending March 31, 2016 and December 31, 2015, there were no transfers to or from Level 1 and Level 2 fair value measurements for financial assets measured on a recurring basis.

There were no changes in Level 3 financial instruments measured at fair value on a recurring basis as of and for the periods ending March 31, 2016 and December 31, 2015, respectively.

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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 March 31, 2016		(Level 1)		(Level 2)		(Level 3)
Impaired loans	$	8,560	$	-	$	-	$	8,560
Other real estate owned		1,243		-		-		1,243
Total	$	9,803	$	-	$	-	$	9,803

			Quoted prices in		Significant other		Significant other
	Total carrying value		active markets		observable inputs		unobservable inputs
(dollars in thousands)	at December 31, 2015		(Level 1)		(Level 2)		(Level 3)
Impaired loans	$	7,132	$	-	$	-	$	7,132
Other real estate owned		903		-		-		903
Total	$	8,035	$	-	$	-	$	8,035

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.

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.

At March 31, 2016 and December 31, 2015, the range of liquidation expenses and other valuation adjustments applied to impaired loans ranged from -23.55% to -94.00% and from -4.92% to -50.00% respectively.  The weighted-average of liquidation expenses and other valuation adjustments applied to impaired loans amounted to -32.99% and -27.84% as of March 31, 2016 and December 31, 2015, 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 March 31, 2016 and December 31, 2015, the discounts applied to the appraised values of ORE ranged from -15.90% to -99.00%for both periods.  As of March 31, 2016 and December 31, 2015, the weighted-average of discount to the appraisal values of ORE amounted to -37.34% and -37.64%, respectively.

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 March 31, 2016 compared to December 31, 2015 and a comparison of the results of operations for the three months

27

ended March 31, 2016 and 2015.  Current performance may not be indicative of future results.  This discussion should be read in conjunction with the Company’s 2015 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 or changes in existing laws and regulations, including the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 and the regulations promulgated there under;

§ impacts of the 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;

§ the interruption or breach in security of our information systems and other technological risks and attacks resulting in failures or disruptions in customer account management, general ledger processing and loan or deposit updates and potential impacts resulting therefrom including additional costs, reputational damage, regulatory penalties, and financial losses;

§ 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;

§ volatilities in the securities markets;

§ acts of war or terrorism;

§ disruption of credit and equity markets; and

§ the risk that our analyses of these risks and forces could be incorrect and/or that the strategies developed to address them could be unsuccessful.

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 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

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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 franchise footprint, consisting presently of our 10-branch network.  During the first quarter of 2016, the Company closed the Eynon branch and took advantage of an opportunity to realize an improved cost structure with minimal disruption to customers.  The cost savings will be reallocated to help expand our branch network.

We are impacted by both national and regional economic factors, with commercial, commercial real estate and residential mortgage loans concentrated in Northeastern Pennsylvania, primarily in Lackawanna and Luzerne counties.  Although the U.S. economy has shown signs of modest improvement, the general operating environment and our local market area continue to remain challenging.  For the near-term, we expect to continue to operate in a low, but slowly-rising interest rate environment.  A rising rate environment positions the Company to improve its net interest income performance, but will continue to pressure the interest-rate yield and margin.The Federal Open Market Committee (FOMC) adjusted the short-term federal funds rate up 25 basis points during December 2015. The move represented the first hike in rates by the FOMC in nearly a decade and expectations are for short-term rates to rise gradually throughout 2016, potentially pressuring deposit rate pricing.  The treasury yield curve is expected to undergo a bearish flattening over the forecast horizon.  The national unemployment rate for March 2016 was 5.0%, unchanged from December 2015.  In our region (Scranton, Wilkes-Barre Metropolitan Statistical Area), the unemployment rate increased to 6.4%  at March 31, 2016 from 4.7% as of December 31, 2015.  The spike in unemployment was due to an increase in the amount of people in the labor force during 2016 while the number of jobs decreased.  The fact that more people are entering the labor force is a positive sign for the local economy.  Pressure on employment during the first three months of the year is not unusual, as retail and activities such as construction slow down.  Year-over-year the unemployment rate decreased with both the labor force and the number of jobs increasing.  The median home values in the region fell 1.3% from a year ago, and according to Zillow, an online database advertising firm providing access to its real estate search engines to various media outlets, values are expected to rise 1.3% within the next year.  In light of these expectations, 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 2015 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 began 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 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 months ended March 31, 2016 and 2015

Overview

Net income increased $0.1 million, or 8%, for the first quarter of 2016 to  $1.7 million, or $0.69 per diluted share, compared to $1.6 million, or $0.64 per diluted share, for the same 2015 quarter.  During the first quarter of 2016, the Company produced $0.5

29

million higher net interest income compared to the first quarter of 2015.  The increase in net interest income offset $0.3 million more in non-interest expenses and $0.1 million lower non-interest income during the 2016 period. 

Return on average assets (ROA) was 0.92% and 0.91% for the first quarters of 2016 and 2015, respectively.  Return on average shareholders’ equity (ROE) was8.83% and 8.74%for the three months ended March 31, 2016 and 2015,  respectively.  ROA and ROE increased in both periods because of the increase in net income.

Net interest income and interest sensitive assets / liabilities

Net interest income increased $0.5 million, or 9%, from $5.6 million for the three months ended March 31, 2015 to $6.1 million for the three months ended March 31, 2016, with higher interest income and lower interest expense combining for the net increase.  Total average interest-earning assets increased $51.5 million and helped offset the negative impact of a four basis point net reduction in their yields resulting in $0.4 million of growth in interest income.  Most of the increase was due to the loan portfolio, which experienced average balance growth of $41.2 million, which had the effect of producing $0.4 million of interest income, more than offsetting the negative impact of an8 basis point lower yield earned thereon.  Both the commercial and residential portfolios contributed to this increase in interest income.Although higher average balances ofhigher-yielding mortgage-backed securities produced $0.1 million in additional interest income from investments, this growth was partially offset by the special dividend from the FHLB which boosted investment income in the first quarter of 2015.  On the liability side, total interest-bearing liabilities grew $30.4 million on average but a twelve basis point decline in the average rates paid offset the impact of this growth.  The reduction in average rate paid is due to the $10 million payoff of long-term debt carrying an interest rate of 5.26% during the second quarter of 2015 which reduced interest expense from borrowings in 2016 by $0.1 million.  Interest expense from deposits was largely unchanged from the first quarter of 2015. 

The fully-taxable equivalent (FTE) net interest rate spread and margin increased by eight and six basis points, respectively for the three months ended March 31, 2016 compared to the three months ended March 31, 2015.  The increase in spread was due to a twelve basis point reduction in rates paid on interest-bearing liabilities due to the payoff of long-term debt during 2015 which was able to offset the lower yield on interest-earning assets.  The improvement in margin was due to higher net interest income.  The overall cost of funds, which includes the impact of non-interest bearing deposits, declined nine basis points for the quarter ended March 31, 2016 compared to the same period in 2015.  The reason for the decrease was the payoff of long-term debt.

During 2016, the Company expects to operate in a volatile yet overall gradually increasing interest rate environment.  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 more sharply at the long end, the interest rate margin may continue to experience compression.  However for the remainder of 2016, the Company anticipates net interest income to improve as growth in interest-earning assets would help mitigate an adverse impact of rate movements.  The Federal Open Market Committee (FOMC) adjusted the short-term federal funds rate upward in December 2015, but it had a minimal effect on rates paid on funding sources.  Continued growth in the loan portfolios complemented with investment security growth is the Company’s strategy for 2016, and when coupled with a proactive approach to deposit cost setting strategies should help grow net interest income and contain the interest rate margin at acceptable levels.

The Company’s cost of interest-bearing liabilities was 46 basis points for the quarter ended March 31, 2016 or twelve basis points lower than the cost for the same 2015 quarter.  The decline in the rate paid on borrowings was the reason for the reduction.  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.  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, began to rise at the end of 2015.  Rates were not increased during the first quarter of 2016 but if rates rise later in the year, the effect could pressure net interest income if short-term rates rise more rapidly than longer-term interest rates, thereby compressing the interest rate spread.  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, and 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-preserving 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 table that follows sets forth a comparison of average balances of assets and liabilities and their related net tax equivalent yields and rates for the periods indicated.  Within the table, 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. Net deferred loan cost amortization of $112 thousand and  $93 thousand for the first quarters of 2016 and 2015, respectively, are included in interest income from loans.  The one-time FHLB special dividend of $57 thousand awarded in the first quarter of 2015 was removed from the annualized yield calculation and then added back to

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interest income.  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:

	Three months ended
(dollars in thousands)	March 31, 2016						March 31, 2015
	Average				Yield /		Average				Yield /
Assets	balance		Interest		rate		balance		Interest		rate
Interest-earning assets
Interest-bearing deposits	$	16,740	$	22	0.53	%	$	24,679	$	16	0.25	%
Investments:
Agency - GSE		18,450		53	1.15			15,746		50	1.29
MBS - GSE residential		68,661		317	1.86			53,135		210	1.60
State and municipal (nontaxable)		34,979		496	5.70			34,691		495	5.78
Other		1,707		23	5.46			1,613		79	5.46
Total investments		123,797		889	2.89			105,185		834	3.00
Loans and leases:
Commercial and commercial real estate (taxable)		278,003		3,068	4.44			256,705		2,861	4.52
Commercial and commercial real estate (nontaxable)		27,200		290	4.28			18,377		211	4.65
Consumer		65,603		911	5.58			66,897		911	5.52
Residential real estate		186,905		1,836	3.95			174,513		1,727	4.01
Total loans and leases		557,711		6,105	4.40			516,492		5,710	4.48
Federal funds sold		-		-	-			419		-	0.26
Total interest-earning assets		698,248		7,016	4.04	%		646,775		6,560	4.08	%
Non-interest earning assets		48,581						51,980
Total assets	$	746,829					$	698,755
Liabilities and shareholders' equity
Interest-bearing liabilities
Deposits:
Savings	$	115,864	$	36	0.13	%	$	110,291	$	50	0.18	%
Interest-bearing checking		154,628		102	0.26			128,575		73	0.23
MMDA		127,635		217	0.68			119,332		193	0.66
CDs < $100,000		52,788		100	0.76			61,319		125	0.83
CDs > $100,000		50,611		124	0.99			42,862		115	1.09
Clubs		1,392		1	0.16			1,470		1	0.17
Total interest-bearing deposits		502,918		580	0.46			463,849		557	0.49
Repurchase agreements		14,710		8	0.22			15,793		8	0.20
Borrowed funds		2,434		10	1.55			10,001		132	5.35
Total interest-bearing liabilities		520,062		598	0.46	%		489,643		697	0.58	%
Non-interest bearing deposits		144,890						132,327
Non-interest bearing liabilities		4,396						3,811
Total liabilities		669,348						625,781
Shareholders' equity		77,481						72,974
Total liabilities and shareholders' equity	$	746,829					$	698,755
Net interest income - FTE			$	6,418					$	5,863
Net interest spread					3.58	%					3.50	%
Net interest margin					3.70	%					3.64	%
Cost of funds					0.36	%					0.45	%

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Changes in net interest income are a function of both changes in interest rates and changes in volume of interest-earning assets and interest-bearing liabilities.  The following table presents the extent to which changes in interest rates and changes in volumes of interest-earning assets and interest-bearing liabilities have affected the Company’s interest income and interest expense during the periods indicated.  Information is provided in each category with respect to (1) the changes attributable to changes in volume (changes in volume multiplied by the prior period rate), (2) the changes attributable to changes in interest rates (changes in rates multiplied by prior period volume) and (3) the net change.  The combined effect of changes in both volume and rate has been allocated proportionately to the change due to volume and the change due to rate.  Tax-exempt income was not converted to a tax-equivalent basis on the rate/volume analysis:

	Three months ended March 31,
(dollars in thousands)	2016 compared to 2015						2015 compared to 2014
	Increase (decrease) due to
	Volume		Rate		Total		Volume		Rate		Total
Interest income:
Interest-bearing deposits	$	(6)	$	12	$	6	$	8	$	-	$	8
Investments:
Agency - GSE		8		(5)		3		-		(4)		(4)
MBS - GSE residential		69		38		107		16		3		19
State and municipal		4		-		4		12		(20)		(8)
Other		5		(61)		(56)		(11)		66		55
Total investments		86		(28)		58		17		45		62
Loans and leases:
Residential real estate		133		(24)		109		186		(54)		132
Commercial and CRE		342		(83)		259		138		(103)		35
Consumer		(13)		13		-		64		(1)		63
Total loans and leases		462		(94)		368		388		(158)		230
Federal funds sold		-		-		-		-		-		-
Total interest income		542		(110)		432		413		(113)		300
Interest expense:
Deposits:
Savings		2		(16)		(14)		-		(5)		(5)
Interest-bearing checking		17		12		29		13		18		31
Money market		16		8		24		50		28		78
Certificates of deposit less than $100,000		(16)		(9)		(25)		6		(2)		4
Certificates of deposit greater than $100,000		20		(11)		9		(21)		(19)		(40)
Clubs		-		-		-		-		-		-
Total deposits		39		(16)		23		48		20		68
Repurchase agreements		(1)		1		-		-		-		-
Borrowed funds		(63)		(59)		(122)		(84)		5		(79)
Total interest expense		(25)		(74)		(99)		(36)		25		(11)
Net interest income	$	567	$	(36)	$	531	$	449	$	(138)	$	311

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;

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•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.

For the quarters ending March 31, 2016 and 2015, the Company recorded a provision for loan losses of $0.2 million each period, respectively.  The provision funds our allowance for loan losses and its requirement is a function of the allowance’s sufficiency to cover all loans.  Within the allowance calculation, there is a rolling twelve-quarter average applied to determine the reserve affecting both qualitative factors and loss ratios.  During the first quarter of 2016, a significant loss event rolled off of this historical average which offset the need for additional reserves which would have otherwise been required from an additional $0.7 million TDR and $4.6 million more non-accrual loans.  Except for a $0.7 million specific reserve for one large non-accrual loan, collateral securing these impaired loans was considered sufficient to cover their respective principal balances.  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 March 31, 2016, non-interest income amounted to $1.7 million, a $0.1 million, or 4%, decrease compared to $1.8 million recorded for the three months ended March 31, 2015.  The decrease in conforming residential lending activity resulted in $0.1 million fewer gains on the sale of loans at March 31, 2016 compared to the same period of 2015.  Trust income and financial services incomealso saw $47 thousand and $23 thousand decreases, respectively.  These decreases were partially offset bya combined $0.1 million in additional service charges on deposits and interchange fees. 

Other operating expenses

For the three months ended March 31, 2016, total other operating expenses increased $0.3 million, or 6%, compared to the three months ended March 31, 2015.  Salary and employee benefits contributed the most to the increase rising $0.2 million, or 8%, in the first quarter of 2016 compared to the same period in 2015.  The increase stems from select staff additions or replacements to previously vacant positions, including senior level and mid-level position replacements that did not occur until second quarter of 2015, annual merit increases, one-time salary increases awarded to employees in the normal course of performance management, higher recognized employee incentives and an increase in group insurance from higher claims processing.  Professional services increased during the period by $0.1 million, or 15%.  The increase was due to a combination of additional legal services and additional compliance review services.  Data processing and communications expense increased $0.1 million during the three months ended March 31, 2016 compared to 2015 like period because of fees incurred from outsourcing the Company’s data processing during the third quarter of 2015.  Other expenses increased $0.1 million during the first quarter of 2016 due to a  credit of $0.1 million against the shares tax dueto a donation made during the first quarter of 2015.  The Company does not expect to receive the same tax credit for 2016 until the end of the year.Offsetting these items, the lack of the previously mentioned donation during the first quarter of 2016 caused advertising and marketing expenses to decrease by $0.1 million.  Other real estate owned (ORE) expense also decreased $0.1 million during the first quarter of 2016 compared to the same period in 2015 because the Company was holding a few large properties that carried large expenses during the first quarter of 2015 that were subsequently sold. Also, there were losses on sales of ORE and write-downs in 2015 totaling $35 thousand and none of the properties in 2016 were sold or needed to be written down.

The ratios of non-interest expense less non-interest income to average assets, known as the expense ratio, at March 31, 2016 and 2015 were 1.99% and 1.93%, respectively.  The expense ratio, which excludes non-recurring expenses, increased due mostly to lower non-interest income.

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Comparison of financial condition at

March 31, 2016 and December 31, 2015

Overview

Consolidated assets increased $34.0 million, or 5%, to $763.4 million as of March 31, 2016 from $729.4 million at December 31, 2015.  The increase in assets was funded through growth in deposits of $47.2 million and a $2.0 million increase in shareholders’ equity which was partially offset by the $15.4 million decrease in short-term borrowings.  The increase in the funding sources was used to fund investment security growth and pay down short-term borrowings with the balance retained in cash for future liquidity needs from seasonal depositors.  

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 (AOCI).  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 March 31, 2016, the carrying value of investment securities amounted to $128.7 million, or 17% of total assets, compared to $125.2 million, or 17% of total assets, at December 31, 2015.  On March 31, 2016, 56% 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 March 31, 2016.  The AFS securities were recorded with a net unrealized gain of $4.4 million as of March 31, 2016 compared to a net unrealized gain of $3.3 million as of December 31, 2015, or a net improvement of $1.1 million during 2016.  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 fall, especially at the intermediate and long end, the values of debt securities tend to increase.  Whether or not the value of the Company’s investment portfolio will continue to exceed its amortized cost will be largely dependent on the direction and magnitude of interest rate movements and the duration of the debt securities within the Company’s investment portfolio.  When interest rates rise, the market values of the Company’s debt securities portfolio could be subject to market value declines.

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 months ended March 31, 2016 and 2015, the Company did not incur other-than-temporary impairment charges from its investment securities portfolio.

During the first three months of 2016, the carrying value of total investments increased $3.4 million, or 3%.  The Company attempts to maintain a well-diversified and proportionate investment portfolio that is structured to complement the strategic direction of the Company.  Its growth typically supplements the lending activities but also considers the current and forecasted economic conditions, the Company’s liquidity needs and interest rate risk profile. At the end of 2014, the Company began to restructure its investment portfolio by selling mortgage-backed securities with the longest duration and lowest coupon rates as well as intermediate term agency bonds.  The proceeds were used to reduce the Company’s long-term debt with the balance retained in cash that was reinvested along with available cash holdings during the first half of 2015.  The Company expects to grow the portfolio and increase its relative size with a bias toward mortgage-backed securities.  If rates rise, the strategy will provide a good source of cash flow to reinvest into higher yielding interest-sensitive assets.

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A comparison of investment securities at March 31, 2016 and December 31, 2015 is as follows:

	March 31, 2016				December 31, 2015
(dollars in thousands)	Amount		%		Amount		%
MBS - GSE residential	$	72,002	56.0	%	$	69,415	55.4	%
State & municipal subdivisions		37,609	29.2			36,885	29.5
Agency - GSE		18,528	14.4			18,386	14.7
Equity securities - financial services		534	0.4			546	0.4
Total	$	128,673	100.0	%	$	125,232	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 $14 thousand and $74 thousand for the three months ended March 31, 2016 and 2015, respectively.  The Company received a $57 thousand one-time special dividend during the first quarter of 2015.  The balance in FHLB stock was $1.4 million and $2.1 million as of March 31, 2016 and December 31, 2015, 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.  Occasionally, residential mortgage and/or other nonmortgage loans may be transferred from the loan portfolio to 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 March 31, 2016 and December 31, 2015, loans HFS consisted of residential mortgages with carrying amounts of $1.2 million and $1.4 million, respectively, which approximated their fair values.  During the quarter ended March 31, 2016, residential mortgage loans with principal balances of $6.5 million were sold into the secondary market and the Company recognized net gains of $0.1 million, compared to $10.2 million and $0.2 million, respectively during the quarter ended March 31, 2015.  A decrease in residential mortgage origination activities caused the decrease in gains from loan sales in the first quarter of 2016 compared to the same 2015 period. 

