10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2017
OR
☐	TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 001-34142

OAK VALLEY BANCORP

(Exact name of registrant as specified in its charter)

California	26-2326676
State or other jurisdiction of	I.R.S. Employer
incorporation or organization	Identification No.

125 N. Third Ave., Oakdale, CA  95361

(Address of principal executive offices)

(209) 848-2265

Issuer’s telephone number

Not applicable

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

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

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

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

Large accelerated filer ☐	Accelerated filer ☐
Non-accelerated filer ☐	Smaller reporting company ☒
(Do not check if a smaller reporting company)	Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

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

APPLICABLE ONLY TO CORPORATE ISSUERS

State the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:  8,089,105 shares of common stock outstanding as of August 4, 2017.

Oak Valley Bancorp

June 30, 2017

Table of Contents

		Page
PART I – FINANCIAL INFORMATION		3
Item 1.	Financial Statements	3
Condensed Consolidated Balance Sheets at June 30, 2017 (Unaudited) and December 31, 2016 (Unaudited)		3
Condensed Consolidated Statements of Income for the Three and Six month period Ended June 30, 2017 and June 30, 2017 (Unaudited)		4
Condensed Consolidated Statements of Comprehensive Income for the Three and Six month period Ended June 30, 2017 and June 30, 2016 (Unaudited)		5
Condensed Consolidated Statements of Changes of Shareholders’ Equity for the Year Ended December 31, 2016 and the Six-month period Ended June 30, 2017 (Unaudited)		6
Condensed Consolidated Statements of Cash Flows for the Six-month periods Ended June 30, 2017 and June 30, 2016 (Unaudited)		7
Notes to Condensed Consolidated Financial Statements		8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	29
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	44
Item 4.	Controls and Procedures	44
PART II – OTHER INFORMATION		45
Item 1.	Legal Proceedings	45
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	45
Item 3.	Defaults Upon Senior Securities	45
Item 4.	Mine Safety Disclosures	45
Item 5.	Other Information	45
Item 6.	Exhibits	46

2

PART I – FINANCIAL STATEMENTS

OAK VALLEY BANCORP

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(dollars in thousands)	June 30,		December 31,
	2017		2016
ASSETS
Cash and due from banks	$	171,179	$	179,025
Federal funds sold		10,980		11,785
Cash and cash equivalents		182,159		190,810
Securities available for sale		175,252		160,333
Loans, net of allowance for loan loss of $7,854 and $7,832 at June 30, 2017 and December 31, 2016, respectively		614,082		601,104
Bank premises and equipment, net		13,223		13,688
Other real estate owned		1,210		1,210
Interest receivable and other assets		34,569		34,965
	$	1,020,495	$	1,002,110
LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits	$	925,786	$	914,093
Interest payable and other liabilities		6,609		5,567
Total liabilities		932,395		919,660
Commitments and contingencies
Shareholders’ equity
Common stock, no par value; 50,000,000 shares authorized, 8,089,705 and 8,088,455 shares issued and outstanding at June 30, 2017 and December 31, 2016, respectively		24,698		24,682
Additional paid-in capital		3,528		3,473
Retained earnings		58,546		54,520
Accumulated other comprehensive income (loss), net of tax		1,328		(225	)
Total shareholders’ equity		88,100		82,450
	$	1,020,495	$	1,002,110

The accompanying notes are an integral part of these condensed consolidated financial statements.

3

OAK VALLEY BANCORP

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

(dollars in thousands, except per share amounts)	THREE MONTHS ENDED JUNE 30,				SIX MONTHS ENDED JUNE 30,
	2017		2016		2017		2016
INTEREST INCOME
Interest and fees on loans	$	7,230	$	7,129	$	14,152	$	13,677
Interest on securities available for sale		1,102		1,016		2,176		1,993
Interest on federal funds sold		21		5		36		14
Interest on deposits with banks		372		147		672		323
Total interest income		8,725		8,297		17,036		16,007
INTEREST EXPENSE
Deposits		270		191		499		359
Total interest expense		270		191		499		359
Net interest income		8,455		8,106		16,537		15,648
Provision for loan losses		35		125		35		325
Net interest income after provision for loan losses		8,420		7,981		16,502		15,323
OTHER INCOME
Service charges on deposits		351		337		686		670
Earnings on cash surrender value of life insurance		128		95		256		203
Mortgage commissions		37		49		99		95
Gains on called securities		1		12		390		18
Other		1,519		563		2,076		1,107
Total non-interest income		2,036		1,056		3,507		2,093
OTHER EXPENSES
Salaries and employee benefits		3,457		3,370		7,069		6,725
Occupancy expenses		817		813		1,673		1,651
Data processing fees		409		440		755		911
Regulatory assessments (FDIC & DBO)		136		170		280		327
Other operating expenses		1,257		1,394		2,506		2,760
Total non-interest expense		6,076		6,187		12,283		12,374
Net income before provision for income taxes		4,380		2,850		7,726		5,042
PROVISION FOR INCOME TAXES		1,550		946		2,689		1,629
NET INCOME	$	2,830	$	1,904	$	5,037	$	3,413
NET INCOME PER COMMON SHARE	$	0.35	$	0.24	$	0.63	$	0.43
NET INCOME PER DILUTED COMMON SHARE	$	0.35	$	0.24	$	0.62	$	0.42

The accompanying notes are an integral part of these condensed consolidated financial statements.

4

OAK VALLEY BANCORP

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

	THREE MONTHS ENDED JUNE 30,						SIX MONTHS ENDED JUNE 30,
(in thousands)	2017			2016			2017			2016
Net income	$	2,830		$	1,904		$	5,037		$	3,413
Other comprehensive income:
Unrealized holding gains on securities arising during the current period, net of tax effect of $820 thousand and $1.2 million for the three and six month periods ended June 30, 2017, respectively, and $748 thousand and $816 thousand for the comparable 2016 periods		1,171			1,069			1,783			1,168
Reclassification adjustment due to net gains realized on sales and calls of securities, net of tax effect of $4 hundred and $160 thousand for the three and six months ended June 30, 2017, respectively, and $5 thousand and $7 thousand for the comparable 2016 periods		(1	)		(7	)		(230	)		(11	)
Other comprehensive income		1,170			1,062			1,553			1,157
Comprehensive income	$	4,000		$	2,966		$	6,590		$	4,570

The accompanying notes are an integral part of these condensed consolidated financial statements.

5

OAK VALLEY BANCORP

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

	YEAR ENDED DECEMBER 31, 2016 AND SIX MONTHS ENDED JUNE 30, 2017
											Accumulated
						Additional					Other			Total
	Common Stock					Paid-in		Retained			Comprehensive			Shareholders’
(dollars in thousands)	Shares			Amount		Capital		Earnings			Income (Loss)			Equity
Balances, January 1, 2016		8,078,155		$	24,682	$	3,217	$	48,795		$	1,569		$	78,263
Restricted stock issued		17,000													0
Restricted stock forfeited		(6,700	)												0
Cash dividends declared									(1,940	)					(1,940	)
Stock based compensation							256								256
Other comprehensive loss												(1,794	)		(1,794	)
Net income									7,665						7,665
Balances, December 31, 2016		8,088,455		$	24,682	$	3,473	$	54,520		$	(225	)	$	82,450
Stock options exercised		1,500			16										16
Restricted stock issued		6,000													0
Restricted stock forfeited		(6,250	)												0
Cash dividends declared									(1,011	)					(1,011	)
Stock based compensation							55								55
Other comprehensive income												1,553			1,553
Net income									5,037						5,037
Balances, June 30, 2017		8,089,705		$	24,698	$	3,528	$	58,546		$	1,328		$	88,100

The accompanying notes are an integral part of these condensed consolidated financial statements

6

OAK VALLEY BANCORP

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

	SIX MONTHS ENDED JUNE 30,
(dollars in thousands)	2017			2016
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	5,037		$	3,413
Adjustments to reconcile net earnings to net cash from operating activities:
Provision for loan losses		35			325
Increase (decrease) in deferred fees/costs, net		77			(132	)
Depreciation		560			646
Amortization of investment securities, net		393			164
Stock based compensation		55			129
Gain on sale of premises and equipment		0			(1	)
OREO loss on sales and write downs		0			88
Gain on sales and calls of available for sale securities		(390	)		(18	)
Earnings on cash surrender value of life insurance		(256	)		(203	)
Gain on BOLI death benefit		0			(2	)
Increase in interest payable and other liabilities		1,042			1,100
Increase in interest receivable		(58	)		(125	)
Increase in other assets		(37	)		(324	)
Net cash from operating activities		6,458			5,060
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of available for sale securities		(16,023	)		(32,286	)
Proceeds from maturities, calls, and principal paydowns of securities available for sale		3,741			15,353
Net increase in loans		(13,090	)		(39,467	)
Purchase of FHLB Stock		(340	)		(79	)
Proceeds from sale of OREO		0			746
Proceeds from redemption of BOLI policies		0			186
Proceeds from sales of premises and equipment		0			1
Net purchases of premises and equipment		(95	)		(291	)
Net cash used in investing activities		(25,807	)		(55,837	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Shareholder cash dividends paid		(1,011	)		(969	)
Net increase in demand deposits and savings accounts		14,602			22,180
Net (decrease) increase in time deposits		(2,909	)		1,587
Proceeds from sale of common stock and exercise of stock options		16			0
Net cash from financing activities		10,698			22,798
NET DECREASE IN CASH AND CASH EQUIVALENTS		(8,651	)		(27,979	)
CASH AND CASH EQUIVALENTS, beginning of period		190,810			190,603
CASH AND CASH EQUIVALENTS, end of period	$	182,159		$	162,624
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest	$	500		$	368
Income taxes	$	2,087		$	11
NON-CASH INVESTING ACTIVITIES:
Change in unrealized gain on available-for-sale securities	$	2,640		$	1,966

The accompanying notes are an integral part of these condensed consolidated financial statements.

7

OAK VALLEY BANCORP

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 – BASIS OF PRESENTATION

On July 3, 2008 (the “Effective Date”), a bank holding company reorganization was completed whereby Oak Valley Bancorp (“the Company”) became the parent holding company for Oak Valley Community Bank ( the “Bank”).  On the Effective Date, a tax-free exchange was completed whereby each outstanding share of the Bank was converted into one share of the Company and the Company became the sole wholly-owned subsidiary of the holding company.

