10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20552

FORM 10 - Q

QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT

   OF 1934

For the quarterly period ended September 30, 2013

Commission File Number 000-32561

 

Middlefield Banc Corp.

(Exact name of registrant as specified in its charter)

Ohio	34 - 1585111
(State or other jurisdiction of incorporation	(IRS Employer Identification No.)
or organization)

15985 East High Street, Middlefield, Ohio 44062-9263

(Address of principal executive offices)

(440) 632-1666

(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.

YES [√] NO [ ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES [√] 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 definition of “large accelerated filer”, “accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer [ ]  Accelerated filer [ ]  Non-accelerated filer [ ]  Small reporting company [√]

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

YES [ ]   NO [√]

State the number of shares outstanding of each of the issuer's classes of common equity as of the latest practicable date:

Class: Common Stock, without par value

      Outstanding at November 5, 2013: 2,026,578

1

MIDDLEFIELD BANC CORP.

INDEX

 

Part I –	Financial Information
	Item 1.	Financial Statements (unaudited)
		Consolidated Balance Sheet as of September 30, 2013 and December 31, 2012	3
		Consolidated Statement of Income for the Three and Nine Months ended September 30, 2013 and 2012	4
		Consolidated Statement of Comprehensive Income for the Three and Nine Months ended September 30, 2013	5
		Consolidated Statement of Changes in Stockholders' Equity for the Nine Months ended September 30, 2013	6
		Consolidated Statement of Cash Flows for the Nine Months ended September 30, 2013 and 2012	7
		Notes to Unaudited Consolidated Financial Statements	8
	Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	29
	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	40
	Item 4.	Controls and Procedures	41
Part II –	Other Information
	Item 1.	Legal Proceedings	42
	Item 1A.	Risk Factors	42
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	42
	Item 3.	Defaults by the Company on its Senior Securities	42
	Item 4.	Mine Safety Disclosures	42
	Item 5.	Other Information	42
	Item 6.	Exhibits and Reports on Form 8 – K	43
Signatures			47
Exhibit 31.1
Exhibit 31.2
Exhibit 32

2

MIDDLEFIELD BANC CORP.

CONSOLIDATED BALANCE SHEET

(Dollar amounts in thousands)

(Unaudited)

 

	September 30, 2013			December 31, 2012
ASSETS
Cash and due from banks	$	21,124		$	33,568
Federal funds sold		11,069			11,778
Cash and cash equivalents		32,193			45,346
Investment securities available for sale		180,771			194,473
Loans		419,060			408,433
Less allowance for loan losses		7,821			7,779
Net loans		411,239			400,654
Premises and equipment, net		8,555			8,670
Goodwill		4,559			4,559
Core deposit intangible		161			195
Bank-owned life insurance		8,745			8,536
Accrued interest and other assets		11,918			7,855
TOTAL ASSETS	$	658,141		$	670,288
LIABILITIES
Deposits:
Noninterest-bearing demand	$	81,760		$	75,912
Interest-bearing demand		59,799			63,915
Money market		77,118			81,349
Savings		179,581			175,406
Time		180,964			196,753
Total deposits		579,222			593,335
Short-term borrowings		10,575			6,538
Federal funds purchased		1,639			-
Other borrowings		12,261			12,970
Accrued interest and other liabilities		1,915			2,008
TOTAL LIABILITIES		605,612			614,851
STOCKHOLDERS' EQUITY
Common stock, no par value; 10,000,000 shares authorized, 2,216,099 and 2,181,763 shares issued		34,833			34,295
Retained earnings		26,123			22,485
Accumulated other comprehensive (loss) income		(1,693	)		5,391
Treasury stock, at cost; 189,530 shares		(6,734	)		(6,734	)
TOTAL STOCKHOLDERS' EQUITY		52,529			55,437
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	658,141		$	670,288

See accompanying notes to unaudited consolidated financial statements.

3

MIDDLEFIELD BANC CORP.

CONSOLIDATED STATEMENT OF INCOME

(Dollar amounts in thousands, except per share data)

(Unaudited)

	Three Months Ended September 30,					Nine Months Ended September 30,
	2013			2012		2013			2012
INTEREST INCOME
Interest and fees on loans	$	5,754		$	5,810	$	16,876		$	16,988
Interest-bearing deposits in other institutions		6			7		23			19
Federal funds sold		4			6		12			13
Investment securities:
Taxable interest		610			749		1,909			2,455
Tax-exempt interest		782			749		2,259			2,249
Dividends on stock		18			21		56			73
Total interest income		7,174			7,342		21,135			21,797
INTEREST EXPENSE
Deposits		1,170			1,418		3,686			4,349
Short-term borrowings		41			61		140			219
Federal funds purchased		1			-		1			-
Other borrowings		41			78		131			244
Trust preferred securities		75			45		156			122
Total interest expense		1,328			1,602		4,114			4,934
NET INTEREST INCOME		5,846			5,740		17,021			16,863
Provision for loan losses		153			143		766			1,193
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES		5,693			5,597		16,255			15,670
NONINTEREST INCOME
Service charges on deposit accounts		510			481		1,468			1,383
Investment securities gains, net		-			152		175			448
Earnings on bank-owned life insurance		66			71		209			208
Gain on sale of loans		-			-		-			85
Other income		232			164		643			555
Total noninterest income		808			868		2,495			2,679
NONINTEREST EXPENSE
Salaries and employee benefits		1,872			1,705		5,649			5,255
Occupancy expense		273			233		795			703
Equipment expense		228			186		603			557
Data processing costs		209			184		609			574
Ohio state franchise tax		164			160		467			417
Federal deposit insurance expense		135			250		353			751
Professional fees		316			270		883			670
(Gain) loss on sale of other real estate owned		(35	)		188		(40	)		238
Advertising expense		113			114		336			346
Other real estate expense		128			68		324			341
Directors fees		77			97		315			279
Other expense		635			667		1,770			1,814
Total noninterest expense		4,115			4,122		12,064			11,945
Income before income taxes		2,386			2,343		6,686			6,404
Income taxes		521			494		1,479			1,392
NET INCOME	$	1,865		$	1,849	$	5,207		$	5,012
EARNINGS PER SHARE
Basic	$	0.92		$	0.93	$	2.59		$	2.66
Diluted		0.92			0.93		2.58			2.65
DIVIDENDS DECLARED PER SHARE	$	0.26		$	0.26	$	0.78		$	0.78

See accompanying notes to unaudited consolidated financial statements.

4

MIDDLEFIELD BANC CORP.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

(Dollar amounts in thousands, except per share data)

(Unaudited)

 

	Three Months Ended September 30,						Nine Months Ended September 30,
	2013			2012			2013			2012
Net income	$	1,865		$	1,849		$	5,207		$	5,012
Other comprehensive income (loss):
Net unrealized holding gain (loss) on available for sale securities		(2,277	)		838			(10,558	)		2,662
Tax effect		774			(285	)		3,589			(905	)
Reclassification adjustment for investment securities gains included in net income		-			(152	)		(175	)		(448	)
Tax effect		-			52			60			152
Total other comprehensive income (loss)		(1,503	)		453			(7,084	)		1,461
Comprehensive income (loss)	$	362		$	2,302		$	(1,877	)	$	6,473

See accompanying notes to unaudited consolidated financial statements.

5

MIDDLEFIELD BANC CORP.

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS EQUITY

(Dollar amounts in thousands, except share data)

(Unaudited)

	Common Stock			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Treasury Stock			Total Stockholders' Equity
Balance, December 31, 2012	$	34,295		$	22,485		$	5,391		$	(6,734	)	$	55,437
Net income					5,207									5,207
Comprehensive loss								(7,084	)					(7,084	)
Common stock issuance (13,320 shares), net of issuance cost ($139)		74												74
Dividend reinvestment and purchase plan (21,016 shares)		590												590
Stock options exercised		(126	)											(126	)
Cash dividends ($0.78 per share)					(1,569	)								(1,569	)
Balance, September 30, 2013	$	34,833		$	26,123		$	(1,693	)	$	(6,734	)	$	52,529

 

See accompanying notes to unaudited consolidated financial statements.

6

MIDDLEFIELD BANC CORP.

CONSOLIDATED STATEMENT OF CASH FLOWS

(Dollar amounts in thousands, except per share data)

(Unaudited)

 

	Nine Months Ended September 30,
	2013			2012
OPERATING ACTIVITIES
Net income	$	5,207		$	5,012
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		766			1,193
Investment securities gains, net		(175	)		(448	)
Depreciation and amortization		786			663
Amortization of premium and discount on investment securities		721			674
Accretion of deferred loan fees, net		(203	)		(139	)
Origination of loans held for sale		-			(1,084	)
Proceeds from sale of loans held for sale		-			1,169
Gain on sale of loans		-			(85	)
Earnings on bank-owned life insurance		(209	)		(208	)
Deferred income taxes		161			220
(Gain) loss on sale of other real estate owned		(40	)		238
Increase in accrued interest receivable		(402	)		(364	)
Decrease in accrued interest payable		(28	)		(88	)
(Increase) decrease in prepaid federal deposit insurance		(73	)		633
Other, net		546			(63	)
Net cash provided by operating activities		7,057			7,323
INVESTING ACTIVITIES
Investment securities available for sale:
Proceeds from repayments and maturities		20,103			40,227
Proceeds from sale of securities		8,136			27,426
Purchases		(25,815	)		(50,828	)
Increase in loans, net		(12,841	)		(8,826	)
Proceeds from the sale of other real estate owned		860			542
Purchase of premises and equipment		(476	)		(883	)
Net cash (used for) provided by investing activities		(10,033	)		7,658
FINANCING ACTIVITIES
Net (decrease) increase in deposits		(14,113	)		3,776
Increase (decrease) in short-term borrowings, net		4,037			(874	)
Increase in federal funds purchased		1,639			-
Repayment of other borrowings		(709	)		(995	)
Common stock issuance		74			2,329
Stock options exercised		(126	)		-
Proceeds from dividend reinvestment & purchase plan		590			481
Cash dividends		(1,569	)		(1,482	)
Net cash (used for) provided by financing activities		(10,177	)		3,235
Increase (decrease) in cash and cash equivalents		(13,153	)		18,216
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		45,346			34,390
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	32,193		$	52,606
SUPPLEMENTAL INFORMATION
Cash paid during the year for:
Interest on deposits and borrowings	$	4,142		$	5,022
Income taxes		1,100			1,250
Non-cash investing transactions:
Transfers from loans to other real estate owned	$	1,693		$	916

See accompanying notes to unaudited consolidated financial statements.

7

MIDDLEFIELD BANC CORP.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - BASIS OF PRESENTATION

The consolidated financial statements of Middlefield Banc Corp. ("Company") include its two bank subsidiaries The Middlefield Banking Company (“MB”) and Emerald Bank (“EB”) and a non-bank asset resolution subsidiary EMORECO, Inc. All significant inter-company items have been eliminated.

The accompanying financial statements have been prepared in accordance with U.S. generally accepted accounting principles and the instructions for Form 10-Q and Article 10 of Regulation S-X. In management’s opinion, the financial statements include all adjustments, consisting of normal recurring adjustments, that the Company considers necessary to fairly state the Company’s financial position and the results of operations and cash flows. The consolidated balance sheet at December 31, 2012, has been derived from the audited financial statements at that date but does not include all of the necessary informational disclosures and footnotes as required by U. S. generally accepted accounting principles. The accompanying financial statements should be read in conjunction with the financial statements and notes thereto included with the Company’s Form 10-K for the year ended December 31, 2012 (File No. 000-32561). The results of the Company’s operations for any interim period are not necessarily indicative of the results of the Company’s operations for any other interim period or for a full fiscal year.

Recent Accounting Pronouncements

In April 2013, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2013-07, Presentation of Financial Statements (Topic 205): Liquidation Basis of Accounting. The amendments in this Update are being issued to clarify when an entity should apply the liquidation basis of accounting. In addition, the guidance provides principles for the recognition and measurement of assets and liabilities and requirements for financial statements prepared using the liquidation basis of accounting. The amendments require an entity to prepare its financial statements using the liquidation basis of accounting when liquidation is imminent. Liquidation is imminent when the likelihood is remote that the entity will return from liquidation and either (a) a plan for liquidation is approved by the person or persons with the authority to make such a plan effective and the likelihood is remote that the execution of the plan will be blocked by other parties or (b) a plan for liquidation is being imposed by other forces (for example, involuntary bankruptcy). If a plan for liquidation was specified in the entity’s governing documents from the entity’s inception (for example, limited-life entities), the entity should apply the liquidation basis of accounting only if the approved plan for liquidation differs from the plan for liquidation that was specified at the entity’s inception. The amendments are effective for entities that determine liquidation is imminent during annual reporting periods beginning after December 15, 2013, and interim reporting periods therein. Entities should apply the requirements prospectively from the day that liquidation becomes imminent. Early adoption is permitted. Entities that use the liquidation basis of accounting as of the effective date in accordance with other Topics (for example, terminating employee benefit plans) are not required to apply the amendments. Instead, those entities should continue to apply the guidance in those other Topics until they have completed liquidation.

In June 2013, the FASB issued ASU 2013-08, Financial Services – Investment Companies (Topic 946): Amendments to the Scope, Measurement, and Disclosure Requirements. The amendments in this Update affect the scope, measurement, and disclosure requirements for investment companies under U.S. GAAP. The amendments do all of the following: 1. Change the approach to the investment company assessment in Topic 946, clarify the characteristics of an investment company, and provide comprehensive guidance for assessing whether an entity is an investment Company. 2. Require an investment company to measure noncontrolling ownership interests in other investment companies at fair value rather than using the equity method of accounting. 3. Require the following additional disclosures: (a) the fact that the entity is an investment company and is applying the guidance in Topic 946, (b) information about changes, if any, in an entity’s status as an investment company, and (c) information about financial support provided or contractually required to be provided by an investment company to any of its investees.The amendments in this Update are effective for an entity’s interim and annual reporting periods in fiscal years that begin after December 15, 2013. Earlier application is prohibited.

In July 2013, the FASB ASU 2013-09, Fair Value Measurement (Topic 820): Deferral of the Effective Date of Certain Disclosures for Nonpublic Employee Benefit Plans in Update No. 2011-04.The amendments in this Update apply to certain quantitative disclosure requirements for an employee benefit plan, other than those plans that are subject to the Securities and Exchange Commission’s filing requirements (hereafter “nonpublic employee benefit plan”), that holds investments in its plan sponsor’s own nonpublic entity equity securities, including equity securities of its plan sponsor’s nonpublic affiliated entities and that are within the scope of the disclosure requirements contained in FASB Accounting Standards Update No. 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs. The amendments in this Update defer indefinitely the effective date of certain required disclosures in Update 2011-04 (Topic 820) of quantitative information about the significant unobservable inputs used in Level 3 fair value measurements for investments held by a nonpublic employee benefit plan in its plan sponsor’s own nonpublic entity equity securities, including equity securities of its plan sponsor’s nonpublic affiliated entities. The amendments in this Update do not defer the effective date for those certain quantitative disclosures for other nonpublic entity equity securities held in the nonpublic employee benefit plan or any qualitative disclosures. The deferral in this amendment is effective upon issuance for financial statements that have not been issued.

8

In July 2013, the FASB issued ASU 2013-10, Derivatives and Hedging (Topic 815):Inclusion of the Fed Funds Effective Swap Rate (or Overnight Index Swap Rate) as a Benchmark Interest Rate for Hedge Accounting Purposes.The amendments in this Update permit the Fed Funds Effective Swap Rate (OIS) to be used as a U.S. benchmark interest rate for hedge accounting purposes under Topic 815, in addition to UST and LIBOR. The amendments also remove the restriction on using different benchmark rates for similar hedges. The amendments are effective prospectively for qualifying new or redesignated hedging relationships entered into on or after July 17, 2013.

In July 2013, the FASB issued ASU 2013-11, Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists. This Update applies to all entities that have unrecognized tax benefits when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists at the reporting date. An unrecognized tax benefit, or a portion of an unrecognized tax benefit, should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward, except as follows. To the extent a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position or the tax law of the applicable jurisdiction does not require the entity to use, and the entity does not intend to use, the deferred tax asset for such purpose, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets. The assessment of whether a deferred tax asset is available is based on the unrecognized tax benefit and deferred tax asset that exist at the reporting date and should be made presuming disallowance of the tax position at the reporting date. The amendments in this Update are effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. For nonpublic entities, the amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2014. Early adoption is permitted. The amendments should be applied prospectively to all unrecognized tax benefits that exist at the effective date. Retrospective application is permitted.

9

NOTE 2 - STOCK-BASED COMPENSATION

The Company had no unvested stock options outstanding or unrecognized stock-based compensation costs outstanding as of September 30, 2013 and 2012.

Stock option activity during the nine months ended September 30 is as follows:

	2013			Weighted- average Exercise Price		2012			Weighted- average Exercise Price
Outstanding, January 1		79,693		$	26.81		88,774		$	26.81
Exercised		(21,112	)		24.11		-			-
Forfeited		-			-		(420	)		36.86
Outstanding, September 30		58,581			28.38		88,354			26.76
Exercisable, September 30		58,581			28.38		88,354			26.76

 

10

NOTE 3 - EARNINGS PER SHARE

The Company provides dual presentation of basic and diluted earnings per share. Basic earnings per share is calculated by dividing net income by the average shares outstanding. Diluted earnings per share adds the dilutive effects of options, warrants, and convertible securities to average shares outstanding.

The following table sets forth the composition of the weighted-average common shares (denominator) used in the basic and diluted earnings per share computation.

 

	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2013			2012			2013			2012
Weighted average common shares outstanding		2,212,020			2,167,711			2,202,747			2,077,027
Average treasury stock shares		(189,530	)		(189,530	)		(189,530	)		(189,530	)
Weighted average common shares and common stock equivalents used to calculate basic earnings per share		2,022,490			1,978,181			2,013,217			1,887,497
Additional common stock equivalents (stock options) used to calculate diluted earnings per share		6,930			5,682			7,981			4,236
Weighted average common shares and common stock equivalents used to calculate diluted earnings per share		2,029,420			1,983,863			2,021,198			1,891,733

Options to purchase 58,581 shares of common stock, at prices ranging from $17.55 to $40.24, were outstanding during the three months ended September 30, 2013. Of those options, 29,633 were considered dilutive based on the market price exceeding the strike price. The remaining options had no dilutive effect on earnings per share. For the nine months ended September 30, 2013, 49,394 options were considered dilutive. The remaining options had no dilutive effect on earnings per share.

Options to purchase 88,354 shares of common stock, at prices ranging from $17.55 to $40.24, were outstanding at September 30, 2012. Of those options, 9,000 were considered dilutive based on the average market price exceeding the strike price for the nine months ended September 30, 2012. The three month period ended with 17,536 shares considered dilutive. In accordance with the subscription agreement entered into by an institutional investor, there was also an additional 11,332 shares, at $16 per share, considered dilutive for the three and nine-months ended September 30, 2012. The remaining options had no dilutive effect on the earnings per share.

11

NOTE 4 - FAIR VALUE MEASUREMENTS

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market for an asset or liability in an orderly transaction between market participants at the measurement date. GAAP established a fair value hierarchy that prioritizes the use of inputs used in valuation methodologies into the following three levels:

Level I: Quoted prices are available in active markets for identical assets or liabilities as of the reported date.

Level II: Pricing inputs are other than the quoted prices in active markets, which are either directly or indirectly observable as of the reported date. The nature of these assets and liabilities includes items for which quoted prices are available but traded less frequently and items that are fair-valued using other financial instruments, the parameters of which can be directly observed.

Level III: Assets and liabilities that have little to no pricing observability as of the reported date. These items do not have two-way markets and are measured using management’s best estimate of fair value, where the inputs into the determination of fair value require significant management judgment or estimation.

The following tables present the assets measured on a recurring basis on the Consolidated Balance Sheet at their fair value by level within the fair value hierarchy. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

 

			September 30, 2013
(Dollar amounts in thousands)	Level I		Level II		Level III		Total
Assets measured on a recurring basis:
U.S. government agency securities	$	-	$	26,343	$	-	$	26,343
Obligations of states and political subdivisions		-		94,621		-		94,621
Mortgage-backed securities in government- sponsored entities				55,083				55,083
Private-label mortgage-backed securities		-		3,974		-		3,974
Total debt securities		-		180,021		-		180,021
Equity securities in financial institutions		5		745		-		750
Total	$	5	$	180,766	$	-	$	180,771

			December 31, 2012
	Level I		Level II		Level III		Total
Assets measured on a recurring basis:
U.S. government agency securities	$	-	$	24,960	$	-	$	24,960
Obligations of states and political subdivisions		-		92,596		-		92,596
Mortgage-backed securities in government- sponsored entities				71,102		-		71,102
Private-label mortgage-backed securities		-		5,064		-		5,064
Total debt securities		-		193,722		-		193,722
Equity securities in financial institutions		5		745		-		750
Total	$	5	$	194,467	$	-	$	194,472

The Company obtains fair values from an independent pricing service which represent either quoted market prices for the identical securities (Level I inputs) or fair values determined by pricing models using a market approach that considers observable market data, such as interest rate volatilities, LIBOR yield curve, credit spreads and prices from market makers and live trading systems (Level II).

Financial instruments are considered Level III when their values are determined using pricing models, discounted cash flow methodologies or similar techniques and at least one significant model assumption or input is unobservable. In addition to these unobservable inputs, the valuation models for Level III financial instruments typically also rely on a number of inputs that are readily observable either directly or indirectly. Level III financial instruments also include those for which the determination of fair value requires significant management judgment or estimation. The Company has no securities considered to be Level III as of September 30, 2013 or December 31, 2012.

12

The Company uses prices compiled by third party vendors due to the recent stabilization in the markets along with improvements in third party pricing methodology that have narrowed the variances between third party vendor prices and actual market prices.

The following tables present the assets measured on a nonrecurring basis on the Consolidated Balance Sheet at their fair value by level within the fair value hierarchy. Impaired loans that are collateral dependent are written down to fair value through the establishment of specific reserves. Techniques used to value the collateral that secure the impaired loan include: quoted market prices for identical assets classified as Level I inputs; observable inputs, employed by certified appraisers, for similar assets classified as Level II inputs. In cases where valuation techniques included inputs that are unobservable and are based on estimates and assumptions developed by management based on the best information available under each circumstance, the asset valuation is classified as Level III inputs.

The Company values other real estate owned at the estimated fair value of the underlying collateral less expected selling costs. Such values are estimated primarily using appraisals and reflect a market value approach. Due to the significance of the Level 3 inputs, other real estate owned has been classified as Level III.

 

			September 30, 2013
(Dollar amounts in thousands)	Level I		Level II		Level III		Total
Assets measured on a non-recurring basis:
Impaired loans	$	-	$	-	$	15,467	$	15,467
Other real estate owned		-		-		2,719		2,719

			December 31, 2012
	Level I		Level II		Level III		Total
Assets measured on a non-recurring basis:
Impaired loans	$	-	$	-	$	17,600	$	17,600
Other real estate owned		-		-		1,846		1,846

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

	Quantitative Information about Level III Fair Value Measurements
(unaudited, in thousands)	Fair Value Estimate				Valuation Techniques	Unobservable Input	Range (Weighted Average)
	September 30, 2013		December 31, 2012
Impaired loans	$	15,467	$	17,600	Appraisal of collateral (1)	Appraisal adjustments (2)	0%	to	-68.0%	(-30.7%)
						Liquidation expenses (2)	0%	to	-45.8%	(-2.0%)
Other real estate owned	$	2,719	$	1,846	Appraisal of collateral (1), (3)	Appraisal adjustments (2)	0%	to	-10.0%	(-7.5%)

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

(2) Appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated liquidation expenses. The range and weighted average of liquidation expenses and other appraisal adjustments are presented as a percent of the appraisal.

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

13

The estimated fair value of the Company’s financial instruments is as follows:

 

	September 30, 2013
	Carrying Value		Level I		Level II		Level III		Total Fair Value
	(in thousands)
Financial assets:
Cash and cash equivalents	$	32,193	$	32,193	$	-	$	-	$	32,193
Investment securities
Available for sale		180,771		5		180,766		-		180,771
Net loans		411,239		-		-		413,767		413,767
Bank-owned life insurance		8,745		8,745				-		8,745
Federal Home Loan Bank stock		1,887		1,887				-		1,887
Accrued interest receivable		2,565		2,565		-		-		2,565
Financial liabilities:
Deposits	$	579,222	$	398,258	$	-	$	182,824	$	581,082
Short-term borrowings		10,575		10,575		-		-		10,575
Federal funds purchased		1,639		1,639		-		-		1,639
Other borrowings		12,261		-		-		12,469		12,469
Accrued interest payable		464		464		-		-		464

	December 31, 2012
	Carrying Value		Level I		Level II		Level III		Total Fair Value
	(in thousands)
Financial assets:
Cash and cash equivalents	$	45,346	$	45,346	$	-	$	-	$	45,346
Investment securities
Available for sale		194,472		5		194,467		-		194,472
Net loans		400,654		-		-		390,206		390,206
Bank-owned life insurance		8,536		8,536		-		-		8,536
Federal Home Loan Bank stock		1,887		1,887		-		-		1,887
Accrued interest receivable		2,163		2,163		-		-		2,163
Financial liabilities:
Deposits	$	593,335	$	396,582	$	-	$	196,122	$	592,704
Short-term borrowings		6,538		6,538		-		-		6,538
Other borrowings		12,970		-		-		13,337		13,337
Accrued interest payable		492		492		-		-		492

 

Financial instruments are defined as cash, evidence of ownership interest in an entity, or a contract which creates an obligation or right to receive or deliver cash or another financial instrument from/to a second entity on potentially favorable or unfavorable terms.

Fair value is defined as the amount at which a financial instrument could be exchanged in a current transaction between willing parties other than in a forced liquidation sale. If a quoted market price is available for a financial instrument, the estimated fair value would be calculated based upon the market price per trading unit of the instrument.

If no readily available market exists, the fair value estimates for financial instruments should be based upon management’s judgment regarding current economic conditions, interest rate risk, expected cash flows, future estimated losses, and other factors as determined through various option pricing formulas or simulation modeling. Since many of these assumptions result from judgments made by management based upon estimates which are inherently uncertain, the resulting estimated fair values may not be indicative of the amount realizable in the sale of a particular financial instrument. In addition, changes in assumptions on which the estimated fair values are based may have a significant impact on the resulting estimated fair values.

14

As certain assets such as deferred tax assets and premises and equipment are not considered financial instruments, the estimated fair value of financial instruments would not represent the full value of the Company.

The Company employed simulation modeling in determining the estimated fair value of financial instruments for which quoted market prices were not available based upon the following assumptions:

Cash and Cash Equivalents, Federal Home Loan Bank Stock, Accrued Interest Receivable, Accrued Interest Payable, Federal Funds Purchased, and Short-Term Borrowings

The fair value is equal to the current carrying value.

Bank-Owned Life Insurance

The fair value is equal to the cash surrender value of the life insurance policies.

Investment Securities Available for Sale

The fair value of investment securities is equal to the available quoted market price.  If no quoted market price is available, fair value is estimated using the quoted market price for similar securities. 

Loans

The fair value is estimated by discounting future cash flows using current market inputs at which loans with similar terms and qualities would be made to borrowers of similar credit quality. Where quoted market prices were available, primarily for certain residential mortgage loans, such market rates were used as estimates for fair value.

Deposits and Other Borrowed Funds

The fair values of certificates of deposit and other borrowed funds are based on the discounted value of contractual cash flows. The discount rates are estimated using rates currently offered for similar instruments with similar remaining maturities. Demand, savings, and money market deposits are valued at the amount payable on demand as of period end.

Commitments to Extend Credit

These financial instruments are generally not subject to sale, and estimated fair values are not readily available. The carrying value, represented by the net deferred fee arising from the unrecognized commitment or letter of credit, and the fair value, determined by discounting the remaining contractual fee over the term of the commitment using fees currently charged to enter into similar agreements with similar credit risk, are not considered material for disclosure.

15

NOTE 5 – ACCUMULATED OTHER COMPREHENSIVE INCOME

The following table presents the changes in accumulated other comprehensive income (loss) by component net of tax for the three and nine months ended September 30, 2013 and 2012:

 

	Unrealized gains on available for sale securities (a)
Balance as of December 31, 2012	$	5,391
Other comprehensive loss before reclassification		(5,466	)
Amount reclassified from accumulated other comprehensive income (loss)		(115	)
Period change		(5,581	)
Balance at June 30, 2013	$	(190	)
Other comprehensive loss before reclassification		(1,503	)
Amount reclassified from accumulated other comprehensive income (loss)		-
Period change		(1,503	)
Balance at September 30, 2013	$	(1,693	)
Balance as of December 31, 2011	$	4,541
Other comprehensive income before reclassification		1,204
Amount reclassified from accumulated other comprehensive income (loss)		(196	)
Period change		1,008
Balance at June 30, 2012		5,549
Other comprehensive loss before reclassification		553
Amount reclassified from accumulated other comprehensive income (loss)		(100	)
Period change		453
Balance at September 30, 2012	$	6,002

 (a) All amounts are net of tax. Amounts in parentheses indicate debits.

