10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C.  20549

FORM 10-Q

[X] Quarterly Report Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

For the quarterly period ended June 30, 2016

or

[   ] Transition Report Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

For the transition period from ____________ to _____________

Commission File Number:  0-24159

MIDDLEBURG FINANCIAL CORPORATION

(Exact name of registrant as specified in its charter)

Virginia (State or other jurisdiction of incorporation or organization)	54-1696103 (I.R.S. Employer Identification No.)
111 West Washington Street Middleburg, Virginia (Address of principal executive offices)	20117 (Zip Code)

(703) 777-6327

(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  þ No  o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes  þ No  o

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 definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

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

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

Yes  o No  þ

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.  7,101,864 shares of Common Stock as of August 9, 2016.

MIDDLEBURG FINANCIAL CORPORATION

INDEX

Part I.    Financial Information			Page No.
	Item 1.	Financial Statements	3
		Consolidated Balance Sheets	3
		Consolidated Statements of Income	4
		Consolidated Statements of Comprehensive Income	5
		Consolidated Statements of Changes in Shareholders’ Equity	6
		Consolidated Statements of Cash Flows	7
		Notes to Consolidated Financial Statements	8
	Item 2.	Management's Discussion and Analysis of Financial
		Condition and Results of Operations	32
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	45
	Item 4.	Controls and Procedures	46
Part II.     Other Information
	Item 1.	Legal Proceedings	46
	Item 1A.	Risk Factors	47
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	47
	Item 3.	Defaults upon Senior Securities	47
	Item 4.	Mine Safety Disclosures	47
	Item 5.	Other Information	47
	Item 6.	Exhibits	47
Signatures			48

2

ITEM 1. FINANCIAL STATEMENTS

PART I

MIDDLEBURG FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except for per share data)
	(Unaudited)
	June 30,		December 31,
	2016		2015
ASSETS
Cash and due from banks	$	6,548	$	5,489
Interest bearing deposits with other banks	26,072		33,739
Total cash and cash equivalents	32,620		39,228
Securities held to maturity, fair value of $11,080 and $4,163, respectively	10,727		4,207
Securities available for sale, at fair value	347,183		374,571
Restricted securities, at cost	6,243		6,411
Loans, net of allowance for loan losses of $11,527 and $11,046, respectively	843,120		794,635
Loans held for sale	189		—
Premises and equipment, net	18,944		19,531
Goodwill and identified intangibles, net	3,550		3,636
Other real estate owned, net of valuation allowance	3,553		3,345
Bank owned life insurance	23,596		23,273
Accrued interest receivable and other assets	24,611		26,026
TOTAL ASSETS	$	1,314,336	$	1,294,863
LIABILITIES
Deposits:
Non-interest bearing demand deposits	$	249,236	$	235,897
Savings and interest bearing demand deposits	546,012		560,328
Time deposits	261,121		244,575
Total deposits	1,056,369		1,040,800
Securities sold under agreements to repurchase	31,043		26,869
Federal Home Loan Bank borrowings	79,500		85,000
Subordinated notes	5,155		5,155
Accrued interest payable and other liabilities	14,230		13,485
TOTAL LIABILITIES	1,186,297		1,171,309
Commitments and contingencies
SHAREHOLDERS' EQUITY
Common stock ($2.50 par value; 20,000,000 shares authorized; 7,101,390 and 7,085,217 issued and outstanding, respectively)	17,326		17,330
Capital surplus	43,923		44,155
Retained earnings	63,259		60,392
Accumulated other comprehensive income	3,531		1,677
TOTAL SHAREHOLDERS' EQUITY	128,039		123,554
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$	1,314,336	$	1,294,863

See accompanying notes to the consolidated financial statements.

3

MIDDLEBURG FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except for per share data)
	(Unaudited)
	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2016			2015			2016		2015
INTEREST INCOME
Interest and fees on loans	$	8,543		$	8,014		$	16,773	$	16,257
Interest and dividends on securities
Taxable	1,992			1,792			4,065		3,698
Tax-exempt	440			449			892		910
Dividends	87			66			156		125
Interest on deposits with other banks and federal funds sold	40			31			88		61
Total interest and dividend income	11,102			10,352			21,974		21,051
INTEREST EXPENSE
Interest on deposits	890			848			1,761		1,703
Interest on securities sold under agreements to repurchase	—			17			1		62
Interest on FHLB borrowings and other debt	243			174			494		342
Total interest expense	1,133			1,039			2,256		2,107
NET INTEREST INCOME	9,969			9,313			19,718		18,944
Provision for (recovery of) loan losses	50			(425		)	350		25
NET INTEREST INCOME AFTER PROVISION FOR (RECOVERY OF) LOAN LOSSES	9,919			9,738			19,368		18,919
NON-INTEREST INCOME
Service charges on deposit accounts	286			270			565		528
Trust services income	1,132			1,243			2,290		2,461
ATM fee income, net	211			213			375		384
Gains (losses) on sales of loans held for sale, net	3			(6		)	12		(6		)
Gains on sales of securities available for sale, net	210			37			373		138
Commissions on investment sales	152			155			284		283
Bank owned life insurance	163			163			323		323
Other operating income	213			163			356		982
Total non-interest income	2,370			2,238			4,578		5,093
NON-INTEREST EXPENSE
Salaries and employee benefits	4,613			4,973			9,425		9,821
Occupancy and equipment	1,261			1,305			2,675		2,731
Amortization	209			160			418		319
Computer operations	598			522			1,318		1,012
Other real estate owned, net	(11		)	25			156		92
Other taxes	237			231			472		454
Federal deposit insurance	216			184			391		395
Audits and exams	165			203			317		316
Other operating expenses	1,463			1,278			2,593		2,488
Total non-interest expense	8,751			8,881			17,765		17,628
Income before income taxes	3,538			3,095			6,181		6,384
Income tax expense	885			815			1,473		1,656
NET INCOME	$	2,653		$	2,280		$	4,708	$	4,728
Earnings per share:
Basic	$	0.37		$	0.32		$	0.66	$	0.66
Diluted	$	0.37		$	0.32		$	0.66	$	0.66

See accompanying notes to the consolidated financial statements. 

4

MIDDLEBURG FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in thousands)
	(Unaudited)
	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2016			2015			2016			2015
Net income	$	2,653		$	2,280		$	4,708		$	4,728
Other comprehensive income (loss), net of tax:
Unrealized holding gains (losses) arising during the period, net of tax, ($483), $916, ($1,176) and $333, respectively	938			(1,780		)	2,285			(644		)
Reclassification adjustment for gains included in net income, net of tax, $72, $13, $127 and $47, respectively	(138		)	(24		)	(246		)	(91		)
Unrealized gains (losses) on interest rate swaps, net of tax, $17, ($29), $95 and $0, respectively	(36		)	56			(185		)	(1		)
Reclassification adjustment for gain on interest rate swap ineffectiveness included in net income, net of tax, $0, $0, $0 and $2, respectively	—			—			—			(4		)
Total other comprehensive income (loss)	764			(1,748		)	1,854			(740		)
Total comprehensive income	$	3,417		$	532		$	6,562		$	3,988

See accompanying notes to the consolidated financial statements.

5

MIDDLEBURG FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(Dollars in thousands, except for per share data)
(Unaudited)
	For the Six Months Ended June 30, 2016 and 2015
	Common Stock			Capital Surplus			Retained Earnings			Accumulated Other Comprehensive Income			Total
Balance December 31, 2014	$	17,494		$	44,892		$	55,854		$	3,794		$	122,034
Net income	—			—			4,728			—			4,728
Other comprehensive loss, net of tax	—			—			—			(740		)	(740		)
Cash dividends declared ($0.20 per share)	—			—			(1,430		)	—			(1,430		)
Restricted stock vesting (15,525 shares)	38			(38		)	—			—			—
Repurchase of restricted stock (4,538 shares)	(11		)	(71		)	—			—			(82		)
Share-based compensation	—			280			—			—			280
Balance June 30, 2015	$	17,521		$	45,063		$	59,152		$	3,054		$	124,790
Balance December 31, 2015	$	17,330		$	44,155		$	60,392		$	1,677		$	123,554
Net income	—			—			4,708			—			4,708
Other comprehensive income, net of tax	—			—			—			1,854			1,854
Cash dividends ($0.26 per share)	—			—			(1,841		)	—			(1,841		)
Exercise of stock options (4,638 shares)	11			53			—			—			64
Restricted stock vesting (33,525 shares)	84			(84		)	—			—			—
Repurchase of restricted stock (12,914 shares)	(32		)	(224		)	—			—			(256		)
Share-based compensation	—			445			—			—			445
Repurchase of common stock (26,800 shares)	(67		)	(422		)	—			—			(489		)
Balance June 30, 2016	$	17,326		$	43,923		$	63,259		$	3,531		$	128,039

See accompanying notes to the consolidated financial statements.

6

MIDDLEBURG FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

	(Unaudited)
	For the Six Months Ended
	June 30,
(Dollars in thousands)	2016			2015
Cash Flows From Operating Activities
Net income	$	4,708		$	4,728
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	1,301			1,171
Provision for loan losses	350			25
Originations of mortgage loans held for sale	(1,186		)	(287		)
Proceeds from the sales of mortgage loans held for sale	1,009			281
(Gains) losses on the sales of mortgage loans held for sale, net	(12		)	6
Gains on sales of securities available for sale, net	(373		)	(138		)
Losses on disposal of assets, net	2			9
Premium amortization on securities, net	2,232			1,927
Share-based compensation	445			280
(Gains) losses on sale of other real estate owned, net	(50		)	35
Valuation adjustments on other real estate owned	144			20
Increase in bank owned life insurance cash surrender value	(323		)	(323		)
Changes in assets and liabilities:
Increase in other assets	(352		)	(1,124		)
Increase (decrease) in other liabilities	745			(498		)
Net cash provided by operating activities	$	8,640		$	6,112
Cash Flows from Investing Activities
Proceeds from calls, principal repayments and sales of securities available for sale	$	72,830		$	62,646
Purchase of securities available for sale	(44,213		)	(69,277		)
Purchase of securities held to maturity	(6,520		)	—
(Purchase) redemption of restricted stock, net	168			(495		)
Purchase of bank premises and equipment, net	(97		)	(2,471		)
Loan originations, net	(17,390		)	(4,060		)
Purchases of loans	(36,383		)	(15,228		)
Proceeds from sales of loans	4,412			1,127
Proceeds from sale of other real estate owned and repossessed assets	224			673
Net cash used in investing activities	$	(26,969	)	$	(27,085	)
Cash Flows from Financing Activities
Increase (decrease) in demand, interest-bearing demand and savings deposits	$	(977	)	$	22,089
Increase (decrease) in time deposits	16,546			(5,717		)
Increase (decrease) in securities sold under agreements to repurchase	4,174			(14,502		)
Increase (decrease) in FHLB borrowings	(5,500		)	15,000
Payment of dividends on common stock	(1,841		)	(1,430		)
Proceeds from issuance of common stock, net	64			—
Repurchase of common stock	(745		)	(82		)
Net cash provided by financing activities	$	11,721		$	15,358
Decrease in cash and cash equivalents	(6,608		)	(5,615		)
Cash and cash equivalents at beginning of the period	39,228			55,022
Cash and cash equivalents at end of the period	$	32,620		$	49,407
Supplemental Disclosures of Cash Flow Information
Interest paid	$	2,273		$	2,147
Income taxes	$	625		$	1,360
Supplemental Disclosure of Non-Cash Transactions
Unrealized gain on securities available for sale	$	3,088		$	(1,115	)
Change in fair value of interest rate swaps	$	(280	)	$	(7	)
Transfer of loans to other real estate owned	$	526		$	—

See accompanying notes to the consolidated financial statements.

7

MIDDLEBURG FINANCIAL CORPORATION AND SUBSIDIARIES

Notes to Consolidated Financial Statements

Note 1.        General

In the opinion of management, the accompanying unaudited financial statements contain all adjustments (consisting of only normal recurring accruals) necessary to present fairly the financial position at June 30, 2016 and December 31, 2015, the results of operations and comprehensive income, for the three and six month periods ending June 30, 2016 and 2015 and changes in shareholders' equity and cash flows for the six months ended June 30, 2016 and 2015, in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP").  The statements should be read in conjunction with the Notes to Consolidated Financial Statements included in the Annual Report on Form 10-K for the year ended December 31, 2015 (the “2015 Form 10-K”) of Middleburg Financial Corporation (the “Company”).  The results of operations for the three and six months ended June 30, 2016 are not necessarily indicative of the results to be expected for the full year.

In preparing these financial statements, management has evaluated subsequent events and transactions for potential recognition or disclosure through the date these financial statements were issued.  Management has concluded there were no additional material subsequent events to be disclosed.

Certain amounts in the 2015 consolidated financial statements have been reclassified to conform to the 2016 presentation. No reclassifications were significant and there was no effect on net income.

Note 2.        Share-Based Compensation Plan

The Company sponsors one share-based compensation plan, the 2006 Equity Compensation Plan, which provides for the granting of stock options, stock appreciation rights, stock awards, performance share awards, incentive awards, and stock units.  The 2006 Equity Compensation Plan was approved by the Company’s shareholders at the Annual Meeting held on April 26, 2006, and succeeded the Company’s 1997 Stock Incentive Plan.  The plan expired by its own terms in February 2016, before which, the Company granted share-based compensation to its directors, officers, employees, and other persons the Company determined to have contributed to the profits or growth of the Company.  The number of shares reserved for issuance totaled 430,000.

For the three months ended June 30, 2016 and 2015, the Company recorded $256,000 and $150,000, respectively, in share-based compensation. For the six months ended June 30, 2016 and 2015, the Company recorded $445,000 and $280,000, respectively, in share-based compensation expense. As of June 30, 2016, there was $2.1 million of total unrecognized compensation expense related to non-vested restricted awards under the 2006 Equity Compensation Plan. For the three and six months ended June 30, 2016 and 2015, the Company recorded no compensation expense related to option awards. As of June 30, 2016 all outstanding option awards were previously vested and, accordingly, there was no unrecognized compensation expense as of June 30, 2016.  

The aggregate intrinsic value, noted in the option table below, represents the amount by which the current market value of the underlying stock exceeds the exercise price as of June 30, 2016. Given there is no exercise price for restricted stock, the aggregate value is equal to the current market value of the stock. These amounts change based on changes in the market value of the Company’s common stock.

The following table summarizes restricted stock awarded under the 2006 Equity Compensation Plan:

	June 30, 2016
	Shares		Weighted-Average Grant Date Fair Value		Aggregate Value (in thousands)
Non-vested at December 31, 2015	153,399		$	17.17
Granted	53,500		20.76
Vested	(33,525	)	16.48
Forfeited	(2,250	)	19.91
Non-vested at June 30, 2016	171,124		$	18.39	$	4,655

The weighted-average remaining contractual term for non-vested restricted stock awards at June 30, 2016, was 2.76 years. 

The following table summarizes options outstanding under the 2006 Equity Compensation Plan and remaining outstanding unexercised options under the 1997 Stock Incentive Plan.  

8

	June 30, 2016
	Shares		Weighted-Average Exercise Price		Aggregate Intrinsic Value (in thousands)
Outstanding at December 31, 2015	30,012		$	14.00	$	—
Granted	—		—		—
Exercised	(4,638	)	14.00		—
Forfeited	—		—		—
Outstanding at June 30, 2016	25,374		$	14.00	$	335
Options exercisable at June 30, 2016	25,374		$	14.00	$	335

The total intrinsic value of options exercised was $61,000 during the three and six months ended June 30, 2016, respectively.

As of June 30, 2016, options outstanding and exercisable are summarized as follows:

Exercise Prices		Options Outstanding	Weighted-Average Remaining Contractual Life (years)	Options Exercisable
$	14.00	20,374	2.70	20,374
$	14.00	5,000	3.34	5,000
$	14.00	25,374	2.83	25,374

Note 3.        Securities

Amortized costs and fair values of securities held to maturity are summarized as follows.

	June 30, 2016
(Dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Held to Maturity
Obligations of states and political subdivisions	$	6,477	$	253	$	—	$	6,730
Corporate securities	4,250		100		—		4,350
Total	$	10,727	$	353	$	—	$	11,080

	December 31, 2015
(Dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Held to Maturity
Obligations of states and political subdivisions	$	1,457	$	—	$	(38	)	$	1,419
Corporate securities	2,750		24		(30		)	2,744
Total	$	4,207	$	24	$	(68	)	$	4,163

The amortized cost and fair value of securities held to maturity as of June 30, 2016, by contractual maturity are shown below. 

	June 30, 2016
(Dollars in thousands)	Amortized Cost		Fair Value
Held to Maturity
Due after five years through ten years	$	4,250	$	4,350
Due after ten years	6,477		6,730
Total	$	10,727	$	11,080

9

Amortized costs and fair values of securities available for sale are summarized as follows:

	June 30, 2016
(Dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Available for Sale
U.S. government agencies	$	65,442	$	1,216	$	(127	)	$	66,531
Obligations of states and political subdivisions	67,664		2,420		(89		)	69,995
Mortgage-backed securities:
Agency	123,514		3,826		(550		)	126,790
Non-agency	13,306		131		(40		)	13,397
Other asset backed securities	54,725		525		(744		)	54,506
Corporate securities	16,606		59		(701		)	15,964
Total	$	341,257	$	8,177	$	(2,251	)	$	347,183

	December 31, 2015
(Dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Available for Sale
U.S. government agencies	$	79,005	$	315	$	(380	)	$	78,940
Obligations of states and political subdivisions	74,071		1,956		(434		)	75,593
Mortgage-backed securities:
Agency	129,360		3,046		(745		)	131,661
Non-agency	12,782		33		(38		)	12,777
Other asset backed securities	58,958		426		(603		)	58,781
Corporate securities	17,557		22		(760		)	16,819
Total	$	371,733	$	5,798	$	(2,960	)	$	374,571

The amortized cost and fair value of securities available for sale as of June 30, 2016, by contractual maturity are shown below.  Maturities may differ from contractual maturities in corporate and mortgage-backed securities because the securities and mortgages underlying the securities may be called or repaid without any penalties.  Therefore, these securities are not included in the maturity categories in the following maturity summary.

	June 30, 2016
(Dollars in thousands)	Amortized Cost		Fair Value
Due in one year or less	$	487	$	487
Due after one year through five years	9,421		9,675
Due after five years through ten years	24,463		24,403
Due after ten years	115,341		117,925
Mortgage-backed securities	136,820		140,187
Other asset backed securities	54,725		54,506
Total	$	341,257	$	347,183

Proceeds from calls, principal repayments and sales of securities available for sale during the six months ended June 30, 2016, and 2015 were $72.8 million and $62.6 million, respectively.  For the six months ended June 30, 2016 and 2015, gross gains of $396,000 and $175,000 and gross losses of $23,000 and $37,000, respectively, were realized.  The tax expense applicable to these net realized gains amounted to $127,000 and $47,000 for the six months ended June 31, 2016 and 2015, respectively.

The carrying value of securities pledged to qualify for fiduciary powers, to secure public monies and for other purposes as required by law amounted to $119.9 million and $113.1 million at June 30, 2016 and December 31, 2015, respectively.

10

Investments in an unrealized loss position that are temporarily impaired are as follows:

(Dollars in thousands)	Less than Twelve Months					Twelve Months or Greater					Total
June 30, 2016	Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses
Available for Sale
U.S. government agencies	$	11,883	$	(112	)	$	1,633	$	(15	)	$	13,516	$	(127	)
Obligations of states and political subdivisions	205		—			7,779		(89		)	7,984		(89		)
Mortgage-backed securities:
Agency	12,138		(130		)	11,448		(420		)	23,586		(550		)
Non-agency	326		—			1,910		(40		)	2,236		(40		)
Other asset backed securities	19,390		(427		)	18,049		(317		)	37,439		(744		)
Corporate securities	1,954		(46		)	11,654		(655		)	13,608		(701		)
Total	$	45,896	$	(715	)	$	52,473	$	(1,536	)	$	98,369	$	(2,251	)

(Dollars in thousands)	Less than Twelve Months					Twelve Months or Greater					Total
December 31, 2015	Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses
Held to Maturity
Obligations of states and political subdivisions	$	1,419	$	(38	)	$	—	$	—		$	1,419	$	(38	)
Corporate securities	1,970		(30		)	—		—			1,970		(30		)
Total	$	3,389	$	(68	)	$	—	$	—		$	3,389	$	(68	)
Available for Sale
U.S. government agencies	$	46,000	$	(304	)	$	4,223	$	(76	)	$	50,223	$	(380	)
Obligations of states and political subdivisions	16,559		(324		)	1,082		(110		)	17,641		(434		)
Mortgage-backed securities:
Agency	27,627		(402		)	9,911		(343		)	37,538		(745		)
Non-agency	7,842		(37		)	671		(1		)	8,513		(38		)
Other asset backed securities	25,399		(276		)	12,037		(327		)	37,436		(603		)
Corporate securities	10,740		(378		)	4,866		(382		)	15,606		(760		)
Total	$	134,167	$	(1,721	)	$	32,790	$	(1,239	)	$	166,957	$	(2,960	)

A total of 118 securities have been identified by the Company as temporarily impaired at June 30, 2016.  Of the 118 securities, 113 are investment grade and five are speculative grade.  Mortgage-backed securities, other asset backed securities and corporate securities make up the majority of the gross unrealized losses for temporarily impaired securities at June 30, 2016.  Market prices change daily and are affected by conditions beyond the control of the Company.  Although the Company has the ability to hold these securities until the temporary loss is recovered, decisions by management may necessitate a sale before the loss is fully recovered.  No such sales were anticipated or required as of June 30, 2016.  Investment decisions reflect the strategic asset/liability objectives of the Company.  The investment portfolio is analyzed frequently by the Company and managed to provide an overall positive impact to the Company’s consolidated income statement and balance sheet.

At June 30, 2016, the Company evaluated the investment portfolio for possible other-than-temporary impairment losses and concluded that no adverse change in cash flows occurred and did not consider any portfolio securities to be other-than-temporarily impaired.  Based on this analysis and because the Company does not intend to sell securities prior to maturity and it is more likely than not the Company will not be required to sell any securities before recovery of amortized cost basis, which may be at maturity. For debt securities related to corporate securities, the Company determined that there was no other adverse change in the cash flows as viewed by a market participant; therefore, the Company does not consider the investments in these assets to be other-than-temporarily impaired at June 30, 2016.  However, there is a risk that the Company’s continuing reviews could result in recognition of other-than-temporary impairment charges in the future. For the three and six months ended June 30, 2016 and the year ended December 31, 2015, no credit related impairment losses were recognized by the Company.

11

Restricted securities

The Company’s investment in FHLB stock totaled $4.5 million and $4.7 million at June 30, 2016 and December 31, 2015, respectively.  FHLB stock is generally viewed as a long-term investment and as a restricted security which is carried at cost because there is no market for the stock other than the FHLB or member institutions.  Therefore, when evaluating FHLB stock for impairment, its value is based on the ultimate recoverability of the par value rather than by recognizing temporary declines in value.  The Company does not consider this investment to be other-than-temporarily impaired at June 30, 2016, and no impairment has been recognized.  FHLB stock is shown in restricted securities on the consolidated balance sheets.

The Company also has an investment in Federal Reserve Bank (“FRB”) stock which totaled $1.7 million at June 30, 2016 and December 31, 2015, respectively. The investment in FRB stock is a required investment and is carried at cost since there is no ready market. The Company does not consider this investment to be other-than-temporarily impaired at June 30, 2016, and no impairment has been recognized. FRB stock is shown in restricted securities on the consolidated balance sheets.

Note 4.        Loans, Net

The Company segregates its loan portfolio into three primary loan segments:  Real Estate Loans, Commercial Loans, and Consumer Loans.  Real estate loans are further segregated into the following classes: construction loans, loans secured by farmland, loans secured by 1-4 family residential real estate, and other real estate loans.  Other real estate loans include commercial real estate loans.  The consolidated loan portfolio was composed of the following:

	June 30, 2016				December 31, 2015
(Dollars in thousands)	Outstanding Balance		Percent of Total Portfolio		Outstanding Balance		Percent of Total Portfolio
Real estate loans:
Construction	$	42,947	5.0	%	$	39,673	4.9	%
Secured by farmland	18,875		2.2		19,062		2.4
Secured by 1-4 family residential	303,200		35.5		280,096		34.8
Other real estate loans	275,797		32.3		258,035		32.0
Commercial loans	194,712		22.8		190,482		23.6
Consumer loans	19,116		2.2		18,333		2.3
Total gross loans (1)	$	854,647	100.0	%	$	805,681	100.0	%
Less allowance for loan losses	11,527				11,046
Net loans	$	843,120			$	794,635

⁽¹⁾  Includes net deferred loan costs and premiums of $4.1 million and $3.5 million, respectively.

During the six months ended June 30, 2016, the Company received $4.4 million in proceeds on the sale of problem loans. Included in the sales were four loans with a recorded investment of $4.3 million, of which $1.2 million were on nonaccrual, as well as 28 loans with no outstanding recorded investment as they had been fully charged-off in prior periods. Gross charge-offs of $513,000 and gross recoveries of $640,000 were recorded through the allowance for loan losses during the six months ended June 30, 2016, related to the sales of these loans.

The following tables present a contractual aging of the recorded investment in past due loans by class of loans:

	June 30, 2016
(Dollars in thousands)	30-59 Days Past Due		60-89 Days Past Due		90 Days Or Greater		Total Past Due		Current		Total Loans
Real estate loans:
Construction	$	—	$	167	$	—	$	167	$	42,780	$	42,947
Secured by farmland	—		—		—		—		18,875		18,875
Secured by 1-4 family residential	221		12		3,438		3,671		299,529		303,200
Other real estate loans	58		555		725		1,338		274,459		275,797
Commercial loans	246		—		522		768		193,944		194,712
Consumer loans	8		—		1		9		19,107		19,116
Total	$	533	$	734	$	4,686	$	5,953	$	848,694	$	854,647

12

	December 31, 2015
(Dollars in thousands)	30-59 Days Past Due		60-89 Days Past Due		90 Days Or Greater		Total Past Due		Current		Total Loans
Real estate loans:
Construction	$	69	$	—	$	—	$	69	$	39,604	$	39,673
Secured by farmland	—		—		—		—		19,062		19,062
Secured by 1-4 family residential	259		—		1,117		1,376		278,720		280,096
Other real estate loans	325		—		248		573		257,462		258,035
Commercial loans	1,242		15		31		1,288		189,194		190,482
Consumer loans	4		17		—		21		18,312		18,333
Total	$	1,899	$	32	$	1,396	$	3,327	$	802,354	$	805,681

The following table presents the recorded investment in nonaccrual loans and loans past due 90 days or more and still accruing by class of loans:

	June 30, 2016				December 31, 2015
(Dollars in thousands)	Nonaccrual		Past due 90 days or more and still accruing		Nonaccrual		Past due 90 days or more and still accruing
Real estate loans:
Construction	$	30	$	—	$	204	$	—
Secured by 1-4 family residential	3,438		—		4,460		—
Other real estate loans	1,127		153		1,186		248
Commercial loans	511		25		1,036		30
Consumer loans	1,870		1		1,898		—
Total	$	6,976	$	179	$	8,784	$	278

If interest on nonaccrual loans had been accrued, such income would have approximated $253,800 and $342,000 for the six months ended June 30, 2016 and the year ended December 31, 2015, respectively.

The Company utilizes an internal asset classification system as a means of measuring and monitoring credit risk in the loan portfolio.  Under the Company’s classification system, problem and potential problem loans are classified as “Special Mention”, “Substandard”, and “Doubtful”.

Special Mention: Loans with potential weaknesses that deserve management’s close attention.  If left uncorrected, the potential weaknesses may result in the deterioration of the repayment prospects for the credit.

Substandard:  Loans with well-defined weakness that jeopardize the liquidation of the debt.  Either the paying capacity of the borrower or the value of the collateral may be inadequate to protect the Company from potential losses.

Doubtful:  Loans with a very high possibility of loss.  However, because of important and reasonably specific pending factors, classification as a loss is deferred until a more exact status may be determined.

Loss: Loans are deemed uncollectible and are charged off immediately.

The following tables present the recorded investment in loans by class of loan that have been classified according to the internal classification system:

June 30, 2016
(Dollars in thousands)	Real Estate Construction		Real Estate Secured by Farmland		Real Estate Secured by 1-4 Family Residential		Other Real Estate Loans		Commercial		Consumer		Total
Pass	$	37,345	$	10,958	$	294,453	$	266,323	$	188,364	$	17,171	$	814,614
Special Mention	5,572		—		2,376		3,483		3,493		31		14,955
Substandard	30		7,917		6,245		4,865		2,358		1,914		23,329
Doubtful	—		—		126		1,126		497		—		1,749
Loss	—		—		—		—		—		—		—
Ending Balance	$	42,947	$	18,875	$	303,200	$	275,797	$	194,712	$	19,116	$	854,647

13

December 31, 2015
(Dollars in thousands)	Real Estate Construction		Real Estate Secured by Farmland		Real Estate Secured by 1-4 Family Residential		Other Real Estate Loans		Commercial		Consumer		Total
Pass	$	30,114	$	10,566	$	271,721	$	243,768	$	183,532	$	16,347	$	756,048
Special Mention	9,024		—		896		7,254		3,638		42		20,854
Substandard	535		8,496		6,818		5,827		2,301		1,943		25,920
Doubtful	—		—		661		1,186		1,011		—		2,858
Loss	—		—		—		—		—		1		1
Ending Balance	$	39,673	$	19,062	$	280,096	$	258,035	$	190,482	$	18,333	$	805,681

The following tables present loans individually evaluated for impairment by class of loan:

	June 30, 2016
(Dollars in thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Real estate loans:
Construction	$	30	$	30	$	—	$	31	$	—
Secured by farmland	7,917		7,917		—		7,910		118
Secured by 1-4 family residential	242		277		—		243		—
Other real estate loans	1,126		1,126		—		1,133		—
Commercial loans	906		3,906		—		1,186		8
Consumer loans	—		—		—		—		—
Total with no related allowance	$	10,221	$	13,256	$	—	$	10,503	$	126
With an allowance recorded:
Real estate loans:
Construction	$	—	$	—	$	—	$	—	$	—
Secured by farmland	—		—		—		—		—
Secured by 1-4 family residential	4,254		4,307		1,094		4,273		21
Other real estate loans	2,991		2,991		222		3,001		77
Commercial loans	46		46		30		62		1
Consumer loans	1,870		1,870		787		1,884		—
Total with a related allowance	$	9,161	$	9,214	$	2,133	$	9,220	$	99
Total	$	19,382	$	22,470	$	2,133	$	19,723	$	225

14

	December 31, 2015
(Dollars in thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Real estate loans:
Construction	$	100	$	100	$	—	$	106	$	—
Secured by farmland	7,903		7,903		—		7,903		237
Secured by 1-4 family residential	701		736		—		703		—
Other real estate loans	—		—		—		—		—
Commercial loans	458		493		—		490		17
Consumer loans	—		—		—		—		—
Total with no related allowance	$	9,162	$	9,232	$	—	$	9,202	$	254
With an allowance recorded:
Real estate loans:
Construction	$	103	$	103	$	53	$	109	$	—
Secured by farmland	—		—		—		—		—
Secured by 1-4 family residential	4,426		4,478		1,120		4,547		27
Other real estate loans	4,196		4,196		464		4,224		157
Commercial loans	1,059		4,059		27		2,315		100
Consumer loans	1,898		1,898		1,000		2,449		—
Total with a related allowance	$	11,682	$	14,734	$	2,664	$	13,644	$	284
Total	$	20,844	$	23,966	$	2,664	$	22,846	$	538

The “Recorded Investment” amounts in the table above represent the outstanding principal balance net of charge-offs and nonaccrual payments to principal on each loan represented in the table.  The “Unpaid Principal Balance” represents the outstanding principal balance on each loan represented in the table plus any amounts that have been charged-off on each loan and nonaccrual payments applied to principal.

Included in certain loan categories of impaired loans are troubled debt restructurings (“TDRs”). The total balance of TDRs at June 30, 2016 was $14.4 million of which $2.0 million were included in the Company’s nonaccrual loan totals at that date and $12.4 million represented loans performing as agreed according to the restructured terms. This compares with $15.5 million in total restructured loans at December 31, 2015.  The amount of the valuation allowance related to TDRs was $1.1 million and $1.6 million as of June 30, 2016 and December 31, 2015, respectively.

Loan modifications that were classified as TDRs during the three and six months ended June 30, 2016 and 2015 were as follows:

	Loans Modified as TDRs
	For the Three Months Ended June 30,
(Dollars in thousands)	2016					2015
Class of Loan	Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Real estate loans:
Construction	—	$	—	$	—	—	$	—	$	—
Secured by farmland	—	—		—		1	7,903		7,903
Secured by 1-4 family residential	1	400		400		—	—		—
Other real estate loans	—	—		—		—	—		—
Total real estate loans	1	$	400	$	400	1	$	7,903	$	7,903
Commercial loans	—	—		—		—	—		—
Consumer loans	—	—		—		1	3,000		3,000
Total	1	$	400	$	400	2	$	10,903	$	10,903

15

	Loans Modified as TDRs
	For the Six Months Ended June 30,
(Dollars in thousands)	2016					2015
Class of Loan	Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Real estate loans:
Construction	—	$	—	$	—	—	$	—	$	—
Secured by farmland	—	—		—		1	7,903		7,903
Secured by 1-4 family residential	1	400		400		—	—		—
Other real estate loans	1	368		367		—	—		—
Total real estate loans	2	$	768	$	767	1	$	7,903	$	7,903
Commercial loans	—	—		—		—	—		—
Consumer loans	—	—		—		1	3,000		3,000
Total	2	$	768	$	767	1	$	10,903	$	10,903

There were no outstanding commitments to lend additional amounts to troubled debt restructured borrowers at June 30, 2016 or December 31, 2015.

There were no TDR payment defaults during three and six months ended June 30, 2016 and 2015. For purposes of this disclosure, a TDR payment default occurs when, within 12 months of the original TDR modification, either a full or partial charge-off occurs or a TDR becomes 90 days or more past due.

Note 5.        Allowance for Loan Losses

The following table presents, the total allowance for loan losses, the allowance by impairment methodology (individually evaluated for impairment or collectively evaluated for impairment), the total loans and loans by impairment methodology (individually evaluated for impairment or collectively evaluated for impairment).

16

	June 30, 2016
(Dollars in thousands)	Real Estate Construction			Real Estate Secured by Farmland			Real Estate Secured by 1-4 Family Residential			Other Real Estate Loans			Commercial		Consumer			Total
Allowance for loan losses:
Balance at December 31, 2015	$	905		$	192		$	3,341		$	3,761		$	1,706	$	1,141		$	11,046
Charge-offs	(388		)	—			(7		)	(126		)	—		(11		)	(532		)
Recoveries	132			—			394			23			63		51			663
Provision	347			(18		)	(221		)	96			384		(238		)	350
Balance at June 30, 2016	$	996		$	174		$	3,507		$	3,754		$	2,153	$	943		$	11,527
Ending allowance:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	—		$	—		$	1,094		$	222		$	30	$	787		$	2,133
Collectively evaluated for impairment	996			174			2,413			3,532			2,123		156			9,394
Total ending allowance balance	$	996		$	174		$	3,507		$	3,754		$	2,153	$	943		$	11,527
Loans:
Individually evaluated for impairment	$	30		$	7,917		$	4,496		$	4,117		$	952	$	1,870		$	19,382
Collectively evaluated for impairment	42,917			10,958			298,704			271,680			193,760		17,246			835,265
Total ending loans balance	$	42,947		$	18,875		$	303,200		$	275,797		$	194,712	$	19,116		$	854,647

	December 31, 2015
(Dollars in thousands)	Real Estate Construction		Real Estate Secured by Farmland		Real Estate Secured by 1-4 Family Residential			Other Real Estate Loans			Commercial			Consumer			Total
Allowance for loan losses:
Balance at December 31, 2014	$	550	$	179	$	3,966		$	3,916		$	2,354		$	821		$	11,786
Charge-offs	—		—		(344		)	(9		)	(3,281		)	(57		)	(3,691		)
Recoveries	246		—		359			28			14			11			658
Provision	109		13		(640		)	(174		)	2,619			366			2,293
Balance at December 31, 2015	$	905	$	192	$	3,341		$	3,761		$	1,706		$	1,141		$	11,046
Ending allowance:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	53	$	—	$	1,120		$	464		$	27		$	1,000		$	2,664
Collectively evaluated for impairment	852		192		2,221			3,297			1,679			141			8,382
Total ending allowance balance	$	905	$	192	$	3,341		$	3,761		$	1,706		$	1,141		$	11,046
Loans:
Individually evaluated for impairment	$	203	$	7,903	$	5,127		$	4,196		$	1,517		$	1,898		$	20,844
Collectively evaluated for impairment	39,470		11,159		274,969			253,839			188,965			16,435			784,837
Total ending loans balance	$	39,673	$	19,062	$	280,096		$	258,035		$	190,482		$	18,333		$	805,681

17

	June 30, 2015
(Dollars in thousands)	Real Estate Construction			Real Estate Secured by Farmland		Real Estate Secured by 1-4 Family Residential			Other Real Estate Loans			Commercial			Consumer			Total
Allowance for loan losses:
Balance at December 31, 2014	$	550		$	179	$	3,966		$	3,916		$	2,354		$	821		$	11,786
Charge-offs	—			—		(12		)	(9		)	(246		)	(40		)	(307		)
Recoveries	31			—		324			21			8			6			390
Provision	(21		)	11		(156		)	35			(272		)	428			25
Balance at June 30, 2015	$	560		$	190	$	4,122		$	3,963		$	1,844		$	1,215		$	11,894
Ending allowance:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	60		$	—	$	1,412		$	454		$	43		$	1,003		$	2,972
Collectively evaluated for impairment	500			190		2,710			3,509			1,801			212			8,922
Total ending allowance balance	$	560		$	190	$	4,122		$	3,963		$	1,844		$	1,215		$	11,894
Loans:
Individually evaluated for impairment	$	223		$	7,903	$	4,723		$	4,230		$	795		$	2,033		$	19,907
Collectively evaluated for impairment	30,558			11,602		267,475			261,662			166,747			15,139			753,183
Total ending loans balance	$	30,781		$	19,505	$	272,198		$	265,892		$	167,542		$	17,172		$	773,090

Note 6.        Earnings Per Share

The following shows the weighted-average number of shares used in computing earnings per share and the effect on weighted-average number of shares of diluted potential common stock. Nonvested restricted shares are included in basic earnings per share because of dividend participation rights. Potential dilutive common stock had no effect on income available to common stockholders.

	For the Three Months Ended June 30,
	2016			2015
	Shares	Per Share Amount		Shares	Per Share Amount
Earnings per share, basic	7,100,226	$	0.37	7,145,929	$	0.32
Effect of dilutive securities:
Stock options	11,948			7,102
Warrant	41,743			14,134
Earnings per share, diluted	7,153,917	$	0.37	7,167,165	$	0.32

	For the Six Months Ended June 30,
	2016			2015
	Shares	Per Share Amount		Shares	Per Share Amount
Earnings per share, basic	7,087,015	$	0.66	7,140,514	$	0.66
Effect of dilutive securities:
Stock options	10,476			7,077
Warrant	31,672			13,937
Earnings per share, diluted	7,129,163	$	0.66	7,161,528	$	0.66

The warrant and none of the stock options were considered anti-dilutive as of June 30, 2016 and 2015.