The consolidated financial statements include the accounts of the parent company and its wholly-owned bank subsidiary. Unless otherwise stated, the “Company” refers to the consolidated entity, Oak Valley Bancorp, while the “Bank” refers to Oak Valley Community Bank. All material intercompany transactions have been eliminated. In the opinion of Management, the consolidated financial statements contain all adjustments necessary to present fairly the financial position, results of operations, changes in shareholders’ equity and cash flows.  All adjustments are of a normal, recurring nature. The interim consolidated financial statements included in this report are unaudited but reflect all adjustments which, in the opinion of management, are necessary for a fair presentation of the financial position and results of operations for the interim periods presented. All such adjustments are of a normal recurring nature. The results of operations for the three and six month periods ended June 30, 2017 are not necessarily indicative of the results of a full year’s operations. Certain prior year amounts have been reclassified to conform to the current year presentation. There was no effect on net income or shareholders’ equity as a result of reclassifications. For further information, refer to the audited consolidated financial statements and footnotes included in the Company’s Form 10-K for the year ended December 31, 2016.

Oak Valley Community Bank is a California state-chartered bank. The Company was incorporated under the laws of the State of California on May 31, 1990, and began operations in Oakdale on May 28, 1991. The Company operates branches in Oakdale, Sonora, Bridgeport, Bishop, Mammoth Lakes, Modesto, Manteca, Patterson, Turlock, Ripon, Stockton, and Escalon, California. The Bridgeport, Mammoth Lakes, and Bishop branches operate as a separate division, Eastern Sierra Community Bank. The Company’s primary source of revenue is providing loans to customers who are predominantly middle-market businesses.

On December 23, 2015, the Company completed its acquisition of Mother Lode Bank (“MLB”), a California state-chartered bank headquartered in Sonora, California, in a transaction in which Mother Lode Bank was merged with and into the Bank, with the Bank as the surviving company in the transaction. The purchase price for Mother Lode Bank was approximately $7.3 million.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant accounting estimates reflected in the Company’s consolidated financial statements include the allowance for loan losses, accounting for income taxes, fair value measurements, and the determination, recognition and measurement of impaired loans. Actual results could differ from these estimates.

NOTE 2 – RECENT ACCOUNTING PRONOUNCEMENTS

In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers (Topic 606). This ASU is a converged standard involving FASB and International Financial Reporting Standards that provides a single comprehensive revenue recognition model for all contracts with customers across transactions and industries. The core principal of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount and at a time that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Subsequent updates related to Revenue from Contracts with Customers (Topic 606) are as follows:

● August 2015 ASU No. 2015-14 - Deferral of the Effective Date, institutes a one-year deferral of the effective date of this amendment to annual reporting periods beginning after December 15, 2017. Early application is permitted only as of annual periods beginning after December 15, 2016, including interim reporting periods within that reporting period.

● March 2016 ASU No. 2016-08 - Principal versus Agent Considerations (Reporting Revenue Gross versus Net), clarifies the implementation guidance on principal versus agent considerations and on the use of indicators that assist an entity in determining whether it controls a specified good or service before it is transferred to the customer.

● April 2016 ASU No. 2016-10 - Identifying Performance Obligations and Licensing, provides guidance in determining performance obligations in a contract with a customer and clarifies whether a promise to grant a license provides a right to access or the right to use intellectual property.

● May 2016 ASU No. 2016-12 - Narrow Scope Improvements and Practical Expedients, gives further guidance on assessing collectability, presentation of sales taxes, noncash consideration, and completed contracts and contract modifications at transition.

8

The adoption of this update is not expected to have a material impact on the Company’s consolidated financial statements.

In September, 2015, the FASB issued ASU No. 2015-16, Simplifying the Accounting for Measurement Period Adjustments (Topic 805). This ASU eliminates the requirement to restate prior period financial statements for measurement period adjustments to assets acquired and liabilities assumed in a business combination. The new guidance under this update requires the cumulative impact of measurement period adjustments be recognized in the period the adjustment is determined. This update does not change what constitutes a measurement period adjustment, nor does it change the length of the measurement period. The new standard is effective for interim annual periods beginning after December 15, 2015 and should be applied prospectively to measurement period adjustments that occur after the effective date. The adoption of this update is not expected to have a material impact on the Company’s consolidated financial statements.

In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. The amendments in this ASU make improvements to GAAP related to financial instruments that include the following as applicable to us:

● Equity investments, except for those accounted for under the equity method of accounting or those that result in consolidation of the investee, are required to be measured at fair value with changes in fair value recognized in net income. However, an entity may choose to measure equity investments that do not have readily determinable fair values at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer.

● Simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment - if impairment exists, this requires measuring the investment at fair value.

● Eliminates the requirement for public companies to disclose the method(s) and significant assumptions used to estimate the fair value that is currently required to be disclosed for financial instruments measured at amortized cost on the balance sheet.

● Public companies will be required to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes.

● Requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset on the balance sheet or the accompanying notes to the financial statements.

● The reporting entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity's other deferred tax assets.

ASU 2016-01 is effective for public business entities for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. This ASU will impact our financial statement disclosures, however, we do not expect this ASU to have a material impact on our financial condition or results of operations.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). This ASU was issued to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities, including leases classified as operating leases under previous GAAP, on the balance sheet and requiring additional disclosures of key information about leasing arrangements. ASU 2016-02 is effective for annual periods, including interim periods within those annual periods beginning after December 15, 2018 and requires a modified retrospective approach to adoption. Early application of the amendments is permitted. While the Company has not quantified the impact to its balance sheet, it does expect the adoption of this ASU will result in a gross-up in its balance sheet as a result of recording a right-of-use asset and a lease liability for each lease, which is expected to increase our leverage ratio by less than one percent.

In March 2016, FASB issued ASU 2016-09, Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting.  The amendments in ASU 2016-09 simplify several aspects of the accounting for share-based payment award transactions, including: (a) income tax consequences; (b) classification of awards as either equity or liabilities; and (c) classification on the statement of cash flows. The amendments are effective for public companies for annual periods beginning after December 15, 2016, and interim periods within those annual periods. Early adoption is permitted for any interim or annual period. The Company adopted this ASU for the full fiscal year of 2016 and it did not have a significant impact on its consolidated financial statements.

9

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326). This update changes the methodology used by financial institutions under current U.S. GAAP to recognize credit losses in the financial statements.  Currently, U.S. GAAP requires the use of the incurred loss model, whereby financial institutions recognize in current period earnings, incurred credit losses and those inherent in the financial statements, as of the date of the balance sheet.    This guidance results in a new model for estimating the allowance for loan and lease losses, commonly referred to as the Current Expected Credit Loss (“CECL”) model.  Under the CECL model, financial institutions are required to estimate future credit losses and recognize those losses in current period earnings.  The amendments within the update are effective for fiscal years and all interim periods beginning after December 15, 2019, with early adoption permitted.  Upon adoption of the amendments within this update, the Company will be required to make a cumulative-effect adjustment to the opening balance of retained earnings in the year of adoption. The Company is currently in the process of evaluating the impact the adoption of this update will have on its financial statements. While the Company has not quantified the impact of this ASU, it does expect changing from the current incurred loss model to an expected loss model will result in an earlier recognition of losses, and an increase to our allowance for loan losses.

In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows – Classification of Certain Cash Receipts and Cash Payments (Topic 230). This update clarifies how entities should classify certain cash receipts and cash payments on the statement of cash flows with the objective of reducing the existing diversity in practice related to eight specific cash flow issues. The amendments in this update are effective for annual periods beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted. The Company does not expect the adoption of the amendments within this update will have a material impact on the Company’s financial statements.

In January 2017, FASB issued ASU 2017-03, Accounting Changes and Error Corrections (Topic 250) and Investments - Equity Method and Joint Ventures (Topic 323): Amendments to SEC Paragraphs Pursuant to Staff Announcements at the September 22, 2016 and November 17, 2016 EITF Meetings.  These amendments apply to ASU 2014-9 (Revenue from Contracts with Customers), ASU 2016-02 (Leases), and ASU 2016-13 (Financial Instruments - Credit Losses).  The Company does not expect these amendments to have a significant impact on its consolidated financial statements.

NOTE 3 – SECURITIES

The amortized cost and estimated fair values of debt securities as of June 30, 2017 are as follows:

(dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Available-for-sale securities:
U.S. agencies	$	24,600	$	552	$	(89	)	$	25,063
Collateralized mortgage obligations		4,872		7		(17	)		4,862
Municipalities		84,668		2,610		(85	)		87,193
SBA pools		12,939		8		(33	)		12,914
Corporate debt		21,354		99		(648	)		20,805
Asset backed securities		21,257		93		(29	)		21,321
Mutual fund		3,305		0		(211	)		3,094
	$	172,995	$	3,369	$	(1,112	)	$	175,252

The following tables detail the gross unrealized losses and fair values aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at June 30, 2017.

(dollars in thousands)	Less than 12 months					12 months or more					Total
Description of Securities	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
U.S. agencies	$	6,537		(89	)	$	0	$	0		$	6,537	$	(89	)
Collateralized mortgage obligations		1,012		(17	)		0		0			1,012		(17	)
Municipalities		9,698		(70	)		1,877		(15	)		11,575		(85	)
SBA pools		8,393		(24	)		726		(9	)		9,119		(33	)
Corporate debt		4,728		(271	)		9,115		(377	)		13,843		(648	)
Asset backed securities		1,920		(15	)		3,141		(14	)		5,061		(29	)
Mutual fund		0		0			3,094		(211	)		3,094		(211	)
Total temporarily impaired securities	$	32,288	$	(486	)	$	17,953	$	(626	)	$	50,241	$	(1,112	)

10

At June 30, 2017, there were three U.S municipalities, two SBA pools, seven corporate debts, three asset backed securities and one mutual fund that comprised the total securities in an unrealized loss position for greater than 12 months and five U.S. agencies, one collateralized mortgage obligation, nine municipalities, four SBA pools, three corporate debts and one asset backed security that make up the total securities in a loss position for less than 12 months. Management periodically evaluates each available-for-sale investment security in an unrealized loss position to determine if the impairment is temporary or other than temporary. This evaluation encompasses various factors including, the nature of the investment, the cause of the impairment, the severity and duration of the impairment, credit ratings and other credit related factors such as third party guarantees and volatility of the security’s fair value. Management has determined that no investment security is other than temporarily impaired. The unrealized losses are due primarily to interest rate changes and the Company does not intend to sell the securities and it is not likely that we will be required to sell the securities before the earlier of the forecasted recovery or the maturity of the underlying investment security.

