10-Q

U.S. Securities and Exchange Commission

Washington, D.C. 20549

Form 10-Q

x Quarterly Report Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

For the quarterly period ended June 30, 2016

or

¨ Transition Report Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

For the transition period ended from                to                    

Commission File Number    000-50400   

Select Bancorp, Inc.

(Exact name of Registrant as specified in its charter)

North Carolina	20-0218264
(State or other jurisdiction of	(I.R.S. Employer Identification No.)
incorporation or organization)
700 W. Cumberland Street
Dunn, North Carolina	28334
(Address of principal executive offices)	(Zip Code)

Registrant's telephone number, including area code (910) 892-7080

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

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

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

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

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

As of August 5, 2016, the Registrant had outstanding 11,630,373 shares of Common Stock, $1.00 par value per share.

		Page No.
Part I.	FINANCIAL INFORMATION
Item 1 -	Financial Statements (Unaudited)
	Consolidated Balance Sheets June 30, 2016 and December 31, 2015	3
	Consolidated Statements of Operations Three Months and Six Months Ended June 30, 2016 and 2015	4
	Consolidated Statements of Comprehensive Income Three Months and Six Months Ended June 30, 2016 and 2015	5
	Consolidated Statements of Changes in Shareholders’ Equity Six Months Ended June 30, 2016 and 2015	6
	Consolidated Statements of Cash Flows Six Months Ended June 30, 2016 and 2015	7
	Notes to Consolidated Financial Statements	9
Item 2 -	Management’s Discussion and Analysis of Financial Condition and Results of Operations	46
Item 4 -	Controls and Procedures	58
Part II.	OTHER INFORMATION
Item 6 -	Exhibits	59
	Signatures	60
	Exhibit Index	61

2

Part I. Financial Information

Item 1 - Financial Statements

SELECT BANCORP, INC.

CONSOLIDATED BALANCE SHEETS

	June 30, 2016			December 31,
	(Unaudited)			2015*
	(In thousands, except share
	and per share data)
ASSETS
Cash and due from banks	$	14,896		$	12,567
Interest-earning deposits in other banks		54,582			49,842
Certificates of deposit		1,000			1,000
Investment securities available for sale, at fair value		69,879			80,709
Loans		632,187			617,398
Allowance for loan losses		(7,692	)		(7,021	)
NET LOANS		624,495			610,377
Accrued interest receivable		2,406			2,350
Stock in Federal Home Loan Bank of Atlanta (“FHLB”), at cost		2,318			2,112
Other non-marketable securities		757			705
Foreclosed real estate		716			1,401
Premises and equipment, net		18,614			19,078
Bank owned life insurance		21,888			21,592
Goodwill		6,931			6,931
Core deposit intangible (“CDI”)		1,014			1,241
Assets held for sale		1,246			846
Other assets		5,846			6,264
TOTAL ASSETS	$	826,588		$	817,015
LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits:
Demand	$	156,640		$	148,304
Savings		39,870			37,353
Money market and NOW		172,241			179,450
Time		292,523			286,054
TOTAL DEPOSITS		661,274			651,161
Short-term debt		30,505			29,673
Long-term debt		28,415			28,703
Accrued interest payable		251			232
Accrued expenses and other liabilities		4,612			2,544
TOTAL LIABILITIES		725,057			712,313
Shareholders’ Equity:
Preferred stock, no par value, 5,000,000 shares authorized; 0 and 7,645 shares issued and outstanding at June 30, 2016 and December 31, 2015		-			7,645
Common stock, $1.00 par value, 25,000,000 shares authorized; 11,619,184 and 11,583,011 shares issued and outstanding at June 30, 2016 and December 31, 2015, respectively		11,619			11,583
Additional paid-in capital		69,405			69,061
Retained earnings		19,329			15,923
Common stock issued to deferred compensation trust, at cost; 267,554 and 253,538 shares at June 30, 2016 and December 31, 2015, respectively		(2,224	)		(2,139	)
Directors’ Deferred Compensation Plan Rabbi Trust		2,224			2,139
Accumulated other comprehensive income		1,178			490
TOTAL SHAREHOLDERS’ EQUITY		101,531			104,702
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$	826,588		$	817,015

* Derived from audited consolidated financial statements.

See accompanying notes.

3

SELECT BANCORP, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)

	Three Months Ended					Six Months Ended
	June 30,					June 30,
	2016		2015			2016		2015
	(In thousands, except share and per share data)
INTEREST INCOME
Loans	$	8,242	$	7,789		$	16,207	$	15,538
Federal funds sold and interest-earning deposits in other banks		60		6			137		31
Investments		343		467			733		935
TOTAL INTEREST INCOME		8,645		8,262			17,077		16,504
INTEREST EXPENSE
Money market, NOW and savings deposits		94		96			193		195
Time deposits		647		614			1,308		1,335
Short-term debt		106		25			140		46
Long-term debt		65		100			198		198
TOTAL INTEREST EXPENSE		912		835			1,839		1,774
NET INTEREST INCOME		7,733		7,427			15,238		14,730
PROVISION FOR (RECOVERY OF) LOAN LOSSES		158		(139	)		510		(9	)
NET INTEREST INCOME AFTER PROVISION FOR (RECOVERY OF) LOAN LOSSES		7,575		7,566			14,728		14,739
NON-INTEREST INCOME
Gain on sale of investment securities		-		134			22		219
Service charges on deposit accounts		246		263			493		522
Other fees and income		585		544			1,182		1,063
TOTAL NON-INTEREST INCOME		831		941			1,697		1,804
NON-INTEREST EXPENSE
Personnel		3,087		3,011			6,289		6,072
Occupancy and equipment		607		565			1,181		1,112
Deposit insurance		135		106			261		267
Professional fees		252		387			487		742
CDI amortization		111		150			227		305
Merger/acquisition related expenses		-		35			-		35
Information systems		524		521			1,033		884
Foreclosed-related expenses		24		35			63		59
Other		779		743			1,598		1,447
TOTAL NON-INTEREST EXPENSE		5,519		5,553			11,139		10,923
INCOME BEFORE INCOME TAX		2,887		2,954			5,286		5,620
INCOME TAXES		980		1,133			1,876		2,056
NET INCOME		1,907		1,821			3,410		3,564
DIVIDENDS AND ACCRETION OF PREFERRED STOCK		-		19			4		38
NET INCOME AVAILABLE TO COMMON SHAREHOLDERS	$	1,907	$	1,802		$	3,406	$	3,526
NET INCOME PER COMMON SHARE
Basic	$	0.16	$	0.16		$	0.29	$	0.31
Diluted	$	0.16	$	0.16		$	0.29	$	0.31
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
Basic		11,594,995		11,481,137			11,589,217		11,453,908
Diluted		11,642,726		11,548,878			11,638,669		11,529,605

See accompanying notes.

4

SELECT BANCORP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2016			2015			2016			2015
	(In thousands)
Net income	$	1,907		$	1,821		$	3,410		$	3,564
Other comprehensive income (loss):
Unrealized gain (loss) on investment securities available for sale		338			(680	)		1,099			(72	)
Tax effect		(113	)		259			(397	)		25
		225			(421	)		702			(47	)
Reclassification adjustment for gain included in net income		-			(134	)		(22	)		(219	)
Tax effect		-			45			8			78
		-			(89	)		(14	)		(141	)
Total		225			(510	)		688			(188	)
Total comprehensive income	$	2,132		$	1,311		$	4,098		$	3,376

See accompanying notes.

5

SELECT BANCORP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (Unaudited)

(in thousands, except share data)

																Common
																Stock						Accumulated
																Issued						Other
											Additional					to Deferred						Compre-			Total
	Preferred Stock						Common Stock				paid-in		Retained			Compensation			Deferred			hensive			Shareholders’
	Shares			Amount			Shares		Amount		Capital		Earnings			Trust			Comp Plan			Income			Equity
Balance at December 31, 2014		7,645		$	7,645			11,377,980	$	11,378	$	68,406	$	9,447		$	(2,121	)	$	2,121		$	809		$	97,685
Net income		-			-			-		-		-		3,564			-			-			-			3,564
Other comprehensive income, loss		-			-			-		-		-		-			-			-			(188	)		(188	)
Preferred stock dividends paid		-			-			-		-		-		(38	)		-			-			-			(38	)
Stock option exercises		-			-			121,418		121		391		-			-			-			-			512
Stock based compensation		-			-			-		-		17		-			-			-			-			17
Director equity incentive plan, net		-			-			-		-		-		-			61			(61	)		-			-
Balance at June 30, 2015		7,645		$	7,645			11,499,398	$	11,499	$	68,814	$	12,973		$	(2,060	)	$	2,060		$	621		$	101,552
Balance at December 31, 2015		7,645		$	7,645			11,583,011	$	11,583	$	69,061	$	15,923		$	(2,139	)	$	2,139		$	490		$	104,702
Net income		-			-			-		-		-		3,410			-			-			-			3,410
Other comprehensive income, net		-			-			-		-		-		-			-			-			688			688
Preferred stock dividends paid		-			-			-		-		-		(4	)		-			-			-			(4	)
Preferred stock redemption		(7,645	)		(7,645	)		-		-		-		-			-			-			-			(7,645	)
Stock option exercises		-			-			36,173		36		308		-			-			-			-			344
Stock based compensation		-			-			-		-		36		-			-			-			-			36
Director equity incentive plan, net		-			-			-		-		-		-			(85	)		85			-			-
Balance at June 30, 2016		-		$	-			11,619,184	$	11,619	$	69,405	$	19,329		$	(2,224	)	$	2,224		$	1,178		$	101,531

See accompanying notes.

6

SELECT BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

	Six Months Ended
	June 30,
	2016			2015
	(In thousands)
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	3,410		$	3,564
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for (recovery of) loan losses		510			(9	)
Depreciation and amortization of premises and equipment		520			541
Amortization and accretion of investment securities		400			491
Amortization of deferred loan fees and costs		(236	)		(134	)
Amortization of core deposit intangible		227			305
Stock-based compensation		36			17
Accretion on acquired loans		(534	)		(848	)
Amortization of acquisition premium on time deposits		(385	)		(451	)
Net accretion of acquisition discount on borrowings		(153	)		(244	)
Increase in cash surrender value of bank owned life insurance		(296	)		(311	)
Net loss on sale and write-downs of foreclosed real estate		48			55
Net gain on investment security sales and pay-downs		(22	)		(219	)
Change in assets and liabilities:
Net change in accrued interest receivable		(56	)		148
Net change in other assets		7			882
Net change in accrued expenses and other liabilities		2,087			274
NET CASH PROVIDED BY OPERATING ACTIVITIES		5,563			4,061
CASH FLOWS FROM INVESTING ACTIVITIES
Redemption of FHLB stock		(206	)		(525	)
Purchase (redemption) of non-marketable security		(52	)		51
Purchase of investment securities available for sale		(1,517	)		(7,057	)
Maturities of investment securities available for sale		7,434			11,429
Mortgage-backed securities pay-downs		5,010			4,722
Proceeds from sale of investment securities available for sale		624			5,640
Net change in loans outstanding		(14,436	)		(20,702	)
Proceeds from sale of foreclosed real estate		1,215			500
Purchases of premises and equipment		(456	)		(1,343	)
NET CASH USED BY INVESTING ACTIVITIES		(2,384	)		(7,285	)

See accompanying notes.

7

SELECT BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (Continued)

	Six Months Ended
	June 30,
	2016			2015
	(In thousands)
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in deposits	$	10,498		$	(38,842	)
Proceeds from short-term debt		16,000			19,976
Repayments on short-term debt		(14,390	)		(7,779	)
Repayments on long-term debt		(913	)		(479	)
Preferred stock dividends paid		(4	)		(38	)
Redemption of preferred stock		(7,645	)		-
Proceeds from stock option exercises		344			512
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES		3,890			(26,650	)
NET CHANGE IN CASH AND CASH EQUIVALENTS		7,069			(29,874	)
CASH AND CASH EQUIVALENTS, BEGINNING		63,409			58,410
CASH AND CASH EQUIVALENTS, ENDING	$	70,478		$	28,536
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for:
Interest	$	1,820		$	1,853
Taxes		-			1,058
Non-cash transactions:
Unrealized gains (losses) on investment securities available for sale, net of tax		688			(188	)
Transfers from loans to foreclosed real estate		578			43
Transfers from premises and equipment to assets held for sale		400			-

See accompanying notes.

8

SELECT BANCORP, INC.
Notes to Consolidated Financial Statements (Unaudited)

NOTE A - BASIS OF PRESENTATION

Select Bancorp, Inc. (“Company”) is a bank holding company whose principal business activity consists of ownership of Select Bank & Trust Company (referred to as the “Bank”). In 2004, the Company formed New Century Statutory Trust I, which issued trust preferred securities to provide additional capital for general corporate purposes, including the current and future expansion of the Company. New Century Statutory Trust I is not a consolidated subsidiary of the Company.The Company is subject to the rules and regulations of the Board of Governors of the Federal Reserve and the North Carolina Commissioner of Banks.

Select Bank & Trust Company was originally incorporated as New Century Bank on May 19, 2000 and began banking operations on May 24, 2000. Legacy Select Bank & Trust Company was incorporated on July 30, 2004 and was merged with and into the Bank on July 25, 2014 in connection with the Company’s acquisition of Legacy Select. Select Bank & Trust Company continues as the only banking subsidiary of the Company with its headquarters and operations center located in Dunn, NC. The Bank is engaged in general commercial and retail banking in central and eastern North Carolina and operates under the banking laws of North Carolina and the rules and regulations of the Federal Deposit Insurance Corporation and the North Carolina Commissioner of Banks. The Bank undergoes periodic examinations by those regulatory authorities.

All significant inter-company transactions and balances have been eliminated in consolidation. In management’s opinion, the financial information, which is unaudited, reflects all adjustments (consisting solely of normal recurring adjustments) necessary for a fair presentation of the financial information as of and for the three and six month periods ended June 30, 2016 and 2015, in conformity with accounting principles generally accepted in the United States of America (“GAAP”).

The preparation of consolidated financial statements requires management to make estimates and assumptions that affect reported amounts of assets and liabilities at the date of the financial statements, as well as the amounts of income and expense during the reporting period. Actual results could differ from those estimates. Operating results for the three and six month periods ended June 30, 2016 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2016.

The organization and business of the Company, accounting policies followed by the Company and other relevant information are contained in the notes to the financial statements filed as part of the Company’s 2015 Annual Report on Form 10-K, filed with the Securities and Exchange Commission (“SEC”) on March 24, 2016. This quarterly report should be read in conjunction with the Annual Report.

Certain reclassifications of the information in prior periods were made to conform to the June 30, 2016 presentation. Such reclassifications had no effect on shareholders’ equity or net income as previously reported.

9

SELECT BANCORP, INC.
Notes to Consolidated Financial Statements (Unaudited)

NOTE B - PER SHARE RESULTS

Basic net income per share is computed based upon the weighted average number of shares of common stock outstanding during the period. Diluted net income per share includes the dilutive effect of stock options outstanding during the period. At June 30, 2016 and 2015 there were 123,800 and 111,080 anti-dilutive options outstanding, respectively.

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2016		2015		2016		2015
Weighted average shares used for basic net income available to common shareholders		11,594,995		11,481,137		11,589,217		11,453,908
Effect of dilutive stock options		47,731		67,741		49,452		75,697
Weighted average shares used for diluted net income available to common shareholders		11,642,726		11,548,878		11,638,669		11,529,605

NOTE C - RECENT ACCOUNTING PRONOUNCEMENTS

The following summarizes recent accounting pronouncements and their expected impact on the Company:

In September 2015, the FASB issued Accounting Standard Update 2015-16, Simplifying the Accounting for Measurement Period Adjustments (“ASU 2015-16”). ASU 2015-16 simplifies the accounting for adjustments made to provisional amounts recognized in a business combination by eliminating the requirement to retrospectively account for those adjustments. The amendments in ASU 2015-16 are effective for fiscal years beginning after December 15, 2015. The Company adopted this guidance as of January 1, 2016 with no material effect on its financial statements.

In June 2015, the FASB issued ASU 2015-10, Technical Corrections and Improvements. The amendments included in this Update are effective immediately and transition guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. This guidance was adopted as of January 1, 2016 with no material effect on its financial statements.

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). The amendments in this Update provide a comprehensive new revenue recognition model that requires a company to recognize revenue to depict the transfer of goods or services to a customer at an amount that reflects the consideration it expects to receive in exchange for those goods or services. This Update also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. The amendments in this Update are effective for periods beginning after December 15, 2016 and early adoption is not permitted. Adoption of this update is not expected to have a material impact on the Company’s financial position or results of operations because this ASU does not apply to financial instruments.

10

SELECT BANCORP, INC.
Notes to Consolidated Financial Statements (Unaudited)

NOTE C - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Recent Accounting Pronouncements (Continued)  

In August 2015, the FASB deferred the effective date of ASU 2014-09, Revenue from Contracts with Customers. As a result of the deferral, the guidance in ASU 2014-09 will be effective for the Company for reporting periods beginning after December 15, 2017. The Company does not expect these amendments to have a material effect on its financial statements. In March 2016, the FASB further amended the Revenue from Contracts with Customers topic of the Accounting Standards Codification to clarify the implementation guidance on principal versus agent considerations and address how an entity should assess whether it is the principal or the agent in contracts that include three or more parties.

In April 2016, the FASB amended the Revenue from Contracts with Customers topic of the Accounting Standards Codification to clarify guidance related to identifying performance obligations and accounting for licenses of intellectual property. The amendments will be effective for the Company for reporting periods beginning after December 15, 2017. The Company does not expect these amendments to have a material effect on its financial statements.

In May 2016, the FASB amended the Revenue from Contracts with Customers topic of the Accounting Standards Codification to clarify guidance related to collectability, noncash consideration, presentation of sales tax, and transition. The amendments will be effective for the Company for reporting periods beginning after December 15, 2017. The Company does not expect these amendments to have a material effect on its financial statements.

In March 2016, the FASB issued ASU 2016-09, Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-based Payment Accounting, to simplify several aspects of the accounting for share-based payment award transactions including the income tax consequences, the classification of awards as either equity or liabilities, and the classification on the statement of cash flows. Additionally, the guidance simplifies two areas specific to entities other than public business entities allowing them apply a practical expedient to estimate the expected term for all awards with performance or service conditions that have certain characteristics and also allowing them to make a one-time election to switch from measuring all liability-classified awards at fair value to measuring them at intrinsic value. The amendments will be effective for the Company for annual periods beginning after December 15, 2016 and interim periods within those annual periods. The Company is currently evaluating the expected impact of these amendments to its financial statements but generally expects a positive impact to net earnings at the time of adoption as recording of any excess tax benefit will be through the income statement rather than additional paid in capital.

In January 2015, the FASB issued ASU 2015-01, Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items, to eliminate from U.S. GAAP the concept of an extraordinary item, which is an event or transaction that is both (1) unusual in nature and (2) infrequently occurring. Under the new guidance, an entity will no longer (1) segregate an extraordinary item from the results of ordinary operations; (2) separately present an extraordinary item on its income statement, net of tax, after income from continuing operations; or (3) disclose income taxes and earnings-per-share data applicable to an extraordinary item. The amendments will be effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015, with early adoption permitted provided that the guidance is applied from the beginning of the fiscal year of adoption. The Company adopted this guidance as of January 1, 2016 with no material effect on its financial statements.

11

SELECT BANCORP, INC.
Notes to Consolidated Financial Statements (Unaudited)

NOTE C - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Recent Accounting Pronouncements (Continued)

In February 2015, the FASB issued ASU 2015-02, Amendments to the Consolidation Analysis, which amends the consolidation requirements and significantly changes the consolidation analysis required under U.S. GAAP. Although the amendments are expected to result in the deconsolidation of many entities, the Company will need to reevaluate all its previous consolidation conclusions. The amendments will be effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015, with early adoption permitted (including during an interim period), provided that the guidance is applied as of the beginning of the annual period containing the adoption date. The Company adopted this guidance as of January 1, 2016 with no material effect on its financial statements.

In August 2015, the FASB issued ASU 2015-15, Interest—Imputation of Interest (Subtopic 835-30): Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements amendment to the Interest topic of the Accounting Standards Codification to clarify the SEC staff’s position on presenting and measuring debt issuance costs incurred in connection with line-of-credit arrangements. The amendments were effective for fiscal years beginning after December 15, 2015. The Company adopted this guidance as of January 1, 2016 with no material effect on its financial statements. 

In January 2016, the FASB amended the Financial Instruments topic of the Accounting Standards Codification to address certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. The amendments will be effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company will apply the guidance by means of a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption. The amendments related to equity securities without readily determinable fair values will be applied prospectively to equity investments that exist as of the date of adoption of the amendments. The Company does not expect these amendments to have a material effect on its financial statements.

12

SELECT BANCORP, INC.
Notes to Consolidated Financial Statements (Unaudited)

NOTE C - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Recent Accounting Pronouncements (Continued)

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). This Update is intended to improve financial reporting about leasing transactions. The ASU affects all companies and other organizations that lease assets such as real estate, airplanes, and manufacturing equipment. The ASU will require organizations that lease assets – referred to as “leasee” – to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases. A leasee will be required to recognize assets and liabilities for leases with lease terms of more than 12 months. Consistent with current guidelines, the recognition, measurement, and presentation of expenses and cash flows arising from a lease by a leasee primarily will depend on its classification as a finance or operating lease. However, the new ASU will require both types of leases to be recognized on the balance sheet. The Update also will require disclosures to help investors and other financial statement users better understand the amount, timing, and uncertainty of cash flows arising from leases. These disclosures include qualitative and quantitative requirements, providing additional information about the amounts recorded in the financial statements. The accounting by organizations that own the assets leased by the lease will remain largely unchanged from current guidance. The amendments are effective for public companies for fiscal years, and interim periods within those fiscal years, beginning after December 31, 2018.

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

In June 2016, the FASB issued guidance to change the accounting for credit losses and modify the impairment model for certain debt securities. The amendments will be effective for the Company for reporting periods beginning after December 15, 2019. The Company is currently evaluating the effect that implementation of the new standard will have on its financial position, results of operations, and cash flows.

From time to time, the FASB issues exposure drafts for proposed statements of financial accounting standards. Such exposure drafts are subject to comment from the public, to revisions by the FASB and to final issuance by the FASB as statements of financial accounting standards. Management considers the effect of the proposed statements on the consolidated financial statements of the Company and monitors the status of changes to and proposed effective dates of exposure drafts.

13

SELECT BANCORP, INC.
Notes to Consolidated Financial Statements (Unaudited)

NOTED D - FAIR VALUE MEASUREMENTS

Accounting Standards Codification (“ASC”) 820 defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. ASC 820 does not require any new fair value measurements, but clarifies and standardizes some divergent practices that have emerged since prior guidance was issued. ASC 820 creates a three-level hierarchy under which individual fair value estimates are to be ranked based on the relative reliability of the inputs used in the valuation.

Fair value estimates are made at a specific moment in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company’s entire holdings of a particular financial instrument.

Because no active market readily exists for a portion of the Company’s financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value:

Fair Value Hierarchy

The Company groups assets and liabilities at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. These levels are:

· Level 1 – Valuation is based upon quoted prices for identical instruments traded in active markets.

· Level 2 – Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-based valuation techniques for which all significant assumptions are observable in the market.

· Level 3 – Valuation is generated from model-based techniques that use at least one significant assumption not observable in the market. These unobservable assumptions reflect estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques include use of option pricing models, discounted cash flow models and similar techniques.

The following is a description of valuation methodologies used for assets and liabilities recorded at fair value on a recurring basis.

14

SELECT BANCORP, INC.
Notes to Consolidated Financial Statements (Unaudited)

NOTE D – FAIR VALUE MEASUREMENTS (continued)

Investment Securities Available-for-Sale (“AFS”)

Investment securities available-for-sale are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted prices, if available. If quoted prices are not available, fair values are measured using independent pricing models or other model-based valuation techniques such as the present value of future cash flows, adjusted for the security’s credit rating, prepayment assumptions and other factors such as credit loss assumptions. Level 1 securities include those traded on an active exchange, such as the New York Stock Exchange, U.S. Treasury securities that are traded by dealers or brokers in active over-the-counter markets and money market funds. Level 2 securities include U.S. government agency securities, mortgage-backed securities issued by government sponsored entities, and municipal bonds. There have been no changes in valuation techniques for the three and six months ended June 30, 2016. Valuation techniques are consistent with techniques used in prior periods.

The following tables summarize quantitative disclosures about the fair value measurement for each category of assets carried at fair value on a recurring basis as of June 30, 2016 and December 31, 2015 (in thousands):

Investment securities available for sale June 30, 2016	Fair value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
U.S. government agencies – GSE's	$	17,694	$	-	$	17,694	$	-
Mortgage-backed securities - GSE’s		35,408		-		35,408		-
Municipal bonds		16,777		-		16,777		-
Total	$	69,879	$	-	$	69,879	$	-

Investment securities available for sale December 31, 2015	Fair value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
U.S. government agencies – GSE's	$	21,226	$	-	$	21,226	$	-
Mortgage-backed securities - GSE’s		39,536		-		39,536		-
Municipal bonds		19,947		-		19,947		-
Total	$	80,709	$	-	$	80,709	$	-

15

SELECT BANCORP, INC.
Notes to Consolidated Financial Statements (Unaudited)

NOTE D – FAIR VALUE MEASUREMENTS (continued)

The following is a description of valuation methodologies used for assets recorded at fair value on a non-recurring basis.

Loans

The Company does not record loans at fair value on a recurring basis. However, from time to time, a loan is considered impaired and an allowance for loan losses is established. Loans for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement are considered impaired. Once a loan is identified as individually impaired, management measures impairment in accordance with ASC 310, “Receivables”. The fair value of impaired loans is estimated using one of several methods, including collateral value, market value of similar debt, enterprise value, or liquidation value and discounted cash flows. Those impaired loans not requiring an allowance represent loans for which the fair value of the expected repayments or collateral exceed the recorded investments in such loans. At June 30, 2016 and December 31, 2015, substantially all of the total impaired loans were evaluated based on the fair value of the collateral. Impaired loans where an allowance is established based on the fair value of collateral require classification in the fair value hierarchy. When the fair value of the collateral is based on an observable market price or a current appraised value, the Company records the impaired loan as non-recurring Level 2. When an appraised value is not available or management determines the fair value of the collateral is further impaired below the appraised value and there is no observable market price, the Company records the impaired loan as non-recurring Level 3. The significant unobservable input used in the fair value measurement of the Company’s impaired loans is the discount applied to appraised values to account for expected liquidation and selling costs. At June 30, 2016, the discounts to appraised value used are weighted between 4% and 50%. There were no transfers between levels from the prior reporting periods and there have been no changes in valuation techniques for the three months ended June 30, 2016.

Foreclosed Real Estate

Foreclosed real estate are properties recorded at estimated fair value less estimated selling costs. Inputs include appraised values on the properties or recent sales activity for similar assets in the property’s market. Therefore, foreclosed real estate is classified within Level 3 of the hierarchy. The significant unobservable input used in the fair value measurement of the Company’s foreclosed real estate is the discount applied to appraised values to account for expected liquidation and selling costs. At June 30, 2016, the discounts used ranged between 6% and 10%. There have been no changes in valuation techniques for the three and six months ended June 30, 2016.

Assets held for sale

During 2015, a branch facility was taken out of service as part of the Company’s branch restructuring plan and reclassified as held for sale. In the current quarter an undeveloped lot that was intended for the site of a future branch was under contract for sale as of June 30, 2016 and the fair value is based on the sales price. The lot sale closed in July 2016. The properties are recorded at the remaining book balance of the asset or an estimated fair value less estimated selling costs, whichever is less. Inputs include appraised values on the properties or recent sales activity for similar assets in the property’s market. The significant unobservable input used is the discount applied to appraised values to account for expected liquidation and selling costs ranged between 1% and 25 % at June 30, 2016. There have been no changes in the valuation techniques for the three months ended June 30, 2016.

16

SELECT BANCORP, INC.
Notes to Consolidated Financial Statements (Unaudited)

NOTE D – FAIR VALUE MEASUREMENTS (continued)

The following tables summarize quantitative disclosures about the fair value measurement for each category of assets carried at fair value on a non-recurring basis as of June 30, 2016 and December 31, 2015 (in thousands):

Asset Category June 30, 2016	Fair value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Impaired loans	$	5,860	$	-	$	-	$	5,860
Assets held for sale		1,246		-		-		1,246
Foreclosed real estate		716		-		-		716
Total	$	7,822	$	-	$	-	$	7,822

Asset Category December 31, 2015	Fair value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Impaired loans	$	6,635	$	-	$	-	$	6,635
Assets held for sale		846		-		-		846
Foreclosed real estate		1,401		-		-		1,401
Total	$	8,882	$	-	$	-	$	8,882

17

SELECT BANCORP, INC.
Notes to Consolidated Financial Statements (Unaudited)

NOTE D – FAIR VALUE MEASUREMENTS (continued)

The following table presents the carrying values and estimated fair values of the Company's financial instruments at June 30, 2016 and December 31, 2015:

	June 30, 2016
	Carrying		Estimated
	Amount		Fair Value		Level 1		Level 2		Level 3
	(In thousands)
Financial assets:
Cash and due from banks	$	14,896	$	14,896	$	14,896	$	-	$	-
Certificates of deposit		1,000		1,000		1,000		-		-
Interest-earning deposits in other banks		54,582		54,582		54,582		-		-
Investment securities available for sale		69,879		69,879		-		69,879		-
Loans, net		624,495		633,534		-		-		633,534
Accrued interest receivable		2,406		2,406		-		-		2,406
Stock in FHLB		2,318		2,318		-		-		2,318
Other non-marketable securities		757		757		-		-		757
Financial liabilities:
Deposits	$	661,274	$	661,658	$	-	$	661,658	$	-
Short-term debt		30,505		30,505		-		30,505		-
Long-term debt		28,415		23,430		-		23,430		-
Accrued interest payable		251		251		-		251		-

	December 31, 2015
	Carrying		Estimated
	Amount		Fair Value		Level 1		Level 2		Level 3
	(In thousands)
Financial assets:
Cash and due from banks	$	12,567	$	12,567	$	12,567	$	-	$	-
Certificates of deposits		1,000		1,000		1,000		-		-
Interest-earning deposits in other banks		49,842		49,842		49,842		-		-
Investment securities available for sale		80,709		80,709		-		80,709		-
Loans, net		610,377		615,754		-		-		615,754
Accrued interest receivable		2,350		2,350		-		-		2,350
Stock in the FHLB		2,112		2,112		-		-		2,112
Other non-marketable securities		705		705		-		-		705
Financial liabilities:
Deposits	$	651,161	$	651,255	$	-	$	651,255	$	-
Short-term debt		29,673		29,673		-		29,673		-
Long-term debt		28,703		23,718		-		23,718		-
Accrued interest payable		232		232		-		232		-

18

SELECT BANCORP, INC.
Notes to Consolidated Financial Statements (Unaudited)

NOTE D – FAIR VALUE MEASUREMENTS (continued)

Cash and Due from Banks, Certificates of Deposit, Interest-Earning Deposits in Other Banks and Federal Funds Sold

The carrying amounts for cash and due from banks, certificates of deposit, interest-earning deposits in other banks and federal funds sold approximate fair value because of the short maturities of those instruments.

Investment Securities Available for Sale

Fair value for investment securities available for sale equals quoted market price if such information is available. If a quoted market price is not available, fair value is estimated using prices quoted for similar investments or quoted market prices obtained from independent pricing services.

Loans

For certain homogenous categories of loans, such as residential mortgages, fair value is estimated using the quoted market prices for securities backed by similar loans, adjusted for differences in loan characteristics. The fair value of other types of loans is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. However, the values likely do not represent exit prices due to distressed market conditions.

Stock in Federal Home Loan Bank of Atlanta

The fair value for FHLB stock approximates carrying value, based on the redemption provisions of the FHLB stock.

Other Non-Marketable Securities

The fair value of equity instruments in other non-marketable securities is assumed to approximate carrying value.

Deposits

The fair value of demand, savings, and money market and NOW deposits is the amount payable on demand at the reporting date. The fair values of time deposits are estimated using the rates currently offered for instruments of similar remaining maturities.

Short-term Debt

Short-term debt consists of repurchase agreements and FHLB advances with maturities of less than twelve months. The carrying values of these instruments is a reasonable estimate of fair value.

19

SELECT BANCORP, INC.
Notes to Consolidated Financial Statements (Unaudited)

NOTE D – FAIR VALUE MEASUREMENTS (continued)

Long-term Debt

The fair values of long-term debt are based on discounted expected cash flows at the interest rate for debt with the same or similar remaining maturities and collateral requirements.

Accrued Interest Receivable and Accrued Interest Payable

The carrying amounts of accrued interest receivable and payable approximate fair value because of the short maturities of these instruments.

Financial Instruments with Off-Balance Sheet Risk

With regard to financial instruments with off-balance sheet risk, it is not practicable to estimate the fair value of future financing commitments.

NOTE E - INVESTMENT SECURITIES

The amortized cost and fair value of available for sale investments (“AFS”), with gross unrealized gains and losses, follow:

	June 30, 2016
			Gross		Gross
	Amortized		unrealized		unrealized			Fair
	cost		gains		losses			value
	(dollars in thousands)
Securities available for sale:
U.S. government agencies – GSE’s	$	17,509	$	196	$	(11	)	$	17,694
Mortgage-backed securities – GSE’s		34,321		1,087		-			35,408
Municipal bonds		16,169		608		-			16,777
	$	67,999	$	1,891	$	(11	)	$	69,879

As of June 30, 2016, accumulated other comprehensive income included net unrealized gains totaling $1.9 million. Deferred tax liabilities resulting from these net unrealized gains totaled $701,000.

	December 31, 2015
			Gross		Gross
	Amortized		unrealized		unrealized			Fair
	cost		gains		losses			value
	(dollars in thousands)
Securities available for sale:
U.S. government agencies – GSE’s	$	21,321	$	101	$	(196	)	$	21,226
Mortgage-backed securities – GSE’s		39,123		475		(62	)		39,536
Municipal bonds		19,484		465		(2	)		19,947
	$	79,928	$	1,041	$	(260	)	$	80,709

As of December 31, 2015, accumulated other comprehensive income included net unrealized gains totaling $781,000. Deferred tax liabilities resulting from these net unrealized gains totaled $291,000.