18

Note 7.        Segment Reporting

The Company operates its principal business activities of retail banking services and wealth management services in a decentralized fashion. Revenue from retail banking activity consists primarily of interest and fees earned on loans, including mortgage banking activity, interest earned on investment securities and service charges on deposit accounts. Revenue from the wealth management activities is comprised of fees based upon the market value of the accounts under administration as well as commissions on investment transactions.

Middleburg Bank and the Company have assets in custody with Middleburg Trust Company and accordingly pay Middleburg Trust Company a monthly fee. Middleburg Bank also pays interest to Middleburg Trust Company on deposit accounts with Middleburg Bank. Middleburg Trust Company pays rental and other miscellaneous occupancy expenses to Middleburg Bank. Transactions related to these relationships are eliminated to reach consolidated totals.

The following tables represent reportable segment information for the three and six months ended June 30, 2016 and 2015, respectively:

	For the Three Months Ended											For the Three Months Ended
	June 30, 2016											June 30, 2015
(In Thousands)	Retail Banking			Wealth Management		Intercompany Eliminations			Consolidated			Retail Banking			Wealth Management		Intercompany Eliminations			Consolidated
Revenues:
Interest income	$	11,099		$	3	$	—		$	11,102		$	10,350		$	2	$	—		$	10,352
Trust and investment fee income	—			1,173		(41		)	1,132			—			1,284		(41		)	1,243
Other income	1,266			—		(28		)	1,238			995			—		—			995
Total operating income	12,365			1,176		(69		)	13,472			11,345			1,286		(41		)	12,590
Expenses:
Interest expense	1,133			—		—			1,133			1,039			—		—			1,039
Salaries and employee benefits	4,052			561		—			4,613			4,367			606		—			4,973
Provision for (recovery of) loan losses	50			—		—			50			(425		)	—		—			(425		)
Other	4,028			179		(69		)	4,138			3,661			288		(41		)	3,908
Total operating expenses	9,263			740		(69		)	9,934			8,642			894		(41		)	9,495
Income before income taxes	3,102			436		—			3,538			2,703			392		—			3,095
Income tax expense	722			163		—			885			667			148		—			815
Net Income	$	2,380		$	273	$	—		$	2,653		$	2,036		$	244	$	—		$	2,280
Total assets	$	1,310,589		$	6,336	$	(2,589	)	$	1,314,336		$	1,238,148		$	6,532	$	(2,695	)	$	1,241,985
Capital expenditures	$	(28	)	$	—	$	—		$	(28	)	$	2,320		$	—	$	—		$	2,320
Goodwill and other intangibles	$	—		$	3,550	$	—		$	3,550		$	—		$	3,722	$	—		$	3,722

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	For the Six Months Ended									For the Six Months Ended
	June 30, 2016									June 30, 2015
(In Thousands)	Retail Banking		Wealth Management		Intercompany Eliminations			Consolidated		Retail Banking		Wealth Management		Intercompany Eliminations			Consolidated
Revenues:
Interest income	$	21,969	$	5	$	—		$	21,974	$	21,046	$	5	$	—		$	21,051
Trust and investment fee income	—		2,374		(84		)	2,290		—		2,543		(82		)	2,461
Other income	2,343		—		(55		)	2,288		2,632		—		—			2,632
Total operating income	24,312		2,379		(139		)	26,552		23,678		2,548		(82		)	26,144
Expenses:
Interest expense	2,256		—		—			2,256		2,107		—		—			2,107
Salaries and employee benefits	8,337		1,088		—			9,425		8,681		1,140		—			9,821
Provision for loan losses	350		—		—			350		25		—		—			25
Other	8,013		466		(139		)	8,340		7,320		569		(82		)	7,807
Total operating expenses	18,956		1,554		(139		)	20,371		18,133		1,709		(82		)	19,760
Income before income taxes	5,356		825		—			6,181		5,545		839		—			6,384
Income tax expense	1,163		310		—			1,473		1,341		315		—			1,656
Net Income	$	4,193	$	515	$	—		$	4,708	$	4,204	$	524	$	—		$	4,728
Total assets	$	1,310,589	$	6,336	$	(2,589	)	$	1,314,336	$	1,238,148	$	6,532	$	(2,695	)	$	1,241,985
Capital expenditures	$	97	$	—	$	—		$	97	$	2,471	$	—	$	—		$	2,471
Goodwill and other intangibles	$	—	$	3,550	$	—		$	3,550	$	—	$	3,722	$	—		$	3,722

Note 8.        Capital Purchase Program

On January 30, 2009, as part of the Capital Purchase Program established by the U.S. Department of the Treasury (the “Treasury”) under the Emergency Economic Stabilization Act of 2008, the Company entered into a Letter Agreement and Securities Purchase Agreement—Standard Terms (collectively, the “Purchase Agreement”) with the Treasury, pursuant to which the Company sold (i) 22,000 shares of Fixed Rate Cumulative Perpetual Preferred Stock, Series A, par value $2.50 per share, having a liquidation preference of $1,000 per share (the “Preferred Stock”) and (ii) a warrant (the “Warrant”) to purchase 208,202 shares of the Company’s common stock, par value $2.50 per share, at an initial exercise price of $15.85 per share. As a result of the completion of a public stock offering in 2009, the number of shares of common stock underlying the Warrant was reduced by one-half to 104,101 and the Company redeemed all 22,000 shares of Preferred Stock pursuant to the Purchase Agreement. During 2011, the Warrant was sold by the U.S. Treasury at public auction and has not been exercised as of June 30, 2016.

Note 9.        Fair Value Measurements

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. U.S. GAAP requires that valuation techniques maximize the use of observable inputs and minimize the use of unobservable inputs. U.S. GAAP also establishes a fair value hierarchy which prioritizes the valuation inputs into three broad levels. Based on the underlying inputs, each fair value measurement in its entirety is reported in one of the three levels. The three levels of the fair value hierarchy are as follows:

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.

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Measured on a recurring basis

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

Securities Available for Sale

The Company primarily values its investment portfolio using Level II fair value measurements, but may also use Level I or Level III measurements if required by the composition of the portfolio. If quoted market prices are not available, fair values are measured utilizing independent valuation techniques of identical or similar securities for which significant assumptions are derived primarily from or corroborated by observable market data. Third party vendors compile prices from various sources and may determine the fair value of identical or similar securities by using pricing models that consider observable market data (Level II). In certain cases where there is limited activity or less transparency around inputs to the valuation, securities are classified as Level III of the valuation hierarchy.

Interest Rate Swaps and Interest Rate Cap

Interest rate swaps and caps are recorded at fair value based on third party vendors who compile prices from various sources and may determine fair value of identical or similar instruments by using pricing models that consider observable market data (Level II).

The following tables present the balances of assets and liabilities measured at fair value on a recurring basis as of June 30, 2016 and December 31, 2015.

(Dollars in thousands)	June 30, 2016
Description	Total		Level I		Level II		Level III
Assets:
U.S. government agencies	$	66,531	$	—	$	66,531	$	—
Obligations of states and political subdivisions	69,995		—		69,995		—
Mortgage-backed securities:
Agency	126,790		—		126,790		—
Non-agency	13,397		—		13,397		—
Other asset backed securities	54,506		—		54,506		—
Corporate securities	15,964		—		15,964		—
Interest rate swaps	322		—		322		—
Interest rate cap	3		—		3		—
Liabilities:
Interest rate swaps	899		—		899		—

(Dollars in thousands)	December 31, 2015
Description	Total		Level I		Level II		Level III
Assets:
U.S. government agencies	$	78,940	$	—	$	78,940	$	—
Obligations of states and political subdivisions	75,593		—		75,593		—
Mortgage-backed securities:
Agency	131,661		—		131,661		—
Non-agency	12,777		—		12,777		—
Other asset backed securities	58,781		—		58,781		—
Corporate securities	16,819		—		16,819
Interest rate swaps	73		—		73		—
Interest rate cap	39		—		39		—
Liabilities:
Interest rate swaps	370		—		370		—

Measured on nonrecurring basis

The Company may be required, from time to time, to measure and recognize certain other assets at fair value on a nonrecurring basis in accordance with U.S. GAAP. The following describes the valuation techniques and inputs used by the Company in determining the fair value of certain assets recorded at fair value on a nonrecurring basis in the financial statements.

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Loans Held for Sale

Loans held for sale are carried at lower of cost or market value. These loans currently consist of 1-4 family residential loans originated for sale in the secondary market. Fair value is based on the price secondary markets are currently offering for similar loans using observable market data which is not materially different than cost due to the short duration between origination and sale (Level II). As such, the Company records any fair value adjustments on a nonrecurring basis. No nonrecurring fair value adjustments were recorded on loans held for sale during the three and six months ended June 30, 2016. Gains and losses on the sale of loans are recorded as a component of non-interest income on the consolidated statements of income.

Impaired Loans

Loans are designated as impaired when, in the judgment of management based on current information and events, it is probable that all amounts due according to the contractual terms of the loan agreement will not be collected when due.  The measurement of loss associated with impaired loans can be based on either the observable market price of the loan or the fair value of the collateral.  Collateral may be in the form of real estate or business assets including equipment, inventory, and accounts receivable.  Any given loan may have multiple types of collateral. The vast majority of the collateral is real estate.  The value of real estate collateral is determined utilizing a market valuation approach based on an appraisal conducted by an independent, licensed appraiser outside of the Company using observable market data (Level II).  However, if the collateral value is significantly adjusted due to differences in the comparable properties, or is discounted by the Company because of marketability, then the fair value is considered Level III. The value of business equipment is based upon an outside appraisal if deemed significant, or the net book value on the applicable business' financial statements if not considered significant.  Likewise, values for inventory and accounts receivable collateral are based on financial statement balances or aging reports (Level III).  Impaired loans allocated to the allowance for loan losses are measured at fair value on a nonrecurring basis. Any fair value adjustments are recorded in the period incurred as provision for loan losses on the consolidated statements of income.

Other Real Estate Owned

Other Real Estate Owned (“OREO”) is measured at fair value less estimated costs to sell, based on an appraisal conducted by an independent, licensed appraiser outside of the Company. If the collateral value is significantly adjusted due to differences in the comparable properties, or is discounted by the Company because of marketability, then the fair value is considered Level III. The initial fair value of OREO is based on an appraisal performed at the time of foreclosure. Subsequent fair value adjustments are recorded in the period incurred and included in other real estate owned, net, on the consolidated statements of income.

For the purpose of OREO valuations, appraisals are discounted 10% for selling costs and it is the policy of the Company to obtain annual appraisals for properties held in accordance with the bank's OREO policy.

Repossessed Assets

The value of repossessed assets is determined by the Company based on marketability and other factors and is considered Level III. Any fair value adjustments are recorded in the period incurred and are included in other operating expenses on the consolidated statements of income.

The following table summarizes the Company’s non-financial assets that were measured at fair value on a nonrecurring basis during the period.

(Dollars in thousands)	June 30, 2016
	Total		Level I		Level II		Level III
Assets:
Impaired loans	$	7,028	$	—	$	—	$	7,028
Other real estate owned	$	3,553	$	—	$	—	$	3,553
Repossessed assets(1)	$	1,043	$	—	$	—	$	1,043
(Dollars in thousands)	December 31, 2015
	Total		Level I		Level II		Level III
Assets:
Impaired loans	$	9,018	$	—	$	—	$	9,018
Other real estate owned	$	3,345	$	—	$	—	$	3,345
Repossessed assets (1)	$	1,043	$	—	$	—	$	1,043

⁽¹⁾  Included in other assets on the consolidated balance sheets.

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The following table presents quantitative information as of June 30, 2016 and December 31, 2015 about Level III fair value measurements for assets measured at fair value on a nonrecurring basis:

June 30, 2016	Fair Value (in thousands)		Valuation Technique	Unobservable Inputs	Range (Weighted Average)
Impaired loans	$	3,238	Appraisals	Discount to reflect current market conditions and estimated selling costs	0% - 100% (19%)
Impaired loans	$	3,790	Present value of cash flows	Discount rate	6% - 8% (6%)
Other real estate owned	$	3,553	Appraisals	Discount to reflect current market conditions and estimated selling costs	10%
Repossessed assets	$	1,043	Market analysis	Historical sales activity	50%

December 31, 2015	Fair Value (in thousands)		Valuation Technique	Unobservable Inputs	Range (Weighted Average)
Impaired loans	$	5,434	Appraisals	Discount to reflect current market conditions and estimated selling costs	0% - 100% (17%)
Impaired loans	$	3,584	Present value of cash flows	Discount rate	6% - 8% (7%)
Other real estate owned	$	3,345	Appraisals	Discount to reflect current market conditions and estimated selling costs	10%
Repossessed assets	$	1,043	Market analysis	Historical sales activity	50%

The fair value of a financial instrument is the current amount that would be exchanged between willing parties, other than in a forced liquidation.  Fair value is best determined based upon quoted market prices.  However, in many instances, there are no quoted market prices for the Company’s various financial instruments.  In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques.  Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows.  Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument.  U.S. GAAP excludes certain financial instruments and all non-financial instruments from its disclosure requirements.  Accordingly, the aggregate fair value amounts presented may not necessarily represent the underlying fair value of the Company.

The following methods and assumptions were used to estimate the fair value of each class of financial instruments (not previously described) for which it is practicable to estimate that value:

Cash and Cash Equivalents

For cash and cash equivalents, the carrying amount is a reasonable estimate of fair value.

Securities held to maturity

Certain debt securities that management has the positive intent and ability to hold until maturity are recorded at amortized cost. Fair values are determined in a manner that is consistent with securities available for sale.

Restricted securities

The restricted security category is comprised of FHLB and Federal Reserve Bank stock. These stocks are classified as restricted securities because their ownership is restricted to certain types of entities and they lack a market. When the FHLB or Federal

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Reserve Bank repurchases stock, they repurchase at the stock's book value. Therefore, the carrying amounts of restricted securities approximate fair value.

Loans, Net

For variable-rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values.  For fixed rate 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 utilized as estimates for fair value. Fair value for impaired loans is described above.

Bank Owned Life Insurance

The carrying amount of bank owned life insurance is a reasonable estimate of fair value.

Accrued Interest Receivable and Payable

The carrying amounts of accrued interest approximate fair values.

Deposits

The fair value of demand deposits, savings accounts, and certain money market deposits is the amount payable on demand at the reporting date.  For all other deposits, the fair value is determined using the discounted cash flow method.  The discount rate is equal to the rate currently offered on similar products.

Securities Sold Under Agreements to Repurchase

The carrying amounts approximate fair values.

FHLB Borrowings and Subordinated Notes

For variable rate long-term debt, fair values are based on carrying values.  For fixed rate debt, fair values are estimated based on observable market prices and discounted cash flow analysis using interest rates for borrowings of similar remaining maturities and characteristics.  The fair values of the Company's Subordinated Notes are estimated using discounted cash flow analysis based on the Company's current incremental borrowing rates for similar types of borrowing arrangements.

Off-Balance Sheet Financial Instruments

The fair value of commitments to extend credit is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties.  For fixed-rate loan commitments, fair value also considers the difference between current levels of interest rates and the committed rates.  The fair value of standby letters of credit is based on fees currently charged for similar agreements or on the estimated cost to terminate them or otherwise settle the obligations with the counterparties at the reporting date.  At June 30, 2016 and December 31, 2015, the fair values of loan commitments and standby letters of credit were deemed immaterial; therefore, they have not been included in the tables below.

Fair Value of Financial Instruments

The estimated fair values, and related carrying amounts, of the Company's financial instruments are as follows:

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(Dollars in thousands)	June 30, 2016
					Fair value measurements using:
	Carrying Amount		Total Fair Value		Level I		Level II		Level III
Financial assets:
Cash and cash equivalents	$	32,620	$	32,620	$	32,620	$	—	$	—
Securities held to maturity	10,727		11,080		—		11,080		—
Securities available for sale	347,183		347,183		—		347,183		—
Loans held for sale, net	189		189		—		189		—
Loans, net	843,120		854,350		—		—		854,350
Bank owned life insurance	23,596		23,596		—		23,596		—
Accrued interest receivable	5,131		5,131		—		5,131		—
Interest rate swaps	322		322		—		322		—
Interest rate cap	3		3		—		3		—
Financial liabilities:
Deposits	$	1,056,369	$	1,056,495	$	—	$	1,056,495	$	—
Securities sold under agreements to repurchase	31,043		31,043		—		31,043		—
FHLB borrowings	79,500		79,792		—		79,792		—
Subordinated notes	5,155		5,174		—		5,174		—
Accrued interest payable	393		393		—		393		—
Interest rate swaps	899		899		—		899		—

(Dollars in thousands)	December 31, 2015
					Fair value measurements using:
	Carrying Amount		Total Fair Value		Level I		Level II		Level III
Financial assets:
Cash and cash equivalents	$	39,228	$	39,228	$	39,228	$	—	$	—
Securities held to maturity	4,207		4,163		—		4,163		—
Securities available for sale	374,571		374,571		—		374,571		—
Loans, net	794,635		802,535		—		—		802,535
Bank-owned life insurance	23,273		23,273		—		23,273		—
Accrued interest receivable	5,204		5,204		—		5,204		—
Interest rate swaps	73		73		—		73		—
Interest rate cap	39		39		—		39		—
Financial liabilities:
Deposits	$	1,040,800	$	1,040,016	$	—	$	1,040,016	$	—
Securities sold under agreements to repurchase	26,869		26,869		—		26,869		—
FHLB borrowings	85,000		85,033		—		85,033		—
Subordinated debt	5,155		5,157		—		5,157		—
Accrued interest payable	410		410		—		410		—
Interest rate swaps	370		370		—		370		—

The Company assumes interest rate risk as a result of its normal operations.  The fair values of the Company's financial instruments will change when interest rate levels change, which may be either favorable or unfavorable to the Company.  Management attempts to match maturities of assets and liabilities to the extent believed necessary to minimize interest rate risk.  However, borrowers with fixed rate obligations are less likely to prepay in a rising rate environment and more likely to prepay in a falling rate environment.  Conversely, depositors who are receiving fixed rates are more likely to withdraw funds before maturity in a rising rate environment and less likely to do so in a falling rate environment.  Management monitors rates and maturities of assets and liabilities and attempts to minimize interest rate risk by adjusting terms of new loans and deposits and by investing in securities with terms that mitigate the Company's overall interest rate risk.

Note 10.        Recent Accounting Pronouncements

In August 2014, the FASB issued ASU No. 2014-15, “Presentation of Financial Statements - Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern.” This update is intended to provide guidance

25

about management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosures. Management is required under the new guidance to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date the financial statements are issued when preparing financial statements for each interim and annual reporting period. If conditions or events are identified, the ASU specifies the process that must be followed by management and also clarifies the timing and content of going concern footnote disclosures in order to reduce diversity in practice. The amendments in this ASU are effective for annual periods and interim periods within those annual periods beginning after December 15, 2016. Early adoption is permitted. The Company does not expect the adoption of ASU 2014-15 to have a material impact on its consolidated financial statements.

In January 2016, the FASB issued ASU 2016-01, “Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities.” The amendments in ASU 2016-01, among other things: 1) Requires equity investments (except those accounted for under the equity method of accounting, or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income. 2) Requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes. 3) Requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (i.e., securities or loans and receivables). 4) Eliminates the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost. The amendments in this ASU are effective for public companies for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company is currently assessing the impact that ASU 2016-01 will have on its consolidated financial statements.

In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842).” Among other things, in the amendments in ASU 2016-02, lessees will be required to recognize the following for all leases (with the exception of short-term leases) at the commencement date: (1) A lease liability, which is a lessee‘s obligation to make lease payments arising from a lease, measured on a discounted basis; and (2) A right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. Under the new guidance, lessor accounting is largely unchanged. Certain targeted improvements were made to align, where necessary, lessor accounting with the lessee accounting model and Topic 606, Revenue from Contracts with Customers. The amendments in this ASU are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early application is permitted upon issuance. Lessees (for capital and operating leases) and lessors (for sales-type, direct financing, and operating leases) must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The modified retrospective approach would not require any transition accounting for leases that expired before the earliest comparative period presented. Lessees and lessors may not apply a full retrospective transition approach. The Company is currently assessing the impact that ASU 2016-02 will have on its consolidated financial statements.

During March 2016, the FASB issued ASU No. 2016-05, “Derivatives and Hedging (Topic 815): Effect of Derivative Contract Novations on Existing Hedge Accounting Relationships.” The amendments in this ASU clarify that a change in the counterparty to a derivative instrument that has been designated as the hedging instrument does not, in and of itself, require dedesignation of that hedging relationship provided that all other hedge accounting criteria remain intact. The amendments are effective for public business entities for financial statements issued for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. The Company does not expect the adoption of ASU 2016-05 to have a material impact on its consolidated financial statements.

In March 2016, the FASB issued ASU No. 2016-07, “Investments - Equity Method and Joint Ventures (Topic 323): Simplifying the Transition to the Equity Method of Accounting.” The amendments in this ASU eliminate the requirement that when an investment qualifies for use of the equity method as a result of an increase in the level of ownership interest or degree of influence, an investor must adjust the investment, results of operations, and retained earnings retroactively on a step-by-step basis as if the equity method had been in effect during all previous periods that the investment had been held. The amendments require that the equity method investor add the cost of acquiring the additional interest in the investee to the current basis of the investor’s previously held interest and adopt the equity method of accounting as of the date the investment becomes qualified for equity method accounting. Therefore, upon qualifying for the equity method of accounting, no retroactive adjustment of the investment is required. In addition, the amendments in this ASU require that an entity that has an available-for-sale equity security that becomes qualified for the equity method of accounting recognize through earnings the unrealized holding gain or loss in accumulated other comprehensive income at the date the investment becomes qualified for use of the equity method. The amendments are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. The amendments should be applied prospectively upon their effective date to increases in the level of ownership interest or degree of influence that result in the adoption of the equity method. Early adoption is permitted. The Company does not expect the adoption of ASU 2016-07 to have a material impact on its consolidated financial statements.

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During March 2016, the FASB issued ASU No. 2016-09, “Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting.” The amendments in this ASU simplify several aspects of the accounting for share-based payment award transactions including: (a) income tax consequences; (b) classification of awards as either equity or liabilities; and (c) classification on the statement of cash flows. The amendments are effective for public companies for annual periods beginning after December 15, 2016, and interim periods within those annual periods. The Company is currently assessing the impact that ASU 2016-09 will have on its consolidated financial statements.

During June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” The amendments in this ASU, among other things, require the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Financial institutions and other organizations will now use forward-looking information to better inform their credit loss estimates. Many of the loss estimation techniques applied today will still be permitted, although the inputs to those techniques will change to reflect the full amount of expected credit losses. In addition, the ASU amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. The amendments in this ASU are effective for SEC filers for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The Company is currently assessing the impact that ASU 2016-13 will have on its consolidated financial statements.

Note 11.        Accumulated Other Comprehensive Income

Changes in accumulated other comprehensive income for the six months ended June 30, 2016 and 2015 were:

(Dollars in thousands)	Unrealized Gains on Securities			Cash Flow Hedges			Accumulated Other Comprehensive Income
Balance December 31, 2014	$	3,979		$	(185	)	$	3,794
Unrealized holding gains (net of tax, $333)	(644		)	—			(644		)
Reclassification adjustment (net of tax, $47)	(91		)	—			(91		)
Unrealized loss on interest rate swaps (net of tax, $0)	—			(1		)	(1		)
Reclassification adjustment (net of tax, $2)	—			(4		)	(4		)
Balance June 30, 2015	$	3,244		$	(190	)	$	3,054
Balance December 31, 2015	$	1,872		$	(195	)	$	1,677
Unrealized holding gains (net of tax, $1,176)	2,285			—			2,285
Reclassification adjustment (net of tax, $127)	(246		)	—			(246		)
Unrealized loss on interest rate swaps (net of tax, $95)	—			(185		)	(185		)
Balance June 30, 2016	$	3,911		$	(380	)	$	3,531

The following table presents information related to reclassifications from accumulated other comprehensive income:

Details about Accumulated Other Comprehensive Income	Amount Reclassified from Accumulated Other Comprehensive Income						Affected Line Item in the Consolidated Statements of Income
	For the Three Months Ended June 30,
(Dollars in thousands)	2016			2015
Securities available for sale (1):
Net securities gains reclassified into earnings	$	(210	)	$	(37	)	Gain on sales of securities available for sale, net
Related income tax expense	72			13			Income tax expense
Net effect on accumulated other comprehensive income for the period	(138		)	(24		)	Net of tax
Total reclassifications for the period	$	(138	)	$	(24	)	Net of tax

⁽¹⁾  For more information related to unrealized gains on securities available for sale, see Note 3, "Securities".

⁽²⁾  For more information related to unrealized losses on derivatives, see Note 12, "Derivatives".

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Details about Accumulated Other Comprehensive Income	Amount Reclassified from Accumulated Other Comprehensive Income						Affected Line Item in the Consolidated Statements of Income
	For the Six Months Ended June 30,
(Dollars in thousands)	2016			2015
Securities available for sale (1):
Net securities gains reclassified into earnings	$	(373	)	$	(138	)	Gain on securities available for sale
Related income tax expense	127			47			Income tax expense
Derivatives (2):
(Gain) loss on interest rate swap ineffectiveness	—			(6		)	Other operating expenses
Related income tax expense	—			2			Income tax expense
Net effect on accumulated other comprehensive income	(246		)	(95		)	Net of tax
Total reclassifications	$	(246	)	$	(95	)	Net of tax

Note 12.        Derivatives

The Company utilizes derivative instruments as a part of its asset-liability management program to control fluctuation of market values and cash flows to changes in interest rates associated with certain financial instruments. The Company accounts for derivatives in accordance with ASC 815, "Derivatives and Hedging". Under current guidance, derivative transactions are classified as either cash flow hedges or fair value hedges or they are not designated as hedging instruments. The Company designates each derivative instrument at the inception of the derivative transaction in accordance with this guidance. Information concerning each of the Company's categories of derivatives as of June 30, 2016 and December 31, 2015 is presented below.

Derivatives designated as cash flow hedges

During 2010, the Company entered into an interest rate swap agreement as part of the interest rate risk management process.  The swap was designated as a cash flow hedge intended to hedge the variability of cash flows associated with the Company’s trust preferred capital securities. The swap hedges the cash flow associated with the trust preferred capital notes wherein the Company receives a floating rate based on LIBOR from a counterparty and pays a fixed rate of 2.59% to the same counterparty.  The swap is calculated on a notional amount of $5.2 million.  The term of the swap is 10 years and commenced on October 23, 2010.  The Company had cash collateral reserved for this swap in the amount of $400,000 as of June 30, 2016 and December 31, 2015. The swap was entered into with a counterparty that met the Company’s credit standards and the agreement contains collateral provisions protecting the at-risk party.  The Company believes that the credit risk inherent in the contract is not significant.

During 2013, the Company entered into an interest rate swap agreement as part of the interest rate risk management process.  The swap has been designated as a cash flow hedge intended to hedge the variability of cash flows associated with the Company’s FHLB borrowings. The swap hedges the cash flows associated with the FHLB borrowings wherein the Company receives a floating rate based on LIBOR from a counterparty and pays a fixed rate of 1.43% to the same counterparty.  The swap is calculated on a notional amount of $10.0 million.  The term of the swap is 5 years and commenced on November 25, 2013.  The Company had cash collateral reserved for this swap in the amount of $450,000 and $300,000 as of June 30, 2016 and December 31, 2015, respectively. The swap was entered into with a counterparty that met the Company’s credit standards and the agreement contains collateral provisions protecting the at-risk party.  The Company believes that the credit risk inherent in the contract is not significant.

Amounts receivable or payable are recognized as accrued under the terms of the agreement, with the effective portion of the derivative’s unrealized gain or loss recorded as a component of other comprehensive income.  The ineffective portion of the unrealized gain or loss, if any, would be recorded in other expense.  The Company has assessed the effectiveness of the hedging relationship by comparing the changes in cash flows on the designated hedged item.  As a result of this assessment, there was no hedge ineffectiveness identified for the three and six months ended June 30, 2016 and 2015. At December 31, 2015 there was no hedge ineffectiveness identified for this interest rate swap.

The amounts included in accumulated other comprehensive income as unrealized losses (fair value, net of tax) were $380,000 and $195,000 as of June 30, 2016 and December 31, 2015, respectively.

Information concerning the derivatives designated as a cash flow hedges at June 30, 2016 and December 31, 2015 is presented in the following tables:

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	June 30, 2016
	Positions (#)	Notional Amount (in thousands)		Asset (in thousands)		Liability (in thousands)		Receive Rate		Pay Rate		Life (Years)
Pay fixed - receive floating interest rate swap	1	$	5,155	$	—	$	375	0.64	%	2.59	%	4.2
Pay fixed - receive floating interest rate swap	1	$	10,000	$	—	$	202	0.44	%	1.43	%	2.4

	December 31, 2015
	Positions (#)	Notional Amount (in thousands)		Asset (in thousands)		Liability (in thousands)		Receive Rate		Pay Rate		Life (Years)
Pay fixed - receive floating interest rate swap	1	$	5,155	$	—	$	226	0.32	%	2.59	%	4.8
Pay fixed - receive floating interest rate swap	1	$	10,000	$	—	$	71	0.23	%	1.43	%	3.0

Derivatives not designated as hedging instruments

Two-way client loan swaps

During the fourth quarter of 2014 and 2012, the Company entered into certain interest rate swap contracts that are not designated as hedging instruments. These derivative contracts relate to transactions in which we enter into an interest rate swap with a customer while at the same time entering into an offsetting interest rate swap with another financial institution. In connection with each swap transaction, the Company agrees to pay interest to the customer on a notional amount at a variable interest rate and receive interest from the customer on an identical notional amount at a fixed interest rate. At the same time, the Company agrees to pay the counterparty the same fixed interest rate on the same notional amount and receive the same variable interest rate on the same notional amount. The transaction allows our clients to effectively convert a variable rate loan into a fixed rate loan. Because the Company acts as an intermediary for our customers, changes in the fair value of the underlying derivatives contracts offset each other and do not significantly impact our results of operations.

Certain additional risks arise from interest rate swap contracts in that the counterparties to the contracts may not be able to meet the terms of the contracts. We do not expect any counterparty to fail to meet its obligations.

Information concerning two-way client interest rate swaps not designated as either fair value or cash flow hedges is presented in the following table:

	June 30, 2016
	Positions (#)	Notional Amount (in thousands)		Asset (in thousands)		Liability (in thousands)		Receive Rate		Pay Rate		Life (Years)
Pay fixed - receive floating interest rate swap	1	$	3,635	$	—	$	178	1 month LIBOR plus 200 BP		3.90	%	11.3
Pay fixed - receive floating interest rate swap	1	1,685		—		144		1 month LIBOR plus 180 BP		4.09	%	8.3
Pay floating - receive fixed interest rate swap	1	3,635		178		—		3.90	%	1 month LIBOR plus 200 BP		11.3
Pay floating - receive fixed interest rate swap	1	1,685		144		—		4.09	%	1 month LIBOR plus 180 BP		8.3
Total derivatives not designated		$	10,640	$	322	$	322

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	December 31, 2015
	Positions (#)	Notional Amount (in thousands)		Asset (in thousands)		Liability (in thousands)		Receive Rate		Pay Rate		Life (Years)
Pay fixed - receive floating interest rate swap	1	$	3,760	$	—	$	21	1 month LIBOR plus 200 BP		3.90	%	11.9
Pay fixed - receive floating interest rate swap	1	1,706		—		52		1 month LIBOR plus 180 BP		4.09	%	8.9
Pay floating - receive fixed interest rate swap	1	3,760		21		—		3.90	%	1 month LIBOR plus 200 BP		11.9
Pay floating - receive fixed interest rate swap	1	1,706		52		—		4.09	%	1 month LIBOR plus 180 BP		8.9
Total derivatives not designated		$	10,932	$	73	$	73

Rate Cap Transaction

At June 30, 2016, the Company had one derivative instrument in the form of an interest rate cap agreement with a notional amount of $10.0 million. The notional amount of the financial derivative instrument does not represent exposure to credit loss. The Company is exposed to credit loss only to the extent the counter-party defaults in its responsibility to pay interest under the terms of the agreement. The credit risk in derivative instruments is mitigated by entering into transactions with highly-rated counterparties that management believes to be creditworthy and by limiting the amount of exposure to each counter-party. We do not expect any counterparty to fail to meet its obligations.

The details of the interest rate cap agreement as of June 30, 2016 and December 31, 2015 are summarized below:

June 30, 2016
(Dollars in thousands)
Notional Amount		Termination Date	3-Month LIBOR Strike Rate		Premium Paid		Unamortized Premium at June 30, 2016		Fair Value June 30, 2016		Cumulative Cash Flows Received
$	10,000	September 8, 2018	2.00	%	$	70	$	70	$	3	$	—

December 31, 2015
(Dollars in thousands)
Notional Amount		Termination Date	3-Month LIBOR Strike Rate		Premium Paid		Unamortized Premium at December 31, 2015		Fair Value December 31, 2015		Cumulative Cash Flows Received
$	10,000	September 8, 2018	2.00	%	$	70	$	70	$	39	$	—

In the third quarter of 2015, the interest rate cap agreement was purchased to limit the Company's exposure to rising interest rates. Under the terms of the agreement, the Company paid a premium of $70,000 for the right to receive cash flow payments if 3-month LIBOR rises above the cap of 2.00%, thus effectively ensuring interest expense is capped at a maximum rate of 2.00% for the duration of the agreement. The interest rate cap agreement is a derivative not designated as a hedging instrument.

At June 30, 2016 and December 31, 2015, the total fair value of the interest rate cap agreement was $3,000 and $39,000, respectively. The fair value of the interest rate cap agreement is included in other assets on the Company's consolidated balance sheets. Changes in fair value are recorded in earnings in other operating expenses. For the six months ended June 30, 2016 and the year ended

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December 31, 2015, $36,000 and $31,000 was recognized in other operating expenses. There was no interest rate cap at June 30, 2015, therefore there were no changes in fair value and no amounts recognized in other operating expenses.

The premium paid on the interest rate cap agreement is recognized as a decrease in interest income over the duration of the agreement using the caplet method. For the three and six months ended June 30, 2016 and for the year ended December 31, 2015, no premium amortization was required.

Note 13.        Other Real Estate Owned (OREO)

At June 30, 2016 and December 31, 2015, OREO balances were $3.6 million and $3.3 million, respectively. OREO is primarily comprised of residential properties and non-residential properties, and are located primarily in the state of Virginia. Changes in the balance for OREO, net of valuation allowances, are as follows:

(Dollars in thousands)	June 30, 2016			December 31, 2015
Balance at the beginning of year, net	$	3,345		$	4,051
Transfers from loans and to premises and equipment, net	526			287
Sales proceeds	(224		)	(814		)
(Gain) loss on disposition	50			(100		)
Less valuation adjustments	(144		)	(79		)
Balance at the end of the period, net	$	3,553		$	3,345

Expenses applicable to net OREO, were $(11,000) and $25,000 during the three months ended June 30, 2016 and 2015, respectivelyand $156,000 and $92,000 during the six months ended June 30, 2016 and 2015, respectively.

The major classifications of OREO in the consolidated balance sheets at June 30, 2016 and December 31, 2015 were as follows:

(Dollars in thousands)	June 30, 2016		December 31, 2015
Real estate loans:
Construction	$	857	$	853
Secured by farmland	—		—
Secured by 1-4 family residential	2,336		1,958
Other real estate loans	360		534
Total real estate loans	$	3,553	$	3,345

At June 30, 2016, the Company had no consumer mortgage loans secured by residential real estate for which foreclosure was in process. At December 31, 2015, the Company had one consumer mortgage loan secured by residential real estate that totaled $533,000 for which foreclosure was in process and subsequently transfered to OREO.

Note 14.        Low Income Housing Tax Credits

The Company has invested in four separate housing equity funds at June 30, 2016 and December 31, 2015. The general purpose of these funds is to encourage and assist participants in investing in low-income residential rental properties located in the Commonwealth of Virginia, develop and implement strategies to maintain projects as low-income housing, deliver Federal Low Income Housing Credits to investors, allocate tax losses and other possible tax benefits to investors, and to preserve and protect project assets. The investments in these funds were recorded as other assets on the consolidated balance sheets and were $8.70 million and $9.03 million at June 30, 2016 and December 31, 2015, respectively. The expected terms of these investments and the related tax benefits run through 2033. Tax credits and other tax benefits recognized during the three months ended June 30, 2016 and 2015 were $141,000 and $108,000, respectively, and for the six months ended June 30, 2016 and 2015, were $287,000 and $231,000, respectively, related to these investments. Total projected tax credits to be received for 2016 are $512,000, which is based on the most recent quarterly estimates received from the funds. Additional capital calls expected for the funds totaled $9.31 million at June 30, 2016 and December 31, 2015, and are included in other liabilities on the consolidated balance sheets.

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITON AND RESULTS OF OPERATIONS

The following discussion and analysis of the financial condition at June 30, 2016 and results of operations of the Company for the three and six months ended June 30, 2016 should be read in conjunction with the Company’s Consolidated Financial Statements and the accompanying Notes to Consolidated Financial Statements included in this report and in the 2015 Form 10-K. It should also be read in conjunction with the “Caution About Forward Looking Statements” section at the end of this discussion.

Overview

The Company is headquartered in Middleburg, Virginia and conducts its primary operations through two wholly owned subsidiaries, Middleburg Bank and Middleburg Investment Group, Inc.  Middleburg Bank is a community bank serving the Virginia counties of Prince William, Loudoun, Fairfax, Fauquier, the City of Williamsburg and the City of Richmond with twelve financial service centers and one limited service facility.  Middleburg Investment Group is a non-bank holding company with one wholly owned subsidiary, Middleburg Trust Company.  Middleburg Trust Company is a trust company headquartered in Richmond, Virginia, and maintains offices in Williamsburg, Virginia and in several of Middleburg Bank’s financial service centers.  

The Company generates a significant amount of its income from the net interest income earned by Middleburg Bank.  Net interest income is the difference between interest income and interest expense.  Interest income depends on the amount of interest-earning assets outstanding during the period and the interest rates earned thereon.  Middleburg Bank’s cost of funds is a function of the average amount of deposits and borrowed money outstanding during the period and the interest rates paid thereon.  The quality of the assets further influences the amount of interest income lost on nonaccrual loans and the amount of additions to the allowance for loan losses or potential other-than-temporary impairment of securities.  Middleburg Investment Group’s subsidiary, Middleburg Trust Company, generates fee income by providing investment management and trust services to its clients.  Investment management and trust fees are generally based upon the value of assets under management, and, therefore can be significantly affected by fluctuations in the values of securities caused by changes in the capital markets.  

Net income for the quarter ended June 30, 2016 increased by 16.36% to $2.65 million from $2.28 million for the same period in 2015. Earnings per diluted share for the quarter ended June 30, 2016 were $0.37 per share compared to $0.32 per share for the same period in 2015. Net income for the six months ended June 30, 2016 decreased 0.42% to $4.71 million from $4.73 million over the same period in 2015. Earnings per diluted share for the six months ended June 30, 2016 and 2015 were $0.66 per share.