The amortized cost and estimated fair value of investment securities at June 30, 2017, by contractual maturity or call date, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

(dollars in thousands)	Amortized		Fair
	Cost		Value
Available-for-sale securities:
Due in one year or less	$	12,771	$	13,014
Due after one year through five years		51,484		51,883
Due after five years through ten years		61,040		62,336
Due after ten years		47,700		48,019
	$	172,995	$	175,252

The amortized cost and estimated fair values of debt securities as of December 31, 2016, are as follows:

(dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Available-for-sale securities:
U.S. agencies	$	27,879	$	616	$	(209	)	$	28,286
Collateralized mortgage obligations		4,159		7		(57	)		4,109
Municipalities		77,957		1,318		(946	)		78,329
SBA pools		7,219		0		(51	)		7,168
Corporate debt		21,349		81		(867	)		20,563
Asset backed securities		18,888		32		(101	)		18,819
Mutual fund		3,264		0		(205	)		3,059
	$	160,715	$	2,054	$	(2,436	)	$	160,333

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The following tables detail the gross unrealized losses and fair values aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at December 31, 2016.

(dollars in thousands)	Less than 12 months					12 months or more					Total
Description of Securities	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
U.S. agencies	$	8,769	$	(208	)	$	718	$	(1	)	$	9,487	$	(209	)
Collateralized mortgage obligations		3,166		(57	)		0		0			3,166		(57	)
Municipalities		45,137		(917	)		402		(29	)		45,539		(946	)
SBA pools		6,415		(46	)		753		(5	)		7,168		(51	)
Corporate debt		12,776		(757	)		2,884		(110	)		15,660		(867	)
Asset backed securities		2,576		(15	)		8,272		(86	)		10,848		(101	)
Mutual fund		0		0			3,059		(205	)		3,059		(205	)
Total temporarily impaired securities	$	78,839	$	(2,000	)	$	16,088	$	(436	)	$	94,927	$	(2,436	)

We recognized gross gains of $1,000 and $390,000 for the three and six month periods ended June 30, 2017, respectively, on certain available-for-sale securities that were called, which compares to $12,000 and $18,000 in the same periods of 2016. There were no securities sold during the first six months of 2017 or 2016.

Securities carried at $93,352,000 and $89,362,000 at June 30, 2017 and December 31, 2016, respectively, were pledged to secure deposits of public funds.

NOTE 4 – LOANS

Our customers are primarily located in Stanislaus, San Joaquin, Tuolumne, Inyo, and Mono Counties. As of June 30, 2017, approximately 79% of the Company’s loans are commercial real estate loans which include construction loans. Approximately 10% of the Company’s loans are for general commercial uses including professional, retail, and small business. Additionally, 7% of the Company’s loans are for residential real estate and other consumer loans. The remaining 4% are agriculture loans. Loan totals were as follows:

(in thousands)	June 30, 2017			December 31, 2016
Commercial real estate:
Commercial real estate- construction	$	15,804		$	23,378
Commercial real estate- mortgages		413,750			389,495
Land		10,016			9,823
Farmland		55,452			56,159
Commercial and industrial		63,854			64,201
Consumer		684			767
Consumer residential		39,301			38,672
Agriculture		24,948			28,454
Total loans		623,809			610,949
Less:
Deferred loan fees and costs, net		(1,873	)		(2,013	)
Allowance for loan losses		(7,854	)		(7,832	)
Net loans	$	614,082		$	601,104

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Loan Origination/Risk Management. The Company has certain lending policies and procedures in place that are designed to maximize loan income within an acceptable level of risk. Management reviews and approves these policies and procedures on a regular basis. A reporting system supplements the review process by providing management with frequent reports related to loan production, loan quality, concentration of credit, loan delinquencies and non-performing and potential problem loans. Diversification in the loan portfolio is a means of managing risk associated with fluctuations in economic conditions.

Commercial and industrial loans are underwritten after evaluating and understanding the borrower’s ability to operate profitably and prudently expand its business. Underwriting standards are designed to promote relationship banking rather than transactional banking. Once it is determined that the borrower’s management possesses sound ethics and solid business acumen, our management examines current and projected cash flows to determine the ability of the borrower to repay their obligations as agreed. Commercial and industrial loans are primarily made based on the identified cash flows of the borrower and secondarily on the underlying collateral provided by the borrower. The cash flows of borrowers, however, may not be as expected and the collateral securing these loans may fluctuate in value. Most commercial and industrial loans are secured by the assets being financed or other business assets such as accounts receivable or inventory and may incorporate a personal guarantee; however, some short-term loans may be made on an unsecured basis. In the case of loans secured by accounts receivable, the availability of funds for the repayment of these loans may be substantially dependent on the ability of the borrower to collect amounts due from its customers.

Commercial real estate loans are subject to underwriting standards and processes similar to commercial and industrial loans, in addition to those of real estate loans. These loans are viewed primarily as cash flow loans and secondarily as loans secured by real estate. Commercial real estate lending typically involves higher loan principal amounts and the repayment of these loans is generally largely dependent on the successful operation of the property securing the loan or the business conducted on the property securing the loan. Commercial real estate loans may be more adversely affected by conditions in the real estate markets or in the general economy. The properties securing the Company’s commercial real estate portfolio are diverse in terms of type and geographic location. This diversity helps reduce the Company’s exposure to adverse economic events that affect any single market or industry. Management monitors and evaluates commercial real estate loans based on collateral, geography and risk grade criteria. As a general rule, the Company avoids financing single-purpose projects unless other underwriting factors are present to help mitigate risk. The Company also utilizes third-party experts to provide insight and guidance about economic conditions and trends affecting market areas it serves. In addition, management tracks the level of owner-occupied commercial real estate loans versus non-owner occupied loans. At June 30, 2017 and December 31, 2016, commercial real estate loans equal to approximately 42.4% and 40.9%, respectively, of the outstanding principal balance of our commercial real estate loans were secured by owner-occupied properties.

With respect to loans to developers and builders that are secured by non-owner occupied properties that the Company may originate from time to time, the Company generally requires the borrower to have had an existing relationship with the Company and have a proven record of success. Construction loans are underwritten utilizing feasibility studies, independent appraisal reviews, sensitivity analysis of absorption and lease rates and financial analysis of the developers and property owners. Construction loans are generally based upon estimates of costs and value associated with the complete project. These estimates may be inaccurate. Construction loans often involve the disbursement of substantial funds with repayment substantially dependent on the success of the ultimate project. Sources of repayment for these types of loans may be pre-committed permanent loans from approved long-term lenders, sales of developed property or an interim loan commitment from the Company until permanent financing is obtained. These loans are closely monitored by on-site inspections and are considered to have higher risks than other real estate loans due to their ultimate repayment being sensitive to interest rate changes, governmental regulation of real property, general economic conditions and the availability of long-term financing.

Agricultural production, real estate and development lending is susceptible to credit risks including adverse weather conditions, pest and disease, as well as market price fluctuations and foreign competition. Agricultural loan underwriting standards are maintained by following Company policies and procedures in place to minimize risk in this lending segment. These standards consist of limiting credit to experienced farmers who have demonstrated farm management capabilities, requiring cash flow projections displaying margins sufficient for repayment from normal farm operations along with equity injected as required by policy, as well as providing adequate secondary repayment and sponsorship including satisfactory collateral support. Credit enhancement obtained through government guarantee programs may also be used to provide further support as available. 

The Company originates consumer loans utilizing common underwriting criteria specified in policy. To monitor and manage consumer loan risk, policies and procedures are developed and modified, as needed, jointly by line and staff personnel. This activity, coupled with relatively small loan amounts that are spread across many individual borrowers, minimizes risk. Additionally, trend and outlook reports are reviewed by management on a regular basis. Underwriting standards for 1-4 family, home equity lines and loans follow bank policy, which include, but are not limited to, a maximum loan-to-value percentage of 80%, a maximum housing and total debt ratio of 36% and 42%, respectively and other specified credit and documentation requirements.

The Company maintains an independent loan review department that reviews and validates the credit risk program on a periodic basis. Results of these reviews are presented to management. The loan review process complements and reinforces the risk identification and assessment decisions made by lenders and credit personnel, as well as the Bank’s policies and procedures.

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Non-Accrual and Past Due Loans. Loans are considered past due if the required principal and interest payments have not been received as of the date such payments were due. Loans are placed on non-accrual status when, in management’s opinion, the borrower may be unable to meet payment obligations as they become due, as well as when required by regulatory provisions. Loans may be placed on non-accrual status regardless of whether or not such loans are considered past due. When interest accrual is discontinued, all unpaid accrued interest is reversed. Interest income is subsequently recognized only to the extent cash payments are received in excess of principal due. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

Non-accrual loans, segregated by class of loans, were as follows:

(in thousands)	June 30, 2017		December 31, 2016
Commercial real estate:
Commercial real estate- construction	$	0	$	0
Commercial real estate- mortgages		0		0
Land		1,574		2,715
Farmland		0		0
Commercial and industrial		304		306
Consumer		0		0
Consumer residential		154		16
Agriculture		0		0
Total non-accrual loans	$	2,032	$	3,037

Excluded from the above non-accrual loan table is the $33,000 carrying value of one Purchased Credit Impaired loan acquired in the MLB Acquisition.

Had non-accrual loans performed in accordance with their original contract terms, we would have recognized additional interest income of approximately $31,000 and $68,000 in the three and six month periods ended June 30, 2017, respectively, as compared to $38,000 and $79,000 in the same periods of 2016.

