10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-Q

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

For the quarterly period ended June 30, 2014

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

For the transition period from ________ to ________

Commission File Number 0-15204

NATIONAL BANKSHARES, INC.

 (Exact name of registrant as specified in its charter)

Virginia (State or other jurisdiction of incorporation or organization) 54-1375874 (I.R.S. Employer Identification No.)

101 Hubbard Street P. O. Box 90002 Blacksburg, VA	24062-9002
(Address of principal executive offices)	(Zip Code)

(540) 951-6300

(Registrant’s telephone number, including area code)

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). [x] Yes   [ ] No

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

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

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

[ ] Yes   [x] No

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

Class Common Stock, $1.25 Par Value Outstanding at August 1, 2014 6,947,974

(This report contains 55 pages)

NATIONAL BANKSHARES, INC. AND SUBSIDIARIES

Form 10-Q

Index

Part I – Financial Information		Page
Item 1	Financial Statements	3
	Consolidated Balance Sheets, June 30, 2014 (Unaudited) and December 31, 2013	3
	Consolidated Statements of Income for the Three Months Ended June 30, 2014 and 2013 (Unaudited)	4
	Consolidated Statements of Comprehensive Income (Loss) for the Three Months Ended June 30, 2014 and 2013 (Unaudited)	5
	Consolidated Statements of Income for the Six Months Ended June 30, 2014 and 2013 (Unaudited)	6
	Consolidated Statements of Comprehensive Income (Loss) for the Six Months Ended June 30, 2014 and 2013 (Unaudited)	7
	Consolidated Statements of Changes in Stockholders’ Equity for the Six Months Ended June 30, 2014 and 2013 (Unaudited)	8
	Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2014 and 2013 (Unaudited)	9
	Notes to Consolidated Financial Statements (Unaudited)	10 - 33
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	33 - 45
Item 3	Quantitative and Qualitative Disclosures About Market Risk	45
Item 4	Controls and Procedures	46
Part II – Other Information
Item 1	Legal Proceedings	46
Item 1A	Risk Factors	46
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	46
Item 3	Defaults Upon Senior Securities	46
Item 4	Mine Safety Disclosures	46
Item 5	Other Information	46 - 47
Item 6	Exhibits	47
Signatures		47
Index of Exhibits		48 - 49
Certifications

2

	Part I
Item 1. Financial Statements	Financial Information
	National Bankshares, Inc. and Subsidiaries
	Consolidated Balance Sheets

	(Unaudited)
	June 30,			December 31,
$ in thousands, except per share data	2014			2013
Assets
Cash and due from banks	$	15,917		$	13,283
Interest-bearing deposits		106,112			98,066
Securities available for sale, at fair value		195,407			181,712
Securities held to maturity (fair value approximates $166,182 at June 30, 2014 and $159,337 at December 31, 2013)		162,956			163,983
Restricted stock, at cost		1,089			1,414
Mortgage loans held for sale		383			1,276
Loans:
Loans, net of unearned income and deferred fees		593,400			595,690
Less allowance for loan losses		(7,971	)		(8,227	)
Loans, net		585,429			587,463
Premises and equipment, net		9,482			9,951
Accrued interest receivable		5,798			5,949
Other real estate owned, net		5,293			4,712
Intangible assets and goodwill		7,761			8,299
Bank-owned life insurance		21,491			21,181
Other assets		11,361			13,341
Total assets	$	1,128,479		$	1,110,630
Liabilities and Stockholders' Equity
Noninterest-bearing demand deposits	$	146,727		$	142,645
Interest-bearing demand deposits		510,304			501,541
Savings deposits		79,255			74,141
Time deposits		231,177			241,709
Total deposits		967,463			960,036
Accrued interest payable		71			92
Other liabilities		4,149			4,610
Total liabilities		971,683			964,738
Commitments and contingencies		---			---
Stockholders' Equity
Preferred stock, no par value, 5,000,000 shares authorized; none issued and outstanding		---			---
Common stock of $1.25 par value. Authorized 10,000,000 shares; issued and outstanding 6,947,974 shares at June 30, 2014 and December 31, 2013		8,685			8,685
Retained earnings		158,863			154,171
Accumulated other comprehensive loss, net		(10,752	)		(16,964	)
Total stockholders' equity		156,796			145,892
Total liabilities and stockholders' equity	$	1,128,479		$	1,110,630

See accompanying notes to consolidated financial statements.

3

National Bankshares, Inc. and Subsidiaries

Consolidated Statements of Income

Three Months Ended June 30, 2014 and 2013

(Unaudited)

	June 30,		June 30,
$ in thousands, except per share data	2014		2013
Interest Income
Interest and fees on loans	$	7,819	$	8,192
Interest on interest-bearing deposits		64		58
Interest on securities – taxable		1,697		1,694
Interest on securities – nontaxable		1,474		1,618
Total interest income		11,054		11,562
Interest Expense
Interest on time deposits of $100 or more		145		230
Interest on other deposits		1,150		1,318
Total interest expense		1,295		1,548
Net interest income		9,759		10,014
Provision for loan losses		701		355
Net interest income after provision for loan losses		9,058		9,659
Noninterest Income
Service charges on deposit accounts		607		625
Other service charges and fees		38		42
Credit card fees		961		853
Trust income		332		311
BOLI income		177		176
Other income		229		223
Realized securities gains, net		---		9
Total noninterest income		2,344		2,239
Noninterest Expense
Salaries and employee benefits		3,007		2,992
Occupancy and furniture and fixtures		417		404
Data processing and ATM		394		418
FDIC assessment		117		136
Credit card processing		665		646
Intangible assets amortization		269		269
Net costs of other real estate owned		84		65
Franchise taxes		287		265
Other operating expenses		820		942
Total noninterest expense		6,060		6,137
Income before income taxes		5,342		5,761
Income tax expense		1,233		1,326
Net Income	$	4,109	$	4,435
Basic net income per common share	$	0.59	$	0.64
Fully diluted net income per common share	$	0.59	$	0.64
Weighted average number of common shares outstanding – basic		6,947,974		6,947,974
Weighted average number of common shares outstanding – diluted		6,960,683		6,968,348
Dividends declared per common share	$	0.55	$	0.54

See accompanying notes to consolidated financial statements.

4

National Bankshares, Inc. and Subsidiaries

Consolidated Statements of Comprehensive Income (Loss)

Three Months Ended June 30, 2014 and 2013

(Unaudited)

	June 30,		June 30,
$ in thousands	2014		2013
Net Income	$	4,109	$	4,435
Other Comprehensive Income (Loss), Net of Tax
Unrealized holding gains (losses) on available for sale securities net of tax of $1,664 and ($4,577) for the periods ended June 30, 2014 and 2013, respectively		3,091		(8,500	)
Reclassification adjustment, net of tax of $0 and ($3) for the periods ended June 30, 2014 and 2013, respectively		---		(6	)
Other comprehensive income (loss), net of tax of $1,664 and ($4,580) for the periods ended June 30, 2014 and 2013, respectively		3,091		(8,506	)
Total Comprehensive Income (Loss)	$	7,200	$	(4,071	)

See accompanying notes to consolidated financial statements.

5

National Bankshares, Inc. and Subsidiaries

Consolidated Statements of Income

Six Months Ended June 30, 2014 and 2013

(Unaudited)

	June 30,		June 30,
$ in thousands, except per share data	2014		2013
Interest Income
Interest and fees on loans	$	15,754	$	16,511
Interest on interest-bearing deposits		129		116
Interest on securities – taxable		3,350		3,206
Interest on securities – nontaxable		2,974		3,266
Total interest income		22,207		23,099
Interest Expense
Interest on time deposits of $100 or more		298		498
Interest on other deposits		2,312		2,729
Total interest expense		2,610		3,227
Net interest income		19,597		19,872
Provision for loan losses		804		1,026
Net interest income after provision for loan losses		18,793		18,846
Noninterest Income
Service charges on deposit accounts		1,199		1,213
Other service charges and fees		103		102
Credit card fees		1,758		1,593
Trust income		625		600
BOLI income		352		364
Other income		506		504
Realized securities gains, net		1		18
Total noninterest income		4,544		4,394
Noninterest Expense
Salaries and employee benefits		6,006		5,932
Occupancy and furniture and fixtures		857		836
Data processing and ATM		757		811
FDIC assessment		264		272
Credit card processing		1,214		1,198
Intangible assets amortization		538		540
Net costs of other real estate owned		161		140
Franchise taxes		566		523
Other operating expenses		1,879		1,849
Total noninterest expense		12,242		12,101
Income before income taxes		11,095		11,139
Income tax expense		2,582		2,488
Net Income	$	8,513	$	8,651
Basic net income per common share	$	1.23	$	1.25
Fully diluted net income per common share	$	1.22	$	1.24
Weighted average number of common shares outstanding – basic		6,947,974		6,947,974
Weighted average number of common shares outstanding – diluted		6,962,274		6,968,711
Dividends declared per common share	$	0.55	$	0.54

See accompanying notes to consolidated financial statements.

6

National Bankshares, Inc. and Subsidiaries

Consolidated Statements of Comprehensive Income (Loss)

Six Months Ended June 30, 2014 and 2013

(Unaudited)

	June 30,		June 30,
$ in thousands	2014		2013
Net Income	$	8,513	$	8,651
Other Comprehensive Income (Loss), Net of Tax
Unrealized holding gains (losses) on available for sale securities net of tax of $3,345 and ($5,094) for the periods ended June 30, 2014 and 2013, respectively		6,212		(9,458	)
Reclassification adjustment, net of tax of $0 and ($6) for the periods ended June 30, 2014 and 2013, respectively		---		(12	)
Other comprehensive income (loss), net of tax of $3,345 and ($5,100) for the periods ended June 30, 2014 and 2013, respectively		6,212		(9,470	)
Total Comprehensive Income	$	14,725	$	(819	)

See accompanying notes to consolidated financial statements.

7

National Bankshares, Inc. and Subsidiaries

Consolidated Statements of Changes in Stockholders’ Equity

Six Months June 30, 2014 and 2013

(Unaudited)

$ in thousands	Common Stock		Retained Earnings			Accumulated Other Comprehensive Loss			Total
Balances at December 31, 2012	$	8,685	$	144,162		$	(2,738	)	$	150,109
Net income		---		8,651			---			8,651
Dividends $0.54 per share		---		(3,752	)		---			(3,752	)
Other comprehensive loss, net of tax( $5,100)		---		---			(9,470	)		(9,470	)
Balances at June 30, 2013	$	8,685	$	149,061		$	(12,208	)	$	145,538
Balances at December 31, 2013	$	8,685	$	154,171		$	(16,964	)	$	145,892
Net income		---		8,513			---			8,513
Dividends $0.55 per share		---		(3,821	)		---			(3,821	)
Other comprehensive income, net of tax $3,345		---		---			6,212			6,212
Balances at June 30, 2014	$	8,685	$	158,863		$	(10,752	)	$	156,796

See accompanying notes to consolidated financial statements.

8

National Bankshares, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

Six Months Ended June 30, 2014 and 2013

(Unaudited)

	June 30,			June 30,
$ in thousands	2014			2013
Cash Flows from Operating Activities
Net income	$	8,513		$	8,651
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		804			1,026
Depreciation of bank premises and equipment		355			364
Amortization of intangibles		538			540
Amortization of premiums and accretion of discounts, net		74			85
Losses on disposal of fixed assets		94			---
Gains on sales and calls of securities available for sale, net		---			(18	)
Gains on calls of securities held to maturity, net		(1	)		---
Losses and write-downs on other real estate owned, net		23			64
Increase in cash value of bank-owned life insurance		(310	)		(335	)
Net change in:
Mortgage loans held for sale		893			846
Accrued interest receivable		151			(44	)
Other assets		(1,366	)		1,311
Accrued interest payable		(21	)		(13	)
Other liabilities		(461	)		(446	)
Net cash provided by operating activities		9,286			12,031
Cash Flows from Investing Activities
Net change interest-bearing deposits		(8,046	)		32,725
Proceeds from calls, principal payments, sales and maturities of securities available for sale		3,828			53,195
Proceeds from calls, principal payments and maturities of securities held to maturity		6,342			7,044
Purchases of securities available for sale		(7,974	)		(83,993	)
Purchases of securities held to maturity		(5,381	)		(13,484	)
Net change in restricted stock		325			275
Purchases of loan participations		---			(900	)
Collections of loan participations		1,373			91
Loan originations and principal collections, net		(1,165	)		3,025
Proceeds from disposal of other real estate owned		234			803
Recoveries on loans charged off		184			61
Proceeds from sale and purchases of bank premises and equipment, net		22			(185	)
Net cash used in investing activities		(10,258	)		(1,343	)
Cash Flows from Financing Activities
Net change in time deposits		(10,532	)		(18,138	)
Net change in other deposits		17,959			9,893
Cash dividends paid		(3,821	)		(3,752	)
Net cash provided by (used in) financing activities		3,606			(11,997	)
Net change in cash and due from banks		2,634			(1,309	)
Cash and due from banks at beginning of period		13,283			14,783
Cash and due from banks at end of period	$	15,917		$	13,474
Supplemental Disclosures of Cash Flow Information
Interest paid on deposits and borrowed funds	$	2,631		$	3,240
Income taxes paid		2,922			2,428
Supplemental Disclosure of Noncash Activities
Loans charged against the allowance for loan losses	$	1,244		$	1,484
Loans transferred to other real estate owned		838			401
Unrealized net gains (losses) on securities available for sale		9,557			(14,570	)

See accompanying notes to consolidated financial statements.

9

National Bankshares, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

June 30, 2014

(Unaudited)

$ in thousands, except per share data

Note 1: General

The consolidated financial statements of National Bankshares, Inc. (“NBI”) and its wholly-owned subsidiaries, The National Bank of Blacksburg (“NBB”) and National Bankshares Financial Services, Inc. (“NBFS”) (collectively, the “Company”), conform to accounting principles generally accepted in the United States of America and to general practices within the banking industry. The accompanying interim period consolidated financial statements are unaudited; however, in the opinion of management, all adjustments consisting of normal recurring adjustments, which are necessary for a fair presentation of the consolidated financial statements, have been included.  The results of operations for the six months ended June 30, 2014 are not necessarily indicative of results of operations for the full year or any other interim period.  The interim period consolidated financial statements and financial information included in this Form 10-Q should be read in conjunction with the notes to consolidated financial statements included in the Company’s 2013 Form 10-K.  The Company posts all reports required to be filed under the Securities and Exchange Act of 1934 on its web site at www.nationalbankshares.com.

Subsequent events have been considered through the date when the Form 10-Q was issued.

Note 2: Stock-Based Compensation

The Company had a stock option plan, the 1999 Stock Option Plan, that was adopted in 1999 and that was terminated on March 9, 2009. Incentive stock options were granted annually to key employees of NBI and its subsidiaries from 1999 to 2005 and none have been granted since 2005. All of the stock options are vested.

Options	Shares		Weighted Average Exercise Price Per Share		Weighted Average Remaining Contractual Term		Aggregate Intrinsic Value
Outstanding at January 1, 2014		46,000	$	23.96
Exercised		---		---
Forfeited or expired		---		---
Outstanding June 30, 2014		46,000	$	23.96		0.86	$	319
Exercisable at June 30, 2014		46,000	$	23.96		0.86	$	319

There were no shares exercised during the six months ended June 30, 2014 or June 30, 3013. As of June 30, 2014, there was no unrecognized compensation expense related to stock options.

10

Note 3: Loan Portfolio

The loan portfolio, excluding loans held for sale, was comprised of the following.

	June 30, 2014			December 31, 2013
Real estate construction	$	45,953		$	45,925
Consumer real estate		145,664			145,499
Commercial real estate		305,511			311,266
Commercial non real estate		32,045			31,262
Public sector and IDA		36,107			34,220
Consumer non real estate		29,004			28,423
Gross loans		594,284			596,595
Less unearned income and deferred fees		(884	)		(905	)
Loans, net of unearned income and deferred fees	$	593,400		$	595,690

Note 4: Allowance for Loan Losses, Nonperforming Assets and Impaired Loans

The allowance for loan losses methodology incorporates individual evaluation of impaired loans and collective evaluation of groups of non-impaired loans. The Company performs ongoing analysis of the loan portfolio to determine credit quality and to identify impaired loans. Credit quality is rated based on the loan’s payment history, the borrower’s current financial situation and the value of the underlying collateral.

Impaired loans are those loans that have been modified in a troubled debt restructure (“TDR” or “restructure”) and larger, non-homogeneous loans that are in nonaccrual or exhibit payment history or financial status that indicate the probability that collection will not occur according to the loan’s terms. Generally, impaired loans are given risk ratings that indicate higher risk, such as “classified” or “other assets especially mentioned.” Impaired loans are individually evaluated to determine appropriate reserves and are measured at the lower of the invested amount or the fair market value. Impaired loans that are not troubled debt restructures and for which fair value measurement indicates an impairment loss are designated nonaccrual. A troubled debt restructure with an impairment loss may accrue interest if the loan shows a satisfactory repayment history for at least 6 months. Please refer to Note 1 of the Company’s 2013 Form 10-K, “Summary of Significant Accounting Policies” for additional information on evaluation of impaired loans and associated specific reserves, and policies regarding nonaccruals, past due status and charge-offs.

Troubled debt restructures impact the estimation of the appropriate level of the allowance for loan losses. If the restructuring included forgiveness of a portion of principal, the charge-off is included in the historical charge-off rates applied to the collective evaluation methodology. Further, restructured loans are individually evaluated for impairment and any amount of book value that exceeds fair value is accrued in the allowance for loan losses. TDRs that experience a payment default are examined to determine whether the default indicates collateral dependency or a decline in estimates of cash flow used in the fair value measurement. TDRs, as well as all impaired loans, that are determined to be collateral dependent are charged down to fair value. Deficiencies indicated by impairment measurements for TDRs that are not collateral dependent may be accrued in the allowance for loan losses or charged off if deemed uncollectible.

The Company evaluated characteristics in the loan portfolio and determined major segments and smaller classes within each segment. These characteristics include collateral type, repayment sources, and (if applicable) the borrower’s business model. The methodology for calculating reserves for collectively-evaluated loans is applied at the class level.

11

Portfolio Segments and Classes

The segments and classes used in determining the allowance for loan losses are as follows.

Real Estate Construction	Commercial Non Real Estate
Construction, residential	Commercial and Industrial
Construction, other
	Public Sector and IDA
Consumer Real Estate	Public sector and IDA
Equity lines
Residential closed-end first liens	Consumer Non Real Estate
Residential closed-end junior liens	Credit cards
Investor-owned residential real estate	Automobile
	Other consumer loans
Commercial Real Estate
Multifamily real estate
Commercial real estate, owner-occupied
Commercial real estate, other

Historical Loss Rates

The Company’s allowance methodology for collectively-evaluated loans applies historical loss rates by class to current class balances as part of the process of determining required reserves. Class loss rates are calculated as the net charge-offs for the class as a percentage of average class balance. The loss rate for the current quarter is averaged with that of prior periods to obtain the historical loss rate. Two loss rates for each class are calculated: total net charge-offs for the class as a percentage of average class loan balance (“class loss rate”), and total net charge-offs for the class as a percentage of average classified loans in the class (“classified loss rate”). Classified loans are those with risk ratings of “substandard” or higher. Net charge-offs in both calculations include charge-offs and recoveries of classified and non-classified loans as well as those associated with impaired loans. Class historical loss rates are applied to non-classified loan balances at the reporting date, and classified historical loss rates are applied to classified balances at the reporting date.

Risk Factors

In addition to historical loss rates, risk factors pertinent to credit risk for each class are analyzed to estimate reserves for collectively-evaluated loans. Factors include changes in national and local economic and business conditions, the nature and volume of classes within the portfolio, loan quality, loan officers’ experience, lending policies and the Company’s loan review system.

The analysis of certain factors results in standard allocations to all segments and classes. These factors include loan officers’ average years of experience, the risk from changes in lending policies, and the risk from changes in loan review. Factors analyzed for each class, with resultant allocations based upon the level of risk assessed for each class, include levels of past due loans, nonaccrual loans, current class balance as a percentage of total loans, and the percentage of high risk loans (defined to be junior lien mortgages, high loan-to-value loans, and interest only loans) within the class. Additionally, factors specific to each segment are analyzed and result in allocations to the segment.

Real estate construction loans are subject to general risks from changing commercial building and housing market trends and economic conditions that may impact demand for completed properties and the costs of completion. These risks are measured by market-area unemployment rates, bankruptcy rates, housing and commercial building market trends, and interest rates.

The credit quality of consumer real estate is subject to risks associated with the borrower’s repayment ability and collateral value, measured generally by analyzing local unemployment and bankruptcy trends, local housing market trends, and interest rates.

The commercial real estate segment includes loans secured by multifamily residential real estate, commercial real estate occupied by the owner/borrower, and commercial real estate leased to non-owners. Loans in the commercial real estate segment are impacted by economic risks from changing commercial real estate markets, rental markets for multi-family housing and commercial buildings, business bankruptcy rates, local unemployment and interest rate trends that would impact the businesses housed by the commercial real estate.

Commercial non real estate loans are secured by collateral other than real estate, or are unsecured. Credit risk for commercial non real estate loans is subject to economic conditions, generally monitored by local business bankruptcy trends, and interest rates. Public sector and IDA loans are extended to municipalities and related entities. Credit risk is based upon the entity’s ability to repay and interest rate trends.

Consumer non real estate includes credit cards, automobile and other consumer loans. Credit cards and certain other consumer loans are unsecured, while collateral is obtained for automobile loans and other consumer loans. Credit risk stems primarily from the borrower’s ability to repay, measured by average unemployment, average personal bankruptcy rates and interest rates.

Factor allocations applied to each class are increased for loans rated special mention and classified. The Company allocates additional reserves for “high risk” loans.

12

A detailed analysis showing the allowance roll-forward by portfolio segment and related loan balance by segment follows.

	Activity in the Allowance for Loan Losses for the Three Months Ended June 30, 2014
	Real Estate Construction			Consumer Real Estate			Commercial Real Estate			Commercial Non Real Estate			Public Sector and IDA		Consumer Non Real Estate			Unallocated			Total
Balance, March 31, 2014	$	850		$	1,814		$	3,694		$	861		$	202	$	529		$	347		$	8,297
Charge-offs		---			(16	)		(891	)		(79	)		---		(67	)		---			(1,053	)
Recoveries		---			---			17			---			---		9			---			26
Provision for loan losses		(187	)		(244	)		970			274			76		81			(269	)		701
Balance, June 30, 2014	$	663		$	1,554		$	3,790		$	1,056		$	278	$	552		$	78		$	7,971

	Activity in the Allowance for Loan Losses for the Six Months Ended June 30, 2014
	Real Estate Construction			Consumer Real Estate			Commercial Real Estate			Commercial Non Real Estate			Public Sector and IDA		Consumer Non Real Estate			Unallocated			Total
Balance, December 31, 2013	$	863		$	1,697		$	3,685		$	989		$	132	$	576		$	285		$	8,227
Charge-offs		(2	)		(70	)		(943	)		(79	)		---		(150	)		---			(1,244	)
Recoveries		---			---			25			131			---		28			---			184
Provision for loan losses		(198	)		(73	)		1,023			15			146		98			(207	)		804
Balance, June 30, 2014	$	663		$	1,554		$	3,790		$	1,056		$	278	$	552		$	78		$	7,971

	Activity in the Allowance for Loan Losses for the Three Months Ended June 30, 2013
	Real Estate Construction			Consumer Real Estate			Commercial Real Estate			Commercial Non Real Estate			Public Sector and IDA		Consumer Non Real Estate			Unallocated		Total
Balance, March 31, 2013	$	1,173		$	1,846		$	3,289		$	1,276		$	110	$	585		$	12	$	8,291
Charge-offs		---			(46	)		---			(556	)		---		(128	)		---		(730	)
Recoveries		---			1			4			---			---		31			---		36
Provision for loan losses		(141	)		(131	)		(264	)		761			1		25			104		355
Balance, June 30, 2013	$	1,032		$	1,670		$	3,029		$	1,481		$	111	$	513		$	116	$	7,952

	Activity in the Allowance for Loan Losses for the Six Months Ended June 30, 2013
	Real Estate Construction			Consumer Real Estate			Commercial Real Estate			Commercial Non Real Estate			Public Sector and IDA			Consumer Non Real Estate			Unallocated		Total
Balance, December 31, 2012	$	1,070		$	2,263		$	3,442		$	959		$	142		$	424		$	49	$	8,349
Charge-offs		(184	)		(99	)		(35	)		(960	)		---			(206	)		---		(1,484	)
Recoveries		---			1			4			16			---			40			---		61
Provision for loan losses		146			(495	)		(382	)		1,466			(31	)		255			67		1,026
Balance, June 30, 2013	$	1,032		$	1,670		$	3,029		$	1,481		$	111		$	513		$	116	$	7,952

13

	Allowance for Loan Losses as of June 30, 2014
	Real Estate Construction		Consumer Real Estate		Commercial Real Estate		Commercial Non Real Estate		Public Sector and IDA		Consumer Non Real Estate		Unallocated		Total
Individually evaluated for impairment	$	---	$	13	$	277	$	1	$	---	$	---	$	---	$	291
Collectively evaluated for impairment		663		1,541		3,513		1,055		278		552		78		7,680
Total	$	663	$	1,554	$	3,790	$	1,056	$	278	$	552	$	78	$	7,971

	Allowance for Loan Losses as of December 31, 2013
	Real Estate Construction		Consumer Real Estate		Commercial Real Estate		Commercial Non Real Estate		Public Sector and IDA		Consumer Non Real Estate		Unallocated		Total
Individually evaluated for impairment	$	---	$	10	$	610	$	4	$	---	$	---	$	---	$	624
Collectively evaluated for impairment		863		1,687		3,075		985		132		576		285		7,603
Total	$	863	$	1,697	$	3,685	$	989	$	132	$	576	$	285	$	8,227

	Loans as of June 30, 2014
	Real Estate Construction		Consumer Real Estate		Commercial Real Estate		Commercial Non Real Estate		Public Sector and IDA		Consumer Non Real Estate		Unallocated		Total
Individually evaluated for impairment	$	---	$	694	$	10,404	$	46	$	---	$	---	$	---	$	11,144
Collectively evaluated for impairment		45,953		144,970		295,107		31,999		36,107		29,004		---		583,140
Total loans	$	45,953	$	145,664	$	305,511	$	32,045	$	36,107	$	29,004	$	---	$	594,284

	Loans as of December 31, 2013
	Real Estate Construction		Consumer Real Estate		Commercial Real Estate		Commercial Non Real Estate		Public Sector and IDA		Consumer Non Real Estate		Unallocated		Total
Individually evaluated for impairment	$	---	$	780	$	12,079	$	102	$	---	$	24	$	---	$	12,985
Collectively evaluated for impairment		45,925		144,719		299,187		31,160		34,220		28,399		---		583,610
Total	$	45,925	$	145,499	$	311,266	$	31,262	$	34,220	$	28,423	$	---	$	596,595

A summary of ratios for the allowance for loan losses follows.

	Six Months Ended June 30,						Year Ended December 31,
	2014			2013			2013
Ratio of allowance for loan losses to the end of period loans, net of unearned income and deferred fees		1.34	%		1.35	%		1.38	%
Ratio of net charge-offs to average loans, net of unearned income and deferred fees(1)		0.36	%		0.49	%		0.28	%

⁽¹⁾ Net charge-offs are on an annualized basis.

14

A summary of nonperforming assets follows.

	June 30,						December 31,
	2014			2013			2013
Nonperforming assets:
Nonaccrual loans	$	2,335		$	10,428		$	5,732
Restructured loans in nonaccrual		2,674			1,522			852
Total nonperforming loans		5,009			11,950			6,584
Other real estate owned, net		5,293			969			4,712
Total nonperforming assets	$	10,302		$	12,919		$	11,296
Ratio of nonperforming assets to loans, net of unearned income and deferred fees, plus other real estate owned		1.72	%		2.19	%		1.88	%
Ratio of allowance for loan losses to nonperforming loans(1)		159.13	%		66.54	%		124.95	%

⁽¹⁾     The Company defines nonperforming loans as nonaccrual loans. Loans 90 days or more past due and still accruing and accruing restructured loans are excluded.

A summary of loans past due 90 days or more and impaired loans follows.

	June 30,						December 31,
	2014			2013			2013
Loans past due 90 days or more and still accruing	$	266		$	125		$	190
Ratio of loans past due 90 days or more and still accruing to loans, net of unearned income and deferred fees		0.04	%		0.02	%		0.03	%
Accruing restructured loans	$	6,240		$	6,234		$	6,191
Impaired loans:
Impaired loans with no valuation allowance	$	8,155		$	15,946		$	10,372
Impaired loans with a valuation allowance		2,989			1,449			2,613
Total impaired loans	$	11,144		$	17,395		$	12,985
Valuation allowance		(291	)		(273	)		(624	)
Impaired loans, net of allowance	$	10,853		$	17,122		$	12,361
Average recorded investment in impaired loans(1)	$	11,898		$	17,889		$	16,654
Interest income recognized on impaired loans, after designation as impaired	$	191		$	77		$	267
Amount of income recognized on a cash basis	$	---		$	---		$	---

⁽¹⁾      Recorded investment is net of charge-offs and interest paid while a loan is in nonaccrual status.

Nonaccrual loans that meet the Company’s balance threshold of $250 and TDRs are designated as impaired. No interest income was recognized on nonaccrual loans for the six months ended June 30, 2014 or June 30, 2013 or for the year ended December 31, 2013.

15

A detailed analysis of investment in impaired loans, associated reserves and interest income recognized, segregated by loan class follows.     

	Impaired Loans as of June 30, 2014
	Principal Balance		(A) Total Recorded Investment(1)		Recorded Investment(1) in (A) for Which There is No Related Allowance		Recorded Investment(1) in (A) for Which There is a Related Allowance		Related Allowance
Consumer Real Estate(2)
Residential closed-end first liens	$	396	$	369	$	168	$	201	$	3
Residential closed-end junior liens		248		248		---		248		6
Investor-owned residential real estate		77		77		---		77		4
Commercial Real Estate(2)
Multifamily real estate		3,237		2,823		868		1,955		248
Commercial real estate, owner-occupied		4,541		4,458		3,996		462		29
Commercial real estate, other		3,123		3,123		3,123		---		---
Commercial Non Real Estate(2)
Commercial and Industrial		46		46		---		46		1
Consumer Non Real Estate(2)
Automobile		---		---		---		---		---
Total	$	11,668	$	11,144	$	8,155	$	2,989	$	291

⁽¹⁾     Recorded investment is net of charge-offs and interest paid while a loan is in nonaccrual status.

⁽²⁾     Only classes with impaired loans are shown.

	Impaired Loans as of December 31, 2013
	Principal Balance		(A) Total Recorded Investment(1)		Recorded Investment(1) in (A) for Which There is No Related Allowance		Recorded Investment(1) in (A) for Which There is a Related Allowance		Related Allowance
Consumer Real Estate(2)
Residential closed-end first liens	$	440	$	442	$	232	$	210	$	3
Residential closed-end junior liens		259		261		---		261		7
Investor-owned residential real estate		81		82		82		---		---
Commercial Real Estate(2)
Multifamily real estate		3,278		3,274		3,274		---		---
Commercial real estate, owner occupied		5,643		5,645		3,864		1,781		610
Commercial real estate, other		3,158		3,158		3,158		---		---
Commercial Non Real Estate(2)
Commercial and Industrial		102		103		1		102		4
Consumer Non Real Estate(2)
Automobile		24		24		24		---		---
Total	$	12,985	$	12,989	$	10,635	$	2,354	$	624

(1)	Recorded investment includes principal net of unearned interest and deferred fees and costs, and accrued interest.
(2)	Only classes with impaired loans are shown.

16

The following tables show the average investment and interest income recognized for impaired loans.

	For the Six Months Ended June 30, 2014
	Average Recorded Investment(1)		Interest Income Recognized
Consumer Real Estate(2)
Residential closed-end first liens	$	452	$	13
Residential closed-end junior liens		254		8
Investor-owned residential real estate		81		2
Commercial Real Estate(2)
Multifamily real estate		2,821		---
Commercial real estate, owner occupied		5,032		77
Commercial real estate, other		3,140		89
Commercial Non Real Estate(2)
Commercial and Industrial		95		2
Consumer Non Real Estate(2)
Automobile		23		---
Total	$	11,898	$	191

⁽¹⁾     Recorded investment is net of charge-offs and interest paid while a loan is in nonaccrual status.

⁽²⁾     Only classes with impaired loans are shown.

	For the Year Ended December 31, 2013
	Average Recorded Investment(1)		Interest Income Recognized
Real Estate Construction(2)
Construction, residential	$	40	$	---
Construction, other		2,885		---
Consumer Real Estate(2)
Residential closed-end first liens		364		3
Residential closed-end junior liens		280		9
Investor-owned residential real estate		131		6
Commercial Real Estate(2)
Multifamily real estate		4,172		---
Commercial real estate, owner occupied		5,265		136
Commercial real estate, other		3,369		110
Commercial Non Real Estate(2)
Commercial and Industrial		117		3
Consumer Non Real Estate(2)
Automobile		31		---
Total	$	16,654	$	267

⁽¹⁾     Recorded investment includes principal net of unearned interest and deferred fees and costs, and accrued interest.

⁽²⁾     Only classes with impaired loans are shown.

17

The Company reviews nonaccrual loans on an individual loan basis to determine whether future payments are reasonably assured. To satisfy this criteria, the Company’s evaluation must determine that the underlying cause of the original delinquency or weakness that indicated nonaccrual status has been resolved, such as receipt of new guarantees, increased cash flows that cover the debt service or other resolution. Nonaccrual loans that demonstrate reasonable assurance of future payments and that have made at least six consecutive payments in accordance with repayment terms and timeframes may be returned to accrual status.

A restructured loan for which impairment measurement does not indicate a loss and that maintains current status for at least six months may be returned to accrual status.

An analysis of past due and nonaccrual loans follows.