Annualized return on average assets for the quarter ended June 30, 2016 was 0.80% compared to 0.73% for the same period in 2015. Annualized return on average equity for the quarter ended June 30, 2016 was 8.47% compared to 7.31% for the same period in 2015. Annualized return on average assets for the six months ended June 30, 2016 was 0.72%, compared to 0.77% for the same period in 2015. Annualized return on average equity for the six months ended June 30, 2016 was 7.55%, compared to 7.66% for the same period in 2015.

The net interest margin, a non-GAAP measure more fully described in the “Results of Operations” section below, increased from 3.24% for the quarter ended June 30, 2015 to 3.26% for the quarter ended June 30, 2016.  The net interest margin decreased from 3.32% for the six months ended June 30, 2015 to 3.25% for the six months ended June 30, 2016.

The Company recorded a provision for loan losses in the amount of $50,000 for the quarter ended June 30, 2016 compared to the recovery of provision of $425,000 for the same period in 2015. The provision for loan losses increased to $350,000 for the six months ended June 30, 2016 compared to a provision of $25,000 for the same period in 2015. Refer to the discussion of asset quality in the financial condition section for specific discussion in the movement of asset quality.

Non-interest income for the quarter ended June 30, 2016 increased by 5.90% compared to the quarter ended June 30, 2015. Non-interest income for the six months ended June 30, 2016 decreased by 10.11% compared to the same period in 2015. The Company recorded net gains on securities available for sale of $210,000 and $373,000 the quarter and six month periods ended June 30, 2016, respectively, in order to fund loan growth. Also, in the first quarter of 2015, there was a substantial recovery of expenses of approximately $500,000 related to a loan that had previously been charged-off. Excluding this recovery, other operating income for the six month period ended June 30, 2015 would have been relatively flat compared to 2016. Other operating income generally includes revenue from prepayment penalties, safe deposit charges, wire fees and other miscellaneous adjustments.

Non-interest expense decreased by 1.46% compared to the quarter ended June 30, 2015. For the six months ended June 30, 2016, non-interest expense increased by 0.78% compared to the same period in 2015.

The Company’s capital ratios remain well above regulatory minimum capital ratios as of June 30, 2016:

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Capital Ratios	Actual June 30, 2016		Regulatory Minimum (1)		Excess Over Regulatory Minimum
Tier 1 leverage ratio	9.5	%	4.0	%	5.5	%
Common equity tier 1 ratio	15.4	%	7.0	%	8.4	%
Tier 1 risk-based capital ratio	16.1	%	8.5	%	7.6	%
Total risk-based capital ratio	17.3	%	10.5	%	6.8	%

⁽¹⁾  Assumes fully phased-in Basel III regulatory capital rules. The Common Equity Ratio, the Tier 1 Ratio and the Total Capital Ratio include a 2.50% Capital Conservation Buffer that must be maintained in order for the bank to remain well capitalized and to avoid restrictions on payments of dividends, bonuses, capital repurchases and restricted payments.

At June 30, 2016, total assets were $1.31 billion, an increase of 1.50% since December 31, 2015.  Gross loans held-for-investment increased by $48.97 million to $854.65 million, an increase of 6.08% since December 31, 2015. Total deposits were $1.06 billion, an increase of 1.50% since December 31, 2015. Non-maturity deposits, including demand, NOW and savings deposits decreased by $977,000 from December 31, 2015 to $795.25 million at June 30, 2016.  Time deposits increased by 6.77% or $16.55 million from December 31, 2015 to $261.12 million at June 30, 2016.  

Critical Accounting Policies

General

The financial condition and results of operations presented in the Consolidated Financial Statements, the accompanying Notes to the Consolidated Financial Statements and this section are, to some degree, dependent upon the accounting policies of the Company.  The selection and application of these accounting policies involve judgments, estimates, and uncertainties that are susceptible to change.

Presented below is discussion of those accounting policies that management believes are the most important (“Critical Accounting Policies”) to the portrayal and understanding of Middleburg Financial Corporation’s financial condition and results of operations.  The Critical Accounting Policies require management’s most difficult, subjective and complex judgments about matters that are inherently uncertain.  In the event that different assumptions or conditions were to prevail, and depending upon the severity of such changes, the possibility of materially different financial condition or results of operations is a reasonable likelihood.

Allowance for Loan Losses

Middleburg Bank monitors and maintains an allowance for loan losses to absorb an estimate of probable losses inherent in the loan portfolio.  Middleburg Bank maintains policies and procedures that address the systems of controls over the following areas of maintenance of the allowance:  the systematic methodology used to determine the appropriate level of the allowance to provide assurance they are maintained in accordance with U.S. GAAP; the accounting policies for loan charge-offs and recoveries; the assessment and measurement of impairment in the loan portfolio; and the loan grading system.

Middleburg Bank evaluates various loans individually for impairment as required by applicable accounting standards.  Loans evaluated individually for impairment include nonperforming loans, such as loans on nonaccrual, loans past due 90 days or more, troubled debt restructurings and other loans selected by management.  If a loan evaluated individually is determined not to be impaired, then the loan is assessed for impairment with a group of loans that have similar characteristics. For loans determined to be impaired, the evaluations are based upon discounted cash flows, collateral valuations or observable market price.  If the evaluation shows that a loan is individually impaired, then a specific reserve is established for the amount of impairment, if any.  

For loans without individual measures of impairment, Middleburg Bank makes estimates of losses for groups of loans as required by applicable accounting standards.  Loans are grouped by similar characteristics, including the type of loan, the assigned loan grade and the general collateral type.  A loss rate reflecting the expected loss inherent in a group of loans is derived based upon estimates of default rates for a given loan grade, the predominant collateral type for the group and the terms of the loan.  The resulting estimate of losses for groups of loans are adjusted for relevant environmental factors and other conditions of the portfolio of loans, including:  borrower and industry concentrations; levels and trends in delinquencies, charge-offs and recoveries; changes in underwriting standards and risk selection; level of experience, ability and depth of lending management; and national and local economic conditions.

The amount of estimated impairment for individually evaluated loans and groups of unimpaired loans is added together for a total estimate of loans losses.  This estimate of losses is compared to the allowance for loan losses as of the evaluation date and, if the estimate of losses is greater than the allowance, an additional provision to the allowance would be made.  If the estimate of losses is less than the allowance, the degree to which the allowance exceeds the estimate is evaluated to determine whether the allowance

33

falls outside a range of estimates.  If the estimate of losses is below the range of reasonable estimates, the allowance would be reduced by way of a credit to the provision for loan losses.  Middleburg Bank recognizes the inherent imprecision in estimates of losses due to various uncertainties and variability related to the factors used, and therefore a reasonable range around the estimate of losses is derived and used to ascertain whether the allowance is appropriately stated.  If different assumptions or conditions were to prevail and it is determined that the allowance is not adequate to absorb the new estimate of probable losses, an additional provision for loan losses would be made, which may be material to the consolidated financial statements.

Goodwill

With the adoption of Accounting Standards Update 2011-08, "Intangible-Goodwill and Other-Testing Goodwill for Impairment", the Company is no longer required to perform a test for impairment unless, based on an assessment of qualitative factors related to goodwill, we determine that it is more likely than not that the fair value of each applicable reporting unit is less than its carrying amount. If the likelihood of impairment is more than 50%, the Company must perform a test for impairment and may be required to record impairment charges. The first step of the goodwill impairment test, used to identify potential impairment, compares the fair value with its carrying amount, including goodwill. If the carrying amount is greater than zero and its fair value exceeds its carrying amount, goodwill is considered not impaired; thus, the second step of the impairment test is unnecessary. If the carrying amount exceeds its fair value, the second step of the goodwill impairment test shall be performed to measure the amount of impairment loss, if any. The second step of the goodwill impairment test, used to measure the amount of impairment loss, compares the implied fair value with the carrying amount of that goodwill. If the carrying amount exceeds the implied fair value of that goodwill, an impairment loss shall be recognized in an amount equal to that excess. The loss recognized cannot exceed the carrying amount of goodwill. After a goodwill impairment loss is recognized, the adjusted carrying amount of goodwill shall be its new accounting basis. Subsequent reversal of a previously recognized goodwill impairment loss is prohibited once the measurement of that loss is recognized.

Management estimates fair value utilizing multiple methodologies which include discounted cash flows, comparable companies, third-party sale and assets under management analysis. Determining the fair value requires management to make judgments and assumptions related to various items, including estimates of future operating results, allocations of indirect expenses, and discount rates.  Management believes its estimates and assumptions are reasonable; however, the fair value could be different in the future if actual results or market conditions differ from the estimates and assumptions used.

The Company’s forecasted cash flows assume a stable economic environment and consistent long-term growth in assets under management over the projected periods.  Additionally, expenses are assumed to be consistently correlated with projected asset and revenue growth over the time periods projected.  Although we believe the key assumptions underlying the financial forecasts to be reasonable, they are inherently uncertain and involve a number of risks and uncertainties that are beyond the control of the Company.  Accordingly, there can be no assurance that the forecasted results will be realized and variations from the forecast may be material.  If weak economic conditions continue or worsen for a prolonged period of time, or if the reporting unit loses key personnel, the fair value may be adversely affected which may result in impairment of goodwill or other intangible assets in the future.  Any changes in the key management estimates or judgments could result in an impairment charge, and such a charge could have an adverse effect on the Company’s financial condition and results of operations.

Other-Than-Temporary Impairment (OTTI) for Securities

Impairment of securities occurs when the fair value of a security is less than its amortized cost. For debt securities, impairment is considered other-than-temporary and recognized in its entirety in net income if either (i) we intend to sell the security or (ii) it is more-likely-than-not that we will be required to sell the security before recovery of its amortized cost basis. If, however, we do not intend to sell the security and it is not more-likely-than-not that we will be required to sell the security before recovery, we must determine what portion of the impairment is attributable to a credit loss, which occurs when the amortized cost basis of the security exceeds the present value of the cash flows expected to be collected from the security. If there is no credit loss, there is no other-than-temporary impairment. If there is a credit loss, other-than-temporary impairment exists, and the credit loss must be recognized in net income and the remaining portion of impairment must be recognized in other comprehensive income. For equity securities, impairment is considered to be other-than-temporary based on our ability and intent to hold the investment until a recovery of fair value. Other-than-temporary impairment of an equity security results in a write-down that must be included in net income. We regularly review each investment security for other-than-temporary impairment based on criteria that includes the extent to which cost exceeds market price, the duration of that market decline, the financial health of and specific prospects for the issuer, our best estimate of the present value of cash flows expected to be collected from debt securities, our intention with regard to holding the security to maturity and the likelihood that we would be required to sell the security before recovery.

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Results of Operations

The Company's net income for the second quarter of 2016 was $2.65 million, an increase of $373,000 or 16.36% compared to the second quarter of 2015. For the second quarter of 2016, earnings per diluted share was $0.37 compared to earnings per diluted share of $0.32 for the second quarter of 2015.

The following tables reflect an analysis of the Company’s net interest income for the quarters ended June 30, 2016 and 2015 using the daily average balances of the Company’s assets and liabilities for the periods indicated. Nonaccrual loans are included in the loan balances.

	Three Months Ended June 30,
	2016							2015
	Average Balance			Income/ Expense		Yield/ Rate (2)		Average Balance			Income/ Expense		Yield/ Rate (2)
	(Dollars in thousands)
Assets:
Securities:
Taxable	$	325,748		$	2,079	2.57	%	$	315,874		$	1,858	2.36	%
Tax-exempt (1)	52,119			666		5.14	%	51,199			680		5.33	%
Total securities	$	377,867		$	2,745	2.92	%	$	367,073		$	2,538	2.77	%
Loans:
Taxable	$	835,953		$	8,538	4.11	%	$	764,101		$	8,009	4.20	%
Tax-exempt (1)	577			8		5.58	%	615			8		5.22	%
Total loans (3)	$	836,530		$	8,546	4.11	%	$	764,716		$	8,017	4.20	%
Interest on deposits with other banks and federal funds sold	42,654			40		0.38	%	50,861			31		0.24	%
Total earning assets	$	1,257,051		$	11,331	3.63	%	$	1,182,650		$	10,586	3.59	%
Less: allowances for loan losses	(11,383		)					(12,150		)
Total nonearning assets	80,296							76,720
Total assets	$	1,325,964						$	1,247,220
Liabilities:
Interest-bearing deposits:
Checking	$	355,567		$	193	0.22	%	$	345,768		$	173	0.20	%
Regular savings	129,868			60		0.19	%	118,467			55		0.19	%
Money market savings	75,405			45		0.24	%	66,300			31		0.19	%
Time deposits:
$100,000 and over	147,897			324		0.88	%	129,519			286		0.89	%
Under $100,000	111,539			268		0.97	%	107,352			303		1.13	%
Total interest-bearing deposits	$	820,276		$	890	0.44	%	$	767,406		$	848	0.44	%
Securities sold under agreements to repurchase	28,855			—		—	%	29,168			17		0.25	%
FHLB borrowings and other debt	93,799			243		1.04	%	74,829			174		0.93	%
Total interest-bearing liabilities	$	942,930		$	1,133	0.48	%	$	871,403		$	1,039	0.48	%
Non-interest bearing liabilities:
Demand deposits	243,490							237,560
Other liabilities	13,577							13,149
Total liabilities	$	1,199,997						$	1,122,112
Shareholders' equity	125,967							125,108
Total liabilities and shareholders' equity	$	1,325,964						$	1,247,220
Net interest income				$	10,198						$	9,547
Interest rate spread						3.15	%						3.11	%
Cost of Funds						0.38	%						0.38	%
Interest expense as a percent of average earning assets						0.36	%						0.35	%
Net interest margin						3.26	%						3.24	%

⁽¹⁾  Income and yields are reported on a tax equivalent basis assuming a federal tax rate of 34%.

⁽²⁾  All yields and rates have been annualized on a 366 day year for 2016 and 365 day year for 2015.

⁽³⁾  Total average loans include loans on non-accrual status.

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The Company's net income for the six months ended June 30, 2016 was $4.71 million, a decrease of $20,000 or 0.42% from the six months ended June 30, 2015. For the six months ended June 30, 2016 and 2015, earnings per diluted share was $0.66.

The following tables reflect an analysis of the Company’s net interest income for the six months ended June 30, 2016 and 2015 using the daily average balances of the Company’s assets and liabilities for the periods indicated. Nonaccrual loans are included in the loan balances.

	Six Months Ended June 30,
	2016							2015
	Average Balance			Income/ Expense		Yield/ Rate (2)		Average Balance			Income/ Expense		Yield/ Rate (2)
	(Dollars in thousands)
Assets:
Securities:
Taxable	$	331,222		$	4,221	2.56	%	$	312,875		$	3,823	2.46	%
Tax-exempt (1)	50,675			1,352		5.37	%	51,899			1,379		5.36	%
Total securities	$	381,897		$	5,573	2.93	%	$	364,774		$	5,202	2.88	%
Loans:
Taxable	$	822,702		$	16,761	4.1	%	$	757,880		$	16,246	4.32	%
Tax-exempt (1)	650			18		5.57	%	615			16		5.25	%
Total loans (3)	$	823,352		$	16,779	4.10	%	$	758,495		$	16,262	4.32	%
Interest on deposits with other banks and federal funds sold	43,530			88		0.41	%	56,003			61		0.22	%
Total earning assets	$	1,248,779		$	22,440	3.61	%	$	1,179,272		$	21,525	3.68	%
Less: allowances for loan losses	(11,280		)					(11,907		)
Total nonearning assets	80,930							76,473
Total assets	$	1,318,429						$	1,243,838
Liabilities:
Interest-bearing deposits:
Checking	$	355,619		$	383	0.22	%	$	341,471		$	339	0.20	%
Regular savings	128,990			119		0.19	%	116,902			108		0.19	%
Money market savings	75,452			84		0.22	%	67,909			63		0.19	%
Time deposits:
$100,000 and over	145,591			643		0.89	%	130,872			579		0.89	%
Under $100,000	110,612			532		0.97	%	108,851			614		1.14	%
Total interest-bearing deposits	$	816,264		$	1,761	0.43	%	$	766,005		$	1,703	0.45	%
Securities sold under agreements to repurchase	28,137			1		0.01	%	31,452			62		0.40	%
FHLB borrowings and other debt	95,902			494		1.04	%	70,431			342		0.98	%
Federal funds purchased	3			—		—	%	2			—		—	%
Total interest-bearing liabilities	$	940,306		$	2,256	0.48	%	$	867,890		$	2,107	0.49	%
Non-interest bearing liabilities:
Demand deposits	239,135							238,169
Other liabilities	13,651							13,283
Total liabilities	$	1,193,092						$	1,119,342
Shareholders' equity	125,337							124,496
Total liabilities and shareholders' equity	$	1,318,429						$	1,243,838
Net interest income				$	20,184						$	19,418
Interest rate spread						3.13	%						3.19	%
Cost of Funds						0.38	%						0.38	%
Interest expense as a percent of average earning assets						0.36	%						0.36	%
Net interest margin						3.25	%						3.32	%

⁽¹⁾  Income and yields are reported on a tax equivalent basis assuming a federal tax rate of 34%.

⁽²⁾  All yields and rates have been annualized on a 366 day year for 2016 and 365 day year for 2015.

⁽³⁾  Total average loans include loans on non-accrual status.

Net Interest Income

Net interest income represents the principal source of earnings of the Company.  Net interest income is the amount by which interest generated from earning assets exceeds the expense of funding those assets.  Changes in volume and mix of interest earning

36

assets and interest bearing liabilities, as well as their respective yields and rates, have a significant impact on the level of net interest income.

Net interest income was $9.97 million for the quarter ended June 30, 2016.  This is an increase of 7.04% compared to the same period in 2015.  The net interest margin for the quarter ended June 30, 2016 was 3.26% compared to a net interest margin of 3.24% for the same period in 2015. The net interest income was $19.72 million for the six months ended June 30, 2016. This is an increase of 4.09% over net interest income reported for the same period for 2015. The net interest margin for the six months ended June 30, 2016 was 3.25% compared to 3.32% for the same period for 2015.

The following factors contributed to the change in the net interest margin:

• Yields on earning assets for the quarter increased by 4 bp compared to the same period for 2015 as we redeployed proceeds from sales of securities as well as principal paydowns into higher yielding loans. Yields on earning assets for the six month period decreased by 7 bp compared to the same period for 2015 despite the strong growth in loans during the first half of 2016. Loan yields declined due to refinancing of existing loans and new loan originations generated at lower rates, that were reflective of the market.

• Yields on investment securities increased by 15 bp compared to the quarter ended June 30, 2015 and increased by 5 bp compared to the six month period ended June 30, 2015.

• Yields on loans decreased by 9 bp compared to the quarter ended June 30, 2015 and decreased by 22 bp compared to the six month period ended June 30, 2015.

• The cost of funds has remained stable at 38 bp, compared to the quarter and six month period ended June 30, 2015.

The net interest margin is calculated by dividing tax equivalent net interest income by total average earning assets.  Because a portion of interest income earned is nontaxable, the tax equivalent net interest income is considered in the calculation of this ratio.  The tax rate utilized in calculating the tax benefit for each of the reported periods is 34%.  The reconciliation of tax equivalent net interest income, which is not a measurement under U.S. GAAP, to net interest income is reflected in the table below.

	For the Three Months Ended June 30,				For the Six Months Ended June 30,
(Dollars in thousands)	2016		2015		2016		2015
GAAP measures:
Interest Income - Loans	$	8,543	$	8,014	$	16,773	$	16,257
Interest Income - Investments & Other	2,559		2,338		5,201		4,794
Interest Expense - Deposits	890		848		1,761		1,703
Interest Expense - Other Borrowings	243		191		495		404
Total Net Interest Income	$	9,969	$	9,313	$	19,718	$	18,944
Non-GAAP measures:
Tax Benefit Realized on:
Non-taxable interest income - municipal securities	226		231		460		469
Non-taxable interest income - loans	3		3		6		5
Total Tax Benefit Realized on Non-Taxable Interest Income	$	229	$	234	$	466	$	474
Total Tax Equivalent Net Interest Income	$	10,198	$	9,547	$	20,184	$	19,418

Based on our internal interest rate risk models and the assumption of a sustained low rate environment, the Company expects net interest income to trend upward slightly throughout the next 12 months as principal paydowns from the securities portfolio are redeployed into higher yielding loans. It is anticipated that targeted growth in earning assets and liability repricing opportunities will help mitigate the impact to the Company’s net interest margin.  The Asset/Liability Management Committee continues to focus on various strategies to maintain the net interest margin.

Non-Interest Income

Non-interest income has been and will continue to be an important factor for increasing profitability.  Management recognizes this and continues to review and consider areas where non-interest income can be increased.  Non-interest income includes fees generated by the commercial and retail banking segment and the wealth management segment.  Non-interest income for the quarter ended June 30, 2016 was higher by 5.90% compared to the quarter ended June 30, 2015.  Non-interest income for six months ended June 30, 2016 was lower by 10.11% compared to the same period for 2015. A more detailed discussion of non-interest income follows:

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• Total revenue generated by our wealth management group, Middleburg Investment Group ("MIG") declined by 8.93% and 6.95% compared to the same quarter and six month period in 2015. Fee income is based primarily upon the market value of assets under administration which were $1.86 billion at June 30, 2016 and $1.97 billion at June 30, 2015.

• Net gains on securities available for sale were $210,000 and $373,000 for the quarter and six month periods ended June 30, 2016. Securities were sold in order to fund loan growth.

• Other operating income was $213,000 for the quarter ended June 30, 2016, an increase of 30.67% compared to the quarter ended June 30, 2015. Other operating income was $356,000 for the six months ended June 30, 2016, a decrease of 63.75% compared to the same period in 2015. In the first quarter of 2015, there was a substantial recovery of approximately $500,000 in expenses related to a loan that had previously been charged off that was included in other operating income. Other operating income generally includes revenue from prepayment penalties, safe deposit charges, wire fees and other miscellaneous adjustments.

The following table depicts the changes in non-interest income:

(Dollars in thousands)	For the Three Months Ended June 30,					For the Six Months Ended June 30,
	2016		2015			2016		2015
Service charges on deposit accounts	$	286	$	270		$	565	$	528
Trust services income	1,132		1,243			2,290		2,461
ATM fee income, net	211		213			375		384
Gains (losses) on sales of loans held for sale, net	3		(6		)	12		(6		)
Gains on sales of securities available for sale, net	210		37			373		138
Commissions on investment sales	152		155			284		283
Bank owned life insurance	163		163			323		323
Other operating income	213		163			356		982
Total non-interest income	$	2,370	$	2,238		$	4,578	$	5,093

Non-Interest Expense

Non-interest expense for the quarter ended June 30, 2016, decreased by 1.46% compared to the same period in 2015. Non-interest expense increased by 0.78% compared to the six months ended June 30, 2015. Principal reasons for the changes in non-interest expenses were the following:

• Salaries and employee benefit expenses for the quarter decreased by 7.24% when compared to the same period in 2015. Salaries and employee benefit expenses decreased by 4.03% for the six month period ended June 30, 2016 when compared to the same period in 2015. The decreases in salaries and employee benefit expenses were primarily due to the Company's continued cost control initiatives.

• Costs related to other real estate owned (OREO) decreased for the quarter by $36,000 when compared to the same period in 2015 due to two sales that resulted in gains. Costs related to OREO increased $64,000 for the six month period ended June 30, 2016 when compared to the same period in 2015. The difference was due to valuation adjustments resulting from updated appraisals during the period.

• Computer operations expense for the quarter increased $76,000 when compared to the quarter ended June 30, 2015. Computer operations expense increased by $306,000 for the six month period ended June 30, 2016 when compared to the same period in 2015. The primary reasons for the increase in expenses are related to the conversion to a new on-line banking platform.

• Other operating expenses for the quarter increased by 14.48% when compared to the same period in 2015. Other operating expenses increased by 4.22% for the six month period ended June 30, 2016 when compared to the same period in 2015. This category includes meals and entertainment expenses, advisory expenses and legal costs.

The following table depicts the changes in non-interest expense:

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(Dollars in thousands)	For the Three Months Ended June 30,					For the Six Months Ended June 30,
	2016			2015		2016		2015
Salaries and employee benefits	$	4,613		$	4,973	$	9,425	$	9,821
Occupancy and equipment	1,261			1,305		2,675		2,731
Amortization	209			160		418		319
Computer operations	598			522		1,318		1,012
Other real estate owned, net	(11		)	25		156		92
Other taxes	237			231		472		454
Federal deposit insurance	216			184		391		395
Audits and exams	165			203		317		316
Other operating expenses	1,463			1,278		2,593		2,488
Total non-interest expense	$	8,751		$	8,881	$	17,765	$	17,628

The adjusted efficiency ratio is not a measurement under U.S. GAAP. The Company calculates its efficiency ratio by dividing non-interest expense (adjusted for amortization of intangibles and other real estate expenses) by the sum of tax equivalent net interest income and non-interest income excluding gains and losses on the investment portfolio. The tax rate utilized in calculating tax equivalent amounts is 34%. The Company calculates and reviews this ratio as a means of evaluating operational efficiency.

The calculation of the adjusted efficiency ratio for the three and six months ended June 30, 2016 and 2015 are as follows:

	For the Three Months Ended June 30,						For the Six Months Ended June 30,
(Dollars in thousands)	2016			2015			2016			2015
Summary of Operating Results:
Non-interest expense	$	8,751		$	8,881		$	17,765		$	17,628
Less: Intangible amortization	43			43			86			85
Less: Other real estate owned, net	(11		)	25			156			92
Adjusted non-interest expense	$	8,719		$	8,813		$	17,523		$	17,451
Net interest income	$	9,969		$	9,313		$	19,718		$	18,944
Non-interest income	2,370			2,238			4,578			5,093
Less: Gains on sales of securities available for sale, net	210			37			373			138
Adjusted non-interest income	$	2,160		$	2,201		$	4,205		$	4,955
Tax equivalent adjustment (2)	313			318			632			643
Total net interest income and non-interest income, adjusted	$	12,442		$	11,832		$	24,555		$	24,542
Efficiency ratio, adjusted	70.08		%	74.48		%	71.36		%	71.11		%
Efficiency ratio, U.S. GAAP(1)	70.92		%	76.89		%	73.12		%	73.34		%

⁽¹⁾  Computed by dividing non-interest expense by the sum of net interest income and non-interest income.

⁽²⁾  Includes tax-equivalent interest adjustments on loans and securities as well as tax-equivalent non-interest income adjustments related to the increase in cash surrender value of bank owned life insurance.

Income Taxes

Income taxes on earnings amounted to $885,000 resulting in an effective tax rate of 25.01% for the quarter ended June 30, 2016, compared with $815,000, or 26.33% for the quarter ended June 30, 2015. Income taxes on earnings amounted to $1.47 million, resulting in an effective tax rate of 23.83% for the six months ended June 30, 2016, compared with $1.66 million, or 25.94% for the six months ended June 30, 2015. The primary reason for the decline in the effective tax rate was a benefit from low income housing tax credits. For a further discussion of low income housing tax credits, see “Note 14. Low Income Housing Tax Credits".

Financial Condition

Assets, Liabilities and Shareholders’ Equity

Total consolidated assets at June 30, 2016 were $1.31 billion, an increase of 1.50% from December 31, 2015. Cash balances and deposits at other banks decreased by $6.61 million and securities portfolio balances decreased by $20.87 million compared to

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December 31, 2015. These decreases were primarily due to the funding of strong loan growth that was experienced in the second quarter of 2016 with loans held-for-investment growing by 6.08% or $48.97 million to $854.65 million as of June 30, 2016 compared to $805.68 million on December 31, 2015.

Total consolidated liabilities at June 30, 2016 were $1.19 billion, an increase of 1.28% from December 31, 2015. Total deposits increased by $15.57 million from December 31, 2015 to $1.06 billion as of June 30, 2016. Federal Home Loan Bank borrowings decreased by $5.5 million to $79.5 million.

Shareholders' equity at June 30, 2016 was $128.04 million, compared to $123.55 million at December 31, 2015. Retained earnings at June 30, 2016 were $63.26 million compared to $60.39 million at December 31, 2015. The book value of the Company’s common stock at June 30, 2016 was $18.03 per share versus $17.44 per share at December 31, 2015.

Loans

The following table summarized total loans by category:

	June 30,		Years Ended December 31,
(Dollars in thousands)	2016		2015		2014		2013		2012
Real estate loans:
Construction	$	42,947	$	39,673	$	33,050	$	36,025	$	50,218
Secured by farmland	18,875		19,062		19,708		16,578		11,876
Secured by 1-4 family residential	303,200		280,096		265,216		273,384		260,620
Other real estate loans	275,797		258,035		255,236		260,333		254,930
Commercial loans	194,712		190,482		163,269		129,554		118,573
Consumer loans	19,116		18,333		18,367		12,606		13,260
Total gross loans	854,647		805,681		754,846		728,480		709,477
Less allowance for loan losses	11,527		11,046		11,786		13,320		14,311
Net loans	$	843,120	$	794,635	$	743,060	$	715,160	$	695,166

Changes in the loan portfolio at June 30, 2016 compared to December 31, 2015 were as follows:

• Real estate construction loans primarily consist of pre-sold 1-4 family residential loans along with some commercial construction loans.  This category represented 5.0% of total loans, an increase of approximately $3.27 million from $39.67 million.  

• Loans secured by farmland decreased by $187,000 from $19.06 million.

• Loans secured by 1-4 family residential real estate represented 35.5% of total loans, an increase of $23.10 million.  

• Other real estate loans are typically non-farm, non-residential real estate loans which are, in most cases, owner-occupied commercial buildings.  Other real estate loans represented 32.3% of total loans, an increase of $17.76 million.

• Commercial loans, which consist of secured and unsecured loans to small businesses, increased by 2.22%.

• Consumer loans increased by $783,000 or 4.27%.

Asset Quality

Total nonperforming assets continue to be relatively stable, totaling $24.16 million as of June 30, 2016 compared to $25.51 million and $24.77 million as of December 31, 2015 and June 30, 2015, respectively. Nonperforming assets include:

• Nonaccrual loans declined by 20.58% to $6.98 million as of June 30, 2016 compared to $8.78 million as of December 31, 2015 and declined by 12.89% when compared to $8.01 million as of June 30, 2015. The decline in nonaccrual loans during the six months ended June 30, 2016 was primarily the result of:

◦ the sale of three loans with a recorded investment of approximately $225,000;

◦ a loan payoff of approximately $450,000;

◦ the principal reduction in one loan of approximately $500,000, and;

◦ the transfer of one loan to OREO with a recorded investment of approximately $530,000.

• Restructured loans that were accruing remained relatively flat at $12.41 million as of June 30, 2016 compared to $12.06 million and $12.14 million as of December 31, 2015 and June 30, 2015, respectively.

• Other real estate owned was $3.55 million as of June 30, 2016, relatively stable when compared to $3.35 million and $3.40 million as of December 31, 2015 and June 30, 2015, respectively.

• Loans past due for 90+ days and still accruing were $179,000 as of June 30, 2016 compared to $278,000 and $173,000 as of December 31, 2015 and June 30, 2015, respectively.

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Total past due loans increased by $2.63 million since December 31, 2015. The increase was largely the result of a previously identified problem loan. This loan was on nonaccrual and considered to be impaired at December 31, 2015. Based on our updated impairment evaluations for the quarter ended June 30, 2016, no additional reserves were required.

Total classified loans decreased from $49.63 million at December 31, 2015 to $40.03 million at June 30, 2016. The primary reason for the decline was due to the overall improvement in asset quality, as well as the sale and payoff of classified loans.

During the six months ended June 30, 2016, the Company received $4.4 million in proceeds from the sale of problem loans. Included in the sales were four loans with a recorded investment of $4.3 million, of which $1.2 million were on nonaccrual, as well as 28 loans with no outstanding recorded investment as they had been fully charged-off in prior periods. Gross charge-offs of $513,000 and gross recoveries of $640,000 were recorded through the allowance for loan losses during the six months ended June 30, 2016, related to the sales of these loans.

The table below summarizes nonperforming assets for the periods indicated.

	June 30,			December 31,
(Dollars in thousands)	2016			2015			2014			2013			2012
Nonaccrual loans	$	6,976		$	8,784		$	9,944		$	19,752		$	21,664
Restructured loans (1)	12,407			12,058			4,295			4,674			5,132
Accruing loans greater than 90 days past due	179			278			30			808			1,044
Total nonperforming loans	$	19,562		$	21,120		$	14,269		$	25,234		$	27,840
Other real estate owned	3,553			3,345			4,051			3,424			9,929
Repossessed assets (2)	1,043			1,043			1,132			—			—
Total nonperforming assets	$	24,158		$	25,508		$	19,452		$	28,658		$	37,769
Allowance for loan losses	$	11,527		$	11,046		$	11,786		$	13,320		$	14,311
Nonperforming loans to total loans	2.29		%	2.62		%	1.89		%	3.46		%	3.92		%
Allowance for loan losses to nonperforming loans	58.93		%	52.30		%	82.60		%	52.80		%	51.40		%
Nonperforming assets to total assets	1.84		%	1.97		%	1.59		%	2.33		%	3.05		%

⁽¹⁾  Amount reflects restructured loans that are not included in nonaccrual loans.

⁽²⁾  Included in other assets.

Included in nonperforming loans are troubled debt restructurings (“TDRs”). The total balance of TDRs at June 30, 2016 was $14.4 million of which $2.0 million were included in the Company’s nonaccrual loan totals at that date and $12.4 million represented loans performing as agreed to the restructured terms. This compares with $15.5 million in total TDRs at December 31, 2015. The amount of the valuation allowance related to TDRs was $1.1 million and $1.6 million as of June 30, 2016 and December 31, 2015, respectively.

The Company requires six timely consecutive monthly payments be made and future payments be reasonably assured, before a restructured loan that has been placed on nonaccrual can be returned to accrual status. The Company does not utilize formal modification programs or packages when loans are considered for restructuring.  Any loan restructuring is based on the borrower’s circumstances and may include modifications to more than one of the terms and conditions of the loan.

The Company has not performed any commercial real estate or other type of loan workout whereby the existing loan would have been structured into multiple new loans.

Allowance For Loan Losses

For a discussion of the Company’s accounting policies with respect to the allowance for loan losses, see “Critical Accounting Policies – Allowance for Loan Losses”.

The Company increased its allowance for loan and lease losses ("ALLL") slightly to $11.53 million or 1.35% of total loans at June 30, 2016 compared to $11.05 million or 1.37% of total loans at December 31, 2015. The increase was largely due to loan growth which led to higher general reserves. The provision for loan losses was $50,000 for the quarter ended June 30, 2016 compared to a recovery of provision of $425,000 for the same period of 2015. The provision for loan losses was $350,000 and $25,000 for the six month periods ended June 30, 2016 and 2015.

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The following table depicts the transactions, in summary form, related to the allowance for loan losses.

	For the Six Months Ended			For the Year Ended
(Dollars in thousands)	June 30, 2016			December 31, 2015
Balance, beginning of period	$	11,046		$	11,786
Add: Provision for loan losses	350			2,293
Less: Charge-offs:
Real estate loans:
Construction	$	(388	)	$	—
Secured by 1-4 family residential	(7		)	(344		)
Other real estate loans	(126		)	(9		)
Commercial loans	—			(3,281		)
Consumer loans	(11		)	(57		)
Total charge-offs	$	(532	)	$	(3,691	)
Add: Recoveries:
Real estate loans:
Construction	$	132		$	246
Secured by 1-4 family residential	394			359
Other real estate loans	23			28
Commercial loans	63			14
Consumer loans	51			11
Total recoveries	$	663		$	658
Net (charge-offs) recoveries	$	131		$	(3,033	)
Balance, end of period	$	11,527		$	11,046
Allowance for loan losses to total loans	1.35		%	1.37		%
Net (recoveries) charge-offs to average loans	(0.018		)%	0.39		%

The allocation of the allowance (dollars in thousands) at June 30, 2016 and December 31, 2015 were:

	June 30, 2016		December 31, 2015
Real estate construction	$	996	$	905
Real estate secured by farmland	174		192
Real estate secured by1-4 family residential	3,507		3,341
Other real estate loans	3,754		3,761
Commercial	2,153		1,706
Consumer	943		1,141
	$	11,527	$	11,046

The Company has allocated the allowance according to the amount deemed reasonably necessary to provide for the probable losses inherent within each loan category.  The allocation of the allowance should not be interpreted as an indication that loan losses in future years will occur in the same proportions that they may have in prior periods or that the allocation indicates future loan loss trends.  Additionally, the proportion allocated to each loan category is not the total amount that may be available for future losses that could occur within such categories since the total allowance is available to absorb losses on the total portfolio.

Securities

The carrying value of the securities portfolio, excluding restricted stock, was $357.91 million at June 30, 2016, compared to $378.78 million at December 31, 2015.  

Unrealized losses were $2.25 million and $3.03 million at June 30, 2016 and December 31, 2015, respectively. Unrealized gains were $8.53 million and $5.82 million at June 30, 2016 and December 31, 2015, respectively. At June 30, 2016, the Company evaluated the investment portfolio for possible other-than-temporary impairment and concluded that no adverse change in cash flows occurred and did not consider any securities to be other-than-temporarily impaired. 

Goodwill and Other Identified Intangibles

Goodwill and other identified intangibles decreased by $86,000 from year end 2015 to $3.55 million at June 30, 2016. This decrease is attributable to amortization expense related to intangibles.

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Deposits

Total deposits increased by $15.57 million from December 31, 2015 to $1.06 billion as of June 30, 2016, primarily due to strong deposit inflows, specifically in time deposits and non-interest bearing business checking accounts during the period.

Time deposits increased by $16.55 million or 6.77% from December 31, 2015 to $261.12 million at June 30, 2016. Time deposits include brokered certificates of deposit and CDARS deposits. Securities sold under agreements to repurchase (“Repo Accounts”) increased by $4.17 million from $26.87 million at December 31, 2015 to $31.04 million at June 30, 2016. The Repo Accounts include certain long-term commercial checking accounts with average balances that typically exceed $100,000. All repurchase agreement transactions entered into by the Company are accounted for as collateralized financings and not as sales.

FHLB Borrowings

The Company had no overnight advances from the Federal Home Loan Bank of Atlanta (“FHLB”) outstanding at June 30, 2016. FHLB term advances were $79.50 million at June 30, 2016, lower by $5.50 million compared to December 31, 2015.  The majority of FHLB advances have a remaining maturity of less than one year and we expect to replace them with core deposits as the advances mature.

Capital Resources and Dividends

Shareholders' equity was $128.04 million at June 30, 2016 compared to $123.55 million at December 31, 2015. During the quarter and six month period ended June 30, 2016, the Company declared common stock dividends of $0.13 per share and $0.26 per share, respectively, compared to $0.10 per share and $0.20 per share for the same periods in 2015. The book value of common stock was $18.03 per share at June 30, 2016 and $17.44 at December 31, 2015.

On September 15, 2015, the Company's Board of Directors authorized the repurchase of up to $10 million of the Company’s common stock, or approximately 8% of the Company’s outstanding shares. The repurchase program was effective immediately and runs through December 31, 2017. This program replaces the previous repurchase program adopted in 1999, pursuant to which the Company had 24,084 shares remaining eligible for repurchase. As of June 30, 2016, the Company had repurchased a total of 104,300 shares under the current plan, with a total cost of $1.91 million and for a weighted average price of $18.33.

The Company's capital ratios were well above regulatory minimums as of June 30, 2016 and December 31, 2015:

• Total Risk Based Capital ratio of 17.34% and 17.50% at June 30, 2016 and December 31, 2015, respectively.  