The following tables present significant amounts reclassified out of each component of accumulated other comprehensive income (loss): 

	Amount Reclassified from
	Accumulated Other Comprehensive Income (Loss)						Affected Line Item in
	For the Three Months Ended						the Statement Where
	September 30,						Net Income is
Details about other comprehensive income	2013		(a)	2012			Presented
Unrealized gains on available for sale securities
	$	-		$	152		Investment securities gains, net
		-			(52	)	Income taxes
	$	-		$	100		Net of tax

(a) Amounts in parentheses indicate debits to net income

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	Amount Reclassified from
	Accumulated Other Comprehensive Income (Loss)						Affected Line Item in
	For the Nine Months Ended						the Statement Where
	September 30,						Net Income is
Details about other comprehensive income	2013		(a)	2012			Presented
Unrealized gains on available for sale securities
	$	175		$	448		Investment securities gains, net
		(60	)		(152	)	Income taxes
	$	115		$	296		Net of tax

(a) Amounts in parentheses indicate debits to net income

NOTE 6 - INVESTMENT SECURITIES AVAILABLE FOR SALE

The amortized cost and fair values of securities available for sale are as follows:

	September 30, 2013
(Dollar amounts in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
U.S. government agency securities	$	27,550	$	161	$	(1,368	)	$	26,343
Obligations of states and political subdivisions:
Taxable		5,364		215		(21	)		5,558
Tax-exempt		90,441		1,885		(3,263	)		89,063
Mortgage-backed securities in government-sponsored entities		55,633		696		(1,246	)		55,083
Private-label mortgage-backed securities		3,597		377		-			3,974
Total debt securities		182,585		3,334		(5,898	)		180,021
Equity securities in financial institutions		750		-		-			750
Total	$	183,335	$	3,334	$	(5,898	)	$	180,771

	December 31, 2012
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
U.S. government agency securities	$	24,485	$	566	$	(91	)	$	24,960
Obligations of states and political subdivisions:
Taxable		6,888		738		-			7,626
Tax-exempt		80,391		4,684		(104	)		84,971
Mortgage-backed securities in government-sponsored entities		69,238		1,929		(65	)		71,102
Private-label mortgage-backed securities		4,553		511		-			5,064
Total debt securities		185,555		8,427		(260	)		193,723
Equity securities in financial institutions		750		-		-			750
Total	$	186,305	$	8,427	$	(260	)	$	194,473

17

The amortized cost and fair value of debt securities at September 30, 2013, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

 

(Dollar amounts in thousands)	Amortized Cost		Fair Value
Due in one year or less	$	2,736	$	2,768
Due after one year through five years		4,071		4,261
Due after five years through ten years		21,891		21,963
Due after ten years		153,887		151,029
Total	$	182,585	$	180,021

Proceeds from the sales of securities available for sale and the gross realized gains and losses for the three and nine months ended September 30 are as follows:

	For the Three Months Ended September 30,					For the Nine Months Ended September 30,
	2013		2012			2013			2012
Proceeds from sales	$	-	$	5,622		$	8,136		$	27,426
Gross realized gains		-		154			204			462
Gross realized losses		-		(2	)		(29	)		(14	)

 

Investment securities with an approximate carrying value of $73.8 millionand $62.5 millionat September 30, 2013 and December 31, 2012, respectively, were pledged to secure deposits and other purposes as required by law.

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

	September 30, 2013
	Less than Twelve Months					Twelve Months or Greater					Total
(Dollar amounts in thousands)	Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses
U.S. government agency securities	$	17,408	$	(1,368	)	$	-	$	-		$	17,408	$	(1,368	)
Obligations of states and political subdivisions		30,690		(3,244	)		448		(40	)		31,138		(3,284	)
Mortgage-backed securities in government-sponsored entities		30,295		(1,061	)		5,719		(185	)		36,014		(1,246	)
Total	$	78,393	$	(5,673	)	$	6,167	$	(225	)	$	84,560	$	(5,898	)

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	December 31, 2012
	Less than Twelve Months					Twelve Months or Greater				Total
	Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
U.S. government agency securities	$	9,938	$	(91	)	$	-	$	-	$	9,938	$	(91	)
Obligations of states and political subdivisions		9,240		(104	)		-		-		9,240		(104	)
Mortgage-backed securities in government-sponsored entities		12,353		(65	)		-		-		12,353		(65	)
Total	$	31,531	$	(260	)	$	-	$	-	$	31,531	$	(260	)

There were 103 securities considered temporarily impaired at September 30, 2013.

On a quarterly basis, the Company performs an assessment to determine whether there have been any events or economic circumstances indicating that a security with an unrealized loss has suffered other-than-temporary impairment (“OTTI”). A debt security is considered impaired if the fair value is less than its amortized cost basis at the reporting date. The Company assesses whether the unrealized loss is other-than-temporary.

OTTI losses are recognized in earnings when the Company has the intent to sell the debt security or it is more likely than not that it will be required to sell the debt security before recovery of its amortized cost basis. However, even if the Company does not expect to sell a debt security, it must evaluate expected cash flows to be received and determine if a credit loss has occurred.

An unrealized loss is generally deemed to be other than temporary and a credit loss is deemed to exist if the present value of the expected future cash flows is less than the amortized cost basis of the debt security. As a result the credit loss component of an OTTI is recorded as a component of investment securities gains (losses) in the accompanying Consolidated Statement of Income, while the remaining portion of the impairment loss is recognized in other comprehensive income, provided the Company does not intend to sell the underlying debt security and it is “more likely than not” that the Company will not have to sell the debt security prior to recovery.

Debt securities issued by U.S. government agencies, U.S. government-sponsored enterprises, and state and political subdivisions accounted for more than 97% of the total available-for-sale portfolio as of September 30, 2013 and no credit losses are expected, given the explicit and implicit guarantees provided by the U.S. federal government and the lack of prolonged unrealized loss positions within the obligations of state and political subdivisions security portfolio. The Company’s assessment was concentrated mainly on private-label collateralized mortgage obligations of approximately $3.6 million for which the Company evaluates credit losses on a quarterly basis. The gross unrealized gain position related to these private-label collateralized mortgage obligations amounted to $377,000 on September 30, 2013. The Company considered the following factors in determining whether a credit loss exists and the period over which the debt security is expected to recover:

• The length of time and the extent to which the fair value has been less than the amortized cost basis.

• Changes in the near term prospects of the underlying collateral of a security such as changes in default rates, loss severity given default and significant changes in prepayment assumptions;

• The level of cash flows generated from the underlying collateral supporting the principal and interest payments of the debt securities; and

• Any adverse change to the credit conditions and liquidity of the issuer, taking into consideration the latest information available about the overall financial condition of the issuer, credit ratings, recent legislation and government actions affecting the issuer’s industry and actions taken by the issuer to deal with the present economic climate.

For the nine months ended September 30, 2013 and 2012, there were no available-for-sale debt securities with an unrealized loss that suffered OTTI.

19

NOTE 7 - LOANS AND RELATED ALLOWANCE FOR LOAN LOSSES

Major classifications of loans are summarized as follows (in thousands):

	September 30, 2013		December 31, 2012
Commercial and industrial	$	50,265	$	62,188
Real estate - construction		25,487		22,522
Real estate - mortgage:
Residential		203,312		203,872
Commercial		135,760		115,734
Consumer installment		4,236		4,117
		419,060		408,433
Less allowance for loan losses		7,821		7,779
Net loans	$	411,239	$	400,654

 

The Company’s primary business activity is with customers located within its local trade area, eastern Geauga County, and contiguous counties to the north, east, and south. The Company also serves the central Ohio market with offices in Dublin and Westerville, Ohio. Commercial, residential, consumer, and agricultural loans are granted. Although the Company has a diversified loan portfolio, loans outstanding to individuals and businesses are dependent upon the local economic conditions in the Company’s immediate trade area.

Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff generally are reported at their outstanding unpaid principal balances net of the allowance for loan losses.  Interest income is recognized as income when earned on the accrual method.  The accrual of interest is discontinued on a loan when management believes, after considering economic and business conditions, the borrower’s financial condition is such that collection of interest is doubtful.  Interest received on nonaccrual loans is recorded as income or applied against principal according to management’s judgment as to the collectability of such principal.

Loan origination fees and certain direct loan origination costs are being deferred and the net amount amortized as an adjustment of the related loan’s yield.  Management is amortizing these amounts over the contractual life of the related loans.

The following tables summarize the primary segments of the loan portfolio and allowance for loan losses (in thousands):

					Real Estate- Mortgage
September 30, 2013	Commercial and industrial		Real estate- construction		Residential		Commercial		Consumer installment		Total
Loans:
Individually evaluated for impairment	$	1,483	$	3,963	$	5,766	$	6,787	$	8	$	18,007
Collectively evaluated for impairment		48,782		21,524		197,546		128,973		4,228		401,053
Total loans	$	50,265	$	25,487	$	203,312	$	135,760	$	4,236	$	419,060

					Real estate- Mortgage
December 31, 2012	Commercial and industrial		Real estate- construction		Residential		Commercial		Consumer installment		Total
Loans:
Individually evaluated for impairment	$	4,592	$	3,993	$	5,761	$	6,914	$	28	$	21,288
Collectively evaluated for impairment		57,596		18,529		198,111		108,820		4,089		387,145
Total loans	$	62,188	$	22,522	$	203,872	$	115,734	$	4,117	$	408,433

 

20

 

					Real Estate- Mortgage
September 30, 2013	Commercial and industrial		Real estate- construction		Residential		Commercial		Consumer installment		Total
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	195	$	859	$	896	$	590	$	-	$	2,540
Collectively evaluated for impairment		593		440		2,743		1,483		22		5,281
Total ending allowance balance	$	788	$	1,299	$	3,639	$	2,073	$	22	$	7,821

					Real Estate- Mortgage
December 31, 2012	Commercial and industrial		Real estate- construction		Residential		Commercial		Consumer installment		Total
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	1,189	$	933	$	600	$	960	$	6	$	3,688
Collectively evaluated for impairment		543		190		2,272		1,031		55		4,091
Total ending allowance balance	$	1,732	$	1,123	$	2,872	$	1,991	$	61	$	7,779

The Company’s loan portfolio is segmented to a level that allows management to monitor risk and performance.  The portfolio is segmented into Commercial and Industrial (“C&I”), Real Estate Construction, Real Estate - Mortgage which is further segmented into Residential and Commercial real estate, and Consumer Installment Loans.  The C&I loan segment consists of loans made for the purpose of financing the activities of commercial customers.  The residential mortgage loan segment consists of loans made for the purpose of financing the activities of residential homeowners. The commercial mortgage loan segment consists of loans made for the purposed of financing the activities of commercial real estate owners and operators. The consumer loan segment consists primarily of installment loans and overdraft lines of credit connected with customer deposit accounts.

Management evaluates individual loans in all of the commercial segments for possible impairment if the loan is greater than $150,000 and if the loan either is in nonaccrual status, or is risk rated Special Mention or Substandard and is greater than 90 days past due.  Loans are considered to be impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement.  Factors considered by management in evaluating impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due.  Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed.  The Company does not separately evaluate individual consumer and residential mortgage loans for impairment, unless such loans are part of a larger relationship that is impaired.

Once the determination has been made that a loan is impaired, the determination of whether a specific allocation of the allowance is necessary is measured by comparing the recorded investment in the loan to the fair value of the loan using one of three methods:  (a) the present value of expected future cash flows discounted at the loan’s effective interest rate; (b) the loan’s observable market price; or (c) the fair value of the collateral less selling costs.  The method is selected on a loan-by-loan basis, with management primarily utilizing the fair value of collateral method.  The evaluation of the need and amount of a specific allocation of the allowance and whether a loan can be removed from impairment status is made on a quarterly basis.  The Company’s policy for recognizing interest income on impaired loans does not differ from its overall policy for interest recognition.

21

The following table presents impaired loans by class, segregated by those for which a specific allowance was required and those for which a specific allowance was not necessary (in thousands):

September 30, 2013
Impaired Loans
	Recorded Investment		Unpaid Principal Balance		Related Allowance
With no related allowance recorded:
Commercial and industrial	$	932	$	932	$	-
Real estate - construction		142		142		-
Real estate - mortgage:
Residential		2,755		2,795		-
Commercial		3,567		3,567		-
Consumer installment		8		8		-
Total	$	7,404	$	7,444	$	-
With an allowance recorded:
Commercial and industrial	$	551	$	551	$	195
Real estate - construction		3,821		3,821		859
Real estate - mortgage:
Residential		3,011		3,050		896
Commercial		3,220		3,220		590
Consumer installment		-		-		-
Total	$	10,603	$	10,642	$	2,540
Total:
Commercial and industrial	$	1,483	$	1,483	$	195
Real estate - construction		3,963		3,963		859
Real estate - mortgage:
Residential		5,766		5,845		896
Commercial		6,787		6,787		590
Consumer installment		8		8		-
Total	$	18,007	$	18,086	$	2,540

 

22

December 31, 2012
Impaired Loans
	Recorded Investment		Unpaid Principal Balance		Related Allowance
With no related allowance recorded:
Commercial and industrial	$	1,230	$	1,229	$	-
Real estate - construction		308		308		-
Real estate - mortgage:
Residential		2,716		2,729		-
Commercial		4,143		4,164		-
Consumer installment		11		11		-
Total	$	8,408	$	8,441	$	-
With an allowance recorded:
Commercial and industrial	$	3,362	$	3,367	$	1,189
Real estate - construction		3,685		3,685		933
Real estate - mortgage:
Residential		3,045		3,054		600
Commercial		2,771		2,776		960
Consumer installment		17		17		6
Total	$	12,880	$	12,899	$	3,688
Total:
Commercial and industrial	$	4,592	$	4,596	$	1,189
Real estate - construction		3,993		3,993		933
Real estate - mortgage:
Residential		5,761		5,783		600
Commercial		6,914		6,940		960
Consumer installment		28		28		6
Total	$	21,288	$	21,340	$	3,688

The following table presents interest income by class, recognized on impaired loans:

  

	For the Three Months Ended September 30, 2013				For the Nine Months Ended September 30, 2013
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
Total:
Commercial and industrial	$	2,085	$	8	$	2,286	$	78
Real estate - construction		3,731		43		3,654		138
Real estate - mortgage:
Residential		5,351		81		5,213		224
Commercial		6,403		138		6,275		355
Consumer installment		13		-		15		1

23

	For the Three Months Ended September 30, 2012				For the Nine Months Ended September 30, 2012
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
Total:
Commercial and industrial	$	2,535	$	139	$	2,170	$	170
Real estate - construction		2,305		-		2,400		113
Real estate - mortgage:
Residential		3,622		85		3,764		169
Commercial		3,597		200		3,985		324
Consumer installment		13		1		27		2

Management uses a nine point internal risk rating system to monitor the credit quality of the overall loan portfolio. The first five categories are considered not criticized, and are aggregated as “Pass” rated. The criticized rating categories used by management generally follow bank regulatory definitions. The Special Mention category includes assets that are currently protected but are potentially weak, resulting in an undue and unwarranted credit risk, but not to the point of justifying a Substandard classification.  Loans in the Substandard category have well-defined weaknesses that jeopardize the liquidation of the debt, and have a distinct possibility that some loss will be sustained if the weaknesses are not corrected.  All loans greater than 90 days past due are considered Substandard.   Assets classified as “doubtful” have all the weaknesses inherent in those classified substandard, with the added characteristic that the weaknesses make collection of principal in full — on the basis of currently existing facts, conditions, and values — highly questionable and improbable. Any portion of a loan that has been charged off is placed in the Loss category.

To help ensure that risk ratings are accurate and reflect the present and future capacity of borrowers to repay a loan as agreed, the Company has a structured loan rating process with several layers of internal and external oversight.  Generally, consumer and residential mortgage loans are included in the Pass categories unless a specific action, such as bankruptcy, repossession, or death occurs to raise awareness of a possible credit event.  The Company’s Commercial Loan Officers are responsible for the timely and accurate risk rating of the loans in their portfolios at origination and on an ongoing basis.  The Credit Department performs an annual review of all commercial relationships $200,000 or greater.  Confirmation of the appropriate risk grade is included in the review on an ongoing basis.  The Company has an experienced Loan Review Department that continually reviews and assesses loans within the portfolio.  The Company engages an external consultant to conduct loan reviews on a semi-annual basis. Generally, the external consultant reviews commercial relationships greater than $250,000 and/or criticized relationships greater than $125,000.  Detailed reviews, including plans for resolution, are performed on loans classified as Substandard on a quarterly basis.  Loans in the Special Mention and Substandard categories that are collectively evaluated for impairment are given separate consideration in the determination of the allowance.

The primary risk of commercial and industrial loans is the current economic uncertainties. C & I loans are, by nature, secured by less substantial collateral than real estate secured loans. The primary risk of real estate construction loans is potential delays and /or disputes during the completion process. The primary risk of residential real estate loans is current economic uncertainties along with the slow recovery in the housing market. The primary risk of commercial real estate loans is loss of income of the owner or occupier of the property and the inability of the market to sustain rent levels. Consumer installment loans historically have experienced higher delinquency rates. Consumer installments are typically secured by less substantial collateral than other types of credits.

The following table presents the classes of the loan portfolio summarized by the aggregate Pass and the criticized categories of Special Mention, Substandard and Doubtful within the internal risk rating system (in thousands):

24

	Pass		Special Mention		Substandard		Doubtful		Total Loans
September 30, 2013
Commercial and industrial	$	48,085	$	873	$	1,264	$	43	$	50,265
Real estate - construction		20,615		912		3,960		-		25,487
Real estate - mortgage:
Residential		190,408		964		11,940		-		203,312
Commercial		127,634		2,256		5,870		-		135,760
Consumer installment		4,218		-		18		-		4,236
Total	$	390,960	$	5,005	$	23,052	$	43	$	419,060

	Pass		Special Mention		Substandard		Doubtful		Total Loans
December 31, 2012
Commercial and industrial	$	59,390	$	678	$	2,061	$	59	$	62,188
Real estate - construction		17,601		-		4,921		-		22,522
Real estate - mortgage:
Residential		190,967		758		12,147		-		203,872
Commercial		106,509		1,928		7,297		-		115,734
Consumer installment		4,084		-		33		-		4,117
Total	$	378,551	$	3,364	$	26,459	$	59	$	408,433

 

Management further monitors the performance and credit quality of the loan portfolio by analyzing the age of the portfolio as determined by the length of time a recorded payment is past due.

Nonperforming assets includes nonaccrual loans, troubled debt restructurings (TDRs), loans 90 days or more past due, assets purchased by EMORECO from EB, OREO, and repossessed assets. A loan is classified as nonaccrual when, in the opinion of management, there are serious doubts about collectability of interest and principal. Accrual of interest is discontinued on a loan when management believes, after considering economic and business conditions, the borrower’s financial condition is such that collection of principal and interest is doubtful.  Payments received on nonaccrual loans are applied against principal according to management’s shadow accounting system.

The following table presents the classes of the loan portfolio summarized by the aging categories of performing loans and nonaccrual loans (in thousands):

			Still Accruing
	Current		30-59 Days Past Due		60-89 Days Past Due		90 Days+ Past Due		Total Past Due		Non- Accrual		Total Loans
September 30, 2013
Commercial and industrial	$	49,234	$	656	$	56	$	83	$	795	$	236	$	50,265
Real estate - construction		24,594		17		876		-		893		-		25,487
Real estate - mortgage:
Residential		192,461		1,414		666		414		2,494		8,357		203,312
Commercial		134,030		-		-		346		346		1,384		135,760
Consumer installment		4,182		41		3		-		44		10		4,236
Total	$	404,502	$	2,128	$	1,601	$	843	$	4,572	$	9,986	$	419,060

 

25

			Still Accruing
	Current		30-59 Days Past Due		60-89 Days Past Due		90 Days+ Past Due		Total Past Due		Non- Accrual		Total Loans
December 31, 2012
Commercial and industrial	$	60,428	$	441	$	63	$	348	$	852	$	908	$	62,188
Real estate - construction		22,158		-		-		-		-		364		22,522
Real estate - mortgage:
Residential		191,349		2,614		1,401		90		4,105		8,418		203,872
Commercial		113,023		509		97		-		606		2,105		115,734
Consumer installment		4,074		25		-		-		25		18		4,117
Total	$	391,032	$	3,589	$	1,561	$	438	$	5,588	$	11,813	$	408,433

 

An allowance for loan and lease losses (“ALLL”) is maintained to absorb losses from the loan portfolio.  The ALLL is based on management’s continuing evaluation of the risk characteristics and credit quality of the loan portfolio, assessment of current economic conditions, diversification and size of the portfolio, adequacy of collateral, past and anticipated loss experience, and the amount of nonperforming loans.

The Company’s methodology for determining the ALLL is based on the requirements of ASC Section 310-10-35 for loans individually evaluated for impairment (discussed above) and ASC Subtopic 450-20 for loans collectively evaluated for impairment, as well as the Interagency Policy Statements on the Allowance for Loan and Lease Losses and other bank regulatory guidance.   The total of the two components represents the Company’s ALLL. Management also performs impairment analyses on TDRs, which may result in specific reserves.

Loans that are collectively evaluated for impairment are analyzed with general allowances being made as appropriate.  For general allowances, historical loss trends are used in the estimation of losses in the current portfolio.  These historical loss amounts are modified by other qualitative factors.

The classes described above, which are based on the purpose code assigned to each loan, provide the starting point for the ALLL analysis.  Management tracks the historical net charge-off activity at the purpose code level.  A historical charge-off factor is calculated using the last four consecutive historical quarters.

Management has identified a number of additional qualitative factors which it uses to supplement the historical charge-off factor because these factors are likely to cause estimated credit losses associated with the existing loan pools to differ from historical loss experience.  The additional factors that are evaluated quarterly and updated using information obtained from internal, regulatory, and governmental sources are: national and local economic trends and conditions; levels of and trends in delinquency rates and nonaccrual loans; trends in volumes and terms of loans; effects of changes in lending policies; experience, ability, and depth of lending staff; value of underlying collateral; and concentrations of credit from a loan type, industry and/or geographic standpoint.

Management reviews the loan portfolio on a quarterly basis using a defined, consistently applied process in order to make appropriate and timely adjustments to the ALLL.  When information confirms all or part of specific loans to be uncollectible, these amounts are promptly charged off against the ALLL.

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The following table summarizes the primary segments of the loan portfolio (in thousands):

	Commercial and industrial			Real estate- construction			Real estate- residential mortgage			Real estate- commercial mortgage		Consumer installment			Total
ALLL balance at December 31, 2012	$	1,732		$	1,123		$	2,872		$	1,991	$	61		$	7,779
Charge-offs		(325	)		(190	)		(432	)		-		(41	)		(988	)
Recoveries		92			33			73			46		20			264
Provision		(711	)		333			1,126			36		(18	)		766
ALLL balance at September 30, 2013	$	788		$	1,299		$	3,639		$	2,073	$	22		$	7,821

	Commercial and industrial			Real estate- construction		Real estate- residential mortgage			Real estate- commercial mortgage			Consumer installment			Total
ALLL balance at December 31, 2011	$	1,296		$	438	$	3,731		$	1,306		$	48		$	6,819
Charge-offs		(88	)		-		(668	)		(123	)		(62	)		(941	)
Recoveries		70			-		15			-			17			102
Provision		426			7		(125	)		872			13			1,193
ALLL balance at September 30, 2012	$	1,704		$	445	$	2,953		$	2,055		$	16		$	7,173

	Commercial and industrial			Real estate- construction		Real estate- residential mortgage			Real estate- commercial mortgage		Consumer installment			Total
ALLL balance at June 30, 2013	$	875		$	1,191	$	3,626		$	2,005	$	52		$	7,749
Charge-offs		-			-		(87	)		-		(5	)		(92	)
Recoveries		-			-		2			-		9			11
Provision		(87	)		108		98			68		(34	)		153
ALLL balance at September 30, 2013	$	788		$	1,299	$	3,639		$	2,073	$	22		$	7,821

	Commercial and industrial			Real estate- construction			Real estate- residential mortgage			Real estate- commercial mortgage			Consumer installment			Total
ALLL balance at June 30, 2012	$	1,626		$	504		$	4,109		$	1,492		$	21		$	7,752
Charge-offs		(60	)		-			(570	)		(70	)		(40	)		(740	)
Recoveries		1			-			12			-			5			18
Provision		137			(59	)		(598	)		633			30			143
ALLL balance at September 30, 2012	$	1,704		$	445		$	2,953		$	2,055		$	16		$	7,173

The C&I ALLL balance declined from $1.7 million at December 31, 2012 to $788,000 at September 30, 2013. Loan reclassifications resulted in a shift of $660,000 of specific reserve from this category. Residential mortgage real estate increased from $2.9 million to $3.6 million during the nine months ended September 30, 2012. This was largely the result of increasing the 1-4 family owner-occupied loss ratio. A provision in any loan portfolio is not necessarily related to current charge-offs, but is a result of the evaluation of the loans in that category.

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The following tables summarize troubled debt restructurings and subsequent defaults (in thousands):

	Three months ended
	September 30, 2013								September 30, 2012
	Number of Contracts						Pre-Modification Outstanding		Number of Contracts						Pre-Modification Outstanding
Troubled Debt Restructurings	Term Modification		Other		Total		Recorded Investment		Term Modification		Other		Total		Recorded Investment
Commercial and industrial		1		-		1	$	137		2				2	$	13
Real estate- mortgage:
Residential		-		-		-		-		6		1		7		619
Consumer Installment		-		-		-		-		1		-		1		6

	Nine months ended
	September 30, 2013								September 30, 2012
	Number of Contracts						Pre-Modification Outstanding		Number of Contracts						Pre-Modification Outstanding
Troubled Debt Restructurings	Term Modification		Other		Total		Recorded Investment		Term Modification		Other		Total		Recorded Investment
Commercial and industrial		6		-		6	$	879		8		1		9	$	243
Real estate- mortgage:
Residential		2		-		2		383		8		2		10		946
Consumer Installment		1		-		1		644		2		-		2		11

 

 

	Three months ended
	September 30, 2013				September 30, 2012
Troubled Debt Restructurings subsequently defaulted	Number of Contracts		Recorded Investment		Number of Contracts		Recorded Investment
Commercial and industrial		-	$	-		1	$	30
Real estate- mortgage:
Residential		-		-		1		20

	Nine months ended
	September 30, 2013				September 30, 2012
Troubled Debt Restructurings subsequently defaulted	Number of Contracts		Recorded Investment		Number of Contracts		Recorded Investment
Commercial and industrial		1	$	565		2	$	60
Real estate- mortgage:
Residential		-		-		1		20
Commercial		1		190		-		-

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

The following discussion and analysis provides further detail to the financial condition and results of operations of the Company. The MD&A should be read in conjunction with the notes and financial statements presented in this report.

CHANGES IN FINANCIAL CONDITION

General. The Company’s total assets ended the September 30, 2013 quarter at $658.1 million, a decrease of $12.1 million or 1.8% from December 31, 2012. Investment securities available for sale decreased $13.7 million while net loans increased $10.6 million. Accrued interest and other assets increased $4.1 million, or 51.7%. This change is largely the tax effect of the shift in accumulated other comprehensive loss resulting from mark-to-market adjustments to the investment portfolio. The decrease in total assets reflected a corresponding decrease in total liabilities of $9.2 million or 1.5% and a decrease in stockholders’ equity of $2.9 million or 5.2%. The decrease in total liabilities was primarily the result of a decrease in deposits of $14.1 million, or 2.4%, for the quarter. The decrease in stockholders’ equity resulted mostly from a decrease in accumulated other comprehensive income of $7.1 million, or 131.4%. A partial offset resulted from increases in retained earnings and common stock of $3.6 million, or 16.2% and $538,000, or 1.6%, respectively.

Cash on hand and due from banks. Cash and due from banks and Federal funds sold represent cash and cash equivalents. Cash and cash equivalents decreased $13.2 million, or 29.0% to $32.2 million at September 30, 2013 from $45.3 million at December 31, 2012. Deposits from customers into savings and checking accounts, loan and securities repayments and proceeds from borrowed funds typically increase these accounts. Decreases result from customer withdrawals, new loan originations, purchases of investment securities and repayments of borrowed funds.

Investment securities. Investment securities available for sale on September 30, 2013 totaled $180.8 million, a decrease of $13.7 million or 7.0% from $194.5 million at December 31, 2012. During this period the Company recorded purchases of available-for-sale securities of $25.8 million, consisting of mortgage-backed securities, U.S. Agencies, and municipal bonds. Offsetting the purchases of securities were repayments, calls, and maturities of $20.1 million. Sales of securities were $8.1 million with gross realized gains of $204,000 being partially offset by gross realized losses of $29,000.

Loans receivable. The loans receivable category consists primarily of single-family mortgage loans used to purchase or refinance personal residences located within the Company’s market area and commercial real estate loans used to finance properties that are used in the borrowers’ businesses or to finance investor-owned rental properties, and to a lesser extent, construction and consumer loans. Net loans receivable increased $10.5 million or 2.6% to $411.2 million as of September 30, 2013 from $400.7 million at December 31, 2012. Included in this amount were increases in the commercial real estate and construction portfolios of $20.0 million, or 17.3%, and $3.0 million, or 13.2%, respectively. These amounts were partially offset by decreases in the C&I and residential real estate segments of $11.9 million, or 19.2%, and $560,000, or 0.3%. A reclassification was responsible for $6.5 millionof the changes between the two commercial categories. The Company’s lending philosophy centers around the growth of the commercial loan portfolio. The Company has taken a proactive approach in servicing the needs of both new and current clients. These relationships generally offer more attractive returns than residential loans and also offer opportunities for attracting larger balance deposit relationships. However, the shift in loan portfolio mix from residential real estate to commercial-oriented loans may increase credit risk.

