10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended    June 30, 2013                                        

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:      000-31877                                                              

Carolina Bank Holdings, Inc.

(Exact name of registrant as specified in its charter)

North Carolina	56-2215437
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

101 North Spring Street, Greensboro, North Carolina	27401
(Address of principal executive offices)	(Zip Code)

(336) 288-1898

(Registrant’s telephone number, including area code)

n/a

(Former name, former address and former fiscal year, if changed since last report)

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

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

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

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

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

¨ Yes x No

APPLICABLE ONLY TO CORPORATE ISSUERS:

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

There were 3,419,618 shares of the Issuer’s common stock, $1.00 par value per share, outstanding as of August 9, 2013.

CAROLINA BANK HOLDINGS, INC.

INDEX

		Page
PART I.	FINANCIAL INFORMATION
Item 1.   Financial Statements (unaudited)		2
Consolidated Balance Sheets as of June 30, 2013 and December 31, 2012		2
Consolidated Statements of Income for the three and six months ended June 30, 2013 and 2012		3
Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2013 and 2012		4
Consolidated Statement of Stockholders’ Equity for the six months ended June 30, 2013		5
Consolidated Statements of Cash Flows for the six months ended June 30, 2013 and 2012		6
Notes to Consolidated Financial Statements		7
Item 2.  Management's Discussion and Analysis of Financial Condition and Results of Operations		31
Item 4.  Controls and Procedures		40
PART II.	OTHER INFORMATION
Item 1. Legal Proceedings		41
Item 6. Exhibits		41
Exhibit 31.1 Certification Pursuant to Section 302 of the Sarbanes-Oxley Act		43
Exhibit 31.2 Certification Pursuant to Section 302 of the Sarbanes-Oxley Act		44
Exhibit 32.1 Certification Pursuant to 18 U.S.C. Section 1350		45

1

ITEM 1. Financial Statements

Carolina Bank Holdings, Inc. and Subsidiary

Consolidated Balance Sheets

	June 30,			December 31,
	2013			2012
	(unaudited)
	(in thousands, except share data)
Assets
Cash and due from banks	$	6,904		$	7,913
Interest-bearing deposits with banks		93,245			7,186
Securities available-for-sale, at fair value		49,445			42,036
Securities held-to-maturity		9,294			211
Loans held for sale		56,403			131,762
Loans		418,158			461,728
Less allowance for loan losses		(10,131	)		(9,944	)
Net loans		408,027			451,784
Premises and equipment, net		17,362			17,732
Other real estate owned		4,031			5,940
Bank-owned life insurance		10,948			10,765
Other assets		13,830			16,539
Total assets	$	669,489		$	691,868
Liabilities and Stockholders' Equity
Deposits
Non-interest-bearing demand	$	76,754		$	73,032
NOW, money market and savings		337,446			343,740
Time		167,204			174,153
Total deposits		581,404			590,925
Advances from the Federal Home Loan Bank		2,934			15,982
Securities sold under agreements to repurchase		3,237			1,950
Subordinated debentures		19,601			19,563
Other liabilities and accrued expenses		8,121			9,586
Total liabilities		615,297			638,006
Commitments  and contingencies - Note O
Stockholders' equity
Preferred stock, no par value, authorized 1,000,000 shares;
issued and outstanding 16,000 shares		15,783			15,573
Common stock, $1 par value; authorized 20,000,000 shares;
issued and outstanding 3,419,013 in 2013 and 3,387,045 in 2012		3,419			3,387
Common stock warrants		-			1,841
Additional paid-in capital		16,168			15,906
Retained earnings		17,985			15,408
Stock in directors' rabbi trust		(1,186	)		(1,050	)
Directors' deferred fees obligation		1,186			1,050
Accumulated other comprehensive income		837			1,747
Total stockholders’ equity		54,192			53,862
Total liabilities and stockholders’ equity	$	669,489		$	691,868

See accompanying notes to consolidated financial statements.

2

Carolina Bank Holdings, Inc. and Subsidiary

Consolidated Statements of Income (unaudited)                  

	Three Months				Six Months
	Ended June  30,				Ended June  30,
	2013		2012		2013		2012
	(in thousands, except per share data)
Interest income
Loans	$	6,122	$	6,887	$	12,841	$	13,972
Investment securities, taxable		260		313		508		619
Investment securities, non taxable		107		100		213		207
Interest from deposits in banks		67		21		85		31
Total interest income		6,556		7,321		13,647		14,829
Interest expense
NOW, money market and savings		276		521		596		1,069
Time deposits		503		664		1,023		1,373
Other borrowed funds		187		197		375		399
Total interest expense		966		1,382		1,994		2,841
Net interest income		5,590		5,939		11,653		11,988
Provision for loan losses		100		-		500		1,460
Net interest income after provision for loan losses		5,490		5,939		11,153		10,528
Non-interest income
Service charges		295		318		547		601
Mortgage banking income		3,586		4,356		7,481		7,525
Gain on sale of investment securities		170		-		192		-
Other		155		134		300		301
Total non-interest income		4,206		4,808		8,520		8,427
Non-interest expense
Salaries and benefits		4,610		4,404		9,358		8,434
Occupancy and equipment		747		677		1,494		1,359
Foreclosed property expense		547		574		878		973
Professional fees		355		263		541		520
Outside data processing		195		215		454		421
FDIC insurance		79		207		248		422
Advertising and promotion		285		205		491		380
Stationery, printing and supplies		181		167		334		302
Other		535		613		1,118		1,024
Total non-interest expense		7,534		7,325		14,916		13,835
Income before income taxes		2,162		3,422		4,757		5,120
Income tax expense		692		1,154		1,569		1,624
Net income		1,470		2,268		3,188		3,496
Dividends and accretion on preferred stock		306		307		611		609
Net income available to common stockholders	$	1,164	$	1,961	$	2,577	$	2,887
Net income per common share
Basic	$	0.34	$	0.58	$	0.76	$	0.85
Diluted	$	0.34	$	0.58	$	0.75	$	0.85

See accompanying notes to consolidated financial statements.

3

Carolina Bank Holdings, Inc. and Subsidiary

Consolidated Statements of Comprehensive Income (unaudited)

	Three Months						Six Months
	Ended June 30,						Ended June 30,
	2013			2012			2013			2012
	(in thousands)
Net income	$	1,470		$	2,268		$	3,188		$	3,496
Other comprehensive income (loss):
Investment securities available-for-sale:
Unrealized holding gains (losses)		(1,203	)		200			(1,186	)		736
Tax effect		409			(68	)		403			(250	)
Reclassification of gains recognized in net income		(170	)		-			(192	)		-
Tax effect		58			-			65			-
		(906	)		132			(910	)		486
Comprehensive income	$	564		$	2,400		$	2,278		$	3,982

See accompanying notes to consolidated financial statements.

4

Carolina Bank Holdings, Inc. and Subsidiary

Consolidated Statement of Stockholders' Equity (unaudited)

													Stock in			Directors'		Accumulated
					Common			Additional					Directors'			Deferred		Other
	Preferred		Common		Stock			Paid-In		Retained			Rabbi			Fees		Comprehensive
	Stock		Stock		Warrants			Capital		Earnings			Trust			Obligation		Income			Total
	(in thousands)
Balance, December 31, 2012	$	15,573	$	3,38	$	1,841		$	15,906	$	15,408		$	(1,050	)	$	1,050	$	1,747		$	53,862
Net income		-		-		-			-		3,188			-			-		-			3,188
Other comprehensive loss,
net of tax		-		-		-			-		-			-			-		(910	)		(910	)
Directors' fees deferred less
payment of deferred fees		-		-		-			-		-			(136	)		136		-			-
Stock options exercised		-		32		-			262		-			-			-		-			294
Repurchase of comon stock warrants		-		-		(1,841	)		-		-			-			-		-			(1,841	)
Accretion of preferred
stock discount		210		-		-			-		(210	)		-			-		-			-
Preferred stock dividends		-		-		-			-		(401	)		-			-		-			(401	)
Balance, June 30, 2013	$	15,783	$	3,419	$	-		$	16,168	$	17,985		$	(1,186	)	$	1,186	$	837		$	54,192

See accompanying notes to consolidated financial statements.

5

Carolina Bank Holdings, Inc. and Subsidiary

Consolidated Statements of Cash Flows (unaudited)

	Six Months
	Ended June 30,
	2013			2012
Cash flows from operating activities	(in thousands)
Net income	$	3,188		$	3,496
Adjustments to reconcile net income to net cash provided
by operating activities
Provision for loan losses		500			1,460
Depreciation		424			441
Increase in cash surrender value of bank-owned life insurance		(183	)		(188	)
Stock-based compensation expense		-			18
Common stock warrants repurchased for less than book value		(41	)		-
Deferred income taxes		499			758
Accretion, net		(33	)		(35	)
Amortization of subordinated debt discount		38			37
Decrease (increase) in fair value of loans held for sale		934			(51	)
(Gain) loss on sale of other real estate owned		21			(46	)
Gain on sale of investments		(192	)		-
Gain on sale of loans held for sale		(8,763	)		(7,577	)
Impairment of other real estate owned		607			606
Proceeds from sale of loans held for sale		655,857			563,157
Originations of loans held for sale		(572,669	)		(521,282	)
(Increase) decrease in other assets		2,679			(1,342	)
Increase (decrease) in other liabilities and accrued expenses		(645	)		1,544
Net cash provided by operating activities		82,221			40,996
Cash flows from investing activities
Purchases of investment securities available-for-sale		(10,758	)		(4,386	)
Purchases of investment securities held-to-maturity		(9,296	)		-
Maturities and calls of securities available-for-sale		247			1,035
Repayments from mortgage-backed securities available-for-sale		1,108			1,461
Repayments from mortgage-backed securities held-to-maturity		46			79
Net decrease in loans		41,315			23,375
Proceeds from sales of investment securities		1,007			-
Improvements to other real estate owned		(6	)		(177	)
Purchases of premises and equipment		(54	)		(433	)
Proceeds from sales of other real estate owned		3,229			2,332
Net cash provided by investing activities		26,838			23,286
Cash flows from financing activities
Net decrease in deposits		(9,521	)		(4,536	)
Net decrease in Federal Home Loan Bank Advances		(13,048	)		(46	)
Increase in securities sold under agreements to repurchase		1,287			3,567
Proceeds from exercise of stock options		294			-
Repurchase of common stock warrants		(1,800	)		-
Dividends paid		(1,221	)		(415	)
Net cash used for financing activities		(24,009	)		(1,430	)
Net increase in cash and cash equivalents		85,050			62,852
Cash and cash equivalents at beginning of period		15,099			13,311
Cash and cash equivalents at end of period	$	100,149		$	76,163
Supplemental disclosure of cash flow information
Cash paid during the period for interest	$	1,904		$	2,953
Cash paid during the period for income taxes	$	905		$	1,850
Supplemental disclosure of non-cash transactions
Transfer of loans to other real estate owned	$	1,942		$	2,371
Dividends declared but not paid	$	-		$	405
Accretion of preferred stock discount	$	210		$	194
Change in unrealized gains on securities available-for-sale, net of tax	$	(910	)	$	486

See accompanying notes to consolidated financial statements.

6

Carolina Bank Holdings, Inc. and Subsidiary

Notes to Consolidated Financial Statements

Note A – Summary

Carolina Bank Holdings, Inc. (the “Holding Company” or the “Company”) is a North Carolina corporation organized in 2000. Effective October 31, 2000, pursuant to the plan of share exchange approved by the shareholders of Carolina Bank (the “Bank”), all of the outstanding shares of common stock of the Bank were exchanged for shares of common stock of the Holding Company. The Holding Company presently has no employees.

The Bank was incorporated in August 1996, and began banking operations in November 1996. It is engaged in lending and deposit gathering activities in Guilford, Alamance, Randolph and Forsyth Counties, North Carolina and operates under the laws of North Carolina, the rules and regulations of the Federal Deposit Insurance Corporation and the North Carolina Commissioner of Banks. The Bank has eight full-service banking locations, comprised of four in Greensboro and one in each of Asheboro, Burlington, High Point, and Winston-Salem. A wholesale mortgage division is located at the Greensboro corporate headquarters, and retail residential mortgage loan production offices are located in Burlington, Chapel Hill, Hillsborough, and Raleigh. All offices, except the Chapel Hill, Raleigh and Hillsborough mortgage loan production offices, are in the Piedmont Triad region of North Carolina.

The Holding Company files periodic reports with the Securities and Exchange Commission and is also subject to regulation by the Federal Reserve Board.

Note B – Consolidation

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, the Bank. The Bank also owns two limited liability companies for the purpose of holding foreclosed real estate, the assets and operations of which are consolidated into Carolina Bank and included herein. All significant inter-company transactions and balances have been eliminated.

Note C – Basis of presentation

In management’s opinion, the financial information, which is unaudited, reflects all adjustments (consisting solely of normal recurring adjustments) necessary for a fair presentation of the financial information as of and for the three and six months ended June 30, 2013 and 2012, in conformity with accounting principles generally accepted in the United States of America. Operating results for the three and six months ended June 30, 2013 and 2012 are not necessarily indicative of the results that may be expected for future annual periods.

The Company’s financial statements are presented in accordance with Accounting Standards Codification (“ASC”) Topic 105, “The FASB Accounting Standards Codification and The Hierarchy of Generally Accepted Accounting Principles”, which codifies generally accepted accounting principles (GAAP) in the United States.

The organization and business of the Company, accounting policies followed, and other information are contained in the notes to the consolidated financial statements of the Company as of and for the years ended December 31, 2012 and 2011, filed with the Securities and Exchange Commission as part of the Company’s annual report on Form 10-K. These financial statements should be read in conjunction with the annual financial statements.

7

Note D - Use of estimates

The financial statements are prepared in accordance with accounting principles generally accepted in the United States of America which require management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses and the valuation of other real estate owned.

Note E - Stock compensation plans

The Company’s shareholders approved the 2009 Omnibus Stock Ownership and Long Term Incentive Plan (“Omnibus Plan”) in 2009 to replace three expired stock option plans, a nonqualified plan for directors (Director Plan) and two incentive stock option plans for management and employees (Employee Plans). The Omnibus Plan provides for the grant of incentive stock options, non-qualified stock options, restricted stock, long-term incentive compensation units and stock appreciation rights to employees and directors. An aggregate of 500,000 shares of the Company’s common stock have been reserved for issuance under the terms of the Omnibus Plan.

There were no stock option grants in 2012 or the first six months of 2013. The fair value of employee plan options granted in December 2007 was $178,000 and was expensed over a five year vesting period. Total expense related to the 2007 grants was $0 and $18,000 in the first six months of 2013 and 2012, respectively. At June 30, 2013, there was no unrecognized compensation cost related to unvested share-based compensation.

31,968 new shares of common stock were issued in the first six months of 2013 as a result of the exercise of incentive stock options.

Note F - Earnings per share

Earnings per share has been determined on a basic basis and a diluted basis which considers potential stock issuances. For the three and six months ended June 30, 2013 and 2012, basic earnings per share has been computed based upon the weighted average common shares outstanding as shown below.

The only potential issuances of Company stock are stock options granted to various officers of the Bank. The following is a summary of the diluted earnings per share calculation for the three and six months ended June 30, 2013 and 2012.

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2013		2012		2013		2012
	(in thousands, except per share data)
Net income available to common stockholders	$	1,164	$	1,961	$	2,577	$	2,887
Weighted average outstanding shares - basic		3,403		3,387		3,396		3,387
Dilutive effect of stock options and warrants		20		-		21		-
Weighted average shares - diluted		3,423		3,387		3,417		3,387
Diluted net income per share	$	0.34	$	0.58	$	0.75	$	0.85

For the three months ended June 30, 2013 and 2012, there were stock options and warrants covering 0 and 514,256 shares, respectively, that were excluded in computing diluted common shares outstanding given that they were anti-dilutive since the exercise price exceeded the average market price for the period.

8

Note G – Preferred stock and common stock warrants

In December 2008, the shareholders of the Company approved an amendment to the Articles of Incorporation authorizing the issuance of up to 1,000,000 shares of preferred stock, no par value. In January 2009, the Company issued 16,000 shares of preferred stock to the U.S. Treasury and received $16 million under the Treasury’s Capital Purchase Program. The Company granted a warrant to purchase 357,675 shares of common stock at a price of $6.71 per share to the U.S. Treasury as part of the preferred stock transaction. In accordance with accounting principles, the preferred stock and common stock warrant were valued independently and their relative fair market values were allocated to the $16 million received. Under the relative value method, $14,159,000 was allocated to the preferred stock and $1,841,000 to the common stock warrant. The discount of $1,841,000 on the preferred stock is accreted over five years using the effective yield method, thereby increasing preferred stock dividends. The accretion of the discount for the first six months of 2013 and 2012 was $210,000 and $194,000, respectively. Dividends at 5% per annum are payable quarterly for the first five years; the dividend increases to 9% per annum after the fifth year.

The U S. Treasury sold its holding of $16 million in preferred stock to private investors in February 2013, and the warrant to the U.S. Treasury was repurchased by the Company for $1.8 million in April 2013. The Company plans to retire $5 million of its outstanding preferred stock in August 2013.

Note H – Subordinated debentures

In December 2004, the Company issued $10,310,000 of unsecured junior subordinated debentures which accrue and pay interest quarterly at three month LIBOR plus 2% per annum. These debentures were issued to Carolina Capital Trust, (“Carolina Trust”), a subsidiary of the Company. Carolina Trust acquired these debentures using the proceeds of its offerings of common securities to the Company and $10 million of Trust Preferred securities to outside investors. The trust preferred securities currently qualify as Tier 1 capital under Federal Reserve Board guidelines. The Dodd-Frank Wall Street Reform and Consumer Protection Act eliminates trust preferred securities as an element of Tier 1 capital for certain institutions. However, bank holding companies with assets of less than $15 billion as of December 31, 2009, will be permitted to include trust preferred securities that were issued before May 19, 2010, as Tier 1 capital. The Company has entered into contractual arrangements which, in the aggregate, constitute a full, irrevocable and unconditional guarantee on a subordinated basis by the Company of the obligations of Carolina Trust under the trust preferred securities. The trust preferred securities are redeemable upon maturity of the debentures on January 7, 2035, or upon earlier redemption as provided in the indenture. The Company has the right to redeem the debentures purchased by Carolina Trust in whole or in part at any time.

In the third quarter of 2008, Carolina Bank issued $9,300,000 of unsecured junior subordinated notes to outside investors which accrue and pay interest quarterly at three month LIBOR plus 4% per annum. The notes, net of unamortized expenses associated with the offering, equal to $9,291,000 and $9,253,000 at June 30, 2013 and December 31, 2012, respectively, and qualify as Tier 2 capital for the Bank. The notes are redeemable upon maturity on September 30, 2018, or earlier at the Bank’s option, in whole or part subject to regulatory approval, beginning September 30, 2013. The expenses of the offering of $373,000 were capitalized at issuance and are being amortized over sixty months. The notes are subordinate to the rights of payment to depositors, bankers’ acceptances, letters of creditors and general creditors.

9

Note I – Operating segments

The Company is considered to have three principal business segments in 2013 and 2012, the Commercial/Retail Bank, the Mortgage Division, and the Holding Company. The Mortgage Division began originating home mortgage loans through third parties and selling these loans to investors in late 2007. A retail mortgage operation was added to the mortgage division in July 2010. Financial performance, reflective of inter-company eliminations, for the three and six months ended June 30, 2013 and 2012, and selected balance sheet information, reflective of inter-company eliminations, at June 30, 2013 and 2012 for each segment is as follows:

	Three months ended June 30, 2013										Three months ended June 30, 2012
	Commercial/Retail		Mortgage			Holding					Commercial/Retail		Mortgage		Holding
	Bank		Division			Company			Total		Bank		Division		Company			Total
	(in thousands)										(in thousands)
Interest income	$	6,079	$	475		$	2		$	6,556	$	6,614	$	705	$	2		$	7,321
Interest expense		430		476			60			966		614		703		65			1,382
Net interest income		5,649		(1	)		(58	)		5,590		6,000		2		(63	)		5,939
Provision for loan losses		100		-			-			100		-		-		-			-
Net interest income after
provision for loan losses		5,549		(1	)		(58	)		5,490		6,000		2		(63	)		5,939
Non-interest income		622		3,584			-			4,206		452		4,356		-			4,808
Non-interest expense		4,535		2,964			35			7,534		4,650		2,623		52			7,325
Income (loss) before income taxes		1,636		619			(93	)		2,162		1,802		1,735		(115	)		3,422
Income tax (benefit) expense		478		246			(32	)		692		509		684		(39	)		1,154
Net income (loss)	$	1,158	$	373		$	(61	)	$	1,470	$	1,293	$	1,051	$	(76	)	$	2,268
Total Assets	$	610,950	$	58,116		$	423		$	669,489	$	617,997	$	59,141	$	338		$	677,476
Net Loans		408,027		56,403			-			464,430		448,032		57,708		-			505,740
Equity		2,286		1,060			50,846			54,192		1,935		1,693		46,515			50,143

	Six months ended June 30, 2013										Six months ended June 30, 2012
	Commercial/Retail		Mortgage			Holding					Commercial/Retail		Mortgage		Holding
	Bank		Division			Company			Total		Bank		Division		Company			Total
	(in thousands)										(in thousands)
Interest income	$	12,379	$	1,264		$	4		$	13,647	$	13,409	$	1,416	$	4		$	14,829
Interest expense		610		1,265			119			1,994		1,294		1,416		131			2,841
Net interest income		11,769		(1	)		(115	)		11,653		12,115		-		(127	)		11,988
Provision for loan losses		500		-			-			500		1,460		-		-			1,460
Net interest income after
provision for loan losses		11,269		(1	)		(115	)		11,153		10,655		-		(127	)		10,528
Non-interest income		1,041		7,479			-			8,520		902		7,525		-			8,427
Non-interest expense		9,075		5,716			125			14,916		9,033		4,729		73			13,835
Income (loss) before income taxes		3,235		1,762			(240	)		4,757		2,524		2,796		(200	)		5,120
Income tax (benefit) expense		949		702			(82	)		1,569		589		1,103		(68	)		1,624
Net income (loss)	$	2,286	$	1,060		$	(158	)	$	3,188	$	1,935	$	1,693	$	(132	)	$	3,496
Total Assets	$	610,950	$	58,116		$	423		$	669,489	$	617,997	$	59,141	$	338		$	677,476
Net Loans		408,027		56,403			-			464,430		448,032		57,708		-			505,740
Equity		2,286		1,060			50,846			54,192		1,935		1,693		46,515			50,143

10

The Mortgage Division has experienced strong growth in originations since its establishment in 2007 due to low interest rates and due to the purchase of a retail mortgage loan production office in July of 2010 which was expanded into new cities and into several of our branch offices. The mortgage division increased its staffing and overhead in 2012 to meet the increased demand and to comply with expanded compliance and quality control regulations. Non-interest income from the mortgage division decreased in the three months ending June 30, 2013 compared to the three months ending June 30, 2012 due to higher interest rates; however, non-interest expenses increased in the 2013 period due to the overhead added in the last half of 2012. Interest rate risk has been minimized by obtaining optional loan sales commitments when loan origination commitments are made or by entering into hedging transactions whereby mortgage backed securities are sold for the estimated closing value of loan commitments. Borrower fraud is a risk that has been minimized by prudent underwriting and by obtaining indemnification from the originating bank or broker for the risks the Company assumes. Warranty expenses and related warranty liabilities were established in 2009 to provide for potential claims that might arise from borrower fraud or underwriting errors. Warranty expenses were $100,000 and $163,000 for the three months ended June 30, 2013 and 2012, respectively, and were $309,000 and $291,000 for the six months ended June 30, 2013 and 2012, respectively. The warranty liability, which is available to fund future warranty claims, was $1,831,000 and $1,624,000 at June 30, 2013 and December 31, 2012, respectively. Ten warranty claims totaling $720,000 have been paid since establishment of the mortgage division in 2007. In addition, three loans with a total current principal balance of $1,747,000 and fair value of $1,483,000 have been repurchased and are included in loans held for sale at fair value.

Note J - Securities

A summary of the amortized cost, gross unrealized gains and losses and estimated fair values of securities available-for-sale and held-to-maturity follows:

11

			Gross		Gross		Estimated
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
			(in thousands)
June 30, 2013
Available-for-sale
Municipal securities	$	22,416	$	756	$	238	$	22,934
FNMA, FHLMC, and GNMA
mortgage-backed securities		10,628		603		32		11,199
Corporate securities		15,091		231		88		15,234
Unrestricted stock		42		36		-		78
	$	48,177	$	1,626	$	358	$	49,445
Held-to-maturity
Municipal securities	$	4,345			$	112		4,233
FNMA mortgage-backed securities		4,949		-		111		4,838
	$	9,294	$	-	$	223	$	9,071
December 31, 2012
Available-for-sale
Municipal securities	$	16,938	$	1,414	$	5	$	18,347
FNMA, FHLMC, and GNMA
mortgage-backed securities		10,127		876		-		11,003
Corporate securities		12,059		264		92		12,231
Unrestricted stock		266		189		-		455
	$	39,390	$	2,743	$	97	$	42,036
Held-to-maturity
FNMA and GNMA
mortgage-backed securities		211		14		-		225
	$	211	$	14	$	-	$	225

12

The scheduled maturities of debt securities available-for-sale and held-to-maturity at June 30, 2013 were as follows:

	Available-for-Sale				Held-to-Maturity
			Estimated				Estimated
	Amortized		Fair		Amortized		Fair
	Cost		Value		Cost		Value
	(in thousands)
Due in one year or less	$	949	$	959	$	-	$	-
Due from one to five years		10,221		10,383		-		-
Due from five to ten years		11,557		11,927		1,372		1,327
Over ten years		14,780		14,899		2,973		2,906
Mortgage-backed securities		10,628		11,199		4,949		4,838
	$	48,135	$	49,367	$	9,294	$	9,071

Investments are periodically evaluated for any impairment which would be deemed other than temporary. Based upon these evaluations, the Company did not deem any debt securities to be impaired during 2012 or the first six months of 2013. The deterioration in value is primarily attributable to changes in market demand for securities and increases in interest rates, not changes in the credit risk of the issuers, and the Company expects these securities to be paid in full and that any temporary impairment will be fully recoverable prior to or at maturity.  The Company has the ability and intent to hold the investment securities for a reasonable period of time sufficient for a forecasted recovery or until maturity. Information pertaining to temporarily impaired securities with gross unrealized losses at June 30, 2013 and December 31, 2012, by category and length of time that individual securities have been in a continuous loss position follows:

	Less Than 12 Months						12 Months or Greater						Total
	Number				Gross		Number				Gross		Number				Gross
	of		Fair		Unrealized		of		Fair		Unrealized		of		Fair		Unrealized
	Securities		Value		Losses		Securities		Value		Losses		Securities		Value		Losses
	(dollars in thousands)
June 30, 2013:
Municipal securities		10	$	11,263	$	350		0	$	-	$	-		10	$	11,263	$	350
FNMA and  FHLMC
mortgage-backed securities		2		6,834		143		0		-		-		2		6,834		143
Corporate securities		4		3,390		88		0		-		-		4		3,390		88
Total		16	$	21,487	$	581		0	$	-	$	-		16	$	21,487	$	581
December 31, 2012:
Municipal securities		1	$	598	$	5		0	$	-	$	-		1	$	598	$	5
Corporate securities		3		2,378		92		0		-		-		3		2,378		92
Total		4	$	2,976	$	97		0	$	-	$	-		4	$	2,976	$	97

Note K - Loans and allowance for loan losses

The activity in the allowance for loan losses for the first six months of 2013 and 2012 and related asset balances at June 30, 2013 and December 31, 2012 is summarized as follows:

13

	Construction &			Commercial			Home Equity			Residential			Commercial &			Consumer
	Development			Real Estate			Lines			Real Estate			Industrial			& Other			Unallocated		Total
Allowance for loan losses:	(in thousands)
2013
Beginning of year balance	$	2,349		$	4,068		$	609		$	863		$	1,885		$	133		$	37	$	9,944
Provision for loan losses		(1,084	)		972			(84	)		(133	)		114			(81	)		796		500
Charge-offs		(73	)		(173	)		(32	)		(8	)		(251	)		(53	)		-		(590	)
Recoveries		20			5			-			14			214			24			-		277
Balance at June 30,	$	1,212		$	4,872		$	493		$	736		$	1,962		$	23		$	833	$	10,131
2012
Beginning of year balance	$	2,948		$	3,690		$	1,126		$	994		$	2,985		$	46		$	4	$	11,793
Provision for loan losses		(450	)		1,592			(198	)		357			920			106			33		2,360
Charge-offs		(159	)		(1,318	)		(324	)		(498	)		(2,142	)		(20	)		-		(4,461	)
Recoveries		10			104			5			10			122			1			-		252
Balance at December 31,	$	2,349		$	4,068		$	609		$	863		$	1,885		$	133		$	37	$	9,944
Balances at June 30, 2013
Allowance for loan losses:
Balance at June 30,	$	1,212		$	4,872		$	493		$	736		$	1,962		$	23		$	833	$	10,131
Ending balance individually
evaluated for impairment	$	73		$	3,239		$	81		$	271		$	1,051		$	-		$	-	$	4,715
Ending balance collectively
evaluated for impairment	$	1,139		$	1,633		$	412		$	465		$	911		$	23		$	833	$	5,416
Loans Outstanding:
Balance at June 30,	$	40,202		$	191,681		$	67,389		$	49,490		$	63,970		$	5,426		$	-	$	418,158
Ending balance individually
evaluated for impairment	$	1,941		$	24,609		$	754		$	5,354		$	2,394		$	-		$	-	$	35,052
Ending balance collectively
evaluated for impairment	$	38,261		$	167,072		$	66,635		$	44,136		$	61,576		$	5,426		$	-	$	383,106
Balances at December 31, 2012
Allowance for loan losses:
Balance at December 31,	$	2,349		$	4,068		$	609		$	863		$	1,885		$	133		$	37	$	9,944
Ending balance individually
evaluated for impairment	$	-		$	1,309		$	187		$	134		$	95		$	50		$	-	$	1,775
Ending balance collectively
evaluated for impairment	$	2,349		$	2,759		$	422		$	729		$	1,790		$	83		$	37	$	8,169
Loans Outstanding:
Balance at December 31,	$	64,669		$	215,258		$	66,523		$	48,857		$	61,251		$	5,170		$	-	$	461,728
Ending balance individually
evaluated for impairment	$	1,942		$	19,724		$	778		$	4,416		$	1,198		$	52		$	-	$	28,110
Ending balance collectively
evaluated for impairment	$	62,727		$	195,534		$	65,745		$	44,441		$	60,053		$	5,118		$	-	$	433,618

A loan is past due when the borrower has not made a payment by the contractual due date. The following table presents the carrying value of loans that are past due thirty days or more. Loans which are ninety days or more past due are generally on non-accrual status, at which time all accrued interest is removed from interest income, as shown in the following table:

14

													Loans Past
	Number of Days Past Due												Due 90 Days
	30-59		60-89		90 Days		Total				Total		or More
	Days		Days		or More		Past Due		Current		Loans		& Accruing
At June 30, 2013	(in thousands)
Real Estate Loans:
Construction & development	$	357	$	-	$	949	$	1,306	$	38,896	$	40,202	$	-
Commercial real estate		-		53		12,111		12,164		179,517		191,681		-
Home equity lines		-		51		627		678		66,711		67,389		-
Residential real estate		381		-		1,506		1,887		47,603		49,490		-
Total real estate		738		104		15,193		16,035		332,727		348,762		-
Commercial & industrial		2,288		-		1,662		3,950		60,020		63,970		354
Consumer & other		-		-		-		-		5,426		5,426		-
Total loans	$	3,026	$	104	$	16,855	$	19,985	$	398,173	$	418,158	$	354
At December 31, 2012
Real Estate Loans:
Construction & development	$	-	$	-	$	1,778	$	1,778	$	62,891	$	64,669	$	-
Commercial real estate		-		-		7,908		7,908		207,350		215,258		-
Home equity lines		27		-		654		681		65,842		66,523		-
Residential real estate		665		-		1,584		2,249		46,608		48,857		33
Total real estate		692		-		11,924		12,616		382,691		395,307		33
Commercial & industrial		67		-		1,126		1,193		60,058		61,251		-
Consumer & other		1		-		50		51		5,119		5,170		-
Total loans	$	760	$	-	$	13,100	$	13,860	$	447,868	$	461,728	$	33

Loans are determined to be impaired when, based on current information and events, it is probable that all amounts will not be collected when due according to the contractual terms of the original loan agreement. At June 30, 2013 and December 31, 2012, the total recorded investment in impaired loans amounted to approximately $35,052,000 and $28,110,000, respectively. Of these impaired loans, $16,501,000 and $13,067,000 were on non-accrual at June 30, 2013 and December 31, 2012, respectively.

