10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended    September 30, 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: 000-31877

Carolina Bank Holdings, Inc.

(Exact name of registrant as specified in its charter)

North Carolina	56-2215437
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

101 North Spring Street, Greensboro, North Carolina	27401
(Address of principal executive offices)	(Zip Code)

(336) 288-1898

(Registrant’s telephone number, including area code)

n/a

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.           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). Yes x 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.

Large accelerated filer ¨                                    Accelerated filer ¨

Non-accelerated filer ¨ (Do not check if a smaller reporting company)      Smaller reporting company x

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

¨ Yes x No

APPLICABLE ONLY TO CORPORATE ISSUERS:

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

There were 5,045,358 shares of the Issuer’s common stock, $1.00 par value, outstanding as of November 10, 2016.  

CAROLINA BANK HOLDINGS, INC.

INDEX

	Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)	2
Consolidated Balance Sheets as of September 30, 2016 and December 31, 2015	2
Consolidated Statements of Income for the three and nine months ended September 30, 2016 and 2015	3
Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2016 and 2015	4
Consolidated Statement of Stockholders’ Equity for the nine months ended September 30, 2016 and 2015	5
Consolidated Statements of Cash Flows for the nine months ended September 30, 2016 and 2015	6
Notes to Consolidated Financial Statements	7
Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations	33
Item 4.  Controls and Procedures	43
PART II. OTHER INFORMATION
Item 1. Legal Proceedings	44
Item 6. Exhibits	44
Exhibit 31.1 Certification Pursuant to Section 302 of the Sarbanes-Oxley Act
Exhibit 31.2 Certification Pursuant to Section 302 of the Sarbanes-Oxley Act
Exhibit 32.1 Certification Pursuant to 18 U.S.C. Section 1350

1 

ITEM 1. Financial Statements

Carolina Bank Holdings, Inc. and Subsidiary

Consolidated Balance Sheets

	September 30,			December 31,
	2016			2015
	(unaudited)
	(in thousands, except share data)
Assets
Cash and due from banks	$	4,807		$	6,559
Interest-bearing deposits with banks		47,658			69,233
Bank term deposits		15,139			16,604
Securities available-for-sale, at fair value		41,458			47,360
Securities held-to-maturity (fair values of $14,557 in 2016 and $15,226 in 2015)		14,031			14,954
Loans held for sale		42,616			39,583
Loans		503,226			465,804
Less allowance for loan losses		(5,764	)		(5,872	)
Net loans		497,462			459,932
Premises and equipment, net		18,389			19,007
Other real estate owned		3,914			4,592
Bank-owned life insurance		12,118			11,843
Other assets		11,298			11,131
Total assets	$	708,890		$	700,798
Liabilities and Stockholders’ Equity
Deposits
Non-interest bearing demand	$	143,057		$	125,189
NOW, money market and savings		355,364			349,815
Time		103,062			132,303
Total deposits		601,483			607,307
Advances from the Federal Home Loan Bank		12,100			2,681
Securities sold under agreements to repurchase		-			47
Subordinated debentures		19,610			19,610
Other liabilities and accrued expenses		10,131			10,014
Total liabilities		643,324			639,659
Commitments and contingencies - Note P
Stockholders’ equity
Preferred stock, no par value, authorized 1,000,000 shares;
Series A preferred stock  - none issued and outstanding		-			-
Series B convertible preferred stock  - none issued and outstanding		-			-
Common stock, $1 par value; authorized 20,000,000 shares;
issued and outstanding 5,045,358 in 2016 and 5,021,330 in 2015		5,045			5,021
Additional paid-in capital		29,471			29,234
Retained earnings		30,082			26,174
Stock in directors’ rabbi trust		(2,089	)		(1,831	)
Directors’ deferred fees obligation		2,089			1,831
Accumulated other comprehensive income		968			710
Total stockholders’ equity		65,566			61,139
Total liabilities and stockholders’ equity	$	708,890		$	700,798

See accompanying notes to consolidated financial statements.

2 

Carolina Bank Holdings, Inc. and Subsidiary

Consolidated Statements of Income (unaudited)

	Three Months				Nine Months
	Ended September 30,				Ended September 30,
	2016		2015		2016		2015
	(in thousands, except per share data)
Interest income
Loans	$	6,063	$	6,062	$	18,046	$	18,079
Investment securities, taxable		306		322		1,023		985
Investment securities, nontaxable		116		116		349		363
Interest from deposits in banks		112		57		406		183
Total interest income		6,597		6,557		19,824		19,610
Interest expense
NOW, money market, savings		234		237		700		713
Time deposits		223		277		731		876
Other borrowed funds		240		154		693		457
Total interest expense		697		668		2,124		2,046
Net interest income		5,900		5,889		17,700		17,564
Provision for loan losses		-		450		-		1,285
Net interest income after provision for loan losses		5,900		5,439		17,700		16,279
Non-interest income
Service charges		318		304		916		919
Mortgage banking income		2,533		3,220		7,115		9,848
Gain on sale of SBA loans		261		67		498		120
Other		70		50		211		165
Total non-interest income		3,182		3,641		8,740		11,052
Non-interest expense
Salaries and benefits		4,536		4,533		13,216		13,433
Occupancy and equipment		722		783		2,170		2,318
Professional fees		457		474		1,379		1,377
Outside data processing		280		270		831		809
FDIC insurance		109		132		310		393
Advertising and promotion		244		225		734		578
Stationery, printing and supplies		142		149		433		447
Merger expense		154		-		739		-
Other		279		449		1,195		1,303
Total non-interest expense		6,923		7,015		21,007		20,658
Income before income taxes		2,159		2,065		5,433		6,673
Income tax expense		595		629		1,525		1,942
Net income		1,564		1,436		3,908		4,731
Dividends and accretion on preferred stock		-		-		-		341
Net income available to common stockholders	$	1,564	$	1,436	$	3,908	$	4,390
Net income per common share
Basic	$	0.31	$	0.29	$	0.78	$	1.05
Diluted	$	0.31	$	0.29	$	0.77	$	0.98

See accompanying notes to consolidated financial statements.

3 

Carolina Bank Holdings, Inc. and Subsidiary

Consolidated Statements of Comprehensive Income (unaudited)

	Three Months						Nine Months
	Ended September 30,						Ended September 30,
	2016			2015			2016			2015
	(in thousands)
Net income	$	1,564		$	1,436		$	3,908		$	4,731
Other comprehensive income (loss):
Investment securities available-for-sale:
Unrealized holding gains (losses)		(217	)		205			390			(135	)
Tax effect		74			(70	)		(132	)		46
Reclassification of gains recognized in net income		-			-			-			(27	)
Tax effect		-			-			-			9
		(143	)		135			258			(107	)
Comprehensive income	$	1,421		$	1,571		$	4,166		$	4,624

See accompanying notes to consolidated financial statements.

4 

Carolina Bank Holdings, Inc. and Subsidiary

Consolidated Statement of Stockholders’ Equity (unaudited)

Nine months ended September 30, 2016 and 2015

														Stock in			Directors’		Accumulated
				Convertible					Additional					Directors’			Deferred		Other
	Preferred			Preferred			Common		Paid-In		Retained			Rabbi			Fees		Comprehensive
	Stock			Stock			Stock		Capital		Earnings			Trust			Obligation		Income			Total
	(in thousands)
Balance, December 31, 2015	$	-		$	-		$	5,021	$	29,234	$	26,174		$	(1,831	)	$	1,831	$	710		$	61,139
Net income		-			-			-		-		3,908			-			-		-			3,908
Other comprehensive income, net of tax		-			-			-		-		-			-			-		258			258
Stock options exercised								24		237		-			-			-		-			261
Directors’ fees deferred less payment of deferred fees		-			-			-		-		-			(258	)		258		-			-
Balance, September 30, 2016	$	-		$	-		$	5,045	$	29,471	$	30,082		$	(2,089	)	$	2,089	$	968		$	65,566
Balance, December 31, 2014	$	10,994		$	-		$	3,435	$	16,339	$	20,748		$	(1,465	)	$	1,465	$	1,139		$	52,655
Net income		-			-			-		-		4,731			-			-		-			4,731
Other comprehensive loss, net of tax		-			-			-		-		-			-			-		(107	)		(107	)
Directors’ fees deferred less payment of deferred fees		-			-			-		-		-			(278	)		278		-			-
Stock options exercised		-			-			8		77		-			-			-		-			85
Convertible preferred stock issued		-			14,069			-		-		-			-			-		-			14,069
Convertible preferred stock converted to common stock		-			(14,069	)		1,549		12,520		-			-			-		-			-
Preferred stock retired		(10,994	)		-			-		-		-			-			-		-			(10,994	)
Preferred stock dividends		-			-			-		-		(341	)		-			-		-			(341	)
Balance, September 30, 2015	$	-		$	-		$	4,992	$	28,936	$	25,138		$	(1,743	)	$	1,743	$	1,032		$	60,098

See accompanying notes to consolidated financial statements.

5 

Carolina Bank Holdings, Inc. and Subsidiary

Consolidated Statements of Cash Flows (unaudited)

	Nine Months
	Ended September 30,
	2016			2015
	(in thousands)
Cash flows from operating activities
Net income	$	3,908		$	4,731
Adjustments to reconcile net income to net cash provided by (used for) operating activities
Provision for loan losses		-			1,285
Depreciation		625			617
Increase in cash surrender value of bank-owned life insurance		(275	)		(268	)
Deferred income taxes (benefit)		(166	)		718
Amortization, net of accretion		177			85
Capitalized interest on fixed asset construction		-			(40	)
Increase in fair value of loans held for sale		(261	)		(774	)
Gain on sale of other real estate owned		(47	)		(201	)
Gain on sale of investments		-			(27	)
Gain on sale of loans held for sale		(7,046	)		(8,780	)
Impairment of other real estate owned		77			200
Proceeds from sale of loans held for sale		382,422			543,172
Originations of loans held for sale		(378,148	)		(544,600	)
Increase in interest rate lock commitments		(75	)		(716	)
Increase in other assets		(78	)		(207	)
Increase in other liabilities and accrued expenses		136			1,004
Net cash provided by (used for) operating activities		1,249			(3,801	)
Cash flows from investing activities
Decrease in bank term deposits		1,465			-
Purchases of investment securities available-for-sale		(2,150	)		(2,610	)
Maturities and calls of securities available-for-sale		3,387			1,311
Maturities and calls of securities held-to-maturity		377			316
Repayments from mortgage-backed securities available-for-sale		4,955			1,484
Repayments from mortgage-backed securities held-to-maturity		470			512
Net (increase) decrease in loans		(38,008	)		5,449
Proceeds from sales of investment securities		-			1,295
Improvements to other real estate owned		(327	)		(89	)
Purchases of premises and equipment		(7	)		(1,401	)
Proceeds from sales of other real estate owned		1,453			1,240
Net cash provided by (used for) investing activities		(28,385	)		7,507
Cash flows from financing activities
Net increase (decrease) in deposits		(5,824	)		1,591
Net proceeds from issuance of preferred stock converted to common stock		-			14,069
Repurchase of preferred stock		-			(10,994	)
Net increase (decrease) in advances from the Federal Home Loan Bank		9,419			(78	)
Decrease in securities sold under agreements to repurchase		(47	)		(128	)
Proceeds from exercise of stock options		261			85
Dividends paid on preferred stock		-			(465	)
Net cash provided by financing activities		3,809			4,080
Net increase (decrease) in cash and cash equivalents		(23,327	)		7,786
Cash and cash equivalents at beginning of period		75,792			46,174
Cash and cash equivalents at end of period	$	52,465		$	53,960
Supplemental disclosure of cash flow information
Cash paid during the period for interest	$	2,087		$	2,120
Cash paid during the period for income taxes	$	1,802		$	1,362
Supplemental disclosure of non-cash transactions
Transfer of loans to other real estate owned	$	478		$	613
Change in unrealized gains on securities available-for-sale, net of tax	$	258		$	(107	)

See accompanying notes to consolidated financial statements.

6 

Carolina Bank Holdings, Inc. and Subsidiary

Notes to Consolidated Financial Statements

Note A – Summary

Carolina Bank Holdings, Inc. (the “Holding Company”) is a North Carolina corporation organized in 2000. In August 2000 pursuant to the plan of share exchange approved by the stockholders of Carolina Bank (the “Bank”), all of the outstanding shares of common stock of the Bank were exchanged for shares of common stock of the Holding Company. The Holding Company presently has no employees.

The Bank was incorporated in August 1996, and began banking operations in November 1996. It is engaged in lending and deposit gathering activities in Guilford, Alamance, Randolph and Forsyth counties of North Carolina and operates under the laws of North Carolina, the Rules and Regulations of the Federal Deposit Insurance Corporation and the North Carolina Commissioner of Banks. The Bank has three locations in Greensboro, two offices in Winston-Salem and an office in Asheboro, Burlington, and High Point. All banking offices are in the Piedmont Triad region of North Carolina. A wholesale mortgage banking division is located at the Greensboro corporate headquarters, and mortgage loan production offices are located in Burlington, Chapel Hill and Sanford.

The Holding Company files periodic reports with the Securities and Exchange Commission and is also subject to regulation by the Federal Reserve Board.

Note B – Business combinations

On June 21, 2016, the Holding Company entered into an Agreement and Plan of Merger and Reorganization (the “Merger Agreement”) with First Bancorp, under which, upon the terms and subject to the conditions set forth in the Merger Agreement, the Holding Company will merge with and into First Bancorp, with First Bancorp as the surviving corporation in the merger. In connection with the merger, the Bank will merge with and into First Bancorp’s wholly owned bank subsidiary, with First Bancorp’s bank subsidiary surviving the bank merger. Under the terms and subject to the conditions of the Merger Agreement, Holding Company stockholders will have the right to receive 1.002 shares of First Bancorp common stock or $20 in cash, or a combination thereof, for each share of Holding Company stock. The total merger consideration will be prorated as necessary to ensure that 25% of the total outstanding shares of the Holding Company common stock will be exchanged for cash and 75% of the total outstanding shares of the Holding Company common stock will be exchanged for shares of First Bancorp common stock. The merger is subject to, among other things, regulatory and Holding Company stockholder approval and other customary closing conditions and is currently expected to close in the fourth quarter of 2016 or first quarter of 2017.

Note C – Consolidation

The consolidated financial statements include the accounts of the Holding Company and its wholly-owned subsidiary, the Bank (collectively the “Company”). The Bank also owns two limited liability companies for the purpose of holding foreclosed real estate, the assets and operations of which are consolidated into the Bank and included herein. All significant inter-company transactions and balances have been eliminated.

7 

Note D – Basis of presentation

In management’s opinion, the financial information, which is unaudited, reflects all adjustments (consisting solely of normal recurring adjustments) necessary for a fair presentation of the financial information as of and for the three and nine months ended September 30, 2016 and 2015, in conformity with accounting principles generally accepted in the United States of America. Operating results for the three and nine months ended September 30, 2016 and 2015 are not necessarily indicative of the results that may be expected for future annual periods.

The Company’s consolidated financial statements are presented in accordance with Accounting Standards Codification (“ASC”) Topic 105, “The FASB Accounting Standards Codification and The Hierarchy of Generally Accepted Accounting Principles”, which codifies generally accepted accounting principles (“GAAP”) in the United States.

The organization and business of the Company, accounting policies followed, and other information are contained in the notes to the consolidated financial statements of the Company as of and for the years ended December 31, 2015 and 2014, filed with the Securities and Exchange Commission as part of the Company’s annual report on Form 10-K. The financial statements included in this report should be read in conjunction with the Company’s annual consolidated financial statements.

Note E – Use of estimates

The consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America which require management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses and the valuation of other real estate owned.

Note F – Stock compensation plans

The Company’s stockholders approved the 2009 Omnibus Stock Ownership and Long Term Incentive Plan (“Omnibus Plan”) in 2009 to replace three expired stock option plans, a nonqualified plan for directors and two incentive stock option plans for management and employees. The Omnibus Plan provides for the grant of incentive stock options, non-qualified stock options, restricted stock, long-term incentive compensation units and stock appreciation rights to employees and directors. An aggregate of 500,000 shares of the Company’s common stock were reserved for issuance under the terms of the Omnibus Plan, and 490,000 shares remained available for grant at September 30, 2016.

There were no stock option grants in the first nine months of 2016 or 2015. There was no compensation expense in the nine months ended September 30, 2016 or 2015 related to stock options. At September 30, 2016, there was no unrecognized compensation cost related to unvested share-based compensation.

As a result of the exercise of stock options, 24,028 new shares of common stock were issued in the first nine months of 2016.

Note G – Earnings per common share

Earnings per common share has been determined on a basic basis and a diluted basis which considers potential stock issuances. For the three and nine months ended September 30, 2016 and 2015, basic earnings per common share has been computed based upon the weighted average common shares outstanding.

The only potential issuances of Company common stock at this time are stock options granted to various officers of the Bank. Convertible preferred stock, which was sold in a private placement offering on March 31, 2015 and later converted to 1,550,000 shares of common stock, was included in diluted weighted average common shares for one day in the first quarter of 2015 and for the entire second quarter of 2015. The following is a summary of the diluted earnings per common share calculation for the three and nine months ended September 30, 2016 and 2015.

8 

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2016		2015		2016		2015
	(in thousands, except per share data)
Net income available to common stockholders	$	1,564	$	1,436	$	3,908	$	4,390
Weighted average outstanding shares - basic		5,045		4,990		5,040		4,180
Dilutive effect of stock options and convertible preferred stock		4		10		4		306
Weighted average shares - diluted		5,049		5,000		5,044		4,486
Diluted net income per share	$	0.31	$	0.29	$	0.77	$	0.98

For the three months ended September 30, 2016 and 2015, there were no stock options that were excluded in computing diluted common shares outstanding since the option exercise prices were less than the average market price for the period.

Note H – Preferred stock and convertible preferred stock

In December 2008, the stockholders of the Company approved an amendment to the Articles of Incorporation authorizing the issuance of up to 1,000,000 shares of preferred stock, no par value. In January 2009, the Company issued 16,000 shares of preferred stock, Series A, to the U.S. Treasury and received $16 million under the Capital Purchase Program. The Company granted a warrant to purchase 357,675 shares of common stock at a price of $6.71 per share to the U.S. Treasury as part of the preferred stock transaction. Dividends at 5% per annum were payable quarterly for the first five years; the dividend increased to 9% per annum after the fifth year effective February 16, 2014.

The U.S. Treasury sold its holding of $16 million in preferred stock to private investors in February 2013, and the warrant to the U.S. Treasury was repurchased by the Company for $1.8 million in April 2013. The Company retired 5,006 shares of its outstanding Series A preferred stock in 2013 and retired the remaining shares in May of 2015.

On March 31, 2015, the Company issued 15,500 shares of Series B convertible preferred stock at $975 per share in a private placement offering and received $14,069,000 in net proceeds after offering expenses of $1,044,000. The net proceeds from this private placement were used to retire the remaining Series A preferred stock in May of 2015 and to improve capital levels. All 15,500 shares of the Series B convertible preferred stock were converted into 1,550,000 shares of common stock on May 22, 2015 following stockholder approval. No dividends were ever declared or paid on the Series B convertible preferred stock.

Note I – Subordinated debentures

In December 2004, the Company issued $10,310,000 of unsecured junior subordinated debentures which accrue and pay interest quarterly at three month LIBOR plus 2% per annum. These debentures were issued to Carolina Capital Trust (“Carolina Trust”), a wholly owned subsidiary of the Company which is not consolidated in these consolidated financial statements pursuant to accounting principles governing consolidated variable interest entities. Carolina Trust acquired these debentures using the proceeds of its offerings of common securities to the Company and $10 million of Trust Preferred Securities to outside investors. The Trust Preferred Securities qualify as Tier 1 capital under current Federal Reserve Board guidelines. The Dodd-Frank Wall Street Reform and Consumer Protection Act eliminated trust preferred securities as an element of Tier 1 capital for certain institutions. However, bank holding companies with assets of less than $15 billion as of December 31, 2009, were permitted to include trust preferred securities that were issued before May 19, 2010, as Tier 1 capital. The Company has entered into contractual arrangements which, in the aggregate, constitute a full, irrevocable and unconditional guarantee on a subordinated basis by the Company of the obligations of Carolina Trust under the Trust Preferred Securities. The Trust Preferred Securities are redeemable upon maturity of the debentures on January 7, 2035, or upon earlier redemption as provided in the indenture. The Company has the right to redeem the debentures purchased by Carolina Trust in whole or in part at any time.

9 

In August and September of 2008, Carolina Bank issued $9,300,000 of unsecured junior subordinated notes to outside investors which accrue and pay interest quarterly at three month LIBOR plus 4% per annum. The notes qualify as Tier 2 capital for the Bank, subject to a 20% annual reduction which began on October 1, 2013 and continues each year thereafter until maturity. The notes are redeemable upon maturity on September 30, 2018, or earlier at the Bank’s option, in whole or part subject to regulatory approval, beginning September 30, 2013. The Board of Directors and our primary regulators have approved the retirement of these notes, subject to maintaining Well Capitalized status after subordinated debt extinguishment. The approval to retire the Bank subordinated debt expires on August 29, 2017. The expenses of the offering of $373,000 were capitalized at issuance and were amortized over sixty months. The notes are subordinate to the rights of payment to depositors, bankers acceptances, letters of credit and general creditors.

Note J – Operating segments

The Company is considered to have three principal business segments in 2016 and 2015, the Commercial/Retail Bank, the Mortgage Banking Division, and the Holding Company. The Mortgage Banking Division began originating home mortgage loans through third parties and selling these loans to investors in late 2007. A retail mortgage operation was added to the mortgage banking division in July 2010. Financial performance, reflective of inter-company and intra-company eliminations, for the three and nine months ended September 30, 2016 and 2015, and selected balance sheet information, reflective of inter-company and intra-company eliminations, at September 30, 2016 and 2015 for each segment is as follows:

	Three months ended September 30, 2016									Three months ended September 30, 2015
	Commercial/		Mortgage							Commercial/		Mortgage
	Retail		Banking		Holding					Retail		Banking		Holding
	Bank		Division		Company			Total		Bank		Division		Company			Total
	(in thousands)									(in thousands)
Interest income	$	6,171	$	424	$	2		$	6,597	$	5,963	$	593	$	1		$	6,557
Interest expense		200		423		74			697		15		593		60			668
Net interest income (loss)		5,971		1		(72	)		5,900		5,948		-		(59	)		5,889
Provision for loan losses		-		-		-			-		450		-		-			450
Net interest income (loss) after provision for loan losses		5,971		1		(72	)		5,900		5,498		-		(59	)		5,439
Non-interest income		672		2,510		-			3,182		421		3,220		-			3,641
Non-interest expense		4,354		2,433		136			6,923		4,647		2,326		42			7,015
Income (loss) before income taxes		2,289		78		(208	)		2,159		1,272		894		(101	)		2,065
Income tax (benefit) expense		619		22		(46	)		595		332		331		(34	)		629
Net income (loss)	$	1,670	$	56	$	(162	)	$	1,564	$	940	$	563	$	(67	)	$	1,436

	Nine months ended September 30, 2016									Nine months ended September 30, 2015
	Commercial/		Mortgage							Commercial/		Mortgage
	Retail		Banking		Holding					Retail		Banking		Holding
	Bank		Division		Company			Total		Bank		Division		Company			Total
			(in thousands)									(in thousands)
Interest income	$	18,684	$	1,134	$	6		$	19,824	$	18,042	$	1,563	$	5		$	19,610
Interest expense		783		1,134		207			2,124		306		1,563		177			2,046
Net interest income (loss)		17,901		-		(201	)		17,700		17,736		-		(172	)		17,564
Provision for loan losses		-		-		-			-		1,285		-		-			1,285
Net interest income (loss) after provision for loan losses		17,901		-		(201	)		17,700		16,451		-		(172	)		16,279
Non-interest income		1,625		7,115		-			8,740		1,204		9,848		-			11,052
Non-interest expense		13,328		6,842		837			21,007		13,297		7,215		146			20,658
Income (loss) before income taxes		6,198		273		(1,038	)		5,433		4,358		2,633		(318	)		6,673
Income tax (benefit) expense		1,645		98		(218	)		1,525		1,068		982		(108	)		1,942
Net income (loss)	$	4,553	$	175	$	(820	)	$	3,908	$	3,290	$	1,651	$	(210	)	$	4,731
Total assets	$	664,643	$	43,913	$	334		$	708,890	$	636,074	$	52,492	$	408		$	688,974
Net loans		497,462		42,616		-			540,078		458,322		50,762		-			509,084
Equity		4,553		175		60,838			65,566		3,290		1,651		55,157			60,098

10 

The mortgage banking division experienced strong growth in originations from 2007 through 2012 due to low interest rates and due to the purchase of a retail loan production office in July of 2010. Origination of home mortgage loans has been volatile over the past few years and is dependent on a number of factors including the level of interest rates, general economic conditions, real estate values, and underwriting criteria to qualify borrowers. Mortgage loan originations were $378.1 million, $544.6 million, $411.3 million, and $761.0 million for the first nine months of 2016, 2015, 2014, and 2013, respectively. Interest rate risk has been minimized by obtaining optional loan sales commitments when loan origination commitments are made or by entering into hedging transactions whereby mortgage backed securities are sold for the estimated closing value of loan commitments. Borrower fraud is a risk that has been minimized by prudent underwriting and by obtaining indemnification from the originating bank or broker for the risks the Company assumes. Warranty provisions and related warranty liabilities were established in 2009 and subsequent years to provide for potential claims that might arise from borrower fraud, underwriting errors, or compliance assessments. Warranty expense was $19,000 and $42,000 for the three months ended September 30, 2016 and 2015, respectively, and was $42,000 and $138,000 for the nine months ended September 30, 2016 and 2015, respectively. The lower warranty expense in 2016 relates to lower originations and an updated study of historical claims and various market data conducted in 2016. The warranty liability, which is available to fund future warranty claims, was $1,467,000 and $1,547,000 at September 30, 2016 and December 31, 2015, respectively. Claims incurred since establishment of the mortgage division in 2007 have totaled $1,238,000. In addition, seven loans with a total current carrying balance, including fair value loss adjustments recorded when transferred, of $1,555,000 have been repurchased and are included in loans held for investment.

Note K – Securities

A summary of the amortized cost, gross unrealized gains and losses and estimated fair values of securities available-for-sale and held-to-maturity follows:

11 

			Gross		Gross		Estimated
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
			(in thousands)
September 30, 2016
Available-for-sale
Municipal securities	$	16,121	$	700	$	-	$	16,821
FNMA, FHLMC, and GNMA mortgage-backed securities		11,591		596		-		12,187
Corporate securities		9,059		47		4		9,102
Asset-backed securities		3,179		113		-		3,292
Unrestricted stock		43		13		-		56
	$	39,993	$	1,469	$	4	$	41,458
Held-to-maturity
Municipal securities	$	7,126	$	283	$	-	$	7,409
FNMA mortgage-backed securities		4,778		127		-		4,905
Corporate securities		500		-		-		500
Asset-backed securities		1,627		116		-		1,743
	$	14,031	$	526	$	-	$	14,557
December 31, 2015
Available-for-sale
Municipal securities	$	17,095	$	569	$	8	$	17,656
FNMA, FHLMC, and GNMA mortgage-backed securities		16,589		390		1		16,978
Corporate securities		8,903		58		22		8,939
Asset-backed securities		3,654		78		-		3,732
Unrestricted stock		43		12		-		55
	$	46,284	$	1,107	$	31	$	47,360
Held-to-maturity
Municipal securities	$	7,360	$	204	$	-	$	7,564
FNMA mortgage-backed securities		5,251		17		15		5,253
Corporate securities		500		-		-		500
Asset-backed securities		1,843		66		-		1,909
	$	14,954	$	287	$	15	$	15,226

12 

The scheduled maturities of debt securities available-for-sale and held-to-maturity at September 30, 2016 were as follows:

	Bullet Securities				Declining Balance Securities				Total
			Estimated				Estimated				Estimated
	Amortized		Fair		Amortized		Fair		Amortized		Fair
	Cost		Value		Cost		Value		Cost		Value
	(in thousands)
Available-for-sale
Due in one year or less	$	2,997	$	3,000	$	-	$	-	$	2,997	$	3,000
Due from one to five years		8,541		8,818		1,695		1,854		10,236		10,672
Due from five to ten years		7,659		7,929		4,802		4,984		12,461		12,913
Over ten years		5,983		6,176		8,273		8,641		14,256		14,817
	$	25,180	$	25,923	$	14,770	$	15,479	$	39,950	$	41,402
Held-to-maturity
Due in one year or less	$	-	$	-	$	-	$	-	$	-	$	-
Due from one to five years		-		-		-		-		-		-
Due from five to ten years		3,819		3,925		-		-		3,819		3,925
Over ten years		3,807		3,984		6,405		6,648		10,212		10,632
	$	7,626	$	7,909	$	6,405	$	6,648	$	14,031	$	14,557

Securities with a carrying value of approximately $13,847,000 at September 30, 2016 and $16,220,000 at December 31, 2015 were pledged to secure retail repurchase agreements and certain deposits.

Management evaluates securities for other-than-temporary impairment at least quarterly. Consideration is given to the length of time and the extent to which the fair values have been less than amortized cost, the financial condition and near-term prospects of the security issuers, and the intent and ability to retain impaired investments for a period to allow recovery in fair value.

At September 30, 2016, one corporate debt security with $977,000 in fair value had an unrealized loss of $4,000. The value of this security with an unrealized loss fluctuates based on changes in the value of U.S. Treasury bonds with similar characteristics, debt ratings changes of the issuing institution, financial performance of the related institution, world events, and demand for the security. As management has the ability and intent to hold this debt security until maturity, the decline is not deemed to be other-than-temporary.

Information pertaining to securities with gross unrealized losses at September 30, 2016 and December 31, 2015, by category and length of time that individual securities have been in a continuous loss position follows:

	Less Than 12 Months						12 Months or Greater						Total
	Number				Gross		Number				Gross		Number				Gross
	of		Fair		Unrealized		of		Fair		Unrealized		of		Fair		Unrealized
	Securities		Value		Losses		Securities		Value		Losses		Securities		Value		Losses
	(dollars in thousands)
September 30, 2016:
Corporate securities		0	$	-	$	-		1	$	977	$	4		1	$	977	$	4
Total		0	$	-	$	-		1	$	977	$	4		1	$	977	$	4
December 31, 2015:
Municipal securities		3	$	3,440	$	2		1	$	244	$	6		4	$	3,684	$	8
FNMA and  FHLMC mortgage-backed securities		2		5,414		16		0		-		-		2		5,414		16
Corporate securities		1		985		15		1		973		7		2		1,958		22
Total		6	$	9,839	$	33		2	$	1,217	$	13		8	$	11,056	$	46

13 

Note L – Loans and allowance for loan losses

The activity in the allowance for loan losses for the first nine months of 2016 and year ended 2015 and related asset balances at September 30, 2016 and December 31, 2015 is summarized as follows:

	Construction &			Commercial			Home equity			Residential			Commercial			Consumer
	development			real estate			lines			real estate			& industrial			& other			Unallocated			Total
Allowance for loan losses:	(in thousands)
2016
Beginning of year balance	$	1,005		$	2,546		$	441		$	507		$	1,309		$	20		$	44		$	5,872
Provision for loan losses		(691	)		722			283			(20	)		(347	)		12			41			-
Charge-offs		-			(588	)		(51	)		(46	)		-			(2	)		-			(687	)
Recoveries		87			249			4			50			184			5			-			579
Balance at September 30	$	401		$	2,929		$	677		$	491		$	1,146		$	35		$	85		$	5,764
2015
Beginning of year balance	$	1,495		$	2,144		$	766		$	483		$	1,413		$	28		$	191		$	6,520
Provision for loan losses		(490	)		1,691			(332	)		48			327			(12	)		(147	)		1,085
Charge-offs		-			(2,990	)		(104	)		(130	)		(914	)		(7	)		-			(4,145	)
Recoveries		-			1,701			111			106			483			11			-			2,412
Balance at December 31	$	1,005		$	2,546		$	441		$	507		$	1,309		$	20		$	44		$	5,872
Balances at September 30, 2016
Allowance for loan losses:
Balance at September 30	$	401		$	2,929		$	677		$	491		$	1,146		$	35		$	85		$	5,764
Ending balance individually evaluated for impairment	$	-		$	782		$	143		$	275		$	-		$	-		$	-		$	1,200
Ending balance collectively evaluated for impairment	$	401		$	2,147		$	534		$	216		$	1,146		$	35		$	85		$	4,564
Loans Outstanding:
Balance at September 30	$	73,817		$	235,816		$	81,181		$	51,939		$	56,529		$	3,944		$	-		$	503,226
Ending balance individually evaluated for impairment	$	95		$	10,194		$	490		$	4,511		$	-		$	-		$	-		$	15,290
Ending balance collectively evaluated for impairment	$	73,722		$	225,622		$	80,691		$	47,428		$	56,529		$	3,944		$	-		$	487,936
Balances at December 31, 2015
Allowance for loan losses:
Balance at December 31	$	1,005		$	2,546		$	441		$	507		$	1,309		$	20		$	44		$	5,872
Ending balance individually evaluated for impairment	$	12		$	480		$	51		$	272		$	18		$	-		$	-		$	833
Ending balance collectively evaluated for impairment	$	993		$	2,066		$	390		$	235		$	1,291		$	20		$	44		$	5,039
Loans Outstanding:
Balance at December 31	$	62,289		$	213,987		$	78,952		$	52,363		$	55,641		$	2,572		$	-		$	465,804
Ending balance individually evaluated for impairment	$	175		$	9,044		$	390		$	4,423		$	362		$	-		$	-		$	14,394
Ending balance collectively evaluated for impairment	$	62,114		$	204,943		$	78,562		$	47,940		$	55,279		$	2,572		$	-		$	451,410

A loan is past due when the borrower has not made a payment by the contractual due date. The following table presents the carrying value of loans that are past due thirty days or more. Loans which are ninety days or more past due are generally on non-accrual status, at which time all accrued interest is removed from interest income. All non-accrual loans are reflected in the past due ninety days or more category shown in the following table:

14 

													Loans Past
	Number of Days Past Due												Due 90 Days
					90 Days		Total				Total		or More
	30-59 Days		60-89 Days		or More		Past Due		Current		Loans		& Accruing
	(in thousands)
At September 30, 2016
Real Estate Loans:
Construction & development	$	-	$	-	$	95	$	95	$	73,722	$	73,817	$	-
Commercial real estate		-		-		2,851		2,851		232,965		235,816		-
Home equity lines		210		-		317		527		80,654		81,181		-
Residential real estate		186		-		1,129		1,315		50,624		51,939		-
Total real estate		396		-		4,392		4,788		437,965		442,753		-
Commercial & industrial		-		-		-		-		56,529		56,529		-
Consumer & other		-		-		-		-		3,944		3,944		-
Total loans	$	396	$	-	$	4,392	$	4,788	$	498,438	$	503,226	$	-
At December 31, 2015
Real Estate Loans:
Construction & development	$	22	$	-	$	175	$	197	$	62,092	$	62,289	$	-
Commercial real estate		-		-		1,735		1,735		212,252		213,987		-
Home equity lines		125		-		265		390		78,562		78,952		-
Residential real estate		528		180		935		1,643		50,720		52,363		-
Total real estate		675		180		3,110		3,965		403,626		407,591		-
Commercial & industrial		-		-		-		-		55,641		55,641		-
Consumer & other		-		-		-		-		2,572		2,572		-
Total loans	$	675	$	180	$	3,110	$	3,965	$	461,839	$	465,804	$	-

Loans are determined to be impaired when, based on current information and events, it is probable that all amounts will not be collected when due according to the contractual terms of the original loan agreement. At September 30, 2016 and December 31, 2015, the total recorded investment in impaired loans amounted to approximately $15,290,000 and $14,394,000, respectively. Of these impaired loans, $4,392,000 and $3,110,000 were on non-accrual status at September 30, 2016 and December 31, 2015, respectively.