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 March 31, 2016 and December 31, 2015, the servicing portfolio balance of sold residential mortgage loans was $269.6 million and $269.5 million, respectively.

Loans and leases

The Company remains proactive in the desire to maintain, develop and grow relationships.  Relationship managers along with their service partners have developed and continue to sharpen their skills to provide the opportunity of being trusted financial advisors.  The loan portfolio remains stable with a modest growth based upon the condition of our local economy and our desire to manage risk.  The expectation for the remainder of the year continues to be controlled growth within the confines of the marketplace.

Commercial and industrial and commercial real estate

Compared to year-end 2015, the commercial and industrial (C&I) loan portfolio increased $1.1 million, or 1%, from $102.6 million to $103.7 million and the commercial real estate (CRE) loan portfolio retracted $3.2 million, or 2%, from $201.9 million to $198.7 million as of  March 31, 2016.  Both the modest increase and reduction in both categories were anticipated due to the payoffs of multiple credit facilities.  The Company anticipates the commercial loan portfolio to increase approximately 5% by year end.

Consumer

The consumer loan portfolio realized a nominal reduction of $1.3 million, or 1.1%, from a high of $115.0 million at December 31, 2015 to $113.7 million at March 31, 2016.  The reduction is largely tied to amortization which is expected to be neutralized by volume derived from seasonal consumer loan campaigns scheduled over the remainder of 2016.

Residential

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The residential loan portfolio grew $3.3 million, or 2.4%, from $137.1 million at December 31, 2015 to $140.4 million at March 31, 2016.  The held to maturity loan portfolio grew due mostly to residential construction and non-conforming loan originations.

The composition of the loan portfolio at March 31, 2016 and December 31, 2015, is summarized as follows:

	March 31, 2016				December 31, 2015
(dollars in thousands)	Amount		%		Amount		%
Commercial and industrial	$	103,703	18.7	%	$	102,653	18.4	%
Commercial real estate:
Non-owner occupied		95,303	17.1			95,745	17.2
Owner occupied		98,523	17.7			101,652	18.3
Construction		4,904	0.9			4,481	0.8
Consumer:
Home equity installment		30,017	5.4			30,935	5.6
Home equity line of credit		48,331	8.7			48,060	8.7
Auto and leases		29,556	5.3			29,758	5.3
Other		5,770	1.0			6,208	1.1
Residential:
Real estate		130,270	23.4			126,992	22.8
Construction		10,109	1.8			10,060	1.8
Gross loans		556,486	100.0	%		556,544	100.0	%
Less:
Allowance for loan losses		(9,384)				(9,527)
Unearned lease revenue		(395)				(335)
Net loans	$	546,707			$	546,682
Loans held-for-sale	$	1,202			$	1,421

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.

Through March 31, 2016, 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

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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.

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 on non-accrual status as well as a review of certain loans to which the lenders or the Credit Administration function have assigned a criticized or classified risk rating.

Net charge-offs were $0.3 million as of March 31, 2016, $0.7 million for the year ended December 31, 2015 and $0.1 million as of March 31, 2015.  During the period ended March 31, 2016, no specific loan class significantly underperformed as charge-offs were taken across a variety of consumer, commercial and residential 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 $9.4 million as of March 31, 2016, $9.5 million as of December 31, 2015 and $9.2 million as of March 31, 2015.  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. In contrast, an abrupt significant increase in the U.S. Prime lending rate could adversely impact the debt service capacity of existing borrowers' ability to repay.

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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
	three months ended			twelve months ended			three months ended
(dollars in thousands)	March 31, 2016			December 31, 2015			March 31, 2015
Balance at beginning of period	$	9,527		$	9,173		$	9,173
Charge-offs:
Commercial and industrial		(14)			(25)			(24)
Commercial real estate		(85)			(432)			(67)
Consumer		(175)			(437)			(92)
Residential		(60)			(15)			-
Total		(334)			(909)			(183)
Recoveries:
Commercial and industrial		9			47			9
Commercial real estate		4			18			7
Consumer		28			95			24
Residential		-			28			28
Total		41			188			68
Net charge-offs		(293)			(721)			(115)
Provision for loan losses		150			1,075			150
Balance at end of period	$	9,384		$	9,527		$	9,208
Allowance for loan losses to total loans		1.69	%		1.71	%		1.77	%
Net charge-offs to average total loans outstanding		0.21	%		0.13	%		0.09	%
Average total loans	$	557,711		$	534,903		$	516,492
Loans 30 - 89 days past due and accruing	$	2,390		$	3,707		$	2,135
Loans 90 days or more past due and accruing	$	619		$	356		$	505
Non-accrual loans	$	8,306		$	9,003		$	3,816
Allowance for loan losses to loans 90 days or more past due and accruing		15.16	x		26.76	x		18.23	x
Allowance for loan losses to non-accrual loans		1.13	x		1.06	x		2.41	x
Allowance for loan losses to non-performing loans		1.05	x		1.02	x		2.13	x

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) and repossessed assets.  At March 31, 2016, non-performing assets represented 1.77% of total assets compared with 1.76% as of December 31, 2015.  Although non-accrual loans decreased in the first quarter of 2016, past due loans over 90 days, TDRs and ORE all increased over the same time period, causing an increase in the ratio.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)	March 31, 2016		December 31, 2015		March 31, 2015
Loans past due 90 days or more and accruing	$	619	$	356	$	505
Non-accrual loans *		8,306		9,003		3,816
Total non-performing loans		8,925		9,359		4,321
Troubled debt restructurings		2,857		2,423		2,358
Other real estate owned and repossessed assets		1,766		1,074		1,433
Total non-performing assets	$	13,548	$	12,856	$	8,112
Total loans, including loans held-for-sale	$	557,293	$	557,630	$	520,855
Total assets	$	763,382	$	729,358	$	702,507
Non-accrual loans to total loans		1.49%		1.61%		0.73%
Non-performing loans to total loans		1.60%		1.68%		0.83%
Non-performing assets to total assets		1.77%		1.76%		1.15%

* In the table above, the amount includes non-accrual TDRs of $0.2 million as of March 31, 2016 and $0.9 million as of March 31, 2015. There were no non-accrual TDRs as of December 31, 2015.

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 $0.4 million, or 5%, from $9.3 million at December 31, 2015 to $8.9 million at March 31, 2016.  At March 31, 2016, the portion of accruing loans that was over 90 days past due totaled $0.6 million and consisted of nine loans to nine unrelated borrowers ranging from $6 thousand to $0.2 million.  At December 31, 2015, the portion of accruing loans that was over 90 days past due totaled $0.4 million and consisted of eight loans to seven unrelated borrowers ranging from less than $1 thousand to $0.2 million.  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 March 31, 2016, there were 45 loans to 38 unrelated borrowers ranging from less than $1 thousand to $5.0 million in the non-accrual category.  At December 31, 2015, there were 51 loans to 46 unrelated borrowers on non-accrual ranging from less than $1 thousand to $5.1 million.  Non-accrual loans decreased during the period ending March 31, 2016 for the following reasons:  $0.8 million in new non-accrual loans plus capitalized expenditures on these loans were added; $0.3 million were paid down or paid off; $0.2 million were charged off; $0.7million were transferred to ORE,  and $0.3million was moved back to accrual status.

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The composition of non-performing loans as of March 31, 2016 is as follows:

			Past due
	Gross		90 days or		Non-		Total non-		% of
	loan		more and		accrual		performing		gross
(dollars in thousands)	balances		still accruing		loans		loans		loans
Commercial and industrial	$	103,703	$	27	$	32	$	59	0.06%
Commercial real estate:
Non-owner occupied		95,303		-		6,178		6,178	6.48%
Owner occupied		98,523		35		559		594	0.60%
Construction		4,904		-		218		218	4.45%
Consumer:
Home equity installment		30,017		-		92		92	0.31%
Home equity line of credit		48,331		-		438		438	0.91%
Auto loans and leases *		29,161		557		23		580	1.99%
Other		5,770		-		6		6	0.10%
Residential:
Real estate		130,270		-		760		760	0.58%
Construction		10,109		-		-		-	-
Loans held-for-sale		1,202		-		-		-	-
Total	$	557,293	$	619	$	8,306	$	8,925	1.60%

*Net of unearned lease revenue of $0.4 million.

Payments received from non-accrual loans are recognized on a cost recovery 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 March 31, 2016 had been performing in accordance with their original terms, the Company would have recognized interest income with respect to such loans of $0.3 million.

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 $3.0 million at March 31, 2016, an increase of $0.6 million, from $2.4 million at December 31, 2015, due to the addition of one home equity line of credit (HELOC) being classified as a TDR during the quarter.  The $3.0 million in TDRs as of March 31, 2016, consisted of nine commercial loans (7 CRE and 2 C&I) and one consumer loan (HELOC) to six unrelated borrowers.

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

As of and for the three months ended March 31, 2016
	Accruing						Non-accruing
	Commercial &		Commercial		Consumer		Commercial
(dollars in thousands)	industrial		real estate		HELOC		real estate		Total
Troubled Debt Restructures:
Beginning balance	$	525	$	1,898	$	-	$	-	$	2,423
Additions		-		-		650		-		650
Transfers		-		(156)		-		156		-
Pay downs / payoffs		-		(60)		-		-		(60)
Ending balance	$	525	$	1,682	$	650	$	156	$	3,013

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As of and for the year ended December 31, 2015
	Accruing				Non-accruing
	Commercial &		Commercial		Commercial
(dollars in thousands)	industrial		real estate		real estate		Total
Troubled Debt Restructures:
Beginning balance	$	25	$	728	$	875	$	1,628
Additions		500		1,267		-		1,767
Sold		-		-		(604)		(604)
Pay downs / payoffs		-		(97)		(71)		(168)
Charge offs		-		-		(200)		(200)
Ending balance	$	525	$	1,898	$	-	$	2,423

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 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 $1.8million at March 31, 2016 and $1.1 million at December 31, 2015.  The following table sets forth the activity in the ORE component of foreclosed assets held-for-sale:

	March 31, 2016			December 31, 2015
(dollars in thousands)	Amount		#	Amount		#
Balance at beginning of period	$	1,074	14	$	1,961	12
Additions		692	6		466	10
Pay downs		-			(1)
Write downs		-			(37)
Sold		-			(1,315)	(8)
Balance at end of period	$	1,766	20	$	1,074	14

As of March 31, 2016, ORE consisted of twenty properties from eighteen unrelated borrowers totaling $1.8 million.  Six of these properties ($0.7 million) were added in 2016; six were added in 2015 ($0.4 million); three were added in 2014 ($0.1million); two were added in 2013 ($0.2 million); two were added in 2012 ($0.3 million); and one was added in 2011 ($0.1 million).  In addition, of the twenty properties, eleven ($1.3 million) were either listed for sale or awaiting listing, while the remaining properties (nine totaling $0.5 million) are either in litigation, awaiting closing, have disposition plans or are undergoing renovations.

There was no other repossessed assets held-for-sale at March 31, 2016 or December 31, 2015.

Other assets

The $2.1 million increase in other assets was due mostly to $1.4 million in higher residual values associated with recording new automobile leases, net of lease disposals, a $0.3 million increase in construction in process, a $0.5 million investment receivable that has not been settled yet and $0.3 million higher prepaid expenses.

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 10 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.  Cash flow from deposits is 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

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alternative sources of funding such as short-term borrowings and long-term FHLB advances.

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

	March 31, 2016				December 31, 2015
(dollars in thousands)	Amount		%		Amount		%
Money market	$	138,685	20.8	%	$	125,433	20.2	%
Interest-bearing checking		152,433	22.8			132,598	21.4
Savings and clubs		119,706	17.9			115,668	18.6
Certificates of deposit		99,729	14.9			104,202	16.8
Total interest-bearing		510,553	76.4			477,901	77.0
Non-interest bearing		157,358	23.6			142,774	23.0
Total deposits	$	667,911	100.0	%	$	620,675	100.0	%

Total deposits increased $47.2 million, or 8%, from $620.7 million at December 31, 2015 to $667.9 million at March 31, 2016.  Growth in public fund accounts caused the increase from year end due to the seasonal timing of public tax deposits.  Public non-interest bearing checking, public interest-bearing checking and public money market accounts increased $14.8 million, $21.8 million and $12.4 million.  Tax deposits are usually received mid-quarter and retained for a short period of time with disbursements occurring shortly after they are received.  The increase in public fund accounts was partially offset by a $4.5 million reduction in CDs.  The Company will continue to execute on its relationship development strategy, explore the demographics within its marketplace and develop creative programs for its customers.  The Company’s focus of building a relationship of trust with its customers brought a few large deposits into the bank during 2015, with similar expectations for 2016.  Although these deposits fluctuate depending on customer needs, the Company plans to continue to form these types of relationships with customers in order to grow the deposit base to fund loan growth.  The Company expects moderate asset growth for the remainder of 2016 funded primarily by growth in transactional deposits.

Customers’ appetite for long-term time deposit products continues to be non-existent with a sustaining preference for non-maturing transaction deposits.  The Company’s portfolio of CDs continues to decrease; having declined $4.5 million, or 5%, from year-end 2015.  The Company expects CDs to continue to decline in 2016.  The Company’s relationship strategy resulted in a successful bid for a large public CD account, but otherwise the low rate environment has basically enticed customers to vacate the CD marketplace.  If rates continue to rise, demand for CDs may also increase thereby possibly increasing funding costs.  The Company will continue to pursue strategies to grow and retain retail and business customers including the development of creative CD campaigns 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 March 31, 2016 and December 31, 2015, CDARS represented $1.1 million, or less than 1%, and $3.4 million, or 1%, respectively, of total deposits.

Excluding CDARS, certificates of deposit accounts of $100,000 or more amounted to $50.0 million and $50.8 million at March 31, 2016 and December 31, 2015, respectively.  Certificates of deposit of $250,000 or more amounted to $28.1 million and $31.7 million as of March 31, 2016 and December 31, 2015, respectively.

Including CDARS, approximately 48% of the CDs, with a weighted-average interest rate of 0.70%, are scheduled to mature in 2016 and an additional 23%, with a weighted-average interest rate of 0.73%, are scheduled to mature in 2017.  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.  As noted, the widespread preference continues for customers with maturing CDs to hold their deposits in readily available transaction accounts.  The Company does not expect significant CD growth during 2016, but will continue to develop CD promotional programs when the Company deems that it is economically feasible to do so or when demand exists.  As with all promotions, the Company will consider the needs of the customers and simultaneously be mindful of the liquidity levels and the interest rate sensitivity exposure of the Company.

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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, short-term 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 variances in repurchase agreements.  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.  Short-term borrowings decreased $15.4 million during 2016.  Less borrowing was needed because of growth in public deposits during the first quarter of 2016.

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

	March 31, 2016				December 31, 2015
(dollars in thousands)	Amount		%		Amount		%
Overnight borrowings	$	-	-	%	$	22,289	79.0	%
Securities sold under repurchase agreements		12,765	100.0			5,915	21.0
Total	$	12,765	100.0	%	$	28,204	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

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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 March 31, 2016, the Company maintained a one-year cumulative gap of positive (asset sensitive) $68.2 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.

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 March 31, 2016:

			More than three			More than
	Three months		months to			one year			More than
(dollars in thousands)	or less		twelve months			to three years			three years			Total
Cash and cash equivalents	$	28,432		$	-		$	-		$	12,659		$	41,091
Investment securities (1)(2)		6,344			15,471			39,641			68,637			130,093
Loans and leases(2)		195,090			88,020			143,225			121,574			547,909
Fixed and other assets		-			11,169			-			33,120			44,289
Total assets	$	229,866		$	114,660		$	182,866		$	235,990		$	763,382
Total cumulative assets	$	229,866		$	344,526		$	527,392		$	763,382
Non-interest-bearing transaction deposits (3)	$	-		$	15,752		$	43,242		$	98,364		$	157,358
Interest-bearing transaction deposits (3)		170,184			20,712			148,378			71,550			410,824
Certificates of deposit		17,546			39,347			26,707			16,129			99,729
Repurchase agreements		12,765			-			-			-			12,765
Other liabilities		-			-			-			4,397			4,397
Total liabilities	$	200,495		$	75,811		$	218,327		$	190,440		$	685,073
Total cumulative liabilities	$	200,495		$	276,306		$	494,633		$	685,073
Interest sensitivity gap	$	29,371		$	38,849		$	(35,461)		$	45,550
Cumulative gap	$	29,371		$	68,220		$	32,759		$	78,309
Cumulative gap to total assets		3.8%			8.9%			4.3%			10.3%

(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.

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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-earning asset and interest-bearing liability levels at March 31, 2016 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 March 31, 2016 levels:

	% change
	Rates +200		Rates -200
Earnings at risk:
Net interest income	6.0	%	(2.6)	%
Net income	15.8		(6.5)
Economic value at risk:
Economic value of equity	(3.4)		(23.8)
Economic value of equity as a percent of total assets	(0.4)		(3.0)

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 March 31, 2016, the Company’s risk-based capital ratio was 15.1%.

The table below summarizes estimated changes in net interest income over a twelve-month period beginning April 1, 2016, 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	$	26,238	$	1,478	6.0	%
+100 basis points		25,450		690	2.8
Flat rate		24,760		-	-
-100 basis points		24,252		(508)	(2.1)
-200 basis points		24,124		(636)	(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

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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 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 Asset/Liability Committee.  As of March 31, 2016, the Company had not experienced any adverse issues that would give rise to its inability to raise liquidity in an emergency situation.

During the three months ended March 31, 2016, the Company acquired $28.8 million of cash.  During the period, the Company’s operations provided approximately $1.5 million mostly from $6.6 million of net cash inflow from the components of net interest income and $0.8 million in proceeds of loans HFS over originations; partially offset by net non-interest expense/income related payments of $4.5 million and a $1.4 million increase in the residual value from the Company’s automobile leasing activities.  Cash inflow from interest-earning assets and growth in deposits were used to replace maturing and cash runoff of investment securities, reduce short-term borrowings and net dividend payments.  The Company received a large amount of public deposits during the first quarter of 2016 which are expected to be taken out during the second quarter of 2016.  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, 2015.

As of March 31, 2016, the Company maintained $41.1 million in cash and cash equivalents and $129.9 million of investments AFS and loans HFS.  Also as of March 31, 2016, the Company had approximately $190.6 million available to borrow from the FHLB, $21.0 million from correspondent banks, $29.9 million from the FRB and $36.5 million from the CDARS program.  The combined total of $449.0 million represented 59% of total assets at March 31, 2016.  Management believes this level of liquidity to be strong and adequate to support current operations.