• Common Equity Tier 1 ratio of 15.44% and 15.60% at June 30, 2016 and December 31, 2015, respectively.

• Tier 1 Capital ratio of 16.08% and 16.30% at June 30, 2016 and December 31, 2015, respectively. 

• Leverage ratio of 9.45% at June 30, 2016 compared to 9.60% at December 31, 2015.

The Company's capital conservation buffer was 9.34% at the end of the second quarter of 2016.

The Company’s Tier 1 capital and Total capital includes $5.0 million of trust preferred securities. Under the changes to the regulatory capital framework that were approved on July 9, 2013 by the federal banking agencies (Basel III Final Rule), the Company's trust preferred securities will continue to be included in Tier 1 capital and Total capital until they mature, pursuant to a "grandfathering" provision that exempts Middleburg Financial Corporation's securities from the more stringent regulatory capital treatment contained in the Basel III Final Rule for trust preferred securities. In addition to "grandfathering" certain previously outstanding trust preferred securities for community banks, the Basel III Final Rule introduces a new Common Equity Tier 1 capital measure, increases the applicable minimum regulatory capital levels and certain prompt corrective action capital levels, and establishes a capital conservation buffer and new risk weights for certain types of assets. The implementation date of the Basel III capital rules was January 1, 2015 for all US banking organizations not subject to the advanced approaches capital rules and the date for banking organizations to meet the fully phased in Basel III capital ratios is January 1, 2019. The Company is not subject to the advanced approaches capital rules. An advanced approaches banking organization is one that has total assets of $250 billion or more or foreign asset exposure of $10 billion or more (or elects with approval from its primary federal regulator to use the advanced approaches methodology to calculate risk weights).

43

Furthermore, with the Basel III Final Rule, banks must maintain minimum capital ratios in accordance with the following guidelines:    

Capital Ratios	Basel Rule (2)		FDIC PCA (1)
Tier 1 leverage/Average assets ratio	4.0	%	5.0	%
Common equity tier 1/Risk weighted assets ratio	7.0	%	6.5	%
Tier 1 risk-based capital/Risk weighted assets ratio	8.5	%	8.0	%
Total risk-based capital/Risk weighted assets ratio	10.5	%	10.0	%

⁽¹⁾  Prompt Corrective Action    

⁽²⁾  Assumes fully phased-in Basel III regulatory capital rules. The Common Equity Ratio, the Tier 1 Ratio and the Total Capital Ratio include a 2.50% Capital Conservation Buffer that must be maintained in order for the bank to remain well capitalized and to avoid restrictions on payments of dividends, bonuses, capital repurchases and restricted payments.

A banking organization with a buffer greater than 2.5% would not be subject to limits on capital distributions or discretionary bonus payments. However, a banking organization with a buffer of less than 2.5% would be subject to increasingly stringent limitations as the buffer approaches zero. The Basel III rule also prohibits a banking organization from making distributions or discretionary bonus payments during any quarter if its eligible retained income is negative in that quarter and its capital conservation buffer ratio was less than 2.5% at the beginning of the quarter.

The following table shows the restrictions for various ranges of the buffer:

Capital Conservation Buffer	Maximum Payout as a Percentage of Eligible Retained Income
Less than or = 0.625%	—	%
Less than or = 1.25% and greater than 0.625%	20.0	%
Less than or = 1.875% and greater than 1.25%	40.0	%
Less than or = 2.50% and greater than 1.875%	60.0	%
Greater than 2.50%	No payment limit applies

The eligible retained income of the Company is defined as its net income for the four calendar quarters preceding the current calendar quarter, based on the Company's quarterly regulatory reports, net of any distributions and associated tax effects not already considered in net income.

Liquidity

Liquidity represents an institution’s ability to meet present and future financial obligations through either the sale or maturity of existing assets or the acquisition of additional funds through liability management.  Liquid assets include cash, interest-bearing deposits with banks, federal funds sold, short-term investments, securities classified as available for sale and loans and securities maturing within one year.  As a result of the Company’s management of liquid assets and the ability to generate liquidity through liability funding, management believes the Company maintains overall liquidity sufficient to satisfy its depositors’ requirements and meet its customers’ credit needs.

The Company also maintains additional sources of liquidity through a variety of borrowing arrangements.  Middleburg Bank maintains federal funds lines with large regional and money-center banking institutions.  These available lines total approximately $45.0 million, none of which had outstanding balances at June 30, 2016.  Middleburg Bank is also able to borrow from the discount window of the Federal Reserve Bank of Richmond.  At June 30, 2016, available borrowing capacity from this source was $41.34 million.  At June 30, 2016, Middleburg Bank had $31.04 million of outstanding borrowings pursuant to securities sold under agreements to repurchase transactions (“Repo Accounts”), with maturities of one day.  The Repo Accounts are long-term commercial checking accounts with average balances that typically exceed $100,000.  

The Company has a secured line of credit with the Federal Home Loan Bank of Atlanta. The credit available from this line depends on the total assets of the bank. As of June 30, 2016, the remaining credit availability from this line was $298.25 million, while the amount of eligible collateral, in the form of qualifying real estate secured loans, was $205.47 million. The bank would have to post additional collateral, in the form of eligible securities, if it sought to borrow more than the amount of eligible lending collateral. The Company had $219.47 million of unencumbered securities as of June 30, 2016.

At June 30, 2016, cash, interest-bearing deposits with other banks, federal funds sold, short-term investments and unencumbered securities available for sale were 21.28% of total liabilities.

44

Off-Balance Sheet Arrangements

As of June 30, 2016, there have been no material changes to the off-balance sheet arrangements disclosed in “Management’s Discussion and Analysis” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015.

Caution About Forward Looking Statements

Certain information contained in this discussion may include “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.  These forward-looking statements are generally identified by phrases such as “the Company expects,” “the Company believes” or words of similar import.

Such forward-looking statements involve known and unknown risks including, but not limited to, the following factors:

• further adverse changes in general economic and business conditions in the Company’s market area;

• changes in banking and other laws and regulations applicable to the Company;

• maintaining asset qualities;

• the ability to properly identify risks in our loan portfolio and calculate an adequate loan loss allowance;

• risks inherent in making loans such as repayment risks and fluctuating collateral values;

• concentration in loans secured by real estate;

• changing trends in customer profiles and behavior;

• changes in interest rates and interest rate policies;

• maintaining cost controls as the Company opens or acquires new facilities;

• competition with other banks and financial institutions, and companies outside of the banking industry, including those companies that have substantially greater access to capital and other resources;

• the ability to continue to attract low cost core deposits to fund asset growth;

• the ability to successfully manage the Company’s growth or implement its growth strategies if it is unable to identify attractive markets, locations or opportunities to expand in the future;

• reliance on the Company’s management team, including its ability to attract and retain key personnel;

• demand, development and acceptance of new products and services;

• problems with technology utilized by the Company;

• maintaining capital levels adequate to support the Company’s growth; and

• other factors described in Item 1A, “Risk Factors,” discussed in more detail in the Company's Annual Report on Form 10-K for the year ended December 31, 2015.

Although the Company believes that its expectations with respect to the forward-looking statements are based upon reliable assumptions within the bounds of its knowledge of its business and operations, there can be no assurance that actual results, performance or achievements of the Company will not differ materially from any future results, performance or achievements expressed or implied by such forward-looking statements.

ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk is the risk of loss in a financial instrument arising from adverse changes in market rates or prices such as interest rates, foreign currency exchange rates, commodity prices and equity prices.  The Company’s primary market risk exposure is interest rate risk, though it should be noted that the assets under management by Middleburg Trust Company are affected by equity price risk.  The ongoing monitoring and management of this risk is an important component of the Company’s asset/liability management process, which is governed by policies established by its Board of Directors that are reviewed and approved annually. The Board of Directors delegates responsibility for carrying out asset/liability management policies to the Asset/Liability Committee (“ALCO”) of Middleburg Bank.  In this capacity, ALCO develops guidelines and strategies that govern the Company’s asset/liability management related activities, based upon estimated market risk sensitivity, policy limits and overall market interest rate levels and trends.

Interest rate risk represents the sensitivity of earnings to changes in market interest rates.  As interest rates change, the interest income and expense streams associated with the Company’s financial instruments also change, affecting net interest income, the primary component of the Company’s earnings.  ALCO uses the results of a detailed and dynamic simulation model to quantify the estimated exposure of net interest income to sustained interest rate changes.  While ALCO routinely monitors simulated net interest income sensitivity over a rolling two-year horizon, it also employs additional tools to monitor potential longer-term interest rate risk.  

45

The simulation model captures the impact of changing interest rates on the interest income received and interest expense paid on all assets and liabilities reflected on the Company’s balance sheet.  The simulation model is prepared and updated four times during each year.  This sensitivity analysis is compared to ALCO policy limits, which specify a maximum tolerance level for net interest income exposure over a one-year horizon, assuming no balance sheet growth, given a 200 basis point (bp) upward shift and a 200 basis point downward shift in interest rates.  The following reflects the range of the Company’s net interest income sensitivity analysis as of June 30, 2016 and December 31, 2015.

Estimated Net Interest Income Sensitivity
Rate Change	June 30, 2016	December 31, 2015
+ 200 bps	6.0%	(2.7)%
- 200 bps	(11.5)%	(13.4)%

At June 30, 2016, the Company’s interest rate risk model indicated that for an immediate 200 basis points increase in interest rates, net interest income was expected to increase by 6.00% over a 12-month period.  For the same time period, the interest rate risk model indicated that, for an immediate 200 basis points decrease in interest rates, net interest income was expected to decrease by 11.5% over a 12-month period.  While these numbers are subjective based upon the parameters used within the model, management believes the balance sheet is slightly asset sensitive.

The Company’s specific goal is to lower, where possible, the cost of its borrowed funds by replacing borrowings with lower cost core deposits.

The preceding sensitivity analysis does not represent the Company's forecast and should not be relied upon as being indicative of expected operating results.  These hypothetical estimates are based upon numerous assumptions, including the nature and timing of interest rate levels including yield curve shape, prepayments on loans and securities, deposit decay rates, pricing decisions on loans and deposits, reinvestment or replacement of asset and liability cash flows.  While assumptions are developed based upon current economic and local market conditions, the Company cannot make any assurances about the predictive nature of these assumptions, including how customer preferences or competitor influences might change.

Also, as market conditions vary from those assumed in the sensitivity analysis, actual results will also differ due to factors such as prepayment and refinancing levels likely deviating from those assumed, the varying impact of interest rate change, caps or floors on adjustable rate assets, the potential effect of changing debt service levels on customers with adjustable rate loans, depositorearly withdrawals and product preference changes, and other internal and external variables.  Furthermore, the sensitivity analysis does not reflect actions that the ALCO might take in response to or in anticipation of changes in interest rates.

ITEM 4.    CONTROLS AND PROCEDURES

As of the end of the period covered by this report, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended.)  Based upon that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective.

The Company’s management is also responsible for establishing and maintaining adequate internal control over financial reporting.  There were no changes in the Company’s internal control over financial reporting identified in connection with the evaluation of it that occurred during the Company’s last fiscal quarter that materially affected, or are reasonably likely to materially affect, internal control over financial reporting.

PART II

ITEM 1.    LEGAL PROCEEDINGS

There are no material pending legal proceedings to which the Company is a party or of which the property of the Company is subject.

46

ITEM 1A.    RISK FACTORS

Our operations are subject to many risks that could adversely affect our future financial condition and performance and, therefore, the market value of our securities. The risk factors that are applicable to us are outlined in our Annual Report on Form 10-K for the year ended December 31, 2015. There have been no material changes in our risk factors from those disclosed in this report.

ITEM 2.    UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

On September 15, 2015, the Company's Board of Directors authorized the repurchase of up to $10 million of the Company’s common stock, or approximately 8% of the Company’s outstanding shares. The repurchase program was effective immediately and runs through December 31, 2017. This program replaces the previous repurchase program adopted in 1999, pursuant to which the Company had 24,084 shares remaining eligible for repurchase.

There were no repurchases of the Company's common stock that occurred during the quarter ended June 30, 2016.

ITEM 3.    DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4.MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5.    OTHER INFORMATION

None.

ITEM 6.    EXHIBITS

3.1 Bylaws of Middleburg Financial Corporation (restated in electronic format as of July 27, 2016), filed as Exhibit 3.1 to the current report on Form 8-K filed July 28, 2016 and incorporated herein by reference.

31.1 Rule 13a-14(a) Certification of Chief Executive Officer

31.2 Rule 13a-14(a) Certification of Chief Financial Officer

32.1 Statement of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. § 1350

101 The following materials from the Middleburg Financial Corporation Quarterly Report on Form 10-Q for the quarter ended June 30, 2016 formatted in Extensible Business reporting Language (XBRL):  (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Income, (iii) Consolidated Statements of Comprehensive Income, (iv) Consolidated Statements of Changes in Shareholders’ Equity, (v) Consolidated Statements of Cash Flows, and (vi) Notes to Consolidated Financial Statements.

47

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

MIDDLEBURG FINANCIAL CORPORATION
Date:	August 9, 2016	By:	/s/ Gary R. Shook
			Gary R. Shook
			Chief Executive Officer
Date:	August 9, 2016	By:	/s/ Raj Mehra
			Raj Mehra
			Chief Financial Officer

48

EXHIBIT INDEX

Exhibits

3.1	Bylaws of Middleburg Financial Corporation (restated in electronic format as of July 27, 2016), filed as Exhibit 3.1 to the current report on Form 8-K filed July 28, 2016 and incorporated herein by reference.
31.1	Rule 13a-14(a) Certification of Chief Executive Officer
31.2	Rule 13a-14(a) Certification of Chief Financial Officer
32.1	Statement of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. § 1350
101	The following materials from the Middleburg Financial Corporation Quarterly Report on Form 10-Q for the quarter ended June 30, 2016 formatted in Extensible Business reporting Language (XBRL):  (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Income, (iii) Consolidated Statements of Comprehensive Income, (iv) Consolidated Statements of Changes in Shareholders’ Equity, (v) Consolidated Statements of Cash Flows, and (vi) Notes to Consolidated Financial Statements.

EX-31.1

Exhibit 31.1

CERTIFICATION

I, Gary R. Shook, certify that:

1. I have reviewed the Quarterly Report on Form 10-Q of Middleburg Financial Corporation for the period ended June 30, 2016;

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

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

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

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

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

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

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

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

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

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

Date:  August 9, 2016

/s/ Gary R. Shook

Gary R. Shook

President & Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION

I, Raj Mehra, certify that:

1. I have reviewed the Quarterly Report on Form 10-Q of Middleburg Financial Corporation for the period ended June 30, 2016;

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

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

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

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

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

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

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

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

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

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

Date:  August 9, 2016

/s/ Raj Mehra

Raj Mehra

Executive Vice President and

Chief Financial Officer

EX-32.1

Exhibit 32.1

STATEMENT OF CHIEF EXECUTIVE OFFICER AND

CHIEF FINANCIAL OFFICER PURSUANT TO 18 U.S.C. § 1350

In connection with the Quarterly Report on Form 10-Q for the period ended June 30, 2016 (the “Form 10-Q”) of Middleburg Financial Corporation (the “Company”), we, Gary R. Shook, Chief Executive Officer of the Company, and Raj Mehra, Chief Financial Officer of the Company, hereby certify pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to our knowledge:

(a) the Form 10-Q fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934, as amended; and

(b) the information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company as of and for the periods presented in the Form 10-Q.

By:	/s/ Gary R. Shook	Date:	August 9, 2016
	Gary R. Shook
	Chief Executive Officer
By:	/s/ Raj Mehra	Date:	August 9, 2016
	Raj Mehra
	Chief Financial Officer

XML

Document and Entity Information - shares	6 Months Ended
	Jun. 30, 2016	Aug. 09, 2016
Document and Entity Information [Abstract]
Entity Registrant Name	MIDDLEBURG FINANCIAL CORP
Entity Central Index Key	0000914138
Current Fiscal Year End Date	--12-31
Entity Filer Category	Accelerated Filer
Entity Common Stock, Shares Outstanding		7,101,864
Document Fiscal Year Focus	2016
Document Fiscal Period Focus	Q2
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Jun. 30, 2016

XML

CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands	Jun. 30, 2016	Dec. 31, 2015
ASSETS
Cash and due from banks	$ 6,548	$ 5,489
Interest bearing deposits with other banks	26,072	33,739
Total cash and cash equivalents	32,620	39,228
Securities held to maturity, fair value of $11,080 and $4,163, respectively	10,727	4,207
Securities available for sale, at fair value	347,183	374,571
Restricted securities, at cost	6,243	6,411
Loans, net of allowance for loan losses of $11,527 and $11,046, respectively	843,120	794,635
Loans held for sale	189	0
Premises and equipment, net	18,944	19,531
Goodwill and identified intangibles, net	3,550	3,636
Other real estate owned, net of valuation allowance	3,553	3,345
Bank owned life insurance	23,596	23,273
Accrued interest receivable and other assets	24,611	26,026
TOTAL ASSETS	1,314,336	1,294,863
Deposits:
Non-interest bearing demand deposits	249,236	235,897
Savings and interest bearing demand deposits	546,012	560,328
Time deposits	261,121	244,575
Total deposits	1,056,369	1,040,800
Securities sold under agreements to repurchase	31,043	26,869
Federal Home Loan Bank borrowings	79,500	85,000
Subordinated notes	5,155	5,155
Accrued interest payable and other liabilities	14,230	13,485
TOTAL LIABILITIES	1,186,297	1,171,309
Commitments and contingencies
SHAREHOLDERS' EQUITY
Common stock ($2.50 par value; 20,000,000 shares authorized; 7,101,390 and 7,085,217 issued and outstanding, respectively)	17,326	17,330
Capital surplus	43,923	44,155
Retained earnings	63,259	60,392
Accumulated other comprehensive income	3,531	1,677
TOTAL SHAREHOLDERS' EQUITY	128,039	123,554
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$ 1,314,336	$ 1,294,863

XML

CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($) $ in Thousands	Jun. 30, 2016	Dec. 31, 2015
ASSETS
Securities held to maturity	$ 11,080	$ 4,163
Loans, allowance for loan losses	$ 11,527	$ 11,046
SHAREHOLDERS' EQUITY
Common stock, par value (in dollars per share)	$ 2.50	$ 2.50
Common stock, shares authorized (in shares)	20,000,000	20,000,000
Common stock, shares issued (in shares)	7,101,390	7,085,217
Common stock, shares outstanding (in shares)	7,101,390	7,085,217

XML

CONSOLIDATED STATEMENTS OF INCOME - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015
INTEREST INCOME
Interest and fees on loans	$ 8,543	$ 8,014	$ 16,773	$ 16,257
Interest and dividends on securities
Taxable	1,992	1,792	4,065	3,698
Tax-exempt	440	449	892	910
Dividends	87	66	156	125
Interest on deposits with other banks and federal funds sold	40	31	88	61
Total interest and dividend income	11,102	10,352	21,974	21,051
INTEREST EXPENSE
Interest on deposits	890	848	1,761	1,703
Interest on securities sold under agreements to repurchase	0	17	1	62
Interest on FHLB borrowings and other debt	243	174	494	342
Total interest expense	1,133	1,039	2,256	2,107
NET INTEREST INCOME	9,969	9,313	19,718	18,944
Provision for (recovery of) loan losses	50	(425)	350	25
NET INTEREST INCOME AFTER PROVISION FOR (RECOVERY OF) LOAN LOSSES	9,919	9,738	19,368	18,919
NON-INTEREST INCOME
Service charges on deposit accounts	286	270	565	528
Trust services income	1,132	1,243	2,290	2,461
ATM fee income, net	211	213	375	384
Gains (losses) on sales of loans held for sale, net	3	(6)	12	(6)
Gains on sales of securities available for sale, net	210	37	373	138
Commissions on investment sales	152	155	284	283
Bank owned life insurance	163	163	323	323
Other operating income	213	163	356	982
Total non-interest income	2,370	2,238	4,578	5,093
NON-INTEREST EXPENSE
Salaries and employee benefits	4,613	4,973	9,425	9,821
Occupancy and equipment	1,261	1,305	2,675	2,731
Amortization	209	160	418	319
Computer operations	598	522	1,318	1,012
Other real estate owned, net	(11)	25	156	92
Other taxes	237	231	472	454
Federal deposit insurance	216	184	391	395
Audits and exams	165	203	317	316
Other operating expenses	1,463	1,278	2,593	2,488
Total non-interest expense	8,751	8,881	17,765	17,628
Income before income taxes	3,538	3,095	6,181	6,384
Income tax expense	885	815	1,473	1,656
NET INCOME	$ 2,653	$ 2,280	$ 4,708	$ 4,728
Earnings per share:
Basic (in dollars per share)	$ 0.37	$ 0.32	$ 0.66	$ 0.66
Diluted (in dollars per share)	$ 0.37	$ 0.32	$ 0.66	$ 0.66

XML

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015
Statement of Comprehensive Income [Abstract]
Net income	$ 2,653	$ 2,280	$ 4,708	$ 4,728
Other comprehensive income (loss), net of tax:
Unrealized holding gains (losses) arising during the period, net of tax, ($483), $916, ($1,176) and $333, respectively	938	(1,780)	2,285	(644)
Reclassification adjustment for gains included in net income, net of tax, $72, $13, $127 and $47, respectively	(138)	(24)	(246)	(91)
Unrealized gains (losses) on interest rate swaps, net of tax, $17, ($29), $95 and $0, respectively	(36)	56	(185)	(1)
Reclassification adjustment for gain on interest rate swap ineffectiveness included in net income, net of tax, $0, $0, $0 and $2, respectively	0	0	0	(4)
Total other comprehensive income (loss)	764	(1,748)	1,854	(740)
Total comprehensive income	$ 3,417	$ 532	$ 6,562	$ 3,988

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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Parenthetical) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015
Other comprehensive income (loss), net of tax:
Unrealized holding gains (losses), tax	$ (483)	$ 916	$ (1,176)	$ 333
Reclassification adjustment, tax	72	13	127	47
Unrealized loss on interest rate swaps tax	17	(29)	95	0
Reclassification adjustment, derivative, tax	$ 0	$ 0	$ 0	$ 2

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CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY - USD ($) $ in Thousands	Total	Common Stock [Member]	Capital Surplus [Member]	Retained Earnings [Member]	Accumulated Other Comprehensive Income [Member]
Balance at Dec. 31, 2014	$ 122,034	$ 17,494	$ 44,892	$ 55,854	$ 3,794
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income	4,728			4,728
Other comprehensive loss, net of tax	(740)				(740)
Cash dividends ($0.20 for 6 months ended June 30, 2015 and $0.26 declared for 6 months ended June 30, 2016)	(1,430)			(1,430)
Restricted stock vesting (15,525 shares for 6 months ended June 30, 2015 and 33,525 shares for the 6 months ended June 30, 2016)	0	38	(38)
Repurchase of restricted stock (4,538 shares for the 6 months ended June 30, 2015 and 12,914 shares for the 6 months ended June 30, 2016)	(82)	(11)	(71)
Share-based compensation	280		280
Balance at Jun. 30, 2015	124,790	17,521	45,063	59,152	3,054
Balance at Dec. 31, 2015	123,554	17,330	44,155	60,392	1,677
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income	4,708			4,708
Other comprehensive loss, net of tax	1,854				1,854
Cash dividends ($0.20 for 6 months ended June 30, 2015 and $0.26 declared for 6 months ended June 30, 2016)	(1,841)			(1,841)
Exercise of stock options (4,638 shares)	64	11	53
Restricted stock vesting (15,525 shares for 6 months ended June 30, 2015 and 33,525 shares for the 6 months ended June 30, 2016)	0	84	(84)
Repurchase of restricted stock (4,538 shares for the 6 months ended June 30, 2015 and 12,914 shares for the 6 months ended June 30, 2016)	(256)	(32)	(224)
Share-based compensation	445		445
Repurchase of common stock (26,800 shares)	(489)	(67)	(422)
Balance at Jun. 30, 2016	$ 128,039	$ 17,326	$ 43,923	$ 63,259	$ 3,531

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CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (Parenthetical) - $ / shares	6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015
Statement of Stockholders' Equity [Abstract]
Cash dividends, common stock (in dollars per share)	$ 0.26	$ 0.20
Exercise of stock options (in shares)	4,638
Restricted stock vesting (in shares)	33,525	15,525
Repurchase of restricted stock (in shares)	12,914	4,538
Repurchase of common stock (in shares)	26,800

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CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015
Cash Flows From Operating Activities
Net income	$ 4,708	$ 4,728
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	1,301	1,171
Provision for (recovery of) loan losses	350	25
Originations of mortgage loans held for sale	(1,186)	(287)
Proceeds from the sales of mortgage loans held for sale	1,009	281
(Gains) losses on the sales of mortgage loans held for sale, net	(12)	6
Gains on sales of securities available for sale, net	(373)	(138)
Losses on disposal of assets, net	2	9
Premium amortization on securities, net	2,232	1,927
Share-based compensation	445	280
(Gains) losses on sale of other real estate owned, net	(50)	35
Valuation adjustments on other real estate owned	144	20
Increase in bank owned life insurance cash surrender value	(323)	(323)
Changes in assets and liabilities:
Increase in other assets	(352)	(1,124)
Increase (decrease) in other liabilities	745	(498)
Net cash provided by operating activities	8,640	6,112
Cash Flows from Investing Activities
Proceeds from calls, principal repayments and sales of securities available for sale	72,830	62,646
Purchase of securities available for sale	(44,213)	(69,277)
Purchase of securities held to maturity	(6,520)	0
(Purchase) redemption of restricted stock, net	168	(495)
Purchase of bank premises and equipment, net	(97)	(2,471)
Loan originations, net	(17,390)	(4,060)
Purchases of loans	(36,383)	(15,228)
Proceeds from sales of loans	4,412	1,127
Proceeds from sale of other real estate owned and repossessed assets	224	673
Net cash used in investing activities	(26,969)	(27,085)
Cash Flows from Financing Activities
Increase (decrease) in demand, interest-bearing demand and savings deposits	(977)	22,089
Increase (decrease) in time deposits	16,546	(5,717)
Increase (decrease) in securities sold under agreements to repurchase	4,174	(14,502)
Increase (decrease) in FHLB borrowings	(5,500)	15,000
Payment of dividends on common stock	(1,841)	(1,430)
Proceeds from issuance of common stock, net	64	0
Repurchase of common stock	(745)	(82)
Net cash provided by financing activities	11,721	15,358
Decrease in cash and cash equivalents	(6,608)	(5,615)
Cash and cash equivalents at beginning of the period	39,228	55,022
Cash and cash equivalents at end of the period	32,620	49,407
Supplemental Disclosures of Cash Flow Information
Interest paid	2,273	2,147
Income taxes	625	1,360
Supplemental Disclosure of Non-Cash Transactions
Unrealized gain on securities available for sale	3,088	(1,115)
Change in fair value of interest rate swaps	(280)	(7)
Transfer of loans to other real estate owned	$ 526	$ 0

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General

6 Months Ended

Jun. 30, 2016

Organization, Consolidation and Presentation of Financial Statements [Abstract]

General

General

In the opinion of management, the accompanying unaudited financial statements contain all adjustments (consisting of only normal recurring accruals) necessary to present fairly the financial position at June 30, 2016 and December 31, 2015, the results of operations and comprehensive income, for the three and six month periods ending June 30, 2016 and 2015 and changes in shareholders' equity and cash flows for the six months ended June 30, 2016 and 2015, in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP").  The statements should be read in conjunction with the Notes to Consolidated Financial Statements included in the Annual Report on Form 10-K for the year ended December 31, 2015 (the “2015 Form 10-K”) of Middleburg Financial Corporation (the “Company”).  The results of operations for the three and six months ended June 30, 2016 are not necessarily indicative of the results to be expected for the full year.

In preparing these financial statements, management has evaluated subsequent events and transactions for potential recognition or disclosure through the date these financial statements were issued.  Management has concluded there were no additional material subsequent events to be disclosed.

Certain amounts in the 2015 consolidated financial statements have been reclassified to conform to the 2016 presentation. No reclassifications were significant and there was no effect on net income.

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Share-Based Compensation Plan

6 Months Ended

Jun. 30, 2016

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

Share-Based Compensation Plan

Share-Based Compensation Plan

The Company sponsors one share-based compensation plan, the 2006 Equity Compensation Plan, which provides for the granting of stock options, stock appreciation rights, stock awards, performance share awards, incentive awards, and stock units.  The 2006 Equity Compensation Plan was approved by the Company’s shareholders at the Annual Meeting held on April 26, 2006, and succeeded the Company’s 1997 Stock Incentive Plan.  The plan expired by its own terms in February 2016, before which, the Company granted share-based compensation to its directors, officers, employees, and other persons the Company determined to have contributed to the profits or growth of the Company.  The number of shares reserved for issuance totaled 430,000.

For the three months ended June 30, 2016 and 2015, the Company recorded $256,000 and $150,000, respectively, in share-based compensation. For the six months ended June 30, 2016 and 2015, the Company recorded $445,000 and $280,000, respectively, in share-based compensation expense. As of June 30, 2016, there was $2.1 million of total unrecognized compensation expense related to non-vested restricted awards under the 2006 Equity Compensation Plan. For the three and six months ended June 30, 2016 and 2015, the Company recorded no compensation expense related to option awards. As of June 30, 2016 all outstanding option awards were previously vested and, accordingly, there was no unrecognized compensation expense as of June 30, 2016.  

The aggregate intrinsic value, noted in the option table below, represents the amount by which the current market value of the underlying stock exceeds the exercise price as of June 30, 2016. Given there is no exercise price for restricted stock, the aggregate value is equal to the current market value of the stock. These amounts change based on changes in the market value of the Company’s common stock.

The following table summarizes restricted stock awarded under the 2006 Equity Compensation Plan:

	June 30, 2016
	Shares		Weighted-Average Grant Date Fair Value		Aggregate Value (in thousands)
Non-vested at December 31, 2015	153,399		$	17.17
Granted	53,500		20.76
Vested	(33,525	)	16.48
Forfeited	(2,250	)	19.91
Non-vested at June 30, 2016	171,124		$	18.39	$	4,655

The weighted-average remaining contractual term for non-vested restricted stock awards at June 30, 2016, was 2.76 years. 

The following table summarizes options outstanding under the 2006 Equity Compensation Plan and remaining outstanding unexercised options under the 1997 Stock Incentive Plan.  

	June 30, 2016
	Shares		Weighted-Average Exercise Price		Aggregate Intrinsic Value (in thousands)
Outstanding at December 31, 2015	30,012		$	14.00	$	—
Granted	—		—		—
Exercised	(4,638	)	14.00		—
Forfeited	—		—		—
Outstanding at June 30, 2016	25,374		$	14.00	$	335
Options exercisable at June 30, 2016	25,374		$	14.00	$	335

The total intrinsic value of options exercised was $61,000 during the three and six months ended June 30, 2016, respectively.

As of June 30, 2016, options outstanding and exercisable are summarized as follows:

Exercise Prices		Options Outstanding	Weighted-Average Remaining Contractual Life (years)	Options Exercisable
$	14.00	20,374	2.70	20,374
$	14.00	5,000	3.34	5,000
$	14.00	25,374	2.83	25,374

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Securities

6 Months Ended

Jun. 30, 2016

Investments, Debt and Equity Securities [Abstract]

Securities

Securities

Amortized costs and fair values of securities held to maturity are summarized as follows.

	June 30, 2016
(Dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Held to Maturity
Obligations of states and political subdivisions	$	6,477	$	253	$	—	$	6,730
Corporate securities	4,250		100		—		4,350
Total	$	10,727	$	353	$	—	$	11,080

	December 31, 2015
(Dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Held to Maturity
Obligations of states and political subdivisions	$	1,457	$	—	$	(38	)	$	1,419
Corporate securities	2,750		24		(30		)	2,744
Total	$	4,207	$	24	$	(68	)	$	4,163

The amortized cost and fair value of securities held to maturity as of June 30, 2016, by contractual maturity are shown below. 

	June 30, 2016
(Dollars in thousands)	Amortized Cost		Fair Value
Held to Maturity
Due after five years through ten years	$	4,250	$	4,350
Due after ten years	6,477		6,730
Total	$	10,727	$	11,080

Amortized costs and fair values of securities available for sale are summarized as follows:

	June 30, 2016
(Dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Available for Sale
U.S. government agencies	$	65,442	$	1,216	$	(127	)	$	66,531
Obligations of states and political subdivisions	67,664		2,420		(89		)	69,995
Mortgage-backed securities:
Agency	123,514		3,826		(550		)	126,790
Non-agency	13,306		131		(40		)	13,397
Other asset backed securities	54,725		525		(744		)	54,506
Corporate securities	16,606		59		(701		)	15,964
Total	$	341,257	$	8,177	$	(2,251	)	$	347,183

	December 31, 2015
(Dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Available for Sale
U.S. government agencies	$	79,005	$	315	$	(380	)	$	78,940
Obligations of states and political subdivisions	74,071		1,956		(434		)	75,593
Mortgage-backed securities:
Agency	129,360		3,046		(745		)	131,661
Non-agency	12,782		33		(38		)	12,777
Other asset backed securities	58,958		426		(603		)	58,781
Corporate securities	17,557		22		(760		)	16,819
Total	$	371,733	$	5,798	$	(2,960	)	$	374,571

The amortized cost and fair value of securities available for sale as of June 30, 2016, by contractual maturity are shown below.  Maturities may differ from contractual maturities in corporate and mortgage-backed securities because the securities and mortgages underlying the securities may be called or repaid without any penalties.  Therefore, these securities are not included in the maturity categories in the following maturity summary.

	June 30, 2016
(Dollars in thousands)	Amortized Cost		Fair Value
Due in one year or less	$	487	$	487
Due after one year through five years	9,421		9,675
Due after five years through ten years	24,463		24,403
Due after ten years	115,341		117,925
Mortgage-backed securities	136,820		140,187
Other asset backed securities	54,725		54,506
Total	$	341,257	$	347,183

Proceeds from calls, principal repayments and sales of securities available for sale during the six months ended June 30, 2016, and 2015 were $72.8 million and $62.6 million, respectively.  For the six months ended June 30, 2016 and 2015, gross gains of $396,000 and $175,000 and gross losses of $23,000 and $37,000, respectively, were realized.  The tax expense applicable to these net realized gains amounted to $127,000 and $47,000 for the six months ended June 31, 2016 and 2015, respectively.

The carrying value of securities pledged to qualify for fiduciary powers, to secure public monies and for other purposes as required by law amounted to $119.9 million and $113.1 million at June 30, 2016 and December 31, 2015, respectively.

Investments in an unrealized loss position that are temporarily impaired are as follows:

(Dollars in thousands)	Less than Twelve Months					Twelve Months or Greater					Total
June 30, 2016	Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses
Available for Sale
U.S. government agencies	$	11,883	$	(112	)	$	1,633	$	(15	)	$	13,516	$	(127	)
Obligations of states and political subdivisions	205		—			7,779		(89		)	7,984		(89		)
Mortgage-backed securities:
Agency	12,138		(130		)	11,448		(420		)	23,586		(550		)
Non-agency	326		—			1,910		(40		)	2,236		(40		)
Other asset backed securities	19,390		(427		)	18,049		(317		)	37,439		(744		)
Corporate securities	1,954		(46		)	11,654		(655		)	13,608		(701		)
Total	$	45,896	$	(715	)	$	52,473	$	(1,536	)	$	98,369	$	(2,251	)

(Dollars in thousands)	Less than Twelve Months					Twelve Months or Greater					Total
December 31, 2015	Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses
Held to Maturity
Obligations of states and political subdivisions	$	1,419	$	(38	)	$	—	$	—		$	1,419	$	(38	)
Corporate securities	1,970		(30		)	—		—			1,970		(30		)
Total	$	3,389	$	(68	)	$	—	$	—		$	3,389	$	(68	)
Available for Sale
U.S. government agencies	$	46,000	$	(304	)	$	4,223	$	(76	)	$	50,223	$	(380	)
Obligations of states and political subdivisions	16,559		(324		)	1,082		(110		)	17,641		(434		)
Mortgage-backed securities:
Agency	27,627		(402		)	9,911		(343		)	37,538		(745		)
Non-agency	7,842		(37		)	671		(1		)	8,513		(38		)
Other asset backed securities	25,399		(276		)	12,037		(327		)	37,436		(603		)
Corporate securities	10,740		(378		)	4,866		(382		)	15,606		(760		)
Total	$	134,167	$	(1,721	)	$	32,790	$	(1,239	)	$	166,957	$	(2,960	)

A total of 118 securities have been identified by the Company as temporarily impaired at June 30, 2016.  Of the 118 securities, 113 are investment grade and five are speculative grade.  Mortgage-backed securities, other asset backed securities and corporate securities make up the majority of the gross unrealized losses for temporarily impaired securities at June 30, 2016.  Market prices change daily and are affected by conditions beyond the control of the Company.  Although the Company has the ability to hold these securities until the temporary loss is recovered, decisions by management may necessitate a sale before the loss is fully recovered.  No such sales were anticipated or required as of June 30, 2016.  Investment decisions reflect the strategic asset/liability objectives of the Company.  The investment portfolio is analyzed frequently by the Company and managed to provide an overall positive impact to the Company’s consolidated income statement and balance sheet.

At June 30, 2016, the Company evaluated the investment portfolio for possible other-than-temporary impairment losses and concluded that no adverse change in cash flows occurred and did not consider any portfolio securities to be other-than-temporarily impaired.  Based on this analysis and because the Company does not intend to sell securities prior to maturity and it is more likely than not the Company will not be required to sell any securities before recovery of amortized cost basis, which may be at maturity. For debt securities related to corporate securities, the Company determined that there was no other adverse change in the cash flows as viewed by a market participant; therefore, the Company does not consider the investments in these assets to be other-than-temporarily impaired at June 30, 2016.  However, there is a risk that the Company’s continuing reviews could result in recognition of other-than-temporary impairment charges in the future. For the three and six months ended June 30, 2016 and the year ended December 31, 2015, no credit related impairment losses were recognized by the Company.

Restricted securities

The Company’s investment in FHLB stock totaled $4.5 million and $4.7 million at June 30, 2016 and December 31, 2015, respectively.  FHLB stock is generally viewed as a long-term investment and as a restricted security which is carried at cost because there is no market for the stock other than the FHLB or member institutions.  Therefore, when evaluating FHLB stock for impairment, its value is based on the ultimate recoverability of the par value rather than by recognizing temporary declines in value.  The Company does not consider this investment to be other-than-temporarily impaired at June 30, 2016, and no impairment has been recognized.  FHLB stock is shown in restricted securities on the consolidated balance sheets.

The Company also has an investment in Federal Reserve Bank (“FRB”) stock which totaled $1.7 million at June 30, 2016 and December 31, 2015, respectively. The investment in FRB stock is a required investment and is carried at cost since there is no ready market. The Company does not consider this investment to be other-than-temporarily impaired at June 30, 2016, and no impairment has been recognized. FRB stock is shown in restricted securities on the consolidated balance sheets.