15 

The recorded investment and related information for impaired loans is summarized as follows:

	Impaired Loans
	At end of period						For Period Ended
			Unpaid		Related		Average		Interest
	Recorded		Principal		Loan Loss		Recorded		Income
	Investment		Balance		Allowance		Investment		Recognized
	(in thousands)
September 30, 2016
With no related allowance recorded
Real Estate Loans:
Construction & development	$	95	$	95	$	-	$	76	$	-
Commercial real estate		2,988		3,785		-		5,481		85
Home equity lines		184		359		-		360		13
Residential real estate		2,002		2,129		-		2,182		76
Total real estate		5,269		6,368		-		8,099		174
Commercial & industrial		-		-		-		-		-
Consumer & other		-		-		-		-		-
Total loans		5,269		6,368		-		8,099		174
With an allowance recorded
Real Estate Loans:
Construction & development		-		-		-		-		-
Commercial real estate		7,206		7,729		782		7,815		275
Home equity lines		306		313		143		314		9
Residential real estate		2,509		2,618		275		2,655		71
Total real estate		10,021		10,660		1,200		10,784		355
Commercial & industrial		-		-		-		-		-
Consumer & other		-		-		-		-		-
Total loans		10,021		10,660		1,200		10,784		355
Total impaired loans	$	15,290	$	17,028	$	1,200	$	18,883	$	529
December 31, 2015
With no related allowance recorded
Real Estate Loans:
Construction & development	$	-	$	-	$	-	$	-	$	-
Commercial real estate		2,819		3,380		-		7,484		193
Home equity lines		193		360		-		362		16
Residential real estate		2,565		2,689		-		2,754		149
Total real estate		5,577		6,429		-		10,600		358
Commercial & industrial		-		-		-		-		-
Consumer & other		-		-		-		-		-
Total loans		5,577		6,429		-		10,600		358
With an allowance recorded
Real Estate Loans:
Construction & development		175		175		12		97		1
Commercial real estate		6,225		6,453		480		6,569		358
Home equity lines		197		265		51		265		11
Residential real estate		1,858		1,955		272		2,057		100
Total real estate		8,455		8,848		815		8,988		470
Commercial & industrial		362		362		18		383		20
Consumer & other		-		-		-		-		-
Total loans		8,817		9,210		833		9,371		490
Total impaired loans	$	14,394	$	15,639	$	833	$	19,971	$	848

16 

Loans that are past due 90 days or more or where there is serious doubt as to collectability are placed on non-accrual status. Non-accrual loans are not returned to accrual status unless principal and interest are current and borrowers have demonstrated the ability to make contractual payments. Accrued interest is reversed through a charge to income when loans are placed on non-accrual status, and future payments on non-accrual loans are generally applied to principal. The following is a summary of non-accrual loans at September 30, 2016 and December 31, 2015:

	September 30,		December 31,
	2016		2015
	(in thousands)
Real Estate Loans:
Construction & development	$	95	$	175
Commercial real estate		2,851		1,735
Home equity lines		317		265
Residential real estate		1,129		935
Total real estate		4,392		3,110
Commercial & industrial		-		-
Consumer & other		-		-
Total loans	$	4,392	$	3,110

Loans are graded according to an internal loan rating classification system when originated. Loan grades are periodically re-evaluated during servicing, internal loan reviews, and external loan reviews. The general categories of the internal loan rating classification are:

· Pass - Acceptable loans

· Special Mention - Loans with potential identified weaknesses in administration or servicing.

· Classified - Adversely classified loans with identified weaknesses, and potential or identified losses of principal and/or interest due.

17 

The following is a breakdown of loans by the general categories of the internal rating system:

At September 30, 2016
	Pass		Special Mention		Classified		Total
	(in thousands)
Real Estate Loans:
Construction & development	$	73,722	$	-	$	95	$	73,817
Commercial real estate		225,368		7,435		3,013		235,816
Home equity lines		80,241		296		644		81,181
Residential real estate		48,620		944		2,375		51,939
Total real estate		427,951		8,675		6,127		442,753
Commercial & industrial		56,509		20		-		56,529
Consumer & other		3,944		-		-		3,944
Total loans	$	488,404	$	8,695	$	6,127	$	503,226

At December 31, 2015
	Pass		Special Mention		Classified		Total
	(in thousands)
Real Estate Loans:
Construction & development	$	62,110	$	-	$	179	$	62,289
Commercial real estate		202,252		9,270		2,465		213,987
Home equity lines		78,014		128		810		78,952
Residential real estate		48,251		1,635		2,477		52,363
Total real estate		390,627		11,033		5,931		407,591
Commercial & industrial		54,691		950		-		55,641
Consumer & other		2,572		-		-		2,572
Total loans	$	447,890	$	11,983	$	5,931	$	465,804

During 2016 and 2015, the Company restructured certain loans to improve the likelihood that the loans would be repaid in full under the modified terms in accordance with reasonable repayment schedules. Management evaluates each of these loans in accordance with generally accepted accounting principles to determine whether they should be reported as troubled debt restructurings.

The Company offers a variety of modifications to borrowers. The modification categories offered can generally be described in the following categories:

· Rate Modification – A modification in which the interest rate is changed.

· Term Modification – A modification in which the maturity date, timing of payments, or frequency of payments is changed.

· Interest Only Modification – A modification in which the loan is converted to interest only payments for a period of time.

· Payment Modification – A modification in which the dollar amount of the payment is changed, other than an interest only modification described above.

· Combination Modification – Any other type of modification, including the use of multiple categories above.

Available commitments for troubled debt restructurings outstanding as of September 30, 2016 totaled $426,000.

18 

The following tables present troubled debt restructurings as of September 30, 2016 and December 31, 2015:

	Troubled Debt Restructurings
	September 30, 2016
					Non-Accrual				Total
	Accrual Status				Status				Modifications
	#		Amount		#		Amount		#		Amount
	($ in thousands)
Real Estate Loans:
Construction & development		0	$	-		1	$	95		1	$	95
Commercial real estate		12		6,881		3		2,193		15		9,074
Home equity lines		0		-		0		-		0		-
Residential real estate		11		2,194		1		155		12		2,349
Total real estate		23		9,075		5		2,443		28		11,518
Commercial & industrial		1		301		0		-		1		301
Consumer & other		0		-		0		-		0		-
Total loans		24	$	9,376		5	$	2,443		29	$	11,819

	December 31, 2015
					Non-Accrual				Total
	Accrual Status				Status				Modifications
	#		Amount		#		Amount		#		Amount
	($ in thousands)
Real Estate Loans:
Construction & development		0	$	-		1	$	175		1	$	175
Commercial real estate		12		7,073		1		338		13		7,411
Home equity lines		0		-		0		-		0		-
Residential real estate		11		2,252		2		388		13		2,640
Total real estate		23		9,325		4		901		27		10,226
Commercial & industrial		1		362		0		-		1		362
Consumer & other		0		-		0		-		0		-
Total loans		24	$	9,687		4	$	901		28	$	10,588

The Bank’s policy is that loans placed on non-accrual status will typically remain on non-accrual status until all principal and interest payments are brought current and the prospect for future payment in accordance with the loan agreement appears relatively certain. The Bank’s policy generally refers to six months of payment performance as sufficient to warrant a return to accrual status.

Troubled debt restructurings are classified as impaired loans when modified, and fair value calculations are performed to determine the specific reserves required in the allowance for loan losses related to these loans. Troubled debt restructurings can be removed from such status and returned to non-impaired status in years subsequent to restructure if the interest rate charged at restructure was greater than or equal to the rate charged for a new extension of credit with comparable risk and if the loan is performing and there is no available information to indicate that performance will not continue.

19 

The following table presents newly restructured loans that occurred during the three and nine months ended September 30, 2016; there were no outstanding newly restructured loans as of September 30, 2015.

	New Troubled Debt Restructurings
	Three Months Ended September 30, 2016
	Rate				Term				Payment				Combination				Total
	Modifications				Modifications				Modifications				Modifications				Modifications
	#		Amount		#		Amount		#		Amount		#		Amount		#		Amount
	($ in thousands)
Pre-Modification Outstanding Recorded Investment:
Real Estate Loans:
Construction & development		0	$	-		0	$	-		0	$	-		1	$	-		1	$	-
Total real estate		0		-		0		-		0		-		1		-		1		-
Consumer & other		0		-		0		-		0		-		0		-		0		-
Total loans		0	$	-		0	$	-		0	$	-		1	$	-		1	$	-
Post-Modification Outstanding Recorded Investment:
Real Estate Loans:
Construction & development		0	$	-		0	$	-		0	$	-		1	$	95		1	$	95
Total real estate		0		-		0		-		0		-		1		95		1		95
Consumer & other		0		-		0		-		0		-		0		-		0		-
Total loans		0	$	-		0	$	-		0	$	-		1	$	95		1	$	95

	New Troubled Debt Restructurings
	Nine Months Ended September 30, 2016
	Rate				Term				Payment				Combination				Total
	Modifications				Modifications				Modifications				Modifications				Modifications
	#		Amount		#		Amount		#		Amount		#		Amount		#		Amount
	($ in thousands)
Pre-Modification Outstanding Recorded Investment:
Real Estate Loans:
Construction & development		0	$	-		0	$	-		0	$	-		1	$	-		1	$	-
Commercial real estate		0		-		2		2,488		0		-		0		-		2		2,488
Total real estate		0		-		2		2,488		0		-		1		-		3		2,488
Commercial & industrial		0		-		0		-		0		-		0		-		0		-
Total loans		0	$	-		2	$	2,488		0	$	-		1	$	-		3	$	2,488
Post-Modification Outstanding Recorded Investment:
Real Estate Loans:
Construction & development		0	$	-		0	$	-		0	$	-		1	$	95		1	$	95
Commercial real estate		0		-		2		1,900		0		-		0		-		2		1,900
Total real estate		0		-		2		1,900		0		-		1		95		3		1,995
Commercial & industrial		0		-		0		-		0		-		0		-		0		-
Total loans		0	$	-		2	$	1,900		0	$	-		1	$	95		3	$	1,995

20 

The following table presents the troubled debt restructurings with a payment default, with the payment default occurring within 12 months of the restructure date, and the payment default occurring during the nine months ended September 30, 2016 and 2015.

TDRs with a payment default occurring within 12 months of restructure
	During the nine months ended
	September 30, 2016				September 30, 2015
	#		Amount		#		Amount
	($ in thousands)
Real Estate Loans:
Commercial real estate		2	$	1,900		0	$	-
Residential real estate		0		-		0		-
Total real estate		2		1,900		0		-
Commercial & industrial		0		-		0		-
Total loans		2	$	1,900		0	$	-

Troubled debt restructuring defaults can result in a higher allowance for loan losses and a corresponding higher provision for loan losses because defaults generally negatively impact the timing of and expected collections from these impaired loans. Impaired loans, which include troubled debt restructurings, are evaluated for specific additions to the allowance for loan losses by subtracting the recorded investment in these impaired loans from their fair values. Fair value is generally determined by the present value of future cash flows, collateral value, or liquidation value. Defaults generally reduce the present value of the future cash flows and can negatively impact the collateral values if declining real estate values are impacting the sale of collateral.

Loans secured by one to four family residential properties with unpaid principal balances of $592,000 at September 30, 2016 were in the process of foreclosure. These loans have been evaluated for impairment and related allowances for loan losses have been made where collateral values are less than principal loan balances.

Note M – Fair value measurements

The Company has adopted the accounting standards within FASB Accounting Standards Codification (ASC) 820 “Fair Value Measurements and Disclosures”, which provides a framework for measuring fair value under GAAP and enhances disclosures about fair value measurements. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The Company utilizes fair value measurements to record fair value adjustments to certain assets and to determine fair value disclosures. The Company has not elected the fair value option to value liabilities. Securities available-for-sale and loans held for sale are recorded at fair value on a recurring basis. Additionally, from time to time, the Company may be required to record at fair value other assets on a nonrecurring basis, such as impaired loans held for investment and certain other assets. These nonrecurring fair value adjustments typically involve application of lower of cost or market accounting or write-downs of individual assets.

When measuring fair value, valuation techniques should be appropriate in the circumstances and consistently applied. A hierarchy is used to prioritize valuation inputs into the following three levels to determine fair value:

Level 1 – quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2 – observable inputs other than the quoted prices included in Level 1.

Level 3 – unobservable inputs.

Fair Value on a Recurring Basis. The Company measures certain assets at fair value on a recurring basis and the following is a general description of the methods used to value such assets.

Securities available-for-sale

Securities available-for-sale are recorded at fair value. Fair value measurement is based upon quoted prices, if available. If quoted prices are not available, fair values are measured using independent pricing models or other model-based valuation techniques such as the present value of future cash flows, adjusted for the security’s credit rating, prepayment assumptions and other factors such as credit loss assumptions. Level 1 securities include those traded on an active exchange, such as the New York Stock Exchange, U.S. Treasury securities and certain corporate bonds that are traded by dealers or brokers in active over-the-counter markets and money market funds. Level 2 securities include mortgage-backed securities issued by government sponsored entities, municipal bonds and most corporate debt securities. Securities classified as Level 3 include asset-backed securities and corporate debt securities in less liquid markets.

21 

Loans held for sale

The Company opted to account for loans held for sale at fair value which is measured based on what secondary markets are currently offering for portfolios with similar characteristics. As such, the Company classifies loans subject to recurring fair value adjustments as Level 2 valuation.

Interest rate lock commitments

The mortgage banking division of the Company sells its residential mortgage loans held for sale on a forward best efforts basis at fixed prices or on a mandatory basis by entering into forward sale mortgage-backed securities at approximately the same time as fixed rates are given to borrowers. The value of the estimated interest rate lock commitments (“IRLCs”) given to borrowers were marked to market through the income statement during 2016 and 2015. The significant unobservable input used in the Level 3 fair value measurement of the Company’s IRLCs on loans held for sale is the closing ratio, which represents the percentage of loans currently in a lock position which management estimates will ultimately close. The closing ratio is largely dependent on loan processing stages and the change in prevailing interest rates from the time of the rate lock. The closing ratio is computed by management using historical data.

The fair value of IRLCs is based on servicing rate premium, origination income net of origination costs, fall out rates and changes in loan pricing due to delays in meeting commitment closing dates. The Company classifies IRLCs as Level 3. Gain or loss on IRLCs for the period is included in mortgage banking income of non-interest income on the Consolidated Statements of Income. The mortgage banking division resumed reporting IRLCs in the first quarter of 2015 after having suspended recognition in 2014 due to immateriality. Below is a summary of activity related to interest rate lock commitments for the nine months ended September 30, 2016 and 2015.

	Interest Rate Lock Commitments
	Level 3
	Fair Value		Fair Value
	(in thousands)
Balance, December 31, 2015 and 2014	$	393	$	-
Gains included in other income		75		716
Transfers in and out		-		-
Balance, September 30, 2016 and 2015	$	468	$	716

Unrealized gains (losses) on forward sale mortgage-backed securities

The mortgage banking division of the Company resumed selling a portion of its loans on a mandatory basis in 2015 and hedging the related loans and forward commitments to borrowers by entering into forward sale mortgage-backed securities transactions at approximately the same time that fixed rate commitments are given to borrowers. The forward sale mortgage-backed securities are purchased or closed when the related loan sales are consummated. The unrealized gains or losses on forward sale mortgage-backed securities are included in mortgage banking income to properly match the income from IRLCs noted above. The Company classifies unrealized gains (losses) on forward sale mortgage-backed securities as Level 1 since end of the day bid prices in the active mortgage backed securities market are used to determine the unrealized gains (losses). Unrealized gains are shown as other assets and unrealized losses are shown as other liabilities on the consolidated balance sheet.

22 

Assets measured at fair value on a recurring basis at September 30, 2016 and December 31, 2015 are summarized below:

	Assets
	Measured at			Fair Value Measured Using
	Fair Value			Level 1			Level 2		Level 3
	(in thousands)
At September 30, 2016:
Securities available-for-sale:
Municipal securities	$	16,821		$	-		$	16,821	$	-
Mortgage-backed securities		12,187			-			12,187		-
Corporate securities		9,102			-			9,102		-
Asset backed securities		3,292			-			3,292		-
Unrestricted stock		56			56			-		-
Total available-for-sale securities		41,458			56			41,402		-
Loans held for sale		42,616			-			42,616		-
Interest rate lock commitments		468			-			-		468
Unrealized losses, net of gains, on forward sale mortgage-backed securities		(255	)		(255	)		-		-
Total	$	84,287		$	(199	)	$	84,018	$	468
At December 31, 2015:
Securities available-for-sale:
Municipal securities	$	17,656		$	-		$	17,656	$	-
Mortgage-backed securities		16,978			-			16,978		-
Corporate securities		8,939			-			8,939		-
Asset-backed securities		3,732			-			3,732		-
Unrestricted stock		55			55			-		-
Total available-for-sale securities		47,360			55			47,305		-
Loans held for sale		39,583			-			39,583		-
Interest rate lock commitments		393			-			-		393
Unrealized losses, net of gains, on forward sale mortgage-backed securities		(30	)		(30	)		-		-
Total	$	87,306		$	25		$	86,888	$	393

Fair Value on a Non-recurring Basis. The Company measures certain assets at fair value on a non-recurring basis and the following is a general description of the methods used to value such assets.

Impaired loans

The Company does not record loans at fair value on a recurring basis. However, from time to time, a loan is considered impaired and an allowance for loan losses is established. Loans for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement are considered impaired. Impaired loans are recorded at fair value less estimated selling costs. Once a loan is identified as individually impaired, the Company measures impairment. Fair values of impaired loans are generally estimated using one of several methods, including collateral value, liquidation value, discounted cash flows and, in rare cases, the market value of the note. Those impaired loans not requiring an allowance represent loans for which the net present value of the expected cash flows or fair value of the collateral less costs to sell exceed the recorded investments in such loans. At September 30, 2016 and December 31, 2015, a majority of the total impaired loans were evaluated based on the fair value of the collateral. When the fair value of the collateral is based on an executed sales contract with an independent third party, the Company records the impaired loans as nonrecurring Level 1. If the collateral is based on another observable market price or a current appraised value, the Company records the impaired loans as nonrecurring Level 2. When an appraised value is not available or the Company determines the fair value of the collateral is further impaired below the appraised value and there is no observable market price, the Company records the impaired loan as nonrecurring Level 3. Impaired loans can also be evaluated for impairment using the present value of expected future cash flows discounted at the loan’s effective interest rate. The measurement of impaired loans using future cash flows discounted at the loan’s effective interest rate rather than the market rate of interest is not a fair value measurement and is therefore excluded from fair value disclosure requirements. Impaired loans are reviewed and evaluated on at least a quarterly basis for additional impairment and adjusted accordingly.

23 

Other real estate owned and repossessed assets

Properties acquired through, or in lieu of, loan foreclosure are held for sale and are initially recorded at fair value less costs to sell at the date of foreclosure. Subsequent to foreclosure, valuations are periodically performed by management and the assets are carried at the lower of carrying value or the new fair value less estimated selling costs. Fair value is generally based upon current appraisals, comparable sales, and other estimates of value obtained principally from independent sources, adjusted for selling costs. When the fair value of the collateral is based on an observable market price or a current appraised value, the Company records the asset as nonrecurring Level 2. However, the Company also considers other factors or recent developments which could result in adjustments to the collateral value estimates indicated in the appraisals such as changes in absorption rates or market conditions from the time of valuation. In situations where an appraisal less estimated selling costs is used to determine fair value, management adjustments are significant to the fair value measurements, or other means are used to estimate fair value in the absence of an appraisal, the Company records the impaired loan as nonrecurring Level 3 within the valuation hierarchy.

Assets measured at fair value on a non-recurring basis at September 30, 2016 and December 31, 2015 are summarized below:

	Assets
	Measured at		Fair Value Measured Using
Description	Fair Value		Level 1		Level 2		Level 3
	(in thousands)
At September 30, 2016:
Impaired loans	$	14,090	$	-	$	3,460	$	10,630
Other real estate owned		3,914		-		-		3,914
	$	18,004	$	-	$	3,460	$	14,544
At December 31, 2015:
Impaired loans	$	13,561	$	-	$	4,400	$	9,161
Other real estate owned		4,592		-		-		4,592
	$	18,153	$	-	$	4,400	$	13,753

24 

Fair Value on a Recurring or Non-recurring Basis – Unobservable Inputs for Level 3. For Level 3 assets and liabilities measured at fair value on a recurring or non-recurring basis as of September 30, 2016, the significant unobservable inputs used in the fair value measurements were as follows:

				Significant	Significant
			Valuation	Unobservable	Unobservable
Description	Fair Value		Technique	Inputs	Input Value
	(in thousands)
At September 30, 2016:
Impaired loans	$	10,630	Discounted appraisals	Collateral discounts	8.00% - 10.00%
			Discounted cash flows	Cash flow estimates/	80% - 100% /
				discounted rates	original note rate
Other real estate owned		3,914	Discounted appraisals	Collateral discounts	8.00% - 10.00%
Net derivative assets/liabilities:
Interest rate lock commitments		468	Pricing models	Loan closing ratios	68% - 100%
					82% Average
At December 31, 2015:
Impaired loans	$	9,161	Discounted appraisals	Collateral discounts	8.00% - 10.00%
			Discounted cash flows	Cash flow estimates/	80% - 100% /
				discounted rates	original note rate
Other real estate owned		4,592	Discounted appraisals	Collateral discounts	8.00% - 10.00%
Net derivative assets/liabilities:
Interest rate lock commitments		393	Pricing models	Loan closing ratios	25% - 100%
					81% Average

Fair Value of items not valued as such. The Company measures certain financial assets and liabilities at fair value for disclosure purposes only. The assumptions used in estimating the fair value of these financial instruments are detailed below:

Bank term deposits: Discounted cash flows have been used to value bank term deposits. The discount rate used is based on interest rates currently being offered by banks accepting institutional term deposits on comparable terms.

Securities held-to-maturity: The fair values of securities held to maturity are recorded on a non-recurring basis when an impairment in value that is deemed to be other than temporary occurs.  Fair value measurement is based upon quoted prices, if available.  If quoted prices are not available, fair values are measured using independent pricing models or other model-based valuation techniques such as the present value of future cash flows, adjusted for the security’s credit rating, prepayment assumptions and other factors such as credit loss assumptions.  At September 30, 2016 and December 31, 2015, there were no fair value adjustments for other than temporary impairment of securities held-to-maturity.

Net non-impaired loans held for investment: For most variable rate loans, fair values are based on carrying values. Fixed rate commercial, other installment, and certain real estate mortgage loans are valued using discounted cash flows. The discount rates used to determine the present value of these loans are based on interest rates currently being charged by the Company on comparable loans as to credit risk and term.

Time deposits: Discounted cash flows have been used to value fixed rate and variable rate term deposits. The discount rate used is based on interest rates currently being offered by the Company on comparable deposits as to amount and term.

Advances from the Federal Home Loan Bank: Discounted cash flows have been used to value fixed rate term advances. The discount rates used are based on interests rates currently being offered by the Federal Home Loan Bank on comparable advances as to amounts and terms.

25 

Trust preferred subordinated debt: The fair value of trust preferred subordinated debt was determined by discounting cash flows using a rate 3% higher than the actual current rate over an estimated remaining term of 11.25 years in 2016 and 12 years in 2015. The trust preferred debt was issued at favorable rates in 2004, and current rates are approximately 3% higher when available. Under the current capital guidelines, the Company’s trust preferred subordinated debt is included in Tier 1 capital.

The following presents the carrying amount, fair value, and placement in the fair value hierarchy of financial instruments at September 30, 2016 and December 31, 2015. This table excludes financial instruments for which the carrying amount approximates fair value. For short-term financial assets such as cash and due from banks and interest-bearing deposits with banks, the carrying amount is a reasonable estimate of fair value due to the relatively short time between the origination of the instrument and its expected realization. For financial liabilities such as non-interest bearing demand deposits, NOW, money market and savings deposits, the carrying amount is a reasonable estimate of fair value due to these products having no stated maturity.

					Fair Value Measurements
					Quoted
					Prices in
					Active Markets		Significant
					for Identical		Other		Significant
					Assets or		Observable		Unobservable
	Carrying		Fair		Liabilities		Inputs		Inputs
	Amount		Value		(Level 1)		(Level 2)		(Level 3)
	(in thousands)
September 30, 2016
Financial Instruments - Assets
Bank term deposits	$	15,139	$	15,152	$	-	$	15,152	$	-
Investment securities held-to-maturity		14,031		14,557		-		14,557		-
Net non-impaired loans held for investment		483,372		483,695		-		-		483,695
Financial Instruments - Liabilities
Time deposits		103,062		103,257		-		-		103,257
Advances from the Federal Home Loan Bank		12,100		12,264		-		-		12,264
Subordinated debentures		19,610		17,169		-		-		17,169
December 31, 2015
Financial Instruments - Assets
Bank term deposits	$	16,604	$	16,571	$	-	$	16,571	$	-
Investment securities held-to-maturity		14,954		15,226		-		15,226		-
Net non-impaired loans held for investment		446,371		446,535		-		-		446,535
Financial Instruments - Liabilities
Time deposits		132,303		131,889		-		-		131,889
Advances from the Federal Home Loan Bank		2,681		2,681		-		-		2,681
Subordinated debentures		19,610		17,018		-		-		17,018

Note N – Derivatives and financial instruments

A derivative is a financial instrument or arrangement that derives its cash flows and value by reference to an underlying instrument, index or referenced interest rate. These instruments are designed to hedge exposures to interest rate risk or for speculative purposes. The Company increased its use of derivatives related to hedging interest rate lock commitments during 2015.

26 

Accounting guidance requires an entity to recognize all derivatives as either assets or liabilities in the balance sheet, and measure those instruments at fair value. Changes in the fair value of those derivatives are reported in current earnings or other comprehensive income depending on the purpose for which the derivative is held and whether the derivative qualifies for hedge accounting.

The Company sells residential mortgage loans on a best efforts basis and a mandatory basis in order to minimize the impact of changing interest rates on the value of fixed loan commitments given to borrowers. Optional commitments to sell mortgage loans are consummated at approximately the same time that optional commitments are given to borrowers to originate the loans under best efforts sales. Mandatory loan sales are generally made after loans are closed; the related fixed rate loan commitments granted to borrowers when they lock in their loan rates are hedged by selling mortgage-backed securities on a forward basis. The forward sold mortgage-backed securities are later purchased to close the hedge once the mandatory sales are consummated. The Company resumed selling loans on a mandatory basis and re-instituted hedging mortgage loan rate lock commitments during 2015.

The table below provides the carrying values of derivative instruments of mortgage loan rate lock commitments and forward sale mortgage-backed securities at September 30, 2016 and December 31, 2015:

	Carrying		Carrying		Gain (loss)			Notional
	Value of		Value of		Included			Amount of
Derivatives designated as	Assets		Liabilities		in Income			Derivative
hedging instruments:	(in thousands)
At September 30, 2016:
Mortgage loan rate lock commitments (hedged through best efforts sales commitments)	$	108	$	5	$	(235	)	$	16,900
Mortgage loan rate lock commitments (hedged through mortgage-backed securities forward sales)		368		3		310			26,061
Forward sale mortgage-backed securities		-		255		(224	)		48,000
At December 31, 2015:
Mortgage loan rate lock commitments (hedged through best efforts sales commitments)	$	355	$	17	$	338		$	36,194
Mortgage loan rate lock commitments (hedged through mortgage-backed securities forward sales)		65		10		55			7,140
Forward sale mortgage-backed securities		2		32		(30	)		14,250

27 

The table below presents the aggregate fair value and aggregate unpaid principal of loans held for sale at September 30, 2016 and December 31, 2015:

September 30, 2016

December 31, 2015

Aggregate Fair

Aggregate Fair

Value Less

Value Less

Aggregate

Aggregate

Aggregate

Aggregate

Aggregate

Unpaid

Unpaid

Aggregate

Unpaid

Unpaid

Fair Value

Principal

Principal

Fair Value

Principal

Principal

(in thousands)

Loans held for sale, at fair value

$

42,616

$

41,697

$

919

$

39,583

$

38,925

$

658

Interest income on loans held for sale is recognized based on contractual rates and is reflected in interest income on loans in the consolidated statements of operations. The following table details net gains resulting from changes in fair value of these loans which were recorded in mortgage banking income in the consolidated statements of operations during the nine months ended September 30, 2016 and 2015, respectively. These changes in fair value are mostly offset by economic hedging activities and also fluctuate based on the change in the aggregate loan principal outstanding. An immaterial portion of these amounts was attributable to changes in instrument-specific credit risk.

Loans Held for Sale, At Fair Value
Nine Months Ended September 30,
	2016		2015
	(in thousands)
Net gains resulting from changes in fair value	$	261	$	774

Note O – Impact of recently adopted accounting standards

The FASB published ASU 2015-03, Simplifying the Presentation of Debt Issuance Costs, in April 2015. Debt issuance costs are specific incremental costs, other than those paid to the lender, that are directly attributable to issuing a debt instrument. The amendments require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The guidance is limited to the presentation of debt issuance costs and does not affect the recognition and measurement of such costs. The amortization of debt issuance costs continues to be calculated using the effective interest method and is reported as interest expense. For public business entities, the amendments are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. These amendments did not have a material effect on the Company’s consolidated financial statements.

In January 2016, the FASB issued ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities, to address certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. The new guidance makes targeted improvements to existing U.S. GAAP by:

· Requiring equity investments (except those accounted for under the equity method of accounting, or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income

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

· Requiring separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (i.e., securities or loans and receivables) on the balance sheet or the accompanying notes to the financial statements

· Allowing equity investments that do not have readily determinable fair values, to be measured at cost minus impairment (if any), plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer

28 

· Eliminating the requirement to disclose the fair value of financial instruments measured at amortized cost for organizations that are not public business entities

· Eliminating the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet

· Requiring a reporting organization to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk (also referred to as “own credit”) when the organization has elected to measure the liability at fair value in accordance with the fair value option for financial instruments

· Requiring separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (i.e., securities or loans and receivables) on the balance sheet or in the accompanying notes to the financial statements

· Clarifying that a valuation allowance on a deferred tax asset related to available-for-sale securities should be evaluated in combination with the organization’s other deferred tax assets

The new guidance is effective for the Company’s 2018 interim and annual statements. These amendments are not expected to have a material effect on the Company’s consolidated financial statements.

On March 30, 2016, the FASB issued ASU 2016-09, Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, in an effort to improve the accounting for employee share-based payments. The ASU simplifies several aspects of the accounting for share-based payment award transactions as follows:

· Accounting for Income Taxes – All excess tax benefits and tax deficiencies (including tax benefits of dividends on share-based payment awards) should be recognized as income tax expense or benefit in the income statement. The tax effects of exercised or vested awards should be treated as discrete items in the reporting period in which they occur. An entity also should recognize excess tax benefits regardless of whether the benefit reduces taxes payable in the current period.

· Classification of Excess Tax Benefits on the Statement of Cash Flows – Excess tax benefits should be classified along with other income tax cash flows as an operating activity.

· Forfeitures – An entity can make an entity-wide accounting policy election to either estimate the number of awards that are expected to vest (current GAAP) or account for forfeitures when they occur.

· Minimum Statutory Tax Withholding Requirements – The threshold to qualify for equity classification permits withholding up to the maximum statutory tax rates in the applicable jurisdictions.

· Classification of Employee Taxes Paid on the Statement of Cash Flows When an Employer Withholds Shares for Tax Withholding Purposes – Cash paid by an employer when directly withholding shares for tax withholding purposes should be classified as a financing activity.

For public business entities, the amendments in this ASU are effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods with early adoption permitted in any interim or annual period. These amendments are not expected to have a material effect on the Company’s consolidated financial statements.

On March 18, 2016, the FASB issued ASU 2016-08, Principal Versus Agent Considerations—Reporting Revenue Gross Versus Net, to address how an entity should assess whether it is the principal or the agent in contracts that include three or more parties. The ASU clarifies that an entity should evaluate whether it is the principal or the agent for each specified good or service (i.e., each good or service or bundle of distinct goods or services that is distinct) promised in a contract with a customer. Specifically, the amendments require an entity to (1) identify the specified goods or services (or bundles of goods or services), including rights to goods or services from a third party, and (2) determine whether it controls each specified good or service before each good or service (or right to a third-party good or service) is transferred to the customer. In addition to clarifying the guidance on principal-versus-agent considerations, the ASU amends certain illustrative examples in the revenue standard (and adds new ones) to clarify how an entity would assess whether it is the principal or the agent in a revenue transaction. The amendments affect the guidance in ASU 2014-09, Revenue from Contracts with Customers, which is not yet effective. The new guidance is effective for the Company’s 2018 interim and annual statements. These amendments are not expected to have a material effect on the Company’s consolidated financial statements.

29 

On March 15, 2016, the FASB issued ASU 2016-07, Simplifying the Transition to the Equity Method of Accounting, to eliminate the requirement to retrospectively apply the equity method to an investment that subsequently qualifies for such accounting as a result of an increase in the level of ownership interest or degree of influence. As a result, when an investment qualifies for the equity method (as a result of an increase in the level of ownership interest or degree of influence), the equity method investor will add the cost of acquiring the additional interest in the investee to the current basis of the investor’s previously held interest and adopt the equity method of accounting as of the date the investment becomes qualified for equity method accounting. The amendments further require unrealized holding gains or losses in accumulated other comprehensive income related to an available-for-sale security that becomes eligible for the equity method to be recognized in earnings as of the date on which the investment qualifies for the equity method. The amendments are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. The amendments should be applied prospectively upon their effective date to increases in the level of ownership interest or degree of influence that result in the adoption of the equity method. Earlier application is permitted. No additional disclosures are required at transition. These amendments are not expected to have a material effect on the Company’s consolidated financial statements.

On February 25, 2016, the FASB issued the lease accounting standard, ASU 2016-02, Leases. Under current U.S. GAAP, companies are required to record lease-related assets and obligations on their balance sheet only if the lease meets the definition of a capital lease. The new standard requires a lease to be classified as a finance lease when (1) payments represent substantially all of the fair value of the asset, (2) the lease term is for a major portion of the asset’s economic life, (3) purchase of the asset is considered a bargain, (4) title transfer is automatic at the end of the lease, or (5) the underlying asset is of such a specialized nature that it is expected to have no alternative use to the lessor at the end of the lease term. Under the new standard, a lessee will account for a finance lease by recognizing amortization of the “right-of-use” (ROU) asset separately from interest on the lease liability. For operating leases, costs will be presented as lease expense and recognized on a straight-line basis in the income statement over the lease term. Importantly, however, the lessee will recognize an asset and a lease liability for both finance leases and operating leases. The only exception to this presentation will be for short-term leases with a term of one year or less, which would not be recognized on a lessee’s balance sheet. For public companies, the new standard will be effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2018; for private companies, the standard will be effective for annual periods beginning after December 15, 2019. Early adoption is permitted for all companies and organizations. The Company currently has several long term leases and will be evaluating the impact of these amendments on its consolidated financial statements.

On June 16, 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments, as part of its project on financial instruments. The new standard introduces an approach based on expected losses to estimate credit losses on certain types of financial instruments. It also modifies the impairment model for available-for-sale (AFS) debt securities and provides for a simplified accounting model for purchased financial assets with credit deterioration since their origination. The following are some of the key points of the ASU:

· For trade and other receivables, held-to-maturity debt securities, loans and other instruments, entities will be required to use a new forward-looking, lifetime “expected loss” model that generally will result in the earlier recognition of allowances for losses.

· For available-for-sale debt securities with unrealized losses, entities will measure credit losses in a manner similar to what they do today, except that the losses will be recognized as allowances rather than reductions in the amortized cost of the securities.

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· Entities will have to disclose significantly more information, including information they use to track credit quality by year of origination for most financing receivables.

For public business entities that are Securities and Exchange Commission (SEC) filers, the new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019 (for a calendar-year entity, it would be effective January 1, 2020). Early adoption will be permitted for all organizations for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The Company will be evaluating the impact of these amendments on its consolidated financial statements.