20

SELECT BANCORP, INC.
Notes to Consolidated Financial Statements (Unaudited)

NOTE E - INVESTMENT SECURITIES (continued)

The scheduled maturities of securities available for sale, with gross unrealized gains and losses, were as follows:

	June 30, 2016
			Gross		Gross
	Amortized		unrealized		unrealized			Fair
	cost		gains		losses			value
	(In thousands)
Securities available for sale:
Within 1 year	$	2,758	$	32	$	-		$	2,790
After 1 year but within 5 years		44,238		1,257		(4	)		45,491
After 5 years but within 10 years		12,173		215		(7	)		12,381
After 10 years		8,830		387		-			9,217
	$	67,999	$	1,891	$	(11	)	$	69,879

	December 31, 2015
			Gross		Gross
	Amortized		unrealized		unrealized			Fair
	cost		gains		losses			value
	(In thousands)
Securities available for sale:
Within 1 year	$	1,361	$	6	$	-		$	1,367
After 1 year but within 5 years		52,577		628		(99	)		53,106
After 5 years but within 10 years		17,297		146		(161	)		17,282
After 10 years		8,693		261		-			8,954
	$	79,928	$	1,041	$	(260	)	$	80,709

Securities with a carrying value of $42.4 million and $45.2 million at June 30, 2016 and December 31, 2015, respectively, were pledged to secure public monies on deposit as required by law, customer repurchase agreements, and access to the Federal Reserve Discount Window.

Since none of the unrealized losses relate to the liquidity of the securities or the issuer’s ability to honor redemption obligations and the Company has the intent and ability to hold these securities to recovery, no other than temporary impairments were identified for these investments having unrealized losses for the periods ended June 30, 2016 and December 31, 2015. In 2015, the Company did not incur a loss on the disposal of any security and it has not realized any losses related to the sale of securities in 2016.

21

SELECT BANCORP, INC.
Notes to Consolidated Financial Statements (Unaudited)

NOTE E- INVESTMENT SECURITIES (continued)

The following tables show the gross unrealized losses and fair value of the Company’s investment securities, aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position, at June 30, 2016 and December 31, 2015.

	June 30, 2016
	Less Than 12 Months					12 Months or More					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	value		losses			value		losses			value		losses
	(dollars in thousands)
Securities available for sale:
U.S. government agencies- GSE’s	$	1,779	$	(3	)	$	1,776	$	(8	)	$	3,555	$	(11	)
Total temporarily impaired securities	$	1,779	$	(3	)	$	1,776	$	(8	)	$	3,555	$	(11	)

At June 30, 2016, the Company had two AFS securities with an unrealized loss for twelve or more consecutive months. Two U.S. government agency GSE’s had unrealized losses for more than twelve months totaling $8,000 at June 30, 2016. Two U.S. government agency GSE’s had unrealized losses for less than twelve months totaling $3,000 at June 30, 2016. All unrealized losses are attributable to the general trend of interest rates. During the second quarter of 2016 there were no sales of investment securities. During the first six months of 2016 gross proceeds of investment sales amounted to $624,000 and gains of $22,000.

	December 31, 2015
	Less Than 12 Months					12 Months or More					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	value		losses			value		losses			value		losses
	(dollars in thousands)
Securities available for sale:
U.S. government agencies – GSE’s	$	7,039	$	(70	)	$	7,615	$	(126	)	$	14,654	$	(196	)
Mortgage-backed securities- GSE’s		7,916		(62	)		-		-			7,916		(62	)
Municipal bonds		111		(2	)		-		-			111		(2	)
Total temporarily impaired securities	$	15,066	$	(134	)	$	7,615	$	(126	)	$	22,681	$	(260	)

At December 31, 2015, the Company had five AFS securities with an unrealized loss for twelve or more consecutive months. Five U.S. government agency GSE’s had unrealized losses for more than twelve months totaling $126,000 at December 31, 2015. Six U.S. government agency GSE’s, one municipal and seven mortgage-backed GSE’s had unrealized losses for less than twelve months totaling $134,000 at December 31, 2015. All unrealized losses are attributable to the general trend of interest rates and the abnormal spreads of all debt instruments to U.S. Treasury securities. The Company did not incur a loss on any securities sold during 2015.

22

SELECT BANCORP, INC.
Notes to Consolidated Financial Statements (Unaudited)

NOTE F - LOANS

Following is a summary of the composition of the Company’s loan portfolio at June 30, 2016 and December 31, 2015:

	June 30,						December 31,
Total Loans:	2016						2015
				Percent						Percent
	Amount			of total			Amount			of total
	(dollars in thousands)
Real estate loans:
1-to-4 family residential	$	94,990			15.03	%	$	87,955			14.25	%
Commercial real estate		247,922			39.22	%		259,259			41.99	%
Multi-family residential		46,295			7.32	%		40,738			6.60	%
Construction		113,279			17.92	%		107,688			17.44	%
Home equity lines of credit (“HELOC”)		42,055			6.65	%		42,002			6.80	%
Total real estate loans		544,541			86.14	%		537,642			87.08	%
Other loans:
Commercial and industrial		80,154			12.68	%		73,491			11.90	%
Loans to individuals		8,452			1.34	%		7,207			1.17	%
Overdrafts		102			0.01	%		48			0.01	%
Total other loans		88,708			14.03	%		80,746			13.08	%
Gross loans		633,249						618,388
Less deferred loan origination fees, net		(1,062	)		(0.17	)%		(990	)		(0.16	)%
Total loans		632,187			100.00	%		617,398			100.00	%
Allowance for loan losses		(7,692	)					(7,021	)
Total loans, net	$	624,495					$	610,377

Loans are primarily secured by real estate located in eastern and central North Carolina. Real estate loans can be affected by the condition of the local real estate market and by local economic conditions.

At June 30, 2016, the Company had pre-approved but unused lines of credit for customers totaling $142.6 million. In management’s opinion, these commitments, and undisbursed proceeds on loans reflected above, represent no more than normal lending risk to the Company and will be funded from normal sources of liquidity.

A floating lien of $57.5 million of loans was pledged to the FHLB to secure borrowings at June 30, 2016.

23

SELECT BANCORP, INC.
Notes to Consolidated Financial Statements (Unaudited)

NOTE F - LOANS (continued)

A description of the various loan products provided by the Bank is presented below.

1-to-4 Family Residential Loans

Residential 1-to-4 family loans are mortgage loans secured by residential real estate within the Bank’s market areas. These loans may also include loans that convert from construction loans into permanent financing and are secured by properties within the Bank’s market areas.

Commercial Real Estate Loans

Commercial real estate loans are underwritten based on the borrower’s ability to generate adequate cash flow to repay the subject debt within reasonable terms. Commercial real estate loans typically include both owner and non-owner occupied properties with higher principal loan amounts. The repayment of these loans is generally dependent on the successful management of the property. Commercial real estate loans are sensitive to market and general economic conditions. Repayment analysis must be performed and consists of an identified primary/cash flow source of repayment and a secondary/liquidation source of repayment. The primary source of repayment is cash flow from income generated from rental or lease of the property. However, the cash flow can be supplemented with the borrower's and guarantor's global cash flow position. Other credit issues such as the business fundamentals and financial strength of the borrower/guarantor can be considered in determining adequacy of repayment ability. The secondary source of repayment is liquidation of the collateral, supplemented by a liquidation cushion provided by the financial assets of the borrower/guarantor. Management monitors and evaluates commercial real estate loans based on collateral, cash flow, market area, and risk grade.

Multi-family Residential Loans

Multi-family residential loans are typically non-farm properties with 5 or more dwelling units in structures which include apartment buildings used primarily to accommodate households on a more or less permanent basis. Successful performance of these types of loans is primarily dependent on occupancy rates, rental rates, and property management.

Construction Loans

Construction loans are non-revolving extensions of credit secured by real property of which the proceeds are used to acquire and develop land and to construct commercial or residential buildings. The primary source of repayment for these types of loans is the sale of the improved property or permanent financing in which case the property is expected to generate the cash flow necessary for repayment on a permanent loan basis. Property cash flow may be supplemented with financial support from the borrowers/guarantors. Proper underwriting of a construction loan consists of the initial process of obtaining, analyzing, and approving various aspects of information pertaining to: the analysis of the permanent financing source, creditworthiness of the borrower and guarantors, ability of the contractor to perform under the terms of the contract, and the feasibility, marketability, and valuation of the project.

24

SELECT BANCORP, INC.
Notes to Consolidated Financial Statements (Unaudited)

NOTE F - LOANS (continued)

Also, consideration is given to the cost of the project and sources of funds needed to complete construction as well as identifying any sources of equity funding. Construction loans are traditionally considered to be higher risk loans involving technical and legal requirements inherently different from other types of loans; however with thorough credit underwriting, proper loan structure, and diligent loan servicing, these risks can often be mitigated. Some examples of risks inherent in this type of lending include: underestimated costs, inflation of material and labor costs, site difficulties (i.e. rock, soil), project not built to plans, weather delays and natural disasters, borrower/contractor/subcontractor disputes which prompt liens, and interest rates increasing beyond budget.

Home Equity Lines of Credit

Home equity lines of credit are consumer-purpose revolving extensions of credit which are secured by first or second liens on owner-occupied residential real estate. Appropriate risk management and compliance practices are exercised to ensure that loan-to-value, lien perfection, and compliance risks are addressed and managed within the Bank’s established guidelines. The degree of utilization of revolving commitments within this loan segment is reviewed periodically to identify changes in the behavior of this borrowing group.

Commercial and Industrial Loans

Commercial and industrial loans are underwritten after evaluating and understanding the borrower’s ability to generate positive cash flow, operate profitably and prudently expand its business. Underwriting standards are designed to promote relationships to include a full range of loan, deposit, and cash management services. Commercial and industrial loans are primarily made based on the identified cash flows of the borrower and secondarily on the underlying collateral provided by the borrower and the guarantors. The cash flows of the borrower, however, may not be as expected and the collateral securing these loans may fluctuate in value. In the case of loans secured by accounts receivable, the availability of funds for repayment can be impacted by the borrower’s ability to collect amounts due from its customers.

Loans to Individuals & Overdrafts

Consumer loans are approved using Bank policies and procedures established to evaluate each credit request. All lending decisions and credit risks are required to be clearly documented. Several factors are considered in making these decisions such as credit score, adjusted net worth, liquidity, debt ratio, disposable income, credit history, and loan-to-value of the collateral. This process, combined with the relatively smaller loan amounts spreads the risk among many individual borrowers. Overdrafts on customer accounts are classified as loans for reporting purposes.

25

SELECT BANCORP, INC.
Notes to Consolidated Financial Statements (Unaudited)

NOTE F - LOANS (continued)

The following tables present an age analysis of past due loans, segregated by class of loans as of June 30, 2016 and December 31, 2015, respectively:

Total Loans:	June 30, 2016
	30+		Non-		Total
	Days		Accrual		Past				Total
	Past Due		Loans		Due		Current		Loans
	(dollars in thousands)
Commercial and industrial	$	150	$	84	$	234	$	79,920	$	80,154
Construction		143		423		566		112,713		113,279
Multi-family residential		-		367		367		45,928		46,295
Commercial real estate		84		3,690		3,774		244,148		247,922
Loans to individuals & overdrafts		21		155		176		8,378		8,554
1-to-4 family residential		1,024		781		1,805		93,185		94,990
HELOC		-		360		360		41,695		42,055
Deferred loan (fees) cost, net		-		-		-		-		(1,062	)
	$	1,422	$	5,860	$	7,282	$	625,967	$	632,187

There were three loans that amounted to $571,000 that were more than 90 days past due and still accruing interest at June 30, 2016.

	December 31, 2015
	30+		Non-		Total
	Days		Accrual		Past				Total
	Past Due		Loans		Due		Current		Loans
	(dollars in thousands)
Total Loans
Commercial and industrial	$	455	$	13	$	468	$	73,023	$	73,491
Construction		-		523		523		107,165		107,688
Multi-family residential		44		431		475		40,263		40,738
Commercial real estate		1,214		3,711		4,925		254,334		259,259
Loans to individuals & overdrafts		14		4		18		7,237		7,255
1-to-4 family residential		650		1,594		2,244		85,711		87,955
HELOC		124		359		483		41,519		42,002
Deferred loan (fees) cost, net		-		-		-		-		(990	)
	$	2,501	$	6,635	$	9,136	$	609,252	$	617,398

There was one loan in the amount of $142,000 greater than 90 days past due and still accruing interest at December 31, 2015.

26

SELECT BANCORP, INC.
Notes to Consolidated Financial Statements (Unaudited)

NOTE F - LOANS (continued)

Impaired Loans

The following tables present information on loans that were considered to be impaired as of June 30, 2016 and December 31, 2015:

							Three months ended				Six months ended
	As of June 30, 2016						June 30, 2016				June 30, 2016
			Contractual						Interest Income				Interest Income
			Unpaid				Average		Recognized on		Average		Recognized on
	Recorded		Principal		Related		Recorded		Impaired		Recorded		Impaired
	Investment		Balance		Allowance		Investment		Loans		Investment		Loans
	(In thousands)
With no related allowance recorded:
Commercial and industrial	$	370	$	371	$	-	$	469	$	2	$	237	$	8
Construction		511		637		-		558		2		563		6
Commercial real estate		3,749		5,346		-		3,304		29		4,378		72
Loans to individuals & overdrafts		-		-		-		-		-		-		-
Multi-family residential		367		375		-		368		3		397		8
1-to-4 family residential		1,250		1,546		-		1,257		36		1,656		52
HELOC		623		787		-		658		10		661		18
Subtotal:		6,870		9,062		-		6,614		82		7,892		164
With an allowance recorded:
Commercial and industrial		65		65		7		35		-		39		1
Construction		-		-		-		-		-		-		-
Commercial real estate		3,082		3,692		96		3,389		4		2,165		18
Loans to individuals & overdrafts		-		-		-		-		-		2		-
Multi-family residential		-		-		-		-		-		-		-
1-to-4 family residential		277		277		12		314		2		284		8
HELOC		33		35		-		41		-		16		-
Subtotal:		3,457		4,069		115		3,779		6		2,506		27
Totals:
Commercial		8,144		10,486		103		8,123		40		7,779		113
Consumer		-		-		-		-		-		2		-
Residential		2,183		2,645		12		2,270		48		2,617		78
Grand Total:	$	10,327	$	13,131	$	115	$	10,393	$	88	$	10,398	$	191

Impaired loans at June 30, 2016 were approximately $10.3 million and were composed of $5.9 million in nonaccrual loans and $4.4 million in loans that were still accruing interest. Recorded investment represents the current principal balance of the loan. Approximately $3.5 million in impaired loans had specific allowances provided for them while the remaining $6.9 million had no specific allowances recorded at June 30, 2016. Of the $6.9 million with no allowance recorded, $1.4 million of those loans have had partial charge-offs recorded.

27

SELECT BANCORP, INC.
Notes to Consolidated Financial Statements (Unaudited)

NOTE G - LOANS (continued)

Impaired Loans (continued)

							Three months ended				Six months ended
	As of December 31, 2015						June 30, 2015				June 30, 2015
			Contractual						Interest Income				Interest Income
			Unpaid				Average		Recognized on		Average		Recognized on
	Recorded		Principal		Related		Recorded		Impaired		Recorded		Impaired
	Investment		Balance		Allowance		Investment		Loans		Investment		Loans
	(In thousands)
With no related allowance recorded:
Commercial and industrial	$	105	$	106	$	-	$	640	$	6	$	606	$	38
Construction		615		764		-		973		10		1,095		23
Commercial real estate		5,006		7,229		-		2,556		49		2,468		93
Loans to individuals & overdrafts		-		-		-		-		-		-		-
Multi-family residential		-		-		-		1,769		21		1,785		43
1 to 4 family residential		2,061		2,666		-		2,485		28		2,368		59
HELOC		699		868		-		641		9		641		20
Subtotal:		8,486		11,633		-		9,064		123		8,963		276
With an allowance recorded:
Commercial and industrial		13		13		2		11		-		138		-
Construction		-		-		-		166		1		166		2
Commercial real estate		1,248		1,314		73		4,436		19		4,643		80
Loans to individuals & overdrafts		4		4		4		-		-		-		-
Multi-family residential		-		-		-		-		-		-		-
1 to 4 family residential		290		290		15		495		6		476		10
HELOC		-		-		-		288		-		289		-
Subtotal:		1,555		1,621		94		5,396		26		5,712		92
Totals:
Commercial		6,987		9,426		75		10,551		106		10,901		279
Consumer		4		4		4		-		-		-		-
Residential		3,050		3,824		15		3,909		43		3,774		89
Grand Total:	$	10,041	$	13,254	$	94	$	14,460	$	149	$	14,675	$	368

Impaired loans at December 31, 2015 were approximately $10.0 million and consisted of $6.6 million in non-accrual loans and $3.4 million in loans still in accruing status. Recorded investment represents the current principal balance for the loan. Approximately, $1.6 million of the $10.0 million in impaired loans at December 31, 2015 had specific allowances recorded while the remaining $8.4 million had no specific allowances recorded. Of the $8.5 million with no allowance recorded, $1.6 million of those loans have had partial charge-offs recorded.

Loans are placed on non-accrual status when it has been determined that all contractual principal and interest will not be received. Any payments received on these loans are applied to principal first and then to interest only after all principal has been collected. In the case of an impaired loan that is still on accrual basis, payments are applied to both principal and interest.

28

SELECT BANCORP, INC.
Notes to Consolidated Financial Statements (Unaudited)

NOTE G - LOANS (continued)

Troubled Debt Restructurings

The following table presents loans that were modified as troubled debt restructurings (“TDRs”) with a breakdown of the types of concessions made by loan class during the three and six months ended June 30, 2016 and 2015:

	Three months ended June 30, 2016						Six months ended June 30, 2016
			Pre-		Post-				Pre-		Post-
			Modification		Modification				Modification		Modification
			Outstanding		Outstanding				Outstanding		Outstanding
	Number		Recorded		Recorded		Number		Recorded		Recorded
	of loans		Investment		Investment		of loans		Investment		Investment
	(Dollars in thousands)
Extended payment terms:
1-to-4 family residential		1	$	49	$	49		1	$	49	$	49
C & I		2		251		160		3		296		206
Consumer		1		4		4		1		4		4
Total		4	$	304	$	213		5	$	349	$	259

	Three months ended June 30, 2015						Six months ended June 30, 2015
			Pre-		Post-				Pre-		Post-
			Modification		Modification				Modification		Modification
			Outstanding		Outstanding				Outstanding		Outstanding
	Number		Recorded		Recorded		Number		Recorded		Recorded
	of loans		Investment		Investment		of loans		Investment		Investment
	(Dollars in thousands)
Below market interest rate:
1-to-4 family residential		-	$	-	$	-		1	$	22	$	22
Total		-	$	-	$	-		1	$	22	$	22

Loans may be considered troubled debt restructurings for reasons other than below market interest rates, extended payment terms or forgiveness of principal.

29

SELECT BANCORP, INC.
Notes to Consolidated Financial Statements (Unaudited)

NOTE G - LOANS (continued)

Troubled Debt Restructurings (continued)

The following table presents loans that were modified as TDRs within the past twelve months with a breakdown of the types for which there was a payment default together with concessions made by loan class during the twelve month period ended June 30, 2016 and 2015:

	Twelve months ended				Twelve months ended
	June 30, 2016				June 30, 2015
	Number		Recorded		Number		Recorded
	of loans		investment		of loans		investment
	(Dollars in thousands)
Extended payment terms:
Commercial real estate		3	$	206		1	$	140
Consumer		1		4		-		-
Multi-family residential		1		370		-		-
1-to-4 family residential		1		49		-		-
Total		6	$	629		1	$	140

At June 30, 2016, the Bank had thirty five loans with an aggregate balance of $4.2 million that were considered to be troubled debt restructurings. Of those TDRs, twenty-six loans with a balance totaling $2.9 million were still accruing as of June 30, 2016. The remaining TDRs with balances totaling $1.3 million as of June 30, 2016 were in non-accrual status.

At June 30, 2015, the Bank had forty one loans with an aggregate balance of $6.7 million that were considered to be troubled debt restructurings. Of those TDRs, twenty-four loans with a balance totaling $3.7 million were still accruing as of June 30, 2015. The remaining TDRs with balances totaling $3.0 million as of June 30, 2015 were in non-accrual status.

Credit Quality Indicators

As part of the on-going monitoring of the credit quality of the loan portfolio, management utilizes a risk grading matrix to assign a risk grade to each of the Company’s loans. All non-consumer loans are graded on a scale of 1 to 9. A description of the general characteristics of these nine different risk grades is as follows:

· Risk Grade 1 (Superior) - Credits in this category are virtually risk-free and are well-collateralized by cash-equivalent instruments. The repayment program is well-defined and achievable. Repayment sources are numerous. No material documentation deficiencies or exceptions exist.

· Risk Grade 2 (Very Good) - This grade is reserved for loans secured by readily marketable collateral, or loans within guidelines to borrowers with liquid financial statements. A liquid financial statement is a financial statement with substantial liquid assets relative to debts. These loans have excellent sources of repayment, with no significant identifiable risk of collection, and conform in all respects to Bank policy, guidelines, underwriting standards, and Federal and State regulations (no exceptions of any kind).

30

SELECT BANCORP, INC.
Notes to Consolidated Financial Statements (Unaudited)

NOTE G - LOANS (continued)

Credit Quality Indicators (continued)

· Risk Grade 3 (Good) - These loans have excellent sources of repayment, with no significant identifiable risk of collection. Generally, loans assigned this risk grade will demonstrate the following characteristics: Conformity in all respects with Bank policy, guidelines, underwriting standards, and Federal and State regulations (no exceptions of any kind). Loans assigned this risk grade will demonstrate the following characteristics:

o Documented historical cash flow that meets or exceeds required minimum Bank guidelines, or that can be supplemented with verifiable cash flow from other sources.

o Adequate secondary sources to liquidate the debt, including combinations of liquidity, liquidation of collateral, or liquidation value to the net worth of the borrower or guarantor.

· Risk Grade 4 (Acceptable) - This grade is given to acceptable loans. These loans have adequate sources of repayment, with little identifiable risk of collection. Loans assigned this risk grade will demonstrate the following characteristics:

o General conformity to the Bank's policy requirements, product guidelines and underwriting standards, with limited exceptions. Any exceptions that are identified during the underwriting and approval process have been adequately mitigated by other factors.

o Documented historical cash flow that meets or exceeds required minimum Bank guidelines, or that can be supplemented with verifiable cash flow from other sources.  

o Adequate secondary sources to liquidate the debt, including combinations of liquidity, liquidation of collateral, or liquidation value to the net worth of the borrower or guarantor.

· Risk Grade 5 (Acceptable With Care) - This grade is given to acceptable loans that show signs of weakness in either adequate sources of repayment or collateral, but have demonstrated mitigating factors that minimize the risk of delinquency or loss.  Loans assigned this grade may demonstrate some or all of the following characteristics:

o Additional exceptions to the Bank's policy requirements, product guidelines or underwriting standards that present a higher degree of risk to the Bank.  Although the combination and/or severity of identified exceptions is greater, all exceptions have been properly mitigated by other factors.

o Unproven, insufficient or marginal primary sources of repayment that appear sufficient to service the debt at this time.  Repayment weaknesses may be due to minor operational issues, financial trends, or reliance on projected (not historic) performance.

o Marginal or unproven secondary sources to liquidate the debt, including combinations of liquidation of collateral and liquidation value to the net worth of the borrower or guarantor.

· Risk Grade 6 (Watch List or Special Mention) – Loans in this category can have the following characteristics:

o Loans with underwriting guideline tolerances and/or exceptions and with no mitigating factors.

o Extending loans that are currently performing satisfactorily but with potential weaknesses that may, if not corrected, weaken the asset or inadequately protect the Bank's position at some future date. Potential weaknesses are the result of deviations from prudent lending practices.

31

SELECT BANCORP, INC.
Notes to Consolidated Financial Statements (Unaudited)

NOTE G - LOANS (continued)

Credit Quality Indicators (continued)

o Loans where adverse economic conditions that develop subsequent to the loan origination that don't jeopardize liquidation of the debt but do substantially increase the level of risk may also warrant this rating.

· Risk Grade 7 (Substandard) - A Substandard loan is inadequately protected by the current sound net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans classified as Substandard must have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt; they are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected. Loans consistently not meeting the repayment schedule should be downgraded to substandard. Loans in this category are characterized by deterioration in quality exhibited by any number of well-defined weaknesses requiring corrective action.

· Risk Grade 8 (Doubtful) - Loans classified Doubtful have all the weaknesses inherent in loans classified Substandard, plus the added characteristic that the weaknesses make collection or liquidation in full on the basis of currently existing facts, conditions, and values highly questionable and improbable. However, these loans are not yet rated as loss because certain events may occur which would salvage the debt.

· Risk Grade 9 (Loss) - Loans classified as Loss are considered uncollectable and of such little value that their continuance as bankable assets is not warranted. This classification does not mean that the asset has absolutely no recovery or salvage value, but rather that it is not practical or desirable to defer writing off the loan even though partial recovery may be affected in the future.

Consumer loans are graded on a scale of 1 to 9. A description of the general characteristics of the nine risk grades is as follows:

· Risk Grades 1 – 5 (Pass) – The loans in this category range from loans secured by cash with no risk of principal deterioration (Risk Grade 1) to loans that show signs of weakness in either adequate sources of repayment or collateral but have demonstrated mitigating factors that minimize the risk of delinquency or loss (Risk Grade 5).

· Risk Grade 6 (Watch List or Special Mention) - Watch List or Special Mention loans include the following characteristics:

o Loans within guideline tolerances or with exceptions of any kind that have not been mitigated by other economic or credit factors.

o Extending loans that are currently performing satisfactorily but with potential weaknesses that may, if not corrected, weaken the asset or inadequately protect the Bank's position at some future date. Potential weaknesses are the result of deviations from prudent lending practices.

o Loans where adverse economic conditions that develop subsequent to the loan origination that don't jeopardize liquidation of the debt but do substantially increase the level of risk may also warrant this rating.

· Risk Grade 7 (Substandard) - A Substandard loan is inadequately protected by the current sound net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans classified as Substandard must have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt; they are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

32

SELECT BANCORP, INC.
Notes to Consolidated Financial Statements (Unaudited)

NOTE G - LOANS (continued)

Credit Quality Indicators (continued)

· Risk Grade 8 (Doubtful) - Loans classified Doubtful have all the weaknesses inherent in loans classified Substandard, plus the added characteristic that the weaknesses make collection or liquidation in full on the basis of currently existing facts, conditions, and values highly questionable and improbable. However, these loans are not yet rated as loss because certain events may occur which would salvage the debt.

· Risk Grade 9 (Loss) - Loans classified Loss are considered uncollectable and of such little value that their continuance as bankable assets is not warranted. This classification does not mean that the asset has absolutely no recovery or salvage value, but rather that it is not practical or desirable to defer writing off this worthless loan even though partial recovery may be affected in the future.

33

SELECT BANCORP, INC.
Notes to Consolidated Financial Statements (Unaudited)

NOTE G - LOANS (continued)

The following tables present information on risk ratings of the commercial and consumer loan portfolios, segregated by loan class as of June 30, 2016 and December 31, 2015, respectively:

Total loans:

June 30, 2016
Commercial
Credit
Exposure By	Commercial				Commercial
Internally	and				real		Multi-family
Assigned Grade	industrial		Construction		estate		residential
(In thousands)
Superior	$	598	$	-	$	-	$	-
Very good		384		355		480		-
Good		10,848		5,209		25,611		2,399
Acceptable		28,765		18,228		139,926		29,721
Acceptable with care		38,280		88,731		70,340		13,500
Special mention		696		184		5,495		48
Substandard		583		572		6,070		627
Doubtful		-		-		-		-
Loss		-		-		-		-
	$	80,154	$	113,279	$	247,922	$	46,295

Consumer Credit
Exposure By
Internally	1-to-4 family
Assigned Grade	residential		HELOC
Pass	$	88,804	$	41,146
Special mention		2,981		136
Substandard		3,205		773
	$	94,990	$	42,055

Consumer Credit
Exposure Based	Loans to
On Payment	individuals &
Activity	overdrafts
Pass	$	8,540
Non –pass		14
	$	8,554

34

SELECT BANCORP, INC.
Notes to Consolidated Financial Statements (Unaudited)

NOTE G - LOANS (continued)

Total Loans:

December 31, 2015
Commercial
Credit
Exposure By	Commercial				Commercial
Internally	and				real		Multi-family
Assigned Grade	industrial		Construction		estate		residential
(dollars in thousands)
Superior	$	730	$	-	$	-	$	-
Very good		1,314		355		114		-
Good		8,241		5,827		26,538		-
Acceptable		25,014		19,059		144,717		32,355
Acceptable with care		37,980		79,817		74,169		7,685
Special mention		58		2,015		7,657		-
Substandard		154		615		6,064		698
Doubtful		-		-		-		-
Loss		-		-		-		-
	$	73,491	$	107,688	$	259,259	$	40,738

Consumer Credit
Exposure By
Internally	1-to-4 family
Assigned Grade	residential		HELOC
Pass	$	80,596	$	40,770
Special mention		3,678		448
Substandard		3,681		784
	$	87,955	$	42,002

Consumer Credit
Exposure Based	Loans to
On Payment	individuals &
Activity	overdrafts
Pass	$	7,236
Non-pass		19
	$	7,255

35

SELECT BANCORP, INC.
Notes to Consolidated Financial Statements (Unaudited)

NOTE G - LOANS (continued)

Determining the fair value of Purchased Credit Impaired (PCI) loans at acquisition required the Company to estimate cash flows expected to result from those loans and to discount those cash flows at appropriate rates of interest. For such loans, the excess of cash flows expected to be collected at acquisition over the estimated fair value is recognized as interest income over the remaining lives of the loans and is called the accretable yield. The difference between contractually required payments at acquisition and the cash flows expected to be collected at acquisition reflects the impact of estimated credit losses and is called the nonaccretable difference. In accordance with GAAP, there was no carry-over of previously established allowance for credit losses from the acquired company.

The following table documents changes to the amount of the accretable yield on PCI loans for the three and six months ended June 30, 2016 (dollars in thousands):

	Three Months			Six Months
	Ended June 30,			Ended June 30,
	2016			2016
	(Dollars in thousands)
Accretable yield, beginning of period	$	2,657		$	2,822
Accretion		(264	)		(534	)
Reclassification from (to) nonaccretable difference		(6	)		2
Other changes, net		181			278
Accretable yield, end of period	$	2,568		$	2,568

Allowance for Loan Losses

The allowance for loan losses is a reserve established through provisions for loan losses charged to income and represents management’s best estimate of probable loan losses that have been incurred within the existing portfolio of loans. The allowance, in the judgment of management, is necessary to reserve for estimated losses and risk inherent in the loan portfolio. The Company’s allowance for loan loss methodology is based on historical loss experience by type of credit and internal risk grade, specific homogeneous risk pools and specific loss allocations, with adjustments for current events and conditions. The Company’s process for determining the appropriate level of reserves is designed to account for changes in credit quality as they occur. The provision for loan losses reflects loan quality trends, including the levels of and trends related to past due loans and economic conditions at the local and national levels. It also considers the quality and risk characteristics of the Company’s loan origination and servicing policies and practices.

The Company’s allowance for loan losses model calculates historical loss rates by using a loss migration analysis associating losses to the risk-graded pool to which they relate for each of the previous twelve quarters. Then, using the twelve quarter look back period, loss factors are calculated for each risk-graded pool. The model incorporates various internal and external qualitative and environmental factors as described in the Interagency Policy Statement on the Allowance for Loan and Lease Losses, dated December 2006. Input for these factors is determined on the basis of management observation, judgment, and experience. The factors utilized by the Company in the model for all loan classes are as follows:

36

SELECT BANCORP, INC.
Notes to Consolidated Financial Statements (Unaudited)

NOTE G - LOANS (continued)

Allowance for Loan Losses (continued)

Internal Factors

· Concentrations – Measures the increased risk derived from concentration of credit exposure in particular industry segments within the portfolio.

· Policy exceptions – Measures the risk derived from granting terms outside of underwriting guidelines.

· Compliance exceptions– Measures the risk derived from granting terms outside of regulatory guidelines.

· Document exceptions– Measures the risk exposure resulting from the inability to collect due to improperly executed documents and collateral imperfections.

· Financial information monitoring – Measures the risk associated with not having current borrower financial information.

· Nonaccrual – Reflects increased risk of loans with characteristics that merit nonaccrual status.

· Delinquency – Reflects the increased risk deriving from higher delinquency rates.

· Personnel turnover – Reflects staff competence in various types of lending.

· Portfolio growth – Measures the impact of growth and potential risk derived from new loan production.

External Factors

· GDP growth rate – Impact of general economic factors that affect the portfolio.

· North Carolina unemployment rate – Impact of local economic factors that affect the portfolio.

· Peer group delinquency rate – Measures risk associated with the credit requirements of competitors.

· Prime rate change – Measures the effect on the portfolio in the event of changes in the prime lending rate.

Each pool is assigned an adjustment to the potential loss percentage by assessing its characteristics against each of the factors listed above.

Reserves are generally divided into three allocation segments:

1. Individual reserves. These are calculated according to ASC Section 310-10-35 against loans evaluated individually and deemed to be most likely impaired.  All loans in non-accrual status and all substandard loans that are deemed to be collateral dependent are assessed for impairment. Loans are deemed uncollectible based on a variety of credit, collateral, documentation and other issues. In the case of uncollectible receivables, the collateral is considered unsecured and therefore fully charged off.

2. Formula reserves. Formula reserves are held against loans evaluated collectively. Loans are grouped by type or by risk grade, or some combination of the two. Loss estimates are based on historical loss rates for each respective loan group. Formula reserves represent the Company’s best estimate of losses that may be inherent, or embedded, within the group of loans, even if it is not apparent at this time which loans within any group or pool represent those embedded losses.

37

SELECT BANCORP, INC.
Notes to Consolidated Financial Statements (Unaudited)

NOTE G - LOANS (continued)

Allowance for Loan Losses (continued)

3. Qualitative and external reserves. If individual reserves represent estimated losses tied to specific loans, and formula reserves represent estimated losses tied to a pool of loans but not yet to any specific loan, then these reserves represent an estimate of likely incurred losses, but are not yet tied to any loan or group of loans.

All information related to the calculation of the three segments, including data analysis, assumptions, and calculations are documented. Assigning specific individual reserve amounts, formula reserve factors, or unallocated amounts based on unsupported assumptions or conclusions is not permitted.

