10-Q

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2012

OR

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

Commission File Number 0-14773

NATIONAL BANCSHARES CORPORATION

exact name of registrant as specified in its charter

Ohio	34-1518564
State of incorporation	IRS Employer Identification No.

112 West Market Street, Orrville, Ohio 44667

Address of principal executive offices

Registrant’s telephone number: (330) 682-1010

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 as defined in Rule 12b-2 of the Exchange Act. See definition 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	¨	Smaller reporting company	x

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of August 13, 2012.

Common Stock, Without Par Value: 2,216,599 shares Outstanding

NATIONAL BANCSHARES CORPORATION

Index

		Page Number
Part I. Financial Information
Item 1.	Financial Statements (Unaudited)
	Consolidated Balance Sheets as of June 30, 2012 and December 31, 2011	2
	Consolidated Statements of Income and Comprehensive Income for the three and six months ended June  30, 2012 and 2011	3
	Condensed Consolidated Statement of Changes in Shareholders’ Equity for the six months ended June  30, 2012 and 2011	5
	Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2012 and 2011	6
	Notes to Consolidated Financial Statements (Unaudited)	7 - 23
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	23 - 29
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	29
Item 4T.	Controls and Procedures	30
Part II. Other Information
Item 1.	Legal Proceedings – None	31
Item 1A.	Risk Factors	31
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds – None	31
Item 3.	Defaults Upon Senior Securities – None	31
Item 4.	Mine Safety Disclosures – None	31
Item 5.	Other Information – None	31
Item 6.	Exhibits	31
Signatures		32
Exhibit 31.1
Exhibit 31.2
Exhibit 32

Item 1. Financial Statements

NATIONAL BANCSHARES CORPORATION

CONSOLIDATED BALANCE SHEETS (Unaudited)

(dollars in thousands)

	Jun. 30, 2012			Dec. 31, 2011
ASSETS
Cash and due from banks	$	31,937		$	15,213
Time deposits with other financial institutions		0			246
Securities available for sale		137,957			150,175
Restricted equity securities		3,221			3,220
Loans held for sale		260			207
Loans, net of allowance for loan losses:
June 30, 2012 - $3,480; December 31, 2011 - $3,163		239,924			213,952
Premises and equipment, net		11,747			12,173
Goodwill		4,723			4,723
Accrued interest receivable		1,434			1,404
Cash surrender value of life insurance		2,684			2,649
Other assets		2,267			2,124
Total assets	$	436,154		$	406,086
LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits
Noninterest bearing	$	83,529		$	70,810
Interest bearing		287,214			269,854
Total deposits		370,743			340,664
Repurchase agreements		9,417			10,168
Federal Home Loan Bank advances		8,000			8,000
Accrued interest payable		202			219
Accrued expenses and other liabilities		4,052			4,290
Total liabilities		392,414			363,341
SHAREHOLDERS’ EQUITY
Common stock, no par value; 6,000,000 shares authorized; 2,289,528 shares issued		11,447			11,447
Additional paid-in capital		4,857			4,815
Retained earnings		24,979			24,335
Treasury stock, at cost (72,929 and 76,259 shares)		(1,430	)		(1,495	)
Accumulated other comprehensive income		3,887			3,643
Total shareholders’ equity		43,740			42,745
Total liabilities and shareholders’ equity	$	436,154		$	406,086

See accompanying notes to consolidated financial statements.

2

NATIONAL BANCSHARES CORPORATION

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (Unaudited)

(dollars in thousands, except per share data)

	Three months ended						Six months ended
	June 30, 2012			June 30, 2011			June 30, 2012			June 30, 2011
Interest and dividend income
Loans, including fees	$	2,907		$	2,654		$	5,679		$	5,172
Securities:
Taxable		557			821			1,169			1,560
Nontaxable		458			394			913			784
Federal funds sold and other		12			23			23			51
Total interest and dividend income		3,934			3,892			7,784			7,567
Interest expense
Deposits		390			453			782			938
Short-term borrowings		11			10			21			21
Federal Home Loan Bank advances		50			59			101			141
Total interest expense		451			522			904			1,100
Net interest income		3,483			3,370			6,880			6,467
Provision for loan losses		981			150			1,130			297
Net interest income after provision for loan losses		2,502			3,220			5,750			6,170
Noninterest income
Checking account fees		261			269			517			535
Visa check card interchange fees		150			141			288			262
Deposit and miscellaneous service fees		96			80			196			155
Mortgage banking activities		134			40			204			77
Securities gains, net		0			46			0			51
Loss on other real estate owned		0			(38	)		(4	)		(38	)
Gain on sale of loans guaranteed by SBA		0			0			0			128
Other		82			83			158			183
Total noninterest income		723			621			1,359			1,353
Noninterest expense
Salaries and employee benefits		1,458			1,455			2,951			2,949
Data processing		290			286			585			569
Net occupancy		349			378			702			745
FDIC assessment		71			94			149			230
Professional and consulting fees		99			176			196			326
Franchise tax		101			91			200			184
Maintenance and repairs		45			58			109			135
Amortization of intangibles		0			22			0			43
Telephone		58			62			117			121
Marketing		62			60			122			120
Director fees		47			47			94			94
Director pension expense		15			13			27			26
Software expense		52			66			119			120
Postage and supplies		76			72			155			146
Other		244			268			487			486
Total noninterest expense		2,967			3,148			6,013			6,294
Income before income tax expense		258			693			1,096			1,229
Income tax expense (benefit)		(59	)		104			79			153
Net income		317			589			1,017			1,076

(Continued)

3

NATIONAL BANCSHARES CORPORATION

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (Unaudited) (Continued)

(Continued)

	Three months ended					Six months ended
	June 30, 2012		June 30, 2011			June 30, 2012		June 30, 2011
Other comprehensive income, net of tax:
Unrealized gains on securities available for sale, net of taxes of $(219), $(306), $(126) and $(498)		424		595			244		967
Reclassification adjustment for realized gains included in earnings, net of taxes of $0, $16, $0 and $17		0		(30	)		0		(34	)
Total other comprehensive income, net of taxes		424		565			244		933
Comprehensive income	$	741	$	1,154		$	1,261	$	2,009
Weighted average basic common shares outstanding		2,216,599		2,209,717			2,216,562		2,209,717
Weighted average diluted common shares outstanding		2,219,393		2,209,717			2,219,110		2,209,717
Basic and diluted earnings per common share	$	0.14	$	0.27		$	0.46	$	0.49
Dividends declared per common share	$	0.08	$	0.08		$	0.16	$	0.16

See accompanying notes to consolidated financial statements.

4

NATIONAL BANCSHARES CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (Unaudited)

(dollars in thousands, except per share data)

	Six months ended,
	June 30, 2012			June 30, 2011
Balance at beginning of period	$	42,745		$	38,981
Net income		1,017			1,076
Other comprehensive income		244			933
Stock awards issued from Treasury Shares (3,330 and 3,744 shares)		48			50
Compensation expense under stock-based compensation plans		42			20
Cash dividends declared ($0.16 per share in 2012 and 2011)		(356	)		(353	)
Balance at end of period	$	43,740		$	40,707

See accompanying notes to consolidated financial statements.

5

NATIONAL BANCSHARES CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(dollars in thousands, except per share data)

	Six months ended
	June 30, 2012			June 30, 2011
Net cash from operating activities	$	3,230		$	2,739
Cash flows from investing activities
Proceeds from time deposits with other financial institutions		246			4,465
Securities available for sale
Proceeds from maturities and repayments		18,502			17,386
Proceeds from sales		0			2,395
Purchases		(6,794	)		(16,821	)
Purchases of property and equipment		(27	)		(284	)
Proceeds from the sale of loans guaranteed by SBA		0			1,841
Proceeds from the sale of other real estate owned		14			54
Net change in loans		(27,419	)		(14,628	)
Net cash from investing activities		(15,478	)		(5,592	)
Cash flows from financing activities
Net change in deposits		30,079			27,394
Net change in repurchase agreements		(751	)		668
Repayments of Federal Home Loan Bank advances		0			(6,000	)
Dividends paid		(356	)		(352	)
Net cash from financing activities		28,972			21,710
Net change in cash and cash equivalents		16,724			18,857
Beginning cash and cash equivalents		15,213			12,837
Ending cash and cash equivalents	$	31,937		$	31,694
Supplemental Disclosures
Cash paid for interest	$	921		$	1,173
Cash paid for income taxes	$	385		$	60
Supplemental noncash disclosures:
Transfer from loans to other real estate owned	$	455		$	54
Issuance of stock awards	$	48		$	50

See accompanying notes to consolidated financial statements.

6

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

Note 1 – Basis of Presentation

(dollars in thousands)

Company Organization and Financial Presentation

The accompanying consolidated financial statements include the accounts of National Bancshares Corporation (the “Company”) and its wholly owned subsidiaries, First National Bank, Orrville, Ohio (the “Bank”) and NBOH Properties, LLC. All significant intercompany transactions and balances have been eliminated.

The Company provides a broad range of financial services to individuals and companies in Medina, Stark, Summit and Wayne Counties, Ohio. While the Company’s chief decision makers monitor the revenue streams of the various products and services, operations are managed and financial performance is evaluated on a Company-wide basis. Accordingly, all the Company’s banking operations are considered by management to be aggregated in one reportable operating segment.

The consolidated financial statements have been prepared by the Company without audit. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included.

The consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q, but do not include all the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. These statements should be read in conjunction with the consolidated financial statements and footnotes in the Company’s annual report on Form 10-K for the year ended December 31, 2011. The Company believes the disclosures are adequate to make the information presented not misleading; however, the results of operations and other data presented for the periods presented are not necessarily indicative of results to be expected for the entire fiscal year.

Use of Estimates

To prepare financial statements in conformity with U.S. generally accepted accounting principles, management makes estimates and assumptions based on available information. These estimates and assumptions affect the amounts reported in the financial statements and the disclosures provided, and actual results could differ. The allowance for loan losses and fair values of financial instruments are particularly subject to change.

Cash Flows

Cash and cash equivalents include cash and deposits with other banks with original maturities under 90 days, and federal funds sold. Net cash flows are reported for customer loan and deposit transactions, repurchase agreements and other short-term borrowings.

Earnings Per Common Share

Earnings per common share is net income divided by the weighted average number of shares outstanding during the period. Diluted earnings per share includes the dilutive effect of additional potential common shares issuable under stock options. 101,000 and 88,000 stock options were not considered in computing diluted earnings per common share for the three and six month periods ending June 30, 2012 and 2011, respectively, because they were antidilutive.

Adoption of New Accounting Standards

In May, 2011, the FASB issued an amendment to achieve common fair value measurement and disclosure requirements between U.S. and International accounting principles. Overall, the guidance is consistent with existing U.S. accounting principles; however, there are some amendments that change a particular principle or requirement for measuring fair value or for disclosing information about fair value measurements. The amendments in this guidance are effective for interim and annual reporting periods beginning after December 15, 2011. The adoption of this guidance has resulted in added disclosure in the consolidated financial statements.

7

Note 2 – Securities

(dollars in thousands)

Securities consist of the following at June 30, 2012 and December 31, 2011:

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
June 30, 2012
U.S. Government and federal agency	$	2,093	$	10	$	0		$	2,103
State and municipal		52,772		3,851		(16	)		56,607
Mortgage-backed: residential		77,180		2,070		(30	)		79,220
Equity securities		23		4		0			27
Total	$	132,068	$	5,935	$	(46	)	$	137,957
December 31, 2011
U.S. Government and federal agency	$	2,430	$	16	$	0		$	2,446
State and municipal		53,841		3,592		(10	)		57,423
Mortgage-backed: residential		88,362		2,060		(136	)		90,286
Equity securities		23		0		(3	)		20
Total	$	144,656	$	5,668	$	(149	)	$	150,175

	For the six months ended
	June 30, 2012		June 30, 2011
Sales of available for sale securities were as follows:
Proceeds	$	0	$	2,395
Gross gains		0		51
Gross losses		0		0
	For the three months ended
	June 30, 2012		June 30, 2011
Sales of available for sale securities were as follows:
Proceeds	$	0	$	1,281
Gross gains		0		46
Gross losses		0		0

The tax provision related to net realized gains and losses for the six months ended June 30, 2012 and 2011 was $0 and $17. The tax provision related to net realized gains and losses for the three months ended June 30, 2012 and 2011 was $0 and $16.

The fair value of securities at June 30, 2012 by contractual maturity were as follows. Securities not due at a single maturity date, primarily mortgage-backed securities, are shown separately.

	Amortized Cost		Fair Value
Due in one year or less	$	778	$	779
Due from one to five years		5,742		5,941
Due from five to ten years		18,857		20,446
Due after ten years		29,488		31,544
Mortgage-backed: residential		77,180		79,220
Equity securities		23		27
Total	$	132,068	$	137,957

Securities pledged at June 30, 2012 and December 31, 2011 had a fair value of $81,058 and $63,941 and were pledged to secure public deposits and repurchase agreements.

At June 30, 2012 and December 31, 2011, there were no holdings of securities of any one issuer, other than the U.S. Government and its agencies, in an amount greater than 10% of shareholders’ equity.

8

Securities with unrealized losses at June 30, 2012 and December 31, 2011, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, are as follows:

	Less than 12 months					12 months or more					Total
June 30, 2012	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
State and municipal	$	1,668	$	(13	)	$	317	$	(3	)	$	1,985	$	(16	)
Mortgage-backed: residential		6,603		(30	)		0		0			6,603		(30	)
Total temporarily impaired	$	8,271	$	(43	)	$	317	$	(3	)	$	8,588	$	(46	)

	Less than 12 months					12 months or more					Total
December 31, 2011	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
State and municipal	$	366	$	(3	)	$	891	$	(7	)	$	1,257	$	(10	)
Mortgage-backed: residential		22,639		(136	)		0		0			22,639		(136	)
Equity securities		20		(3	)		0		0			20		(3	)
Total temporarily impaired	$	23,025	$	(142	)	$	891	$	(7	)	$	23,916	$	(149	)

Management believes the unrealized losses of securities as of June 30, 2012 are the result of fluctuations in interest rates and do not reflect deterioration in the credit quality of the securities. Accordingly management considers these unrealized losses to be temporary in nature. The Company does not have the intent to sell and does not believe it is more likely than not the Company will be required to sell these securities before their recovery. The fair value of debt securities is expected to recover as the securities approach their maturity date.

9

Note 3 – Loans and Allowance for Loan Losses

(dollars in thousands)

The following table presents the activity in the allowance for loan losses by portfolio segment for the three months ended June 30, 2012:

June 30, 2012	Commercial		Commercial Real Estate			Residential Real Estate			Home Equity			Consumer			Total
Beginning balance	$	822	$	1,428		$	813		$	88		$	33		$	3,184
Provision for loan losses		318		654			(17	)		(9	)		35			981
Loans charged-off		0		(482	)		(186	)		0			(26	)		(694	)
Recoveries		0		0			8			0			1			9
Ending balance	$	1,140	$	1,600		$	618		$	79		$	43		$	3,480

The following table presents the activity in the allowance for loan losses by portfolio segment for the three months ended June 30, 2011:

June 30, 2011	Commercial		Commercial Real Estate		Residential Real Estate			Home Equity			Consumer			Unallocated			Total
Beginning balance	$	494	$	1,270	$	789		$	100		$	62		$	5		$	2,720
Provision for loan losses		115		62		9			(25	)		(8	)		(3	)		150
Loans charged-off		0		0		(24	)		0			(5	)		0			(29	)
Recoveries		25		0		1			0			14			0			40
Ending balance	$	634	$	1,332	$	775		$	75		$	63		$	2		$	2,881

The following table presents the activity in the allowance for loan losses by portfolio segment for the six months ended June 30, 2012:

June 30, 2012	Commercial		Commercial Real Estate			Residential Real Estate			Home Equity			Consumer			Total
Beginning balance	$	788	$	1,408		$	861		$	66		$	40		$	3,163
Provision for loan losses		352		674			24			104			24			1,130
Loans charged-off		0		(482	)		(227	)		(91	)		(26	)		(826	)
Recoveries		0		0			8			0			5			18
Ending balance	$	1,140	$	1,600		$	618		$	79		$	43		$	3,480

The following table presents the activity in the allowance for loan losses by portfolio segment for the six months ended June 30, 2011:

June 30, 2011	Commercial		Commercial Real Estate		Residential Real Estate			Home Equity			Consumer			Unallocated			Total
Beginning balance	$	460	$	1,267	$	675		$	100		$	53		$	30		$	2,585
Provision for loan losses		149		65		126			(26	)		11			(28	)		297
Loans charged-off		0		0		(27	)		0			(17	)		0			(44	)
Recoveries		25		0		1			1			16			0			43
Ending balance	$	634	$	1,332	$	775		$	75		$	63		$	2		$	2,881

10

The recorded investment in loans includes the principal balance outstanding, net of unearned and deferred income and including accrued interest receivable. The following table presents the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method as of June 30, 2012 and December 31, 2011:

	Commercial		Commercial Real Estate		Residential Real Estate		Home Equity		Consumer		Total
June 30, 2012
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	291	$	33	$	0	$	0	$	0	$	324
Collectively evaluated for impairment		849		1,567		618		79		43		3,156
Total ending allowance balance	$	1,140	$	1,600	$	618	$	79	$	43	$	3,480
Recorded investment in loans:
Loans individually evaluated for impairment	$	575	$	1,885	$	44	$	0	$	0	$	2,504
Loans collectively evaluated for impairment		43,166		78,346		82,107		30,116		7,898		241,633
Total ending loans balance	$	43,741	$	80,231	$	82,151	$	30,116	$	7,898	$	244,137
December 31, 2011
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	151	$	183	$	182	$	0	$	0	$	516
Collectively evaluated for impairment		637		1,225		679		66		40		2,647
Total ending allowance balance	$	788	$	1,408	$	861	$	66	$	40	$	3,163
Recorded investment in loans:
Loans individually evaluated for impairment	$	597	$	2,420	$	320	$	0	$	0	$	3,337
Loans collectively evaluated for impairment		32,984		69,290		74,230		30,288		7,698		214,490
Total ending loans balance	$	33,581	$	71,710	$	74,550	$	30,288	$	7,698	$	217,827

11

The impact on interest income of impaired loans was immaterial to the consolidated statements of income for the three and six month periods ending June 30, 2012 and 2011.

The following table presents loans individually evaluated for impairment by class of loans as of June 30, 2012 and December 31, 2011:

	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated		Six-month Average Recorded Investment		Three-month Average Recorded Investment
June 30, 2012
With no related allowance recorded:
Real estate:
Commercial and land development	$	1,382	$	626	$	0	$	1,116	$	1,112
One-to-four family		44		44		0		306		305
Real estate construction:
Commercial and land development		1,216		1,216		0		1,235		1,225
Commercial		28		28		0		29		28
With an allowance recorded:
Real estate:
Commercial and land development		43		43		33		43		43
One-to-four family		0		0		0		0		0
Real estate construction:
Commercial and land development		0		0		0		0		0
Commercial		1,010		547		291		546		546
	$	3,723	$	2,504	$	324	$	3,275	$	3,259

							June 30, 2011
	December 31, 2011						Six-month
	Unpaid				Allowance for		Average
	Principal		Recorded		Loan Losses		Recorded
	Balance		Investment		Allocated		Investment
December 31, 2011
With no related allowance recorded:
Real estate:
Commercial and land development	$	406	$	406	$	0	$	561
One-to-four family		46		46		0		50
Real estate construction:
Commercial and land development		1,252		1,252		0		1,940
Commercial		29		29		0		45
With an allowance recorded:
Real estate:
Commercial and land development		1,037		762		183		965
One-to-four family		274		274		182		1,081
Commercial		1,031		568		151		461
	$	4,075	$	3,337	$	516	$	5,103

Nonaccrual loans and loans past due 90 days still on accrual include both smaller balance homogeneous loans that are collectively evaluated for impairment and individually classified impaired loans.

12

The following table presents the recorded investment in nonaccrual and loans past due over 90 days still on accrual by class of loans as of June 30, 2012 and December 31, 2011:

	June 30, 2012				December 31, 2011
	Nonaccrual		Loans Past Due 90 or More Days Still Accruing		Nonaccrual		Loans Past Due 90 or More Days Still Accruing
Real estate:
Commercial and land development	$	669	$	0	$	1,168	$	0
One-to-four family		71		42		438		181
Home equity		0		0		382		0
Real estate construction:
Commercial and land development		1,216		0		1,252		0
Commercial		575		0		0		0
Consumer		0		8		596		0
	$	2,531	$	50	$	3,836	$	181

The following table presents the aging of the recorded investment in past due loans as of June 30, 2012 by class of loans:

	30 - 59 Days Past Due (1)		60 - 89 Days Past Due		90 or More Days Past Due (2)		Total Past Due		Loans Not Past Due (3)		Total
Real estate:
Commercial and land development	$	250	$	0	$	441	$	691	$	73,069	$	73,760
One-to-four family		411		302		68		781		59,716		60,497
Home equity		36		0		0		36		30,080		30,116
Multifamily		0		0		0		0		21,333		21,333
Real estate construction:
Commercial and land development		0		0		396		396		6,075		6,471
One-to-four family		0		0		0		0		321		321
Commercial		41		45		575		661		43,080		43,741
Consumer:
Auto:
Direct		8		0		0		8		1,752		1,760
Indirect		0		0		0		0		4,439		4,439
Other		3		0		8		11		1,688		1,699
	$	749	$	347	$	1,488	$	2,584	$	241,553	$	244,137

(1) Includes $23 of loans on nonaccrual status.

(2) All loans are nonaccrual status except for $50 of loans past due 90 or more days still on accrual.

(3) Includes $1,070 of loans on nonaccrual status.