15

The recorded investment and related information for impaired loans is summarized as follows:

	Impaired Loans
	At end of period						For Period Ended
			Unpaid		Related		Average		Interest
	Recorded		Principal		Loan Loss		Recorded		Income
	Investment		Balance		Allowance		Investment		Recognized
June 30, 2013	(in thousands)
With no related allowance recorded
Real Estate Loans:
Construction & development	$	1,073	$	1,267	$	-	$	1,340	$	12
Commercial real estate		10,745		11,377		-		11,407		174
Home equity lines		387		529		-		529		8
Residential real estate		3,352		3,505		-		3,517		55
Total real estate		15,557		16,678		-		16,793		249
Commercial & industrial		1,285		1,823		-		1,822		38
Consumer & other		-		-		-		1		-
Total loans		16,842		18,501		-		18,616		287
With an allowance recorded
Real Estate Loans:
Construction & development		868		868		73		868		29
Commercial real estate		13,864		15,435		3,239		15,485		251
Home equity lines		367		404		81		404		6
Residential real estate		2,002		2,190		271		2,209		35
Total real estate		17,101		18,897		3,664		18,966		321
Commercial & industrial		1,109		1,119		1,051		1,135		31
Consumer & other		-		-		-		-		-
Total loans		18,210		20,016		4,715		20,101		352
Total impaired loans	$	35,052	$	38,517	$	4,715	$	38,717	$	639
December 31, 2012
With no related allowance recorded
Real Estate Loans:
Construction & development	$	1,942	$	2,074	$	-	$	2,114	$	53
Commercial real estate		16,547		18,009		-		18,335		785
Home equity lines		414		608		-		608		17
Residential real estate		3,800		4,111		-		4,151		155
Total real estate		22,703		24,802		-		25,208		1,010
Commercial & industrial		1,103		1,697		-		2,170		42
Consumer & other		2		2		-		4		-
Total loans		23,808		26,501		-		27,382		1,052
With an allowance recorded
Real Estate Loans:
Construction & development		-		-		-		-		-
Commercial real estate		3,177		3,180		1,309		3,181		177
Home equity lines		364		395		187		395		16
Residential real estate		616		631		134		656		38
Total real estate		4,157		4,206		1,630		4,232		231
Commercial & industrial		95		104		95		118		7
Consumer & other		50		50		50		50		3
Total loans		4,302		4,360		1,775		4,400		241
Total impaired loans	$	28,110	$	30,861	$	1,775	$	31,782	$	1,293

16

Loans that are past due 90 days or more or where there is serious doubt as to collectability are placed on non-accrual status. Non-accrual loans are not returned to accrual status unless principal and interest are current and borrowers have demonstrated the ability to make contractual payments. Accrued interest is reversed through a charge to income when loans are placed on non-accrual and future payments on non-accrual loans are generally applied to principal. The following is a summary of non-accrual loans at June 30, 2013 and December 31, 2012:

	June 30,		December 31,
	2013		2012
	(in thousands)
Real Estate Loans:
Construction & development	$	949	$	1,778
Commercial real estate		12,111		7,908
Home equity lines		627		654
Residential real estate		1,506		1,551
Total real estate		15,193		11,891
Commercial & industrial		1,308		1,126
Consumer & other		-		50
Total loans	$	16,501	$	13,067

Loans are graded according to an internal loan rating classification system when originated. Loan grades are periodically re-evaluated during servicing, internal loan reviews, and external loan reviews. The general categories of the internal loan rating classification are:

· Pass - Acceptable loans

· Special Mention - Loans with potential identified weaknesses in administration or servicing.

· Criticized - Adversely classified loans with identified weaknesses, and potential or identified losses of principal and/or interest due.

17

The following is a breakdown of loans by the general categories of the internal rating system:

	Outstanding Loans at June 30, 2013 and December 31, 2012
	Construction & Development				Commercial				Home Equity
	Development				Real Estate				Lines of Credit
	2013		2012		2013		2012		2013		2012
	(in thousands)
Pass	$	37,035	$	60,928	$	163,279	$	182,314	$	65,266	$	64,042
Special Mention		868		-		6,761		8,641		34		588
Criticized		2,299		3,741		21,641		24,303		2,089		1,893
TOTAL	$	40,202	$	64,669	$	191,681	$	215,258	$	67,389	$	66,523

	Residential				Commercial &				Consumer
	Real Estate				Industrial				& Other
	2013		2012		2013		2012		2013		2012
	(in thousands)
Pass	$	43,515	$	43,042	$	58,835	$	58,454	$	5,396	$	5,101
Special Mention		1,135		391		3,816		400		30		7
Criticized		4,840		5,424		1,319		2,397		-		62
TOTAL	$	49,490	$	48,857	$	63,970	$	61,251	$	5,426	$	5,170

During 2013 and 2012, the Company restructured certain loans to improve the likelihood that the loans would be repaid in full under the modified terms in accordance with reasonable repayment schedules. Management evaluates each of these loans in accordance with generally accepted accounting principles to determine whether they should be reported as troubled debt restructurings.

The Company offers a variety of modifications to borrowers. The modification categories offered can generally be described in the following categories:

• Rate Modification - A modification in which the interest rate is changed.

• Term Modification - A modification in which the maturity date, timing of payments, or frequency of payments is changed.

• Interest Only Modification – A modification in which the loan is converted to interest only payments for a period of time.

• Payment Modification – A modification in which the dollar amount of the payment is changed, other than an interest only modification described above.

• Combination Modification – Any other type of modification, including the use of multiple categories above.

There were $197,000 commitments for troubled debt restructurings outstanding at June 30, 2013.

18

The following tables present troubled debt restructurings as of June 30, 2013 and December 31, 2012:

Troubled Debt Restructurings

	June 30, 2013
					Non-Accrual				Total
	Accrual Status				Status				Modifications
	#		Amount		#		Amount		#		Amount
			($ in thousands)
Real Estate Loans:
Construction & development		1	$	124		4	$	730		5	$	854
Commercial real estate		13		11,014		6		2,617		19		13,631
Home equity lines		0		-		1		150		1		150
Residential real estate		16		2,959		1		10		17		2,969
Total real estate		30		14,097		12		3,507		42		17,604
Commercial & industrial		2		54		3		883		5		937
Consumer & other		0		-		0		-		0		-
Total loans		32	$	14,151		15	$	4,390		47	$	18,541

	December 31, 2012
					Non-Accrual				Total
	Accrual Status				Status				Modifications
	#		Amount		#		Amount		#		Amount
			($ in thousands)
Real Estate Loans:
Construction & development		1	$	165		7	$	1,606		8	$	1,771
Commercial real estate		14		11,235		8		3,936		22		15,171
Home equity lines		0		-		1		150		1		150
Residential real estate		15		2,350		3		685		18		3,035
Total real estate		30		13,750		19		6,377		49		20,127
Commercial & industrial		2		70		5		1,066		7		1,136
Consumer & other		1		2		0		-		1		2
Total loans		33	$	13,822		24	$	7,443		57	$	21,265

The Bank’s policy is that loans placed on non-accrual will typically remain on non-accrual status until all principal and interest payments are brought current and the prospect for future payment in accordance with the loan agreement appears relatively certain. The Bank’s policy generally refers to six months of payment performance as sufficient to warrant a return to accrual status.

Troubled debt restructurings are classified as impaired loans when modified, and fair value calculations are performed to determine the specific reserves required in the allowance for loan losses related to these loans. Troubled debt restructurings can be removed from such status and returned to non-impaired status in years subsequent to restructure if the interest rate charged at restructure was greater than or equal to the rate charged for a new extension of credit with comparable risk and if the loan is performing and there is no available information to indicate that performance will not continue.

19

The following tables present newly restructured loans that occurred during the three months ended June 30, 2013 and 2012, respectively:

	New Troubled Debt Restructurings
	Three Months Ended June 30, 2013
	Rate				Term				Payment				Combination				Total
	Modifications				Modifications				Modifications				Modifications				Modifications
	#		Amount		#		Amount		#		Amount		#		Amount		#		Amount
	($ in thousands)
Pre-Modification Outstanding Recorded Investment:
Real Estate Loans:
Construction & development		0	$	-		0	$	-		1	$	-		0	$	-		1	$	-
Total real estate		0		-		0		-		1		-		0		-		1		-
Consumer & other		0		-		0		-		0		-		0		-		0		-
Total loans		0	$	-		0	$	-		1	$	-		0	$	-		1	$	-
Post-Modification Outstanding Recorded Investment:
Real Estate Loans:
Construction & development		0	$	-		0	$	-		1	$	155		0	$	-		1	$	155
Total real estate		0		-		0		-		1		155		0		-		1		155
Consumer & other		0		-		0		-		0		-		0		-		0		-
Total loans		0	$	-		0	$	-		1	$	155		0	$	-		1	$	155
	Three Months Ended June 30, 2012
Pre-Modification Outstanding Recorded Investment:
Real Estate Loans:
Construction & development		1	$	32		1	$	-		0	$	-		0	$	-		2	$	32
Commercial real estate		0		-		1		81		0		-		0		-		1		81
Total real estate		1		32		2		81		0		-		0		-		3		113
Commercial & industrial		0		-		0		-		0		-		0		-		0		-
Total loans		1	$	32		2	$	81		0	$	-		0	$	-		3	$	113
Post-Modification Outstanding Recorded Investment:
Real Estate Loans:
Construction & development		1	$	29		1	$	211		0	$	-		0	$	-		2	$	240
Commercial real estate		0		-		1		80		0		-		0		-		1		80
Total real estate		1		29		2		291		0		-		0		-		3		320
Commercial & industrial		0		-		0		-		0		-		0		-		0		-
Total loans		1	$	29		2	$	291		0	$	-		0	$	-		3	$	320

20

The following tables present newly restructured loans that occurred during the six months ended June 30, 2013 and 2012, respectively:

	New Troubled Debt Restructurings
	Six Months Ended June 30, 2013
	Rate				Term				Payment				Combination				Total
	Modifications				Modifications				Modifications				Modifications				Modifications
	#		Amount		#		Amount		#		Amount		#		Amount		#		Amount
	($ in thousands)
Pre-Modification Outstanding Recorded Investment:
Real Estate Loans:
Construction & development		0	$	-		0	$	-		2	$	-		0	$	-		2	$	-
Total real estate		0		-		0		-		2		-		0		-		2		-
Commercial & industrial		0		-		0		-		0		-		0		-		0		-
Total loans		0	$	-		0	$	-		2	$	-		0	$	-		2	$	-
Post-Modification Outstanding Recorded Investment:
Real Estate Loans:
Construction & development		0	$	-		0	$	-		2	$	419		0	$	-		2	$	419
Total real estate		0		-		0		-		2		419		0		-		2		419
Commercial & industrial		0		-		0		-		0		-		0		-		0		-
Total loans		0	$	-		0	$	-		2	$	419		0	$	-		2	$	419
		Six Months Ended June 30, 2012
Pre-Modification Outstanding Recorded Investment:
Real Estate Loans:
Construction & development		1	$	32		2	$	-		0	$	-		0	$	-		3	$	32
Commercial real estate		0		-		1		81		1		123		0		-		2		204
Total real estate		1		32		3		81		1		123		0		-		5		236
Commercial & industrial		0		-		0		-		0		-		0		-		0		-
Total loans		1	$	32		3	$	81		1	$	123		0	$	-		5	$	236
Post-Modification Outstanding Recorded Investment:
Real Estate Loans:
Construction & development		1	$	29		2	$	523		0	$	-		0	$	-		3	$	552
Commercial real estate		0		-		1		80		1		121		0		-		2		201
Total real estate		1		29		3		603		1		121		0		-		5		753
Commercial & industrial		0		-		0		-		0		-		0		-		0		-
Total loans		1	$	29		3	$	603		1	$	121		0	$	-		5	$	753

21

The following tables represent financing receivables modified as troubled debt restructurings and with a payment default, with the payment default occurring within 12 months of the restructure date, and the payment default occurring during the three and six months ended June 30, 2013 and 2012, respectively:

TDRs with a payment default occurring within 12 months of restructure
	During the three months ended
	June 30, 2013				June 30, 2012
	#		Amount		#		Amount
	($ in thousands)
Real Estate Loans:
Commercial real estate		0	$	-		1	$	64
Residential real estate		0		-		0		-
Total real estate		0		-		1		64
Commercial & industrial		0		-		2		812
Total loans		0	$	-		3	$	876
TDRs with a payment default occurring within 12 months of restructure
	During the six months ended
	June 30, 2013				June 30, 2012
	#		Amount		#		Amount
	($ in thousands)
Real Estate Loans:
Construction & development		0	$	-		0	$	-
Commercial real estate		1		115		4		4,756
Residential real estate		0		-		0		-
Total real estate		1		115		4		4,756
Commercial & industrial		0		-		3		2,278
Total loans		1	$	115		7	$	7,034

Troubled debt restructuring defaults can result in a higher allowance for loan losses and a corresponding higher provision for loan losses because defaults generally negatively impact the timing of and expected collections from these impaired loans. Impaired loans, which include troubled debt restructurings, are evaluated for specific additions to the allowance for loan losses by subtracting the recorded investment in these impaired loans from their fair values. Fair value is generally determined by the present value of future cash flows, collateral value, or liquidation value. Defaults generally reduce the present value of the future cash flows and can negatively impact the collateral values if declining real estate values are impacting the sale of collateral.

Note L – Fair value measurements

The Company has adopted the accounting standards within FASB Accounting Standards Codification (ASC) 820 “Fair Value Measurements and Disclosures”, which provides a framework for measuring fair value under GAAP and enhances disclosures about 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. The Company utilizes fair value measurements to record fair value adjustments to certain assets and to determine fair value disclosures. The Company has not elected the fair value option to value liabilities. Securities available-for-sale and loans held for sale are recorded at fair value on a recurring basis. Additionally, from time to time, the Company may be required to record at fair value other assets on a nonrecurring basis, such as impaired loans held for investment and certain other assets. These nonrecurring fair value adjustments typically involve application of lower of cost or market accounting or write-downs of individual assets.

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When measuring fair value, valuation techniques should be appropriate in the circumstances and consistently applied. A hierarchy is used to prioritize valuation inputs into the following three levels to determine fair value:

Level 1 – quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2 – observable inputs other than the quoted prices included in Level 1.

Level 3 – unobservable inputs.

Fair Value on a Recurring Basis. The Company measures certain assets at fair value on a recurring basis and the following is a general description of the methods used to value such assets.

Investment Securities Available-for-Sale

Investment securities available-for-sale are recorded at fair value. Fair value measurement is based upon quoted prices, if available. If quoted prices are not available, fair values are measured using independent pricing models or other model-based valuation techniques such as the present value of future cash flows, adjusted for the security’s credit rating, prepayment assumptions and other factors such as credit loss assumptions. Level 1 securities include those traded on an active exchange, such as the New York Stock Exchange, U.S. Treasury securities and certain corporate bonds that are traded by dealers or brokers in active over-the-counter markets and money market funds. Level 2 securities include mortgage-backed securities issued by government sponsored entities, municipal bonds and non actively traded corporate debt securities. Securities classified as Level 3 include asset-backed securities in less liquid markets.

Loans Held for Sale

The Company opted to account for loans held for sale at fair value which is measured based on what secondary markets are currently offering for portfolios with similar characteristics. As such, the Company classifies loans subjected to recurring fair value adjustments as Level 2 valuation.

Interest Rate Lock Commitments

The Mortgage Division of the Company hedges some of its residential mortgage loans held for sale by selling mortgage backed securities on a forward basis. The forward sale mortgage backed securities are later purchased or closed when mandatory loan sales are consummated for the related mortgages that are originated. The value of the estimated loan commitments and open hedges are marked to market through the income statement. The significant unobservable input used in the Level 3 fair value measurement of the Company’s Interest Rate Lock Commitments (IRLCs) on hedged loans held for sale is the closing ratio, which represents the percentage of loans currently in a lock position which management estimates will ultimately close. Generally, the fair value of an IRLC is positive (negative) if the prevailing interest rate is lower (higher) than the IRLC rate. Therefore, an increase in the closing ratio (i.e., higher percentage of loans are estimated to close) will cause the fair value of the IRLC to increase if in a gain position, or decrease if in a loss position. The closing ratio is largely dependent on the loan processing stage that a loan is currently in and the change in prevailing interest rates from the time of the rate lock. The closing ratio is computed by management using historical data.

The fair value of interest rate lock commitments is based on servicing rate premium, origination income net of origination costs, fall out rates and changes in loan pricing between the commitment date and period end, typically month end. The Company classifies interest rate lock commitments as Level 3. Gain or loss on interest rate lock commitments for the period is included in mortgage banking income of non-interest income on the Consolidated Statements of Income. There have been no changes in valuation techniques for the six months ended June 30, 2013; however, the Mortgage Division discontinued hedging during the first six months of 2013 due to economic factors. All loans are currently sold on a “best efforts” basis where optional commitments are made with investors to sell loans shortly after optional commitments are consummated to originate loans with borrowers. Below is a summary of activity related to interest rate lock commitments for the six months ending June 30, 2013 and 2012.

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	Interest Rate Lock Commitments
	Level 3
	Fair Value			Fair Value
	(in thousands)
Balance, December 31, 2012 and 2011	$	56		$	47
Gains (losses) included in other income		(56	)		232
Transfers in and out		-			-
Balance, June 30, 2013 and 2012	$	-		$	279

Assets measured at fair value on a recurring basis at June 30, 2013 and December 31, 2012 are summarized below:

	Assets
	Measured at		Fair Value Measured Using
Description	Fair Value		Level 1		Level 2		Level 3
	(in thousands)
At June 30, 2013:
Securities available-for-sale:
Municipal securities	$	22,934	$	-	$	22,934	$	-
Mortgage-backed securities		11,199		-		11,199		-
Corporate securities		15,234		13,755		1,479		-
Unrestricted stock		78		78		-		-
Total available-for-sale securities		49,445		13,833		35,612		-
Loans held for sale		56,403		-		56,403		-
Total	$	105,848	$	13,833	$	92,015	$	-
At December 31, 2012:
Securities available-for-sale:
Municipal securities	$	18,347	$	-	$	18,347	$	-
Mortgage-backed securities		11,003		-		11,003		-
Corporate securities		12,231		6,891		5,340		-
Unrestricted stock		455		455		-		-
Total available-for-sale securities		42,036		7,346		34,690		-
Loans held for sale		131,762		-		131,762		-
Interest rate lock commitments		56		-		-		56
Total	$	173,854	$	7,346	$	166,452	$	56

Fair Value on a Non-recurring Basis. The Company measures certain assets at fair value on a non-recurring basis and the following is a general description of the methods used to value such assets.

Impaired Loans

The Company does not record loans at fair value on a recurring basis. However, from time to time, a loan is considered impaired and an allowance for loan losses is established. Loans for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement are considered impaired. Impaired loans are recorded at fair value less estimated selling costs. Once a loan is identified as individually impaired, the Company measures impairment. Fair values of impaired loans are generally estimated using one of several methods, including collateral value, liquidation value, discounted cash flows and, in rare cases, the market value of the note. Those impaired loans not requiring an allowance represent loans for which the net present value of the expected cash flows or fair value of the collateral less costs to sell exceed the recorded investments in such loans. At June 30, 2013 and December 31, 2012, a majority of the total impaired loans were evaluated based on the fair value of the collateral. When the fair value of the collateral is based on an executed sales contract with an independent third party, the Company records the impaired loans as nonrecurring Level 1. If the collateral is based on another observable market price or a current appraised value, the Company records the impaired loans as nonrecurring Level 2. When an appraised value is not available or the Company determines the fair value of the collateral is further impaired below the appraised value and there is no observable market price, the Company records the impaired loan as nonrecurring Level 3. Impaired loans can also be evaluated for impairment using the present value of expected future cash flows discounted at the loan’s effective interest rate. The measurement of impaired loans using future cash flows discounted at the loan’s effective interest rate rather than the market rate of interest is not a fair value measurement and is therefore excluded from fair value disclosure requirements. Impaired loans are reviewed and evaluated on at least a quarterly basis for additional impairment and adjusted accordingly.

24

Other Real Estate Owned and Repossessed Assets

Properties acquired through, or in lieu of, loan foreclosure are held for sale and are initially recorded at fair value less costs to sell at the date of foreclosure. Subsequent to foreclosure, valuations are periodically performed by management and the assets are carried at the lower of carrying value or the new fair value less estimated selling costs. Fair value is generally based upon current appraisals, comparable sales, and other estimates of value obtained principally from independent sources, adjusted for selling costs. When the fair value of the collateral is based on an observable market price or a current appraised value, the Company records the asset as nonrecurring Level 2. However, the Company also considers other factors or recent developments which could result in adjustments to the collateral value estimates indicated in the appraisals such as changes in absorption rates or market conditions from the time of valuation. In situations where an appraisal less estimated selling costs is used to determine fair value, management adjustments are significant to the fair value measurements, or other means are used to estimate fair value in the absence of an appraisal, the Company records the impaired loan as nonrecurring Level 3 within the valuation hierarchy.

Securities Held to Maturity

The fair values of securities held to maturity are recorded on a non-recurring basis when an impairment in value that is deemed to be other than temporary occurs.  Fair value measurement is based upon quoted prices, if available.  If quoted prices are not available, fair values are measured using independent pricing models or other model-based valuation techniques such as the present value of future cash flows, adjusted for the security’s credit rating, prepayment assumptions and other factors such as credit loss assumptions.  At June 30, 2013, there were no fair value adjustments related to $9,294,000 of securities held to maturity.

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Assets measured at fair value on a non-recurring basis at June 30, 2013 and December 31, 2012 are summarized below:

	Assets
	Measured at		Fair Value Measured Using
Description	Fair Value		Level 1		Level 2		Level 3
	(in thousands)
At June 30, 2013:
Impaired loans	$	30,337	$	-	$	-	$	30,337
Other real estate owned		4,031		-		-		4,031
At December 31, 2012:
Impaired loans	$	26,335	$	-	$	-	$	26,335
Other real estate owned		5,940		-		-		5,940

Fair Value on a Recurring or Non-recurring Basis – Unobservable Inputs for Level 3. For Level 3 assets and liabilities measured at fair value on a recurring or non-recurring basis as of June 30, 2013, the significant unobservable inputs used in the fair value measurements were as follows:

				Significant	Significant
	Fair Value at		Valuation	Unobservable	Unobservable
Description	June 30, 2013		Technique	Inputs	Input Value
	($ in thousands)
Impaired loans	$	30,337	Appraised Value / Discounted Cash Flows / Market Value of Note	Appraisals and/or sales of comparable properties / Independent quotes		n/a
Other real estate owned	$	4,031	Appraised Value / Comparable Sales / Other Estimates from Independent Sources	Appraisals and/or sales of comparable properties / Independent quotes/bids / Forward sale contract values		n/a

Fair Value of items not valued as such. The Company measures certain financial assets and liabilities at fair value for disclosure purposes only.

Net non-impaired loans held for investment: For variable rate loans, fair values are based on carrying values. Fixed rate commercial, other installment, and certain real estate mortgage loans are valued using discounted cash flows. The discount rates used to determine the present value of these loans are based on interest rates currently being charged by the Company on comparable loans as to credit risk and term.

Time deposits: Discounted cash flows have been used to value fixed rate and variable rate term deposits. The discount rate used is based on interest rates currently being offered by the Company on comparable deposits as to amount and term.

26

Trust preferred subordinated debt: The fair value of trust preferred subordinated debt was determined by discounting cash flows using a rate 3% higher than the actual current rate over an estimated remaining term of fourteen years in 2013 and twelve years in 2012. The trust preferred debt was issued at favorable rates in 2004, and current rates for subordinated debt with less favorable capital treatment is approximately 3% higher. Basel III capital regulations were finalized in July 2013 and provide for inclusion of trust preferred debt in Tier 1 capital for financial institutions of our size, which was the primary reason for the extension of estimated life in 2013.

The following presents the carrying amount, fair value, and placement in the fair value hierarchy of financial instruments at June 30, 2013 and December 31, 2012. This table excludes financial instruments for which the carrying amount approximates fair value. For short-term financial assets such as cash and due from banks and interest-bearing deposits with banks, the carrying amount is a reasonable estimate of fair value due to the relatively short time between the origination of the instrument and its expected realization. For financial liabilities such as non-interest bearing demand deposits, NOW, money market and savings deposits, the carrying amount is a reasonable estimate of fair value due to these products having no stated maturity.

					Fair Value Measurements
					Quoted
					Prices in
					Active Markets		Significant
					for Identical		Other		Significant
					Assets or		Observable		Unobservable
	Carrying		Fair		Liabilities		Inputs		Inputs
	Amount		Value		(Level 1)		(Level 2)		(Level 3)
	(in thousands)
June 30, 2013
Financial Instruments - Assets
Investment securities held-to-maturity	$	9,294	$	9,071	$	-	$	9,071	$	-
Net non-impaired loans held for investment		377,690		380,608		-		-		380,608
Financial Instruments - Liabilities
Time deposits		167,204		169,074		-		-		169,074
Trust preferred subordinated debt		10,310		7,392		-		-		7,392
December 31, 2012
Financial Instruments - Assets
Investment securities held-to-maturity	$	211	$	225	$	-	$	225	$	-
Net non-impaired loans held for investment		425,449		427,484		-		-		427,484
Financial Instruments - Liabilities
Time deposits		174,153		175,729		-		-		175,729
Trust preferred subordinated debt		10,310		7,833		-		-		7,833

Note M – Derivatives and financial instruments

A derivative is a financial instrument that derives its cash flows and value by reference to an underlying instrument, index or referenced interest rate. These instruments are designed to hedge exposures to interest rate risk or for speculative purposes.

27

Accounting guidance requires an entity to recognize all derivatives as either assets or liabilities in the balance sheet, and measure those instruments at fair value. Changes in the fair value of those derivatives are reported in current earnings or other comprehensive income depending on the purpose for which the derivative is held and whether the derivative qualifies for hedge accounting.

The Mortgage Division of the Company began hedging its governmental mortgage loans, primarily FHA and VA loans, in October 2010 by selling mortgage backed securities on a forward basis. The forward sale mortgage backed securities are later purchased or closed when mandatory loan sales are consummated for the related mortgages that are originated. The value of the estimated loan commitments and open hedges are marked to market through the income statement. Hedging was discontinued in 2013 for economic reasons.

The table below provides the carrying values of derivative instruments at December 31, 2012:

	Carrying Value		Carrying Value		Gain (Loss)			Notional Amount
Derivatives designated as	of Assets		of Liabilities		in Income			of Derivative
hedging instruments:	(in thousands)
At December 31, 2012:
Mortgage loan rate lock commitments	$	56	$	-	$	56		$	-
Mortgage-backed securities forward sales	$	-	$	16	$	(16	)	$	5,250

Prior to October 2010, the Company sold mortgage loans on a best efforts basis whereby optional commitments to sell mortgage loans were consummated at approximately the same time that optional commitments were given to borrowers to originate the loans. Conventional loans which represent the majority of mortgage originations by the Mortgage Division are still sold on a best efforts basis. The below presents the aggregate fair value and aggregate unpaid principal of loans held for sale at June 30, 2013 and December 31, 2012:

June 30, 2013

December 31, 2012

Aggregate Fair

Aggregate Fair

Value Less

Value Less

Aggregate

Aggregate

Aggregate

Aggregate

Aggregate

Unpaid

Unpaid

Aggregate

Unpaid

Unpaid

Fair Value

Principal

Principal

Fair Value

Principal

Principal

(in thousands)

Loans held for sale, at fair value

$

56,403

$

56,113

$

290

$

131,762

$

130,539

$

1,223

Interest income on loans held for sale is recognized based on contractual rates and is reflected in interest income on loans in the consolidated statements of operations. The following table details net gains (losses) resulting from changes in fair value of these loans which were recorded in mortgage banking income in the consolidated statements of operations during the six months ended June 30, 2013 and 2012, respectively. These changes in fair value are mostly offset by economic hedging activities and also fluctuate based on the change in the aggregate loan principal outstanding. An immaterial portion of these amounts was attributable to changes in instrument-specific credit risk.