38

SELECT BANCORP, INC.
Notes to Consolidated Financial Statements (Unaudited)

NOTE G - LOANS (continued)

Allowance for Loan Losses (Continued)

The following tables present a roll forward of the Company’s allowance for loan losses by loan class for the three and six month periods ended June 30, 2016, respectively:

	Three months ended June 30, 2016
	Commercial									1 to 4						Loans to			Multi-
	and						Commercial			family						individuals &			family
Allowance for loan losses	industrial			Construction			real estate			residential			HELOC			overdrafts			residential		Total
	(Dollars in thousands)
Loans – excluding PCI
Balance, beginning of period	$	1,055		$	1,401		$	3,217		$	688		$	585		$	150		$	422	$	7,518
Provision for loan losses		66			107			49			(101	)		(102	)		22			101		142
Loans charged-off		(40	)		(1	)		(185	)		-			(1	)		(9	)		-		(236	)
Recoveries		5			4			32			185			11			6			-		243
Balance, end of period	$	1,086		$	1,511		$	3,113		$	772		$	493		$	169		$	523	$	7,667
PCI Loans
Balance, beginning of period	$	-		$	-		$	-		$	-		$	9		$	-		$	-	$	9
Provision for loan losses		16			-			-			-			-			-			-		16
Loans charged-off		-			-			-			-			-			-			-		-
Recoveries		-			-			-			-			-			-			-		-
Balance, end of period	$	16		$	-		$	-		$	-		$	9		$	-		$	-	$	25
Total Loans
Balance, beginning of period	$	1,055		$	1,401		$	3,217		$	688		$	594		$	150		$	422	$	7,527
Provision for loan losses		82			107			49			(101	)		(102	)		22			101		158
Loans charged-off		(40	)		(1	)		(185	)		-			(1	)		(9	)		-		(236	)
Recoveries		5			4			32			185			11			6			-		243
Balance, end of period	$	1,102		$	1,511		$	3,113		$	772		$	502		$	169		$	523	$	7,692
Ending Balance: individually evaluated for impairment	$	7		$	-		$	96		$	12		$	-		$	-		$	-	$	115
Ending Balance: collectively evaluated for impairment	$	1,095		$	1,511		$	3,017		$	760		$	502		$	169		$	523	$	7,577
Loans:
Ending Balance: collectively evaluated for impairment	$	79,719		$	112,768		$	241,091		$	93,463		$	41,399		$	8,554		$	45,928	$	622,922
Ending Balance: individually evaluated for impairment	$	435		$	511		$	6,831		$	1,527		$	656		$	-		$	367	$	10,327
Ending Balance	$	80,154		$	113,279		$	247,922		$	94,990		$	42,055		$	8,554		$	46,295	$	633,249

39

SELECT BANCORP, INC.
Notes to Consolidated Financial Statements (Unaudited)

	Six months ended June 30, 2016
	Commercial									1 to 4						Loans to			Multi-
	and						Commercial			family						individuals &			family
Allowance for loan losses	industrial			Construction			real estate			residential			HELOC			overdrafts			residential		Total
	(Dollars in thousands)
Loans – excluding PCI
Balance, beginning of period	$	922		$	1,386		$	3,005		$	605		$	564		$	137		$	393	$	7,012
Provision for loan losses		198			116			219			(114	)		(96	)		41			130		494
Loans charged-off		(41	)		(2	)		(185	)		-			(1	)		(18	)		-		(247	)
Recoveries		7			11			74			281			26			9			-		408
Balance, end of period	$	1,086		$	1,511		$	3,113		$	772		$	493		$	169		$	523	$	7,667
PCI Loans
Balance, beginning of period	$	-		$	-		$	-		$	-		$	9		$	-		$	-	$	9
Provision for loan losses		16			-			-			-			-			-			-		16
Loans charged-off		-			-			-			-			-			-			-		-
Recoveries		-			-			-			-			-			-			-		-
Balance, end of period	$	16		$	-		$	-		$	-		$	9		$	-		$	2	$	25
Total Loans
Balance, beginning of period	$	922		$	1,386		$	3,005		$	605		$	573		$	137		$	393	$	7,021
Provision for loan losses		214			116			219			(114	)		(96	)		41			130		510
Loans charged-off		(41	)		(2	)		(185	)		-			(1	)		(18	)		-		(247	)
Recoveries		7			11			74			281			26			9			-		408
Balance, end of period	$	1,102		$	1,511		$	3,113		$	772		$	502		$	169		$	523	$	7,692

40

SELECT BANCORP, INC.
Notes to Consolidated Financial Statements (Unaudited)

NOTE G - LOANS (continued)

Allowance for Loan Losses (Continued)

The following tables present a roll forward of the Company’s allowance for loan losses by loan class for the three and six month periods ended June 30, 2015, respectively:

	Three months ended June 30, 2015
	Commercial								1 to 4						Loans to			Multi-
	and					Commercial			family						individuals &			family
Allowance for loan losses	industrial			Construction		real estate			residential			HELOC			overdrafts			residential			Total
	(Dollars in thousands)
Loans – excluding PCI
Balance, beginning of period	$	982		$	1,209	$	2,845		$	606		$	851		$	167		$	259		$	6,919
Provision for loan losses		192			100		(283	)		(45	)		(96	)		(7	)		(68	)		(207	)
Loans charged-off		(130	)		-		-			-			-			(11	)		(5	)		(146	)
Recoveries		33			4		11			41			9			4			106			208
Balance, end of period	$	1,077		$	1,313	$	2,573		$	602		$	764		$	153		$	292		$	6,774
PCI Loans
Balance, beginning of period	$	-		$	-	$	-		$	-		$	-		$	-		$	-		$	-
Provision for loan losses		-			-		57			-			9			-			2			68
Loans charged-off		-			-		-			-			-			-			-			-
Recoveries		-			-		-			-			-			-			-			-
Balance, end of period	$	-		$	-	$	57		$	-		$	9		$	-		$	2		$	68
Total Loans
Balance, beginning of period	$	982		$	1,209	$	2,845		$	606		$	851		$	167		$	259		$	6,919
Provision for loan losses		192			100		(226	)		(45	)		(87	)		(7	)		(66	)		(139	)
Loans charged-off		(130	)		-		-			-			-			(11	)		(5	)		(146	)
Recoveries		33			4		11			41			9			4			106			208
Balance, end of period	$	1,077		$	1,313	$	2,630		$	602		$	773		$	153		$	294		$	6,842
Ending Balance: individually evaluated for impairment	$	3		$	78	$	299		$	66		$	108		$	-		$	-		$	554
Ending Balance: collectively evaluated for impairment	$	1,074		$	1,235	$	2,331		$	536		$	665		$	153		$	294		$	6,288
Loans:
Ending Balance: collectively evaluated for impairment	$	69,875		$	94,977	$	229,561		$	82,990		$	36,783		$	6,042		$	40,515		$	560,743
Ending Balance: individually evaluated for impairment	$	529		$	1,056	$	6,910		$	2,936		$	939		$	-		$	1,337		$	13,707
Ending Balance	$	70,404		$	96,033	$	236,471		$	85,926		$	37,722		$	6,042		$	41,852		$	574,450

41

SELECT BANCORP, INC.
Notes to Consolidated Financial Statements (Unaudited)

	Six months ended June 30, 2015
	Commercial								1 to 4						Loans to			Multi-
	and					Commercial			family						individuals &			family
Allowance for loan losses	industrial			Construction		real estate			residential			HELOC			overdrafts			residential			Total
	(Dollars in thoudands)
Loans – excluding PCI
Balance, beginning of period	$	803		$	1,103	$	2,914		$	630		$	930		$	185		$	279		$	6,844
Provision for loan losses		365			202		(323	)		(85	)		(137	)		(11	)		(88	)		(77	)
Loans charged-off		(130	)		-		(29	)		-			(40	)		(35	)		(5	)		(239	)
Recoveries		39			8		11			57			11			14			106			246
Balance, end of period	$	1,077		$	1,313	$	2,573		$	602		$	764		$	153		$	292		$	6,774
PCI Loans
Balance, beginning of period	$	-		$	-	$	-		$	-		$	-		$	-		$	-		$	-
Provision for loan losses		-			-		57			-			9			-			2			68
Loans charged-off		-			-		-			-			-			-			-			-
Recoveries		-			-		-			-			-			-			-			-
Balance, end of period	$	-		$	-	$	57		$	-		$	9		$	-		$	2		$	68
Total Loans
Balance, beginning of period	$	803		$	1,103	$	2,914		$	630		$	930		$	185		$	279		$	6,844
Provision for loan losses		365			202		(266	)		(85	)		(128	)		(11	)		(86	)		(9	)
Loans charged-off		(130	)		-		(29	)		-			(40	)		(35	)		(5	)		(239	)
Recoveries		39			8		11			57			11			14			106			246
Balance, end of period	$	1,077		$	1,313	$	2,630		$	602		$	773		$	153		$	294		$	6,842

42

SELECT BANCORP, INC.
Notes to Consolidated Financial Statements (Unaudited)

NOTE H – ACCUMULATED OTHER COMPREHENSIVE INCOME

The following table presents changes in accumulated other comprehensive income for the three and six months ended June 30, 2016 and 2015.

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2016			2015			2016			2015
	(In thousands)
Beginning balance	$	953		$	1,131		$	490		$	809
Unrealized gain (loss) on investment securities available for sale		338			(680	)		1,099			(72	)
Tax effect		(113	)		259			(397	)		25
Other comprehensive gain (loss) before reclassification		225			(421	)		702			(47	)
Amounts reclassified from accumulated comprehensive income:
Realized gains on investment securities included in net income		-			(134	)		(22	)		(219	)
Tax effect		-			45			8			78
Total reclassifications net of tax		-			(89	)		(14	)		(141	)
Net current period other comprehensive income (loss)		225			(510	)		688			(188	)
Ending balance	$	1,178		$	621		$	1,178		$	621

The income statement line items impacted by the reclassifications of realized gains (losses) on investment securities are the gain on the sale of securities and income tax expense line items in the consolidated statement of operations.

NOTE I - REPURCHASE AGREEMENTS

We utilize securities sold under agreements to repurchase to facilitate the needs of our customers and secure long-term funding needs. Repurchase agreements are transactions whereby we offer to sell to a counterparty an undivided interest in an eligible security at an agreed upon purchase price, and which obligates the Company to repurchase the security on an agreed upon date at an agreed upon repurchase price plus interest at an agreed upon rate. Securities sold under agreements to repurchase are recorded at the amount of cash received in connection with the transaction and are reflected as short-term borrowings.

We monitor collateral levels on a continuous basis and maintain records of each transaction specifically describing the applicable security and the counterparty’s fractional interest in that security, and we segregate the security from its general assets in accordance with regulations governing custodial holdings of securities. The primary risk with our repurchase agreements is market risk associated with the investments securing the transactions, as we may be required to provide additional collateral based on fair value changes of the underlying investments. Securities pledged as collateral under repurchase agreements are maintained with our safekeeping agents. The carrying value of available for sale investment securities pledged as collateral under repurchase agreements totaled $9.4 million and $12.1 million at June 30, 2016 and December 31, 2015, respectively.

43

SELECT BANCORP, INC.
Notes to Consolidated Financial Statements (Unaudited)

NOTE I - REPURCHASE AGREEMENTS (continued)

The remaining contractual maturity of the securities sold under agreements to repurchase by class of collateral pledged included in short-term borrowings as of June 30, 2016 and December 31, 2015 is presented in the following tables.

	June 30, 2016
	Remaining Contractual Maturity of the Agreements
	Overnight and		Up to 30		30-90		Greater than
(Dollars in thousands)	continuous		Days		Days		90 Days		Total
Repurchase agreements
U.S. government agencies-GSE’s	$	3,757	$	-	$	-	$	-	$	3,757
Mortgage-backed Securities-GSEs		5,623		-		-		-		5,623
Total borrowings	$	9,380	$	-	$	-	$	-	$	9,380
Gross amount of recognized liabilities for repurchase agreements									$	9,380

	December 31, 2015
	Remaining Contractual Maturity of the Agreements
	Overnight and		Up to 30		30-90		Greater than
(Dollars in thousands)	continuous		Days		Days		90 Days		Total
Repurchase agreements
U.S. government agencies-GSE’s	$	4,206	$	-	$	-	$	-	$	4,206
Mortgage-backed Securities-GSEs		7,943		-		-		-		7,943
Total borrowings	$	12,149	$	-	$	-	$	-	$	12,149
Gross amount of recognized liabilities for repurchase agreements									$	12,149

44

SELECT BANCORP, INC.
Notes to Consolidated Financial Statements (Unaudited)

NOTE J – OTHER REAL ESTATE OWNED

The following table explains changes in other real estate owned during the six months ended June 30, 2016 and 2015 (dollars in thousands):

	Six Months			Six Months
	Ended June 30,			Ended June 30,
	2016			2015
	(Dollars in thousands)
Beginning balance January 1	$	1,401		$	1,585
Sales		(1,215	)		(543	)
Writedowns		(48	)		(55	)
Transfers		578			43
Ending balance	$	716		$	1,030

At June 30, 2016 and December 31, 2015, the Company had $716,000 and $1.4 million, respectively, of foreclosed residential real estate property in OREO. The recorded investment in consumer mortgage loans collateralized by residential real estate property in the process of foreclosure totaled $104,000 and none at June 30, 2016 and December 31, 2015, respectively.

45

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

Management’s discussion and analysis is intended to assist readers in the understanding and evaluation of the financial condition and results of operations of Select Bancorp, Inc. (the “Company”). This report contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 relating to, without limitation, our future economic performance, plans and objectives for future operations, and projections of revenues and other financial items that are based on our beliefs, as well as assumptions made by and information currently available to us. The words “may,” “will,” “anticipate,” “should,” “would,” “believe,” “contemplate,” “could,” “project,” “predict,” “expect,” “estimate,” “continue,” and “intend,” as well as other similar words and expressions of the future, are intended to identify forward-looking statements. Our actual results, performance or achievements may differ materially from the results expressed or implied by our forward-looking statements. Factors that could influence actual results, performance or achievements include, among other things, changes in national, regional and local market conditions, legislative and regulatory conditions, and the interest rate environment.

Overview

The Company is a commercial bank holding company and has one banking subsidiary, Select Bank & Trust Company (referred to as the “Bank”), and one unconsolidated subsidiary, New Century Statutory Trust I, which issued trust preferred securities in 2004 to provide additional capital for general corporate purposes. The Company’s only business activity is the ownership of the Bank and New Century Statutory Trust I. This discussion focuses primarily on the financial condition and operating results of the Bank.

The Bank’s lending activities are oriented to the consumer/retail customer as well as to the small- to medium-sized businesses located in Harnett, Brunswick, Carteret, Cumberland, Johnston, Pitt, Robeson, Sampson, Wake, Pasquotank, Martin, Alamance, and Wayne counties in North Carolina. The Bank offers the standard complement of commercial, consumer, and mortgage lending products, as well as the ability to structure products to fit specialized needs. The deposit services offered by the Bank include small business and personal checking accounts, savings accounts and certificates of deposit. The Bank concentrates on customer relationships in building its customer deposit base and competes aggressively in the area of transaction accounts.

The Company was formerly known as New Century Bancorp, Inc. On July 25, 2014, New Century Bancorp, Inc. acquired Select Bancorp, Inc. (“Legacy Select”) by merger. The combined company is now known as Select Bancorp, Inc., which we refer to in this report as the Company. Legacy Select was a bank holding company headquartered in Greenville, North Carolina, whose wholly owned subsidiary, Select Bank & Trust Company, was a state-chartered commercial bank with approximately $276.9 million in assets. The merger expanded the Company’s North Carolina presence with the addition of six branches located in Greenville (two), Elizabeth City, Washington, Gibsonville, and Burlington. During 2015, Gibsonville and Burlington were combined into a new location in Burlington. As noted in the following discussion and analysis, the combination of the former New Century Bancorp and Legacy Select has had a significant impact on the Company’s financial condition and results of operations.

The Company completed construction of a new branch at 416 South Hughes Boulevard, Elizabeth City, North Carolina in October 2015. The Company’s branch at 100 Nance Court relocated to this location. In addition, we acquired two new branches located at 1101 New Pointe Boulevard, Leland, North Carolina and 168 NC Highway 24, Morehead City, North Carolina in December 2015.

46

In August 2015, we closed our branches located at 220 Burlington Street, Gibsonville, North Carolina and 523 S. Worth Street, Burlington, North Carolina and transferred accounts to our new Burlington branch located at 3158 South Church Street. In addition, we closed our branch located at 6390 Ramsey Street, Fayetteville, North Carolina and transferred accounts to our Fayetteville branch located at 2818 Raeford Road during September 2015. On April 29, 2016 we closed our branch located at 3800 10^th Street but the property will be held and used. In June 2016 an undeveloped lot previously intended for branch expansion was placed under contract for sale which sold on July 14, 2016. These closed properties are included in assets held for sale on the consolidated balance sheet as of June 30, 2016.

Comparison of Financial Condition at

June 30, 2016 and December 31, 2015

During the first six months of 2016, total assets increased by $9.6 million to $826.6 million as of June 30, 2016. The increase in assets was due primarily to loan growth funded by DDA deposits and time deposits. Earning assets at June 30, 2016 totaled $753.0 million and consisted of $624.5 million in net loans, $69.9 million in investment securities, $55.4 million in overnight investments and interest-bearing deposits in other banks and $3.1 million in non-marketable equity securities, of which $2.3 million is FHLB stock. Total deposits and shareholders’ equity at the end of the second quarter of 2016 were $661.3 million and $101.5 million, respectively.

Since the end of 2015, gross loans have increased by $14.8 million to $632.2 million as of June 30, 2016. At June 30, 2016, gross loans consisted of $80.2 million in commercial and industrial loans, $247.9 million in commercial real estate loans, $46.3 million in multi-family residential loans, $8.5 million in consumer loans, $95.0 million in residential real estate loans, $42.1 million in HELOCs, and $113.3 million in construction loans. Deferred loan fees, net of costs, on these loans were $1.1 million at June 30, 2016.

At June 30, 2016 and December 31, 2015, there were no federal funds sold and no repurchase agreements. Interest-earning deposits in other banks were $55.6 million at June 30, 2016, a $4.7 million increase from December 31, 2015. The Company’s investment securities at June 30, 2016 were $69.9 million, a decrease of $10.8 million from December 31, 2015 in order to provide funding for higher yielding loans. The investment portfolio as of June 30, 2016 consisted of $17.7 million in government agency debt securities, $35.4 million in mortgage-backed securities and $16.8 million in municipal securities. The net unrealized gain on these securities was $1.9 million.

At June 30, 2016, the Company had an investment of $2.3 million in Federal Home Loan Bank (“FHLB”) stock, which increased by $206,000 from December 31, 2015. Also, the Company had $757,000 in other non-marketable securities at June 30, 2016, which increased by $52,000 from December, 31, 2015.

At June 30, 2016, non-earning assets were $73.6 million, an increase of $2.2 million from $71.4 million as of December 31, 2015. Non-earning assets included $14.9 million in cash and due from banks, bank premises and equipment of $18.6 million, goodwill of $6.9 million, core deposit intangible of $1.0 million, accrued interest receivable of $2.4 million, foreclosed real estate of $716,000, $21.9 million in bank owned life insurance (“BOLI”), $1.3 million of assets held for sale, and other assets of $5.9 million which included $3.9 million in deferred tax assets. Since the income on BOLI is included in non-interest income, this asset is not included in the Company’s calculation of earning assets. The increase in non-earning assets was due primarily to the increase in deposits and the corresponding increase in on-balance sheet cash.

Total deposits at June 30, 2016 were $661.3 million and consisted of $156.6 million in non-interest-bearing demand deposits, $172.2 million in money market and NOW accounts, $39.9 million in savings accounts, and $292.5 million in time deposits. Total deposits increased by $10.1 million from $651.2 million as of December 31, 2015, due primarily to an increase in DDA deposits. The Bank had $497,000 in brokered demand deposits and $44.2 million in brokered time deposits as of June 30, 2016.

47

As of June 30, 2016, the Company had $30.5 million of short-term debt of which $9.4 million was repurchase agreements with local customers, $28.4 million (of which $16.0 million is identified as long-term debt) in FHLB borrowings, and $12.4 million in junior subordinated debentures that are classified as long-term debt.

Total shareholders’ equity at June 30, 2016 was $101.5 million, a decrease of $3.2 million from $104.7 million as of December 31, 2015. This decrease is primarily due the full redemption of $7.6 million of SBLF preferred stock on January 20, 2016 which is netted against year to date earnings of $3.4 million. Accumulated other comprehensive income relating to available for sale securities increased $688,000 during the six months ended June 30, 2016. Other changes in shareholders’ equity included increases of $36,000 in stock-based compensation and $344,000 from the exercise of stock options.

Past Due Loans, Non-performing Assets, and Asset Quality

At June 30, 2016, the Company had $1.4 million in loans that were 30 to 89 days past due. This represented 0.23% of gross loans outstanding on that date. This is a decrease from December 31, 2015 when there were $2.5 million in loans that were 30-89 days past due or 0.41% of gross loans outstanding. Non-accrual loans decreased from $6.6 million at December 31, 2015 to $5.9 million at June 30, 2016.

The percentage of non-performing loans (non-accrual loans and accruing troubled debt restructurings) to total loans decreased from 1.41% at December 31, 2015 to 1.39% at June 30, 2016. The Company has experienced a decrease in non-accruals from $6.6 million at December 31, 2015 to $5.9 million as of June 30, 2016 and an increase in accruing troubled debt restructurings from $2.1 million at December 31, 2015 to $2.9 million as of June 30, 2016. Of the $775,000 decrease in non-accrual loans in the first half of the year, the decrease is related to five loans in primarily 1-to-4 Family Residential loan pool classifications.

At June 30, 2016, the Company had thirty-five loans totaling $4.2 million that were considered to be troubled debt restructurings. Twenty-six of these loans totaling $2.9 million were still in accruing status with the remaining TDRs included in non-accrual loans. All TDRs are considered impaired loans regardless of accrual status and have been included as non-performing assets in the table below.

48

The table below sets forth, for the periods indicated, information about the Company’s non-accrual loans, loans past due 90 days or more and still accruing interest, total non-performing loans (non-accrual loans plus accruing TDRs), and total non-performing assets.

	For Periods Ended
	June 30,			December 31,
	2016			2015
	(Dollars in thousands)
Non-accrual loans	$	5,860		$	6,635
Accruing TDRs		2,928			2,077
Total non-performing loans		8,788			8,712
Foreclosed real estate		716			1,401
Total non-performing assets	$	9,504		$	10,113
Accruing loans past due 90 days or more	$	571		$	142
Allowance for loan losses	$	7,692		$	7,021
Non-performing loans to period end loans		1.39	%		1.41	%
Non-performing loans and accruing loans past due 90 days or more to period end loans		1.48	%		1.43	%
Allowance for loans losses to period end loans		1.22	%		1.14	%
Allowance for loan losses to non-performing loans		88	%		81	%
Allowance for loan losses to non-performing assets		81	%		69	%
Allowance for loan losses to non-performing assets and accruing loans past due 90 days or more		76	%		68	%
Non-performing assets to total assets		1.15	%		1.24	%
Non-performing assets and accruing loans past due 90 days or more to total assets		1.22	%		1.26	%

Total non-performing assets (non-accrual loans, accruing TDRs, and foreclosed real estate) at June 30, 2016 and December 31, 2015 were $9.5 million and $10.1 million, respectively. The allowance for loan losses at June 30, 2016 represented 81% of non-performing assets compared to 69% at December 31, 2015.

Total impaired loans at June 30, 2016 were $10.3 million. This includes $5.9 million in loans that were classified as impaired because they were in non-accrual status and $4.4 million in loans that were determined to be impaired for other reasons. Of these loans, $3.5 million required a specific reserve of $115,000 at June 30, 2016.

Total impaired loans at December 31, 2015 were $10.0 million. This includes $6.6 million in loans that were considered to be impaired due to being in non-accrual status and $3.4 million in loans that were deemed to be impaired for other reasons. Of these loans, $1.6 million required a specific reserve of $94,000 at December 31, 2015.

The allowance for loan losses was $7.7 million at June 30, 2016 or 1.22% of gross loans outstanding. This is an increase from the 1.14% reported as a percentage of gross loans at December 31, 2015. The Legacy Select loans were recorded at estimated fair value as of the acquisition date and the related credit risk reflected as a fair value adjustment rather than separately in the allowance for losses as required in acquisition accounting. This required accounting under generally accepted accounting principles has resulted in a lower percentage of the allowance for loan losses to gross loans at June 30, 2016 for all periods post acquisition of Legacy Select. The allowance for loan losses at June 30, 2016 and December 31, 2015 represented 88% and 81%, respectively, of non-performing loans. It is management’s assessment that the allowance for loan losses as of June 30, 2016 is appropriate in light of the risk inherent within the Company’s loan portfolio. No assurances, however, can be given that further adjustments to the allowance for loan losses may not be deemed necessary in the future.

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Other Lending Risk Factors

Besides monitoring non-performing loans and past due loans, management also monitors trends in the loan portfolio that may indicate more than normal risk. A discussion of certain other risk factors follows. Some loans or groups of loans may contain one or more of these individual loan risk factors. Therefore, an accumulation of the amounts or percentages of the individual loan risk factors may not necessarily be an indication of the cumulative risk in the total loan portfolio.

Regulatory Loan to Value

The Company monitors its exposure to loans that exceed the guidelines established by regulators for loan to value (“LTV”) ratios.

At June 30, 2016 and December 31, 2015, the Company had $18.7 million and $16.7 million in non 1-to-4 family residential loans that exceeded the regulatory LTV limits, respectively. At June 30, 2016 and December 31, 2015, the Company had $4.9 million and $5.0 million of 1-to-4 family residential loans that exceeded the regulatory LTV limits, respectively. The total amount of these loans represented 21.8% and 19.4% of total risk-based capital as of June 30, 2016 and December 31, 2015, which is less than the 100% maximum allowed. These loans may present more than ordinary risk to the Company if the real estate market weakens in terms of market activity or collateral valuations.

Business Sector Concentrations

Loan concentrations in certain business sectors can be impacted by lower than normal retail sales, higher unemployment, higher vacancy rates, and a weakening in real estate market conditions. The Company has established an internal commercial real estate guideline of 40% of risk-based capital for any single product line.

At June 30, 2016 the Company had one product type group which exceeded this guideline; Real Estate Construction – Speculative and Presold, which represented 105% of risk-based capital, or $113.1 million. All other commercial real estate groups were at or below the 40% threshold. At December 31, 2015, the Company exceeded the 40% guideline in one product type. The 1-to-4 Family Residential represented 62% of Risk-Based Capital or $68.8 million at December 31, 2015. All other commercial real estate product types were under the 40% threshold.

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Acquisition, Development, and Construction Loans (“ADC”)

The tables below provide information regarding loans the Company originates for the purpose of acquisition, development, and construction of both residential and commercial properties as of June 30, 2016 and December 31, 2015.

Acquisition, Development and Construction Loans

(Dollars in thousands)

	June 30, 2016									December 31, 2015
				Land and Land									Land and Land
	Construction			Development			Total			Construction			Development			Total
Total ADC loans	$	94,184		$	19,095		$	113,279		$	90,805		$	16,883		$	107,688
Average Loan Size	$	193		$	298					$	171		$	268
Percentage of total loans		14.90	%		3.02	%		17.92	%		14.71	%		2.73	%		17.44	%
Non-accrual loans	$	423		$	-		$	423		$	523		$	-		$	523

Management closely monitors the ADC portfolio by reviewing funding based on project completeness, monthly and quarterly inspections as required by the project, collateral value, geographic concentrations, spec-to-presold ratios and performance of similar loans in the Company’s market area.

Geographic Concentrations

Certain risks exist arising from the geographic location of specific types of higher than normal risk real estate loans. Below is a table showing geographic concentrations for ADC and HELOC loans at June 30, 2016 and December 31, 2015.

	June 30, 2016										December 31, 2015
	ADC Loans		Percent			HELOC		Percent			ADC Loans		Percent			HELOC		Percent
	(Dollars in thousands)
Harnett County	$	11,492		10.16	%	$	5,694		13.54	%	$	10,120		9.40	%	$	6,008		14.30	%
Alamance County		804		0.71	%		664		1.58	%		1,128		1.05	%		565		1.35	%
Beaufort County		2,550		2.25	%		1,157		2.75	%		2,542		2.36	%		1,220		2.90	%
Brunswick County		1,441		1.27	%		2,233		5.31	%		1,784		1.66	%		2,427		5.78	%
Carteret County		470		0.42	%		2,322		5.52	%		919		0.85	%		2,297		5.47	%
Cumberland County		25,130		22.18	%		5,078		12.07	%		23,117		21.47	%		5,412		12.88	%
Pasquotank County		1,100		0.97	%		1,201		2.86	%		1,250		1.16	%		1,008		2.40	%
Pitt County		18,840		16.63	%		5,116		12.17	%		19,486		18.09	%		4,903		11.67	%
Robeson County		297		0.26	%		3,690		8.78	%		198		0.18	%		3,720		8.86	%
Sampson County		82		0.07	%		1,658		3.94	%		406		0.38	%		1,457		3.47	%
Wake County		21,062		18.59	%		1,394		3.31	%		19,484		18.09	%		1,191		2.83	%
Wayne County		7,637		6.74	%		4,278		10.17	%		3,715		3.45	%		4,391		10.46	%
All other locations		22,374		19.75	%		7,570		18.00	%		23,539		21.86	%		7,403		17.63	%
Total	$	113,279		100.00	%	$	42,055		100.00	%	$	107,688		100.00	%	$	42,002		100.00	%

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Interest Only Payments

Another risk factor that exists in the total loan portfolio pertains to loans with interest only payment terms. At June 30, 2016, the Company had $159.3 million in loans that had terms permitting interest only payments. This represented 25.2% of the total loan portfolio. At December 31, 2015, the Company had $156.1 million in loans that had terms permitting interest only payments. This represented 25.3% of the total loan portfolio. Notwithstanding the risk inherent with interest only loans, it is customary and general industry practice that loans in the ADC portfolio permit interest only payments during the acquisition, development, and construction phases of such projects.

Large Dollar Concentrations

Concentrations of high dollar loans or large customer relationships may pose additional risk in the total loan portfolio. The Company’s ten largest loans or lines of credit totaled $57.8 million, or 9.1% of total loans, at June 30, 2016 compared to $51.6 million, or 8.4% of total loans, at December 31, 2015. The Company’s ten largest customer relationships totaled $81.5 million, or 12.9% of total loans, at June 30, 2016 compared to $85.1 million, or 13.8% of total loans, at December 31, 2015. Deterioration or loss in any one or more of these high dollar loan or customer concentrations could have an immediate, significant adverse impact on the Company’s capital position.

Comparison of Results of Operations for the

Three months ended June 30, 2016 and 2015

General. During the second quarter of 2016, the Company had net income of $1.9 million as compared with net income of $1.8 million for the second quarter of 2015. Net income per common share for the second quarter of 2016 was $0.16, basic and diluted, compared with net income per common share of $0.16, basic and diluted, for the second quarter of 2015. Results of operations for the second quarter of 2016 were primarily impacted by an increase of $306,000 in net interest income, and a decrease in non-interest income of $110,000 and an increase in the provision for loan losses of $297,000. Noninterest expenses decreased $34,000 which was primarily related to increased personnel expense of $77,000 and occupancy expense of $42,000 which was offset by a reduction in professional fees of $135,000 and core deposit intangible amortization of $39,000 and other associated expenses. The Company recorded a provision of loan losses of $158,000 for the second quarter of 2016 compared to a recovery of $139,000 in the second quarter of 2015. Net interest margin of 4.24% in the second quarter of 2016 decreased 22 basis points from the same period in 2015 resulting from the accretion of the credit mark associated with the acquired loan portfolio.

Net Interest Income. Net interest income increased to $7.7 million for the second quarter of 2016 from $7.4 million for the second quarter of 2015. The Company’s total interest income was affected by the increase in loan balances due to growth. Average total interest-earning assets were $739.0 million in the second quarter of 2016 compared with $674.0 million during the same period in 2015, while the yield on those assets decreased 22 basis points from 4.96% to 4.74% which was primarily due to the yield accretion on the acquired loans and reduction of rates on recently originated loans.

The Company’s average interest-bearing liabilities increased by $55.3 million to $562.5 million for the quarter ended June 30, 2016 from $507.2 million for the same period one year earlier and the cost of those funds decreased from 0.66% to 0.65%, or 1 basis point. During the second quarter of 2016, the Company’s net interest margin was 4.24% and net interest spread was 4.08%. In the same quarter ended one year earlier, net interest margin was 4.46% and net interest spread was 4.30%.

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Provision for Loan Losses. Provisions for loan losses are charged to income to bring the allowance for loan losses to a level deemed appropriate by management. In evaluating the allowance for loan losses, management considers factors that include growth, composition and industry diversification of the portfolio, historical loan loss experience, current delinquency levels, adverse situations that may affect a borrower’s ability to repay, estimated value of any underlying collateral, prevailing economic conditions and other relevant factors. In determining the loss history to be applied to its ASC 450 loan pools within the allowance for loan losses, the Company previously used loss history based on the weighted average net charge off history for the most recent fourteen consecutive quarters, based on the risk-graded pool to which the loss was assigned. Historical loss rates are calculated by using a loss migration analysis associating losses to the risk-graded pool to which they relate for each of the previous twelve quarters. Then, using a twelve quarter look back period, loss factors are calculated for each risk-graded pool. During the second quarter of 2016, the Company recorded a provision for loan losses of $158,000 based primarily on loan growth and improving credit metrics led to a recovery on credit provision of $139,000 in the second quarter. This trend of improving credit metrics had been consistently maintained in 2016.

Non-Interest Income. Non-interest income for the quarter ended June 30, 2016 was $831,000, a decrease from $941,000 in the second quarter of 2015. Service charges on deposit accounts decreased $17,000 to $246,000 for the quarter ended June 30, 2016 from $263,000 for the same period in 2015. Other non-deposit fees and income increased $41,000 from the second quarter of 2015 to the second quarter of 2016 due primarily to debit card fees. The Company did not sell any investment securities in the second quarter of 2016 compared to recognizing a gain of $134,000 in the second quarter of 2015.

Non-Interest Expenses. Non-interest expenses decreased by $34,000 to $5.5 million for the quarter ended June 30, 2016, from $5.6 million for the same period in 2015. In general, categories of non-interest expenses that increased were offset by decreases in other areas. The following are highlights of the significant categories of non-interest expenses during the second quarter of 2016 compared to the same period in 2015:

· Personnel expenses increased $76,000 to $3.1 million, due to increased benefits costs.

· Foreclosed real estate-related expense decreased $11,000, primarily due to declining balances in the other real estate owned portfolio.

· There was $35,000 of branch acquisition related expenses incurred in the second quarter of 2015.

· Professional fees decreased by $135,000 to $252,000, due to reduced contracted internal audit expenses.

· Occupancy and equipment increased by $42,000 to $607,000, due to branch restructuring.

· Other non-interest expenses increased by $37,000, due to increases in several categories of other non-interest expenses.

Provision for Income Taxes. The Company’s effective tax rate was 34.0% and 38.4% for the quarters ended June 30, 2016 and 2015, respectively. The effective tax rate for the second quarter of 2016 compared to the same quarter in 2015 was impacted by an adjustment to reduce the Company’s deferred tax asset resulting from enacted lower corporate tax rates for the State of North Carolina in 2015.

As of June 30, 2016 and December, 31, 2015, the Company had a net deferred tax asset in the amount of $3.9 million and $3.2 million, respectively. In evaluating whether the Company will realize the full benefit of the net deferred tax asset, management considered both positive and negative evidence, including among other things, recent earnings trends, projected earnings, and asset quality. As of June 30, 2016 and December 31, 2015, management concluded that the net deferred tax assets were fully realizable. The Company will continue to monitor deferred tax assets closely to evaluate whether the full benefit of the net deferred tax asset will require a valuation allowance. Significant negative trends in credit quality or losses from operations, among other trends, could impact the realization of the deferred tax asset in the future.