Allowance for Loan Losses and Asset Quality. The Company maintained the allowance for loan losses at $7.8 million, or 1.9% of total loans, at September 30, 2013, when compared to December 31, 2012. Third quarter 2013 net loan charge-offs totaled $81,000, or 0.02% of average loans, compared $722,000, or 0.72%, for the third quarter of 2012. Year-to-date net loan charge-offs totaled $724,000 compared to $839,000 for the same period the year prior. To maintain the adequacy of the allowance for loan losses, the Company recorded a third quarter provision for loan losses of $153,000, versus $143,000 for the third quarter of 2012. The year-to-date provision for loan losses were $766,000 compared to $1.2 million for September 30, 2013 and 2012, respectively.

Management analyzes the adequacy of the allowance for loan losses regularly through reviews of the performance of the loan portfolio considering economic conditions, changes in interest rates and the effect of such changes on real estate values and changes in the amount and composition of the loan portfolio. The allowance for loan losses is a material estimate that is particularly susceptible to significant changes in the near term. Such evaluation, which includes a review of all loans for which full collectability may not be reasonably assured, considers among other matters, historical loan loss experience, the estimated fair value of the underlying collateral, economic conditions, current interest rates, trends in the borrower’s industry and other factors that management believes warrant recognition in providing for an appropriate allowance for loan losses. Future additions to the allowance for loan losses will be dependent on these factors. Additionally, the Company uses an outside party to conduct an independent review of commercial and commercial real estate loans. The Company uses the results of this review to help determine the effectiveness of the existing policies and procedures, and to provide an independent assessment of the allowance for loan losses allocated to these types of loans. Management believes the allowance for loan losses is appropriately stated at September 30, 2013. Based on the variables involved and management’s judgments about uncertain outcomes, the determination of the allowance for loan losses is considered a critical accounting policy.

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Nonperforming assets. Nonperforming assets includes nonaccrual loans, troubled debt restructurings (TDRs), loans 90 days or more past due, assets purchased by EMORECO from EB, other real estate, and repossessed assets. Real estate owned is written down to fair value at its initial recording and continually monitored for changes in fair value. A loan is classified as nonaccrual when, in the opinion of management, there are serious doubts about collectability of interest and principal. Accrual of interest is discontinued on a loan when management believes, after considering economic and business conditions, the borrower’s financial condition is such that collection of principal and interest is doubtful. Payments received on nonaccrual loans are applied against principal until doubt about collectability ceases. TDRs are those loans which the Company, for economic or legal reasons related to a borrower’s financial difficulties, grants a concession to the borrower that the Company would not otherwise consider. The Company has 39 TDRs with a total balance of $5.7 million as of September 30, 2013. Nonperforming loans amounted to $13.7 million, or 3.3% of total loans, and $14.2 million, or 3.5% of total loans, at September 30, 2013 and December 31, 2012, respectively. A TDR that yields market interest rate at the time of restructuring and is in compliance with its modified terms is no longer reported as TDR in calendar years after the year in which the restructuring took place. To be in compliance with its modified terms, a loan that is a TDR must not be in nonaccrual status and must be current or less than 30 days past due on its contractual principal and interest payments under the modified repayment terms. Nonperforming loans secured by real estate totaled $12.3 million as of September 30, 2013, down $500,000 from $12.8 million at December 31, 2012.

 

	Asset Quality History
	(Dollar amounts in thousands)
(Dollar amounts in thousands)	9/30/2013			6/30/2013			3/31/2013			12/31/2012			9/30/2012
Nonperforming loans	$	13,607		$	12,869		$	13,899		$	14,194		$	15,404
Real estate owned		2,719			2,361			2,155			1,846			2,332
Nonperforming assets		16,326			15,230			16,054			16,040			17,736
Allowance for loan losses		7,821			7,749			7,732			7,779			7,173
Ratios
Nonperforming loans to total loans		3.25	%		3.12	%		3.41	%		3.48	%		3.76	%
Nonperforming assets to total assets		2.48	%		2.32	%		2.41	%		2.39	%		2.67	%
Allowance for loan losses to total loans		1.87	%		1.88	%		1.90	%		1.90	%		1.75	%
Allowance for loan losses to nonperforming loans		57.48	%		60.21	%		55.63	%		54.80	%		46.57	%

A major factor in determining the appropriateness of the allowance for loan losses is the type of collateral which secures the loans. Of the total nonperforming loans at September 30, 2013, 94.2% were secured by real estate. Although this does not insure against all losses, the real estate typically provides for at least partial recovery, even in a distressed-sale and declining-value environment. In response to the poor economic conditions which have eroded the performance of the Company’s loan portfolio, additional resources have been allocated to the loan workout process. The Company’s objective is to minimize the future loss exposure to the Company.

Deposits. The Company considers various sources when evaluating funding needs, including but not limited to deposits, which are a significant source of funds totaling $579.2 million or 96.2% of the Company’s total funding sources at September 30, 2013. Total deposits decreased $14.1 million or 2.4% at September 30, 2013 from $593.3 million at December 31, 2012. The decrease in deposits is primarily related to the reduction of time deposits, interest-bearing demand deposits, and money market accounts of $15.8 million or 8.0%, $4.1 million or 6.4%, and $4.2 million or 5.2%, respectively, at September 30, 2013. These decreases were partially offset by increases in noninterest-bearing demand and savings deposits of $5.8 million, or 7.7%, and $4.2 million, or 2.4%, respectively, during the nine months ended September 30, 2013.

30

Borrowed funds. The Company uses short and long-term borrowings as another source of funding used for asset growth and liquidity needs. These borrowings primarily include FHLB advances, junior subordinated debt, short-term borrowings from other banks, federal funds purchased, and repurchase agreements. Short-term borrowings increased $4.0 million, or 61.7%, to $10.6 million as of September 30, 2013. Other borrowings, representing advances from the Federal Home Loan Bank of Cincinnati, declined $709,000, or 5.5%, for the nine months ended September 30, 2013 as a result of scheduled principal payments. Fed Funds purchased increased $1.7 million for the nine months ended September 30, 2013.

Stockholders’ equity. Stockholders’ equity decreased $2.9 million, or 5.2%, to $52.6 million at September 30, 2013 from $55.4 million at December 31, 2012. This decrease was the result of a reduction of accumulated other comprehensive income of $7.1 million, or 131.4%, due to available-for-sale securities market valuation adjustments. This amount was partially offset by increases in retained earnings and common stock of $3.6 million, or 16.2%, and $538,000, or 1.6%, respectively. The increase in common stock was the result of issuing 34,336 shares at a weighted average price of $24.09 since December 31, 2012.

RESULTS OF OPERATIONS

General. Net income for the three months ended September 30, 2013, was $1.9 million, a $16,000, or 0.9% increase from the amount earned during the same period in 2012. Diluted earnings per share for the third quarter of 2013 was $0.92 compared to $0.93 for the same period in 2012. Net income for the nine months ended September 30, 2013, was $5.2 million, a $195,000, or 3.9% increase from the $5.0 million earned during the same period in 2012. Diluted earnings per share for the nine months ended September 30, 2013 was $2.58 compared to $2.65 for the same period in 2012.

The Company’s annualized return on average assets (ROA) and return on average equity (ROE) for the third quarter were 1.12% and 13.66%, respectively, compared with 1.12% and 16.57% for the same period in 2012. ROA and ROE for the nine months ended September 30, 2013 were 1.05% and 12.74%, respectively, compared with 1.02% and 15.26% for the same period in 2012.

The Company’s year-to-date earnings were positively impacted by decreases in the provision for loan losses and interest expense. This was partially offset by an increase in noninterest expense coupled with a decrease in interest income.

Net interest income. Net interest income, the primary source of revenue for the Company, is determined by the Company’s interest rate spread, which is defined as the difference between income on earning assets and the cost of funds supporting those assets, and the relative amounts of interest-earning assets and interest-bearing liabilities. Management periodically adjusts the mix of assets and liabilities, as well as the rates earned or paid on those assets and liabilities in order to manage and improve net interest income. The level of interest rates and changes in the amount and composition of interest-earning assets and liabilities affect the Company’s net interest income. Historically from an interest rate risk perspective, it has been management’s goal to maintain a balance between steady net interest income growth and the risks associated with interest rate fluctuations.

Net interest income for the three months ended September 30, 2013 totaled $5.8 million, an increase of 1.8% from that reported in the comparable period of 2012. The net interest margin was 3.91% for the third quarter of 2013, up from the 3.87% reported for the same quarter of 2012.The increase is primarily attributable to lower interest-bearing liability costs, which decreased 19 basis points to 1.01%, partially offset by a 15 basis point decline in yields on interest-earning assets to 4.92%.

Net interest income for the nine months ended September 30, 2013 totaled $17.0 million, an increase of 0.9% from the $16.9 million reported for the comparable period of 2012. The net interest margin was 3.89%, up from the 3.79% reported for the same period of 2012.The increase is primarily attributable to lower interest-bearing liability costs, which decreased 19 basis points to 1.04%, partially offset by a 10 basis point decline in yields on interest-earning assets to 4.93%.

Interest income. Interest income decreased $168,000, or 2.3%, for the nine months ended September 30, 2013, compared to the same period in the prior year.For the nine months ended September 30, 2013, interest income decreased $662,000, or 3.0%, compared to the same period in the prior year.These decreases can also be attributed to decreases in interest earned on taxable investment securities and interest and fees on loans.

31

Interest earned on loans receivable decreased $56,000, or 1.0%, for the three months ended September 30, 2013, compared to the same period in the prior year. This decrease is attributable to a 15 basis point shift in yields from September 30, 2012, partially offset by a $6.6 million, or 1.6%, average balance increase. Interest earned on loans receivable decreased $112,000, or 0.7%, for the nine months ended September 30, 2013, compared to the same period in the prior year. This decrease is attributable to a 10 basis point shift in yields from September 30, 2012, partially offset by a $4.5 million, or 1.1%, average balance increase.

Interest earned on securities decreased $106,000, or 7.1%, for the three months ended September 30, 2013, compared to the same period in the prior year. The 3.94% yield on the investment portfolio decreased by 40 basis points, from 4.34%, for the same period in the prior year. This was partially offset by an average balance increase of $8.1 million, or 4.7%. For the nine months ended September 30, 2013, interest earned on securities decreased $536,000, or 11.4%, compared to the same period in the prior year. The 4.09% yield on the investment portfolio decreased by 24 basis points, from 4.33%, for the same period in the prior year. This was partially offset by an average balance increase of $5.5 million, or 3.0%.

Interest expense. Interest expense decreased $274,000, or 17.1%, for the three months ended September 30, 2013, compared to the same period in the prior year. The decline was mostly attributed to a 19 basis point decline in total interest-bearing liabilities when compared to the same period in the prior year. It was further impacted by a decrease in the average balance of certificates of deposit of $18.0 million, or 8.9%, compared to the same period in the prior year. For the nine months ended September 30, 2013, interest expense decreased $820,000, or 16.7%, compared to the same period in the prior year. This is mostly attributed to a decrease in the average balance of certificates of deposit of $20.0 million, or 9.6%, compared to the same period in the prior year. The decline was further caused by a 19 basis point decline in total interest-bearing liabilities when compared to the same period in the prior year.

Interest incurred on deposits, the largest component of the Company’s interest-bearing liabilities, declined $248,000, or 17.5%, for the three months ended September 30, 2013, compared to the same period in the prior year. This decrease was attributed to a decline in the average rate paid on deposits to 0.92% from 1.11% for the same period in the prior year. This improvement was exacerbated by a decrease in the average balance of interest-bearing deposits of $3.3 million, or 0.6%, to $505.2 million when compared to $508.5 million for the same period in the prior year. For the nine months ended September 30, 2013, interest incurred on deposits declined $662,000, or 15.2%, compared to the same period in the prior year. This decrease was attributed to a decline in the average rate paid on deposits to 1.00% from 1.14% for the same period in the prior year. This improvement was exacerbated by a decrease in the average balance of interest-bearing deposits of $2.4 million, or 0.5%, to $509.3 million when compared to $511.8 million for the same period in the prior year. These amounts are reflected in the quarterly rate volume report presented below depicting the cost decrease associated with interest-bearing liabilities. The Company diligently monitors the interest rates on its products as well as the rates being offered by its competition and utilizes rate surveys to minimize total interest expense.

Interest incurred on borrowings decreased $26,000, or 14.2%, for the three months ended September 30, 2013, compared to the same period in the prior year. For the nine months ended September 30, 2013, interest incurred on borrowings declined $158,000, or 27.0%, compared to the same period in the prior year.

Provision for loan losses. The provision for loan losses represents the charge to income necessary to adjust the allowance for loan losses to an amount that represents management’s assessment of the estimated probable incurred credit losses inherent in the loan portfolio. Each quarter management performs a review of estimated probable incurred credit losses in the loan portfolio. Based on this review, a provision for loan losses of $153,000 was recorded for the quarter ended September 30, 2013 compared to $143,000 for the quarter ended September 30, 2012. For the nine months ended September 30, 2013, a provision for loan losses of $766,000 was recorded compared to $1.2 million for the comparable 2012 period. The year-to-date provision for loan losses was lower due to decreases in nonperforming loans. Nonperforming loans were $13.7 million, or 3.27% of total loans at September 30, 2013 compared with $15.4 million, or 3.76% at September 30, 2012. Net charge-offs were $81,000 for the quarter ended September 30, 2013 compared with $722,000 for the quarter ended September 30, 2012. Total loans were $419.1 million at September 30, 2013 compared with $409.2 million at September 30, 2012.

Noninterest income. Noninterest income decreased $60,000 for the three months ended September 30, 2013 over the comparable 2012 period. This decrease was largely the result of a decline in net investment security gains of $152,000, partially offset by an increase in service charges on deposit accounts of $29,000 and other income of $64,000. Noninterest income decreased $184,000 for the nine months ended September 30, 2013 over the comparable 2012 period. This decrease was largely the result of declines in net investment securities gains and gain on sale of loans of $273,000 and $85,000, respectively. These decreases were partially offset by an increase in service charges on deposit accounts of $85,000 and other income of $84,000.

32

Noninterest expense. Noninterest expense of $4.1 million for the third quarter of 2013 was 0.2% or $7,000 less than the first quarter of 2012. Loss on sale of other real estate owned and FDIC assessments decreased $223,000, and $115,000, respectively. These decreases were partially offset by increases in salaries and benefits and other real estate expense of $167,000 and $60,000, respectively. Noninterest expense of $12.1 million for the nine months ended September 30, 2013 was 1.0%, or $119,000 higher than the third quarter of 2012. FDIC assessments and loss on sale of other real estate owned decreased $398,000, and $278,000, respectively. These decreases were partially offset by increases in salaries and benefits and professional fees of $394,000 and $213,000, respectively.

Provision for income taxes. The Company recognized $521,000 in income tax expense, which reflected an effective tax rate of 21.8% for the three months ended September 30, 2013, as compared to $494,000 with an effective tax rate of 21.1% for the respective 2012 period. The increase in the tax provision can be attributed to an increase in income before taxes of $43,000 or 1.8% when compared to the same quarter in the prior year. For the nine months ended September 30, 2013, the Company recognized $1.5 million in income tax expense, which reflected an effective tax rate of 22.1%, as compared to $1.4 million with an effective tax rate of 21.7% for the respective 2012 period. The increase in the tax provision can be attributed to an increase in income before taxes of $282,000 or 4.4% when compared to the same period in the prior year.

CRITICAL ACCOUNTING ESTIMATES

The Company’s critical accounting estimates involving the more significant judgments and assumptions used in the preparation of the consolidated financial statements as of September 30, 2013, have remained unchanged from December 31, 2012.

Average Balance Sheet and Yield/Rate Analysis. The following table sets forth, for the periods indicated, information concerning the total dollar amounts of interest income from interest-earning assets and the resultant average yields, the total dollar amounts of interest expense on interest-bearing liabilities and the resultant average costs, net interest income, interest rate spread and the net interest margin earned on average interest-earning assets. For purposes of this table, average balances are calculated using monthly averages and the average loan balances include nonaccrual loans and exclude the allowance for loan losses, and interest income includes accretion of net deferred loan fees. Interest and yields on tax-exempt securities (tax-exempt for federal income tax purposes) are shown on a fully tax-equivalent basis utilizing a federal tax rate of 34%. Yields and rates have been calculated on an annualized basis utilizing monthly interest amounts.

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	For the Three Months Ended September 30,
	2013							2012
(Dollars in thousands)	Average Balance		Interest		Average Yield/Cost			Average Balance		Interest		Average Yield/Cost
Interest-earning assets:
Loans receivable	$	417,666	$	5,754		5.47	%	$	411,053	$	5,810		5.62	%
Investment securities (3)		180,695		1,392		3.94	%		172,637		1,498		4.34	%
Interest-bearing deposits with other banks		12,993		28		0.85	%		23,126		34		0.58	%
Total interest-earning assets		611,354		7,174		4.92	%		606,816		7,342		5.07	%
Noninterest-earning assets		48,833							50,256
Total assets	$	660,187						$	657,072
Interest-bearing liabilities:
Interest-bearing demand deposits	$	61,612		55		0.35	%	$	64,785		67		0.41	%
Money market deposits		79,253		74		0.37	%		68,499		72		0.42	%
Savings deposits		178,901		151		0.33	%		171,746		165		0.38	%
Certificates of deposit		185,468		891		1.91	%		203,482		1,115		2.18	%
Borrowings		17,931		157		3.47	%		22,997		183		3.17	%
Total interest-bearing liabilities		523,165		1,328		1.01	%		531,509		1,602		1.20	%
Noninterest-bearing liabilities
Other liabilities		82,869							75,147
Stockholders' equity		54,153							50,416
Total liabilities and stockholders' equity	$	660,187						$	657,072
Net interest income			$	5,846						$	5,740
Interest rate spread (1)						3.91	%						3.87	%
Net yield on interest-earning assets (2)						4.05	%						4.02	%
Ratio of average interest-earning assets to average interest-bearing liabilities						116.86	%						114.17	%

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

(2) Net interest margin represents net interest income as a percentage of average interest-earning assets.

(3) Tax-equivalent adjustments to interest income for tax-exempt securities were $403 and $385 for 2013 and 2012, respectively.

Analysis of Changes in Net Interest Income. The following table analyzes the changes in interest income and interest expense, between the three month periods ended September 30, 2013 and 2012, in terms of: (1) changes in volume of interest-earning assets and interest-bearing liabilities and (2) changes in yields and rates. The table reflects the extent to which changes in the Company’s interest income and interest expense are attributable to changes in rate (change in rate multiplied by prior period volume), changes in volume (changes in volume multiplied by prior period rate) and changes attributable to the combined impact of volume/rate (change in rate multiplied by change in volume). The changes attributable to the combined impact of volume/rate are allocated on a consistent basis between the volume and rate variances. Changes in interest income on securities reflects the changes in interest income on a fully tax-equivalent basis.

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	2013 versus 2012
	Increase (decrease) due to
(Dollars in thousands)	Volume			Rate			Total
Interest-earning assets:
Loans receivable	$	94		$	(150	)	$	(56	)
Investment securities		88			(194	)		(106	)
Interest-bearing deposits with other banks		(15	)		9			(6	)
Total interest-earning assets		167			(335	)		(168	)
Interest-bearing liabilities:
Interest-bearing demand deposits		(3	)		(9	)		(12	)
Money market deposits		11			(9	)		2
Savings deposits		7			(21	)		(14	)
Certificates of deposit		(99	)		(125	)		(224	)
Borrowings		(40	)		14			(26	)
Total interest-bearing liabilities		(124	)		(150	)		(274	)
Net interest income	$	291		$	(185	)	$	106

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	For the Nine Months Ended September 30,
	2013							2012
(Dollars in thousands)	Average Balance		Interest		Average Yield/Cost			Average Balance		Interest		Average Yield/Cost
Interest-earning assets:
Loans receivable	$	411,382	$	16,876		5.48	%	$	406,919	$	16,988		5.58	%
Investment securities (3)		186,564		4,168		4.09	%		181,062		4,704		4.33	%
Interest-bearing deposits with other banks		16,918		91		0.72	%		22,221		105		0.63	%
Total interest-earning assets		614,864		21,135		4.93	%		610,202		21,797		5.03	%
Noninterest-earning assets		47,216							45,323
Total assets	$	662,080						$	655,525
Interest-bearing liabilities:
Interest-bearing demand deposits	$	62,630		166		0.35	%	$	61,718		190		0.41	%
Money market deposits		78,956		230		0.39	%		70,108		216		0.41	%
Savings deposits		178,275		460		0.34	%		170,423		495		0.39	%
Certificates of deposit		189,472		2,831		2.00	%		209,504		3,448		2.20	%
Borrowings		18,385		427		3.11	%		23,551		585		3.32	%
Total interest-bearing liabilities		527,718		4,114		1.04	%		535,304		4,934		1.23	%
Noninterest-bearing liabilities
Other liabilities		79,698							70,846
Stockholders' equity		54,664							49,375
Total liabilities and stockholders' equity	$	662,080						$	655,525
Net interest income			$	17,021						$	16,863
Interest rate spread (1)						3.89	%						3.79	%
Net interest margin (2)						4.03	%						3.95	%
Ratio of average interest-earning assets to average interest-bearing liabilities						116.51	%						113.99	%

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

(2) Net interest margin represents net interest income as a percentage of average interest-earning assets.

(3) Tax-equivalent adjustments to interest income for tax-exempt securities were $1,533 and $1,159 for 2013 and 2012, respectively.

Analysis of Changes in Net Interest Income. The following table analyzes the changes in interest income and interest expense, between the nine month periods ended September 30, 2013 and 2012, in terms of: (1) changes in volume of interest-earning assets and interest-bearing liabilities and (2) changes in yields and rates. The table reflects the extent to which changes in the Company’s interest income and interest expense are attributable to changes in rate (change in rate multiplied by prior period volume), changes in volume (changes in volume multiplied by prior period rate) and changes attributable to the combined impact of volume/rate (change in rate multiplied by change in volume). The changes attributable to the combined impact of volume/rate are allocated on a consistent basis between the volume and rate variances. Changes in interest income on securities reflect the changes in interest income on a fully tax-equivalent basis.

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	2013 versus 2012
	Increase (decrease) due to
(Dollars in thousands)	Volume			Rate			Total
Interest-earning assets:
Loans receivable	$	186		$	(298	)	$	(112	)
Investment securities		178			(714	)		(536	)
Interest-bearing deposits with other banks		(25	)		11			(14	)
Total interest-earning assets		339			(1,001	)		(662	)
Interest-bearing liabilities:
Interest-bearing demand deposits		3			(27	)		(24	)
Money market deposits		27			(13	)		14
Savings deposits		23			(58	)		(35	)
Certificates of deposit		(329	)		(288	)		(617	)
Borrowings		(128	)		(30	)		(158	)
Total interest-bearing liabilities		(404	)		(416	)		(820	)
Net interest income	$	743		$	(585	)	$	158

 

LIQUIDITY

Management's objective in managing liquidity is maintaining the ability to continue meeting the cash flow needs of banking customers, such as borrowings or deposit withdrawals, as well as the Company’s own financial commitments. The principal sources of liquidity are net income, loan payments, maturing and principal reductions on securities and sales of securities available for sale, federal funds sold and cash and deposits with banks. Along with its liquid assets, the Company has additional sources of liquidity available to ensure that adequate funds are available as needed. These include, but are not limited to, the purchase of federal funds, and the ability to borrow funds under line of credit agreements with correspondent banks and a borrowing agreement with the Federal Home Loan Bank of Cincinnati, Ohio and the adjustment of interest rates to obtain depositors. Management believes the Company has the capital adequacy, profitability and reputation to meet the current and projected needs of its customers.

For the three and nine months ended September 30, 2013, the adjustments to reconcile net income to net cash from operating activities consisted mainly of depreciation and amortization of premises and equipment, the provision for loan losses, net amortization of securities and net changes in other assets and liabilities. For a more detailed illustration of sources and uses of cash, refer to the condensed consolidated statements of cash flows.

INFLATION

Substantially all of the Company's assets and liabilities relate to banking activities and are monetary in nature. The consolidated financial statements and related financial data are presented in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”). GAAP currently requires the Company to measure the financial position and results of operations in terms of historical dollars, with the exception of securities available for sale, impaired loans and other real estate loans that are measured at fair value. Changes in the value of money due to rising inflation can cause purchasing power loss.

Management's opinion is that movements in interest rates affect the financial condition and results of operations to a greater degree than changes in the rate of inflation. It should be noted that interest rates and inflation do affect each other, but do not always move in correlation with each other. The Company's ability to match the interest sensitivity of its financial assets to the interest sensitivity of its liabilities in its asset/liability management may tend to minimize the effect of changes in interest rates on the Company's performance.

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REGULATORY MATTERS

The Company is subject to the regulatory requirements of the Federal Reserve System as a multi-bank holding company. The affiliate banks are subject to regulations of the Federal Deposit Insurance Corporation (“FDIC”) and the State of Ohio, Division of Financial Institutions.

The Federal Reserve Board and the FDIC have extensive authority to prevent and to remedy unsafe and unsound practices and violations of applicable laws and regulations by institutions and holding companies. The agencies may assess civil money penalties, issue cease-and-desist or removal orders, seek injunctions, and publicly disclose those actions. In addition, the Ohio Division of Financial Institutions possesses enforcement powers to address violations of Ohio banking law by Ohio-chartered banks.

In February of 2011, Emerald Bank agreed with the FDIC and the Ohio Division of Financial Institutions that Emerald Bank will take specified actions to correct weaknesses in the bank’s condition and operations.  The actions that Emerald Bank agreed to take include reducing the bank’s concentration of credit in non-owner occupied 1 - 4 family residential mortgage loans, reducing delinquent and classified loans, enhancing credit administration for non-owner occupied residential real estate, developing plans for the reduction of borrower indebtedness on classified and delinquent credits, implementing an earnings improvement plan, maintaining leverage capital of at least 9%, revising the bank’s methodology for calculating and determining the adequacy of the allowance for loan losses, and providing to the FDIC and the ODFI notice of proposed dividend payments at least 30 days in advance.

The following table sets forth the capital requirements for EB under the FDIC regulations and EB’s capital ratios:

FDIC Regulations

Capital Ratio	Adequately Capitalized			Well Capitalized				September 30, 2013			December 31, 2012
Tier I Leverage Capital		4.00	%		5.00	%	(1)		11.19	%		10.61	%
Risk-Based Capital:
Tier I		4.00			6.00				13.21			14.16
Total		8.00			10.00				14.49			15.45

 

(1) EB has agreed to maintain leverage capital of at least 9%

REGULATORY CAPITAL REQUIREMENTS

The Company is subject to regulatory capital requirements administered by federal banking agencies. Capital adequacy guidelines and prompt corrective action regulations involve quantitative measures of assets, liabilities and certain off-balance sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators about components, risk weightings and other factors and the regulators can lower classifications in certain cases. Failure to meet various capital requirements can initiate regulatory action that could have a direct material effect on the company's operations.

The prompt corrective action regulations provide five classifications, including well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized, although these terms are not used to represent overall financial condition. If adequately capitalized, regulatory approval is required to accept brokered deposits. If undercapitalized, capital distributions are limited, as is asset growth and expansion and plans for capital restoration are required.

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The following tables illustrate the Company's and Banks’ capital ratios:

 

	Middlefield Banc Corp. September 30, 2013					The Middlefield Banking Co. September 30, 2013					Emerald Bank September 30, 2013
	Amount		Ratio			Amount		Ratio			Amount		Ratio
	(in thousands)
Total Capital
(to Risk-weighted Assets)
Actual	$	62,528		14.22	%	$	51,728		13.80	%	$	9,294		14.49	%
For Capital Adequacy Purposes		35,169		8.00			29,989		8.00			5,237		8.00
To Be Well Capitalized		43,961		10.00			37,486		10.00			6,546		10.00
Tier I Capital
(to Risk-weighted Assets)
Actual	$	57,004		12.97	%	$	47,042		12.55	%	$	8,475		13.21	%
For Capital Adequacy Purposes		17,584		4.00			14,994		4.00			2,618		4.00
To Be Well Capitalized		26,376		6.00			22,492		5.00			3,928		6.00
Tier I Capital
(to Average Assets)
Actual	$	57,004		8.70	%	$	47,042		8.20	%	$	8,475		11.19	%
For Capital Adequacy Purposes		26,199		4.00			22,939		4.00			3,028		4.00
To Be Well Capitalized		32,748		5.00			28,674		5.00			3,785		5.00

	Middlefield Banc Corp.					The Middlefield Banking Co.					Emerald Bank
(Dollar amounts in thousands)	December 31, 2012					December 31, 2012					December 31, 2012
	Amount		Ratio			Amount		Ratio			Amount		Ratio
Total Capital
(to Risk-weighted Assets)
Actual	$	57,784		13.86	%	$	47,887		13.29	%	$	8,440		15.45	%
For Capital Adequacy Purposes		33,344		8.00			28,822		8.00			4,370		8.00
To Be Well Capitalized		41,680		10.00			36,027		10.00			5,463		10.00
Tier I Capital
(to Risk-weighted Assets)
Actual	$	52,543		12.61	%	$	43,371		12.04	%	$	7,737		14.16	%
For Capital Adequacy Purposes		16,672		4.00			14,411		4.00			2,185		4.00
To Be Well Capitalized		25,008		6.00			21,616		6.00			3,278		6.00
Tier I Capital
(to Average Assets)
Actual	$	52,543		7.88	%	$	43,371		7.32	%	$	7,737		10.61	%
For Capital Adequacy Purposes		26,675		4.00			23,684		4.00			2,916		4.00
To Be Well Capitalized		33,344		5.00			29,605		5.00			3,646		5.00

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Supplementing these capital requirements of applicable banking regulations, Emerald Bank has agreed with the FDIC and the Ohio Division of Financial Institutions to maintain tier 1 leverage capital of at least 9%, The Middlefield Banking Company committed to the FDIC that The Middlefield Banking Company will maintain capital ratios at levels no lower than its June 30, 2010 ratios (i.e., no lower than 6.25% tier 1 leverage capital and 11.29% total risk-based capital), and Middlefield Banc Corp. committed to the Federal Reserve that Middlefield Banc Corp. will maintain tier 1 leverage capital of at least 7.25% and total risk-based capital of at least 12%, both at the level of the holding company and at the level of The Middlefield Banking Company, the lead bank.  We expect that these elevated minimum capital levels will apply for the foreseeable future, while the banks and the holding company continue their efforts to manage more serious asset quality challenges than they have been accustomed to, while also managing the impact of those challenges on earnings and the strains that general economic downturns in the banks’ markets and across the region and nation are placing not only on Emerald Bank and The Middlefield Banking Company but on all local banks.     