The following table analyzes past due loans including the non-accrual loans in the above table, segregated by class of loans, as of June 30, 2017 (in thousands):

June 30, 2017	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days Past Due		Total Past Due		Current		Purchased Credit Impaired Loans		Total		Greater Than 90 Days Past Due and Still Accruing
Commercial real estate:
Commercial R.E. - construction	$	0	$	0	$	0	$	0	$	15,804	$	0	$	15,804	$	0
Commercial R.E. - mortgages		0		0		0		0		413,750		0		413,750		0
Land		0		0		1,574		1,574		8,409		33		10,016		0
Farmland		0		0		0		0		55,452		0		55,452		0
Commercial and industrial		0		0		302		302		63,552		0		63,854		0
Consumer		0		0		0		0		684		0		684		0
Consumer residential		0		0		138		138		39,163		0		39,301		0
Agriculture		0		0		0		0		24,948		0		24,948		0
Total	$	0	$	0	$	2,014	$	2,014	$	621,762	$	33	$	623,809	$	0

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The following table analyzes past due loans including the non-accrual loans in the above table, segregated by class of loans, as of December 31, 2016 (in thousands):

December 31, 2016	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days Past Due		Total Past Due		Current		Purchased Credit Impaired Loans		Total		Greater Than 90 Days Past Due and Still Accruing
Commercial real estate:
Commercial R.E. - construction	$	0	$	0	$	0	$	0	$	23,378	$	0		23,378	$	0
Commercial R.E. - mortgages		0		0		0		0		389,495		0		389,495		0
Land		0		0		2,715		2,715		7,075		33		9,823		0
Farmland		0		0		0		0		56,159		0		56,159		0
Commercial and industrial		0		0		302		302		63,899		0		64,201		0
Consumer		0		0		0		0		767		0		767		0
Consumer residential		0		0		16		16		38,656		0		38,672		0
Agriculture		0		0		0		0		28,454		0		28,454		0
Total	$	0	$	0	$	3,033	$	3,033	$	607,883	$	33		610,949	$	0

Impaired Loans. Loans are considered impaired when, based on current information and events, it is probable the Company will be unable to collect all amounts due in accordance with the original contractual terms of the loan agreement, including scheduled principal and interest payments. Impairment is evaluated in total for smaller-balance loans of a similar nature and on an individual loan basis for other loans. If a loan is impaired, a specific valuation allowance is allocated, if necessary, so that the loan is reported net, at the present value of estimated future cash flows using the loan’s existing rate or at the fair value of collateral if repayment is expected solely from the collateral. Interest payments on impaired loans are typically applied to principal unless collectability of the principal amount is reasonably assured, in which case interest is recognized on a cash basis. There was no interest income realized on impaired loans for the three and six months ended June 30, 2017 and 2016.

Impaired loans as of June 30, 2017 and December 31, 2016 are set forth in the following tables. PCI loans are excluded from the tables below, as they have not experienced post acquisition declines in cash flows expected to be collected.

(in thousands)	Unpaid Contractual Principal Balance		Recorded Investment With No Allowance		Recorded Investment With Allowance		Total Recorded Investment		Related Allowance
June 30, 2017
Commercial real estate:
Commercial R.E. - construction	$	0	$	0	$	0	$	0	$	0
Commercial R.E. - mortgages		0		0		0		0		0
Land		1,891		0		1,574		1,574		680
Farmland		0		0		0		0		0
Commercial and Industrial		351		304		0		304		0
Consumer		0		0		0		0		0
Consumer residential		154		154		0		154		0
Agriculture		0		0		0		0		0
Total	$	2,396	$	458	$	1,574	$	2,032	$	680

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(in thousands)	Unpaid Contractual Principal Balance		Recorded Investment With No Allowance		Recorded Investment With Allowance		Total Recorded Investment		Related Allowance
December 31, 2016
Commercial real estate:
Commercial R.E. - construction	$	0	$	0	$	0	$	0	$	0
Commercial R.E. - mortgages		0		0		0		0		0
Land		3,131		2,715		0		2,715		680
Farmland		0		0		0		0		0
Commercial and Industrial		353		4		302		306		0
Consumer		0		0		0		0		0
Consumer residential		16		16		0		16		0
Agriculture		0		0		0		0		0
Total	$	3,500	$	2,735	$	302	$	3,037	$	680

Average recorded investment in impaired loans outstanding as of June 30, 2017 and 2016 is set forth in the following table.

	Average Recorded Investment for the
(in thousands)	Three Months Ended		Three Months Ended		Six Months Ended		Six Months Ended
	June 30, 2017		June 30, 2016		June 30, 2017		June 30, 2016
Commercial real estate:
Commercial R.E. - construction	$	0	$	0	$	0	$	0
Commercial R.E. - mortgages		0		0		0		0
Land		1,850		2,498		2,273		2,396
Farmland		0		0		0		0
Commercial and Industrial		304		318		305		316
Consumer		0		0		0		0
Consumer residential		154		0		107		0
Agriculture		0		0		0		0
Total	$	2,308	$	2,816	$	2,685	$	2,712

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

At June 30, 2017, there were 5 loans that were considered to be troubled debt restructurings, all of which are considered non-accrual totaling $1,894,000. At December 31, 2016, there were 6 loans that were considered to be troubled debt restructurings, all of which are considered non-accrual totaling $3,037,000. At June 30, 2017 and December 31, 2016 there were no unfunded commitments on loans classified as a troubled debt restructures. We have allocated $680,000 of specific reserves to loans whose terms have been modified in troubled debt restructurings as of June 30, 2017 and December 31, 2016.

The modification of the terms of such loans typically includes one or a combination of the following: a reduction of the stated interest rate of the loan; an extension of the maturity date; or a temporary payment modification in which the payment amount allocated towards principal was reduced. In some cases, a permanent reduction of the accrued interest on the loan is conceded.

During the three and six months ended June 30, 2017, no loans were modified as troubled debt restructurings, compared to one loan with a recorded investment of $473,000 that was modified as a troubled debt restructuring by extending the maturity date during the six month period ended March 31, 2016. This troubled debt restructuring did not increase the allowance for loan losses as a result of loan modifications. There were no charge-offs as a result of the loan modification, as the contractual balances outstanding were determined to be collectible.

16

There were no loans modified as troubled debt restructurings within the previous twelve months and for which there was a payment default during the three and six month periods ended June 30, 2017 and 2016. A loan is considered to be in payment default once it is ninety days contractually past due under the modified terms.

Loan Risk Grades– Quality ratings (Risk Grades) are assigned to all commitments and stand-alone notes. Risk grades define the basic characteristics of commitments or stand-alone note in relation to their risk. All loans are graded using a system that maximizes the loan quality information contained in loan review grades, while ensuring that the system is compatible with the grades used by bank examiners.

We grade loans using the following letter system:

1 Exceptional Loan

2 Quality Loan

3A Better Than Acceptable Loan

3B Acceptable Loan

3C Marginally Acceptable Loan

4 (W) Watch Acceptable Loan

5 Other Loans Especially Mentioned

6 Substandard Loan

7 Doubtful Loan

8 Loss

1. Exceptional Loan - Loans with A+ credits that contain very little, if any, risk. Grade 1 loans are considered Pass. To qualify for this rating, the following characteristics must be present:

-A high level of liquidity and whose debt-servicing capacity exceeds expected obligations by a substantial margin.

-Where leverage is below average for the industry and earnings are consistent or growing without severe vulnerability to economic cycles.

-Also included in this rating (but not mandatory unless one or more of the preceding characteristics are missing) are loans that are fully secured and properly margined by our own time instruments or U.S. blue chip securities. To be properly margined cash collateral must be equal to, or greater than, 110% of the loan amount.

2. Quality Loan - Loans with excellent sources of repayment that conform in all respects to bank policy and regulatory requirements. These are also loans for which little repayment risk has been identified. No credit or collateral exceptions. Grade 2 loans are considered Pass. Other factors include:

-Unquestionable debt-servicing capacity to cover all obligations in the ordinary course of business from well-defined primary and secondary sources.

-Consistent strong earnings.

-A solid equity base.

3A. Better than Acceptable Loan - In the interest of better delineating the loan portfolio’s true credit risk for reserve allocation, further granularity has been sought by splitting the grade 3 category into three classifications. The distinction between the three are bank-defined guidelines and represent a further refinement of the regulatory definition of a pass, or grade 3 loan. Grade 3A is the stronger third of the pass category, but is not strong enough to be a grade 2 and is characterized by:

-Strong earnings with no loss in last three years and ample cash flow to service all debt well above policy guidelines.

-Long term experienced management with depth and defined management succession.

-The loan has no exceptions to policy.

-Loan-to-value on real estate secured transactions is 10% to 20% less than policy guidelines.

-Very liquid balance sheet that may have cash available to pay off our loan completely.

-Little to no debt on balance sheet.

3B. Acceptable Loan - 3B loans are simply defined as all loans that are less qualified than 3A loans and are stronger than 3C loans. These loans are characterized by acceptable sources of repayment that conform to bank policy and regulatory requirements. Repayment risks are acceptable for these loans. Credit or collateral exceptions are minimal, are in the process of correction, and do not represent repayment risk. These loans:

-Are those where the borrower has average financial strengths, a history of profitable operations and experienced management.

-Are those where the borrower can be expected to handle normal credit needs in a satisfactory manner.

3C. Marginally Acceptable - 3C loans have similar characteristics as that of 3Bs with the following additional characteristics:

Requires collateral. A credit facility where the borrower has average financial strengths, but usually lacks reliable secondary sources of repayment other than the subject collateral. Other common characteristics can include some or all of the following: minimal background experience of management, lacking continuity of management, a start-up operation, erratic historical profitability (acceptable reasons-well identified), lack of or marginal sponsorship of guarantor, and government guaranteed loans.

17

4W Watch Acceptable - Watch grade will be assigned to any credit that is adequately secured and performing but monitored for a number of indicators. These characteristics may include any unexpected short-term adverse financial performance from budgeted projections or prior period’s results (i.e., declining profits, sales, margins, cash flow, or increased reliance on leverage, including adverse balance sheet ratios, trade debt issues, etc.). Additionally, any managerial or personal problems of company management, decline in the entire industry or local economic conditions, or failure to provide financial information or other documentation as requested; issues regarding delinquency, overdrafts, or renewals; and any other issues that cause concern for the company. Loans to individuals or loans supported by guarantors with marginal net worth and/or marginal collateral. Weakness identified in a Watch credit is short-term in nature. Loans in this category are usually accounts the Bank would want to retain providing a positive turnaround can be expected within a reasonable time frame. Grade 4 loans are considered Pass.

5 Other Loans Especially Mentioned (Special Mention) - A special mention extension of credit is defined as having potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may, at some future date result in the deterioration of the repayment prospects for the credit or the institution’s credit position. Extensions of credit that might be detailed in this category include the following:

-The lending officer may be unable to properly supervise the credit because of an inadequate loan or credit agreement.

-Questions exist regarding the condition of and/or control over collateral.

-Economic or market conditions may unfavorably affect the obligor in the future.

-A declining trend in the obligor’s operations or an imbalanced position in the balance sheet exists, but not to the point that repayment is jeopardized.