13

The following table presents the aging of the recorded investment in past due loans as of December 31, 2011 by class of loans:

	30 - 59 Days Past Due (1)		60 - 89 Days Past Due		90 or More Days Past Due (2)		Total Past Due		Loans Not Past Due (3)		Total
Real estate:
Commercial and land development	$	0	$	30	$	922	$	952	$	65,940	$	66,892
One-to-four family		245		297		572		1,114		55,754		56,868
Home equity		0		0		382		382		29,906		30,288
Multifamily		0		0		0		0		17,001		17,001
Real estate construction:
Commercial and land development		856		0		396		1,252		3,566		4,818
One-to-four family		0		0		0		0		681		681
Commercial		37		0		597		634		32,947		33,581
Consumer:
Auto:
Direct		1		0		0		1		2,071		2,072
Indirect		17		0		0		17		4,629		4,646
Other		14		0		0		14		966		980
	$	1,170	$	327	$	2,869	$	4,366	$	213,461	$	217,827

(1) Includes $856 of loans on nonaccrual status.

(2) All loans are nonaccrual status except for $181 of loans past due 90 or more days still on accrual.

(3) Includes $292 of loans on nonaccrual status.

Troubled Debt Restructuring

As of June 30, 2012, certain loans were modified as troubled debt restructurings. The modification of the terms of such loans included one or a combination of the following: a reduction of the stated interest rate of the loan; an extension of the maturity date at a stated rate of interest lower than the current market rate for new debt with similar risk; or a permanent reduction of the recorded investment in the loan.

The Corporation has two commercial loan relationships with balances of $1,180 that were individually evaluated for impairment whose loan terms have been modified in troubled debt restructurings as of June 30, 2012 and $1,661 as of December 31, 2011. $291 and $300 of specific reserves have been allocated for these loans as of June 30, 2012 and December 31, 2011. The Corporation has not committed to lend any additional amounts as of period ending June 30, 2012 and December 31, 2011 to customers with outstanding loans that are classified as troubled debt restructurings.

There have been no new loans classified as troubled debt restructurings for the three and six month periods ending June 30, 2012. Both commercial loans that were modified as troubled debt restructurings experienced payment default within twelve months following the modification. A loan is considered to be in payment default once it is 30 days contractually past due under the modified terms.

In order to determine whether a borrower is experiencing financial difficulty, an evaluation is performed of the probability that the borrower will be in payment default on any of its debt in the foreseeable future without the modification. This evaluation is performed under the Corporation’s internal underwriting policy.

Credit Quality Indicators: The Corporation categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends and other information specific to each borrower. The Corporation analyzes loans individually by classifying the loans as to credit risk. This analysis includes non-homogeneous loans, such as commercial, commercial real estate loans, and loans to commercial enterprises secured by one-to-four family residential properties. This analysis is performed on an annual basis or more frequently if management becomes aware of information affecting a borrower’s ability to fulfill its obligation. The Corporation uses the following definitions for risk ratings:

Special Mention. Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date.

14

Substandard. Loans classified as substandard are inadequately protected by the current financial condition and paying capacity of the obligor or of the collateral securing the loan. Substandard loans have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt with a distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

Doubtful. Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with 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.

Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass rated loans. As of June 30, 2012 and December 31, 2011, and based on the most recent analysis performed, the risk category of loans by class of loans is as follows:

June 30, 2012	Pass		Special Mention		Substandard		Doubtful		Total
Real estate:
Commercial and land development	$	68,914	$	2,176	$	2,670	$	0	$	73,760
One-to-four family		0		19		44		0		63
Real estate construction:
Commercial and land development		4,426		193		1,852		0		6,471
Commercial		40,430		1,003		2,308		0		43,741
	$	113,770	$	3,391	$	6,874	$	0	$	124,035

December 31, 2011	Pass		Special Mention		Substandard		Doubtful		Total
Real estate:
Commercial and land development	$	61,706	$	1,986	$	3,200	$	0	$	66,892
One-to-four family		0		263		1,129		0		1,392
Real estate construction:
Commercial and land development		3,104		196		1,518		0		4,818
Commercial		29,744		2,442		1,395		0		33,581
	$	94,554	$	4,887	$	7,242	$	0	$	106,683

The Company considers the performance of the loan portfolio and its impact on the allowance for loan losses. For residential and consumer loan classes, the Company also evaluates credit quality based on the aging status of the loan, which was previously presented, and by payment activity. The following table presents the recorded investment in residential and consumer loans based on payment activity as of June 30, 2012 and December 31, 2011:

	Consumer						Residential Real Estate
June 30, 2012	Direct		Indirect		Other		Construction		Multifamily		One-to-four Family		Home Equity		Total
Performing	$	1,760	$	4,439	$	1,691	$	321	$	21,333	$	60,366	$	30,116	$	120,026
Nonperforming		0		0		8		0		0		68		0		76
	$	1,760	$	4,439	$	1,699	$	321	$	21,333	$	60,434	$	30,116	$	120,102

	Consumer						Residential Real Estate
December 31, 2011	Direct		Indirect		Other		Construction		Multifamily		One-to-four Family		Home Equity		Total
Performing	$	2,072	$	4,646	$	980	$	681	$	17,001	$	54,904	$	29,906	$	110,190
Nonperforming		0		0		0		0		0		572		382		954
	$	2,072	$	4,646	$	980	$	681	$	17,001	$	55,476	$	30,288	$	111,144

15

Note 4 – Interest-Rate Swaps

(dollars in thousands)

The Company utilizes interest-rate swap agreements as part of its asset liability management strategy to help manage its interest rate risk position, not for speculation. The notional amount of the interest-rate swaps does not represent amounts exchanged by the parties. The amount exchanged is determined by reference to the notional amount and the other terms of the individual interest-rate swap agreements.

The Company implemented a program in 2009 whereby it lends to its borrowers at a fixed rate with the loan agreement containing a two-way yield maintenance provision. The program has one participant as of June 30, 2012. If the borrower prepays the loan, the yield maintenance provision will result in a prepayment penalty or benefit depending on the interest rate environment at the time of the prepayment. This provision represents an embedded derivative which is required to be bifurcated from the host loan contract. As a result of bifurcating the embedded derivative, the Company records the transaction with the borrower as a floating rate loan and a pay floating / receive fixed interest-rate swap. To offset the risk of the interest-rate swap with the borrower, the Company enters into an interest-rate swap with an outside counterparty that mirrors the terms of the interest-rate swap between the Company and the borrower. Both interest-rate swaps are carried as freestanding derivatives with their changes in fair value reported in current earnings. The interest-rate swaps are not designated as hedges. The change in the fair value of the interest-rate swap between the Company and its borrower was a decrease of $7 for the six months ended June 30, 2012 and a decrease of $6 for the three months ended June 30, 2012, which was offset by an equal increase in value during the three and six months ended June 30, 2012 on the interest-rate swap with an outside counterparty, resulting in no impact on income as of June 30, 2012.

Summary information about the interest-rate swaps not designated as hedges between the Company and its borrower as of June 30, 2012 is as follows:

Notional amount	$	1,391
Weighted average receive rate		5.33	%
Weighted average pay rate		3.52	%
Weighted average maturity (years)		1.5
Fair value of interest-rate swaps	$	39

Summary information about the interest-rate swaps between the Company and outside parties as of June 30, 2012 is as follows:

Notional amount	$	1,391
Weighted average pay rate		5.33	%
Weighted average receive rate		3.52	%
Weighted average maturity (years)		1.5
Fair value of interest-rate swaps	$	(39	)

The fair value of the interest-rate swaps at June 30, 2012 is reflected in other assets and other liabilities with a corresponding offset to noninterest income.

Note 5 – Stock-Based Compensation

(dollars in thousands, except per share information)

The Company’s 2008 Equity Incentive Plan (“the Plan”), which is shareholder-approved, permits the grant of stock options or restricted stock awards, to its officers, employees, consultants and non-employee directors for up to 223,448 shares of common stock.

Option awards are granted with an exercise price equal to the fair value of the Company’s common stock at the date of grant; those option awards have vesting periods determined by the Company’s compensation committee and have terms that shall not exceed 10 years.

On May 20, 2008, the Company granted options to purchase 58,000 shares of stock to directors and certain key officers, of which 43,000 remain outstanding at June 30, 2012. The exercise price of the options is $18.03 per share. The options vest in five equal installments over a five-year period and have a term of 10 years. None of these options have been exercised as of June 30, 2012.

On October 19, 2010, the Company granted options to purchase 43,000 shares of stock to directors and certain key officers, of which 41,500 remained outstanding at June 30, 2012. The exercise price of the options is $13.22 per share. The options vest in five equal installments over a five-year period and have a term of 10 years. None of these options have been exercised as of June 30, 2012.

16

On January 17, 2012, the Company granted options to purchase 58,000 shares of stock to directors and certain key officers, all of which remained outstanding at June 30, 2012. The exercise price of the options is $14.10 per share. The options vest in five equal installments over a five-year period and have a term of 10 years. None of these options have been exercised as of June 30, 2012.

The fair value of each option award is estimated on the date of grant using a closed form option valuation (Black-Scholes) model that uses the assumptions noted in the table below. Expected volatilities are based on historical volatilities of the Company’s common stock. The Company uses historical data to estimate option exercise and post-vesting termination behavior. (Employee and management options are tracked separately.) The expected term of options granted is based on historical data and represents the period of time that options granted are expected to be outstanding, which takes into account that the options are not transferrable. The risk-free interest rate for the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of the grant.

The fair value of options granted in 2012 was $1.77 per option was determined using the following weighted-average assumptions as of grant date.

Risk-free interest rate	1.39	%
Expected term (years)	7.0
Expected stock price volatility	16.40	%
Dividend yield	2.27	%

A summary of the activity in the stock option plan for 2012 follows:

	Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term		Aggregate Intrinsic Value (in thousands)
Outstanding – January 1, 2012		84,500	$	15.70
Granted		58,000		14.10
Exercised		0		0
Forfeited or expired		0		0
Outstanding – June 30, 2012		142,500	$	15.03		8.1	$	153
Fully vested and exercisable at June 30, 2012		42,700	$	17.10		6.4	$	17
Expected to vest in future periods		99,800		14.15		8.1		136
Fully vested and expected to vest at June 30, 2012		142,500	$	15.03		8.1	$	153

The total compensation cost that has been charged against income for the plan was $42 and $20 for the six months ended June 30, 2012 and 2011 and $21 and $10 for the quarters ended June 30, 2012 and 2011. The total income tax benefit was $7 and $3 for the quarters ended June 30, 2012 and 2011 and $14 and $7 for the six month periods ended June 30, 2012 and 2011. As of June 30, 2012, there was $122 of total unrecognized compensation cost related to nonvested stock options granted under the Plan. The cost is expected to be recognized over a weighted-average period of 3.9 years.

Restricted Stock Awards

On January 3, 2011, the Company granted restricted stock awards for 3,744 shares of the Company’s common stock to certain directors in lieu of cash payment of fees earned in 2010. The awards vested immediately and the compensation expense related to the awards of $50 was recorded in 2010. The fair value of the stock was determined using closing market price of the Company’s common stock on the date of the grant.

On July 1, 2011, the Company granted restricted stock awards for 3,552 shares of the Company’s common stock to certain directors in lieu of cash payment of fees. The awards vested immediately and the compensation expense related to the awards of $48 was recorded in 2011. The fair value of the stock was determined using closing market price of the Company’s common stock on the date of the grant.

On January 3, 2012, the Company granted restricted stock awards for 3,330 shares of the Company’s common stock to certain directors in lieu of cash payment of fees earned in 2011. The awards vested immediately and the compensation expense related to the awards of $48 was recorded in 2011. The fair value of the stock was determined using closing market price of the Company’s common stock on the date of the grant.

17

Note 6 – Fair Value

(dollars in thousands)

Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There are three levels of inputs that may be used to measure fair values:

Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level 3: Significant unobservable inputs that reflect a reporting entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

The Corporation used the following methods and significant assumptions to estimate fair value:

Investment Securities: The fair values for investment securities are determined by quoted market prices, if available (Level 1). For securities where quoted prices are not available, fair values are calculated based on market prices of similar securities (Level 2). For securities where quoted prices or market prices of similar securities are not available, fair values are calculated using discounted cash flows or other market indicators (Level 3). The fair values of level 3 investment securities are determined by the Accounting department, which reports to the Chief Financial Officer (CFO). The CFO reviews the fair values and these are reported to the ALCO (Asset Liability Management Committee) committee and the Board of Directors. Discounted cash flows are calculated using spread to swap and LIBOR curves that are updated to incorporate loss severities, volatility, credit spread and optionality. During times when trading is more liquid, broker quotes are used (if available) to validate the model. At least annually, a third party is engaged to validate the discounted cash flows and resulting fair value. Rating agency and industry research reports as well as defaults and deferrals on individual securities are reviewed and incorporated into the calculations.

Interest Rate Swaps: The fair values of interest rate swaps are based on valuation models using observable market data as of the measurement date (Level 2).

Impaired Loans: The fair value of impaired loans with specific allocations of the allowance for loan losses is generally based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value. Non-real estate collateral may be valued using an appraisal, net book value per the borrower’s financial statements, or aging reports, adjusted or discounted based on management’s historical knowledge, changes in market conditions from the time of the valuation, and management’s expertise and knowledge of the client and client’s business, resulting in a Level 3 fair value classification. Impaired loans are evaluated on a quarterly basis for additional impairment and adjusted accordingly.

Other Real Estate Owned: Certain commercial and residential real estate properties classified as other real estate owned (OREO) are measured at fair value, less costs to sell, establishing a new cost basis. Fair values are based on recent real estate appraisals. These appraisals may use a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value.

Appraisals for both collateral-dependent impaired loans and other real estate owned are performed by certified general appraisers (for commercial properties) or certified residential appraisers (for residential properties) whose qualifications and licenses have been reviewed and verified by the Company. Once received, a member of the Credit Department reviews the assumptions and approaches utilized in the appraisal as well as the overall resulting fair value in comparison with via independent data sources such as recent market data or industry-wide statistics. On an annual basis, the Company compares the actual selling price of collateral that has been sold to the most recent appraised value to determine what additional adjustment should be made to the appraisal value to arrive at fair value. A discount is applied when deemed necessary, and is at the discretion of management based on the most recent appraisal analysis and guidelines set by management.

18

Loans Held for Sale: Loans held for sale are carried at the lower of cost or fair value. The fair value of loans held for sale is determined using quoted prices for similar assets, adjusted for specific attributes of that loan or other observable market data, such as outstanding commitments from third party investors (Level 2).

Assets and Liabilities Measured on a Recurring Basis

Assets and liabilities measured at fair value on a recurring basis are summarized below:

	Fair Value Measurements at June 30, 2012 Using
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Available for sale securities:
U.S. Government and federal agency	$	0	$	2,103	$	0
State and municipal		0		56,426		181
Mortgage-backed securities – residential		0		79,205		15
Equity securities		27		0		0
Interest rate swaps		0		39		0
Liabilities:
Interest rate swaps	$	0	$	39	$	0

	Fair Value Measurements at December 31, 2011 Using
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Available for sale securities:
U.S. Government and federal agency	$	0	$	2,446	$	0
State and municipal		0		53,890		3,533
Mortgage-backed securities – residential		0		90,270		16
Equity securities		20		0		0
Interest rate swaps		0		46		0
Liabilities:
Interest rate swaps	$	0	$	46	$	0

The table below presents a reconciliation of all assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three and six months ended June 30, 2012:

	Six Months 2012			Three Months 2012
Beginning Balance	$	3,549		$	1,609
State and Municipal:
Principal repayments		(12	)		(12	)
Total gains or losses for the period included in other comprehensive income		0			0
Maturities		(2,838	)		(1,400	)
Transfers from Level 3 to Level 2		(502	)		0
Mortgage-backed securities:
Principal repayments		(1	)		(1	)
Ending balance	$	196		$	196

Two state and municipal securities with a fair value of $502 as of June 30, 2012 were transferred from Level 3 to Level 2 because observable market data became available for securities with similar characteristics. The Company’s policy is to recognize transfers into or out of a level as of the end of the reporting period.

19

The Company’s state and municipal security valuations were supported by analysis prepared by an independent third party. The third party uses Interactive Data Corporation (IDC) as the primary source for security valuations. IDC’s evaluations are based on market data. IDC utilizes evaluated pricing models that vary based by asset class and include available trade, bid, and other market information. Generally, the methodology includes broker quotes, proprietary models, vast descriptive terms and conditions databases, as well as extensive quality control programs. IDC evaluators follow multiple review processes to assess the available market, credit, and deal level information to support the evaluation process. If they determine sufficient objectively verifiable information is not available to support a valuation, they will discontinue evaluating that security. Given this approach, the state and municipal security with the pricing source of IDC is considered level 2.

For level 3 investments, the Company uses significant unobservable inputs that reflect a reporting entity’s own assumptions that market participants would use in pricing an asset or liability. The Company uses different valuation processes such as market approach, income approach, or the cost approach.

Assets and Liabilities Measured on a Non-Recurring Basis

Assets and liabilities measured at fair value on a non-recurring basis are summarized below:

	Fair Value Measurements at June 30, 2012 Using
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Impaired loans
Commercial	$	0	$	0	$	256
Commercial and land development		0		0		642
One-to-four family		0		0		0

	Fair Value Measurements at December 31, 2011 Using
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Impaired loans
Commercial	$	0	$	0	$	417
Commercial and land development		0		0		974
One-to-four family		0		0		92
Other real estate owned		0		0		18

Impaired loans, which are measured for impairment using the fair value of the collateral for collateral dependent loans, had a principal amount of $1,222, with a valuation allowance of $324, resulting in an increase in the provision for loan loss of $459 in the three months ended June 30, 2012 and $549 in the six months ended June 30, 2012. Impaired loans had a principal amount of $1,999, with a valuation allowance of $516, resulting in an additional provision of $247 for loan loss in the year ended December 31, 2011.

There was no valuation allowance related to other real estate property at June 30, 2012. There were no write-downs of other real estate in 2012. Other real estate owned measured at fair value less costs to sell, had a net carrying amount of $18, which is made up of the outstanding balance of $131, net of a valuation allowance of $113 at December 31, 2011. The property was written-down $38 in 2011.

20

The following table presents quantitative information about level 3 fair value measurements for financial instruments measured at fair value on a non-recurring basis at June 30, 2012:

	Fair value		Valuation Technique(s)	Unobservable Input(s)	Range (Weighted Average)
Impaired loans – Commercial	$	256	Sales comparison approach	Adjustment for differences between comparable sales	10%
Impaired loans – Commercial and land development	$	642	Sales comparison approach	Adjustment for differences between comparable sales	10%-44% (26%)

21

Carrying amount and estimated fair values of financial instruments at June 30, 2012 and December 31, 2011 were as follows:

			Fair Value Measurements at
	Carrying		June 30, 2012
	Amount		Level 1		Level 2		Level 3		Total
Financial assets
Cash and cash equivalents	$	31,937	$	31,937	$	0	$	0	$	31,937
Securities available for sale		137,957		27		137,734		196		137,957
Restricted equity securities		3,221		na		na		na		na
Loans, net		239,924		0		0		241,907		241,907
Loans held for sale		260		0		260		0		260
Accrued interest receivable		1,434		0		678		756		1,434
Interest rate swaps		39		0		39		0		39
Financial liabilities
Deposits	$	370,743	$	307,635	$	63,750	$	0	$	371,385
Short-term borrowings		9,417		0		9,417		0		9,417
Federal Home Loan Bank advances		8,000		0		8,249		0		8,249
Accrued interest payable		202		32		170		0		202
Interest rate swaps		39		0		39		0		39

December 31, 2011	Carrying Amount		Fair Value
Financial assets
Cash and cash equivalents	$	15,213	$	15,213
Time deposits with other financial institutions		246		246
Securities available for sale		150,175		150,175
Restricted equity securities		3,220		na
Loans, net		213,952		215,490
Accrued interest receivable		1,404		1,404
Interest rate swaps		46		46
Financial liabilities
Deposits	$	340,664	$	341,356
Short-term borrowings		10,168		10,168
Federal Home Loan Bank advances		8,000		8,299
Accrued interest payable		219		219
Interest rate swaps		46		46

The methods and assumptions used to estimate fair value on the preceding tables are described as follows:

(a) Cash and Cash Equivalents: The carrying amounts of cash and short-term instruments approximate fair values and are classified Level 1.

(b) Restricted Equity Securities: It is not practical to determine the fair value of FHLB stock due to restrictions placed on its transferability.

(c) Loans: Fair values of loans, excluding loans held for sale, are estimated as follows: For variable rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values resulting in a Level 3 classification. Fair values for other loans are estimated using discounted cash flow analyses, using interest rates currently being offered for loans with similar terms to borrowers of similar credit quality resulting in a Level 3 classification. Impaired loans are valued at the lower of cost or fair value as described previously. The methods utilized to estimate the fair value of loans do not necessarily represent an exit price.

The fair value of loans held for sale is estimated based upon binding contracts and quotes from third party investors resulting in a Level 2 classification.

(d) Deposits: The fair values disclosed for demand deposits (e.g., interest and non-interest checking, passbook savings, and certain types of money market accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amount) resulting in a Level 1 classification. Fair values for fixed rate certificates of deposit are estimated using a discounted cash flows calculation that applies interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities on time deposits resulting in a Level 2 classification.

22

(e) Short-term borrowings: The carrying amounts of federal funds purchased, borrowings under repurchase agreements, and other short-term borrowings, generally maturing within ninety days, approximate their fair values resulting in a Level 2 classification.

(f) Federal Home Loan Bank advances: The fair values of the Company’s long-term borrowings are estimated using discounted cash flow analyses based on the current borrowing rates for similar types of borrowing arrangements resulting in a Level 2 classification.

(g) Accrued interest receivable/payable: The carrying amounts of accrued interest approximate fair value resulting in a Level 1, Level 2 or Level 3 classification that is consistent with the associated asset or liability.

