8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

____________

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

Date of report (Date of earliest event reported) December 27, 2017

1ST CONSTITUTION BANCORP

(Exact Name of Registrant as Specified in Charter)

New Jersey	000-32891	22-3665653
(State or Other Jurisdiction of Incorporation)	(Commission File Number)	(IRS Employer Identification Number)

2650 Route 130, P.O. Box 634, Cranbury, New Jersey	08512
(Address of Principal Executive Offices)	(Zip Code)

Registrant’s telephone number, including area code 609-655-4500

Not Applicable

(Former Name or Former Address, if Changed Since Last Report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

X      Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o      Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o      Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o      Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging Growth Company o

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

Item 8.01    Other Events.

Revisions to Annual Report on Form 10-K/A for the Year ended December 31, 2016 and Quarterly Report on Form 10-Q for the Three Months Ended March 31, 2017

1st Constitution Bancorp (the “Company”) filed its Annual Report on Form 10-K/A for the year ended December 31, 2016 (the “2016 Form 10-K/A”) with the Securities and Exchange Commission (the “Commission”) on March 20, 2017 and filed its Quarterly Report on Form 10-Q for the three months ended March 31, 2017 (the “1Q 2017 Form 10-Q”) with the Commission on May 9, 2017.

Prior to the filing of the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2017, the Company identified a classification error concerning its presentation of the amortization of deferred loan origination costs in the Company’s Consolidated Statements of Income. The Company determined that it incorrectly classified the amortization of deferred loan origination costs in other expenses when it should have been included in loan interest income in its previous filings. This error did not result in any effect on pre-tax income, after-tax income, basic and diluted earnings per share, statements of cash flows, balance sheets, book value, return on assets, return on equity or regulatory capital ratios in any historical period. The effect on the Company’s Consolidated Statements of Income for these periods was an overstatement of loan interest income and an overstatement of non-interest expenses in the Consolidated Statements of Income by an equal amount.

The Company is filing this Current Report on Form 8-K (this “Form 8-K”) to provide updated and revised versions of the following financial statements and related financial disclosures to correct the misclassification error referred to above:

• Audited Consolidated Financial Statements for each of the two years in the period ended December 31, 2016, and related financial disclosures and Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) set forth in the 2016 Form 10-K/A.

• Unaudited Consolidated Financial Statements for the three month periods ended March 31, 2017 and March 31, 2016, and related financial disclosures, and MD&A, set forth in the 1Q 2017 Form 10-Q.

The revisions set forth in the foregoing are not considered to be material to the Company’s Consolidated Financial Statements included in the 2016 Form 10-K/A or the 1Q 2017 Form 10-Q, or in any other period contained in any other report filed by the Company with the Commission. These revisions do not change the Company’s previously reported net income for any reporting period contained in the 2016 Form 10-K/A or the 1Q 2017 Form 10-Q.

The information presented in the exhibits to this Form 8-K supersedes the corresponding respective disclosures in the 2016 Form 10-K/A and the 1Q 2017 Form 10-Q. This Form 8-K does not reflect events occurring after the filing of the 1Q 2017 Form 10-Q and does not modify or update the disclosures in the 2016 Form 10-K/A or the 1Q 2017 Form 10-Q in any way, other than as described herein (including in the exhibits hereto). Other significant developments with respect to the Company have occurred subsequent to March 31, 2017, as are more fully described in the Company’s filings with the Commission subsequent to the 1Q 2017 Form 10-Q, including matters disclosed in the Company’s Quarterly Reports on Forms 10-Q for the quarters ended June 30, 2017 and September 30, 2017, and in the Company’s Current Reports on Form 8-K filed with the Commission.

Cautionary Language Concerning Forward-Looking Statements

Certain information set forth in this document constitute forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and the rules, regulations and releases of the Commission. Such forward-looking statements include, but are not limited to, statements about the Company’s expectations with respect to the potential impact of proposed tax legislation, as well as the Company’s beliefs, goals, plans or prospects. Any statements that are not statements of historical fact, including statements containing such words as “will,” “could,” “plans,” “intends,” “expect,” “believe,” “view,” “opportunity,” “allow,” “continues,” “reflects,” “typically,” “anticipate,” “estimated,” or similar expressions, should also be considered forward-looking statements, although not all forward-looking statements contain these identifying words. Readers should not place undue influence on these forward-looking statements, which speak only as of the date hereof. Such statements are based upon the current beliefs and expectations of the management of the Company and are subject to significant risks and uncertainties outside of our control.

Among the risks and uncertainties that could cause actual results to differ from those described in the forward-looking statements include, but are not limited to, the factors described under “Business,” “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the 2016 Form 10-K, and those contained in other reports filed by the Company with the Commission. Such factors include, but are not limited to, the overall economy and the interest rate environment; the ability of customers to repay their obligations; competition; significant changes in accounting, tax or regulatory practices and requirements; certain interest rate risks; and risks associated with speculative construction lending. Although management has taken certain steps to mitigate any negative effect of the aforementioned items, significant unfavorable changes could severely impact the assumptions used and could have an adverse effect on profitability. The Company undertakes no obligation to update, alter, or otherwise revise any forward-looking statements, whether written or oral, that may be made from time to time, whether as a result of new information, future events, or otherwise.

No Offer or Solicitation

On November 6, 2017, the Company and its primary operating subsidiary, 1st Constitution Bank (the “Bank”), entered into an Agreement and Plan of Merger (the “Merger Agreement”) with New Jersey Community Bank (“NJCB”), providing for the merger of NJCB with and into the Bank, with the Bank as the surviving entity (the “Merger”). The material terms of the Merger Agreement and the Merger were disclosed on a Current Report on Form 8-K filed with the Commission on November 7, 2017.

This communication shall not constitute an offer to sell or the solicitation of an offer to buy any securities or a solicitation of any vote or approval, nor shall there be any sale of securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to the registration or qualification under the securities laws of any such jurisdiction. No offer of securities shall be made except by means of a prospectus meeting the requirements of Section 10 of the Securities Act of 1933, as amended.

Additional Information and Where to Find It

In connection with the Merger, the Company intends to file a registration statement on Form S-4 with the Commission. The Company may file other documents with the Commission regarding the proposed Merger. A definitive proxy statement-prospectus will be mailed to the shareholders of NJCB. INVESTORS AND SECURITY HOLDERS ARE ADVISED TO READ THE PROXY STATEMENT-PROSPECTUS WHEN IT BECOMES AVAILABLE, AND ANY OTHER RELEVANT DOCUMENTS FILED WITH THE COMMISSION, AS WELL AS ANY AMENDMENTS OR SUPPLEMENTS TO SUCH DOCUMENTS,

BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION.  Investors and security holders may obtain a free copy of the registration statement (when available), including the proxy statement-prospectus, and other documents containing information about the Company at the Commission’s website at www.sec.gov.  Copies of these documents may also be obtained from the Company (when available) by directing a request to Robert F. Mangano, President and Chief Executive Officer, 1st Constitution Bancorp, at 2650 Route 130 North, P.O. Box 634, Cranbury, New Jersey 08512, telephone (609) 655-4500.

Certain Information Regarding Participants

The Company, NJCB, their respective directors and executive officers and other persons may be deemed to be participants in the solicitation of proxies from NJCB’s shareholders in respect of the proposed Merger.  Information regarding the directors and executive officers of the Company may be found in its definitive proxy statement relating to its 2017 Annual Meeting of Shareholders, which was filed with the Commission on April 24, 2017 and can be obtained free of charge from the Commission’s website at www.sec.gov or from the Company by directing a request to Robert F. Mangano, President and Chief Executive Officer, 1st Constitution Bancorp, at 2650 Route 130 North, P.O. Box 634, Cranbury, New Jersey 08512, telephone (609) 655-4500.  Information regarding the directors and executive officers of NJCB may be found in its proxy statement relating to its 2017 Annual Meeting of Shareholders, which can be obtained free of charge from William H. Placke, President and Chief Executive Officer, New Jersey Community Bank, at 3441 U.S. Highway 9, Freehold, New Jersey 07728, telephone (732) 431-2265.  Other information regarding the participants in the proxy solicitation and a description of their direct and indirect interests, by security holdings or otherwise, will be contained in the proxy statement-prospectus and other relevant materials to be filed with the Commission when they become available.

Item 9.01.                      Financial Statements and Exhibits.

(d) Exhibits

Exhibit No.	Title
23.1	Consent of Independent Registered Public Accounting Firm
99.1	Updated Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations, from the Registrant’s Annual Report on Form 10-K/A for the fiscal year ended December 31, 2016 filed with the Securities and Exchange Commission on March 20, 2017
99.2	Updated Part II, Item 8. Financial Statements and Supplementary Data, from the Registrant’s Annual Report on Form 10-K/A for the fiscal year ended December 31, 2016 filed with the Securities and Exchange Commission on March 20, 2017
99.3	Updated Part I, Item 1. Financial Statements, from the Registrant’s Quarterly Report on Form 10-Q for the three months ended March 31, 2017 filed with the Securities and Exchange Commission on May 9, 2017
99.4	Updated Part I, Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations, from the Registrant’s Quarterly Report on Form 10-Q for the three months ended March 31, 2017 filed with the Securities and Exchange Commission on May 9, 2017
101.1	The following materials from the Registrant’s Annual Report on Form 10-K/A for the fiscal year ended December 31, 2016, formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Income, (iii) the Consolidated Statements of Comprehensive Income, (iv) the Consolidated Statements of Changes in Shareholders’ Equity (v) the Consolidated Statements of Cash Flows, and (vi) Notes to Consolidated Financial Statements.
101.2	The following materials from the Registrant’s Quarterly Report on Form 10-Q for the three months ended March 31, 2017, formatted in XBRL (Extensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Income, (iii) the Consolidated Statements of Comprehensive Income, (iv) the Consolidated Statements of Changes in Shareholders’ Equity (v) the Consolidated Statements of Cash Flows, and (vi) Notes to Consolidated Financial Statements.

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 hereunto duly authorized.

	1ST CONSTITUTION BANCORP
Date: December 27, 2017	By:	/s/ Robert F. Mangano
	Name:	Robert F. Mangano
	Title:	President and Chief Executive Officer

EX-23.1

Exhibit 23.1

Consent of Independent Registered Public Accounting Firm

1st Constitution Bancorp

Cranbury, New Jersey

We hereby consent to the incorporation by reference in the Registration Statements on Forms S-8 (No. 333-188843, No. 333-184412, No. 333-143188, No. 333-132474, and No. 333-204552) of 1^st Constitution Bancorp of our reports dated March 20, 2017 (except for the consolidated statements of income, Note 1, Note 17 and Note 22 as to which the date is December 27, 2017), relating to the consolidated financial statements and effectiveness of 1^st Constitution Bancorp’s internal control over financial reporting, which appear in the Current Report on Form 8-K of 1st Constitution Bancorp, dated December 27, 2017. Our report on the effectiveness of internal controls over financial reporting expresses an adverse opinion on the effectiveness of the Company’s internal control over financial reporting as of December 31, 2016.

/s/ BDO USA, LLP

Philadelphia, Pennsylvania

December 27, 2017

EX-99.1

Exhibit 99.1

Updated Item 7.  Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Note:    The information contained in this Item has been updated for the classification error as further detailed in the Current Report on Form 8-K filed herewith. This item has not been updated for any other changes since the filing of the 2016 Form 10-K/A. For significant developments since the filing of the 2016 Form 10-K/A, refer to our filings with the SEC.

This discussion should be read in conjunction with the consolidated financial statements, notes and tables included elsewhere in this report.  Throughout the following sections, the “Company” refers to 1^st Constitution Bancorp and, as the context requires, its wholly-owned subsidiary, 1^st Constitution Bank (the “Bank”) and the Bank’s wholly-owned subsidiaries as of December 31, 2016, which were 1^st Constitution Investment Company of New Jersey, Inc., FCB Assets Holdings, Inc.,  204 South Newman Street Corp. and 249 New York Avenue, LLC. 1^st Constitution Capital Trust II (“Trust II”), a subsidiary of the Company as of December 31, 2016, is not included in the Company’s consolidated financial statements as it is a variable interest entity and the Company is not the primary beneficiary.  The purpose of this discussion and analysis is to assist in the understanding and evaluation of the Company’s financial condition, changes in financial condition and results of operations.

Critical Accounting Policies and Estimates

“Management’s Discussion and Analysis of Financial Condition and Results of Operations” is based upon the Company’s consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP").  The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses.  Note 1 to the Company’s Consolidated Financial Statements for the year ended December 31, 2016 contains a summary of the Company’s significant accounting policies.

Management believes the Company’s policies with respect to the methodologies for the determination of the allowance for loan losses and for determining other-than-temporary security impairment involve a higher degree of complexity and requires management to make difficult and subjective judgments which often require assumptions or estimates about highly uncertain matters. Changes in these judgments, assumptions or estimates could materially impact results of operations.  These critical policies and their application are periodically reviewed with the Audit Committee and the Board of Directors.  The provision for loan losses is based upon management’s evaluation of the adequacy of the allowance, including an assessment of known and inherent risks in the portfolio, giving consideration to the size and composition of the loan portfolio, actual loan loss experience, level of delinquencies, detailed analysis of individual loans for which full collectability may not be assured, the existence and estimated net realizable value of any underlying collateral and guarantees securing the loans, and current economic and market conditions.  Although management uses the best information available to it, the level of the allowance for loan losses remains an estimate which is subject to significant judgment and short-term change. Various regulatory agencies, as an integral part of their examination process, periodically review the Company’s allowance for loan losses.  Such agencies may require the Company to make additional provisions for loan losses based upon information available to them at the time of their examination.  Furthermore, the majority of the Company’s loans are secured by real estate in the State of New Jersey.  Accordingly, the collectability of a substantial portion of the carrying value of the Company’s loan portfolio is susceptible to changes in local market conditions and may be adversely affected should real estate values decline or should the New Jersey market area experience an adverse economic shock.  Future adjustments to the allowance for loan losses may be necessary due to economic, operating, regulatory and other conditions beyond the Company’s control.

Real estate acquired through foreclosure, or a deed-in-lieu of foreclosure is recorded at fair value less estimated selling costs at the date of acquisition or transfer, and subsequently at the lower of its new cost or fair value less estimated selling costs.  Adjustments to the carrying value at the date of acquisition or transfer are charged to the allowance for loan losses. The carrying value of the individual properties is subsequently adjusted to the extent it exceeds estimated fair value less estimated selling costs, at which time a provision for losses on such real estate is charged to operations.  Appraisals are critical in determining the fair value of the other real estate owned amount.  Assumptions for appraisals are instrumental in determining the value of properties.  Overly optimistic assumptions or negative changes to assumptions could significantly affect the valuation of a property.  The assumptions supporting such appraisals are carefully reviewed by management to determine that the resulting values reasonably reflect amounts realizable.

Management utilizes various inputs to determine the fair value of its investment portfolio. To the extent they exist, unadjusted quoted market prices in active markets for identical investments (level 1) or quoted prices on similar assets (level 2) are utilized to determine the fair value of each investment in the portfolio.  In the absence of quoted prices, valuation techniques would be used to determine fair value of any investments that require inputs that are both significant to the fair value measurement and unobservable (level 3).  Valuation techniques are based on various assumptions, including, but not limited to cash flows,

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discount rates, rate of return, adjustments for nonperformance and liquidity, and liquidation values. A significant degree of judgment is involved in valuing investments using level 3 inputs.  The use of different assumptions could have a positive or negative effect on the Company's consolidated financial condition or results of operations.

Management must periodically evaluate if unrealized losses (as determined based on the securities valuation methodologies discussed above) on individual securities classified as held to maturity or available for sale in the investment portfolio are considered to be other-than-temporary.  The analysis of other-than-temporary impairment requires the use of various assumptions, including, but not limited to, the length of time an investment’s book value is greater than fair value, the severity of the investment’s decline, as well as any credit deterioration of the investment.  If the decline in value of an investment is deemed to be other-than-temporary, the investment is written down to fair value and a non-cash impairment charge is recognized in the period of such evaluation.

The Company records income taxes using the asset and liability method. Accordingly, deferred tax assets and liabilities: (i) are recognized for the expected future tax consequences of events that have been recognized in the financial statements or tax returns; (ii) are attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases; and (iii) are measured using enacted tax rates expected to apply in the years when those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income tax expense in the period of enactment.

Deferred tax assets are recorded on the consolidated balance sheet at net realizable value. The Company periodically performs an assessment to evaluate the amount of deferred tax assets it is more likely than not to realize. Realization of deferred tax assets is dependent upon the amount of taxable income expected in future periods, as tax benefits require taxable income to be realized. If a valuation allowance is required, the deferred tax asset on the consolidated balance sheet is reduced via a corresponding income tax expense in the consolidated statement of income.

Results of Operations

Summary

The Company reported net income of $9.3 million or $1.14 per diluted share for the year ended December 31, 2016 compared to net income of $8.7 million or $1.07 per diluted share for the year ended December 31, 2015.  Net income per diluted share increased 6.5% due to a $621,000, or 7.2%, increase in net income.

The increase in net income for 2016 compared to 2015 was due primarily to the reduction of $1.4 million in the provision for loan losses and a $422,000 increase in non-interest income to $6.9 million, which were partially offset by a decrease of $789,000 in net interest income. Net interest income declined primarily due to the effect of the contraction of the net interest spread to 3.49% for 2016 from 3.72% in 2015, which more than offset the interest income generated from the increase in average earning assets in 2016. As a result, the net interest margin declined to 3.71% for 2016 from 3.91% for 2015.

A credit (negative) provision for loan losses of $300,000 was recorded in 2016 compared to a provision for loan losses of $1.1 million in 2015 and reflected net recoveries of loans previously charged-off of $234,000 in 2016 compared to net charge-offs of $465,000 in 2015 and lower historical loan loss factors due to the improvement in loan credit quality, the resolution of non-performing loans and the significant reduction of net charge-offs of commercial business and commercial real estate loans in 2016 and 2015.

Non-interest income was $6.9 million for 2016 compared to $6.5 million in the prior year and increased primarily due to the $692,000 loss on the sale of OREO that was included in other income in 2015. Excluding the effect of this loss, non-interest income in 2016 declined $270,000 compared to 2015.

Non-interest expenses decreased $149,000 to $27.3 million in 2016 compared to $27.4 million in 2015. An increase of $954,000 in salary and benefits expense in 2016 compared to 2015 was offset by decreases in OREO expense, FDIC insurance expense, occupancy expense and other operating expenses.

Return on average assets (“ROAA”) and return on average equity (“ROAE”) were 0.93% and 9.21%, respectively, for the year ended December 31, 2016, compared to 0.89% and 9.49%, respectively, for the year ended December 31, 2015.  

The Bank’s results of operations depend primarily on net interest income, which is primarily affected by the market interest rate environment, the shape of the U.S. Treasury yield curve, and the difference between the yield on interest-earning

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assets and the rate paid on interest-bearing liabilities.  Other factors that may affect the Bank’s operating results are general and local economic and competitive conditions, government policies and actions of regulatory authorities.

Net Interest Income

Net interest income, the Company’s largest and most significant component of operating income, is the difference between interest and fees earned on loans and other earning assets and interest paid on deposits and borrowed funds.  This component represented 83% and 84% of the Company’s net revenues (net interest income plus non-interest income) for the years ended December 31, 2016 and December 31, 2015, respectively.  Net interest income also depends upon the relative amount of average interest earning assets, average interest-bearing liabilities, and the interest rate earned or paid on them, respectively.

For the year ended December 31, 2016, the Company's net interest income decreased by $789,000, or 2.3%, to $34.0 million compared to $34.8 million for the year ended December 31, 2015. This decrease was due primarily to the decrease in the average yield on interest-earning assets and an increase in interest expense on average interest-bearing liabilities.

Interest expense on average interest-bearing liabilities was $5.2 million, or 0.71%, for the year ended December 31, 2016 compared to $4.6 million, or 0.65%, for the year ended December 31, 2015. The increase of $522,000 in interest expense on interest-bearing liabilities for 2016 compared to 2015 primarily reflects higher short-term market interest rates and increased competition for deposits in 2016 compared to 2015. The Board of the Federal Reserve increased the targeted federal funds rate in December 2015 by 25 basis points, which impacted short-term market interest rates in 2016.

The lower yield on average interest-earning assets for 2016 reflected primarily the lower yield earned on loans and investments. The yield on loans and investments declined due to the continued low interest rate environment as new loans were originated and investment securities were purchased at yields lower than the average yield on loans and investments, respectively, in the prior year period.

The net interest margin for the year ended December 31, 2016 was 3.71% compared to the 3.91% net interest margin recorded for the year ended December 31, 2015, a decrease of 20 basis points. The decrease in the Company’s net interest income and net interest margin for the year ended December 31, 2016 compared with the corresponding 2015 period was primarily due to the decrease of 17 basis points in the average yield of interest-earning assets to 4.20% for the year ended December 31, 2016 compared to 4.37% for the year ended December 31, 2015 and the increase in the cost of average interest bearing liabilities to 0.71% for the year ended December 31, 2016 compared to 0.65% for the year ended December 31, 2015.

The following tables set forth the Company’s consolidated average balances of assets, liabilities and shareholders’ equity, as well as, interest income and expense on related items and the Company’s average yield or rate for the years ended December 31, 2016, 2015 and 2014, respectively.  The average rates are derived by dividing interest income and expense by the average balance of assets and liabilities, respectively.

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Net Interest Margin Analysis

(yields on a tax-equivalent basis)	2016							2015							2014
(Dollars in thousands)	Average Balance			Interest		Average Yield		Average Balance			Interest		Average Yield		Average Balance			Interest		Average Yield
Assets:
Interest-Earning Deposits	$	21,041		$	88	0.42	%	$	23,131		$	50	0.22	%	$	60,933		$	150	0.25	%
Investment Securities:
Taxable	143,461			3,268		2.28	%	127,859			3,167		2.48	%	168,992			4,022		2.38	%
Tax-exempt (4)	81,570			3,075		3.77	%	81,612			3,153		3.86	%	87,455			3,419		3.91	%
Total	225,031			6,343		2.82	%	209,471			6,320		3.02	%	256,447			7,441		2.90	%
Loan Portfolio (1):
Construction	93,478			4,922		5.18	%	95,627			5,414		5.58	%	77,159			4,669		5.97	%
Residential Real Estate	42,694			1,828		4.28	%	43,048			1,796		4.17	%	45,572			1,842		4.04	%
Home Equity	23,250			938		4.03	%	22,217			941		4.24	%	22,070			1,124		5.09	%
Commercial Business and Commercial Real Estate	302,172			16,140		5.25	%	290,301			16,078		5.46	%	271,888			15,416		5.59	%
SBA Loans	21,508			1,264		5.88	%	19,409			1,027		5.29	%	13,971			693		4.96	%
Mortgage Warehouse Lines	205,711			8,425		4.03	%	203,074			8,549		4.15	%	124,127			5,338		4.24	%
Loans Held for Sale	7,256			176		2.43	%	8,954			246		2.75	%	7,017			291		4.15	%
All Other Loans	2,367			51		2.12	%	1,855			46		2.45	%	1,575			33		2.07	%
Total	698,436			33,744		4.76	%	684,485			34,097		4.92	%	563,379			29,406		5.16	%
Total Interest-Earning Assets	944,508			40,175		4.20	%	917,087			40,467		4.37	%	880,759			36,997		4.16	%
Allowance for Loan Losses	(7,538		)					(7,484		)					(7,487		)
Cash and Due From Banks	5,120							6,272							14,620
Other Assets	59,679							62,149							57,689
Total Assets	$	1,001,769						$	978,024						$	945,581
Liabilities and Shareholders' Equity:
Interest-Bearing Liabilities:
Money Market and NOW Accounts	$	301,086		$	1,128	0.37	%	$	300,813		$	1,013	0.34	%	$	286,235		$	954	0.33	%
Savings Accounts	206,069			1,208		0.59	%	196,844			950		0.48	%	199,078			904		0.45	%
Certificates of Deposit under $100,000	62,858			617		0.98	%	87,306			875		1.00	%	70,574			910		1.29	%
Certificates of Deposit of $100,000 and Over	89,220			1,091		1.22	%	71,449			866		1.21	%	98,891			1,031		1.04	%
Other Borrowed Funds	48,448			687		1.42	%	38,472			577		1.50	%	23,724			515		2.18	%
Trust Preferred Securities	18,557			427		2.30	%	18,557			355		1.91	%	18,557			344		1.90	%
Total Interest-Bearing Liabilities	726,238			5,158		0.71	%	713,441			4,636		0.65	%	697,059			4,658		0.67	%
Net Interest Spread (2)						3.49	%						3.72	%						3.49	%
Demand Deposits	166,519							164,419							159,935
Other Liabilities	8,205							8,857							7,065
Total Liabilities	900,962							886,717							864,059
Shareholders' Equity	100,807							91,307							81,522
Total Liabilities and Shareholders' Equity	$	1,001,769						$	978,024						$	945,581
Net Interest Income & Net Interest Margin (3) (4)				$	35,017	3.71	%				$	35,831	3.91	%				$	32,339	3.67	%

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(1) Loan origination fees are considered an adjustment to interest income.  For the purpose of calculating loan yields, average loan balances include non-accrual loans with no related interest income. Please refer to Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations under the heading “Non-Performing Assets” for a discussion of the Bank’s policy with regard to non-accrual loans.

(2) The net interest rate spread is the difference between the average yield on interest earning assets and the average rate paid on interest bearing liabilities.

(3) The net interest margin is equal to net interest income divided by average interest earning assets.

(4) Tax-equivalent basis. The tax-equivalent adjustments were $997,000 for the year ended December 31, 2016 and $1.0 million and $1.1 million for the years ended December 31, 2015 and 2014, respectively.

Changes in net interest income and net interest margin result from the interaction between the volume and composition of interest earning assets, interest bearing liabilities, related yields and associated funding costs.  The Rate/Volume Table demonstrates the impact on net interest income of changes in the volume of interest earning assets and interest bearing liabilities and changes in interest rates earned and paid.

Rate/Volume Table	Amount of Increase (Decrease)
(Dollars in thousands)	2016 versus 2015									2015 versus 2014
	Due to Change in:									Due to Change in:
(Tax-equivalent basis)	Volume			Rate			Total			Volume			Rate			Total
Interest Income:
Loans:
Construction	$	(120	)	$	(372	)	$	(492	)	$	1,102		$	(357	)	$	745
Residential Real Estate	(15		)	47			32			(102		)	56			(46		)
Home Equity	44			(47		)	(3		)	7			(190		)	(183		)
Commercial Business and Commercial Real Estate	648			(586		)	62			1,030			(368		)	662
Mortgage Warehouse Lines	109			(233		)	(124		)	3,349			(138		)	3,211
SBA Loans	111			126			237			270			64			334
Loans Held for Sale and All Other Loans	(34		)	(31		)	(65		)	86			(118		)	(32		)
Total Loans	$	743		$	(1,096	)	$	(353	)	$	5,742		$	(1,051	)	$	4,691
Investment Securities :
Taxable	$	386		$	(285	)	$	101		$	(979	)	$	124		$	(855	)
Tax-exempt	(2		)	(76		)	(78		)	(228		)	(38		)	(266		)
Total Investment Securities	$	384		$	(361	)	$	23		$	(1,207	)	$	86		$	(1,121	)
Federal Funds Sold / Short-Term Investments	(5		)	43			38			(95		)	(5		)	(100		)
Total Interest Income	$	1,122		$	(1,414	)	$	(292	)	$	4,440		$	(970	)	$	3,470
Interest Expense :
Money Market and NOW Accounts	$	1		$	114		$	115		$	49		$	10		$	59
Savings Accounts	45			213			258			(10		)	56			46
Certificates of Deposit under $100,000	(244		)	(14		)	(258		)	216			(251		)	(35		)
Certificates of Deposit of $100,000 and Over	215			10			225			(286		)	121			(165		)
Other Borrowed Funds	150			(40		)	110			321			(259		)	62
Trust Preferred Securities	—			72			72			—			11			11
Total Interest Expense	$	167		$	355		$	522		$	290		$	(312	)	$	(22	)
Net Interest Income	$	955		$	(1,769	)	$	(814	)	$	4,150		$	(658	)	$	3,492

As of December 31, 2016, loans were $724.8 million and had increased $42.7 million compared to $682.1 million at December 31, 2015. The primary driver of the 6.3% increase in loans during 2016 was the $35.1 million, or 17.0%, increase in commercial real estate loans to $242.4 million at December 31, 2016 from $207.3 million at December 31, 2015.

Average interest-earning assets increased by $27.4 million, or 3.0%, to $944.5 million for the year ended December 31, 2016 from $917.1 million for the year ended December 31, 2015.  Overall, the yield on interest-earning assets, on a tax-equivalent

5

basis, decreased 17 basis points to 4.20% for the year ended December 31, 2016 compared to 4.37% for the year ended December 31, 2015 due primarily to the decrease in average loan yields to 4.76% from 4.92%.

Interest expense increased by $522,000, or 11.3%, to $5.2 million for the year ended December 31, 2016 from $4.6 million for the year ended December 31, 2015. This increase in interest expense was principally attributable to an increase in the cost of interest-bearing liabilities to 0.71% from 0.65% and an increase of $12.8 million in average interest-bearing liabilities.  Savings accounts increased on average by $9.2 million in 2016, or 4.7%, compared to 2015, and the cost on these deposits increased eleven basis points to 0.59% in 2016 compared to 0.48% in 2015.

The Company’s net interest income decreased on a tax-equivalent basis by $814,000, or 2.3%, to $35.0 million for the year ended December 31, 2016 from $35.8 million reported for the year ended December 31, 2015.  As indicated in the Rate/Volume Table, the decrease was driven primarily by the higher cost of interest-bearing liabilities, which reflected the higher short-term market interest rates and increased competition for deposits in 2016 compared to 2015.

Provision for Loan Losses

Management considers a complete review of the following specific factors in determining the provisions for loan losses: historical losses by loan category, non-accrual loans and problem loans as identified through internal classifications, collateral values, and the growth, size and risk elements of the loan portfolio. In addition to these factors, management takes into consideration current economic conditions and local real estate market conditions.

In general, over the last three years, the Bank experienced an improvement in loan credit quality and achieved a steady resolution of non-performing loans and assets related to the severe recession, which were reflected in the current lower level of non-performing loans at December 31, 2016. Net charge-offs of commercial business and commercial real estate loans in 2016 and 2015 declined significantly compared to prior years, which resulted in a reduction of the historical loss factors for these segments of the loan portfolio that were applied by management to estimate the allowance for loan losses at December 31, 2016. For 2016, net recoveries of $234,000 of loans previously charged-off were recorded. The lower historical loss factors due to the improvement in loan credit quality resulted in a slightly lower estimated allowance for loan losses of $7.5 million at December 31, 2016 after management's evaluation of these factors and trends.

The Company recorded a credit (negative) provision for loan losses in the amount of $300,000 for the year ended December 31, 2016 compared to a provision of $1.1 million for the year ended December 31, 2015. The decrease in the provision for loan losses for 2016 was primarily attributed to the net recovery of loans previously charged off and the lower historical loan loss factors, which reflected the improvement in loan credit quality, the resolution of non-performing loans and the significant reduction of net charge-offs of commercial and commercial real estate loans in 2016.

At December 31, 2016, non-performing loans decreased by $822,000, or 13.7%, to $5.2 million from $6.0 million at December 31, 2015 and the ratio of non-performing loans to total loans decreased to 0.72% at December 31, 2016 compared to 0.88% at December 31, 2015.

Non-Interest Income

Total non-interest income for the year ended December 31, 2016 increased to $6.9 million from $6.5 million for the year ended December 31, 2015. This revenue component represented 17% and 16% of the Company’s net revenues for the years ended December 31, 2016 and 2015, respectively. In 2015, total non-interest income was negatively impacted by a $692,000 loss on the sale of OREO that was included in other income. Excluding the effect of the loss, non-interest income would have declined $270,000 in 2016 compared to 2015.

Service charges on deposit accounts decreased by $103,000 to $715,000 for the year ended December 31, 2016 compared to $818,000 for the year ended December 31, 2015 due primarily to declines in not-sufficient funds charges.  

Gains on sales of loans held for sale decreased $254,000 to $3.8 million for the year ended December 31, 2016 compared to $4.0 million for the year ended December 31, 2015.  The Bank sells both residential mortgage loans and the portion of commercial business loans guaranteed by the Small Business Administration ("SBA") in the secondary market.

Gains on the sale of residential mortgage loans were $2.2 million in 2016 compared to $2.3 million in 2015. In 2016, $88.1 million of residential loans were sold compared to $136.4 million in 2015. The decline in the residential lending activity and gains on the sale of loans was due primarily to the turnover of personnel that occurred in the first two quarters of 2016, which significantly reduced the volume of loans originated and sold in 2016. In July 2016, the Bank hired a new residential lending team

6

of 20 employees, which included residential mortgage loan originators and operations personnel. In the fourth quarter of 2016, $42.6 million of loans were closed, $34.3 million of loans were sold and $925,000 of gains were recorded compared to $21.3 millions of loans sold and $444,000 of gains recorded in the fourth quarter of 2015.

The addition of this experienced and productive residential mortgage lending team is expected to enhance the Bank's residential lending capabilities and broaden its lending products to include Federal Housing Administration ("FHA") insured residential mortgages. In January 2017, the Bank was approved for Unconditional Direct Endorsement authority by the U.S. Department of Housing and Urban Development ("HUD"). This designation will increase the Bank's ability to generate FHA insured residential mortgages.

In 2016, $17.0 million of SBA loans were sold and generated net gains of $1.6 million compared to SBA loans sold and net gains of $17.5 million and $1.7 million, respectively, in 2015.

            Non-interest income also includes income from Bank-owned life insurance (“BOLI”), which amounted to $549,000 for the year ended December 31, 2016 compared to $558,000 for the year ended December 31, 2015.  

The Bank also generates non-interest income from a variety of fee-based services.  These include safe deposit box rentals, wire transfer service fees and Automated Teller Machine fees for non-Bank customers.   The other income component of non-interest income increased to $1.8 million for the year ended December 31, 2016 compared to $1.0 million for the year ended December 31, 2015. Other income in 2015 was negatively impacted by the loss on the sale of OREO of $692,000.

Non-Interest Expenses

Total non-interest expenses decreased by $149,000, or 0.5%, to $27.3 million for the year ended December 31, 2016 from $27.4 million for the year ended December 31, 2015. The decrease in non-interest expenses included decreases of $653,000 in OREO expenses, $207,000 in FDIC insurance expense and $284,000 in equipment expenses, which were partially offset by an increase of $954,000 in salaries and employee benefit expenses and an increase of $206,000 in other operating expenses, . The following table presents the major components of non-interest expenses for the years ended December 31, 2016 and 2015.

Non-interest Expenses	Year ended December 31,
(Dollars in thousands)	2016		2015
Salaries and employee benefits	$	16,543	$	15,589
Occupancy expense	4,001		4,098
Data processing expenses	1,277		1,211
Equipment expense	555		839
Marketing	240		282
Telephone	377		449
Regulatory, professional and consulting fees	1,706		1,681
Insurance	303		324
FDIC insurance expense	453		660
Other real estate owned expenses	81		734
Amortization of intangible assets	404		428
Other operating expenses	1,358		1,152
Total	$	27,298	$	27,447

Salaries and employee benefits, which represent the largest portion of non-interest expenses, increased by $954,000, or 6.1%, to $16.5 million for the year ended December 31, 2016 compared to $15.6 million for the year ended December 31, 2015. The increase in salaries and employee benefits for 2016 was due primarily to an increase in salaries for additional commercial loan, business development and residential mortgage personnel, increases in commissions paid to residential loan officers, regular merit increases and increased employee health benefit costs.  At December 31, 2016, there were 199 full-time equivalent employees compared to 195 full-time equivalent employees at December 31, 2015.

7

Occupancy expense decreased by $97,000, or 2.4%, to $4.0 million for 2016 compared to $4.1 million for 2015. The decrease in occupancy expenses for the year ended December 31, 2016 was primarily attributable to a decrease in depreciation expense, which was partially offset by increases in rent and real estate tax expense related to the addition of four residential loan production offices in the third quarter of 2016.

The cost of data processing services increased to $1.3 million for the year ended December 31, 2016 from $1.2 million for the year ended December 31, 2015 and reflects the growth of the loan portfolio and the increase in deposits.

Regulatory, professional and consulting fees increased by $25,000, or 1.5%, to $1.7 million for the year ended December 31, 2016 compared to $1.7 million for the year ended December 31, 2015.  The level of regulatory, professional and consulting fees has increased over the last several years due primarily to compliance with increased regulatory requirements, management of enterprise risk and information security and increased external and internal professional audit fees related to the implementation of the COSO 2013 internal control framework in 2015 and management's required 2016 year-end attestation regarding internal controls on financial reporting (Section 404 of the Sarbanes-Oxley Act).

Other real estate owned expenses decreased by $653,000 to $81,000 for 2016 compared to $734,000 for 2015 due primarily to the significant reduction in OREO assets in 2015. At December 31, 2016, the Bank held one commercial property with an aggregate value of $166,000 as other real estate owned compared to one property with an aggregate value of $1.0 million at December 31, 2015. In 2016 and 2015, the Bank sold $1.0 million and $6.0 million of OREO properties, respectively.

FDIC insurance expense decreased to $453,000 for the year ended December 31, 2016 compared to $660,000 for the year ended December 31, 2015 due to a lower assessment rate that reflected the improvement in asset quality and the continued improvement in the Bank's financial performance in 2016.

Amortization of intangible assets decreased $24,000 to $404,000 for the year ended December 31, 2016 compared to $428,000 for the year ended December 31, 2015 due to the lower amortization of core deposit intangibles.

Other operating expenses were $1.4 million for the year ended December 31, 2016 compared to $1.2 million for the year ended December 31, 2015.

An important financial services industry productivity measure is the efficiency ratio.  The efficiency ratio is calculated by dividing total operating expenses by tax equivalent net interest income plus non-interest income.  An increase in the efficiency ratio indicates that more resources are being utilized to generate the same or greater volume of income, while a decrease would indicate a more efficient allocation of resources.  The Company’s efficiency ratio increased slightly to 65.1% for the year ended December 31, 2016 compared to 64.9% for the year ended December 31, 2015.

Income Taxes

The Company recorded income tax expense of $4.6 million for 2016 compared to income tax expense of $4.1million for 2015.  The increase in income tax expense for 2016 compared to 2015 was primarily due to a $1.2 million increase in pre-tax income for 2016 compared to 2015.  The Company’s effective tax rate increased to 33.2% in 2016 from 31.9% in 2015 due to higher pre-tax income in 2016 and the lower proportion of tax exempt interest income to pre-tax income in 2016 compared to 2015.

Financial Condition

Cash and Cash Equivalents

At December 31, 2016, cash and cash equivalents totaled $14.9 million compared to $11.4 million at December 31, 2015.  Cash and cash equivalents at December 31, 2016 consisted of cash and due from banks of $14.9 million. 

8

Investment Securities

 Amortized cost, gross unrealized gains and losses, and the fair value by security type are as follows:

(Dollars in thousands)			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
2016	Cost		Gains		Losses			Value
Available for sale-
U. S. Treasury securities and obligations of U.S. Government sponsored corporations (“GSE”) and agencies	$	3,514	$	—	$	(35	)	$	3,479
Residential collateralized mortgage obligations- GSE	22,647		58		(145		)	22,560
Residential mortgage backed securities – GSE	31,207		388		(119		)	31,476
Obligations of state and political subdivisions	21,604		152		(356		)	21,400
Trust preferred debt securities – single issuer	2,478		—		(206		)	2,272
Corporate debt securities	21,963		10		(205		)	21,768
Other debt securities	845		—		(6		)	839
	$	104,258	$	608	$	(1,072	)	$	103,794

	Amortized Cost		Other-Than- Temporary Impairment Recognized In Accumulated Other Comprehensive Loss			Carrying Value		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Held to maturity-
U. S. Treasury securities and obligations of U.S.Government sponsored corporations (“GSE”) and agencies	$	3,727	$	—		$	3,727	$	—	$	(116	)	$	3,611
Residential collateralized     mortgage obligations – GSE	11,882		—			11,882		247		(130		)	11,999
Residential mortgage     backed securities- GSE	40,565		—			40,565		540		(113		)	40,992
Obligations of state and political subdivisions	70,017		—			70,017		1,274		(255		)	71,036
Trust preferred debt securities - pooled	657		(501		)	156		303		—			459
Other debt securities	463		—			463		—		(1		)	462
	$	127,311	$	(501	)	$	126,810	$	2,364	$	(615	)	$	128,559

(Dollars in thousands)			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
2015	Cost		Gains		Losses			Value
Available for sale-
U. S. Treasury securities and obligations of U.S. Government sponsored corporations (“GSE”) and agencies	$	5,523	$	—	$	(42	)	$	5,481
Residential collateralized mortgage obligations-GSE	8,255		68		(36		)	8,287
Residential mortgage backed securities – GSE	32,279		541		(185		)	32,635
Obligations of state and political subdivisions	21,125		365		(54		)	21,436
Trust preferred debt securities – single issuer	2,474		—		(338		)	2,136
Corporate debt securities	20,510		65		(153		)	20,422
Other debt securities	1,053		—		(28		)	1,025
	$	91,219	$	1,039	$	(836	)	$	91,422

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	Amortized Cost		Other-Than- Temporary Impairment Recognized In Accumulated Other Comprehensive Loss			Carrying Value		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Held to maturity-
Residential collateralized mortgage obligations – GSE	$	13,630	$	—		$	13,630	$	404	$	—		$	14,034
Residential mortgage backed securities -GSE	47,718		—			47,718		928		(46		)	48,600
Obligations of state and political subdivisions	61,135		—			61,135		2,294		(14		)	63,415
Trust preferred debt securities - pooled	657		(501		)	156		341		—			497
Other debt securities	622		—			622		—		(11		)	611
	$	123,762	$	(501	)	$	123,261	$	3,967	$	(71	)	$	127,157

The investment securities portfolio totaled $230.6 million, or 22.2% of total assets, at December 31, 2016 compared to $214.7 million, or 22.2% of total assets, at December 31, 2015.  Proceeds from maturities and prepayments for the year ended December 31, 2016 totaled $54.8 million while purchases of investment securities totaled $72.5 million during this period.  On an average balance basis, the investment securities portfolio represented 23.8% and 22.8% of average interest-earning assets, respectively, for the years ended December 31, 2016 and 2015.  The average yield earned on the portfolio, on a fully tax-equivalent basis, was 2.82% for the year ended December 31, 2016, which was a decrease of 20 basis points from 3.02% earned for the year ended December 31, 2015.

Securities available for sale are investments that may be sold in response to changing market and interest rate conditions or for other business purposes.  Activity in this portfolio is undertaken primarily to manage liquidity and interest rate risk and to take advantage of market conditions that create more economically attractive returns.  At December 31, 2016, available-for-sale securities amounted to $103.8 million, an increase of $12.4 million from $91.4 million at December 31, 2015. 

The following table sets forth certain information regarding the amortized cost, carrying value, fair value, weighted average yields and contractual maturities of the Company’s investment portfolio as of December 31, 2016. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.  

(Dollars in thousands)	December 31, 2016
	Amortized cost		Fair Value		Yield
Available for sale
Due in one year or less	$	2,616	$	2,619	3.06%
Due after one year through five years	15,544		15,470		1.28%
Due after five years through ten years	44,489		44,695		2.68%
Due after ten years	41,609		41,010		2.75%
Total	$	104,258	$	103,794	2.51%

	Carrying Value		Fair Value		Yield
Held to maturity
Due in one year or less	$	29,807	$	29,816	1.44%
Due after one year through five years	16,833		17,373		4.43%
Due after five years through ten years	23,597		24,280		3.51%
Due after ten years	56,573		57,090		3.28%
Total	$	126,810	$	128,559	3.04%

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Proceeds from maturities and prepayments of securities available for sale amounted to $23.4 million for the year ended December 31, 2016 compared to $18.8 million for the year ended December 31, 2015.  At December 31, 2016, the portfolio had net unrealized losses of $464,000 compared to net unrealized gains of $203,000 at December 31, 2015.  These unrealized gains (losses) are reflected net of tax in shareholders’ equity as a component of accumulated other comprehensive income (loss).

Securities held to maturity, which are carried at amortized historical cost, are investments for which there is the positive intent and ability to hold to maturity.  At December 31, 2016, securities held to maturity were $126.8 million, an increase of $3.5 million from $123.3 million at December 31, 2015.  The fair value of the held-to-maturity portfolio at December 31, 2016 was $128.6 million.

The Company regularly reviews the composition of the investment securities portfolio, taking into account market risks, the current and expected interest rate environment, liquidity needs and its overall interest rate risk profile and strategic goals.

On a quarterly basis, management evaluates each security in the portfolio with an individual unrealized loss to determine if that loss represents other-than-temporary impairment. During the fourth quarter of 2009, management determined that it was necessary, following other-than-temporary impairment requirements, to write down the cost basis of the Company’s only pooled trust preferred security. This trust preferred debt security was issued by a two issuer pool (Preferred Term Securities XXV, Ltd. co-issued by Keefe, Bruyette and Woods, Inc. and First Tennessee (“PreTSL XXV”)) consisting primarily of financial institution holding companies.  During 2009, the Company recognized an other-than-temporary impairment charge of $865,000 with respect to this security.  No other-than-temporary impairment losses were recorded during 2016 and 2015.  See Note 2 to the consolidated financial statements for additional information.

Loans Held for Sale

Loans held for sale at December 31, 2016 amounted to $14.8 million compared to $6.0 million at December 31, 2015.  As indicated in the Consolidated Statements of Cash Flows, the amount of loans originated for sale was $97.0 million for 2016 compared with $134.1 million for 2015. The amount of loans held for sale varies from period to period due to changes in the amount and timing of sales of residential mortgage loans.

Loans

The loan portfolio, which represents the Bank’s largest asset, is a significant source of both interest and fee income. Elements of the loan portfolio are subject to differing levels of credit and interest rate risk.  The Bank’s primary lending focus continues to be mortgage warehouse lines, construction loans, commercial business loans, owner-occupied commercial real estate mortgage loans and income producing commercial real estate loans.  Total loans averaged $698.4 million for the year ended December 31, 2016, an increase of $14.0 million, or 2.0%, compared to an average of $684.5 million for the year ended December 31, 2015.  At December 31, 2016, total loans amounted to $724.8 million, which was a $42.7 million increase when compared to $682.1 million at December 31, 2015. The average yield earned on the loan portfolio was 4.76% for the year ended December 31, 2016 compared to 4.92% for the year ended December 31, 2015, a decrease of 16 basis points.

The following table represents the components of the loan portfolio as of the dates indicated.

(Dollars in thousands)	December 31,
	2016				2015				2014				2013				2012
	Amount		%		Amount		%		Amount		%		Amount		%		Amount		%
Construction loans	$	96,035	13	%	$	93,745	14	%	$	95,627	15	%	$	51,002	14	%	$	55,691	11	%
Residential real estate loans	44,791		6	%	40,744		6	%	46,446		7	%	13,764		4	%	10,897		2	%
Commercial business	99,650		14	%	99,277		15	%	110,771		17	%	82,348		22	%	57,865		11	%
Commercial real estate	242,393		34	%	207,250		30	%	198,211		30	%	98,390		26	%	102,413		20	%
Mortgage warehouse lines	216,259		30	%	216,572		32	%	179,172		27	%	116,951		31	%	284,128		54	%
Loans to individuals	23,736		3	%	23,074		3	%	23,156		4	%	9,766		3	%	9,643		2	%
Deferred loan costs	1,737		—	%	1,226		—	%	715		—	%	944		—	%	987		—	%
All other loans	207		—	%	233		—	%	199		—	%	171		—	%	189		—	%
Total	$	724,808	100	%	$	682,121	100	%	$	654,297	100	%	$	373,336	100	%	$	521,813	100	%

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Commercial business and commercial real estate loans averaged $302.2 million for the year ended December 31, 2016, an increase of $11.9 million when compared to the average of $290.3 million for the year ended December 31, 2015. Commercial business loans consist primarily of loans to small and middle market businesses and are typically working capital loans used to finance inventory, receivables or equipment needs.  These loans are generally secured by business assets of the commercial borrower.  Commercial real estate loans consist primarily of loans to businesses which are collateralized by real estate assets employed in the operation of the business (owner-occupied properties) and loans to real estate investors to finance the acquisition and/or improvement of income producing commercial properties. The average yield on the commercial business and commercial real estate loan portfolio decreased 21 basis points to 5.25% for 2016 from 5.46% for 2015.

Construction loans averaged $93.5 million for the year ended December 31, 2016, a decrease of $2.1 million, or 2.2%, compared to the average of $95.6 million for the year ended December 31, 2015.   Generally, these loans represent owner-occupied or investment properties and usually complement a broader commercial relationship between the Bank and the borrower.  Construction loans are structured to provide for advances only after work is completed and inspected by qualified professionals.  The average yield on the construction loan portfolio decreased 40 basis points to 5.18% for 2016 from 5.58% for 2015.

The mortgage warehouse lines component of the loan portfolio decreased by $313,000, or 0.1%, to $216.3 million at December 31, 2016 compared to $216.6 million at December 31, 2015. During 2016, $3.8 billion of mortgage loans were financed through our Mortgage Warehouse Funding Group compared to $3.9 billion of mortgage loans financed in 2015.

           The Bank’s Mortgage Warehouse Funding Group offers revolving lines of credit that are available to licensed mortgage banking companies (the “warehouse line of credit”).  The warehouse line of credit is used by the mortgage banker to originate one-to-four family residential mortgage loans that are pre-sold to the secondary mortgage market, which includes state and national banks, national mortgage banking firms, insurance companies and government-sponsored enterprises, including the Federal National Mortgage Association, the Federal Home Loan Mortgage Corporation and others.  On average, an advance under the warehouse line of credit remains outstanding for a period of less than 30 days, with repayment coming directly from the sale of the loan into the secondary mortgage market.  Interest and a transaction fee are collected by the Bank at the time of repayment.    The Bank had outstanding warehouse line of credit advances of $216.3 million at December 31, 2016 compared to $216.6 million at December 31, 2015.  During 2016 and 2015, warehouse lines of credit advances averaged $205.7 million and $203.1 million, respectively, and yielded 4.03% and 4.15%, respectively.  The number of active mortgage banking customers was 45 in 2016 compared to 46 in 2015.

Average residential real estate loans decreased $354,000 to $42.7 million at December 31, 2016 compared to $43.0 million at December 31, 2015.

Loans to individuals are comprised primarily of home equity loans and were $23.7 million at December 31, 2016 compared to $23.1 million at December 31, 2015.

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The following table provides information concerning the interest rate sensitivity of the loan portfolio at December 31, 2016.

(Dollars in thousands)	Maturity Range
Type	Within One Year		After One But Within Five Years		After Five Years		Total
	(in thousands)
Commercial business	$	61,514	$	27,867	$	10,269	$	99,650
Commercial real estate	31,670		167,819		42,904		242,393
Mortgage warehouse lines	216,259		—		—		216,259
Construction	84,703		8,617		2,715		96,035
Residential real estate	5,468		17,272		22,051		44,791
Loans to individuals and other loans	20,858		920		2,165		23,943
Total	$	420,472	$	222,495	$	80,104	$	723,071
Fixed rate loans	$	11,550	$	57,862	$	63,995	$	133,407
Floating rate loans	408,922		164,633		16,109		589,664
Total	$	420,472	$	222,495	$	80,104	$	723,071

Non-Performing Assets

Non-performing assets consist of non-performing loans and other real estate owned.  Non-performing loans are composed of (1) loans on a non-accrual basis and (2) loans which are contractually past due 90 days or more as to interest and principal payments but have not been classified as non-accrual. Included in non-accrual loans are loans whose terms have been restructured to provide a reduction or deferral of interest and/or principal because of a deterioration in the financial position of the borrower and that have not performed in accordance with the restructured terms.

The Bank’s policy with regard to non-accrual loans is that, generally, loans are placed on a non-accrual status when they are 90 days past due, unless these loans are well secured and in the process of collection or, regardless of the past due status of the loan, when management determines that the complete recovery of principal or interest is in doubt. Consumer loans are generally charged off after they become 120 days past due. Subsequent payments on loans in non-accrual status are credited to income only if collection of principal is not in doubt.

During 2016, $1.3 million of loans were transferred to non-accrual status and $2.1 million of loans were resolved. As a result, non-performing loans decreased by $822,000 to $5.2 million at December 31, 2016 from $6.0 million at December 31, 2015.

At December 31, 2016, non-performing loans were comprised of three commercial real estate loans aggregating $3.2 million, three residential mortgage loans aggregating $544,000, seven commercial loans aggregating $920,000, three home equity loans for $361,000 and one commercial construction loan for $186,000.

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The table below sets forth non-performing assets and risk elements in the Bank's loan portfolio for the years indicated.

Non-Performing Assets and Loans
(Dollars in thousands)							December 31,
	2016			2015				2014			2013			2012
Non-Performing loans:
Loans 90 days or more past due and still accruing	$	24		$	—			$	317		$	—		$	85
Non-accrual loans	5,174			6,020				4,523			6,322			5,878
Total non-performing loans	5,198			6,020				4,840			6,322			5,963
Other real estate owned	166			966				5,710			2,136			8,333
Other repossessed assets	—			—				66			—			—
Total non-performing assets	5,364			6,986				10,616			8,458			14,296
Performing troubled debt restructurings	864			1,535				3,925			3,859			2,012
Performing troubled debt restructurings and total non-performing assets	$	6,228		$	8,521			$	14,541		$	12,317		$	16,308
Non-performing loans to total loans	0.72		%	0.88		%		0.74		%	1.69		%	1.14		%
Non-performing loans to total loans excluding warehouse lines	1.02		%	1.29		%		1.02		%	2.47		%	2.51		%
Non-performing assets to total assets	0.52		%	0.72		%		1.11		%	1.14		%	1.70		%
Non-performing assets to total assets excluding mortgage warehouse lines	0.65		%	0.93		%		1.37		%	1.35		%	2.57		%
Total non-performing assets and performing troubled debt restructurings to total assets	0.60		%	0.88		%		1.52		%	1.66		%	2.04		%

As the table demonstrates, non-performing loans to total loans decreased to 0.72% at December 31, 2016 from 0.88% at December 31, 2015. Loan quality continued to improve and the loan portfolio is considered to be sound.  This was accomplished through quality loan underwriting, a proactive approach to loan monitoring and aggressive workout strategies.

Additional interest income before taxes amounting to $522,000 and $471,000 would have been recognized in 2016 and 2015, respectively, if interest on all loans had been recorded based upon their original contract terms. 

Non-performing assets decreased by $1.6 million to $5.4 million at December 31, 2016 from $7.0 million at December 31, 2015.  Non-performing loans decreased $822,000 to $5.2 million at December 31, 2016 from $6.0 million at December 31, 2015 and other real estate owned decreased by $800,000 to $166,000 at December 31, 2016 from $966,000 at December 31, 2015.  In 2016, the Bank sold $1.0 million in OREO properties. The Bank did not record loss provisions against OREO during 2016 compared to loss provisions recorded against OREO properties of $382,000 during 2015.

Non-performing assets represented 0.52% of total assets at December 31, 2016 compared to 0.72% at December 31, 2015.

At December 31, 2016, the Bank had nine loans totaling $4.5 million that were troubled debt restructurings.  Five of these loans totaling $3.6 million are included in the above table as non-accrual loans and the remaining four loans totaling $864,000 are considered performing.

At December 31, 2015, the Bank had ten loans totaling $4.7 million that were troubled debt restructurings.  Three of these loans totaling $3.2 million are included in the above table as non-accrual loans and the remaining seven loans totaling $1.5 million are considered performing.

As provided by ASC 310-30, the excess of cash flows expected at acquisition over the initial investment in the purchase of a credit impaired loan is recognized as interest income over the life of the loan. Accordingly, loans acquired with evidence of deteriorated credit quality totaling $439,000 at December 31, 2016 were not classified as non-performing loans.

In 2016, $141,000 of non-performing loans were transferred to OREO and one OREO property totaling $1.0 million was sold during the year.

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Management takes a proactive approach in addressing delinquent loans. The Company’s President and Chief Executive Officer meets weekly with all loan officers to review the status of credits past-due ten days or more. An action plan is discussed for delinquent loans to determine the steps necessary to induce the borrower to cure the delinquency and restore the loan to a current status. Also, delinquency notices are system generated when loans are five days past-due and again at 15 days past-due.

In most cases, the Company’s loan collateral is real estate and when the collateral is foreclosed upon, the real estate is carried at fair market value less the estimated selling costs. The amount, if any, by which the recorded amount of the loan exceeds the fair market value of the collateral less estimated selling costs is a loss which is charged to the allowance for loan losses at the time of foreclosure or repossession. Resolution of a past-due loan can be delayed if the borrower files a bankruptcy petition because a collection action cannot be continued unless the Company first obtains relief from the automatic stay provided by the bankruptcy code.

On March 14, 2017, the Bank was notified that a shared national credit syndicated loan in which it has a $4.3 million participation had further deteriorated. The credit was classified as Special Mention by the Bank. In response to the recent notification, the credit will be down-graded to a classification of Doubtful by the Bank in the first quarter of 2017 due to excessive leverage, an inability to de-lever over a reasonable period and on-going fraud litigation. As of the date of the notification, management has not been able to identify a loss, if any. The syndicated loan is a senior debt facility that is collateralized by the assets of the borrower. The borrower has paid all principal and interest to date.

The shared national credit program was established in 1977 by the Board of Governors of the Federal Reserve System, the FDIC and the Office of the Comptroller of the Currency to provide an efficient and consistent review and classification of any large syndicated loan that totals $20 million or more and is shared by three or more lending institutions or a portion of which is sold to two or more institutions.

At December 31, 2016, the Bank was a participant in the syndicated loan facility for $4.3 million and the outstanding balance of the Bank’s loan participation was $4.0 million. The Bank has been monitoring the financial condition of the borrower and increased the allowance for loan losses qualitative factors in the third quarter of 2016 to reflect the uncertainty of the borrower’s future financial performance and the Bank’s inability to measure a potential loss for this credit.

At this time, there is no additional information available to the Bank that would change management’s estimate of the allowance for loan losses with respect to this loan. Due to the change in the circumstances, the loan will be placed on non-accrual in the first quarter of 2017 and will be down-graded to the Doubtful classification. Management will continue to monitor the financial condition of the borrower and will consider any new information or developments of the borrower in its evaluation of the adequacy of its allowance for loan losses.

Allowance for Loan Losses and Related Provision

The allowance for loan losses is maintained at a level sufficient to absorb estimated credit losses in the loan portfolio as of the date of the financial statements.  The allowance for loan losses is a valuation reserve available for losses incurred or inherent in the loan portfolio and other extensions of credit.  The determination of the adequacy of the allowance for loan losses is a critical accounting policy of the Company.

The Company’s primary lending emphasis is the origination of commercial and commercial real estate loans and mortgage warehouse lines of credit.  Based on the composition of the loan portfolio, the inherent primary risks are deteriorating credit quality, a decline in the economy, and a decline in New Jersey real estate market values.  Any one, or a combination, of these events may adversely affect the loan portfolio and may result in increased delinquencies, loan losses and increased future provision levels.

All, or part, of the principal balance of commercial and commercial real estate loans and construction loans are charged off against the allowance as soon as it is determined that the repayment of all, or part, of the principal balance is highly unlikely.  Consumer loans are generally charged off no later than 120 days past due on a contractual basis, earlier in the event of bankruptcy, or if there is an amount deemed uncollectible.  Because all identified losses are charged off, no portion of the allowance for loan losses is restricted to any individual loan or groups of loans, and the entire allowance is available to absorb any and all loan losses.

Management reviews the adequacy of the allowance on at least a quarterly basis to ensure that the provision for loan losses has been charged against earnings in an amount necessary to maintain the allowance at a level that is adequate based on management’s assessment of probable estimated losses. The Company’s methodology for assessing the adequacy of the allowance for loan losses consists of several key elements and is consistent with U.S. GAAP and interagency supervisory guidance.  The allowance for loan losses methodology consists of two major components.  The first component is an estimation of losses associated

15

with individually identified impaired loans, which follows Accounting Standards Codification ("ASC") Topic 310.  The second major component estimates losses under ASC Topic 450, which provides guidance for estimating losses on groups of loans with similar risk characteristics.  The Company’s methodology results in an allowance for loan losses which includes a specific reserve for impaired loans, an allocated reserve and an unallocated portion.

When analyzing groups of loans under ASC 450, the Bank follows the Interagency Policy Statement on the Allowance for Loan and Lease Losses.  The methodology considers the Company’s historical loss experience adjusted for changes in trends, conditions, and other relevant factors that affect repayment of the loans as of the evaluation date.  These adjustment factors, known as qualitative factors, include:

• Delinquencies and non-accruals

• Portfolio quality

• Concentration of credit

• Trends in volume of loans

• Quality of collateral

• Policy and procedures

• Experience, ability, and depth of management

• Economic trends – national and local

• External factors – competition, legal and regulatory

The methodology includes the segregation of the loan portfolio into loan types with a further segregation into risk rating categories, such as special mention, substandard, doubtful, and loss. This allows for an allocation of the allowance for loan losses by loan type; however, the allowance is available to absorb any loan loss without restriction. Larger balance, non-homogeneous loans representing significant individual credit exposures are evaluated individually through the internal loan review process. It is this process that produces the watch list. The borrower’s overall financial condition, repayment sources, guarantors and value of collateral, if appropriate, are evaluated. Based on these reviews, an estimate of probable losses for the individual larger-balance loans are determined, whenever possible, and used to establish specific loan loss reserves. In general, for non-homogeneous loans not individually assessed and for homogeneous groups, such as residential mortgages and consumer credits, the loans are collectively evaluated based on delinquency status, loan type, and historical losses. These loan groups are then internally risk rated.

The watch list includes loans that are assigned a rating of special mention, substandard, doubtful and loss. Loans criticized as special mention have potential weaknesses that deserve management’s close attention. If uncorrected, the potential weaknesses may result in deterioration of the repayment prospects. Loans classified as substandard have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They include loans that are inadequately protected by the current sound net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans classified as doubtful have all the weaknesses inherent in loans classified as substandard with the added characteristic that collection or liquidation in full, on the basis of current conditions and facts, is highly improbable. Loans rated as doubtful in whole, or in part, are placed in non-accrual status. Loans classified as a loss are considered uncollectible and are charged off against the allowance for loan losses.

The specific allowance for impaired loans is established for specific loans that have been identified by management as being impaired. These loans are considered to be impaired primarily because the loans have not performed according to payment terms and there is reason to believe that repayment of the loan principal in whole, or in part, is unlikely. The specific portion of the allowance is the total amount of potential unconfirmed losses for these individual impaired loans. To assist in determining the fair value of loan collateral, the Company often utilizes independent third party qualified appraisal firms which, in turn, employ their own criteria and assumptions that may include occupancy rates, rental rates and property expenses, among others.

The second category of reserves consists of the allocated portion of the allowance. The allocated portion of the allowance is determined by taking pools of loans outstanding that have similar characteristics and applying historical loss experience for each pool. This estimate represents the potential unconfirmed losses within the portfolio. Individual loan pools are created for commercial and commercial real estate loans, construction loans, warehouse lines of credit and various types of loans to individuals. The historical estimation for each loan pool is then adjusted to account for current conditions, current loan portfolio performance, loan policy or management changes, or any other qualitative factor which may cause future losses to deviate from historical levels.

The Company also maintains an unallocated allowance. The unallocated allowance is used to cover any factors or conditions which may cause a potential loan loss but are not specifically identifiable. It is prudent to maintain an unallocated portion of the allowance because no matter how detailed an analysis of potential loan losses is performed, these estimates, by definition, lack precision. Management must make estimates using assumptions and information that is often subjective and changing rapidly.

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The following discusses the risk characteristics of each of our loan portfolio segments-commercial, mortgage warehouse lines of credit and consumer.

Commercial

The Company’s primary lending emphasis is the origination of commercial and commercial real estate loans. Based on the composition of the loan portfolio, the inherent primary risks are deteriorating credit quality, a decline in the economy, and a decline in New Jersey real estate market values. Any one or a combination of these events may adversely affect the loan portfolio and may result in increased delinquencies, loan losses and increased future provision levels.

Mortgage Warehouse Lines of Credit

The Company’s Mortgage Warehouse Unit provides revolving lines of credit that are available to licensed mortgage banking companies. The warehouse line of credit is used by the mortgage banker to originate one-to-four family residential mortgage loans that are pre-sold to the secondary mortgage market, which includes state and national banks, national mortgage banking firms, insurance companies and government-sponsored enterprises, including the Federal National Mortgage Association, the Federal Home Loan Mortgage Corporation and others. On average, an advance under the warehouse line of credit remains outstanding for a period of less than 30 days, with repayment coming directly from the sale of the loan into the secondary mortgage market. Interest and a transaction fee are collected by the Bank at the time of repayment.

As a separate segment of the total portfolio, the warehouse loan portfolio is individually analyzed as a whole for allowance for loan losses purposes.  Warehouse lines of credit are subject to the same inherent risks as other commercial lending, but the overall degree of risk differs. While the Company’s loss experience with this type of lending has been non-existent since the product was introduced in 2008, there are other risks unique to this lending that still must be considered in assessing the adequacy of the allowance for loan losses. These unique risks may include, but are not limited to, (i) credit risks relating to the mortgage bankers that borrow from us, (ii) the risk of intentional misrepresentation or fraud by any of such mortgage bankers, (iii) changes in the market value of mortgage loans originated by the mortgage banker, the sale of which is the expected source of repayment of the borrowings under a warehouse line of credit, due to changes in interest rates during the time in warehouse, or (iv) unsalable or impaired mortgage loans so originated, which could lead to decreased collateral value and the failure of a purchaser of the mortgage loan to purchase the loan from the mortgage banker.

These factors, along with other qualitative factors such as economic trends, concentrations of credit, trends in the volume of loans, portfolio quality, delinquencies and non-accruals, are also considered and may have positive or negative effects on the allocated allowance.  The aggregate amount resulting from the application of these qualitative factors determines the overall risk for the portfolio and results in an allocated allowance for warehouse lines of credit.

Consumer

The Company’s consumer loan portfolio segment is comprised of residential real estate loans, home equity loans and other loans to individuals. Individual loan pools are created for the various types of loans to individuals.

In general, for homogeneous groups such as residential mortgages and consumer credits, the loans are collectively evaluated based on delinquency status, loan type and historical losses. These loan groups are then internally risk rated.

The Company considers the following credit quality indicators in assessing the risk in the loan portfolio:

• Consumer credit scores

• Internal credit risk grades

• Loan-to-value ratios

• Collateral

• Collection experience

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The following table presents, for the years indicated, an analysis of the allowance for loan losses and other related data:

Allowance for Loan Losses
(Dollars in thousands)	2016			2015			2014			2013			2012
Balance, beginning of year	$	7,560		$	6,925		$	7,039		$	7,151		$	5,534
(Credit) provision charged to operating expenses	(300		)	1,100			5,750			1,077			2,150
Loans charged off:
Construction loans	—			—			—			(562		)	(57		)
Residential real estate loans	—			—			(15		)	—			(131		)
Commercial and commercial real estate loans	(157		)	(477		)	(5,906		)	(594		)	(276		)
Loans to individuals	—			(14		)	(1		)	(52		)	(84		)
Lease financing	—			—			—			—			—
All other loans	(1		)	—			—			—			—
	(158		)	(491		)	(5,922		)	(1,208		)	(548		)
Recoveries:
Construction loans	—			—			—			—			3
Residential real estate loans	—			—			—			—			—
Commercial and commercial real estate loans	386			20			58			19			12
Loans to individuals	6			6			—			—			—
Lease financing	—			—			—			—			—
All other loans	—			—			—			—			—
	392			26			58			19			15
Net recoveries (charge offs)	234			(465		)	(5,864		)	(1,189		)	(533		)
Balance, end of year	$	7,494		$	7,560		$	6,925		$	7,039		$	7,151
Loans:
At year end	$	724,808		$	682,121		$	654,297		$	373,336		$	521,814
Average during the year	691,180			675,531			556,362			399,462			463,587
Net recoveries (charge offs) to average loans outstanding	0.03		%	(0.07		)%	(1.04		)%	(0.30		)%	(0.11		)%
Net recoveries (charge-offs) to average loans, excluding mortgage warehouse loans	0.05		%	(0.10		)%	(1.36		)%	(0.48		)%	(0.21		)%
Allowance for loan losses to:
Total loans at year end	1.03		%	1.11		%	1.06		%	1.89		%	1.37		%
Total loans at year end excluding mortgage warehouse lines and related allowance	1.28		%	1.44		%	1.27		%	2.52		%	2.41		%
Non-performing loans	144.18		%	125.59		%	143.08		%	111.34		%	119.92		%

At December 31, 2016, the allowance for loan losses was $7.5 million compared to $7.6 million at December 31, 2015, a decrease of $66,000. The ratio of the allowance for loan losses to total loans at December 31, 2016 and 2015 was 1.03% and 1.11%, respectively. The allowance for loan losses as a percentage of non-performing loans was 144.18% at December 31, 2016 compared to 125.59% at December 31, 2015.

The allowance for loan losses decreased in 2016 due primarily to a credit (negative) provision for $300,000, which reflected net recoveries of $234,000 compared to provisions for loan losses in the amount of $1.1 million in 2015 that was partially offset by net charge-offs of $465,000.

The allowance for loan losses decreased as a percentage of loans to 1.03% at December 31, 2016 from 1.11% at December 31, 2015 due primarily to the increase in loans and the lower historical loss factors for commercial and commercial real estate loans. With respect to the loans acquired from Rumson, at December 31, 2016, the total credit risk adjustment was approximately $655,000 and was comprised of a non-accretive credit discount of $215,000 and an accretive general credit risk fair value discount of $440,000 compared to the total risk adjustment of $888,000 at December 31, 2015, comprised of a non-accretive credit discount of $215,000 and an accretive general credit risk fair value discount of $673,000.

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Management believes that the quality of the loan portfolio remains sound, considering the economic climate and economy in the State of New Jersey, and that the allowance for loan losses is adequate in relation to credit risk exposure levels.

The following tables describe the allocation of the allowance for loan losses (“ALL”) among the various categories of loans and certain other information as of the dates indicated.  The allocation is made for analytical purposes and is not necessarily indicative of the categories in which future losses may occur.  The total allowance is available to absorb losses from any segment of loans.

(Dollars in thousands)	December 31,
	2016						2015						2014
	Amount		ALL as a % of Loans		% of Loans		Amount		ALL as a % of Loans		% of Loans		Amount		ALL as a % of Loans		% of  Loans
Commercial real estate loans	$	2,574	1.06	%	34	%	$	3,049	1.47	%	30	%	$	2,393	1.21	%	30	%
Commercial business	1,732		1.74	%	14	%	2,005		2.02	%	15	%	1,761		1.59	%	17	%
Construction loans	1,204		1.25	%	13	%	1,025		1.09	%	14	%	1,215		1.27	%	15	%
Residential real estate loans	367		0.82	%	6	%	288		0.71	%	6	%	197		0.42	%	7	%
Loans to individuals	112		0.47	%	3	%	109		0.47	%	3	%	131		0.56	%	4	%
Subtotal	5,989		1.18	%	70	%	6,476		1.39	%	68	%	5,697		1.20	%	73	%
Mortgage warehouse lines	973		0.45	%	30	%	866		0.40	%	32	%	896		0.50	%	27	%
Unallocated reserves	532		—		—		218		—		—		332		—		—
Total	$	7,494	1.03	%	100	%	$	7,560	1.11	%	100	%	$	6,925	1.06	%	100	%

	December 31,
	2013						2012
	Amount		ALL as a % of Loans		% of Loans		Amount		ALL as a % of Loans		% of Loans
Commercial real estate loans	$	3,022	3.07	%	26	%	$	2,262	2.21	%	20	%
Commercial business	1,272		1.54	%	22	%	973		1.68	%	11	%
Construction loans	1,205		2.36	%	14	%	1,990		3.57	%	11	%
Residential real estate loans	165		1.20	%	4	%	112		1.03	%	2	%
Loans to individuals	111		1.12	%	3	%	105		1.07	%	2	%
Subtotal	5,775		2.26	%	69	%	5,442		2.30	%	46	%
Mortgage warehouse lines	585		0.50	%	31	%	1,421		0.50	%	54	%
Unallocated reserves	679		—		—		288		—		—
Total	$	7,039	1.89	%	100	%	$	7,151	1.37	%	100	%

The allowance for loan losses, excluding the portion related to mortgage warehouse lines, decreased to $6.5 million at December 31, 2016 from $6.7 million at December 31, 2015.

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Deposits

The following table sets forth the balances and contractual rates payable to our customers, by account type, as of December 31, 2016 and 2015:

	December 31, 2016						December 31, 2015
(Dollars in thousands)	Amount		Percent Of Total		Weighted Average Contractual Rate		Amount		Percent Of Total		Weighted Average Contractual Rate
Non-interest bearing demand	$	170,854	20	%	—	%	$	159,918	20	%	—	%
Interest bearing demand	310,103		37	%	0.37	%	284,547		36	%	0.34	%
Savings	205,294		25	%	0.59	%	196,324		25	%	0.48	%
Total core deposits	$	686,251	82	%	0.35	%	$	640,789	81	%	0.27	%
Certificates of deposit	$	148,265	18	%	1.12	%	$	145,968	19	%	1.10	%
Total deposits	$	834,516	100	%	0.61	%	$	786,757	100	%	0.48	%

The following table indicates the amount of certificates of deposit by time remaining until maturity as of December 31, 2016.

	Maturity
	3 Months or Less		Over 3 to 6 Months		Over 6 to 12 Months		Over 12 Months		Total
(Dollars in thousands)
Certificates of deposit of  $100,000 or more	$	17,726	$	15,375	$	21,136	$	38,611	$	92,848
Certificates of deposit less than $100,000	10,418		9,162		12,262		23,575		55,417
Total certificates of deposit	$	28,144	$	24,537	$	33,398	$	62,186	$	148,265

The following table illustrates the components of average total deposits for the years indicated:

Average Deposit Balances
(Dollars in thousands)	2016				2015				2014
	Average Balance		Percentage of Total		Average Balance		Percentage  of Total		Average Balance		Percentage of Total
Non-interest bearing demand	$	166,519	20	%	$	164,419	20	%	$	159,935	20	%
Interest bearing demand	301,086		36	%	300,813		37	%	286,235		35	%
Savings	206,069		25	%	196,844		24	%	199,078		24	%
Certificates of deposit of $100,000       or more	89,220		11	%	71,449		9	%	98,891		12	%
Other certificates of deposit       less than $100,000	62,858		8	%	87,306		10	%	70,574		9	%
Total	$	825,752	100	%	$	820,831	100	%	$	814,713	100	%

Deposits, which include demand deposits (interest bearing and non-interest bearing), savings deposits and certificates of deposit, are a fundamental and cost-effective source of funding.  The flow of deposits is influenced significantly by general economic conditions, changes in market interest rates and competition.  The Bank offers a variety of products designed to attract and retain customers, with the Bank’s primary focus on the building and expanding of long-term relationships.  Deposits for the year ended December 31, 2016 averaged $825.8 million, an increase of $4.9 million, or 0.60%, compared to $820.8 million for the year ended December 31, 2015.  At December 31, 2016, total deposits were $834.5 million, an increase of $47.8 million, or 6.07%, from $786.8 million at December 31, 2015. The increase in total deposits in 2016 was due principally to an increase of

20

$25.6 million in interest-bearing demand deposits, a $10.9 million increase in non-interest bearing demand deposits, a $9.0 million increase in savings deposits and a $2.3 million increase in time deposits. The average rate paid on the Bank’s interest-bearing deposit balances for 2016 was 0.61%, an increase from the average rate of 0.56% for 2015.   

Average non-interest bearing demand deposits increased by $2.1 million, or 1.3%, to $166.5 million for the year ended December 31, 2016 from $164.4 million for the year ended December 31, 2015.  At December 31, 2016, non-interest bearing demand deposits totaled $170.9 million, an increase of $10.9 million, or 6.8%, compared to $159.9 million at December 31, 2015.  Non-interest bearing demand deposits made up 20.5% of total deposits at December 31, 2016 compared to 20.3% at December 31, 2015 and represent a stable, interest-free source of funds.

Savings accounts increased by $9.0 million, or 6.8%, to $205.3 million at December 31, 2016 from $196.3 million at December 31, 2015.  In 2016, the average balance of savings accounts increased by $9.2 million to $206.1 million compared to an average balance of $196.8 million in 2015.

Interest-bearing demand deposits, which include interest-bearing checking accounts, money market accounts and the Bank’s premier money market product, 1st Choice account, increased by $272,000, or 0.1%, to an average of $301.1 million for 2016 from an average of $300.8 million for 2015.  The average cost of interest bearing demand deposits was 0.37% for 2016 compared to 0.34% in 2015.

 Certificates of  deposit consist primarily of retail certificates of deposit and certificates of deposit with balances of $100,000 or more.  Certificates of deposit at December 31, 2016 were $148.3 million, an increase of $2.3 million from $146.0 million at December 31, 2015. The average cost of certificates of deposits increased to 1.12% in 2016 from 1.10% in 2015. Retail certificates of deposit decreased by $16.7 million, or 23.7%, to an average of $62.9 million for 2016 from an average of $87.3 million for 2015.  The average cost of retail certificates of deposit decreased to 0.98% for 2016 from 1.00% for 2015.

Borrowings

Borrowings are comprised of Federal Home Loan Bank (“FHLB”) borrowings and overnight funds purchased.  These borrowings are primarily used to fund asset growth not supported by deposit generation.  The average balance of other borrowed funds increased by $10.0 million to $48.4 million for 2016 from an average balance of $38.5 million for 2015 due to an increase in overnight borrowings in 2016.  The average cost of other borrowed funds decreased 8 basis points to 1.42% for 2016 compared to 1.50% for 2015.

The balance of borrowings was $73.1 million at December 31, 2016, which consisted of one long-term FHLB advance totaling $10.0 million and FHLB overnight funds purchased in the amount of $63.1 million. The balance of borrowings was $58.9 million at December 31, 2015, consisting of three long-term FHLB advances totaling $20.3 million and FHLB overnight purchased funds of $38.6 million.

Shareholders’ Equity and Dividends

Shareholders’ equity increased by $8.8 million, or 9.2%, to $104.8 million at December 31, 2016 from $96.0 million at December 31, 2015.  Tangible book value per common share was $11.50 at December 31, 2016 compared to $10.44 at December 31, 2015.  The ratio of average shareholders’ equity to total average assets was 10.06% and 9.34% for 2016 and 2015, respectively.  The increase in shareholders’ equity from December 31, 2015 to December 31, 2016 was primarily the result of an increase of $8.5 million in retained earnings.

In lieu of cash dividends, the Company (and its predecessor, the Bank) declared a stock dividend every year for the years 1992 through 2012 and paid such dividends every year for the years 1993 through 2013.  The Company declared two stock dividends in 2015 and did not declare a stock dividend in 2014 or 2013.

On September 15, 2016, the Board of Directors of the Company declared a cash dividend of $0.05 per common share. The cash dividend was paid on October 21, 2016 to all shareholders of record as of the close of business on September 28, 2016. This action represented the first cash dividend declared by the Company on its common shares.

On December 15, 2016, the Board of Directors of the Company declared a cash dividend of $0.05 per common share. The cash dividend was paid on January 25, 2017 to all shareholders of record as of the close of business on January 3, 2017.

21

The timing and the amount of the payment of future cash dividends, if any, on the Company's common shares will be at the discretion of the Company's Board of Directors and will be determined after consideration of various factors, including the level of earnings, cash requirements, regulatory capital and financial condition.

The Federal Reserve Board has issued a supervisory letter to bank holding companies that contains guidance on when the board of directors of a bank holding company should eliminate or defer or severely limit dividends, including, for example, when net income available for shareholders for the past four quarters, net of dividends paid during that period, is not sufficient to fully fund the dividends. The letter also contains guidance on the redemption of stock by bank holding companies, which urges bank holding companies to advise the Federal Reserve of any such redemption or repurchase of common stock for cash or other value that results in the net reduction of a bank holding company’s capital at the beginning of the quarter below the capital outstanding at the end of the quarter. The Company's payment of cash dividends to date were within the guidelines set forth in the Federal Reserve Board's supervisory letter.

The Company’s common stock is quoted on the Nasdaq Global Market under the symbol “FCCY.”

The Company and the Bank are subject to various regulatory capital requirements administered by the Federal Reserve Board and the Federal Deposit Insurance Corporation.  For information on regulatory capital, see “Capital Adequacy” in the “Supervision and Regulation” section under Item 1. “Business” and Note 18 of the Notes to Consolidated Financial Statements.

The Company believes that its shareholders’ equity and regulatory capital position are adequate to support the planned operations of the Company for the foreseeable future.

Off-Balance Sheet Arrangements and Contractual Obligations

The following table shows the amounts and expected maturities of significant commitments as of December 31, 2016.  Further discussion of these commitments is included in Note 16 of the Notes to Consolidated Financial Statements.

(Dollars in thousands)	One Year or Less		One to Three Years		Three to Five Years		Over Five Years		Total
Off Balance Sheet:
Standby letters of credit	$	1,994	$	—	$	—	$	—	$	1,994
Commitments to extend credit	372,683		—		—		—		372,683
Commitments to sell residential loans	8,319		—		—		—		8,319
Total off balance sheet:	$	382,996	$	—	$	—	$	—	$	382,996
Contractual Obligations:
Operating Leases	$	1,331	$	2,056	$	1,408	$	2,449	$	7,244
Borrowed funds and subordinated debentures	73,050		—		—		18,557		91,607
Certificates of deposit	86,079		49,963		12,223		—		148,265
Retirement benefit obligation projected	4,906		—		—		—		4,906
Total contractual obligations:	165,366		52,019		13,631		21,006		252,022
Total	$	548,362	$	52,019	$	13,631	$	21,006	$	635,018

Liquidity

At December 31, 2016, the amount of liquid assets held by the Company remained at a level management deemed adequate to ensure that contractual liabilities, depositors’ withdrawal requirements and other operational and customer credit needs could be satisfied.

Liquidity management refers to the Company’s ability to support asset growth while satisfying the borrowing needs and deposit withdrawal requirements of its customers.  In addition to maintaining liquid assets, factors such as capital position, profitability, asset quality and availability of funding affect a bank’s ability to meet its liquidity needs.  On the asset side, liquid funds are maintained in the form of cash and cash equivalents, Federal funds sold, deposits at the Federal Reserve Bank, investment securities held to maturity maturing within one year, securities available for sale and loans held for sale.  Additional asset-based liquidity is derived from scheduled loan repayments as well as investment repayments of principal and interest from mortgage-backed securities.  On the liability side, the primary source of liquidity is the ability to generate core deposits.  Short-term

22

borrowings are used as supplemental funding sources when growth in the core deposit base does not keep pace with that of earnings assets.

The Bank has established a borrowing relationship with the FHLB which further supports and enhances liquidity. During 2010, FHLB replaced its Overnight Line of Credit and One-Month Overnight Repricing Line of Credit facilities available to member banks with a fully secured line of up to 50 percent of a bank’s quarter-end total assets.  Under the terms of this facility, the Bank’s total credit exposure to FHLB cannot exceed 50 percent, or $519.1 million, of its total assets at December 31, 2016.  In addition, the aggregate outstanding principal amount of the Bank’s advances, letters of credit, the dollar amount of the FHLB’s minimum collateral requirement for off balance sheet financial contracts and advance commitments cannot exceed 30 percent of the Bank’s total assets, unless the Bank obtains approval from FHLB’s Board of Directors or its Executive Committee.  These limits are further restricted by a member bank’s ability to provide eligible collateral to support its obligations to FHLB as well as a member bank’s ability to meet the FHLB’s stock requirement.  At December 31, 2016, the Bank had available borrowing capacity of $125.8 million at the FHLB of New York. At December 31, 2015, the Bank had available borrowing capacity of $60.3 million at the FHLB of New York. The Bank also maintains unsecured federal funds lines of $46.0 million with two correspondent banks.

The Consolidated Statements of Cash Flows present the changes in cash from operating, investing and financing activities.  At December 31, 2016, the balance of cash and cash equivalents was $14.9 million.

Net cash provided by operating activities totaled $2.6 million for the year ended December 31, 2016 compared to net cash provided by operating activities of $16.2 million for the year ended December 31, 2015.  The primary source of funds was net income from operations, adjusted for activity related to loans originated for sale, the provision for loan losses, depreciation expense and net amortization of premiums on securities.  Cash was used in operations primarily for originating loans held for sale. The decline in net cash provided by operating activities was due primarily to net cash used in the origination and sale of loans totaling $9.0 million in 2016 compared to $2.4 million of cash provided by the origination and sale of loans in 2015.

Net cash used in investing activities totaled $60.7 million for the year ended December 31, 2016 compared to $22.1 million for the year ended December 31, 2015.  The increase in net cash used in investing activities for 2016 as compared to 2015 resulted from the net increase in loans of $42.8 million compared to the net increase in loans of $30.6 million in 2015. Net cash used in investment securities transactions in 2016 was $17.7 million compared to $4.8 million of cash provided in 2015. Proceeds from the sale of OREO properties were $1.0 million in 2016 compared to $6.0 million in 2015.

Net cash provided by financing activities totaled $61.6 million for the year ended December 31, 2016 compared to $2.7 million for the year ended December 31, 2015.  The net cash provided by financing activities in 2016 was due primarily to the net increase in deposits.  In 2015, the net decrease in deposits was more than offset by a net increase in borrowings.

The investment securities portfolios are also a source of liquidity, providing cash flows from maturities and periodic repayments of principal.  For the year ended December 31, 2016, repayments and maturities of investment securities totaled $54.8 million compared to $54.5 million in 2015.  Another source of liquidity is the loan portfolio, which provides a flow of payments and maturities.

The Company believes that its liquidity position is adequate to service the needs of its borrowers and depositors and provide for its planned operations.

Interest Rate Sensitivity Analysis

              The largest component of the Company’s total income is net interest income and the majority of the Company’s financial instruments are composed of interest rate sensitive assets and liabilities with various terms and maturities.  The primary objective of management is to maximize net interest income while minimizing interest rate risk. The Company’s assets consist primarily of floating rate construction loans and commercial lines of credit and its liabilities consist primarily of deposits.  Interest rate risk is derived from timing differences and the magnitude of relative changes in the repricing of assets and liabilities, loan prepayments, deposit withdrawals and differences in lending and funding rates.  Management actively seeks to monitor and control the mix of interest rate sensitive assets and interest rate liabilities.

23

The following table sets forth certain information relating to the Bank’s financial instruments that are sensitive to changes in interest rates, categorized by expected maturity or repricing of such instruments at December 31, 2016.

(Dollars in thousands)													Total			One Year
	Interest Sensitivity Period												Within			to			Over			Non-interest
	30 Day			90 Day			180 Day			365 Day			One Year			Five Years			Five Years			Sensitive			Total
Assets :
Cash and due from banks	$	9,781		$	—		$	—		$	—		$	9,781		$	—		$	—		$	5,105		$	14,886
Federal funds sold	—			—			—			—			—			—			—			—			—
Investment securities	9,323			24,180			6,861			33,176			73,540			90,690			47,551			18,823			230,604
Loans held for sale	14,829			—			—			—			14,829			—			—			—			14,829
Loans, net of allowance for loan losses	391,445			18,294			25,657			41,148			476,544			209,931			20,401			10,438			717,314
Other assets	—			—			—			—			—			—			—			60,580			60,580
	$	425,378		$	42,474		$	32,518		$	74,324		$	574,694		$	300,621		$	67,952		$	94,946		$	1,038,213
Sources of Funds :
Demand deposits - non-interest bearing	$	—		$	—		$	—		$	—		$	—		$	—		$	—		$	170,854		$	170,854
Demand deposits - interest bearing	135,613			—			—			—			135,613			144,489			30,001			—			310,103
Savings deposits	114,977			—			—			31			115,008			49,271			41,015			—			205,294
Certificates of deposits	6,975			21,146			24,537			33,398			86,056			62,209			—			—			148,265
Borrowings	63,050			—			—			10,000			73,050			—			—			—			73,050
Redeemable subordinated debentures	—			18,000			—			—			18,000			—			—			557			18,557
Non-interest-bearing sources	—			—			—			—			—			—			—			112,090			112,090
	$	320,615		$	39,146		$	24,537		$	43,429		$	427,727		$	255,969		$	71,016		$	283,501		$	1,038,213
Asset (Liability) Sensitivity Gap :
Period Gap	$	104,763		$	3,328		$	7,981		$	30,895		$	146,967		$	44,652		$	(3,064	)	$	(188,555	)	—
Cumulative Gap	$	104,763		$	108,091		$	116,072		$	146,967		$	293,934		$	338,586		$	335,522		—			—
Cumulative Gap to Total Assets	10.1		%	10.4		%	11.2		%	14.2		%	28.3		%	32.6		%	32.3		%	—			—

     Under the Company’s interest rate risk policy established by the Board of Directors, quantitative guidelines have been established with respect to the Company’s interest rate risk and how interest rate shocks are projected to affect the Company’s net interest income and economic value of equity (“EVE”).  The Company engages the services of an outside consultant to assist with the measurement and analysis of interest rate risk.  The Company uses a combination of analyses to monitor its exposure to changes in interest rates. The EVE analysis is a financial model that estimates the change in EVE over a range of instantaneously shocked interest rate scenarios. EVE is the discounted present value of expected cash flows from assets, liabilities, and off-balance sheet contracts. In calculating changes in EVE, assumptions estimating loan prepayment rates, reinvestment rates and deposit decay rates that seem most likely based on historical experience during prior interest rate changes are employed. The net interest income simulation uses data derived from an asset and liability analysis and applies several elements, including actual interest rate indices and margins, contractual limitations and the U.S. Treasury yield curve as of the balance sheet date. The financial model uses immediate parallel yield curve shocks (in both directions) to determine possible changes in net interest income as if the theoretical

24

rate shocks occurred.  The EVE analysis and net interest income simulation model results are presented quarterly to the Asset/Liability Committee of the Board.

Summarized below are the projected effects of a parallel shift of increases of 200 and 300 basis points, respectively, in market rates on the Company’s net interest income and EVE.

										Next 12 Months
	Economic Value of Equity (2)									Net Interest Income
Change in Interest Rates	Dollar		Dollar			Percentage		Dollar		Dollar		Percentage
Basis Point (bp) (1)
	Amount		Change			Change		Amount		Change		Change
	(Dollars in Thousands)
+300 bp	$	137,643	$	(962	)	(0.69	)%	$	40,448	$	2,872	7.64	%
+200 bp	138,006		(599		)	(0.43	)%	39,327		1,751		4.66	%
0 bp	138,605		—			—		37,576		—		—

⁽¹⁾  Assumes an instantaneous and parallel shift in interest rates at all maturities.

⁽²⁾  EVE is the discounted present value of expected cash flows from assets, liabilities and off-balance sheet contracts.

The above table indicates that at December 31, 2016, in the event of a 200 basis point increase in interest rates, the Company would be expected to experience a 0.43% decrease in EVE and a $1.8 million, or 4.66%, increase in net interest income over the next twelve months. This data does not reflect any future actions management may take in response to changes in interest rates, such as changing the mix of assets and liabilities, which could change the results of the EVE and net interest income calculations.

Certain shortcomings are inherent in any methodology used in the above interest rate risk measurements. Modeling changes in EVE and net interest income require certain assumptions that may or may not reflect the manner in which actual yields and costs respond to changes in market interest rates. In this regard, the estimated EVE and net interest income presented above assumes that the composition of the Company’s interest-rate sensitive assets and liabilities existing at the beginning of a period remains constant over the period being measured and, accordingly, the data does not reflect any actions the Company may take in response to changes in interest rates. The estimates also assume a particular change in interest rates is reflected uniformly across the yield curve regardless of the duration to maturity or the repricing characteristics of specific assets and liabilities. Although the estimated EVE and net interest income provide an indication of the Company’s sensitivity to interest rate changes at a particular point in time, such measurement is not intended to and does not provide a precise forecast of the effects of changes in market interest rates on the Company’s EVE and net interest income and will differ from actual results.

25

EX-99.2

Exhibit 99.2

Updated Item 8.  Financial Statements and Supplementary Data.

Note:    The information contained in this Item has been updated for the classification error as further detailed in the Current Report on Form 8-K filed herewith. This item has not been updated for any other changes since the filing of the 2016 Form 10-K/A. For significant developments since the filing of the 2016 Form 10-K/A, refer to our filings with the SEC.

1

Report of Independent Registered Public Accounting Firm

Board of Directors and Shareholders

1^st Constitution Bancorp

Cranbury, New Jersey

We have audited the accompanying consolidated balance sheets of 1^st Constitution Bancorp (the “Company”) as of December 31, 2016 and 2015 and the related consolidated statements of income, comprehensive income, changes in shareholders’ equity, and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of 1^st Constitution Bancorp at December 31, 2016 and 2015, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of December 31, 2016, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our report dated March 20, 2017 expressed an adverse opinion thereon.

/s/ BDO USA, LLP

Philadelphia, Pennsylvania

March 20, 2017 (except for the Consolidated Statements of Income, Note 1, Note 17 and Note 22, as to which the date is December 27, 2017)

2

Report of Independent Registered Public Accounting Firm

Board of Directors and Shareholders

1^st Constitution Bancorp

Cranbury, New Jersey

We have audited 1^st Constitution Bancorp (the “Company”) internal control over financial reporting as of December 31, 2016, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed 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. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, the Company did not maintain, in all material respects, effective internal control over financial reporting as of December 31, 2016, based on the COSO criteria. We do not express an opinion or any other form of assurance on management’s statements referring to any corrective actions taken by the company after the date of management’s assessment.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of the Company as of December 31, 2016 and 2015, and the related consolidated statements of income, comprehensive income, changes in shareholders’ equity, and cash flows for the years then ended and our report dated March 20, 2017 (except for the consolidated statements of income, Note 1, Note 17 and Note 22, as to which the date is December 27, 2017) expressed an unqualified opinion thereon.

/s/ BDO USA, LLP

Philadelphia, Pennsylvania

March 20, 2017

3

1st CONSTITUTION BANCORP

CONSOLIDATED BALANCE SHEETS

December 31, 2016 and 2015

(Dollars in Thousands, except share data)

	2016			2015
ASSETS
Cash and Due From Banks	$	14,886		$	11,368
Federal Funds Sold/Short-Term Investments	—			—
Total cash and cash equivalents	14,886			11,368
Investment Securities
Available for sale, at fair value	103,794			91,422
Held to maturity (fair value of $128,559 and $127,157 at December 31, 2016 and 2015, respectively)	126,810			123,261
Total investment securities	230,604			214,683
Loans Held for Sale	14,829			5,997
Loans	724,808			682,121
Less- Allowance for loan losses	(7,494		)	(7,560		)
Net loans	717,314			674,561
Premises and Equipment, Net	10,673			11,109
Accrued Interest Receivable	3,095			2,853
Bank-Owned Life Insurance	22,184			21,583
Other Real Estate Owned	166			966
Goodwill and Intangible Assets	12,880			13,284
Other Assets	11,582			11,587
Total assets	$	1,038,213		$	967,991
LIABILITIES AND SHAREHOLDERS’ EQUITY
LIABILITIES
Deposits
Non-interest bearing	$	170,854		$	159,918
Interest bearing	663,662			626,839
Total deposits	834,516			786,757
Borrowings	73,050			58,896
Redeemable Subordinated Debt	18,557			18,557
Accrued Interest Payable	866			846
Accrued Expenses and Other Liabilities	6,423			6,975
Total liabilities	933,412			872,031
SHAREHOLDERS’ EQUITY
Preferred stock, no par value: 5,000,000 shares authorized, none issued	—			—
Common stock, no par value; 30,000,000 shares authorized; 8,027,087 and 7,954,267 shares issued and 7,993,789 and 7,922,968 shares outstanding as of December 31, 2016 and 2015, respectively	71,695			70,845

4

Retained earnings	34,074			25,589
Treasury Stock 33,298 shares and 31,298 shares at December 31, 2016 and 2015, respectively	(368		)	(344		)
Accumulated other comprehensive loss	(600		)	(130		)
Total shareholders’ equity	104,801			95,960
Total liabilities and shareholders’ equity	$	1,038,213		$	967,991

The accompanying notes are an integral part of these consolidated financial statements

5

1st CONSTITUTION BANCORP

CONSOLIDATED STATEMENTS OF INCOME

For the Years Ended December 31, 2016 and 2015

(Dollars in thousands, except per share data)

	2016			2015
INTEREST INCOME
Loans, including fees	$	33,744		$	34,097
Securities
Taxable	3,268			3,167
Tax-exempt	2,078			2,131
Federal funds sold/interest earning deposits	88			50
Total interest income	39,178			39,445
INTEREST EXPENSE
Deposits	4,044			3,704
Borrowings	687			577
Redeemable subordinated debentures	427			355
Total interest expense	5,158			4,636
Net interest income	34,020			34,809
(CREDIT) PROVISION FOR LOAN LOSSES	(300		)	1,100
Net interest income after (credit) provision for loan losses	34,320			33,709
NON-INTEREST INCOME
Service charges on deposit accounts	715			818
Gain on sales of loans, net	3,785			4,039
Income on Bank-owned life insurance	549			558
Other income	1,837			1,049
Total other income	6,886			6,464
NON-INTEREST EXPENSES
Salaries and employee benefits	16,543			15,589
Occupancy expense	4,001			4,098
Data processing expenses	1,277			1,211
FDIC insurance expense	453			660
Other real estate owned expenses	81			734
Other operating expenses	4,943			5,155
Total other expenses	27,298			27,447
Income before income taxes	13,908			12,726
INCOME TAXES	4,623			4,062
Net income	$	9,285		$	8,664
NET INCOME PER COMMON SHARE
Basic	$	1.17		$	1.10
Diluted	$	1.14		$	1.07
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic	7,962,121			7,901,278
Diluted	8,177,439			8,075,752

The accompanying notes are an integral part of these consolidated financial statements

6

1st CONSTITUTION BANCORP

Consolidated Statements of Comprehensive Income

For the years ended December 31, 2016 and 2015

(Dollars in thousands)

	2016			2015
Net income	$	9,285		$	8,664
Other comprehensive (loss) income:
Unrealized holding (losses) gains on securities available for sale	(667		)	(224		)
Tax effect	243			38
Net of tax amount	(424		)	(186		)
Pension liability	83			(53		)
Tax effect	(31		)	21
Net of tax amount	52			(32		)
Reclassification adjustment for actuarial (gains) for unfunded pension liability
Income (1)	(160		)	(266		)
Tax effect (2)	62			106
Net of tax amount	(98		)	(160		)
Total other comprehensive (loss) income	(470		)	(378		)
Comprehensive income	$	8,815		$	8,286

(1) Included in salaries and employee benefits expense on the consolidated statements of income

(2) Included in income taxes on the consolidated statements of income

The accompanying notes are an integral part of these consolidated financial statements

7

1st CONSTITUTION BANCORP

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

For the Years Ended December 31, 2016 and 2015

(Dollars in thousands)

	Common Stock			Retained Earnings			Treasury Stock			Accumulated Other Comprehensive (Loss) Income			Total Shareholders' Equity
BALANCE, January 1, 2015	$	61,448		$	25,730		$	(316	)	$	248		$	87,110
Exercise of stock options and issuance of restricted shares under employee benefit programs (33,800 shares issued from Treasury Stock)	(39		)	—			331			—			292
Share-based compensation	631			—			—			—			631
5% Stock dividends declared February and December 2015 (737,448 shares)	8,805			(8,805		)	—			—			—
Treasury stock purchased, net (31,050 shares)	—			—			(359		)	—			(359		)
Net Income for the year ended 12/31/2015	—			8,664			—			—			8,664
Other comprehensive loss	—			—			—			(378		)	(378		)
BALANCE, December 31, 2015	$	70,845		$	25,589		$	(344	)	$	(130	)	$	95,960
Exercise of stock options	96			—			—			—			96
Share-based compensation	754			—			—			—			754
Treasury stock purchased (2,000 shares)	—			—			(24		)	—			(24		)
Dividends on common stock	—			(800		)	—			—			(800		)
Net Income for the year ended December 31, 2016	—			9,285			—			—			9,285
Other comprehensive loss	—			—			—			(470		)	(470		)
BALANCE, December 31, 2016	$	71,695		$	34,074		$	(368	)	$	(600	)	$	104,801

The accompanying notes are an integral part of these consolidated financial statements

8

1st CONSTITUTION BANCORP

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Years Ended December 31, 2016 and 2015

(Dollars in thousands)

	2016			2015
OPERATING ACTIVITIES:
Net income	$	9,285		$	8,664
Adjustments to reconcile net income to net cash provided by operating activities:
(Credit) provision for loan losses	(300		)	1,100
Provision for loss on other real estate owned	—			382
Depreciation and amortization	1,415			1,476
Net amortization of premiums and discounts on securities	1,141			810
(Gains) loss on sales of other real estate owned	(31		)	692
Gains on sales of loans held for sale	(3,785		)	(4,039		)
Originations of loans held for sale	(96,968		)	(134,073		)
Proceeds from sales of loans held for sale	91,708			140,486
Income on Bank-owned life insurance	(549		)	(558		)
Share-based compensation expense	754			631
Deferred tax expense	354			159
(Increase) decrease in accrued interest receivable	(242		)	243
Decrease in other assets	388			617
Increase (decrease) in accrued interest payable	20			(61		)
Decrease in accrued expense and other liabilities	(552		)	(363		)
Net cash provided by  operating activities	2,638			16,166
INVESTING ACTIVITIES:
Purchases of securities:
Available for sale	(37,300		)	(34,109		)
Held to maturity	(35,212		)	(15,599		)
Proceeds from maturities and repayments of securities:
Available for sale	23,354			18,783
Held to maturity	31,429			35,705
Proceeds from Bank-owned life insurance benefits paid	248			—
Net purchase of restricted stock	(661		)	(1,516		)
Net increase in loans	(42,779		)	(30,646		)
Purchase of Bank-owned life insurance	(300		)	—
Capital expenditures	(457		)	(706		)
Additional investment in other real estate owned	(61		)	—
Proceeds from sales of other real estate owned	1,033			6,027
Net cash used in investing activities	(60,706		)	(22,061		)
FINANCING ACTIVITIES:
Exercise of stock options and issuance of restricted shares	96			292
Purchase of treasury stock	(24		)	(359		)
Cash dividends paid to shareholders	(399		)	—
Net increase (decrease) in demand, savings and time deposits	47,759			(31,004		)
Repayment of long-term borrowing	(10,000		)	—
Net increase in short-term borrowings	24,154			33,789
Net cash provided by financing activities	61,586			2,718
Increase (decrease) in cash and cash equivalents	3,518			(3,177		)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR	11,368			14,545
CASH AND CASH EQUIVALENTS AT END OF YEAR	$	14,886		$	11,368

9

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for -
Interest	$	5,138	$	4,697
Income taxes	4,590		4,170
Non-cash investing activities
Real estate acquired in full satisfaction of loans in foreclosure	141		2,357

The accompanying notes are an integral part of these consolidated financial statements

10

1st CONSTITUTION BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2016 and 2015

1.           Summary of Significant Accounting Policies

1st Constitution Bancorp (the “Company”) is a bank holding company registered under the Bank Holding Company Act of 1956, as amended, and was organized under the laws of the State of New Jersey.  The Company is the parent to 1st Constitution Bank (the “Bank”), a New Jersey state-chartered commercial bank.  The Bank provides community banking services to a broad range of customers, including corporations, individuals, partnerships and other community organizations in the central and northeastern New Jersey areas.  The Bank conducts its operations through its main office located in Cranbury, New Jersey and operated, as of December 31, 2016, eighteen additional branch offices in downtown Cranbury, Fort Lee, Hamilton Square, Hightstown, Hillsborough, Hopewell, Jamesburg, Lawrenceville, Perth Amboy, Plainsboro, Skillman, West Windsor, Princeton, Rumson, Fair Haven, Asbury Park, Shrewsbury and Little Silver, New Jersey. The Bank also operates four residential mortgage loan production offices in Forked River, Flemington, Jersey City and Somerset, New Jersey.