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Comparison of Results of Operations for the

Six months ended June 30, 2016 and 2015

General. During the first six months of 2016, the Company had net income of $3.4 million as compared with net income of $3.6 million for the first six months of 2015. Net income per share for the first six months of 2016 was $0.29, basic and diluted, compared with net income per share of $0.31, basic and diluted, for the first six months of 2015. Results of operations for the first six months of 2016 compared to 2015 was primarily impacted by an increase of $573,000 in interest income offset by an increase in provision for loan losses of $519,000, a decrease of $107,000 in non-interest income and increased non-interest expenses. Net interest margin of 4.19% in the first six months of 2016 decreased 25 basis points from the same period in 2015.

Net Interest Income. Net interest income increased to $15.2 million for the first six months of 2016 from $14.7 million for the first six months of 2015. The Company’s total interest income was affected by the increase in total loan balances. Average total interest-earning assets were $736.9 million in the first six months of 2016 compared with $675.5 million during the same period in 2015, while the yield on those assets decreased 28 basis points from 4.97% to 4.69%.

The Company’s average interest-bearing liabilities increased by $52.4 million to $566.1 million for the six months ended June 30, 2016 from $513.7 million for the same period one year earlier and the cost of those funds decreased from 0.70% to 0.65%, or 5 basis points. During the first six months of 2016, the Company’s net interest margin was 4.19% and net interest spread was 4.04%. In the same period ended one year earlier, net interest margin was 4.44% and net interest spread was 4.27%. The decrease in loan yields was the primary driver of lower net interest margin in 2016.

Provision for Loan Losses. Provisions for loan losses are charged to income to bring the allowance for loan losses to a level deemed appropriate by management. In evaluating the allowance for loan losses, management considers factors that include growth, composition and industry diversification of the portfolio, historical loan loss experience, current delinquency levels, adverse situations that may affect a borrower’s ability to repay, estimated value of any underlying collateral, prevailing economic conditions and other relevant factors. In determining the loss history to be applied to its ASC 450 loan pools within the allowance for loan losses, the Company has previously used loss history based on the weighted average net charge off history for the most recent fourteen consecutive quarters, based on the risk-graded pool to which the loss was assigned. Historical loss rates are now calculated by using a loss migration analysis associating losses to the risk-graded pool to which they relate for each of the previous twelve quarters. Then, using a twelve quarter look back period, loss factors are calculated for each risk-graded pool. Loan growth was the primary contributor to the 2016 provision expense. Improved credit metrics led to a recovery being recorded in 2015 and such credit metrics have been consistently maintained in 2016.

Non-Interest Income. Non-interest income for the six months ended June 30, 2016 was $1.7 million, a decrease of $107,000 from the first six months of 2015. Service charges on deposit accounts decreased $29,000 to $493,000 for the six months ended June 30, 2016 from $522,000 for the same period in 2015, primarily due to a decrease in overdraft charges. Other non-deposit fees and income increased $120,000 from the first six months of 2015 to the first six months of 2016, primarily due to increases in debit card activity. The Company recognized a gain on sale of investment securities of $22,000 for the first six months of 2016 compared to a gain of $219,000 for the first six months of 2015.

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Non-Interest Expenses. Non-interest expenses increased by $216,000 to $11.1 million for the six months ended June 30, 2016, from $10.9 million for the same period in 2015. Non-interest expenses were also impacted in 2015 by $35,000 in branch acquisition charges. The following are highlights of the significant categories of non-interest expenses during the first six months of 2016 versus the same period in 2015:

· Personnel expenses increased $217,000 to $6.3 million, due to additions in benefits costs.

· Occupancy and equipment expenses increased by $69,000 due to branch restructuring.

· Professional fees decreased by $255,000 in the first six months of 2016 to $487,000 compared to $742,000 in the 2015 period primarily due to a reduction in contracted internal audit and consulting fees.

· Information systems expense increased $149,000 due to cybersecurity initiatives.

· Other non-interest expenses increased by $151,000, due to small increases in several categories of other non-interest expenses.

Provision for Income Taxes. The Company’s effective tax rate was 35.5% and 36.6% for the six months ended June 30, 2016 and 2015, respectively. The effective tax rate for the first six months of 2015 was impacted by non-deductible merger expenses incurred in 2015.

As of June 30, 2016 and December, 31, 2015, the Company had a net deferred tax asset in the amount of $3.9 million and $3.2 million, respectively. In evaluating whether the Company will realize the full benefit of the net deferred tax asset, management considered both positive and negative evidence, including among other things recent earnings trends, projected earnings, and asset quality. As of June 30, 2016 and December 31, 2015, management concluded that the net deferred tax asset was fully realizable. The Company will continue to monitor deferred tax assets closely to evaluate whether the full benefit of the net deferred tax asset will require a valuation allowance. Significant negative trends in credit quality or losses from operations, among other trends, could impact the realization of the deferred tax asset in the future.

Liquidity

The Company’s liquidity is a measure of its ability to fund loans, withdrawals and maturities of deposits, and other cash outflows in a cost effective manner. The principal sources of liquidity are deposits, scheduled payments and prepayments of loan principal, maturities of investment securities, access to liquid deposits, and funds provided by operations. While scheduled loan payments and maturing investments are relatively predictable sources of funds, deposit flows and loan prepayments are greatly influenced by general interest rates, economic conditions, and competition. Liquid assets (consisting of cash and due from banks, interest-earning deposits with other banks, federal funds sold and investment securities classified as available for sale) represented 17.0% of total assets at June 30, 2016 and decreased as compared to 17.6% as of December 31, 2015. This reduction in liquid assets to total assets resulted primarily from letting higher rate deposits roll off.

The Company has been a net seller of federal funds since its inception and strives to maintain a position of liquidity sufficient to fund future loan demand and to satisfy fluctuations in deposit levels. Should the need arise, the Company would have the capability to sell securities classified as available for sale or to borrow funds as necessary. As of June 30, 2016, the Company had existing credit lines with other financial institutions to purchase up to $80.0 million in federal funds. Also, as a member of the FHLB of Atlanta, the Company may obtain advances of up to 10% of total assets, subject to available collateral. A floating lien of $57.5 million of qualifying loans is pledged to the FHLB to secure borrowings. At June 30, 2016, the Company had $37.2 million in FHLB advances outstanding. Another source of short-term borrowings is securities sold under agreements to repurchase. At June 30, 2016, in addition to FHLB advances, total borrowings consisted of securities sold under agreements to repurchase of $9.4 million and junior subordinated debentures of $12.4 million.

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Total deposits were $661.3 million at June 30, 2016. Time deposits, which are the only deposit accounts that have stated maturity dates, are generally considered to be rate sensitive. Time deposits represented 44.2% of total deposits at June 30, 2016. Time deposits of $250,000 or more represented 8.9% of the Company’s total deposits at June 30, 2016. At quarter-end, the Company had $44.2 million in brokered time deposits and $497,000 in brokered demand deposits. Management believes most other time deposits are relationship-oriented. While the Bank will need to pay competitive rates to retain these deposits at their maturities, there are other subjective factors that will determine their continued retention. Based upon prior experience, the Company anticipates that a substantial portion of outstanding certificates of deposit will renew upon maturity.

Management believes that current sources of funds provide adequate liquidity for the Bank’s current cash flow needs. The Company maintains minimal cash balances at the parent holding company level. Management believes that the current cash balances will provide adequate liquidity for the Company’s current cash flow needs.

Capital Resources

A significant measure of the strength of a financial institution is its capital base. Federal regulations have classified and defined capital into the following components: (1) Tier 1 capital, which includes common shareholders’ equity and qualifying preferred equity, and (2) Tier 2 capital, which includes a portion of the allowance for loan losses, certain qualifying long-term debt and preferred stock which does not qualify as Tier 1 capital. Financial institutions and holding companies are subject to the new BASEL III requirements starting the first quarter of 2015. A new part of the capital ratios profile is the Common Equity Tier 1 risk-based ratio which does not include limited life components such as trust preferred securities and SBLF preferred stock in this calculation. Minimum capital levels are regulated by risk-based capital adequacy guidelines, which require a financial institution to maintain capital as a percentage of its assets, and certain off-balance sheet items adjusted for predefined credit risk factors (risk-adjusted assets). The Company’s equity to assets ratio was 12.28% at June 30, 2016.

As the following table indicates, at June 30, 2016, the Company and the Bank both exceeded minimum regulatory capital requirements as specified in the tables below.

	Actual			Minimum
Select Bancorp, Inc.	Ratio			Requirement
Total risk-based capital ratio		15.16	%		8.00	%
Tier 1 risk-based capital ratio		14.13	%		6.00	%
Leverage ratio		12.89	%		4.00	%
Common equity Tier 1 risk-based capital ratio		12.51	%		4.50	%

				Regulatory
	Actual			Minimum			Well-Capitalized
Select Bank & Trust	Ratio			Requirement			Requirement
Total risk-based capital ratio		14.56	%		8.00	%		10.00	%
Tier 1 risk-based capital ratio		13.53	%		6.00	%		8.00	%
Leverage ratio		12.35	%		4.00	%		5.00	%
Common equity Tier 1 risk-based capital ratio		13.53	%		4.50	%		6.50	%

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During 2004, the Company issued $12.4 million of junior subordinated debentures to a newly formed subsidiary, New Century Statutory Trust I, which in turn issued $12.0 million of trust preferred securities. The proceeds from the sale of the trust preferred securities provided additional capital for the growth and expansion of the Bank. Under the current applicable regulatory guidelines, all of the proceeds from the issuance of these trust preferred securities qualify as Tier 1 capital as of June 30, 2016. On January 20, 2016, all outstanding shares of the Company’s Series A stock were redeemed. While the redemption reduced the capital ratios for the Company and the Bank by approximately 1.2% for each ratio, both the Company and the Bank continue to meet the definition of “well-capitalized”.

Management expects that the Bank will remain “well-capitalized” for regulatory purposes, although there can be no assurance that additional capital will not be required in the future.

Legal Proceedings

The Company is not currently engaged in, nor are any of its properties subject to, any material legal proceedings.  From time to time, the Bank is a party to legal proceedings in the ordinary course of business wherein it attempts to collect loans, enforce its security interest in loans, or other matters of similar nature.

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Item 4. Controls and Procedures

Disclosure Controls and Procedures. At the end of the period covered by this report, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Securities Exchange Act Rule 13a-14.

Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures were effective (1) to provide reasonable assurance that information required to be disclosed by the Company in the reports filed or submitted by it under the Securities Exchange Act was recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (2) to provide reasonable assurance that information required to be disclosed by the Company in such reports is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow for timely decisions regarding required disclosure.

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

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Part II.    OTHER INFORMATION

Item 6.     Exhibits

Exhibit Number	Description of Exhibit
31.1	Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act
31.2	Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act
32.1	Certification of Principal Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act
32.2	Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act
101	Interactive data files providing financial information from the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2016, in XBRL (eXtensible Business Reporting Language)

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SIGNATURES

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

	SELECT BANCORP, INC.
Date: August 10, 2016	By:	/s/ William L. Hedgepeth II
		William L. Hedgepeth II
		President and Chief Executive Officer
Date: August 10, 2016	By:	/s/ Mark A. Jeffries
		Mark A. Jeffries
		Executive Vice President and Chief Financial Officer

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Exhibit Index

Exhibit Number	Description of Exhibit
31.1	Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act
31.2	Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act
32.1	Certification of Principal Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act
32.2	Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act
101	Interactive data files providing financial information from the Registrant’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2016, in XBRL (eXtensible Business Reporting Language)

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EX-31.1

Exhibit 31.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, William L. Hedgepeth II, certify that:

(1) I have reviewed this quarterly report for the quarter ended June 30, 2016 on Form 10-Q of Select Bancorp, Inc. (the "Registrant");

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

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

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

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

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

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

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

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

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

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

Date: August 10, 2016	By:	/s/ William L. Hedgepeth II
		William L. Hedgepeth II
		President and Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Mark A. Jeffries, certify that:

(1) I have reviewed this quarterly report for the quarter ended June 30, 2016 on Form 10-Q of Select Bancorp, Inc. (the "Registrant");

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

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

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

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

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

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

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

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

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

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

Date: August 10, 2016	By:	/s/ Mark A. Jeffries
		Mark A. Jeffries
		Executive Vice President and Chief Financial Officer

EX-32.1

Exhibit 32.1

Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

The undersigned hereby certifies that (i) the Form 10-Q filed by Select Bancorp, Inc. (the "Issuer") for the quarter ended June 30, 2016, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and (ii) the information contained in that report fairly presents, in all material respects, the financial condition and results of operations of the Issuer on the dates and for the periods presented therein.

Date: August 10, 2016	By:	/s/ William L. Hedgepeth II
		William L. Hedgepeth II
		President and Chief Executive Officer

EX-32.2

Exhibit 32.2

Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

The undersigned hereby certifies that (i) the Form 10-Q filed by Select Bancorp, Inc. (the "Issuer") for the quarter ended June 30, 2016, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and (ii) the information contained in that report fairly presents, in all material respects, the financial condition and results of operations of the Issuer on the dates and for the periods presented therein.

Date: August 10, 2016	By:	/s/ Mark A. Jeffries
		Mark A. Jeffries
		Executive Vice President and Chief Financial Officer

XML

Document And Entity Information - shares	6 Months Ended
	Jun. 30, 2016	Aug. 05, 2016
Document Information [Line Items]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Jun. 30, 2016
Document Fiscal Year Focus	2016
Document Fiscal Period Focus	Q2
Entity Registrant Name	SELECT BANCORP, INC.
Entity Central Index Key	0001263762
Current Fiscal Year End Date	--12-31
Entity Filer Category	Smaller Reporting Company
Trading Symbol	SLCT
Entity Common Stock, Shares Outstanding		11,630,373

XML

CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands	Jun. 30, 2016	Dec. 31, 2015	[1]
ASSETS
Cash and due from banks	$ 14,896	$ 12,567
Interest-earning deposits in other banks	54,582	49,842
Certificates of deposit	1,000	1,000
Investment securities available for sale, at fair value	69,879	80,709
Loans	632,187	617,398
Allowance for loan losses	(7,692)	(7,021)
NET LOANS	624,495	610,377
Accrued interest receivable	2,406	2,350
Stock in Federal Home Loan Bank of Atlanta (“FHLB”), at cost	2,318	2,112
Other non-marketable securities	757	705
Foreclosed real estate	716	1,401
Premises and equipment, net	18,614	19,078
Bank owned life insurance	21,888	21,592
Goodwill	6,931	6,931
Core deposit intangible (“CDI”)	1,014	1,241
Assets held for sale	1,246	846
Other assets	5,846	6,264
TOTAL ASSETS	826,588	817,015
Deposits:
Demand	156,640	148,304
Savings	39,870	37,353
Money market and NOW	172,241	179,450
Time	292,523	286,054
TOTAL DEPOSITS	661,274	651,161
Short-term debt	30,505	29,673
Long-term debt	28,415	28,703
Accrued interest payable	251	232
Accrued expenses and other liabilities	4,612	2,544
TOTAL LIABILITIES	725,057	712,313
Shareholders' Equity:
Preferred stock, no par value, 5,000,000 shares authorized; 0 and 7,645 shares issued and outstanding at June 30, 2016 and December 31, 2015	0	7,645
Common stock, $1.00 par value, 25,000,000 shares authorized; 11,619,184 and 11,583,011 shares issued and outstanding at June 30, 2016 and December 31, 2015, respectively	11,619	11,583
Additional paid-in capital	69,405	69,061
Retained earnings	19,329	15,923
Common stock issued to deferred compensation trust, at cost; 267,554 and 253,538 shares at June 30, 2016 and December 31, 2015, respectively	(2,224)	(2,139)
Directors’ Deferred Compensation Plan Rabbi Trust	2,224	2,139
Accumulated other comprehensive income	1,178	490
TOTAL SHAREHOLDERS’ EQUITY	101,531	104,702
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY	$ 826,588	$ 817,015

[1] * Derived from audited consolidated financial statements.

XML

CONSOLIDATED BALANCE SHEETS [Parenthetical] - $ / shares	Jun. 30, 2016	Dec. 31, 2015
Preferred stock, shares authorized	5,000,000	5,000,000
Preferred Stock, Shares Issued	0	7,645
Preferred Stock, Shares Outstanding	0	7,645
Common stock, par value (in dollars per share)	$ 1.00	$ 1.00
Common stock, shares authorized	25,000,000	25,000,000
Common stock, shares issued	11,619,184	11,583,011
Common stock, shares outstanding	11,619,184	11,583,011
Deferred Compensation, Share-based Payments [Member]
Common stock, shares issued	267,554	253,538

XML

CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015
INTEREST INCOME
Loans	$ 8,242	$ 7,789	$ 16,207	$ 15,538
Federal funds sold and interest-earning deposits in other banks	60	6	137	31
Investments	343	467	733	935
TOTAL INTEREST INCOME	8,645	8,262	17,077	16,504
INTEREST EXPENSE
Money market, NOW and savings deposits	94	96	193	195
Time deposits	647	614	1,308	1,335
Short-term debt	106	25	140	46
Long-term debt	65	100	198	198
TOTAL INTEREST EXPENSE	912	835	1,839	1,774
NET INTEREST INCOME	7,733	7,427	15,238	14,730
PROVISION FOR (RECOVERY OF) LOAN LOSSES	158	(139)	510	(9)
NET INTEREST INCOME AFTER PROVISION FOR (RECOVERY OF) LOAN LOSSES	7,575	7,566	14,728	14,739
NON-INTEREST INCOME
Gain on sale of investment securities	0	134	22	219
Service charges on deposit accounts	246	263	493	522
Other fees and income	585	544	1,182	1,063
TOTAL NON-INTEREST INCOME	831	941	1,697	1,804
NON-INTEREST EXPENSE
Personnel	3,087	3,011	6,289	6,072
Occupancy and equipment	607	565	1,181	1,112
Deposit insurance	135	106	261	267
Professional fees	252	387	487	742
CDI amortization	111	150	227	305
Merger/acquisition related expenses	0	35	0	35
Information systems	524	521	1,033	884
Foreclosed-related expenses	24	35	63	59
Other	779	743	1,598	1,447
TOTAL NON-INTEREST EXPENSE	5,519	5,553	11,139	10,923
INCOME BEFORE INCOME TAX	2,887	2,954	5,286	5,620
INCOME TAXES	980	1,133	1,876	2,056
NET INCOME	1,907	1,821	3,410	3,564
DIVIDENDS AND ACCRETION OF PREFERRED STOCK	0	19	4	38
NET INCOME AVAILABLE TO COMMON SHAREHOLDERS	$ 1,907	$ 1,802	$ 3,406	$ 3,526
NET INCOME PER COMMON SHARE
Basic (in dollars per share)	$ 0.16	$ 0.16	$ 0.29	$ 0.31
Diluted (in dollars per share)	$ 0.16	$ 0.16	$ 0.29	$ 0.31
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING
Basic (in shares)	11,594,995	11,481,137	11,589,217	11,453,908
Diluted (in shares)	11,642,726	11,548,878	11,638,669	11,529,605

XML

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015
Net income	$ 1,907	$ 1,821	$ 3,410	$ 3,564
Other comprehensive income (loss):
Unrealized gain (loss) on investment securities available for sale	338	(680)	1,099	(72)
Tax effect	(113)	259	(397)	25
Other Comprehensive Income (Loss), Unrealized Holding Gain (Loss) on Securities Arising During Period, Net of Tax	225	(421)	702	(47)
Reclassification adjustment for gain included in net income	0	(134)	(22)	(219)
Tax effect	0	45	8	78
Other Comprehensive Income (Loss), Reclassification Adjustment for Sale of Securities Included in Net Income, Net of Tax	0	(89)	(14)	(141)
Total	225	(510)	688	(188)
Total comprehensive income	$ 2,132	$ 1,311	$ 4,098	$ 3,376

XML

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY - USD ($) $ in Thousands	Total	Preferred Stock [Member]	Common Stock [Member]	Additional paid-in Capital [Member]	Retained Earnings [Member]	Common Stock Issued to Deferred Compensation Trust [Member]	Deferred Comp Plan [Member]	Accumulated Other Comprehensive Income (Loss) [Member]
Balance at Dec. 31, 2014	$ 97,685	$ 7,645	$ 11,378	$ 68,406	$ 9,447	$ (2,121)	$ 2,121	$ 809
Balance (in shares) at Dec. 31, 2014		7,645	11,377,980
Net income	3,564	$ 0	$ 0	0	3,564	0	0	0
Other comprehensive income, loss	(188)	0	0	0	0	0	0	(188)
Preferred stock dividends paid	(38)	0	0	0	(38)	0	0	0
Stock option exercises	512	$ 0	$ 121	391	0	0	0	0
Stock option exercises (in shares)		0	121,418
Stock based compensation	17	$ 0	$ 0	17	0	0	0	0
Director equity incentive plan, net	0	0	0	0	0	61	(61)	0
Balance at Jun. 30, 2015	101,552	$ 7,645	$ 11,499	68,814	12,973	(2,060)	2,060	621
Balance (in shares) at Jun. 30, 2015		7,645	11,499,398
Balance at Dec. 31, 2015	104,702	$ 7,645	$ 11,583	69,061	15,923	(2,139)	2,139	490
Balance (in shares) at Dec. 31, 2015		7,645	11,583,011
Net income	3,410	$ 0	$ 0	0	3,410	0	0	0
Other comprehensive income, loss	688	0	0	0	0	0	0	688
Preferred stock dividends paid	(4)	0	0	0	(4)	0	0	0
Preferred stock redemption	(7,645)	$ (7,645)	$ 0	0	0	0	0	0
Preferred stock redemption (in shares)		(7,645)	0
Stock option exercises	344	$ 0	$ 36	308	0	0	0	0
Stock option exercises (in shares)		0	36,173
Stock based compensation	36	$ 0	$ 0	36	0	0	0	0
Director equity incentive plan, net	0	0	0	0	0	(85)	85	0
Balance at Jun. 30, 2016	$ 101,531	$ 0	$ 11,619	$ 69,405	$ 19,329	$ (2,224)	$ 2,224	$ 1,178
Balance (in shares) at Jun. 30, 2016		0	11,619,184

XML

CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$ 3,410	$ 3,564
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for (recovery of) loan losses	510	(9)
Depreciation and amortization of premises and equipment	520	541
Amortization and accretion of investment securities	400	491
Amortization of deferred loan fees and costs	(236)	(134)
Amortization of core deposit intangible	227	305
Stock-based compensation	36	17
Accretion on acquired loans	(534)	(848)
Amortization of acquisition premium on time deposits	(385)	(451)
Net accretion of acquisition discount on borrowings	(153)	(244)
Increase in cash surrender value of bank owned life insurance	(296)	(311)
Net loss on sale and write-downs of foreclosed real estate	48	55
Net gain on investment security sales and pay-downs	(22)	(219)
Change in assets and liabilities:
Net change in accrued interest receivable	(56)	148
Net change in other assets	7	882
Net change in accrued expenses and other liabilities	2,087	274
NET CASH PROVIDED BY OPERATING ACTIVITIES	5,563	4,061
CASH FLOWS FROM INVESTING ACTIVITIES
Redemption of FHLB stock	(206)	(525)
Purchase (redemption) of non-marketable security	(52)	51
Purchase of investment securities available for sale	(1,517)	(7,057)
Maturities of investment securities available for sale	7,434	11,429
Mortgage-backed securities pay-downs	5,010	4,722
Proceeds from sale of investment securities available for sale	624	5,640
Net change in loans outstanding	(14,436)	(20,702)
Proceeds from sale of foreclosed real estate	1,215	500
Purchases of premises and equipment	(456)	(1,343)
NET CASH USED BY INVESTING ACTIVITIES	(2,384)	(7,285)
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in deposits	10,498	(38,842)
Proceeds from short-term debt	16,000	19,976
Repayments on short-term debt	(14,390)	(7,779)
Repayments on long-term debt	(913)	(479)
Preferred stock dividends paid	(4)	(38)
Redemption of preferred stock	(7,645)	0
Proceeds from stock option exercises	344	512
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES	3,890	(26,650)
NET CHANGE IN CASH AND CASH EQUIVALENTS	7,069	(29,874)
CASH AND CASH EQUIVALENTS, BEGINNING	63,409	58,410
CASH AND CASH EQUIVALENTS, ENDING	70,478	28,536
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest	1,820	1,853
Taxes	0	1,058
Non-cash transactions:
Unrealized gains (losses) on investment securities available for sale, net of tax	688	(188)
Transfers from loans to foreclosed real estate	578	43
Transfers from premises and equipment to assets held for sale	$ 400	$ 0

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BASIS OF PRESENTATION

6 Months Ended

Jun. 30, 2016

Organization, Consolidation and Presentation of Financial Statements [Abstract]

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

NOTE A - BASIS OF PRESENTATION

Select Bancorp, Inc. (“Company”) is a bank holding company whose principal business activity consists of ownership of Select Bank & Trust Company (referred to as the “Bank”). In 2004, the Company formed New Century Statutory Trust I, which issued trust preferred securities to provide additional capital for general corporate purposes, including the current and future expansion of the Company. New Century Statutory Trust I is not a consolidated subsidiary of the Company.  The Company is subject to the rules and regulations of the Board of Governors of the Federal Reserve and the North Carolina Commissioner of Banks.

Select Bank & Trust Company was originally incorporated as New Century Bank on May 19, 2000 and began banking operations on May 24, 2000. Legacy Select Bank & Trust Company was incorporated on July 30, 2004 and was merged with and into the Bank on July 25, 2014 in connection with the Company’s acquisition of Legacy Select. Select Bank & Trust Company continues as the only banking subsidiary of the Company with its headquarters and operations center located in Dunn, NC. The Bank is engaged in general commercial and retail banking in central and eastern North Carolina and operates under the banking laws of North Carolina and the rules and regulations of the Federal Deposit Insurance Corporation and the North Carolina Commissioner of Banks. The Bank undergoes periodic examinations by those regulatory authorities.

All significant inter-company transactions and balances have been eliminated in consolidation. In management’s opinion, the financial information, which is unaudited, reflects all adjustments (consisting solely of normal recurring adjustments) necessary for a fair presentation of the financial information as of and for the three and six month periods ended June 30, 2016 and 2015, in conformity with accounting principles generally accepted in the United States of America (“GAAP”).

The preparation of consolidated financial statements requires management to make estimates and assumptions that affect reported amounts of assets and liabilities at the date of the financial statements, as well as the amounts of income and expense during the reporting period. Actual results could differ from those estimates. Operating results for the three and six month periods ended June 30, 2016 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2016.

The organization and business of the Company, accounting policies followed by the Company and other relevant information are contained in the notes to the financial statements filed as part of the Company’s 2015 Annual Report on Form 10-K, filed with the Securities and Exchange Commission (“SEC”) on March 24, 2016. This quarterly report should be read in conjunction with the Annual Report.

Certain reclassifications of the information in prior periods were made to conform to the June 30, 2016 presentation. Such reclassifications had no effect on shareholders’ equity or net income as previously reported.

XML

PER SHARE RESULTS

6 Months Ended

Jun. 30, 2016

Earnings Per Share [Abstract]

Earnings Per Share [Text Block]

NOTE B - PER SHARE RESULTS

Basic net income per share is computed based upon the weighted average number of shares of common stock outstanding during the period. Diluted net income per share includes the dilutive effect of stock options outstanding during the period. At June 30, 2016 and 2015 there were 123,800 and 111,080 anti-dilutive options outstanding, respectively.

 

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2016		2015		2016		2015
Weighted average shares used for basic net income available to common shareholders		11,594,995		11,481,137		11,589,217		11,453,908
Effect of dilutive stock options		47,731		67,741		49,452		75,697
Weighted average shares used for diluted net income available to common shareholders		11,642,726		11,548,878		11,638,669		11,529,605

XML

RECENT ACCOUNTING PRONOUNCEMENTS

6 Months Ended

Jun. 30, 2016

New Accounting Pronouncements and Changes in Accounting Principles [Abstract]

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

NOTE C - RECENT ACCOUNTING PRONOUNCEMENTS

The following summarizes recent accounting pronouncements and their expected impact on the Company:

In September 2015, the FASB issued Accounting Standard Update 2015-16, Simplifying the Accounting for Measurement Period Adjustments (“ASU 2015-16”). ASU 2015-16 simplifies the accounting for adjustments made to provisional amounts recognized in a business combination by eliminating the requirement to retrospectively account for those adjustments. The amendments in ASU 2015-16 are effective for fiscal years beginning after December 15, 2015. The Company adopted this guidance as of January 1, 2016 with no material effect on its financial statements.

In June 2015, the FASB issued ASU 2015-10, Technical Corrections and Improvements. The amendments included in this Update are effective immediately and transition guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. This guidance was adopted as of January 1, 2016 with no material effect on its financial statements.

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). The amendments in this Update provide a comprehensive new revenue recognition model that requires a company to recognize revenue to depict the transfer of goods or services to a customer at an amount that reflects the consideration it expects to receive in exchange for those goods or services. This Update also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. The amendments in this Update are effective for periods beginning after December 15, 2016 and early adoption is not permitted. Adoption of this update is not expected to have a material impact on the Company’s financial position or results of operations because this ASU does not apply to financial instruments.

In August 2015, the FASB deferred the effective date of ASU 2014-09, Revenue from Contracts with Customers. As a result of the deferral, the guidance in ASU 2014-09 will be effective for the Company for reporting periods beginning after December 15, 2017. The Company does not expect these amendments to have a material effect on its financial statements. In March 2016, the FASB further amended the Revenue from Contracts with Customers topic of the Accounting Standards Codification to clarify the implementation guidance on principal versus agent considerations and address how an entity should assess whether it is the principal or the agent in contracts that include three or more parties.

In April 2016, the FASB amended the Revenue from Contracts with Customers topic of the Accounting Standards Codification to clarify guidance related to identifying performance obligations and accounting for licenses of intellectual property. The amendments will be effective for the Company for reporting periods beginning after December 15, 2017. The Company does not expect these amendments to have a material effect on its financial statements.

In May 2016, the FASB amended the Revenue from Contracts with Customers topic of the Accounting Standards Codification to clarify guidance related to collectability, noncash consideration, presentation of sales tax, and transition. The amendments will be effective for the Company for reporting periods beginning after December 15, 2017. The Company does not expect these amendments to have a material effect on its financial statements.

In March 2016, the FASB issued ASU 2016-09, Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-based Payment Accounting, to simplify several aspects of the accounting for share-based payment award transactions including the income tax consequences, the classification of awards as either equity or liabilities, and the classification on the statement of cash flows. Additionally, the guidance simplifies two areas specific to entities other than public business entities allowing them apply a practical expedient to estimate the expected term for all awards with performance or service conditions that have certain characteristics and also allowing them to make a one-time election to switch from measuring all liability-classified awards at fair value to measuring them at intrinsic value. The amendments will be effective for the Company for annual periods beginning after December 15, 2016 and interim periods within those annual periods. The Company is currently evaluating the expected impact of these amendments to its financial statements but generally expects a positive impact to net earnings at the time of adoption as recording of any excess tax benefit will be through the income statement rather than additional paid in capital.

In January 2015, the FASB issued ASU 2015-01, Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items, to eliminate from U.S. GAAP the concept of an extraordinary item, which is an event or transaction that is both (1) unusual in nature and (2) infrequently occurring. Under the new guidance, an entity will no longer (1) segregate an extraordinary item from the results of ordinary operations; (2) separately present an extraordinary item on its income statement, net of tax, after income from continuing operations; or (3) disclose income taxes and earnings-per-share data applicable to an extraordinary item. The amendments will be effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015, with early adoption permitted provided that the guidance is applied from the beginning of the fiscal year of adoption. The Company adopted this guidance as of January 1, 2016 with no material effect on its financial statements.

In February 2015, the FASB issued ASU 2015-02, Amendments to the Consolidation Analysis, which amends the consolidation requirements and significantly changes the consolidation analysis required under U.S. GAAP. Although the amendments are expected to result in the deconsolidation of many entities, the Company will need to reevaluate all its previous consolidation conclusions. The amendments will be effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015, with early adoption permitted (including during an interim period), provided that the guidance is applied as of the beginning of the annual period containing the adoption date. The Company adopted this guidance as of January 1, 2016 with no material effect on its financial statements.

In August 2015, the FASB issued ASU 2015-15, Interest—Imputation of Interest (Subtopic 835-30): Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements amendment to the Interest topic of the Accounting Standards Codification to clarify the SEC staff’s position on presenting and measuring debt issuance costs incurred in connection with line-of-credit arrangements. The amendments were effective for fiscal years beginning after December 15, 2015. The Company adopted this guidance as of January 1, 2016 with no material effect on its financial statements.

In January 2016, the FASB amended the Financial Instruments topic of the Accounting Standards Codification to address certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. The amendments will be effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company will apply the guidance by means of a cumulative-effect adjustment to the balance sheet as of the beginning of the fiscal year of adoption. The amendments related to equity securities without readily determinable fair values will be applied prospectively to equity investments that exist as of the date of adoption of the amendments. The Company does not expect these amendments to have a material effect on its financial statements.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). This Update is intended to improve financial reporting about leasing transactions. The ASU affects all companies and other organizations that lease assets such as real estate, airplanes, and manufacturing equipment. The ASU will require organizations that lease assets – referred to as “leasee” – to recognize on the balance sheet the assets and liabilities for the rights and obligations created by those leases. A leasee will be required to recognize assets and liabilities for leases with lease terms of more than 12 months. Consistent with current guidelines, the recognition, measurement, and presentation of expenses and cash flows arising from a lease by a leasee primarily will depend on its classification as a finance or operating lease. However, the new ASU will require both types of leases to be recognized on the balance sheet. The Update also will require disclosures to help investors and other financial statement users better understand the amount, timing, and uncertainty of cash flows arising from leases. These disclosures include qualitative and quantitative requirements, providing additional information about the amounts recorded in the financial statements. The accounting by organizations that own the assets leased by the lease will remain largely unchanged from current guidance. The amendments are effective for public companies for fiscal years, and interim periods within those fiscal years, beginning after December 31, 2018.

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

In June 2016, the FASB issued guidance to change the accounting for credit losses and modify the impairment model for certain debt securities. The amendments will be effective for the Company for reporting periods beginning after December 15, 2019. The Company is currently evaluating the effect that implementation of the new standard will have on its financial position, results of operations, and cash flows.

From time to time, the FASB issues exposure drafts for proposed statements of financial accounting standards. Such exposure drafts are subject to comment from the public, to revisions by the FASB and to final issuance by the FASB as statements of financial accounting standards. Management considers the effect of the proposed statements on the consolidated financial statements of the Company and monitors the status of changes to and proposed effective dates of exposure drafts.