June 30, 2014
	30 – 89 Days Past Due		90 or More Days Past Due		90 or More Days Past Due and Still Accruing		Nonaccruals (Including Impaired Nonaccruals)
Real Estate Construction(1)
Construction, other	$	42	$	---	$	---	$	---
Consumer Real Estate(1)
Equity lines		72		---		---		---
Residential closed-end first liens		1,037		332		233		186
Residential closed-end junior liens		111		---		---		---
Investor-owned residential real estate		269		---		---		16
Commercial Real Estate(1)
Multifamily real estate		722		2,823		---		2,823
Commercial real estate, owner-occupied		1,347		1,566		---		1,913
Commercial Non Real Estate(1)
Commercial and Industrial		880		---		---		71
Consumer Non Real Estate(1)
Credit cards		45		7		7		---
Automobile		347		26		26		---
Other consumer loans		86		---		---		---
Total	$	4,958	$	4,754	$	266	$	5,009

⁽¹⁾     Only classes with past-due or nonaccrual loans are shown.

18

An analysis of past due and nonaccrual loans follows.

December 31, 2013
	30 – 89 Days Past Due		90 or More Days Past Due		90 or More Days Past Due and Still Accruing		Nonaccruals (Including Impaired Nonaccruals)
Real Estate Construction(1)
Construction, residential	$	45	$	---	$	---	$	---
Construction, other		45		---		---		---
Consumer Real Estate(1)
Residential closed-end first liens		903		252		128		308
Residential closed-end junior liens		10		---		---		---
Investor-owned residential real estate		422		91		---		91
Commercial Real Estate(1)
Multifamily real estate		430		3,278		---		3,278
Commercial real estate, owner occupied		604		2,519		---		2,756
Commercial real estate, other		32		---		---		---
Commercial Non Real Estate(1)
Commercial and Industrial		196		43		---		128
Consumer Non Real Estate(1)
Credit cards		3		13		13		---
Automobile		217		26		2		23
Other consumer loans		49		46		47		---
Total	$	2,956	$	6,268	$	190	$	6,584

⁽¹⁾     Only classes with past-due or nonaccrual loans are shown.

The estimate of credit risk for non-impaired loans is obtained by applying allocations for internal and external factors. The allocations are increased for loans that exhibit greater credit quality risk.

Credit quality indicators, which the Company terms risk grades, are assigned through the Company’s credit review function for larger loans and selective review of loans that fall below credit review thresholds. Loans that do not indicate heightened risk are graded as “pass.” Loans that appear to have elevated credit risk because of frequent or persistent past due status, which is less than 75 days, or that show weakness in the borrower’s financial condition are risk graded “special mention.” Loans with frequent or persistent delinquency exceeding 75 days or that have a higher level of weakness in the borrower’s financial condition are graded “classified.” Classified loans have regulatory risk ratings of “substandard” and “doubtful.” Allocations are increased by 50% and by 100% for loans with grades of “special mention” and “classified,” respectively.

Determination of risk grades was completed for the portfolio as of June 30, 2014 and 2013 and December 31, 2013.

19

The following displays collectively-evaluated loans by credit quality indicator.

June 30, 2014

	Pass		Special Mention		Classified (Excluding Impaired)
Real Estate Construction
Construction, 1-4 family residential	$	17,579	$	---	$	---
Construction, other		28,332		29		14
Consumer Real Estate
Equity lines		17,060		---		15
Closed-end first liens		76,336		841		1,665
Closed-end junior liens		5,079		53		29
Investor-owned residential real estate		43,460		100		331
Commercial Real Estate
Multifamily residential real estate		66,196		---		721
Commercial real estate owner-occupied		129,889		203		2,121
Commercial real estate, other		91,762		1,194		3,020
Commercial Non Real Estate
Commercial and Industrial		30,868		202		930
Public Sector and IDA
States and political subdivisions		36,107		---		---
Consumer Non Real Estate
Credit cards		5,626		---		---
Automobile		11,195		157		50
Other consumer		11,956		14		6
Total	$	571,445	$	2,793	$	8,902

20

The following displays collectively-evaluated loans by credit quality indicator.

December 31, 2013

	Pass		Special Mention (Excluding Impaired)		Classified (Excluding Impaired)
Real Estate Construction
Construction, 1-4 family residential	$	17,702	$	163	$	45
Construction, other		27,971		29		15
Consumer Real Estate
Equity lines		16,146		16		---
Closed-end first liens		82,767		1,007		1,275
Closed-end junior liens		4,813		109		3
Investor-owned residential real estate		38,071		105		407
Commercial Real Estate
Multifamily residential real estate		67,573		---		958
Commercial real estate owner-occupied		134,137		2,206		701
Commercial real estate, other		89,340		1,209		3,063
Commercial Non Real Estate
Commercial and Industrial		29,987		878		295
Public Sector and IDA
States and political subdivisions		34,220		---		---
Consumer Non Real Estate
Credit cards		6,354		---		---
Automobile		11,428		253		34
Other consumer		10,253		17		60
Total	$	570,762	$	5,992	$	6,856

Sales, Purchases and Reclassification of Loans

The Company finances mortgages under “best efforts” contracts with mortgage purchasers. The mortgages are designated as held for sale upon initiation. There have been no reclassifications from portfolio loans to held for sale. There have been no loans held for sale transferred to portfolio loans. Occasionally, the Company purchases or sells participations in loans. All participation loans purchased met the Company’s normal underwriting standards at the time the participation was entered. Participation loans are included in the appropriate portfolio balances to which the allowance methodology is applied.

21

Troubled Debt Restructurings

The Company modifies loans in troubled debt restructurings. Total troubled debt restructurings amounted to $8,914 at June 30, 2014, $7,043 at December 31, 2013, and $7,756 at June 30, 2013. The following tables present restructurings by class that occurred during six month period ended June 30, 2014, and the six month period ended June 30, 2013.

Note: Only classes with restructured loans are presented.

	Restructurings That Occurred During the Three Months Ended June 30, 2014
	Number of Contracts		Pre-Modification Outstanding Principal Balance		Post- Modification Outstanding Principal Balance
Commercial Real Estate
Multifamily real estate		1	$	2,484	$	2,484
Total		1	$	2,484	$	2,484

	Restructurings That Occurred During the Six Months Ended June 30, 2014
	Number of Contracts		Pre-Modification Outstanding Principal Balance		Post- Modification Outstanding Principal Balance
Commercial Real Estate
Commercial real estate, owner occupied		1	$	184	$	209
Multifamily real estate		1		2,484		2,484
Total		2	$	2,668	$	2,693

During the six-month period ended June 30, 2014, the Company restructured two loans. One commercial real estate, owner occupied loan was restructured pursuant to bankruptcy court orders. The restructuring provided payment relief by capitalizing interest, reducing the interest rate and re-amortizing payments. The fair value measurement of the restructured loan as of June 30, 2014 resulted in a specific allocation to the allowance for loan losses of $27.

One multifamily real estate loan was restructured to provide payment relief. The Company reduced the loan’s interest rate and re-amortized payments. The fair value measurement of the restructured loan as of June 30, 2014 resulted in a specific allocation to the allowance for loan losses of $248.

	Restructurings That Occurred During the Three Months Ended June 30, 2013
	Number of Contracts		Pre-Modification Outstanding Principal Balance		Post-Modification Outstanding Principal Balance
Consumer Real Estate
Residential closed-end first liens		1	$	212	$	216
Residential closed-end junior liens		1		262		267
Total		2	$	474	$	483

22

	Restructurings That Occurred During the Six Months Ended June 30, 2013
	Number of Contracts		Pre-Modification Outstanding Principal Balance		Post-Modification Outstanding Principal Balance
Consumer Real Estate
Residential closed-end first liens		1	$	212	$	216
Residential closed-end junior liens		1		262		267
Commercial Real Estate
Commercial real estate, owner-occupied		1		154		239
Commercial real estate, other		1		3,500		3,500
Total		4	$	4,128	$	4,222

The modifications that resulted in troubled debt restructurings between January 1, 2013 and June 30, 2013 provided payment relief to the borrowers without forgiveness of principal or accrued interest. The date of conversion from interest-only to amortizing payments for one commercial real estate loan was extended beyond the date specified by the contract, resulting in designation as a troubled debt restructuring. During the second quarter of 2013, the loan was converted to amortizing payments and moved from Real Estate Construction to Commercial Real Estate. The other commercial real estate loan was modified to extend the term, lower the interest rate and provide debt consolidation to allow the borrower increased debt service ability. The modifications of the consumer real estate loans capitalized accrued interest and reduced interest rates. The term for one consumer real estate loan was shortened, resulting in a higher payment, while the term for the other consumer real estate loan was lengthened, resulting in a lower payment.

The Company analyzed its TDR portfolio for loans that defaulted during the three- and six-month periods ended June 30, 2014 and June 30, 2013, and that were modified within 12 months prior to default. The Company defines default as one or more payments that occur more than 90 days past the due date, charge-offs, or foreclosure after the date of restructuring. There were no restructured loans that defaulted and were modified within 12 months prior to default for the three- or six-month periods ended June 30, 2014.

	Restructured Loans That Defaulted And Were Modified Within 12 Months Prior to Default
	Default During the 3 Month Period Ended June 30, 2013						Default During the 6 Month Period Ended June 30, 2013
	Number of Contracts		Principal Balance		Impairment Accrued		Number of Contracts		Principal Balance		Impairment Accrued
Consumer Real Estate
Residential closed-end first liens		1	$	74	$	---		1	$	74	$	---
Residential closed-end junior liens		1		60		---		1		60		---
Commercial Real Estate
Commercial real estate owner-occupied		2		670		---		3		863		---
Commercial Non Real Estate
Commercial and industrial		1		137		---		1		137		---
Total		5	$	941	$	---		6	$	1,134	$	---

Restructured loans are individually evaluated for impairment. The fair value measurements for all of the restructured loans that defaulted during the three-month period ended June 30, 2013 were measured using the fair value of collateral and as such, were not significantly affected by the payment default. All were maintained on nonaccrual status as of June 30, 2013.

23

Note 5: Securities

The amortized costs, gross unrealized gains, gross unrealized losses and fair values for securities available for sale by major security type are as follows.

	June 30, 2014
	Amortized Costs		Gross Unrealized Gains		Gross Unrealized Losses		Fair Values
Available for Sale:
U.S. Government agencies and corporations	$	174,800	$	301	$	13,215	$	161,886
States and political subdivisions		21,428		912		5		22,335
Mortgage-backed securities		2,188		212		---		2,400
Corporate debt securities		8,801		66		198		8,669
Other securities		189		---		72		117
Total	$	207,406	$	1,491	$	13,490	$	195,407

	December 31, 2013
	Amortized Costs		Gross Unrealized Gains		Gross Unrealized Losses		Fair Values
Available for Sale:
U.S. Government agencies and corporations	$	169,818	$	199	$	22,163	$	147,854
States and political subdivisions		22,830		746		120		23,456
Mortgage-backed securities		2,627		213		---		2,840
Corporate debt securities		7,804		97		506		7,395
Other securities		189		---		22		167
Total securities available for sale	$	203,268	$	1,255	$	22,811	$	181,712

The amortized costs, gross unrealized gains, gross unrealized losses and fair values for securities held to maturity by major security type are as follows.

	June 30, 2014
	Amortized Costs		Gross Unrealized Gains		Gross Unrealized Losses		Fair Values
Held to Maturity:
U.S. Government agencies and corporations	$	17,935	$	321	$	834	$	17,422
States and political subdivisions		143,150		5,705		2,020		146,835
Mortgage-backed securities		461		56		---		517
Corporate debt securities		1,410		1		3		1,408
Total	$	162,956	$	6,083	$	2,857	$	166,182

	December 31, 2013
	Amortized Costs		Gross Unrealized Gains		Gross Unrealized Losses		Fair Values
Held to Maturity:
U.S. Government agencies and corporations	$	13,973	$	280	$	1,448	$	12,805
States and political subdivisions		149,490		2,971		6,502		145,959
Mortgage-backed securities		520		53		---		573
Total securities held to maturity	$	163,983	$	3,304	$	7,950	$	159,337

24

Information pertaining to securities with gross unrealized losses aggregated by investment category and length of time that individual securities have been in a continuous loss position, follows.

	June 30, 2014
	Less Than 12 Months				12 Months or More
	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
Temporarily Impaired Securities:
U.S. Government agencies and corporations	$	4,996	$	13	$	161,705	$	14,036
States and political subdivisions		4,866		25		34,076		2,000
Corporate debt securities		2,424		19		3,845		182
Other securities		117		72		---		---
Total	$	12,403	$	129	$	199,626	$	16,218

	December 31, 2013
	Less Than 12 Months				12 Months or More
	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
Temporarily Impaired Securities:
U.S. Government agencies and corporations	$	138,324	$	20,400	$	15,796	$	3,211
States and political subdivisions		58,013		6,131		2,697		491
Corporate debt securities		5,511		506		---		---
Other securities		167		22		---		---
Total	$	202,015	$	27,059	$	18,493	$	3,702

The Company had 252 securities with a fair value of $212,029 which were temporarily impaired at June 30, 2014.  The total unrealized loss on these securities was $16,347. Of the temporarily impaired total, 232 securities with a fair value of $199,626 and an unrealized loss of $16,218 have been in a continuous loss position for twelve months or more. The Company has determined that these securities are temporarily impaired at June 30, 2014 for the reasons set out below.

U.S. Government agencies. The unrealized losses in this category of investments were caused by interest rate and market fluctuations. The contractual terms of the investments do not permit the issuer to settle the securities at a price less than the cost basis of each investment. The Company is monitoring bond market trends and developing strategies to address unrealized losses. Because the Company does not intend to sell any of the investments and it is not likely that the Company will be required to sell any of the investments before recovery of its amortized cost basis, which may be at maturity, the Company does not consider these investments to be other-than-temporarily impaired.

States and political subdivisions. This category’s unrealized losses are primarily the result of interest rate and market fluctuations. The contractual terms of the investments do not permit the issuer to settle the securities at a price less than the cost basis of each investment. Because the Company does not intend to sell any of the investments and it is not likely that the Company will be required to sell any of the investments before recovery of its amortized cost basis, which may be at maturity, the Company does not consider these investments to be other-than-temporarily impaired.

Corporate. The Company’s unrealized losses in corporate debt securities are related to interest rate and market fluctuations. The contractual terms of the investments do not permit the issuer to settle the securities at a price less than the cost basis of each investment. Because the Company does not intend to sell any of the investments before recovery of its amortized cost basis, which may be at maturity, the Company does not consider these investments to be other-than-temporarily impaired.

Other securities. The Company holds a small investment in community bank stock. The value of this investment has been negatively affected by market conditions. Because the Company does not intend to sell this investment before recovery of amortized cost basis, the Company does not consider these investments to be other-than-temporarily impaired.

Restricted stock. As a member of the Federal Reserve and the Federal Home Loan Bank (“FHLB”) of Atlanta, NBB is required to maintain certain minimum investments in the common stock of those entities. Required levels of investment are based upon NBB’s capital and a percentage of qualifying assets. In addition, NBB is eligible to borrow from the FHLB with borrowings collateralized by qualifying assets, primarily residential mortgage loans and NBB’s capital stock investment in the FHLB. Redemption of FHLB stock is subject to certain limitations and conditions. At its discretion, the FHLB may declare dividends on the stock. Management reviews for impairment based upon the ultimate recoverability of the cost basis of the FHLB stock, and at June 30, 2014, management did not determine any impairment.

Management regularly monitors the credit quality of the investment portfolio. Changes in ratings are noted and follow-up research on the issuer is undertaken when warranted. Management intends to carefully monitor any changes in bond quality.

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Note 6: Recent Accounting Pronouncements

In January 2014, the FASB issued ASU 2014-01, “Investments—Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Qualified Affordable Housing Projects (a consensus of the FASB Emerging Issues Task Force).” The amendments in this ASU permit reporting entities to make an accounting policy election to account for their investments in qualified affordable housing projects using the proportional amortization method if certain conditions are met. Under the proportional amortization method, an entity amortizes the initial cost of the investment in proportion to the tax credits and other tax benefits received and recognizes the net investment performance in the income statement as a component of income tax expense (benefit). The amendments in this ASU should be applied retrospectively to all periods presented. A reporting entity that uses the effective yield method to account for its investments in qualified affordable housing projects before the date of adoption may continue to apply the effective yield method for those preexisting investments. The amendments in this ASU are effective for public business entities for annual periods and interim reporting periods within those annual periods, beginning after December 15, 2014. Early adoption is permitted. The Company is currently assessing the impact that ASU 2014-01 will have on its consolidated financial statements.

In January 2014, the FASB issued ASU 2014-04, “Receivables—Troubled Debt Restructurings by Creditors (Subtopic 310-40): Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure (a consensus of the FASB Emerging Issues Task Force).” The amendments in this ASU clarify that an in substance repossession or foreclosure occurs, and a creditor is considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan, upon either (1) the creditor obtaining legal title to the residential real estate property upon completion of a foreclosure or (2) the borrower conveying all interest in the residential real estate property to the creditor to satisfy that loan through completion of a deed in lieu of foreclosure or through a similar legal agreement. Additionally, the amendments require interim and annual disclosure of both (1) the amount of foreclosed residential real estate property held by the creditor and (2) the recorded investment in consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure according to local requirements of the applicable jurisdiction. The amendments in this ASU are effective for public business entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2014. The Company is currently assessing the impact that ASU 2014-04 will have on its consolidated financial statements.

In April 2014, the FASB issued ASU 2014-08, “Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity.” The amendments in this ASU change the criteria for reporting discontinued operations while enhancing disclosures in this area. Under the new guidance, only disposals representing a strategic shift in operations should be presented as discontinued operations. Those strategic shifts should have a major effect on the organization’s operations and financial results and include disposals of a major geographic area, a major line of business, or a major equity method investment. The new guidance requires expanded disclosures about discontinued operations that will provide financial statement users with more information about the assets, liabilities, income, and expenses of discontinued operations. Additionally, the new guidance requires disclosure of the pre-tax income attributable to a disposal of a significant part of an organization that does not qualify for discontinued operations reporting. The amendments in the ASU are effective for public business entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2014. Early adoption is permitted. The Company does not expect the adoption of ASU 2014-08 to have a material impact on its consolidated financial statements.

In June 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers: Topic 606”. This ASU applies to any entity using U.S. GAAP that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards. The guidance supersedes the revenue recognition requirements in Topic 605, “Revenue Recognition”, most industry-specific guidance, and some cost guidance included in Subtopic 605-35, “Revenue Recognition—Construction-Type and Production-Type Contracts”. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To be in alignment with the core principle, an entity must apply a five step process including: identification of the contract(s) with a customer, identification of performance obligations in the contract(s), determination of the transaction price, allocation of the transaction price to the performance obligations, and recognition of revenue when (or as) the entity satisfies a performance obligation. Additionally, the existing requirements for the recognition of a gain or loss on the transfer of nonfinancial assets that are not in a contract with a customer have also been amended to be consistent with the guidance on recognition and measurement. The amendments in this ASU are effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. Early adoption is not permitted. The Company is currently assessing the impact that ASU 2014-09 will have on its consolidated financial statements.

In June 2014, the FASB issued ASU 2014-10, “Development Stage Entities (Topic 915): Elimination of Certain Financial Reporting Requirements, Including an Amendment to Variable Interest Entities Guidance in Topic 810, Consolidation”. The amendments in this ASU remove all incremental financial reporting requirements from U.S. GAAP for development stage entities, including the removal of Topic 915, “Development Stage Entities”, from the FASB Accounting Standards Codification. In addition, this ASU adds an example disclosure and removes an exception provided to development stage entities in Topic 810, “Consolidation”, for determining whether an entity is a variable interest entity. The presentation and disclosure requirements in Topic 915 will no longer be required for the first annual period beginning after December 15, 2014. The revised consolidation standards are effective for annual periods beginning after December 15, 2015. Early adoption is permitted. The Company does not expect the adoption of ASU 2014-10 to have a material impact on its consolidated financial statements.

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In June 2014, the FASB issued ASU No. 2014-11, “Transfers and Servicing (Topic 860): Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures”. This ASU aligns the accounting for repurchase-to-maturity transactions and repurchase agreements executed as a repurchase financing with the accounting for other typical repurchase agreements. The new guidance eliminates sale accounting for repurchase-to-maturity transactions and supersedes the guidance under which a transfer of a financial asset and a contemporaneous repurchase financing could be accounted for on a combined basis as a forward agreement. The amendments in the ASU also require a new disclosure for transactions economically similar to repurchase agreements in which the transferor retains substantially all of the exposure to the economic return on the transferred financial assets throughout the term of the transaction. Additional disclosures will be required for the nature of collateral pledged in repurchase agreements and similar transactions accounted for as secured borrowings. The amendments in this ASU are effective for the first interim or annual period beginning after December 15, 2014; however, the disclosure for transactions accounted for as secured borrowings is required to be presented for annual periods beginning after December 15, 2014, and interim periods beginning after March 15, 2015. Early adoption is not permitted. The Company is currently assessing the impact that ASU 2014-11 will have on its consolidated financial statements.

In June 2014, the FASB issued ASU No. 2014-12, “Compensation – Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period”. The new guidance applies to reporting entities that grant employees share-based payments in which the terms of the award allow a performance target to be achieved after the requisite service period. The amendments in the ASU require that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. Existing guidance in “Compensation – Stock Compensation (Topic 718)”, should be applied to account for these types of awards. The amendments in this ASU are effective for annual periods and interim periods within those annual periods beginning after December 15, 2015. Early adoption is permitted and reporting entities may choose to apply the amendments in the ASU either on a prospective or retrospective basis. The Company is currently assessing the impact that ASU 2014-12 will have on its consolidated financial statements.

Note 7: Defined Benefit Plan

Components of Net Periodic Benefit Cost

	Pension Benefits
	Six Months Ended June 30,
	2014			2013
Service cost	$	262		$	298
Interest cost		332			308
Expected return on plan assets		(556	)		(492	)
Amortization of prior service cost		(54	)		(50	)
Recognized net actuarial loss		130			266
Net periodic benefit cost	$	114		$	330

2014 Plan Year Employer Contribution

Without considering the prefunding balance, the Company’s minimum required contribution to the National Bankshares, Inc. Retirement Income Plan (the “Plan”) is $396. Considering the prefunding balance, the 2014 minimum required contribution is $0. The Company elected to contribute $205 to the Plan during the six months ended June 30, 2014, for the plan year 2013.

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Note 8: Fair Value Measurements

The Company records fair value adjustments to certain assets and liabilities and determines fair value disclosures utilizing a definition of fair value of assets and liabilities that states that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. Additional considerations come into play in determining the fair value of assets in markets that are not active.

The Company uses a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s market assumptions. The three levels of the fair value hierarchy based on these two types of inputs are as follows:

Level 1 –	Valuation is based on quoted prices in active markets for identical assets and liabilities.
Level 2 –	Valuation is based on observable inputs including quoted prices in active markets for similar assets and liabilities, quoted prices for identical or similar assets and liabilities in less active markets, and model-based valuation techniques for which significant assumptions can be derived primarily from or corroborated by observable data in the market.
Level 3 –	Valuation is based on model-based techniques that use one or more significant inputs or assumptions that are unobservable in the market.

The following describes the valuation techniques used by the Company to measure certain assets and liabilities recorded at fair value on a recurring basis in the financial statements.

Securities Available for Sale

Securities available for sale are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted market prices, when available (Level 1). If quoted market prices are not available, fair values are measured utilizing independent valuation techniques of identical or similar securities for which significant assumptions are derived primarily from or corroborated by observable market data. Third party vendors compile prices from various sources and may determine the fair value of identical or similar securities by using pricing models that consider observable market data (Level 2). The carrying value of restricted Federal Reserve Bank and Federal Home Loan Bank stock approximates fair value based upon the redemption provisions of each entity and is therefore excluded from the following table.

The following table presents the balances of assets and liabilities measured at fair value on a recurring basis.

			Fair Value Measurements at June 30, 2014 Using
Description	Balance as of June 30, 2014		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
U.S. Government agencies and corporations	$	161,886	$	---	$	161,886	$	---
States and political subdivisions		22,335		---		22,335		---
Mortgage-backed securities		2,400		---		2,400		---
Corporate debt securities		8,669		---		8,669		---
Other securities		117		---		117		---
Total securities available for sale	$	195,407	$	---	$	195,407	$	---

			Fair Value Measurements at December 31, 2013 Using
Description	Balance as of December 31, 2013		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
U.S. Government agencies and corporations	$	147,854	$	---	$	147,854	$	---
States and political subdivisions		23,456		---		23,456		---
Mortgage-backed securities		2,840		---		2,840		---
Corporate debt securities		7,395		---		7,395		---
Other securities		167		---		167		---
Total securities available for sale	$	181,712	$	---	$	181,712	$	---

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Certain assets are measured at fair value on a nonrecurring basis in accordance with GAAP. Adjustments to the fair value of these assets usually result from the application of lower-of-cost-or-market accounting or write-downs of individual assets.

The following describes the valuation techniques used by the Company to measure certain assets recorded at fair value on a nonrecurring basis in the financial statements.

Loans Held for Sale

Loans held for sale are carried at the lower of cost or market value. These loans currently consist of one-to-four family residential loans originated for sale in the secondary market. Fair value is based on the price secondary markets are currently offering for similar loans using observable market data which is not materially different than cost due to the short duration between origination and sale (Level 2). As such, the Company records any fair value adjustments on a nonrecurring basis. No nonrecurring fair value adjustments were recorded on loans held for sale at June 30, 2014 or December 31, 2013. Gains and losses on the sale of loans are recorded within income from mortgage banking on the Consolidated Statements of Income.

Impaired Loans

Loans are designated as impaired when, in the judgment of management based on current information and events, it is probable that all amounts due will not be collected according to the contractual terms of the loan agreement. Troubled debt restructurings are impaired loans. Impaired loans are measured at fair value on a nonrecurring basis. If an individually-evaluated impaired loan’s balance exceeds fair value, the amount is allocated to the allowance for loan losses. Any fair value adjustments are recorded in the period incurred as provision for loan losses on the Consolidated Statements of Income.

The fair value of an impaired loan and measurement of associated loss is based on one of three methods: the observable market price of the loan, the present value of projected cash flows, or the fair value of the collateral. The observable market price of a loan is categorized as a Level 1 input. The present value of projected cash flows method results in a Level 3 categorization because the calculation relies on the Company’s judgment to determine projected cash flows, which are then discounted at the current rate of the loan, or the rate prior to modification if the loan is a troubled debt restructure.

Loans measured using the fair value of collateral method may be categorized in Level 2 or Level 3. Collateral may be in the form of real estate or business assets including equipment, inventory, and accounts receivable. Most collateral is real estate. The value of real estate collateral that is determined by a current (less than 12 months of age) appraisal utilizing an income or market valuation approach conducted by an independent, licensed appraiser outside of the Company using observable market data is categorized as Level 2. If a current appraisal cannot be obtained prior to a reporting date and an existing appraisal is discounted to obtain an estimated value, or if declines in value are identified after the date of the appraisal, or if an appraisal is discounted for estimated selling costs, the valuation of real estate collateral is categorized as Level 3. The value of business equipment is based upon an outside appraisal (Level 2) if deemed significant, or the net book value on the applicable business’ financial statements (Level 3) if not considered significant. Likewise, values for inventory and accounts receivables collateral are based on financial statement balances or aging reports (Level 3).

Impaired loans are measured quarterly for impairment. The Company employs the most applicable valuation method for each loan based on current information at the time of valuation. Valuations of loans using the collateral method may include a discount for selling costs if collection of the loan is expected to come from sale of the collateral. Fair value measurement using the collateral method for a loan that is dependent on the operation, but not the sale, of collateral for collection is not discounted for selling costs.

The following table summarizes the Company’s impaired loans that were measured at fair value on a nonrecurring basis at June 30, 2014 and at December 31, 2013.

				Carrying Value
Date	Description	Balance		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	Assets:
June 30, 2014	Impaired loans net of valuation allowance	$	2,698	$	---	$	---	$	2,698
December 31, 2013	Impaired loans net of valuation allowance		1,989		---		---		1,989

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The following tables present information about Level 3 Fair Value Measurements for June 30, 2014.

June 30, 2014	Valuation Technique	Unobservable Input	Range (Weighted Average)
Impaired loans	Present value of cash flows	Market rate for borrower (discount rate)	5.88%	-	9.50%	(7.35%)

Other Real Estate Owned

Other real estate owned are real estate assets acquired in full or partial satisfaction of a loan. At acquisition, other real estate owned assets are measured at fair value. If the assets are marketed for sale by an outside party, the acquisition-date fair value is discounted by selling costs; if the assets are marketed for sale by the Company, no reduction to fair value for selling costs is made. Subsequent to acquisition, the assets are measured at the lower of initial measurement or current fair value, discounted for selling costs as appropriate.

The fair value of an other real estate owned asset is determined by an income or market valuation approach based on an appraisal conducted by an independent, licensed appraiser outside of the Company using observable market data (Level 2). If the appraisal is discounted either for age or because management considers the real estate market to be experiencing volatility, then the fair value is considered Level 3. Discounts for selling costs also result in measurement based on Level 3 inputs. Fair value adjustments are measured on a nonrecurring basis and are recorded in the period incurred as valuation allowances to other real estate owned, and expensed through noninterest expense.

The following table summarizes the Company’s other real estate owned that was measured at fair value on a nonrecurring basis.

				Carrying Value
Date	Description	Balance		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	Assets:
June 30, 2014	Other real estate owned net of valuation allowance	$	5,293	$	---	$	---	$	5,293
December 31, 2013	Other real estate owned net of valuation allowance		4,712		---		---		4,712

The following tables present information about Level 3 Fair Value Measurements for June 30, 2014.

June 30, 2014	Valuation Technique	Unobservable Input	Range (Weighted Average)
Other real estate owned	Discounted appraised value	Selling cost	0.00%(1)	–	10%	(6.33%)
Other real estate owned	Discounted appraised value	Discount for lack of marketability and age of appraisal	0.00%	-	46.92%	(14.47%)

⁽¹⁾      The Company markets other real estate owned both independently and with local realtors. Properties marketed by realtors are discounted by selling costs. Properties that the Company markets independently are not discounted by selling costs.

The following methods and assumptions were used by the Company in estimating fair value disclosures for financial instruments.

Cash and Due from Banks and Interest-Bearing Deposits

The carrying amounts approximate fair value.

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Securities

The fair value of securities, excluding restricted stock, is determined by quoted market prices or dealer quotes. The fair value of certain state and municipal securities is not readily available through market sources other than dealer quotations, so fair value estimates are based on quoted market prices of similar instruments adjusted for differences between the quoted instruments and the instruments being valued. The carrying value of restricted securities approximates fair value based upon the redemption provisions of the applicable entities.

Loans Held for Sale

The fair value of loans held for sale is based on commitments on hand from investors or prevailing market prices.

Loans

Fair value for the loan portfolio is estimated on an account-level basis by discounting scheduled cash flows through the projected maturity for each loan. The calculation applies estimated market discount rates that reflect the credit and interest rate risk inherent in the loan. The estimate of maturity is based on the Company’s historical experience with repayments for loan classification, modified by an estimate of the effect of economic conditions on lending.

Impaired loans are individually evaluated for fair value. Fair value for the Company’s impaired loans is estimated by using either discounted cash flows or the appraised value of collateral. Any amount of principal balance that exceeds fair value is accrued in the allowance for loan losses. Assumptions regarding credit risk, cash flows and discount rates are determined within management’s judgment, using available market information and specific borrower information. Discount rates for cash flow analysis are based on the loan’s interest rate, and cash flows are estimated based upon the loan’s historical payment performance and the borrower’s current financial condition. Appraisals may be discounted for age, reasonableness, and selling costs.

Deposits

The fair value of demand and savings deposits is the amount payable on demand. The fair value of fixed maturity term deposits and certificates of deposit is estimated using the rates currently offered for deposits with similar remaining maturities.

Accrued Interest

The carrying amounts of accrued interest approximate fair value.

Bank-Owned Life Insurance

Bank owned life insurance represents insurance policies on officers of the Company and certain officers who are no longer employed by the Company.  The cash values of the policies are estimates using information provided by insurance carriers.  These policies are carried at their cash surrender value, which approximates the fair value.

Commitments to Extend Credit and Standby Letters of Credit

The only amounts recorded for commitments to extend credit, standby letters of credit and financial guarantees written are the deferred fees arising from these unrecognized financial instruments. These deferred fees are not deemed significant at June 30, 2014 and December 31, 2013, and, as such, the related fair values have not been estimated.

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The estimated fair values and related carrying amounts of the Company’s financial instruments follow.

	June 30, 2014
	Carrying Amount		Quoted Prices in Active Markets for Identical Assets Level 1		Significant Other Observable Inputs Level 2		Significant Unobservable Inputs Level 3		Total Estimated Fair Value
Financial Assets:
Cash and due from banks	$	15,917	$	15,917	$	---	$	---	$	15,917
Interest-bearing deposits		106,112		106,112		---		---		106,112
Securities		358,363		---		361,589		---		361,589
Restricted securities		1,089		---		1,089		---		1,089
Mortgage loans held for sale		383		---		383		---		383
Loans, net		585,429		---		---		576,676		576,676
Accrued interest receivable		5,798		5,798		---		---		5,798
Bank-owned life insurance		21,491		21,491		---		---		21,491
Financial Liabilities:
Deposits	$	967,463	$	736,286	$	---	$	236,131	$	972,417
Accrued interest payable		71		71		---		---		71

	December 31, 2013
	Carrying Amount		Quoted Prices in Active Markets for Identical Assets Level 1		Significant Other Observable Inputs Level 2		Significant Unobservable Inputs Level 3		Total Estimated Fair Value
Financial Assets:
Cash and due from banks	$	13,283	$	13,283	$	---	$	---	$	13,283
Interest-bearing deposits		98,066		98,066		---		---		98,066
Securities		345,695		---		341,049		---		341,049
Restricted securities		1,414		---		1,414		---		1,414
Mortgage loans held for sale		1,276		---		1,276		---		1,276
Loans, net		587,463		---		---		616,755		616,755
Accrued interest receivable		5,949		5,949		---		---		5,949
Bank-owned life insurance		21,181		21,181		---		---		21,181
Financial Liabilities:
Deposits	$	960,036	$	718,327	$	---	$	247,753	$	966,080
Accrued interest payable		92		92		---		---		92

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Note 9: Components of Accumulated Other Comprehensive Loss

	Net Unrealized Gain (Loss) on Securities			Adjustments Related to Pension Benefits			Accumulated Other Comprehensive (Loss)
Balance at December 31, 2012	$	2,047		$	(4,785	)	$	(2,738	)
Unrealized holding losses on available for sale securities net of tax of ($5,094)		(9,458	)		---			(9,458	)
Reclassification adjustment, net of tax of ($6)		(12	)		---			(12	)
Balance at June 30, 2013	$	(7,423	)	$	(4,785	)	$	(12,208	)
Balance at December 31, 2013	$	(14,011	)	$	(2,953	)	$	(16,964	)
Unrealized holding gains on available for sale securities net of tax of $3,345		6,212			---			6,212
Reclassification adjustment, net of tax of $0		---			---			---
Balance at June 30, 2014	$	(7,799	)	$	(2,953	)	$	(10,752	)

The following provides information regarding reclassifications out of accumulated comprehensive income (loss) for the three- and six-month periods ended June 30, 2014 and June 30, 2013.