The Company has evaluated events and transactions occurring subsequent to the balance sheet date of December 31, 2016 for items that should potentially be recognized or disclosed in these financial statements.  The evaluation was conducted through the date these financial statements were issued.

The Company paid a 5% common stock dividend on April 7, 2015 and a 5% common stock dividend on February 1, 2016. As appropriate, common shares and per common share data presented in the consolidated financial statements and the accompanying notes below have been adjusted to reflect the common stock dividends.

On September 15, 2016, the Board of Directors declared a quarterly cash dividend of $0.05 per common share that was paid on October 21, 2016 to all shareholders of record as of the close of business on September 28, 2016. This action representedthe first cash dividend declared by 1^ST Constitution Bancorp on its common shares.

On December 15, 2016, the Board of Directors declared a quarterly cash dividend of $0.05 per common share that was paid on January 25, 2017 to all shareholders of record as of the close of business on January 3, 2017.

Basis of Presentation

The accounting and reporting policies of the Company conform to accounting principles generally accepted in the United States of America (“U.S. GAAP”) and to the accepted practices within the banking industry.  The following is a description of the more significant of these policies and practices.

Principles of Consolidation

The accompanying consolidated financial statements include the Company and its wholly-owned subsidiary, the Bank, and the Bank’s wholly-owned subsidiaries, 1st Constitution Investment Company of New Jersey, Inc., FCB Assets Holdings, Inc., 204 South Newman Street Corp. and 249 New York Avenue, LLC.  1st Constitution Capital Trust II, a subsidiary of the Company (“Trust II”), is not included in the Company’s consolidated financial statements as it is a variable interest entity and the Company is not the primary beneficiary.  All significant intercompany accounts and transactions have been eliminated in consolidation and certain prior period amounts have been reclassified to conform to current year presentation.

Recasting of Prior Period Financial Information

Prior to the filing of the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2017, the Company identified an error concerning its presentation of the amortization of deferred loan origination costs in the Company’s Consolidated Statements of Income. The Company determined that it incorrectly classified the amortization of deferred loan origination costs in other expenses when it should have been included in loan interest income in its Consolidated Statements of Income for the years ended December 31, 2016 and 2015 (audited). This classification error did not result in any effect on pre-tax income, after-tax income, basic and diluted earnings per share, statements of cash flows, balance sheets, book value, return on assets, return on equity, or regulatory capital ratios in any historical period. The effect on the Company’s Consolidated Statements of Income for these periods was an overstatement of loan interest income and an overstatement of non-interest expenses by an equal amount.

11

The table below shows the changes to the Consolidated Statements of Income:

		2016	2015
Loan Interest
	As originally reported	35,429	35,597
	As revised	33,744	34,097
Total interest income
	As originally reported	40,863	40,945
	As revised	39,178	39,445
Net interest income before provision (credit)
	As originally reported	35,705	36,309
	As revised	34,020	34,809
Net interest income after provision (credit)
	As originally reported	36,005	35,209
	As revised	34,320	33,709
Salaries and employee benefits
	As originally reported	18,298	17,232
	As revised	16,543	15,589
Other operating expenses
	As originally reported	4,873	5,012
	As revised	4,943	5,155
Total other expense
	As originally reported	28,983	28,947
	As revised	27,298	27,447

The table below shows the changes to Note 17 Other Operating Expenses:

		2016	2015
Other expenses
	As originally reported	1,288	1,009
	As revised	1,358	1,152
Total other operating expense
	As originally reported	4,873	5,012
	As revised	4,943	5,155

12

The table below shows the changes to Note 22 Quarterly Financial Data (Unaudited):

		2016
Interest income		Dec. 31	Sept. 30	June 30	March 31
	As originally reported	10,455	10,843	9,871	9,694
	As revised	9,997	10,408	9,488	9,285
Net interest income before provision (credit)
	As originally reported	9,094	9,488	8,614	8,509
	As revised	8,636	9,053	8,231	8,100
Net interest income after provision (credit)
	As originally reported	9,094	9,488	8,714	8,709
	As revised	8,636	9,053	8,331	8,300
Total non-interest expense
	As originally reported	8,029	7,098	6,823	7,033
	As revised	7,572	6,662	6,440	6,624
		2015
Interest income		Dec. 31	Sept. 30	June 30	March 31
	As originally reported	9,863	10,832	10,564	9,686
	As revised	9,473	10,431	10,201	9,340
Net interest income before provision (credit)
	As originally reported	8,693	9,663	9,411	8,542
	As revised	8,303	9,262	9,048	8,196
Net interest income after provision (credit)
	As originally reported	8,193	9,563	9,411	8,042
	As revised	7,803	9,162	9,048	7,696
Total non-interest expense
	As originally reported	6,739	7,380	7,972	6,856
	As revised	6,349	6,979	7,609	6,510

Use of Estimates in the Preparation of Financial Statements

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  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, other-than-temporary security impairment, the fair value of other real estate owned and the valuation of deferred tax assets.

Concentration of Credit Risk

Financial instruments which potentially subject the Company and its subsidiaries to concentrations of credit risk primarily consist of investment securities and loans.  At December 31, 2016, 49.5% of our investment securities portfolio consisted of U.S. Government and Agency issues and collateralized mortgage obligations collateralized by agency mortgage backed securities. In addition, 40.1% of the portfolio consisted of municipal bonds.  The remaining 10.4% of our investment securities consisted primarily of corporate debt issues.  The Bank’s lending activity is primarily concentrated in loans collateralized by real estate located in the State of New Jersey.  As a result, credit risk is broadly dependent on the real estate market and general economic conditions in that state.

13

Interest Rate Risk

The Bank is principally engaged in the business of attracting deposits from the general public and using these deposits, together with other funds, to purchase investment securities and to make loans, the majority of which are secured by real estate.  The potential for interest-rate risk exists as a result of the generally shorter duration of interest-sensitive assets compared to the generally longer duration of interest-sensitive liabilities.  In a changing interest rate environment, assets held by the Bank will re-price faster than liabilities of the Bank, thereby affecting net interest income.  For this reason, management regularly monitors the maturity structure and rate adjustment features of the Bank’s assets and liabilities in order to measure its level of interest-rate risk and to plan for future volatility.

Investment Securities

Investment securities which the Company has the intent and ability to hold until maturity are classified as held to maturity and are recorded at cost, adjusted for amortization of premiums and accretion of discounts.  Investment securities that are held for indefinite periods of time, that management intends to use as part of its asset/liability management strategy, or that may be sold in response to changes in interest rates, changes in prepayment risk, increased capital requirements or other similar factors, are classified as available for sale and are carried at fair value. Unrealized gains and losses on available for sale securities are recorded as a separate component of shareholders’ equity.  Realized gains and losses, which are computed using the specific identification method, are recognized in earnings on a trade date basis.

If the fair value of a security is less than its amortized cost, the security is deemed to be impaired.  Management evaluates all securities with unrealized losses quarterly to determine if such impairments are temporary or other-than-temporary in accordance with the Accounting Standards Codification (“ASC”) of the Financial Accounting Standards Board (“FASB”). Temporary impairments on available for sale securities are recognized, on a tax-effected basis, through other comprehensive income (“OCI”) with offsetting adjustments to the carrying value of the security and the balance of related deferred taxes. Temporary impairments of held to maturity securities are not recorded in the consolidated financial statements; however, information concerning the amount and duration of impairments on held to maturity securities are disclosed.

Other-than-temporary impairments ("OTTI") on all equity securities and on debt securities that the Company has decided to sell, or will, more likely than not, be required to sell prior to the full recovery of fair value to a level equal to or exceeding amortized cost, are recognized in earnings. If neither of these conditions regarding the likelihood of sale for a debt security apply, the OTTI is bifurcated into credit-related and noncredit-related components. Credit-related impairment generally represents the amount by which the present value of the cash flows that are expected to be collected on a debt security fall below its amortized cost. The noncredit-related component represents the remaining portion of the impairment not otherwise designated as credit-related. The Company recognizes credit-related OTTI in earnings. Noncredit-related OTTI on debt securities are recognized in OCI.  

Premiums and discounts on all securities are amortized/accreted to maturity by use of the level-yield method considering the impact of principal amortization and prepayments.

Federal law requires a member institution of the FHLB system to hold restricted stock of its district FHLB according to a predetermined formula.  The Bank’s investment in the restricted stock of the FHLB of New York is carried at cost and is included in other assets. The investment in FHLB stock was $3,962 and $3,302 at December 31, 2016 and December 31, 2015, respectively.

Management evaluates the FHLB restricted stock for impairment in accordance with U.S. GAAP.  Management’s determination of whether these investments are impaired is based on their assessment of the ultimate recoverability of their cost rather than by recognizing temporary declines in value.  The determination of whether a decline affects the ultimate recoverability of their cost is influenced by criteria such as (1) the significance of the decline in net assets of the FHLB as compared to the capital stock amount for the FHLB and the length of time this situation has persisted, (2) commitments by the FHLB to make payments required by law or regulation and the level of such payments in relation to the operating performance of the FHLB, and (3) the impact of legislative and regulatory changes on institutions and, accordingly, on the customer base of the FHLB. Management believes no impairment charge is necessary related to the FHLB stock as of December 31, 2016.

14

Bank-Owned Life Insurance

The Company invests in bank-owned life insurance (“BOLI”).  BOLI involves the purchasing of life insurance by the Company on a select group of its executives, directors, officers and employees.  The Company is the owner and beneficiary of the policies.  This pool of insurance, due to the advantages of the Bank, is profitable to the Company.  This profitability offsets a portion of current and future benefit costs and is intended to provide a funding source for the payment of future benefits.  The Bank’s deposits fund BOLI and the earnings from BOLI are recognized as non-interest income.

Loans and Loans Held For Sale

Loans that management intends to hold to maturity are stated at the principal amount outstanding, net of unearned income.  Unearned income is recognized over the lives of the respective loans, principally using the effective interest method.  Interest income is generally not accrued on loans, including impaired loans, where interest or principal is 90 days or more past due, unless the loans are adequately secured and in the process of collection, or on loans where management has determined that the borrowers may be unable to meet contractual principal and/or interest obligations.  When it is probable that, based upon current information, the Bank will not collect all amounts due under the contractual terms of the loan, the loan is reported as impaired.  Smaller balance homogeneous type loans, such as residential loans and loans to individuals, which are collectively evaluated, are generally excluded from consideration for impairment.  Loan impairment is measured based upon the present value of the expected future cash flows discounted at the loan’s effective interest rate or the underlying fair value of collateral for collateral dependent loans.  When a loan, including an impaired loan, is placed on non-accrual, interest accruals cease and uncollected accrued interest is reversed and charged against current income.  Non-accrual loans are generally not returned to accruing status until principal and interest payments have been brought current and full collectibility is reasonably assured.  Cash receipts on non-accrual and impaired loans are applied to principal, unless the loan is deemed fully collectible.  

Loans held for sale are carried at the lower of aggregated cost or fair value. The fair value of loans held for sale are determined, when possible, using quoted secondary market prices.  If no such quoted market prices exist, fair values are determined using quoted prices for similar loans, adjusted for the specific attributes of the loans.  Realized gains and losses on loans held for sale are recognized at settlement date and are determined based on the cost, including deferred net loan origination fees and the costs of the specific loans sold. Residential mortgage loans are sold with servicing released.

The Bank accounts for its transfers and servicing of financial assets in accordance with ASC Topic 860, “Transfers and Servicing” ("ASC Topic 860").  The Bank originates residential mortgages under a definitive plan to sell those loans with servicing generally released.  Residential mortgage loans originated and intended for sale in the secondary market are carried at the lower of aggregate cost or estimated fair value. The Bank also originates commercial loans, of which a portion are guaranteed by the Small Business Administration ("SBA"). The guaranteed portion of the loans is generally sold into the secondary market. Gains and losses on sales are also accounted for in accordance with ASC Topic 860.

The Bank enters into commitments to originate loans whereby the interest rate on the loan is determined prior to funding “rate lock commitments.”  Rate lock commitments on residential mortgage loans that are intended to be sold are considered to be derivatives.  Time elapsing between the issuance of a loan commitment and closing and sale of the loan generally ranges from 30 to 120 days.  The Bank protects itself from changes in interest rates through the use of best efforts forward delivery commitments, whereby the Bank commits to sell a loan at the time the borrower commits to an interest rate with the intent that the buyer has assumed interest rate risk on the loan.  As a result, the Bank is generally not exposed to losses nor will it realize significant gains related to its rate lock commitments due to changes in interest rates.

The fair value of rate lock commitments and best efforts commitments is not readily ascertainable with precision because rate lock commitments and best efforts commitments are not actively traded in stand-alone markets.  The Bank determines the fair value of rate lock commitments based upon the forward sales price that is obtained in the best efforts commitment at the time the borrower locks in the interest rate on the loan while taking into consideration the probability that the rate lock commitments will close.  Due to high correlation between rate lock commitments and best efforts commitments, no gain or loss occurs on the rate lock commitments.  The estimated fair value of rate lock commitments was $123,000 at December 31, 2016. The estimated fair value of rate lock commitments at December 31, 2015 was not deemed to be significant and, therefore, not recorded on the balance sheet.

ASC Topic 460, “Guarantees,” requires a guarantor entity, at the inception of a guarantee covered by the measurement provisions of the interpretation, to record a liability for the fair value of the obligation undertaken in issuing the guarantee.

15

Standby letters of credit are conditional commitments issued by the Bank to guarantee the financial performance of a customer to a third party.  Those guarantees are primarily issued to support contracts entered into by customers.  Most guarantees extend for one year.  The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers.  The Bank defines the fair value of these letters of credit as the fees paid by the customer or similar fees collected on similar instruments.  The Bank amortizes the fees collected over the life of the instrument.  The Bank generally obtains collateral, such as real estate or liens on customer assets, for these types of commitments.  The Bank’s potential liability would be reduced by any proceeds obtained in liquidation of the collateral.  The Bank had standby letters of credit for customers aggregating $2.0 million and $2.1 million at December 31, 2016 and 2015, respectively.  These letters of credit are primarily related to real estate lending and the approximate value of underlying collateral upon liquidation is expected to be sufficient to cover this maximum potential exposure at December 31, 2016.  The amount of the liability related to guarantees under issued standby letters of credit was not material as of December 31, 2016 and 2015.

Allowance for Loan Losses

The allowance for loan losses is maintained at a level sufficient to absorb estimated credit losses in the loan portfolio as of the date of the financial statements.  The allowance for loan losses is a valuation reserve available for losses incurred or inherent in the loan portfolio and other extensions of credit.  The determination of the adequacy of the allowance for loan losses is a critical accounting policy of the Bank.

All, or part, of the principal balance of commercial and commercial real estate loans and construction loans are charged off against the allowance as soon as it is determined that the repayment of all, or part, of the principal balance is highly unlikely.  Consumer loans are generally charged off no later than 120 days past due on a contractual basis, or earlier in the event of bankruptcy, or if there is an amount deemed uncollectible.  Because all identified losses are charged off, no portion of the allowance for loan losses is restricted to any individual loan or groups of loans, and the entire allowance is available to absorb any and all loan losses.

Loans are placed in a nonaccrual status when the ultimate collectability of principal or interest in whole, or in part, is in doubt.  Past-due loans contractually past-due 90 days or more for either principal or interest are also placed in nonaccrual status unless they are both well secured and in the process of collection.  Impaired loans are evaluated individually.

Purchased Credit-Impaired (“PCI”) loans are loans acquired at a discount that is due, in part, to credit quality.  PCI loans are accounted for in accordance with ASC Subtopic 310-30, "Receivables, Loans and Debt Securities Acquired with Deteriorated Credit Quality" and are initially recorded at fair value (as determined by the present value of expected future cash flows) with no valuation allowance (i.e., the allowance for loan losses).  The difference between the undiscounted cash flows expected at acquisition and the initial carrying amount (fair value) of the PCI loans or the “accretable yield,” is recognized as interest income utilizing the level-yield method over the life of the loans.  Contractually required payments for interest and principal that exceed the undiscounted cash flows expected at acquisition, or the “non-accretable difference,” are not recognized as a yield adjustment, as a loss accrual or a valuation allowance.  Reclassifications of the non-accretable difference to the accretable yield may occur subsequent to the loan acquisition dates due to increases in expected cash flows of the loans and result in an increase in yield on a prospective basis.

The following is our charge-off policy for our loan segments:

Commercial, Commercial Real Estate and Construction

Loans are generally fully or partially charged down to the fair value of collateral securing the asset when:

• Management judges the loan to be uncollectible;

• Repayment is deemed to be protracted beyond reasonable time frames;

• The loan has been classified as a loss by either internal loan review process or external examiners;

• The customer has filed bankruptcy and the loss becomes evident owing to a lack of assets; or

• The loan is significantly past due unless both well secured and in the process of collection.

Consumer

Consumer loans are generally charged off no later than 120 days past due on a contractual basis, earlier in the event of bankruptcy, or if there is an amount deemed uncollectible.  

16

Premises and Equipment

Premises and equipment are stated at cost less accumulated depreciation and amortization.  Depreciation is computed primarily on the straight-line method over the estimated useful lives of the related assets for financial reporting purposes and using the mandated methods by asset type for income tax purposes.  Building, furniture and fixtures, equipment and leasehold improvements are depreciated or amortized over the estimated useful lives of the assets or lease terms, as applicable.  Estimated useful lives of buildings are forty years, furniture and fixtures and equipment are three to fifteen years and leasehold improvements are generally three to ten years.  Expenditures for maintenance and repairs are charged to expense as incurred.

The Bank accounts for impairment of long-lived assets in accordance with ASC Topic 360, “Property, Plant, and Equipment,” which requires recognition and measurement for the impairment of long-lived assets to be held and used or to be disposed of by sale.  The Bank had no impaired long-lived assets at December 31, 2016 and 2015.

Derivative Contracts

Derivative contracts, as required by ASC Topic 815, “Derivatives and Hedging,” are carried at fair value as either assets or liabilities on the balance sheet with unrealized gains and losses excluded from earnings and reported in a separate component of shareholders’ equity, net of related income tax effects for contracts that are classified as cash flow hedges.  Gains and losses on derivative contracts are recognized upon realization, utilizing the specific identification method.

Income Taxes

There are two components of income tax expense or benefit: current and deferred.  Current income tax expense or benefit approximates cash to be paid or refunded for taxes for the applicable period.  Deferred tax assets and liabilities are recognized due to differences between the basis of assets and liabilities as measured by tax laws and their basis as reported in the financial statements.  Deferred tax assets are subject to management’s judgment based upon available evidence that future realizations are likely.  If management determines that the Company may not be able to realize some or all of the net deferred tax asset in the future, a charge to income tax expense may be required to increase the valuation reserve of the net deferred tax asset. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.  The effect on deferred taxes of a change in tax rates is recognized in income in the period that includes the enactment date.  Deferred tax expense or benefit is recognized for the change in deferred tax liabilities.

The Company accounts for uncertainty in income taxes recognized in its consolidated financial statements in accordance with ASC Topic 740, “Income Taxes,” which prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return, and also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. The Company has not identified any significant income tax uncertainties through the evaluation of its income tax positions for the years ended December 31, 2016 and 2015 and has not recognized any liabilities for tax uncertainties as of December 31, 2016 and 2015. Our policy is to recognize interest and penalties on unrecognized tax benefits in income tax expense; such amounts were not significant during the years ended December 31, 2016 and 2015. The tax years subject to examination by the taxing authorities are, for federal and state purposes, the years ended December 31, 2016, 2015, 2014 and 2013.

Other Real Estate Owned ("OREO")

OREO obtained through loan foreclosures or the receipt of deeds-in-lieu of foreclosure is recorded at the fair value of the related property, as determined by current appraisals less estimated costs to sell at the initial transfer from the loan portfolio. Write-downs on these properties, which occur after the initial transfer from the loan portfolio, are recorded as operating expenses.  Costs of holding such properties are charged to expense in the current period.  Gains, to the extent realized, and losses on the disposition of these properties are reflected in current operations.

Goodwill and Other Intangible Assets

Goodwill represents the excess of the cost of an acquired entity over the fair value of the identifiable net assets acquired in accordance with the acquisition method of accounting.  Goodwill is not amortized but is reviewed for potential impairment on an annual basis, or more often if events or circumstances indicated that there may be impairment, in accordance with ASC Topic 350, “Intangibles – Goodwill and Other.”  Goodwill is tested for impairment at the reporting unit level and an impairment loss is recorded to the extent that the carrying amount of goodwill exceeds its implied fair value. Core deposit intangibles are a measure

17

of the value of checking and savings deposits acquired in business combinations accounted for under the purchase method.  Core deposit intangibles are amortized over their estimated lives (ranging from five to ten years) and identifiable intangible assets are evaluated for impairment if events and circumstances indicate a possible impairment.  Any impairment loss related to goodwill and other intangible assets is reflected as other non-interest expense in the statement of income in the period in which the impairment was determined.  No assurance can be given that future impairment tests will not result in a charge to earnings.  See Note 8 – Goodwill and Intangible Assets for additional information.

Share-Based Compensation

The Company recognizes compensation expense for stock awards and options in accordance with ASC Topic 718, “Compensation – Stock Compensation.”  The expense of stock-based compensation is generally measured at fair value at the grant date with compensation expense recognized over the service period, which is usually the vesting period.  The Company utilizes the Black-Scholes option-pricing model to estimate the fair value of each stock option on the date of grant.  The Black-Scholes model takes into consideration the exercise price and expected life of the options, the current price of the underlying stock and its expected volatility, the expected dividends on the stock and the current risk-free interest rate for the expected life of the option.  The Company’s estimate of the fair value of a stock option is based on expectations derived from historical experience and may not necessarily equate to its market value when fully vested.   See Note 15 – Share-Based Compensation for additional information.

Benefit Plans

The Company provides certain retirement savings benefits to employees under a 401(k) plan.  The Company’s contributions to the 401(k) plan are expensed as incurred.

The Company also provides retirement benefits to certain employees under supplemental executive retirement plans.  The plans are unfunded and the Company accrues actuarially determined benefit costs over the estimated service period of the employees in the plans.  In accordance with ASC Topic 715, “Compensation – Retirement Benefits,” the Company recognizes the unfunded status of these postretirement plans as a liability in its consolidated balance sheets and recognizes changes in that unfunded status in the year in which the changes occur through other comprehensive income.

Cash and Cash Equivalents

Cash and cash equivalents includes cash on hand, interest and non-interest bearing amounts due from banks, federal funds sold and short-term investments.  Generally, federal funds are sold and short-term investments are made for a one or two-day period.

Reclassifications

Certain reclassifications have been made to the prior period amounts to conform with the current period presentation.  Such reclassification had no impact on net income or total shareholders’ equity.

Advertising Costs

It is the Company’s policy to expense advertising costs in the period in which they are incurred.

Earnings Per Common Share

Basic net income per common share is calculated by dividing net income by the weighted average number of common shares outstanding during each period.

Diluted net income per common share is calculated by dividing net income by the weighted average number of common shares outstanding, as adjusted for the assumed exercise of dilutive common stock warrants and common stock options using the treasury stock method.  

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The following tables illustrate the reconciliation of the numerators and denominators of the basic and diluted earnings per common share (EPS) calculations. Dilutive securities in the tables below exclude common stock options and warrants with exercise prices that exceed the average market price of the Company’s common stock during the periods presented. Inclusion of these common stock options and warrants would be anti-dilutive to the diluted earnings per common share calculation.

(Dollars in thousands except per share data)	Year Ended December 31, 2016
	Net Income		Weighted average shares	Per share Amount
Basic earnings per common share:
Net income	$	9,285	7,962,121	$	1.17
Effect of dilutive securities:
Stock options and warrants			215,318
Diluted EPS:
Net income plus assumed conversion	$	9,285	8,177,439	$	1.14

	Year Ended December 31, 2015
	Net Income		Weighted average shares	Per share Amount
Basic earnings per common share:
Net income	$	8,664	7,901,278	$	1.10
Effect of dilutive securities:
Stock options and warrants			174,474
Diluted EPS:
Net income plus assumed conversion	$	8,664	8,075,752	$	1.07

For the years ended December 31, 2016 and 2015, 11,088 and 25,182 options, respectively, were anti-dilutive and were not included in the computation of diluted earnings per common share.

Comprehensive Income

Comprehensive income consists of net income and other comprehensive income (loss).  Other comprehensive income (loss) includes unrealized gains and losses on securities available for sale, other-than-temporary non-credit related security impairments, unrealized gains and losses on cash flow hedges and changes in the funded status of benefit plans.

Variable Interest Entities

Management has determined that Trust II qualifies as a variable interest entity under ASC Topic 810, “Consolidation.” Trust II issued mandatorily redeemable preferred stock to investors, loaned the proceeds to the Company and holds, as its sole asset, subordinated debentures issued by the Company.  As a qualified variable interest entity, Trust II’s balance sheet and statement of operations have never been consolidated with those of the Company.

In March 2005, the Federal Reserve Board ("FRB") adopted a final rule that would continue to allow the inclusion of trust preferred securities in Tier 1 capital, but with stricter quantitative limits. Under the final rule, after a five-year transition period, the aggregate amount of trust preferred securities and certain other capital elements would be limited to 25% of Tier 1 capital elements, net of goodwill. The amount of trust preferred securities and certain other elements in excess of the limit could be included in Tier 2 capital, subject to restrictions.  Based on the final rule, the Company has included all of its $18.0 million in trust preferred securities in Tier 1 capital at December 31, 2016 and 2015.

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Segment Information

U.S. GAAP establishes standards for public business enterprises to report information about operating segments in their annual financial statements and requires that those enterprises report selected information about operating segments in subsequent interim financial reports issued to shareholders.  It also established standards for related disclosure about products and services, geographic areas and major customers.  Operating segments are components of an enterprise, which are evaluated regularly by the chief operating decision-maker in deciding how to allocate and assess resources and performance.  The Company’s chief operating decision-maker is the President and Chief Executive Officer.  The Company has applied the aggregation criteria for its operating segments to create one reportable segment, “Community Banking.”

The Company’s Community Banking segment consists of construction, commercial, retail and mortgage banking operations.  The Community Banking segment is managed as a single strategic unit, which generates revenue from a variety of products and services provided by the Company.  Construction, commercial, retail and mortgage lending is dependent upon the ability of the Company to fund itself with retail deposits and other borrowings and to manage interest rate, liquidity and credit risk as a single unit.

Recent Accounting Pronouncements

ASU Update 2017-04 - Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment

In January 2017, the FASB issued ASU 2017-04 "Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment," which simplifies how all entities assess goodwill for impairment by eliminating Step 2 from the goodwill impairment test. As amended, the goodwill impairment test will consist of one step comparing the fair value of a reporting unit with its carrying amount. An entity should recognize a goodwill impairment charge for the amount by which the carrying amount exceeds the reporting unit's fair value. The primary goal of this ASU is to simplify the goodwill impairment test and provide cost savings for all entities by removing the requirement to determine the fair value of individual assets and liabilities in order to calculate a reporting unit's "implied" goodwill under current U.S. GAAP.

The amendments have staggered effective dates: (1) a public business entity that is a U.S. Securities and Exchange Commission (SEC) filer should adopt the amendments for its annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2019, (2) a public business entity that is not an SEC filier should adopt the amendments for its annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2020 and (3) all other entities, including non-for-profit entities, should adopt the amendments for their annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2021. The amendments should be adopted prospectively. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017.

The Company does not expect the adoption of this guidance to have a material impact on its consolidated financial statements.

ASU Update 2017-01 - Business Combinations (Topic 805): Clarifying the Definition of a Business

In January 2017, the FASB issued ASU 2017-01 "Business Combinations (Topic 805): Clarifying the Definition of a Business," which clarifies the definition of a business with the objective of adding guidance to assist companies and other reporting organizations with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The amendments in this ASU provide a more robust framework to use in determining when a set of assets and activities is a business. The current definition of a business is interpreted broadly and can be difficult to apply. Stakeholders indicated that analyzing transactions is inefficient and costly and the definition does not permit the use of reasonable judgment.

Under current implementation guidance, there are three elements of a business: inputs, processes and outputs. While an integrated set of assets and activities (collectively referred to as a "set") that is a business usually has outputs, outputs are not required to be present. Additionally, all the inputs and processes that a seller uses in operating a set are not required if market participants can acquire the set and continue to produce outputs, for example, by integrating the acquired set with their own inputs and processes.

The ASU introduces a "screen" to assist entities in determining when a set should not be considered a business. If substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets, the set is not considered a business. If the screen is not met, the ASU requires that to be considered a business, a set must include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create

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output. Further, the ASU removes the evaluation of whether a market participant could replace missing elements (as required under current U.S. GAAP).

For public business entities, the ASU is effective for annual periods beginning after December 15, 2017, including interim periods within those periods. For all other entities, the amendments apply to annual periods beginning after December 15, 2018 and interim periods within annual periods beginning after December 15, 2019. The amendments in this ASU should be applied prospectively on or after the effective date. No disclosures are required at transition.

The Company does not expect the adoption of this guidance to have a material impact on its consolidated financial statements.

ASU Update 2016-20 - Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers.

In December 2016, the FASB issued ASU 2016-20 "Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers," amending the new revenue recognition standard that it jointly issued with the International Accounting Standards Board ("IASB") in 2014. The amendments do not change the core principles of the standard, but clarify certain narrow aspects of the standard including its scope, contract cost accounting, disclosures, illustrative examples and other matters. The ASU becomes effective concurrently with ASU 2014-09 "Revenue from Contracts with Customers (Topic 606)."

The Company does not expect the adoption of this guidance to have a material impact on its consolidated financial statements.

ASU Update 2016-18 - Restricted Cash.

In November 2016, the FASB issued ASU 2016-18 "Restricted Cash," which updates Topic 230-Statement of Cash Flows, to require that restricted cash and restricted cash equivalents be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total cash amounts shown on the statement of cash flows. Consequently, transfers between cash and restricted cash will not be presented as a separate line item in the operating, investing or financing sections of the cash flow statement. The ASU includes examples of the revised presentation guidance and additional presentation and disclosure requirements apply.

For public business entities, the amendments are effective 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.

The Company does not expect the adoption of this guidance to have a material impact on its consolidated financial statements.

ASU Update 2016-17 - Interests Held Through Related Parties That Are Under Common Control.

In October 2016, the FASB issued ASU 2016-17 "Interests Held Through Related Parties That Are Under Common Control," which amends the variable interest entity ("VIE") guidance within Topic 810. It does not change the two required characteristics for a single decision maker to be the primary beneficiary ("power" and "economics"), but it revised one aspect of the related analysis. The amendments change how a single decision maker of a VIE treats indirect variable interest held through related parties that are under common control when determining whether it is the primary beneficiary of that VIE. The ASU requires consideration of such indirect interests on a proportionate basis instead of being the equivalent of direct interests in their entity, thereby making consolidation less likely.

For public business entities, the amendments are effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2016 and interim periods within fiscal years beginning after December 15, 2017. Early adoption is permitted; however, if an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of that fiscal year.

The Company does not expect the adoption of this guidance to have a material impact on its consolidated financial statements.

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ASU Update 2016-15 - Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments.

In August 2016, the FASB issued ASU 2016-15 "Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments," which clarifies whether the following items should be categorized as operating, investing or financing in the statement of cash flows: (1) debt prepayment and extinguishment costs, (2) settlement of zero-coupon debt, (3) settlement of contingent consideration, (4) insurance proceeds, (5) settlement of corporate-owned life insurance (COLI) and bank-owned life insurance policies (BOLI) policies, (6) distributions from equity method investees, (7) beneficial interests in securitization transactions and (8) receipts and payments with aspects of more than one class of cash flows.

For public business entities, the amendments are effective 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 currently classifies cash flows related to BOLI in accordance with the guidance and does not expect the adoption of this guidance to have a material impact on its consolidated financial statements.

ASU Update 2016-13 Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.

In June 2016, the FASB issued ASU 2016-13 "Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments," which requires credit losses on most financial assets to be measured at amortized cost and certain other instruments to be measured using an expected credit loss model (referred to as the current expected credit loss (CECL) model). Under this model, entities will estimate credit losses over the entire contractual term of the instrument (considering estimated prepayments, but not expected extensions or modifications unless reasonable expectation of a troubled debt restructuring exists) from the date of initial recognition of that instrument.

The ASU also replaces the current accounting model for purchased credit impaired loans and debt securities. The allowance for credit losses for purchased financial assets with a more-than-insignificant amount of credit deterioration since origination ("PCD assets") should be determined in a similar manner to other financial assets measured on an amortized cost basis. Upon initial recognition, the allowance for credit losses is added to the purchase price ("gross up approach") to determine the initial amortized cost basis. The subsequent accounting for PCD assets will use the CECL model described above.

The ASU made certain targeted amendments to the existing impairment model for available-for-sale (AFS) debt securities. For an AFS debt security for which there is neither the intent nor a more-likely-than-not requirement to sell, an entity will record credit losses as an allowance rather than a write-down of the amortized cost basis.

For public business entities that are SEC filers, the amendments are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted for all entities as of the fiscal year beginning after December 15, 2018, including interim periods within those fiscal years.

The Company is currently evaluating the impact of the pending adoption of the new standard on its consolidated financial statements.

ASU Update 2016-09 Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting.

In March 2016, the FASB issued ASU 2016-09 "Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting" to simplify the accounting for stock compensation. The ASU focuses on income tax accounting, award classification, estimating forfeitures and cash flow presentation. The ASU also provides certain accounting policy alternatives to nonpublic entities. The ASU simplifies several aspects of the stock compensation guidance in Topic 718 and other related guidance. The following six amendments apply to all entities: (1) accounting for income taxes upon vesting or exercise of share-based payments and related EPS effects, (2) classification of excess tax benefits on the statement of cash flows, (3) accounting for forfeitures, (4) liability classification exception for statutory tax withholding requirements, (5) cash flow presentation of employee taxes paid when an employer withholds shares for tax-withholding purposes and (6) elimination of the indefinite deferral in Topic 718.

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For public business entities, the amendments are effective for annual periods beginning after December 15, 2016 and interim periods within those annual periods. For all other entities, the amendments are effective for annual periods beginning after December 15, 2017 and interim periods within annual periods beginning after December 15, 2018. Early adoption is permitted for any entity in any interim or annual period for which the financial statements have not been issued or made available to be issued. 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 adopted the guidance for the year ended December 31, 2016. The effect of the adoption of this guidance was not material.

ASU Update 2016-02: Leases.

In February 2016, the FASB issued ASU 2016-02 "Leases." From the lessee's perspective, the new standard establishes a right- of-use ("ROU") model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement for a lessee. From the lessor's perspective, the new standard requires a lessor to classify leases as either sales-type, finance or operating. A lease will be treated as a sale if it transfers all of the risks and rewards, as well as control of the underlying asset, to the lessee. If risks and rewards are conveyed without the transfer of control, the lease is treated as a financing. If the lessor doesn’t convey risks and rewards or control, an operating lease results.

The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. A modified retrospective transition approach is required for lessors for sales-type, direct financing and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. In 2017, the Company plans to complete an evaluation of all of its leases to determine the potential impact on the Company's consolidated financial statements as a result of this new standard.

ASU Update 2016-01 Financial Instruments-Overall: Recognition and Measurement of Financial Assets and Financial Liabilities.

In January 2016, the FASB issued ASU 2016-01 "Financial Instruments-Overall: Recognition and Measurement of Financial Assets and Financial Liabilities." The guidance in the ASU, among other things, requires equity investments, with certain exceptions, to be measured at fair value with changes in fair value recognized in net income; simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment; eliminates the requirement for public business entities to disclose the methods 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; requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; requires an entity to present separately in other comprehensive income, the portion of the change in fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments; requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset on the balance sheet or the accompanying notes to the financial statements; and clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities. The guidance in this ASU is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company does not expect the adoption of this guidance to have a material impact on its consolidated financial statements.

ASU Update 2015-16 Business Combination (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments.

In September 2015, the FASB issued ASU 2015-16 "Business Combination (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments," to require adjustments to provisional amounts that are identified during the measurement period to be recognized in the reporting period in which the adjustment amounts are determined. This includes any effect on earnings of changes in depreciation, amortization or other income as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date. The amendments in this update would require an entity to disclose (either on the face of the income statement or in the notes) the nature and amount of measurement-period adjustments recognized in the current period, including, separately, the amounts in current-period income statement line items that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date. The amendments are effective for public business entities for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2015 and for all other entities for fiscal years beginning after December 31, 2016 and for interim periods within

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fiscal years beginning after December 15, 2017. Adoption of this guidance in 2016 did not have a material impact on the Company’s consolidated financial statements.

ASU 2014-9 Revenue from Contracts with Customers (Topic 606)

In May 2014, the FASB issued ASU 2014-9, deferred by ASU 2015-14, “Revenue from Contracts with Customers (Topic 606).” The amendments in this update establish a comprehensive revenue recognition standard for virtually all industries under U.S. GAAP, including those that previously followed industry specific guidance such as the real estate, construction and software industries. The revenue standard's core principle is built on the contract between a vendor and a customer for the provision of goods and services. It attempts to depict the exchange of rights and obligations between the parties in the pattern of revenue recognition based on the consideration to which the vendor is entitled. To accomplish this objective, the standard requires five basic steps: (1) identify the contract with the customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when (or as) the entity satisfies a performance obligation.   This ASU, which does not apply to financial instruments, is effective for interim and annual reporting periods beginning after December 15, 2017. Early adoption is permitted only as of annual reporting periods beginning after December 15, 2016, including interim periods within that year.

The Company does not expect the adoption of ASU 2014-9 to have a material impact on its consolidated financial statements.

ASU 2014-12 Accounting for Share-Based-Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved After the Requisite Service Period (a consensus of the FAS Emerging Issues Task Force).

In June 2014, the FASB issued ASU 2014-12, "Accounting for Share-Based-Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved After the Requisite Service Period," which requires that a performance target included in a share-based payment award that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. This update is effective for interim and annual periods beginning after December 15, 2015. The amendments can be applied prospectively to all awards granted or modified after the effective date or retrospectively to all awards with performance targets that are outstanding as of the beginning of the earliest annual period presented and to all new or modified awards thereafter. Adoption of this guidance in 2016 did not have a material impact on the Company’s consolidated financial statements.

2.           Investment Securities

Amortized cost, carrying value, gross unrealized gains and losses, and the fair value by security type are as follows: 

(Dollars in thousands)			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
2016	Cost		Gains		Losses			Value
Available for sale-
U.S. Treasury securities and obligations of U.S. Government
sponsored corporations (“GSE”) and agencies	$	3,514	$	—	$	(35	)	$	3,479
Residential collateralized mortgage obligations- GSE	22,647		58		(145		)	22,560
Residential mortgage backed securities – GSE	31,207		388		(119		)	31,476
Obligations of state and political subdivisions	21,604		152		(356		)	21,400
Trust preferred debt securities – single issuer	2,478		—		(206		)	2,272
Corporate debt securities	21,963		10		(205		)	21,768
Other debt securities	845		—		(6		)	839
	$	104,258	$	608	$	(1,072	)	$	103,794

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	Amortized Cost		Other-Than- Temporary Impairment Recognized In Accumulated Other Comprehensive Loss			Carrying Value		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Held to maturity-
U. S. Treasury securities and obligations of U.S. Government sponsored corporations (“GSE”) and agencies	$	3,727	$	—		$	3,727	$	—	$	(116	)	$	3,611
Residential collateralized mortgage obligations – GSE	11,882		—			11,882		247		(130		)	11,999
Residential mortgage backed securities - GSE	40,565		—			40,565		540		(113		)	40,992
Obligations of state and political subdivisions	70,017		—			70,017		1,274		(255		)	71,036
Trust preferred debt securities - pooled	657		(501		)	156		303		—			459
Other debt securities	463		—			463		—		(1		)	462
	$	127,311	$	(501	)	$	126,810	$	2,364	$	(615	)	$	128,559

(Dollars in thousands)			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
2015	Cost		Gains		Losses			Value
Available for sale-
U. S. Treasury securities and obligations of U.S. Government sponsored corporations (“GSE”) and agencies	$	5,523	$	—	$	(42	)	$	5,481
Residential collateralized mortgage obligations - GSE	8,255		68		(36		)	8,287
Residential mortgage backed securities – GSE	32,279		541		(185		)	32,635
Obligations of state and political subdivisions	21,125		365		(54		)	21,436
Trust preferred debt securities – single issuer	2,474		—		(338		)	2,136
Corporate debt securities	20,510		65		(153		)	20,422
Other debt securities	1,053		—		(28		)	1,025
	$	91,219	$	1,039	$	(836	)	$	91,422

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	Amortized Cost		Other-Than- Temporary Impairment Recognized In Accumulated Other Comprehensive Loss			Carrying Value		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Held to maturity-
Residential collateralized mortgage obligations – GSE	$	13,630	$	—		$	13,630	$	404	$	—		$	14,034
Residential mortgage backed securities - GSE	47,718		—			47,718		928		(46		)	48,600
Obligations of state and political subdivisions	61,135		—			61,135		2,294		(14		)	63,415
Trust preferred debt securities - pooled	657		(501		)	156		341		—			497
Other debt securities	622		—			622		—		(11		)	611
	$	123,762	$	(501	)	$	123,261	$	3,967	$	(71	)	$	127,157

At December 31, 2016 and December 31, 2015, $121.7 million and $69.8 million of investment securities, respectively, were pledged to collateralize borrowings from the FHLB and municipal deposits under the State of New Jersey Governmental Unit Deposit Protection Act ("GUDPA").

The following table sets forth certain information regarding the amortized cost, carrying value, fair value, weighted average yields and contractual maturities of the Company's investment portfolio as of December 31, 2016. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.  

(Dollars in thousands)	December 31, 2016
	Amortized Cost		Fair Value		Yield
Available for sale
Due in one year or less	$	2,616	$	2,619	3.06	%
Due after one year through five years	15,544		15,470		1.28	%
Due after five years through ten years	44,489		44,695		2.68	%
Due after ten years	41,609		41,010		2.75	%
Total	$	104,258	$	103,794	2.51	%
	Carrying Value		Fair Value		Yield
Held to maturity
Due in one year or less	$	29,807	$	29,816	1.44	%
Due after one year through five years	16,833		17,373		4.43	%
Due after five years through ten years	23,597		24,280		3.51	%
Due after ten years	56,573		57,090		3.28	%
Total	$	126,810	$	128,559	3.04	%

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Gross unrealized losses on available for sale and held to maturity securities and the fair value of the related securities aggregated by security category and length of time that individual securities have been in a continuous unrealized loss position at December 31, 2016 and 2015 are as follows:

2016		Less than 12 months					12 months or longer					Total
(Dollars in thousands)	Number of Securities	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
U. S. Treasury securities and obligations of U.S. Government sponsored corporations (“GSE”) and agencies	3	$	7,090	$	(151	)	—		—			$	7,090	$	(151	)
Residential collateralized mortgage obligations - GSE	7	17,242		(275		)	—		—			17,242		(275		)
Residential mortgage backed securities - GSE	29	26,581		(216		)	3,542		(16		)	30,123		(232		)
Obligations of state and political subdivisions	74	25,545		(611		)	—		—			25,545		(611		)
Trust preferred debt securities -single issuer	4	—		—			2,272		(206		)	2,272		(206		)
Corporate debt securities	6	12,700		(204		)	1,999		(1		)	14,699		(205		)
Other debt securities	3	—		—			1,276		(7		)	1,276		(7		)
Total temporarily impaired securities	126	$	89,158	$	(1,457	)	$	9,089	$	(230	)	$	98,247	$	(1,687	)

2015		Less than 12 months					12 months or longer					Total
(Dollars in thousands)	Number of Securities	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
U.S. Treasury securities and obligations of U.S. Government sponsored corporations (GSE) and agencies	3	$	5,481	$	(42	)	—		—			$	5,481	$	(42	)
Residential collateralized mortgage obligations-GSE	2	5,894		(36		)	—		—			5,894		(36		)
Residential mortgage backed securities - GSE	19	20,911		(175		)	3,980		(56		)	24,891		(231		)
Obligations of state and political subdivisions	32	2,760		(19		)	6,465		(49		)	9,225		(68		)
Trust preferred debt securities– single issuer	4	—		—			2,136		(338		)	2,136		(338		)
Corporate debt securities	4	9,214		(153		)	—		—			9,214		(153		)
Other debt securities	3	586		(11		)	1,025		(28		)	1,611		(39		)
Total temporarily impaired securities	67	$	44,846	$	(436	)	$	13,606	$	(471	)	$	58,452	$	(907	)

U.S. Treasury securities and obligations of U.S. Government sponsored corporations and agencies: The unrealized losses on investments in these securities were caused by increases in market interest rates.  The contractual terms of these investments do not permit the issuer to settle the securities at a price less than the par value of the investment.  The Company does not intend to sell these investments and it is not more likely than not that the Company will be required to sell these investments before a market price recovery or maturity. Therefore, these investments are not considered other-than temporarily impaired.

Residential collateralized mortgage obligations and residential mortgage backed securities: The unrealized losses on investments in residential collateralized mortgage obligations and residential mortgage backed securities were caused by increases in market interest rates. The contractual cash flows of these securities are guaranteed by the issuer, primarily government or government sponsored agencies. It is expected that the securities would not be settled at a price less than the amortized cost of the investment. The Company does not intend to sell these investments and it is not more likely than not that the Company will be required to sell these investments before a market price recovery or maturity. Therefore, these investments are not considered other-than temporarily impaired.

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Obligations of state and political subdivisions:  The unrealized losses on investments in these securities were caused by increases in market interest rates.  It is expected that the securities would not be settled at a price less than the amortized cost of the investment.  None of the issuers have defaulted on interest payments. These investments are not considered to be other than temporarily impaired because the decline in fair value is attributable to changes in interest rates and not credit quality. The Company does not intend to sell these investments and it is not more likely than not that the Company will be required to sell these investments before a market price recovery or maturity. Therefore, these investments are not considered other-than temporarily impaired.

Trust preferred debt securities – single issuer:  The investments in these securities with unrealized losses are comprised of four corporate trust preferred securities issued by two large financial institutions that both mature in 2027. The contractual terms of the trust preferred securities do not allow the issuer to settle the securities at a price less than the face value of the trust preferred securities, which is greater than the amortized cost of the trust preferred securities.  One of the issuers continues to maintain an investment grade credit rating and neither has defaulted on interest payments.  The decline in fair value is attributable to the widening of interest rate spreads and the lack of an active trading market for these securities and, to a lesser degree, market concerns about the issuers’ credit quality. The Company does not intend to sell these investments and it is not more likely than not that the Company will be required to sell these investments before a market price recovery or maturity. Therefore, these investments are not considered other-than-temporarily impaired.

Corporate debt securities.  The unrealized losses on investments in corporate debt securities were caused by an increase in market interest rates.  None of the corporate issuers have defaulted on interest payments.  The decline in fair value is attributable to changes in market interest rates and not credit quality. The Company does not intend to sell these investments and it is not more likely than not that the Company will be required to sell these investments before a market price recovery or maturity. Therefore, these investments are not considered other-than-temporarily impaired.

Trust preferred debt securities – pooled:  This trust preferred debt security was issued by a two issuer pool (Preferred Term Securities XXV, Ltd. co-issued by Keefe, Bruyette and Woods, Inc. and First Tennessee (“PRETSL XXV”)), consisting primarily of financial institution holding companies.  During 2009, the Company recognized an other-than-temporary impairment charge of $865,000, of which $364,000 was determined to be a credit loss and charged to operations and $501,000 was recognized in the other comprehensive income (loss) component of shareholders’ equity.

The primary factor used to determine the credit portion of the impairment loss to be recognized in the income statement for this security was the discounted present value of projected cash flow, where that present value of cash flow was less than the amortized cost basis of the security.  The present value of cash flow was developed using a model that considered performing collateral ratios, the level of subordination to senior tranches of the security and credit ratings of and projected credit defaults in the underlying collateral.

On a quarterly basis, management evaluates this security to determine if any additional other-than-temporary impairment is required.  As of December 31, 2016, management concluded that no additional other-than-temporary impairment had occurred.

The Company regularly reviews the composition of the investment securities portfolio, taking into account market risks, the current and expected interest rate environment, liquidity needs and its overall interest rate risk profile and strategic goals.

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3.           Loans and Loans Held for Sale

Loans are as follows:

	December 31,
(Dollars in thousands)	2016		2015
Commercial business	$	99,650	$	99,277
Commercial real estate	242,393		207,250
Mortgage warehouse lines	216,259		216,572
Construction loans	96,035		93,745
Residential real estate loans	44,791		40,744
Loans to individuals	23,736		23,074
All other loans	207		233
Gross Loans	723,071		680,895
Deferred loan fees and costs, net	1,737		1,226
	$	724,808	$	682,121

The Bank’s lending focus and business is concentrated primarily in New Jersey, particularly northern and central New Jersey.  A significant portion of the total loan portfolio is secured by real estate or other collateral located in these areas.

The Bank had residential mortgage loans held for sale of $14.8 million at December 31, 2016 and $6.0 million at December 31, 2015.  The Bank sells residential mortgage loans in the secondary market on a non-recourse basis, generally with the related loan servicing rights released to purchasers. Loans held for sale at December 31, 2016 and 2015 were residential mortgage loans that the Bank intends to sell under best efforts forward sales commitments providing for delivery to purchasers generally within a two month period.  The estimated fair value of the derivatives of interest rate lock commitments was $123,000 at December 31, 2016 and was not deemed to be significant at December 31, 2015.

4.           Allowance for Loan Losses and Credit Quality Disclosures

The Company’s primary lending emphasis is the origination of commercial business and commercial real estate loans and mortgage warehouse lines of credit.  Based on the composition of the loan portfolio, the primary inherent risks are deteriorating credit quality, a decline in the economy and a decline in New Jersey real estate market values.  Any one, or a combination, of these events may adversely affect the loan portfolio and may result in increased delinquencies, loan losses and increased future provision levels.

The following table provides an aging of the loan portfolio by loan class at December 31, 2016:

(Dollars in thousands)	30-59 Days		60-89 Days		Greater than 90 Days		Total Past Due		Current		Total Loans Receivable		Recorded Investment >90 Days Accruing		Non-accrual Loans
Construction Loans	$	—	$	—	$	186	$	186	$	95,849	$	96,035	$	—	$	186
Commercial Business	113		115		790		1,018		98,632		99,650		—		920
Commercial Real Estate	741		942		2,707		4,390		238,003		242,393		—		3,187
Mortgage Warehouse Lines	—		—		—		—		216,259		216,259		—		—
Residential Real Estate Loans	564		—		392		956		43,835		44,791		—		544
Loans to Individuals	—		29		361		390		23,346		23,736		24		337
Other	—		—		—		—		207		207		—		—
Deferred Loan Fees and Costs, Net	—		—		—		—		1,737		1,737		—		—
Total	$	1,418	$	1,086	$	4,436	$	6,940	$	717,868	$	724,808	$	24	$	5,174

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The following table provides an aging of the loan portfolio by loan class at December 31, 2015:

(Dollars in thousands)	30-59 Days		60-89 Days		Greater than 90 Days		Total Past Due		Current		Total Loans Receivable		Recorded Investment >90 Days Accruing		Non-accrual Loans
Construction Loans	$	—	$	—	$	—	$	—	$	93,745	$	93,745	$	—	$	—
Commercial Business	530		5		186		721		98,556		99,277		—		304
Commercial Real Estate	789		—		3,996		4,785		202,465		207,250		—		4,321
Mortgage Warehouse Lines	—		—		—		—		216,572		216,572		—		—
Residential Real Estate Loans	—		166		1,132		1,298		39,446		40,744		—		1,132
Consumer
Loans to Individuals	400		—		263		663		22,411		23,074		—		263
Other	—		—		—		—		233		233		—		—
Deferred Loan Fees and Costs, Net	—		—		—		—		1,226		1,226		—		—
Total	$	1,719	$	171	$	5,577	$	7,467	$	674,654	$	682,121	$	—	$	6,020

As provided by ASC 310-30, the excess of cash flows expected at acquisition over the initial investment in the loan is recognized as interest income over the life of the loan.  Accordingly, loans acquired with evidence of deteriorated credit quality in the amount of $439,000 and $489,000 at December 31, 2016 and 2015, respectively, were not classified as non-performing loans due to the accretion of income based on expected cash flows.

Additional income before taxes amounting to $522,000 and $471,000 would have been recognized in 2016 and 2015, respectively, if interest on all loans had been recorded based upon their original contract terms. 

Management reviews the adequacy of the allowance for loan losses on at least a quarterly basis to ensure that the provision for loan losses has been charged against earnings in an amount necessary to maintain the allowance at a level that is adequate based on management’s assessment of probable estimated losses. The Company’s methodology for assessing the adequacy of the allowance for loan losses consists of several key elements and is consistent with U.S. GAAP and interagency supervisory guidance.  The allowance for loan losses methodology consists of two major components.  The first component is an estimation of losses associated with individually identified impaired loans, which follows ASC Topic 310.  The second major component estimates losses under ASC Topic 450, which provides guidance for estimating losses on groups of loans with similar risk characteristics.  The Bank’s methodology results in an allowance for loan losses which includes a specific reserve for impaired loans, an allocated reserve and an unallocated portion.

When analyzing groups of loans under ASC Topic 450, the Bank follows the Interagency Policy Statement on the Allowance for Loan and Lease Losses.  The methodology considers the Bank’s historical loss experience adjusted for changes in trends, conditions, and other relevant factors that affect repayment of the loans as of the evaluation date.  These adjustment factors, known as qualitative factors, include:

• Delinquencies and non-accruals

• Portfolio quality

• Concentration of credit

• Trends in volume of loans

• Quality of collateral

• Policy and procedures

• Experience, ability, and depth of management

• Economic trends – national and local

• External factors – competition, legal and regulatory

The methodology includes the segregation of the loan portfolio into loan types with a further segregation into risk rating categories, such as special mention, substandard, doubtful, and loss. This allows for an allocation of the allowance for loan losses by loan type; however, the allowance is available to absorb any loan loss without restriction. Larger balance, non-homogeneous loans representing significant individual credit exposures are evaluated individually through the internal loan review process. It is this process that produces the watch list for loans that have indications of credit weakness. The borrower’s overall financial condition,

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repayment sources, guarantors and value of collateral, if appropriate, are evaluated. Based on these reviews, an estimate of probable losses for the individual larger-balance loans are determined, whenever possible, and used to establish specific loan loss reserves. In general, for non-homogeneous loans not individually assessed and for homogeneous groups, such as residential mortgages and consumer credits, the loans are collectively evaluated based on delinquency status, loan type, and historical losses. These loan groups are then internally risk rated.

The watch list includes loans that are assigned a rating of special mention, substandard, doubtful and loss. Loans assigned a rating of special mention have potential weaknesses that deserve management’s close attention. If uncorrected, the potential weaknesses may result in deterioration of the repayment prospects. Loans classified as substandard have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They include loans that are inadequately protected by the current sound net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans classified as doubtful have all the weaknesses inherent in loans classified as substandard with the added characteristic that collection or liquidation in full, on the basis of current conditions and facts, is highly improbable. Loans rated as doubtful in whole, or in part, are placed in non-accrual status. Loans classified as a loss are considered uncollectible and are charged off against the allowance for loan losses.

The specific allowance for impaired loans is established for specific loans that have been identified by management as being impaired. These loans are considered to be impaired primarily because the loans have not performed according to payment terms and there is reason to believe that repayment of the loan principal in whole, or in part, is unlikely. The specific portion of the allowance is the total amount of potential unconfirmed losses for these individual impaired loans. To assist in determining the fair value of loan collateral, the Bank often utilizes independent third party qualified appraisal firms which, in turn, employ their own criteria and assumptions that may include occupancy rates, rental rates and property expenses, among others.

The second category of reserves consists of the allocated portion of the allowance. The allocated portion of the allowance is determined by taking pools of loans outstanding that have similar characteristics and applying historical loss experience for each pool. This estimate represents the potential unconfirmed losses within the portfolio. Individual loan pools are created for commercial and commercial real estate loans, construction loans, warehouse lines of credit and various types of loans to individuals. The historical loss estimation for each loan pool is then adjusted to account for current conditions, current loan portfolio performance, loan policy or management changes or any other qualitative factor which may cause future losses to deviate from historical levels.

The Company also maintains an unallocated allowance. The unallocated allowance is used to cover any factors or conditions which may cause a potential loan loss but are not specifically identifiable. It is prudent to maintain an unallocated portion of the allowance because no matter how detailed an analysis of potential loan losses is performed, these estimates, by definition, lack precision. Management must make estimates using assumptions and information that is often subjective and changing rapidly.

The following discusses the risk characteristics of each of our loan portfolio segments, commercial, mortgage warehouse lines of credit, and consumer.

Commercial

The Company’s primary lending emphasis is the origination of commercial, construction and commercial real estate loans. Based on the composition of the loan portfolio, the inherent primary risks are deteriorating credit quality, a decline in the economy and a decline in New Jersey real estate market values. Any one, or a combination, of these events may adversely affect the loan portfolio and may result in increased delinquencies, loan losses and increased future provision levels.

Mortgage Warehouse Lines of Credit

The Company’s Mortgage Warehouse Unit provides revolving lines of credit that are available to licensed mortgage banking companies. The warehouse line of credit is used by the mortgage banker to originate one-to-four family residential mortgage loans that are pre-sold into the secondary mortgage market, which includes state and national banks, national mortgage banking firms, insurance companies and government-sponsored enterprises, including the Federal National Mortgage Association, the Federal Home Loan Mortgage Corporation and others. On average, an advance under the warehouse line of credit remains outstanding for a period of less than 30 days, with repayment coming directly from the sale of the loan into the secondary mortgage market. Interest and a transaction fee are collected by the Bank at the time of repayment.

As a separate segment of the total portfolio, the warehouse loan portfolio is individually analyzed as a whole for allowance for loan losses purposes.  Warehouse lines of credit are subject to the same inherent risks as other commercial lending, but the overall degree of risk differs. While the Company’s loss experience with this type of lending has been non-existent since the product was introduced in 2008, there are other risks unique to this lending that still must be considered in assessing the adequacy of the allowance for loan losses. These unique risks may include, but are not limited to, (i) credit risks relating to the mortgage bankers that borrow

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from us, (ii) the risk of intentional misrepresentation or fraud by any of such mortgage bankers, (iii) changes in the market value of mortgage loans originated by the mortgage banker, the sale of which is the expected source of repayment of the borrowings under a warehouse line of credit, due to changes in interest rates during the time in warehouse or (iv) unsalable or impaired mortgage loans so originated, which could lead to decreased collateral value and the failure of a purchaser of the mortgage loan to purchase the loan from the mortgage banker.

These factors, along with the other qualitative factors such as economic trends, concentrations of credit, trends in the volume of loans, portfolio quality, delinquencies and non-accruals, are also considered and may have positive or negative effects on the allocated allowance.  The aggregate amount resulting from the application of these qualitative factors determines the overall risk for the portfolio and results in an allocated allowance for warehouse lines of credit.

Consumer

The Company’s consumer loan portfolio segment is comprised of residential real estate loans, home equity loans and other loans to individuals. Individual loan pools are created for the various types of loans to individuals.

In general, for homogeneous groups such as residential mortgages and consumer credits, the loans are collectively evaluated based on delinquency status, loan type and historical losses. These loan groups are then internally risk rated.

The Company considers the following credit quality indicators in assessing the risk in the loan portfolio:

• Consumer credit scores

• Internal credit risk grades

• Loan-to-value ratios

• Collateral

• Collection experience

Internal Risk Rating of Loans

The Bank’s internal credit risk grades are based on the definitions currently utilized by the banking regulatory agencies.  The grades assigned and their definitions are as follows, and loans graded excellent, above average, good and watch list are treated as “pass” for grading purposes:

1.  Excellent - Loans that are based upon cash collateral held at the Bank and adequately margined. Loans that are based upon "blue chip" stocks listed on the major stock exchanges and adequately margined.

2.  Above Average - Loans to companies whose balance sheets show excellent liquidity and long-term debt is on well-spread schedules of repayment easily covered by cash flow.  Such companies have been consistently profitable and have diversification in their product lines or sources of revenue.  The continuation of profitable operations for the foreseeable future is likely.  Management is comprised of a mix of ages, experience and backgrounds, and management succession is in place.  Sources of raw materials and, for service companies, the sources of revenue are abundant.  Future needs have been planned for.  Character and management ability of individuals or company principals are excellent.  Loans to individuals are supported by high net worths and liquid assets.

3.  Good - Loans to companies whose balance sheets show good liquidity and cash flow adequate to meet maturities of long-term debt with a comfortable margin.  Such companies have established profitable records over a number of years, and there has been growth in net worth.  Operating ratios are in line with those of the industry, and expenses are in proper relationship to the volume of business done and the profits achieved.  Management is well-balanced and competent in their responsibilities.  Economic environment is favorable; however, competition is strong.  The prospects for growth are good.  Loans in this category do not meet the collateral requirements of loans in categories 1 and 2 above. Loans to individuals are supported by good net worth but whose supporting assets are illiquid.

3w.  Watch- Included in this category are loans evidencing problems identified by Bank management that require closer supervision.  Such problems have not developed to the point which requires a "special mention" rating.  This category also covers situations where the Bank does not have adequate current information upon which credit quality can be determined.  The account officer has the obligation to correct these deficiencies within 30 days from the time of notification.

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4.  Special Mention - A "special mention" loan has potential weaknesses that deserve management's close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or in the Bank's credit position at some future date. Special mention loans are not adversely classified and do not expose the Bank to sufficient risk to warrant adverse classification.

5.  Substandard - A "substandard" loan is inadequately protected by the current sound worth and paying capacity of the obligor or by the collateral pledged, if any. Loans so classified must have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected.

6.  Doubtful - A loan classified as "doubtful" has all the weaknesses inherent in a loan classified as substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently known facts, conditions and values, highly questionable and improbable.

7.  Loss - A loan classified as "loss" is considered uncollectible and of such little value that its continuance on the books is not warranted. This classification does not mean that the loan has absolutely no recovery or salvage value, but rather it is not practical or desireable to defer writing off this loan even though partial recovery may occur in the future.

The following table provides a breakdown of the loan portfolio by credit quality indicator at December 31, 2016:

(Dollars in thousands)
Commercial Credit Exposure- By    Internally Assigned Grade	Construction		Commercial Business		Commercial Real Estate		Mortgage Warehouse Lines		Residential Real Estate
Grade:
Pass	$	95,548	$	91,908	$	223,435	$	216,259	$	43,950
Special Mention	301		7,102		14,334		—		244
Substandard	186		611		4,624		—		597
Doubtful	—		29		—		—		—
Loss	—		—		—		—		—
Total	$	96,035	$	99,650	$	242,393	$	216,259	$	44,791

(Dollars in thousands)
Consumer Credit Exposure -By Payment Activity	Loans to Individuals		Other
Performing	$	23,375	$	207
Nonperforming	361		—
Total	$	23,736	$	207

The following table provides a breakdown of the loan portfolio by credit quality indicator at December 31, 2015:

(Dollars in thousands)
Commercial Credit Exposure- By Internally Assigned Grade	Construction		Commercial Business		Commercial Real Estate		Mortgage Warehouse Lines		Residential Real Estate
Grade:
Pass	$	93,558	$	90,856	$	191,754	$	216,572	$	39,878
Special Mention	187		7,768		9,311		—		260
Substandard	—		653		6,185		—		606
Doubtful	—		—		—		—		—
Loss	—		—		—		—		—
Total	$	93,745	$	99,277	$	207,250	$	216,572	$	40,744

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(Dollars in thousands)
Consumer Credit Exposure - By Payment Activity	Loans to Individuals		Other
Performing	$	22,811	$	233
Nonperforming	263		—
Total	$	23,074	$	233

Impaired Loans Disclosures

Loans are considered to be impaired when, based on current information and events, it is determined that the Company will not be able to collect all amounts due according to the loan contract, including scheduled interest payments.  When a loan is placed on non-accrual status, it is also considered to be impaired.  Loans are placed on non-accrual status when: (1) the full collection of interest or principal becomes uncertain; or (2) they are contractually past due 90 days or more as to interest or principal payments unless the loans are both well secured and in the process of collection.

The following tables summarize the distribution of the allowance for loan losses and loans receivable by loan class and impairment method at December 31, 2016 and 2015, respectively.

Allowance for Loan Losses as of and for the year ended December 31, 2016
(Dollars in thousands)
	Construction		Commercial Business			Commercial Real Estate			Mortgage Warehouse Lines		Residential Real Estate		Loans to Individuals			Other			Unallocated		Deferred Fees		Total
Allowance for loan losses:
Beginning balance	$	1,025	$	2,005		$	3,049		$	866	$	288	$	109		$	—		$	218	$	—	$	7,560
(Credit) provision charged to operations	179		(177		)	(800		)	107		79		(3		)	1			314		—		(300		)
Loans charged off	—		(97		)	(60		)	—		—		—			(1		)	—		—		(158		)
Recoveries of loans charged off	—		1			385			—		—		6						—		—		392
Ending balance	$	1,204	$	1,732		$	2,574		$	973	$	367	$	112		$	—		$	532	$	—	$	7,494
Individually evaluated for impairment	$	7	$	101		$	114		$	—	$	38	$	—		$	—		$	—	$	—	$	260
Loans acquired with deteriorated credit quality	—		—			—			—		—		—			—			—		—		—
Collectively evaluated for impairment	1,197		1,631			2,460			973		329		112			—			532		—		7,234
Ending Balance	$	1,204	$	1,732		$	2,574		$	973	$	367	$	112		$	—		$	532	$	—	$	7,494
Loans receivable:
Loans acquired with deteriorated credit quality	$	—	$	191		$	930		$	—	$	—	$	—		$	—		$	—	$	—	$	1,121
Individually evaluated for impairment	391		947			3,817			—		544		337			—			—		—		6,036
Collectively evaluated for impairment	95,644		98,512			237,646			216,259		44,247		23,399			207			—		1,737		717,651
Ending Balance	$	96,035	$	99,650		$	242,393		$	216,259	$	44,791	$	23,736		$	207		$	—	$	1,737	$	724,808

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Allowance for Loan Losses as of and for the year ended December 31, 2015
(Dollars in thousands)
	Construction			Commercial Business			Commercial Real Estate			Mortgage Warehouse Lines			Residential Real Estate		Loans to Individuals			Other			Unallocated			Deferred Fees		Total
Allowance for loan losses:
Beginning balance	$	1,215		$	1,761		$	2,393		$	896		$	197	$	129		$	2		$	332		$	—	$	6,925
(Credit) provision charged to operations	(190		)	347			1,010			(30		)	91		(13		)	(1		)	(114		)	—		1,100
Loans charged off	—			(116		)	(361		)	—			—		(13		)	(1		)	—			—		(491		)
Recoveries of loans charged off	—			13			7			—			—		6						—			—		26
Ending balance	$	1,025		$	2,005		$	3,049		$	866		$	288	$	109		$	—		$	218		$	—	$	7,560
Individually evaluated for impairment	$	—		$	68		$	125		$	—		$	69	$	—		$	—		$	—		$	—	$	262
Loans acquired with deteriorated credit quality	—			—			64			—			—		—			—			—			—		64
Collectively evaluated for impairment	1,025			1,937			2,860			866			219		109			—			218			—		7,234
Ending Balance	$	1,025		$	2,005		$	3,049		$	866		$	288	$	109		$	—		$	218		$	—	$	7,560
Loans receivable:
Loans acquired with deteriorated credit quality	$	—		$	241		$	1,359		$	—		$	—	$	—		$	—		$	—		$	—	$	1,600
Individually evaluated for impairment	494			458			4,833			—			1,132		263			—			—			—		7,180
Collectively evaluated for impairment	93,251			98,578			201,058			216,572			39,612		22,811			233			—			1,226		673,341
Ending Balance	$	93,745		$	99,277		$	207,250		$	216,572		$	40,744	$	23,074		$	233		$	—		$	1,226	$	682,121

When a loan is identified as impaired, the measurement of impairment is based on the present value of expected future cash flows, discounted at the loan’s effective interest rate, except when the sole remaining source of repayment for the loan is the liquidation of the collateral.  In such cases, the current fair value of the collateral less selling costs is used.  If the value of the impaired loan is less than the recorded investment in the loan, the impairment is recognized through an allowance estimate or a charge to the allowance.

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Impaired Loans Receivables (By Class) - December 31, 2016
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Year to Date 2016 Average Recorded Investment		Year to Date 2016 Interest Income Recognized
(Dollars in thousands)
With no related allowance:
Construction	$	186	$	186	$	—	$	260	$	—
Commercial Business	883		1,054		—		623		14
Commercial Real Estate	1,380		1,380		—		1,528		74
Mortgage Warehouse Lines	—		—		—		—		—
Subtotal	2,449		2,620		—		2,411		88
Residential Real Estate	244		244		—		725		—
Consumer
Loans to Individuals	337		337		—		281		—
Other	—		—		—		—		—
Subtotal	337		337		—		281		—
Subtotal with no related allowance	3,030		3,201		—		3,417		88
With an allowance:
Commercial
Construction	205		205		7		51		9
Commercial Business	255		255		101		238		—
Commercial Real Estate	3,367		3,367		114		3,603		19
Mortgage Warehouse Lines	—		—		—		—		—
Subtotal	3,827		3,827		222		3,892		28
Residential Real Estate	301		316		38		200		—
Consumer
Loans to Individuals	—		—		—		—		—
Other	—		—		—		—		—
Subtotal	—		—		—		—		—
Subtotal with an allowance	4,128		4,143		260		4,092		28
Total:
Construction	391		391		7		311		9
Commercial Business	1,138		1,309		101		861		14
Commercial Real Estate	4,747		4,747		114		5,131		93
Mortgage Warehouse Lines	—		—		—		—		—
Residential Real Estate	544		560		38		925		—
Consumer	337		337		—		281		—
Total	$	7,157	$	7,344	$	260	$	7,509	$	116

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Impaired Loans Receivables (By Class) - December 31, 2015
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Year to Date 2015 Average Recorded Investment		Year to Date 2015 Interest Income Recognized
(Dollars in thousands)
With no related allowance:
Commercial
Construction	$	494	$	494	$	—	$	477	$	27
Commercial Business	488		847		—		492		23
Commercial Real Estate	2,417		2,683		—		2,998		94
Mortgage Warehouse Lines	—		—		—		—		—
Subtotal	3,399		4,024		—		3,967		144
Residential Real Estate	831		831		—		981		—
Consumer
Loans to Individuals	263		280		—		88		—
Other	—		—		—		—		—
Subtotal	263		280		—		88		—
Subtotal with no related allowance	4,493		5,135		—		5,036		144
With an allowance:
Commercial
Construction	—		—		—		—		—
Commercial Business	211		237		68		307		5
Commercial Real Estate	3,775		3,788		189		4,200		154
Mortgage Warehouse Lines	—		—		—		—		—
Subtotal	3,986		4,025		257		4,507		159
Residential Real Estate	301		316		69		100		—
Consumer
Loans to Individuals	—		—		—		175		—
Other	—		—		—		—		—
Subtotal	—		—		—		175		—
Subtotal with an allowance	4,287		4,341		326		4,782		159
Total:
Construction	494		494		—		477		27
Commercial Business	699		1,084		68		799		28
Commercial Real Estate	6,192		6,471		189		7,198		248
Mortgage Warehouse Lines	—		—		—		—		—
Residential Real Estate	1,132		1,147		69		1,081		—
Consumer	263		280		—		263		—
Total	$	8,780	$	9,476	$	326	$	9,818	$	303

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Purchased Credit-Impaired Loans

Purchased Credit-Impaired loans (“PCI”) are loans acquired at a discount that is due in part to credit quality.  Acquired loans totaling $2.6 million were deemed to be PCI at February 7, 2014 and were initially recorded at fair value (as determined by the present value of expected future cash flows) with no valuation allowance (i.e., the allowance for loan losses).

The following table presents additional information regarding PCI loans for the years ended December 31, 2016 and 2015:

(Dollars in thousands)	Purchased Loans with Evidence of Credit Deterioration
	12/31/2016		12/31/2015
Outstanding balance	$	1,470	$	1,964
Carrying amount	$	1,121	$	1,600

  In 2015, an allowance for loan losses in the amount of $64,000 was recorded for one PCI loan.

The following table presents changes in accretable discount for PCI loans for the years ended December 31, 2016 and 2015:

(Dollars in thousands)	December 31, 2016			December 31, 2015
Balance at beginning of year	$	73		$	135
Acquisition of impaired loans	—			—
Accretion of discount	(43		)	(62		)
Balance at end of year	$	30		$	73
Non-accretable difference at end of year	$	215		$	215

The following table presents the years for the scheduled remaining accretable discount that will accrete to income based on the Company’s most recent estimates of cash flows for PCI loans:

(Dollars in thousands)	Periods ending December 31,
	2017	$	22
	2018	8
	Thereafter	—
	Total	$	30

Consumer Mortgage Loans Secured by Residential Real Estate in Process of Foreclosure

The following table summarizes the recorded investment in consumer mortgage loans secured by residential real estate in process of foreclosure:

(Dollars in thousands)	December 31,
2016			2015
Number of loans	Recorded Investment		Number of loans	Recorded Investment
3	$	524	5	$	1,008

In the normal course of business, the Bank may consider modifying loan terms for various reasons. These reasons may include as a retention strategy to compete in the current interest rate environment or to re-amortize or extend a loan term to better match the loan’s payment stream with the borrower’s cash flow. A modified loan would be considered a troubled debt restructuring (“TDR”) if the Bank grants a concession to a borrower and has determined that the borrower is troubled (i.e., experiencing financial difficulties).

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If the Bank restructures a loan to a troubled borrower, the loan terms (i.e., interest rate, payment, amortization period, maturity date) may be modified in various ways to enable the borrower to cover the modified debt service payments based on current financial information and cash flow adequacy. If a borrower’s hardship is thought to be temporary, then modified terms may only be offered for that time period. Where possible, the Bank would attempt to obtain additional collateral and/or secondary repayment sources at the time of the restructure in order to put the Bank in the best possible position if the borrower is not able to meet the modified terms. The Bank will not offer modified terms if it believes that modifying the loan terms will only delay an inevitable permanent default.

In evaluating whether a restructuring constitutes a troubled debt restructuring, applicable guidance requires that a creditor must separately conclude that the restructuring constitutes a concession and the borrower is experiencing financial difficulties.  The following table is a breakdown of troubled debt restructurings, all of which are classified as impaired, which occurred during the years ended December 31, 2016 and 2015.

During 2016

(Dollars in thousands)	Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Troubled Debt Restructurings:
Commercial Real Estate	1	$	458	$	458

During 2015

(Dollars in thousands)	Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Troubled Debt Restructurings:
Commercial Business	1	$	288	$	288

There was one troubled debt restructuring in the amount of $458,000 that subsequently defaulted within twelve months of restructuring during the year ended December 31, 2016. There were no troubled debt restructurings that subsequently defaulted within twelve months of restructuring during the year ended December 31, 2015.

If the Bank determines that a borrower has suffered deterioration in its financial condition, a restructuring of the loan terms may occur.  Such loan restructurings may include, but are not limited to, reductions in principal or interest, reductions in interest rates and extensions of the maturity date.  When modifications are implemented, such loans meet the definition of a troubled debt restructuring.  All of the modifications employed by the Bank during 2016 and 2015 have resulted in lower principal amortization payments.  The lower payments are determined by an analysis of the borrower’s cash flow ability to meet the modified terms while anticipating an improved financial condition to enable a resumption of the original payment terms.

5.     Related Parties

Activity related to loans to directors, executive officers and their affiliated interests during 2016 and 2015 is as follows:

(Dollars in thousands)	December 31,
	2016			2015
Balance, beginning of year	$	870		$	1,376
Loans granted	751			16
Repayments of loans	(264		)	(522		)
Balance, end of year	$	1,357		$	870

All such loans were made under customary terms and conditions and were current as to principal and interest payments as of December 31, 2016 and 2015.

Related party deposits were $14.9 million and $9.0 million at December 31, 2016 and 2015, respectively.

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The Company has had and intends to have business transactions in the ordinary course of business with directors, officers and affiliated interests on comparable terms as those prevailing from time to time for other non-affiliated customers of the Company. For these transactions, related expenses are not significant to the operations of the Company.

6.           Premises and Equipment

Premises and equipment consist of the following:

		December 31,
(Dollars in thousands)	Estimated Useful Lives	2016			2015
Land		$	1,798		$	1,798
Building	40 years	8,083			8,083
Leasehold improvements	3 - 10 years	5,864			5,762
Furniture, fixtures and equipment	3 – 15 years	4,897			4,542
		20,642			20,185
Less: Accumulated depreciation		(9,969		)	(9,076		)
		$	10,673		$	11,109

Depreciation expense was $893,000 and $1.0 million for the years ended December 31, 2016 and 2015, respectively.

7.           Other Real Estate Owned (“OREO”)

Activity related to other real estate owned for the years ended December 31, 2016 and 2015 is as follows:

(Dollars in thousands)	2016			2015
Balance, beginning of year	$	966		$	5,710
Transfers into real estate owned	141			2,357
Transfers to other assets	—			—
Sale of real estate owned	(1,033		)	(6,027		)
Gain (loss) on sale of real estate owned	31			(692		)
Increase (decrease) in carrying amount of real estate owned	61			(382		)
Balance, end of year	$	166		$	966

At December 31, 2016, OREO was comprised of one commercial property. At December 31, 2015, OREO was comprised of one residential property.

8.           Goodwill and Intangible Assets

Goodwill and intangible assets are summarized as follows:

	December 31,
(Dollars in thousands)	2016		2015
Goodwill	$	11,854	$	11,854
Core deposits intangible	1,026		1,430
Total	$	12,880	$	13,284

Amortization expense of intangible assets was $404,000 and $428,000 for the years ended December 31, 2016 and 2015, respectively.

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Scheduled amortization of the core deposits intangible is as follows:

(Dollars in thousands)
	2017	$	384
	2018	305
	2019	110
	2020	88
	2021	67
	Thereafter	72
		$	1,026

9.           Deposits

Deposits at December 31, 2016 and 2015 are summarized as follows:

(Dollars in thousands)	2016		2015
Non-interest bearing	$	170,854	$	159,918
Interest bearing	310,103		284,547
Savings	205,294		196,324
Certificates of deposit	148,265		145,968
	$	834,516	$	786,757

At December 31, 2016, certificates of deposit have contractual maturities as follows:

(Dollars in thousands)
	Year	Amount
	2017	$	86,079
	2018	35,752
	2019	8,050
	2020	6,161
	2021	12,223
		$	148,265

Certificates of deposit greater than $250,000 were $23.9 million and $24.3 million at December 31, 2016 and December 31, 2015, respectively.

10.           Borrowings

The balance of borrowings was $73.1 million at December 31, 2016, consisting of one long-term FHLB advance totaling $10.0 million and overnight funds purchased of $63.1 million. The balance of borrowings was $58.9 million at December 31, 2015, consisting of three long-term FHLB advances totaling $20.3 million and overnight funds purchased of $38.6 million. These borrowings are primarily used to fund asset growth not supported by deposit generation.

Two long-term FHLB fixed rate convertible advances were assumed by the Bank as a result of an acquisition in 2014. These two advances totaled $10.0 million with an average rate of 4.50%. As a result of acquisition accounting, the two advances were fair valued and a premium of $1.0 million was assigned. The premium was amortized over the remaining term of the advances. The two advances had a combined carrying amount of $10.3 million at December 31, 2015 and both advances matured and were repaid on December 14, 2016.

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The Bank also has a fixed rate convertible advance from the FHLB in the amount of $10.0 million that bears interest at the rate of 4.08%. This advance may be called by the FHLB quarterly at the option of the FHLB if rates rise and the rate earned by the FHLB is no longer a “market” rate. This advance is fully secured by marketable securities. The FHLB advance matures on July 31, 2017. Due to the call provision, the expected maturity could differ from the contractual maturity.

11.           Redeemable Subordinated Debentures

On May 30, 2006, the Company established 1st Constitution Capital Trust II (“Trust II”), a Delaware business trust and wholly-owned subsidiary of the Company, for the sole purpose of issuing $18.0 million of trust preferred securities (the “Capital Securities”).  Trust II utilized the $18.0 million in proceeds, along with $557,000 invested in Trust II by the Company, to purchase $18,557,000 of floating rate junior subordinated debentures issued by the Company and due to mature on June 15, 2036.  The subordinated debentures carry a floating interest rate based on the three-month LIBOR plus 165 basis points (2.61344% at December 31, 2016). The Capital Securities were issued in connection with a pooled offering involving approximately 50 other financial institution holding companies.  All of the Capital Securities were sold to a single pooling vehicle. The floating rate junior subordinated debentures are the only asset of Trust II and have terms that mirrored the Capital Securities. These debentures are redeemable in whole or in part prior to maturity after June 15, 2011. Trust II is obligated to distribute all proceeds of a redemption of these debentures, whether voluntary or upon maturity, to holders of the Capital Securities.  The Company’s obligation with respect to the Capital Securities and the debentures, when taken together, provided a full and unconditional guarantee on a subordinated basis by the Company of the obligations of Trust II to pay amounts when due on the Capital Securities.  Interest payments on the floating rate junior subordinated debentures flow through Trust II to the pooling vehicle.  

12.           Income Taxes

The components of income tax expense (benefit) are summarized as follows:

(Dollars in thousands)	2016		2015
Federal:
Current	$	3,360	$	3,199
Deferred	269		8
	3,629		3,207
State:
Current	909		704
Deferred	85		151
	994		855
	$	4,623	$	4,062

A comparison of income tax expense at the Federal statutory rate in 2016 and 2015 to the Company’s provision for income taxes is as follows:

(Dollars in thousands)	2016			2015
Federal income tax	$	4,729		$	4,327
Add (deduct) effect of:
State income taxes net of federal income tax effect	656			564
Tax-exempt interest income	(706		)	(724		)
Bank-owned life insurance	(187		)	(203		)
Other items, net	131			98
Provision for income taxes	$	4,623		$	4,062

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The tax effects of existing temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are as follows:

	December 31,
(Dollars in thousands)	2016			2015
Deferred tax assets (liabilities):
Allowance for loan losses	$	2,993		$	3,020
Unrealized loss (gain) on securities available for sale	130			(113		)
Supplemental executive retirement plan liability	1,886			2,060
Other than temporary impairment loss	170			170
Depreciation	802			482
Non-accrual interest	313			231
Pension liability	(44		)	(75		)
Other	262			324
Acquisition accounting adjustments	(52		)	441
Net deferred tax assets, included in other assets	$	6,460		$	6,540

Based upon the current facts, management has determined that it is more likely than not that there will be sufficient taxable income in future years to realize the deferred tax assets.  However, there can be no assurances about the level of future earnings.

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13.           Comprehensive Income and Accumulated Other Comprehensive Income

Comprehensive income is the total of (1) net income and (2) all other changes in equity from non-shareholder sources, which are referred to as other comprehensive income. The components of accumulated other comprehensive income (loss) that are included in shareholders' equity and the related tax effects are as follows:

Year ended December 31, 2016:
(Dollars in thousands)	Before-Tax Amount			Income Tax Effect			Net-of-Tax Amount
Unrealized holding (losses) gains on available for sale securities:
Unrealized holding gains on available for sale  securities	$	(464	)	$	130		$	(334	)
Reclassification adjustment for (gains) losses realized in income	—			—			—
Other comprehensive (loss) on securities available for sale	(464		)	130			(334		)
Unrealized impairment (loss) on held to maturity security:
Unrealized impairment (loss) on held to maturity security	(501		)	170			(331		)
Unfunded pension liability:
Changes from plan actuarial gains and losses included in other comprehensive income	269			(108		)	161
Reclassification adjustment for (gains) realized in income	(160		)	64			(96		)
Other comprehensive gain from plan actuarial gains	109			(44		)	65
Accumulated other comprehensive income (loss)	$	(856	)	$	256		$	(600	)
Year ended December 31, 2015:
(Dollars in thousands)	Before-Tax Amount			Income Tax Effect			Net-of-Tax Amount
Unrealized holding (losses) gains on available for sale securities:
Unrealized holding gains on available for sale  securities	$	203		$	(113	)	$	90
Reclassification adjustment for loss realized in income	—			—			—
Other comprehensive gain on securities available for sale	203			(113		)	90
Unrealized impairment (loss)  on held to maturity security:
Unrealized impairment (loss) on held to maturity security	(501		)	170			(331		)
Unfunded pension liability:
Changes from plan actuarial gains and losses included in other comprehensive income	452			(181		)	271
Reclassification adjustment for (gains) realized in income	(266		)	106			(160		)
Other comprehensive gain from plan actuarial gains	186			(75		)	111
Accumulated other comprehensive income (loss)	$	(112	)	$	(18	)	$	(130	)

44

Changes in the components of accumulated other comprehensive income (loss) are as follows and are presented net of tax:

(Dollars in thousands)	Unrealized Holding (Losses) Gains on Available for Sale Securities			Unrealized Impairment Loss On Held to Maturity Security			Unfunded Pension Liability			Accumulated Other Comprehensive Income (Loss)
Balance, January 1, 2015	$	276		$	(331	)	$	303		$	248
Other comprehensive income (loss) before reclassifications	(186		)	—			(32		)	(218		)
Amounts reclassified from accumulated other comprehensive income (loss)	—			—			(160		)	(160		)
Other comprehensive income (loss)	(186		)	—			(192		)	(378		)
Balance, December 31, 2015	90			(331		)	111			(130		)
Other comprehensive income (loss) before reclassifications	(424		)	—			52			(372		)
Amounts reclassified from accumulated other comprehensive income (loss)	—			—			(98		)	(98		)
Other comprehensive income (loss)	(424		)	—			(46		)	(470		)
Balance, December 31, 2016	$	(334	)	$	(331	)	$	65		$	(600	)

14.           Benefit Plans

Retirement Savings Plan

The Bank has a 401(k) plan which covers substantially all employees with six months or more of service.  The plan permits all eligible employees to make basic contributions to the plan up to the IRS salary deferral limit.  Under the plan, the Bank provided a matching contribution of 50% in 2016 and 2015, up to 6% of base compensation.  Employer contributions to the plan amounted to $272,000 in 2016 and $274,000 in 2015.

Supplemental Executive Retirement Plan

The Company also provides retirement benefits to certain employees under supplemental executive retirement plans.  The plans are unfunded and the Company accrues actuarially determined benefit costs over the estimated service period of the employees in the plans.  The present value of the benefits accrued under these plans as of December 31, 2016 and 2015 is approximately $4.7 million and $5.2 million, respectively, and is included in other liabilities and accumulated other comprehensive income in the accompanying consolidated balance sheets.  Compensation expense related to the supplemental executive retirement plans of $235,000 and $184,000 is included in the accompanying consolidated statements of income for the years ended December 31, 2016 and 2015, respectively.

Bank-Owned Life Insurance

In connection with the benefit plans, the Bank has life insurance policies on the lives of its executives, directors, officers and employees.  The Bank is the owner and beneficiary of the policies.  The cash surrender values of the policies totaled approximately $22.2 million and $21.6 million as of December 31, 2016 and 2015, respectively.

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The following table sets forth the changes in benefit obligations of the Company’s supplemental executive retirement plans. 

(Dollars in thousands)	2016			2015
Change in Benefit Obligation
Beginning January 1	$	4,971		$	4,511
Service cost	216			267
Interest cost	179			183
Actuarial (gain) loss	(83		)	53
Benefits paid	(670		)	(43		)
Ending December 31	$	4,613		$	4,971
Amount Recognized in Consolidated Balance Sheets
Liability for pension	$	4,722		$	5,157
Net actuarial gain included in accumulated other comprehensive income	(109		)	(186		)
Prior service cost included in accumulated other comprehensive income	—			—
Net recognized pension liability	$	4,613		$	4,971
Information for pension plans with an accumulated  benefit obligation in excess of plan assets
Projected benefit obligation	$	4,613		$	4,971
Accumulated benefit obligation	4,463			4,699

Components of Net Periodic Benefit Cost	2016			2015
Service cost	$	216		$	267
Interest cost	179			183
Amortization of prior service cost	—			—
Recognized net actuarial gain	(160		)	(266		)
Net periodic benefit expense	$	235		$	184

The net periodic benefit cost is projected to be $184,000 and actuarial gains of $109,000 are expected to be removed from accumulated other comprehensive income and recognized as a component of net periodic benefit expense for the year ending December 31, 2017.

Weighted-Average Assumptions, December 31	2016		2015
Discount Rate	4.0	%	4.0	%
Salary Scale	4.0	%	4.0	%

	Projected Annual Benefit Payments*
(Dollars in thousands)	2017	$	4,906
	2018	$	—
	2019	$	—
	2020	$	—
	2021	$	—
	2022-2026	$	—

* Represents management’s expectation as of December 31, 2016 as to when such payments will be made.

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15.Share-Based Compensation

The Company’s stock-based incentive plans (the “Stock Plans”) authorize the issuance of an aggregate of 485,873 shares of the Company’s common stock (as adjusted for stock dividends) pursuant to awards that may be granted in the form of stock options to purchase common stock (“Options”) and awards of shares of common stock (“Stock Awards”).  The purpose of the Stock Plans is to attract and retain personnel for positions of substantial responsibility and to provide additional incentive to certain officers, directors, employees and other persons to promote the success of the Company.  Under the Stock Plans, options have a term of ten years after the date of grant, subject to earlier termination in certain circumstances.  Options are granted with an exercise price at the then fair market value of the Company’s common stock.  The grant date fair value is calculated using the Black-Scholes option valuation model. As of December 31, 2016, there were 196,175 shares of common stock available for future grants under the Stock Plans, of which 156,465 shares are available for future grant under the 2013 Equity Incentive Plan and 39,710 shares are available for future grant under the 2015 Directors Stock Plan.

Stock-based compensation expense related to stock options was $44,000 and $41,000 for the years ended December 31, 2016 and 2015, respectively.

Transactions under the Company’s stock option plans during the years ended December 31, 2016 and 2015 are summarized as follows:

StockOptions	Number of Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (years)	Aggregate Intrinsic Value
Outstanding at January 1, 2015	246,880		$	7.80
Granted	13,892		10.10
Exercised	(43,639	)	6.68
Forfeited	(27,788	)	10.55
Expired	(11,751	)	11.89
Outstanding at December 31, 2015	177,594		7.41		5.2	$	861,000
Granted	11,655		11.98
Exercised	(18,645	)	9.79
Forfeited	(4,648	)	11.60
Expired	(155	)	11.85
Outstanding at December 31, 2016	165,801		$	7.35	5.2	$	1,881,841
Exercisable at December 31, 2016	146,067		$	7.27	5.0	$	1,669,569

There were 18,645 options exercised in 2016 and 43,639 options exercised in 2015. The total intrinsic value (market value on date of exercise less grant price) of options exercised during the year ended December 31, 2016 was $125,000 compared to $176,000 during the year ended December 31, 2015.

The following table summarizes stock options outstanding and exercisable at December 31, 2016:

	Outstanding Options				Exercisable Options
Exercise Price Range	Number	Average Life in Years	Average Exercise Price		Number	Average Life in Years	Average Exercise Price
$5.54 to $5.63	55,106	4.8	$	5.60	48,339	4.8	$	5.59
$6.16 to $7.46	69,990	4.8	$	6.95	66,774	4.7	$	6.94
$9.30 to $11.98	40,705	6.3	$	10.40	30,954	6.0	$	10.60
	165,801	5.2	$	7.35	146,067	5.0	$	7.27

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The fair value of each option and the significant weighted average assumptions used to calculate the fair value of the options granted during the years ended December 31, 2016 and 2015 are as follows:

	2016			2015
Fair value of options granted	$	4.65		$	4.05
Risk-free rate of return	2.25		%	1.37		%
Expected option life in years	7			7
Expected volatility	30.66		%	32.37		%
Expected dividends (1)	—		%	—

(1)  Subsequent to the granting of stock options in 2016, the Company paid its first cash dividend on October 21, 2016.

As of December 31, 2016, there was approximately $75,300 of unrecognized compensation cost related to non-vested stock option-based compensation arrangements granted under the Company’s stock incentive plans.  That cost is expected to be recognized over the next four years.

The following table summarizes the activity in nonvested restricted shares for the years ended December 31, 2016 and 2015:

Non-vested Shares	Number of Shares		Average Grant-Date Fair Value
January 1, 2015	148,634		$	7.16
Granted	70,515		10.66
Vested	(60,930	)	8.99
Forfeited	(14,340	)	8.61
Non-vested at December 31, 2015	143,879		8.32
Granted	76,450		12.31
Vested	(74,070	)	10.91
Forfeited	(3,000	)	12.69
Non-vested at December 31, 2016	143,259		$	9.02

The value of restricted shares is based upon the closing price of the common stock on the date of grant.  The shares generally vest over a four year service period with compensation expense recognized on a straight-line basis.

Stock based compensation expense related to stock grants was $710,000 and $590,000 for the years ended December 31, 2016 and 2015, respectively.

As of December 31, 2016, there was approximately $1.4 million of unrecognized compensation cost related to non-vested stock grants that will be recognized over the next three years.

16.           Commitments and Contingencies

As of December 31, 2016, future minimum rental payments under non-cancelable operating leases were as follows: 

(Dollars in thousands)	2017	$	1,331
	2018	1,099
	2019	957
	2020	750
	2021	658
	Thereafter	2,449
		$	7,244

48

Rent expense aggregated $1.5 million and for each of the years ended December 31, 2016 and 2015.

Commitments With Off-Balance Sheet Risk

The consolidated balance sheet does not reflect various commitments relating to financial instruments which are used in the normal course of business.  Management does not anticipate that the settlement of those financial instruments will have a material adverse effect on the Company’s financial condition.  These instruments include commitments to extend credit and letters of credit.  These financial instruments carry various degrees of credit risk, which is defined as the possibility that a loss may occur from the failure of another party to perform according to the terms of the contract.  As these off-balance sheet financial instruments have essentially the same credit risk involved in extending loans, the Bank generally uses the same credit and collateral policies in making these commitments and conditional obligations as it does for on-balance sheet investments. Additionally, as some commitments and conditional obligations are expected to expire without being drawn or returned, the contractual amounts do not necessarily represent future cash requirements.

Commitments to extend credit are legally binding loan commitments with set expiration dates.  They are intended to be disbursed, subject to certain conditions, upon request of the borrower.  The Bank receives a fee for providing a commitment.  The Bank was committed to advance $372.7 million and $290.9 million to its borrowers as of December 31, 2016 and December 31, 2015, respectively.

The Bank issues financial standby letters of credit that are within the scope of ASC Topic 460, “Guarantees.”  These are irrevocable undertakings by the Bank to guarantee payment of a specified financial obligation.  Most of the Bank’s financial standby letters of credit arise in connection with lending relationships and have terms of one year or less.  The maximum potential future payments that the Bank could be required to make under these standby letters of credit amounted to $2.0 million at December 31, 2016 and $2.1 million at December 31, 2015.  The current amount of the liability as of December 31, 2016 and 2015 for guarantors under standby letters of credit is not material.

The Bank also enters into best efforts forward sales commitments to sell residential mortgage loans that it has closed (loans held for sale) or that it expects to close (commitments to originate loans held for sale).  These commitments are used to reduce the Bank’s market price risk during the period from the commitment date to the sale date.  The notional amount of the Bank’s forward sales commitments was approximately $8.3 million at December 31, 2016 and $16.9 million at December 31, 2015.  The fair value of the loan origination commitments was $123,000 at December 31, 2016 and was not significant at December 31, 2015.

Litigation

 The Company may, in the ordinary course of business, become a party to litigation involving collection matters, contract claims and other legal proceedings relating to the conduct of its business.  The Company may also have various commitments and contingent liabilities which are not reflected in the accompanying consolidated balance sheet. Management is not aware of any present legal proceedings or contingent liabilities and commitments that would have a material impact on the Company’s financial condition or results of operations.

17.           Other Operating Expenses

The components of other operating expenses for the years ended December 31, 2016 and 2015 are as follows:

(Dollars in thousands)	2016		2015
Marketing	$	240	$	282
Equipment	555		839
Telephone	377		449
Regulatory, professional and other consulting fees	1,706		1,681
Insurance	303		324
Amortization of intangible assets	404		428
Other expenses	1,358		1,152
	$	4,943	$	5,155

49

18.           Regulatory Capital Requirements

The Company and the Bank are subject to various regulatory capital requirements administered by the Federal and state banking agencies.  Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary, actions by regulators that, if undertaken, could have a direct material effect on the Bank’s and the Company’s financial statements.  Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and the Bank must meet specific capital guidelines that involve quantitative measures of the Company’s and the Bank’s assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices.  The Company’s and the Bank’s capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.

Quantitative measures established by regulation to ensure capital adequacy require the Company and the Bank to maintain minimum amounts and ratios of Common Equity Tier 1, Total and Tier I capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier I capital to average assets (Leverage ratio, as defined).  As of December 31, 2016, the Company and the Bank met all capital adequacy requirements to which they are subject.

To be categorized as adequately capitalized, the Company and the Bank must maintain minimum Common Equity Tier 1, Total risk-based, Tier I risk-based and Tier I leverage ratios as set forth in the below table.  As of December 31, 2016, the Bank's capital ratios exceed the regulatory standards for well-capitalized institutions. Certain bank regulatory limitations exist on the availability of the Bank’s assets for the payment of dividends by the Bank without prior approval of bank regulatory authorities.

In July 2013, the Federal Reserve Board and the FDIC approved revisions to their capital adequacy guidelines and prompt corrective action rules that implemented and addressed the revised standards of Basel III and addressed relevant provisions of the Dodd-Frank Act. The Federal Reserve Board’s final rules and the FDIC’s interim final rules (which became final in April 2014 with no substantive changes) apply to all depository institutions, top-tier bank holding companies with total consolidated assets of $500 million or more and top-tier savings and loan holding companies (“banking organizations”). Among other things, the rules established a Common Equity Tier 1 minimum capital requirement (4.5% of risk-weighted assets) and increased the minimum Tier 1 capital to risk-based assets requirement (from 4% to 6% of risk-weighted assets). Banking organizations are also required to have a total capital ratio of at least 8% and a Tier 1 leverage ratio of at least 4%.

The rules also limited a banking organization’s ability to pay dividends, engage in share repurchases or pay discretionary bonuses if the banking organization does not hold a “capital conservation buffer” consisting of 2.5% of Common Equity Tier 1 capital to risk-weighted assets in addition to the amount necessary to meet its minimum risk-based capital requirements. The rules became effective for the Company and the Bank on January 1, 2015. The capital conservation buffer requirement began phasing in on January 1, 2016 at 0.625% of Common Equity Tier 1 capital to risk-weighted assets and will increase by that amount each year until fully implemented in January 2019 at 2.5% of common equity Tier 1 capital to risk-weighted assets. As of January 1, 2017, the Company and the Bank were required to maintain a capital conservation buffer of 1.25%.

50

Actual capital amounts and ratios for the Company and the Bank as of December 31, 2016 and 2015 are as follows:

								To Be Well Capitalized Under Prompt
					For Capital			Corrective
(Dollars in thousands)	Actual				Adequacy Purposes			Action Provisions
	Amount		Ratio		Amount		Ratio	Amount		Ratio
As of December 31, 2016
Company
Common equity Tier 1 (CET1)	$	93,101	10.40	%	$	40,302	>4.5%	N/A		N/A
Total Capital to Risk Weighted Assets	118,595		13.24	%	71,648		>8%	N/A		N/A
Tier 1 Capital to Risk Weighted Assets	111,101		12.41	%	53,736		>6%	N/A		N/A
Tier 1 Leverage Capital	111,101		10.93	%	40,658		>4%	N/A		N/A
Bank
Common equity Tier 1 (CET1)	$	108,606	12.13	%	$	40,302	>4.5%	$	58,214	≥6.5%
Total Capital to Risk Weighted Assets	116,100		12.96	%	71,648		>8%	89,560		≥10%
Tier 1 Capital to Risk Weighted Assets	108,606		12.13	%	53,736		>6%	71,648		≥8%
Tier 1 Leverage Capital	108,606		10.68	%	40,658		>4%	50,823		>5%
As of December 31, 2015
Company
Common equity Tier 1 (CET1)	$	83,994	10.03	%	$	37,628	>4.5%	N/A		N/A
Total Capital to Risk Weighted Assets	109,554		13.08	%	66,894		>8%	N/A		N/A
Tier 1 Capital to Risk Weighted Assets	101,994		12.18	%	50,170		>6%	N/A		N/A
Tier 1 Leverage Capital	101,994		10.80	%	37,765		>4%	N/A		N/A
Bank
Common equity Tier 1 (CET1)	$	99,631	11.90	%	$	37,628	>4.5%	$	54,431	≥6.5%
Total Capital to Risk Weighted Assets	107,191		12.80	%	66,894		>8%	83,739		≥10%
Tier 1 Capital to Risk Weighted Assets	99,631		11.90	%	50,170		>6%	66,991		≥8%
Tier 1 Leverage Capital	99,631		10.55	%	37,765		>4%	47,211		>5%

Dividend payments by the Bank to the Company are subject to the New Jersey Banking Act of 1948, as amended (the “Banking Act”) and the Federal Deposit Insurance Act, as amended (the “FDIA”).  Under the Banking Act, the Bank may not pay dividends unless, following the dividend payment, the capital stock of the Bank will be unimpaired and (i) the Bank will have a surplus of not less than 50% of its capital stock or, if not, (ii) the payment of such dividend will not reduce the surplus of the Bank. Under the FDIA, the Bank may not pay any dividends if after paying the dividend, it would be undercapitalized under applicable capital requirements. In addition to these explicit limitations, the federal regulatory agencies are authorized to prohibit a banking subsidiary or bank holding company from engaging in an unsafe or unsound banking practice. Depending upon the circumstances, the agencies could take the position that paying a dividend would constitute an unsafe or unsound banking practice. The Bank is also limited in paying dividends if it does not maintain the necessary “capital conservation buffer” as discussed below.