Capital

During the quarter ended March 31, 2016, total shareholders' equity increased $2.0 million, or 3%, due principally from the $1.7 million in net income added into retained earnings and $0.7 million in after-tax unrealized gains in the Company’s investment portfolio.  Capital was further enhanced by $0.1 million from investments in the Company’s common stock via the Employee Stock Purchase (ESPP) and $0.1 million from stock options exercised and stock-based compensation expense from the ESPP and unvested restricted stock and SSARS.  These items were partially offset by $0.7 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 39% for the three months ended March 31, 2016.  The balance of earnings is retained to further strengthen the Company’s capital position. 

As of March 31, 2016, the Company reported a net unrealized gain position of $2.9 million, net of tax, from the securities AFS portfolio compared to a net unrealized gain of $2.2  million as of December 31, 2015.  The improvement during 2016 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 the period of rising rates, 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

46

affords the Company the option to acquire shares in open market purchases and/or issue shares directly from the Company to plan participants.  During 2016, the Company purchased all of the shares in the open market to fulfill 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. 

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 common equity to total risk-weighted assets (Tier I Common Equity) of 4.5%, Tier I capital to total risk-weighted assets (Tier I Capital) of 6% and Tier I capital to average total assets (Leverage Ratio) of at least 4%.  As of March 31, 2016 and 2015, the Company and the Bank exceeded all capital adequacy requirements to which it was subject.

In July 2013, the federal bank regulatory agencies issued final rules to implement the Basel III regulatory capital reforms and changes required by the Dodd-Frank Act.  Under the final rules, which became effective for the Company on January 1, 2015 and are subject to a phase-in period through January 1, 2019, minimum requirements increased for both the quantity and quality of capital held by the Company. The rules require all banks and bank holding companies to maintain a new common equity Tier 1 capital to risk-weighted assets minimum ratio of 4.5%, raise the minimum ratio of Tier 1 capital to risk-weighted assets (Tier I capital) from 4.0% to 6.0%, require a minimum ratio of total risk-based capital to total risk-weighted assets (Total Risk Based Capital) of 8.0%, and require a minimum Tier I capital to average total assets (Leverage Ratio) of 4.0%. A new capital conservation buffer, comprised of common equity Tier I capital, is also established above the regulatory minimum capital requirements. The rule increases the minimum Tier 1 capital to risk-based assets requirement with a capital conservation buffer to 8.5% by 2019 and increases the minimum total capital requirement with a capital conservation buffer to 10.5% by 2019 and assigns higher risk-weightings to certain assets: certain past due and commercial real estate loans and some equity exposures.

47

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 March 31, 2016:

									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 March 31, 2016
Total capital (to risk-weighted assets)
Consolidated	$	82,227	15.1%	≥	$	43,438	≥	8.0%			N/A		N/A
Bank	$	81,747	15.1%	≥	$	43,389	≥	8.0%	≥	$	54,237	≥	10.0%
Tier 1 common equity (to risk-weighted assets)
Consolidated	$	75,406	13.9%	≥	$	24,434	≥	4.5%			N/A		N/A
Bank	$	74,934	13.8%	≥	$	24,406	≥	4.5%	≥		35,254	≥	6.5%
Tier I capital (to risk-weighted assets)
Consolidated	$	75,406	13.9%	≥	$	44,916	≥	6.0%			N/A		N/A
Bank	$	74,934	13.8%	≥	$	44,876	≥	6.0%	≥	$	59,835	≥	8.0%
Tier I capital (to average assets)
Consolidated	$	75,406	10.1%	≥	$	29,944	≥	4.0%			N/A		N/A
Bank	$	74,934	10.0%	≥	$	29,918	≥	4.0%	≥	$	37,397	≥	5.0%

As of December 31, 2015:
Total capital (to risk-weighted assets)
Consolidated	$	81,074	15.0%	≥	$	43,278	≥	8.0%			N/A		N/A
Bank	$	80,547	14.9%	≥	$	43,306	≥	8.0%	≥	$	54,132	≥	10.0%
Tier 1 common equity (to risk-weighted assets)
Consolidated	$	74,163	13.7%	≥	$	24,344	≥	4.5%			N/A		N/A
Bank	$	73,744	13.6%	≥	$	24,360	≥	4.5%	≥	$	35,186	≥	6.5%
Tier I capital (to risk-weighted assets)
Consolidated	$	74,163	13.7%	≥	$	43,723	≥	6.0%			N/A		N/A
Bank	$	73,744	13.6%	≥	$	43,635	≥	6.0%	≥	$	58,180	≥	8.0%
Tier I capital (to average assets)
Consolidated	$	74,163	10.2%	≥	$	29,149	≥	4.0%			N/A		N/A
Bank	$	73,744	10.1%	≥	$	29,090	≥	4.0%	≥	$	36,362	≥	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 2015 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 March 31, 2016.

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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 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 2015 Form 10-K filed with the Securities and Exchange Commission on March 15, 2016.

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, 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 Fidelity D & D Bancorp, Inc., 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 Fidelity D & D Bancorp, Inc., 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.

49

*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.

*10.12 Change in Control and Severance Agreement between the Registrant, The Fidelity Deposit and Discount Bank and Eugene J. Walsh, dated June 26, 2015.  Incorporated by reference to Exhibit 99.1 to Registrant’s Current Report on Form 8-K filed with the SEC on June 29, 2015.

*10.13Employment Agreement between Fidelity D & D Bancorp, Inc., The Fidelity Deposit and Discount Bank and Salvatore R. DeFrancesco, Jr. dated as of March 17, 2016.  Incorporated by reference to Exhibit 99.1 to Registrant’s Current Report on Form 8-K filed with the SEC on March 18, 2016.

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.

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 March 31, 2016, is formatted in XBRL (eXtensible Business Reporting Language): Consolidated Balance Sheets as of March 31, 2016 and December 31, 2015;  Consolidated Statements of Income for the three months ended March 31, 2016 and 2015; Consolidated Statements of Comprehensive Income for the three months ended March 31, 2016 and 2015; Consolidated Statements of Changes in Shareholders’ Equity for the three months ended March 31, 2016 and 2015; Consolidated Statements of Cash Flows for the three months ended March 31, 2016 and 2015 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: May 6, 2016	/s/Daniel J. Santaniello
	Daniel J. Santaniello,     President and Chief Executive Officer
	Fidelity D & D Bancorp, Inc.
Date: May 6, 2016	/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 Purchase 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, 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 Fidelity D & D Bancorp, Inc., 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 Fidelity D & D Bancorp, Inc., The Fidelity Deposit and Discount Bank and 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.	*
10.12 Change in Control and Severance Agreement between the Registrant, The Fidelity Deposit and Discount Bank and Eugene J. Walsh, dated June 26, 2015. Incorporated by reference to Exhibit 99.1 to Registrant’s Current Report on Form 8-K filed with the SEC on June 29, 2015.	*
10.13 Employment Agreement between Fidelity D & D Bancorp, Inc., The Fidelity Deposit and Discount Bank and Salvatore R. DeFrancesco, Jr. dated as of March 17, 2016.  Incorporated by reference to Exhibit 99.1 to Registrant’s Current Report on Form 8-K filed with the SEC on March 18, 2016.	*
11Statement regarding computation of earnings per share.	22
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 March 31, 2016, is formatted in XBRL (eXtensible Business Reporting Language): Consolidated Balance Sheets as of March 31, 2016 and December 31, 2015;  Consolidated Statements of Income for the three months ended March 31, 2016 and 2015; Consolidated Statements of Comprehensive Income for the three months endedMarch 31, 2016 and 2015; Consolidated Statements of Changes in Shareholders’ Equity for the three months ended March 31, 2016 and 2015; Consolidated Statements of Cash Flows for the three months ended March 31, 2016 and 2015 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:  May  6, 2016
	/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:   May  6, 2016	/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 March 31, 2016, 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:May  6, 2016	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 March 31, 2016, 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:May 6, 2016	By:/s/ Salvatore R. DeFrancesco, Jr.
	Salvatore R. DeFrancesco, Jr.,
	Treasurer and Chief Financial Officer

XML

Document and Entity Information - shares	3 Months Ended
	Mar. 31, 2016	Apr. 30, 2016
Document and Entity Information [Abstract]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Mar. 31, 2016
Document Fiscal Year Focus	2016
Document Fiscal Period Focus	Q1
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		2,453,455

XML

Consolidated Balance Sheets - USD ($) $ in Thousands	Mar. 31, 2016	Dec. 31, 2015
Assets:
Cash and due from banks	$ 12,672	$ 12,259
Interest-bearing deposits with financial institutions	28,419	18
Total cash and cash equivalents	41,091	12,277
Available-for-sale securities	128,673	125,232
Federal Home Loan Bank stock	1,420	2,120
Loans and leases, net (allowance for loan losses of $9,384 in 2016; $9,527 in 2015)	546,707	546,682
Loans held-for-sale (fair value $1,224 in 2016, $1,444 in 2015)	1,202	1,421
Foreclosed assets held-for-sale	1,766	1,074
Bank premises and equipment, net	16,519	16,723
Cash surrender value of bank owned life insurance	11,169	11,082
Accrued interest receivable	2,202	2,210
Other assets	12,633	10,537
Total assets	763,382	729,358
Liabilities:
Deposits: Interest-bearing	510,553	477,901
Deposits: Non-interest-bearing	157,358	142,774
Total deposits	667,911	620,675
Accrued interest payable and other liabilities	4,397	4,128
Short-term borrowings	12,765	28,204
Total liabilities	$ 685,073	$ 653,007
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; 2,453,455 in 2016; and 2,443,405 in 2015)	$ 26,909	$ 26,700
Retained earnings	48,497	47,463
Accumulated other comprehensive income	2,903	2,188
Total shareholders' equity	78,309	76,351
Total liabilities and shareholders' equity	$ 763,382	$ 729,358

XML

Consolidated Balance Sheets (Parenthetical) - USD ($) $ in Thousands	Mar. 31, 2016	Dec. 31, 2015
Consolidated Balance Sheets [Abstract]
Loans, allowance for loan losses	$ 9,384	$ 9,527
Loans held-for-sale	$ 1,224	$ 1,444
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	2,453,455	2,443,405
Common stock, shares outstanding	2,453,455	2,443,405

XML

Consolidated Statements of Income - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2016	Mar. 31, 2015
Interest income:
Loans and leases: Taxable	$ 5,815	$ 5,499
Loans and leases: Nontaxable	191	139
Interest-bearing deposits with financial institutions	22	16
Investment securities:
U.S. government agency and corporations	370	260
States and political subdivisions (nontaxable)	317	313
Other securities	21	77
Total interest income	6,736	6,304
Interest expense:
Deposits	580	557
Securities sold under repurchase agreements	8	8
Other short-term borrowings and other	10	1
Long-term debt		131
Total interest expense	598	697
Net interest income	6,138	5,607
Provision for loan losses	150	150
Net interest income after provision for loan losses	5,988	5,457
Other income:
Service charges on deposit accounts	488	415
Interchange fees	356	302
Fees from trust fiduciary activities	170	217
Fees from financial services	104	127
Service charges on loans	178	176
Fees and other revenue	197	196
Earnings on bank-owned life insurance	87	85
Gain on sale or disposal of:
Loans	107	229
Investment securities		2
Premises and equipment		1
Total other income	1,687	1,750
Other expenses:
Salaries and employee benefits	2,875	2,653
Premises and equipment	918	941
Advertising and marketing	255	387
Professional services	389	338
FDIC assessment	125	107
Loan collection	44	30
Other real estate owned	22	99
Office supplies and postage	119	101
Automated transaction processing	127	120
Data processing and communication	188	105
Other	326	206
Total other expenses	5,388	5,087
Income before income taxes	2,287	2,120
Provision for income taxes	586	547
Net income	$ 1,701	$ 1,573
Per share data:
Net income - basic	$ 0.69	$ 0.65
Net income - diluted	0.69	0.64
Dividends	$ 0.27	$ 0.25

XML

Consolidated Statements of Comprehensive Income - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2016	Mar. 31, 2015
Consolidated Statements of Comprehensive Income [Abstract]
Net income	$ 1,701	$ 1,573
Other comprehensive income, before tax:
Unrealized holding gain on available-for-sale securities	1,084	235
Reclassification adjustment for net gains realized in income		(2)
Net unrealized gain	1,084	233
Tax effect	(369)	(79)
Unrealized gain, net of tax	715	154
Other comprehensive income, net of tax	715	154
Total comprehensive income, net of tax	$ 2,416	$ 1,727

XML

Consolidated Statements of Changes in Shareholders' Equity - USD ($) $ in Thousands	Capital Stock [Member]	Retained earnings [Member]	Accumulated other comprehensive income [Member]	Total
Balance at Dec. 31, 2014	$ 26,272	$ 43,204	$ 2,743	$ 72,219
Balance, shares at Dec. 31, 2014	2,427,767
Net income		1,573		1,573
Other comprehensive income			154	154
Issuance of common stock through Employee Stock Purchase Plan	$ 102			$ 102
Issuance of common stock through Employee Stock Purchase Plan, shares	4,358
Issuance of common stock from vested restricted share grants through stock compensation plans, shares	7,780
Issuance of common stock through exercise of stock options, shares				0
Stock-based compensation expense	$ 87			$ 87
Cash dividends declared		(613)		(613)
Balance, shares at Mar. 31, 2015	2,439,905
Balance at Mar. 31, 2015	$ 26,461	44,164	2,897	73,522
Balance at Dec. 31, 2015	$ 26,700	47,463	2,188	76,351
Balance, shares at Dec. 31, 2015	2,443,405
Net income		1,701		1,701
Other comprehensive income			715	715
Issuance of common stock through Employee Stock Purchase Plan	$ 111			111
Issuance of common stock through Employee Stock Purchase Plan, shares	3,695
Issuance of common stock from vested restricted share grants through stock compensation plans, shares	5,855
Issuance of common stock through exercise of stock options	$ 14			$ 14
Issuance of common stock through exercise of stock options, shares	500			500
Stock-based compensation expense	$ 84			$ 84
Cash dividends declared		(667)		(667)
Balance, shares at Mar. 31, 2016	2,453,455
Balance at Mar. 31, 2016	$ 26,909	$ 48,497	$ 2,903	$ 78,309

XML

Consolidated Statements of Cash Flows - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2016	Mar. 31, 2015
Cash flows from operating activities:
Net income	$ 1,701	$ 1,573
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, amortization, and accretion	865	806
Provision for loan losses	150	150
Deferred income tax expense	556	588
Stock-based compensation expense	118	87
Proceeds from sale of loans held-for-sale	6,563	10,318
Originations of loans held-for-sale	(5,738)	(10,227)
Earnings from bank-owned life insurance	(87)	(85)
Net gain from sales of loans	(107)	(229)
Net gain from sales of investment securities		(2)
Net loss from sale and write-down of foreclosed assets held-for-sale		36
Change in:
Accrued interest receivable	8	(4)
Other assets	(2,245)	(954)
Accrued interest payable and other liabilities	(285)	117
Net cash provided by operating activities	1,499	2,174
Available-for-sale securities:
Proceeds from sales		3,573
Proceeds from maturities, calls and principal pay-downs	3,873	6,772
Purchases	(6,628)	(39,025)
Decrease in FHLB stock	700	15
Net increase in loans and leases	(1,446)	(4,725)
Acquisition of bank premises and equipment	(440)	(664)
Proceeds from sale of foreclosed assets held-for-sale		921
Net cash used in investing activities	(3,941)	(33,133)
Cash flows from financing activities:
Net increase in deposits	47,237	14,798
Net (decrease) increase in short-term borrowings	(15,439)	9,804
Proceeds from employee stock purchase plan participants	111	102
Exercise of stock options	14
Dividends paid, net of dividends reinvested	(667)	(613)
Net cash provided by financing activities	31,256	24,091
Net increase (decrease) in cash and cash equivalents	28,814	(6,868)
Cash and cash equivalents, beginning	12,277	25,851
Cash and cash equivalents, ending	$ 41,091	$ 18,983

XML

Nature Of Operations And Critical Accounting Policies

3 Months Ended

Mar. 31, 2016

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. (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.

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, 2015.

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 March 31, 2016 and December 31, 2015 and the related consolidated statements of income and consolidated statements of comprehensive income for the three months ended March 31, 2016 and 2015, and consolidated statements of changes in shareholders’ equity and consolidated statements of cash flows for the three months ended March 31, 2016 and 2015 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 2015 financial statements to conform to the 2016 presentation. 

In preparing these consolidated financial statements, the Company evaluated the events and transactions that occurred after March 31, 2016 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, 2015, and the notes included therein, included within the Company’s Annual Report filed on Form 10-K.

Critical accounting policies

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.

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 March 31, 2016 is adequate and reasonable.  Given the subjective nature of identifying and estimating loan losses, it is likely that well-informed individuals could make different assumptions and could, therefore, calculate a materially different allowance amount.  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 (AOCI).

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 residential mortgage loans are transferred at the lower of cost or market value and simultaneously sold.  For other loans transferred to HFS, pricing may be obtained from other entities or modeled and the other loans are transferred at the lower of cost or market value and then sold.  As of March 31, 2016 and December 31, 2015, 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 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.  For each of the three months ended March 31, 2016 and 2015, the Company paid interest of $0.6 million and $0.7 million, respectively.  The Company did not make an income tax payment in the first quarters of 2016 and 2015.  For the three months ended March 31, 2016 and 2015, the Company had a net change in unrealized gains on available for sale securities of $1.1 million and $0.2 million, respectively.

Transfers from loans to foreclosed assets held-for-sale amounted to $0.7 million and $0.4 million during the three months ended March 31, 2016 and 2015, respectively.  During the same respective periods, transfers from loans to loans held-for-sale amounted to $0.6 million and $0.  Expenditures for construction in process, a component of other assets in the consolidated balance sheets, are included in acquisition of premises and equipment.

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New Accounting Pronouncements

3 Months Ended

Mar. 31, 2016

New Accounting Pronouncements [Abstract]

New Accounting Pronouncements

2.  New accounting pronouncements

In an exposure draft issued in the fourth quarter of 2012, the Financial Accounting Standards Board (FASB) proposed changes to the accounting guidance related to the impairment of financial assets and the recognition of credit losses.  The FASB proposal would require financial institutions to reserve for losses for the duration of the credit exposure as opposed to reserving for probable losses.  The new methodology would be known as the “current expected credit losses” (CECL) methodology.  The FASB is currently in the process of re-deliberating significant issues raised through feedback received from comment letters and outreach activities.  Among other things, the guidance in the proposed update regarding an entity’s estimate of expected credit losses will be clarified as follows:

· An entity should revert to a historical average loss experience for the future periods beyond which the entity is able to make or obtain reasonable and supportable forecasts;

· An entity should consider all contractual cash flows over the life of the related financial assets;

· When determining the contractual cash flows and the life of the related financial assets:

o An entity should consider expected prepayments;

o An entity should not consider expected extensions, renewals, and modifications unless the entity reasonably expects that it will execute a troubled debt restructuring with a borrower;

· An entity’s estimate of expected credit losses should always reflect the risk of loss, even when that risk is remote. However, an entity would not be required to recognize a loss on a financial asset in which the risk of nonpayment is greater than zero yet the amount of loss would be zero;

· In addition to using a discounted cash flow model to estimate expected credit losses, an entity would not be prohibited from developing an estimate of credit losses using loss-rate methods, probability-of-default methods or a provision matrix using loss factors;

· The final guidance on expected credit losses will include implementation guidance describing the factors that an entity should consider to adjust historical loss experience for current conditions and reasonable and supportable forecast.