Item 3. Quantitative and Qualitative Disclosures about Market Risk

ASSET AND LIABILITY MANAGEMENT

The primary objective of the Company’s asset and liability management function is to maximize the Company’s net interest income while simultaneously maintaining an acceptable level of interest rate risk given the Company’s operating environment, capital and liquidity requirements, performance objectives and overall business focus. The principal determinant of the exposure of the Company’s earnings to interest rate risk is the timing difference between the repricing and maturity of interest-earning assets and the repricing or maturity of its interest-bearing liabilities. The Company’s asset and liability management policies are designed to decrease interest rate sensitivity primarily by shortening the maturities of interest-earning assets while at the same time extending the maturities of interest-bearing liabilities. The Board of Directors of the Company continues to believe in strong asset/liability management in order to insulate the Company from material losses as a result of prolonged increases in interest rates. As a result of this policy, the Company emphasizes a larger, more diversified portfolio of residential mortgage loans in the form of mortgage-backed securities. Mortgage-backed securities generally increase the quality of the Company’s assets by virtue of the insurance or guarantees that back them, are more liquid than individual mortgage loans and may be used to collateralize borrowings or other obligations of the Company.

MB’s Board of Directors have established an Asset and Liability Management Committee consisting of four outside directors, the President and Chief Executive Officer, Executive/Vice President/ Chief Operating Officer, Senior Vice President/Chief Financial Officer and Senior Vice President/Commercial Lending. This committee, which meets quarterly, generally monitors various asset and liability management policies and strategies, which were implemented by the Company over the past few years. These strategies have included: (i) an emphasis on the investment in adjustable-rate and shorter duration mortgage-backed securities; (ii) an emphasis on the origination of single-family residential adjustable-rate mortgages (ARMs), residential construction loans and commercial real estate loans, which generally have adjustable or floating interest rates and/or shorter maturities than traditional single-family residential loans, and consumer loans, which generally have shorter terms and higher interest rates than mortgage loans; (iii) increase the duration of the liability base of the Company by extending the maturities of savings deposits, borrowed funds and repurchase agreements.

MB and EB have established the following guidelines for assessing interest rate risk:

Net interest income simulation. Given a 200 basis point parallel and gradual increase or decrease in market interest rates, net interest income may not change by more than 10% for a one-year period.

Portfolio equity simulation. Portfolio equity is the net present value of the Company’s existing assets and liabilities. Given a 200 basis point immediate and permanent increase or decrease in market interest rates, portfolio equity may not correspondingly decrease or increase by more than 20% of stockholders’ equity.

The following table presents the simulated impact of a 200 basis point upward and a 200 basis point downward shift of market interest rates on net interest income and the change in portfolio equity. This analysis was done assuming that the interest-earning asset and interest-bearing liability levels at September 30, 2013 remained constant. The impact of the market rate movements was developed by simulating the effects of rates changing gradually over a one-year period from the September 30, 2012 levels for net interest income. The impact of market rate movements was developed by simulating the effects of an immediate and permanent change in rates at September 30, 2013 for portfolio equity:

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Item 4. Controls and Procedures

Controls and Procedures Disclosure

The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Corporation’s reports that it files or submits under the Securities Exchange Act of 1934 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 its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

As of the end of the period covered by this quarterly report, an evaluation was carried out under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934). Based on their evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures are, to the best of their knowledge, effective to ensure that information required to be disclosed by the Corporation in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. Subsequent to the date of their evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that there were no significant changes in internal control or in other factors that could significantly affect the Company’s internal controls, including any corrective actions with regard to significant deficiencies and material weaknesses.

A material weakness is a significant deficiency (as defined in Public Company Accounting Oversight Board Auditing Standard No. 2), or a combination of significant deficiencies, that results in there being more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis by management or employees in the normal course of performing their assigned functions.

Changes in Internal Control over Financial Reporting

There have not been any changes in the Company’s internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) that occurred during the Company’s most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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PART II - OTHER INFORMATION

Item 1. Legal Proceedings None

Item 1a. There are no material changes to the risk factors set forth in Part I, Item 1A, “Risk Factors,” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2012. Please refer to that section for    disclosures regarding the risks and uncertainties related to the Company’s business. The Company has previously disclosed that the Company’s two subsidiary banks have implemented security controls to prevent unauthorized access to the banks’ computer systems.  To strengthen the Company’s controls designed to prevent unauthorized information technology access, the Company’s banks have agreed with the FDIC and the Ohio Division of Financial Institutions to implement improved information technology risk management practices.

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

Item 3. Defaults by the Company on its Senior Securities None

Item 4. Mine Safety Disclosures

Item 5. Other information None

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Item 6. Exhibits and Reports on Form 8-K

Exhibit list for Middlefield Banc Corp.’s Form 10-Q Quarterly Report for the Period Ended September 30, 2013

3.1	Second Amended and Restated Articles of Incorporation of Middlefield Banc Corp., as amended	Incorporated by reference to Exhibit 3.1 of Middlefield Banc Corp.’s Annual Report on Form 10-K for the Fiscal Year Ended December 31, 2005, filed on March 29, 2006
3.2	Regulations of Middlefield Banc Corp.	Incorporated by reference to Exhibit 3.2 of Middlefield Banc Corp.’s registration statement on Form 10 filed on April 17, 2001
4.0	Specimen stock certificate	Incorporated by reference to Exhibit 4 of Middlefield Banc Corp.’s registration statement on Form 10 filed on April 17, 2001
4.1	Amended and Restated Trust Agreement, dated as of December 21, 2006, between Middlefield Banc Corp., as Depositor, Wilmington Trust Company, as Property trustee, Wilmington Trust Company, as Delaware Trustee, and Administrative Trustees	Incorporated by reference to Exhibit 4.1 of Middlefield Banc Corp.’s Form 8-K Current Report filed on December 27, 2006
4.2	Junior Subordinated Indenture, dated as of December 21, 2006, between Middlefield Banc Corp. and Wilmington Trust Company	Incorporated by reference to Exhibit 4.2 of Middlefield Banc Corp.’s Form 8-K Current Report filed on December 27, 2006
4.3	Guarantee Agreement, dated as of December 21, 2006, between Middlefield Banc Corp. and Wilmington Trust Company	Incorporated by reference to Exhibit 4.3 of Middlefield Banc Corp.’s Form 8-K Current Report filed on December 27, 2006
10.1.0*	1999 Stock Option Plan of Middlefield Banc Corp.	Incorporated by reference to Exhibit 10.1 of Middlefield Banc Corp.’s registration statement on Form 10 filed on April 17, 2001
10.1.1*	2007 Omnibus Equity Plan	Incorporated by reference to Middlefield Banc Corp.’s definitive proxy statement for the 2008 Annual Meeting of Shareholders, Appendix A, filed on April 7, 2008
10.2*	Severance Agreement between Middlefield Banc Corp. and Thomas G. Caldwell, dated January 7, 2008	Incorporated by reference to Exhibit 10.2 of Middlefield Banc Corp.’s Form 8-K Current Report filed on January 9, 2008
10.3*	Severance Agreement between Middlefield Banc Corp. and James R. Heslop, II, dated January 7, 2008	Incorporated by reference to Exhibit 10.3 of Middlefield Banc Corp.’s Form 8-K Current Report filed on January 9, 2008
10.4.0*	Severance Agreement between Middlefield Banc Corp. and Jay P. Giles, dated January 7, 2008	Incorporated by reference to Exhibit 10.4 of Middlefield Banc Corp.’s Form 8-K Current Report filed on January 9, 2008
10.4.1*	Severance Agreement between Middlefield Banc Corp. and Teresa M. Hetrick, dated January 7, 2008	Incorporated by reference to Exhibit 10.4.1 of Middlefield Banc Corp.’s Form 8-K Current Report filed on January 9, 2008
10.4.2	[reserved]
10.4.3*	Severance Agreement between Middlefield Banc Corp. and Donald L. Stacy, dated January 7, 2008	Incorporated by reference to Exhibit 10.4.3 of Middlefield Banc Corp.’s Form 8-K Current Report filed on January 9, 2008

43

10.4.4*	Severance Agreement between Middlefield Banc Corp. and Alfred F. Thompson Jr., dated January 7, 2008	Incorporated by reference to Exhibit 10.4.4 of Middlefield Banc Corp.’s Form 8-K Current Report filed on January 9, 2008
10.5	Federal Home Loan Bank of Cincinnati Agreement for Advances and Security Agreement dated September 14, 2000	Incorporated by reference to Exhibit 10.4 of Middlefield Banc Corp.’s registration statement on Form 10 filed on April 17, 2001
10.6*	Amended Director Retirement Agreement with Richard T. Coyne	Incorporated by reference to Exhibit 10.6 of Middlefield Banc Corp.’s Form 8-K Current Report filed on January 9, 2008
10.7*	Amended Director Retirement Agreement with Frances H. Frank	Incorporated by reference to Exhibit 10.7 of Middlefield Banc Corp.’s Form 8-K Current Report filed on January 9, 2008
10.8*	Amended Director Retirement Agreement with Thomas C. Halstead	Incorporated by reference to Exhibit 10.8 of Middlefield Banc Corp.’s Form 8-K Current Report filed on January 9, 2008
10.9*	Director Retirement Agreement with George F. Hasman	Incorporated by reference to Exhibit 10.9 of Middlefield Banc Corp.’s Annual Report on Form 10-K for the Year Ended December 31, 2001, filed on March 28, 2002
10.10*	Director Retirement Agreement with Donald D. Hunter	Incorporated by reference to Exhibit 10.10 of Middlefield Banc Corp.’s Annual Report on Form 10-K for the Year Ended December 31, 2001, filed on March 28, 2002
10.11*	Director Retirement Agreement with Martin S. Paul	Incorporated by reference to Exhibit 10.11 of Middlefield Banc Corp.’s Annual Report on Form 10-K for the Year Ended December 31, 2001, filed on March 28, 2002
10.12*	Amended Director Retirement Agreement with Donald E. Villers	Incorporated by reference to Exhibit 10.12 of Middlefield Banc Corp.’s Form 8-K Current Report filed on January 9, 2008
10.13*	Executive Survivor Income Agreement (aka DBO agreement [death benefit only]) with Donald L. Stacy	Incorporated by reference to Exhibit 10.14 of Middlefield Banc Corp.’s Annual Report on Form 10-K for the Year Ended December 31, 2003, filed on March 30, 2004
10.14*	DBO Agreement with Jay P. Giles	Incorporated by reference to Exhibit 10.15 of Middlefield Banc Corp.’s Annual Report on Form 10-K for the Year Ended December 31, 2003, filed on March 30, 2004
10.15*	DBO Agreement with Alfred F. Thompson Jr.	Incorporated by reference to Exhibit 10.16 of Middlefield Banc Corp.’s Annual Report on Form 10-K for the Year Ended December 31, 2003, filed on March 30, 2004
10.16	[reserved]
10.17*	DBO Agreement with Theresa M. Hetrick	Incorporated by reference to Exhibit 10.18 of Middlefield Banc Corp.’s Annual Report on Form 10-K for the Year Ended December 31, 2003, filed on March 30, 2004
10.18 *	Executive Deferred Compensation Agreement with Jay P. Giles	Incorporated by reference to Exhibit 10.18 of Middlefield Banc Corp.’s Annual Report on Form 10-K for the Year Ended December 31, 2011, filed on March 20, 2012

44

10.19*	DBO Agreement with James R. Heslop, II	Incorporated by reference to Exhibit 10.20 of Middlefield Banc Corp.’s Annual Report on Form 10-K for the Year Ended December 31, 2003, filed on March 30, 2004
10.20*	DBO Agreement with Thomas G. Caldwell	Incorporated by reference to Exhibit 10.21 of Middlefield Banc Corp.’s Annual Report on Form 10-K for the Year Ended December 31, 2003, filed on March 30, 2004
10.21*	Form of Indemnification Agreement with directors of Middlefield Banc Corp. and with executive officers of Middlefield Banc Corp. and The Middlefield Banking Company	Incorporated by reference to Exhibit 99.1 of Middlefield Banc Corp.’s registration statement on Form 10, Amendment No. 1, filed on June 14, 2001
10.22*	Annual Incentive Plan Summary	Incorporated by reference to Exhibit 10.22 of Middlefield Banc Corp.’s Form 8-K Current Report filed on June 12, 2012
10.23*	Amended Executive Deferred Compensation Agreement with Thomas G. Caldwell	Incorporated by reference to Exhibit 10.23 of Middlefield Banc Corp.’s Form 8-K Current Report filed on May 9, 2008
10.24*	Amended Executive Deferred Compensation Agreement with James R. Heslop, II	Incorporated by reference to Exhibit 10.24 of Middlefield Banc Corp.’s Form 8-K Current Report filed on May 9, 2008
10.25*	Amended Executive Deferred Compensation Agreement with Donald L. Stacy	Incorporated by reference to Exhibit 10.25 of Middlefield Banc Corp.’s Form 8-K Current Report filed on May 9, 2008
10.26*	Stock Purchase Agreement dated August 15, 2011 between Bank Opportunity Fund LLC and Middlefield Banc Corp.	Incorporated by reference to Exhibit 10.26 of Middlefield Banc Corp.’s Form 8-K Current Report filed on August 18, 2011
10.26.1	Amendment 1 of the Stock Purchase Agreement with Bank Opportunity Fund LLC (amendment dated September 29, 2011)	Incorporated by reference to Exhibit 10.26.1 of Middlefield Banc Corp.’s Annual Report on Form 10-K for the Year Ended December 31, 2011, filed on March 20, 2012
10.26.2	Amendment 2 of the Stock Purchase Agreement with Bank Opportunity Fund LLC (amendment dated October 20, 2011)	Incorporated by reference to Exhibit 10.26.2 of Middlefield Banc Corp.’s Annual Report on Form 10-K for the Year Ended December 31, 2011, filed on March 20, 2012
10.26.3	Amendment 3 of the Stock Purchase Agreement with Bank Opportunity Fund LLC (amendment dated November 28, 2011)	Incorporated by reference to Exhibit 10.26.3 of Middlefield Banc Corp.’s Annual Report on Form 10-K for the Year Ended December 31, 2011, filed on March 20, 2012
10.26.4	Amendment 4 of the Stock Purchase Agreement with Bank Opportunity Fund LLC (amendment dated December 21, 2011)	Incorporated by reference to Exhibit 10.26.4 of Middlefield Banc Corp.’s Annual Report on Form 10-K for the Year Ended December 31, 2011, filed on March 20, 2012
10.26.5	March 21, 2012 letter agreement between Bank Opportunity Fund LLC and Middlefield Banc Corp.	Incorporated by reference to Exhibit 10.26.5 of Middlefield Banc Corp.’s Form 8-K Current Report filed on March 27, 2012
10.26.6	Amendment 5 of the Stock Purchase Agreement with Bank Opportunity Fund LLC (amendment dated April 17, 2012)	Incorporated by reference to Exhibit 10.26.6 of Middlefield Banc Corp.’s Form 8-K Current Report filed on April 23, 2012
10.26.7	Amendment 6 of the Stock Purchase Agreement with Bank Opportunity Fund LLC (amendment dated August 23, 2012)	Incorporated by reference to Exhibit 10.26.7 of Middlefield Banc Corp.’s Form 8-K Current Report filed on August 24, 2012

45

10.27	[reserved]
10.28	Amended and Restated Purchaser’s Rights and Voting Agreement, dated April 17, 2012, among Bank Opportunity Fund LLC, Middlefield Banc Corp., and directors and officers of Middlefield Banc Corp.	Incorporated by reference to Exhibit 10.28 of Middlefield Banc Corp.’s Form 8-K Current Report filed on April 23, 2012
10.28.1	Amendment of the Amended and Restated Purchaser’s Rights and Voting Agreement (amendment dated August 23, 2012)	Incorporated by reference to Exhibit 10.28.1 of Middlefield Banc Corp.’s Form 8-K Current Report filed on August 24, 2012
31.1	Rule 13a-14(a) certification of Chief Executive Officer	filed herewith
31.2	Rule 13a-14(a) certification of Chief Financial Officer	filed herewith
32	Rule 13a-14(b) certification	filed herewith
101.INS**	XBRL Instance	furnished herewith
101.SCH**	XBRL Taxonomy Extension Schema	furnished herewith
101.CAL**	XBRL Taxonomy Extension Calculation	furnished herewith
101.DEF**	XBRL Taxonomy Extension Definition	furnished herewith
101.LAB**	XBRL Taxonomy Extension Labels	furnished herewith
101.PRE**	XBRL Taxonomy Extension Presentation	furnished herewith

* management contract or compensatory plan or arrangement

** XBRL information is furnished and not filed or a part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

46

 

SIGNATURES

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

		MIDDLEFIELD BANC CORP.
Date: November 5, 2013	By:	/s/Thomas G. Caldwell
	Thomas G. Caldwell
	President and Chief Executive Officer
Date: November 5, 2013	By:	/s/Donald L. Stacy
	Donald L. Stacy
	Principal Financial and Accounting Officer

47

EX-31

 

Exhibit 31.1

CERTIFICATION

Pursuant to Section 302 of the Securities Exchange Act of 1934

I, Thomas G. Caldwell, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Middlefield Banc Corp. (“the Registrant”).

2. Based on my knowledge, this quarterly 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 quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly 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 quarterly report;

4. The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Registrant and we 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) Design such internal controls over financial reporting, or cause such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

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

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

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

(a) all significant deficiencies and material weaknesses in the design or operation of internal controls 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 issuer’s internal control over financial reporting.

Date: November 5, 2013
	By: /s/ Thomas G. Caldwell
	Thomas G. Caldwell
	President and Chief Executive Officer

EX-31

 

Exhibit 31.2

CERTIFICATION

Pursuant to Section 302 of the Securities Exchange Act of 1934

I, Donald L. Stacy, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Middlefield Banc Corp. (“the Registrant”).

2. Based on my knowledge, this quarterly 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 quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly 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 quarterly report;

4. The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Registrant and we 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) Design such internal controls over financial reporting, or cause 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; and

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

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

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

(a) all significant deficiencies and material weaknesses in the design or operation of internal controls 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 issuer’s internal control over financial reporting.

Date: November 5, 2013	By: /s/Donald L. Stacy
	Donald L. Stacy
	Principal Financial and Accounting Officer

EX-32

 

Exhibit 32

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Middlefield Banc Corp. (the “Company”) on Form 10-Q for the period ending September 30, 2013 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), we, Thomas G. Caldwell, President, and Donald L. Stacy, Chief Financial Officer, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1)     The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

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

By: /s/Thomas G. Caldwell	By: /s/Donald L. Stacy
Thomas G. Caldwell	Donald L. Stacy
President and Chief Executive Officer	Principal Financial and Accounting Officer

November 5, 2013

A signed original of this written statement required by Section 906 has been provided to Middlefield Banc Corp. and will be retained by Middlefield Banc Corp. and furnished to the Securities and Exchange Commission or its staff upon request.

XML

Note 2 - Stock-Based Compensation (Tables)

9 Months Ended

Sep. 30, 2013

Disclosure Text Block Supplement [Abstract]

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

	2013			Weighted- average Exercise Price		2012			Weighted- average Exercise Price
Outstanding, January 1		79,693		$	26.81		88,774		$	26.81
Exercised		(21,112	)		24.11		-			-
Forfeited		-			-		(420	)		36.86
Outstanding, September 30		58,581			28.38		88,354			26.76
Exercisable, September 30		58,581			28.38		88,354			26.76

XML

Consolidated Statement of Income (Unaudited) (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012
INTEREST INCOME
Interest and fees on loans	$ 5,754	$ 5,810	$ 16,876	$ 16,988
Interest-bearing deposits in other institutions	6	7	23	19
Federal funds sold	4	6	12	13
Investment securities:
Taxable interest	610	749	1,909	2,455
Tax-exempt interest	782	749	2,259	2,249
Dividends on stock	18	21	56	73
Total interest income	7,174	7,342	21,135	21,797
INTEREST EXPENSE
Deposits	1,170	1,418	3,686	4,349
Short-term borrowings	41	61	140	219
Federal funds purchased	1		1
Other borrowings	41	78	131	244
Trust preferred securities	75	45	156	122
Total interest expense	1,328	1,602	4,114	4,934
NET INTEREST INCOME	5,846	5,740	17,021	16,863
Provision for loan losses	153	143	766	1,193
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES	5,693	5,597	16,255	15,670
NONINTEREST INCOME
Service charges on deposit accounts	510	481	1,468	1,383
Investment securities gains, net		152	175	448
Earnings on bank-owned life insurance	66	71	209	208
Gain on sale of loans				85
Other income	232	164	643	555
Total noninterest income	808	868	2,495	2,679
NONINTEREST EXPENSE
Salaries and employee benefits	1,872	1,705	5,649	5,255
Occupancy expense	273	233	795	703
Equipment expense	228	186	603	557
Data processing costs	209	184	609	574
Ohio state franchise tax	164	160	467	417
Federal deposit insurance expense	135	250	353	751
Professional fees	316	270	883	670
(Gain) loss on sale of other real estate owned	(35)	188	(40)	238
Advertising expense	113	114	336	346
Other real estate expense	128	68	324	341
Directors fees	77	97	315	279
Other expense	635	667	1,770	1,814
Total noninterest expense	4,115	4,122	12,064	11,945
Income before income taxes	2,386	2,343	6,686	6,404
Income taxes	521	494	1,479	1,392
NET INCOME	$ 1,865	$ 1,849	$ 5,207	$ 5,012
EARNINGS PER SHARE
Basic (in Dollars per share)	$ 0.92	$ 0.93	$ 2.59	$ 2.66
Diluted (in Dollars per share)	$ 0.92	$ 0.93	$ 2.58	$ 2.65
DIVIDENDS DECLARED PER SHARE (in Dollars per share)	$ 0.26	$ 0.26	$ 0.78	$ 0.78

XML

Note 2 - Stock-Based Compensation

9 Months Ended

Sep. 30, 2013

Disclosure Text Block Supplement [Abstract]

Compensation and Employee Benefit Plans [Text Block]

NOTE 2 - STOCK-BASED COMPENSATION

The Company had no unvested stock options outstanding or unrecognized stock-based compensation costs outstanding as of September 30, 2013 and 2012.

Stock option activity during the nine months ended September 30 is as follows:

	2013			Weighted- average Exercise Price		2012			Weighted- average Exercise Price
Outstanding, January 1		79,693		$	26.81		88,774		$	26.81
Exercised		(21,112	)		24.11		-			-
Forfeited		-			-		(420	)		36.86
Outstanding, September 30		58,581			28.38		88,354			26.76
Exercisable, September 30		58,581			28.38		88,354			26.76

XML

Note 2 - Stock-Based Compensation (Details) - Stock Option Activity (USD $)	9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012
Stock Option Activity [Abstract]
Outstanding, January 1	79,693	88,774
Outstanding, January 1 (in Dollars per share)	$ 26.81	$ 26.81
Exercised	(21,112)	0
Exercised (in Dollars per share)	$ 24.11	$ 0
Forfeited	0	(420)
Forfeited (in Dollars per share)	$ 0	$ 36.86
Outstanding, September 30	58,581	88,354
Outstanding, September 30 (in Dollars per share)	$ 28.38	$ 26.76
Exercisable, September 30	58,581	88,354
Exercisable, September 30 (in Dollars per share)	$ 28.38	$ 26.76

XML

Note 3 - Earnings Per Share (Tables)

9 Months Ended

Sep. 30, 2013

EARNINGS PER SHARE [Abstract]

Schedule of Weighted Average Number of Shares [Table Text Block]

	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2013			2012			2013			2012
Weighted average common shares outstanding		2,212,020			2,167,711			2,202,747			2,077,027
Average treasury stock shares		(189,530	)		(189,530	)		(189,530	)		(189,530	)
Weighted average common shares and common stock equivalents used to calculate basic earnings per share		2,022,490			1,978,181			2,013,217			1,887,497
Additional common stock equivalents (stock options) used to calculate diluted earnings per share		6,930			5,682			7,981			4,236
Weighted average common shares and common stock equivalents used to calculate diluted earnings per share		2,029,420			1,983,863			2,021,198			1,891,733

XML

Note 7 - Loans And Related Allowance For Loan Losses (Details) - Troubled Debt Restructurings That Subsequently Defaulted Year to Date (USD $) In Thousands, unless otherwise specified	3 Months Ended	9 Months Ended
	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012
Commercial and Industrial [Member]
Note 7 - Loans And Related Allowance For Loan Losses (Details) - Troubled Debt Restructurings That Subsequently Defaulted Year to Date [Line Items]
Troubled Debt Restructurings Subsequently Defaulted Number of Contacts	1	1	2
Troubled Debt Restructurings Subsequently Defaulted Recorded Investment (in Dollars)	$ 30	$ 565	$ 60
Residential Real Estate Mortgage [Member]
Note 7 - Loans And Related Allowance For Loan Losses (Details) - Troubled Debt Restructurings That Subsequently Defaulted Year to Date [Line Items]
Troubled Debt Restructurings Subsequently Defaulted Number of Contacts	1		1
Troubled Debt Restructurings Subsequently Defaulted Recorded Investment (in Dollars)	20		20
Commercial Real Estate Mortgage [Member]
Note 7 - Loans And Related Allowance For Loan Losses (Details) - Troubled Debt Restructurings That Subsequently Defaulted Year to Date [Line Items]
Troubled Debt Restructurings Subsequently Defaulted Number of Contacts		1
Troubled Debt Restructurings Subsequently Defaulted Recorded Investment (in Dollars)		$ 190

XML

Note 7 - Loans And Related Allowance For Loan Losses (Details) (USD $)	9 Months Ended
	Sep. 30, 2013	Dec. 31, 2012
Note 7 - Loans And Related Allowance For Loan Losses (Details) [Line Items]
Number of Days Past Due	90
Loans and Leases Receivable, Allowance	$ 7,821,000	$ 7,779,000
Shift From Commercial and Industrial Specific Reserve	660,000
Threshold for Loans Evaluated for Impairment [Member] | Outside Consultant [Member]
Note 7 - Loans And Related Allowance For Loan Losses (Details) [Line Items]
Loans and Leases Receivable, Gross, Commercial	250,000
Threshold for Loans Evaluated for Impairment [Member] | Criticized Relationships [Member]
Note 7 - Loans And Related Allowance For Loan Losses (Details) [Line Items]
Financing Receivable, Gross	125,000
Threshold for Loans Evaluated for Impairment [Member]
Note 7 - Loans And Related Allowance For Loan Losses (Details) [Line Items]
Notes, Loans and Financing Receivable, Gross, Current	150,000
Loans and Leases Receivable, Gross, Commercial	200,000
Commercial and Industrial [Member]
Note 7 - Loans And Related Allowance For Loan Losses (Details) [Line Items]
Loans and Leases Receivable, Allowance	788,000	1,700,000
Residential Real Estate Mortgage [Member]
Note 7 - Loans And Related Allowance For Loan Losses (Details) [Line Items]
Loans and Leases Receivable, Allowance	$ 3,600,000	$ 2,900,000