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	Loans Held for Sale, At Fair Value
	Six Months Ended June 30,
	2013			2012
	(in thousands)
Net gains (losses) resulting from changes in fair value	$	(934	)	$	51

Note N – Impact of recently adopted accounting standards

In June 2011, the FASB issued ASU No. 2011-05, Presentation of Comprehensive Income. The amendment eliminated the option to present other comprehensive income as a part of the statement of changes in stockholders’ equity and required consecutive presentation of the statement of net income and other comprehensive income. The Company implemented this guidance in the period ended December 31, 2011. The adoption of these amendments, which are applied retrospectively, affected the presentation of the Company’s consolidated financial statements, but did not change the items that are reported in other comprehensive income. In December 2011, the FASB further amended this topic with ASU No. 2011-12 to defer the effective date of presenting reclassification adjustments from other comprehensive income to net income on the face of the financial statements while the FASB redeliberated the presentation requirements for the reclassification adjustments. In February 2013, the FASB further amended the Comprehensive Income topic with ASU No. 2013-02 to clarify the conclusions from such redeliberations. Specifically, the amendments do not change the current requirements for reporting net income or other comprehensive income in financial statements. However, the amendments do require an entity to provide information about the amounts reclassified out of accumulated other comprehensive income by component. In addition, in certain circumstances an entity is required to present, either on the face of the statement where net income is presented or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income. The amendments were effective for the Company on a prospective basis beginning January 1, 2013. These amendments did not have a material effect on the Company’s consolidated financial statements.

In December 2011, the FASB issued ASU No. 2011-11, Disclosures about Offsetting Assets and Liabilities, for companies with financial instruments and derivative instruments that offset or are subject to a master netting agreement. The amendments require disclosure of both gross information and net information about instruments and transactions eligible for offset or subject to an agreement similar to a master netting agreement. The amendments were effective for reporting periods beginning on or after January 1, 2013 and required retrospective presentation for all comparative periods presented. Additionally, in January 2013, the FASB further amended this topic with ASU No. 2013-01 to clarify that the amendments apply only to derivatives, repurchase agreements and reverse repurchase agreements, and securities borrowing and securities lending transactions that are either offset in accordance with specific criteria contained in U.S. GAAP or subject to an enforceable master netting arrangement or similar agreement. These amendments did not have a material impact on the Company’s consolidated financial statements.

Several other accounting standards have been issued or proposed by the FASB or other standards-setting bodies during the periods presented or will be effective subsequent to June 30, 2013. None of these new standards had or is expected to have a material impact on the Company’s consolidated financial statements.

Note O - Commitments

In the normal course of business there are outstanding commitments for the extension of credit which are not reflected in the financial statements. At June 30, 2013 and December 31, 2012, pre-approved but unused lines of credit for loans totaled approximately $136,152,000 and $118,608,000, respectively. In addition, we had $1,192,000 and $1,904,000 in standby letters of credit at June 30, 2013 and December 31, 2012, respectively. These commitments represent no more than the normal lending risk that we commit to borrowers. If these commitments are drawn, we will obtain collateral if it is deemed necessary based on our credit evaluation of the counter-party. We believe these commitments can be funded through normal operations.

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We are committed for future lease payments on our Friendly Center office, the land for our Greensboro headquarters, our office in Winston-Salem, and our mortgage loan offices in Burlington, Chapel Hill, Hillsborough, and Raleigh. Total future minimum lease payments, excluding renewal options, at June 30, 2013 under the leases are as follows:

	(in thousands)
Due in one year	$	515
Due in Years 2 and 3		854
Due in Years 4 and 5		474
Due after Year 5		2,790
	$	4,633

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

The following discussion is intended to assist in understanding our financial condition and results of operations. Because we have no material operations and conduct no business on our own other than owning our subsidiaries, Carolina Bank and Carolina Capital Trust, and because Carolina Capital Trust has no operations other than the issuance of its trust preferred securities, the discussion contained in this Management’s Discussion and Analysis concerns primarily the business of Carolina Bank. Carolina Bank also owns two limited liability companies for the purpose of holding foreclosed real estate, the assets and operations of which are consolidated into Carolina Bank and included herein. For ease of reading and because the financial statements are presented on a consolidated basis, Carolina Bank Holdings, Inc. and Carolina Bank are collectively referred to herein as “we”, “our”, or “us”, unless otherwise noted.

Forward-looking Statements

This report contains forward-looking statements with respect to our financial condition and results of operations and business. These forward-looking statements involve risks and uncertainties and are based on our beliefs and assumptions and on information available at the time these statements and disclosures were prepared. Factors that may cause actual results to differ materially from those expected include the following:

· General economic conditions may deteriorate and negatively impact the ability of our borrowers to repay loans and our depositors to maintain balances.

· Changes in interest rates could reduce our net interest income.

· Competitive pressures among financial institutions may increase.

· Legislative or regulatory changes, including changes in accounting standards, may adversely affect the businesses in which we are engaged.

· New products developed and new methods of delivering products could result in a reduction in our business and income.

· Increases in interest rates, changes in quantitative easing by the Federal Reserve, increases in warranty losses, or changes in the securitization of mortgages could negatively impact our mortgage banking income.

· Adverse changes may occur in the securities market.

· Local, state or federal taxing authorities may take tax positions that are adverse to us.

· Unpredictable natural and other disasters could have an adverse effect on our operations or on the willingness of our customers to access our financial services.

Comparison of Financial Condition

Assets. Our total assets decreased by $22.4 million, or 3.2%, from $691.9 million at December 31, 2012, to $669.5 million at June 30, 2013. During the six months ended June 30, 2013, cash and due from banks, interest-bearing deposits with banks and investment securities increased by $101.5 million while loans held for sale decreased $75.4 million, and loans held for investment decreased $43.6 million. The decrease in loans held for sale was expected as loans outstanding had risen to above targeted levels at December 31, 2012 due to delays in processing loan sales. We experienced slowing commercial and consumer loan demand in our primary lending markets, Guilford, Randolph, Alamance and Forsyth Counties, North Carolina in 2010, 2011, 2012 and the first six months of 2013. The slowing loan demand in 2013 was partially due to increased competition.

Liabilities. Total deposits decreased by $9.5 million, or 1.6%, from $590.9 million at December 31, 2012, to $581.4 million at June 30, 2013. Interest bearing deposits decreased $13.2 million and noninterest bearing deposits increased $3.7 million during the first six months of 2013 due to our dual focus of growing non-interest bearing demand deposits and reducing our cost of funds. Our branching activities are designed to enhance customer convenience and related deposit gathering activities as well as provide new sources for loans. While deposit growth has been an ongoing goal, wholesale sources of funding such as Federal Home Loan Bank (“FHLB”) advances and repurchase borrowings, may be utilized where cost beneficial and when necessary to meet liquidity requirements. Retail repurchase agreements increased $1.3 million and FHLB advances were down $13.0 million during the first six months of 2013. We had approximately $31.4 million in out-of-market time deposits from other institutions and $17.2 million in brokered deposits at June 30, 2013, a decrease of $10.2 million in these two types of accounts from December 31, 2012.

31

Stockholders’ Equity. Total stockholders’ equity increased $0.3 million at June 30, 2013 to $54.2 million from $53.9 million at December 31, 2012, due to retained net income reduced by the repurchase of the stock warrant and a decrease in accumulated other comprehensive income from a decline in investment securities available-for-sale.

Comparison of Results of Operations for the Three Months Ended June 30, 2013 and 2012

General. Net income was $1,470,000 for the second quarter of 2013 compared to $2,268,000 for the second quarter of 2012. Net income available to common stockholders was $1,164,000, or $0.34 per diluted share, for the three months ended June 30, 2013 compared to $1,961,000, or $0.58 per diluted share, for the three months ended June 30, 2012. Net income available to common stockholders represents net income less preferred stock dividends and related discount accretion. Lower net income in 2013 resulted primarily from lower mortgage banking income, lower net interest income, and higher operating expenses. Our primary markets in the Triad of North Carolina experienced deteriorating economic conditions in 2009 through 2011 which negatively impacted our borrowers as evidenced by increasing defaults and loan charge-offs. While economic conditions have not improved substantially since 2011 in our primary markets, loan charge-offs have declined in 2012 and 2013, and the risk in the loan portfolio declined as evidenced by a decrease in classified loans.

Net interest income. Net interest income of $5,590,000 for the three months ended June 30, 2013 decreased $349,000 from the second quarter of 2012 due to a decrease in the net yield on interest earning assets. The net yield on interest earning assets, adjusted to a fully taxable basis, decreased to 3.65% in the second quarter of 2013 from 3.86% in the second quarter of 2012. The decline in net interest income and the net yield on interest earning assets was primarily the result of a decline in average loans outstanding, both held for sale and held for investment, and a related increase in interest-bearing deposits in other banks. Yields on investments also declined more than the cost of interest-bearing liabilities which further contributed to the decline in the net yield on interest earning assets. Offsetting some of the negative trends, was a decrease in non-interest earning assets, an increase in demand deposits and an increase in stockholders’ equity. The table below provides an analysis of effective yields and rates on categories of interest-earning assets and interest-bearing liabilities for the three months ended June 30, 2013 and 2012.

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	For the Three Months Ended June 30,
	2013							2012
	Average		Interest		Average			Average		Interest		Average
	Balance (1.)		Inc./Exp.		Yield/Cost			Balance (1.)		Inc./Exp.		Yield/Cost
	(Dollars in thousands)
Interest-earning assets
Interest bearing deposits	$	104,356	$	67		0.26	%	$	43,400	$	21		0.19	%
Non-taxable investments (2.)		12,843		160		5.00	%		10,486		149		5.71	%
Taxable investments		35,384		260		2.95	%		33,894		313		3.71	%
Loans held for sale		51,685		476		3.69	%		69,991		705		4.05	%
Loans (3.)		423,587		5,646		5.35	%		466,412		6,182		5.33	%
Interest-earning assets		627,855		6,609					624,183		7,370
Interest-earning assets						4.27	%						4.75	%
Non interest-earning assets		43,890							46,156
Total assets	$	671,745						$	670,339
Interest-bearing liabilities
Interest checking	$	41,688	$	10		0.10	%	$	36,321	$	21		0.23	%
Money market and savings		294,869		266		0.36	%		290,091		500		0.69	%
Time certificates and IRAs		170,421		503		1.18	%		202,051		664		1.32	%
Other borrowings		25,308		187		2.96	%		26,013		197		3.05	%
Total interest-bearing liabilities		532,286		966					554,476		1,382
Cost on average
Interest-bearing liabilities						0.74	%						1.00	%
Non-interest-bearing liabilities
Demand deposits		78,299							60,837
Other liabilities		6,666							6,756
Total non-interest-bearing  liabilities		84,965							67,593
Total liabilities		617,251							622,069
Stockholders' equity		54,494							48,270
Total liabilities and equity	$	671,745						$	670,339
Net interest income			$	5,643						$	5,988
Net yield on average interest-earning assets						3.65	%						3.86	%
Interest rate spread						3.53	%						3.75	%

(1.) Average balances are computed on a daily basis.

(2.) Interest income and yields related to certain investment securities exempt from federal income tax are stated on a fully taxable basis using a 34% federal tax rate, reduced by the nondeductible portion of interest expense.

(3.) Nonaccrual loans are included in the average loan balance.

33

Provision for loan losses. The provision for loan losses amounted to $100,000 and $0 for the three months ended June 30, 2013 and 2012, respectively. The provision for loan losses was low in both years due to declining loans and improved loan credit trends, especially historical loan losses which are used to calculate a major portion of the allowance for loan losses. We believe the allowance for loan losses is appropriate based on asset quality indicators and other factors.

Non-interest income. Total non-interest income amounted to $4,206,000 for the three months ended June 30, 2013, as compared to $4,808,000 for the three months ended June 30, 2012. Mortgage banking income decreased $770,000, or 17.7%, during the second quarter of 2013 compared to the second quarter of 2012. Residential mortgage lending which fuels our mortgage banking income slowed in the second quarter of 2013 due to higher mortgage rates. The gain on the sale of investment securities of $170,000 in the second quarter of 2013 represented a gain from the sale of stock.

Non-interest expense. Total non-interest expense amounted to $7,534,000 and $7,325,000 for the three months ended June 30, 2013 and 2012, respectively. Salaries and employee benefits increased $206,000, or 4.7%, primarily from expansion of our Mortgage Division. The number of full-time equivalent employees increased to 215 at June 30, 2013 from 200 at June 30, 2012. Lower expenses were incurred in the second quarter of 2013 in the areas of FDIC insurance, foreclosed property expense, data processing, and fraud related losses.

Income taxes. Income tax expense was $692,000, or 32.0% of income before income taxes, for the three month period ended June 30, 2013, as compared $1,154,000, or 33.7% of income before income taxes, for the three month period ended June 30, 2012. Tax credits and non-taxable income represented a larger percentage of income in the 2013 period which accounted for the lower income tax rate in 2013.

Comparison of Results of Operations for the Six Months Ended June 30, 2013 and 2012

General. Net income was $3,188,000 and $3,496,000 for the six months ended June 30, 2013 and 2012, respectively. Net income available to common stockholders was $2,577,000, or $0.75 per diluted share, for the six months ended June 30, 2013 compared to $2,887,000, or $0.85 per diluted share, for the six months ended June 30, 2012. Lower net income in 2013 resulted primarily from lower net interest income and higher non-interest expense.

Net interest income. Net interest income of $11,653,000 for the six months ended June 30, 2013 decreased $335,000 from the six months ended June 30, 2012 due to an decrease in the net yield on interest earning assets. The net yield on interest earning assets, adjusted to a fully taxable basis, decreased to 3.77% in the first half of 2013 from 3.92% in the first half of 2012 due to a shift in earning assets from higher yielding loans to lower yielding interest-bearing deposits with banks, primarily overnight funds. Yields on investments and loans held for sale also declined more than the cost of interest-bearing liabilities which further contributed to the decline in the net yield on interest earning assets. Offsetting some of the negative trends was an increase in non-interest bearing demand deposits and an increase in stockholders’ equity. The table below provides an analysis of effective yields and rates on categories of interest-earning assets and interest-bearing liabilities for the six months ended June 30, 2013 and 2012.

34

	For the Six Months Ended June 30,
	2013							2012
	Average		Interest		Average			Average		Interest		Average
	Balance (1.)		Inc./Exp.		Yield/Cost			Balance (1.)		Inc./Exp.		Yield/Cost
	(Dollars in thousands)
Interest-earning assets
Interest bearing deposits	$	75,115	$	85		0.23	%	$	31,782	$	31		0.20	%
Non-taxable investments (2.)		12,149		319		5.29	%		10,797		309		5.76	%
Taxable investments		33,278		508		3.08	%		33,261		619		3.74	%
Loans held for sale		71,651		1,264		3.56	%		71,537		1,416		3.98	%
Loans (3.)		436,573		11,577		5.35	%		472,767		12,556		5.34	%
Interest-earning assets		628,766		13,753					620,144		14,931
Interest-earning assets						4.41	%						4.84	%
Non interest-earning assets		46,275							46,992
Total assets	$	675,041						$	667,136
Interest-bearing liabilities
Interest checking	$	41,411	$	23		0.11	%	$	35,757	$	43		0.24	%
Money market and savings		296,404		573		0.39	%		288,223		1,026		0.72	%
Time certificates and IRAs		171,940		1,023		1.20	%		204,955		1,373		1.35	%
Other borrowings		26,518		375		2.85	%		25,272		399		3.17	%
Total interest-bearing liabilities		536,273		1,994					554,207		2,841
Cost on average
Interest-bearing liabilities						0.75	%						1.03	%
Non-interest-bearing liabilities
Demand deposits		77,629							59,142
Other liabilities		6,630							6,051
Total non-interest-bearing  liabilities		84,259							65,193
Total liabilities		620,532							619,400
Stockholders' equity		54,509							47,736
Total liabilities and equity	$	675,041						$	667,136
Net interest income			$	11,759						$	12,090
Net yield on average interest-earning assets						3.77	%						3.92	%
Interest rate spread						3.66	%						3.81	%

(1.) Average balances are computed on a daily basis.

(2.) Interest income and yields related to certain investment securities exempt from federal income tax are stated on a fully taxable basis using a 34% federal tax rate, reduced by the nondeductible portion of interest expense.

(3.) Nonaccrual loans are included in the average loan balance.

35

Provision for loan losses. The provision for loan losses amounted to $500,000 and $1,460,000 for the six months ended June 30, 2013 and 2012, respectively. The amount of the provision for loan losses decreased in 2013 due to a decrease in the historical loss ratios used to calculate the allowance for loan losses on performing loans and a decrease in loans held for investment outstanding of $43,570,000 in the first six months of 2013 compared to a decrease of $27,887,000 in the first six months of 2012. We believe the allowance for loan losses is appropriate based on asset quality indicators and other factors.

Non-interest income. Total non-interest income amounted to $8,520,000 for the six months ended June 30, 2013, as compared to $8,427,000 for the six months ended June 30, 2012. The increase in 2013 resulted from gains on the sale of investment securities of $192,000.

Non-interest expense. Total non-interest expense amounted to $14,916,000 and $13,835,000 for the six months ended June 30, 2013 and 2012, respectively. Salaries and employee benefits increased $924,000, or 11.0%, primarily from expansion of our mortgage division and related support staff. Occupancy and equipment increased $135,000, or 9.9%, from additional loan production offices and higher software maintenance expenses. Lower expenses were incurred in the first half of 2013 in the areas of FDIC insurance and foreclosed property expenses compared to the same period in 2012.

Income taxes. Income tax expense was $1,569,000, or 33.0% of income before income taxes, for the six months ended June 30, 2013, compared to $1,624,000, or 31.7% of income before income taxes, for the six months ended June 30, 2012.

Asset Quality

Non-performing assets, composed of other real estate owned and non-accrual loans, totaled $20,532,000 at June 30, 2013, compared to $19,007,000 at December 31, 2012. Non-performing assets, as a percentage of total assets, was 3.07% at June 30, 2013, compared to 2.75% at December 31, 2012. There were $354,000 and $33,000 loans 90 days or more past due and still accruing interest at June 30, 2013 or December 31, 2012, respectively. Other real estate owned was $4,031,000 at June 30, 2013 and $5,940,000 at December 31, 2012. Although non-performing assets were fairly stable during the first six months of 2013, they declined substantially from 2010 and 2011 due to success in disposing of problem loans and assets, from reduction in new additions to non-performing assets, and from an improved economy. The economic conditions in our primary markets in North Carolina, while improved, continued to be stressed during 2013 and 2012 with elevated unemployment levels. The seasonally adjusted unemployment rate in North Carolina decreased to 8.8% in June 2013 from 9.4% in December 2012 and 10.4% in December 2011. North Carolina’s seasonally adjusted unemployment rate of 8.8% compares unfavorably to 7.6% for the United States. A large portion of our loans are made to businesses and real estate developers and are secured by real estate. Due to the slow economic conditions, it has been difficult for borrowers to sell businesses or real estate properties as needed to pay off their loans.

Our allowance for loan losses is composed of two parts, a specific portion related to non-performing loans and performing impaired loans and a general section related to non-impaired loans. The specific portion of our allowance for loan losses, which relates to impaired loans, increased to $4,715,000 at June 30, 2013 from $1,775,000 at December 31, 2012, and impaired loans increased to $35,052,000 at June 30, 2013 from $28,110,000 at December 31, 2012. The specific portion of our allowance relating to impaired loans primarily increased due to the addition of the following impaired loans in 2013: $5,830,000 in loans secured by a golf course and development, a $987,000 loan to a non-profit organization, a $769,000 loan secured by a convenience store. The specific portion of our allowance was also increased in 2013 due to updated present value computations on a large commercial real estate relationship that was also impaired at December 31, 2012. The general portion of our allowance for loan losses decreased to $5,416,000 on non-impaired loans of $383,106,000 at June 30, 2013 from $8,169,000 on non-impaired loans of $433,615,000 at December 31, 2012. The historical loss ratios used to calculate the general portion of our allowance declined in the 2013 period because net loan charge-offs declined to $313,000 in the first six months of 2013, the period added to the historical loss ratio, from $6,499,000 in the first six months of 2010, the period deleted from the historical loss ratio. The general portion of our allowance applies to non-impaired loans and was determined by applying estimated loss ratios inherent in the loan portfolio, ranging from 0.00% on loans secured by multi-family properties to 3.41% on construction and development loans, to categories of non-impaired loans at each period end. We changed from using the latest eight quarters in 2011 to the latest twelve quarters in 2012 to determine the estimated loss ratios inherent in the loan portfolio because we believe the longer period is more representative of expected losses. The general section of our allowance also includes a qualitative component which is calculated based on nine environmental factors such as delinquency trends, changes in economic and business conditions that affect the collectability of the loan portfolio, and changes in the value of collateral dependent loans. The qualitative component of the general section of our allowance for loan losses, including an unallocated allowance, decreased from $1,605,000 at December 31, 2012 to $980,000 at June 30, 2013 due to continued improvement in loan charge-offs and other environmental factors. The general portion of our allowance includes an unallocated amount of $833,000 at June 30, 2013 compared to $37,000 at December 31, 2012. The larger unallocated amount at June 30, 2013 is due to the uncertainty of the sustainability of the improved qualitative components of the allowance.

36

The allowance for loan losses is increased by direct charges to operating expense, the provision for loan losses. Losses on loans or charge-offs are deducted from the allowance in the period that loans are deemed to become uncollectible or in the period that updated appraisals indicate a loss in value of non-performing, collateral dependent, real estate loans. Recoveries of previously charged-off loans are added back to the allowance. Net loan charge-offs (charge-offs minus recoveries) totaled $313,000 for the six months ended June 30, 2013 compared to $2,141,000 for the same period in 2012.

Liquidity and Capital Resources

The objective of our liquidity management is to ensure the availability of sufficient cash flows to meet all financial commitments and to capitalize on opportunities for expansion. Liquidity management addresses our ability to meet deposit withdrawals on demand or at contractual maturity, to repay borrowings as they mature, and to fund new loans and investments as opportunities arise.

Our primary sources of internally generated funds are principal and interest payments on loans receivable and cash flows generated from operations. External sources of funds include increases in deposits, repurchase agreements, lines of credit from banks, including the Federal Reserve, and advances from the Federal Home Loan Bank of Atlanta (“FHLB”).

Carolina Bank is required under applicable federal regulations to maintain specified levels of liquid investments in qualifying types of investments. Cash and due from banks, interest-bearing deposits in banks, investment securities available-for-sale, and loans held for sale by our mortgage division are the primary liquid assets of Carolina Bank. We regularly monitor Carolina Bank’s liquidity position to ensure its liquidity is sufficient to meet its needs. During the first six months of 2013, we increased our levels of short-term liquidity due to a decrease in our loans held for sale and loans held for investment. Short-term liquidity in the form of cash and due from banks and interest-bearing deposits in banks, increased to $100.1 million at June 30, 2013 from $15.1 million at December 31, 2012. We also have substantial secondary sources of liquidity in the form of unused secured lines of credit from the FHLB and the Federal Reserve totaling approximately $155.0 million at June 30, 2013.

We are subject to various regulatory capital requirements administered by the banking regulatory agencies. Failure to meet minimum capital requirements can initiate mandatory and possibly discretionary actions by the regulators that, if undertaken, could have a direct material effect on our financial condition. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, we must meet specific capital guidelines that involve quantitative measures of assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. Our capital amounts and classifications are subject to qualitative judgments by the regulators about components, risk-weightings, and other factors. As of June 30, 2013 and December 31, 2012, our levels of capital exceeded all applicable published regulatory requirements. Carolina Bank continued to exceed its internal goal of maintaining Tier 1 capital to average assets of 8% in 2013. Tier 1 capital to average assets for Carolina Bank was 9.39% at June 30, 2013 compared to 9.23% at December 31, 2012. Carolina Bank Holdings, Inc. is current on its preferred stock dividends and on its trust preferred interest payments.

37

Due to our strong growth in recent years and our anticipation of continued growth, we increased our capital in January 2009 by issuing $16 million in preferred stock to the United States Treasury under the Capital Purchase Program. Carolina Bank and also issued approximately $9.3 million in subordinated debt through a private placement in the third quarter of 2008 to increase capital at the bank level. The Treasury sold our preferred stock to private investors in the first quarter of 2013, and we repurchased common stock warrants from the Treasury for $1,800,000 in April 2013. We plan to retire $5 million of the $16 million in outstanding preferred stock in August 2013.

Accounting and Regulatory Matters

On July 9, 2013, the FDIC joined the Federal Reserve and the Office of the Comptroller of the Currency in adopting a final rule that will revise the current risk-based and leverage capital requirements for banking organizations. The final rule is a continuation of joint notices of proposed rulemaking originally published in the Federal Register during August, 2012.

The final rule implements a revised definition of regulatory capital, a new common equity tier 1 minimum capital requirement, and a higher overall minimum tier 1 capital requirement, incorporating these new requirements into the existing prompt corrective action (PCA) framework. It also establishes limits on a banking organization’s capital distributions and certain discretionary bonus payments if the organization does not hold a specified amount of common equity tier 1 capital in addition to the amount necessary to meet its minimum risk-based capital requirements.  This additional capital is referred to as the "capital conservation buffer". The “countercyclical capital buffer” provisions from the proposed rule have also been adopted, however, they apply only to large financial institutions (banks and bank holding companies with total consolidated assets of $250 billion or more) implementing the "advanced approaches" framework and are not applicable to the Company or its subsidiary banks.

The final rule permanently grandfathers the tier 1 capital treatment for certain non-qualifying capital instruments, including trust preferred securities, outstanding as of May 19, 2010.

Under the proposed rules released last August, banking organizations would have been required to recognize in regulatory capital all components of accumulated other comprehensive income (excluding accumulated net gains and losses on cash-flow hedges that relate to the hedging of items that are not recognized at fair value on the balance sheet). The final rule carries this requirement forward, with an exception for smaller banking organizations, such as the Company, which are not subject to the "advanced approaches" rule. Such organizations may make a one-time election not to include most elements of accumulated other comprehensive income (including unrealized gains and losses on securities designated as available-for-sale) in regulatory capital under the final rule. Organizations making this election will be permitted to use the currently existing treatment under the general risk-based capital rules that exclude most accumulated other comprehensive income elements from regulatory capital. The election must be made with the first call report or FR Y-9 report filed after the banking organization becomes subject to the final rule (January 2015 in the Company’s case).

The new rule also amends the existing methodologies for determining risk-weighted assets for all banking organizations. Specifically, the final rule assigns a 50% or 100% risk weight to mortgage loans secured by one-to-four family residential properties. Generally, residential mortgage loans secured by a first lien on a one- to-four family residential property that are prudently underwritten and that are performing according to their original terms receive a 50% risk weight. All other one-to-four family residential mortgage loans, including loans secured by a junior lien on residential property, are assigned a 100% risk weight.

The mandatory compliance date for the Company and its subsidiary banks will be January 1, 2015, with a transition period for the capital conservation buffer until January 1, 2016, and additional transition periods for certain other measures under the new rule.

38

Management will continue to evaluate the potential effect of the new final rule over the coming quarters.  As of the date of this report, management is not aware of any other known trends, events, uncertainties or current recommendations by regulatory authorities that will have or that are reasonably likely to have a material effect on the Company’s liquidity, capital resources, or other operations.

39

ITEM 4. Controls and Procedures

Our Chief Executive Officer and Chief Financial Officer have conducted an evaluation of our disclosure controls and procedures as of June 30, 2013. Based on their evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed in reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time period specified in the applicable Securities and Exchange Commission Rules and Forms. There were no significant changes in our internal controls or in other factors that could significantly affect these controls subsequent to the date of the most recent evaluation of these controls by our Chief Executive Officer and Chief Financial Officer.

Management of the Company has evaluated, with the participation of the Company's Chief Executive Officer and Chief Financial Officer, changes in the Company's internal controls over financial reporting (as defined in Rule 13a−15(f) and 15d−15(f) of the Exchange Act) during the second quarter of 2013. In connection with such evaluation, the Company has determined that there have been no changes in internal control over financial reporting during the second quarter that have materially affected or are reasonably likely to materially affect, the Company's internal control over financial reporting.

40

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

There are various claims and lawsuits in which the Company and the Bank are periodically involved incidental to their business. In the opinion of management, no material loss is expected from any of such pending claims or lawsuits.

Item 4. (Reserved)

Item 6. Exhibits

Exhibit No.	Description of Exhibit
31.1	Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act.
31.2	Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act.
32.1	Certifications Pursuant to Section 906 of the Sarbanes-Oxley Act.
101	Interactive data files providing financial information from the Registrant’s   Quarterly report on Form 10-Q for the quarterly period ended June 30, 2013, in XBRL (eXetensible Business Reporting Language). *

Pursuant to Regulation 406T of Regulation S-T, these interactive data files are furnished and not filed or part of a registration statement or prospectus for the purposes of section 11 or 12 of the Securities Act of 1933 , as amended, or section 18 of the Securities Exchange Act of 1934, as amended, and are otherwise not subject to liability. 