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FAIR VALUE MEASUREMENTS

6 Months Ended

Jun. 30, 2016

Fair Value Disclosures [Abstract]

Fair Value Disclosures [Text Block]

NOTED D - FAIR VALUE MEASUREMENTS

Accounting Standards Codification (“ASC”) 820 defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. ASC 820 does not require any new fair value measurements, but clarifies and standardizes some divergent practices that have emerged since prior guidance was issued. ASC 820 creates a three-level hierarchy under which individual fair value estimates are to be ranked based on the relative reliability of the inputs used in the valuation.

Fair value estimates are made at a specific moment in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company’s entire holdings of a particular financial instrument.

Because no active market readily exists for a portion of the Company’s financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value:

Fair Value Hierarchy

The Company groups assets and liabilities at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. These levels are:

⋅	Level 1 – Valuation is based upon quoted prices for identical instruments traded in active markets.
⋅	Level 2 – Valuation is based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-based valuation techniques for which all significant assumptions are observable in the market.
⋅	Level 3 – Valuation is generated from model-based techniques that use at least one significant assumption not observable in the market. These unobservable assumptions reflect estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques include use of option pricing models, discounted cash flow models and similar techniques.

The following is a description of valuation methodologies used for assets and liabilities recorded at fair value on a recurring basis.

Investment Securities Available-for-Sale (“AFS”)

Investment securities available-for-sale are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted prices, if available. If quoted prices are not available, fair values are measured using independent pricing models or other model-based valuation techniques such as the present value of future cash flows, adjusted for the security’s credit rating, prepayment assumptions and other factors such as credit loss assumptions. Level 1 securities include those traded on an active exchange, such as the New York Stock Exchange, U.S. Treasury securities that are traded by dealers or brokers in active over-the-counter markets and money market funds. Level 2 securities include U.S. government agency securities, mortgage-backed securities issued by government sponsored entities, and municipal bonds. There have been no changes in valuation techniques for the three and six months ended June 30, 2016. Valuation techniques are consistent with techniques used in prior periods.

The following tables summarize quantitative disclosures about the fair value measurement for each category of assets carried at fair value on a recurring basis as of June 30, 2016 and December 31, 2015 (in thousands):

Investment securities available for sale June 30, 2016	Fair value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
U.S. government agencies – GSE's	$	17,694	$	-	$	17,694	$	-
Mortgage-backed securities - GSE’s		35,408		-		35,408		-
Municipal bonds		16,777		-		16,777		-
Total	$	69,879	$	-	$	69,879	$	-

Investment securities available for sale December 31, 2015	Fair value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
U.S. government agencies – GSE's	$	21,226	$	-	$	21,226	$	-
Mortgage-backed securities - GSE’s		39,536		-		39,536		-
Municipal bonds		19,947		-		19,947		-
Total	$	80,709	$	-	$	80,709	$	-

The following is a description of valuation methodologies used for assets recorded at fair value on a non-recurring basis.

Loans

The Company does not record loans at fair value on a recurring basis. However, from time to time, a loan is considered impaired and an allowance for loan losses is established. Loans for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement are considered impaired. Once a loan is identified as individually impaired, management measures impairment in accordance with ASC 310, “Receivables”. The fair value of impaired loans is estimated using one of several methods, including collateral value, market value of similar debt, enterprise value, or liquidation value and discounted cash flows. Those impaired loans not requiring an allowance represent loans for which the fair value of the expected repayments or collateral exceed the recorded investments in such loans. At June 30, 2016 and December 31, 2015, substantially all of the total impaired loans were evaluated based on the fair value of the collateral. Impaired loans where an allowance is established based on the fair value of collateral require classification in the fair value hierarchy. When the fair value of the collateral is based on an observable market price or a current appraised value, the Company records the impaired loan as non-recurring Level 2. When an appraised value is not available or management determines the fair value of the collateral is further impaired below the appraised value and there is no observable market price, the Company records the impaired loan as non-recurring Level 3. The significant unobservable input used in the fair value measurement of the Company’s impaired loans is the discount applied to appraised values to account for expected liquidation and selling costs. At June 30, 2016, the discounts to appraised value used are weighted between 4% and 50%. There were no transfers between levels from the prior reporting periods and there have been no changes in valuation techniques for the three months ended June 30, 2016.

Foreclosed Real Estate

Foreclosed real estate are properties recorded at estimated fair value less estimated selling costs. Inputs include appraised values on the properties or recent sales activity for similar assets in the property’s market. Therefore, foreclosed real estate is classified within Level 3 of the hierarchy. The significant unobservable input used in the fair value measurement of the Company’s foreclosed real estate is the discount applied to appraised values to account for expected liquidation and selling costs. At June 30, 2016, the discounts used ranged between 6% and 10%. There have been no changes in valuation techniques for the three and six  months ended June 30, 2016.

 

Assets held for sale

During 2015, a branch facility was taken out of service as part of the Company’s branch restructuring plan and reclassified as held for sale. In the current quarter an undeveloped lot that was intended for the site of a future branch was under contract for sale as of June 30, 2016 and the fair value is based on the sales price. The lot sale closed in July 2016. The properties are recorded at the remaining book balance of the asset or an estimated fair value less estimated selling costs, whichever is less. Inputs include appraised values on the properties or recent sales activity for similar assets in the property’s market. The significant unobservable input used is the discount applied to appraised values to account for expected liquidation and selling costs ranged between 1% and 25 % at June 30, 2016. There have been no changes in the valuation techniques for the three months ended June 30, 2016.

The following tables summarize quantitative disclosures about the fair value measurement for each category of assets carried at fair value on a non-recurring basis as of June 30, 2016 and December 31, 2015 (in thousands):

Asset Category June 30, 2016	Fair value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Impaired loans	$	5,860	$	-	$	-	$	5,860
Assets held for sale		1,246		-		-		1,246
Foreclosed real estate		716		-		-		716
Total	$	7,822	$	-	$	-	$	7,822

Asset Category December 31, 2015	Fair value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Impaired loans	$	6,635	$	-	$	-	$	6,635
Assets held for sale		846		-		-		846
Foreclosed real estate		1,401		-		-		1,401
Total	$	8,882	$	-	$	-	$	8,882

The following table presents the carrying values and estimated fair values of the Company's financial instruments at June 30, 2016 and December 31, 2015:

	June 30, 2016
	Carrying		Estimated
	Amount		Fair Value		Level 1		Level 2		Level 3
	(In thousands)
Financial assets:
Cash and due from banks	$	14,896	$	14,896	$	14,896	$	-	$	-
Certificates of deposit		1,000		1,000		1,000		-		-
Interest-earning deposits in other banks		54,582		54,582		54,582		-		-
Investment securities available for sale		69,879		69,879		-		69,879		-
Loans, net		624,495		633,534		-		-		633,534
Accrued interest receivable		2,406		2,406		-		-		2,406
Stock in FHLB		2,318		2,318		-		-		2,318
Other non-marketable securities		757		757		-		-		757
Financial liabilities:
Deposits	$	661,274	$	661,658	$	-	$	661,658	$	-
Short-term debt		30,505		30,505		-		30,505		-
Long-term debt		28,415		23,430		-		23,430		-
Accrued interest payable		251		251		-		251		-

	December 31, 2015
	Carrying		Estimated
	Amount		Fair Value		Level 1		Level 2		Level 3
	(In thousands)
Financial assets:
Cash and due from banks	$	12,567	$	12,567	$	12,567	$	-	$	-
Certificates of deposits		1,000		1,000		1,000		-		-
Interest-earning deposits in other banks		49,842		49,842		49,842		-		-
Investment securities available for sale		80,709		80,709		-		80,709		-
Loans, net		610,377		615,754		-		-		615,754
Accrued interest receivable		2,350		2,350		-		-		2,350
Stock in the FHLB		2,112		2,112		-		-		2,112
Other non-marketable securities		705		705		-		-		705
Financial liabilities:
Deposits	$	651,161	$	651,255	$	-	$	651,255	$	-
Short-term debt		29,673		29,673		-		29,673		-
Long-term debt		28,703		23,718		-		23,718		-
Accrued interest payable		232		232		-		232		-

Cash and Due from Banks, Certificates of Deposit, Interest-Earning Deposits in Other Banks and Federal Funds Sold

The carrying amounts for cash and due from banks, certificates of deposit, interest-earning deposits in other banks and federal funds sold approximate fair value because of the short maturities of those instruments.

Investment Securities Available for Sale

Fair value for investment securities available for sale equals quoted market price if such information is available. If a quoted market price is not available, fair value is estimated using prices quoted for similar investments or quoted market prices obtained from independent pricing services.

Loans

For certain homogenous categories of loans, such as residential mortgages, fair value is estimated using the quoted market prices for securities backed by similar loans, adjusted for differences in loan characteristics. The fair value of other types of loans is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. However, the values likely do not represent exit prices due to distressed market conditions.

Stock in Federal Home Loan Bank of Atlanta

The fair value for FHLB stock approximates carrying value, based on the redemption provisions of the FHLB stock.

Other Non-Marketable Securities

The fair value of equity instruments in other non-marketable securities is assumed to approximate carrying value.

Deposits

The fair value of demand, savings, and money market and NOW deposits is the amount payable on demand at the reporting date. The fair values of time deposits are estimated using the rates currently offered for instruments of similar remaining maturities.

Short-term Debt

Short-term debt consists of repurchase agreements and FHLB advances with maturities of less than twelve months. The carrying values of these instruments is a reasonable estimate of fair value.

Long-term Debt

The fair values of long-term debt are based on discounted expected cash flows at the interest rate for debt with the same or similar remaining maturities and collateral requirements.

Accrued Interest Receivable and Accrued Interest Payable

The carrying amounts of accrued interest receivable and payable approximate fair value because of the short maturities of these instruments.

Financial Instruments with Off-Balance Sheet Risk

With regard to financial instruments with off-balance sheet risk, it is not practicable to estimate the fair value of future financing commitments.

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INVESTMENT SECURITIES

6 Months Ended

Jun. 30, 2016

Investments, Debt and Equity Securities [Abstract]

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

NOTE E - INVESTMENT SECURITIES

The amortized cost and fair value of available for sale investments (“AFS”), with gross unrealized gains and losses, follow:

	June 30, 2016
			Gross		Gross
	Amortized		unrealized		unrealized		Fair
	cost		gains		losses		value
	(dollars in thousands)
Securities available for sale:
U.S. government agencies – GSE’s	$	17,509	$	196	$	(11)	$	17,694
Mortgage-backed securities – GSE’s		34,321		1,087		-		35,408
Municipal bonds		16,169		608		-		16,777
	$	67,999	$	1,891	$	(11)	$	69,879

As of June 30, 2016, accumulated other comprehensive income included net unrealized gains totaling $1.9 million. Deferred tax liabilities resulting from these net unrealized gains totaled $701,000.

	December 31, 2015
			Gross		Gross
	Amortized		unrealized		unrealized		Fair
	cost		gains		losses		value
	(dollars in thousands)
Securities available for sale:
U.S. government agencies – GSE’s	$	21,321	$	101	$	(196)	$	21,226
Mortgage-backed securities – GSE’s		39,123		475		(62)		39,536
Municipal bonds		19,484		465		(2)		19,947
	$	79,928	$	1,041	$	(260)	$	80,709

As of December 31, 2015, accumulated other comprehensive income included net unrealized gains totaling $781,000. Deferred tax liabilities resulting from these net unrealized gains totaled $291,000.

The scheduled maturities of securities available for sale, with gross unrealized gains and losses, were as follows:

	June 30, 2016
			Gross		Gross
	Amortized		unrealized		unrealized		Fair
	cost		gains		losses		value
	(In thousands)
Securities available for sale:
Within 1 year	$	2,758	$	32	$	-	$	2,790
After 1 year but within 5 years		44,238		1,257		(4)		45,491
After 5 years but within 10 years		12,173		215		(7)		12,381
After 10 years		8,830		387		-		9,217
	$	67,999	$	1,891	$	(11)	$	69,879

	December 31, 2015
			Gross		Gross
	Amortized		unrealized		unrealized		Fair
	cost		gains		losses		value
	(In thousands)
Securities available for sale:
Within 1 year	$	1,361	$	6	$	-	$	1,367
After 1 year but within 5 years		52,577		628		(99)		53,106
After 5 years but within 10 years		17,297		146		(161)		17,282
After 10 years		8,693		261		-		8,954
	$	79,928	$	1,041	$	(260)	$	80,709

Securities with a carrying value of $42.4 million and $45.2 million at June 30, 2016 and December 31, 2015, respectively, were pledged to secure public monies on deposit as required by law, customer repurchase agreements, and access to the Federal Reserve Discount Window.

 

Since none of the unrealized losses relate to the liquidity of the securities or the issuer’s ability to honor redemption obligations and the Company has the intent and ability to hold these securities to recovery, no other than temporary impairments were identified for these investments having unrealized losses for the periods ended June 30, 2016 and December 31, 2015. In 2015, the Company did not incur a loss on the disposal of any security and it has not realized any losses related to the sale of securities in 2016.

The following tables show the gross unrealized losses and fair value of the Company’s investment securities, aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position, at June 30, 2016 and December 31, 2015.

	June 30, 2016
	Less Than 12 Months				12 Months or More				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	value		losses		value		losses		value		losses
	(dollars in thousands)
Securities available for sale:
U.S. government agencies- GSE’s	$	1,779	$	(3)	$	1,776	$	(8)	$	3,555	$	(11)
Total temporarily impaired securities	$	1,779	$	(3)	$	1,776	$	(8)	$	3,555	$	(11)

At June 30, 2016, the Company had two AFS securities with an unrealized loss for twelve or more consecutive months. Two U.S. government agency GSE’s had unrealized losses for more than twelve months totaling $8,000 at June 30, 2016. Two U.S. government agency GSE’s had unrealized losses for less than twelve months totaling $3,000 at June 30, 2016. All unrealized losses are attributable to the general trend of interest rates. During the second quarter of 2016 there were no sales of investment securities. During the first six months of 2016 gross proceeds of investment sales amounted to $624,000 and gains of $22,000.

 

	December 31, 2015
	Less Than 12 Months				12 Months or More				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	value		losses		value		losses		value		losses
	(dollars in thousands)
Securities available for sale:
U.S. government agencies – GSE’s	$	7,039	$	(70)	$	7,615	$	(126)	$	14,654	$	(196)
Mortgage-backed securities- GSE’s		7,916		(62)		-		-		7,916		(62)
Municipal bonds		111		(2)		-		-		111		(2)
Total temporarily impaired securities	$	15,066	$	(134)	$	7,615	$	(126)	$	22,681	$	(260)

At December 31, 2015, the Company had five AFS securities with an unrealized loss for twelve or more consecutive months. Five U.S. government agency GSE’s had unrealized losses for more than twelve months totaling $126,000 at December 31, 2015. Six U.S. government agency GSE’s, one municipal and seven mortgage-backed GSE’s had unrealized losses for less than twelve months totaling $134,000 at December 31, 2015. All unrealized losses are attributable to the general trend of interest rates and the abnormal spreads of all debt instruments to U.S. Treasury securities. The Company did not incur a loss on any securities sold during 2015.

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LOANS

6 Months Ended

Jun. 30, 2016

Loans and Leases Receivable Disclosure [Abstract]

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

NOTE F - LOANS

Following is a summary of the composition of the Company’s loan portfolio at June 30, 2016 and December 31, 2015:

	June 30,					December 31,
Total Loans:	2016					2015
			Percent					Percent
	Amount		of total			Amount		of total
	(dollars in thousands)
Real estate loans:
1-to-4 family residential	$	94,990		15.03	%	$	87,955		14.25	%
Commercial real estate		247,922		39.22	%		259,259		41.99	%
Multi-family residential		46,295		7.32	%		40,738		6.60	%
Construction		113,279		17.92	%		107,688		17.44	%
Home equity lines of credit (“HELOC”)		42,055		6.65	%		42,002		6.80	%
Total real estate loans		544,541		86.14	%		537,642		87.08	%
Other loans:
Commercial and industrial		80,154		12.68	%		73,491		11.90	%
Loans to individuals		8,452		1.34	%		7,207		1.17	%
Overdrafts		102		0.01	%		48		0.01	%
Total other loans		88,708		14.03	%		80,746		13.08	%
Gross loans		633,249					618,388
Less deferred loan origination fees, net		(1,062)		(0.17)	%		(990)		(0.16)	%
Total loans		632,187		100.00	%		617,398		100.00	%
Allowance for loan losses		(7,692)					(7,021)
Total loans, net	$	624,495				$	610,377

Loans are primarily secured by real estate located in eastern and central North Carolina. Real estate loans can be affected by the condition of the local real estate market and by local economic conditions.

At June 30, 2016, the Company had pre-approved but unused lines of credit for customers totaling $142.6 million. In management’s opinion, these commitments, and undisbursed proceeds on loans reflected above, represent no more than normal lending risk to the Company and will be funded from normal sources of liquidity.

 

A floating lien of $57.5 million of loans was pledged to the FHLB to secure borrowings at June 30, 2016.

A description of the various loan products provided by the Bank is presented below.

1-to-4 Family Residential Loans

Residential 1-to-4 family loans are mortgage loans secured by residential real estate within the Bank’s market areas. These loans may also include loans that convert from construction loans into permanent financing and are secured by properties within the Bank’s market areas.

Commercial Real Estate Loans

Commercial real estate loans are underwritten based on the borrower’s ability to generate adequate cash flow to repay the subject debt within reasonable terms. Commercial real estate loans typically include both owner and non-owner occupied properties with higher principal loan amounts. The repayment of these loans is generally dependent on the successful management of the property. Commercial real estate loans are sensitive to market and general economic conditions. Repayment analysis must be performed and consists of an identified primary/cash flow source of repayment and a secondary/liquidation source of repayment. The primary source of repayment is cash flow from income generated from rental or lease of the property. However, the cash flow can be supplemented with the borrower's and guarantor's global cash flow position. Other credit issues such as the business fundamentals and financial strength of the borrower/guarantor can be considered in determining adequacy of repayment ability. The secondary source of repayment is liquidation of the collateral, supplemented by a liquidation cushion provided by the financial assets of the borrower/guarantor. Management monitors and evaluates commercial real estate loans based on collateral, cash flow, market area, and risk grade.

Multi-family Residential Loans

Multi-family residential loans are typically non-farm properties with 5 or more dwelling units in structures which include apartment buildings used primarily to accommodate households on a more or less permanent basis. Successful performance of these types of loans is primarily dependent on occupancy rates, rental rates, and property management.

Construction Loans

Construction loans are non-revolving extensions of credit secured by real property of which the proceeds are used to acquire and develop land and to construct commercial or residential buildings. The primary source of repayment for these types of loans is the sale of the improved property or permanent financing in which case the property is expected to generate the cash flow necessary for repayment on a permanent loan basis. Property cash flow may be supplemented with financial support from the borrowers/guarantors. Proper underwriting of a construction loan consists of the initial process of obtaining, analyzing, and approving various aspects of information pertaining to: the analysis of the permanent financing source, creditworthiness of the borrower and guarantors, ability of the contractor to perform under the terms of the contract, and the feasibility, marketability, and valuation of the project.

Also, consideration is given to the cost of the project and sources of funds needed to complete construction as well as identifying any sources of equity funding. Construction loans are traditionally considered to be higher risk loans involving technical and legal requirements inherently different from other types of loans; however with thorough credit underwriting, proper loan structure, and diligent loan servicing, these risks can often be mitigated. Some examples of risks inherent in this type of lending include: underestimated costs, inflation of material and labor costs, site difficulties (i.e. rock, soil), project not built to plans, weather delays and natural disasters, borrower/contractor/subcontractor disputes which prompt liens, and interest rates increasing beyond budget.

Home Equity Lines of Credit

Home equity lines of credit are consumer-purpose revolving extensions of credit which are secured by first or second liens on owner-occupied residential real estate. Appropriate risk management and compliance practices are exercised to ensure that loan-to-value, lien perfection, and compliance risks are addressed and managed within the Bank’s established guidelines. The degree of utilization of revolving commitments within this loan segment is reviewed periodically to identify changes in the behavior of this borrowing group.

Commercial and Industrial Loans

Commercial and industrial loans are underwritten after evaluating and understanding the borrower’s ability to generate positive cash flow, operate profitably and prudently expand its business. Underwriting standards are designed to promote relationships to include a full range of loan, deposit, and cash management services. Commercial and industrial loans are primarily made based on the identified cash flows of the borrower and secondarily on the underlying collateral provided by the borrower and the guarantors. The cash flows of the borrower, however, may not be as expected and the collateral securing these loans may fluctuate in value. In the case of loans secured by accounts receivable, the availability of funds for repayment can be impacted by the borrower’s ability to collect amounts due from its customers.

Loans to Individuals & Overdrafts

Consumer loans are approved using Bank policies and procedures established to evaluate each credit request. All lending decisions and credit risks are required to be clearly documented. Several factors are considered in making these decisions such as credit score, adjusted net worth, liquidity, debt ratio, disposable income, credit history, and loan-to-value of the collateral. This process, combined with the relatively smaller loan amounts spreads the risk among many individual borrowers.  Overdrafts on customer accounts are classified as loans for reporting purposes.

The following tables present an age analysis of past due loans, segregated by class of loans as of June 30, 2016 and December 31, 2015, respectively:

Total Loans:	June 30, 2016
	30+		Non-		Total
	Days		Accrual		Past				Total
	Past Due		Loans		Due		Current		Loans
	(dollars in thousands)
Commercial and industrial	$	150	$	84	$	234	$	79,920	$	80,154
Construction		143		423		566		112,713		113,279
Multi-family residential		-		367		367		45,928		46,295
Commercial real estate		84		3,690		3,774		244,148		247,922
Loans to individuals & overdrafts		21		155		176		8,378		8,554
1-to-4 family residential		1,024		781		1,805		93,185		94,990
HELOC		-		360		360		41,695		42,055
Deferred loan (fees) cost, net		-		-		-		-		(1,062)
	$	1,422	$	5,860	$	7,282	$	625,967	$	632,187

There were three loans that amounted to $571,000 that were more than 90 days past due and still accruing interest at June 30, 2016.

 

	December 31, 2015
	30+		Non-		Total
	Days		Accrual		Past				Total
	Past Due		Loans		Due		Current		Loans
	(dollars in thousands)
Total Loans
Commercial and industrial	$	455	$	13	$	468	$	73,023	$	73,491
Construction		-		523		523		107,165		107,688
Multi-family residential		44		431		475		40,263		40,738
Commercial real estate		1,214		3,711		4,925		254,334		259,259
Loans to individuals & overdrafts		14		4		18		7,237		7,255
1-to-4 family residential		650		1,594		2,244		85,711		87,955
HELOC		124		359		483		41,519		42,002
Deferred loan (fees) cost, net		-		-		-		-		(990)
	$	2,501	$	6,635	$	9,136	$	609,252	$	617,398

There was one loan in the amount of $142,000 greater than 90 days past due and still accruing interest at December 31, 2015.

Impaired Loans

The following tables present information on loans that were considered to be impaired as of June 30, 2016 and December 31, 2015:

							Three months ended				Six months ended
	As of June 30, 2016						June 30, 2016				June 30, 2016
			Contractual						Interest Income				Interest Income
			Unpaid				Average		Recognized on		Average		Recognized on
	Recorded		Principal		Related		Recorded		Impaired		Recorded		Impaired
	Investment		Balance		Allowance		Investment		Loans		Investment		Loans
	(In thousands)
With no related allowance recorded:
Commercial and industrial	$	370	$	371	$	-	$	469	$	2	$	237	$	8
Construction		511		637		-		558		2		563		6
Commercial real estate		3,749		5,346		-		3,304		29		4,378		72
Loans to individuals & overdrafts		-		-		-		-		-		-		-
Multi-family residential		367		375		-		368		3		397		8
1-to-4 family residential		1,250		1,546		-		1,257		36		1,656		52
HELOC		623		787		-		658		10		661		18
Subtotal:		6,870		9,062		-		6,614		82		7,892		164
With an allowance recorded:
Commercial and industrial		65		65		7		35		-		39		1
Construction		-		-		-		-		-		-		-
Commercial real estate		3,082		3,692		96		3,389		4		2,165		18
Loans to individuals & overdrafts		-		-		-		-		-		2		-
Multi-family residential		-		-		-		-		-		-		-
1-to-4 family residential		277		277		12		314		2		284		8
HELOC		33		35		-		41		-		16		-
Subtotal:		3,457		4,069		115		3,779		6		2,506		27
Totals:
Commercial		8,144		10,486		103		8,123		40		7,779		113
Consumer		-		-		-		-		-		2		-
Residential		2,183		2,645		12		2,270		48		2,617		78
Grand Total:	$	10,327	$	13,131	$	115	$	10,393	$	88	$	10,398	$	191

Impaired loans at June 30, 2016 were approximately $10.3 million and were composed of $5.9 million in nonaccrual loans and $4.4 million in loans that were still accruing interest. Recorded investment represents the current principal balance of the loan. Approximately $3.5 million in impaired loans had specific allowances provided for them while the remaining $6.9 million had no specific allowances recorded at June 30, 2016. Of the $6.9 million with no allowance recorded, $1.4 million of those loans have had partial charge-offs recorded.

							Three months ended				Six months ended
	As of December 31, 2015						June 30, 2015				June 30, 2015
			Contractual						Interest Income				Interest Income
			Unpaid				Average		Recognized on		Average		Recognized on
	Recorded		Principal		Related		Recorded		Impaired		Recorded		Impaired
	Investment		Balance		Allowance		Investment		Loans		Investment		Loans
	(In thousands)
With no related allowance recorded:
Commercial and industrial	$	105	$	106	$	-	$	640	$	6	$	606	$	38
Construction		615		764		-		973		10		1,095		23
Commercial real estate		5,006		7,229		-		2,556		49		2,468		93
Loans to individuals & overdrafts		-		-		-		-		-		-		-
Multi-family residential		-		-		-		1,769		21		1,785		43
1 to 4 family residential		2,061		2,666		-		2,485		28		2,368		59
HELOC		699		868		-		641		9		641		20
Subtotal:		8,486		11,633		-		9,064		123		8,963		276
With an allowance recorded:
Commercial and industrial		13		13		2		11		-		138		-
Construction		-		-		-		166		1		166		2
Commercial real estate		1,248		1,314		73		4,436		19		4,643		80
Loans to individuals & overdrafts		4		4		4		-		-		-		-
Multi-family residential		-		-		-		-		-		-		-
1 to 4 family residential		290		290		15		495		6		476		10
HELOC		-		-		-		288		-		289		-
Subtotal:		1,555		1,621		94		5,396		26		5,712		92
Totals:
Commercial		6,987		9,426		75		10,551		106		10,901		279
Consumer		4		4		4		-		-		-		-
Residential		3,050		3,824		15		3,909		43		3,774		89
Grand Total:	$	10,041	$	13,254	$	94	$	14,460	$	149	$	14,675	$	368

Impaired loans at December 31, 2015 were approximately $10.0 million and consisted of $6.6 million in non-accrual loans and $3.4 million in loans still in accruing status. Recorded investment represents the current principal balance for the loan. Approximately, $1.6 million of the $10.0 million in impaired loans at December 31, 2015 had specific allowances recorded while the remaining $8.4 million had no specific allowances recorded. Of the $8.5 million with no allowance recorded, $1.6 million of those loans have had partial charge-offs recorded.

Loans are placed on non-accrual status when it has been determined that all contractual principal and interest will not be received. Any payments received on these loans are applied to principal first and then to interest only after all principal has been collected. In the case of an impaired loan that is still on accrual basis, payments are applied to both principal and interest.

Troubled Debt Restructurings

The following table presents loans that were modified as troubled debt restructurings (“TDRs”) with a breakdown of the types of concessions made by loan class during the three and six months ended June 30, 2016 and 2015:

	Three months ended June 30, 2016						Six months ended June 30, 2016
			Pre-		Post-				Pre-		Post-
			Modification		Modification				Modification		Modification
			Outstanding		Outstanding				Outstanding		Outstanding
	Number		Recorded		Recorded		Number		Recorded		Recorded
	of loans		Investment		Investment		of loans		Investment		Investment
	(Dollars in thousands)
Extended payment terms:
1-to-4 family residential		1	$	49	$	49		1	$	49	$	49
C & I		2		251		160		3		296		206
Consumer		1		4		4		1		4		4
Total		4	$	304	$	213		5	$	349	$	259

	Three months ended June 30, 2015						Six months ended June 30, 2015
			Pre-		Post-				Pre-		Post-
			Modification		Modification				Modification		Modification
			Outstanding		Outstanding				Outstanding		Outstanding
	Number		Recorded		Recorded		Number		Recorded		Recorded
	of loans		Investment		Investment		of loans		Investment		Investment
	(Dollars in thousands)
Below market interest rate:
1-to-4 family residential		-	$	-	$	-		1	$	22	$	22
Total		-	$	-	$	-		1	$	22	$	22

Loans may be considered troubled debt restructurings for reasons other than below market interest rates, extended payment terms or forgiveness of principal.

The following table presents loans that were modified as TDRs within the past twelve months with a breakdown of the types for which there was a payment default together with concessions made by loan class during the twelve month period ended June 30, 2016 and 2015:

	Twelve months ended				Twelve months ended
	June 30, 2016				June 30, 2015
	Number		Recorded		Number		Recorded
	of loans		investment		of loans		investment
	(Dollars in thousands)
Extended payment terms:
Commercial real estate		3	$	206		1	$	140
Consumer		1		4		-		-
Multi-family residential		1		370		-		-
1-to-4 family residential		1		49		-		-
Total		6	$	629		1	$	140

At June 30, 2016, the Bank had thirty five loans with an aggregate balance of $4.2 million that were considered to be troubled debt restructurings. Of those TDRs, twenty-six loans with a balance totaling $2.9 million were still accruing as of June 30, 2016. The remaining TDRs with balances totaling $1.3 million as of June 30, 2016 were in non-accrual status.

At June 30, 2015, the Bank had forty one loans with an aggregate balance of $6.7 million that were considered to be troubled debt restructurings. Of those TDRs, twenty-four loans with a balance totaling $3.7 million were still accruing as of June 30, 2015. The remaining TDRs with balances totaling $3.0 million as of June 30, 2015 were in non-accrual status.

Credit Quality Indicators

As part of the on-going monitoring of the credit quality of the loan portfolio, management utilizes a risk grading matrix to assign a risk grade to each of the Company’s loans. All non-consumer loans are graded on a scale of 1 to 9. A description of the general characteristics of these nine different risk grades is as follows:

⋅ Risk Grade 1 (Superior) - Credits in this category are virtually risk-free and are well-collateralized by cash-equivalent instruments. The repayment program is well-defined and achievable. Repayment sources are numerous. No material documentation deficiencies or exceptions exist.

⋅ Risk Grade 2 (Very Good) - This grade is reserved for loans secured by readily marketable collateral, or loans within guidelines to borrowers with liquid financial statements. A liquid financial statement is a financial statement with substantial liquid assets relative to debts. These loans have excellent sources of repayment, with no significant identifiable risk of collection, and conform in all respects to Bank policy, guidelines, underwriting standards, and Federal and State regulations (no exceptions of any kind).

⋅ Risk Grade 3 (Good) - These loans have excellent sources of repayment, with no significant identifiable risk of collection. Generally, loans assigned this risk grade will demonstrate the following characteristics: Conformity in all respects with Bank policy, guidelines, underwriting standards, and Federal and State regulations (no exceptions of any kind). Loans assigned this risk grade will demonstrate the following characteristics:

o Documented historical cash flow that meets or exceeds required minimum Bank guidelines, or that can be supplemented with verifiable cash flow from other sources.

o Adequate secondary sources to liquidate the debt, including combinations of liquidity, liquidation of collateral, or liquidation value to the net worth of the borrower or guarantor.

⋅ Risk Grade 4 (Acceptable) - This grade is given to acceptable loans. These loans have adequate sources of repayment, with little identifiable risk of collection. Loans assigned this risk grade will demonstrate the following characteristics:

o General conformity to the Bank's policy requirements, product guidelines and underwriting standards, with limited exceptions. Any exceptions that are identified during the underwriting and approval process have been adequately mitigated by other factors.

o Documented historical cash flow that meets or exceeds required minimum Bank guidelines, or that can be supplemented with verifiable cash flow from other sources.  

o Adequate secondary sources to liquidate the debt, including combinations of liquidity, liquidation of collateral, or liquidation value to the net worth of the borrower or guarantor.

⋅ Risk Grade 5 (Acceptable With Care) - This grade is given to acceptable loans that show signs of weakness in either adequate sources of repayment or collateral, but have demonstrated mitigating factors that minimize the risk of delinquency or loss.  Loans assigned this grade may demonstrate some or all of the following characteristics:

o Additional exceptions to the Bank's policy requirements, product guidelines or underwriting standards that present a higher degree of risk to the Bank.  Although the combination and/or severity of identified exceptions is greater, all exceptions have been properly mitigated by other factors.

o Unproven, insufficient or marginal primary sources of repayment that appear sufficient to service the debt at this time.  Repayment weaknesses may be due to minor operational issues, financial trends, or reliance on projected (not historic) performance.

o Marginal or unproven secondary sources to liquidate the debt, including combinations of liquidation of collateral and liquidation value to the net worth of the borrower or guarantor.

⋅ Risk Grade 6 (Watch List or Special Mention) – Loans in this category can have the following characteristics:

o Loans with underwriting guideline tolerances and/or exceptions and with no mitigating factors.

o Extending loans that are currently performing satisfactorily but with potential weaknesses that may, if not corrected, weaken the asset or inadequately protect the Bank's position at some future date. Potential weaknesses are the result of deviations from prudent lending practices.

o Loans where adverse economic conditions that develop subsequent to the loan origination that don't jeopardize liquidation of the debt but do substantially increase the level of risk may also warrant this rating.

⋅ Risk Grade 7 (Substandard) - A Substandard loan is inadequately protected by the current sound net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans classified as Substandard must have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt; they are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected. Loans consistently not meeting the repayment schedule should be downgraded to substandard. Loans in this category are characterized by deterioration in quality exhibited by any number of well-defined weaknesses requiring corrective action.

⋅ Risk Grade 8 (Doubtful) - Loans classified Doubtful have all the weaknesses inherent in loans classified Substandard, plus the added characteristic that the weaknesses make collection or liquidation in full on the basis of currently existing facts, conditions, and values highly questionable and improbable. However, these loans are not yet rated as loss because certain events may occur which would salvage the debt.

⋅ Risk Grade 9 (Loss) - Loans classified as Loss are considered uncollectable and of such little value that their continuance as bankable assets is not warranted. This classification does not mean that the asset has absolutely no recovery or salvage value, but rather that it is not practical or desirable to defer writing off the loan even though partial recovery may be affected in the future.

Consumer loans are graded on a scale of 1 to 9. A description of the general characteristics of the nine risk grades is as follows:

⋅ Risk Grades 1 – 5 (Pass) – The loans in this category range from loans secured by cash with no risk of principal deterioration (Risk Grade 1) to loans that show signs of weakness in either adequate sources of repayment or collateral but have demonstrated mitigating factors that minimize the risk of delinquency or loss (Risk Grade 5).