XML

Note 4 - Fair Value Disclosure Measurements (Details) - Assets Measured on a Recurring Basis (USD $) In Thousands, unless otherwise specified	Sep. 30, 2013	Dec. 31, 2012
Assets measured on a recurring basis:
Assets Measured on a Recurring Basis	$ 180,771	$ 194,473
US Government Agencies Debt Securities [Member] | Fair Value, Inputs, Level 1 [Member]
Assets measured on a recurring basis:
Assets Measured on a Recurring Basis	0	0
US Government Agencies Debt Securities [Member] | Fair Value, Inputs, Level 2 [Member]
Assets measured on a recurring basis:
Assets Measured on a Recurring Basis	26,343	24,960
US Government Agencies Debt Securities [Member] | Fair Value, Inputs, Level 3 [Member]
Assets measured on a recurring basis:
Assets Measured on a Recurring Basis	0	0
US Government Agencies Debt Securities [Member]
Assets measured on a recurring basis:
Assets Measured on a Recurring Basis	26,343	24,960
US States and Political Subdivisions Debt Securities [Member] | Fair Value, Inputs, Level 1 [Member]
Assets measured on a recurring basis:
Assets Measured on a Recurring Basis	0	0
US States and Political Subdivisions Debt Securities [Member] | Fair Value, Inputs, Level 2 [Member]
Assets measured on a recurring basis:
Assets Measured on a Recurring Basis	94,621	92,596
US States and Political Subdivisions Debt Securities [Member] | Fair Value, Inputs, Level 3 [Member]
Assets measured on a recurring basis:
Assets Measured on a Recurring Basis	0	0
US States and Political Subdivisions Debt Securities [Member]
Assets measured on a recurring basis:
Assets Measured on a Recurring Basis	94,621	92,596
Mortgage-backed Securities, Issued by US Government Sponsored Enterprises [Member] | Fair Value, Inputs, Level 2 [Member]
Assets measured on a recurring basis:
Assets Measured on a Recurring Basis	55,083	71,102
Mortgage-backed Securities, Issued by US Government Sponsored Enterprises [Member] | Fair Value, Inputs, Level 3 [Member]
Assets measured on a recurring basis:
Assets Measured on a Recurring Basis		0
Mortgage-backed Securities, Issued by US Government Sponsored Enterprises [Member]
Assets measured on a recurring basis:
Assets Measured on a Recurring Basis	55,083	71,102
Mortgage-backed Securities, Issued by Private Enterprises [Member] | Fair Value, Inputs, Level 1 [Member]
Assets measured on a recurring basis:
Assets Measured on a Recurring Basis	0	0
Mortgage-backed Securities, Issued by Private Enterprises [Member] | Fair Value, Inputs, Level 2 [Member]
Assets measured on a recurring basis:
Assets Measured on a Recurring Basis	3,974	5,064
Mortgage-backed Securities, Issued by Private Enterprises [Member] | Fair Value, Inputs, Level 3 [Member]
Assets measured on a recurring basis:
Assets Measured on a Recurring Basis	0	0
Mortgage-backed Securities, Issued by Private Enterprises [Member]
Assets measured on a recurring basis:
Assets Measured on a Recurring Basis	3,974	5,064
Debt Securities [Member] | Fair Value, Inputs, Level 1 [Member]
Assets measured on a recurring basis:
Assets Measured on a Recurring Basis	0	0
Debt Securities [Member] | Fair Value, Inputs, Level 2 [Member]
Assets measured on a recurring basis:
Assets Measured on a Recurring Basis	180,021	193,722
Debt Securities [Member] | Fair Value, Inputs, Level 3 [Member]
Assets measured on a recurring basis:
Assets Measured on a Recurring Basis	0	0
Debt Securities [Member]
Assets measured on a recurring basis:
Assets Measured on a Recurring Basis	180,021	193,722
Equity Securities in Financial Institutions [Member] | Fair Value, Inputs, Level 1 [Member]
Assets measured on a recurring basis:
Assets Measured on a Recurring Basis	5	5
Equity Securities in Financial Institutions [Member] | Fair Value, Inputs, Level 2 [Member]
Assets measured on a recurring basis:
Assets Measured on a Recurring Basis	745	745
Equity Securities in Financial Institutions [Member] | Fair Value, Inputs, Level 3 [Member]
Assets measured on a recurring basis:
Assets Measured on a Recurring Basis	0	0
Equity Securities in Financial Institutions [Member]
Assets measured on a recurring basis:
Assets Measured on a Recurring Basis	750	750
Fair Value, Inputs, Level 1 [Member]
Assets measured on a recurring basis:
Assets Measured on a Recurring Basis	5	5
Fair Value, Inputs, Level 2 [Member]
Assets measured on a recurring basis:
Assets Measured on a Recurring Basis	180,766	194,467
Fair Value, Inputs, Level 3 [Member]
Assets measured on a recurring basis:
Assets Measured on a Recurring Basis	$ 0	$ 0

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Note 3 - Earnings Per Share (Details) - Shares Used in Calculation of Earnings Per Share	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012
Shares Used in Calculation of Earnings Per Share [Abstract]
Weighted average common shares outstanding	2,212,020	2,167,711	2,202,747	2,077,027
Average treasury stock shares	(189,530)	(189,530)	(189,530)	(189,530)
Weighted average common shares and common stock equivalents used to calculate basic earnings per share	2,022,490	1,978,181	2,013,217	1,887,497
Additional common stock equivalents (stock options) used to calculate diluted earnings per share	6,930	5,682	7,981	4,236
Weighted average common shares and common stock equivalents used to calculate diluted earnings per share	2,029,420	1,983,863	2,021,198	1,891,733

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Note 7 - Loans And Related Allowance For Loan Losses (Details) - Troubled Debt Restructurings (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012
Commercial and Industrial [Member] | Term Modification [Member]
Financing Receivable, Modifications [Line Items]
Trouble Debt Restructurings Number of Contracts	1	2	6	8
Commercial and Industrial [Member] | Other Modification [Member]
Financing Receivable, Modifications [Line Items]
Trouble Debt Restructurings Number of Contracts				1
Commercial and Industrial [Member]
Financing Receivable, Modifications [Line Items]
Trouble Debt Restructurings Number of Contracts	1	2	6	9
Troubled Debt Restructurings Pre-Modification Outstanding Recorded Investment (in Dollars)	$ 137	$ 13	$ 879	$ 243
Residential Real Estate Mortgage [Member] | Term Modification [Member]
Financing Receivable, Modifications [Line Items]
Trouble Debt Restructurings Number of Contracts		6	2	8
Residential Real Estate Mortgage [Member] | Other Modification [Member]
Financing Receivable, Modifications [Line Items]
Trouble Debt Restructurings Number of Contracts		1		2
Residential Real Estate Mortgage [Member]
Financing Receivable, Modifications [Line Items]
Trouble Debt Restructurings Number of Contracts		7	2	10
Troubled Debt Restructurings Pre-Modification Outstanding Recorded Investment (in Dollars)		619	383	946
Consumer Installment [Member] | Term Modification [Member]
Financing Receivable, Modifications [Line Items]
Trouble Debt Restructurings Number of Contracts		1	1	2
Consumer Installment [Member]
Financing Receivable, Modifications [Line Items]
Trouble Debt Restructurings Number of Contracts		1	1	2
Troubled Debt Restructurings Pre-Modification Outstanding Recorded Investment (in Dollars)		$ 6	$ 644	$ 11

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Note 6 - Investment Securities Available For Sale (Details) - Amortized Cost and Fair Values of Securities Available for Sale (USD $)	9 Months Ended	12 Months Ended
	Sep. 30, 2013	Dec. 31, 2012
Note 6 - Investment Securities Available For Sale (Details) - Amortized Cost and Fair Values of Securities Available for Sale [Line Items]
Available for Sale Securities Amortized Cost	$ 183,335,000	$ 186,305,000
Available for Sale Securities Gross Unrealized Gains	3,334,000	8,427,000
Available for Sale Securities Gross Unrealized Losses	(5,898,000)	(260,000)
Available for Sale Securities Fair Value	180,771,000	194,472,000
Taxable [Member] | US States and Political Subdivisions Debt Securities [Member]
Note 6 - Investment Securities Available For Sale (Details) - Amortized Cost and Fair Values of Securities Available for Sale [Line Items]
Available for Sale Securities Amortized Cost	5,364,000	6,888,000
Available for Sale Securities Gross Unrealized Gains	215,000	738,000
Available for Sale Securities Gross Unrealized Losses	(21,000)	0
Available for Sale Securities Fair Value	5,558,000	7,626,000
Tax-exempt [Member] | US States and Political Subdivisions Debt Securities [Member]
Note 6 - Investment Securities Available For Sale (Details) - Amortized Cost and Fair Values of Securities Available for Sale [Line Items]
Available for Sale Securities Amortized Cost	90,441,000	80,391,000
Available for Sale Securities Gross Unrealized Gains	1,885,000	4,684,000
Available for Sale Securities Gross Unrealized Losses	(3,263,000)	(104,000)
Available for Sale Securities Fair Value	89,063,000	84,971,000
US Government Agencies Debt Securities [Member]
Note 6 - Investment Securities Available For Sale (Details) - Amortized Cost and Fair Values of Securities Available for Sale [Line Items]
Available for Sale Securities Amortized Cost	27,550,000	24,485,000
Available for Sale Securities Gross Unrealized Gains	161,000	566,000
Available for Sale Securities Gross Unrealized Losses	(1,368,000)	(91,000)
Available for Sale Securities Fair Value	26,343,000	24,960,000
Mortgage-backed Securities, Issued by US Government Sponsored Enterprises [Member]
Note 6 - Investment Securities Available For Sale (Details) - Amortized Cost and Fair Values of Securities Available for Sale [Line Items]
Available for Sale Securities Amortized Cost	55,633,000	69,238,000
Available for Sale Securities Gross Unrealized Gains	696,000	1,929,000
Available for Sale Securities Gross Unrealized Losses	(1,246,000)	(65,000)
Available for Sale Securities Fair Value	55,083,000	71,102,000
Mortgage-backed Securities, Issued by Private Enterprises [Member]
Note 6 - Investment Securities Available For Sale (Details) - Amortized Cost and Fair Values of Securities Available for Sale [Line Items]
Available for Sale Securities Amortized Cost	3,597,000	4,553,000
Available for Sale Securities Gross Unrealized Gains	377,000	511,000
Available for Sale Securities Gross Unrealized Losses	0	0
Available for Sale Securities Fair Value	3,974,000	5,064,000
Debt Securities [Member]
Note 6 - Investment Securities Available For Sale (Details) - Amortized Cost and Fair Values of Securities Available for Sale [Line Items]
Available for Sale Securities Amortized Cost	182,585,000	185,555,000
Available for Sale Securities Gross Unrealized Gains	3,334,000	8,427,000
Available for Sale Securities Gross Unrealized Losses	(5,898,000)	(260,000)
Available for Sale Securities Fair Value	180,021,000	193,723,000
Equity Securities in Financial Institutions [Member]
Note 6 - Investment Securities Available For Sale (Details) - Amortized Cost and Fair Values of Securities Available for Sale [Line Items]
Available for Sale Securities Amortized Cost	750,000	750,000
Available for Sale Securities Gross Unrealized Gains	0	0
Available for Sale Securities Gross Unrealized Losses	0	0
Available for Sale Securities Fair Value	$ 750,000	$ 750,000

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Note 7 - Loans And Related Allowance For Loan Losses (Details) - Primary Segments of the Loan Portfolio (USD $) In Thousands, unless otherwise specified	Sep. 30, 2013	Dec. 31, 2012
Loans:
Individually evaluated for impairment	$ 18,007	$ 21,288
Collectively evaluated for impairment	401,053	387,145
Total loans	419,060	408,433
Commercial and Industrial [Member]
Loans:
Individually evaluated for impairment	1,483	4,592
Collectively evaluated for impairment	48,782	57,596
Total loans	50,265	62,188
Real Estate Construction [Member]
Loans:
Individually evaluated for impairment	3,963	3,993
Collectively evaluated for impairment	21,524	18,529
Total loans	25,487	22,522
Residential Real Estate Mortgage [Member]
Loans:
Individually evaluated for impairment	5,766	5,761
Collectively evaluated for impairment	197,546	198,111
Total loans	203,312	203,872
Commercial Real Estate Mortgage [Member]
Loans:
Individually evaluated for impairment	6,787	6,914
Collectively evaluated for impairment	128,973	108,820
Total loans	135,760	115,734
Consumer Installment [Member]
Loans:
Individually evaluated for impairment	8	28
Collectively evaluated for impairment	4,228	4,089
Total loans	$ 4,236	$ 4,117

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Note 5 - Accumulated Other Comprehensive Income (Details) - Changes in Accumulated Other Comprehensive Income (USD $) In Thousands, unless otherwise specified	3 Months Ended				6 Months Ended				9 Months Ended
	Sep. 30, 2013		Sep. 30, 2012		Jun. 30, 2013		Jun. 30, 2012		Sep. 30, 2013		Sep. 30, 2012		Dec. 30, 2012
Changes in Accumulated Other Comprehensive Income [Abstract]
Balance	$ (190)	[1]	$ 5,549	[1]	$ 5,391		$ 4,541	[1]	$ 5,391		$ 4,541	[1]	$ 5,391	[1]
Period change	(1,503)	[1]	453	[1]	(5,581)	[1]	1,008	[1]	(7,084)		1,461
Other comprehensive loss before reclassification	(1,503)	[1]	553	[1]	(5,466)	[1]	1,204	[1]
Amount reclassified from accumulated other comprehensive income	0	[1]	(100)	[1]	(115)	[1]	(196)	[1]
Balance	$ (1,693)	[1]	$ 6,002	[1]	$ (190)	[1]	$ 5,549	[1]	$ (1,693)	[1]	$ 6,002	[1]	$ 5,391	[1]

[1] All amounts are net of tax. Amounts in parentheses indicate debits.

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Note 7 - Loans And Related Allowance For Loan Losses (Details) - Additional Information on Impaired Loans (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012
Commercial and Industrial [Member]
Note 7 - Loans And Related Allowance For Loan Losses (Details) - Additional Information on Impaired Loans [Line Items]
Impaired loans, average recorded investment	$ 2,085	$ 2,535	$ 2,286	$ 2,170
Impaired loans, interest income recognized	8	139	78	170
Real Estate Construction [Member]
Note 7 - Loans And Related Allowance For Loan Losses (Details) - Additional Information on Impaired Loans [Line Items]
Impaired loans, average recorded investment	3,731	2,305	3,654	2,400
Impaired loans, interest income recognized	43		138	113
Residential Real Estate Mortgage [Member]
Note 7 - Loans And Related Allowance For Loan Losses (Details) - Additional Information on Impaired Loans [Line Items]
Impaired loans, average recorded investment	5,351	3,622	5,213	3,764
Impaired loans, interest income recognized	81	85	224	169
Commercial Real Estate Mortgage [Member]
Note 7 - Loans And Related Allowance For Loan Losses (Details) - Additional Information on Impaired Loans [Line Items]
Impaired loans, average recorded investment	6,403	3,597	6,275	3,985
Impaired loans, interest income recognized	138	200	355	324
Consumer Installment [Member]
Note 7 - Loans And Related Allowance For Loan Losses (Details) - Additional Information on Impaired Loans [Line Items]
Impaired loans, average recorded investment	13	13	15	27
Impaired loans, interest income recognized		$ 1	$ 1	$ 2

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Note 3 - Earnings Per Share (Details) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012	Dec. 31, 2012	Dec. 31, 2011
Note 3 - Earnings Per Share (Details) [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Number	58,581	88,354	58,581	88,354	79,693	88,774
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range, Lower Range Limit (in Dollars per share)	$ 17.55			$ 17.55
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range, Upper Range Limit (in Dollars per share)	$ 40.24			$ 40.24
Incremental Common Shares Attributable to Dilutive Effect of Share-based Payment Arrangements	6,930	5,682	7,981	4,236
Incremental Common Shares Attributable to Dilutive Effect of Call Options and Warrants		11,332		11,332
Share Price (in Dollars per share)		$ 16		$ 16
Employee Stock Option [Member]
Note 3 - Earnings Per Share (Details) [Line Items]
Incremental Common Shares Attributable to Dilutive Effect of Share-based Payment Arrangements	29,633	17,536	49,394	9,000
17.55 - 40.24 [Member]
Note 3 - Earnings Per Share (Details) [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Number	58,581	88,354	58,581	88,354

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Consolidated Statement of Changes in Stockholders' Equity (Unaudited) (USD $) In Thousands	Common Stock [Member]	Retained Earnings [Member]	Accumulated Other Comprehensive Income (Loss) [Member]	Treasury Stock [Member]	Total
Balance, December 31, 2012 at Dec. 31, 2012	$ 34,295	$ 22,485	$ 5,391	$ (6,734)	$ 55,437
Net income		5,207			5,207
Comprehensive loss			(7,084)		(7,084)
Common stock issuance (13,320 shares), net of issuance cost ($139)	74				74
Dividend reinvestment and purchase plan (21,016 shares)	590				590
Stock options exercised	(126)				(126)
Cash dividends ($0.78 per share)		(1,569)			(1,569)
Balance, September 30, 2013 at Sep. 30, 2013	$ 34,833	$ 26,123	$ (1,693)	$ (6,734)	$ 52,529

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Consolidated Statement of Cash Flows (Unaudited) (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012
OPERATING ACTIVITIES
Net income	$ 5,207	$ 5,012
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses	766	1,193
Investment securities gains, net	(175)	(448)
Depreciation and amortization	786	663
Amortization of premium and discount on investment securities	721	674
Accretion of deferred loan fees, net	(203)	(139)
Origination of loans held for sale		(1,084)
Proceeds from sale of loans held for sale		1,169
Gain on sale of loans		(85)
Earnings on bank-owned life insurance	(209)	(208)
Deferred income taxes	161	220
(Gain) loss on sale of other real estate owned	(40)	238
Increase in accrued interest receivable	(402)	(364)
Decrease in accrued interest payable	(28)	(88)
(Increase) decrease in prepaid federal deposit insurance	(73)	633
Other, net	546	(63)
Net cash provided by operating activities	7,057	7,323
Investment securities available for sale:
Proceeds from repayments and maturities	20,103	40,227
Proceeds from sale of securities	8,136	27,426
Purchases	(25,815)	(50,828)
Increase in loans, net	(12,841)	(8,826)
Proceeds from the sale of other real estate owned	860	542
Purchase of premises and equipment	(476)	(883)
Net cash (used for) provided by investing activities	(10,033)	7,658
FINANCING ACTIVITIES
Net (decrease) increase in deposits	(14,113)	3,776
Increase (decrease) in short-term borrowings, net	4,037	(874)
Increase in federal funds purchased	1,639
Repayment of other borrowings	(709)	(995)
Common stock issuance	74	2,329
Stock options exercised	(126)
Proceeds from dividend reinvestment & purchase plan	590	481
Cash dividends	(1,569)	(1,482)
Net cash (used for) provided by financing activities	(10,177)	3,235
Increase (decrease) in cash and cash equivalents	(13,153)	18,216
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD	45,346	34,390
CASH AND CASH EQUIVALENTS AT END OF PERIOD	32,193	52,606
Cash paid during the year for:
Interest on deposits and borrowings	4,142	5,022
Income taxes	1,100	1,250
Non-cash investing transactions:
Transfers from loans to other real estate owned	$ 1,693	$ 916

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Note 3 - Earnings Per Share

9 Months Ended

Sep. 30, 2013

EARNINGS PER SHARE [Abstract]

Earnings Per Share [Text Block]

NOTE 3 - EARNINGS PER SHARE

The Company provides dual presentation of basic and diluted earnings per share. Basic earnings per share is calculated by dividing net income by the average shares outstanding. Diluted earnings per share adds the dilutive effects of options, warrants, and convertible securities to average shares outstanding.

The following table sets forth the composition of the weighted-average common shares (denominator) used in the basic and diluted earnings per share computation.

	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2013			2012			2013			2012
Weighted average common shares outstanding		2,212,020			2,167,711			2,202,747			2,077,027
Average treasury stock shares		(189,530	)		(189,530	)		(189,530	)		(189,530	)
Weighted average common shares and common stock equivalents used to calculate basic earnings per share		2,022,490			1,978,181			2,013,217			1,887,497
Additional common stock equivalents (stock options) used to calculate diluted earnings per share		6,930			5,682			7,981			4,236
Weighted average common shares and common stock equivalents used to calculate diluted earnings per share		2,029,420			1,983,863			2,021,198			1,891,733

Options to purchase 58,581 shares of common stock, at prices ranging from $17.55 to $40.24, were outstanding during the three months ended September 30, 2013. Of those options, 29,633 were considered dilutive based on the market price exceeding the strike price. The remaining options had no dilutive effect on earnings per share. For the nine months ended September 30, 2013, 49,394 options were considered dilutive. The remaining options had no dilutive effect on earnings per share.

Options to purchase 88,354 shares of common stock, at prices ranging from $17.55 to $40.24, were outstanding at September 30, 2012. Of those options, 9,000 were considered dilutive based on the average market price exceeding the strike price for the nine months ended September 30, 2012. The three month period ended with 17,536 shares considered dilutive. In accordance with the subscription agreement entered into by an institutional investor, there was also an additional 11,332 shares, at $16 per share, considered dilutive for the three and nine-months ended September 30, 2012. The remaining options had no dilutive effect on the earnings per share.

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Note 1 - Basis of Presentation

9 Months Ended

Sep. 30, 2013

Accounting Policies [Abstract]

Significant Accounting Policies [Text Block]

NOTE 1 - BASIS OF PRESENTATION

The consolidated financial statements of Middlefield Banc Corp. ("Company") include its two bank subsidiaries The Middlefield Banking Company (“MB”) and Emerald Bank (“EB”) and a non-bank asset resolution subsidiary EMORECO, Inc. All significant inter-company items have been eliminated.

The accompanying financial statements have been prepared in accordance with U.S. generally accepted accounting principles and the instructions for Form 10-Q and Article 10 of Regulation S-X. In management’s opinion, the financial statements include all adjustments, consisting of normal recurring adjustments, that the Company considers necessary to fairly state the Company’s financial position and the results of operations and cash flows. The consolidated balance sheet at December 31, 2012, has been derived from the audited financial statements at that date but does not include all of the necessary informational disclosures and footnotes as required by U. S. generally accepted accounting principles. The accompanying financial statements should be read in conjunction with the financial statements and notes thereto included with the Company’s Form 10-K for the year ended December 31, 2012 (File No. 000-32561). The results of the Company’s operations for any interim period are not necessarily indicative of the results of the Company’s operations for any other interim period or for a full fiscal year.

Recent Accounting Pronouncements

In April 2013, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2013-07, Presentation of Financial Statements (Topic 205): Liquidation Basis of Accounting. The amendments in this Update are being issued to clarify when an entity should apply the liquidation basis of accounting. In addition, the guidance provides principles for the recognition and measurement of assets and liabilities and requirements for financial statements prepared using the liquidation basis of accounting. The amendments require an entity to prepare its financial statements using the liquidation basis of accounting when liquidation is imminent. Liquidation is imminent when the likelihood is remote that the entity will return from liquidation and either (a) a plan for liquidation is approved by the person or persons with the authority to make such a plan effective and the likelihood is remote that the execution of the plan will be blocked by other parties or (b) a plan for liquidation is being imposed by other forces (for example, involuntary bankruptcy). If a plan for liquidation was specified in the entity’s governing documents from the entity’s inception (for example, limited-life entities), the entity should apply the liquidation basis of accounting only if the approved plan for liquidation differs from the plan for liquidation that was specified at the entity’s inception. The amendments are effective for entities that determine liquidation is imminent during annual reporting periods beginning after December 15, 2013, and interim reporting periods therein. Entities should apply the requirements prospectively from the day that liquidation becomes imminent. Early adoption is permitted. Entities that use the liquidation basis of accounting as of the effective date in accordance with other Topics (for example, terminating employee benefit plans) are not required to apply the amendments. Instead, those entities should continue to apply the guidance in those other Topics until they have completed liquidation.

In June 2013, the FASB issued ASU 2013-08, Financial Services – Investment Companies (Topic 946): Amendments to the Scope, Measurement, and Disclosure Requirements. The amendments in this Update affect the scope, measurement, and disclosure requirements for investment companies under U.S. GAAP. The amendments do all of the following: 1. Change the approach to the investment company assessment in Topic 946, clarify the characteristics of an investment company, and provide comprehensive guidance for assessing whether an entity is an investment Company. 2. Require an investment company to measure noncontrolling ownership interests in other investment companies at fair value rather than using the equity method of accounting. 3. Require the following additional disclosures: (a) the fact that the entity is an investment company and is applying the guidance in Topic 946, (b) information about changes, if any, in an entity’s status as an investment company, and (c) information about financial support provided or contractually required to be provided by an investment company to any of its investees. The amendments in this Update are effective for an entity’s interim and annual reporting periods in fiscal years that begin after December 15, 2013. Earlier application is prohibited.

In July 2013, the FASB ASU 2013-09, Fair Value Measurement (Topic 820): Deferral of the Effective Date of Certain Disclosures for Nonpublic Employee Benefit Plans in Update No. 2011-04. The amendments in this Update apply to certain quantitative disclosure requirements for an employee benefit plan, other than those plans that are subject to the Securities and Exchange Commission’s filing requirements (hereafter “nonpublic employee benefit plan”), that holds investments in its plan sponsor’s own nonpublic entity equity securities, including equity securities of its plan sponsor’s nonpublic affiliated entities and that are within the scope of the disclosure requirements contained in FASB Accounting Standards Update No. 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs. The amendments in this Update defer indefinitely the effective date of certain required disclosures in Update 2011-04 (Topic 820) of quantitative information about the significant unobservable inputs used in Level 3 fair value measurements for investments held by a nonpublic employee benefit plan in its plan sponsor’s own nonpublic entity equity securities, including equity securities of its plan sponsor’s nonpublic affiliated entities. The amendments in this Update do not defer the effective date for those certain quantitative disclosures for other nonpublic entity equity securities held in the nonpublic employee benefit plan or any qualitative disclosures. The deferral in this amendment is effective upon issuance for financial statements that have not been issued.

In July 2013, the FASB issued ASU 2013-10, Derivatives and Hedging (Topic 815):Inclusion of the Fed Funds Effective Swap Rate (or Overnight Index Swap Rate) as a Benchmark Interest Rate for Hedge Accounting Purposes. The amendments in this Update permit the Fed Funds Effective Swap Rate (OIS) to be used as a U.S. benchmark interest rate for hedge accounting purposes under Topic 815, in addition to UST and LIBOR. The amendments also remove the restriction on using different benchmark rates for similar hedges. The amendments are effective prospectively for qualifying new or redesignated hedging relationships entered into on or after July 17, 2013.

In July 2013, the FASB issued ASU 2013-11, Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists. This Update applies to all entities that have unrecognized tax benefits when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists at the reporting date. An unrecognized tax benefit, or a portion of an unrecognized tax benefit, should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward, except as follows. To the extent a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position or the tax law of the applicable jurisdiction does not require the entity to use, and the entity does not intend to use, the deferred tax asset for such purpose, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets. The assessment of whether a deferred tax asset is available is based on the unrecognized tax benefit and deferred tax asset that exist at the reporting date and should be made presuming disallowance of the tax position at the reporting date. The amendments in this Update are effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. For nonpublic entities, the amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2014. Early adoption is permitted. The amendments should be applied prospectively to all unrecognized tax benefits that exist at the effective date. Retrospective application is permitted.