SIGNATURES

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

	Carolina Bank Holdings, Inc.
Date: August 12, 2013	By:	/s/ Robert T. Braswell
		Robert T. Braswell
		President and Chief Executive Officer
Date: August 12, 2013	By:	/s/ T. Allen Liles
		T. Allen Liles
		Chief Financial and Principal Accounting Officer

41

Exhibit Index

Exhibit No.	Description of Exhibit
31.1	Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act.
31.2	Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act.
32.1	Certifications Pursuant to Section 906 of the Sarbanes-Oxley Act.
101	Interactive data files providing financial information from the Registrant’s   Quarterly report on Form 10-Q for the quarterly period ended June 30, 2013, in XBRL (eXetensible Business Reporting Language). *

42

EX-31.1

Exhibit 31.1

Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Robert T. Braswell, President and Chief Executive Officer, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Carolina Bank Holdings, Inc. (the registrant);

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

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

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

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

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

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

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

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

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

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

Date: August 12, 2013	/s/ Robert T. Braswell
	Robert T. Braswell
	President and Chief Executive Officer

43

EX-31.2

Exhibit 31.2

Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, T. Allen Liles, Executive Vice President and Chief Financial Officer, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Carolina Bank Holdings, Inc. (the registrant);

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

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

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

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

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

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

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

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

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

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

Date: August 12, 2013	/s/ T. Allen Liles
	T. Allen Liles
	Chief Financial and Principal Accounting Officer

44

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350

The undersigned certify, pursuant to 18 U.S.C. Section 1350 as adopted by Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1.) the Quarterly Report on Form 10-Q of Carolina Bank Holdings, Inc. (the “Company”) for the quarterly period ended June 30, 2013 (“the Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

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

Date: August 12, 2013	/s/ Robert T. Braswell
	Robert T. Braswell
	President and Chief Executive Officer
Date: August 12, 2013	/s/ T. Allen Liles
	T. Allen Liles
	Executive Vice President and Chief
	Financial Officer

45

XML

Securities

6 Months Ended

Jun. 30, 2013

Securities [Abstract]

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

Note J - Securities

A summary of the amortized cost, gross unrealized gains and losses and estimated fair values of securities available-for-sale and held-to-maturity follows:

			Gross		Gross		Estimated
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
	(in thousands)
June 30, 2013
Available-for-sale
Municipal securities	$	22,416	$	756	$	238	$	22,934
FNMA, FHLMC, and GNMA   mortgage-backed securities		10,628		603		32		11,199
Corporate securities		15,091		231		88		15,234
Unrestricted stock		42		36		-		78
	$	48,177	$	1,626	$	358	$	49,445
Held-to-maturity
Municipal securities	$	4,345			$	112		4,233
FNMA mortgage-backed securities		4,949		-		111		4,838
	$	9,294	$	-	$	223	$	9,071
December 31, 2012
Available-for-sale
Municipal securities	$	16,938	$	1,414	$	5	$	18,347
FNMA, FHLMC, and GNMA   mortgage-backed securities		10,127		876		-		11,003
Corporate securities		12,059		264		92		12,231
Unrestricted stock		266		189		-		455
	$	39,390	$	2,743	$	97	$	42,036
Held-to-maturity
FNMA and GNMA mortgage-backed securities		211		14		-		225
	$	211	$	14	$	-	$	225

The scheduled maturities of debt securities available-for-sale and held-to-maturity at June 30, 2013 were as follows:

	Available-for-Sale				Held-to-Maturity
			Estimated				Estimated
	Amortized		Fair		Amortized		Fair
	Cost		Value		Cost		Value
	(in thousands)
Due in one year or less	$	949	$	959	$	-	$	-
Due from one to five years		10,221		10,383		-		-
Due from five to ten years		11,557		11,927		1,372		1,327
Over ten years		14,780		14,899		2,973		2,906
Mortgage-backed securities		10,628		11,199		4,949		4,838
	$	48,135	$	49,367	$	9,294	$	9,071

Investments are periodically evaluated for any impairment which would be deemed other than temporary. Based upon these evaluations, the Company did not deem any debt securities to be impaired during 2012 or the first six months of 2013. The deterioration in value is primarily attributable to changes in market demand for securities and increases in interest rates, not changes in the credit risk of the issuers, and the Company expects these securities to be paid in full and that any temporary impairment will be fully recoverable prior to or at maturity. The Company has the ability and intent to hold the investment securities for a reasonable period of time sufficient for a forecasted recovery or until maturity. Information pertaining to temporarily impaired securities with gross unrealized losses at June 30, 2013 and December 31, 2012, by category and length of time that individual securities have been in a continuous loss position follows:

	Less Than 12 Months						12 Months or Greater						Total
	Number				Gross		Number				Gross		Number				Gross
	of		Fair		Unrealized		of		Fair		Unrealized		of		Fair		Unrealized
	Securities		Value		Losses		Securities		Value		Losses		Securities		Value		Losses
	(dollars in thousands)
June 30, 2013:
Municipal securities		10	$	11,263	$	350		0	$	-	$	-		10	$	11,263	$	350
FNMA and FHLMC   mortgage-backed securities		2		6,834		143		0		-		-		2		6,834		143
Corporate securities		4		3,390		88		0		-		-		4		3,390		88
Total		16	$	21,487	$	581		0	$	-	$	-		16	$	21,487	$	581
December 31, 2012:
Municipal securities		1	$	598	$	5		0	$	-	$	-		1	$	598	$	5
Corporate securities		3		2,378		92		0		-		-		3		2,378		92
Total		4	$	2,976	$	97		0	$	-	$	-		4	$	2,976	$	97

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Fair value measurements (Details 3) (USD $) In Thousands, unless otherwise specified	6 Months Ended
	Jun. 30, 2013	Dec. 31, 2012
Impaired Loan [Member]
Fair Value	$ 30,337	$ 26,335
Other Real Estate Owned [Member]
Fair Value	4,031	5,940
Fair Value, Inputs, Level 3 [Member] | Impaired Loan [Member]
Fair Value	30,337	26,335
Fair Value Measurements, Valuation Techniques	Appraised Value / Discounted Cash Flows / Market Value of Note
Fair Value Measurements, Significant Unobservable Inputs	Appraisals and/or sales of comparable properties / Independent quotes
Fair Value, Inputs, Level 3 [Member] | Other Real Estate Owned [Member]
Fair Value	$ 4,031	$ 5,940
Fair Value Measurements, Valuation Techniques	Appraised Value / Comparable Sales / Other Estimates from Independent Sources
Fair Value Measurements, Significant Unobservable Inputs	Appraisals and/or sales of comparable properties / Independent quotes/bids / Forward sale contract values

XML

Consolidated Statements of Income (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012
Interest income
Loans	$ 6,122	$ 6,887	$ 12,841	$ 13,972
Investment securities, taxable	260	313	508	619
Investment securities, non taxable	107	100	213	207
Interest from deposits in banks	67	21	85	31
Total interest income	6,556	7,321	13,647	14,829
Interest expense
NOW, money market and savings	276	521	596	1,069
Time deposits	503	664	1,023	1,373
Other borrowed funds	187	197	375	399
Total interest expense	966	1,382	1,994	2,841
Net interest income	5,590	5,939	11,653	11,988
Provision for loan losses	100	0	500	1,460
Net interest income after provision for loan losses	5,490	5,939	11,153	10,528
Non-interest income
Service charges	295	318	547	601
Mortgage banking income	3,586	4,356	7,481	7,525
Gain on sale of investment securities	170	0	192	0
Other	155	134	300	301
Total non-interest income	4,206	4,808	8,520	8,427
Non-interest expense
Salaries and benefits	4,610	4,404	9,358	8,434
Occupancy and equipment	747	677	1,494	1,359
Foreclosed property expense	547	574	878	973
Professional fees	355	263	541	520
Outside data processing	195	215	454	421
FDIC insurance	79	207	248	422
Advertising and promotion	285	205	491	380
Stationery, printing and supplies	181	167	334	302
Other	535	613	1,118	1,024
Total non-interest expense	7,534	7,325	14,916	13,835
Income before income taxes	2,162	3,422	4,757	5,120
Income tax expense	692	1,154	1,569	1,624
Net income	1,470	2,268	3,188	3,496
Dividends and accretion on preferred stock	306	307	611	609
Net income available to common stockholders	$ 1,164	$ 1,961	$ 2,577	$ 2,887
Net income per common share
Basic (in dollars per share)	$ 0.34	$ 0.58	$ 0.76	$ 0.85
Diluted (in dollars per share)	$ 0.34	$ 0.58	$ 0.75	$ 0.85

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Basis of presentation

6 Months Ended

Jun. 30, 2013

Accounting Policies [Abstract]

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

Basis of presentation

In management’s opinion, the financial information, which is unaudited, reflects all adjustments (consisting solely of normal recurring adjustments) necessary for a fair presentation of the financial information as of and for the three and six months ended June 30, 2013 and 2012, in conformity with accounting principles generally accepted in the United States of America. Operating results for the three and six months ended June 30, 2013 and 2012 are not necessarily indicative of the results that may be expected for future annual periods.

The Company’s financial statements are presented in accordance with Accounting Standards Codification (“ASC”) Topic 105, “The FASB Accounting Standards Codification and The Hierarchy of Generally Accepted Accounting Principles”, which codifies generally accepted accounting principles (GAAP) in the United States.

The organization and business of the Company, accounting policies followed, and other information are contained in the notes to the consolidated financial statements of the Company as of and for the years ended December 31, 2012 and 2011, filed with the Securities and Exchange Commission as part of the Company’s annual report on Form 10-K. These financial statements should be read in conjunction with the annual financial statements.

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Earnings per share (Tables)

6 Months Ended

Jun. 30, 2013

Earnings Per Share [Abstract]

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

The following is a summary of the diluted earnings per share calculation for the three and six months ended June 30, 2013 and 2012.

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2013		2012		2013		2012
	(in thousands, except per share data)
Net income available to common stockholders	$	1,164	$	1,961	$	2,577	$	2,887
Weighted average outstanding shares - basic		3,403		3,387		3,396		3,387
Dilutive effect of stock options and warrants		20		-		21		-
Weighted average shares - diluted		3,423		3,387		3,417		3,387
Diluted net income per share	$	0.34	$	0.58	$	0.75	$	0.85

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Derivatives and financial instruments (Details) (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2012
Mortgage Loan Rate Lock Commitments [Member]
Carrying Value of Assets	$ 56
Carrying Value of Liabilities	0
Gain (Loss) in Income	56
Notional Amount of Derivative	0
Mortgage Backed Securities Forward Sales [Member]
Carrying Value of Assets	0
Carrying Value of Liabilities	16
Gain (Loss) in Income	(16)
Notional Amount of Derivative	$ 5,250

XML

Loans and allowance for loan losses

6 Months Ended

Jun. 30, 2013

Loans and Allowance For Loan Losses [Abstract]

Loans and Allowance for Loan Losses [Text Block]

Note K - Loans and allowance for loan losses

The activity in the allowance for loan losses for the first six months of 2013 and 2012 and related asset balances at June 30, 2013 and December 31, 2012 is summarized as follows:

	Construction &		Commercial		Home Equity		Residential		Commercial &		Consumer
	Development		Real Estate		Lines		Real Estate		Industrial		& Other		Unallocated		Total
Allowance for loan losses:	(in thousands)
2013
Beginning of year balance	$	2,349	$	4,068	$	609	$	863	$	1,885	$	133	$	37	$	9,944
Provision for loan losses		(1,084)		972		(84)		(133)		114		(81)		796		500
Charge-offs		(73)		(173)		(32)		(8)		(251)		(53)		-		(590)
Recoveries		20		5		-		14		214		24		-		277
Balance at June 30,	$	1,212	$	4,872	$	493	$	736	$	1,962	$	23	$	833	$	10,131
2012
Beginning of year balance	$	2,948	$	3,690	$	1,126	$	994	$	2,985	$	46	$	4	$	11,793
Provision for loan losses		(450)		1,592		(198)		357		920		106		33		2,360
Charge-offs		(159)		(1,318)		(324)		(498)		(2,142)		(20)		-		(4,461)
Recoveries		10		104		5		10		122		1		-		252
Balance at December 31,	$	2,349	$	4,068	$	609	$	863	$	1,885	$	133	$	37	$	9,944
Balances at June 30, 2013
Allowance for loan losses:
Balance at June 30,	$	1,212	$	4,872	$	493	$	736	$	1,962	$	23	$	833	$	10,131
Ending balance individually evaluated for impairment	$	73	$	3,239	$	81	$	271	$	1,051	$	-	$	-	$	4,715
Ending balance collectively evaluated for impairment	$	1,139	$	1,633	$	412	$	465	$	911	$	23	$	833	$	5,416
Loans Outstanding:
Balance at June 30,	$	40,202	$	191,681	$	67,389	$	49,490	$	63,970	$	5,426	$	-	$	418,158
Ending balance individually evaluated for impairment	$	1,941	$	24,609	$	754	$	5,354	$	2,394	$	-	$	-	$	35,052
Ending balance collectively evaluated for impairment	$	38,261	$	167,072	$	66,635	$	44,136	$	61,576	$	5,426	$	-	$	383,106
Balances at December 31, 2012
Allowance for loan losses:
Balance at December 31,	$	2,349	$	4,068	$	609	$	863	$	1,885	$	133	$	37	$	9,944
Ending balance individually evaluated for impairment	$	-	$	1,309	$	187	$	134	$	95	$	50	$	-	$	1,775
Ending balance collectively evaluated for impairment	$	2,349	$	2,759	$	422	$	729	$	1,790	$	83	$	37	$	8,169
Loans Outstanding:
Balance at December 31,	$	64,669	$	215,258	$	66,523	$	48,857	$	61,251	$	5,170	$	-	$	461,728
Ending balance individually evaluated for impairment	$	1,942	$	19,724	$	778	$	4,416	$	1,198	$	52	$	-	$	28,110
Ending balance collectively evaluated for impairment	$	62,727	$	195,534	$	65,745	$	44,441	$	60,053	$	5,118	$	-	$	433,618

A loan is past due when the borrower has not made a payment by the contractual due date. The following table presents the carrying value of loans that are past due thirty days or more. Loans which are ninety days or more past due are generally on non-accrual status, at which time all accrued interest is removed from interest income, as shown in the following table:

													Loans Past
	Number of Days Past Due												Due 90 Days
	30-59		60-89		90 Days		Total				Total		or More
	Days		Days		or More		Past Due		Current		Loans		& Accruing
	(in thousands)
At June 30, 2013
Real Estate Loans:
Construction & development	$	357	$	-	$	949	$	1,306	$	38,896	$	40,202	$	-
Commercial real estate		-		53		12,111		12,164		179,517		191,681		-
Home equity lines		-		51		627		678		66,711		67,389		-
Residential real estate		381		-		1,506		1,887		47,603		49,490		-
Total real estate		738		104		15,193		16,035		332,727		348,762		-
Commercial & industrial		2,288		-		1,662		3,950		60,020		63,970		354
Consumer & other		-		-		-		-		5,426		5,426		-
Total loans	$	3,026	$	104	$	16,855	$	19,985	$	398,173	$	418,158	$	354
At December 31, 2012
Real Estate Loans:
Construction & development	$	-	$	-	$	1,778	$	1,778	$	62,891	$	64,669	$	-
Commercial real estate		-		-		7,908		7,908		207,350		215,258		-
Home equity lines		27		-		654		681		65,842		66,523		-
Residential real estate		665		-		1,584		2,249		46,608		48,857		33
Total real estate		692		-		11,924		12,616		382,691		395,307		33
Commercial & industrial		67		-		1,126		1,193		60,058		61,251		-
Consumer & other		1		-		50		51		5,119		5,170		-
Total loans	$	760	$	-	$	13,100	$	13,860	$	447,868	$	461,728	$	33

Loans are determined to be impaired when, based on current information and events, it is probable that all amounts will not be collected when due according to the contractual terms of the original loan agreement. At June 30, 2013 and December 31, 2012, the total recorded investment in impaired loans amounted to approximately $35,052,000 and $28,110,000, respectively. Of these impaired loans, $16,501,000 and $13,067,000 were on non-accrual at June 30, 2013 and December 31, 2012, respectively.

The recorded investment and related information for impaired loans is summarized as follows:

	Impaired Loans
	At end of period						For Period Ended
			Unpaid		Related		Average		Interest
	Recorded		Principal		Loan Loss		Recorded		Income
	Investment		Balance		Allowance		Investment		Recognized
June 30, 2013	(in thousands)
With no related allowance recorded
Real Estate Loans:
Construction & development	$	1,073	$	1,267	$	-	$	1,340	$	12
Commercial real estate		10,745		11,377		-		11,407		174
Home equity lines		387		529		-		529		8
Residential real estate		3,352		3,505		-		3,517		55
Total real estate		15,557		16,678		-		16,793		249
Commercial & industrial		1,285		1,823		-		1,822		38
Consumer & other		-		-		-		1		-
Total loans		16,842		18,501		-		18,616		287
With an allowance recorded
Real Estate Loans:
Construction & development		868		868		73		868		29
Commercial real estate		13,864		15,435		3,239		15,485		251
Home equity lines		367		404		81		404		6
Residential real estate		2,002		2,190		271		2,209		35
Total real estate		17,101		18,897		3,664		18,966		321
Commercial & industrial		1,109		1,119		1,051		1,135		31
Consumer & other		-		-		-		-		-
Total loans		18,210		20,016		4,715		20,101		352
Total impaired loans	$	35,052	$	38,517	$	4,715	$	38,717	$	639
December 31, 2012
With no related allowance recorded
Real Estate Loans:
Construction & development	$	1,942	$	2,074	$	-	$	2,114	$	53
Commercial real estate		16,547		18,009		-		18,335		785
Home equity lines		414		608		-		608		17
Residential real estate		3,800		4,111		-		4,151		155
Total real estate		22,703		24,802		-		25,208		1,010
Commercial & industrial		1,103		1,697		-		2,170		42
Consumer & other		2		2		-		4		-
Total loans		23,808		26,501		-		27,382		1,052
With an allowance recorded
Real Estate Loans:
Construction & development		-		-		-		-		-
Commercial real estate		3,177		3,180		1,309		3,181		177
Home equity lines		364		395		187		395		16
Residential real estate		616		631		134		656		38
Total real estate		4,157		4,206		1,630		4,232		231
Commercial & industrial		95		104		95		118		7
Consumer & other		50		50		50		50		3
Total loans		4,302		4,360		1,775		4,400		241
Total impaired loans	$	28,110	$	30,861	$	1,775	$	31,782	$	1,293

Loans that are past due 90 days or more or where there is serious doubt as to collectability are placed on non-accrual status. Non-accrual loans are not returned to accrual status unless principal and interest are current and borrowers have demonstrated the ability to make contractual payments. Accrued interest is reversed through a charge to income when loans are placed on non-accrual and future payments on non-accrual loans are generally applied to principal. The following is a summary of non-accrual loans at June 30, 2013 and December 31, 2012:

	June 30,		December 31,
	2013		2012
	(in thousands)
Real Estate Loans:
Construction & development	$	949	$	1,778
Commercial real estate		12,111		7,908
Home equity lines		627		654
Residential real estate		1,506		1,551
Total real estate		15,193		11,891
Commercial & industrial		1,308		1,126
Consumer & other		-		50
Total loans	$	16,501	$	13,067

Loans are graded according to an internal loan rating classification system when originated. Loan grades are periodically re-evaluated during servicing, internal loan reviews, and external loan reviews. The general categories of the internal loan rating classification are:

· Pass - Acceptable loans

· Special Mention - Loans with potential identified weaknesses in administration or servicing.

· Criticized - Adversely classified loans with identified weaknesses, and potential or identified losses of principal and/or interest due.

The following is a breakdown of loans by the general categories of the internal rating system:

	Outstanding Loans at June 30, 2013 and December 31, 2012
	Construction & Development				Commercial				Home Equity
	Development				Real Estate				Lines of Credit
	2013		2012		2013		2012		2013		2012
	(in thousands)
Pass	$	37,035	$	60,928	$	163,279	$	182,314	$	65,266	$	64,042
Special Mention		868		-		6,761		8,641		34		588
Criticized		2,299		3,741		21,641		24,303		2,089		1,893
TOTAL	$	40,202	$	64,669	$	191,681	$	215,258	$	67,389	$	66,523

	Residential				Commercial &				Consumer
	Real Estate				Industrial				& Other
	2013		2012		2013		2012		2013		2012
	(in thousands)
Pass	$	43,515	$	43,042	$	58,835	$	58,454	$	5,396	$	5,101
Special Mention		1,135		391		3,816		400		30		7
Criticized		4,840		5,424		1,319		2,397		-		62
TOTAL	$	49,490	$	48,857	$	63,970	$	61,251	$	5,426	$	5,170

During 2013 and 2012, the Company restructured certain loans to improve the likelihood that the loans would be repaid in full under the modified terms in accordance with reasonable repayment schedules. Management evaluates each of these loans in accordance with generally accepted accounting principles to determine whether they should be reported as troubled debt restructurings.

The Company offers a variety of modifications to borrowers. The modification categories offered can generally be described in the following categories:

· Rate Modification - A modification in which the interest rate is changed.

· Term Modification - A modification in which the maturity date, timing of payments, or frequency of payments is changed.

· Interest Only Modification – A modification in which the loan is converted to interest only payments for a period of time.

· Payment Modification – A modification in which the dollar amount of the payment is changed, other than an interest only modification described above.

· Combination Modification – Any other type of modification, including the use of multiple categories above.

There were $197,000 commitments for troubled debt restructurings outstanding at June 30, 2013.

The following tables present troubled debt restructurings as of June 30, 2013 and December 31, 2012:

Troubled Debt Restructurings
	June 30, 2013
					Non-Accrual				Total
	Accrual Status				Status				Modifications
	#		Amount		#		Amount		#		Amount
	($ in thousands)
Real Estate Loans:
Construction & development		1	$	124		4	$	730		5	$	854
Commercial real estate		13		11,014		6		2,617		19		13,631
Home equity lines		0		-		1		150		1		150
Residential real estate		16		2,959		1		10		17		2,969
Total real estate		30		14,097		12		3,507		42		17,604
Commercial & industrial		2		54		3		883		5		937
Consumer & other		0		-		0		-		0		-
Total loans		32	$	14,151		15	$	4,390		47	$	18,541

	December 31, 2012
					Non-Accrual				Total
	Accrual Status				Status				Modifications
	#		Amount		#		Amount		#		Amount
	($ in thousands)
Real Estate Loans:
Construction & development		1	$	165		7	$	1,606		8	$	1,771
Commercial real estate		14		11,235		8		3,936		22		15,171
Home equity lines		0		-		1		150		1		150
Residential real estate		15		2,350		3		685		18		3,035
Total real estate		30		13,750		19		6,377		49		20,127
Commercial & industrial		2		70		5		1,066		7		1,136
Consumer & other		1		2		0		-		1		2
Total loans		33	$	13,822		24	$	7,443		57	$	21,265

The Bank’s policy is that loans placed on non-accrual will typically remain on non-accrual status until all principal and interest payments are brought current and the prospect for future payment in accordance with the loan agreement appears relatively certain. The Bank’s policy generally refers to six months of payment performance as sufficient to warrant a return to accrual status.

Troubled debt restructurings are classified as impaired loans when modified, and fair value calculations are performed to determine the specific reserves required in the allowance for loan losses related to these loans. Troubled debt restructurings can be removed from such status and returned to non-impaired status in years subsequent to restructure if the interest rate charged at restructure was greater than or equal to the rate charged for a new extension of credit with comparable risk and if the loan is performing and there is no available information to indicate that performance will not continue.

The following tables present newly restructured loans that occurred during the three months ended June 30, 2013 and 2012, respectively:

	New Troubled Debt Restructurings
	Three Months Ended June 30, 2013
	Rate				Term				Payment				Combination				Total
	Modifications				Modifications				Modifications				Modifications				Modifications
	#		Amount		#		Amount		#		Amount		#		Amount		#		Amount
	($ in thousands)
Pre-Modification Outstanding Recorded Investment:
Real Estate Loans:
Construction & development		0	$	-		0	$	-		1	$	-		0	$	-		1	$	-
Total real estate		0		-		0		-		1		-		0		-		1		-
Consumer & other		0		-		0		-		0		-		0		-		0		-
Total loans		0	$	-		0	$	-		1	$	-		0	$	-		1	$	-
Post-Modification Outstanding Recorded Investment:
Real Estate Loans:
Construction & development		0	$	-		0	$	-		1	$	155		0	$	-		1	$	155
Total real estate		0		-		0		-		1		155		0		-		1		155
Consumer & other		0		-		0		-		0		-		0		-		0		-
Total loans		0	$	-		0	$	-		1	$	155		0	$	-		1	$	155
	Three Months Ended June 30, 2012
Pre-Modification Outstanding Recorded Investment:
Real Estate Loans:
Construction & development		1	$	32		1	$	-		0	$	-		0	$	-		2	$	32
Commercial real estate		0		-		1		81		0		-		0		-		1		81
Total real estate		1		32		2		81		0		-		0		-		3		113
Commercial & industrial		0		-		0		-		0		-		0		-		0		-
Total loans		1	$	32		2	$	81		0	$	-		0	$	-		3	$	113
Post-Modification Outstanding Recorded Investment:
Real Estate Loans:
Construction & development		1	$	29		1	$	211		0	$	-		0	$	-		2	$	240
Commercial real estate		0		-		1		80		0		-		0		-		1		80
Total real estate		1		29		2		291		0		-		0		-		3		320
Commercial & industrial		0		-		0		-		0		-		0		-		0		-
Total loans		1	$	29		2	$	291		0	$	-		0	$	-		3	$	320

The following tables present newly restructured loans that occurred during the six months ended June 30, 2013 and 2012, respectively:

	New Troubled Debt Restructurings
	Six Months Ended June 30, 2013
	Rate				Term				Payment				Combination				Total
	Modifications				Modifications				Modifications				Modifications				Modifications
	#		Amount		#		Amount		#		Amount		#		Amount		#		Amount
	($ in thousands)
Pre-Modification Outstanding Recorded Investment:
Real Estate Loans:
Construction & development		0	$	-		0	$	-		2	$	-		0	$	-		2	$	-
Total real estate		0		-		0		-		2		-		0		-		2		-
Commercial & industrial		0		-		0		-		0		-		0		-		0		-
Total loans		0	$	-		0	$	-		2	$	-		0	$	-		2	$	-
Post-Modification Outstanding Recorded Investment:
Real Estate Loans:
Construction & development		0	$	-		0	$	-		2	$	419		0	$	-		2	$	419
Total real estate		0		-		0		-		2		419		0		-		2		419
Commercial & industrial		0		-		0		-		0		-		0		-		0		-
Total loans		0	$	-		0	$	-		2	$	419		0	$	-		2	$	419
		Six Months Ended June 30, 2012
Pre-Modification Outstanding Recorded Investment:
Real Estate Loans:
Construction & development		1	$	32		2	$	-		0	$	-		0	$	-		3	$	32
Commercial real estate		0		-		1		81		1		123		0		-		2		204
Total real estate		1		32		3		81		1		123		0		-		5		236
Commercial & industrial		0		-		0		-		0		-		0		-		0		-
Total loans		1	$	32		3	$	81		1	$	123		0	$	-		5	$	236
Post-Modification Outstanding Recorded Investment:
Real Estate Loans:
Construction & development		1	$	29		2	$	523		0	$	-		0	$	-		3	$	552
Commercial real estate		0		-		1		80		1		121		0		-		2		201
Total real estate		1		29		3		603		1		121		0		-		5		753
Commercial & industrial		0		-		0		-		0		-		0		-		0		-
Total loans		1	$	29		3	$	603		1	$	121		0	$	-		5	$	753

The following tables represent financing receivables modified as troubled debt restructurings and with a payment default, with the payment default occurring within 12 months of the restructure date, and the payment default occurring during the three and six months ended June 30, 2013 and 2012, respectively:

TDRs with a payment default occurring within 12 months of restructure
	During the three months ended
	June 30, 2013				June 30, 2012
	#		Amount		#		Amount
	($ in thousands)
Real Estate Loans:
Commercial real estate		0	$	-		1	$	64
Residential real estate		0		-		0		-
Total real estate		0		-		1		64
Commercial & industrial		0		-		2		812
Total loans		0	$	-		3	$	876

TDRs with a payment default occurring within 12 months of restructure
	During the six months ended
	June 30, 2013				June 30, 2012
	#		Amount		#		Amount
	($ in thousands)
Real Estate Loans:
Construction & development		0	$	-		0	$	-
Commercial real estate		1		115		4		4,756
Residential real estate		0		-		0		-
Total real estate		1		115		4		4,756
Commercial & industrial		0		-		3		2,278
Total loans		1	$	115		7	$	7,034

Troubled debt restructuring defaults can result in a higher allowance for loan losses and a corresponding higher provision for loan losses because defaults generally negatively impact the timing of and expected collections from these impaired loans. Impaired loans, which include troubled debt restructurings, are evaluated for specific additions to the allowance for loan losses by subtracting the recorded investment in these impaired loans from their fair values. Fair value is generally determined by the present value of future cash flows, collateral value, or liquidation value. Defaults generally reduce the present value of the future cash flows and can negatively impact the collateral values if declining real estate values are impacting the sale of collateral.