6 Substandard Loan - A “substandard” extension of credit is inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. Extensions of credit so classified must have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected. Loss potential, while existing in the aggregate amount of substandard credits, does not have to exist in individual extensions of credit classified substandard.

7 Doubtful Loan - An extension of credit classified “doubtful” has all the weaknesses inherent in one classified substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. The possibility of loss is extremely high but because of certain important and reasonably specific pending factors that may work to the advantage of and strengthen the credit, its classification as an estimated loss is deferred until its more exact status may be determined. Pending factors may include a proposed merger or acquisition, liquidation proceedings, capital injection, perfecting liens on additional collateral or refinancing plans. The entire loan need not be classified doubtful when collection of a specific portion appears highly probable. An example of proper use of the doubtful category is the case of a company being liquidated, with the trustee-in-bankruptcy indicating a minimum disbursement of 40 percent and a maximum of 65 percent to unsecured creditors, including the Bank. In this situation, estimates are based on liquidation value appraisals with actual values yet to be realized. By definition, the only portion of the credit that is doubtful is the 25 percent difference between 40 and 65 percent.

A proper classification of such a credit would show 40 percent substandard, 25 percent doubtful, and 35 percent loss. A credit classified as doubtful should be resolved within a ‘reasonable’ period of time. Reasonable is generally defined as the period between examinations. In other words, a credit classified doubtful at an examination should be cleared up before the next exam. However, there may be situations that warrant continuation of the doubtful classification a while longer.

8 Loss - Extensions of credit classified “loss” are considered uncollectible and of such little value that their continuance as bankable assets is not warranted. This classification does not mean that the credit has absolutely no recovery or salvage value, but rather that it is not practical or desirable to defer writing off, even though partial recovery may be affected in the future. It should not be the Company’s practice to attempt long-term recoveries while the credit remains on the books. Losses should be taken in the period in which they surface as uncollectible.

As of June 30, 2017 and December 31, 2016, there are no loans that are classified with a risk grade of 8- Loss.

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The following table presents weighted average risk grades of our loan portfolio:

	June 30, 2017		December 31, 2016
	Weighted Average Risk Grade		Weighted Average Risk Grade
Commercial real estate:
Commercial real estate - construction		3.00		3.07
Commercial real estate - mortgages		3.07		3.08
Land		4.01		4.39
Farmland		3.09		3.09
Commercial and industrial		3.60		2.70
Consumer		2.23		2.28
Consumer residential		3.04		3.03
Agriculture		3.19		3.08
Total gross loans		3.14		3.06

The following table presents risk grade totals by class of loans as of June 30, 2017 and December 31, 2016. Risk grades 1 through 4 have been aggregated in the “Pass” line.

(in thousands)	Commercial R.E. Construction		Commercial R.E. Mortgages		Land (1)		Farmland		Commercial and Industrial		Consumer		Consumer Residential		Agriculture		Total
June 30, 2017
Pass	$	15,804	$	412,779	$	7,978	$	55,452	$	58,562	$	651	$	38,785	$	24,948	$	614,959
Special mention		-		260		-		-		4,087		-		-		-		4,347
Substandard		-		711		1,758		-		1,205		33		516		-		4,223
Doubtful		-		-		280		-		-		-		-		-		280
Total loans	$	15,804	$	413,750	$	10,016	$	55,452	$	63,854	$	684	$	39,301	$	24,948	$	623,809
December 31, 2016
Pass	$	22,560	$	388,365	$	6,637	$	56,159	$	62,770	$	738	$	38,300	$	28,454	$	603,983
Special mention		818		1,063		-		-		189		-		-		-		2,070
Substandard		-		67		2,906				1,242		29		372		-		4,616
Doubtful		-		-		280		-		-		-		-		-		280
Total loans	$	23,378	$	389,495	$	9,823	$	56,159	$	64,201	$	767	$	38,672	$	28,454	$	610,949

(1) Included in the above table is Purchased Credit Impaired loans recorded at their fair value of $33,000 as of June 30, 2017 and December 31, 2016,  which were acquired in the MLB Acquisition.

Allowance for Loan Losses. The allowance for loan losses is a reserve established by the Company through a provision for loan losses charged to expense, which represents management’s best estimate of probable losses that have been incurred within the existing portfolio of loans. The allowance, in the judgment of management, is necessary to reserve for estimated loan losses and risks inherent in the loan portfolio. The allowance for loan loss methodology includes allowance allocations calculated in accordance with ASC Topic 310, “Receivables” and allowance allocations calculated in accordance with ASC Topic 450, “Contingencies.” Accordingly, the methodology is based on historical loss experience by type of credit and internal risk grade, specific homogeneous risk pools and specific loss allocations, with adjustments for current events and conditions. The process for determining the appropriate level of the allowance for loan losses is designed to account for credit deterioration as it occurs. The provision for loan losses reflects loan quality trends, including the levels of and trends related to non-accrual loans, past due loans, potential problem loans, criticized loans and net charge-offs or recoveries, among other factors. The provision for loan losses also reflects the totality of actions taken on all loans for a particular period. In other words, the amount of the provision reflects not only the necessary increases in the allowance for loan losses related to newly identified criticized loans, but it also reflects actions taken related to other loans including, among other things, any necessary increases or decreases in required allowances for specific loans or loan pools.

The level of the allowance reflects management’s continuing evaluation of industry concentrations, specific credit risks, loan loss experience, current loan portfolio quality, present economic, political and regulatory conditions and unidentified losses inherent in the current loan portfolio. Portions of the allowance may be allocated for specific credits; however, the entire allowance is available for any credit that, in management’s judgment, should be charged off. While management utilizes its best judgment and information available, the ultimate adequacy of the allowance is dependent upon a variety of factors beyond the Company’s control, including, among other things, the performance of the Company’s loan portfolio, the economy, changes in interest rates and the view of the regulatory authorities toward loan classifications.

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The Company’s allowance for loan losses consists of three elements: (i) specific valuation allowances determined in accordance with ASC Topic 310 based on probable losses on specific loans; (ii) historical valuation allowances determined in accordance with ASC Topic 450 based on historical loan loss experience for similar loans with similar characteristics and trends, adjusted, as necessary, to reflect the impact of current conditions; (iii) general valuation allowances determined in accordance with ASC Topic 450 based on general economic conditions and other qualitative risk factors both internal and external to the Bank and the Company; and (iv) unallocated allowance which represents the excess allowance not allocated to specific loans pools.

The allowances established for probable losses on specific loans are based on a regular analysis and evaluation of problem loans. Loans are classified based on an internal credit risk grading process that evaluates, among other things: (i) the obligor’s ability to repay; (ii) the underlying collateral, if any; and (iii) the economic environment and industry in which the borrower operates. This analysis is performed at the relationship manager level for all commercial loans. When a loan has a calculated grade of 5 or higher, a special assets officer analyzes the loan to determine whether the loan is impaired and, if impaired, the need to specifically allocate a portion of the allowance for loan losses to the loan. Specific valuation allowances are determined by analyzing the borrower’s ability to repay amounts owed, collateral deficiencies, the relative risk grade of the loan and economic conditions affecting the borrower’s industry, among other things.

Historical valuation allowances are calculated based on the historical loss experience of specific types of loans and the internal risk grade of such loans at the time they were charged-off. The Company calculates historical loss ratios for pools of similar loans with similar characteristics based on the proportion of actual charge-offs experienced to the total population of loans in the pool. The historical loss ratios are periodically updated based on actual charge-off experience. A historical valuation allowance is established for each pool of similar loans based upon the product of the historical loss ratio and the total dollar amount of the loans in the pool. The Company’s pools of similar loans include similarly risk-graded groups of commercial and industrial loans, commercial real estate loans, consumer real estate loans and consumer and other loans.

General valuation allowances are based on general economic conditions and other qualitative risk factors both internal and external to the Bank and the Company. In general, such valuation allowances are determined by evaluating, among other things: (i) the experience, ability and effectiveness of the Bank’s lending management and staff; (ii) the effectiveness of the Bank’s loan policies, procedures and internal controls; (iii) changes in asset quality; (iv) changes in loan portfolio volume; (v) the composition and concentrations of credit; (vi) the impact of competition on loan structuring and pricing; (vii) the effectiveness of the internal loan review function; (viii) the impact of environmental risks on portfolio risks; and (ix) the impact of rising interest rates on portfolio risk. Management evaluates the degree of risk that each one of these components has on the quality of the loan portfolio on a quarterly basis. Each component is determined to have either a high, moderate or low degree of risk. The results are then input into a “general allocation matrix” to determine an appropriate general valuation allowance.

Included in the general valuation allowances are allocations for groups of similar loans with risk characteristics that exceed certain concentration limits established by management. Concentration risk limits have been established, among other things, for certain industry concentrations, large balance and highly leveraged credit relationships that exceed specified risk grades, and loans originated with policy exceptions that exceed specified risk grades.

Loans identified as losses by management, internal loan review and/or bank examiners are charged-off. Furthermore, consumer loan accounts are charged-off automatically based on regulatory requirements.

20

The following table details activity in the allowance for loan losses by portfolio segment for the three and six months ended June 30, 2017 and 2016. Allocation of a portion of the allowance to one category of loans does not preclude its availability to absorb losses in other categories.

Allowance for Loan Losses
For the Three and Six Months Ended June 30, 2017 and 2016
(in thousands)	Commercial			Commercial					Consumer
Three Months Ended June 30, 2017	Real Estate			and Industrial		Consumer			Residential			Agriculture			Unallocated			Total
Beginning balance	$	6,266		$	735	$	37		$	310		$	447		$	32		$	7,827
Charge-offs		0			0		(10	)		0			0			0			(10	)
Recoveries		0			0		1			1			0			0			2
(Reversal of) provision for loan losses		(19	)		11		2			10			6			25			35
Ending balance	$	6,247		$	746	$	30		$	321		$	453		$	57		$	7,854
Six Months Ended June 30, 2017
Beginning balance	$	6,185		$	697	$	51		$	325		$	504		$	70		$	7,832
Charge-offs		0			0		(17	)		0			0			0			(17	)
Recoveries		0			0		3			1			0			0			4
(Reversal of) provision for loan losses		62			49		(7	)		(5	)		(51	)		(13	)		35
Ending balance	$	6,247		$	746	$	30		$	321		$	453		$	57		$	7,854

(in thousands)	Commercial		Commercial						Consumer
Three Months Ended June 30, 2016	Real Estate		and Industrial			Consumer			Residential			Agriculture		Unallocated			Total
Beginning balance	$	5,998	$	720		$	44		$	398		$	302	$	95		$	7,557
Charge-offs		0		0			(4	)		0			0		0			(4	)
Recoveries		0		0			2			0			0		0			2
(Reversal of) provision for loan losses		135		(49	)		13			(11	)		129		(92	)		125
Ending balance	$	6,133	$	671		$	55		$	387		$	431	$	3		$	7,680
Six Months Ended June 30, 2016
Beginning balance	$	5,920	$	627		$	38		$	426		$	309	$	36		$	7,356
Charge-offs		0		0			(7	)		0			0		0			(7	)
Recoveries		3		0			3			0			0		0			6
(Reversal of) provision for loan losses		210		44			21			(39	)		122		(33	)		325
Ending balance	$	6,133	$	671		$	55		$	387		$	431	$	3		$	7,680

21

The following table details the allowance for loan losses and ending gross loan balances as of June 30, 2017, December 31, 2016 and March 31, 2016 summarized by collective and individual evaluation methods of impairment.