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Loans, Net

6 Months Ended

Jun. 30, 2016

Receivables [Abstract]

Loans, Net

Loans, Net

The Company segregates its loan portfolio into three primary loan segments:  Real Estate Loans, Commercial Loans, and Consumer Loans.  Real estate loans are further segregated into the following classes: construction loans, loans secured by farmland, loans secured by 1-4 family residential real estate, and other real estate loans.  Other real estate loans include commercial real estate loans.  The consolidated loan portfolio was composed of the following:

	June 30, 2016				December 31, 2015
(Dollars in thousands)	Outstanding Balance		Percent of Total Portfolio		Outstanding Balance		Percent of Total Portfolio
Real estate loans:
Construction	$	42,947	5.0	%	$	39,673	4.9	%
Secured by farmland	18,875		2.2		19,062		2.4
Secured by 1-4 family residential	303,200		35.5		280,096		34.8
Other real estate loans	275,797		32.3		258,035		32.0
Commercial loans	194,712		22.8		190,482		23.6
Consumer loans	19,116		2.2		18,333		2.3
Total gross loans (1)	$	854,647	100.0	%	$	805,681	100.0	%
Less allowance for loan losses	11,527				11,046
Net loans	$	843,120			$	794,635

⁽¹⁾  Includes net deferred loan costs and premiums of $4.1 million and $3.5 million, respectively.

During the six months ended June 30, 2016, the Company received $4.4 million in proceeds on the sale of problem loans. Included in the sales were four loans with a recorded investment of $4.3 million, of which $1.2 million were on nonaccrual, as well as 28 loans with no outstanding recorded investment as they had been fully charged-off in prior periods. Gross charge-offs of $513,000 and gross recoveries of $640,000 were recorded through the allowance for loan losses during the six months ended June 30, 2016, related to the sales of these loans.

The following tables present a contractual aging of the recorded investment in past due loans by class of loans:

	June 30, 2016
(Dollars in thousands)	30-59 Days Past Due		60-89 Days Past Due		90 Days Or Greater		Total Past Due		Current		Total Loans
Real estate loans:
Construction	$	—	$	167	$	—	$	167	$	42,780	$	42,947
Secured by farmland	—		—		—		—		18,875		18,875
Secured by 1-4 family residential	221		12		3,438		3,671		299,529		303,200
Other real estate loans	58		555		725		1,338		274,459		275,797
Commercial loans	246		—		522		768		193,944		194,712
Consumer loans	8		—		1		9		19,107		19,116
Total	$	533	$	734	$	4,686	$	5,953	$	848,694	$	854,647

	December 31, 2015
(Dollars in thousands)	30-59 Days Past Due		60-89 Days Past Due		90 Days Or Greater		Total Past Due		Current		Total Loans
Real estate loans:
Construction	$	69	$	—	$	—	$	69	$	39,604	$	39,673
Secured by farmland	—		—		—		—		19,062		19,062
Secured by 1-4 family residential	259		—		1,117		1,376		278,720		280,096
Other real estate loans	325		—		248		573		257,462		258,035
Commercial loans	1,242		15		31		1,288		189,194		190,482
Consumer loans	4		17		—		21		18,312		18,333
Total	$	1,899	$	32	$	1,396	$	3,327	$	802,354	$	805,681

The following table presents the recorded investment in nonaccrual loans and loans past due 90 days or more and still accruing by class of loans:

	June 30, 2016				December 31, 2015
(Dollars in thousands)	Nonaccrual		Past due 90 days or more and still accruing		Nonaccrual		Past due 90 days or more and still accruing
Real estate loans:
Construction	$	30	$	—	$	204	$	—
Secured by 1-4 family residential	3,438		—		4,460		—
Other real estate loans	1,127		153		1,186		248
Commercial loans	511		25		1,036		30
Consumer loans	1,870		1		1,898		—
Total	$	6,976	$	179	$	8,784	$	278

If interest on nonaccrual loans had been accrued, such income would have approximated $253,800 and $342,000 for the six months ended June 30, 2016 and the year ended December 31, 2015, respectively.

The Company utilizes an internal asset classification system as a means of measuring and monitoring credit risk in the loan portfolio.  Under the Company’s classification system, problem and potential problem loans are classified as “Special Mention”, “Substandard”, and “Doubtful”.

Special Mention: Loans with potential weaknesses that deserve management’s close attention.  If left uncorrected, the potential weaknesses may result in the deterioration of the repayment prospects for the credit.

Substandard:  Loans with well-defined weakness that jeopardize the liquidation of the debt.  Either the paying capacity of the borrower or the value of the collateral may be inadequate to protect the Company from potential losses.

Doubtful:  Loans with a very high possibility of loss.  However, because of important and reasonably specific pending factors, classification as a loss is deferred until a more exact status may be determined.

Loss: Loans are deemed uncollectible and are charged off immediately.

The following tables present the recorded investment in loans by class of loan that have been classified according to the internal classification system:

June 30, 2016
(Dollars in thousands)	Real Estate Construction		Real Estate Secured by Farmland		Real Estate Secured by 1-4 Family Residential		Other Real Estate Loans		Commercial		Consumer		Total
Pass	$	37,345	$	10,958	$	294,453	$	266,323	$	188,364	$	17,171	$	814,614
Special Mention	5,572		—		2,376		3,483		3,493		31		14,955
Substandard	30		7,917		6,245		4,865		2,358		1,914		23,329
Doubtful	—		—		126		1,126		497		—		1,749
Loss	—		—		—		—		—		—		—
Ending Balance	$	42,947	$	18,875	$	303,200	$	275,797	$	194,712	$	19,116	$	854,647

December 31, 2015
(Dollars in thousands)	Real Estate Construction		Real Estate Secured by Farmland		Real Estate Secured by 1-4 Family Residential		Other Real Estate Loans		Commercial		Consumer		Total
Pass	$	30,114	$	10,566	$	271,721	$	243,768	$	183,532	$	16,347	$	756,048
Special Mention	9,024		—		896		7,254		3,638		42		20,854
Substandard	535		8,496		6,818		5,827		2,301		1,943		25,920
Doubtful	—		—		661		1,186		1,011		—		2,858
Loss	—		—		—		—		—		1		1
Ending Balance	$	39,673	$	19,062	$	280,096	$	258,035	$	190,482	$	18,333	$	805,681

The following tables present loans individually evaluated for impairment by class of loan:

	June 30, 2016
(Dollars in thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Real estate loans:
Construction	$	30	$	30	$	—	$	31	$	—
Secured by farmland	7,917		7,917		—		7,910		118
Secured by 1-4 family residential	242		277		—		243		—
Other real estate loans	1,126		1,126		—		1,133		—
Commercial loans	906		3,906		—		1,186		8
Consumer loans	—		—		—		—		—
Total with no related allowance	$	10,221	$	13,256	$	—	$	10,503	$	126
With an allowance recorded:
Real estate loans:
Construction	$	—	$	—	$	—	$	—	$	—
Secured by farmland	—		—		—		—		—
Secured by 1-4 family residential	4,254		4,307		1,094		4,273		21
Other real estate loans	2,991		2,991		222		3,001		77
Commercial loans	46		46		30		62		1
Consumer loans	1,870		1,870		787		1,884		—
Total with a related allowance	$	9,161	$	9,214	$	2,133	$	9,220	$	99
Total	$	19,382	$	22,470	$	2,133	$	19,723	$	225

	December 31, 2015
(Dollars in thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Real estate loans:
Construction	$	100	$	100	$	—	$	106	$	—
Secured by farmland	7,903		7,903		—		7,903		237
Secured by 1-4 family residential	701		736		—		703		—
Other real estate loans	—		—		—		—		—
Commercial loans	458		493		—		490		17
Consumer loans	—		—		—		—		—
Total with no related allowance	$	9,162	$	9,232	$	—	$	9,202	$	254
With an allowance recorded:
Real estate loans:
Construction	$	103	$	103	$	53	$	109	$	—
Secured by farmland	—		—		—		—		—
Secured by 1-4 family residential	4,426		4,478		1,120		4,547		27
Other real estate loans	4,196		4,196		464		4,224		157
Commercial loans	1,059		4,059		27		2,315		100
Consumer loans	1,898		1,898		1,000		2,449		—
Total with a related allowance	$	11,682	$	14,734	$	2,664	$	13,644	$	284
Total	$	20,844	$	23,966	$	2,664	$	22,846	$	538

The “Recorded Investment” amounts in the table above represent the outstanding principal balance net of charge-offs and nonaccrual payments to principal on each loan represented in the table.  The “Unpaid Principal Balance” represents the outstanding principal balance on each loan represented in the table plus any amounts that have been charged-off on each loan and nonaccrual payments applied to principal.

Included in certain loan categories of impaired loans are troubled debt restructurings (“TDRs”). The total balance of TDRs at June 30, 2016 was $14.4 million of which $2.0 million were included in the Company’s nonaccrual loan totals at that date and $12.4 million represented loans performing as agreed according to the restructured terms. This compares with $15.5 million in total restructured loans at December 31, 2015.  The amount of the valuation allowance related to TDRs was $1.1 million and $1.6 million as of June 30, 2016 and December 31, 2015, respectively.

Loan modifications that were classified as TDRs during the three and six months ended June 30, 2016 and 2015 were as follows:

	Loans Modified as TDRs
	For the Three Months Ended June 30,
(Dollars in thousands)	2016					2015
Class of Loan	Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Real estate loans:
Construction	—	$	—	$	—	—	$	—	$	—
Secured by farmland	—	—		—		1	7,903		7,903
Secured by 1-4 family residential	1	400		400		—	—		—
Other real estate loans	—	—		—		—	—		—
Total real estate loans	1	$	400	$	400	1	$	7,903	$	7,903
Commercial loans	—	—		—		—	—		—
Consumer loans	—	—		—		1	3,000		3,000
Total	1	$	400	$	400	2	$	10,903	$	10,903

	Loans Modified as TDRs
	For the Six Months Ended June 30,
(Dollars in thousands)	2016					2015
Class of Loan	Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Real estate loans:
Construction	—	$	—	$	—	—	$	—	$	—
Secured by farmland	—	—		—		1	7,903		7,903
Secured by 1-4 family residential	1	400		400		—	—		—
Other real estate loans	1	368		367		—	—		—
Total real estate loans	2	$	768	$	767	1	$	7,903	$	7,903
Commercial loans	—	—		—		—	—		—
Consumer loans	—	—		—		1	3,000		3,000
Total	2	$	768	$	767	1	$	10,903	$	10,903

There were no outstanding commitments to lend additional amounts to troubled debt restructured borrowers at June 30, 2016 or December 31, 2015.

There were no TDR payment defaults during three and six months ended June 30, 2016 and 2015. For purposes of this disclosure, a TDR payment default occurs when, within 12 months of the original TDR modification, either a full or partial charge-off occurs or a TDR becomes 90 days or more past due.

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Allowance for Loan Losses

6 Months Ended

Jun. 30, 2016

Allowance for Loan Losses [Abstract]

Allowance for Loan Losses

Allowance for Loan Losses

The following table presents, the total allowance for loan losses, the allowance by impairment methodology (individually evaluated for impairment or collectively evaluated for impairment), the total loans and loans by impairment methodology (individually evaluated for impairment or collectively evaluated for impairment).

	June 30, 2016
(Dollars in thousands)	Real Estate Construction			Real Estate Secured by Farmland			Real Estate Secured by 1-4 Family Residential			Other Real Estate Loans			Commercial		Consumer			Total
Allowance for loan losses:
Balance at December 31, 2015	$	905		$	192		$	3,341		$	3,761		$	1,706	$	1,141		$	11,046
Charge-offs	(388		)	—			(7		)	(126		)	—		(11		)	(532		)
Recoveries	132			—			394			23			63		51			663
Provision	347			(18		)	(221		)	96			384		(238		)	350
Balance at June 30, 2016	$	996		$	174		$	3,507		$	3,754		$	2,153	$	943		$	11,527
Ending allowance:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	—		$	—		$	1,094		$	222		$	30	$	787		$	2,133
Collectively evaluated for impairment	996			174			2,413			3,532			2,123		156			9,394
Total ending allowance balance	$	996		$	174		$	3,507		$	3,754		$	2,153	$	943		$	11,527
Loans:
Individually evaluated for impairment	$	30		$	7,917		$	4,496		$	4,117		$	952	$	1,870		$	19,382
Collectively evaluated for impairment	42,917			10,958			298,704			271,680			193,760		17,246			835,265
Total ending loans balance	$	42,947		$	18,875		$	303,200		$	275,797		$	194,712	$	19,116		$	854,647

	December 31, 2015
(Dollars in thousands)	Real Estate Construction		Real Estate Secured by Farmland		Real Estate Secured by 1-4 Family Residential			Other Real Estate Loans			Commercial			Consumer			Total
Allowance for loan losses:
Balance at December 31, 2014	$	550	$	179	$	3,966		$	3,916		$	2,354		$	821		$	11,786
Charge-offs	—		—		(344		)	(9		)	(3,281		)	(57		)	(3,691		)
Recoveries	246		—		359			28			14			11			658
Provision	109		13		(640		)	(174		)	2,619			366			2,293
Balance at December 31, 2015	$	905	$	192	$	3,341		$	3,761		$	1,706		$	1,141		$	11,046
Ending allowance:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	53	$	—	$	1,120		$	464		$	27		$	1,000		$	2,664
Collectively evaluated for impairment	852		192		2,221			3,297			1,679			141			8,382
Total ending allowance balance	$	905	$	192	$	3,341		$	3,761		$	1,706		$	1,141		$	11,046
Loans:
Individually evaluated for impairment	$	203	$	7,903	$	5,127		$	4,196		$	1,517		$	1,898		$	20,844
Collectively evaluated for impairment	39,470		11,159		274,969			253,839			188,965			16,435			784,837
Total ending loans balance	$	39,673	$	19,062	$	280,096		$	258,035		$	190,482		$	18,333		$	805,681

	June 30, 2015
(Dollars in thousands)	Real Estate Construction			Real Estate Secured by Farmland		Real Estate Secured by 1-4 Family Residential			Other Real Estate Loans			Commercial			Consumer			Total
Allowance for loan losses:
Balance at December 31, 2014	$	550		$	179	$	3,966		$	3,916		$	2,354		$	821		$	11,786
Charge-offs	—			—		(12		)	(9		)	(246		)	(40		)	(307		)
Recoveries	31			—		324			21			8			6			390
Provision	(21		)	11		(156		)	35			(272		)	428			25
Balance at June 30, 2015	$	560		$	190	$	4,122		$	3,963		$	1,844		$	1,215		$	11,894
Ending allowance:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	60		$	—	$	1,412		$	454		$	43		$	1,003		$	2,972
Collectively evaluated for impairment	500			190		2,710			3,509			1,801			212			8,922
Total ending allowance balance	$	560		$	190	$	4,122		$	3,963		$	1,844		$	1,215		$	11,894
Loans:
Individually evaluated for impairment	$	223		$	7,903	$	4,723		$	4,230		$	795		$	2,033		$	19,907
Collectively evaluated for impairment	30,558			11,602		267,475			261,662			166,747			15,139			753,183
Total ending loans balance	$	30,781		$	19,505	$	272,198		$	265,892		$	167,542		$	17,172		$	773,090

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Earnings Per Share

6 Months Ended

Jun. 30, 2016

Earnings Per Share [Abstract]

Earnings Per Share

Earnings Per Share

The following shows the weighted-average number of shares used in computing earnings per share and the effect on weighted-average number of shares of diluted potential common stock. Nonvested restricted shares are included in basic earnings per share because of dividend participation rights. Potential dilutive common stock had no effect on income available to common stockholders.

	For the Three Months Ended June 30,
	2016			2015
	Shares	Per Share Amount		Shares	Per Share Amount
Earnings per share, basic	7,100,226	$	0.37	7,145,929	$	0.32
Effect of dilutive securities:
Stock options	11,948			7,102
Warrant	41,743			14,134
Earnings per share, diluted	7,153,917	$	0.37	7,167,165	$	0.32

	For the Six Months Ended June 30,
	2016			2015
	Shares	Per Share Amount		Shares	Per Share Amount
Earnings per share, basic	7,087,015	$	0.66	7,140,514	$	0.66
Effect of dilutive securities:
Stock options	10,476			7,077
Warrant	31,672			13,937
Earnings per share, diluted	7,129,163	$	0.66	7,161,528	$	0.66

The warrant and none of the stock options were considered anti-dilutive as of June 30, 2016 and 2015.

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Segment Reporting

6 Months Ended

Jun. 30, 2016

Segment Reporting [Abstract]

Segment Reporting

Segment Reporting

The Company operates its principal business activities of retail banking services and wealth management services in a decentralized fashion. Revenue from retail banking activity consists primarily of interest and fees earned on loans, including mortgage banking activity, interest earned on investment securities and service charges on deposit accounts. Revenue from the wealth management activities is comprised of fees based upon the market value of the accounts under administration as well as commissions on investment transactions.

Middleburg Bank and the Company have assets in custody with Middleburg Trust Company and accordingly pay Middleburg Trust Company a monthly fee. Middleburg Bank also pays interest to Middleburg Trust Company on deposit accounts with Middleburg Bank. Middleburg Trust Company pays rental and other miscellaneous occupancy expenses to Middleburg Bank. Transactions related to these relationships are eliminated to reach consolidated totals.

The following tables represent reportable segment information for the three and six months ended June 30, 2016 and 2015, respectively:

	For the Three Months Ended											For the Three Months Ended
	June 30, 2016											June 30, 2015
(In Thousands)	Retail Banking			Wealth Management		Intercompany Eliminations			Consolidated			Retail Banking			Wealth Management		Intercompany Eliminations			Consolidated
Revenues:
Interest income	$	11,099		$	3	$	—		$	11,102		$	10,350		$	2	$	—		$	10,352
Trust and investment fee income	—			1,173		(41		)	1,132			—			1,284		(41		)	1,243
Other income	1,266			—		(28		)	1,238			995			—		—			995
Total operating income	12,365			1,176		(69		)	13,472			11,345			1,286		(41		)	12,590
Expenses:
Interest expense	1,133			—		—			1,133			1,039			—		—			1,039
Salaries and employee benefits	4,052			561		—			4,613			4,367			606		—			4,973
Provision for (recovery of) loan losses	50			—		—			50			(425		)	—		—			(425		)
Other	4,028			179		(69		)	4,138			3,661			288		(41		)	3,908
Total operating expenses	9,263			740		(69		)	9,934			8,642			894		(41		)	9,495
Income before income taxes	3,102			436		—			3,538			2,703			392		—			3,095
Income tax expense	722			163		—			885			667			148		—			815
Net Income	$	2,380		$	273	$	—		$	2,653		$	2,036		$	244	$	—		$	2,280
Total assets	$	1,310,589		$	6,336	$	(2,589	)	$	1,314,336		$	1,238,148		$	6,532	$	(2,695	)	$	1,241,985
Capital expenditures	$	(28	)	$	—	$	—		$	(28	)	$	2,320		$	—	$	—		$	2,320
Goodwill and other intangibles	$	—		$	3,550	$	—		$	3,550		$	—		$	3,722	$	—		$	3,722

	For the Six Months Ended									For the Six Months Ended
	June 30, 2016									June 30, 2015
(In Thousands)	Retail Banking		Wealth Management		Intercompany Eliminations			Consolidated		Retail Banking		Wealth Management		Intercompany Eliminations			Consolidated
Revenues:
Interest income	$	21,969	$	5	$	—		$	21,974	$	21,046	$	5	$	—		$	21,051
Trust and investment fee income	—		2,374		(84		)	2,290		—		2,543		(82		)	2,461
Other income	2,343		—		(55		)	2,288		2,632		—		—			2,632
Total operating income	24,312		2,379		(139		)	26,552		23,678		2,548		(82		)	26,144
Expenses:
Interest expense	2,256		—		—			2,256		2,107		—		—			2,107
Salaries and employee benefits	8,337		1,088		—			9,425		8,681		1,140		—			9,821
Provision for loan losses	350		—		—			350		25		—		—			25
Other	8,013		466		(139		)	8,340		7,320		569		(82		)	7,807
Total operating expenses	18,956		1,554		(139		)	20,371		18,133		1,709		(82		)	19,760
Income before income taxes	5,356		825		—			6,181		5,545		839		—			6,384
Income tax expense	1,163		310		—			1,473		1,341		315		—			1,656
Net Income	$	4,193	$	515	$	—		$	4,708	$	4,204	$	524	$	—		$	4,728
Total assets	$	1,310,589	$	6,336	$	(2,589	)	$	1,314,336	$	1,238,148	$	6,532	$	(2,695	)	$	1,241,985
Capital expenditures	$	97	$	—	$	—		$	97	$	2,471	$	—	$	—		$	2,471
Goodwill and other intangibles	$	—	$	3,550	$	—		$	3,550	$	—	$	3,722	$	—		$	3,722

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Capital Purchase Program

6 Months Ended

Jun. 30, 2016

Stockholders' Equity Note [Abstract]

Capital Purchase Program

Capital Purchase Program

On January 30, 2009, as part of the Capital Purchase Program established by the U.S. Department of the Treasury (the “Treasury”) under the Emergency Economic Stabilization Act of 2008, the Company entered into a Letter Agreement and Securities Purchase Agreement—Standard Terms (collectively, the “Purchase Agreement”) with the Treasury, pursuant to which the Company sold (i) 22,000 shares of Fixed Rate Cumulative Perpetual Preferred Stock, Series A, par value $2.50 per share, having a liquidation preference of $1,000 per share (the “Preferred Stock”) and (ii) a warrant (the “Warrant”) to purchase 208,202 shares of the Company’s common stock, par value $2.50 per share, at an initial exercise price of $15.85 per share. As a result of the completion of a public stock offering in 2009, the number of shares of common stock underlying the Warrant was reduced by one-half to 104,101 and the Company redeemed all 22,000 shares of Preferred Stock pursuant to the Purchase Agreement. During 2011, the Warrant was sold by the U.S. Treasury at public auction and has not been exercised as of June 30, 2016.

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Fair Value Measurements

6 Months Ended

Jun. 30, 2016

Fair Value Disclosures [Abstract]

Fair Value Measurements

Fair Value Measurements

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. U.S. GAAP requires that valuation techniques maximize the use of observable inputs and minimize the use of unobservable inputs. U.S. GAAP also establishes a fair value hierarchy which prioritizes the valuation inputs into three broad levels. Based on the underlying inputs, each fair value measurement in its entirety is reported in one of the three levels. The three levels of the fair value hierarchy are as follows:

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.

Measured on a recurring basis

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

Securities Available for Sale

The Company primarily values its investment portfolio using Level II fair value measurements, but may also use Level I or Level III measurements if required by the composition of the portfolio. If quoted market prices are not available, fair values are measured utilizing independent valuation techniques of identical or similar securities for which significant assumptions are derived primarily from or corroborated by observable market data. Third party vendors compile prices from various sources and may determine the fair value of identical or similar securities by using pricing models that consider observable market data (Level II). In certain cases where there is limited activity or less transparency around inputs to the valuation, securities are classified as Level III of the valuation hierarchy.

Interest Rate Swaps and Interest Rate Cap

Interest rate swaps and caps are recorded at fair value based on third party vendors who compile prices from various sources and may determine fair value of identical or similar instruments by using pricing models that consider observable market data (Level II).

The following tables present the balances of assets and liabilities measured at fair value on a recurring basis as of June 30, 2016 and December 31, 2015.

(Dollars in thousands)	June 30, 2016
Description	Total		Level I		Level II		Level III
Assets:
U.S. government agencies	$	66,531	$	—	$	66,531	$	—
Obligations of states and political subdivisions	69,995		—		69,995		—
Mortgage-backed securities:
Agency	126,790		—		126,790		—
Non-agency	13,397		—		13,397		—
Other asset backed securities	54,506		—		54,506		—
Corporate securities	15,964		—		15,964		—
Interest rate swaps	322		—		322		—
Interest rate cap	3		—		3		—
Liabilities:
Interest rate swaps	899		—		899		—

(Dollars in thousands)	December 31, 2015
Description	Total		Level I		Level II		Level III
Assets:
U.S. government agencies	$	78,940	$	—	$	78,940	$	—
Obligations of states and political subdivisions	75,593		—		75,593		—
Mortgage-backed securities:
Agency	131,661		—		131,661		—
Non-agency	12,777		—		12,777		—
Other asset backed securities	58,781		—		58,781		—
Corporate securities	16,819		—		16,819
Interest rate swaps	73		—		73		—
Interest rate cap	39		—		39		—
Liabilities:
Interest rate swaps	370		—		370		—

Measured on nonrecurring basis

The Company may be required, from time to time, to measure and recognize certain other assets at fair value on a nonrecurring basis in accordance with U.S. GAAP. The following describes the valuation techniques and inputs used by the Company in determining the fair value of certain assets recorded at fair value on a nonrecurring basis in the financial statements.

Loans Held for Sale

Loans held for sale are carried at lower of cost or market value. These loans currently consist of 1-4 family residential loans originated for sale in the secondary market. Fair value is based on the price secondary markets are currently offering for similar loans using observable market data which is not materially different than cost due to the short duration between origination and sale (Level II). As such, the Company records any fair value adjustments on a nonrecurring basis. No nonrecurring fair value adjustments were recorded on loans held for sale during the three and six months ended June 30, 2016. Gains and losses on the sale of loans are recorded as a component of non-interest income on the consolidated statements of income.

Impaired Loans

Loans are designated as impaired when, in the judgment of management based on current information and events, it is probable that all amounts due according to the contractual terms of the loan agreement will not be collected when due.  The measurement of loss associated with impaired loans can be based on either the observable market price of the loan or the fair value of the collateral.  Collateral may be in the form of real estate or business assets including equipment, inventory, and accounts receivable.  Any given loan may have multiple types of collateral. The vast majority of the collateral is real estate.  The value of real estate collateral is determined utilizing a market valuation approach based on an appraisal conducted by an independent, licensed appraiser outside of the Company using observable market data (Level II).  However, if the collateral value is significantly adjusted due to differences in the comparable properties, or is discounted by the Company because of marketability, then the fair value is considered Level III. The value of business equipment is based upon an outside appraisal if deemed significant, or the net book value on the applicable business' financial statements if not considered significant.  Likewise, values for inventory and accounts receivable collateral are based on financial statement balances or aging reports (Level III).  Impaired loans allocated to the allowance for loan losses are measured at fair value on a nonrecurring basis. Any fair value adjustments are recorded in the period incurred as provision for loan losses on the consolidated statements of income.

Other Real Estate Owned

Other Real Estate Owned (“OREO”) is measured at fair value less estimated costs to sell, based on an appraisal conducted by an independent, licensed appraiser outside of the Company. If the collateral value is significantly adjusted due to differences in the comparable properties, or is discounted by the Company because of marketability, then the fair value is considered Level III. The initial fair value of OREO is based on an appraisal performed at the time of foreclosure. Subsequent fair value adjustments are recorded in the period incurred and included in other real estate owned, net, on the consolidated statements of income.

For the purpose of OREO valuations, appraisals are discounted 10% for selling costs and it is the policy of the Company to obtain annual appraisals for properties held in accordance with the bank's OREO policy.

Repossessed Assets

The value of repossessed assets is determined by the Company based on marketability and other factors and is considered Level III. Any fair value adjustments are recorded in the period incurred and are included in other operating expenses on the consolidated statements of income.

The following table summarizes the Company’s non-financial assets that were measured at fair value on a nonrecurring basis during the period.

(Dollars in thousands)	June 30, 2016
	Total		Level I		Level II		Level III
Assets:
Impaired loans	$	7,028	$	—	$	—	$	7,028
Other real estate owned	$	3,553	$	—	$	—	$	3,553
Repossessed assets(1)	$	1,043	$	—	$	—	$	1,043
(Dollars in thousands)	December 31, 2015
	Total		Level I		Level II		Level III
Assets:
Impaired loans	$	9,018	$	—	$	—	$	9,018
Other real estate owned	$	3,345	$	—	$	—	$	3,345
Repossessed assets (1)	$	1,043	$	—	$	—	$	1,043

⁽¹⁾  Included in other assets on the consolidated balance sheets.

The following table presents quantitative information as of June 30, 2016 and December 31, 2015 about Level III fair value measurements for assets measured at fair value on a nonrecurring basis:

June 30, 2016	Fair Value (in thousands)		Valuation Technique	Unobservable Inputs	Range (Weighted Average)
Impaired loans	$	3,238	Appraisals	Discount to reflect current market conditions and estimated selling costs	0% - 100% (19%)
Impaired loans	$	3,790	Present value of cash flows	Discount rate	6% - 8% (6%)
Other real estate owned	$	3,553	Appraisals	Discount to reflect current market conditions and estimated selling costs	10%
Repossessed assets	$	1,043	Market analysis	Historical sales activity	50%

December 31, 2015	Fair Value (in thousands)		Valuation Technique	Unobservable Inputs	Range (Weighted Average)
Impaired loans	$	5,434	Appraisals	Discount to reflect current market conditions and estimated selling costs	0% - 100% (17%)
Impaired loans	$	3,584	Present value of cash flows	Discount rate	6% - 8% (7%)
Other real estate owned	$	3,345	Appraisals	Discount to reflect current market conditions and estimated selling costs	10%
Repossessed assets	$	1,043	Market analysis	Historical sales activity	50%

The fair value of a financial instrument is the current amount that would be exchanged between willing parties, other than in a forced liquidation.  Fair value is best determined based upon quoted market prices.  However, in many instances, there are no quoted market prices for the Company’s various financial instruments.  In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques.  Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows.  Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument.  U.S. GAAP excludes certain financial instruments and all non-financial instruments from its disclosure requirements.  Accordingly, the aggregate fair value amounts presented may not necessarily represent the underlying fair value of the Company.

The following methods and assumptions were used to estimate the fair value of each class of financial instruments (not previously described) for which it is practicable to estimate that value:

Cash and Cash Equivalents

For cash and cash equivalents, the carrying amount is a reasonable estimate of fair value.

Securities held to maturity

Certain debt securities that management has the positive intent and ability to hold until maturity are recorded at amortized cost. Fair values are determined in a manner that is consistent with securities available for sale.

Restricted securities

The restricted security category is comprised of FHLB and Federal Reserve Bank stock. These stocks are classified as restricted securities because their ownership is restricted to certain types of entities and they lack a market. When the FHLB or Federal Reserve Bank repurchases stock, they repurchase at the stock's book value. Therefore, the carrying amounts of restricted securities approximate fair value.

Loans, Net

For variable-rate loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values.  For fixed rate 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 utilized as estimates for fair value. Fair value for impaired loans is described above.

Bank Owned Life Insurance

The carrying amount of bank owned life insurance is a reasonable estimate of fair value.

Accrued Interest Receivable and Payable

The carrying amounts of accrued interest approximate fair values.

Deposits

The fair value of demand deposits, savings accounts, and certain money market deposits is the amount payable on demand at the reporting date.  For all other deposits, the fair value is determined using the discounted cash flow method.  The discount rate is equal to the rate currently offered on similar products.

Securities Sold Under Agreements to Repurchase

The carrying amounts approximate fair values.

FHLB Borrowings and Subordinated Notes

For variable rate long-term debt, fair values are based on carrying values.  For fixed rate debt, fair values are estimated based on observable market prices and discounted cash flow analysis using interest rates for borrowings of similar remaining maturities and characteristics.  The fair values of the Company's Subordinated Notes are estimated using discounted cash flow analysis based on the Company's current incremental borrowing rates for similar types of borrowing arrangements.

Off-Balance Sheet Financial Instruments

The fair value of commitments to extend credit is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties.  For fixed-rate loan commitments, fair value also considers the difference between current levels of interest rates and the committed rates.  The fair value of standby letters of credit is based on fees currently charged for similar agreements or on the estimated cost to terminate them or otherwise settle the obligations with the counterparties at the reporting date.  At June 30, 2016 and December 31, 2015, the fair values of loan commitments and standby letters of credit were deemed immaterial; therefore, they have not been included in the tables below.

Fair Value of Financial Instruments

The estimated fair values, and related carrying amounts, of the Company's financial instruments are as follows:

(Dollars in thousands)	June 30, 2016
					Fair value measurements using:
	Carrying Amount		Total Fair Value		Level I		Level II		Level III
Financial assets:
Cash and cash equivalents	$	32,620	$	32,620	$	32,620	$	—	$	—
Securities held to maturity	10,727		11,080		—		11,080		—
Securities available for sale	347,183		347,183		—		347,183		—
Loans held for sale, net	189		189		—		189		—
Loans, net	843,120		854,350		—		—		854,350
Bank owned life insurance	23,596		23,596		—		23,596		—
Accrued interest receivable	5,131		5,131		—		5,131		—
Interest rate swaps	322		322		—		322		—
Interest rate cap	3		3		—		3		—
Financial liabilities:
Deposits	$	1,056,369	$	1,056,495	$	—	$	1,056,495	$	—
Securities sold under agreements to repurchase	31,043		31,043		—		31,043		—
FHLB borrowings	79,500		79,792		—		79,792		—
Subordinated notes	5,155		5,174		—		5,174		—
Accrued interest payable	393		393		—		393		—
Interest rate swaps	899		899		—		899		—

(Dollars in thousands)	December 31, 2015
					Fair value measurements using:
	Carrying Amount		Total Fair Value		Level I		Level II		Level III
Financial assets:
Cash and cash equivalents	$	39,228	$	39,228	$	39,228	$	—	$	—
Securities held to maturity	4,207		4,163		—		4,163		—
Securities available for sale	374,571		374,571		—		374,571		—
Loans, net	794,635		802,535		—		—		802,535
Bank-owned life insurance	23,273		23,273		—		23,273		—
Accrued interest receivable	5,204		5,204		—		5,204		—
Interest rate swaps	73		73		—		73		—
Interest rate cap	39		39		—		39		—
Financial liabilities:
Deposits	$	1,040,800	$	1,040,016	$	—	$	1,040,016	$	—
Securities sold under agreements to repurchase	26,869		26,869		—		26,869		—
FHLB borrowings	85,000		85,033		—		85,033		—
Subordinated debt	5,155		5,157		—		5,157		—
Accrued interest payable	410		410		—		410		—
Interest rate swaps	370		370		—		370		—

The Company assumes interest rate risk as a result of its normal operations.  The fair values of the Company's financial instruments will change when interest rate levels change, which may be either favorable or unfavorable to the Company.  Management attempts to match maturities of assets and liabilities to the extent believed necessary to minimize interest rate risk.  However, borrowers with fixed rate obligations are less likely to prepay in a rising rate environment and more likely to prepay in a falling rate environment.  Conversely, depositors who are receiving fixed rates are more likely to withdraw funds before maturity in a rising rate environment and less likely to do so in a falling rate environment.  Management monitors rates and maturities of assets and liabilities and attempts to minimize interest rate risk by adjusting terms of new loans and deposits and by investing in securities with terms that mitigate the Company's overall interest rate risk.

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Recent Accounting Pronouncements

6 Months Ended

Jun. 30, 2016

Accounting Policies [Abstract]

Recent Accounting Pronouncements

Recent Accounting Pronouncements

In August 2014, the FASB issued ASU No. 2014-15, “Presentation of Financial Statements - Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern.” This update is intended to provide guidance about management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosures. Management is required under the new guidance to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date the financial statements are issued when preparing financial statements for each interim and annual reporting period. If conditions or events are identified, the ASU specifies the process that must be followed by management and also clarifies the timing and content of going concern footnote disclosures in order to reduce diversity in practice. The amendments in this ASU are effective for annual periods and interim periods within those annual periods beginning after December 15, 2016. Early adoption is permitted. The Company does not expect the adoption of ASU 2014-15 to have a material impact on its consolidated financial statements.

In January 2016, the FASB issued ASU 2016-01, “Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities.” The amendments in ASU 2016-01, among other things: 1) Requires equity investments (except those accounted for under the equity method of accounting, or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income. 2) Requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes. 3) Requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (i.e., securities or loans and receivables). 4) Eliminates the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost. The amendments in this ASU are effective for public companies for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company is currently assessing the impact that ASU 2016-01 will have on its consolidated financial statements.

In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842).” Among other things, in the amendments in ASU 2016-02, lessees will be required to recognize the following for all leases (with the exception of short-term leases) at the commencement date: (1) A lease liability, which is a lessee‘s obligation to make lease payments arising from a lease, measured on a discounted basis; and (2) A right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. Under the new guidance, lessor accounting is largely unchanged. Certain targeted improvements were made to align, where necessary, lessor accounting with the lessee accounting model and Topic 606, Revenue from Contracts with Customers. The amendments in this ASU are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early application is permitted upon issuance. Lessees (for capital and operating leases) and lessors (for sales-type, direct financing, and operating leases) must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The modified retrospective approach would not require any transition accounting for leases that expired before the earliest comparative period presented. Lessees and lessors may not apply a full retrospective transition approach. The Company is currently assessing the impact that ASU 2016-02 will have on its consolidated financial statements.

During March 2016, the FASB issued ASU No. 2016-05, “Derivatives and Hedging (Topic 815): Effect of Derivative Contract Novations on Existing Hedge Accounting Relationships.” The amendments in this ASU clarify that a change in the counterparty to a derivative instrument that has been designated as the hedging instrument does not, in and of itself, require dedesignation of that hedging relationship provided that all other hedge accounting criteria remain intact. The amendments are effective for public business entities for financial statements issued for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. The Company does not expect the adoption of ASU 2016-05 to have a material impact on its consolidated financial statements.

In March 2016, the FASB issued ASU No. 2016-07, “Investments - Equity Method and Joint Ventures (Topic 323): Simplifying the Transition to the Equity Method of Accounting.” The amendments in this ASU eliminate the requirement that when an investment qualifies for use of the equity method as a result of an increase in the level of ownership interest or degree of influence, an investor must adjust the investment, results of operations, and retained earnings retroactively on a step-by-step basis as if the equity method had been in effect during all previous periods that the investment had been held. The amendments require that the equity method investor add the cost of acquiring the additional interest in the investee to the current basis of the investor’s previously held interest and adopt the equity method of accounting as of the date the investment becomes qualified for equity method accounting. Therefore, upon qualifying for the equity method of accounting, no retroactive adjustment of the investment is required. In addition, the amendments in this ASU require that an entity that has an available-for-sale equity security that becomes qualified for the equity method of accounting recognize through earnings the unrealized holding gain or loss in accumulated other comprehensive income at the date the investment becomes qualified for use of the equity method. The amendments are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. The amendments should be applied prospectively upon their effective date to increases in the level of ownership interest or degree of influence that result in the adoption of the equity method. Early adoption is permitted. The Company does not expect the adoption of ASU 2016-07 to have a material impact on its consolidated financial statements.

During March 2016, the FASB issued ASU No. 2016-09, “Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting.” The amendments in this ASU simplify several aspects of the accounting for share-based payment award transactions including: (a) income tax consequences; (b) classification of awards as either equity or liabilities; and (c) classification on the statement of cash flows. The amendments are effective for public companies for annual periods beginning after December 15, 2016, and interim periods within those annual periods. The Company is currently assessing the impact that ASU 2016-09 will have on its consolidated financial statements.

During June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.” The amendments in this ASU, among other things, require the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Financial institutions and other organizations will now use forward-looking information to better inform their credit loss estimates. Many of the loss estimation techniques applied today will still be permitted, although the inputs to those techniques will change to reflect the full amount of expected credit losses. In addition, the ASU amends the accounting for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration. The amendments in this ASU are effective for SEC filers for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The Company is currently assessing the impact that ASU 2016-13 will have on its consolidated financial statements.