XML

Loans and allowance for loan losses (Details 7) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2013 Number	Jun. 30, 2012 Number	Jun. 30, 2013 Number	Jun. 30, 2012 Number
Financing Receivables Modification Subsequent Default Number Of Contracts	0	3	1	7
Financing Receivables Modification Subsequent Default Recorded Investment	$ 0	$ 876	$ 115	$ 7,034
Construction and Land Develolpment [Member]
Financing Receivables Modification Subsequent Default Number Of Contracts			0	0
Financing Receivables Modification Subsequent Default Recorded Investment			0	0
Commercial Real Estate [Member]
Financing Receivables Modification Subsequent Default Number Of Contracts	0	1	1	4
Financing Receivables Modification Subsequent Default Recorded Investment	0	64	115	4,756
Residential Real Estate [Member]
Financing Receivables Modification Subsequent Default Number Of Contracts	0	0	0	0
Financing Receivables Modification Subsequent Default Recorded Investment	0	0	0	0
Real Estate [Member]
Financing Receivables Modification Subsequent Default Number Of Contracts	0	1	1	4
Financing Receivables Modification Subsequent Default Recorded Investment	0	64	115	4,756
Commercial and Industrial [Member]
Financing Receivables Modification Subsequent Default Number Of Contracts	0	2	0	3
Financing Receivables Modification Subsequent Default Recorded Investment	$ 0	$ 812	$ 0	$ 2,278

XML

Derivatives and financial instruments (Details 1) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2013	Dec. 31, 2012
Loans held for sale, Aggregate Fair Value	$ 56,403	$ 131,762
Loans held for sale, Aggregate Unpaid Principal	56,113	130,539
Loans held for sale, Aggregate Fair Value Less Aggregate Unpaid Principal	$ 290	$ 1,223

XML

Securities (Details) (USD $) In Thousands, unless otherwise specified	6 Months Ended	12 Months Ended
	Jun. 30, 2013	Dec. 31, 2012
Available for sale
Available for sale Securities, Amortized Cost	$ 48,177	$ 39,390
Available for sale Securities, Gross Unrealized Gains	1,626	2,743
Available for sale Securities, Gross Unrealized Losses	358	97
Securities available-for-sale, at fair value	49,445	42,036
Held to maturity
Held to maturity Securities, Amortized Cost	9,294	211
Held to maturity Securities, Gross Unrealized Gains	0	14
Held to maturity Securities, Gross Unrealized Losses	223	0
Held to maturity Securities, Estimated Fair Value	9,071	225
Collateralized Mortgage Backed Securities [Member]
Available for sale
Available for sale Securities, Amortized Cost	10,628	10,127
Available for sale Securities, Gross Unrealized Gains	603	876
Available for sale Securities, Gross Unrealized Losses	32	0
Securities available-for-sale, at fair value	11,199	11,003
Held to maturity
Held to maturity Securities, Amortized Cost	4,949	211
Held to maturity Securities, Gross Unrealized Gains	0	14
Held to maturity Securities, Gross Unrealized Losses	111	0
Held to maturity Securities, Estimated Fair Value	4,838	225
Municipal Bonds [Member]
Available for sale
Available for sale Securities, Amortized Cost	22,416	16,938
Available for sale Securities, Gross Unrealized Gains	756	1,414
Available for sale Securities, Gross Unrealized Losses	238	5
Securities available-for-sale, at fair value	22,934	18,347
Held to maturity
Held to maturity Securities, Amortized Cost	4,345
Held to maturity Securities, Gross Unrealized Losses	112
Held to maturity Securities, Estimated Fair Value	4,233
Corporate Bond Securities [Member]
Available for sale
Available for sale Securities, Amortized Cost	15,091	12,059
Available for sale Securities, Gross Unrealized Gains	231	264
Available for sale Securities, Gross Unrealized Losses	88	92
Securities available-for-sale, at fair value	15,234	12,231
Unrestricted Stock [Member]
Available for sale
Available for sale Securities, Amortized Cost	42	266
Available for sale Securities, Gross Unrealized Gains	36	189
Available for sale Securities, Gross Unrealized Losses	0	0
Securities available-for-sale, at fair value	$ 78	$ 455

XML

Loans and allowance for loan losses (Tables)

6 Months Ended

Jun. 30, 2013

Loans and Allowance For Loan Losses [Abstract]

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

The activity in the allowance for loan losses for the first six months of 2013 and 2012 and related asset balances at June 30, 2013 and December 31, 2012 is summarized as follows:

	Construction &		Commercial		Home Equity		Residential		Commercial &		Consumer
	Development		Real Estate		Lines		Real Estate		Industrial		& Other		Unallocated		Total
Allowance for loan losses:	(in thousands)
2013
Beginning of year balance	$	2,349	$	4,068	$	609	$	863	$	1,885	$	133	$	37	$	9,944
Provision for loan losses		(1,084)		972		(84)		(133)		114		(81)		796		500
Charge-offs		(73)		(173)		(32)		(8)		(251)		(53)		-		(590)
Recoveries		20		5		-		14		214		24		-		277
Balance at June 30,	$	1,212	$	4,872	$	493	$	736	$	1,962	$	23	$	833	$	10,131
2012
Beginning of year balance	$	2,948	$	3,690	$	1,126	$	994	$	2,985	$	46	$	4	$	11,793
Provision for loan losses		(450)		1,592		(198)		357		920		106		33		2,360
Charge-offs		(159)		(1,318)		(324)		(498)		(2,142)		(20)		-		(4,461)
Recoveries		10		104		5		10		122		1		-		252
Balance at December 31,	$	2,349	$	4,068	$	609	$	863	$	1,885	$	133	$	37	$	9,944
Balances at June 30, 2013
Allowance for loan losses:
Balance at June 30,	$	1,212	$	4,872	$	493	$	736	$	1,962	$	23	$	833	$	10,131
Ending balance individually evaluated for impairment	$	73	$	3,239	$	81	$	271	$	1,051	$	-	$	-	$	4,715
Ending balance collectively evaluated for impairment	$	1,139	$	1,633	$	412	$	465	$	911	$	23	$	833	$	5,416
Loans Outstanding:
Balance at June 30,	$	40,202	$	191,681	$	67,389	$	49,490	$	63,970	$	5,426	$	-	$	418,158
Ending balance individually evaluated for impairment	$	1,941	$	24,609	$	754	$	5,354	$	2,394	$	-	$	-	$	35,052
Ending balance collectively evaluated for impairment	$	38,261	$	167,072	$	66,635	$	44,136	$	61,576	$	5,426	$	-	$	383,106
Balances at December 31, 2012
Allowance for loan losses:
Balance at December 31,	$	2,349	$	4,068	$	609	$	863	$	1,885	$	133	$	37	$	9,944
Ending balance individually evaluated for impairment	$	-	$	1,309	$	187	$	134	$	95	$	50	$	-	$	1,775
Ending balance collectively evaluated for impairment	$	2,349	$	2,759	$	422	$	729	$	1,790	$	83	$	37	$	8,169
Loans Outstanding:
Balance at December 31,	$	64,669	$	215,258	$	66,523	$	48,857	$	61,251	$	5,170	$	-	$	461,728
Ending balance individually evaluated for impairment	$	1,942	$	19,724	$	778	$	4,416	$	1,198	$	52	$	-	$	28,110
Ending balance collectively evaluated for impairment	$	62,727	$	195,534	$	65,745	$	44,441	$	60,053	$	5,118	$	-	$	433,618

Past Due Financing Receivables [Table Text Block]

The following table presents the carrying value of loans that are past due thirty days or more. Loans which are ninety days or more past due are generally on non-accrual status, at which time all accrued interest is removed from interest income, as shown in the following table:

													Loans Past
	Number of Days Past Due												Due 90 Days
	30-59		60-89		90 Days		Total				Total		or More
	Days		Days		or More		Past Due		Current		Loans		& Accruing
	(in thousands)
At June 30, 2013
Real Estate Loans:
Construction & development	$	357	$	-	$	949	$	1,306	$	38,896	$	40,202	$	-
Commercial real estate		-		53		12,111		12,164		179,517		191,681		-
Home equity lines		-		51		627		678		66,711		67,389		-
Residential real estate		381		-		1,506		1,887		47,603		49,490		-
Total real estate		738		104		15,193		16,035		332,727		348,762		-
Commercial & industrial		2,288		-		1,662		3,950		60,020		63,970		354
Consumer & other		-		-		-		-		5,426		5,426		-
Total loans	$	3,026	$	104	$	16,855	$	19,985	$	398,173	$	418,158	$	354
At December 31, 2012
Real Estate Loans:
Construction & development	$	-	$	-	$	1,778	$	1,778	$	62,891	$	64,669	$	-
Commercial real estate		-		-		7,908		7,908		207,350		215,258		-
Home equity lines		27		-		654		681		65,842		66,523		-
Residential real estate		665		-		1,584		2,249		46,608		48,857		33
Total real estate		692		-		11,924		12,616		382,691		395,307		33
Commercial & industrial		67		-		1,126		1,193		60,058		61,251		-
Consumer & other		1		-		50		51		5,119		5,170		-
Total loans	$	760	$	-	$	13,100	$	13,860	$	447,868	$	461,728	$	33

Impaired Financing Receivables [Table Text Block]

The recorded investment and related information for impaired loans is summarized as follows:

	Impaired Loans
	At end of period						For Period Ended
			Unpaid		Related		Average		Interest
	Recorded		Principal		Loan Loss		Recorded		Income
	Investment		Balance		Allowance		Investment		Recognized
June 30, 2013	(in thousands)
With no related allowance recorded
Real Estate Loans:
Construction & development	$	1,073	$	1,267	$	-	$	1,340	$	12
Commercial real estate		10,745		11,377		-		11,407		174
Home equity lines		387		529		-		529		8
Residential real estate		3,352		3,505		-		3,517		55
Total real estate		15,557		16,678		-		16,793		249
Commercial & industrial		1,285		1,823		-		1,822		38
Consumer & other		-		-		-		1		-
Total loans		16,842		18,501		-		18,616		287
With an allowance recorded
Real Estate Loans:
Construction & development		868		868		73		868		29
Commercial real estate		13,864		15,435		3,239		15,485		251
Home equity lines		367		404		81		404		6
Residential real estate		2,002		2,190		271		2,209		35
Total real estate		17,101		18,897		3,664		18,966		321
Commercial & industrial		1,109		1,119		1,051		1,135		31
Consumer & other		-		-		-		-		-
Total loans		18,210		20,016		4,715		20,101		352
Total impaired loans	$	35,052	$	38,517	$	4,715	$	38,717	$	639
December 31, 2012
With no related allowance recorded
Real Estate Loans:
Construction & development	$	1,942	$	2,074	$	-	$	2,114	$	53
Commercial real estate		16,547		18,009		-		18,335		785
Home equity lines		414		608		-		608		17
Residential real estate		3,800		4,111		-		4,151		155
Total real estate		22,703		24,802		-		25,208		1,010
Commercial & industrial		1,103		1,697		-		2,170		42
Consumer & other		2		2		-		4		-
Total loans		23,808		26,501		-		27,382		1,052
With an allowance recorded
Real Estate Loans:
Construction & development		-		-		-		-		-
Commercial real estate		3,177		3,180		1,309		3,181		177
Home equity lines		364		395		187		395		16
Residential real estate		616		631		134		656		38
Total real estate		4,157		4,206		1,630		4,232		231
Commercial & industrial		95		104		95		118		7
Consumer & other		50		50		50		50		3
Total loans		4,302		4,360		1,775		4,400		241
Total impaired loans	$	28,110	$	30,861	$	1,775	$	31,782	$	1,293

Schedule of Financing Receivables, Non Accrual Status [Table Text Block]

The following is a summary of non-accrual loans at June 30, 2013 and December 31, 2012:

	June 30,		December 31,
	2013		2012
	(in thousands)
Real Estate Loans:
Construction & development	$	949	$	1,778
Commercial real estate		12,111		7,908
Home equity lines		627		654
Residential real estate		1,506		1,551
Total real estate		15,193		11,891
Commercial & industrial		1,308		1,126
Consumer & other		-		50
Total loans	$	16,501	$	13,067

Financing Receivable Credit Quality Indicators [Table Text Block]

                The following is a breakdown of loans by the general categories of the internal rating system:

	Outstanding Loans at June 30, 2013 and December 31, 2012
	Construction &				Commercial				Home Equity
	Development				Real Estate				Lines of Credit
	2013		2012		2013		2012		2013		2012
	(in thousands)
Pass	$	37,035	$	60,928	$	163,279	$	182,314	$	65,266	$	64,042
Special Mention		868		-		6,761		8,641		34		588
Criticized		2,299		3,741		21,641		24,303		2,089		1,893
TOTAL	$	40,202	$	64,669	$	191,681	$	215,258	$	67,389	$	66,523

	Residential				Commercial &				Consumer
	Real Estate				Industrial				& Other
	2013		2012		2013		2012		2013		2012
	(in thousands)
Pass	$	43,515	$	43,042	$	58,835	$	58,454	$	5,396	$	5,101
Special Mention		1,135		391		3,816		400		30		7
Criticized		4,840		5,424		1,319		2,397		-		62
TOTAL	$	49,490	$	48,857	$	63,970	$	61,251	$	5,426	$	5,170

Troubled Debt Restructurings on Financing Receivables [Table Text Block]

The following tables present troubled debt restructurings as of June 30, 2013 and December 31, 2012:

Troubled Debt Restructurings
	June 30, 2013
					Non-Accrual				Total
	Accrual Status				Status				Modifications
	#		Amount		#		Amount		#		Amount
	($ in thousands)
Real Estate Loans:
Construction & development		1	$	124		4	$	730		5	$	854
Commercial real estate		13		11,014		6		2,617		19		13,631
Home equity lines		0		-		1		150		1		150
Residential real estate		16		2,959		1		10		17		2,969
Total real estate		30		14,097		12		3,507		42		17,604
Commercial & industrial		2		54		3		883		5		937
Consumer & other		0		-		0		-		0		-
Total loans		32	$	14,151		15	$	4,390		47	$	18,541

	December 31, 2012
					Non-Accrual				Total
	Accrual Status				Status				Modifications
	#		Amount		#		Amount		#		Amount
	($ in thousands)
Real Estate Loans:
Construction & development		1	$	165		7	$	1,606		8	$	1,771
Commercial real estate		14		11,235		8		3,936		22		15,171
Home equity lines		0		-		1		150		1		150
Residential real estate		15		2,350		3		685		18		3,035
Total real estate		30		13,750		19		6,377		49		20,127
Commercial & industrial		2		70		5		1,066		7		1,136
Consumer & other		1		2		0		-		1		2
Total loans		33	$	13,822		24	$	7,443		57	$	21,265

Schedule of Restructured Loans [Table Text Block]

The following tables present newly restructured loans that occurred during the three months ended June 30, 2013 and 2012, respectively:

	New Troubled Debt Restructurings
	Three Months Ended June 30, 2013
	Rate				Term				Payment				Combination				Total
	Modifications				Modifications				Modifications				Modifications				Modifications
	#		Amount		#		Amount		#		Amount		#		Amount		#		Amount
	($ in thousands)
Pre-Modification Outstanding Recorded Investment:
Real Estate Loans:
Construction & development		0	$	-		0	$	-		1	$	-		0	$	-		1	$	-
Total real estate		0		-		0		-		1		-		0		-		1		-
Consumer & other		0		-		0		-		0		-		0		-		0		-
Total loans		0	$	-		0	$	-		1	$	-		0	$	-		1	$	-
Post-Modification Outstanding Recorded Investment:
Real Estate Loans:
Construction & development		0	$	-		0	$	-		1	$	155		0	$	-		1	$	155
Total real estate		0		-		0		-		1		155		0		-		1		155
Consumer & other		0		-		0		-		0		-		0		-		0		-
Total loans		0	$	-		0	$	-		1	$	155		0	$	-		1	$	155
	Three Months Ended June 30, 2012
Pre-Modification Outstanding Recorded Investment:
Real Estate Loans:
Construction & development		1	$	32		1	$	-		0	$	-		0	$	-		2	$	32
Commercial real estate		0		-		1		81		0		-		0		-		1		81
Total real estate		1		32		2		81		0		-		0		-		3		113
Commercial & industrial		0		-		0		-		0		-		0		-		0		-
Total loans		1	$	32		2	$	81		0	$	-		0	$	-		3	$	113
Post-Modification Outstanding Recorded Investment:
Real Estate Loans:
Construction & development		1	$	29		1	$	211		0	$	-		0	$	-		2	$	240
Commercial real estate		0		-		1		80		0		-		0		-		1		80
Total real estate		1		29		2		291		0		-		0		-		3		320
Commercial & industrial		0		-		0		-		0		-		0		-		0		-
Total loans		1	$	29		2	$	291		0	$	-		0	$	-		3	$	320

The following tables present newly restructured loans that occurred during the six months ended June 30, 2013 and 2012, respectively:

	New Troubled Debt Restructurings
	Six Months Ended June 30, 2013
	Rate				Term				Payment				Combination				Total
	Modifications				Modifications				Modifications				Modifications				Modifications
	#		Amount		#		Amount		#		Amount		#		Amount		#		Amount
	($ in thousands)
Pre-Modification Outstanding Recorded Investment:
Real Estate Loans:
Construction & development		0	$	-		0	$	-		2	$	-		0	$	-		2	$	-
Total real estate		0		-		0		-		2		-		0		-		2		-
Commercial & industrial		0		-		0		-		0		-		0		-		0		-
Total loans		0	$	-		0	$	-		2	$	-		0	$	-		2	$	-
Post-Modification Outstanding Recorded Investment:
Real Estate Loans:
Construction & development		0	$	-		0	$	-		2	$	419		0	$	-		2	$	419
Total real estate		0		-		0		-		2		419		0		-		2		419
Commercial & industrial		0		-		0		-		0		-		0		-		0		-
Total loans		0	$	-		0	$	-		2	$	419		0	$	-		2	$	419
		Six Months Ended June 30, 2012
Pre-Modification Outstanding Recorded Investment:
Real Estate Loans:
Construction & development		1	$	32		2	$	-		0	$	-		0	$	-		3	$	32
Commercial real estate		0		-		1		81		1		123		0		-		2		204
Total real estate		1		32		3		81		1		123		0		-		5		236
Commercial & industrial		0		-		0		-		0		-		0		-		0		-
Total loans		1	$	32		3	$	81		1	$	123		0	$	-		5	$	236
Post-Modification Outstanding Recorded Investment:
Real Estate Loans:
Construction & development		1	$	29		2	$	523		0	$	-		0	$	-		3	$	552
Commercial real estate		0		-		1		80		1		121		0		-		2		201
Total real estate		1		29		3		603		1		121		0		-		5		753
Commercial & industrial		0		-		0		-		0		-		0		-		0		-
Total loans		1	$	29		3	$	603		1	$	121		0	$	-		5	$	753

Schedule of Troubled Debt Restructurings Financing Receivables [Table Text Block]

The following tables represent financing receivables modified as troubled debt restructurings and with a payment default, with the payment default occurring within 12 months of the restructure date, and the payment default occurring during the three and six months ended June 30, 2013 and 2012, respectively:

TDRs with a payment default occurring within 12 months of restructure
	During the three months ended
	June 30, 2013				June 30, 2012
	#		Amount		#		Amount
	($ in thousands)
Real Estate Loans:
Commercial real estate		0	$	-		1	$	64
Residential real estate		0		-		0		-
Total real estate		0		-		1		64
Commercial & industrial		0		-		2		812
Total loans		0	$	-		3	$	876

TDRs with a payment default occurring within 12 months of restructure
	During the six months ended
	June 30, 2013				June 30, 2012
	#		Amount		#		Amount
	($ in thousands)
Real Estate Loans:
Construction & development		0	$	-		0	$	-
Commercial real estate		1		115		4		4,756
Residential real estate		0		-		0		-
Total real estate		1		115		4		4,756
Commercial & industrial		0		-		3		2,278
Total loans		1	$	115		7	$	7,034

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Securities (Tables)

6 Months Ended

Jun. 30, 2013

Securities [Abstract]

Available-for-Sale of Securities and Held-to-Maturity [Table Text Block]

A summary of the amortized cost, gross unrealized gains and losses and estimated fair values of securities available-for-sale and held-to-maturity follows:

			Gross		Gross		Estimated
	Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value
	(in thousands)
June 30, 2013
Available-for-sale
Municipal securities	$	22,416	$	756	$	238	$	22,934
FNMA, FHLMC, and GNMA   mortgage-backed securities		10,628		603		32		11,199
Corporate securities		15,091		231		88		15,234
Unrestricted stock		42		36		-		78
	$	48,177	$	1,626	$	358	$	49,445
Held-to-maturity
Municipal securities	$	4,345			$	112		4,233
FNMA mortgage-backed securities		4,949		-		111		4,838
	$	9,294	$	-	$	223	$	9,071
December 31, 2012
Available-for-sale
Municipal securities	$	16,938	$	1,414	$	5	$	18,347
FNMA, FHLMC, and GNMA   mortgage-backed securities		10,127		876		-		11,003
Corporate securities		12,059		264		92		12,231
Unrestricted stock		266		189		-		455
	$	39,390	$	2,743	$	97	$	42,036
Held-to-maturity
FNMA and GNMA mortgage-backed securities		211		14		-		225
	$	211	$	14	$	-	$	225

Schedule of Maturities of Debt Securities [Table Text Block]

The scheduled maturities of debt securities available-for-sale and held-to-maturity at June 30, 2013 were as follows:

	Available-for-Sale				Held-to-Maturity
			Estimated				Estimated
	Amortized		Fair		Amortized		Fair
	Cost		Value		Cost		Value
	(in thousands)
Due in one year or less	$	949	$	959	$	-	$	-
Due from one to five years		10,221		10,383		-		-
Due from five to ten years		11,557		11,927		1,372		1,327
Over ten years		14,780		14,899		2,973		2,906
Mortgage-backed securities		10,628		11,199		4,949		4,838
	$	48,135	$	49,367	$	9,294	$	9,071

Available-for-sale Securities, Continuous Unrealized Loss Position, Fair Value [Table Text Block]

Information pertaining to temporarily impaired securities with gross unrealized losses at June 30, 2013 and December 31, 2012, by category and length of time that individual securities have been in a continuous loss position follows:

	Less Than 12 Months						12 Months or Greater						Total
	Number				Gross		Number				Gross		Number				Gross
	of		Fair		Unrealized		of		Fair		Unrealized		of		Fair		Unrealized
	Securities		Value		Losses		Securities		Value		Losses		Securities		Value		Losses
	(dollars in thousands)
June 30, 2013:
Municipal securities		10	$	11,263	$	350		0	$	-	$	-		10	$	11,263	$	350
FNMA and FHLMC   mortgage-backed securities		2		6,834		143		0		-		-		2		6,834		143
Corporate securities		4		3,390		88		0		-		-		4		3,390		88
Total		16	$	21,487	$	581		0	$	-	$	-		16	$	21,487	$	581
December 31, 2012:
Municipal securities		1	$	598	$	5		0	$	-	$	-		1	$	598	$	5
Corporate securities		3		2,378		92		0		-		-		3		2,378		92
Total		4	$	2,976	$	97		0	$	-	$	-		4	$	2,976	$	97

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Loans and allowance for loan losses (Details 5) (USD $) In Thousands, unless otherwise specified	6 Months Ended	12 Months Ended
	Jun. 30, 2013 Number	Dec. 31, 2012 Number
Financing Receivable, Modifications, Number of Contracts	47	57
Troubled Debt Restructurings, Modification Amount	$ 18,541	$ 21,265
Construction and Land Develolpment [Member]
Financing Receivable, Modifications, Number of Contracts	5	8
Troubled Debt Restructurings, Modification Amount	854	1,771
Commercial Real Estate [Member]
Financing Receivable, Modifications, Number of Contracts	19	22
Troubled Debt Restructurings, Modification Amount	13,631	15,171
Home Equity Line of Credit [Member]
Financing Receivable, Modifications, Number of Contracts	1	1
Troubled Debt Restructurings, Modification Amount	150	150
Residential Real Estate [Member]
Financing Receivable, Modifications, Number of Contracts	17	18
Troubled Debt Restructurings, Modification Amount	2,969	3,035
Real Estate [Member]
Financing Receivable, Modifications, Number of Contracts	42	49
Troubled Debt Restructurings, Modification Amount	17,604	20,127
Commercial and Industrial [Member]
Financing Receivable, Modifications, Number of Contracts	5	7
Troubled Debt Restructurings, Modification Amount	937	1,136
Consumer Other Financing Receivable [Member]
Financing Receivable, Modifications, Number of Contracts	0	1
Troubled Debt Restructurings, Modification Amount	0	2
Accrual Status [Member]
Financing Receivable, Modifications, Number of Contracts	32	33
Troubled Debt Restructurings, Modification Amount	14,151	13,822
Accrual Status [Member] | Construction and Land Develolpment [Member]
Financing Receivable, Modifications, Number of Contracts	1	1
Troubled Debt Restructurings, Modification Amount	124	165
Accrual Status [Member] | Commercial Real Estate [Member]
Financing Receivable, Modifications, Number of Contracts	13	14
Troubled Debt Restructurings, Modification Amount	11,014	11,235
Accrual Status [Member] | Home Equity Line of Credit [Member]
Financing Receivable, Modifications, Number of Contracts	0	0
Troubled Debt Restructurings, Modification Amount	0	0
Accrual Status [Member] | Residential Real Estate [Member]
Financing Receivable, Modifications, Number of Contracts	16	15
Troubled Debt Restructurings, Modification Amount	2,959	2,350
Accrual Status [Member] | Real Estate [Member]
Financing Receivable, Modifications, Number of Contracts	30	30
Troubled Debt Restructurings, Modification Amount	14,097	13,750
Accrual Status [Member] | Commercial and Industrial [Member]
Financing Receivable, Modifications, Number of Contracts	2	2
Troubled Debt Restructurings, Modification Amount	54	70
Accrual Status [Member] | Consumer Other Financing Receivable [Member]
Financing Receivable, Modifications, Number of Contracts	0	1
Troubled Debt Restructurings, Modification Amount	0	2
Non Accural Status [Member]
Financing Receivable, Modifications, Number of Contracts	15	24
Troubled Debt Restructurings, Modification Amount	4,390	7,443
Non Accural Status [Member] | Construction and Land Develolpment [Member]
Financing Receivable, Modifications, Number of Contracts	4	7
Troubled Debt Restructurings, Modification Amount	730	1,606
Non Accural Status [Member] | Commercial Real Estate [Member]
Financing Receivable, Modifications, Number of Contracts	6	8
Troubled Debt Restructurings, Modification Amount	2,617	3,936
Non Accural Status [Member] | Home Equity Line of Credit [Member]
Financing Receivable, Modifications, Number of Contracts	1	1
Troubled Debt Restructurings, Modification Amount	150	150
Non Accural Status [Member] | Residential Real Estate [Member]
Financing Receivable, Modifications, Number of Contracts	1	3
Troubled Debt Restructurings, Modification Amount	10	685
Non Accural Status [Member] | Real Estate [Member]
Financing Receivable, Modifications, Number of Contracts	12	19
Troubled Debt Restructurings, Modification Amount	3,507	6,377
Non Accural Status [Member] | Commercial and Industrial [Member]
Financing Receivable, Modifications, Number of Contracts	3	5
Troubled Debt Restructurings, Modification Amount	883	1,066
Non Accural Status [Member] | Consumer Other Financing Receivable [Member]
Financing Receivable, Modifications, Number of Contracts	0	0
Troubled Debt Restructurings, Modification Amount	$ 0	$ 0

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Preferred stock and common stock warrants (Details Textual) (USD $)	1 Months Ended	6 Months Ended					1 Months Ended		12 Months Ended
	Apr. 30, 2013	Jun. 30, 2013	Jun. 30, 2012	Dec. 31, 2012	Dec. 31, 2009	Dec. 31, 2008	Aug. 31, 2013 Subsequent Event [Member]	Feb. 28, 2013 Investor [Member]	Dec. 31, 2009 Warrant [Member]	Dec. 31, 2009 Preferred Stock [Member]	Dec. 31, 2009 Capital Purchase Program [Member]
Preferred stock, shares authorized		1,000,000		1,000,000		1,000,000
Preferred Stock, Shares Issued		16,000		16,000	16,000
Preferred Stock, Value, Issued		$ 15,783,000		$ 15,573,000						$ 14,159,000
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period									357,675
Share-based Compensation Arrangement by Share-based Payment Award, Options, Exercises in Period, Total Intrinsic Value											16,000,000
Value of Common Stock Warrant and Discount on Preferred Stock at Issuance										1,841,000	1,841,000
Class of Warrant or Right, Exercise Price of Warrants or Rights									$ 6.71
Preferred Stock, Accretion Period		5 years
Preferred Stock, Accretion of Redemption Discount		210,000	194,000
Preferred Stock, Dividend Rate, Percentage		5.00%
Preferred Stock, Dividend Rate, Variable		9.00%
Stock Repurchased During Period, Value	1,800,000
proceeds from issuance of preferred stock to investor								16,000,000
Preferred stock retired amount							$ 5,000,000

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Securities (Details 2) (USD $) In Thousands, unless otherwise specified	6 Months Ended	12 Months Ended
	Jun. 30, 2013 Number	Dec. 31, 2012 Number
Number Of Securities, Less Than 12 Months	16	4
Fair Value, Less than 12 Months	$ 21,487	$ 2,976
Gross Unrealized Losses, Less than 12 Months,	581	97
Number Of Securities, 12 Months or Greater	0	0
Fair Value, 12 Months or Greater	0	0
Gross Unrealized Losses, 12 Months or Greater	0	0
Number Of Securities, Total	16	4
Fair Value, Total	21,487	2,976
Gross Unrealized Losses, Total	581	97
Collateralized Mortgage Backed Securities [Member]
Number Of Securities, Less Than 12 Months	2
Fair Value, Less than 12 Months	6,834
Gross Unrealized Losses, Less than 12 Months,	143
Number Of Securities, 12 Months or Greater	0
Fair Value, 12 Months or Greater	0
Gross Unrealized Losses, 12 Months or Greater	0
Number Of Securities, Total	2
Fair Value, Total	6,834
Gross Unrealized Losses, Total	143
Municipal Bonds [Member]
Number Of Securities, Less Than 12 Months	10	1
Fair Value, Less than 12 Months	11,263	598
Gross Unrealized Losses, Less than 12 Months,	350	5
Number Of Securities, 12 Months or Greater	0	0
Fair Value, 12 Months or Greater	0	0
Gross Unrealized Losses, 12 Months or Greater	0	0
Number Of Securities, Total	10	1
Fair Value, Total	11,263	598
Gross Unrealized Losses, Total	350	5
Corporate Bond Securities [Member]
Number Of Securities, Less Than 12 Months	4	3
Fair Value, Less than 12 Months	3,390	2,378
Gross Unrealized Losses, Less than 12 Months,	88	92
Number Of Securities, 12 Months or Greater	0	0
Fair Value, 12 Months or Greater	0	0
Gross Unrealized Losses, 12 Months or Greater	0	0
Number Of Securities, Total	4	3
Fair Value, Total	3,390	2,378
Gross Unrealized Losses, Total	$ 88	$ 92

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Loans and allowance for loan losses (Details Textual) (USD $)	Jun. 30, 2013	Dec. 31, 2012
Impaired Loans, with Related Allowance, Recorded Investment	$ 18,210,000	$ 4,302,000
Commitments For Troubled Debt Restructurings	197,000
Financing Receivable, Recorded Investment, Nonaccrual Status	16,501,000	13,067,000
Impaired Loans [Member]
Impaired Loans, with Related Allowance, Recorded Investment	$ 35,052,000	$ 28,110,000

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Stock compensation plans (Details Textual) (USD $)	6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012
Stock Issued During Period, Shares, Stock Options Exercised	31,968
Omnibus Stock Ownership and Long Term Incentive Plan 2009 [Member]
Common Stock, Capital Shares Reserved for Future Issuance	500,000
Employee Plan Option 2007 [Member]
Stock Granted During Period, Value, Share-based Compensation, Net of Forfeitures	$ 178,000
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period	5 years
Allocated Share-based Compensation Expense	$ 0	$ 18,000