On August 26, 2016, the FASB issued ASU 2016-15, Classification of Certain Cash Receipts and Cash Payments, to clarify how certain cash receipts and cash payments are presented and classified in the statement of cash flows under FASB Accounting Standards Codification (ASC) 230, Statement of Cash Flows. This ASU addresses eight cash flow issues with the objective of reducing the existing diversity in practice. The amendments provide guidance on the following cash flow issues:

· Debt prepayment or debt extinguishment costs.

· The cash payment attributable to accreted interest on zero-coupon bonds.

· Cash payments for the settlement of a contingent consideration liability made by a business after it buys another business.

· The proceeds from the settlement of insurance claims and related payments for premiums.

· Distributions received from equity method investees.

· Beneficial interests in securitization transactions.

· Cash receipts and payments that have characteristics of more than one type of activity.

The amendments are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. Early adoption is permitted, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. An entity that elects early adoption must adopt all of the amendments in the same period. The Company will be evaluating the impact of these amendments on its financial statements.

Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies are not expected to have a material impact on the Company’s consolidated financial position, results of operations or cash flows.

Note P – Commitments

In the normal course of business there are outstanding commitments for the extension of credit which are not reflected in the consolidated financial statements. At September 30, 2016 and December 31, 2015, pre-approved but unused lines of credit for loans totaled approximately $194,143,000 and $190,789,000, respectively. In addition, we had $1,591,000 and $1,224,000 in standby letters of credit at September 30, 2016 and December 31, 2015, respectively. These commitments represent no more than the normal lending risk that we commit to borrowers. If these commitments are drawn, we will obtain collateral if it is deemed necessary based on our credit evaluation of the counter-party. We believe these commitments can be funded through normal operations.

The Company leases land for its main office, three loan production offices, and one branch facility under operating leases. Total future minimum lease payments, excluding renewal options, at September 30, 2016 under the leases are as follows:

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Future Mininum Lease Payments at September 30, 2016
	(in thousands)
Due in one year	$	348
Due in Years 2 and 3		671
Due in Years 4 and 5		535
Due after Year 5		2,340
	$	3,894

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ITEM 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion is intended to assist in understanding our financial condition and results of operations. Because we have no material operations and conduct no business on our own other than owning our subsidiaries, Carolina Bank and Carolina Capital Trust, and because Carolina Capital Trust has no operations other than the issuance of its trust preferred securities, the discussion contained in this Management’s Discussion and Analysis concerns primarily the business of Carolina Bank. Carolina Bank also owns two limited liability companies for the purpose of holding foreclosed real estate, the assets and operations of which are consolidated into Carolina Bank and included herein. For ease of reading and because the financial statements are presented on a consolidated basis, Carolina Bank Holdings, Inc. and Carolina Bank are collectively referred to herein as “we”, “our”, or “us”, unless otherwise noted.

Forward-looking Statements

This report contains forward-looking statements with respect to our financial condition and results of operations and business. These forward-looking statements involve risks and uncertainties and are based on our beliefs and assumptions and on information available at the time these statements and disclosures were prepared. Factors that may cause actual results to differ materially from those expected include the following:

· General economic conditions may deteriorate and negatively impact the ability of our borrowers to repay loans and our depositors to maintain balances.

· Changes in interest rates could reduce our net interest income.

· Competition among financial institutions is intense and may increase.

· Legislative or regulatory changes, including changes in accounting standards, may adversely affect the businesses in which we are engaged.

· Regulatory requirements have become more complex and costly over the past few years, especially for community banks. We may be forced to exit certain types of products and services if regulatory costs exceed the benefits.

· New products developed and new methods of delivering products could result in a reduction in our business and income.

· Increases in interest rates, increases in warranty losses, or changes in the securitization of mortgages could negatively impact our mortgage banking income.

· Adverse changes may occur in the securities market.

· Technology fraud and losses from cyberattacks are a major threat to banks of all sizes, bank service providers and to bank customers. We could experience challenges in meeting future cyber threats if they become more complex or more frequent.

· Local, state or federal taxing authorities may take tax positions that are adverse to us.

· Unpredictable natural and other disasters could have an adverse effect on our operations or on the willingness of our customers to access our financial services.

· The pending merger with First Bancorp could have a negative impact on our business, financial results, and operations. Legal claims may result from stockholders or other groups. Competition may intensify and business may be lost as our competitors seek opportunities to increase their market share. Our staff may become distracted from our strategy and from day-to-day operations. Attracting, recruiting, retaining and motivating employees may be impaired due to uncertainty about future roles following completion of the merger. The transaction is expected to close in the fourth quarter of 2016 or first quarter of 2017, subject to stockholder and regulatory approval and other customary closing conditions. There is no assurance that our merger with First Bancorp will occur or that the conditions to the merger will be satisfied. If the proposed merger is not consummated, the price of our common stock could drop significantly.

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Merger with First Bancorp

On June 21, 2016, we entered into an Agreement and Plan of Merger and Reorganization (the “Merger Agreement”) with First Bancorp, under which, upon the terms and subject to the conditions set forth in the Merger Agreement, the Holding Company will merge with and into First Bancorp, with First Bancorp as the surviving corporation in the merger. In connection with the merger, the Bank will merge with and into First Bancorp’s wholly owned bank subsidiary, with First Bancorp’s bank subsidiary surviving the bank merger. Under the terms and subject to the conditions of the Merger Agreement, Holding Company stockholders will have the right to receive 1.002 shares of First Bancorp common stock or $20 in cash, or a combination thereof, for each share of Holding Company stock. The total merger consideration will be prorated as necessary to ensure that 25% of the total outstanding shares of the Holding Company common stock will be exchanged for cash and 75% of the total outstanding shares of the Holding Company common stock will be exchanged for shares of First Bancorp common stock. The merger is subject to, among other things, regulatory and Holding Company stockholder approval and other customary closing conditions and is currently expected to close in the fourth quarter of 2016 or first quarter of 2017.

Comparison of Financial Condition

Assets. Our total assets increased by $8.1 million, or 1.15%, from $700.8 million at December 31, 2015, to $708.9 million at September 30, 2016. During the nine months ended September 30, 2016, cash and due from banks, interest-bearing deposits with banks, bank term deposits and investment securities decreased $31.6 million, loans held-for-sale increased $3.0 million, and loans held for investment increased $37.4 million. Our mortgage banking division originates and sells residential mortgage loans through other banks, brokers, our retail offices and three loan production offices. Originations of residential mortgage loans for the first nine months of 2016 were approximately $378.1 million compared to $544.6 million in the first nine months of 2015. Mortgage originations in 2016 were negatively impacted by less refinancing activity and additional regulation which slowed processing.

Liabilities. Total deposits decreased by $5.8 million, or 0.96%, from $607.3 million at December 31, 2015, to $601.5 million at September 30, 2016. Our non-interest bearing deposits, which are a major strategic focus, grew $17.9 million, or 14.3%, during the first nine months of 2016 to $143.1 million at September 30, 2016. Our branching activities are designed to enhance customer convenience and related deposit gathering activities as well as provide new sources for loans. While deposit growth has been an ongoing goal, wholesale sources of funding such as Federal Home Loan Bank (“FHLB”) advances, repurchase borrowings, and brokered deposits may be utilized where cost beneficial or when necessary to meet liquidity or interest rate risk objectives. FHLB advances increased $9.4 million in the first nine months of 2016 as a long-term fixed rate borrowing was obtained to balance the duration of a large fixed rate loan that funded in late 2015 and early 2016. We had approximately $19.2 million in out-of-market time deposits from other institutions and $11.7 million in brokered time deposits at September 30, 2016, an aggregate decrease of $18.2 million in these two types of accounts from December 31, 2015. Liquidity levels were elevated in the first nine months of 2016 so time deposits were not aggressively pursued during the period.

Stockholders’ Equity. Total stockholders’ equity increased $4.4 million at September 30, 2016 to $65.6 million, from $61.1 million at December 31, 2015, due primarily to retained net income of $3.9 million. An increase in other comprehensive income and the exercise of stock options contributed another $0.5 million to stockholders’ equity.

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Comparison of Results of Operations for the Three Months Ended September 30, 2016 and 2015

General. Net income was $1,564,000 or $0.31 per diluted share in the third quarter of 2016 compared to $1,436,000 or $0.29 per diluted share in the third quarter of 2015. Net income increased in 2016 due to an increase in net income from our commercial/retail bank segment which realized net income of $1,670,000 and $940,000 in the third quarter of 2016 and 2015, respectively. Our mortgage banking division experienced a decline in net income to $56,000 in the third quarter of 2016 from $563,000 in the third quarter of 2015 due to a decline in loan originations and increased costs related to new regulations and related processing costs. Our Holding Company recorded a loss of $162,000 in the third quarter of 2016 compared to a loss of $67,000 in the third quarter of 2015 due primarily to merger expenses. Our primary markets in the Triad of North Carolina experienced deteriorating economic conditions in 2009 through 2011 which negatively impacted our borrowers as evidenced by increasing defaults and loan charge-offs. Economic conditions have gradually improved since 2011 in our primary markets as evidenced by increasing retail sales, lower bankruptcies, and decreasing loan charge-offs.

Net interest income. Net interest income, adjusted to a fully taxable basis, was $6,059,000 and $5,976,000 for the three months ended September 30, 2016 and 2015, respectively. The increase in net interest income, adjusted to a fully taxable basis, resulted from growth in loans and a decrease in interest bearing deposits and taxable investments. Loans have a higher yield than interest bearing deposits. Average interest-earning assets increased $35.9 million, or 5.7%, in the third quarter of 2016 from the third quarter of 2015. Net interest income also benefited from lower non interest-earning assets and higher non-interest-bearing liabilities resulting from attainment of strategic goals of decreasing non-performing assets and increasing non-interest bearing demand deposits. The net yield on interest earning assets, adjusted to a fully taxable basis, was 3.60% in the third quarter of 2016 and 3.74% in the third quarter of 2015. The decrease in the net yield on interest earning assets resulted primarily from declining loan yields and a slight increase in the cost of other borrowings. Our strategic plan and internal focus calls for growth in loans held for investment in 2016 to stabilize net interest income. The table below provides a detailed analysis of the effective yields and rates on categories of interest-earning assets and interest-bearing liabilities for the periods indicated.

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Net Interest Income and Average Balance Analysis

	For the Three Months Ended September 30,
	2016							2015
	Average		Interest		Average			Average		Interest		Average
	Balance (1.)		Inc./Exp.		Yield/Cost			Balance (1.)		Inc./Exp.		Yield/Cost
	($ in thousands)
Interest-earning assets
Interest bearing deposits	$	67,327	$	112		0.66	%	$	50,827	$	57		0.44	%
Non-taxable investments (2.)		15,020		173		4.58	%		15,650		174		4.41	%
Taxable investments		43,748		306		2.78	%		47,082		322		2.71	%
Loans held for sale		48,634		424		3.47	%		60,207		593		3.91	%
Loans (2.) (3.)		494,502		5,741		4.62	%		459,538		5,498		4.75	%
Interest-earning assets		669,231		6,756					633,304		6,644
Yield on average
interest-earning assets						4.02	%						4.16	%
Non interest-earning assets		43,688							51,613
Total assets	$	712,919						$	684,917
Interest-bearing liabilities
Interest checking	$	56,240	$	10		0.07	%	$	50,409	$	10		0.08	%
Money market and savings		287,542		224		0.31	%		288,383		227		0.31	%
Time certificates and IRAs		112,306		223		0.79	%		136,399		277		0.81	%
Other borrowings		31,837		240		3.00	%		22,416		154		2.73	%
Total interest-bearing liabilities		487,925		697					497,607		668
Cost on average
interest-bearing liabilities						0.57	%						0.53	%
Non-interest-bearing liabilities
Demand deposits		146,848							119,074
Other liabilities		13,291							8,852
Total non-interest-bearing
liabilities		160,139							127,926
Total liabilities		648,064							625,533
Stockholders’ equity		64,855							59,384
Total liabilities and equity	$	712,919						$	684,917
Net interest income			$	6,059						$	5,976
Net yield on average
interest-earning assets						3.60	%						3.74	%
Interest rate spread						3.45	%						3.63	%

(1.) Average balances are computed on a daily basis.

(2.) Interest income and yields related to certain investment securities and loans exempt from federal income tax are stated on a fully taxable basis using a 34% federal tax rate, reduced by the nondeductible portion of interest expense.

(3.) Nonaccrual loans are included in the average loan balance.

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Provision for loan losses. There was no provision for loan losses in the third quarter of 2016 compared to a provision of $450,000 for the third quarter of 2015. The amount of the provision for loan losses decreased in 2016 because positive loan loss trends resulted in a decline in the allowance for loan losses on impaired loans. The allowance for loan losses was $1,200,000 on impaired loans of $15,290,000 at September 30, 2016 compared to an allowance of $3,283,000 on impaired loans of $19,918,000 at September 30, 2015. The allowance for loan losses on non-impaired loans increased in 2016 due to growth in non-impaired loans but the allowance as a percent of loans declined due to positive historical loss trends. We believe the allowance for loan losses is appropriate based on asset quality indicators and other factors.

Non-interest income. Total non-interest income amounted to $3,182,000 for the three months ended September 30, 2016 compared to $3,641,000 for the three months ended September 30, 2015. Mortgage banking income decreased $687,000, or 21.3%, due to a decrease of approximately 23% in residential mortgage loan originations and related sales. Mortgage banking income consists of loan origination fees, gains from sales of loans and related servicing assets and from the increase (decrease) in the value of interest rate lock commitments. We began originating and selling Small Business Administration (“SBA”) loans in 2015 and gains from the sale of SBA loans increased to $261,000 in the third quarter of 2016 from $67,000 in the third quarter of 2015.

Non-interest expense. Total non-interest expense amounted to $6,923,000 and $7,015,000 for the three months ended September 30, 2016 and 2015, respectively. Merger expenses of $154,000 in the third quarter of 2016 consisted primarily of legal expenses and data processing charges related to the proposed merger with First Bancorp. Other non-interest expense declined 37.9% in the third quarter of 2016 to $279,000 due to lower foreclosed property expense and due to cost cutting efforts.

Income taxes. Income tax expense as a percentage of net income before income taxes was 27.6% in the third quarter of 2016 compared to 30.5% in the third quarter of 2015. The effective income tax rate decreased in 2016 because of higher non-taxable interest income from increased tax-exempt loans.

Comparison of Results of Operations for the Nine Months Ended September 30, 2016 and 2015

General. Net income was $3,908,000 and $4,731,000 for the nine months ended September 30, 2016 and 2015, respectively. Net income available to common stockholders was $3,908,000, or $0.78 per diluted share, for the nine months ended September 30, 2016 compared to $4,390,000, or $0.98 per diluted share, for the nine months ended September 30, 2015. Lower net income in 2016 resulted primarily from decreased mortgage banking income and the addition of merger expenses which were partially offset by a lower provision for loan losses, higher gains on sale of SBA loans, and lower salaries and benefits.

Net interest income. Net interest income, adjusted to a fully taxable basis, of $18,112,000 for the nine months ended September 30, 2016 increased $271,000, or 1.5%, from the nine months ended September 30, 2015 due to a $21.5 million increase in average interest-earning assets while average interest-bearing liabilities declined $12.9 million. Growth in average non-interest-bearing demand deposits of $23.1 million and higher stockholders’ equity provided the funding for the increase in interest-earning assets. Interest income in 2016 also benefited from the recovery of loan interest when several non-performing loans paid off. The net yield on interest earning assets, adjusted to a fully taxable basis, was 3.65% in 2016 and 3.72% in 2015.

The table below provides a detailed analysis of the effective yields and rates on categories of interest-earning assets and interest-bearing liabilities for the periods indicated.

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Net Interest Income and Average Balance Analysis

	For the Nine Months Ended September 30,
	2016							2015
	Average		Interest		Average			Average		Interest		Average
	Balance (1.)		Inc./Exp.		Yield/Cost			Balance (1.)		Inc./Exp.		Yield/Cost
	($ in thousands)
Interest-earning assets
Interest bearing deposits	$	83,633	$	406		0.65	%	$	56,850	$	183		0.43	%
Non-taxable investments (2.)		15,219		521		4.57	%		16,039		545		4.54	%
Taxable investments		45,664		1,023		2.99	%		47,971		985		2.75	%
Loans held for sale		41,911		1,134		3.61	%		55,322		1,563		3.78	%
Loans (2.) (3.)		477,005		17,152		4.80	%		465,796		16,611		4.77	%
Interest-earning assets		663,432		20,236					641,978		19,887
Yield on average
interest-earning assets						4.07	%						4.14	%
Non interest-earning assets		43,930							46,962
Total assets	$	707,362						$	688,940
Interest-bearing liabilities
Interest checking	$	55,218	$	30		0.07	%	$	51,221	$	28		0.07	%
Money market and savings		284,622		670		0.31	%		291,599		685		0.31	%
Time certificates and IRAs		121,754		731		0.80	%		140,843		876		0.83	%
Other borrowings		31,638		693		2.93	%		22,508		457		2.71	%
Total interest-bearing liabilities		493,232		2,124					506,171		2,046
Cost on average
interest-bearing liabilities						0.58	%						0.54	%
Non-interest-bearing liabilities
Demand deposits		139,131							116,022
Other liabilities		11,599							7,887
Total non-interest-bearing
liabilities		150,730							123,909
Total liabilities		643,962							630,080
Stockholders’ equity		63,400							58,860
Total liabilities and equity	$	707,362						$	688,940
Net interest income			$	18,112						$	17,841
Net yield on average
interest-earning assets						3.65	%						3.72	%
Interest rate spread						3.49	%						3.60	%

(1.) Average balances are computed on a daily basis.

(2.) Interest income and yields related to certain investment securities and loans exempt from federal income tax are stated on a fully taxable basis using a 34% federal tax rate, reduced by the nondeductible portion of interest expense.

(3.) Nonaccrual loans are included in the average loan balance.

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Provision for loan losses. There was no provision for loan losses in the first nine months of 2016 compared to a provision of $1,285,000 for the first nine months of 2015. The amount of the provision for loan losses decreased in 2016 because positive loan loss trends resulted in a decline in the allowance for loan losses. Loan charge-offs in excess of loan recoveries were $108,000 in the first nine months of 2016 compared to $1,733,000 for the year ended December 31, 2015. We believe the allowance for loan losses is appropriate based on asset quality indicators and other factors.

Non-interest income. Total non-interest income decreased to $8,740,000 for the nine months ended September 30, 2016 from $11,052,000 for the nine months ended September 30, 2015. The decrease in 2016 resulted primarily from a decline in mortgage banking income of $2,733,000, or 27.8%, to $7,115,000 for the nine months ended September 30, 2016. Loan originations in our mortgage banking division were $378.1 million in the first nine months of 2016, a 31% decline from the first nine months of 2015. Gain on sale of SBA loans was $498,000 and $120,000 in the first nine months of 2016 and 2015, respectively. Origination of SBA loans is a new service which we expect to continue to positively impact non-interest income.

Non-interest expense. Total non-interest expense amounted to $21,007,000 and $20,658,000 for the nine months ended September 30, 2016 and 2015, respectively. Salaries and employee benefits decreased $217,000, or 1.6%, primarily from a decrease in incentive compensation in our mortgage banking division due to decreased originations as well as unfilled vacant positions in the mortgage banking division. Occupancy and equipment declined $148,000 to $2,170,000 in the first nine months of 2016 due to savings realized from closing a branch office in July 2015. Advertising and promotion increased $156,000, or 27.0%, in 2016 due to advertising initiatives by a new advertising agency. Merger expenses of $739,000 in the second half of 2016 consisted primarily of a fairness opinion, investment banking fees, legal expenses, and director fees for additional strategic planning meetings related to the proposed merger with First Bancorp.

Income taxes. Income tax expense was $1,525,000, or 28.1%, of income before income taxes, for the nine months ended September 30, 2016, compared to $1,942,000, or 29.1%, of income before income taxes, for the nine months ended September 30, 2015. The effective income tax rate decreased in 2016 because of higher non-taxable interest income from increased tax-exempt loans.

Asset Quality

Non-performing assets, composed of other real estate owned and non-accrual loans, totaled $8,306,000 at September 30, 2016, compared to $7,702,000 at December 31, 2015. Non-performing assets, as a percentage of total assets, was 1.17% at September 30, 2016, compared to 1.10% at December 31, 2015. There were no loans 90 days or more past due and still accruing interest at September 30, 2016 or December 31, 2015, respectively. Other real estate owned was $3,914,000 at September 30, 2016 and $4,592,000 at December 31, 2015. Non-performing assets have declined substantially from 2010 and 2011 due to success in disposing of problem loans and assets, from reduction in new additions to non-performing assets, and from an improved economy. While impaired loans have declined steadily from a few years ago, they increased to $15,290,000 at September 30, 2016 from $14,394,000 at December 31, 2015 due to the addition of two loans on an apartment complex of $1,900,000, after a charge-off of $588,000, to impaired status.

Loans are graded according to an internal loan rating classification system, and “classified loans” represent adversely classified loans with identified weaknesses and potential or identified losses of principal and/or interest due. Classified loans increased to $6,127,000 at September 30, 2016 from $5,931,000 at December 31, 2015 but are down from $13,529,000 at December 31, 2014. The increase in the first nine months of 2016 is due to the inclusion of the previously mentioned loans on an apartment complex to classified assets, which were partially offset by several classified loans that paid off during the period. Continuing efforts to improve asset quality are a top priority. Loan rating classification information is detailed in Note L to the consolidated financial statements as of September 30, 2016.

39 

The economic conditions in our primary markets in North Carolina have improved as evidenced by a drop in the unemployment rate. The seasonally adjusted unemployment rate in North Carolina decreased to 4.7% in September 2016 from 5.8% in September 2015. North Carolina’s seasonally adjusted unemployment rate of 4.7% is the same as the rate for the United States. A large portion of our loans are made to businesses and real estate developers and are secured by real estate. Real estate prices have improved in our markets but are still lower than in 2008 in many areas.

Our allowance for loan losses is composed of two parts, a specific portion related to non-performing loans and performing impaired loans and a general section related to non-impaired loans. The specific portion of our allowance for loan losses, which relates to impaired loans, increased to $1,200,000 at September 30, 2016 from $833,000 at December 31, 2015, and impaired loans increased to $15,290,000 at September 30, 2016 from $14,394,000 at December 31, 2015. The specific portion of our allowance relating to impaired loans increased in 2016 primarily because two loans secured by an apartment complex required an allowance for loan losses of $345,000 based on updated collateral assessments. The general portion of our allowance for loan losses decreased to $4,564,000 on non-impaired loans of $487,936,000 at September 30, 2016 from $5,039,000 on non-impaired loans of $451,410,000 at December 31, 2015. The general portion of our allowance applies to non-impaired loans and was determined by applying estimated loss ratios inherent in the loan portfolio, ranging from 0.21% on 1-4 family residential construction to 2.05% on commercial and industrial loans, to categories of non-impaired loans at each period end. We changed our methodology in 2015 of estimating annual loss ratios inherent in the loan portfolio by averaging loan charge-offs, net of recoveries, for the past five years from four years utilized in 2014. The change to five years in 2015 from four years produced a higher allowance and higher provision of approximately $571,000 in 2015. A similar change from three years in 2013 to four years in 2014 produced a higher allowance and provision in 2014 by approximately $825,000. We believe that using five years to calculate the estimated loss ratios more accurately reflects expected losses over time.

The qualitative component of the general section of our allowance for loan losses, including a small unallocated allowance, was $1,434,000 and $1,185,000 at September 30, 2016 and December 31, 2015, respectively.

The allowance for loan losses is increased by direct charges to operating expense, the provision for loan losses. Losses on loans or charge-offs are deducted from the allowance in the period that loans are deemed to become uncollectible or in the period that updated appraisals indicate a loss in value of non-performing, collateral dependent, real estate loans. Recoveries of previously charged-off loans are added back to the allowance. Net loan charge-offs minus recoveries were $108,000 and $238,000 for the nine months ended September 30, 2016 and 2015, respectively.

Liquidity, Capital, and Regulatory Resources

The objective of our liquidity management is to ensure the availability of sufficient cash flows to meet all financial commitments and to capitalize on opportunities for expansion. Liquidity management addresses our ability to meet deposit withdrawals on demand or at contractual maturity, to repay borrowings as they mature, and to fund new loans and investments as opportunities arise.

Our primary sources of internally generated funds are principal and interest payments on loans receivable, non-interest income and proceeds from loan sales related to residential mortgage banking, and cash flows generated from operations. External sources of funds include increases in deposits, repurchase agreements, lines of credit from banks, including the Federal Reserve, and advances from the FHLB.

Carolina Bank is required under applicable federal regulations to maintain specified levels of liquid investments in qualifying types of investments. Cash and due from banks, interest-bearing deposits in banks, bank term deposits, investment securities available-for-sale, and loans held for sale by our mortgage banking division are the primary liquid assets of Carolina Bank. We regularly monitor Carolina Bank’s liquidity position to ensure its liquidity is sufficient to meet its anticipated needs. During the first nine months of 2016, our levels of short-term liquidity decreased due to an increase in loans. Short-term liquidity in the form of cash and due from banks and interest-bearing deposits in banks decreased to $52.5 million at September 30, 2016 from $75.8 million at December 31, 2015. We maintained substantial secondary sources of liquidity during 2015 and 2016 in the form of unused secured lines of credit from the FHLB and the Federal Reserve which in total approximated $138 million at September 30, 2016. We also have $25 million in discretionary, uncommitted, unsecured Federal funds lines from three correspondent banks.

40 

We are subject to various regulatory capital requirements administered by bank regulatory agencies. Failure to meet minimum capital requirements can initiate mandatory and possibly discretionary actions by the regulators that, if undertaken, could have a direct material effect on our financial condition. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, we must meet specific capital guidelines that involve quantitative measures of assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. Our capital amounts and classifications are subject to qualitative judgments by the regulators about components, risk-weightings, and other factors. As of September 30, 2016 and December 31, 2015, our levels of capital exceeded all applicable published regulatory requirements. During 2013, Basel III capital requirements were adopted by United States banking regulators. Under Basel III regulations, a capital conservation buffer, ranging from 0.625% in 2016 to 2.50% in 2019, must be added to current minimum risk-based capital ratios to arrive at higher capital requirements. A common equity Tier 1 risk-based capital ratio was also established by the new regulations and ranges from 4.5% in 2015 to 7.0% in 2019 when the full 2.5% conservation buffer is effective. The regulations change risk weights for certain on and off balance sheet assets and require deductions from capital for certain types of assets. Capital ratios for Carolina Bank were as follows at September 30, 2016 and December 31, 2015, respectively: Tier 1 leverage – 10.10%, 9.71%; Tier 1 risk-based – 12.35%, 12.09%; Common Equity Tier 1 risk-based – 12.35%, 12.09%; Total risk-based – 13.98%, 13.81%. The consolidated ratios are estimated as follows at September 30, 2016 and December 31, 2015, respectively: Tier 1 leverage – 10.46%, 10.16%; Tier 1 risk-based – 12.80%, 12.66%; Common Equity Tier 1 risk-based – 11.09%, 10.86%; Total risk-based – 14.43%, 14.39%. The increase in capital ratios from December 31, 2015 to September 30, 2016 resulted primarily from retained income. The Board of Directors approved the retirement of $9,300,000 of Carolina Bank’s unsecured junior subordinated notes, subject to regulatory approval, and subject to advance notice to note holders. Only 20% of the notes currently qualify as Tier 2 Capital as of October 1, 2016. The retirement is expected to reduce Total risk-based capital by less than 0.40% by December 31, 2016.

Due to our historical growth, the difficult economic environment at the time, increased regulatory capital requirements, and our anticipation of continued growth, we issued $16 million in Series A preferred stock to the United States Treasury under the Capital Purchase Program in January 2009 to increase our capital which could further support future growth and assist us in meeting future regulatory capital requirements. The United States Treasury sold our preferred stock to private investors in 2013, and we subsequently repurchased $5.0 million of the preferred stock from private investors. We also repurchased a warrant for common stock granted to the United States Treasury as part of the Capital Purchase Program for $1.8 million in 2013. The remaining preferred stock which was issued in 2009 was repurchased in May of 2015 from the proceeds of a Series B convertible preferred stock offering on March 31, 2015.

On March 31, 2015, the Company issued 15,500 shares of convertible preferred stock, Series B, at $975 per share in a private placement offering and received $14.1 million in net proceeds. The net proceeds from the offering were used to retire the remaining Series A preferred stock of $11.0 million in May 2015 and to improve capital levels. The convertible preferred stock, Series B, was converted into 1,550,000 shares of common stock in May 2015.

Regulatory requirements have become more complex and costly over the past few years, especially for community banks. In 2016, we received a “needs to improve” rating on our Community Reinvestment Act (“CRA”) evaluation conducted in 2014 by our federal bank regulatory agency. While the latest CRA evaluation reflected satisfactory performance in lending, qualified investments and community development within our assessment area, the overall rating was downgraded to “needs to improve” due to perceived mortgage loan pricing disparities on loans originated by our wholesale mortgage division in markets outside our assessment area. A “needs to improve” CRA rating can prohibit a bank from opening new branches, acquiring assets or assuming liabilities of a federally insured depository institution, or acquiring other banks. We have been challenged to find the human and system resources to implement the many new regulatory requirements that pertain to banks which are among the reasons for our proposed merger with First Bancorp.

41 

Interest Rate Sensitivity

Interest rate sensitivity management is concerned with the timing and magnitude of repricing assets compared to liabilities and is a part of asset/liability management. It is the objective of interest rate sensitivity management to generate stable growth in net interest income, and to control the risks associated with interest rate movements. We measure interest rate risk by using simulation analysis. Our simulation analysis indicates, in the absence of growth or changes in interest rates or changes in the mix of assets and liabilities, our net interest income will decrease approximately 1.4% for the year ended September 30, 2017 from the year ended December 31, 2015; however, our simulation analysis also indicates that net interest income will increase from the aforementioned year ended September 30, 2017 simulation if short-term interest rates rise. Our simulation analysis indicates that our net interest income will increase 3.5%, 7.7%, 11.8% and 15.3% in one year above the aforementioned September 30, 2017 simulation, if interest rates immediately rise 1%, 2%, 3%, and 4%, respectively. The increase in net interest income in one year in the above simulation is 1.0%, 2.6%, 4.3% and 6.2% if interest rates rise gradually 1%, 2%, 3%, and 4%, respectively. Our strategic plan projects growth in loans held for investment and in non-interest bearing deposits in order to grow net interest income in 2016 and beyond.

There are a number of assumptions listed below that impact our simulation modeling. These assumptions may change due to external or internal forces:

· Our Carolina Bank prime interest rate is 4.50% compared to the Wall Street Journal prime interest rate which is 3.50%. We do not expect the Carolina Bank prime interest rate to rise until the Wall Street Journal prime interest rate rises above 4.50% after the two indexes reach parity at 4.50%. Approximately 15% of our loans held for investment, or $73.9 million at September 30, 2016, adjust with the Carolina Bank prime interest rate.

· Floors have been obtained on a number of our variable rate loans which improves our loan yields in a low interest rate environment.

· Most of our home equity lines of credit are variable rate and adjust with the Wall Street Journal Prime rate. These borrowers may choose to switch to fixed rate loans when short term interest rates rise.

· Our money market and premium savings account rates, whose balances account for approximately 45% of our deposits, only rise 0.60% with the first 1% increase in the Federal funds rate, then rise 0.65% with the second 1% increase in the Federal funds rate, then rise 0.70% with the third 1% increase in the Federal funds rate, and increase 0.75% for the fourth increase in the Federal funds rate.

· Early pre-payment of loans, both variable and fixed, have been substantial in 2015 and 2016. Although historical data is used to simulate future pre-payments, simulation modeling assumes replacement of like new loans with those paid off which may not occur.

Although net interest income is projected to increase as rates rise, net income is projected to fall when interest rates rise gradually due to the negative impact that higher rates have on mortgage loan originations and related mortgage banking income. The provision for loan losses is also projected to increase as interest rates rise due to added stress on borrowers from higher loan payments.

Inflation

Since our assets and liabilities are primarily monetary in nature, our performance is more affected by changes in interest rates than by inflation. Interest rates generally increase as the rate of inflation increases, but the magnitude of the change in rates may not necessarily be the same.

While the effect of inflation on a financial institution is normally not as significant as is its influence on those businesses which have large investments in plant and inventories, it does have an effect. During periods of high inflation, there are normally corresponding increases in the money supply, and financial institutions will normally experience above average growth in assets, loans and deposits. Also, general increases in the prices of goods and services will result in increased operating expenses.

42 

ITEM 4. Controls and Procedures

Our Chief Executive Officer and Chief Financial Officer have conducted an evaluation of our disclosure controls and procedures as of September 30, 2016. Based on their evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed in reports that we file or submit under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) is recorded, processed, summarized and reported within the time period specified in the applicable Securities and Exchange Commission Rules and Forms. There were no significant changes in our internal controls or in other factors that could significantly affect these controls subsequent to the date of the most recent evaluation of these controls by our Chief Executive Officer and Chief Financial Officer.

Management of the Company has evaluated, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, changes in the Company’s internal controls over financial reporting (as defined in Rule 13a−15(f) and 15d−15(f) of the Exchange Act) during the third quarter of 2016. In connection with such evaluation, the Company has determined that there have been no changes in internal control over financial reporting during the third quarter of 2016 that have materially affected or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

43 

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

There are various claims and lawsuits in which the Company and the Bank are periodically involved incidental to their business. In the opinion of management, no material loss is expected from any of such pending claims or lawsuits.

Item 6. Exhibits

Exhibit No.	Description of Exhibit
2.1	Agreement and Plan of Merger and Reorganization, dated June 21, 2016, by and between First Bancorp and Carolina Bank Holdings, Inc. (incorporated by reference to Exhibit 2.1 to the Registrant’s Current Report on Form 8-K filed on June 23, 2016).
31.1	Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act.
31.2	Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act.
32.1	Certifications Pursuant to Section 906 of the Sarbanes-Oxley Act.
101	Interactive data files providing financial information from the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2016, in XBRL (eXtensible Business Reporting Language).

44 

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	Carolina Bank Holdings, Inc.
Date: November 10, 2016	By:	/s/ Robert T. Braswell
		Robert T. Braswell
		President and Chief Executive Officer
Date: November 10, 2016	By:	/s/ T. Allen Liles
		T. Allen Liles
		Chief Financial and Principal Accounting Officer

45 

Exhibit Index

Exhibit No.	Description of Exhibit
2.1	Agreement and Plan of Merger and Reorganization, dated June 21, 2016, by and between First Bancorp and Carolina Bank Holdings, Inc. (incorporated by references to Exhibit 2.1 to the Registrant’s Current Report on Form 8-K filed on June 23, 2016).
31.1	Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act.
31.2	Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act.
32.1	Certifications Pursuant to Section 906 of the Sarbanes-Oxley Act.
101	Interactive data files providing financial information from the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2016, in XBRL (eXtensible Business Reporting Language).