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Accumulated Other Comprehensive Income

6 Months Ended

Jun. 30, 2016

Equity [Abstract]

Accumulated Other Comprehensive Income

Accumulated Other Comprehensive Income

Changes in accumulated other comprehensive income for the six months ended June 30, 2016 and 2015 were:

(Dollars in thousands)	Unrealized Gains on Securities			Cash Flow Hedges			Accumulated Other Comprehensive Income
Balance December 31, 2014	$	3,979		$	(185	)	$	3,794
Unrealized holding gains (net of tax, $333)	(644		)	—			(644		)
Reclassification adjustment (net of tax, $47)	(91		)	—			(91		)
Unrealized loss on interest rate swaps (net of tax, $0)	—			(1		)	(1		)
Reclassification adjustment (net of tax, $2)	—			(4		)	(4		)
Balance June 30, 2015	$	3,244		$	(190	)	$	3,054
Balance December 31, 2015	$	1,872		$	(195	)	$	1,677
Unrealized holding gains (net of tax, $1,176)	2,285			—			2,285
Reclassification adjustment (net of tax, $127)	(246		)	—			(246		)
Unrealized loss on interest rate swaps (net of tax, $95)	—			(185		)	(185		)
Balance June 30, 2016	$	3,911		$	(380	)	$	3,531

The following table presents information related to reclassifications from accumulated other comprehensive income:

Details about Accumulated Other Comprehensive Income	Amount Reclassified from Accumulated Other Comprehensive Income						Affected Line Item in the Consolidated Statements of Income
	For the Three Months Ended June 30,
(Dollars in thousands)	2016			2015
Securities available for sale (1):
Net securities gains reclassified into earnings	$	(210	)	$	(37	)	Gain on sales of securities available for sale, net
Related income tax expense	72			13			Income tax expense
Net effect on accumulated other comprehensive income for the period	(138		)	(24		)	Net of tax
Total reclassifications for the period	$	(138	)	$	(24	)	Net of tax

⁽¹⁾  For more information related to unrealized gains on securities available for sale, see Note 3, "Securities".

⁽²⁾  For more information related to unrealized losses on derivatives, see Note 12, "Derivatives".

Details about Accumulated Other Comprehensive Income	Amount Reclassified from Accumulated Other Comprehensive Income						Affected Line Item in the Consolidated Statements of Income
	For the Six Months Ended June 30,
(Dollars in thousands)	2016			2015
Securities available for sale (1):
Net securities gains reclassified into earnings	$	(373	)	$	(138	)	Gain on securities available for sale
Related income tax expense	127			47			Income tax expense
Derivatives (2):
(Gain) loss on interest rate swap ineffectiveness	—			(6		)	Other operating expenses
Related income tax expense	—			2			Income tax expense
Net effect on accumulated other comprehensive income	(246		)	(95		)	Net of tax
Total reclassifications	$	(246	)	$	(95	)	Net of tax

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Derivatives

6 Months Ended

Jun. 30, 2016

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivatives

Derivatives

The Company utilizes derivative instruments as a part of its asset-liability management program to control fluctuation of market values and cash flows to changes in interest rates associated with certain financial instruments. The Company accounts for derivatives in accordance with ASC 815, "Derivatives and Hedging". Under current guidance, derivative transactions are classified as either cash flow hedges or fair value hedges or they are not designated as hedging instruments. The Company designates each derivative instrument at the inception of the derivative transaction in accordance with this guidance. Information concerning each of the Company's categories of derivatives as of June 30, 2016 and December 31, 2015 is presented below.

Derivatives designated as cash flow hedges

During 2010, the Company entered into an interest rate swap agreement as part of the interest rate risk management process.  The swap was designated as a cash flow hedge intended to hedge the variability of cash flows associated with the Company’s trust preferred capital securities. The swap hedges the cash flow associated with the trust preferred capital notes wherein the Company receives a floating rate based on LIBOR from a counterparty and pays a fixed rate of 2.59% to the same counterparty.  The swap is calculated on a notional amount of $5.2 million.  The term of the swap is 10 years and commenced on October 23, 2010.  The Company had cash collateral reserved for this swap in the amount of $400,000 as of June 30, 2016 and December 31, 2015. The swap was entered into with a counterparty that met the Company’s credit standards and the agreement contains collateral provisions protecting the at-risk party.  The Company believes that the credit risk inherent in the contract is not significant.

During 2013, the Company entered into an interest rate swap agreement as part of the interest rate risk management process.  The swap has been designated as a cash flow hedge intended to hedge the variability of cash flows associated with the Company’s FHLB borrowings. The swap hedges the cash flows associated with the FHLB borrowings wherein the Company receives a floating rate based on LIBOR from a counterparty and pays a fixed rate of 1.43% to the same counterparty.  The swap is calculated on a notional amount of $10.0 million.  The term of the swap is 5 years and commenced on November 25, 2013.  The Company had cash collateral reserved for this swap in the amount of $450,000 and $300,000 as of June 30, 2016 and December 31, 2015, respectively. The swap was entered into with a counterparty that met the Company’s credit standards and the agreement contains collateral provisions protecting the at-risk party.  The Company believes that the credit risk inherent in the contract is not significant.

Amounts receivable or payable are recognized as accrued under the terms of the agreement, with the effective portion of the derivative’s unrealized gain or loss recorded as a component of other comprehensive income.  The ineffective portion of the unrealized gain or loss, if any, would be recorded in other expense.  The Company has assessed the effectiveness of the hedging relationship by comparing the changes in cash flows on the designated hedged item.  As a result of this assessment, there was no hedge ineffectiveness identified for the three and six months ended June 30, 2016 and 2015. At December 31, 2015 there was no hedge ineffectiveness identified for this interest rate swap.

The amounts included in accumulated other comprehensive income as unrealized losses (fair value, net of tax) were $380,000 and $195,000 as of June 30, 2016 and December 31, 2015, respectively.

Information concerning the derivatives designated as a cash flow hedges at June 30, 2016 and December 31, 2015 is presented in the following tables:

	June 30, 2016
	Positions (#)	Notional Amount (in thousands)		Asset (in thousands)		Liability (in thousands)		Receive Rate		Pay Rate		Life (Years)
Pay fixed - receive floating interest rate swap	1	$	5,155	$	—	$	375	0.64	%	2.59	%	4.2
Pay fixed - receive floating interest rate swap	1	$	10,000	$	—	$	202	0.44	%	1.43	%	2.4

	December 31, 2015
	Positions (#)	Notional Amount (in thousands)		Asset (in thousands)		Liability (in thousands)		Receive Rate		Pay Rate		Life (Years)
Pay fixed - receive floating interest rate swap	1	$	5,155	$	—	$	226	0.32	%	2.59	%	4.8
Pay fixed - receive floating interest rate swap	1	$	10,000	$	—	$	71	0.23	%	1.43	%	3.0

Derivatives not designated as hedging instruments

Two-way client loan swaps

During the fourth quarter of 2014 and 2012, the Company entered into certain interest rate swap contracts that are not designated as hedging instruments. These derivative contracts relate to transactions in which we enter into an interest rate swap with a customer while at the same time entering into an offsetting interest rate swap with another financial institution. In connection with each swap transaction, the Company agrees to pay interest to the customer on a notional amount at a variable interest rate and receive interest from the customer on an identical notional amount at a fixed interest rate. At the same time, the Company agrees to pay the counterparty the same fixed interest rate on the same notional amount and receive the same variable interest rate on the same notional amount. The transaction allows our clients to effectively convert a variable rate loan into a fixed rate loan. Because the Company acts as an intermediary for our customers, changes in the fair value of the underlying derivatives contracts offset each other and do not significantly impact our results of operations.

Certain additional risks arise from interest rate swap contracts in that the counterparties to the contracts may not be able to meet the terms of the contracts. We do not expect any counterparty to fail to meet its obligations.

Information concerning two-way client interest rate swaps not designated as either fair value or cash flow hedges is presented in the following table:

	June 30, 2016
	Positions (#)	Notional Amount (in thousands)		Asset (in thousands)		Liability (in thousands)		Receive Rate		Pay Rate		Life (Years)
Pay fixed - receive floating interest rate swap	1	$	3,635	$	—	$	178	1 month LIBOR plus 200 BP		3.90	%	11.3
Pay fixed - receive floating interest rate swap	1	1,685		—		144		1 month LIBOR plus 180 BP		4.09	%	8.3
Pay floating - receive fixed interest rate swap	1	3,635		178		—		3.90	%	1 month LIBOR plus 200 BP		11.3
Pay floating - receive fixed interest rate swap	1	1,685		144		—		4.09	%	1 month LIBOR plus 180 BP		8.3
Total derivatives not designated		$	10,640	$	322	$	322

	December 31, 2015
	Positions (#)	Notional Amount (in thousands)		Asset (in thousands)		Liability (in thousands)		Receive Rate		Pay Rate		Life (Years)
Pay fixed - receive floating interest rate swap	1	$	3,760	$	—	$	21	1 month LIBOR plus 200 BP		3.90	%	11.9
Pay fixed - receive floating interest rate swap	1	1,706		—		52		1 month LIBOR plus 180 BP		4.09	%	8.9
Pay floating - receive fixed interest rate swap	1	3,760		21		—		3.90	%	1 month LIBOR plus 200 BP		11.9
Pay floating - receive fixed interest rate swap	1	1,706		52		—		4.09	%	1 month LIBOR plus 180 BP		8.9
Total derivatives not designated		$	10,932	$	73	$	73

Rate Cap Transaction

At June 30, 2016, the Company had one derivative instrument in the form of an interest rate cap agreement with a notional amount of $10.0 million. The notional amount of the financial derivative instrument does not represent exposure to credit loss. The Company is exposed to credit loss only to the extent the counter-party defaults in its responsibility to pay interest under the terms of the agreement. The credit risk in derivative instruments is mitigated by entering into transactions with highly-rated counterparties that management believes to be creditworthy and by limiting the amount of exposure to each counter-party. We do not expect any counterparty to fail to meet its obligations.

The details of the interest rate cap agreement as of June 30, 2016 and December 31, 2015 are summarized below:

June 30, 2016
(Dollars in thousands)
Notional Amount		Termination Date	3-Month LIBOR Strike Rate		Premium Paid		Unamortized Premium at June 30, 2016		Fair Value June 30, 2016		Cumulative Cash Flows Received
$	10,000	September 8, 2018	2.00	%	$	70	$	70	$	3	$	—

December 31, 2015
(Dollars in thousands)
Notional Amount		Termination Date	3-Month LIBOR Strike Rate		Premium Paid		Unamortized Premium at December 31, 2015		Fair Value December 31, 2015		Cumulative Cash Flows Received
$	10,000	September 8, 2018	2.00	%	$	70	$	70	$	39	$	—

In the third quarter of 2015, the interest rate cap agreement was purchased to limit the Company's exposure to rising interest rates. Under the terms of the agreement, the Company paid a premium of $70,000 for the right to receive cash flow payments if 3-month LIBOR rises above the cap of 2.00%, thus effectively ensuring interest expense is capped at a maximum rate of 2.00% for the duration of the agreement. The interest rate cap agreement is a derivative not designated as a hedging instrument.

At June 30, 2016 and December 31, 2015, the total fair value of the interest rate cap agreement was $3,000 and $39,000, respectively. The fair value of the interest rate cap agreement is included in other assets on the Company's consolidated balance sheets. Changes in fair value are recorded in earnings in other operating expenses. For the six months ended June 30, 2016 and the year ended December 31, 2015, $36,000 and $31,000 was recognized in other operating expenses. There was no interest rate cap at June 30, 2015, therefore there were no changes in fair value and no amounts recognized in other operating expenses.

The premium paid on the interest rate cap agreement is recognized as a decrease in interest income over the duration of the agreement using the caplet method. For the three and six months ended June 30, 2016 and for the year ended December 31, 2015, no premium amortization was required.

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Other Real Estate Assets Owned (OREO)

6 Months Ended

Jun. 30, 2016

Other Real Estate [Abstract]

Other Real Estate Owned (OREO)

Other Real Estate Owned (OREO)

At June 30, 2016 and December 31, 2015, OREO balances were $3.6 million and $3.3 million, respectively. OREO is primarily comprised of residential properties and non-residential properties, and are located primarily in the state of Virginia. Changes in the balance for OREO, net of valuation allowances, are as follows:

(Dollars in thousands)	June 30, 2016			December 31, 2015
Balance at the beginning of year, net	$	3,345		$	4,051
Transfers from loans and to premises and equipment, net	526			287
Sales proceeds	(224		)	(814		)
(Gain) loss on disposition	50			(100		)
Less valuation adjustments	(144		)	(79		)
Balance at the end of the period, net	$	3,553		$	3,345

Expenses applicable to net OREO, were $(11,000) and $25,000 during the three months ended June 30, 2016 and 2015, respectivelyand $156,000 and $92,000 during the six months ended June 30, 2016 and 2015, respectively.

The major classifications of OREO in the consolidated balance sheets at June 30, 2016 and December 31, 2015 were as follows:

(Dollars in thousands)	June 30, 2016		December 31, 2015
Real estate loans:
Construction	$	857	$	853
Secured by farmland	—		—
Secured by 1-4 family residential	2,336		1,958
Other real estate loans	360		534
Total real estate loans	$	3,553	$	3,345

At June 30, 2016, the Company had no consumer mortgage loans secured by residential real estate for which foreclosure was in process. At December 31, 2015, the Company had one consumer mortgage loan secured by residential real estate that totaled $533,000 for which foreclosure was in process and subsequently transfered to OREO.

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Low Income Housing Tax Credits

6 Months Ended

Jun. 30, 2016

Equity Method Investments and Joint Ventures [Abstract]

Low Income Housing Tax Credit

Low Income Housing Tax Credits

The Company has invested in four separate housing equity funds at June 30, 2016 and December 31, 2015. The general purpose of these funds is to encourage and assist participants in investing in low-income residential rental properties located in the Commonwealth of Virginia, develop and implement strategies to maintain projects as low-income housing, deliver Federal Low Income Housing Credits to investors, allocate tax losses and other possible tax benefits to investors, and to preserve and protect project assets. The investments in these funds were recorded as other assets on the consolidated balance sheets and were $8.70 million and $9.03 million at June 30, 2016 and December 31, 2015, respectively. The expected terms of these investments and the related tax benefits run through 2033. Tax credits and other tax benefits recognized during the three months ended June 30, 2016 and 2015 were $141,000 and $108,000, respectively, and for the six months ended June 30, 2016 and 2015, were $287,000 and $231,000, respectively, related to these investments. Total projected tax credits to be received for 2016 are $512,000, which is based on the most recent quarterly estimates received from the funds. Additional capital calls expected for the funds totaled $9.31 million at June 30, 2016 and December 31, 2015, and are included in other liabilities on the consolidated balance sheets.

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Share-Based Compensation Plan (Tables)

6 Months Ended

Jun. 30, 2016

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

Restricted stock awarded under the 2006 Equity Compensation Plan

The following table summarizes restricted stock awarded under the 2006 Equity Compensation Plan:

	June 30, 2016
	Shares		Weighted-Average Grant Date Fair Value		Aggregate Value (in thousands)
Non-vested at December 31, 2015	153,399		$	17.17
Granted	53,500		20.76
Vested	(33,525	)	16.48
Forfeited	(2,250	)	19.91
Non-vested at June 30, 2016	171,124		$	18.39	$	4,655

Stock options outstanding activity

The following table summarizes options outstanding under the 2006 Equity Compensation Plan and remaining outstanding unexercised options under the 1997 Stock Incentive Plan.  

	June 30, 2016
	Shares		Weighted-Average Exercise Price		Aggregate Intrinsic Value (in thousands)
Outstanding at December 31, 2015	30,012		$	14.00	$	—
Granted	—		—		—
Exercised	(4,638	)	14.00		—
Forfeited	—		—		—
Outstanding at June 30, 2016	25,374		$	14.00	$	335
Options exercisable at June 30, 2016	25,374		$	14.00	$	335

Schedule of options outstanding and exercisable

As of June 30, 2016, options outstanding and exercisable are summarized as follows:

Exercise Prices		Options Outstanding	Weighted-Average Remaining Contractual Life (years)	Options Exercisable
$	14.00	20,374	2.70	20,374
$	14.00	5,000	3.34	5,000
$	14.00	25,374	2.83	25,374

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Securities (Tables)

6 Months Ended

Jun. 30, 2016

Investments, Debt and Equity Securities [Abstract]

Amortized costs and fair values of held to maturity securities

Amortized costs and fair values of securities held to maturity are summarized as follows.

	June 30, 2016
(Dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
Held to Maturity
Obligations of states and political subdivisions	$	6,477	$	253	$	—	$	6,730
Corporate securities	4,250		100		—		4,350
Total	$	10,727	$	353	$	—	$	11,080

	December 31, 2015
(Dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Held to Maturity
Obligations of states and political subdivisions	$	1,457	$	—	$	(38	)	$	1,419
Corporate securities	2,750		24		(30		)	2,744
Total	$	4,207	$	24	$	(68	)	$	4,163

The amortized cost and fair value of securities held to maturity as of June 30, 2016, by contractual maturity are shown below. 

	June 30, 2016
(Dollars in thousands)	Amortized Cost		Fair Value
Held to Maturity
Due after five years through ten years	$	4,250	$	4,350
Due after ten years	6,477		6,730
Total	$	10,727	$	11,080

Amortized costs and fair values of securities available for sale

Amortized costs and fair values of securities available for sale are summarized as follows:

	June 30, 2016
(Dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Available for Sale
U.S. government agencies	$	65,442	$	1,216	$	(127	)	$	66,531
Obligations of states and political subdivisions	67,664		2,420		(89		)	69,995
Mortgage-backed securities:
Agency	123,514		3,826		(550		)	126,790
Non-agency	13,306		131		(40		)	13,397
Other asset backed securities	54,725		525		(744		)	54,506
Corporate securities	16,606		59		(701		)	15,964
Total	$	341,257	$	8,177	$	(2,251	)	$	347,183

	December 31, 2015
(Dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Available for Sale
U.S. government agencies	$	79,005	$	315	$	(380	)	$	78,940
Obligations of states and political subdivisions	74,071		1,956		(434		)	75,593
Mortgage-backed securities:
Agency	129,360		3,046		(745		)	131,661
Non-agency	12,782		33		(38		)	12,777
Other asset backed securities	58,958		426		(603		)	58,781
Corporate securities	17,557		22		(760		)	16,819
Total	$	371,733	$	5,798	$	(2,960	)	$	374,571

Amortized cost and fair value of securities available for sale by contractual maturity

The amortized cost and fair value of securities available for sale as of June 30, 2016, by contractual maturity are shown below.  Maturities may differ from contractual maturities in corporate and mortgage-backed securities because the securities and mortgages underlying the securities may be called or repaid without any penalties.  Therefore, these securities are not included in the maturity categories in the following maturity summary.

	June 30, 2016
(Dollars in thousands)	Amortized Cost		Fair Value
Due in one year or less	$	487	$	487
Due after one year through five years	9,421		9,675
Due after five years through ten years	24,463		24,403
Due after ten years	115,341		117,925
Mortgage-backed securities	136,820		140,187
Other asset backed securities	54,725		54,506
Total	$	341,257	$	347,183

Investments in an unrealized loss position

Investments in an unrealized loss position that are temporarily impaired are as follows:

(Dollars in thousands)	Less than Twelve Months					Twelve Months or Greater					Total
June 30, 2016	Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses
Available for Sale
U.S. government agencies	$	11,883	$	(112	)	$	1,633	$	(15	)	$	13,516	$	(127	)
Obligations of states and political subdivisions	205		—			7,779		(89		)	7,984		(89		)
Mortgage-backed securities:
Agency	12,138		(130		)	11,448		(420		)	23,586		(550		)
Non-agency	326		—			1,910		(40		)	2,236		(40		)
Other asset backed securities	19,390		(427		)	18,049		(317		)	37,439		(744		)
Corporate securities	1,954		(46		)	11,654		(655		)	13,608		(701		)
Total	$	45,896	$	(715	)	$	52,473	$	(1,536	)	$	98,369	$	(2,251	)

(Dollars in thousands)	Less than Twelve Months					Twelve Months or Greater					Total
December 31, 2015	Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses			Fair Value		Gross Unrealized Losses
Held to Maturity
Obligations of states and political subdivisions	$	1,419	$	(38	)	$	—	$	—		$	1,419	$	(38	)
Corporate securities	1,970		(30		)	—		—			1,970		(30		)
Total	$	3,389	$	(68	)	$	—	$	—		$	3,389	$	(68	)
Available for Sale
U.S. government agencies	$	46,000	$	(304	)	$	4,223	$	(76	)	$	50,223	$	(380	)
Obligations of states and political subdivisions	16,559		(324		)	1,082		(110		)	17,641		(434		)
Mortgage-backed securities:
Agency	27,627		(402		)	9,911		(343		)	37,538		(745		)
Non-agency	7,842		(37		)	671		(1		)	8,513		(38		)
Other asset backed securities	25,399		(276		)	12,037		(327		)	37,436		(603		)
Corporate securities	10,740		(378		)	4,866		(382		)	15,606		(760		)
Total	$	134,167	$	(1,721	)	$	32,790	$	(1,239	)	$	166,957	$	(2,960	)

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Loans, Net (Tables)

6 Months Ended

Jun. 30, 2016

Receivables [Abstract]

Consolidated loan portfolio

The consolidated loan portfolio was composed of the following:

	June 30, 2016				December 31, 2015
(Dollars in thousands)	Outstanding Balance		Percent of Total Portfolio		Outstanding Balance		Percent of Total Portfolio
Real estate loans:
Construction	$	42,947	5.0	%	$	39,673	4.9	%
Secured by farmland	18,875		2.2		19,062		2.4
Secured by 1-4 family residential	303,200		35.5		280,096		34.8
Other real estate loans	275,797		32.3		258,035		32.0
Commercial loans	194,712		22.8		190,482		23.6
Consumer loans	19,116		2.2		18,333		2.3
Total gross loans (1)	$	854,647	100.0	%	$	805,681	100.0	%
Less allowance for loan losses	11,527				11,046
Net loans	$	843,120			$	794,635

⁽¹⁾  Includes net deferred loan costs and premiums of $4.1 million and $3.5 million, respectively.

Past due loans by class of loans

The following tables present a contractual aging of the recorded investment in past due loans by class of loans:

	June 30, 2016
(Dollars in thousands)	30-59 Days Past Due		60-89 Days Past Due		90 Days Or Greater		Total Past Due		Current		Total Loans
Real estate loans:
Construction	$	—	$	167	$	—	$	167	$	42,780	$	42,947
Secured by farmland	—		—		—		—		18,875		18,875
Secured by 1-4 family residential	221		12		3,438		3,671		299,529		303,200
Other real estate loans	58		555		725		1,338		274,459		275,797
Commercial loans	246		—		522		768		193,944		194,712
Consumer loans	8		—		1		9		19,107		19,116
Total	$	533	$	734	$	4,686	$	5,953	$	848,694	$	854,647

	December 31, 2015
(Dollars in thousands)	30-59 Days Past Due		60-89 Days Past Due		90 Days Or Greater		Total Past Due		Current		Total Loans
Real estate loans:
Construction	$	69	$	—	$	—	$	69	$	39,604	$	39,673
Secured by farmland	—		—		—		—		19,062		19,062
Secured by 1-4 family residential	259		—		1,117		1,376		278,720		280,096
Other real estate loans	325		—		248		573		257,462		258,035
Commercial loans	1,242		15		31		1,288		189,194		190,482
Consumer loans	4		17		—		21		18,312		18,333
Total	$	1,899	$	32	$	1,396	$	3,327	$	802,354	$	805,681

The following table presents the recorded investment in nonaccrual loans and loans past due 90 days or more and still accruing by class of loans:

	June 30, 2016				December 31, 2015
(Dollars in thousands)	Nonaccrual		Past due 90 days or more and still accruing		Nonaccrual		Past due 90 days or more and still accruing
Real estate loans:
Construction	$	30	$	—	$	204	$	—
Secured by 1-4 family residential	3,438		—		4,460		—
Other real estate loans	1,127		153		1,186		248
Commercial loans	511		25		1,036		30
Consumer loans	1,870		1		1,898		—
Total	$	6,976	$	179	$	8,784	$	278

Summary of loan classifications by class of loan

The following tables present the recorded investment in loans by class of loan that have been classified according to the internal classification system:

June 30, 2016
(Dollars in thousands)	Real Estate Construction		Real Estate Secured by Farmland		Real Estate Secured by 1-4 Family Residential		Other Real Estate Loans		Commercial		Consumer		Total
Pass	$	37,345	$	10,958	$	294,453	$	266,323	$	188,364	$	17,171	$	814,614
Special Mention	5,572		—		2,376		3,483		3,493		31		14,955
Substandard	30		7,917		6,245		4,865		2,358		1,914		23,329
Doubtful	—		—		126		1,126		497		—		1,749
Loss	—		—		—		—		—		—		—
Ending Balance	$	42,947	$	18,875	$	303,200	$	275,797	$	194,712	$	19,116	$	854,647

December 31, 2015
(Dollars in thousands)	Real Estate Construction		Real Estate Secured by Farmland		Real Estate Secured by 1-4 Family Residential		Other Real Estate Loans		Commercial		Consumer		Total
Pass	$	30,114	$	10,566	$	271,721	$	243,768	$	183,532	$	16,347	$	756,048
Special Mention	9,024		—		896		7,254		3,638		42		20,854
Substandard	535		8,496		6,818		5,827		2,301		1,943		25,920
Doubtful	—		—		661		1,186		1,011		—		2,858
Loss	—		—		—		—		—		1		1
Ending Balance	$	39,673	$	19,062	$	280,096	$	258,035	$	190,482	$	18,333	$	805,681

Loans identified as impaired by class of loan

The following tables present loans individually evaluated for impairment by class of loan:

	June 30, 2016
(Dollars in thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Real estate loans:
Construction	$	30	$	30	$	—	$	31	$	—
Secured by farmland	7,917		7,917		—		7,910		118
Secured by 1-4 family residential	242		277		—		243		—
Other real estate loans	1,126		1,126		—		1,133		—
Commercial loans	906		3,906		—		1,186		8
Consumer loans	—		—		—		—		—
Total with no related allowance	$	10,221	$	13,256	$	—	$	10,503	$	126
With an allowance recorded:
Real estate loans:
Construction	$	—	$	—	$	—	$	—	$	—
Secured by farmland	—		—		—		—		—
Secured by 1-4 family residential	4,254		4,307		1,094		4,273		21
Other real estate loans	2,991		2,991		222		3,001		77
Commercial loans	46		46		30		62		1
Consumer loans	1,870		1,870		787		1,884		—
Total with a related allowance	$	9,161	$	9,214	$	2,133	$	9,220	$	99
Total	$	19,382	$	22,470	$	2,133	$	19,723	$	225

	December 31, 2015
(Dollars in thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
With no related allowance recorded:
Real estate loans:
Construction	$	100	$	100	$	—	$	106	$	—
Secured by farmland	7,903		7,903		—		7,903		237
Secured by 1-4 family residential	701		736		—		703		—
Other real estate loans	—		—		—		—		—
Commercial loans	458		493		—		490		17
Consumer loans	—		—		—		—		—
Total with no related allowance	$	9,162	$	9,232	$	—	$	9,202	$	254
With an allowance recorded:
Real estate loans:
Construction	$	103	$	103	$	53	$	109	$	—
Secured by farmland	—		—		—		—		—
Secured by 1-4 family residential	4,426		4,478		1,120		4,547		27
Other real estate loans	4,196		4,196		464		4,224		157
Commercial loans	1,059		4,059		27		2,315		100
Consumer loans	1,898		1,898		1,000		2,449		—
Total with a related allowance	$	11,682	$	14,734	$	2,664	$	13,644	$	284
Total	$	20,844	$	23,966	$	2,664	$	22,846	$	538

Loans modified in TDR by class of loan

Loan modifications that were classified as TDRs during the three and six months ended June 30, 2016 and 2015 were as follows:

	Loans Modified as TDRs
	For the Three Months Ended June 30,
(Dollars in thousands)	2016					2015
Class of Loan	Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Real estate loans:
Construction	—	$	—	$	—	—	$	—	$	—
Secured by farmland	—	—		—		1	7,903		7,903
Secured by 1-4 family residential	1	400		400		—	—		—
Other real estate loans	—	—		—		—	—		—
Total real estate loans	1	$	400	$	400	1	$	7,903	$	7,903
Commercial loans	—	—		—		—	—		—
Consumer loans	—	—		—		1	3,000		3,000
Total	1	$	400	$	400	2	$	10,903	$	10,903

	Loans Modified as TDRs
	For the Six Months Ended June 30,
(Dollars in thousands)	2016					2015
Class of Loan	Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Real estate loans:
Construction	—	$	—	$	—	—	$	—	$	—
Secured by farmland	—	—		—		1	7,903		7,903
Secured by 1-4 family residential	1	400		400		—	—		—
Other real estate loans	1	368		367		—	—		—
Total real estate loans	2	$	768	$	767	1	$	7,903	$	7,903
Commercial loans	—	—		—		—	—		—
Consumer loans	—	—		—		1	3,000		3,000
Total	2	$	768	$	767	1	$	10,903	$	10,903

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Allowance for Loan Losses (Tables)

6 Months Ended

Jun. 30, 2016

Allowance for Loan Losses [Abstract]

Allowance for loan losses

The following table presents, the total allowance for loan losses, the allowance by impairment methodology (individually evaluated for impairment or collectively evaluated for impairment), the total loans and loans by impairment methodology (individually evaluated for impairment or collectively evaluated for impairment).

	June 30, 2016
(Dollars in thousands)	Real Estate Construction			Real Estate Secured by Farmland			Real Estate Secured by 1-4 Family Residential			Other Real Estate Loans			Commercial		Consumer			Total
Allowance for loan losses:
Balance at December 31, 2015	$	905		$	192		$	3,341		$	3,761		$	1,706	$	1,141		$	11,046
Charge-offs	(388		)	—			(7		)	(126		)	—		(11		)	(532		)
Recoveries	132			—			394			23			63		51			663
Provision	347			(18		)	(221		)	96			384		(238		)	350
Balance at June 30, 2016	$	996		$	174		$	3,507		$	3,754		$	2,153	$	943		$	11,527
Ending allowance:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	—		$	—		$	1,094		$	222		$	30	$	787		$	2,133
Collectively evaluated for impairment	996			174			2,413			3,532			2,123		156			9,394
Total ending allowance balance	$	996		$	174		$	3,507		$	3,754		$	2,153	$	943		$	11,527
Loans:
Individually evaluated for impairment	$	30		$	7,917		$	4,496		$	4,117		$	952	$	1,870		$	19,382
Collectively evaluated for impairment	42,917			10,958			298,704			271,680			193,760		17,246			835,265
Total ending loans balance	$	42,947		$	18,875		$	303,200		$	275,797		$	194,712	$	19,116		$	854,647

	December 31, 2015
(Dollars in thousands)	Real Estate Construction		Real Estate Secured by Farmland		Real Estate Secured by 1-4 Family Residential			Other Real Estate Loans			Commercial			Consumer			Total
Allowance for loan losses:
Balance at December 31, 2014	$	550	$	179	$	3,966		$	3,916		$	2,354		$	821		$	11,786
Charge-offs	—		—		(344		)	(9		)	(3,281		)	(57		)	(3,691		)
Recoveries	246		—		359			28			14			11			658
Provision	109		13		(640		)	(174		)	2,619			366			2,293
Balance at December 31, 2015	$	905	$	192	$	3,341		$	3,761		$	1,706		$	1,141		$	11,046
Ending allowance:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	53	$	—	$	1,120		$	464		$	27		$	1,000		$	2,664
Collectively evaluated for impairment	852		192		2,221			3,297			1,679			141			8,382
Total ending allowance balance	$	905	$	192	$	3,341		$	3,761		$	1,706		$	1,141		$	11,046
Loans:
Individually evaluated for impairment	$	203	$	7,903	$	5,127		$	4,196		$	1,517		$	1,898		$	20,844
Collectively evaluated for impairment	39,470		11,159		274,969			253,839			188,965			16,435			784,837
Total ending loans balance	$	39,673	$	19,062	$	280,096		$	258,035		$	190,482		$	18,333		$	805,681

	June 30, 2015
(Dollars in thousands)	Real Estate Construction			Real Estate Secured by Farmland		Real Estate Secured by 1-4 Family Residential			Other Real Estate Loans			Commercial			Consumer			Total
Allowance for loan losses:
Balance at December 31, 2014	$	550		$	179	$	3,966		$	3,916		$	2,354		$	821		$	11,786
Charge-offs	—			—		(12		)	(9		)	(246		)	(40		)	(307		)
Recoveries	31			—		324			21			8			6			390
Provision	(21		)	11		(156		)	35			(272		)	428			25
Balance at June 30, 2015	$	560		$	190	$	4,122		$	3,963		$	1,844		$	1,215		$	11,894
Ending allowance:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	60		$	—	$	1,412		$	454		$	43		$	1,003		$	2,972
Collectively evaluated for impairment	500			190		2,710			3,509			1,801			212			8,922
Total ending allowance balance	$	560		$	190	$	4,122		$	3,963		$	1,844		$	1,215		$	11,894
Loans:
Individually evaluated for impairment	$	223		$	7,903	$	4,723		$	4,230		$	795		$	2,033		$	19,907
Collectively evaluated for impairment	30,558			11,602		267,475			261,662			166,747			15,139			753,183
Total ending loans balance	$	30,781		$	19,505	$	272,198		$	265,892		$	167,542		$	17,172		$	773,090

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Earnings Per Share (Tables)

6 Months Ended

Jun. 30, 2016

Earnings Per Share [Abstract]

Weighted-average number of shares used in computing earnings (loss) per share and the effect on weighted-average number of shares of diluted potential common stock

The following shows the weighted-average number of shares used in computing earnings per share and the effect on weighted-average number of shares of diluted potential common stock. Nonvested restricted shares are included in basic earnings per share because of dividend participation rights. Potential dilutive common stock had no effect on income available to common stockholders.

	For the Three Months Ended June 30,
	2016			2015
	Shares	Per Share Amount		Shares	Per Share Amount
Earnings per share, basic	7,100,226	$	0.37	7,145,929	$	0.32
Effect of dilutive securities:
Stock options	11,948			7,102
Warrant	41,743			14,134
Earnings per share, diluted	7,153,917	$	0.37	7,167,165	$	0.32

	For the Six Months Ended June 30,
	2016			2015
	Shares	Per Share Amount		Shares	Per Share Amount
Earnings per share, basic	7,087,015	$	0.66	7,140,514	$	0.66
Effect of dilutive securities:
Stock options	10,476			7,077
Warrant	31,672			13,937
Earnings per share, diluted	7,129,163	$	0.66	7,161,528	$	0.66

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Segment Reporting (Tables)

6 Months Ended

Jun. 30, 2016

Segment Reporting [Abstract]

Schedule of reportable segments and reconciliation to the consolidated financial statements

The following tables represent reportable segment information for the three and six months ended June 30, 2016 and 2015, respectively:

	For the Three Months Ended											For the Three Months Ended
	June 30, 2016											June 30, 2015
(In Thousands)	Retail Banking			Wealth Management		Intercompany Eliminations			Consolidated			Retail Banking			Wealth Management		Intercompany Eliminations			Consolidated
Revenues:
Interest income	$	11,099		$	3	$	—		$	11,102		$	10,350		$	2	$	—		$	10,352
Trust and investment fee income	—			1,173		(41		)	1,132			—			1,284		(41		)	1,243
Other income	1,266			—		(28		)	1,238			995			—		—			995
Total operating income	12,365			1,176		(69		)	13,472			11,345			1,286		(41		)	12,590
Expenses:
Interest expense	1,133			—		—			1,133			1,039			—		—			1,039
Salaries and employee benefits	4,052			561		—			4,613			4,367			606		—			4,973
Provision for (recovery of) loan losses	50			—		—			50			(425		)	—		—			(425		)
Other	4,028			179		(69		)	4,138			3,661			288		(41		)	3,908
Total operating expenses	9,263			740		(69		)	9,934			8,642			894		(41		)	9,495
Income before income taxes	3,102			436		—			3,538			2,703			392		—			3,095
Income tax expense	722			163		—			885			667			148		—			815
Net Income	$	2,380		$	273	$	—		$	2,653		$	2,036		$	244	$	—		$	2,280
Total assets	$	1,310,589		$	6,336	$	(2,589	)	$	1,314,336		$	1,238,148		$	6,532	$	(2,695	)	$	1,241,985
Capital expenditures	$	(28	)	$	—	$	—		$	(28	)	$	2,320		$	—	$	—		$	2,320
Goodwill and other intangibles	$	—		$	3,550	$	—		$	3,550		$	—		$	3,722	$	—		$	3,722

	For the Six Months Ended									For the Six Months Ended
	June 30, 2016									June 30, 2015
(In Thousands)	Retail Banking		Wealth Management		Intercompany Eliminations			Consolidated		Retail Banking		Wealth Management		Intercompany Eliminations			Consolidated
Revenues:
Interest income	$	21,969	$	5	$	—		$	21,974	$	21,046	$	5	$	—		$	21,051
Trust and investment fee income	—		2,374		(84		)	2,290		—		2,543		(82		)	2,461
Other income	2,343		—		(55		)	2,288		2,632		—		—			2,632
Total operating income	24,312		2,379		(139		)	26,552		23,678		2,548		(82		)	26,144
Expenses:
Interest expense	2,256		—		—			2,256		2,107		—		—			2,107
Salaries and employee benefits	8,337		1,088		—			9,425		8,681		1,140		—			9,821
Provision for loan losses	350		—		—			350		25		—		—			25
Other	8,013		466		(139		)	8,340		7,320		569		(82		)	7,807
Total operating expenses	18,956		1,554		(139		)	20,371		18,133		1,709		(82		)	19,760
Income before income taxes	5,356		825		—			6,181		5,545		839		—			6,384
Income tax expense	1,163		310		—			1,473		1,341		315		—			1,656
Net Income	$	4,193	$	515	$	—		$	4,708	$	4,204	$	524	$	—		$	4,728
Total assets	$	1,310,589	$	6,336	$	(2,589	)	$	1,314,336	$	1,238,148	$	6,532	$	(2,695	)	$	1,241,985
Capital expenditures	$	97	$	—	$	—		$	97	$	2,471	$	—	$	—		$	2,471
Goodwill and other intangibles	$	—	$	3,550	$	—		$	3,550	$	—	$	3,722	$	—		$	3,722

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Fair Value Measurements (Tables)

6 Months Ended

Jun. 30, 2016

Fair Value Disclosures [Abstract]

Financial assets and liabilities measured at fair value on a recurring basis

The following tables present the balances of assets and liabilities measured at fair value on a recurring basis as of June 30, 2016 and December 31, 2015.