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Loans and allowance for loan losses (Details 2) (USD $) In Thousands, unless otherwise specified	6 Months Ended	12 Months Ended
	Jun. 30, 2013	Dec. 31, 2012
Impaired Loans, with No Related Allowance, Recorded Investment	$ 16,842	$ 23,808
Impaired Loans, with No Related Allowance, Unpaid Principal Balance	18,501	26,501
Impaired Loans, with No Related Allowance, Average Recorded Investment	18,616	27,382
Impaired Loans, with No Related Allowance, Interest Income Recognized	287	1,052
Impaired Loans, with Related Allowance, Recorded Investment	18,210	4,302
Impaired Loans, with Related Allowance, Unpaid Principal Balance	20,016	4,360
Impaired Loans, with Related Allowance, Related Loan Loss Allowance	4,715	1,775
Impaired Loans, with Related Allowance, Average Recorded Investment	20,101	4,400
Impaired Loans, with Related Allowance, Interest Income Recognized	352	241
Real Estate Construction and Land Develolpment [Member]
Impaired Loans, with No Related Allowance, Recorded Investment	1,073	1,942
Impaired Loans, with No Related Allowance, Unpaid Principal Balance	1,267	2,074
Impaired Loans, with No Related Allowance, Average Recorded Investment	1,340	2,114
Impaired Loans, with No Related Allowance, Interest Income Recognized	12	53
Impaired Loans, with Related Allowance, Recorded Investment	868	0
Impaired Loans, with Related Allowance, Unpaid Principal Balance	868	0
Impaired Loans, with Related Allowance, Related Loan Loss Allowance	73	0
Impaired Loans, with Related Allowance, Average Recorded Investment	868	0
Impaired Loans, with Related Allowance, Interest Income Recognized	29	0
Commercial Real Estate [Member]
Impaired Loans, with No Related Allowance, Recorded Investment	10,745	16,547
Impaired Loans, with No Related Allowance, Unpaid Principal Balance	11,377	18,009
Impaired Loans, with No Related Allowance, Average Recorded Investment	11,407	18,335
Impaired Loans, with No Related Allowance, Interest Income Recognized	174	785
Impaired Loans, with Related Allowance, Recorded Investment	13,864	3,177
Impaired Loans, with Related Allowance, Unpaid Principal Balance	15,435	3,180
Impaired Loans, with Related Allowance, Related Loan Loss Allowance	3,239	1,309
Impaired Loans, with Related Allowance, Average Recorded Investment	15,485	3,181
Impaired Loans, with Related Allowance, Interest Income Recognized	251	177
Home Equity Line of Credit [Member]
Impaired Loans, with No Related Allowance, Recorded Investment	387	414
Impaired Loans, with No Related Allowance, Unpaid Principal Balance	529	608
Impaired Loans, with No Related Allowance, Average Recorded Investment	529	608
Impaired Loans, with No Related Allowance, Interest Income Recognized	8	17
Impaired Loans, with Related Allowance, Recorded Investment	367	364
Impaired Loans, with Related Allowance, Unpaid Principal Balance	404	395
Impaired Loans, with Related Allowance, Related Loan Loss Allowance	81	187
Impaired Loans, with Related Allowance, Average Recorded Investment	404	395
Impaired Loans, with Related Allowance, Interest Income Recognized	6	16
Residential Real Estate [Member]
Impaired Loans, with No Related Allowance, Recorded Investment	3,352	3,800
Impaired Loans, with No Related Allowance, Unpaid Principal Balance	3,505	4,111
Impaired Loans, with No Related Allowance, Average Recorded Investment	3,517	4,151
Impaired Loans, with No Related Allowance, Interest Income Recognized	55	155
Impaired Loans, with Related Allowance, Recorded Investment	2,002	616
Impaired Loans, with Related Allowance, Unpaid Principal Balance	2,190	631
Impaired Loans, with Related Allowance, Related Loan Loss Allowance	271	134
Impaired Loans, with Related Allowance, Average Recorded Investment	2,209	656
Impaired Loans, with Related Allowance, Interest Income Recognized	35	38
Real Estate [Member]
Impaired Loans, with No Related Allowance, Recorded Investment	15,557	22,703
Impaired Loans, with No Related Allowance, Unpaid Principal Balance	16,678	24,802
Impaired Loans, with No Related Allowance, Average Recorded Investment	16,793	25,208
Impaired Loans, with No Related Allowance, Interest Income Recognized	249	1,010
Impaired Loans, with Related Allowance, Recorded Investment	17,101	4,157
Impaired Loans, with Related Allowance, Unpaid Principal Balance	18,897	4,206
Impaired Loans, with Related Allowance, Related Loan Loss Allowance	3,664	1,630
Impaired Loans, with Related Allowance, Average Recorded Investment	18,966	4,232
Impaired Loans, with Related Allowance, Interest Income Recognized	321	231
Commercial and Industrial, Real Estate Loans [Member]
Impaired Loans, with No Related Allowance, Recorded Investment	1,285	1,103
Impaired Loans, with No Related Allowance, Unpaid Principal Balance	1,823	1,697
Impaired Loans, with No Related Allowance, Average Recorded Investment	1,822	2,170
Impaired Loans, with No Related Allowance, Interest Income Recognized	38	42
Impaired Loans, with Related Allowance, Recorded Investment	1,109	95
Impaired Loans, with Related Allowance, Unpaid Principal Balance	1,119	104
Impaired Loans, with Related Allowance, Related Loan Loss Allowance	1,051	95
Impaired Loans, with Related Allowance, Average Recorded Investment	1,135	118
Impaired Loans, with Related Allowance, Interest Income Recognized	31	7
Consumer Other Financing Receivable [Member]
Impaired Loans, with No Related Allowance, Recorded Investment	0	2
Impaired Loans, with No Related Allowance, Unpaid Principal Balance	0	2
Impaired Loans, with No Related Allowance, Average Recorded Investment	1	4
Impaired Loans, with No Related Allowance, Interest Income Recognized	0	0
Impaired Loans, with Related Allowance, Recorded Investment	0	50
Impaired Loans, with Related Allowance, Unpaid Principal Balance	0	50
Impaired Loans, with Related Allowance, Related Loan Loss Allowance	0	50
Impaired Loans, with Related Allowance, Average Recorded Investment	0	50
Impaired Loans, with Related Allowance, Interest Income Recognized	0	3
Impaired Loans [Member]
Impaired Loans, with Related Allowance, Recorded Investment	35,052	28,110
Impaired Loans, with Related Allowance, Unpaid Principal Balance	38,517	30,861
Impaired Loans, with Related Allowance, Related Loan Loss Allowance	4,715	1,775
Impaired Loans, with Related Allowance, Average Recorded Investment	38,717	31,782
Impaired Loans, with Related Allowance, Interest Income Recognized	$ 639	$ 1,293

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Operating segments (Tables)

6 Months Ended

Jun. 30, 2013

Segment Reporting [Abstract]

Schedule of Segment Reporting Information, by Segment [Table Text Block]

Financial performance, reflective of inter-company eliminations, for the three and six months ended June 30, 2013 and 2012, and selected balance sheet information, reflective of inter-company eliminations, at June 30, 2013 and 2012 for each segment is as follows:

	Three months ended June 30, 2013								Three months ended June 30, 2012
	Commercial/Retail		Mortgage		Holding				Commercial/Retail		Mortgage		Holding
	Bank		Division		Company		Total		Bank		Division		Company		Total
	(in thousands)								(in thousands)
Interest income	$	6,079	$	475	$	2	$	6,556	$	6,614	$	705	$	2	$	7,321
Interest expense		430		476		60		966		614		703		65		1,382
Net interest income		5,649		(1)		(58)		5,590		6,000		2		(63)		5,939
Provision for loan losses		100		-		-		100		-		-		-		-
Net interest income after
provision for loan losses		5,549		(1)		(58)		5,490		6,000		2		(63)		5,939
Non-interest income		622		3,584		-		4,206		452		4,356		-		4,808
Non-interest expense		4,535		2,964		35		7,534		4,650		2,623		52		7,325
Income (loss) before income taxes		1,636		619		(93)		2,162		1,802		1,735		(115)		3,422
Income tax (benefit) expense		478		246		(32)		692		509		684		(39)		1,154
Net income (loss)	$	1,158	$	373	$	(61)	$	1,470	$	1,293	$	1,051	$	(76)	$	2,268
Total Assets	$	610,950	$	58,116	$	423	$	669,489	$	617,997	$	59,141	$	338	$	677,476
Net Loans		408,027		56,403		-		464,430		448,032		57,708		-		505,740
Equity		2,286		1,060		50,846		54,192		1,935		1,693		46,515		50,143

	Six months ended June 30, 2013								Six months ended June 30, 2012
	Commercial/Retail		Mortgage		Holding				Commercial/Retail		Mortgage		Holding
	Bank		Division		Company		Total		Bank		Division		Company		Total
	(in thousands)								(in thousands)
Interest income	$	12,379	$	1,264	$	4	$	13,647	$	13,409	$	1,416	$	4	$	14,829
Interest expense		610		1,265		119		1,994		1,294		1,416		131		2,841
Net interest income		11,769		(1)		(115)		11,653		12,115		-		(127)		11,988
Provision for loan losses		500		-		-		500		1,460		-		-		1,460
Net interest income after
provision for loan losses		11,269		(1)		(115)		11,153		10,655		-		(127)		10,528
Non-interest income		1,041		7,479		-		8,520		902		7,525		-		8,427
Non-interest expense		9,075		5,716		125		14,916		9,033		4,729		73		13,835
Income (loss) before income taxes		3,235		1,762		(240)		4,757		2,524		2,796		(200)		5,120
Income tax (benefit) expense		949		702		(82)		1,569		589		1,103		(68)		1,624
Net income (loss)	$	2,286	$	1,060	$	(158)	$	3,188	$	1,935	$	1,693	$	(132)	$	3,496
Total Assets	$	610,950	$	58,116	$	423	$	669,489	$	617,997	$	59,141	$	338	$	677,476
Net Loans		408,027		56,403		-		464,430		448,032		57,708		-		505,740
Equity		2,286		1,060		50,846		54,192		1,935		1,693		46,515		50,143

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Consolidated Statement of Stockholders' Equity (USD $) In Thousands	Total	Preferred Stock [Member]	Common Stock [Member]	Warrant [Member]	Additional Paid-in Capital [Member]	Retained Earnings [Member]	Stock in Directors' Rabbi Trust [Member]	Directors' Deferred Fees Obligation [Member]	Accumulated Other Comprehensive Income (Loss) [Member]
Balance at Dec. 31, 2012	$ 53,862	$ 15,573	$ 338	$ 1,841	$ 15,906	$ 15,408	$ (1,050)	$ 1,050	$ 1,747
Net income	3,188	0	0	0	0	3,188	0	0	0
Other comprehensive loss, net of tax	(910)	0	0	0	0	0	0	0	(910)
Directors' fees deferred less payment of deferred fees	0	0	0	0	0	0	(136)	136	0
Stock options exercised	294	0	32	0	262	0	0	0	0
Repurchase of comon stock warrants	(1,841)	0	0	(1,841)	0	0	0	0	0
Accretion of preferred stock discount	0	210	0	0	0	(210)	0	0	0
Preferred stock dividends	(401)	0	0	0	0	(401)	0	0	0
Balance at Jun. 30, 2013	$ 54,192	$ 15,783	$ 3,419	$ 0	$ 16,168	$ 17,985	$ (1,186)	$ 1,186	$ 837

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Summary

6 Months Ended

Jun. 30, 2013

Organization, Consolidation and Presentation Of Financial Statements [Abstract]

Nature of Operations [Text Block]

Note A – Summary

Carolina Bank Holdings, Inc. (the “Holding Company” or the “Company”) is a North Carolina corporation organized in 2000. Effective October 31, 2000, pursuant to the plan of share exchange approved by the shareholders of Carolina Bank (the “Bank”), all of the outstanding shares of common stock of the Bank were exchanged for shares of common stock of the Holding Company. The Holding Company presently has no employees.

The Bank was incorporated in August 1996, and began banking operations in November 1996. It is engaged in lending and deposit gathering activities in Guilford, Alamance, Randolph and Forsyth Counties, North Carolina and operates under the laws of North Carolina, the rules and regulations of the Federal Deposit Insurance Corporation and the North Carolina Commissioner of Banks. The Bank has eight full-service banking locations, comprised of four in Greensboro and one in each of Asheboro, Burlington, High Point, and Winston-Salem. A wholesale mortgage division is located at the Greensboro corporate headquarters, and retail residential mortgage loan production offices are located in Burlington, Chapel Hill, Hillsborough, and Raleigh. All offices, except the Chapel Hill, Raleigh and Hillsborough mortgage loan production offices, are in the Piedmont Triad region of North Carolina.

The Holding Company files periodic reports with the Securities and Exchange Commission and is also subject to regulation by the Federal Reserve Board.

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Use of estimates

6 Months Ended

Jun. 30, 2013

Use Of Estimates [Abstract]

Use of Estimates [Text Block]

Use of estimates

The financial statements are prepared in accordance with accounting principles generally accepted in the United States of America which require management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses and the valuation of other real estate owned.

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Consolidation

6 Months Ended

Jun. 30, 2013

Business Combinations [Abstract]

Condensed Financial Information of Parent Company Only Disclosure [Text Block]

Note B - Consolidation

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, the Bank. The Bank also owns two limited liability companies for the purpose of holding foreclosed real estate, the assets and operations of which are consolidated into Carolina Bank and included herein. All significant inter-company transactions and balances have been eliminated.

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Loans and allowance for loan losses (Details) (USD $) In Thousands, unless otherwise specified	6 Months Ended	12 Months Ended
	Jun. 30, 2013	Dec. 31, 2012
Allowance for loan losses, Beginning of year balance	$ 9,944	$ 11,793
Allowance for loan losses, Provision for loan losses	500	2,360
Allowance for loan losses, Charge-offs	(590)	(4,461)
Allowance for loan losses, Recoveries	277	252
Allowance for loan losses, Ending of year balance	10,131	9,944
Allowance for loan losses, Ending balance individually evaluated for impairment	4,715	1,775
Allowance for loan losses, Ending balance collectively evaluated for impairment	5,416	8,169
Loans Outstanding, Ending of year balance	418,158	461,728
Loans Outstanding, Ending balance individually evaluated for impairment	35,052	28,110
Loans Outstanding, Ending balance collectively evaluated for impairment	383,106	433,618
Construction and Land Develolpment [Member]
Allowance for loan losses, Beginning of year balance	2,349	2,948
Allowance for loan losses, Provision for loan losses	(1,084)	(450)
Allowance for loan losses, Charge-offs	(73)	(159)
Allowance for loan losses, Recoveries	20	10
Allowance for loan losses, Ending of year balance	1,212	2,349
Allowance for loan losses, Ending balance individually evaluated for impairment	73	0
Allowance for loan losses, Ending balance collectively evaluated for impairment	1,139	2,349
Loans Outstanding, Ending of year balance	40,202	64,669
Loans Outstanding, Ending balance individually evaluated for impairment	1,941	1,942
Loans Outstanding, Ending balance collectively evaluated for impairment	38,261	62,727
Commercial Real Estate [Member]
Allowance for loan losses, Beginning of year balance	4,068	3,690
Allowance for loan losses, Provision for loan losses	972	1,592
Allowance for loan losses, Charge-offs	(173)	(1,318)
Allowance for loan losses, Recoveries	5	104
Allowance for loan losses, Ending of year balance	4,872	4,068
Allowance for loan losses, Ending balance individually evaluated for impairment	3,239	1,309
Allowance for loan losses, Ending balance collectively evaluated for impairment	1,633	2,759
Loans Outstanding, Ending of year balance	191,681	215,258
Loans Outstanding, Ending balance individually evaluated for impairment	24,609	19,724
Loans Outstanding, Ending balance collectively evaluated for impairment	167,072	195,534
Home Equity Line of Credit [Member]
Allowance for loan losses, Beginning of year balance	609	1,126
Allowance for loan losses, Provision for loan losses	(84)	(198)
Allowance for loan losses, Charge-offs	(32)	(324)
Allowance for loan losses, Recoveries	0	5
Allowance for loan losses, Ending of year balance	493	609
Allowance for loan losses, Ending balance individually evaluated for impairment	81	187
Allowance for loan losses, Ending balance collectively evaluated for impairment	412	422
Loans Outstanding, Ending of year balance	67,389	66,523
Loans Outstanding, Ending balance individually evaluated for impairment	754	778
Loans Outstanding, Ending balance collectively evaluated for impairment	66,635	65,745
Residential Real Estate [Member]
Allowance for loan losses, Beginning of year balance	863	994
Allowance for loan losses, Provision for loan losses	(133)	357
Allowance for loan losses, Charge-offs	(8)	(498)
Allowance for loan losses, Recoveries	14	10
Allowance for loan losses, Ending of year balance	736	863
Allowance for loan losses, Ending balance individually evaluated for impairment	271	134
Allowance for loan losses, Ending balance collectively evaluated for impairment	465	729
Loans Outstanding, Ending of year balance	49,490	48,857
Loans Outstanding, Ending balance individually evaluated for impairment	5,354	4,416
Loans Outstanding, Ending balance collectively evaluated for impairment	44,136	44,441
Commercial and Industrial [Member]
Allowance for loan losses, Beginning of year balance	1,885	2,985
Allowance for loan losses, Provision for loan losses	114	920
Allowance for loan losses, Charge-offs	(251)	(2,142)
Allowance for loan losses, Recoveries	214	122
Allowance for loan losses, Ending of year balance	1,962	1,885
Allowance for loan losses, Ending balance individually evaluated for impairment	1,051	95
Allowance for loan losses, Ending balance collectively evaluated for impairment	911	1,790
Loans Outstanding, Ending of year balance	63,970	61,251
Loans Outstanding, Ending balance individually evaluated for impairment	2,394	1,198
Loans Outstanding, Ending balance collectively evaluated for impairment	61,576	60,053
Consumer Other Financing Receivable [Member]
Allowance for loan losses, Beginning of year balance	133	46
Allowance for loan losses, Provision for loan losses	(81)	106
Allowance for loan losses, Charge-offs	(53)	(20)
Allowance for loan losses, Recoveries	24	1
Allowance for loan losses, Ending of year balance	23	133
Allowance for loan losses, Ending balance individually evaluated for impairment	0	50
Allowance for loan losses, Ending balance collectively evaluated for impairment	23	83
Loans Outstanding, Ending of year balance	5,426	5,170
Loans Outstanding, Ending balance individually evaluated for impairment	0	52
Loans Outstanding, Ending balance collectively evaluated for impairment	5,426	5,118
Unallocated Financing Receivables [Member]
Allowance for loan losses, Beginning of year balance	37	4
Allowance for loan losses, Provision for loan losses	796	33
Allowance for loan losses, Charge-offs	0	0
Allowance for loan losses, Recoveries	0	0
Allowance for loan losses, Ending of year balance	833	37
Allowance for loan losses, Ending balance individually evaluated for impairment	0	0
Allowance for loan losses, Ending balance collectively evaluated for impairment	833	37
Loans Outstanding, Ending of year balance	0	0
Loans Outstanding, Ending balance individually evaluated for impairment	0	0
Loans Outstanding, Ending balance collectively evaluated for impairment	$ 0	$ 0

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Fair value measurements (Tables)

6 Months Ended

Jun. 30, 2013

Fair Value Measurements [Abstract]

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

Below is a summary of activity related to interest rate lock commitments for the six months ending June 30, 2013 and 2012.

	Interest Rate Lock Commitments
	Level 3
	Fair Value		Fair Value
	(in thousands)
Balance, December 31, 2012 and 2011	$	56	$	47
Gains (losses) included in other income		(56)		232
Transfers in and out		-		-
Balance, June 30, 2013 and 2012	$	-	$	279

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

Assets measured at fair value on a recurring basis at June 30, 2013 and December 31, 2012 are summarized below:

	Assets
	Measured at		Fair Value Measured Using
Description	Fair Value		Level 1		Level 2		Level 3
	(in thousands)
At June 30, 2013:
Securities available-for-sale:
Municipal securities	$	22,934	$	-	$	22,934	$	-
Mortgage-backed securities		11,199		-		11,199		-
Corporate securities		15,234		13,755		1,479		-
Unrestricted stock		78		78		-		-
Total available-for-sale securities		49,445		13,833		35,612		-
Loans held for sale		56,403		-		56,403		-
Total	$	105,848	$	13,833	$	92,015	$	-
At December 31, 2012:
Securities available-for-sale:
Municipal securities	$	18,347	$	-	$	18,347	$	-
Mortgage-backed securities		11,003		-		11,003		-
Corporate securities		12,231		6,891		5,340		-
Unrestricted stock		455		455		-		-
Total available-for-sale securities		42,036		7,346		34,690		-
Loans held for sale		131,762		-		131,762		-
Interest rate lock commitments		56		-		-		56
Total	$	173,854	$	7,346	$	166,452	$	56

Fair Value Assets Measured On Non Recurring Basis [Table Text Block]

Assets measured at fair value on a non-recurring basis at June 30, 2013 and December 31, 2012 are summarized below:

	Assets
	Measured at		Fair Value Measured Using
Description	Fair Value		Level 1		Level 2		Level 3
	(in thousands)
At June 30, 2013:
Impaired loans	$	30,337	$	-	$	-	$	30,337
Other real estate owned		4,031		-		-		4,031
At December 31, 2012:
Impaired loans	$	26,335	$	-	$	-	$	26,335
Other real estate owned		5,940		-		-		5,940

Fair Value Measurements, Recurring and Nonrecurring, Valuation Techniques [Table Text Block]

For Level 3 assets and liabilities measured at fair value on a recurring or non-recurring basis as of June 30, 2013, the significant unobservable inputs used in the fair value measurements were as follows:

				Significant	Significant
	Fair Value at		Valuation	Unobservable	Unobservable
Description	June 30, 2013		Technique	Inputs	Input Value
	($ in thousands)
Impaired loans	$	30,337	Appraised Value / Discounted Cash  Flows / Market Value of Note	Appraisals and/or sales of comparable properties / Independent quotes		n/a
Other real estate owned	$	4,031	Appraised Value / Comparable Sales / Other Estimates from Independent Sources	Appraisals and/or sales of comparable properties / Independent quotes/bids / Forward sale contract values		n/a

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

For financial liabilities such as non-interest bearing demand deposits, NOW, money market and savings deposits, the carrying amount is a reasonable estimate of fair value due to these products having no stated maturity.

					Fair Value Measurements
					Quoted
					Prices in
					Active Markets		Significant
					for Identical		Other		Significant
					Assets or		Observable		Unobservable
	Carrying		Fair		Liabilities		Inputs		Inputs
	Amount		Value		(Level 1)		(Level 2)		(Level 3)
	(in thousands)
June 30, 2013
Financial Instruments - Assets
Investment securities held-to-maturity	$	9,294	$	9,071	$	-	$	9,071	$	-
Net non-impaired loans held for investment		377,690		380,608		-		-		380,608
Financial Instruments - Liabilities
Time deposits		167,204		169,074		-		-		169,074
Trust preferred subordinated debt		10,310		7,392		-		-		7,392
December 31, 2012
Financial Instruments - Assets
Investment securities held-to-maturity	$	211	$	225	$	-	$	225	$	-
Net non-impaired loans held for investment		425,449		427,484		-		-		427,484
Financial Instruments - Liabilities
Time deposits		174,153		175,729		-		-		175,729
Trust preferred subordinated debt		10,310		7,833		-		-		7,833

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Earnings per share (Details) (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012
Net income available to common stockholders	$ 1,164	$ 1,961	$ 2,577	$ 2,887
Weighted average outstanding shares - basic (in shares)	3,403	3,387	3,396	3,387
Dilutive effect of stock options and warrants (in shares)	20	0	21	0
Weighted average shares - diluted (in shares)	3,423	3,387	3,417	3,387
Diluted net income per share (in dollars per share)	$ 0.34	$ 0.58	$ 0.75	$ 0.85

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Operating segments (Details Textual) (USD $)	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012	Dec. 31, 2012
Product Warranty Expense	$ 100,000	$ 163,000	$ 309,000	$ 291,000
Product Warranty Accrual	1,831,000		1,831,000		1,624,000
Product Warranty Accrual, Payments			720,000
Current Principal Balance of Loans	1,747,000		1,747,000
Fair Value Repurchased and Included in Loans Held-for-sale at Fair Value	$ 1,483,000		$ 1,483,000

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Fair value measurements (Details Textual) (USD $) In Thousands, unless otherwise specified					6 Months Ended
	Jun. 30, 2013	Dec. 31, 2012	Jun. 30, 2013 Fair Value, Inputs, Level 3 [Member]	Dec. 31, 2012 Fair Value, Inputs, Level 3 [Member]	Jun. 30, 2013 Interest Rate Lock Commitments [Member] Fair Value, Inputs, Level 3 [Member]
Fair Value Assumption For Trust Preferred Debt					Discounting cash flows using a rate 3% higher than the actual current rate over an estimated remaining term of fourteen years in 2013 and twelve years in 2012. The trust preferred debt was issued at favorable rates in 2004, and current rates for subordinated debt with less favorable capital treatment is approximately 3% higher.
Held-To-Maturity Securities	$ 9,294	$ 211	$ 0	$ 0

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Fair value measurements (Details) (Fair Value, Measurements, Recurring [Member], Fair Value, Inputs, Level 3 [Member], USD $) In Thousands, unless otherwise specified	6 Months Ended	12 Months Ended
	Jun. 30, 2013	Dec. 31, 2012
Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 3 [Member]
Beginning balance	$ 279	$ 47
Gains (losses) included in other income	(56)	232
Transfers in and out	0	0
Ending balance	$ 0	$ 279

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Loans and allowance for loan losses (Details 4) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2013	Dec. 31, 2012
Loans	$ 418,158	$ 461,728
Construction and Land Develolpment [Member]
Loans	40,202	64,669
Construction and Land Develolpment [Member] | Pass [Member]
Loans	37,035	60,928
Construction and Land Develolpment [Member] | Special Mention [Member]
Loans	868	0
Construction and Land Develolpment [Member] | Criticized [Member]
Loans	2,299	3,741
Commercial Real Estate [Member]
Loans	191,681	215,258
Commercial Real Estate [Member] | Pass [Member]
Loans	163,279	182,314
Commercial Real Estate [Member] | Special Mention [Member]
Loans	6,761	8,641
Commercial Real Estate [Member] | Criticized [Member]
Loans	21,641	24,303
Home Equity Line of Credit [Member]
Loans	67,389	66,523
Home Equity Line of Credit [Member] | Pass [Member]
Loans	65,266	64,042
Home Equity Line of Credit [Member] | Special Mention [Member]
Loans	34	588
Home Equity Line of Credit [Member] | Criticized [Member]
Loans	2,089	1,893
Residential Real Estate [Member]
Loans	49,490	48,857
Residential Real Estate [Member] | Pass [Member]
Loans	43,515	43,042
Residential Real Estate [Member] | Special Mention [Member]
Loans	1,135	391
Residential Real Estate [Member] | Criticized [Member]
Loans	4,840	5,424
Commercial and Industrial [Member]
Loans	63,970	61,251
Commercial and Industrial [Member] | Pass [Member]
Loans	58,835	58,454
Commercial and Industrial [Member] | Special Mention [Member]
Loans	3,816	400
Commercial and Industrial [Member] | Criticized [Member]
Loans	1,319	2,397
Consumer Other Financing Receivable [Member]
Loans	5,426	5,170
Consumer Other Financing Receivable [Member] | Pass [Member]
Loans	5,396	5,101
Consumer Other Financing Receivable [Member] | Special Mention [Member]
Loans	30	7
Consumer Other Financing Receivable [Member] | Criticized [Member]
Loans	$ 0	$ 62

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Consolidated Balance Sheets (Parenthetical) (USD $)	Jun. 30, 2013	Dec. 31, 2012
Preferred stock, no par value (in dollars per share)	$ 0	$ 0
Preferred stock, shares authorized	1,000,000	1,000,000
Preferred stock, shares issued	16,000	16,000
Preferred stock, shares outstanding	16,000	16,000
Common stock, par value (in dollars per share)	$ 1	$ 1
Common stock, shares authorized	20,000,000	20,000,000
Common stock, shares issued	3,419,013	3,387,045
Common stock, shares outstanding	3,419,013	3,387,045

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Preferred stock and common stock warrants

6 Months Ended

Jun. 30, 2013

Equity [Abstract]

Preferred Stock [Text Block]

Note G – Preferred stock and common stock warrants

In December 2008, the shareholders of the Company approved an amendment to the Articles of Incorporation authorizing the issuance of up to 1,000,000 shares of preferred stock, no par value. In January 2009, the Company issued 16,000 shares of preferred stock to the U.S. Treasury and received $16 million under the Treasury’s Capital Purchase Program. The Company granted a warrant to purchase 357,675 shares of common stock at a price of $6.71 per share to the U.S. Treasury as part of the preferred stock transaction. In accordance with accounting principles, the preferred stock and common stock warrant were valued independently and their relative fair market values were allocated to the $16 million received. Under the relative value method, $14,159,000 was allocated to the preferred stock and $1,841,000 to the common stock warrant. The discount of $1,841,000 on the preferred stock is accreted over five years using the effective yield method, thereby increasing preferred stock dividends. The accretion of the discount for the first six months of 2013 and 2012 was $210,000 and $194,000, respectively. Dividends at 5% per annum are payable quarterly for the first five years; the dividend increases to 9% per annum after the fifth year.

The U S. Treasury sold its holding of $16 million in preferred stock to private investors in February 2013, and the warrant to the U.S. Treasury was repurchased by the Company for $1.8 million in April 2013. The Company plans to retire $5 million of its outstanding preferred stock in August 2013.