	3 Months Ended				6 Months Ended
	June 30, 2014		June 30, 2013		June 30, 2014		June 30, 2013
Reclassifications out of unrealized gains and losses on available-for-sale securities:
Realized securities gains, net	$	---	$	9	$	---	$	18
Income tax expense		---		3		---		6
Realized gains and losses on available-for-sale securities, net of tax, reclassified out of accumulated other comprehensive income	$	---	$	6	$	---	$	12

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

$ in thousands, except per share data

The purpose of this discussion and analysis is to provide information about the financial condition and results of operations of National Bankshares, Inc. and its wholly-owned subsidiaries (the “Company”), which are not otherwise apparent from the consolidated financial statements and other information included in this report.  Please refer to the financial statements and other information included in this report as well as the 2013 Annual Report on Form 10-K for an understanding of the following discussion and analysis.

Cautionary Statement Regarding Forward-Looking Statements

We make forward-looking statements in this Form 10-Q that are subject to significant risks and uncertainties.  These forward-looking statements include statements regarding our profitability, liquidity, allowance for loan losses, interest rate sensitivity, market risk, growth strategy, and financial and other goals, and are based upon our management’s views and assumptions as of the date of this report.  The words “believes,” “expects,” “may,” “will,” “should,” “projects,” “contemplates,” “anticipates,”  “forecasts,” “intends,” or other similar words or terms are intended to identify forward-looking statements.

These forward-looking statements are based upon or are affected by factors that could cause our actual results to differ materially from historical results or from any results expressed or implied by such forward-looking statements. These factors include, but are not limited to, changes in:

●     interest rates,

●     general economic conditions,

●     the legislative/regulatory climate,

● monetary and fiscal policies of the U.S. Government, including policies of the U.S. Treasury, the Office of the Comptroller of the Currency, the Federal Reserve Board and the Federal Deposit Insurance Corporation, and the impact of any policies or programs implemented pursuant to the Emergency Economic Stabilization Act of 2008 (“EESA”) the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”) and other financial reform legislation,

33

●     unanticipated increases in the level of unemployment in the Company’s trade area,

●     the quality or composition of the loan and/or investment portfolios,

●     demand for loan products,

●     deposit flows,

●     competition,

●     demand for financial services in the Company’s trade area,

●     the real estate market in the Company’s trade area,

●     the Company’s technology initiatives,

●     threats from technology based frauds and scams,

●     loss or retirement of key executives,

●     adverse changes in the securities market, and

●     applicable accounting principles, policies and guidelines.

These risks and uncertainties should be considered in evaluating the forward-looking statements contained in this report. We caution readers not to place undue reliance on those statements, which speak only as of the date of this report. This discussion and analysis should be read in conjunction with the description of our “Risk Factors” in Item 1A. of our 2013 Annual Report on Form 10-K.

The effects of the recession continue to impact the national economy as well as the Company’s market. Signs of economic recovery are mixed with continued high unemployment and diminished real estate values. The Company’s trade area contains a diverse economy that includes large public colleges and universities, which somewhat insulated the Company’s market from the dramatic declines in real estate values seen in some other areas of the country. Real estate values in the Company’s market area appeared to stabilize in 2012 and 2013 and showed signs of improving in 2014. If the economic recovery wavers or reverses, it is likely that unemployment will continue at higher-than-normal levels or rise in the Company’s trade area. Because of the importance to the Company’s markets of state-funded universities, cutbacks in the funding provided by the State as a result of the recession could also negatively impact employment. This could lead to an even higher rate of delinquent loans and a greater number of real estate foreclosures. Higher unemployment and the fear of layoffs causes reduced consumer demand for goods and services, which negatively impacts the Company’s business and professional customers. In conclusion, a slow economic recovery could have an adverse effect on all financial institutions, including the Company.

Critical Accounting Policies

General

The Company’s financial statements are prepared in accordance with accounting principles generally accepted in the United States (GAAP). The financial information contained within our statements is, to a significant extent, financial information that is based on measures of the financial effects of transactions and events that have already occurred. A variety of factors could affect the ultimate value that is obtained when earning income, recognizing an expense, recovering an asset or relieving a liability. The Company uses historical loss rates as one factor in determining the inherent loss that may be present in the loan portfolio. Actual losses could differ significantly from one previously acceptable method to another method. Although the economics of the Company’s transactions would be the same, the timing of events that would impact the transactions could change.

Allowance for Loan Losses

The allowance for loan losses is an accrual of estimated losses that have been sustained in our loan portfolio. The allowance is funded by the provision for loan losses, reduced by charge-offs of loans and increased by recoveries of previously charged-off loans. The determination of the allowance is based on two accounting principles, Accounting Standards Codification (“ASC”) Topic 450-20 (Contingencies) which requires that losses be accrued when occurrence is probable and the amount of the loss is reasonably estimable, and ASC Topic 310-10 (Receivables) which requires accrual of losses on impaired loans if the recorded investment exceeds fair value.

Probable losses are accrued through two calculations, individual evaluation of impaired loans and collective evaluation of the remainder of the portfolio. Impaired loans are larger non-homogeneous loans for which there is a probability that collection will not occur according to the loan terms, as well as loans whose terms have been modified in a troubled debt restructuring. Impaired loans with an estimated impairment loss are placed on nonaccrual status.

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Impaired loans

Impaired loans are identified through the Company’s credit risk rating process. Estimated loss for an impaired loan is the amount of recorded investment that exceeds the loan’s fair value. Fair value of an impaired loan is measured by one of three methods: the fair value of collateral (“collateral method”), the present value of future cash flows (“cash flow method”), or observable market price. The Company applies the collateral method to collateral-dependent loans, loans for which foreclosure is eminent and to loans for which the fair value of collateral is a more reliable estimate of fair value. The cash flow method is applied to loans that are not collateral dependent and for which cash flows may be estimated.

The Company bases collateral method fair valuation upon the “as-is” value of independent appraisals or evaluations. Valuations for impaired loans with outstanding principal balances of $250 or more are based on a current appraisal. Appraisals are also used to value impaired loans with principal balances of $100 or greater and secured by one piece of collateral. Collateral-method impaired loans with principal balances below $100, or if secured by multiple pieces of collateral, below $250, are valued using an internal evaluation.

Appraisals and internal valuations provide an estimate of market value. Appraisals must conform to the Uniform Standards of Professional Appraisal Practice (“USPAP”) and are prepared by an independent third-party appraiser who is certified and licensed and who is approved by the Company. Appraisals incorporate market analysis, comparable sales analysis, cash flow analysis and market data pertinent to the property to determine market value. Internal evaluations are prepared and reviewed by employees of the Company who are independent of the loan origination, operation, management and collection functions. Evaluations provide a property’s market value based on the property’s current physical condition and characteristics and the economic market conditions that affect the collateral’s market value. Evaluations incorporate multiple sources of data to arrive at a property’s market value, including physical inspection, tax values, independent third-party automated tools, comparable sales analysis and local market information.

Updated appraisals or evaluations are ordered when the loan becomes impaired if the appraisal or evaluation on file is more than twelve months old. Appraisals and evaluations are reviewed for propriety and reasonableness and may be discounted if the Company determines that the value exceeds reasonable levels. If an updated appraisal or evaluation has been ordered but has not been received by a reporting date, the fair value may be based on the most recent available appraisal or evaluation, discounted for age.

The appraisal or evaluation value for a collateral-dependent loan for which recovery is expected solely from the sale of collateral is reduced by estimated selling costs. Estimated losses on collateral-dependent loans, as well as any other impairment loss considered uncollectible, are charged against the allowance for loan losses. For loans that are not collateral dependent, the impairment loss is accrued in the allowance. Impaired loans with partial charge-offs are maintained as impaired until the remaining balance is satisfied. Smaller homogeneous impaired loans that are not troubled debt restructurings or part of a larger impaired relationship are collectively evaluated.

Troubled debt restructurings are impaired loans and are measured for impairment under the same valuation methods as other impaired loans. Troubled debt restructurings are maintained in nonaccrual status until the loan has demonstrated reasonable assurance of repayment with at least six months of consecutive timely payment performance, unless the impairment measurement indicates a loss. Troubled debt restructurings with impairment losses remain in nonaccrual status.

Collectively-evaluated loans

Non-impaired loans and smaller homogeneous impaired loans that are not troubled debt restructurings and not part of a larger impaired relationship are grouped by portfolio segments that are made up of smaller loan classes. Loans within a segment or class have similar risk characteristics.

Probable loss is determined by applying historical net charge-off rates as well as additional percentages for trends and current levels of quantitative and qualitative factors. Loss rates are calculated for and applied to individual classes. Beginning with the first quarter of 2014, the Company began calculating the applicable loss rates by averaging loss rates over the most recent 8 quarters. Prior to 2014, the Company annualized the current year-to-date loss rate and averaged it with the loss rate of the previous year. The two methods yield similar results, and at the end of the year will yield the same average loss rate. The Company transitioned to using 8 quarters in order to provide ease of calculation on an ongoing basis. The look-back periods of 8 quarters beginning in 2014 and two years for periods ended December 31, 2013 and prior are applied consistently among all classes.

Two loss rates for each class are calculated: total net charge-offs for the class as a percentage of average class loan balance (“class loss rate”), and total net charge-offs for the class as a percentage of average classified loans in the class (“classified loss rate”). Classified loans are those with risk ratings of “substandard” or higher. Net charge-offs in both calculations include charge-offs and recoveries of classified and non-classified loans as well as those associated with impaired loans. Class historical loss rates are applied to non-classified loan balances at the reporting date, and classified historical loss rates are applied to classified balances at the reporting date.

Trends and current levels of qualitative factors are evaluated and allocations are applied to each class. Qualitative factors include delinquency rates, loan quality and concentrations, loan officers’ experience, changes in lending policies and changes in the loan review process. Economic factors such as unemployment rates, bankruptcy rates and others are also evaluated, with standard allocations applied consistently to relevant classes.

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The Company accrues additional estimated loss for criticized loans within each class and for loans designated high risk. High risk loans are defined as junior lien mortgages, loans with high loan-to-value ratios and loans with terms that require only interest payments. Both criticized loans and high risk loans are included in the base risk analysis for each class and are allocated additional reserves.

Estimation of the allowance for loan losses

The estimation of the allowance involves analysis of internal and external variables, methodologies, assumptions and our judgment and experience. Key judgments used in determining the allowance for loan losses include internal risk rating determinations, market and collateral values, discount rates, loss rates, and our view of current economic conditions. These judgments are inherently subjective and our actual losses could be greater or less than the estimate. Future estimates of the allowance could increase or decrease based on changes in the financial condition of individual borrowers, concentrations of various types of loans, economic conditions or the markets in which collateral may be sold. The estimate of the allowance accrual determines the amount of provision expense and directly affects our financial results.

The estimate of the allowance for June 30, 2014 considered market and portfolio conditions during the first six months of 2014 as well as the levels of delinquencies and net charge-offs in the seven quarters prior to the quarter ended June 30, 2014. Given the continued economic difficulties, the ultimate amount of loss could vary from that estimate. For additional discussion of the allowance, see Note 4 to the financial statements and “Asset Quality,” and “Provision and Allowance for Loan Losses.”

Goodwill and Core Deposit Intangibles

Goodwill is subject to at least an annual assessment for impairment by applying a fair value based test. The Company performs impairment testing in the fourth quarter of each year. The Company’s most recent impairment test was performed in the fourth quarter of 2013. Accounting guidance provides the option of performing preliminary assessment of qualitative factors before performing more substantial testing for impairment. The Company opted not to perform the preliminary assessment. The Company’s goodwill impairment analysis considered three valuation techniques appropriate to the measurement. The first technique uses the Company’s market capitalization as an estimate of fair value; the second technique estimates fair value using current market pricing multiples for companies comparable to the Company; while the third technique uses current market pricing multiples for change-of-control transactions involving companies comparable to the Company. Each measure indicated that the Company’s fair value exceeded its book value, validating that goodwill is not impaired.

Certain key judgments were used in the valuation measurement. Goodwill is held by the Company’s bank subsidiary. The bank subsidiary is 100% owned by the Company, and no market capitalization is available. Because most of the Company’s assets are comprised of the subsidiary bank’s equity, the Company’s market capitalization was used to estimate the Bank’s market capitalization. Other judgments include the assumption that the companies and transactions used as comparables for the second and third technique were appropriate to the estimate of the Company’s fair value, and that the comparable multiples are appropriate indicators of fair value, and compliant with accounting guidance.

Acquired intangible assets (such as core deposit intangibles) are recognized separately from goodwill if the benefit of the asset can be sold, transferred, licensed, rented, or exchanged, and amortized over its useful life. The Company amortizes intangible assets arising from branch transactions over their useful life. Core deposit intangibles are subject to a recoverability test based on undiscounted cash flows, and to the impairment recognition and measurement provisions required for other long-lived assets held and used. The impairment testing showed that the expected cash flows of the intangible assets exceeded the carrying value.

Overview

National Bankshares, Inc. (“NBI”) is a financial holding company incorporated under the laws of Virginia. Located in southwest Virginia, NBI has two wholly-owned subsidiaries, the National Bank of Blacksburg (“NBB” or “the Bank”) and National Bankshares Financial Services, Inc. (“NBFS”). NBB, which does business as National Bank from twenty-five office locations, is a community bank. NBB is the source of nearly all of the Company’s revenue. NBFS does business as National Bankshares Investment Services and National Bankshares Insurance Services. Income from NBFS is not significant at this time, nor is it expected to be so in the near future.

NBI common stock is listed on the NASDAQ Capital Market and is traded under the symbol “NKSH.” National Bankshares, Inc. has been included in the Russell Investments Russell 3000 and Russell 2000 Indexes since June 29, 2009.

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Lending

NBB is community-oriented and offers a full range of retail and commercial banking services to individuals, small and mid-sized businesses, non-profits and local governments. Loan types include commercial and agricultural, commercial real estate, construction for commercial and residential properties, residential real estate, home equity and various consumer loan products. Of primary consideration in the Bank’s decision to extend credit is the repayment ability of the borrowers and (if secured) the collateral value in relation to the principal balance. Collateral value lowers risk and may be used as a secondary source of repayment. The credit decision is supported by documentation appropriate to the type of loan, including current financial information, income verification or cash flow analysis, tax returns, credit reports, collateral information, guarantor verification, title reports, appraisals (where appropriate), and other documents. A discussion of underwriting policies and procedures specific to the major loan products follows.

Commercial and agricultural loans primarily finance equipment acquisition, expansion, working capital, and other general business purposes. Because these loans have a higher degree of risk, the Bank generally obtains collateral such as inventories, accounts receivable or equipment, and personal guarantees from the borrowing entity’s principal owners. The Bank’s policy limits lending to 60% of the appraised value for inventory and equipment and up to 70% for accounts receivables less than 90 days old. Credit decisions are based upon an assessment of the financial capacity of the applicant, including the primary borrower’s ability to repay within proposed terms, a risk assessment, financial strength of guarantors and adequacy of collateral. Credit agency reports of individual owners’ credit history supplement the analysis.

Commercial mortgages and construction loans are offered to investors, developers and builders, primarily within the Bank’s market area in southwest Virginia. These loans are secured by first mortgages on real estate. The loan amount is generally limited to 80% of the collateral value, and is individually determined based on the property type, quality, location and sponsorship. Commercial properties include retail centers, apartments, and industrial properties.

Underwriting decisions are based upon an analysis of the economic viability of the collateral and creditworthiness of the borrower. The Bank obtains appraisals from qualified certified independent appraisers to establish the value of collateral properties. The property’s projected net cash flows compared to the debt service requirement (the “debt service coverage ratio” or “DSC” ratio) is required to be 110% or greater, and is computed after deduction for a vacancy factor and property expenses, as appropriate. Borrower cash flow may be supplemented by a personal guarantee from the principal(s) of the borrower, and guarantees from other parties. The Bank requires title insurance, fire, and extended coverage casualty insurance, and flood insurance, if appropriate, in order to protect the security interest in the underlying property. In addition, the Bank may employ stress testing techniques on higher balance loans to determine repayment ability in a changing rate environment before granting loan approval.

Construction loans are underwritten against projected cash flows from rental income, business and/or personal income from an owner-occupant or the sale of the property to an end-user. Associated risks may be mitigated by requiring fixed-price construction contracts, performance and payment bonding, controlled disbursements, and pre-sale contracts or pre-lease agreements.

The Bank offers a variety of first mortgage and junior lien loans secured by 1-4 family residences to individuals within our markets. Credit decisions are primarily based on loan-to-value (“LTV”) ratios, debt-to-income (“DTI”) ratios, liquidity, net worth, and DSC ratios. Income and financial information is obtained from personal tax returns, personal financial statements and employment documentation. A maximum LTV ratio of 80% is generally required, although higher levels are permitted with mortgage insurance. The debt-to-income ratio is limited to 40% of gross income.

Consumer real estate mortgages may have fixed interest rates for the entire term of the loan or variable interest rates subject to change yearly after the first, third, or fifth year. Variable rates are based on the weekly average yield of United States Treasury Securities and are underwritten at fully-indexed rates. We do not offer consumer real estate interest-only loans, sub-prime loans, or any variation on sub-prime lending including hybrid loans and payment option ARMs, or any product with negative amortization. Sub-prime loans involve extending credit to borrowers who exhibit characteristics indicating a significantly higher risk of default than traditional bank lending customers. Hybrid loans are loans that start out as a fixed rate mortgage but after a set number of years automatically adjust to an adjustable rate mortgage. Payment option ARMs usually have adjustable rates, for which borrowers choose their monthly payment of either a full payment, interest only, or a minimum payment which may be lower than the payment required to reduce the balance of the loan in accordance with the originally underwritten amortization.

Home equity loans are secured primarily by second mortgages on residential property. The underwriting policy for home equity loans generally permits aggregate (the total of all liens secured by the collateral property) borrowing availability up to 80% of the appraised value of the collateral. We offer variable rate home equity loans, with variable rate loans underwritten at fully-indexed rates. Decisions are primarily based on LTV ratios, DTI ratios and liquidity. We do not offer home equity loan products with reduced documentation.

Automobile loans include loans secured by new or used automobiles. Automobile loans are originated either on a direct basis or on an indirect basis through selected dealerships. We require borrowers to maintain collision insurance on automobiles securing consumer loans. Our procedures for underwriting automobile loans include an assessment of an applicant’s overall financial capacity, including credit history and the ability to meet existing obligations and payments on the proposed loan. Although an applicant’s creditworthiness is the primary consideration, the underwriting process also includes a comparison of the value of the collateral security to the proposed loan amount.

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Performance Summary

The following table presents the Company’s key performance ratios for the six months ended June 30, 2014 and the year ended December 31, 2013. The measures for June 30, 2014 are annualized, except for basic earnings per share and fully diluted earnings per share.

	June 30, 2014			December 31, 2013
Return on average assets		1.54	%		1.63	%
Return on average equity		11.22	%		11.90	%
Basic earnings per share	$	1.23		$	2.56
Fully diluted earnings per share	$	1.22		$	2.55
Net interest margin (1)		4.07	%		4.25	%
Noninterest margin (2)		1.40	%		1.42	%

⁽¹⁾ Net interest margin: Year-to-date tax-equivalent net interest income divided by year-to-date average earning assets.

⁽²⁾ Noninterest margin: Noninterest expense (excluding the provision for bad debts and income taxes) less noninterest income (excluding securities gains and losses) divided by average year-to-date assets.

The annualized return on average assets declined 9 basis points for the six months ended June 30, 2014 as compared to the year ended December 31, 2013. The annualized return on average equity decreased 68 basis points for the same period.

The annualized net interest margin was 4.07% for the six months ended June 30, 2014, down 18 basis points from the 4.25% reported for the year ended December 31, 2013. The primary factor driving the decrease in the net interest margin was the declining yield on earning assets offset by a smaller decline in the cost to fund earning assets.

The annualized noninterest margin decreased 2 basis points from the year ended December 31, 2013. Please refer to the discussion under noninterest expense for further information.

Growth

NBI’s key growth indicators are shown in the following table.

	June 30, 2014		December 31, 2013		Percent Change
Interest-bearing deposits	$	106,112	$	98,066		8.20	%
Securities		359,452		347,109		3.56	%
Loans, net		585,429		587,463		(0.35	)%
Deposits		967,463		960,036		0.77	%
Total assets		1,128,479		1,110,630		1.61	%

Asset Quality

Key indicators of the Company’s asset quality are presented in the following table.

	June 30, 2014			June 30, 2013			December 31, 2013
Nonperforming loans	$	5,009		$	11,950		$	6,584
Loans past due 90 days or more, and still accruing		266			125			190
Other real estate owned		5,293			969			4,712
Allowance for loan losses to loans		1.34	%		1.35	%		1.38	%
Net charge-off ratio		0.36	%		0.49	%		0.28	%
Ratio of nonperforming assets to loans, net of unearned income and deferred fees, plus other real estate owned		1.72	%		2.19	%		1.88	%
Ratio of allowance for loan losses to nonperforming loans		159.13	%		66.54	%		124.95	%

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The Company monitors asset quality indicators in managing credit risk and in determining the allowance and provision for loan losses. The Company’s risk analysis for collectively-evaluated loans is based on historical charge-off rates, asset quality trends represented by past due and nonaccrual ratios, diversification of loans within the portfolio, the value of underlying collateral if secured, the risk of unsecured loans, and economic trends pertinent to the Company’s loan portfolio.

The Company’s risk analysis determined an allowance for loan losses of $7,971 at June 30, 2014, a decrease from $8,227 at December 31, 2013 and a slight increase from $7,952 at June 30, 2013. The provision for the six months ended June 30, 2014 was $804, a decline from $1,026 for the same period in 2013. The ratio of allowance for loan losses to loans is 1.34% as of June 30, 2014, compared with 1.38% December 31, 2013 and 1.35% at June 30, 2013.

Contributing to the decline in the allowance for loan losses as a percentage of loans and to the decline in the provision for loan losses is an improved charge-off ratio for the six months ended June 30, 2014. The annualized net charge-off ratio is 0.36% for the first half of 2014, compared with 0.49% for the six months ended June 30, 2013.

Asset quality indicators that improved from both December 31, 2013 and from June 30, 2013 included levels of nonperforming loans of $5,009 at June 30, 2014, compared with $6,584 at December 31, 2013 and $11,950 at June 30, 2013. The coverage ratio of the allowance for loan losses to nonperforming loans increased to 159.13%, from 124.95% at December 31, 2013 and 66.54% at June 30, 2013. The ratio of nonperforming assets to loans and other real estate owned also improved, from 1.88% at December 31, 2013 and 2.19% at June 30, 2013 to 1.72% at June 30, 2014.

Loans past due 90 days or more and still accruing remained at similar levels to December 31, 2013 and June 30, 2013, at $266, or 0.04% of the loan portfolio.

Economic factors were analyzed to determine their impact on the credit risk of the loan portfolio. Within the Company’s market area, average unemployment and residential vacancy rates indicated slight improvement, while the inventory of homes for sale and personal bankruptcy rates slightly worsened. Other factors, including competition, the interest rate environment and business bankruptcy rates remained at similar levels to the previous quarter.

Other real estate owned increased $581 from December 31, 2013 and $4,324 from June 30, 2013. As of June 30, 2014, total properties approximating $1,171 are in various stages of foreclosure and may impact other real estate owned in future quarters. It is not possible to accurately predict the future total of other real estate owned because property sold at foreclosure may be acquired by third parties and NBB’s other real estate owned properties are regularly marketed and sold.

The recent economic recession and slow recovery have contributed to levels of asset quality measures that are higher than normal for the Company, however risk analyses show signs of improvement. Improvements in charge-off ratios, nonperforming loans, average unemployment and residential vacancy rates, partially offset by slightly negative indications in the inventory of homes for sale and personal bankruptcy resulted in an allowance slightly below the level at December 31, 2013 and June 30, 2013. The Company continues to monitor risk levels within the loan portfolio. Please refer to Note 4: Allowance for Loan Losses, Nonperforming Assets and Impaired Loans for further information on collectively-evaluated loans, individually-evaluated impaired loans and the unallocated portion of the allowance for loan losses.

Modifications and Troubled Debt Restructurings (“TDRs”)

In the ordinary course of business, the Company modifies loan terms on a case-by-case basis, including both consumer and commercial loans, for a variety of reasons. Modifications to consumer loans generally involve short-term deferrals to accommodate specific, temporary circumstances. The Company may grant extensions to borrowers who have demonstrated a willingness and ability to repay their loan but who are dealing with the consequences of a specific unforeseen temporary hardship.

An extension defers monthly payments and requires a balloon payment at the original contractual maturity. Where the temporary event is not expected to impact a borrower’s ability to repay the debt, and where the Company expects to collect all amounts due including interest accrued at the contractual interest rate for the period of delay at contractual maturity, the modification is not designated a TDR.

Modifications to commercial loans may include, but are not limited to, changes in interest rate, maturity, amortization and financial covenants. In the original underwriting, loan terms are established that represent the then-current and projected financial condition of the borrower. If the modified terms are consistent with competitive market conditions and are representative of terms the borrower could otherwise obtain in the open market, the modified loan is not categorized as a TDR.

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The Company began coding modification on the core processing system during the second quarter of 2013. The Company uses the coding to assist in identifying troubled debt restructurings. The majority of modifications completed since formal coding was implemented were granted for competitive reasons and did not constitute troubled debt restructurings. A description of modifications that did not result in troubled debt restructurings for the first half of 2014 follows:

Modifications To Borrowers Not Experiencing Financial Difficulty	Number of Loans Modified		Total Amount Modified
Rate reductions for competitive purposes		26	$	13,750
Payment extensions for less than 3 months		44		649
Maturity date extensions of more than 1 month and up to 6 months		58		20,932
Maturity date extensions of more than 6 months and up to 12 months		68		3,176
Maturity date extensions of more than 12 months		6		1,250
Change in amortization term or method		12		2,030
Renewal of expired Home Equity Line of Credit loans to additional 10 years		13		323
Renewal of single-payment notes		72		1,436
Total modifications that do not constitute TDRs		299	$	43,546

Modifications in which the borrower is experiencing financial difficulty and in which the Company makes a concession to the original contractual loan terms are designated troubled debt restructurings.

Modifications of loan terms to borrowers experiencing financial difficulty are made in an attempt to protect as much of the Company’s investment in the loan as possible. The determination of whether a modification should be accounted for as a TDR requires significant judgment after consideration of all facts and circumstances surrounding the transaction.

The Company recognizes that the current economy, elevated levels of unemployment and depressed real estate values have resulted in financial difficulties for some customers. The Company has restructured loan terms for certain qualified financially distressed borrowers who have agreed to work in good faith and have demonstrated the ability to make the restructured payments in order to avoid a foreclosure. All TDR loans are individually evaluated for impairment for purposes of determining the allowance for loan losses. TDR loans with an impairment loss or that do not demonstrate current payments for at least six months are maintained on nonaccrual until the borrower demonstrates sustained repayment history under the restructured terms and continued repayment is not in doubt. Otherwise, interest income is recognized using a cost recovery method.

The Company’s TDRs were $8,914 at June 30, 2014, an increase from $7,043 at December 31, 2013. Accruing TDR loans amounted to $6,240 at June 30, 2014 and $6,191 at December 31, 2013. TDRs with a current payment history of at least 6 months may accrue interest.

	TDR Status as of June 30, 2014
			Accruing
	Total TDR Loans		Current		30-89 Days Past Due		90+ Days Past Due		Nonaccrual
Consumer real estate	$	695	$	695	$	---	$	---	$	695
Commercial real estate		8,174		5,264		236		264		2,674
Commercial non real estate		45		45		---		---		---
Total TDR Loans	$	8,914	$	6,004	$	236	$	264	$	2,674

	TDR Status as of December 31, 2013
			Accruing
	Total TDR Loans		Current		30-89 Days Past Due		90+ Days Past Due		Nonaccrual
Consumer real estate	$	780	$	579	$	---	$	---	$	201
Commercial real estate		6,203		5,552		---		---		651
Commercial non real estate		60		60		---		---		---
Total TDR Loans	$	7,043	$	6,191	$	---	$	---	$	852

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Restructuring generally results in loans with either lower payments or an extended maturity beyond that originally required, and are expected to have a lower risk of loss due to nonperformance than loans classified as nonperforming. During the first half of 2014, the Company modified two loan with post-modification balances totaling $2,693 in troubled debt restructurings, and during the first half of 2013, the Company modified four loans with post-modification balances totaling $4,222. Please refer to Note 4 for information on troubled debt restructurings.

Net Interest Income

The net interest income analysis for the six months ended June 30, 2014 and 2013 follows:

	June 30, 2014							June 30, 2013
	Average Balance		Interest		Average Yield/ Rate			Average Balance		Interest		Average Yield/ Rate
Interest-earning assets:
Loans, net (1)(2)(3)(4)	$	591,626	$	16,024		5.46	%	$	583,698	$	16,752		5.79	%
Taxable securities (5)		209,754		3,350		3.22	%		188,139		3,206		3.44	%
Nontaxable securities (1)(5)(6)		160,654		4,605		5.78	%		174,897		5,053		5.83	%
Interest-bearing deposits		102,698		129		0.25	%		90,099		116		0.26	%
Total interest-earning assets	$	1,064,732	$	24,108		4.57	%	$	1,036,833	$	25,127		4.89	%
Interest-bearing liabilities:
Interest-bearing demand deposits	$	497,574	$	1,820		0.74	%	$	453,509	$	1,971		0.88	%
Savings deposits		77,510		18		0.05	%		71,652		17		0.05	%
Time deposits		237,113		772		0.66	%		270,599		1,239		0.92	%
Total interest-bearing liabilities	$	812,197	$	2,610		0.65	%	$	795,760	$	3,227		0.82	%
Net interest income and interest rate spread			$	21,498		3.92	%			$	21,900		4.07	%
Net yield on average interest-earning assets						4.07	%						4.26	%

⁽¹⁾ Interest on nontaxable loans and securities is computed on a fully taxable equivalent basis using a Federal income tax rate of 35% in the six-month periods presented.

⁽²⁾ Included in interest income are loan fees of $288 and $490 for the six months ended June 30, 2014 and 2013, respectively.

⁽³⁾ Nonaccrual loans are included in average balances for yield computations.

⁽⁴⁾ Includes mortgage loans held for sale.

⁽⁵⁾ Daily averages are shown at amortized cost.

⁽⁶⁾ Includes restricted stock.

The net interest margin for the six months ended June 30, 2014 decreased 19 basis points from the six months ended June 30, 2013. The decrease in interest rate spread was driven by a decline in the yield on earning assets of 32 basis points offset by a decline in the cost of interest-bearing liabilities of 17 basis points. Both loans and securities experienced a decline in yields. The 33 basis point decline in the yield on loans stemmed from contractual repricing terms and the renegotiation of loan interest rates in response to competition. The yield on taxable securities was 22 basis points lower for the six months ended June 30, 2014, when compared with the same period in 2013, while the yield on nontaxable securities declined 5 basis points over the same period. The market yield for securities of a comparable term has declined over the past year, causing matured and called bonds to be replaced with lower yielding investments. The decline in the cost of interest-bearing liabilities came mainly from a 26 basis point reduction in the cost of time deposits and a 14 basis point reduction in interest-bearing demand deposits when the six month periods ended June 30, 2014 and June 30, 2013 are compared.

The Company’s yield on earning assets and cost of funds are largely dependent on the interest rate environment. In the recent past, historically low interest rates caused funding costs to decline at a faster pace than the yield on earning assets. The decline in deposit pricing has begun to slow while competitive and market forces continue to pressure the yield on earning assets. The Company’s cost of funding is more sensitive to interest rate changes than is the yield on earning assets.

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Provision and Allowance for Loan Losses

The provision for loan losses for the six month period ended June 30, 2014 was $804, compared with $1,026 for the six months of 2013. The provision for loan losses is the result of a detailed analysis to estimate an appropriate and adequate allowance for loan losses. The ratio of the allowance for loan losses to total loans at June 30, 2014 was 1.34%, which compares to 1.38% at December 31, 2013. The net charge-off ratio was 0.36% at June 30, 2014 and 0.28% at December 31, 2013. The change in the provision for loan losses was largely attributable to improvements in credit quality trends, lower net charge-offs when compared with those for the first half of 2013 and some positive economic indicators. See “Asset Quality” for additional information.

Noninterest Income

	Six Months Ended
	June 30, 2014		June 30, 2013		Percent Change
Service charges on deposits	$	1,199	$	1,213		(1.15	)%
Other service charges and fees		103		102		0.98	%
Credit card fees		1,758		1,593		10.36	%
Trust fees		625		600		4.17	%
BOLI income		352		364		(3.30	)%
Other income		506		504		0.40	%
Realized securities gains, net		1		18		(94.44	)%

Service charges on deposit accounts for the six months ended June 30, 2014 decreased slightly when compared with the same period in 2013, while other service charges and fees increased slightly. Other service charges and fees includes charges for official checks, income from the sale of checks to customers, safe deposit box rent, fees for letters of credit and the income earned from commissions on the sale of credit life, accident and health insurance.

Credit card fees for the six months of 2014 increased $165, or 10.36%, when compared with the same period last year. The increase was due to a higher volume of merchant transactions and credit card fees.

Income from trust fees increased 4.17% or $25 from the $600 earned in the same period of 2013. Trust income varies depending on the total assets held in trust accounts, the type of accounts under management and financial market conditions.

BOLI income decreased $12 from June 30, 2013 to June 30, 2014.

Other income includes net gains from the sales of fixed assets, revenue from investment and insurance sales and other smaller miscellaneous components. Other income for the six months ended June 30, 2014 increased $2 when compared with the six months ended June 30, 2013. These areas fluctuate with market conditions and because of competitive factors.

Net realized securities gains for the six months ended June 30, 2014 were $1, as compared with $18 for the same period in 2013. Net realized securities gains and losses are market driven and have resulted from calls and sales of securities.