⋅ Risk Grade 6 (Watch List or Special Mention) - Watch List or Special Mention loans include the following characteristics:

o Loans within guideline tolerances or with exceptions of any kind that have not been mitigated by other economic or credit factors.

o Extending loans that are currently performing satisfactorily but with potential weaknesses that may, if not corrected, weaken the asset or inadequately protect the Bank's position at some future date. Potential weaknesses are the result of deviations from prudent lending practices.

o Loans where adverse economic conditions that develop subsequent to the loan origination that don't jeopardize liquidation of the debt but do substantially increase the level of risk may also warrant this rating.

⋅ Risk Grade 7 (Substandard) - A Substandard loan is inadequately protected by the current sound net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans classified as Substandard must have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt; they are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

⋅ Risk Grade 8 (Doubtful) - Loans classified Doubtful have all the weaknesses inherent in loans classified Substandard, plus the added characteristic that the weaknesses make collection or liquidation in full on the basis of currently existing facts, conditions, and values highly questionable and improbable. However, these loans are not yet rated as loss because certain events may occur which would salvage the debt.

⋅ Risk Grade 9 (Loss) - Loans classified Loss are considered uncollectable and of such little value that their continuance as bankable assets is not warranted. This classification does not mean that the asset has absolutely no recovery or salvage value, but rather that it is not practical or desirable to defer writing off this worthless loan even though partial recovery may be affected in the future.

The following tables present information on risk ratings of the commercial and consumer loan portfolios, segregated by loan class as of June 30, 2016 and December 31, 2015, respectively:

Total loans:

June 30, 2016
Commercial
Credit
Exposure By	Commercial				Commercial
Internally	and				real		Multi-family
Assigned Grade	industrial		Construction		estate		residential
(In thousands)
Superior	$	598	$	-	$	-	$	-
Very good		384		355		480		-
Good		10,848		5,209		25,611		2,399
Acceptable		28,765		18,228		139,926		29,721
Acceptable with care		38,280		88,731		70,340		13,500
Special mention		696		184		5,495		48
Substandard		583		572		6,070		627
Doubtful		-		-		-		-
Loss		-		-		-		-
	$	80,154	$	113,279	$	247,922	$	46,295

Consumer Credit
Exposure By
Internally	1-to-4 family
Assigned Grade	residential		HELOC
Pass	$	88,804	$	41,146
Special mention		2,981		136
Substandard		3,205		773
	$	94,990	$	42,055

Consumer Credit
Exposure Based	Loans to
On Payment	individuals &
Activity	overdrafts
Pass	$	8,540
Non –pass		14
	$	8,554

Total Loans:

December 31, 2015
Commercial
Credit
Exposure By	Commercial				Commercial
Internally	and				real		Multi-family
Assigned Grade	industrial		Construction		estate		residential
(dollars in thousands)
Superior	$	730	$	-	$	-	$	-
Very good		1,314		355		114		-
Good		8,241		5,827		26,538		-
Acceptable		25,014		19,059		144,717		32,355
Acceptable with care		37,980		79,817		74,169		7,685
Special mention		58		2,015		7,657		-
Substandard		154		615		6,064		698
Doubtful		-		-		-		-
Loss		-		-		-		-
	$	73,491	$	107,688	$	259,259	$	40,738

Consumer Credit
Exposure By
Internally	1-to-4 family
Assigned Grade	residential		HELOC
Pass	$	80,596	$	40,770
Special mention		3,678		448
Substandard		3,681		784
	$	87,955	$	42,002

Consumer Credit
Exposure Based	Loans to
On Payment	individuals &
Activity	overdrafts
Pass	$	7,236
Non-pass		19
	$	7,255

Determining the fair value of Purchased Credit Impaired (PCI) loans at acquisition required the Company to estimate cash flows expected to result from those loans and to discount those cash flows at appropriate rates of interest. For such loans, the excess of cash flows expected to be collected at acquisition over the estimated fair value is recognized as interest income over the remaining lives of the loans and is called the accretable yield. The difference between contractually required payments at acquisition and the cash flows expected to be collected at acquisition reflects the impact of estimated credit losses and is called the nonaccretable difference. In accordance with GAAP, there was no carry-over of previously established allowance for credit losses from the acquired company.

The following table documents changes to the amount of the accretable yield on PCI loans for the three and six months ended June 30, 2016 (dollars in thousands):

	Three Months		Six Months
	Ended June 30,		Ended June 30,
	2016		2016
	(Dollars in thousands)
Accretable yield, beginning of period	$	2,657	$	2,822
Accretion		(264)		(534)
Reclassification from (to) nonaccretable difference		(6)		2
Other changes, net		181		278
Accretable yield, end of period	$	2,568	$	2,568

Allowance for Loan Losses

The allowance for loan losses is a reserve established through provisions for loan losses charged to income and represents management’s best estimate of probable loan losses that have been incurred within the existing portfolio of loans. The allowance, in the judgment of management, is necessary to reserve for estimated losses and risk inherent in the loan portfolio. The Company’s allowance for loan loss methodology is based on historical loss experience by type of credit and internal risk grade, specific homogeneous risk pools and specific loss allocations, with adjustments for current events and conditions. The Company’s process for determining the appropriate level of reserves is designed to account for changes in credit quality as they occur. The provision for loan losses reflects loan quality trends, including the levels of and trends related to past due loans and economic conditions at the local and national levels. It also considers the quality and risk characteristics of the Company’s loan origination and servicing policies and practices.

The Company’s allowance for loan losses model calculates historical loss rates by using a loss migration analysis associating losses to the risk-graded pool to which they relate for each of the previous twelve quarters. Then, using the twelve quarter look back period, loss factors are calculated for each risk-graded pool. The model incorporates various internal and external qualitative and environmental factors as described in the Interagency Policy Statement on the Allowance for Loan and Lease Losses, dated December 2006. Input for these factors is determined on the basis of management observation, judgment, and experience. The factors utilized by the Company in the model for all loan classes are as follows:

Internal Factors

⋅ Concentrations – Measures the increased risk derived from concentration of credit exposure in particular industry segments within the portfolio.

⋅ Policy exceptions – Measures the risk derived from granting terms outside of underwriting guidelines.

⋅ Compliance exceptions– Measures the risk derived from granting terms outside of regulatory guidelines.

⋅ Document exceptions– Measures the risk exposure resulting from the inability to collect due to improperly executed documents and collateral imperfections.

⋅ Financial information monitoring – Measures the risk associated with not having current borrower financial information.

⋅ Nonaccrual – Reflects increased risk of loans with characteristics that merit nonaccrual status.

⋅ Delinquency – Reflects the increased risk deriving from higher delinquency rates.

⋅ Personnel turnover – Reflects staff competence in various types of lending.

⋅ Portfolio growth – Measures the impact of growth and potential risk derived from new loan production.

External Factors

⋅ GDP growth rate – Impact of general economic factors that affect the portfolio.

⋅ North Carolina unemployment rate – Impact of local economic factors that affect the portfolio.

⋅ Peer group delinquency rate – Measures risk associated with the credit requirements of competitors.

⋅ Prime rate change – Measures the effect on the portfolio in the event of changes in the prime lending rate.

Each pool is assigned an adjustment to the potential loss percentage by assessing its characteristics against each of the factors listed above.

Reserves are generally divided into three allocation segments:

1. Individual reserves. These are calculated according to ASC Section 310-10-35 against loans evaluated individually and deemed to be most likely impaired.  All loans in non-accrual status and all substandard loans that are deemed to be collateral dependent are assessed for impairment. Loans are deemed uncollectible based on a variety of credit, collateral, documentation and other issues. In the case of uncollectible receivables, the collateral is considered unsecured and therefore fully charged off.

2. Formula reserves. Formula reserves are held against loans evaluated collectively. Loans are grouped by type or by risk grade, or some combination of the two. Loss estimates are based on historical loss rates for each respective loan group. Formula reserves represent the Company’s best estimate of losses that may be inherent, or embedded, within the group of loans, even if it is not apparent at this time which loans within any group or pool represent those embedded losses.

3. Qualitative and external reserves. If individual reserves represent estimated losses tied to specific loans, and formula reserves represent estimated losses tied to a pool of loans but not yet to any specific loan, then these reserves represent an estimate of likely incurred losses, but are not yet tied to any loan or group of loans.

All information related to the calculation of the three segments, including data analysis, assumptions, and calculations are documented. Assigning specific individual reserve amounts, formula reserve factors, or unallocated amounts based on unsupported assumptions or conclusions is not permitted.

The following tables present a roll forward of the Company’s allowance for loan losses by loan class for the three and six month periods ended June 30, 2016, respectively:

	Three months ended June 30, 2016
	Commercial						1 to 4				Loans to		Multi-
	and				Commercial		family				individuals &		family
Allowance for loan losses	industrial		Construction		real estate		residential		HELOC		overdrafts		residential		Total
	(Dollars in thousands)
Loans – excluding PCI
Balance, beginning of period	$	1,055	$	1,401	$	3,217	$	688	$	585	$	150	$	422	$	7,518
Provision for loan losses		66		107		49		(101)		(102)		22		101		142
Loans charged-off		(40)		(1)		(185)		-		(1)		(9)		-		(236)
Recoveries		5		4		32		185		11		6		-		243
Balance, end of period	$	1,086	$	1,511	$	3,113	$	772	$	493	$	169	$	523	$	7,667
PCI Loans
Balance, beginning of period	$	-	$	-	$	-	$	-	$	9	$	-	$	-	$	9
Provision for loan losses		16		-		-		-		-		-		-		16
Loans charged-off		-		-		-		-		-		-		-		-
Recoveries		-		-		-		-		-		-		-		-
Balance, end of period	$	16	$	-	$	-	$	-	$	9	$	-	$	-	$	25
Total Loans
Balance, beginning of period	$	1,055	$	1,401	$	3,217	$	688	$	594	$	150	$	422	$	7,527
Provision for loan losses		82		107		49		(101)		(102)		22		101		158
Loans charged-off		(40)		(1)		(185)		-		(1)		(9)		-		(236)
Recoveries		5		4		32		185		11		6		-		243
Balance, end of period	$	1,102	$	1,511	$	3,113	$	772	$	502	$	169	$	523	$	7,692
Ending Balance: individually evaluated for impairment	$	7	$	-	$	96	$	12	$	-	$	-	$	-	$	115
Ending Balance: collectively evaluated for impairment	$	1,095	$	1,511	$	3,017	$	760	$	502	$	169	$	523	$	7,577
Loans:
Ending Balance: collectively evaluated for impairment	$	79,719	$	112,768	$	241,091	$	93,463	$	41,399	$	8,554	$	45,928	$	622,922
Ending Balance: individually evaluated for impairment	$	435	$	511	$	6,831	$	1,527	$	656	$	-	$	367	$	10,327
Ending Balance	$	80,154	$	113,279	$	247,922	$	94,990	$	42,055	$	8,554	$	46,295	$	633,249

	Six months ended June 30, 2016
	Commercial						1 to 4				Loans to		Multi-
	and				Commercial		family				individuals &		family
Allowance for loan losses	industrial		Construction		real estate		residential		HELOC		overdrafts		residential		Total
	(Dollars in thousands)
Loans – excluding PCI
Balance, beginning of period	$	922	$	1,386	$	3,005	$	605	$	564	$	137	$	393	$	7,012
Provision for loan losses		198		116		219		(114)		(96)		41		130		494
Loans charged-off		(41)		(2)		(185)		-		(1)		(18)		-		(247)
Recoveries		7		11		74		281		26		9		-		408
Balance, end of period	$	1,086	$	1,511	$	3,113	$	772	$	493	$	169	$	523	$	7,667
PCI Loans
Balance, beginning of period	$	-	$	-	$	-	$	-	$	9	$	-	$	-	$	9
Provision for loan losses		16		-		-		-		-		-		-		16
Loans charged-off		-		-		-		-		-		-		-		-
Recoveries		-		-		-		-		-		-		-		-
Balance, end of period	$	16	$	-	$	-	$	-	$	9	$	-	$	2	$	25
Total Loans
Balance, beginning of period	$	922	$	1,386	$	3,005	$	605	$	573	$	137	$	393	$	7,021
Provision for loan losses		214		116		219		(114)		(96)		41		130		510
Loans charged-off		(41)		(2)		(185)		-		(1)		(18)		-		(247)
Recoveries		7		11		74		281		26		9		-		408
Balance, end of period	$	1,102	$	1,511	$	3,113	$	772	$	502	$	169	$	523	$	7,692

The following tables present a roll forward of the Company’s allowance for loan losses by loan class for the three and six month periods ended June 30, 2015, respectively:

	Three months ended June 30, 2015
	Commercial						1 to 4				Loans to		Multi-
	and				Commercial		family				individuals &		family
Allowance for loan losses	industrial		Construction		real estate		residential		HELOC		overdrafts		residential		Total
	(Dollars in thousands)
Loans – excluding PCI
Balance, beginning of period	$	982	$	1,209	$	2,845	$	606	$	851	$	167	$	259	$	6,919
Provision for loan losses		192		100		(283)		(45)		(96)		(7)		(68)		(207)
Loans charged-off		(130)		-		-		-		-		(11)		(5)		(146)
Recoveries		33		4		11		41		9		4		106		208
Balance, end of period	$	1,077	$	1,313	$	2,573	$	602	$	764	$	153	$	292	$	6,774
PCI Loans
Balance, beginning of period	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Provision for loan losses		-		-		57		-		9		-		2		68
Loans charged-off		-		-		-		-		-		-		-		-
Recoveries		-		-		-		-		-		-		-		-
Balance, end of period	$	-	$	-	$	57	$	-	$	9	$	-	$	2	$	68
Total Loans
Balance, beginning of period	$	982	$	1,209	$	2,845	$	606	$	851	$	167	$	259	$	6,919
Provision for loan losses		192		100		(226)		(45)		(87)		(7)		(66)		(139)
Loans charged-off		(130)		-		-		-		-		(11)		(5)		(146)
Recoveries		33		4		11		41		9		4		106		208
Balance, end of period	$	1,077	$	1,313	$	2,630	$	602	$	773	$	153	$	294	$	6,842
Ending Balance: individually evaluated for impairment	$	3	$	78	$	299	$	66	$	108	$	-	$	-	$	554
Ending Balance: collectively evaluated for impairment	$	1,074	$	1,235	$	2,331	$	536	$	665	$	153	$	294	$	6,288
Loans:
Ending Balance: collectively evaluated for impairment	$	69,875	$	94,977	$	229,561	$	82,990	$	36,783	$	6,042	$	40,515	$	560,743
Ending Balance: individually evaluated for impairment	$	529	$	1,056	$	6,910	$	2,936	$	939	$	-	$	1,337	$	13,707
Ending Balance	$	70,404	$	96,033	$	236,471	$	85,926	$	37,722	$	6,042	$	41,852	$	574,450

	Six months ended June 30, 2015
	Commercial						1 to 4				Loans to		Multi-
	and				Commercial		family				individuals &		family
Allowance for loan losses	industrial		Construction		real estate		residential		HELOC		overdrafts		residential		Total
	(Dollars in thousands)
Loans – excluding PCI
Balance, beginning of period	$	803	$	1,103	$	2,914	$	630	$	930	$	185	$	279	$	6,844
Provision for loan losses		365		202		(323)		(85)		(137)		(11)		(88)		(77)
Loans charged-off		(130)		-		(29)		-		(40)		(35)		(5)		(239)
Recoveries		39		8		11		57		11		14		106		246
Balance, end of period	$	1,077	$	1,313	$	2,573	$	602	$	764	$	153	$	292	$	6,774
PCI Loans
Balance, beginning of period	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Provision for loan losses		-		-		57		-		9		-		2		68
Loans charged-off		-		-		-		-		-		-		-		-
Recoveries		-		-		-		-		-		-		-		-
Balance, end of period	$	-	$	-	$	57	$	-	$	9	$	-	$	2	$	68
Total Loans
Balance, beginning of period	$	803	$	1,103	$	2,914	$	630	$	930	$	185	$	279	$	6,844
Provision for loan losses		365		202		(266)		(85)		(128)		(11)		(86)		(9)
Loans charged-off		(130)		-		(29)		-		(40)		(35)		(5)		(239)
Recoveries		39		8		11		57		11		14		106		246
Balance, end of period	$	1,077	$	1,313	$	2,630	$	602	$	773	$	153	$	294	$	6,842

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ACCUMULATED OTHER COMPREHENSIVE INCOME

6 Months Ended

Jun. 30, 2016

Accumulated Other Comprehensive Income (Loss), Net of Tax [Abstract]

Accumulated Other Comprehensive Income (Loss) [Text Block]

NOTE H – ACCUMULATED OTHER COMPREHENSIVE INCOME

The following table presents changes in accumulated other comprehensive income for the three and six months ended June 30, 2016 and 2015.

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2016		2015		2016		2015
	(In thousands)
Beginning balance	$	953	$	1,131	$	490	$	809
Unrealized gain (loss) on investment securities available for sale		338		(680)		1,099		(72)
Tax effect		(113)		259		(397)		25
Other comprehensive gain (loss) before reclassification		225		(421)		702		(47)
Amounts reclassified from accumulated comprehensive income:
Realized gains on investment securities included in net income		-		(134)		(22)		(219)
Tax effect		-		45		8		78
Total reclassifications net of tax		-		(89)		(14)		(141)
Net current period other comprehensive income (loss)		225		(510)		688		(188)
Ending balance	$	1,178	$	621	$	1,178	$	621

The income statement line items impacted by the reclassifications of realized gains (losses) on investment securities are the gain on the sale of securities and income tax expense line items in the consolidated statement of operations.

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REPURCHASE AGREEMENTS

6 Months Ended

Jun. 30, 2016

Banking and Thrift [Abstract]

Remaining Contractual Maturity Of The Securities Sold Under Agreements To Repurchase By Class Of Collateral Pledged [Text Block]

NOTE I - REPURCHASE AGREEMENTS

We utilize securities sold under agreements to repurchase to facilitate the needs of our customers and secure long-term funding needs. Repurchase agreements are transactions whereby we offer to sell to a counterparty an undivided interest in an eligible security at an agreed upon purchase price, and which obligates the Company to repurchase the security on an agreed upon date at an agreed upon repurchase price plus interest at an agreed upon rate. Securities sold under agreements to repurchase are recorded at the amount of cash received in connection with the transaction and are reflected as short-term borrowings.

We monitor collateral levels on a continuous basis and maintain records of each transaction specifically describing the applicable security and the counterparty’s fractional interest in that security, and we segregate the security from its general assets in accordance with regulations governing custodial holdings of securities. The primary risk with our repurchase agreements is market risk associated with the investments securing the transactions, as we may be required to provide additional collateral based on fair value changes of the underlying investments. Securities pledged as collateral under repurchase agreements are maintained with our safekeeping agents. The carrying value of available for sale investment securities pledged as collateral under repurchase agreements totaled $9.4 million and $12.1 million at June 30, 2016 and December 31, 2015, respectively.

The remaining contractual maturity of the securities sold under agreements to repurchase by class of collateral pledged included in short-term borrowings as of June 30, 2016 and December 31, 2015 is presented in the following tables.

	June 30, 2016
	Remaining Contractual Maturity of the Agreements
	Overnight and		Up to 30		30-90		Greater than
(Dollars in thousands)	continuous		Days		Days		90 Days		Total
Repurchase agreements
U.S. government agencies-GSE’s	$	3,757	$	-	$	-	$	-	$	3,757
Mortgage-backed Securities-GSEs		5,623		-		-		-		5,623
Total borrowings	$	9,380	$	-	$	-	$	-	$	9,380
Gross amount of recognized liabilities for repurchase agreements									$	9,380

	December 31, 2015
	Remaining Contractual Maturity of the Agreements
	Overnight and		Up to 30		30-90		Greater than
(Dollars in thousands)	continuous		Days		Days		90 Days		Total
Repurchase agreements
U.S. government agencies-GSE’s	$	4,206	$	-	$	-	$	-	$	4,206
Mortgage-backed Securities-GSEs		7,943		-		-		-		7,943
Total borrowings	$	12,149	$	-	$	-	$	-	$	12,149
Gross amount of recognized liabilities for repurchase agreements									$	12,149

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OTHER REAL ESTATE OWNED

6 Months Ended

Jun. 30, 2016

Banking and Thrift [Abstract]

Real Estate Owned [Text Block]

NOTE J – OTHER REAL ESTATE OWNED

The following table explains changes in other real estate owned during the six months ended June 30, 2016 and 2015 (dollars in thousands):

	Six Months		Six Months
	Ended June 30,		Ended June 30,
	2016		2015
	(Dollars in thousands)
Beginning balance January 1	$	1,401	$	1,585
Sales		(1,215)		(543)
Writedowns		(48)		(55)
Transfers		578		43
Ending balance	$	716	$	1,030

At June 30, 2016 and December 31, 2015, the Company had $716,000 and $1.4 million, respectively, of foreclosed residential real estate property in OREO. The recorded investment in consumer mortgage loans collateralized by residential real estate property in the process of foreclosure totaled $104,000 and none at June 30, 2016 and December 31, 2015, respectively.

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PER SHARE RESULTS (Tables)

6 Months Ended

Jun. 30, 2016

Earnings Per Share [Abstract]

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

Basic net income per share is computed based upon the weighted average number of shares of common stock outstanding during the period. Diluted net income per share includes the dilutive effect of stock options outstanding during the period. At June 30, 2016 and 2015 there were 123,800 and 111,080 anti-dilutive options outstanding, respectively.

 

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2016		2015		2016		2015
Weighted average shares used for basic net income available to common shareholders		11,594,995		11,481,137		11,589,217		11,453,908
Effect of dilutive stock options		47,731		67,741		49,452		75,697
Weighted average shares used for diluted net income available to common shareholders		11,642,726		11,548,878		11,638,669		11,529,605

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FAIR VALUE MEASUREMENTS (Tables)

6 Months Ended

Jun. 30, 2016

Fair Value Disclosures [Abstract]

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

The following tables summarize quantitative disclosures about the fair value measurement for each category of assets carried at fair value on a recurring basis as of June 30, 2016 and December 31, 2015 (in thousands):

Investment securities available for sale June 30, 2016	Fair value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
U.S. government agencies – GSE's	$	17,694	$	-	$	17,694	$	-
Mortgage-backed securities - GSE’s		35,408		-		35,408		-
Municipal bonds		16,777		-		16,777		-
Total	$	69,879	$	-	$	69,879	$	-

Investment securities available for sale December 31, 2015	Fair value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
U.S. government agencies – GSE's	$	21,226	$	-	$	21,226	$	-
Mortgage-backed securities - GSE’s		39,536		-		39,536		-
Municipal bonds		19,947		-		19,947		-
Total	$	80,709	$	-	$	80,709	$	-

Fair Value Measurements, Nonrecurring [Table Text Block]

The following tables summarize quantitative disclosures about the fair value measurement for each category of assets carried at fair value on a non-recurring basis as of June 30, 2016 and December 31, 2015 (in thousands):

Asset Category June 30, 2016	Fair value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Impaired loans	$	5,860	$	-	$	-	$	5,860
Assets held for sale		1,246		-		-		1,246
Foreclosed real estate		716		-		-		716
Total	$	7,822	$	-	$	-	$	7,822

Asset Category December 31, 2015	Fair value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Impaired loans	$	6,635	$	-	$	-	$	6,635
Assets held for sale		846		-		-		846
Foreclosed real estate		1,401		-		-		1,401
Total	$	8,882	$	-	$	-	$	8,882

Schedule of Fair Value, Off-balance Sheet Risks [Table Text Block]

The following table presents the carrying values and estimated fair values of the Company's financial instruments at June 30, 2016 and December 31, 2015:

	June 30, 2016
	Carrying		Estimated
	Amount		Fair Value		Level 1		Level 2		Level 3
	(In thousands)
Financial assets:
Cash and due from banks	$	14,896	$	14,896	$	14,896	$	-	$	-
Certificates of deposit		1,000		1,000		1,000		-		-
Interest-earning deposits in other banks		54,582		54,582		54,582		-		-
Investment securities available for sale		69,879		69,879		-		69,879		-
Loans, net		624,495		633,534		-		-		633,534
Accrued interest receivable		2,406		2,406		-		-		2,406
Stock in FHLB		2,318		2,318		-		-		2,318
Other non-marketable securities		757		757		-		-		757
Financial liabilities:
Deposits	$	661,274	$	661,658	$	-	$	661,658	$	-
Short-term debt		30,505		30,505		-		30,505		-
Long-term debt		28,415		23,430		-		23,430		-
Accrued interest payable		251		251		-		251		-

	December 31, 2015
	Carrying		Estimated
	Amount		Fair Value		Level 1		Level 2		Level 3
	(In thousands)
Financial assets:
Cash and due from banks	$	12,567	$	12,567	$	12,567	$	-	$	-
Certificates of deposits		1,000		1,000		1,000		-		-
Interest-earning deposits in other banks		49,842		49,842		49,842		-		-
Investment securities available for sale		80,709		80,709		-		80,709		-
Loans, net		610,377		615,754		-		-		615,754
Accrued interest receivable		2,350		2,350		-		-		2,350
Stock in the FHLB		2,112		2,112		-		-		2,112
Other non-marketable securities		705		705		-		-		705
Financial liabilities:
Deposits	$	651,161	$	651,255	$	-	$	651,255	$	-
Short-term debt		29,673		29,673		-		29,673		-
Long-term debt		28,703		23,718		-		23,718		-
Accrued interest payable		232		232		-		232		-

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INVESTMENT SECURITIES (Tables)

6 Months Ended

Jun. 30, 2016

Investments, Debt and Equity Securities [Abstract]

Schedule of Available-for-sale Securities Reconciliation [Table Text Block]

The amortized cost and fair value of available for sale investments (“AFS”), with gross unrealized gains and losses, follow:

	June 30, 2016
			Gross		Gross
	Amortized		unrealized		unrealized		Fair
	cost		gains		losses		value
	(dollars in thousands)
Securities available for sale:
U.S. government agencies – GSE’s	$	17,509	$	196	$	(11)	$	17,694
Mortgage-backed securities – GSE’s		34,321		1,087		-		35,408
Municipal bonds		16,169		608		-		16,777
	$	67,999	$	1,891	$	(11)	$	69,879

As of June 30, 2016, accumulated other comprehensive income included net unrealized gains totaling $1.9 million. Deferred tax liabilities resulting from these net unrealized gains totaled $701,000.

	December 31, 2015
			Gross		Gross
	Amortized		unrealized		unrealized		Fair
	cost		gains		losses		value
	(dollars in thousands)
Securities available for sale:
U.S. government agencies – GSE’s	$	21,321	$	101	$	(196)	$	21,226
Mortgage-backed securities – GSE’s		39,123		475		(62)		39,536
Municipal bonds		19,484		465		(2)		19,947
	$	79,928	$	1,041	$	(260)	$	80,709

Investments Classified by Contractual Maturity Date [Table Text Block]

The scheduled maturities of securities available for sale, with gross unrealized gains and losses, were as follows:

	June 30, 2016
			Gross		Gross
	Amortized		unrealized		unrealized		Fair
	cost		gains		losses		value
	(In thousands)
Securities available for sale:
Within 1 year	$	2,758	$	32	$	-	$	2,790
After 1 year but within 5 years		44,238		1,257		(4)		45,491
After 5 years but within 10 years		12,173		215		(7)		12,381
After 10 years		8,830		387		-		9,217
	$	67,999	$	1,891	$	(11)	$	69,879

	December 31, 2015
			Gross		Gross
	Amortized		unrealized		unrealized		Fair
	cost		gains		losses		value
	(In thousands)
Securities available for sale:
Within 1 year	$	1,361	$	6	$	-	$	1,367
After 1 year but within 5 years		52,577		628		(99)		53,106
After 5 years but within 10 years		17,297		146		(161)		17,282
After 10 years		8,693		261		-		8,954
	$	79,928	$	1,041	$	(260)	$	80,709

Schedule of Unrealized Loss on Investments [Table Text Block]

The following tables show the gross unrealized losses and fair value of the Company’s investment securities, aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position, at June 30, 2016 and December 31, 2015.

	June 30, 2016
	Less Than 12 Months				12 Months or More				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	value		losses		value		losses		value		losses
	(dollars in thousands)
Securities available for sale:
U.S. government agencies- GSE’s	$	1,779	$	(3)	$	1,776	$	(8)	$	3,555	$	(11)
Total temporarily impaired securities	$	1,779	$	(3)	$	1,776	$	(8)	$	3,555	$	(11)

	December 31, 2015
	Less Than 12 Months				12 Months or More				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	value		losses		value		losses		value		losses
	(dollars in thousands)
Securities available for sale:
U.S. government agencies – GSE’s	$	7,039	$	(70)	$	7,615	$	(126)	$	14,654	$	(196)
Mortgage-backed securities- GSE’s		7,916		(62)		-		-		7,916		(62)
Municipal bonds		111		(2)		-		-		111		(2)
Total temporarily impaired securities	$	15,066	$	(134)	$	7,615	$	(126)	$	22,681	$	(260)

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LOANS (Tables)

6 Months Ended

Jun. 30, 2016

Receivables [Abstract]

Schedule of Accounts, Notes, Loans and Financing Receivable [Table Text Block]

Following is a summary of the composition of the Company’s loan portfolio at June 30, 2016 and December 31, 2015:

	June 30,					December 31,
Total Loans:	2016					2015
			Percent					Percent
	Amount		of total			Amount		of total
	(dollars in thousands)
Real estate loans:
1-to-4 family residential	$	94,990		15.03	%	$	87,955		14.25	%
Commercial real estate		247,922		39.22	%		259,259		41.99	%
Multi-family residential		46,295		7.32	%		40,738		6.60	%
Construction		113,279		17.92	%		107,688		17.44	%
Home equity lines of credit (“HELOC”)		42,055		6.65	%		42,002		6.80	%
Total real estate loans		544,541		86.14	%		537,642		87.08	%
Other loans:
Commercial and industrial		80,154		12.68	%		73,491		11.90	%
Loans to individuals		8,452		1.34	%		7,207		1.17	%
Overdrafts		102		0.01	%		48		0.01	%
Total other loans		88,708		14.03	%		80,746		13.08	%
Gross loans		633,249					618,388
Less deferred loan origination fees, net		(1,062)		(0.17)	%		(990)		(0.16)	%
Total loans		632,187		100.00	%		617,398		100.00	%
Allowance for loan losses		(7,692)					(7,021)
Total loans, net	$	624,495				$	610,377

Past Due Financing Receivables [Table Text Block]

The following tables present an age analysis of past due loans, segregated by class of loans as of June 30, 2016 and December 31, 2015, respectively:

Total Loans:	June 30, 2016
	30+		Non-		Total
	Days		Accrual		Past				Total
	Past Due		Loans		Due		Current		Loans
	(dollars in thousands)
Commercial and industrial	$	150	$	84	$	234	$	79,920	$	80,154
Construction		143		423		566		112,713		113,279
Multi-family residential		-		367		367		45,928		46,295
Commercial real estate		84		3,690		3,774		244,148		247,922
Loans to individuals & overdrafts		21		155		176		8,378		8,554
1-to-4 family residential		1,024		781		1,805		93,185		94,990
HELOC		-		360		360		41,695		42,055
Deferred loan (fees) cost, net		-		-		-		-		(1,062)
	$	1,422	$	5,860	$	7,282	$	625,967	$	632,187

There were three loans that amounted to $571,000 that were more than 90 days past due and still accruing interest at June 30, 2016.

 

	December 31, 2015
	30+		Non-		Total
	Days		Accrual		Past				Total
	Past Due		Loans		Due		Current		Loans
	(dollars in thousands)
Total Loans
Commercial and industrial	$	455	$	13	$	468	$	73,023	$	73,491
Construction		-		523		523		107,165		107,688
Multi-family residential		44		431		475		40,263		40,738
Commercial real estate		1,214		3,711		4,925		254,334		259,259
Loans to individuals & overdrafts		14		4		18		7,237		7,255
1-to-4 family residential		650		1,594		2,244		85,711		87,955
HELOC		124		359		483		41,519		42,002
Deferred loan (fees) cost, net		-		-		-		-		(990)
	$	2,501	$	6,635	$	9,136	$	609,252	$	617,398

Impaired Financing Receivables [Table Text Block]

The following tables present information on loans that were considered to be impaired as of June 30, 2016 and December 31, 2015:

							Three months ended				Six months ended
	As of June 30, 2016						June 30, 2016				June 30, 2016
			Contractual						Interest Income				Interest Income
			Unpaid				Average		Recognized on		Average		Recognized on
	Recorded		Principal		Related		Recorded		Impaired		Recorded		Impaired
	Investment		Balance		Allowance		Investment		Loans		Investment		Loans
	(In thousands)
With no related allowance recorded:
Commercial and industrial	$	370	$	371	$	-	$	469	$	2	$	237	$	8
Construction		511		637		-		558		2		563		6
Commercial real estate		3,749		5,346		-		3,304		29		4,378		72
Loans to individuals & overdrafts		-		-		-		-		-		-		-
Multi-family residential		367		375		-		368		3		397		8
1-to-4 family residential		1,250		1,546		-		1,257		36		1,656		52
HELOC		623		787		-		658		10		661		18
Subtotal:		6,870		9,062		-		6,614		82		7,892		164
With an allowance recorded:
Commercial and industrial		65		65		7		35		-		39		1
Construction		-		-		-		-		-		-		-
Commercial real estate		3,082		3,692		96		3,389		4		2,165		18
Loans to individuals & overdrafts		-		-		-		-		-		2		-
Multi-family residential		-		-		-		-		-		-		-
1-to-4 family residential		277		277		12		314		2		284		8
HELOC		33		35		-		41		-		16		-
Subtotal:		3,457		4,069		115		3,779		6		2,506		27
Totals:
Commercial		8,144		10,486		103		8,123		40		7,779		113
Consumer		-		-		-		-		-		2		-
Residential		2,183		2,645		12		2,270		48		2,617		78
Grand Total:	$	10,327	$	13,131	$	115	$	10,393	$	88	$	10,398	$	191

Impaired loans at June 30, 2016 were approximately $10.3 million and were composed of $5.9 million in nonaccrual loans and $4.4 million in loans that were still accruing interest. Recorded investment represents the current principal balance of the loan. Approximately $3.5 million in impaired loans had specific allowances provided for them while the remaining $6.9 million had no specific allowances recorded at June 30, 2016. Of the $6.9 million with no allowance recorded, $1.4 million of those loans have had partial charge-offs recorded.