It is the policy of the Federal Reserve Board that bank holding companies should pay cash dividends on common stock only out of income available over the immediately preceding year and only if prospective earnings retention is consistent with the organization’s expected future needs and financial condition. The policy provides that bank holding companies should not maintain a level of cash dividend that undermines the bank holding company’s ability to serve as a source of strength to its banking subsidiary. A bank holding company may not pay dividends when it is insolvent. The Company's payment of cash dividends to date were within the guidelines set forth in the Federal Reserve Board's policy.

In the event the Company defers payments on the junior subordinated debentures used to fund payments to be made pursuant to the terms of the Capital Securities, the Company would be unable to pay cash dividends on its common stock until the deferred payments are made.

19.           Shareholders’ Equity

51

The Company issued a warrant on December 23, 2008 to the United States Department of the Treasury (the “Treasury”) under the Troubled Asset Relief Program (“TARP”) Capital Purchase Program (the “CPP”). This warrant was sold by the Treasury on November 23, 2011 and exchanged for two new warrants which permit the holders thereof to acquire, on an adjusted basis resulting from declarations of stock and cash dividends to holders of common stock since the issuance of the two warrants, 283,572 shares of common stock of the Company at a price of $6.349 per share.

Certain terms and conditions of the warrant issued to the Treasury were modified or deleted in the two new warrants, including, without limitation, the deletion of the anti-dilution provision upon certain issuances of the Company’s common stock at or below a specified price relative to the initial exercise price.  However, the two warrants still provide for the adjustment of the exercise price and the number of shares of the Company’s common stock issuable upon exercise pursuant to customary anti-dilution provisions, such as upon stock splits or distributions of securities or other assets to holders of the Company’s common stock.  The two warrants remain outstanding, are immediately exercisable and continue to have an expiration date of December 23, 2018, which was the expiration date of the warrant originally issued to the Treasury.

The Board of Governors of the Federal Reserve System has issued a supervisory letter to bank holding companies that contains guidance on when the board of directors of a bank holding company should eliminate or defer or severely limit dividends, including, for example, when net income available for shareholders for the past four quarters, net of dividends paid during that period, is not sufficient to fully fund the dividends. The letter also contains guidance on the redemption of stock by bank holding companies which urges bank holding companies to advise the Federal Reserve of any such redemption or repurchase of common stock for cash or other value which results in the net reduction of a bank holding company’s capital at the beginning of the quarter below the capital outstanding at the end of the quarter. The Company's payment of cash dividends to date were within the guidelines set forth in the Federal Reserve Board's supervisory letter.

On August 3, 2005, the Board of Directors of the Company authorized a common stock repurchase program that allowed for the repurchase of a limited number of the Company’s shares at management’s discretion on the open market.  The Company undertook this repurchase program in order to increase shareholder value. During the year ended December 31, 2015, the Company repurchased 31,050 shares for an aggregate price of approximately $359,000.

On January 21, 2016, the Board of Directors of the Company authorized a new common stock repurchase program. Under the new common stock repurchase program, the Company may purchase in open market or privately negotiated transactions up to five (5%) percent of its common shares outstanding on the date of the approval of the stock repurchase program, which limitation will be adjusted for any future stock dividends. This new repurchase program replaced the repurchase program authorized on August 3, 2005. During the year ended December 31, 2016, the Company repurchased 2,000 shares for an aggregate price of approximately $24,000.

52

20.           Fair Value Disclosures

U.S. GAAP has established a fair value hierarchy that prioritizes the inputs to valuation methods used to measure fair value.  The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements).  The three levels of the fair value hierarchy are as follows:

Level 1.

• Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

Level 2.

• Quoted prices in markets that are not active, or inputs that are observable either directly or indirectly, for substantially the full term of the asset or liability.

Level 3.

• Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported with little or no market activity).

An asset’s or liability’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.

A description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below.  These valuation methodologies were applied to all of the Company’s financial assets and financial liabilities carried at fair value.

In general, fair value is based upon quoted market prices, where available.  If such quoted market prices are not available, fair value is based upon internally developed models that primarily use, as inputs, observable market-based parameters.  Valuation adjustments may be made to ensure that financial instruments are recorded at fair value.  These adjustments may include amounts to reflect counterparty credit quality and counterparty creditworthiness, among other things, as well as unobservable parameters.  Any such valuation adjustments are applied consistently over time.  The Company’s valuation methodologies may produce a fair value calculation that may not be indicative of net realizable value or reflective value or reflective of future values.  While management believes that the Company’s valuation methodologies are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date.

Securities Available for Sale.  Securities classified as available for sale are reported at fair value utilizing Level 1 and Level 2 inputs. For Level 2 securities, the fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the security’s terms and conditions, among other things.

Impaired loans.  Loans included in the following table are those which the Company has measured and recognized impairment based generally on the fair value of the loan’s collateral.  Fair value is generally determined based upon independent third party appraisals of the properties or discounted cash flows based on the expected proceeds.  These assets are included as Level 3 fair values based upon the lowest level of input that is significant to the fair value measurements.  The fair value consists of the loan balances less specific valuation allowances.

Other Real Estate Owned.  Foreclosed properties are adjusted to fair value less estimated selling costs at the time of foreclosure in preparation for transfer from portfolio loans to other real estate owned (“OREO”), thereby establishing a new accounting basis.  The Company subsequently adjusts the fair value of the OREO utilizing Level 3 inputs on a non-recurring basis to reflect partial write-downs based on the observable market price, current appraised value of the asset or other estimates of fair value.

53

The following table summarizes financial assets and financial liabilities measured at fair value on a recurring basis, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value:

(Dollars in thousands)	Level 1 Inputs		Level 2 Inputs		Level 3 Inputs		Total Fair Value
December 31, 2016:
Securities available for sale:
U.S. Treasury Securities and obligations of U.S. Government         sponsored corporations ("GSE") and agencies	$	—	$	3,479	$	—	$	3,479
Residential collateralized mortgage obligations - GSE	—		22,560		—		22,560
Residential mortgage backed securities-GSE	—		31,476		—		31,476
Obligations of state and political subdivisions	—		21,400		—		21,400
Trust preferred debt securities - single issuer	—		2,272		—		2,272
Corporate debt securities	12,826		8,942		—		21,768
Other debt securities	—		839		—		839
Total	$	12,826	$	90,968	$	—	$	103,794
December 31, 2015:
Securities available for sale:
U.S. Treasury Securities and obligations of U.S Government          sponsored corporations (“GSE”) and agencies	$	—	$	5,481	$	—	$	5,481
Residential collateralized mortgage obligations - GSE	—		8,287		—		8,287
Residential mortgage backed securities – GSE	—		32,635		—		32,635
Obligations of state and political subdivisions	—		21,436		—		21,436
Trust preferred debt securities - single issuer	—		2,136		—		2,136
Corporate debt securities	14,043		6,379		—		20,422
Other debt securities	—		971		54		1,025
Total	$	14,043	$	77,325	$	54	$	91,422

Certain financial assets and financial liabilities are measured at fair value on a nonrecurring basis; that is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment).  Financial assets and financial liabilities measured at fair value on a non-recurring basis at December 31, 2016 and 2015 are as follows:

(Dollars in thousands)	Level 1 Inputs	Level 2 Inputs	Level 3 Inputs		Total Fair Value
December 31, 2016
Impaired loans	—	—	$	4,130	$	4,130
December 31, 2015
Impaired loans	—	—	$	3,960	$	3,960
Other real estate owned	—	—	966		966

Impaired loans, measured at fair value and included in the above table, consisted of 9 loans having an aggregate balance of $4.4 million and specific loan loss allowances of $0.3 million at December 31, 2016 and 9 loans having an aggregate balance of $4.3 million and specific loan loss allowances of $0.3 million at December 31, 2015.

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The following table presents additional qualitative information about assets measured at fair value on a non-recurring basis and for which the Company has utilized Level 3 inputs to determine fair value:

(Dollars in thousands)	Quantitative Information about Level 3 Fair Value Measurements
	Fair Value Estimate		Valuation Techniques	Unobservable Input	Range (Weighted Average)
December 31, 2016
Impaired loans	$	4,130	Appraisal of collateral (1)	Appraisal adjustments (2)	3%-100% (29.1%)
December 31, 2015
Impaired loans	$	3,960	Appraisal of collateral (1)	Appraisal adjustments (2)	11%-44% (29.6%)
Other real estate owned	$	966	Appraisal of collateral (1)	Appraisal adjustments (2)	0.11%

(1) Fair value is generally determined through independent appraisals of the underlying collateral, which generally include various Level 3 inputs that are not identifiable.

(2) Includes qualitative adjustments by management and estimated liquidation expenses.

The fair value of other real estate owned was determined using appraisals, which may be adjusted based on management’s review and changes in market conditions.

The following is a summary of the fair value and the carrying value of all of the Company’s financial instruments.  For the Company and the Bank, as for most financial institutions, the bulk of assets and liabilities are considered financial instruments.  Many of the financial instruments lack an available trading market as characterized by a willing buyer and willing seller engaging in an exchange transaction.  Therefore, significant estimations and present value calculations are used.  Changes in assumptions could significantly affect these estimates.

Estimated fair values have been determined by using the best available data and an estimation methodology suitable for each category of financial instruments as follows:

Cash and Cash Equivalents, Accrued Interest Receivable and Accrued Interest Payable (Carried at Cost). The carrying amounts reported on the balance sheet for cash and cash equivalents, accrued interest receivable and accrued interest payable approximate fair value.

Securities Held to Maturity (Carried at Amortized Cost). The fair values of securities held to maturity are determined in the same manner as for securities available for sale.

Loans Held For Sale (Carried at Lower of Aggregated Cost or Fair Value). The fair values of loans held for sale are determined, when possible, using prices based on the best efforts commitment by the purchaser of the loan or quoted secondary market prices. If no such quoted market prices exist, fair values are determined using quoted prices for similar loans, adjusted for the specific attributes of the loans.

SBA servicing asset. Servicing assets do not trade in an active market with readily observable prices. The Company estimates the fair value of the SBA servicing asset using a discounted cash flow model, which incorporates assumptions based on observable discount rates and prepayment speeds.

Interest rate lock derivatives. Interest rate lock commitments do not trade in active markets with readily observable prices. The fair value of the interest rate lock commitments is estimated based upon the forward sales price that is obtained in the best efforts commitment at the time the borrower locks in the interest rate on the loan and the probability that the locked rate commitment will close.

Federal Home Loan Bank Stock. FHLB stock is carried at cost. The carrying value approximates fair value based upon the redemption price provision of the FHLB stock.

55

Gross Loans Receivable (Carried at Cost). The fair values of loans, excluding impaired loans subject to specific loss reserves, are estimated using discounted cash flow analyses and market rates at the balance sheet date that reflect the credit and interest rate-risk inherent in the loans.  Projected future cash flows are calculated based upon contractual maturity or call dates, projected repayments and prepayments of principal.  Generally, for variable rate loans that re-price frequently and with no significant change in credit risk, fair values are based on carrying values.

Deposit Liabilities (Carried at Cost). The fair values disclosed for demand deposits (e.g., interest and non-interest demand and savings accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amounts).  Fair values of certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered in the market on certificates to a schedule of aggregated expected monthly maturities on time deposits.

Borrowings and Subordinated Debentures (Carried at Cost). The carrying amounts of short-term borrowings approximate their fair values. The fair values of long-term FHLB advances and subordinated debentures are estimated using discounted cash flow analysis, based on quoted or estimated interest rates for new borrowings with similar credit risk characteristics, terms and remaining maturity. 

The estimated fair values, and the recorded book balances, at December 31, 2016 and 2015 were as follows:

December 31, 2016
(Dollars in thousands)	Carrying Value			Level 1 Inputs		Level 2 Inputs		Level 3 Inputs	Fair Value
Cash and cash equivalents	$	14,886		$	14,886	—		—	$	14,886
Securities available for sale	103,794			12,826		90,968		—	103,794
Securities held to maturity	126,810			—		128,559		—	128,559
Loans held for sale	14,829			—		15,103		—	15,103
Loans, net	717,314			—		—		716,492	716,492
SBA servicing asset	605			—		822		—	822
Interest rate lock derivative	123			—		123		—	123
Accrued interest receivable	3,095			—		3,095		—	3,095
FHLB Stock	3,962			—		3,962		—	3,962
Deposits	(834,516		)	—		(834,050	)	—	(834,050		)
Borrowings	(73,050		)	—		(73,222	)	—	(73,222		)
Redeemable subordinated debentures	(18,557		)	—		(11,922	)	—	(11,922		)
Accrued interest payable	(866		)	—		(866	)	—	(866		)

December 31, 2015
(Dollars in thousands)	Carrying Value			Level 1 Inputs		Level 2 Inputs		Level 3 Inputs	Fair Value
Cash and cash equivalents	$	11,368		$	11,368	—		—	$	11,368
Securities available for sale	91,422			14,043		77,325		54	91,422
Securities held to maturity	123,261			—		127,157		—	127,157
Loans held for sale	5,997			—		6,115		—	6,115
Loans, net	674,561			—		—		674,722	674,722
Accrued interest  receivable	2,853			—		2,853		—	2,853
FHLB Stock	3,302			—		3,302		—	3,302
Deposits	(786,757		)	—		(786,594	)	—	(786,594		)
Borrowings	(58,896		)	—		(59,347	)	—	(59,347		)
Redeemable subordinated debentures	(18,557		)	—		(11,641	)	—	(11,641		)
Accrued interest payable	(846		)	—		(846	)	—	(846		)

Loan commitments and standby letters of credit as of December 31, 2016 and 2015 were based on fees charged for similar agreements; accordingly, the estimated fair value of loan commitments and standby letters of credit were nominal. The fair value of interest rate lock commitments and SBA servicing rights were insignificant at December 31, 2015.

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21.           Parent-only Financial Information

The condensed financial statements of 1^st Constitution Bancorp (parent company only) are presented below:

1^st CONSTITUTION BANCORP

Condensed Statements of Financial Condition

(Dollars in Thousands)

	December 31, 2016		December 31, 2015
Assets:
Cash	$	490	$	77
Investment securities	557		557
Investment in subsidiary	120,306		111,597
Other assets	2,451		2,325
Total Assets	$	123,804	$	114,556
Liabilities And Shareholders’ Equity
Other liabilities	$	446	$	39
Subordinated debentures	18,557		18,557
Shareholders’ equity	104,801		95,960
Total Liabilities and Shareholders’ Equity	$	123,804	$	114,556

1st CONSTITUTION BANCORP

Consolidated Statements of Income and Comprehensive Income

(Dollars in Thousands)

	Year ended December 31,
	2016			2015
Income:
Interest income	$	13		$	11
Dividend income from subsidiary	1,240			366
Total Income	1,253			377
Expense:
Interest expense	440			366
Total Expense	440			366
Income before income taxes and equity in undistributed income of subsidiaries	813			11
Federal income tax benefit	(146		)	(122		)
Income before equity in undistributed income of subsidiaries	959			133
Equity in undistributed income of subsidiaries	8,326			8,531
Net Income	9,285			8,664
Equity in other comprehensive loss of subsidiaries	(470		)	(378		)
Comprehensive Income	$	8,815		$	8,286

57

1st CONSTITUTION BANCORP

Condensed Statements of Cash Flows

(Dollars in Thousands)

	Year ended December 31,
	2016			2015
Operating Activities:
Net Income	$	9,285		$	8,664
Adjustments:
Increase in other assets	(126		)	(92		)
Increase in other liabilities	408			—
Equity in undistributed income of subsidiaries	(8,326		)	(8,531		)
Net cash provided by operating activities	1,241			41
Cash Flows From Investing Activities:
Investment in subsidiary	(501		)	37
Net cash (used in) provided by investing activities	(501		)	37
Cash Flows From Financing Activities:
Cash dividend paid	(399		)	—
Issuance  of common stock, net	96			292
Purchase of treasury stock, net	(24		)	(359		)
Net cash used in financing activities	(327		)	(67		)
Net increase in cash	413			11
Cash at beginning of year	77			66
Cash at end of year	$	490		$	77

58

22.           Quarterly Financial Data (Unaudited)

The following table sets forth a condensed summary of the Company’s quarterly results of operations for the years ended December 31, 2016 and 2015:

(Dollars in thousands, except per share data)	2016
	Dec. 31		Sept. 30		June 30			March 31
Summary of Operations
Interest income	$	9,997	$	10,408	$	9,488		$	9,285
Interest expense	1,361		1,355		1,257			1,185
Net interest income	8,636		9,053		8,231			8,100
(Credit) provision for loan losses	—		—		(100		)	(200		)
Net interest income after (credit) provision for loan losses	8,636		9,053		8,331			8,300
Non-interest income	1,996		1,760		1,536			1,594
Non-interest expense	7,572		6,662		6,440			6,624
Income before income taxes	3,060		4,151		3,427			3,270
Income taxes	1,006		1,456		1,113			1,048
Net  income	$	2,054	$	2,695	$	2,314		$	2,222
Net income per common share:(1)
Basic	$	0.26	$	0.34	$	0.29		$	0.28
Diluted	$	0.25	$	0.33	$	0.28		$	0.27

(Dollars in thousands, except per share data)	2015
	Dec. 31		Sept. 30		June 30		March 31
Summary of Operations
Interest income	$	9,473	$	10,431	$	10,201	$	9,340
Interest expense	1,170		1,169		1,153		1,144
Net interest income	8,303		9,262		9,048		8,196
Provision for loan losses	500		100		—		500
Net interest income after provision for loan losses	7,803		9,162		9,048		7,696
Non-interest income	920		1,427		1,988		2,129
Non-interest expense	6,349		6,979		7,609		6,510
Income before income taxes	2,374		3,610		3,427		3,315
Income taxes	747		1,148		1,112		1,055
Net income	$	1,627	$	2,462	$	2,315	$	2,260
Net income per common share:(1)
Basic	$	0.21	$	0.31	$	0.29	$	0.29
Diluted	$	0.20	$	0.30	$	0.29	$	0.28

⁽¹⁾ The sum of quarterly income per basic and diluted common share may not equal net income per basic and diluted common share, respectively, for the years ended December 31, 2016 and 2015 due to differences in the computation of weighted average diluted common shares on a quarterly and annual basis.

59

23.           Subsequent Event

On March 14, 2017 the Bank was notified that a shared national credit syndicated loan in which it has a $4.3 million participation had further deteriorated. The credit was classified as Special Mention by the Bank. In response to the recent notification, the credit will be down-graded to a classification of Doubtful by the Bank in the first quarter of 2017 due to excessive leverage, an inability to de-lever over a reasonable period and on-going fraud litigation. As of the date of the notification, management has not been able to identify a loss, if any. The syndicated loan is a senior debt facility that is collateralized by the assets of the borrower. The borrower has paid all principal and interest to date.

The shared national credit program was established in 1977 by the Board of Governors of the Federal Reserve System, the FDIC and the Office of the Comptroller of the Currency to provide an efficient and consistent review and classification of any large syndicated loan that totals $20 million or more and is shared by three or more lending institutions or a portion of which is sold to two or more institutions.

At December 31, 2016, the Bank was a participant in the syndicated loan facility for $4.3 million and the outstanding balance of the Bank’s loan participation was $4.0 million. The Bank has been monitoring the financial condition of the borrower and increased the allowance for loan losses qualitative factors in the third quarter of 2016 to reflect the uncertainty of the borrower’s future financial performance and the Bank’s inability to measure a potential loss for this credit.

At this time, there is no additional information available to the Bank that would change management’s estimate of the allowance for loan losses with respect to this loan. Due to the change in the circumstances, the loan will be placed on non-accrual in the first quarter of 2017 and will be down-graded to the Doubtful classification. Management will continue to monitor the financial condition of the borrower and will consider any new information or developments of the borrower in its evaluation of the adequacy of its allowance for loan losses.

EX-99.3

Exhibit 99.3

Updated Item 1.        Financial Statements.

Note:    The information contained in this Item has been updated for the classification error as further detailed in the Current Report on Form 8-K filed herewith. This item has not been updated for any other changes since the filing of the 1Q 2017 Form 10-Q. For significant developments since the filing of the 1Q 2017 Form 10-Q, refer to our filings with the SEC.

1^ST Constitution Bancorp

Consolidated Balance Sheets

(Dollars in thousands)

(Unaudited)

	March 31, 2017			December 31, 2016
ASSETS
Cash and Due From Banks	$	47,914		$	14,886
Total cash and cash equivalents	47,914			14,886
Investment Securities:
Available for sale, at fair value	105,565			103,794
Held to maturity (fair value of $127,845 and $128,559 at March 31, 2017 and December 31, 2016, respectively)	125,940			126,810
Total investment securities	231,505			230,604
Loans Held for Sale	3,360			14,829
Loans	676,411			724,808
Less- Allowance for loan losses	(7,550		)	(7,494		)
Net loans	668,861			717,314
Premises and Equipment, Net	10,634			10,673
Accrued Interest Receivable	2,789			3,095
Bank-Owned Life Insurance	22,314			22,184
Other Real Estate Owned	431			166
Goodwill and Intangible Assets	12,792			12,880
Other Assets	9,264			11,582
Total assets	$	1,009,864		$	1,038,213
LIABILITIES AND SHAREHOLDERS’ EQUITY
LIABILITIES
Deposits
Non-interest bearing	$	184,210		$	170,854
Interest bearing	684,610			663,662
Total deposits	868,820			834,516
Borrowings	10,000			73,050
Redeemable Subordinated Debentures	18,557			18,557
Accrued Interest Payable	832			866
Accrued Expenses and Other Liabilities	5,020			6,423
Total liabilities	903,229			933,412
SHAREHOLDERS’ EQUITY
Preferred stock, no par value; 5,000,000 shares authorized, none issued	—			—
Common Stock, no par value; 30,000,000 shares authorized; 8,060,640 and 8,027,087 shares issued and 8,027,342 and 7,993,789 shares outstanding as of March 31, 2017 and December 31, 2016, respectively	71,930			71,695
Retained earnings	35,622			34,074
Treasury Stock, 33,298 shares at March 31, 2017 and December 31, 2016, respectively	(368		)	(368		)
Accumulated other comprehensive loss	(549		)	(600		)
Total shareholders’ equity	106,635			104,801
Total liabilities and shareholders’ equity	$	1,009,864		$	1,038,213

The accompanying notes are an integral part of these consolidated financial statements.

1

1^ST Constitution Bancorp

Consolidated Statements of Income

(Dollars in thousands, except per share data)

(Unaudited)

	Three Months Ended March 31,
	2017		2016
INTEREST INCOME
Loans, including fees	$	8,055	$	7,899
Securities:
Taxable	815		817
Tax-exempt	553		520
Federal funds sold and short-term investments	72		49
Total interest income	9,495		9,285
INTEREST EXPENSE
Deposits	1,043		950
Borrowings	127		136
Redeemable subordinated debentures	119		99
Total interest expense	1,289		1,185
Net interest income	8,206		8,100
PROVISION (CREDIT) FOR LOAN LOSSES	150		(200		)
Net interest income after provision (credit) for loan losses	8,056		8,300
NON-INTEREST INCOME
Service charges on deposit accounts	154		197
Gain on sales of loans, net	1,589		903
Income on Bank-owned life insurance	130		144
Gain on sales of securities	106		—
Other income	422		350
Total non-interest income	2,401		1,594
NON-INTEREST EXPENSES
Salaries and employee benefits	4,501		4,005
Occupancy expense	919		872
Data processing expenses	318		313
FDIC insurance expense	80		118
Other real estate owned expenses	4		29
Other operating expenses	1,834		1,287
Total non-interest expenses	7,656		6,624
Income before income taxes	2,801		3,270
INCOME TAXES	852		1,048
Net income	$	1,949	$	2,222
NET INCOME PER COMMON SHARE
Basic	$	0.24	$	0.28
Diluted	$	0.23	$	0.27
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic	8,026,037		7,939,366
Diluted	8,304,589		8,136,708

The accompanying notes are an integral part of these consolidated financial statements.

2

1^ST Constitution Bancorp

Consolidated Statements of Comprehensive Income

(Dollars in thousands)

(Unaudited)

	Three Months Ended March 31,
	2017			2016
Net income	$	1,949		$	2,222
Other comprehensive income (loss):
Unrealized holding gains (losses) on securities available for sale	181			519
Tax effect	(69		)	(189		)
Net of tax amount	112			330
Reclassification adjustment for gains included in income on securities available for sale	(82		)	—
Tax effect (2)	33			—
Net of tax amount	(49		)	—
Reclassification adjustment for actuarial gains for unfunded pension liability
Income (1)	(19		)	(26		)
Tax effect (2)	7			11
Net of tax amount	(12		)	(15		)
Total other comprehensive income (loss)	51			315
Comprehensive income	$	2,000		$	2,537

⁽¹⁾Included in salaries and employee benefits expense on the consolidated statements of income

⁽²⁾Included in income taxes on the consolidated statements of income

The accompanying notes are an integral part of these consolidated financial statements.

3

1^ST Constitution Bancorp

Consolidated Statements of Changes in Shareholders’ Equity

For the Three Months Ended March 31, 2017 and 2016

(Dollars in thousands)

(Unaudited)

	Common Stock		Retained Earnings			Treasury Stock			Accumulated Other Comprehensive Income (Loss)			Total Shareholders’ Equity
Balance, January 1, 2016	$	70,845	$	25,589		$	(344	)	$	(130	)	$	95,960
Share-based compensation	170		—			—			—			170
Treasury stock purchased (2,000 shares)	—		—			(24		)	—			(24		)
Net income for the three months ended March 31, 2016	—		2,222			—			—			2,222
Other comprehensive income	—		—			—			315			315
Balance, March 31, 2016	$	71,015	$	27,811		$	(368	)	$	185		$	98,643
Balance, January 1, 2017	$	71,695	$	34,074		$	(368	)	$	(600	)	$	104,801
Exercise of stock options (5,438)	36		—			—			—			36
Share-based compensation	199		—			—			—			199
Dividends on common stock ($0.05 per share)	—		(401		)	—			—			(401		)
Net income for the three months ended March 31, 2017	—		1,949			—			—			1,949
Other comprehensive income	—		—			—			51			51
Balance, March 31, 2017	$	71,930	$	35,622		$	(368	)	$	(549	)	$	106,635

The accompanying notes are an integral part of these consolidated financial statements.

4

1^ST Constitution Bancorp

Consolidated Statements of Cash Flows

(Dollars in thousands)

(Unaudited)

	Three Months Ended March 31,
	2017			2016
OPERATING ACTIVITIES:
Net income	$	1,949		$	2,222
Adjustments to reconcile net income to net cash provided by operating activities-
Provision (credit) for loan losses	150			(200		)
Depreciation and amortization	350			352
Net amortization of premiums and discounts on securities	254			222
Gains on sales of securities	(106		)	—
Gains on sales of loans held for sale	(1,589		)	(903		)
Originations of loans held for sale	(26,933		)	(18,824		)
Proceeds from sales of loans held for sale	39,991			24,382
Income on bank–owned life insurance	(130		)	(144		)
Share-based compensation expense	199			170
Decrease in accrued interest receivable	306			127
(Increase) decrease in other assets	(508		)	592
(Decrease) increase in accrued interest payable	(34		)	37
(Decrease) in accrued expenses and other liabilities	(1,403		)	(156		)
Net cash provided by operating activities	12,496			7,877
INVESTING ACTIVITIES:
Purchases of securities -
Available for sale	(9,186		)	(11,849		)
Held to maturity	(13,975		)	(10,558		)
Proceeds from maturities and prepayments of securities -
Available for sale	5,867			3,820
Held to maturity	14,208			10,751
Proceeds from sales of securities available for sale	1,449			—
Proceeds from sales of securities held to maturity	582			—
Net redemption of restricted stock	2,837			1,735
Net decrease in loans	48,038			23,415
Capital expenditures	(177		)	(110		)
Cost of improvement to OREO	—			(36		)
Net cash provided by investing activities	49,643			17,168
FINANCING ACTIVITIES:
Exercise of stock options	36			—
Purchase of treasury stock	—			(24		)
Cash dividends paid to shareholders	(401		)	—
Net increase in deposits	34,304			17,062
Net decrease in borrowings	(63,050		)	(38,641		)
Net cash used in financing activities	(29,111		)	(21,603		)
Increase in cash and cash equivalents	33,028			3,442
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD	14,886			11,368
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	47,914		$	14,810
SUPPLEMENTAL DISCLOSURES OF CASHFLOW INFORMATION
Cash paid during the period for -
Interest	$	1,323		$	1,148
Income taxes	1,527			760
Non-cash items: Transfer of loans to other real estate owned	265			142

The accompanying notes are an integral part of these consolidated financial statements.

5

1^ST Constitution Bancorp

Notes To Consolidated Financial Statements

March 31, 2017

(Unaudited)

(1)   Summary of Significant Accounting Policies

The accompanying unaudited consolidated financial statements include 1^ST Constitution Bancorp (the “Company”), its wholly-owned subsidiary, 1^ST  Constitution Bank (the “Bank”), and the Bank’s wholly-owned subsidiaries, 1^ST Constitution Investment Company of New Jersey, Inc., FCB Assets Holdings, Inc., 204 South Newman Street Corp., and 249 New York Avenue, LLC. 1st Constitution Capital Trust II, a subsidiary of the Company, is not included in the Company’s consolidated financial statements, as it is a variable interest entity and the Company is not the primary beneficiary.  All significant intercompany accounts and transactions have been eliminated in consolidation and certain prior period amounts have been reclassified to conform to current year presentation.  The accounting and reporting policies of the Company and its subsidiaries conform to accounting principles generally accepted in the United States of America (“U.S. GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”), including the instructions to Form 10-Q and Article 10 of Regulation S-X.  Certain information and footnote disclosures normally included in financial statements have been condensed or omitted pursuant to such rules and regulations.  These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto included in the Company’s Form 10-K/A for the year ended December 31, 2016, filed with the SEC on March 20, 2017.

In the opinion of the Company, all adjustments (consisting only of normal recurring accruals) which are necessary for a fair presentation of the operating results for the interim periods have been included. The results of operations for periods of less than a year are not necessarily indicative of results for the full year.

During a review of the second quarter ended June 30, 2017, management became aware that during previously reported periods the amortization of deferred loan origination costs was being recorded in other operating expense and not as an adjustment to yield as required by ASC 310-20. As such, management decreased interest income and other operating expenses in the amounts of $442,000 and $409,000 for the three months ended March 31, 2017 and March 31, 2016, respectively.

The Company has evaluated events and transactions occurring subsequent to the balance sheet date of March 31, 2017 for items that should potentially be recognized or disclosed in these financial statements.  The evaluation was conducted through the date these financial statements were issued.

6

(2) Net Income Per Common Share

Basic net income per common share is calculated by dividing net income by the weighted average number of common shares outstanding during each period. Diluted net income per common share is calculated by dividing net income by the weighted average number of common shares outstanding, as adjusted for the assumed exercise of dilutive common stock warrants and common stock options using the treasury stock method.

The following tables illustrate the reconciliation of the numerators and denominators of the basic and diluted earnings per common share (EPS) calculations.  Dilutive securities in the tables below exclude common stock options and warrants with exercise prices that exceed the average market price of the Company’s common stock during the periods presented.  Inclusion of these common stock options and warrants would be anti-dilutive to the diluted earnings per common share calculation. 

(Dollars in thousands, except per share data)	Three Months Ended March 31, 2017
	Net  Income		Weighted-average shares	Per share amount
Basic earnings per common share:  Net income	$	1,949	8,026,037	$	0.24
Effect of dilutive securities:
Stock options and warrants			278,552
Diluted EPS:
Net income plus assumed conversion	$	1,949	8,304,589	$	0.23

(Dollars in thousands, except per share data)	Three Months Ended March 31, 2016
	Net  Income		Weighted-average shares	Per share amount
Basic earnings per common share:
Net income	$	2,222	7,939,366	$	0.28
Effect of dilutive securities:
Stock options and warrants			197,342
Diluted EPS:
Net income plus assumed conversion	$	2,222	8,136,708	$	0.27

For the three months ended March 31, 2017 and 2016, 9,900 and 20,585 options, respectively, were anti-dilutive and were not included in the computation of diluted earnings per common share.

7

(3) Investment Securities

Amortized cost, carrying value, gross unrealized gains and losses, and the fair value by security type are as follows:

March 31, 2017	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
(Dollars in thousands)
Available for sale
U. S. Treasury securities and obligations of U.S. Government sponsored corporations (“GSE”) and agencies	$	3,511	$	2	$	(8	)	$	3,505
Residential collateralized mortgage obligations- GSE	24,547		50		(124		)	24,473
Residential mortgage backed securities – GSE	28,176		233		(103		)	28,306
Obligations of state and political subdivisions	21,446		178		(229		)	21,395
Trust preferred debt securities – single issuer	2,479		—		(212		)	2,267
Corporate debt securities	24,988		87		(236		)	24,839
Other debt securities	783		—		(3		)	780
	$	105,930	$	550	$	(915	)	$	105,565

March 31, 2017	Amortized Cost		Other-Than- Temporary Impairment Recognized In Accumulated Other Comprehensive Loss			Carrying Value		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Held to maturity-
U. S. Treasury securities and obligations of U.S. Government sponsored corporations (“GSE”) and agencies	$	3,727	$	—		$	3,727	$	—	$	(85	)	$	3,642
Residential collateralized mortgage obligations – GSE	10,968		—			10,968		221		(121		)	11,068
Residential mortgage backed securities – GSE	37,951		—			37,951		459		(125		)	38,285
Obligations of state and political subdivisions	72,715		—			72,715		1,414		(161		)	73,968
Trust preferred debt securities-pooled	657		(501		)	156		303		—			459
Other debt securities	423		—			423		—		—			423
	$	126,441	$	(501	)	$	125,940	$	2,397	$	(492	)	$	127,845

8

December 31, 2016	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
(Dollars in thousands)
Available for sale-
U. S. Treasury securities and obligations of U.S. Government sponsored corporations ("GSE") and agencies	$	3,514	$	—	$	(35	)	$	3,479
Residential collateralized mortgage obligations- GSE	22,647		58		(145		)	22,560
Residential mortgage backed securities - GSE	31,207		388		(119		)	31,476
Obligations of state and political subdivisions	21,604		152		(356		)	21,400
Trust preferred debt securities-single issuer	2,478		—		(206		)	2,272
Corporate debt securities	21,963		10		(205		)	21,768
Other debt securities	845		—		(6		)	839
	$	104,258	$	608	$	(1,072	)	$	103,794

December 31, 2016	Amortized Cost		Other-Than- Temporary Impairment Recognized In Accumulated Other Comprehensive Loss			Carrying Value		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Held to maturity-
U. S. Treasury securities and obligations of U.S. Government sponsored corporations ("GSE") and agencies	$	3,727	$	—		$	3,727	$	—	$	(116	)	$	3,611
Residential collateralized mortgage obligations-GSE	11,882		—			11,882		247		(130		)	11,999
Residential mortgage backed securities - GSE	40,565		—			40,565		540		(113		)	40,992
Obligations of state and political subdivisions	70,017		—			70,017		1,274		(255		)	71,036
Trust preferred debt securities - pooled	657		(501		)	156		303		—			459
Other debt securities	463		—			463		—		(1		)	462
	$	127,311	$	(501	)	$	126,810	$	2,364	$	(615	)	$	128,559

Restricted stock is included in other assets at March 31, 2017 and December 31, 2016 and totaled $1.1 million and $4.0 million, respectively, and consisted of $1.0 million of Federal Home Loan Bank of New York stock and $65,000 of Atlantic Community Bankers Bank stock at March 31, 2017 and $4.0 million of Federal Home Loan Bank of New York stock and $65,000 of Atlantic Community Bankers Bank stock at December 31, 2016.

During the first quarter of 2017, the Bank sold fifty-four mortgage backed securities totaling $2.0 million, each with a principal balance outstanding of less than $150,000. Of the fifty-four mortgage backed securities sold, six of such securities with an aggregate outstanding principal balance of $580,000 were in the held to maturity portfolio, and a net gain of $24,000 was realized on the sale of these securities. Each of the six mortgage backed securities that were sold from the held to maturity portfolio had a principal balance that was less than 15% of the original principal balance outstanding at the time of purchase. Accounting Standards Codification ("ASC") 320-10-25-14 provides that sales of debt securities that are categorized as held to maturity and are sold after 85% of the principal outstanding at acquisition had been collected shall be equivalent to holding the security to maturity. Accordingly, the sales of the six mortgage backed securities that were classified as held to maturity were treated as held to maturity.

9

Gross unrealized losses on available for sale and held to maturity securities and the fair value of the related securities aggregated by security category and length of time that individual securities have been in a continuous unrealized loss position at March 31, 2017 and December 31, 2016 were as follows:

March 31, 2017		Less than 12 months					12 months or longer					Total
(Dollars in thousands)	Number of Securities	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
U.S. Treasury securities and obligations of U.S.      Government sponsored corporations (GSE) and    agencies	2	$	5,630	$	(93	)	$	—	$	—		$	5,630	$	(93	)
Residential collateralized mortgage obligations –GSE	7	18,259		(245		)	—		—			18,259		(245		)
Residential mortgage backed securities-GSE	28	26,717		(228		)	—		—			26,717		(228		)
Obligations of state and political subdivisions	59	19,555		(378		)	764		(12		)	20,319		(390		)
Trust preferred debt securities- single issuer	4	—		—			2,267		(212		)	2,267		(212		)
Corporate debt securities	5	10,752		(143		)	4,907		(93		)	15,659		(236		)
Other debt securities	2	—		—			780		(3		)	780		(3		)
Total temporarily impaired securities	107	$	80,913	$	(1,087	)	$	8,718	$	(320	)	$	89,631	$	(1,407	)

December 31, 2016		Less than 12 months					12 months or longer					Total
(Dollars in thousands)	Number of Securities	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
U.S. Treasury securities and obligations of U.S.       Government sponsored corporations (GSE) and    agencies	3	$	7,090	$	(151	)	$	—	$	—		$	7,090	$	(151	)
Residential collateralized mortgage obligations –GSE	7	17,242		(275		)	—		—			17,242		(275		)
Residential mortgage backed securities - GSE	29	26,581		(216		)	3,542		(16		)	30,123		(232		)
Obligations of state and political subdivisions	74	25,545		(611		)	—		—			25,545		(611		)
Trust preferred debt securities- single issuer	4	—		—			2,272		(206		)	2,272		(206		)
Corporate debt securities	6	12,700		(204		)	1,999		(1		)	14,699		(205		)
Other debt securities	3	—		—			1,276		(7		)	1,276		(7		)
Total temporarily impaired securities	126	$	89,158	$	(1,457	)	$	9,089	$	(230	)	$	98,247	$	(1,687	)

10

The following table sets forth certain information regarding the amortized cost, carrying value, fair value, weighted average yields and contractual maturities of the Company’s investment portfolio as of March 31, 2017.  Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.  

(Dollars in thousands)	March 31, 2017
	Amortized Cost		Fair Value		Yield
Available for sale
Due in one year or less	$	3,997	$	3,998	0.25%
Due after one year through five years	18,631		18,686		2.15%
Due after five years through ten years	42,696		42,560		2.49%
Due after ten years	40,606		40,321		2.89%
Total	$	105,930	$	105,565	2.50%
	Carrying Value		Fair Value		Yield
Held to maturity
Due in one year or less	$	33,055	$	33,065	1.51%
Due after one year through five years	17,612		18,286		4.54%
Due after five years through ten years	21,631		22,178		3.43%
Due after ten years	53,642		54,316		3.28%
Total	$	125,940	$	127,845	3.02%

11

U.S. Treasury securities and obligations of U.S. Government sponsored corporations and agencies:  The unrealized losses on investments in these securities were caused by increases in market interest rates. The Company does not intend to sell these investments and it is not more likely than not that the Company will be required to sell these investments before a market price recovery or maturity.  Therefore, these investments are not considered other-than-temporarily impaired.

Residential collateralized mortgage obligations and residential mortgage backed securities: The unrealized losses on investments in residential collateralized mortgage obligations and mortgage backed securities were caused by increases in market interest rates. The contractual cash flows of these securities are guaranteed by the issuers, which are primarily government or government sponsored agencies. It is expected that the securities would not be settled at a price less than the amortized cost of the investment. The decline in fair value is attributable to changes in interest rates and not credit quality. The Company does not intend to sell these investments and it is not more likely than not that the Company will be required to sell these investments before a market price recovery or maturity.  Therefore, these investments are not considered other-than-temporarily impaired.

Obligations of state and political subdivisions:  The unrealized losses on investments in these securities were caused by increases in market interest rates.  It is expected that the securities would not be settled at a price less than the amortized cost of the investment.  None of the issuers have defaulted on interest payments. These investments are not considered to be other than temporarily impaired because the decline in fair value is attributable to changes in interest rates and not credit quality.  The Company does not intend to sell these investments and it is not more likely than not that the Company will be required to sell these investments before a market price recovery or maturity.  Therefore, these investments are not considered other-than-temporarily impaired.

Corporate debt securities:   The unrealized losses on investments in corporate debt securities were caused by increases in market interest rates.  None of the corporate issuers have defaulted on interest payments.   The decline in fair value is attributable to changes in interest rates and not a decline in credit quality. The Company does not intend to sell these investments and it is not more likely than not that the Company will be required to sell these investments before a market price recovery or maturity. Therefore, these investments are not considered other-than-temporarily impaired.

Trust preferred debt securities – single issuer:  The investments in these securities with unrealized losses are comprised of four corporate trust preferred securities issued by two large financial institutions that mature in 2027. The contractual terms of the trust preferred securities do not allow the issuer to settle the securities at a price less than the face value of the trust preferred securities, which is greater than the amortized cost of the trust preferred securities.  One of the issuers continues to maintain an investment grade credit rating and neither has defaulted on interest payments.  The decline in fair value is attributable to the widening of interest rate and credit spreads and the lack of an active trading market for these securities. The Company does not intend to sell these investments and it is not more likely than not that the Company will be required to sell these investments before a market price recovery or maturity.  Therefore, these investments are not considered other-than-temporarily impaired.

Trust preferred debt securities – pooled:   This trust preferred debt security was issued by a two issuer pool (Preferred Term Securities XXV, Ltd. co-issued by Keefe, Bruyette and Woods, Inc. and First Tennessee (“PRETSL XXV”)) consisting primarily of financial institution holding companies.  During 2009, the Company recognized an other-than-temporary impairment of $865,000, of which $364,000 was determined to be a credit loss and charged to operations and $501,000 was recognized in the other comprehensive income (loss) component of shareholders’ equity.

The primary factor used to determine the credit portion of the impairment loss recognized in the income statement for this security was the discounted present value of projected cash flow where that present value of cash flow was less than the amortized cost basis of the security.  The present value of cash flow was developed using a model that considered performing collateral ratios, the level of subordination to senior tranches of the security, and credit ratings of and projected credit defaults in the underlying collateral.

On a quarterly basis, management evaluates the security to determine if any additional other-than-temporary impairment is required. As of March 31, 2017, management concluded that no additional other-than-temporary impairment had occurred.

12

(4)   Allowance for Loan Losses and Credit Quality

The Company’s primary lending emphasis is the origination of commercial business and commercial real estate loans and mortgage warehouse lines of credit.  Based on the composition of the loan portfolio, the inherent primary risks are deteriorating credit quality, a decline in the economy, and a decline in New Jersey real estate market values.  Any one, or a combination, of these events may adversely affect the loan portfolio and may result in increased delinquencies, loan losses and increased future provision levels.

The following table provides an aging of the loan portfolio by loan class at March 31, 2017:

(Dollars in thousands)	30-59 Days		60-89 Days		Greater than 90 Days		Total Past Due		Current		Total Loans Receivable		Recorded Investment > 90 Days Accruing		Non-accrual Loans
Commercial
Construction Loans	$	—	$	—	$	182	$	182	$	107,540	$	107,722	$	—	$	182
Commercial Business	376		—		396		772		100,694		101,466		46		4,438
Commercial Real Estate	1,800		—		1,868		3,668		254,462		258,130		—		2,182
Mortgage Warehouse Lines	—		—		—		—		142,666		142,666		—		—
Residential Real Estate Loans	17		—		87		104		41,504		41,608		—		238
Consumer
Loans to Individuals	70		—		263		333		23,234		23,567		—		333
Other	—		—		—		—		177		177		—		—
Total loans	2,263		—		2,796		5,059		670,277		675,336		46		7,373
Deferred loan fees and costs, net	—		—		—		—		1,075		1,075		—		—
Total loans, net	$	2,263	$	—	$	2,796	$	5,059	$	671,352	$	676,411	$	46	$	7,373

The following table provides an aging of the loan portfolio by loan class at December 31, 2016:

(Dollars in thousands)	30-59 Days		60-89 Days		Greater than 90 Days		Total Past Due		Current		Total Loans Receivable		Recorded Investment > 90 Days Accruing		Non-accrual Loans
Commercial
Construction Loans	$	—	$	—	$	186	$	186	$	95,849	$	96,035	$	—	$	186
Commercial Business	113		115		790		1,018		98,632		99,650		—		920
Commercial Real Estate	741		942		2,707		4,390		238,003		242,393		—		3,187
Mortgage Warehouse Lines	—		—		—		—		216,259		216,259		—		—
Residential Real Estate Loans	564		—		392		956		43,835		44,791		—		544
Consumer
Loans to Individuals	—		29		361		390		23,346		23,736		24		337
Other	—		—		—		—		207		207		—		—
Total loans	1,418		1,086		4,436		6,940		716,131		723,071		24		5,174
Deferred loan fees and costs, net	—		—		—		—		1,737		1,737		—		—
Total loans, net	$	1,418	$	1,086	$	4,436	$	6,940	$	717,868	$	724,808	$	24	$	5,174

As provided by ASC 310-30, the excess of cash flows expected at acquisition over the initial investment in the loan is recognized as interest income over the life of the loan. Accordingly, acquired loans with evidence of deteriorated credit quality of $420,000 at March 31, 2017 and $439,000 at December 31, 2016 were not classified as non-performing loans.

13

The Company’s internal credit risk grades are based on the definitions currently utilized by the banking regulatory agencies.  The grades assigned and definitions are as follows, and loans graded excellent, above average, good and watch list are treated as “pass” for grading purposes:

1.  Excellent - Loans that are based upon cash collateral held at the Bank and adequately margined. Loans that are based upon "blue chip" stocks listed on the major exchanges and adequately margined.

2.  Above Average - Loans to companies whose balance sheets show excellent liquidity and long-term debt is on well-spread schedules of repayment easily covered by cash flow.  Such companies have been consistently profitable and have diversification in their product lines or sources of revenue.  The continuation of profitable operations for the foreseeable future is likely.  Management is comprised of a mix of ages, experience, and backgrounds, and management succession is in place.  Sources of raw materials and, for service companies, the sources of revenue are abundant.  Future needs have been planned for.  Character and ability of individuals or company principals are excellent.  Loans to individuals are supported by high net worths and liquid assets.

3.  Good - Loans to companies whose balance sheets show good liquidity and cash flow adequate to meet maturities of long-term debt with a comfortable margin.  Such companies have established profitable records over a number of years, and there has been growth in net worth.  Operating ratios are in line with those of the industry, and expenses are in proper relationship to the volume of business done and the profits achieved.  Management is well-balanced and competent in their responsibilities.  Economic environment is favorable; however, competition is strong.  The prospects for growth are good.  Loans in this category do not meet the collateral requirements of loans in categories 1 and 2 above. Loans to individuals are supported by good net worth but whose supporting assets are illiquid.

3w. Watch - Included in this category are loans evidencing problems identified by Bank management that require closer supervision.  Such problems have not developed to the point which requires a "special mention" rating.  This category also covers situations where the Bank does not have adequate current information upon which credit quality can be determined.  The account officer has the obligation to correct these deficiencies within 30 days from the time of notification.

4.  Special Mention - A "special mention" loan has potential weaknesses that deserve management's close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or in the Bank's credit position at some future date. Special mention loans are not adversely classified and do not expose the Bank to sufficient risk to warrant adverse classification.

5.  Substandard - A "substandard" loan is inadequately protected by the current sound net worth and paying capacity of the obligor or by the collateral pledged, if any. Loans so classified must have a well-defined weakness, or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected.

6.  Doubtful - A loan classified as "doubtful" has all the weaknesses inherent in one classified as substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently known facts, conditions and values, highly questionable and improbable.

7.  Loss - A loan classified as "loss" is considered uncollectible and of such little value that its continuance on the books is not warranted. This classification does not mean that the loan has absolutely no recovery or salvage value, but rather it is not practical or desirable to defer writing off this loan even though partial recovery may be affected in the future.

14

The following table provides a breakdown of the loan portfolio by credit quality indicator at March 31, 2017:

(Dollars in thousands)
Commercial Credit Exposure - By Internally Assigned Grade	Construction		Commercial Business		Commercial Real Estate		Mortgage Warehouse Lines		Residential Real Estate
Grade:
Pass	$	106,276	$	93,063	$	238,408	$	142,666	$	41,076
Special Mention	1,264		3,568		13,797		—		238
Substandard	182		813		5,925		—		294
Doubtful	—		4,022		—		—		—
Total	$	107,722	$	101,466	$	258,130	$	142,666	$	41,608

Consumer Credit Exposure - By Payment Activity	Loans To Individuals		Other
Performing	$	23,234	$	177
Nonperforming	333		—
Total	$	23,567	$	177

The following table provides a breakdown of the loan portfolio by credit quality indicator at December 31, 2016:

(Dollars in thousands)
Commercial Credit Exposure - By Internally Assigned Grade	Construction		Commercial Business		Commercial Real Estate		Mortgage Warehouse Lines		Residential Real Estate
Grade:
Pass	$	95,548	$	91,908	$	223,435	$	216,259	$	43,950
Special Mention	301		7,102		14,334		—		244
Substandard	186		611		4,624		—		597
Doubtful	—		29		—		—		—
Total	$	96,035	$	99,650	$	242,393	$	216,259	$	44,791

Consumer Credit Exposure -      By Payment Activity	Loans To Individuals		Other
Performing	$	23,375	$	207
Nonperforming	361		—
Total	$	23,736	$	207

15

Impaired Loans

Loans are considered to be impaired when, based on current information and events, it is determined that the Company will not be able to collect all amounts due according to the loan agreement, including scheduled interest payments.  When a loan is placed on non-accrual status, it is also considered to be impaired.  Loans are placed on non-accrual status when: (1) the full collection of interest or principal becomes uncertain or (2) they are contractually past due 90 days or more as to interest or principal payments unless the loans are both well secured and in the process of collection.

The following tables summarize the distribution of the allowance for loan losses and loans receivable by loan class and impairment method at March 31, 2017 and December 31, 2016: 

March 31, 2017

(Dollars in thousands)
	Construction		Commercial Business		Commercial Real Estate		Mortgage Warehouse Lines		Residential Real Estate		Loans to Individuals		Other		Unallocated		Deferred Loan Fees/Costs		Total
Allowance for loan losses:
Individually evaluated for impairment	$	8	$	593	$	73	$	—	$	—	$	—	$	—	$	—	$	—	$	674
Loans acquired with deteriorated credit quality	—		—		—		—		—		—		—		—		—		—
Collectively evaluated for impairment	1,362		1,229		2,561		642		365		122		—		595		—		6,876
Ending Balance	$	1,370	$	1,822	$	2,634	$	642	$	365	$	122	$	—	$	595	$	—	$	7,550
Loans receivable:
Individually evaluated for impairment	$	387	$	4,471	$	5,130	$	—	$	238	$	333	$	—	$	—	$	—	$	10,559
Loans acquired with deteriorated credit quality	—		177		539		—		—		—		—		—		—		716
Collectively evaluated for impairment	107,335		96,818		252,461		142,666		41,370		23,234		177		—		1,075		665,136
Ending Balance	$	107,722	$	101,466	$	258,130	$	142,666	$	41,608	$	23,567	$	177	$	—	$	1,075	$	676,411

December 31, 2016

(Dollars in thousands)
	Construction		Commercial Business		Commercial Real Estate		Mortgage Warehouse Lines		Residential Real Estate		Loans to Individuals		Other		Unallocated		Deferred Loan Fees/Costs		Total
Allowance for loan losses:
Individually evaluated for impairment	$	7	$	101	$	114	$	—	$	38	$	—	$	—	$	—	$	—	$	260
Loans acquired with deteriorated credit quality	—		—		—		—		—		—		—		—		—		—
Collectively evaluated for impairment	1,197		1,631		2,460		973		329		112		—		532		—		7,234
Ending Balance	$	1,204	$	1,732	$	2,574	$	973	$	367	$	112	$	—	$	532	$	—	$	7,494
Loans receivable:
Individually evaluated for impairment	$	391	$	947	$	3,817	$	—	$	544	$	337	$	—	$	—	$	—	$	6,036
Loans acquired with deteriorated credit quality	—		191		930		—		—		—		—		—		—		1,121
Collectively evaluated for impairment	95,644		98,512		237,646		216,259		44,247		23,399		207		—		1,737		717,651
Ending Balance	$	96,035	$	99,650	$	242,393	$	216,259	$	44,791	$	23,736	$	207	$	—	$	1,737	$	724,808

16

The activity in the allowance for loan loss by loan class for the three months ended March 31, 2017 and 2016 was as follows:

(Dollars in thousands)	Construction		Commercial Business		Commercial Real Estate		Mortgage Warehouse Lines			Residential Real Estate			Loans to Individuals		Other		Unallocated		Total
Balance - December 31, 2016	$	1,204	$	1,732	$	2,574	$	973		$	367		$	112	$	—	$	532	$	7,494
Provision (Credit) charged to operations	166		88		56		(331		)	99			9		—		63		150
Loans charged off	—		—		—		—			(101		)	—		—		—		(101		)
Recoveries of loans charged off	—		2		4		—			—			1		—		—		7
Balance - March 31, 2017	$	1,370	$	1,822	$	2,634	$	642		$	365		$	122	$	—	$	595	$	7,550

(Dollars in thousands)	Construction			Commercial Business			Commercial Real Estate			Mortgage Warehouse Lines		Residential Real Estate			Loans to Individuals			Other		Unallocated		Total
Balance - December 31, 2015	$	1,025		$	2,005		$	3,049		$	866	$	288		$	109		$	—	$	218	$	7,560
(Credit) Provision charged to operations	(44		)	(657		)	311			1		(96		)	(92		)	—		377		(200		)
Loans charged off	—			—			(60		)	—		—			—			—		—		(60		)
Recoveries of loans charged off	—			—			—			—		—			2			—		—		2
Balance - March 31, 2016	$	981		$	1,348		$	3,300		$	867	$	192		$	19		$	—	$	595	$	7,302

When a loan is identified as impaired, the measurement of impairment is based on the present value of expected future cash flows, discounted at the loan’s effective interest rate, except when the sole remaining source of repayment for the loan is the liquidation of the collateral.  In such cases, the current fair value of the collateral less selling costs is used.  If the value of the impaired loan is less than the recorded investment in the loan, the impairment is recognized through an allowance estimate or a charge to the allowance.

17

Impaired Loans Receivables (By Class) –March 31, 2017

(Dollars in thousands)							Three Months Ended March 31, 2017
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
With no allowance:
Construction	$	182	$	182	$	—	$	185	$	—
Commercial Business	626		787		—		794		3
Commercial Real Estate	2,692		2,692		—		2,821		12
Mortgage Warehouse Lines	—		—		—		—		—
Subtotal	3,500		3,661		—		3,800		15
Residential Real Estate	238		238		—		240		—
Consumer
Loans to Individuals	333		333		—		335		—
Other	—		—		—		—		—
Subtotal	333		333		—		335		—
With no allowance:	$	4,071	$	4,232	$	—	$	4,375	$	15
With an allowance:
Construction	$	205	$	205	$	8	$	205	$	3
Commercial Business	4,022		4,022		593		1,511		67
Commercial Real Estate	2,977		2,977		73		2,210		43
Mortgage Warehouse Lines	—		—		—		—		—
Subtotal	7,204		7,204		674		3,926		113
Residential Real Estate	—		—		—		200		—
Consumer
Loans to Individuals	—		—		—		—		—
Other	—		—		—		—		—
Subtotal	—		—		—		—		—
With an allowance:	$	7,204	$	7,204	$	674	$	4,126	$	113
Total:
Construction	387		387		8		390		3
Commercial Business	4,648		4,809		593		2,305		70
Commercial Real Estate	5,669		5,669		73		5,031		55
Mortgage Warehouse Lines	—		—		—		—		—
Residential Real Estate	238		238		—		440		—
Consumer	333		333		—		335		—
Total	$	11,275	$	11,436	$	674	$	8,501	$	128

18

Impaired Loans Receivables (By Class) –December 31, 2016

(Dollars in thousands
	Recorded Investment		Unpaid Principal Balance		Related Allowance
With no allowance:
Construction	$	186	$	186	$	—
Commercial Business	883		1,054		—
Commercial Real Estate	1,380		1,380		—
Mortgage Warehouse Lines	—		—		—
Subtotal	2,449		2,620		—
Residential Real Estate	244		244		—
Consumer
Loans to Individuals	337		337		—
Other	—		—		—
Subtotal	337		337		—
With no allowance	$	3,030	$	3,201	$	—
With an allowance:
Construction	$	205	$	205	$	7
Commercial Business	255		255		101
Commercial Real Estate	3,367		3,367		114
Mortgage Warehouse Lines	—		—		—
Subtotal	3,827		3,827		222
Residential Real Estate	301		316		38
Consumer
Loans to Individuals	—		—		—
Other	—		—		—
Subtotal	—		—		—
With an allowance	$	4,128	$	4,143	$	260
Total:
Construction	391		391		7
Commercial Business	1,138		1,309		101
Commercial Real Estate	4,747		4,747		114
Mortgage Warehouse Lines	—		—		—
Residential Real Estate	544		560		38
Consumer	337		337		—
Total	$	7,157	$	7,344	$	260

19

Impaired Loans Receivables (By Class) – March 31, 2016
	Three Months Ended March 31, 2016
(Dollars in thousands)	Average Recorded Investment		Interest Income Recognized
With no allowance:
Construction	$	193	$	2
Commercial Business	420		4
Commercial Real Estate	1,840		25
Mortgage Warehouse Lines	—		—
Subtotal	2,453		31
Residential Real Estate	1,097		—
Consumer
Loans to Individuals	263		—
Other	—		—
Subtotal	263		—
With no allowance:	$	3,813	$	31
With an allowance:
Construction	$	—	$	—
Commercial Business	210		1
Commercial Real Estate	3,783		4
Mortgage Warehouse Lines	—		—
Subtotal	3,993		5
Residential Real Estate	200		—
Consumer
Loans to Individuals	—		—
Other	—		—
Subtotal	—		—
With an allowance:	$	4,193	$	5
Total:
Construction	193		2
Commercial Business	630		4
Commercial Real Estate	5,623		30
Mortgage Warehouse Lines	—		—
Residential Real Estate	1,297		—
Consumer	263		—
Total	$	8,006	$	36

20

Purchased Credit-Impaired Loans

Purchased credit-impaired loans (“PCI”) are loans acquired at a discount that are due in part to credit quality. The following table presents additional information regarding acquired credit-impaired loans at March 31, 2017 and December 31, 2016:

(Dollars in thousands)
	March 31, 2017		December 31, 2016
Outstanding balance	$	1,056	$	1,470
Carrying amount	$	716	$	1,121

Changes in accretable discount for acquired credit-impaired loans for the three months ended March 31, 2017 and March 31, 2016 were as follows:

	Three months ended March 31,
	2017			2016
(Dollars in thousands)
Balance at beginning of period	$	30		$	73
Acquisition of impaired loans	—			—
Accretion of discount	(7		)	(21		)
Balance at end of period	$	23		$	52

Consumer Mortgage Loans Secured by Residential Real Estate in Process of Foreclosure

The following table summarizes the recorded investment in consumer mortgage loans secured by residential real estate in the process of foreclosure:

(Dollars in thousands)
March 31, 2017			December 31, 2016
Number of  loans	Recorded Investment		Number of  loans	Recorded Investment
3	$	517	3	$	524

In the normal course of business, the Bank may consider modifying loan terms for various reasons. These reasons may include as a retention strategy to compete in the current interest rate environment or to re-amortize or extend a loan term to better match the loan’s repayment stream with the borrower’s cash flow. A modified loan would be considered a troubled debt restructuring (“TDR”) if the Bank grants a concession to a borrower and has determined that the borrower is troubled (i.e., experiencing financial difficulties).

If the Bank restructures a loan to a troubled borrower, the loan terms (i.e., interest rate, payment, amortization period and maturity date) may be modified in various ways to enable the borrower to cover the modified debt service payments based on current financial statements and cash flow adequacy. If a borrower’s hardship is thought to be temporary, then modified terms may only be offered for that time period. Where possible, the Bank would attempt to obtain additional collateral and/or secondary repayment sources at the time of the restructuring in order to put the Bank in the best possible position if the borrower is not able to meet the modified terms. The Bank will not offer modified terms if it believes that modifying the loan terms will only delay an inevitable permanent default. In evaluating whether a restructuring constitutes a troubled debt restructuring, applicable guidance requires that a creditor must separately conclude that the restructuring constitutes a concession and the borrower is experiencing financial difficulties.

There was one commercial real estate loan with a pre- and post-modification recorded investment of $2.3 million that was modified as a TDR during the three months ended March 31, 2017 and there were no loans modified as a TDR during the three months ended March 31, 2016. There was one troubled debt restructuring that defaulted within twelve months of restructuring in the amount of $458,000 during the three months ended March 31, 2017.  There were no troubled debt restructurings that subsequently defaulted within twelve months of restructuring during the three months ended March 31, 2016.

21

(5) Share-Based Compensation

The Company’s share-based incentive plans (“Stock Plans”) authorize the issuance of an aggregate of 485,873 shares of the Company’s common stock (as adjusted for stock dividends) pursuant to awards that may be granted in the form of stock options to purchase common stock (“Options”) and awards of shares of common stock (“Stock Awards”).  The purpose of the Stock Plans is to attract and retain personnel for positions of substantial responsibility and to provide additional incentive to certain officers, directors, employees and other persons to promote the success of the Company.  Under the Stock Plans, options may have a term of not more than ten years after the date of grant, subject to earlier termination in certain circumstances.  Options are granted with an exercise price at the closing price of the Company’s common stock on the date of grant or otherwise as provided for in the Stock Plans.  The grant date fair value is calculated using the Black – Scholes option valuation model.

As of March 31, 2017, there were 162,953 shares of common stock available for future grants under the Stock Plans.

The following table summarizes stock option activity during the three months ended March 31, 2017:

(Dollars in thousands, except share amounts)	Number of		Weighted Average		Weighted Average Remaining Contractual	Aggregate Intrinsic
Stock Options	Shares		Exercise Price		Term (years)	Value
Outstanding at January 1, 2017	165,801		$	7.35
Granted	9,900		18.65
Exercised	(3,019	)	6.57
Forfeited	—		—
Expired	—		—
Outstanding at March 31, 2017	172,682		$	8.01	5.0	$	1,802
Exercisable at March 31, 2017	139,660		$	6.91	4.2	$	1,612

The fair value of each option and the significant weighted average assumptions used to calculate the fair value of the options granted for the three months ended March 31, 2017 are as follows:

Fair value of options granted	$	6.05
Risk-free rate of return	2.45		%
Expected option life in years	7
Expected volatility	31.25		%
Expected dividends (1)	1.19		%

⁽¹⁾ The Company declared its first cash dividend on September 15, 2016.

The following table summarizes the activity in non-vested restricted shares for the three months ended March 31, 2017:

	Number of		Average Grant-Date
Non-vested shares	Shares		Fair Value
Non-vested at January 1, 2017	143,259		$	9.02
Granted	28,300		18.65
Vested	(22,710	)	10.83
Forfeited	—		—
Non-vested at March 31, 2017	148,849		$	9.90

The value of restricted shares is based upon the closing price of the common stock on the date of grant. The shares generally vest over a 4 year service period for employees and a 2 year service period for non-employee directors with compensation expense recognized on a straight-line basis.

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Share-based compensation expense related to options was $11,000 for the three months ended March 31, 2017 and March 31, 2016, respectively. Share-based compensation expense related to stock grants was $188,000 and $159,000 for the three months ended March 31, 2017 and 2016, respectively.

As of March 31, 2017, there was approximately $124,000 of unrecognized compensation cost related to non-vested stock options and $1.7 million of unrecognized compensation cost related to non-vested stock grants.  

Except for stock option grants and restricted stock grants to employees that are older than or will be of retirement age of 65 years old in the current year, as described in the stock option agreements and restricted stock agreements, the unrecognized compensation expense is expected to be recognized over the next four years. Unvested grants of stock options and restricted stock to employees who are older than or are of such retirement age, as described in the stock option agreements and restricted stock agreements, become 100% vested upon an employee's retirement, unless the employee’s employment contract provides for a different vesting period. Accordingly, the full compensation cost related to these stock options and restricted stock grants are recognized at the time of the grant. Compensation costs related to non-vested stock grants for non-employee directors are recognized over two years from the date of grant.

(6) Benefit Plans

The Bank has a 401(k) plan which covers substantially all employees with six months or more of service. The Bank's 401(k) plan permits all eligible employees to make contributions to the plan up to the IRS salary deferral limit. The Bank’s contributions to the 401(k) plan are expensed as incurred.

The Company also provides retirement benefits to certain employees under supplemental executive retirement plans.  The plans are unfunded and the Company accrues actuarially determined benefit costs over the estimated service period of the employees in the plans.  The Company recognizes the over-funded or under-funded status of a defined benefit post-retirement plan as an asset or liability on its balance sheet and recognizes changes in that funded status in the year in which the changes occur, through comprehensive income.

In connection with the benefit plans, the Bank has life insurance policies on the lives of its executives, directors and employees. The Bank is the owner and beneficiary of these policies. The cash surrender values of these policies totaled approximately $22.3 million and $22.2 million at March 31, 2017 and December 31, 2016, respectively.

The components of net periodic expense for the Company’s supplemental executive retirement plans for the three months ended March 31, 2017 and 2016 were as follows:

(Dollars in thousands)	Three Months Ended March 31,
	2017			2016
Service cost	$	33		$	49
Interest cost	45			38
Actuarial gain recognized	(19		)	(26		)
Total	$	59		$	61

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(7) Other Comprehensive Income (Loss) and Accumulated Other Comprehensive Income (Loss)

Other comprehensive income (loss) is the total of (1) net income (loss), and (2) all other changes in equity from non-shareholder sources, which are referred to as other comprehensive income (loss).  The components of accumulated other comprehensive income (loss), and the related tax effects, are as follows:

	Before-Tax Amount			Income Tax Effect			Net-of-Tax Amount
(Dollars in thousands)
March 31, 2017
Unrealized net holding (losses) on available-for-sale securities	$	(283	)	$	61		$	(222	)
Reclassification adjustment for (gains) realized in income	(82		)	33			(49		)
Other comprehensive (loss) on available for sale securities	(365		)	94			(271		)
Unrealized impairment (loss) on held to maturity security	(501		)	170			(331		)
Unfunded pension liability:
Plan actuarial gains (losses) included in other comprehensive income	90			(37		)	53
Accumulated other comprehensive (loss)	$	(776	)	$	227		$	(549	)

	Before-Tax Amount			Income Tax Effect			Net-of-Tax Amount
March 31, 2016
Unrealized net holding gains on available-for-sale securities	$	722		$	(302	)	$	420
Unrealized impairment (loss) on held to maturity security	(501		)	170			(331		)
Unfunded pension liability:
Plan actuarial gains (losses) included in other comprehensive income	160			(64		)	96
Accumulated other comprehensive income	$	381		$	(196	)	$	185

Changes in the components of accumulated other comprehensive income (loss) are as follows and are presented net of tax:

	Unrealized Holding Gains (Losses) on Available for Sale Securities			Unrealized Impairment Loss on Held to Maturity Security			Unfunded Pension Liability			Accumulated Other Comprehensive Income (Loss)
(Dollars in thousands)
Three Months Ended March 31, 2017:
Balance, beginning of period	$	(334	)	$	(331	)	$	65		$	(600	)
Other comprehensive income (loss)  before reclassifications	112			—			—			112
Amounts reclassified from accumulated other      comprehensive income (loss)	—			—			(12		)	(12		)
Reclassification adjustment for (gains) realized in income	(49		)	—			—			(49		)
Other comprehensive income (loss)	63			—			(12		)	51
Balance, end of period	$	(271	)	$	(331	)	$	53		$	(549	)

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	Unrealized Holding Gains (Losses) on Available for Sale Securities		Unrealized Impairment Loss on Held to Maturity Security			Unfunded Pension Liability			Accumulated Other Comprehensive Income (Loss)
Three Months Ended March 31, 2016:
Balance, beginning of period	$	90	$	(331	)	$	111		$	(130	)
Other comprehensive income (loss) before      reclassifications	330		—			—			330
Amounts reclassified from accumulated other      comprehensive income (loss)	—		—			(15		)	(15		)
Other comprehensive income (loss)	330		—			(15		)	315
Balance, end of period	$	420	$	(331	)	$	96		$	185

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(8) Recent Accounting Pronouncements

ASU Update 2017-08 - Premium Amortization on Purchased Callable Debt Securities

In March 2017, the FASB issued ASU 2017-08 "Premium Amortization on Purchased Callable Debt Securities," which shortens the amortization period for premiums on purchased callable debt securities to the earliest call date (i.e., yield-to-earliest call amortization) rather than amortizing over the full contractual term. The ASU does not change the accounting for securities held at a discount.

The amendments apply to callable debt securities with explicit, non-contingent call features that are callable at fixed prices and on preset dates. If a security may be prepaid based upon prepayments of the underlying loans and not because the issuer exercised a date specific call option, it is excluded from the scope of the new standard. However, for instruments with contingent call features, once the contingency is resolved and the security is callable at a fixed price and preset date, the security is within the scope of the amendments. Further, the amendments apply to all premiums on callable debt securities, regardless of how they were generated.

The amendments require companies to reset the effective yield using the payment terms of the debt security if the call option is not exercised on the earliest call date. If the security has additional future call dates, any excess of the amortized cost basis over the amount repayable by the issuer at the next call date should be amortized to the next call date.

The amendments are effective for public business entities for fiscal years beginning after December 15, 2018, including interim periods within those years. For all other entities, the amendments are effective for annual periods beginning after December 15, 2019, and interim periods within annual periods beginning after December 15, 2020. Early adoption is permitted, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes the interim period.

The Company does not expect the adoption of this guidance to have a material impact on its consolidated financial statements.

ASU Update 2017-07 - Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost

In March 2017, the FASB issued ASU 2017-07 "Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost," which requires that an employer disaggregate the service cost component from the other components of net benefit costs as follows: (1) service cost must be presented in the same line item(s) as other employee compensation costs. These costs are generally included within income from continuing operations but in some cases, may be eligible for capitalization if certain criteria are met; and (2) all other components of net benefit cost must be presented in the income statement separately from the service cost component and outside a subtotal of income from operations, if one is presented. These generally include interest cost, actual return on plan assets, amortization of prior service cost included in accumulated other comprehensive income and gains or losses from changes in the value of the projected benefit obligation or plan assets.

The amendments are effective for public business entities for fiscal years beginning after December 15, 2017, including interim periods within those years. For other entities, the amendments are effective for annual periods beginning after December 15, 2018 and interim periods within annual periods beginning after December 15, 2019. Early adoption is permitted as of the beginning of an annual period.

The Company does not expect the adoption of this guidance to have a material impact on its consolidated financial statements.

ASU Update 2017-04 - Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment

In January 2017, the FASB issued ASU 2017-04 "Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment," which simplifies how all entities assess goodwill for impairment by eliminating Step 2 from the goodwill impairment test. As amended, the goodwill impairment test will consist of one step comparing the fair value of a reporting unit with its carrying amount. An entity should recognize a goodwill impairment charge for the amount by which the carrying amount exceeds the reporting unit's fair value. The primary goal of this ASU is to simplify the goodwill impairment test and provide cost savings for all entities by removing the requirement to determine the fair value of individual assets and liabilities in order to calculate a reporting unit's "implied" goodwill under current U.S. GAAP.

The amendments have staggered effective dates: (1) a public business entity that is an SEC filer should adopt the amendments for its annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019, (2) a public business entity that is not an SEC filer should adopt the amendments for its annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2020 and (3) all other entities, including not-for-profit entities, should adopt the amendments for their annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2021. The amendments should

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be adopted prospectively. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017.

The Company does not expect the adoption of this guidance to have a material impact on its consolidated financial statements.

ASU Update 2017-01 - Business Combinations (Topic 805): Clarifying the Definition of a Business

In January 2017, the FASB issued ASU 2017-01 "Business Combinations (Topic 805): Clarifying the Definition of a Business," which clarifies the definition of a business with the objective of adding guidance to assist companies and other reporting organizations with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The amendments in this ASU provide a more robust framework to use in determining when a set of assets and activities is a business. The current definition of a business is interpreted broadly and can be difficult to apply. Stakeholders indicated that analyzing transactions is inefficient and costly and the definition does not permit the use of reasonable judgment.

Under current implementation guidance, there are three elements of a business: inputs, processes and outputs. While an integrated set of assets and activities (collectively referred to as a "set") that is a business usually has outputs, outputs are not required to be present. Additionally, all the inputs and processes that a seller uses in operating a set are not required if market participants can acquire the set and continue to produce outputs, for example, by integrating the acquired set with their own inputs and processes.

The ASU introduces a "screen" to assist entities in determining when a set should not be considered a business. If substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets, the set is not considered a business. If the screen is not met, the ASU requires that to be considered a business, a set must include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create output. Further, the ASU removes the evaluation of whether a market participant could replace missing elements (as required under current U.S. GAAP).

For public business entities, the ASU is effective for annual periods beginning after December 15, 2017, including interim periods within those periods. For all other entities, the amendments apply to annual periods beginning after December 15, 2018 and interim periods within annual periods beginning after December 15, 2019. The amendments in this ASU should be applied prospectively on or after the effective date. No disclosures are required at transition.

The Company does not expect the adoption of this guidance to have a material impact on its consolidated financial statements.

ASU Update 2016-20 - Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers.

In December 2016, the FASB issued ASU 2016-20 "Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers," amending the new revenue recognition standard that it jointly issued with the International Accounting Standards Board ("IASB") in 2014. The amendments do not change the core principles of the standard, but clarify certain narrow aspects of the standard, including its scope, contract cost accounting, disclosures, illustrative examples and other matters. The ASU becomes effective concurrently with ASU 2014-09 "Revenue from Contracts with Customers (Topic 606)."

The Company does not expect the adoption of this guidance to have a material impact on its consolidated financial statements.

ASU Update 2016-18 - Restricted Cash.

In November 2016, the FASB issued ASU 2016-18 "Restricted Cash," which updates Topic 230-Statement of Cash Flows, to require that restricted cash and restricted cash equivalents be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total cash amounts shown on the statement of cash flows. Consequently, transfers between cash and restricted cash will not be presented as a separate line item in the operating, investing or financing sections of the cash flow statement. The ASU includes examples of the revised presentation guidance, and additional presentation and disclosure requirements apply.

For public business entities, the amendments are effective 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.

The Company does not expect the adoption of this guidance to have a material impact on its consolidated financial statements.

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ASU Update 2016-17 - Interests Held Through Related Parties That Are Under Common Control.

In October 2016, the FASB issued ASU 2016-17 "Interests Held Through Related Parties That Are Under Common Control," which amends the variable interest entity ("VIE") guidance within Topic 810. It does not change the two required characteristics for a single decision maker to be the primary beneficiary ("power" and "economics"), but it revised one aspect of the related analysis. The amendments change how a single decision maker of a VIE treats an indirect variable interest held through related parties that are under common control when determining whether it is the primary beneficiary of that VIE. The ASU requires consideration of such indirect interests on a proportionate basis instead of being the equivalent of direct interests in their entity, thereby making consolidation less likely.

For public business entities, the amendments are effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2016 and interim periods within fiscal years beginning after December 15, 2017. Early adoption is permitted; however, if an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of that fiscal year.

The Company does not expect the adoption of this guidance to have a material impact on its consolidated financial statements.

ASU Update 2016-15 - Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments.

In August 2016, the FASB issued ASU 2016-15 "Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments," which clarifies whether the following items should be categorized as operating, investing or financing in the statement of cash flows: (1) debt prepayment and extinguishment costs, (2) settlement of zero-coupon debt, (3) settlement of contingent consideration, (4) insurance proceeds, (5) settlement of corporate-owned life insurance (COLI) and bank-owned life insurance (BOLI) policies, (6) distributions from equity method investees, (7) beneficial interests in securitization transactions and (8) receipts and payments with aspects of more than one class of cash flows.

For public business entities, the amendments are effective 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 currently classifies cash flows related to BOLI in accordance with the guidance and does not expect the adoption of this guidance to have a material impact on its consolidated financial statements.

ASU Update 2016-13 Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.

In June 2016, the FASB issued ASU 2016-13 "Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments," which requires credit losses on most financial assets to be measured at amortized cost and certain other instruments to be measured using an expected credit loss model (referred to as the current expected credit loss (CECL) model). Under this model, entities will estimate credit losses over the entire contractual term of the instrument (considering estimated prepayments but not expected extensions or modifications unless reasonable expectation of a troubled debt restructuring exists) from the date of initial recognition of that instrument.

The ASU also replaces the current accounting model for purchased credit impaired loans and debt securities. The allowance for credit losses for purchased financial assets with a more-than-insignificant amount of credit deterioration since origination ("PCD assets") should be determined in a similar manner to other financial assets measured on an amortized cost basis. Upon initial recognition, the allowance for credit losses is added to the purchase price ("gross up approach") to determine the initial amortized cost basis. The subsequent accounting for PCD assets will use the CECL model described above.

The ASU made certain targeted amendments to the existing impairment model for available-for-sale (AFS) debt securities. For an AFS debt security for which there is neither the intent nor a more-likely-than-not requirement to sell, an entity will record credit losses as an allowance rather than a write-down of the amortized cost basis.

For public business entities that are SEC filers, the amendments are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted for all entities as of the fiscal year beginning after December 15, 2018, including interim periods within those fiscal years.

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The Company is currently evaluating the impact of the pending adoption of the new standard on its consolidated financial statements.

ASU Update 2016-02: Leases.

In February 2016, the FASB issued ASU 2016-02 "Leases." From the lessee's perspective, the new standard establishes a right- of-use ("ROU") model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement for a lessee. From the lessor's perspective, the new standard requires a lessor to classify leases as either sales-type, finance or operating. A lease will be treated as a sale if it transfers all of the risks and rewards, as well as control of the underlying asset, to the lessee. If risks and rewards are conveyed without the transfer of control, the lease is treated as a financing. If the lessor doesn’t convey risks and rewards or control, an operating lease results.

The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. A modified retrospective transition approach is required for lessors for sales-type, direct financing and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. In 2017, the Company plans to complete an evaluation of all of its leases to determine the potential impact on the Company's consolidated financial statements as a result of this new standard.

ASU Update 2016-01 Financial Instruments-Overall: Recognition and Measurement of Financial Assets and Financial Liabilities.

In January 2016, the FASB issued ASU 2016-01 "Financial Instruments-Overall: Recognition and Measurement of Financial Assets and Financial Liabilities." The guidance in the ASU, among other things, requires equity investments, with certain exceptions, to be measured at fair value with changes in fair value recognized in net income; simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment; eliminates the requirement for public business entities to disclose the methods 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; requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; requires an entity to present separately in other comprehensive income, the portion of the change in fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments; requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset on the balance sheet or the accompanying notes to the financial statements; and clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities. The guidance in this ASU is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company does not expect the adoption of this guidance to have a material impact on its consolidated financial statements.

ASU 2014-9 Revenue from Contracts with Customers (Topic 606)

In May 2014, the FASB issued ASU 2014-9, deferred by ASU 2015-14, “Revenue from Contracts with Customers (Topic 606).” The amendments in this update establish a comprehensive revenue recognition standard for virtually all industries under U.S. GAAP, including those that previously followed industry specific guidance such as the real estate, construction and software industries. The revenue standard's core principle is built on the contract between a vendor and a customer for the provision of goods and services. It attempts to depict the exchange of rights and obligations between the parties in the pattern of revenue recognition based on the consideration to which the vendor is entitled. To accomplish this objective, the standard requires five basic steps: (1) identify the contract with the customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract and (5) recognize revenue when (or as) the entity satisfies a performance obligation.   This ASU, which does not apply to financial instruments, is effective for interim and annual reporting periods beginning after December 15, 2017. Early adoption is permitted only as of annual reporting periods beginning after December 15, 2016, including interim periods within that year.

The Company does not expect the adoption of ASU 2014-9 to have a material impact on its consolidated financial statements.

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(9) Fair Value Disclosures

U.S. GAAP has established a fair value hierarchy that prioritizes the inputs to valuation methods used to measure fair value.  The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements).  The three levels of the fair value hierarchy are as follows:

Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical unrestricted assets or liabilities.

Level 2: Quoted prices in markets that are not active, or inputs that are observable either directly or indirectly, for substantially the full term of the asset or liability.

Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported with little or no market activity).

An asset’s or liability’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.

A description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below.  These valuation methodologies were applied to all of the Company’s financial assets and financial liabilities carried at fair value.

In general, fair value is based upon quoted market prices, where available.  If such quoted market prices are not available, fair value is based upon internally developed models that primarily use, as inputs, observable market-based parameters.  Valuation adjustments may be made to ensure that financial instruments are recorded at fair value.  These adjustments may include amounts to reflect counterparty credit quality and counterparty creditworthiness, among other things, as well as unobservable parameters.  Any such valuation adjustments are applied consistently over time.  The Company’s valuation methodologies may produce a fair value calculation that may not be indicative of net realizable value or reflective of future values.  While management believes the Company’s valuation methodologies are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date.

Securities Available for Sale.  Securities classified as available for sale are reported at fair value utilizing quoted market prices on nationally recognized exchanges (Level 1) or by using Level 2 inputs.  For Level 2 securities, the Company obtains fair value measurements from an independent pricing service.  The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayments speeds, credit information and the security’s terms and conditions, among other things.

Impaired loans.  Impaired loans are those which the Company has measured and recognized impairment, generally based on the fair value of the loan’s collateral.  Fair value is generally determined based upon independent third party appraisals of the collateral or discounted cash flows based on the expected proceeds.  These assets are included as Level 3 fair values, based upon the lowest level of input that is significant to the fair value measurements.  The fair value consists of the loan balances less specific valuation allowances.

Other Real Estate Owned.  Foreclosed properties are adjusted to fair value less estimated selling costs at the time of foreclosure in preparation for transfer from portfolio loans to other real estate owned (“OREO”), thereby establishing a new accounting basis.  The Company subsequently adjusts the fair value of the OREO, utilizing Level 3 inputs on a non-recurring basis to reflect partial write-downs based on the observable market price, current appraised value of the asset or other estimates of fair value. The fair value of other real estate owned is determined using appraisals, which may be discounted based on management’s review and changes in market conditions.

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The following table summarizes financial assets and financial liabilities measured at fair value on a recurring basis segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value:

(Dollars in thousands)	Level 1 Inputs		Level 2 Inputs		Level 3 Inputs		Total Fair Value
March 31, 2017:
Securities available for sale:
U. S. Treasury securities and obligations of U.S. Government sponsored corporations (“GSE”) and agencies	$	—	$	3,505	$	—	$	3,505
Residential collateralized mortgage obligations- GSE	—		24,473		—		24,473
Residential mortgage backed securities – GSE	—		28,306		—		28,306
Obligations of state and political subdivisions	—		21,395		—		21,395
Trust preferred debt securities – single issuer	—		2,267		—		2,267
Corporate debt securities	19,829		5,010		—		24,839
Other debt securities	—		780		—		780
Total	$	19,829	$	85,736	$	—	$	105,565

(Dollars in thousands)	Level 1 Inputs		Level 2 Inputs		Level 3 Inputs		Total Fair Value
December 31, 2016:
Securities available for sale:
U. S. Treasury securities and obligations of U.S. Government sponsored corporations (“GSE”) and agencies	$	—	$	3,479	$	—	$	3,479
Residential collateralized mortgage obligations- GSE	—		22,560		—		22,560
Residential mortgage backed securities – GSE	—		31,476		—		31,476
Obligations of state and political subdivisions	—		21,400		—		21,400
Trust preferred debt securities – single issuer	—		2,272		—		2,272
Corporate debt securities	12,826		8,942		—		21,768
Other debt securities	—		839		—		839
Total	$	12,826	$	90,968	$	—	$	103,794

Certain assets and liabilities are measured at fair value on a nonrecurring basis; that is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment).  Assets and liabilities measured at fair value on a nonrecurring basis, where there was evidence of impairment, at March 31, 2017 and December 31, 2016 were as follows:

(Dollars in thousands)	Level 1 Inputs		Level 2 Inputs		Level 3 Inputs		Total Fair Value
March 31, 2017:
Impaired loans	$	—	$	—	$	8,463	$	8,463
December 31, 2016:
Impaired loans	$	—	$	—	$	4,130	$	4,130

Impaired loans measured at fair value and included in the above table at March 31, 2017 consisted of nine loans having an aggregate recorded investment of $9.1 million and specific loan loss allowances of $674,000.  Impaired loans measured at fair value and included in the above table at December 31, 2016 consisted of nine loans having an aggregate balance of $4.4 million with a specific loan loss allowance of $255,000.

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The following table presents additional qualitative information about assets measured at fair value on a nonrecurring basis, where there was evidence of impairment, and for which the Company has utilized Level 3 inputs to determine fair value:

Quantitative Information about Level 3 Fair Value Measurements
(Dollars in thousands)	Fair Value Estimate		Valuation Techniques	Unobservable Input	Range (Weighted Average)
March 31, 2017
Impaired loans	$	8,463	Appraisal of collateral (1)	Appraisal adjustments (2)	24% - 83% (47.3%)
December 31, 2016
Impaired loans	$	4,130	Appraisal of collateral (1)	Appraisal adjustments (2)	3%-100% (29.1%)

(1) Fair value is generally determined through independent appraisals of the underlying collateral, which generally include various Level 3 inputs which are not identifiable.

(2) Includes qualitative adjustments by management and estimated liquidation expenses.

The following is a summary of fair value versus carrying value of all of the Company’s financial instruments.  For the Company and the Bank, as with most financial institutions, the bulk of their assets and liabilities are considered financial instruments.  Many of the financial instruments lack an available trading market as characterized by a willing buyer and willing seller engaging in an exchange transaction.  Therefore, significant estimations and present value calculations were used for the purpose of this note.  Changes in assumptions could significantly affect these estimates.

Estimated fair values have been determined by using the best available data and an estimation methodology suitable for each category of financial instruments as follows:

Cash and Cash Equivalents, Accrued Interest Receivable and Accrued Interest Payable (Carried at Cost). The carrying amounts reported in the balance sheet for cash and cash equivalents, accrued interest receivable and accrued interest payable approximate fair value.

Securities Held to Maturity (Carried at Amortized Cost). The fair values of securities held to maturity are determined in the same manner as for securities available for sale.

Loans Held For Sale (Carried at Lower of Aggregated Cost or Fair Value). The fair values of loans held for sale are determined, when possible, using quoted secondary market prices. If no such quoted market prices exist, fair values are determined using quoted prices for similar loans, adjusted for the specific attributes of the loans.

Gross Loans Receivable (Carried at Cost). The fair values of loans, excluding impaired loans subject to specific loss reserves, are estimated using discounted cash flow analyses that use market rates as of the balance sheet date that reflect the credit and interest rate-risk inherent in the loans.  Projected future cash flows are calculated based upon contractual maturity or call dates, projected repayments and prepayments of principal.  Generally, for variable rate loans that re-price frequently and with no significant change in credit risk, fair values are based on carrying values.

SBA servicing asset. Servicing assets do not trade in an active market with readily observable prices. The Company estimates the fair value of an SBA servicing asset using a discounted cash flow model, which incorporates assumptions based on observable discount rates and prepayment speeds.

Interest rate lock derivatives. Interest rate lock commitments do not trade in active markets with readily observable prices. The fair value of an interest rate lock commitment is estimated based upon the forward sales price that is obtained in the best efforts commitment at the time the borrower locks in the interest rate on the loan and the probability that the locked rate commitment will close.

Federal Home Loan Bank Stock. FHLB stock is carried at cost. The carrying value approximates fair value based upon the redemption price provision of the FHLB stock.

Deposit Liabilities (Carried at Cost). The fair values disclosed for demand deposits (e.g., interest and non-interest demand and savings accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amounts).  Fair values for fixed-rate certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered in the market on certificates of deposit to a schedule of aggregated expected monthly maturities on time deposits.

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Borrowings and Subordinated Debt (Carried at Cost). The carrying amounts of short-term borrowings approximate their fair values. The fair values of long-term FHLB advances are estimated using discounted cash flow analysis, based on quoted or estimated interest rates for new borrowings with similar credit risk characteristics, terms and remaining maturity. For subordinated debt, which reprices quarterly, the fair value is based on inputs that are observable either directly or indirectly for similar debt obligations.

The estimated fair values and carrying amounts of financial assets and liabilities as of March 31, 2017 and December 31, 2016 were as follows:

March 31, 2017
(Dollars in thousands)	Carrying			Level 1		Level 2			Level 3		Fair
	Value			Inputs		Inputs			Inputs		Value
Cash and cash equivalents	$	47,914		$	47,914	$	—		$	—	$	47,914
Securities available for sale	105,565			19,829		85,736			—		105,565
Securities held to maturity	125,940			—		127,845			—		127,845
Loans held for sale	3,360			—		3,455			—		3,455
Loans, net	668,861			—		—			666,634		666,634
SBA servicing asset	661			—		882			—		882
Interest rate lock derivative	149			—		149			—		149
Accrued interest receivable	2,789			—		2,789			—		2,789
FHLB stock	1,060			—		1,060			—		1,060
Deposits	(868,820		)	—		(868,259		)	—		(868,259		)
Borrowings	(10,000		)	—		(10,094		)	—		(10,094		)
Redeemable subordinated debentures	(18,557		)	—		(12,080		)	—		(12,080		)
Accrued interest payable	(832		)	—		(832		)	—		(832		)

December 31, 2016
(Dollars in thousands)	Carrying			Level 1		Level 2			Level 3		Fair
	Value			Inputs		Inputs			Inputs		Value
Cash and cash equivalents	$	14,886		$	14,886	$	—		$	—	$	14,886
Securities available for sale	103,794			12,826		90,968			—		103,794
Securities held to maturity	126,810			—		128,559			—		128,559
Loans held for sale	14,829			—		15,103			—		15,103
Loans, net	717,314			—		—			716,492		716,492
SBA servicing asset	605			—		822			—		822
Interest rate lock derivative	123			—		123			—		123
Accrued interest receivable	3,095			—		3,095			—		3,095
FHLB stock	3,962			—		3,962			—		3,962
Deposits	(834,516		)	—		(834,050		)	—		(834,050		)
Borrowings	(73,050		)	—		(73,222		)	—		(73,222		)
Redeemable subordinated debentures	(18,557		)	—		(11,922		)	—		(11,922		)
Accrued interest payable	(866		)	—		(866		)	—		(866		)

Loan commitments and standby letters of credit as of March 31, 2017 and December 31, 2016 were based on fees charged for similar agreements; accordingly, the estimated fair value of loan commitments and standby letters of credit was nominal.

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EX-99.4

Exhibit 99.4

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

Note:    The information contained in this Item has been updated for the classification error as further detailed in the Current Report on Form 8-K filed herewith. This item has not been updated for any other changes since the filing of the 1Q 2017 Form 10-Q. For significant developments since the filing of the 1Q 2017 Form 10-Q, refer to our filings with the SEC.

This discussion and analysis of the operating results for the three months ended March 31, 2017 and financial condition at March 31, 2017 is intended to help readers analyze the accompanying financial statements, notes and other supplemental information contained in this document. Results of operations for the three month period ended March 31, 2017 are not necessarily indicative of results to be attained for any other period.

This discussion and analysis should be read in conjunction with the consolidated financial statements, notes and tables included elsewhere in this report and Part II, Item 7 of the Company’s Form 10-K/A (Management’s Discussion and Analysis of Financial Condition and Results of Operation) for the year ended December 31, 2016, as filed with the SEC on March 20, 2017.

General

Throughout the following sections, the “Company” refers to 1^ST Constitution Bancorp and, as the context requires, its wholly-owned subsidiary, 1^ST Constitution Bank (the “Bank”), and the Bank’s wholly-owned subsidiaries, 1^ST Constitution Investment Company of New Jersey, Inc., FCB Assets Holdings, Inc., LLC, 204 South Newman Street Corp. and 249 New York Avenue, LLC.  1^ST Constitution Capital Trust II (“Trust II”), a subsidiary of the Company, is not included in the Company’s consolidated financial statements as it is a variable interest entity and the Company is not the primary beneficiary.

Trust II, a subsidiary of the Company, was created in May 2006 to issue trust preferred securities to assist the Company in raising additional capital.

The Company is a bank holding company registered under the Bank Holding Company Act of 1956, as amended. The Company was organized under the laws of the State of New Jersey in February 1999 for the purpose of acquiring all of the issued and outstanding stock of the Bank, a full service commercial bank that began operations in August 1989, thereby enabling the Bank to operate within a bank holding company structure. The Company became an active bank holding company on July 1, 1999. Other than its ownership interest in the Bank, the Company currently conducts no other significant business activities.

The Bank operates eighteen branches and manages an investment portfolio through its subsidiary, 1^ST Constitution Investment Company of New Jersey, Inc.   FCB Assets Holdings, Inc., a subsidiary of the Bank, is used by the Bank to manage and dispose of repossessed real estate.

When used in this Quarterly Report on Form 10-Q for the three month period ended March 31, 2017 (this "Form 10-Q"), the words "the Company," "we," "our," and "us" refer to 1st Constitution Bancorp and its wholly-owned subsidiaries, unless we indicate otherwise.

Forward-Looking Statements

This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).  The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for forward-looking statements.  When used in this and in future filings by the Company with the SEC, in the Company’s press releases and in oral statements made with the approval of an authorized executive officer of the Company, the words or phrases “will,” “will likely result,” “could,” “anticipates,” “believes,” “continues,” “expects,” “plans,” “will continue,” “is anticipated,” “estimated,” “project” or “outlook” or similar expressions (including confirmations by an authorized executive officer of the Company of any such expressions made by a third party with respect to the Company) are intended to identify forward-looking statements. The Company cautions readers not to place undue reliance on any such forward-looking statements, each of which speaks only as of the date made.  Such statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical earnings and those presently anticipated or projected.

Factors that may cause actual results to differ from those results expressed or implied, include, but are not limited to, those listed under “Business”, “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s Annual Report on Form 10-K/A for the year ended December 31, 2016 filed with the SEC on March 20, 2017, such as the overall economy and the interest rate environment; the ability of customers to repay their obligations; the adequacy of the allowance for loan losses; competition; significant changes in accounting, tax or regulatory practices and requirements; certain interest rate risks; risks associated with investments in mortgage-backed securities; risks associated with speculative

1

construction lending; and risks associated with safeguarding information technology systems. Although management has taken certain steps to mitigate any negative effect of the aforementioned items, significant unfavorable changes could severely impact the assumptions used and could have an adverse effect on profitability. The Company undertakes no obligation to publicly revise any forward-looking statements to reflect anticipated or unanticipated events or circumstances occurring after the date of such statements, except as required by law.

RESULTS OF OPERATIONS

Three Months Ended March 31, 2017 Compared to Three Months Ended March 31, 2016

Summary

The Company reported net income of $1.9 million for the three months ended March 31, 2017 and $2.2 million for the three months ended March 31, 2016. Net income per diluted share was $0.23 for the first quarter of 2017 compared to net income per diluted share of $0.27 for the first quarter of 2016.

Return on average assets and return on average equity were 0.79% and 7.54%, respectively, for the three months ended March 31, 2017 compared to return on average assets and return on average equity of 0.94% and 9.29%, respectively, for the three months ended March 31, 2016. Book value and tangible book value per share were $13.28 and $11.69, respectively at March 31, 2017.

First Quarter Highlights

• Net interest income was $8.2 million in the first quarter of 2017, an increase of $106,000 from $8.1 million in the first quarter of 2016, and the net interest margin was 3.64% and 3.74% on a tax equivalent basis for the respective periods.

• Non-interest income increased $807,000 to $2.4 million for the three months ended March 31, 2017 compared to $1.6 million for the three months ended March 31, 2016.

• Non-performing assets were $7.9 million or 0.78% of assets at March 31, 2017 compared to $5.4 million and 0.52% of assets at December 31, 2016.

• The Bank recorded a provision for loan losses in the amount of $150,000 in the first quarter of 2017 and net charge-offs were $94,000.

• Commercial business, commercial real estate and construction loans totaled $467.3 million at March 31, 2017 and increased $65.8 million and $29.2 million compared to $401.5 million at March 31, 2016 and $438.1 million at December 31, 2016, respectively.

• On March 17, 2017, the Company announced that its Board of Directors declared a quarterly cash dividend of $0.05 per common share, which was paid on April 25, 2017 to all shareholders of record as of the close of business on April 3, 2017.

Earnings Analysis

The Bank’s results of operations depend primarily on net interest income, which is primarily affected by the market interest rate environment, the shape of the U.S. Treasury yield curve and the difference between the yield on interest-earning assets and the rate paid on interest-bearing liabilities.  Other factors that may affect the Bank’s operating results are general and local economic and competitive conditions, government policies and actions of regulatory authorities.

Net Interest Income

Net interest income, the Company’s largest and most significant component of operating income, is the difference between interest and fees earned on loans and other earning assets and interest paid on deposits and borrowed funds. This component represented 77.4% of the Company’s net revenues (defined as net interest income plus non-interest income) for the three months ended March 31, 2017 compared to 83.6% of net revenues for the three months ended March 31, 2016. Net interest income as a percentage of net revenues declined due to the $807,000, or 50.6%, increase in non-interest income in the first quarter of 2017, resulting in non-interest income being a greater percentage of net revenues, compared to the first quarter of 2016. Net interest income also depends upon the relative amount of average interest-earning assets, average interest-bearing liabilities and the interest rate earned or paid on them, respectively.

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The following tables set forth the Company’s consolidated average balances of assets and liabilities and shareholders’ equity, as well as interest income and expense on related items, and the Company’s average yield or rate for the three months ended March 31, 2017 and 2016. The average rates are derived by dividing interest income and expense by the average balance of assets and liabilities, respectively.

(Dollars in thousands)	Three months ended March 31, 2017							Three months ended March 31, 2016
	Average Balance			Interest		Average Yield		Average Balance			Interest		Average Yield
Assets:
Federal Funds Sold/Short-Term Investments	$	40,048		$	72	0.73	%	$	42,564		$	49	0.46	%
Investment Securities:
Taxable	137,795			815		2.37	%	135,212			817		2.42	%
Tax-exempt (4)	94,635			817		3.45	%	80,661			770		3.82	%
Total	232,430			1,632		2.81	%	215,873			1,587		2.94	%
Loan Portfolio: (1)
Construction	99,221			1,326		5.35	%	92,444			1,233		5.28	%
Residential real estate	42,700			434		4.07	%	39,041			406		4.16	%
Home Equity	22,439			245		4.43	%	23,183			226		3.92	%
Commercial Real Estate	250,441			3,126		4.99	%	204,353			3,017		5.84	%
Commercial Business	72,542			877		4.84	%	83,917			931		4.39	%
SBA Loans	22,498			364		6.56	%	20,983			306		5.87	%
Mortgage warehouse lines	151,937			1,582		4.16	%	165,272			1,717		4.11	%
Loans Held for Sale	5,224			89		6.81	%	6,301			51		3.24	%
All Other Loans	2,288			12		2.10	%	2,002			12		2.37	%
Total	669,290			8,055		4.82	%	637,496			7,899		4.91	%
Total Interest-Earning Assets	941,768			$	9,759	4.15	%	895,933			$	9,535	4.22	%
Allowance for Loan Losses	(7,549		)					(7,618		)
Cash and Due From Bank	5,354							5,175
Other Assets	58,203							58,976
Total Assets	$	997,776						$	952,466
Liabilities and Shareholders’ Equity:
Money Market and NOW Accounts	$	320,575		$	317	0.4	%	$	296,717		$	269	0.36	%
Savings Accounts	211,936			322		0.62	%	203,328			270		0.53	%
Certificates of Deposit	142,481			404		1.15	%	143,702			411		1.15	%
Other Borrowed Funds	21,517			127		2.39	%	27,080			136		2.02	%
Redeemable Subordinated Debt	18,557			119		2.57	%	18,557			99		2.10	%
Total Interest-Bearing Liabilities	715,066			$	1,289	0.72	%	689,384			$	1,185	0.68	%
Net Interest Spread (2)						3.43	%						3.54	%
Demand Deposits	170,031							157,790
Other Liabilities	7,127							8,134
Total Liabilities	892,224							855,308
Shareholders’ Equity	105,552							97,158
Total Liabilities and Shareholders’ Equity	$	997,776						$	952,466
Net Interest Margin (3)				$	8,470	3.64	%				$	8,350	3.74	%

(1) Loan origination fees are considered an adjustment to interest income.  For the purpose of calculating loan yields, average loan balances include non-accrual loans with no related interest income and the average balance of loans held for sale. Please refer to Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operation under the heading “Non-Performing Assets” for a discussion of the Bank’s policy with regard to non-accrual loans.

(2) The net interest rate spread is the difference between the average yield on interest-earning assets and the average rate paid on interest-bearing liabilities.

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(3) The net interest margin is equal to net interest income divided by average interest-earning assets.

(4) Tax-equivalent basis. The tax equivalent adjustment was $264 and $250 for the three months ended March 31, 2017 and March 31, 2016, respectively.

Three months ended March 31, 2017 compared to three months ended March 31, 2016

Net interest income was $8.2 million for the three months ended March 31, 2017, which represented an increase of $106,000 compared to net interest income of $8.1 million for the three months ended March 31, 2016. Total interest income was $9.5 million for the three months ended March 31, 2017 compared to $9.3 million for the three months ended March 31, 2016. Total interest income increased primarily due to a net increase of $31.8 million in average loans, reflecting growth primarily in commercial real estate and construction loans, which was partially offset by declines in the average balances of mortgage warehouse and commercial business loans. Average interest-earning assets were $941.8 million for the three month period ended March 31, 2017 compared to $895.9 million for the three month period ended March 31, 2016. The average yield on interest-earning assets decreased to 4.15% for the three months ended March 31, 2017 compared to the average yield on interest-earning assets of 4.22% for the three months ended March 31, 2016. The lower yield earned on average interest-earning assets for the first quarter of 2017 reflected primarily the lower yield earned on commercial real estate and investments as new commercial real estate loans were originated at yields lower than the average yield on commercial real estate loans in the prior period and investments were purchased at yields lower than the average yield on investments in the prior period. The 75 basis point increase in the Federal Reserve's targeted federal funds rate and the corresponding increase in the prime rate since December of 2015 have had a positive effect on the yields of construction, commercial business, Small Business Administration ("SBA"), home equity and other loans with variable interest rates in the first quarter of 2017.