Noninterest Expense

	Six Months Ended
	June 30, 2014		June 30, 2013		Percent Change
Salaries and employee benefits	$	6,006	$	5,932		1.25	%
Occupancy, furniture and fixtures		857		836		2.51	%
Data processing and ATM		757		811		(6.66	)%
FDIC assessment		264		272		(2.94	)%
Credit card processing		1,214		1,198		1.34	%
Intangibles amortization		538		540		(0.37	)%
Net costs of other real estate owned		161		140		15.00	%
Franchise taxes		566		523		8.22	%
Other operating expenses		1,879		1,849		1.62	%

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Total noninterest expense increased $141 or 1.17% when the six months ended June 30, 2014 are compared to the same period of 2013. Most of the increase stemmed from an increase of $74 in salaries and benefits, a $43 increase in franchise taxes and a $21 increase in the cost of other real estate owned. Bank franchise tax expense is calculated based on capital levels. The cost of other real estate owned includes maintenance costs as well as valuation write-downs and gains and losses on the sale of properties. The expense varies with the number of properties, the maintenance required and changes in the real estate market.

FDIC assessment expense for the six months ended June 30, 2014 decreased $8 or 2.94% over the same period for 2013. The calculation is based on total assets and incorporates risk-based factors to determine the amount of the assessment.

Occupancy, furniture and fixtures expense increased 2.51%, from $836 for the six months ended June 30, 2013 to $857 as of June 30, 2014. Credit card processing expense increased by 1.34% from the total for the six months ended June 30, 2013. This expense is driven by volume and other factors and is subject to a degree of variability.

Other operating expense increased $30 from $1,849 for the six months ended June 30, 2013 to $1,879 for the six months ended June 30, 2014. The category of other operating expenses includes noninterest expense items such as professional services, stationery and supplies, telephone costs, postage, charitable donations and other expenses. Contributing to the increase were higher telephone and information services costs, as well as a loss on the sale of fixed assets of $94.

Data processing and ATM expense for the six months ended June 30, 2014 decreased $54 when compared with the expense for the six months ended June 30, 2013. The decline stemmed from upgrades to ATMs that resulted in lower maintenance expenses, and conversion to a lower-cost vendor for communication infrastructure.

The expense for intangibles amortization is related to acquisitions. There were no acquisitions in the past year, with minimal change in expense between the six month periods ended June 30, 2014 and June 30, 2013.

Balance Sheet

Year-to-date daily averages for the major balance sheet categories are as follows:

Assets	June 30, 2014		December 31, 2013		Percent Change
Interest-bearing deposits	$	102,698	$	80,690		27.27	%
Securities available for sale and restricted stock		190,433		197,447		(3.55	)%
Securities held to maturity		163,643		164,888		(0.76	)%
Loans, net		583,121		577,746		0.93	%
Total assets		1,112,664		1,090,703		2.01	%
Liabilities and stockholders’ equity
Noninterest-bearing demand deposits	$	141,966	$	141,445		0.37	%
Interest-bearing demand deposits		497,574		459,340		8.32	%
Savings deposits		77,510		72,783		6.49	%
Time deposits		237,113		259,914		(8.77	)%
Stockholders’ equity		152,975		149,491		2.33	%

Securities

Management regularly monitors the quality of the securities portfolio, and management closely follows the uncertainty in the economy and the volatility of financial markets.  The value of individual securities will be written down if the decline in fair value is considered to be other than temporary based upon the totality of circumstances. See Note 5 Securities for additional information.

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Loans

	June 30, 2014			December 31, 2013			Percent Change
Real estate construction loans	$	45,953		$	45,925			0.06	%
Consumer real estate loans		145,664			145,499			0.11	%
Commercial real estate loans		305,511			311,266			(1.85	)%
Commercial non real estate loans		32,045			31,262			2.50	%
Public sector and IDA		36,107			34,220			5.51	%
Consumer non real estate		29,004			28,423			2.04	%
Less: unearned income		(884	)		(905	)		(2.32	)%
Loans, net of unearned income	$	593,400		$	595,690			(0.38	)%

The Company’s loans net of unearned income decreased by $2,290 or 0.38%, from $595,690 at December 31, 2013 to $539,400 at June 30, 2014. Growth in real estate construction, consumer real estate, commercial non real estate, public sector and consumer non real estate was offset by declines in commercial real estate loans of $5,755 from December 31, 2013 to June 30, 2014.

Public sector and IDA loans increased $1,877 from December 31, 2013 while commercial non real estate loans increased by $783 or 2.50% from December 31, 2013. The changes are due to market, economic and competitive forces and are not the result of changes in lending policies.

The Company does not now, nor has it ever, offered certain types of higher-risk loans such as subprime loans, option ARM products, reverse mortgages or loans with initial teaser rates.

Deposits

	June 30, 2014		December 31, 2013		Percent Change
Noninterest-bearing demand deposits	$	146,727	$	142,645		2.86	%
Interest-bearing demand deposits		510,304		501,541		1.75	%
Saving deposits		79,255		74,141		6.90	%
Time deposits		231,177		241,709		(4.36	)%
Total deposits	$	967,463	$	960,036		0.77	%

Total deposits increased $7,427, or 0.77% from $960,036 at December 31, 2013 to $967,463 at June 30, 2014. Increases in non-time deposits totaled $17,959, or 2.50%. These increases were offset by a decline time deposits of $10,532, or 4.36%, when June 30, 2014 is compared with December 31, 2013. Historically low rates have caused a migration from time deposits to other types of deposits. As longer-term certificates of deposit mature, customers are unwilling to commit their funds for extended periods at low interest rates. Time deposits do not include any brokered deposits.

Liquidity

Liquidity measures the Company’s ability to meet its financial commitments at a reasonable cost. Demands on the Company’s liquidity include funding additional loan demand and accepting withdrawals of existing deposits. The Company has diverse sources of liquidity, including customer and purchased deposits, customer repayments of loan principal and interest, sales, calls and maturities of securities, Federal Reserve discount window borrowing, short-term borrowing, and Federal Home Loan Bank (“FHLB”) advances. At June 30, 2014, the bank did not have purchased deposits, discount window borrowings, short-term borrowings, or FHLB advances. To assure that short-term borrowing is readily available, the Company tests accessibility annually.

Liquidity from securities is restricted by accounting and business considerations. The securities portfolio is segregated into available-for-sale and held-to-maturity. The Company considers only securities designated available-for-sale for typical liquidity needs. Further, portions of the securities portfolio are pledged to meet state requirements for public funds deposits. Discount window borrowings also require pledged securities. Increased or decreased liquidity from public funds deposits or discount window borrowings results in increased or decreased liquidity from pledging requirements. The Company monitors public funds pledging requirements and the amount of unpledged available-for-sale securities that are accessible for liquidity needs.

Regulatory capital levels determine the Company’s ability to utilize purchased deposits and the Federal Reserve discount window for liquidity needs. At June 30, 2014, the Company is considered well capitalized and does not have any restrictions on purchased deposits or the Federal Reserve discount window.

The Company monitors factors that may increase its liquidity needs. Some of these factors include deposit trends, large depositor activity, maturing deposit promotions, interest rate sensitivity, maturity and repricing timing gaps between assets and liabilities, the level of unfunded loan commitments and loan growth. At June 30, 2014, the Company’s liquidity is sufficient to meet projected trends in these areas.

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To monitor and estimate liquidity levels, the Company performs stress testing under varying assumptions on credit sensitive liabilities. It also tests the sources and amounts of balance sheet and external liquidity available to replace outflows. The Company’s Contingency Funding Plan sets forth avenues for rectifying liquidity shortfalls. At June 30, 2014, the analysis indicated adequate liquidity under the tested scenarios.

The Company utilizes several other strategies to maintain sufficient liquidity. Loan and deposit growth are managed to keep the loan to deposit ratio within the Company’s own policy range of 65% to 75%. At June 30, 2014, the loan to deposit ratio was 61.34%, slightly below the Company’s internal target. The investment strategy takes into consideration the term of the investment, and securities in the available for sale portfolio are laddered to account for projected funding needs.

Capital Resources

Total stockholders’ equity at June 30, 2014 was $156,796, an increase of $10,904 or 7.47%, from the $145,892 at December 31, 2013. The Tier I and Tier II risk-based capital ratios at June 30, 2014 were 23.22% and 24.38%, respectively. Capital levels remain significantly above the regulatory minimum capital requirements of 4.0% for Tier I and 8.0% for Tier II capital.

Off-Balance Sheet Arrangements

In the normal course of business, NBB extends lines of credit and letters of credit to its customers. Depending on their needs, customers may draw upon lines of credit at any time in any amount up to a pre-approved limit. Standby letters of credit are issued for two purposes. Financial letters of credit guarantee payments to facilitate customer purchases. Performance letters of credit guarantee payment if the customer fails to complete a specific obligation.

Historically, the full approved amount of letters and lines of credit has not been drawn at any one time. The Company has developed plans to meet a sudden and substantial funding demand. These plans include accessing a line of credit with a correspondent bank, borrowing from the FHLB, selling available for sale investments or loans and raising additional deposits.

The Company sells mortgages on the secondary market for which there are recourse agreements should the borrower default. Mortgages must meet strict underwriting and documentation requirements for the sale to be completed. The Company has determined that its risk in this area is not significant because of a low volume of secondary market mortgage loans and high underwriting standards. The Company estimates a potential loss reserve for recourse provisions that is not material as of June 30, 2014. To date, no recourse provisions have been invoked. If funds were needed, the Company would access the same sources as noted above for funding lines and letters of credit.

There were no material changes in off-balance sheet arrangements during the six months ended June 30, 2014, except for normal seasonal fluctuations in the total of mortgage loan commitments.

Contractual Obligations

The Company had no capital lease or purchase obligations and no long-term debt at June 30, 2014. Operating lease obligations, which are for buildings used in the Company’s day-to-day operations, were not material at the end of the six months of 2014 and have not changed materially from those which were disclosed in the Company’s 2013 Form 10-K.

Item 3.  Quantitative and Qualitative Disclosures About Market Risk

The Company considers interest rate risk to be a significant market risk and has systems in place to measure the exposure of net interest income to adverse movement in interest rates. Interest rate shock analyses provide management with an indication of potential economic loss due to future rate changes. There have not been any changes which would significantly alter the results disclosed as of December 31, 2013 in the Company’s 2013 Form 10-K.

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Item 4. Controls and Procedures

The Company’s management evaluated, with the participation of the Company’s principal executive officer and principal financial officer, the effectiveness of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based on that evaluation, the Company’s principal executive officer and principal financial officer concluded that the Company’s disclosure controls and procedures are effective as of June 30, 2014 to ensure that information required to be disclosed in the reports that the Company files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including the Company’s principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

There were no changes in the Company’s internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) during the six months ended June 30, 2014 that have materially affected, or are reasonably likely to materially affect, the Corporation’s internal control over financial reporting.

Because of the inherent limitations in all control systems, the Company believes that no system of controls, no matter how well designed and operated, can provide absolute assurance that all control issues have been detected.

Part II

Other Information

Item 1.     Legal Proceedings

 There are no pending or threatened legal proceedings to which the Company or any of its subsidiaries is a party or to which the property of the Company or any of its subsidiaries is subject that, in the opinion of management, may materially impact the financial condition of the Company.

Item 1A. Risk Factors

 Please refer to the “Risk Factors” previously disclosed in Item 1A of our 2013 Annual Report on Form 10-K and the factors discussed under “Cautionary Statement Regarding Forward-Looking Statements” in Part I. Item 2 of this Form 10-Q.

Item 2.     Unregistered Sales of Equity Securities and Use of Proceeds

 None.

Item 3.    Defaults Upon Senior Securities

 None.

Item 4.    Mine Safety Disclosures

                 Not applicable.          

Item 5.    Other Information

Change in Annual Meeting Date and Deadline for Shareholder Proposals

On July 9, 2014, the Board of Directors of the Company adopted an amendment (the “Amendment”) of the Bylaws of the Company. The Amendment became effective immediately on its adoption and changed the date of the annual meeting of the shareholders from the second Tuesday in April to the second Tuesday in May each year.

A copy of the Company’s Amended and Restated Bylaws was attached to the Current Report on Form 8-K filed with the U.S. Securities and Exchange Commission on July 9, 2014.

Because the expected date of the 2015 Annual Meeting represents a change of more than 30 days from the anniversary of the Company’s 2014 annual shareholders’ meeting, the Company has set a new deadline for the receipt of shareholder proposals submitted pursuant to Rule 14a-8 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), for inclusion in the Company’s proxy materials for the 2015 Annual Meeting. In order to be considered for inclusion, such proposals must be received in writing by the Company before the close of business on December 8, 2014 and delivered to the Company’s President at the Company’s principal executive offices located at 101 Hubbard Street, Blacksburg, Virginia 24060, or mailed to P.O. Box 90002, Blacksburg, Virginia, 24062-9002.

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Proposals must also comply with the applicable requirements of Rule 14a-8 of the Exchange Act regarding the inclusion of shareholder proposals in Company-sponsored proxy materials and other applicable laws. The December 8, 2014 deadline will also apply in determining whether notice of a shareholder proposal is timely for purposes of exercising discretionary voting authority with respect to proxies under Rule 14a-4(c)(1) of the Exchange Act.

Additionally, in order for a shareholder to bring business before the 2015 Annual Meeting outside of Rule 14a-8 of the Exchange Act or to nominate a director, it must provide timely notice within the applicable time period set forth in the advance notice provisions of the Company’s Bylaws. The Bylaws provide that the President of the Company must receive written notice at the principal executive offices of the Company no less than 60 days (March 11, 2015) nor more than 90 days (February 10, 2015) prior to the date of the 2015 Annual Meeting. Such notice must be delivered to the Company’s President at the Company’s principal executive offices located at 101 Hubbard Street, Blacksburg, Virginia 24060, or mailed to P.O. Box 90002, Blacksburg, Virginia, 24062-9002.

Item 6.   Exhibits

See Index of Exhibits.     

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 BANKSHARES, INC.
Date: August 6, 2014		/s/ James G. Rakes
		James G. Rakes Chairman, President and Chief Executive Officer (Principal Executive Officer)
Date: August 6, 2014		/s/ David K. Skeens
		David K. Skeens Treasurer and Chief Financial Officer (Principal Financial Officer) (Principal Accounting Officer)

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Index of Exhibits

Exhibit No.	Description	Page No. in Sequential System
3(i)	Amended and Restated Articles of Incorporation of National Bankshares, Inc.	(incorporated herein by reference to Exhibit 3.1 of the Form 8K for filed on March 16, 2006)
3(ii)	Amended By-laws of National Bankshares, Inc.	(incorporated herein by reference to the Form 8-K filed on July 9, 2014)
4(i)	Specimen copy of certificate for National Bankshares, Inc. common stock	(incorporated herein by reference to Exhibit 4(a) of the Annual Report on Form 10K for fiscal year ended December 31, 1993)
*10(iii)(A)	National Bankshares, Inc. 1999 Stock Option Plan	(incorporated herein by reference to Exhibit 4.3 of the Form S-8, filed as Registration No. 333-79979 with the Commission on June 4, 1999)
*10(iii)(A)	Executive Employment Agreement dated December 17, 2008, between National Bankshares, Inc. and James G. Rakes	(incorporated herein by reference to Exhibit 10(iii)(A) of the Annual Report on Form 10K for the fiscal year ended December 31, 2008)
*10(iii)(A)	Executive Employment Agreement dated December 17, 2008, between National Bankshares, Inc. and F. Brad Denardo	(incorporated herein by reference to Exhibit 10(iii)(A) of the Annual Report on Form 10K for the fiscal year ended December 31, 2008)
*10(iii)(A)	Salary Continuation Agreement dated February 8, 2006, between The National Bank of Blacksburg and James G. Rakes	(incorporated herein by reference to Exhibit 10(iii)(A) of the Form 8K filed on February 8, 2006)
*10(iii)(A)	Salary Continuation Agreement dated February 8, 2006, between The National Bank of Blacksburg and F. Brad Denardo	(incorporated herein by reference to Exhibit 10(iii)(A) of the Form 8K filed on February 8, 2006)
*10(iii)(A)	Salary Continuation Agreement dated February 8, 2006, between The National Bank of Blacksburg and David K. Skeens	(incorporated herein by reference to Exhibit 10(iii)(A) of the Form 8K filed on January 25, 2012)
*10(iii)(A)	First Amendment, dated December 19, 2007, to The National Bank of Blacksburg Salary Continuation Agreement for James G. Rakes	(incorporated herein by reference to Exhibit 10(iii)(A) of the Form 8K filed on December 19, 2007)
*10(iii)(A)	First Amendment, dated December 19, 2007, to The National Bank of Blacksburg Salary Continuation Agreement for F. Brad Denardo	(incorporated herein by reference to Exhibit 10(iii)(A) of the Form 8K filed on December 19, 2007)
*10(iii)(A)	First Amendment, dated December 19, 2007, to The National Bank of Blacksburg Salary Continuation Agreement for David K. Skeens	(incorporated herein by reference to Exhibit 10(iii)(A) of the Form 8K filed on January 25, 2012)
*10(viii)(A)	Second Amendment, dated June 12, 2008, to The National Bank of Blacksburg Salary Continuation Agreement for F. Brad Denardo	(incorporated herein by reference to Exhibit 10(iii)(A) of the Form 8K filed on June 12, 2008)

48

*10(viii)(A)	Second Amendment, dated December 17, 2008, to The National Bank of Blacksburg Salary Continuation Agreement for James G. Rakes	(incorporated herein by reference to Exhibit 10(iii)(A) of the Annual Report on Form 10K for the fiscal year ended December 31, 2008)
*10(iii)(A)	Second Amendment, dated June 12, 2008, to The National Bank of Blacksburg Salary Continuation Agreement for David K. Skeens	(incorporated herein by reference to Exhibit 10(iii)(A) of the Form 8K filed on January 25, 2012)
*10(viii)(A)	Third Amendment, dated December 17, 2008, to The National Bank of Blacksburg Salary Continuation Agreement for F. Brad Denardo	(incorporated herein by reference to Exhibit 10(iii)(A) of the Annual Report on Form 10K for the fiscal year ended December 31, 2008)
*10(iii)(A)	Third Amendment, dated January 20, 2012, to The National Bank of Blacksburg Salary Continuation Agreement for David K. Skeens	(incorporated herein by reference to Exhibit 10(iii)(A) of the Form 8K filed on January 25, 2012)
*10(iii)(A)	Salary Continuation Agreement dated January 20, 2012 between The National Bank of Blacksburg and Bryson J. Hunter	(incorporated herein by reference to Exhibit 10(iii)(A) of the Form 8K filed on January 25, 2012)
31(i)	Section 906 Certification of Chief Executive Officer	(included herewith)
31(ii)	Section 906 Certification of Chief Financial Officer	(included herewith)
32(i)	18 U.S.C. Section 1350 Certification of Chief Executive Officer	(included herewith)
32(ii)	18 U.S.C. Section 1350 Certification of Chief Financial Officer	(included herewith)
101	Pursuant to Rule 405 of Regulation S-T, the following financial information from the Company's Quarterly Report on Form 10-Q for the period ended June 30, 2014 is formatted in XBRL interactive data files: (i) Consolidated Statements of Income for the six months ended June 30, 2014, and 2013; (ii) Consolidated Balance Sheets at June 30, 2014 and December 31, 2013; (iii) Consolidated Statements of Changes in Stockholders’ Equity for the six months ended June 30, 2014 and 2013; (iv) Consolidated Statements of Cash Flows for the six months ended June 30, 2014 and 2013; and (v) Notes to Financial Statements

*     Indicates a management contract or compensatory plan.      

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EX-31

Exhibit 31(i)

CERTIFICATIONS

I, James G. Rakes, certify that:

1.     I have reviewed this quarterly report on Form 10-Q of National Bankshares, Inc.;

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

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

4.     The registrant’s other certifying officer(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 6, 2014

/s/ James G. Rakes

James G. Rakes
Chairman, President and Chief Executive Officer
(Principal Executive Officer)

EX-31

Exhibit 31(ii)

CERTIFICATIONS

I, David K. Skeens, certify that:

1.     I have reviewed this quarterly report on Form 10-Q of National Bankshares, Inc.;

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

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

4.     The registrant’s other certifying officer(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 6, 2014

/s/ David K. Skeens

David K. Skeens
Treasurer and

Chief Financial Officer

(Principal Financial Officer)

EX-32

Exhibit 32 (i)

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350

In connection with the Form 10-Q of National Bankshares, Inc. for the quarter ended June 30, 2014, I, James G. Rakes, Chairman, President and Chief Executive Officer (Principal Executive Officer) of National Bankshares, Inc., hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge and belief, that:

(1)     such Form 10-Q for the quarter ended June 30, 2014, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)     the information contained in such Form 10-Q for the quarter ended June 30, 2014, fairly presents, in all material respects, the financial condition and results of operations of National Bankshares, Inc.

/s/ James G. Rakes

James G. Rakes
Chairman, President and Chief Executive Officer
(Principal Executive Officer)

August 6, 2014

EX-32

Exhibit 32 (ii)

CERTIFICATION OF CHIEF FINANCIAL OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350

In connection with the Form 10-Q of National Bankshares, Inc. for the quarter ended June 30, 2014, I, David K. Skeens, Treasurer and Chief Financial Officer (Principal Financial Officer) of National Bankshares, Inc., hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of my knowledge and belief, that:

(1)     such Form 10-Q for the quarter ended June 30, 2014, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)     the information contained in such Form 10-Q for the quarter ended June 30, 2014, fairly presents, in all material respects, the financial condition and results of operations of National Bankshares, Inc.

/s/David K. Skeens

David K. Skeens
Treasurer and

Chief Financial Officer

(Principal Financial Officer)

August 6, 2014

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Note 4 - Allowance for Loan Losses, Nonperforming Assets and Impaired Loans (Details) - Past Due and Nonaccrual Loans (USD $) In Thousands, unless otherwise specified	Jun. 30, 2014		Dec. 31, 2013		Jun. 30, 2013
Financing Receivable, Recorded Investment, Past Due [Line Items]
30 – 89 Days Past Due	$ 4,958	[1]	$ 2,956	[1]
90 or More Days Past Due	4,754	[1]	6,268	[1]
90 or More Days Past Due and Still Accruing	266	[1]	190	[1]	125
Nonaccruals (Including Impaired Nonaccruals)	5,009	[1]	6,584	[1]	11,950
Construction Other [Member] | Real Estate Construction [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
30 – 89 Days Past Due	42	[1]	45	[1]
90 or More Days Past Due		[1]		[1]
90 or More Days Past Due and Still Accruing		[1]		[1]
Nonaccruals (Including Impaired Nonaccruals)		[1]		[1]
Equity Lines [Member] | Consumer Real Estate [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
30 – 89 Days Past Due	72	[1]
90 or More Days Past Due		[1]
90 or More Days Past Due and Still Accruing		[1]
Nonaccruals (Including Impaired Nonaccruals)		[1]
Residential Closed End First Liens [Member] | Consumer Real Estate [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
30 – 89 Days Past Due	1,037	[1]	903	[1]
90 or More Days Past Due	332	[1]	252	[1]
90 or More Days Past Due and Still Accruing	233	[1]	128	[1]
Nonaccruals (Including Impaired Nonaccruals)	186	[1]	308	[1]
Residential Closed End Junior Liens [Member] | Consumer Real Estate [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
30 – 89 Days Past Due	111	[1]	10	[1]
90 or More Days Past Due		[1]		[1]
90 or More Days Past Due and Still Accruing		[1]		[1]
Nonaccruals (Including Impaired Nonaccruals)		[1]		[1]
Investor-Owned Residential Real Estate [Member] | Consumer Real Estate [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
30 – 89 Days Past Due	269	[1]	422	[1]
90 or More Days Past Due		[1]	91	[1]
90 or More Days Past Due and Still Accruing		[1]		[1]
Nonaccruals (Including Impaired Nonaccruals)	16	[1]	91	[1]
Multifamily Real Estate [Member] | Commercial Real Estate Loans [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
30 – 89 Days Past Due	722	[1]	430	[1]
90 or More Days Past Due	2,823	[1]	3,278	[1]
90 or More Days Past Due and Still Accruing		[1]		[1]
Nonaccruals (Including Impaired Nonaccruals)	2,823	[1]	3,278	[1]
Commercial Real Estate, Owner Occupied [Member] | Commercial Real Estate Loans [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
30 – 89 Days Past Due	1,347	[1]	604	[1]
90 or More Days Past Due	1,566	[1]	2,519	[1]
90 or More Days Past Due and Still Accruing		[1]		[1]
Nonaccruals (Including Impaired Nonaccruals)	1,913	[1]	2,756	[1]
Commercial and Industrial [Member] | Commercial Non Real Estate [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
30 – 89 Days Past Due	880	[1]	196	[1]
90 or More Days Past Due		[1]	43	[1]
90 or More Days Past Due and Still Accruing		[1]		[1]
Nonaccruals (Including Impaired Nonaccruals)	71	[1]	128	[1]
Credit Card Receivable [Member] | Consumer Non Real Estate [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
30 – 89 Days Past Due	45	[1]	3	[1]
90 or More Days Past Due	7	[1]	13	[1]
90 or More Days Past Due and Still Accruing	7	[1]	13	[1]
Nonaccruals (Including Impaired Nonaccruals)		[1]		[1]
Automobile [Member] | Consumer Non Real Estate [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
30 – 89 Days Past Due	347	[1]	217	[1]
90 or More Days Past Due	26	[1]	26	[1]
90 or More Days Past Due and Still Accruing	26	[1]	2	[1]
Nonaccruals (Including Impaired Nonaccruals)		[1]	23	[1]
Other Consumer Loans [Member] | Consumer Non Real Estate [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
30 – 89 Days Past Due	86	[1]	49	[1]
90 or More Days Past Due		[1]	46	[1]
90 or More Days Past Due and Still Accruing		[1]	47	[1]
Nonaccruals (Including Impaired Nonaccruals)		[1]		[1]
Construction Residential [Member] | Real Estate Construction [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
30 – 89 Days Past Due			45	[1]
90 or More Days Past Due				[1]
90 or More Days Past Due and Still Accruing				[1]
Nonaccruals (Including Impaired Nonaccruals)				[1]
Commercial Real Estate, Other [Member] | Commercial Real Estate Loans [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
30 – 89 Days Past Due			32	[1]
90 or More Days Past Due				[1]
90 or More Days Past Due and Still Accruing				[1]
Nonaccruals (Including Impaired Nonaccruals)				[1]

[1] Only classes with past-due or nonaccrual loans are shown.

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Note 9 - Components of Accumulated Other Comprehensive Loss (Details) - Components of Accumulated Other Comprehensive Loss (Parentheticals) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013
Accumulated Other Comprehensive Income (Loss) [Line Items]
Unrealized holding gains (losses) on available for sale securities, tax	$ 1,664	$ (4,577)	$ 3,345	$ (5,094)
Reclassification adjustment, tax	$ 0	$ (3)	$ 0	$ (6)

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Note 7 - Defined Benefit Plan (Details) - Defined Benefit Plan Activity (Pension Benefits [Member], USD $) In Thousands, unless otherwise specified	6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013
Pension Benefits [Member]
Defined Benefit Plan Disclosure [Line Items]
Service cost	$ 262	$ 298
Interest cost	332	308
Expected return on plan assets	(556)	(492)
Amortization of prior service cost	(54)	(50)
Recognized net actuarial loss	130	266
Net periodic benefit cost	$ 114	$ 330

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Note 9 - Components of Accumulated Other Comprehensive Loss (Details) - Reclassifications Out of Accumulated Other Comprehensive Income (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013
Reclassifications out of unrealized gains and losses on available-for-sale securities:
Realized securities gains, net		$ 9		$ 18
Income tax expense	0	3	0	6
Realized gains and losses on available-for-sale securities, net of tax, reclassified out of accumulated other comprehensive income		$ 6		$ 12

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Note 5 - Securities (Details) - Temporarily Impaired Securities (USD $) In Thousands, unless otherwise specified	Jun. 30, 2014	Dec. 31, 2013
Note 5 - Securities (Details) - Temporarily Impaired Securities [Line Items]
Less Than 12 Months - Fair Value	$ 12,403	$ 202,015
Less Than 12 Months - Unrealized Loss	129	27,059
12 Months or More - Fair Value	199,626	18,493
12 Months or More - Unrealized Loss	16,218	3,702
US Government Agencies [Member]
Note 5 - Securities (Details) - Temporarily Impaired Securities [Line Items]
Less Than 12 Months - Fair Value	4,996	138,324
Less Than 12 Months - Unrealized Loss	13	20,400
12 Months or More - Fair Value	161,705	15,796
12 Months or More - Unrealized Loss	14,036	3,211
States And Political Subdivisions [Member]
Note 5 - Securities (Details) - Temporarily Impaired Securities [Line Items]
Less Than 12 Months - Fair Value	4,866	58,013
Less Than 12 Months - Unrealized Loss	25	6,131
12 Months or More - Fair Value	34,076	2,697
12 Months or More - Unrealized Loss	2,000	491
Corporate Securities [Member]
Note 5 - Securities (Details) - Temporarily Impaired Securities [Line Items]
Less Than 12 Months - Fair Value	2,424	5,511
Less Than 12 Months - Unrealized Loss	19	506
12 Months or More - Fair Value	3,845
12 Months or More - Unrealized Loss	182
Other Securities [Member]
Note 5 - Securities (Details) - Temporarily Impaired Securities [Line Items]
Less Than 12 Months - Fair Value	117	167
Less Than 12 Months - Unrealized Loss	$ 72	$ 22

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Note 4 - Allowance for Loan Losses, Nonperforming Assets and Impaired Loans (Details) - Summary of Ratios for Allowance for Loan Losses	6 Months Ended				12 Months Ended
	Jun. 30, 2014		Jun. 30, 2013		Dec. 31, 2013
Summary of Ratios for Allowance for Loan Losses [Abstract]
Ratio of allowance for loan losses to the end of period loans, net of unearned income and deferred fees	1.34%		1.35%		1.38%
Ratio of net charge-offs to average loans, net of unearned income and deferred fees(1)	0.36%	[1]	0.49%	[1]	0.28%	[1]

[1] Net charge-offs are on an annualized basis.