(in thousands)	Commercial		Commercial				Consumer
June 30, 2017	Real Estate		and Industrial		Consumer		Residential		Agriculture		Unallocated		Total
Allowance for loan losses for loans:
Individually evaluated for impairment	$	680	$	0	$	0	$	0	$	0			$	680
Collectively evaluated for impairment		5,567		746		30		321		453		57		7,174
	$	6,247	$	746	$	30	$	321	$	453	$	57	$	7,854
Ending gross loan balances:
Individually evaluated for impairment	$	1,574	$	304	$	0	$	154	$	0	$	0	$	2,032
Individually evaluated purchased credit impaired loans		33		0		0		0		0		0		33
Collectively evaluated for impairment		493,415		63,550		684		39,147		24,948		0		621,744
	$	495,022	$	63,854	$	684	$	39,301	$	24,948	$	0	$	623,809
December 31, 2016
Allowance for loan losses for loans:
Individually evaluated for impairment	$	680	$	0	$	0	$	0	$	0			$	680
Collectively evaluated for impairment		5,505		697		51		325		504		70		7,152
	$	6,185	$	697	$	51	$	325	$	504	$	70	$	7,832
Ending gross loans balances:
Individually evaluated for impairment	$	2,715	$	306	$	0	$	16	$	0	$	0	$	3,037
Individually evaluated purchased credit impaired loans		33		0		0		0		0		0		33
Collectively evaluated for impairment		476,107		63,895		767		38,656		28,454		0		607,879
	$	478,855	$	64,201	$	767	$	38,672	$	28,454	$	0	$	610,949
June 30, 2016
Allowance for loan losses for loans:
Individually evaluated for impairment	$	680	$	0	$	0	$	0	$	0			$	680
Collectively evaluated for impairment		5,453		671		55		387		431		3		7,000
	$	6,133	$	671	$	55	$	387	$	431	$	3	$	7,680
Ending gross loans balances:
Individually evaluated for impairment	$	2,340	$	314	$	0	$	0	$	0	$	0	$	2,654
Individually evaluated purchased credit impaired loans		286		529		0		0		0		0		815
Collectively evaluated for impairment		450,964		64,516		910		35,275		24,640		0		576,305
	$	453,590	$	65,359	$	910	$	35,275	$	24,640	$	0	$	579,774

Changes in the reserve for off-balance-sheet commitments were as follows:

	THREE MONTHS ENDED JUNE 30,					SIX MONTHS ENDED JUNE 30,
	2017		2016			2017		2016
Balance, beginning of period	$	289	$	264		$	284	$	238
Provision (Recovery) to Operations for Off Balance Sheet Commitments		13		(7	)		18		19
Balance, end of period	$	302	$	257		$	302	$	257

The method for calculating the reserve for off-balance-sheet loan commitments is based on a reserve percentage which is less than other outstanding loan types because they are at a lower risk level.  This reserve percentage, based on many factors including historical losses and existing economic conditions, is evaluated by management periodically and is applied to the total undisbursed loan commitment balance to calculate the reserve for off-balance-sheet commitments. Reserves for off-balance-sheet commitments are recorded in interest payable and other liabilities on the condensed consolidated balance sheets.

At June 30, 2017 and December 31, 2016, loans carried at $623,809,000 and $610,949,000, respectively, were pledged as collateral on advances from the Federal Home Loan Bank.

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NOTE 5 – OTHER REAL ESTATE OWNED

As of June 30, 2017 and December 31, 2016, the Company owned three properties classified as other real estate totaling $1,210,000. One of the properties owned at June 30, 2017 and December 31, 2016, was a residential land property that was written down to a zero balance because the public utilities have not been obtainable rendering these land lots unmarketable at this time. Each of the OREO properties were acquired through loan foreclosures, but there were no OREO property acquisitions during the six months ended June 30, 2017, and no sales of properties during that period. During the six months ended June 30, 2016, there was one sale that accounted for the disposition of two OREO properties,

Real estate properties acquired through, or in lieu of, loan foreclosure are to be sold and are initially recorded at the lower of carrying amount of the loan or fair value of the property at the date of foreclosure less selling costs.  Subsequent to foreclosure, valuations are periodically performed and any subject revisions in the estimate of fair value are reported as adjustment to the carrying value of the real estate, provided the adjusted carrying amount does not exceed the original amount at foreclosure.  Revenues and expenses from operations and changes in the valuation allowance are included in other operating expenses.

NOTE 6– OTHER POST-RETIREMENT BENEFIT PLANS

During January 2008, the Bank awarded certain officers a salary continuation plan (the “Plan”). Under the Plan, the participants will be provided with a fixed annual retirement benefit for ten to twenty years after retirement. The Bank is also responsible for certain pre-retirement death benefits under the Plan. In connection with the implementation of the Plan, the Bank purchased single premium life insurance policies on the life of each of the officers covered under the Plan. The Bank is the owner and partial beneficiary of these life insurance policies. The assets of the Plan, under Internal Revenue Service regulations, are owned by the Bank and are available to satisfy the Company’s general creditors.

In August 2001, the Board of Directors of the Bank authorized Director Retirement Plans (“DRP”) with each director. The Bank awarded a director retirement plan to two of its directors in January 2008, to three of its directors in March 2014, and to its newest director in 2016. Under the DRP, the participants will be provided with a fixed annual retirement benefit for ten years after retirement. The Bank is also responsible for certain pre-retirement death benefits under the DRP. In connection with the implementation of the DRP, the Bank purchased single premium life insurance policies on the life of each director covered under the DRP. The Bank is the owner and partial beneficiary of these life insurance policies. The assets of the DRP, under Internal Revenue Service regulations, are the property of the Bank and are available to satisfy the Bank’s general creditors.

Future compensation under both plans is earned for services rendered through retirement. The Bank accrues for the salary continuation liability based on anticipated years of service and vesting schedules provided under the plans. The Bank’s current benefit liability is determined based on vesting and the present value of the benefits at a corresponding discount rate. The discount rate used is an equivalent rate for investment-grade bonds with lives matching those of the service periods remaining for the salary continuation contracts, which average approximately 10 years. The salary continuation liability as of June 30, 2017 and December 31, 2016 was $2,960,000 and $2,762,000, respectively, and is reported in interest payable and other liabilities on the condensed consolidated balance sheets.

During January 2008, the Bank purchased $4.7 million in bank owned life insurance policies and entered into split-dollar life insurance agreements with certain officers and directors. During March 2014, the Bank purchased an additional $1.0 million in bank owned life insurance policies and entered into split-dollar life insurance agreements with its three newest directors. During September 2016, the Bank purchased an additional $4.0 million in bank owned life insurance policies and entered into split-dollar life insurance agreements with certain officers and directors. In connection with the implementation of the split-dollar agreements, the Bank purchased single premium life insurance policies on the life of each of the officers and directors covered by the split-dollar life insurance agreements. The Bank is the owner of the policies and the partial beneficiary in an amount equal to the cash surrender value of the policies.

The combined cash surrender value of all Bank-owned life insurance policies recorded in interest receivable and other assets on the condensed consolidated balance sheets were $18,260,000 and $18,004,000 at June 30, 2017 and December 31, 2016, respectively.

NOTE 7 — FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS

Fair values of financial instruments — The consolidated financial statements include various estimated fair value information as of June 30, 2017 and December 31, 2016. Such information, which pertains to the Company’s financial instruments, does not purport to represent the aggregate net fair value of the Company. Further, the fair value estimates are based on various assumptions, methodologies, and subjective considerations, which vary widely among different financial institutions and which are subject to change.

23

Fair value measurements defines fair value, establishes a framework for measuring fair value, establishes a three-level valuation hierarchy for disclosure of fair value measurement and enhances disclosure requirements for fair value measurements. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The three levels are defined as follow:

Level 1:  Inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.

Level 2:  Inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.

Level 3:  Inputs to the valuation methodology are unobservable and significant to the fair value measurement.

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy.  In such cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls has been determined based on the lowest level input that is significant to the fair value measurement in its entirety.  The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability. Transfers between levels of the fair value hierarchy are recognized on the actual date of the event or circumstance that caused the transfer, which generally corresponds with the Company’s quarterly valuation process. There were no transfers between levels during the six month periods ended June 30, 2017 or 2016.

Following is a description of valuation methodologies used for assets and liabilities in the tables below:

Cash and cash equivalents – The carrying amounts of cash and cash equivalents approximate their fair value and are considered a level 1 valuation.

Restricted Equity Securities- The carrying amounts of the stock the Company’s owns in FRB and FHLB approximate their fair value and are considered a level 2 valuation.

Loans receivable — For variable-rate loans that reprice frequently and have no significant change in credit risk, fair values are based on carrying values. The fair values for other loans (e.g., real estate construction and mortgage, commercial, and installment loans) are estimated using discounted cash flow analyses, using interest rates currently being offered for loans with similar terms to borrowers of similar credit quality. The allowance for loan losses is considered to be a reasonable estimate of loan discount due to credit risks. The Company’s fair value model takes into account many inputs including current market rates on new loans, the U.S. treasury yield curve, LIBOR yield curve, rate floors, rate ceilings, remaining maturity, and average life based on specific loan type. Loans are considered to be a level 3 valuation.