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Note 7 - Loans And Related Allowance For Loan Losses (Details) - Allowance for Loan Losses (USD $)	3 Months Ended		9 Months Ended	12 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2012	Dec. 31, 2012	Jun. 30, 2013	Jun. 30, 2012	Dec. 31, 2011
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$ 2,540,000			$ 3,688,000
Collectively evaluated for impairment	5,281,000			4,091,000
Allowance balance	7,821,000			7,779,000
Commercial and Industrial [Member]
Ending allowance balance attributable to loans:
Individually evaluated for impairment	195,000			1,189,000
Collectively evaluated for impairment	593,000			543,000
Allowance balance	788,000			1,700,000
Commercial and Industrial [Member] | End of Period [Member]
Ending allowance balance attributable to loans:
Allowance balance	788,000	1,704,000	1,704,000	1,732,000
Commercial and Industrial [Member] | Beginning of Period [Member]
Ending allowance balance attributable to loans:
Allowance balance				1,732,000	875,000	1,626,000	1,296,000
Charge-offs	0	(60,000)	(88,000)	(325,000)
Recoveries		1,000	70,000	92,000
Provision	(87,000)	137,000	426,000	(711,000)
Real Estate Construction [Member]
Ending allowance balance attributable to loans:
Individually evaluated for impairment	859,000			933,000
Collectively evaluated for impairment	440,000			190,000
Real Estate Construction [Member] | End of Period [Member]
Ending allowance balance attributable to loans:
Allowance balance	1,299,000	445,000	445,000	1,123,000
Real Estate Construction [Member] | Beginning of Period [Member]
Ending allowance balance attributable to loans:
Allowance balance				1,123,000	1,191,000	504,000	438,000
Charge-offs		0	0	(190,000)
Recoveries	0	0	0	33,000
Provision	108,000	(59,000)	7,000	333,000
Residential Real Estate Mortgage [Member]
Ending allowance balance attributable to loans:
Individually evaluated for impairment	896,000			600,000
Collectively evaluated for impairment	2,743,000			2,272,000
Allowance balance	3,600,000			2,900,000
Residential Real Estate Mortgage [Member] | End of Period [Member]
Ending allowance balance attributable to loans:
Allowance balance	3,639,000	2,953,000	2,953,000	2,872,000
Residential Real Estate Mortgage [Member] | Beginning of Period [Member]
Ending allowance balance attributable to loans:
Allowance balance				2,872,000	3,626,000	4,109,000	3,731,000
Charge-offs	(87,000)	(570,000)	(668,000)	(432,000)
Recoveries	2,000	12,000	15,000	73,000
Provision	98,000	(598,000)	(125,000)	1,126,000
Commercial Real Estate Mortgage [Member]
Ending allowance balance attributable to loans:
Individually evaluated for impairment	590,000			960,000
Collectively evaluated for impairment	1,483,000			1,031,000
Commercial Real Estate Mortgage [Member] | End of Period [Member]
Ending allowance balance attributable to loans:
Allowance balance	2,073,000	2,055,000	2,055,000	1,991,000
Commercial Real Estate Mortgage [Member] | Beginning of Period [Member]
Ending allowance balance attributable to loans:
Allowance balance				1,991,000	2,005,000	1,492,000	1,306,000
Charge-offs	0	(70,000)	(123,000)	0
Recoveries	0	0	0	46,000
Provision	68,000	633,000	872,000	36,000
Consumer Installment [Member]
Ending allowance balance attributable to loans:
Individually evaluated for impairment	0			6,000
Collectively evaluated for impairment	22,000			55,000
Consumer Installment [Member] | End of Period [Member]
Ending allowance balance attributable to loans:
Allowance balance	22,000	16,000	16,000	61,000
Consumer Installment [Member] | Beginning of Period [Member]
Ending allowance balance attributable to loans:
Allowance balance				61,000	52,000	21,000	48,000
Charge-offs	(5,000)	(40,000)	(62,000)	(41,000)
Recoveries	9,000	5,000	17,000	20,000
Provision	(34,000)	30,000	13,000	(18,000)
End of Period [Member]
Ending allowance balance attributable to loans:
Allowance balance	7,821,000	7,173,000	7,173,000	7,779,000
Beginning of Period [Member]
Ending allowance balance attributable to loans:
Allowance balance				7,779,000	7,749,000	7,752,000	6,819,000
Charge-offs	(92,000)	(740,000)	(941,000)	(988,000)
Recoveries	11,000	18,000	102,000	264,000
Provision	$ 153,000	$ 143,000	$ 1,193,000	$ 766,000

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Note 4 - Fair Value Disclosure Measurements (Details) - Assets Measured on a Nonrecurring Basis (USD $) In Thousands, unless otherwise specified	Sep. 30, 2013	Dec. 31, 2012
Assets measured on a non-recurring basis:
Impaired loans	$ 18,007	$ 21,288
Fair Value, Inputs, Level 1 [Member]
Assets measured on a non-recurring basis:
Impaired loans	0	0
Other real estate owned	0	0
Fair Value, Inputs, Level 2 [Member]
Assets measured on a non-recurring basis:
Impaired loans	0	0
Other real estate owned	0	0
Fair Value, Inputs, Level 3 [Member]
Assets measured on a non-recurring basis:
Impaired loans	15,467	17,600
Other real estate owned	2,719	1,846
Estimate of Fair Value Measurement [Member]
Assets measured on a non-recurring basis:
Impaired loans	15,467	17,600
Other real estate owned	$ 2,719	$ 1,846

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Note 5 - Accumulated Other Comprehensive Income (Details) - Amounts Reclassified Out of Accumulated Other Comprehensive Income (USD $) In Thousands, unless otherwise specified	3 Months Ended	9 Months Ended
	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012
Unrealized gains on available for sale securities
$	$ 152	$ 175	$ 448
	(52)	(60)	(152)
$	$ 100	$ 115	$ 296

XML

Note 6 - Investment Securities Available For Sale (Details) - Gross Unrealized Losses and Fair Value (USD $) In Thousands, unless otherwise specified	9 Months Ended	12 Months Ended
	Sep. 30, 2013	Dec. 31, 2012
Note 6 - Investment Securities Available For Sale (Details) - Gross Unrealized Losses and Fair Value [Line Items]
Securities in Continuous Unrealized Loss Position Less than Twelve Months Fair Value	$ 78,393	$ 31,531
Securities in Continuous Unrealized Loss Position Less than Twelve Months Gross Unrealized Losses	(5,673)	(260)
Securities in Continuous Unrealized Loss Position Twelve Months or Greater Fair Value	6,167	0
Securities in Continuous Unrealized Loss Position Twelve Months or Greater Gross Unrealized Losses	(225)	0
Securities in Continuous Unrealized Loss Position Fair Value	84,560	31,531
Securities in Continuous Unrealized Loss Position Gross Unrealized Losses	(5,898)	(260)
US Government Agencies Debt Securities [Member]
Note 6 - Investment Securities Available For Sale (Details) - Gross Unrealized Losses and Fair Value [Line Items]
Securities in Continuous Unrealized Loss Position Less than Twelve Months Fair Value	17,408	9,938
Securities in Continuous Unrealized Loss Position Less than Twelve Months Gross Unrealized Losses	(1,368)	(91)
Securities in Continuous Unrealized Loss Position Twelve Months or Greater Fair Value	0	0
Securities in Continuous Unrealized Loss Position Twelve Months or Greater Gross Unrealized Losses	0	0
Securities in Continuous Unrealized Loss Position Fair Value	17,408	9,938
Securities in Continuous Unrealized Loss Position Gross Unrealized Losses	(1,368)	(91)
US States and Political Subdivisions Debt Securities [Member]
Note 6 - Investment Securities Available For Sale (Details) - Gross Unrealized Losses and Fair Value [Line Items]
Securities in Continuous Unrealized Loss Position Less than Twelve Months Fair Value	30,690	9,240
Securities in Continuous Unrealized Loss Position Less than Twelve Months Gross Unrealized Losses	(3,244)	(104)
Securities in Continuous Unrealized Loss Position Twelve Months or Greater Fair Value	448	0
Securities in Continuous Unrealized Loss Position Twelve Months or Greater Gross Unrealized Losses	(40)	0
Securities in Continuous Unrealized Loss Position Fair Value	31,138	9,240
Securities in Continuous Unrealized Loss Position Gross Unrealized Losses	(3,284)	(104)
Mortgage-backed Securities, Issued by US Government Sponsored Enterprises [Member]
Note 6 - Investment Securities Available For Sale (Details) - Gross Unrealized Losses and Fair Value [Line Items]
Securities in Continuous Unrealized Loss Position Less than Twelve Months Fair Value	30,295	12,353
Securities in Continuous Unrealized Loss Position Less than Twelve Months Gross Unrealized Losses	(1,061)	(65)
Securities in Continuous Unrealized Loss Position Twelve Months or Greater Fair Value	5,719	0
Securities in Continuous Unrealized Loss Position Twelve Months or Greater Gross Unrealized Losses	(185)	0
Securities in Continuous Unrealized Loss Position Fair Value	36,014	12,353
Securities in Continuous Unrealized Loss Position Gross Unrealized Losses	$ (1,246)	$ (65)

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Note 7 - Loans And Related Allowance For Loan Losses (Details) - Past Due Financing Receivables (USD $) In Thousands, unless otherwise specified	Sep. 30, 2013	Dec. 31, 2012
Financing Receivable, Recorded Investment, Past Due [Line Items]
Financing Receivable Current	$ 404,502	$ 391,032
Financing Receivable 30-59 Days Past Due	2,128	3,589
Financing Receivable 60-89 Days Past Due	1,601	1,561
Financing Receivable 90 Days + Past Due	843	438
Financing Receivable Total Past Due	4,572	5,588
Financing Receivable Non-Accrual	9,986	11,813
Financing Receivable	419,060	408,433
Commercial and Industrial [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Financing Receivable Current	49,234	60,428
Financing Receivable 30-59 Days Past Due	656	441
Financing Receivable 60-89 Days Past Due	56	63
Financing Receivable 90 Days + Past Due	83	348
Financing Receivable Total Past Due	795	852
Financing Receivable Non-Accrual	236	908
Financing Receivable	50,265	62,188
Real Estate Construction [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Financing Receivable Current	24,594	22,158
Financing Receivable 30-59 Days Past Due	17	0
Financing Receivable 60-89 Days Past Due	876	0
Financing Receivable 90 Days + Past Due	0	0
Financing Receivable Total Past Due	893	0
Financing Receivable Non-Accrual		364
Financing Receivable	25,487	22,522
Residential Real Estate Mortgage [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Financing Receivable Current	192,461	191,349
Financing Receivable 30-59 Days Past Due	1,414	2,614
Financing Receivable 60-89 Days Past Due	666	1,401
Financing Receivable 90 Days + Past Due	414	90
Financing Receivable Total Past Due	2,494	4,105
Financing Receivable Non-Accrual	8,357	8,418
Financing Receivable	203,312	203,872
Commercial Real Estate Mortgage [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Financing Receivable Current	134,030	113,023
Financing Receivable 30-59 Days Past Due	0	509
Financing Receivable 60-89 Days Past Due	0	97
Financing Receivable 90 Days + Past Due	346	0
Financing Receivable Total Past Due	346	606
Financing Receivable Non-Accrual	1,384	2,105
Financing Receivable	135,760	115,734
Consumer Installment [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Financing Receivable Current	4,182	4,074
Financing Receivable 30-59 Days Past Due	41	25
Financing Receivable 60-89 Days Past Due	3	0
Financing Receivable 90 Days + Past Due	0	0
Financing Receivable Total Past Due	44	25
Financing Receivable Non-Accrual	10	18
Financing Receivable	$ 4,236	$ 4,117

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Consolidated Balance Sheet (Current Period Unaudited) (Parentheticals) (USD $)	Sep. 30, 2013	Dec. 31, 2012
Common stock, shares authorized (in Shares)	10,000,000	10,000,000
Common stock, shares issued (in Shares)	2,216,099	2,181,763
Common stock, no par value (in Dollars per share)	$ 0	$ 0
Treasury stock, shares (in Shares)	189,530	189,530

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Note 6 - Investment Securities Available For Sale

9 Months Ended

Sep. 30, 2013

Investments, Debt and Equity Securities [Abstract]

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

NOTE 6 - INVESTMENT SECURITIES AVAILABLE FOR SALE

The amortized cost and fair values of securities available for sale are as follows:

	September 30, 2013
(Dollar amounts in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
U.S. government agency securities	$	27,550	$	161	$	(1,368	)	$	26,343
Obligations of states and political subdivisions:
Taxable		5,364		215		(21	)		5,558
Tax-exempt		90,441		1,885		(3,263	)		89,063
Mortgage-backed securities in government-sponsored entities		55,633		696		(1,246	)		55,083
Private-label mortgage-backed securities		3,597		377		-			3,974
Total debt securities		182,585		3,334		(5,898	)		180,021
Equity securities in financial institutions		750		-		-			750
Total	$	183,335	$	3,334	$	(5,898	)	$	180,771

	December 31, 2012
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
U.S. government agency securities	$	24,485	$	566	$	(91	)	$	24,960
Obligations of states and political subdivisions:
Taxable		6,888		738		-			7,626
Tax-exempt		80,391		4,684		(104	)		84,971
Mortgage-backed securities in government-sponsored entities		69,238		1,929		(65	)		71,102
Private-label mortgage-backed securities		4,553		511		-			5,064
Total debt securities		185,555		8,427		(260	)		193,723
Equity securities in financial institutions		750		-		-			750
Total	$	186,305	$	8,427	$	(260	)	$	194,473

The amortized cost and fair value of debt securities at September 30, 2013, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

(Dollar amounts in thousands)	Amortized Cost		Fair Value
Due in one year or less	$	2,736	$	2,768
Due after one year through five years		4,071		4,261
Due after five years through ten years		21,891		21,963
Due after ten years		153,887		151,029
Total	$	182,585	$	180,021

Proceeds from the sales of securities available for sale and the gross realized gains and losses for the three and nine months ended September 30 are as follows:

	For the Three Months Ended September 30,					For the Nine Months Ended September 30,
	2013		2012			2013			2012
Proceeds from sales	$	-	$	5,622		$	8,136		$	27,426
Gross realized gains		-		154			204			462
Gross realized losses		-		(2	)		(29	)		(14	)

Investment securities with an approximate carrying value of $73.8 million and $62.5 million at September 30, 2013 and December 31, 2012, respectively, were pledged to secure deposits and other purposes as required by law.

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

	September 30, 2013
	Less than Twelve Months					Twelve Months or Greater					Total
(Dollar amounts in thousands)	Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses
U.S. government agency securities	$	17,408	$	(1,368	)	$	-	$	-		$	17,408	$	(1,368	)
Obligations of states and political subdivisions		30,690		(3,244	)		448		(40	)		31,138		(3,284	)
Mortgage-backed securities in government-sponsored entities		30,295		(1,061	)		5,719		(185	)		36,014		(1,246	)
Total	$	78,393	$	(5,673	)	$	6,167	$	(225	)	$	84,560	$	(5,898	)

	December 31, 2012
	Less than Twelve Months					Twelve Months or Greater				Total
	Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
U.S. government agency securities	$	9,938	$	(91	)	$	-	$	-	$	9,938	$	(91	)
Obligations of states and political subdivisions		9,240		(104	)		-		-		9,240		(104	)
Mortgage-backed securities in government-sponsored entities		12,353		(65	)		-		-		12,353		(65	)
Total	$	31,531	$	(260	)	$	-	$	-	$	31,531	$	(260	)

There were 103 securities considered temporarily impaired at September 30, 2013.

On a quarterly basis, the Company performs an assessment to determine whether there have been any events or economic circumstances indicating that a security with an unrealized loss has suffered other-than-temporary impairment (“OTTI”). A debt security is considered impaired if the fair value is less than its amortized cost basis at the reporting date. The Company assesses whether the unrealized loss is other-than-temporary.

OTTI losses are recognized in earnings when the Company has the intent to sell the debt security or it is more likely than not that it will be required to sell the debt security before recovery of its amortized cost basis. However, even if the Company does not expect to sell a debt security, it must evaluate expected cash flows to be received and determine if a credit loss has occurred.

An unrealized loss is generally deemed to be other than temporary and a credit loss is deemed to exist if the present value of the expected future cash flows is less than the amortized cost basis of the debt security. As a result the credit loss component of an OTTI is recorded as a component of investment securities gains (losses) in the accompanying Consolidated Statement of Income, while the remaining portion of the impairment loss is recognized in other comprehensive income, provided the Company does not intend to sell the underlying debt security and it is “more likely than not” that the Company will not have to sell the debt security prior to recovery.

Debt securities issued by U.S. government agencies, U.S. government-sponsored enterprises, and state and political subdivisions accounted for more than 97% of the total available-for-sale portfolio as of September 30, 2013 and no credit losses are expected, given the explicit and implicit guarantees provided by the U.S. federal government and the lack of prolonged unrealized loss positions within the obligations of state and political subdivisions security portfolio. The Company’s assessment was concentrated mainly on private-label collateralized mortgage obligations of approximately $3.6 million for which the Company evaluates credit losses on a quarterly basis. The gross unrealized gain position related to these private-label collateralized mortgage obligations amounted to $377,000 on September 30, 2013. The Company considered the following factors in determining whether a credit loss exists and the period over which the debt security is expected to recover:

• The length of time and the extent to which the fair value has been less than the amortized cost basis.

• Changes in the near term prospects of the underlying collateral of a security such as changes in default rates, loss severity given default and significant changes in prepayment assumptions;

• The level of cash flows generated from the underlying collateral supporting the principal and interest payments of the debt securities; and

• Any adverse change to the credit conditions and liquidity of the issuer, taking into consideration the latest information available about the overall financial condition of the issuer, credit ratings, recent legislation and government actions affecting the issuer’s industry and actions taken by the issuer to deal with the present economic climate.

For the nine months ended September 30, 2013 and 2012, there were no available-for-sale debt securities with an unrealized loss that suffered OTTI.

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Consolidated Statements of Of Comprehensive Income (Unaudited) (USD $) In Thousands, unless otherwise specified	3 Months Ended				9 Months Ended
	Sep. 30, 2013		Sep. 30, 2012		Sep. 30, 2013	Sep. 30, 2012
Net income	$ 1,865		$ 1,849		$ 5,207	$ 5,012
Other comprehensive income (loss):
Net unrealized holding gain (loss) on available for sale securities	(2,277)		838		(10,558)	2,662
Tax effect	774		(285)		3,589	(905)
Reclassification adjustment for investment securities gains included in net income			(152)		(175)	(448)
Tax effect			52		60	152
Total other comprehensive income (loss)	(1,503)	[1]	453	[1]	(7,084)	1,461
Comprehensive income (loss)	$ 362		$ 2,302		$ (1,877)	$ 6,473

[1] All amounts are net of tax. Amounts in parentheses indicate debits.

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Consolidated Balance Sheet (Current Period Unaudited) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2013		Dec. 31, 2012
ASSETS
Cash and due from banks	$ 21,124		$ 33,568
Federal funds sold	11,069		11,778
Cash and cash equivalents	32,193		45,346
Investment securities available for sale	180,771		194,473
Loans	419,060		408,433
Less allowance for loan losses	7,821		7,779
Net loans	411,239		400,654
Premises and equipment, net	8,555		8,670
Goodwill	4,559		4,559
Core deposit intangible	161		195
Bank-owned life insurance	8,745		8,536
Accrued interest and other assets	11,918		7,855
TOTAL ASSETS	658,141		670,288
Deposits:
Noninterest-bearing demand	81,760		75,912
Interest-bearing demand	59,799		63,915
Money market	77,118		81,349
Savings	179,581		175,406
Time	180,964		196,753
Total deposits	579,222		593,335
Short-term borrowings	10,575		6,538
Federal funds purchased	1,639
Other borrowings	12,261		12,970
Accrued interest and other liabilities	1,915		2,008
TOTAL LIABILITIES	605,612		614,851
STOCKHOLDERS' EQUITY
Common stock, no par value; 10,000,000 shares authorized, 2,216,099 and 2,181,763 shares issued	34,833		34,295
Retained earnings	26,123		22,485
Accumulated other comprehensive (loss) income	(1,693)	[1]	5,391
Treasury stock, at cost; 189,530 shares	(6,734)		(6,734)
TOTAL STOCKHOLDERS' EQUITY	52,529		55,437
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$ 658,141		$ 670,288

[1] All amounts are net of tax. Amounts in parentheses indicate debits.

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Note 4 - Fair Value Disclosure Measurements (Details) - Additional Quantitative Information About Assets Measured at Fair Value on Non-Recurring Basis (USD $) In Thousands, unless otherwise specified			9 Months Ended						9 Months Ended
	Sep. 30, 2013 Appraisal Adjustments [Member] Impaired Loans [Member]	Dec. 31, 2012 Appraisal Adjustments [Member] Impaired Loans [Member]	Sep. 30, 2013 Appraisal Adjustments [Member] Minimum [Member] Impaired Loans [Member]	Sep. 30, 2013 Appraisal Adjustments [Member] Maximum [Member] Impaired Loans [Member]	Sep. 30, 2013 Liquidation Expenses [Member] Minimum [Member] Impaired Loans [Member]	Sep. 30, 2013 Liquidation Expenses [Member] Maximum [Member] Impaired Loans [Member]	Sep. 30, 2013 Appraisal of Collateral [Member] Other Real Estate Owned [Member]	Dec. 31, 2012 Appraisal of Collateral [Member] Other Real Estate Owned [Member]	Sep. 30, 2013 Appraisal of Collateral [Member] Minimum [Member] Other Real Estate Owned [Member]	Sep. 30, 2013 Appraisal of Collateral [Member] Maximum [Member] Other Real Estate Owned [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Estimate	$ 15,467	$ 17,600					$ 2,719	$ 1,846
Range			0.00%	(68.00%)	0.00%	(45.80%)			0.00%	(10.00%)

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Note 2 - Stock-Based Compensation (Details) (USD $)	Sep. 30, 2013	Sep. 30, 2012
Disclosure Text Block Supplement [Abstract]
Share-based Compensation Arrangement by Share-based Payment Award, Options, Nonvested, Number of Shares	0	0
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized (in Dollars)	$ 0	$ 0

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Note 7 - Loans And Related Allowance For Loan Losses (Details) - Classes of the Loan Portfolio Summarized by Credit Quality (USD $) In Thousands, unless otherwise specified	Sep. 30, 2013	Dec. 31, 2012
Financing Receivable, Recorded Investment [Line Items]
Financing Receivable	$ 419,060	$ 408,433
Commercial and Industrial [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing Receivable	48,085	59,390
Commercial and Industrial [Member] | Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing Receivable	873	678
Commercial and Industrial [Member] | Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing Receivable	1,264	2,061
Commercial and Industrial [Member] | Doubtful [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing Receivable	43	59
Commercial and Industrial [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing Receivable	50,265	62,188
Real Estate Construction [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing Receivable	20,615	17,601
Real Estate Construction [Member] | Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing Receivable	912	0
Real Estate Construction [Member] | Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing Receivable	3,960	4,921
Real Estate Construction [Member] | Doubtful [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing Receivable	0	0
Real Estate Construction [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing Receivable	25,487	22,522
Residential Real Estate Mortgage [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing Receivable	190,408	190,967
Residential Real Estate Mortgage [Member] | Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing Receivable	964	758
Residential Real Estate Mortgage [Member] | Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing Receivable	11,940	12,147
Residential Real Estate Mortgage [Member] | Doubtful [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing Receivable	0	0
Residential Real Estate Mortgage [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing Receivable	203,312	203,872
Commercial Real Estate Mortgage [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing Receivable	127,634	106,509
Commercial Real Estate Mortgage [Member] | Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing Receivable	2,256	1,928
Commercial Real Estate Mortgage [Member] | Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing Receivable	5,870	7,297
Commercial Real Estate Mortgage [Member] | Doubtful [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing Receivable	0	0
Commercial Real Estate Mortgage [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing Receivable	135,760	115,734
Consumer Installment [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing Receivable	4,218	4,084
Consumer Installment [Member] | Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing Receivable	0	0
Consumer Installment [Member] | Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing Receivable	18	33
Consumer Installment [Member] | Doubtful [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing Receivable	0	0
Consumer Installment [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing Receivable	4,236	4,117
Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing Receivable	390,960	378,551
Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing Receivable	5,005	3,364
Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing Receivable	23,052	26,459
Doubtful [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing Receivable	$ 43	$ 59

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Note 7 - Loans And Related Allowance For Loan Losses (Details) - Major Classifications of Net Loans (USD $)	Sep. 30, 2013	Dec. 31, 2012
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable Gross	$ 419,060,000	$ 408,433,000
Less allowance for loan losses	7,821,000	7,779,000
Net loans	411,239,000	400,654,000
Commercial and Industrial [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable Gross	50,265,000	62,188,000
Less allowance for loan losses	788,000	1,700,000
Real Estate Construction [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable Gross	25,487,000	22,522,000
Residential Real Estate Mortgage [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable Gross	203,312,000	203,872,000
Less allowance for loan losses	3,600,000	2,900,000
Commercial Real Estate Mortgage [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable Gross	135,760,000	115,734,000
Consumer Installment [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Financing Receivable Gross	$ 4,236,000	$ 4,117,000

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Note 6 - Investment Securities Available For Sale (Details) - Amortized Cost and Fair Value of Debt Securities by Contractual Maturity (USD $) In Thousands, unless otherwise specified	Sep. 30, 2013
Amortized Cost and Fair Value of Debt Securities by Contractual Maturity [Abstract]
Due in one year or less	$ 2,736
Due in one year or less	2,768
Due after one year through five years	4,071
Due after one year through five years	4,261
Due after five years through ten years	21,891
Due after five years through ten years	21,963
Due after ten years	153,887
Due after ten years	151,029
Total	182,585
Total	$ 180,021

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Note 6 - Investment Securities Available For Sale (Details) - Sales of Available for Sale Securities (USD $) In Thousands, unless otherwise specified	3 Months Ended	9 Months Ended
	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012
Sales of Available for Sale Securities [Abstract]
Proceeds from sales	$ 5,622	$ 8,136	$ 27,426
Gross realized gains	154	204	462
Gross realized losses	$ (2)	$ (29)	$ (14)

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Note 5 - Accumulated Other Comprehensive Income

9 Months Ended

Sep. 30, 2013

Disclosure Text Block [Abstract]

Comprehensive Income (Loss) Note [Text Block]

NOTE 5 – ACCUMULATED OTHER COMPREHENSIVE INCOME

The following table presents the changes in accumulated other comprehensive income (loss) by component net of tax for the three and nine months ended September 30, 2013 and 2012:

	Unrealized gains on available for sale securities (a)
Balance as of December 31, 2012	$	5,391
Other comprehensive loss before reclassification		(5,466	)
Amount reclassified from accumulated other comprehensive income (loss)		(115	)
Period change		(5,581	)
Balance at June 30, 2013	$	(190	)
Other comprehensive loss before reclassification		(1,503	)
Amount reclassified from accumulated other comprehensive income (loss)		-
Period change		(1,503	)
Balance at September 30, 2013	$	(1,693	)
Balance as of December 31, 2011	$	4,541
Other comprehensive income before reclassification		1,204
Amount reclassified from accumulated other comprehensive income (loss)		(196	)
Period change		1,008
Balance at June 30, 2012		5,549
Other comprehensive loss before reclassification		553
Amount reclassified from accumulated other comprehensive income (loss)		(100	)
Period change		453
Balance at September 30, 2012	$	6,002

 (a) All amounts are net of tax. Amounts in parentheses indicate debits.

The following tables present significant amounts reclassified out of each component of accumulated other comprehensive income (loss): 

	Amount Reclassified from
	Accumulated Other Comprehensive Income (Loss)						Affected Line Item in
	For the Three Months Ended						the Statement Where
	September 30,						Net Income is
Details about other comprehensive income	2013		(a)	2012			Presented
Unrealized gains on available for sale securities
	$	-		$	152		Investment securities gains, net
		-			(52	)	Income taxes
	$	-		$	100		Net of tax

(a) Amounts in parentheses indicate debits to net income

	Amount Reclassified from
	Accumulated Other Comprehensive Income (Loss)						Affected Line Item in
	For the Nine Months Ended						the Statement Where
	September 30,						Net Income is
Details about other comprehensive income	2013		(a)	2012			Presented
Unrealized gains on available for sale securities
	$	175		$	448		Investment securities gains, net
		(60	)		(152	)	Income taxes
	$	115		$	296		Net of tax

(a) Amounts in parentheses indicate debits to net income

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Note 4 - Fair Value Disclosure Measurements (Details) - Estimated Fair Value of the Company’s Financial Instruments (USD $) In Thousands, unless otherwise specified	Sep. 30, 2013	Dec. 31, 2012	Sep. 30, 2012	Dec. 31, 2011
Financial assets:
Cash and cash equivalents	$ 32,193	$ 45,346	$ 52,606	$ 34,390
Cash and cash equivalents	32,193	45,346
Investment securities
Available for sale	180,771	194,472
Available for sale	180,771	194,472
Net loans	411,239	400,654
Net loans	413,767	390,206
Bank-owned life insurance	8,745	8,536
Federal Home Loan Bank stock	1,887	1,887
Accrued interest receivable	2,565	2,163
Financial liabilities:
Deposits	579,222	593,335
Deposits	581,082	592,704
Short-term borrowings	10,575	6,538
Short-term borrowings	10,575	6,538
Federal funds purchased	1,639
Federal funds purchased	1,639
Other borrowings	12,261	12,970
Other borrowings	12,469	13,337
Accrued interest payable	464	492
Fair Value, Inputs, Level 1 [Member]
Financial assets:
Cash and cash equivalents	32,193	45,346
Investment securities
Available for sale	5	5
Available for sale	5	5
Net loans	0	0
Bank-owned life insurance	8,745	8,536
Federal Home Loan Bank stock	1,887	1,887
Accrued interest receivable	2,565	2,163
Financial liabilities:
Deposits	398,258	396,582
Short-term borrowings	10,575	6,538
Federal funds purchased	1,639
Other borrowings	0	0
Accrued interest payable	464	492
Fair Value, Inputs, Level 2 [Member]
Financial assets:
Cash and cash equivalents	0	0
Investment securities
Available for sale	180,766	194,467
Available for sale	180,766	194,467
Net loans	0	0
Bank-owned life insurance		0
Federal Home Loan Bank stock		0
Accrued interest receivable	0	0
Financial liabilities:
Deposits	0	0
Short-term borrowings	0	0
Federal funds purchased	0
Other borrowings	0	0
Accrued interest payable	0	0
Fair Value, Inputs, Level 3 [Member]
Financial assets:
Cash and cash equivalents	0	0
Investment securities
Available for sale	0	0
Available for sale	0	0
Net loans	413,767	390,206
Bank-owned life insurance	0	0
Federal Home Loan Bank stock	0	0
Accrued interest receivable	0	0
Financial liabilities:
Deposits	182,824	196,122
Short-term borrowings	0	0
Federal funds purchased	0
Other borrowings	12,469	13,337
Accrued interest payable	$ 0	$ 0

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Note 7 - Loans And Related Allowance For Loan Losses (Details) - Impaired Loans by Class (USD $) In Thousands, unless otherwise specified	Sep. 30, 2013	Dec. 31, 2012
Financing Receivable, Impaired [Line Items]
Impaired loans with no related allowance recorded investment	$ 7,404	$ 8,408
Impaired loans with no related allowance unpaid principal balance	7,444	8,441
Impaired loans with related allowance recorded investment	10,603	12,880
Impaired loans with related allowance unpaid principal balance	10,642	12,899
Impaired loans, related allowance	2,540	3,688
Impaired loans recorded investment	18,007	21,288
Impaired loans unpaid principal balance	18,086	21,340
Commercial and Industrial [Member]
Financing Receivable, Impaired [Line Items]
Impaired loans with no related allowance recorded investment	932	1,230
Impaired loans with no related allowance unpaid principal balance	932	1,229
Impaired loans with related allowance recorded investment	551
Impaired loans with related allowance unpaid principal balance	551
Impaired loans, related allowance	195	1,189
Impaired loans recorded investment	1,483	4,592
Impaired loans unpaid principal balance	1,483	4,596
Real Estate Construction [Member]
Financing Receivable, Impaired [Line Items]
Impaired loans with no related allowance recorded investment	142	308
Impaired loans with no related allowance unpaid principal balance	142	308
Impaired loans with related allowance recorded investment	3,821	3,685
Impaired loans with related allowance unpaid principal balance	3,821	3,685
Impaired loans, related allowance	859	933
Impaired loans recorded investment	3,963	3,993
Impaired loans unpaid principal balance	3,963	3,993
Residential Real Estate Mortgage [Member]
Financing Receivable, Impaired [Line Items]
Impaired loans with no related allowance recorded investment	2,755	2,716
Impaired loans with no related allowance unpaid principal balance	2,795	2,729
Impaired loans with related allowance recorded investment	3,011	3,045
Impaired loans with related allowance unpaid principal balance	3,050	3,054
Impaired loans, related allowance	896	600
Impaired loans recorded investment	5,766	5,761
Impaired loans unpaid principal balance	5,845	5,783
Commercial Real Estate Mortgage [Member]
Financing Receivable, Impaired [Line Items]
Impaired loans with no related allowance recorded investment	3,567	4,143
Impaired loans with no related allowance unpaid principal balance	3,567	4,164
Impaired loans with related allowance recorded investment	3,220	2,771
Impaired loans with related allowance unpaid principal balance	3,220	2,776
Impaired loans, related allowance	590	960
Impaired loans recorded investment	6,787	6,914
Impaired loans unpaid principal balance	6,787	6,940
Consumer Installment [Member]
Financing Receivable, Impaired [Line Items]
Impaired loans with no related allowance recorded investment	8	11
Impaired loans with no related allowance unpaid principal balance	8	11
Impaired loans with related allowance recorded investment		17
Impaired loans with related allowance unpaid principal balance		17
Impaired loans, related allowance		6
Impaired loans recorded investment	8	28
Impaired loans unpaid principal balance	8	28
Commercial and Industrial [Member]
Financing Receivable, Impaired [Line Items]
Impaired loans with related allowance recorded investment		3,362
Impaired loans with related allowance unpaid principal balance		3,367
Impaired loans, related allowance		$ 1,189

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Accounting Policies, by Policy (Policies)

9 Months Ended

Sep. 30, 2013

Accounting Policies [Abstract]

New Accounting Pronouncements, Policy [Policy Text Block]

Recent Accounting Pronouncements

In April 2013, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2013-07, Presentation of Financial Statements (Topic 205): Liquidation Basis of Accounting. The amendments in this Update are being issued to clarify when an entity should apply the liquidation basis of accounting. In addition, the guidance provides principles for the recognition and measurement of assets and liabilities and requirements for financial statements prepared using the liquidation basis of accounting. The amendments require an entity to prepare its financial statements using the liquidation basis of accounting when liquidation is imminent. Liquidation is imminent when the likelihood is remote that the entity will return from liquidation and either (a) a plan for liquidation is approved by the person or persons with the authority to make such a plan effective and the likelihood is remote that the execution of the plan will be blocked by other parties or (b) a plan for liquidation is being imposed by other forces (for example, involuntary bankruptcy). If a plan for liquidation was specified in the entity’s governing documents from the entity’s inception (for example, limited-life entities), the entity should apply the liquidation basis of accounting only if the approved plan for liquidation differs from the plan for liquidation that was specified at the entity’s inception. The amendments are effective for entities that determine liquidation is imminent during annual reporting periods beginning after December 15, 2013, and interim reporting periods therein. Entities should apply the requirements prospectively from the day that liquidation becomes imminent. Early adoption is permitted. Entities that use the liquidation basis of accounting as of the effective date in accordance with other Topics (for example, terminating employee benefit plans) are not required to apply the amendments. Instead, those entities should continue to apply the guidance in those other Topics until they have completed liquidation.