FASB expects to issue this proposed accounting standard update in June 2016 with implementation beginning in the fiscal year following December 15, 2019 for public companies.  Upon adoption, the change in this accounting guidance could result in an increase in the Company's allowance for loan losses and require the Company to record loan losses more rapidly.  Upon final issuance of the standard, the Company will be able to better evaluate the potential impact of this new standard on its consolidated financial statements.

In June 2014, the FASB issued ASU 2014-12, Compensation – Stock Compensation (Topic 718) Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period, an amendment to the stock compensation accounting guidance to clarify that a performance target that affects vesting of a share-based payment and that could be achieved after the requisite service period be treated as a performance condition.  As such, the performance target should not be reflected in estimating the grant-date fair value of the award.  Compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the period(s) for which the requisite service has already been rendered.  This amendment is effective for annual reporting periods, including interim periods within those annual periods, beginning after December 15, 2015.  Early adoption is permitted.  Entities may apply the amendments in this update either (a) prospectively to all awards granted or modified after the effective date or (b) retrospectively to all awards with performance targets that are outstanding as of the beginning of the earliest annual period presented in the financial statements and to all new or modified awards thereafter.  The Company adopted this accounting standard update during the first quarter of 2016 and does not expect this amendment to have a material impact on its consolidated financial statements.

In March 2016, the FASB issued ASU 2016-09, Compensation – Stock Compensation (Topic 718) Improvements to Employee Share-Based Payment Accounting.  The areas for simplification in the update involve several aspects of accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows.  The amendments in this update are effective for annual reporting periods, including interim periods within those annual periods, beginning after December 15, 2016.  Early adoption is permitted.  Amendments should be applied using either a modified retrospective transition method by means of a cumulative-effect adjustment to equity as of the beginning of the period in which the guidance is adopted, retrospectively, prospectively, or using either a prospective transition method or a retrospective transition method.  The Company does not expect this amendment to have a material impact on its consolidated 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, 2017, 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 effective in the first quarter of 2018.

In January 2016, the FASB issued ASU 2016-01 related to Financial Instruments - Overall (Subtopic 825-10) Recognition and Measurement of Financial Assets and Financial Liabilities.  The update applies to all entities that hold financial assets or owe financial liabilities.  The amendments in this update make targeted improvements to U.S. GAAP as follows:

· Require equity investments to be measured at fair value with changes in fair value recognized in net income;

· Simplify the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment;

· Require public business entities to use the exit price notion when measuring fair value of financial instruments for disclosure purposes;

· Require separate presentation of financial assets and financial liabilities by measurement category and form of financial asset;

· Clarify that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities.

The amendments are effective for public business entities for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years.  The Company is evaluating the impact of the adoption of ASU 2016-01 on its consolidated financial statements, but does not expect it to have a significant impact.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements.  ASU 2016-02 requires the recognition of a right-of-use asset and related lease liability by lessees for leases classified as operating leases under GAAP.  The amendments in this update are effective for the Company for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years.  Early adoption of the amendments in this update are permitted.  A modified retroactive approach must be applied for leases existing at, or entered into after, the beginning of the earliest comparative period.  The Company is currently evaluating the impact of adopting this new guidance on the consolidated financial statements.

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Accumulated Other Comprehensive Income

3 Months Ended

Mar. 31, 2016

Accumulated Other Comprehensive Income [Abstract]

Accumulated Other Comprehensive Income

3.  Accumulated other comprehensive income

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

As of and for the three months ended March 31, 2016
	Unrealized gains
	on available-for-
(dollars in thousands)	sale securities		Total
Beginning balance	$	2,188	$	2,188
Other comprehensive income before reclassifications, net of tax		715		715
Amounts reclassified from accumulated other comprehensive income, net of tax		-		-
Net current-period other comprehensive income		715		715
Ending balance	$	2,903	$	2,903

As of and for the three months ended March 31, 2015
	Unrealized gains
	on available-for-
(dollars in thousands)	sale securities		Total
Beginning balance	$	2,743	$	2,743
Other comprehensive income before reclassifications, net of tax		155		155
Amounts reclassified from accumulated other comprehensive income, net of tax		(1)		(1)
Net current-period other comprehensive income		154		154
Ending balance	$	2,897	$	2,897

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
	For the three months ended
	March 31,
	2016		2015
Unrealized gains on AFS securities	$	-	$	2	Gain on sale of investment securities
		-		(1)	Provision for income taxes
Total reclassifications for the period	$	-	$	1	Net income

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Investment Securities

3 Months Ended

Mar. 31, 2016

Investment Securities [Abstract]

Investment Securities

4. Investment securities

Agency – Government-sponsored enterprise (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.

The amortized cost and fair value of investment securities at March 31, 2016 and December 31, 2015 are summarized as follows:

			Gross		Gross
	Amortized		unrealized		unrealized		Fair
(dollars in thousands)	cost		gains		losses		value
March 31, 2016
Available-for-sale securities:
Agency - GSE	$	18,369	$	169	$	(10)	$	18,528
Obligations of states and political subdivisions		35,122		2,500		(13)		37,609
MBS - GSE residential		70,488		1,540		(26)		72,002
Total debt securities		123,979		4,209		(49)		128,139
Equity securities - financial services		294		240		-		534
Total available-for-sale securities	$	124,273	$	4,449	$	(49)	$	128,673

			Gross		Gross
	Amortized		unrealized		unrealized		Fair
(dollars in thousands)	cost		gains		losses		value
December 31, 2015
Available-for-sale securities:
Agency - GSE	$	18,374	$	36	$	(24)	$	18,386
Obligations of states and political subdivisions		34,599		2,310		(24)		36,885
MBS - GSE residential		68,648		1,066		(299)		69,415
Total debt securities		121,621		3,412		(347)		124,686
Equity securities - financial services		295		251		-		546
Total available-for-sale securities	$	121,916	$	3,663	$	(347)	$	125,232

The amortized cost and fair value of debt securities at March 31, 2016 by contractual maturity are summarized below:

	Amortized		Fair
(dollars in thousands)	cost		value
Available-for-sale securities:
Debt securities:
Due in one year or less	$	3,434	$	3,439
Due after one year through five years		13,290		13,455
Due after five years through ten years		3,712		3,902
Due after ten years		33,055		35,341
Total debt securities		53,491		56,137
MBS - GSE residential		70,488		72,002
Total available-for-sale debt securities	$	123,979	$	128,139

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 March 31, 2016 and December 31, 2015:  

	Less than 12 months				More than 12 months				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
(dollars in thousands)	value		losses		value		losses		value		losses
March 31, 2016
Agency - GSE	$	1,036	$	(10)	$	-	$	-	$	1,036	$	(10)
Obligations of states and political subdivisions		543		(9)		1,534		(4)		2,077		(13)
MBS - GSE residential		8,255		(22)		1,288		(4)		9,543		(26)
Total	$	9,834	$	(41)	$	2,822	$	(8)	$	12,656	$	(49)
Number of securities		6				3				9
December 31, 2015
Agency - GSE	$	8,156	$	(24)	$	-	$	-	$	8,156	$	(24)
Obligations of states and political subdivisions		3,656		(20)		485		(4)		4,141		(24)
MBS - GSE residential		36,899		(299)		-		-		36,899		(299)
Total	$	48,711	$	(343)	$	485	$	(4)	$	49,196	$	(347)
Number of securities		32				1				33

The Company had nine securities in an unrealized loss position at March 31, 2016, including one agency security, five mortgage-backed securities and three municipal securities. The severity of these unrealized losses based on their underlying cost basis were as follows at March 31, 2016: 0.98% for agencies; 0.27% for MBS - GSE; and 0.62% for the municipals. In addition, only three of these securities have been in an unrealized loss position in excess of 12 months. The changes in the prices on these securities are the result of interest rate movement and are temporary in nature.

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 (OCI).  Non-credit-related OTTI is based on other factors affecting market value, including illiquidity.

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 March 31, 2016, 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.

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Loans And Leases

3 Months Ended

Mar. 31, 2016

Loans And Leases [Abstract]

Loans And Leases

5.  Loans and leases

The classifications of loans and leases at March 31, 2016 and December 31, 2015 are summarized as follows:

(dollars in thousands)	March 31, 2016		December 31, 2015
Commercial and industrial	$	103,703	$	102,653
Commercial real estate:
Non-owner occupied		95,303		95,745
Owner occupied		98,523		101,652
Construction		4,904		4,481
Consumer:
Home equity installment		30,017		30,935
Home equity line of credit		48,331		48,060
Auto loans and leases		29,556		29,758
Other		5,770		6,208
Residential:
Real estate		130,270		126,992
Construction		10,109		10,060
Total		556,486		556,544
Less:
Allowance for loan losses		(9,384)		(9,527)
Unearned lease revenue		(395)		(335)
Loans and leases, net	$	546,707	$	546,682

Net deferred loan costs of $1.5 million have been included in the carrying values of loans at March 31, 2016 and December 31, 2015, 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 interest 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 unpaid principal balance of mortgages serviced amounted to $269.6 million as of March 31, 2016 and $269.5 million as of December 31, 2015.  Mortgage servicing rights amounted to $1.2 million both as of March 31, 2016 and December 31, 2015, respectively.

Management is responsible for conducting 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 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 (C&I) and commercial real estate (CRE) 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 March 31, 2016 and December 31, 2015, were as follows:

(dollars in thousands)	March 31, 2016		December 31, 2015
Commercial and industrial	$	32	$	30
Commercial real estate:
Non-owner occupied		6,178		6,193
Owner occupied		559		988
Construction		218		226
Consumer:
Home equity installment		92		167
Home equity line of credit		438		512
Auto loans and leases		23		45
Other		6		6
Residential:
Real estate		760		836
Total	$	8,306	$	9,003

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.  C&I 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.  CRE loans modified in a TDR can 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 March 31, 2016, total TDRs amounted to $3.0 million, consisting of 10 loans (7 CRE loans, 2  C&I loans and 1 HELOC to 6 unrelated borrowers), of which 2 of the CRE loans, totaling $0.2 million, were on non-accrual status.  The first quarter 2016 balance represents a $0.6 million increase over the December 31, 2015 balance, which amounted to $2.4 million (consisting of 7 CRE loans and 2 C&I loans to 5 unrelated borrowers), with none of these loans on non-accrual status.  The increase in the first quarter of 2016 was attributed to the addition of a $0.7 million HELOC into the TDR classification.  Of the TDRs outstanding as of March 31, 2016 and December 31, 2015, when modified, the concessions granted consisted of temporary interest-only payments, extensions of maturity date, or a reduction in the rate of interest to a below-market rate for a contractual period of time.  Other than the TDRs that were placed on non-accrual status, the TDRs were performing in accordance with their modified terms.

The following presents by class, information related to loans modified in a TDR:

	Loans modified as TDRs for the:
(dollars in thousands)	Three months ended March 31, 2016						Three months ended March 31, 2015
				Recorded		Increase in			Recorded		Increase in
		Number		investment		allowance	Number		investment		allowance
		of		(as of		(as of	of		(as of		(as of
		contracts		period end)		period end)	contracts		period end)		period end)
Commercial and industrial			$	-	$	-	1	$	500	$	331
Commercial real estate - owner occupied				-		-	2		1,107		251
Consumer home equity line of credit		1		650		128			-		-
Total		1	$	650	$	128	3	$	1,607	$	582

In the above table, the period end balances are inclusive of all partial pay downs and charge-offs since the modification date.

The following presents by class, loans modified as a TDR that subsequently defaulted (i.e. 90 days or more past due following a modification) during the periods indicated:

Loans modified as a TDR within the previous twelve months that subsequently defaulted during the:
(dollars in thousands)	Three months ended March 31, 2016
		Number of		Recorded
		contracts		investment
Commercial real estate - owner occupied		2	$	156

In the above table, the period end balances are inclusive of all partial pay downs and charge-offs since the modification date.

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.  Two CRE loans that were classified as TDRs in fourth quarter of 2015 subsequently defaulted during the first quarter of 2016.  Both loans defaulted due to inability to meet contractual payments and the Company continued workout efforts to collect from the owners.There were no loans modified as a TDR within the previous twelve months that subsequently defaulted during the three months ended March 31, 2015.

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 is used to establish the allowance.  As of March 31, 2016 and 2015, the allowance for impaired loans that have been modified in a TDR was $0.8 million and $0.6 million, respectively.

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
March 31, 2016	past due		past due		or more(1)		past due		Current		loans (3)			and accruing
Commercial and industrial	$	63	$	6	$	59	$	128	$	103,575	$	103,703		$	27
Commercial real estate:
Non-owner occupied		643		210		6,178		7,031		88,272		95,303			-
Owner occupied		237		-		594		831		97,692		98,523			35
Construction		-		-		218		218		4,686		4,904			-
Consumer:
Home equity installment		370		22		92		484		29,533		30,017			-
Home equity line of credit		177		-		438		615		47,716		48,331			-
Auto loans and leases		232		42		580		854		28,307		29,161	(2)		557
Other		29		5		6		40		5,730		5,770			-
Residential:
Real estate		59		295		760		1,114		129,156		130,270			-
Construction		-		-		-		-		10,109		10,109			-
Total	$	1,810	$	580	$	8,925	$	11,315	$	544,776	$	556,091		$	619

(1) Includes $8.3 million of non-accrual loans.  (2) Net of unearned lease revenue of $0.4million. (3) Includes net deferred loan costs of $1.5 million.

														Recorded
					Past due									investment past
	30 - 59 Days		60 - 89 Days		90 days		Total				Total			due ≥ 90 days
December 31, 2015	past due		past due		or more (1)		past due		Current		loans (3)			and accruing
Commercial and industrial	$	38	$	32	$	42	$	112	$	102,541	$	102,653		$	12
Commercial real estate:
Non-owner occupied		549		1,282		6,476		8,307		87,438		95,745			283
Owner occupied		-		85		988		1,073		100,579		101,652			-
Construction		-		-		226		226		4,255		4,481			-
Consumer:
Home equity installment		189		92		167		448		30,487		30,935			-
Home equity line of credit		109		650		512		1,271		46,789		48,060			-
Auto loans and leases		394		44		76		514		28,909		29,423	(2)		31
Other		66		-		36		102		6,106		6,208			30
Residential:
Real estate		46		131		836		1,013		125,979		126,992			-
Construction		-		-		-		-		10,060		10,060			-
Total	$	1,391	$	2,316	$	9,359	$	13,066	$	543,143	$	556,209		$	356

(1) Includes $9.0 million of non-accrual loans.  (2) Net of unearned lease revenue of $0.3million. (3) Includes net deferred loan costs of $1.5 million.

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.

At March 31, 2016, impaired loans consisted of accruing TDRs of $2.8 million, $8.3 million in non-accrual loans and $2.7 million in accruing loans.  At December 31, 2015, impaired loans consisted of accruing TDRs totaling $2.4 million, $9.0 million of non-accrual loans and a $1.2 million accruing loan.  As of December 31, 2015, the non-accrual loans did not include any TDRs compared with two TDRs with a $0.2 million balance as of March 31, 2016.  Payments received from non-accruing 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.  Payments received from accruing impaired loans are applied to principal and interest, as contractually agreed upon.

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

			Recorded		Recorded
	Unpaid		investment		investment		Total
	principal		with		with no		recorded		Related
(dollars in thousands)	balance		allowance		allowance		investment		allowance
March 31, 2016
Commercial and industrial	$	868	$	824	$	44	$	868	$	614
Commercial real estate:
Non-owner occupied		7,959		7,470		566		8,036		1,467
Owner occupied		2,878		1,832		885		2,717		560
Construction		416		-		218		218		-
Consumer:
Home equity installment		142		60		32		92		5
Home equity line of credit		1,129		755		333		1,088		193
Auto loans and leases		23		22		1		23		5
Other		6		6		-		6		2
Residential:
Real estate		894		475		285		760		38
Construction		-		-		-		-		-
Total	$	14,315	$	11,444	$	2,364	$	13,808	$	2,884

			Recorded		Recorded
	Unpaid		investment		investment		Total
	principal		with		with no		recorded		Related
(dollars in thousands)	balance		allowance		allowance		investment		allowance
December 31, 2015
Commercial and industrial	$	555	$	500	$	55	$	555	$	331
Commercial real estate:
Non-owner occupied		7,960		7,209		630		7,839		1,237
Owner occupied		2,588		922		1,505		2,427		337
Construction		422		-		226		226		-
Consumer:
Home equity installment		230		-		167		167		-
Home equity line of credit		607		28		484		512		1
Auto		47		43		2		45		7
Other		6		6		-		6		1
Residential:
Real estate		891		433		403		836		95
Construction		-		-		-		-		-
Total	$	13,306	$	9,141	$	3,472	$	12,613	$	2,009

	March 31, 2016						March 31, 2015
					Cash basis						Cash basis
	Average		Interest		interest		Average		Interest		interest
	recorded		income		income		recorded		income		income
(dollars in thousands)	investment		recognized		recognized		investment		recognized		recognized
Commercial and industrial	$	675	$	6	$	-	$	206	$	6	$	-
Commercial real estate:
Non-owner occupied		3,859		24		-		1,596		14		-
Owner occupied		2,825		38		-		2,174		13		-
Construction		234		-		-		265		-		-
Consumer:
Home equity installment		195		2		-		326		-		-
Home equity line of credit		606		11		-		428		1		-
Auto		29		-		-		1		-		-
Other		9		-		-		22		-		-
Residential:
Real estate		671		2		-		605		-		-
Construction		-		-		-		-		-		-
Total	$	9,103	$	83	$	-	$	5,623	$	34	$	-

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 C&I and CRE 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 C&I and CRE portfolios. 

The following is a description of each risk rating category the Company uses to classify each of its C&I and CRE 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 competent, and a reasonable succession plan is evident.  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.

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 TDRs 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 in assessing performance.  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 including $1.5 million of deferred costs, segregated by class, categorized into the appropriate credit quality indicator category as of March 31, 2016 and December 31, 2015, respectively:

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)	3/31/2016		12/31/2015		3/31/2016		12/31/2015		3/31/2016		12/31/2015		3/31/2016		12/31/2015
Pass	$	96,513	$	101,342	$	82,087	$	82,152	$	94,694	$	96,401	$	4,686	$	4,255
Special mention		6,007		189		1,382		1,480		649		657		-		-
Substandard		1,183		1,122		11,834		12,113		3,180		4,594		218		226
Doubtful		-		-		-		-		-		-		-		-
Total	$	103,703	$	102,653	$	95,303	$	95,745	$	98,523	$	101,652	$	4,904	$	4,481

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)	3/31/2016		12/31/2015		3/31/2016		12/31/2015		3/31/2016			12/31/2015			3/31/2016		12/31/2015
Performing	$	29,925	$	30,768	$	47,893	$	47,548	$	28,581		$	29,347		$	5,764	$	6,172
Non-performing		92		167		438		512		580			76			6		36
Total	$	30,017	$	30,935	$	48,331	$	48,060	$	29,161	(1)	$	29,423	(2)	$	5,770	$	6,208

(1)Net of unearned lease revenue of $0.4 million. (2) Net of unearned revenue of $0.3 million.