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Note 8 - Fair Value Measurements (Tables)

6 Months Ended

Jun. 30, 2014

Fair Value Disclosures [Abstract]

Schedule of Fair Value, Assets and Liabilities Measured on Recurring Basis [Table Text Block]

			Fair Value Measurements at June 30, 2014 Using
Description	Balance as of June 30, 2014		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
U.S. Government agencies and corporations	$	161,886	$	---	$	161,886	$	---
States and political subdivisions		22,335		---		22,335		---
Mortgage-backed securities		2,400		---		2,400		---
Corporate debt securities		8,669		---		8,669		---
Other securities		117		---		117		---
Total securities available for sale	$	195,407	$	---	$	195,407	$	---

			Fair Value Measurements at December 31, 2013 Using
Description	Balance as of December 31, 2013		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
U.S. Government agencies and corporations	$	147,854	$	---	$	147,854	$	---
States and political subdivisions		23,456		---		23,456		---
Mortgage-backed securities		2,840		---		2,840		---
Corporate debt securities		7,395		---		7,395		---
Other securities		167		---		167		---
Total securities available for sale	$	181,712	$	---	$	181,712	$	---

Fair Value Measurements, Nonrecurring [Table Text Block]

				Carrying Value
Date	Description	Balance		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	Assets:
June 30, 2014	Impaired loans net of valuation allowance	$	2,698	$	---	$	---	$	2,698
December 31, 2013	Impaired loans net of valuation allowance		1,989		---		---		1,989

				Carrying Value
Date	Description	Balance		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	Assets:
June 30, 2014	Other real estate owned net of valuation allowance	$	5,293	$	---	$	---	$	5,293
December 31, 2013	Other real estate owned net of valuation allowance		4,712		---		---		4,712

Fair Value Inputs, Assets, Quantitative Information [Table Text Block]

June 30, 2014	Valuation Technique	Unobservable Input	Range (Weighted Average)
Impaired loans	Present value of cash flows	Market rate for borrower (discount rate)	5.88%	-	9.50%	(7.35%)

June 30, 2014	Valuation Technique	Unobservable Input	Range (Weighted Average)
Other real estate owned	Discounted appraised value	Selling cost	0.00%(1)	–	10%	(6.33%)
Other real estate owned	Discounted appraised value	Discount for lack of marketability and age of appraisal	0.00%	-	46.92%	(14.47%)

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

	June 30, 2014
	Carrying Amount		Quoted Prices in Active Markets for Identical Assets Level 1		Significant Other Observable Inputs Level 2		Significant Unobservable Inputs Level 3		Total Estimated Fair Value
Financial Assets:
Cash and due from banks	$	15,917	$	15,917	$	---	$	---	$	15,917
Interest-bearing deposits		106,112		106,112		---		---		106,112
Securities		358,363		---		361,589		---		361,589
Restricted securities		1,089		---		1,089		---		1,089
Mortgage loans held for sale		383		---		383		---		383
Loans, net		585,429		---		---		576,676		576,676
Accrued interest receivable		5,798		5,798		---		---		5,798
Bank-owned life insurance		21,491		21,491		---		---		21,491
Financial Liabilities:
Deposits	$	967,463	$	736,286	$	---	$	236,131	$	972,417
Accrued interest payable		71		71		---		---		71

	December 31, 2013
	Carrying Amount		Quoted Prices in Active Markets for Identical Assets Level 1		Significant Other Observable Inputs Level 2		Significant Unobservable Inputs Level 3		Total Estimated Fair Value
Financial Assets:
Cash and due from banks	$	13,283	$	13,283	$	---	$	---	$	13,283
Interest-bearing deposits		98,066		98,066		---		---		98,066
Securities		345,695		---		341,049		---		341,049
Restricted securities		1,414		---		1,414		---		1,414
Mortgage loans held for sale		1,276		---		1,276		---		1,276
Loans, net		587,463		---		---		616,755		616,755
Accrued interest receivable		5,949		5,949		---		---		5,949
Bank-owned life insurance		21,181		21,181		---		---		21,181
Financial Liabilities:
Deposits	$	960,036	$	718,327	$	---	$	247,753	$	966,080
Accrued interest payable		92		92		---		---		92

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Note 8 - Fair Value Measurements (Details) - Impaired Loans and Other Real Estate Owned Measured at Fair Value on Nonrecurring Basis (USD $) In Thousands, unless otherwise specified	Jun. 30, 2014	Dec. 31, 2013
Note 8 - Fair Value Measurements (Details) - Impaired Loans and Other Real Estate Owned Measured at Fair Value on Nonrecurring Basis [Line Items]
Impaired Loans	$ 2,698	$ 1,989
Other Real Estate Owned	5,293	4,712
Fair Value, Inputs, Level 3 [Member]
Note 8 - Fair Value Measurements (Details) - Impaired Loans and Other Real Estate Owned Measured at Fair Value on Nonrecurring Basis [Line Items]
Impaired Loans	2,698	1,989
Other Real Estate Owned	$ 5,293	$ 4,712

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Note 4 - Allowance for Loan Losses, Nonperforming Assets and Impaired Loans (Details) - Restructured Loans that Defaulted (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013
Consumer Real Estate
Number of contracts	0	5	0	6
Principal balance		$ 941		$ 1,134
Consumer Real Estate Loans [Member] | Closed-end First Liens [Member]
Consumer Real Estate
Number of contracts		1		1
Principal balance		74		74
Consumer Real Estate Loans [Member] | Closed-end Junior Liens [Member]
Consumer Real Estate
Number of contracts		1		1
Principal balance		60		60
Commercial Real Estate Loans [Member] | Commercial Real Estate, Owner Occupied [Member]
Consumer Real Estate
Number of contracts		2		3
Principal balance		670		863
Commercial Non Real Estate [Member] | Commercial and Industrial [Member]
Consumer Real Estate
Number of contracts		1		1
Principal balance		$ 137		$ 137

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Note 4 - Allowance for Loan Losses, Nonperforming Assets and Impaired Loans (Details) - Impaired Loans and Associated Reserves (USD $) In Thousands, unless otherwise specified	Jun. 30, 2014		Dec. 31, 2013		Jun. 30, 2013
Consumer Real Estate(2)
Principal Balance	$ 11,144	[1]	$ 12,985
Total Recorded Investment			12,989	[2]
Recorded Investment in for Which There is No Related Allowance	8,155	[1]	10,635	[2]
Recorded Investment in for Which There is a Related Allowance	2,989	[1]	2,354	[2]
Related Allowance	291		624		273
Residential Closed End First Liens [Member] | Consumer Real Estate [Member]
Consumer Real Estate(2)
Principal Balance	369	[1],[3]	440	[3]
Total Recorded Investment			442	[2],[3]
Recorded Investment in for Which There is No Related Allowance	168	[1],[3]	232	[2],[3]
Recorded Investment in for Which There is a Related Allowance	201	[1],[3]	210	[2],[3]
Related Allowance	3	[3]	3	[3]
Residential Closed End Junior Liens [Member] | Consumer Real Estate [Member]
Consumer Real Estate(2)
Principal Balance	248	[1],[3]	259	[3]
Total Recorded Investment			261	[2],[3]
Recorded Investment in for Which There is No Related Allowance		[1],[3]		[2],[3]
Recorded Investment in for Which There is a Related Allowance	248	[1],[3]	261	[2],[3]
Related Allowance	6	[3]	7	[3]
Investor-Owned Residential Real Estate [Member] | Consumer Real Estate [Member]
Consumer Real Estate(2)
Principal Balance	77	[1],[3]	81	[3]
Total Recorded Investment			82	[2],[3]
Recorded Investment in for Which There is No Related Allowance		[1],[3]	82	[2],[3]
Recorded Investment in for Which There is a Related Allowance	77	[1],[3]		[2],[3]
Related Allowance	4	[3]		[3]
Multifamily Real Estate [Member] | Commercial Real Estate Loans [Member]
Consumer Real Estate(2)
Principal Balance	2,823	[1],[3]	3,278	[3]
Total Recorded Investment			3,274	[2],[3]
Recorded Investment in for Which There is No Related Allowance	868	[1],[3]	3,274	[2],[3]
Recorded Investment in for Which There is a Related Allowance	1,955	[1],[3]		[2],[3]
Related Allowance	248	[3]		[3]
Commercial Real Estate, Owner Occupied [Member] | Commercial Real Estate Loans [Member]
Consumer Real Estate(2)
Principal Balance	4,458	[1],[3]	5,643	[3]
Total Recorded Investment			5,645	[2],[3]
Recorded Investment in for Which There is No Related Allowance	3,996	[1],[3]	3,864	[2],[3]
Recorded Investment in for Which There is a Related Allowance	462	[1],[3]	1,781	[2],[3]
Related Allowance	29	[3]	610	[3]
Commercial Real Estate, Other [Member] | Commercial Real Estate Loans [Member]
Consumer Real Estate(2)
Principal Balance	3,123	[1],[3]	3,158	[3]
Total Recorded Investment			3,158	[2],[3]
Recorded Investment in for Which There is No Related Allowance	3,123	[1],[3]	3,158	[2],[3]
Recorded Investment in for Which There is a Related Allowance		[1],[3]		[2],[3]
Related Allowance		[3]		[3]
Commercial and Industrial [Member] | Commercial Non Real Estate [Member]
Consumer Real Estate(2)
Principal Balance	46	[1],[3]	102	[3]
Total Recorded Investment			103	[2],[3]
Recorded Investment in for Which There is No Related Allowance		[1],[3]	1	[2],[3]
Recorded Investment in for Which There is a Related Allowance	46	[1],[3]	102	[2],[3]
Related Allowance	1	[3]	4	[3]
Automobile [Member] | Consumer Non Real Estate [Member]
Consumer Real Estate(2)
Principal Balance		[1],[3]	24	[3]
Total Recorded Investment			24	[2],[3]
Recorded Investment in for Which There is No Related Allowance		[1],[3]	24	[2],[3]
Recorded Investment in for Which There is a Related Allowance		[1],[3]		[2],[3]
Related Allowance		[3]		[3]

[1] Recorded investment is net of charge-offs and interest paid while a loan is in nonaccrual status.

[2] Recorded investment includes principal net of unearned interest and deferred fees and costs, and accrued interest.

[3] Only classes with impaired loans are shown.

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Note 8 - Fair Value Measurements (Details) - Estimated Fair Values and Related Carrying Amounts of Financial Instruments (USD $) In Thousands, unless otherwise specified	Jun. 30, 2014	Dec. 31, 2013	Jun. 30, 2013	Dec. 31, 2012
Financial Assets:
Cash and due from banks	$ 15,917	$ 13,283	$ 13,474	$ 14,783
Cash and due from banks	15,917	13,283
Interest-bearing deposits	106,112	98,066
Interest-bearing deposits	106,112	98,066
Securities	361,589	341,049
Restricted securities	1,089	1,414
Mortgage loans held for sale	383	1,276
Mortgage loans held for sale	383	1,276
Loans, net	585,429	587,463
Loans, net	576,676	616,755
Accrued interest receivable	5,798	5,949
Accrued interest receivable	5,798	5,949
Bank-owned life insurance	21,491	21,181
Bank-owned life insurance	21,491	21,181
Financial Liabilities:
Deposits	967,463	960,036
Deposits	972,417	966,080
Accrued interest payable	71	92
Accrued interest payable	71	92
Fair Value, Inputs, Level 1 [Member]
Financial Assets:
Cash and due from banks	15,917	13,283
Interest-bearing deposits	106,112	98,066
Accrued interest receivable	5,798	5,949
Bank-owned life insurance	21,491	21,181
Financial Liabilities:
Deposits	736,286	718,327
Accrued interest payable	71	92
Fair Value, Inputs, Level 2 [Member]
Financial Assets:
Securities	361,589	341,049
Restricted securities	1,089	1,414
Mortgage loans held for sale	383	1,276
Fair Value, Inputs, Level 3 [Member]
Financial Assets:
Loans, net	576,676	616,755
Financial Liabilities:
Deposits	236,131	247,753
Reported Value Measurement [Member]
Financial Assets:
Cash and due from banks	15,917	13,283
Interest-bearing deposits	106,112	98,066
Securities	358,363	345,695
Restricted securities	1,089	1,414
Mortgage loans held for sale	383	1,276
Loans, net	585,429	587,463
Accrued interest receivable	5,798	5,949
Bank-owned life insurance	21,491	21,181
Financial Liabilities:
Deposits	967,463	960,036
Accrued interest payable	$ 71	$ 92

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Note 7 - Defined Benefit Plan (Details) (USD $) In Thousands, unless otherwise specified	6 Months Ended
	Jun. 30, 2014
Compensation and Retirement Disclosure [Abstract]
Defined Benefit Plan Minimum Future Employer Contributions	$ 396
Defined Benefit Plans, Estimated Future Employer Contributions in Current Fiscal Year	0
Defined Benefit Plan, Contributions by Employer	$ 205

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Consolidated Statements of Changes in Stockholders' Equity (Unaudited) (Parentheticals) (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013
Dividends per share	$ 0.55	$ 0.54	$ 0.55	$ 0.54
Other comprehensive income (loss), tax	$ 1,664	$ (4,580)	$ 3,345	$ (5,100)

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Note 5 - Securities (Details) (USD $) In Thousands, unless otherwise specified	6 Months Ended
	Jun. 30, 2014	Dec. 31, 2013
Note 5 - Securities (Details) [Line Items]
Number Of Temporarily Impaired Securities	252
Available For Sale And Held To Maturity Securities Continuous Unrealized Loss Position Fair Value	$ 212,029
Unrealized Loss on Securities	16,347
Continuous Unrealized Loss Position Twelve Months Or Longer Fair Value	199,626	18,493
Continuous Unrealized Loss Position, 12 Months or Longer, Aggregate Losses	$ 16,218	$ 3,702
Continuous Loss Position - 12 Months Or More [Member]
Note 5 - Securities (Details) [Line Items]
Number Of Temporarily Impaired Securities	232

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Note 3 - Loan Portfolio (Details) - Loan Portfolio, Excluding Loans Held for Sale (USD $) In Thousands, unless otherwise specified	Jun. 30, 2014	Dec. 31, 2013
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans Receivable, Gross	$ 594,284	$ 596,595
Less unearned income and deferred fees	(884)	(905)
Loans, net of unearned income and deferred fees	593,400	595,690
Real Estate Construction [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans Receivable, Gross	45,953	45,925
Consumer Real Estate [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans Receivable, Gross	145,664	145,499
Commercial Real Estate Loans [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans Receivable, Gross	305,511	311,266
Commercial Non Real Estate [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans Receivable, Gross	32,045	31,262
Public Sector And IDA [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans Receivable, Gross	36,107	34,220
Consumer Non Real Estate [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans Receivable, Gross	$ 29,004	$ 28,423

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Note 2 - Stock-Based Compensation (Details) - Stock Option Activity (Stock Option Plan 1999 [Member], USD $) In Thousands, except Share data, unless otherwise specified	0 Months Ended
	Jun. 30, 2014	Jun. 30, 2014	Dec. 31, 2013
Stock Option Plan 1999 [Member]
Note 2 - Stock-Based Compensation (Details) - Stock Option Activity [Line Items]
Options outstanding shares	46,000		46,000
Options outstanding weighted average exercise price	$ 23.96		$ 23.96
Options outstanding weighted average remaining contractual term	313 days
Options outstanding aggregate intrinsic value		$ 319
Exercisable at June 30, 2014		46,000
Exercisable at June 30, 2014		$ 23.96
Exercisable at June 30, 2014	313 days
Exercisable at June 30, 2014		$ 319
Options outstanding shares			46,000
Options outstanding weighted average exercise price			$ 23.96

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Note 5 - Securities (Details) - Available for Sale Securities (USD $) In Thousands, unless otherwise specified	Jun. 30, 2014	Dec. 31, 2013
Available for Sale:
Amortized Costs	$ 207,406	$ 203,268
Gross Unrealized Gains	1,491	1,255
Gross Unrealized Losses	13,490	22,811
Available-for-sale Securities Fair Value	195,407	181,712
US Government Agencies [Member]
Available for Sale:
Amortized Costs	174,800	169,818
Gross Unrealized Gains	301	199
Gross Unrealized Losses	13,215	22,163
Available-for-sale Securities Fair Value	161,886	147,854
States And Political Subdivisions [Member]
Available for Sale:
Amortized Costs	21,428	22,830
Gross Unrealized Gains	912	746
Gross Unrealized Losses	5	120
Available-for-sale Securities Fair Value	22,335	23,456
Mortgage-backed Securities [Member]
Available for Sale:
Amortized Costs	2,188	2,627
Gross Unrealized Gains	212	213
Available-for-sale Securities Fair Value	2,400	2,840
Corporate Securities [Member]
Available for Sale:
Amortized Costs	8,801	7,804
Gross Unrealized Gains	66	97
Gross Unrealized Losses	198	506
Available-for-sale Securities Fair Value	8,669	7,395
Other Securities [Member]
Available for Sale:
Amortized Costs	189	189
Gross Unrealized Losses	72	22
Available-for-sale Securities Fair Value	$ 117	$ 167

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Note 4 - Allowance for Loan Losses, Nonperforming Assets and Impaired Loans (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended			6 Months Ended		6 Months Ended		12 Months Ended	6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013	Dec. 31, 2013	Jun. 30, 2014 Commercial Real Estate Loans [Member]	Jun. 30, 2014 Multifamily Real Estate [Member]	Jun. 30, 2014 Nonaccrual Loans [Member]	Jun. 30, 2013 Nonaccrual Loans [Member]	Dec. 31, 2013 Nonaccrual Loans [Member]	Jun. 30, 2014 Special Mention [Member]	Jun. 30, 2014 Classified Loans [Member]
Note 4 - Allowance for Loan Losses, Nonperforming Assets and Impaired Loans (Details) [Line Items]
Nonaccrual Designation As Impaired Threshold			$ 250
Interest and Fee Income, Loans and Leases	7,819	8,192	15,754	16,511				0	0	0
Threshold Period For Considering Loans As Special Mention Or Classified			75 days
Increase in Percentage of Allocation Loans Rated Special Mention											50.00%
Increase in Percentage of Allocation Loans Rated Classified												100.00%
Financing Receivable, Reclassification to Held-for-sale			0
Transfer of Loans Held-for-sale to Portfolio Loans			0
Financing Receivable, Modifications, Recorded Investment	8,914	7,756	8,914	7,756	7,043
Financing Receivable Modifications Impairment Accrued						27
Financing Receivable, Allowance for Credit Losses	$ 7,971		$ 7,971		$ 8,227		$ 248
Financing Receivable, Modifications, Subsequent Default, Number of Contracts	0	5	0	6

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Note 4 - Allowance for Loan Losses, Nonperforming Assets and Impaired Loans (Details) - Allowance Roll-forward and Related Loan Balance by Portfolio Segments (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013
Financing Receivable, Allowance for Credit Losses [Line Items]
Balance	$ 8,297	$ 8,291	$ 8,227	$ 8,349
Charge-offs	(1,053)	(730)	(1,244)	(1,484)
Recoveries	26	36	184	61
Provision for loan losses	701	355	804	1,026
Balance	7,971	7,952	7,971	7,952
Real Estate Construction [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Balance	850	1,173	863	1,070
Charge-offs			(2)	(184)
Provision for loan losses	(187)	(141)	(198)	146
Balance	663	1,032	663	1,032
Consumer Real Estate [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Balance	1,814	1,846	1,697	2,263
Charge-offs	(16)	(46)	(70)	(99)
Recoveries		1		1
Provision for loan losses	(244)	(131)	(73)	(495)
Balance	1,554	1,670	1,554	1,670
Commercial Real Estate Loans [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Balance	3,694	3,289	3,685	3,442
Charge-offs	(891)		(943)	(35)
Recoveries	17	4	25	4
Provision for loan losses	970	(264)	1,023	(382)
Balance	3,790	3,029	3,790	3,029
Commercial Non Real Estate [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Balance	861	1,276	989	959
Charge-offs	(79)	(556)	(79)	(960)
Recoveries			131	16
Provision for loan losses	274	761	15	1,466
Balance	1,056	1,481	1,056	1,481
Public Sector And IDA [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Balance	202	110	132	142
Provision for loan losses	76	1	146	(31)
Balance	278	111	278	111
Consumer Non Real Estate [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Balance	529	585	576	424
Charge-offs	(67)	(128)	(150)	(206)
Recoveries	9	31	28	40
Provision for loan losses	81	25	98	255
Balance	552	513	552	513
Unallocated [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Balance	347	12	285	49
Provision for loan losses	(269)	104	(207)	67
Balance	$ 78	$ 116	$ 78	$ 116

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Consolidated Statements of Changes in Stockholders' Equity (Unaudited) (USD $) In Thousands	Common Stock [Member]	Retained Earnings [Member]	Accumulated Other Comprehensive Income (Loss) [Member]	Total
Balance at Dec. 31, 2012
Net income		$ 8,651		$ 8,651
Dividends		(3,752)		(3,752)
Other comprehensive income (loss), net of tax			(9,470)	(9,470)
Balance at Jun. 30, 2013	8,685	149,061	(12,208)	145,538
Balance at Dec. 31, 2013	8,685	154,171	(16,964)	145,892
Net income		8,513		8,513
Dividends		(3,821)		(3,821)
Other comprehensive income (loss), net of tax			6,212	6,212
Balance at Jun. 30, 2014	$ 8,685	$ 158,863	$ (10,752)	$ 156,796

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Note 4 - Allowance for Loan Losses, Nonperforming Assets and Impaired Loans (Details) - Loans by Evaluation Method (USD $) In Thousands, unless otherwise specified	Jun. 30, 2014	Dec. 31, 2013
Note 4 - Allowance for Loan Losses, Nonperforming Assets and Impaired Loans (Details) - Loans by Evaluation Method [Line Items]
Allowance for loan losses, individually evaluated for impairment	$ 291	$ 624
Allowance for loan losses, collectively evaluated for impairment	7,680	7,603
Allowance for loan losses	7,971	8,227
Loans individually evaluated for impairment	11,144	12,985
Loans collectively evaluated for impairment	583,140	583,610
Loans	594,284	596,595
Real Estate Construction [Member]
Note 4 - Allowance for Loan Losses, Nonperforming Assets and Impaired Loans (Details) - Loans by Evaluation Method [Line Items]
Allowance for loan losses, collectively evaluated for impairment	663	863
Allowance for loan losses	663	863
Loans collectively evaluated for impairment	45,953	45,925
Loans	45,953	45,925
Consumer Real Estate [Member]
Note 4 - Allowance for Loan Losses, Nonperforming Assets and Impaired Loans (Details) - Loans by Evaluation Method [Line Items]
Allowance for loan losses, individually evaluated for impairment	13	10
Allowance for loan losses, collectively evaluated for impairment	1,541	1,687
Allowance for loan losses	1,554	1,697
Loans individually evaluated for impairment	694	780
Loans collectively evaluated for impairment	144,970	144,719
Loans	145,664	145,499
Commercial Real Estate Loans [Member]
Note 4 - Allowance for Loan Losses, Nonperforming Assets and Impaired Loans (Details) - Loans by Evaluation Method [Line Items]
Allowance for loan losses, individually evaluated for impairment	277	610
Allowance for loan losses, collectively evaluated for impairment	3,513	3,075
Allowance for loan losses	3,790	3,685
Loans individually evaluated for impairment	10,404	12,079
Loans collectively evaluated for impairment	295,107	299,187
Loans	305,511	311,266
Commercial Non Real Estate [Member]
Note 4 - Allowance for Loan Losses, Nonperforming Assets and Impaired Loans (Details) - Loans by Evaluation Method [Line Items]
Allowance for loan losses, individually evaluated for impairment	1	4
Allowance for loan losses, collectively evaluated for impairment	1,055	985
Allowance for loan losses	1,056	989
Loans individually evaluated for impairment	46	102
Loans collectively evaluated for impairment	31,999	31,160
Loans	32,045	31,262
Public Sector And IDA [Member]
Note 4 - Allowance for Loan Losses, Nonperforming Assets and Impaired Loans (Details) - Loans by Evaluation Method [Line Items]
Allowance for loan losses, collectively evaluated for impairment	278	132
Allowance for loan losses	278	132
Loans collectively evaluated for impairment	36,107	34,220
Loans	36,107	34,220
Consumer Non Real Estate [Member]
Note 4 - Allowance for Loan Losses, Nonperforming Assets and Impaired Loans (Details) - Loans by Evaluation Method [Line Items]
Allowance for loan losses, collectively evaluated for impairment	552	576
Allowance for loan losses	552	576
Loans individually evaluated for impairment		24
Loans collectively evaluated for impairment	29,004	28,399
Loans	29,004	28,423
Unallocated [Member]
Note 4 - Allowance for Loan Losses, Nonperforming Assets and Impaired Loans (Details) - Loans by Evaluation Method [Line Items]
Allowance for loan losses, collectively evaluated for impairment	78	285
Allowance for loan losses	$ 78	$ 285

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Note 4 - Allowance for Loan Losses, Nonperforming Assets and Impaired Loans (Details) - Collectively-Evaluated Loans by Credit Quality Indicator (USD $) In Thousands, unless otherwise specified	Jun. 30, 2014	Dec. 31, 2013
Financing Receivable, Recorded Investment [Line Items]
Collectively Evaluated Loans	$ 583,140	$ 583,610
Construction, 1-4 Family Residential [Member] | Real Estate Construction [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Collectively Evaluated Loans	17,579	17,702
Construction, 1-4 Family Residential [Member] | Real Estate Construction [Member] | Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
Collectively Evaluated Loans		163
Construction, 1-4 Family Residential [Member] | Real Estate Construction [Member] | Classified Excluding Impaired [Member]
Financing Receivable, Recorded Investment [Line Items]
Collectively Evaluated Loans		45
Construction Other [Member] | Real Estate Construction [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Collectively Evaluated Loans	28,332	27,971
Construction Other [Member] | Real Estate Construction [Member] | Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
Collectively Evaluated Loans	29	29
Construction Other [Member] | Real Estate Construction [Member] | Classified Excluding Impaired [Member]
Financing Receivable, Recorded Investment [Line Items]
Collectively Evaluated Loans	14	15
Equity Lines [Member] | Consumer Real Estate [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Collectively Evaluated Loans	17,060	16,146
Equity Lines [Member] | Consumer Real Estate [Member] | Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
Collectively Evaluated Loans		16
Equity Lines [Member] | Consumer Real Estate [Member] | Classified Excluding Impaired [Member]
Financing Receivable, Recorded Investment [Line Items]
Collectively Evaluated Loans	15
Residential Closed End First Liens [Member] | Consumer Real Estate [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Collectively Evaluated Loans	76,336	82,767
Residential Closed End First Liens [Member] | Consumer Real Estate [Member] | Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
Collectively Evaluated Loans	841	1,007
Residential Closed End First Liens [Member] | Consumer Real Estate [Member] | Classified Excluding Impaired [Member]
Financing Receivable, Recorded Investment [Line Items]
Collectively Evaluated Loans	1,665	1,275
Residential Closed End Junior Liens [Member] | Consumer Real Estate [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Collectively Evaluated Loans	5,079	4,813
Residential Closed End Junior Liens [Member] | Consumer Real Estate [Member] | Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
Collectively Evaluated Loans	53	109
Residential Closed End Junior Liens [Member] | Consumer Real Estate [Member] | Classified Excluding Impaired [Member]
Financing Receivable, Recorded Investment [Line Items]
Collectively Evaluated Loans	29	3
Investor-Owned Residential Real Estate [Member] | Consumer Real Estate [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Collectively Evaluated Loans	43,460	38,071
Investor-Owned Residential Real Estate [Member] | Consumer Real Estate [Member] | Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
Collectively Evaluated Loans	100	105
Investor-Owned Residential Real Estate [Member] | Consumer Real Estate [Member] | Classified Excluding Impaired [Member]
Financing Receivable, Recorded Investment [Line Items]
Collectively Evaluated Loans	331	407
Multifamily Residential Real Estate [Member] | Commercial Real Estate Loans [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Collectively Evaluated Loans	66,196	67,573
Multifamily Residential Real Estate [Member] | Commercial Real Estate Loans [Member] | Classified Excluding Impaired [Member]
Financing Receivable, Recorded Investment [Line Items]
Collectively Evaluated Loans	721	958
Commercial Real Estate, Owner Occupied [Member] | Commercial Real Estate Loans [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Collectively Evaluated Loans	129,889	134,137
Commercial Real Estate, Owner Occupied [Member] | Commercial Real Estate Loans [Member] | Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
Collectively Evaluated Loans	203	2,206
Commercial Real Estate, Owner Occupied [Member] | Commercial Real Estate Loans [Member] | Classified Excluding Impaired [Member]
Financing Receivable, Recorded Investment [Line Items]
Collectively Evaluated Loans	2,121	701
Commercial Real Estate, Other [Member] | Commercial Real Estate Loans [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Collectively Evaluated Loans	91,762	89,340
Commercial Real Estate, Other [Member] | Commercial Real Estate Loans [Member] | Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
Collectively Evaluated Loans	1,194	1,209
Commercial Real Estate, Other [Member] | Commercial Real Estate Loans [Member] | Classified Excluding Impaired [Member]
Financing Receivable, Recorded Investment [Line Items]
Collectively Evaluated Loans	3,020	3,063
Commercial and Industrial [Member] | Commercial Non Real Estate [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Collectively Evaluated Loans	30,868	29,987
Commercial and Industrial [Member] | Commercial Non Real Estate [Member] | Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
Collectively Evaluated Loans	202	878
Commercial and Industrial [Member] | Commercial Non Real Estate [Member] | Classified Excluding Impaired [Member]
Financing Receivable, Recorded Investment [Line Items]
Collectively Evaluated Loans	930	295
States & Political Subdivisions [Member] | Public Sector And IDA [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Collectively Evaluated Loans	36,107	34,220
Credit Card Receivable [Member] | Consumer Non Real Estate [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Collectively Evaluated Loans	5,626	6,354
Automobile [Member] | Consumer Non Real Estate [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Collectively Evaluated Loans	11,195	11,428
Automobile [Member] | Consumer Non Real Estate [Member] | Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
Collectively Evaluated Loans	157	253
Automobile [Member] | Consumer Non Real Estate [Member] | Classified Excluding Impaired [Member]
Financing Receivable, Recorded Investment [Line Items]
Collectively Evaluated Loans	50	34
Other Consumer Loans [Member] | Consumer Non Real Estate [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Collectively Evaluated Loans	11,956	10,253
Other Consumer Loans [Member] | Consumer Non Real Estate [Member] | Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
Collectively Evaluated Loans	14	17
Other Consumer Loans [Member] | Consumer Non Real Estate [Member] | Classified Excluding Impaired [Member]
Financing Receivable, Recorded Investment [Line Items]
Collectively Evaluated Loans	6	60
Real Estate Construction [Member]
Financing Receivable, Recorded Investment [Line Items]
Collectively Evaluated Loans	45,953	45,925
Consumer Real Estate [Member]
Financing Receivable, Recorded Investment [Line Items]
Collectively Evaluated Loans	144,970	144,719
Commercial Real Estate Loans [Member]
Financing Receivable, Recorded Investment [Line Items]
Collectively Evaluated Loans	295,107	299,187
Commercial Non Real Estate [Member]
Financing Receivable, Recorded Investment [Line Items]
Collectively Evaluated Loans	31,999	31,160
Public Sector And IDA [Member]
Financing Receivable, Recorded Investment [Line Items]
Collectively Evaluated Loans	36,107	34,220
Consumer Non Real Estate [Member]
Financing Receivable, Recorded Investment [Line Items]
Collectively Evaluated Loans	29,004	28,399
Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Collectively Evaluated Loans	571,445	570,762
Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
Collectively Evaluated Loans	2,793	5,992
Classified Excluding Impaired [Member]
Financing Receivable, Recorded Investment [Line Items]
Collectively Evaluated Loans	$ 8,902	$ 6,856

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Note 9 - Components of Accumulated Other Comprehensive Loss (Details) - Components of Accumulated Other Comprehensive Loss (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014 Accumulated Net Unrealized Investment Gain (Loss) [Member]	Jun. 30, 2013 Accumulated Net Unrealized Investment Gain (Loss) [Member]	Jun. 30, 2014 Accumulated Defined Benefit Plans Adjustment [Member]	Dec. 31, 2013 Accumulated Defined Benefit Plans Adjustment [Member]	Jun. 30, 2013 Accumulated Defined Benefit Plans Adjustment [Member]	Dec. 31, 2012 Accumulated Defined Benefit Plans Adjustment [Member]
Accumulated Other Comprehensive Income (Loss) [Line Items]
Balance			$ (16,964)	$ (2,738)	$ (14,011)	$ 2,047	$ (2,953)	$ (2,953)	$ (4,785)	$ (4,785)
Unrealized Holding Gains (Losses)	3,091	(8,500)	6,212	(9,458)	6,212	(9,458)
Reclassification Adjustment		(6)		(12)		(12)
Balance	$ (10,752)	$ (12,208)	$ (10,752)	$ (12,208)	$ (7,799)	$ (7,423)	$ (2,953)	$ (2,953)	$ (4,785)	$ (4,785)

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Consolidated Balance Sheets (Current Period Unaudited) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2014	Dec. 31, 2013
Assets
Cash and due from banks	$ 15,917	$ 13,283
Interest-bearing deposits	106,112	98,066
Securities available for sale, at fair value	195,407	181,712
Securities held to maturity (fair value approximates $166,182 at June 30, 2014 and $159,337 at December 31, 2013)	162,956	163,983
Restricted stock, at cost	1,089	1,414
Mortgage loans held for sale	383	1,276
Loans:
Loans, net of unearned income and deferred fees	593,400	595,690
Less allowance for loan losses	(7,971)	(8,227)
Loans, net	585,429	587,463
Premises and equipment, net	9,482	9,951
Accrued interest receivable	5,798	5,949
Other real estate owned, net	5,293	4,712
Intangible assets and goodwill	7,761	8,299
Bank-owned life insurance	21,491	21,181
Other assets	11,361	13,341
Total assets	1,128,479	1,110,630
Liabilities and Stockholders' Equity
Noninterest-bearing demand deposits	146,727	142,645
Interest-bearing demand deposits	510,304	501,541
Savings deposits	79,255	74,141
Time deposits	231,177	241,709
Total deposits	967,463	960,036
Accrued interest payable	71	92
Other liabilities	4,149	4,610
Total liabilities	971,683	964,738
Commitments and contingencies
Stockholders' Equity
Preferred stock, no par value, 5,000,000 shares authorized; none issued and outstanding	0	0
Common stock of $1.25 par value. Authorized 10,000,000 shares; issued and outstanding 6,947,974 shares at June 30, 2014 and December 31, 2013	8,685	8,685
Retained earnings	158,863	154,171
Accumulated other comprehensive loss, net	(10,752)	(16,964)
Total stockholders' equity	156,796	145,892
Total liabilities and stockholders' equity	$ 1,128,479	$ 1,110,630

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Note 5 - Securities (Details) - Held to Maturity Securities (USD $) In Thousands, unless otherwise specified	Jun. 30, 2014	Dec. 31, 2013
Held to Maturity:
Amortized Costs	$ 162,956	$ 163,983
Gross Unrealized Gains	6,083	3,304
Gross Unrealized Losses	2,857	7,950
Fair Values	166,182	159,337
US Government Agencies [Member]
Held to Maturity:
Amortized Costs	17,935	13,973
Gross Unrealized Gains	321	280
Gross Unrealized Losses	834	1,448
Fair Values	17,422	12,805
States And Political Subdivisions [Member]
Held to Maturity:
Amortized Costs	143,150	149,490
Gross Unrealized Gains	5,705	2,971
Gross Unrealized Losses	2,020	6,502
Fair Values	146,835	145,959
Mortgage-backed Securities [Member]
Held to Maturity:
Amortized Costs	461	520
Gross Unrealized Gains	56	53
Fair Values	517	573
Corporate Securities [Member]
Held to Maturity:
Amortized Costs	1,410
Gross Unrealized Gains	1
Gross Unrealized Losses	3
Fair Values	$ 1,408

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Consolidated Statements of Comprehensive Income (Loss) (Unaudited) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013
Net Income	$ 4,109	$ 4,435	$ 8,513	$ 8,651
Unrealized holding gains (losses) on available for sale securities net of tax of $1,664 and ($4,577) for the periods ended June 30, 2014 and 2013, respectively	3,091	(8,500)	6,212	(9,458)
Reclassification adjustment, net of tax of $0 and ($3) for the periods ended June 30, 2014 and 2013, respectively		(6)		(12)
Other comprehensive income (loss), net of tax of $1,664 and ($4,580) for the periods ended June 30, 2014 and 2013, respectively	3,091	(8,506)	6,212	(9,470)
Total Comprehensive Income (Loss)	$ 7,200	$ (4,071)	$ 14,725	$ (819)

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Note 4 - Allowance for Loan Losses, Nonperforming Assets and Impaired Loans (Details) - Summary of Loans Past Due 90 Days or More and Impaired Loans (USD $) In Thousands, unless otherwise specified	6 Months Ended				12 Months Ended
	Jun. 30, 2014		Jun. 30, 2013		Dec. 31, 2013
Summary of Loans Past Due 90 Days or More and Impaired Loans [Abstract]
Loans past due 90 days or more and still accruing	$ 266	[1]	$ 125		$ 190	[1]
Ratio of loans past due 90 days or more and still accruing to loans, net of unearned income and deferred fees	0.04%		0.02%		0.03%
Accruing restructured loans	6,240		6,234		6,191
Impaired loans:
Impaired loans with no valuation allowance	8,155	[2]			10,635	[3]
Impaired loans with no valuation allowance			15,946		10,372
Impaired loans with a valuation allowance	2,989	[2]			2,354	[3]
Impaired loans with a valuation allowance			1,449		2,613
Total impaired loans	11,144		17,395		12,985
Valuation allowance	(291)		(273)		(624)
Impaired loans, net of allowance	10,853		17,122		12,361
Average recorded investment in impaired loans(1)	11,898	[2],[4]	17,889	[2]	16,654	[2],[3],[4]
Interest income recognized on impaired loans, after designation as impaired	$ 191	[4]	$ 77		$ 267	[4]

[1] Only classes with past-due or nonaccrual loans are shown.

[2] Recorded investment is net of charge-offs and interest paid while a loan is in nonaccrual status.

[3] Recorded investment includes principal net of unearned interest and deferred fees and costs, and accrued interest.

[4] Only classes with impaired loans are shown.