In June 2013, the FASB issued ASU 2013-08, Financial Services – Investment Companies (Topic 946): Amendments to the Scope, Measurement, and Disclosure Requirements. The amendments in this Update affect the scope, measurement, and disclosure requirements for investment companies under U.S. GAAP. The amendments do all of the following: 1. Change the approach to the investment company assessment in Topic 946, clarify the characteristics of an investment company, and provide comprehensive guidance for assessing whether an entity is an investment Company. 2. Require an investment company to measure noncontrolling ownership interests in other investment companies at fair value rather than using the equity method of accounting. 3. Require the following additional disclosures: (a) the fact that the entity is an investment company and is applying the guidance in Topic 946, (b) information about changes, if any, in an entity’s status as an investment company, and (c) information about financial support provided or contractually required to be provided by an investment company to any of its investees. The amendments in this Update are effective for an entity’s interim and annual reporting periods in fiscal years that begin after December 15, 2013. Earlier application is prohibited.

In July 2013, the FASB ASU 2013-09, Fair Value Measurement (Topic 820): Deferral of the Effective Date of Certain Disclosures for Nonpublic Employee Benefit Plans in Update No. 2011-04. The amendments in this Update apply to certain quantitative disclosure requirements for an employee benefit plan, other than those plans that are subject to the Securities and Exchange Commission’s filing requirements (hereafter “nonpublic employee benefit plan”), that holds investments in its plan sponsor’s own nonpublic entity equity securities, including equity securities of its plan sponsor’s nonpublic affiliated entities and that are within the scope of the disclosure requirements contained in FASB Accounting Standards Update No. 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs. The amendments in this Update defer indefinitely the effective date of certain required disclosures in Update 2011-04 (Topic 820) of quantitative information about the significant unobservable inputs used in Level 3 fair value measurements for investments held by a nonpublic employee benefit plan in its plan sponsor’s own nonpublic entity equity securities, including equity securities of its plan sponsor’s nonpublic affiliated entities. The amendments in this Update do not defer the effective date for those certain quantitative disclosures for other nonpublic entity equity securities held in the nonpublic employee benefit plan or any qualitative disclosures. The deferral in this amendment is effective upon issuance for financial statements that have not been issued.

In July 2013, the FASB issued ASU 2013-10, Derivatives and Hedging (Topic 815):Inclusion of the Fed Funds Effective Swap Rate (or Overnight Index Swap Rate) as a Benchmark Interest Rate for Hedge Accounting Purposes. The amendments in this Update permit the Fed Funds Effective Swap Rate (OIS) to be used as a U.S. benchmark interest rate for hedge accounting purposes under Topic 815, in addition to UST and LIBOR. The amendments also remove the restriction on using different benchmark rates for similar hedges. The amendments are effective prospectively for qualifying new or redesignated hedging relationships entered into on or after July 17, 2013.

In July 2013, the FASB issued ASU 2013-11, Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists. This Update applies to all entities that have unrecognized tax benefits when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists at the reporting date. An unrecognized tax benefit, or a portion of an unrecognized tax benefit, should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward, except as follows. To the extent a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position or the tax law of the applicable jurisdiction does not require the entity to use, and the entity does not intend to use, the deferred tax asset for such purpose, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets. The assessment of whether a deferred tax asset is available is based on the unrecognized tax benefit and deferred tax asset that exist at the reporting date and should be made presuming disallowance of the tax position at the reporting date. The amendments in this Update are effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. For nonpublic entities, the amendments are effective for fiscal years, and interim periods within those years, beginning after December 15, 2014. Early adoption is permitted. The amendments should be applied prospectively to all unrecognized tax benefits that exist at the effective date. Retrospective application is permitted.

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Note 4 - Fair Value Disclosure Measurements

9 Months Ended

Sep. 30, 2013

Fair Value Disclosures [Abstract]

Fair Value Disclosures [Text Block]

NOTE 4 - FAIR VALUE MEASUREMENTS

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market for an asset or liability in an orderly transaction between market participants at the measurement date. GAAP established a fair value hierarchy that prioritizes the use of inputs used in valuation methodologies into the following three levels:

Level I: Quoted prices are available in active markets for identical assets or liabilities as of the reported date.

Level II: Pricing inputs are other than the quoted prices in active markets, which are either directly or indirectly observable as of the reported date. The nature of these assets and liabilities includes items for which quoted prices are available but traded less frequently and items that are fair-valued using other financial instruments, the parameters of which can be directly observed.

Level III: Assets and liabilities that have little to no pricing observability as of the reported date. These items do not have two-way markets and are measured using management’s best estimate of fair value, where the inputs into the determination of fair value require significant management judgment or estimation.

The following tables present the assets measured on a recurring basis on the Consolidated Balance Sheet at their fair value by level within the fair value hierarchy. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

			September 30, 2013
(Dollar amounts in thousands)	Level I		Level II		Level III		Total
Assets measured on a recurring basis:
U.S. government agency securities	$	-	$	26,343	$	-	$	26,343
Obligations of states and political subdivisions		-		94,621		-		94,621
Mortgage-backed securities in government- sponsored entities				55,083				55,083
Private-label mortgage-backed securities		-		3,974		-		3,974
Total debt securities		-		180,021		-		180,021
Equity securities in financial institutions		5		745		-		750
Total	$	5	$	180,766	$	-	$	180,771

			December 31, 2012
	Level I		Level II		Level III		Total
Assets measured on a recurring basis:
U.S. government agency securities	$	-	$	24,960	$	-	$	24,960
Obligations of states and political subdivisions		-		92,596		-		92,596
Mortgage-backed securities in government- sponsored entities				71,102		-		71,102
Private-label mortgage-backed securities		-		5,064		-		5,064
Total debt securities		-		193,722		-		193,722
Equity securities in financial institutions		5		745		-		750
Total	$	5	$	194,467	$	-	$	194,472

The Company obtains fair values from an independent pricing service which represent either quoted market prices for the identical securities (Level I inputs) or fair values determined by pricing models using a market approach that considers observable market data, such as interest rate volatilities, LIBOR yield curve, credit spreads and prices from market makers and live trading systems (Level II).

Financial instruments are considered Level III when their values are determined using pricing models, discounted cash flow methodologies or similar techniques and at least one significant model assumption or input is unobservable. In addition to these unobservable inputs, the valuation models for Level III financial instruments typically also rely on a number of inputs that are readily observable either directly or indirectly. Level III financial instruments also include those for which the determination of fair value requires significant management judgment or estimation. The Company has no securities considered to be Level III as of September 30, 2013 or December 31, 2012.

The Company uses prices compiled by third party vendors due to the recent stabilization in the markets along with improvements in third party pricing methodology that have narrowed the variances between third party vendor prices and actual market prices.

The following tables present the assets measured on a nonrecurring basis on the Consolidated Balance Sheet at their fair value by level within the fair value hierarchy. Impaired loans that are collateral dependent are written down to fair value through the establishment of specific reserves. Techniques used to value the collateral that secure the impaired loan include: quoted market prices for identical assets classified as Level I inputs; observable inputs, employed by certified appraisers, for similar assets classified as Level II inputs. In cases where valuation techniques included inputs that are unobservable and are based on estimates and assumptions developed by management based on the best information available under each circumstance, the asset valuation is classified as Level III inputs.

The Company values other real estate owned at the estimated fair value of the underlying collateral less expected selling costs. Such values are estimated primarily using appraisals and reflect a market value approach. Due to the significance of the Level 3 inputs, other real estate owned has been classified as Level III.

			September 30, 2013
(Dollar amounts in thousands)	Level I		Level II		Level III		Total
Assets measured on a non-recurring basis:
Impaired loans	$	-	$	-	$	15,467	$	15,467
Other real estate owned		-		-		2,719		2,719

			December 31, 2012
	Level I		Level II		Level III		Total
Assets measured on a non-recurring basis:
Impaired loans	$	-	$	-	$	17,600	$	17,600
Other real estate owned		-		-		1,846		1,846

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

	Quantitative Information about Level III Fair Value Measurements
(unaudited, in thousands)	Fair Value Estimate				Valuation Techniques	Unobservable Input	Range (Weighted Average)
	September 30, 2013		December 31, 2012
Impaired loans	$	15,467	$	17,600	Appraisal of collateral (1)	Appraisal adjustments (2)	0%	to	-68.0%	(-30.7%)
						Liquidation expenses (2)	0%	to	-45.8%	(-2.0%)
Other real estate owned	$	2,719	$	1,846	Appraisal of collateral (1), (3)	Appraisal adjustments (2)	0%	to	-10.0%	(-7.5%)

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

(2) Appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated liquidation expenses. The range and weighted average of liquidation expenses and other appraisal adjustments are presented as a percent of the appraisal.

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

The estimated fair value of the Company’s financial instruments is as follows:

	September 30, 2013
	Carrying Value		Level I		Level II		Level III		Total Fair Value
	(in thousands)
Financial assets:
Cash and cash equivalents	$	32,193	$	32,193	$	-	$	-	$	32,193
Investment securities
Available for sale		180,771		5		180,766		-		180,771
Net loans		411,239		-		-		413,767		413,767
Bank-owned life insurance		8,745		8,745				-		8,745
Federal Home Loan Bank stock		1,887		1,887				-		1,887
Accrued interest receivable		2,565		2,565		-		-		2,565
Financial liabilities:
Deposits	$	579,222	$	398,258	$	-	$	182,824	$	581,082
Short-term borrowings		10,575		10,575		-		-		10,575
Federal funds purchased		1,639		1,639		-		-		1,639
Other borrowings		12,261		-		-		12,469		12,469
Accrued interest payable		464		464		-		-		464

	December 31, 2012
	Carrying Value		Level I		Level II		Level III		Total Fair Value
	(in thousands)
Financial assets:
Cash and cash equivalents	$	45,346	$	45,346	$	-	$	-	$	45,346
Investment securities
Available for sale		194,472		5		194,467		-		194,472
Net loans		400,654		-		-		390,206		390,206
Bank-owned life insurance		8,536		8,536		-		-		8,536
Federal Home Loan Bank stock		1,887		1,887		-		-		1,887
Accrued interest receivable		2,163		2,163		-		-		2,163
Financial liabilities:
Deposits	$	593,335	$	396,582	$	-	$	196,122	$	592,704
Short-term borrowings		6,538		6,538		-		-		6,538
Other borrowings		12,970		-		-		13,337		13,337
Accrued interest payable		492		492		-		-		492

Financial instruments are defined as cash, evidence of ownership interest in an entity, or a contract which creates an obligation or right to receive or deliver cash or another financial instrument from/to a second entity on potentially favorable or unfavorable terms.

Fair value is defined as the amount at which a financial instrument could be exchanged in a current transaction between willing parties other than in a forced liquidation sale. If a quoted market price is available for a financial instrument, the estimated fair value would be calculated based upon the market price per trading unit of the instrument.

If no readily available market exists, the fair value estimates for financial instruments should be based upon management’s judgment regarding current economic conditions, interest rate risk, expected cash flows, future estimated losses, and other factors as determined through various option pricing formulas or simulation modeling. Since many of these assumptions result from judgments made by management based upon estimates which are inherently uncertain, the resulting estimated fair values may not be indicative of the amount realizable in the sale of a particular financial instrument. In addition, changes in assumptions on which the estimated fair values are based may have a significant impact on the resulting estimated fair values.

As certain assets such as deferred tax assets and premises and equipment are not considered financial instruments, the estimated fair value of financial instruments would not represent the full value of the Company.

The Company employed simulation modeling in determining the estimated fair value of financial instruments for which quoted market prices were not available based upon the following assumptions:

Cash and Cash Equivalents, Federal Home Loan Bank Stock, Accrued Interest Receivable, Accrued Interest Payable, Federal Funds Purchased, and Short-Term Borrowings

The fair value is equal to the current carrying value.

Bank-Owned Life Insurance

The fair value is equal to the cash surrender value of the life insurance policies.

Investment Securities Available for Sale

The fair value of investment securities is equal to the available quoted market price.  If no quoted market price is available, fair value is estimated using the quoted market price for similar securities. 

Loans

The fair value is estimated by discounting future cash flows using current market inputs at which loans with similar terms and qualities would be made to borrowers of similar credit quality. Where quoted market prices were available, primarily for certain residential mortgage loans, such market rates were used as estimates for fair value.

Deposits and Other Borrowed Funds

The fair values of certificates of deposit and other borrowed funds are based on the discounted value of contractual cash flows. The discount rates are estimated using rates currently offered for similar instruments with similar remaining maturities. Demand, savings, and money market deposits are valued at the amount payable on demand as of period end.

Commitments to Extend Credit

These financial instruments are generally not subject to sale, and estimated fair values are not readily available. The carrying value, represented by the net deferred fee arising from the unrecognized commitment or letter of credit, and the fair value, determined by discounting the remaining contractual fee over the term of the commitment using fees currently charged to enter into similar agreements with similar credit risk, are not considered material for disclosure.

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Consolidated Statement of Changes in Stockholders' Equity (Unaudited) (Parentheticals) (USD $) In Thousands, except Share data, unless otherwise specified	9 Months Ended
	Sep. 30, 2013
Cash dividends per share (in Dollars per share)	$ 0.78
Common Stock [Member]
Common stock issuance (shares) (in Shares)	13,320
Dividend reinvestment and purchase plan (shares) (in Shares)	21,016
Retained Earnings [Member]
Cash dividends per share (in Dollars per share)	$ 0.78
Accumulated Other Comprehensive Income (Loss) [Member]
Common stock issuance cost (in Dollars)	$ (139)

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Note 7 - Loans And Related Allowance For Loan Losses (Details) - Troubled Debt Restructurings That Subsequently Defaulted During Current Quarter (USD $) In Thousands, unless otherwise specified	3 Months Ended	9 Months Ended
	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012
Commercial and Industrial [Member]
Note 7 - Loans And Related Allowance For Loan Losses (Details) - Troubled Debt Restructurings That Subsequently Defaulted During Current Quarter [Line Items]
Troubled Debt Restructurings Subsequently Defaulted Number of Contracts	1	1	2
Troubled Debt Restructurings Subsequently Defaulted Recorded Investment (in Dollars)	$ 30	$ 565	$ 60
Residential Real Estate Mortgage [Member]
Note 7 - Loans And Related Allowance For Loan Losses (Details) - Troubled Debt Restructurings That Subsequently Defaulted During Current Quarter [Line Items]
Troubled Debt Restructurings Subsequently Defaulted Number of Contracts	1		1
Troubled Debt Restructurings Subsequently Defaulted Recorded Investment (in Dollars)	$ 20		$ 20

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Note 6 - Investment Securities Available For Sale (Details) (USD $)	9 Months Ended	12 Months Ended
	Sep. 30, 2013	Dec. 31, 2012
Note 6 - Investment Securities Available For Sale (Details) [Line Items]
Available-for-sale Securities Pledged as Collateral	$ 73,800,000	$ 62,500,000
Available-for-sale, Securities in Unrealized Loss Positions, Qualitative Disclosure, Number of Positions	103
Percentage of Portfolio	97.00%
Available-for-sale Securities, Current	180,771,000	194,473,000
Available-for-sale Securities, Gross Unrealized Gain	3,334,000	8,427,000
Private Label Collateralized Mortgage Obligations [Member]
Note 6 - Investment Securities Available For Sale (Details) [Line Items]
Available-for-sale Securities, Current	3,600,000
Mortgage-backed Securities, Issued by Private Enterprises [Member]
Note 6 - Investment Securities Available For Sale (Details) [Line Items]
Available-for-sale Securities, Current	3,974,000	5,064,000
Available-for-sale Securities, Gross Unrealized Gain	$ 377,000	$ 511,000

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Note 4 - Fair Value Disclosure Measurements (Tables)

9 Months Ended

Sep. 30, 2013

Fair Value Disclosures [Abstract]

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

			September 30, 2013
(Dollar amounts in thousands)	Level I		Level II		Level III		Total
Assets measured on a recurring basis:
U.S. government agency securities	$	-	$	26,343	$	-	$	26,343
Obligations of states and political subdivisions		-		94,621		-		94,621
Mortgage-backed securities in government- sponsored entities				55,083				55,083
Private-label mortgage-backed securities		-		3,974		-		3,974
Total debt securities		-		180,021		-		180,021
Equity securities in financial institutions		5		745		-		750
Total	$	5	$	180,766	$	-	$	180,771

			December 31, 2012
	Level I		Level II		Level III		Total
Assets measured on a recurring basis:
U.S. government agency securities	$	-	$	24,960	$	-	$	24,960
Obligations of states and political subdivisions		-		92,596		-		92,596
Mortgage-backed securities in government- sponsored entities				71,102		-		71,102
Private-label mortgage-backed securities		-		5,064		-		5,064
Total debt securities		-		193,722		-		193,722
Equity securities in financial institutions		5		745		-		750
Total	$	5	$	194,467	$	-	$	194,472

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

			September 30, 2013
(Dollar amounts in thousands)	Level I		Level II		Level III		Total
Assets measured on a non-recurring basis:
Impaired loans	$	-	$	-	$	15,467	$	15,467
Other real estate owned		-		-		2,719		2,719

			December 31, 2012
	Level I		Level II		Level III		Total
Assets measured on a non-recurring basis:
Impaired loans	$	-	$	-	$	17,600	$	17,600
Other real estate owned		-		-		1,846		1,846

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

	Quantitative Information about Level III Fair Value Measurements
(unaudited, in thousands)	Fair Value Estimate				Valuation Techniques	Unobservable Input	Range (Weighted Average)
	September 30, 2013		December 31, 2012
Impaired loans	$	15,467	$	17,600	Appraisal of collateral (1)	Appraisal adjustments (2)	0%	to	-68.0%	(-30.7%)
						Liquidation expenses (2)	0%	to	-45.8%	(-2.0%)
Other real estate owned	$	2,719	$	1,846	Appraisal of collateral (1), (3)	Appraisal adjustments (2)	0%	to	-10.0%	(-7.5%)

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

	September 30, 2013
	Carrying Value		Level I		Level II		Level III		Total Fair Value
	(in thousands)
Financial assets:
Cash and cash equivalents	$	32,193	$	32,193	$	-	$	-	$	32,193
Investment securities
Available for sale		180,771		5		180,766		-		180,771
Net loans		411,239		-		-		413,767		413,767
Bank-owned life insurance		8,745		8,745				-		8,745
Federal Home Loan Bank stock		1,887		1,887				-		1,887
Accrued interest receivable		2,565		2,565		-		-		2,565
Financial liabilities:
Deposits	$	579,222	$	398,258	$	-	$	182,824	$	581,082
Short-term borrowings		10,575		10,575		-		-		10,575
Federal funds purchased		1,639		1,639		-		-		1,639
Other borrowings		12,261		-		-		12,469		12,469
Accrued interest payable		464		464		-		-		464

	December 31, 2012
	Carrying Value		Level I		Level II		Level III		Total Fair Value
	(in thousands)
Financial assets:
Cash and cash equivalents	$	45,346	$	45,346	$	-	$	-	$	45,346
Investment securities
Available for sale		194,472		5		194,467		-		194,472
Net loans		400,654		-		-		390,206		390,206
Bank-owned life insurance		8,536		8,536		-		-		8,536
Federal Home Loan Bank stock		1,887		1,887		-		-		1,887
Accrued interest receivable		2,163		2,163		-		-		2,163
Financial liabilities:
Deposits	$	593,335	$	396,582	$	-	$	196,122	$	592,704
Short-term borrowings		6,538		6,538		-		-		6,538
Other borrowings		12,970		-		-		13,337		13,337
Accrued interest payable		492		492		-		-		492

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Note 7 - Loans And Related Allowance For Loan Losses

9 Months Ended

Sep. 30, 2013

Receivables [Abstract]

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

NOTE 7 - LOANS AND RELATED ALLOWANCE FOR LOAN LOSSES

Major classifications of loans are summarized as follows (in thousands):

	September 30, 2013		December 31, 2012
Commercial and industrial	$	50,265	$	62,188
Real estate - construction		25,487		22,522
Real estate - mortgage:
Residential		203,312		203,872
Commercial		135,760		115,734
Consumer installment		4,236		4,117
		419,060		408,433
Less allowance for loan losses		7,821		7,779
Net loans	$	411,239	$	400,654

The Company’s primary business activity is with customers located within its local trade area, eastern Geauga County, and contiguous counties to the north, east, and south. The Company also serves the central Ohio market with offices in Dublin and Westerville, Ohio. Commercial, residential, consumer, and agricultural loans are granted. Although the Company has a diversified loan portfolio, loans outstanding to individuals and businesses are dependent upon the local economic conditions in the Company’s immediate trade area.

Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff generally are reported at their outstanding unpaid principal balances net of the allowance for loan losses.  Interest income is recognized as income when earned on the accrual method.  The accrual of interest is discontinued on a loan when management believes, after considering economic and business conditions, the borrower’s financial condition is such that collection of interest is doubtful.  Interest received on nonaccrual loans is recorded as income or applied against principal according to management’s judgment as to the collectability of such principal.

Loan origination fees and certain direct loan origination costs are being deferred and the net amount amortized as an adjustment of the related loan’s yield.  Management is amortizing these amounts over the contractual life of the related loans.

The following tables summarize the primary segments of the loan portfolio and allowance for loan losses (in thousands):

					Real Estate- Mortgage
September 30, 2013	Commercial and industrial		Real estate- construction		Residential		Commercial		Consumer installment		Total
Loans:
Individually evaluated for impairment	$	1,483	$	3,963	$	5,766	$	6,787	$	8	$	18,007
Collectively evaluated for impairment		48,782		21,524		197,546		128,973		4,228		401,053
Total loans	$	50,265	$	25,487	$	203,312	$	135,760	$	4,236	$	419,060

					Real estate- Mortgage
December 31, 2012	Commercial and industrial		Real estate- construction		Residential		Commercial		Consumer installment		Total
Loans:
Individually evaluated for impairment	$	4,592	$	3,993	$	5,761	$	6,914	$	28	$	21,288
Collectively evaluated for impairment		57,596		18,529		198,111		108,820		4,089		387,145
Total loans	$	62,188	$	22,522	$	203,872	$	115,734	$	4,117	$	408,433

					Real Estate- Mortgage
September 30, 2013	Commercial and industrial		Real estate- construction		Residential		Commercial		Consumer installment		Total
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	195	$	859	$	896	$	590	$	-	$	2,540
Collectively evaluated for impairment		593		440		2,743		1,483		22		5,281
Total ending allowance balance	$	788	$	1,299	$	3,639	$	2,073	$	22	$	7,821

					Real Estate- Mortgage
December 31, 2012	Commercial and industrial		Real estate- construction		Residential		Commercial		Consumer installment		Total
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	1,189	$	933	$	600	$	960	$	6	$	3,688
Collectively evaluated for impairment		543		190		2,272		1,031		55		4,091
Total ending allowance balance	$	1,732	$	1,123	$	2,872	$	1,991	$	61	$	7,779

The Company’s loan portfolio is segmented to a level that allows management to monitor risk and performance.  The portfolio is segmented into Commercial and Industrial (“C&I”), Real Estate Construction, Real Estate - Mortgage which is further segmented into Residential and Commercial real estate, and Consumer Installment Loans.  The C&I loan segment consists of loans made for the purpose of financing the activities of commercial customers.  The residential mortgage loan segment consists of loans made for the purpose of financing the activities of residential homeowners. The commercial mortgage loan segment consists of loans made for the purposed of financing the activities of commercial real estate owners and operators. The consumer loan segment consists primarily of installment loans and overdraft lines of credit connected with customer deposit accounts.

Management evaluates individual loans in all of the commercial segments for possible impairment if the loan is greater than $150,000 and if the loan either is in nonaccrual status, or is risk rated Special Mention or Substandard and is greater than 90 days past due.  Loans are considered to be impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement.  Factors considered by management in evaluating impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due.  Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed.  The Company does not separately evaluate individual consumer and residential mortgage loans for impairment, unless such loans are part of a larger relationship that is impaired.

Once the determination has been made that a loan is impaired, the determination of whether a specific allocation of the allowance is necessary is measured by comparing the recorded investment in the loan to the fair value of the loan using one of three methods:  (a) the present value of expected future cash flows discounted at the loan’s effective interest rate; (b) the loan’s observable market price; or (c) the fair value of the collateral less selling costs.  The method is selected on a loan-by-loan basis, with management primarily utilizing the fair value of collateral method.  The evaluation of the need and amount of a specific allocation of the allowance and whether a loan can be removed from impairment status is made on a quarterly basis.  The Company’s policy for recognizing interest income on impaired loans does not differ from its overall policy for interest recognition.

The following table presents impaired loans by class, segregated by those for which a specific allowance was required and those for which a specific allowance was not necessary (in thousands):

September 30, 2013
Impaired Loans
	Recorded Investment		Unpaid Principal Balance		Related Allowance
With no related allowance recorded:
Commercial and industrial	$	932	$	932	$	-
Real estate - construction		142		142		-
Real estate - mortgage:
Residential		2,755		2,795		-
Commercial		3,567		3,567		-
Consumer installment		8		8		-
Total	$	7,404	$	7,444	$	-
With an allowance recorded:
Commercial and industrial	$	551	$	551	$	195
Real estate - construction		3,821		3,821		859
Real estate - mortgage:
Residential		3,011		3,050		896
Commercial		3,220		3,220		590
Consumer installment		-		-		-
Total	$	10,603	$	10,642	$	2,540
Total:
Commercial and industrial	$	1,483	$	1,483	$	195
Real estate - construction		3,963		3,963		859
Real estate - mortgage:
Residential		5,766		5,845		896
Commercial		6,787		6,787		590
Consumer installment		8		8		-
Total	$	18,007	$	18,086	$	2,540

December 31, 2012
Impaired Loans
	Recorded Investment		Unpaid Principal Balance		Related Allowance
With no related allowance recorded:
Commercial and industrial	$	1,230	$	1,229	$	-
Real estate - construction		308		308		-
Real estate - mortgage:
Residential		2,716		2,729		-
Commercial		4,143		4,164		-
Consumer installment		11		11		-
Total	$	8,408	$	8,441	$	-
With an allowance recorded:
Commercial and industrial	$	3,362	$	3,367	$	1,189
Real estate - construction		3,685		3,685		933
Real estate - mortgage:
Residential		3,045		3,054		600
Commercial		2,771		2,776		960
Consumer installment		17		17		6
Total	$	12,880	$	12,899	$	3,688
Total:
Commercial and industrial	$	4,592	$	4,596	$	1,189
Real estate - construction		3,993		3,993		933
Real estate - mortgage:
Residential		5,761		5,783		600
Commercial		6,914		6,940		960
Consumer installment		28		28		6
Total	$	21,288	$	21,340	$	3,688

The following table presents interest income by class, recognized on impaired loans:

	For the Three Months Ended September 30, 2013				For the Nine Months Ended September 30, 2013
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
Total:
Commercial and industrial	$	2,085	$	8	$	2,286	$	78
Real estate - construction		3,731		43		3,654		138
Real estate - mortgage:
Residential		5,351		81		5,213		224
Commercial		6,403		138		6,275		355
Consumer installment		13		-		15		1

	For the Three Months Ended September 30, 2012				For the Nine Months Ended September 30, 2012
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
Total:
Commercial and industrial	$	2,535	$	139	$	2,170	$	170
Real estate - construction		2,305		-		2,400		113
Real estate - mortgage:
Residential		3,622		85		3,764		169
Commercial		3,597		200		3,985		324
Consumer installment		13		1		27		2

Management uses a nine point internal risk rating system to monitor the credit quality of the overall loan portfolio. The first five categories are considered not criticized, and are aggregated as “Pass” rated. The criticized rating categories used by management generally follow bank regulatory definitions. The Special Mention category includes assets that are currently protected but are potentially weak, resulting in an undue and unwarranted credit risk, but not to the point of justifying a Substandard classification.  Loans in the Substandard category have well-defined weaknesses that jeopardize the liquidation of the debt, and have a distinct possibility that some loss will be sustained if the weaknesses are not corrected.  All loans greater than 90 days past due are considered Substandard.   Assets classified as “doubtful” have all the weaknesses inherent in those classified substandard, with the added characteristic that the weaknesses make collection of principal in full — on the basis of currently existing facts, conditions, and values — highly questionable and improbable. Any portion of a loan that has been charged off is placed in the Loss category.