Mortgage lending credit exposure

Credit risk profile based on payment activity

	Residential real estate					Residential construction
(dollars in thousands)	3/31/2016		12/31/2015		3/31/2016		12/31/2015
Performing	$	129,510	$	126,156	$	10,109	$	10,060
Non-performing		760		836		-		-
Total	$	130,270	$	126,992	$	10,109	$	10,060

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 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 C&I and CRE loans.  C&I and CRE 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 C&I and CRE 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 C&I and CRE 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.  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.

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 and the Company’s recorded investment in loans by portfolio segment as of the period indicated is as follows: 

As of and for the three months ended March 31, 2016
	Commercial &		Commercial					Residential
(dollars in thousands)	industrial		real estate		Consumer			real estate		Unallocated		Total
Allowance for Loan Losses:
Beginning balance	$	1,336	$	5,014	$	1,533		$	1,407	$	237	$	9,527
Charge-offs		(14)		(85)		(175)			(60)		-		(334)
Recoveries		9		4		28			-		-		41
Provision		309		(350)		292			32		(133)		150
Ending balance	$	1,640	$	4,583	$	1,678		$	1,379	$	104	$	9,384
Ending balance: individually evaluated for impairment	$	614	$	2,027	$	205		$	38	$	-	$	2,884
Ending balance: collectively evaluated for impairment	$	1,026	$	2,556	$	1,473		$	1,341	$	104	$	6,500
Loans Receivables:
Ending balance (2)	$	103,703	$	198,730	$	113,279	(1)	$	140,379	$	-	$	556,091
Ending balance: individually evaluated for impairment	$	868	$	10,971	$	1,209		$	760	$	-	$	13,808
Ending balance: collectively evaluated for impairment	$	102,835	$	187,759	$	112,070		$	139,619	$	-	$	542,283

 (1) Net of unearned lease revenue of $0.4 million.  (2) Includes $1.5 million of net deferred loan costs.

As of and for the three months ended March 31, 2015
	Commercial &		Commercial				Residential
(dollars in thousands)	industrial		real estate		Consumer		real estate		Unallocated		Total
Allowance for Loan Losses:
Beginning balance	$	1,052	$	4,672	$	1,519	$	1,316	$	614	$	9,173
Charge-offs		(24)		(67)		(92)		-		-		(183)
Recoveries		9		7		24		28		-		68
Provision		177		(97)		62		(1)		9		150
Ending balance	$	1,214	$	4,515	$	1,513	$	1,343	$	623	$	9,208

As of and for the year ended December 31, 2015
	Commercial &		Commercial					Residential
(dollars in thousands)	industrial		real estate		Consumer			real estate		Unallocated		Total
Allowance for Loan Losses:
Beginning balance	$	1,052	$	4,672	$	1,519		$	1,316	$	614	$	9,173
Charge-offs		(25)		(432)		(437)			(15)		-		(909)
Recoveries		47		18		95			28		-		188
Provision		262		756		356			78		(377)		1,075
Ending balance	$	1,336	$	5,014	$	1,533		$	1,407	$	237	$	9,527
Ending balance: individually evaluated for impairment	$	331	$	1,574	$	9		$	95	$	-	$	2,009
Ending balance: collectively evaluated for impairment	$	1,005	$	3,440	$	1,524		$	1,312	$	237	$	7,518
Loans Receivables:
Ending balance (2)	$	102,653	$	201,878	$	114,626	(1)	$	137,052	$	-	$	556,209
Ending balance: individually evaluated for impairment	$	555	$	10,492	$	730		$	836	$	-	$	12,613
Ending balance: collectively evaluated for impairment	$	102,098	$	191,386	$	113,896		$	136,216	$	-	$	543,596

(1) Net of unearned lease revenue of $0.3 million.  (2) Includes $1.5 million of net deferred loan costs.

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Earnings Per Share

3 Months Ended

Mar. 31, 2016

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 and stock-settled stock appreciation rights (SSARs), dilution would occur if Company-issued stock options or SSARs were exercised and converted into common stock.  As of the three months ended March 31, 2016 and 2015, there were 1,638 and 2,545 potentially dilutive shares related to issued and unexercised stock options.  There were no potentially dilutive shares related to issued and unexercised SSARs.  For restricted stock, dilution would occur from the Company’s previously granted but unvested shares.  There were 4,983, and 3,887 potentially dilutive shares related to unvested restricted share grants as of the three months ended March 31, 2016 and 2015, 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 SSARs 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 March 31,
	2016		2015
(dollars in thousands except per share data)
Basic EPS:
Net income available to common shareholders	$	1,701	$	1,573
Weighted-average common shares outstanding		2,450,771		2,435,884
Basic EPS	$	0.69	$	0.65
Diluted EPS:
Net income available to common shareholders	$	1,701	$	1,573
Weighted-average common shares outstanding		2,450,771		2,435,884
Potentially dilutive common shares		6,621		6,432
Weighted-average common and potentially dilutive shares outstanding		2,457,392		2,442,316
Diluted EPS	$	0.69	$	0.64

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Stock Plans

3 Months Ended

Mar. 31, 2016

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 year 2022.

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.  During 2015, the Company created a Long-Term Incentive Plan (LTIP) that awards restricted stock and stock-settled stock appreciation rights (SSARs) to senior officers based on the attainment of performance goals.  The service requirement is the participant’s continued employment throughout the LTIP with a three-year vesting period.  The restricted stock has a two-year post vesting holding requirement. The SSAR awards have a ten year term from the date of each grant.  The Company granted restricted stock and SSARs in February 2016 based on 2015 performance.

The following table summarizes the weighted-average fair value and vesting of restricted stock grants awarded during the periods ended March 31, 2016 and 2015 under the 2012 stock incentive plans:

	March 31, 2016				March 31, 2015
			Weighted-				Weighted-
			average				average
	Shares		grant date		Shares		grant date
	granted		fair value		granted		fair value
Director plan	5,600	(1)	$	32.40	3,200	(1)	$	32.25
Omnibus plan	3,155	(3)		29.22	3,300	(2)		32.25
Omnibus plan	50	(1)		31.50	50	(1)		32.50
Total	8,805		$	31.26	6,550		$	32.25

(1) Vest after 1 year  (2) Vest after 4 years – 25% each year(3)Vest after 3 years – 33% each year

The fair value of the 3,155 shares granted on February 2, 2016 was calculated using the grant date stock price with a discount valuation.  The Chaffe model was used to calculate the discount. Since the shares vest over three years and then have a further two-year holding period, the historical volatility of the five years prior to the issue date was used to estimate volatility.  The five year treasury yield was used as the interest rate. The Company does pay a dividend, but since the shareholder will receive the dividends during vesting and the post-vest restriction period, no dividend yield was used in the calculation as not to inflate the discount.  The grant date stock price was $32.40 and the discount was calculated using an interest rate of 1.276% and a 5 year historical volatility of 9.809%.

A summary of the status of the Company’s non-vested restricted stock as of and changes during the period indicated are presented in the following table:

	2012 Stock incentive plans
	Director	Omnibus	Total		Weighted- average grant date fair value
Non-vested balance at December 31, 2015	3,200	8,840	12,040	$	29.50
Granted	5,600	3,205	8,805		31.26
Vested	(3,200)	(2,655)	(5,855)		29.42
Non-vested balance at March 31, 2016	5,600	9,390	14,990	$	30.56

The Company granted SSARs under the Omnibus Plan in February 2016.  The Company estimated the fair value of SSARs using the Black-Scholes-Merton valuation model on the grant date.  The Company used the following assumptions: the risk-free interest rate is the rate equivalent to the expected term of the option interpolated from the U.S. Treasury Yield Curve on the valuation date and historical volatility is calculated by taking the standard deviation of historical returns using weekly and monthly data.  The fair value of these SSARs was $5.21 per share, based on a risk-free interest rate of 1.861%, a dividend yield of 3.577% and a volatility of 23.402% using an expected term of ten years.

A summary of the status of the Company’s SSARs as of and changes during the period indicated are presented in the following table:

	Awards		Weighted-average grant date fair value	Weighted-average remaining contractual term (years)
Outstanding December 31, 2015	-		-	-
Granted	19,341	$	5.21	10.0
Exercised	-		-
Forfeited	-		-
Outstanding March 31, 2016	19,341	$	5.21	9.8

None of the SSARs were exercisable at March 31, 2016. SSARs vest over a three year period – 33% per year.

Share-based compensation expense 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 on non-vested equity awards during the three months ended March 31, 2016 and 2015 and the unrecognized stock-based compensation expense as of March 31, 2016:

	Three months ended March 31,
(dollars in thousands)	2016			2015
Stock-based compensation expense:
Director stock incentive plan	$	39	$	28
Omnibus stock incentive plan		31		15
Total stock-based compensation expense	$	70	$	43

	As of
(dollars in thousands)	March 31, 2016
Unrecognized stock-based compensation expense:
Director plan		$	151
Omnibus plan			345
Total unrecognized stock-based compensation expense		$	496

The unrecognized stock-based compensation expense as of March 31, 2016 will be recognized ratably over the periods ended January 2017 and May 2019 for the Director Plan and the Omnibus Plan, respectively.

Transactions under the Company’s stock option plan for the three months ended March 31, 2016 are presented in the following table:

	Options		Weighted-average exercise price	Weighted-average remaining contractual term (years)
Outstanding and exercisable, December 31, 2015	15,500		28.64	2.0
Granted	-		-
Exercised	(500)		27.75
Forfeited	-		-
Outstanding and exercisable, March 31, 2016	15,000	$	28.67	1.7

During the first quarter of 2016, there were 500 stock options exercised at a price of $27.75 per share.  The intrinsic value of these stock options was $2,585.  The tax deduction realized from the exercise of these options was $808.  There were no stock options exercised during the first quarter of 2015. 

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 March 31, 2016,  42,382 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 three months ended March 31, 2016 and 2015, compensation expense related to the ESPP approximated $15 thousand and$44 thousand, respectively, and is included as a component of salaries and employee benefits in the consolidated statements of income.

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Fair Value Measurements

3 Months Ended

Mar. 31, 2016

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:

March 31, 2016
					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	$	41,091	$	41,091	$	41,091	$	-	$	-
Available-for-sale securities		128,673		128,673		534		128,139		-
FHLB stock		1,420		1,420		-		1,420		-
Loans and leases, net		546,707		546,123		-		-		546,123
Loans held-for-sale		1,202		1,224		-		1,224		-
Accrued interest receivable		2,202		2,202		-		2,202		-
Financial liabilities:
Deposits with no stated maturities		568,182		568,182		-		568,182		-
Time deposits		99,729		99,428		-		99,428		-
Short-term borrowings		12,765		12,765		-		12,765		-
Accrued interest payable		210		210		-		210		-

December 31, 2015
					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	$	12,277	$	12,277	$	12,277	$	-	$	-
Available-for-sale securities		125,232		125,232		546		124,686		-
FHLB stock		2,120		2,120		-		2,120		-
Loans and leases, net		546,682		545,523		-		-		545,523
Loans held-for-sale		1,421		1,444		-		1,444		-
Accrued interest receivable		2,210		2,210		-		2,210		-
Financial liabilities:
Deposits with no stated maturities		516,473		516,473		-		516,473		-
Time deposits		104,202		103,403		-		103,403		-
Short-term borrowings		28,204		28,204		-		28,204		-
Accrued interest payable		189		189		-		189		-

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. 

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.

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)	March 31, 2016		(Level 1)		(Level 2)		(Level 3)
Available-for-sale securities:
Agency - GSE	$	18,528	$	-	$	18,528	$	-
Obligations of states and political subdivisions		37,609		-		37,609		-
MBS - GSE residential		72,002		-		72,002		-
Equity securities - financial services		534		534		-		-
Total available-for-sale securities	$	128,673	$	534	$	128,139	$	-

			Quoted prices
			in active		Significant other		Significant other
	Total carrying value		markets		observable inputs		unobservable inputs
(dollars in thousands)	December 31, 2015		(Level 1)		(Level 2)		(Level 3)
Available-for-sale securities:
Agency - GSE	$	18,386	$	-	$	18,386	$	-
Obligations of states and political subdivisions		36,885		-		36,885		-
MBS - GSE residential		69,415		-		69,415		-
Equity securities - financial services		546		546		-		-
Total available-for-sale securities	$	125,232	$	546	$	124,686	$	-

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 periods ending March 31, 2016 and December 31, 2015, there were no transfers to or from Level 1 and Level 2 fair value measurements for financial assets measured on a recurring basis.

There were no changes in Level 3 financial instruments measured at fair value on a recurring basis as of and for the periods ending March 31, 2016 and December 31, 2015, respectively.

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 March 31, 2016		(Level 1)		(Level 2)		(Level 3)
Impaired loans	$	8,560	$	-	$	-	$	8,560
Other real estate owned		1,243		-		-		1,243
Total	$	9,803	$	-	$	-	$	9,803

			Quoted prices in		Significant other		Significant other
	Total carrying value		active markets		observable inputs		unobservable inputs
(dollars in thousands)	at December 31, 2015		(Level 1)		(Level 2)		(Level 3)
Impaired loans	$	7,132	$	-	$	-	$	7,132
Other real estate owned		903		-		-		903
Total	$	8,035	$	-	$	-	$	8,035

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.

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.

At March 31, 2016 and December 31, 2015, the range of liquidation expenses and other valuation adjustments applied to impaired loans ranged from -23.55% to -94.00% and from -4.92% to -50.00% respectively.  The weighted-average of liquidation expenses and other valuation adjustments applied to impaired loans amounted to -32.99% and -27.84% as of March 31, 2016 and December 31, 2015, 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 March 31, 2016 and December 31, 2015, the discounts applied to the appraised values of ORE ranged from -15.90% to -99.00% for both periods.  As of March 31, 2016 and December 31, 2015, the weighted-average of discount to the appraisal values of ORE amounted to -37.34% and -37.64%, respectively.

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Nature Of Operations And Critical Accounting Policies (Policy)

3 Months Ended

Mar. 31, 2016

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. (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

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.

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, 2015.

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 March 31, 2016 and December 31, 2015 and the related consolidated statements of income and consolidated statements of comprehensive income for the three months ended March 31, 2016 and 2015, and consolidated statements of changes in shareholders’ equity and consolidated statements of cash flows for the three months ended March 31, 2016 and 2015 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 2015 financial statements to conform to the 2016 presentation. 

In preparing these consolidated financial statements, the Company evaluated the events and transactions that occurred after March 31, 2016 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, 2015, and the notes included therein, included within the Company’s Annual Report filed on Form 10-K.

Use Of Estimates

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.

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 March 31, 2016 is adequate and reasonable.  Given the subjective nature of identifying and estimating loan losses, it is likely that well-informed individuals could make different assumptions and could, therefore, calculate a materially different allowance amount.  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 (AOCI).

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 residential mortgage loans are transferred at the lower of cost or market value and simultaneously sold.  For other loans transferred to HFS, pricing may be obtained from other entities or modeled and the other loans are transferred at the lower of cost or market value and then sold.  As of March 31, 2016 and December 31, 2015, loans classified as HFS consisted of residential mortgage loans.

Automobile Leasing

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 to arrive at a level effective yield over the life of the lease.

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.  For each of the three months ended March 31, 2016 and 2015, the Company paid interest of $0.6 million and $0.7 million, respectively.  The Company did not make an income tax payment in the first quarters of 2016 and 2015.  For the three months ended March 31, 2016 and 2015, the Company had a net change in unrealized gains on available for sale securities of $1.1 million and $0.2 million, respectively.

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Earnings Per Share (Policy)

3 Months Ended

Mar. 31, 2016

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 and stock-settled stock appreciation rights (SSARs), dilution would occur if Company-issued stock options or SSARs were exercised and converted into common stock.  As of the three months ended March 31, 2016 and 2015, there were 1,638 and 2,545 potentially dilutive shares related to issued and unexercised stock options.  There were no potentially dilutive shares related to issued and unexercised SSARs.  For restricted stock, dilution would occur from the Company’s previously granted but unvested shares.  There were 4,983, and 3,887 potentially dilutive shares related to unvested restricted share grants as of the three months ended March 31, 2016 and 2015, 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 SSARs 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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Accumulated Other Comprehensive Income (Tables)

3 Months Ended

Mar. 31, 2016

Accumulated Other Comprehensive Income [Abstract]

Schedule Of Accumulated Other Comprehensive Income

As of and for the three months ended March 31, 2016
	Unrealized gains
	on available-for-
(dollars in thousands)	sale securities		Total
Beginning balance	$	2,188	$	2,188
Other comprehensive income before reclassifications, net of tax		715		715
Amounts reclassified from accumulated other comprehensive income, net of tax		-		-
Net current-period other comprehensive income		715		715
Ending balance	$	2,903	$	2,903

As of and for the three months ended March 31, 2015
	Unrealized gains
	on available-for-
(dollars in thousands)	sale securities		Total
Beginning balance	$	2,743	$	2,743
Other comprehensive income before reclassifications, net of tax		155		155
Amounts reclassified from accumulated other comprehensive income, net of tax		(1)		(1)
Net current-period other comprehensive income		154		154
Ending balance	$	2,897	$	2,897

Schedule Of Reclassification From 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
	For the three months ended
	March 31,
	2016		2015
Unrealized gains on AFS securities	$	-	$	2	Gain on sale of investment securities
		-		(1)	Provision for income taxes
Total reclassifications for the period	$	-	$	1	Net income

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Investment Securities (Tables)

3 Months Ended

Mar. 31, 2016

Investment Securities [Abstract]

Amortized Cost And Fair Value Of Investment Securities

			Gross		Gross
	Amortized		unrealized		unrealized		Fair
(dollars in thousands)	cost		gains		losses		value
March 31, 2016
Available-for-sale securities:
Agency - GSE	$	18,369	$	169	$	(10)	$	18,528
Obligations of states and political subdivisions		35,122		2,500		(13)		37,609
MBS - GSE residential		70,488		1,540		(26)		72,002
Total debt securities		123,979		4,209		(49)		128,139
Equity securities - financial services		294		240		-		534
Total available-for-sale securities	$	124,273	$	4,449	$	(49)	$	128,673

			Gross		Gross
	Amortized		unrealized		unrealized		Fair
(dollars in thousands)	cost		gains		losses		value
December 31, 2015
Available-for-sale securities:
Agency - GSE	$	18,374	$	36	$	(24)	$	18,386
Obligations of states and political subdivisions		34,599		2,310		(24)		36,885
MBS - GSE residential		68,648		1,066		(299)		69,415
Total debt securities		121,621		3,412		(347)		124,686
Equity securities - financial services		295		251		-		546
Total available-for-sale securities	$	121,916	$	3,663	$	(347)	$	125,232

Investments Classified By Contractual Maturity Date

	Amortized		Fair
(dollars in thousands)	cost		value
Available-for-sale securities:
Debt securities:
Due in one year or less	$	3,434	$	3,439
Due after one year through five years		13,290		13,455
Due after five years through ten years		3,712		3,902
Due after ten years		33,055		35,341
Total debt securities		53,491		56,137
MBS - GSE residential		70,488		72,002
Total available-for-sale debt securities	$	123,979	$	128,139

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
March 31, 2016
Agency - GSE	$	1,036	$	(10)	$	-	$	-	$	1,036	$	(10)
Obligations of states and political subdivisions		543		(9)		1,534		(4)		2,077		(13)
MBS - GSE residential		8,255		(22)		1,288		(4)		9,543		(26)
Total	$	9,834	$	(41)	$	2,822	$	(8)	$	12,656	$	(49)
Number of securities		6				3				9
December 31, 2015
Agency - GSE	$	8,156	$	(24)	$	-	$	-	$	8,156	$	(24)
Obligations of states and political subdivisions		3,656		(20)		485		(4)		4,141		(24)
MBS - GSE residential		36,899		(299)		-		-		36,899		(299)
Total	$	48,711	$	(343)	$	485	$	(4)	$	49,196	$	(347)
Number of securities		32				1				33

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Loans And Leases (Tables)

3 Months Ended

Mar. 31, 2016

Loans And Leases [Abstract]

Loan Classifications

(dollars in thousands)	March 31, 2016		December 31, 2015
Commercial and industrial	$	103,703	$	102,653
Commercial real estate:
Non-owner occupied		95,303		95,745
Owner occupied		98,523		101,652
Construction		4,904		4,481
Consumer:
Home equity installment		30,017		30,935
Home equity line of credit		48,331		48,060
Auto loans and leases		29,556		29,758
Other		5,770		6,208
Residential:
Real estate		130,270		126,992
Construction		10,109		10,060
Total		556,486		556,544
Less:
Allowance for loan losses		(9,384)		(9,527)
Unearned lease revenue		(395)		(335)
Loans and leases, net	$	546,707	$	546,682

Non-Accrual Loans, Segregated By Class

(dollars in thousands)	March 31, 2016		December 31, 2015
Commercial and industrial	$	32	$	30
Commercial real estate:
Non-owner occupied		6,178		6,193
Owner occupied		559		988
Construction		218		226
Consumer:
Home equity installment		92		167
Home equity line of credit		438		512
Auto loans and leases		23		45
Other		6		6
Residential:
Real estate		760		836
Total	$	8,306	$	9,003

Information Related To Loans Modified In Troubled Debt Restructuring, By Class

The following presents by class, information related to loans modified in a TDR:

	Loans modified as TDRs for the:
(dollars in thousands)	Three months ended March 31, 2016						Three months ended March 31, 2015
				Recorded		Increase in			Recorded		Increase in
		Number		investment		allowance	Number		investment		allowance
		of		(as of		(as of	of		(as of		(as of
		contracts		period end)		period end)	contracts		period end)		period end)
Commercial and industrial			$	-	$	-	1	$	500	$	331
Commercial real estate - owner occupied				-		-	2		1,107		251
Consumer home equity line of credit		1		650		128			-		-
Total		1	$	650	$	128	3	$	1,607	$	582

In the above table, the period end balances are inclusive of all partial pay downs and charge-offs since the modification date.