(h) Off-balance sheet instruments: Fair values for off-balance sheet, credit-related financial instruments are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties’ credit standing. The fair value of commitments is not material.

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

FORWARD-LOOKING INFORMATION

This Form 10-Q contains forward-looking statements as referenced in the Private Securities Litigation Reform Act of 1995. Forward-looking statements are subject to many risks and uncertainties. When used herein, the terms “anticipates,” “plans,” “expects,” “believes,” and similar expressions as they relate to the Company or its management are intended to identify such forward looking statements. Actual results could differ materially from those indicated by the forward-looking statements. Risks and uncertainties that could cause or contribute to differences include, changes in the regulatory environment, changes in business conditions and inflation, risks associated with credit quality and other factors discussed in the Company’s filings with the U.S. Securities and Exchange Commission, including its Annual Report on Form 10-K for the year ended December 31, 2011. The Company assumes no obligation to update any forward-looking statement.

GENERAL

The Company’s results of operations are dependent primarily on net interest income, provision for loan losses, noninterest income and its ability to control costs. Net interest income is the difference (“spread”) between the interest income earned on loans and securities and the cost of funds, consisting of interest paid on deposits, Federal Home Loan Bank advances and short-term funds. The interest rate spread is affected by regulatory, economic and competitive factors that influence interest rates, loan demand and deposit flows. The provision for loan losses is significantly affected by the relative strength or weakness of the local economy. The Company’s net income is also affected by, among other things, loan fee income, service charges, gains on securities and loans, operating expenses, FDIC assessment expense and franchise and income taxes. The Company’s operating expenses principally consist of employee compensation and benefits, occupancy and other general and administrative expenses. The Company’s results of operations are also significantly affected by general economic and competitive conditions, particularly changes in market interest rates, government policies and actions of regulatory authorities. Additionally, future changes in applicable laws, regulations or government policies may also materially impact the Company.

OVERVIEW

Total assets increased to $436.2 million as of June 30, 2012, from $406.1 million at December 31, 2011.

Net income for the first six months of 2012 was $1.0 million compared to $1.1 million for the same period of 2011 or $0.46 and $0.49 basic and diluted per share, respectively. Net income was positively impacted by an increase in net interest income and a decrease in noninterest expense and negatively impacted by an increase in the provision for loan losses.

Net interest income for the six month period ended June 30, 2012 increased $413 thousand, or 6.4%, compared to the same period in 2011, despite a declining interest rate environment. The provision for loan losses increased to $1,130 thousand for the six months ended June 30, 2012 compared to $297 thousand for the same period in 2011.

Noninterest income for the first six months of 2012 increased $6 thousand compared to the same period in 2011. Noninterest income in 2011 included $128 thousand of gains recorded on the sale of the guaranteed portion of five Small Business Administration (SBA) loans. Mortgage banking income increased $127 thousand for the six month period ended June 30, 2012 compared to the same period in 2011.

23

Noninterest expense for the first six months of 2012 decreased $281 thousand compared to the same period in 2011 due primarily to a decrease in professional and consulting expense and the FDIC assessment expense. Income tax expense was $79 thousand for the six months ended June 30, 2012 compared to $153 thousand for the same period in 2011.

Office of the Controller of the Currency (“OCC”) regulations requires banks to maintain certain minimum levels of regulatory capital. Additionally, the regulations establish a framework for the classification of banks into five categories: well-capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized. Generally, an institution is considered well-capitalized if it has a core (Tier 1) capital ratio of at least 5.0% (based on adjusted total assets); a core (Tier 1) risk-based capital ratio of a least 6.0%; and a total risk-based capital ratio of at least 10.0%. The Bank had capital ratios above the minimum to be well-capitalized at June 30, 2012 and December 31, 2011.

The Company is not aware of any market or institutional trends, events or uncertainties that are expected to have a material effect on liquidity, capital resources or operations or any current recommendations by its regulators which would have a material effect if implemented. The Company has not engaged in sub-prime lending activities and does not plan to engage in those activities in the future.

FINANCIAL CONDITION – JUNE 30, 2012, COMPARED TO DECEMBER 31, 2011

Balance Sheet

Cash and due from banks increased $16.7 million to $31.9 million at June 30, 2012, primarily related to an increase in local governmental deposit accounts.

Securities available for sale decreased $12.2 million due primarily to maturities and repayments of $18.5 million, offset by the purchase of $6.8 million securities. The net unrealized gains on securities increased to $5.9 million as of June 30, 2012 compared to $5.5 million net unrealized gains on securities as of December 31, 2011.

Loans increased $26.5 million during the first six months of 2012. Loan growth has improved as a result of efforts made in the last three years to add experienced lenders and loan products that borrowers want and need. The commercial lending products now offered, along with knowledgeable lenders, have given the Bank the ability to offer a full range of lending products to our existing and potential customers. The Bank is also concentrating on the expansion of our agricultural business and lending services.

Loans at June 30, 2012 and December 31, 2011 were as follows:

(dollars in thousands)

	June 30,			December 31,
	2012			2011
Real estate:
Commercial and land development	$	73,729		$	66,886
One-to-four family		60,530			56,917
Home equity		29,878			30,086
Multifamily		21,360			17,041
Real estate construction:
Commercial and land development		6,485			4,822
One-to-four family		323			683
Commercial		43,563			33,473
Consumer:
Auto:
Direct		1,749			2,065
Indirect		4,339			4,541
Other		1,698			980
		243,654			217,494
Unearned and deferred income		(250	)		(379	)
Allowance for loan losses		(3,480	)		(3,163	)
Total	$	239,924		$	213,952

24

Allowance for loan losses is a valuation allowance for probable incurred credit losses. This account is increased by the provision for loan losses and decreased by charge-offs less recoveries. The allowance balance required is established using the following methodology:

• All problem loans, impaired loans, past due loans and non-performing loans are closely monitored and analyzed by management on an ongoing basis. A classification rating is assigned to problem loans based on information about specific borrower situations and estimated collateral values. These loans are classified as either special mention, substandard, doubtful or loss.

• Specific problem loans, past due loans or non-performing loans are identified and analyzed individually in an effort to determine the expected probable incurred loss on these specifically identified loans.

• For problem loans that are not analyzed individually, a provision is established based on a historical migration analysis. The historical migration analysis identifies the percentage of problem loans that have been ultimately charged-off historically and over what time periods such loans have been charged off. Historical migration percentages are reviewed and adjusted by management to reflect various factors such as the growth and change in mix of the loan portfolio and by Comptroller of the Currency regulatory guidance. Non-individually analyzed loans are pooled and evaluated by loan type. The probable incurred loss on these pooled past due loans is estimated using historical loan loss experience.

• National and local economic conditions and other factors are also considered in determining the adequacy of the allowance for loan losses.

• A percentage of the allowance is allocated to specific loans, but the entire allowance is available for any loan that, in management’s judgment, should be charged-off.

• The allowance for loan losses is reviewed on a regular basis to determine the adequacy of the allowance.

The allowance for loan losses increased from $3.163 million as of December 31, 2011 to $3.480 million at June 30, 2012. The allowance for loan losses to total loans decreased from 1.46% at year-end 2011 to 1.43% at June 30, 2012. The provision for loan losses for the six months ended June 30, 2012 was $1.130 million compared to $297 thousand for the same period in 2011. The increase in the provision in 2012 was primarily related to decreases in the collateral valuations based on information obtained in the second quarter of 2012 for two commercial real estate loan relationships in June 2012. Net charge-offs were $813 thousand for the six months ended June 30, 2012, compared to net charge-offs of $1 thousand for the same period in 2011. A $481 thousand charge-off was recorded on one of the aforementioned commercial real estate loans during the second quarter of 2012.

Total nonperforming loans decreased from $4.0 million as of December 31, 2011 to $2.6 million at June 30, 2012. Non-performing loans consist of loans placed on non-accrual status and loans past due 90 or more days and still accruing interest. Loans past due 30 through 89 days and still accruing, increased from $641 thousand to $1.1 million as of June 30, 2012.

Adversely classified assets at June 30, 2012 and December 31, 2011 were as follows:

(dollars in thousands)

	June 30, 2012					December 31, 2011
			Percent of					Percent of
	Amount		total loans			Amount		total loans
Classified loans:
Special mention	$	3,391		1.4	%	$	4,887		2.3	%
Substandard		6,874		2.8	%		7,242		3.3	%
Doubtful		0		0.0	%		0		0.0	%
Loss		0		0.0	%		0		0.0	%
Total classified loans		10,265		4.2	%		12,129		5.6	%
Other real estate owned		455		0.2	%		18		0.0	%
Total classified assets	$	10,720		4.4	%	$	12,147		5.6	%

Total classified loans decreased from $12.1 million at December 31, 2011 to $10.7 million at June 30, 2012. The Bank’s classification ratio was 20.5% and 21.1% as of June 30, 2012 and December 31, 2011. The classification ratio is calculated using total adversely classified assets (excluding special mention loans) divided by Tier 1 capital plus allowance for loan losses. Management believes the allowance for loan losses is adequate as of June 30, 2012.

Total deposits increased $30.1 million as of June 30, 2012 compared to December 31, 2011. The increase is primarily attributed to growth in noninterest-bearing demand accounts and interest-bearing demand accounts. Historically noninterest-bearing demand accounts have fluctuated based upon the liquidity needs of our customers. The increase in interest-bearing demand accounts can be attributed to the Company’s success in marketing our “Platinum Checking” and “Bonus Checking” accounts.

25

Deposits at June 30, 2012 and December 31, 2011 were as follows:

(dollars in thousands)

	June 30,		December 31,
	2012		2011
Demand, noninterest-bearing	$	83,529	$	70,810
Demand, interest-bearing		165,123		154,410
Savings		58,983		55,781
Time, $100,000 and over		18,917		15,305
Time, other		44,191		44,358
	$	370,743	$	340,664

Shareholders’ Equity

Total shareholders’ equity increased $995 thousand to $43.7 million as of June 30, 2012 from $42.7 million as of December 31, 2011. Net income for the six months ended June 30, 2012 was $1.0 million, while dividends declared were $356 thousand. Accumulated other comprehensive income increased from $3.6 million on December 31, 2011 to $3.9 million as of June 30, 2012.

The Bank is subject to regulatory capital requirements. The following is a summary of the actual and required regulatory capital amounts and ratios. Management believes the capital position of the Bank remains strong.

(dollars in thousands)

											To Be Well Capitalized
						For Capital					Under Prompt Corrective
June 30, 2012	Actual					Adequacy Purposes					Action Provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio
Total capital to risk-weighted assets	$	35,787		13.02	%	$	21,987		8.00	%	$	27,483		10.00	%
Tier 1 capital to risk-weighted assets		32,342		11.77	%		10,993		4.00	%		16,490		6.00	%
Tier 1 capital to average assets		32,342		7.75	%		16,701		4.00	%		20,877		5.00	%

											To Be Well Capitalized
						For Capital					Under Prompt Corrective
December 31, 2011	Actual					Adequacy Purposes					Action Provisions
	Amount		Ratio			Amount		Ratio			Amount		Ratio
Total capital to risk-weighted assets	$	34,367		13.74	%	$	20,015		8.00	%	$	25,019		10.00	%
Tier 1 capital to risk-weighted assets		31,256		12.49	%		10,008		4.00	%		15,011		6.00	%
Tier 1 capital to average assets		31,256		7.78	%		16,069		4.00	%		20,086		5.00	%

Statements of Cash Flows

Net cash from operating activities for the first six months of 2012 was $3.2 million compared to $2.7 million for the same period of 2011. Net cash from investing activities for the first six months of 2012 was $(15.5) million, compared to $(5.6) million for the first six months of 2011. Net cash from financing activities was $29.0 million for the first six months of 2012 compared to $21.7 million for the first six months of 2011. The increase in cash and cash equivalents was $16.7 million during the first six months of 2012 primarily related to an increase in local governmental deposit accounts. Total cash and cash equivalents was $31.9 million as of June 30, 2012 compared to $15.2 million at December 31, 2011.

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COMPARISON OF RESULTS OF OPERATIONS FOR THE SIX MONTH PERIODS ENDED

June 30, 2012 and 2011

Net income for the first six months of 2012 was $1.0 million or $0.46 per basic and diluted earnings per share compared to $1.1 million or $0.49 per basic and diluted earnings per share for the same period in 2011. Net income was positively impacted by a $413 thousand increase in net interest income and a $281 thousand decrease in noninterest expense and negatively impacted by a $833 thousand increase in the provision for loan losses.

Annualized return on average equity (“ROAE”) and average assets (“ROAA”) for the first six months of 2012 were 4.73% and 0.49%, respectively, compared with 5.45% and 0.56% for the first six months of 2011.

	Six months ended June 30,
	2012							2011
(dollars in thousands)	Daily Average				Average			Daily Average				Average
	Balance		Interest		yield/cost (1)			Balance		Interest		yield/cost (1)
Assets
Interest earning assets:
Securities:
Taxable	$	91,497	$	1,169		2.63	%	$	90,729	$	1,560		3.54	%
Nontaxable (tax equivalent basis) (2)		57,121		1,383		5.22	%		47,137		1,188		5.09	%
Interest bearing deposits		23,310		23		0.20	%		24,990		51		0.41	%
Net loans (including nonaccrual loans)		223,958		5,679		5.10	%		195,203		5,172		5.30	%
Total interest-earning assets		395,886		8,254		4.19	%		358,059		7,971		4.45	%
All other assets		25,222							26,229
Total assets	$	421,108						$	384,288
Liabilities and Shareholders’ Equity
Interest-bearing liabilities:
Interest-bearing checking	$	160,488		366		0.46	%	$	137,157		404		0.59	%
Savings		56,770		40		0.14	%		52,460		42		0.16	%
Time, $100,000 and over		16,813		85		1.02	%		17,654		114		1.29	%
Time, other		44,322		291		1.32	%		49,524		378		1.53	%
Federal Home Loan Bank advances		8,000		101		2.54	%		10,856		141		2.60	%
Short-term borrowings		10,004		21		0.42	%		8,691		21		0.48	%
Total interest-bearing liabilities		296,397		904		0.61	%		276,342		1,100		0.80	%
Demand deposits		76,980							65,401
Other liabilities		4,517							2,743
Shareholders’ equity		43,214							39,802
Total liabilities and shareholders’ equity	$	421,108						$	384,288
Net interest income (tax equivalent basis) (2)			$	7,350						$	6,871
Interest rate spread (3)						3.58	%						3.65	%
Net yield on interest-earning assets (4)						3.73	%						3.84	%
Ratio of average interest-earning assets to average interest-bearing liabilities						133.57	%						129.57	%

(1) Average yields are computed using annualized interest income and expense for the periods.

(2) Tax equivalence based on highest statutory rate of 34%.

(3) Interest rate spread represents the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities.

(4) Net yield on interest-earning assets represents net interest income as a percentage of average interest-earning assets.

Interest and dividend income totaled $7.8 million, an increase of $217 thousand for the six months ended June 30, 2012 compared to the same period in 2011. Adjusted on a fully tax-equivalent (“FTE”) basis the yield on earning assets in the first six months of 2012 was 4.19% compared to 4.45% in the first six months of 2011. The decrease in the average yield on earning assets is primarily related to the overall decline in interest rates.

27

Interest expense totaled $904 thousand, a decrease of $196 thousand or 17.8% for the six months ended June 30, 2012 as compared to the same period in 2011. The average cost for interest bearing liabilities was 0.61% for the first six months of 2012 compared to 0.80% for the same period in 2011.

The decrease of 19 basis points from the first six months of 2012 is the result of change in the average volume in the mix of interest bearing liabilities and declining interest rates. The increase in interest-bearing liabilities is due primarily to growth in interest-bearing demand accounts and savings accounts. The cost of interest-bearing demand deposits and savings accounts is relatively low compared to other interest-bearing liabilities.

Net interest income increased $413 thousand, or 6.4% for the six month period ended June 30, 2012 as compared to June 30, 2011. During the first six months of 2012, the interest rate spread on a FTE basis decreased 7 basis points to 3.58% when compared to the first six months of 2011.

Provision for loan losses totaled $1.1 million for the first six months of 2012 compared to $297 thousand for the same period in 2011. The increase in the provision for loan losses is primarily related to changes in the collateral valuations based on information obtained in the second quarter of 2012 for two commercial real estate loan relationships in June 2012. A charge-off of $481 thousand was recorded for one of these relationships, while the specific allocation on the other loan was increased by $116 thousand.

Total non-performing loans decreased from $4.0 million as of December 31, 2011 to $2.6 million at June 30, 2012. Non-performing loans consist of loans placed on non-accrual status and loans past due 90 or more days and still accruing interest. Adversely classified loans, including special mention, substandard and doubtful, decreased from $12.1 million at December 31, 2011 to $10.7 million at June 30, 2012. Loans past due 30 through 89 days and still accruing, increased from $641 thousand to $1.1 million as of June 30, 2012.

Each quarter, management reviews the adequacy of the allowance for loan losses by reviewing the overall quality and risk profile of the Company’s loan portfolio, by reviewing specific problem credits and assessing the potential for losses based on expected cash flows or collateral values, by reviewing trends in problem loan levels, by updating loss history for the Company’s loans, by analyzing the growth and change in mix of the portfolio, and by analyzing economic trends that are believed to impact the Company’s borrowers. Management reviewed all of these factors and determined the allowance for loan losses was adequate as of June 30, 2012.

Noninterest income for the six months ended June 30, 2012 increased to $1.359 million or 0.4%, from $1.353 million for the same period in 2011. Noninterest income in 2011 included $128 thousand of gains recorded on the sale of the guaranteed portion of five Small Business Administration (SBA) loans. Mortgage banking income increased $127 thousand for the six month period ended June 30, 2012 compared to the same period in 2011, due to an increase of mortgage loans sold.

Noninterest expense for the six months ended June 30, 2012 was $6.0 million, a decrease of 4.5% from $6.3 million for the same period in 2011 due primarily to a decrease in professional and consulting expense, primarily related to a reduction of legal expenses and a reduction in the use of outside information technology consultants and a decrease in the FDIC assessment expense, due to a change in the methodology of calculating the FDIC assessment.

Income tax expense was $79 thousand for the six months ended June 30, 2012 which represents a decrease of $74 thousand compared to the same period in 2011. Lower pre-tax income and an increase in interest income from tax-exempt securities are the primary factors causing the decrease in income tax expense.

Quarters ended June 30, 2012 and June 30, 2011 income statement highlights:

• Net interest income increased $113 thousand, compared to the same period in 2011. The change was driven by an increase in average earning assets and growth in low-cost core deposit funding.

• Interest income increased $42 thousand or 1.1%, related to an increase in interest income from loans and nontaxable securities, partially offset by a decrease in interest income taxable securities.

• Interest expense decreased $71 thousand or 13.6%, primarily related to a decrease in interest expense related to deposits due to the declining interest rate environment.

• The provision for loan losses was $981 thousand in the quarter ended June 30, 2012 compared to $150 thousand for the same period in 2011. The provision for loan losses in 2012 was primarily related to changes in the collateral valuation of two commercial real estate loans mentioned previously.

• Mortgage banking income increased from $40 thousand during the quarter ended June 30, 2011 to $134 thousand during the same period in 2012.

• Professional and consulting expense was $99 thousand for the three months ended June 30, 2012, compared to $176 thousand for the same period in 2011. The decrease is primarily related to a reduction of legal expenses and a reduction in the use of outside information technology consultants.

28

• Income tax expense (benefit) was $(59) thousand for the three months ended June 30, 2012, a decrease of $163 thousand compared to the same period in 2011. Lower pre-tax income and an increase in interest income from tax-exempt securities, compared to the same period in 2011, is the primary cause of the decrease.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Economic Value of Equity

The economic value of equity, (EVE), is the difference between the net present value of the assets and the net present value of liabilities. EVE can be thought of as the liquidation value of the Bank on the date the calculation is made. Calculating EVE involves using a discount rate to calculate the net present value of assets and liabilities after making assumptions about the duration of assets and liabilities. As interest rates change, the discount rate changes and the change in interest rates effects the duration of assets and liabilities. If interest rates fall, for example, the duration of loans shortens since borrowers tend to prepay. Conversely the duration of loans increases if interest rates rise since borrowers are inclined to hold on to the favorable rate they were able to obtain in the lower interest rate environment.

The Board of Directors has established revised limits on a decline in the economic value of equity (EVE) and earnings at risk (EAR) given changes in interest rates. These limits are that EVE shall not decline by more than 10%, 20%, 30% and 35% given a 1%, 2%, 3% and 4% increase or decrease in interest rates respectively and that EAR shall not be greater than 5%, 10%, 15% or 20% given a 1%, 2%, 3% or 4% increase or decrease in interest rates respectively. The following illustrates our equity at risk in the economic value of equity model.

June 30, 2012

Basis Point Change in Rates	+400 bp		+300 bp		+200 bp		+100 bp		-100 bp		-200 bp	-300 bp	-400 bp
Increase (decrease) in EVE	(11.7	)%	(7.8	)%	(2.3	)%	1.3	%	(7.9	)%	nm	nm	nm

December 31, 2011

Basis Point Change in Rates	+400 bp		+300 bp		+200 bp		+100 bp		-100 bp		-200 bp	-300 bp	-400 bp
Increase (decrease) in EVE	(18.7	)%	(13.3	)%	(6.3	)%	(1.1	)%	(8.2	)%	nm	nm	nm

nm – not meaningful

The Bank is in compliance with the interest rate risk policy limits related to EVE as of June 30, 2012 and December 31, 2011.

Earnings at Risk

Earnings at risk, is the amount by which net interest income will be affected given a change in interest rates. The interest income and interest expense for each category of earning assets and interest bearing liabilities is recalculated after making up and down assumptions about the change in interest rates. Changes in prepayment speeds and repricing speeds are also taken into account when computing earnings at risk given a change in interest rates.