Interest expense on average interest-bearing liabilities was $1.3 million, with an interest cost of 0.72%, for the first quarter of 2017 compared to $1.2 million, with an interest cost of 0.68%, for the first quarter of 2016. The increase of $104,000 in interest expense on interest-bearing liabilities for the first quarter of 2017 compared to the first quarter of 2016 primarily reflected higher short-term market interest rates in the first quarter of 2017 compared to the first quarter of 2016.

The net interest margin, on a tax-equivalent basis, declined to 3.64% for the three months ended March 31, 2017 compared to 3.74% for the three months ended March 31, 2016, primarily due to the lower yield on interest-earning assets and the higher cost of average interest-bearing liabilities.

Average interest-earning assets increased by $45.8 million, or 5.12%, to $941.8 million for the three month period ended March 31, 2017 from $895.9 million for the three month period ended March 31, 2016 due primarily to the increase in average loans and average investment securities balances. 

Average interest-bearing liabilities increased by $25.7 million, or 3.73%, to $715.1 million for the three months ended March 31, 2017 from $689.4 million for the three months ended March 31, 2016 due primarily to increases in money market and NOW accounts and savings accounts.

Provision for Loan Losses

Three months ended March 31, 2017 compared to three months ended March 31, 2016

Management considers a complete review of the following specific factors in determining the provisions for loan losses: historical losses by loan category, the level of non-accrual loans and problem loans as identified through internal review and classification, collateral values and the growth, size and risk elements of the loan portfolio. In addition to these factors, management takes into consideration current economic conditions and local real estate market conditions. 

In general, over the last three years, the Bank experienced an improvement in loan credit quality and achieved a steady resolution of non-performing loans and assets related to the severe recession, which was reflected in the current level of non-performing loans at March 31, 2017. Net charge-offs of commercial business and commercial real estate loans in 2017, 2016 and 2015 have declined significantly, which has resulted in a reduction of the historical loss factors for these segments of the loan portfolio that were applied by management to estimate the allowance for loan losses at March 31, 2017. For the first quarter of 2017, the Bank recorded a provision for loan losses of $150,000 and net charge-offs of $94,000 compared to a $200,000 credit (negative) provision for loan losses and net charge-offs of $58,000 recorded in the first quarter of 2016. A provision for loan losses of $150,000 was recorded in the first quarter of 2017 due primarily to the increase in loans. The allowance for loan losses was $7.6 million, or 1.12% of loans, at March 31, 2017 compared to $7.3 million, or 1.11% of loans, at March 31, 2016 and $7.5 million, or 1.03% of loans, at December 31, 2016.

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At March 31, 2017, non-performing loans increased by $2.2 million to $7.4 million from $5.2 million at December 31, 2016 and the ratio of non-performing loans to total loans increased to 1.10% at March 31, 2017 compared to 0.72% at December 31, 2016.   The increase in non-performing loans was due primarily to a $4.0 million shared national credit syndicated loan that was placed on non-accrual in the first quarter of 2017.

Non-Interest Income

Three months ended March 31, 2017 compared to three months ended March 31, 2016

Total non-interest income was $2.4 million for the first quarter of 2017, an increase of $807,000, or 50.6%, compared to $1.6 million for the first quarter of 2016. The increase in non-interest income for the first quarter of 2017 was due primarily to an increase of $686,000 in gains on sales of loans to $1.6 million compared to gains on sales of loans of $903,000 for the first quarter of 2016 and an increase in other income of $178,000 to $528,000 compared to other income of $350,000 for the first quarter of 2016.

The Bank originates and sells commercial loans guaranteed by the SBA and residential mortgage loans in the secondary market. SBA guaranteed commercial lending activity and loan sales vary from period to period. In the first quarter of 2017, $3.9 million of SBA loans were sold and gains of $335,000 were recorded compared to $5.3 million of loans sold and gains of $482,000 recorded in the first quarter of 2016.

In the first quarter of 2017, $38.4 million of residential mortgages were sold and $1.2 million of gains were recorded compared to $24.0 million of loans sold and $421,000 of gains recorded in the first quarter of 2016. Residential mortgage lending activity was higher in the first quarter of 2017 compared to the first quarter of 2016 due primarily to a new residential mortgage lending team that joined the Bank in August 2016.

Service charge revenues were slightly lower at $154,000 for the three months ended March 31, 2017 compared to $197,000 for the three months ended March 31, 2016. The decline was due primarily to lower customer fees for insufficient funds.

Non-interest income also includes income from bank-owned life insurance (“BOLI”), which amounted to $130,000 for the three months ended March 31, 2017 compared to $144,000 for the three months ended March 31, 2016.

Gain on sales of securities in the first quarter of 2017 was $106,000, due to the sale of $2.0 million of investment securities. There were no sales of investment securities in the first quarter of 2016.

The other income component of non-interest income increased to $422,000 for the three months ended March 31, 2017 compared to $350,000 for the three months ended March 31, 2016. The Bank generates non-interest income from a variety of fee-based services. These include safe deposit box rental fees, wire transfer service fees and automated teller machine fees for non-Bank customers.

Non-Interest Expenses

Non-interest expenses were $7.7 million for the three months ended March 31, 2017 compared to $6.6 million for the three months ended March 31, 2016. The increase of $1.0 million, or 15.6%, in total non-interest expenses was due primarily to a $496,000, or 12.4%, increase in salaries and employee benefits expenses, an increase in other non-interest expenses of $434,000, or 69.4%, and an increase in occupancy expense of $47,000, or 5.4%, which were partially offset by a decrease of $38,000, or 32.2%, in FDIC insurance expense.

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The following table presents the major components of non-interest expenses for the three months ended March 31, 2017 and 2016:

Non-interest Expenses
(Dollars in thousands)	Three months ended March 31,
	2017		2016
Salaries and employee benefits	$	4,501	$	4,005
Occupancy expense	919		872
Data processing expenses	318		313
FDIC insurance expense	80		118
Other real estate owned expenses	4		29
Equipment expense	123		123
Marketing	72		47
Regulatory, professional and other fees	460		362
Directors’ fees	23		25
Amortization of intangible assets	97		105
Other operating expenses	1,059		625
Total	$	7,656	$	6,624

`

Three months ended March 31, 2017 compared to three months ended March 31, 2016

Salaries and employee benefits, which represent the largest portion of non-interest expenses, increased by $496,000, or 12.4%, to $4.5 million for the three months ended March 31, 2017 compared to $4.0 million for the three months ended March 31, 2016. The increase in salaries and employee benefits was due primarily to an increase of $221,000 in commissions paid to residential loan officers, $334,000 of salaries for additional commercial loan, business development and residential mortgage personnel, merit increases and increases in employee benefits expense. Commission expense increased due to the higher volume of residential mortgages originated and sold in the first quarter of 2017 compared to the first quarter of 2016. Full-time equivalent employees at March 31, 2017 increased to 194 compared to 173 full-time equivalent employees at March 31, 2016.

Occupancy expense increased by $47,000, or 5.4%, to $919,000 for the three months ended March 31, 2017 compared to $872,000 for the three months ended March 31, 2016.  The increase for the three months ended March 31, 2017 compared to the three months ended March 31, 2016 was due primarily to the addition of four residential loan offices in the third quarter of 2016.

The cost of data processing services of $318,000 was relatively unchanged for the three months ended March 31, 2017 compared to $313,000 for the three months ended March 31, 2016.

FDIC insurance expense decreased $38,000, or 32.2%, to $80,000 for the three months ended March 31, 2017 compared to $118,000 for the three months ended March 31, 2016 primarily due to a lower assessment rate that reflected the improvement in asset quality and the improved financial performance of the Bank in the last two years and a lower assessment rate for smaller banks.

Other real estate owned expenses decreased to $4,000 for the three months ended March 31, 2017 compared to $29,000 for the three months ended March 31, 2016 due to the lower level of OREO assets in the first quarter of 2017 compared to the first quarter of 2016. At March 31, 2017, the Company held one residential property and one commercial property with a combined carrying value of $431,000 as OREO compared to two properties with an aggregate carrying value of $1.1 million at March 31, 2016.

Regulatory, professional and other fees increased $98,000, or 27.1%, to $460,000 for the first quarter of 2017 compared to $362,000 for the first quarter of 2016 due to higher professional and consulting fees. The levels of regulatory, professional and consulting fees have increased over the last several years due primarily to compliance with increased regulatory requirements, management of enterprise risk and information security and additional internal and external audit fees, including attestation requirements regarding internal controls over financial reporting as a result of the Company becoming an "Accelerated Filer" for SEC reporting purposes for the year ended December 31, 2016 and subsequent periods.

Other expenses increased by $434,000 to $1.1 million for the three months ended March 31, 2017 compared to $625,000 for the three months ended March 31, 2016. In the first quarter of 2017, management updated its deferred loan origination cost analysis and methodology. As a result, approximately $500,000 of deferred loan origination costs at December 31, 2016 were identified and charged to expense in the first quarter of 2017. Management evaluated this adjustment and determined it was immaterial to the financial condition and results of operations for the year ended December 31, 2016 and the three months ended March 31, 2017.

6

Income Taxes

Three months ended March 31, 2017 compared to three months ended March 31, 2016

Pre-tax income was $2.8 million for the three months ended March 31, 2017 compared to $3.3 million for the three months ended March 31, 2016.

The Company recorded income tax expense of $852,000 for the three months ended March 31, 2017 compared to $1.0 million for the three months ended March 31, 2016. Income tax expense decreased primarily due to the decrease in pre-tax income. The effective income tax rate was 30.4% for the three months ended March 31, 2017 compared to 32.0% for the three months ended March 31, 2016. The effective tax rate decreased due to the higher percentage of the net amount of tax-exempt interest income and income on BOLI to pre-tax income in the first quarter of 2017 compared to the first quarter of 2016.

Financial Condition

March 31, 2017 Compared with December 31, 2016

Total consolidated assets at March 31, 2017 were $1.01 billion, representing a decrease of $28.3 million, or 2.7%, from total consolidated assets of $1.04 billion at December 31, 2016.  The decrease in assets was primarily attributable to a decrease of $48.4 million in total loans and a $11.5 million decrease in loans held for sale, which were partially offset by a $33.0 million increase in cash and due from banks.

Cash and Cash Equivalents

Cash and cash equivalents at March 31, 2017 totaled $47.9 million compared to $14.9 million at December 31, 2016, an increase of $33.0 million. To the extent that the Bank does not utilize funds for loan originations or securities purchases, the cash inflows are invested in overnight deposits at the Federal Reserve Bank of New York.

Loans Held for Sale

Loans held for sale at March 31, 2017 were $3.4 million compared to $14.8 million at December 31, 2016. The amount of loans held for sale varies from period to period due to changes in the amount and timing of sales of residential mortgages.

Investment Securities

Investment securities represented approximately 22.9% of total assets at March 31, 2017 and approximately 22.2% of total assets at December 31, 2016. Total investment securities increased $901,000, or 0.4%, to $231.5 million at March 31, 2017 from $230.6 million at December 31, 2016. Purchases of investment securities totaled $23.2 million during the three months ended March 31, 2017, and proceeds from sales, calls, maturities and repayments totaled $22.1 million during the period.

Securities available for sale are investments that may be sold in response to changing market and interest rate conditions or for other business purposes.  Activity in this portfolio is undertaken primarily to manage liquidity and interest rate risk and to take advantage of market conditions that create economically attractive returns.  At March 31, 2017, securities available for sale totaled $105.6 million, an increase of $1.8 million, or 1.7%, compared to securities available for sale totaling $103.8 million at December 31, 2016.

At March 31, 2017, the securities available for sale portfolio had net unrealized losses of $365,000 compared to net unrealized losses of $464,000 at December 31, 2016.  These unrealized losses were reflected, net of tax, in shareholders’ equity as a component of accumulated other comprehensive income.

Securities held to maturity, which are carried at amortized historical cost, are investments for which there is the positive intent and ability to hold to maturity.  At March 31, 2017, securities held to maturity were $125.9 million, a decrease of $870,000 from $126.8 million at December 31, 2016.  The fair value of the held to maturity portfolio at March 31, 2017 was $127.8 million.

Loans

The loan portfolio, which represents the Bank's largest asset, is a significant source of both interest and fee income. Elements of the loan portfolio are subject to differing levels of credit and interest rate risk. The Bank’s primary lending focus continues to be financing mortgage warehouse lines, construction loans, commercial business loans, owner-occupied commercial mortgage loans and commercial real estate loans on income-producing assets.

7

The following table represents the components of the loan portfolio at March 31, 2017 and December 31, 2016:

Loan Portfolio Composition
(Dollars in thousands)
	March 31, 2017				December 31, 2016
Component	Amount		%		Amount		%
Construction loans	$	107,722	16	%	$	96,035	13	%
Residential real estate loans	41,608		6	%	44,791		6	%
Commercial business	101,466		16	%	99,650		15	%
Commercial real estate	258,130		38	%	242,393		33	%
Mortgage warehouse lines	142,666		21	%	216,259		30	%
Loans to individuals	23,567		3	%	23,736		3	%
All other loans	177		—	%	207		—	%
Gross loans	675,336				723,071
Deferred loan fees and costs, net	1,075				1,737
Total loans	$	676,411	100	%	$	724,808	100	%

Total loans decreased by $48.4 million, or 6.7%, to $676.4 million at March 31, 2017 compared to $724.8 million at December 31, 2016 due primarily to the decrease in mortgage warehouse loans. Due to the seasonality of the Bank's mortgage warehouse funding group, it is also important to measure changes in the Bank's loan portfolio through comparisons to the loan portfolio at March 31, 2016. Commercial business, commercial real estate and construction loans were $467.3 million at March 31, 2017 and increased $65.8 million, or 16.4%, compared to $401.5 million at March 31, 2016.

Mortgage warehouse lines' outstanding balances decreased $73.6 million to $142.7 million at March 31, 2017 compared to $216.3 million at December 31, 2016, reflecting lower levels of residential mortgage originations by the Bank’s mortgage banking customers that were primarily due to the seasonality of home purchase activity in our markets and a lower level of residential mortgage loan refinancing activity due to higher mortgage interest rates in the first quarter of 2017.

The Bank’s mortgage warehouse funding group provides revolving lines of credit that are available to licensed mortgage banking companies. The warehouse line of credit is used by the mortgage banker to finance the origination of one-to-four family residential mortgage loans that are pre-sold to the secondary mortgage market, which includes state and national banks, national mortgage banking firms, insurance companies and government-sponsored enterprises, including the Federal National Mortgage Association, the Federal Home Loan Mortgage Corporation and the Government National Mortgage Association.  On average, an advance under the warehouse line of credit remains outstanding for a period of less than 30 days, with repayment coming directly from the sale of the loan into the secondary mortgage market.  Interest and a transaction fee are collected by the Bank at the time of repayment.   The Bank funded $738.8 million of residential mortgages through customers' warehouse lines of credit in the first quarter of 2017 compared to $805.5 million in the first quarter of 2016.

Commercial business loans increased $1.8 million, or 1.8%, to $101.5 million during the first quarter of 2017. Commercial business loans consist primarily of loans to small and middle market businesses and are typically working capital loans used to finance inventory, receivables or equipment needs. These loans are generally secured by business assets of the commercial borrower.

Commercial real estate loans increased $15.7 million, or 6.5%, to $258.1 million during the first quarter of 2017. Commercial real estate loans consist  primarily of loans to businesses collateralized by real estate employed in the business and loans to finance income-producing properties.

Construction loans increased $11.7 million to $107.7 million during the first quarter of 2017. Construction financing is provided to businesses to expand their facilities and operations and to real estate developers for the acquisition, development and construction of residential properties and income-producing properties. First mortgage construction loans are made to developers and builders for single family homes or multi-family buildings that are presold, or are to be sold or leased on a speculative basis. The Bank lends to developers and builders with established relationships, successful operating histories and sound financial resources.

The Bank also finances the construction of individual, owner-occupied single family homes. These loans are made to qualified individual borrowers and are generally supported by a take-out commitment from a permanent lender.

The ability of the Company to enter into larger loan relationships and management’s philosophy of relationship banking are key factors in the Company’s strategy for loan growth.  The ultimate collectability of the loan portfolio and recovery of the carrying amount of real estate are subject to changes in the economic environment and real estate market in the Company’s market region.

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Non-Performing Assets

Non-performing assets consist of non-performing loans and other real estate owned. Non-performing loans are composed of (1) loans on a non-accrual basis and (2) loans which are contractually past due 90 days or more as to interest and principal payments but which have not been classified as non-accrual. Included in non-accrual loans are loans whose terms have been restructured to provide a reduction or deferral of interest and/or principal because of deterioration in the financial position of the borrower and which have not performed in accordance with the restructured terms.

The Bank’s policy with regard to non-accrual loans is that, generally, loans are placed on a non-accrual status when they are 90 days past due, unless these loans are well secured and in process of collection or, regardless of the past due status of the loan, when management determines that the complete recovery of principal or interest is in doubt.  Consumer loans are generally charged off after they become 120 days past due.  Subsequent payments on loans in non-accrual status are credited to income only if collection of principal is not in doubt.

Non-accrual loans increased $2.2 million to $7.4 million at March 31, 2017 from $5.2 million at December 31, 2016. During the first quarter of 2017, $1.8 million of non-performing loans were resolved and $4.0 million of loans were placed on non-accrual. The major segments of non-accrual loans consist of commercial business, commercial real estate and residential real estate loans, which are in the process of collection. The table below sets forth non-performing assets and risk elements in the Bank’s portfolio for the periods indicated.

Non-Performing Assets and Loans	March 31,			December 31,
(Dollars in thousands)	2017			2016
Non-performing loans:
Loans 90 days or more past due and still accruing	$	46		$	24
Non-accrual  loans	7,373			5,174
Total non-performing loans	7,419			5,198
Other real estate owned	431			166
Other repossessed assets	—			—
Total non-performing assets	7,850			5,364
Performing troubled debt restructurings	3,186			864
Performing troubled debt restructurings and total non-performing assets	$	11,036		$	6,228
Non-performing loans to total loans	1.10		%	0.72		%
Non-performing loans to total loans excluding mortgage warehouse lines	1.39		%	1.02		%
Non-performing assets to total assets	0.78		%	0.52		%
Non-performing assets to total assets excluding mortgage warehouse lines	0.91		%	0.65		%
Total non-performing assets and performing troubled debt restructurings to total assets	1.09		%	0.60		%

Non-performing loans to total loans increased to 1.10% at March 31, 2017 from 0.72% at December 31, 2016 principally due to a $4.0 million shared national credit syndicated loan that was downgraded to doubtful and placed on non-accrual in the first quarter of 2017.  

Non-performing assets increased by $2.5 million to $7.9 million at March 31, 2017 from $5.4 million at December 31, 2016.  Other real estate owned totaled $431,000 at March 31, 2017 compared to $166,000 at December 31, 2016.  OREO at March 31, 2017 was comprised of one residential property and one commercial property with a combined aggregate carrying value of $431,000.

At March 31, 2017, the Bank had eight loans totaling $5.3 million which were troubled debt restructurings.  Three of these loans totaling $2.1 million are included in the above table as non-accrual loans and the remaining five loans totaling $3.2 million are considered performing. At December 31, 2016, the Bank had nine loans totaling $4.5 million that were troubled debt restructurings. Five of these loans totaling $3.6 million are included in the above table as non-accrual loans and the remaining four loans totaling $864,000 are considered performing.

As provided by ASC 310-30, the excess of cash flows expected at acquisition over the initial investment in the loan is recognized as interest income over the life of the loan. Accordingly, loans acquired with evidence of deteriorated credit quality totaling $420,000 at March 31, 2017 and $439,000 at December 31, 2016 were not classified as non-performing loans.

Non-performing assets represented 0.78% of total assets at March 31, 2017 compared to 0.52% of total assets at December 31, 2016.

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Management takes a proactive approach in addressing delinquent loans. The Company’s President and Chief Executive Officer meets weekly with all loan officers to review the status of credits past-due 10 days or more. An action plan is discussed for delinquent loans to determine the steps necessary to induce the borrower to cure the delinquency and restore the loan to a current status. In addition, delinquency notices are system-generated when loans are five days past-due and again at 15 days past-due.

In most cases, the Company’s collateral is real estate. If the collateral is foreclosed upon, the real estate is carried at fair market value less the estimated selling costs. The amount, if any, by which the recorded amount of the loan exceeds the fair market value of the collateral, less estimated selling costs, is a loss that is charged to the allowance for loan losses at the time of foreclosure or repossession. Resolution of a past-due loan through foreclosure can be delayed if the borrower files a bankruptcy petition because a collection action cannot be continued unless the Company first obtains relief from the automatic stay provided by the United States Bankruptcy Reform Act of 1978, as amended.

Summary of Real Estate Owned Activity
(in thousands)
	Three months ended March 31, 2017
Balance - January 1, 2017	$	166
Transfers into real estate owned	265
Sale of real estate owned	—
Cost of improvements on real estate owned	—
Balance - March 31, 2017	$	431

During the three months ended March 31, 2017, one residential property with a fair value of $265,000 was transferred to other real estate owned.

Allowance for Loan Losses and Related Provision

The allowance for loan losses is maintained at a level sufficient to absorb estimated credit losses in the loan portfolio as of the date of the financial statements.  The allowance for loan losses is a valuation reserve available for losses incurred or inherent in the loan portfolio and other extensions of credit.  The determination of the adequacy of the allowance for loan losses is a critical accounting policy of the Company.

The Company’s primary lending emphasis is the origination of commercial business, construction and commercial real estate loans and mortgage warehouse lines of credit.  Based on the composition of the loan portfolio, the inherent primary risks are deteriorating credit quality, a decline in the economy, and a decline in New Jersey real estate market values.  Any one, or a combination, of these events may adversely affect the loan portfolio and may result in increased delinquencies, loan losses and increased future provision levels.

All, or part, of the principal balance of commercial business and commercial real estate loans and construction loans are charged off against the allowance as soon as it is determined that the repayment of all, or part, of the principal balance is highly unlikely.  Consumer loans are generally charged off no later than 120 days past due on a contractual basis, earlier in the event of bankruptcy, or if there is an amount deemed uncollectible.  Because all identified losses are charged off, no portion of the allowance for loan losses is restricted to any individual loan or groups of loans and the entire allowance is available to absorb any and all loan losses.

Management reviews the adequacy of the allowance on at least a quarterly basis to ensure that the provision for loan losses has been charged against earnings in an amount necessary to maintain the allowance at a level that is adequate based on management’s assessment of probable estimated losses. The Company’s methodology for assessing the adequacy of the allowance for loan losses consists of several key elements and is consistent with U.S. GAAP and interagency supervisory guidance.  The allowance for loan losses methodology consists of two major components.  The first component is an estimation of losses associated with individually identified impaired loans, which follows ASC Topic 310.  The second major component is an estimation of losses under ASC Topic 450, which provides guidance for estimating losses on groups of loans with similar risk characteristics.  The Company’s

10

methodology results in an allowance for loan losses that includes a specific reserve for impaired loans, an allocated reserve and an unallocated portion.

When analyzing groups of loans under ASC Topic 450, the Bank follows the Interagency Policy Statement on the Allowance for Loan and Lease Losses.  The methodology considers the Company’s historical loss experience adjusted for changes in trends, conditions and other relevant factors that affect repayment of the loans as of the evaluation date.  These adjustment factors, known as qualitative factors, include:

• Delinquencies and non-accruals

• Portfolio quality

• Concentration of credit

• Trends in volume of loans

• Quality of collateral

• Policy and procedures

• Experience, ability and depth of management

• Economic trends – national and local

• External factors – competition, legal and regulatory

The methodology includes the segregation of the loan portfolio into loan types with a further segregation into risk rating categories, such as special mention, substandard, doubtful and loss. This allows for an allocation of the allowance for loan losses by loan type; however, the allowance is available to absorb any loan loss without restriction.  Larger-balance, non-homogeneous loans representing significant individual credit exposures are evaluated individually through the internal loan review process.  It is this process that produces the watch list.  The borrower’s overall financial condition, repayment sources, guarantors and value of collateral, if appropriate, are evaluated. Based on these reviews, an estimate of probable losses for the individual larger-balance loans is determined, whenever possible, and used to establish specific loan loss reserves.  In general, for non-homogeneous loans not individually assessed and for homogeneous groups of loans, such as residential mortgages and consumer credits, the loans are collectively evaluated based on delinquency status, loan type, and historical losses. These loan groups are then internally risk rated.

The watch list includes loans that are assigned a rating of special mention, substandard, doubtful and loss.  Loans classified as special mention have potential weaknesses that deserve management’s close attention.  If uncorrected, the potential weaknesses may result in deterioration of the repayment prospects.  Loans classified as substandard have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt.  They include loans that are inadequately protected by the current sound net worth and paying capacity of the obligor or of the collateral pledged, if any.  Loans classified as doubtful have all the weaknesses inherent in loans classified as substandard with the added characteristic that collection or liquidation in full, on the basis of current conditions and facts, is highly improbable.  Loans rated as doubtful in whole, or in part, are placed in non-accrual status.  Loans classified as a loss are considered uncollectible and are charged-off against the allowance for loan losses.

The specific allowance for impaired loans is established for specific loans that have been identified by management as being impaired. These loans are considered to be impaired primarily because the loans have not performed according to payment terms and there is reason to believe that repayment of the loan principal in whole, or in part, is unlikely. The specific portion of the allowance is the total amount of potential unconfirmed losses for these individual impaired loans. To assist in determining the fair value of loan collateral, the Company often utilizes independent third party qualified appraisal firms, which employ their own criteria and assumptions that may include occupancy rates, rental rates, and property expenses, among others.

The second category of reserves consists of the allocated portion of the allowance.  The allocated portion of the allowance is determined by taking pools of outstanding loans that have similar characteristics and applying historical loss experience for each pool.  This estimate represents the potential unconfirmed losses within the portfolio. Individual loan pools are created for commercial business loans, commercial real estate loans, construction loans, warehouse lines of credit and various types of loans to individuals.  The historical estimation for each loan pool is then adjusted to account for current conditions, current loan portfolio performance, loan policy or management changes or any other qualitative factor that may cause future losses to deviate from historical levels.

The Company also maintains an unallocated allowance.  The unallocated allowance is used to cover any factors or conditions that may cause a potential loan loss but are not specifically identifiable.  It is prudent to maintain an unallocated portion of the allowance because no matter how detailed an analysis of potential loan losses is performed, these estimates, by definition, lack precision.  Management must make estimates using assumptions and information that is often subjective and changing rapidly.

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The following discusses the risk characteristics of each of our loan portfolio segments-commercial, mortgage warehouse lines of credit and consumer.

Commercial

The Company’s primary lending emphasis is the origination of commercial business and commercial real estate loans. Based on the composition of the loan portfolio, the inherent primary risks are deteriorating credit quality, a decline in the economy and a decline in New Jersey real estate market values. Any one, or a combination, of these events may adversely affect the loan portfolio and may result in increased delinquencies, loan losses and increased future provision levels.

Mortgage Warehouse Lines of Credit

The Company’s Mortgage Warehouse Unit provides revolving lines of credit that are available to licensed mortgage banking companies. The warehouse line of credit is used by the mortgage banker to originate one-to-four family residential mortgage loans that are pre-sold to the secondary mortgage market, which includes state and national banks, national mortgage banking firms, insurance companies and government-sponsored enterprises, including the Federal National Mortgage Association, the Federal Home Loan Mortgage Corporation and others. On average, an advance under the warehouse line of credit remains outstanding for a period of less than 30 days, with repayment coming directly from the sale of the loan into the secondary mortgage market. Interest and a transaction fee are collected by the Bank at the time of repayment.

As a separate segment of the total portfolio, the warehouse loan portfolio is individually analyzed as a whole for allowance for loan loss purposes.  Warehouse lines of credit are subject to the same inherent risks as other commercial lending, but the overall degree of risk differs. While the Company’s loss experience with this type of lending has been non-existent since the product was introduced in 2008, there are other risks unique to this lending that still must be considered in assessing the adequacy of the allowance for loan losses. These unique risks may include, but are not limited to, (i) credit risks relating to the mortgage bankers that borrow from the Bank, (ii) the risk of intentional misrepresentation or fraud by any of such mortgage bankers, (iii) changes in the market value of mortgage loans originated by the mortgage banker, the sale of which is the expected source of repayment of the borrowings under a warehouse line of credit, due to changes in interest rates during the time in warehouse or (iv) unsalable or impaired mortgage loans so originated, which could lead to decreased collateral value and the failure of a purchaser of the mortgage loan to purchase the loan from the mortgage banker.

These factors, along with the other qualitative factors such as economic trends, concentrations of credit, trends in the volume of loans, portfolio quality, delinquencies and non-accruals, are also considered and may have positive or negative effects on the allocated allowance.  The aggregate amount resulting from the application of these qualitative factors determines the overall risk for the portfolio and results in an allocated allowance for warehouse lines of credit.

Consumer

The Company’s consumer loan segment is comprised of residential real estate loans, home equity loans and other loans to individuals. Individual loan pools are created for the various types of loans to individuals.

In general, for homogeneous groups such as residential mortgages and consumer credits, the loans are collectively evaluated based on delinquency status, loan type and historical losses. These loan groups are then internally risk rated.

The Company considers the following credit quality indicators in assessing the risk in the loan portfolio:

• Consumer credit scores

• Internal credit risk grades

• Loan-to-value ratios

• Collateral

• Collection experience

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The following table presents, for the periods indicated, an analysis of the allowance for loan losses and other related data:

Allowance for Loan Losses (Dollars in thousands)
	Three Months Ended March 31,			Year Ended December 31,			Three Months Ended March 31,
	2017			2016			2016
Balance, beginning of period	$	7,494		$	7,560		$	7,560
Provision (credit) charged to operating expenses	150			(300		)	(200		)
Loans charged off :
Construction loans	—			—			—
Residential real estate loans	(101		)	—			—
Commercial business and commercial real estate	—			(157		)	(60		)
Loans to individuals	—			—			—
Lease financing	—			—			—
All other loans	—			(1		)	—
	(101		)	(158		)	(60		)
Recoveries
Construction loans	—			—			—
Residential real estate loans	—			—			—
Commercial business and commercial real estate	6			386			—
Loans to individuals	1			6			2
Lease financing	—			—			—
All other loans	—			—			—
	7			392			2
Net (charge offs) recoveries	(94		)	234			(58		)
Balance, end of period	$	7,550		$	7,494		$	7,302
Loans :
At period end	$	676,411		$	724,808		$	658,988
Average during the period	664,066			691,180			637,498
Net (charge offs) recoveries to average loans outstanding	(0.01		)%	0.03		%	(0.01		)%
Net (charge offs) recoveries to average loans outstanding, excluding mortgage warehouse loans	(0.02		)%	0.05		%	(0.01		)%
Allowance for loan losses to :
Total loans at period end	1.12		%	1.03		%	1.11		%
Total loans at period end excluding mortgage warehouse loans	1.29		%	1.28		%	1.38		%
Non-performing loans	101.76		%	144.18		%	132.20		%

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The following table represents the allocation of the allowance for loan losses (“ALL”) among the various categories of loans and certain other information as of March 31, 2017 and December 31, 2016, respectively.  The allocation is made for analytical purposes and is not necessarily indicative of the categories in which future losses may occur. The total allowance is available to absorb losses from any segment of loans.

(Dollars in thousands)
	March 31, 2017						December 31, 2016
	Amount		ALL as a % of Loans		% of Loans		Amount		ALL as a % of Loans		% of Loans
Commercial real estate loans	$	2,634	1.02	%	38	%	$	2,574	1.06	%	34	%
Commercial business	1,822		1.80	%	15	%	1,732		1.74	%	14	%
Construction loans	1,370		1.27	%	16	%	1,204		1.25	%	13	%
Residential real estate loans	365		0.88	%	6	%	367		0.82	%	6	%
Loans to individuals	122		0.52	%	4	%	112		0.47	%	3	%
Subtotal	6,313		1.18	%	79	%	5,989		1.18	%	70	%
Mortgage warehouse lines	642		0.45	%	21	%	973		0.45	%	30	%
Unallocated reserves	595		—		—		532		—		—
Total	$	7,550	1.12	%	100	%	$	7,494	1.03	%	100	%

The Company recorded a provision for loan losses in the amount of $150,000 for the three months ended March 31, 2017 compared to a $200,000 credit (negative) provision for loan losses for the three months ended March 31, 2016. A provision for loan losses was recorded for the first quarter of 2017 primarily due to the growth in commercial real estate and construction loans. Net charge-offs of loans were $94,000 for the three months ended March 31, 2017 compared to net charge-offs of $58,000 for the three months ended March 31, 2016.

At March 31, 2017, the allowance for loan losses was $7.6 million, a $56,000 increase from the allowance for loan losses at December 31, 2016. As a percentage of total loans, the allowance was 1.12% at the end of the first quarter of 2017 compared to 1.03% at year-end 2016 and 1.11% at March 31, 2016.   The allowance for loan losses was 102% of non-accrual loans at March 31, 2017 compared to 144% of non-accrual loans at December 31, 2016. Management believes that the quality of the loan portfolio remains sound, considering the economic climate in the State of New Jersey, and that the allowance for loan losses is adequate in relation to credit risk exposure levels and the estimated incurred and inherent losses in the loan portfolio.

Deposits

Deposits, which include demand deposits (interest bearing and non-interest bearing), savings deposits and time deposits, are a fundamental and cost-effective source of funding.  The flow of deposits is influenced significantly by general economic conditions, changes in market interest rates and competition.  The Bank offers a variety of products designed to attract and retain customers, with the Bank’s primary focus on the building and expanding of long-term relationships.

The following table summarizes deposits at March 31, 2017 and December 31, 2016.

(Dollars in thousands)
	March 31, 2017		December 31, 2016
Demand
Non-interest bearing	$	184,210	$	170,854
Interest bearing	338,115		310,103
Savings	210,214		205,294
Time	136,281		148,265
Total	$	868,820	$	834,516

At March 31, 2017, total deposits were $868.8 million, an increase of $34.3 million, or 4.1%, from $834.5 million at December 31, 2016.  Overall, the increase in deposits was due primarily to an increase of $28.0 million in interest bearing demand deposits, an increase of $13.4 million in non-interest bearing demand deposits and a $4.9 million increase in savings deposits, which were partially offset by a decrease of $12.0 million in time deposits.

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Borrowings

Borrowings are mainly comprised of Federal Home Loan Bank (“FHLB”) borrowings and overnight funds purchased.  These borrowings are primarily used to fund asset growth not supported by deposit generation.  The balance of borrowings was $10.0 million at March 31, 2017 and consisted of $10.0 million of long-term FHLB borrowings that mature in July 2017, compared to $73.1 million at December 31, 2016, which consisted of $63.1 million of overnight borrowings from the FHLB and $10.0 million of long-term FHLB borrowings.

Liquidity

At March 31, 2017, the amount of liquid assets and the Bank's access to off-balance sheet liquidity remained at a level management deemed adequate to ensure that contractual liabilities, depositors’ withdrawal requirements and other operational and customer credit needs could be satisfied.

Liquidity management refers to the Company’s ability to support asset growth while satisfying the borrowing needs and deposit withdrawal requirements of customers.  In addition to maintaining liquid assets, factors such as capital position, profitability, asset quality and availability of funding affect a bank’s ability to meet its liquidity needs.  On the asset side, liquid funds are maintained in the form of cash and cash equivalents, federal funds sold, investment securities held to maturity maturing within one year, securities available for sale and loans held for sale.  Additional asset-based liquidity is derived from scheduled loan repayments as well as investment repayments of principal and interest. Investment securities and loans may also be pledged to the FHLB to collateralize additional borrowings.  On the liability side, the primary source of liquidity is the ability to generate core deposits.  Long-term and short-term borrowings are used as supplemental funding sources when growth in the core deposit base does not keep pace with that of earnings assets.

The Bank has established a borrowing relationship with the FHLB that further supports and enhances liquidity. During 2010, the FHLB replaced its Overnight Line of Credit and One-Month Overnight Repricing Line of Credit facilities available to member banks with a fully secured line of up to 50 percent of a bank’s quarter-end total assets.  Under the terms of this facility, the Bank’s total credit exposure to the FHLB cannot exceed 50 percent of its total assets, or $504.9 million, at March 31, 2017.  In addition, the aggregate outstanding principal amount of the Bank’s advances, letters of credit, the dollar amount of the FHLB’s minimum collateral requirement for off-balance sheet financial contracts and advance commitments cannot exceed 30 percent of the Bank’s total assets, unless the Bank obtains approval from the FHLB’s Board of Directors or its Executive Committee.  These limits are further restricted by a member’s ability to provide eligible collateral to support its obligations to the FHLB as well as the ability to meet the FHLB’s stock requirement. At March 31, 2017, the Bank pledged collateral to the FHLB to support additional borrowing capacity of $176.6 million. The Bank also maintains unsecured federal funds lines of $46.0 million with two correspondent banks.

The Consolidated Statements of Cash Flows present the changes in cash from operating, investing and financing activities.  At March 31, 2017, the balance of cash and cash equivalents was $47.9 million.

Net cash provided by operating activities totaled $12.5 million for the three months ended March 31, 2017 compared to net cash provided by operating activities of $7.9 million for the three months ended March 31, 2016.  A source of funds is net income from operations adjusted for activity related to loans originated for sale and sold, the provision for loan losses, depreciation and amortization expenses and net amortization of premiums and discounts on securities.  Net cash provided by operating activities for the three months ended March 31, 2017 was higher than net cash provided by operating activities for the three months ended March 31, 2016 due primarily to a higher amount of net proceeds from the origination and sale of loans of approximately $7.5 million.

Net cash provided by investing activities totaled $49.6 million for the three months ended March 31, 2017 compared to $17.2 million for the three months ended March 31, 2016. The primary source of cash provided by investing activities for the first three months of 2017 was a net decrease in loans of $48.0 million compared to a net decrease in loans of $23.4 million for the first three months of 2016. The securities portfolios are also a source of liquidity, providing cash flows from maturities and periodic repayments of principal.  For the three months ended March 31, 2017 and March 31, 2016, prepayments and maturities of investment securities totaled $20.1 million and $14.6 million, respectively. Cash was used to purchase investment securities of $23.2 million for the three months ended March 31, 2017 compared to purchases of $22.4 million of investment securities for the three months ended March 31, 2016.

Net cash used in financing activities was $29.1 million for the three months ended March 31, 2017 compared to $21.6 million of net cash used in financing activities for the three months ended March 31, 2016.  The primary use of funds for the 2017 period was the decrease in borrowed funds of $63.1 million and the payment of cash dividends in the amount of $401,000, which were partially offset by an increase in deposits of $34.3 million. The primary use of funds in the 2016 period was the decrease in borrowed funds of $38.6 million, which was partially offset by an increase in deposits of $17.1 million.

15

Shareholders’ Equity and Dividends

Shareholders’ equity increased by $1.8 million, or 1.7%, to $106.6 million at March 31, 2017 from $104.8 million at December 31, 2016.  Tangible book value per common share increased by $0.19 to $11.69 at March 31, 2017 from $11.50 at December 31, 2016.   The ratio of average shareholders’ equity to total average assets was 10.58% at March 31, 2017 compared to 10.06% at December 31, 2016.

Shareholders’ equity increased $1.8 million due primarily to an increase of $1.5 million in retained earnings and an increase of $235,000 from the exercise of options and share-based compensation.

On September 15, 2016, the Board of Directors of the Company declared a cash dividend of $0.05 per common share. The cash dividend was paid on October 21, 2016 to all shareholders of record as of the close of business on September 28, 2016. This action represented the first cash dividend declared by the Company on its common shares. The Company also paid a $0.05 per common share dividend on January 24, 2017 and April 25, 2017. The timing and the amount of the payment of future cash dividends, if any, on the Company's common shares will be at the discretion of the Company's Board of Directors and will be determined after consideration of various factors, including the level of earnings, cash requirements, regulatory capital and financial condition.

The Company’s common stock is quoted on the Nasdaq Global Market under the symbol “FCCY."

On January 21, 2016, the Board of Directors of the Company authorized a new common stock repurchase program. Under the new common stock repurchase program, the Company may repurchase in open market or privately negotiated transactions up to five (5%) percent of its common stock outstanding on the date of approval of the stock repurchase program, which limitation will be adjusted for any future stock dividends. This new repurchase program replaces the repurchase program authorized on August 3, 2005.

Disclosure of repurchases of shares of common stock of the Company that were made during the quarter ended March 31, 2017 is set forth under Part II, Item 2 of this report, “Unregistered Sales of Equity Securities and Use of Proceeds.”

Actual capital amounts and ratios for the Company and the Bank as of March 31, 2017 and December 31, 2016 were as follows:

(Dollars in thousands)	Actual			For Capital Adequacy Purposes			To Be Well Capitalized Under Prompt Corrective Action Provision
	Amount		Ratio	Amount		Ratio	Amount		Ratio
As of March 31, 2017
Company
Common equity Tier 1 (CET1)	$	94,916	10.81%	$	39,496	>4.5%	N/A		N/A
Total Capital to Risk Weighted Assets	120,466		13.73%	70,215		>8%	N/A		N/A
Tier 1 Capital to Risk Weighted Assets	112,916		12.87%	52,661		>6%	N/A		N/A
Tier 1 Leverage Capital	112,916		11.46%	39,420		>4%	N/A		N/A
Bank
Common equity Tier 1 (CET1)	$	110,378	12.58%	$	39,496	>4.5%	$	57,050	≥6.5%
Total Capital to Risk Weighted Assets	117,928		13.44%	70,215		>8%	87,769		≥10%
Tier 1 Capital to Risk Weighted Assets	110,378		12.58%	52,661		>6%	70,215		≥8%
Tier 1 Leverage Capital	110,378		11.20%	39,420		>4%	49,275		>5%

16

As of December 31, 2016
Company
Common equity Tier 1 (CET1)	$	93,101	10.40%	$	40,302	>4.5%	N/A		N/A
Total Capital to Risk Weighted Assets	118,595		13.24%	71,648		>8%	N/A		N/A
Tier 1 Capital to Risk Weighted Assets	111,101		12.41%	53,736		>6%	N/A		N/A
Tier 1 Leverage Capital	111,101		10.93%	40,658		>4%	N/A		N/A
Bank
Common equity Tier 1 (CET1)	$	108,606	12.13%	$	40,302	>4.5%	$	58,214	≥6.5%
Total Capital to Risk Weighted Assets	116,100		12.96%	71,648		>8%	89,560		>10%
Tier 1 Capital to Risk Weighted Assets	108,606		12.13%	53,736		>6%	71,648		≥8%
Tier 1 Leverage Capital	108,606		10.68%	40,658		>4%	50,823		>5%

In July 2013, the Federal Reserve Board and the FDIC approved revisions to their capital adequacy guidelines and prompt corrective action rules that implemented and addressed the revised standards of Basel III and addressed relevant provisions of the Dodd-Frank Act.  The Federal Reserve Board’s final rules and the FDIC’s interim final rules (which became final in April 2014 with no substantive changes) apply to all depository institutions, top-tier bank holding companies with total consolidated assets of $500 million or more and top-tier savings and loan holding companies (“banking organizations”). Among other things, the rules established a common equity Tier 1 minimum capital requirement (4.5% of risk-weighted assets) and increased the minimum Tier 1 capital to risk-weighted assets requirement (from 4% to 6% of risk-weighted assets). Banking organizations are also required to have a total capital ratio of at least 8% and a Tier 1 leverage ratio of at least 4%.

The rules also limited a banking organization’s ability to pay dividends, engage in share repurchases or pay discretionary bonuses if the banking organization does not hold a “capital conservation buffer” consisting of 2.50% of common equity Tier 1 capital to risk-weighted assets in addition to the amount necessary to meet its minimum risk-based capital requirements.  The rules became effective for the Company and the Bank on January 1, 2015. The capital conservation buffer requirements began phasing in on January 1, 2016 at 0.625% of common equity Tier 1 capital to risk-weighted assets and will increase by that amount each year until fully implemented in January 2019 at 2.50% of common equity Tier 1 capital to risk-weighted assets. As of January 1, 2017, the Company and the Bank were required to maintain a capital conservation buffer of 1.25%. At March 31, 2017, the Company's and the Bank's common equity Tier 1 capital ratio of 10.81% and 12.58%, respectively, exceeded the combined common equity Tier 1 minimum capital and capital conservation buffer of 5.75%.

At March 31, 2017, the capital ratios of the Company and the Bank exceeded the minimum Basel III capital requirements.  It is management’s goal to monitor and maintain adequate capital levels to continue to support asset growth and the expansion of the Bank and to continue its status as a well-capitalized institution.

Interest Rate Sensitivity Analysis

The largest component of the Company’s total income is net interest income, and the majority of the Company’s financial instruments are composed of interest rate-sensitive assets and liabilities with various terms and maturities. The primary objective of management is to maximize net interest income while minimizing interest rate risk. Interest rate risk is derived from timing differences and the magnitude of relative changes in the repricing of assets and liabilities, loan prepayments, deposit withdrawals and differences in lending and funding rates. Management actively seeks to monitor and control the mix of interest rate-sensitive assets and interest rate-sensitive liabilities.

Under the interest rate risk policy established by the Company's Board of Directors, the Company established quantitative guidelines with respect to interest rate risk and how interest rate shocks are projected to affect net interest income and the economic value of equity. Due to the current low level of market interest rates, the current monetary policy of the Federal Reserve Board and recent communications from the Federal Reserve Board, management believes that it is more likely that market interest rates may increase than decrease over the intermediate term. Summarized below is the projected effect of a parallel shift of an increase of 200 and 300 basis points, respectively, in market interest rates on net interest income and the economic value of equity.

17

Based upon the current interest rate environment, as of March 31, 2017, sensitivity to interest rate risk was as follows:

(Dollars in thousands)			Next 12 Months Net Interest Income						Economic Value of Equity (2)
Interest Rate Change in Basis Points (1)	Dollar Amount		$ Change		% Change		Dollar Amount		$ Change		% Change
+300	$	40,321	$	3,922	10.78	%	$	144,155	$	1,535	1.08	%
+200	38,972		2,573		7.07	%	143,874		1,254		0.88	%
—	36,399		—		—	%	142,620		—		—	%

⁽¹⁾  Assumes an instantaneous and parallel shift in interest rates at all maturities.

⁽²⁾  Economic value of equity is the discounted present value of expected cash flows from assets, liabilities and off-balance sheet contracts.

The Company employs many assumptions to calculate the impact of changes in interest rates on assets and liabilities, and actual results may not be similar to projections due to several factors, including the timing and frequency of rate changes, market conditions and the shape of the yield curve. Actual results may also differ due to management's actions, if any, in response to changing rates. In calculating these exposures, the Company utilized an interest rate simulation model that is validated by third-party reviewers on an annual basis.

18

XML

Document and Entity Information	3 Months Ended
	Mar. 31, 2017
Document and Entity Information [Abstract]
Entity Registrant Name	1ST CONSTITUTION BANCORP
Entity Central Index Key	0001141807
Document Type	8-K
Document Period End Date	Mar. 31, 2017
Amendment Flag	false

XML

Consolidated Balance Sheets - USD ($) $ in Thousands	Mar. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
ASSETS
Cash and Due From Banks	$ 47,914	$ 14,886	$ 11,368
Federal Funds Sold/Short-Term Investments		0	0
Total cash and cash equivalents	47,914	14,886	11,368
Investment Securities
Available for sale, at fair value	105,565	103,794	91,422
Held to maturity (fair value of $128,559 and $127,157 at December 31, 2016 and 2015, respectively)	125,940	126,810	123,261
Total investment securities	231,505	230,604	214,683
Loans Held for Sale	3,360	14,829	5,997
Loans	676,411	724,808	682,121
Less- Allowance for loan losses	(7,550)	(7,494)	(7,560)
Net loans	668,861	717,314	674,561
Premises and Equipment, Net	10,634	10,673	11,109
Accrued Interest Receivable	2,789	3,095	2,853
Bank-Owned Life Insurance	22,314	22,184	21,583
Other Real Estate Owned	431	166	966
Goodwill and Intangible Assets	12,792	12,880	13,284
Other Assets	9,264	11,582	11,587
Total assets	1,009,864	1,038,213	967,991
Deposits
Non-interest bearing	184,210	170,854	159,918
Interest bearing	684,610	663,662	626,839
Total deposits	868,820	834,516	786,757
Borrowings	10,000	73,050	58,896
Redeemable Subordinated Debt	18,557	18,557	18,557
Accrued Interest Payable	832	866	846
Accrued Expenses and Other Liabilities	5,020	6,423	6,975
Total liabilities	903,229	933,412	872,031
SHAREHOLDERS’ EQUITY
Preferred stock, no par value: 5,000,000 shares authorized, none issued	0	0	0
Common stock, no par value; 30,000,000 shares authorized; 8,027,087 and 7,954,267 shares issued and 7,993,789 and 7,922,968 shares outstanding as of December 31, 2016 and 2015, respectively	71,930	71,695	70,845
Retained earnings	35,622	34,074	25,589
Treasury Stock 33,298 shares and 31,298 shares at December 31, 2016 and 2015, respectively	(368)	(368)	(344)
Accumulated other comprehensive loss	(549)	(600)	(130)
Total shareholders’ equity	106,635	104,801	95,960
Total liabilities and shareholders’ equity	$ 1,009,864	$ 1,038,213	$ 967,991

XML

Consolidated Balance Sheets (Parentheticals) - USD ($) $ in Thousands	Mar. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Statement of Financial Position [Abstract]
Held to maturity, fair value (in Dollars)	$ 127,845	$ 128,559	$ 127,157
Preferred stock, par value (in Dollars per share)	$ 0	$ 0	$ 0
Preferred stock, shares authorized	5,000,000	5,000,000	5,000,000
Preferred stock, shares issued	0	0	0
Common stock, par value (in Dollars per share)	$ 0	$ 0	$ 0
Common stock, shares authorized	30,000,000	30,000,000	30,000,000
Common stock, shares issued	8,060,640	8,027,087	7,954,267
Common stock, shares outstanding	8,027,342	7,993,789	7,922,968
Treasury stock shares	33,298	33,298	31,298

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Consolidated Statements of Income - USD ($) $ in Thousands	3 Months Ended			12 Months Ended
	Mar. 31, 2017	Mar. 31, 2016		Dec. 31, 2016	Dec. 31, 2015
INTEREST INCOME
Loans, including fees	$ 8,055	$ 7,899		$ 33,744	$ 34,097
Securities
Taxable	815	817		3,268	3,167
Tax-exempt	553	520		2,078	2,131
Federal funds sold/interest earning deposits	72	49		88	50
Total interest income	9,495	9,285		39,178	39,445
INTEREST EXPENSE
Deposits	1,043	950		4,044	3,704
Borrowings	127	136		687	577
Redeemable subordinated debentures	119	99		427	355
Total interest expense	1,289	1,185		5,158	4,636
Net interest income	8,206	8,100		34,020	34,809
(CREDIT) PROVISION FOR LOAN LOSSES	150	(200)		(300)	1,100
Net interest income after (credit) provision for loan losses	8,056	8,300		34,320	33,709
NON-INTEREST INCOME
Service charges on deposit accounts	154	197		715	818
Gain on sales of loans, net	1,589	903		3,785	4,039
Income on Bank-owned life insurance	130	144		549	558
Gain on sale of securities	106	0
Other income	422	350		1,837	1,049
Total other income	2,401	1,594		6,886	6,464
NON-INTEREST EXPENSES
Salaries and employee benefits	4,501	4,005		16,543	15,589
Occupancy expense	919	872		4,001	4,098
Data processing expenses	318	313		1,277	1,211
FDIC insurance expense	80	118		453	660
Other real estate owned expenses	4	29		81	734
Other operating expenses	1,834	1,287		4,943	5,155
Total other expenses	7,656	6,624		27,298	27,447
Income before income taxes	2,801	3,270		13,908	12,726
INCOME TAXES	852	1,048		4,623	4,062
Net income	$ 1,949	$ 2,222		$ 9,285	$ 8,664
NET INCOME PER COMMON SHARE
Basic (in Dollars per share)	$ 0.24	$ 0.28	[1]	$ 1.17	$ 1.10
Diluted (in Dollars per share)	$ 0.23	$ 0.27	[1]	$ 1.14	$ 1.07
WEIGHTED AVERAGE SHARES OUTSTANDING
Basic (in Shares)	8,026,037	7,939,366		7,962,121	7,901,278
Diluted (in Shares)	8,304,589	8,136,708		8,177,439	8,075,752

[1] The sum of quarterly income per basic and diluted common share may not equal net income per basic and diluted common share, respectively, for the years ended December 31, 2016 and 2015 due to differences in the computation of weighted average diluted common shares on a quarterly and annual basis.

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Consolidated Statements of Comprehensive Income - USD ($) $ in Thousands		3 Months Ended				12 Months Ended
		Mar. 31, 2017		Mar. 31, 2016		Dec. 31, 2016		Dec. 31, 2015
Statement of Comprehensive Income [Abstract]
Net income		$ 1,949		$ 2,222		$ 9,285		$ 8,664
Unrealized holding (losses) gains on securities available for sale
Unrealized holding (losses) gains on securities available for sale						(667)		(224)
Tax effect						243		38
Net of tax amount						(424)		(186)
Pension liability
Pension liability						83		(53)
Tax effect						(31)		21
Net of tax amount						52		(32)
Reclassification adjustment for actuarial (gains) for unfunded pension liability
Income		(19)	[1]	(26)	[1]	(160)	[2]	(266)	[2]
Tax effect		7	[3]	11	[3]	62	[4]	106	[4]
Net of tax amount		(12)		(15)		(98)		(160)
Total other comprehensive (loss) income		51		315		(470)		(378)
Comprehensive income		2,000		2,537		$ 8,815		$ 8,286
Unrealized holding gains (losses) on securities available for sale		181		519
Tax effect		69		189
Net of tax amount		112		330
Reclassification adjustment for gains included in income on securities available for sale		82		0
Tax effect	[3]	33		0
Net of tax amount		$ 49		$ 0

[1] Included in salaries and employee benefits expense on the consolidated statements of income

[2] Included in salaries and employee benefits expense on the consolidated statements of income

[3] Included in income taxes on the consolidated statements of income

[4] Included in income taxes on the consolidated statements of income

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Consolidated Statements of Changes in Shareholders' Equity - USD ($) $ in Thousands	Total	Common Stock [Member]	Retained Earnings [Member]	Treasury Stock [Member]	Accumulated Other Comprehensive Income (Loss) [Member]
Balance, beginning of period at Dec. 31, 2014	$ 87,110	$ 61,448	$ 25,730	$ (316)	$ 248
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Exercise of stock options and issuance of restricted shares under employee benefit programs (33,800 shares issued from Treasury Stock)	292	(39)		331
Share-based compensation	631	631
5% Stock dividends declared February and December 2015 (737,448 shares)	0	8,805	(8,805)
Treasury stock purchased, net	(359)			(359)
Net income	8,664		8,664
Other comprehensive loss	(378)				(378)
Balance, end of period at Dec. 31, 2015	95,960	70,845	25,589	(344)	(130)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Share-based compensation	170	170
Treasury stock purchased, net	(24)			(24)
Net income	2,222		2,222
Other comprehensive loss	315				315
Balance, end of period at Mar. 31, 2016	98,643	71,015	27,811	(368)	185
Balance, beginning of period at Dec. 31, 2015	95,960	70,845	25,589	(344)	(130)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Exercise of stock options	96	96
Share-based compensation	754	754
Treasury stock purchased, net	(24)			(24)
Dividends on common stock	(800)		(800)
Net income	9,285		9,285
Other comprehensive loss	(470)				(470)
Balance, end of period at Dec. 31, 2016	104,801	71,695	34,074	(368)	(600)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Exercise of stock options	36	36
Share-based compensation	199	199
Dividends on common stock	(401)		(401)
Net income	1,949		1,949
Other comprehensive loss	51				51
Balance, end of period at Mar. 31, 2017	$ 106,635	$ 71,930	$ 35,622	$ (368)	$ (549)

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Consolidated Statements of Changes in Shareholders' Equity (Parentheticals) - $ / shares	3 Months Ended		12 Months Ended
	Mar. 31, 2017	Mar. 31, 2016	Dec. 31, 2016	Dec. 31, 2015	Feb. 28, 2015
Stock dividends declared (shares)				737,448
Dividend declared percentage				5.00%	5.00%
Number shares exercised (shares)	3,019		18,645	43,639
Treasury Stock [Member]
Number of shares issued from Treasury stock				33,800
Treasury stock purchased (shares)		2,000	2,000	31,050
Common Stock [Member]
Number shares exercised (shares)	5,438
Retained Earnings [Member]
Dividends on common stock (in dollars per share)	$ 0.05

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Consolidated Statements of Cash Flows - USD ($) $ in Thousands	3 Months Ended		12 Months Ended
	Mar. 31, 2017	Mar. 31, 2016	Dec. 31, 2016	Dec. 31, 2015
OPERATING ACTIVITIES:
Net income	$ 1,949	$ 2,222	$ 9,285	$ 8,664
Adjustments to reconcile net income to net cash provided by operating activities:
(Credit) provision for loan losses	150	(200)	(300)	1,100
Provision for loss on other real estate owned			0	382
Depreciation and amortization	350	352	1,415	1,476
Net amortization of premiums and discounts on securities	254	222	1,141	810
(Gains) loss on sales of other real estate owned			(31)	692
Gains on sales of loans held for sale	(1,589)	(903)	(3,785)	(4,039)
Originations of loans held for sale	(26,933)	(18,824)	(96,968)	(134,073)
Proceeds from sales of loans held for sale	39,991	24,382	91,708	140,486
Income on Bank-owned life insurance	(130)	(144)	(549)	(558)
Share-based compensation expense	199	170	754	631
Deferred tax expense			354	159
(Increase) decrease in accrued interest receivable	306	127	(242)	243
Decrease in other assets	(508)	592	388	617
Increase (decrease) in accrued interest payable	(34)	37	20	(61)
Decrease in accrued expense and other liabilities	(1,403)	(156)	(552)	(363)
Net cash provided by operating activities	12,496	7,877	2,638	16,166
Purchases of securities:
Available for sale	(9,186)	(11,849)	(37,300)	(34,109)
Held to maturity	(13,975)	(10,558)	(35,212)	(15,599)
Proceeds from maturities and repayments of securities:
Available for sale	5,867	3,820	23,354	18,783
Held to maturity	14,208	10,751	31,429	35,705
Proceeds from Bank-owned life insurance benefits paid			248	0
Net purchase of restricted stock			(661)	(1,516)
Net increase in loans	48,038	23,415	(42,779)	(30,646)
Purchase of Bank-owned life insurance			(300)	0
Capital expenditures	(177)	(110)	(457)	(706)
Additional investment in other real estate owned			(61)	0
Proceeds from sales of other real estate owned			1,033	6,027
Net cash used in investing activities	49,643	17,168	(60,706)	(22,061)
FINANCING ACTIVITIES:
Exercise of stock options and issuance of restricted shares	36	0	96	292
Purchase of treasury stock	0	(24)	(24)	(359)
Cash dividends paid to shareholders	(401)	0	(399)	0
Net increase (decrease) in demand, savings and time deposits	34,304	17,062	47,759	(31,004)
Repayment of long-term borrowing			(10,000)	0
Net increase in short-term borrowings			24,154	33,789
Net cash provided by financing activities	(29,111)	(21,603)	61,586	2,718
Increase (decrease) in cash and cash equivalents	33,028	3,442	3,518	(3,177)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR	14,886	11,368	11,368	14,545
CASH AND CASH EQUIVALENTS AT END OF YEAR	47,914	14,810	14,886	11,368
Cash paid during the year for -
Interest	1,323	1,148	5,138	4,697
Income taxes	1,527	760	4,590	4,170
Non-cash investing activities
Real estate acquired in full satisfaction of loans in foreclosure	265	142	$ 141	$ 2,357
Gains on sales of securities	106	0
Proceeds from sale of securities available for sale	1,449	0
Proceeds from sales of securities held to maturity	582	0
Net redemption of restricted stock	2,837	1,735
Cost of improvement to OREO	0	36
Net decrease in borrowings	$ (63,050)	$ (38,641)

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Net Income Per Common Share

3 Months Ended

Mar. 31, 2017

Earnings Per Share [Abstract]

Net Income Per Common Share

Net Income Per Common Share

Basic net income per common share is calculated by dividing net income by the weighted average number of common shares outstanding during each period. Diluted net income per common share is calculated by dividing net income by the weighted average number of common shares outstanding, as adjusted for the assumed exercise of dilutive common stock warrants and common stock options using the treasury stock method.

The following tables illustrate the reconciliation of the numerators and denominators of the basic and diluted earnings per common share (EPS) calculations.  Dilutive securities in the tables below exclude common stock options and warrants with exercise prices that exceed the average market price of the Company’s common stock during the periods presented.  Inclusion of these common stock options and warrants would be anti-dilutive to the diluted earnings per common share calculation. 

(Dollars in thousands, except per share data)	Three Months Ended March 31, 2017
	Net  Income		Weighted-average shares	Per share amount
Basic earnings per common share:  Net income	$	1,949	8,026,037	$	0.24
Effect of dilutive securities:
Stock options and warrants			278,552
Diluted EPS:
Net income plus assumed conversion	$	1,949	8,304,589	$	0.23

(Dollars in thousands, except per share data)	Three Months Ended March 31, 2016
	Net  Income		Weighted-average shares	Per share amount
Basic earnings per common share:
Net income	$	2,222	7,939,366	$	0.28
Effect of dilutive securities:
Stock options and warrants			197,342
Diluted EPS:
Net income plus assumed conversion	$	2,222	8,136,708	$	0.27

For the three months ended March 31, 2017 and 2016, 9,900 and 20,585 options, respectively, were anti-dilutive and were not included in the computation of diluted earnings per common share.

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Summary of Significant Accounting Policies

3 Months Ended

12 Months Ended

Mar. 31, 2017

Dec. 31, 2016

Accounting Policies [Abstract]

Summary of Significant Accounting Policies

Summary of Significant Accounting Policies

The accompanying unaudited consolidated financial statements include 1^ST Constitution Bancorp (the “Company”), its wholly-owned subsidiary, 1^ST  Constitution Bank (the “Bank”), and the Bank’s wholly-owned subsidiaries, 1^ST Constitution Investment Company of New Jersey, Inc., FCB Assets Holdings, Inc., 204 South Newman Street Corp., and 249 New York Avenue, LLC. 1st Constitution Capital Trust II, a subsidiary of the Company, is not included in the Company’s consolidated financial statements, as it is a variable interest entity and the Company is not the primary beneficiary.  All significant intercompany accounts and transactions have been eliminated in consolidation and certain prior period amounts have been reclassified to conform to current year presentation.  The accounting and reporting policies of the Company and its subsidiaries conform to accounting principles generally accepted in the United States of America (“U.S. GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”), including the instructions to Form 10-Q and Article 10 of Regulation S-X.  Certain information and footnote disclosures normally included in financial statements have been condensed or omitted pursuant to such rules and regulations.  These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto included in the Company’s Form 10-K/A for the year ended December 31, 2016, filed with the SEC on March 20, 2017.

In the opinion of the Company, all adjustments (consisting only of normal recurring accruals) which are necessary for a fair presentation of the operating results for the interim periods have been included. The results of operations for periods of less than a year are not necessarily indicative of results for the full year.

During a review of the second quarter ended June 30, 2017, management became aware that during previously reported periods the amortization of deferred loan origination costs was being recorded in other operating expense and not as an adjustment to yield as required by ASC 310-20. As such, management decreased interest income and other operating expenses in the amounts of $442,000 and $409,000 for the three months ended March 31, 2017 and March 31, 2016, respectively.

The Company has evaluated events and transactions occurring subsequent to the balance sheet date of March 31, 2017 for items that should potentially be recognized or disclosed in these financial statements.  The evaluation was conducted through the date these financial statements were issued.

Summary of Significant Accounting Policies

1st Constitution Bancorp (the “Company”) is a bank holding company registered under the Bank Holding Company Act of 1956, as amended, and was organized under the laws of the State of New Jersey.  The Company is the parent to 1st Constitution Bank (the “Bank”), a New Jersey state-chartered commercial bank.  The Bank provides community banking services to a broad range of customers, including corporations, individuals, partnerships and other community organizations in the central and northeastern New Jersey areas.  The Bank conducts its operations through its main office located in Cranbury, New Jersey and operated, as of December 31, 2016, eighteen additional branch offices in downtown Cranbury, Fort Lee, Hamilton Square, Hightstown, Hillsborough, Hopewell, Jamesburg, Lawrenceville, Perth Amboy, Plainsboro, Skillman, West Windsor, Princeton, Rumson, Fair Haven, Asbury Park, Shrewsbury and Little Silver, New Jersey. The Bank also operates four residential mortgage loan production offices in Forked River, Flemington, Jersey City and Somerset, New Jersey.

The Company has evaluated events and transactions occurring subsequent to the balance sheet date of December 31, 2016 for items that should potentially be recognized or disclosed in these financial statements.  The evaluation was conducted through the date these financial statements were issued.

The Company paid a 5% common stock dividend on April 7, 2015 and a 5% common stock dividend on February 1, 2016. As appropriate, common shares and per common share data presented in the consolidated financial statements and the accompanying notes below have been adjusted to reflect the common stock dividends.

On September 15, 2016, the Board of Directors declared a quarterly cash dividend of $0.05 per common share that was paid on October 21, 2016 to all shareholders of record as of the close of business on September 28, 2016. This action representedthe first cash dividend declared by 1^ST Constitution Bancorp on its common shares.

On December 15, 2016, the Board of Directors declared a quarterly cash dividend of $0.05 per common share that was paid on January 25, 2017 to all shareholders of record as of the close of business on January 3, 2017.

Basis of Presentation

The accounting and reporting policies of the Company conform to accounting principles generally accepted in the United States of America (“U.S. GAAP”) and to the accepted practices within the banking industry.  The following is a description of the more significant of these policies and practices.

Principles of Consolidation

The accompanying consolidated financial statements include the Company and its wholly-owned subsidiary, the Bank, and the Bank’s wholly-owned subsidiaries, 1st Constitution Investment Company of New Jersey, Inc., FCB Assets Holdings, Inc., 204 South Newman Street Corp. and 249 New York Avenue, LLC.  1st Constitution Capital Trust II, a subsidiary of the Company (“Trust II”), is not included in the Company’s consolidated financial statements as it is a variable interest entity and the Company is not the primary beneficiary.  All significant intercompany accounts and transactions have been eliminated in consolidation and certain prior period amounts have been reclassified to conform to current year presentation.

Recasting of Prior Period Financial Information

Prior to the filing of the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2017, the Company identified an error concerning its presentation of the amortization of deferred loan origination costs in the Company’s Consolidated Statements of Income. The Company determined that it incorrectly classified the amortization of deferred loan origination costs in other expenses when it should have been included in loan interest income in its Consolidated Statements of Income for the years ended December 31, 2016 and 2015 (audited). This classification error did not result in any effect on pre-tax income, after-tax income, basic and diluted earnings per share, statements of cash flows, balance sheets, book value, return on assets, return on equity, or regulatory capital ratios in any historical period. The effect on the Company’s Consolidated Statements of Income for these periods was an overstatement of loan interest income and an overstatement of non-interest expenses by an equal amount.

The table below shows the changes to the Consolidated Statements of Income:

		2016	2015
Loan Interest
	As originally reported	35,429	35,597
	As revised	33,744	34,097
Total interest income
	As originally reported	40,863	40,945
	As revised	39,178	39,445
Net interest income before provision (credit)
	As originally reported	35,705	36,309
	As revised	34,020	34,809
Net interest income after provision (credit)
	As originally reported	36,005	35,209
	As revised	34,320	33,709
Salaries and employee benefits
	As originally reported	18,298	17,232
	As revised	16,543	15,589
Other operating expenses
	As originally reported	4,873	5,012
	As revised	4,943	5,155
Total other expense
	As originally reported	28,983	28,947
	As revised	27,298	27,447

The table below shows the changes to Note 17 Other Operating Expenses:

		2016	2015
Other expenses
	As originally reported	1,288	1,009
	As revised	1,358	1,152
Total other operating expense
	As originally reported	4,873	5,012
	As revised	4,943	5,155

The table below shows the changes to Note 22 Quarterly Financial Data (Unaudited):

		2016
Interest income		Dec. 31	Sept. 30	June 30	March 31
	As originally reported	10,455	10,843	9,871	9,694
	As revised	9,997	10,408	9,488	9,285
Net interest income before provision (credit)
	As originally reported	9,094	9,488	8,614	8,509
	As revised	8,636	9,053	8,231	8,100
Net interest income after provision (credit)
	As originally reported	9,094	9,488	8,714	8,709
	As revised	8,636	9,053	8,331	8,300
Total non-interest expense
	As originally reported	8,029	7,098	6,823	7,033
	As revised	7,572	6,662	6,440	6,624
		2015
Interest income		Dec. 31	Sept. 30	June 30	March 31
	As originally reported	9,863	10,832	10,564	9,686
	As revised	9,473	10,431	10,201	9,340
Net interest income before provision (credit)
	As originally reported	8,693	9,663	9,411	8,542
	As revised	8,303	9,262	9,048	8,196
Net interest income after provision (credit)
	As originally reported	8,193	9,563	9,411	8,042
	As revised	7,803	9,162	9,048	7,696
Total non-interest expense
	As originally reported	6,739	7,380	7,972	6,856
	As revised	6,349	6,979	7,609	6,510

Use of Estimates in the Preparation of Financial Statements

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  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, other-than-temporary security impairment, the fair value of other real estate owned and the valuation of deferred tax assets.

Concentration of Credit Risk

Financial instruments which potentially subject the Company and its subsidiaries to concentrations of credit risk primarily consist of investment securities and loans.  At December 31, 2016, 49.5% of our investment securities portfolio consisted of U.S. Government and Agency issues and collateralized mortgage obligations collateralized by agency mortgage backed securities. In addition, 40.1% of the portfolio consisted of municipal bonds.  The remaining 10.4% of our investment securities consisted primarily of corporate debt issues.  The Bank’s lending activity is primarily concentrated in loans collateralized by real estate located in the State of New Jersey.  As a result, credit risk is broadly dependent on the real estate market and general economic conditions in that state.

Interest Rate Risk

The Bank is principally engaged in the business of attracting deposits from the general public and using these deposits, together with other funds, to purchase investment securities and to make loans, the majority of which are secured by real estate.  The potential for interest-rate risk exists as a result of the generally shorter duration of interest-sensitive assets compared to the generally longer duration of interest-sensitive liabilities.  In a changing interest rate environment, assets held by the Bank will re-price faster than liabilities of the Bank, thereby affecting net interest income.  For this reason, management regularly monitors the maturity structure and rate adjustment features of the Bank’s assets and liabilities in order to measure its level of interest-rate risk and to plan for future volatility.

Investment Securities

Investment securities which the Company has the intent and ability to hold until maturity are classified as held to maturity and are recorded at cost, adjusted for amortization of premiums and accretion of discounts.  Investment securities that are held for indefinite periods of time, that management intends to use as part of its asset/liability management strategy, or that may be sold in response to changes in interest rates, changes in prepayment risk, increased capital requirements or other similar factors, are classified as available for sale and are carried at fair value. Unrealized gains and losses on available for sale securities are recorded as a separate component of shareholders’ equity.  Realized gains and losses, which are computed using the specific identification method, are recognized in earnings on a trade date basis.

If the fair value of a security is less than its amortized cost, the security is deemed to be impaired.  Management evaluates all securities with unrealized losses quarterly to determine if such impairments are temporary or other-than-temporary in accordance with the Accounting Standards Codification (“ASC”) of the Financial Accounting Standards Board (“FASB”). Temporary impairments on available for sale securities are recognized, on a tax-effected basis, through other comprehensive income (“OCI”) with offsetting adjustments to the carrying value of the security and the balance of related deferred taxes. Temporary impairments of held to maturity securities are not recorded in the consolidated financial statements; however, information concerning the amount and duration of impairments on held to maturity securities are disclosed.

Other-than-temporary impairments ("OTTI") on all equity securities and on debt securities that the Company has decided to sell, or will, more likely than not, be required to sell prior to the full recovery of fair value to a level equal to or exceeding amortized cost, are recognized in earnings. If neither of these conditions regarding the likelihood of sale for a debt security apply, the OTTI is bifurcated into credit-related and noncredit-related components. Credit-related impairment generally represents the amount by which the present value of the cash flows that are expected to be collected on a debt security fall below its amortized cost. The noncredit-related component represents the remaining portion of the impairment not otherwise designated as credit-related. The Company recognizes credit-related OTTI in earnings. Noncredit-related OTTI on debt securities are recognized in OCI.  

Premiums and discounts on all securities are amortized/accreted to maturity by use of the level-yield method considering the impact of principal amortization and prepayments.

Federal law requires a member institution of the FHLB system to hold restricted stock of its district FHLB according to a predetermined formula.  The Bank’s investment in the restricted stock of the FHLB of New York is carried at cost and is included in other assets. The investment in FHLB stock was $3,962 and $3,302 at December 31, 2016 and December 31, 2015, respectively.

Management evaluates the FHLB restricted stock for impairment in accordance with U.S. GAAP.  Management’s determination of whether these investments are impaired is based on their assessment of the ultimate recoverability of their cost rather than by recognizing temporary declines in value.  The determination of whether a decline affects the ultimate recoverability of their cost is influenced by criteria such as (1) the significance of the decline in net assets of the FHLB as compared to the capital stock amount for the FHLB and the length of time this situation has persisted, (2) commitments by the FHLB to make payments required by law or regulation and the level of such payments in relation to the operating performance of the FHLB, and (3) the impact of legislative and regulatory changes on institutions and, accordingly, on the customer base of the FHLB. Management believes no impairment charge is necessary related to the FHLB stock as of December 31, 2016.

Bank-Owned Life Insurance

The Company invests in bank-owned life insurance (“BOLI”).  BOLI involves the purchasing of life insurance by the Company on a select group of its executives, directors, officers and employees.  The Company is the owner and beneficiary of the policies.  This pool of insurance, due to the advantages of the Bank, is profitable to the Company.  This profitability offsets a portion of current and future benefit costs and is intended to provide a funding source for the payment of future benefits.  The Bank’s deposits fund BOLI and the earnings from BOLI are recognized as non-interest income.

Loans and Loans Held For Sale

Loans that management intends to hold to maturity are stated at the principal amount outstanding, net of unearned income.  Unearned income is recognized over the lives of the respective loans, principally using the effective interest method.  Interest income is generally not accrued on loans, including impaired loans, where interest or principal is 90 days or more past due, unless the loans are adequately secured and in the process of collection, or on loans where management has determined that the borrowers may be unable to meet contractual principal and/or interest obligations.  When it is probable that, based upon current information, the Bank will not collect all amounts due under the contractual terms of the loan, the loan is reported as impaired.  Smaller balance homogeneous type loans, such as residential loans and loans to individuals, which are collectively evaluated, are generally excluded from consideration for impairment.  Loan impairment is measured based upon the present value of the expected future cash flows discounted at the loan’s effective interest rate or the underlying fair value of collateral for collateral dependent loans.  When a loan, including an impaired loan, is placed on non-accrual, interest accruals cease and uncollected accrued interest is reversed and charged against current income.  Non-accrual loans are generally not returned to accruing status until principal and interest payments have been brought current and full collectibility is reasonably assured.  Cash receipts on non-accrual and impaired loans are applied to principal, unless the loan is deemed fully collectible.  

Loans held for sale are carried at the lower of aggregated cost or fair value. The fair value of loans held for sale are determined, when possible, using quoted secondary market prices.  If no such quoted market prices exist, fair values are determined using quoted prices for similar loans, adjusted for the specific attributes of the loans.  Realized gains and losses on loans held for sale are recognized at settlement date and are determined based on the cost, including deferred net loan origination fees and the costs of the specific loans sold. Residential mortgage loans are sold with servicing released.

The Bank accounts for its transfers and servicing of financial assets in accordance with ASC Topic 860, “Transfers and Servicing” ("ASC Topic 860").  The Bank originates residential mortgages under a definitive plan to sell those loans with servicing generally released.  Residential mortgage loans originated and intended for sale in the secondary market are carried at the lower of aggregate cost or estimated fair value. The Bank also originates commercial loans, of which a portion are guaranteed by the Small Business Administration ("SBA"). The guaranteed portion of the loans is generally sold into the secondary market. Gains and losses on sales are also accounted for in accordance with ASC Topic 860.

The Bank enters into commitments to originate loans whereby the interest rate on the loan is determined prior to funding “rate lock commitments.”  Rate lock commitments on residential mortgage loans that are intended to be sold are considered to be derivatives.  Time elapsing between the issuance of a loan commitment and closing and sale of the loan generally ranges from 30 to 120 days.  The Bank protects itself from changes in interest rates through the use of best efforts forward delivery commitments, whereby the Bank commits to sell a loan at the time the borrower commits to an interest rate with the intent that the buyer has assumed interest rate risk on the loan.  As a result, the Bank is generally not exposed to losses nor will it realize significant gains related to its rate lock commitments due to changes in interest rates.

The fair value of rate lock commitments and best efforts commitments is not readily ascertainable with precision because rate lock commitments and best efforts commitments are not actively traded in stand-alone markets.  The Bank determines the fair value of rate lock commitments based upon the forward sales price that is obtained in the best efforts commitment at the time the borrower locks in the interest rate on the loan while taking into consideration the probability that the rate lock commitments will close.  Due to high correlation between rate lock commitments and best efforts commitments, no gain or loss occurs on the rate lock commitments.  The estimated fair value of rate lock commitments was $123,000 at December 31, 2016. The estimated fair value of rate lock commitments at December 31, 2015 was not deemed to be significant and, therefore, not recorded on the balance sheet.

ASC Topic 460, “Guarantees,” requires a guarantor entity, at the inception of a guarantee covered by the measurement provisions of the interpretation, to record a liability for the fair value of the obligation undertaken in issuing the guarantee.

Standby letters of credit are conditional commitments issued by the Bank to guarantee the financial performance of a customer to a third party.  Those guarantees are primarily issued to support contracts entered into by customers.  Most guarantees extend for one year.  The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers.  The Bank defines the fair value of these letters of credit as the fees paid by the customer or similar fees collected on similar instruments.  The Bank amortizes the fees collected over the life of the instrument.  The Bank generally obtains collateral, such as real estate or liens on customer assets, for these types of commitments.  The Bank’s potential liability would be reduced by any proceeds obtained in liquidation of the collateral.  The Bank had standby letters of credit for customers aggregating $2.0 million and $2.1 million at December 31, 2016 and 2015, respectively.  These letters of credit are primarily related to real estate lending and the approximate value of underlying collateral upon liquidation is expected to be sufficient to cover this maximum potential exposure at December 31, 2016.  The amount of the liability related to guarantees under issued standby letters of credit was not material as of December 31, 2016 and 2015.

Allowance for Loan Losses

The allowance for loan losses is maintained at a level sufficient to absorb estimated credit losses in the loan portfolio as of the date of the financial statements.  The allowance for loan losses is a valuation reserve available for losses incurred or inherent in the loan portfolio and other extensions of credit.  The determination of the adequacy of the allowance for loan losses is a critical accounting policy of the Bank.

All, or part, of the principal balance of commercial and commercial real estate loans and construction loans are charged off against the allowance as soon as it is determined that the repayment of all, or part, of the principal balance is highly unlikely.  Consumer loans are generally charged off no later than 120 days past due on a contractual basis, or earlier in the event of bankruptcy, or if there is an amount deemed uncollectible.  Because all identified losses are charged off, no portion of the allowance for loan losses is restricted to any individual loan or groups of loans, and the entire allowance is available to absorb any and all loan losses.

Loans are placed in a nonaccrual status when the ultimate collectability of principal or interest in whole, or in part, is in doubt.  Past-due loans contractually past-due 90 days or more for either principal or interest are also placed in nonaccrual status unless they are both well secured and in the process of collection.  Impaired loans are evaluated individually.

Purchased Credit-Impaired (“PCI”) loans are loans acquired at a discount that is due, in part, to credit quality.  PCI loans are accounted for in accordance with ASC Subtopic 310-30, "Receivables, Loans and Debt Securities Acquired with Deteriorated Credit Quality" and are initially recorded at fair value (as determined by the present value of expected future cash flows) with no valuation allowance (i.e., the allowance for loan losses).  The difference between the undiscounted cash flows expected at acquisition and the initial carrying amount (fair value) of the PCI loans or the “accretable yield,” is recognized as interest income utilizing the level-yield method over the life of the loans.  Contractually required payments for interest and principal that exceed the undiscounted cash flows expected at acquisition, or the “non-accretable difference,” are not recognized as a yield adjustment, as a loss accrual or a valuation allowance.  Reclassifications of the non-accretable difference to the accretable yield may occur subsequent to the loan acquisition dates due to increases in expected cash flows of the loans and result in an increase in yield on a prospective basis.

The following is our charge-off policy for our loan segments:

Commercial, Commercial Real Estate and Construction

Loans are generally fully or partially charged down to the fair value of collateral securing the asset when:

• Management judges the loan to be uncollectible;

• Repayment is deemed to be protracted beyond reasonable time frames;

• The loan has been classified as a loss by either internal loan review process or external examiners;

• The customer has filed bankruptcy and the loss becomes evident owing to a lack of assets; or

• The loan is significantly past due unless both well secured and in the process of collection.

Consumer

Consumer loans are generally charged off no later than 120 days past due on a contractual basis, earlier in the event of bankruptcy, or if there is an amount deemed uncollectible.  

Premises and Equipment

Premises and equipment are stated at cost less accumulated depreciation and amortization.  Depreciation is computed primarily on the straight-line method over the estimated useful lives of the related assets for financial reporting purposes and using the mandated methods by asset type for income tax purposes.  Building, furniture and fixtures, equipment and leasehold improvements are depreciated or amortized over the estimated useful lives of the assets or lease terms, as applicable.  Estimated useful lives of buildings are forty years, furniture and fixtures and equipment are three to fifteen years and leasehold improvements are generally three to ten years.  Expenditures for maintenance and repairs are charged to expense as incurred.

The Bank accounts for impairment of long-lived assets in accordance with ASC Topic 360, “Property, Plant, and Equipment,” which requires recognition and measurement for the impairment of long-lived assets to be held and used or to be disposed of by sale.  The Bank had no impaired long-lived assets at December 31, 2016 and 2015.

Derivative Contracts

Derivative contracts, as required by ASC Topic 815, “Derivatives and Hedging,” are carried at fair value as either assets or liabilities on the balance sheet with unrealized gains and losses excluded from earnings and reported in a separate component of shareholders’ equity, net of related income tax effects for contracts that are classified as cash flow hedges.  Gains and losses on derivative contracts are recognized upon realization, utilizing the specific identification method.

Income Taxes

There are two components of income tax expense or benefit: current and deferred.  Current income tax expense or benefit approximates cash to be paid or refunded for taxes for the applicable period.  Deferred tax assets and liabilities are recognized due to differences between the basis of assets and liabilities as measured by tax laws and their basis as reported in the financial statements.  Deferred tax assets are subject to management’s judgment based upon available evidence that future realizations are likely.  If management determines that the Company may not be able to realize some or all of the net deferred tax asset in the future, a charge to income tax expense may be required to increase the valuation reserve of the net deferred tax asset. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.  The effect on deferred taxes of a change in tax rates is recognized in income in the period that includes the enactment date.  Deferred tax expense or benefit is recognized for the change in deferred tax liabilities.

The Company accounts for uncertainty in income taxes recognized in its consolidated financial statements in accordance with ASC Topic 740, “Income Taxes,” which prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return, and also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. The Company has not identified any significant income tax uncertainties through the evaluation of its income tax positions for the years ended December 31, 2016 and 2015 and has not recognized any liabilities for tax uncertainties as of December 31, 2016 and 2015. Our policy is to recognize interest and penalties on unrecognized tax benefits in income tax expense; such amounts were not significant during the years ended December 31, 2016 and 2015. The tax years subject to examination by the taxing authorities are, for federal and state purposes, the years ended December 31, 2016, 2015, 2014 and 2013.

Other Real Estate Owned ("OREO")

OREO obtained through loan foreclosures or the receipt of deeds-in-lieu of foreclosure is recorded at the fair value of the related property, as determined by current appraisals less estimated costs to sell at the initial transfer from the loan portfolio. Write-downs on these properties, which occur after the initial transfer from the loan portfolio, are recorded as operating expenses.  Costs of holding such properties are charged to expense in the current period.  Gains, to the extent realized, and losses on the disposition of these properties are reflected in current operations.

Goodwill and Other Intangible Assets

Goodwill represents the excess of the cost of an acquired entity over the fair value of the identifiable net assets acquired in accordance with the acquisition method of accounting.  Goodwill is not amortized but is reviewed for potential impairment on an annual basis, or more often if events or circumstances indicated that there may be impairment, in accordance with ASC Topic 350, “Intangibles – Goodwill and Other.”  Goodwill is tested for impairment at the reporting unit level and an impairment loss is recorded to the extent that the carrying amount of goodwill exceeds its implied fair value. Core deposit intangibles are a measure of the value of checking and savings deposits acquired in business combinations accounted for under the purchase method.  Core deposit intangibles are amortized over their estimated lives (ranging from five to ten years) and identifiable intangible assets are evaluated for impairment if events and circumstances indicate a possible impairment.  Any impairment loss related to goodwill and other intangible assets is reflected as other non-interest expense in the statement of income in the period in which the impairment was determined.  No assurance can be given that future impairment tests will not result in a charge to earnings.  See Note 8 – Goodwill and Intangible Assets for additional information.

Share-Based Compensation

The Company recognizes compensation expense for stock awards and options in accordance with ASC Topic 718, “Compensation – Stock Compensation.”  The expense of stock-based compensation is generally measured at fair value at the grant date with compensation expense recognized over the service period, which is usually the vesting period.  The Company utilizes the Black-Scholes option-pricing model to estimate the fair value of each stock option on the date of grant.  The Black-Scholes model takes into consideration the exercise price and expected life of the options, the current price of the underlying stock and its expected volatility, the expected dividends on the stock and the current risk-free interest rate for the expected life of the option.  The Company’s estimate of the fair value of a stock option is based on expectations derived from historical experience and may not necessarily equate to its market value when fully vested.   See Note 15 – Share-Based Compensation for additional information.

Benefit Plans

The Company provides certain retirement savings benefits to employees under a 401(k) plan.  The Company’s contributions to the 401(k) plan are expensed as incurred.

The Company also provides retirement benefits to certain employees under supplemental executive retirement plans.  The plans are unfunded and the Company accrues actuarially determined benefit costs over the estimated service period of the employees in the plans.  In accordance with ASC Topic 715, “Compensation – Retirement Benefits,” the Company recognizes the unfunded status of these postretirement plans as a liability in its consolidated balance sheets and recognizes changes in that unfunded status in the year in which the changes occur through other comprehensive income.

Cash and Cash Equivalents

Cash and cash equivalents includes cash on hand, interest and non-interest bearing amounts due from banks, federal funds sold and short-term investments.  Generally, federal funds are sold and short-term investments are made for a one or two-day period.

Reclassifications

Certain reclassifications have been made to the prior period amounts to conform with the current period presentation.  Such reclassification had no impact on net income or total shareholders’ equity.

Advertising Costs

It is the Company’s policy to expense advertising costs in the period in which they are incurred.

Earnings Per Common Share

Basic net income per common share is calculated by dividing net income by the weighted average number of common shares outstanding during each period.

Diluted net income per common share is calculated by dividing net income by the weighted average number of common shares outstanding, as adjusted for the assumed exercise of dilutive common stock warrants and common stock options using the treasury stock method.  

The following tables illustrate the reconciliation of the numerators and denominators of the basic and diluted earnings per common share (EPS) calculations. Dilutive securities in the tables below exclude common stock options and warrants with exercise prices that exceed the average market price of the Company’s common stock during the periods presented. Inclusion of these common stock options and warrants would be anti-dilutive to the diluted earnings per common share calculation.

(Dollars in thousands except per share data)	Year Ended December 31, 2016
	Net Income		Weighted average shares	Per share Amount
Basic earnings per common share:
Net income	$	9,285	7,962,121	$	1.17
Effect of dilutive securities:
Stock options and warrants			215,318
Diluted EPS:
Net income plus assumed conversion	$	9,285	8,177,439	$	1.14

	Year Ended December 31, 2015
	Net Income		Weighted average shares	Per share Amount
Basic earnings per common share:
Net income	$	8,664	7,901,278	$	1.10
Effect of dilutive securities:
Stock options and warrants			174,474
Diluted EPS:
Net income plus assumed conversion	$	8,664	8,075,752	$	1.07

For the years ended December 31, 2016 and 2015, 11,088 and 25,182 options, respectively, were anti-dilutive and were not included in the computation of diluted earnings per common share.

Comprehensive Income

Comprehensive income consists of net income and other comprehensive income (loss).  Other comprehensive income (loss) includes unrealized gains and losses on securities available for sale, other-than-temporary non-credit related security impairments, unrealized gains and losses on cash flow hedges and changes in the funded status of benefit plans.

Variable Interest Entities

Management has determined that Trust II qualifies as a variable interest entity under ASC Topic 810, “Consolidation.” Trust II issued mandatorily redeemable preferred stock to investors, loaned the proceeds to the Company and holds, as its sole asset, subordinated debentures issued by the Company.  As a qualified variable interest entity, Trust II’s balance sheet and statement of operations have never been consolidated with those of the Company.

In March 2005, the Federal Reserve Board ("FRB") adopted a final rule that would continue to allow the inclusion of trust preferred securities in Tier 1 capital, but with stricter quantitative limits. Under the final rule, after a five-year transition period, the aggregate amount of trust preferred securities and certain other capital elements would be limited to 25% of Tier 1 capital elements, net of goodwill. The amount of trust preferred securities and certain other elements in excess of the limit could be included in Tier 2 capital, subject to restrictions.  Based on the final rule, the Company has included all of its $18.0 million in trust preferred securities in Tier 1 capital at December 31, 2016 and 2015.

Segment Information

U.S. GAAP establishes standards for public business enterprises to report information about operating segments in their annual financial statements and requires that those enterprises report selected information about operating segments in subsequent interim financial reports issued to shareholders.  It also established standards for related disclosure about products and services, geographic areas and major customers.  Operating segments are components of an enterprise, which are evaluated regularly by the chief operating decision-maker in deciding how to allocate and assess resources and performance.  The Company’s chief operating decision-maker is the President and Chief Executive Officer.  The Company has applied the aggregation criteria for its operating segments to create one reportable segment, “Community Banking.”

The Company’s Community Banking segment consists of construction, commercial, retail and mortgage banking operations.  The Community Banking segment is managed as a single strategic unit, which generates revenue from a variety of products and services provided by the Company.  Construction, commercial, retail and mortgage lending is dependent upon the ability of the Company to fund itself with retail deposits and other borrowings and to manage interest rate, liquidity and credit risk as a single unit.

Recent Accounting Pronouncements

ASU Update 2017-04 - Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment

In January 2017, the FASB issued ASU 2017-04 "Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment," which simplifies how all entities assess goodwill for impairment by eliminating Step 2 from the goodwill impairment test. As amended, the goodwill impairment test will consist of one step comparing the fair value of a reporting unit with its carrying amount. An entity should recognize a goodwill impairment charge for the amount by which the carrying amount exceeds the reporting unit's fair value. The primary goal of this ASU is to simplify the goodwill impairment test and provide cost savings for all entities by removing the requirement to determine the fair value of individual assets and liabilities in order to calculate a reporting unit's "implied" goodwill under current U.S. GAAP.

The amendments have staggered effective dates: (1) a public business entity that is a U.S. Securities and Exchange Commission (SEC) filer should adopt the amendments for its annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2019, (2) a public business entity that is not an SEC filier should adopt the amendments for its annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2020 and (3) all other entities, including non-for-profit entities, should adopt the amendments for their annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2021. The amendments should be adopted prospectively. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017.

The Company does not expect the adoption of this guidance to have a material impact on its consolidated financial statements.

ASU Update 2017-01 - Business Combinations (Topic 805): Clarifying the Definition of a Business

In January 2017, the FASB issued ASU 2017-01 "Business Combinations (Topic 805): Clarifying the Definition of a Business," which clarifies the definition of a business with the objective of adding guidance to assist companies and other reporting organizations with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The amendments in this ASU provide a more robust framework to use in determining when a set of assets and activities is a business. The current definition of a business is interpreted broadly and can be difficult to apply. Stakeholders indicated that analyzing transactions is inefficient and costly and the definition does not permit the use of reasonable judgment.

Under current implementation guidance, there are three elements of a business: inputs, processes and outputs. While an integrated set of assets and activities (collectively referred to as a "set") that is a business usually has outputs, outputs are not required to be present. Additionally, all the inputs and processes that a seller uses in operating a set are not required if market participants can acquire the set and continue to produce outputs, for example, by integrating the acquired set with their own inputs and processes.

The ASU introduces a "screen" to assist entities in determining when a set should not be considered a business. If substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets, the set is not considered a business. If the screen is not met, the ASU requires that to be considered a business, a set must include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create output. Further, the ASU removes the evaluation of whether a market participant could replace missing elements (as required under current U.S. GAAP).

For public business entities, the ASU is effective for annual periods beginning after December 15, 2017, including interim periods within those periods. For all other entities, the amendments apply to annual periods beginning after December 15, 2018 and interim periods within annual periods beginning after December 15, 2019. The amendments in this ASU should be applied prospectively on or after the effective date. No disclosures are required at transition.

The Company does not expect the adoption of this guidance to have a material impact on its consolidated financial statements.

ASU Update 2016-20 - Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers.

In December 2016, the FASB issued ASU 2016-20 "Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers," amending the new revenue recognition standard that it jointly issued with the International Accounting Standards Board ("IASB") in 2014. The amendments do not change the core principles of the standard, but clarify certain narrow aspects of the standard including its scope, contract cost accounting, disclosures, illustrative examples and other matters. The ASU becomes effective concurrently with ASU 2014-09 "Revenue from Contracts with Customers (Topic 606)."

The Company does not expect the adoption of this guidance to have a material impact on its consolidated financial statements.

ASU Update 2016-18 - Restricted Cash.

In November 2016, the FASB issued ASU 2016-18 "Restricted Cash," which updates Topic 230-Statement of Cash Flows, to require that restricted cash and restricted cash equivalents be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total cash amounts shown on the statement of cash flows. Consequently, transfers between cash and restricted cash will not be presented as a separate line item in the operating, investing or financing sections of the cash flow statement. The ASU includes examples of the revised presentation guidance and additional presentation and disclosure requirements apply.

For public business entities, the amendments are effective 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.

The Company does not expect the adoption of this guidance to have a material impact on its consolidated financial statements.

ASU Update 2016-17 - Interests Held Through Related Parties That Are Under Common Control.

In October 2016, the FASB issued ASU 2016-17 "Interests Held Through Related Parties That Are Under Common Control," which amends the variable interest entity ("VIE") guidance within Topic 810. It does not change the two required characteristics for a single decision maker to be the primary beneficiary ("power" and "economics"), but it revised one aspect of the related analysis. The amendments change how a single decision maker of a VIE treats indirect variable interest held through related parties that are under common control when determining whether it is the primary beneficiary of that VIE. The ASU requires consideration of such indirect interests on a proportionate basis instead of being the equivalent of direct interests in their entity, thereby making consolidation less likely.

For public business entities, the amendments are effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2016 and interim periods within fiscal years beginning after December 15, 2017. Early adoption is permitted; however, if an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of that fiscal year.

The Company does not expect the adoption of this guidance to have a material impact on its consolidated financial statements.

ASU Update 2016-15 - Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments.

In August 2016, the FASB issued ASU 2016-15 "Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments," which clarifies whether the following items should be categorized as operating, investing or financing in the statement of cash flows: (1) debt prepayment and extinguishment costs, (2) settlement of zero-coupon debt, (3) settlement of contingent consideration, (4) insurance proceeds, (5) settlement of corporate-owned life insurance (COLI) and bank-owned life insurance policies (BOLI) policies, (6) distributions from equity method investees, (7) beneficial interests in securitization transactions and (8) receipts and payments with aspects of more than one class of cash flows.

For public business entities, the amendments are effective 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 currently classifies cash flows related to BOLI in accordance with the guidance and does not expect the adoption of this guidance to have a material impact on its consolidated financial statements.

ASU Update 2016-13 Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.

In June 2016, the FASB issued ASU 2016-13 "Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments," which requires credit losses on most financial assets to be measured at amortized cost and certain other instruments to be measured using an expected credit loss model (referred to as the current expected credit loss (CECL) model). Under this model, entities will estimate credit losses over the entire contractual term of the instrument (considering estimated prepayments, but not expected extensions or modifications unless reasonable expectation of a troubled debt restructuring exists) from the date of initial recognition of that instrument.

The ASU also replaces the current accounting model for purchased credit impaired loans and debt securities. The allowance for credit losses for purchased financial assets with a more-than-insignificant amount of credit deterioration since origination ("PCD assets") should be determined in a similar manner to other financial assets measured on an amortized cost basis. Upon initial recognition, the allowance for credit losses is added to the purchase price ("gross up approach") to determine the initial amortized cost basis. The subsequent accounting for PCD assets will use the CECL model described above.

The ASU made certain targeted amendments to the existing impairment model for available-for-sale (AFS) debt securities. For an AFS debt security for which there is neither the intent nor a more-likely-than-not requirement to sell, an entity will record credit losses as an allowance rather than a write-down of the amortized cost basis.

For public business entities that are SEC filers, the amendments are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted for all entities as of the fiscal year beginning after December 15, 2018, including interim periods within those fiscal years.

The Company is currently evaluating the impact of the pending adoption of the new standard on its consolidated financial statements.

ASU Update 2016-09 Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting.

In March 2016, the FASB issued ASU 2016-09 "Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting" to simplify the accounting for stock compensation. The ASU focuses on income tax accounting, award classification, estimating forfeitures and cash flow presentation. The ASU also provides certain accounting policy alternatives to nonpublic entities. The ASU simplifies several aspects of the stock compensation guidance in Topic 718 and other related guidance. The following six amendments apply to all entities: (1) accounting for income taxes upon vesting or exercise of share-based payments and related EPS effects, (2) classification of excess tax benefits on the statement of cash flows, (3) accounting for forfeitures, (4) liability classification exception for statutory tax withholding requirements, (5) cash flow presentation of employee taxes paid when an employer withholds shares for tax-withholding purposes and (6) elimination of the indefinite deferral in Topic 718.

For public business entities, the amendments are effective for annual periods beginning after December 15, 2016 and interim periods within those annual periods. For all other entities, the amendments are effective for annual periods beginning after December 15, 2017 and interim periods within annual periods beginning after December 15, 2018. Early adoption is permitted for any entity in any interim or annual period for which the financial statements have not been issued or made available to be issued. 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 adopted the guidance for the year ended December 31, 2016. The effect of the adoption of this guidance was not material.

ASU Update 2016-02: Leases.

In February 2016, the FASB issued ASU 2016-02 "Leases." From the lessee's perspective, the new standard establishes a right- of-use ("ROU") model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement for a lessee. From the lessor's perspective, the new standard requires a lessor to classify leases as either sales-type, finance or operating. A lease will be treated as a sale if it transfers all of the risks and rewards, as well as control of the underlying asset, to the lessee. If risks and rewards are conveyed without the transfer of control, the lease is treated as a financing. If the lessor doesn’t convey risks and rewards or control, an operating lease results.

The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. A modified retrospective transition approach is required for lessors for sales-type, direct financing and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. In 2017, the Company plans to complete an evaluation of all of its leases to determine the potential impact on the Company's consolidated financial statements as a result of this new standard.

ASU Update 2016-01 Financial Instruments-Overall: Recognition and Measurement of Financial Assets and Financial Liabilities.

In January 2016, the FASB issued ASU 2016-01 "Financial Instruments-Overall: Recognition and Measurement of Financial Assets and Financial Liabilities." The guidance in the ASU, among other things, requires equity investments, with certain exceptions, to be measured at fair value with changes in fair value recognized in net income; simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment; eliminates the requirement for public business entities to disclose the methods 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; requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; requires an entity to present separately in other comprehensive income, the portion of the change in fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments; requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset on the balance sheet or the accompanying notes to the financial statements; and clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities. The guidance in this ASU is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company does not expect the adoption of this guidance to have a material impact on its consolidated financial statements.

ASU Update 2015-16 Business Combination (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments.

In September 2015, the FASB issued ASU 2015-16 "Business Combination (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments," to require adjustments to provisional amounts that are identified during the measurement period to be recognized in the reporting period in which the adjustment amounts are determined. This includes any effect on earnings of changes in depreciation, amortization or other income as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date. The amendments in this update would require an entity to disclose (either on the face of the income statement or in the notes) the nature and amount of measurement-period adjustments recognized in the current period, including, separately, the amounts in current-period income statement line items that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date. The amendments are effective for public business entities for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2015 and for all other entities for fiscal years beginning after December 31, 2016 and for interim periods within fiscal years beginning after December 15, 2017. Adoption of this guidance in 2016 did not have a material impact on the Company’s consolidated financial statements.

ASU 2014-9 Revenue from Contracts with Customers (Topic 606)

In May 2014, the FASB issued ASU 2014-9, deferred by ASU 2015-14, “Revenue from Contracts with Customers (Topic 606).” The amendments in this update establish a comprehensive revenue recognition standard for virtually all industries under U.S. GAAP, including those that previously followed industry specific guidance such as the real estate, construction and software industries. The revenue standard's core principle is built on the contract between a vendor and a customer for the provision of goods and services. It attempts to depict the exchange of rights and obligations between the parties in the pattern of revenue recognition based on the consideration to which the vendor is entitled. To accomplish this objective, the standard requires five basic steps: (1) identify the contract with the customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when (or as) the entity satisfies a performance obligation.   This ASU, which does not apply to financial instruments, is effective for interim and annual reporting periods beginning after December 15, 2017. Early adoption is permitted only as of annual reporting periods beginning after December 15, 2016, including interim periods within that year.

The Company does not expect the adoption of ASU 2014-9 to have a material impact on its consolidated financial statements.

ASU 2014-12 Accounting for Share-Based-Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved After the Requisite Service Period (a consensus of the FAS Emerging Issues Task Force).

In June 2014, the FASB issued ASU 2014-12, "Accounting for Share-Based-Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved After the Requisite Service Period," which requires that a performance target included in a share-based payment award that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. This update is effective for interim and annual periods beginning after December 15, 2015. The amendments can be applied prospectively to all awards granted or modified after the effective date or retrospectively to all awards with performance targets that are outstanding as of the beginning of the earliest annual period presented and to all new or modified awards thereafter. Adoption of this guidance in 2016 did not have a material impact on the Company’s consolidated financial statements.