							Three months ended				Six months ended
	As of December 31, 2015						June 30, 2015				June 30, 2015
			Contractual						Interest Income				Interest Income
			Unpaid				Average		Recognized on		Average		Recognized on
	Recorded		Principal		Related		Recorded		Impaired		Recorded		Impaired
	Investment		Balance		Allowance		Investment		Loans		Investment		Loans
	(In thousands)
With no related allowance recorded:
Commercial and industrial	$	105	$	106	$	-	$	640	$	6	$	606	$	38
Construction		615		764		-		973		10		1,095		23
Commercial real estate		5,006		7,229		-		2,556		49		2,468		93
Loans to individuals & overdrafts		-		-		-		-		-		-		-
Multi-family residential		-		-		-		1,769		21		1,785		43
1 to 4 family residential		2,061		2,666		-		2,485		28		2,368		59
HELOC		699		868		-		641		9		641		20
Subtotal:		8,486		11,633		-		9,064		123		8,963		276
With an allowance recorded:
Commercial and industrial		13		13		2		11		-		138		-
Construction		-		-		-		166		1		166		2
Commercial real estate		1,248		1,314		73		4,436		19		4,643		80
Loans to individuals & overdrafts		4		4		4		-		-		-		-
Multi-family residential		-		-		-		-		-		-		-
1 to 4 family residential		290		290		15		495		6		476		10
HELOC		-		-		-		288		-		289		-
Subtotal:		1,555		1,621		94		5,396		26		5,712		92
Totals:
Commercial		6,987		9,426		75		10,551		106		10,901		279
Consumer		4		4		4		-		-		-		-
Residential		3,050		3,824		15		3,909		43		3,774		89
Grand Total:	$	10,041	$	13,254	$	94	$	14,460	$	149	$	14,675	$	368

Troubled Debt Restructurings on Financing Receivables [Table Text Block]

The following table presents loans that were modified as troubled debt restructurings (“TDRs”) with a breakdown of the types of concessions made by loan class during the three and six months ended June 30, 2016 and 2015:

	Three months ended June 30, 2016						Six months ended June 30, 2016
			Pre-		Post-				Pre-		Post-
			Modification		Modification				Modification		Modification
			Outstanding		Outstanding				Outstanding		Outstanding
	Number		Recorded		Recorded		Number		Recorded		Recorded
	of loans		Investment		Investment		of loans		Investment		Investment
	(Dollars in thousands)
Extended payment terms:
1-to-4 family residential		1	$	49	$	49		1	$	49	$	49
C & I		2		251		160		3		296		206
Consumer		1		4		4		1		4		4
Total		4	$	304	$	213		5	$	349	$	259

	Three months ended June 30, 2015						Six months ended June 30, 2015
			Pre-		Post-				Pre-		Post-
			Modification		Modification				Modification		Modification
			Outstanding		Outstanding				Outstanding		Outstanding
	Number		Recorded		Recorded		Number		Recorded		Recorded
	of loans		Investment		Investment		of loans		Investment		Investment
	(Dollars in thousands)
Below market interest rate:
1-to-4 family residential		-	$	-	$	-		1	$	22	$	22
Total		-	$	-	$	-		1	$	22	$	22

The following table presents loans that were modified as TDRs within the past twelve months with a breakdown of the types for which there was a payment default together with concessions made by loan class during the twelve month period ended June 30, 2016 and 2015:

	Twelve months ended				Twelve months ended
	June 30, 2016				June 30, 2015
	Number		Recorded		Number		Recorded
	of loans		investment		of loans		investment
	(Dollars in thousands)
Extended payment terms:
Commercial real estate		3	$	206		1	$	140
Consumer		1		4		-		-
Multi-family residential		1		370		-		-
1-to-4 family residential		1		49		-		-
Total		6	$	629		1	$	140

Financing Receivable Credit Quality Indicators [Table Text Block]

June 30, 2016
Commercial
Credit
Exposure By	Commercial				Commercial
Internally	and				real		Multi-family
Assigned Grade	industrial		Construction		estate		residential
(In thousands)
Superior	$	598	$	-	$	-	$	-
Very good		384		355		480		-
Good		10,848		5,209		25,611		2,399
Acceptable		28,765		18,228		139,926		29,721
Acceptable with care		38,280		88,731		70,340		13,500
Special mention		696		184		5,495		48
Substandard		583		572		6,070		627
Doubtful		-		-		-		-
Loss		-		-		-		-
	$	80,154	$	113,279	$	247,922	$	46,295

Consumer Credit
Exposure By
Internally	1-to-4 family
Assigned Grade	residential		HELOC
Pass	$	88,804	$	41,146
Special mention		2,981		136
Substandard		3,205		773
	$	94,990	$	42,055

Consumer Credit
Exposure Based	Loans to
On Payment	individuals &
Activity	overdrafts
Pass	$	8,540
Non –pass		14
	$	8,554

Total Loans:

December 31, 2015
Commercial
Credit
Exposure By	Commercial				Commercial
Internally	and				real		Multi-family
Assigned Grade	industrial		Construction		estate		residential
(dollars in thousands)
Superior	$	730	$	-	$	-	$	-
Very good		1,314		355		114		-
Good		8,241		5,827		26,538		-
Acceptable		25,014		19,059		144,717		32,355
Acceptable with care		37,980		79,817		74,169		7,685
Special mention		58		2,015		7,657		-
Substandard		154		615		6,064		698
Doubtful		-		-		-		-
Loss		-		-		-		-
	$	73,491	$	107,688	$	259,259	$	40,738

Consumer Credit
Exposure By
Internally	1-to-4 family
Assigned Grade	residential		HELOC
Pass	$	80,596	$	40,770
Special mention		3,678		448
Substandard		3,681		784
	$	87,955	$	42,002

Consumer Credit
Exposure Based	Loans to
On Payment	individuals &
Activity	overdrafts
Pass	$	7,236
Non-pass		19
	$	7,255

Schedule Of Certain Loans Acquired In Transfer Accounted For As Debt Securities Accretable Yield [Table Text Block]

The following table documents changes to the amount of the accretable yield on PCI loans for the three and six months ended June 30, 2016 (dollars in thousands):

	Three Months		Six Months
	Ended June 30,		Ended June 30,
	2016		2016
	(Dollars in thousands)
Accretable yield, beginning of period	$	2,657	$	2,822
Accretion		(264)		(534)
Reclassification from (to) nonaccretable difference		(6)		2
Other changes, net		181		278
Accretable yield, end of period	$	2,568	$	2,568

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

The following tables present a roll forward of the Company’s allowance for loan losses by loan class for the three and six month periods ended June 30, 2016, respectively:

	Three months ended June 30, 2016
	Commercial						1 to 4				Loans to		Multi-
	and				Commercial		family				individuals &		family
Allowance for loan losses	industrial		Construction		real estate		residential		HELOC		overdrafts		residential		Total
	(Dollars in thousands)
Loans – excluding PCI
Balance, beginning of period	$	1,055	$	1,401	$	3,217	$	688	$	585	$	150	$	422	$	7,518
Provision for loan losses		66		107		49		(101)		(102)		22		101		142
Loans charged-off		(40)		(1)		(185)		-		(1)		(9)		-		(236)
Recoveries		5		4		32		185		11		6		-		243
Balance, end of period	$	1,086	$	1,511	$	3,113	$	772	$	493	$	169	$	523	$	7,667
PCI Loans
Balance, beginning of period	$	-	$	-	$	-	$	-	$	9	$	-	$	-	$	9
Provision for loan losses		16		-		-		-		-		-		-		16
Loans charged-off		-		-		-		-		-		-		-		-
Recoveries		-		-		-		-		-		-		-		-
Balance, end of period	$	16	$	-	$	-	$	-	$	9	$	-	$	-	$	25
Total Loans
Balance, beginning of period	$	1,055	$	1,401	$	3,217	$	688	$	594	$	150	$	422	$	7,527
Provision for loan losses		82		107		49		(101)		(102)		22		101		158
Loans charged-off		(40)		(1)		(185)		-		(1)		(9)		-		(236)
Recoveries		5		4		32		185		11		6		-		243
Balance, end of period	$	1,102	$	1,511	$	3,113	$	772	$	502	$	169	$	523	$	7,692
Ending Balance: individually evaluated for impairment	$	7	$	-	$	96	$	12	$	-	$	-	$	-	$	115
Ending Balance: collectively evaluated for impairment	$	1,095	$	1,511	$	3,017	$	760	$	502	$	169	$	523	$	7,577
Loans:
Ending Balance: collectively evaluated for impairment	$	79,719	$	112,768	$	241,091	$	93,463	$	41,399	$	8,554	$	45,928	$	622,922
Ending Balance: individually evaluated for impairment	$	435	$	511	$	6,831	$	1,527	$	656	$	-	$	367	$	10,327
Ending Balance	$	80,154	$	113,279	$	247,922	$	94,990	$	42,055	$	8,554	$	46,295	$	633,249

	Six months ended June 30, 2016
	Commercial						1 to 4				Loans to		Multi-
	and				Commercial		family				individuals &		family
Allowance for loan losses	industrial		Construction		real estate		residential		HELOC		overdrafts		residential		Total
	(Dollars in thousands)
Loans – excluding PCI
Balance, beginning of period	$	922	$	1,386	$	3,005	$	605	$	564	$	137	$	393	$	7,012
Provision for loan losses		198		116		219		(114)		(96)		41		130		494
Loans charged-off		(41)		(2)		(185)		-		(1)		(18)		-		(247)
Recoveries		7		11		74		281		26		9		-		408
Balance, end of period	$	1,086	$	1,511	$	3,113	$	772	$	493	$	169	$	523	$	7,667
PCI Loans
Balance, beginning of period	$	-	$	-	$	-	$	-	$	9	$	-	$	-	$	9
Provision for loan losses		16		-		-		-		-		-		-		16
Loans charged-off		-		-		-		-		-		-		-		-
Recoveries		-		-		-		-		-		-		-		-
Balance, end of period	$	16	$	-	$	-	$	-	$	9	$	-	$	2	$	25
Total Loans
Balance, beginning of period	$	922	$	1,386	$	3,005	$	605	$	573	$	137	$	393	$	7,021
Provision for loan losses		214		116		219		(114)		(96)		41		130		510
Loans charged-off		(41)		(2)		(185)		-		(1)		(18)		-		(247)
Recoveries		7		11		74		281		26		9		-		408
Balance, end of period	$	1,102	$	1,511	$	3,113	$	772	$	502	$	169	$	523	$	7,692

The following tables present a roll forward of the Company’s allowance for loan losses by loan class for the three and six month periods ended June 30, 2015, respectively:

	Three months ended June 30, 2015
	Commercial						1 to 4				Loans to		Multi-
	and				Commercial		family				individuals &		family
Allowance for loan losses	industrial		Construction		real estate		residential		HELOC		overdrafts		residential		Total
	(Dollars in thousands)
Loans – excluding PCI
Balance, beginning of period	$	982	$	1,209	$	2,845	$	606	$	851	$	167	$	259	$	6,919
Provision for loan losses		192		100		(283)		(45)		(96)		(7)		(68)		(207)
Loans charged-off		(130)		-		-		-		-		(11)		(5)		(146)
Recoveries		33		4		11		41		9		4		106		208
Balance, end of period	$	1,077	$	1,313	$	2,573	$	602	$	764	$	153	$	292	$	6,774
PCI Loans
Balance, beginning of period	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Provision for loan losses		-		-		57		-		9		-		2		68
Loans charged-off		-		-		-		-		-		-		-		-
Recoveries		-		-		-		-		-		-		-		-
Balance, end of period	$	-	$	-	$	57	$	-	$	9	$	-	$	2	$	68
Total Loans
Balance, beginning of period	$	982	$	1,209	$	2,845	$	606	$	851	$	167	$	259	$	6,919
Provision for loan losses		192		100		(226)		(45)		(87)		(7)		(66)		(139)
Loans charged-off		(130)		-		-		-		-		(11)		(5)		(146)
Recoveries		33		4		11		41		9		4		106		208
Balance, end of period	$	1,077	$	1,313	$	2,630	$	602	$	773	$	153	$	294	$	6,842
Ending Balance: individually evaluated for impairment	$	3	$	78	$	299	$	66	$	108	$	-	$	-	$	554
Ending Balance: collectively evaluated for impairment	$	1,074	$	1,235	$	2,331	$	536	$	665	$	153	$	294	$	6,288
Loans:
Ending Balance: collectively evaluated for impairment	$	69,875	$	94,977	$	229,561	$	82,990	$	36,783	$	6,042	$	40,515	$	560,743
Ending Balance: individually evaluated for impairment	$	529	$	1,056	$	6,910	$	2,936	$	939	$	-	$	1,337	$	13,707
Ending Balance	$	70,404	$	96,033	$	236,471	$	85,926	$	37,722	$	6,042	$	41,852	$	574,450

	Six months ended June 30, 2015
	Commercial						1 to 4				Loans to		Multi-
	and				Commercial		family				individuals &		family
Allowance for loan losses	industrial		Construction		real estate		residential		HELOC		overdrafts		residential		Total
	(Dollars in thousands)
Loans – excluding PCI
Balance, beginning of period	$	803	$	1,103	$	2,914	$	630	$	930	$	185	$	279	$	6,844
Provision for loan losses		365		202		(323)		(85)		(137)		(11)		(88)		(77)
Loans charged-off		(130)		-		(29)		-		(40)		(35)		(5)		(239)
Recoveries		39		8		11		57		11		14		106		246
Balance, end of period	$	1,077	$	1,313	$	2,573	$	602	$	764	$	153	$	292	$	6,774
PCI Loans
Balance, beginning of period	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Provision for loan losses		-		-		57		-		9		-		2		68
Loans charged-off		-		-		-		-		-		-		-		-
Recoveries		-		-		-		-		-		-		-		-
Balance, end of period	$	-	$	-	$	57	$	-	$	9	$	-	$	2	$	68
Total Loans
Balance, beginning of period	$	803	$	1,103	$	2,914	$	630	$	930	$	185	$	279	$	6,844
Provision for loan losses		365		202		(266)		(85)		(128)		(11)		(86)		(9)
Loans charged-off		(130)		-		(29)		-		(40)		(35)		(5)		(239)
Recoveries		39		8		11		57		11		14		106		246
Balance, end of period	$	1,077	$	1,313	$	2,630	$	602	$	773	$	153	$	294	$	6,842

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ACCUMULATED OTHER COMPREHENSIVE INCOME (Tables)

6 Months Ended

Jun. 30, 2016

Accumulated Other Comprehensive Income (Loss), Net of Tax [Abstract]

Schedule of Accumulated Other Comprehensive Income (Loss) [Table Text Block]

The following table presents changes in accumulated other comprehensive income for the three and six months ended June 30, 2016 and 2015.

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2016		2015		2016		2015
	(In thousands)
Beginning balance	$	953	$	1,131	$	490	$	809
Unrealized gain (loss) on investment securities available for sale		338		(680)		1,099		(72)
Tax effect		(113)		259		(397)		25
Other comprehensive gain (loss) before reclassification		225		(421)		702		(47)
Amounts reclassified from accumulated comprehensive income:
Realized gains on investment securities included in net income		-		(134)		(22)		(219)
Tax effect		-		45		8		78
Total reclassifications net of tax		-		(89)		(14)		(141)
Net current period other comprehensive income (loss)		225		(510)		688		(188)
Ending balance	$	1,178	$	621	$	1,178	$	621

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REPURCHASE AGREEMENTS (Tables)

6 Months Ended

Jun. 30, 2016

Banking and Thrift [Abstract]

Remaining Contractual Maturity Of The Securities Sold Under Agreements To Repurchase By Class Of Collateral Pledged [Table Text Block]

The remaining contractual maturity of the securities sold under agreements to repurchase by class of collateral pledged included in short-term borrowings as of June 30, 2016 and December 31, 2015 is presented in the following tables.

	June 30, 2016
	Remaining Contractual Maturity of the Agreements
	Overnight and		Up to 30		30-90		Greater than
(Dollars in thousands)	continuous		Days		Days		90 Days		Total
Repurchase agreements
U.S. government agencies-GSE’s	$	3,757	$	-	$	-	$	-	$	3,757
Mortgage-backed Securities-GSEs		5,623		-		-		-		5,623
Total borrowings	$	9,380	$	-	$	-	$	-	$	9,380
Gross amount of recognized liabilities for repurchase agreements									$	9,380

	December 31, 2015
	Remaining Contractual Maturity of the Agreements
	Overnight and		Up to 30		30-90		Greater than
(Dollars in thousands)	continuous		Days		Days		90 Days		Total
Repurchase agreements
U.S. government agencies-GSE’s	$	4,206	$	-	$	-	$	-	$	4,206
Mortgage-backed Securities-GSEs		7,943		-		-		-		7,943
Total borrowings	$	12,149	$	-	$	-	$	-	$	12,149
Gross amount of recognized liabilities for repurchase agreements									$	12,149

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OTHER REAL ESTATE OWNED (Tables)

6 Months Ended

Jun. 30, 2016

Banking and Thrift [Abstract]

Schedule Of Real Estate Owned Properties [Table Text Block]

The following table explains changes in other real estate owned during the six months ended June 30, 2016 and 2015 (dollars in thousands):

	Six Months		Six Months
	Ended June 30,		Ended June 30,
	2016		2015
	(Dollars in thousands)
Beginning balance January 1	$	1,401	$	1,585
Sales		(1,215)		(543)
Writedowns		(48)		(55)
Transfers		578		43
Ending balance	$	716	$	1,030

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PER SHARE RESULTS (Details) - shares	3 Months Ended		6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015
Weighted Average Number Of Shares [Line Items]
Weighted average shares used for basic net income available to common shareholders	11,594,995	11,481,137	11,589,217	11,453,908
Effect of dilutive stock options	47,731	67,741	49,452	75,697
Weighted average shares used for diluted net income available to common shareholders	11,642,726	11,548,878	11,638,669	11,529,605

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PER SHARE RESULTS (Details Textual) - shares	6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount	123,800	111,080

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FAIR VALUE MEASUREMENTS (Details) - USD ($) $ in Thousands	Jun. 30, 2016	Dec. 31, 2015
Assets, Fair Value Disclosure, Recurring	$ 69,879	$ 80,709
US Government Agencies Debt Securities [Member]
Assets, Fair Value Disclosure, Recurring	17,694	21,226
Mortgage-backed Securities, Issued by US Government Sponsored Enterprises [Member]
Assets, Fair Value Disclosure, Recurring	35,408	39,536
Municipal Bonds [Member]
Assets, Fair Value Disclosure, Recurring	16,777	19,947
Fair Value, Inputs, Level 1 [Member]
Assets, Fair Value Disclosure, Recurring	0	0
Fair Value, Inputs, Level 1 [Member] | US Government Agencies Debt Securities [Member]
Assets, Fair Value Disclosure, Recurring	0	0
Fair Value, Inputs, Level 1 [Member] | Mortgage-backed Securities, Issued by US Government Sponsored Enterprises [Member]
Assets, Fair Value Disclosure, Recurring	0	0
Fair Value, Inputs, Level 1 [Member] | Municipal Bonds [Member]
Assets, Fair Value Disclosure, Recurring	0	0
Fair Value, Inputs, Level 2 [Member]
Assets, Fair Value Disclosure, Recurring	69,879	80,709
Fair Value, Inputs, Level 2 [Member] | US Government Agencies Debt Securities [Member]
Assets, Fair Value Disclosure, Recurring	17,694	21,226
Fair Value, Inputs, Level 2 [Member] | Mortgage-backed Securities, Issued by US Government Sponsored Enterprises [Member]
Assets, Fair Value Disclosure, Recurring	35,408	39,536
Fair Value, Inputs, Level 2 [Member] | Municipal Bonds [Member]
Assets, Fair Value Disclosure, Recurring	16,777	19,947
Fair Value, Inputs, Level 3 [Member]
Assets, Fair Value Disclosure, Recurring	0	0
Fair Value, Inputs, Level 3 [Member] | US Government Agencies Debt Securities [Member]
Assets, Fair Value Disclosure, Recurring	0	0
Fair Value, Inputs, Level 3 [Member] | Mortgage-backed Securities, Issued by US Government Sponsored Enterprises [Member]
Assets, Fair Value Disclosure, Recurring	0	0
Fair Value, Inputs, Level 3 [Member] | Municipal Bonds [Member]
Assets, Fair Value Disclosure, Recurring	$ 0	$ 0

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FAIR VALUE MEASUREMENTS (Details 1) - USD ($) $ in Thousands	Jun. 30, 2016	Dec. 31, 2015
Assets, Fair Value Disclosure, Nonrecurring	$ 7,822	$ 8,882
Impaired Loans [Member]
Assets, Fair Value Disclosure, Nonrecurring	5,860	6,635
Assets held for sale [Member]
Assets, Fair Value Disclosure, Nonrecurring	1,246	846
Foreclosed Real Estate [Member]
Assets, Fair Value Disclosure, Nonrecurring	716	1,401
Fair Value, Inputs, Level 1 [Member]
Assets, Fair Value Disclosure, Nonrecurring	0	0
Fair Value, Inputs, Level 1 [Member] | Impaired Loans [Member]
Assets, Fair Value Disclosure, Nonrecurring	0	0
Fair Value, Inputs, Level 1 [Member] | Assets held for sale [Member]
Assets, Fair Value Disclosure, Nonrecurring	0	0
Fair Value, Inputs, Level 1 [Member] | Foreclosed Real Estate [Member]
Assets, Fair Value Disclosure, Nonrecurring	0	0
Fair Value, Inputs, Level 2 [Member]
Assets, Fair Value Disclosure, Nonrecurring	0	0
Fair Value, Inputs, Level 2 [Member] | Impaired Loans [Member]
Assets, Fair Value Disclosure, Nonrecurring	0	0
Fair Value, Inputs, Level 2 [Member] | Assets held for sale [Member]
Assets, Fair Value Disclosure, Nonrecurring	0	0
Fair Value, Inputs, Level 2 [Member] | Foreclosed Real Estate [Member]
Assets, Fair Value Disclosure, Nonrecurring	0	0
Fair Value, Inputs, Level 3 [Member]
Assets, Fair Value Disclosure, Nonrecurring	7,822	8,882
Fair Value, Inputs, Level 3 [Member] | Impaired Loans [Member]
Assets, Fair Value Disclosure, Nonrecurring	5,860	6,635
Fair Value, Inputs, Level 3 [Member] | Assets held for sale [Member]
Assets, Fair Value Disclosure, Nonrecurring	1,246	846
Fair Value, Inputs, Level 3 [Member] | Foreclosed Real Estate [Member]
Assets, Fair Value Disclosure, Nonrecurring	$ 716	$ 1,401

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FAIR VALUE MEASUREMENTS (Details 2) - USD ($) $ in Thousands	Jun. 30, 2016	Dec. 31, 2015
Financial assets:
Cash and due from banks	$ 14,896	$ 12,567	[1]
Certificates of deposit	1,000	1,000
Interest-earning deposits in other banks	54,582	49,842
Investment securities available for sale	69,879	80,709
Loans, net	624,495	610,377
Accrued interest receivable	2,406	2,350	[1]
Stock in FHLB	2,318	2,112	[1]
Other non-marketable securities	757	705
Financial liabilities:
Deposits	661,274	651,161	[1]
Short-term debt	30,505	29,673	[1]
Long-term debt	28,415	28,703	[1]
Accrued interest payable	251	232	[1]
Estimate of Fair Value Measurement [Member]
Financial assets:
Cash and due from banks	14,896	12,567
Certificates of deposit	1,000	1,000
Interest-earning deposits in other banks	54,582	49,842
Investment securities available for sale	69,879	80,709
Loans, net	633,534	615,754
Accrued interest receivable	2,406	2,350
Stock in FHLB	2,318	2,112
Other non-marketable securities	757	705
Financial liabilities:
Deposits	661,658	651,255
Short-term debt	30,505	29,673
Long-term debt	23,430	23,718
Accrued interest payable	251	232
Fair Value, Inputs, Level 1 [Member]
Financial assets:
Cash and due from banks	14,896	12,567
Certificates of deposit	1,000	1,000
Interest-earning deposits in other banks	54,582	49,842
Investment securities available for sale	0	0
Loans, net	0	0
Accrued interest receivable	0	0
Stock in FHLB	0	0
Other non-marketable securities	0	0
Financial liabilities:
Deposits	0	0
Short-term debt	0	0
Long-term debt	0	0
Accrued interest payable	0	0
Fair Value, Inputs, Level 2 [Member]
Financial assets:
Cash and due from banks	0	0
Certificates of deposit	0	0
Interest-earning deposits in other banks	0	0
Investment securities available for sale	69,879	80,709
Loans, net	0	0
Accrued interest receivable	0	0
Stock in FHLB	0	0
Other non-marketable securities	0	0
Financial liabilities:
Deposits	661,658	651,255
Short-term debt	30,505	29,673
Long-term debt	23,430	23,718
Accrued interest payable	251	232
Fair Value, Inputs, Level 3 [Member]
Financial assets:
Cash and due from banks	0	0
Certificates of deposit	0	0
Interest-earning deposits in other banks	0	0
Investment securities available for sale	0	0
Loans, net	633,534	615,754
Accrued interest receivable	2,406	2,350
Stock in FHLB	2,318	2,112
Other non-marketable securities	757	705
Financial liabilities:
Deposits	0	0
Short-term debt	0	0
Long-term debt	0	0
Accrued interest payable	$ 0	$ 0

[1] * Derived from audited consolidated financial statements.

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FAIR VALUE MEASUREMENTS (Details Textual)	6 Months Ended
	Jun. 30, 2016
Minimum [Member]
Percentage Of Discount From Impaired Loans	4.00%
Percentage Of Discount From Assets Held for Sale	1.00%
Maximum [Member]
Percentage Of Discount From Impaired Loans	50.00%
Percentage Of Discount From Assets Held for Sale	25.00%
Fair Value [Member] | Minimum [Member]
Percentage Of Discount From Foreclosed Real Estate	6.00%
Fair Value [Member] | Maximum [Member]
Percentage Of Discount From Foreclosed Real Estate	10.00%

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INVESTMENT SECURITIES (Details) - USD ($) $ in Thousands	Jun. 30, 2016	Dec. 31, 2015
Securities available for sale:
Amortized cost	$ 67,999	$ 79,928
Gross unrealized gains	1,891	1,041
Gross unrealized losses	(11)	(260)
Fair value	69,879	80,709	[1]
U.S. government agencies - GSE’s [Member]
Securities available for sale:
Amortized cost	17,509	21,321
Gross unrealized gains	196	101
Gross unrealized losses	(11)	(196)
Fair value	17,694	21,226
Mortgage-backed securities - GSE’s [Member]
Securities available for sale:
Amortized cost	34,321	39,123
Gross unrealized gains	1,087	475
Gross unrealized losses	0	(62)
Fair value	35,408	39,536
Municipal bonds [Member]
Securities available for sale:
Amortized cost	16,169	19,484
Gross unrealized gains	608	465
Gross unrealized losses	0	(2)
Fair value	$ 16,777	$ 19,947

[1] * Derived from audited consolidated financial statements.

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INVESTMENT SECURITIES (Details 1) - USD ($) $ in Thousands	Jun. 30, 2016	Dec. 31, 2015
Schedule of Available-for-sale Securities [Line Items]
Amortized cost, Within 1 year	$ 2,758	$ 1,361
Gross unrealized gains, Within 1 year	32	6
Gross unrealized losses, Within 1 year	0	0
Fair value, Within 1 year	2,790	1,367
Amortized cost, After 1 year but within 5 years	44,238	52,577
Gross unrealized gains, After 1 year but within 5 years	1,257	628
Gross unrealized losses, After 1 year but within 5 years	(4)	(99)
Fair value, After 1 year but within 5 years	45,491	53,106
Amortized cost, After 5 years but within 10 years	12,173	17,297
Gross unrealized gains, After 5 years but within 10 years	215	146
Gross unrealized losses, After 5 years but within 10 years	(7)	(161)
Fair value, After 5 years but within 10 years	12,381	17,282
Amortized cost, After 10 years	8,830	8,693
Gross unrealized gains, After 10 years	387	261
Gross unrealized losses, After 10 years	0	0
Fair value, After 10 years	9,217	8,954
Available-for-sale Securities, Amortized cost	67,999	79,928
Available-for-sale Securities, Gross unrealized gains	1,891	1,041
Available-for-sale Securities, Gross unrealized losses	(11)	(260)
Available-for-sale Securities, Fair value	$ 69,879	$ 80,709	[1]

[1] * Derived from audited consolidated financial statements.

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INVESTMENT SECURITIES (Details 2) - USD ($) $ in Thousands	Jun. 30, 2016	Dec. 31, 2015
U.S. government agencies - GSE’s [Member]
Securities available for sale:
Less Than 12 Months Fair value	$ 1,779	$ 7,039
Less Than 12 Months Unrealized losses	(3)	(70)
12 Months or More Fair value	1,776	7,615
12 Months or More Unrealized losses	(8)	(126)
Total Fair value	3,555	14,654
Total Unrealized losses	(11)	(196)
Mortgage-backed securities - GSE’s [Member]
Securities available for sale:
Less Than 12 Months Fair value		7,916
Less Than 12 Months Unrealized losses		(62)
12 Months or More Fair value		0
12 Months or More Unrealized losses		0
Total Fair value		7,916
Total Unrealized losses		(62)
Municipal bonds [Member]
Securities available for sale:
Less Than 12 Months Fair value		111
Less Than 12 Months Unrealized losses		(2)
12 Months or More Fair value		0
12 Months or More Unrealized losses		0
Total Fair value		111
Total Unrealized losses		(2)
Total temporarily impaired securities [Member]
Securities available for sale:
Less Than 12 Months Fair value	1,779	15,066
Less Than 12 Months Unrealized losses	(3)	(134)
12 Months or More Fair value	1,776	7,615
12 Months or More Unrealized losses	(8)	(126)
Total Fair value	3,555	22,681
Total Unrealized losses	$ (11)	$ (260)

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INVESTMENT SECURITIES (Details Textual) - USD ($)	3 Months Ended		6 Months Ended		12 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015	Dec. 31, 2015
Schedule of Available-for-sale Securities [Line Items]
Available-for-sale Securities, Gross Unrealized Gain (Loss)			$ 1,900,000		$ 781,000
Deferred Income Taxes and Other Liabilities, Noncurrent	$ 701,000		701,000		291,000
US Government Securities, at Carrying Value	42,400,000		42,400,000		45,200,000
Gain (Loss) on Sale of Securities, Net	0	$ 134,000	22,000	$ 219,000
Proceeds from Sale of Available-for-sale Securities, Total			624,000	$ 5,640,000
Temporarily Impaired Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Available-for-sale Securities, Continuous Unrealized Loss Position, 12 Months or Longer, Accumulated Loss	8,000		8,000		126,000
Available-for-sale Securities, Continuous Unrealized Loss Position, Less than 12 Months, Accumulated Loss	3,000		3,000		134,000
Us Government Agencies Debt Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Available-for-sale Securities, Continuous Unrealized Loss Position, 12 Months or Longer, Accumulated Loss	8,000		8,000		126,000
Available-for-sale Securities, Continuous Unrealized Loss Position, Less than 12 Months, Accumulated Loss	$ 3,000		$ 3,000		$ 70,000

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LOANS (Details) - USD ($) $ in Thousands	Jun. 30, 2016	Dec. 31, 2015		Jun. 30, 2015
Accounts, Notes, Loans and Financing Receivable [Line Items]
Gross loans	$ 633,249	$ 618,388
Less deferred loan origination fees, net	(1,062)	(990)
Total loans	632,187	617,398	[1]	$ 574,450
Allowance for loan losses	(7,692)	(7,021)	[1]
Total loans, net	$ 624,495	$ 610,377	[1]
Less Percentage of deferred loan origination fees, net	(0.17%)	(0.16%)
Percent of total	100.00%	100.00%
1- to- 4 family residential Real estate loans [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total loans	$ 94,990	$ 87,955		85,926
Percent of total	15.03%	14.25%
Commercial Real Estate [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total loans	$ 247,922	$ 259,259		236,471
Percent of total	39.22%	41.99%
Multi-family residential Real estate loans [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total loans	$ 46,295	$ 40,738		41,852
Percent of total	7.32%	6.60%
Construction Real estate loans [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total loans	$ 113,279	$ 107,688		96,033
Percent of total	17.92%	17.44%
Home Equity Line of Credit [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total loans	$ 42,055	$ 42,002		37,722
Percent of total	6.65%	6.80%
Total real estate loans [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total loans	$ 544,541	$ 537,642
Percent of total	86.14%	87.08%
Commercial and industrial Other loans [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total loans	$ 80,154	$ 73,491		$ 70,404
Percent of total	12.68%	11.90%
Loans to individuals Other loans [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total loans	$ 8,452	$ 7,207
Percent of total	1.34%	1.17%
Overdrafts Other loans [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total loans	$ 102	$ 48
Percent of total	0.01%	0.01%
Total other loans [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Total loans	$ 88,708	$ 80,746
Percent of total	14.03%	13.08%

[1] * Derived from audited consolidated financial statements.

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LOANS (Details 1) - USD ($) $ in Thousands	Jun. 30, 2016	Dec. 31, 2015		Jun. 30, 2015
Financing Receivable, Recorded Investment, Past Due [Line Items]
Deferred loan (fees) cost, net	$ (1,062)	$ (990)
Total Loans	632,187	617,398	[1]	$ 574,450
Total Loans [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	7,282	9,136
Non-Accrual Loans	5,860	6,635
Current	625,967	609,252
Deferred loan (fees) cost, net	(1,062)	(990)
Total Loans	632,187	617,398
Total Loans [Member] | Financing Receivables, 30 to 59 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	1,422	2,501
Deferred loan (fees) cost, net	0	0
Commercial and Industrial [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Loans	80,154	73,491		70,404
Commercial and Industrial [Member] | Total Loans [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	234	468
Non-Accrual Loans	84	13
Current	79,920	73,023
Total Loans	80,154	73,491
Commercial and Industrial [Member] | Total Loans [Member] | Financing Receivables, 30 to 59 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	150	455
Construction Loans Real Estate [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Loans	113,279	107,688		96,033
Construction Loans Real Estate [Member] | Total Loans [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	566	523
Non-Accrual Loans	423	523
Current	112,713	107,165
Total Loans	113,279	107,688
Construction Loans Real Estate [Member] | Total Loans [Member] | Financing Receivables, 30 to 59 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	143	0
Multi Family Residential Real Estate [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Loans	46,295	40,738		41,852
Multi Family Residential Real Estate [Member] | Total Loans [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	367	475
Non-Accrual Loans	367	431
Current	45,928	40,263
Total Loans	46,295	40,738
Multi Family Residential Real Estate [Member] | Total Loans [Member] | Financing Receivables, 30 to 59 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	0	44
Commercial Real Estate [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Loans	247,922	259,259		236,471
Commercial Real Estate [Member] | Total Loans [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	3,774	4,925
Non-Accrual Loans	3,690	3,711
Current	244,148	254,334
Total Loans	247,922	259,259
Commercial Real Estate [Member] | Total Loans [Member] | Financing Receivables, 30 to 59 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	84	1,214
Loans to Individuals and Overdrafts [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Loans	8,554			6,042
Loans to Individuals and Overdrafts [Member] | Total Loans [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	176	18
Non-Accrual Loans	155	4
Current	8,378	7,237
Total Loans	8,554	7,255
Loans to Individuals and Overdrafts [Member] | Total Loans [Member] | Financing Receivables, 30 to 59 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	21	14
Family Residential Real Estate 1 to 4 [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Loans	94,990	87,955		85,926
Family Residential Real Estate 1 to 4 [Member] | Total Loans [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	1,805	2,244
Non-Accrual Loans	781	1,594
Current	93,185	85,711
Total Loans	94,990	87,955
Family Residential Real Estate 1 to 4 [Member] | Total Loans [Member] | Financing Receivables, 30 to 59 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	1,024	650
Home Equity Line of Credit [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Loans	42,055	42,002		$ 37,722
Home Equity Line of Credit [Member] | Total Loans [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	360	483
Non-Accrual Loans	360	359
Current	41,695	41,519
Total Loans	42,055	42,002
Home Equity Line of Credit [Member] | Total Loans [Member] | Financing Receivables, 30 to 59 Days Past Due [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total Past Due	$ 0	$ 124

[1] * Derived from audited consolidated financial statements.