The following illustrates the effect on earnings or EAR given rate increases of 100 to 400 basis points and decreases in interest rates of 100 to 400 basis points.

June 30, 2012

Basis Point Change in Rates	+400 bp		+300 bp		+200 bp		+100 bp		-100 bp		-200 bp	-300 bp	-400 bp
Increase (decrease) in Earnings	1.0	%	0.6	%	0.6	%	0.4	%	(0.4	)%	nm	nm	nm

December 31, 2011

Basis Point Change in Rates	+400 bp		+300 bp		+200 bp		+100 bp		-100 bp		-200 bp	-300 bp	-400 bp
Increase (decrease) in Earnings	(1.1	)%	(1.0	)%	(0.4	)%	(0.1	)%	(0.4	)%	nm	nm	nm

nm – not meaningful

The Bank is in compliance with the interest rate risk policy limits related to EAR as of June 30, 2012 and December 31, 2011.

29

Item 4T. Controls and Procedures

The Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including its Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of June 30, 2012, pursuant to Exchange Act Rule 13a-15. Based upon that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that the Company’s disclosure controls and procedures were, to the best of their knowledge, effective as of June 30, 2012, in timely alerting them to material information relating to the Company (including its consolidated subsidiary) required to be included in the Company’s periodic SEC filings.

There were no changes in the Company’s internal controls over financial reporting during the six months ended June 30, 2012 that materially affected or are reasonably likely to materially affect the Company’s internal controls over financial reporting.

30

PART II. OTHER INFORMATION

Item 1. Legal Proceedings - None

Item 1A. Risk Factors - There have been no significant changes in the Company’s risk factors as outlined in the Company’s Form 10-K for the period ending December 31, 2011.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds - None

Item 3. Defaults Upon Senior Securities - None

Item 4. Mine Safety Disclosures - None

Item 5. Other Information - None

Item 6. Exhibits

Exhibit No. Under Reg. S-K, Item 601	Description of Exhibits	If incorporated by Reference, Documents with Which Exhibit Was Previously Filed with SEC
(3.1)	Amended Articles of Incorporation	Annual Report 10-K filed 3/26/04 File No. 000-14773
(3.2)	Code of Regulations	Annual Report 10-K filed 3/26/04 File No. 000-14773
(10.1)	Directors Defined Benefit Plan Agreement	Annual Report 10-K filed 3/29/01 File No. 000-14773
(10.2)	Employment Agreement entered into by David C. Vernon and National Bancshares and First National Bank	Special Report 8-K filed 12/7/06
(10.3)	Special Separation Agreement of James R. VanSickle	Quarterly Report 10-Q filed 8/14/07 File No. 000-14473
(10.4)	Special Separation Agreement of Thomas R. Poe	Quarterly Report 10-Q filed 11/16/09 File No. 000-14473
(10.5)	Special Separation Agreement of Myron Filarski	Quarterly Report 10-Q filed 11/2/10 File No. 000-14473
(10.6)	Amendment to Employment Agreement entered into by David C. Vernon and National Bancshares Corporation and First National Bank	Annual Report 10-K filed 03/27/12 File No. 000-14773
(10.7)	Deferred Compensation Plan	Quarterly Report 10-Q filed 11/10/11 File No. 000-14473
(11)	Computation of Earnings per Share	See Consolidated Statements of Income and Comprehensive Income Page 4
(31.1)	Certification
(31.2)	Certification
(32)	Certification
Exhibit 101.1	Instance Document
Exhibit 101.2	Schema Document
Exhibit 101.3	Calculation Linkbase Document
Exhibit 101.4	Labels Linkbase Document
Exhibit 101.5	Presentation Linkbase Document
Exhibit 101.6	Definition Linkbase Document

No other exhibits are required to be filed herewith pursuant to Item 601 of Regulation S-K.

31

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.

		National Bancshares Corporation
Date:	August 13, 2012		/s/ Mark R. Witmer
			Mark R. Witmer, President and
			Chief Executive Officer
Date:	August 13, 2012		/s/ James R. VanSickle
			James R. VanSickle, Chief Financial Officer

32

EX-31.1

Exhibit 31.1

CERTIFICATIONS

I, Mark R. Witmer, certify that:

1. I have reviewed this quarterly report on Form 10-Q of National Bancshares Corporation;

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

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

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

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

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

5. The registrant’s other certifying officer(s) 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 13, 2012

/s/ Mark R. Witmer

Mark R. Witmer, President and

Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATIONS

I, James R. VanSickle, certify that:

1. I have reviewed this quarterly report on Form 10-Q of National Bancshares Corporation;

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

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

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

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

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

5. The registrant’s other certifying officer(s) 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 13, 2012

/s/ James R. VanSickle

James R. VanSickle, Chief Financial Officer

EX-32

Exhibit 32

SECTION 1350 CERTIFICATION OF QUARTERLY REPORT ON FORM 10-Q

OF

NATIONAL BANCSHARES CORPORATION

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2012

The undersigned are the President and Chief Financial Officer of National Bancshares Corporation (the “Registrant”). This Certification is made pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. This Certification accompanies the Quarterly Report on Form 10-Q of the Registrant for the quarterly period ended June 30, 2012.

We certify that such Quarterly Report on Form 10-Q fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained in such 10-Q Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant.

This Certification is executed as of August 13, 2012	/s/ Mark R. Witmer
	Mark R. Witmer, President and
	Chief Executive Officer
	/s/ James R. VanSickle
	James R. VanSickle, Chief Financial Officer

XML

Stock-Based Compensation (Details Textual) (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011	Dec. 31, 2011
Stock-Based Compensation (Textual) [Abstract]
Outstanding options to purchase shares of stock	142,500		142,500		84,500
Options exercised			0
Maximum term of vesting period of stock options or restricted stock awards			10 years
Compensation expense related to the awards	$ 21	$ 10	$ 42	$ 20
Stock-Based Compensation (Additional Textual) [Abstract]
Fair value of options granted	$ 1.77		$ 1.77
Total income tax benefit	7	3	14	7
Total unrecognized compensation cost related to nonvested stock options granted	122		122
Cost expected to be recognized over a weighted-average period			3 years 10 months 24 days
Vesting period of installments			5 years
Stock Options Granted One [Member]
Stock-Based Compensation (Textual) [Abstract]
Granted options to purchase shares of stock			58,000
Outstanding options to purchase shares of stock	43,000		43,000
Exercise price of the options	$ 18.03		$ 18.03
Options exercised			0
Maximum term of vesting period of stock options or restricted stock awards			10 years
Stock Options Granted Two [Member]
Stock-Based Compensation (Textual) [Abstract]
Granted options to purchase shares of stock			43,000
Outstanding options to purchase shares of stock	41,500		41,500
Exercise price of the options	$ 13.22		$ 13.22
Options exercised			0
Maximum term of vesting period of stock options or restricted stock awards			10 years
Stock Options Granted Three [Member]
Stock-Based Compensation (Textual) [Abstract]
Granted options to purchase shares of stock			58,000
Outstanding options to purchase shares of stock	58,000		58,000
Exercise price of the options	$ 14.10		$ 14.10
Options exercised			0
Maximum term of vesting period of stock options or restricted stock awards			10 years
Restricted Stock Options Granted One [Member]
Stock-Based Compensation (Textual) [Abstract]
Granted options to purchase shares of stock	3,744
Compensation expense related to the awards	50
Restricted Stock Options Granted Two [Member]
Stock-Based Compensation (Textual) [Abstract]
Granted options to purchase shares of stock	3,552
Compensation expense related to the awards	48
Restricted Stock Options Granted Three [Member]
Stock-Based Compensation (Textual) [Abstract]
Granted options to purchase shares of stock	3,330
Compensation expense related to the awards	$ 48
Maximum [Member]
Stock-Based Compensation (Textual) [Abstract]
Maximum Grant of stock options or restricted stock awards	223,448		223,448

XML

Loans and Allowance for Loan Losses (Details 6) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2012	Dec. 31, 2011
Recorded investment in residential and consumer loans based on payment activity
Recorded investment in residential and consumer loans	$ 120,102	$ 111,144
Consumer [Member] | Auto Direct [Member]
Recorded investment in residential and consumer loans based on payment activity
Recorded investment in residential and consumer loans	1,760	2,072
Consumer [Member] | Auto Indirect [Member]
Recorded investment in residential and consumer loans based on payment activity
Recorded investment in residential and consumer loans	4,439	4,646
Consumer [Member] | Other [Member]
Recorded investment in residential and consumer loans based on payment activity
Recorded investment in residential and consumer loans	1,699	980
Residential Real Estate [Member] | One-to-four Family [Member]
Recorded investment in residential and consumer loans based on payment activity
Recorded investment in residential and consumer loans	60,434	55,476
Residential Real Estate [Member] | Home Equity [Member]
Recorded investment in residential and consumer loans based on payment activity
Recorded investment in residential and consumer loans	30,116	30,288
Residential Real Estate [Member] | Construction [Member]
Recorded investment in residential and consumer loans based on payment activity
Recorded investment in residential and consumer loans	321	681
Residential Real Estate [Member] | Multifamily [Member]
Recorded investment in residential and consumer loans based on payment activity
Recorded investment in residential and consumer loans	21,333	17,001
Performing [Member]
Recorded investment in residential and consumer loans based on payment activity
Recorded investment in residential and consumer loans	120,026	110,190
Performing [Member] | Consumer [Member] | Auto Direct [Member]
Recorded investment in residential and consumer loans based on payment activity
Recorded investment in residential and consumer loans	1,760	2,072
Performing [Member] | Consumer [Member] | Auto Indirect [Member]
Recorded investment in residential and consumer loans based on payment activity
Recorded investment in residential and consumer loans	4,439	4,646
Performing [Member] | Consumer [Member] | Other [Member]
Recorded investment in residential and consumer loans based on payment activity
Recorded investment in residential and consumer loans	1,691	980
Performing [Member] | Residential Real Estate [Member] | One-to-four Family [Member]
Recorded investment in residential and consumer loans based on payment activity
Recorded investment in residential and consumer loans	60,366	54,904
Performing [Member] | Residential Real Estate [Member] | Home Equity [Member]
Recorded investment in residential and consumer loans based on payment activity
Recorded investment in residential and consumer loans	30,116	29,906
Performing [Member] | Residential Real Estate [Member] | Construction [Member]
Recorded investment in residential and consumer loans based on payment activity
Recorded investment in residential and consumer loans	321	681
Performing [Member] | Residential Real Estate [Member] | Multifamily [Member]
Recorded investment in residential and consumer loans based on payment activity
Recorded investment in residential and consumer loans	21,333	17,001
Nonperforming [Member]
Recorded investment in residential and consumer loans based on payment activity
Recorded investment in residential and consumer loans	76	954
Nonperforming [Member] | Consumer [Member] | Auto Direct [Member]
Recorded investment in residential and consumer loans based on payment activity
Recorded investment in residential and consumer loans	0	0
Nonperforming [Member] | Consumer [Member] | Auto Indirect [Member]
Recorded investment in residential and consumer loans based on payment activity
Recorded investment in residential and consumer loans	0	0
Nonperforming [Member] | Consumer [Member] | Other [Member]
Recorded investment in residential and consumer loans based on payment activity
Recorded investment in residential and consumer loans	8	0
Nonperforming [Member] | Residential Real Estate [Member] | One-to-four Family [Member]
Recorded investment in residential and consumer loans based on payment activity
Recorded investment in residential and consumer loans	68	572
Nonperforming [Member] | Residential Real Estate [Member] | Home Equity [Member]
Recorded investment in residential and consumer loans based on payment activity
Recorded investment in residential and consumer loans	0	382
Nonperforming [Member] | Residential Real Estate [Member] | Construction [Member]
Recorded investment in residential and consumer loans based on payment activity
Recorded investment in residential and consumer loans	0	0
Nonperforming [Member] | Residential Real Estate [Member] | Multifamily [Member]
Recorded investment in residential and consumer loans based on payment activity
Recorded investment in residential and consumer loans	$ 0	$ 0

XML

Securities (Details 3) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2012	Dec. 31, 2011
Unrealized losses of securities
Unrealized Loss	$ (46)	$ (149)
Fair value	8,588	23,916
Less than 12 months [Member]
Unrealized losses of securities
Unrealized Loss	(43)	(142)
Fair value	8,271	23,025
12 months or more [Member]
Unrealized losses of securities
Unrealized Loss	(3)	(7)
Fair value	317	891
State and municipal [Member]
Unrealized losses of securities
Unrealized Loss	(16)	(10)
Fair value	1,985	1,257
State and municipal [Member] | Less than 12 months [Member]
Unrealized losses of securities
Unrealized Loss	(13)	(3)
Fair value	1,668	366
State and municipal [Member] | 12 months or more [Member]
Unrealized losses of securities
Unrealized Loss	(3)	(7)
Fair value	317	891
Mortgage-backed: residential [Member]
Unrealized losses of securities
Unrealized Loss	(30)	(136)
Fair value	6,603	22,639
Mortgage-backed: residential [Member] | Less than 12 months [Member]
Unrealized losses of securities
Unrealized Loss	(30)	(136)
Fair value	6,603	22,639
Mortgage-backed: residential [Member] | 12 months or more [Member]
Unrealized losses of securities
Unrealized Loss	0	0
Fair value	0	0
Equity securities [Member]
Unrealized losses of securities
Unrealized Loss		(3)
Fair value		20
Equity securities [Member] | Less than 12 months [Member]
Unrealized losses of securities
Unrealized Loss		(3)
Fair value		20
Equity securities [Member] | 12 months or more [Member]
Unrealized losses of securities
Unrealized Loss		0
Fair value		$ 0

XML

Fair Value (Details 2) (Fair Value Measurements Non-Recurring [Member], USD $) In Thousands, unless otherwise specified	Jun. 30, 2012	Dec. 31, 2011
Commercial [Member] | Quoted Prices in Active Markets for Identical Assets (Level 1) [Member]
Assets:
Impaired loans	$ 0	$ 0
Commercial [Member] | Significant Other Observable Inputs (Level 2) [Member]
Assets:
Impaired loans	0	0
Commercial [Member] | Significant Unobservable Inputs (Level 3) [Member]
Assets:
Impaired loans	256	417
Commercial and land development [Member] | Quoted Prices in Active Markets for Identical Assets (Level 1) [Member]
Assets:
Impaired loans	0	0
Commercial and land development [Member] | Significant Other Observable Inputs (Level 2) [Member]
Assets:
Impaired loans	0	0
Commercial and land development [Member] | Significant Unobservable Inputs (Level 3) [Member]
Assets:
Impaired loans	642	974
One-to-four family [Member]
Assets:
Impaired loans	0
One-to-four family [Member] | Quoted Prices in Active Markets for Identical Assets (Level 1) [Member]
Assets:
Impaired loans		0
One-to-four family [Member] | Significant Other Observable Inputs (Level 2) [Member]
Assets:
Impaired loans	0	0
One-to-four family [Member] | Significant Unobservable Inputs (Level 3) [Member]
Assets:
Impaired loans	0	92
Other real estate owned [Member] | Quoted Prices in Active Markets for Identical Assets (Level 1) [Member]
Assets:
Impaired loans		0
Other real estate owned [Member] | Significant Other Observable Inputs (Level 2) [Member]
Assets:
Impaired loans		0
Other real estate owned [Member] | Significant Unobservable Inputs (Level 3) [Member]
Assets:
Impaired loans		$ 18

XML

Stock-Based Compensation (Details)	6 Months Ended
	Jun. 30, 2012
Weighted-average assumptions
Risk-free interest rate	1.39%
Expected term (years)	7 years
Expected stock price volatility	16.40%
Dividend yield	2.27%

XML

Basis of Presentation

6 Months Ended

Jun. 30, 2012

Basis of Presentation [Abstract]

Basis of Presentation

Note 1 – Basis of Presentation

(dollars in thousands)

Company Organization and Financial Presentation

The accompanying consolidated financial statements include the accounts of National Bancshares Corporation (the “Company”) and its wholly owned subsidiaries, First National Bank, Orrville, Ohio (the “Bank”) and NBOH Properties, LLC. All significant intercompany transactions and balances have been eliminated.

The Company provides a broad range of financial services to individuals and companies in Medina, Stark, Summit and Wayne Counties, Ohio. While the Company’s chief decision makers monitor the revenue streams of the various products and services, operations are managed and financial performance is evaluated on a Company-wide basis. Accordingly, all the Company’s banking operations are considered by management to be aggregated in one reportable operating segment.

The consolidated financial statements have been prepared by the Company without audit. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included.

The consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q, but do not include all the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. These statements should be read in conjunction with the consolidated financial statements and footnotes in the Company’s annual report on Form 10-K for the year ended December 31, 2011. The Company believes the disclosures are adequate to make the information presented not misleading; however, the results of operations and other data presented for the periods presented are not necessarily indicative of results to be expected for the entire fiscal year.

Use of Estimates

To prepare financial statements in conformity with U.S. generally accepted accounting principles, management makes estimates and assumptions based on available information. These estimates and assumptions affect the amounts reported in the financial statements and the disclosures provided, and actual results could differ. The allowance for loan losses and fair values of financial instruments are particularly subject to change.

Cash Flows

Cash and cash equivalents include cash and deposits with other banks with original maturities under 90 days, and federal funds sold. Net cash flows are reported for customer loan and deposit transactions, repurchase agreements and other short-term borrowings.

Earnings Per Common Share

Earnings per common share is net income divided by the weighted average number of shares outstanding during the period. Diluted earnings per share includes the dilutive effect of additional potential common shares issuable under stock options. 101,000 and 88,000 stock options were not considered in computing diluted earnings per common share for the three and six month periods ending June 30, 2012 and 2011, respectively, because they were antidilutive.

Adoption of New Accounting Standards

In May, 2011, the FASB issued an amendment to achieve common fair value measurement and disclosure requirements between U.S. and International accounting principles. Overall, the guidance is consistent with existing U.S. accounting principles; however, there are some amendments that change a particular principle or requirement for measuring fair value or for disclosing information about fair value measurements. The amendments in this guidance are effective for interim and annual reporting periods beginning after December 15, 2011. The adoption of this guidance has resulted in added disclosure in the consolidated financial statements.

XML

Fair Value (Details 3) (Adjustment for differences related to market conditions [Member], USD $) In Thousands, unless otherwise specified	6 Months Ended
	Jun. 30, 2012	Dec. 31, 2011 Maximum [Member]	Dec. 31, 2011 Minimum [Member]	Jun. 30, 2012 Commercial [Member]	Dec. 31, 2011 Commercial [Member]	Jun. 30, 2012 Commercial and land development [Member]	Dec. 31, 2011 Commercial and land development [Member]
Financial instruments measured at fair value on a non-recurring basis
Fair value				$ 256		$ 642
Valuation Technique(s)	Sales comparison approach
Range (Weighted Average)		44.00%	10.00%		10.00%		(26.00%)

XML

Loans and Allowance for Loan Losses (Details 2) (USD $) In Thousands, unless otherwise specified	3 Months Ended	6 Months Ended
	Jun. 30, 2012	Jun. 30, 2012	Jun. 30, 2011	Dec. 31, 2011
With an allowance recorded:
Recorded Investment, Total	$ 244,137	$ 244,137		$ 217,827
Significant Unobservable Inputs (Level 3) [Member]
With an allowance recorded:
Unpaid Principal Balance, Total	3,723	3,723		4,075
Recorded Investment, Total	2,504	2,504		3,337
Allowance for Loan Losses Allocated, Total	324	324		516
Average Recorded Investment, Total	3,259	3,275	5,103
Commercial [Member]
With an allowance recorded:
Recorded Investment, Total	43,741	43,741		33,581
Commercial [Member] | Real estate [Member] | Significant Unobservable Inputs (Level 3) [Member]
With an allowance recorded:
With an allowance recorded, Unpaid Principal Balance				1,031
With an allowance recorded, Recorded Investment				568
With an allowance recorded, allowance for loan losses allocated				151
With an allowance recorded, Average Recorded investment			461
Commercial [Member] | Real estate construction [Member] | Significant Unobservable Inputs (Level 3) [Member]
With no related allowance recorded:
With no related allowance recorded, Unpaid Principal Balance	28	28		29
With no related allowance recorded, Recorded Investment	28	28		29
With no related allowance recorded, Allowance for Loan Losses Allocated	0	0		0
With no related allowance recorded, Average Recorded investment	28	29	45
With an allowance recorded:
With an allowance recorded, Unpaid Principal Balance	1,010	1,010
With an allowance recorded, Recorded Investment	547	547
With an allowance recorded, allowance for loan losses allocated	291	291
With an allowance recorded, Average Recorded investment	546	546
One-to-four Family [Member] | Real estate [Member] | Significant Unobservable Inputs (Level 3) [Member]
With no related allowance recorded:
With no related allowance recorded, Unpaid Principal Balance	44	44		46
With no related allowance recorded, Recorded Investment	44	44		46
With no related allowance recorded, Allowance for Loan Losses Allocated	0	0		0
With no related allowance recorded, Average Recorded investment	305	306	50
With an allowance recorded:
With an allowance recorded, Unpaid Principal Balance	0	0		274
With an allowance recorded, Recorded Investment	0	0		274
With an allowance recorded, allowance for loan losses allocated	0	0		182
With an allowance recorded, Average Recorded investment	0	0	1,081
Commercial and land development [Member] | Real estate [Member] | Significant Unobservable Inputs (Level 3) [Member]
With no related allowance recorded:
With no related allowance recorded, Unpaid Principal Balance	1,382	1,382		406
With no related allowance recorded, Recorded Investment	626	626		406
With no related allowance recorded, Allowance for Loan Losses Allocated	0	0		0
With no related allowance recorded, Average Recorded investment	1,112	1,116	561
With an allowance recorded:
With an allowance recorded, Unpaid Principal Balance	43	43		1,037
With an allowance recorded, Recorded Investment	43	43		762
With an allowance recorded, allowance for loan losses allocated	33	33		183
With an allowance recorded, Average Recorded investment	43	43	965
Commercial and land development [Member] | Real estate construction [Member] | Significant Unobservable Inputs (Level 3) [Member]
With no related allowance recorded:
With no related allowance recorded, Unpaid Principal Balance	1,216	1,216		1,252
With no related allowance recorded, Recorded Investment	1,216	1,216		1,252
With no related allowance recorded, Allowance for Loan Losses Allocated	0	0		0
With no related allowance recorded, Average Recorded investment	1,225	1,235	1,940
With an allowance recorded:
With an allowance recorded, Unpaid Principal Balance	0	0
With an allowance recorded, Recorded Investment	0	0
With an allowance recorded, allowance for loan losses allocated	0	0
With an allowance recorded, Average Recorded investment	$ 0	$ 0