The following presents by class, loans modified as a TDR that subsequently defaulted (i.e. 90 days or more past due following a modification) during the periods indicated:

Loans modified as a TDR within the previous twelve months that subsequently defaulted during the:
(dollars in thousands)	Three months ended March 31, 2016
		Number of		Recorded
		contracts		investment
Commercial real estate - owner occupied		2	$	156

In the above table, the period end balances are inclusive of all partial pay downs and charge-offs since the modification date.

Past Due Loans

														Recorded
					Past due									investment past
	30 - 59 Days		60 - 89 Days		90 days		Total				Total			due ≥ 90 days
March 31, 2016	past due		past due		or more(1)		past due		Current		loans (3)			and accruing
Commercial and industrial	$	63	$	6	$	59	$	128	$	103,575	$	103,703		$	27
Commercial real estate:
Non-owner occupied		643		210		6,178		7,031		88,272		95,303			-
Owner occupied		237		-		594		831		97,692		98,523			35
Construction		-		-		218		218		4,686		4,904			-
Consumer:
Home equity installment		370		22		92		484		29,533		30,017			-
Home equity line of credit		177		-		438		615		47,716		48,331			-
Auto loans and leases		232		42		580		854		28,307		29,161	(2)		557
Other		29		5		6		40		5,730		5,770			-
Residential:
Real estate		59		295		760		1,114		129,156		130,270			-
Construction		-		-		-		-		10,109		10,109			-
Total	$	1,810	$	580	$	8,925	$	11,315	$	544,776	$	556,091		$	619

(1) Includes $8.3 million of non-accrual loans.  (2) Net of unearned lease revenue of $0.4million. (3) Includes net deferred loan costs of $1.5 million.

														Recorded
					Past due									investment past
	30 - 59 Days		60 - 89 Days		90 days		Total				Total			due ≥ 90 days
December 31, 2015	past due		past due		or more (1)		past due		Current		loans (3)			and accruing
Commercial and industrial	$	38	$	32	$	42	$	112	$	102,541	$	102,653		$	12
Commercial real estate:
Non-owner occupied		549		1,282		6,476		8,307		87,438		95,745			283
Owner occupied		-		85		988		1,073		100,579		101,652			-
Construction		-		-		226		226		4,255		4,481			-
Consumer:
Home equity installment		189		92		167		448		30,487		30,935			-
Home equity line of credit		109		650		512		1,271		46,789		48,060			-
Auto loans and leases		394		44		76		514		28,909		29,423	(2)		31
Other		66		-		36		102		6,106		6,208			30
Residential:
Real estate		46		131		836		1,013		125,979		126,992			-
Construction		-		-		-		-		10,060		10,060			-
Total	$	1,391	$	2,316	$	9,359	$	13,066	$	543,143	$	556,209		$	356

(1) Includes $9.0 million of non-accrual loans.  (2) Net of unearned lease revenue of $0.3million. (3) Includes net deferred loan costs of $1.5 million.

Impaired Loans

			Recorded		Recorded
	Unpaid		investment		investment		Total
	principal		with		with no		recorded		Related
(dollars in thousands)	balance		allowance		allowance		investment		allowance
March 31, 2016
Commercial and industrial	$	868	$	824	$	44	$	868	$	614
Commercial real estate:
Non-owner occupied		7,959		7,470		566		8,036		1,467
Owner occupied		2,878		1,832		885		2,717		560
Construction		416		-		218		218		-
Consumer:
Home equity installment		142		60		32		92		5
Home equity line of credit		1,129		755		333		1,088		193
Auto loans and leases		23		22		1		23		5
Other		6		6		-		6		2
Residential:
Real estate		894		475		285		760		38
Construction		-		-		-		-		-
Total	$	14,315	$	11,444	$	2,364	$	13,808	$	2,884

			Recorded		Recorded
	Unpaid		investment		investment		Total
	principal		with		with no		recorded		Related
(dollars in thousands)	balance		allowance		allowance		investment		allowance
December 31, 2015
Commercial and industrial	$	555	$	500	$	55	$	555	$	331
Commercial real estate:
Non-owner occupied		7,960		7,209		630		7,839		1,237
Owner occupied		2,588		922		1,505		2,427		337
Construction		422		-		226		226		-
Consumer:
Home equity installment		230		-		167		167		-
Home equity line of credit		607		28		484		512		1
Auto		47		43		2		45		7
Other		6		6		-		6		1
Residential:
Real estate		891		433		403		836		95
Construction		-		-		-		-		-
Total	$	13,306	$	9,141	$	3,472	$	12,613	$	2,009

	March 31, 2016						March 31, 2015
					Cash basis						Cash basis
	Average		Interest		interest		Average		Interest		interest
	recorded		income		income		recorded		income		income
(dollars in thousands)	investment		recognized		recognized		investment		recognized		recognized
Commercial and industrial	$	675	$	6	$	-	$	206	$	6	$	-
Commercial real estate:
Non-owner occupied		3,859		24		-		1,596		14		-
Owner occupied		2,825		38		-		2,174		13		-
Construction		234		-		-		265		-		-
Consumer:
Home equity installment		195		2		-		326		-		-
Home equity line of credit		606		11		-		428		1		-
Auto		29		-		-		1		-		-
Other		9		-		-		22		-		-
Residential:
Real estate		671		2		-		605		-		-
Construction		-		-		-		-		-		-
Total	$	9,103	$	83	$	-	$	5,623	$	34	$	-

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)	3/31/2016		12/31/2015		3/31/2016		12/31/2015		3/31/2016		12/31/2015		3/31/2016		12/31/2015
Pass	$	96,513	$	101,342	$	82,087	$	82,152	$	94,694	$	96,401	$	4,686	$	4,255
Special mention		6,007		189		1,382		1,480		649		657		-		-
Substandard		1,183		1,122		11,834		12,113		3,180		4,594		218		226
Doubtful		-		-		-		-		-		-		-		-
Total	$	103,703	$	102,653	$	95,303	$	95,745	$	98,523	$	101,652	$	4,904	$	4,481

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)	3/31/2016		12/31/2015		3/31/2016		12/31/2015		3/31/2016			12/31/2015			3/31/2016		12/31/2015
Performing	$	29,925	$	30,768	$	47,893	$	47,548	$	28,581		$	29,347		$	5,764	$	6,172
Non-performing		92		167		438		512		580			76			6		36
Total	$	30,017	$	30,935	$	48,331	$	48,060	$	29,161	(1)	$	29,423	(2)	$	5,770	$	6,208

(1)Net of unearned lease revenue of $0.4 million. (2) Net of unearned revenue of $0.3 million.

Mortgage lending credit exposure

Credit risk profile based on payment activity

	Residential real estate					Residential construction
(dollars in thousands)	3/31/2016		12/31/2015		3/31/2016		12/31/2015
Performing	$	129,510	$	126,156	$	10,109	$	10,060
Non-performing		760		836		-		-
Total	$	130,270	$	126,992	$	10,109	$	10,060

Allowance For Loan Losses

As of and for the three months ended March 31, 2016
	Commercial &		Commercial					Residential
(dollars in thousands)	industrial		real estate		Consumer			real estate		Unallocated		Total
Allowance for Loan Losses:
Beginning balance	$	1,336	$	5,014	$	1,533		$	1,407	$	237	$	9,527
Charge-offs		(14)		(85)		(175)			(60)		-		(334)
Recoveries		9		4		28			-		-		41
Provision		309		(350)		292			32		(133)		150
Ending balance	$	1,640	$	4,583	$	1,678		$	1,379	$	104	$	9,384
Ending balance: individually evaluated for impairment	$	614	$	2,027	$	205		$	38	$	-	$	2,884
Ending balance: collectively evaluated for impairment	$	1,026	$	2,556	$	1,473		$	1,341	$	104	$	6,500
Loans Receivables:
Ending balance (2)	$	103,703	$	198,730	$	113,279	(1)	$	140,379	$	-	$	556,091
Ending balance: individually evaluated for impairment	$	868	$	10,971	$	1,209		$	760	$	-	$	13,808
Ending balance: collectively evaluated for impairment	$	102,835	$	187,759	$	112,070		$	139,619	$	-	$	542,283

 (1) Net of unearned lease revenue of $0.4 million.  (2) Includes $1.5 million of net deferred loan costs.

As of and for the three months ended March 31, 2015
	Commercial &		Commercial				Residential
(dollars in thousands)	industrial		real estate		Consumer		real estate		Unallocated		Total
Allowance for Loan Losses:
Beginning balance	$	1,052	$	4,672	$	1,519	$	1,316	$	614	$	9,173
Charge-offs		(24)		(67)		(92)		-		-		(183)
Recoveries		9		7		24		28		-		68
Provision		177		(97)		62		(1)		9		150
Ending balance	$	1,214	$	4,515	$	1,513	$	1,343	$	623	$	9,208

As of and for the year ended December 31, 2015
	Commercial &		Commercial					Residential
(dollars in thousands)	industrial		real estate		Consumer			real estate		Unallocated		Total
Allowance for Loan Losses:
Beginning balance	$	1,052	$	4,672	$	1,519		$	1,316	$	614	$	9,173
Charge-offs		(25)		(432)		(437)			(15)		-		(909)
Recoveries		47		18		95			28		-		188
Provision		262		756		356			78		(377)		1,075
Ending balance	$	1,336	$	5,014	$	1,533		$	1,407	$	237	$	9,527
Ending balance: individually evaluated for impairment	$	331	$	1,574	$	9		$	95	$	-	$	2,009
Ending balance: collectively evaluated for impairment	$	1,005	$	3,440	$	1,524		$	1,312	$	237	$	7,518
Loans Receivables:
Ending balance (2)	$	102,653	$	201,878	$	114,626	(1)	$	137,052	$	-	$	556,209
Ending balance: individually evaluated for impairment	$	555	$	10,492	$	730		$	836	$	-	$	12,613
Ending balance: collectively evaluated for impairment	$	102,098	$	191,386	$	113,896		$	136,216	$	-	$	543,596

(1) Net of unearned lease revenue of $0.3 million.  (2) Includes $1.5 million of net deferred loan costs.

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Earnings Per Share (Tables)

3 Months Ended

Mar. 31, 2016

Earnings Per Share [Abstract]

Schedule Of Earnings Per Share, Basic And Diluted

	Three months ended March 31,
	2016		2015
(dollars in thousands except per share data)
Basic EPS:
Net income available to common shareholders	$	1,701	$	1,573
Weighted-average common shares outstanding		2,450,771		2,435,884
Basic EPS	$	0.69	$	0.65
Diluted EPS:
Net income available to common shareholders	$	1,701	$	1,573
Weighted-average common shares outstanding		2,450,771		2,435,884
Potentially dilutive common shares		6,621		6,432
Weighted-average common and potentially dilutive shares outstanding		2,457,392		2,442,316
Diluted EPS	$	0.69	$	0.64

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Stock Plans (Tables)

3 Months Ended

Mar. 31, 2016

Stock Plans [Abstract]

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

	March 31, 2016				March 31, 2015
			Weighted-				Weighted-
			average				average
	Shares		grant date		Shares		grant date
	granted		fair value		granted		fair value
Director plan	5,600	(1)	$	32.40	3,200	(1)	$	32.25
Omnibus plan	3,155	(3)		29.22	3,300	(2)		32.25
Omnibus plan	50	(1)		31.50	50	(1)		32.50
Total	8,805		$	31.26	6,550		$	32.25

(1) Vest after 1 year  (2) Vest after 4 years – 25% each year(3)Vest after 3 years – 33% each year

Schedule Of Nonvested Restricted Stock Units Activity

	2012 Stock incentive plans
	Director	Omnibus	Total		Weighted- average grant date fair value
Non-vested balance at December 31, 2015	3,200	8,840	12,040	$	29.50
Granted	5,600	3,205	8,805		31.26
Vested	(3,200)	(2,655)	(5,855)		29.42
Non-vested balance at March 31, 2016	5,600	9,390	14,990	$	30.56

Schedule Of SSARs Activity

	Awards		Weighted-average grant date fair value	Weighted-average remaining contractual term (years)
Outstanding December 31, 2015	-		-	-
Granted	19,341	$	5.21	10.0
Exercised	-		-
Forfeited	-		-
Outstanding March 31, 2016	19,341	$	5.21	9.8

None of the SSARs were exercisable at March 31, 2016. SSARs vest over a three year period – 33% per year.

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

	Three months ended March 31,
(dollars in thousands)	2016			2015
Stock-based compensation expense:
Director stock incentive plan	$	39	$	28
Omnibus stock incentive plan		31		15
Total stock-based compensation expense	$	70	$	43

Schedule Of Unrecognized Compensation Cost, Nonvested Awards

	As of
(dollars in thousands)	March 31, 2016
Unrecognized stock-based compensation expense:
Director plan		$	151
Omnibus plan			345
Total unrecognized stock-based compensation expense		$	496

The unrecognized stock-based compensation expense as of March 31, 2016 will be recognized ratably over the periods ended January 2017 and May 2019 for the Director Plan and the Omnibus Plan, respectively.

Summary Of Stock Option Activity

	Options		Weighted-average exercise price	Weighted-average remaining contractual term (years)
Outstanding and exercisable, December 31, 2015	15,500		28.64	2.0
Granted	-		-
Exercised	(500)		27.75
Forfeited	-		-
Outstanding and exercisable, March 31, 2016	15,000	$	28.67	1.7

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Fair Value Measurements (Tables)

3 Months Ended

Mar. 31, 2016

Fair Value Measurements [Abstract]

Carrying Amount And Estimated Fair Value By Balance Sheet Grouping

March 31, 2016
					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	$	41,091	$	41,091	$	41,091	$	-	$	-
Available-for-sale securities		128,673		128,673		534		128,139		-
FHLB stock		1,420		1,420		-		1,420		-
Loans and leases, net		546,707		546,123		-		-		546,123
Loans held-for-sale		1,202		1,224		-		1,224		-
Accrued interest receivable		2,202		2,202		-		2,202		-
Financial liabilities:
Deposits with no stated maturities		568,182		568,182		-		568,182		-
Time deposits		99,729		99,428		-		99,428		-
Short-term borrowings		12,765		12,765		-		12,765		-
Accrued interest payable		210		210		-		210		-

December 31, 2015
					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	$	12,277	$	12,277	$	12,277	$	-	$	-
Available-for-sale securities		125,232		125,232		546		124,686		-
FHLB stock		2,120		2,120		-		2,120		-
Loans and leases, net		546,682		545,523		-		-		545,523
Loans held-for-sale		1,421		1,444		-		1,444		-
Accrued interest receivable		2,210		2,210		-		2,210		-
Financial liabilities:
Deposits with no stated maturities		516,473		516,473		-		516,473		-
Time deposits		104,202		103,403		-		103,403		-
Short-term borrowings		28,204		28,204		-		28,204		-
Accrued interest payable		189		189		-		189		-

Fair Value, Assets And Liabilities Measured On Recurring Basis

			Quoted prices
			in active		Significant other		Significant other
	Total carrying value		markets		observable inputs		unobservable inputs
(dollars in thousands)	March 31, 2016		(Level 1)		(Level 2)		(Level 3)
Available-for-sale securities:
Agency - GSE	$	18,528	$	-	$	18,528	$	-
Obligations of states and political subdivisions		37,609		-		37,609		-
MBS - GSE residential		72,002		-		72,002		-
Equity securities - financial services		534		534		-		-
Total available-for-sale securities	$	128,673	$	534	$	128,139	$	-

			Quoted prices
			in active		Significant other		Significant other
	Total carrying value		markets		observable inputs		unobservable inputs
(dollars in thousands)	December 31, 2015		(Level 1)		(Level 2)		(Level 3)
Available-for-sale securities:
Agency - GSE	$	18,386	$	-	$	18,386	$	-
Obligations of states and political subdivisions		36,885		-		36,885		-
MBS - GSE residential		69,415		-		69,415		-
Equity securities - financial services		546		546		-		-
Total available-for-sale securities	$	125,232	$	546	$	124,686	$	-

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

			Quoted prices in		Significant other		Significant other
	Total carrying value		active markets		observable inputs		unobservable inputs
(dollars in thousands)	at March 31, 2016		(Level 1)		(Level 2)		(Level 3)
Impaired loans	$	8,560	$	-	$	-	$	8,560
Other real estate owned		1,243		-		-		1,243
Total	$	9,803	$	-	$	-	$	9,803

			Quoted prices in		Significant other		Significant other
	Total carrying value		active markets		observable inputs		unobservable inputs
(dollars in thousands)	at December 31, 2015		(Level 1)		(Level 2)		(Level 3)
Impaired loans	$	7,132	$	-	$	-	$	7,132
Other real estate owned		903		-		-		903
Total	$	8,035	$	-	$	-	$	8,035