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Note 4 - Allowance for Loan Losses, Nonperforming Assets and Impaired Loans (Tables)

6 Months Ended

Jun. 30, 2014

Note 4 - Allowance for Loan Losses, Nonperforming Assets and Impaired Loans (Tables) [Line Items]

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

	Activity in the Allowance for Loan Losses for the Three Months Ended June 30, 2014
	Real Estate Construction			Consumer Real Estate			Commercial Real Estate			Commercial Non Real Estate			Public Sector and IDA		Consumer Non Real Estate			Unallocated			Total
Balance, March 31, 2014	$	850		$	1,814		$	3,694		$	861		$	202	$	529		$	347		$	8,297
Charge-offs		---			(16	)		(891	)		(79	)		---		(67	)		---			(1,053	)
Recoveries		---			---			17			---			---		9			---			26
Provision for loan losses		(187	)		(244	)		970			274			76		81			(269	)		701
Balance, June 30, 2014	$	663		$	1,554		$	3,790		$	1,056		$	278	$	552		$	78		$	7,971

	Activity in the Allowance for Loan Losses for the Six Months Ended June 30, 2014
	Real Estate Construction			Consumer Real Estate			Commercial Real Estate			Commercial Non Real Estate			Public Sector and IDA		Consumer Non Real Estate			Unallocated			Total
Balance, December 31, 2013	$	863		$	1,697		$	3,685		$	989		$	132	$	576		$	285		$	8,227
Charge-offs		(2	)		(70	)		(943	)		(79	)		---		(150	)		---			(1,244	)
Recoveries		---			---			25			131			---		28			---			184
Provision for loan losses		(198	)		(73	)		1,023			15			146		98			(207	)		804
Balance, June 30, 2014	$	663		$	1,554		$	3,790		$	1,056		$	278	$	552		$	78		$	7,971

	Activity in the Allowance for Loan Losses for the Three Months Ended June 30, 2013
	Real Estate Construction			Consumer Real Estate			Commercial Real Estate			Commercial Non Real Estate			Public Sector and IDA		Consumer Non Real Estate			Unallocated		Total
Balance, March 31, 2013	$	1,173		$	1,846		$	3,289		$	1,276		$	110	$	585		$	12	$	8,291
Charge-offs		---			(46	)		---			(556	)		---		(128	)		---		(730	)
Recoveries		---			1			4			---			---		31			---		36
Provision for loan losses		(141	)		(131	)		(264	)		761			1		25			104		355
Balance, June 30, 2013	$	1,032		$	1,670		$	3,029		$	1,481		$	111	$	513		$	116	$	7,952

	Activity in the Allowance for Loan Losses for the Six Months Ended June 30, 2013
	Real Estate Construction			Consumer Real Estate			Commercial Real Estate			Commercial Non Real Estate			Public Sector and IDA			Consumer Non Real Estate			Unallocated		Total
Balance, December 31, 2012	$	1,070		$	2,263		$	3,442		$	959		$	142		$	424		$	49	$	8,349
Charge-offs		(184	)		(99	)		(35	)		(960	)		---			(206	)		---		(1,484	)
Recoveries		---			1			4			16			---			40			---		61
Provision for loan losses		146			(495	)		(382	)		1,466			(31	)		255			67		1,026
Balance, June 30, 2013	$	1,032		$	1,670		$	3,029		$	1,481		$	111		$	513		$	116	$	7,952

Schedule of Credit Losses Related to Financing Receivables, Current and Noncurrent [Table Text Block]

	Allowance for Loan Losses as of June 30, 2014
	Real Estate Construction		Consumer Real Estate		Commercial Real Estate		Commercial Non Real Estate		Public Sector and IDA		Consumer Non Real Estate		Unallocated		Total
Individually evaluated for impairment	$	---	$	13	$	277	$	1	$	---	$	---	$	---	$	291
Collectively evaluated for impairment		663		1,541		3,513		1,055		278		552		78		7,680
Total	$	663	$	1,554	$	3,790	$	1,056	$	278	$	552	$	78	$	7,971

	Allowance for Loan Losses as of December 31, 2013
	Real Estate Construction		Consumer Real Estate		Commercial Real Estate		Commercial Non Real Estate		Public Sector and IDA		Consumer Non Real Estate		Unallocated		Total
Individually evaluated for impairment	$	---	$	10	$	610	$	4	$	---	$	---	$	---	$	624
Collectively evaluated for impairment		863		1,687		3,075		985		132		576		285		7,603
Total	$	863	$	1,697	$	3,685	$	989	$	132	$	576	$	285	$	8,227

	Loans as of June 30, 2014
	Real Estate Construction		Consumer Real Estate		Commercial Real Estate		Commercial Non Real Estate		Public Sector and IDA		Consumer Non Real Estate		Unallocated		Total
Individually evaluated for impairment	$	---	$	694	$	10,404	$	46	$	---	$	---	$	---	$	11,144
Collectively evaluated for impairment		45,953		144,970		295,107		31,999		36,107		29,004		---		583,140
Total loans	$	45,953	$	145,664	$	305,511	$	32,045	$	36,107	$	29,004	$	---	$	594,284

	Loans as of December 31, 2013
	Real Estate Construction		Consumer Real Estate		Commercial Real Estate		Commercial Non Real Estate		Public Sector and IDA		Consumer Non Real Estate		Unallocated		Total
Individually evaluated for impairment	$	---	$	780	$	12,079	$	102	$	---	$	24	$	---	$	12,985
Collectively evaluated for impairment		45,925		144,719		299,187		31,160		34,220		28,399		---		583,610
Total	$	45,925	$	145,499	$	311,266	$	31,262	$	34,220	$	28,423	$	---	$	596,595

Schedule of Ratios for Allowance for Loan Losses [Table Text Block]

	Six Months Ended June 30,						Year Ended December 31,
	2014			2013			2013
Ratio of allowance for loan losses to the end of period loans, net of unearned income and deferred fees		1.34	%		1.35	%		1.38	%
Ratio of net charge-offs to average loans, net of unearned income and deferred fees(1)		0.36	%		0.49	%		0.28	%

Schedule Of Nonperforming Assets [Table Text Block]

	June 30,						December 31,
	2014			2013			2013
Nonperforming assets:
Nonaccrual loans	$	2,335		$	10,428		$	5,732
Restructured loans in nonaccrual		2,674			1,522			852
Total nonperforming loans		5,009			11,950			6,584
Other real estate owned, net		5,293			969			4,712
Total nonperforming assets	$	10,302		$	12,919		$	11,296
Ratio of nonperforming assets to loans, net of unearned income and deferred fees, plus other real estate owned		1.72	%		2.19	%		1.88	%
Ratio of allowance for loan losses to nonperforming loans(1)		159.13	%		66.54	%		124.95	%

Summary Of Past Due 90 Days Loans Or More And Impaired Loans [Table Text Block]

	June 30,						December 31,
	2014			2013			2013
Loans past due 90 days or more and still accruing	$	266		$	125		$	190
Ratio of loans past due 90 days or more and still accruing to loans, net of unearned income and deferred fees		0.04	%		0.02	%		0.03	%
Accruing restructured loans	$	6,240		$	6,234		$	6,191
Impaired loans:
Impaired loans with no valuation allowance	$	8,155		$	15,946		$	10,372
Impaired loans with a valuation allowance		2,989			1,449			2,613
Total impaired loans	$	11,144		$	17,395		$	12,985
Valuation allowance		(291	)		(273	)		(624	)
Impaired loans, net of allowance	$	10,853		$	17,122		$	12,361
Average recorded investment in impaired loans(1)	$	11,898		$	17,889		$	16,654
Interest income recognized on impaired loans, after designation as impaired	$	191		$	77		$	267
Amount of income recognized on a cash basis	$	---		$	---		$	---

Impaired Financing Receivable Average Investment and Interest Income [Table Text Block]

	For the Six Months Ended June 30, 2014
	Average Recorded Investment(1)		Interest Income Recognized
Consumer Real Estate(2)
Residential closed-end first liens	$	452	$	13
Residential closed-end junior liens		254		8
Investor-owned residential real estate		81		2
Commercial Real Estate(2)
Multifamily real estate		2,821		---
Commercial real estate, owner occupied		5,032		77
Commercial real estate, other		3,140		89
Commercial Non Real Estate(2)
Commercial and Industrial		95		2
Consumer Non Real Estate(2)
Automobile		23		---
Total	$	11,898	$	191

	For the Year Ended December 31, 2013
	Average Recorded Investment(1)		Interest Income Recognized
Real Estate Construction(2)
Construction, residential	$	40	$	---
Construction, other		2,885		---
Consumer Real Estate(2)
Residential closed-end first liens		364		3
Residential closed-end junior liens		280		9
Investor-owned residential real estate		131		6
Commercial Real Estate(2)
Multifamily real estate		4,172		---
Commercial real estate, owner occupied		5,265		136
Commercial real estate, other		3,369		110
Commercial Non Real Estate(2)
Commercial and Industrial		117		3
Consumer Non Real Estate(2)
Automobile		31		---
Total	$	16,654	$	267

Past Due Financing Receivables [Table Text Block]

June 30, 2014
	30 – 89 Days Past Due		90 or More Days Past Due		90 or More Days Past Due and Still Accruing		Nonaccruals (Including Impaired Nonaccruals)
Real Estate Construction(1)
Construction, other	$	42	$	---	$	---	$	---
Consumer Real Estate(1)
Equity lines		72		---		---		---
Residential closed-end first liens		1,037		332		233		186
Residential closed-end junior liens		111		---		---		---
Investor-owned residential real estate		269		---		---		16
Commercial Real Estate(1)
Multifamily real estate		722		2,823		---		2,823
Commercial real estate, owner-occupied		1,347		1,566		---		1,913
Commercial Non Real Estate(1)
Commercial and Industrial		880		---		---		71
Consumer Non Real Estate(1)
Credit cards		45		7		7		---
Automobile		347		26		26		---
Other consumer loans		86		---		---		---
Total	$	4,958	$	4,754	$	266	$	5,009

December 31, 2013
	30 – 89 Days Past Due		90 or More Days Past Due		90 or More Days Past Due and Still Accruing		Nonaccruals (Including Impaired Nonaccruals)
Real Estate Construction(1)
Construction, residential	$	45	$	---	$	---	$	---
Construction, other		45		---		---		---
Consumer Real Estate(1)
Residential closed-end first liens		903		252		128		308
Residential closed-end junior liens		10		---		---		---
Investor-owned residential real estate		422		91		---		91
Commercial Real Estate(1)
Multifamily real estate		430		3,278		---		3,278
Commercial real estate, owner occupied		604		2,519		---		2,756
Commercial real estate, other		32		---		---		---
Commercial Non Real Estate(1)
Commercial and Industrial		196		43		---		128
Consumer Non Real Estate(1)
Credit cards		3		13		13		---
Automobile		217		26		2		23
Other consumer loans		49		46		47		---
Total	$	2,956	$	6,268	$	190	$	6,584

Financing Receivable Credit Quality Indicators [Table Text Block]

	Pass		Special Mention		Classified (Excluding Impaired)
Real Estate Construction
Construction, 1-4 family residential	$	17,579	$	---	$	---
Construction, other		28,332		29		14
Consumer Real Estate
Equity lines		17,060		---		15
Closed-end first liens		76,336		841		1,665
Closed-end junior liens		5,079		53		29
Investor-owned residential real estate		43,460		100		331
Commercial Real Estate
Multifamily residential real estate		66,196		---		721
Commercial real estate owner-occupied		129,889		203		2,121
Commercial real estate, other		91,762		1,194		3,020
Commercial Non Real Estate
Commercial and Industrial		30,868		202		930
Public Sector and IDA
States and political subdivisions		36,107		---		---
Consumer Non Real Estate
Credit cards		5,626		---		---
Automobile		11,195		157		50
Other consumer		11,956		14		6
Total	$	571,445	$	2,793	$	8,902

	Pass		Special Mention (Excluding Impaired)		Classified (Excluding Impaired)
Real Estate Construction
Construction, 1-4 family residential	$	17,702	$	163	$	45
Construction, other		27,971		29		15
Consumer Real Estate
Equity lines		16,146		16		---
Closed-end first liens		82,767		1,007		1,275
Closed-end junior liens		4,813		109		3
Investor-owned residential real estate		38,071		105		407
Commercial Real Estate
Multifamily residential real estate		67,573		---		958
Commercial real estate owner-occupied		134,137		2,206		701
Commercial real estate, other		89,340		1,209		3,063
Commercial Non Real Estate
Commercial and Industrial		29,987		878		295
Public Sector and IDA
States and political subdivisions		34,220		---		---
Consumer Non Real Estate
Credit cards		6,354		---		---
Automobile		11,428		253		34
Other consumer		10,253		17		60
Total	$	570,762	$	5,992	$	6,856

Troubled Debt Restructurings on Financing Receivables [Table Text Block]

	Restructurings That Occurred During the Three Months Ended June 30, 2014
	Number of Contracts		Pre-Modification Outstanding Principal Balance		Post- Modification Outstanding Principal Balance
Commercial Real Estate
Multifamily real estate		1	$	2,484	$	2,484
Total		1	$	2,484	$	2,484

	Restructurings That Occurred During the Six Months Ended June 30, 2014
	Number of Contracts		Pre-Modification Outstanding Principal Balance		Post- Modification Outstanding Principal Balance
Commercial Real Estate
Commercial real estate, owner occupied		1	$	184	$	209
Multifamily real estate		1		2,484		2,484
Total		2	$	2,668	$	2,693

	Restructurings That Occurred During the Three Months Ended June 30, 2013
	Number of Contracts		Pre-Modification Outstanding Principal Balance		Post-Modification Outstanding Principal Balance
Consumer Real Estate
Residential closed-end first liens		1	$	212	$	216
Residential closed-end junior liens		1		262		267
Total		2	$	474	$	483

	Restructurings That Occurred During the Six Months Ended June 30, 2013
	Number of Contracts		Pre-Modification Outstanding Principal Balance		Post-Modification Outstanding Principal Balance
Consumer Real Estate
Residential closed-end first liens		1	$	212	$	216
Residential closed-end junior liens		1		262		267
Commercial Real Estate
Commercial real estate, owner-occupied		1		154		239
Commercial real estate, other		1		3,500		3,500
Total		4	$	4,128	$	4,222

Subsequent Default [Member]

Note 4 - Allowance for Loan Losses, Nonperforming Assets and Impaired Loans (Tables) [Line Items]

Troubled Debt Restructurings on Financing Receivables [Table Text Block]

	Restructured Loans That Defaulted And Were Modified Within 12 Months Prior to Default
	Default During the 3 Month Period Ended June 30, 2013						Default During the 6 Month Period Ended June 30, 2013
	Number of Contracts		Principal Balance		Impairment Accrued		Number of Contracts		Principal Balance		Impairment Accrued
Consumer Real Estate
Residential closed-end first liens		1	$	74	$	---		1	$	74	$	---
Residential closed-end junior liens		1		60		---		1		60		---
Commercial Real Estate
Commercial real estate owner-occupied		2		670		---		3		863		---
Commercial Non Real Estate
Commercial and industrial		1		137		---		1		137		---
Total		5	$	941	$	---		6	$	1,134	$	---

Impaired Loans as of June 30, 2014 [Member]

Note 4 - Allowance for Loan Losses, Nonperforming Assets and Impaired Loans (Tables) [Line Items]

Impaired Financing Receivables [Table Text Block]

	Impaired Loans as of June 30, 2014
	Principal Balance		(A) Total Recorded Investment(1)		Recorded Investment(1) in (A) for Which There is No Related Allowance		Recorded Investment(1) in (A) for Which There is a Related Allowance		Related Allowance
Consumer Real Estate(2)
Residential closed-end first liens	$	396	$	369	$	168	$	201	$	3
Residential closed-end junior liens		248		248		---		248		6
Investor-owned residential real estate		77		77		---		77		4
Commercial Real Estate(2)
Multifamily real estate		3,237		2,823		868		1,955		248
Commercial real estate, owner-occupied		4,541		4,458		3,996		462		29
Commercial real estate, other		3,123		3,123		3,123		---		---
Commercial Non Real Estate(2)
Commercial and Industrial		46		46		---		46		1
Consumer Non Real Estate(2)
Automobile		---		---		---		---		---
Total	$	11,668	$	11,144	$	8,155	$	2,989	$	291

Impaired Loans as of December 31, 2013 [Member]

Note 4 - Allowance for Loan Losses, Nonperforming Assets and Impaired Loans (Tables) [Line Items]

Impaired Financing Receivables [Table Text Block]

	Impaired Loans as of December 31, 2013
	Principal Balance		(A) Total Recorded Investment(1)		Recorded Investment(1) in (A) for Which There is No Related Allowance		Recorded Investment(1) in (A) for Which There is a Related Allowance		Related Allowance
Consumer Real Estate(2)
Residential closed-end first liens	$	440	$	442	$	232	$	210	$	3
Residential closed-end junior liens		259		261		---		261		7
Investor-owned residential real estate		81		82		82		---		---
Commercial Real Estate(2)
Multifamily real estate		3,278		3,274		3,274		---		---
Commercial real estate, owner occupied		5,643		5,645		3,864		1,781		610
Commercial real estate, other		3,158		3,158		3,158		---		---
Commercial Non Real Estate(2)
Commercial and Industrial		102		103		1		102		4
Consumer Non Real Estate(2)
Automobile		24		24		24		---		---
Total	$	12,985	$	12,989	$	10,635	$	2,354	$	624

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Note 4 - Allowance for Loan Losses, Nonperforming Assets and Impaired Loans (Details) - Impaired Loans and Associated Reserves (USD $) In Thousands, unless otherwise specified	Jun. 30, 2014		Dec. 31, 2013		Jun. 30, 2013
Consumer Real Estate(2)
Principal Balance	$ 11,668
Total Recorded Investment	11,144	[1]	12,985
Recorded Investment for Which There is No Related Allowance	8,155	[1]	10,635	[2]
Recorded Investment in for Which There is a Related Allowance	2,989	[1]	2,354	[2]
Related Allowance	291		624		273
Residential Closed End First Liens [Member] | Consumer Real Estate [Member]
Consumer Real Estate(2)
Principal Balance	396	[3]
Total Recorded Investment	369	[1],[3]	440	[3]
Recorded Investment for Which There is No Related Allowance	168	[1],[3]	232	[2],[3]
Recorded Investment in for Which There is a Related Allowance	201	[1],[3]	210	[2],[3]
Related Allowance	3	[3]	3	[3]
Residential Closed End Junior Liens [Member] | Consumer Real Estate [Member]
Consumer Real Estate(2)
Principal Balance	248	[3]
Total Recorded Investment	248	[1],[3]	259	[3]
Recorded Investment for Which There is No Related Allowance		[1],[3]		[2],[3]
Recorded Investment in for Which There is a Related Allowance	248	[1],[3]	261	[2],[3]
Related Allowance	6	[3]	7	[3]
Investor-Owned Residential Real Estate [Member] | Consumer Real Estate [Member]
Consumer Real Estate(2)
Principal Balance	77	[3]
Total Recorded Investment	77	[1],[3]	81	[3]
Recorded Investment for Which There is No Related Allowance		[1],[3]	82	[2],[3]
Recorded Investment in for Which There is a Related Allowance	77	[1],[3]		[2],[3]
Related Allowance	4	[3]		[3]
Multifamily Real Estate [Member] | Commercial Real Estate Loans [Member]
Consumer Real Estate(2)
Principal Balance	3,237	[3]
Total Recorded Investment	2,823	[1],[3]	3,278	[3]
Recorded Investment for Which There is No Related Allowance	868	[1],[3]	3,274	[2],[3]
Recorded Investment in for Which There is a Related Allowance	1,955	[1],[3]		[2],[3]
Related Allowance	248	[3]		[3]
Commercial Real Estate, Owner Occupied [Member] | Commercial Real Estate Loans [Member]
Consumer Real Estate(2)
Principal Balance	4,541	[3]
Total Recorded Investment	4,458	[1],[3]	5,643	[3]
Recorded Investment for Which There is No Related Allowance	3,996	[1],[3]	3,864	[2],[3]
Recorded Investment in for Which There is a Related Allowance	462	[1],[3]	1,781	[2],[3]
Related Allowance	29	[3]	610	[3]
Commercial Real Estate, Other [Member] | Commercial Real Estate Loans [Member]
Consumer Real Estate(2)
Principal Balance	3,123	[3]
Total Recorded Investment	3,123	[1],[3]	3,158	[3]
Recorded Investment for Which There is No Related Allowance	3,123	[1],[3]	3,158	[2],[3]
Recorded Investment in for Which There is a Related Allowance		[1],[3]		[2],[3]
Related Allowance		[3]		[3]
Commercial and Industrial [Member] | Commercial Non Real Estate [Member]
Consumer Real Estate(2)
Principal Balance	46	[3]
Total Recorded Investment	46	[1],[3]	102	[3]
Recorded Investment for Which There is No Related Allowance		[1],[3]	1	[2],[3]
Recorded Investment in for Which There is a Related Allowance	46	[1],[3]	102	[2],[3]
Related Allowance	1	[3]	4	[3]
Automobile [Member] | Consumer Non Real Estate [Member]
Consumer Real Estate(2)
Principal Balance		[3]
Total Recorded Investment		[1],[3]	24	[3]
Recorded Investment for Which There is No Related Allowance		[1],[3]	24	[2],[3]
Recorded Investment in for Which There is a Related Allowance		[1],[3]		[2],[3]
Related Allowance		[3]		[3]

[1] Recorded investment is net of charge-offs and interest paid while a loan is in nonaccrual status.

[2] Recorded investment includes principal net of unearned interest and deferred fees and costs, and accrued interest.

[3] Only classes with impaired loans are shown.

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Note 7 - Defined Benefit Plan (Tables)

6 Months Ended

Jun. 30, 2014

Compensation and Retirement Disclosure [Abstract]

Schedule of Defined Benefit Plans Disclosures [Table Text Block]

	Pension Benefits
	Six Months Ended June 30,
	2014			2013
Service cost	$	262		$	298
Interest cost		332			308
Expected return on plan assets		(556	)		(492	)
Amortization of prior service cost		(54	)		(50	)
Recognized net actuarial loss		130			266
Net periodic benefit cost	$	114		$	330

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Consolidated Statements of Comprehensive Income (Loss) (Unaudited) (Parentheticals) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013
Unrealized holding gains (losses) on available for sale securities, taxes	$ 1,664	$ (4,577)	$ 3,345	$ (5,094)
Reclassification adjustment, taxes	0	(3)	0	(6)
Other comprehensive income (loss), taxes	$ 1,664	$ (4,580)	$ 3,345	$ (5,100)

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Consolidated Balance Sheets (Current Period Unaudited) (Parentheticals) (USD $) In Thousands, except Share data, unless otherwise specified	Jun. 30, 2014	Dec. 31, 2013
Securities held to maturity fair value (in Dollars)	$ 166,182	$ 159,337
Preferred stock, par value (in Dollars per share)	$ 0	$ 0
Preferred stock, shares authorized	5,000,000	5,000,000
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0
Common stock, par value (in Dollars per share)	$ 1.25	$ 1.25
Common stock, shares authorized	10,000,000	10,000,000
Common stock, shares issued	6,947,974	6,947,974
Common Stock, shares outstanding	6,947,974	6,947,974

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Note 7 - Defined Benefit Plan

6 Months Ended

Jun. 30, 2014

Compensation and Retirement Disclosure [Abstract]

Pension and Other Postretirement Benefits Disclosure [Text Block]

Note 7: Defined Benefit Plan

Components of Net Periodic Benefit Cost

	Pension Benefits
	Six Months Ended June 30,
	2014			2013
Service cost	$	262		$	298
Interest cost		332			308
Expected return on plan assets		(556	)		(492	)
Amortization of prior service cost		(54	)		(50	)
Recognized net actuarial loss		130			266
Net periodic benefit cost	$	114		$	330

2014 Plan Year Employer Contribution

Without considering the prefunding balance, the Company’s minimum required contribution to the National Bankshares, Inc. Retirement Income Plan (the “Plan”) is $396. Considering the prefunding balance, the 2014 minimum required contribution is $0. The Company elected to contribute $205 to the Plan during the six months ended June 30, 2014, for the plan year 2013.

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Document And Entity Information	6 Months Ended
	Jun. 30, 2014	Aug. 01, 2014
Document and Entity Information [Abstract]
Entity Registrant Name	NATIONAL BANKSHARES INC
Document Type	10-Q
Current Fiscal Year End Date	--12-31
Entity Common Stock, Shares Outstanding		6,947,974
Amendment Flag	false
Entity Central Index Key	0000796534
Entity Current Reporting Status	Yes
Entity Voluntary Filers	No
Entity Filer Category	Accelerated Filer
Entity Well-known Seasoned Issuer	No
Document Period End Date	Jun. 30, 2014
Document Fiscal Year Focus	2014
Document Fiscal Period Focus	Q2

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Note 8 - Fair Value Measurements

6 Months Ended

Jun. 30, 2014

Fair Value Disclosures [Abstract]

Fair Value Disclosures [Text Block]

Note 8: Fair Value Measurements

The Company records fair value adjustments to certain assets and liabilities and determines fair value disclosures utilizing a definition of fair value of assets and liabilities that states that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. Additional considerations come into play in determining the fair value of assets in markets that are not active.

The Company uses a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s market assumptions. The three levels of the fair value hierarchy based on these two types of inputs are as follows:

Level 1 –	Valuation is based on quoted prices in active markets for identical assets and liabilities.
Level 2 –	Valuation is based on observable inputs including quoted prices in active markets for similar assets and liabilities, quoted prices for identical or similar assets and liabilities in less active markets, and model-based valuation techniques for which significant assumptions can be derived primarily from or corroborated by observable data in the market.
Level 3 –	Valuation is based on model-based techniques that use one or more significant inputs or assumptions that are unobservable in the market.

The following describes the valuation techniques used by the Company to measure certain assets and liabilities recorded at fair value on a recurring basis in the financial statements.

Securities Available for Sale

Securities available for sale are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted market prices, when available (Level 1). If quoted market prices are not available, fair values are measured utilizing independent valuation techniques of identical or similar securities for which significant assumptions are derived primarily from or corroborated by observable market data. Third party vendors compile prices from various sources and may determine the fair value of identical or similar securities by using pricing models that consider observable market data (Level 2). The carrying value of restricted Federal Reserve Bank and Federal Home Loan Bank stock approximates fair value based upon the redemption provisions of each entity and is therefore excluded from the following table.

The following table presents the balances of assets and liabilities measured at fair value on a recurring basis.

			Fair Value Measurements at June 30, 2014 Using
Description	Balance as of June 30, 2014		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
U.S. Government agencies and corporations	$	161,886	$	---	$	161,886	$	---
States and political subdivisions		22,335		---		22,335		---
Mortgage-backed securities		2,400		---		2,400		---
Corporate debt securities		8,669		---		8,669		---
Other securities		117		---		117		---
Total securities available for sale	$	195,407	$	---	$	195,407	$	---

			Fair Value Measurements at December 31, 2013 Using
Description	Balance as of December 31, 2013		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
U.S. Government agencies and corporations	$	147,854	$	---	$	147,854	$	---
States and political subdivisions		23,456		---		23,456		---
Mortgage-backed securities		2,840		---		2,840		---
Corporate debt securities		7,395		---		7,395		---
Other securities		167		---		167		---
Total securities available for sale	$	181,712	$	---	$	181,712	$	---

Certain assets are measured at fair value on a nonrecurring basis in accordance with GAAP. Adjustments to the fair value of these assets usually result from the application of lower-of-cost-or-market accounting or write-downs of individual assets.

The following describes the valuation techniques used by the Company to measure certain assets recorded at fair value on a nonrecurring basis in the financial statements.

Loans Held for Sale

Loans held for sale are carried at the lower of cost or market value. These loans currently consist of one-to-four family residential loans originated for sale in the secondary market. Fair value is based on the price secondary markets are currently offering for similar loans using observable market data which is not materially different than cost due to the short duration between origination and sale (Level 2). As such, the Company records any fair value adjustments on a nonrecurring basis. No nonrecurring fair value adjustments were recorded on loans held for sale at June 30, 2014 or December 31, 2013. Gains and losses on the sale of loans are recorded within income from mortgage banking on the Consolidated Statements of Income.

Impaired Loans

Loans are designated as impaired when, in the judgment of management based on current information and events, it is probable that all amounts due will not be collected according to the contractual terms of the loan agreement. Troubled debt restructurings are impaired loans. Impaired loans are measured at fair value on a nonrecurring basis. If an individually-evaluated impaired loan’s balance exceeds fair value, the amount is allocated to the allowance for loan losses. Any fair value adjustments are recorded in the period incurred as provision for loan losses on the Consolidated Statements of Income.

The fair value of an impaired loan and measurement of associated loss is based on one of three methods: the observable market price of the loan, the present value of projected cash flows, or the fair value of the collateral. The observable market price of a loan is categorized as a Level 1 input. The present value of projected cash flows method results in a Level 3 categorization because the calculation relies on the Company’s judgment to determine projected cash flows, which are then discounted at the current rate of the loan, or the rate prior to modification if the loan is a troubled debt restructure.

Loans measured using the fair value of collateral method may be categorized in Level 2 or Level 3. Collateral may be in the form of real estate or business assets including equipment, inventory, and accounts receivable. Most collateral is real estate. The value of real estate collateral that is determined by a current (less than 12 months of age) appraisal utilizing an income or market valuation approach conducted by an independent, licensed appraiser outside of the Company using observable market data is categorized as Level 2. If a current appraisal cannot be obtained prior to a reporting date and an existing appraisal is discounted to obtain an estimated value, or if declines in value are identified after the date of the appraisal, or if an appraisal is discounted for estimated selling costs, the valuation of real estate collateral is categorized as Level 3. The value of business equipment is based upon an outside appraisal (Level 2) if deemed significant, or the net book value on the applicable business’ financial statements (Level 3) if not considered significant. Likewise, values for inventory and accounts receivables collateral are based on financial statement balances or aging reports (Level 3).

Impaired loans are measured quarterly for impairment. The Company employs the most applicable valuation method for each loan based on current information at the time of valuation. Valuations of loans using the collateral method may include a discount for selling costs if collection of the loan is expected to come from sale of the collateral. Fair value measurement using the collateral method for a loan that is dependent on the operation, but not the sale, of collateral for collection is not discounted for selling costs.

The following table summarizes the Company’s impaired loans that were measured at fair value on a nonrecurring basis at June 30, 2014 and at December 31, 2013.

				Carrying Value
Date	Description	Balance		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	Assets:
June 30, 2014	Impaired loans net of valuation allowance	$	2,698	$	---	$	---	$	2,698
December 31, 2013	Impaired loans net of valuation allowance		1,989		---		---		1,989

The following tables present information about Level 3 Fair Value Measurements for June 30, 2014.

June 30, 2014	Valuation Technique	Unobservable Input	Range (Weighted Average)
Impaired loans	Present value of cash flows	Market rate for borrower (discount rate)	5.88%	-	9.50%	(7.35%)

Other Real Estate Owned

Other real estate owned are real estate assets acquired in full or partial satisfaction of a loan. At acquisition, other real estate owned assets are measured at fair value. If the assets are marketed for sale by an outside party, the acquisition-date fair value is discounted by selling costs; if the assets are marketed for sale by the Company, no reduction to fair value for selling costs is made. Subsequent to acquisition, the assets are measured at the lower of initial measurement or current fair value, discounted for selling costs as appropriate.

The fair value of an other real estate owned asset is determined by an income or market valuation approach based on an appraisal conducted by an independent, licensed appraiser outside of the Company using observable market data (Level 2). If the appraisal is discounted either for age or because management considers the real estate market to be experiencing volatility, then the fair value is considered Level 3. Discounts for selling costs also result in measurement based on Level 3 inputs. Fair value adjustments are measured on a nonrecurring basis and are recorded in the period incurred as valuation allowances to other real estate owned, and expensed through noninterest expense.

The following table summarizes the Company’s other real estate owned that was measured at fair value on a nonrecurring basis.

				Carrying Value
Date	Description	Balance		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	Assets:
June 30, 2014	Other real estate owned net of valuation allowance	$	5,293	$	---	$	---	$	5,293
December 31, 2013	Other real estate owned net of valuation allowance		4,712		---		---		4,712

The following tables present information about Level 3 Fair Value Measurements for June 30, 2014.

June 30, 2014	Valuation Technique	Unobservable Input	Range (Weighted Average)
Other real estate owned	Discounted appraised value	Selling cost	0.00%(1)	–	10%	(6.33%)
Other real estate owned	Discounted appraised value	Discount for lack of marketability and age of appraisal	0.00%	-	46.92%	(14.47%)

⁽¹⁾      The Company markets other real estate owned both independently and with local realtors. Properties marketed by realtors are discounted by selling costs. Properties that the Company markets independently are not discounted by selling costs.

The following methods and assumptions were used by the Company in estimating fair value disclosures for financial instruments.

Cash and Due from Banks and Interest-Bearing Deposits

The carrying amounts approximate fair value.

Securities

The fair value of securities, excluding restricted stock, is determined by quoted market prices or dealer quotes. The fair value of certain state and municipal securities is not readily available through market sources other than dealer quotations, so fair value estimates are based on quoted market prices of similar instruments adjusted for differences between the quoted instruments and the instruments being valued. The carrying value of restricted securities approximates fair value based upon the redemption provisions of the applicable entities.

Loans Held for Sale

The fair value of loans held for sale is based on commitments on hand from investors or prevailing market prices.

Loans

Fair value for the loan portfolio is estimated on an account-level basis by discounting scheduled cash flows through the projected maturity for each loan. The calculation applies estimated market discount rates that reflect the credit and interest rate risk inherent in the loan. The estimate of maturity is based on the Company’s historical experience with repayments for loan classification, modified by an estimate of the effect of economic conditions on lending.

Impaired loans are individually evaluated for fair value. Fair value for the Company’s impaired loans is estimated by using either discounted cash flows or the appraised value of collateral. Any amount of principal balance that exceeds fair value is accrued in the allowance for loan losses. Assumptions regarding credit risk, cash flows and discount rates are determined within management’s judgment, using available market information and specific borrower information. Discount rates for cash flow analysis are based on the loan’s interest rate, and cash flows are estimated based upon the loan’s historical payment performance and the borrower’s current financial condition. Appraisals may be discounted for age, reasonableness, and selling costs.

Deposits

The fair value of demand and savings deposits is the amount payable on demand. The fair value of fixed maturity term deposits and certificates of deposit is estimated using the rates currently offered for deposits with similar remaining maturities.

Accrued Interest

The carrying amounts of accrued interest approximate fair value.

Bank-Owned Life Insurance

Bank owned life insurance represents insurance policies on officers of the Company and certain officers who are no longer employed by the Company.  The cash values of the policies are estimates using information provided by insurance carriers.  These policies are carried at their cash surrender value, which approximates the fair value.