XML

Loans and Allowance for Loan Losses (Details 1) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2012	Mar. 31, 2012	Dec. 31, 2011	Jun. 30, 2011	Mar. 31, 2011	Dec. 31, 2010
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$ 324		$ 516
Collectively evaluated for impairment	3,156		2,647
Total ending allowance balance	3,480	3,184	3,163	2,881	2,720	2,585
Recorded investment in loans:
Loans individually evaluated for impairment	2,504		3,337
Loans collectively evaluated for impairment	241,633		214,490
Total ending loans balance	244,137		217,827
Commercial [Member]
Ending allowance balance attributable to loans:
Individually evaluated for impairment	291		151
Collectively evaluated for impairment	849		637
Total ending allowance balance	1,140	822	788	634	494	460
Recorded investment in loans:
Loans individually evaluated for impairment	575		597
Loans collectively evaluated for impairment	43,166		32,984
Total ending loans balance	43,741		33,581
Commercial Real Estate [Member]
Ending allowance balance attributable to loans:
Individually evaluated for impairment	33		183
Collectively evaluated for impairment	1,567		1,225
Total ending allowance balance	1,600	1,428	1,408	1,332	1,270	1,267
Recorded investment in loans:
Loans individually evaluated for impairment	1,885		2,420
Loans collectively evaluated for impairment	78,346		69,290
Total ending loans balance	80,231		71,710
Residential Real Estate [Member]
Ending allowance balance attributable to loans:
Individually evaluated for impairment	0		182
Collectively evaluated for impairment	618		679
Total ending allowance balance	618	813	861	775	789	675
Recorded investment in loans:
Loans individually evaluated for impairment	44		320
Loans collectively evaluated for impairment	82,107		74,230
Total ending loans balance	82,151		74,550
Home Equity [Member]
Ending allowance balance attributable to loans:
Individually evaluated for impairment	0		0
Collectively evaluated for impairment	79		66
Total ending allowance balance	79	88	66	75	100	100
Recorded investment in loans:
Loans individually evaluated for impairment	0		0
Loans collectively evaluated for impairment	30,116		30,288
Total ending loans balance	30,116		30,288
Consumer [Member]
Ending allowance balance attributable to loans:
Individually evaluated for impairment	0		0
Collectively evaluated for impairment	43		40
Total ending allowance balance	43	33	40	63	62	53
Recorded investment in loans:
Loans individually evaluated for impairment	0		0
Loans collectively evaluated for impairment	7,898		7,698
Total ending loans balance	$ 7,898		$ 7,698

XML

Fair Value (Details 4) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2012	Dec. 31, 2011
Carrying Amount [Member]
Financial assets
Cash and cash equivalents	$ 31,937	$ 15,213
Time deposits with other financial institutions		246
Securities available for sale	137,957	150,175
Restricted equity securities	3,221	3,220
Loans, net	239,924	213,952
Loans held for sale	260
Accrued interest receivable	1,434	1,404
Interest rate swaps	39	46
Financial liabilities
Deposits	370,743	340,664
Short-term borrowings	9,417	10,168
Federal Home Loan Bank advances	8,000	8,000
Accrued interest payable	202	219
Interest rate swaps	39	46
Fair Value [Member]
Financial assets
Cash and cash equivalents	31,937	15,213
Time deposits with other financial institutions		246
Securities available for sale	137,957	150,175
Loans, net	241,907	215,490
Loans held for sale	260
Accrued interest receivable	1,434	1,404
Interest rate swaps	39	46
Financial liabilities
Deposits	371,385	341,356
Short-term borrowings	9,417	10,168
Federal Home Loan Bank advances	8,249	8,299
Accrued interest payable	202	219
Interest rate swaps	39	46
Fair Value [Member] | Level 1 [Member]
Financial assets
Cash and cash equivalents	31,937
Securities available for sale	27
Loans, net	0
Loans held for sale	0
Accrued interest receivable	0
Interest rate swaps	0
Financial liabilities
Deposits	307,635
Short-term borrowings	0
Federal Home Loan Bank advances	0
Accrued interest payable	32
Interest rate swaps	0
Fair Value [Member] | Level 2 [Member]
Financial assets
Cash and cash equivalents	0
Securities available for sale	137,734
Loans, net	0
Loans held for sale	260
Accrued interest receivable	678
Interest rate swaps	39
Financial liabilities
Deposits	63,750
Short-term borrowings	9,417
Federal Home Loan Bank advances	8,249
Accrued interest payable	170
Interest rate swaps	39
Fair Value [Member] | Significant Unobservable Inputs (Level 3) [Member]
Financial assets
Cash and cash equivalents	0
Securities available for sale	196
Loans, net	241,907
Loans held for sale	0
Accrued interest receivable	756
Interest rate swaps	0
Financial liabilities
Deposits	0
Short-term borrowings	0
Federal Home Loan Bank advances	0
Accrued interest payable	0
Interest rate swaps	$ 0

XML

Loans and Allowance for Loan Losses (Details 3) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2012	Dec. 31, 2011	Jun. 30, 2012 Real estate [Member] One-to-four Family [Member]	Dec. 31, 2011 Real estate [Member] One-to-four Family [Member]	Jun. 30, 2012 Real estate [Member] Home Equity [Member]	Dec. 31, 2011 Real estate [Member] Home Equity [Member]	Jun. 30, 2012 Real estate [Member] Commercial and land development [Member]	Dec. 31, 2011 Real estate [Member] Commercial and land development [Member]	Jun. 30, 2012 Real estate construction [Member] Commercial [Member]	Dec. 31, 2011 Real estate construction [Member] Commercial [Member]	Jun. 30, 2012 Real estate construction [Member] Consumer [Member]	Jun. 30, 2011 Real estate construction [Member] Consumer [Member]	Jun. 30, 2012 Real estate construction [Member] Commercial and land development [Member]	Dec. 31, 2011 Real estate construction [Member] Commercial and land development [Member]
Recorded investment in nonaccrual and loans past due
Nonaccrual	$ 2,531	$ 3,836	$ 71	$ 438	$ 0	$ 382	$ 669	$ 1,168	$ 575	$ 0	$ 0	$ 596	$ 1,216	$ 1,252
Loans Past Due 90 or More Days Still Accruing	$ 50	$ 181	$ 42	$ 181	$ 0	$ 0	$ 0	$ 0	$ 0	$ 0	$ 8	$ 0	$ 0	$ 0

XML

Loans and Allowance for Loan Losses (Details 4) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2012	Dec. 31, 2011
Recorded investment in past due loans
30-59 Days Past Due	$ 749	$ 1,170
60-89 Days Past Due	347	327
90 or More Days Past Due	1,488	2,869
Total Past Due	2,584	4,366
Loans Not Past Due	241,553	213,461
Total	244,137	217,827
Real estate [Member] | One-to-four Family [Member]
Recorded investment in past due loans
30-59 Days Past Due	411	245
60-89 Days Past Due	302	297
90 or More Days Past Due	68	572
Total Past Due	781	1,114
Loans Not Past Due	59,716	55,754
Total	60,497	56,868
Real estate [Member] | Home Equity [Member]
Recorded investment in past due loans
30-59 Days Past Due	36	0
60-89 Days Past Due	0	0
90 or More Days Past Due	0	382
Total Past Due	36	382
Loans Not Past Due	30,080	29,906
Total	30,116	30,288
Real estate [Member] | Multifamily [Member]
Recorded investment in past due loans
30-59 Days Past Due	0	0
60-89 Days Past Due	0	0
90 or More Days Past Due	0	0
Total Past Due	0	0
Loans Not Past Due	21,333	17,001
Total	21,333	17,001
Real estate [Member] | Commercial and land development [Member]
Recorded investment in past due loans
30-59 Days Past Due	250	0
60-89 Days Past Due	0	30
90 or More Days Past Due	441	922
Total Past Due	691	952
Loans Not Past Due	73,069	65,940
Total	73,760	66,892
Real estate construction [Member] | Commercial [Member]
Recorded investment in past due loans
30-59 Days Past Due	41	37
60-89 Days Past Due	45	0
90 or More Days Past Due	575	597
Total Past Due	661	634
Loans Not Past Due	43,080	32,947
Total	43,741	33,581
Real estate construction [Member] | One-to-four Family [Member]
Recorded investment in past due loans
30-59 Days Past Due	0	0
60-89 Days Past Due	0	0
90 or More Days Past Due	0	0
Total Past Due	0	0
Loans Not Past Due	321	681
Total	321	681
Real estate construction [Member] | Commercial and land development [Member]
Recorded investment in past due loans
30-59 Days Past Due	0	856
60-89 Days Past Due	0	0
90 or More Days Past Due	396	396
Total Past Due	396	1,252
Loans Not Past Due	6,075	3,566
Total	6,471	4,818
Consumer [Member] | Auto Direct [Member]
Recorded investment in past due loans
30-59 Days Past Due	8	1
60-89 Days Past Due	0	0
90 or More Days Past Due	0	0
Total Past Due	8	1
Loans Not Past Due	1,752	2,071
Total	1,760	2,072
Consumer [Member] | Auto Indirect [Member]
Recorded investment in past due loans
30-59 Days Past Due	0	17
60-89 Days Past Due	0	0
90 or More Days Past Due	0	0
Total Past Due	0	17
Loans Not Past Due	4,439	4,629
Total	4,439	4,646
Consumer [Member] | Other [Member]
Recorded investment in past due loans
30-59 Days Past Due	3	14
60-89 Days Past Due	0	0
90 or More Days Past Due	8	0
Total Past Due	11	14
Loans Not Past Due	1,688	966
Total	$ 1,699	$ 980

XML

Condensed Consolidated Statements of Cash Flows (Unaudited) (USD $) In Thousands, unless otherwise specified	6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011
Condensed Consolidated Statements of Cash Flows [Abstract]
Net cash from operating activities	$ 3,230	$ 2,739
Cash flows from investing activities
Proceeds from time deposits with other financial institutions	246	4,465
Securities available for sale
Proceeds from maturities and repayments	18,502	17,386
Proceeds from sales	0	2,395
Purchases	(6,794)	(16,821)
Purchases of property and equipment	(27)	(284)
Proceeds from the sale of loans guaranteed by SBA	0	1,841
Proceeds from the sale of other real estate owned	14	54
Net change in loans	(27,419)	(14,628)
Net cash from investing activities	(15,478)	(5,592)
Cash flows from financing activities
Net change in deposits	30,079	27,394
Net change in repurchase agreements	(751)	668
Repayments of Federal Home Loan Bank advances	0	(6,000)
Dividends paid	(356)	(352)
Net cash from financing activities	28,972	21,710
Net change in cash and cash equivalents	16,724	18,857
Beginning cash and cash equivalents	15,213	12,837
Ending cash and cash equivalents	31,937	31,694
Supplemental Disclosures
Cash paid for interest	921	1,173
Cash paid for income taxes	385	60
Supplemental noncash disclosures:
Transfer from loans to other real estate owned	455	54
Issuance of stock awards	$ 48	$ 50

XML

Loans and Allowance for Loan Losses (Details 5) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2012	Dec. 31, 2011
Summary of risk category of loans
Risk category of loans	$ 124,035	$ 106,683
Pass [Member]
Summary of risk category of loans
Risk category of loans	113,770	94,554
Special Mention [Member]
Summary of risk category of loans
Risk category of loans	3,391	4,887
Substandard [Member]
Summary of risk category of loans
Risk category of loans	6,874	7,242
Doubtful [Member]
Summary of risk category of loans
Risk category of loans	0	0
Real estate [Member] | One-to-four Family [Member]
Summary of risk category of loans
Risk category of loans	63	1,392
Real estate [Member] | One-to-four Family [Member] | Pass [Member]
Summary of risk category of loans
Risk category of loans	0	0
Real estate [Member] | One-to-four Family [Member] | Special Mention [Member]
Summary of risk category of loans
Risk category of loans	19	263
Real estate [Member] | One-to-four Family [Member] | Substandard [Member]
Summary of risk category of loans
Risk category of loans	44	1,129
Real estate [Member] | One-to-four Family [Member] | Doubtful [Member]
Summary of risk category of loans
Risk category of loans	0	0
Real estate [Member] | Commercial and land development [Member]
Summary of risk category of loans
Risk category of loans	73,760	66,892
Real estate [Member] | Commercial and land development [Member] | Pass [Member]
Summary of risk category of loans
Risk category of loans	68,914	61,706
Real estate [Member] | Commercial and land development [Member] | Special Mention [Member]
Summary of risk category of loans
Risk category of loans	2,176	1,986
Real estate [Member] | Commercial and land development [Member] | Substandard [Member]
Summary of risk category of loans
Risk category of loans	2,670	3,200
Real estate [Member] | Commercial and land development [Member] | Doubtful [Member]
Summary of risk category of loans
Risk category of loans	0	0
Real estate construction [Member] | Commercial [Member]
Summary of risk category of loans
Risk category of loans	43,741	33,581
Real estate construction [Member] | Commercial [Member] | Pass [Member]
Summary of risk category of loans
Risk category of loans	40,430	29,744
Real estate construction [Member] | Commercial [Member] | Special Mention [Member]
Summary of risk category of loans
Risk category of loans	1,003	2,442
Real estate construction [Member] | Commercial [Member] | Substandard [Member]
Summary of risk category of loans
Risk category of loans	2,308	1,395
Real estate construction [Member] | Commercial [Member] | Doubtful [Member]
Summary of risk category of loans
Risk category of loans	0	0
Real estate construction [Member] | Commercial and land development [Member]
Summary of risk category of loans
Risk category of loans	6,471	4,818
Real estate construction [Member] | Commercial and land development [Member] | Pass [Member]
Summary of risk category of loans
Risk category of loans	4,426	3,104
Real estate construction [Member] | Commercial and land development [Member] | Special Mention [Member]
Summary of risk category of loans
Risk category of loans	193	196
Real estate construction [Member] | Commercial and land development [Member] | Substandard [Member]
Summary of risk category of loans
Risk category of loans	1,852	1,518
Real estate construction [Member] | Commercial and land development [Member] | Doubtful [Member]
Summary of risk category of loans
Risk category of loans	$ 0	$ 0

XML

Fair Value (Details) (Fair Value Measurements Recurring [Member], USD $) In Thousands, unless otherwise specified	Jun. 30, 2012	Dec. 31, 2011
Quoted Prices in Active Markets for Identical Assets (Level 1) [Member]
Assets:
Interest rate swaps	$ 0	$ 0
Liabilities:
Interest rate swaps	0	0
Significant Other Observable Inputs (Level 2) [Member]
Assets:
Interest rate swaps	39	46
Liabilities:
Interest rate swaps	39	46
Significant Unobservable Inputs (Level 3) [Member]
Assets:
Interest rate swaps	0	0
Liabilities:
Interest rate swaps	0	0
U.S. Government and federal agency [Member] | Quoted Prices in Active Markets for Identical Assets (Level 1) [Member]
Assets:
Available for sale securities	0	0
U.S. Government and federal agency [Member] | Significant Other Observable Inputs (Level 2) [Member]
Assets:
Available for sale securities	2,103	2,446
U.S. Government and federal agency [Member] | Significant Unobservable Inputs (Level 3) [Member]
Assets:
Available for sale securities	0	0
State and municipal [Member] | Quoted Prices in Active Markets for Identical Assets (Level 1) [Member]
Assets:
Available for sale securities	0	0
State and municipal [Member] | Significant Other Observable Inputs (Level 2) [Member]
Assets:
Available for sale securities	56,426	53,890
State and municipal [Member] | Significant Unobservable Inputs (Level 3) [Member]
Assets:
Available for sale securities	181	3,533
Mortgage-backed: residential [Member] | Quoted Prices in Active Markets for Identical Assets (Level 1) [Member]
Assets:
Available for sale securities	0	0
Mortgage-backed: residential [Member] | Significant Other Observable Inputs (Level 2) [Member]
Assets:
Available for sale securities	79,205	90,270
Mortgage-backed: residential [Member] | Significant Unobservable Inputs (Level 3) [Member]
Assets:
Available for sale securities	15	16
Equity securities [Member] | Quoted Prices in Active Markets for Identical Assets (Level 1) [Member]
Assets:
Available for sale securities	27	20
Equity securities [Member] | Significant Other Observable Inputs (Level 2) [Member]
Assets:
Available for sale securities	0	0
Equity securities [Member] | Significant Unobservable Inputs (Level 3) [Member]
Assets:
Available for sale securities	$ 0	$ 0

XML

Consolidated Balance Sheets (Unaudited) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2012	Dec. 31, 2011
ASSETS
Cash and due from banks	$ 31,937	$ 15,213
Time deposits with other financial institutions	0	246
Securities available for sale	137,957	150,175
Restricted equity securities	3,221	3,220
Loans held for sale	260	207
Loans, net of allowance for loan losses: June 30, 2012 - $3,480; December 31, 2011-$3,163	239,924	213,952
Premises and equipment, net	11,747	12,173
Goodwill	4,723	4,723
Accrued interest receivable	1,434	1,404
Cash surrender value of life insurance	2,684	2,649
Other assets	2,267	2,124
Total assets	436,154	406,086
Deposits
Noninterest bearing	83,529	70,810
Interest bearing	287,214	269,854
Total deposits	370,743	340,664
Repurchase agreements	9,417	10,168
Federal Home Loan Bank advances	8,000	8,000
Accrued interest payable	202	219
Accrued expenses and other liabilities	4,052	4,290
Total liabilities	392,414	363,341
SHAREHOLDERS' EQUITY
Common stock, no par value; 6,000,000 shares authorized; 2,289,528 shares issued	11,447	11,447
Additional paid-in capital	4,857	4,815
Retained earnings	24,979	24,335
Treasury stock, at cost (72,929 and 76,259 shares)	(1,430)	(1,495)
Accumulated other comprehensive income	3,887	3,643
Total shareholders' equity	43,740	42,745
Total liabilities and shareholders' equity	$ 436,154	$ 406,086

XML

Fair Value (Details Textual) (USD $) In Thousands, unless otherwise specified	3 Months Ended	6 Months Ended	12 Months Ended
	Jun. 30, 2012	Jun. 30, 2012	Dec. 31, 2011
Fair Value (Textual) [Abstract]
Transfers from Level 3 to Level 2	$ 0	$ (502)
Fair Value (Additional Textual) [Abstract]
Impaired loans principal amount	1,222	1,222	1,999
Impaired loans valuation allowance	324	324	516
Increase the provision for loan loss	459	549	247
Real estate owned carrying amount			18
Outstanding balance			131
Written-down of other real estate		0	38
Other real estate valuation allowance		0	113
State and municipal [Member]
Fair Value (Textual) [Abstract]
Transfers from Level 3 to Level 2		$ 502

XML

Condensed Consolidated Statements of Changes in Shareholders' Equity (Unaudited) (USD $) In Thousands, unless otherwise specified	6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011
Condensed Consolidated Statements of Changes in Shareholders' Equity [Abstract]
Balance at beginning of period	$ 42,745	$ 38,981
Net income	1,017	1,076
Other comprehensive income	244	933
Stock awards issued from Treasury Shares (3,330 and 3,744 shares)	48	50
Compensation expense under stock-based compensation plans	42	20
Cash dividends declared ($0.16 per share in 2012 and 2011)	(356)	(353)
Balance at end of period	$ 43,740	$ 40,707

XML

Interest-Rate Swaps (Details) (USD $) In Thousands, unless otherwise specified	6 Months Ended
	Jun. 30, 2012
Interest-rate swaps [Member]
Interest rate swaps not designated as hedges and interest rate swaps
Notional amount	$ 1,391
Weighted average receive rate	5.33%
Weighted average pay rate	3.52%
Weighted average maturity (years)	1 year 6 months
Fair value of interest-rate swaps	(39)
Not designated as hedging instrument [Member]
Interest rate swaps not designated as hedges and interest rate swaps
Notional amount	1,391
Weighted average receive rate	5.33%
Weighted average pay rate	3.52%
Weighted average maturity (years)	1 year 6 months
Fair value of interest-rate swaps	$ 39

XML

Securities (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2012	Dec. 31, 2011
Fair value of Securities
Amortized Cost	$ 132,068	$ 144,656
Gross Unrealized Gains	5,935	5,668
Gross Unrealized Losses	(46)	(149)
Fair Value	137,957	150,175
U.S. Government and federal agency [Member]
Fair value of Securities
Amortized Cost	2,093	2,430
Gross Unrealized Gains	10	16
Gross Unrealized Losses	0	0
Fair Value	2,103	2,446
State and municipal [Member]
Fair value of Securities
Amortized Cost	52,772	53,841
Gross Unrealized Gains	3,851	3,592
Gross Unrealized Losses	(16)	(10)
Fair Value	56,607	57,423
Mortgage-backed: residential [Member]
Fair value of Securities
Amortized Cost	77,180	88,362
Gross Unrealized Gains	2,070	2,060
Gross Unrealized Losses	(30)	(136)
Fair Value	79,220	90,286
Equity securities [Member]
Fair value of Securities
Amortized Cost	23	23
Gross Unrealized Gains	4	0
Gross Unrealized Losses	0	(3)
Fair Value	$ 27	$ 20