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Investment Securities

3 Months Ended

12 Months Ended

Mar. 31, 2017

Dec. 31, 2016

Investments, Debt and Equity Securities [Abstract]

Investments Securities

Investment Securities

Amortized cost, carrying value, gross unrealized gains and losses, and the fair value by security type are as follows:

March 31, 2017	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
(Dollars in thousands)
Available for sale
U. S. Treasury securities and obligations of U.S. Government sponsored corporations (“GSE”) and agencies	$	3,511	$	2	$	(8	)	$	3,505
Residential collateralized mortgage obligations- GSE	24,547		50		(124		)	24,473
Residential mortgage backed securities – GSE	28,176		233		(103		)	28,306
Obligations of state and political subdivisions	21,446		178		(229		)	21,395
Trust preferred debt securities – single issuer	2,479		—		(212		)	2,267
Corporate debt securities	24,988		87		(236		)	24,839
Other debt securities	783		—		(3		)	780
	$	105,930	$	550	$	(915	)	$	105,565

March 31, 2017	Amortized Cost		Other-Than- Temporary Impairment Recognized In Accumulated Other Comprehensive Loss			Carrying Value		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Held to maturity-
U. S. Treasury securities and obligations of U.S. Government sponsored corporations (“GSE”) and agencies	$	3,727	$	—		$	3,727	$	—	$	(85	)	$	3,642
Residential collateralized mortgage obligations – GSE	10,968		—			10,968		221		(121		)	11,068
Residential mortgage backed securities – GSE	37,951		—			37,951		459		(125		)	38,285
Obligations of state and political subdivisions	72,715		—			72,715		1,414		(161		)	73,968
Trust preferred debt securities-pooled	657		(501		)	156		303		—			459
Other debt securities	423		—			423		—		—			423
	$	126,441	$	(501	)	$	125,940	$	2,397	$	(492	)	$	127,845

December 31, 2016	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
(Dollars in thousands)
Available for sale-
U. S. Treasury securities and obligations of U.S. Government sponsored corporations ("GSE") and agencies	$	3,514	$	—	$	(35	)	$	3,479
Residential collateralized mortgage obligations- GSE	22,647		58		(145		)	22,560
Residential mortgage backed securities - GSE	31,207		388		(119		)	31,476
Obligations of state and political subdivisions	21,604		152		(356		)	21,400
Trust preferred debt securities-single issuer	2,478		—		(206		)	2,272
Corporate debt securities	21,963		10		(205		)	21,768
Other debt securities	845		—		(6		)	839
	$	104,258	$	608	$	(1,072	)	$	103,794

December 31, 2016	Amortized Cost		Other-Than- Temporary Impairment Recognized In Accumulated Other Comprehensive Loss			Carrying Value		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Held to maturity-
U. S. Treasury securities and obligations of U.S. Government sponsored corporations ("GSE") and agencies	$	3,727	$	—		$	3,727	$	—	$	(116	)	$	3,611
Residential collateralized mortgage obligations-GSE	11,882		—			11,882		247		(130		)	11,999
Residential mortgage backed securities - GSE	40,565		—			40,565		540		(113		)	40,992
Obligations of state and political subdivisions	70,017		—			70,017		1,274		(255		)	71,036
Trust preferred debt securities - pooled	657		(501		)	156		303		—			459
Other debt securities	463		—			463		—		(1		)	462
	$	127,311	$	(501	)	$	126,810	$	2,364	$	(615	)	$	128,559

Restricted stock is included in other assets at March 31, 2017 and December 31, 2016 and totaled $1.1 million and $4.0 million, respectively, and consisted of $1.0 million of Federal Home Loan Bank of New York stock and $65,000 of Atlantic Community Bankers Bank stock at March 31, 2017 and $4.0 million of Federal Home Loan Bank of New York stock and $65,000 of Atlantic Community Bankers Bank stock at December 31, 2016.

During the first quarter of 2017, the Bank sold fifty-four mortgage backed securities totaling $2.0 million, each with a principal balance outstanding of less than $150,000. Of the fifty-four mortgage backed securities sold, six of such securities with an aggregate outstanding principal balance of $580,000 were in the held to maturity portfolio, and a net gain of $24,000 was realized on the sale of these securities. Each of the six mortgage backed securities that were sold from the held to maturity portfolio had a principal balance that was less than 15% of the original principal balance outstanding at the time of purchase. Accounting Standards Codification ("ASC") 320-10-25-14 provides that sales of debt securities that are categorized as held to maturity and are sold after 85% of the principal outstanding at acquisition had been collected shall be equivalent to holding the security to maturity. Accordingly, the sales of the six mortgage backed securities that were classified as held to maturity were treated as held to maturity.

Gross unrealized losses on available for sale and held to maturity securities and the fair value of the related securities aggregated by security category and length of time that individual securities have been in a continuous unrealized loss position at March 31, 2017 and December 31, 2016 were as follows:

March 31, 2017		Less than 12 months					12 months or longer					Total
(Dollars in thousands)	Number of Securities	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
U.S. Treasury securities and obligations of U.S.      Government sponsored corporations (GSE) and    agencies	2	$	5,630	$	(93	)	$	—	$	—		$	5,630	$	(93	)
Residential collateralized mortgage obligations –GSE	7	18,259		(245		)	—		—			18,259		(245		)
Residential mortgage backed securities-GSE	28	26,717		(228		)	—		—			26,717		(228		)
Obligations of state and political subdivisions	59	19,555		(378		)	764		(12		)	20,319		(390		)
Trust preferred debt securities- single issuer	4	—		—			2,267		(212		)	2,267		(212		)
Corporate debt securities	5	10,752		(143		)	4,907		(93		)	15,659		(236		)
Other debt securities	2	—		—			780		(3		)	780		(3		)
Total temporarily impaired securities	107	$	80,913	$	(1,087	)	$	8,718	$	(320	)	$	89,631	$	(1,407	)

December 31, 2016		Less than 12 months					12 months or longer					Total
(Dollars in thousands)	Number of Securities	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
U.S. Treasury securities and obligations of U.S.       Government sponsored corporations (GSE) and    agencies	3	$	7,090	$	(151	)	$	—	$	—		$	7,090	$	(151	)
Residential collateralized mortgage obligations –GSE	7	17,242		(275		)	—		—			17,242		(275		)
Residential mortgage backed securities - GSE	29	26,581		(216		)	3,542		(16		)	30,123		(232		)
Obligations of state and political subdivisions	74	25,545		(611		)	—		—			25,545		(611		)
Trust preferred debt securities- single issuer	4	—		—			2,272		(206		)	2,272		(206		)
Corporate debt securities	6	12,700		(204		)	1,999		(1		)	14,699		(205		)
Other debt securities	3	—		—			1,276		(7		)	1,276		(7		)
Total temporarily impaired securities	126	$	89,158	$	(1,457	)	$	9,089	$	(230	)	$	98,247	$	(1,687	)

The following table sets forth certain information regarding the amortized cost, carrying value, fair value, weighted average yields and contractual maturities of the Company’s investment portfolio as of March 31, 2017.  Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.  

(Dollars in thousands)	March 31, 2017
	Amortized Cost		Fair Value		Yield
Available for sale
Due in one year or less	$	3,997	$	3,998	0.25%
Due after one year through five years	18,631		18,686		2.15%
Due after five years through ten years	42,696		42,560		2.49%
Due after ten years	40,606		40,321		2.89%
Total	$	105,930	$	105,565	2.50%
	Carrying Value		Fair Value		Yield
Held to maturity
Due in one year or less	$	33,055	$	33,065	1.51%
Due after one year through five years	17,612		18,286		4.54%
Due after five years through ten years	21,631		22,178		3.43%
Due after ten years	53,642		54,316		3.28%
Total	$	125,940	$	127,845	3.02%

U.S. Treasury securities and obligations of U.S. Government sponsored corporations and agencies:  The unrealized losses on investments in these securities were caused by increases in market interest rates. The Company does not intend to sell these investments and it is not more likely than not that the Company will be required to sell these investments before a market price recovery or maturity.  Therefore, these investments are not considered other-than-temporarily impaired.

Residential collateralized mortgage obligations and residential mortgage backed securities: The unrealized losses on investments in residential collateralized mortgage obligations and mortgage backed securities were caused by increases in market interest rates. The contractual cash flows of these securities are guaranteed by the issuers, which are primarily government or government sponsored agencies. It is expected that the securities would not be settled at a price less than the amortized cost of the investment. The decline in fair value is attributable to changes in interest rates and not credit quality. The Company does not intend to sell these investments and it is not more likely than not that the Company will be required to sell these investments before a market price recovery or maturity.  Therefore, these investments are not considered other-than-temporarily impaired.

Obligations of state and political subdivisions:  The unrealized losses on investments in these securities were caused by increases in market interest rates.  It is expected that the securities would not be settled at a price less than the amortized cost of the investment.  None of the issuers have defaulted on interest payments. These investments are not considered to be other than temporarily impaired because the decline in fair value is attributable to changes in interest rates and not credit quality.  The Company does not intend to sell these investments and it is not more likely than not that the Company will be required to sell these investments before a market price recovery or maturity.  Therefore, these investments are not considered other-than-temporarily impaired.

Corporate debt securities:   The unrealized losses on investments in corporate debt securities were caused by increases in market interest rates.  None of the corporate issuers have defaulted on interest payments.   The decline in fair value is attributable to changes in interest rates and not a decline in credit quality. The Company does not intend to sell these investments and it is not more likely than not that the Company will be required to sell these investments before a market price recovery or maturity. Therefore, these investments are not considered other-than-temporarily impaired.

Trust preferred debt securities – single issuer:  The investments in these securities with unrealized losses are comprised of four corporate trust preferred securities issued by two large financial institutions that mature in 2027. The contractual terms of the trust preferred securities do not allow the issuer to settle the securities at a price less than the face value of the trust preferred securities, which is greater than the amortized cost of the trust preferred securities.  One of the issuers continues to maintain an investment grade credit rating and neither has defaulted on interest payments.  The decline in fair value is attributable to the widening of interest rate and credit spreads and the lack of an active trading market for these securities. The Company does not intend to sell these investments and it is not more likely than not that the Company will be required to sell these investments before a market price recovery or maturity.  Therefore, these investments are not considered other-than-temporarily impaired.

Trust preferred debt securities – pooled:   This trust preferred debt security was issued by a two issuer pool (Preferred Term Securities XXV, Ltd. co-issued by Keefe, Bruyette and Woods, Inc. and First Tennessee (“PRETSL XXV”)) consisting primarily of financial institution holding companies.  During 2009, the Company recognized an other-than-temporary impairment of $865,000, of which $364,000 was determined to be a credit loss and charged to operations and $501,000 was recognized in the other comprehensive income (loss) component of shareholders’ equity.

The primary factor used to determine the credit portion of the impairment loss recognized in the income statement for this security was the discounted present value of projected cash flow where that present value of cash flow was less than the amortized cost basis of the security.  The present value of cash flow was developed using a model that considered performing collateral ratios, the level of subordination to senior tranches of the security, and credit ratings of and projected credit defaults in the underlying collateral.

On a quarterly basis, management evaluates the security to determine if any additional other-than-temporary impairment is required. As of March 31, 2017, management concluded that no additional other-than-temporary impairment had occurred.

Investment Securities

Amortized cost, carrying value, gross unrealized gains and losses, and the fair value by security type are as follows: 

(Dollars in thousands)			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
2016	Cost		Gains		Losses			Value
Available for sale-
U.S. Treasury securities and obligations of U.S. Government
sponsored corporations (“GSE”) and agencies	$	3,514	$	—	$	(35	)	$	3,479
Residential collateralized mortgage obligations- GSE	22,647		58		(145		)	22,560
Residential mortgage backed securities – GSE	31,207		388		(119		)	31,476
Obligations of state and political subdivisions	21,604		152		(356		)	21,400
Trust preferred debt securities – single issuer	2,478		—		(206		)	2,272
Corporate debt securities	21,963		10		(205		)	21,768
Other debt securities	845		—		(6		)	839
	$	104,258	$	608	$	(1,072	)	$	103,794

	Amortized Cost		Other-Than- Temporary Impairment Recognized In Accumulated Other Comprehensive Loss			Carrying Value		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Held to maturity-
U. S. Treasury securities and obligations of U.S. Government sponsored corporations (“GSE”) and agencies	$	3,727	$	—		$	3,727	$	—	$	(116	)	$	3,611
Residential collateralized mortgage obligations – GSE	11,882		—			11,882		247		(130		)	11,999
Residential mortgage backed securities - GSE	40,565		—			40,565		540		(113		)	40,992
Obligations of state and political subdivisions	70,017		—			70,017		1,274		(255		)	71,036
Trust preferred debt securities - pooled	657		(501		)	156		303		—			459
Other debt securities	463		—			463		—		(1		)	462
	$	127,311	$	(501	)	$	126,810	$	2,364	$	(615	)	$	128,559

(Dollars in thousands)			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
2015	Cost		Gains		Losses			Value
Available for sale-
U. S. Treasury securities and obligations of U.S. Government sponsored corporations (“GSE”) and agencies	$	5,523	$	—	$	(42	)	$	5,481
Residential collateralized mortgage obligations - GSE	8,255		68		(36		)	8,287
Residential mortgage backed securities – GSE	32,279		541		(185		)	32,635
Obligations of state and political subdivisions	21,125		365		(54		)	21,436
Trust preferred debt securities – single issuer	2,474		—		(338		)	2,136
Corporate debt securities	20,510		65		(153		)	20,422
Other debt securities	1,053		—		(28		)	1,025
	$	91,219	$	1,039	$	(836	)	$	91,422

	Amortized Cost		Other-Than- Temporary Impairment Recognized In Accumulated Other Comprehensive Loss			Carrying Value		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Held to maturity-
Residential collateralized mortgage obligations – GSE	$	13,630	$	—		$	13,630	$	404	$	—		$	14,034
Residential mortgage backed securities - GSE	47,718		—			47,718		928		(46		)	48,600
Obligations of state and political subdivisions	61,135		—			61,135		2,294		(14		)	63,415
Trust preferred debt securities - pooled	657		(501		)	156		341		—			497
Other debt securities	622		—			622		—		(11		)	611
	$	123,762	$	(501	)	$	123,261	$	3,967	$	(71	)	$	127,157

At December 31, 2016 and December 31, 2015, $121.7 million and $69.8 million of investment securities, respectively, were pledged to collateralize borrowings from the FHLB and municipal deposits under the State of New Jersey Governmental Unit Deposit Protection Act ("GUDPA").

The following table sets forth certain information regarding the amortized cost, carrying value, fair value, weighted average yields and contractual maturities of the Company's investment portfolio as of December 31, 2016. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.  

(Dollars in thousands)	December 31, 2016
	Amortized Cost		Fair Value		Yield
Available for sale
Due in one year or less	$	2,616	$	2,619	3.06	%
Due after one year through five years	15,544		15,470		1.28	%
Due after five years through ten years	44,489		44,695		2.68	%
Due after ten years	41,609		41,010		2.75	%
Total	$	104,258	$	103,794	2.51	%
	Carrying Value		Fair Value		Yield
Held to maturity
Due in one year or less	$	29,807	$	29,816	1.44	%
Due after one year through five years	16,833		17,373		4.43	%
Due after five years through ten years	23,597		24,280		3.51	%
Due after ten years	56,573		57,090		3.28	%
Total	$	126,810	$	128,559	3.04	%

Gross unrealized losses on available for sale and held to maturity securities and the fair value of the related securities aggregated by security category and length of time that individual securities have been in a continuous unrealized loss position at December 31, 2016 and 2015 are as follows:

2016		Less than 12 months					12 months or longer					Total
(Dollars in thousands)	Number of Securities	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
U. S. Treasury securities and obligations of U.S. Government sponsored corporations (“GSE”) and agencies	3	$	7,090	$	(151	)	—		—			$	7,090	$	(151	)
Residential collateralized mortgage obligations - GSE	7	17,242		(275		)	—		—			17,242		(275		)
Residential mortgage backed securities - GSE	29	26,581		(216		)	3,542		(16		)	30,123		(232		)
Obligations of state and political subdivisions	74	25,545		(611		)	—		—			25,545		(611		)
Trust preferred debt securities -single issuer	4	—		—			2,272		(206		)	2,272		(206		)
Corporate debt securities	6	12,700		(204		)	1,999		(1		)	14,699		(205		)
Other debt securities	3	—		—			1,276		(7		)	1,276		(7		)
Total temporarily impaired securities	126	$	89,158	$	(1,457	)	$	9,089	$	(230	)	$	98,247	$	(1,687	)

2015		Less than 12 months					12 months or longer					Total
(Dollars in thousands)	Number of Securities	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
U.S. Treasury securities and obligations of U.S. Government sponsored corporations (GSE) and agencies	3	$	5,481	$	(42	)	—		—			$	5,481	$	(42	)
Residential collateralized mortgage obligations-GSE	2	5,894		(36		)	—		—			5,894		(36		)
Residential mortgage backed securities - GSE	19	20,911		(175		)	3,980		(56		)	24,891		(231		)
Obligations of state and political subdivisions	32	2,760		(19		)	6,465		(49		)	9,225		(68		)
Trust preferred debt securities– single issuer	4	—		—			2,136		(338		)	2,136		(338		)
Corporate debt securities	4	9,214		(153		)	—		—			9,214		(153		)
Other debt securities	3	586		(11		)	1,025		(28		)	1,611		(39		)
Total temporarily impaired securities	67	$	44,846	$	(436	)	$	13,606	$	(471	)	$	58,452	$	(907	)

U.S. Treasury securities and obligations of U.S. Government sponsored corporations and agencies: The unrealized losses on investments in these securities were caused by increases in market interest rates.  The contractual terms of these investments do not permit the issuer to settle the securities at a price less than the par value of the investment.  The Company does not intend to sell these investments and it is not more likely than not that the Company will be required to sell these investments before a market price recovery or maturity. Therefore, these investments are not considered other-than temporarily impaired.

Residential collateralized mortgage obligations and residential mortgage backed securities: The unrealized losses on investments in residential collateralized mortgage obligations and residential mortgage backed securities were caused by increases in market interest rates. The contractual cash flows of these securities are guaranteed by the issuer, primarily government or government sponsored agencies. It is expected that the securities would not be settled at a price less than the amortized cost of the investment. The Company does not intend to sell these investments and it is not more likely than not that the Company will be required to sell these investments before a market price recovery or maturity. Therefore, these investments are not considered other-than temporarily impaired.

Obligations of state and political subdivisions:  The unrealized losses on investments in these securities were caused by increases in market interest rates.  It is expected that the securities would not be settled at a price less than the amortized cost of the investment.  None of the issuers have defaulted on interest payments. These investments are not considered to be other than temporarily impaired because the decline in fair value is attributable to changes in interest rates and not credit quality. The Company does not intend to sell these investments and it is not more likely than not that the Company will be required to sell these investments before a market price recovery or maturity. Therefore, these investments are not considered other-than temporarily impaired.

Trust preferred debt securities – single issuer:  The investments in these securities with unrealized losses are comprised of four corporate trust preferred securities issued by two large financial institutions that both mature in 2027. The contractual terms of the trust preferred securities do not allow the issuer to settle the securities at a price less than the face value of the trust preferred securities, which is greater than the amortized cost of the trust preferred securities.  One of the issuers continues to maintain an investment grade credit rating and neither has defaulted on interest payments.  The decline in fair value is attributable to the widening of interest rate spreads and the lack of an active trading market for these securities and, to a lesser degree, market concerns about the issuers’ credit quality. The Company does not intend to sell these investments and it is not more likely than not that the Company will be required to sell these investments before a market price recovery or maturity. Therefore, these investments are not considered other-than-temporarily impaired.

Corporate debt securities.  The unrealized losses on investments in corporate debt securities were caused by an increase in market interest rates.  None of the corporate issuers have defaulted on interest payments.  The decline in fair value is attributable to changes in market interest rates and not credit quality. The Company does not intend to sell these investments and it is not more likely than not that the Company will be required to sell these investments before a market price recovery or maturity. Therefore, these investments are not considered other-than-temporarily impaired.

Trust preferred debt securities – pooled:  This trust preferred debt security was issued by a two issuer pool (Preferred Term Securities XXV, Ltd. co-issued by Keefe, Bruyette and Woods, Inc. and First Tennessee (“PRETSL XXV”)), consisting primarily of financial institution holding companies.  During 2009, the Company recognized an other-than-temporary impairment charge of $865,000, of which $364,000 was determined to be a credit loss and charged to operations and $501,000 was recognized in the other comprehensive income (loss) component of shareholders’ equity.

The primary factor used to determine the credit portion of the impairment loss to be recognized in the income statement for this security was the discounted present value of projected cash flow, where that present value of cash flow was less than the amortized cost basis of the security.  The present value of cash flow was developed using a model that considered performing collateral ratios, the level of subordination to senior tranches of the security and credit ratings of and projected credit defaults in the underlying collateral.

On a quarterly basis, management evaluates this security to determine if any additional other-than-temporary impairment is required.  As of December 31, 2016, management concluded that no additional other-than-temporary impairment had occurred.

The Company regularly reviews the composition of the investment securities portfolio, taking into account market risks, the current and expected interest rate environment, liquidity needs and its overall interest rate risk profile and strategic goals.

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Loans and Loans Held for Sale

12 Months Ended

Dec. 31, 2016

Receivables [Abstract]

Loans and Loans Held for Sale

Loans and Loans Held for Sale

Loans are as follows:

	December 31,
(Dollars in thousands)	2016		2015
Commercial business	$	99,650	$	99,277
Commercial real estate	242,393		207,250
Mortgage warehouse lines	216,259		216,572
Construction loans	96,035		93,745
Residential real estate loans	44,791		40,744
Loans to individuals	23,736		23,074
All other loans	207		233
Gross Loans	723,071		680,895
Deferred loan fees and costs, net	1,737		1,226
	$	724,808	$	682,121

The Bank’s lending focus and business is concentrated primarily in New Jersey, particularly northern and central New Jersey.  A significant portion of the total loan portfolio is secured by real estate or other collateral located in these areas.

The Bank had residential mortgage loans held for sale of $14.8 million at December 31, 2016 and $6.0 million at December 31, 2015.  The Bank sells residential mortgage loans in the secondary market on a non-recourse basis, generally with the related loan servicing rights released to purchasers. Loans held for sale at December 31, 2016 and 2015 were residential mortgage loans that the Bank intends to sell under best efforts forward sales commitments providing for delivery to purchasers generally within a two month period.  The estimated fair value of the derivatives of interest rate lock commitments was $123,000 at December 31, 2016 and was not deemed to be significant at December 31, 2015.

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Allowance for Loan Losses and Credit Quality Disclosures

3 Months Ended

12 Months Ended

Mar. 31, 2017

Dec. 31, 2016

Receivables [Abstract]

Allowance for Loan Losses and Credit Quality Disclosures

Allowance for Loan Losses and Credit Quality

The Company’s primary lending emphasis is the origination of commercial business and commercial real estate loans and mortgage warehouse lines of credit.  Based on the composition of the loan portfolio, the inherent primary risks are deteriorating credit quality, a decline in the economy, and a decline in New Jersey real estate market values.  Any one, or a combination, of these events may adversely affect the loan portfolio and may result in increased delinquencies, loan losses and increased future provision levels.

The following table provides an aging of the loan portfolio by loan class at March 31, 2017:

(Dollars in thousands)	30-59 Days		60-89 Days		Greater than 90 Days		Total Past Due		Current		Total Loans Receivable		Recorded Investment > 90 Days Accruing		Non-accrual Loans
Commercial
Construction Loans	$	—	$	—	$	182	$	182	$	107,540	$	107,722	$	—	$	182
Commercial Business	376		—		396		772		100,694		101,466		46		4,438
Commercial Real Estate	1,800		—		1,868		3,668		254,462		258,130		—		2,182
Mortgage Warehouse Lines	—		—		—		—		142,666		142,666		—		—
Residential Real Estate Loans	17		—		87		104		41,504		41,608		—		238
Consumer
Loans to Individuals	70		—		263		333		23,234		23,567		—		333
Other	—		—		—		—		177		177		—		—
Total loans	2,263		—		2,796		5,059		670,277		675,336		46		7,373
Deferred loan fees and costs, net	—		—		—		—		1,075		1,075		—		—
Total loans, net	$	2,263	$	—	$	2,796	$	5,059	$	671,352	$	676,411	$	46	$	7,373

The following table provides an aging of the loan portfolio by loan class at December 31, 2016:

(Dollars in thousands)	30-59 Days		60-89 Days		Greater than 90 Days		Total Past Due		Current		Total Loans Receivable		Recorded Investment > 90 Days Accruing		Non-accrual Loans
Commercial
Construction Loans	$	—	$	—	$	186	$	186	$	95,849	$	96,035	$	—	$	186
Commercial Business	113		115		790		1,018		98,632		99,650		—		920
Commercial Real Estate	741		942		2,707		4,390		238,003		242,393		—		3,187
Mortgage Warehouse Lines	—		—		—		—		216,259		216,259		—		—
Residential Real Estate Loans	564		—		392		956		43,835		44,791		—		544
Consumer
Loans to Individuals	—		29		361		390		23,346		23,736		24		337
Other	—		—		—		—		207		207		—		—
Total loans	1,418		1,086		4,436		6,940		716,131		723,071		24		5,174
Deferred loan fees and costs, net	—		—		—		—		1,737		1,737		—		—
Total loans, net	$	1,418	$	1,086	$	4,436	$	6,940	$	717,868	$	724,808	$	24	$	5,174

As provided by ASC 310-30, the excess of cash flows expected at acquisition over the initial investment in the loan is recognized as interest income over the life of the loan. Accordingly, acquired loans with evidence of deteriorated credit quality of $420,000 at March 31, 2017 and $439,000 at December 31, 2016 were not classified as non-performing loans.

The Company’s internal credit risk grades are based on the definitions currently utilized by the banking regulatory agencies.  The grades assigned and definitions are as follows, and loans graded excellent, above average, good and watch list are treated as “pass” for grading purposes:

1.  Excellent - Loans that are based upon cash collateral held at the Bank and adequately margined. Loans that are based upon "blue chip" stocks listed on the major exchanges and adequately margined.

2.  Above Average - Loans to companies whose balance sheets show excellent liquidity and long-term debt is on well-spread schedules of repayment easily covered by cash flow.  Such companies have been consistently profitable and have diversification in their product lines or sources of revenue.  The continuation of profitable operations for the foreseeable future is likely.  Management is comprised of a mix of ages, experience, and backgrounds, and management succession is in place.  Sources of raw materials and, for service companies, the sources of revenue are abundant.  Future needs have been planned for.  Character and ability of individuals or company principals are excellent.  Loans to individuals are supported by high net worths and liquid assets.

3.  Good - Loans to companies whose balance sheets show good liquidity and cash flow adequate to meet maturities of long-term debt with a comfortable margin.  Such companies have established profitable records over a number of years, and there has been growth in net worth.  Operating ratios are in line with those of the industry, and expenses are in proper relationship to the volume of business done and the profits achieved.  Management is well-balanced and competent in their responsibilities.  Economic environment is favorable; however, competition is strong.  The prospects for growth are good.  Loans in this category do not meet the collateral requirements of loans in categories 1 and 2 above. Loans to individuals are supported by good net worth but whose supporting assets are illiquid.

3w. Watch - Included in this category are loans evidencing problems identified by Bank management that require closer supervision.  Such problems have not developed to the point which requires a "special mention" rating.  This category also covers situations where the Bank does not have adequate current information upon which credit quality can be determined.  The account officer has the obligation to correct these deficiencies within 30 days from the time of notification.

4.  Special Mention - A "special mention" loan has potential weaknesses that deserve management's close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or in the Bank's credit position at some future date. Special mention loans are not adversely classified and do not expose the Bank to sufficient risk to warrant adverse classification.

5.  Substandard - A "substandard" loan is inadequately protected by the current sound net worth and paying capacity of the obligor or by the collateral pledged, if any. Loans so classified must have a well-defined weakness, or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected.

6.  Doubtful - A loan classified as "doubtful" has all the weaknesses inherent in one classified as substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently known facts, conditions and values, highly questionable and improbable.

7.  Loss - A loan classified as "loss" is considered uncollectible and of such little value that its continuance on the books is not warranted. This classification does not mean that the loan has absolutely no recovery or salvage value, but rather it is not practical or desirable to defer writing off this loan even though partial recovery may be affected in the future.

The following table provides a breakdown of the loan portfolio by credit quality indicator at March 31, 2017:

(Dollars in thousands)
Commercial Credit Exposure - By Internally Assigned Grade	Construction		Commercial Business		Commercial Real Estate		Mortgage Warehouse Lines		Residential Real Estate
Grade:
Pass	$	106,276	$	93,063	$	238,408	$	142,666	$	41,076
Special Mention	1,264		3,568		13,797		—		238
Substandard	182		813		5,925		—		294
Doubtful	—		4,022		—		—		—
Total	$	107,722	$	101,466	$	258,130	$	142,666	$	41,608

Consumer Credit Exposure - By Payment Activity	Loans To Individuals		Other
Performing	$	23,234	$	177
Nonperforming	333		—
Total	$	23,567	$	177

The following table provides a breakdown of the loan portfolio by credit quality indicator at December 31, 2016:

(Dollars in thousands)
Commercial Credit Exposure - By Internally Assigned Grade	Construction		Commercial Business		Commercial Real Estate		Mortgage Warehouse Lines		Residential Real Estate
Grade:
Pass	$	95,548	$	91,908	$	223,435	$	216,259	$	43,950
Special Mention	301		7,102		14,334		—		244
Substandard	186		611		4,624		—		597
Doubtful	—		29		—		—		—
Total	$	96,035	$	99,650	$	242,393	$	216,259	$	44,791

Consumer Credit Exposure -      By Payment Activity	Loans To Individuals		Other
Performing	$	23,375	$	207
Nonperforming	361		—
Total	$	23,736	$	207

Impaired Loans

Loans are considered to be impaired when, based on current information and events, it is determined that the Company will not be able to collect all amounts due according to the loan agreement, including scheduled interest payments.  When a loan is placed on non-accrual status, it is also considered to be impaired.  Loans are placed on non-accrual status when: (1) the full collection of interest or principal becomes uncertain or (2) they are contractually past due 90 days or more as to interest or principal payments unless the loans are both well secured and in the process of collection.

The following tables summarize the distribution of the allowance for loan losses and loans receivable by loan class and impairment method at March 31, 2017 and December 31, 2016: 

March 31, 2017

(Dollars in thousands)
	Construction		Commercial Business		Commercial Real Estate		Mortgage Warehouse Lines		Residential Real Estate		Loans to Individuals		Other		Unallocated		Deferred Loan Fees/Costs		Total
Allowance for loan losses:
Individually evaluated for impairment	$	8	$	593	$	73	$	—	$	—	$	—	$	—	$	—	$	—	$	674
Loans acquired with deteriorated credit quality	—		—		—		—		—		—		—		—		—		—
Collectively evaluated for impairment	1,362		1,229		2,561		642		365		122		—		595		—		6,876
Ending Balance	$	1,370	$	1,822	$	2,634	$	642	$	365	$	122	$	—	$	595	$	—	$	7,550
Loans receivable:
Individually evaluated for impairment	$	387	$	4,471	$	5,130	$	—	$	238	$	333	$	—	$	—	$	—	$	10,559
Loans acquired with deteriorated credit quality	—		177		539		—		—		—		—		—		—		716
Collectively evaluated for impairment	107,335		96,818		252,461		142,666		41,370		23,234		177		—		1,075		665,136
Ending Balance	$	107,722	$	101,466	$	258,130	$	142,666	$	41,608	$	23,567	$	177	$	—	$	1,075	$	676,411

December 31, 2016

(Dollars in thousands)
	Construction		Commercial Business		Commercial Real Estate		Mortgage Warehouse Lines		Residential Real Estate		Loans to Individuals		Other		Unallocated		Deferred Loan Fees/Costs		Total
Allowance for loan losses:
Individually evaluated for impairment	$	7	$	101	$	114	$	—	$	38	$	—	$	—	$	—	$	—	$	260
Loans acquired with deteriorated credit quality	—		—		—		—		—		—		—		—		—		—
Collectively evaluated for impairment	1,197		1,631		2,460		973		329		112		—		532		—		7,234
Ending Balance	$	1,204	$	1,732	$	2,574	$	973	$	367	$	112	$	—	$	532	$	—	$	7,494
Loans receivable:
Individually evaluated for impairment	$	391	$	947	$	3,817	$	—	$	544	$	337	$	—	$	—	$	—	$	6,036
Loans acquired with deteriorated credit quality	—		191		930		—		—		—		—		—		—		1,121
Collectively evaluated for impairment	95,644		98,512		237,646		216,259		44,247		23,399		207		—		1,737		717,651
Ending Balance	$	96,035	$	99,650	$	242,393	$	216,259	$	44,791	$	23,736	$	207	$	—	$	1,737	$	724,808

The activity in the allowance for loan loss by loan class for the three months ended March 31, 2017 and 2016 was as follows:

(Dollars in thousands)	Construction		Commercial Business		Commercial Real Estate		Mortgage Warehouse Lines			Residential Real Estate			Loans to Individuals		Other		Unallocated		Total
Balance - December 31, 2016	$	1,204	$	1,732	$	2,574	$	973		$	367		$	112	$	—	$	532	$	7,494
Provision (Credit) charged to operations	166		88		56		(331		)	99			9		—		63		150
Loans charged off	—		—		—		—			(101		)	—		—		—		(101		)
Recoveries of loans charged off	—		2		4		—			—			1		—		—		7
Balance - March 31, 2017	$	1,370	$	1,822	$	2,634	$	642		$	365		$	122	$	—	$	595	$	7,550

(Dollars in thousands)	Construction			Commercial Business			Commercial Real Estate			Mortgage Warehouse Lines		Residential Real Estate			Loans to Individuals			Other		Unallocated		Total
Balance - December 31, 2015	$	1,025		$	2,005		$	3,049		$	866	$	288		$	109		$	—	$	218	$	7,560
(Credit) Provision charged to operations	(44		)	(657		)	311			1		(96		)	(92		)	—		377		(200		)
Loans charged off	—			—			(60		)	—		—			—			—		—		(60		)
Recoveries of loans charged off	—			—			—			—		—			2			—		—		2
Balance - March 31, 2016	$	981		$	1,348		$	3,300		$	867	$	192		$	19		$	—	$	595	$	7,302

When a loan is identified as impaired, the measurement of impairment is based on the present value of expected future cash flows, discounted at the loan’s effective interest rate, except when the sole remaining source of repayment for the loan is the liquidation of the collateral.  In such cases, the current fair value of the collateral less selling costs is used.  If the value of the impaired loan is less than the recorded investment in the loan, the impairment is recognized through an allowance estimate or a charge to the allowance.

Impaired Loans Receivables (By Class) –March 31, 2017

(Dollars in thousands)							Three Months Ended March 31, 2017
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
With no allowance:
Construction	$	182	$	182	$	—	$	185	$	—
Commercial Business	626		787		—		794		3
Commercial Real Estate	2,692		2,692		—		2,821		12
Mortgage Warehouse Lines	—		—		—		—		—
Subtotal	3,500		3,661		—		3,800		15
Residential Real Estate	238		238		—		240		—
Consumer
Loans to Individuals	333		333		—		335		—
Other	—		—		—		—		—
Subtotal	333		333		—		335		—
With no allowance:	$	4,071	$	4,232	$	—	$	4,375	$	15
With an allowance:
Construction	$	205	$	205	$	8	$	205	$	3
Commercial Business	4,022		4,022		593		1,511		67
Commercial Real Estate	2,977		2,977		73		2,210		43
Mortgage Warehouse Lines	—		—		—		—		—
Subtotal	7,204		7,204		674		3,926		113
Residential Real Estate	—		—		—		200		—
Consumer
Loans to Individuals	—		—		—		—		—
Other	—		—		—		—		—
Subtotal	—		—		—		—		—
With an allowance:	$	7,204	$	7,204	$	674	$	4,126	$	113
Total:
Construction	387		387		8		390		3
Commercial Business	4,648		4,809		593		2,305		70
Commercial Real Estate	5,669		5,669		73		5,031		55
Mortgage Warehouse Lines	—		—		—		—		—
Residential Real Estate	238		238		—		440		—
Consumer	333		333		—		335		—
Total	$	11,275	$	11,436	$	674	$	8,501	$	128

Impaired Loans Receivables (By Class) –December 31, 2016

(Dollars in thousands
	Recorded Investment		Unpaid Principal Balance		Related Allowance
With no allowance:
Construction	$	186	$	186	$	—
Commercial Business	883		1,054		—
Commercial Real Estate	1,380		1,380		—
Mortgage Warehouse Lines	—		—		—
Subtotal	2,449		2,620		—
Residential Real Estate	244		244		—
Consumer
Loans to Individuals	337		337		—
Other	—		—		—
Subtotal	337		337		—
With no allowance	$	3,030	$	3,201	$	—
With an allowance:
Construction	$	205	$	205	$	7
Commercial Business	255		255		101
Commercial Real Estate	3,367		3,367		114
Mortgage Warehouse Lines	—		—		—
Subtotal	3,827		3,827		222
Residential Real Estate	301		316		38
Consumer
Loans to Individuals	—		—		—
Other	—		—		—
Subtotal	—		—		—
With an allowance	$	4,128	$	4,143	$	260
Total:
Construction	391		391		7
Commercial Business	1,138		1,309		101
Commercial Real Estate	4,747		4,747		114
Mortgage Warehouse Lines	—		—		—
Residential Real Estate	544		560		38
Consumer	337		337		—
Total	$	7,157	$	7,344	$	260

Impaired Loans Receivables (By Class) – March 31, 2016
	Three Months Ended March 31, 2016
(Dollars in thousands)	Average Recorded Investment		Interest Income Recognized
With no allowance:
Construction	$	193	$	2
Commercial Business	420		4
Commercial Real Estate	1,840		25
Mortgage Warehouse Lines	—		—
Subtotal	2,453		31
Residential Real Estate	1,097		—
Consumer
Loans to Individuals	263		—
Other	—		—
Subtotal	263		—
With no allowance:	$	3,813	$	31
With an allowance:
Construction	$	—	$	—
Commercial Business	210		1
Commercial Real Estate	3,783		4
Mortgage Warehouse Lines	—		—
Subtotal	3,993		5
Residential Real Estate	200		—
Consumer
Loans to Individuals	—		—
Other	—		—
Subtotal	—		—
With an allowance:	$	4,193	$	5
Total:
Construction	193		2
Commercial Business	630		4
Commercial Real Estate	5,623		30
Mortgage Warehouse Lines	—		—
Residential Real Estate	1,297		—
Consumer	263		—
Total	$	8,006	$	36

Purchased Credit-Impaired Loans

Purchased credit-impaired loans (“PCI”) are loans acquired at a discount that are due in part to credit quality. The following table presents additional information regarding acquired credit-impaired loans at March 31, 2017 and December 31, 2016:

(Dollars in thousands)
	March 31, 2017		December 31, 2016
Outstanding balance	$	1,056	$	1,470
Carrying amount	$	716	$	1,121

Changes in accretable discount for acquired credit-impaired loans for the three months ended March 31, 2017 and March 31, 2016 were as follows:

	Three months ended March 31,
	2017			2016
(Dollars in thousands)
Balance at beginning of period	$	30		$	73
Acquisition of impaired loans	—			—
Accretion of discount	(7		)	(21		)
Balance at end of period	$	23		$	52

Consumer Mortgage Loans Secured by Residential Real Estate in Process of Foreclosure

The following table summarizes the recorded investment in consumer mortgage loans secured by residential real estate in the process of foreclosure:

(Dollars in thousands)
March 31, 2017			December 31, 2016
Number of  loans	Recorded Investment		Number of  loans	Recorded Investment
3	$	517	3	$	524

In the normal course of business, the Bank may consider modifying loan terms for various reasons. These reasons may include as a retention strategy to compete in the current interest rate environment or to re-amortize or extend a loan term to better match the loan’s repayment stream with the borrower’s cash flow. A modified loan would be considered a troubled debt restructuring (“TDR”) if the Bank grants a concession to a borrower and has determined that the borrower is troubled (i.e., experiencing financial difficulties).

If the Bank restructures a loan to a troubled borrower, the loan terms (i.e., interest rate, payment, amortization period and maturity date) may be modified in various ways to enable the borrower to cover the modified debt service payments based on current financial statements and cash flow adequacy. If a borrower’s hardship is thought to be temporary, then modified terms may only be offered for that time period. Where possible, the Bank would attempt to obtain additional collateral and/or secondary repayment sources at the time of the restructuring in order to put the Bank in the best possible position if the borrower is not able to meet the modified terms. The Bank will not offer modified terms if it believes that modifying the loan terms will only delay an inevitable permanent default. In evaluating whether a restructuring constitutes a troubled debt restructuring, applicable guidance requires that a creditor must separately conclude that the restructuring constitutes a concession and the borrower is experiencing financial difficulties.

There was one commercial real estate loan with a pre- and post-modification recorded investment of $2.3 million that was modified as a TDR during the three months ended March 31, 2017 and there were no loans modified as a TDR during the three months ended March 31, 2016. There was one troubled debt restructuring that defaulted within twelve months of restructuring in the amount of $458,000 during the three months ended March 31, 2017.  There were no troubled debt restructurings that subsequently defaulted within twelve months of restructuring during the three months ended March 31, 2016.

Allowance for Loan Losses and Credit Quality Disclosures

The Company’s primary lending emphasis is the origination of commercial business and commercial real estate loans and mortgage warehouse lines of credit.  Based on the composition of the loan portfolio, the primary inherent risks are deteriorating credit quality, a decline in the economy and a decline in New Jersey real estate market values.  Any one, or a combination, of these events may adversely affect the loan portfolio and may result in increased delinquencies, loan losses and increased future provision levels.

The following table provides an aging of the loan portfolio by loan class at December 31, 2016:

(Dollars in thousands)	30-59 Days		60-89 Days		Greater than 90 Days		Total Past Due		Current		Total Loans Receivable		Recorded Investment >90 Days Accruing		Non-accrual Loans
Construction Loans	$	—	$	—	$	186	$	186	$	95,849	$	96,035	$	—	$	186
Commercial Business	113		115		790		1,018		98,632		99,650		—		920
Commercial Real Estate	741		942		2,707		4,390		238,003		242,393		—		3,187
Mortgage Warehouse Lines	—		—		—		—		216,259		216,259		—		—
Residential Real Estate Loans	564		—		392		956		43,835		44,791		—		544
Loans to Individuals	—		29		361		390		23,346		23,736		24		337
Other	—		—		—		—		207		207		—		—
Deferred Loan Fees and Costs, Net	—		—		—		—		1,737		1,737		—		—
Total	$	1,418	$	1,086	$	4,436	$	6,940	$	717,868	$	724,808	$	24	$	5,174

The following table provides an aging of the loan portfolio by loan class at December 31, 2015:

(Dollars in thousands)	30-59 Days		60-89 Days		Greater than 90 Days		Total Past Due		Current		Total Loans Receivable		Recorded Investment >90 Days Accruing		Non-accrual Loans
Construction Loans	$	—	$	—	$	—	$	—	$	93,745	$	93,745	$	—	$	—
Commercial Business	530		5		186		721		98,556		99,277		—		304
Commercial Real Estate	789		—		3,996		4,785		202,465		207,250		—		4,321
Mortgage Warehouse Lines	—		—		—		—		216,572		216,572		—		—
Residential Real Estate Loans	—		166		1,132		1,298		39,446		40,744		—		1,132
Consumer
Loans to Individuals	400		—		263		663		22,411		23,074		—		263
Other	—		—		—		—		233		233		—		—
Deferred Loan Fees and Costs, Net	—		—		—		—		1,226		1,226		—		—
Total	$	1,719	$	171	$	5,577	$	7,467	$	674,654	$	682,121	$	—	$	6,020

As provided by ASC 310-30, the excess of cash flows expected at acquisition over the initial investment in the loan is recognized as interest income over the life of the loan.  Accordingly, loans acquired with evidence of deteriorated credit quality in the amount of $439,000 and $489,000 at December 31, 2016 and 2015, respectively, were not classified as non-performing loans due to the accretion of income based on expected cash flows.

Additional income before taxes amounting to $522,000 and $471,000 would have been recognized in 2016 and 2015, respectively, if interest on all loans had been recorded based upon their original contract terms. 

Management reviews the adequacy of the allowance for loan losses on at least a quarterly basis to ensure that the provision for loan losses has been charged against earnings in an amount necessary to maintain the allowance at a level that is adequate based on management’s assessment of probable estimated losses. The Company’s methodology for assessing the adequacy of the allowance for loan losses consists of several key elements and is consistent with U.S. GAAP and interagency supervisory guidance.  The allowance for loan losses methodology consists of two major components.  The first component is an estimation of losses associated with individually identified impaired loans, which follows ASC Topic 310.  The second major component estimates losses under ASC Topic 450, which provides guidance for estimating losses on groups of loans with similar risk characteristics.  The Bank’s methodology results in an allowance for loan losses which includes a specific reserve for impaired loans, an allocated reserve and an unallocated portion.

When analyzing groups of loans under ASC Topic 450, the Bank follows the Interagency Policy Statement on the Allowance for Loan and Lease Losses.  The methodology considers the Bank’s historical loss experience adjusted for changes in trends, conditions, and other relevant factors that affect repayment of the loans as of the evaluation date.  These adjustment factors, known as qualitative factors, include:

• Delinquencies and non-accruals

• Portfolio quality

• Concentration of credit

• Trends in volume of loans

• Quality of collateral

• Policy and procedures

• Experience, ability, and depth of management

• Economic trends – national and local

• External factors – competition, legal and regulatory

The methodology includes the segregation of the loan portfolio into loan types with a further segregation into risk rating categories, such as special mention, substandard, doubtful, and loss. This allows for an allocation of the allowance for loan losses by loan type; however, the allowance is available to absorb any loan loss without restriction. Larger balance, non-homogeneous loans representing significant individual credit exposures are evaluated individually through the internal loan review process. It is this process that produces the watch list for loans that have indications of credit weakness. The borrower’s overall financial condition, repayment sources, guarantors and value of collateral, if appropriate, are evaluated. Based on these reviews, an estimate of probable losses for the individual larger-balance loans are determined, whenever possible, and used to establish specific loan loss reserves. In general, for non-homogeneous loans not individually assessed and for homogeneous groups, such as residential mortgages and consumer credits, the loans are collectively evaluated based on delinquency status, loan type, and historical losses. These loan groups are then internally risk rated.

The watch list includes loans that are assigned a rating of special mention, substandard, doubtful and loss. Loans assigned a rating of special mention have potential weaknesses that deserve management’s close attention. If uncorrected, the potential weaknesses may result in deterioration of the repayment prospects. Loans classified as substandard have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They include loans that are inadequately protected by the current sound net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans classified as doubtful have all the weaknesses inherent in loans classified as substandard with the added characteristic that collection or liquidation in full, on the basis of current conditions and facts, is highly improbable. Loans rated as doubtful in whole, or in part, are placed in non-accrual status. Loans classified as a loss are considered uncollectible and are charged off against the allowance for loan losses.

The specific allowance for impaired loans is established for specific loans that have been identified by management as being impaired. These loans are considered to be impaired primarily because the loans have not performed according to payment terms and there is reason to believe that repayment of the loan principal in whole, or in part, is unlikely. The specific portion of the allowance is the total amount of potential unconfirmed losses for these individual impaired loans. To assist in determining the fair value of loan collateral, the Bank often utilizes independent third party qualified appraisal firms which, in turn, employ their own criteria and assumptions that may include occupancy rates, rental rates and property expenses, among others.

The second category of reserves consists of the allocated portion of the allowance. The allocated portion of the allowance is determined by taking pools of loans outstanding that have similar characteristics and applying historical loss experience for each pool. This estimate represents the potential unconfirmed losses within the portfolio. Individual loan pools are created for commercial and commercial real estate loans, construction loans, warehouse lines of credit and various types of loans to individuals. The historical loss estimation for each loan pool is then adjusted to account for current conditions, current loan portfolio performance, loan policy or management changes or any other qualitative factor which may cause future losses to deviate from historical levels.

The Company also maintains an unallocated allowance. The unallocated allowance is used to cover any factors or conditions which may cause a potential loan loss but are not specifically identifiable. It is prudent to maintain an unallocated portion of the allowance because no matter how detailed an analysis of potential loan losses is performed, these estimates, by definition, lack precision. Management must make estimates using assumptions and information that is often subjective and changing rapidly.

The following discusses the risk characteristics of each of our loan portfolio segments, commercial, mortgage warehouse lines of credit, and consumer.

Commercial

The Company’s primary lending emphasis is the origination of commercial, construction and commercial real estate loans. Based on the composition of the loan portfolio, the inherent primary risks are deteriorating credit quality, a decline in the economy and a decline in New Jersey real estate market values. Any one, or a combination, of these events may adversely affect the loan portfolio and may result in increased delinquencies, loan losses and increased future provision levels.

Mortgage Warehouse Lines of Credit

The Company’s Mortgage Warehouse Unit provides revolving lines of credit that are available to licensed mortgage banking companies. The warehouse line of credit is used by the mortgage banker to originate one-to-four family residential mortgage loans that are pre-sold into the secondary mortgage market, which includes state and national banks, national mortgage banking firms, insurance companies and government-sponsored enterprises, including the Federal National Mortgage Association, the Federal Home Loan Mortgage Corporation and others. On average, an advance under the warehouse line of credit remains outstanding for a period of less than 30 days, with repayment coming directly from the sale of the loan into the secondary mortgage market. Interest and a transaction fee are collected by the Bank at the time of repayment.

As a separate segment of the total portfolio, the warehouse loan portfolio is individually analyzed as a whole for allowance for loan losses purposes.  Warehouse lines of credit are subject to the same inherent risks as other commercial lending, but the overall degree of risk differs. While the Company’s loss experience with this type of lending has been non-existent since the product was introduced in 2008, there are other risks unique to this lending that still must be considered in assessing the adequacy of the allowance for loan losses. These unique risks may include, but are not limited to, (i) credit risks relating to the mortgage bankers that borrow from us, (ii) the risk of intentional misrepresentation or fraud by any of such mortgage bankers, (iii) changes in the market value of mortgage loans originated by the mortgage banker, the sale of which is the expected source of repayment of the borrowings under a warehouse line of credit, due to changes in interest rates during the time in warehouse or (iv) unsalable or impaired mortgage loans so originated, which could lead to decreased collateral value and the failure of a purchaser of the mortgage loan to purchase the loan from the mortgage banker.

These factors, along with the other qualitative factors such as economic trends, concentrations of credit, trends in the volume of loans, portfolio quality, delinquencies and non-accruals, are also considered and may have positive or negative effects on the allocated allowance.  The aggregate amount resulting from the application of these qualitative factors determines the overall risk for the portfolio and results in an allocated allowance for warehouse lines of credit.

Consumer

The Company’s consumer loan portfolio segment is comprised of residential real estate loans, home equity loans and other loans to individuals. Individual loan pools are created for the various types of loans to individuals.

In general, for homogeneous groups such as residential mortgages and consumer credits, the loans are collectively evaluated based on delinquency status, loan type and historical losses. These loan groups are then internally risk rated.

The Company considers the following credit quality indicators in assessing the risk in the loan portfolio:

• Consumer credit scores

• Internal credit risk grades

• Loan-to-value ratios

• Collateral

• Collection experience

Internal Risk Rating of Loans

The Bank’s internal credit risk grades are based on the definitions currently utilized by the banking regulatory agencies.  The grades assigned and their definitions are as follows, and loans graded excellent, above average, good and watch list are treated as “pass” for grading purposes:

1.  Excellent - Loans that are based upon cash collateral held at the Bank and adequately margined. Loans that are based upon "blue chip" stocks listed on the major stock exchanges and adequately margined.

2.  Above Average - Loans to companies whose balance sheets show excellent liquidity and long-term debt is on well-spread schedules of repayment easily covered by cash flow.  Such companies have been consistently profitable and have diversification in their product lines or sources of revenue.  The continuation of profitable operations for the foreseeable future is likely.  Management is comprised of a mix of ages, experience and backgrounds, and management succession is in place.  Sources of raw materials and, for service companies, the sources of revenue are abundant.  Future needs have been planned for.  Character and management ability of individuals or company principals are excellent.  Loans to individuals are supported by high net worths and liquid assets.

3.  Good - Loans to companies whose balance sheets show good liquidity and cash flow adequate to meet maturities of long-term debt with a comfortable margin.  Such companies have established profitable records over a number of years, and there has been growth in net worth.  Operating ratios are in line with those of the industry, and expenses are in proper relationship to the volume of business done and the profits achieved.  Management is well-balanced and competent in their responsibilities.  Economic environment is favorable; however, competition is strong.  The prospects for growth are good.  Loans in this category do not meet the collateral requirements of loans in categories 1 and 2 above. Loans to individuals are supported by good net worth but whose supporting assets are illiquid.

3w.  Watch- Included in this category are loans evidencing problems identified by Bank management that require closer supervision.  Such problems have not developed to the point which requires a "special mention" rating.  This category also covers situations where the Bank does not have adequate current information upon which credit quality can be determined.  The account officer has the obligation to correct these deficiencies within 30 days from the time of notification.

4.  Special Mention - A "special mention" loan has potential weaknesses that deserve management's close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or in the Bank's credit position at some future date. Special mention loans are not adversely classified and do not expose the Bank to sufficient risk to warrant adverse classification.

5.  Substandard - A "substandard" loan is inadequately protected by the current sound worth and paying capacity of the obligor or by the collateral pledged, if any. Loans so classified must have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected.

6.  Doubtful - A loan classified as "doubtful" has all the weaknesses inherent in a loan classified as substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently known facts, conditions and values, highly questionable and improbable.

7.  Loss - A loan classified as "loss" is considered uncollectible and of such little value that its continuance on the books is not warranted. This classification does not mean that the loan has absolutely no recovery or salvage value, but rather it is not practical or desireable to defer writing off this loan even though partial recovery may occur in the future.

The following table provides a breakdown of the loan portfolio by credit quality indicator at December 31, 2016:

(Dollars in thousands)
Commercial Credit Exposure- By    Internally Assigned Grade	Construction		Commercial Business		Commercial Real Estate		Mortgage Warehouse Lines		Residential Real Estate
Grade:
Pass	$	95,548	$	91,908	$	223,435	$	216,259	$	43,950
Special Mention	301		7,102		14,334		—		244
Substandard	186		611		4,624		—		597
Doubtful	—		29		—		—		—
Loss	—		—		—		—		—
Total	$	96,035	$	99,650	$	242,393	$	216,259	$	44,791

(Dollars in thousands)
Consumer Credit Exposure -By Payment Activity	Loans to Individuals		Other
Performing	$	23,375	$	207
Nonperforming	361		—
Total	$	23,736	$	207

The following table provides a breakdown of the loan portfolio by credit quality indicator at December 31, 2015:

(Dollars in thousands)
Commercial Credit Exposure- By Internally Assigned Grade	Construction		Commercial Business		Commercial Real Estate		Mortgage Warehouse Lines		Residential Real Estate
Grade:
Pass	$	93,558	$	90,856	$	191,754	$	216,572	$	39,878
Special Mention	187		7,768		9,311		—		260
Substandard	—		653		6,185		—		606
Doubtful	—		—		—		—		—
Loss	—		—		—		—		—
Total	$	93,745	$	99,277	$	207,250	$	216,572	$	40,744

(Dollars in thousands)
Consumer Credit Exposure - By Payment Activity	Loans to Individuals		Other
Performing	$	22,811	$	233
Nonperforming	263		—
Total	$	23,074	$	233

Impaired Loans Disclosures

Loans are considered to be impaired when, based on current information and events, it is determined that the Company will not be able to collect all amounts due according to the loan contract, including scheduled interest payments.  When a loan is placed on non-accrual status, it is also considered to be impaired.  Loans are placed on non-accrual status when: (1) the full collection of interest or principal becomes uncertain; or (2) they are contractually past due 90 days or more as to interest or principal payments unless the loans are both well secured and in the process of collection.

The following tables summarize the distribution of the allowance for loan losses and loans receivable by loan class and impairment method at December 31, 2016 and 2015, respectively.

Allowance for Loan Losses as of and for the year ended December 31, 2016
(Dollars in thousands)
	Construction		Commercial Business			Commercial Real Estate			Mortgage Warehouse Lines		Residential Real Estate		Loans to Individuals			Other			Unallocated		Deferred Fees		Total
Allowance for loan losses:
Beginning balance	$	1,025	$	2,005		$	3,049		$	866	$	288	$	109		$	—		$	218	$	—	$	7,560
(Credit) provision charged to operations	179		(177		)	(800		)	107		79		(3		)	1			314		—		(300		)
Loans charged off	—		(97		)	(60		)	—		—		—			(1		)	—		—		(158		)
Recoveries of loans charged off	—		1			385			—		—		6						—		—		392
Ending balance	$	1,204	$	1,732		$	2,574		$	973	$	367	$	112		$	—		$	532	$	—	$	7,494
Individually evaluated for impairment	$	7	$	101		$	114		$	—	$	38	$	—		$	—		$	—	$	—	$	260
Loans acquired with deteriorated credit quality	—		—			—			—		—		—			—			—		—		—
Collectively evaluated for impairment	1,197		1,631			2,460			973		329		112			—			532		—		7,234
Ending Balance	$	1,204	$	1,732		$	2,574		$	973	$	367	$	112		$	—		$	532	$	—	$	7,494
Loans receivable:
Loans acquired with deteriorated credit quality	$	—	$	191		$	930		$	—	$	—	$	—		$	—		$	—	$	—	$	1,121
Individually evaluated for impairment	391		947			3,817			—		544		337			—			—		—		6,036
Collectively evaluated for impairment	95,644		98,512			237,646			216,259		44,247		23,399			207			—		1,737		717,651
Ending Balance	$	96,035	$	99,650		$	242,393		$	216,259	$	44,791	$	23,736		$	207		$	—	$	1,737	$	724,808

Allowance for Loan Losses as of and for the year ended December 31, 2015
(Dollars in thousands)
	Construction			Commercial Business			Commercial Real Estate			Mortgage Warehouse Lines			Residential Real Estate		Loans to Individuals			Other			Unallocated			Deferred Fees		Total
Allowance for loan losses:
Beginning balance	$	1,215		$	1,761		$	2,393		$	896		$	197	$	129		$	2		$	332		$	—	$	6,925
(Credit) provision charged to operations	(190		)	347			1,010			(30		)	91		(13		)	(1		)	(114		)	—		1,100
Loans charged off	—			(116		)	(361		)	—			—		(13		)	(1		)	—			—		(491		)
Recoveries of loans charged off	—			13			7			—			—		6						—			—		26
Ending balance	$	1,025		$	2,005		$	3,049		$	866		$	288	$	109		$	—		$	218		$	—	$	7,560
Individually evaluated for impairment	$	—		$	68		$	125		$	—		$	69	$	—		$	—		$	—		$	—	$	262
Loans acquired with deteriorated credit quality	—			—			64			—			—		—			—			—			—		64
Collectively evaluated for impairment	1,025			1,937			2,860			866			219		109			—			218			—		7,234
Ending Balance	$	1,025		$	2,005		$	3,049		$	866		$	288	$	109		$	—		$	218		$	—	$	7,560
Loans receivable:
Loans acquired with deteriorated credit quality	$	—		$	241		$	1,359		$	—		$	—	$	—		$	—		$	—		$	—	$	1,600
Individually evaluated for impairment	494			458			4,833			—			1,132		263			—			—			—		7,180
Collectively evaluated for impairment	93,251			98,578			201,058			216,572			39,612		22,811			233			—			1,226		673,341
Ending Balance	$	93,745		$	99,277		$	207,250		$	216,572		$	40,744	$	23,074		$	233		$	—		$	1,226	$	682,121

When a loan is identified as impaired, the measurement of impairment is based on the present value of expected future cash flows, discounted at the loan’s effective interest rate, except when the sole remaining source of repayment for the loan is the liquidation of the collateral.  In such cases, the current fair value of the collateral less selling costs is used.  If the value of the impaired loan is less than the recorded investment in the loan, the impairment is recognized through an allowance estimate or a charge to the allowance.

Impaired Loans Receivables (By Class) - December 31, 2016
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Year to Date 2016 Average Recorded Investment		Year to Date 2016 Interest Income Recognized
(Dollars in thousands)
With no related allowance:
Construction	$	186	$	186	$	—	$	260	$	—
Commercial Business	883		1,054		—		623		14
Commercial Real Estate	1,380		1,380		—		1,528		74
Mortgage Warehouse Lines	—		—		—		—		—
Subtotal	2,449		2,620		—		2,411		88
Residential Real Estate	244		244		—		725		—
Consumer
Loans to Individuals	337		337		—		281		—
Other	—		—		—		—		—
Subtotal	337		337		—		281		—
Subtotal with no related allowance	3,030		3,201		—		3,417		88
With an allowance:
Commercial
Construction	205		205		7		51		9
Commercial Business	255		255		101		238		—
Commercial Real Estate	3,367		3,367		114		3,603		19
Mortgage Warehouse Lines	—		—		—		—		—
Subtotal	3,827		3,827		222		3,892		28
Residential Real Estate	301		316		38		200		—
Consumer
Loans to Individuals	—		—		—		—		—
Other	—		—		—		—		—
Subtotal	—		—		—		—		—
Subtotal with an allowance	4,128		4,143		260		4,092		28
Total:
Construction	391		391		7		311		9
Commercial Business	1,138		1,309		101		861		14
Commercial Real Estate	4,747		4,747		114		5,131		93
Mortgage Warehouse Lines	—		—		—		—		—
Residential Real Estate	544		560		38		925		—
Consumer	337		337		—		281		—
Total	$	7,157	$	7,344	$	260	$	7,509	$	116

Impaired Loans Receivables (By Class) - December 31, 2015
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Year to Date 2015 Average Recorded Investment		Year to Date 2015 Interest Income Recognized
(Dollars in thousands)
With no related allowance:
Commercial
Construction	$	494	$	494	$	—	$	477	$	27
Commercial Business	488		847		—		492		23
Commercial Real Estate	2,417		2,683		—		2,998		94
Mortgage Warehouse Lines	—		—		—		—		—
Subtotal	3,399		4,024		—		3,967		144
Residential Real Estate	831		831		—		981		—
Consumer
Loans to Individuals	263		280		—		88		—
Other	—		—		—		—		—
Subtotal	263		280		—		88		—
Subtotal with no related allowance	4,493		5,135		—		5,036		144
With an allowance:
Commercial
Construction	—		—		—		—		—
Commercial Business	211		237		68		307		5
Commercial Real Estate	3,775		3,788		189		4,200		154
Mortgage Warehouse Lines	—		—		—		—		—
Subtotal	3,986		4,025		257		4,507		159
Residential Real Estate	301		316		69		100		—
Consumer
Loans to Individuals	—		—		—		175		—
Other	—		—		—		—		—
Subtotal	—		—		—		175		—
Subtotal with an allowance	4,287		4,341		326		4,782		159
Total:
Construction	494		494		—		477		27
Commercial Business	699		1,084		68		799		28
Commercial Real Estate	6,192		6,471		189		7,198		248
Mortgage Warehouse Lines	—		—		—		—		—
Residential Real Estate	1,132		1,147		69		1,081		—
Consumer	263		280		—		263		—
Total	$	8,780	$	9,476	$	326	$	9,818	$	303

Purchased Credit-Impaired Loans

Purchased Credit-Impaired loans (“PCI”) are loans acquired at a discount that is due in part to credit quality.  Acquired loans totaling $2.6 million were deemed to be PCI at February 7, 2014 and were initially recorded at fair value (as determined by the present value of expected future cash flows) with no valuation allowance (i.e., the allowance for loan losses).

The following table presents additional information regarding PCI loans for the years ended December 31, 2016 and 2015:

(Dollars in thousands)	Purchased Loans with Evidence of Credit Deterioration
	12/31/2016		12/31/2015
Outstanding balance	$	1,470	$	1,964
Carrying amount	$	1,121	$	1,600

  In 2015, an allowance for loan losses in the amount of $64,000 was recorded for one PCI loan.

The following table presents changes in accretable discount for PCI loans for the years ended December 31, 2016 and 2015:

(Dollars in thousands)	December 31, 2016			December 31, 2015
Balance at beginning of year	$	73		$	135
Acquisition of impaired loans	—			—
Accretion of discount	(43		)	(62		)
Balance at end of year	$	30		$	73
Non-accretable difference at end of year	$	215		$	215

The following table presents the years for the scheduled remaining accretable discount that will accrete to income based on the Company’s most recent estimates of cash flows for PCI loans:

(Dollars in thousands)	Periods ending December 31,
	2017	$	22
	2018	8
	Thereafter	—
	Total	$	30

Consumer Mortgage Loans Secured by Residential Real Estate in Process of Foreclosure

The following table summarizes the recorded investment in consumer mortgage loans secured by residential real estate in process of foreclosure:

(Dollars in thousands)	December 31,
2016			2015
Number of loans	Recorded Investment		Number of loans	Recorded Investment
3	$	524	5	$	1,008

In the normal course of business, the Bank may consider modifying loan terms for various reasons. These reasons may include as a retention strategy to compete in the current interest rate environment or to re-amortize or extend a loan term to better match the loan’s payment stream with the borrower’s cash flow. A modified loan would be considered a troubled debt restructuring (“TDR”) if the Bank grants a concession to a borrower and has determined that the borrower is troubled (i.e., experiencing financial difficulties).

If the Bank restructures a loan to a troubled borrower, the loan terms (i.e., interest rate, payment, amortization period, maturity date) may be modified in various ways to enable the borrower to cover the modified debt service payments based on current financial information and cash flow adequacy. If a borrower’s hardship is thought to be temporary, then modified terms may only be offered for that time period. Where possible, the Bank would attempt to obtain additional collateral and/or secondary repayment sources at the time of the restructure in order to put the Bank in the best possible position if the borrower is not able to meet the modified terms. The Bank will not offer modified terms if it believes that modifying the loan terms will only delay an inevitable permanent default.

In evaluating whether a restructuring constitutes a troubled debt restructuring, applicable guidance requires that a creditor must separately conclude that the restructuring constitutes a concession and the borrower is experiencing financial difficulties.  The following table is a breakdown of troubled debt restructurings, all of which are classified as impaired, which occurred during the years ended December 31, 2016 and 2015.

During 2016

(Dollars in thousands)	Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Troubled Debt Restructurings:
Commercial Real Estate	1	$	458	$	458

During 2015

(Dollars in thousands)	Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Troubled Debt Restructurings:
Commercial Business	1	$	288	$	288

There was one troubled debt restructuring in the amount of $458,000 that subsequently defaulted within twelve months of restructuring during the year ended December 31, 2016. There were no troubled debt restructurings that subsequently defaulted within twelve months of restructuring during the year ended December 31, 2015.

If the Bank determines that a borrower has suffered deterioration in its financial condition, a restructuring of the loan terms may occur.  Such loan restructurings may include, but are not limited to, reductions in principal or interest, reductions in interest rates and extensions of the maturity date.  When modifications are implemented, such loans meet the definition of a troubled debt restructuring.  All of the modifications employed by the Bank during 2016 and 2015 have resulted in lower principal amortization payments.  The lower payments are determined by an analysis of the borrower’s cash flow ability to meet the modified terms while anticipating an improved financial condition to enable a resumption of the original payment terms.

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Related Parties

12 Months Ended

Dec. 31, 2016

Related Party Transactions [Abstract]

Related Parties

Related Parties

Activity related to loans to directors, executive officers and their affiliated interests during 2016 and 2015 is as follows:

(Dollars in thousands)	December 31,
	2016			2015
Balance, beginning of year	$	870		$	1,376
Loans granted	751			16
Repayments of loans	(264		)	(522		)
Balance, end of year	$	1,357		$	870

All such loans were made under customary terms and conditions and were current as to principal and interest payments as of December 31, 2016 and 2015.

Related party deposits were $14.9 million and $9.0 million at December 31, 2016 and 2015, respectively.

The Company has had and intends to have business transactions in the ordinary course of business with directors, officers and affiliated interests on comparable terms as those prevailing from time to time for other non-affiliated customers of the Company. For these transactions, related expenses are not significant to the operations of the Company.

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Premises and Equipment

12 Months Ended

Dec. 31, 2016

Property, Plant and Equipment [Abstract]

Premises and Equipment

Premises and Equipment

Premises and equipment consist of the following:

		December 31,
(Dollars in thousands)	Estimated Useful Lives	2016			2015
Land		$	1,798		$	1,798
Building	40 years	8,083			8,083
Leasehold improvements	3 - 10 years	5,864			5,762
Furniture, fixtures and equipment	3 – 15 years	4,897			4,542
		20,642			20,185
Less: Accumulated depreciation		(9,969		)	(9,076		)
		$	10,673		$	11,109

Depreciation expense was $893,000 and $1.0 million for the years ended December 31, 2016 and 2015, respectively.

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Other Real Estate Owned ("OREO")

12 Months Ended

Dec. 31, 2016

Real Estate [Abstract]

Other Real Estate Owned (OREO)

Other Real Estate Owned (“OREO”)

Activity related to other real estate owned for the years ended December 31, 2016 and 2015 is as follows:

(Dollars in thousands)	2016			2015
Balance, beginning of year	$	966		$	5,710
Transfers into real estate owned	141			2,357
Transfers to other assets	—			—
Sale of real estate owned	(1,033		)	(6,027		)
Gain (loss) on sale of real estate owned	31			(692		)
Increase (decrease) in carrying amount of real estate owned	61			(382		)
Balance, end of year	$	166		$	966

At December 31, 2016, OREO was comprised of one commercial property. At December 31, 2015, OREO was comprised of one residential property.

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Goodwill and Intangible Assets

12 Months Ended

Dec. 31, 2016

Goodwill and Intangible Assets Disclosure [Abstract]

Goodwill and Intangible Assets

Goodwill and Intangible Assets

Goodwill and intangible assets are summarized as follows:

	December 31,
(Dollars in thousands)	2016		2015
Goodwill	$	11,854	$	11,854
Core deposits intangible	1,026		1,430
Total	$	12,880	$	13,284

Amortization expense of intangible assets was $404,000 and $428,000 for the years ended December 31, 2016 and 2015, respectively.

Scheduled amortization of the core deposits intangible is as follows:

(Dollars in thousands)
	2017	$	384
	2018	305
	2019	110
	2020	88
	2021	67
	Thereafter	72
		$	1,026

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Deposits

12 Months Ended

Dec. 31, 2016

Banking and Thrift [Abstract]

Deposits

Deposits

Deposits at December 31, 2016 and 2015 are summarized as follows:

(Dollars in thousands)	2016		2015
Non-interest bearing	$	170,854	$	159,918
Interest bearing	310,103		284,547
Savings	205,294		196,324
Certificates of deposit	148,265		145,968
	$	834,516	$	786,757

At December 31, 2016, certificates of deposit have contractual maturities as follows:

(Dollars in thousands)
	Year	Amount
	2017	$	86,079
	2018	35,752
	2019	8,050
	2020	6,161
	2021	12,223
		$	148,265

Certificates of deposit greater than $250,000 were $23.9 million and $24.3 million at December 31, 2016 and December 31, 2015, respectively.

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Borrowings

12 Months Ended

Dec. 31, 2016

Debt Disclosure [Abstract]

Borrowings

Borrowings

The balance of borrowings was $73.1 million at December 31, 2016, consisting of one long-term FHLB advance totaling $10.0 million and overnight funds purchased of $63.1 million. The balance of borrowings was $58.9 million at December 31, 2015, consisting of three long-term FHLB advances totaling $20.3 million and overnight funds purchased of $38.6 million. These borrowings are primarily used to fund asset growth not supported by deposit generation.

Two long-term FHLB fixed rate convertible advances were assumed by the Bank as a result of an acquisition in 2014. These two advances totaled $10.0 million with an average rate of 4.50%. As a result of acquisition accounting, the two advances were fair valued and a premium of $1.0 million was assigned. The premium was amortized over the remaining term of the advances. The two advances had a combined carrying amount of $10.3 million at December 31, 2015 and both advances matured and were repaid on December 14, 2016.

The Bank also has a fixed rate convertible advance from the FHLB in the amount of $10.0 million that bears interest at the rate of 4.08%. This advance may be called by the FHLB quarterly at the option of the FHLB if rates rise and the rate earned by the FHLB is no longer a “market” rate. This advance is fully secured by marketable securities. The FHLB advance matures on July 31, 2017. Due to the call provision, the expected maturity could differ from the contractual maturity.

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Redeemable Subordinated Debentures

12 Months Ended

Dec. 31, 2016

Subordinated Borrowings [Abstract]

Redeemable Subordinated Debentures

Redeemable Subordinated Debentures

On May 30, 2006, the Company established 1st Constitution Capital Trust II (“Trust II”), a Delaware business trust and wholly-owned subsidiary of the Company, for the sole purpose of issuing $18.0 million of trust preferred securities (the “Capital Securities”).  Trust II utilized the $18.0 million in proceeds, along with $557,000 invested in Trust II by the Company, to purchase $18,557,000 of floating rate junior subordinated debentures issued by the Company and due to mature on June 15, 2036.  The subordinated debentures carry a floating interest rate based on the three-month LIBOR plus 165 basis points (2.61344% at December 31, 2016). The Capital Securities were issued in connection with a pooled offering involving approximately 50 other financial institution holding companies.  All of the Capital Securities were sold to a single pooling vehicle. The floating rate junior subordinated debentures are the only asset of Trust II and have terms that mirrored the Capital Securities. These debentures are redeemable in whole or in part prior to maturity after June 15, 2011. Trust II is obligated to distribute all proceeds of a redemption of these debentures, whether voluntary or upon maturity, to holders of the Capital Securities.  The Company’s obligation with respect to the Capital Securities and the debentures, when taken together, provided a full and unconditional guarantee on a subordinated basis by the Company of the obligations of Trust II to pay amounts when due on the Capital Securities.  Interest payments on the floating rate junior subordinated debentures flow through Trust II to the pooling vehicle.

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Income Taxes

12 Months Ended

Dec. 31, 2016

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

The components of income tax expense (benefit) are summarized as follows:

(Dollars in thousands)	2016		2015
Federal:
Current	$	3,360	$	3,199
Deferred	269		8
	3,629		3,207
State:
Current	909		704
Deferred	85		151
	994		855
	$	4,623	$	4,062

A comparison of income tax expense at the Federal statutory rate in 2016 and 2015 to the Company’s provision for income taxes is as follows:

(Dollars in thousands)	2016			2015
Federal income tax	$	4,729		$	4,327
Add (deduct) effect of:
State income taxes net of federal income tax effect	656			564
Tax-exempt interest income	(706		)	(724		)
Bank-owned life insurance	(187		)	(203		)
Other items, net	131			98
Provision for income taxes	$	4,623		$	4,062

The tax effects of existing temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are as follows:

	December 31,
(Dollars in thousands)	2016			2015
Deferred tax assets (liabilities):
Allowance for loan losses	$	2,993		$	3,020
Unrealized loss (gain) on securities available for sale	130			(113		)
Supplemental executive retirement plan liability	1,886			2,060
Other than temporary impairment loss	170			170
Depreciation	802			482
Non-accrual interest	313			231
Pension liability	(44		)	(75		)
Other	262			324
Acquisition accounting adjustments	(52		)	441
Net deferred tax assets, included in other assets	$	6,460		$	6,540

Based upon the current facts, management has determined that it is more likely than not that there will be sufficient taxable income in future years to realize the deferred tax assets.  However, there can be no assurances about the level of future earnings.

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Comprehensive Income and Accumulated Other Comprehensive Income

3 Months Ended

12 Months Ended

Mar. 31, 2017

Dec. 31, 2016

Equity [Abstract]

Comprehensive Income and Accumulated Other Comprehensive Income

Other Comprehensive Income (Loss) and Accumulated Other Comprehensive Income (Loss)

Other comprehensive income (loss) is the total of (1) net income (loss), and (2) all other changes in equity from non-shareholder sources, which are referred to as other comprehensive income (loss).  The components of accumulated other comprehensive income (loss), and the related tax effects, are as follows:

	Before-Tax Amount			Income Tax Effect			Net-of-Tax Amount
(Dollars in thousands)
March 31, 2017
Unrealized net holding (losses) on available-for-sale securities	$	(283	)	$	61		$	(222	)
Reclassification adjustment for (gains) realized in income	(82		)	33			(49		)
Other comprehensive (loss) on available for sale securities	(365		)	94			(271		)
Unrealized impairment (loss) on held to maturity security	(501		)	170			(331		)
Unfunded pension liability:
Plan actuarial gains (losses) included in other comprehensive income	90			(37		)	53
Accumulated other comprehensive (loss)	$	(776	)	$	227		$	(549	)

	Before-Tax Amount			Income Tax Effect			Net-of-Tax Amount
March 31, 2016
Unrealized net holding gains on available-for-sale securities	$	722		$	(302	)	$	420
Unrealized impairment (loss) on held to maturity security	(501		)	170			(331		)
Unfunded pension liability:
Plan actuarial gains (losses) included in other comprehensive income	160			(64		)	96
Accumulated other comprehensive income	$	381		$	(196	)	$	185

Changes in the components of accumulated other comprehensive income (loss) are as follows and are presented net of tax:

	Unrealized Holding Gains (Losses) on Available for Sale Securities			Unrealized Impairment Loss on Held to Maturity Security			Unfunded Pension Liability			Accumulated Other Comprehensive Income (Loss)
(Dollars in thousands)
Three Months Ended March 31, 2017:
Balance, beginning of period	$	(334	)	$	(331	)	$	65		$	(600	)
Other comprehensive income (loss)  before reclassifications	112			—			—			112
Amounts reclassified from accumulated other      comprehensive income (loss)	—			—			(12		)	(12		)
Reclassification adjustment for (gains) realized in income	(49		)	—			—			(49		)
Other comprehensive income (loss)	63			—			(12		)	51
Balance, end of period	$	(271	)	$	(331	)	$	53		$	(549	)

	Unrealized Holding Gains (Losses) on Available for Sale Securities		Unrealized Impairment Loss on Held to Maturity Security			Unfunded Pension Liability			Accumulated Other Comprehensive Income (Loss)
Three Months Ended March 31, 2016:
Balance, beginning of period	$	90	$	(331	)	$	111		$	(130	)
Other comprehensive income (loss) before      reclassifications	330		—			—			330
Amounts reclassified from accumulated other      comprehensive income (loss)	—		—			(15		)	(15		)
Other comprehensive income (loss)	330		—			(15		)	315
Balance, end of period	$	420	$	(331	)	$	96		$	185

Comprehensive Income and Accumulated Other Comprehensive Income

Comprehensive income is the total of (1) net income and (2) all other changes in equity from non-shareholder sources, which are referred to as other comprehensive income. The components of accumulated other comprehensive income (loss) that are included in shareholders' equity and the related tax effects are as follows:

Year ended December 31, 2016:
(Dollars in thousands)	Before-Tax Amount			Income Tax Effect			Net-of-Tax Amount
Unrealized holding (losses) gains on available for sale securities:
Unrealized holding gains on available for sale  securities	$	(464	)	$	130		$	(334	)
Reclassification adjustment for (gains) losses realized in income	—			—			—
Other comprehensive (loss) on securities available for sale	(464		)	130			(334		)
Unrealized impairment (loss) on held to maturity security:
Unrealized impairment (loss) on held to maturity security	(501		)	170			(331		)
Unfunded pension liability:
Changes from plan actuarial gains and losses included in other comprehensive income	269			(108		)	161
Reclassification adjustment for (gains) realized in income	(160		)	64			(96		)
Other comprehensive gain from plan actuarial gains	109			(44		)	65
Accumulated other comprehensive income (loss)	$	(856	)	$	256		$	(600	)
Year ended December 31, 2015:
(Dollars in thousands)	Before-Tax Amount			Income Tax Effect			Net-of-Tax Amount
Unrealized holding (losses) gains on available for sale securities:
Unrealized holding gains on available for sale  securities	$	203		$	(113	)	$	90
Reclassification adjustment for loss realized in income	—			—			—
Other comprehensive gain on securities available for sale	203			(113		)	90
Unrealized impairment (loss)  on held to maturity security:
Unrealized impairment (loss) on held to maturity security	(501		)	170			(331		)
Unfunded pension liability:
Changes from plan actuarial gains and losses included in other comprehensive income	452			(181		)	271
Reclassification adjustment for (gains) realized in income	(266		)	106			(160		)
Other comprehensive gain from plan actuarial gains	186			(75		)	111
Accumulated other comprehensive income (loss)	$	(112	)	$	(18	)	$	(130	)

Changes in the components of accumulated other comprehensive income (loss) are as follows and are presented net of tax:

(Dollars in thousands)	Unrealized Holding (Losses) Gains on Available for Sale Securities			Unrealized Impairment Loss On Held to Maturity Security			Unfunded Pension Liability			Accumulated Other Comprehensive Income (Loss)
Balance, January 1, 2015	$	276		$	(331	)	$	303		$	248
Other comprehensive income (loss) before reclassifications	(186		)	—			(32		)	(218		)
Amounts reclassified from accumulated other comprehensive income (loss)	—			—			(160		)	(160		)
Other comprehensive income (loss)	(186		)	—			(192		)	(378		)
Balance, December 31, 2015	90			(331		)	111			(130		)
Other comprehensive income (loss) before reclassifications	(424		)	—			52			(372		)
Amounts reclassified from accumulated other comprehensive income (loss)	—			—			(98		)	(98		)
Other comprehensive income (loss)	(424		)	—			(46		)	(470		)
Balance, December 31, 2016	$	(334	)	$	(331	)	$	65		$	(600	)

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Benefit Plans

3 Months Ended

12 Months Ended

Mar. 31, 2017

Dec. 31, 2016

Compensation and Retirement Disclosure [Abstract]

Benefit Plans

Benefit Plans

The Bank has a 401(k) plan which covers substantially all employees with six months or more of service. The Bank's 401(k) plan permits all eligible employees to make contributions to the plan up to the IRS salary deferral limit. The Bank’s contributions to the 401(k) plan are expensed as incurred.

The Company also provides retirement benefits to certain employees under supplemental executive retirement plans.  The plans are unfunded and the Company accrues actuarially determined benefit costs over the estimated service period of the employees in the plans.  The Company recognizes the over-funded or under-funded status of a defined benefit post-retirement plan as an asset or liability on its balance sheet and recognizes changes in that funded status in the year in which the changes occur, through comprehensive income.

In connection with the benefit plans, the Bank has life insurance policies on the lives of its executives, directors and employees. The Bank is the owner and beneficiary of these policies. The cash surrender values of these policies totaled approximately $22.3 million and $22.2 million at March 31, 2017 and December 31, 2016, respectively.

The components of net periodic expense for the Company’s supplemental executive retirement plans for the three months ended March 31, 2017 and 2016 were as follows:

(Dollars in thousands)	Three Months Ended March 31,
	2017			2016
Service cost	$	33		$	49
Interest cost	45			38
Actuarial gain recognized	(19		)	(26		)
Total	$	59		$	61

Benefit Plans

Retirement Savings Plan

The Bank has a 401(k) plan which covers substantially all employees with six months or more of service.  The plan permits all eligible employees to make basic contributions to the plan up to the IRS salary deferral limit.  Under the plan, the Bank provided a matching contribution of 50% in 2016 and 2015, up to 6% of base compensation.  Employer contributions to the plan amounted to $272,000 in 2016 and $274,000 in 2015.

Supplemental Executive Retirement Plan

The Company also provides retirement benefits to certain employees under supplemental executive retirement plans.  The plans are unfunded and the Company accrues actuarially determined benefit costs over the estimated service period of the employees in the plans.  The present value of the benefits accrued under these plans as of December 31, 2016 and 2015 is approximately $4.7 million and $5.2 million, respectively, and is included in other liabilities and accumulated other comprehensive income in the accompanying consolidated balance sheets.  Compensation expense related to the supplemental executive retirement plans of $235,000 and $184,000 is included in the accompanying consolidated statements of income for the years ended December 31, 2016 and 2015, respectively.

Bank-Owned Life Insurance

In connection with the benefit plans, the Bank has life insurance policies on the lives of its executives, directors, officers and employees.  The Bank is the owner and beneficiary of the policies.  The cash surrender values of the policies totaled approximately $22.2 million and $21.6 million as of December 31, 2016 and 2015, respectively.

The following table sets forth the changes in benefit obligations of the Company’s supplemental executive retirement plans. 

(Dollars in thousands)	2016			2015
Change in Benefit Obligation
Beginning January 1	$	4,971		$	4,511
Service cost	216			267
Interest cost	179			183
Actuarial (gain) loss	(83		)	53
Benefits paid	(670		)	(43		)
Ending December 31	$	4,613		$	4,971
Amount Recognized in Consolidated Balance Sheets
Liability for pension	$	4,722		$	5,157
Net actuarial gain included in accumulated other comprehensive income	(109		)	(186		)
Prior service cost included in accumulated other comprehensive income	—			—
Net recognized pension liability	$	4,613		$	4,971
Information for pension plans with an accumulated  benefit obligation in excess of plan assets
Projected benefit obligation	$	4,613		$	4,971
Accumulated benefit obligation	4,463			4,699

Components of Net Periodic Benefit Cost	2016			2015
Service cost	$	216		$	267
Interest cost	179			183
Amortization of prior service cost	—			—
Recognized net actuarial gain	(160		)	(266		)
Net periodic benefit expense	$	235		$	184

The net periodic benefit cost is projected to be $184,000 and actuarial gains of $109,000 are expected to be removed from accumulated other comprehensive income and recognized as a component of net periodic benefit expense for the year ending December 31, 2017.

Weighted-Average Assumptions, December 31	2016		2015
Discount Rate	4.0	%	4.0	%
Salary Scale	4.0	%	4.0	%

	Projected Annual Benefit Payments*
(Dollars in thousands)	2017	$	4,906
	2018	$	—
	2019	$	—
	2020	$	—
	2021	$	—
	2022-2026	$	—

* Represents management’s expectation as of December 31, 2016 as to when such payments will be made.

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Share-Based Compensation

3 Months Ended

12 Months Ended

Mar. 31, 2017

Dec. 31, 2016

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

Share-Based Compensation

Share-Based Compensation

The Company’s share-based incentive plans (“Stock Plans”) authorize the issuance of an aggregate of 485,873 shares of the Company’s common stock (as adjusted for stock dividends) pursuant to awards that may be granted in the form of stock options to purchase common stock (“Options”) and awards of shares of common stock (“Stock Awards”).  The purpose of the Stock Plans is to attract and retain personnel for positions of substantial responsibility and to provide additional incentive to certain officers, directors, employees and other persons to promote the success of the Company.  Under the Stock Plans, options may have a term of not more than ten years after the date of grant, subject to earlier termination in certain circumstances.  Options are granted with an exercise price at the closing price of the Company’s common stock on the date of grant or otherwise as provided for in the Stock Plans.  The grant date fair value is calculated using the Black – Scholes option valuation model.

As of March 31, 2017, there were 162,953 shares of common stock available for future grants under the Stock Plans.

The following table summarizes stock option activity during the three months ended March 31, 2017:

(Dollars in thousands, except share amounts)	Number of		Weighted Average		Weighted Average Remaining Contractual	Aggregate Intrinsic
Stock Options	Shares		Exercise Price		Term (years)	Value
Outstanding at January 1, 2017	165,801		$	7.35
Granted	9,900		18.65
Exercised	(3,019	)	6.57
Forfeited	—		—
Expired	—		—
Outstanding at March 31, 2017	172,682		$	8.01	5.0	$	1,802
Exercisable at March 31, 2017	139,660		$	6.91	4.2	$	1,612

The fair value of each option and the significant weighted average assumptions used to calculate the fair value of the options granted for the three months ended March 31, 2017 are as follows:

Fair value of options granted	$	6.05
Risk-free rate of return	2.45		%
Expected option life in years	7
Expected volatility	31.25		%
Expected dividends (1)	1.19		%

⁽¹⁾ The Company declared its first cash dividend on September 15, 2016.

The following table summarizes the activity in non-vested restricted shares for the three months ended March 31, 2017:

	Number of		Average Grant-Date
Non-vested shares	Shares		Fair Value
Non-vested at January 1, 2017	143,259		$	9.02
Granted	28,300		18.65
Vested	(22,710	)	10.83
Forfeited	—		—
Non-vested at March 31, 2017	148,849		$	9.90

The value of restricted shares is based upon the closing price of the common stock on the date of grant. The shares generally vest over a 4 year service period for employees and a 2 year service period for non-employee directors with compensation expense recognized on a straight-line basis.

Share-based compensation expense related to options was $11,000 for the three months ended March 31, 2017 and March 31, 2016, respectively. Share-based compensation expense related to stock grants was $188,000 and $159,000 for the three months ended March 31, 2017 and 2016, respectively.

As of March 31, 2017, there was approximately $124,000 of unrecognized compensation cost related to non-vested stock options and $1.7 million of unrecognized compensation cost related to non-vested stock grants.  

Except for stock option grants and restricted stock grants to employees that are older than or will be of retirement age of 65 years old in the current year, as described in the stock option agreements and restricted stock agreements, the unrecognized compensation expense is expected to be recognized over the next four years. Unvested grants of stock options and restricted stock to employees who are older than or are of such retirement age, as described in the stock option agreements and restricted stock agreements, become 100% vested upon an employee's retirement, unless the employee’s employment contract provides for a different vesting period. Accordingly, the full compensation cost related to these stock options and restricted stock grants are recognized at the time of the grant. Compensation costs related to non-vested stock grants for non-employee directors are recognized over two years from the date of grant.

Share-Based Compensation

The Company’s stock-based incentive plans (the “Stock Plans”) authorize the issuance of an aggregate of 485,873 shares of the Company’s common stock (as adjusted for stock dividends) pursuant to awards that may be granted in the form of stock options to purchase common stock (“Options”) and awards of shares of common stock (“Stock Awards”).  The purpose of the Stock Plans is to attract and retain personnel for positions of substantial responsibility and to provide additional incentive to certain officers, directors, employees and other persons to promote the success of the Company.  Under the Stock Plans, options have a term of ten years after the date of grant, subject to earlier termination in certain circumstances.  Options are granted with an exercise price at the then fair market value of the Company’s common stock.  The grant date fair value is calculated using the Black-Scholes option valuation model. As of December 31, 2016, there were 196,175 shares of common stock available for future grants under the Stock Plans, of which 156,465 shares are available for future grant under the 2013 Equity Incentive Plan and 39,710 shares are available for future grant under the 2015 Directors Stock Plan.

Stock-based compensation expense related to stock options was $44,000 and $41,000 for the years ended December 31, 2016 and 2015, respectively.

Transactions under the Company’s stock option plans during the years ended December 31, 2016 and 2015 are summarized as follows:

StockOptions	Number of Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (years)	Aggregate Intrinsic Value
Outstanding at January 1, 2015	246,880		$	7.80
Granted	13,892		10.10
Exercised	(43,639	)	6.68
Forfeited	(27,788	)	10.55
Expired	(11,751	)	11.89
Outstanding at December 31, 2015	177,594		7.41		5.2	$	861,000
Granted	11,655		11.98
Exercised	(18,645	)	9.79
Forfeited	(4,648	)	11.60
Expired	(155	)	11.85
Outstanding at December 31, 2016	165,801		$	7.35	5.2	$	1,881,841
Exercisable at December 31, 2016	146,067		$	7.27	5.0	$	1,669,569

There were 18,645 options exercised in 2016 and 43,639 options exercised in 2015. The total intrinsic value (market value on date of exercise less grant price) of options exercised during the year ended December 31, 2016 was $125,000 compared to $176,000 during the year ended December 31, 2015.

The following table summarizes stock options outstanding and exercisable at December 31, 2016:

	Outstanding Options				Exercisable Options
Exercise Price Range	Number	Average Life in Years	Average Exercise Price		Number	Average Life in Years	Average Exercise Price
$5.54 to $5.63	55,106	4.8	$	5.60	48,339	4.8	$	5.59
$6.16 to $7.46	69,990	4.8	$	6.95	66,774	4.7	$	6.94
$9.30 to $11.98	40,705	6.3	$	10.40	30,954	6.0	$	10.60
	165,801	5.2	$	7.35	146,067	5.0	$	7.27

The fair value of each option and the significant weighted average assumptions used to calculate the fair value of the options granted during the years ended December 31, 2016 and 2015 are as follows:

	2016			2015
Fair value of options granted	$	4.65		$	4.05
Risk-free rate of return	2.25		%	1.37		%
Expected option life in years	7			7
Expected volatility	30.66		%	32.37		%
Expected dividends (1)	—		%	—

(1)  Subsequent to the granting of stock options in 2016, the Company paid its first cash dividend on October 21, 2016.

As of December 31, 2016, there was approximately $75,300 of unrecognized compensation cost related to non-vested stock option-based compensation arrangements granted under the Company’s stock incentive plans.  That cost is expected to be recognized over the next four years.

The following table summarizes the activity in nonvested restricted shares for the years ended December 31, 2016 and 2015:

Non-vested Shares	Number of Shares		Average Grant-Date Fair Value
January 1, 2015	148,634		$	7.16
Granted	70,515		10.66
Vested	(60,930	)	8.99
Forfeited	(14,340	)	8.61
Non-vested at December 31, 2015	143,879		8.32
Granted	76,450		12.31
Vested	(74,070	)	10.91
Forfeited	(3,000	)	12.69
Non-vested at December 31, 2016	143,259		$	9.02

The value of restricted shares is based upon the closing price of the common stock on the date of grant.  The shares generally vest over a four year service period with compensation expense recognized on a straight-line basis.

Stock based compensation expense related to stock grants was $710,000 and $590,000 for the years ended December 31, 2016 and 2015, respectively.

As of December 31, 2016, there was approximately $1.4 million of unrecognized compensation cost related to non-vested stock grants that will be recognized over the next three years.

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Commitments and Contingencies

12 Months Ended

Dec. 31, 2016

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies

Commitments and Contingencies

As of December 31, 2016, future minimum rental payments under non-cancelable operating leases were as follows: 

(Dollars in thousands)	2017	$	1,331
	2018	1,099
	2019	957
	2020	750
	2021	658
	Thereafter	2,449
		$	7,244

Rent expense aggregated $1.5 million and for each of the years ended December 31, 2016 and 2015.

Commitments With Off-Balance Sheet Risk

The consolidated balance sheet does not reflect various commitments relating to financial instruments which are used in the normal course of business.  Management does not anticipate that the settlement of those financial instruments will have a material adverse effect on the Company’s financial condition.  These instruments include commitments to extend credit and letters of credit.  These financial instruments carry various degrees of credit risk, which is defined as the possibility that a loss may occur from the failure of another party to perform according to the terms of the contract.  As these off-balance sheet financial instruments have essentially the same credit risk involved in extending loans, the Bank generally uses the same credit and collateral policies in making these commitments and conditional obligations as it does for on-balance sheet investments. Additionally, as some commitments and conditional obligations are expected to expire without being drawn or returned, the contractual amounts do not necessarily represent future cash requirements.

Commitments to extend credit are legally binding loan commitments with set expiration dates.  They are intended to be disbursed, subject to certain conditions, upon request of the borrower.  The Bank receives a fee for providing a commitment.  The Bank was committed to advance $372.7 million and $290.9 million to its borrowers as of December 31, 2016 and December 31, 2015, respectively.

The Bank issues financial standby letters of credit that are within the scope of ASC Topic 460, “Guarantees.”  These are irrevocable undertakings by the Bank to guarantee payment of a specified financial obligation.  Most of the Bank’s financial standby letters of credit arise in connection with lending relationships and have terms of one year or less.  The maximum potential future payments that the Bank could be required to make under these standby letters of credit amounted to $2.0 million at December 31, 2016 and $2.1 million at December 31, 2015.  The current amount of the liability as of December 31, 2016 and 2015 for guarantors under standby letters of credit is not material.

The Bank also enters into best efforts forward sales commitments to sell residential mortgage loans that it has closed (loans held for sale) or that it expects to close (commitments to originate loans held for sale).  These commitments are used to reduce the Bank’s market price risk during the period from the commitment date to the sale date.  The notional amount of the Bank’s forward sales commitments was approximately $8.3 million at December 31, 2016 and $16.9 million at December 31, 2015.  The fair value of the loan origination commitments was $123,000 at December 31, 2016 and was not significant at December 31, 2015.

Litigation

 The Company may, in the ordinary course of business, become a party to litigation involving collection matters, contract claims and other legal proceedings relating to the conduct of its business.  The Company may also have various commitments and contingent liabilities which are not reflected in the accompanying consolidated balance sheet. Management is not aware of any present legal proceedings or contingent liabilities and commitments that would have a material impact on the Company’s financial condition or results of operations.

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Other Operating Expenses

12 Months Ended

Dec. 31, 2016

Other Income and Expenses [Abstract]

Other Operating Expenses

Other Operating Expenses

The components of other operating expenses for the years ended December 31, 2016 and 2015 are as follows:

(Dollars in thousands)	2016		2015
Marketing	$	240	$	282
Equipment	555		839
Telephone	377		449
Regulatory, professional and other consulting fees	1,706		1,681
Insurance	303		324
Amortization of intangible assets	404		428
Other expenses	1,358		1,152
	$	4,943	$	5,155

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Regulatory Capital Requirements

12 Months Ended

Dec. 31, 2016

Banking and Thrift [Abstract]

Regulatory Capital Requirements

Regulatory Capital Requirements

The Company and the Bank are subject to various regulatory capital requirements administered by the Federal and state banking agencies.  Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary, actions by regulators that, if undertaken, could have a direct material effect on the Bank’s and the Company’s financial statements.  Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and the Bank must meet specific capital guidelines that involve quantitative measures of the Company’s and the Bank’s assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices.  The Company’s and the Bank’s capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.

Quantitative measures established by regulation to ensure capital adequacy require the Company and the Bank to maintain minimum amounts and ratios of Common Equity Tier 1, Total and Tier I capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier I capital to average assets (Leverage ratio, as defined).  As of December 31, 2016, the Company and the Bank met all capital adequacy requirements to which they are subject.

To be categorized as adequately capitalized, the Company and the Bank must maintain minimum Common Equity Tier 1, Total risk-based, Tier I risk-based and Tier I leverage ratios as set forth in the below table.  As of December 31, 2016, the Bank's capital ratios exceed the regulatory standards for well-capitalized institutions. Certain bank regulatory limitations exist on the availability of the Bank’s assets for the payment of dividends by the Bank without prior approval of bank regulatory authorities.

In July 2013, the Federal Reserve Board and the FDIC approved revisions to their capital adequacy guidelines and prompt corrective action rules that implemented and addressed the revised standards of Basel III and addressed relevant provisions of the Dodd-Frank Act. The Federal Reserve Board’s final rules and the FDIC’s interim final rules (which became final in April 2014 with no substantive changes) apply to all depository institutions, top-tier bank holding companies with total consolidated assets of $500 million or more and top-tier savings and loan holding companies (“banking organizations”). Among other things, the rules established a Common Equity Tier 1 minimum capital requirement (4.5% of risk-weighted assets) and increased the minimum Tier 1 capital to risk-based assets requirement (from 4% to 6% of risk-weighted assets). Banking organizations are also required to have a total capital ratio of at least 8% and a Tier 1 leverage ratio of at least 4%.

The rules also limited a banking organization’s ability to pay dividends, engage in share repurchases or pay discretionary bonuses if the banking organization does not hold a “capital conservation buffer” consisting of 2.5% of Common Equity Tier 1 capital to risk-weighted assets in addition to the amount necessary to meet its minimum risk-based capital requirements. The rules became effective for the Company and the Bank on January 1, 2015. The capital conservation buffer requirement began phasing in on January 1, 2016 at 0.625% of Common Equity Tier 1 capital to risk-weighted assets and will increase by that amount each year until fully implemented in January 2019 at 2.5% of common equity Tier 1 capital to risk-weighted assets. As of January 1, 2017, the Company and the Bank were required to maintain a capital conservation buffer of 1.25%.

Actual capital amounts and ratios for the Company and the Bank as of December 31, 2016 and 2015 are as follows:

								To Be Well Capitalized Under Prompt
					For Capital			Corrective
(Dollars in thousands)	Actual				Adequacy Purposes			Action Provisions
	Amount		Ratio		Amount		Ratio	Amount		Ratio
As of December 31, 2016
Company
Common equity Tier 1 (CET1)	$	93,101	10.40	%	$	40,302	>4.5%	N/A		N/A
Total Capital to Risk Weighted Assets	118,595		13.24	%	71,648		>8%	N/A		N/A
Tier 1 Capital to Risk Weighted Assets	111,101		12.41	%	53,736		>6%	N/A		N/A
Tier 1 Leverage Capital	111,101		10.93	%	40,658		>4%	N/A		N/A
Bank
Common equity Tier 1 (CET1)	$	108,606	12.13	%	$	40,302	>4.5%	$	58,214	≥6.5%
Total Capital to Risk Weighted Assets	116,100		12.96	%	71,648		>8%	89,560		≥10%
Tier 1 Capital to Risk Weighted Assets	108,606		12.13	%	53,736		>6%	71,648		≥8%
Tier 1 Leverage Capital	108,606		10.68	%	40,658		>4%	50,823		>5%
As of December 31, 2015
Company
Common equity Tier 1 (CET1)	$	83,994	10.03	%	$	37,628	>4.5%	N/A		N/A
Total Capital to Risk Weighted Assets	109,554		13.08	%	66,894		>8%	N/A		N/A
Tier 1 Capital to Risk Weighted Assets	101,994		12.18	%	50,170		>6%	N/A		N/A
Tier 1 Leverage Capital	101,994		10.80	%	37,765		>4%	N/A		N/A
Bank
Common equity Tier 1 (CET1)	$	99,631	11.90	%	$	37,628	>4.5%	$	54,431	≥6.5%
Total Capital to Risk Weighted Assets	107,191		12.80	%	66,894		>8%	83,739		≥10%
Tier 1 Capital to Risk Weighted Assets	99,631		11.90	%	50,170		>6%	66,991		≥8%
Tier 1 Leverage Capital	99,631		10.55	%	37,765		>4%	47,211		>5%

Dividend payments by the Bank to the Company are subject to the New Jersey Banking Act of 1948, as amended (the “Banking Act”) and the Federal Deposit Insurance Act, as amended (the “FDIA”).  Under the Banking Act, the Bank may not pay dividends unless, following the dividend payment, the capital stock of the Bank will be unimpaired and (i) the Bank will have a surplus of not less than 50% of its capital stock or, if not, (ii) the payment of such dividend will not reduce the surplus of the Bank. Under the FDIA, the Bank may not pay any dividends if after paying the dividend, it would be undercapitalized under applicable capital requirements. In addition to these explicit limitations, the federal regulatory agencies are authorized to prohibit a banking subsidiary or bank holding company from engaging in an unsafe or unsound banking practice. Depending upon the circumstances, the agencies could take the position that paying a dividend would constitute an unsafe or unsound banking practice. The Bank is also limited in paying dividends if it does not maintain the necessary “capital conservation buffer” as discussed below.

It is the policy of the Federal Reserve Board that bank holding companies should pay cash dividends on common stock only out of income available over the immediately preceding year and only if prospective earnings retention is consistent with the organization’s expected future needs and financial condition. The policy provides that bank holding companies should not maintain a level of cash dividend that undermines the bank holding company’s ability to serve as a source of strength to its banking subsidiary. A bank holding company may not pay dividends when it is insolvent. The Company's payment of cash dividends to date were within the guidelines set forth in the Federal Reserve Board's policy.

In the event the Company defers payments on the junior subordinated debentures used to fund payments to be made pursuant to the terms of the Capital Securities, the Company would be unable to pay cash dividends on its common stock until the deferred payments are made.