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LOANS (Details 2) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015	Dec. 31, 2015
Financing Receivable, Impaired [Line Items]
With no related allowance, Recorded Investment	$ 6,870		$ 6,870		$ 8,486
With no related allowance, Contractual Unpaid Principal Balance	9,062		9,062		11,633
With no related allowance, Average Recorded Investment	6,614	$ 9,064	7,892	$ 8,963
With no related allowance, Interest Income Recognized on Impaired Loans	82	123	164	276
With an related allowance, Recorded Investment	3,457		3,457		1,555
With an related allowance, Contractual Unpaid Principal Balance	4,069		4,069		1,621
Related Allowance	115		115		94
With an related allowance, Average Recorded Investment	3,779	5,396	2,506	5,712
With an related allowance, Interest Income Recognized on Impaired Loans	6	26	27	92
Recorded Investment Total	10,327		10,327		10,041
Contractual Unpaid Principal Balance Total	13,131		13,131		13,254
Average Recorded Investment Total	10,393	14,460	10,398	14,675
Interest Income Recognized on impaired Loans Total	88	149	191	368
Residential Real Estate [Member]
Financing Receivable, Impaired [Line Items]
Related Allowance	12		12		15
Recorded Investment Total	2,183		2,183		3,050
Contractual Unpaid Principal Balance Total	2,645		2,645		3,824
Average Recorded Investment Total	2,270	3,909	2,617	3,774
Interest Income Recognized on impaired Loans Total	48	43	78	89
Commercial Loan [Member]
Financing Receivable, Impaired [Line Items]
Related Allowance	103		103		75
Recorded Investment Total	8,144		8,144		6,987
Contractual Unpaid Principal Balance Total	10,486		10,486		9,426
Average Recorded Investment Total	8,123	10,551	7,779	10,901
Interest Income Recognized on impaired Loans Total	40	106	113	279
Consumer Loan [Member]
Financing Receivable, Impaired [Line Items]
Related Allowance	0		0		4
Recorded Investment Total	0		0		4
Contractual Unpaid Principal Balance Total	0		0		4
Average Recorded Investment Total	0	0	2	0
Interest Income Recognized on impaired Loans Total	0	0	0	0
Commercial and Industrial [Member]
Financing Receivable, Impaired [Line Items]
With no related allowance, Recorded Investment	370		370		105
With no related allowance, Contractual Unpaid Principal Balance	371		371		106
With no related allowance, Average Recorded Investment	469	640	237	606
With no related allowance, Interest Income Recognized on Impaired Loans	2	6	8	38
With an related allowance, Recorded Investment	65		65		13
With an related allowance, Contractual Unpaid Principal Balance	65		65		13
Related Allowance	7		7		2
With an related allowance, Average Recorded Investment	35	11	39	138
With an related allowance, Interest Income Recognized on Impaired Loans	0	0	1	0
Construction Loans Real Estate [Member]
Financing Receivable, Impaired [Line Items]
With no related allowance, Recorded Investment	511		511		615
With no related allowance, Contractual Unpaid Principal Balance	637		637		764
With no related allowance, Average Recorded Investment	558	973	563	1,095
With no related allowance, Interest Income Recognized on Impaired Loans	2	10	6	23
With an related allowance, Recorded Investment	0		0		0
With an related allowance, Contractual Unpaid Principal Balance	0		0		0
Related Allowance	0		0		0
With an related allowance, Average Recorded Investment	0	166	0	166
With an related allowance, Interest Income Recognized on Impaired Loans	0	1	0	2
Commercial Real Estate [Member]
Financing Receivable, Impaired [Line Items]
With no related allowance, Recorded Investment	3,749		3,749		5,006
With no related allowance, Contractual Unpaid Principal Balance	5,346		5,346		7,229
With no related allowance, Average Recorded Investment	3,304	2,556	4,378	2,468
With no related allowance, Interest Income Recognized on Impaired Loans	29	49	72	93
With an related allowance, Recorded Investment	3,082		3,082		1,248
With an related allowance, Contractual Unpaid Principal Balance	3,692		3,692		1,314
Related Allowance	96		96		73
With an related allowance, Average Recorded Investment	3,389	4,436	2,165	4,643
With an related allowance, Interest Income Recognized on Impaired Loans	4	19	18	80
Loans to Individuals and Overdrafts [Member]
Financing Receivable, Impaired [Line Items]
With no related allowance, Recorded Investment	0		0		0
With no related allowance, Contractual Unpaid Principal Balance	0		0		0
With no related allowance, Average Recorded Investment	0	0	0	0
With no related allowance, Interest Income Recognized on Impaired Loans	0	0	0	0
With an related allowance, Recorded Investment	0		0		4
With an related allowance, Contractual Unpaid Principal Balance	0		0		4
Related Allowance	0		0		4
With an related allowance, Average Recorded Investment	0	0	2	0
With an related allowance, Interest Income Recognized on Impaired Loans	0	0	0	0
Multi Family Residential Real Estate [Member]
Financing Receivable, Impaired [Line Items]
With no related allowance, Recorded Investment	367		367		0
With no related allowance, Contractual Unpaid Principal Balance	375		375		0
With no related allowance, Average Recorded Investment	368	1,769	397	1,785
With no related allowance, Interest Income Recognized on Impaired Loans	3	21	8	43
With an related allowance, Recorded Investment	0		0		0
With an related allowance, Contractual Unpaid Principal Balance	0		0		0
Related Allowance	0		0		0
With an related allowance, Average Recorded Investment	0	0	0	0
With an related allowance, Interest Income Recognized on Impaired Loans	0	0	0	0
Home Equity Line of Credit [Member]
Financing Receivable, Impaired [Line Items]
With no related allowance, Recorded Investment	623		623		699
With no related allowance, Contractual Unpaid Principal Balance	787		787		868
With no related allowance, Average Recorded Investment	658	641	661	641
With no related allowance, Interest Income Recognized on Impaired Loans	10	9	18	20
With an related allowance, Recorded Investment	33		33		0
With an related allowance, Contractual Unpaid Principal Balance	35		35		0
Related Allowance	0		0		0
With an related allowance, Average Recorded Investment	41	288	16	289
With an related allowance, Interest Income Recognized on Impaired Loans	0	0	0	0
Family Residential Real Estate 1 to 4 [Member]
Financing Receivable, Impaired [Line Items]
With no related allowance, Recorded Investment	1,250		1,250		2,061
With no related allowance, Contractual Unpaid Principal Balance	1,546		1,546		2,666
With no related allowance, Average Recorded Investment	1,257	2,485	1,656	2,368
With no related allowance, Interest Income Recognized on Impaired Loans	36	28	52	59
With an related allowance, Recorded Investment	277		277		290
With an related allowance, Contractual Unpaid Principal Balance	277		277		290
Related Allowance	12		12		$ 15
With an related allowance, Average Recorded Investment	314	495	284	476
With an related allowance, Interest Income Recognized on Impaired Loans	$ 2	$ 6	$ 8	$ 10

XML

LOANS (Details 3) $ in Thousands	3 Months Ended		6 Months Ended		12 Months Ended
	Jun. 30, 2016 USD ($) Number	Jun. 30, 2015 USD ($) Number	Jun. 30, 2016 USD ($) Number	Jun. 30, 2015 USD ($) Number	Jun. 30, 2016 USD ($) Number	Jun. 30, 2015 USD ($) Number
Residential 1 to 4 Family Below Market Interest Rate [Member]
Financing Receivable, Modifications [Line Items]
Number of loans | Number		0		1
Pre-Modification Outstanding Recorded Investment		$ 0		$ 22
Post-Modification Outstanding Recorded Investment		$ 0		$ 22
Below Market Interest Rate [Member]
Financing Receivable, Modifications [Line Items]
Number of loans | Number		0		1
Pre-Modification Outstanding Recorded Investment		$ 0		$ 22
Post-Modification Outstanding Recorded Investment		0		22
Commercial and Inustrial Extended Payment Term [Member]
Financing Receivable, Modifications [Line Items]
Number of loans | Number	2		3
Pre-Modification Outstanding Recorded Investment	$ 251		$ 296
Post-Modification Outstanding Recorded Investment	160		206
Commercial Real Estate Extended Payment Term [Member]
Financing Receivable, Modifications [Line Items]
Number of loans | Number					3	1
Financing Receivable, Modifications, Recorded Investment	$ 206	140	$ 206	140	$ 206	$ 140
Residential 1 to 4 Family Extended Payment Term [Member]
Financing Receivable, Modifications [Line Items]
Number of loans | Number	1		1		1	0
Pre-Modification Outstanding Recorded Investment	$ 49		$ 49
Post-Modification Outstanding Recorded Investment	49		49
Financing Receivable, Modifications, Recorded Investment	49	0	49	0	$ 49	$ 0
Multi Family Residential Extended Payment Term [Member]
Financing Receivable, Modifications [Line Items]
Number of loans | Number					1	0
Financing Receivable, Modifications, Recorded Investment	$ 370	0	$ 370	0	$ 370	$ 0
Extended Payment Term [Member]
Financing Receivable, Modifications [Line Items]
Number of loans | Number	4		5		6	1
Pre-Modification Outstanding Recorded Investment	$ 304		$ 349
Post-Modification Outstanding Recorded Investment	213		259
Financing Receivable, Modifications, Recorded Investment	$ 629	140	$ 629	140	$ 629	$ 140
Consumer Extended payment terms [Member]
Financing Receivable, Modifications [Line Items]
Number of loans | Number	1		1		1	0
Pre-Modification Outstanding Recorded Investment	$ 4		$ 4
Post-Modification Outstanding Recorded Investment	4		4
Financing Receivable, Modifications, Recorded Investment	$ 4	$ 0	$ 4	$ 0	$ 4	$ 0

XML

LOANS (Details 4) - USD ($) $ in Thousands	Jun. 30, 2016	Dec. 31, 2015		Jun. 30, 2015
Financing Receivable, Recorded Investment [Line Items]
Loans	$ 632,187	$ 617,398	[1]	$ 574,450
Total Loans [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	632,187	617,398
Commercial and Industrial [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	80,154	73,491		70,404
Commercial and Industrial [Member] | Total Loans [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	80,154	73,491
Commercial and Industrial [Member] | Superior [Member] | Total Loans [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	598	730
Commercial and Industrial [Member] | Very Good [Member] | Total Loans [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	384	1,314
Commercial and Industrial [Member] | Good [Member] | Total Loans [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	10,848	8,241
Commercial and Industrial [Member] | Acceptable [Member] | Total Loans [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	28,765	25,014
Commercial and Industrial [Member] | Acceptable With Care [Member] | Total Loans [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	38,280	37,980
Commercial and Industrial [Member] | Special Mention [Member] | Total Loans [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	696	58
Commercial and Industrial [Member] | Substandard [Member] | Total Loans [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	583	154
Commercial and Industrial [Member] | Doubtful [Member] | Total Loans [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	0	0
Commercial and Industrial [Member] | Loss [Member] | Total Loans [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	0	0
Construction Loans [Member] | Total Loans [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	113,279	107,688
Construction Loans [Member] | Superior [Member] | Total Loans [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	0	0
Construction Loans [Member] | Very Good [Member] | Total Loans [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	355	355
Construction Loans [Member] | Good [Member] | Total Loans [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	5,209	5,827
Construction Loans [Member] | Acceptable [Member] | Total Loans [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	18,228	19,059
Construction Loans [Member] | Acceptable With Care [Member] | Total Loans [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	88,731	79,817
Construction Loans [Member] | Special Mention [Member] | Total Loans [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	184	2,015
Construction Loans [Member] | Substandard [Member] | Total Loans [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	572	615
Construction Loans [Member] | Doubtful [Member] | Total Loans [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	0	0
Construction Loans [Member] | Loss [Member] | Total Loans [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	0	0
Commercial Real Estate [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	247,922	259,259		236,471
Commercial Real Estate [Member] | Total Loans [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	247,922	259,259
Commercial Real Estate [Member] | Superior [Member] | Total Loans [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	0	0
Commercial Real Estate [Member] | Very Good [Member] | Total Loans [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	480	114
Commercial Real Estate [Member] | Good [Member] | Total Loans [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	25,611	26,538
Commercial Real Estate [Member] | Acceptable [Member] | Total Loans [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	139,926	144,717
Commercial Real Estate [Member] | Acceptable With Care [Member] | Total Loans [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	70,340	74,169
Commercial Real Estate [Member] | Special Mention [Member] | Total Loans [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	5,495	7,657
Commercial Real Estate [Member] | Substandard [Member] | Total Loans [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	6,070	6,064
Commercial Real Estate [Member] | Doubtful [Member] | Total Loans [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	0	0
Commercial Real Estate [Member] | Loss [Member] | Total Loans [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	0	0
Multi Family Residential Real Estate [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	46,295	40,738		41,852
Multi Family Residential Real Estate [Member] | Total Loans [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	46,295	40,738
Multi Family Residential Real Estate [Member] | Superior [Member] | Total Loans [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	0	0
Multi Family Residential Real Estate [Member] | Very Good [Member] | Total Loans [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	0	0
Multi Family Residential Real Estate [Member] | Good [Member] | Total Loans [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	2,399	0
Multi Family Residential Real Estate [Member] | Acceptable [Member] | Total Loans [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	29,721	32,355
Multi Family Residential Real Estate [Member] | Acceptable With Care [Member] | Total Loans [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	13,500	7,685
Multi Family Residential Real Estate [Member] | Special Mention [Member] | Total Loans [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	48	0
Multi Family Residential Real Estate [Member] | Substandard [Member] | Total Loans [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	627	698
Multi Family Residential Real Estate [Member] | Doubtful [Member] | Total Loans [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	0	0
Multi Family Residential Real Estate [Member] | Loss [Member] | Total Loans [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	0	0
Loans to Individuals and Overdrafts [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	8,554			6,042
Loans to Individuals and Overdrafts [Member] | Total Loans [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	8,554	7,255
Loans to Individuals and Overdrafts [Member] | Pass [Member] | Total Loans [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	8,540	7,236
Loans to Individuals and Overdrafts [Member] | Non-Pass [Member] | Total Loans [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	14	19
Family Residential Real Estate 1 to 4 [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	94,990	87,955		85,926
Family Residential Real Estate 1 to 4 [Member] | Total Loans [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	94,990	87,955
Family Residential Real Estate 1 to 4 [Member] | Pass [Member] | Total Loans [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	88,804	80,596
Family Residential Real Estate 1 to 4 [Member] | Special Mention [Member] | Total Loans [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	2,981	3,678
Family Residential Real Estate 1 to 4 [Member] | Substandard [Member] | Total Loans [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	3,205	3,681
Home Equity Line Of Credit [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	42,055	42,002		$ 37,722
Home Equity Line Of Credit [Member] | Total Loans [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	42,055	42,002
Home Equity Line Of Credit [Member] | Pass [Member] | Total Loans [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	41,146	40,770
Home Equity Line Of Credit [Member] | Special Mention [Member] | Total Loans [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	136	448
Home Equity Line Of Credit [Member] | Substandard [Member] | Total Loans [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans	$ 773	$ 784

[1] * Derived from audited consolidated financial statements.

XML

LOANS (Details 5) - USD ($) $ in Thousands	3 Months Ended	6 Months Ended
	Jun. 30, 2016	Jun. 30, 2016
Schedule Of Certain Loans Acquired In Transfer Accounted For As Debt Securities Accretable Yield [Line Items]
Accretable yield, beginning of period	$ 2,657	$ 2,822
Accretion	(264)	(534)
Reclassification from (to) nonaccretable difference	(6)	2
Other changes, net	181	278
Accretable yield, end of period	$ 2,568	$ 2,568

XML

LOANS (Details 6) - USD ($) $ in Thousands		3 Months Ended		6 Months Ended
		Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015	Dec. 31, 2015
Financing Receivable, Allowance for Credit Losses [Line Items]
Allowance for loan losses, Balance, beginning of period	[1]			$ 7,021
Allowance for loan losses, Balance, end of period		$ 7,692		7,692
Ending Balance: individually evaluated for impairment		115	$ 554	115	$ 554
Ending Balance: collectively evaluated for impairment		7,577	6,288	7,577	6,288
Loans
Ending balance: collectively evaluated for impairment		622,922	560,743	622,922	560,743
Ending balance: individually evaluated for impairment		10,327	13,707	10,327	13,707
Ending balance		632,187	574,450	632,187	574,450	$ 617,398	[1]
Excluding Purchase Credit Impairment Loans [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Allowance for loan losses, Balance, beginning of period		7,518	6,919	7,012	6,844
Provision for loan losses		142	(207)	494	(77)
Loans charged-off		(236)	(146)	(247)	(239)
Recoveries		243	208	408	246
Allowance for loan losses, Balance, end of period		7,667	6,774	7,667	6,774
Purchase Credit Impairment Loans [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Allowance for loan losses, Balance, beginning of period		9	0	9	0
Provision for loan losses		16	68	16	68
Loans charged-off		0	0	0	0
Recoveries		0	0	0	0
Allowance for loan losses, Balance, end of period		25	68	25	68
Total Loans [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Allowance for loan losses, Balance, beginning of period		7,527	6,919	7,021	6,844
Provision for loan losses		158	(139)	510	(9)
Loans charged-off		(236)	(146)	(247)	(239)
Recoveries		243	208	408	246
Allowance for loan losses, Balance, end of period		7,692	6,842	7,692	6,842
Loans
Ending balance		632,187		632,187		617,398
Commercial and Industrial [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Ending Balance: individually evaluated for impairment		7	3	7	3
Ending Balance: collectively evaluated for impairment		1,095	1,074	1,095	1,074
Loans
Ending balance: collectively evaluated for impairment		79,719	69,875	79,719	69,875
Ending balance: individually evaluated for impairment		435	529	435	529
Ending balance		80,154	70,404	80,154	70,404	73,491
Commercial and Industrial [Member] | Excluding Purchase Credit Impairment Loans [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Allowance for loan losses, Balance, beginning of period		1,055	982	922	803
Provision for loan losses		66	192	198	365
Loans charged-off		(40)	(130)	(41)	(130)
Recoveries		5	33	7	39
Allowance for loan losses, Balance, end of period		1,086	1,077	1,086	1,077
Commercial and Industrial [Member] | Purchase Credit Impairment Loans [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Allowance for loan losses, Balance, beginning of period		0	0	0	0
Provision for loan losses		16	0	16	0
Loans charged-off		0	0	0	0
Recoveries		0	0	0	0
Allowance for loan losses, Balance, end of period		16	0	16	0
Commercial and Industrial [Member] | Total Loans [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Allowance for loan losses, Balance, beginning of period		1,055	982	922	803
Provision for loan losses		82	192	214	365
Loans charged-off		(40)	(130)	(41)	(130)
Recoveries		5	33	7	39
Allowance for loan losses, Balance, end of period		1,102	1,077	1,102	1,077
Loans
Ending balance		80,154		80,154		73,491
Construction Loans Real Estate [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Ending Balance: individually evaluated for impairment		0	78	0	78
Ending Balance: collectively evaluated for impairment		1,511	1,235	1,511	1,235
Loans
Ending balance: collectively evaluated for impairment		112,768	94,977	112,768	94,977
Ending balance: individually evaluated for impairment		511	1,056	511	1,056
Ending balance		113,279	96,033	113,279	96,033	107,688
Construction Loans Real Estate [Member] | Excluding Purchase Credit Impairment Loans [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Allowance for loan losses, Balance, beginning of period		1,401	1,209	1,386	1,103
Provision for loan losses		107	100	116	202
Loans charged-off		(1)	0	(2)	0
Recoveries		4	4	11	8
Allowance for loan losses, Balance, end of period		1,511	1,313	1,511	1,313
Construction Loans Real Estate [Member] | Purchase Credit Impairment Loans [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Allowance for loan losses, Balance, beginning of period		0	0	0	0
Provision for loan losses		0	0	0	0
Loans charged-off		0	0	0	0
Recoveries		0	0	0	0
Allowance for loan losses, Balance, end of period		0	0	0	0
Construction Loans Real Estate [Member] | Total Loans [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Allowance for loan losses, Balance, beginning of period		1,401	1,209	1,386	1,103
Provision for loan losses		107	100	116	202
Loans charged-off		(1)	0	(2)	0
Recoveries		4	4	11	8
Allowance for loan losses, Balance, end of period		1,511	1,313	1,511	1,313
Loans
Ending balance		113,279		113,279		107,688
Commercial Real Estate [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Ending Balance: individually evaluated for impairment		96	299	96	299
Ending Balance: collectively evaluated for impairment		3,017	2,331	3,017	2,331
Loans
Ending balance: collectively evaluated for impairment		241,091	229,561	241,091	229,561
Ending balance: individually evaluated for impairment		6,831	6,910	6,831	6,910
Ending balance		247,922	236,471	247,922	236,471	259,259
Commercial Real Estate [Member] | Excluding Purchase Credit Impairment Loans [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Allowance for loan losses, Balance, beginning of period		3,217	2,845	3,005	2,914
Provision for loan losses		49	(283)	219	(323)
Loans charged-off		(185)	0	(185)	(29)
Recoveries		32	11	74	11
Allowance for loan losses, Balance, end of period		3,113	2,573	3,113	2,573
Commercial Real Estate [Member] | Purchase Credit Impairment Loans [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Allowance for loan losses, Balance, beginning of period		0	0	0	0
Provision for loan losses		0	57	0	57
Loans charged-off		0	0	0	0
Recoveries		0	0	0	0
Allowance for loan losses, Balance, end of period		0	57	0	57
Commercial Real Estate [Member] | Total Loans [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Allowance for loan losses, Balance, beginning of period		3,217	2,845	3,005	2,914
Provision for loan losses		49	(226)	219	(266)
Loans charged-off		(185)	0	(185)	(29)
Recoveries		32	11	74	11
Allowance for loan losses, Balance, end of period		3,113	2,630	3,113	2,630
Loans
Ending balance		247,922		247,922		259,259
Family Residential Real Estate 1 to 4 [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Ending Balance: individually evaluated for impairment		12	66	12	66
Ending Balance: collectively evaluated for impairment		760	536	760	536
Loans
Ending balance: collectively evaluated for impairment		93,463	82,990	93,463	82,990
Ending balance: individually evaluated for impairment		1,527	2,936	1,527	2,936
Ending balance		94,990	85,926	94,990	85,926	87,955
Family Residential Real Estate 1 to 4 [Member] | Excluding Purchase Credit Impairment Loans [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Allowance for loan losses, Balance, beginning of period		688	606	605	630
Provision for loan losses		(101)	(45)	(114)	(85)
Loans charged-off		0	0	0	0
Recoveries		185	41	281	57
Allowance for loan losses, Balance, end of period		772	602	772	602
Family Residential Real Estate 1 to 4 [Member] | Purchase Credit Impairment Loans [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Allowance for loan losses, Balance, beginning of period		0	0	0	0
Provision for loan losses		0	0	0	0
Loans charged-off		0	0	0	0
Recoveries		0	0	0	0
Allowance for loan losses, Balance, end of period		0	0	0	0
Family Residential Real Estate 1 to 4 [Member] | Total Loans [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Allowance for loan losses, Balance, beginning of period		688	606	605	630
Provision for loan losses		(101)	(45)	(114)	(85)
Loans charged-off		0	0	0	0
Recoveries		185	41	281	57
Allowance for loan losses, Balance, end of period		772	602	772	602
Loans
Ending balance		94,990		94,990		87,955
Home Equity Line of Credit [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Ending Balance: individually evaluated for impairment		0	108	0	108
Ending Balance: collectively evaluated for impairment		502	665	502	665
Loans
Ending balance: collectively evaluated for impairment		41,399	36,783	41,399	36,783
Ending balance: individually evaluated for impairment		656	939	656	939
Ending balance		42,055	37,722	42,055	37,722	42,002
Home Equity Line of Credit [Member] | Excluding Purchase Credit Impairment Loans [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Allowance for loan losses, Balance, beginning of period		585	851	564	930
Provision for loan losses		(102)	(96)	(96)	(137)
Loans charged-off		(1)	0	(1)	(40)
Recoveries		11	9	26	11
Allowance for loan losses, Balance, end of period		493	764	493	764
Home Equity Line of Credit [Member] | Purchase Credit Impairment Loans [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Allowance for loan losses, Balance, beginning of period		9	0	9	0
Provision for loan losses		0	9	0	9
Loans charged-off		0	0	0	0
Recoveries		0	0	0	0
Allowance for loan losses, Balance, end of period		9	9	9	9
Home Equity Line of Credit [Member] | Total Loans [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Allowance for loan losses, Balance, beginning of period		594	851	573	930
Provision for loan losses		(102)	(87)	(96)	(128)
Loans charged-off		(1)	0	(1)	(40)
Recoveries		11	9	26	11
Allowance for loan losses, Balance, end of period		502	773	502	773
Loans
Ending balance		42,055		42,055		42,002
Loans to Individuals and Overdrafts [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Ending Balance: individually evaluated for impairment		0	0	0	0
Ending Balance: collectively evaluated for impairment		169	153	169	153
Loans
Ending balance: collectively evaluated for impairment		8,554	6,042	8,554	6,042
Ending balance: individually evaluated for impairment		0	0	0	0
Ending balance		8,554	6,042	8,554	6,042
Loans to Individuals and Overdrafts [Member] | Excluding Purchase Credit Impairment Loans [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Allowance for loan losses, Balance, beginning of period		150	167	137	185
Provision for loan losses		22	(7)	41	(11)
Loans charged-off		(9)	(11)	(18)	(35)
Recoveries		6	4	9	14
Allowance for loan losses, Balance, end of period		169	153	169	153
Loans to Individuals and Overdrafts [Member] | Purchase Credit Impairment Loans [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Allowance for loan losses, Balance, beginning of period		0	0	0	0
Provision for loan losses		0	0	0	0
Loans charged-off		0	0	0	0
Recoveries		0	0	0	0
Allowance for loan losses, Balance, end of period		0	0	0	0
Loans to Individuals and Overdrafts [Member] | Total Loans [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Allowance for loan losses, Balance, beginning of period		150	167	137	185
Provision for loan losses		22	(7)	41	(11)
Loans charged-off		(9)	(11)	(18)	(35)
Recoveries		6	4	9	14
Allowance for loan losses, Balance, end of period		169	153	169	153
Loans
Ending balance		8,554		8,554		7,255
Multi Family Residential Real Estate [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Ending Balance: individually evaluated for impairment		0	0	0	0
Ending Balance: collectively evaluated for impairment		523	294	523	294
Loans
Ending balance: collectively evaluated for impairment		45,928	40,515	45,928	40,515
Ending balance: individually evaluated for impairment		367	1,337	367	1,337
Ending balance		46,295	41,852	46,295	41,852	40,738
Multi Family Residential Real Estate [Member] | Excluding Purchase Credit Impairment Loans [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Allowance for loan losses, Balance, beginning of period		422	259	393	279
Provision for loan losses		101	(68)	130	(88)
Loans charged-off		0	(5)	0	(5)
Recoveries		0	106	0	106
Allowance for loan losses, Balance, end of period		523	292	523	292
Multi Family Residential Real Estate [Member] | Purchase Credit Impairment Loans [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Allowance for loan losses, Balance, beginning of period		0	0	0	0
Provision for loan losses		0	2	0	2
Loans charged-off		0	0	0	0
Recoveries		0	0	0	0
Allowance for loan losses, Balance, end of period		2	2	2	2
Multi Family Residential Real Estate [Member] | Total Loans [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Allowance for loan losses, Balance, beginning of period		422	259	393	279
Provision for loan losses		101	(66)	130	(86)
Loans charged-off		0	(5)	0	(5)
Recoveries		0	106	0	106
Allowance for loan losses, Balance, end of period		523	$ 294	523	$ 294
Loans
Ending balance		$ 46,295		$ 46,295		$ 40,738

[1] * Derived from audited consolidated financial statements.

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LOANS (Details Textual) - USD ($)	6 Months Ended		12 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Dec. 31, 2015
Financing Receivable, Allowance for Credit Losses [Line Items]
Impaired Financing Receivable, Recorded Investment	$ 10,327,000		$ 10,041,000
Impaired Loans Required for Specific Reserves	3,500,000		1,600,000
With no related allowance, Recorded Investment	6,870,000		8,486,000
Increase (Decrease) in Finance Receivables	1,400,000	$ 1,600,000	8,500,000
Federal Home Loan Bank, Advances, General Debt Obligations, Disclosures, Collateral Pledged	57,500,000
Financing Receivables, Equal to Greater than 90 Days Past Due [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Financing Receivable, Recorded Investment, Past Due, Total	571,000		142,000
Nonaccrual Impaired Loans [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Impaired Financing Receivable, Recorded Investment	5,900,000		6,600,000
Accrual Impaired Loans [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Impaired Financing Receivable, Recorded Investment	4,400,000		$ 3,400,000
Troubled Debt Restructurings [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Impaired Financing Receivable, Recorded Investment	4,200,000	6,700,000
Troubled Debt Restructuring Accrual Status [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Impaired Financing Receivable, Recorded Investment	2,900,000	3,700,000
Troubled Debt Restructuring Nonaccrual Status [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Impaired Financing Receivable, Recorded Investment	1,300,000	$ 3,000,000
Unused Lines of Credit [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Line of Credit Facility, Maximum Amount Outstanding During Period	$ 142,600,000

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ACCUMULATED OTHER COMPREHENSIVE INCOME (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016		Jun. 30, 2015
Beginning balance	$ 953	$ 1,131	$ 490	[1]	$ 809
Unrealized gain (loss) on investment securities available for sale	338	(680)	1,099		(72)
Tax effect	(113)	259	(397)		25
Other comprehensive gain (loss) before reclassification	225	(421)	702		(47)
Amounts reclassified from accumulated comprehensive income:
Realized gains on investment securities included in net income	0	(134)	(22)		(219)
Tax effect	0	45	8		78
Total reclassifications net of tax	0	(89)	(14)		(141)
Net current period other comprehensive income (loss)	225	(510)	688		(188)
Ending balance	$ 1,178	$ 621	$ 1,178		$ 621

[1] * Derived from audited consolidated financial statements.

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REPURCHASE AGREEMENTS (Details) - USD ($) $ in Thousands	6 Months Ended	12 Months Ended
	Jun. 30, 2016	Dec. 31, 2015
Available-for-sale Securities, Total	$ 69,879	$ 80,709	[1]
Repurchase Agreements [Member]
Available-for-sale Securities, Total	9,380	12,149
Gross amount of recognized liabilities for repurchase agreements	9,380	12,149
Government agency [Member]
Available-for-sale Securities, Total	17,694	21,226
Government agency [Member] | Repurchase Agreements [Member]
Available-for-sale Securities, Total	3,757	4,206
Mortgage Back Securities [Member]
Available-for-sale Securities, Total	35,408	39,536
Mortgage Back Securities [Member] | Repurchase Agreements [Member]
Available-for-sale Securities, Total	5,623	7,943
Overnight and continuous [Member] | Repurchase Agreements [Member]
Available-for-sale Securities, Total	9,380	12,149
Overnight and continuous [Member] | Government agency [Member] | Repurchase Agreements [Member]
Available-for-sale Securities, Total	3,757	4,206
Overnight and continuous [Member] | Mortgage Back Securities [Member] | Repurchase Agreements [Member]
Available-for-sale Securities, Total	5,623	7,943
Maturity Less than 30 Days [Member] | Repurchase Agreements [Member]
Available-for-sale Securities, Total	0	0
Maturity Less than 30 Days [Member] | Government agency [Member] | Repurchase Agreements [Member]
Available-for-sale Securities, Total	0	0
Maturity Less than 30 Days [Member] | Mortgage Back Securities [Member] | Repurchase Agreements [Member]
Available-for-sale Securities, Total	0	0
Maturity 30 to 90 Days [Member] | Repurchase Agreements [Member]
Available-for-sale Securities, Total	0	0
Maturity 30 to 90 Days [Member] | Government agency [Member] | Repurchase Agreements [Member]
Available-for-sale Securities, Total	0	0
Maturity 30 to 90 Days [Member] | Mortgage Back Securities [Member] | Repurchase Agreements [Member]
Available-for-sale Securities, Total	0	0
Maturity Greater than 90 Days [Member] | Repurchase Agreements [Member]
Available-for-sale Securities, Total	0	0
Maturity Greater than 90 Days [Member] | Government agency [Member] | Repurchase Agreements [Member]
Available-for-sale Securities, Total	0	0
Maturity Greater than 90 Days [Member] | Mortgage Back Securities [Member] | Repurchase Agreements [Member]
Available-for-sale Securities, Total	$ 0	$ 0

[1] * Derived from audited consolidated financial statements.

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REPURCHASE AGREEMENTS (Detail Textual) - USD ($) $ in Millions	Jun. 30, 2016	Dec. 31, 2015
Securities Sold under Agreements to Repurchase [Member]
Available For Sale Securities Pledged As Collateral Carrying Value	$ 9.4	$ 12.1

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OTHER REAL ESTATE OWNED (Details) - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2016		Jun. 30, 2015
Schedule Of Real Estate Owned Properties [Line Items]
Beginning balance January 1	$ 1,401	[1]	$ 1,585
Sales	(1,215)		(543)
Writedowns	(48)		(55)
Transfers	578		43
Ending balance	$ 716		$ 1,030

[1] * Derived from audited consolidated financial statements.

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OTHER REAL ESTATE OWNED (Details Textual) - USD ($)	Jun. 30, 2016	Dec. 31, 2015		Jun. 30, 2015	Dec. 31, 2014
Schedule Of Real Estate Owned Properties [Line Items]
Real Estate Acquired Through Foreclosure	$ 716,000	$ 1,401,000	[1]	$ 1,030,000	$ 1,585,000
Consumer Loan [Member]
Schedule Of Real Estate Owned Properties [Line Items]
Mortgage Loans in Process of Foreclosure, Amount	$ 104,000	$ 0

[1] * Derived from audited consolidated financial statements.