XML

Interest-Rate Swaps (Details Textual) (USD $) In Thousands, unless otherwise specified	3 Months Ended	6 Months Ended
	Jun. 30, 2012	Jun. 30, 2012
Interest-Rate Swaps (Textual) [Abstract]
Decrease in fair value of the interest-rate swap	$ 6	$ 7

XML

Securities (Details 2) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2012
Fair value of held to maturity securities
Amortized Cost	$ 132,068
Fair Value	137,957
Due in one year or less [Member]
Fair value of held to maturity securities
Amortized Cost	778
Fair Value	779
Due from one to five years [Member]
Fair value of held to maturity securities
Amortized Cost	5,742
Fair Value	5,941
Due from five to ten years [Member]
Fair value of held to maturity securities
Amortized Cost	18,857
Fair Value	20,446
Due after ten years [Member]
Fair value of held to maturity securities
Amortized Cost	29,488
Fair Value	31,544
Mortgage-backed: residential [Member]
Fair value of held to maturity securities
Amortized Cost	77,180
Fair Value	79,220
Equity securities [Member]
Fair value of held to maturity securities
Amortized Cost	23
Fair Value	$ 27

XML

Condensed Consolidated Statements of Changes in Shareholders' Equity (Unaudited) (Parenthetical) (USD $)	6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011
Condensed Consolidated Statements of Changes in Shareholders' Equity [Abstract]
Stock awards issued from Treasury Shares	3,330	3,744
Dividends declared per common share	$ 0.16	$ 0.16

XML

Consolidated Balance Sheets (Unaudited) (Parenthetical) (USD $) In Thousands, except Share data, unless otherwise specified	Jun. 30, 2012	Dec. 31, 2011
Consolidated Balance Sheets [Abstract]
Allowance for loan losses	$ 3,480	$ 3,163
Common stock, par value	$ 0	$ 0
Common stock, shares authorized	6,000,000	6,000,000
Common stock, shares issued	2,289,528	2,289,528
Treasury stock, shares	72,929	76,259

XML

Loans and Allowance for Loan Losses (Tables)

6 Months Ended

Jun. 30, 2012

Loans and Allowance for Loan Losses [Abstract]

Activity in the allowance for loan losses by portfolio segment

June 30, 2012	Commercial		Commercial Real Estate			Residential Real Estate			Home Equity			Consumer			Total
Beginning balance	$	822	$	1,428		$	813		$	88		$	33		$	3,184
Provision for loan losses		318		654			(17	)		(9	)		35			981
Loans charged-off		0		(482	)		(186	)		0			(26	)		(694	)
Recoveries		0		0			8			0			1			9
Ending balance	$	1,140	$	1,600		$	618		$	79		$	43		$	3,480

The following table presents the activity in the allowance for loan losses by portfolio segment for the three months ended June 30, 2011:

June 30, 2011	Commercial		Commercial Real Estate		Residential Real Estate			Home Equity			Consumer			Unallocated			Total
Beginning balance	$	494	$	1,270	$	789		$	100		$	62		$	5		$	2,720
Provision for loan losses		115		62		9			(25	)		(8	)		(3	)		150
Loans charged-off		0		0		(24	)		0			(5	)		0			(29	)
Recoveries		25		0		1			0			14			0			40
Ending balance	$	634	$	1,332	$	775		$	75		$	63		$	2		$	2,881

The following table presents the activity in the allowance for loan losses by portfolio segment for the six months ended June 30, 2012:

June 30, 2012	Commercial		Commercial Real Estate			Residential Real Estate			Home Equity			Consumer			Total
Beginning balance	$	788	$	1,408		$	861		$	66		$	40		$	3,163
Provision for loan losses		352		674			24			104			24			1,130
Loans charged-off		0		(482	)		(227	)		(91	)		(26	)		(826	)
Recoveries		0		0			8			0			5			18
Ending balance	$	1,140	$	1,600		$	618		$	79		$	43		$	3,480

The following table presents the activity in the allowance for loan losses by portfolio segment for the six months ended June 30, 2011:

June 30, 2011	Commercial		Commercial Real Estate		Residential Real Estate			Home Equity			Consumer			Unallocated			Total
Beginning balance	$	460	$	1,267	$	675		$	100		$	53		$	30		$	2,585
Provision for loan losses		149		65		126			(26	)		11			(28	)		297
Loans charged-off		0		0		(27	)		0			(17	)		0			(44	)
Recoveries		25		0		1			1			16			0			43
Ending balance	$	634	$	1,332	$	775		$	75		$	63		$	2		$	2,881

Allowance for loan losses and the recorded investment in loans

	Commercial		Commercial Real Estate		Residential Real Estate		Home Equity		Consumer		Total
June 30, 2012
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	291	$	33	$	0	$	0	$	0	$	324
Collectively evaluated for impairment		849		1,567		618		79		43		3,156
Total ending allowance balance	$	1,140	$	1,600	$	618	$	79	$	43	$	3,480
Recorded investment in loans:
Loans individually evaluated for impairment	$	575	$	1,885	$	44	$	0	$	0	$	2,504
Loans collectively evaluated for impairment		43,166		78,346		82,107		30,116		7,898		241,633
Total ending loans balance	$	43,741	$	80,231	$	82,151	$	30,116	$	7,898	$	244,137
December 31, 2011
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	151	$	183	$	182	$	0	$	0	$	516
Collectively evaluated for impairment		637		1,225		679		66		40		2,647
Total ending allowance balance	$	788	$	1,408	$	861	$	66	$	40	$	3,163
Recorded investment in loans:
Loans individually evaluated for impairment	$	597	$	2,420	$	320	$	0	$	0	$	3,337
Loans collectively evaluated for impairment		32,984		69,290		74,230		30,288		7,698		214,490
Total ending loans balance	$	33,581	$	71,710	$	74,550	$	30,288	$	7,698	$	217,827

Loans individually evaluated for impairment by class of loans

	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated		Six-month Average Recorded Investment		Three-month Average Recorded Investment
June 30, 2012
With no related allowance recorded:
Real estate:
Commercial and land development	$	1,382	$	626	$	0	$	1,116	$	1,112
One-to-four family		44		44		0		306		305
Real estate construction:
Commercial and land development		1,216		1,216		0		1,235		1,225
Commercial		28		28		0		29		28
With an allowance recorded:
Real estate:
Commercial and land development		43		43		33		43		43
One-to-four family		0		0		0		0		0
Real estate construction:
Commercial and land development		0		0		0		0		0
Commercial		1,010		547		291		546		546
	$	3,723	$	2,504	$	324	$	3,275	$	3,259

							June 30, 2011
	December 31, 2011						Six-month
	Unpaid				Allowance for		Average
	Principal		Recorded		Loan Losses		Recorded
	Balance		Investment		Allocated		Investment
December 31, 2011
With no related allowance recorded:
Real estate:
Commercial and land development	$	406	$	406	$	0	$	561
One-to-four family		46		46		0		50
Real estate construction:
Commercial and land development		1,252		1,252		0		1,940
Commercial		29		29		0		45
With an allowance recorded:
Real estate:
Commercial and land development		1,037		762		183		965
One-to-four family		274		274		182		1,081
Commercial		1,031		568		151		461
	$	4,075	$	3,337	$	516	$	5,103

Recorded investment in nonaccrual and loans past due

	June 30, 2012				December 31, 2011
	Nonaccrual		Loans Past Due 90 or More Days Still Accruing		Nonaccrual		Loans Past Due 90 or More Days Still Accruing
Real estate:
Commercial and land development	$	669	$	0	$	1,168	$	0
One-to-four family		71		42		438		181
Home equity		0		0		382		0
Real estate construction:
Commercial and land development		1,216		0		1,252		0
Commercial		575		0		0		0
Consumer		0		8		596		0
	$	2,531	$	50	$	3,836	$	181

Recorded investment in past due loans

	30 - 59 Days Past Due (1)		60 - 89 Days Past Due		90 or More Days Past Due (2)		Total Past Due		Loans Not Past Due (3)		Total
Real estate:
Commercial and land development	$	250	$	0	$	441	$	691	$	73,069	$	73,760
One-to-four family		411		302		68		781		59,716		60,497
Home equity		36		0		0		36		30,080		30,116
Multifamily		0		0		0		0		21,333		21,333
Real estate construction:
Commercial and land development		0		0		396		396		6,075		6,471
One-to-four family		0		0		0		0		321		321
Commercial		41		45		575		661		43,080		43,741
Consumer:
Auto:
Direct		8		0		0		8		1,752		1,760
Indirect		0		0		0		0		4,439		4,439
Other		3		0		8		11		1,688		1,699
	$	749	$	347	$	1,488	$	2,584	$	241,553	$	244,137

(1) Includes $23 of loans on nonaccrual status.

(2) All loans are nonaccrual status except for $50 of loans past due 90 or more days still on accrual.

(3) Includes $1,070 of loans on nonaccrual status.

	30 - 59 Days Past Due (1)		60 - 89 Days Past Due		90 or More Days Past Due (2)		Total Past Due		Loans Not Past Due (3)		Total
Real estate:
Commercial and land development	$	0	$	30	$	922	$	952	$	65,940	$	66,892
One-to-four family		245		297		572		1,114		55,754		56,868
Home equity		0		0		382		382		29,906		30,288
Multifamily		0		0		0		0		17,001		17,001
Real estate construction:
Commercial and land development		856		0		396		1,252		3,566		4,818
One-to-four family		0		0		0		0		681		681
Commercial		37		0		597		634		32,947		33,581
Consumer:
Auto:
Direct		1		0		0		1		2,071		2,072
Indirect		17		0		0		17		4,629		4,646
Other		14		0		0		14		966		980
	$	1,170	$	327	$	2,869	$	4,366	$	213,461	$	217,827

(1) Includes $856 of loans on nonaccrual status.

(2) All loans are nonaccrual status except for $181 of loans past due 90 or more days still on accrual.

(3) Includes $292 of loans on nonaccrual status.

Summary of risk category of loans

June 30, 2012	Pass		Special Mention		Substandard		Doubtful		Total
Real estate:
Commercial and land development	$	68,914	$	2,176	$	2,670	$	0	$	73,760
One-to-four family		0		19		44		0		63
Real estate construction:
Commercial and land development		4,426		193		1,852		0		6,471
Commercial		40,430		1,003		2,308		0		43,741
	$	113,770	$	3,391	$	6,874	$	0	$	124,035

December 31, 2011	Pass		Special Mention		Substandard		Doubtful		Total
Real estate:
Commercial and land development	$	61,706	$	1,986	$	3,200	$	0	$	66,892
One-to-four family		0		263		1,129		0		1,392
Real estate construction:
Commercial and land development		3,104		196		1,518		0		4,818
Commercial		29,744		2,442		1,395		0		33,581
	$	94,554	$	4,887	$	7,242	$	0	$	106,683

Recorded investment in residential and consumer loans based on payment activity

	Consumer						Residential Real Estate
June 30, 2012	Direct		Indirect		Other		Construction		Multifamily		One-to-four Family		Home Equity		Total
Performing	$	1,760	$	4,439	$	1,691	$	321	$	21,333	$	60,366	$	30,116	$	120,026
Nonperforming		0		0		8		0		0		68		0		76
	$	1,760	$	4,439	$	1,699	$	321	$	21,333	$	60,434	$	30,116	$	120,102

	Consumer						Residential Real Estate
December 31, 2011	Direct		Indirect		Other		Construction		Multifamily		One-to-four Family		Home Equity		Total
Performing	$	2,072	$	4,646	$	980	$	681	$	17,001	$	54,904	$	29,906	$	110,190
Nonperforming		0		0		0		0		0		572		382		954
	$	2,072	$	4,646	$	980	$	681	$	17,001	$	55,476	$	30,288	$	111,144

XML

Document and Entity Information	6 Months Ended
	Jun. 30, 2012	Aug. 13, 2012
Document and Entity Information [Abstract]
Entity Registrant Name	NATIONAL BANCSHARES CORP /OH/
Entity Central Index Key	0000790362
Document Type	10-Q
Document Period End Date	Jun. 30, 2012
Amendment Flag	false
Document Fiscal Year Focus	2012
Document Fiscal Period Focus	Q2
Current Fiscal Year End Date	--12-31
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		2,216,599

XML

Interest-Rate Swaps (Tables)

6 Months Ended

Jun. 30, 2012

Interest-Rate Swaps [Abstract]

Interest rate swaps not designated as hedges and interest rate swaps

Summary information about the interest-rate swaps not designated as hedges between the Company and its borrower as of June 30, 2012 is as follows:

Notional amount	$	1,391
Weighted average receive rate		5.33	%
Weighted average pay rate		3.52	%
Weighted average maturity (years)		1.5
Fair value of interest-rate swaps	$	39

Summary information about the interest-rate swaps between the Company and outside parties as of June 30, 2012 is as follows:

Notional amount	$	1,391
Weighted average pay rate		5.33	%
Weighted average receive rate		3.52	%
Weighted average maturity (years)		1.5
Fair value of interest-rate swaps	$	(39	)

XML

Consolidated Statements of Income and Comprehensive Income (Unaudited) (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011
Interest and dividend income
Loans, including fees	$ 2,907	$ 2,654	$ 5,679	$ 5,172
Securities:
Taxable	557	821	1,169	1,560
Nontaxable	458	394	913	784
Federal funds sold and other	12	23	23	51
Total interest and dividend income	3,934	3,892	7,784	7,567
Interest expense
Deposits	390	453	782	938
Short-term borrowings	11	10	21	21
Federal Home Loan Bank advances	50	59	101	141
Total interest expense	451	522	904	1,100
Net interest income	3,483	3,370	6,880	6,467
Provision for loan losses	981	150	1,130	297
Net interest income after provision for loan losses	2,502	3,220	5,750	6,170
Noninterest income
Checking account fees	261	269	517	535
Visa check card interchange fees	150	141	288	262
Deposit and miscellaneous service fees	96	80	196	155
Mortgage banking activities	134	40	204	77
Securities gains, net	0	46	0	51
Loss on other real estate owned	0	(38)	(4)	(38)
Gain on sale of loans guaranteed by SBA	0	0	0	128
Other	82	83	158	183
Total noninterest income	723	621	1,359	1,353
Noninterest expense
Salaries and employee benefits	1,458	1,455	2,951	2,949
Data processing	290	286	585	569
Net occupancy	349	378	702	745
FDIC assessment	71	94	149	230
Professional and consulting fees	99	176	196	326
Franchise tax	101	91	200	184
Maintenance and repairs	45	58	109	135
Amortization of intangibles	0	22	0	43
Telephone	58	62	117	121
Marketing	62	60	122	120
Director fees	47	47	94	94
Director pension expense	15	13	27	26
Software expense	52	66	119	120
Postage and supplies	76	72	155	146
Other	244	268	487	486
Total noninterest expense	2,967	3,148	6,013	6,294
Income before income tax expense	258	693	1,096	1,229
Income tax expense (benefit)	(59)	104	79	153
Net income	317	589	1,017	1,076
Other comprehensive income, net of tax:
Unrealized gains on securities available for sale, net of taxes of $(219), $(306), $(126) and $(498)	424	595	244	967
Reclassification adjustment for realized gains included in earnings, net of taxes of $0, $16, $0 and $17	0	(30)	0	(34)
Total other comprehensive income, net of taxes	424	565	244	933
Comprehensive Income	$ 741	$ 1,154	$ 1,261	$ 2,009
Weighted average basic common shares outstanding	2,216,599	2,209,717	2,216,562	2,209,717
Weighted average diluted common shares outstanding	2,219,393	2,209,717	2,219,110	2,209,717
Basic and diluted earnings per common share	$ 0.14	$ 0.27	$ 0.46	$ 0.49
Dividends declared per common share	$ 0.08	$ 0.08	$ 0.16	$ 0.16

XML

Interest-Rate Swaps

6 Months Ended

Jun. 30, 2012

Interest-Rate Swaps [Abstract]

Interest-Rate Swaps

Note 4 – Interest-Rate Swaps

(dollars in thousands)

The Company utilizes interest-rate swap agreements as part of its asset liability management strategy to help manage its interest rate risk position, not for speculation. The notional amount of the interest-rate swaps does not represent amounts exchanged by the parties. The amount exchanged is determined by reference to the notional amount and the other terms of the individual interest-rate swap agreements.

The Company implemented a program in 2009 whereby it lends to its borrowers at a fixed rate with the loan agreement containing a two-way yield maintenance provision. The program has one participant as of June 30, 2012. If the borrower prepays the loan, the yield maintenance provision will result in a prepayment penalty or benefit depending on the interest rate environment at the time of the prepayment. This provision represents an embedded derivative which is required to be bifurcated from the host loan contract. As a result of bifurcating the embedded derivative, the Company records the transaction with the borrower as a floating rate loan and a pay floating / receive fixed interest-rate swap. To offset the risk of the interest-rate swap with the borrower, the Company enters into an interest-rate swap with an outside counterparty that mirrors the terms of the interest-rate swap between the Company and the borrower. Both interest-rate swaps are carried as freestanding derivatives with their changes in fair value reported in current earnings. The interest-rate swaps are not designated as hedges. The change in the fair value of the interest-rate swap between the Company and its borrower was a decrease of $7 for the six months ended June 30, 2012 and a decrease of $6 for the three months ended June 30, 2012, which was offset by an equal increase in value during the three and six months ended June 30, 2012 on the interest-rate swap with an outside counterparty, resulting in no impact on income as of June 30, 2012.

Summary information about the interest-rate swaps not designated as hedges between the Company and its borrower as of June 30, 2012 is as follows:

Notional amount	$	1,391
Weighted average receive rate		5.33	%
Weighted average pay rate		3.52	%
Weighted average maturity (years)		1.5
Fair value of interest-rate swaps	$	39

Summary information about the interest-rate swaps between the Company and outside parties as of June 30, 2012 is as follows:

Notional amount	$	1,391
Weighted average pay rate		5.33	%
Weighted average receive rate		3.52	%
Weighted average maturity (years)		1.5
Fair value of interest-rate swaps	$	(39	)

The fair value of the interest-rate swaps at June 30, 2012 is reflected in other assets and other liabilities with a corresponding offset to noninterest income.

XML

Loans and Allowance for Loan Losses

6 Months Ended

Jun. 30, 2012

Loans and Allowance for Loan Losses [Abstract]

Loans and Allowance for Loan Losses

Note 3 – Loans and Allowance for Loan Losses

(dollars in thousands)

The following table presents the activity in the allowance for loan losses by portfolio segment for the three months ended June 30, 2012:

June 30, 2012	Commercial		Commercial Real Estate			Residential Real Estate			Home Equity			Consumer			Total
Beginning balance	$	822	$	1,428		$	813		$	88		$	33		$	3,184
Provision for loan losses		318		654			(17	)		(9	)		35			981
Loans charged-off		0		(482	)		(186	)		0			(26	)		(694	)
Recoveries		0		0			8			0			1			9
Ending balance	$	1,140	$	1,600		$	618		$	79		$	43		$	3,480

The following table presents the activity in the allowance for loan losses by portfolio segment for the three months ended June 30, 2011:

June 30, 2011	Commercial		Commercial Real Estate		Residential Real Estate			Home Equity			Consumer			Unallocated			Total
Beginning balance	$	494	$	1,270	$	789		$	100		$	62		$	5		$	2,720
Provision for loan losses		115		62		9			(25	)		(8	)		(3	)		150
Loans charged-off		0		0		(24	)		0			(5	)		0			(29	)
Recoveries		25		0		1			0			14			0			40
Ending balance	$	634	$	1,332	$	775		$	75		$	63		$	2		$	2,881

The following table presents the activity in the allowance for loan losses by portfolio segment for the six months ended June 30, 2012:

June 30, 2012	Commercial		Commercial Real Estate			Residential Real Estate			Home Equity			Consumer			Total
Beginning balance	$	788	$	1,408		$	861		$	66		$	40		$	3,163
Provision for loan losses		352		674			24			104			24			1,130
Loans charged-off		0		(482	)		(227	)		(91	)		(26	)		(826	)
Recoveries		0		0			8			0			5			18
Ending balance	$	1,140	$	1,600		$	618		$	79		$	43		$	3,480

The following table presents the activity in the allowance for loan losses by portfolio segment for the six months ended June 30, 2011:

June 30, 2011	Commercial		Commercial Real Estate		Residential Real Estate			Home Equity			Consumer			Unallocated			Total
Beginning balance	$	460	$	1,267	$	675		$	100		$	53		$	30		$	2,585
Provision for loan losses		149		65		126			(26	)		11			(28	)		297
Loans charged-off		0		0		(27	)		0			(17	)		0			(44	)
Recoveries		25		0		1			1			16			0			43
Ending balance	$	634	$	1,332	$	775		$	75		$	63		$	2		$	2,881

The recorded investment in loans includes the principal balance outstanding, net of unearned and deferred income and including accrued interest receivable. The following table presents the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method as of June 30, 2012 and December 31, 2011:

	Commercial		Commercial Real Estate		Residential Real Estate		Home Equity		Consumer		Total
June 30, 2012
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	291	$	33	$	0	$	0	$	0	$	324
Collectively evaluated for impairment		849		1,567		618		79		43		3,156
Total ending allowance balance	$	1,140	$	1,600	$	618	$	79	$	43	$	3,480
Recorded investment in loans:
Loans individually evaluated for impairment	$	575	$	1,885	$	44	$	0	$	0	$	2,504
Loans collectively evaluated for impairment		43,166		78,346		82,107		30,116		7,898		241,633
Total ending loans balance	$	43,741	$	80,231	$	82,151	$	30,116	$	7,898	$	244,137
December 31, 2011
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	151	$	183	$	182	$	0	$	0	$	516
Collectively evaluated for impairment		637		1,225		679		66		40		2,647
Total ending allowance balance	$	788	$	1,408	$	861	$	66	$	40	$	3,163
Recorded investment in loans:
Loans individually evaluated for impairment	$	597	$	2,420	$	320	$	0	$	0	$	3,337
Loans collectively evaluated for impairment		32,984		69,290		74,230		30,288		7,698		214,490
Total ending loans balance	$	33,581	$	71,710	$	74,550	$	30,288	$	7,698	$	217,827

The impact on interest income of impaired loans was immaterial to the consolidated statements of income for the three and six month periods ending June 30, 2012 and 2011.