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Shareholders' Equity

12 Months Ended

Dec. 31, 2016

Stockholders' Equity Note [Abstract]

Shareholders' Equity

Shareholders’ Equity

The Company issued a warrant on December 23, 2008 to the United States Department of the Treasury (the “Treasury”) under the Troubled Asset Relief Program (“TARP”) Capital Purchase Program (the “CPP”). This warrant was sold by the Treasury on November 23, 2011 and exchanged for two new warrants which permit the holders thereof to acquire, on an adjusted basis resulting from declarations of stock and cash dividends to holders of common stock since the issuance of the two warrants, 283,572 shares of common stock of the Company at a price of $6.349 per share.

Certain terms and conditions of the warrant issued to the Treasury were modified or deleted in the two new warrants, including, without limitation, the deletion of the anti-dilution provision upon certain issuances of the Company’s common stock at or below a specified price relative to the initial exercise price.  However, the two warrants still provide for the adjustment of the exercise price and the number of shares of the Company’s common stock issuable upon exercise pursuant to customary anti-dilution provisions, such as upon stock splits or distributions of securities or other assets to holders of the Company’s common stock.  The two warrants remain outstanding, are immediately exercisable and continue to have an expiration date of December 23, 2018, which was the expiration date of the warrant originally issued to the Treasury.

The Board of Governors of the Federal Reserve System has issued a supervisory letter to bank holding companies that contains guidance on when the board of directors of a bank holding company should eliminate or defer or severely limit dividends, including, for example, when net income available for shareholders for the past four quarters, net of dividends paid during that period, is not sufficient to fully fund the dividends. The letter also contains guidance on the redemption of stock by bank holding companies which urges bank holding companies to advise the Federal Reserve of any such redemption or repurchase of common stock for cash or other value which results in the net reduction of a bank holding company’s capital at the beginning of the quarter below the capital outstanding at the end of the quarter. The Company's payment of cash dividends to date were within the guidelines set forth in the Federal Reserve Board's supervisory letter.

On August 3, 2005, the Board of Directors of the Company authorized a common stock repurchase program that allowed for the repurchase of a limited number of the Company’s shares at management’s discretion on the open market.  The Company undertook this repurchase program in order to increase shareholder value. During the year ended December 31, 2015, the Company repurchased 31,050 shares for an aggregate price of approximately $359,000.

On January 21, 2016, the Board of Directors of the Company authorized a new common stock repurchase program. Under the new common stock repurchase program, the Company may purchase in open market or privately negotiated transactions up to five (5%) percent of its common shares outstanding on the date of the approval of the stock repurchase program, which limitation will be adjusted for any future stock dividends. This new repurchase program replaced the repurchase program authorized on August 3, 2005. During the year ended December 31, 2016, the Company repurchased 2,000 shares for an aggregate price of approximately $24,000.

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Fair Value Disclosures

3 Months Ended

12 Months Ended

Mar. 31, 2017

Dec. 31, 2016

Fair Value Disclosures [Abstract]

Fair Value Disclosures

Fair Value Disclosures

U.S. GAAP has established a fair value hierarchy that prioritizes the inputs to valuation methods used to measure fair value.  The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements).  The three levels of the fair value hierarchy are as follows:

Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical unrestricted assets or liabilities.

Level 2: Quoted prices in markets that are not active, or inputs that are observable either directly or indirectly, for substantially the full term of the asset or liability.

Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported with little or no market activity).

An asset’s or liability’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.

A description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below.  These valuation methodologies were applied to all of the Company’s financial assets and financial liabilities carried at fair value.

In general, fair value is based upon quoted market prices, where available.  If such quoted market prices are not available, fair value is based upon internally developed models that primarily use, as inputs, observable market-based parameters.  Valuation adjustments may be made to ensure that financial instruments are recorded at fair value.  These adjustments may include amounts to reflect counterparty credit quality and counterparty creditworthiness, among other things, as well as unobservable parameters.  Any such valuation adjustments are applied consistently over time.  The Company’s valuation methodologies may produce a fair value calculation that may not be indicative of net realizable value or reflective of future values.  While management believes the Company’s valuation methodologies are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date.

Securities Available for Sale.  Securities classified as available for sale are reported at fair value utilizing quoted market prices on nationally recognized exchanges (Level 1) or by using Level 2 inputs.  For Level 2 securities, the Company obtains fair value measurements from an independent pricing service.  The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayments speeds, credit information and the security’s terms and conditions, among other things.

Impaired loans.  Impaired loans are those which the Company has measured and recognized impairment, generally based on the fair value of the loan’s collateral.  Fair value is generally determined based upon independent third party appraisals of the collateral or discounted cash flows based on the expected proceeds.  These assets are included as Level 3 fair values, based upon the lowest level of input that is significant to the fair value measurements.  The fair value consists of the loan balances less specific valuation allowances.

Other Real Estate Owned.  Foreclosed properties are adjusted to fair value less estimated selling costs at the time of foreclosure in preparation for transfer from portfolio loans to other real estate owned (“OREO”), thereby establishing a new accounting basis.  The Company subsequently adjusts the fair value of the OREO, utilizing Level 3 inputs on a non-recurring basis to reflect partial write-downs based on the observable market price, current appraised value of the asset or other estimates of fair value. The fair value of other real estate owned is determined using appraisals, which may be discounted based on management’s review and changes in market conditions.

The following table summarizes financial assets and financial liabilities measured at fair value on a recurring basis segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value:

(Dollars in thousands)	Level 1 Inputs		Level 2 Inputs		Level 3 Inputs		Total Fair Value
March 31, 2017:
Securities available for sale:
U. S. Treasury securities and obligations of U.S. Government sponsored corporations (“GSE”) and agencies	$	—	$	3,505	$	—	$	3,505
Residential collateralized mortgage obligations- GSE	—		24,473		—		24,473
Residential mortgage backed securities – GSE	—		28,306		—		28,306
Obligations of state and political subdivisions	—		21,395		—		21,395
Trust preferred debt securities – single issuer	—		2,267		—		2,267
Corporate debt securities	19,829		5,010		—		24,839
Other debt securities	—		780		—		780
Total	$	19,829	$	85,736	$	—	$	105,565

(Dollars in thousands)	Level 1 Inputs		Level 2 Inputs		Level 3 Inputs		Total Fair Value
December 31, 2016:
Securities available for sale:
U. S. Treasury securities and obligations of U.S. Government sponsored corporations (“GSE”) and agencies	$	—	$	3,479	$	—	$	3,479
Residential collateralized mortgage obligations- GSE	—		22,560		—		22,560
Residential mortgage backed securities – GSE	—		31,476		—		31,476
Obligations of state and political subdivisions	—		21,400		—		21,400
Trust preferred debt securities – single issuer	—		2,272		—		2,272
Corporate debt securities	12,826		8,942		—		21,768
Other debt securities	—		839		—		839
Total	$	12,826	$	90,968	$	—	$	103,794

Certain assets and liabilities are measured at fair value on a nonrecurring basis; that is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment).  Assets and liabilities measured at fair value on a nonrecurring basis, where there was evidence of impairment, at March 31, 2017 and December 31, 2016 were as follows:

(Dollars in thousands)	Level 1 Inputs		Level 2 Inputs		Level 3 Inputs		Total Fair Value
March 31, 2017:
Impaired loans	$	—	$	—	$	8,463	$	8,463
December 31, 2016:
Impaired loans	$	—	$	—	$	4,130	$	4,130

Impaired loans measured at fair value and included in the above table at March 31, 2017 consisted of nine loans having an aggregate recorded investment of $9.1 million and specific loan loss allowances of $674,000.  Impaired loans measured at fair value and included in the above table at December 31, 2016 consisted of nine loans having an aggregate balance of $4.4 million with a specific loan loss allowance of $255,000.

The following table presents additional qualitative information about assets measured at fair value on a nonrecurring basis, where there was evidence of impairment, and for which the Company has utilized Level 3 inputs to determine fair value:

Quantitative Information about Level 3 Fair Value Measurements
(Dollars in thousands)	Fair Value Estimate		Valuation Techniques	Unobservable Input	Range (Weighted Average)
March 31, 2017
Impaired loans	$	8,463	Appraisal of collateral (1)	Appraisal adjustments (2)	24% - 83% (47.3%)
December 31, 2016
Impaired loans	$	4,130	Appraisal of collateral (1)	Appraisal adjustments (2)	3%-100% (29.1%)

(1) Fair value is generally determined through independent appraisals of the underlying collateral, which generally include various Level 3 inputs which are not identifiable.

(2) Includes qualitative adjustments by management and estimated liquidation expenses.

The following is a summary of fair value versus carrying value of all of the Company’s financial instruments.  For the Company and the Bank, as with most financial institutions, the bulk of their assets and liabilities are considered financial instruments.  Many of the financial instruments lack an available trading market as characterized by a willing buyer and willing seller engaging in an exchange transaction.  Therefore, significant estimations and present value calculations were used for the purpose of this note.  Changes in assumptions could significantly affect these estimates.

Estimated fair values have been determined by using the best available data and an estimation methodology suitable for each category of financial instruments as follows:

Cash and Cash Equivalents, Accrued Interest Receivable and Accrued Interest Payable (Carried at Cost). The carrying amounts reported in the balance sheet for cash and cash equivalents, accrued interest receivable and accrued interest payable approximate fair value.

Securities Held to Maturity (Carried at Amortized Cost). The fair values of securities held to maturity are determined in the same manner as for securities available for sale.

Loans Held For Sale (Carried at Lower of Aggregated Cost or Fair Value). The fair values of loans held for sale are determined, when possible, using quoted secondary market prices. If no such quoted market prices exist, fair values are determined using quoted prices for similar loans, adjusted for the specific attributes of the loans.

Gross Loans Receivable (Carried at Cost). The fair values of loans, excluding impaired loans subject to specific loss reserves, are estimated using discounted cash flow analyses that use market rates as of the balance sheet date that reflect the credit and interest rate-risk inherent in the loans.  Projected future cash flows are calculated based upon contractual maturity or call dates, projected repayments and prepayments of principal.  Generally, for variable rate loans that re-price frequently and with no significant change in credit risk, fair values are based on carrying values.

SBA servicing asset. Servicing assets do not trade in an active market with readily observable prices. The Company estimates the fair value of an SBA servicing asset using a discounted cash flow model, which incorporates assumptions based on observable discount rates and prepayment speeds.

Interest rate lock derivatives. Interest rate lock commitments do not trade in active markets with readily observable prices. The fair value of an interest rate lock commitment is estimated based upon the forward sales price that is obtained in the best efforts commitment at the time the borrower locks in the interest rate on the loan and the probability that the locked rate commitment will close.

Federal Home Loan Bank Stock. FHLB stock is carried at cost. The carrying value approximates fair value based upon the redemption price provision of the FHLB stock.

Deposit Liabilities (Carried at Cost). The fair values disclosed for demand deposits (e.g., interest and non-interest demand and savings accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amounts).  Fair values for fixed-rate certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered in the market on certificates of deposit to a schedule of aggregated expected monthly maturities on time deposits.

Borrowings and Subordinated Debt (Carried at Cost). The carrying amounts of short-term borrowings approximate their fair values. The fair values of long-term FHLB advances are estimated using discounted cash flow analysis, based on quoted or estimated interest rates for new borrowings with similar credit risk characteristics, terms and remaining maturity. For subordinated debt, which reprices quarterly, the fair value is based on inputs that are observable either directly or indirectly for similar debt obligations.

The estimated fair values and carrying amounts of financial assets and liabilities as of March 31, 2017 and December 31, 2016 were as follows:

March 31, 2017
(Dollars in thousands)	Carrying			Level 1		Level 2			Level 3		Fair
	Value			Inputs		Inputs			Inputs		Value
Cash and cash equivalents	$	47,914		$	47,914	$	—		$	—	$	47,914
Securities available for sale	105,565			19,829		85,736			—		105,565
Securities held to maturity	125,940			—		127,845			—		127,845
Loans held for sale	3,360			—		3,455			—		3,455
Loans, net	668,861			—		—			666,634		666,634
SBA servicing asset	661			—		882			—		882
Interest rate lock derivative	149			—		149			—		149
Accrued interest receivable	2,789			—		2,789			—		2,789
FHLB stock	1,060			—		1,060			—		1,060
Deposits	(868,820		)	—		(868,259		)	—		(868,259		)
Borrowings	(10,000		)	—		(10,094		)	—		(10,094		)
Redeemable subordinated debentures	(18,557		)	—		(12,080		)	—		(12,080		)
Accrued interest payable	(832		)	—		(832		)	—		(832		)

December 31, 2016
(Dollars in thousands)	Carrying			Level 1		Level 2			Level 3		Fair
	Value			Inputs		Inputs			Inputs		Value
Cash and cash equivalents	$	14,886		$	14,886	$	—		$	—	$	14,886
Securities available for sale	103,794			12,826		90,968			—		103,794
Securities held to maturity	126,810			—		128,559			—		128,559
Loans held for sale	14,829			—		15,103			—		15,103
Loans, net	717,314			—		—			716,492		716,492
SBA servicing asset	605			—		822			—		822
Interest rate lock derivative	123			—		123			—		123
Accrued interest receivable	3,095			—		3,095			—		3,095
FHLB stock	3,962			—		3,962			—		3,962
Deposits	(834,516		)	—		(834,050		)	—		(834,050		)
Borrowings	(73,050		)	—		(73,222		)	—		(73,222		)
Redeemable subordinated debentures	(18,557		)	—		(11,922		)	—		(11,922		)
Accrued interest payable	(866		)	—		(866		)	—		(866		)

Loan commitments and standby letters of credit as of March 31, 2017 and December 31, 2016 were based on fees charged for similar agreements; accordingly, the estimated fair value of loan commitments and standby letters of credit was nominal.

Fair Value Disclosures

U.S. GAAP has established a fair value hierarchy that prioritizes the inputs to valuation methods used to measure fair value.  The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements).  The three levels of the fair value hierarchy are as follows:

Level 1.

• Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

Level 2.

• Quoted prices in markets that are not active, or inputs that are observable either directly or indirectly, for substantially the full term of the asset or liability.

Level 3.

• Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported with little or no market activity).

An asset’s or liability’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.

A description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below.  These valuation methodologies were applied to all of the Company’s financial assets and financial liabilities carried at fair value.

In general, fair value is based upon quoted market prices, where available.  If such quoted market prices are not available, fair value is based upon internally developed models that primarily use, as inputs, observable market-based parameters.  Valuation adjustments may be made to ensure that financial instruments are recorded at fair value.  These adjustments may include amounts to reflect counterparty credit quality and counterparty creditworthiness, among other things, as well as unobservable parameters.  Any such valuation adjustments are applied consistently over time.  The Company’s valuation methodologies may produce a fair value calculation that may not be indicative of net realizable value or reflective value or reflective of future values.  While management believes that the Company’s valuation methodologies are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date.

Securities Available for Sale.  Securities classified as available for sale are reported at fair value utilizing Level 1 and Level 2 inputs. For Level 2 securities, the fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the security’s terms and conditions, among other things.

Impaired loans.  Loans included in the following table are those which the Company has measured and recognized impairment based generally on the fair value of the loan’s collateral.  Fair value is generally determined based upon independent third party appraisals of the properties or discounted cash flows based on the expected proceeds.  These assets are included as Level 3 fair values based upon the lowest level of input that is significant to the fair value measurements.  The fair value consists of the loan balances less specific valuation allowances.

Other Real Estate Owned.  Foreclosed properties are adjusted to fair value less estimated selling costs at the time of foreclosure in preparation for transfer from portfolio loans to other real estate owned (“OREO”), thereby establishing a new accounting basis.  The Company subsequently adjusts the fair value of the OREO utilizing Level 3 inputs on a non-recurring basis to reflect partial write-downs based on the observable market price, current appraised value of the asset or other estimates of fair value.

The following table summarizes financial assets and financial liabilities measured at fair value on a recurring basis, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value:

(Dollars in thousands)	Level 1 Inputs		Level 2 Inputs		Level 3 Inputs		Total Fair Value
December 31, 2016:
Securities available for sale:
U.S. Treasury Securities and obligations of U.S. Government         sponsored corporations ("GSE") and agencies	$	—	$	3,479	$	—	$	3,479
Residential collateralized mortgage obligations - GSE	—		22,560		—		22,560
Residential mortgage backed securities-GSE	—		31,476		—		31,476
Obligations of state and political subdivisions	—		21,400		—		21,400
Trust preferred debt securities - single issuer	—		2,272		—		2,272
Corporate debt securities	12,826		8,942		—		21,768
Other debt securities	—		839		—		839
Total	$	12,826	$	90,968	$	—	$	103,794
December 31, 2015:
Securities available for sale:
U.S. Treasury Securities and obligations of U.S Government          sponsored corporations (“GSE”) and agencies	$	—	$	5,481	$	—	$	5,481
Residential collateralized mortgage obligations - GSE	—		8,287		—		8,287
Residential mortgage backed securities – GSE	—		32,635		—		32,635
Obligations of state and political subdivisions	—		21,436		—		21,436
Trust preferred debt securities - single issuer	—		2,136		—		2,136
Corporate debt securities	14,043		6,379		—		20,422
Other debt securities	—		971		54		1,025
Total	$	14,043	$	77,325	$	54	$	91,422

Certain financial assets and financial liabilities are measured at fair value on a nonrecurring basis; that is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment).  Financial assets and financial liabilities measured at fair value on a non-recurring basis at December 31, 2016 and 2015 are as follows:

(Dollars in thousands)	Level 1 Inputs	Level 2 Inputs	Level 3 Inputs		Total Fair Value
December 31, 2016
Impaired loans	—	—	$	4,130	$	4,130
December 31, 2015
Impaired loans	—	—	$	3,960	$	3,960
Other real estate owned	—	—	966		966

Impaired loans, measured at fair value and included in the above table, consisted of 9 loans having an aggregate balance of $4.4 million and specific loan loss allowances of $0.3 million at December 31, 2016 and 9 loans having an aggregate balance of $4.3 million and specific loan loss allowances of $0.3 million at December 31, 2015.

The following table presents additional qualitative information about assets measured at fair value on a non-recurring basis and for which the Company has utilized Level 3 inputs to determine fair value:

(Dollars in thousands)	Quantitative Information about Level 3 Fair Value Measurements
	Fair Value Estimate		Valuation Techniques	Unobservable Input	Range (Weighted Average)
December 31, 2016
Impaired loans	$	4,130	Appraisal of collateral (1)	Appraisal adjustments (2)	3%-100% (29.1%)
December 31, 2015
Impaired loans	$	3,960	Appraisal of collateral (1)	Appraisal adjustments (2)	11%-44% (29.6%)
Other real estate owned	$	966	Appraisal of collateral (1)	Appraisal adjustments (2)	0.11%

(1) Fair value is generally determined through independent appraisals of the underlying collateral, which generally include various Level 3 inputs that are not identifiable.

(2) Includes qualitative adjustments by management and estimated liquidation expenses.

The fair value of other real estate owned was determined using appraisals, which may be adjusted based on management’s review and changes in market conditions.

The following is a summary of the fair value and the carrying value of all of the Company’s financial instruments.  For the Company and the Bank, as for most financial institutions, the bulk of assets and liabilities are considered financial instruments.  Many of the financial instruments lack an available trading market as characterized by a willing buyer and willing seller engaging in an exchange transaction.  Therefore, significant estimations and present value calculations are used.  Changes in assumptions could significantly affect these estimates.

Estimated fair values have been determined by using the best available data and an estimation methodology suitable for each category of financial instruments as follows:

Cash and Cash Equivalents, Accrued Interest Receivable and Accrued Interest Payable (Carried at Cost). The carrying amounts reported on the balance sheet for cash and cash equivalents, accrued interest receivable and accrued interest payable approximate fair value.

Securities Held to Maturity (Carried at Amortized Cost). The fair values of securities held to maturity are determined in the same manner as for securities available for sale.

Loans Held For Sale (Carried at Lower of Aggregated Cost or Fair Value). The fair values of loans held for sale are determined, when possible, using prices based on the best efforts commitment by the purchaser of the loan or quoted secondary market prices. If no such quoted market prices exist, fair values are determined using quoted prices for similar loans, adjusted for the specific attributes of the loans.

SBA servicing asset. Servicing assets do not trade in an active market with readily observable prices. The Company estimates the fair value of the SBA servicing asset using a discounted cash flow model, which incorporates assumptions based on observable discount rates and prepayment speeds.

Interest rate lock derivatives. Interest rate lock commitments do not trade in active markets with readily observable prices. The fair value of the interest rate lock commitments is estimated based upon the forward sales price that is obtained in the best efforts commitment at the time the borrower locks in the interest rate on the loan and the probability that the locked rate commitment will close.

Federal Home Loan Bank Stock. FHLB stock is carried at cost. The carrying value approximates fair value based upon the redemption price provision of the FHLB stock.

Gross Loans Receivable (Carried at Cost). The fair values of loans, excluding impaired loans subject to specific loss reserves, are estimated using discounted cash flow analyses and market rates at the balance sheet date that reflect the credit and interest rate-risk inherent in the loans.  Projected future cash flows are calculated based upon contractual maturity or call dates, projected repayments and prepayments of principal.  Generally, for variable rate loans that re-price frequently and with no significant change in credit risk, fair values are based on carrying values.

Deposit Liabilities (Carried at Cost). The fair values disclosed for demand deposits (e.g., interest and non-interest demand and savings accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amounts).  Fair values of certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered in the market on certificates to a schedule of aggregated expected monthly maturities on time deposits.

Borrowings and Subordinated Debentures (Carried at Cost). The carrying amounts of short-term borrowings approximate their fair values. The fair values of long-term FHLB advances and subordinated debentures are estimated using discounted cash flow analysis, based on quoted or estimated interest rates for new borrowings with similar credit risk characteristics, terms and remaining maturity. 

The estimated fair values, and the recorded book balances, at December 31, 2016 and 2015 were as follows:

December 31, 2016
(Dollars in thousands)	Carrying Value			Level 1 Inputs		Level 2 Inputs		Level 3 Inputs	Fair Value
Cash and cash equivalents	$	14,886		$	14,886	—		—	$	14,886
Securities available for sale	103,794			12,826		90,968		—	103,794
Securities held to maturity	126,810			—		128,559		—	128,559
Loans held for sale	14,829			—		15,103		—	15,103
Loans, net	717,314			—		—		716,492	716,492
SBA servicing asset	605			—		822		—	822
Interest rate lock derivative	123			—		123		—	123
Accrued interest receivable	3,095			—		3,095		—	3,095
FHLB Stock	3,962			—		3,962		—	3,962
Deposits	(834,516		)	—		(834,050	)	—	(834,050		)
Borrowings	(73,050		)	—		(73,222	)	—	(73,222		)
Redeemable subordinated debentures	(18,557		)	—		(11,922	)	—	(11,922		)
Accrued interest payable	(866		)	—		(866	)	—	(866		)

December 31, 2015
(Dollars in thousands)	Carrying Value			Level 1 Inputs		Level 2 Inputs		Level 3 Inputs	Fair Value
Cash and cash equivalents	$	11,368		$	11,368	—		—	$	11,368
Securities available for sale	91,422			14,043		77,325		54	91,422
Securities held to maturity	123,261			—		127,157		—	127,157
Loans held for sale	5,997			—		6,115		—	6,115
Loans, net	674,561			—		—		674,722	674,722
Accrued interest  receivable	2,853			—		2,853		—	2,853
FHLB Stock	3,302			—		3,302		—	3,302
Deposits	(786,757		)	—		(786,594	)	—	(786,594		)
Borrowings	(58,896		)	—		(59,347	)	—	(59,347		)
Redeemable subordinated debentures	(18,557		)	—		(11,641	)	—	(11,641		)
Accrued interest payable	(846		)	—		(846	)	—	(846		)

Loan commitments and standby letters of credit as of December 31, 2016 and 2015 were based on fees charged for similar agreements; accordingly, the estimated fair value of loan commitments and standby letters of credit were nominal. The fair value of interest rate lock commitments and SBA servicing rights were insignificant at December 31, 2015.

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Parent-only Financial Information

12 Months Ended

Dec. 31, 2016

Condensed Financial Information of Parent Company Only Disclosure [Abstract]

Parent-only Financial Information

Parent-only Financial Information

The condensed financial statements of 1^st Constitution Bancorp (parent company only) are presented below:

1^st CONSTITUTION BANCORP

Condensed Statements of Financial Condition

(Dollars in Thousands)

	December 31, 2016		December 31, 2015
Assets:
Cash	$	490	$	77
Investment securities	557		557
Investment in subsidiary	120,306		111,597
Other assets	2,451		2,325
Total Assets	$	123,804	$	114,556
Liabilities And Shareholders’ Equity
Other liabilities	$	446	$	39
Subordinated debentures	18,557		18,557
Shareholders’ equity	104,801		95,960
Total Liabilities and Shareholders’ Equity	$	123,804	$	114,556

1st CONSTITUTION BANCORP

Consolidated Statements of Income and Comprehensive Income

(Dollars in Thousands)

	Year ended December 31,
	2016			2015
Income:
Interest income	$	13		$	11
Dividend income from subsidiary	1,240			366
Total Income	1,253			377
Expense:
Interest expense	440			366
Total Expense	440			366
Income before income taxes and equity in undistributed income of subsidiaries	813			11
Federal income tax benefit	(146		)	(122		)
Income before equity in undistributed income of subsidiaries	959			133
Equity in undistributed income of subsidiaries	8,326			8,531
Net Income	9,285			8,664
Equity in other comprehensive loss of subsidiaries	(470		)	(378		)
Comprehensive Income	$	8,815		$	8,286

1st CONSTITUTION BANCORP

Condensed Statements of Cash Flows

(Dollars in Thousands)

	Year ended December 31,
	2016			2015
Operating Activities:
Net Income	$	9,285		$	8,664
Adjustments:
Increase in other assets	(126		)	(92		)
Increase in other liabilities	408			—
Equity in undistributed income of subsidiaries	(8,326		)	(8,531		)
Net cash provided by operating activities	1,241			41
Cash Flows From Investing Activities:
Investment in subsidiary	(501		)	37
Net cash (used in) provided by investing activities	(501		)	37
Cash Flows From Financing Activities:
Cash dividend paid	(399		)	—
Issuance  of common stock, net	96			292
Purchase of treasury stock, net	(24		)	(359		)
Net cash used in financing activities	(327		)	(67		)
Net increase in cash	413			11
Cash at beginning of year	77			66
Cash at end of year	$	490		$	77

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Quarterly Financial Data (Unaudited)

12 Months Ended

Dec. 31, 2016

Quarterly Financial Information Disclosure [Abstract]

Quarterly Financial Data (Unaudited)

Quarterly Financial Data (Unaudited)

The following table sets forth a condensed summary of the Company’s quarterly results of operations for the years ended December 31, 2016 and 2015:

(Dollars in thousands, except per share data)	2016
	Dec. 31		Sept. 30		June 30			March 31
Summary of Operations
Interest income	$	9,997	$	10,408	$	9,488		$	9,285
Interest expense	1,361		1,355		1,257			1,185
Net interest income	8,636		9,053		8,231			8,100
(Credit) provision for loan losses	—		—		(100		)	(200		)
Net interest income after (credit) provision for loan losses	8,636		9,053		8,331			8,300
Non-interest income	1,996		1,760		1,536			1,594
Non-interest expense	7,572		6,662		6,440			6,624
Income before income taxes	3,060		4,151		3,427			3,270
Income taxes	1,006		1,456		1,113			1,048
Net  income	$	2,054	$	2,695	$	2,314		$	2,222
Net income per common share:(1)
Basic	$	0.26	$	0.34	$	0.29		$	0.28
Diluted	$	0.25	$	0.33	$	0.28		$	0.27

(Dollars in thousands, except per share data)	2015
	Dec. 31		Sept. 30		June 30		March 31
Summary of Operations
Interest income	$	9,473	$	10,431	$	10,201	$	9,340
Interest expense	1,170		1,169		1,153		1,144
Net interest income	8,303		9,262		9,048		8,196
Provision for loan losses	500		100		—		500
Net interest income after provision for loan losses	7,803		9,162		9,048		7,696
Non-interest income	920		1,427		1,988		2,129
Non-interest expense	6,349		6,979		7,609		6,510
Income before income taxes	2,374		3,610		3,427		3,315
Income taxes	747		1,148		1,112		1,055
Net income	$	1,627	$	2,462	$	2,315	$	2,260
Net income per common share:(1)
Basic	$	0.21	$	0.31	$	0.29	$	0.29
Diluted	$	0.20	$	0.30	$	0.29	$	0.28

⁽¹⁾ The sum of quarterly income per basic and diluted common share may not equal net income per basic and diluted common share, respectively, for the years ended December 31, 2016 and 2015 due to differences in the computation of weighted average diluted common shares on a quarterly and annual basis.

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Subsequent Event

12 Months Ended

Dec. 31, 2016

Subsequent Events [Abstract]

Subsequent Event

Subsequent Event

On March 14, 2017 the Bank was notified that a shared national credit syndicated loan in which it has a $4.3 million participation had further deteriorated. The credit was classified as Special Mention by the Bank. In response to the recent notification, the credit will be down-graded to a classification of Doubtful by the Bank in the first quarter of 2017 due to excessive leverage, an inability to de-lever over a reasonable period and on-going fraud litigation. As of the date of the notification, management has not been able to identify a loss, if any. The syndicated loan is a senior debt facility that is collateralized by the assets of the borrower. The borrower has paid all principal and interest to date.

The shared national credit program was established in 1977 by the Board of Governors of the Federal Reserve System, the FDIC and the Office of the Comptroller of the Currency to provide an efficient and consistent review and classification of any large syndicated loan that totals $20 million or more and is shared by three or more lending institutions or a portion of which is sold to two or more institutions.

At December 31, 2016, the Bank was a participant in the syndicated loan facility for $4.3 million and the outstanding balance of the Bank’s loan participation was $4.0 million. The Bank has been monitoring the financial condition of the borrower and increased the allowance for loan losses qualitative factors in the third quarter of 2016 to reflect the uncertainty of the borrower’s future financial performance and the Bank’s inability to measure a potential loss for this credit.

At this time, there is no additional information available to the Bank that would change management’s estimate of the allowance for loan losses with respect to this loan. Due to the change in the circumstances, the loan will be placed on non-accrual in the first quarter of 2017 and will be down-graded to the Doubtful classification. Management will continue to monitor the financial condition of the borrower and will consider any new information or developments of the borrower in its evaluation of the adequacy of its allowance for loan losses.

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Recent Accounting Pronouncements

3 Months Ended

Mar. 31, 2017

New Accounting Pronouncements and Changes in Accounting Principles [Abstract]

New Accounting Pronouncements and Changes in Accounting Principles

Recent Accounting Pronouncements

ASU Update 2017-08 - Premium Amortization on Purchased Callable Debt Securities

In March 2017, the FASB issued ASU 2017-08 "Premium Amortization on Purchased Callable Debt Securities," which shortens the amortization period for premiums on purchased callable debt securities to the earliest call date (i.e., yield-to-earliest call amortization) rather than amortizing over the full contractual term. The ASU does not change the accounting for securities held at a discount.

The amendments apply to callable debt securities with explicit, non-contingent call features that are callable at fixed prices and on preset dates. If a security may be prepaid based upon prepayments of the underlying loans and not because the issuer exercised a date specific call option, it is excluded from the scope of the new standard. However, for instruments with contingent call features, once the contingency is resolved and the security is callable at a fixed price and preset date, the security is within the scope of the amendments. Further, the amendments apply to all premiums on callable debt securities, regardless of how they were generated.

The amendments require companies to reset the effective yield using the payment terms of the debt security if the call option is not exercised on the earliest call date. If the security has additional future call dates, any excess of the amortized cost basis over the amount repayable by the issuer at the next call date should be amortized to the next call date.

The amendments are effective for public business entities for fiscal years beginning after December 15, 2018, including interim periods within those years. For all other entities, the amendments are effective for annual periods beginning after December 15, 2019, and interim periods within annual periods beginning after December 15, 2020. Early adoption is permitted, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes the interim period.

The Company does not expect the adoption of this guidance to have a material impact on its consolidated financial statements.

ASU Update 2017-07 - Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost

In March 2017, the FASB issued ASU 2017-07 "Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost," which requires that an employer disaggregate the service cost component from the other components of net benefit costs as follows: (1) service cost must be presented in the same line item(s) as other employee compensation costs. These costs are generally included within income from continuing operations but in some cases, may be eligible for capitalization if certain criteria are met; and (2) all other components of net benefit cost must be presented in the income statement separately from the service cost component and outside a subtotal of income from operations, if one is presented. These generally include interest cost, actual return on plan assets, amortization of prior service cost included in accumulated other comprehensive income and gains or losses from changes in the value of the projected benefit obligation or plan assets.

The amendments are effective for public business entities for fiscal years beginning after December 15, 2017, including interim periods within those years. For other entities, the amendments are effective for annual periods beginning after December 15, 2018 and interim periods within annual periods beginning after December 15, 2019. Early adoption is permitted as of the beginning of an annual period.

The Company does not expect the adoption of this guidance to have a material impact on its consolidated financial statements.

ASU Update 2017-04 - Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment

In January 2017, the FASB issued ASU 2017-04 "Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment," which simplifies how all entities assess goodwill for impairment by eliminating Step 2 from the goodwill impairment test. As amended, the goodwill impairment test will consist of one step comparing the fair value of a reporting unit with its carrying amount. An entity should recognize a goodwill impairment charge for the amount by which the carrying amount exceeds the reporting unit's fair value. The primary goal of this ASU is to simplify the goodwill impairment test and provide cost savings for all entities by removing the requirement to determine the fair value of individual assets and liabilities in order to calculate a reporting unit's "implied" goodwill under current U.S. GAAP.

The amendments have staggered effective dates: (1) a public business entity that is an SEC filer should adopt the amendments for its annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019, (2) a public business entity that is not an SEC filer should adopt the amendments for its annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2020 and (3) all other entities, including not-for-profit entities, should adopt the amendments for their annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2021. The amendments should be adopted prospectively. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017.

The Company does not expect the adoption of this guidance to have a material impact on its consolidated financial statements.

ASU Update 2017-01 - Business Combinations (Topic 805): Clarifying the Definition of a Business

In January 2017, the FASB issued ASU 2017-01 "Business Combinations (Topic 805): Clarifying the Definition of a Business," which clarifies the definition of a business with the objective of adding guidance to assist companies and other reporting organizations with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The amendments in this ASU provide a more robust framework to use in determining when a set of assets and activities is a business. The current definition of a business is interpreted broadly and can be difficult to apply. Stakeholders indicated that analyzing transactions is inefficient and costly and the definition does not permit the use of reasonable judgment.

Under current implementation guidance, there are three elements of a business: inputs, processes and outputs. While an integrated set of assets and activities (collectively referred to as a "set") that is a business usually has outputs, outputs are not required to be present. Additionally, all the inputs and processes that a seller uses in operating a set are not required if market participants can acquire the set and continue to produce outputs, for example, by integrating the acquired set with their own inputs and processes.

The ASU introduces a "screen" to assist entities in determining when a set should not be considered a business. If substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets, the set is not considered a business. If the screen is not met, the ASU requires that to be considered a business, a set must include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create output. Further, the ASU removes the evaluation of whether a market participant could replace missing elements (as required under current U.S. GAAP).

For public business entities, the ASU is effective for annual periods beginning after December 15, 2017, including interim periods within those periods. For all other entities, the amendments apply to annual periods beginning after December 15, 2018 and interim periods within annual periods beginning after December 15, 2019. The amendments in this ASU should be applied prospectively on or after the effective date. No disclosures are required at transition.

The Company does not expect the adoption of this guidance to have a material impact on its consolidated financial statements.

ASU Update 2016-20 - Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers.

In December 2016, the FASB issued ASU 2016-20 "Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers," amending the new revenue recognition standard that it jointly issued with the International Accounting Standards Board ("IASB") in 2014. The amendments do not change the core principles of the standard, but clarify certain narrow aspects of the standard, including its scope, contract cost accounting, disclosures, illustrative examples and other matters. The ASU becomes effective concurrently with ASU 2014-09 "Revenue from Contracts with Customers (Topic 606)."

The Company does not expect the adoption of this guidance to have a material impact on its consolidated financial statements.

ASU Update 2016-18 - Restricted Cash.

In November 2016, the FASB issued ASU 2016-18 "Restricted Cash," which updates Topic 230-Statement of Cash Flows, to require that restricted cash and restricted cash equivalents be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total cash amounts shown on the statement of cash flows. Consequently, transfers between cash and restricted cash will not be presented as a separate line item in the operating, investing or financing sections of the cash flow statement. The ASU includes examples of the revised presentation guidance, and additional presentation and disclosure requirements apply.

For public business entities, the amendments are effective 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.

The Company does not expect the adoption of this guidance to have a material impact on its consolidated financial statements.

ASU Update 2016-17 - Interests Held Through Related Parties That Are Under Common Control.

In October 2016, the FASB issued ASU 2016-17 "Interests Held Through Related Parties That Are Under Common Control," which amends the variable interest entity ("VIE") guidance within Topic 810. It does not change the two required characteristics for a single decision maker to be the primary beneficiary ("power" and "economics"), but it revised one aspect of the related analysis. The amendments change how a single decision maker of a VIE treats an indirect variable interest held through related parties that are under common control when determining whether it is the primary beneficiary of that VIE. The ASU requires consideration of such indirect interests on a proportionate basis instead of being the equivalent of direct interests in their entity, thereby making consolidation less likely.

For public business entities, the amendments are effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2016 and interim periods within fiscal years beginning after December 15, 2017. Early adoption is permitted; however, if an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of that fiscal year.

The Company does not expect the adoption of this guidance to have a material impact on its consolidated financial statements.

ASU Update 2016-15 - Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments.

In August 2016, the FASB issued ASU 2016-15 "Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments," which clarifies whether the following items should be categorized as operating, investing or financing in the statement of cash flows: (1) debt prepayment and extinguishment costs, (2) settlement of zero-coupon debt, (3) settlement of contingent consideration, (4) insurance proceeds, (5) settlement of corporate-owned life insurance (COLI) and bank-owned life insurance (BOLI) policies, (6) distributions from equity method investees, (7) beneficial interests in securitization transactions and (8) receipts and payments with aspects of more than one class of cash flows.

For public business entities, the amendments are effective 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 currently classifies cash flows related to BOLI in accordance with the guidance and does not expect the adoption of this guidance to have a material impact on its consolidated financial statements.

ASU Update 2016-13 Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.

In June 2016, the FASB issued ASU 2016-13 "Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments," which requires credit losses on most financial assets to be measured at amortized cost and certain other instruments to be measured using an expected credit loss model (referred to as the current expected credit loss (CECL) model). Under this model, entities will estimate credit losses over the entire contractual term of the instrument (considering estimated prepayments but not expected extensions or modifications unless reasonable expectation of a troubled debt restructuring exists) from the date of initial recognition of that instrument.

The ASU also replaces the current accounting model for purchased credit impaired loans and debt securities. The allowance for credit losses for purchased financial assets with a more-than-insignificant amount of credit deterioration since origination ("PCD assets") should be determined in a similar manner to other financial assets measured on an amortized cost basis. Upon initial recognition, the allowance for credit losses is added to the purchase price ("gross up approach") to determine the initial amortized cost basis. The subsequent accounting for PCD assets will use the CECL model described above.

The ASU made certain targeted amendments to the existing impairment model for available-for-sale (AFS) debt securities. For an AFS debt security for which there is neither the intent nor a more-likely-than-not requirement to sell, an entity will record credit losses as an allowance rather than a write-down of the amortized cost basis.

For public business entities that are SEC filers, the amendments are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted for all entities as of the fiscal year beginning after December 15, 2018, including interim periods within those fiscal years.

The Company is currently evaluating the impact of the pending adoption of the new standard on its consolidated financial statements.

ASU Update 2016-02: Leases.

In February 2016, the FASB issued ASU 2016-02 "Leases." From the lessee's perspective, the new standard establishes a right- of-use ("ROU") model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement for a lessee. From the lessor's perspective, the new standard requires a lessor to classify leases as either sales-type, finance or operating. A lease will be treated as a sale if it transfers all of the risks and rewards, as well as control of the underlying asset, to the lessee. If risks and rewards are conveyed without the transfer of control, the lease is treated as a financing. If the lessor doesn’t convey risks and rewards or control, an operating lease results.

The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. A modified retrospective transition approach is required for lessors for sales-type, direct financing and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. In 2017, the Company plans to complete an evaluation of all of its leases to determine the potential impact on the Company's consolidated financial statements as a result of this new standard.

ASU Update 2016-01 Financial Instruments-Overall: Recognition and Measurement of Financial Assets and Financial Liabilities.

In January 2016, the FASB issued ASU 2016-01 "Financial Instruments-Overall: Recognition and Measurement of Financial Assets and Financial Liabilities." The guidance in the ASU, among other things, requires equity investments, with certain exceptions, to be measured at fair value with changes in fair value recognized in net income; simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment; eliminates the requirement for public business entities to disclose the methods 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; requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; requires an entity to present separately in other comprehensive income, the portion of the change in fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments; requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset on the balance sheet or the accompanying notes to the financial statements; and clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities. The guidance in this ASU is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company does not expect the adoption of this guidance to have a material impact on its consolidated financial statements.

ASU 2014-9 Revenue from Contracts with Customers (Topic 606)

In May 2014, the FASB issued ASU 2014-9, deferred by ASU 2015-14, “Revenue from Contracts with Customers (Topic 606).” The amendments in this update establish a comprehensive revenue recognition standard for virtually all industries under U.S. GAAP, including those that previously followed industry specific guidance such as the real estate, construction and software industries. The revenue standard's core principle is built on the contract between a vendor and a customer for the provision of goods and services. It attempts to depict the exchange of rights and obligations between the parties in the pattern of revenue recognition based on the consideration to which the vendor is entitled. To accomplish this objective, the standard requires five basic steps: (1) identify the contract with the customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract and (5) recognize revenue when (or as) the entity satisfies a performance obligation.   This ASU, which does not apply to financial instruments, is effective for interim and annual reporting periods beginning after December 15, 2017. Early adoption is permitted only as of annual reporting periods beginning after December 15, 2016, including interim periods within that year.

The Company does not expect the adoption of ASU 2014-9 to have a material impact on its consolidated financial statements.

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Summary of Significant Accounting Policies (Policies)

3 Months Ended

12 Months Ended

Mar. 31, 2017

Dec. 31, 2016

Accounting Policies [Abstract]

Basis of Presentation

Basis of Presentation

The accounting and reporting policies of the Company conform to accounting principles generally accepted in the United States of America (“U.S. GAAP”) and to the accepted practices within the banking industry.  The following is a description of the more significant of these policies and practices.

Principles of Consolidation

The accompanying unaudited consolidated financial statements include 1^ST Constitution Bancorp (the “Company”), its wholly-owned subsidiary, 1^ST  Constitution Bank (the “Bank”), and the Bank’s wholly-owned subsidiaries, 1^ST Constitution Investment Company of New Jersey, Inc., FCB Assets Holdings, Inc., 204 South Newman Street Corp., and 249 New York Avenue, LLC. 1st Constitution Capital Trust II, a subsidiary of the Company, is not included in the Company’s consolidated financial statements, as it is a variable interest entity and the Company is not the primary beneficiary.  All significant intercompany accounts and transactions have been eliminated in consolidation and certain prior period amounts have been reclassified to conform to current year presentation.  The accounting and reporting policies of the Company and its subsidiaries conform to accounting principles generally accepted in the United States of America (“U.S. GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”), including the instructions to Form 10-Q and Article 10 of Regulation S-X.  Certain information and footnote disclosures normally included in financial statements have been condensed or omitted pursuant to such rules and regulations.  These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto included in the Company’s Form 10-K/A for the year ended December 31, 2016, filed with the SEC on March 20, 2017.

Principles of Consolidation

The accompanying consolidated financial statements include the Company and its wholly-owned subsidiary, the Bank, and the Bank’s wholly-owned subsidiaries, 1st Constitution Investment Company of New Jersey, Inc., FCB Assets Holdings, Inc., 204 South Newman Street Corp. and 249 New York Avenue, LLC.  1st Constitution Capital Trust II, a subsidiary of the Company (“Trust II”), is not included in the Company’s consolidated financial statements as it is a variable interest entity and the Company is not the primary beneficiary.  All significant intercompany accounts and transactions have been eliminated in consolidation and certain prior period amounts have been reclassified to conform to current year presentation.

Use of Estimates in the Preparation of Financial Statements

Use of Estimates in the Preparation of Financial Statements

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  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, other-than-temporary security impairment, the fair value of other real estate owned and the valuation of deferred tax assets.

Concentration of Credit Risk

Concentration of Credit Risk

Financial instruments which potentially subject the Company and its subsidiaries to concentrations of credit risk primarily consist of investment securities and loans.  At December 31, 2016, 49.5% of our investment securities portfolio consisted of U.S. Government and Agency issues and collateralized mortgage obligations collateralized by agency mortgage backed securities. In addition, 40.1% of the portfolio consisted of municipal bonds.  The remaining 10.4% of our investment securities consisted primarily of corporate debt issues.  The Bank’s lending activity is primarily concentrated in loans collateralized by real estate located in the State of New Jersey.  As a result, credit risk is broadly dependent on the real estate market and general economic conditions in that state.

Interest Rate Risk

Interest Rate Risk

The Bank is principally engaged in the business of attracting deposits from the general public and using these deposits, together with other funds, to purchase investment securities and to make loans, the majority of which are secured by real estate.  The potential for interest-rate risk exists as a result of the generally shorter duration of interest-sensitive assets compared to the generally longer duration of interest-sensitive liabilities.  In a changing interest rate environment, assets held by the Bank will re-price faster than liabilities of the Bank, thereby affecting net interest income.  For this reason, management regularly monitors the maturity structure and rate adjustment features of the Bank’s assets and liabilities in order to measure its level of interest-rate risk and to plan for future volatility.

Investment Securities

U.S. Treasury securities and obligations of U.S. Government sponsored corporations and agencies:  The unrealized losses on investments in these securities were caused by increases in market interest rates. The Company does not intend to sell these investments and it is not more likely than not that the Company will be required to sell these investments before a market price recovery or maturity.  Therefore, these investments are not considered other-than-temporarily impaired.

Residential collateralized mortgage obligations and residential mortgage backed securities: The unrealized losses on investments in residential collateralized mortgage obligations and mortgage backed securities were caused by increases in market interest rates. The contractual cash flows of these securities are guaranteed by the issuers, which are primarily government or government sponsored agencies. It is expected that the securities would not be settled at a price less than the amortized cost of the investment. The decline in fair value is attributable to changes in interest rates and not credit quality. The Company does not intend to sell these investments and it is not more likely than not that the Company will be required to sell these investments before a market price recovery or maturity.  Therefore, these investments are not considered other-than-temporarily impaired.

Obligations of state and political subdivisions:  The unrealized losses on investments in these securities were caused by increases in market interest rates.  It is expected that the securities would not be settled at a price less than the amortized cost of the investment.  None of the issuers have defaulted on interest payments. These investments are not considered to be other than temporarily impaired because the decline in fair value is attributable to changes in interest rates and not credit quality.  The Company does not intend to sell these investments and it is not more likely than not that the Company will be required to sell these investments before a market price recovery or maturity.  Therefore, these investments are not considered other-than-temporarily impaired.

Corporate debt securities:   The unrealized losses on investments in corporate debt securities were caused by increases in market interest rates.  None of the corporate issuers have defaulted on interest payments.   The decline in fair value is attributable to changes in interest rates and not a decline in credit quality. The Company does not intend to sell these investments and it is not more likely than not that the Company will be required to sell these investments before a market price recovery or maturity. Therefore, these investments are not considered other-than-temporarily impaired.

Trust preferred debt securities – single issuer:  The investments in these securities with unrealized losses are comprised of four corporate trust preferred securities issued by two large financial institutions that mature in 2027. The contractual terms of the trust preferred securities do not allow the issuer to settle the securities at a price less than the face value of the trust preferred securities, which is greater than the amortized cost of the trust preferred securities.  One of the issuers continues to maintain an investment grade credit rating and neither has defaulted on interest payments.  The decline in fair value is attributable to the widening of interest rate and credit spreads and the lack of an active trading market for these securities. The Company does not intend to sell these investments and it is not more likely than not that the Company will be required to sell these investments before a market price recovery or maturity.  Therefore, these investments are not considered other-than-temporarily impaired.

Trust preferred debt securities – pooled:   This trust preferred debt security was issued by a two issuer pool (Preferred Term Securities XXV, Ltd. co-issued by Keefe, Bruyette and Woods, Inc. and First Tennessee (“PRETSL XXV”)) consisting primarily of financial institution holding companies.  During 2009, the Company recognized an other-than-temporary impairment of $865,000, of which $364,000 was determined to be a credit loss and charged to operations and $501,000 was recognized in the other comprehensive income (loss) component of shareholders’ equity.

The primary factor used to determine the credit portion of the impairment loss recognized in the income statement for this security was the discounted present value of projected cash flow where that present value of cash flow was less than the amortized cost basis of the security.  The present value of cash flow was developed using a model that considered performing collateral ratios, the level of subordination to senior tranches of the security, and credit ratings of and projected credit defaults in the underlying collateral.

On a quarterly basis, management evaluates the security to determine if any additional other-than-temporary impairment is required. As of March 31, 2017, management concluded that no additional other-than-temporary impairment had occurred.

Investment Securities

Investment securities which the Company has the intent and ability to hold until maturity are classified as held to maturity and are recorded at cost, adjusted for amortization of premiums and accretion of discounts.  Investment securities that are held for indefinite periods of time, that management intends to use as part of its asset/liability management strategy, or that may be sold in response to changes in interest rates, changes in prepayment risk, increased capital requirements or other similar factors, are classified as available for sale and are carried at fair value. Unrealized gains and losses on available for sale securities are recorded as a separate component of shareholders’ equity.  Realized gains and losses, which are computed using the specific identification method, are recognized in earnings on a trade date basis.

If the fair value of a security is less than its amortized cost, the security is deemed to be impaired.  Management evaluates all securities with unrealized losses quarterly to determine if such impairments are temporary or other-than-temporary in accordance with the Accounting Standards Codification (“ASC”) of the Financial Accounting Standards Board (“FASB”). Temporary impairments on available for sale securities are recognized, on a tax-effected basis, through other comprehensive income (“OCI”) with offsetting adjustments to the carrying value of the security and the balance of related deferred taxes. Temporary impairments of held to maturity securities are not recorded in the consolidated financial statements; however, information concerning the amount and duration of impairments on held to maturity securities are disclosed.

Other-than-temporary impairments ("OTTI") on all equity securities and on debt securities that the Company has decided to sell, or will, more likely than not, be required to sell prior to the full recovery of fair value to a level equal to or exceeding amortized cost, are recognized in earnings. If neither of these conditions regarding the likelihood of sale for a debt security apply, the OTTI is bifurcated into credit-related and noncredit-related components. Credit-related impairment generally represents the amount by which the present value of the cash flows that are expected to be collected on a debt security fall below its amortized cost. The noncredit-related component represents the remaining portion of the impairment not otherwise designated as credit-related. The Company recognizes credit-related OTTI in earnings. Noncredit-related OTTI on debt securities are recognized in OCI.  

Premiums and discounts on all securities are amortized/accreted to maturity by use of the level-yield method considering the impact of principal amortization and prepayments.

Federal law requires a member institution of the FHLB system to hold restricted stock of its district FHLB according to a predetermined formula.  The Bank’s investment in the restricted stock of the FHLB of New York is carried at cost and is included in other assets. The investment in FHLB stock was $3,962 and $3,302 at December 31, 2016 and December 31, 2015, respectively.

Management evaluates the FHLB restricted stock for impairment in accordance with U.S. GAAP.  Management’s determination of whether these investments are impaired is based on their assessment of the ultimate recoverability of their cost rather than by recognizing temporary declines in value.  The determination of whether a decline affects the ultimate recoverability of their cost is influenced by criteria such as (1) the significance of the decline in net assets of the FHLB as compared to the capital stock amount for the FHLB and the length of time this situation has persisted, (2) commitments by the FHLB to make payments required by law or regulation and the level of such payments in relation to the operating performance of the FHLB, and (3) the impact of legislative and regulatory changes on institutions and, accordingly, on the customer base of the FHLB. Management believes no impairment charge is necessary related to the FHLB stock as of December 31, 2016.

U.S. Treasury securities and obligations of U.S. Government sponsored corporations and agencies: The unrealized losses on investments in these securities were caused by increases in market interest rates.  The contractual terms of these investments do not permit the issuer to settle the securities at a price less than the par value of the investment.  The Company does not intend to sell these investments and it is not more likely than not that the Company will be required to sell these investments before a market price recovery or maturity. Therefore, these investments are not considered other-than temporarily impaired.

Residential collateralized mortgage obligations and residential mortgage backed securities: The unrealized losses on investments in residential collateralized mortgage obligations and residential mortgage backed securities were caused by increases in market interest rates. The contractual cash flows of these securities are guaranteed by the issuer, primarily government or government sponsored agencies. It is expected that the securities would not be settled at a price less than the amortized cost of the investment. The Company does not intend to sell these investments and it is not more likely than not that the Company will be required to sell these investments before a market price recovery or maturity. Therefore, these investments are not considered other-than temporarily impaired.

Obligations of state and political subdivisions:  The unrealized losses on investments in these securities were caused by increases in market interest rates.  It is expected that the securities would not be settled at a price less than the amortized cost of the investment.  None of the issuers have defaulted on interest payments. These investments are not considered to be other than temporarily impaired because the decline in fair value is attributable to changes in interest rates and not credit quality. The Company does not intend to sell these investments and it is not more likely than not that the Company will be required to sell these investments before a market price recovery or maturity. Therefore, these investments are not considered other-than temporarily impaired.

Trust preferred debt securities – single issuer:  The investments in these securities with unrealized losses are comprised of four corporate trust preferred securities issued by two large financial institutions that both mature in 2027. The contractual terms of the trust preferred securities do not allow the issuer to settle the securities at a price less than the face value of the trust preferred securities, which is greater than the amortized cost of the trust preferred securities.  One of the issuers continues to maintain an investment grade credit rating and neither has defaulted on interest payments.  The decline in fair value is attributable to the widening of interest rate spreads and the lack of an active trading market for these securities and, to a lesser degree, market concerns about the issuers’ credit quality. The Company does not intend to sell these investments and it is not more likely than not that the Company will be required to sell these investments before a market price recovery or maturity. Therefore, these investments are not considered other-than-temporarily impaired.

Corporate debt securities.  The unrealized losses on investments in corporate debt securities were caused by an increase in market interest rates.  None of the corporate issuers have defaulted on interest payments.  The decline in fair value is attributable to changes in market interest rates and not credit quality. The Company does not intend to sell these investments and it is not more likely than not that the Company will be required to sell these investments before a market price recovery or maturity. Therefore, these investments are not considered other-than-temporarily impaired.

Trust preferred debt securities – pooled:  This trust preferred debt security was issued by a two issuer pool (Preferred Term Securities XXV, Ltd. co-issued by Keefe, Bruyette and Woods, Inc. and First Tennessee (“PRETSL XXV”)), consisting primarily of financial institution holding companies.  During 2009, the Company recognized an other-than-temporary impairment charge of $865,000, of which $364,000 was determined to be a credit loss and charged to operations and $501,000 was recognized in the other comprehensive income (loss) component of shareholders’ equity.

The primary factor used to determine the credit portion of the impairment loss to be recognized in the income statement for this security was the discounted present value of projected cash flow, where that present value of cash flow was less than the amortized cost basis of the security.  The present value of cash flow was developed using a model that considered performing collateral ratios, the level of subordination to senior tranches of the security and credit ratings of and projected credit defaults in the underlying collateral.

On a quarterly basis, management evaluates this security to determine if any additional other-than-temporary impairment is required.  As of December 31, 2016, management concluded that no additional other-than-temporary impairment had occurred.

The Company regularly reviews the composition of the investment securities portfolio, taking into account market risks, the current and expected interest rate environment, liquidity needs and its overall interest rate risk profile and strategic goals.

Bank Owned Life Insurance

Bank-Owned Life Insurance

The Company invests in bank-owned life insurance (“BOLI”).  BOLI involves the purchasing of life insurance by the Company on a select group of its executives, directors, officers and employees.  The Company is the owner and beneficiary of the policies.  This pool of insurance, due to the advantages of the Bank, is profitable to the Company.  This profitability offsets a portion of current and future benefit costs and is intended to provide a funding source for the payment of future benefits.  The Bank’s deposits fund BOLI and the earnings from BOLI are recognized as non-interest income.

Loans and Loans Held For Sale

Loans and Loans Held For Sale

Loans that management intends to hold to maturity are stated at the principal amount outstanding, net of unearned income.  Unearned income is recognized over the lives of the respective loans, principally using the effective interest method.  Interest income is generally not accrued on loans, including impaired loans, where interest or principal is 90 days or more past due, unless the loans are adequately secured and in the process of collection, or on loans where management has determined that the borrowers may be unable to meet contractual principal and/or interest obligations.  When it is probable that, based upon current information, the Bank will not collect all amounts due under the contractual terms of the loan, the loan is reported as impaired.  Smaller balance homogeneous type loans, such as residential loans and loans to individuals, which are collectively evaluated, are generally excluded from consideration for impairment.  Loan impairment is measured based upon the present value of the expected future cash flows discounted at the loan’s effective interest rate or the underlying fair value of collateral for collateral dependent loans.  When a loan, including an impaired loan, is placed on non-accrual, interest accruals cease and uncollected accrued interest is reversed and charged against current income.  Non-accrual loans are generally not returned to accruing status until principal and interest payments have been brought current and full collectibility is reasonably assured.  Cash receipts on non-accrual and impaired loans are applied to principal, unless the loan is deemed fully collectible.  

Loans held for sale are carried at the lower of aggregated cost or fair value. The fair value of loans held for sale are determined, when possible, using quoted secondary market prices.  If no such quoted market prices exist, fair values are determined using quoted prices for similar loans, adjusted for the specific attributes of the loans.  Realized gains and losses on loans held for sale are recognized at settlement date and are determined based on the cost, including deferred net loan origination fees and the costs of the specific loans sold. Residential mortgage loans are sold with servicing released.

The Bank accounts for its transfers and servicing of financial assets in accordance with ASC Topic 860, “Transfers and Servicing” ("ASC Topic 860").  The Bank originates residential mortgages under a definitive plan to sell those loans with servicing generally released.  Residential mortgage loans originated and intended for sale in the secondary market are carried at the lower of aggregate cost or estimated fair value. The Bank also originates commercial loans, of which a portion are guaranteed by the Small Business Administration ("SBA"). The guaranteed portion of the loans is generally sold into the secondary market. Gains and losses on sales are also accounted for in accordance with ASC Topic 860.

The Bank enters into commitments to originate loans whereby the interest rate on the loan is determined prior to funding “rate lock commitments.”  Rate lock commitments on residential mortgage loans that are intended to be sold are considered to be derivatives.  Time elapsing between the issuance of a loan commitment and closing and sale of the loan generally ranges from 30 to 120 days.  The Bank protects itself from changes in interest rates through the use of best efforts forward delivery commitments, whereby the Bank commits to sell a loan at the time the borrower commits to an interest rate with the intent that the buyer has assumed interest rate risk on the loan.  As a result, the Bank is generally not exposed to losses nor will it realize significant gains related to its rate lock commitments due to changes in interest rates.

The fair value of rate lock commitments and best efforts commitments is not readily ascertainable with precision because rate lock commitments and best efforts commitments are not actively traded in stand-alone markets.  The Bank determines the fair value of rate lock commitments based upon the forward sales price that is obtained in the best efforts commitment at the time the borrower locks in the interest rate on the loan while taking into consideration the probability that the rate lock commitments will close.  Due to high correlation between rate lock commitments and best efforts commitments, no gain or loss occurs on the rate lock commitments.  The estimated fair value of rate lock commitments was $123,000 at December 31, 2016. The estimated fair value of rate lock commitments at December 31, 2015 was not deemed to be significant and, therefore, not recorded on the balance sheet.

ASC Topic 460, “Guarantees,” requires a guarantor entity, at the inception of a guarantee covered by the measurement provisions of the interpretation, to record a liability for the fair value of the obligation undertaken in issuing the guarantee.

Standby letters of credit are conditional commitments issued by the Bank to guarantee the financial performance of a customer to a third party.  Those guarantees are primarily issued to support contracts entered into by customers.  Most guarantees extend for one year.  The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers.  The Bank defines the fair value of these letters of credit as the fees paid by the customer or similar fees collected on similar instruments.  The Bank amortizes the fees collected over the life of the instrument.  The Bank generally obtains collateral, such as real estate or liens on customer assets, for these types of commitments.  The Bank’s potential liability would be reduced by any proceeds obtained in liquidation of the collateral.  The Bank had standby letters of credit for customers aggregating $2.0 million and $2.1 million at December 31, 2016 and 2015, respectively.  These letters of credit are primarily related to real estate lending and the approximate value of underlying collateral upon liquidation is expected to be sufficient to cover this maximum potential exposure at December 31, 2016.

Allowance for Loan Losses

The Company’s internal credit risk grades are based on the definitions currently utilized by the banking regulatory agencies.  The grades assigned and definitions are as follows, and loans graded excellent, above average, good and watch list are treated as “pass” for grading purposes:

1.  Excellent - Loans that are based upon cash collateral held at the Bank and adequately margined. Loans that are based upon "blue chip" stocks listed on the major exchanges and adequately margined.

2.  Above Average - Loans to companies whose balance sheets show excellent liquidity and long-term debt is on well-spread schedules of repayment easily covered by cash flow.  Such companies have been consistently profitable and have diversification in their product lines or sources of revenue.  The continuation of profitable operations for the foreseeable future is likely.  Management is comprised of a mix of ages, experience, and backgrounds, and management succession is in place.  Sources of raw materials and, for service companies, the sources of revenue are abundant.  Future needs have been planned for.  Character and ability of individuals or company principals are excellent.  Loans to individuals are supported by high net worths and liquid assets.

3.  Good - Loans to companies whose balance sheets show good liquidity and cash flow adequate to meet maturities of long-term debt with a comfortable margin.  Such companies have established profitable records over a number of years, and there has been growth in net worth.  Operating ratios are in line with those of the industry, and expenses are in proper relationship to the volume of business done and the profits achieved.  Management is well-balanced and competent in their responsibilities.  Economic environment is favorable; however, competition is strong.  The prospects for growth are good.  Loans in this category do not meet the collateral requirements of loans in categories 1 and 2 above. Loans to individuals are supported by good net worth but whose supporting assets are illiquid.

3w. Watch - Included in this category are loans evidencing problems identified by Bank management that require closer supervision.  Such problems have not developed to the point which requires a "special mention" rating.  This category also covers situations where the Bank does not have adequate current information upon which credit quality can be determined.  The account officer has the obligation to correct these deficiencies within 30 days from the time of notification.

4.  Special Mention - A "special mention" loan has potential weaknesses that deserve management's close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or in the Bank's credit position at some future date. Special mention loans are not adversely classified and do not expose the Bank to sufficient risk to warrant adverse classification.

5.  Substandard - A "substandard" loan is inadequately protected by the current sound net worth and paying capacity of the obligor or by the collateral pledged, if any. Loans so classified must have a well-defined weakness, or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected.

6.  Doubtful - A loan classified as "doubtful" has all the weaknesses inherent in one classified as substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently known facts, conditions and values, highly questionable and improbable.

7.  Loss - A loan classified as "loss" is considered uncollectible and of such little value that its continuance on the books is not warranted. This classification does not mean that the loan has absolutely no recovery or salvage value, but rather it is not practical or desirable to defer writing off this loan even though partial recovery may be affected in the future.

Allowance for Loan Losses

The allowance for loan losses is maintained at a level sufficient to absorb estimated credit losses in the loan portfolio as of the date of the financial statements.  The allowance for loan losses is a valuation reserve available for losses incurred or inherent in the loan portfolio and other extensions of credit.  The determination of the adequacy of the allowance for loan losses is a critical accounting policy of the Bank.

All, or part, of the principal balance of commercial and commercial real estate loans and construction loans are charged off against the allowance as soon as it is determined that the repayment of all, or part, of the principal balance is highly unlikely.  Consumer loans are generally charged off no later than 120 days past due on a contractual basis, or earlier in the event of bankruptcy, or if there is an amount deemed uncollectible.  Because all identified losses are charged off, no portion of the allowance for loan losses is restricted to any individual loan or groups of loans, and the entire allowance is available to absorb any and all loan losses.

Loans are placed in a nonaccrual status when the ultimate collectability of principal or interest in whole, or in part, is in doubt.  Past-due loans contractually past-due 90 days or more for either principal or interest are also placed in nonaccrual status unless they are both well secured and in the process of collection.  Impaired loans are evaluated individually.

Purchased Credit-Impaired (“PCI”) loans are loans acquired at a discount that is due, in part, to credit quality.  PCI loans are accounted for in accordance with ASC Subtopic 310-30, "Receivables, Loans and Debt Securities Acquired with Deteriorated Credit Quality" and are initially recorded at fair value (as determined by the present value of expected future cash flows) with no valuation allowance (i.e., the allowance for loan losses).  The difference between the undiscounted cash flows expected at acquisition and the initial carrying amount (fair value) of the PCI loans or the “accretable yield,” is recognized as interest income utilizing the level-yield method over the life of the loans.  Contractually required payments for interest and principal that exceed the undiscounted cash flows expected at acquisition, or the “non-accretable difference,” are not recognized as a yield adjustment, as a loss accrual or a valuation allowance.  Reclassifications of the non-accretable difference to the accretable yield may occur subsequent to the loan acquisition dates due to increases in expected cash flows of the loans and result in an increase in yield on a prospective basis.

The following is our charge-off policy for our loan segments:

Commercial, Commercial Real Estate and Construction

Loans are generally fully or partially charged down to the fair value of collateral securing the asset when:

• Management judges the loan to be uncollectible;

• Repayment is deemed to be protracted beyond reasonable time frames;

• The loan has been classified as a loss by either internal loan review process or external examiners;

• The customer has filed bankruptcy and the loss becomes evident owing to a lack of assets; or

• The loan is significantly past due unless both well secured and in the process of collection.

Consumer

Consumer loans are generally charged off no later than 120 days past due on a contractual basis, earlier in the event of bankruptcy, or if there is an amount deemed uncollectible.

Management reviews the adequacy of the allowance for loan losses on at least a quarterly basis to ensure that the provision for loan losses has been charged against earnings in an amount necessary to maintain the allowance at a level that is adequate based on management’s assessment of probable estimated losses. The Company’s methodology for assessing the adequacy of the allowance for loan losses consists of several key elements and is consistent with U.S. GAAP and interagency supervisory guidance.  The allowance for loan losses methodology consists of two major components.  The first component is an estimation of losses associated with individually identified impaired loans, which follows ASC Topic 310.  The second major component estimates losses under ASC Topic 450, which provides guidance for estimating losses on groups of loans with similar risk characteristics.  The Bank’s methodology results in an allowance for loan losses which includes a specific reserve for impaired loans, an allocated reserve and an unallocated portion.

When analyzing groups of loans under ASC Topic 450, the Bank follows the Interagency Policy Statement on the Allowance for Loan and Lease Losses.  The methodology considers the Bank’s historical loss experience adjusted for changes in trends, conditions, and other relevant factors that affect repayment of the loans as of the evaluation date.  These adjustment factors, known as qualitative factors, include:

• Delinquencies and non-accruals

• Portfolio quality

• Concentration of credit

• Trends in volume of loans

• Quality of collateral

• Policy and procedures

• Experience, ability, and depth of management

• Economic trends – national and local

• External factors – competition, legal and regulatory

The methodology includes the segregation of the loan portfolio into loan types with a further segregation into risk rating categories, such as special mention, substandard, doubtful, and loss. This allows for an allocation of the allowance for loan losses by loan type; however, the allowance is available to absorb any loan loss without restriction. Larger balance, non-homogeneous loans representing significant individual credit exposures are evaluated individually through the internal loan review process. It is this process that produces the watch list for loans that have indications of credit weakness. The borrower’s overall financial condition, repayment sources, guarantors and value of collateral, if appropriate, are evaluated. Based on these reviews, an estimate of probable losses for the individual larger-balance loans are determined, whenever possible, and used to establish specific loan loss reserves. In general, for non-homogeneous loans not individually assessed and for homogeneous groups, such as residential mortgages and consumer credits, the loans are collectively evaluated based on delinquency status, loan type, and historical losses. These loan groups are then internally risk rated.

The watch list includes loans that are assigned a rating of special mention, substandard, doubtful and loss. Loans assigned a rating of special mention have potential weaknesses that deserve management’s close attention. If uncorrected, the potential weaknesses may result in deterioration of the repayment prospects. Loans classified as substandard have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They include loans that are inadequately protected by the current sound net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans classified as doubtful have all the weaknesses inherent in loans classified as substandard with the added characteristic that collection or liquidation in full, on the basis of current conditions and facts, is highly improbable. Loans rated as doubtful in whole, or in part, are placed in non-accrual status. Loans classified as a loss are considered uncollectible and are charged off against the allowance for loan losses.

The specific allowance for impaired loans is established for specific loans that have been identified by management as being impaired. These loans are considered to be impaired primarily because the loans have not performed according to payment terms and there is reason to believe that repayment of the loan principal in whole, or in part, is unlikely. The specific portion of the allowance is the total amount of potential unconfirmed losses for these individual impaired loans. To assist in determining the fair value of loan collateral, the Bank often utilizes independent third party qualified appraisal firms which, in turn, employ their own criteria and assumptions that may include occupancy rates, rental rates and property expenses, among others.

The second category of reserves consists of the allocated portion of the allowance. The allocated portion of the allowance is determined by taking pools of loans outstanding that have similar characteristics and applying historical loss experience for each pool. This estimate represents the potential unconfirmed losses within the portfolio. Individual loan pools are created for commercial and commercial real estate loans, construction loans, warehouse lines of credit and various types of loans to individuals. The historical loss estimation for each loan pool is then adjusted to account for current conditions, current loan portfolio performance, loan policy or management changes or any other qualitative factor which may cause future losses to deviate from historical levels.

The Company also maintains an unallocated allowance. The unallocated allowance is used to cover any factors or conditions which may cause a potential loan loss but are not specifically identifiable. It is prudent to maintain an unallocated portion of the allowance because no matter how detailed an analysis of potential loan losses is performed, these estimates, by definition, lack precision. Management must make estimates using assumptions and information that is often subjective and changing rapidly.

The following discusses the risk characteristics of each of our loan portfolio segments, commercial, mortgage warehouse lines of credit, and consumer.

Commercial

The Company’s primary lending emphasis is the origination of commercial, construction and commercial real estate loans. Based on the composition of the loan portfolio, the inherent primary risks are deteriorating credit quality, a decline in the economy and a decline in New Jersey real estate market values. Any one, or a combination, of these events may adversely affect the loan portfolio and may result in increased delinquencies, loan losses and increased future provision levels.

Mortgage Warehouse Lines of Credit

The Company’s Mortgage Warehouse Unit provides revolving lines of credit that are available to licensed mortgage banking companies. The warehouse line of credit is used by the mortgage banker to originate one-to-four family residential mortgage loans that are pre-sold into the secondary mortgage market, which includes state and national banks, national mortgage banking firms, insurance companies and government-sponsored enterprises, including the Federal National Mortgage Association, the Federal Home Loan Mortgage Corporation and others. On average, an advance under the warehouse line of credit remains outstanding for a period of less than 30 days, with repayment coming directly from the sale of the loan into the secondary mortgage market. Interest and a transaction fee are collected by the Bank at the time of repayment.

As a separate segment of the total portfolio, the warehouse loan portfolio is individually analyzed as a whole for allowance for loan losses purposes.  Warehouse lines of credit are subject to the same inherent risks as other commercial lending, but the overall degree of risk differs. While the Company’s loss experience with this type of lending has been non-existent since the product was introduced in 2008, there are other risks unique to this lending that still must be considered in assessing the adequacy of the allowance for loan losses. These unique risks may include, but are not limited to, (i) credit risks relating to the mortgage bankers that borrow from us, (ii) the risk of intentional misrepresentation or fraud by any of such mortgage bankers, (iii) changes in the market value of mortgage loans originated by the mortgage banker, the sale of which is the expected source of repayment of the borrowings under a warehouse line of credit, due to changes in interest rates during the time in warehouse or (iv) unsalable or impaired mortgage loans so originated, which could lead to decreased collateral value and the failure of a purchaser of the mortgage loan to purchase the loan from the mortgage banker.

These factors, along with the other qualitative factors such as economic trends, concentrations of credit, trends in the volume of loans, portfolio quality, delinquencies and non-accruals, are also considered and may have positive or negative effects on the allocated allowance.  The aggregate amount resulting from the application of these qualitative factors determines the overall risk for the portfolio and results in an allocated allowance for warehouse lines of credit.

Consumer

The Company’s consumer loan portfolio segment is comprised of residential real estate loans, home equity loans and other loans to individuals. Individual loan pools are created for the various types of loans to individuals.

In general, for homogeneous groups such as residential mortgages and consumer credits, the loans are collectively evaluated based on delinquency status, loan type and historical losses. These loan groups are then internally risk rated.

The Company considers the following credit quality indicators in assessing the risk in the loan portfolio:

• Consumer credit scores

• Internal credit risk grades

• Loan-to-value ratios

• Collateral

• Collection experience

Internal Risk Rating of Loans

The Bank’s internal credit risk grades are based on the definitions currently utilized by the banking regulatory agencies.  The grades assigned and their definitions are as follows, and loans graded excellent, above average, good and watch list are treated as “pass” for grading purposes:

1.  Excellent - Loans that are based upon cash collateral held at the Bank and adequately margined. Loans that are based upon "blue chip" stocks listed on the major stock exchanges and adequately margined.

2.  Above Average - Loans to companies whose balance sheets show excellent liquidity and long-term debt is on well-spread schedules of repayment easily covered by cash flow.  Such companies have been consistently profitable and have diversification in their product lines or sources of revenue.  The continuation of profitable operations for the foreseeable future is likely.  Management is comprised of a mix of ages, experience and backgrounds, and management succession is in place.  Sources of raw materials and, for service companies, the sources of revenue are abundant.  Future needs have been planned for.  Character and management ability of individuals or company principals are excellent.  Loans to individuals are supported by high net worths and liquid assets.

3.  Good - Loans to companies whose balance sheets show good liquidity and cash flow adequate to meet maturities of long-term debt with a comfortable margin.  Such companies have established profitable records over a number of years, and there has been growth in net worth.  Operating ratios are in line with those of the industry, and expenses are in proper relationship to the volume of business done and the profits achieved.  Management is well-balanced and competent in their responsibilities.  Economic environment is favorable; however, competition is strong.  The prospects for growth are good.  Loans in this category do not meet the collateral requirements of loans in categories 1 and 2 above. Loans to individuals are supported by good net worth but whose supporting assets are illiquid.

3w.  Watch- Included in this category are loans evidencing problems identified by Bank management that require closer supervision.  Such problems have not developed to the point which requires a "special mention" rating.  This category also covers situations where the Bank does not have adequate current information upon which credit quality can be determined.  The account officer has the obligation to correct these deficiencies within 30 days from the time of notification.

4.  Special Mention - A "special mention" loan has potential weaknesses that deserve management's close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or in the Bank's credit position at some future date. Special mention loans are not adversely classified and do not expose the Bank to sufficient risk to warrant adverse classification.

5.  Substandard - A "substandard" loan is inadequately protected by the current sound worth and paying capacity of the obligor or by the collateral pledged, if any. Loans so classified must have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected.

6.  Doubtful - A loan classified as "doubtful" has all the weaknesses inherent in a loan classified as substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently known facts, conditions and values, highly questionable and improbable.

7.  Loss - A loan classified as "loss" is considered uncollectible and of such little value that its continuance on the books is not warranted. This classification does not mean that the loan has absolutely no recovery or salvage value, but rather it is not practical or desireable to defer writing off this loan even though partial recovery may occur in the future.

Premises and Equipment

Premises and Equipment

Premises and equipment are stated at cost less accumulated depreciation and amortization.  Depreciation is computed primarily on the straight-line method over the estimated useful lives of the related assets for financial reporting purposes and using the mandated methods by asset type for income tax purposes.  Building, furniture and fixtures, equipment and leasehold improvements are depreciated or amortized over the estimated useful lives of the assets or lease terms, as applicable.  Estimated useful lives of buildings are forty years, furniture and fixtures and equipment are three to fifteen years and leasehold improvements are generally three to ten years.  Expenditures for maintenance and repairs are charged to expense as incurred.

The Bank accounts for impairment of long-lived assets in accordance with ASC Topic 360, “Property, Plant, and Equipment,” which requires recognition and measurement for the impairment of long-lived assets to be held and used or to be disposed of by sale.

Derivative Contracts

Derivative Contracts

Derivative contracts, as required by ASC Topic 815, “Derivatives and Hedging,” are carried at fair value as either assets or liabilities on the balance sheet with unrealized gains and losses excluded from earnings and reported in a separate component of shareholders’ equity, net of related income tax effects for contracts that are classified as cash flow hedges.  Gains and losses on derivative contracts are recognized upon realization, utilizing the specific identification method.

Income Taxes

Income Taxes

There are two components of income tax expense or benefit: current and deferred.  Current income tax expense or benefit approximates cash to be paid or refunded for taxes for the applicable period.  Deferred tax assets and liabilities are recognized due to differences between the basis of assets and liabilities as measured by tax laws and their basis as reported in the financial statements.  Deferred tax assets are subject to management’s judgment based upon available evidence that future realizations are likely.  If management determines that the Company may not be able to realize some or all of the net deferred tax asset in the future, a charge to income tax expense may be required to increase the valuation reserve of the net deferred tax asset. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.  The effect on deferred taxes of a change in tax rates is recognized in income in the period that includes the enactment date.  Deferred tax expense or benefit is recognized for the change in deferred tax liabilities.

The Company accounts for uncertainty in income taxes recognized in its consolidated financial statements in accordance with ASC Topic 740, “Income Taxes,” which prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return, and also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. The Company has not identified any significant income tax uncertainties through the evaluation of its income tax positions for the years ended December 31, 2016 and 2015 and has not recognized any liabilities for tax uncertainties as of December 31, 2016 and 2015. Our policy is to recognize interest and penalties on unrecognized tax benefits in income tax expense; such amounts were not significant during the years ended December 31, 2016 and 2015. The tax years subject to examination by the taxing authorities are, for federal and state purposes, the years ended December 31, 2016, 2015, 2014 and 2013.

Other Real Estate Owned (OREO)

Other Real Estate Owned ("OREO")

OREO obtained through loan foreclosures or the receipt of deeds-in-lieu of foreclosure is recorded at the fair value of the related property, as determined by current appraisals less estimated costs to sell at the initial transfer from the loan portfolio. Write-downs on these properties, which occur after the initial transfer from the loan portfolio, are recorded as operating expenses.  Costs of holding such properties are charged to expense in the current period.  Gains, to the extent realized, and losses on the disposition of these properties are reflected in current operations.

Goodwill and Other Intangible Assets

Goodwill and Other Intangible Assets

Goodwill represents the excess of the cost of an acquired entity over the fair value of the identifiable net assets acquired in accordance with the acquisition method of accounting.  Goodwill is not amortized but is reviewed for potential impairment on an annual basis, or more often if events or circumstances indicated that there may be impairment, in accordance with ASC Topic 350, “Intangibles – Goodwill and Other.”  Goodwill is tested for impairment at the reporting unit level and an impairment loss is recorded to the extent that the carrying amount of goodwill exceeds its implied fair value. Core deposit intangibles are a measure of the value of checking and savings deposits acquired in business combinations accounted for under the purchase method.  Core deposit intangibles are amortized over their estimated lives (ranging from five to ten years) and identifiable intangible assets are evaluated for impairment if events and circumstances indicate a possible impairment.  Any impairment loss related to goodwill and other intangible assets is reflected as other non-interest expense in the statement of income in the period in which the impairment was determined.  No assurance can be given that future impairment tests will not result in a charge to earnings.  See Note 8 – Goodwill and Intangible Assets for additional information.

Share-Based Compensation

Share-Based Compensation

The Company recognizes compensation expense for stock awards and options in accordance with ASC Topic 718, “Compensation – Stock Compensation.”  The expense of stock-based compensation is generally measured at fair value at the grant date with compensation expense recognized over the service period, which is usually the vesting period.  The Company utilizes the Black-Scholes option-pricing model to estimate the fair value of each stock option on the date of grant.  The Black-Scholes model takes into consideration the exercise price and expected life of the options, the current price of the underlying stock and its expected volatility, the expected dividends on the stock and the current risk-free interest rate for the expected life of the option.  The Company’s estimate of the fair value of a stock option is based on expectations derived from historical experience and may not necessarily equate to its market value when fully vested.   See Note 15 – Share-Based Compensation for additional information.

Benefit Plans

Benefit Plans

The Company provides certain retirement savings benefits to employees under a 401(k) plan.  The Company’s contributions to the 401(k) plan are expensed as incurred.

The Company also provides retirement benefits to certain employees under supplemental executive retirement plans.  The plans are unfunded and the Company accrues actuarially determined benefit costs over the estimated service period of the employees in the plans.  In accordance with ASC Topic 715, “Compensation – Retirement Benefits,” the Company recognizes the unfunded status of these postretirement plans as a liability in its consolidated balance sheets and recognizes changes in that unfunded status in the year in which the changes occur through other comprehensive income.

Cash and Cash Equivalents

Cash and Cash Equivalents

Cash and cash equivalents includes cash on hand, interest and non-interest bearing amounts due from banks, federal funds sold and short-term investments.  Generally, federal funds are sold and short-term investments are made for a one or two-day period.

Reclassifications

Reclassifications

Certain reclassifications have been made to the prior period amounts to conform with the current period presentation.  Such reclassification had no impact on net income or total shareholders’ equity.

Advertising Costs

Advertising Costs

It is the Company’s policy to expense advertising costs in the period in which they are incurred.

Earnings Per Common Share

Earnings Per Common Share

Basic net income per common share is calculated by dividing net income by the weighted average number of common shares outstanding during each period.

Diluted net income per common share is calculated by dividing net income by the weighted average number of common shares outstanding, as adjusted for the assumed exercise of dilutive common stock warrants and common stock options using the treasury stock method.  

Comprehensive Income

Comprehensive Income

Comprehensive income consists of net income and other comprehensive income (loss).  Other comprehensive income (loss) includes unrealized gains and losses on securities available for sale, other-than-temporary non-credit related security impairments, unrealized gains and losses on cash flow hedges and changes in the funded status of benefit plans.

Variable Interest Entities

Variable Interest Entities

Management has determined that Trust II qualifies as a variable interest entity under ASC Topic 810, “Consolidation.” Trust II issued mandatorily redeemable preferred stock to investors, loaned the proceeds to the Company and holds, as its sole asset, subordinated debentures issued by the Company.  As a qualified variable interest entity, Trust II’s balance sheet and statement of operations have never been consolidated with those of the Company.

In March 2005, the Federal Reserve Board ("FRB") adopted a final rule that would continue to allow the inclusion of trust preferred securities in Tier 1 capital, but with stricter quantitative limits. Under the final rule, after a five-year transition period, the aggregate amount of trust preferred securities and certain other capital elements would be limited to 25% of Tier 1 capital elements, net of goodwill. The amount of trust preferred securities and certain other elements in excess of the limit could be included in Tier 2 capital, subject to restrictions.  Based on the final rule, the Company has included all of its $18.0 million in trust preferred securities in Tier 1 capital at December 31, 2016 and 2015.

Segment Information

Segment Information

U.S. GAAP establishes standards for public business enterprises to report information about operating segments in their annual financial statements and requires that those enterprises report selected information about operating segments in subsequent interim financial reports issued to shareholders.  It also established standards for related disclosure about products and services, geographic areas and major customers.  Operating segments are components of an enterprise, which are evaluated regularly by the chief operating decision-maker in deciding how to allocate and assess resources and performance.  The Company’s chief operating decision-maker is the President and Chief Executive Officer.  The Company has applied the aggregation criteria for its operating segments to create one reportable segment, “Community Banking.”

The Company’s Community Banking segment consists of construction, commercial, retail and mortgage banking operations.  The Community Banking segment is managed as a single strategic unit, which generates revenue from a variety of products and services provided by the Company.  Construction, commercial, retail and mortgage lending is dependent upon the ability of the Company to fund itself with retail deposits and other borrowings and to manage interest rate, liquidity and credit risk as a single unit.

Recent Accounting Pronouncements

Recent Accounting Pronouncements

ASU Update 2017-08 - Premium Amortization on Purchased Callable Debt Securities

In March 2017, the FASB issued ASU 2017-08 "Premium Amortization on Purchased Callable Debt Securities," which shortens the amortization period for premiums on purchased callable debt securities to the earliest call date (i.e., yield-to-earliest call amortization) rather than amortizing over the full contractual term. The ASU does not change the accounting for securities held at a discount.

The amendments apply to callable debt securities with explicit, non-contingent call features that are callable at fixed prices and on preset dates. If a security may be prepaid based upon prepayments of the underlying loans and not because the issuer exercised a date specific call option, it is excluded from the scope of the new standard. However, for instruments with contingent call features, once the contingency is resolved and the security is callable at a fixed price and preset date, the security is within the scope of the amendments. Further, the amendments apply to all premiums on callable debt securities, regardless of how they were generated.

The amendments require companies to reset the effective yield using the payment terms of the debt security if the call option is not exercised on the earliest call date. If the security has additional future call dates, any excess of the amortized cost basis over the amount repayable by the issuer at the next call date should be amortized to the next call date.

The amendments are effective for public business entities for fiscal years beginning after December 15, 2018, including interim periods within those years. For all other entities, the amendments are effective for annual periods beginning after December 15, 2019, and interim periods within annual periods beginning after December 15, 2020. Early adoption is permitted, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes the interim period.

The Company does not expect the adoption of this guidance to have a material impact on its consolidated financial statements.

ASU Update 2017-07 - Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost

In March 2017, the FASB issued ASU 2017-07 "Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost," which requires that an employer disaggregate the service cost component from the other components of net benefit costs as follows: (1) service cost must be presented in the same line item(s) as other employee compensation costs. These costs are generally included within income from continuing operations but in some cases, may be eligible for capitalization if certain criteria are met; and (2) all other components of net benefit cost must be presented in the income statement separately from the service cost component and outside a subtotal of income from operations, if one is presented. These generally include interest cost, actual return on plan assets, amortization of prior service cost included in accumulated other comprehensive income and gains or losses from changes in the value of the projected benefit obligation or plan assets.

The amendments are effective for public business entities for fiscal years beginning after December 15, 2017, including interim periods within those years. For other entities, the amendments are effective for annual periods beginning after December 15, 2018 and interim periods within annual periods beginning after December 15, 2019. Early adoption is permitted as of the beginning of an annual period.

The Company does not expect the adoption of this guidance to have a material impact on its consolidated financial statements.

ASU Update 2017-04 - Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment

In January 2017, the FASB issued ASU 2017-04 "Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment," which simplifies how all entities assess goodwill for impairment by eliminating Step 2 from the goodwill impairment test. As amended, the goodwill impairment test will consist of one step comparing the fair value of a reporting unit with its carrying amount. An entity should recognize a goodwill impairment charge for the amount by which the carrying amount exceeds the reporting unit's fair value. The primary goal of this ASU is to simplify the goodwill impairment test and provide cost savings for all entities by removing the requirement to determine the fair value of individual assets and liabilities in order to calculate a reporting unit's "implied" goodwill under current U.S. GAAP.

The amendments have staggered effective dates: (1) a public business entity that is an SEC filer should adopt the amendments for its annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2019, (2) a public business entity that is not an SEC filer should adopt the amendments for its annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2020 and (3) all other entities, including not-for-profit entities, should adopt the amendments for their annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2021. The amendments should be adopted prospectively. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017.

The Company does not expect the adoption of this guidance to have a material impact on its consolidated financial statements.

ASU Update 2017-01 - Business Combinations (Topic 805): Clarifying the Definition of a Business

In January 2017, the FASB issued ASU 2017-01 "Business Combinations (Topic 805): Clarifying the Definition of a Business," which clarifies the definition of a business with the objective of adding guidance to assist companies and other reporting organizations with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The amendments in this ASU provide a more robust framework to use in determining when a set of assets and activities is a business. The current definition of a business is interpreted broadly and can be difficult to apply. Stakeholders indicated that analyzing transactions is inefficient and costly and the definition does not permit the use of reasonable judgment.

Under current implementation guidance, there are three elements of a business: inputs, processes and outputs. While an integrated set of assets and activities (collectively referred to as a "set") that is a business usually has outputs, outputs are not required to be present. Additionally, all the inputs and processes that a seller uses in operating a set are not required if market participants can acquire the set and continue to produce outputs, for example, by integrating the acquired set with their own inputs and processes.

The ASU introduces a "screen" to assist entities in determining when a set should not be considered a business. If substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets, the set is not considered a business. If the screen is not met, the ASU requires that to be considered a business, a set must include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create output. Further, the ASU removes the evaluation of whether a market participant could replace missing elements (as required under current U.S. GAAP).

For public business entities, the ASU is effective for annual periods beginning after December 15, 2017, including interim periods within those periods. For all other entities, the amendments apply to annual periods beginning after December 15, 2018 and interim periods within annual periods beginning after December 15, 2019. The amendments in this ASU should be applied prospectively on or after the effective date. No disclosures are required at transition.

The Company does not expect the adoption of this guidance to have a material impact on its consolidated financial statements.

ASU Update 2016-20 - Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers.

In December 2016, the FASB issued ASU 2016-20 "Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers," amending the new revenue recognition standard that it jointly issued with the International Accounting Standards Board ("IASB") in 2014. The amendments do not change the core principles of the standard, but clarify certain narrow aspects of the standard, including its scope, contract cost accounting, disclosures, illustrative examples and other matters. The ASU becomes effective concurrently with ASU 2014-09 "Revenue from Contracts with Customers (Topic 606)."

The Company does not expect the adoption of this guidance to have a material impact on its consolidated financial statements.

ASU Update 2016-18 - Restricted Cash.

In November 2016, the FASB issued ASU 2016-18 "Restricted Cash," which updates Topic 230-Statement of Cash Flows, to require that restricted cash and restricted cash equivalents be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total cash amounts shown on the statement of cash flows. Consequently, transfers between cash and restricted cash will not be presented as a separate line item in the operating, investing or financing sections of the cash flow statement. The ASU includes examples of the revised presentation guidance, and additional presentation and disclosure requirements apply.

For public business entities, the amendments are effective 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.

The Company does not expect the adoption of this guidance to have a material impact on its consolidated financial statements.

ASU Update 2016-17 - Interests Held Through Related Parties That Are Under Common Control.

In October 2016, the FASB issued ASU 2016-17 "Interests Held Through Related Parties That Are Under Common Control," which amends the variable interest entity ("VIE") guidance within Topic 810. It does not change the two required characteristics for a single decision maker to be the primary beneficiary ("power" and "economics"), but it revised one aspect of the related analysis. The amendments change how a single decision maker of a VIE treats an indirect variable interest held through related parties that are under common control when determining whether it is the primary beneficiary of that VIE. The ASU requires consideration of such indirect interests on a proportionate basis instead of being the equivalent of direct interests in their entity, thereby making consolidation less likely.

For public business entities, the amendments are effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2016 and interim periods within fiscal years beginning after December 15, 2017. Early adoption is permitted; however, if an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of that fiscal year.

The Company does not expect the adoption of this guidance to have a material impact on its consolidated financial statements.

ASU Update 2016-15 - Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments.

In August 2016, the FASB issued ASU 2016-15 "Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments," which clarifies whether the following items should be categorized as operating, investing or financing in the statement of cash flows: (1) debt prepayment and extinguishment costs, (2) settlement of zero-coupon debt, (3) settlement of contingent consideration, (4) insurance proceeds, (5) settlement of corporate-owned life insurance (COLI) and bank-owned life insurance (BOLI) policies, (6) distributions from equity method investees, (7) beneficial interests in securitization transactions and (8) receipts and payments with aspects of more than one class of cash flows.

For public business entities, the amendments are effective 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 currently classifies cash flows related to BOLI in accordance with the guidance and does not expect the adoption of this guidance to have a material impact on its consolidated financial statements.

ASU Update 2016-13 Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.

In June 2016, the FASB issued ASU 2016-13 "Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments," which requires credit losses on most financial assets to be measured at amortized cost and certain other instruments to be measured using an expected credit loss model (referred to as the current expected credit loss (CECL) model). Under this model, entities will estimate credit losses over the entire contractual term of the instrument (considering estimated prepayments but not expected extensions or modifications unless reasonable expectation of a troubled debt restructuring exists) from the date of initial recognition of that instrument.

The ASU also replaces the current accounting model for purchased credit impaired loans and debt securities. The allowance for credit losses for purchased financial assets with a more-than-insignificant amount of credit deterioration since origination ("PCD assets") should be determined in a similar manner to other financial assets measured on an amortized cost basis. Upon initial recognition, the allowance for credit losses is added to the purchase price ("gross up approach") to determine the initial amortized cost basis. The subsequent accounting for PCD assets will use the CECL model described above.

The ASU made certain targeted amendments to the existing impairment model for available-for-sale (AFS) debt securities. For an AFS debt security for which there is neither the intent nor a more-likely-than-not requirement to sell, an entity will record credit losses as an allowance rather than a write-down of the amortized cost basis.

For public business entities that are SEC filers, the amendments are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted for all entities as of the fiscal year beginning after December 15, 2018, including interim periods within those fiscal years.

The Company is currently evaluating the impact of the pending adoption of the new standard on its consolidated financial statements.

ASU Update 2016-02: Leases.

In February 2016, the FASB issued ASU 2016-02 "Leases." From the lessee's perspective, the new standard establishes a right- of-use ("ROU") model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement for a lessee. From the lessor's perspective, the new standard requires a lessor to classify leases as either sales-type, finance or operating. A lease will be treated as a sale if it transfers all of the risks and rewards, as well as control of the underlying asset, to the lessee. If risks and rewards are conveyed without the transfer of control, the lease is treated as a financing. If the lessor doesn’t convey risks and rewards or control, an operating lease results.

The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. A modified retrospective transition approach is required for lessors for sales-type, direct financing and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. In 2017, the Company plans to complete an evaluation of all of its leases to determine the potential impact on the Company's consolidated financial statements as a result of this new standard.

ASU Update 2016-01 Financial Instruments-Overall: Recognition and Measurement of Financial Assets and Financial Liabilities.

In January 2016, the FASB issued ASU 2016-01 "Financial Instruments-Overall: Recognition and Measurement of Financial Assets and Financial Liabilities." The guidance in the ASU, among other things, requires equity investments, with certain exceptions, to be measured at fair value with changes in fair value recognized in net income; simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment; eliminates the requirement for public business entities to disclose the methods 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; requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; requires an entity to present separately in other comprehensive income, the portion of the change in fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments; requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset on the balance sheet or the accompanying notes to the financial statements; and clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities. The guidance in this ASU is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company does not expect the adoption of this guidance to have a material impact on its consolidated financial statements.

ASU 2014-9 Revenue from Contracts with Customers (Topic 606)

In May 2014, the FASB issued ASU 2014-9, deferred by ASU 2015-14, “Revenue from Contracts with Customers (Topic 606).” The amendments in this update establish a comprehensive revenue recognition standard for virtually all industries under U.S. GAAP, including those that previously followed industry specific guidance such as the real estate, construction and software industries. The revenue standard's core principle is built on the contract between a vendor and a customer for the provision of goods and services. It attempts to depict the exchange of rights and obligations between the parties in the pattern of revenue recognition based on the consideration to which the vendor is entitled. To accomplish this objective, the standard requires five basic steps: (1) identify the contract with the customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract and (5) recognize revenue when (or as) the entity satisfies a performance obligation.   This ASU, which does not apply to financial instruments, is effective for interim and annual reporting periods beginning after December 15, 2017. Early adoption is permitted only as of annual reporting periods beginning after December 15, 2016, including interim periods within that year.

The Company does not expect the adoption of ASU 2014-9 to have a material impact on its consolidated financial statements.

Recent Accounting Pronouncements

ASU Update 2017-04 - Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment

In January 2017, the FASB issued ASU 2017-04 "Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment," which simplifies how all entities assess goodwill for impairment by eliminating Step 2 from the goodwill impairment test. As amended, the goodwill impairment test will consist of one step comparing the fair value of a reporting unit with its carrying amount. An entity should recognize a goodwill impairment charge for the amount by which the carrying amount exceeds the reporting unit's fair value. The primary goal of this ASU is to simplify the goodwill impairment test and provide cost savings for all entities by removing the requirement to determine the fair value of individual assets and liabilities in order to calculate a reporting unit's "implied" goodwill under current U.S. GAAP.

The amendments have staggered effective dates: (1) a public business entity that is a U.S. Securities and Exchange Commission (SEC) filer should adopt the amendments for its annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2019, (2) a public business entity that is not an SEC filier should adopt the amendments for its annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2020 and (3) all other entities, including non-for-profit entities, should adopt the amendments for their annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 2021. The amendments should be adopted prospectively. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017.

The Company does not expect the adoption of this guidance to have a material impact on its consolidated financial statements.

ASU Update 2017-01 - Business Combinations (Topic 805): Clarifying the Definition of a Business

In January 2017, the FASB issued ASU 2017-01 "Business Combinations (Topic 805): Clarifying the Definition of a Business," which clarifies the definition of a business with the objective of adding guidance to assist companies and other reporting organizations with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The amendments in this ASU provide a more robust framework to use in determining when a set of assets and activities is a business. The current definition of a business is interpreted broadly and can be difficult to apply. Stakeholders indicated that analyzing transactions is inefficient and costly and the definition does not permit the use of reasonable judgment.

Under current implementation guidance, there are three elements of a business: inputs, processes and outputs. While an integrated set of assets and activities (collectively referred to as a "set") that is a business usually has outputs, outputs are not required to be present. Additionally, all the inputs and processes that a seller uses in operating a set are not required if market participants can acquire the set and continue to produce outputs, for example, by integrating the acquired set with their own inputs and processes.

The ASU introduces a "screen" to assist entities in determining when a set should not be considered a business. If substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets, the set is not considered a business. If the screen is not met, the ASU requires that to be considered a business, a set must include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create output. Further, the ASU removes the evaluation of whether a market participant could replace missing elements (as required under current U.S. GAAP).

For public business entities, the ASU is effective for annual periods beginning after December 15, 2017, including interim periods within those periods. For all other entities, the amendments apply to annual periods beginning after December 15, 2018 and interim periods within annual periods beginning after December 15, 2019. The amendments in this ASU should be applied prospectively on or after the effective date. No disclosures are required at transition.

The Company does not expect the adoption of this guidance to have a material impact on its consolidated financial statements.

ASU Update 2016-20 - Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers.

In December 2016, the FASB issued ASU 2016-20 "Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers," amending the new revenue recognition standard that it jointly issued with the International Accounting Standards Board ("IASB") in 2014. The amendments do not change the core principles of the standard, but clarify certain narrow aspects of the standard including its scope, contract cost accounting, disclosures, illustrative examples and other matters. The ASU becomes effective concurrently with ASU 2014-09 "Revenue from Contracts with Customers (Topic 606)."

The Company does not expect the adoption of this guidance to have a material impact on its consolidated financial statements.

ASU Update 2016-18 - Restricted Cash.

In November 2016, the FASB issued ASU 2016-18 "Restricted Cash," which updates Topic 230-Statement of Cash Flows, to require that restricted cash and restricted cash equivalents be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total cash amounts shown on the statement of cash flows. Consequently, transfers between cash and restricted cash will not be presented as a separate line item in the operating, investing or financing sections of the cash flow statement. The ASU includes examples of the revised presentation guidance and additional presentation and disclosure requirements apply.

For public business entities, the amendments are effective 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.

The Company does not expect the adoption of this guidance to have a material impact on its consolidated financial statements.

ASU Update 2016-17 - Interests Held Through Related Parties That Are Under Common Control.

In October 2016, the FASB issued ASU 2016-17 "Interests Held Through Related Parties That Are Under Common Control," which amends the variable interest entity ("VIE") guidance within Topic 810. It does not change the two required characteristics for a single decision maker to be the primary beneficiary ("power" and "economics"), but it revised one aspect of the related analysis. The amendments change how a single decision maker of a VIE treats indirect variable interest held through related parties that are under common control when determining whether it is the primary beneficiary of that VIE. The ASU requires consideration of such indirect interests on a proportionate basis instead of being the equivalent of direct interests in their entity, thereby making consolidation less likely.

For public business entities, the amendments are effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2016 and interim periods within fiscal years beginning after December 15, 2017. Early adoption is permitted; however, if an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of that fiscal year.

The Company does not expect the adoption of this guidance to have a material impact on its consolidated financial statements.

ASU Update 2016-15 - Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments.

In August 2016, the FASB issued ASU 2016-15 "Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments," which clarifies whether the following items should be categorized as operating, investing or financing in the statement of cash flows: (1) debt prepayment and extinguishment costs, (2) settlement of zero-coupon debt, (3) settlement of contingent consideration, (4) insurance proceeds, (5) settlement of corporate-owned life insurance (COLI) and bank-owned life insurance policies (BOLI) policies, (6) distributions from equity method investees, (7) beneficial interests in securitization transactions and (8) receipts and payments with aspects of more than one class of cash flows.

For public business entities, the amendments are effective 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 currently classifies cash flows related to BOLI in accordance with the guidance and does not expect the adoption of this guidance to have a material impact on its consolidated financial statements.

ASU Update 2016-13 Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.

In June 2016, the FASB issued ASU 2016-13 "Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments," which requires credit losses on most financial assets to be measured at amortized cost and certain other instruments to be measured using an expected credit loss model (referred to as the current expected credit loss (CECL) model). Under this model, entities will estimate credit losses over the entire contractual term of the instrument (considering estimated prepayments, but not expected extensions or modifications unless reasonable expectation of a troubled debt restructuring exists) from the date of initial recognition of that instrument.

The ASU also replaces the current accounting model for purchased credit impaired loans and debt securities. The allowance for credit losses for purchased financial assets with a more-than-insignificant amount of credit deterioration since origination ("PCD assets") should be determined in a similar manner to other financial assets measured on an amortized cost basis. Upon initial recognition, the allowance for credit losses is added to the purchase price ("gross up approach") to determine the initial amortized cost basis. The subsequent accounting for PCD assets will use the CECL model described above.

The ASU made certain targeted amendments to the existing impairment model for available-for-sale (AFS) debt securities. For an AFS debt security for which there is neither the intent nor a more-likely-than-not requirement to sell, an entity will record credit losses as an allowance rather than a write-down of the amortized cost basis.

For public business entities that are SEC filers, the amendments are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted for all entities as of the fiscal year beginning after December 15, 2018, including interim periods within those fiscal years.

The Company is currently evaluating the impact of the pending adoption of the new standard on its consolidated financial statements.

ASU Update 2016-09 Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting.