(Dollars in thousands)	June 30, 2016
Description	Total		Level I		Level II		Level III
Assets:
U.S. government agencies	$	66,531	$	—	$	66,531	$	—
Obligations of states and political subdivisions	69,995		—		69,995		—
Mortgage-backed securities:
Agency	126,790		—		126,790		—
Non-agency	13,397		—		13,397		—
Other asset backed securities	54,506		—		54,506		—
Corporate securities	15,964		—		15,964		—
Interest rate swaps	322		—		322		—
Interest rate cap	3		—		3		—
Liabilities:
Interest rate swaps	899		—		899		—

(Dollars in thousands)	December 31, 2015
Description	Total		Level I		Level II		Level III
Assets:
U.S. government agencies	$	78,940	$	—	$	78,940	$	—
Obligations of states and political subdivisions	75,593		—		75,593		—
Mortgage-backed securities:
Agency	131,661		—		131,661		—
Non-agency	12,777		—		12,777		—
Other asset backed securities	58,781		—		58,781		—
Corporate securities	16,819		—		16,819
Interest rate swaps	73		—		73		—
Interest rate cap	39		—		39		—
Liabilities:
Interest rate swaps	370		—		370		—

Estimated fair values and related carrying amounts of financial instruments

The estimated fair values, and related carrying amounts, of the Company's financial instruments are as follows:

(Dollars in thousands)	June 30, 2016
					Fair value measurements using:
	Carrying Amount		Total Fair Value		Level I		Level II		Level III
Financial assets:
Cash and cash equivalents	$	32,620	$	32,620	$	32,620	$	—	$	—
Securities held to maturity	10,727		11,080		—		11,080		—
Securities available for sale	347,183		347,183		—		347,183		—
Loans held for sale, net	189		189		—		189		—
Loans, net	843,120		854,350		—		—		854,350
Bank owned life insurance	23,596		23,596		—		23,596		—
Accrued interest receivable	5,131		5,131		—		5,131		—
Interest rate swaps	322		322		—		322		—
Interest rate cap	3		3		—		3		—
Financial liabilities:
Deposits	$	1,056,369	$	1,056,495	$	—	$	1,056,495	$	—
Securities sold under agreements to repurchase	31,043		31,043		—		31,043		—
FHLB borrowings	79,500		79,792		—		79,792		—
Subordinated notes	5,155		5,174		—		5,174		—
Accrued interest payable	393		393		—		393		—
Interest rate swaps	899		899		—		899		—

(Dollars in thousands)	December 31, 2015
					Fair value measurements using:
	Carrying Amount		Total Fair Value		Level I		Level II		Level III
Financial assets:
Cash and cash equivalents	$	39,228	$	39,228	$	39,228	$	—	$	—
Securities held to maturity	4,207		4,163		—		4,163		—
Securities available for sale	374,571		374,571		—		374,571		—
Loans, net	794,635		802,535		—		—		802,535
Bank-owned life insurance	23,273		23,273		—		23,273		—
Accrued interest receivable	5,204		5,204		—		5,204		—
Interest rate swaps	73		73		—		73		—
Interest rate cap	39		39		—		39		—
Financial liabilities:
Deposits	$	1,040,800	$	1,040,016	$	—	$	1,040,016	$	—
Securities sold under agreements to repurchase	26,869		26,869		—		26,869		—
FHLB borrowings	85,000		85,033		—		85,033		—
Subordinated debt	5,155		5,157		—		5,157		—
Accrued interest payable	410		410		—		410		—
Interest rate swaps	370		370		—		370		—

The following table summarizes the Company’s non-financial assets that were measured at fair value on a nonrecurring basis during the period.

(Dollars in thousands)	June 30, 2016
	Total		Level I		Level II		Level III
Assets:
Impaired loans	$	7,028	$	—	$	—	$	7,028
Other real estate owned	$	3,553	$	—	$	—	$	3,553
Repossessed assets(1)	$	1,043	$	—	$	—	$	1,043
(Dollars in thousands)	December 31, 2015
	Total		Level I		Level II		Level III
Assets:
Impaired loans	$	9,018	$	—	$	—	$	9,018
Other real estate owned	$	3,345	$	—	$	—	$	3,345
Repossessed assets (1)	$	1,043	$	—	$	—	$	1,043

⁽¹⁾  Included in other assets on the consolidated balance sheets.

Quantitative information about Level III fair value measurements

The following table presents quantitative information as of June 30, 2016 and December 31, 2015 about Level III fair value measurements for assets measured at fair value on a nonrecurring basis:

June 30, 2016	Fair Value (in thousands)		Valuation Technique	Unobservable Inputs	Range (Weighted Average)
Impaired loans	$	3,238	Appraisals	Discount to reflect current market conditions and estimated selling costs	0% - 100% (19%)
Impaired loans	$	3,790	Present value of cash flows	Discount rate	6% - 8% (6%)
Other real estate owned	$	3,553	Appraisals	Discount to reflect current market conditions and estimated selling costs	10%
Repossessed assets	$	1,043	Market analysis	Historical sales activity	50%

December 31, 2015	Fair Value (in thousands)		Valuation Technique	Unobservable Inputs	Range (Weighted Average)
Impaired loans	$	5,434	Appraisals	Discount to reflect current market conditions and estimated selling costs	0% - 100% (17%)
Impaired loans	$	3,584	Present value of cash flows	Discount rate	6% - 8% (7%)
Other real estate owned	$	3,345	Appraisals	Discount to reflect current market conditions and estimated selling costs	10%
Repossessed assets	$	1,043	Market analysis	Historical sales activity	50%

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Accumulated Other Comprehensive Income (Tables)

6 Months Ended

Jun. 30, 2016

Equity [Abstract]

Changes in other comprehensive income for the period

Changes in accumulated other comprehensive income for the six months ended June 30, 2016 and 2015 were:

(Dollars in thousands)	Unrealized Gains on Securities			Cash Flow Hedges			Accumulated Other Comprehensive Income
Balance December 31, 2014	$	3,979		$	(185	)	$	3,794
Unrealized holding gains (net of tax, $333)	(644		)	—			(644		)
Reclassification adjustment (net of tax, $47)	(91		)	—			(91		)
Unrealized loss on interest rate swaps (net of tax, $0)	—			(1		)	(1		)
Reclassification adjustment (net of tax, $2)	—			(4		)	(4		)
Balance June 30, 2015	$	3,244		$	(190	)	$	3,054
Balance December 31, 2015	$	1,872		$	(195	)	$	1,677
Unrealized holding gains (net of tax, $1,176)	2,285			—			2,285
Reclassification adjustment (net of tax, $127)	(246		)	—			(246		)
Unrealized loss on interest rate swaps (net of tax, $95)	—			(185		)	(185		)
Balance June 30, 2016	$	3,911		$	(380	)	$	3,531

Reclassification out of Accumulated Other Comprehensive Income

The following table presents information related to reclassifications from accumulated other comprehensive income:

Details about Accumulated Other Comprehensive Income	Amount Reclassified from Accumulated Other Comprehensive Income						Affected Line Item in the Consolidated Statements of Income
	For the Three Months Ended June 30,
(Dollars in thousands)	2016			2015
Securities available for sale (1):
Net securities gains reclassified into earnings	$	(210	)	$	(37	)	Gain on sales of securities available for sale, net
Related income tax expense	72			13			Income tax expense
Net effect on accumulated other comprehensive income for the period	(138		)	(24		)	Net of tax
Total reclassifications for the period	$	(138	)	$	(24	)	Net of tax

⁽¹⁾  For more information related to unrealized gains on securities available for sale, see Note 3, "Securities".

⁽²⁾  For more information related to unrealized losses on derivatives, see Note 12, "Derivatives".

Details about Accumulated Other Comprehensive Income	Amount Reclassified from Accumulated Other Comprehensive Income						Affected Line Item in the Consolidated Statements of Income
	For the Six Months Ended June 30,
(Dollars in thousands)	2016			2015
Securities available for sale (1):
Net securities gains reclassified into earnings	$	(373	)	$	(138	)	Gain on securities available for sale
Related income tax expense	127			47			Income tax expense
Derivatives (2):
(Gain) loss on interest rate swap ineffectiveness	—			(6		)	Other operating expenses
Related income tax expense	—			2			Income tax expense
Net effect on accumulated other comprehensive income	(246		)	(95		)	Net of tax
Total reclassifications	$	(246	)	$	(95	)	Net of tax

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Derivatives (Tables)

6 Months Ended

Jun. 30, 2016

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative designated as a cash flow hedge

Information concerning the derivatives designated as a cash flow hedges at June 30, 2016 and December 31, 2015 is presented in the following tables:

	June 30, 2016
	Positions (#)	Notional Amount (in thousands)		Asset (in thousands)		Liability (in thousands)		Receive Rate		Pay Rate		Life (Years)
Pay fixed - receive floating interest rate swap	1	$	5,155	$	—	$	375	0.64	%	2.59	%	4.2
Pay fixed - receive floating interest rate swap	1	$	10,000	$	—	$	202	0.44	%	1.43	%	2.4

	December 31, 2015
	Positions (#)	Notional Amount (in thousands)		Asset (in thousands)		Liability (in thousands)		Receive Rate		Pay Rate		Life (Years)
Pay fixed - receive floating interest rate swap	1	$	5,155	$	—	$	226	0.32	%	2.59	%	4.8
Pay fixed - receive floating interest rate swap	1	$	10,000	$	—	$	71	0.23	%	1.43	%	3.0

Two-way client interest rate swaps not designated as either fair value or cash flow hedges

Information concerning two-way client interest rate swaps not designated as either fair value or cash flow hedges is presented in the following table:

	June 30, 2016
	Positions (#)	Notional Amount (in thousands)		Asset (in thousands)		Liability (in thousands)		Receive Rate		Pay Rate		Life (Years)
Pay fixed - receive floating interest rate swap	1	$	3,635	$	—	$	178	1 month LIBOR plus 200 BP		3.90	%	11.3
Pay fixed - receive floating interest rate swap	1	1,685		—		144		1 month LIBOR plus 180 BP		4.09	%	8.3
Pay floating - receive fixed interest rate swap	1	3,635		178		—		3.90	%	1 month LIBOR plus 200 BP		11.3
Pay floating - receive fixed interest rate swap	1	1,685		144		—		4.09	%	1 month LIBOR plus 180 BP		8.3
Total derivatives not designated		$	10,640	$	322	$	322

	December 31, 2015
	Positions (#)	Notional Amount (in thousands)		Asset (in thousands)		Liability (in thousands)		Receive Rate		Pay Rate		Life (Years)
Pay fixed - receive floating interest rate swap	1	$	3,760	$	—	$	21	1 month LIBOR plus 200 BP		3.90	%	11.9
Pay fixed - receive floating interest rate swap	1	1,706		—		52		1 month LIBOR plus 180 BP		4.09	%	8.9
Pay floating - receive fixed interest rate swap	1	3,760		21		—		3.90	%	1 month LIBOR plus 200 BP		11.9
Pay floating - receive fixed interest rate swap	1	1,706		52		—		4.09	%	1 month LIBOR plus 180 BP		8.9
Total derivatives not designated		$	10,932	$	73	$	73

Summary of interest rate cap agreement

The details of the interest rate cap agreement as of June 30, 2016 and December 31, 2015 are summarized below:

June 30, 2016
(Dollars in thousands)
Notional Amount		Termination Date	3-Month LIBOR Strike Rate		Premium Paid		Unamortized Premium at June 30, 2016		Fair Value June 30, 2016		Cumulative Cash Flows Received
$	10,000	September 8, 2018	2.00	%	$	70	$	70	$	3	$	—

December 31, 2015
(Dollars in thousands)
Notional Amount		Termination Date	3-Month LIBOR Strike Rate		Premium Paid		Unamortized Premium at December 31, 2015		Fair Value December 31, 2015		Cumulative Cash Flows Received
$	10,000	September 8, 2018	2.00	%	$	70	$	70	$	39	$	—

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Other Real Estate Assets Owned (OREO) (Tables)

6 Months Ended

Jun. 30, 2016

Other Real Estate [Abstract]

Changes in the balance for OREO

Changes in the balance for OREO, net of valuation allowances, are as follows:

(Dollars in thousands)	June 30, 2016			December 31, 2015
Balance at the beginning of year, net	$	3,345		$	4,051
Transfers from loans and to premises and equipment, net	526			287
Sales proceeds	(224		)	(814		)
(Gain) loss on disposition	50			(100		)
Less valuation adjustments	(144		)	(79		)
Balance at the end of the period, net	$	3,553		$	3,345

Major classifications of OREO

The major classifications of OREO in the consolidated balance sheets at June 30, 2016 and December 31, 2015 were as follows:

(Dollars in thousands)	June 30, 2016		December 31, 2015
Real estate loans:
Construction	$	857	$	853
Secured by farmland	—		—
Secured by 1-4 family residential	2,336		1,958
Other real estate loans	360		534
Total real estate loans	$	3,553	$	3,345

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Share-Based Compensation Plan - Narrative (Details)	3 Months Ended		6 Months Ended
	Jun. 30, 2016 USD ($) share_based_compensation_plan shares	Jun. 30, 2015 USD ($)	Jun. 30, 2016 USD ($) share_based_compensation_plan shares	Jun. 30, 2015 USD ($)
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of plans | share_based_compensation_plan	1		1
Share based compensation expense	$ 256,000	$ 150,000	$ 445,000	$ 280,000
Options intrinsic value	$ 61,000		$ 61,000
2006 Equity Compensation Plan [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of shares authorized (in shares) | shares	430,000		430,000
2006 Equity Compensation Plan [Member] | Restricted Stock [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Unrecognized compensation expense related to nonvested restricted stock awards	$ 2,100,000		$ 2,100,000
Restricted stock nonvested outstanding, weighted average remaining contractual terms			2 years 9 months 3 days
2006 Equity Compensation Plan [Member] | Employee Stock Option [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Unrecognized compensation expense related to nonvested restricted stock awards	0		$ 0
Compensation expense	$ 0	$ 0	$ 0	$ 0

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Share-Based Compensation Plan - Restricted stock service awards and performance awarded under the 2006 Equity Compensation Plan (Details) - 2006 Equity Compensation Plan [Member] - Restricted Stock [Member] $ / shares in Units, $ in Thousands	6 Months Ended
	Jun. 30, 2016 USD ($) $ / shares shares
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Number of Shares [Roll Forward]
Non-vested at beginning of year (in shares) | shares	153,399
Granted (in shares) | shares	53,500
Vested (in shares) | shares	(33,525)
Forfeited (in shares) | shares	(2,250)
Non-vested at end of period (in shares) | shares	171,124
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested, Weighted Average Grant Date Fair Value [Abstract]
Non-vested at beginning of year (in dollars per share) | $ / shares	$ 17.17
Granted (in dollars per share) | $ / shares	20.76
Vested (in dollars per share) | $ / shares	16.48
Forfeited (in dollars per share) | $ / shares	19.91
Non-vested at end of period (in dollars per share) | $ / shares	$ 18.39
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Aggregate Intrinsic Value [Abstract]
Non-vested at end of period | $	$ 4,655

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Share-Based Compensation Plan - Stock options outstanding activity (Details) - USD ($) $ / shares in Units, $ in Thousands	6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Dec. 31, 2015
Shares [Roll Forward]
Outstanding at beginning of year (in shares)	30,012
Granted (in shares)	0
Exercised (in shares)	(4,638)
Forfeited (in shares)	0
Outstanding at end of period (in shares)	25,374
Options exercisable at year end (in shares)	25,374
Weighted Average Exercise Price [Roll Forward]
Outstanding at beginning of year (in dollars per share)	$ 14.00
Granted (in dollars per share)	0.00
Exercised (in dollars per share)	14.00
Forfeited (in dollars per share)	0.00
Outstanding at end of period (in dollars per share)	14.00
Options exercisable at year end (in dollars per share)	$ 14.00
Aggregate intrinsic value, options outstanding	$ 335		$ 0
Aggregate intrinsic value, options exercisable	$ 335

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Share-Based Compensation Plan - Schedule of options outstanding and exercisable (Details) - $ / shares	6 Months Ended
	Jun. 30, 2016	Dec. 31, 2015
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
Exercise Prices (in dollars per share)	$ 14.00	$ 14.00
Options Outstanding (in shares)	25,374	30,012
Options Exercisable (in shares)	25,374
14.00 [Member]
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
Exercise Prices (in dollars per share)	$ 14.00
Options Outstanding (in shares)	20,374
Weighted average remaining contractual life (years)	2 years 8 months 12 days
Options Exercisable (in shares)	20,374
14.00 [Member]
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
Exercise Prices (in dollars per share)	$ 14.00
Options Outstanding (in shares)	5,000
Weighted average remaining contractual life (years)	3 years 4 months 2 days
Options Exercisable (in shares)	5,000
14.00 [Member]
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range [Line Items]
Exercise Prices (in dollars per share)	$ 14.00
Options Outstanding (in shares)	25,374
Weighted average remaining contractual life (years)	2 years 9 months 29 days
Options Exercisable (in shares)	25,374

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Securities - Amortized costs and fair values of securities held to maturity (Details) - USD ($) $ in Thousands	Jun. 30, 2016	Dec. 31, 2015
Schedule of Held-to-maturity Securities [Line Items]
Amortized Cost	$ 10,727	$ 4,207
Gross Unrealized Gains	353	24
Gross Unrealized Losses	0	(68)
Fair Value	11,080	4,163
Obligations of states and political subdivisions [Member]
Schedule of Held-to-maturity Securities [Line Items]
Amortized Cost	6,477	1,457
Gross Unrealized Gains	253	0
Gross Unrealized Losses	0	(38)
Fair Value	6,730	1,419
Corporate securities [Member]
Schedule of Held-to-maturity Securities [Line Items]
Amortized Cost	4,250	2,750
Gross Unrealized Gains	100	24
Gross Unrealized Losses	0	(30)
Fair Value	$ 4,350	$ 2,744

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Securities - Amortized cost and fair value of securities held to maturity by contractual maturity (Details) - USD ($) $ in Thousands	Jun. 30, 2016	Dec. 31, 2015
Amortized Cost
Due after five years through ten years	$ 4,250
Due after ten years	6,477
Amortized cost	10,727	$ 4,207
Fair Value
Due after five years through ten years	4,350
Due after ten years	6,730
Securities held to maturity	$ 11,080	$ 4,163

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Securities - Amortized costs and fair values of securities available for sale (Details) - USD ($) $ in Thousands	Jun. 30, 2016	Dec. 31, 2015
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	$ 341,257	$ 371,733
Gross Unrealized Gains	8,177	5,798
Gross Unrealized Losses	(2,251)	(2,960)
Fair Value	347,183	374,571
U.S. government agencies [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	65,442	79,005
Gross Unrealized Gains	1,216	315
Gross Unrealized Losses	(127)	(380)
Fair Value	66,531	78,940
Obligations of states and political subdivisions [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	67,664	74,071
Gross Unrealized Gains	2,420	1,956
Gross Unrealized Losses	(89)	(434)
Fair Value	69,995	75,593
Mortgage-backed securities, Agency [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	123,514	129,360
Gross Unrealized Gains	3,826	3,046
Gross Unrealized Losses	(550)	(745)
Fair Value	126,790	131,661
Mortgage-backed securities, Non-agency [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	13,306	12,782
Gross Unrealized Gains	131	33
Gross Unrealized Losses	(40)	(38)
Fair Value	13,397	12,777
Other asset backed securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	54,725	58,958
Gross Unrealized Gains	525	426
Gross Unrealized Losses	(744)	(603)
Fair Value	54,506	58,781
Corporate securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost	16,606	17,557
Gross Unrealized Gains	59	22
Gross Unrealized Losses	(701)	(760)
Fair Value	$ 15,964	$ 16,819

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Securities - Amortized cost and fair value of securities available for sale by contractual maturity (Details) $ in Thousands	Jun. 30, 2016 USD ($)
Amortized Cost
Due in one year or less	$ 487
Due after one year through five years	9,421
Due after five years through ten years	24,463
Due after ten years	115,341
Amortized cost	341,257
Fair Value
Due in one year or less	487
Due after one year through five years	9,675
Due after five years through ten years	24,403
Due after ten years	117,925
Fair value	347,183
Mortgage-backed securities [Member]
Amortized Cost
Amortized cost	136,820
Fair Value
Fair value	140,187
Other asset backed securities [Member]
Amortized Cost
Amortized cost	54,725
Fair Value
Fair value	$ 54,506

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Securities - Narrative (Details)	3 Months Ended	6 Months Ended		12 Months Ended
	Jun. 30, 2016 USD ($) Security	Jun. 30, 2016 USD ($) Security	Jun. 30, 2015 USD ($)	Dec. 31, 2015 USD ($)
Investments, Debt and Equity Securities [Abstract]
Proceeds from sales of securities		$ 72,800,000	$ 62,600,000
Gross gains realized on sale of securities		396,000	175,000
Gross loss realized on sale of securities		23,000	37,000
Tax expense related to realized gains		127,000	$ 47,000
Carrying value of securities pledged for fiduciary powers	$ 119,900,000	$ 119,900,000		$ 113,100,000
Number of securities temporarily impaired | Security	118	118
Number of securities temporarily impaired in investment grade | Security	113	113
Number of securities temporarily impaired in speculative grade | Security	5	5
Credit losses recognized in prior period earnings	$ 0	$ 0		0
Investment in FHLB stock	4,500,000	4,500,000		4,700,000
Federal Reserve Bank stock	$ 1,700,000	$ 1,700,000		$ 1,700,000

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Securities - Investments in continuous unrealized loss position (Details) - USD ($) $ in Thousands	Jun. 30, 2016	Dec. 31, 2015
Schedule of Available-for-sale Securities [Line Items]
Held to Maturity, Fair Value, Less than Twelve Months		$ 3,389
Held to Maturity, Gross Unrealized Losses, Less than Twelve Months		(68)
Held to Maturity, Fair Value, Twelve Months or Greater		0
Held to Maturity, Gross Unrealized Losses, Twelve Months or Greater		0
Held to Maturity, Fair Value		3,389
Held to Maturity, Gross Unrealized Losses, Total		(68)
Fair Value, Less than Twelve Months	$ 45,896	134,167
Gross Unrealized Losses, Less than Twelve Months	(715)	(1,721)
Fair Value, Twelve Months or Greater	52,473	32,790
Gross Unrealized Losses, Twelve Months or Greater	(1,536)	(1,239)
Fair Value, Total	98,369	166,957
Gross Unrealized Losses, Total	(2,251)	(2,960)
U.S. government agencies [Member]
Schedule of Available-for-sale Securities [Line Items]
Fair Value, Less than Twelve Months	11,883	46,000
Gross Unrealized Losses, Less than Twelve Months	(112)	(304)
Fair Value, Twelve Months or Greater	1,633	4,223
Gross Unrealized Losses, Twelve Months or Greater	(15)	(76)
Fair Value, Total	13,516	50,223
Gross Unrealized Losses, Total	(127)	(380)
Obligations of states and political subdivisions [Member]
Schedule of Available-for-sale Securities [Line Items]
Held to Maturity, Fair Value, Less than Twelve Months		1,419
Held to Maturity, Gross Unrealized Losses, Less than Twelve Months		(38)
Held to Maturity, Fair Value, Twelve Months or Greater		0
Held to Maturity, Gross Unrealized Losses, Twelve Months or Greater		0
Held to Maturity, Fair Value		1,419
Held to Maturity, Gross Unrealized Losses, Total		(38)
Fair Value, Less than Twelve Months	205	16,559
Gross Unrealized Losses, Less than Twelve Months	0	(324)
Fair Value, Twelve Months or Greater	7,779	1,082
Gross Unrealized Losses, Twelve Months or Greater	(89)	(110)
Fair Value, Total	7,984	17,641
Gross Unrealized Losses, Total	(89)	(434)
Mortgage-backed securities, Agency [Member]
Schedule of Available-for-sale Securities [Line Items]
Fair Value, Less than Twelve Months	12,138	27,627
Gross Unrealized Losses, Less than Twelve Months	(130)	(402)
Fair Value, Twelve Months or Greater	11,448	9,911
Gross Unrealized Losses, Twelve Months or Greater	(420)	(343)
Fair Value, Total	23,586	37,538
Gross Unrealized Losses, Total	(550)	(745)
Mortgage-backed securities, Non-agency [Member]
Schedule of Available-for-sale Securities [Line Items]
Fair Value, Less than Twelve Months	326	7,842
Gross Unrealized Losses, Less than Twelve Months	0	(37)
Fair Value, Twelve Months or Greater	1,910	671
Gross Unrealized Losses, Twelve Months or Greater	(40)	(1)
Fair Value, Total	2,236	8,513
Gross Unrealized Losses, Total	(40)	(38)
Other asset backed securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Fair Value, Less than Twelve Months	19,390	25,399
Gross Unrealized Losses, Less than Twelve Months	(427)	(276)
Fair Value, Twelve Months or Greater	18,049	12,037
Gross Unrealized Losses, Twelve Months or Greater	(317)	(327)
Fair Value, Total	37,439	37,436
Gross Unrealized Losses, Total	(744)	(603)
Corporate securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Held to Maturity, Fair Value, Less than Twelve Months		1,970
Held to Maturity, Gross Unrealized Losses, Less than Twelve Months		(30)
Held to Maturity, Fair Value, Twelve Months or Greater		0
Held to Maturity, Gross Unrealized Losses, Twelve Months or Greater		0
Held to Maturity, Fair Value		1,970
Held to Maturity, Gross Unrealized Losses, Total		(30)
Fair Value, Less than Twelve Months	1,954	10,740
Gross Unrealized Losses, Less than Twelve Months	(46)	(378)
Fair Value, Twelve Months or Greater	11,654	4,866
Gross Unrealized Losses, Twelve Months or Greater	(655)	(382)
Fair Value, Total	13,608	15,606
Gross Unrealized Losses, Total	$ (701)	$ (760)

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Loans, Net - Narrative (Details)	6 Months Ended		12 Months Ended
	Jun. 30, 2016 USD ($) loan loan_segment	Jun. 30, 2015 USD ($)	Dec. 31, 2015 USD ($)
Accounts, Notes, Loans and Financing Receivable [Line Items]
Number of loan segments | loan_segment	3
Proceeds from sales of loans	$ 4,412,000	$ 1,127,000
Recorded investment	848,694,000		$ 802,354,000
Nonaccrual	6,976,000		8,784,000
Charge-offs	532,000	307,000	3,691,000
Recoveries	663,000	$ 390,000	658,000
Interest on non-accrual loans foregone	253,800		$ 342,000
Nonperforming Financial Instruments [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Proceeds from sales of loans	$ 4,400,000
Number of loans sold | loan	4
Recorded investment	$ 4,300,000
Nonaccrual	$ 1,200,000
Loans sold with no outstanding investment | loan	28
Charge-offs	$ 513,000
Recoveries	$ 640,000

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Loans, Net - Consolidated loan portfolio (Details) - USD ($) $ in Thousands	Jun. 30, 2016	Dec. 31, 2015	Jun. 30, 2015	Dec. 31, 2014
Consolidated Loan Portfolio [Abstract]
Outstanding Balance, Gross	$ 854,647	$ 805,681	$ 773,090
Less allowance for loan losses	11,527	11,046	11,894	$ 11,786
Net loans	$ 843,120	$ 794,635
Percent of Total Portfolio	100.00%	100.00%
Net of deferred loan costs	$ 4,100	$ 3,500
Construction [Member]
Consolidated Loan Portfolio [Abstract]
Outstanding Balance, Gross	42,947	39,673	30,781
Less allowance for loan losses	$ 996	$ 905	560	550
Percent of Total Portfolio	5.00%	4.90%
Secured by farmland [Member]
Consolidated Loan Portfolio [Abstract]
Outstanding Balance, Gross	$ 18,875	$ 19,062
Percent of Total Portfolio	2.20%	2.40%
Secured by 1-4 family residential [Member]
Consolidated Loan Portfolio [Abstract]
Outstanding Balance, Gross	$ 303,200	$ 280,096	272,198
Less allowance for loan losses	$ 3,507	$ 3,341	4,122	3,966
Percent of Total Portfolio	35.50%	34.80%
Other real estate loans [Member]
Consolidated Loan Portfolio [Abstract]
Outstanding Balance, Gross	$ 275,797	$ 258,035	265,892
Less allowance for loan losses	$ 3,754	$ 3,761	3,963	3,916
Percent of Total Portfolio	32.30%	32.00%
Commercial loans [Member]
Consolidated Loan Portfolio [Abstract]
Outstanding Balance, Gross	$ 194,712	$ 190,482	167,542
Less allowance for loan losses	$ 2,153	$ 1,706	1,844	2,354
Percent of Total Portfolio	22.80%	23.60%
Consumer loans [Member]
Consolidated Loan Portfolio [Abstract]
Outstanding Balance, Gross	$ 19,116	$ 18,333	17,172
Less allowance for loan losses	$ 943	$ 1,141	$ 1,215	$ 821
Percent of Total Portfolio	2.20%	2.30%

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Loans, Net - Recorded investment in past due loans by class of loans (Details) - USD ($) $ in Thousands	Jun. 30, 2016	Dec. 31, 2015	Jun. 30, 2015
Past due loans by class of loans [Abstract]
Total Past Due	$ 5,953	$ 3,327
Current	848,694	802,354
Total Loans	854,647	805,681	$ 773,090
Construction [Member]
Past due loans by class of loans [Abstract]
Total Past Due	167	69
Current	42,780	39,604
Total Loans	42,947	39,673
Secured by farmland [Member]
Past due loans by class of loans [Abstract]
Total Past Due	0	0
Current	18,875	19,062
Total Loans	18,875	19,062
Secured by 1-4 family residential [Member]
Past due loans by class of loans [Abstract]
Total Past Due	3,671	1,376
Current	299,529	278,720
Total Loans	303,200	280,096	272,198
Other real estate loans [Member]
Past due loans by class of loans [Abstract]
Total Past Due	1,338	573
Current	274,459	257,462
Total Loans	275,797	258,035	265,892
Commercial loans [Member]
Past due loans by class of loans [Abstract]
Total Past Due	768	1,288
Current	193,944	189,194
Total Loans	194,712	190,482	167,542
Consumer loans [Member]
Past due loans by class of loans [Abstract]
Total Past Due	9	21
Current	19,107	18,312
Total Loans	19,116	18,333	$ 17,172
Financing Receivables, 30 to 59 Days Past Due [Member]
Past due loans by class of loans [Abstract]
Total Past Due	533	1,899
Financing Receivables, 30 to 59 Days Past Due [Member] | Construction [Member]
Past due loans by class of loans [Abstract]
Total Past Due	0	69
Financing Receivables, 30 to 59 Days Past Due [Member] | Secured by farmland [Member]
Past due loans by class of loans [Abstract]
Total Past Due	0	0
Financing Receivables, 30 to 59 Days Past Due [Member] | Secured by 1-4 family residential [Member]
Past due loans by class of loans [Abstract]
Total Past Due	221	259
Financing Receivables, 30 to 59 Days Past Due [Member] | Other real estate loans [Member]
Past due loans by class of loans [Abstract]
Total Past Due	58	325
Financing Receivables, 30 to 59 Days Past Due [Member] | Commercial loans [Member]
Past due loans by class of loans [Abstract]
Total Past Due	246	1,242
Financing Receivables, 30 to 59 Days Past Due [Member] | Consumer loans [Member]
Past due loans by class of loans [Abstract]
Total Past Due	8	4
Financing Receivables, 60 to 89 Days Past Due [Member]
Past due loans by class of loans [Abstract]
Total Past Due	734	32
Financing Receivables, 60 to 89 Days Past Due [Member] | Construction [Member]
Past due loans by class of loans [Abstract]
Total Past Due	167	0
Financing Receivables, 60 to 89 Days Past Due [Member] | Secured by farmland [Member]
Past due loans by class of loans [Abstract]
Total Past Due	0	0
Financing Receivables, 60 to 89 Days Past Due [Member] | Secured by 1-4 family residential [Member]
Past due loans by class of loans [Abstract]
Total Past Due	12	0
Financing Receivables, 60 to 89 Days Past Due [Member] | Other real estate loans [Member]
Past due loans by class of loans [Abstract]
Total Past Due	555	0
Financing Receivables, 60 to 89 Days Past Due [Member] | Commercial loans [Member]
Past due loans by class of loans [Abstract]
Total Past Due	0	15
Financing Receivables, 60 to 89 Days Past Due [Member] | Consumer loans [Member]
Past due loans by class of loans [Abstract]
Total Past Due	0	17
Financing Receivables, Equal to Greater than 90 Days Past Due [Member]
Past due loans by class of loans [Abstract]
Total Past Due	4,686	1,396
Financing Receivables, Equal to Greater than 90 Days Past Due [Member] | Construction [Member]
Past due loans by class of loans [Abstract]
Total Past Due	0	0
Financing Receivables, Equal to Greater than 90 Days Past Due [Member] | Secured by farmland [Member]
Past due loans by class of loans [Abstract]
Total Past Due	0	0
Financing Receivables, Equal to Greater than 90 Days Past Due [Member] | Secured by 1-4 family residential [Member]
Past due loans by class of loans [Abstract]
Total Past Due	3,438	1,117
Financing Receivables, Equal to Greater than 90 Days Past Due [Member] | Other real estate loans [Member]
Past due loans by class of loans [Abstract]
Total Past Due	725	248
Financing Receivables, Equal to Greater than 90 Days Past Due [Member] | Commercial loans [Member]
Past due loans by class of loans [Abstract]
Total Past Due	522	31
Financing Receivables, Equal to Greater than 90 Days Past Due [Member] | Consumer loans [Member]
Past due loans by class of loans [Abstract]
Total Past Due	$ 1	$ 0

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Loans, Net - Recorded investment in nonaccrual loans and loans past due and still accruing by class of loans (Details) - USD ($) $ in Thousands	Jun. 30, 2016	Dec. 31, 2015
Financing Receivable, Recorded Investment, Past Due [Line Items]
Nonaccrual	$ 6,976	$ 8,784
Past due 90 days or more and still accruing	179	278
Construction [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Nonaccrual	30	204
Past due 90 days or more and still accruing	0	0
Secured by 1-4 family residential [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Nonaccrual	3,438	4,460
Past due 90 days or more and still accruing	0	0
Other real estate loans [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Nonaccrual	1,127	1,186
Past due 90 days or more and still accruing	153	248
Commercial loans [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Nonaccrual	511	1,036
Past due 90 days or more and still accruing	25	30
Consumer loans [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Nonaccrual	1,870	1,898
Past due 90 days or more and still accruing	$ 1	$ 0

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Loans, Net - Summary of loan classifications by class of loan (Details) - USD ($) $ in Thousands	Jun. 30, 2016	Dec. 31, 2015	Jun. 30, 2015
Summary of loan classifications by class of loan [Abstract]
Summary of loan quality by class of loan	$ 854,647	$ 805,681	$ 773,090
Pass [Member]
Summary of loan classifications by class of loan [Abstract]
Summary of loan quality by class of loan	814,614	756,048
Special Mention [Member]
Summary of loan classifications by class of loan [Abstract]
Summary of loan quality by class of loan	14,955	20,854
Substandard [Member]
Summary of loan classifications by class of loan [Abstract]
Summary of loan quality by class of loan	23,329	25,920
Doubtful [Member]
Summary of loan classifications by class of loan [Abstract]
Summary of loan quality by class of loan	1,749	2,858
Loss [Member]
Summary of loan classifications by class of loan [Abstract]
Summary of loan quality by class of loan	0	1
Construction [Member]
Summary of loan classifications by class of loan [Abstract]
Summary of loan quality by class of loan	42,947	39,673	30,781
Construction [Member] | Pass [Member]
Summary of loan classifications by class of loan [Abstract]
Summary of loan quality by class of loan	37,345	30,114
Construction [Member] | Special Mention [Member]
Summary of loan classifications by class of loan [Abstract]
Summary of loan quality by class of loan	5,572	9,024
Construction [Member] | Substandard [Member]
Summary of loan classifications by class of loan [Abstract]
Summary of loan quality by class of loan	30	535
Construction [Member] | Doubtful [Member]
Summary of loan classifications by class of loan [Abstract]
Summary of loan quality by class of loan	0	0
Construction [Member] | Loss [Member]
Summary of loan classifications by class of loan [Abstract]
Summary of loan quality by class of loan	0	0
Secured by farmland [Member]
Summary of loan classifications by class of loan [Abstract]
Summary of loan quality by class of loan	18,875	19,062
Secured by farmland [Member] | Pass [Member]
Summary of loan classifications by class of loan [Abstract]
Summary of loan quality by class of loan	10,958	10,566
Secured by farmland [Member] | Special Mention [Member]
Summary of loan classifications by class of loan [Abstract]
Summary of loan quality by class of loan	0	0
Secured by farmland [Member] | Substandard [Member]
Summary of loan classifications by class of loan [Abstract]
Summary of loan quality by class of loan	7,917	8,496
Secured by farmland [Member] | Doubtful [Member]
Summary of loan classifications by class of loan [Abstract]
Summary of loan quality by class of loan	0	0
Secured by farmland [Member] | Loss [Member]
Summary of loan classifications by class of loan [Abstract]
Summary of loan quality by class of loan	0	0
Secured by 1-4 family residential [Member]
Summary of loan classifications by class of loan [Abstract]
Summary of loan quality by class of loan	303,200	280,096	272,198
Secured by 1-4 family residential [Member] | Pass [Member]
Summary of loan classifications by class of loan [Abstract]
Summary of loan quality by class of loan	294,453	271,721
Secured by 1-4 family residential [Member] | Special Mention [Member]
Summary of loan classifications by class of loan [Abstract]
Summary of loan quality by class of loan	2,376	896
Secured by 1-4 family residential [Member] | Substandard [Member]
Summary of loan classifications by class of loan [Abstract]
Summary of loan quality by class of loan	6,245	6,818
Secured by 1-4 family residential [Member] | Doubtful [Member]
Summary of loan classifications by class of loan [Abstract]
Summary of loan quality by class of loan	126	661
Secured by 1-4 family residential [Member] | Loss [Member]
Summary of loan classifications by class of loan [Abstract]
Summary of loan quality by class of loan	0	0
Other real estate loans [Member]
Summary of loan classifications by class of loan [Abstract]
Summary of loan quality by class of loan	275,797	258,035	265,892
Other real estate loans [Member] | Pass [Member]
Summary of loan classifications by class of loan [Abstract]
Summary of loan quality by class of loan	266,323	243,768
Other real estate loans [Member] | Special Mention [Member]
Summary of loan classifications by class of loan [Abstract]
Summary of loan quality by class of loan	3,483	7,254
Other real estate loans [Member] | Substandard [Member]
Summary of loan classifications by class of loan [Abstract]
Summary of loan quality by class of loan	4,865	5,827
Other real estate loans [Member] | Doubtful [Member]
Summary of loan classifications by class of loan [Abstract]
Summary of loan quality by class of loan	1,126	1,186
Other real estate loans [Member] | Loss [Member]
Summary of loan classifications by class of loan [Abstract]
Summary of loan quality by class of loan	0	0
Commercial [Member]
Summary of loan classifications by class of loan [Abstract]
Summary of loan quality by class of loan	194,712	190,482	167,542
Commercial [Member] | Pass [Member]
Summary of loan classifications by class of loan [Abstract]
Summary of loan quality by class of loan	188,364	183,532
Commercial [Member] | Special Mention [Member]
Summary of loan classifications by class of loan [Abstract]
Summary of loan quality by class of loan	3,493	3,638
Commercial [Member] | Substandard [Member]
Summary of loan classifications by class of loan [Abstract]
Summary of loan quality by class of loan	2,358	2,301
Commercial [Member] | Doubtful [Member]
Summary of loan classifications by class of loan [Abstract]
Summary of loan quality by class of loan	497	1,011
Commercial [Member] | Loss [Member]
Summary of loan classifications by class of loan [Abstract]
Summary of loan quality by class of loan	0	0
Consumer loans [Member]
Summary of loan classifications by class of loan [Abstract]
Summary of loan quality by class of loan	19,116	18,333	$ 17,172
Consumer loans [Member] | Pass [Member]
Summary of loan classifications by class of loan [Abstract]
Summary of loan quality by class of loan	17,171	16,347
Consumer loans [Member] | Special Mention [Member]
Summary of loan classifications by class of loan [Abstract]
Summary of loan quality by class of loan	31	42
Consumer loans [Member] | Substandard [Member]
Summary of loan classifications by class of loan [Abstract]
Summary of loan quality by class of loan	1,914	1,943
Consumer loans [Member] | Doubtful [Member]
Summary of loan classifications by class of loan [Abstract]
Summary of loan quality by class of loan	0	0
Consumer loans [Member] | Loss [Member]
Summary of loan classifications by class of loan [Abstract]
Summary of loan quality by class of loan	$ 0	$ 1