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Nature Of Operations And Critical Accounting Policies (Narrative) (Details) - USD ($) $ in Millions	3 Months Ended
	Mar. 31, 2016	Mar. 31, 2015
Nature Of Operations And Critical Accounting Policies [Abstract]
Year founded	1903
Interest paid	$ 0.6	$ 0.7
Net change in unrealized gains on available for sale securities	1.1	0.2
Transfers from loans to foreclosed assets held-for-sale	0.7	0.4
Transfers from loans to loans held-for-sale	$ 0.6	$ 0.0

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Accumulated Other Comprehensive Income (Schedule Of Accumulated Other Comprehensive Income) (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2016	Mar. 31, 2015
Accumulated Other Comprehensive Income (Loss) [Line Items]
Beginning balance	$ 2,188	$ 2,743
Other comprehensive income before reclassifications, net of tax	715	155
Amounts reclassified from accumulated other comprehensive income, net of tax		(1)
Net current-period other comprehensive income	715	154
Ending balance	2,903	2,897
Unrealized Gains On Available-For-Sale Securities [Member]
Accumulated Other Comprehensive Income (Loss) [Line Items]
Beginning balance	2,188	2,743
Other comprehensive income before reclassifications, net of tax	715	155
Amounts reclassified from accumulated other comprehensive income, net of tax		(1)
Net current-period other comprehensive income	715	154
Ending balance	$ 2,903	$ 2,897

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Accumulated Other Comprehensive Income (Schedule Of Reclassifications From Accumulated Other Comprehensive Income) (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2016	Mar. 31, 2015
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items]
Gain on sale of investment securities		$ 2
Provision for income taxes	$ (586)	(547)
Net income	$ 1,701	1,573
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 of investment securities		2
Provision for income taxes		(1)
Net income		$ 1

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Investment Securities (Narrative) (Details) - security	3 Months Ended
	Mar. 31, 2016	Dec. 31, 2015
Schedule of Available-for-sale Securities [Line Items]
Number of securities in unrealized loss position	9	33
Number of securities in unrealized loss position, more than 12 months	3	1
Agency - GSE [Member]
Schedule of Available-for-sale Securities [Line Items]
Number of securities in unrealized loss position	1
Severity of unrealized losses	0.98%
MBS - GSE Residential [Member]
Schedule of Available-for-sale Securities [Line Items]
Number of securities in unrealized loss position	5
Severity of unrealized losses	0.27%
Municipal Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Number of securities in unrealized loss position	3
Severity of unrealized losses	0.62%

XML

Investment Securities (Amortized Cost And Fair Value Of Investment Securities) (Details) - USD ($) $ in Thousands	Mar. 31, 2016	Dec. 31, 2015
Schedule of Held-to-maturity Securities And Available-for-sale Securities [Line Items]
Total Available-for-sale securities, Amortized cost	$ 124,273	$ 121,916
Available-for-sale securities, Gross unrealized gains	4,449	3,663
Available-for-sale securities, Gross unrealized losses	(49)	(347)
Total Available-for-sale securities, Fair value	128,673	125,232
Agency - GSE [Member]
Schedule of Held-to-maturity Securities And Available-for-sale Securities [Line Items]
Total Available-for-sale securities, Amortized cost	18,369	18,374
Available-for-sale securities, Gross unrealized gains	169	36
Available-for-sale securities, Gross unrealized losses	(10)	(24)
Total Available-for-sale securities, Fair value	18,528	18,386
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	35,122	34,599
Available-for-sale securities, Gross unrealized gains	2,500	2,310
Available-for-sale securities, Gross unrealized losses	(13)	(24)
Total Available-for-sale securities, Fair value	37,609	36,885
MBS - GSE Residential [Member]
Schedule of Held-to-maturity Securities And Available-for-sale Securities [Line Items]
Total Available-for-sale securities, Amortized cost	70,488	68,648
Available-for-sale securities, Gross unrealized gains	1,540	1,066
Available-for-sale securities, Gross unrealized losses	(26)	(299)
Total Available-for-sale securities, Fair value	72,002	69,415
Debt Securities [Member]
Schedule of Held-to-maturity Securities And Available-for-sale Securities [Line Items]
Total Available-for-sale securities, Amortized cost	123,979	121,621
Available-for-sale securities, Gross unrealized gains	4,209	3,412
Available-for-sale securities, Gross unrealized losses	(49)	(347)
Total Available-for-sale securities, Fair value	128,139	124,686
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	240	251
Total Available-for-sale securities, Fair value	$ 534	$ 546

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Investment Securities (Investment Classified By Contractual Maturity Date) (Details) $ in Thousands	Mar. 31, 2016 USD ($)
Investment Securities [Abstract]
Amortized cost: Due in one year or less	$ 3,434
Amortized cost: Due after one year through five years	13,290
Amortized cost: Due after five years through ten years	3,712
Amortized cost: Due after ten years	33,055
Total debt securities, Amortized Cost	53,491
MBS - GSE residential, Amortized cost	70,488
Total available-for-sale debt securities, Amortized cost	123,979
Fair value: Due in one year or less	3,439
Fair value: Due after one year through five years	13,455
Fair value: Due after five years through ten years	3,902
Fair value: Due after ten years	35,341
Total debt securities, Fair value	56,137
MBS - GSE residential, Fair value	72,002
Total available-for-sale debt securities, Fair value	$ 128,139

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Investment Securities (Available-For-Sale Securities, Continuous Unrealized Loss Position, Fair Value) (Details) $ in Thousands	Mar. 31, 2016 USD ($) security	Dec. 31, 2015 USD ($) security
Schedule of Available-for-sale Securities [Line Items]
Less than 12 months: Fair value	$ 9,834	$ 48,711
Less than 12 months: Unrealized losses	(41)	(343)
More than 12 months: Fair value	2,822	485
More than 12 months: Unrealized losses	(8)	(4)
Total: Fair value	12,656	49,196
Total: Unrealized losses	$ (49)	$ (347)
Less than 12 months: Number of securities | security	6	32
More than 12 months: Number of securities | security	3	1
Total: Number of securities | security	9	33
Agency - GSE [Member]
Schedule of Available-for-sale Securities [Line Items]
Less than 12 months: Fair value	$ 1,036	$ 8,156
Less than 12 months: Unrealized losses	(10)	(24)
Total: Fair value	1,036	8,156
Total: Unrealized losses	$ (10)	(24)
Total: Number of securities | security	1
Obligations Of States And Political Subdivisions [Member]
Schedule of Available-for-sale Securities [Line Items]
Less than 12 months: Fair value	$ 543	3,656
Less than 12 months: Unrealized losses	(9)	(20)
More than 12 months: Fair value	1,534	485
More than 12 months: Unrealized losses	(4)	(4)
Total: Fair value	2,077	4,141
Total: Unrealized losses	(13)	(24)
MBS - GSE Residential [Member]
Schedule of Available-for-sale Securities [Line Items]
Less than 12 months: Fair value	8,255	36,899
Less than 12 months: Unrealized losses	(22)	(299)
More than 12 months: Fair value	1,288
More than 12 months: Unrealized losses	(4)
Total: Fair value	9,543	36,899
Total: Unrealized losses	$ (26)	$ (299)
Total: Number of securities | security	5

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Loans And Leases (Narrative) (Details) $ in Thousands	3 Months Ended		12 Months Ended
	Mar. 31, 2016 USD ($) loan item	Mar. 31, 2015 USD ($) loan	Dec. 31, 2015 USD ($) loan
Accounts, Notes, Loans and Financing Receivable [Line Items]
Deferred loan costs	$ 1,500		$ 1,500
Mortgages serviced	269,600		269,500
Mortgage servicing rights	1,200		1,200
Troubled Debt Restructuring balance	$ 700
Number of loans classified as TDRs | loan	1
Number of contracts modified by TDR with subsequent default | loan		0
Allowance for impaired loans that have been modified in a TDR	$ 800	$ 600
Non-accrual balance	8,306		9,003
Average recorded investment	$ 9,103	$ 5,623
Cash basis interest income recognized
Troubled Debt Status [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Troubled Debt Restructuring balance	$ 3,000		$ 2,400
Number of loans classified as TDRs | loan	10
Increase in Troubled Debt Restructuring balance	$ 600
Commercial Real Estate [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Number of loans classified as TDRs | loan	7		7
Commercial And Industrial [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Number of loans classified as TDRs | loan	2		2
Number of unrelated borrowers that had loans modified in a TDR | loan			5
Consumer: Home Equity Line Of Credit [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Number of unrelated borrowers that had loans modified in a TDR | item	6
Commercial Real Estate: Owner Occupied [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Number of contracts modified by TDR with subsequent default | loan	2
Nonaccrual Status [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Troubled Debt Restructuring balance	$ 200
Number of loans classified as TDRs | loan	2
Accruing TDR Balance [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Troubled Debt Restructuring balance	$ 2,800		$ 2,400
Impaired Loan Status [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Non-accrual balance	8,300		9,000
Recorded investment in financing receivables that are not 90 days or more past due	$ 2,700		$ 1,200

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Loans And Leases (Loan Classifications) (Details) - USD ($) $ in Thousands	Mar. 31, 2016	Dec. 31, 2015	Mar. 31, 2015	Dec. 31, 2014
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total	$ 556,486	$ 556,544
Less: Allowance for loan losses	(9,384)	(9,527)	$ (9,208)	$ (9,173)
Less: Unearned lease revenue	(395)	(335)
Loans and leases, net	546,707	546,682
Commercial And Industrial [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total	103,703	102,653
Less: Allowance for loan losses	(1,640)	(1,336)	$ (1,214)	$ (1,052)
Commercial Real Estate: Non-Owner Occupied [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total	95,303	95,745
Commercial Real Estate: Owner Occupied [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total	98,523	101,652
Commercial Real Estate: Construction [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total	4,904	4,481
Consumer: Home Equity Installment [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total	30,017	30,935
Consumer: Home Equity Line Of Credit [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total	48,331	48,060
Consumer: Auto Loans And Leases [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total	29,556	29,758
Consumer: Other [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total	5,770	6,208
Residential: Real Estate [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total	130,270	126,992
Residential: Construction [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total	$ 10,109	$ 10,060

XML

Loans And Leases (Non-Accrual Loans, Segregated By Class) (Details) - USD ($) $ in Thousands	Mar. 31, 2016	Dec. 31, 2015
Financing Receivable, Recorded Investment, Past Due [Line Items]
Non-accrual loans	$ 8,306	$ 9,003
Commercial And Industrial [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Non-accrual loans	32	30
Commercial Real Estate: Non-Owner Occupied [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Non-accrual loans	6,178	6,193
Commercial Real Estate: Owner Occupied [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Non-accrual loans	559	988
Commercial Real Estate: Construction [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Non-accrual loans	218	226
Consumer: Home Equity Installment [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Non-accrual loans	92	167
Consumer: Home Equity Line Of Credit [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Non-accrual loans	438	512
Consumer: Auto Loans And Leases [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Non-accrual loans	23	45
Consumer: Other [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Non-accrual loans	6	6
Residential: Real Estate [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Non-accrual loans	$ 760	$ 836

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Loans and Leases (Information Related To Loans Modified In Troubled Debt Restructuring, By Class) (Details) $ in Thousands	3 Months Ended
	Mar. 31, 2016 USD ($) contract	Mar. 31, 2015 USD ($) contract loan
Financing Receivable, Modifications [Line Items]
Number of contracts | contract	1	3
Recorded investment (as of period end)	$ 650	$ 1,607
Increase in allowance (as of period end)	$ 128	$ 582
Number of contracts, subsequent default | loan		0
Commercial And Industrial [Member]
Financing Receivable, Modifications [Line Items]
Number of contracts | contract		1
Recorded investment (as of period end)		$ 500
Increase in allowance (as of period end)		$ 331
Commercial Real Estate: Owner Occupied [Member]
Financing Receivable, Modifications [Line Items]
Number of contracts | contract		2
Recorded investment (as of period end)		$ 1,107
Increase in allowance (as of period end)		$ 251
Number of contracts, subsequent default | contract	2
Recorded investment (as of period end), subsequent defaut	$ 156
Consumer: Home Equity Line Of Credit [Member]
Financing Receivable, Modifications [Line Items]
Number of contracts | contract	1
Recorded investment (as of period end)	$ 650
Increase in allowance (as of period end)	$ 128

XML

Loans And Leases (Past Due Loans) (Details) - USD ($) $ in Thousands	Mar. 31, 2016	Dec. 31, 2015
Financing Receivable, Recorded Investment, Past Due [Line Items]
30 - 59 Days past due	$ 1,810	$ 1,391
60 - 89 Days past due	580	2,316
Past due 90 days or more	8,925	9,359
Total past due	11,315	13,066
Current	544,776	543,143
Total loans	556,091	556,209
Recorded investment past due >=90 days and accruing	619	356
Non-accrual loans	8,306	9,003
Unearned lease revenue	395	335
Deferred loan costs	1,500	1,500
Commercial And Industrial [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
30 - 59 Days past due	63	38
60 - 89 Days past due	6	32
Past due 90 days or more	59	42
Total past due	128	112
Current	103,575	102,541
Total loans	103,703	102,653
Recorded investment past due >=90 days and accruing	27	12
Non-accrual loans	32	30
Commercial Real Estate: Non-Owner Occupied [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
30 - 59 Days past due	643	549
60 - 89 Days past due	210	1,282
Past due 90 days or more	6,178	6,476
Total past due	7,031	8,307
Current	88,272	87,438
Total loans	95,303	95,745
Recorded investment past due >=90 days and accruing		283
Non-accrual loans	6,178	6,193
Commercial Real Estate: Owner Occupied [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
30 - 59 Days past due	237
60 - 89 Days past due		85
Past due 90 days or more	594	988
Total past due	831	1,073
Current	97,692	100,579
Total loans	98,523	101,652
Recorded investment past due >=90 days and accruing	35
Non-accrual loans	559	988
Commercial Real Estate: Construction [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past due 90 days or more	218	226
Total past due	218	226
Current	4,686	4,255
Total loans	4,904	4,481
Non-accrual loans	218	226
Consumer: Home Equity Installment [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
30 - 59 Days past due	370	189
60 - 89 Days past due	22	92
Past due 90 days or more	92	167
Total past due	484	448
Current	29,533	30,487
Total loans	30,017	30,935
Non-accrual loans	92	167
Consumer: Home Equity Line Of Credit [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
30 - 59 Days past due	177	109
60 - 89 Days past due		650
Past due 90 days or more	438	512
Total past due	615	1,271
Current	47,716	46,789
Total loans	48,331	48,060
Non-accrual loans	438	512
Consumer: Auto Loans And Leases [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
30 - 59 Days past due	232	394
60 - 89 Days past due	42	44
Past due 90 days or more	580	76
Total past due	854	514
Current	28,307	28,909
Total loans	29,161	29,423
Recorded investment past due >=90 days and accruing	557	31
Non-accrual loans	23	45
Consumer: Other [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
30 - 59 Days past due	29	66
60 - 89 Days past due	5
Past due 90 days or more	6	36
Total past due	40	102
Current	5,730	6,106
Total loans	5,770	6,208
Recorded investment past due >=90 days and accruing		30
Non-accrual loans	6	6
Residential: Real Estate [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
30 - 59 Days past due	59	46
60 - 89 Days past due	295	131
Past due 90 days or more	760	836
Total past due	1,114	1,013
Current	129,156	125,979
Total loans	130,270	126,992
Non-accrual loans	760	836
Residential: Construction [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Current	10,109	10,060
Total loans	$ 10,109	$ 10,060

XML

Loans And Leases (Impaired Loans) (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2016	Mar. 31, 2015	Dec. 31, 2015
Financing Receivable, Impaired [Line Items]
Troubled Debt Restructuring balance	$ 700
Unpaid principal balance	14,315		$ 13,306
Recorded investment with allowance	11,444		9,141
Recorded investment with no allowance	2,364		3,472
Total recorded investment	13,808		12,613
Related allowance	2,884		2,009
Average recorded investment	9,103	$ 5,623
Interest income recognized	$ 83	$ 34
Cash basis interest income recognized
Commercial And Industrial [Member]
Financing Receivable, Impaired [Line Items]
Unpaid principal balance	$ 868		555
Recorded investment with allowance	824		500
Recorded investment with no allowance	44		55
Total recorded investment	868		555
Related allowance	614		331
Average recorded investment	675	$ 206
Interest income recognized	$ 6	$ 6
Cash basis interest income recognized
Commercial Real Estate: Non-Owner Occupied [Member]
Financing Receivable, Impaired [Line Items]
Unpaid principal balance	$ 7,959		7,960
Recorded investment with allowance	7,470		7,209
Recorded investment with no allowance	566		630
Total recorded investment	8,036		7,839
Related allowance	1,467		1,237
Average recorded investment	3,859	$ 1,596
Interest income recognized	$ 24	$ 14
Cash basis interest income recognized
Commercial Real Estate: Owner Occupied [Member]
Financing Receivable, Impaired [Line Items]
Unpaid principal balance	$ 2,878		2,588
Recorded investment with allowance	1,832		922
Recorded investment with no allowance	885		1,505
Total recorded investment	2,717		2,427
Related allowance	560		337
Average recorded investment	2,825	$ 2,174
Interest income recognized	$ 38	$ 13
Cash basis interest income recognized
Commercial Real Estate: Construction [Member]
Financing Receivable, Impaired [Line Items]
Unpaid principal balance	$ 416		422
Recorded investment with no allowance	218		226
Total recorded investment	218		226
Average recorded investment	$ 234	$ 265
Interest income recognized
Cash basis interest income recognized
Consumer: Home Equity Installment [Member]
Financing Receivable, Impaired [Line Items]
Unpaid principal balance	$ 142		230
Recorded investment with allowance	60
Recorded investment with no allowance	32		167
Total recorded investment	92		167
Related allowance	5
Average recorded investment	195	$ 326
Interest income recognized	$ 2
Cash basis interest income recognized
Consumer: Home Equity Line Of Credit [Member]
Financing Receivable, Impaired [Line Items]
Unpaid principal balance	$ 1,129		607
Recorded investment with allowance	755		28
Recorded investment with no allowance	333		484
Total recorded investment	1,088		512
Related allowance	193		1
Average recorded investment	606	$ 428
Interest income recognized	$ 11	$ 1
Cash basis interest income recognized
Consumer: Auto Loans And Leases [Member]
Financing Receivable, Impaired [Line Items]
Unpaid principal balance	$ 23		47
Recorded investment with allowance	22		43
Recorded investment with no allowance	1		2
Total recorded investment	23		45
Related allowance	5		7
Average recorded investment	$ 29	$ 1
Interest income recognized
Cash basis interest income recognized
Consumer: Other [Member]
Financing Receivable, Impaired [Line Items]
Unpaid principal balance	$ 6		6
Recorded investment with allowance	6		6
Total recorded investment	6		6
Related allowance	2		1
Average recorded investment	$ 9	$ 22
Interest income recognized
Cash basis interest income recognized
Residential: Real Estate [Member]
Financing Receivable, Impaired [Line Items]
Unpaid principal balance	$ 894		891
Recorded investment with allowance	475		433
Recorded investment with no allowance	285		403
Total recorded investment	760		836
Related allowance	38		$ 95
Average recorded investment	671	$ 605
Interest income recognized	$ 2
Cash basis interest income recognized
Residential: Construction [Member]
Financing Receivable, Impaired [Line Items]
Average recorded investment
Interest income recognized
Cash basis interest income recognized