46 

EX-31.1

Exhibit 31.1

Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Robert T. Braswell, President and Chief Executive Officer, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Carolina Bank Holdings, Inc. (the registrant);

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

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

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

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

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

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

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

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

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

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

Date: November 10, 2016	/s/ Robert T. Braswell
	Robert T. Braswell
	President and Chief Executive Officer

EX-31.2

Exhibit 31.2

Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, T. Allen Liles, Executive Vice President and Chief Financial Officer, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Carolina Bank Holdings, Inc. (the registrant);

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

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

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

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

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

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

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

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

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

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

Date: November 10, 2016	/s/ T. Allen Liles
	T. Allen Liles
	Chief Financial and Principal Accounting Officer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350

The undersigned certify, pursuant to 18 U.S.C. Section 1350 as adopted by Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1.) the Quarterly Report on Form 10-Q of Carolina Bank Holdings, Inc. (the “Company”) for the quarterly period ended September 30, 2016 (“the Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2.) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: November 10, 2016	/s/ Robert T. Braswell
	Robert T. Braswell
	President and Chief Executive Officer
Date: November 10, 2016	/s/ T. Allen Liles
	T. Allen Liles
	Executive Vice President and Chief Financial Officer

XML

Document And Entity Information - shares	9 Months Ended
	Sep. 30, 2016	Nov. 10, 2016
Document Information [Line Items]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Sep. 30, 2016
Document Fiscal Year Focus	2016
Document Fiscal Period Focus	Q3
Entity Registrant Name	CAROLINA BANK HOLDINGS INC
Entity Central Index Key	0001127160
Current Fiscal Year End Date	--12-31
Entity Filer Category	Smaller Reporting Company
Trading Symbol	CLBH
Entity Common Stock, Shares Outstanding		5,045,358

XML

Consolidated Balance Sheets - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
Assets
Cash and due from banks	$ 4,807	$ 6,559
Interest-bearing deposits with banks	47,658	69,233
Bank term deposits	15,139	16,604
Securities available-for-sale, at fair value	41,458	47,360
Securities held-to-maturity (fair values of $14,557 in 2016 and $15,226 in 2015)	14,031	14,954
Loans held for sale	42,616	39,583
Loans	503,226	465,804
Less allowance for loan losses	(5,764)	(5,872)
Net loans	497,462	459,932
Premises and equipment, net	18,389	19,007
Other real estate owned	3,914	4,592
Bank-owned life insurance	12,118	11,843
Other assets	11,298	11,131
Total assets	708,890	700,798
Deposits
Non-interest bearing demand	143,057	125,189
NOW, money market and savings	355,364	349,815
Time	103,062	132,303
Total deposits	601,483	607,307
Advances from the Federal Home Loan Bank	12,100	2,681
Securities sold under agreements to repurchase	0	47
Subordinated debentures	19,610	19,610
Other liabilities and accrued expenses	10,131	10,014
Total liabilities	643,324	639,659
Commitments and contingencies - Note P
Stockholders' equity
Common stock, $1 par value; authorized 20,000,000 shares; issued and outstanding 5,045,358 in 2016 and 5,021,330 in 2015	5,045	5,021
Additional paid-in capital	29,471	29,234
Retained earnings	30,082	26,174
Stock in directors’ rabbi trust	(2,089)	(1,831)
Directors’ deferred fees obligation	2,089	1,831
Accumulated other comprehensive income	968	710
Total stockholders’ equity	65,566	61,139
Total liabilities and stockholders’ equity	708,890	700,798
Series A Preferred Stock [Member]
Stockholders' equity
Preferred stock value	0	0
Series B Convertible Preferred Stock [Member]
Stockholders' equity
Preferred stock value	0	0
Total stockholders’ equity	$ 0	$ 0

XML

Consolidated Balance Sheets [Parenthetical] - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
Securities held-to-maturity, Fair Value	$ 14,557	$ 15,226
Preferred stock, no par value (in dollars per share)	$ 0	$ 0
Preferred stock, shares authorized	1,000,000	1,000,000
Common stock, par value (in dollars per share)	$ 1	$ 1
Common stock, shares authorized	20,000,000	20,000,000
Common stock, shares issued	5,045,358	5,021,330
Common stock, shares outstanding	5,045,358	5,021,330
Series A Preferred Stock [Member]
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0
Series B Convertible Preferred Stock [Member]
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0

XML

Consolidated Statements of Income - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Interest income
Loans	$ 6,063	$ 6,062	$ 18,046	$ 18,079
Investment securities, taxable	306	322	1,023	985
Investment securities, nontaxable	116	116	349	363
Interest from deposits in banks	112	57	406	183
Total interest income	6,597	6,557	19,824	19,610
Interest expense
NOW, money market, savings	234	237	700	713
Time deposits	223	277	731	876
Other borrowed funds	240	154	693	457
Total interest expense	697	668	2,124	2,046
Net interest income	5,900	5,889	17,700	17,564
Provision for loan losses	0	450	0	1,285
Net interest income after provision for loan losses	5,900	5,439	17,700	16,279
Non-interest income
Service charges	318	304	916	919
Mortgage banking income	2,533	3,220	7,115	9,848
Gain on sale of SBA loans	261	67	498	120
Other	70	50	211	165
Total non-interest income	3,182	3,641	8,740	11,052
Non-interest expense
Salaries and benefits	4,536	4,533	13,216	13,433
Occupancy and equipment	722	783	2,170	2,318
Professional fees	457	474	1,379	1,377
Outside data processing	280	270	831	809
FDIC insurance	109	132	310	393
Advertising and promotion	244	225	734	578
Stationery, printing and supplies	142	149	433	447
Merger expense	154	0	739	0
Other	279	449	1,195	1,303
Total non-interest expense	6,923	7,015	21,007	20,658
Income before income taxes	2,159	2,065	5,433	6,673
Income tax expense	595	629	1,525	1,942
Net income	1,564	1,436	3,908	4,731
Dividends and accretion on preferred stock	0	0	0	341
Net income available to common stockholders	$ 1,564	$ 1,436	$ 3,908	$ 4,390
Net income per common share
Basic	$ 0.31	$ 0.29	$ 0.78	$ 1.05
Diluted	$ 0.31	$ 0.29	$ 0.77	$ 0.98

XML

Consolidated Statements of Comprehensive Income - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Net income	$ 1,564	$ 1,436	$ 3,908	$ 4,731
Investment securities available-for-sale:
Unrealized holding gains (losses)	(217)	205	390	(135)
Tax effect	74	(70)	(132)	46
Reclassification of gains recognized in net income	0	0	0	(27)
Tax effect	0	0	0	9
Other Comprehensive Income (Loss), Net of Tax, Portion Attributable to Parent	(143)	135	258	(107)
Comprehensive income	$ 1,421	$ 1,571	$ 4,166	$ 4,624

XML

Consolidated Statement of Stockholders' Equity - USD ($) $ in Thousands	Total	Convertible Preferred Stock [Member]	Preferred Stock [Member]	Common Stock [Member]	Additional Paid-In Capital [Member]	Retained Earnings [Member]	Stock in Directors' Rabbi Trust [Member]	Directors' Deferred Fees Obligation [Member]	Accumulated Other Comprehensive Income [Member]
Balance at Dec. 31, 2014	$ 52,655	$ 0	$ 10,994	$ 3,435	$ 16,339	$ 20,748	$ (1,465)	$ 1,465	$ 1,139
Net income	4,731	0	0	0	0	4,731	0	0	0
Other comprehensive income(loss) net of tax	(107)	0	0	0	0	0	0	0	(107)
Stock options exercised	85	0	0	8	77	0	0	0	0
Directors' fees deferred less payment of deferred fees	0	0	0	0	0	0	(278)	278	0
Convertible preferred stock issued	14,069	14,069	0	0	0	0	0	0	0
Convertible preferred stock converted to common stock	0	(14,069)	0	1,549	12,520	0	0	0	0
Preferred stock retired	(10,994)	0	(10,994)	0	0	0	0	0	0
Preferred stock dividends	(341)	0	0	0	0	(341)	0	0	0
Balance at Sep. 30, 2015	60,098	0	0	4,992	28,936	25,138	(1,743)	1,743	1,032
Balance at Dec. 31, 2015	61,139	0	0	5,021	29,234	26,174	(1,831)	1,831	710
Net income	3,908	0	0	0	0	3,908	0	0	0
Other comprehensive income(loss) net of tax	258	0	0	0	0	0	0	0	258
Stock options exercised	261			24	237	0	0	0	0
Directors' fees deferred less payment of deferred fees	0	0	0	0	0	0	(258)	258	0
Balance at Sep. 30, 2016	$ 65,566	$ 0	$ 0	$ 5,045	$ 29,471	$ 30,082	$ (2,089)	$ 2,089	$ 968

XML

Consolidated Statements of Cash Flows - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015
Cash flows from operating activities
Net income	$ 3,908	$ 4,731
Adjustments to reconcile net income to net cash provided by (used for) operating activities
Provision for loan losses	0	1,285
Depreciation	625	617
Increase in cash surrender value of bank-owned life insurance	(275)	(268)
Deferred income taxes (benefit)	(166)	718
Amortization, net of accretion	177	85
Capitalized interest on fixed asset construction	0	(40)
Increase in fair value of loans held for sale	(261)	(774)
Gain on sale of other real estate owned	(47)	(201)
Gain on sale of investments	0	(27)
Gain on sale of loans held for sale	(7,046)	(8,780)
Impairment of other real estate owned	77	200
Proceeds from sale of loans held for sale	382,422	543,172
Originations of loans held for sale	(378,148)	(544,600)
Increase in interest rate lock commitments	(75)	(716)
Increase in other assets	(78)	(207)
Increase in other liabilities and accrued expenses	136	1,004
Net cash provided by (used for) operating activities	1,249	(3,801)
Cash flows from investing activities
Decrease in bank term deposits	1,465	0
Purchases of investment securities available-for-sale	(2,150)	(2,610)
Maturities and calls of securities available-for-sale	3,387	1,311
Maturities and calls of securities held-to-maturity	377	316
Repayments from mortgage-backed securities available-for-sale	4,955	1,484
Repayments from mortgage-backed securities held-to-maturity	470	512
Net (increase) decrease in loans	(38,008)	5,449
Proceeds from sales of investment securities	0	1,295
Improvements to other real estate owned	(327)	(89)
Purchases of premises and equipment	(7)	(1,401)
Proceeds from sales of other real estate owned	1,453	1,240
Net cash provided by (used for) investing activities	(28,385)	7,507
Cash flows from financing activities
Net increase (decrease) in deposits	(5,824)	1,591
Net proceeds from issuance of preferred stock converted to common stock	0	14,069
Repurchase of preferred stock	0	(10,994)
Net increase (decrease) in advances from the Federal Home Loan Bank	9,419	(78)
Decrease in securities sold under agreements to repurchase	(47)	(128)
Proceeds from exercise of stock options	261	85
Dividends paid on preferred stock	0	(465)
Net cash provided by financing activities	3,809	4,080
Net increase (decrease) in cash and cash equivalents	(23,327)	7,786
Cash and cash equivalents at beginning of period	75,792	46,174
Cash and cash equivalents at end of period	52,465	53,960
Supplemental disclosure of cash flow information
Cash paid during the period for interest	2,087	2,120
Cash paid during the period for income taxes	1,802	1,362
Supplemental disclosure of non-cash transactions
Transfer of loans to other real estate owned	478	613
Change in unrealized gains on securities available-for-sale, net of tax	$ 258	$ (107)

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Summary

9 Months Ended

Sep. 30, 2016

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Nature of Operations [Text Block]

Note A – Summary

Carolina Bank Holdings, Inc. (the “Holding Company”) is a North Carolina corporation organized in 2000. In August 2000 pursuant to the plan of share exchange approved by the stockholders of Carolina Bank (the “Bank”), all of the outstanding shares of common stock of the Bank were exchanged for shares of common stock of the Holding Company. The Holding Company presently has no employees.

The Bank was incorporated in August 1996, and began banking operations in November 1996. It is engaged in lending and deposit gathering activities in Guilford, Alamance, Randolph and Forsyth counties of North Carolina and operates under the laws of North Carolina, the Rules and Regulations of the Federal Deposit Insurance Corporation and the North Carolina Commissioner of Banks. The Bank has three locations in Greensboro, two offices in Winston-Salem and an office in Asheboro, Burlington, and High Point. All banking offices are in the Piedmont Triad region of North Carolina. A wholesale mortgage banking division is located at the Greensboro corporate headquarters, and mortgage loan production offices are located in Burlington, Chapel Hill and Sanford.

The Holding Company files periodic reports with the Securities and Exchange Commission and is also subject to regulation by the Federal Reserve Board.

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Business combinations

9 Months Ended

Sep. 30, 2016

Business Combinations [Abstract]

Business Combination Disclosure [Text Block]

Note B – Business combinations

On June 21, 2016, the Holding Company entered into an Agreement and Plan of Merger and Reorganization (the “Merger Agreement”) with First Bancorp, under which, upon the terms and subject to the conditions set forth in the Merger Agreement, the Holding Company will merge with and into First Bancorp, with First Bancorp as the surviving corporation in the merger. In connection with the merger, the Bank will merge with and into First Bancorp’s wholly owned bank subsidiary, with First Bancorp’s bank subsidiary surviving the bank merger. Under the terms and subject to the conditions of the Merger Agreement, Holding Company stockholders will have the right to receive 1.002 shares of First Bancorp common stock or $20 in cash, or a combination thereof, for each share of Holding Company stock. The total merger consideration will be prorated as necessary to ensure that 25% of the total outstanding shares of the Holding Company common stock will be exchanged for cash and 75% of the total outstanding shares of the Holding Company common stock will be exchanged for shares of First Bancorp common stock. The merger is subject to, among other things, regulatory and Holding Company stockholder approval and other customary closing conditions and is currently expected to close in the fourth quarter of 2016 or first quarter of 2017.

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Consolidation

9 Months Ended

Sep. 30, 2016

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Organization, Consolidation and Presentation of Financial Statements Disclosure [Text Block]

Note C – Consolidation

The consolidated financial statements include the accounts of the Holding Company and its wholly-owned subsidiary, the Bank (collectively the “Company”). The Bank also owns two limited liability companies for the purpose of holding foreclosed real estate, the assets and operations of which are consolidated into the Bank and included herein. All significant inter-company transactions and balances have been eliminated.

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Basis of presentation

9 Months Ended

Sep. 30, 2016

Accounting Policies [Abstract]

Business Description and Basis of Presentation [Text Block]

Note D – Basis of presentation

In management’s opinion, the financial information, which is unaudited, reflects all adjustments (consisting solely of normal recurring adjustments) necessary for a fair presentation of the financial information as of and for the three and nine months ended September 30, 2016 and 2015, in conformity with accounting principles generally accepted in the United States of America. Operating results for the three and nine months ended September 30, 2016 and 2015 are not necessarily indicative of the results that may be expected for future annual periods.

The Company’s consolidated financial statements are presented in accordance with Accounting Standards Codification (“ASC”) Topic 105, “The FASB Accounting Standards Codification and The Hierarchy of Generally Accepted Accounting Principles”, which codifies generally accepted accounting principles (“GAAP”) in the United States.

The organization and business of the Company, accounting policies followed, and other information are contained in the notes to the consolidated financial statements of the Company as of and for the years ended December 31, 2015 and 2014, filed with the Securities and Exchange Commission as part of the Company’s annual report on Form 10-K. The financial statements included in this report should be read in conjunction with the Company’s annual consolidated financial statements.

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Use of estimates

9 Months Ended

Sep. 30, 2016

Use Of Estimates [Abstract]

Use Of Estimates [Text Block]

Note E – Use of estimates

The consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America which require management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses and the valuation of other real estate owned.

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Stock compensation plans

9 Months Ended

Sep. 30, 2016

Disclosure Of Compensation Related Costs, Share-Based Payments [Abstract]

Disclosure of Compensation Related Costs, Share-based Payments [Text Block]

Note F – Stock compensation plans

The Company’s stockholders approved the 2009 Omnibus Stock Ownership and Long Term Incentive Plan (“Omnibus Plan”) in 2009 to replace three expired stock option plans, a nonqualified plan for directors and two incentive stock option plans for management and employees. The Omnibus Plan provides for the grant of incentive stock options, non-qualified stock options, restricted stock, long-term incentive compensation units and stock appreciation rights to employees and directors. An aggregate of 500,000 shares of the Company’s common stock were reserved for issuance under the terms of the Omnibus Plan, and 490,000 shares remained available for grant at September 30, 2016.

There were no stock option grants in the first nine months of 2016 or 2015. There was no compensation expense in the nine months ended September 30, 2016 or 2015 related to stock options. At September 30, 2016, there was no unrecognized compensation cost related to unvested share-based compensation.

As a result of the exercise of stock options, 24,028 new shares of common stock were issued in the first nine months of 2016.

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Earnings per common share

9 Months Ended

Sep. 30, 2016

Earnings Per Share [Abstract]

Earnings Per Share [Text Block]

Note G – Earnings per common share

Earnings per common share has been determined on a basic basis and a diluted basis which considers potential stock issuances. For the three and nine months ended September 30, 2016 and 2015, basic earnings per common share has been computed based upon the weighted average common shares outstanding.

The only potential issuances of Company common stock at this time are stock options granted to various officers of the Bank. Convertible preferred stock, which was sold in a private placement offering on March 31, 2015 and later converted to 1,550,000 shares of common stock, was included in diluted weighted average common shares for one day in the first quarter of 2015 and for the entire second quarter of 2015. The following is a summary of the diluted earnings per common share calculation for the three and nine months ended September 30, 2016 and 2015.

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2016		2015		2016		2015
	(in thousands, except per share data)
Net income available to common stockholders	$	1,564	$	1,436	$	3,908	$	4,390
Weighted average outstanding shares - basic		5,045		4,990		5,040		4,180
Dilutive effect of stock options and convertible preferred stock		4		10		4		306
Weighted average shares - diluted		5,049		5,000		5,044		4,486
Diluted net income per share	$	0.31	$	0.29	$	0.77	$	0.98

For the three months ended September 30, 2016 and 2015, there were no stock options that were excluded in computing diluted common shares outstanding since the option exercise prices were less than the average market price for the period.

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Preferred stock and convertible preferred stock

9 Months Ended

Sep. 30, 2016

Equity [Abstract]

Preferred Stock [Text Block]

Note H – Preferred stock and convertible preferred stock

In December 2008, the stockholders of the Company approved an amendment to the Articles of Incorporation authorizing the issuance of up to 1,000,000 shares of preferred stock, no par value. In January 2009, the Company issued 16,000 shares of preferred stock, Series A, to the U.S. Treasury and received $16 million under the Capital Purchase Program. The Company granted a warrant to purchase 357,675 shares of common stock at a price of $6.71 per share to the U.S. Treasury as part of the preferred stock transaction. Dividends at 5% per annum were payable quarterly for the first five years; the dividend increased to 9% per annum after the fifth year effective February 16, 2014.

The U.S. Treasury sold its holding of $16 million in preferred stock to private investors in February 2013, and the warrant to the U.S. Treasury was repurchased by the Company for $1.8 million in April 2013. The Company retired 5,006 shares of its outstanding Series A preferred stock in 2013 and retired the remaining shares in May of 2015.

On March 31, 2015, the Company issued 15,500 shares of Series B convertible preferred stock at $975 per share in a private placement offering and received $14,069,000 in net proceeds after offering expenses of $1,044,000. The net proceeds from this private placement were used to retire the remaining Series A preferred stock in May of 2015 and to improve capital levels. All 15,500 shares of the Series B convertible preferred stock were converted into 1,550,000 shares of common stock on May 22, 2015 following stockholder approval. No dividends were ever declared or paid on the Series B convertible preferred stock.

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Subordinated debentures

9 Months Ended

Sep. 30, 2016

Subordinated Borrowings [Abstract]

Subordinated Borrowings Disclosure [Text Block]

Note I – Subordinated debentures

In December 2004, the Company issued $10,310,000 of unsecured junior subordinated debentures which accrue and pay interest quarterly at three month LIBOR plus 2% per annum. These debentures were issued to Carolina Capital Trust (“Carolina Trust”), a wholly owned subsidiary of the Company which is not consolidated in these consolidated financial statements pursuant to accounting principles governing consolidated variable interest entities. Carolina Trust acquired these debentures using the proceeds of its offerings of common securities to the Company and $10 million of Trust Preferred Securities to outside investors. The Trust Preferred Securities qualify as Tier 1 capital under current Federal Reserve Board guidelines. The Dodd-Frank Wall Street Reform and Consumer Protection Act eliminated trust preferred securities as an element of Tier 1 capital for certain institutions. However, bank holding companies with assets of less than $15 billion as of December 31, 2009, were permitted to include trust preferred securities that were issued before May 19, 2010, as Tier 1 capital. The Company has entered into contractual arrangements which, in the aggregate, constitute a full, irrevocable and unconditional guarantee on a subordinated basis by the Company of the obligations of Carolina Trust under the Trust Preferred Securities. The Trust Preferred Securities are redeemable upon maturity of the debentures on January 7, 2035, or upon earlier redemption as provided in the indenture. The Company has the right to redeem the debentures purchased by Carolina Trust in whole or in part at any time.

In August and September of 2008, Carolina Bank issued $9,300,000 of unsecured junior subordinated notes to outside investors which accrue and pay interest quarterly at three month LIBOR plus 4% per annum. The notes qualify as Tier 2 capital for the Bank, subject to a 20% annual reduction which began on October 1, 2013 and continues each year thereafter until maturity. The notes are redeemable upon maturity on September 30, 2018, or earlier at the Bank’s option, in whole or part subject to regulatory approval, beginning September 30, 2013. The Board of Directors and our primary regulators have approved the retirement of these notes, subject to maintaining Well Capitalized status after subordinated debt extinguishment. The approval to retire the Bank subordinated debt expires on August 29, 2017. The expenses of the offering of $373,000 were capitalized at issuance and were amortized over sixty months. The notes are subordinate to the rights of payment to depositors, bankers acceptances, letters of credit and general creditors.

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Operating segments

9 Months Ended

Sep. 30, 2016

Segment Reporting [Abstract]

Segment Reporting Disclosure [Text Block]

Note J – Operating segments

The Company is considered to have three principal business segments in 2016 and 2015, the Commercial/Retail Bank, the Mortgage Banking Division, and the Holding Company. The Mortgage Banking Division began originating home mortgage loans through third parties and selling these loans to investors in late 2007. A retail mortgage operation was added to the mortgage banking division in July 2010. Financial performance, reflective of inter-company and intra-company eliminations, for the three and nine months ended September 30, 2016 and 2015, and selected balance sheet information, reflective of inter-company and intra-company eliminations, at September 30, 2016 and 2015 for each segment is as follows:

	Three months ended September 30, 2016								Three months ended September 30, 2015
	Commercial/		Mortgage						Commercial/		Mortgage
	Retail		Banking		Holding				Retail		Banking		Holding
	Bank		Division		Company		Total		Bank		Division		Company		Total
	(in thousands)								(in thousands)
Interest income	$	6,171	$	424	$	2	$	6,597	$	5,963	$	593	$	1	$	6,557
Interest expense		200		423		74		697		15		593		60		668
Net interest income (loss)		5,971		1		(72)		5,900		5,948		-		(59)		5,889
Provision for loan losses		-		-		-		-		450		-		-		450
Net interest income (loss) after provision for loan losses		5,971		1		(72)		5,900		5,498		-		(59)		5,439
Non-interest income		672		2,510		-		3,182		421		3,220		-		3,641
Non-interest expense		4,354		2,433		136		6,923		4,647		2,326		42		7,015
Income (loss) before income taxes		2,289		78		(208)		2,159		1,272		894		(101)		2,065
Income tax (benefit) expense		619		22		(46)		595		332		331		(34)		629
Net income (loss)	$	1,670	$	56	$	(162)	$	1,564	$	940	$	563	$	(67)	$	1,436

	Nine months ended September 30, 2016								Nine months ended September 30, 2015
	Commercial/		Mortgage						Commercial/		Mortgage
	Retail		Banking		Holding				Retail		Banking		Holding
	Bank		Division		Company		Total		Bank		Division		Company		Total
			(in thousands)								(in thousands)
Interest income	$	18,684	$	1,134	$	6	$	19,824	$	18,042	$	1,563	$	5	$	19,610
Interest expense		783		1,134		207		2,124		306		1,563		177		2,046
Net interest income (loss)		17,901		-		(201)		17,700		17,736		-		(172)		17,564
Provision for loan losses		-		-		-		-		1,285		-		-		1,285
Net interest income (loss) after provision for loan losses		17,901		-		(201)		17,700		16,451		-		(172)		16,279
Non-interest income		1,625		7,115		-		8,740		1,204		9,848		-		11,052
Non-interest expense		13,328		6,842		837		21,007		13,297		7,215		146		20,658
Income (loss) before income taxes		6,198		273		(1,038)		5,433		4,358		2,633		(318)		6,673
Income tax (benefit) expense		1,645		98		(218)		1,525		1,068		982		(108)		1,942
Net income (loss)	$	4,553	$	175	$	(820)	$	3,908	$	3,290	$	1,651	$	(210)	$	4,731
Total assets	$	664,643	$	43,913	$	334	$	708,890	$	636,074	$	52,492	$	408	$	688,974
Net loans		497,462		42,616		-		540,078		458,322		50,762		-		509,084
Equity		4,553		175		60,838		65,566		3,290		1,651		55,157		60,098

The mortgage banking division experienced strong growth in originations from 2007 through 2012 due to low interest rates and due to the purchase of a retail loan production office in July of 2010. Origination of home mortgage loans has been volatile over the past few years and is dependent on a number of factors including the level of interest rates, general economic conditions, real estate values, and underwriting criteria to qualify borrowers. Mortgage loan originations were $378.1 million, $544.6 million, $411.3 million, and $761.0 million for the first nine months of 2016, 2015, 2014, and 2013, respectively. Interest rate risk has been minimized by obtaining optional loan sales commitments when loan origination commitments are made or by entering into hedging transactions whereby mortgage backed securities are sold for the estimated closing value of loan commitments. Borrower fraud is a risk that has been minimized by prudent underwriting and by obtaining indemnification from the originating bank or broker for the risks the Company assumes. Warranty provisions and related warranty liabilities were established in 2009 and subsequent years to provide for potential claims that might arise from borrower fraud, underwriting errors, or compliance assessments. Warranty expense was $19,000 and $42,000 for the three months ended September 30, 2016 and 2015, respectively, and was $42,000 and $138,000 for the nine months ended September 30, 2016 and 2015, respectively. The lower warranty expense in 2016 relates to lower originations and an updated study of historical claims and various market data conducted in 2016. The warranty liability, which is available to fund future warranty claims, was $1,467,000 and $1,547,000 at September 30, 2016 and December 31, 2015, respectively. Claims incurred since establishment of the mortgage division in 2007 have totaled $1,238,000. In addition, seven loans with a total current carrying balance, including fair value loss adjustments recorded when transferred, of $1,555,000 have been repurchased and are included in loans held for investment.

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Securities

9 Months Ended

Sep. 30, 2016

Securities [Abstract]

Investments in Debt and Marketable Equity Securities (and Certain Trading Assets) Disclosure [Text Block]

Note K – Securities

A summary of the amortized cost, gross unrealized gains and losses and estimated fair values of securities available-for-sale and held-to-maturity follows:

			Gross		Gross		Estimated
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
			(in thousands)
September 30, 2016
Available-for-sale
Municipal securities	$	16,121	$	700	$	-	$	16,821
FNMA, FHLMC, and GNMA mortgage-backed securities		11,591		596		-		12,187
Corporate securities		9,059		47		4		9,102
Asset-backed securities		3,179		113		-		3,292
Unrestricted stock		43		13		-		56
	$	39,993	$	1,469	$	4	$	41,458
Held-to-maturity
Municipal securities	$	7,126	$	283	$	-	$	7,409
FNMA mortgage-backed securities		4,778		127		-		4,905
Corporate securities		500		-		-		500
Asset-backed securities		1,627		116		-		1,743
	$	14,031	$	526	$	-	$	14,557
December 31, 2015
Available-for-sale
Municipal securities	$	17,095	$	569	$	8	$	17,656
FNMA, FHLMC, and GNMA mortgage-backed securities		16,589		390		1		16,978
Corporate securities		8,903		58		22		8,939
Asset-backed securities		3,654		78		-		3,732
Unrestricted stock		43		12		-		55
	$	46,284	$	1,107	$	31	$	47,360
Held-to-maturity
Municipal securities	$	7,360	$	204	$	-	$	7,564
FNMA mortgage-backed securities		5,251		17		15		5,253
Corporate securities		500		-		-		500
Asset-backed securities		1,843		66		-		1,909
	$	14,954	$	287	$	15	$	15,226

The scheduled maturities of debt securities available-for-sale and held-to-maturity at September 30, 2016 were as follows:

	Bullet Securities				Declining Balance Securities				Total
			Estimated				Estimated				Estimated
	Amortized		Fair		Amortized		Fair		Amortized		Fair
	Cost		Value		Cost		Value		Cost		Value
	(in thousands)
Available-for-sale
Due in one year or less	$	2,997	$	3,000	$	-	$	-	$	2,997	$	3,000
Due from one to five years		8,541		8,818		1,695		1,854		10,236		10,672
Due from five to ten years		7,659		7,929		4,802		4,984		12,461		12,913
Over ten years		5,983		6,176		8,273		8,641		14,256		14,817
	$	25,180	$	25,923	$	14,770	$	15,479	$	39,950	$	41,402
Held-to-maturity
Due in one year or less	$	-	$	-	$	-	$	-	$	-	$	-
Due from one to five years		-		-		-		-		-		-
Due from five to ten years		3,819		3,925		-		-		3,819		3,925
Over ten years		3,807		3,984		6,405		6,648		10,212		10,632
	$	7,626	$	7,909	$	6,405	$	6,648	$	14,031	$	14,557

Securities with a carrying value of approximately $13,847,000 at September 30, 2016 and $16,220,000 at December 31, 2015 were pledged to secure retail repurchase agreements and certain deposits.

Management evaluates securities for other-than-temporary impairment at least quarterly. Consideration is given to the length of time and the extent to which the fair values have been less than amortized cost, the financial condition and near-term prospects of the security issuers, and the intent and ability to retain impaired investments for a period to allow recovery in fair value.

At September 30, 2016, one corporate debt security with $977,000 in fair value had an unrealized loss of $4,000. The value of this security with an unrealized loss fluctuates based on changes in the value of U.S. Treasury bonds with similar characteristics, debt ratings changes of the issuing institution, financial performance of the related institution, world events, and demand for the security. As management has the ability and intent to hold this debt security until maturity, the decline is not deemed to be other-than-temporary.

Information pertaining to securities with gross unrealized losses at September 30, 2016 and December 31, 2015, by category and length of time that individual securities have been in a continuous loss position follows:

	Less Than 12 Months						12 Months or Greater						Total
	Number				Gross		Number				Gross		Number				Gross
	of		Fair		Unrealized		of		Fair		Unrealized		of		Fair		Unrealized
	Securities		Value		Losses		Securities		Value		Losses		Securities		Value		Losses
	(dollars in thousands)
September 30, 2016:
Corporate securities		0	$	-	$	-		1	$	977	$	4		1	$	977	$	4
Total		0	$	-	$	-		1	$	977	$	4		1	$	977	$	4
December 31, 2015:
Municipal securities		3	$	3,440	$	2		1	$	244	$	6		4	$	3,684	$	8
FNMA and FHLMC mortgage-backed securities		2		5,414		16		0		-		-		2		5,414		16
Corporate securities		1		985		15		1		973		7		2		1,958		22
Total		6	$	9,839	$	33		2	$	1,217	$	13		8	$	11,056	$	46

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Loans and allowance for loan losses

9 Months Ended

Sep. 30, 2016

Receivables [Abstract]

Loans, Notes, Trade and Other Receivables Disclosure [Text Block]

Note L – Loans and allowance for loan losses

The activity in the allowance for loan losses for the first nine months of 2016 and year ended 2015 and related asset balances at September 30, 2016 and December 31, 2015 is summarized as follows:

	Construction &		Commercial		Home equity		Residential		Commercial		Consumer
	development		real estate		lines		real estate		& industrial		& other		Unallocated		Total
Allowance for loan losses:	(in thousands)
2016
Beginning of year balance	$	1,005	$	2,546	$	441	$	507	$	1,309	$	20	$	44	$	5,872
Provision for loan losses		(691)		722		283		(20)		(347)		12		41		-
Charge-offs		-		(588)		(51)		(46)		-		(2)		-		(687)
Recoveries		87		249		4		50		184		5		-		579
Balance at September 30	$	401	$	2,929	$	677	$	491	$	1,146	$	35	$	85	$	5,764
2015
Beginning of year balance	$	1,495	$	2,144	$	766	$	483	$	1,413	$	28	$	191	$	6,520
Provision for loan losses		(490)		1,691		(332)		48		327		(12)		(147)		1,085
Charge-offs		-		(2,990)		(104)		(130)		(914)		(7)		-		(4,145)
Recoveries		-		1,701		111		106		483		11		-		2,412
Balance at December 31	$	1,005	$	2,546	$	441	$	507	$	1,309	$	20	$	44	$	5,872
Balances at September 30, 2016
Allowance for loan losses:
Balance at September 30	$	401	$	2,929	$	677	$	491	$	1,146	$	35	$	85	$	5,764
Ending balance individually evaluated for impairment	$	-	$	782	$	143	$	275	$	-	$	-	$	-	$	1,200
Ending balance collectively evaluated for impairment	$	401	$	2,147	$	534	$	216	$	1,146	$	35	$	85	$	4,564
Loans Outstanding:
Balance at September 30	$	73,817	$	235,816	$	81,181	$	51,939	$	56,529	$	3,944	$	-	$	503,226
Ending balance individually evaluated for impairment	$	95	$	10,194	$	490	$	4,511	$	-	$	-	$	-	$	15,290
Ending balance collectively evaluated for impairment	$	73,722	$	225,622	$	80,691	$	47,428	$	56,529	$	3,944	$	-	$	487,936
Balances at December 31, 2015
Allowance for loan losses:
Balance at December 31	$	1,005	$	2,546	$	441	$	507	$	1,309	$	20	$	44	$	5,872
Ending balance individually evaluated for impairment	$	12	$	480	$	51	$	272	$	18	$	-	$	-	$	833
Ending balance collectively evaluated for impairment	$	993	$	2,066	$	390	$	235	$	1,291	$	20	$	44	$	5,039
Loans Outstanding:
Balance at December 31	$	62,289	$	213,987	$	78,952	$	52,363	$	55,641	$	2,572	$	-	$	465,804
Ending balance individually evaluated for impairment	$	175	$	9,044	$	390	$	4,423	$	362	$	-	$	-	$	14,394
Ending balance collectively evaluated for impairment	$	62,114	$	204,943	$	78,562	$	47,940	$	55,279	$	2,572	$	-	$	451,410

A loan is past due when the borrower has not made a payment by the contractual due date. The following table presents the carrying value of loans that are past due thirty days or more. Loans which are ninety days or more past due are generally on non-accrual status, at which time all accrued interest is removed from interest income. All non-accrual loans are reflected in the past due ninety days or more category shown in the following table:

													Loans Past
	Number of Days Past Due												Due 90 Days
					90 Days		Total				Total		or More
	30-59 Days		60-89 Days		or More		Past Due		Current		Loans		& Accruing
	(in thousands)
At September 30, 2016
Real Estate Loans:
Construction & development	$	-	$	-	$	95	$	95	$	73,722	$	73,817	$	-
Commercial real estate		-		-		2,851		2,851		232,965		235,816		-
Home equity lines		210		-		317		527		80,654		81,181		-
Residential real estate		186		-		1,129		1,315		50,624		51,939		-
Total real estate		396		-		4,392		4,788		437,965		442,753		-
Commercial & industrial		-		-		-		-		56,529		56,529		-
Consumer & other		-		-		-		-		3,944		3,944		-
Total loans	$	396	$	-	$	4,392	$	4,788	$	498,438	$	503,226	$	-
At December 31, 2015
Real Estate Loans:
Construction & development	$	22	$	-	$	175	$	197	$	62,092	$	62,289	$	-
Commercial real estate		-		-		1,735		1,735		212,252		213,987		-
Home equity lines		125		-		265		390		78,562		78,952		-
Residential real estate		528		180		935		1,643		50,720		52,363		-
Total real estate		675		180		3,110		3,965		403,626		407,591		-
Commercial & industrial		-		-		-		-		55,641		55,641		-
Consumer & other		-		-		-		-		2,572		2,572		-
Total loans	$	675	$	180	$	3,110	$	3,965	$	461,839	$	465,804	$	-

Loans are determined to be impaired when, based on current information and events, it is probable that all amounts will not be collected when due according to the contractual terms of the original loan agreement. At September 30, 2016 and December 31, 2015, the total recorded investment in impaired loans amounted to approximately $15,290,000 and $14,394,000, respectively. Of these impaired loans, $4,392,000 and $3,110,000 were on non-accrual status at September 30, 2016 and December 31, 2015, respectively.