XML

Loans, Net - Loans identified as impaired by class of loan (Details) - USD ($) $ in Thousands	6 Months Ended	12 Months Ended
	Jun. 30, 2016	Dec. 31, 2015
Recorded Investment [Abstract]
With no related allowance recorded	$ 10,221	$ 9,162
With an allowance recorded	9,161	11,682
Total	19,382	20,844
Unpaid Principal Balance [Abstract]
With no related allowance recorded	13,256	9,232
With an allowance recorded	9,214	14,734
Total	22,470	23,966
Related Allowance [Abstract]
With no related allowance recorded	0	0
With an allowance recorded	2,133	2,664
Total	2,133	2,664
Average Recorded Investment [Abstract]
With no related allowance recorded	10,503	9,202
With an allowance recorded	9,220	13,644
Total	19,723	22,846
Interest Income Recognized [Abstract]
With no related allowance recorded	126	254
With an allowance recorded	99	284
Total	225	538
Construction [Member]
Recorded Investment [Abstract]
With no related allowance recorded	30	100
With an allowance recorded	0	103
Unpaid Principal Balance [Abstract]
With no related allowance recorded	30	100
With an allowance recorded	0	103
Related Allowance [Abstract]
With no related allowance recorded	0	0
With an allowance recorded	0	53
Average Recorded Investment [Abstract]
With no related allowance recorded	31	106
With an allowance recorded	0	109
Interest Income Recognized [Abstract]
With no related allowance recorded	0	0
With an allowance recorded	0	0
Secured by farmland [Member]
Recorded Investment [Abstract]
With no related allowance recorded	7,917	7,903
With an allowance recorded	0	0
Unpaid Principal Balance [Abstract]
With no related allowance recorded	7,917	7,903
With an allowance recorded	0	0
Related Allowance [Abstract]
With no related allowance recorded	0	0
With an allowance recorded	0	0
Average Recorded Investment [Abstract]
With no related allowance recorded	7,910	7,903
With an allowance recorded	0	0
Interest Income Recognized [Abstract]
With no related allowance recorded	118	237
With an allowance recorded	0	0
Secured by 1-4 family residential [Member]
Recorded Investment [Abstract]
With no related allowance recorded	242	701
With an allowance recorded	4,254	4,426
Unpaid Principal Balance [Abstract]
With no related allowance recorded	277	736
With an allowance recorded	4,307	4,478
Related Allowance [Abstract]
With no related allowance recorded	0	0
With an allowance recorded	1,094	1,120
Average Recorded Investment [Abstract]
With no related allowance recorded	243	703
With an allowance recorded	4,273	4,547
Interest Income Recognized [Abstract]
With no related allowance recorded	0	0
With an allowance recorded	21	27
Other real estate loans [Member]
Recorded Investment [Abstract]
With no related allowance recorded	1,126	0
With an allowance recorded	2,991	4,196
Unpaid Principal Balance [Abstract]
With no related allowance recorded	1,126	0
With an allowance recorded	2,991	4,196
Related Allowance [Abstract]
With no related allowance recorded	0	0
With an allowance recorded	222	464
Average Recorded Investment [Abstract]
With no related allowance recorded	1,133	0
With an allowance recorded	3,001	4,224
Interest Income Recognized [Abstract]
With no related allowance recorded	0	0
With an allowance recorded	77	157
Commercial loans [Member]
Recorded Investment [Abstract]
With no related allowance recorded	906	458
With an allowance recorded	46	1,059
Unpaid Principal Balance [Abstract]
With no related allowance recorded	3,906	493
With an allowance recorded	46	4,059
Related Allowance [Abstract]
With no related allowance recorded	0	0
With an allowance recorded	30	27
Average Recorded Investment [Abstract]
With no related allowance recorded	1,186	490
With an allowance recorded	62	2,315
Interest Income Recognized [Abstract]
With no related allowance recorded	8	17
With an allowance recorded	1	100
Consumer loans [Member]
Recorded Investment [Abstract]
With no related allowance recorded	0	0
With an allowance recorded	1,870	1,898
Unpaid Principal Balance [Abstract]
With no related allowance recorded	0	0
With an allowance recorded	1,870	1,898
Related Allowance [Abstract]
With no related allowance recorded	0	0
With an allowance recorded	787	1,000
Average Recorded Investment [Abstract]
With no related allowance recorded	0	0
With an allowance recorded	1,884	2,449
Interest Income Recognized [Abstract]
With no related allowance recorded	0	0
With an allowance recorded	$ 0	$ 0

XML

Loans, Net - Troubled Debt Restructurings Narrative (Details) - USD ($) $ in Millions	6 Months Ended
	Jun. 30, 2016	Dec. 31, 2015
Receivables [Abstract]
Total TDR	$ 14.4	$ 15.5
TDR included in nonaccrual loans	2.0
TDR performing as agreed	12.4
Valuation allowance related to total TDR	$ 1.1	$ 1.6
Troubled debt restructuring, payment default, term of original modification	12 months
Troubled debt restructuring, payment default, past due term (or more)	90 days

XML

Loans, Net - Loans modified in TDR by class of loan (Details) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2016 USD ($) loan	Jun. 30, 2015 USD ($) loan	Jun. 30, 2016 USD ($) loan	Jun. 30, 2015 USD ($) loan
Loans modified in a TDR by class of loan [Abstract]
Number of Contracts | loan	1	2	2	1
Pre-Modification Outstanding Recorded Investment	$ 400	$ 10,903	$ 768	$ 10,903
Post-Modification Outstanding Recorded Investment	$ 400	$ 10,903	$ 767	$ 10,903
Real Estate Loans [Member]
Loans modified in a TDR by class of loan [Abstract]
Number of Contracts | loan	1	1	2	1
Pre-Modification Outstanding Recorded Investment	$ 400	$ 7,903	$ 768	$ 7,903
Post-Modification Outstanding Recorded Investment	$ 400	$ 7,903	$ 767	$ 7,903
Construction [Member]
Loans modified in a TDR by class of loan [Abstract]
Number of Contracts | loan	0	0	0	0
Pre-Modification Outstanding Recorded Investment	$ 0	$ 0	$ 0	$ 0
Post-Modification Outstanding Recorded Investment	$ 0	$ 0	$ 0	$ 0
Secured by farmland [Member]
Loans modified in a TDR by class of loan [Abstract]
Number of Contracts | loan	0	1	0	1
Pre-Modification Outstanding Recorded Investment	$ 0	$ 7,903	$ 0	$ 7,903
Post-Modification Outstanding Recorded Investment	$ 0	$ 7,903	$ 0	$ 7,903
Secured by 1-4 family residential [Member]
Loans modified in a TDR by class of loan [Abstract]
Number of Contracts | loan	1	0	1	0
Pre-Modification Outstanding Recorded Investment	$ 400	$ 0	$ 400	$ 0
Post-Modification Outstanding Recorded Investment	$ 400	$ 0	$ 400	$ 0
Other real estate loans [Member]
Loans modified in a TDR by class of loan [Abstract]
Number of Contracts | loan	0	0	1	0
Pre-Modification Outstanding Recorded Investment	$ 0	$ 0	$ 368	$ 0
Post-Modification Outstanding Recorded Investment	$ 0	$ 0	$ 367	$ 0
Commercial loans [Member]
Loans modified in a TDR by class of loan [Abstract]
Number of Contracts | loan	0	0	0	0
Pre-Modification Outstanding Recorded Investment	$ 0	$ 0	$ 0	$ 0
Post-Modification Outstanding Recorded Investment	$ 0	$ 0	$ 0	$ 0
Consumer loans [Member]
Loans modified in a TDR by class of loan [Abstract]
Number of Contracts | loan	0	1	0	1
Pre-Modification Outstanding Recorded Investment	$ 0	$ 3,000	$ 0	$ 3,000
Post-Modification Outstanding Recorded Investment	$ 0	$ 3,000	$ 0	$ 3,000

XML

Allowance for Loan Losses (Details) - USD ($) $ in Thousands	6 Months Ended		12 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Dec. 31, 2015	Jun. 30, 2016	Dec. 31, 2015	Jun. 30, 2015
Allowance for loan losses [Roll Forward]
Beginning balance	$ 11,046	$ 11,786	$ 11,786
Charge-offs	(532)	(307)	(3,691)
Recoveries	663	390	658
Provision	350	25	2,293
Ending balance	11,527	11,894	11,046
Ending allowance balance attributable to loans:
Individually evaluated for impairment				$ 2,133	$ 2,664	$ 2,972
Collectively evaluated for impairment				9,394	8,382	8,922
Total ending allowance balance	11,046	11,786	11,786	11,527	11,046	11,894
Loans:
Individually evaluated for impairment				19,382	20,844	19,907
Collectively evaluated for impairment				835,265	784,837	753,183
Total Loans				854,647	805,681	773,090
Construction [Member]
Allowance for loan losses [Roll Forward]
Beginning balance	905	550	550
Charge-offs	(388)	0	0
Recoveries	132	31	246
Provision	347	(21)	109
Ending balance	996	560	905
Ending allowance balance attributable to loans:
Individually evaluated for impairment				0	53	60
Collectively evaluated for impairment				996	852	500
Total ending allowance balance	905	550	550	996	905	560
Loans:
Individually evaluated for impairment				30	203	223
Collectively evaluated for impairment				42,917	39,470	30,558
Total Loans				42,947	39,673	30,781
Real Estate Loans Secured by Farmland [Member]
Allowance for loan losses [Roll Forward]
Beginning balance	192	179	179
Charge-offs	0	0	0
Recoveries	0	0	0
Provision	(18)	11	13
Ending balance	174	190	192
Ending allowance balance attributable to loans:
Individually evaluated for impairment				0	0	0
Collectively evaluated for impairment				174	192	190
Total ending allowance balance	192	179	179	174	192	190
Loans:
Individually evaluated for impairment				7,917	7,903	7,903
Collectively evaluated for impairment				10,958	11,159	11,602
Total Loans				18,875	19,062	19,505
Secured by 1-4 family residential [Member]
Allowance for loan losses [Roll Forward]
Beginning balance	3,341	3,966	3,966
Charge-offs	(7)	(12)	(344)
Recoveries	394	324	359
Provision	(221)	(156)	(640)
Ending balance	3,507	4,122	3,341
Ending allowance balance attributable to loans:
Individually evaluated for impairment				1,094	1,120	1,412
Collectively evaluated for impairment				2,413	2,221	2,710
Total ending allowance balance	3,341	3,966	3,966	3,507	3,341	4,122
Loans:
Individually evaluated for impairment				4,496	5,127	4,723
Collectively evaluated for impairment				298,704	274,969	267,475
Total Loans				303,200	280,096	272,198
Other real estate loans [Member]
Allowance for loan losses [Roll Forward]
Beginning balance	3,761	3,916	3,916
Charge-offs	(126)	(9)	(9)
Recoveries	23	21	28
Provision	96	35	(174)
Ending balance	3,754	3,963	3,761
Ending allowance balance attributable to loans:
Individually evaluated for impairment				222	464	454
Collectively evaluated for impairment				3,532	3,297	3,509
Total ending allowance balance	3,761	3,916	3,916	3,754	3,761	3,963
Loans:
Individually evaluated for impairment				4,117	4,196	4,230
Collectively evaluated for impairment				271,680	253,839	261,662
Total Loans				275,797	258,035	265,892
Commercial [Member]
Allowance for loan losses [Roll Forward]
Beginning balance	1,706	2,354	2,354
Charge-offs	0	(246)	(3,281)
Recoveries	63	8	14
Provision	384	(272)	2,619
Ending balance	2,153	1,844	1,706
Ending allowance balance attributable to loans:
Individually evaluated for impairment				30	27	43
Collectively evaluated for impairment				2,123	1,679	1,801
Total ending allowance balance	1,706	2,354	2,354	2,153	1,706	1,844
Loans:
Individually evaluated for impairment				952	1,517	795
Collectively evaluated for impairment				193,760	188,965	166,747
Total Loans				194,712	190,482	167,542
Consumer [Member]
Allowance for loan losses [Roll Forward]
Beginning balance	1,141	821	821
Charge-offs	(11)	(40)	(57)
Recoveries	51	6	11
Provision	(238)	428	366
Ending balance	943	1,215	1,141
Ending allowance balance attributable to loans:
Individually evaluated for impairment				787	1,000	1,003
Collectively evaluated for impairment				156	141	212
Total ending allowance balance	$ 1,141	$ 821	$ 821	943	1,141	1,215
Loans:
Individually evaluated for impairment				1,870	1,898	2,033
Collectively evaluated for impairment				17,246	16,435	15,139
Total Loans				$ 19,116	$ 18,333	$ 17,172

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Earnings Per Share (Details) - $ / shares	3 Months Ended		6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015
Shares [Abstract]
Earning per share, basic (in shares)	7,100,226	7,145,929	7,087,015	7,140,514
Effect of dilutive securities:
Stock options (in shares)	11,948	7,102	10,476	7,077
Warrant (in shares)	41,743	14,134	31,672	13,937
Earnings per share, diluted (in shares)	7,153,917	7,167,165	7,129,163	7,161,528
Per Share Amount [Abstract]
Earnings per share, basic (in dollars per share)	$ 0.37	$ 0.32	$ 0.66	$ 0.66
Earnings per share, diluted (in dollars per share)	$ 0.37	$ 0.32	$ 0.66	$ 0.66
Stock options and warrants [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share [Line Items]
Antidilutive securities not included in the calculation of earning per share (in shares)			0	0

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Segment Reporting (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015	Dec. 31, 2015
Revenues:
Interest income	$ 11,102	$ 10,352	$ 21,974	$ 21,051
Trust and investment fee income	1,132	1,243	2,290	2,461
Other income	1,238	995	2,288	2,632
Total operating income	13,472	12,590	26,552	26,144
Expenses:
Interest expense	1,133	1,039	2,256	2,107
Salaries and employee benefits	4,613	4,973	9,425	9,821
Provision for (recovery of) loan losses	50	(425)	350	25
Other	4,138	3,908	8,340	7,807
Total operating expenses	9,934	9,495	20,371	19,760
Income before income taxes	3,538	3,095	6,181	6,384
Income tax expense	885	815	1,473	1,656
NET INCOME	2,653	2,280	4,708	4,728
Total assets	1,314,336	1,241,985	1,314,336	1,241,985	$ 1,294,863
Capital expenditures	(28)	2,320	97	2,471
Goodwill and other intangibles	3,550	3,722	3,550	3,722	$ 3,636
Operating Segments [Member] | Retail Banking [Member]
Revenues:
Interest income	11,099	10,350	21,969	21,046
Trust and investment fee income	0	0	0	0
Other income	1,266	995	2,343	2,632
Total operating income	12,365	11,345	24,312	23,678
Expenses:
Interest expense	1,133	1,039	2,256	2,107
Salaries and employee benefits	4,052	4,367	8,337	8,681
Provision for (recovery of) loan losses	50	(425)	350	25
Other	4,028	3,661	8,013	7,320
Total operating expenses	9,263	8,642	18,956	18,133
Income before income taxes	3,102	2,703	5,356	5,545
Income tax expense	722	667	1,163	1,341
NET INCOME	2,380	2,036	4,193	4,204
Total assets	1,310,589	1,238,148	1,310,589	1,238,148
Capital expenditures	(28)	2,320	97	2,471
Goodwill and other intangibles	0	0	0	0
Operating Segments [Member] | Wealth Management [Member]
Revenues:
Interest income	3	2	5	5
Trust and investment fee income	1,173	1,284	2,374	2,543
Other income	0	0	0	0
Total operating income	1,176	1,286	2,379	2,548
Expenses:
Interest expense	0	0	0	0
Salaries and employee benefits	561	606	1,088	1,140
Provision for (recovery of) loan losses	0	0	0	0
Other	179	288	466	569
Total operating expenses	740	894	1,554	1,709
Income before income taxes	436	392	825	839
Income tax expense	163	148	310	315
NET INCOME	273	244	515	524
Total assets	6,336	6,532	6,336	6,532
Capital expenditures	0	0	0	0
Goodwill and other intangibles	3,550	3,722	3,550	3,722
Intercompany Eliminations [Member]
Revenues:
Interest income	0	0	0	0
Trust and investment fee income	(41)	(41)	(84)	(82)
Other income	(28)	0	(55)	0
Total operating income	(69)	(41)	(139)	(82)
Expenses:
Interest expense	0	0	0	0
Salaries and employee benefits	0	0	0	0
Provision for (recovery of) loan losses	0	0	0	0
Other	(69)	(41)	(139)	(82)
Total operating expenses	(69)	(41)	(139)	(82)
Income before income taxes	0	0	0	0
Income tax expense	0	0	0	0
NET INCOME	0	0	0	0
Total assets	(2,589)	(2,695)	(2,589)	(2,695)
Capital expenditures	0	0	0	0
Goodwill and other intangibles	$ 0	$ 0	$ 0	$ 0

XML

Capital Purchase Program (Details) - $ / shares		12 Months Ended
	Jan. 30, 2009	Dec. 31, 2009	Jun. 30, 2016	Dec. 31, 2015
Equity, Class of Treasury Stock [Line Items]
Warrants issued under capital repurchase program (in shares)	208,202	104,101
Common stock, par value (in dollars per share)	$ 2.50		$ 2.50	$ 2.50
Exercise price of warrants (in dollars per share)	$ 15.85
Series A Cumulative Perpetual Preferred Stock [Member]
Equity, Class of Treasury Stock [Line Items]
Preferred stock issued under capital repurchase program (in shares)	22,000
Preferred stock, par value (in dollars per share)	$ 2.50
Liquidation preference per share (in dollars per share)	$ 1,000
Shares redeemed during period (in shares)		22,000

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Fair Value Measurements - Financial assets and liabilities measured at fair value on a recurring basis (Details) - USD ($) $ in Thousands	Jun. 30, 2016	Dec. 31, 2015
Level I [Member]
Assets:
U.S. Treasury securities	$ 32,620	$ 39,228
Mortgage-backed securities:
Interest rate cap	0	0
Liabilities:
Interest rate swaps	0	0
Level I [Member] | Interest rate cap [Member]
Mortgage-backed securities:
Interest rate cap	0
Level II [Member]
Assets:
U.S. Treasury securities	0	0
Mortgage-backed securities:
Interest rate cap	322	73
Liabilities:
Interest rate swaps	899	370
Level II [Member] | Interest rate cap [Member]
Mortgage-backed securities:
Interest rate cap	3	39
Level III [Member]
Assets:
U.S. Treasury securities	0	0
Mortgage-backed securities:
Interest rate cap	0	0
Liabilities:
Interest rate swaps	0	0
Level III [Member] | Interest rate cap [Member]
Mortgage-backed securities:
Interest rate cap	0
Recurring [Member]
Assets:
U.S. government agencies	66,531	78,940
Obligations of states and political subdivisions	69,995	75,593
Mortgage-backed securities:
Agency	126,790	131,661
Non-agency	13,397	12,777
Other asset backed securities	54,506	58,781
Corporate securities	15,964	16,819
Liabilities:
Interest rate swaps	899	370
Recurring [Member] | Interest Rate Swap [Member]
Mortgage-backed securities:
Interest rate swaps	322	73
Recurring [Member] | Interest rate cap [Member]
Mortgage-backed securities:
Interest rate cap	3	39
Recurring [Member] | Level I [Member]
Assets:
U.S. government agencies	0	0
Obligations of states and political subdivisions	0	0
Mortgage-backed securities:
Agency	0	0
Non-agency	0	0
Other asset backed securities	0	0
Corporate securities	0	0
Liabilities:
Interest rate swaps	0	0
Recurring [Member] | Level I [Member] | Interest Rate Swap [Member]
Mortgage-backed securities:
Interest rate swaps	0	0
Recurring [Member] | Level I [Member] | Interest rate cap [Member]
Mortgage-backed securities:
Interest rate cap	0
Recurring [Member] | Level II [Member]
Assets:
U.S. government agencies	66,531	78,940
Obligations of states and political subdivisions	69,995	75,593
Mortgage-backed securities:
Agency	126,790	131,661
Non-agency	13,397	12,777
Other asset backed securities	54,506	58,781
Corporate securities	15,964	16,819
Liabilities:
Interest rate swaps	899	370
Recurring [Member] | Level II [Member] | Interest Rate Swap [Member]
Mortgage-backed securities:
Interest rate swaps	322	73
Recurring [Member] | Level II [Member] | Interest rate cap [Member]
Mortgage-backed securities:
Interest rate cap	3	39
Recurring [Member] | Level III [Member]
Assets:
U.S. government agencies	0	0
Obligations of states and political subdivisions	0	0
Mortgage-backed securities:
Agency	0	0
Non-agency	0	0
Other asset backed securities	0	0
Corporate securities	0
Liabilities:
Interest rate swaps	0	0
Recurring [Member] | Level III [Member] | Interest Rate Swap [Member]
Mortgage-backed securities:
Interest rate swaps	0	$ 0
Recurring [Member] | Level III [Member] | Interest rate cap [Member]
Mortgage-backed securities:
Interest rate cap	$ 0

XML

Fair Value Measurements - Narrative (Details)	Jun. 30, 2016
Fair Value Disclosures [Abstract]
Percentage at which new appraisals are discounted	10.00%

XML

Fair Value Measurements - Financial and non-financial assets measured at fair value on a nonrecurring basis (Details) - Nonrecurring [Member] - USD ($) $ in Thousands	Jun. 30, 2016	Dec. 31, 2015
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired loans	$ 7,028	$ 9,018
Other real estate owned	3,553	3,345
Repossessed assets	1,043	1,043
Level I [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired loans	0	0
Other real estate owned	0	0
Repossessed assets	0	0
Level II [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired loans	0	0
Other real estate owned	0	0
Repossessed assets	0	0
Level III [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired loans	7,028	9,018
Other real estate owned	3,553	3,345
Repossessed assets	$ 1,043	$ 1,043

XML

Fair Value Measurements - Quantitative information about Level III fair value measurements (Details) - USD ($) $ in Thousands	6 Months Ended	12 Months Ended
	Jun. 30, 2016	Dec. 31, 2015
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Percentage at which new appraisals are discounted	10.00%
Impaired Loans [Member] | Discounted appraised value [Member] | Minimum [Member] | Level III [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Discount rate	0.00%	0.00%
Impaired Loans [Member] | Discounted appraised value [Member] | Maximum [Member] | Level III [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Discount rate	100.00%	100.00%
Impaired Loans [Member] | Discounted appraised value [Member] | Weighted Average [Member] | Level III [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Discount rate	19.00%	17.00%
Impaired Loans [Member] | Present Value of Cash Flows [Member] | Minimum [Member] | Level III [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Discount rate	6.00%	6.00%
Impaired Loans [Member] | Present Value of Cash Flows [Member] | Maximum [Member] | Level III [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Discount rate	8.00%	8.00%
Impaired Loans [Member] | Present Value of Cash Flows [Member] | Weighted Average [Member] | Level III [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Discount rate	6.00%	7.00%
Other Real Estate Owned [Member] | Discounted appraised value [Member] | Level III [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Discount rate	10.00%
Other Real Estate Owned [Member] | Discounted appraised value [Member] | Weighted Average [Member] | Level III [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Discount rate		10.00%
Repossessed Assets [Member] | Market Approach Valuation Technique [Member] | Weighted Average [Member] | Level III [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Discount rate	50.00%	50.00%
Nonrecurring [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Impaired loans	$ 7,028	$ 9,018
Other real estate owned	3,553	3,345
Repossessed assets	1,043	1,043
Nonrecurring [Member] | Level III [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Impaired loans	7,028	9,018
Other real estate owned	3,553	3,345
Repossessed assets	1,043	1,043
Nonrecurring [Member] | Discounted appraised value [Member] | Level III [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Impaired loans	3,238	5,434
Other real estate owned	3,553	3,345
Nonrecurring [Member] | Present Value of Cash Flows [Member] | Level III [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Impaired loans	$ 3,790	$ 3,584

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Fair Value Measurements - Estimated fair values and related carrying values of financial instruments (Details) - USD ($) $ in Thousands	Jun. 30, 2016	Dec. 31, 2015
Financial assets:
Securities held to maturity	$ 11,080	$ 4,163
Level I [Member]
Financial assets:
Cash and cash equivalents	32,620	39,228
Securities held to maturity	0	0
Securities available for sale	0	0
Loans held for sale	0
Loans, net	0	0
Bank owned life insurance	0	0
Accrued interest receivable	0	0
Interest rate cap	0	0
Financial liabilities:
Deposits	0	0
Securities sold under agreements to repurchase	0	0
FHLB borrowings	0	0
Subordinated notes	0	0
Accrued interest payable	0	0
Interest rate swaps	0	0
Level I [Member] | Interest rate cap [Member]
Financial assets:
Interest rate cap	0
Level II [Member]
Financial assets:
Cash and cash equivalents	0	0
Securities held to maturity	11,080	4,163
Securities available for sale	347,183	374,571
Loans held for sale	189
Loans, net	0	0
Bank owned life insurance	23,596	23,273
Accrued interest receivable	5,131	5,204
Interest rate cap	322	73
Financial liabilities:
Deposits	1,056,495	1,040,016
Securities sold under agreements to repurchase	31,043	26,869
FHLB borrowings	79,792	85,033
Subordinated notes	5,174	5,157
Accrued interest payable	393	410
Interest rate swaps	899	370
Level II [Member] | Interest rate cap [Member]
Financial assets:
Interest rate cap	3	39
Level III [Member]
Financial assets:
Cash and cash equivalents	0	0
Securities held to maturity	0	0
Securities available for sale	0	0
Loans held for sale	0
Loans, net	854,350	802,535
Bank owned life insurance	0	0
Accrued interest receivable	0	0
Interest rate cap	0	0
Financial liabilities:
Deposits	0	0
Securities sold under agreements to repurchase	0	0
FHLB borrowings	0	0
Subordinated notes	0	0
Accrued interest payable	0	0
Interest rate swaps	0	0
Level III [Member] | Interest rate cap [Member]
Financial assets:
Interest rate cap	0
Carrying Amount [Member]
Financial assets:
Cash and cash equivalents	32,620	39,228
Securities held to maturity	10,727	4,207
Securities available for sale	347,183	374,571
Loans held for sale	189
Loans, net	843,120	794,635
Bank owned life insurance	23,596	23,273
Accrued interest receivable	5,131	5,204
Interest rate cap	322	73
Financial liabilities:
Deposits	1,056,369	1,040,800
Securities sold under agreements to repurchase	31,043	26,869
FHLB borrowings	79,500	85,000
Subordinated notes	5,155	5,155
Accrued interest payable	393	410
Interest rate swaps	899	370
Carrying Amount [Member] | Interest rate cap [Member]
Financial assets:
Interest rate cap	3	39
Fair Value [Member]
Financial assets:
Cash and cash equivalents	32,620	39,228
Securities held to maturity	11,080	4,163
Securities available for sale	347,183	374,571
Loans held for sale	189
Loans, net	854,350	802,535
Bank owned life insurance	23,596	23,273
Accrued interest receivable	5,131	5,204
Interest rate cap	322	73
Financial liabilities:
Deposits	1,056,495	1,040,016
Securities sold under agreements to repurchase	31,043	26,869
FHLB borrowings	79,792	85,033
Subordinated notes	5,174	5,157
Accrued interest payable	393	410
Interest rate swaps	899	370
Fair Value [Member] | Interest rate cap [Member]
Financial assets:
Interest rate cap	$ 3	$ 39

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Accumulated Other Comprehensive Income - Change in other comprehensive income for the period (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015
Accumulated Other Comprehensive Income (Loss) [Roll Forward]
Balance beginning of period			$ 1,677	$ 3,794
Unrealized holding gains	$ 938	$ (1,780)	2,285	(644)
Reclassification adjustment			(246)	(91)
Unrealized loss on interest rate swaps			(185)	(1)
Reclassification adjustment	0	0	0	(4)
Balance end of period	3,531	3,054	3,531	3,054
Unrealized holding gains (losses), tax	(483)	916	(1,176)	333
Reclassification adjustment, tax	72	13	127	47
Unrealized loss on interest rate swaps tax	17	(29)	95	0
Reclassification adjustment, derivative, tax	0	0	0	2
Unrealized Gains on Securities [Member]
Accumulated Other Comprehensive Income (Loss) [Roll Forward]
Balance beginning of period			1,872	3,979
Unrealized holding gains			2,285	(644)
Reclassification adjustment			(246)	(91)
Unrealized loss on interest rate swaps			0	0
Reclassification adjustment				0
Balance end of period	3,911	3,244	3,911	3,244
Cash Flow Hedges [Member]
Accumulated Other Comprehensive Income (Loss) [Roll Forward]
Balance beginning of period			(195)	(185)
Unrealized holding gains			0	0
Reclassification adjustment			0	0
Unrealized loss on interest rate swaps			(185)	(1)
Reclassification adjustment				(4)
Balance end of period	$ (380)	$ (190)	$ (380)	$ (190)

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Accumulated Other Comprehensive Income - Reclassification out of Accumulated Other Comprehensive Income (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items]
Net securities gains reclassified into earnings	$ (210)	$ (37)	$ (373)	$ (138)
Income tax expense	885	815	1,473	1,656
Net income	(2,653)	(2,280)	(4,708)	(4,728)
Reclassification out of Accumulated Other Comprehensive Income [Member]
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items]
Net income	(138)	(24)	(246)	(95)
Reclassification out of Accumulated Other Comprehensive Income [Member] | Unrealized Gains (Losses) on Securities [Member]
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items]
Net securities gains reclassified into earnings	(210)	(37)	(373)	(138)
Income tax expense	$ 72	$ 13	127	47
Reclassification out of Accumulated Other Comprehensive Income [Member] | Cash Flow Hedges [Member]
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items]
Income tax expense			0	2
(Gain) loss on interest rate swap ineffectiveness			$ 0	$ (6)

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Derivatives - Designated as cash flow hedges narrative (Details) - Hedging Instrument [Member] - USD ($)			3 Months Ended		6 Months Ended		12 Months Ended
	Nov. 25, 2013	Oct. 23, 2010	Jun. 30, 2016	Jun. 30, 2015	Jun. 30, 2016	Jun. 30, 2015	Dec. 31, 2015
Derivative [Line Items]
Pay rate (as a percent)		2.59%
Notional amount		$ 5,200,000
Term		10 years
Collateral reserved for swap			$ 400,000		$ 400,000		$ 400,000
Operating Expenses [Member]
Derivative [Line Items]
Loss on cash flow hedge ineffectiveness			0	$ 0	0	$ 0	0
Interest Rate Swap 2 [Member]
Derivative [Line Items]
Pay rate (as a percent)	1.43%
Notional amount	$ 10,000,000
Term	5 years
Collateral reserved for swap			$ 450,000		$ 450,000		$ 300,000
Interest Rate Swap [Member]
Derivative [Line Items]
Pay rate (as a percent)			2.59%		2.59%		2.59%
Notional amount			$ 5,155,000		$ 5,155,000		$ 5,155,000
Amounts included in accumulated other comprehensive income as unrealized losses			$ 380,000		$ 380,000		$ 195,000

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Derivatives - Designated as a cash flow hedge (Details) - Hedging Instrument [Member] $ in Thousands	6 Months Ended	12 Months Ended
	Jun. 30, 2016 USD ($) position	Dec. 31, 2015 USD ($) position	Nov. 25, 2013 USD ($)	Oct. 23, 2010 USD ($)
Derivative [Line Items]
Notional amount				$ 5,200
Pay rate (as a percent)				2.59%
Interest Rate Swap 2 [Member]
Derivative [Line Items]
Notional amount			$ 10,000
Pay rate (as a percent)			1.43%
Interest Rate Swap [Member]
Derivative [Line Items]
Positions | position	1	1
Notional amount	$ 5,155	$ 5,155
Asset	0	0
Liability	$ 375	$ 226
Receive rate (as a percent)	0.64%	0.32%
Pay rate (as a percent)	2.59%	2.59%
Life (Years)	4 years 2 months 12 days	4 years 9 months 18 days
Pay fixed receive floating rate interest rate swap [Member]
Derivative [Line Items]
Positions | position	1	1
Notional amount	$ 10,000	$ 10,000
Asset	0	0
Liability	$ 202	$ 71
Receive rate (as a percent)	0.44%	0.23%
Pay rate (as a percent)	1.43%	1.43%
Life (Years)	2 years 4 months 24 days	3 years

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Derivatives - Two-way client interest rate swaps not designated as either fair value or cash flow hedges (Details) - Not Designated as Hedging Instrument [Member] $ in Thousands	6 Months Ended	12 Months Ended
	Jun. 30, 2016 USD ($) position	Dec. 31, 2015 USD ($) position
Derivative [Line Items]
Notional amount	$ 10,640	$ 10,932
Asset	322	73
Liability	$ 322	$ 73
Life (Years)
Interest Rate Swap [Member] | Interest Rate Swap One [Member]
Derivative [Line Items]
Positions | position	1	1
Notional amount	$ 3,635	$ 3,760
Asset	0	0
Liability	$ 178	$ 21
Rate	3.90%	3.90%
Life (Years)	11 years 3 months 18 days	11 years 10 months 24 days
Interest Rate Swap [Member] | Interest Rate Swap Two [Member]
Derivative [Line Items]
Positions | position	1	1
Notional amount	$ 1,685	$ 1,706
Asset	0	0
Liability	$ 144	$ 52
Rate	4.09%	4.09%
Life (Years)	8 years 3 months 18 days	8 years 10 months 24 days
Reverse Interest Rate Swap [Member] | Interest Rate Swap One [Member]
Derivative [Line Items]
Positions | position	1	1
Notional amount	$ 3,635	$ 3,760
Asset	178	21
Liability	$ 0	$ 0
Rate	3.90%	3.90%
Life (Years)	11 years 3 months 18 days	11 years 10 months 24 days
Reverse Interest Rate Swap [Member] | Interest Rate Swap Two [Member]
Derivative [Line Items]
Positions | position	1	1
Notional amount	$ 1,685	$ 1,706
Asset	144	52
Liability	$ 0	$ 0
Rate	4.09%	4.09%
Life (Years)	8 years 3 months 18 days	8 years 10 months 24 days
London Interbank Offered Rate (LIBOR) [Member] | Interest Rate Swap [Member] | Interest Rate Swap One [Member]
Derivative [Line Items]
Rate	2.00%	2.00%
London Interbank Offered Rate (LIBOR) [Member] | Interest Rate Swap [Member] | Interest Rate Swap Two [Member]
Derivative [Line Items]
Rate	1.80%	1.80%
London Interbank Offered Rate (LIBOR) [Member] | Reverse Interest Rate Swap [Member] | Interest Rate Swap One [Member]
Derivative [Line Items]
Rate	2.00%	2.00%
London Interbank Offered Rate (LIBOR) [Member] | Reverse Interest Rate Swap [Member] | Interest Rate Swap Two [Member]
Derivative [Line Items]
Rate	1.80%	1.80%

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Derivatives - Rate Cap Transaction narrative (Details) - Not Designated as Hedging Instrument [Member] - Interest rate cap [Member]	6 Months Ended	12 Months Ended
	Jun. 30, 2016 USD ($) derivative_instrument	Dec. 31, 2015 USD ($)
Derivative [Line Items]
Number of derivative instruments | derivative_instrument	1
Notional amount	$ 10,000,000	$ 10,000,000
Premium paid	70,000	70,000
Fair value	$ 3,000	$ 39,000
3-Month LIBOR [Member]
Derivative [Line Items]
Strike rate	2.00%	2.00%
Operating Expenses [Member]
Derivative [Line Items]
Change in fair value of derivative	$ 36,000	$ 31,000

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Derivatives - Summary of rate cap agreement (Details) - Interest rate cap [Member] - Not Designated as Hedging Instrument [Member] - USD ($)	6 Months Ended	12 Months Ended
	Jun. 30, 2016	Dec. 31, 2015
Derivative [Line Items]
Notional Amount	$ 10,000,000	$ 10,000,000
Premium Paid	70,000	70,000
Unamortized premium	70,000	70,000
Fair value	3,000	39,000
Cumulative Cash Flows Received	$ 0	$ 0
3-Month LIBOR [Member]
Derivative [Line Items]
3-Month LIBOR Strike Rate	2.00%	2.00%

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- Changes in the balance for OREO (Details) - USD ($) $ in Thousands	6 Months Ended		12 Months Ended
	Jun. 30, 2016	Jun. 30, 2015	Dec. 31, 2015
Other real Estate Assets Owned Rollforward [Roll Forward]
Balance at the beginning of year, net	$ 3,345	$ 4,051	$ 4,051
Transfer of loans to other real estate owned	526	$ 0	287
Sales proceeds	(224)		(814)
(Gain) loss on disposition	50		(100)
Less valuation adjustments	(144)		(79)
Balance at the end of the period, net	$ 3,553		$ 3,345

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Other Real Estate Assets Owned (OREO) - Major classifications of OREO (Details) - USD ($) $ in Thousands	Jun. 30, 2016	Dec. 31, 2015	Dec. 31, 2014
Accounts, Notes, Loans and Financing Receivable [Line Items]
Other real estate	$ 3,553	$ 3,345	$ 4,051
Construction [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Other real estate	857	853
Secured by farmland [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Other real estate	0	0
Secured by 1-4 family residential [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Other real estate	2,336	1,958
Other real estate loans [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Other real estate	$ 360	$ 534

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Other Real Estate Assets Owned (OREO) - Narrative (Details)	3 Months Ended		6 Months Ended		12 Months Ended
	Jun. 30, 2016 USD ($)	Jun. 30, 2015 USD ($)	Jun. 30, 2016 USD ($)	Jun. 30, 2015 USD ($)	Dec. 31, 2015 USD ($) loan	Dec. 31, 2014 USD ($)
Other Real Estate [Abstract]
Other real estate	$ 3,553,000		$ 3,553,000		$ 3,345,000	$ 4,051,000
Expenses (income) applicable to OREO	(11,000)	$ 25,000	156,000	$ 92,000
Consumer mortgage loans, secured by residential real estate, foreclosure in process	$ 0		$ 0		$ 533,000
Consumer mortgage loans, secured by residential real estate, foreclosure in process, number of loans | loan					1

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Low Income Housing Tax Credits (Details) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2016 USD ($) housing_equity_fund	Jun. 30, 2015 USD ($)	Jun. 30, 2016 USD ($) housing_equity_fund	Jun. 30, 2015 USD ($)	Dec. 31, 2015 USD ($) housing_equity_fund
Schedule of Equity Method Investments [Line Items]
Number of housing equity funds | housing_equity_fund	4		4		4
Tax credits and other tax benefits	$ 141	$ 108	$ 287	$ 231
Tax credits projected to be received in 2015			512
Other Assets [Member]
Schedule of Equity Method Investments [Line Items]
Investments in housing equity funds	8,700		8,700		$ 9,030
Other Liabilities [Member]
Schedule of Equity Method Investments [Line Items]
Additional capital calls expected	$ 9,310		$ 9,310