Deposit liabilities — The fair values estimated for demand deposits (interest and non-interest checking, savings, and certain types of money market accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e. their carrying amounts). The carrying amounts for variable-rate, fixed-term money market accounts and certificates of deposit approximate their fair values at the reporting date. Fair values for fixed-rate certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates to a schedule of the aggregate expected monthly maturities on time deposits. The fair value of deposits is determined by the Company’s internal assets and liabilities modeling system that accounts for various inputs such as decay rates, rate floors, FHLB yield curve, maturities and current rates offered on new accounts. Fair value on deposits is considered a level 3 valuation.

Interest receivable and payable - The carrying amounts of accrued interest approximate their fair value and are considered to be a level 2 valuation.

Off-balance-sheet instruments — Fair values for the Bank’s off-balance-sheet lending commitments are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the credit standing of the counterparties. The Company considers the Bank’s off balance sheet instruments to be a level 3 valuation.

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The estimated fair values of the Company’s financial instruments not measured at fair value at June 30, 2017 were as follows:

							Hierarchy
(in thousands)	Carrying			Fair			Valuation
	Amount			Value			Level
Financial assets:
Cash and cash equivalents	$	182,159		$	182,159			1
Restricted equity securities		4,135			4,135			2
Loans, net		614,082			620,977			3
Interest receivable		2,889			2,889			2
Financial liabilities:
Deposits		(925,786	)		(825,057	)		3
Interest payable		(44	)		(44	)		2
Off-balance-sheet assets (liabilities):
Commitments and standby letters of credit					(1,186	)		3

The estimated fair values of the Company’s financial instruments not measured at fair value at December 31, 2016 were as follows:

							Hierarchy
(in thousands)	Carrying			Fair			Valuation
	Amount			Value			Level
Financial assets:
Cash and cash equivalents	$	190,810		$	190,810			1
Restricted equity securities		3,795			3,795			2
Loans, net		601,104			611,553			3
Interest receivable		2,831			2,831			2
Financial liabilities:
Deposits		(914,093	)		(811,519	)		3
Interest payable		(45	)		(45	)		2
Off-balance-sheet assets (liabilities):
Commitments and standby letters of credit					(1,107	)		3

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The following table presents the carrying value of recurring and nonrecurring financial instruments that were measured at fair value and that were still held in the condensed consolidated balance sheets at each respective period end, by level within the fair value hierarchy as of June 30, 2017 and December 31, 2016.

	Fair Value Measurements at June 30, 2017 Using
(in thousands)	June 30, 2017		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets and liabilities measured on a recurring basis:
Available-for-sale securities:
U.S. agencies	$	25,063	$	0	$	25,063	$	0
Collateralized mortgage obligations		4,862		0		4,862		0
Municipalities		87,193		0		87,193		0
SBA pools		12,914		0		12,914		0
Corporate debt		20,805		0		20,805		0
Asset backed securities		21,321		0		21,321		0
Mutual fund		3,094		3,094		0		0
Assets and liabilities measured on a non-recurring basis:
Impaired loans:
Land	$	894	$	0	$	0	$	894
Commercial and industrial		302		0		0		302
Other real estate owned		1,210		0		0		1,210

	Fair Value Measurements at December 31, 2016 Using
(in thousands)	December 31, 2016		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets and liabilities measured on a recurring basis:
Available-for-sale securities
U.S. agencies	$	28,286	$	0	$	28,286	$	0
Collateralized mortgage obligations		4,109		0		4,109		0
Municipalities		78,329		0		78,329		0
SBA pools		7,168		0		7,168		0
Corporate debt		20,563		0		20,563		0
Asset backed securities		18,819		0		18,819		0
Mutual fund		3,059		3,059		0		0
Assets and liabilities measured on a non-recurring basis:
Impaired loans:
Land	$	1,746	$	0	$	0	$	1,746
Commercial and industrial		302		0		0		302
Other real estate owned	$	1,210	$	0	$	0	$	1,210

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Following is a description of valuation methodologies used for assets and liabilities recorded at fair value.

Available-for-sale securities - Investment securities available-for-sale are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted market prices, if available. If quoted market 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 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 corporate debt securities. Securities classified as Level 3 include asset-backed securities in less liquid markets where significant inputs are unobservable.

Impaired loans - ASC Topic 820 applies to loans measured for impairment using the practical expedients permitted by ASC Topic 310, Accounting by Creditors for Impairment of a Loan. 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 where an allowance is established based on the fair value of collateral less the cost related to liquidation of the collateral require classification in the fair value hierarchy. When the fair value of the collateral is based on an observable market price or a current appraised value, the Company records the impaired loan as non-recurring Level 3. Likewise, when an appraised value is not available or management 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 non-recurring Level 3.

Other Real Estate Owned - Other real estate assets (“OREO”) acquired through, or in lieu of, foreclosure are held-for-sale and are initially recorded at the lower of cost or fair value, less selling costs. Any write-downs to fair value at the time of transfer to OREO are charged to the allowance for loan losses, subsequent to foreclosure. Appraisals or evaluations are then done periodically thereafter charging any additional write-downs or valuation allowances to the appropriate expense accounts. Values are derived from appraisals of underlying collateral and discounted cash flow analysis. OREO is classified within Level 3 of the hierarchy.

Net realizable value of the underlying collateral is the fair value of the collateral less estimated selling costs and any prior liens. Appraisals, recent comparable sales, offers and listing prices are factored in when valuing the collateral. We review and verify the qualifications and licenses of the certified general appraisers used for appraising commercial properties or certified residential appraisers for residential properties. Real estate appraisals may utilize a combination of approaches including replacement cost, sales comparison and the income approach. Comparable sales and income data are analyzed by the appraisers and adjusted to reflect differences between them and the subject property such as type, leasing status and physical condition. When the appraisals are received, Management reviews the assumptions and methodology utilized in the appraisal, as well as the overall resulting value in conjunction with independent data sources such as recent market data and industry-wide statistics. We generally use a 6% discount for selling costs which is applied to all properties, regardless of size. Appraised values may be adjusted to reflect changes in market conditions that have occurred subsequent to the appraisal date, or for revised estimates regarding the timing or cost of the property sale. These adjustments are based on qualitative judgments made by management on a case-by-case basis. No fair value adjustments were made to OREO properties during the three months ended June 30, 2017.

There have been no significant changes in the valuation techniques during the period ended June 30, 2017.

 NOTE 8 – EARNINGS PER SHARE

Earnings per share (“EPS”) are based upon the weighted average number of common shares outstanding during each year. The following table shows: (1) weighted average basic shares, (2) effect of dilutive securities related to stock options and non-vested restricted stock, and (3) weighted average shares of common stock and common stock equivalents. Net income available to common stockholders is calculated as net income reduced by dividends accumulated on preferred stock, if any. Basic EPS are calculated by dividing net income available to common stockholders by the weighted average number of common shares outstanding during each period, excluding unvested restricted stock awards. Diluted EPS are calculated using the weighted average diluted shares, which reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. The dilutive shares included in year-to-date diluted EPS is a weighted average of the dilutive shares included in each quarterly diluted EPS computation under the treasury stock method. We have two forms of outstanding common stock: common stock and unvested restricted stock awards. Holders of restricted stock awards receive non-forfeitable dividends at the same rate as common stockholders and they both share equally in undistributed earnings. Therefore, under the two class method the difference in EPS is not significant for these participating securities.

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The Company’s calculation of basic and diluted earnings per share (“EPS”) for the three and six month periods ended June 30, 2017 and 2016 are reflected in the table below.

	THREE MONTHS ENDED
(In thousands)	JUNE 30,
	2017		2016
BASIC EARNINGS PER SHARE
Net income	$	2,830	$	1,904
Weighted average shares outstanding		8,062		8,028
Net income per common share	$	0.35	$	0.24
DILUTED EARNINGS PER SHARE
Net income	$	2,830	$	1,904
Weighted average shares outstanding		8,062		8,028
Effect of dilutive stock options		4		1
Effect of dilutive non-vested restricted shares		14		31
Weighted average shares of common stock and common stock equivalents		8,080		8,060
Net income per diluted common share	$	0.35	$	0.24

	SIX MONTHS ENDED
(In thousands)	JUNE 30,
	2017		2016
BASIC EARNINGS PER SHARE
Net income	$	5,037	$	3,413
Weighted average shares outstanding		8,052		8,018
Net income per common share	$	0.63	$	0.43
DILUTED EARNINGS PER SHARE
Net income	$	5,037	$	3,413
Weighted average shares outstanding		8,052		8,018
Effect of dilutive stock options		4		1
Effect of dilutive non-vested restricted shares		20		37
Weighted average shares of common stock and common stock equivalents		8,076		8,056
Net income per diluted common share	$	0.62	$	0.42

During the three and six month periods ended June 30, 2017, there were no anti-dilutive options to purchase shares of common stock, as compared to anti-dilutive weighted average stock options of 26,500 and 27,505 outstanding during the three and six month periods of 2016, respectively, with prices ranging from $9.95 to $15.00. These options were not included in the computation of diluted EPS because the options’ exercise price was greater than the average market price of the common shares.

There were no anti-dilutive non-vested restricted stock grants for the three and six months ended June 30, 2017 and 2016.  

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

The following discussion explains the significant factors affecting our operations and financial position for the periods presented. The discussion should be read in conjunction with our financial statements and the notes related thereto which appear or that are referenced to elsewhere in this report, and with the audited consolidated financial statements and accompanying notes included in our 2016 Annual Report on Form 10-K. Average balances, including balances used in calculating certain financial ratios, are generally comprised of average daily balances.

The discussion and analysis of our financial condition and results of operations is based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets and liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities at the date of our financial statements. Actual results may differ from these estimates under different assumptions or conditions. This discussion and analysis includes executive management’s (“Management”) insight of the Company’s financial condition and results of operations of Oak Valley Bancorp and its subsidiary.  Unless otherwise stated, the “Company” refers to the consolidated entity, Oak Valley Bancorp, while the “Bank” refers to Oak Valley Community Bank.

Forward-Looking Statements

Some matters discussed in this Form 10-Q may be “forward-looking statements” within the meaning of the Private Litigation Reform Act of 1995 and therefore may involve risks, uncertainties and other factors which may cause our actual results to be materially different from the results expressed or implied by our forward-looking statements.  These statements generally appear with words such as “anticipate,” “believe,” “estimate,” “may,” “intend,” and “expect.”  Although management believes that the assumptions and expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to be correct.  Factors that could cause actual results to differ from results discussed in forward-looking statements include, but are not limited to: economic conditions (both generally and in the markets where the Company operates); competition from other providers of financial services offered by the Company; changes in government regulation and legislation; changes in interest rates; material unforeseen changes in the financial stability and liquidity of the Company’s credit customers; risks associated with concentrations in real estate related loans; changes in accounting standards and interpretations; and other risks as may be detailed from time to time in the Company’s filings with the Securities and Exchange Commission, all of which are difficult to predict and which may be beyond the control of the Company.  The Company undertakes no obligation to revise forward-looking statements to reflect events or changes after the date of this discussion or to reflect the occurrence of unanticipated events.