The recorded investment and related information for impaired loans is summarized as follows:

	Impaired Loans
	At end of period						For Period Ended
			Unpaid		Related		Average		Interest
	Recorded		Principal		Loan Loss		Recorded		Income
	Investment		Balance		Allowance		Investment		Recognized
	(in thousands)
September 30, 2016
With no related allowance recorded
Real Estate Loans:
Construction & development	$	95	$	95	$	-	$	76	$	-
Commercial real estate		2,988		3,785		-		5,481		85
Home equity lines		184		359		-		360		13
Residential real estate		2,002		2,129		-		2,182		76
Total real estate		5,269		6,368		-		8,099		174
Commercial & industrial		-		-		-		-		-
Consumer & other		-		-		-		-		-
Total loans		5,269		6,368		-		8,099		174
With an allowance recorded
Real Estate Loans:
Construction & development		-		-		-		-		-
Commercial real estate		7,206		7,729		782		7,815		275
Home equity lines		306		313		143		314		9
Residential real estate		2,509		2,618		275		2,655		71
Total real estate		10,021		10,660		1,200		10,784		355
Commercial & industrial		-		-		-		-		-
Consumer & other		-		-		-		-		-
Total loans		10,021		10,660		1,200		10,784		355
Total impaired loans	$	15,290	$	17,028	$	1,200	$	18,883	$	529
December 31, 2015
With no related allowance recorded
Real Estate Loans:
Construction & development	$	-	$	-	$	-	$	-	$	-
Commercial real estate		2,819		3,380		-		7,484		193
Home equity lines		193		360		-		362		16
Residential real estate		2,565		2,689		-		2,754		149
Total real estate		5,577		6,429		-		10,600		358
Commercial & industrial		-		-		-		-		-
Consumer & other		-		-		-		-		-
Total loans		5,577		6,429		-		10,600		358
With an allowance recorded
Real Estate Loans:
Construction & development		175		175		12		97		1
Commercial real estate		6,225		6,453		480		6,569		358
Home equity lines		197		265		51		265		11
Residential real estate		1,858		1,955		272		2,057		100
Total real estate		8,455		8,848		815		8,988		470
Commercial & industrial		362		362		18		383		20
Consumer & other		-		-		-		-		-
Total loans		8,817		9,210		833		9,371		490
Total impaired loans	$	14,394	$	15,639	$	833	$	19,971	$	848

Loans that are past due 90 days or more or where there is serious doubt as to collectability are placed on non-accrual status. Non-accrual loans are not returned to accrual status unless principal and interest are current and borrowers have demonstrated the ability to make contractual payments. Accrued interest is reversed through a charge to income when loans are placed on non-accrual status, and future payments on non-accrual loans are generally applied to principal. The following is a summary of non-accrual loans at September 30, 2016 and December 31, 2015:

	September 30,		December 31,
	2016		2015
	(in thousands)
Real Estate Loans:
Construction & development	$	95	$	175
Commercial real estate		2,851		1,735
Home equity lines		317		265
Residential real estate		1,129		935
Total real estate		4,392		3,110
Commercial & industrial		-		-
Consumer & other		-		-
Total loans	$	4,392	$	3,110

Loans are graded according to an internal loan rating classification system when originated. Loan grades are periodically re-evaluated during servicing, internal loan reviews, and external loan reviews. The general categories of the internal loan rating classification are:

⋅ Pass - Acceptable loans

⋅ Special Mention - Loans with potential identified weaknesses in administration or servicing.

⋅ Classified - Adversely classified loans with identified weaknesses, and potential or identified losses of principal and/or interest due.

The following is a breakdown of loans by the general categories of the internal rating system:

At September 30, 2016
	Pass		Special Mention		Classified		Total
	(in thousands)
Real Estate Loans:
Construction & development	$	73,722	$	-	$	95	$	73,817
Commercial real estate		225,368		7,435		3,013		235,816
Home equity lines		80,241		296		644		81,181
Residential real estate		48,620		944		2,375		51,939
Total real estate		427,951		8,675		6,127		442,753
Commercial & industrial		56,509		20		-		56,529
Consumer & other		3,944		-		-		3,944
Total loans	$	488,404	$	8,695	$	6,127	$	503,226

At December 31, 2015
	Pass		Special Mention		Classified		Total
	(in thousands)
Real Estate Loans:
Construction & development	$	62,110	$	-	$	179	$	62,289
Commercial real estate		202,252		9,270		2,465		213,987
Home equity lines		78,014		128		810		78,952
Residential real estate		48,251		1,635		2,477		52,363
Total real estate		390,627		11,033		5,931		407,591
Commercial & industrial		54,691		950		-		55,641
Consumer & other		2,572		-		-		2,572
Total loans	$	447,890	$	11,983	$	5,931	$	465,804

During 2016 and 2015, the Company restructured certain loans to improve the likelihood that the loans would be repaid in full under the modified terms in accordance with reasonable repayment schedules. Management evaluates each of these loans in accordance with generally accepted accounting principles to determine whether they should be reported as troubled debt restructurings.

The Company offers a variety of modifications to borrowers. The modification categories offered can generally be described in the following categories:

⋅ Rate Modification – A modification in which the interest rate is changed.

⋅ Term Modification – A modification in which the maturity date, timing of payments, or frequency of payments is changed.

⋅ Interest Only Modification – A modification in which the loan is converted to interest only payments for a period of time.

⋅ Payment Modification – A modification in which the dollar amount of the payment is changed, other than an interest only modification described above.

⋅ Combination Modification – Any other type of modification, including the use of multiple categories above.

Available commitments for troubled debt restructurings outstanding as of September 30, 2016 totaled $426,000.

The following tables present troubled debt restructurings as of September 30, 2016 and December 31, 2015:

	Troubled Debt Restructurings
	September 30, 2016
					Non-Accrual				Total
	Accrual Status				Status				Modifications
	#		Amount		#		Amount		#		Amount
	($ in thousands)
Real Estate Loans:
Construction & development		0	$	-		1	$	95		1	$	95
Commercial real estate		12		6,881		3		2,193		15		9,074
Home equity lines		0		-		0		-		0		-
Residential real estate		11		2,194		1		155		12		2,349
Total real estate		23		9,075		5		2,443		28		11,518
Commercial & industrial		1		301		0		-		1		301
Consumer & other		0		-		0		-		0		-
Total loans		24	$	9,376		5	$	2,443		29	$	11,819

	December 31, 2015
					Non-Accrual				Total
	Accrual Status				Status				Modifications
	#		Amount		#		Amount		#		Amount
	($ in thousands)
Real Estate Loans:
Construction & development		0	$	-		1	$	175		1	$	175
Commercial real estate		12		7,073		1		338		13		7,411
Home equity lines		0		-		0		-		0		-
Residential real estate		11		2,252		2		388		13		2,640
Total real estate		23		9,325		4		901		27		10,226
Commercial & industrial		1		362		0		-		1		362
Consumer & other		0		-		0		-		0		-
Total loans		24	$	9,687		4	$	901		28	$	10,588

The Bank’s policy is that loans placed on non-accrual status will typically remain on non-accrual status until all principal and interest payments are brought current and the prospect for future payment in accordance with the loan agreement appears relatively certain. The Bank’s policy generally refers to six months of payment performance as sufficient to warrant a return to accrual status.

Troubled debt restructurings are classified as impaired loans when modified, and fair value calculations are performed to determine the specific reserves required in the allowance for loan losses related to these loans. Troubled debt restructurings can be removed from such status and returned to non-impaired status in years subsequent to restructure if the interest rate charged at restructure was greater than or equal to the rate charged for a new extension of credit with comparable risk and if the loan is performing and there is no available information to indicate that performance will not continue.

The following table presents newly restructured loans that occurred during the three and nine months ended September 30, 2016; there were no outstanding newly restructured loans as of September 30, 2015.

	New Troubled Debt Restructurings
	Three Months Ended September 30, 2016
	Rate				Term				Payment				Combination				Total
	Modifications				Modifications				Modifications				Modifications				Modifications
	#		Amount		#		Amount		#		Amount		#		Amount		#		Amount
	($ in thousands)
Pre-Modification Outstanding Recorded Investment:
Real Estate Loans:
Construction & development		0	$	-		0	$	-		0	$	-		1	$	-		1	$	-
Total real estate		0		-		0		-		0		-		1		-		1		-
Consumer & other		0		-		0		-		0		-		0		-		0		-
Total loans		0	$	-		0	$	-		0	$	-		1	$	-		1	$	-
Post-Modification Outstanding Recorded Investment:
Real Estate Loans:
Construction & development		0	$	-		0	$	-		0	$	-		1	$	95		1	$	95
Total real estate		0		-		0		-		0		-		1		95		1		95
Consumer & other		0		-		0		-		0		-		0		-		0		-
Total loans		0	$	-		0	$	-		0	$	-		1	$	95		1	$	95

	New Troubled Debt Restructurings
	Nine Months Ended September 30, 2016
	Rate				Term				Payment				Combination				Total
	Modifications				Modifications				Modifications				Modifications				Modifications
	#		Amount		#		Amount		#		Amount		#		Amount		#		Amount
	($ in thousands)
Pre-Modification Outstanding Recorded Investment:
Real Estate Loans:
Construction & development		0	$	-		0	$	-		0	$	-		1	$	-		1	$	-
Commercial real estate		0		-		2		2,488		0		-		0		-		2		2,488
Total real estate		0		-		2		2,488		0		-		1		-		3		2,488
Commercial & industrial		0		-		0		-		0		-		0		-		0		-
Total loans		0	$	-		2	$	2,488		0	$	-		1	$	-		3	$	2,488
Post-Modification Outstanding Recorded Investment:
Real Estate Loans:
Construction & development		0	$	-		0	$	-		0	$	-		1	$	95		1	$	95
Commercial real estate		0		-		2		1,900		0		-		0		-		2		1,900
Total real estate		0		-		2		1,900		0		-		1		95		3		1,995
Commercial & industrial		0		-		0		-		0		-		0		-		0		-
Total loans		0	$	-		2	$	1,900		0	$	-		1	$	95		3	$	1,995

 

The following table presents the troubled debt restructurings with a payment default, with the payment default occurring within 12 months of the restructure date, and the payment default occurring during the nine months ended September 30, 2016 and 2015.

TDRs with a payment default occurring within 12 months of restructure
	During the nine months ended
	September 30, 2016				September 30, 2015
	#		Amount		#		Amount
	($ in thousands)
Real Estate Loans:
Commercial real estate		2	$	1,900		0	$	-
Residential real estate		0		-		0		-
Total real estate		2		1,900		0		-
Commercial & industrial		0		-		0		-
Total loans		2	$	1,900		0	$	-

Troubled debt restructuring defaults can result in a higher allowance for loan losses and a corresponding higher provision for loan losses because defaults generally negatively impact the timing of and expected collections from these impaired loans. Impaired loans, which include troubled debt restructurings, are evaluated for specific additions to the allowance for loan losses by subtracting the recorded investment in these impaired loans from their fair values. Fair value is generally determined by the present value of future cash flows, collateral value, or liquidation value. Defaults generally reduce the present value of the future cash flows and can negatively impact the collateral values if declining real estate values are impacting the sale of collateral.

Loans secured by one to four family residential properties with unpaid principal balances of $592,000 at September 30, 2016 were in the process of foreclosure. These loans have been evaluated for impairment and related allowances for loan losses have been made where collateral values are less than principal loan balances.

XML

Fair value measurements

9 Months Ended

Sep. 30, 2016

Fair Value Measurements [Abstract]

Fair Value, Measurement Inputs, Disclosure [Text Block]

Note M – Fair value measurements

The Company has adopted the accounting standards within FASB Accounting Standards Codification (ASC) 820 “Fair Value Measurements and Disclosures”, which provides a framework for measuring fair value under GAAP and enhances disclosures about fair value measurements. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The Company utilizes fair value measurements to record fair value adjustments to certain assets and to determine fair value disclosures. The Company has not elected the fair value option to value liabilities. Securities available-for-sale and loans held for sale are recorded at fair value on a recurring basis. Additionally, from time to time, the Company may be required to record at fair value other assets on a nonrecurring basis, such as impaired loans held for investment and certain other assets. These nonrecurring fair value adjustments typically involve application of lower of cost or market accounting or write-downs of individual assets.

When measuring fair value, valuation techniques should be appropriate in the circumstances and consistently applied. A hierarchy is used to prioritize valuation inputs into the following three levels to determine fair value:

Level 1 – quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2 – observable inputs other than the quoted prices included in Level 1.

Level 3 – unobservable inputs.

Fair Value on a Recurring Basis. The Company measures certain assets at fair value on a recurring basis and the following is a general description of the methods used to value such assets.

Securities available-for-sale

Securities available-for-sale are recorded at fair value. Fair value measurement is based upon quoted prices, if available. If quoted prices are not available, fair values are measured using independent pricing models or other model-based valuation techniques such as the present value of future cash flows, adjusted for the security’s credit rating, prepayment assumptions and other factors such as credit loss assumptions. Level 1 securities include those traded on an active exchange, such as the New York Stock Exchange, U.S. Treasury securities and certain corporate bonds that are traded by dealers or brokers in active over-the-counter markets and money market funds. Level 2 securities include mortgage-backed securities issued by government sponsored entities, municipal bonds and most corporate debt securities. Securities classified as Level 3 include asset-backed securities and corporate debt securities in less liquid markets.

Loans held for sale

The Company opted to account for loans held for sale at fair value which is measured based on what secondary markets are currently offering for portfolios with similar characteristics. As such, the Company classifies loans subject to recurring fair value adjustments as Level 2 valuation.

Interest rate lock commitments

The mortgage banking division of the Company sells its residential mortgage loans held for sale on a forward best efforts basis at fixed prices or on a mandatory basis by entering into forward sale mortgage-backed securities at approximately the same time as fixed rates are given to borrowers. The value of the estimated interest rate lock commitments (“IRLCs”) given to borrowers were marked to market through the income statement during 2016 and 2015. The significant unobservable input used in the Level 3 fair value measurement of the Company’s IRLCs on loans held for sale is the closing ratio, which represents the percentage of loans currently in a lock position which management estimates will ultimately close. The closing ratio is largely dependent on loan processing stages and the change in prevailing interest rates from the time of the rate lock. The closing ratio is computed by management using historical data.

The fair value of IRLCs is based on servicing rate premium, origination income net of origination costs, fall out rates and changes in loan pricing due to delays in meeting commitment closing dates. The Company classifies IRLCs as Level 3. Gain or loss on IRLCs for the period is included in mortgage banking income of non-interest income on the Consolidated Statements of Income. The mortgage banking division resumed reporting IRLCs in the first quarter of 2015 after having suspended recognition in 2014 due to immateriality. Below is a summary of activity related to interest rate lock commitments for the nine months ended September 30, 2016 and 2015.

	Interest Rate Lock Commitments
	Level 3
	Fair Value		Fair Value
	(in thousands)
Balance, December 31, 2015 and 2014	$	393	$	-
Gains included in other income		75		716
Transfers in and out		-		-
Balance, September 30, 2016 and 2015	$	468	$	716

Unrealized gains (losses) on forward sale mortgage-backed securities

The mortgage banking division of the Company resumed selling a portion of its loans on a mandatory basis in 2015 and hedging the related loans and forward commitments to borrowers by entering into forward sale mortgage-backed securities transactions at approximately the same time that fixed rate commitments are given to borrowers. The forward sale mortgage-backed securities are purchased or closed when the related loan sales are consummated. The unrealized gains or losses on forward sale mortgage-backed securities are included in mortgage banking income to properly match the income from IRLCs noted above. The Company classifies unrealized gains (losses) on forward sale mortgage-backed securities as Level 1 since end of the day bid prices in the active mortgage backed securities market are used to determine the unrealized gains (losses). Unrealized gains are shown as other assets and unrealized losses are shown as other liabilities on the consolidated balance sheet.

Assets measured at fair value on a recurring basis at September 30, 2016 and December 31, 2015 are summarized below:

	Assets
	Measured at		Fair Value Measured Using
	Fair Value		Level 1		Level 2		Level 3
	(in thousands)
At September 30, 2016:
Securities available-for-sale:
Municipal securities	$	16,821	$	-	$	16,821	$	-
Mortgage-backed securities		12,187		-		12,187		-
Corporate securities		9,102		-		9,102		-
Asset backed securities		3,292		-		3,292		-
Unrestricted stock		56		56		-		-
Total available-for-sale securities		41,458		56		41,402		-
Loans held for sale		42,616		-		42,616		-
Interest rate lock commitments		468		-		-		468
Unrealized losses, net of gains, on forward sale mortgage-backed securities		(255)		(255)		-		-
Total	$	84,287	$	(199)	$	84,018	$	468
At December 31, 2015:
Securities available-for-sale:
Municipal securities	$	17,656	$	-	$	17,656	$	-
Mortgage-backed securities		16,978		-		16,978		-
Corporate securities		8,939		-		8,939		-
Asset-backed securities		3,732		-		3,732		-
Unrestricted stock		55		55		-		-
Total available-for-sale securities		47,360		55		47,305		-
Loans held for sale		39,583		-		39,583		-
Interest rate lock commitments		393		-		-		393
Unrealized losses, net of gains, on forward sale mortgage-backed securities		(30)		(30)		-		-
Total	$	87,306	$	25	$	86,888	$	393

Fair Value on a Non-recurring Basis. The Company measures certain assets at fair value on a non-recurring basis and the following is a general description of the methods used to value such assets.

Impaired loans

The Company does not record loans at fair value on a recurring basis. However, from time to time, a loan is considered impaired and an allowance for loan losses is established. Loans for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement are considered impaired. Impaired loans are recorded at fair value less estimated selling costs. Once a loan is identified as individually impaired, the Company measures impairment. Fair values of impaired loans are generally estimated using one of several methods, including collateral value, liquidation value, discounted cash flows and, in rare cases, the market value of the note. Those impaired loans not requiring an allowance represent loans for which the net present value of the expected cash flows or fair value of the collateral less costs to sell exceed the recorded investments in such loans. At September 30, 2016 and December 31, 2015, a majority of the total impaired loans were evaluated based on the fair value of the collateral. When the fair value of the collateral is based on an executed sales contract with an independent third party, the Company records the impaired loans as nonrecurring Level 1. If the collateral is based on another observable market price or a current appraised value, the Company records the impaired loans as nonrecurring Level 2. When an appraised value is not available or the Company determines the fair value of the collateral is further impaired below the appraised value and there is no observable market price, the Company records the impaired loan as nonrecurring Level 3. Impaired loans can also be evaluated for impairment using the present value of expected future cash flows discounted at the loan’s effective interest rate. The measurement of impaired loans using future cash flows discounted at the loan’s effective interest rate rather than the market rate of interest is not a fair value measurement and is therefore excluded from fair value disclosure requirements. Impaired loans are reviewed and evaluated on at least a quarterly basis for additional impairment and adjusted accordingly.

Other real estate owned and repossessed assets

Properties acquired through, or in lieu of, loan foreclosure are held for sale and are initially recorded at fair value less costs to sell at the date of foreclosure. Subsequent to foreclosure, valuations are periodically performed by management and the assets are carried at the lower of carrying value or the new fair value less estimated selling costs. Fair value is generally based upon current appraisals, comparable sales, and other estimates of value obtained principally from independent sources, adjusted for selling costs. When the fair value of the collateral is based on an observable market price or a current appraised value, the Company records the asset as nonrecurring Level 2. However, the Company also considers other factors or recent developments which could result in adjustments to the collateral value estimates indicated in the appraisals such as changes in absorption rates or market conditions from the time of valuation. In situations where an appraisal less estimated selling costs is used to determine fair value, management adjustments are significant to the fair value measurements, or other means are used to estimate fair value in the absence of an appraisal, the Company records the impaired loan as nonrecurring Level 3 within the valuation hierarchy.

Assets measured at fair value on a non-recurring basis at September 30, 2016 and December 31, 2015 are summarized below:

	Assets
	Measured at		Fair Value Measured Using
Description	Fair Value		Level 1		Level 2		Level 3
	(in thousands)
At September 30, 2016:
Impaired loans	$	14,090	$	-	$	3,460	$	10,630
Other real estate owned		3,914		-		-		3,914
	$	18,004	$	-	$	3,460	$	14,544
At December 31, 2015:
Impaired loans	$	13,561	$	-	$	4,400	$	9,161
Other real estate owned		4,592		-		-		4,592
	$	18,153	$	-	$	4,400	$	13,753

Fair Value on a Recurring or Non-recurring Basis – Unobservable Inputs for Level 3.For Level 3 assets and liabilities measured at fair value on a recurring or non-recurring basis as of September 30, 2016, the significant unobservable inputs used in the fair value measurements were as follows:

				Significant	Significant
			Valuation	Unobservable	Unobservable
Description	Fair Value		Technique	Inputs	Input Value
	(in thousands)
At September 30, 2016:
Impaired loans	$	10,630	Discounted appraisals	Collateral discounts	8.00% - 10.00%
			Discounted cash flows	Cash flow estimates/	80% - 100% /
				discounted rates	original note rate
Other real estate owned		3,914	Discounted appraisals	Collateral discounts	8.00% - 10.00%
Net derivative assets/liabilities:
Interest rate lock commitments		468	Pricing models	Loan closing ratios	68% - 100%
					82% Average
At December 31, 2015:
Impaired loans	$	9,161	Discounted appraisals	Collateral discounts	8.00% - 10.00%
			Discounted cash flows	Cash flow estimates/	80% - 100% /
				discounted rates	original note rate
Other real estate owned		4,592	Discounted appraisals	Collateral discounts	8.00% - 10.00%
Net derivative assets/liabilities:
Interest rate lock commitments		393	Pricing models	Loan closing ratios	25% - 100%
					81% Average

Fair Value of items not valued as such. The Company measures certain financial assets and liabilities at fair value for disclosure purposes only. The assumptions used in estimating the fair value of these financial instruments are detailed below:

Bank term deposits: Discounted cash flows have been used to value bank term deposits. The discount rate used is based on interest rates currently being offered by banks accepting institutional term deposits on comparable terms.

Securities held-to-maturity: The fair values of securities held to maturity are recorded on a non-recurring basis when an impairment in value that is deemed to be other than temporary occurs.  Fair value measurement is based upon quoted prices, if available.  If quoted prices are not available, fair values are measured using independent pricing models or other model-based valuation techniques such as the present value of future cash flows, adjusted for the security’s credit rating, prepayment assumptions and other factors such as credit loss assumptions.  At September 30, 2016 and December 31, 2015, there were no fair value adjustments for other than temporary impairment of securities held-to-maturity.

Net non-impaired loans held for investment: For most variable rate loans, fair values are based on carrying values. Fixed rate commercial, other installment, and certain real estate mortgage loans are valued using discounted cash flows. The discount rates used to determine the present value of these loans are based on interest rates currently being charged by the Company on comparable loans as to credit risk and term.

Time deposits: Discounted cash flows have been used to value fixed rate and variable rate term deposits. The discount rate used is based on interest rates currently being offered by the Company on comparable deposits as to amount and term.

Advances from the Federal Home Loan Bank: Discounted cash flows have been used to value fixed rate term advances. The discount rates used are based on interests rates currently being offered by the Federal Home Loan Bank on comparable advances as to amounts and terms.

Trust preferred subordinated debt: The fair value of trust preferred subordinated debt was determined by discounting cash flows using a rate 3% higher than the actual current rate over an estimated remaining term of 11.25 years in 2016 and 12 years in 2015. The trust preferred debt was issued at favorable rates in 2004, and current rates are approximately 3% higher when available. Under the current capital guidelines, the Company’s trust preferred subordinated debt is included in Tier 1 capital.

The following presents the carrying amount, fair value, and placement in the fair value hierarchy of financial instruments at September 30, 2016 and December 31, 2015. This table excludes financial instruments for which the carrying amount approximates fair value. For short-term financial assets such as cash and due from banks and interest-bearing deposits with banks, the carrying amount is a reasonable estimate of fair value due to the relatively short time between the origination of the instrument and its expected realization. For financial liabilities such as non-interest bearing demand deposits, NOW, money market and savings deposits, the carrying amount is a reasonable estimate of fair value due to these products having no stated maturity.

					Fair Value Measurements
					Quoted
					Prices in
					Active Markets		Significant
					for Identical		Other		Significant
					Assets or		Observable		Unobservable
	Carrying		Fair		Liabilities		Inputs		Inputs
	Amount		Value		(Level 1)		(Level 2)		(Level 3)
	(in thousands)
September 30, 2016
Financial Instruments - Assets
Bank term deposits	$	15,139	$	15,152	$	-	$	15,152	$	-
Investment securities held-to-maturity		14,031		14,557		-		14,557		-
Net non-impaired loans held for investment		483,372		483,695		-		-		483,695
Financial Instruments - Liabilities
Time deposits		103,062		103,257		-		-		103,257
Advances from the Federal Home Loan Bank		12,100		12,264		-		-		12,264
Subordinated debentures		19,610		17,169		-		-		17,169
December 31, 2015
Financial Instruments - Assets
Bank term deposits	$	16,604	$	16,571	$	-	$	16,571	$	-
Investment securities held-to-maturity		14,954		15,226		-		15,226		-
Net non-impaired loans held for investment		446,371		446,535		-		-		446,535
Financial Instruments - Liabilities
Time deposits		132,303		131,889		-		-		131,889
Advances from the Federal Home Loan Bank		2,681		2,681		-		-		2,681
Subordinated debentures		19,610		17,018		-		-		17,018

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Derivatives and financial instruments

9 Months Ended

Sep. 30, 2016

Derivatives and Financial Instruments [Abstract]

Derivative Instruments and Hedging Activities Disclosure [Text Block]

Note N – Derivatives and financial instruments

A derivative is a financial instrument or arrangement that derives its cash flows and value by reference to an underlying instrument, index or referenced interest rate. These instruments are designed to hedge exposures to interest rate risk or for speculative purposes. The Company increased its use of derivatives related to hedging interest rate lock commitments during 2015.

Accounting guidance requires an entity to recognize all derivatives as either assets or liabilities in the balance sheet, and measure those instruments at fair value. Changes in the fair value of those derivatives are reported in current earnings or other comprehensive income depending on the purpose for which the derivative is held and whether the derivative qualifies for hedge accounting.

The Company sells residential mortgage loans on a best efforts basis and a mandatory basis in order to minimize the impact of changing interest rates on the value of fixed loan commitments given to borrowers. Optional commitments to sell mortgage loans are consummated at approximately the same time that optional commitments are given to borrowers to originate the loans under best efforts sales. Mandatory loan sales are generally made after loans are closed; the related fixed rate loan commitments granted to borrowers when they lock in their loan rates are hedged by selling mortgage-backed securities on a forward basis. The forward sold mortgage-backed securities are later purchased to close the hedge once the mandatory sales are consummated. The Company resumed selling loans on a mandatory basis and re-instituted hedging mortgage loan rate lock commitments during 2015.

The table below provides the carrying values of derivative instruments of mortgage loan rate lock commitments and forward sale mortgage-backed securities at September 30, 2016 and December 31, 2015:

	Carrying		Carrying		Gain (loss)		Notional
	Value of		Value of		Included		Amount of
Derivatives designated as	Assets		Liabilities		in Income		Derivative
hedging instruments:	(in thousands)
At September 30, 2016:
Mortgage loan rate lock commitments (hedged through best efforts sales commitments)	$	108	$	5	$	(235)	$	16,900
Mortgage loan rate lock commitments (hedged through mortgage-backed securities forward sales)		368		3		310		26,061
Forward sale mortgage-backed securities		-		255		(224)		48,000
At December 31, 2015:
Mortgage loan rate lock commitments (hedged through best efforts sales commitments)	$	355	$	17	$	338	$	36,194
Mortgage loan rate lock commitments (hedged through mortgage-backed securities forward sales)		65		10		55		7,140
Forward sale mortgage-backed securities		2		32		(30)		14,250

The table below presents the aggregate fair value and aggregate unpaid principal of loans held for sale at September 30, 2016 and December 31, 2015:

September 30, 2016

December 31, 2015

Aggregate Fair

Aggregate Fair

Value Less

Value Less

Aggregate

Aggregate

Aggregate

Aggregate

Aggregate

Unpaid

Unpaid

Aggregate

Unpaid

Unpaid

Fair Value

Principal

Principal

Fair Value

Principal

Principal

(in thousands)

Loans held for sale, at fair value

$

42,616

$

41,697

$

919

$

39,583

$

38,925

$

658

Interest income on loans held for sale is recognized based on contractual rates and is reflected in interest income on loans in the consolidated statements of operations. The following table details net gains resulting from changes in fair value of these loans which were recorded in mortgage banking income in the consolidated statements of operations during the nine months ended September 30, 2016 and 2015, respectively. These changes in fair value are mostly offset by economic hedging activities and also fluctuate based on the change in the aggregate loan principal outstanding. An immaterial portion of these amounts was attributable to changes in instrument-specific credit risk.

Loans Held for Sale, At Fair Value
Nine Months Ended September 30,
	2016		2015
	(in thousands)
Net gains resulting from changes in fair value	$	261	$	774

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Impact of recently adopted accounting standards

9 Months Ended

Sep. 30, 2016

New Accounting Pronouncements and Changes in Accounting Principles [Abstract]

New Accounting Pronouncements and Changes in Accounting Principles [Text Block]

Note O – Impact of recently adopted accounting standards

The FASB published ASU 2015-03, Simplifying the Presentation of Debt Issuance Costs, in April 2015. Debt issuance costs are specific incremental costs, other than those paid to the lender, that are directly attributable to issuing a debt instrument. The amendments require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The guidance is limited to the presentation of debt issuance costs and does not affect the recognition and measurement of such costs. The amortization of debt issuance costs continues to be calculated using the effective interest method and is reported as interest expense. For public business entities, the amendments are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. These amendments did not have a material effect on the Company’s consolidated financial statements.

In January 2016, the FASB issued ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities, to address certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. The new guidance makes targeted improvements to existing U.S. GAAP by:

· Requiring equity investments (except those accounted for under the equity method of accounting, or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income

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

· Requiring separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (i.e., securities or loans and receivables) on the balance sheet or the accompanying notes to the financial statements

· Allowing equity investments that do not have readily determinable fair values, to be measured at cost minus impairment (if any), plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer

· Eliminating the requirement to disclose the fair value of financial instruments measured at amortized cost for organizations that are not public business entities

· Eliminating the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet

· Requiring a reporting organization to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk (also referred to as “own credit”) when the organization has elected to measure the liability at fair value in accordance with the fair value option for financial instruments

· Requiring separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (i.e., securities or loans and receivables) on the balance sheet or in the accompanying notes to the financial statements

· Clarifying that a valuation allowance on a deferred tax asset related to available-for-sale securities should be evaluated in combination with the organization’s other deferred tax assets

The new guidance is effective for the Company’s 2018 interim and annual statements. These amendments are not expected to have a material effect on the Company’s consolidated financial statements.

On March 30, 2016, the FASB issued ASU 2016-09, Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, in an effort to improve the accounting for employee share-based payments. The ASU simplifies several aspects of the accounting for share-based payment award transactions as follows:

· Accounting for Income Taxes – All excess tax benefits and tax deficiencies (including tax benefits of dividends on share-based payment awards) should be recognized as income tax expense or benefit in the income statement. The tax effects of exercised or vested awards should be treated as discrete items in the reporting period in which they occur. An entity also should recognize excess tax benefits regardless of whether the benefit reduces taxes payable in the current period.

· Classification of Excess Tax Benefits on the Statement of Cash Flows – Excess tax benefits should be classified along with other income tax cash flows as an operating activity.

· Forfeitures – An entity can make an entity-wide accounting policy election to either estimate the number of awards that are expected to vest (current GAAP) or account for forfeitures when they occur.

· Minimum Statutory Tax Withholding Requirements – The threshold to qualify for equity classification permits withholding up to the maximum statutory tax rates in the applicable jurisdictions.

· Classification of Employee Taxes Paid on the Statement of Cash Flows When an Employer Withholds Shares for Tax Withholding Purposes – Cash paid by an employer when directly withholding shares for tax withholding purposes should be classified as a financing activity.

For public business entities, the amendments in this ASU are effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods with early adoption permitted in any interim or annual period. These amendments are not expected to have a material effect on the Company’s consolidated financial statements.

On March 18, 2016, the FASB issued ASU 2016-08, Principal Versus Agent Considerations—Reporting Revenue Gross Versus Net, to address how an entity should assess whether it is the principal or the agent in contracts that include three or more parties. The ASU clarifies that an entity should evaluate whether it is the principal or the agent for each specified good or service (i.e., each good or service or bundle of distinct goods or services that is distinct) promised in a contract with a customer. Specifically, the amendments require an entity to (1) identify the specified goods or services (or bundles of goods or services), including rights to goods or services from a third party, and (2) determine whether it controls each specified good or service before each good or service (or right to a third-party good or service) is transferred to the customer. In addition to clarifying the guidance on principal-versus-agent considerations, the ASU amends certain illustrative examples in the revenue standard (and adds new ones) to clarify how an entity would assess whether it is the principal or the agent in a revenue transaction. The amendments affect the guidance in ASU 2014-09, Revenue from Contracts with Customers, which is not yet effective. The new guidance is effective for the Company’s 2018 interim and annual statements. These amendments are not expected to have a material effect on the Company’s consolidated financial statements.

On March 15, 2016, the FASB issued ASU 2016-07, Simplifying the Transition to the Equity Method of Accounting, to eliminate the requirement to retrospectively apply the equity method to an investment that subsequently qualifies for such accounting as a result of an increase in the level of ownership interest or degree of influence. As a result, when an investment qualifies for the equity method (as a result of an increase in the level of ownership interest or degree of influence), the equity method investor will add the cost of acquiring the additional interest in the investee to the current basis of the investor’s previously held interest and adopt the equity method of accounting as of the date the investment becomes qualified for equity method accounting. The amendments further require unrealized holding gains or losses in accumulated other comprehensive income related to an available-for-sale security that becomes eligible for the equity method to be recognized in earnings as of the date on which the investment qualifies for the equity method. The amendments are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. The amendments should be applied prospectively upon their effective date to increases in the level of ownership interest or degree of influence that result in the adoption of the equity method. Earlier application is permitted. No additional disclosures are required at transition. These amendments are not expected to have a material effect on the Company’s consolidated financial statements.

On February 25, 2016, the FASB issued the lease accounting standard, ASU 2016-02, Leases. Under current U.S. GAAP, companies are required to record lease-related assets and obligations on their balance sheet only if the lease meets the definition of a capital lease. The new standard requires a lease to be classified as a finance lease when (1) payments represent substantially all of the fair value of the asset, (2) the lease term is for a major portion of the asset’s economic life, (3) purchase of the asset is considered a bargain, (4) title transfer is automatic at the end of the lease, or (5) the underlying asset is of such a specialized nature that it is expected to have no alternative use to the lessor at the end of the lease term. Under the new standard, a lessee will account for a finance lease by recognizing amortization of the “right-of-use” (ROU) asset separately from interest on the lease liability. For operating leases, costs will be presented as lease expense and recognized on a straight-line basis in the income statement over the lease term. Importantly, however, the lessee will recognize an asset and a lease liability for both finance leases and operating leases. The only exception to this presentation will be for short-term leases with a term of one year or less, which would not be recognized on a lessee’s balance sheet. For public companies, the new standard will be effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2018; for private companies, the standard will be effective for annual periods beginning after December 15, 2019. Early adoption is permitted for all companies and organizations. The Company currently has several long term leases and will be evaluating the impact of these amendments on its consolidated financial statements.

On June 16, 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments, as part of its project on financial instruments. The new standard introduces an approach based on expected losses to estimate credit losses on certain types of financial instruments. It also modifies the impairment model for available-for-sale (AFS) debt securities and provides for a simplified accounting model for purchased financial assets with credit deterioration since their origination. The following are some of the key points of the ASU:

· For trade and other receivables, held-to-maturity debt securities, loans and other instruments, entities will be required to use a new forward-looking, lifetime “expected loss” model that generally will result in the earlier recognition of allowances for losses.

· For available-for-sale debt securities with unrealized losses, entities will measure credit losses in a manner similar to what they do today, except that the losses will be recognized as allowances rather than reductions in the amortized cost of the securities.