The following table presents loans individually evaluated for impairment by class of loans as of June 30, 2012 and December 31, 2011:

	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated		Six-month Average Recorded Investment		Three-month Average Recorded Investment
June 30, 2012
With no related allowance recorded:
Real estate:
Commercial and land development	$	1,382	$	626	$	0	$	1,116	$	1,112
One-to-four family		44		44		0		306		305
Real estate construction:
Commercial and land development		1,216		1,216		0		1,235		1,225
Commercial		28		28		0		29		28
With an allowance recorded:
Real estate:
Commercial and land development		43		43		33		43		43
One-to-four family		0		0		0		0		0
Real estate construction:
Commercial and land development		0		0		0		0		0
Commercial		1,010		547		291		546		546
	$	3,723	$	2,504	$	324	$	3,275	$	3,259

							June 30, 2011
	December 31, 2011						Six-month
	Unpaid				Allowance for		Average
	Principal		Recorded		Loan Losses		Recorded
	Balance		Investment		Allocated		Investment
December 31, 2011
With no related allowance recorded:
Real estate:
Commercial and land development	$	406	$	406	$	0	$	561
One-to-four family		46		46		0		50
Real estate construction:
Commercial and land development		1,252		1,252		0		1,940
Commercial		29		29		0		45
With an allowance recorded:
Real estate:
Commercial and land development		1,037		762		183		965
One-to-four family		274		274		182		1,081
Commercial		1,031		568		151		461
	$	4,075	$	3,337	$	516	$	5,103

Nonaccrual loans and loans past due 90 days still on accrual include both smaller balance homogeneous loans that are collectively evaluated for impairment and individually classified impaired loans.

The following table presents the recorded investment in nonaccrual and loans past due over 90 days still on accrual by class of loans as of June 30, 2012 and December 31, 2011:

	June 30, 2012				December 31, 2011
	Nonaccrual		Loans Past Due 90 or More Days Still Accruing		Nonaccrual		Loans Past Due 90 or More Days Still Accruing
Real estate:
Commercial and land development	$	669	$	0	$	1,168	$	0
One-to-four family		71		42		438		181
Home equity		0		0		382		0
Real estate construction:
Commercial and land development		1,216		0		1,252		0
Commercial		575		0		0		0
Consumer		0		8		596		0
	$	2,531	$	50	$	3,836	$	181

The following table presents the aging of the recorded investment in past due loans as of June 30, 2012 by class of loans:

	30 - 59 Days Past Due (1)		60 - 89 Days Past Due		90 or More Days Past Due (2)		Total Past Due		Loans Not Past Due (3)		Total
Real estate:
Commercial and land development	$	250	$	0	$	441	$	691	$	73,069	$	73,760
One-to-four family		411		302		68		781		59,716		60,497
Home equity		36		0		0		36		30,080		30,116
Multifamily		0		0		0		0		21,333		21,333
Real estate construction:
Commercial and land development		0		0		396		396		6,075		6,471
One-to-four family		0		0		0		0		321		321
Commercial		41		45		575		661		43,080		43,741
Consumer:
Auto:
Direct		8		0		0		8		1,752		1,760
Indirect		0		0		0		0		4,439		4,439
Other		3		0		8		11		1,688		1,699
	$	749	$	347	$	1,488	$	2,584	$	241,553	$	244,137

(1) Includes $23 of loans on nonaccrual status.

(2) All loans are nonaccrual status except for $50 of loans past due 90 or more days still on accrual.

(3) Includes $1,070 of loans on nonaccrual status.

The following table presents the aging of the recorded investment in past due loans as of December 31, 2011 by class of loans:

	30 - 59 Days Past Due (1)		60 - 89 Days Past Due		90 or More Days Past Due (2)		Total Past Due		Loans Not Past Due (3)		Total
Real estate:
Commercial and land development	$	0	$	30	$	922	$	952	$	65,940	$	66,892
One-to-four family		245		297		572		1,114		55,754		56,868
Home equity		0		0		382		382		29,906		30,288
Multifamily		0		0		0		0		17,001		17,001
Real estate construction:
Commercial and land development		856		0		396		1,252		3,566		4,818
One-to-four family		0		0		0		0		681		681
Commercial		37		0		597		634		32,947		33,581
Consumer:
Auto:
Direct		1		0		0		1		2,071		2,072
Indirect		17		0		0		17		4,629		4,646
Other		14		0		0		14		966		980
	$	1,170	$	327	$	2,869	$	4,366	$	213,461	$	217,827

(1) Includes $856 of loans on nonaccrual status.

(2) All loans are nonaccrual status except for $181 of loans past due 90 or more days still on accrual.

(3) Includes $292 of loans on nonaccrual status.

Troubled Debt Restructuring

As of June 30, 2012, certain loans were modified as troubled debt restructurings. The modification of the terms of such loans included one or a combination of the following: a reduction of the stated interest rate of the loan; an extension of the maturity date at a stated rate of interest lower than the current market rate for new debt with similar risk; or a permanent reduction of the recorded investment in the loan.

The Corporation has two commercial loan relationships with balances of $1,180 that were individually evaluated for impairment whose loan terms have been modified in troubled debt restructurings as of June 30, 2012 and $1,661 as of December 31, 2011. $291 and $300 of specific reserves have been allocated for these loans as of June 30, 2012 and December 31, 2011. The Corporation has not committed to lend any additional amounts as of period ending June 30, 2012 and December 31, 2011 to customers with outstanding loans that are classified as troubled debt restructurings.

There have been no new loans classified as troubled debt restructurings for the three and six month periods ending June 30, 2012. Both commercial loans that were modified as troubled debt restructurings experienced payment default within twelve months following the modification. A loan is considered to be in payment default once it is 30 days contractually past due under the modified terms.

In order to determine whether a borrower is experiencing financial difficulty, an evaluation is performed of the probability that the borrower will be in payment default on any of its debt in the foreseeable future without the modification. This evaluation is performed under the Corporation’s internal underwriting policy.

Credit Quality Indicators: The Corporation categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends and other information specific to each borrower. The Corporation analyzes loans individually by classifying the loans as to credit risk. This analysis includes non-homogeneous loans, such as commercial, commercial real estate loans, and loans to commercial enterprises secured by one-to-four family residential properties. This analysis is performed on an annual basis or more frequently if management becomes aware of information affecting a borrower’s ability to fulfill its obligation. The Corporation uses the following definitions for risk ratings:

Special Mention. Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date.

Substandard. Loans classified as substandard are inadequately protected by the current financial condition and paying capacity of the obligor or of the collateral securing the loan. Substandard loans have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt with a distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

Doubtful. Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with 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.

Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass rated loans. As of June 30, 2012 and December 31, 2011, and based on the most recent analysis performed, the risk category of loans by class of loans is as follows:

June 30, 2012	Pass		Special Mention		Substandard		Doubtful		Total
Real estate:
Commercial and land development	$	68,914	$	2,176	$	2,670	$	0	$	73,760
One-to-four family		0		19		44		0		63
Real estate construction:
Commercial and land development		4,426		193		1,852		0		6,471
Commercial		40,430		1,003		2,308		0		43,741
	$	113,770	$	3,391	$	6,874	$	0	$	124,035

December 31, 2011	Pass		Special Mention		Substandard		Doubtful		Total
Real estate:
Commercial and land development	$	61,706	$	1,986	$	3,200	$	0	$	66,892
One-to-four family		0		263		1,129		0		1,392
Real estate construction:
Commercial and land development		3,104		196		1,518		0		4,818
Commercial		29,744		2,442		1,395		0		33,581
	$	94,554	$	4,887	$	7,242	$	0	$	106,683

The Company considers the performance of the loan portfolio and its impact on the allowance for loan losses. For residential and consumer loan classes, the Company also evaluates credit quality based on the aging status of the loan, which was previously presented, and by payment activity. The following table presents the recorded investment in residential and consumer loans based on payment activity as of June 30, 2012 and December 31, 2011:

	Consumer						Residential Real Estate
June 30, 2012	Direct		Indirect		Other		Construction		Multifamily		One-to-four Family		Home Equity		Total
Performing	$	1,760	$	4,439	$	1,691	$	321	$	21,333	$	60,366	$	30,116	$	120,026
Nonperforming		0		0		8		0		0		68		0		76
	$	1,760	$	4,439	$	1,699	$	321	$	21,333	$	60,434	$	30,116	$	120,102

	Consumer						Residential Real Estate
December 31, 2011	Direct		Indirect		Other		Construction		Multifamily		One-to-four Family		Home Equity		Total
Performing	$	2,072	$	4,646	$	980	$	681	$	17,001	$	54,904	$	29,906	$	110,190
Nonperforming		0		0		0		0		0		572		382		954
	$	2,072	$	4,646	$	980	$	681	$	17,001	$	55,476	$	30,288	$	111,144

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Securities (Details 1) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011
Available for sale Securities
Proceeds	$ 0	$ 1,281	$ 0	$ 2,395
Gross gains	0	46	0	51
Gross losses	$ 0	$ 0	$ 0	$ 0

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Stock-Based Compensation (Tables)

6 Months Ended

Jun. 30, 2012

Stock-Based Compensation [Abstract]

Weighted-average assumptions

Risk-free interest rate	1.39	%
Expected term (years)	7.0
Expected stock price volatility	16.40	%
Dividend yield	2.27	%

Activity in the stock option plan

	Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term		Aggregate Intrinsic Value (in thousands)
Outstanding – January 1, 2012		84,500	$	15.70
Granted		58,000		14.10
Exercised		0		0
Forfeited or expired		0		0
Outstanding – June 30, 2012		142,500	$	15.03		8.1	$	153
Fully vested and exercisable at June 30, 2012		42,700	$	17.10		6.4	$	17
Expected to vest in future periods		99,800		14.15		8.1		136
Fully vested and expected to vest at June 30, 2012		142,500	$	15.03		8.1	$	153

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Basis of Presentation (Policies)

6 Months Ended

Jun. 30, 2012

Basis of Presentation [Abstract]

Company Organization and Financial Presentation

Company Organization and Financial Presentation

The accompanying consolidated financial statements include the accounts of National Bancshares Corporation (the “Company”) and its wholly owned subsidiaries, First National Bank, Orrville, Ohio (the “Bank”) and NBOH Properties, LLC. All significant intercompany transactions and balances have been eliminated.

The Company provides a broad range of financial services to individuals and companies in Medina, Stark, Summit and Wayne Counties, Ohio. While the Company’s chief decision makers monitor the revenue streams of the various products and services, operations are managed and financial performance is evaluated on a Company-wide basis. Accordingly, all the Company’s banking operations are considered by management to be aggregated in one reportable operating segment.

The consolidated financial statements have been prepared by the Company without audit. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included.

The consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q, but do not include all the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. These statements should be read in conjunction with the consolidated financial statements and footnotes in the Company’s annual report on Form 10-K for the year ended December 31, 2011. The Company believes the disclosures are adequate to make the information presented not misleading; however, the results of operations and other data presented for the periods presented are not necessarily indicative of results to be expected for the entire fiscal year.

Use of Estimates

Use of Estimates

To prepare financial statements in conformity with U.S. generally accepted accounting principles, management makes estimates and assumptions based on available information. These estimates and assumptions affect the amounts reported in the financial statements and the disclosures provided, and actual results could differ. The allowance for loan losses and fair values of financial instruments are particularly subject to change.

Cash Flows

Cash Flows

Cash and cash equivalents include cash and deposits with other banks with original maturities under 90 days, and federal funds sold. Net cash flows are reported for customer loan and deposit transactions, repurchase agreements and other short-term borrowings.

Earnings Per Common Share

Earnings Per Common Share

Earnings per common share is net income divided by the weighted average number of shares outstanding during the period. Diluted earnings per share includes the dilutive effect of additional potential common shares issuable under stock options. 101,000 and 88,000 stock options were not considered in computing diluted earnings per common share for the three and six month periods ending June 30, 2012 and 2011, respectively, because they were antidilutive.

Adoption of New Accounting Standards

Adoption of New Accounting Standards

In May, 2011, the FASB issued an amendment to achieve common fair value measurement and disclosure requirements between U.S. and International accounting principles. Overall, the guidance is consistent with existing U.S. accounting principles; however, there are some amendments that change a particular principle or requirement for measuring fair value or for disclosing information about fair value measurements. The amendments in this guidance are effective for interim and annual reporting periods beginning after December 15, 2011. The adoption of this guidance has resulted in added disclosure in the consolidated financial statements.

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Stock-Based Compensation

6 Months Ended

Jun. 30, 2012

Stock-Based Compensation [Abstract]

Stock-Based Compensation

Note 5 – Stock-Based Compensation

(dollars in thousands, except per share information)

The Company’s 2008 Equity Incentive Plan (“the Plan”), which is shareholder-approved, permits the grant of stock options or restricted stock awards, to its officers, employees, consultants and non-employee directors for up to 223,448 shares of common stock.

Option awards are granted with an exercise price equal to the fair value of the Company’s common stock at the date of grant; those option awards have vesting periods determined by the Company’s compensation committee and have terms that shall not exceed 10 years.

On May 20, 2008, the Company granted options to purchase 58,000 shares of stock to directors and certain key officers, of which 43,000 remain outstanding at June 30, 2012. The exercise price of the options is $18.03 per share. The options vest in five equal installments over a five-year period and have a term of 10 years. None of these options have been exercised as of June 30, 2012.

On October 19, 2010, the Company granted options to purchase 43,000 shares of stock to directors and certain key officers, of which 41,500 remained outstanding at June 30, 2012. The exercise price of the options is $13.22 per share. The options vest in five equal installments over a five-year period and have a term of 10 years. None of these options have been exercised as of June 30, 2012.

On January 17, 2012, the Company granted options to purchase 58,000 shares of stock to directors and certain key officers, all of which remained outstanding at June 30, 2012. The exercise price of the options is $14.10 per share. The options vest in five equal installments over a five-year period and have a term of 10 years. None of these options have been exercised as of June 30, 2012.

The fair value of each option award is estimated on the date of grant using a closed form option valuation (Black-Scholes) model that uses the assumptions noted in the table below. Expected volatilities are based on historical volatilities of the Company’s common stock. The Company uses historical data to estimate option exercise and post-vesting termination behavior. (Employee and management options are tracked separately.) The expected term of options granted is based on historical data and represents the period of time that options granted are expected to be outstanding, which takes into account that the options are not transferrable. The risk-free interest rate for the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of the grant.

The fair value of options granted in 2012 was $1.77 per option was determined using the following weighted-average assumptions as of grant date.

Risk-free interest rate	1.39	%
Expected term (years)	7.0
Expected stock price volatility	16.40	%
Dividend yield	2.27	%

A summary of the activity in the stock option plan for 2012 follows:

	Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term		Aggregate Intrinsic Value (in thousands)
Outstanding – January 1, 2012		84,500	$	15.70
Granted		58,000		14.10
Exercised		0		0
Forfeited or expired		0		0
Outstanding – June 30, 2012		142,500	$	15.03		8.1	$	153
Fully vested and exercisable at June 30, 2012		42,700	$	17.10		6.4	$	17
Expected to vest in future periods		99,800		14.15		8.1		136
Fully vested and expected to vest at June 30, 2012		142,500	$	15.03		8.1	$	153

The total compensation cost that has been charged against income for the plan was $42 and $20 for the six months ended June 30, 2012 and 2011 and $21 and $10 for the quarters ended June 30, 2012 and 2011. The total income tax benefit was $7 and $3 for the quarters ended June 30, 2012 and 2011 and $14 and $7 for the six month periods ended June 30, 2012 and 2011. As of June 30, 2012, there was $122 of total unrecognized compensation cost related to nonvested stock options granted under the Plan. The cost is expected to be recognized over a weighted-average period of 3.9 years.

Restricted Stock Awards

On January 3, 2011, the Company granted restricted stock awards for 3,744 shares of the Company’s common stock to certain directors in lieu of cash payment of fees earned in 2010. The awards vested immediately and the compensation expense related to the awards of $50 was recorded in 2010. The fair value of the stock was determined using closing market price of the Company’s common stock on the date of the grant.

On July 1, 2011, the Company granted restricted stock awards for 3,552 shares of the Company’s common stock to certain directors in lieu of cash payment of fees. The awards vested immediately and the compensation expense related to the awards of $48 was recorded in 2011. The fair value of the stock was determined using closing market price of the Company’s common stock on the date of the grant.

On January 3, 2012, the Company granted restricted stock awards for 3,330 shares of the Company’s common stock to certain directors in lieu of cash payment of fees earned in 2011. The awards vested immediately and the compensation expense related to the awards of $48 was recorded in 2011. The fair value of the stock was determined using closing market price of the Company’s common stock on the date of the grant.

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Fair Value

6 Months Ended

Jun. 30, 2012

Fair Value [Abstract]

Fair Value

Note 6 – Fair Value

(dollars in thousands)

Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There are three levels of inputs that may be used to measure fair values:

Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level 3: Significant unobservable inputs that reflect a reporting entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

The Corporation used the following methods and significant assumptions to estimate fair value:

Investment Securities: The fair values for investment securities are determined by quoted market prices, if available (Level 1). For securities where quoted prices are not available, fair values are calculated based on market prices of similar securities (Level 2). For securities where quoted prices or market prices of similar securities are not available, fair values are calculated using discounted cash flows or other market indicators (Level 3). The fair values of level 3 investment securities are determined by the Accounting department, which reports to the Chief Financial Officer (CFO). The CFO reviews the fair values and these are reported to the ALCO (Asset Liability Management Committee) committee and the Board of Directors. Discounted cash flows are calculated using spread to swap and LIBOR curves that are updated to incorporate loss severities, volatility, credit spread and optionality. During times when trading is more liquid, broker quotes are used (if available) to validate the model. At least annually, a third party is engaged to validate the discounted cash flows and resulting fair value. Rating agency and industry research reports as well as defaults and deferrals on individual securities are reviewed and incorporated into the calculations.

Interest Rate Swaps: The fair values of interest rate swaps are based on valuation models using observable market data as of the measurement date (Level 2).

Impaired Loans: The fair value of impaired loans with specific allocations of the allowance for loan losses is generally based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value. Non-real estate collateral may be valued using an appraisal, net book value per the borrower’s financial statements, or aging reports, adjusted or discounted based on management’s historical knowledge, changes in market conditions from the time of the valuation, and management’s expertise and knowledge of the client and client’s business, resulting in a Level 3 fair value classification. Impaired loans are evaluated on a quarterly basis for additional impairment and adjusted accordingly.

Other Real Estate Owned: Certain commercial and residential real estate properties classified as other real estate owned (OREO) are measured at fair value, less costs to sell, establishing a new cost basis. Fair values are based on recent real estate appraisals. These appraisals may use a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value.

Appraisals for both collateral-dependent impaired loans and other real estate owned are performed by certified general appraisers (for commercial properties) or certified residential appraisers (for residential properties) whose qualifications and licenses have been reviewed and verified by the Company. Once received, a member of the Credit Department reviews the assumptions and approaches utilized in the appraisal as well as the overall resulting fair value in comparison with via independent data sources such as recent market data or industry-wide statistics. On an annual basis, the Company compares the actual selling price of collateral that has been sold to the most recent appraised value to determine what additional adjustment should be made to the appraisal value to arrive at fair value. A discount is applied when deemed necessary, and is at the discretion of management based on the most recent appraisal analysis and guidelines set by management.

Loans Held for Sale: Loans held for sale are carried at the lower of cost or fair value. The fair value of loans held for sale is determined using quoted prices for similar assets, adjusted for specific attributes of that loan or other observable market data, such as outstanding commitments from third party investors (Level 2).

Assets and Liabilities Measured on a Recurring Basis

Assets and liabilities measured at fair value on a recurring basis are summarized below:

	Fair Value Measurements at June 30, 2012 Using
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Available for sale securities:
U.S. Government and federal agency	$	0	$	2,103	$	0
State and municipal		0		56,426		181
Mortgage-backed securities – residential		0		79,205		15
Equity securities		27		0		0
Interest rate swaps		0		39		0
Liabilities:
Interest rate swaps	$	0	$	39	$	0

	Fair Value Measurements at December 31, 2011 Using
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Available for sale securities:
U.S. Government and federal agency	$	0	$	2,446	$	0
State and municipal		0		53,890		3,533
Mortgage-backed securities – residential		0		90,270		16
Equity securities		20		0		0
Interest rate swaps		0		46		0
Liabilities:
Interest rate swaps	$	0	$	46	$	0

The table below presents a reconciliation of all assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three and six months ended June 30, 2012:

	Six Months 2012			Three Months 2012
Beginning Balance	$	3,549		$	1,609
State and Municipal:
Principal repayments		(12	)		(12	)
Total gains or losses for the period included in other comprehensive income		0			0
Maturities		(2,838	)		(1,400	)
Transfers from Level 3 to Level 2		(502	)		0
Mortgage-backed securities:
Principal repayments		(1	)		(1	)
Ending balance	$	196		$	196

Two state and municipal securities with a fair value of $502 as of June 30, 2012 were transferred from Level 3 to Level 2 because observable market data became available for securities with similar characteristics. The Company’s policy is to recognize transfers into or out of a level as of the end of the reporting period.