Commitments to Extend Credit and Standby Letters of Credit

The only amounts recorded for commitments to extend credit, standby letters of credit and financial guarantees written are the deferred fees arising from these unrecognized financial instruments. These deferred fees are not deemed significant at June 30, 2014 and December 31, 2013, and, as such, the related fair values have not been estimated.

The estimated fair values and related carrying amounts of the Company’s financial instruments follow.

	June 30, 2014
	Carrying Amount		Quoted Prices in Active Markets for Identical Assets Level 1		Significant Other Observable Inputs Level 2		Significant Unobservable Inputs Level 3		Total Estimated Fair Value
Financial Assets:
Cash and due from banks	$	15,917	$	15,917	$	---	$	---	$	15,917
Interest-bearing deposits		106,112		106,112		---		---		106,112
Securities		358,363		---		361,589		---		361,589
Restricted securities		1,089		---		1,089		---		1,089
Mortgage loans held for sale		383		---		383		---		383
Loans, net		585,429		---		---		576,676		576,676
Accrued interest receivable		5,798		5,798		---		---		5,798
Bank-owned life insurance		21,491		21,491		---		---		21,491
Financial Liabilities:
Deposits	$	967,463	$	736,286	$	---	$	236,131	$	972,417
Accrued interest payable		71		71		---		---		71

	December 31, 2013
	Carrying Amount		Quoted Prices in Active Markets for Identical Assets Level 1		Significant Other Observable Inputs Level 2		Significant Unobservable Inputs Level 3		Total Estimated Fair Value
Financial Assets:
Cash and due from banks	$	13,283	$	13,283	$	---	$	---	$	13,283
Interest-bearing deposits		98,066		98,066		---		---		98,066
Securities		345,695		---		341,049		---		341,049
Restricted securities		1,414		---		1,414		---		1,414
Mortgage loans held for sale		1,276		---		1,276		---		1,276
Loans, net		587,463		---		---		616,755		616,755
Accrued interest receivable		5,949		5,949		---		---		5,949
Bank-owned life insurance		21,181		21,181		---		---		21,181
Financial Liabilities:
Deposits	$	960,036	$	718,327	$	---	$	247,753	$	966,080
Accrued interest payable		92		92		---		---		92

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Consolidated Statements of Income (Unaudited) (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013
Interest Income
Interest and fees on loans	$ 7,819	$ 8,192	$ 15,754	$ 16,511
Interest on interest-bearing deposits	64	58	129	116
Interest on securities – taxable	1,697	1,694	3,350	3,206
Interest on securities – nontaxable	1,474	1,618	2,974	3,266
Total interest income	11,054	11,562	22,207	23,099
Interest Expense
Interest on time deposits of $100 or more	145	230	298	498
Interest on other deposits	1,150	1,318	2,312	2,729
Total interest expense	1,295	1,548	2,610	3,227
Net interest income	9,759	10,014	19,597	19,872
Provision for loan losses	701	355	804	1,026
Net interest income after provision for loan losses	9,058	9,659	18,793	18,846
Noninterest Income
Service charges on deposit accounts	607	625	1,199	1,213
Other service charges and fees	38	42	103	102
Credit card fees	961	853	1,758	1,593
Trust income	332	311	625	600
BOLI income	177	176	352	364
Other income	229	223	506	504
Realized securities gains, net		9	1	18
Total noninterest income	2,344	2,239	4,544	4,394
Noninterest Expense
Salaries and employee benefits	3,007	2,992	6,006	5,932
Occupancy and furniture and fixtures	417	404	857	836
Data processing and ATM	394	418	757	811
FDIC assessment	117	136	264	272
Credit card processing	665	646	1,214	1,198
Intangible assets amortization	269	269	538	540
Net costs of other real estate owned	84	65	161	140
Franchise taxes	287	265	566	523
Other operating expenses	820	942	1,879	1,849
Total noninterest expense	6,060	6,137	12,242	12,101
Income before income taxes	5,342	5,761	11,095	11,139
Income tax expense	1,233	1,326	2,582	2,488
Net Income	$ 4,109	$ 4,435	$ 8,513	$ 8,651
Basic net income per common share (in Dollars per share)	$ 0.59	$ 0.64	$ 1.23	$ 1.25
Fully diluted net income per common share (in Dollars per share)	$ 0.59	$ 0.64	$ 1.22	$ 1.24
Weighted average number of common shares outstanding – basic (in Shares)	6,947,974	6,947,974	6,947,974	6,947,974
Weighted average number of common shares outstanding – diluted (in Shares)	6,960,683	6,968,348	6,962,274	6,968,711
Dividends declared per common share (in Dollars per share)	$ 0.55	$ 0.54	$ 0.55	$ 0.54

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Note 2 - Stock-Based Compensation

6 Months Ended

Jun. 30, 2014

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

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

Note 2: Stock-Based Compensation

The Company had a stock option plan, the 1999 Stock Option Plan, that was adopted in 1999 and that was terminated on March 9, 2009. Incentive stock options were granted annually to key employees of NBI and its subsidiaries from 1999 to 2005 and none have been granted since 2005. All of the stock options are vested.

Options	Shares		Weighted Average Exercise Price Per Share		Weighted Average Remaining Contractual Term		Aggregate Intrinsic Value
Outstanding at January 1, 2014		46,000	$	23.96
Exercised		---		---
Forfeited or expired		---		---
Outstanding June 30, 2014		46,000	$	23.96		0.86	$	319
Exercisable at June 30, 2014		46,000	$	23.96		0.86	$	319

There were no shares exercised during the six months ended June 30, 2014 or June 30, 3013. As of June 30, 2014, there was no unrecognized compensation expense related to stock options.

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Note 1 - General

6 Months Ended

Jun. 30, 2014

Disclosure Text Block [Abstract]

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

Note 1: General

The consolidated financial statements of National Bankshares, Inc. (“NBI”) and its wholly-owned subsidiaries, The National Bank of Blacksburg (“NBB”) and National Bankshares Financial Services, Inc. (“NBFS”) (collectively, the “Company”), conform to accounting principles generally accepted in the United States of America and to general practices within the banking industry. The accompanying interim period consolidated financial statements are unaudited; however, in the opinion of management, all adjustments consisting of normal recurring adjustments, which are necessary for a fair presentation of the consolidated financial statements, have been included.  The results of operations for the six months ended June 30, 2014 are not necessarily indicative of results of operations for the full year or any other interim period.  The interim period consolidated financial statements and financial information included in this Form 10-Q should be read in conjunction with the notes to consolidated financial statements included in the Company’s 2013 Form 10-K.  The Company posts all reports required to be filed under the Securities and Exchange Act of 1934 on its web site at www.nationalbankshares.com.

Subsequent events have been considered through the date when the Form 10-Q was issued.

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Note 5 - Securities (Tables)

6 Months Ended

Jun. 30, 2014

Investments, Debt and Equity Securities [Abstract]

Available-for-sale Securities [Table Text Block]

	June 30, 2014
	Amortized Costs		Gross Unrealized Gains		Gross Unrealized Losses		Fair Values
Available for Sale:
U.S. Government agencies and corporations	$	174,800	$	301	$	13,215	$	161,886
States and political subdivisions		21,428		912		5		22,335
Mortgage-backed securities		2,188		212		---		2,400
Corporate debt securities		8,801		66		198		8,669
Other securities		189		---		72		117
Total	$	207,406	$	1,491	$	13,490	$	195,407

	December 31, 2013
	Amortized Costs		Gross Unrealized Gains		Gross Unrealized Losses		Fair Values
Available for Sale:
U.S. Government agencies and corporations	$	169,818	$	199	$	22,163	$	147,854
States and political subdivisions		22,830		746		120		23,456
Mortgage-backed securities		2,627		213		---		2,840
Corporate debt securities		7,804		97		506		7,395
Other securities		189		---		22		167
Total securities available for sale	$	203,268	$	1,255	$	22,811	$	181,712

Held-to-maturity Securities [Table Text Block]

	June 30, 2014
	Amortized Costs		Gross Unrealized Gains		Gross Unrealized Losses		Fair Values
Held to Maturity:
U.S. Government agencies and corporations	$	17,935	$	321	$	834	$	17,422
States and political subdivisions		143,150		5,705		2,020		146,835
Mortgage-backed securities		461		56		---		517
Corporate debt securities		1,410		1		3		1,408
Total	$	162,956	$	6,083	$	2,857	$	166,182

	December 31, 2013
	Amortized Costs		Gross Unrealized Gains		Gross Unrealized Losses		Fair Values
Held to Maturity:
U.S. Government agencies and corporations	$	13,973	$	280	$	1,448	$	12,805
States and political subdivisions		149,490		2,971		6,502		145,959
Mortgage-backed securities		520		53		---		573
Total securities held to maturity	$	163,983	$	3,304	$	7,950	$	159,337

Schedule of Temporary Impairment Losses, Investments [Table Text Block]

	June 30, 2014
	Less Than 12 Months				12 Months or More
	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
Temporarily Impaired Securities:
U.S. Government agencies and corporations	$	4,996	$	13	$	161,705	$	14,036
States and political subdivisions		4,866		25		34,076		2,000
Corporate debt securities		2,424		19		3,845		182
Other securities		117		72		---		---
Total	$	12,403	$	129	$	199,626	$	16,218

	December 31, 2013
	Less Than 12 Months				12 Months or More
	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
Temporarily Impaired Securities:
U.S. Government agencies and corporations	$	138,324	$	20,400	$	15,796	$	3,211
States and political subdivisions		58,013		6,131		2,697		491
Corporate debt securities		5,511		506		---		---
Other securities		167		22		---		---
Total	$	202,015	$	27,059	$	18,493	$	3,702

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Note 9 - Components of Accumulated Other Comprehensive Loss

6 Months Ended

Jun. 30, 2014

Disclosure Text Block [Abstract]

Comprehensive Income (Loss) Note [Text Block]

Note 9: Components of Accumulated Other Comprehensive Loss

	Net Unrealized Gain (Loss) on Securities			Adjustments Related to Pension Benefits			Accumulated Other Comprehensive (Loss)
Balance at December 31, 2012	$	2,047		$	(4,785	)	$	(2,738	)
Unrealized holding losses on available for sale securities net of tax of ($5,094)		(9,458	)		---			(9,458	)
Reclassification adjustment, net of tax of ($6)		(12	)		---			(12	)
Balance at June 30, 2013	$	(7,423	)	$	(4,785	)	$	(12,208	)
Balance at December 31, 2013	$	(14,011	)	$	(2,953	)	$	(16,964	)
Unrealized holding gains on available for sale securities net of tax of $3,345		6,212			---			6,212
Reclassification adjustment, net of tax of $0		---			---			---
Balance at June 30, 2014	$	(7,799	)	$	(2,953	)	$	(10,752	)

The following provides information regarding reclassifications out of accumulated comprehensive income (loss) for the three- and six-month periods ended June 30, 2014 and June 30, 2013.

	3 Months Ended				6 Months Ended
	June 30, 2014		June 30, 2013		June 30, 2014		June 30, 2013
Reclassifications out of unrealized gains and losses on available-for-sale securities:
Realized securities gains, net	$	---	$	9	$	---	$	18
Income tax expense		---		3		---		6
Realized gains and losses on available-for-sale securities, net of tax, reclassified out of accumulated other comprehensive income	$	---	$	6	$	---	$	12

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Note 5 - Securities

6 Months Ended

Jun. 30, 2014

Investments, Debt and Equity Securities [Abstract]

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

Note 5: Securities

The amortized costs, gross unrealized gains, gross unrealized losses and fair values for securities available for sale by major security type are as follows.

	June 30, 2014
	Amortized Costs		Gross Unrealized Gains		Gross Unrealized Losses		Fair Values
Available for Sale:
U.S. Government agencies and corporations	$	174,800	$	301	$	13,215	$	161,886
States and political subdivisions		21,428		912		5		22,335
Mortgage-backed securities		2,188		212		---		2,400
Corporate debt securities		8,801		66		198		8,669
Other securities		189		---		72		117
Total	$	207,406	$	1,491	$	13,490	$	195,407

	December 31, 2013
	Amortized Costs		Gross Unrealized Gains		Gross Unrealized Losses		Fair Values
Available for Sale:
U.S. Government agencies and corporations	$	169,818	$	199	$	22,163	$	147,854
States and political subdivisions		22,830		746		120		23,456
Mortgage-backed securities		2,627		213		---		2,840
Corporate debt securities		7,804		97		506		7,395
Other securities		189		---		22		167
Total securities available for sale	$	203,268	$	1,255	$	22,811	$	181,712

The amortized costs, gross unrealized gains, gross unrealized losses and fair values for securities held to maturity by major security type are as follows.

	June 30, 2014
	Amortized Costs		Gross Unrealized Gains		Gross Unrealized Losses		Fair Values
Held to Maturity:
U.S. Government agencies and corporations	$	17,935	$	321	$	834	$	17,422
States and political subdivisions		143,150		5,705		2,020		146,835
Mortgage-backed securities		461		56		---		517
Corporate debt securities		1,410		1		3		1,408
Total	$	162,956	$	6,083	$	2,857	$	166,182

	December 31, 2013
	Amortized Costs		Gross Unrealized Gains		Gross Unrealized Losses		Fair Values
Held to Maturity:
U.S. Government agencies and corporations	$	13,973	$	280	$	1,448	$	12,805
States and political subdivisions		149,490		2,971		6,502		145,959
Mortgage-backed securities		520		53		---		573
Total securities held to maturity	$	163,983	$	3,304	$	7,950	$	159,337

Information pertaining to securities with gross unrealized losses aggregated by investment category and length of time that individual securities have been in a continuous loss position, follows.

	June 30, 2014
	Less Than 12 Months				12 Months or More
	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
Temporarily Impaired Securities:
U.S. Government agencies and corporations	$	4,996	$	13	$	161,705	$	14,036
States and political subdivisions		4,866		25		34,076		2,000
Corporate debt securities		2,424		19		3,845		182
Other securities		117		72		---		---
Total	$	12,403	$	129	$	199,626	$	16,218

	December 31, 2013
	Less Than 12 Months				12 Months or More
	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
Temporarily Impaired Securities:
U.S. Government agencies and corporations	$	138,324	$	20,400	$	15,796	$	3,211
States and political subdivisions		58,013		6,131		2,697		491
Corporate debt securities		5,511		506		---		---
Other securities		167		22		---		---
Total	$	202,015	$	27,059	$	18,493	$	3,702

The Company had 252 securities with a fair value of $212,029 which were temporarily impaired at June 30, 2014.  The total unrealized loss on these securities was $16,347. Of the temporarily impaired total, 232 securities with a fair value of $199,626 and an unrealized loss of $16,218 have been in a continuous loss position for twelve months or more. The Company has determined that these securities are temporarily impaired at June 30, 2014 for the reasons set out below.

U.S. Government agencies. The unrealized losses in this category of investments were caused by interest rate and market fluctuations. The contractual terms of the investments do not permit the issuer to settle the securities at a price less than the cost basis of each investment. The Company is monitoring bond market trends and developing strategies to address unrealized losses. Because the Company does not intend to sell any of the investments and it is not likely that the Company will be required to sell any of the investments before recovery of its amortized cost basis, which may be at maturity, the Company does not consider these investments to be other-than-temporarily impaired.

States and political subdivisions. This category’s unrealized losses are primarily the result of interest rate and market fluctuations. The contractual terms of the investments do not permit the issuer to settle the securities at a price less than the cost basis of each investment. Because the Company does not intend to sell any of the investments and it is not likely that the Company will be required to sell any of the investments before recovery of its amortized cost basis, which may be at maturity, the Company does not consider these investments to be other-than-temporarily impaired.

Corporate. The Company’s unrealized losses in corporate debt securities are related to interest rate and market fluctuations. The contractual terms of the investments do not permit the issuer to settle the securities at a price less than the cost basis of each investment. Because the Company does not intend to sell any of the investments before recovery of its amortized cost basis, which may be at maturity, the Company does not consider these investments to be other-than-temporarily impaired.

Other securities. The Company holds a small investment in community bank stock. The value of this investment has been negatively affected by market conditions. Because the Company does not intend to sell this investment before recovery of amortized cost basis, the Company does not consider these investments to be other-than-temporarily impaired.

Restricted stock. As a member of the Federal Reserve and the Federal Home Loan Bank (“FHLB”) of Atlanta, NBB is required to maintain certain minimum investments in the common stock of those entities. Required levels of investment are based upon NBB’s capital and a percentage of qualifying assets. In addition, NBB is eligible to borrow from the FHLB with borrowings collateralized by qualifying assets, primarily residential mortgage loans and NBB’s capital stock investment in the FHLB. Redemption of FHLB stock is subject to certain limitations and conditions. At its discretion, the FHLB may declare dividends on the stock. Management reviews for impairment based upon the ultimate recoverability of the cost basis of the FHLB stock, and at June 30, 2014, management did not determine any impairment.

Management regularly monitors the credit quality of the investment portfolio. Changes in ratings are noted and follow-up research on the issuer is undertaken when warranted. Management intends to carefully monitor any changes in bond quality.

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Note 3 - Loan Portfolio

6 Months Ended

Jun. 30, 2014

Receivables [Abstract]

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

Note 3: Loan Portfolio

The loan portfolio, excluding loans held for sale, was comprised of the following.

	June 30, 2014			December 31, 2013
Real estate construction	$	45,953		$	45,925
Consumer real estate		145,664			145,499
Commercial real estate		305,511			311,266
Commercial non real estate		32,045			31,262
Public sector and IDA		36,107			34,220
Consumer non real estate		29,004			28,423
Gross loans		594,284			596,595
Less unearned income and deferred fees		(884	)		(905	)
Loans, net of unearned income and deferred fees	$	593,400		$	595,690

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Note 4 - Allowance for Loan Losses, Nonperforming Assets and Impaired Loans

6 Months Ended

Jun. 30, 2014

Disclosure Text Block Supplement [Abstract]

Allowance for Credit Losses [Text Block]

Note 4: Allowance for Loan Losses, Nonperforming Assets and Impaired Loans

The allowance for loan losses methodology incorporates individual evaluation of impaired loans and collective evaluation of groups of non-impaired loans. The Company performs ongoing analysis of the loan portfolio to determine credit quality and to identify impaired loans. Credit quality is rated based on the loan’s payment history, the borrower’s current financial situation and the value of the underlying collateral.

Impaired loans are those loans that have been modified in a troubled debt restructure (“TDR” or “restructure”) and larger, non-homogeneous loans that are in nonaccrual or exhibit payment history or financial status that indicate the probability that collection will not occur according to the loan’s terms. Generally, impaired loans are given risk ratings that indicate higher risk, such as “classified” or “other assets especially mentioned.” Impaired loans are individually evaluated to determine appropriate reserves and are measured at the lower of the invested amount or the fair market value. Impaired loans that are not troubled debt restructures and for which fair value measurement indicates an impairment loss are designated nonaccrual. A troubled debt restructure with an impairment loss may accrue interest if the loan shows a satisfactory repayment history for at least 6 months. Please refer to Note 1 of the Company’s 2013 Form 10-K, “Summary of Significant Accounting Policies” for additional information on evaluation of impaired loans and associated specific reserves, and policies regarding nonaccruals, past due status and charge-offs.

Troubled debt restructures impact the estimation of the appropriate level of the allowance for loan losses. If the restructuring included forgiveness of a portion of principal, the charge-off is included in the historical charge-off rates applied to the collective evaluation methodology. Further, restructured loans are individually evaluated for impairment and any amount of book value that exceeds fair value is accrued in the allowance for loan losses. TDRs that experience a payment default are examined to determine whether the default indicates collateral dependency or a decline in estimates of cash flow used in the fair value measurement. TDRs, as well as all impaired loans, that are determined to be collateral dependent are charged down to fair value. Deficiencies indicated by impairment measurements for TDRs that are not collateral dependent may be accrued in the allowance for loan losses or charged off if deemed uncollectible.

The Company evaluated characteristics in the loan portfolio and determined major segments and smaller classes within each segment. These characteristics include collateral type, repayment sources, and (if applicable) the borrower’s business model. The methodology for calculating reserves for collectively-evaluated loans is applied at the class level.

Portfolio Segments and Classes

The segments and classes used in determining the allowance for loan losses are as follows.

Real Estate Construction	Commercial Non Real Estate
Construction, residential	Commercial and Industrial
Construction, other
	Public Sector and IDA
Consumer Real Estate	Public sector and IDA
Equity lines
Residential closed-end first liens	Consumer Non Real Estate
Residential closed-end junior liens	Credit cards
Investor-owned residential real estate	Automobile
	Other consumer loans
Commercial Real Estate
Multifamily real estate
Commercial real estate, owner-occupied
Commercial real estate, other

Historical Loss Rates

The Company’s allowance methodology for collectively-evaluated loans applies historical loss rates by class to current class balances as part of the process of determining required reserves. Class loss rates are calculated as the net charge-offs for the class as a percentage of average class balance. The loss rate for the current quarter is averaged with that of prior periods to obtain the historical loss rate. Two loss rates for each class are calculated: total net charge-offs for the class as a percentage of average class loan balance (“class loss rate”), and total net charge-offs for the class as a percentage of average classified loans in the class (“classified loss rate”). Classified loans are those with risk ratings of “substandard” or higher. Net charge-offs in both calculations include charge-offs and recoveries of classified and non-classified loans as well as those associated with impaired loans. Class historical loss rates are applied to non-classified loan balances at the reporting date, and classified historical loss rates are applied to classified balances at the reporting date.

Risk Factors

In addition to historical loss rates, risk factors pertinent to credit risk for each class are analyzed to estimate reserves for collectively-evaluated loans. Factors include changes in national and local economic and business conditions, the nature and volume of classes within the portfolio, loan quality, loan officers’ experience, lending policies and the Company’s loan review system.

The analysis of certain factors results in standard allocations to all segments and classes. These factors include loan officers’ average years of experience, the risk from changes in lending policies, and the risk from changes in loan review. Factors analyzed for each class, with resultant allocations based upon the level of risk assessed for each class, include levels of past due loans, nonaccrual loans, current class balance as a percentage of total loans, and the percentage of high risk loans (defined to be junior lien mortgages, high loan-to-value loans, and interest only loans) within the class. Additionally, factors specific to each segment are analyzed and result in allocations to the segment.

Real estate construction loans are subject to general risks from changing commercial building and housing market trends and economic conditions that may impact demand for completed properties and the costs of completion. These risks are measured by market-area unemployment rates, bankruptcy rates, housing and commercial building market trends, and interest rates.

The credit quality of consumer real estate is subject to risks associated with the borrower’s repayment ability and collateral value, measured generally by analyzing local unemployment and bankruptcy trends, local housing market trends, and interest rates.

The commercial real estate segment includes loans secured by multifamily residential real estate, commercial real estate occupied by the owner/borrower, and commercial real estate leased to non-owners. Loans in the commercial real estate segment are impacted by economic risks from changing commercial real estate markets, rental markets for multi-family housing and commercial buildings, business bankruptcy rates, local unemployment and interest rate trends that would impact the businesses housed by the commercial real estate.

Commercial non real estate loans are secured by collateral other than real estate, or are unsecured. Credit risk for commercial non real estate loans is subject to economic conditions, generally monitored by local business bankruptcy trends, and interest rates. Public sector and IDA loans are extended to municipalities and related entities. Credit risk is based upon the entity’s ability to repay and interest rate trends.

Consumer non real estate includes credit cards, automobile and other consumer loans. Credit cards and certain other consumer loans are unsecured, while collateral is obtained for automobile loans and other consumer loans. Credit risk stems primarily from the borrower’s ability to repay, measured by average unemployment, average personal bankruptcy rates and interest rates.

Factor allocations applied to each class are increased for loans rated special mention and classified. The Company allocates additional reserves for “high risk” loans.

A detailed analysis showing the allowance roll-forward by portfolio segment and related loan balance by segment follows.

	Activity in the Allowance for Loan Losses for the Three Months Ended June 30, 2014
	Real Estate Construction			Consumer Real Estate			Commercial Real Estate			Commercial Non Real Estate			Public Sector and IDA		Consumer Non Real Estate			Unallocated			Total
Balance, March 31, 2014	$	850		$	1,814		$	3,694		$	861		$	202	$	529		$	347		$	8,297
Charge-offs		---			(16	)		(891	)		(79	)		---		(67	)		---			(1,053	)
Recoveries		---			---			17			---			---		9			---			26
Provision for loan losses		(187	)		(244	)		970			274			76		81			(269	)		701
Balance, June 30, 2014	$	663		$	1,554		$	3,790		$	1,056		$	278	$	552		$	78		$	7,971

	Activity in the Allowance for Loan Losses for the Six Months Ended June 30, 2014
	Real Estate Construction			Consumer Real Estate			Commercial Real Estate			Commercial Non Real Estate			Public Sector and IDA		Consumer Non Real Estate			Unallocated			Total
Balance, December 31, 2013	$	863		$	1,697		$	3,685		$	989		$	132	$	576		$	285		$	8,227
Charge-offs		(2	)		(70	)		(943	)		(79	)		---		(150	)		---			(1,244	)
Recoveries		---			---			25			131			---		28			---			184
Provision for loan losses		(198	)		(73	)		1,023			15			146		98			(207	)		804
Balance, June 30, 2014	$	663		$	1,554		$	3,790		$	1,056		$	278	$	552		$	78		$	7,971

	Activity in the Allowance for Loan Losses for the Three Months Ended June 30, 2013
	Real Estate Construction			Consumer Real Estate			Commercial Real Estate			Commercial Non Real Estate			Public Sector and IDA		Consumer Non Real Estate			Unallocated		Total
Balance, March 31, 2013	$	1,173		$	1,846		$	3,289		$	1,276		$	110	$	585		$	12	$	8,291
Charge-offs		---			(46	)		---			(556	)		---		(128	)		---		(730	)
Recoveries		---			1			4			---			---		31			---		36
Provision for loan losses		(141	)		(131	)		(264	)		761			1		25			104		355
Balance, June 30, 2013	$	1,032		$	1,670		$	3,029		$	1,481		$	111	$	513		$	116	$	7,952

	Activity in the Allowance for Loan Losses for the Six Months Ended June 30, 2013
	Real Estate Construction			Consumer Real Estate			Commercial Real Estate			Commercial Non Real Estate			Public Sector and IDA			Consumer Non Real Estate			Unallocated		Total
Balance, December 31, 2012	$	1,070		$	2,263		$	3,442		$	959		$	142		$	424		$	49	$	8,349
Charge-offs		(184	)		(99	)		(35	)		(960	)		---			(206	)		---		(1,484	)
Recoveries		---			1			4			16			---			40			---		61
Provision for loan losses		146			(495	)		(382	)		1,466			(31	)		255			67		1,026
Balance, June 30, 2013	$	1,032		$	1,670		$	3,029		$	1,481		$	111		$	513		$	116	$	7,952

	Allowance for Loan Losses as of June 30, 2014
	Real Estate Construction		Consumer Real Estate		Commercial Real Estate		Commercial Non Real Estate		Public Sector and IDA		Consumer Non Real Estate		Unallocated		Total
Individually evaluated for impairment	$	---	$	13	$	277	$	1	$	---	$	---	$	---	$	291
Collectively evaluated for impairment		663		1,541		3,513		1,055		278		552		78		7,680
Total	$	663	$	1,554	$	3,790	$	1,056	$	278	$	552	$	78	$	7,971

	Allowance for Loan Losses as of December 31, 2013
	Real Estate Construction		Consumer Real Estate		Commercial Real Estate		Commercial Non Real Estate		Public Sector and IDA		Consumer Non Real Estate		Unallocated		Total
Individually evaluated for impairment	$	---	$	10	$	610	$	4	$	---	$	---	$	---	$	624
Collectively evaluated for impairment		863		1,687		3,075		985		132		576		285		7,603
Total	$	863	$	1,697	$	3,685	$	989	$	132	$	576	$	285	$	8,227

	Loans as of June 30, 2014
	Real Estate Construction		Consumer Real Estate		Commercial Real Estate		Commercial Non Real Estate		Public Sector and IDA		Consumer Non Real Estate		Unallocated		Total
Individually evaluated for impairment	$	---	$	694	$	10,404	$	46	$	---	$	---	$	---	$	11,144
Collectively evaluated for impairment		45,953		144,970		295,107		31,999		36,107		29,004		---		583,140
Total loans	$	45,953	$	145,664	$	305,511	$	32,045	$	36,107	$	29,004	$	---	$	594,284

	Loans as of December 31, 2013
	Real Estate Construction		Consumer Real Estate		Commercial Real Estate		Commercial Non Real Estate		Public Sector and IDA		Consumer Non Real Estate		Unallocated		Total
Individually evaluated for impairment	$	---	$	780	$	12,079	$	102	$	---	$	24	$	---	$	12,985
Collectively evaluated for impairment		45,925		144,719		299,187		31,160		34,220		28,399		---		583,610
Total	$	45,925	$	145,499	$	311,266	$	31,262	$	34,220	$	28,423	$	---	$	596,595

A summary of ratios for the allowance for loan losses follows.

	Six Months Ended June 30,						Year Ended December 31,
	2014			2013			2013
Ratio of allowance for loan losses to the end of period loans, net of unearned income and deferred fees		1.34	%		1.35	%		1.38	%
Ratio of net charge-offs to average loans, net of unearned income and deferred fees(1)		0.36	%		0.49	%		0.28	%

⁽¹⁾ Net charge-offs are on an annualized basis.

A summary of nonperforming assets follows.

	June 30,						December 31,
	2014			2013			2013
Nonperforming assets:
Nonaccrual loans	$	2,335		$	10,428		$	5,732
Restructured loans in nonaccrual		2,674			1,522			852
Total nonperforming loans		5,009			11,950			6,584
Other real estate owned, net		5,293			969			4,712
Total nonperforming assets	$	10,302		$	12,919		$	11,296
Ratio of nonperforming assets to loans, net of unearned income and deferred fees, plus other real estate owned		1.72	%		2.19	%		1.88	%
Ratio of allowance for loan losses to nonperforming loans(1)		159.13	%		66.54	%		124.95	%

⁽¹⁾     The Company defines nonperforming loans as nonaccrual loans. Loans 90 days or more past due and still accruing and accruing restructured loans are excluded.

A summary of loans past due 90 days or more and impaired loans follows.

	June 30,						December 31,
	2014			2013			2013
Loans past due 90 days or more and still accruing	$	266		$	125		$	190
Ratio of loans past due 90 days or more and still accruing to loans, net of unearned income and deferred fees		0.04	%		0.02	%		0.03	%
Accruing restructured loans	$	6,240		$	6,234		$	6,191
Impaired loans:
Impaired loans with no valuation allowance	$	8,155		$	15,946		$	10,372
Impaired loans with a valuation allowance		2,989			1,449			2,613
Total impaired loans	$	11,144		$	17,395		$	12,985
Valuation allowance		(291	)		(273	)		(624	)
Impaired loans, net of allowance	$	10,853		$	17,122		$	12,361
Average recorded investment in impaired loans(1)	$	11,898		$	17,889		$	16,654
Interest income recognized on impaired loans, after designation as impaired	$	191		$	77		$	267
Amount of income recognized on a cash basis	$	---		$	---		$	---

⁽¹⁾      Recorded investment is net of charge-offs and interest paid while a loan is in nonaccrual status.

Nonaccrual loans that meet the Company’s balance threshold of $250 and TDRs are designated as impaired. No interest income was recognized on nonaccrual loans for the six months ended June 30, 2014 or June 30, 2013 or for the year ended December 31, 2013.

A detailed analysis of investment in impaired loans, associated reserves and interest income recognized, segregated by loan class follows.     

	Impaired Loans as of June 30, 2014
	Principal Balance		(A) Total Recorded Investment(1)		Recorded Investment(1) in (A) for Which There is No Related Allowance		Recorded Investment(1) in (A) for Which There is a Related Allowance		Related Allowance
Consumer Real Estate(2)
Residential closed-end first liens	$	396	$	369	$	168	$	201	$	3
Residential closed-end junior liens		248		248		---		248		6
Investor-owned residential real estate		77		77		---		77		4
Commercial Real Estate(2)
Multifamily real estate		3,237		2,823		868		1,955		248
Commercial real estate, owner-occupied		4,541		4,458		3,996		462		29
Commercial real estate, other		3,123		3,123		3,123		---		---
Commercial Non Real Estate(2)
Commercial and Industrial		46		46		---		46		1
Consumer Non Real Estate(2)
Automobile		---		---		---		---		---
Total	$	11,668	$	11,144	$	8,155	$	2,989	$	291

⁽¹⁾     Recorded investment is net of charge-offs and interest paid while a loan is in nonaccrual status.

⁽²⁾     Only classes with impaired loans are shown.

	Impaired Loans as of December 31, 2013
	Principal Balance		(A) Total Recorded Investment(1)		Recorded Investment(1) in (A) for Which There is No Related Allowance		Recorded Investment(1) in (A) for Which There is a Related Allowance		Related Allowance
Consumer Real Estate(2)
Residential closed-end first liens	$	440	$	442	$	232	$	210	$	3
Residential closed-end junior liens		259		261		---		261		7
Investor-owned residential real estate		81		82		82		---		---
Commercial Real Estate(2)
Multifamily real estate		3,278		3,274		3,274		---		---
Commercial real estate, owner occupied		5,643		5,645		3,864		1,781		610
Commercial real estate, other		3,158		3,158		3,158		---		---
Commercial Non Real Estate(2)
Commercial and Industrial		102		103		1		102		4
Consumer Non Real Estate(2)
Automobile		24		24		24		---		---
Total	$	12,985	$	12,989	$	10,635	$	2,354	$	624

(1)	Recorded investment includes principal net of unearned interest and deferred fees and costs, and accrued interest.
(2)	Only classes with impaired loans are shown.

The following tables show the average investment and interest income recognized for impaired loans.

	For the Six Months Ended June 30, 2014
	Average Recorded Investment(1)		Interest Income Recognized
Consumer Real Estate(2)
Residential closed-end first liens	$	452	$	13
Residential closed-end junior liens		254		8
Investor-owned residential real estate		81		2
Commercial Real Estate(2)
Multifamily real estate		2,821		---
Commercial real estate, owner occupied		5,032		77
Commercial real estate, other		3,140		89
Commercial Non Real Estate(2)
Commercial and Industrial		95		2
Consumer Non Real Estate(2)
Automobile		23		---
Total	$	11,898	$	191

⁽¹⁾     Recorded investment is net of charge-offs and interest paid while a loan is in nonaccrual status.

⁽²⁾     Only classes with impaired loans are shown.