· Entities will have to disclose significantly more information, including information they use to track credit quality by year of origination for most financing receivables.

For public business entities that are Securities and Exchange Commission (SEC) filers, the new standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019 (for a calendar-year entity, it would be effective January 1, 2020). Early adoption will be permitted for all organizations for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The Company will be evaluating the impact of these amendments on its consolidated financial statements.

On August 26, 2016, the FASB issued ASU 2016-15, Classification of Certain Cash Receipts and Cash Payments, to clarify how certain cash receipts and cash payments are presented and classified in the statement of cash flows under FASB Accounting Standards Codification (ASC) 230, Statement of Cash Flows. This ASU addresses eight cash flow issues with the objective of reducing the existing diversity in practice. The amendments provide guidance on the following cash flow issues:

· Debt prepayment or debt extinguishment costs.

· The cash payment attributable to accreted interest on zero-coupon bonds.

· Cash payments for the settlement of a contingent consideration liability made by a business after it buys another business.

· The proceeds from the settlement of insurance claims and related payments for premiums.

· Distributions received from equity method investees.

· Beneficial interests in securitization transactions.

· Cash receipts and payments that have characteristics of more than one type of activity.

The amendments are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. Early adoption is permitted, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. An entity that elects early adoption must adopt all of the amendments in the same period. The Company will be evaluating the impact of these amendments on its financial statements.

Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies are not expected to have a material impact on the Company’s consolidated financial position, results of operations or cash flows.

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Commitments

9 Months Ended

Sep. 30, 2016

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies Disclosure [Text Block]

Note P – Commitments

In the normal course of business there are outstanding commitments for the extension of credit which are not reflected in the consolidated financial statements. At September 30, 2016 and December 31, 2015, pre-approved but unused lines of credit for loans totaled approximately $194,143,000 and $190,789,000, respectively. In addition, we had $1,591,000 and $1,224,000 in standby letters of credit at September 30, 2016 and December 31, 2015, respectively. These commitments represent no more than the normal lending risk that we commit to borrowers. If these commitments are drawn, we will obtain collateral if it is deemed necessary based on our credit evaluation of the counter-party. We believe these commitments can be funded through normal operations.

The Company leases land for its main office, three loan production offices, and one branch facility under operating leases. Total future minimum lease payments, excluding renewal options, at September 30, 2016 under the leases are as follows:

Future Mininum Lease Payments at September 30, 2016
	(in thousands)
Due in one year	$	348
Due in Years 2 and 3		671
Due in Years 4 and 5		535
Due after Year 5		2,340
	$	3,894

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Earnings per common share (Tables)

9 Months Ended

Sep. 30, 2016

Earnings Per Share [Abstract]

Schedule of Earnings Per Share, Basic and Diluted [Table Text Block]

The following is a summary of the diluted earnings per common share calculation for the three and nine months ended September 30, 2016 and 2015.

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2016		2015		2016		2015
	(in thousands, except per share data)
Net income available to common stockholders	$	1,564	$	1,436	$	3,908	$	4,390
Weighted average outstanding shares - basic		5,045		4,990		5,040		4,180
Dilutive effect of stock options and convertible preferred stock		4		10		4		306
Weighted average shares - diluted		5,049		5,000		5,044		4,486
Diluted net income per share	$	0.31	$	0.29	$	0.77	$	0.98

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Operating segments (Tables)

9 Months Ended

Sep. 30, 2016

Segment Reporting [Abstract]

Schedule of Segment Reporting Information, by Segment [Table Text Block]

Financial performance, reflective of inter-company and intra-company eliminations, for the three and nine months ended September 30, 2016 and 2015, and selected balance sheet information, reflective of inter-company and intra-company eliminations, at September 30, 2016 and 2015 for each segment is as follows:

	Three months ended September 30, 2016								Three months ended September 30, 2015
	Commercial/		Mortgage						Commercial/		Mortgage
	Retail		Banking		Holding				Retail		Banking		Holding
	Bank		Division		Company		Total		Bank		Division		Company		Total
	(in thousands)								(in thousands)
Interest income	$	6,171	$	424	$	2	$	6,597	$	5,963	$	593	$	1	$	6,557
Interest expense		200		423		74		697		15		593		60		668
Net interest income (loss)		5,971		1		(72)		5,900		5,948		-		(59)		5,889
Provision for loan losses		-		-		-		-		450		-		-		450
Net interest income (loss) after provision for loan losses		5,971		1		(72)		5,900		5,498		-		(59)		5,439
Non-interest income		672		2,510		-		3,182		421		3,220		-		3,641
Non-interest expense		4,354		2,433		136		6,923		4,647		2,326		42		7,015
Income (loss) before income taxes		2,289		78		(208)		2,159		1,272		894		(101)		2,065
Income tax (benefit) expense		619		22		(46)		595		332		331		(34)		629
Net income (loss)	$	1,670	$	56	$	(162)	$	1,564	$	940	$	563	$	(67)	$	1,436

	Nine months ended September 30, 2016								Nine months ended September 30, 2015
	Commercial/		Mortgage						Commercial/		Mortgage
	Retail		Banking		Holding				Retail		Banking		Holding
	Bank		Division		Company		Total		Bank		Division		Company		Total
			(in thousands)								(in thousands)
Interest income	$	18,684	$	1,134	$	6	$	19,824	$	18,042	$	1,563	$	5	$	19,610
Interest expense		783		1,134		207		2,124		306		1,563		177		2,046
Net interest income (loss)		17,901		-		(201)		17,700		17,736		-		(172)		17,564
Provision for loan losses		-		-		-		-		1,285		-		-		1,285
Net interest income (loss) after provision for loan losses		17,901		-		(201)		17,700		16,451		-		(172)		16,279
Non-interest income		1,625		7,115		-		8,740		1,204		9,848		-		11,052
Non-interest expense		13,328		6,842		837		21,007		13,297		7,215		146		20,658
Income (loss) before income taxes		6,198		273		(1,038)		5,433		4,358		2,633		(318)		6,673
Income tax (benefit) expense		1,645		98		(218)		1,525		1,068		982		(108)		1,942
Net income (loss)	$	4,553	$	175	$	(820)	$	3,908	$	3,290	$	1,651	$	(210)	$	4,731
Total assets	$	664,643	$	43,913	$	334	$	708,890	$	636,074	$	52,492	$	408	$	688,974
Net loans		497,462		42,616		-		540,078		458,322		50,762		-		509,084
Equity		4,553		175		60,838		65,566		3,290		1,651		55,157		60,098

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Securities (Tables)

9 Months Ended

Sep. 30, 2016

Securities [Abstract]

Available-for-Sale of Securities and Held-to-Maturity [Table Text Block]

A summary of the amortized cost, gross unrealized gains and losses and estimated fair values of securities available-for-sale and held-to-maturity follows:

			Gross		Gross		Estimated
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
			(in thousands)
September 30, 2016
Available-for-sale
Municipal securities	$	16,121	$	700	$	-	$	16,821
FNMA, FHLMC, and GNMA mortgage-backed securities		11,591		596		-		12,187
Corporate securities		9,059		47		4		9,102
Asset-backed securities		3,179		113		-		3,292
Unrestricted stock		43		13		-		56
	$	39,993	$	1,469	$	4	$	41,458
Held-to-maturity
Municipal securities	$	7,126	$	283	$	-	$	7,409
FNMA mortgage-backed securities		4,778		127		-		4,905
Corporate securities		500		-		-		500
Asset-backed securities		1,627		116		-		1,743
	$	14,031	$	526	$	-	$	14,557
December 31, 2015
Available-for-sale
Municipal securities	$	17,095	$	569	$	8	$	17,656
FNMA, FHLMC, and GNMA mortgage-backed securities		16,589		390		1		16,978
Corporate securities		8,903		58		22		8,939
Asset-backed securities		3,654		78		-		3,732
Unrestricted stock		43		12		-		55
	$	46,284	$	1,107	$	31	$	47,360
Held-to-maturity
Municipal securities	$	7,360	$	204	$	-	$	7,564
FNMA mortgage-backed securities		5,251		17		15		5,253
Corporate securities		500		-		-		500
Asset-backed securities		1,843		66		-		1,909
	$	14,954	$	287	$	15	$	15,226

Schedule of Maturities of Debt Securities [Table Text Block]

The scheduled maturities of debt securities available-for-sale and held-to-maturity at September 30, 2016 were as follows:

	Bullet Securities				Declining Balance Securities				Total
			Estimated				Estimated				Estimated
	Amortized		Fair		Amortized		Fair		Amortized		Fair
	Cost		Value		Cost		Value		Cost		Value
	(in thousands)
Available-for-sale
Due in one year or less	$	2,997	$	3,000	$	-	$	-	$	2,997	$	3,000
Due from one to five years		8,541		8,818		1,695		1,854		10,236		10,672
Due from five to ten years		7,659		7,929		4,802		4,984		12,461		12,913
Over ten years		5,983		6,176		8,273		8,641		14,256		14,817
	$	25,180	$	25,923	$	14,770	$	15,479	$	39,950	$	41,402
Held-to-maturity
Due in one year or less	$	-	$	-	$	-	$	-	$	-	$	-
Due from one to five years		-		-		-		-		-		-
Due from five to ten years		3,819		3,925		-		-		3,819		3,925
Over ten years		3,807		3,984		6,405		6,648		10,212		10,632
	$	7,626	$	7,909	$	6,405	$	6,648	$	14,031	$	14,557

Schedule of Unrealized Loss on Investments [Table Text Block]

Information pertaining to securities with gross unrealized losses at September 30, 2016 and December 31, 2015, by category and length of time that individual securities have been in a continuous loss position follows:

	Less Than 12 Months						12 Months or Greater						Total
	Number				Gross		Number				Gross		Number				Gross
	of		Fair		Unrealized		of		Fair		Unrealized		of		Fair		Unrealized
	Securities		Value		Losses		Securities		Value		Losses		Securities		Value		Losses
	(dollars in thousands)
September 30, 2016:
Corporate securities		0	$	-	$	-		1	$	977	$	4		1	$	977	$	4
Total		0	$	-	$	-		1	$	977	$	4		1	$	977	$	4
December 31, 2015:
Municipal securities		3	$	3,440	$	2		1	$	244	$	6		4	$	3,684	$	8
FNMA and FHLMC mortgage-backed securities		2		5,414		16		0		-		-		2		5,414		16
Corporate securities		1		985		15		1		973		7		2		1,958		22
Total		6	$	9,839	$	33		2	$	1,217	$	13		8	$	11,056	$	46

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Loans and allowance for loan losses (Tables)

9 Months Ended

Sep. 30, 2016

Receivables [Abstract]

Allowance for Credit Losses on Financing Receivables [Table Text Block]

The activity in the allowance for loan losses for the first nine months of 2016 and year ended 2015 and related asset balances at September 30, 2016 and December 31, 2015 is summarized as follows:

	Construction &		Commercial		Home equity		Residential		Commercial		Consumer
	development		real estate		lines		real estate		& industrial		& other		Unallocated		Total
Allowance for loan losses:	(in thousands)
2016
Beginning of year balance	$	1,005	$	2,546	$	441	$	507	$	1,309	$	20	$	44	$	5,872
Provision for loan losses		(691)		722		283		(20)		(347)		12		41		-
Charge-offs		-		(588)		(51)		(46)		-		(2)		-		(687)
Recoveries		87		249		4		50		184		5		-		579
Balance at September 30	$	401	$	2,929	$	677	$	491	$	1,146	$	35	$	85	$	5,764
2015
Beginning of year balance	$	1,495	$	2,144	$	766	$	483	$	1,413	$	28	$	191	$	6,520
Provision for loan losses		(490)		1,691		(332)		48		327		(12)		(147)		1,085
Charge-offs		-		(2,990)		(104)		(130)		(914)		(7)		-		(4,145)
Recoveries		-		1,701		111		106		483		11		-		2,412
Balance at December 31	$	1,005	$	2,546	$	441	$	507	$	1,309	$	20	$	44	$	5,872
Balances at September 30, 2016
Allowance for loan losses:
Balance at September 30	$	401	$	2,929	$	677	$	491	$	1,146	$	35	$	85	$	5,764
Ending balance individually evaluated for impairment	$	-	$	782	$	143	$	275	$	-	$	-	$	-	$	1,200
Ending balance collectively evaluated for impairment	$	401	$	2,147	$	534	$	216	$	1,146	$	35	$	85	$	4,564
Loans Outstanding:
Balance at September 30	$	73,817	$	235,816	$	81,181	$	51,939	$	56,529	$	3,944	$	-	$	503,226
Ending balance individually evaluated for impairment	$	95	$	10,194	$	490	$	4,511	$	-	$	-	$	-	$	15,290
Ending balance collectively evaluated for impairment	$	73,722	$	225,622	$	80,691	$	47,428	$	56,529	$	3,944	$	-	$	487,936
Balances at December 31, 2015
Allowance for loan losses:
Balance at December 31	$	1,005	$	2,546	$	441	$	507	$	1,309	$	20	$	44	$	5,872
Ending balance individually evaluated for impairment	$	12	$	480	$	51	$	272	$	18	$	-	$	-	$	833
Ending balance collectively evaluated for impairment	$	993	$	2,066	$	390	$	235	$	1,291	$	20	$	44	$	5,039
Loans Outstanding:
Balance at December 31	$	62,289	$	213,987	$	78,952	$	52,363	$	55,641	$	2,572	$	-	$	465,804
Ending balance individually evaluated for impairment	$	175	$	9,044	$	390	$	4,423	$	362	$	-	$	-	$	14,394
Ending balance collectively evaluated for impairment	$	62,114	$	204,943	$	78,562	$	47,940	$	55,279	$	2,572	$	-	$	451,410

Past Due Financing Receivables [Table Text Block]

All non-accrual loans are reflected in the past due ninety days or more category shown in the following table:

													Loans Past
	Number of Days Past Due												Due 90 Days
					90 Days		Total				Total		or More
	30-59 Days		60-89 Days		or More		Past Due		Current		Loans		& Accruing
	(in thousands)
At September 30, 2016
Real Estate Loans:
Construction & development	$	-	$	-	$	95	$	95	$	73,722	$	73,817	$	-
Commercial real estate		-		-		2,851		2,851		232,965		235,816		-
Home equity lines		210		-		317		527		80,654		81,181		-
Residential real estate		186		-		1,129		1,315		50,624		51,939		-
Total real estate		396		-		4,392		4,788		437,965		442,753		-
Commercial & industrial		-		-		-		-		56,529		56,529		-
Consumer & other		-		-		-		-		3,944		3,944		-
Total loans	$	396	$	-	$	4,392	$	4,788	$	498,438	$	503,226	$	-
At December 31, 2015
Real Estate Loans:
Construction & development	$	22	$	-	$	175	$	197	$	62,092	$	62,289	$	-
Commercial real estate		-		-		1,735		1,735		212,252		213,987		-
Home equity lines		125		-		265		390		78,562		78,952		-
Residential real estate		528		180		935		1,643		50,720		52,363		-
Total real estate		675		180		3,110		3,965		403,626		407,591		-
Commercial & industrial		-		-		-		-		55,641		55,641		-
Consumer & other		-		-		-		-		2,572		2,572		-
Total loans	$	675	$	180	$	3,110	$	3,965	$	461,839	$	465,804	$	-

Impaired Financing Receivables [Table Text Block]

The recorded investment and related information for impaired loans is summarized as follows:

	Impaired Loans
	At end of period						For Period Ended
			Unpaid		Related		Average		Interest
	Recorded		Principal		Loan Loss		Recorded		Income
	Investment		Balance		Allowance		Investment		Recognized
	(in thousands)
September 30, 2016
With no related allowance recorded
Real Estate Loans:
Construction & development	$	95	$	95	$	-	$	76	$	-
Commercial real estate		2,988		3,785		-		5,481		85
Home equity lines		184		359		-		360		13
Residential real estate		2,002		2,129		-		2,182		76
Total real estate		5,269		6,368		-		8,099		174
Commercial & industrial		-		-		-		-		-
Consumer & other		-		-		-		-		-
Total loans		5,269		6,368		-		8,099		174
With an allowance recorded
Real Estate Loans:
Construction & development		-		-		-		-		-
Commercial real estate		7,206		7,729		782		7,815		275
Home equity lines		306		313		143		314		9
Residential real estate		2,509		2,618		275		2,655		71
Total real estate		10,021		10,660		1,200		10,784		355
Commercial & industrial		-		-		-		-		-
Consumer & other		-		-		-		-		-
Total loans		10,021		10,660		1,200		10,784		355
Total impaired loans	$	15,290	$	17,028	$	1,200	$	18,883	$	529
December 31, 2015
With no related allowance recorded
Real Estate Loans:
Construction & development	$	-	$	-	$	-	$	-	$	-
Commercial real estate		2,819		3,380		-		7,484		193
Home equity lines		193		360		-		362		16
Residential real estate		2,565		2,689		-		2,754		149
Total real estate		5,577		6,429		-		10,600		358
Commercial & industrial		-		-		-		-		-
Consumer & other		-		-		-		-		-
Total loans		5,577		6,429		-		10,600		358
With an allowance recorded
Real Estate Loans:
Construction & development		175		175		12		97		1
Commercial real estate		6,225		6,453		480		6,569		358
Home equity lines		197		265		51		265		11
Residential real estate		1,858		1,955		272		2,057		100
Total real estate		8,455		8,848		815		8,988		470
Commercial & industrial		362		362		18		383		20
Consumer & other		-		-		-		-		-
Total loans		8,817		9,210		833		9,371		490
Total impaired loans	$	14,394	$	15,639	$	833	$	19,971	$	848

Schedule of Financing Receivables, Non Accrual Status [Table Text Block]

The following is a summary of non-accrual loans at September 30, 2016 and December 31, 2015:

	September 30,		December 31,
	2016		2015
	(in thousands)
Real Estate Loans:
Construction & development	$	95	$	175
Commercial real estate		2,851		1,735
Home equity lines		317		265
Residential real estate		1,129		935
Total real estate		4,392		3,110
Commercial & industrial		-		-
Consumer & other		-		-
Total loans	$	4,392	$	3,110

Financing Receivable Credit Quality Indicators [Table Text Block]

The following is a breakdown of loans by the general categories of the internal rating system:

At September 30, 2016
	Pass		Special Mention		Classified		Total
	(in thousands)
Real Estate Loans:
Construction & development	$	73,722	$	-	$	95	$	73,817
Commercial real estate		225,368		7,435		3,013		235,816
Home equity lines		80,241		296		644		81,181
Residential real estate		48,620		944		2,375		51,939
Total real estate		427,951		8,675		6,127		442,753
Commercial & industrial		56,509		20		-		56,529
Consumer & other		3,944		-		-		3,944
Total loans	$	488,404	$	8,695	$	6,127	$	503,226

At December 31, 2015
	Pass		Special Mention		Classified		Total
	(in thousands)
Real Estate Loans:
Construction & development	$	62,110	$	-	$	179	$	62,289
Commercial real estate		202,252		9,270		2,465		213,987
Home equity lines		78,014		128		810		78,952
Residential real estate		48,251		1,635		2,477		52,363
Total real estate		390,627		11,033		5,931		407,591
Commercial & industrial		54,691		950		-		55,641
Consumer & other		2,572		-		-		2,572
Total loans	$	447,890	$	11,983	$	5,931	$	465,804

Troubled Debt Restructurings on Financing Receivables [Table Text Block]

The following tables present troubled debt restructurings as of September 30, 2016 and December 31, 2015:

	Troubled Debt Restructurings
	September 30, 2016
					Non-Accrual				Total
	Accrual Status				Status				Modifications
	#		Amount		#		Amount		#		Amount
	($ in thousands)
Real Estate Loans:
Construction & development		0	$	-		1	$	95		1	$	95
Commercial real estate		12		6,881		3		2,193		15		9,074
Home equity lines		0		-		0		-		0		-
Residential real estate		11		2,194		1		155		12		2,349
Total real estate		23		9,075		5		2,443		28		11,518
Commercial & industrial		1		301		0		-		1		301
Consumer & other		0		-		0		-		0		-
Total loans		24	$	9,376		5	$	2,443		29	$	11,819

	December 31, 2015
					Non-Accrual				Total
	Accrual Status				Status				Modifications
	#		Amount		#		Amount		#		Amount
	($ in thousands)
Real Estate Loans:
Construction & development		0	$	-		1	$	175		1	$	175
Commercial real estate		12		7,073		1		338		13		7,411
Home equity lines		0		-		0		-		0		-
Residential real estate		11		2,252		2		388		13		2,640
Total real estate		23		9,325		4		901		27		10,226
Commercial & industrial		1		362		0		-		1		362
Consumer & other		0		-		0		-		0		-
Total loans		24	$	9,687		4	$	901		28	$	10,588

Schedule of Restructured Loans [Table Text Block]

The following table presents newly restructured loans that occurred during the three and nine months ended September 30, 2016; there were no outstanding newly restructured loans as of September 30, 2015.

	New Troubled Debt Restructurings
	Three Months Ended September 30, 2016
	Rate				Term				Payment				Combination				Total
	Modifications				Modifications				Modifications				Modifications				Modifications
	#		Amount		#		Amount		#		Amount		#		Amount		#		Amount
	($ in thousands)
Pre-Modification Outstanding Recorded Investment:
Real Estate Loans:
Construction & development		0	$	-		0	$	-		0	$	-		1	$	-		1	$	-
Total real estate		0		-		0		-		0		-		1		-		1		-
Consumer & other		0		-		0		-		0		-		0		-		0		-
Total loans		0	$	-		0	$	-		0	$	-		1	$	-		1	$	-
Post-Modification Outstanding Recorded Investment:
Real Estate Loans:
Construction & development		0	$	-		0	$	-		0	$	-		1	$	95		1	$	95
Total real estate		0		-		0		-		0		-		1		95		1		95
Consumer & other		0		-		0		-		0		-		0		-		0		-
Total loans		0	$	-		0	$	-		0	$	-		1	$	95		1	$	95

	New Troubled Debt Restructurings
	Nine Months Ended September 30, 2016
	Rate				Term				Payment				Combination				Total
	Modifications				Modifications				Modifications				Modifications				Modifications
	#		Amount		#		Amount		#		Amount		#		Amount		#		Amount
	($ in thousands)
Pre-Modification Outstanding Recorded Investment:
Real Estate Loans:
Construction & development		0	$	-		0	$	-		0	$	-		1	$	-		1	$	-
Commercial real estate		0		-		2		2,488		0		-		0		-		2		2,488
Total real estate		0		-		2		2,488		0		-		1		-		3		2,488
Commercial & industrial		0		-		0		-		0		-		0		-		0		-
Total loans		0	$	-		2	$	2,488		0	$	-		1	$	-		3	$	2,488
Post-Modification Outstanding Recorded Investment:
Real Estate Loans:
Construction & development		0	$	-		0	$	-		0	$	-		1	$	95		1	$	95
Commercial real estate		0		-		2		1,900		0		-		0		-		2		1,900
Total real estate		0		-		2		1,900		0		-		1		95		3		1,995
Commercial & industrial		0		-		0		-		0		-		0		-		0		-
Total loans		0	$	-		2	$	1,900		0	$	-		1	$	95		3	$	1,995

Schedule of Troubled Debt Restructurings Financing Receivables [Table Text Block]

The following table presents the troubled debt restructurings with a payment default, with the payment default occurring within 12 months of the restructure date, and the payment default occurring during the nine months ended September 30, 2016 and 2015.

TDRs with a payment default occurring within 12 months of restructure
	During the nine months ended
	September 30, 2016				September 30, 2015
	#		Amount		#		Amount
	($ in thousands)
Real Estate Loans:
Commercial real estate		2	$	1,900		0	$	-
Residential real estate		0		-		0		-
Total real estate		2		1,900		0		-
Commercial & industrial		0		-		0		-
Total loans		2	$	1,900		0	$	-

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Fair value measurements (Tables)

9 Months Ended

Sep. 30, 2016

Fair Value Measurements [Abstract]

Fair Value, Assets Measured on Recurring Basis [Table Text Block]

Below is a summary of activity related to interest rate lock commitments for the nine months ended September 30, 2016 and 2015.

	Interest Rate Lock Commitments
	Level 3
	Fair Value		Fair Value
	(in thousands)
Balance, December 31, 2015 and 2014	$	393	$	-
Gains included in other income		75		716
Transfers in and out		-		-
Balance, September 30, 2016 and 2015	$	468	$	716

Assets measured at fair value on a recurring basis at September 30, 2016 and December 31, 2015 are summarized below:

	Assets
	Measured at		Fair Value Measured Using
	Fair Value		Level 1		Level 2		Level 3
	(in thousands)
At September 30, 2016:
Securities available-for-sale:
Municipal securities	$	16,821	$	-	$	16,821	$	-
Mortgage-backed securities		12,187		-		12,187		-
Corporate securities		9,102		-		9,102		-
Asset backed securities		3,292		-		3,292		-
Unrestricted stock		56		56		-		-
Total available-for-sale securities		41,458		56		41,402		-
Loans held for sale		42,616		-		42,616		-
Interest rate lock commitments		468		-		-		468
Unrealized losses, net of gains, on forward sale mortgage-backed securities		(255)		(255)		-		-
Total	$	84,287	$	(199)	$	84,018	$	468
At December 31, 2015:
Securities available-for-sale:
Municipal securities	$	17,656	$	-	$	17,656	$	-
Mortgage-backed securities		16,978		-		16,978		-
Corporate securities		8,939		-		8,939		-
Asset-backed securities		3,732		-		3,732		-
Unrestricted stock		55		55		-		-
Total available-for-sale securities		47,360		55		47,305		-
Loans held for sale		39,583		-		39,583		-
Interest rate lock commitments		393		-		-		393
Unrealized losses, net of gains, on forward sale mortgage-backed securities		(30)		(30)		-		-
Total	$	87,306	$	25	$	86,888	$	393

Fair Value, Assets and Liabilities Measured on Nonrecurring Basis, Valuation Techniques [Table Text Block]

Assets measured at fair value on a non-recurring basis at September 30, 2016 and December 31, 2015 are summarized below:

	Assets
	Measured at		Fair Value Measured Using
Description	Fair Value		Level 1		Level 2		Level 3
	(in thousands)
At September 30, 2016:
Impaired loans	$	14,090	$	-	$	3,460	$	10,630
Other real estate owned		3,914		-		-		3,914
	$	18,004	$	-	$	3,460	$	14,544
At December 31, 2015:
Impaired loans	$	13,561	$	-	$	4,400	$	9,161
Other real estate owned		4,592		-		-		4,592
	$	18,153	$	-	$	4,400	$	13,753

Fair Value Measurements, Recurring and Nonrecurring, Valuation Techniques [Table Text Block]

Fair Value on a Recurring or Non-recurring Basis – Unobservable Inputs for Level 3.For Level 3 assets and liabilities measured at fair value on a recurring or non-recurring basis as of September 30, 2016, the significant unobservable inputs used in the fair value measurements were as follows:

				Significant	Significant
			Valuation	Unobservable	Unobservable
Description	Fair Value		Technique	Inputs	Input Value
	(in thousands)
At September 30, 2016:
Impaired loans	$	10,630	Discounted appraisals	Collateral discounts	8.00% - 10.00%
			Discounted cash flows	Cash flow estimates/	80% - 100% /
				discounted rates	original note rate
Other real estate owned		3,914	Discounted appraisals	Collateral discounts	8.00% - 10.00%
Net derivative assets/liabilities:
Interest rate lock commitments		468	Pricing models	Loan closing ratios	68% - 100%
					82% Average
At December 31, 2015:
Impaired loans	$	9,161	Discounted appraisals	Collateral discounts	8.00% - 10.00%
			Discounted cash flows	Cash flow estimates/	80% - 100% /
				discounted rates	original note rate
Other real estate owned		4,592	Discounted appraisals	Collateral discounts	8.00% - 10.00%
Net derivative assets/liabilities:
Interest rate lock commitments		393	Pricing models	Loan closing ratios	25% - 100%
					81% Average

Fair Value, by Balance Sheet Grouping [Table Text Block]

The following presents the carrying amount, fair value, and placement in the fair value hierarchy of financial instruments at September 30, 2016 and December 31, 2015. This table excludes financial instruments for which the carrying amount approximates fair value. For short-term financial assets such as cash and due from banks and interest-bearing deposits with banks, the carrying amount is a reasonable estimate of fair value due to the relatively short time between the origination of the instrument and its expected realization. For financial liabilities such as non-interest bearing demand deposits, NOW, money market and savings deposits, the carrying amount is a reasonable estimate of fair value due to these products having no stated maturity.

					Fair Value Measurements
					Quoted
					Prices in
					Active Markets		Significant
					for Identical		Other		Significant
					Assets or		Observable		Unobservable
	Carrying		Fair		Liabilities		Inputs		Inputs
	Amount		Value		(Level 1)		(Level 2)		(Level 3)
	(in thousands)
September 30, 2016
Financial Instruments - Assets
Bank term deposits	$	15,139	$	15,152	$	-	$	15,152	$	-
Investment securities held-to-maturity		14,031		14,557		-		14,557		-
Net non-impaired loans held for investment		483,372		483,695		-		-		483,695
Financial Instruments - Liabilities
Time deposits		103,062		103,257		-		-		103,257
Advances from the Federal Home Loan Bank		12,100		12,264		-		-		12,264
Subordinated debentures		19,610		17,169		-		-		17,169
December 31, 2015
Financial Instruments - Assets
Bank term deposits	$	16,604	$	16,571	$	-	$	16,571	$	-
Investment securities held-to-maturity		14,954		15,226		-		15,226		-
Net non-impaired loans held for investment		446,371		446,535		-		-		446,535
Financial Instruments - Liabilities
Time deposits		132,303		131,889		-		-		131,889
Advances from the Federal Home Loan Bank		2,681		2,681		-		-		2,681
Subordinated debentures		19,610		17,018		-		-		17,018

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Derivatives and financial instruments (Tables)

9 Months Ended

Sep. 30, 2016

Derivatives and Financial Instruments [Abstract]

Derivative Instruments And Hedging Activities Disclosures [Table Text Block]

The table below provides the carrying values of derivative instruments of mortgage loan rate lock commitments and forward sale mortgage-backed securities at September 30, 2016 and December 31, 2015:

	Carrying		Carrying		Gain (loss)		Notional
	Value of		Value of		Included		Amount of
Derivatives designated as	Assets		Liabilities		in Income		Derivative
hedging instruments:	(in thousands)
At September 30, 2016:
Mortgage loan rate lock commitments (hedged through best efforts sales commitments)	$	108	$	5	$	(235)	$	16,900
Mortgage loan rate lock commitments (hedged through mortgage-backed securities forward sales)		368		3		310		26,061
Forward sale mortgage-backed securities		-		255		(224)		48,000
At December 31, 2015:
Mortgage loan rate lock commitments (hedged through best efforts sales commitments)	$	355	$	17	$	338	$	36,194
Mortgage loan rate lock commitments (hedged through mortgage-backed securities forward sales)		65		10		55		7,140
Forward sale mortgage-backed securities		2		32		(30)		14,250

Schedule of Aggregate Fair Value and Unpaid Principal of Loans Held for Sale [Table Text Block]

The table below presents the aggregate fair value and aggregate unpaid principal of loans held for sale at September 30, 2016 and December 31, 2015:

September 30, 2016

December 31, 2015

Aggregate Fair

Aggregate Fair

Value Less

Value Less

Aggregate

Aggregate

Aggregate

Aggregate

Aggregate

Unpaid

Unpaid

Aggregate

Unpaid

Unpaid

Fair Value

Principal

Principal

Fair Value

Principal

Principal

(in thousands)

Loans held for sale, at fair value

$

42,616

$

41,697

$

919

$

39,583

$

38,925

$

658

Schedule of Gain (Loss) on Sales of Loans Net [Table Text Block]

An immaterial portion of these amounts was attributable to changes in instrument-specific credit risk.