XML

Loans And Leases (Credit Quality Indicator Loan Categories) (Details) - USD ($) $ in Thousands	Mar. 31, 2016	Dec. 31, 2015
Financing Receivable, Recorded Investment [Line Items]
Unearned lease revenue	$ 395	$ 335
Commercial And Industrial [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivable, net	103,703	102,653
Commercial Real Estate: Non-Owner Occupied [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivable, net	95,303	95,745
Commercial Real Estate: Owner Occupied [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivable, net	98,523	101,652
Commercial Real Estate: Construction [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivable, net	4,904	4,481
Consumer: Home Equity Installment [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivable, net	30,017	30,935
Consumer: Home Equity Line Of Credit [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivable, net	48,331	48,060
Consumer: Auto Loans And Leases [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivable, net	29,161	29,423
Consumer: Other [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivable, net	5,770	6,208
Residential: Real Estate [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivable, net	130,270	126,992
Residential: Construction [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivable, net	10,109	10,060
Pass [Member] | Commercial And Industrial [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivable, net	96,513	101,342
Pass [Member] | Commercial Real Estate: Non-Owner Occupied [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivable, net	82,087	82,152
Pass [Member] | Commercial Real Estate: Owner Occupied [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivable, net	94,694	96,401
Pass [Member] | Commercial Real Estate: Construction [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivable, net	4,686	4,255
Special mention [Member] | Commercial And Industrial [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivable, net	6,007	189
Special mention [Member] | Commercial Real Estate: Non-Owner Occupied [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivable, net	1,382	1,480
Special mention [Member] | Commercial Real Estate: Owner Occupied [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivable, net	649	657
Substandard [Member] | Commercial And Industrial [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivable, net	1,183	1,122
Substandard [Member] | Commercial Real Estate: Non-Owner Occupied [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivable, net	11,834	12,113
Substandard [Member] | Commercial Real Estate: Owner Occupied [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivable, net	3,180	4,594
Substandard [Member] | Commercial Real Estate: Construction [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivable, net	218	226
Performing [Member] | Consumer: Home Equity Installment [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivable, net	29,925	30,768
Performing [Member] | Consumer: Home Equity Line Of Credit [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivable, net	47,893	47,548
Performing [Member] | Consumer: Auto Loans And Leases [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivable, net	28,581	29,347
Performing [Member] | Consumer: Other [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivable, net	5,764	6,172
Performing [Member] | Residential: Real Estate [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivable, net	129,510	126,156
Performing [Member] | Residential: Construction [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivable, net	10,109	10,060
Non-performing [Member] | Consumer: Home Equity Installment [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivable, net	92	167
Non-performing [Member] | Consumer: Home Equity Line Of Credit [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivable, net	438	512
Non-performing [Member] | Consumer: Auto Loans And Leases [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivable, net	580	76
Non-performing [Member] | Consumer: Other [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivable, net	6	36
Non-performing [Member] | Residential: Real Estate [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing receivable, net	$ 760	$ 836

XML

Loans And Leases (Allowance For Loan Losses) (Details) - USD ($) $ in Thousands	3 Months Ended		12 Months Ended
	Mar. 31, 2016	Mar. 31, 2015	Dec. 31, 2015
Financing Receivable, Allowance for Credit Losses [Line Items]
Allowance for Loan Losses: Beginning balance	$ 9,527	$ 9,173	$ 9,173
Charge-offs	(334)	(183)	(909)
Recoveries	41	68	188
Provisions	150	150	1,075
Allowance for Loan Losses: Ending balance	9,384	9,208	9,527
Allowance for Loan Losses: Ending balance: individually evaluated for impairment	2,884		2,009
Allowance for Loan Losses: Ending balance: collectively evaluated for impairment	6,500		7,518
Loan Receivables: Ending balance	556,091		556,209
Loans Receivable: Ending balance: individually evaluated for impairment	13,808		12,613
Loans Receivable: Ending balance: collectively evaluated for impairment	542,283		543,596
Unearned lease revenue	395		335
Deferred loan costs	1,500		1,500
Commercial And Industrial [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Allowance for Loan Losses: Beginning balance	1,336	1,052	1,052
Charge-offs	(14)	(24)	(25)
Recoveries	9	9	47
Provisions	309	177	262
Allowance for Loan Losses: Ending balance	1,640	1,214	1,336
Allowance for Loan Losses: Ending balance: individually evaluated for impairment	614		331
Allowance for Loan Losses: Ending balance: collectively evaluated for impairment	1,026		1,005
Loan Receivables: Ending balance	103,703		102,653
Loans Receivable: Ending balance: individually evaluated for impairment	868		555
Loans Receivable: Ending balance: collectively evaluated for impairment	102,835		102,098
Commercial Real Estate [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Allowance for Loan Losses: Beginning balance	5,014	4,672	4,672
Charge-offs	(85)	(67)	(432)
Recoveries	4	7	18
Provisions	(350)	(97)	756
Allowance for Loan Losses: Ending balance	4,583	4,515	5,014
Allowance for Loan Losses: Ending balance: individually evaluated for impairment	2,027		1,574
Allowance for Loan Losses: Ending balance: collectively evaluated for impairment	2,556		3,440
Loan Receivables: Ending balance	198,730		201,878
Loans Receivable: Ending balance: individually evaluated for impairment	10,971		10,492
Loans Receivable: Ending balance: collectively evaluated for impairment	187,759		191,386
Consumer [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Allowance for Loan Losses: Beginning balance	1,533	1,519	1,519
Charge-offs	(175)	(92)	(437)
Recoveries	28	24	95
Provisions	292	62	356
Allowance for Loan Losses: Ending balance	1,678	1,513	1,533
Allowance for Loan Losses: Ending balance: individually evaluated for impairment	205		9
Allowance for Loan Losses: Ending balance: collectively evaluated for impairment	1,473		1,524
Loan Receivables: Ending balance	113,279		114,626
Loans Receivable: Ending balance: individually evaluated for impairment	1,209		730
Loans Receivable: Ending balance: collectively evaluated for impairment	112,070		113,896
Residential Real Estate [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Allowance for Loan Losses: Beginning balance	1,407	1,316	1,316
Charge-offs	(60)		(15)
Recoveries		28	28
Provisions	32	(1)	78
Allowance for Loan Losses: Ending balance	1,379	1,343	1,407
Allowance for Loan Losses: Ending balance: individually evaluated for impairment	38		95
Allowance for Loan Losses: Ending balance: collectively evaluated for impairment	1,341		1,312
Loan Receivables: Ending balance	140,379		137,052
Loans Receivable: Ending balance: individually evaluated for impairment	760		836
Loans Receivable: Ending balance: collectively evaluated for impairment	139,619		136,216
Unallocated [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Allowance for Loan Losses: Beginning balance	237	614	614
Provisions	(133)	9	(377)
Allowance for Loan Losses: Ending balance	104	$ 623	237
Allowance for Loan Losses: Ending balance: collectively evaluated for impairment	$ 104		$ 237

XML

Earnings Per Share (Narrative) (Details)	3 Months Ended
	Mar. 31, 2016 item shares	Mar. 31, 2015 shares
Earnings Per Share, Basic, by Common Class, Including Two Class Method [Line Items]
Number of active share-based compensation plans | item	2
Potentially dilutive common shares	6,621	6,432
Employee Stock Option [Member]
Earnings Per Share, Basic, by Common Class, Including Two Class Method [Line Items]
Potentially dilutive common shares	1,638	2,545
Stock-Settled Stock Appreciation Rights (SSARs) [Member]
Earnings Per Share, Basic, by Common Class, Including Two Class Method [Line Items]
Potentially dilutive common shares	0	0
Restricted Stock [Member]
Earnings Per Share, Basic, by Common Class, Including Two Class Method [Line Items]
Potentially dilutive common shares	4,983	3,887

XML

Earnings Per Share (Schedule Of Earnings Per Share, Basic And Diluted) (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended
	Mar. 31, 2016	Mar. 31, 2015
Earnings Per Share [Abstract]
Net income available to common shareholders	$ 1,701	$ 1,573
Weighted-average common shares outstanding	2,450,771	2,435,884
Basic EPS	$ 0.69	$ 0.65
Potentially dilutive common shares	6,621	6,432
Weighted-average common and potentially dilutive shares outstanding	2,457,392	2,442,316
Diluted EPS	$ 0.69	$ 0.64

XML

Stock Plans (Narrative) (Details)		3 Months Ended
	Feb. 02, 2016 $ / shares shares	Mar. 31, 2016 USD ($) $ / shares item shares	Mar. 31, 2015 USD ($) shares	Dec. 31, 2015 $ / shares
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of active share-based compensation plans | item		2
Common stock, no par value | $ / shares
Grant date stock price | $ / shares	$ 32.40
Interest rate	1.276%
Volatility rate	9.809%
Term used to determine historical volatility	5 years
Options exercised		500	0
Options exercised, price per share | $ / shares		$ 27.75
Options exercised, intrinsic value | $		$ 2,585
Options exercised, tax benefit | $		808
Stock-Based Compensation Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Allocated compensation expense | $		$ 70,000	$ 43,000
Stock-Settled Stock Appreciation Rights (SSARs) [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Shares Granted		19,341
Vesting period		3 years
Grant date stock price | $ / shares	$ 5.21
Interest rate	1.861%
Expected term	10 years
Volatility rate	23.402%
Dividend rate	3.577%
Options exercised
Options exercised, price per share | $ / shares
Omnibus Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of shares authorized		500,000
Omnibus Plan [Member] | Stock-Based Compensation Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Allocated compensation expense | $		$ 31,000	$ 15,000
Director Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of shares authorized		500,000
Director Plan [Member] | Stock-Based Compensation Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Vesting period		1 year	1 year
Allocated compensation expense | $		$ 39,000	$ 28,000
Employee Stock Purchase Plan [Member] | Employee Stock Option [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of shares authorized		110,000
Number of shares issued		42,382
Allocated compensation expense | $		$ 15,000	$ 44,000
Award Date One [Member] | Omnibus Plan [Member] | Stock-Based Compensation Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Shares Granted	3,155
Vesting period	3 years	3 years	4 years
Holding period	2 years
Expected term	5 years
Award Date Two [Member] | Omnibus Plan [Member] | Stock-Based Compensation Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Vesting period		1 year	1 year

XML

Stock Plans (Disclosure Of Share-Based Compensation Arrangements By Share-based Payment Award) (Details) - Stock-Based Compensation Plan [Member] - $ / shares		3 Months Ended		12 Months Ended
	Feb. 02, 2016	Mar. 31, 2016	Mar. 31, 2015	Dec. 31, 2015
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Shares granted		8,805		6,550
Weighted-average grant date fair value		$ 31.26		$ 32.25
Director Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Shares granted		5,600		3,200
Weighted-average grant date fair value		$ 32.40		$ 32.25
Vesting period		1 year	1 year
Award Date One [Member] | Omnibus Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Shares granted		3,155		3,300
Weighted-average grant date fair value		$ 29.22		$ 32.25
Vesting period	3 years	3 years	4 years
Award Date One [Member] | Omnibus Plan [Member] | Share-based Compensation Award, Tranche One [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Vesting period, percentage per year		33.00%	25.00%
Award Date Two [Member] | Omnibus Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Shares granted		50		50
Weighted-average grant date fair value		$ 31.50		$ 32.50
Vesting period		1 year	1 year

XML

Stock Plans (Summary Of Restricted Stock Changes) (Details)	3 Months Ended
	Mar. 31, 2016 $ / shares shares
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Weighted average grant date fair value, Non-vested balance at December 31, 2015 | $ / shares	$ 29.50
Weighted average grant date fair value, Granted | $ / shares	31.26
Weighted average grant date fair value, Vested | $ / shares	29.42
Weighted average grant date fair value, Non-vested balance at March 31, 2016 | $ / shares	$ 30.56
Restricted Stock [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Non-vested balance at December 31, 2015	12,040
Granted	8,805
Issued/Vested	(5,855)
Non-vested balance at March 31, 2016	14,990
Restricted Stock [Member] | Director Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Non-vested balance at December 31, 2015	3,200
Granted	5,600
Issued/Vested	(3,200)
Non-vested balance at March 31, 2016	5,600
Restricted Stock [Member] | Omnibus Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Non-vested balance at December 31, 2015	8,840
Granted	3,205
Issued/Vested	(2,655)
Non-vested balance at March 31, 2016	9,390

XML

Stock Plans (Schedule Of SSARs Activity) (Details) - $ / shares	3 Months Ended		12 Months Ended
	Mar. 31, 2016	Mar. 31, 2015	Dec. 31, 2015
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Outstanding and exercisable, December 31, 2015	15,500
Exercised	(500)	0
Outstanding and exercisable, March 31, 2016	15,000		15,500
Weighted-average exercise price, Outstanding and exercisable, December 31, 2015	$ 28.64
Weighted-average exercise price - Exercised	27.75
Weighted-average exercise price, Outstanding and exercisable, March 31, 2016	$ 28.67		$ 28.64
Weighted-average remaining contractual term (years), Outstanding and exercisable	1 year 8 months 12 days		2 years
Stock-Settled Stock Appreciation Rights (SSARs) [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Outstanding and exercisable, December 31, 2015
Granted	19,341
Exercised
Forfeited
Outstanding and exercisable, March 31, 2016	19,341
Weighted-average exercise price, Outstanding and exercisable, December 31, 2015
Weighted-average exercise price - Granted	$ 5.21
Weighted-average exercise price - Exercised
Weighted-average exercise price - Forfeited
Weighted-average exercise price, Outstanding and exercisable, March 31, 2016	$ 5.21
Weighted-average remaining contractual term (years), Granted	10 years
Weighted-average remaining contractual term (years), Outstanding and exercisable	9 years 9 months 18 days
Exercisable	0
Vesting period	3 years
Stock-Settled Stock Appreciation Rights (SSARs) [Member] | Share-based Compensation Award, Tranche One [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Vesting period, percentage per year	33.00%

XML

Stock Plans (Schedule Of Compensation Cost For Share-Based Payment Arrangements, Allocation Of Share-Based Compensation Costs By Plan) (Details) - Stock-Based Compensation Plan [Member] - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2016	Mar. 31, 2015
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock-based compensation expense	$ 70	$ 43
Director Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock-based compensation expense	39	28
Omnibus Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock-based compensation expense	$ 31	$ 15

XML

Stock Plans (Schedule Of Unrecognized Compensation Cost, Nonvested Awards) (Details) - Stock-Based Compensation Plan [Member] $ in Thousands	Mar. 31, 2016 USD ($)
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Unrecognized stock-based compensation expense	$ 496
Director Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Unrecognized stock-based compensation expense	151
Omnibus Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Unrecognized stock-based compensation expense	$ 345

XML

Stock Plans (Summary Of Stock Option Activity) (Details) - $ / shares	3 Months Ended		12 Months Ended
	Mar. 31, 2016	Mar. 31, 2015	Dec. 31, 2015
Stock Plans [Abstract]
Outstanding and exercisable, December 31, 2015	15,500
Exercised	(500)	0
Outstanding and exercisable, March 31, 2016	15,000		15,500
Weighted-average exercise price, Outstanding and exercisable, December 31, 2015	$ 28.64
Weighted-average exercise price - Exercised	27.75
Weighted-average exercise price, Outstanding and exercisable, March 31, 2016	$ 28.67		$ 28.64
Weighted-average remaining contractual term (years), Outstanding and exercisable	1 year 8 months 12 days		2 years

XML

Fair Value Measurements (Narrative) (Details) - USD ($)	3 Months Ended	12 Months Ended
	Mar. 31, 2016	Dec. 31, 2015
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
Minimum [Member] | Impaired Loans [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair value inputs, comparability adjustments	(23.55%)	(4.92%)
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	(15.90%)	(15.90%)
Maximum [Member] | Impaired Loans [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair value inputs, comparability adjustments	(94.00%)	(50.00%)
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	(99.00%)	(99.00%)
Weighted Average [Member] | Impaired Loans [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair value inputs, comparability adjustments	(32.99%)	(27.84%)
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	(37.34%)	(37.64%)

XML

Fair Value Measurements (Carrying Amount And Estimated Fair Value By Balance Sheet Grouping) (Details) - USD ($) $ in Thousands	Mar. 31, 2016	Dec. 31, 2015
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Available-for-sale Securities	$ 128,673	$ 125,232
Loans held-for-sale	1,224	1,444
Estimated Fair Value [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Cash and cash equivalents	41,091	12,277
Available-for-sale Securities	128,673	125,232
FHLB stock	1,420	2,120
Loans and leases, net	546,123	545,523
Loans held-for-sale	1,224	1,444
Accrued interest receivable	2,202	2,210
Short-term borrowings	12,765	28,204
Accrued interest payable	210	189
Estimated Fair Value [Member] | Deposits With No Stated Maturities [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Deposit liabilities	568,182	516,473
Estimated Fair Value [Member] | Time Deposits [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Deposit liabilities	99,428	103,403
Carrying Amount [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Cash and cash equivalents	41,091	12,277
Available-for-sale Securities	128,673	125,232
FHLB stock	1,420	2,120
Loans and leases, net	546,707	546,682
Loans held-for-sale	1,202	1,421
Accrued interest receivable	2,202	2,210
Short-term borrowings	12,765	28,204
Accrued interest payable	210	189
Carrying Amount [Member] | Deposits With No Stated Maturities [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Deposit liabilities	568,182	516,473
Carrying Amount [Member] | Time Deposits [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Deposit liabilities	99,729	104,202
Quoted Prices In Active Markets (Level 1) [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Cash and cash equivalents	41,091	12,277
Available-for-sale Securities	534	546
Significant Other Observable Inputs (Level 2) [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Available-for-sale Securities	128,139	124,686
FHLB stock	1,420	2,120
Loans held-for-sale	1,224	1,444
Accrued interest receivable	2,202	2,210
Short-term borrowings	12,765	28,204
Accrued interest payable	210	189
Significant Other Observable Inputs (Level 2) [Member] | Deposits With No Stated Maturities [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Deposit liabilities	568,182	516,473
Significant Other Observable Inputs (Level 2) [Member] | Time Deposits [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Deposit liabilities	99,428	103,403
Significant Other Unobservable Inputs (Level 3) [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Loans and leases, net	$ 546,123	$ 545,523

XML

Fair Value Measurements (Fair Value, Assets And Liabilities Measured On Recurring Basis) (Details) - USD ($) $ in Thousands	Mar. 31, 2016	Dec. 31, 2015
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total Available-for-sale securities, Fair value	$ 128,673	$ 125,232
Agency - GSE [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total Available-for-sale securities, Fair value	18,528	18,386
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	37,609	36,885
MBS - GSE Residential [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Total Available-for-sale securities, Fair value	72,002	69,415
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	534	546
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	534	546
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	534	546
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	128,139	124,686
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	18,528	18,386
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	37,609	36,885
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	$ 72,002	$ 69,415

XML

Fair Value Measurements (Fair Value Measurements At Fair Value Segregated By Hierarchy Fair Value Levels) (Details) - USD ($) $ in Thousands	Mar. 31, 2016	Dec. 31, 2015
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, Fair Value Disclosure, Nonrecurring	$ 9,803	$ 8,035
Impaired Loans [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, Fair Value Disclosure, Nonrecurring	8,560	7,132
Other Real Estate Owned [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets, Fair Value Disclosure, Nonrecurring	1,243	903
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	9,803	8,035
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	8,560	7,132
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	$ 1,243	$ 903