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Consolidated Statements of Comprehensive Income (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012
Net income	$ 1,470	$ 2,268	$ 3,188	$ 3,496
Other comprehensive income (loss):
Unrealized holding gains (losses)	(1,203)	200	(1,186)	736
Tax effect	409	(68)	403	(250)
Reclassification of gains recognized in net income	(170)	0	(192)	0
Tax effect	58	0	65	0
Other Comprehensive Income (Loss), Net of Tax, Portion Attributable to Parent	(906)	132	(910)	486
Comprehensive income	$ 564	$ 2,400	$ 2,278	$ 3,982

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Derivatives and financial instruments (Details 2) (USD $) In Thousands, unless otherwise specified	6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012
Net gains (losses) resulting from changes in fair value	$ (934)	$ 51

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Consolidated Balance Sheets (USD $) In Thousands, unless otherwise specified	Jun. 30, 2013	Dec. 31, 2012
Assets
Cash and due from banks	$ 6,904	$ 7,913
Interest-bearing deposits with banks	93,245	7,186
Securities available-for-sale, at fair value	49,445	42,036
Securities held-to-maturity	9,294	211
Loans held for sale	56,403	131,762
Loans	418,158	461,728
Less allowance for loan losses	(10,131)	(9,944)
Net loans	408,027	451,784
Premises and equipment, net	17,362	17,732
Other real estate owned	4,031	5,940
Bank-owned life insurance	10,948	10,765
Other assets	13,830	16,539
Total assets	669,489	691,868
Liabilities and Stockholders' Equity
Non-interest-bearing demand	76,754	73,032
NOW, money market and savings	337,446	343,740
Time	167,204	174,153
Total deposits	581,404	590,925
Advances from the Federal Home Loan Bank	2,934	15,982
Securities sold under agreements to repurchase	3,237	1,950
Subordinated debentures	19,601	19,563
Other liabilities and accrued expenses	8,121	9,586
Total liabilities	615,297	638,006
Commitments and contingencies - Note O
Stockholders' equity
Preferred stock, no par value, authorized 1,000,000 shares; issued and outstanding 16,000 shares	15,783	15,573
Common stock, $1 par value; authorized 20,000,000 shares; issued and outstanding 3,419,013 in 2013 and 3,387,045 in 2012	3,419	3,387
Common stock warrants	0	1,841
Additional paid-in capital	16,168	15,906
Retained earnings	17,985	15,408
Stock in directors' rabbi trust	(1,186)	(1,050)
Directors' deferred fees obligation	1,186	1,050
Accumulated other comprehensive income	837	1,747
Total stockholders’ equity	54,192	53,862
Total liabilities and stockholders’ equity	$ 669,489	$ 691,868

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Fair value measurements (Details 1) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2013	Dec. 31, 2012
Assets Measured at Fair Value	$ 105,848	$ 173,854
Fair Value, Inputs, Level 1 [Member]
Assets Measured at Fair Value	13,833	7,346
Fair Value, Inputs, Level 2 [Member]
Assets Measured at Fair Value	92,015	166,452
Fair Value, Inputs, Level 3 [Member]
Assets Measured at Fair Value	0	56
Municipal Bonds [Member]
Assets Measured at Fair Value	22,934	18,347
Municipal Bonds [Member] | Fair Value, Inputs, Level 1 [Member]
Assets Measured at Fair Value	0	0
Municipal Bonds [Member] | Fair Value, Inputs, Level 2 [Member]
Assets Measured at Fair Value	22,934	18,347
Municipal Bonds [Member] | Fair Value, Inputs, Level 3 [Member]
Assets Measured at Fair Value	0	0
Collateralized Mortgage Backed Securities [Member]
Assets Measured at Fair Value	11,199	11,003
Collateralized Mortgage Backed Securities [Member] | Fair Value, Inputs, Level 1 [Member]
Assets Measured at Fair Value	0	0
Collateralized Mortgage Backed Securities [Member] | Fair Value, Inputs, Level 2 [Member]
Assets Measured at Fair Value	11,199	11,003
Collateralized Mortgage Backed Securities [Member] | Fair Value, Inputs, Level 3 [Member]
Assets Measured at Fair Value	0	0
Corporate Bond Securities [Member]
Assets Measured at Fair Value	15,234	12,231
Corporate Bond Securities [Member] | Fair Value, Inputs, Level 1 [Member]
Assets Measured at Fair Value	13,755	6,891
Corporate Bond Securities [Member] | Fair Value, Inputs, Level 2 [Member]
Assets Measured at Fair Value	1,479	5,340
Corporate Bond Securities [Member] | Fair Value, Inputs, Level 3 [Member]
Assets Measured at Fair Value	0	0
Unrestricted Stock [Member]
Assets Measured at Fair Value	78	455
Unrestricted Stock [Member] | Fair Value, Inputs, Level 1 [Member]
Assets Measured at Fair Value	78	455
Unrestricted Stock [Member] | Fair Value, Inputs, Level 2 [Member]
Assets Measured at Fair Value	0	0
Unrestricted Stock [Member] | Fair Value, Inputs, Level 3 [Member]
Assets Measured at Fair Value	0	0
Available-for-sale Securities [Member]
Assets Measured at Fair Value	49,445	42,036
Available-for-sale Securities [Member] | Fair Value, Inputs, Level 1 [Member]
Assets Measured at Fair Value	13,833	7,346
Available-for-sale Securities [Member] | Fair Value, Inputs, Level 2 [Member]
Assets Measured at Fair Value	35,612	34,690
Available-for-sale Securities [Member] | Fair Value, Inputs, Level 3 [Member]
Assets Measured at Fair Value	0	0
Loans Held For Sale [Member]
Assets Measured at Fair Value	56,403	131,762
Loans Held For Sale [Member] | Fair Value, Inputs, Level 1 [Member]
Assets Measured at Fair Value	0	0
Loans Held For Sale [Member] | Fair Value, Inputs, Level 2 [Member]
Assets Measured at Fair Value	56,403	131,762
Loans Held For Sale [Member] | Fair Value, Inputs, Level 3 [Member]
Assets Measured at Fair Value	0	0
Interest Rate Lock Commitments [Member]
Assets Measured at Fair Value		56
Interest Rate Lock Commitments [Member] | Fair Value, Inputs, Level 1 [Member]
Assets Measured at Fair Value		0
Interest Rate Lock Commitments [Member] | Fair Value, Inputs, Level 2 [Member]
Assets Measured at Fair Value		0
Interest Rate Lock Commitments [Member] | Fair Value, Inputs, Level 3 [Member]
Assets Measured at Fair Value		$ 56

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Derivatives and financial instruments (Tables)

6 Months Ended

Jun. 30, 2013

Derivatives and Financial Instruments [Abstract]

Schedule of Derivative Instruments [Table Text Block]

The table below provides the carrying values of derivative instruments at December 31, 2012:

	Carrying Value		Carrying Value		Gain (Loss)		Notional Amount
Derivatives designated as	of Assets		of Liabilities		in Income		of Derivative
hedging instruments:	(in thousands)
At December 31, 2012:
Mortgage loan rate lock commitments	$	56	$	-	$	56	$	-
Mortgage-backed securities forward sales	$	-	$	16	$	(16)	$	5,250

Schedule of Aggregate Fair Value and Unpaid Principal of Loans Held for Sale [Table Text Block]

The below presents the aggregate fair value and aggregate unpaid principal of loans held for sale at June 30, 2013 and December 31, 2012:

June 30, 2013

December 31, 2012

Aggregate Fair

Aggregate Fair

Value Less

Value Less

Aggregate

Aggregate

Aggregate

Aggregate

Aggregate

Unpaid

Unpaid

Aggregate

Unpaid

Unpaid

Fair Value

Principal

Principal

Fair Value

Principal

Principal

(in thousands)

Loans held for sale, at fair value

$

56,403

$

56,113

$

290

$

131,762

$

130,539

$

1,223

Schedule of Gain (Loss) on Sales of Loans Net [Table Text Block]

An immaterial portion of these amounts was attributable to changes in instrument-specific credit risk.

	Loans Held for Sale, At Fair Value
	Six Months Ended June 30,
	2013		2012
	(in thousands)
Net gains (losses) resulting from changes in fair value	$	(934)	$	51

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Accounting Policies (Policies)

6 Months Ended

Jun. 30, 2013

Accounting Policies [Abstract]

Consolidation, Policy [Policy Text Block]

Consolidation 

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, the Bank. TheBank also owns two limited liability companies for the purpose of holding foreclosed real estate, the assets and operations of which are consolidated into Carolina Bank and included herein. All significant inter-company transactions and balances have been eliminated.

Basis of Accounting, Policy [Policy Text Block]

Basis of presentation

In management’s opinion, the financial information, which is unaudited, reflects all adjustments (consisting solely of normal recurring adjustments) necessary for a fair presentation of the financial information as of and for the three and six months ended June 30, 2013 and 2012, in conformity with accounting principles generally accepted in the United States of America. Operating results for the three and six months ended June 30, 2013 and 2012 are not necessarily indicative of the results that may be expected for future annual periods.

The Company’s financial statements are presented in accordance with Accounting Standards Codification (“ASC”) Topic 105, “The FASB Accounting Standards Codification and The Hierarchy of Generally Accepted Accounting Principles”, which codifies generally accepted accounting principles (GAAP) in the United States.

The organization and business of the Company, accounting policies followed, and other information are contained in the notes to the consolidated financial statements of the Company as of and for the years ended December 31, 2012 and 2011, filed with the Securities and Exchange Commission as part of the Company’s annual report on Form 10-K. These financial statements should be read in conjunction with the annual financial statements.

Use of Estimates, Policy [Policy Text Block]

Use of estimates

The financial statements are prepared in accordance with accounting principles generally accepted in the United States of America which require management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses and the valuation of other real estate owned.

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Loans and allowance for loan losses (Details 3) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2013	Dec. 31, 2012
Non-accrual loans	$ 16,501	$ 13,067
Real Estate Construction and Land Develolpment [Member]
Non-accrual loans	949	1,778
Commercial Real Estate [Member]
Non-accrual loans	12,111	7,908
Home Equity Line of Credit [Member]
Non-accrual loans	627	654
Residential Real Estate [Member]
Non-accrual loans	1,506	1,551
Real Estate [Member]
Non-accrual loans	15,193	11,891
Commercial and Industrial, Real Estate Loans [Member]
Non-accrual loans	1,308	1,126
Consumer Other Financing Receivable [Member]
Non-accrual loans	$ 0	$ 50

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Fair value measurements (Details 4) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2013	Dec. 31, 2012
Financial Instruments - Assets, Carrying Amount
Securities held-to-maturity	$ 9,294	$ 211
Net non-impaired loans held for investment, Carrying Amount	377,690	425,449
Financial Instruments - Liabilities, Carrying Amount
Time	167,204	174,153
Trust preferred subordinated debt, Carrying Amount	10,310	10,310
Financial Instruments - Assets, Fair Value
Investment securities held-to-maturity, Fair Value	9,071	225
Net non-impaired loans held for investment, Fair Value	380,608	427,484
Financial Instruments - Liabilities ,Fair Value
Time deposits, Fair Value	169,074	175,729
Trust preferred subordinated debt, Fair Value	7,392	7,833
Fair Value, Inputs, Level 1 [Member]
Financial Instruments - Assets, Carrying Amount
Securities held-to-maturity	0	0
Net non-impaired loans held for investment, Carrying Amount	0	0
Financial Instruments - Liabilities, Carrying Amount
Time	0	0
Trust preferred subordinated debt, Carrying Amount	0	0
Fair Value, Inputs, Level 2 [Member]
Financial Instruments - Assets, Carrying Amount
Securities held-to-maturity	9,071	225
Net non-impaired loans held for investment, Carrying Amount	0	0
Financial Instruments - Liabilities, Carrying Amount
Time	0	0
Trust preferred subordinated debt, Carrying Amount	0	0
Fair Value, Inputs, Level 3 [Member]
Financial Instruments - Assets, Carrying Amount
Securities held-to-maturity	0	0
Net non-impaired loans held for investment, Carrying Amount	380,608	427,484
Financial Instruments - Liabilities, Carrying Amount
Time	169,074	175,729
Trust preferred subordinated debt, Carrying Amount	$ 7,392	$ 7,833

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Securities (Details 1) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2013	Dec. 31, 2012
Available-for-sale Securities, Due in one year or less, Amortized Cost Basis	$ 949
Available-for-sale Securities, Due from one to five years, Amortized Cost Basis	10,221
Available-for-sale Securities, Due from five to ten years, Amortized Cost Basis	11,557
Available-for-sale Securities, Over ten years, Amortized Cost Basis	14,780
Available-for-sale Securities, Amortized Cost	48,135
Available-for-sale Securities, Due in one year or less, Fair Value	959
Available-for-sale Securities, Due from one to five years, Fair Value	10,383
Available-for-sale Securities, Due from five to ten years, Fair Value	11,927
Available-for-sale Securities, Over ten years, Fair Value	14,899
Available-for-sale Securities, Estimated Fair Value	49,367
Held-to-maturity Securities, Due in one year or less, Amortized Cost	0
Held-to-maturity Securities, Due from one to five years, Amortized Cost	0
Held-to-maturity Securities, Due from five to ten years, Amortized Cost	1,372
Held-to-maturity Securities, Over ten years, Amortized Cost	2,973
Held-To-Maturity Securities	9,294	211
Held-to-maturity Securities, Due in one year or less, Fair Value	0
Held-to-maturity Securities, Due from one to five years, Fair Value	0
Held-to-maturity Securities,Due from five to ten years, Fair Value	1,327
Held-to-maturity Securities, Over ten years, Fair Value	2,906
Held-To-Maturity Securities, Fair Value	9,071	225
Collateralized Mortgage Backed Securities [Member]
Available-for-sale Securities, Amortized Cost	10,628
Available-for-sale Securities, Estimated Fair Value	11,199
Held-To-Maturity Securities	4,949
Held-To-Maturity Securities, Fair Value	$ 4,838	$ 225

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Subordinated debentures (Details Textual) (USD $)	12 Months Ended					12 Months Ended	3 Months Ended	6 Months Ended		12 Months Ended
	Dec. 31, 2004	Jun. 30, 2013	Dec. 31, 2012	Jun. 30, 2012	Dec. 31, 2009 Bank Holding Companies [Member]	Dec. 31, 2004 Junior Subordinated Debt [Member] Carolina Capital Trust [Member]	Sep. 30, 2008 Junior Subordinated Debt [Member] Carolina Bank Holdings Inc [Member]	Jun. 30, 2013 Junior Subordinated Debt [Member] Carolina Bank Holdings Inc [Member]	Dec. 31, 2012 Junior Subordinated Debt [Member] Carolina Bank Holdings Inc [Member]	Dec. 31, 2004 Trust Preferred Securities Subject to Mandatory Redemption [Member]
Unsecured Debt						$ 10,310,000	$ 9,300,000
Debt Instrument, Description of Variable Rate Basis						LIBOR plus 2% per annum	LIBOR plus 4% per annum
Debt Instrument, Basis Spread on Variable Rate						2.00%	4.00%
Proceeds from Issuance of Trust Preferred Securities	10,000,000
Preferred Stock, Redemption Date										Jan. 07, 2035
Debt Instrument, Unamortized Discount (Premium), Net								9,291,000	9,253,000
Debt Instrument, Maturity Date Range, Start								Sep. 30, 2013
Debt Instrument, Maturity Date Range, End								Sep. 30, 2018
Payments of Debt Issuance Costs							373,000
Debt Instrument, Offering Amortization Period							60 months
Assets		$ 669,489,000	$ 691,868,000	$ 677,476,000	$ 15,000,000,000

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Operating segments (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012	Jun. 30, 2013	Jun. 30, 2012	Dec. 31, 2012
Interest income	$ 6,556	$ 7,321	$ 13,647	$ 14,829
Interest expense	966	1,382	1,994	2,841
Net interest income	5,590	5,939	11,653	11,988
Provision for loan losses	100	0	500	1,460
Net interest income after provision for loan losses	5,490	5,939	11,153	10,528
Non-interest income	4,206	4,808	8,520	8,427
Non-interest expense	7,534	7,325	14,916	13,835
Income (loss) before income taxes	2,162	3,422	4,757	5,120
Income tax (benefit) expense	692	1,154	1,569	1,624
Net income (loss)	1,470	2,268	3,188	3,496
Total Assets	669,489	677,476	669,489	677,476	691,868
Net Loans	464,430	505,740	464,430	505,740
Equity	54,192	50,143	54,192	50,143	53,862
Commercial Retail Bank [Member]
Interest income	6,079	6,614	12,379	13,409
Interest expense	430	614	610	1,294
Net interest income	5,649	6,000	11,769	12,115
Provision for loan losses	100	0	500	1,460
Net interest income after provision for loan losses	5,549	6,000	11,269	10,655
Non-interest income	622	452	1,041	902
Non-interest expense	4,535	4,650	9,075	9,033
Income (loss) before income taxes	1,636	1,802	3,235	2,524
Income tax (benefit) expense	478	509	949	589
Net income (loss)	1,158	1,293	2,286	1,935
Total Assets	610,950	617,997	610,950	617,997
Net Loans	408,027	448,032	408,027	448,032
Equity	2,286	1,935	2,286	1,935
Mortgage Division [Member]
Interest income	475	705	1,264	1,416
Interest expense	476	703	1,265	1,416
Net interest income	(1)	2	(1)	0
Provision for loan losses	0	0	0	0
Net interest income after provision for loan losses	(1)	2	(1)	0
Non-interest income	3,584	4,356	7,479	7,525
Non-interest expense	2,964	2,623	5,716	4,729
Income (loss) before income taxes	619	1,735	1,762	2,796
Income tax (benefit) expense	246	684	702	1,103
Net income (loss)	373	1,051	1,060	1,693
Total Assets	58,116	59,141	58,116	59,141
Net Loans	56,403	57,708	56,403	57,708
Equity	1,060	1,693	1,060	1,693
Holding Company [Member]
Interest income	2	2	4	4
Interest expense	60	65	119	131
Net interest income	(58)	(63)	(115)	(127)
Provision for loan losses	0	0	0	0
Net interest income after provision for loan losses	(58)	(63)	(115)	(127)
Non-interest income	0	0	0	0
Non-interest expense	35	52	125	73
Income (loss) before income taxes	(93)	(115)	(240)	(200)
Income tax (benefit) expense	(32)	(39)	(82)	(68)
Net income (loss)	(61)	(76)	(158)	(132)
Total Assets	423	338	423	338
Net Loans	0	0	0	0
Equity	$ 50,846	$ 46,515	$ 50,846	$ 46,515

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Earnings per share

6 Months Ended

Jun. 30, 2013

Earnings Per Share [Abstract]

Earnings Per Share [Text Block]

Note F - Earnings per share

Earnings per share has been determined on a basic basis and a diluted basis which considers potential stock issuances. For the three and six months ended June 30, 2013 and 2012, basic earnings per share has been computed based upon the weighted average common shares outstanding as shown below.

The only potential issuances of Company stock are stock options granted to various officers of the Bank. The following is a summary of the diluted earnings per share calculation for the three and six months ended June 30, 2013 and 2012.

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2013		2012		2013		2012
	(in thousands, except per share data)
Net income available to common stockholders	$	1,164	$	1,961	$	2,577	$	2,887
Weighted average outstanding shares - basic		3,403		3,387		3,396		3,387
Dilutive effect of stock options and warrants		20		-		21		-
Weighted average shares - diluted		3,423		3,387		3,417		3,387
Diluted net income per share	$	0.34	$	0.58	$	0.75	$	0.85

For the three months ended June 30, 2013 and 2012, there were stock options and warrants covering 0 and 514,256 shares, respectively, that were excluded in computing diluted common shares outstanding given that they were anti-dilutive since the exercise price exceeded the average market price for the period.

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Commitments (Tables)

6 Months Ended

Jun. 30, 2013

Commitments and Contingencies Disclosure [Abstract]

Operating Leases of Lessee Disclosure [Table Text Block]

Total future minimum lease payments, excluding renewal options, at June 30, 2013 under the leases are as follows:

	(in thousands)
Due in one year	$	515
Due in Years 2 and 3		854
Due in Years 4 and 5		474
Due after Year 5		2,790
	$	4,633

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Loans and allowance for loan losses (Details 1) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2013	Dec. 31, 2012
Number of Days Past Due, 30-59 Days	$ 3,026	$ 760
Number of Days Past Due, 60-89 Days	104	0
Number of Days Past Due, 90 Days or More	16,855	13,100
Total Past Due	19,985	13,860
Current	398,173	447,868
Total Loans	418,158	461,728
Loans Past Due 90 Days or More & Accruing	354	33
Real Estate Construction and Land Develolpment [Member]
Number of Days Past Due, 30-59 Days	357	0
Number of Days Past Due, 60-89 Days	0	0
Number of Days Past Due, 90 Days or More	949	1,778
Total Past Due	1,306	1,778
Current	38,896	62,891
Total Loans	40,202	64,669
Loans Past Due 90 Days or More & Accruing	0	0
Commercial Real Estate Loans [Member]
Number of Days Past Due, 30-59 Days	0	0
Number of Days Past Due, 60-89 Days	53	0
Number of Days Past Due, 90 Days or More	12,111	7,908
Total Past Due	12,164	7,908
Current	179,517	207,350
Total Loans	191,681	215,258
Loans Past Due 90 Days or More & Accruing	0	0
Home Equity Line of Credit, Real Estate Loans [Member]
Number of Days Past Due, 30-59 Days	0	27
Number of Days Past Due, 60-89 Days	51	0
Number of Days Past Due, 90 Days or More	627	654
Total Past Due	678	681
Current	66,711	65,842
Total Loans	67,389	66,523
Loans Past Due 90 Days or More & Accruing	0	0
Residential Real Estate Loans [Member]
Number of Days Past Due, 30-59 Days	381	665
Number of Days Past Due, 60-89 Days	0	0
Number of Days Past Due, 90 Days or More	1,506	1,584
Total Past Due	1,887	2,249
Current	47,603	46,608
Total Loans	49,490	48,857
Loans Past Due 90 Days or More & Accruing	0	33
Real Estate Loans [Member]
Number of Days Past Due, 30-59 Days	738	692
Number of Days Past Due, 60-89 Days	104	0
Number of Days Past Due, 90 Days or More	15,193	11,924
Total Past Due	16,035	12,616
Current	332,727	382,691
Total Loans	348,762	395,307
Loans Past Due 90 Days or More & Accruing	0	33
Commercial and Industrial, Real Estate Loans [Member]
Number of Days Past Due, 30-59 Days	2,288	67
Number of Days Past Due, 60-89 Days	0	0
Number of Days Past Due, 90 Days or More	1,662	1,126
Total Past Due	3,950	1,193
Current	60,020	60,058
Total Loans	63,970	61,251
Loans Past Due 90 Days or More & Accruing	354	0
Consumer Other Financing Receivable, Real Estate Loans [Member]
Number of Days Past Due, 30-59 Days	0	1
Number of Days Past Due, 60-89 Days	0	0
Number of Days Past Due, 90 Days or More	0	50
Total Past Due	0	51
Current	5,426	5,119
Total Loans	5,426	5,170
Loans Past Due 90 Days or More & Accruing	$ 0	$ 0

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Operating segments

6 Months Ended

Jun. 30, 2013

Segment Reporting [Abstract]

Segment Reporting Disclosure [Text Block]

Note I – Operating segments

The Company is considered to have three principal business segments in 2013 and 2012, the Commercial/Retail Bank, the Mortgage Division, and the Holding Company. The Mortgage Division began originating home mortgage loans through third parties and selling these loans to investors in late 2007. A retail mortgage operation was added to the mortgage division in July 2010. Financial performance, reflective of inter-company eliminations, for the three and six months ended June 30, 2013 and 2012, and selected balance sheet information, reflective of inter-company eliminations, at June 30, 2013 and 2012 for each segment is as follows:

	Three months ended June 30, 2013								Three months ended June 30, 2012
	Commercial/Retail		Mortgage		Holding				Commercial/Retail		Mortgage		Holding
	Bank		Division		Company		Total		Bank		Division		Company		Total
	(in thousands)								(in thousands)
Interest income	$	6,079	$	475	$	2	$	6,556	$	6,614	$	705	$	2	$	7,321
Interest expense		430		476		60		966		614		703		65		1,382
Net interest income		5,649		(1)		(58)		5,590		6,000		2		(63)		5,939
Provision for loan losses		100		-		-		100		-		-		-		-
Net interest income after
provision for loan losses		5,549		(1)		(58)		5,490		6,000		2		(63)		5,939
Non-interest income		622		3,584		-		4,206		452		4,356		-		4,808
Non-interest expense		4,535		2,964		35		7,534		4,650		2,623		52		7,325
Income (loss) before income taxes		1,636		619		(93)		2,162		1,802		1,735		(115)		3,422
Income tax (benefit) expense		478		246		(32)		692		509		684		(39)		1,154
Net income (loss)	$	1,158	$	373	$	(61)	$	1,470	$	1,293	$	1,051	$	(76)	$	2,268
Total Assets	$	610,950	$	58,116	$	423	$	669,489	$	617,997	$	59,141	$	338	$	677,476
Net Loans		408,027		56,403		-		464,430		448,032		57,708		-		505,740
Equity		2,286		1,060		50,846		54,192		1,935		1,693		46,515		50,143

	Six months ended June 30, 2013								Six months ended June 30, 2012
	Commercial/Retail		Mortgage		Holding				Commercial/Retail		Mortgage		Holding
	Bank		Division		Company		Total		Bank		Division		Company		Total
	(in thousands)								(in thousands)
Interest income	$	12,379	$	1,264	$	4	$	13,647	$	13,409	$	1,416	$	4	$	14,829
Interest expense		610		1,265		119		1,994		1,294		1,416		131		2,841
Net interest income		11,769		(1)		(115)		11,653		12,115		-		(127)		11,988
Provision for loan losses		500		-		-		500		1,460		-		-		1,460
Net interest income after
provision for loan losses		11,269		(1)		(115)		11,153		10,655		-		(127)		10,528
Non-interest income		1,041		7,479		-		8,520		902		7,525		-		8,427
Non-interest expense		9,075		5,716		125		14,916		9,033		4,729		73		13,835
Income (loss) before income taxes		3,235		1,762		(240)		4,757		2,524		2,796		(200)		5,120
Income tax (benefit) expense		949		702		(82)		1,569		589		1,103		(68)		1,624
Net income (loss)	$	2,286	$	1,060	$	(158)	$	3,188	$	1,935	$	1,693	$	(132)	$	3,496
Total Assets	$	610,950	$	58,116	$	423	$	669,489	$	617,997	$	59,141	$	338	$	677,476
Net Loans		408,027		56,403		-		464,430		448,032		57,708		-		505,740
Equity		2,286		1,060		50,846		54,192		1,935		1,693		46,515		50,143

The Mortgage Division has experienced strong growth in originations since its establishment in 2007 due to low interest rates and due to the purchase of a retail mortgage loan production office in July of 2010 which was expanded into new cities and into several of our branch offices. The mortgage division increased its staffing and overhead in 2012 to meet the increased demand and to comply with expanded compliance and quality control regulations. Non-interest income from the mortgage division decreased in the three months ending June 30, 2013 compared to the three months ending June 30, 2012 due to higher interest rates; however, non-interest expenses increased in the 2013 period due to the overhead added in the last half of 2012. Interest rate risk has been minimized by obtaining optional loan sales commitments when loan origination commitments are made or by entering into hedging transactions whereby mortgage backed securities are sold for the estimated closing value of loan commitments. Borrower fraud is a risk that has been minimized by prudent underwriting and by obtaining indemnification from the originating bank or broker for the risks the Company assumes. Warranty expenses and related warranty liabilities were established in 2009 to provide for potential claims that might arise from borrower fraud or underwriting errors. Warranty expenses were $100,000 and $163,000 for the three months ended June 30, 2013 and 2012, respectively, and were $309,000 and $291,000 for the six months ended June 30, 2013 and 2012, respectively. The warranty liability, which is available to fund future warranty claims, was $1,831,000 and $1,624,000 at June 30, 2013 and December 31, 2012, respectively. Ten warranty claims totaling $720,000 have been paid since establishment of the mortgage division in 2007. In addition, three loans with a total current principal balance of $1,747,000 and fair value of $1,483,000 have been repurchased and are included in loans held for sale at fair value.

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Stock compensation plans

6 Months Ended

Jun. 30, 2013

Disclosure Of Compensation Related Costs, Share-Based Payments [Abstract]

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

Note E - Stock compensation plans

The Company’s shareholders approved the 2009 Omnibus Stock Ownership and Long Term Incentive Plan (“Omnibus Plan”) in 2009 to replace three expired stock option plans, a nonqualified plan for directors (Director Plan) and two incentive stock option plans for management and employees (Employee Plans). The Omnibus Plan provides for the grant of incentive stock options, non-qualified stock options, restricted stock, long-term incentive compensation units and stock appreciation rights to employees and directors. An aggregate of 500,000 shares of the Company’s common stock have been reserved for issuance under the terms of the Omnibus Plan.

There were no stock option grants in 2012 or the first six months of 2013. The fair value of employee plan options granted in December 2007 was $178,000 and was expensed over a five year vesting period. Total expense related to the 2007 grants was $0 and $18,000 in the first six months of 2013 and 2012, respectively. At June 30, 2013, there was no unrecognized compensation cost related to unvested share-based compensation.

31,968 new shares of common stock were issued in the first six months of 2013 as a result of the exercise of incentive stock options.