Loans Held for Sale, At Fair Value
Nine Months Ended September 30,
	2016		2015
	(in thousands)
Net gains resulting from changes in fair value	$	261	$	774

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Commitments (Tables)

9 Months Ended

Sep. 30, 2016

Commitments and Contingencies Disclosure [Abstract]

Operating Leases of Lessee Disclosure [Table Text Block]

The Company leases land for its main office, three loan production offices, and one branch facility under operating leases. Total future minimum lease payments, excluding renewal options, at September 30, 2016 under the leases are as follows:

Future Mininum Lease Payments at September 30, 2016
	(in thousands)
Due in one year	$	348
Due in Years 2 and 3		671
Due in Years 4 and 5		535
Due after Year 5		2,340
	$	3,894

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Business combinations (Details Textual) - First Bankcorp [Member]	Sep. 30, 2016 $ / shares shares
Business Acquisition [Line Items]
Business Combination, Consideration Transferred, Cash Basis Percentage	25.00%
Business Combination, Consideration Transferred, Non-Cash Basis Percentage	75.00%
Business Combination, Saleable Shares | shares	1.002
Business Acquisition, Share Price | $ / shares	$ 20

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Stock compensation plans (Details Textual)	9 Months Ended
	Sep. 30, 2016 shares
Stock compensation plans [Line Items]
Common Stock, Capital Shares Reserved for Future Issuance	500,000
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Available for Grant	490,000
Stock Issued During Period, Shares, New Issues	24,028

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Earnings per common share (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Earnings Per Share, Diluted, by Common Class, Including Two Class Method [Line Items]
Net income available to common stockholders	$ 1,564	$ 1,436	$ 3,908	$ 4,390
Weighted average outstanding shares - basic	5,045	4,990	5,040	4,180
Dilutive effect of stock options and convertible preferred stock	4	10	4	306
Weighted average shares - diluted	5,049	5,000	5,044	4,486
Diluted net income per share	$ 0.31	$ 0.29	$ 0.77	$ 0.98

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Earnings per common share (Details Textual)	3 Months Ended
	Mar. 31, 2015 shares
Common Stock [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Conversion of Stock, Shares Issued	1,550,000

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Preferred stock and convertible preferred stock (Details Textual) - USD ($)	1 Months Ended				3 Months Ended	12 Months Ended
	May 22, 2015	Mar. 31, 2015	Apr. 30, 2013	Feb. 28, 2013	Mar. 31, 2015	Dec. 31, 2013	Dec. 31, 2009	Sep. 30, 2016	Dec. 31, 2015	Dec. 31, 2008
Class of Stock [Line Items]
Preferred stock, shares authorized								1,000,000	1,000,000	1,000,000
Preferred Stock, Dividend Rate, Percentage							5.00%
Preferred Stock, Dividend Rate, Variable					9.00%
Payments for Repurchase of Warrants			$ 1,800,000
Series B Convertible Preferred Stock [Member]
Class of Stock [Line Items]
Preferred Stock, Shares Issued								0	0
Conversion of Stock, Shares Converted	15,500
Private Placement [Member] | Series B Convertible Preferred Stock [Member]
Class of Stock [Line Items]
Preferred Stock, Shares Issued		15,500			15,500
Preferred Stock, Par or Stated Value Per Share		$ 975			$ 975
Proceeds from Issuance of Convertible Preferred Stock		$ 14,069,000
Payments of Stock Issuance Costs		$ 1,044,000
Investor [Member]
Class of Stock [Line Items]
Proceeds from Issuance or Sale of Equity				$ 16,000,000
Warrant [Member]
Class of Stock [Line Items]
Class of Warrant or Right, Exercise Price of Warrants or Rights							$ 6.71
Class of Warrant or Right, Number of Securities Called by Warrants or Rights							357,675
Preferred Stock [Member]
Class of Stock [Line Items]
Stock Repurchased and Retired During Period, Shares						5,006
Common Stock [Member]
Class of Stock [Line Items]
Convertible Preferred Stock, Shares Issued upon Conversion	1,550,000
Capital Purchase Program [Member]
Class of Stock [Line Items]
Preferred Stock, Shares Issued							16,000
Proceeds From Issuance Of Preferred Stock and Preference Stock							$ 16,000,000

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Subordinated debentures (Details Textual) - USD ($)	2 Months Ended	9 Months Ended	12 Months Ended
	Sep. 30, 2008	Sep. 30, 2016	Dec. 31, 2004	Dec. 31, 2015	Sep. 30, 2015	Dec. 31, 2009
Debt Instrument [Line Items]
Subordinated Debt		$ 19,610,000		$ 19,610,000
Debt Instrument, Maturity Date		Aug. 29, 2017	Jan. 07, 2035
Total Assets		$ 708,890,000		$ 700,798,000	$ 688,974,000
Bank Holding Companies [Member]
Debt Instrument [Line Items]
Total Assets						$ 15,000,000,000
Junior Subordinated Debt [Member]
Debt Instrument [Line Items]
Debt Instrument, Call Date, Earliest		Sep. 30, 2013
Debt Instrument, Maturity Date Range, End		Sep. 30, 2018
Junior Subordinated Debt [Member] | Carolina Capital Trust [Member]
Debt Instrument [Line Items]
Subordinated Debt			$ 10,310,000
Debt Instrument, Description of Variable Rate Basis			three month LIBOR plus 2% per annum
Junior Subordinated Debt [Member] | Carolina Bank Holdings Inc [Member]
Debt Instrument [Line Items]
Subordinated Debt	$ 9,300,000
Debt Instrument, Description of Variable Rate Basis	three month LIBOR plus 4% per annum.
Payments of Debt Issuance Costs	$ 373,000
Trust Preferred Securities Subject to Mandatory Redemption [Member]
Debt Instrument [Line Items]
Proceeds from Issuance of Trust Preferred Securities			$ 10,000,000

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Operating segments (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015	Dec. 31, 2015	Dec. 31, 2014
Segment Reporting Information [Line Items]
Interest income	$ 6,597	$ 6,557	$ 19,824	$ 19,610
Interest expense	697	668	2,124	2,046
Net interest income (loss)	5,900	5,889	17,700	17,564
Provision for loan losses	0	450	0	1,285
Net interest income (loss) after provision for loan losses	5,900	5,439	17,700	16,279
Non-interest income	3,182	3,641	8,740	11,052
Non-interest expense	6,923	7,015	21,007	20,658
Income (loss) before income taxes	2,159	2,065	5,433	6,673
Income tax (benefit) expense	595	629	1,525	1,942
Net income (loss)	1,564	1,436	3,908	4,731
Total assets	708,890	688,974	708,890	688,974	$ 700,798
Net loans	540,078	509,084	540,078	509,084
Equity	65,566	60,098	65,566	60,098	$ 61,139	$ 52,655
Commercial Retail Bank [Member]
Segment Reporting Information [Line Items]
Interest income	6,171	5,963	18,684	18,042
Interest expense	200	15	783	306
Net interest income (loss)	5,971	5,948	17,901	17,736
Provision for loan losses	0	450	0	1,285
Net interest income (loss) after provision for loan losses	5,971	5,498	17,901	16,451
Non-interest income	672	421	1,625	1,204
Non-interest expense	4,354	4,647	13,328	13,297
Income (loss) before income taxes	2,289	1,272	6,198	4,358
Income tax (benefit) expense	619	332	1,645	1,068
Net income (loss)	1,670	940	4,553	3,290
Total assets	664,643	636,074	664,643	636,074
Net loans	497,462	458,322	497,462	458,322
Equity	4,553	3,290	4,553	3,290
Mortgage Banking Division [Member]
Segment Reporting Information [Line Items]
Interest income	424	593	1,134	1,563
Interest expense	423	593	1,134	1,563
Net interest income (loss)	1	0	0	0
Provision for loan losses	0	0	0	0
Net interest income (loss) after provision for loan losses	1	0	0	0
Non-interest income	2,510	3,220	7,115	9,848
Non-interest expense	2,433	2,326	6,842	7,215
Income (loss) before income taxes	78	894	273	2,633
Income tax (benefit) expense	22	331	98	982
Net income (loss)	56	563	175	1,651
Total assets	43,913	52,492	43,913	52,492
Net loans	42,616	50,762	42,616	50,762
Equity	175	1,651	175	1,651
Holding Company [Member]
Segment Reporting Information [Line Items]
Interest income	2	1	6	5
Interest expense	74	60	207	177
Net interest income (loss)	(72)	(59)	(201)	(172)
Provision for loan losses	0	0	0	0
Net interest income (loss) after provision for loan losses	(72)	(59)	(201)	(172)
Non-interest income	0	0	0	0
Non-interest expense	136	42	837	146
Income (loss) before income taxes	(208)	(101)	(1,038)	(318)
Income tax (benefit) expense	(46)	(34)	(218)	(108)
Net income (loss)	(162)	(67)	(820)	(210)
Total assets	334	408	334	408
Net loans	0	0	0	0
Equity	$ 60,838	$ 55,157	$ 60,838	$ 55,157

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Operating segments (Details Textual) - USD ($)	3 Months Ended		9 Months Ended				111 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2016	Dec. 31, 2015
Segment Reporting Information [Line Items]
Product Warranty Expense	$ 19,000	$ 42,000	$ 42,000	$ 138,000
Product Warranty Accrual	$ 1,467,000		1,467,000				$ 1,467,000	$ 1,547,000
Product Warranty Accrual, Payments							1,238,000
Fair Value Repurchased And Included In Loans Held For Investment							$ 1,555,000
Payments for Origination of Mortgage Loans Held-for-sale			$ 378,100,000	$ 544,600,000	$ 411,300,000	$ 761,000,000

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Securities (Details) - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
Available-for-sale
Available for sale Securities, Amortized Cost	$ 39,993	$ 46,284
Available for sale Securities, Gross Unrealized Gains	1,469	1,107
Available for sale Securities, Gross Unrealized Losses	4	31
Available-for-sale Securities, Estimated Fair Value	41,458	47,360
Held-to-maturity
Held to maturity Securities, Amortized Cost	14,031	14,954
Held to maturity Securities, Gross Unrealized Gains	526	287
Held to maturity Securities, Gross Unrealized Losses	0	15
Held to maturity Securities, Estimated Fair Value	14,557	15,226
Municipal securities [Member]
Available-for-sale
Available for sale Securities, Amortized Cost	16,121	17,095
Available for sale Securities, Gross Unrealized Gains	700	569
Available for sale Securities, Gross Unrealized Losses	0	8
Available-for-sale Securities, Estimated Fair Value	16,821	17,656
Held-to-maturity
Held to maturity Securities, Amortized Cost	7,126	7,360
Held to maturity Securities, Gross Unrealized Gains	283	204
Held to maturity Securities, Gross Unrealized Losses	0	0
Held to maturity Securities, Estimated Fair Value	7,409	7,564
Corporate securities [Member]
Available-for-sale
Available for sale Securities, Amortized Cost	9,059	8,903
Available for sale Securities, Gross Unrealized Gains	47	58
Available for sale Securities, Gross Unrealized Losses	4	22
Available-for-sale Securities, Estimated Fair Value	9,102	8,939
Held-to-maturity
Held to maturity Securities, Amortized Cost	500	500
Held to maturity Securities, Gross Unrealized Gains	0	0
Held to maturity Securities, Gross Unrealized Losses	0	0
Held to maturity Securities, Estimated Fair Value	500	500
Asset-backed Securities [Member]
Available-for-sale
Available for sale Securities, Amortized Cost	3,179	3,654
Available for sale Securities, Gross Unrealized Gains	113	78
Available for sale Securities, Gross Unrealized Losses	0	0
Available-for-sale Securities, Estimated Fair Value	3,292	3,732
Held-to-maturity
Held to maturity Securities, Amortized Cost	1,627	1,843
Held to maturity Securities, Gross Unrealized Gains	116	66
Held to maturity Securities, Gross Unrealized Losses	0	0
Held to maturity Securities, Estimated Fair Value	1,743	1,909
Unrestricted Stock [Member]
Available-for-sale
Available for sale Securities, Amortized Cost	43	43
Available for sale Securities, Gross Unrealized Gains	13	12
Available for sale Securities, Gross Unrealized Losses	0	0
Available-for-sale Securities, Estimated Fair Value	56	55
FNMA, FHLMC, and GNMA mortgage-backed securities [Member]
Available-for-sale
Available for sale Securities, Amortized Cost	11,591	16,589
Available for sale Securities, Gross Unrealized Gains	596	390
Available for sale Securities, Gross Unrealized Losses	0	1
Available-for-sale Securities, Estimated Fair Value	12,187	16,978
Held-to-maturity
Held to maturity Securities, Amortized Cost	4,778	5,251
Held to maturity Securities, Gross Unrealized Gains	127	17
Held to maturity Securities, Gross Unrealized Losses	0	15
Held to maturity Securities, Estimated Fair Value	$ 4,905	$ 5,253

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Securities (Details 1) - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
Maturities of Debt Securities [Line Items]
Available-for-sale Securities, Due in one year or less, Amortized Cost	$ 2,997
Available-for-sale Securities, Due from one to five years, Amortized Cost	10,236
Available-for-sale Securities, Due from five to ten years, Amortized Cost	12,461
Available-for-sale Securities, Over ten years, Amortized Cost	14,256
Available-for-sale Securities, Amortized Cost	39,950
Available-for-sale Securities, Due in one year or less, Estimated Fair Value	3,000
Available-for-sale Securities, Due from one to five years, Estimated Fair Value	10,672
Available-for-sale Securities, Due from five to ten years, Estimated Fair Value	12,913
Available-for-sale Securities, Over ten years, Estimated Fair Value	14,817
Available-for-sale Securities, Estimated Fair Value	41,402
Held-to-maturity Securities, Due in one year or less, Amortized Cost	0
Held-to-maturity Securities, Due from one to five years, Amortized Cost	0
Held-to-maturity Securities, Due from five to ten years, Amortized Cost	3,819
Held-to-maturity Securities, Over ten years, Amortized Cost	10,212
Held-to-maturity Securities, Amortized Cost	14,031	$ 14,954
Held-to-maturity Securities, Due in one year or less, Estimated Fair Value	0
Held-to-maturity Securities, Due from one to five years, Estimated Fair Value	0
Held-to-maturity Securities, Due from five to ten years, Estimated Fair Value	3,925
Held-to-maturity Securities, Over ten years, Estimated Fair Value	10,632
Held to maturity Securities, Estimated Fair Value	14,557	$ 15,226
Bullet Securities [Member]
Maturities of Debt Securities [Line Items]
Available-for-sale Securities, Due in one year or less, Amortized Cost	2,997
Available-for-sale Securities, Due from one to five years, Amortized Cost	8,541
Available-for-sale Securities, Due from five to ten years, Amortized Cost	7,659
Available-for-sale Securities, Over ten years, Amortized Cost	5,983
Available-for-sale Securities, Amortized Cost	25,180
Available-for-sale Securities, Due in one year or less, Estimated Fair Value	3,000
Available-for-sale Securities, Due from one to five years, Estimated Fair Value	8,818
Available-for-sale Securities, Due from five to ten years, Estimated Fair Value	7,929
Available-for-sale Securities, Over ten years, Estimated Fair Value	6,176
Available-for-sale Securities, Estimated Fair Value	25,923
Held-to-maturity Securities, Due in one year or less, Amortized Cost	0
Held-to-maturity Securities, Due from one to five years, Amortized Cost	0
Held-to-maturity Securities, Due from five to ten years, Amortized Cost	3,819
Held-to-maturity Securities, Over ten years, Amortized Cost	3,807
Held-to-maturity Securities, Amortized Cost	7,626
Held-to-maturity Securities, Due in one year or less, Estimated Fair Value	0
Held-to-maturity Securities, Due from one to five years, Estimated Fair Value	0
Held-to-maturity Securities, Due from five to ten years, Estimated Fair Value	3,925
Held-to-maturity Securities, Over ten years, Estimated Fair Value	3,984
Held to maturity Securities, Estimated Fair Value	7,909
Declining Balance Securities [Member]
Maturities of Debt Securities [Line Items]
Available-for-sale Securities, Due in one year or less, Amortized Cost	0
Available-for-sale Securities, Due from one to five years, Amortized Cost	1,695
Available-for-sale Securities, Due from five to ten years, Amortized Cost	4,802
Available-for-sale Securities, Over ten years, Amortized Cost	8,273
Available-for-sale Securities, Amortized Cost	14,770
Available-for-sale Securities, Due in one year or less, Estimated Fair Value	0
Available-for-sale Securities, Due from one to five years, Estimated Fair Value	1,854
Available-for-sale Securities, Due from five to ten years, Estimated Fair Value	4,984
Available-for-sale Securities, Over ten years, Estimated Fair Value	8,641
Available-for-sale Securities, Estimated Fair Value	15,479
Held-to-maturity Securities, Due in one year or less, Amortized Cost	0
Held-to-maturity Securities, Due from one to five years, Amortized Cost	0
Held-to-maturity Securities, Due from five to ten years, Amortized Cost	0
Held-to-maturity Securities, Over ten years, Amortized Cost	6,405
Held-to-maturity Securities, Amortized Cost	6,405
Held-to-maturity Securities, Due in one year or less, Estimated Fair Value	0
Held-to-maturity Securities, Due from one to five years, Estimated Fair Value	0
Held-to-maturity Securities, Due from five to ten years, Estimated Fair Value	0
Held-to-maturity Securities, Over ten years, Estimated Fair Value	6,648
Held to maturity Securities, Estimated Fair Value	$ 6,648

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Securities (Details 2) $ in Thousands	Sep. 30, 2016 USD ($) Securities	Dec. 31, 2015 USD ($) Securities
Schedule of Available-for-sale Securities [Line Items]
Number of Securities, Less Than 12 Months | Securities	0	6
Fair Value, Less Than 12 Months	$ 0	$ 9,839
Gross Unrealized Losses, Less Than 12 Months,	$ 0	$ 33
Number of Securities, 12 Months or Greater | Securities	1	2
Fair Value, 12 Months or Greater	$ 977	$ 1,217
Gross Unrealized Losses, 12 Months or Greater	$ 4	$ 13
Number of Securities, Total | Securities	1	8
Fair Value, Total	$ 977	$ 11,056
Gross Unrealized Losses, Total	$ 4	$ 46
FNMA, FHLMC, and GNMA mortgage-backed securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Number of Securities, Less Than 12 Months | Securities		2
Fair Value, Less Than 12 Months		$ 5,414
Gross Unrealized Losses, Less Than 12 Months,		$ 16
Number of Securities, 12 Months or Greater | Securities		0
Fair Value, 12 Months or Greater		$ 0
Gross Unrealized Losses, 12 Months or Greater		$ 0
Number of Securities, Total | Securities		2
Fair Value, Total		$ 5,414
Gross Unrealized Losses, Total		$ 16
Municipal Bonds [Member]
Schedule of Available-for-sale Securities [Line Items]
Number of Securities, Less Than 12 Months | Securities		3
Fair Value, Less Than 12 Months		$ 3,440
Gross Unrealized Losses, Less Than 12 Months,		$ 2
Number of Securities, 12 Months or Greater | Securities		1
Fair Value, 12 Months or Greater		$ 244
Gross Unrealized Losses, 12 Months or Greater		$ 6
Number of Securities, Total | Securities		4
Fair Value, Total		$ 3,684
Gross Unrealized Losses, Total		$ 8
Corporate Bond Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Number of Securities, Less Than 12 Months | Securities	0	1
Fair Value, Less Than 12 Months	$ 0	$ 985
Gross Unrealized Losses, Less Than 12 Months,	$ 0	$ 15
Number of Securities, 12 Months or Greater | Securities	1	1
Fair Value, 12 Months or Greater	$ 977	$ 973
Gross Unrealized Losses, 12 Months or Greater	$ 4	$ 7
Number of Securities, Total | Securities	1	2
Fair Value, Total	$ 977	$ 1,958
Gross Unrealized Losses, Total	$ 4	$ 22

XML

Securities (Details Textual) - USD ($)	Sep. 30, 2016	Dec. 31, 2015
Gain (Loss) on Investments [Line Items]
Pledged Securities	$ 13,847,000	$ 16,220,000
Available-for-sale Securities, Continuous Unrealized Loss Position, Accumulated Loss, Total	4,000	46,000
Available-for-sale Securities, Continuous Unrealized Loss Position, Fair Value	977,000	$ 11,056,000
One Corporate Debt Security [Member]
Gain (Loss) on Investments [Line Items]
Available-for-sale Securities, Continuous Unrealized Loss Position, Accumulated Loss, Total	4,000
Available-for-sale Securities, Continuous Unrealized Loss Position, Fair Value	$ 977,000

XML

Loans and allowance for loan losses (Details) - USD ($) $ in Thousands	9 Months Ended	12 Months Ended
	Sep. 30, 2016	Dec. 31, 2015
Accounts, Notes, Loans and Financing Receivable [Line Items]
Allowance for loan losses, Beginning of year balance	$ 5,872	$ 6,520
Allowance for loan losses, Provision for loan losses	0	1,085
Allowance for loan losses, Charge-offs	(687)	(4,145)
Allowance for loan losses, Recoveries	579	2,412
Allowance for loan losses, Ending of year balance	5,764	5,872
Allowance for loan losses, Ending balance individually evaluated for impairment	1,200	833
Allowance for loan losses, Ending balance collectively evaluated for impairment	4,564	5,039
Loans Outstanding, Ending of year balance	503,226	465,804
Loans Outstanding, Ending balance individually evaluated for impairment	15,290	14,394
Loans Outstanding, Ending balance collectively evaluated for impairment	487,936	451,410
Real Estate Construction & development [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Allowance for loan losses, Beginning of year balance	1,005	1,495
Allowance for loan losses, Provision for loan losses	(691)	(490)
Allowance for loan losses, Charge-offs	0	0
Allowance for loan losses, Recoveries	87	0
Allowance for loan losses, Ending of year balance	401	1,005
Allowance for loan losses, Ending balance individually evaluated for impairment	0	12
Allowance for loan losses, Ending balance collectively evaluated for impairment	401	993
Loans Outstanding, Ending of year balance	73,817	62,289
Loans Outstanding, Ending balance individually evaluated for impairment	95	175
Loans Outstanding, Ending balance collectively evaluated for impairment	73,722	62,114
Commercial Real Estate [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Allowance for loan losses, Beginning of year balance	2,546	2,144
Allowance for loan losses, Provision for loan losses	722	1,691
Allowance for loan losses, Charge-offs	(588)	(2,990)
Allowance for loan losses, Recoveries	249	1,701
Allowance for loan losses, Ending of year balance	2,929	2,546
Allowance for loan losses, Ending balance individually evaluated for impairment	782	480
Allowance for loan losses, Ending balance collectively evaluated for impairment	2,147	2,066
Loans Outstanding, Ending of year balance	235,816	213,987
Loans Outstanding, Ending balance individually evaluated for impairment	10,194	9,044
Loans Outstanding, Ending balance collectively evaluated for impairment	225,622	204,943
Home Equity Line of Credit [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Allowance for loan losses, Beginning of year balance	441	766
Allowance for loan losses, Provision for loan losses	283	(332)
Allowance for loan losses, Charge-offs	(51)	(104)
Allowance for loan losses, Recoveries	4	111
Allowance for loan losses, Ending of year balance	677	441
Allowance for loan losses, Ending balance individually evaluated for impairment	143	51
Allowance for loan losses, Ending balance collectively evaluated for impairment	534	390
Loans Outstanding, Ending of year balance	81,181	78,952
Loans Outstanding, Ending balance individually evaluated for impairment	490	390
Loans Outstanding, Ending balance collectively evaluated for impairment	80,691	78,562
Residential Real Estate [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Allowance for loan losses, Beginning of year balance	507	483
Allowance for loan losses, Provision for loan losses	(20)	48
Allowance for loan losses, Charge-offs	(46)	(130)
Allowance for loan losses, Recoveries	50	106
Allowance for loan losses, Ending of year balance	491	507
Allowance for loan losses, Ending balance individually evaluated for impairment	275	272
Allowance for loan losses, Ending balance collectively evaluated for impairment	216	235
Loans Outstanding, Ending of year balance	51,939	52,363
Loans Outstanding, Ending balance individually evaluated for impairment	4,511	4,423
Loans Outstanding, Ending balance collectively evaluated for impairment	47,428	47,940
Commercial and Industrial [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Allowance for loan losses, Beginning of year balance	1,309	1,413
Allowance for loan losses, Provision for loan losses	(347)	327
Allowance for loan losses, Charge-offs	0	(914)
Allowance for loan losses, Recoveries	184	483
Allowance for loan losses, Ending of year balance	1,146	1,309
Allowance for loan losses, Ending balance individually evaluated for impairment	0	18
Allowance for loan losses, Ending balance collectively evaluated for impairment	1,146	1,291
Loans Outstanding, Ending of year balance	56,529	55,641
Loans Outstanding, Ending balance individually evaluated for impairment	0	362
Loans Outstanding, Ending balance collectively evaluated for impairment	56,529	55,279
Consumer Portfolio Segment [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Allowance for loan losses, Beginning of year balance	20	28
Allowance for loan losses, Provision for loan losses	12	(12)
Allowance for loan losses, Charge-offs	(2)	(7)
Allowance for loan losses, Recoveries	5	11
Allowance for loan losses, Ending of year balance	35	20
Allowance for loan losses, Ending balance individually evaluated for impairment	0	0
Allowance for loan losses, Ending balance collectively evaluated for impairment	35	20
Loans Outstanding, Ending of year balance	3,944	2,572
Loans Outstanding, Ending balance individually evaluated for impairment	0	0
Loans Outstanding, Ending balance collectively evaluated for impairment	3,944	2,572
Unallocated Financing Receivables [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Allowance for loan losses, Beginning of year balance	44	191
Allowance for loan losses, Provision for loan losses	41	(147)
Allowance for loan losses, Charge-offs	0	0
Allowance for loan losses, Recoveries	0	0
Allowance for loan losses, Ending of year balance	85	44
Allowance for loan losses, Ending balance individually evaluated for impairment	0	0
Allowance for loan losses, Ending balance collectively evaluated for impairment	85	44
Loans Outstanding, Ending of year balance	0	0
Loans Outstanding, Ending balance individually evaluated for impairment	0	0
Loans Outstanding, Ending balance collectively evaluated for impairment	$ 0	$ 0

XML

Loans and allowance for loan losses (Details 1) - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total Past Due	$ 4,788	$ 3,965
Current	498,438	461,839
Total Loans	503,226	465,804
Loans Past Due 90 Days or More & Accruing	0	0
Financing Receivables, 30 to 59 Days Past Due [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total Past Due	396	675
Financing Receivables, 60 to 89 Days Past Due [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total Past Due	0	180
Financing Receivables, Equal to Greater than 90 Days Past Due [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total Past Due	4,392	3,110
Real Estate Loans Construction and development [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total Past Due	95	197
Current	73,722	62,092
Total Loans	73,817	62,289
Loans Past Due 90 Days or More & Accruing	0	0
Real Estate Loans Construction and development [Member] | Financing Receivables, 30 to 59 Days Past Due [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total Past Due	0	22
Real Estate Loans Construction and development [Member] | Financing Receivables, 60 to 89 Days Past Due [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total Past Due	0	0
Real Estate Loans Construction and development [Member] | Financing Receivables, Equal to Greater than 90 Days Past Due [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total Past Due	95	175
Commercial Real Estate Loans [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total Past Due	2,851	1,735
Current	232,965	212,252
Total Loans	235,816	213,987
Loans Past Due 90 Days or More & Accruing	0	0
Commercial Real Estate Loans [Member] | Financing Receivables, 30 to 59 Days Past Due [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total Past Due	0	0
Commercial Real Estate Loans [Member] | Financing Receivables, 60 to 89 Days Past Due [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total Past Due	0	0
Commercial Real Estate Loans [Member] | Financing Receivables, Equal to Greater than 90 Days Past Due [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total Past Due	2,851	1,735
Home Equity Line Real Estate Loans [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total Past Due	527	390
Current	80,654	78,562
Total Loans	81,181	78,952
Loans Past Due 90 Days or More & Accruing	0	0
Home Equity Line Real Estate Loans [Member] | Financing Receivables, 30 to 59 Days Past Due [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total Past Due	210	125
Home Equity Line Real Estate Loans [Member] | Financing Receivables, 60 to 89 Days Past Due [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total Past Due	0	0
Home Equity Line Real Estate Loans [Member] | Financing Receivables, Equal to Greater than 90 Days Past Due [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total Past Due	317	265
Residential Real Estate Loans [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total Past Due	1,315	1,643
Current	50,624	50,720
Total Loans	51,939	52,363
Loans Past Due 90 Days or More & Accruing	0	0
Residential Real Estate Loans [Member] | Financing Receivables, 30 to 59 Days Past Due [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total Past Due	186	528
Residential Real Estate Loans [Member] | Financing Receivables, 60 to 89 Days Past Due [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total Past Due	0	180
Residential Real Estate Loans [Member] | Financing Receivables, Equal to Greater than 90 Days Past Due [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total Past Due	1,129	935
Real Estate Loans [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total Past Due	4,788	3,965
Current	437,965	403,626
Total Loans	442,753	407,591
Loans Past Due 90 Days or More & Accruing	0	0
Real Estate Loans [Member] | Financing Receivables, 30 to 59 Days Past Due [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total Past Due	396	675
Real Estate Loans [Member] | Financing Receivables, 60 to 89 Days Past Due [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total Past Due	0	180
Real Estate Loans [Member] | Financing Receivables, Equal to Greater than 90 Days Past Due [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total Past Due	4,392	3,110
Commercial and Industrial, Real Estate Loans [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total Past Due	0	0
Current	56,529	55,641
Total Loans	56,529	55,641
Loans Past Due 90 Days or More & Accruing	0	0
Commercial and Industrial, Real Estate Loans [Member] | Financing Receivables, 30 to 59 Days Past Due [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total Past Due	0	0
Commercial and Industrial, Real Estate Loans [Member] | Financing Receivables, 60 to 89 Days Past Due [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total Past Due	0	0
Commercial and Industrial, Real Estate Loans [Member] | Financing Receivables, Equal to Greater than 90 Days Past Due [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total Past Due	0	0
Consumer Other Real Estate Loans [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total Past Due	0	0
Current	3,944	2,572
Total Loans	3,944	2,572
Loans Past Due 90 Days or More & Accruing	0	0
Consumer Other Real Estate Loans [Member] | Financing Receivables, 30 to 59 Days Past Due [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total Past Due	0	0
Consumer Other Real Estate Loans [Member] | Financing Receivables, 60 to 89 Days Past Due [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total Past Due	0	0
Consumer Other Real Estate Loans [Member] | Financing Receivables, Equal to Greater than 90 Days Past Due [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total Past Due	$ 0	$ 0

XML

Loans and allowance for loan losses (Details 2) - USD ($) $ in Thousands	9 Months Ended	12 Months Ended
	Sep. 30, 2016	Dec. 31, 2015
Financing Receivable, Impaired [Line Items]
Impaired Financing Receivable, with No Related Allowance, Recorded Investment	$ 5,269	$ 5,577
Impaired Financing Receivable, with No Related Allowance, Unpaid Principal Balance	6,368	6,429
Impaired Financing Receivable, with No Related Allowance, Average Recorded Investment	8,099	10,600
Impaired Financing Receivable, with No Related Allowance, Interest Income Recognized	174	358
Impaired Financing Receivable, With Related Allowance, Recorded Investment	10,021	8,817
Impaired Financing Receivable, with Related Allowance, Unpaid Principal Balance	10,660	9,210
Impaired Financing Receivable, Related Loan Loss Allowance	1,200	833
Impaired Financing Receivable, with Related Allowance, Average Recorded Investment	10,784	9,371
Impaired Financing Receivable, with Related Allowance, Interest Income Recognized	355	490
Consumer & other [Member]
Financing Receivable, Impaired [Line Items]
Impaired Financing Receivable, with No Related Allowance, Recorded Investment	0	0
Impaired Financing Receivable, with No Related Allowance, Unpaid Principal Balance	0	0
Impaired Financing Receivable, with No Related Allowance, Average Recorded Investment	0	0
Impaired Financing Receivable, with No Related Allowance, Interest Income Recognized	0	0
Impaired Financing Receivable, With Related Allowance, Recorded Investment	0	0
Impaired Financing Receivable, with Related Allowance, Unpaid Principal Balance	0	0
Impaired Financing Receivable, Related Loan Loss Allowance	0	0
Impaired Financing Receivable, with Related Allowance, Average Recorded Investment	0	0
Impaired Financing Receivable, with Related Allowance, Interest Income Recognized	0	0
Real Estate [Member]
Financing Receivable, Impaired [Line Items]
Impaired Financing Receivable, with No Related Allowance, Recorded Investment	5,269	5,577
Impaired Financing Receivable, with No Related Allowance, Unpaid Principal Balance	6,368	6,429
Impaired Financing Receivable, with No Related Allowance, Average Recorded Investment	8,099	10,600
Impaired Financing Receivable, with No Related Allowance, Interest Income Recognized	174	358
Impaired Financing Receivable, With Related Allowance, Recorded Investment	10,021	8,455
Impaired Financing Receivable, with Related Allowance, Unpaid Principal Balance	10,660	8,848
Impaired Financing Receivable, Related Loan Loss Allowance	1,200	815
Impaired Financing Receivable, with Related Allowance, Average Recorded Investment	10,784	8,988
Impaired Financing Receivable, with Related Allowance, Interest Income Recognized	355	470
Real Estate Construction and Land Development [Member]
Financing Receivable, Impaired [Line Items]
Impaired Financing Receivable, with No Related Allowance, Recorded Investment	95	0
Impaired Financing Receivable, with No Related Allowance, Unpaid Principal Balance	95	0
Impaired Financing Receivable, with No Related Allowance, Average Recorded Investment	76	0
Impaired Financing Receivable, with No Related Allowance, Interest Income Recognized	0	0
Impaired Financing Receivable, With Related Allowance, Recorded Investment	0	175
Impaired Financing Receivable, with Related Allowance, Unpaid Principal Balance	0	175
Impaired Financing Receivable, Related Loan Loss Allowance	0	12
Impaired Financing Receivable, with Related Allowance, Average Recorded Investment	0	97
Impaired Financing Receivable, with Related Allowance, Interest Income Recognized	0	1
Commercial Real Estate [Member]
Financing Receivable, Impaired [Line Items]
Impaired Financing Receivable, with No Related Allowance, Recorded Investment	2,988	2,819
Impaired Financing Receivable, with No Related Allowance, Unpaid Principal Balance	3,785	3,380
Impaired Financing Receivable, with No Related Allowance, Average Recorded Investment	5,481	7,484
Impaired Financing Receivable, with No Related Allowance, Interest Income Recognized	85	193
Impaired Financing Receivable, With Related Allowance, Recorded Investment	7,206	6,225
Impaired Financing Receivable, with Related Allowance, Unpaid Principal Balance	7,729	6,453
Impaired Financing Receivable, Related Loan Loss Allowance	782	480
Impaired Financing Receivable, with Related Allowance, Average Recorded Investment	7,815	6,569
Impaired Financing Receivable, with Related Allowance, Interest Income Recognized	275	358
Home Equity Line of Credit [Member]
Financing Receivable, Impaired [Line Items]
Impaired Financing Receivable, with No Related Allowance, Recorded Investment	184	193
Impaired Financing Receivable, with No Related Allowance, Unpaid Principal Balance	359	360
Impaired Financing Receivable, with No Related Allowance, Average Recorded Investment	360	362
Impaired Financing Receivable, with No Related Allowance, Interest Income Recognized	13	16
Impaired Financing Receivable, With Related Allowance, Recorded Investment	306	197
Impaired Financing Receivable, with Related Allowance, Unpaid Principal Balance	313	265
Impaired Financing Receivable, Related Loan Loss Allowance	143	51
Impaired Financing Receivable, with Related Allowance, Average Recorded Investment	314	265
Impaired Financing Receivable, with Related Allowance, Interest Income Recognized	9	11
Residential Real Estate [Member]
Financing Receivable, Impaired [Line Items]
Impaired Financing Receivable, with No Related Allowance, Recorded Investment	2,002	2,565
Impaired Financing Receivable, with No Related Allowance, Unpaid Principal Balance	2,129	2,689
Impaired Financing Receivable, with No Related Allowance, Average Recorded Investment	2,182	2,754
Impaired Financing Receivable, with No Related Allowance, Interest Income Recognized	76	149
Impaired Financing Receivable, With Related Allowance, Recorded Investment	2,509	1,858
Impaired Financing Receivable, with Related Allowance, Unpaid Principal Balance	2,618	1,955
Impaired Financing Receivable, Related Loan Loss Allowance	275	272
Impaired Financing Receivable, with Related Allowance, Average Recorded Investment	2,655	2,057
Impaired Financing Receivable, with Related Allowance, Interest Income Recognized	71	100
Commercial and Industrial, Real Estate Loans [Member]
Financing Receivable, Impaired [Line Items]
Impaired Financing Receivable, with No Related Allowance, Recorded Investment	0	0
Impaired Financing Receivable, with No Related Allowance, Unpaid Principal Balance	0	0
Impaired Financing Receivable, with No Related Allowance, Average Recorded Investment	0	0
Impaired Financing Receivable, with No Related Allowance, Interest Income Recognized	0	0
Impaired Financing Receivable, With Related Allowance, Recorded Investment	0	362
Impaired Financing Receivable, with Related Allowance, Unpaid Principal Balance	0	362
Impaired Financing Receivable, Related Loan Loss Allowance	0	18
Impaired Financing Receivable, with Related Allowance, Average Recorded Investment	0	383
Impaired Financing Receivable, with Related Allowance, Interest Income Recognized	0	20
Impaired Loans [Member]
Financing Receivable, Impaired [Line Items]
Impaired Financing Receivable, With Related Allowance, Recorded Investment	15,290	14,394
Impaired Financing Receivable, with Related Allowance, Unpaid Principal Balance	17,028	15,639
Impaired Financing Receivable, Related Loan Loss Allowance	1,200	833
Impaired Financing Receivable, with Related Allowance, Average Recorded Investment	18,883	19,971
Impaired Financing Receivable, with Related Allowance, Interest Income Recognized	$ 529	$ 848

XML

Loans and allowance for loan losses (Details 3) - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
Financing Receivable, Recorded Investment [Line Items]
Non-accrual loans	$ 4,392	$ 3,110
Consumer & other [Member]
Financing Receivable, Recorded Investment [Line Items]
Non-accrual loans	0	0
Real Estate Construction and Land Development [Member]
Financing Receivable, Recorded Investment [Line Items]
Non-accrual loans	95	175
Commercial Real Estate [Member]
Financing Receivable, Recorded Investment [Line Items]
Non-accrual loans	2,851	1,735
Home Equity Line Real Estate Loans [Member]
Financing Receivable, Recorded Investment [Line Items]
Non-accrual loans	317	265
Residential Real Estate [Member]
Financing Receivable, Recorded Investment [Line Items]
Non-accrual loans	1,129	935
Real Estate [Member]
Financing Receivable, Recorded Investment [Line Items]
Non-accrual loans	4,392	3,110
Commercial and Industrial, Real Estate Loans [Member]
Financing Receivable, Recorded Investment [Line Items]
Non-accrual loans	$ 0	$ 0

XML

Loans and allowance for loan losses (Details 4) - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
Financing Receivable, Recorded Investment [Line Items]
Loans	$ 503,226	$ 465,804
Consumer & other [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	3,944	2,572
Real Estate [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	442,753	407,591
Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	488,404	447,890
Pass [Member] | Consumer & other [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	3,944	2,572
Pass [Member] | Real Estate [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	427,951	390,627
Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	8,695	11,983
Special Mention [Member] | Consumer & other [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	0	0
Special Mention [Member] | Real Estate [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	8,675	11,033
Classified [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	6,127	5,931
Classified [Member] | Consumer & other [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	0	0
Classified [Member] | Real Estate [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	6,127	5,931
Real Estate Construction and Land Development [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	73,817	62,289
Real Estate Construction and Land Development [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	73,722	62,110
Real Estate Construction and Land Development [Member] | Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	0	0
Real Estate Construction and Land Development [Member] | Classified [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	95	179
Commercial Real Estate [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	235,816	213,987
Commercial Real Estate [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	225,368	202,252
Commercial Real Estate [Member] | Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	7,435	9,270
Commercial Real Estate [Member] | Classified [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	3,013	2,465
Home Equity Line of Credit [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	81,181	78,952
Home Equity Line of Credit [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	80,241	78,014
Home Equity Line of Credit [Member] | Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	296	128
Home Equity Line of Credit [Member] | Classified [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	644	810
Residential Real Estate [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	51,939	52,363
Residential Real Estate [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	48,620	48,251
Residential Real Estate [Member] | Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	944	1,635
Residential Real Estate [Member] | Classified [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	2,375	2,477
Commercial and Industrial [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	56,529	55,641
Commercial and Industrial [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	56,509	54,691
Commercial and Industrial [Member] | Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	20	950
Commercial and Industrial [Member] | Classified [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	$ 0	$ 0