The Company’s state and municipal security valuations were supported by analysis prepared by an independent third party. The third party uses Interactive Data Corporation (IDC) as the primary source for security valuations. IDC’s evaluations are based on market data. IDC utilizes evaluated pricing models that vary based by asset class and include available trade, bid, and other market information. Generally, the methodology includes broker quotes, proprietary models, vast descriptive terms and conditions databases, as well as extensive quality control programs. IDC evaluators follow multiple review processes to assess the available market, credit, and deal level information to support the evaluation process. If they determine sufficient objectively verifiable information is not available to support a valuation, they will discontinue evaluating that security. Given this approach, the state and municipal security with the pricing source of IDC is considered level 2.

For level 3 investments, the Company uses significant unobservable inputs that reflect a reporting entity’s own assumptions that market participants would use in pricing an asset or liability. The Company uses different valuation processes such as market approach, income approach, or the cost approach.

Assets and Liabilities Measured on a Non-Recurring Basis

Assets and liabilities measured at fair value on a non-recurring basis are summarized below:

	Fair Value Measurements at June 30, 2012 Using
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Impaired loans
Commercial	$	0	$	0	$	256
Commercial and land development		0		0		642
One-to-four family		0		0		0

	Fair Value Measurements at December 31, 2011 Using
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Impaired loans
Commercial	$	0	$	0	$	417
Commercial and land development		0		0		974
One-to-four family		0		0		92
Other real estate owned		0		0		18

Impaired loans, which are measured for impairment using the fair value of the collateral for collateral dependent loans, had a principal amount of $1,222, with a valuation allowance of $324, resulting in an increase in the provision for loan loss of $459 in the three months ended June 30, 2012 and $549 in the six months ended June 30, 2012. Impaired loans had a principal amount of $1,999, with a valuation allowance of $516, resulting in an additional provision of $247 for loan loss in the year ended December 31, 2011.

There was no valuation allowance related to other real estate property at June 30, 2012. There were no write-downs of other real estate in 2012. Other real estate owned measured at fair value less costs to sell, had a net carrying amount of $18, which is made up of the outstanding balance of $131, net of a valuation allowance of $113 at December 31, 2011. The property was written-down $38 in 2011.

The following table presents quantitative information about level 3 fair value measurements for financial instruments measured at fair value on a non-recurring basis at June 30, 2012:

	Fair value		Valuation Technique(s)	Unobservable Input(s)	Range (Weighted Average)
Impaired loans – Commercial	$	256	Sales comparison approach	Adjustment for differences between comparable sales	10%
Impaired loans – Commercial and land development	$	642	Sales comparison approach	Adjustment for differences between comparable sales	10%-44% (26%)

Carrying amount and estimated fair values of financial instruments at June 30, 2012 and December 31, 2011 were as follows:

			Fair Value Measurements at
	Carrying		June 30, 2012
	Amount		Level 1		Level 2		Level 3		Total
Financial assets
Cash and cash equivalents	$	31,937	$	31,937	$	0	$	0	$	31,937
Securities available for sale		137,957		27		137,734		196		137,957
Restricted equity securities		3,221		na		na		na		na
Loans, net		239,924		0		0		241,907		241,907
Loans held for sale		260		0		260		0		260
Accrued interest receivable		1,434		0		678		756		1,434
Interest rate swaps		39		0		39		0		39
Financial liabilities
Deposits	$	370,743	$	307,635	$	63,750	$	0	$	371,385
Short-term borrowings		9,417		0		9,417		0		9,417
Federal Home Loan Bank advances		8,000		0		8,249		0		8,249
Accrued interest payable		202		32		170		0		202
Interest rate swaps		39		0		39		0		39

December 31, 2011	Carrying Amount		Fair Value
Financial assets
Cash and cash equivalents	$	15,213	$	15,213
Time deposits with other financial institutions		246		246
Securities available for sale		150,175		150,175
Restricted equity securities		3,220		na
Loans, net		213,952		215,490
Accrued interest receivable		1,404		1,404
Interest rate swaps		46		46
Financial liabilities
Deposits	$	340,664	$	341,356
Short-term borrowings		10,168		10,168
Federal Home Loan Bank advances		8,000		8,299
Accrued interest payable		219		219
Interest rate swaps		46		46

The methods and assumptions used to estimate fair value on the preceding tables are described as follows:

(a) Cash and Cash Equivalents: The carrying amounts of cash and short-term instruments approximate fair values and are classified Level 1.

(b) Restricted Equity Securities: It is not practical to determine the fair value of FHLB stock due to restrictions placed on its transferability.

(c) Loans: Fair values of loans, excluding loans held for sale, are estimated as follows: For variable rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values resulting in a Level 3 classification. Fair values for other loans are estimated using discounted cash flow analyses, using interest rates currently being offered for loans with similar terms to borrowers of similar credit quality resulting in a Level 3 classification. Impaired loans are valued at the lower of cost or fair value as described previously. The methods utilized to estimate the fair value of loans do not necessarily represent an exit price.

The fair value of loans held for sale is estimated based upon binding contracts and quotes from third party investors resulting in a Level 2 classification.

(d) Deposits: The fair values disclosed for demand deposits (e.g., interest and non-interest checking, passbook savings, and certain types of money market accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amount) resulting in a Level 1 classification. Fair values for fixed rate certificates of deposit are estimated using a discounted cash flows calculation that applies interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities on time deposits resulting in a Level 2 classification.

(e) Short-term borrowings: The carrying amounts of federal funds purchased, borrowings under repurchase agreements, and other short-term borrowings, generally maturing within ninety days, approximate their fair values resulting in a Level 2 classification.

(f) Federal Home Loan Bank advances: The fair values of the Company’s long-term borrowings are estimated using discounted cash flow analyses based on the current borrowing rates for similar types of borrowing arrangements resulting in a Level 2 classification.

(g) Accrued interest receivable/payable: The carrying amounts of accrued interest approximate fair value resulting in a Level 1, Level 2 or Level 3 classification that is consistent with the associated asset or liability.

(h) Off-balance sheet instruments: Fair values for off-balance sheet, credit-related financial instruments are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties’ credit standing. The fair value of commitments is not material.

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Securities (Tables)

6 Months Ended

Jun. 30, 2012

Securities [Abstract]

Fair value of Securities

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
June 30, 2012
U.S. Government and federal agency	$	2,093	$	10	$	0		$	2,103
State and municipal		52,772		3,851		(16	)		56,607
Mortgage-backed: residential		77,180		2,070		(30	)		79,220
Equity securities		23		4		0			27
Total	$	132,068	$	5,935	$	(46	)	$	137,957
December 31, 2011
U.S. Government and federal agency	$	2,430	$	16	$	0		$	2,446
State and municipal		53,841		3,592		(10	)		57,423
Mortgage-backed: residential		88,362		2,060		(136	)		90,286
Equity securities		23		0		(3	)		20
Total	$	144,656	$	5,668	$	(149	)	$	150,175

Available for sale securities

	For the six months ended
	June 30, 2012		June 30, 2011
Sales of available for sale securities were as follows:
Proceeds	$	0	$	2,395
Gross gains		0		51
Gross losses		0		0
	For the three months ended
	June 30, 2012		June 30, 2011
Sales of available for sale securities were as follows:
Proceeds	$	0	$	1,281
Gross gains		0		46
Gross losses		0		0

Fair value of held to maturity securities

	Amortized Cost		Fair Value
Due in one year or less	$	778	$	779
Due from one to five years		5,742		5,941
Due from five to ten years		18,857		20,446
Due after ten years		29,488		31,544
Mortgage-backed: residential		77,180		79,220
Equity securities		23		27
Total	$	132,068	$	137,957

Unrealized losses of securities

	Less than 12 months					12 months or more					Total
June 30, 2012	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
State and municipal	$	1,668	$	(13	)	$	317	$	(3	)	$	1,985	$	(16	)
Mortgage-backed: residential		6,603		(30	)		0		0			6,603		(30	)
Total temporarily impaired	$	8,271	$	(43	)	$	317	$	(3	)	$	8,588	$	(46	)

	Less than 12 months					12 months or more					Total
December 31, 2011	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
State and municipal	$	366	$	(3	)	$	891	$	(7	)	$	1,257	$	(10	)
Mortgage-backed: residential		22,639		(136	)		0		0			22,639		(136	)
Equity securities		20		(3	)		0		0			20		(3	)
Total temporarily impaired	$	23,025	$	(142	)	$	891	$	(7	)	$	23,916	$	(149	)

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Loans and Allowance for Loan Losses (Details Textual) (USD $) In Thousands, unless otherwise specified	6 Months Ended
	Jun. 30, 2012 Contract	Dec. 31, 2011 Contract	Jun. 30, 2011
Loans and Allowance for Loan Losses (Textual) [Abstract]
30-59 Days Past Due loans on nonaccrual status	$ 23	$ 856
90 or more days past due loans still on accrual	50	181
Loans on nonaccrual status loans not past due	1,070	292
Total number of commercial loans	2
Amount of loans after modifying as troubled debt restructuring	1,180		1,661
Specific reserves allocated for loans	$ 291	$ 300
Issue of new loans	0	0
Time period for default in payment of loan	30 days

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Basis of Presentation (Details)	3 Months Ended		6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011
Basis of Presentation [Abstract]
Maturity of cash and deposits with other banks			90 days
Stock options excluded from computing of diluted earnings per common share	101,000	88,000	101,000	88,000

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Securities (Details Textual) (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011	Dec. 31, 2011
Securities (Textual) [Abstract]
The tax provision related to net realized gains and losses	$ 0	$ 16	$ 0	$ 17
Fair value of pledged securities	$ 81,058		$ 81,058		$ 63,941
Securities held by one issuer	0		0		0
Share holdings of U.S. government and its agencies	greater than 10%		greater than 10%		greater than 10%

XML

Fair Value (Details 1) (USD $) In Thousands, unless otherwise specified	3 Months Ended	6 Months Ended
	Jun. 30, 2012	Jun. 30, 2012
Reconciliation of all assets measured at fair value on a recurring basis
Beginning Balance	$ 1,609	$ 3,549
State and Municipal:
Total gains or losses for the period included in other comprehensive income	0	0
Maturities	(1,400)	(2,838)
Transfers from Level 3 to Level 2	0	(502)
Mortgage Backed Securities:
Ending balance	196	196
State and municipal [Member]
State and Municipal:
Principal repayments	(12)	(12)
Transfers from Level 3 to Level 2		502
Mortgage Backed Securities:
Principal repayments	(12)	(12)
Mortgage-backed: residential [Member]
State and Municipal:
Principal repayments	(1)	(1)
Mortgage Backed Securities:
Principal repayments	$ (1)	$ (1)

XML

Consolidated Statements of Income and Comprehensive Income (Unaudited) (Parenthetical) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011
Consolidated Statements of Income and Comprehensive Income [Abstract]
Unrealized gains on securities available for sale, net of taxes	$ (219)	$ (306)	$ (126)	$ (498)
Reclassification adjustment for realized gains included in earnings, net of taxes	$ 0	$ 16	$ 0	$ 17

XML

Securities

6 Months Ended

Jun. 30, 2012

Securities [Abstract]

Securities

Note 2 – Securities

(dollars in thousands)

Securities consist of the following at June 30, 2012 and December 31, 2011:

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
June 30, 2012
U.S. Government and federal agency	$	2,093	$	10	$	0		$	2,103
State and municipal		52,772		3,851		(16	)		56,607
Mortgage-backed: residential		77,180		2,070		(30	)		79,220
Equity securities		23		4		0			27
Total	$	132,068	$	5,935	$	(46	)	$	137,957
December 31, 2011
U.S. Government and federal agency	$	2,430	$	16	$	0		$	2,446
State and municipal		53,841		3,592		(10	)		57,423
Mortgage-backed: residential		88,362		2,060		(136	)		90,286
Equity securities		23		0		(3	)		20
Total	$	144,656	$	5,668	$	(149	)	$	150,175

	For the six months ended
	June 30, 2012		June 30, 2011
Sales of available for sale securities were as follows:
Proceeds	$	0	$	2,395
Gross gains		0		51
Gross losses		0		0
	For the three months ended
	June 30, 2012		June 30, 2011
Sales of available for sale securities were as follows:
Proceeds	$	0	$	1,281
Gross gains		0		46
Gross losses		0		0

The tax provision related to net realized gains and losses for the six months ended June 30, 2012 and 2011 was $0 and $17. The tax provision related to net realized gains and losses for the three months ended June 30, 2012 and 2011 was $0 and $16.

The fair value of securities at June 30, 2012 by contractual maturity were as follows. Securities not due at a single maturity date, primarily mortgage-backed securities, are shown separately.

	Amortized Cost		Fair Value
Due in one year or less	$	778	$	779
Due from one to five years		5,742		5,941
Due from five to ten years		18,857		20,446
Due after ten years		29,488		31,544
Mortgage-backed: residential		77,180		79,220
Equity securities		23		27
Total	$	132,068	$	137,957

Securities pledged at June 30, 2012 and December 31, 2011 had a fair value of $81,058 and $63,941 and were pledged to secure public deposits and repurchase agreements.

At June 30, 2012 and December 31, 2011, there were no holdings of securities of any one issuer, other than the U.S. Government and its agencies, in an amount greater than 10% of shareholders’ equity.

Securities with unrealized losses at June 30, 2012 and December 31, 2011, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, are as follows:

	Less than 12 months					12 months or more					Total
June 30, 2012	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
State and municipal	$	1,668	$	(13	)	$	317	$	(3	)	$	1,985	$	(16	)
Mortgage-backed: residential		6,603		(30	)		0		0			6,603		(30	)
Total temporarily impaired	$	8,271	$	(43	)	$	317	$	(3	)	$	8,588	$	(46	)

	Less than 12 months					12 months or more					Total
December 31, 2011	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
State and municipal	$	366	$	(3	)	$	891	$	(7	)	$	1,257	$	(10	)
Mortgage-backed: residential		22,639		(136	)		0		0			22,639		(136	)
Equity securities		20		(3	)		0		0			20		(3	)
Total temporarily impaired	$	23,025	$	(142	)	$	891	$	(7	)	$	23,916	$	(149	)

Management believes the unrealized losses of securities as of June 30, 2012 are the result of fluctuations in interest rates and do not reflect deterioration in the credit quality of the securities. Accordingly management considers these unrealized losses to be temporary in nature. The Company does not have the intent to sell and does not believe it is more likely than not the Company will be required to sell these securities before their recovery. The fair value of debt securities is expected to recover as the securities approach their maturity date.

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Loans and Allowance for Loan Losses (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011
Activity in the allowance for loan losses by portfolio segment
Beginning balance	$ 3,184	$ 2,720	$ 3,163	$ 2,585
Provision for loan losses	981	150	1,130	297
Loans charged-off	(694)	(29)	(826)	(44)
Recoveries	9	40	18	43
Ending balance	3,480	2,881	3,480	2,881
Commercial [Member]
Activity in the allowance for loan losses by portfolio segment
Beginning balance	822	494	788	460
Provision for loan losses	318	115	352	149
Loans charged-off	0	0	0	0
Recoveries	0	25	0	25
Ending balance	1,140	634	1,140	634
Commercial Real Estate [Member]
Activity in the allowance for loan losses by portfolio segment
Beginning balance	1,428	1,270	1,408	1,267
Provision for loan losses	654	62	674	65
Loans charged-off	(482)	0	(482)	0
Recoveries	0	0	0	0
Ending balance	1,600	1,332	1,600	1,332
Residential Real Estate [Member]
Activity in the allowance for loan losses by portfolio segment
Beginning balance	813	789	861	675
Provision for loan losses	(17)	9	24	126
Loans charged-off	(186)	(24)	(227)	(27)
Recoveries	8	1	8	1
Ending balance	618	775	618	775
Home Equity [Member]
Activity in the allowance for loan losses by portfolio segment
Beginning balance	88	100	66	100
Provision for loan losses	(9)	(25)	104	(26)
Loans charged-off	0	0	(91)	0
Recoveries	0	0	0	1
Ending balance	79	75	79	75
Consumer [Member]
Activity in the allowance for loan losses by portfolio segment
Beginning balance	33	62	40	53
Provision for loan losses	35	(8)	24	11
Loans charged-off	(26)	(5)	(26)	(17)
Recoveries	1	14	5	16
Ending balance	43	63	43	63
Unallocated [Member]
Activity in the allowance for loan losses by portfolio segment
Beginning balance		5		30
Provision for loan losses		(3)		(28)
Loans charged-off		0		0
Recoveries		0		0
Ending balance		$ 2		$ 2

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Stock-Based Compensation (Details 1) (USD $) In Thousands, except Share data, unless otherwise specified	6 Months Ended
	Jun. 30, 2012
Activity in the stock option plan
Outstanding - January 1, 2012, Shares	84,500
Granted, Shares	58,000
Exercised, Shares	0
Forfeited or expired, Shares	0
Outstanding - June 30, 2012, Shares	142,500
Fully vested and exercisable at June 30, 2012, Shares	42,700
Expected to vest in future periods	99,800
Fully vested and expected to vest at June 30, 2012, Shares	142,500
Outstanding - January 1, 2012, Price	$ 15.70
Granted, Price	$ 14.10
Exercised, Price	$ 0.00
Forfeited or expired, Price	$ 0.00
Outstanding - June 30, 2012, Price	$ 15.03
Fully vested and exercisable at June 30, 2012, Price	$ 17.10
Expected in vest in future periods, Price	$ 14.15
Fully vested and expected to vest at June 30, 2012, Price	$ 15.03
Outstanding - June 30, 2012, Years	8 years 1 month 6 days
Fully vested and exercisable at June 30, 2012, Years	6 years 4 months 24 days
Expected to vest in future periods, Years	8 years 1 month 6 days
Fully vested and exercisable at June 30, 2012, Years	8 years 1 month 6 days
Outstanding - June 30, 2012, Value	$ 153
Fully vested and exercisable at June 30, 2012, Value	17
Expected to vest in future periods, Value	136
Fully vested and expected to vest at June 30, 2012,Value	$ 153

XML

Fair Value (Tables)

6 Months Ended

Jun. 30, 2012

Fair Value [Abstract]

Assets and liabilities measured at fair value on a recurring basis

	Fair Value Measurements at June 30, 2012 Using
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Available for sale securities:
U.S. Government and federal agency	$	0	$	2,103	$	0
State and municipal		0		56,426		181
Mortgage-backed securities – residential		0		79,205		15
Equity securities		27		0		0
Interest rate swaps		0		39		0
Liabilities:
Interest rate swaps	$	0	$	39	$	0

	Fair Value Measurements at December 31, 2011 Using
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Available for sale securities:
U.S. Government and federal agency	$	0	$	2,446	$	0
State and municipal		0		53,890		3,533
Mortgage-backed securities – residential		0		90,270		16
Equity securities		20		0		0
Interest rate swaps		0		46		0
Liabilities:
Interest rate swaps	$	0	$	46	$	0

Reconciliation of all assets measured at fair value on a recurring basis

	Six Months 2012			Three Months 2012
Beginning Balance	$	3,549		$	1,609
State and Municipal:
Principal repayments		(12	)		(12	)
Total gains or losses for the period included in other comprehensive income		0			0
Maturities		(2,838	)		(1,400	)
Transfers from Level 3 to Level 2		(502	)		0
Mortgage-backed securities:
Principal repayments		(1	)		(1	)
Ending balance	$	196		$	196

Assets and liabilities measured at fair value on a non-recurring basis

	Fair Value Measurements at June 30, 2012 Using
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Impaired loans
Commercial	$	0	$	0	$	256
Commercial and land development		0		0		642
One-to-four family		0		0		0

	Fair Value Measurements at December 31, 2011 Using
	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Impaired loans
Commercial	$	0	$	0	$	417
Commercial and land development		0		0		974
One-to-four family		0		0		92
Other real estate owned		0		0		18

Financial instruments measured at fair value on a non-recurring basis

	Fair value		Valuation Technique(s)	Unobservable Input(s)	Range (Weighted Average)
Impaired loans – Commercial	$	256	Sales comparison approach	Adjustment for differences between comparable sales	10%
Impaired loans – Commercial and land development	$	642	Sales comparison approach	Adjustment for differences between comparable sales	10%-44% (26%)

Carrying amount and estimated fair values of financial instruments

			Fair Value Measurements at
	Carrying		June 30, 2012
	Amount		Level 1		Level 2		Level 3		Total
Financial assets
Cash and cash equivalents	$	31,937	$	31,937	$	0	$	0	$	31,937
Securities available for sale		137,957		27		137,734		196		137,957
Restricted equity securities		3,221		na		na		na		na
Loans, net		239,924		0		0		241,907		241,907
Loans held for sale		260		0		260		0		260
Accrued interest receivable		1,434		0		678		756		1,434
Interest rate swaps		39		0		39		0		39
Financial liabilities
Deposits	$	370,743	$	307,635	$	63,750	$	0	$	371,385
Short-term borrowings		9,417		0		9,417		0		9,417
Federal Home Loan Bank advances		8,000		0		8,249		0		8,249
Accrued interest payable		202		32		170		0		202
Interest rate swaps		39		0		39		0		39

December 31, 2011	Carrying Amount		Fair Value
Financial assets
Cash and cash equivalents	$	15,213	$	15,213
Time deposits with other financial institutions		246		246
Securities available for sale		150,175		150,175
Restricted equity securities		3,220		na
Loans, net		213,952		215,490
Accrued interest receivable		1,404		1,404
Interest rate swaps		46		46
Financial liabilities
Deposits	$	340,664	$	341,356
Short-term borrowings		10,168		10,168
Federal Home Loan Bank advances		8,000		8,299
Accrued interest payable		219		219
Interest rate swaps		46		46