In March 2016, the FASB issued ASU 2016-09 "Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting" to simplify the accounting for stock compensation. The ASU focuses on income tax accounting, award classification, estimating forfeitures and cash flow presentation. The ASU also provides certain accounting policy alternatives to nonpublic entities. The ASU simplifies several aspects of the stock compensation guidance in Topic 718 and other related guidance. The following six amendments apply to all entities: (1) accounting for income taxes upon vesting or exercise of share-based payments and related EPS effects, (2) classification of excess tax benefits on the statement of cash flows, (3) accounting for forfeitures, (4) liability classification exception for statutory tax withholding requirements, (5) cash flow presentation of employee taxes paid when an employer withholds shares for tax-withholding purposes and (6) elimination of the indefinite deferral in Topic 718.

For public business entities, the amendments are effective for annual periods beginning after December 15, 2016 and interim periods within those annual periods. For all other entities, the amendments are effective for annual periods beginning after December 15, 2017 and interim periods within annual periods beginning after December 15, 2018. Early adoption is permitted for any entity in any interim or annual period for which the financial statements have not been issued or made available to be issued. 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 adopted the guidance for the year ended December 31, 2016. The effect of the adoption of this guidance was not material.

ASU Update 2016-02: Leases.

In February 2016, the FASB issued ASU 2016-02 "Leases." From the lessee's perspective, the new standard establishes a right- of-use ("ROU") model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement for a lessee. From the lessor's perspective, the new standard requires a lessor to classify leases as either sales-type, finance or operating. A lease will be treated as a sale if it transfers all of the risks and rewards, as well as control of the underlying asset, to the lessee. If risks and rewards are conveyed without the transfer of control, the lease is treated as a financing. If the lessor doesn’t convey risks and rewards or control, an operating lease results.

The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. A modified retrospective transition approach is required for lessors for sales-type, direct financing and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. In 2017, the Company plans to complete an evaluation of all of its leases to determine the potential impact on the Company's consolidated financial statements as a result of this new standard.

ASU Update 2016-01 Financial Instruments-Overall: Recognition and Measurement of Financial Assets and Financial Liabilities.

In January 2016, the FASB issued ASU 2016-01 "Financial Instruments-Overall: Recognition and Measurement of Financial Assets and Financial Liabilities." The guidance in the ASU, among other things, requires equity investments, with certain exceptions, to be measured at fair value with changes in fair value recognized in net income; simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment; eliminates the requirement for public business entities to disclose the methods 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; requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; requires an entity to present separately in other comprehensive income, the portion of the change in fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments; requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset on the balance sheet or the accompanying notes to the financial statements; and clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities. The guidance in this ASU is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company does not expect the adoption of this guidance to have a material impact on its consolidated financial statements.

ASU Update 2015-16 Business Combination (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments.

In September 2015, the FASB issued ASU 2015-16 "Business Combination (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments," to require adjustments to provisional amounts that are identified during the measurement period to be recognized in the reporting period in which the adjustment amounts are determined. This includes any effect on earnings of changes in depreciation, amortization or other income as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date. The amendments in this update would require an entity to disclose (either on the face of the income statement or in the notes) the nature and amount of measurement-period adjustments recognized in the current period, including, separately, the amounts in current-period income statement line items that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date. The amendments are effective for public business entities for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2015 and for all other entities for fiscal years beginning after December 31, 2016 and for interim periods within fiscal years beginning after December 15, 2017. Adoption of this guidance in 2016 did not have a material impact on the Company’s consolidated financial statements.

ASU 2014-9 Revenue from Contracts with Customers (Topic 606)

In May 2014, the FASB issued ASU 2014-9, deferred by ASU 2015-14, “Revenue from Contracts with Customers (Topic 606).” The amendments in this update establish a comprehensive revenue recognition standard for virtually all industries under U.S. GAAP, including those that previously followed industry specific guidance such as the real estate, construction and software industries. The revenue standard's core principle is built on the contract between a vendor and a customer for the provision of goods and services. It attempts to depict the exchange of rights and obligations between the parties in the pattern of revenue recognition based on the consideration to which the vendor is entitled. To accomplish this objective, the standard requires five basic steps: (1) identify the contract with the customer, (2) identify the performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations in the contract, and (5) recognize revenue when (or as) the entity satisfies a performance obligation.   This ASU, which does not apply to financial instruments, is effective for interim and annual reporting periods beginning after December 15, 2017. Early adoption is permitted only as of annual reporting periods beginning after December 15, 2016, including interim periods within that year.

The Company does not expect the adoption of ASU 2014-9 to have a material impact on its consolidated financial statements.

ASU 2014-12 Accounting for Share-Based-Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved After the Requisite Service Period (a consensus of the FAS Emerging Issues Task Force).

In June 2014, the FASB issued ASU 2014-12, "Accounting for Share-Based-Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved After the Requisite Service Period," which requires that a performance target included in a share-based payment award that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. This update is effective for interim and annual periods beginning after December 15, 2015. The amendments can be applied prospectively to all awards granted or modified after the effective date or retrospectively to all awards with performance targets that are outstanding as of the beginning of the earliest annual period presented and to all new or modified awards thereafter. Adoption of this guidance in 2016 did not have a material impact on the Company’s consolidated financial statements.

Fair Value Disclosures

U.S. GAAP has established a fair value hierarchy that prioritizes the inputs to valuation methods used to measure fair value.  The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements).  The three levels of the fair value hierarchy are as follows:

Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical unrestricted assets or liabilities.

Level 2: Quoted prices in markets that are not active, or inputs that are observable either directly or indirectly, for substantially the full term of the asset or liability.

Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported with little or no market activity).

An asset’s or liability’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.

A description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below.  These valuation methodologies were applied to all of the Company’s financial assets and financial liabilities carried at fair value.

In general, fair value is based upon quoted market prices, where available.  If such quoted market prices are not available, fair value is based upon internally developed models that primarily use, as inputs, observable market-based parameters.  Valuation adjustments may be made to ensure that financial instruments are recorded at fair value.  These adjustments may include amounts to reflect counterparty credit quality and counterparty creditworthiness, among other things, as well as unobservable parameters.  Any such valuation adjustments are applied consistently over time.  The Company’s valuation methodologies may produce a fair value calculation that may not be indicative of net realizable value or reflective of future values.  While management believes the Company’s valuation methodologies are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date.

Securities Available for Sale.  Securities classified as available for sale are reported at fair value utilizing quoted market prices on nationally recognized exchanges (Level 1) or by using Level 2 inputs.  For Level 2 securities, the Company obtains fair value measurements from an independent pricing service.  The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayments speeds, credit information and the security’s terms and conditions, among other things.

Impaired loans.  Impaired loans are those which the Company has measured and recognized impairment, generally based on the fair value of the loan’s collateral.  Fair value is generally determined based upon independent third party appraisals of the collateral or discounted cash flows based on the expected proceeds.  These assets are included as Level 3 fair values, based upon the lowest level of input that is significant to the fair value measurements.  The fair value consists of the loan balances less specific valuation allowances.

Other Real Estate Owned.  Foreclosed properties are adjusted to fair value less estimated selling costs at the time of foreclosure in preparation for transfer from portfolio loans to other real estate owned (“OREO”), thereby establishing a new accounting basis.  The Company subsequently adjusts the fair value of the OREO, utilizing Level 3 inputs on a non-recurring basis to reflect partial write-downs based on the observable market price, current appraised value of the asset or other estimates of fair value. The fair value of other real estate owned is determined using appraisals, which may be discounted based on management’s review and changes in market conditions.

U.S. GAAP has established a fair value hierarchy that prioritizes the inputs to valuation methods used to measure fair value.  The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements).  The three levels of the fair value hierarchy are as follows:

Level 1.

• Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

Level 2.

• Quoted prices in markets that are not active, or inputs that are observable either directly or indirectly, for substantially the full term of the asset or liability.

Level 3.

• Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e., supported with little or no market activity).

An asset’s or liability’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.

A description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below.  These valuation methodologies were applied to all of the Company’s financial assets and financial liabilities carried at fair value.

In general, fair value is based upon quoted market prices, where available.  If such quoted market prices are not available, fair value is based upon internally developed models that primarily use, as inputs, observable market-based parameters.  Valuation adjustments may be made to ensure that financial instruments are recorded at fair value.  These adjustments may include amounts to reflect counterparty credit quality and counterparty creditworthiness, among other things, as well as unobservable parameters.  Any such valuation adjustments are applied consistently over time.  The Company’s valuation methodologies may produce a fair value calculation that may not be indicative of net realizable value or reflective value or reflective of future values.  While management believes that the Company’s valuation methodologies are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date.

Securities Available for Sale.  Securities classified as available for sale are reported at fair value utilizing Level 1 and Level 2 inputs. For Level 2 securities, the fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the security’s terms and conditions, among other things.

Impaired loans.  Loans included in the following table are those which the Company has measured and recognized impairment based generally on the fair value of the loan’s collateral.  Fair value is generally determined based upon independent third party appraisals of the properties or discounted cash flows based on the expected proceeds.  These assets are included as Level 3 fair values based upon the lowest level of input that is significant to the fair value measurements.  The fair value consists of the loan balances less specific valuation allowances.

Other Real Estate Owned.  Foreclosed properties are adjusted to fair value less estimated selling costs at the time of foreclosure in preparation for transfer from portfolio loans to other real estate owned (“OREO”), thereby establishing a new accounting basis.  The Company subsequently adjusts the fair value of the OREO utilizing Level 3 inputs on a non-recurring basis to reflect partial write-downs based on the observable market price, current appraised value of the asset or other estimates of fair value.

Subsequent Events

The Company has evaluated events and transactions occurring subsequent to the balance sheet date of March 31, 2017 for items that should potentially be recognized or disclosed in these financial statements.  The evaluation was conducted through the date these financial statements were issued.

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Net Income Per Common Share (Tables)

3 Months Ended

12 Months Ended

Mar. 31, 2017

Dec. 31, 2016

Earnings Per Share [Abstract]

Schedule of Earnings Per Share, Basic and Diluted

The following tables illustrate the reconciliation of the numerators and denominators of the basic and diluted earnings per common share (EPS) calculations.  Dilutive securities in the tables below exclude common stock options and warrants with exercise prices that exceed the average market price of the Company’s common stock during the periods presented.  Inclusion of these common stock options and warrants would be anti-dilutive to the diluted earnings per common share calculation. 

(Dollars in thousands, except per share data)	Three Months Ended March 31, 2017
	Net  Income		Weighted-average shares	Per share amount
Basic earnings per common share:  Net income	$	1,949	8,026,037	$	0.24
Effect of dilutive securities:
Stock options and warrants			278,552
Diluted EPS:
Net income plus assumed conversion	$	1,949	8,304,589	$	0.23

(Dollars in thousands, except per share data)	Three Months Ended March 31, 2016
	Net  Income		Weighted-average shares	Per share amount
Basic earnings per common share:
Net income	$	2,222	7,939,366	$	0.28
Effect of dilutive securities:
Stock options and warrants			197,342
Diluted EPS:
Net income plus assumed conversion	$	2,222	8,136,708	$	0.27

The following tables illustrate the reconciliation of the numerators and denominators of the basic and diluted earnings per common share (EPS) calculations. Dilutive securities in the tables below exclude common stock options and warrants with exercise prices that exceed the average market price of the Company’s common stock during the periods presented. Inclusion of these common stock options and warrants would be anti-dilutive to the diluted earnings per common share calculation.

(Dollars in thousands except per share data)	Year Ended December 31, 2016
	Net Income		Weighted average shares	Per share Amount
Basic earnings per common share:
Net income	$	9,285	7,962,121	$	1.17
Effect of dilutive securities:
Stock options and warrants			215,318
Diluted EPS:
Net income plus assumed conversion	$	9,285	8,177,439	$	1.14

	Year Ended December 31, 2015
	Net Income		Weighted average shares	Per share Amount
Basic earnings per common share:
Net income	$	8,664	7,901,278	$	1.10
Effect of dilutive securities:
Stock options and warrants			174,474
Diluted EPS:
Net income plus assumed conversion	$	8,664	8,075,752	$	1.07

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Summary of Significant Accounting Policies (Tables)

3 Months Ended

12 Months Ended

Mar. 31, 2017

Dec. 31, 2016

Accounting Policies [Abstract]

Schedule of Error Corrections and Prior Period Adjustments

The table below shows the changes to the Consolidated Statements of Income:

		2016	2015
Loan Interest
	As originally reported	35,429	35,597
	As revised	33,744	34,097
Total interest income
	As originally reported	40,863	40,945
	As revised	39,178	39,445
Net interest income before provision (credit)
	As originally reported	35,705	36,309
	As revised	34,020	34,809
Net interest income after provision (credit)
	As originally reported	36,005	35,209
	As revised	34,320	33,709
Salaries and employee benefits
	As originally reported	18,298	17,232
	As revised	16,543	15,589
Other operating expenses
	As originally reported	4,873	5,012
	As revised	4,943	5,155
Total other expense
	As originally reported	28,983	28,947
	As revised	27,298	27,447

The table below shows the changes to Note 17 Other Operating Expenses:

		2016	2015
Other expenses
	As originally reported	1,288	1,009
	As revised	1,358	1,152
Total other operating expense
	As originally reported	4,873	5,012
	As revised	4,943	5,155

The table below shows the changes to Note 22 Quarterly Financial Data (Unaudited):

		2016
Interest income		Dec. 31	Sept. 30	June 30	March 31
	As originally reported	10,455	10,843	9,871	9,694
	As revised	9,997	10,408	9,488	9,285
Net interest income before provision (credit)
	As originally reported	9,094	9,488	8,614	8,509
	As revised	8,636	9,053	8,231	8,100
Net interest income after provision (credit)
	As originally reported	9,094	9,488	8,714	8,709
	As revised	8,636	9,053	8,331	8,300
Total non-interest expense
	As originally reported	8,029	7,098	6,823	7,033
	As revised	7,572	6,662	6,440	6,624
		2015
Interest income		Dec. 31	Sept. 30	June 30	March 31
	As originally reported	9,863	10,832	10,564	9,686
	As revised	9,473	10,431	10,201	9,340
Net interest income before provision (credit)
	As originally reported	8,693	9,663	9,411	8,542
	As revised	8,303	9,262	9,048	8,196
Net interest income after provision (credit)
	As originally reported	8,193	9,563	9,411	8,042
	As revised	7,803	9,162	9,048	7,696
Total non-interest expense
	As originally reported	6,739	7,380	7,972	6,856
	As revised	6,349	6,979	7,609	6,510

Schedule of Earnings Per Share, Basic and Diluted

The following tables illustrate the reconciliation of the numerators and denominators of the basic and diluted earnings per common share (EPS) calculations.  Dilutive securities in the tables below exclude common stock options and warrants with exercise prices that exceed the average market price of the Company’s common stock during the periods presented.  Inclusion of these common stock options and warrants would be anti-dilutive to the diluted earnings per common share calculation. 

(Dollars in thousands, except per share data)	Three Months Ended March 31, 2017
	Net  Income		Weighted-average shares	Per share amount
Basic earnings per common share:  Net income	$	1,949	8,026,037	$	0.24
Effect of dilutive securities:
Stock options and warrants			278,552
Diluted EPS:
Net income plus assumed conversion	$	1,949	8,304,589	$	0.23

(Dollars in thousands, except per share data)	Three Months Ended March 31, 2016
	Net  Income		Weighted-average shares	Per share amount
Basic earnings per common share:
Net income	$	2,222	7,939,366	$	0.28
Effect of dilutive securities:
Stock options and warrants			197,342
Diluted EPS:
Net income plus assumed conversion	$	2,222	8,136,708	$	0.27

The following tables illustrate the reconciliation of the numerators and denominators of the basic and diluted earnings per common share (EPS) calculations. Dilutive securities in the tables below exclude common stock options and warrants with exercise prices that exceed the average market price of the Company’s common stock during the periods presented. Inclusion of these common stock options and warrants would be anti-dilutive to the diluted earnings per common share calculation.

(Dollars in thousands except per share data)	Year Ended December 31, 2016
	Net Income		Weighted average shares	Per share Amount
Basic earnings per common share:
Net income	$	9,285	7,962,121	$	1.17
Effect of dilutive securities:
Stock options and warrants			215,318
Diluted EPS:
Net income plus assumed conversion	$	9,285	8,177,439	$	1.14

	Year Ended December 31, 2015
	Net Income		Weighted average shares	Per share Amount
Basic earnings per common share:
Net income	$	8,664	7,901,278	$	1.10
Effect of dilutive securities:
Stock options and warrants			174,474
Diluted EPS:
Net income plus assumed conversion	$	8,664	8,075,752	$	1.07

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Investment Securities (Tables)

3 Months Ended

12 Months Ended

Mar. 31, 2017

Dec. 31, 2016

Investments, Debt and Equity Securities [Abstract]

Available-for-sale Securities

Amortized cost, carrying value, gross unrealized gains and losses, and the fair value by security type are as follows:

March 31, 2017	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
(Dollars in thousands)
Available for sale
U. S. Treasury securities and obligations of U.S. Government sponsored corporations (“GSE”) and agencies	$	3,511	$	2	$	(8	)	$	3,505
Residential collateralized mortgage obligations- GSE	24,547		50		(124		)	24,473
Residential mortgage backed securities – GSE	28,176		233		(103		)	28,306
Obligations of state and political subdivisions	21,446		178		(229		)	21,395
Trust preferred debt securities – single issuer	2,479		—		(212		)	2,267
Corporate debt securities	24,988		87		(236		)	24,839
Other debt securities	783		—		(3		)	780
	$	105,930	$	550	$	(915	)	$	105,565

December 31, 2016	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
(Dollars in thousands)
Available for sale-
U. S. Treasury securities and obligations of U.S. Government sponsored corporations ("GSE") and agencies	$	3,514	$	—	$	(35	)	$	3,479
Residential collateralized mortgage obligations- GSE	22,647		58		(145		)	22,560
Residential mortgage backed securities - GSE	31,207		388		(119		)	31,476
Obligations of state and political subdivisions	21,604		152		(356		)	21,400
Trust preferred debt securities-single issuer	2,478		—		(206		)	2,272
Corporate debt securities	21,963		10		(205		)	21,768
Other debt securities	845		—		(6		)	839
	$	104,258	$	608	$	(1,072	)	$	103,794

Amortized cost, carrying value, gross unrealized gains and losses, and the fair value by security type are as follows: 

(Dollars in thousands)			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
2016	Cost		Gains		Losses			Value
Available for sale-
U.S. Treasury securities and obligations of U.S. Government
sponsored corporations (“GSE”) and agencies	$	3,514	$	—	$	(35	)	$	3,479
Residential collateralized mortgage obligations- GSE	22,647		58		(145		)	22,560
Residential mortgage backed securities – GSE	31,207		388		(119		)	31,476
Obligations of state and political subdivisions	21,604		152		(356		)	21,400
Trust preferred debt securities – single issuer	2,478		—		(206		)	2,272
Corporate debt securities	21,963		10		(205		)	21,768
Other debt securities	845		—		(6		)	839
	$	104,258	$	608	$	(1,072	)	$	103,794

(Dollars in thousands)			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
2015	Cost		Gains		Losses			Value
Available for sale-
U. S. Treasury securities and obligations of U.S. Government sponsored corporations (“GSE”) and agencies	$	5,523	$	—	$	(42	)	$	5,481
Residential collateralized mortgage obligations - GSE	8,255		68		(36		)	8,287
Residential mortgage backed securities – GSE	32,279		541		(185		)	32,635
Obligations of state and political subdivisions	21,125		365		(54		)	21,436
Trust preferred debt securities – single issuer	2,474		—		(338		)	2,136
Corporate debt securities	20,510		65		(153		)	20,422
Other debt securities	1,053		—		(28		)	1,025
	$	91,219	$	1,039	$	(836	)	$	91,422

Held-to-maturity Securities

March 31, 2017	Amortized Cost		Other-Than- Temporary Impairment Recognized In Accumulated Other Comprehensive Loss			Carrying Value		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Held to maturity-
U. S. Treasury securities and obligations of U.S. Government sponsored corporations (“GSE”) and agencies	$	3,727	$	—		$	3,727	$	—	$	(85	)	$	3,642
Residential collateralized mortgage obligations – GSE	10,968		—			10,968		221		(121		)	11,068
Residential mortgage backed securities – GSE	37,951		—			37,951		459		(125		)	38,285
Obligations of state and political subdivisions	72,715		—			72,715		1,414		(161		)	73,968
Trust preferred debt securities-pooled	657		(501		)	156		303		—			459
Other debt securities	423		—			423		—		—			423
	$	126,441	$	(501	)	$	125,940	$	2,397	$	(492	)	$	127,845

December 31, 2016	Amortized Cost		Other-Than- Temporary Impairment Recognized In Accumulated Other Comprehensive Loss			Carrying Value		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Held to maturity-
U. S. Treasury securities and obligations of U.S. Government sponsored corporations ("GSE") and agencies	$	3,727	$	—		$	3,727	$	—	$	(116	)	$	3,611
Residential collateralized mortgage obligations-GSE	11,882		—			11,882		247		(130		)	11,999
Residential mortgage backed securities - GSE	40,565		—			40,565		540		(113		)	40,992
Obligations of state and political subdivisions	70,017		—			70,017		1,274		(255		)	71,036
Trust preferred debt securities - pooled	657		(501		)	156		303		—			459
Other debt securities	463		—			463		—		(1		)	462
	$	127,311	$	(501	)	$	126,810	$	2,364	$	(615	)	$	128,559

	Amortized Cost		Other-Than- Temporary Impairment Recognized In Accumulated Other Comprehensive Loss			Carrying Value		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Held to maturity-
U. S. Treasury securities and obligations of U.S. Government sponsored corporations (“GSE”) and agencies	$	3,727	$	—		$	3,727	$	—	$	(116	)	$	3,611
Residential collateralized mortgage obligations – GSE	11,882		—			11,882		247		(130		)	11,999
Residential mortgage backed securities - GSE	40,565		—			40,565		540		(113		)	40,992
Obligations of state and political subdivisions	70,017		—			70,017		1,274		(255		)	71,036
Trust preferred debt securities - pooled	657		(501		)	156		303		—			459
Other debt securities	463		—			463		—		(1		)	462
	$	127,311	$	(501	)	$	126,810	$	2,364	$	(615	)	$	128,559

	Amortized Cost		Other-Than- Temporary Impairment Recognized In Accumulated Other Comprehensive Loss			Carrying Value		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Held to maturity-
Residential collateralized mortgage obligations – GSE	$	13,630	$	—		$	13,630	$	404	$	—		$	14,034
Residential mortgage backed securities - GSE	47,718		—			47,718		928		(46		)	48,600
Obligations of state and political subdivisions	61,135		—			61,135		2,294		(14		)	63,415
Trust preferred debt securities - pooled	657		(501		)	156		341		—			497
Other debt securities	622		—			622		—		(11		)	611
	$	123,762	$	(501	)	$	123,261	$	3,967	$	(71	)	$	127,157

Investments Classified by Contractual Maturity Date

The following table sets forth certain information regarding the amortized cost, carrying value, fair value, weighted average yields and contractual maturities of the Company’s investment portfolio as of March 31, 2017.  Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.  

(Dollars in thousands)	March 31, 2017
	Amortized Cost		Fair Value		Yield
Available for sale
Due in one year or less	$	3,997	$	3,998	0.25%
Due after one year through five years	18,631		18,686		2.15%
Due after five years through ten years	42,696		42,560		2.49%
Due after ten years	40,606		40,321		2.89%
Total	$	105,930	$	105,565	2.50%
	Carrying Value		Fair Value		Yield
Held to maturity
Due in one year or less	$	33,055	$	33,065	1.51%
Due after one year through five years	17,612		18,286		4.54%
Due after five years through ten years	21,631		22,178		3.43%
Due after ten years	53,642		54,316		3.28%
Total	$	125,940	$	127,845	3.02%

The following table sets forth certain information regarding the amortized cost, carrying value, fair value, weighted average yields and contractual maturities of the Company's investment portfolio as of December 31, 2016. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.  

(Dollars in thousands)	December 31, 2016
	Amortized Cost		Fair Value		Yield
Available for sale
Due in one year or less	$	2,616	$	2,619	3.06	%
Due after one year through five years	15,544		15,470		1.28	%
Due after five years through ten years	44,489		44,695		2.68	%
Due after ten years	41,609		41,010		2.75	%
Total	$	104,258	$	103,794	2.51	%
	Carrying Value		Fair Value		Yield
Held to maturity
Due in one year or less	$	29,807	$	29,816	1.44	%
Due after one year through five years	16,833		17,373		4.43	%
Due after five years through ten years	23,597		24,280		3.51	%
Due after ten years	56,573		57,090		3.28	%
Total	$	126,810	$	128,559	3.04	%

Investment Securities, Continuous Unrealized Loss Position, Fair Value

Gross unrealized losses on available for sale and held to maturity securities and the fair value of the related securities aggregated by security category and length of time that individual securities have been in a continuous unrealized loss position at March 31, 2017 and December 31, 2016 were as follows:

March 31, 2017		Less than 12 months					12 months or longer					Total
(Dollars in thousands)	Number of Securities	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
U.S. Treasury securities and obligations of U.S.      Government sponsored corporations (GSE) and    agencies	2	$	5,630	$	(93	)	$	—	$	—		$	5,630	$	(93	)
Residential collateralized mortgage obligations –GSE	7	18,259		(245		)	—		—			18,259		(245		)
Residential mortgage backed securities-GSE	28	26,717		(228		)	—		—			26,717		(228		)
Obligations of state and political subdivisions	59	19,555		(378		)	764		(12		)	20,319		(390		)
Trust preferred debt securities- single issuer	4	—		—			2,267		(212		)	2,267		(212		)
Corporate debt securities	5	10,752		(143		)	4,907		(93		)	15,659		(236		)
Other debt securities	2	—		—			780		(3		)	780		(3		)
Total temporarily impaired securities	107	$	80,913	$	(1,087	)	$	8,718	$	(320	)	$	89,631	$	(1,407	)

December 31, 2016		Less than 12 months					12 months or longer					Total
(Dollars in thousands)	Number of Securities	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
U.S. Treasury securities and obligations of U.S.       Government sponsored corporations (GSE) and    agencies	3	$	7,090	$	(151	)	$	—	$	—		$	7,090	$	(151	)
Residential collateralized mortgage obligations –GSE	7	17,242		(275		)	—		—			17,242		(275		)
Residential mortgage backed securities - GSE	29	26,581		(216		)	3,542		(16		)	30,123		(232		)
Obligations of state and political subdivisions	74	25,545		(611		)	—		—			25,545		(611		)
Trust preferred debt securities- single issuer	4	—		—			2,272		(206		)	2,272		(206		)
Corporate debt securities	6	12,700		(204		)	1,999		(1		)	14,699		(205		)
Other debt securities	3	—		—			1,276		(7		)	1,276		(7		)
Total temporarily impaired securities	126	$	89,158	$	(1,457	)	$	9,089	$	(230	)	$	98,247	$	(1,687	)

Gross unrealized losses on available for sale and held to maturity securities and the fair value of the related securities aggregated by security category and length of time that individual securities have been in a continuous unrealized loss position at December 31, 2016 and 2015 are as follows:

2016		Less than 12 months					12 months or longer					Total
(Dollars in thousands)	Number of Securities	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
U. S. Treasury securities and obligations of U.S. Government sponsored corporations (“GSE”) and agencies	3	$	7,090	$	(151	)	—		—			$	7,090	$	(151	)
Residential collateralized mortgage obligations - GSE	7	17,242		(275		)	—		—			17,242		(275		)
Residential mortgage backed securities - GSE	29	26,581		(216		)	3,542		(16		)	30,123		(232		)
Obligations of state and political subdivisions	74	25,545		(611		)	—		—			25,545		(611		)
Trust preferred debt securities -single issuer	4	—		—			2,272		(206		)	2,272		(206		)
Corporate debt securities	6	12,700		(204		)	1,999		(1		)	14,699		(205		)
Other debt securities	3	—		—			1,276		(7		)	1,276		(7		)
Total temporarily impaired securities	126	$	89,158	$	(1,457	)	$	9,089	$	(230	)	$	98,247	$	(1,687	)

2015		Less than 12 months					12 months or longer					Total
(Dollars in thousands)	Number of Securities	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
U.S. Treasury securities and obligations of U.S. Government sponsored corporations (GSE) and agencies	3	$	5,481	$	(42	)	—		—			$	5,481	$	(42	)
Residential collateralized mortgage obligations-GSE	2	5,894		(36		)	—		—			5,894		(36		)
Residential mortgage backed securities - GSE	19	20,911		(175		)	3,980		(56		)	24,891		(231		)
Obligations of state and political subdivisions	32	2,760		(19		)	6,465		(49		)	9,225		(68		)
Trust preferred debt securities– single issuer	4	—		—			2,136		(338		)	2,136		(338		)
Corporate debt securities	4	9,214		(153		)	—		—			9,214		(153		)
Other debt securities	3	586		(11		)	1,025		(28		)	1,611		(39		)
Total temporarily impaired securities	67	$	44,846	$	(436	)	$	13,606	$	(471	)	$	58,452	$	(907	)

XML

Loans and Loans Held for Sale (Tables)

12 Months Ended

Dec. 31, 2016

Receivables [Abstract]

Schedule of Accounts, Notes, Loans and Financing Receivable

Loans are as follows:

	December 31,
(Dollars in thousands)	2016		2015
Commercial business	$	99,650	$	99,277
Commercial real estate	242,393		207,250
Mortgage warehouse lines	216,259		216,572
Construction loans	96,035		93,745
Residential real estate loans	44,791		40,744
Loans to individuals	23,736		23,074
All other loans	207		233
Gross Loans	723,071		680,895
Deferred loan fees and costs, net	1,737		1,226
	$	724,808	$	682,121

XML

Allowance for Loan Losses and Credit Quality Disclosures (Tables)

3 Months Ended

12 Months Ended

Mar. 31, 2017

Dec. 31, 2016

Financing Receivable, Allowance for Credit Losses [Line Items]

Past Due Financing Receivables

The following table provides an aging of the loan portfolio by loan class at March 31, 2017:

(Dollars in thousands)	30-59 Days		60-89 Days		Greater than 90 Days		Total Past Due		Current		Total Loans Receivable		Recorded Investment > 90 Days Accruing		Non-accrual Loans
Commercial
Construction Loans	$	—	$	—	$	182	$	182	$	107,540	$	107,722	$	—	$	182
Commercial Business	376		—		396		772		100,694		101,466		46		4,438
Commercial Real Estate	1,800		—		1,868		3,668		254,462		258,130		—		2,182
Mortgage Warehouse Lines	—		—		—		—		142,666		142,666		—		—
Residential Real Estate Loans	17		—		87		104		41,504		41,608		—		238
Consumer
Loans to Individuals	70		—		263		333		23,234		23,567		—		333
Other	—		—		—		—		177		177		—		—
Total loans	2,263		—		2,796		5,059		670,277		675,336		46		7,373
Deferred loan fees and costs, net	—		—		—		—		1,075		1,075		—		—
Total loans, net	$	2,263	$	—	$	2,796	$	5,059	$	671,352	$	676,411	$	46	$	7,373

The following table provides an aging of the loan portfolio by loan class at December 31, 2016:

(Dollars in thousands)	30-59 Days		60-89 Days		Greater than 90 Days		Total Past Due		Current		Total Loans Receivable		Recorded Investment > 90 Days Accruing		Non-accrual Loans
Commercial
Construction Loans	$	—	$	—	$	186	$	186	$	95,849	$	96,035	$	—	$	186
Commercial Business	113		115		790		1,018		98,632		99,650		—		920
Commercial Real Estate	741		942		2,707		4,390		238,003		242,393		—		3,187
Mortgage Warehouse Lines	—		—		—		—		216,259		216,259		—		—
Residential Real Estate Loans	564		—		392		956		43,835		44,791		—		544
Consumer
Loans to Individuals	—		29		361		390		23,346		23,736		24		337
Other	—		—		—		—		207		207		—		—
Total loans	1,418		1,086		4,436		6,940		716,131		723,071		24		5,174
Deferred loan fees and costs, net	—		—		—		—		1,737		1,737		—		—
Total loans, net	$	1,418	$	1,086	$	4,436	$	6,940	$	717,868	$	724,808	$	24	$	5,174

The following table provides an aging of the loan portfolio by loan class at December 31, 2015:

(Dollars in thousands)	30-59 Days		60-89 Days		Greater than 90 Days		Total Past Due		Current		Total Loans Receivable		Recorded Investment >90 Days Accruing		Non-accrual Loans
Construction Loans	$	—	$	—	$	—	$	—	$	93,745	$	93,745	$	—	$	—
Commercial Business	530		5		186		721		98,556		99,277		—		304
Commercial Real Estate	789		—		3,996		4,785		202,465		207,250		—		4,321
Mortgage Warehouse Lines	—		—		—		—		216,572		216,572		—		—
Residential Real Estate Loans	—		166		1,132		1,298		39,446		40,744		—		1,132
Consumer
Loans to Individuals	400		—		263		663		22,411		23,074		—		263
Other	—		—		—		—		233		233		—		—
Deferred Loan Fees and Costs, Net	—		—		—		—		1,226		1,226		—		—
Total	$	1,719	$	171	$	5,577	$	7,467	$	674,654	$	682,121	$	—	$	6,020

The following table provides an aging of the loan portfolio by loan class at December 31, 2016:

(Dollars in thousands)	30-59 Days		60-89 Days		Greater than 90 Days		Total Past Due		Current		Total Loans Receivable		Recorded Investment >90 Days Accruing		Non-accrual Loans
Construction Loans	$	—	$	—	$	186	$	186	$	95,849	$	96,035	$	—	$	186
Commercial Business	113		115		790		1,018		98,632		99,650		—		920
Commercial Real Estate	741		942		2,707		4,390		238,003		242,393		—		3,187
Mortgage Warehouse Lines	—		—		—		—		216,259		216,259		—		—
Residential Real Estate Loans	564		—		392		956		43,835		44,791		—		544
Loans to Individuals	—		29		361		390		23,346		23,736		24		337
Other	—		—		—		—		207		207		—		—
Deferred Loan Fees and Costs, Net	—		—		—		—		1,737		1,737		—		—
Total	$	1,418	$	1,086	$	4,436	$	6,940	$	717,868	$	724,808	$	24	$	5,174

Allowance for Credit Losses on Financing Receivables

The following tables summarize the distribution of the allowance for loan losses and loans receivable by loan class and impairment method at March 31, 2017 and December 31, 2016: 

March 31, 2017

(Dollars in thousands)
	Construction		Commercial Business		Commercial Real Estate		Mortgage Warehouse Lines		Residential Real Estate		Loans to Individuals		Other		Unallocated		Deferred Loan Fees/Costs		Total
Allowance for loan losses:
Individually evaluated for impairment	$	8	$	593	$	73	$	—	$	—	$	—	$	—	$	—	$	—	$	674
Loans acquired with deteriorated credit quality	—		—		—		—		—		—		—		—		—		—
Collectively evaluated for impairment	1,362		1,229		2,561		642		365		122		—		595		—		6,876
Ending Balance	$	1,370	$	1,822	$	2,634	$	642	$	365	$	122	$	—	$	595	$	—	$	7,550
Loans receivable:
Individually evaluated for impairment	$	387	$	4,471	$	5,130	$	—	$	238	$	333	$	—	$	—	$	—	$	10,559
Loans acquired with deteriorated credit quality	—		177		539		—		—		—		—		—		—		716
Collectively evaluated for impairment	107,335		96,818		252,461		142,666		41,370		23,234		177		—		1,075		665,136
Ending Balance	$	107,722	$	101,466	$	258,130	$	142,666	$	41,608	$	23,567	$	177	$	—	$	1,075	$	676,411

December 31, 2016

(Dollars in thousands)
	Construction		Commercial Business		Commercial Real Estate		Mortgage Warehouse Lines		Residential Real Estate		Loans to Individuals		Other		Unallocated		Deferred Loan Fees/Costs		Total
Allowance for loan losses:
Individually evaluated for impairment	$	7	$	101	$	114	$	—	$	38	$	—	$	—	$	—	$	—	$	260
Loans acquired with deteriorated credit quality	—		—		—		—		—		—		—		—		—		—
Collectively evaluated for impairment	1,197		1,631		2,460		973		329		112		—		532		—		7,234
Ending Balance	$	1,204	$	1,732	$	2,574	$	973	$	367	$	112	$	—	$	532	$	—	$	7,494
Loans receivable:
Individually evaluated for impairment	$	391	$	947	$	3,817	$	—	$	544	$	337	$	—	$	—	$	—	$	6,036
Loans acquired with deteriorated credit quality	—		191		930		—		—		—		—		—		—		1,121
Collectively evaluated for impairment	95,644		98,512		237,646		216,259		44,247		23,399		207		—		1,737		717,651
Ending Balance	$	96,035	$	99,650	$	242,393	$	216,259	$	44,791	$	23,736	$	207	$	—	$	1,737	$	724,808

The following tables summarize the distribution of the allowance for loan losses and loans receivable by loan class and impairment method at December 31, 2016 and 2015, respectively.

Allowance for Loan Losses as of and for the year ended December 31, 2016
(Dollars in thousands)
	Construction		Commercial Business			Commercial Real Estate			Mortgage Warehouse Lines		Residential Real Estate		Loans to Individuals			Other			Unallocated		Deferred Fees		Total
Allowance for loan losses:
Beginning balance	$	1,025	$	2,005		$	3,049		$	866	$	288	$	109		$	—		$	218	$	—	$	7,560
(Credit) provision charged to operations	179		(177		)	(800		)	107		79		(3		)	1			314		—		(300		)
Loans charged off	—		(97		)	(60		)	—		—		—			(1		)	—		—		(158		)
Recoveries of loans charged off	—		1			385			—		—		6						—		—		392
Ending balance	$	1,204	$	1,732		$	2,574		$	973	$	367	$	112		$	—		$	532	$	—	$	7,494
Individually evaluated for impairment	$	7	$	101		$	114		$	—	$	38	$	—		$	—		$	—	$	—	$	260
Loans acquired with deteriorated credit quality	—		—			—			—		—		—			—			—		—		—
Collectively evaluated for impairment	1,197		1,631			2,460			973		329		112			—			532		—		7,234
Ending Balance	$	1,204	$	1,732		$	2,574		$	973	$	367	$	112		$	—		$	532	$	—	$	7,494
Loans receivable:
Loans acquired with deteriorated credit quality	$	—	$	191		$	930		$	—	$	—	$	—		$	—		$	—	$	—	$	1,121
Individually evaluated for impairment	391		947			3,817			—		544		337			—			—		—		6,036
Collectively evaluated for impairment	95,644		98,512			237,646			216,259		44,247		23,399			207			—		1,737		717,651
Ending Balance	$	96,035	$	99,650		$	242,393		$	216,259	$	44,791	$	23,736		$	207		$	—	$	1,737	$	724,808

Allowance for Loan Losses as of and for the year ended December 31, 2015
(Dollars in thousands)
	Construction			Commercial Business			Commercial Real Estate			Mortgage Warehouse Lines			Residential Real Estate		Loans to Individuals			Other			Unallocated			Deferred Fees		Total
Allowance for loan losses:
Beginning balance	$	1,215		$	1,761		$	2,393		$	896		$	197	$	129		$	2		$	332		$	—	$	6,925
(Credit) provision charged to operations	(190		)	347			1,010			(30		)	91		(13		)	(1		)	(114		)	—		1,100
Loans charged off	—			(116		)	(361		)	—			—		(13		)	(1		)	—			—		(491		)
Recoveries of loans charged off	—			13			7			—			—		6						—			—		26
Ending balance	$	1,025		$	2,005		$	3,049		$	866		$	288	$	109		$	—		$	218		$	—	$	7,560
Individually evaluated for impairment	$	—		$	68		$	125		$	—		$	69	$	—		$	—		$	—		$	—	$	262
Loans acquired with deteriorated credit quality	—			—			64			—			—		—			—			—			—		64
Collectively evaluated for impairment	1,025			1,937			2,860			866			219		109			—			218			—		7,234
Ending Balance	$	1,025		$	2,005		$	3,049		$	866		$	288	$	109		$	—		$	218		$	—	$	7,560
Loans receivable:
Loans acquired with deteriorated credit quality	$	—		$	241		$	1,359		$	—		$	—	$	—		$	—		$	—		$	—	$	1,600
Individually evaluated for impairment	494			458			4,833			—			1,132		263			—			—			—		7,180
Collectively evaluated for impairment	93,251			98,578			201,058			216,572			39,612		22,811			233			—			1,226		673,341
Ending Balance	$	93,745		$	99,277		$	207,250		$	216,572		$	40,744	$	23,074		$	233		$	—		$	1,226	$	682,121

Impaired Financing Receivables

Impaired Loans Receivables (By Class) –March 31, 2017

(Dollars in thousands)							Three Months Ended March 31, 2017
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
With no allowance:
Construction	$	182	$	182	$	—	$	185	$	—
Commercial Business	626		787		—		794		3
Commercial Real Estate	2,692		2,692		—		2,821		12
Mortgage Warehouse Lines	—		—		—		—		—
Subtotal	3,500		3,661		—		3,800		15
Residential Real Estate	238		238		—		240		—
Consumer
Loans to Individuals	333		333		—		335		—
Other	—		—		—		—		—
Subtotal	333		333		—		335		—
With no allowance:	$	4,071	$	4,232	$	—	$	4,375	$	15
With an allowance:
Construction	$	205	$	205	$	8	$	205	$	3
Commercial Business	4,022		4,022		593		1,511		67
Commercial Real Estate	2,977		2,977		73		2,210		43
Mortgage Warehouse Lines	—		—		—		—		—
Subtotal	7,204		7,204		674		3,926		113
Residential Real Estate	—		—		—		200		—
Consumer
Loans to Individuals	—		—		—		—		—
Other	—		—		—		—		—
Subtotal	—		—		—		—		—
With an allowance:	$	7,204	$	7,204	$	674	$	4,126	$	113
Total:
Construction	387		387		8		390		3
Commercial Business	4,648		4,809		593		2,305		70
Commercial Real Estate	5,669		5,669		73		5,031		55
Mortgage Warehouse Lines	—		—		—		—		—
Residential Real Estate	238		238		—		440		—
Consumer	333		333		—		335		—
Total	$	11,275	$	11,436	$	674	$	8,501	$	128

Impaired Loans Receivables (By Class) –December 31, 2016

(Dollars in thousands
	Recorded Investment		Unpaid Principal Balance		Related Allowance
With no allowance:
Construction	$	186	$	186	$	—
Commercial Business	883		1,054		—
Commercial Real Estate	1,380		1,380		—
Mortgage Warehouse Lines	—		—		—
Subtotal	2,449		2,620		—
Residential Real Estate	244		244		—
Consumer
Loans to Individuals	337		337		—
Other	—		—		—
Subtotal	337		337		—
With no allowance	$	3,030	$	3,201	$	—
With an allowance:
Construction	$	205	$	205	$	7
Commercial Business	255		255		101
Commercial Real Estate	3,367		3,367		114
Mortgage Warehouse Lines	—		—		—
Subtotal	3,827		3,827		222
Residential Real Estate	301		316		38
Consumer
Loans to Individuals	—		—		—
Other	—		—		—
Subtotal	—		—		—
With an allowance	$	4,128	$	4,143	$	260
Total:
Construction	391		391		7
Commercial Business	1,138		1,309		101
Commercial Real Estate	4,747		4,747		114
Mortgage Warehouse Lines	—		—		—
Residential Real Estate	544		560		38
Consumer	337		337		—
Total	$	7,157	$	7,344	$	260

Impaired Loans Receivables (By Class) – March 31, 2016
	Three Months Ended March 31, 2016
(Dollars in thousands)	Average Recorded Investment		Interest Income Recognized
With no allowance:
Construction	$	193	$	2
Commercial Business	420		4
Commercial Real Estate	1,840		25
Mortgage Warehouse Lines	—		—
Subtotal	2,453		31
Residential Real Estate	1,097		—
Consumer
Loans to Individuals	263		—
Other	—		—
Subtotal	263		—
With no allowance:	$	3,813	$	31
With an allowance:
Construction	$	—	$	—
Commercial Business	210		1
Commercial Real Estate	3,783		4
Mortgage Warehouse Lines	—		—
Subtotal	3,993		5
Residential Real Estate	200		—
Consumer
Loans to Individuals	—		—
Other	—		—
Subtotal	—		—
With an allowance:	$	4,193	$	5
Total:
Construction	193		2
Commercial Business	630		4
Commercial Real Estate	5,623		30
Mortgage Warehouse Lines	—		—
Residential Real Estate	1,297		—
Consumer	263		—
Total	$	8,006	$	36

The following table presents additional information regarding acquired credit-impaired loans at March 31, 2017 and December 31, 2016:

(Dollars in thousands)
	March 31, 2017		December 31, 2016
Outstanding balance	$	1,056	$	1,470
Carrying amount	$	716	$	1,121

The following table presents additional information regarding PCI loans for the years ended December 31, 2016 and 2015:

(Dollars in thousands)	Purchased Loans with Evidence of Credit Deterioration
	12/31/2016		12/31/2015
Outstanding balance	$	1,470	$	1,964
Carrying amount	$	1,121	$	1,600

Impaired Loans Receivables (By Class) - December 31, 2016
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Year to Date 2016 Average Recorded Investment		Year to Date 2016 Interest Income Recognized
(Dollars in thousands)
With no related allowance:
Construction	$	186	$	186	$	—	$	260	$	—
Commercial Business	883		1,054		—		623		14
Commercial Real Estate	1,380		1,380		—		1,528		74
Mortgage Warehouse Lines	—		—		—		—		—
Subtotal	2,449		2,620		—		2,411		88
Residential Real Estate	244		244		—		725		—
Consumer
Loans to Individuals	337		337		—		281		—
Other	—		—		—		—		—
Subtotal	337		337		—		281		—
Subtotal with no related allowance	3,030		3,201		—		3,417		88
With an allowance:
Commercial
Construction	205		205		7		51		9
Commercial Business	255		255		101		238		—
Commercial Real Estate	3,367		3,367		114		3,603		19
Mortgage Warehouse Lines	—		—		—		—		—
Subtotal	3,827		3,827		222		3,892		28
Residential Real Estate	301		316		38		200		—
Consumer
Loans to Individuals	—		—		—		—		—
Other	—		—		—		—		—
Subtotal	—		—		—		—		—
Subtotal with an allowance	4,128		4,143		260		4,092		28
Total:
Construction	391		391		7		311		9
Commercial Business	1,138		1,309		101		861		14
Commercial Real Estate	4,747		4,747		114		5,131		93
Mortgage Warehouse Lines	—		—		—		—		—
Residential Real Estate	544		560		38		925		—
Consumer	337		337		—		281		—
Total	$	7,157	$	7,344	$	260	$	7,509	$	116

Impaired Loans Receivables (By Class) - December 31, 2015
	Recorded Investment		Unpaid Principal Balance		Related Allowance		Year to Date 2015 Average Recorded Investment		Year to Date 2015 Interest Income Recognized
(Dollars in thousands)
With no related allowance:
Commercial
Construction	$	494	$	494	$	—	$	477	$	27
Commercial Business	488		847		—		492		23
Commercial Real Estate	2,417		2,683		—		2,998		94
Mortgage Warehouse Lines	—		—		—		—		—
Subtotal	3,399		4,024		—		3,967		144
Residential Real Estate	831		831		—		981		—
Consumer
Loans to Individuals	263		280		—		88		—
Other	—		—		—		—		—
Subtotal	263		280		—		88		—
Subtotal with no related allowance	4,493		5,135		—		5,036		144
With an allowance:
Commercial
Construction	—		—		—		—		—
Commercial Business	211		237		68		307		5
Commercial Real Estate	3,775		3,788		189		4,200		154
Mortgage Warehouse Lines	—		—		—		—		—
Subtotal	3,986		4,025		257		4,507		159
Residential Real Estate	301		316		69		100		—
Consumer
Loans to Individuals	—		—		—		175		—
Other	—		—		—		—		—
Subtotal	—		—		—		175		—
Subtotal with an allowance	4,287		4,341		326		4,782		159
Total:
Construction	494		494		—		477		27
Commercial Business	699		1,084		68		799		28
Commercial Real Estate	6,192		6,471		189		7,198		248
Mortgage Warehouse Lines	—		—		—		—		—
Residential Real Estate	1,132		1,147		69		1,081		—
Consumer	263		280		—		263		—
Total	$	8,780	$	9,476	$	326	$	9,818	$	303

Credit Impaired Loans Purchased, Change In Amortizable Yield

Changes in accretable discount for acquired credit-impaired loans for the three months ended March 31, 2017 and March 31, 2016 were as follows:

	Three months ended March 31,
	2017			2016
(Dollars in thousands)
Balance at beginning of period	$	30		$	73
Acquisition of impaired loans	—			—
Accretion of discount	(7		)	(21		)
Balance at end of period	$	23		$	52

The following table presents changes in accretable discount for PCI loans for the years ended December 31, 2016 and 2015:

(Dollars in thousands)	December 31, 2016			December 31, 2015
Balance at beginning of year	$	73		$	135
Acquisition of impaired loans	—			—
Accretion of discount	(43		)	(62		)
Balance at end of year	$	30		$	73
Non-accretable difference at end of year	$	215		$	215

Remaining Estimated Accretable Discount

The following table presents the years for the scheduled remaining accretable discount that will accrete to income based on the Company’s most recent estimates of cash flows for PCI loans:

(Dollars in thousands)	Periods ending December 31,
	2017	$	22
	2018	8
	Thereafter	—
	Total	$	30

Troubled Debt Restructurings on Financing Receivables

The following table summarizes the recorded investment in consumer mortgage loans secured by residential real estate in the process of foreclosure:

(Dollars in thousands)
March 31, 2017			December 31, 2016
Number of  loans	Recorded Investment		Number of  loans	Recorded Investment
3	$	517	3	$	524

The following table is a breakdown of troubled debt restructurings, all of which are classified as impaired, which occurred during the years ended December 31, 2016 and 2015.

During 2016

(Dollars in thousands)	Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Troubled Debt Restructurings:
Commercial Real Estate	1	$	458	$	458

During 2015

(Dollars in thousands)	Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Troubled Debt Restructurings:
Commercial Business	1	$	288	$	288

The following table summarizes the recorded investment in consumer mortgage loans secured by residential real estate in process of foreclosure:

(Dollars in thousands)	December 31,
2016			2015
Number of loans	Recorded Investment		Number of loans	Recorded Investment
3	$	524	5	$	1,008

Schedule of Credit Losses Related to Financing Receivables, Current and Noncurrent

The activity in the allowance for loan loss by loan class for the three months ended March 31, 2017 and 2016 was as follows:

(Dollars in thousands)	Construction		Commercial Business		Commercial Real Estate		Mortgage Warehouse Lines			Residential Real Estate			Loans to Individuals		Other		Unallocated		Total
Balance - December 31, 2016	$	1,204	$	1,732	$	2,574	$	973		$	367		$	112	$	—	$	532	$	7,494
Provision (Credit) charged to operations	166		88		56		(331		)	99			9		—		63		150
Loans charged off	—		—		—		—			(101		)	—		—		—		(101		)
Recoveries of loans charged off	—		2		4		—			—			1		—		—		7
Balance - March 31, 2017	$	1,370	$	1,822	$	2,634	$	642		$	365		$	122	$	—	$	595	$	7,550

(Dollars in thousands)	Construction			Commercial Business			Commercial Real Estate			Mortgage Warehouse Lines		Residential Real Estate			Loans to Individuals			Other		Unallocated		Total
Balance - December 31, 2015	$	1,025		$	2,005		$	3,049		$	866	$	288		$	109		$	—	$	218	$	7,560
(Credit) Provision charged to operations	(44		)	(657		)	311			1		(96		)	(92		)	—		377		(200		)
Loans charged off	—			—			(60		)	—		—			—			—		—		(60		)
Recoveries of loans charged off	—			—			—			—		—			2			—		—		2
Balance - March 31, 2016	$	981		$	1,348		$	3,300		$	867	$	192		$	19		$	—	$	595	$	7,302

Commercial Portfolio Segment [Member]

Financing Receivable, Allowance for Credit Losses [Line Items]

Financing Receivable Credit Quality Indicators

The following table provides a breakdown of the loan portfolio by credit quality indicator at March 31, 2017:

(Dollars in thousands)
Commercial Credit Exposure - By Internally Assigned Grade	Construction		Commercial Business		Commercial Real Estate		Mortgage Warehouse Lines		Residential Real Estate
Grade:
Pass	$	106,276	$	93,063	$	238,408	$	142,666	$	41,076
Special Mention	1,264		3,568		13,797		—		238
Substandard	182		813		5,925		—		294
Doubtful	—		4,022		—		—		—
Total	$	107,722	$	101,466	$	258,130	$	142,666	$	41,608

The following table provides a breakdown of the loan portfolio by credit quality indicator at December 31, 2016:

(Dollars in thousands)
Commercial Credit Exposure - By Internally Assigned Grade	Construction		Commercial Business		Commercial Real Estate		Mortgage Warehouse Lines		Residential Real Estate
Grade:
Pass	$	95,548	$	91,908	$	223,435	$	216,259	$	43,950
Special Mention	301		7,102		14,334		—		244
Substandard	186		611		4,624		—		597
Doubtful	—		29		—		—		—
Total	$	96,035	$	99,650	$	242,393	$	216,259	$	44,791

The following table provides a breakdown of the loan portfolio by credit quality indicator at December 31, 2016:

(Dollars in thousands)
Commercial Credit Exposure- By    Internally Assigned Grade	Construction		Commercial Business		Commercial Real Estate		Mortgage Warehouse Lines		Residential Real Estate
Grade:
Pass	$	95,548	$	91,908	$	223,435	$	216,259	$	43,950
Special Mention	301		7,102		14,334		—		244
Substandard	186		611		4,624		—		597
Doubtful	—		29		—		—		—
Loss	—		—		—		—		—
Total	$	96,035	$	99,650	$	242,393	$	216,259	$	44,791

The following table provides a breakdown of the loan portfolio by credit quality indicator at December 31, 2015:

(Dollars in thousands)
Commercial Credit Exposure- By Internally Assigned Grade	Construction		Commercial Business		Commercial Real Estate		Mortgage Warehouse Lines		Residential Real Estate
Grade:
Pass	$	93,558	$	90,856	$	191,754	$	216,572	$	39,878
Special Mention	187		7,768		9,311		—		260
Substandard	—		653		6,185		—		606
Doubtful	—		—		—		—		—
Loss	—		—		—		—		—
Total	$	93,745	$	99,277	$	207,250	$	216,572	$	40,744

Consumer Portfolio Segment [Member]

Financing Receivable, Allowance for Credit Losses [Line Items]

Financing Receivable Credit Quality Indicators

Consumer Credit Exposure - By Payment Activity	Loans To Individuals		Other
Performing	$	23,234	$	177
Nonperforming	333		—
Total	$	23,567	$	177

Consumer Credit Exposure -      By Payment Activity	Loans To Individuals		Other
Performing	$	23,375	$	207
Nonperforming	361		—
Total	$	23,736	$	207

(Dollars in thousands)
Consumer Credit Exposure - By Payment Activity	Loans to Individuals		Other
Performing	$	22,811	$	233
Nonperforming	263		—
Total	$	23,074	$	233

(Dollars in thousands)
Consumer Credit Exposure -By Payment Activity	Loans to Individuals		Other
Performing	$	23,375	$	207
Nonperforming	361		—
Total	$	23,736	$	207

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Related Parties (Tables)

12 Months Ended

Dec. 31, 2016

Related Party Transactions [Abstract]

Schedule of Related Party Transactions

Activity related to loans to directors, executive officers and their affiliated interests during 2016 and 2015 is as follows:

(Dollars in thousands)	December 31,
	2016			2015
Balance, beginning of year	$	870		$	1,376
Loans granted	751			16
Repayments of loans	(264		)	(522		)
Balance, end of year	$	1,357		$	870

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Premises and Equipment (Tables)

12 Months Ended

Dec. 31, 2016

Property, Plant and Equipment [Abstract]

Schedule of Premises and Equipment

Premises and equipment consist of the following:

		December 31,
(Dollars in thousands)	Estimated Useful Lives	2016			2015
Land		$	1,798		$	1,798
Building	40 years	8,083			8,083
Leasehold improvements	3 - 10 years	5,864			5,762
Furniture, fixtures and equipment	3 – 15 years	4,897			4,542
		20,642			20,185
Less: Accumulated depreciation		(9,969		)	(9,076		)
		$	10,673		$	11,109

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Other Real Estate Owned ("OREO") (Tables)

12 Months Ended

Dec. 31, 2016

Real Estate [Abstract]

Other Real Estate, Roll Forward

Activity related to other real estate owned for the years ended December 31, 2016 and 2015 is as follows:

(Dollars in thousands)	2016			2015
Balance, beginning of year	$	966		$	5,710
Transfers into real estate owned	141			2,357
Transfers to other assets	—			—
Sale of real estate owned	(1,033		)	(6,027		)
Gain (loss) on sale of real estate owned	31			(692		)
Increase (decrease) in carrying amount of real estate owned	61			(382		)
Balance, end of year	$	166		$	966

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Goodwill and Intangible Assets (Tables)

12 Months Ended

Dec. 31, 2016

Goodwill and Intangible Assets Disclosure [Abstract]

Schedule of Intangible Assets and Goodwill

Goodwill and intangible assets are summarized as follows:

	December 31,
(Dollars in thousands)	2016		2015
Goodwill	$	11,854	$	11,854
Core deposits intangible	1,026		1,430
Total	$	12,880	$	13,284

Schedule of Finite-Lived Intangible Assets, Future Amortization Expense

Scheduled amortization of the core deposits intangible is as follows:

(Dollars in thousands)
	2017	$	384
	2018	305
	2019	110
	2020	88
	2021	67
	Thereafter	72
		$	1,026

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Deposits (Tables)

12 Months Ended

Dec. 31, 2016

Banking and Thrift [Abstract]

Schedule of Deposit Liabilities

Deposits at December 31, 2016 and 2015 are summarized as follows:

(Dollars in thousands)	2016		2015
Non-interest bearing	$	170,854	$	159,918
Interest bearing	310,103		284,547
Savings	205,294		196,324
Certificates of deposit	148,265		145,968
	$	834,516	$	786,757

Scheduled Maturities of Time Deposits

At December 31, 2016, certificates of deposit have contractual maturities as follows:

(Dollars in thousands)
	Year	Amount
	2017	$	86,079
	2018	35,752
	2019	8,050
	2020	6,161
	2021	12,223
		$	148,265

Certificates of deposit greater than $250,000 were $23.9 million and $24.3 million at December 31, 2016 and December 31, 2015, respectively.

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Income Taxes (Tables)

12 Months Ended

Dec. 31, 2016

Income Tax Disclosure [Abstract]

Schedule of Components of Income Tax Expense (Benefit)

The components of income tax expense (benefit) are summarized as follows:

(Dollars in thousands)	2016		2015
Federal:
Current	$	3,360	$	3,199
Deferred	269		8
	3,629		3,207
State:
Current	909		704
Deferred	85		151
	994		855
	$	4,623	$	4,062

Schedule of Effective Income Tax Rate Reconciliation

A comparison of income tax expense at the Federal statutory rate in 2016 and 2015 to the Company’s provision for income taxes is as follows:

(Dollars in thousands)	2016			2015
Federal income tax	$	4,729		$	4,327
Add (deduct) effect of:
State income taxes net of federal income tax effect	656			564
Tax-exempt interest income	(706		)	(724		)
Bank-owned life insurance	(187		)	(203		)
Other items, net	131			98
Provision for income taxes	$	4,623		$	4,062

Schedule of Deferred Tax Assets and Liabilities

The tax effects of existing temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities are as follows:

	December 31,
(Dollars in thousands)	2016			2015
Deferred tax assets (liabilities):
Allowance for loan losses	$	2,993		$	3,020
Unrealized loss (gain) on securities available for sale	130			(113		)
Supplemental executive retirement plan liability	1,886			2,060
Other than temporary impairment loss	170			170
Depreciation	802			482
Non-accrual interest	313			231
Pension liability	(44		)	(75		)
Other	262			324
Acquisition accounting adjustments	(52		)	441
Net deferred tax assets, included in other assets	$	6,460		$	6,540

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Comprehensive Income and Accumulated Other Comprehensive Income (Tables)

3 Months Ended

12 Months Ended

Mar. 31, 2017

Dec. 31, 2016

Equity [Abstract]

Schedule of Accumulated Other Comprehensive Income (Loss)

Changes in the components of accumulated other comprehensive income (loss) are as follows and are presented net of tax:

	Unrealized Holding Gains (Losses) on Available for Sale Securities			Unrealized Impairment Loss on Held to Maturity Security			Unfunded Pension Liability			Accumulated Other Comprehensive Income (Loss)
(Dollars in thousands)
Three Months Ended March 31, 2017:
Balance, beginning of period	$	(334	)	$	(331	)	$	65		$	(600	)
Other comprehensive income (loss)  before reclassifications	112			—			—			112
Amounts reclassified from accumulated other      comprehensive income (loss)	—			—			(12		)	(12		)
Reclassification adjustment for (gains) realized in income	(49		)	—			—			(49		)
Other comprehensive income (loss)	63			—			(12		)	51
Balance, end of period	$	(271	)	$	(331	)	$	53		$	(549	)

	Unrealized Holding Gains (Losses) on Available for Sale Securities		Unrealized Impairment Loss on Held to Maturity Security			Unfunded Pension Liability			Accumulated Other Comprehensive Income (Loss)
Three Months Ended March 31, 2016:
Balance, beginning of period	$	90	$	(331	)	$	111		$	(130	)
Other comprehensive income (loss) before      reclassifications	330		—			—			330
Amounts reclassified from accumulated other      comprehensive income (loss)	—		—			(15		)	(15		)
Other comprehensive income (loss)	330		—			(15		)	315
Balance, end of period	$	420	$	(331	)	$	96		$	185

The components of accumulated other comprehensive income (loss), and the related tax effects, are as follows:

	Before-Tax Amount			Income Tax Effect			Net-of-Tax Amount
(Dollars in thousands)
March 31, 2017
Unrealized net holding (losses) on available-for-sale securities	$	(283	)	$	61		$	(222	)
Reclassification adjustment for (gains) realized in income	(82		)	33			(49		)
Other comprehensive (loss) on available for sale securities	(365		)	94			(271		)
Unrealized impairment (loss) on held to maturity security	(501		)	170			(331		)
Unfunded pension liability:
Plan actuarial gains (losses) included in other comprehensive income	90			(37		)	53
Accumulated other comprehensive (loss)	$	(776	)	$	227		$	(549	)

	Before-Tax Amount			Income Tax Effect			Net-of-Tax Amount
March 31, 2016
Unrealized net holding gains on available-for-sale securities	$	722		$	(302	)	$	420
Unrealized impairment (loss) on held to maturity security	(501		)	170			(331		)
Unfunded pension liability:
Plan actuarial gains (losses) included in other comprehensive income	160			(64		)	96
Accumulated other comprehensive income	$	381		$	(196	)	$	185

The components of accumulated other comprehensive income (loss) that are included in shareholders' equity and the related tax effects are as follows:

Year ended December 31, 2016:
(Dollars in thousands)	Before-Tax Amount			Income Tax Effect			Net-of-Tax Amount
Unrealized holding (losses) gains on available for sale securities:
Unrealized holding gains on available for sale  securities	$	(464	)	$	130		$	(334	)
Reclassification adjustment for (gains) losses realized in income	—			—			—
Other comprehensive (loss) on securities available for sale	(464		)	130			(334		)
Unrealized impairment (loss) on held to maturity security:
Unrealized impairment (loss) on held to maturity security	(501		)	170			(331		)
Unfunded pension liability:
Changes from plan actuarial gains and losses included in other comprehensive income	269			(108		)	161
Reclassification adjustment for (gains) realized in income	(160		)	64			(96		)
Other comprehensive gain from plan actuarial gains	109			(44		)	65
Accumulated other comprehensive income (loss)	$	(856	)	$	256		$	(600	)
Year ended December 31, 2015:
(Dollars in thousands)	Before-Tax Amount			Income Tax Effect			Net-of-Tax Amount
Unrealized holding (losses) gains on available for sale securities:
Unrealized holding gains on available for sale  securities	$	203		$	(113	)	$	90
Reclassification adjustment for loss realized in income	—			—			—
Other comprehensive gain on securities available for sale	203			(113		)	90
Unrealized impairment (loss)  on held to maturity security:
Unrealized impairment (loss) on held to maturity security	(501		)	170			(331		)
Unfunded pension liability:
Changes from plan actuarial gains and losses included in other comprehensive income	452			(181		)	271
Reclassification adjustment for (gains) realized in income	(266		)	106			(160		)
Other comprehensive gain from plan actuarial gains	186			(75		)	111
Accumulated other comprehensive income (loss)	$	(112	)	$	(18	)	$	(130	)

Changes in the components of accumulated other comprehensive income (loss) are as follows and are presented net of tax:

(Dollars in thousands)	Unrealized Holding (Losses) Gains on Available for Sale Securities			Unrealized Impairment Loss On Held to Maturity Security			Unfunded Pension Liability			Accumulated Other Comprehensive Income (Loss)
Balance, January 1, 2015	$	276		$	(331	)	$	303		$	248
Other comprehensive income (loss) before reclassifications	(186		)	—			(32		)	(218		)
Amounts reclassified from accumulated other comprehensive income (loss)	—			—			(160		)	(160		)
Other comprehensive income (loss)	(186		)	—			(192		)	(378		)
Balance, December 31, 2015	90			(331		)	111			(130		)
Other comprehensive income (loss) before reclassifications	(424		)	—			52			(372		)
Amounts reclassified from accumulated other comprehensive income (loss)	—			—			(98		)	(98		)
Other comprehensive income (loss)	(424		)	—			(46		)	(470		)
Balance, December 31, 2016	$	(334	)	$	(331	)	$	65		$	(600	)

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Benefit Plans (Tables)

3 Months Ended

12 Months Ended

Mar. 31, 2017

Dec. 31, 2016

Compensation and Retirement Disclosure [Abstract]

Schedule of Changes in Projected Benefit Obligations

The following table sets forth the changes in benefit obligations of the Company’s supplemental executive retirement plans. 

(Dollars in thousands)	2016			2015
Change in Benefit Obligation
Beginning January 1	$	4,971		$	4,511
Service cost	216			267
Interest cost	179			183
Actuarial (gain) loss	(83		)	53
Benefits paid	(670		)	(43		)
Ending December 31	$	4,613		$	4,971
Amount Recognized in Consolidated Balance Sheets
Liability for pension	$	4,722		$	5,157
Net actuarial gain included in accumulated other comprehensive income	(109		)	(186		)
Prior service cost included in accumulated other comprehensive income	—			—
Net recognized pension liability	$	4,613		$	4,971
Information for pension plans with an accumulated  benefit obligation in excess of plan assets
Projected benefit obligation	$	4,613		$	4,971
Accumulated benefit obligation	4,463			4,699

Schedule of Net Periodic Benefit Cost Not yet Recognized

Components of Net Periodic Benefit Cost	2016			2015
Service cost	$	216		$	267
Interest cost	179			183
Amortization of prior service cost	—			—
Recognized net actuarial gain	(160		)	(266		)
Net periodic benefit expense	$	235		$	184

Schedule of Assumptions Used

Weighted-Average Assumptions, December 31	2016		2015
Discount Rate	4.0	%	4.0	%
Salary Scale	4.0	%	4.0	%

Schedule of Expected Benefit Payments

	Projected Annual Benefit Payments*
(Dollars in thousands)	2017	$	4,906
	2018	$	—
	2019	$	—
	2020	$	—
	2021	$	—
	2022-2026	$	—

* Represents management’s expectation as of December 31, 2016 as to when such payments will be made.

Schedule of Net Benefit Costs

The components of net periodic expense for the Company’s supplemental executive retirement plans for the three months ended March 31, 2017 and 2016 were as follows:

(Dollars in thousands)	Three Months Ended March 31,
	2017			2016
Service cost	$	33		$	49
Interest cost	45			38
Actuarial gain recognized	(19		)	(26		)
Total	$	59		$	61

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Share-Based Compensation (Tables)

3 Months Ended

12 Months Ended

Mar. 31, 2017

Dec. 31, 2016

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

Schedule of Share-based Compensation, Stock Options, Activity

The following table summarizes stock option activity during the three months ended March 31, 2017:

(Dollars in thousands, except share amounts)	Number of		Weighted Average		Weighted Average Remaining Contractual	Aggregate Intrinsic
Stock Options	Shares		Exercise Price		Term (years)	Value
Outstanding at January 1, 2017	165,801		$	7.35
Granted	9,900		18.65
Exercised	(3,019	)	6.57
Forfeited	—		—
Expired	—		—
Outstanding at March 31, 2017	172,682		$	8.01	5.0	$	1,802
Exercisable at March 31, 2017	139,660		$	6.91	4.2	$	1,612

Transactions under the Company’s stock option plans during the years ended December 31, 2016 and 2015 are summarized as follows:

StockOptions	Number of Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (years)	Aggregate Intrinsic Value
Outstanding at January 1, 2015	246,880		$	7.80
Granted	13,892		10.10
Exercised	(43,639	)	6.68
Forfeited	(27,788	)	10.55
Expired	(11,751	)	11.89
Outstanding at December 31, 2015	177,594		7.41		5.2	$	861,000
Granted	11,655		11.98
Exercised	(18,645	)	9.79
Forfeited	(4,648	)	11.60
Expired	(155	)	11.85
Outstanding at December 31, 2016	165,801		$	7.35	5.2	$	1,881,841
Exercisable at December 31, 2016	146,067		$	7.27	5.0	$	1,669,569

Schedule of Options Outstanding

The following table summarizes stock options outstanding and exercisable at December 31, 2016:

	Outstanding Options				Exercisable Options
Exercise Price Range	Number	Average Life in Years	Average Exercise Price		Number	Average Life in Years	Average Exercise Price
$5.54 to $5.63	55,106	4.8	$	5.60	48,339	4.8	$	5.59
$6.16 to $7.46	69,990	4.8	$	6.95	66,774	4.7	$	6.94
$9.30 to $11.98	40,705	6.3	$	10.40	30,954	6.0	$	10.60
	165,801	5.2	$	7.35	146,067	5.0	$	7.27

Fair Value Inputs, Assets, Quantitative Information

The fair value of each option and the significant weighted average assumptions used to calculate the fair value of the options granted for the three months ended March 31, 2017 are as follows:

Fair value of options granted	$	6.05
Risk-free rate of return	2.45		%
Expected option life in years	7
Expected volatility	31.25		%
Expected dividends (1)	1.19		%

⁽¹⁾ The Company declared its first cash dividend on September 15, 2016.

The fair value of each option and the significant weighted average assumptions used to calculate the fair value of the options granted during the years ended December 31, 2016 and 2015 are as follows:

	2016			2015
Fair value of options granted	$	4.65		$	4.05
Risk-free rate of return	2.25		%	1.37		%
Expected option life in years	7			7
Expected volatility	30.66		%	32.37		%
Expected dividends (1)	—		%	—

(1)  Subsequent to the granting of stock options in 2016, the Company paid its first cash dividend on October 21, 2016.

Schedule of Nonvested Restricted Stock Units Activity

The following table summarizes the activity in non-vested restricted shares for the three months ended March 31, 2017:

	Number of		Average Grant-Date
Non-vested shares	Shares		Fair Value
Non-vested at January 1, 2017	143,259		$	9.02
Granted	28,300		18.65
Vested	(22,710	)	10.83
Forfeited	—		—
Non-vested at March 31, 2017	148,849		$	9.90

The following table summarizes the activity in nonvested restricted shares for the years ended December 31, 2016 and 2015:

Non-vested Shares	Number of Shares		Average Grant-Date Fair Value
January 1, 2015	148,634		$	7.16
Granted	70,515		10.66
Vested	(60,930	)	8.99
Forfeited	(14,340	)	8.61
Non-vested at December 31, 2015	143,879		8.32
Granted	76,450		12.31
Vested	(74,070	)	10.91
Forfeited	(3,000	)	12.69
Non-vested at December 31, 2016	143,259		$	9.02

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Commitments and Contingencies (Tables)

12 Months Ended

Dec. 31, 2016

Commitments and Contingencies Disclosure [Abstract]

Schedule of Future Minimum Rental Payments for Operating Leases

As of December 31, 2016, future minimum rental payments under non-cancelable operating leases were as follows: 

(Dollars in thousands)	2017	$	1,331
	2018	1,099
	2019	957
	2020	750
	2021	658
	Thereafter	2,449
		$	7,244

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Other Operating Expenses (Tables)

12 Months Ended

Dec. 31, 2016

Other Income and Expenses [Abstract]

Schedule of Other Operating Cost and Expense, by Component

The components of other operating expenses for the years ended December 31, 2016 and 2015 are as follows:

(Dollars in thousands)	2016		2015
Marketing	$	240	$	282
Equipment	555		839
Telephone	377		449
Regulatory, professional and other consulting fees	1,706		1,681
Insurance	303		324
Amortization of intangible assets	404		428
Other expenses	1,358		1,152
	$	4,943	$	5,155

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Regulatory Capital Requirements (Tables)

12 Months Ended

Dec. 31, 2016

Banking and Thrift [Abstract]

Schedule of Compliance with Regulatory Capital Requirements under Banking Regulations

Actual capital amounts and ratios for the Company and the Bank as of December 31, 2016 and 2015 are as follows:

								To Be Well Capitalized Under Prompt
					For Capital			Corrective
(Dollars in thousands)	Actual				Adequacy Purposes			Action Provisions
	Amount		Ratio		Amount		Ratio	Amount		Ratio
As of December 31, 2016
Company
Common equity Tier 1 (CET1)	$	93,101	10.40	%	$	40,302	>4.5%	N/A		N/A
Total Capital to Risk Weighted Assets	118,595		13.24	%	71,648		>8%	N/A		N/A
Tier 1 Capital to Risk Weighted Assets	111,101		12.41	%	53,736		>6%	N/A		N/A
Tier 1 Leverage Capital	111,101		10.93	%	40,658		>4%	N/A		N/A
Bank
Common equity Tier 1 (CET1)	$	108,606	12.13	%	$	40,302	>4.5%	$	58,214	≥6.5%
Total Capital to Risk Weighted Assets	116,100		12.96	%	71,648		>8%	89,560		≥10%
Tier 1 Capital to Risk Weighted Assets	108,606		12.13	%	53,736		>6%	71,648		≥8%
Tier 1 Leverage Capital	108,606		10.68	%	40,658		>4%	50,823		>5%
As of December 31, 2015
Company
Common equity Tier 1 (CET1)	$	83,994	10.03	%	$	37,628	>4.5%	N/A		N/A
Total Capital to Risk Weighted Assets	109,554		13.08	%	66,894		>8%	N/A		N/A
Tier 1 Capital to Risk Weighted Assets	101,994		12.18	%	50,170		>6%	N/A		N/A
Tier 1 Leverage Capital	101,994		10.80	%	37,765		>4%	N/A		N/A
Bank
Common equity Tier 1 (CET1)	$	99,631	11.90	%	$	37,628	>4.5%	$	54,431	≥6.5%
Total Capital to Risk Weighted Assets	107,191		12.80	%	66,894		>8%	83,739		≥10%
Tier 1 Capital to Risk Weighted Assets	99,631		11.90	%	50,170		>6%	66,991		≥8%
Tier 1 Leverage Capital	99,631		10.55	%	37,765		>4%	47,211		>5%

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Fair Value Disclosures (Tables)

3 Months Ended

12 Months Ended

Mar. 31, 2017

Dec. 31, 2016

Fair Value Disclosures [Abstract]

Fair Value, Assets Measured on Recurring Basis

The following table summarizes financial assets and financial liabilities measured at fair value on a recurring basis segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value:

(Dollars in thousands)	Level 1 Inputs		Level 2 Inputs		Level 3 Inputs		Total Fair Value
March 31, 2017:
Securities available for sale:
U. S. Treasury securities and obligations of U.S. Government sponsored corporations (“GSE”) and agencies	$	—	$	3,505	$	—	$	3,505
Residential collateralized mortgage obligations- GSE	—		24,473		—		24,473
Residential mortgage backed securities – GSE	—		28,306		—		28,306
Obligations of state and political subdivisions	—		21,395		—		21,395
Trust preferred debt securities – single issuer	—		2,267		—		2,267
Corporate debt securities	19,829		5,010		—		24,839
Other debt securities	—		780		—		780
Total	$	19,829	$	85,736	$	—	$	105,565

(Dollars in thousands)	Level 1 Inputs		Level 2 Inputs		Level 3 Inputs		Total Fair Value
December 31, 2016:
Securities available for sale:
U. S. Treasury securities and obligations of U.S. Government sponsored corporations (“GSE”) and agencies	$	—	$	3,479	$	—	$	3,479
Residential collateralized mortgage obligations- GSE	—		22,560		—		22,560
Residential mortgage backed securities – GSE	—		31,476		—		31,476
Obligations of state and political subdivisions	—		21,400		—		21,400
Trust preferred debt securities – single issuer	—		2,272		—		2,272
Corporate debt securities	12,826		8,942		—		21,768
Other debt securities	—		839		—		839
Total	$	12,826	$	90,968	$	—	$	103,794

The following table summarizes financial assets and financial liabilities measured at fair value on a recurring basis, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value:

(Dollars in thousands)	Level 1 Inputs		Level 2 Inputs		Level 3 Inputs		Total Fair Value
December 31, 2016:
Securities available for sale:
U.S. Treasury Securities and obligations of U.S. Government         sponsored corporations ("GSE") and agencies	$	—	$	3,479	$	—	$	3,479
Residential collateralized mortgage obligations - GSE	—		22,560		—		22,560
Residential mortgage backed securities-GSE	—		31,476		—		31,476
Obligations of state and political subdivisions	—		21,400		—		21,400
Trust preferred debt securities - single issuer	—		2,272		—		2,272
Corporate debt securities	12,826		8,942		—		21,768
Other debt securities	—		839		—		839
Total	$	12,826	$	90,968	$	—	$	103,794
December 31, 2015:
Securities available for sale:
U.S. Treasury Securities and obligations of U.S Government          sponsored corporations (“GSE”) and agencies	$	—	$	5,481	$	—	$	5,481
Residential collateralized mortgage obligations - GSE	—		8,287		—		8,287
Residential mortgage backed securities – GSE	—		32,635		—		32,635
Obligations of state and political subdivisions	—		21,436		—		21,436
Trust preferred debt securities - single issuer	—		2,136		—		2,136
Corporate debt securities	14,043		6,379		—		20,422
Other debt securities	—		971		54		1,025
Total	$	14,043	$	77,325	$	54	$	91,422

Fair Value Measurements, Nonrecurring

Assets and liabilities measured at fair value on a nonrecurring basis, where there was evidence of impairment, at March 31, 2017 and December 31, 2016 were as follows:

(Dollars in thousands)	Level 1 Inputs		Level 2 Inputs		Level 3 Inputs		Total Fair Value
March 31, 2017:
Impaired loans	$	—	$	—	$	8,463	$	8,463
December 31, 2016:
Impaired loans	$	—	$	—	$	4,130	$	4,130

Financial assets and financial liabilities measured at fair value on a non-recurring basis at December 31, 2016 and 2015 are as follows:

(Dollars in thousands)	Level 1 Inputs	Level 2 Inputs	Level 3 Inputs		Total Fair Value
December 31, 2016
Impaired loans	—	—	$	4,130	$	4,130
December 31, 2015
Impaired loans	—	—	$	3,960	$	3,960
Other real estate owned	—	—	966		966

Fair Value, Assets and Liabilities Measured on Nonrecurring Basis, Valuation Techniques

The following table presents additional qualitative information about assets measured at fair value on a nonrecurring basis, where there was evidence of impairment, and for which the Company has utilized Level 3 inputs to determine fair value:

Quantitative Information about Level 3 Fair Value Measurements
(Dollars in thousands)	Fair Value Estimate		Valuation Techniques	Unobservable Input	Range (Weighted Average)
March 31, 2017
Impaired loans	$	8,463	Appraisal of collateral (1)	Appraisal adjustments (2)	24% - 83% (47.3%)
December 31, 2016
Impaired loans	$	4,130	Appraisal of collateral (1)	Appraisal adjustments (2)	3%-100% (29.1%)

(1) Fair value is generally determined through independent appraisals of the underlying collateral, which generally include various Level 3 inputs which are not identifiable.

(2) Includes qualitative adjustments by management and estimated liquidation expenses.

The following table presents additional qualitative information about assets measured at fair value on a non-recurring basis and for which the Company has utilized Level 3 inputs to determine fair value:

(Dollars in thousands)	Quantitative Information about Level 3 Fair Value Measurements
	Fair Value Estimate		Valuation Techniques	Unobservable Input	Range (Weighted Average)
December 31, 2016
Impaired loans	$	4,130	Appraisal of collateral (1)	Appraisal adjustments (2)	3%-100% (29.1%)
December 31, 2015
Impaired loans	$	3,960	Appraisal of collateral (1)	Appraisal adjustments (2)	11%-44% (29.6%)
Other real estate owned	$	966	Appraisal of collateral (1)	Appraisal adjustments (2)	0.11%

(1) Fair value is generally determined through independent appraisals of the underlying collateral, which generally include various Level 3 inputs that are not identifiable.

(2) Includes qualitative adjustments by management and estimated liquidation expenses.

Fair Value, by Balance Sheet Grouping

The estimated fair values and carrying amounts of financial assets and liabilities as of March 31, 2017 and December 31, 2016 were as follows:

March 31, 2017
(Dollars in thousands)	Carrying			Level 1		Level 2			Level 3		Fair
	Value			Inputs		Inputs			Inputs		Value
Cash and cash equivalents	$	47,914		$	47,914	$	—		$	—	$	47,914
Securities available for sale	105,565			19,829		85,736			—		105,565
Securities held to maturity	125,940			—		127,845			—		127,845
Loans held for sale	3,360			—		3,455			—		3,455
Loans, net	668,861			—		—			666,634		666,634
SBA servicing asset	661			—		882			—		882
Interest rate lock derivative	149			—		149			—		149
Accrued interest receivable	2,789			—		2,789			—		2,789
FHLB stock	1,060			—		1,060			—		1,060
Deposits	(868,820		)	—		(868,259		)	—		(868,259		)
Borrowings	(10,000		)	—		(10,094		)	—		(10,094		)
Redeemable subordinated debentures	(18,557		)	—		(12,080		)	—		(12,080		)
Accrued interest payable	(832		)	—		(832		)	—		(832		)

December 31, 2016
(Dollars in thousands)	Carrying			Level 1		Level 2			Level 3		Fair
	Value			Inputs		Inputs			Inputs		Value
Cash and cash equivalents	$	14,886		$	14,886	$	—		$	—	$	14,886
Securities available for sale	103,794			12,826		90,968			—		103,794
Securities held to maturity	126,810			—		128,559			—		128,559
Loans held for sale	14,829			—		15,103			—		15,103
Loans, net	717,314			—		—			716,492		716,492
SBA servicing asset	605			—		822			—		822
Interest rate lock derivative	123			—		123			—		123
Accrued interest receivable	3,095			—		3,095			—		3,095
FHLB stock	3,962			—		3,962			—		3,962
Deposits	(834,516		)	—		(834,050		)	—		(834,050		)
Borrowings	(73,050		)	—		(73,222		)	—		(73,222		)
Redeemable subordinated debentures	(18,557		)	—		(11,922		)	—		(11,922		)
Accrued interest payable	(866		)	—		(866		)	—		(866		)

The estimated fair values, and the recorded book balances, at December 31, 2016 and 2015 were as follows:

December 31, 2016
(Dollars in thousands)	Carrying Value			Level 1 Inputs		Level 2 Inputs		Level 3 Inputs	Fair Value
Cash and cash equivalents	$	14,886		$	14,886	—		—	$	14,886
Securities available for sale	103,794			12,826		90,968		—	103,794
Securities held to maturity	126,810			—		128,559		—	128,559
Loans held for sale	14,829			—		15,103		—	15,103
Loans, net	717,314			—		—		716,492	716,492
SBA servicing asset	605			—		822		—	822
Interest rate lock derivative	123			—		123		—	123
Accrued interest receivable	3,095			—		3,095		—	3,095
FHLB Stock	3,962			—		3,962		—	3,962
Deposits	(834,516		)	—		(834,050	)	—	(834,050		)
Borrowings	(73,050		)	—		(73,222	)	—	(73,222		)
Redeemable subordinated debentures	(18,557		)	—		(11,922	)	—	(11,922		)
Accrued interest payable	(866		)	—		(866	)	—	(866		)

December 31, 2015
(Dollars in thousands)	Carrying Value			Level 1 Inputs		Level 2 Inputs		Level 3 Inputs	Fair Value
Cash and cash equivalents	$	11,368		$	11,368	—		—	$	11,368
Securities available for sale	91,422			14,043		77,325		54	91,422
Securities held to maturity	123,261			—		127,157		—	127,157
Loans held for sale	5,997			—		6,115		—	6,115
Loans, net	674,561			—		—		674,722	674,722
Accrued interest  receivable	2,853			—		2,853		—	2,853
FHLB Stock	3,302			—		3,302		—	3,302
Deposits	(786,757		)	—		(786,594	)	—	(786,594		)
Borrowings	(58,896		)	—		(59,347	)	—	(59,347		)
Redeemable subordinated debentures	(18,557		)	—		(11,641	)	—	(11,641		)
Accrued interest payable	(846		)	—		(846	)	—	(846		)

XML

Parent-only Financial Information (Tables)

12 Months Ended

Dec. 31, 2016

Condensed Financial Information of Parent Company Only Disclosure [Abstract]

Condensed Statements of Financial Condition

	December 31, 2016		December 31, 2015
Assets:
Cash	$	490	$	77
Investment securities	557		557
Investment in subsidiary	120,306		111,597
Other assets	2,451		2,325
Total Assets	$	123,804	$	114,556
Liabilities And Shareholders’ Equity
Other liabilities	$	446	$	39
Subordinated debentures	18,557		18,557
Shareholders’ equity	104,801		95,960
Total Liabilities and Shareholders’ Equity	$	123,804	$	114,556

Consolidated Statements of Income and Comprehensive Income

	Year ended December 31,
	2016			2015
Income:
Interest income	$	13		$	11
Dividend income from subsidiary	1,240			366
Total Income	1,253			377
Expense:
Interest expense	440			366
Total Expense	440			366
Income before income taxes and equity in undistributed income of subsidiaries	813			11
Federal income tax benefit	(146		)	(122		)
Income before equity in undistributed income of subsidiaries	959			133
Equity in undistributed income of subsidiaries	8,326			8,531
Net Income	9,285			8,664
Equity in other comprehensive loss of subsidiaries	(470		)	(378		)
Comprehensive Income	$	8,815		$	8,286

Condensed Statements of Cash Flows

	Year ended December 31,
	2016			2015
Operating Activities:
Net Income	$	9,285		$	8,664
Adjustments:
Increase in other assets	(126		)	(92		)
Increase in other liabilities	408			—
Equity in undistributed income of subsidiaries	(8,326		)	(8,531		)
Net cash provided by operating activities	1,241			41
Cash Flows From Investing Activities:
Investment in subsidiary	(501		)	37
Net cash (used in) provided by investing activities	(501		)	37
Cash Flows From Financing Activities:
Cash dividend paid	(399		)	—
Issuance  of common stock, net	96			292
Purchase of treasury stock, net	(24		)	(359		)
Net cash used in financing activities	(327		)	(67		)
Net increase in cash	413			11
Cash at beginning of year	77			66
Cash at end of year	$	490		$	77

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Quarterly Financial Data (Unaudited) (Tables)

12 Months Ended

Dec. 31, 2016

Quarterly Financial Information Disclosure [Abstract]

Schedule of Quarterly Financial Information

(Dollars in thousands, except per share data)	2015
	Dec. 31		Sept. 30		June 30		March 31
Summary of Operations
Interest income	$	9,473	$	10,431	$	10,201	$	9,340
Interest expense	1,170		1,169		1,153		1,144
Net interest income	8,303		9,262		9,048		8,196
Provision for loan losses	500		100		—		500
Net interest income after provision for loan losses	7,803		9,162		9,048		7,696
Non-interest income	920		1,427		1,988		2,129
Non-interest expense	6,349		6,979		7,609		6,510
Income before income taxes	2,374		3,610		3,427		3,315
Income taxes	747		1,148		1,112		1,055
Net income	$	1,627	$	2,462	$	2,315	$	2,260
Net income per common share:(1)
Basic	$	0.21	$	0.31	$	0.29	$	0.29
Diluted	$	0.20	$	0.30	$	0.29	$	0.28

⁽¹⁾ The sum of quarterly income per basic and diluted common share may not equal net income per basic and diluted common share, respectively, for the years ended December 31, 2016 and 2015 due to differences in the computation of weighted average diluted common shares on a quarterly and annual basis.

The following table sets forth a condensed summary of the Company’s quarterly results of operations for the years ended December 31, 2016 and 2015:

(Dollars in thousands, except per share data)	2016
	Dec. 31		Sept. 30		June 30			March 31
Summary of Operations
Interest income	$	9,997	$	10,408	$	9,488		$	9,285
Interest expense	1,361		1,355		1,257			1,185
Net interest income	8,636		9,053		8,231			8,100
(Credit) provision for loan losses	—		—		(100		)	(200		)
Net interest income after (credit) provision for loan losses	8,636		9,053		8,331			8,300
Non-interest income	1,996		1,760		1,536			1,594
Non-interest expense	7,572		6,662		6,440			6,624
Income before income taxes	3,060		4,151		3,427			3,270
Income taxes	1,006		1,456		1,113			1,048
Net  income	$	2,054	$	2,695	$	2,314		$	2,222
Net income per common share:(1)
Basic	$	0.26	$	0.34	$	0.29		$	0.28
Diluted	$	0.25	$	0.33	$	0.28		$	0.27

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Net Income Per Common Share (Reconciliation of Basic and Diluted Earnings Per Common Share) (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended																	12 Months Ended
	Mar. 31, 2017	Dec. 31, 2016		Sep. 30, 2016		Jun. 30, 2016		Mar. 31, 2016		Dec. 31, 2015		Sep. 30, 2015		Jun. 30, 2015		Mar. 31, 2015		Dec. 31, 2016	Dec. 31, 2015
Basic earnings per common share: Net income
Net income (in Dollars)	$ 1,949	$ 2,054		$ 2,695		$ 2,314		$ 2,222		$ 1,627		$ 2,462		$ 2,315		$ 2,260		$ 9,285	$ 8,664
Weighted-average shares, basic	8,026,037							7,939,366										7,962,121	7,901,278
Basic earnings per share (in Dollars per share)	$ 0.24	$ 0.26	[1]	$ 0.34	[1]	$ 0.29	[1]	$ 0.28	[1]	$ 0.21	[1]	$ 0.31	[1]	$ 0.29	[1]	$ 0.29	[1]	$ 1.17	$ 1.10
Effect of dilutive securities:
Stock options and warrants (in shares)	278,552							197,342										215,318	174,474
Diluted EPS:
Net income plus assumed conversion (in Dollars)	$ 1,949							$ 2,222										$ 9,285	$ 8,664
Weighted-average shares, diluted	8,304,589							8,136,708										8,177,439	8,075,752
Diluted earnings per share (in Dollars per share)	$ 0.23	$ 0.25	[1]	$ 0.33	[1]	$ 0.28	[1]	$ 0.27	[1]	$ 0.20	[1]	$ 0.30	[1]	$ 0.29	[1]	$ 0.28	[1]	$ 1.14	$ 1.07

[1] The sum of quarterly income per basic and diluted common share may not equal net income per basic and diluted common share, respectively, for the years ended December 31, 2016 and 2015 due to differences in the computation of weighted average diluted common shares on a quarterly and annual basis.

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Net Income Per Common Share (Narrative) (Details) - shares	3 Months Ended		12 Months Ended
	Mar. 31, 2017	Mar. 31, 2016	Dec. 31, 2016	Dec. 31, 2015
Equity Option [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Antidilutive securities excluded from computation of earnings per share (in shares)	9,900	20,585	11,088	25,182

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Summary of Significant Accounting Policies (Narrative) (Details)			3 Months Ended									12 Months Ended
	Dec. 15, 2016 $ / shares	Sep. 15, 2016 $ / shares	Mar. 31, 2017 USD ($) shares	Dec. 31, 2016 USD ($) branch_office	Sep. 30, 2016 USD ($)	Jun. 30, 2016 USD ($)	Mar. 31, 2016 USD ($) shares	Dec. 31, 2015 USD ($)	Sep. 30, 2015 USD ($)	Jun. 30, 2015 USD ($)	Mar. 31, 2015 USD ($)	Dec. 31, 2016 USD ($) branch_office segment shares	Dec. 31, 2015 USD ($) shares	Feb. 01, 2016	Apr. 07, 2015
Summary of Significant Accounting Policies [Line Items]
Number of additional branch offices | branch_office				18								18
Common stock dividend percentage														5.00%	5.00%
Dividends on common stock (in dollars per share) | $ / shares	$ 0.05	$ 0.05
Investment in FHLB stock			$ 1,000,000	$ 3,962,000				$ 3,302,000				$ 3,962,000	$ 3,302,000
Aggregate amount of standby letters of credit (in Dollars)				2,000,000				2,100,000				2,000,000	2,100,000
Trust preferred securities (in Dollars)			231,505,000	230,604,000				214,683,000				$ 230,604,000	214,683,000
Number of reportable segments | segment												1
Interest income restatement			9,495,000	9,997,000	$ 10,408,000	$ 9,488,000	$ 9,285,000	9,473,000	$ 10,431,000	$ 10,201,000	$ 9,340,000	$ 39,178,000	39,445,000
Other operating expenses restatement			1,834,000				1,287,000					4,943,000	5,155,000
Restatement Adjustment [Member]
Summary of Significant Accounting Policies [Line Items]
Interest income restatement			(442,000)				(409,000)
Other operating expenses restatement			$ (442,000)				$ (409,000)
Trust Preferred Securities Subject to Mandatory Redemption [Member]
Summary of Significant Accounting Policies [Line Items]
Trust preferred securities (in Dollars)				18,000,000				18,000,000				$ 18,000,000	$ 18,000,000
Equity Option [Member]
Summary of Significant Accounting Policies [Line Items]
Antidilutive options not included in the computation of earnings per commons share (in Shares) | shares			9,900				20,585					11,088	25,182
Impaired Loans [Member]
Summary of Significant Accounting Policies [Line Items]
Impaired long lived assets (in Dollars)				$ 0				$ 0				$ 0	$ 0
Minimum [Member] | Core Deposits [Member]
Summary of Significant Accounting Policies [Line Items]
Estimated lives of core deposit intangibles												5 years
Maximum [Member] | Core Deposits [Member]
Summary of Significant Accounting Policies [Line Items]
Estimated lives of core deposit intangibles												10 years
Building [Member]
Summary of Significant Accounting Policies [Line Items]
Estimated useful lives												40 years
Furniture, Fixtures and Equipment [Member] | Minimum [Member]
Summary of Significant Accounting Policies [Line Items]
Estimated useful lives												3 years
Furniture, Fixtures and Equipment [Member] | Maximum [Member]
Summary of Significant Accounting Policies [Line Items]
Estimated useful lives												15 years
Leasehold Improvements [Member] | Minimum [Member]
Summary of Significant Accounting Policies [Line Items]
Estimated useful lives												3 years
Leasehold Improvements [Member] | Maximum [Member]
Summary of Significant Accounting Policies [Line Items]
Estimated useful lives												10 years
Residential Portfolio Segment [Member]
Summary of Significant Accounting Policies [Line Items]
Number of residential mortgage loan production offices | branch_office				4								4
Consumer Portfolio Segment [Member]
Summary of Significant Accounting Policies [Line Items]
Days past due when loans are charged off												120 days
Interest Rate Lock Commitments [Member]
Summary of Significant Accounting Policies [Line Items]
Interest rate lock derivative				$ 123,000								$ 123,000
US Government Agencies Debt Securities [Member]
Summary of Significant Accounting Policies [Line Items]
Percentage of total portfolio												49.50%
Municipal Bonds [Member]
Summary of Significant Accounting Policies [Line Items]
Percentage of total portfolio												40.10%
Corporate Debt Issues and Restricted Stock [Member]
Summary of Significant Accounting Policies [Line Items]
Percentage of total portfolio												10.40%

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Summary of Significant Accounting Policies (Earnings Per Share, Basic and Diluted) (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended																	12 Months Ended
	Mar. 31, 2017	Dec. 31, 2016		Sep. 30, 2016		Jun. 30, 2016		Mar. 31, 2016		Dec. 31, 2015		Sep. 30, 2015		Jun. 30, 2015		Mar. 31, 2015		Dec. 31, 2016	Dec. 31, 2015
Basic earnings per common share:
Net income (in Dollars)	$ 1,949	$ 2,054		$ 2,695		$ 2,314		$ 2,222		$ 1,627		$ 2,462		$ 2,315		$ 2,260		$ 9,285	$ 8,664
Weighted-average shares, basic	8,026,037							7,939,366										7,962,121	7,901,278
Basic earnings per share (in Dollars per share)	$ 0.24	$ 0.26	[1]	$ 0.34	[1]	$ 0.29	[1]	$ 0.28	[1]	$ 0.21	[1]	$ 0.31	[1]	$ 0.29	[1]	$ 0.29	[1]	$ 1.17	$ 1.10
Effect of dilutive securities:
Stock options and warrants (in shares)	278,552							197,342										215,318	174,474
Diluted EPS:
Net income plus assumed conversion (in Dollars)	$ 1,949							$ 2,222										$ 9,285	$ 8,664
Weighted-average shares, diluted	8,304,589							8,136,708										8,177,439	8,075,752
Diluted earnings per share (in Dollars per share)	$ 0.23	$ 0.25	[1]	$ 0.33	[1]	$ 0.28	[1]	$ 0.27	[1]	$ 0.20	[1]	$ 0.30	[1]	$ 0.29	[1]	$ 0.28	[1]	$ 1.14	$ 1.07

[1] The sum of quarterly income per basic and diluted common share may not equal net income per basic and diluted common share, respectively, for the years ended December 31, 2016 and 2015 due to differences in the computation of weighted average diluted common shares on a quarterly and annual basis.