XML

Loans and allowance for loan losses (Details 5) $ in Thousands	9 Months Ended	12 Months Ended
	Sep. 30, 2016 USD ($) Contracts	Dec. 31, 2015 USD ($) Contracts
Financing Receivable, Modifications [Line Items]
Financing Receivable, Modifications, Number of Contracts | Contracts	29	28
Troubled Debt Restructurings, Modification Amount | $	$ 11,819	$ 10,588
Consumer & other [Member]
Financing Receivable, Modifications [Line Items]
Financing Receivable, Modifications, Number of Contracts | Contracts	0	0
Troubled Debt Restructurings, Modification Amount | $	$ 0	$ 0
Construction and Land Development [Member]
Financing Receivable, Modifications [Line Items]
Financing Receivable, Modifications, Number of Contracts | Contracts	1	1
Troubled Debt Restructurings, Modification Amount | $	$ 95	$ 175
Commercial Real Estate [Member]
Financing Receivable, Modifications [Line Items]
Financing Receivable, Modifications, Number of Contracts | Contracts	15	13
Troubled Debt Restructurings, Modification Amount | $	$ 9,074	$ 7,411
Home Equity Line Real Estate Loans [Member]
Financing Receivable, Modifications [Line Items]
Financing Receivable, Modifications, Number of Contracts | Contracts	0	0
Troubled Debt Restructurings, Modification Amount | $	$ 0	$ 0
Residential Real Estate [Member]
Financing Receivable, Modifications [Line Items]
Financing Receivable, Modifications, Number of Contracts | Contracts	12	13
Troubled Debt Restructurings, Modification Amount | $	$ 2,349	$ 2,640
Total real estate [Member]
Financing Receivable, Modifications [Line Items]
Financing Receivable, Modifications, Number of Contracts | Contracts	28	27
Troubled Debt Restructurings, Modification Amount | $	$ 11,518	$ 10,226
Commercial and Industrial [Member]
Financing Receivable, Modifications [Line Items]
Financing Receivable, Modifications, Number of Contracts | Contracts	1	1
Troubled Debt Restructurings, Modification Amount | $	$ 301	$ 362
Accrual Status [Member]
Financing Receivable, Modifications [Line Items]
Financing Receivable, Modifications, Number of Contracts | Contracts	24	24
Troubled Debt Restructurings, Modification Amount | $	$ 9,376	$ 9,687
Accrual Status [Member] | Consumer & other [Member]
Financing Receivable, Modifications [Line Items]
Financing Receivable, Modifications, Number of Contracts | Contracts	0	0
Troubled Debt Restructurings, Modification Amount | $	$ 0	$ 0
Accrual Status [Member] | Construction and Land Development [Member]
Financing Receivable, Modifications [Line Items]
Financing Receivable, Modifications, Number of Contracts | Contracts	0	0
Troubled Debt Restructurings, Modification Amount | $	$ 0	$ 0
Accrual Status [Member] | Commercial Real Estate [Member]
Financing Receivable, Modifications [Line Items]
Financing Receivable, Modifications, Number of Contracts | Contracts	12	12
Troubled Debt Restructurings, Modification Amount | $	$ 6,881	$ 7,073
Accrual Status [Member] | Home Equity Line Real Estate Loans [Member]
Financing Receivable, Modifications [Line Items]
Financing Receivable, Modifications, Number of Contracts | Contracts	0	0
Troubled Debt Restructurings, Modification Amount | $	$ 0	$ 0
Accrual Status [Member] | Residential Real Estate [Member]
Financing Receivable, Modifications [Line Items]
Financing Receivable, Modifications, Number of Contracts | Contracts	11	11
Troubled Debt Restructurings, Modification Amount | $	$ 2,194	$ 2,252
Accrual Status [Member] | Total real estate [Member]
Financing Receivable, Modifications [Line Items]
Financing Receivable, Modifications, Number of Contracts | Contracts	23	23
Troubled Debt Restructurings, Modification Amount | $	$ 9,075	$ 9,325
Accrual Status [Member] | Commercial and Industrial [Member]
Financing Receivable, Modifications [Line Items]
Financing Receivable, Modifications, Number of Contracts | Contracts	1	1
Troubled Debt Restructurings, Modification Amount | $	$ 301	$ 362
Non Accrual Status [Member]
Financing Receivable, Modifications [Line Items]
Financing Receivable, Modifications, Number of Contracts | Contracts	5	4
Troubled Debt Restructurings, Modification Amount | $	$ 2,443	$ 901
Non Accrual Status [Member] | Consumer & other [Member]
Financing Receivable, Modifications [Line Items]
Financing Receivable, Modifications, Number of Contracts | Contracts	0	0
Troubled Debt Restructurings, Modification Amount | $	$ 0	$ 0
Non Accrual Status [Member] | Construction and Land Development [Member]
Financing Receivable, Modifications [Line Items]
Financing Receivable, Modifications, Number of Contracts | Contracts	1	1
Troubled Debt Restructurings, Modification Amount | $	$ 95	$ 175
Non Accrual Status [Member] | Commercial Real Estate [Member]
Financing Receivable, Modifications [Line Items]
Financing Receivable, Modifications, Number of Contracts | Contracts	3	1
Troubled Debt Restructurings, Modification Amount | $	$ 2,193	$ 338
Non Accrual Status [Member] | Home Equity Line Real Estate Loans [Member]
Financing Receivable, Modifications [Line Items]
Financing Receivable, Modifications, Number of Contracts | Contracts	0	0
Troubled Debt Restructurings, Modification Amount | $	$ 0	$ 0
Non Accrual Status [Member] | Residential Real Estate [Member]
Financing Receivable, Modifications [Line Items]
Financing Receivable, Modifications, Number of Contracts | Contracts	1	2
Troubled Debt Restructurings, Modification Amount | $	$ 155	$ 388
Non Accrual Status [Member] | Total real estate [Member]
Financing Receivable, Modifications [Line Items]
Financing Receivable, Modifications, Number of Contracts | Contracts	5	4
Troubled Debt Restructurings, Modification Amount | $	$ 2,443	$ 901
Non Accrual Status [Member] | Commercial and Industrial [Member]
Financing Receivable, Modifications [Line Items]
Financing Receivable, Modifications, Number of Contracts | Contracts	0	0
Troubled Debt Restructurings, Modification Amount | $	$ 0	$ 0

XML

Loans and allowance for loan losses (Details 6) $ in Thousands	3 Months Ended	9 Months Ended
	Sep. 30, 2016 USD ($) Contracts	Sep. 30, 2016 USD ($) Contracts
Financing Receivable, Modifications [Line Items]
Pre-Modification, Number of Contracts | Contracts	1	3
Pre-Modification, Recorded Investment | $	$ 0	$ 2,488
Post-Modification, Number of Contracts | Contracts	1	3
Post-Modification, Recorded Investment | $	$ 95	$ 1,995
Rate Modification [Member]
Financing Receivable, Modifications [Line Items]
Pre-Modification, Number of Contracts | Contracts	0	0
Pre-Modification, Recorded Investment | $	$ 0	$ 0
Post-Modification, Number of Contracts | Contracts	0	0
Post-Modification, Recorded Investment | $	$ 0	$ 0
Term Modification [Member]
Financing Receivable, Modifications [Line Items]
Pre-Modification, Number of Contracts | Contracts	0	2
Pre-Modification, Recorded Investment | $	$ 0	$ 2,488
Post-Modification, Number of Contracts | Contracts	0	2
Post-Modification, Recorded Investment | $	$ 0	$ 1,900
Payment Modification [Member]
Financing Receivable, Modifications [Line Items]
Pre-Modification, Number of Contracts | Contracts	0	0
Pre-Modification, Recorded Investment | $	$ 0	$ 0
Post-Modification, Number of Contracts | Contracts	0	0
Post-Modification, Recorded Investment | $	$ 0	$ 0
Combination Modification [Member]
Financing Receivable, Modifications [Line Items]
Pre-Modification, Number of Contracts | Contracts	1	1
Pre-Modification, Recorded Investment | $	$ 0	$ 0
Post-Modification, Number of Contracts | Contracts	1	1
Post-Modification, Recorded Investment | $	$ 95	$ 95
Construction and development [Member]
Financing Receivable, Modifications [Line Items]
Pre-Modification, Number of Contracts | Contracts	1	1
Pre-Modification, Recorded Investment | $	$ 0	$ 0
Post-Modification, Number of Contracts | Contracts	1	1
Post-Modification, Recorded Investment | $	$ 95	$ 95
Construction and development [Member] | Rate Modification [Member]
Financing Receivable, Modifications [Line Items]
Pre-Modification, Number of Contracts | Contracts	0	0
Pre-Modification, Recorded Investment | $	$ 0	$ 0
Post-Modification, Number of Contracts | Contracts	0	0
Post-Modification, Recorded Investment | $	$ 0	$ 0
Construction and development [Member] | Term Modification [Member]
Financing Receivable, Modifications [Line Items]
Pre-Modification, Number of Contracts | Contracts	0	0
Pre-Modification, Recorded Investment | $	$ 0	$ 0
Post-Modification, Number of Contracts | Contracts	0	0
Post-Modification, Recorded Investment | $	$ 0	$ 0
Construction and development [Member] | Payment Modification [Member]
Financing Receivable, Modifications [Line Items]
Pre-Modification, Number of Contracts | Contracts	0	0
Pre-Modification, Recorded Investment | $	$ 0	$ 0
Post-Modification, Number of Contracts | Contracts	0	0
Post-Modification, Recorded Investment | $	$ 0	$ 0
Construction and development [Member] | Combination Modification [Member]
Financing Receivable, Modifications [Line Items]
Pre-Modification, Number of Contracts | Contracts	1	1
Pre-Modification, Recorded Investment | $	$ 0	$ 0
Post-Modification, Number of Contracts | Contracts	1	1
Post-Modification, Recorded Investment | $	$ 95	$ 95
Commercial Real Estate [Member]
Financing Receivable, Modifications [Line Items]
Pre-Modification, Number of Contracts | Contracts		2
Pre-Modification, Recorded Investment | $		$ 2,488
Post-Modification, Number of Contracts | Contracts		2
Post-Modification, Recorded Investment | $		$ 1,900
Commercial Real Estate [Member] | Rate Modification [Member]
Financing Receivable, Modifications [Line Items]
Pre-Modification, Number of Contracts | Contracts		0
Pre-Modification, Recorded Investment | $		$ 0
Post-Modification, Number of Contracts | Contracts		0
Post-Modification, Recorded Investment | $		$ 0
Commercial Real Estate [Member] | Term Modification [Member]
Financing Receivable, Modifications [Line Items]
Pre-Modification, Number of Contracts | Contracts		2
Pre-Modification, Recorded Investment | $		$ 2,488
Post-Modification, Number of Contracts | Contracts		2
Post-Modification, Recorded Investment | $		$ 1,900
Commercial Real Estate [Member] | Payment Modification [Member]
Financing Receivable, Modifications [Line Items]
Pre-Modification, Number of Contracts | Contracts		0
Pre-Modification, Recorded Investment | $		$ 0
Post-Modification, Number of Contracts | Contracts		0
Post-Modification, Recorded Investment | $		$ 0
Commercial Real Estate [Member] | Combination Modification [Member]
Financing Receivable, Modifications [Line Items]
Pre-Modification, Number of Contracts | Contracts		0
Pre-Modification, Recorded Investment | $		$ 0
Post-Modification, Number of Contracts | Contracts		0
Post-Modification, Recorded Investment | $		$ 0
Real Estate [Member]
Financing Receivable, Modifications [Line Items]
Pre-Modification, Number of Contracts | Contracts	1	3
Pre-Modification, Recorded Investment | $	$ 0	$ 2,488
Post-Modification, Number of Contracts | Contracts	1	3
Post-Modification, Recorded Investment | $	$ 95	$ 1,995
Real Estate [Member] | Rate Modification [Member]
Financing Receivable, Modifications [Line Items]
Pre-Modification, Number of Contracts | Contracts	0	0
Pre-Modification, Recorded Investment | $	$ 0	$ 0
Post-Modification, Number of Contracts | Contracts	0	0
Post-Modification, Recorded Investment | $	$ 0	$ 0
Real Estate [Member] | Term Modification [Member]
Financing Receivable, Modifications [Line Items]
Pre-Modification, Number of Contracts | Contracts	0	2
Pre-Modification, Recorded Investment | $	$ 0	$ 2,488
Post-Modification, Number of Contracts | Contracts	0	2
Post-Modification, Recorded Investment | $	$ 0	$ 1,900
Real Estate [Member] | Payment Modification [Member]
Financing Receivable, Modifications [Line Items]
Pre-Modification, Number of Contracts | Contracts	0	0
Pre-Modification, Recorded Investment | $	$ 0	$ 0
Post-Modification, Number of Contracts | Contracts	0	0
Post-Modification, Recorded Investment | $	$ 0	$ 0
Real Estate [Member] | Combination Modification [Member]
Financing Receivable, Modifications [Line Items]
Pre-Modification, Number of Contracts | Contracts	1	1
Pre-Modification, Recorded Investment | $	$ 0	$ 0
Post-Modification, Number of Contracts | Contracts	1	1
Post-Modification, Recorded Investment | $	$ 95	$ 95
Commercial and Industrial [Member]
Financing Receivable, Modifications [Line Items]
Pre-Modification, Number of Contracts | Contracts		0
Pre-Modification, Recorded Investment | $		$ 0
Post-Modification, Number of Contracts | Contracts		0
Post-Modification, Recorded Investment | $		$ 0
Commercial and Industrial [Member] | Rate Modification [Member]
Financing Receivable, Modifications [Line Items]
Pre-Modification, Number of Contracts | Contracts		0
Pre-Modification, Recorded Investment | $		$ 0
Post-Modification, Number of Contracts | Contracts		0
Post-Modification, Recorded Investment | $		$ 0
Commercial and Industrial [Member] | Term Modification [Member]
Financing Receivable, Modifications [Line Items]
Pre-Modification, Number of Contracts | Contracts		0
Pre-Modification, Recorded Investment | $		$ 0
Post-Modification, Number of Contracts | Contracts		0
Post-Modification, Recorded Investment | $		$ 0
Commercial and Industrial [Member] | Payment Modification [Member]
Financing Receivable, Modifications [Line Items]
Pre-Modification, Number of Contracts | Contracts		0
Pre-Modification, Recorded Investment | $		$ 0
Post-Modification, Number of Contracts | Contracts		0
Post-Modification, Recorded Investment | $		$ 0
Commercial and Industrial [Member] | Combination Modification [Member]
Financing Receivable, Modifications [Line Items]
Pre-Modification, Number of Contracts | Contracts		0
Pre-Modification, Recorded Investment | $		$ 0
Post-Modification, Number of Contracts | Contracts		0
Post-Modification, Recorded Investment | $		$ 0
Consumer & other [Member]
Financing Receivable, Modifications [Line Items]
Pre-Modification, Number of Contracts | Contracts	0
Pre-Modification, Recorded Investment | $	$ 0
Post-Modification, Number of Contracts | Contracts	0
Post-Modification, Recorded Investment | $	$ 0
Consumer & other [Member] | Rate Modification [Member]
Financing Receivable, Modifications [Line Items]
Pre-Modification, Number of Contracts | Contracts	0
Pre-Modification, Recorded Investment | $	$ 0
Post-Modification, Number of Contracts | Contracts	0
Post-Modification, Recorded Investment | $	$ 0
Consumer & other [Member] | Term Modification [Member]
Financing Receivable, Modifications [Line Items]
Pre-Modification, Number of Contracts | Contracts	0
Pre-Modification, Recorded Investment | $	$ 0
Post-Modification, Number of Contracts | Contracts	0
Post-Modification, Recorded Investment | $	$ 0
Consumer & other [Member] | Payment Modification [Member]
Financing Receivable, Modifications [Line Items]
Pre-Modification, Number of Contracts | Contracts	0
Pre-Modification, Recorded Investment | $	$ 0
Post-Modification, Number of Contracts | Contracts	0
Post-Modification, Recorded Investment | $	$ 0
Consumer & other [Member] | Combination Modification [Member]
Financing Receivable, Modifications [Line Items]
Pre-Modification, Number of Contracts | Contracts	0
Pre-Modification, Recorded Investment | $	$ 0
Post-Modification, Number of Contracts | Contracts	0
Post-Modification, Recorded Investment | $	$ 0

XML

Loans and allowance for loan losses (Details 7) $ in Thousands	9 Months Ended
	Sep. 30, 2016 USD ($) Contracts	Sep. 30, 2015 USD ($) Contracts
TDRs with a payment default occurring within 12 months of restructure, Contracts | Contracts	2	0
TDRs with a payment default occurring within 12 months of restructure, Amount | $	$ 1,900	$ 0
Commercial Real Estate [Member]
TDRs with a payment default occurring within 12 months of restructure, Contracts | Contracts	2	0
TDRs with a payment default occurring within 12 months of restructure, Amount | $	$ 1,900	$ 0
Residential Real Estate [Member]
TDRs with a payment default occurring within 12 months of restructure, Contracts | Contracts	0	0
TDRs with a payment default occurring within 12 months of restructure, Amount | $	$ 0	$ 0
Real Estate [Member]
TDRs with a payment default occurring within 12 months of restructure, Contracts | Contracts	2	0
TDRs with a payment default occurring within 12 months of restructure, Amount | $	$ 1,900	$ 0
Commercial and Industrial [Member]
TDRs with a payment default occurring within 12 months of restructure, Contracts | Contracts	0	0
TDRs with a payment default occurring within 12 months of restructure, Amount | $	$ 0	$ 0

XML

Loans and allowance for loan losses (Details Textual) - USD ($)	Sep. 30, 2016	Dec. 31, 2015
Accounts, Notes, Loans and Financing Receivable [Line Items]
Impaired Loans, with Related Allowance, Recorded Investment	$ 10,021,000	$ 8,817,000
Commitments For Troubled Debt Restructurings	426,000
Financing Receivable, Recorded Investment, Nonaccrual Status	4,392,000	3,110,000
Impaired Loans [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Impaired Loans, with Related Allowance, Recorded Investment	15,290,000	$ 14,394,000
One To Four Family Residential Properties [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Impaired Financing Receivable, Unpaid Principal Balance, Total	$ 592,000

XML

Fair value measurements (Details) - Fair Value, Measurements, Recurring [Member] - Fair Value, Inputs, Level 3 [Member] - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Line Items]
Beginning balance	$ 393	$ 0
Gains included in other income	75	716
Transfers in and out	0	0
Ending balance	$ 468	$ 716

XML

Fair value measurements (Details 1) - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets Measured at Fair Value	$ 84,287	$ 87,306
Fair Value, Inputs, Level 1 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets Measured at Fair Value	(199)	25
Fair Value, Inputs, Level 2 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets Measured at Fair Value	84,018	86,888
Fair Value, Inputs, Level 3 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets Measured at Fair Value	468	393
Interest Rate Lock Commitments [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets Measured at Fair Value	468	393
Interest Rate Lock Commitments [Member] | Fair Value, Inputs, Level 1 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets Measured at Fair Value	0	0
Interest Rate Lock Commitments [Member] | Fair Value, Inputs, Level 2 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets Measured at Fair Value	0	0
Interest Rate Lock Commitments [Member] | Fair Value, Inputs, Level 3 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets Measured at Fair Value	468	393
Available-for-sale Securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets Measured at Fair Value	41,458	47,360
Available-for-sale Securities [Member] | Fair Value, Inputs, Level 1 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets Measured at Fair Value	56	55
Available-for-sale Securities [Member] | Fair Value, Inputs, Level 2 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets Measured at Fair Value	41,402	47,305
Available-for-sale Securities [Member] | Fair Value, Inputs, Level 3 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets Measured at Fair Value	0	0
Loans Held For Sale [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets Measured at Fair Value	42,616	39,583
Loans Held For Sale [Member] | Fair Value, Inputs, Level 1 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets Measured at Fair Value	0	0
Loans Held For Sale [Member] | Fair Value, Inputs, Level 2 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets Measured at Fair Value	42,616	39,583
Loans Held For Sale [Member] | Fair Value, Inputs, Level 3 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets Measured at Fair Value	0	0
Asset-backed Securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets Measured at Fair Value	3,292	3,732
Asset-backed Securities [Member] | Fair Value, Inputs, Level 1 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets Measured at Fair Value	0	0
Asset-backed Securities [Member] | Fair Value, Inputs, Level 2 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets Measured at Fair Value	3,292	3,732
Asset-backed Securities [Member] | Fair Value, Inputs, Level 3 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets Measured at Fair Value	0	0
Municipal securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets Measured at Fair Value	16,821	17,656
Municipal securities [Member] | Fair Value, Inputs, Level 1 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets Measured at Fair Value	0	0
Municipal securities [Member] | Fair Value, Inputs, Level 2 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets Measured at Fair Value	16,821	17,656
Municipal securities [Member] | Fair Value, Inputs, Level 3 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets Measured at Fair Value	0	0
Mortgage-backed securities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets Measured at Fair Value	12,187	16,978
Mortgage-backed securities | Fair Value, Inputs, Level 1 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets Measured at Fair Value	0	0
Mortgage-backed securities | Fair Value, Inputs, Level 2 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets Measured at Fair Value	12,187	16,978
Mortgage-backed securities | Fair Value, Inputs, Level 3 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets Measured at Fair Value	0	0
Corporate securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets Measured at Fair Value	9,102	8,939
Corporate securities [Member] | Fair Value, Inputs, Level 1 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets Measured at Fair Value	0	0
Corporate securities [Member] | Fair Value, Inputs, Level 2 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets Measured at Fair Value	9,102	8,939
Corporate securities [Member] | Fair Value, Inputs, Level 3 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets Measured at Fair Value	0	0
Unrestricted Stock [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets Measured at Fair Value	56	55
Unrestricted Stock [Member] | Fair Value, Inputs, Level 1 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets Measured at Fair Value	56	55
Unrestricted Stock [Member] | Fair Value, Inputs, Level 2 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets Measured at Fair Value	0	0
Unrestricted Stock [Member] | Fair Value, Inputs, Level 3 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets Measured at Fair Value	0	0
Unrealized losses on forward sale mortgage-backed securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets Measured at Fair Value	(255)	(30)
Unrealized losses on forward sale mortgage-backed securities [Member] | Fair Value, Inputs, Level 1 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets Measured at Fair Value	(255)	(30)
Unrealized losses on forward sale mortgage-backed securities [Member] | Fair Value, Inputs, Level 2 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets Measured at Fair Value	0	0
Unrealized losses on forward sale mortgage-backed securities [Member] | Fair Value, Inputs, Level 3 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets Measured at Fair Value	$ 0	$ 0

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Fair value measurements (Details 2) - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets measured at fair value on a non-recurring basis	$ 18,004	$ 18,153
Fair Value, Inputs, Level 1 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets measured at fair value on a non-recurring basis	0	0
Fair Value, Inputs, Level 2 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets measured at fair value on a non-recurring basis	3,460	4,400
Fair Value, Inputs, Level 3 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets measured at fair value on a non-recurring basis	14,544	13,753
Impaired Loans [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets measured at fair value on a non-recurring basis	14,090	13,561
Impaired Loans [Member] | Fair Value, Inputs, Level 1 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets measured at fair value on a non-recurring basis	0	0
Impaired Loans [Member] | Fair Value, Inputs, Level 2 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets measured at fair value on a non-recurring basis	3,460	4,400
Impaired Loans [Member] | Fair Value, Inputs, Level 3 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets measured at fair value on a non-recurring basis	10,630	9,161
Other Real Estate Owned [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets measured at fair value on a non-recurring basis	3,914	4,592
Other Real Estate Owned [Member] | Fair Value, Inputs, Level 1 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets measured at fair value on a non-recurring basis	0	0
Other Real Estate Owned [Member] | Fair Value, Inputs, Level 2 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets measured at fair value on a non-recurring basis	0	0
Other Real Estate Owned [Member] | Fair Value, Inputs, Level 3 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Assets measured at fair value on a non-recurring basis	$ 3,914	$ 4,592

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Fair value measurements (Details 3) - USD ($) $ in Thousands	9 Months Ended	12 Months Ended
	Sep. 30, 2016	Dec. 31, 2015
Fair Value Measurements, Recurring and Nonrecurring, Valuation Techniques [Line Items]
Fair Value	$ 84,287	$ 87,306
Fair Value	18,004	18,153
Impaired Loans [Member]
Fair Value Measurements, Recurring and Nonrecurring, Valuation Techniques [Line Items]
Fair Value	14,090	13,561
Other Real Estate Owned [Member]
Fair Value Measurements, Recurring and Nonrecurring, Valuation Techniques [Line Items]
Fair Value	3,914	4,592
Interest Rate Lock Commitments [Member]
Fair Value Measurements, Recurring and Nonrecurring, Valuation Techniques [Line Items]
Fair Value	468	393
Fair Value, Inputs, Level 3 [Member]
Fair Value Measurements, Recurring and Nonrecurring, Valuation Techniques [Line Items]
Fair Value	468	393
Fair Value	14,544	13,753
Fair Value, Inputs, Level 3 [Member] | Impaired Loans [Member]
Fair Value Measurements, Recurring and Nonrecurring, Valuation Techniques [Line Items]
Fair Value	$ 10,630	$ 9,161
Fair Value, Inputs, Level 3 [Member] | Impaired Loans [Member] | Collateral Discounts [Member]
Fair Value Measurements, Recurring and Nonrecurring, Valuation Techniques [Line Items]
Fair Value Measurements, Valuation Techniques	Discounted appraisals	Discounted appraisals
Fair Value Measurements, Significant Unobservable Inputs	Collateral discounts	Collateral discounts
Fair Value, Inputs, Level 3 [Member] | Impaired Loans [Member] | Cashflow Estimates [Member]
Fair Value Measurements, Recurring and Nonrecurring, Valuation Techniques [Line Items]
Fair Value Measurements, Valuation Techniques	Discounted cash flows	Discounted cash flows
Fair Value Measurements, Significant Unobservable Inputs	Cash flow estimates/ discounted rates	Cash flow estimates/discounted rates
Fair Value, Inputs, Level 3 [Member] | Impaired Loans [Member] | Minimum [Member] | Collateral Discounts [Member]
Fair Value Measurements, Recurring and Nonrecurring, Valuation Techniques [Line Items]
Estimated percentage of collateral discount rate	8.00%	8.00%
Fair Value, Inputs, Level 3 [Member] | Impaired Loans [Member] | Minimum [Member] | Cashflow Estimates [Member]
Fair Value Measurements, Recurring and Nonrecurring, Valuation Techniques [Line Items]
Estimated percentage of collateral discount rate	80.00%	80.00%
Fair Value, Inputs, Level 3 [Member] | Impaired Loans [Member] | Maximum [Member] | Collateral Discounts [Member]
Fair Value Measurements, Recurring and Nonrecurring, Valuation Techniques [Line Items]
Estimated percentage of collateral discount rate	10.00%	10.00%
Fair Value, Inputs, Level 3 [Member] | Impaired Loans [Member] | Maximum [Member] | Cashflow Estimates [Member]
Fair Value Measurements, Recurring and Nonrecurring, Valuation Techniques [Line Items]
Estimated percentage of collateral discount rate	100.00%	100.00%
Fair Value, Inputs, Level 3 [Member] | Other Real Estate Owned [Member]
Fair Value Measurements, Recurring and Nonrecurring, Valuation Techniques [Line Items]
Fair Value	$ 3,914	$ 4,592
Fair Value Measurements, Valuation Techniques	Discounted appraisals	Discounted appraisals
Fair Value Measurements, Significant Unobservable Inputs	Collateral discounts	Collateral discounts
Fair Value, Inputs, Level 3 [Member] | Other Real Estate Owned [Member] | Minimum [Member] | Collateral Discounts [Member]
Fair Value Measurements, Recurring and Nonrecurring, Valuation Techniques [Line Items]
Estimated percentage of collateral discount rate	8.00%	8.00%
Fair Value, Inputs, Level 3 [Member] | Other Real Estate Owned [Member] | Maximum [Member] | Collateral Discounts [Member]
Fair Value Measurements, Recurring and Nonrecurring, Valuation Techniques [Line Items]
Estimated percentage of collateral discount rate	10.00%	10.00%
Fair Value, Inputs, Level 3 [Member] | Interest Rate Lock Commitments [Member]
Fair Value Measurements, Recurring and Nonrecurring, Valuation Techniques [Line Items]
Fair Value	$ 468	$ 393
Fair Value Measurements, Valuation Techniques	Pricing models	Pricing models
Fair Value Measurements, Significant Unobservable Inputs	Loan closing ratios	Loan closing ratios
Fair Value, Inputs, Level 3 [Member] | Interest Rate Lock Commitments [Member] | Minimum [Member] | Loan closing ratios [Member]
Fair Value Measurements, Recurring and Nonrecurring, Valuation Techniques [Line Items]
Estimated closing ratio based on percentage of completion	68.00%	25.00%
Fair Value, Inputs, Level 3 [Member] | Interest Rate Lock Commitments [Member] | Maximum [Member] | Loan closing ratios [Member]
Fair Value Measurements, Recurring and Nonrecurring, Valuation Techniques [Line Items]
Estimated closing ratio based on percentage of completion	100.00%	100.00%
Fair Value, Inputs, Level 3 [Member] | Interest Rate Lock Commitments [Member] | Weighted Average [Member] | Loan closing ratios [Member]
Fair Value Measurements, Recurring and Nonrecurring, Valuation Techniques [Line Items]
Estimated average closing ratio based on percentage of completion	82.00%	81.00%

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Fair value measurements (Details 4) - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
Financial Instruments - Assets, Carrying Amount
Bank term deposits, Carrying Amount	$ 15,139	$ 16,604
Investment securities held-to-maturity, Carrying Amount	14,031	14,954
Net non-impaired loans held for investment, Carrying Amount	483,372	446,371
Financial Instruments - Liabilities, Carrying Amount
Time deposits, Carrying Amount	103,062	132,303
Advances from the Federal Home Loan Bank, Carrying Amount	12,100	2,681
Subordinated debentures	19,610	19,610
Financial Instruments - Assets, Fair Value
Bank term deposits, Fair Value	15,152	16,571
Investment securities held-to-maturity, Fair Value	14,557	15,226
Net non-impaired loans held for investment, Fair Value	483,695	446,535
Financial Instruments - Liabilities ,Fair Value
Time deposits, Fair Value	103,257	131,889
Advances from the Federal Home Loan Bank, Fair Value	12,264	2,681
Subordinated debentures, Fair Value	17,169	17,018
Fair Value, Inputs, Level 1 [Member]
Financial Instruments - Assets, Fair Value
Bank term deposits, Fair Value	0	0
Investment securities held-to-maturity, Fair Value	0	0
Net non-impaired loans held for investment, Fair Value	0	0
Financial Instruments - Liabilities ,Fair Value
Time deposits, Fair Value	0	0
Advances from the Federal Home Loan Bank, Fair Value	0	0
Subordinated debentures, Fair Value	0	0
Fair Value, Inputs, Level 2 [Member]
Financial Instruments - Assets, Fair Value
Bank term deposits, Fair Value	15,152	16,571
Investment securities held-to-maturity, Fair Value	14,557	15,226
Net non-impaired loans held for investment, Fair Value	0	0
Financial Instruments - Liabilities ,Fair Value
Time deposits, Fair Value	0	0
Advances from the Federal Home Loan Bank, Fair Value	0	0
Subordinated debentures, Fair Value	0	0
Fair Value, Inputs, Level 3 [Member]
Financial Instruments - Assets, Fair Value
Bank term deposits, Fair Value	0	0
Investment securities held-to-maturity, Fair Value	0	0
Net non-impaired loans held for investment, Fair Value	483,695	446,535
Financial Instruments - Liabilities ,Fair Value
Time deposits, Fair Value	103,257	131,889
Advances from the Federal Home Loan Bank, Fair Value	12,264	2,681
Subordinated debentures, Fair Value	$ 17,169	$ 17,018

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Fair value measurements (Details Textual)	9 Months Ended
	Sep. 30, 2016
Fair Value of Financial Statements [Line Items]
Fair Value Assumption For Trust Preferred Debt	discounting cash flows using a rate 3% higher than the actual current rate over an estimated remaining term of 11.25 years in 2016 and 12 years in 2015. The trust preferred debt was issued at favorable rates in 2004, and current rates are approximately 3% higher when available. Under the current capital guidelines, the Companys trust preferred subordinated debt is included in Tier 1 capital.

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Derivatives and financial instruments (Details) - Designated as Hedging Instrument [Member] - USD ($) $ in Thousands	9 Months Ended	12 Months Ended
	Sep. 30, 2016	Dec. 31, 2015
Mortgage Loan Interest Rate Lock Commitments Hedged Through Best Efforts Sales Commitments [Member]
Derivative Instruments and Hedging Activities Disclosures [Line Items]
Derivative Instruments and Hedges, Assets, Total	$ 108	$ 355
Derivative Instruments and Hedges, Liabilities, Total	5	17
Derivative, Gain (Loss) on Derivative, Net, Total	(235)	338
Derivative, Notional Amount	16,900	36,194
Mortgage Loan Interest Rate Lock Commitments Hedged Through Mortgage-Backed Securities Forward Sales [Member]
Derivative Instruments and Hedging Activities Disclosures [Line Items]
Derivative Instruments and Hedges, Assets, Total	368	65
Derivative Instruments and Hedges, Liabilities, Total	3	10
Derivative, Gain (Loss) on Derivative, Net, Total	310	55
Derivative, Notional Amount	26,061	7,140
Mortgage Backed Securities Forward Sales [Member]
Derivative Instruments and Hedging Activities Disclosures [Line Items]
Derivative Instruments and Hedges, Assets, Total	0	2
Derivative Instruments and Hedges, Liabilities, Total	255	32
Derivative, Gain (Loss) on Derivative, Net, Total	(224)	(30)
Derivative, Notional Amount	$ 48,000	$ 14,250

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Derivatives and financial instruments (Details 1) - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
Derivative [Line Items]
Loans held for sale, Aggregate Fair Value	$ 42,616	$ 39,583
Loans held for sale, Aggregate Unpaid Principal	41,697	38,925
Loans held for sale, Aggregate Fair Value Less Aggregate Unpaid Principal	$ 919	$ 658

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Derivatives and financial instruments (Details 2) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015
Derivative [Line Items]
Net gains resulting from changes in fair value	$ 261	$ 774

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Commitments (Details) $ in Thousands	Sep. 30, 2016 USD ($)
Operating Leased Assets [Line Items]
Due in one year	$ 348
Due in Years 2 and 3	671
Due in Years 4 and 5	535
Due after Year 5	2,340
Operating Leases, Future Minimum Payments Due	$ 3,894

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Commitments (Details Textual) - USD ($)	Sep. 30, 2016	Dec. 31, 2015
Standby Letters of Credit [Member]
Commitments And Contingencies [Line Items]
Letters of Credit Outstanding, Amount	$ 1,591,000	$ 1,224,000
Unused lines of Credit [Member]
Commitments And Contingencies [Line Items]
Pre Approved But Unused Lines Of Credit Granted To Loan Customers	$ 194,143,000	$ 190,789,000