	For the Year Ended December 31, 2013
	Average Recorded Investment(1)		Interest Income Recognized
Real Estate Construction(2)
Construction, residential	$	40	$	---
Construction, other		2,885		---
Consumer Real Estate(2)
Residential closed-end first liens		364		3
Residential closed-end junior liens		280		9
Investor-owned residential real estate		131		6
Commercial Real Estate(2)
Multifamily real estate		4,172		---
Commercial real estate, owner occupied		5,265		136
Commercial real estate, other		3,369		110
Commercial Non Real Estate(2)
Commercial and Industrial		117		3
Consumer Non Real Estate(2)
Automobile		31		---
Total	$	16,654	$	267

⁽¹⁾     Recorded investment includes principal net of unearned interest and deferred fees and costs, and accrued interest.

⁽²⁾     Only classes with impaired loans are shown.

The Company reviews nonaccrual loans on an individual loan basis to determine whether future payments are reasonably assured. To satisfy this criteria, the Company’s evaluation must determine that the underlying cause of the original delinquency or weakness that indicated nonaccrual status has been resolved, such as receipt of new guarantees, increased cash flows that cover the debt service or other resolution. Nonaccrual loans that demonstrate reasonable assurance of future payments and that have made at least six consecutive payments in accordance with repayment terms and timeframes may be returned to accrual status.

A restructured loan for which impairment measurement does not indicate a loss and that maintains current status for at least six months may be returned to accrual status.

An analysis of past due and nonaccrual loans follows.

June 30, 2014
	30 – 89 Days Past Due		90 or More Days Past Due		90 or More Days Past Due and Still Accruing		Nonaccruals (Including Impaired Nonaccruals)
Real Estate Construction(1)
Construction, other	$	42	$	---	$	---	$	---
Consumer Real Estate(1)
Equity lines		72		---		---		---
Residential closed-end first liens		1,037		332		233		186
Residential closed-end junior liens		111		---		---		---
Investor-owned residential real estate		269		---		---		16
Commercial Real Estate(1)
Multifamily real estate		722		2,823		---		2,823
Commercial real estate, owner-occupied		1,347		1,566		---		1,913
Commercial Non Real Estate(1)
Commercial and Industrial		880		---		---		71
Consumer Non Real Estate(1)
Credit cards		45		7		7		---
Automobile		347		26		26		---
Other consumer loans		86		---		---		---
Total	$	4,958	$	4,754	$	266	$	5,009

⁽¹⁾     Only classes with past-due or nonaccrual loans are shown.

An analysis of past due and nonaccrual loans follows.

December 31, 2013
	30 – 89 Days Past Due		90 or More Days Past Due		90 or More Days Past Due and Still Accruing		Nonaccruals (Including Impaired Nonaccruals)
Real Estate Construction(1)
Construction, residential	$	45	$	---	$	---	$	---
Construction, other		45		---		---		---
Consumer Real Estate(1)
Residential closed-end first liens		903		252		128		308
Residential closed-end junior liens		10		---		---		---
Investor-owned residential real estate		422		91		---		91
Commercial Real Estate(1)
Multifamily real estate		430		3,278		---		3,278
Commercial real estate, owner occupied		604		2,519		---		2,756
Commercial real estate, other		32		---		---		---
Commercial Non Real Estate(1)
Commercial and Industrial		196		43		---		128
Consumer Non Real Estate(1)
Credit cards		3		13		13		---
Automobile		217		26		2		23
Other consumer loans		49		46		47		---
Total	$	2,956	$	6,268	$	190	$	6,584

⁽¹⁾     Only classes with past-due or nonaccrual loans are shown.

The estimate of credit risk for non-impaired loans is obtained by applying allocations for internal and external factors. The allocations are increased for loans that exhibit greater credit quality risk.

Credit quality indicators, which the Company terms risk grades, are assigned through the Company’s credit review function for larger loans and selective review of loans that fall below credit review thresholds. Loans that do not indicate heightened risk are graded as “pass.” Loans that appear to have elevated credit risk because of frequent or persistent past due status, which is less than 75 days, or that show weakness in the borrower’s financial condition are risk graded “special mention.” Loans with frequent or persistent delinquency exceeding 75 days or that have a higher level of weakness in the borrower’s financial condition are graded “classified.” Classified loans have regulatory risk ratings of “substandard” and “doubtful.” Allocations are increased by 50% and by 100% for loans with grades of “special mention” and “classified,” respectively.

Determination of risk grades was completed for the portfolio as of June 30, 2014 and 2013 and December 31, 2013.

The following displays collectively-evaluated loans by credit quality indicator.

June 30, 2014

	Pass		Special Mention		Classified (Excluding Impaired)
Real Estate Construction
Construction, 1-4 family residential	$	17,579	$	---	$	---
Construction, other		28,332		29		14
Consumer Real Estate
Equity lines		17,060		---		15
Closed-end first liens		76,336		841		1,665
Closed-end junior liens		5,079		53		29
Investor-owned residential real estate		43,460		100		331
Commercial Real Estate
Multifamily residential real estate		66,196		---		721
Commercial real estate owner-occupied		129,889		203		2,121
Commercial real estate, other		91,762		1,194		3,020
Commercial Non Real Estate
Commercial and Industrial		30,868		202		930
Public Sector and IDA
States and political subdivisions		36,107		---		---
Consumer Non Real Estate
Credit cards		5,626		---		---
Automobile		11,195		157		50
Other consumer		11,956		14		6
Total	$	571,445	$	2,793	$	8,902

The following displays collectively-evaluated loans by credit quality indicator.

December 31, 2013

	Pass		Special Mention (Excluding Impaired)		Classified (Excluding Impaired)
Real Estate Construction
Construction, 1-4 family residential	$	17,702	$	163	$	45
Construction, other		27,971		29		15
Consumer Real Estate
Equity lines		16,146		16		---
Closed-end first liens		82,767		1,007		1,275
Closed-end junior liens		4,813		109		3
Investor-owned residential real estate		38,071		105		407
Commercial Real Estate
Multifamily residential real estate		67,573		---		958
Commercial real estate owner-occupied		134,137		2,206		701
Commercial real estate, other		89,340		1,209		3,063
Commercial Non Real Estate
Commercial and Industrial		29,987		878		295
Public Sector and IDA
States and political subdivisions		34,220		---		---
Consumer Non Real Estate
Credit cards		6,354		---		---
Automobile		11,428		253		34
Other consumer		10,253		17		60
Total	$	570,762	$	5,992	$	6,856

Sales, Purchases and Reclassification of Loans

The Company finances mortgages under “best efforts” contracts with mortgage purchasers. The mortgages are designated as held for sale upon initiation. There have been no reclassifications from portfolio loans to held for sale. There have been no loans held for sale transferred to portfolio loans. Occasionally, the Company purchases or sells participations in loans. All participation loans purchased met the Company’s normal underwriting standards at the time the participation was entered. Participation loans are included in the appropriate portfolio balances to which the allowance methodology is applied.

Troubled Debt Restructurings

The Company modifies loans in troubled debt restructurings. Total troubled debt restructurings amounted to $8,914 at June 30, 2014, $7,043 at December 31, 2013, and $7,756 at June 30, 2013. The following tables present restructurings by class that occurred during six month period ended June 30, 2014, and the six month period ended June 30, 2013.

Note: Only classes with restructured loans are presented.

	Restructurings That Occurred During the Three Months Ended June 30, 2014
	Number of Contracts		Pre-Modification Outstanding Principal Balance		Post- Modification Outstanding Principal Balance
Commercial Real Estate
Multifamily real estate		1	$	2,484	$	2,484
Total		1	$	2,484	$	2,484

	Restructurings That Occurred During the Six Months Ended June 30, 2014
	Number of Contracts		Pre-Modification Outstanding Principal Balance		Post- Modification Outstanding Principal Balance
Commercial Real Estate
Commercial real estate, owner occupied		1	$	184	$	209
Multifamily real estate		1		2,484		2,484
Total		2	$	2,668	$	2,693

During the six-month period ended June 30, 2014, the Company restructured two loans. One commercial real estate, owner occupied loan was restructured pursuant to bankruptcy court orders. The restructuring provided payment relief by capitalizing interest, reducing the interest rate and re-amortizing payments. The fair value measurement of the restructured loan as of June 30, 2014 resulted in a specific allocation to the allowance for loan losses of $27.

One multifamily real estate loan was restructured to provide payment relief. The Company reduced the loan’s interest rate and re-amortized payments. The fair value measurement of the restructured loan as of June 30, 2014 resulted in a specific allocation to the allowance for loan losses of $248.

	Restructurings That Occurred During the Three Months Ended June 30, 2013
	Number of Contracts		Pre-Modification Outstanding Principal Balance		Post-Modification Outstanding Principal Balance
Consumer Real Estate
Residential closed-end first liens		1	$	212	$	216
Residential closed-end junior liens		1		262		267
Total		2	$	474	$	483

	Restructurings That Occurred During the Six Months Ended June 30, 2013
	Number of Contracts		Pre-Modification Outstanding Principal Balance		Post-Modification Outstanding Principal Balance
Consumer Real Estate
Residential closed-end first liens		1	$	212	$	216
Residential closed-end junior liens		1		262		267
Commercial Real Estate
Commercial real estate, owner-occupied		1		154		239
Commercial real estate, other		1		3,500		3,500
Total		4	$	4,128	$	4,222

The modifications that resulted in troubled debt restructurings between January 1, 2013 and June 30, 2013 provided payment relief to the borrowers without forgiveness of principal or accrued interest. The date of conversion from interest-only to amortizing payments for one commercial real estate loan was extended beyond the date specified by the contract, resulting in designation as a troubled debt restructuring. During the second quarter of 2013, the loan was converted to amortizing payments and moved from Real Estate Construction to Commercial Real Estate. The other commercial real estate loan was modified to extend the term, lower the interest rate and provide debt consolidation to allow the borrower increased debt service ability. The modifications of the consumer real estate loans capitalized accrued interest and reduced interest rates. The term for one consumer real estate loan was shortened, resulting in a higher payment, while the term for the other consumer real estate loan was lengthened, resulting in a lower payment.

The Company analyzed its TDR portfolio for loans that defaulted during the three- and six-month periods ended June 30, 2014 and June 30, 2013, and that were modified within 12 months prior to default. The Company defines default as one or more payments that occur more than 90 days past the due date, charge-offs, or foreclosure after the date of restructuring. There were no restructured loans that defaulted and were modified within 12 months prior to default for the three- or six-month periods ended June 30, 2014.

	Restructured Loans That Defaulted And Were Modified Within 12 Months Prior to Default
	Default During the 3 Month Period Ended June 30, 2013						Default During the 6 Month Period Ended June 30, 2013
	Number of Contracts		Principal Balance		Impairment Accrued		Number of Contracts		Principal Balance		Impairment Accrued
Consumer Real Estate
Residential closed-end first liens		1	$	74	$	---		1	$	74	$	---
Residential closed-end junior liens		1		60		---		1		60		---
Commercial Real Estate
Commercial real estate owner-occupied		2		670		---		3		863		---
Commercial Non Real Estate
Commercial and industrial		1		137		---		1		137		---
Total		5	$	941	$	---		6	$	1,134	$	---

Restructured loans are individually evaluated for impairment. The fair value measurements for all of the restructured loans that defaulted during the three-month period ended June 30, 2013 were measured using the fair value of collateral and as such, were not significantly affected by the payment default. All were maintained on nonaccrual status as of June 30, 2013.

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Note 6 - Recent Accounting Pronouncements

6 Months Ended

Jun. 30, 2014

New Accounting Pronouncements and Changes in Accounting Principles [Abstract]

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

Note 6: Recent Accounting Pronouncements

In January 2014, the FASB issued ASU 2014-01, “Investments—Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Qualified Affordable Housing Projects (a consensus of the FASB Emerging Issues Task Force).” The amendments in this ASU permit reporting entities to make an accounting policy election to account for their investments in qualified affordable housing projects using the proportional amortization method if certain conditions are met. Under the proportional amortization method, an entity amortizes the initial cost of the investment in proportion to the tax credits and other tax benefits received and recognizes the net investment performance in the income statement as a component of income tax expense (benefit). The amendments in this ASU should be applied retrospectively to all periods presented. A reporting entity that uses the effective yield method to account for its investments in qualified affordable housing projects before the date of adoption may continue to apply the effective yield method for those preexisting investments. The amendments in this ASU are effective for public business entities for annual periods and interim reporting periods within those annual periods, beginning after December 15, 2014. Early adoption is permitted. The Company is currently assessing the impact that ASU 2014-01 will have on its consolidated financial statements.

In January 2014, the FASB issued ASU 2014-04, “Receivables—Troubled Debt Restructurings by Creditors (Subtopic 310-40): Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure (a consensus of the FASB Emerging Issues Task Force).” The amendments in this ASU clarify that an in substance repossession or foreclosure occurs, and a creditor is considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan, upon either (1) the creditor obtaining legal title to the residential real estate property upon completion of a foreclosure or (2) the borrower conveying all interest in the residential real estate property to the creditor to satisfy that loan through completion of a deed in lieu of foreclosure or through a similar legal agreement. Additionally, the amendments require interim and annual disclosure of both (1) the amount of foreclosed residential real estate property held by the creditor and (2) the recorded investment in consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure according to local requirements of the applicable jurisdiction. The amendments in this ASU are effective for public business entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2014. The Company is currently assessing the impact that ASU 2014-04 will have on its consolidated financial statements.

In April 2014, the FASB issued ASU 2014-08, “Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity.” The amendments in this ASU change the criteria for reporting discontinued operations while enhancing disclosures in this area. Under the new guidance, only disposals representing a strategic shift in operations should be presented as discontinued operations. Those strategic shifts should have a major effect on the organization’s operations and financial results and include disposals of a major geographic area, a major line of business, or a major equity method investment. The new guidance requires expanded disclosures about discontinued operations that will provide financial statement users with more information about the assets, liabilities, income, and expenses of discontinued operations. Additionally, the new guidance requires disclosure of the pre-tax income attributable to a disposal of a significant part of an organization that does not qualify for discontinued operations reporting. The amendments in the ASU are effective for public business entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2014. Early adoption is permitted. The Company does not expect the adoption of ASU 2014-08 to have a material impact on its consolidated financial statements.

In June 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers: Topic 606”. This ASU applies to any entity using U.S. GAAP that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards. The guidance supersedes the revenue recognition requirements in Topic 605, “Revenue Recognition”, most industry-specific guidance, and some cost guidance included in Subtopic 605-35, “Revenue Recognition—Construction-Type and Production-Type Contracts”. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To be in alignment with the core principle, an entity must apply a five step process including: identification of the contract(s) with a customer, identification of performance obligations in the contract(s), determination of the transaction price, allocation of the transaction price to the performance obligations, and recognition of revenue when (or as) the entity satisfies a performance obligation. Additionally, the existing requirements for the recognition of a gain or loss on the transfer of nonfinancial assets that are not in a contract with a customer have also been amended to be consistent with the guidance on recognition and measurement. The amendments in this ASU are effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. Early adoption is not permitted. The Company is currently assessing the impact that ASU 2014-09 will have on its consolidated financial statements.

In June 2014, the FASB issued ASU 2014-10, “Development Stage Entities (Topic 915): Elimination of Certain Financial Reporting Requirements, Including an Amendment to Variable Interest Entities Guidance in Topic 810, Consolidation”. The amendments in this ASU remove all incremental financial reporting requirements from U.S. GAAP for development stage entities, including the removal of Topic 915, “Development Stage Entities”, from the FASB Accounting Standards Codification. In addition, this ASU adds an example disclosure and removes an exception provided to development stage entities in Topic 810, “Consolidation”, for determining whether an entity is a variable interest entity. The presentation and disclosure requirements in Topic 915 will no longer be required for the first annual period beginning after December 15, 2014. The revised consolidation standards are effective for annual periods beginning after December 15, 2015. Early adoption is permitted. The Company does not expect the adoption of ASU 2014-10 to have a material impact on its consolidated financial statements.

In June 2014, the FASB issued ASU No. 2014-11, “Transfers and Servicing (Topic 860): Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures”. This ASU aligns the accounting for repurchase-to-maturity transactions and repurchase agreements executed as a repurchase financing with the accounting for other typical repurchase agreements. The new guidance eliminates sale accounting for repurchase-to-maturity transactions and supersedes the guidance under which a transfer of a financial asset and a contemporaneous repurchase financing could be accounted for on a combined basis as a forward agreement. The amendments in the ASU also require a new disclosure for transactions economically similar to repurchase agreements in which the transferor retains substantially all of the exposure to the economic return on the transferred financial assets throughout the term of the transaction. Additional disclosures will be required for the nature of collateral pledged in repurchase agreements and similar transactions accounted for as secured borrowings. The amendments in this ASU are effective for the first interim or annual period beginning after December 15, 2014; however, the disclosure for transactions accounted for as secured borrowings is required to be presented for annual periods beginning after December 15, 2014, and interim periods beginning after March 15, 2015. Early adoption is not permitted. The Company is currently assessing the impact that ASU 2014-11 will have on its consolidated financial statements.

In June 2014, the FASB issued ASU No. 2014-12, “Compensation – Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period”. The new guidance applies to reporting entities that grant employees share-based payments in which the terms of the award allow a performance target to be achieved after the requisite service period. The amendments in the ASU require that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. Existing guidance in “Compensation – Stock Compensation (Topic 718)”, should be applied to account for these types of awards. The amendments in this ASU are effective for annual periods and interim periods within those annual periods beginning after December 15, 2015. Early adoption is permitted and reporting entities may choose to apply the amendments in the ASU either on a prospective or retrospective basis. The Company is currently assessing the impact that ASU 2014-12 will have on its consolidated financial statements.

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Note 4 - Allowance for Loan Losses, Nonperforming Assets and Impaired Loans (Details) - Summary of Nonperforming Assets (USD $) In Thousands, unless otherwise specified	Jun. 30, 2014		Dec. 31, 2013		Jun. 30, 2013
Summary of Nonperforming Assets [Abstract]
Nonaccrual loans	$ 2,335		$ 5,732		$ 10,428
Restructured loans in nonaccrual	2,674		852		1,522
Total nonperforming loans	5,009	[1]	6,584	[1]	11,950
Other real estate owned, net	5,293		4,712		969
Total nonperforming assets	$ 10,302		$ 11,296		$ 12,919
Ratio of nonperforming assets to loans, net of unearned income and deferred fees, plus other real estate owned	1.72%		1.88%		2.19%
Ratio of allowance for loan losses to nonperforming loans(1)	159.13%	[2]	124.95%	[2]	66.54%	[2]

[1] Only classes with past-due or nonaccrual loans are shown.

[2] The Company defines nonperforming loans as nonaccrual loans. Loans 90 days or more past due and still accruing and accruing restructured loans are excluded.

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Note 8 - Fair Value Measurements (Details) - Level 3 Fair Value Measurements	6 Months Ended
	Jun. 30, 2014
Present Value of Cash Flows [Member] | Impaired Loans [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Impaired loans	Present value of cash flows
Other real estate owned	Present value of cash flows
Other real estate owned	Present value of cash flows
Present Value of Cash Flows [Member] | Impaired Loans [Member] | Minimum [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Impaired loans	5.88%
Present Value of Cash Flows [Member] | Impaired Loans [Member] | Maximum [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Impaired loans	9.50%
Present Value of Cash Flows [Member] | Impaired Loans [Member] | Weighted Average [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Impaired loans	(7.35%)
Discounted Appraised Value [Member] | Other Real Estate Owned [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Impaired loans	Discounted appraised value
Other real estate owned	Discounted appraised value
Other real estate owned	Discounted appraised value
Discounted Appraised Value [Member] | Other Real Estate Owned [Member] | Minimum [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Other real estate owned		[1]
Other real estate owned	0.00%
Discounted Appraised Value [Member] | Other Real Estate Owned [Member] | Maximum [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Other real estate owned	10.00%
Other real estate owned	46.92%
Discounted Appraised Value [Member] | Other Real Estate Owned [Member] | Weighted Average [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Other real estate owned	(6.33%)
Other real estate owned	(14.47%)

[1] The Company markets other real estate owned both independently and with local realtors. Properties marketed by realtors are discounted by selling costs. Properties that the Company markets independently are not discounted by selling costs.

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Note 3 - Loan Portfolio (Tables)

6 Months Ended

Jun. 30, 2014

Receivables [Abstract]

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

	June 30, 2014			December 31, 2013
Real estate construction	$	45,953		$	45,925
Consumer real estate		145,664			145,499
Commercial real estate		305,511			311,266
Commercial non real estate		32,045			31,262
Public sector and IDA		36,107			34,220
Consumer non real estate		29,004			28,423
Gross loans		594,284			596,595
Less unearned income and deferred fees		(884	)		(905	)
Loans, net of unearned income and deferred fees	$	593,400		$	595,690

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Note 9 - Components of Accumulated Other Comprehensive Loss (Tables)

6 Months Ended

Jun. 30, 2014

Disclosure Text Block [Abstract]

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

	Net Unrealized Gain (Loss) on Securities			Adjustments Related to Pension Benefits			Accumulated Other Comprehensive (Loss)
Balance at December 31, 2012	$	2,047		$	(4,785	)	$	(2,738	)
Unrealized holding losses on available for sale securities net of tax of ($5,094)		(9,458	)		---			(9,458	)
Reclassification adjustment, net of tax of ($6)		(12	)		---			(12	)
Balance at June 30, 2013	$	(7,423	)	$	(4,785	)	$	(12,208	)
Balance at December 31, 2013	$	(14,011	)	$	(2,953	)	$	(16,964	)
Unrealized holding gains on available for sale securities net of tax of $3,345		6,212			---			6,212
Reclassification adjustment, net of tax of $0		---			---			---
Balance at June 30, 2014	$	(7,799	)	$	(2,953	)	$	(10,752	)

Reclassification out of Accumulated Other Comprehensive Income [Table Text Block]

	3 Months Ended				6 Months Ended
	June 30, 2014		June 30, 2013		June 30, 2014		June 30, 2013
Reclassifications out of unrealized gains and losses on available-for-sale securities:
Realized securities gains, net	$	---	$	9	$	---	$	18
Income tax expense		---		3		---		6
Realized gains and losses on available-for-sale securities, net of tax, reclassified out of accumulated other comprehensive income	$	---	$	6	$	---	$	12

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Note 8 - Fair Value Measurements (Details) - Assets and Liabilities at Fair Value on Recurring Basis (USD $) In Thousands, unless otherwise specified	Jun. 30, 2014	Dec. 31, 2013
Note 8 - Fair Value Measurements (Details) - Assets and Liabilities at Fair Value on Recurring Basis [Line Items]
Available-for-sale Securities Fair Value	$ 195,407	$ 181,712
US Government Agencies [Member] | Fair Value, Inputs, Level 2 [Member]
Note 8 - Fair Value Measurements (Details) - Assets and Liabilities at Fair Value on Recurring Basis [Line Items]
Available-for-sale Securities Fair Value	161,886	147,854
US Government Agencies [Member]
Note 8 - Fair Value Measurements (Details) - Assets and Liabilities at Fair Value on Recurring Basis [Line Items]
Available-for-sale Securities Fair Value	161,886	147,854
States And Political Subdivisions [Member] | Fair Value, Inputs, Level 2 [Member]
Note 8 - Fair Value Measurements (Details) - Assets and Liabilities at Fair Value on Recurring Basis [Line Items]
Available-for-sale Securities Fair Value	22,335	23,456
States And Political Subdivisions [Member]
Note 8 - Fair Value Measurements (Details) - Assets and Liabilities at Fair Value on Recurring Basis [Line Items]
Available-for-sale Securities Fair Value	22,335	23,456
Mortgage-backed Securities [Member] | Fair Value, Inputs, Level 2 [Member]
Note 8 - Fair Value Measurements (Details) - Assets and Liabilities at Fair Value on Recurring Basis [Line Items]
Available-for-sale Securities Fair Value	2,400	2,840
Mortgage-backed Securities [Member]
Note 8 - Fair Value Measurements (Details) - Assets and Liabilities at Fair Value on Recurring Basis [Line Items]
Available-for-sale Securities Fair Value	2,400	2,840
Corporate Securities [Member] | Fair Value, Inputs, Level 2 [Member]
Note 8 - Fair Value Measurements (Details) - Assets and Liabilities at Fair Value on Recurring Basis [Line Items]
Available-for-sale Securities Fair Value	8,669	7,395
Corporate Securities [Member]
Note 8 - Fair Value Measurements (Details) - Assets and Liabilities at Fair Value on Recurring Basis [Line Items]
Available-for-sale Securities Fair Value	8,669	7,395
Other Securities [Member] | Fair Value, Inputs, Level 2 [Member]
Note 8 - Fair Value Measurements (Details) - Assets and Liabilities at Fair Value on Recurring Basis [Line Items]
Available-for-sale Securities Fair Value	117	167
Other Securities [Member]
Note 8 - Fair Value Measurements (Details) - Assets and Liabilities at Fair Value on Recurring Basis [Line Items]
Available-for-sale Securities Fair Value	117	167
Fair Value, Inputs, Level 2 [Member]
Note 8 - Fair Value Measurements (Details) - Assets and Liabilities at Fair Value on Recurring Basis [Line Items]
Available-for-sale Securities Fair Value	$ 195,407	$ 181,712

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Note 4 - Allowance for Loan Losses, Nonperforming Assets and Impaired Loans (Details) - Troubled Debt Restructurings by Class (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013
Commercial Real Estate
Number of contracts	1	2	2	4
Pre-modification outstanding principal balance	$ 2,484	$ 474	$ 2,668	$ 4,128
Post-modification outstanding principal balance	2,484	483	2,693	4,222
Multifamily Real Estate [Member] | Commercial Real Estate Loans [Member]
Commercial Real Estate
Number of contracts	1		1
Pre-modification outstanding principal balance	2,484		2,484
Post-modification outstanding principal balance	2,484		2,484
Commercial Real Estate, Owner Occupied [Member] | Commercial Real Estate Loans [Member]
Commercial Real Estate
Number of contracts			1	1
Pre-modification outstanding principal balance			184	154
Post-modification outstanding principal balance			209	239
Residential Closed End First Liens [Member] | Consumer Real Estate Loans [Member]
Commercial Real Estate
Number of contracts		1		1
Pre-modification outstanding principal balance		212		212
Post-modification outstanding principal balance		216		216
Residential Closed End Junior Liens [Member] | Consumer Real Estate Loans [Member]
Commercial Real Estate
Number of contracts		1		1
Pre-modification outstanding principal balance		262		262
Post-modification outstanding principal balance		267		267
Commercial Real Estate, Other [Member] | Commercial Real Estate Loans [Member]
Commercial Real Estate
Number of contracts				1
Pre-modification outstanding principal balance				3,500
Post-modification outstanding principal balance				$ 3,500

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Consolidated Statements of Income (Unaudited) (Parentheticals) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013
Threshold limit of time deposits, minimum	$ 100	$ 100	$ 100	$ 100

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Consolidated Statements of Cash Flows (Unaudited) (USD $) In Thousands, unless otherwise specified	6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013
Cash Flows from Operating Activities
Net income	$ 8,513	$ 8,651
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses	804	1,026
Depreciation of bank premises and equipment	355	364
Amortization of intangibles	538	540
Amortization of premiums and accretion of discounts, net	74	85
Losses on disposal of fixed assets	94
Gains on sales and calls of securities available for sale, net		(18)
Gains on calls of securities held to maturity, net	(1)
Losses and write-downs on other real estate owned, net	23	64
Increase in cash value of bank-owned life insurance	(310)	(335)
Net change in:
Mortgage loans held for sale	893	846
Accrued interest receivable	151	(44)
Other assets	(1,366)	1,311
Accrued interest payable	(21)	(13)
Other liabilities	(461)	(446)
Net cash provided by operating activities	9,286	12,031
Cash Flows from Investing Activities
Net change interest-bearing deposits	(8,046)	32,725
Proceeds from calls, principal payments, sales and maturities of securities available for sale	3,828	53,195
Proceeds from calls, principal payments and maturities of securities held to maturity	6,342	7,044
Purchases of securities available for sale	(7,974)	(83,993)
Purchases of securities held to maturity	(5,381)	(13,484)
Net change in restricted stock	325	275
Purchases of loan participations		(900)
Collections of loan participations	1,373	91
Loan originations and principal collections, net	(1,165)	3,025
Proceeds from disposal of other real estate owned	234	803
Recoveries on loans charged off	184	61
Proceeds from sale and purchases of bank premises and equipment, net	22	(185)
Net cash used in investing activities	(10,258)	(1,343)
Cash Flows from Financing Activities
Net change in time deposits	(10,532)	(18,138)
Net change in other deposits	17,959	9,893
Cash dividends paid	(3,821)	(3,752)
Net cash provided by (used in) financing activities	3,606	(11,997)
Net change in cash and due from banks	2,634	(1,309)
Cash and due from banks at beginning of period	13,283	14,783
Cash and due from banks at end of period	15,917	13,474
Supplemental Disclosures of Cash Flow Information
Interest paid on deposits and borrowed funds	2,631	3,240
Income taxes paid	2,922	2,428
Supplemental Disclosure of Noncash Activities
Loans charged against the allowance for loan losses	1,244	1,484
Loans transferred to other real estate owned	838	401
Unrealized net gains (losses) on securities available for sale	$ 9,557	$ (14,570)

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Note 2 - Stock-Based Compensation (Details) (USD $)	6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercises in Period	0	0
Employee Service Share-based Compensation, Nonvested Awards, Compensation Not yet Recognized, Stock Options (in Dollars)	$ 0

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Note 4 - Allowance for Loan Losses, Nonperforming Assets and Impaired Loans (Details) - Impaired Loans, Average Investment and Interest Income Recognized (USD $) In Thousands, unless otherwise specified	6 Months Ended				12 Months Ended
	Jun. 30, 2014		Jun. 30, 2013		Dec. 31, 2013
Note 4 - Allowance for Loan Losses, Nonperforming Assets and Impaired Loans (Details) - Impaired Loans, Average Investment and Interest Income Recognized [Line Items]
Average recorded investment	$ 11,898	[1],[2]	$ 17,889	[1]	$ 16,654	[1],[2],[3]
Interest income recognized	191	[2]	77		267	[2]
Residential Closed End First Liens [Member] | Consumer Real Estate Loans [Member]
Note 4 - Allowance for Loan Losses, Nonperforming Assets and Impaired Loans (Details) - Impaired Loans, Average Investment and Interest Income Recognized [Line Items]
Average recorded investment	452	[1],[2]			364	[2],[3]
Interest income recognized	13	[2]			3	[2]
Residential Closed End Junior Liens [Member] | Consumer Real Estate Loans [Member]
Note 4 - Allowance for Loan Losses, Nonperforming Assets and Impaired Loans (Details) - Impaired Loans, Average Investment and Interest Income Recognized [Line Items]
Average recorded investment	254	[1],[2]			280	[2],[3]
Interest income recognized	8	[2]			9	[2]
Investor-Owned Residential Real Estate [Member] | Consumer Real Estate Loans [Member]
Note 4 - Allowance for Loan Losses, Nonperforming Assets and Impaired Loans (Details) - Impaired Loans, Average Investment and Interest Income Recognized [Line Items]
Average recorded investment	81	[1],[2]			131	[2],[3]
Interest income recognized	2	[2]			6	[2]
Multifamily Real Estate [Member] | Commercial Real Estate Loans [Member]
Note 4 - Allowance for Loan Losses, Nonperforming Assets and Impaired Loans (Details) - Impaired Loans, Average Investment and Interest Income Recognized [Line Items]
Average recorded investment	2,821	[1],[2]			4,172	[2],[3]
Interest income recognized		[2]				[2]
Commercial Real Estate, Owner Occupied [Member] | Commercial Real Estate Loans [Member]
Note 4 - Allowance for Loan Losses, Nonperforming Assets and Impaired Loans (Details) - Impaired Loans, Average Investment and Interest Income Recognized [Line Items]
Average recorded investment	5,032	[1],[2]			5,265	[2],[3]
Interest income recognized	77	[2]			136	[2]
Commercial Real Estate, Other [Member] | Commercial Real Estate Loans [Member]
Note 4 - Allowance for Loan Losses, Nonperforming Assets and Impaired Loans (Details) - Impaired Loans, Average Investment and Interest Income Recognized [Line Items]
Average recorded investment	3,140	[1],[2]			3,369	[2],[3]
Interest income recognized	89	[2]			110	[2]
Commercial and Industrial [Member] | Commercial Non Real Estate [Member]
Note 4 - Allowance for Loan Losses, Nonperforming Assets and Impaired Loans (Details) - Impaired Loans, Average Investment and Interest Income Recognized [Line Items]
Average recorded investment	95	[1],[2]			117	[2],[3]
Interest income recognized	2	[2]			3	[2]
Automobile [Member] | Consumer Non Real Estate [Member]
Note 4 - Allowance for Loan Losses, Nonperforming Assets and Impaired Loans (Details) - Impaired Loans, Average Investment and Interest Income Recognized [Line Items]
Average recorded investment	23	[1],[2]			31	[2],[3]
Interest income recognized		[2]				[2]
Construction Residential [Member] | Real Estate Construction [Member]
Note 4 - Allowance for Loan Losses, Nonperforming Assets and Impaired Loans (Details) - Impaired Loans, Average Investment and Interest Income Recognized [Line Items]
Average recorded investment					40	[2],[3]
Interest income recognized						[2]
Construction Other [Member] | Real Estate Construction [Member]
Note 4 - Allowance for Loan Losses, Nonperforming Assets and Impaired Loans (Details) - Impaired Loans, Average Investment and Interest Income Recognized [Line Items]
Average recorded investment					2,885	[2],[3]
Interest income recognized						[2]

[1] Recorded investment is net of charge-offs and interest paid while a loan is in nonaccrual status.

[2] Only classes with impaired loans are shown.

[3] Recorded investment includes principal net of unearned interest and deferred fees and costs, and accrued interest.

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Note 2 - Stock-Based Compensation (Tables)

6 Months Ended

Jun. 30, 2014

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

Schedule of Share-based Compensation, Stock Options, Activity [Table Text Block]

Options	Shares		Weighted Average Exercise Price Per Share		Weighted Average Remaining Contractual Term		Aggregate Intrinsic Value
Outstanding at January 1, 2014		46,000	$	23.96
Exercised		---		---
Forfeited or expired		---		---
Outstanding June 30, 2014		46,000	$	23.96		0.86	$	319
Exercisable at June 30, 2014		46,000	$	23.96		0.86	$	319