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Summary of Significant Accounting Policies - Schedule of Accounting Changes (Details) - USD ($) $ in Thousands	3 Months Ended									12 Months Ended
	Mar. 31, 2017	Dec. 31, 2016	Sep. 30, 2016	Jun. 30, 2016	Mar. 31, 2016	Dec. 31, 2015	Sep. 30, 2015	Jun. 30, 2015	Mar. 31, 2015	Dec. 31, 2016	Dec. 31, 2015
Error Corrections and Prior Period Adjustments Restatement [Line Items]
Loan Interest	$ 8,055				$ 7,899					$ 33,744	$ 34,097
Total interest income	9,495	$ 9,997	$ 10,408	$ 9,488	9,285	$ 9,473	$ 10,431	$ 10,201	$ 9,340	39,178	39,445
Net interest income before provision (credit)	8,206	8,636	9,053	8,231	8,100	8,303	9,262	9,048	8,196	34,020	34,809
Net interest income after provision (credit)	8,056	8,636	9,053	8,331	8,300	7,803	9,162	9,048	7,696	34,320	33,709
Salaries and employee benefits	4,501				4,005					16,543	15,589
Other operating expenses	1,834				1,287					4,943	5,155
Total other expense	$ 7,656	7,572	6,662	6,440	6,624	6,349	6,979	7,609	6,510	27,298	27,447
Other expenses										1,358	1,152
Previously Reported
Error Corrections and Prior Period Adjustments Restatement [Line Items]
Loan Interest										35,429	35,597
Total interest income		10,455	10,843	9,871	9,694	9,863	10,832	10,564	9,686	40,863	40,945
Net interest income before provision (credit)		9,094	9,488	8,614	8,509	8,693	9,663	9,411	8,542	35,705	36,309
Net interest income after provision (credit)		9,094	9,488	8,714	8,709	8,193	9,563	9,411	8,042	36,005	35,209
Salaries and employee benefits										18,298	17,232
Other operating expenses										4,873	5,012
Total other expense		$ 8,029	$ 7,098	$ 6,823	$ 7,033	$ 6,739	$ 7,380	$ 7,972	$ 6,856	28,983	28,947
Other expenses										$ 1,288	$ 1,009

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Investment Securities (Available-for-sale Securities) (Details) - USD ($) $ in Thousands	Mar. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Available for sale-
Available for sale, amortized cost	$ 105,930	$ 104,258	$ 91,219
Available for sale, gross unrealized gains	550	608	1,039
Available for sale, gross unrealized losses	(915)	(1,072)	(836)
Available for sale, at fair value	105,565	103,794	91,422
US Treasury securities and obligations of US Government sponsored corporations (GSE) and agencies [Member]
Available for sale-
Available for sale, amortized cost	3,511	3,514	5,523
Available for sale, gross unrealized gains	2	0	0
Available for sale, gross unrealized losses	(8)	(35)	(42)
Available for sale, at fair value	3,505	3,479	5,481
Residential collateralized mortgage obligations- GSE [Member]
Available for sale-
Available for sale, amortized cost	24,547	22,647	8,255
Available for sale, gross unrealized gains	50	58	68
Available for sale, gross unrealized losses	(124)	(145)	(36)
Available for sale, at fair value	24,473	22,560	8,287
Residential mortgage backed securities - GSE [Member]
Available for sale-
Available for sale, amortized cost	28,176	31,207	32,279
Available for sale, gross unrealized gains	233	388	541
Available for sale, gross unrealized losses	(103)	(119)	(185)
Available for sale, at fair value	28,306	31,476	32,635
Obligations of state and political subdivisions [Member]
Available for sale-
Available for sale, amortized cost	21,446	21,604	21,125
Available for sale, gross unrealized gains	178	152	365
Available for sale, gross unrealized losses	(229)	(356)	(54)
Available for sale, at fair value	21,395	21,400	21,436
Trust preferred debt securities - single issuer [Member]
Available for sale-
Available for sale, amortized cost	2,479	2,478	2,474
Available for sale, gross unrealized gains	0	0	0
Available for sale, gross unrealized losses	(212)	(206)	(338)
Available for sale, at fair value	2,267	2,272	2,136
Corporate debt securities [Member]
Available for sale-
Available for sale, amortized cost	24,988	21,963	20,510
Available for sale, gross unrealized gains	87	10	65
Available for sale, gross unrealized losses	(236)	(205)	(153)
Available for sale, at fair value	24,839	21,768	20,422
Other debt obligations [Member]
Available for sale-
Available for sale, amortized cost	783	845	1,053
Available for sale, gross unrealized gains	0	0	0
Available for sale, gross unrealized losses	(3)	(6)	(28)
Available for sale, at fair value	$ 780	$ 839	$ 1,025

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Investment Securities (Held-to-maturity Securities) (Details) - USD ($)	Mar. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Held to maturity-
Held to maturity, amortized cost	$ 126,441,000	$ 127,311,000	$ 123,762,000
Held to maturity, other than temporary impairment recognized in accumulated other comprehensive loss	(501,000)	(501,000)	(501,000)
Held to maturity, Carrying Value	125,940,000	126,810,000	123,261,000
Held to maturity, gross unrealized gains	2,397,000	2,364,000	3,967,000
Held to maturity, gross unrealized losses	(492,000)	(615,000)	(71,000)
Held to maturity, fair value	127,845,000	128,559,000	127,157,000
US Treasury securities and obligations of US Government sponsored corporations (GSE) and agencies [Member]
Held to maturity-
Held to maturity, amortized cost	3,727,000	3,727,000
Held to maturity, other than temporary impairment recognized in accumulated other comprehensive loss	0	0
Held to maturity, Carrying Value	3,727,000	3,727,000
Held to maturity, gross unrealized gains	0	0
Held to maturity, gross unrealized losses	(85,000)	(116,000)
Held to maturity, fair value	3,642,000	3,611,000
Residential collateralized mortgage obligations- GSE [Member]
Held to maturity-
Held to maturity, amortized cost	10,968,000	11,882,000	13,630,000
Held to maturity, other than temporary impairment recognized in accumulated other comprehensive loss	0	0	0
Held to maturity, Carrying Value	10,968,000	11,882,000	13,630,000
Held to maturity, gross unrealized gains	221,000	247,000	404,000
Held to maturity, gross unrealized losses	(121,000)	(130,000)	0
Held to maturity, fair value	11,068,000	11,999,000	14,034,000
Residential mortgage backed securities - GSE [Member]
Held to maturity-
Held to maturity, amortized cost	37,951,000	40,565,000	47,718,000
Held to maturity, other than temporary impairment recognized in accumulated other comprehensive loss	0	0	0
Held to maturity, Carrying Value	37,951,000	40,565,000	47,718,000
Held to maturity, gross unrealized gains	459,000	540,000	928,000
Held to maturity, gross unrealized losses	(125,000)	(113,000)	(46,000)
Held to maturity, fair value	38,285,000	40,992,000	48,600,000
Obligations of state and political subdivisions [Member]
Held to maturity-
Held to maturity, amortized cost	72,715,000	70,017,000	61,135,000
Held to maturity, other than temporary impairment recognized in accumulated other comprehensive loss	0	0	0
Held to maturity, Carrying Value	72,715,000	70,017,000	61,135,000
Held to maturity, gross unrealized gains	1,414,000	1,274,000	2,294,000
Held to maturity, gross unrealized losses	(161,000)	(255,000)	(14,000)
Held to maturity, fair value	73,968,000	71,036,000	63,415,000
Trust preferred debt securities - pooled [Member]
Held to maturity-
Held to maturity, amortized cost	657,000	657,000	657,000
Held to maturity, other than temporary impairment recognized in accumulated other comprehensive loss	(501,000)	(501,000)	(501,000)
Held to maturity, Carrying Value	156,000	156,000	156,000
Held to maturity, gross unrealized gains	303,000	303,000	341,000
Held to maturity, gross unrealized losses	0	0	0
Held to maturity, fair value	459,000	459,000	497,000
Other debt obligations [Member]
Held to maturity-
Held to maturity, amortized cost	423,000	463,000	622,000
Held to maturity, other than temporary impairment recognized in accumulated other comprehensive loss	0	0	0
Held to maturity, Carrying Value	423,000	463,000	622,000
Held to maturity, gross unrealized gains	0	0	0
Held to maturity, gross unrealized losses	0	(1,000)	(11,000)
Held to maturity, fair value	$ 423,000	$ 462,000	$ 611,000

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Investment Securities (Securities by Contractual Maturity) (Details) - USD ($) $ in Thousands	Mar. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Available for sale
Due in one year or less, Amortized Cost	$ 3,997	$ 2,616
Due in one year or less, Fair Value	$ 3,998	$ 2,619
Due in one year or less, Percentage Yield	0.25%	3.06%
Due after one year through five years, Amortized Cost	$ 18,631	$ 15,544
Due after one year through five years, Fair Value	$ 18,686	$ 15,470
Due after one year through five years, Percentage Yield	2.15%	1.28%
Due after five years through ten years, Amortized Cost	$ 42,696	$ 44,489
Due after five years through ten years, Fair Value	$ 42,560	$ 44,695
Due after five years through ten years, Percentage Yield	2.49%	2.68%
Due after ten years, Amortized Cost	$ 40,606	$ 41,609
Due after ten years, Fair Value	$ 40,321	$ 41,010
Due after ten years, Percentage Yield	2.89%	2.75%
Total, Amortized Cost	$ 105,930	$ 104,258
Total, Fair Value	$ 105,565	$ 103,794	$ 91,422
Total, Percentage Yield	2.50%	2.51%
Held to maturity
Due in one year or less, Carrying Value	$ 33,055	$ 29,807
Due in one year or less, Fair Value	$ 33,065	$ 29,816
Due in one year or less, Percentage Yield	1.51%	1.44%
Due after one year through five years, Carrying Value	$ 17,612	$ 16,833
Due after one year through five years, Fair Value	$ 18,286	$ 17,373
Due after one year through five years, Percentage Yield		4.43%
Due after one year through five years, Percentage Yield	4.54%
Due after five years through ten years, Carrying Value	$ 21,631	$ 23,597
Due after five years through ten years, Fair Value	$ 22,178	$ 24,280
Due after five years through ten years, Percentage Yield		3.51%
Due after five years through ten years, Percentage Yield	3.43%
Due after ten years, Carrying Value	$ 53,642	$ 56,573
Due after ten years, Fair Value	$ 54,316	$ 57,090
Due after ten years, Percentage Yield		3.28%
Due after ten years, Percentage Yield	3.28%
Held to maturity, Carrying Value	$ 125,940	$ 126,810	123,261
Total, Fair Value	$ 127,845	$ 128,559	$ 127,157
Total, Percentage Yield		3.04%
Total, Percentage Yield	3.02%

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Investment Securities (Securities in a Continuous Unrealized Loss Position) (Details) $ in Thousands	Mar. 31, 2017 USD ($) security	Dec. 31, 2016 USD ($) security	Dec. 31, 2015 USD ($) security
Schedule of Trading Securities and Other Trading Assets [Line Items]
Securities in a continuous unrealized loss position, number | security	107	126	67
Securities in a continuous unrealized loss position, less than 12 months, fair value	$ 80,913	$ 89,158	$ 44,846
Securities in a continuous unrealized loss position, less than 12 months, unrealized losses	(1,087)	(1,457)	(436)
Securities in a continuous unrealized loss position, 12 months or longer, fair value	8,718	9,089	13,606
Securities in a continuous unrealized loss position, 12 months or longer, unrealized losses	(320)	(230)	(471)
Securities in a continuous unrealized loss position, fair value	89,631	98,247	58,452
Securities in a continuous unrealized loss position, unrealized losses	$ (1,407)	$ (1,687)	$ (907)
US Treasury securities and obligations of US Government sponsored corporations (GSE) and agencies [Member]
Schedule of Trading Securities and Other Trading Assets [Line Items]
Securities in a continuous unrealized loss position, number | security	2	3	3
Securities in a continuous unrealized loss position, less than 12 months, fair value	$ 5,630	$ 7,090	$ 5,481
Securities in a continuous unrealized loss position, less than 12 months, unrealized losses	(93)	(151)	(42)
Securities in a continuous unrealized loss position, 12 months or longer, fair value	0	0	0
Securities in a continuous unrealized loss position, 12 months or longer, unrealized losses	0	0	0
Securities in a continuous unrealized loss position, fair value	5,630	7,090	5,481
Securities in a continuous unrealized loss position, unrealized losses	$ (93)	$ (151)	$ (42)
Residential collateralized mortgage obligations- GSE [Member]
Schedule of Trading Securities and Other Trading Assets [Line Items]
Securities in a continuous unrealized loss position, number | security	7	7	2
Securities in a continuous unrealized loss position, less than 12 months, fair value	$ 18,259	$ 17,242	$ 5,894
Securities in a continuous unrealized loss position, less than 12 months, unrealized losses	(245)	(275)	(36)
Securities in a continuous unrealized loss position, 12 months or longer, fair value	0	0	0
Securities in a continuous unrealized loss position, 12 months or longer, unrealized losses	0	0	0
Securities in a continuous unrealized loss position, fair value	18,259	17,242	5,894
Securities in a continuous unrealized loss position, unrealized losses	$ (245)	$ (275)	$ (36)
Residential mortgage backed securities - GSE [Member]
Schedule of Trading Securities and Other Trading Assets [Line Items]
Securities in a continuous unrealized loss position, number | security	28	29	19
Securities in a continuous unrealized loss position, less than 12 months, fair value	$ 26,717	$ 26,581	$ 20,911
Securities in a continuous unrealized loss position, less than 12 months, unrealized losses	(228)	(216)	(175)
Securities in a continuous unrealized loss position, 12 months or longer, fair value	0	3,542	3,980
Securities in a continuous unrealized loss position, 12 months or longer, unrealized losses	0	(16)	(56)
Securities in a continuous unrealized loss position, fair value	26,717	30,123	24,891
Securities in a continuous unrealized loss position, unrealized losses	$ (228)	$ (232)	$ (231)
Obligations of state and political subdivisions [Member]
Schedule of Trading Securities and Other Trading Assets [Line Items]
Securities in a continuous unrealized loss position, number | security	59	74	32
Securities in a continuous unrealized loss position, less than 12 months, fair value	$ 19,555	$ 25,545	$ 2,760
Securities in a continuous unrealized loss position, less than 12 months, unrealized losses	(378)	(611)	(19)
Securities in a continuous unrealized loss position, 12 months or longer, fair value	764	0	6,465
Securities in a continuous unrealized loss position, 12 months or longer, unrealized losses	(12)	0	(49)
Securities in a continuous unrealized loss position, fair value	20,319	25,545	9,225
Securities in a continuous unrealized loss position, unrealized losses	$ (390)	$ (611)	$ (68)
Trust preferred debt securities - single issuer [Member]
Schedule of Trading Securities and Other Trading Assets [Line Items]
Securities in a continuous unrealized loss position, number | security	4	4	4
Securities in a continuous unrealized loss position, less than 12 months, fair value	$ 0	$ 0	$ 0
Securities in a continuous unrealized loss position, less than 12 months, unrealized losses	0	0	0
Securities in a continuous unrealized loss position, 12 months or longer, fair value	2,267	2,272	2,136
Securities in a continuous unrealized loss position, 12 months or longer, unrealized losses	(212)	(206)	(338)
Securities in a continuous unrealized loss position, fair value	2,267	2,272	2,136
Securities in a continuous unrealized loss position, unrealized losses	$ (212)	$ (206)	$ (338)
Corporate debt securities [Member]
Schedule of Trading Securities and Other Trading Assets [Line Items]
Securities in a continuous unrealized loss position, number | security	5	6	4
Securities in a continuous unrealized loss position, less than 12 months, fair value	$ 10,752	$ 12,700	$ 9,214
Securities in a continuous unrealized loss position, less than 12 months, unrealized losses	(143)	(204)	(153)
Securities in a continuous unrealized loss position, 12 months or longer, fair value	4,907	1,999	0
Securities in a continuous unrealized loss position, 12 months or longer, unrealized losses	(93)	(1)	0
Securities in a continuous unrealized loss position, fair value	15,659	14,699	9,214
Securities in a continuous unrealized loss position, unrealized losses	$ (236)	$ (205)	$ (153)
Other debt obligations [Member]
Schedule of Trading Securities and Other Trading Assets [Line Items]
Securities in a continuous unrealized loss position, number | security	2	3	3
Securities in a continuous unrealized loss position, less than 12 months, fair value	$ 0	$ 0	$ 586
Securities in a continuous unrealized loss position, less than 12 months, unrealized losses	0	0	(11)
Securities in a continuous unrealized loss position, 12 months or longer, fair value	780	1,276	1,025
Securities in a continuous unrealized loss position, 12 months or longer, unrealized losses	(3)	(7)	(28)
Securities in a continuous unrealized loss position, fair value	780	1,276	1,611
Securities in a continuous unrealized loss position, unrealized losses	$ (3)	$ (7)	$ (39)

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Investment Securities (Narrative) (Details) $ in Thousands	3 Months Ended		12 Months Ended
	Mar. 31, 2017 USD ($) security financial_institution	Mar. 31, 2016 USD ($)	Dec. 31, 2016 USD ($) security financial_institution	Dec. 31, 2009 USD ($)	Dec. 31, 2015 USD ($)
Schedule of Available-for-sale Securities [Line Items]
Other than temporary impairment				$ 865
Other than temporary impairment loss, portion recognized in earnings				364
Other than temporary impairment loss, portion recognized in other comprehensive income (loss)				$ 501
Proceeds from sales of securities held to maturity	$ 582	$ 0
Restricted stock	1,100		$ 4,000
Federal Home Loan Bank, stock	1,000		3,962		$ 3,302
Bankers Bank Stock [Member] | Atlantic Community Bankers Bank Stock [Member]
Schedule of Available-for-sale Securities [Line Items]
Bankers Bank Stock	65		$ 65
Collateralized Mortgage Backed Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Proceeds from sales of securities held to maturity	$ 2,000
Number of securities sold | security	54
Total amount of securities sold (less than $150,000)	$ 150
Collateralized Mortgage Backed Securities [Member] | Six Mortgage Backed Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Number of securities sold | security	6
Total amount of securities sold (less than $150,000)	$ 580
Net gain	$ 24
Percentage of original principal balance outstanding at the time of purchase (less than 15%)	15.00%
Trust preferred debt securities - single issuer [Member]
Schedule of Available-for-sale Securities [Line Items]
Number of corporate trust preferred securities | security	4		4
Number of issuers | financial_institution	2		2
Trust preferred debt securities - pooled [Member]
Schedule of Available-for-sale Securities [Line Items]
Number of issuers | financial_institution	2		2
Federal Home Loan Bank Borrowings [Member]
Schedule of Available-for-sale Securities [Line Items]
Investment securities pledged to collateralize borrowings and municipal deposits			$ 121,700		$ 69,800

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Loans and Loans Held for Sale (Loans) (Details) - USD ($) $ in Thousands	Mar. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Accounts, Notes, Loans and Financing Receivable [Line Items]
Gross Loans		$ 723,071	$ 680,895
Deferred loan fees and costs, net	$ 1,075	1,737	1,226
Loans	$ 676,411	724,808	682,121
Commercial business [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Gross Loans		99,650	99,277
Commercial real estate [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Gross Loans		242,393	207,250
Mortgage warehouse lines [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Gross Loans		216,259	216,572
Construction loans [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Gross Loans		96,035	93,745
Residential real estate loans [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Gross Loans		44,791	40,744
Loans to individuals [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Gross Loans		23,736	23,074
All other loans [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Gross Loans		$ 207	$ 233

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Loans and Loans Held for Sale (Narrative) (Details) - USD ($) $ in Thousands	Dec. 31, 2016	Dec. 31, 2015
Receivables [Abstract]
Amount of residential mortgage loans held for sale	$ 14,800	$ 6,000
Interest Rate Lock Commitments [Member]
Derivative [Line Items]
Interest rate lock derivative	$ 123

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Allowance for Loan Losses and Credit Quality Disclosures (Aging of Loan Portfolio) (Details) - USD ($) $ in Thousands	Mar. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	$ 5,059	$ 6,940	$ 7,467
Total Loans Receivable		723,071	680,895
Deferred loan fees and costs, net	1,075	1,737	1,226
Loans	676,411	724,808	682,121
Recorded Investment 90 Days Accruing	46	24	0
Non-accrual Loans	7,373	5,174	6,020
Financing Receivables, 30 to 59 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	2,263	1,418	1,719
Financing Receivables, 60 to 89 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	0	1,086	171
Financing Receivables, Equal to Greater than 90 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	2,796	4,436	5,577
Financing Receivables, Current, and Less Than 30 days Past Due, and Still Accruing [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Current	671,352	717,868	674,654
Deferred loan fees and costs, net	1,075	1,737	1,226
Construction Loans [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Loans Receivable		96,035	93,745
Commercial Business [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Loans Receivable		99,650	99,277
Commercial Real Estate [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Loans Receivable		242,393	207,250
Mortgage Warehouse Lines [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Loans Receivable		216,259	216,572
Residential Real Estate Loans [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Loans Receivable		44,791	40,744
Loans to Individuals [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Loans Receivable		23,736	23,074
Loans and Finance Receivables [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	5,059	6,940
Total Loans Receivable	675,336	723,071
Recorded Investment 90 Days Accruing	46	24
Non-accrual Loans	7,373	5,174
Loans and Finance Receivables [Member] | Financing Receivables, 30 to 59 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	2,263	1,418
Loans and Finance Receivables [Member] | Financing Receivables, 60 to 89 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	0	1,086
Loans and Finance Receivables [Member] | Financing Receivables, Equal to Greater than 90 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	2,796	4,436
Loans and Finance Receivables [Member] | Financing Receivables, Current, and Less Than 30 days Past Due, and Still Accruing [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Current	670,277	716,131
Commercial Portfolio Segment [Member] | Construction Loans [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	182	186	0
Total Loans Receivable	107,722	96,035	93,745
Recorded Investment 90 Days Accruing	0	0	0
Non-accrual Loans	182	186	0
Commercial Portfolio Segment [Member] | Construction Loans [Member] | Financing Receivables, 30 to 59 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	0	0	0
Commercial Portfolio Segment [Member] | Construction Loans [Member] | Financing Receivables, 60 to 89 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	0	0	0
Commercial Portfolio Segment [Member] | Construction Loans [Member] | Financing Receivables, Equal to Greater than 90 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	182	186	0
Commercial Portfolio Segment [Member] | Construction Loans [Member] | Financing Receivables, Current, and Less Than 30 days Past Due, and Still Accruing [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Current	107,540	95,849	93,745
Commercial Portfolio Segment [Member] | Commercial Business [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	772	1,018	721
Total Loans Receivable	101,466	99,650	99,277
Recorded Investment 90 Days Accruing	46	0	0
Non-accrual Loans	4,438	920	304
Commercial Portfolio Segment [Member] | Commercial Business [Member] | Financing Receivables, 30 to 59 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	376	113	530
Commercial Portfolio Segment [Member] | Commercial Business [Member] | Financing Receivables, 60 to 89 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	0	115	5
Commercial Portfolio Segment [Member] | Commercial Business [Member] | Financing Receivables, Equal to Greater than 90 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	396	790	186
Commercial Portfolio Segment [Member] | Commercial Business [Member] | Financing Receivables, Current, and Less Than 30 days Past Due, and Still Accruing [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Current	100,694	98,632	98,556
Commercial Portfolio Segment [Member] | Commercial Real Estate [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	3,668	4,390	4,785
Total Loans Receivable	258,130	242,393	207,250
Recorded Investment 90 Days Accruing	0	0	0
Non-accrual Loans	2,182	3,187	4,321
Commercial Portfolio Segment [Member] | Commercial Real Estate [Member] | Financing Receivables, 30 to 59 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	1,800	741	789
Commercial Portfolio Segment [Member] | Commercial Real Estate [Member] | Financing Receivables, 60 to 89 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	0	942	0
Commercial Portfolio Segment [Member] | Commercial Real Estate [Member] | Financing Receivables, Equal to Greater than 90 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	1,868	2,707	3,996
Commercial Portfolio Segment [Member] | Commercial Real Estate [Member] | Financing Receivables, Current, and Less Than 30 days Past Due, and Still Accruing [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Current	254,462	238,003	202,465
Commercial Portfolio Segment [Member] | Mortgage Warehouse Lines [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	0	0	0
Total Loans Receivable	142,666	216,259	216,572
Recorded Investment 90 Days Accruing	0	0	0
Non-accrual Loans	0	0	0
Commercial Portfolio Segment [Member] | Mortgage Warehouse Lines [Member] | Financing Receivables, 30 to 59 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	0	0	0
Commercial Portfolio Segment [Member] | Mortgage Warehouse Lines [Member] | Financing Receivables, 60 to 89 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	0	0	0
Commercial Portfolio Segment [Member] | Mortgage Warehouse Lines [Member] | Financing Receivables, Equal to Greater than 90 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	0	0	0
Commercial Portfolio Segment [Member] | Mortgage Warehouse Lines [Member] | Financing Receivables, Current, and Less Than 30 days Past Due, and Still Accruing [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Current	142,666	216,259	216,572
Commercial Portfolio Segment [Member] | Residential Real Estate Loans [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	104	956	1,298
Total Loans Receivable	41,608	44,791	40,744
Recorded Investment 90 Days Accruing	0	0	0
Non-accrual Loans	238	544	1,132
Commercial Portfolio Segment [Member] | Residential Real Estate Loans [Member] | Financing Receivables, 30 to 59 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	17	564	0
Commercial Portfolio Segment [Member] | Residential Real Estate Loans [Member] | Financing Receivables, 60 to 89 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	0	0	166
Commercial Portfolio Segment [Member] | Residential Real Estate Loans [Member] | Financing Receivables, Equal to Greater than 90 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	87	392	1,132
Commercial Portfolio Segment [Member] | Residential Real Estate Loans [Member] | Financing Receivables, Current, and Less Than 30 days Past Due, and Still Accruing [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Current	41,504	43,835	39,446
Consumer Portfolio Segment [Member] | Loans to Individuals [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	333	390	663
Total Loans Receivable	23,567	23,736	23,074
Recorded Investment 90 Days Accruing	0	24	0
Non-accrual Loans	333	337	263
Consumer Portfolio Segment [Member] | Loans to Individuals [Member] | Financing Receivables, 30 to 59 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	70	0	400
Consumer Portfolio Segment [Member] | Loans to Individuals [Member] | Financing Receivables, 60 to 89 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	0	29	0
Consumer Portfolio Segment [Member] | Loans to Individuals [Member] | Financing Receivables, Equal to Greater than 90 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	263	361	263
Consumer Portfolio Segment [Member] | Loans to Individuals [Member] | Financing Receivables, Current, and Less Than 30 days Past Due, and Still Accruing [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Current	23,234	23,346	22,411
Consumer Portfolio Segment [Member] | Other [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	0	0	0
Total Loans Receivable	177	207	233
Recorded Investment 90 Days Accruing	0	0	0
Non-accrual Loans	0	0	0
Consumer Portfolio Segment [Member] | Other [Member] | Financing Receivables, 30 to 59 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	0	0	0
Consumer Portfolio Segment [Member] | Other [Member] | Financing Receivables, 60 to 89 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	0	0	0
Consumer Portfolio Segment [Member] | Other [Member] | Financing Receivables, Equal to Greater than 90 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	0	0	0
Consumer Portfolio Segment [Member] | Other [Member] | Financing Receivables, Current, and Less Than 30 days Past Due, and Still Accruing [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Current	$ 177	$ 207	$ 233

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Allowance for Loan Losses and Credit Quality Disclosures (Narrative) (Details) $ in Thousands	3 Months Ended		12 Months Ended
	Mar. 31, 2017 USD ($) loan	Mar. 31, 2016 loan	Dec. 31, 2016 USD ($) loan	Dec. 31, 2015 USD ($) loan	Feb. 07, 2014 USD ($)
Financing Receivable, Allowance for Credit Losses [Line Items]
Additional income before taxes if interest on all loans had been recorded based upon original contract terms			$ 522	$ 471
Loans deemed to be PCI in conjunction with the Rumson merger	$ 4,071		3,030	$ 4,493
Amount of troubled debt restructuring	$ 458		$ 458
Number of troubled debt restructurings that subsequently defaulted | loan	1	0	1	0
Receivables Acquired with Deteriorated Credit Quality [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Carrying amount	$ 716		$ 1,121	$ 1,600
Receivables Acquired with Deteriorated Credit Quality [Member] | Performing [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Carrying amount	$ 420		439
Receivables Acquired with Deteriorated Credit Quality [Member] | Rumson Fair Haven Bank and Trust Company [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Loans deemed to be PCI in conjunction with the Rumson merger					$ 2,600
Receivables Acquired with Deteriorated Credit Quality [Member] | Performing [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Carrying amount			$ 439	489
One Unspecified Receivable Acquired with Deteriorated Credit Quality [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Amount of PCI loans				$ 64

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Allowance for Loan Losses and Credit Quality Disclosures (Commercial Loans by Credit Quality Indicators) (Details) - USD ($) $ in Thousands	Mar. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Financing Receivable, Recorded Investment [Line Items]
Amount of loans		$ 723,071	$ 680,895
Construction Loans [Member]
Financing Receivable, Recorded Investment [Line Items]
Amount of loans		96,035	93,745
Commercial Business [Member]
Financing Receivable, Recorded Investment [Line Items]
Amount of loans		99,650	99,277
Commercial Real Estate [Member]
Financing Receivable, Recorded Investment [Line Items]
Amount of loans		242,393	207,250
Mortgage Warehouse Lines [Member]
Financing Receivable, Recorded Investment [Line Items]
Amount of loans		216,259	216,572
Residential Real Estate Loans [Member]
Financing Receivable, Recorded Investment [Line Items]
Amount of loans		44,791	40,744
Commercial Portfolio Segment [Member] | Construction Loans [Member]
Financing Receivable, Recorded Investment [Line Items]
Amount of loans	$ 107,722	96,035	93,745
Commercial Portfolio Segment [Member] | Construction Loans [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Amount of loans	106,276	95,548	93,558
Commercial Portfolio Segment [Member] | Construction Loans [Member] | Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
Amount of loans	1,264	301	187
Commercial Portfolio Segment [Member] | Construction Loans [Member] | Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Amount of loans	182	186	0
Commercial Portfolio Segment [Member] | Construction Loans [Member] | Doubtful [Member]
Financing Receivable, Recorded Investment [Line Items]
Amount of loans	0	0	0
Commercial Portfolio Segment [Member] | Construction Loans [Member] | Loss [Member]
Financing Receivable, Recorded Investment [Line Items]
Amount of loans		0	0
Commercial Portfolio Segment [Member] | Commercial Business [Member]
Financing Receivable, Recorded Investment [Line Items]
Amount of loans	101,466	99,650	99,277
Commercial Portfolio Segment [Member] | Commercial Business [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Amount of loans	93,063	91,908	90,856
Commercial Portfolio Segment [Member] | Commercial Business [Member] | Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
Amount of loans	3,568	7,102	7,768
Commercial Portfolio Segment [Member] | Commercial Business [Member] | Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Amount of loans	813	611	653
Commercial Portfolio Segment [Member] | Commercial Business [Member] | Doubtful [Member]
Financing Receivable, Recorded Investment [Line Items]
Amount of loans	4,022	29	0
Commercial Portfolio Segment [Member] | Commercial Business [Member] | Loss [Member]
Financing Receivable, Recorded Investment [Line Items]
Amount of loans		0	0
Commercial Portfolio Segment [Member] | Commercial Real Estate [Member]
Financing Receivable, Recorded Investment [Line Items]
Amount of loans	258,130	242,393	207,250
Commercial Portfolio Segment [Member] | Commercial Real Estate [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Amount of loans	238,408	223,435	191,754
Commercial Portfolio Segment [Member] | Commercial Real Estate [Member] | Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
Amount of loans	13,797	14,334	9,311
Commercial Portfolio Segment [Member] | Commercial Real Estate [Member] | Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Amount of loans	5,925	4,624	6,185
Commercial Portfolio Segment [Member] | Commercial Real Estate [Member] | Doubtful [Member]
Financing Receivable, Recorded Investment [Line Items]
Amount of loans	0	0	0
Commercial Portfolio Segment [Member] | Commercial Real Estate [Member] | Loss [Member]
Financing Receivable, Recorded Investment [Line Items]
Amount of loans		0	0
Commercial Portfolio Segment [Member] | Mortgage Warehouse Lines [Member]
Financing Receivable, Recorded Investment [Line Items]
Amount of loans	142,666	216,259	216,572
Commercial Portfolio Segment [Member] | Mortgage Warehouse Lines [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Amount of loans	142,666	216,259	216,572
Commercial Portfolio Segment [Member] | Mortgage Warehouse Lines [Member] | Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
Amount of loans	0	0	0
Commercial Portfolio Segment [Member] | Mortgage Warehouse Lines [Member] | Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Amount of loans	0	0	0
Commercial Portfolio Segment [Member] | Mortgage Warehouse Lines [Member] | Doubtful [Member]
Financing Receivable, Recorded Investment [Line Items]
Amount of loans	0	0	0
Commercial Portfolio Segment [Member] | Mortgage Warehouse Lines [Member] | Loss [Member]
Financing Receivable, Recorded Investment [Line Items]
Amount of loans		0	0
Commercial Portfolio Segment [Member] | Residential Real Estate Loans [Member]
Financing Receivable, Recorded Investment [Line Items]
Amount of loans	41,608	44,791	40,744
Commercial Portfolio Segment [Member] | Residential Real Estate Loans [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Amount of loans	41,076	43,950	39,878
Commercial Portfolio Segment [Member] | Residential Real Estate Loans [Member] | Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
Amount of loans	238	244	260
Commercial Portfolio Segment [Member] | Residential Real Estate Loans [Member] | Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Amount of loans	294	597	606
Commercial Portfolio Segment [Member] | Residential Real Estate Loans [Member] | Doubtful [Member]
Financing Receivable, Recorded Investment [Line Items]
Amount of loans	$ 0	0	0
Commercial Portfolio Segment [Member] | Residential Real Estate Loans [Member] | Loss [Member]
Financing Receivable, Recorded Investment [Line Items]
Amount of loans		$ 0	$ 0

XML

Allowance for Loan Losses and Credit Quality Disclosures (Consumer Loans by Credit Quality Indicators) (Details) - USD ($) $ in Thousands	Mar. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Financing Receivable, Recorded Investment [Line Items]
Amount of loans		$ 723,071	$ 680,895
Loans to Individuals [Member]
Financing Receivable, Recorded Investment [Line Items]
Amount of loans		23,736	23,074
Consumer Portfolio Segment [Member] | Loans to Individuals [Member]
Financing Receivable, Recorded Investment [Line Items]
Amount of loans	$ 23,567	23,736	23,074
Consumer Portfolio Segment [Member] | Other [Member]
Financing Receivable, Recorded Investment [Line Items]
Amount of loans	177	207	233
Consumer Portfolio Segment [Member] | Performing [Member] | Loans to Individuals [Member]
Financing Receivable, Recorded Investment [Line Items]
Amount of loans	23,234	23,375	22,811
Consumer Portfolio Segment [Member] | Performing [Member] | Other [Member]
Financing Receivable, Recorded Investment [Line Items]
Amount of loans	177	207	233
Consumer Portfolio Segment [Member] | Nonperforming [Member] | Loans to Individuals [Member]
Financing Receivable, Recorded Investment [Line Items]
Amount of loans	333	361	263
Consumer Portfolio Segment [Member] | Nonperforming [Member] | Other [Member]
Financing Receivable, Recorded Investment [Line Items]
Amount of loans	$ 0	$ 0	$ 0

XML

Allowance for Loan Losses and Credit Quality Disclosures (Allowance for Loan Losses) (Details) - USD ($) $ in Thousands	3 Months Ended									12 Months Ended
	Mar. 31, 2017	Dec. 31, 2016	Sep. 30, 2016	Jun. 30, 2016	Mar. 31, 2016	Dec. 31, 2015	Sep. 30, 2015	Jun. 30, 2015	Mar. 31, 2015	Dec. 31, 2016	Dec. 31, 2015
Allowance for loan losses:
Beginning balance	$ 7,494			$ 7,302	$ 7,560				$ 6,925	$ 7,560	$ 6,925
(Credit) provision for loan losses	150	$ 0	$ 0	(100)	(200)	$ 500	$ 100	$ 0	500	(300)	1,100
Loans charged off	(101)				(60)					(158)	(491)
Recoveries of loans charged off	7				2					392	26
Ending balance	7,550	7,494			7,302	7,560				7,494	7,560
Ending Balance
Allowance for credit losses: Individually evaluated	674	260				262				260	262
Allowance for credit losses: Collectively evaluated for impairment	6,876	7,234				7,234				7,234	7,234
Loans receivable:
Amount of loans		723,071				680,895				723,071	680,895
Individually evaluated for impairment	10,559	6,036				7,180				6,036	7,180
Collectively evaluated for impairment	665,136	717,651				673,341				717,651	673,341
Deferred loan fees and costs, net	1,075	1,737				1,226				1,737	1,226
Loans	676,411	724,808				682,121				724,808	682,121
Receivables Acquired with Deteriorated Credit Quality [Member]
Allowance for loan losses:
Beginning balance	0				64					64
Ending balance	0	0				64				0	64
Loans receivable:
Loans	716	1,121				1,600				1,121	1,600
Construction Loans [Member]
Loans receivable:
Amount of loans		96,035				93,745				96,035	93,745
Commercial Business [Member]
Loans receivable:
Amount of loans		99,650				99,277				99,650	99,277
Commercial Real Estate [Member]
Loans receivable:
Amount of loans		242,393				207,250				242,393	207,250
Mortgage Warehouse Lines [Member]
Loans receivable:
Amount of loans		216,259				216,572				216,259	216,572
Residential Real Estate Loans [Member]
Loans receivable:
Amount of loans		44,791				40,744				44,791	40,744
Loans to Individuals [Member]
Loans receivable:
Amount of loans		23,736				23,074				23,736	23,074
Commercial Portfolio Segment [Member] | Construction Loans [Member]
Allowance for loan losses:
Beginning balance	1,204			981	1,025				1,215	1,025	1,215
(Credit) provision for loan losses	166				(44)					179	(190)
Loans charged off	0				0					0	0
Recoveries of loans charged off	0				0					0	0
Ending balance	1,370	1,204			981	1,025				1,204	1,025
Ending Balance
Allowance for credit losses: Individually evaluated	8	7				0				7	0
Allowance for credit losses: Collectively evaluated for impairment	1,362	1,197				1,025				1,197	1,025
Loans receivable:
Amount of loans	107,722	96,035				93,745				96,035	93,745
Individually evaluated for impairment	387	391				494				391	494
Collectively evaluated for impairment	107,335	95,644				93,251				95,644	93,251
Commercial Portfolio Segment [Member] | Construction Loans [Member] | Receivables Acquired with Deteriorated Credit Quality [Member]
Allowance for loan losses:
Beginning balance	0				0					0
Ending balance	0	0				0				0	0
Loans receivable:
Amount of loans	0	0				0				0	0
Commercial Portfolio Segment [Member] | Commercial Business [Member]
Allowance for loan losses:
Beginning balance	1,732			1,348	2,005				1,761	2,005	1,761
(Credit) provision for loan losses	88				(657)					(177)	347
Loans charged off	0				0					(97)	(116)
Recoveries of loans charged off	2				0					1	13
Ending balance	1,822	1,732			1,348	2,005				1,732	2,005
Ending Balance
Allowance for credit losses: Individually evaluated	593	101				68				101	68
Allowance for credit losses: Collectively evaluated for impairment	1,229	1,631				1,937				1,631	1,937
Loans receivable:
Amount of loans	101,466	99,650				99,277				99,650	99,277
Individually evaluated for impairment	4,471	947				458				947	458
Collectively evaluated for impairment	96,818	98,512				98,578				98,512	98,578
Commercial Portfolio Segment [Member] | Commercial Business [Member] | Receivables Acquired with Deteriorated Credit Quality [Member]
Allowance for loan losses:
Beginning balance	0				0					0
Ending balance	0	0				0				0	0
Loans receivable:
Amount of loans	177	191				241				191	241
Commercial Portfolio Segment [Member] | Commercial Real Estate [Member]
Allowance for loan losses:
Beginning balance	2,574			3,300	3,049				2,393	3,049	2,393
(Credit) provision for loan losses	56				311					(800)	1,010
Loans charged off	0				(60)					(60)	(361)
Recoveries of loans charged off	4				0					385	7
Ending balance	2,634	2,574			3,300	3,049				2,574	3,049
Ending Balance
Allowance for credit losses: Individually evaluated	73	114				125				114	125
Allowance for credit losses: Collectively evaluated for impairment	2,561	2,460				2,860				2,460	2,860
Loans receivable:
Amount of loans	258,130	242,393				207,250				242,393	207,250
Individually evaluated for impairment	5,130	3,817				4,833				3,817	4,833
Collectively evaluated for impairment	252,461	237,646				201,058				237,646	201,058
Commercial Portfolio Segment [Member] | Commercial Real Estate [Member] | Receivables Acquired with Deteriorated Credit Quality [Member]
Allowance for loan losses:
Beginning balance	0				64					64
Ending balance	0	0				64				0	64
Loans receivable:
Amount of loans	539	930				1,359				930	1,359
Commercial Portfolio Segment [Member] | Mortgage Warehouse Lines [Member]
Allowance for loan losses:
Beginning balance	973			867	866				896	866	896
(Credit) provision for loan losses	(331)				1					107	(30)
Loans charged off	0				0					0	0
Recoveries of loans charged off	0				0					0	0
Ending balance	642	973			867	866				973	866
Ending Balance
Allowance for credit losses: Individually evaluated	0	0				0				0	0
Allowance for credit losses: Collectively evaluated for impairment	642	973				866				973	866
Loans receivable:
Amount of loans	142,666	216,259				216,572				216,259	216,572
Individually evaluated for impairment	0	0				0				0	0
Collectively evaluated for impairment	142,666	216,259				216,572				216,259	216,572
Commercial Portfolio Segment [Member] | Mortgage Warehouse Lines [Member] | Receivables Acquired with Deteriorated Credit Quality [Member]
Allowance for loan losses:
Beginning balance	0				0					0
Ending balance	0	0				0				0	0
Loans receivable:
Amount of loans	0	0				0				0	0
Commercial Portfolio Segment [Member] | Residential Real Estate Loans [Member]
Allowance for loan losses:
Beginning balance	367			192	288				197	288	197
(Credit) provision for loan losses	99				(96)					79	91
Loans charged off	(101)				0					0	0
Recoveries of loans charged off	0				0					0	0
Ending balance	365	367			192	288				367	288
Ending Balance
Allowance for credit losses: Individually evaluated	0	38				69				38	69
Allowance for credit losses: Collectively evaluated for impairment	365	329				219				329	219
Loans receivable:
Amount of loans	41,608	44,791				40,744				44,791	40,744
Individually evaluated for impairment	238	544				1,132				544	1,132
Collectively evaluated for impairment	41,370	44,247				39,612				44,247	39,612
Commercial Portfolio Segment [Member] | Residential Real Estate Loans [Member] | Receivables Acquired with Deteriorated Credit Quality [Member]
Allowance for loan losses:
Beginning balance	0				0					0
Ending balance	0	0				0				0	0
Loans receivable:
Amount of loans	0	0				0				0	0
Consumer Portfolio Segment [Member] | Loans to Individuals [Member]
Allowance for loan losses:
Beginning balance	112			19	109				129	109	129
(Credit) provision for loan losses	9				(92)					(3)	(13)
Loans charged off	0				0					0	(13)
Recoveries of loans charged off	1				2					6	6
Ending balance	122	112			19	109				112	109
Ending Balance
Allowance for credit losses: Individually evaluated	0	0				0				0	0
Allowance for credit losses: Collectively evaluated for impairment	122	112				109				112	109
Loans receivable:
Amount of loans	23,567	23,736				23,074				23,736	23,074
Individually evaluated for impairment	333	337				263				337	263
Collectively evaluated for impairment	23,234	23,399				22,811				23,399	22,811
Consumer Portfolio Segment [Member] | Loans to Individuals [Member] | Receivables Acquired with Deteriorated Credit Quality [Member]
Allowance for loan losses:
Beginning balance	0				0					0
Ending balance	0	0				0				0	0
Loans receivable:
Amount of loans	0	0				0				0	0
Consumer Portfolio Segment [Member] | Other [Member]
Allowance for loan losses:
Beginning balance	0			0	0				2	0	2
(Credit) provision for loan losses	0				0					1	(1)
Loans charged off	0				0					(1)	(1)
Recoveries of loans charged off	0				0
Ending balance	0	0			0	0				0	0
Ending Balance
Allowance for credit losses: Individually evaluated	0	0				0				0	0
Allowance for credit losses: Collectively evaluated for impairment	0	0				0				0	0
Loans receivable:
Amount of loans	177	207				233				207	233
Individually evaluated for impairment	0	0				0				0	0
Collectively evaluated for impairment	177	207				233				207	233
Consumer Portfolio Segment [Member] | Other [Member] | Receivables Acquired with Deteriorated Credit Quality [Member]
Allowance for loan losses:
Beginning balance	0				0					0
Ending balance	0	0				0				0	0
Loans receivable:
Amount of loans	0	0				0				0	0
Unallocated [Member]
Allowance for loan losses:
Beginning balance	532			$ 595	218				$ 332	218	332
(Credit) provision for loan losses	63				377					314	(114)
Loans charged off	0				0					0	0
Recoveries of loans charged off	0				0					0	0
Ending balance	595	532			595	218				532	218
Ending Balance
Allowance for credit losses: Individually evaluated	0	0				0				0	0
Allowance for credit losses: Collectively evaluated for impairment	595	532				218				532	218
Loans receivable:
Amount of loans	0	0				0				0	0
Individually evaluated for impairment	0	0				0				0	0
Collectively evaluated for impairment	0	0				0				0	0
Unallocated [Member] | Receivables Acquired with Deteriorated Credit Quality [Member]
Allowance for loan losses:
Beginning balance	0				$ 0					0
Ending balance	0	0				0				0	0
Loans receivable:
Amount of loans	$ 0	$ 0				$ 0				$ 0	$ 0

XML

Allowance for Loan Losses and Credit Quality Disclosures (Impaired Loans Receivables) (Details) - USD ($) $ in Thousands	3 Months Ended		12 Months Ended
	Mar. 31, 2017	Mar. 31, 2016	Dec. 31, 2016	Dec. 31, 2015
With no related allowance:
Impaired loans with no related allowance, recorded investment	$ 4,071		$ 3,030	$ 4,493
Impaired loans with no related allowance, unpaid principal balance	4,232		3,201	5,135
Impaired loans with no related allowance, average recorded investment	4,375	$ 3,813	3,417	5,036
Impaired loans with no related allowance, interest income recognized	15	31	88	144
With an allowance:
Impaired loans with an allowance, recorded investment	7,204		4,128	4,287
Impaired loans with an allowance, unpaid principal balance	7,204		4,143	4,341
Impaired loans, related allowance	674		260	326
Impaired loans with an allowance, average recorded investment	4,126	4,193	4,092	4,782
Impaired loans with an allowance, interest income recognized	113	5	28	159
Total:
Impaired loans, recorded investment	11,275		7,157	8,780
Outstanding balance	11,436		7,344	9,476
Impaired loans, related allowance	674		260	326
Impaired loans, average recorded investment	8,501	8,006	7,509	9,818
Impaired loans, interest income recognized	128	36	116	303
Commercial Portfolio Segment [Member]
With no related allowance:
Impaired loans with no related allowance, recorded investment	3,500		2,449	3,399
Impaired loans with no related allowance, unpaid principal balance	3,661		2,620	4,024
Impaired loans with no related allowance, average recorded investment	3,800	2,453	2,411	3,967
Impaired loans with no related allowance, interest income recognized	15	31	88	144
With an allowance:
Impaired loans with an allowance, recorded investment	7,204		3,827	3,986
Impaired loans with an allowance, unpaid principal balance	7,204		3,827	4,025
Impaired loans, related allowance	674		222	257
Impaired loans with an allowance, average recorded investment	3,926	3,993	3,892	4,507
Impaired loans with an allowance, interest income recognized	113	5	28	159
Total:
Impaired loans, related allowance	674		222	257
Commercial Portfolio Segment [Member] | Construction Loans [Member]
With no related allowance:
Impaired loans with no related allowance, recorded investment	182		186	494
Impaired loans with no related allowance, unpaid principal balance	182		186	494
Impaired loans with no related allowance, average recorded investment	185	193	260	477
Impaired loans with no related allowance, interest income recognized	0	2	0	27
With an allowance:
Impaired loans with an allowance, recorded investment	205		205	0
Impaired loans with an allowance, unpaid principal balance	205		205	0
Impaired loans, related allowance	8		7	0
Impaired loans with an allowance, average recorded investment	205	0	51	0
Impaired loans with an allowance, interest income recognized	3	0	9	0
Total:
Impaired loans, recorded investment	387		391	494
Outstanding balance	387		391	494
Impaired loans, related allowance	8		7	0
Impaired loans, average recorded investment	390	193	311	477
Impaired loans, interest income recognized	3	2	9	27
Commercial Portfolio Segment [Member] | Commercial Business [Member]
With no related allowance:
Impaired loans with no related allowance, recorded investment	626		883	488
Impaired loans with no related allowance, unpaid principal balance	787		1,054	847
Impaired loans with no related allowance, average recorded investment	794	420	623	492
Impaired loans with no related allowance, interest income recognized	3	4	14	23
With an allowance:
Impaired loans with an allowance, recorded investment	4,022		255	211
Impaired loans with an allowance, unpaid principal balance	4,022		255	237
Impaired loans, related allowance	593		101	68
Impaired loans with an allowance, average recorded investment	1,511	210	238	307
Impaired loans with an allowance, interest income recognized	67	1	0	5
Total:
Impaired loans, recorded investment	4,648		1,138	699
Outstanding balance	4,809		1,309	1,084
Impaired loans, related allowance	593		101	68
Impaired loans, average recorded investment	2,305	630	861	799
Impaired loans, interest income recognized	70	4	14	28
Commercial Portfolio Segment [Member] | Commercial Real Estate [Member]
With no related allowance:
Impaired loans with no related allowance, recorded investment	2,692		1,380	2,417
Impaired loans with no related allowance, unpaid principal balance	2,692		1,380	2,683
Impaired loans with no related allowance, average recorded investment	2,821	1,840	1,528	2,998
Impaired loans with no related allowance, interest income recognized	12	25	74	94
With an allowance:
Impaired loans with an allowance, recorded investment	2,977		3,367	3,775
Impaired loans with an allowance, unpaid principal balance	2,977		3,367	3,788
Impaired loans, related allowance	73		114	189
Impaired loans with an allowance, average recorded investment	2,210	3,783	3,603	4,200
Impaired loans with an allowance, interest income recognized	43	4	19	154
Total:
Impaired loans, recorded investment	5,669		4,747	6,192
Outstanding balance	5,669		4,747	6,471
Impaired loans, related allowance	73		114	189
Impaired loans, average recorded investment	5,031	5,623	5,131	7,198
Impaired loans, interest income recognized	55	30	93	248
Commercial Portfolio Segment [Member] | Mortgage Warehouse Lines [Member]
With no related allowance:
Impaired loans with no related allowance, recorded investment	0		0	0
Impaired loans with no related allowance, unpaid principal balance	0		0	0
Impaired loans with no related allowance, average recorded investment	0	0	0	0
Impaired loans with no related allowance, interest income recognized	0	0	0	0
With an allowance:
Impaired loans with an allowance, recorded investment	0		0	0
Impaired loans with an allowance, unpaid principal balance	0		0	0
Impaired loans, related allowance	0		0	0
Impaired loans with an allowance, average recorded investment	0	0	0	0
Impaired loans with an allowance, interest income recognized	0	0	0	0
Total:
Impaired loans, recorded investment	0		0	0
Outstanding balance	0		0	0
Impaired loans, related allowance	0		0	0
Impaired loans, average recorded investment	0	0	0	0
Impaired loans, interest income recognized	0	0	0	0
Commercial Portfolio Segment [Member] | Residential Real Estate Loans [Member]
With no related allowance:
Impaired loans with no related allowance, recorded investment	238		244	831
Impaired loans with no related allowance, unpaid principal balance	238		244	831
Impaired loans with no related allowance, average recorded investment	240	1,097	725	981
Impaired loans with no related allowance, interest income recognized	0	0	0	0
With an allowance:
Impaired loans with an allowance, recorded investment	0		301	301
Impaired loans with an allowance, unpaid principal balance	0		316	316
Impaired loans, related allowance	0		38	69
Impaired loans with an allowance, average recorded investment	200	200	200	100
Impaired loans with an allowance, interest income recognized	0	0	0	0
Total:
Impaired loans, recorded investment	238		544	1,132
Outstanding balance	238		560	1,147
Impaired loans, related allowance	0		38	69
Impaired loans, average recorded investment	440	1,297	925	1,081
Impaired loans, interest income recognized	0	0	0	0
Consumer Portfolio Segment [Member]
With no related allowance:
Impaired loans with no related allowance, recorded investment	333		337	263
Impaired loans with no related allowance, unpaid principal balance	333		337	280
Impaired loans with no related allowance, average recorded investment	335	263	281	88
Impaired loans with no related allowance, interest income recognized	0	0	0	0
With an allowance:
Impaired loans with an allowance, recorded investment	0		0	0
Impaired loans with an allowance, unpaid principal balance	0		0	0
Impaired loans, related allowance	0		0	0
Impaired loans with an allowance, average recorded investment	0	0	0	175
Impaired loans with an allowance, interest income recognized	0	0	0	0
Total:
Impaired loans, recorded investment	333		337	263
Outstanding balance	333		337	280
Impaired loans, related allowance	0		0	0
Impaired loans, average recorded investment	335	263	281	263
Impaired loans, interest income recognized	0	0	0	0
Consumer Portfolio Segment [Member] | Loans to Individuals [Member]
With no related allowance:
Impaired loans with no related allowance, recorded investment	333		337	263
Impaired loans with no related allowance, unpaid principal balance	333		337	280
Impaired loans with no related allowance, average recorded investment	335	263	281	88
Impaired loans with no related allowance, interest income recognized	0	0	0	0
With an allowance:
Impaired loans with an allowance, recorded investment	0		0	0
Impaired loans with an allowance, unpaid principal balance	0		0	0
Impaired loans, related allowance	0		0	0
Impaired loans with an allowance, average recorded investment	0	0	0	175
Impaired loans with an allowance, interest income recognized	0	0	0	0
Total:
Impaired loans, related allowance	0		0	0
Consumer Portfolio Segment [Member] | Other [Member]
With no related allowance:
Impaired loans with no related allowance, recorded investment	0		0	0
Impaired loans with no related allowance, unpaid principal balance	0		0	0
Impaired loans with no related allowance, average recorded investment	0	0	0	0
Impaired loans with no related allowance, interest income recognized	0	0	0	0
With an allowance:
Impaired loans with an allowance, recorded investment	0		0	0
Impaired loans with an allowance, unpaid principal balance	0		0	0
Impaired loans, related allowance	0		0	0
Impaired loans with an allowance, average recorded investment	0	0	0	0
Impaired loans with an allowance, interest income recognized	0	$ 0	0	0
Total:
Impaired loans, related allowance	$ 0		$ 0	$ 0

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Allowance for Loan Losses and Credit Quality Disclosures (Acquired Credit Impaired Loans) (Details) - USD ($) $ in Thousands	Mar. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Financing Receivable, Impaired [Line Items]
Outstanding balance	$ 11,436	$ 7,344	$ 9,476
Receivables Acquired with Deteriorated Credit Quality [Member]
Financing Receivable, Impaired [Line Items]
Outstanding balance	1,056	1,470	1,964
Carrying amount	$ 716	$ 1,121	$ 1,600

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Allowance for Loan Losses and Credit Quality Disclosures (Changes in Accretable Discount for Acquired Credit Impaired Loans) (Details) - USD ($) $ in Thousands	3 Months Ended		12 Months Ended
	Mar. 31, 2017	Mar. 31, 2016	Dec. 31, 2016	Dec. 31, 2015
Certain Loans Acquired in Transfer Accounted for as Debt Securities, Accretable Yield Movement Schedule [Roll Forward]
Balance at beginning of year	$ 30	$ 73	$ 73	$ 135
Acquisition of impaired loans	0	0	0	0
Accretion of discount	(7)	(21)	(43)	(62)
Balance at end of year	$ 23	$ 52	30	73
Non-accretable difference at end of year			$ 215	$ 215

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Allowance for Loan Losses and Credit Quality Disclosures (Estimate of the Remaining Accretable Discount) (Details) - USD ($) $ in Thousands	Mar. 31, 2017	Dec. 31, 2016	Mar. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Receivables [Abstract]
2017		$ 22
2018		8
Thereafter		0
Total	$ 23	$ 30	$ 52	$ 73	$ 135

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Allowance for Loan Losses and Credit Quality Disclosures (Consumer Mortgage Loans Secured by Residential Real Estate in Process of Foreclosure) (Details) $ in Thousands	3 Months Ended	12 Months Ended
	Mar. 31, 2017 USD ($) loan	Dec. 31, 2016 USD ($) loan	Dec. 31, 2015 USD ($) loan
Receivables [Abstract]
Number of loans | loan	3	3	5
Recorded Investment | $	$ 517	$ 524	$ 1,008

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Allowance for Loan Losses and Credit Quality Disclosures (Troubled Debt Restructurings) (Details) $ in Thousands	3 Months Ended		12 Months Ended
	Mar. 31, 2017 USD ($) loan	Mar. 31, 2016 loan	Dec. 31, 2016 USD ($) contract	Dec. 31, 2015 USD ($) contract
Financing Receivable, Modifications [Line Items]
Number of Contracts | loan	1	0
Pre-Modification Outstanding Recorded Investment	$ 2,300
Commercial Portfolio Segment [Member]
Financing Receivable, Modifications [Line Items]
Number of Contracts | contract			1	1
Pre-Modification Outstanding Recorded Investment			$ 458	$ 288
Post-Modification Outstanding Recorded Investment			$ 458	$ 288

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Related Parties (Activity in Loans to Related Parties) (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015
Loans and Leases Receivable, Related Parties [Roll Forward]
Balance, beginning of year	$ 870	$ 1,376
Loans granted	751	16
Repayments of loans	(264)	(522)
Balance, end of year	1,357	870
Related party deposits	$ 14,900	$ 9,000

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Premises and Equipment (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2016	Mar. 31, 2017	Dec. 31, 2015
Property, Plant and Equipment [Line Items]
Premises and equipment	$ 20,642		$ 20,185
Less: Accumulated depreciation	(9,969)		(9,076)
Premises and Equipment, Net	10,673	$ 10,634	11,109
Land [Member]
Property, Plant and Equipment [Line Items]
Premises and equipment	$ 1,798		1,798
Building [Member]
Property, Plant and Equipment [Line Items]
Estimated Useful Lives	40 years
Premises and equipment	$ 8,083		8,083
Leasehold Improvements [Member]
Property, Plant and Equipment [Line Items]
Premises and equipment	$ 5,864		5,762
Leasehold Improvements [Member] | Minimum [Member]
Property, Plant and Equipment [Line Items]
Estimated Useful Lives	3 years
Leasehold Improvements [Member] | Maximum [Member]
Property, Plant and Equipment [Line Items]
Estimated Useful Lives	10 years
Furniture, Fixtures and Equipment [Member]
Property, Plant and Equipment [Line Items]
Premises and equipment	$ 4,897		$ 4,542
Furniture, Fixtures and Equipment [Member] | Minimum [Member]
Property, Plant and Equipment [Line Items]
Estimated Useful Lives	3 years
Furniture, Fixtures and Equipment [Member] | Maximum [Member]
Property, Plant and Equipment [Line Items]
Estimated Useful Lives	15 years

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Premises and Equipment (Narrative) (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015
Property, Plant and Equipment [Abstract]
Depreciation expense	$ 893	$ 1,000

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Other Real Estate Owned ("OREO") (Activity Related to Other Real Estate Owned) (Details) - USD ($) $ in Thousands	3 Months Ended		12 Months Ended
	Mar. 31, 2017	Mar. 31, 2016	Dec. 31, 2016	Dec. 31, 2015
Real Estate Owned [Roll Forward]
Balance, beginning of year	$ 166	$ 966	$ 966	$ 5,710
Transfers into real estate owned	265	$ 142	141	2,357
Transfers to other assets			0	0
Sale of real estate owned			(1,033)	(6,027)
Gain (loss) on sale of real estate owned			31	(692)
Increase (decrease) in carrying amount of real estate owned			61	(382)
Balance, end of year	$ 431		$ 166	$ 966

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Other Real Estate Owned ("OREO") (Details) - property	Dec. 31, 2016	Dec. 31, 2015
Real Estate [Abstract]
Number of properties	1	1

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Goodwill and Intangible Assets (Schedule of Goodwill and Intangible Assets) (Details) - USD ($) $ in Thousands	Mar. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Goodwill and Intangible Assets Disclosure [Abstract]
Goodwill		$ 11,854	$ 11,854
Core deposits intangible		1,026	1,430
Total	$ 12,792	$ 12,880	$ 13,284

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Goodwill and Intangible Assets (Narrative) (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015
Goodwill and Intangible Assets Disclosure [Abstract]
Amortization of intangible assets	$ 404	$ 428

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Goodwill and Intangible Assets (Scheduled Amortization) (Details) - USD ($) $ in Thousands	Dec. 31, 2016	Dec. 31, 2015
Goodwill and Intangible Assets Disclosure [Abstract]
2017	$ 384
2018	305
2019	110
2020	88
2021	67
Thereafter	72
Core deposits intangible	$ 1,026	$ 1,430

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Deposits (Schedule of Deposits) (Details) - USD ($) $ in Thousands	Mar. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Banking and Thrift [Abstract]
Non-interest bearing	$ 184,210	$ 170,854	$ 159,918
Interest bearing		310,103	284,547
Savings		205,294	196,324
Certificates of deposit		148,265	145,968
Total deposits	$ 868,820	834,516	786,757
Certificates of deposit greater than $250,000		$ 23,900	$ 24,300

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Deposits (Maturities of Time Deposits) (Details) - USD ($) $ in Thousands	Dec. 31, 2016	Dec. 31, 2015
Banking and Thrift [Abstract]
2017	$ 86,079
2018	35,752
2019	8,050
2020	6,161
2021	12,223
Time Deposits	$ 148,265	$ 145,968

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Borrowings (Details) $ in Millions	Dec. 31, 2016 USD ($) advance	Dec. 31, 2015 USD ($) advance	Feb. 07, 2014 USD ($) advance
Federal Home Loan Bank, Advances [Line Items]
Balance of borrowings	$ 73.1	$ 58.9
Number of advances | advance	1	3
Total amount of FHLB advances	$ 10.0	$ 20.3
Federal Home Loan Bank, Advances, Convertible Option [Member]
Federal Home Loan Bank, Advances [Line Items]
Interest rate percentage	4.08%
Amount of fixed rate convertible advance	$ 10.0
Rumson Fair Haven Bank and Trust Company [Member]
Federal Home Loan Bank, Advances [Line Items]
Number of advances | advance			2
Total amount of advances assumed as a result of the RFHB merger			$ 10.0
Amount of premium			$ 1.0
Combined carrying amount		10.3
Rumson Fair Haven Bank and Trust Company [Member] | Weighted Average [Member]
Federal Home Loan Bank, Advances [Line Items]
Interest rate percentage			4.50%
Overnight Funds [Member]
Federal Home Loan Bank, Advances [Line Items]
Overnight funds purchased	$ 63.1	$ 38.6

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Redeemable Subordinated Debentures (Details) $ in Thousands	12 Months Ended
	Dec. 31, 2016 USD ($) financial_institution
Subordinated Borrowing [Line Items]
Amount of trust preferred securities	$ 18,000
Amount invested in Trust II	557
Amount of floating rate junior subordinated debentures	$ 18,557
Interest rate at period end	2.61344%
Number of financial institution holding companies | financial_institution	50
London Interbank Offered Rate (LIBOR) [Member]
Subordinated Borrowing [Line Items]
Basis point spread on floating interest rate	1.65%

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Income Taxes (Schedule of Components of Income Tax Expense (Benefit)) (Details) - USD ($) $ in Thousands	3 Months Ended									12 Months Ended
	Mar. 31, 2017	Dec. 31, 2016	Sep. 30, 2016	Jun. 30, 2016	Mar. 31, 2016	Dec. 31, 2015	Sep. 30, 2015	Jun. 30, 2015	Mar. 31, 2015	Dec. 31, 2016	Dec. 31, 2015
Federal:
Current										$ 3,360	$ 3,199
Deferred										269	8
Federal income tax expense (benefit)										3,629	3,207
State:
Current										909	704
Deferred										85	151
State income tax expense (benefit)										994	855
Income tax expense (benefit)	$ 852	$ 1,006	$ 1,456	$ 1,113	$ 1,048	$ 747	$ 1,148	$ 1,112	$ 1,055	$ 4,623	$ 4,062

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Income Taxes (Income Tax Rate Reconciliation) (Details) - USD ($) $ in Thousands	3 Months Ended									12 Months Ended
	Mar. 31, 2017	Dec. 31, 2016	Sep. 30, 2016	Jun. 30, 2016	Mar. 31, 2016	Dec. 31, 2015	Sep. 30, 2015	Jun. 30, 2015	Mar. 31, 2015	Dec. 31, 2016	Dec. 31, 2015
Income Tax Disclosure [Abstract]
Federal income tax										$ 4,729	$ 4,327
Add (deduct) effect of:
State income taxes net of federal income tax effect										656	564
Tax-exempt interest income										(706)	(724)
Bank-owned life insurance										(187)	(203)
Other items, net										131	98
Income tax expense (benefit)	$ 852	$ 1,006	$ 1,456	$ 1,113	$ 1,048	$ 747	$ 1,148	$ 1,112	$ 1,055	$ 4,623	$ 4,062

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Income Taxes (Deferred Tax Assets and Liabilities) (Details) - USD ($) $ in Thousands	Dec. 31, 2016	Dec. 31, 2015
Deferred tax assets (liabilities):
Allowance for loan losses	$ 2,993	$ 3,020
Unrealized loss (gain) on securities available for sale	130	(113)
Supplemental executive retirement plan liability	1,886	2,060
Other than temporary impairment loss	170	170
Depreciation	802	482
Non-accrual interest	313	231
Pension liability	(44)	(75)
Other	262	324
Acquisition accounting adjustments	(52)	441
Net deferred tax assets, included in other assets	$ 6,460	$ 6,540

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Comprehensive Income and Accumulated Other Comprehensive Income (Details) - Components of Accumulated Other Comprehensive Income (Loss) - USD ($) $ in Thousands	Mar. 31, 2017	Dec. 31, 2016	Mar. 31, 2016	Dec. 31, 2015
AOCI Attributable to Parent [Abstract]
Before-Tax Amount	$ (776)	$ (856)	$ 381	$ (112)
Income Tax Effect	227	256	(196)	(18)
Net-of-Tax Amount	(549)	(600)	185	(130)
Unrealized holding (losses) gains on available for sale securities [Member]
AOCI Attributable to Parent [Abstract]
Before-Tax Amount	(283)	(464)		203
Income Tax Effect	61	130		(113)
Net-of-Tax Amount	(222)	(334)		90
Before-Tax Amount	(365)	(464)	722	203
Income Tax Effect	94	130	(302)	(113)
Net-of-Tax Amount	(271)	(334)	420	90
Unrealized holding (losses) gains on available for sale securities [Member] | Reclassification out of Accumulated Other Comprehensive Income [Member]
AOCI Attributable to Parent [Abstract]
Before-Tax Amount	(82)	0		0
Income Tax Effect	33	0		0
Net-of-Tax Amount	(49)	0		0
Unrealized impairment (loss) on held to maturity security [Member]
AOCI Attributable to Parent [Abstract]
Before-Tax Amount	(501)	(501)	(501)	(501)
Income Tax Effect	170	170	170	170
Net-of-Tax Amount	(331)	(331)	(331)	(331)
Unfunded pension liability [Member]
AOCI Attributable to Parent [Abstract]
Before-Tax Amount		269		452
Income Tax Effect		(108)		(181)
Net-of-Tax Amount		161		271
Before-Tax Amount		109		186
Income Tax Effect		(44)		(75)
Net-of-Tax Amount		65		111
Unfunded pension liability [Member] | Reclassification out of Accumulated Other Comprehensive Income [Member]
AOCI Attributable to Parent [Abstract]
Before-Tax Amount		(160)		(266)
Income Tax Effect		64		106
Net-of-Tax Amount		$ (96)		$ (160)
Plan actuarial gains (losses) included in other comprehensive income [Member]
AOCI Attributable to Parent [Abstract]
Before-Tax Amount	90		160
Income Tax Effect	(37)		(64)
Net-of-Tax Amount	$ 53		$ 96

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Comprehensive Income and Accumulated Other Comprehensive Income (Details) - Changes in the Components of AOCI - USD ($) $ in Thousands	3 Months Ended		12 Months Ended
	Mar. 31, 2017	Mar. 31, 2016	Dec. 31, 2016	Dec. 31, 2015
AOCI Attributable to Parent, Net of Tax [Roll Forward]
Balance, beginning of period	$ 104,801	$ 95,960	$ 95,960	$ 87,110
Reclassification adjustment for (gains) realized in income	49	0
Total other comprehensive (loss) income	51	315	(470)	(378)
Balance, end of period	106,635	98,643	104,801	95,960
Accumulated Other Comprehensive Income (Loss) [Member]
AOCI Attributable to Parent, Net of Tax [Roll Forward]
Balance, beginning of period	(600)	(130)	(130)	248
Other comprehensive income (loss) before reclassifications	112	330	(372)	(218)
Amounts reclassified from accumulated other comprehensive income (loss)	(12)	(15)	(98)	(160)
Reclassification adjustment for (gains) realized in income	49
Total other comprehensive (loss) income	51	315	(470)	(378)
Balance, end of period	(549)	185	(600)	(130)
Unrealized Holding (Losses) Gains on Available for Sale Securities [Member]
AOCI Attributable to Parent, Net of Tax [Roll Forward]
Balance, beginning of period	(334)	90	90	276
Other comprehensive income (loss) before reclassifications	112	330	(424)	(186)
Amounts reclassified from accumulated other comprehensive income (loss)	0	0	0	0
Reclassification adjustment for (gains) realized in income	49
Total other comprehensive (loss) income	63	330	(424)	(186)
Balance, end of period	(271)	420	(334)	90
Unrealized Impairment Loss On Held to Maturity Security [Member]
AOCI Attributable to Parent, Net of Tax [Roll Forward]
Balance, beginning of period	(331)	(331)	(331)	(331)
Other comprehensive income (loss) before reclassifications	0	0	0	0
Amounts reclassified from accumulated other comprehensive income (loss)	0	0	0	0
Reclassification adjustment for (gains) realized in income	0
Total other comprehensive (loss) income	0	0	0	0
Balance, end of period	(331)	(331)	(331)	(331)
Unfunded Pension Liability [Member]
AOCI Attributable to Parent, Net of Tax [Roll Forward]
Balance, beginning of period	65	111	111	303
Other comprehensive income (loss) before reclassifications	0	0	52	(32)
Amounts reclassified from accumulated other comprehensive income (loss)	(12)	(15)	(98)	(160)
Reclassification adjustment for (gains) realized in income	0
Total other comprehensive (loss) income	(12)	(15)	(46)	(192)
Balance, end of period	$ 53	$ 96	$ 65	$ 111

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Benefit Plans (Details) - USD ($) $ in Thousands	3 Months Ended		12 Months Ended
	Mar. 31, 2017	Mar. 31, 2016	Dec. 31, 2016	Dec. 31, 2015
Compensation and Retirement Disclosure [Abstract]
Matching contribution percentage			50.00%	50.00%
Maximum contribution as a percentage of base compensation			6.00%	6.00%
Employer contributions			$ 272	$ 274
Defined Benefit Plans and Other Postretirement Benefit Plans Table Text Block [Line Items]
Service period	6 months
Present value of benefits accrued under plans			4,722	5,157
Compensation expense	$ 59	$ 61	235	184
Cash surrender value of policies	$ 22,300		22,200	21,600
Net periodic benefit cost projected to be recognized in net periodic benefit expense during 2017			184
Actuarial gains to be recognized as a component of net periodic benefit expense			109
Supplemental Employee Retirement Plan [Member]
Defined Benefit Plans and Other Postretirement Benefit Plans Table Text Block [Line Items]
Present value of benefits accrued under plans			$ 4,700	$ 5,200
Minimum [Member]
Defined Benefit Plans and Other Postretirement Benefit Plans Table Text Block [Line Items]
Service period			6 months

XML

Benefit Plans (Changes in Benefit Obligations) (Details) - USD ($) $ in Thousands	3 Months Ended		12 Months Ended
	Mar. 31, 2017	Mar. 31, 2016	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2016	Dec. 31, 2015
Change in Benefit Obligation
Beginning January 1	$ 4,613	$ 4,971	$ 4,971	$ 4,511
Service cost	33	49	216	267
Interest cost	45	38	179	183
Actuarial (gain) loss			(83)	53
Benefits paid			(670)	(43)
Ending December 31			4,613	4,971
Amount Recognized in Consolidated Balance Sheets
Liability for pension					$ 4,722	$ 5,157
Net actuarial gain included in accumulated other comprehensive income					(109)	(186)
Prior service cost included in accumulated other comprehensive income					0	0
Net recognized pension liability	4,613	4,971	4,971	4,511	4,613	4,971
Information for pension plans with an accumulated benefit obligation in excess of plan assets
Projected benefit obligation	$ 4,613	$ 4,971	$ 4,971	$ 4,511	4,613	4,971
Accumulated benefit obligation					$ 4,463	$ 4,699

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Benefit Plans (Net Periodic Benefit Cost) (Details) - USD ($) $ in Thousands	3 Months Ended		12 Months Ended
	Mar. 31, 2017	Mar. 31, 2016	Dec. 31, 2016	Dec. 31, 2015
Compensation and Retirement Disclosure [Abstract]
Service cost	$ 33	$ 49	$ 216	$ 267
Interest cost	45	38	179	183
Amortization of prior service cost			0	0
Recognized net actuarial gain	(19)	(26)	(160)	(266)
Net periodic benefit expense	$ 59	$ 61	$ 235	$ 184

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Benefit Plans (Weighted-Average Assumptions) (Details)	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015
Compensation and Retirement Disclosure [Abstract]
Discount Rate (percentage)	4.00%	4.00%
Salary Scale (percentage)	4.00%	4.00%

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Benefit Plans (Expected Benefit Payments) (Details) $ in Thousands	Dec. 31, 2016 USD ($)	[1]
Compensation and Retirement Disclosure [Abstract]
2017	$ 4,906
2018	0
2019	0
2020	0
2021	0
2022-2026	$ 0

[1] Represents management’s expectation as of December 31, 2016 as to when such payments will be made.

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Share-Based Compensation (Details) - USD ($)	3 Months Ended		12 Months Ended
	Mar. 31, 2017	Mar. 31, 2016	Dec. 31, 2016	Dec. 31, 2015
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of shares authorized for grant	485,873		485,873
Shares of common stock available for future grants	162,953		196,175
Stock based compensation expense	$ 11,000	$ 11,000	$ 44,000	$ 41,000
Number shares exercised	3,019		18,645	43,639
Total intrinsic value of options exercised			$ 125,000	$ 176,000
Unrecognized compensation cost related to non-vested stock-option based compensation arrangements	$ 124,000		$ 75,300
Period that cost is expected to be recognized	4 years
Employees At or Over Retirement Age [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Employee service share-based compensation, retirement age	65 years
Percentage Vested Upon Retirement [Member] | Employees At or Over Retirement Age [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Award vesting rights, percentage	100.00%
2013 Equity Incentive Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Shares of common stock available for future grants			156,465
2015 Directors Stock Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Shares of common stock available for future grants			39,710
Employee Stock Option [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Period that cost is expected to be recognized			4 years
Employee Stock Option [Member] | Maximum [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Term of stock options	10 years		10 years
Restricted Stock [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock based compensation expense	$ 188,000	$ 159,000	$ 710,000	$ 590,000
Period that cost is expected to be recognized			3 years
Vesting period			4 years
Unrecognized compensation cost	$ 1,700,000		$ 1,400,000
Restricted Stock [Member] | Director [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Period that cost is expected to be recognized	2 years
Vesting period	2 years
Restricted Stock [Member] | Employees [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Vesting period	4 years

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Share-Based Compensation (Share-based Compensation Activity) (Details) - USD ($)	3 Months Ended	12 Months Ended
	Mar. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding [Roll Forward]
Outstanding (in Shares)	165,801	177,594	246,880
Granted (in Shares)	9,900	11,655	13,892
Exercised (in Shares)	(3,019)	(18,645)	(43,639)
Forfeited (in Shares)	0	(4,648)	(27,788)
Expired (in Shares)	0	(155)	(11,751)
Outstanding (in Shares)	172,682	165,801	177,594
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Exercise Price [Abstract]
Outstanding, weighted average exercise price (in dollars per share)	$ 7.35	$ 7.41	$ 7.80
Granted, weighted average exercise price (in dollars per share)	18.65	11.98	10.10
Exercised, weighted average exercise price (in dollars per share)	6.57	9.79	6.68
Forfeited, weighted average exercise price (in dollars per share)	0.00	11.60	10.55
Expired, weighted average exercise price (in dollars per share)	0.00	11.85	11.89
Outstanding, weighted average exercise price (in dollars per share)	$ 8.01	$ 7.35	$ 7.41
Outstanding, weighted average remaining contractual term	5 years	5 years 2 months 12 days	5 years 2 months 12 days
Outstanding, aggregate intrinsic value	$ 1,802,000	$ 1,881,841	$ 861,000
Number of Shares, Exercisable at December 31, 2016	139,660	146,067
Weighted Average Exercise Price, Exercisable at December 31, 2016 (in dollars per share)	$ 6.91	$ 7.27
Weighted Average Remaining Contractual Term (years), Exercisable at December 31, 2016	4 years 2 months 24 days	5 years
Aggregate Intrinsic Value, Exercisable at December 31, 2016	$ 1,612,000	$ 1,669,569

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Share-Based Compensation (Stock Options Outstanding and Exercisable) (Details) - $ / shares	3 Months Ended	12 Months Ended
	Mar. 31, 2017	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Outstanding options (in Shares)	172,682	165,801	177,594	246,880
Outstanding options, average life in years		5 years 2 months 12 days
Outstanding options, average exercise price (in dollars per share)		$ 7.35
Exercisable options (in Shares)	139,660	146,067
Exercisable options, average life in years	4 years 2 months 24 days	5 years
Exercisable options, average exercise price (in dollars per share)		$ 7.27
$5.54 to $5.63 [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Exercise price range, lower limit (in dollars per share)		5.54
Exercise price range, upper limit (in dollars per share)		$ 5.63
Outstanding options (in Shares)		55,106
Outstanding options, average life in years		4 years 9 months 18 days
Outstanding options, average exercise price (in dollars per share)		$ 5.60
Exercisable options (in Shares)		48,339
Exercisable options, average life in years		4 years 9 months 18 days
Exercisable options, average exercise price (in dollars per share)		$ 5.59
$6.16 to $7.46 [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Exercise price range, lower limit (in dollars per share)		6.16
Exercise price range, upper limit (in dollars per share)		$ 7.46
Outstanding options (in Shares)		69,990
Outstanding options, average life in years		4 years 9 months 18 days
Outstanding options, average exercise price (in dollars per share)		$ 6.95
Exercisable options (in Shares)		66,774
Exercisable options, average life in years		4 years 8 months 12 days
Exercisable options, average exercise price (in dollars per share)		$ 6.94
$9.30 to $11.98 [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Exercise price range, lower limit (in dollars per share)		9.30
Exercise price range, upper limit (in dollars per share)		$ 11.98
Outstanding options (in Shares)		40,705
Outstanding options, average life in years		6 years 3 months 18 days
Outstanding options, average exercise price (in dollars per share)		$ 10.40
Exercisable options (in Shares)		30,954
Exercisable options, average life in years		6 years
Exercisable options, average exercise price (in dollars per share)		$ 10.60

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Share-Based Compensation (Significant Weighted Average Assumptions Used to Calculate Fair Value of Options Granted) (Details) - $ / shares	3 Months Ended		12 Months Ended
	Mar. 31, 2017		Dec. 31, 2016		Dec. 31, 2015
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]
Fair value of options granted (in dollars per share)	$ 6.05		$ 4.65		$ 4.05
Risk-free rate of return (percentage)	2.45%		2.25%		1.37%
Expected option life in years	7 years		7 years		7 years
Expected volatility (percentage)	31.25%		30.66%		32.37%
Expected dividends (percentage)	1.19%	[1]	0.00%	[2]	0.00%	[2]

[1] The Company declared its first cash dividend on September 15, 2016.

[2] Subsequent to the granting of stock options in 2016, the Company paid its first cash dividend on October 21, 2016.

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Share-Based Compensation (Restricted Stock Activity) (Details) - $ / shares	3 Months Ended	12 Months Ended
	Mar. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Number of Shares [Roll Forward]
Non-vested (in shares)	143,259
Granted (in shares)	28,300
Vested (in shares)	(22,710)
Forfeited (in shares)	0
Non-vested (in shares)	148,849	143,259
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Weighted Average Grant Date Fair Value [Abstract]
Non-vested, average grant-date fair value (in dollars per share)	$ 9.02
Granted, average grant-date fair value (in dollars per share)	18.65
Vested, average grant-date fair value (in dollars per share)	10.83
Forfeited, average grant-date fair value (in dollars per share)	0.00
Non-vested, average grant-date fair value (in dollars per share)	$ 9.90	$ 9.02
Restricted Stock [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Number of Shares [Roll Forward]
Non-vested (in shares)	143,259	143,879	148,634
Granted (in shares)		76,450	70,515
Vested (in shares)		(74,070)	(60,930)
Forfeited (in shares)		(3,000)	(14,340)
Non-vested (in shares)		143,259	143,879
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Weighted Average Grant Date Fair Value [Abstract]
Non-vested, average grant-date fair value (in dollars per share)	$ 9.02	$ 8.32	$ 7.16
Granted, average grant-date fair value (in dollars per share)		12.31	10.66
Vested, average grant-date fair value (in dollars per share)		10.91	8.99
Forfeited, average grant-date fair value (in dollars per share)		12.69	8.61
Non-vested, average grant-date fair value (in dollars per share)		$ 9.02	$ 8.32

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Commitments and Contingencies (Future Minimum Rental Payments for Operating Leases) (Details) $ in Thousands	Dec. 31, 2016 USD ($)
Commitments and Contingencies Disclosure [Abstract]
2017	$ 1,331
2018	1,099
2019	957
2020	750
2021	658
Thereafter	2,449
Future minimum rental payments under non-cancelable operating leases	$ 7,244

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Commitments and Contingencies (Narrative) (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015
Commitments and Contingencies Disclosure [Abstract]
Rent expense	$ 1,500	$ 1,500
Amount committed to advance to borrowers	372,700	290,900
Maximum potential future payments under standby letters of credit	2,000	2,100
Forward sales commitments [Member]
Derivative [Line Items]
Notional amount of forward sales commitments	8,300	$ 16,900
Fair value of forward sales commitments and the related loan origination commitments	$ 123

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Other Operating Expenses (Components of Other Operating Expenses) (Details) - USD ($) $ in Thousands	3 Months Ended		12 Months Ended
	Mar. 31, 2017	Mar. 31, 2016	Dec. 31, 2016	Dec. 31, 2015
Other Income and Expenses [Abstract]
Marketing			$ 240	$ 282
Equipment			555	839
Telephone			377	449
Regulatory, professional and other consulting fees			1,706	1,681
Insurance			303	324
Amortization of intangible assets			404	428
Other expenses			1,358	1,152
Other operating expenses	$ 1,834	$ 1,287	$ 4,943	$ 5,155

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Regulatory Capital Requirements (Compliance With Regulatory Capital Requirements Under Banking Regulations) (Details) - USD ($) $ in Thousands	Dec. 31, 2016	Dec. 31, 2015
Compliance with Regulatory Capital Requirements under Banking Regulations [Line Items]
Common equity Tier 1 (CETI), actual amount (in Dollars)	$ 93,101	$ 83,994
Common equity Tier 1 (CETI), actual ratio	10.40%	10.03%
Common equity Tier 1 (CETI), amount for capital adequacy purposes (in Dollars)	$ 40,302	$ 37,628
Common equity Tier 1 (CETI), ratio for capital adequacy purposes	4.50%	4.50%
Total Capital to Risk Weighted Assets, actual amount (in Dollars)	$ 118,595	$ 109,554
Total Capital to Risk Weighted Assets, actual ratio	13.24%	13.08%
Total Capital to Risk Weighted Assets, amount for capital adequacy purposes (in Dollars)	$ 71,648	$ 66,894
Total Capital to Risk Weighted Assets, ratio for capital adequacy purposes	8.00%	8.00%
Tier I Capital to Risk Weighted Assets, actual amount (in Dollars)	$ 111,101	$ 101,994
Tier I Capital to Risk Weighted Assets, actual ratio	12.41%	12.18%
Tier I Capital to Risk Weighted Assets, amount for capital adequacy purposes (in Dollars)	$ 53,736	$ 50,170
Tier I Capital to Risk Weighted Assets, ratio for capital adequacy purposes	6.00%	4.00%
Tier I Leverage Capital, actual amount (in Dollars)	$ 111,101	$ 101,994
Tier I Leverage Capital, actual ratio	10.93%	10.80%
Tier I Leverage Capital, amount for capital adequacy purposes (in Dollars)	$ 40,658	$ 37,765
Tier I Leverage Capital, ratio for capital adequacy purposes	4.00%	4.00%
Bank [Member]
Compliance with Regulatory Capital Requirements under Banking Regulations [Line Items]
Common equity Tier 1 (CETI), actual amount (in Dollars)	$ 108,606	$ 99,631
Common equity Tier 1 (CETI), actual ratio	12.13%	11.90%
Common equity Tier 1 (CETI), amount for capital adequacy purposes (in Dollars)	$ 40,302	$ 37,628
Common equity Tier 1 (CETI), ratio for capital adequacy purposes	4.50%
Common equity Tier 1 (CETI), amount to be well capitalized under prompt corrective action provisions (in Dollars)	$ 58,214	$ 54,431
Common equity Tier 1 (CETI, ratio to be well capitalized under prompt corrective action provisions	6.50%	6.50%
Total Capital to Risk Weighted Assets, actual amount (in Dollars)	$ 116,100	$ 107,191
Total Capital to Risk Weighted Assets, actual ratio	12.96%	12.80%
Total Capital to Risk Weighted Assets, amount for capital adequacy purposes (in Dollars)	$ 71,648	$ 66,894
Total Capital to Risk Weighted Assets, ratio for capital adequacy purposes	8.00%	8.00%
Total Capital to Risk Weighted Assets, amount to be well capitalized under prompt corrective action provisions (in Dollars)	$ 89,560	$ 83,739
Total Capital to Risk Weighted Assets, ratio to be well capitalized under prompt corrective action provisions	10.00%	10.00%
Tier I Capital to Risk Weighted Assets, actual amount (in Dollars)	$ 108,606	$ 99,631
Tier I Capital to Risk Weighted Assets, actual ratio	12.13%	11.90%
Tier I Capital to Risk Weighted Assets, amount for capital adequacy purposes (in Dollars)	$ 53,736	$ 50,170
Tier I Capital to Risk Weighted Assets, ratio for capital adequacy purposes	6.00%	4.00%
Tier I Capital to Risk Weighted Assets, amount to be well capitalized under prompt corrective action provisions (in Dollars)	$ 71,648	$ 66,991
Tier I Capital to Risk Weighted Assets, ratio to be well capitalized under prompt corrective action provisions	8.00%	6.00%
Tier I Leverage Capital, actual amount (in Dollars)	$ 108,606	$ 99,631
Tier I Leverage Capital, actual ratio	10.68%	10.55%
Tier I Leverage Capital, amount for capital adequacy purposes (in Dollars)	$ 40,658	$ 37,765
Tier I Leverage Capital, ratio for capital adequacy purposes	4.00%	4.00%
Tier I Leverage Capital, amount to be well capitalized under prompt corrective action provisions (in Dollars)	$ 50,823	$ 47,211
Tier I Leverage Capital, ratio to be well capitalized under prompt corrective action provisions	5.00%	5.00%

XML

Shareholders' Equity (Details) - USD ($) $ / shares in Units, $ in Thousands		12 Months Ended
	Jan. 21, 2016	Dec. 31, 2016	Dec. 31, 2015
Class of Stock [Line Items]
Number or new warrants		2
Number of shares repurchased		2,000	31,050
Cost to repurchase shares (in Dollars)		$ 24	$ 359
Percentage of common shares outstanding authorized to be repurchased	5.00%
Series B Preferred Stock [Member]
Class of Stock [Line Items]
Shares of stock of the company permitted to acquire upon exchange of warrants		283,572
Price of common stock upon exchange of warrants (in Dollars per share)		$ 6.349

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Fair Value Disclosures (Financial Assets and Liabilities at Fair Value Measured on Recurring Basis) (Details) - USD ($) $ in Thousands	Mar. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale	$ 105,565	$ 103,794	$ 91,422
Fair Value, Inputs, Level 1 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale	19,829	12,826	14,043
Fair Value, Inputs, Level 2 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale	85,736	90,968	77,325
Fair Value, Inputs, Level 3 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale	0	0	54
US Treasury securities and obligations of US Government sponsored corporations (GSE) and agencies [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale	3,505	3,479	5,481
US Treasury securities and obligations of US Government sponsored corporations (GSE) and agencies [Member] | Fair Value, Inputs, Level 1 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale	0	0
US Treasury securities and obligations of US Government sponsored corporations (GSE) and agencies [Member] | Fair Value, Inputs, Level 2 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale	3,505	3,479	5,481
US Treasury securities and obligations of US Government sponsored corporations (GSE) and agencies [Member] | Fair Value, Inputs, Level 3 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale	0	0
Residential collateralized mortgage obligations- GSE [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale	24,473	22,560	8,287
Residential collateralized mortgage obligations- GSE [Member] | Fair Value, Inputs, Level 1 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale	0	0
Residential collateralized mortgage obligations- GSE [Member] | Fair Value, Inputs, Level 2 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale	24,473	22,560	8,287
Residential collateralized mortgage obligations- GSE [Member] | Fair Value, Inputs, Level 3 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale	0	0
Residential mortgage backed securities - GSE [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale	28,306	31,476	32,635
Residential mortgage backed securities - GSE [Member] | Fair Value, Inputs, Level 1 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale	0	0
Residential mortgage backed securities - GSE [Member] | Fair Value, Inputs, Level 2 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale	28,306	31,476	32,635
Residential mortgage backed securities - GSE [Member] | Fair Value, Inputs, Level 3 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale	0	0
Obligations of state and political subdivisions [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale	21,395	21,400	21,436
Obligations of state and political subdivisions [Member] | Fair Value, Inputs, Level 1 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale	0	0
Obligations of state and political subdivisions [Member] | Fair Value, Inputs, Level 2 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale	21,395	21,400	21,436
Obligations of state and political subdivisions [Member] | Fair Value, Inputs, Level 3 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale	0	0
Trust preferred debt securities - single issuer [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale	2,267	2,272	2,136
Trust preferred debt securities - single issuer [Member] | Fair Value, Inputs, Level 1 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale	0	0
Trust preferred debt securities - single issuer [Member] | Fair Value, Inputs, Level 2 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale	2,267	2,272	2,136
Trust preferred debt securities - single issuer [Member] | Fair Value, Inputs, Level 3 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale	0	0
Corporate debt securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale	24,839	21,768	20,422
Corporate debt securities [Member] | Fair Value, Inputs, Level 1 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale	19,829	12,826	14,043
Corporate debt securities [Member] | Fair Value, Inputs, Level 2 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale	5,010	8,942	6,379
Corporate debt securities [Member] | Fair Value, Inputs, Level 3 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale	0	0
Other debt securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale	780	839	1,025
Other debt securities [Member] | Fair Value, Inputs, Level 1 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale	0	0
Other debt securities [Member] | Fair Value, Inputs, Level 2 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale	780	839	971
Other debt securities [Member] | Fair Value, Inputs, Level 3 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Securities available for sale	$ 0	$ 0	$ 54

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Fair Value Disclosures (Financial Assets and Liabilities at Fair Value Measured on Non-recurring Basis) (Details) - USD ($) $ in Thousands	Mar. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired loans	$ 8,463	$ 4,130	$ 3,960
Other real estate owned			966
Fair Value, Inputs, Level 1 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired loans	0	0
Fair Value, Inputs, Level 2 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired loans	0	0
Fair Value, Inputs, Level 3 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired loans	$ 8,463	$ 4,130	3,960
Other real estate owned			$ 966

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Fair Value Disclosures (Narrative) (Details) $ in Thousands	Mar. 31, 2017 USD ($) loan	Dec. 31, 2016 USD ($) loan	Dec. 31, 2015 USD ($) loan
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired loans, aggregate balance	$ 11,275	$ 7,157	$ 8,780
Impaired loans, related allowance	$ 674	$ 260	$ 326
Fair Value, Inputs, Level 3 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Number of impaired loans | loan	9	9	9
Impaired loans, aggregate balance	$ 9,100	$ 4,400	$ 4,300
Impaired loans, related allowance	$ 674	$ 255	$ 300

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Fair Value Disclosures (Fair Value Qualitative Information) (Details) - USD ($) $ in Thousands		3 Months Ended		12 Months Ended
		Mar. 31, 2017		Dec. 31, 2016		Dec. 31, 2015
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Impaired loans (in Dollars)		$ 8,463		$ 4,130		$ 3,960
Other real estate owned (in Dollars)						966
Impaired Loans [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Impaired loans (in Dollars)				$ 4,130		$ 3,960
Valuation Techniques		Appraisal of collateral (1)	[1]	Appraisal of collateral (1)	[1],[2]	Appraisal of collateral (1)	[2]
Unobservable Input		Appraisal adjustments (2)	[3]	Appraisal adjustments (2)	[4]	Appraisal adjustments (2)	[4]
Impaired Loans [Member] | Minimum [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Range (percentage)		24.00%		3.00%		11.00%
Weighted average (percentage)		(24.00%)		(3.00%)		(11.00%)
Range (percentage)		24.00%		3.00%		11.00%
Weighted average (percentage)		(24.00%)		(3.00%)		(11.00%)
Impaired Loans [Member] | Maximum [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Range (percentage)		83.00%		100.00%		44.00%
Weighted average (percentage)		(83.00%)		(100.00%)		(44.00%)
Range (percentage)		83.00%		100.00%		44.00%
Weighted average (percentage)		(83.00%)		(100.00%)		(44.00%)
Impaired Loans [Member] | Weighted Average [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Range (percentage)		47.30%		29.10%		29.60%
Weighted average (percentage)		(47.30%)		(29.10%)		(29.60%)
Range (percentage)		47.30%		29.10%		29.60%
Weighted average (percentage)		(47.30%)		(29.10%)		(29.60%)
Other Real Estate Owned [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Valuation Techniques	[2]					Appraisal of collateral (1)
Unobservable Input	[4]					Appraisal adjustments (2)
Other real estate owned (in Dollars)						$ 966
Other Real Estate Owned [Member] | Weighted Average [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Range (percentage)						11.00%
Weighted average (percentage)						(11.00%)
Range (percentage)						11.00%
Weighted average (percentage)						(11.00%)

[1] Fair value is generally determined through independent appraisals of the underlying collateral, which generally include various Level 3 inputs which are not identifiable.

[2] Fair value is generally determined through independent appraisals of the underlying collateral, which generally include various Level 3 inputs that are not identifiable.

[3] Includes qualitative adjustments by management and estimated liquidation expenses.

[4] Includes qualitative adjustments by management and estimated liquidation expenses.

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Fair Value Disclosures (Estimated Fair Value of Financial Assets and Liabilities) (Details) - USD ($) $ in Thousands	Mar. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Cash and cash equivalents	$ 47,914	$ 14,886	$ 11,368
Securities available for sale	105,565	103,794	91,422
Securities held to maturity	125,940	126,810	123,261
Securities held to maturity, fair value	127,845	128,559	127,157
Loans held for sale	3,360	14,829	5,997
Loans, net	668,861	717,314	674,561
Accrued interest receivable	2,789	3,095	2,853
Deposits	(868,820)	(834,516)	(786,757)
Redeemable subordinated debentures	(18,557)	(18,557)	(18,557)
Accrued interest payable	(832)	(866)	(846)
Fair Value, Inputs, Level 1 [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Securities available for sale	19,829	12,826	14,043
Fair Value, Inputs, Level 2 [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Securities available for sale	85,736	90,968	77,325
Fair Value, Inputs, Level 3 [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Securities available for sale	0	0	54
Reported Value Measurement [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Cash and cash equivalents	47,914	14,886	11,368
Securities available for sale	105,565	103,794	91,422
Securities held to maturity	125,940	126,810	123,261
Loans held for sale	3,360	14,829	5,997
Loans, net	668,861	717,314	674,561
SBA servicing asset	661	605
Interest rate lock derivative	149	123
Accrued interest receivable	2,789	3,095	2,853
FHLB Stock	1,060	3,962	3,302
Deposits	(868,820)	(834,516)	(786,757)
Borrowings	(10,000)	(73,050)	(58,896)
Redeemable subordinated debentures		(18,557)	(18,557)
Redeemable subordinated debentures, fair value	(18,557)	(18,557)
Accrued interest payable	(832)	(866)	(846)
Estimate of Fair Value Measurement [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Cash and cash equivalents, fair value	47,914	14,886	11,368
Securities available for sale	105,565	103,794	91,422
Securities held to maturity, fair value	127,845	128,559	127,157
Loans held for sale, fair value	3,455	15,103	6,115
Loans, net, fair value	666,634	716,492	674,722
SBA servicing asset	882	822
Interest rate lock derivative	149	123
Accrued interest receivable, fair value	2,789	3,095	2,853
FHLB Stock	1,060	3,962	3,302
Deposits, fair value	(868,259)	(834,050)	(786,594)
Borrowings, fair value	(10,094)	(73,222)	(59,347)
Redeemable subordinated debentures, fair value	(12,080)	(11,922)	(11,641)
Accrued interest payable, fair value	(832)	(866)	(846)
Estimate of Fair Value Measurement [Member] | Fair Value, Inputs, Level 1 [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Cash and cash equivalents, fair value	47,914	14,886	11,368
Securities available for sale	19,829	12,826	14,043
Estimate of Fair Value Measurement [Member] | Fair Value, Inputs, Level 2 [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Securities available for sale	85,736	90,968	77,325
Securities held to maturity, fair value	127,845	128,559	127,157
Loans held for sale, fair value	3,455	15,103	6,115
SBA servicing asset	882	822
Interest rate lock derivative	149	123
Accrued interest receivable, fair value	2,789	3,095	2,853
FHLB Stock	1,060	3,962	3,302
Deposits, fair value	(868,259)	(834,050)	(786,594)
Borrowings, fair value	(10,094)	(73,222)	(59,347)
Redeemable subordinated debentures, fair value	(12,080)	(11,922)	(11,641)
Accrued interest payable, fair value	(832)	(866)	(846)
Estimate of Fair Value Measurement [Member] | Fair Value, Inputs, Level 3 [Member]
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Securities available for sale			54
Loans, net, fair value	$ 666,634	$ 716,492	$ 674,722

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Parent-only Financial Information (Details) - Condensed Statements of Financial Condition - USD ($) $ in Thousands	Mar. 31, 2017	Dec. 31, 2016	Mar. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Assets:
Investment securities	$ 105,565	$ 103,794		$ 91,422
Other assets	9,264	11,582		11,587
Total assets	1,009,864	1,038,213		967,991
Liabilities And Shareholders’ Equity
Subordinated debentures	18,557	18,557		18,557
Shareholders’ equity	106,635	104,801	$ 98,643	95,960	$ 87,110
Total liabilities and shareholders’ equity	$ 1,009,864	1,038,213		967,991
Parent Company [Member]
Assets:
Cash		490		77
Investment securities		557		557
Investment in subsidiary		120,306		111,597
Other assets		2,451		2,325
Total assets		123,804		114,556
Liabilities And Shareholders’ Equity
Other liabilities		446		39
Subordinated debentures		18,557		18,557
Shareholders’ equity		104,801		95,960
Total liabilities and shareholders’ equity		$ 123,804		$ 114,556

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Parent-only Financial Information (Details) - Consolidated Statements of Income and Comprehensive Income - USD ($) $ in Thousands	3 Months Ended									12 Months Ended
	Mar. 31, 2017	Dec. 31, 2016	Sep. 30, 2016	Jun. 30, 2016	Mar. 31, 2016	Dec. 31, 2015	Sep. 30, 2015	Jun. 30, 2015	Mar. 31, 2015	Dec. 31, 2016	Dec. 31, 2015
Income:
Total Income	$ 9,495	$ 9,997	$ 10,408	$ 9,488	$ 9,285	$ 9,473	$ 10,431	$ 10,201	$ 9,340	$ 39,178	$ 39,445
Total Income	9,495	9,997	10,408	9,488	9,285	9,473	10,431	10,201	9,340	39,178	39,445
Expense:
Interest expense	1,289	1,361	1,355	1,257	1,185	1,170	1,169	1,153	1,144	5,158	4,636
Total Expense	1,289	1,361	1,355	1,257	1,185	1,170	1,169	1,153	1,144	5,158	4,636
Income before income taxes	2,801	3,060	4,151	3,427	3,270	2,374	3,610	3,427	3,315	13,908	12,726
Federal income tax benefit	852	1,006	1,456	1,113	1,048	747	1,148	1,112	1,055	4,623	4,062
Net income	1,949	$ 2,054	$ 2,695	$ 2,314	2,222	$ 1,627	$ 2,462	$ 2,315	$ 2,260	9,285	8,664
Comprehensive income	$ 2,000				$ 2,537					8,815	8,286
Parent Company [Member]
Income:
Interest income										13	11
Dividend income from subsidiary										1,240	366
Total Income										1,253	377
Total Income										1,253	377
Expense:
Interest expense										440	366
Total Expense										440	366
Income before income taxes										813	11
Federal income tax benefit										(146)	(122)
Income before equity in undistributed income of subsidiaries										959	133
Equity in undistributed income of subsidiaries										8,326	8,531
Net income										9,285	8,664
Equity in other comprehensive loss of subsidiaries										(470)	(378)
Comprehensive income										$ 8,815	$ 8,286

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Parent-only Financial Information (Details) - Condensed Statements of Cash Flows - USD ($) $ in Thousands	3 Months Ended									12 Months Ended
	Mar. 31, 2017	Dec. 31, 2016	Sep. 30, 2016	Jun. 30, 2016	Mar. 31, 2016	Dec. 31, 2015	Sep. 30, 2015	Jun. 30, 2015	Mar. 31, 2015	Dec. 31, 2016	Dec. 31, 2015
Operating Activities:
Net income	$ 1,949	$ 2,054	$ 2,695	$ 2,314	$ 2,222	$ 1,627	$ 2,462	$ 2,315	$ 2,260	$ 9,285	$ 8,664
Adjustments:
Increase in other assets	(508)				592					388	617
Net cash provided by operating activities	12,496				7,877					2,638	16,166
Cash Flows From Investing Activities:
Net cash used in investing activities	49,643				17,168					(60,706)	(22,061)
Cash Flows From Financing Activities:
Cash dividends paid to shareholders	(401)				0					(399)	0
Purchase of treasury stock, net	0				(24)					(24)	(359)
Net cash provided by financing activities	(29,111)				(21,603)					61,586	2,718
Net increase in cash	33,028				3,442					3,518	(3,177)
Cash at beginning of year	14,886				11,368					11,368
Cash at end of year	47,914	14,886				11,368				14,886	11,368
Parent Company [Member]
Operating Activities:
Net income										9,285	8,664
Adjustments:
Increase in other assets										(126)	(92)
Increase in other liabilities										408	0
Equity in undistributed income of subsidiaries										(8,326)	(8,531)
Net cash provided by operating activities										1,241	41
Cash Flows From Investing Activities:
Investment in subsidiary										(501)	37
Net cash used in investing activities										(501)	37
Cash Flows From Financing Activities:
Cash dividends paid to shareholders										(399)	0
Issuance of common stock, net										96	292
Purchase of treasury stock, net										(24)	(359)
Net cash provided by financing activities										(327)	(67)
Net increase in cash										413	11
Cash at beginning of year	$ 490				$ 77				$ 66	77	66
Cash at end of year		$ 490				$ 77				$ 490	$ 77

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Quarterly Financial Data (Unaudited) (Details) - Condensed Summary of Quarterly Results of Operations - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended																	12 Months Ended
	Mar. 31, 2017	Dec. 31, 2016		Sep. 30, 2016		Jun. 30, 2016		Mar. 31, 2016		Dec. 31, 2015		Sep. 30, 2015		Jun. 30, 2015		Mar. 31, 2015		Dec. 31, 2016	Dec. 31, 2015
Summary of Operations
Total Income	$ 9,495	$ 9,997		$ 10,408		$ 9,488		$ 9,285		$ 9,473		$ 10,431		$ 10,201		$ 9,340		$ 39,178	$ 39,445
Total Expense	1,289	1,361		1,355		1,257		1,185		1,170		1,169		1,153		1,144		5,158	4,636
Net interest income	8,206	8,636		9,053		8,231		8,100		8,303		9,262		9,048		8,196		34,020	34,809
(Credit) provision for loan losses	150	0		0		(100)		(200)		500		100		0		500		(300)	1,100
Net interest income after (credit) provision for loan losses	8,056	8,636		9,053		8,331		8,300		7,803		9,162		9,048		7,696		34,320	33,709
Non-interest income	2,401	1,996		1,760		1,536		1,594		920		1,427		1,988		2,129		6,886	6,464
Non-interest expense	7,656	7,572		6,662		6,440		6,624		6,349		6,979		7,609		6,510		27,298	27,447
Income before income taxes	2,801	3,060		4,151		3,427		3,270		2,374		3,610		3,427		3,315		13,908	12,726
Income taxes	852	1,006		1,456		1,113		1,048		747		1,148		1,112		1,055		4,623	4,062
Net income	$ 1,949	$ 2,054		$ 2,695		$ 2,314		$ 2,222		$ 1,627		$ 2,462		$ 2,315		$ 2,260		$ 9,285	$ 8,664
Net income per common share:
Basic (in Dollars per share)	$ 0.24	$ 0.26	[1]	$ 0.34	[1]	$ 0.29	[1]	$ 0.28	[1]	$ 0.21	[1]	$ 0.31	[1]	$ 0.29	[1]	$ 0.29	[1]	$ 1.17	$ 1.10
Diluted (in Dollars per share)	$ 0.23	$ 0.25	[1]	$ 0.33	[1]	$ 0.28	[1]	$ 0.27	[1]	$ 0.20	[1]	$ 0.30	[1]	$ 0.29	[1]	$ 0.28	[1]	$ 1.14	$ 1.07

[1] The sum of quarterly income per basic and diluted common share may not equal net income per basic and diluted common share, respectively, for the years ended December 31, 2016 and 2015 due to differences in the computation of weighted average diluted common shares on a quarterly and annual basis.

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Subsequent Event (Details) - USD ($) $ in Thousands	Mar. 31, 2017	Mar. 14, 2017	Dec. 31, 2016	Dec. 31, 2015
Subsequent Event [Line Items]
Participation in shared national credit syndicated loan	$ 7,204		$ 4,128	$ 4,287
Outstanding balance	$ 7,204		4,143	$ 4,341
Shared National Credit Syndicated Loan [Member] | Collateral Pledged [Member] | Special Mention [Member]
Subsequent Event [Line Items]
Participation in shared national credit syndicated loan		$ 4,300	4,300
Outstanding balance			$ 4,000