To help ensure that risk ratings are accurate and reflect the present and future capacity of borrowers to repay a loan as agreed, the Company has a structured loan rating process with several layers of internal and external oversight.  Generally, consumer and residential mortgage loans are included in the Pass categories unless a specific action, such as bankruptcy, repossession, or death occurs to raise awareness of a possible credit event.  The Company’s Commercial Loan Officers are responsible for the timely and accurate risk rating of the loans in their portfolios at origination and on an ongoing basis.  The Credit Department performs an annual review of all commercial relationships $200,000 or greater.  Confirmation of the appropriate risk grade is included in the review on an ongoing basis.  The Company has an experienced Loan Review Department that continually reviews and assesses loans within the portfolio.  The Company engages an external consultant to conduct loan reviews on a semi-annual basis. Generally, the external consultant reviews commercial relationships greater than $250,000 and/or criticized relationships greater than $125,000.  Detailed reviews, including plans for resolution, are performed on loans classified as Substandard on a quarterly basis.  Loans in the Special Mention and Substandard categories that are collectively evaluated for impairment are given separate consideration in the determination of the allowance.

The primary risk of commercial and industrial loans is the current economic uncertainties. C & I loans are, by nature, secured by less substantial collateral than real estate secured loans. The primary risk of real estate construction loans is potential delays and /or disputes during the completion process. The primary risk of residential real estate loans is current economic uncertainties along with the slow recovery in the housing market. The primary risk of commercial real estate loans is loss of income of the owner or occupier of the property and the inability of the market to sustain rent levels. Consumer installment loans historically have experienced higher delinquency rates. Consumer installments are typically secured by less substantial collateral than other types of credits.

The following table presents the classes of the loan portfolio summarized by the aggregate Pass and the criticized categories of Special Mention, Substandard and Doubtful within the internal risk rating system (in thousands):

	Pass		Special Mention		Substandard		Doubtful		Total Loans
September 30, 2013
Commercial and industrial	$	48,085	$	873	$	1,264	$	43	$	50,265
Real estate - construction		20,615		912		3,960		-		25,487
Real estate - mortgage:
Residential		190,408		964		11,940		-		203,312
Commercial		127,634		2,256		5,870		-		135,760
Consumer installment		4,218		-		18		-		4,236
Total	$	390,960	$	5,005	$	23,052	$	43	$	419,060

	Pass		Special Mention		Substandard		Doubtful		Total Loans
December 31, 2012
Commercial and industrial	$	59,390	$	678	$	2,061	$	59	$	62,188
Real estate - construction		17,601		-		4,921		-		22,522
Real estate - mortgage:
Residential		190,967		758		12,147		-		203,872
Commercial		106,509		1,928		7,297		-		115,734
Consumer installment		4,084		-		33		-		4,117
Total	$	378,551	$	3,364	$	26,459	$	59	$	408,433

Management further monitors the performance and credit quality of the loan portfolio by analyzing the age of the portfolio as determined by the length of time a recorded payment is past due.

Nonperforming assets includes nonaccrual loans, troubled debt restructurings (TDRs), loans 90 days or more past due, assets purchased by EMORECO from EB, OREO, and repossessed assets. A loan is classified as nonaccrual when, in the opinion of management, there are serious doubts about collectability of interest and principal. Accrual of interest is discontinued on a loan when management believes, after considering economic and business conditions, the borrower’s financial condition is such that collection of principal and interest is doubtful.  Payments received on nonaccrual loans are applied against principal according to management’s shadow accounting system.

The following table presents the classes of the loan portfolio summarized by the aging categories of performing loans and nonaccrual loans (in thousands):

			Still Accruing
	Current		30-59 Days Past Due		60-89 Days Past Due		90 Days+ Past Due		Total Past Due		Non- Accrual		Total Loans
September 30, 2013
Commercial and industrial	$	49,234	$	656	$	56	$	83	$	795	$	236	$	50,265
Real estate - construction		24,594		17		876		-		893		-		25,487
Real estate - mortgage:
Residential		192,461		1,414		666		414		2,494		8,357		203,312
Commercial		134,030		-		-		346		346		1,384		135,760
Consumer installment		4,182		41		3		-		44		10		4,236
Total	$	404,502	$	2,128	$	1,601	$	843	$	4,572	$	9,986	$	419,060

			Still Accruing
	Current		30-59 Days Past Due		60-89 Days Past Due		90 Days+ Past Due		Total Past Due		Non- Accrual		Total Loans
December 31, 2012
Commercial and industrial	$	60,428	$	441	$	63	$	348	$	852	$	908	$	62,188
Real estate - construction		22,158		-		-		-		-		364		22,522
Real estate - mortgage:
Residential		191,349		2,614		1,401		90		4,105		8,418		203,872
Commercial		113,023		509		97		-		606		2,105		115,734
Consumer installment		4,074		25		-		-		25		18		4,117
Total	$	391,032	$	3,589	$	1,561	$	438	$	5,588	$	11,813	$	408,433

An allowance for loan and lease losses (“ALLL”) is maintained to absorb losses from the loan portfolio.  The ALLL is based on management’s continuing evaluation of the risk characteristics and credit quality of the loan portfolio, assessment of current economic conditions, diversification and size of the portfolio, adequacy of collateral, past and anticipated loss experience, and the amount of nonperforming loans.

The Company’s methodology for determining the ALLL is based on the requirements of ASC Section 310-10-35 for loans individually evaluated for impairment (discussed above) and ASC Subtopic 450-20 for loans collectively evaluated for impairment, as well as the Interagency Policy Statements on the Allowance for Loan and Lease Losses and other bank regulatory guidance.   The total of the two components represents the Company’s ALLL. Management also performs impairment analyses on TDRs, which may result in specific reserves.

Loans that are collectively evaluated for impairment are analyzed with general allowances being made as appropriate.  For general allowances, historical loss trends are used in the estimation of losses in the current portfolio.  These historical loss amounts are modified by other qualitative factors.

The classes described above, which are based on the purpose code assigned to each loan, provide the starting point for the ALLL analysis.  Management tracks the historical net charge-off activity at the purpose code level.  A historical charge-off factor is calculated using the last four consecutive historical quarters.

Management has identified a number of additional qualitative factors which it uses to supplement the historical charge-off factor because these factors are likely to cause estimated credit losses associated with the existing loan pools to differ from historical loss experience.  The additional factors that are evaluated quarterly and updated using information obtained from internal, regulatory, and governmental sources are: national and local economic trends and conditions; levels of and trends in delinquency rates and nonaccrual loans; trends in volumes and terms of loans; effects of changes in lending policies; experience, ability, and depth of lending staff; value of underlying collateral; and concentrations of credit from a loan type, industry and/or geographic standpoint.

Management reviews the loan portfolio on a quarterly basis using a defined, consistently applied process in order to make appropriate and timely adjustments to the ALLL.  When information confirms all or part of specific loans to be uncollectible, these amounts are promptly charged off against the ALLL.

The following table summarizes the primary segments of the loan portfolio (in thousands):

	Commercial and industrial			Real estate- construction			Real estate- residential mortgage			Real estate- commercial mortgage		Consumer installment			Total
ALLL balance at December 31, 2012	$	1,732		$	1,123		$	2,872		$	1,991	$	61		$	7,779
Charge-offs		(325	)		(190	)		(432	)		-		(41	)		(988	)
Recoveries		92			33			73			46		20			264
Provision		(711	)		333			1,126			36		(18	)		766
ALLL balance at September 30, 2013	$	788		$	1,299		$	3,639		$	2,073	$	22		$	7,821

	Commercial and industrial			Real estate- construction		Real estate- residential mortgage			Real estate- commercial mortgage			Consumer installment			Total
ALLL balance at December 31, 2011	$	1,296		$	438	$	3,731		$	1,306		$	48		$	6,819
Charge-offs		(88	)		-		(668	)		(123	)		(62	)		(941	)
Recoveries		70			-		15			-			17			102
Provision		426			7		(125	)		872			13			1,193
ALLL balance at September 30, 2012	$	1,704		$	445	$	2,953		$	2,055		$	16		$	7,173

	Commercial and industrial			Real estate- construction		Real estate- residential mortgage			Real estate- commercial mortgage		Consumer installment			Total
ALLL balance at June 30, 2013	$	875		$	1,191	$	3,626		$	2,005	$	52		$	7,749
Charge-offs		-			-		(87	)		-		(5	)		(92	)
Recoveries		-			-		2			-		9			11
Provision		(87	)		108		98			68		(34	)		153
ALLL balance at September 30, 2013	$	788		$	1,299	$	3,639		$	2,073	$	22		$	7,821

	Commercial and industrial			Real estate- construction			Real estate- residential mortgage			Real estate- commercial mortgage			Consumer installment			Total
ALLL balance at June 30, 2012	$	1,626		$	504		$	4,109		$	1,492		$	21		$	7,752
Charge-offs		(60	)		-			(570	)		(70	)		(40	)		(740	)
Recoveries		1			-			12			-			5			18
Provision		137			(59	)		(598	)		633			30			143
ALLL balance at September 30, 2012	$	1,704		$	445		$	2,953		$	2,055		$	16		$	7,173

The C&I ALLL balance declined from $1.7 million at December 31, 2012 to $788,000 at September 30, 2013. Loan reclassifications resulted in a shift of $660,000 of specific reserve from this category. Residential mortgage real estate increased from $2.9 million to $3.6 million during the nine months ended September 30, 2012. This was largely the result of increasing the 1-4 family owner-occupied loss ratio. A provision in any loan portfolio is not necessarily related to current charge-offs, but is a result of the evaluation of the loans in that category.

The following tables summarize troubled debt restructurings and subsequent defaults (in thousands):

	Three months ended
	September 30, 2013								September 30, 2012
	Number of Contracts						Pre-Modification Outstanding		Number of Contracts						Pre-Modification Outstanding
Troubled Debt Restructurings	Term Modification		Other		Total		Recorded Investment		Term Modification		Other		Total		Recorded Investment
Commercial and industrial		1		-		1	$	137		2				2	$	13
Real estate- mortgage:
Residential		-		-		-		-		6		1		7		619
Consumer Installment		-		-		-		-		1		-		1		6

	Nine months ended
	September 30, 2013								September 30, 2012
	Number of Contracts						Pre-Modification Outstanding		Number of Contracts						Pre-Modification Outstanding
Troubled Debt Restructurings	Term Modification		Other		Total		Recorded Investment		Term Modification		Other		Total		Recorded Investment
Commercial and industrial		6		-		6	$	879		8		1		9	$	243
Real estate- mortgage:
Residential		2		-		2		383		8		2		10		946
Consumer Installment		1		-		1		644		2		-		2		11

	Three months ended
	September 30, 2013				September 30, 2012
Troubled Debt Restructurings subsequently defaulted	Number of Contracts		Recorded Investment		Number of Contracts		Recorded Investment
Commercial and industrial		-	$	-		1	$	30
Real estate- mortgage:
Residential		-		-		1		20

	Nine months ended
	September 30, 2013				September 30, 2012
Troubled Debt Restructurings subsequently defaulted	Number of Contracts		Recorded Investment		Number of Contracts		Recorded Investment
Commercial and industrial		1	$	565		2	$	60
Real estate- mortgage:
Residential		-		-		1		20
Commercial		1		190		-		-

XML

Note 7 - Loans And Related Allowance For Loan Losses (Tables)

9 Months Ended

Sep. 30, 2013

Note 7 - Loans And Related Allowance For Loan Losses (Tables) [Line Items]

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

	September 30, 2013		December 31, 2012
Commercial and industrial	$	50,265	$	62,188
Real estate - construction		25,487		22,522
Real estate - mortgage:
Residential		203,312		203,872
Commercial		135,760		115,734
Consumer installment		4,236		4,117
		419,060		408,433
Less allowance for loan losses		7,821		7,779
Net loans	$	411,239	$	400,654

Schedule of Financing Receivable by Segment [Table Text Block]

					Real Estate- Mortgage
September 30, 2013	Commercial and industrial		Real estate- construction		Residential		Commercial		Consumer installment		Total
Loans:
Individually evaluated for impairment	$	1,483	$	3,963	$	5,766	$	6,787	$	8	$	18,007
Collectively evaluated for impairment		48,782		21,524		197,546		128,973		4,228		401,053
Total loans	$	50,265	$	25,487	$	203,312	$	135,760	$	4,236	$	419,060

					Real estate- Mortgage
December 31, 2012	Commercial and industrial		Real estate- construction		Residential		Commercial		Consumer installment		Total
Loans:
Individually evaluated for impairment	$	4,592	$	3,993	$	5,761	$	6,914	$	28	$	21,288
Collectively evaluated for impairment		57,596		18,529		198,111		108,820		4,089		387,145
Total loans	$	62,188	$	22,522	$	203,872	$	115,734	$	4,117	$	408,433

Schedule of Credit Losses for Financing Receivables, Current [Table Text Block]

					Real Estate- Mortgage
September 30, 2013	Commercial and industrial		Real estate- construction		Residential		Commercial		Consumer installment		Total
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	195	$	859	$	896	$	590	$	-	$	2,540
Collectively evaluated for impairment		593		440		2,743		1,483		22		5,281
Total ending allowance balance	$	788	$	1,299	$	3,639	$	2,073	$	22	$	7,821

					Real Estate- Mortgage
December 31, 2012	Commercial and industrial		Real estate- construction		Residential		Commercial		Consumer installment		Total
Allowance for loan losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	1,189	$	933	$	600	$	960	$	6	$	3,688
Collectively evaluated for impairment		543		190		2,272		1,031		55		4,091
Total ending allowance balance	$	1,732	$	1,123	$	2,872	$	1,991	$	61	$	7,779

	Commercial and industrial			Real estate- construction			Real estate- residential mortgage			Real estate- commercial mortgage		Consumer installment			Total
ALLL balance at December 31, 2012	$	1,732		$	1,123		$	2,872		$	1,991	$	61		$	7,779
Charge-offs		(325	)		(190	)		(432	)		-		(41	)		(988	)
Recoveries		92			33			73			46		20			264
Provision		(711	)		333			1,126			36		(18	)		766
ALLL balance at September 30, 2013	$	788		$	1,299		$	3,639		$	2,073	$	22		$	7,821

	Commercial and industrial			Real estate- construction		Real estate- residential mortgage			Real estate- commercial mortgage			Consumer installment			Total
ALLL balance at December 31, 2011	$	1,296		$	438	$	3,731		$	1,306		$	48		$	6,819
Charge-offs		(88	)		-		(668	)		(123	)		(62	)		(941	)
Recoveries		70			-		15			-			17			102
Provision		426			7		(125	)		872			13			1,193
ALLL balance at September 30, 2012	$	1,704		$	445	$	2,953		$	2,055		$	16		$	7,173

	Commercial and industrial			Real estate- construction		Real estate- residential mortgage			Real estate- commercial mortgage		Consumer installment			Total
ALLL balance at June 30, 2013	$	875		$	1,191	$	3,626		$	2,005	$	52		$	7,749
Charge-offs		-			-		(87	)		-		(5	)		(92	)
Recoveries		-			-		2			-		9			11
Provision		(87	)		108		98			68		(34	)		153
ALLL balance at September 30, 2013	$	788		$	1,299	$	3,639		$	2,073	$	22		$	7,821

	Commercial and industrial			Real estate- construction			Real estate- residential mortgage			Real estate- commercial mortgage			Consumer installment			Total
ALLL balance at June 30, 2012	$	1,626		$	504		$	4,109		$	1,492		$	21		$	7,752
Charge-offs		(60	)		-			(570	)		(70	)		(40	)		(740	)
Recoveries		1			-			12			-			5			18
Provision		137			(59	)		(598	)		633			30			143
ALLL balance at September 30, 2012	$	1,704		$	445		$	2,953		$	2,055		$	16		$	7,173

Impaired Financing Receivables [Table Text Block]

September 30, 2013
Impaired Loans
	Recorded Investment		Unpaid Principal Balance		Related Allowance
With no related allowance recorded:
Commercial and industrial	$	932	$	932	$	-
Real estate - construction		142		142		-
Real estate - mortgage:
Residential		2,755		2,795		-
Commercial		3,567		3,567		-
Consumer installment		8		8		-
Total	$	7,404	$	7,444	$	-
With an allowance recorded:
Commercial and industrial	$	551	$	551	$	195
Real estate - construction		3,821		3,821		859
Real estate - mortgage:
Residential		3,011		3,050		896
Commercial		3,220		3,220		590
Consumer installment		-		-		-
Total	$	10,603	$	10,642	$	2,540
Total:
Commercial and industrial	$	1,483	$	1,483	$	195
Real estate - construction		3,963		3,963		859
Real estate - mortgage:
Residential		5,766		5,845		896
Commercial		6,787		6,787		590
Consumer installment		8		8		-
Total	$	18,007	$	18,086	$	2,540

December 31, 2012
Impaired Loans
	Recorded Investment		Unpaid Principal Balance		Related Allowance
With no related allowance recorded:
Commercial and industrial	$	1,230	$	1,229	$	-
Real estate - construction		308		308		-
Real estate - mortgage:
Residential		2,716		2,729		-
Commercial		4,143		4,164		-
Consumer installment		11		11		-
Total	$	8,408	$	8,441	$	-
With an allowance recorded:
Commercial and industrial	$	3,362	$	3,367	$	1,189
Real estate - construction		3,685		3,685		933
Real estate - mortgage:
Residential		3,045		3,054		600
Commercial		2,771		2,776		960
Consumer installment		17		17		6
Total	$	12,880	$	12,899	$	3,688
Total:
Commercial and industrial	$	4,592	$	4,596	$	1,189
Real estate - construction		3,993		3,993		933
Real estate - mortgage:
Residential		5,761		5,783		600
Commercial		6,914		6,940		960
Consumer installment		28		28		6
Total	$	21,288	$	21,340	$	3,688

	For the Three Months Ended September 30, 2013				For the Nine Months Ended September 30, 2013
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
Total:
Commercial and industrial	$	2,085	$	8	$	2,286	$	78
Real estate - construction		3,731		43		3,654		138
Real estate - mortgage:
Residential		5,351		81		5,213		224
Commercial		6,403		138		6,275		355
Consumer installment		13		-		15		1

	For the Three Months Ended September 30, 2012				For the Nine Months Ended September 30, 2012
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
Total:
Commercial and industrial	$	2,535	$	139	$	2,170	$	170
Real estate - construction		2,305		-		2,400		113
Real estate - mortgage:
Residential		3,622		85		3,764		169
Commercial		3,597		200		3,985		324
Consumer installment		13		1		27		2

Financing Receivable Credit Quality Indicators [Table Text Block]

	Pass		Special Mention		Substandard		Doubtful		Total Loans
September 30, 2013
Commercial and industrial	$	48,085	$	873	$	1,264	$	43	$	50,265
Real estate - construction		20,615		912		3,960		-		25,487
Real estate - mortgage:
Residential		190,408		964		11,940		-		203,312
Commercial		127,634		2,256		5,870		-		135,760
Consumer installment		4,218		-		18		-		4,236
Total	$	390,960	$	5,005	$	23,052	$	43	$	419,060

	Pass		Special Mention		Substandard		Doubtful		Total Loans
December 31, 2012
Commercial and industrial	$	59,390	$	678	$	2,061	$	59	$	62,188
Real estate - construction		17,601		-		4,921		-		22,522
Real estate - mortgage:
Residential		190,967		758		12,147		-		203,872
Commercial		106,509		1,928		7,297		-		115,734
Consumer installment		4,084		-		33		-		4,117
Total	$	378,551	$	3,364	$	26,459	$	59	$	408,433

Past Due Financing Receivables [Table Text Block]

			Still Accruing
	Current		30-59 Days Past Due		60-89 Days Past Due		90 Days+ Past Due		Total Past Due		Non- Accrual		Total Loans
September 30, 2013
Commercial and industrial	$	49,234	$	656	$	56	$	83	$	795	$	236	$	50,265
Real estate - construction		24,594		17		876		-		893		-		25,487
Real estate - mortgage:
Residential		192,461		1,414		666		414		2,494		8,357		203,312
Commercial		134,030		-		-		346		346		1,384		135,760
Consumer installment		4,182		41		3		-		44		10		4,236
Total	$	404,502	$	2,128	$	1,601	$	843	$	4,572	$	9,986	$	419,060

			Still Accruing
	Current		30-59 Days Past Due		60-89 Days Past Due		90 Days+ Past Due		Total Past Due		Non- Accrual		Total Loans
December 31, 2012
Commercial and industrial	$	60,428	$	441	$	63	$	348	$	852	$	908	$	62,188
Real estate - construction		22,158		-		-		-		-		364		22,522
Real estate - mortgage:
Residential		191,349		2,614		1,401		90		4,105		8,418		203,872
Commercial		113,023		509		97		-		606		2,105		115,734
Consumer installment		4,074		25		-		-		25		18		4,117
Total	$	391,032	$	3,589	$	1,561	$	438	$	5,588	$	11,813	$	408,433

Troubled Debt Restructurings on Financing Receivables [Table Text Block]

	Three months ended
	September 30, 2013								September 30, 2012
	Number of Contracts						Pre-Modification Outstanding		Number of Contracts						Pre-Modification Outstanding
Troubled Debt Restructurings	Term Modification		Other		Total		Recorded Investment		Term Modification		Other		Total		Recorded Investment
Commercial and industrial		1		-		1	$	137		2				2	$	13
Real estate- mortgage:
Residential		-		-		-		-		6		1		7		619
Consumer Installment		-		-		-		-		1		-		1		6

	Nine months ended
	September 30, 2013								September 30, 2012
	Number of Contracts						Pre-Modification Outstanding		Number of Contracts						Pre-Modification Outstanding
Troubled Debt Restructurings	Term Modification		Other		Total		Recorded Investment		Term Modification		Other		Total		Recorded Investment
Commercial and industrial		6		-		6	$	879		8		1		9	$	243
Real estate- mortgage:
Residential		2		-		2		383		8		2		10		946
Consumer Installment		1		-		1		644		2		-		2		11

Troubled Debt Restructurings That Subsequently Defaulted [Table Text Block]

	Nine months ended
	September 30, 2013				September 30, 2012
Troubled Debt Restructurings subsequently defaulted	Number of Contracts		Recorded Investment		Number of Contracts		Recorded Investment
Commercial and industrial		1	$	565		2	$	60
Real estate- mortgage:
Residential		-		-		1		20
Commercial		1		190		-		-

Current Quarter [Member]

Note 7 - Loans And Related Allowance For Loan Losses (Tables) [Line Items]

Troubled Debt Restructurings That Subsequently Defaulted [Table Text Block]

	Three months ended
	September 30, 2013				September 30, 2012
Troubled Debt Restructurings subsequently defaulted	Number of Contracts		Recorded Investment		Number of Contracts		Recorded Investment
Commercial and industrial		-	$	-		1	$	30
Real estate- mortgage:
Residential		-		-		1		20

XML

Note 5 - Accumulated Other Comprehensive Income (Tables)

9 Months Ended

Sep. 30, 2013

Disclosure Text Block [Abstract]

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

	Unrealized gains on available for sale securities (a)
Balance as of December 31, 2012	$	5,391
Other comprehensive loss before reclassification		(5,466	)
Amount reclassified from accumulated other comprehensive income (loss)		(115	)
Period change		(5,581	)
Balance at June 30, 2013	$	(190	)
Other comprehensive loss before reclassification		(1,503	)
Amount reclassified from accumulated other comprehensive income (loss)		-
Period change		(1,503	)
Balance at September 30, 2013	$	(1,693	)
Balance as of December 31, 2011	$	4,541
Other comprehensive income before reclassification		1,204
Amount reclassified from accumulated other comprehensive income (loss)		(196	)
Period change		1,008
Balance at June 30, 2012		5,549
Other comprehensive loss before reclassification		553
Amount reclassified from accumulated other comprehensive income (loss)		(100	)
Period change		453
Balance at September 30, 2012	$	6,002

Schedule of Amounts Recognized in Other Comprehensive Income (Loss) [Table Text Block]

	Amount Reclassified from
	Accumulated Other Comprehensive Income (Loss)						Affected Line Item in
	For the Three Months Ended						the Statement Where
	September 30,						Net Income is
Details about other comprehensive income	2013		(a)	2012			Presented
Unrealized gains on available for sale securities
	$	-		$	152		Investment securities gains, net
		-			(52	)	Income taxes
	$	-		$	100		Net of tax

	Amount Reclassified from
	Accumulated Other Comprehensive Income (Loss)						Affected Line Item in
	For the Nine Months Ended						the Statement Where
	September 30,						Net Income is
Details about other comprehensive income	2013		(a)	2012			Presented
Unrealized gains on available for sale securities
	$	175		$	448		Investment securities gains, net
		(60	)		(152	)	Income taxes
	$	115		$	296		Net of tax

XML

Document And Entity Information	9 Months Ended
	Sep. 30, 2013	Nov. 05, 2013
Document and Entity Information [Abstract]
Entity Registrant Name	MIDDLEFIELD BANC CORP
Document Type	10-Q
Current Fiscal Year End Date	--12-31
Entity Common Stock, Shares Outstanding		2,026,578
Amendment Flag	false
Entity Central Index Key	0000836147
Entity Current Reporting Status	Yes
Entity Voluntary Filers	No
Entity Filer Category	Smaller Reporting Company
Entity Well-known Seasoned Issuer	No
Document Period End Date	Sep. 30, 2013
Document Fiscal Year Focus	2013
Document Fiscal Period Focus	Q3

XML

Note 6 - Investment Securities Available For Sale (Tables)

9 Months Ended

Sep. 30, 2013

Investments, Debt and Equity Securities [Abstract]

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

	September 30, 2013
(Dollar amounts in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
U.S. government agency securities	$	27,550	$	161	$	(1,368	)	$	26,343
Obligations of states and political subdivisions:
Taxable		5,364		215		(21	)		5,558
Tax-exempt		90,441		1,885		(3,263	)		89,063
Mortgage-backed securities in government-sponsored entities		55,633		696		(1,246	)		55,083
Private-label mortgage-backed securities		3,597		377		-			3,974
Total debt securities		182,585		3,334		(5,898	)		180,021
Equity securities in financial institutions		750		-		-			750
Total	$	183,335	$	3,334	$	(5,898	)	$	180,771

	December 31, 2012
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
U.S. government agency securities	$	24,485	$	566	$	(91	)	$	24,960
Obligations of states and political subdivisions:
Taxable		6,888		738		-			7,626
Tax-exempt		80,391		4,684		(104	)		84,971
Mortgage-backed securities in government-sponsored entities		69,238		1,929		(65	)		71,102
Private-label mortgage-backed securities		4,553		511		-			5,064
Total debt securities		185,555		8,427		(260	)		193,723
Equity securities in financial institutions		750		-		-			750
Total	$	186,305	$	8,427	$	(260	)	$	194,473

Investments Classified by Contractual Maturity Date [Table Text Block]

(Dollar amounts in thousands)	Amortized Cost		Fair Value
Due in one year or less	$	2,736	$	2,768
Due after one year through five years		4,071		4,261
Due after five years through ten years		21,891		21,963
Due after ten years		153,887		151,029
Total	$	182,585	$	180,021

Realized Gain (Loss) on Investments [Table Text Block]

	For the Three Months Ended September 30,					For the Nine Months Ended September 30,
	2013		2012			2013			2012
Proceeds from sales	$	-	$	5,622		$	8,136		$	27,426
Gross realized gains		-		154			204			462
Gross realized losses		-		(2	)		(29	)		(14	)

Schedule of Unrealized Loss on Investments [Table Text Block]

	September 30, 2013
	Less than Twelve Months					Twelve Months or Greater					Total
(Dollar amounts in thousands)	Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses
U.S. government agency securities	$	17,408	$	(1,368	)	$	-	$	-		$	17,408	$	(1,368	)
Obligations of states and political subdivisions		30,690		(3,244	)		448		(40	)		31,138		(3,284	)
Mortgage-backed securities in government-sponsored entities		30,295		(1,061	)		5,719		(185	)		36,014		(1,246	)
Total	$	78,393	$	(5,673	)	$	6,167	$	(225	)	$	84,560	$	(5,898	)

	December 31, 2012
	Less than Twelve Months					Twelve Months or Greater				Total
	Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
U.S. government agency securities	$	9,938	$	(91	)	$	-	$	-	$	9,938	$	(91	)
Obligations of states and political subdivisions		9,240		(104	)		-		-		9,240		(104	)
Mortgage-backed securities in government-sponsored entities		12,353		(65	)		-		-		12,353		(65	)
Total	$	31,531	$	(260	)	$	-	$	-	$	31,531	$	(260	)