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Consolidated Statements of Cash Flows (USD $) In Thousands, unless otherwise specified	6 Months Ended
	Jun. 30, 2013	Jun. 30, 2012
Cash flows from operating activities
Net income	$ 3,188	$ 3,496
Adjustments to reconcile net income to net cash provided by operating activities
Provision for loan losses	500	1,460
Depreciation	424	441
Increase in cash surrender value of bank-owned life insurance	(183)	(188)
Stock-based compensation expense	0	18
Common stock warrants repurchased for less than book value	(41)	0
Deferred income taxes	499	758
Accretion, net	(33)	(35)
Amortization of subordinated debt discount	38	37
Decrease (increase) in fair value of loans held for sale	934	(51)
(Gain) loss on sale of other real estate owned	21	(46)
Gain on sale of investments	(192)	0
Gain on sale of loans held for sale	(8,763)	(7,577)
Impairment of other real estate owned	607	606
Proceeds from sale of loans held for sale	655,857	563,157
Originations of loans held for sale	(572,669)	(521,282)
(Increase) decrease in other assets	2,679	(1,342)
Increase (decrease) in other liabilities and accrued expenses	(645)	1,544
Net cash provided by operating activities	82,221	40,996
Cash flows from investing activities
Purchases of investment securities available-for-sale	(10,758)	(4,386)
Purchases of investment securities held-to-maturity	(9,296)	0
Maturities and calls of securities available-for-sale	247	1,035
Repayments from mortgage-backed securities available-for-sale	1,108	1,461
Repayments from mortgage-backed securities held-to-maturity	46	79
Net decrease in loans	41,315	23,375
Proceeds from sales of investment securities	1,007	0
Improvements to other real estate owned	(6)	(177)
Purchases of premises and equipment	(54)	(433)
Proceeds from sales of other real estate owned	3,229	2,332
Net cash provided by investing activities	26,838	23,286
Cash flows from financing activities
Net decrease in deposits	(9,521)	(4,536)
Net decrease in Federal Home Loan Bank Advances	(13,048)	(46)
Increase in securities sold under agreements to repurchase	1,287	3,567
Proceeds from exercise of stock options	294	0
Repurchase of common stock warrants	(1,800)	0
Dividends paid	(1,221)	(415)
Net cash used for financing activities	(24,009)	(1,430)
Net increase in cash and cash equivalents	85,050	62,852
Cash and cash equivalents at beginning of period	15,099	13,311
Cash and cash equivalents at end of period	100,149	76,163
Supplemental disclosure of cash flow information
Cash paid during the period for interest	1,904	2,953
Cash paid during the period for income taxes	905	1,850
Supplemental disclosure of non-cash transactions
Transfer of loans to other real estate owned	1,942	2,371
Dividends declared but not paid	0	405
Accretion of preferred stock discount	210	194
Change in unrealized gains on securities available-for-sale, net of tax	$ (910)	$ 486

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Fair value measurements (Details 2) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2013	Dec. 31, 2012
Impaired Loan [Member]
Assets measured at fair value on a non-recurring basis	$ 30,337	$ 26,335
Impaired Loan [Member] | Fair Value, Inputs, Level 1 [Member]
Assets measured at fair value on a non-recurring basis	0	0
Impaired Loan [Member] | Fair Value, Inputs, Level 2 [Member]
Assets measured at fair value on a non-recurring basis	0	0
Impaired Loan [Member] | Fair Value, Inputs, Level 3 [Member]
Assets measured at fair value on a non-recurring basis	30,337	26,335
Other Real Estate Owned [Member]
Assets measured at fair value on a non-recurring basis	4,031	5,940
Other Real Estate Owned [Member] | Fair Value, Inputs, Level 1 [Member]
Assets measured at fair value on a non-recurring basis	0	0
Other Real Estate Owned [Member] | Fair Value, Inputs, Level 2 [Member]
Assets measured at fair value on a non-recurring basis	0	0
Other Real Estate Owned [Member] | Fair Value, Inputs, Level 3 [Member]
Assets measured at fair value on a non-recurring basis	$ 4,031	$ 5,940

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Loans and allowance for loan losses (Details 6) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2013 Number	Jun. 30, 2012 Number	Jun. 30, 2013 Number	Jun. 30, 2012 Number
Pre-Modification, Number of Contracts	1	3	2	5
Pre-Modification, Recorded Investment	$ 0	$ 113	$ 0	$ 236
Post-Modification, Number of Contracts	1	3	2	5
Post-Modification, Recorded Investment	155	320	419	753
Rate Modification [Member]
Pre-Modification, Number of Contracts	0	1	0	1
Pre-Modification, Recorded Investment	0	32	0	32
Post-Modification, Number of Contracts	0	1	0	1
Post-Modification, Recorded Investment	0	29	0	29
Term Modification [Member]
Pre-Modification, Number of Contracts	0	2	0	3
Pre-Modification, Recorded Investment	0	81	0	81
Post-Modification, Number of Contracts	0	2	0	3
Post-Modification, Recorded Investment	0	291	0	603
Payment Modification [Member]
Pre-Modification, Number of Contracts	1	0	2	1
Pre-Modification, Recorded Investment	0	0	0	123
Post-Modification, Number of Contracts	1	0	2	1
Post-Modification, Recorded Investment	155	0	419	121
Combination Modification [Member]
Pre-Modification, Number of Contracts	0	0	0	0
Pre-Modification, Recorded Investment	0	0	0	0
Post-Modification, Number of Contracts	0	0	0	0
Post-Modification, Recorded Investment	0	0	0	0
Construction and Land Develolpment [Member]
Pre-Modification, Number of Contracts	1	2	2	3
Pre-Modification, Recorded Investment	0	32	0	32
Post-Modification, Number of Contracts	1	2	2	3
Post-Modification, Recorded Investment	155	240	419	552
Construction and Land Develolpment [Member] | Rate Modification [Member]
Pre-Modification, Number of Contracts	0	1	0	1
Pre-Modification, Recorded Investment	0	32	0	32
Post-Modification, Number of Contracts	0	1	0	1
Post-Modification, Recorded Investment	0	29	0	29
Construction and Land Develolpment [Member] | Term Modification [Member]
Pre-Modification, Number of Contracts	0	1	0	2
Pre-Modification, Recorded Investment	0	0	0	0
Post-Modification, Number of Contracts	0	1	0	2
Post-Modification, Recorded Investment	0	211	0	523
Construction and Land Develolpment [Member] | Payment Modification [Member]
Pre-Modification, Number of Contracts	1	0	2	0
Pre-Modification, Recorded Investment	0	0	0	0
Post-Modification, Number of Contracts	1	0	2	0
Post-Modification, Recorded Investment	155	0	419	0
Construction and Land Develolpment [Member] | Combination Modification [Member]
Pre-Modification, Number of Contracts	0	0	0	0
Pre-Modification, Recorded Investment	0	0	0	0
Post-Modification, Number of Contracts	0	0	0	0
Post-Modification, Recorded Investment	0	0	0	0
Commercial Real Estate [Member]
Pre-Modification, Number of Contracts		1		2
Pre-Modification, Recorded Investment		81		204
Post-Modification, Number of Contracts		1		2
Post-Modification, Recorded Investment		80		201
Commercial Real Estate [Member] | Rate Modification [Member]
Pre-Modification, Number of Contracts		0		0
Pre-Modification, Recorded Investment		0		0
Post-Modification, Number of Contracts		0		0
Post-Modification, Recorded Investment		0		0
Commercial Real Estate [Member] | Term Modification [Member]
Pre-Modification, Number of Contracts		1		1
Pre-Modification, Recorded Investment		81		81
Post-Modification, Number of Contracts		1		1
Post-Modification, Recorded Investment		80		80
Commercial Real Estate [Member] | Payment Modification [Member]
Pre-Modification, Number of Contracts		0		1
Pre-Modification, Recorded Investment		0		123
Post-Modification, Number of Contracts		0		1
Post-Modification, Recorded Investment		0		121
Commercial Real Estate [Member] | Combination Modification [Member]
Pre-Modification, Number of Contracts		0		0
Pre-Modification, Recorded Investment		0		0
Post-Modification, Number of Contracts		0		0
Post-Modification, Recorded Investment		0		0
Real Estate [Member]
Pre-Modification, Number of Contracts	1	3	2	5
Pre-Modification, Recorded Investment	0	113	0	236
Post-Modification, Number of Contracts	1	3	2	5
Post-Modification, Recorded Investment	155	320	419	753
Real Estate [Member] | Rate Modification [Member]
Pre-Modification, Number of Contracts	0	1	0	1
Pre-Modification, Recorded Investment	0	32	0	32
Post-Modification, Number of Contracts	0	1	0	1
Post-Modification, Recorded Investment	0	29	0	29
Real Estate [Member] | Term Modification [Member]
Pre-Modification, Number of Contracts	0	2	0	3
Pre-Modification, Recorded Investment	0	81	0	81
Post-Modification, Number of Contracts	0	2	0	3
Post-Modification, Recorded Investment	0	291	0	603
Real Estate [Member] | Payment Modification [Member]
Pre-Modification, Number of Contracts	1	0	2	1
Pre-Modification, Recorded Investment	0	0	0	123
Post-Modification, Number of Contracts	1	0	2	1
Post-Modification, Recorded Investment	155	0	419	121
Real Estate [Member] | Combination Modification [Member]
Pre-Modification, Number of Contracts	0	0	0	0
Pre-Modification, Recorded Investment	0	0	0	0
Post-Modification, Number of Contracts	0	0	0	0
Post-Modification, Recorded Investment	0	0	0	0
Commercial and Industrial [Member]
Pre-Modification, Number of Contracts		0	0	0
Pre-Modification, Recorded Investment		0	0	0
Post-Modification, Number of Contracts		0	0	0
Post-Modification, Recorded Investment		0	0	0
Commercial and Industrial [Member] | Rate Modification [Member]
Pre-Modification, Number of Contracts		0	0	0
Pre-Modification, Recorded Investment		0	0	0
Post-Modification, Number of Contracts		0	0	0
Post-Modification, Recorded Investment		0	0	0
Commercial and Industrial [Member] | Term Modification [Member]
Pre-Modification, Number of Contracts		0	0	0
Pre-Modification, Recorded Investment		0	0	0
Post-Modification, Number of Contracts		0	0	0
Post-Modification, Recorded Investment		0	0	0
Commercial and Industrial [Member] | Payment Modification [Member]
Pre-Modification, Number of Contracts		0	0	0
Pre-Modification, Recorded Investment		0	0	0
Post-Modification, Number of Contracts		0	0	0
Post-Modification, Recorded Investment		0	0	0
Commercial and Industrial [Member] | Combination Modification [Member]
Pre-Modification, Number of Contracts		0	0	0
Pre-Modification, Recorded Investment		0	0	0
Post-Modification, Number of Contracts		0	0	0
Post-Modification, Recorded Investment		0	0	0
Consumer Other Financing Receivable [Member]
Pre-Modification, Number of Contracts	0
Pre-Modification, Recorded Investment	0
Post-Modification, Number of Contracts	0
Post-Modification, Recorded Investment	0
Consumer Other Financing Receivable [Member] | Rate Modification [Member]
Pre-Modification, Number of Contracts	0
Pre-Modification, Recorded Investment	0
Post-Modification, Number of Contracts	0
Post-Modification, Recorded Investment	0
Consumer Other Financing Receivable [Member] | Term Modification [Member]
Pre-Modification, Number of Contracts	0
Pre-Modification, Recorded Investment	0
Post-Modification, Number of Contracts	0
Post-Modification, Recorded Investment	0
Consumer Other Financing Receivable [Member] | Payment Modification [Member]
Pre-Modification, Number of Contracts	0
Pre-Modification, Recorded Investment	0
Post-Modification, Number of Contracts	0
Post-Modification, Recorded Investment	0
Consumer Other Financing Receivable [Member] | Combination Modification [Member]
Pre-Modification, Number of Contracts	0
Pre-Modification, Recorded Investment	0
Post-Modification, Number of Contracts	0
Post-Modification, Recorded Investment	$ 0

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Earnings per share (Details Textual)	3 Months Ended
	Jun. 30, 2013	Jun. 30, 2012
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount	0	514,256

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Commitments (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2013
Due in one year	$ 515
Due in Years 2 and 3	854
Due in Years 4 and 5	474
Due after Year 5	2,790
Operating Leases, Future Minimum Payments Due	$ 4,633

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Fair value measurements

6 Months Ended

Jun. 30, 2013

Fair Value Measurements [Abstract]

Fair Value, Measurement Inputs, Disclosure [Text Block]

Note L – Fair value measurements

The Company has adopted the accounting standards within FASB Accounting Standards Codification (ASC) 820 “Fair Value Measurements and Disclosures”, which provides a framework for measuring fair value under GAAP and enhances disclosures about 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. The Company utilizes fair value measurements to record fair value adjustments to certain assets and to determine fair value disclosures. The Company has not elected the fair value option to value liabilities. Securities available-for-sale and loans held for sale are recorded at fair value on a recurring basis. Additionally, from time to time, the Company may be required to record at fair value other assets on a nonrecurring basis, such as impaired loans held for investment and certain other assets. These nonrecurring fair value adjustments typically involve application of lower of cost or market accounting or write-downs of individual assets.

When measuring fair value, valuation techniques should be appropriate in the circumstances and consistently applied. A hierarchy is used to prioritize valuation inputs into the following three levels to determine fair value:

Level 1 – quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2 – observable inputs other than the quoted prices included in Level 1.

Level 3 – unobservable inputs.

Fair Value on a Recurring Basis. The Company measures certain assets at fair value on a recurring basis and the following is a general description of the methods used to value such assets.

Investment Securities Available-for-Sale

Investment securities available-for-sale are recorded at fair value. Fair value measurement is based upon quoted prices, if available. If quoted prices are not available, fair values are measured using independent pricing models or other model-based valuation techniques such as the present value of future cash flows, adjusted for the security’s credit rating, prepayment assumptions and other factors such as credit loss assumptions. Level 1 securities include those traded on an active exchange, such as the New York Stock Exchange, U.S. Treasury securities and certain corporate bonds that are traded by dealers or brokers in active over-the-counter markets and money market funds. Level 2 securities include mortgage-backed securities issued by government sponsored entities, municipal bonds and non actively traded corporate debt securities. Securities classified as Level 3 include asset-backed securities in less liquid markets.

Loans Held for Sale

The Company opted to account for loans held for sale at fair value which is measured based on what secondary markets are currently offering for portfolios with similar characteristics. As such, the Company classifies loans subjected to recurring fair value adjustments as Level 2 valuation.

Interest Rate Lock Commitments

The Mortgage Division of the Company hedges some of its residential mortgage loans held for sale by selling mortgage backed securities on a forward basis. The forward sale mortgage backed securities are later purchased or closed when mandatory loan sales are consummated for the related mortgages that are originated. The value of the estimated loan commitments and open hedges are marked to market through the income statement. The significant unobservable input used in the Level 3 fair value measurement of the Company’s Interest Rate Lock Commitments (IRLCs) on hedged loans held for sale is the closing ratio, which represents the percentage of loans currently in a lock position which management estimates will ultimately close. Generally, the fair value of an IRLC is positive (negative) if the prevailing interest rate is lower (higher) than the IRLC rate. Therefore, an increase in the closing ratio (i.e., higher percentage of loans are estimated to close) will cause the fair value of the IRLC to increase if in a gain position, or decrease if in a loss position. The closing ratio is largely dependent on the loan processing stage that a loan is currently in and the change in prevailing interest rates from the time of the rate lock. The closing ratio is computed by management using historical data.

The fair value of interest rate lock commitments is based on servicing rate premium, origination income net of origination costs, fall out rates and changes in loan pricing between the commitment date and period end, typically month end. The Company classifies interest rate lock commitments as Level 3. Gain or loss on interest rate lock commitments for the period is included in mortgage banking income of non-interest income on the Consolidated Statements of Income. There have been no changes in valuation techniques for the six months ended June 30, 2013; however, the Mortgage Division discontinued hedging during the first six months of 2013 due to economic factors. All loans are currently sold on a “best efforts” basis where optional commitments are made with investors to sell loans shortly after optional commitments are consummated to originate loans with borrowers. Below is a summary of activity related to interest rate lock commitments for the six months ending June 30, 2013 and 2012.

	Interest Rate Lock Commitments
	Level 3
	Fair Value		Fair Value
	(in thousands)
Balance, December 31, 2012 and 2011	$	56	$	47
Gains (losses) included in other income		(56)		232
Transfers in and out		-		-
Balance, June 30, 2013 and 2012	$	-	$	279

Assets measured at fair value on a recurring basis at June 30, 2013 and December 31, 2012 are summarized below:

	Assets
	Measured at		Fair Value Measured Using
Description	Fair Value		Level 1		Level 2		Level 3
	(in thousands)
At June 30, 2013:
Securities available-for-sale:
Municipal securities	$	22,934	$	-	$	22,934	$	-
Mortgage-backed securities		11,199		-		11,199		-
Corporate securities		15,234		13,755		1,479		-
Unrestricted stock		78		78		-		-
Total available-for-sale securities		49,445		13,833		35,612		-
Loans held for sale		56,403		-		56,403		-
Total	$	105,848	$	13,833	$	92,015	$	-
At December 31, 2012:
Securities available-for-sale:
Municipal securities	$	18,347	$	-	$	18,347	$	-
Mortgage-backed securities		11,003		-		11,003		-
Corporate securities		12,231		6,891		5,340		-
Unrestricted stock		455		455		-		-
Total available-for-sale securities		42,036		7,346		34,690		-
Loans held for sale		131,762		-		131,762		-
Interest rate lock commitments		56		-		-		56
Total	$	173,854	$	7,346	$	166,452	$	56

Fair Value on a Non-recurring Basis. The Company measures certain assets at fair value on a non-recurring basis and the following is a general description of the methods used to value such assets.

Impaired Loans

The Company does not record loans at fair value on a recurring basis. However, from time to time, a loan is considered impaired and an allowance for loan losses is established. Loans for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms of the loan agreement are considered impaired. Impaired loans are recorded at fair value less estimated selling costs. Once a loan is identified as individually impaired, the Company measures impairment. Fair values of impaired loans are generally estimated using one of several methods, including collateral value, liquidation value, discounted cash flows and, in rare cases, the market value of the note. Those impaired loans not requiring an allowance represent loans for which the net present value of the expected cash flows or fair value of the collateral less costs to sell exceed the recorded investments in such loans. At June 30, 2013 and December 31, 2012, a majority of the total impaired loans were evaluated based on the fair value of the collateral. When the fair value of the collateral is based on an executed sales contract with an independent third party, the Company records the impaired loans as nonrecurring Level 1. If the collateral is based on another observable market price or a current appraised value, the Company records the impaired loans as nonrecurring Level 2. When an appraised value is not available or the Company determines the fair value of the collateral is further impaired below the appraised value and there is no observable market price, the Company records the impaired loan as nonrecurring Level 3. Impaired loans can also be evaluated for impairment using the present value of expected future cash flows discounted at the loan’s effective interest rate. The measurement of impaired loans using future cash flows discounted at the loan’s effective interest rate rather than the market rate of interest is not a fair value measurement and is therefore excluded from fair value disclosure requirements. Impaired loans are reviewed and evaluated on at least a quarterly basis for additional impairment and adjusted accordingly.

Other Real Estate Owned and Repossessed Assets

Properties acquired through, or in lieu of, loan foreclosure are held for sale and are initially recorded at fair value less costs to sell at the date of foreclosure. Subsequent to foreclosure, valuations are periodically performed by management and the assets are carried at the lower of carrying value or the new fair value less estimated selling costs. Fair value is generally based upon current appraisals, comparable sales, and other estimates of value obtained principally from independent sources, adjusted for selling costs. When the fair value of the collateral is based on an observable market price or a current appraised value, the Company records the asset as nonrecurring Level 2. However, the Company also considers other factors or recent developments which could result in adjustments to the collateral value estimates indicated in the appraisals such as changes in absorption rates or market conditions from the time of valuation. In situations where an appraisal less estimated selling costs is used to determine fair value, management adjustments are significant to the fair value measurements, or other means are used to estimate fair value in the absence of an appraisal, the Company records the impaired loan as nonrecurring Level 3 within the valuation hierarchy.

Securities Held to Maturity

The fair values of securities held to maturity are recorded on a non-recurring basis when an impairment in value that is deemed to be other than temporary occurs. Fair value measurement is based upon quoted prices, if available. If quoted prices are not available, fair values are measured using independent pricing models or other model-based valuation techniques such as the present value of future cash flows, adjusted for the security’s credit rating, prepayment assumptions and other factors such as credit loss assumptions. At June 30, 2013, there were no fair value adjustments related to $9,294,000 of securities held to maturity.

Assets measured at fair value on a non-recurring basis at June 30, 2013 and December 31, 2012 are summarized below:

	Assets
	Measured at		Fair Value Measured Using
Description	Fair Value		Level 1		Level 2		Level 3
	(in thousands)
At June 30, 2013:
Impaired loans	$	30,337	$	-	$	-	$	30,337
Other real estate owned		4,031		-		-		4,031
At December 31, 2012:
Impaired loans	$	26,335	$	-	$	-	$	26,335
Other real estate owned		5,940		-		-		5,940

Fair Value on a Recurring or Non-recurring Basis – Unobservable Inputs for Level 3. For Level 3 assets and liabilities measured at fair value on a recurring or non-recurring basis as of June 30, 2013, the significant unobservable inputs used in the fair value measurements were as follows:

				Significant	Significant
	Fair Value at		Valuation	Unobservable	Unobservable
Description	June 30, 2013		Technique	Inputs	Input Value
	($ in thousands)
Impaired loans	$	30,337	Appraised Value / Discounted Cash  Flows / Market Value of Note	Appraisals and/or sales of comparable properties / Independent quotes		n/a
Other real estate owned	$	4,031	Appraised Value / Comparable Sales / Other Estimates from Independent Sources	Appraisals and/or sales of comparable properties / Independent quotes/bids / Forward sale contract values		n/a

Fair Value of items not valued as such. The Company measures certain financial assets and liabilities at fair value for disclosure purposes only.

Net non-impaired loans held for investment: For variable rate loans, fair values are based on carrying values. Fixed rate commercial, other installment, and certain real estate mortgage loans are valued using discounted cash flows. The discount rates used to determine the present value of these loans are based on interest rates currently being charged by the Company on comparable loans as to credit risk and term.

Time deposits: Discounted cash flows have been used to value fixed rate and variable rate term deposits. The discount rate used is based on interest rates currently being offered by the Company on comparable deposits as to amount and term.

Trust preferred subordinated debt: The fair value of trust preferred subordinated debt was determined by discounting cash flows using a rate 3% higher than the actual current rate over an estimated remaining term of fourteen years in 2013 and twelve years in 2012. The trust preferred debt was issued at favorable rates in 2004, and current rates for subordinated debt with less favorable capital treatment is approximately 3% higher. Basel III capital regulations were finalized in July 2013 and provide for inclusion of trust preferred debt in Tier 1 capital for financial institutions of our size, which was the primary reason for the extension of estimated life in 2013.

The following presents the carrying amount, fair value, and placement in the fair value hierarchy of financial instruments at June 30, 2013 and December 31, 2012. This table excludes financial instruments for which the carrying amount approximates fair value. For short-term financial assets such as cash and due from banks and interest-bearing deposits with banks, the carrying amount is a reasonable estimate of fair value due to the relatively short time between the origination of the instrument and its expected realization. For financial liabilities such as non-interest bearing demand deposits, NOW, money market and savings deposits, the carrying amount is a reasonable estimate of fair value due to these products having no stated maturity.

					Fair Value Measurements
					Quoted
					Prices in
					Active Markets		Significant
					for Identical		Other		Significant
					Assets or		Observable		Unobservable
	Carrying		Fair		Liabilities		Inputs		Inputs
	Amount		Value		(Level 1)		(Level 2)		(Level 3)
	(in thousands)
June 30, 2013
Financial Instruments - Assets
Investment securities held-to-maturity	$	9,294	$	9,071	$	-	$	9,071	$	-
Net non-impaired loans held for investment		377,690		380,608		-		-		380,608
Financial Instruments - Liabilities
Time deposits		167,204		169,074		-		-		169,074
Trust preferred subordinated debt		10,310		7,392		-		-		7,392
December 31, 2012
Financial Instruments - Assets
Investment securities held-to-maturity	$	211	$	225	$	-	$	225	$	-
Net non-impaired loans held for investment		425,449		427,484		-		-		427,484
Financial Instruments - Liabilities
Time deposits		174,153		175,729		-		-		175,729
Trust preferred subordinated debt		10,310		7,833		-		-		7,833

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Subordinated debentures

6 Months Ended

Jun. 30, 2013

Subordinated Borrowings [Abstract]

Subordinated Borrowings Disclosure [Text Block]

Note H – Subordinated debentures

In December 2004, the Company issued $10,310,000 of unsecured junior subordinated debentures which accrue and pay interest quarterly at three month LIBOR plus 2% per annum. These debentures were issued to Carolina Capital Trust, (“Carolina Trust”), a subsidiary of the Company. Carolina Trust acquired these debentures using the proceeds of its offerings of common securities to the Company and $10 million of Trust Preferred securities to outside investors. The trust preferred securities currently qualify as Tier 1 capital under Federal Reserve Board guidelines. The Dodd-Frank Wall Street Reform and Consumer Protection Act eliminates trust preferred securities as an element of Tier 1 capital for certain institutions. However, bank holding companies with assets of less than $15 billion as of December 31, 2009, will be permitted to include trust preferred securities that were issued before May 19, 2010, as Tier 1 capital. The Company has entered into contractual arrangements which, in the aggregate, constitute a full, irrevocable and unconditional guarantee on a subordinated basis by the Company of the obligations of Carolina Trust under the trust preferred securities. The trust preferred securities are redeemable upon maturity of the debentures on January 7, 2035, or upon earlier redemption as provided in the indenture. The Company has the right to redeem the debentures purchased by Carolina Trust in whole or in part at any time.

In the third quarter of 2008, Carolina Bank issued $9,300,000 of unsecured junior subordinated notes to outside investors which accrue and pay interest quarterly at three month LIBOR plus 4% per annum. The notes, net of unamortized expenses associated with the offering, equal to $9,291,000 and $9,253,000 at June 30, 2013 and December 31, 2012, respectively, and qualify as Tier 2 capital for the Bank. The notes are redeemable upon maturity on September 30, 2018, or earlier at the Bank’s option, in whole or part subject to regulatory approval, beginning September 30, 2013. The expenses of the offering of $373,000 were capitalized at issuance and are being amortized over sixty months. The notes are subordinate to the rights of payment to depositors, bankers’ acceptances, letters of creditors and general creditors.

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Commitments

6 Months Ended

Jun. 30, 2013

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies Disclosure [Text Block],

Note O - Commitments

In the normal course of business there are outstanding commitments for the extension of credit which are not reflected in the financial statements. At June 30, 2013 and December 31, 2012, pre-approved but unused lines of credit for loans totaled approximately $136,152,000 and $118,608,000, respectively. In addition, we had $1,192,000 and $1,904,000 in standby letters of credit at June 30, 2013 and December 31, 2012, respectively. These commitments represent no more than the normal lending risk that we commit to borrowers. If these commitments are drawn, we will obtain collateral if it is deemed necessary based on our credit evaluation of the counter-party. We believe these commitments can be funded through normal operations.

We are committed for future lease payments on our Friendly Center office, the land for our Greensboro headquarters, our office in Winston-Salem, and our mortgage loan offices in Burlington, Chapel Hill, Hillsborough, and Raleigh. Total future minimum lease payments, excluding renewal options, at June 30, 2013 under the leases are as follows:

	(in thousands)
Due in one year	$	515
Due in Years 2 and 3		854
Due in Years 4 and 5		474
Due after Year 5		2,790
	$	4,633

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Derivatives and financial instruments

6 Months Ended

Jun. 30, 2013

Derivatives and Financial Instruments [Abstract]

Derivative Instruments and Hedging Activities Disclosure [Text Block]

Note M – Derivatives and financial instruments

A derivative is a financial instrument that derives its cash flows and value by reference to an underlying instrument, index or referenced interest rate. These instruments are designed to hedge exposures to interest rate risk or for speculative purposes.

Accounting guidance requires an entity to recognize all derivatives as either assets or liabilities in the balance sheet, and measure those instruments at fair value. Changes in the fair value of those derivatives are reported in current earnings or other comprehensive income depending on the purpose for which the derivative is held and whether the derivative qualifies for hedge accounting.

The Mortgage Division of the Company began hedging its governmental mortgage loans, primarily FHA and VA loans, in October 2010 by selling mortgage backed securities on a forward basis. The forward sale mortgage backed securities are later purchased or closed when mandatory loan sales are consummated for the related mortgages that are originated. The value of the estimated loan commitments and open hedges are marked to market through the income statement. Hedging was discontinued in 2013 for economic reasons.

The table below provides the carrying values of derivative instruments at December 31, 2012:

	Carrying Value		Carrying Value		Gain (Loss)		Notional Amount
Derivatives designated as	of Assets		of Liabilities		in Income		of Derivative
hedging instruments:	(in thousands)
At December 31, 2012:
Mortgage loan rate lock commitments	$	56	$	-	$	56	$	-
Mortgage-backed securities forward sales	$	-	$	16	$	(16)	$	5,250

Prior to October 2010, the Company sold mortgage loans on a best efforts basis whereby optional commitments to sell mortgage loans were consummated at approximately the same time that optional commitments were given to borrowers to originate the loans. Conventional loans which represent the majority of mortgage originations by the Mortgage Division are still sold on a best efforts basis. The below presents the aggregate fair value and aggregate unpaid principal of loans held for sale at June 30, 2013 and December 31, 2012:

June 30, 2013

December 31, 2012

Aggregate Fair

Aggregate Fair

Value Less

Value Less

Aggregate

Aggregate

Aggregate

Aggregate

Aggregate

Unpaid

Unpaid

Aggregate

Unpaid

Unpaid

Fair Value

Principal

Principal

Fair Value

Principal

Principal

(in thousands)

Loans held for sale, at fair value

$

56,403

$

56,113

$

290

$

131,762

$

130,539

$

1,223

Interest income on loans held for sale is recognized based on contractual rates and is reflected in interest income on loans in the consolidated statements of operations. The following table details net gains (losses) resulting from changes in fair value of these loans which were recorded in mortgage banking income in the consolidated statements of operations during the six months ended June 30, 2013 and 2012, respectively. These changes in fair value are mostly offset by economic hedging activities and also fluctuate based on the change in the aggregate loan principal outstanding. An immaterial portion of these amounts was attributable to changes in instrument-specific credit risk.

	Loans Held for Sale, At Fair Value
	Six Months Ended June 30,
	2013		2012
	(in thousands)
Net gains (losses) resulting from changes in fair value	$	(934)	$	51

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Document And Entity Information	6 Months Ended
	Jun. 30, 2013	Aug. 09, 2013
Document Information [Line Items]
Entity Registrant Name	CAROLINA BANK HOLDINGS INC
Entity Central Index Key	0001127160
Entity Filer Category	Smaller Reporting Company
Trading Symbol	CLBH
Current Fiscal Year End Date	--12-31
Entity Common Stock, Shares Outstanding		3,419,618
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Jun. 30, 2013
Document Fiscal Period Focus	Q2
Document Fiscal Year Focus	2013

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Impact of recently adopted accounting standards

6 Months Ended

Jun. 30, 2013

New Accounting Pronouncements and Changes In Accounting Principles [Abstract]

Accounting Changes and Error Corrections [Text Block]

Note N – Impact of recently adopted accounting standards

In June 2011, the FASB issued ASU No. 2011-05, Presentation of Comprehensive Income. The amendment eliminated the option to present other comprehensive income as a part of the statement of changes in stockholders’ equity and required consecutive presentation of the statement of net income and other comprehensive income. The Company implemented this guidance in the period ended December 31, 2011. The adoption of these amendments, which are applied retrospectively, affected the presentation of the Company’s consolidated financial statements, but did not change the items that are reported in other comprehensive income. In December 2011, the FASB further amended this topic with ASU No. 2011-12 to defer the effective date of presenting reclassification adjustments from other comprehensive income to net income on the face of the financial statements while the FASB redeliberated the presentation requirements for the reclassification adjustments. In February 2013, the FASB further amended the Comprehensive Income topic with ASU No. 2013-02 to clarify the conclusions from such redeliberations. Specifically, the amendments do not change the current requirements for reporting net income or other comprehensive income in financial statements. However, the amendments do require an entity to provide information about the amounts reclassified out of accumulated other comprehensive income by component. In addition, in certain circumstances an entity is required to present, either on the face of the statement where net income is presented or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income. The amendments were effective for the Company on a prospective basis beginning January 1, 2013. These amendments did not have a material effect on the Company’s consolidated financial statements.

In December 2011, the FASB issued ASU No. 2011-11, Disclosures about Offsetting Assets and Liabilities, for companies with financial instruments and derivative instruments that offset or are subject to a master netting agreement. The amendments require disclosure of both gross information and net information about instruments and transactions eligible for offset or subject to an agreement similar to a master netting agreement. The amendments were effective for reporting periods beginning on or after January 1, 2013 and required retrospective presentation for all comparative periods presented. Additionally, in January 2013, the FASB further amended this topic with ASU No. 2013-01 to clarify that the amendments apply only to derivatives, repurchase agreements and reverse repurchase agreements, and securities borrowing and securities lending transactions that are either offset in accordance with specific criteria contained in U.S. GAAP or subject to an enforceable master netting arrangement or similar agreement. These amendments did not have a material impact on the Company’s consolidated financial statements.

Several other accounting standards have been issued or proposed by the FASB or other standards-setting bodies during the periods presented or will be effective subsequent to June 30, 2013. None of these new standards had or is expected to have a material impact on the Company’s consolidated financial statements.

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Commitments (Details Textual) (USD $)	Jun. 30, 2013	Dec. 31, 2012
Standby Letters of Credit [Member]
Letters of Credit Outstanding, Amount	$ 1,192,000	$ 1,904,000
Unused lines of Credit [Member]
Long-term Line of Credit	$ 136,152,000	$ 118,608,000