 Forward-looking statements speak only as of the date they are made, and the Company does not undertake to update forward-looking statements to reflect circumstances or events that occur after the date the forward-looking statements are made, whether as a result of new information, future developments or otherwise, except as may be required by law.

Critical Accounting Estimates

Management has determined the following five accounting policies to be critical:

Allowance for Loan Losses

Accounting for allowance for loan losses involves significant judgment and assumptions by management and is based on historical data and management’s view of the current economic environment. At least on a quarterly basis, our management reviews the methodology and adequacy of allowance for loan losses and reports its assessment to the Board of Directors for its review and approval.

We base our allowance for loan losses on an estimation of probable losses inherent in our loan portfolio. Our methodology for assessing loan loss allowances are intended to reduce the differences between estimated and actual losses and involves a detailed analysis of our loan portfolio in three phases:

● the specific review of individual loans,

● the segmenting and review of loan pools with similar characteristics, and

● our judgmental estimate based on various subjective factors.

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The first phase of our methodology involves the specific review of individual loans to identify and measure impairment. We evaluate each loan by use of a risk rating system, except for homogeneous loans, such as automobile loans and home mortgages. Specific risk rated loans are deemed impaired if all amounts, including principal and interest, will likely not be collected in accordance with the contractual terms of the related loan agreement. Impairment for commercial and real estate loans is measured either based on the present value of the loan’s expected future cash flows or, if collection on the loan is collateral dependent, the estimated fair value of the collateral, less selling and holding costs.

The second phase involves the segmenting of the remainder of the risk rated loan portfolio into groups or pools of loans, together with loans with similar characteristics, for evaluation. We determine the calculated loss ratio to each loan pool based on its historical net losses and benchmark it against the levels of other peer banks.

In the third phase, we consider relevant internal and external factors that may affect the collectability of loan portfolio and each group of loan pool. The factors considered are, but are not limited to:

● concentration of credits,

● nature and volume of the loan portfolio,

● delinquency trends,

● non-accrual loan trend,

● problem loan trend,

● loss and recovery trend,

● quality of loan review,

● lending and management staff,

● lending policies and procedures,

● economic and business conditions, and

● other external factors, including regulatory review.

Our management estimates the probable effect of such conditions based on our judgment, experience and known or anticipated trends. Such estimation may be reflected as an additional allowance to each group of loans, if necessary. Management reviews these conditions with our senior credit officers. To the extent that any of these conditions is evidenced by a specifically identifiable problem credit or portfolio segment as of the evaluation date, management’s estimate of the effect of such condition may be reflected as a specific allowance applicable to such credit or portfolio segment. Where any of these conditions is not evidenced by a specific, identifiable problem credit or portfolio segment as of the evaluation date, management’s evaluation of the inherent loss related to such condition is reflected in the unallocated allowance.

Central to our credit risk management and our assessment of appropriate loss allowance is our loan risk rating system. Under this system, the originating credit officer assigns borrowers an initial risk rating based on a thorough analysis of each borrower’s financial capacity in conjunction with industry and economic trends. Approvals are made based upon the amount of inherent credit risk specific to the transaction and are reviewed for appropriateness by senior line and credit administration personnel. Credits are monitored by line and credit administration personnel for deterioration in a borrower’s financial condition which may impact the ability of the borrower to perform under the contract. Although management has allocated a portion of the allowance to specific loans, specific loan pools, and off-balance sheet credit exposures (which are reported separately as part of other liabilities), the adequacy of the allowance is considered in its entirety.

Non-Accrual Loan Policy

Interest on loans is credited to income as earned and is accrued only if deemed collectible. Accrual of interest is discontinued when a loan is over 90 days delinquent or if management believes that collection is highly uncertain. Generally, payments received on non-accrual loans are recorded as principal reductions. Interest income is recognized after all principal has been repaid or an improvement in the condition of the loan has occurred that would warrant resumption of interest accruals. Loans are considered past due if the required principal and interest payments have not been received as of the date such payments were due.

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Asset Impairment Judgments

Certain of our assets are carried in our consolidated balance sheets at fair value or at the lower of cost or fair value. Valuation allowances are established when necessary to recognize impairment of such assets. We periodically perform analyses to test for impairment of various assets. In addition to our impairment analyses related to loans, another significant impairment analysis relates to other than temporary declines in the value of our securities.

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 and are carried at fair value or below. Appraisals are done periodically on impaired loans and if required an allowance is established based on the fair value of collateral less the cost related to liquidation of the collateral. In some circumstances, an impaired loan may be charged off to bring the carrying value to fair value.

Other real estate assets (“OREO”) acquired through, or in lieu of, foreclosure are held-for-sale and are initially recorded at the lower of cost or fair value, less selling costs. Any write-downs to fair value at the time of transfer to OREO are charged to the allowance for loan losses, subsequent to foreclosure. Appraisals or evaluations are then done periodically and any subsequent declines in the fair value of the OREO property after the date of transfer are recorded through a write-down of the asset. Any subsequent operating expenses or income, reduction in estimated fair values, and gains or losses on disposition of such properties are charged or credited to current operations.

Net realizable value of the underlying collateral is the fair value of the collateral less estimated selling costs and any prior liens. Appraisals, recent comparable sales, offers and listing prices are factored in when valuing the collateral. We review and verify the qualifications and licenses of the certified general appraisers used for appraising commercial properties or certified residential appraisers for residential properties. Real estate appraisals may utilize a combination of approaches including replacement cost, sales comparison and the income approach. Comparable sales and income data are analyzed by the appraisers and adjusted to reflect differences between them and the subject property such as type, leasing status and physical condition. When the appraisals are received, Management reviews the assumptions and methodology utilized in the appraisal, as well as the overall resulting value in conjunction with independent data sources such as recent market data and industry-wide statistics. We generally use a 6% discount for selling costs which is applied to all properties, regardless of size. Appraised values may be adjusted to reflect changes in market conditions that have occurred subsequent to the appraisal date, or for revised estimates regarding the timing or cost of the property sale. These adjustments are based on qualitative judgments made by management on a case-by-case basis.

Our available for sale portfolio is carried at estimated fair value, with any unrealized gains and losses, net of taxes, reported as accumulated other comprehensive income in shareholders’ equity. We conduct a periodic review and evaluation of the securities portfolio to determine if the value of any security has declined below its carrying value and whether such decline is other than temporary. If such decline is deemed other than temporary, we would adjust the carrying amount of the security by writing down the security to fair market value through a charge to current period income. The market values of our securities are significantly affected by changes in interest rates.

In general, as interest rates rise, the market value of fixed-rate securities will decrease; as interest rates fall, the market value of fixed-rate securities will increase. With significant changes in interest rates, we evaluate our intent and ability to hold the security for a sufficient time to recover the recorded principal balance. Estimated fair values for securities are based on published or securities dealers’ market values. Market volatility is unpredictable and may impact such values.

Fair Value Measurements

We use fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. We base our fair values on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Securities available for sale, derivatives, and loans held for sale, if any, are recorded at fair value on a recurring basis. Additionally, from time to time, we may be required to record certain assets at fair value on a non-recurring basis, such as certain impaired loans held for investment and securities held to maturity that are other-than-temporarily impaired. These non-recurring fair value adjustments typically involve write-downs of individual assets due to application of lower-of-cost or market accounting.

We have established and documented a process for determining fair value. We maximize the use of observable inputs and minimize the use of unobservable inputs when developing fair value measurements. Whenever there is no readily available market data, management uses its best estimate and assumptions in determining fair value, but these estimates involve inherent uncertainties and the application of management's judgment. As a result, if other assumptions had been used, our recorded earnings or disclosures could have been materially different from those reflected in these financial statements.

Income Taxes

Deferred income taxes are provided for the temporary differences between the financial reporting basis and the tax basis of the Company’s assets and liabilities. Deferred tax assets and liabilities are reflected at currently enacted income tax rates applicable to the period in which the deferred tax assets or liabilities are expected to be realized or settled using the liability method. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes.

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The Company files income tax returns in the U.S. federal jurisdiction, and the state of California. With few exceptions, the Company is no longer subject to U.S. federal or state/local income tax examinations by tax authorities for years before 2012.

Introduction

Effective July 3, 2008, Oak Valley Community Bank became a subsidiary of Oak Valley Bancorp, a newly established bank holding company. Oak Valley Bancorp operates Oak Valley Community Bank as a community bank in the general commercial banking business, with our primary market encompassing the California Central Valley around Oakdale and Modesto, and the Eastern Sierras. As such, unless otherwise noted, all references are about Oak Valley Bancorp.

Oak Valley Community Bank commenced operations in May 1991.  We are an insured bank under the Federal Deposit Insurance Act and are a member of the Federal Reserve.  Since its formation, the Bank has provided basic banking services to individuals and business enterprises in Oakdale, California and the surrounding areas. The focus of the Bank is to offer a range of commercial banking services designed for both individuals and small to medium-sized businesses in the two main areas of service of the Company: the Central Valley and the Eastern Sierras.

The Bank offers a complement of business checking and savings accounts for its business customers.  The Bank also offers commercial and real estate loans, as well as lines of credit.  Real estate loans are generally of a short-term nature for both residential and commercial purposes.  Longer-term real estate loans are generally made with adjustable interest rates and contain normal provisions for acceleration.  In addition, the Bank offers traditional residential mortgages through a third party.

The Bank also offers other services for both individuals and businesses including online banking, remote deposit capture, merchant services, night depository, extended hours, traveler’s checks, wire transfer of funds, note collection, and automated teller machines in a national network.  The Bank does not currently offer international banking or trust services although the Bank may make such services available to the Bank’s customers through financial institutions with which the Bank has correspondent banking relationships.  The Bank does not offer stock transfer services nor does it directly issue credit cards.

Overview of Results of Operations and Financial Condition

The purpose of this summary is to provide an overview of the items management focuses on when evaluating the condition of the Company and its success in implementing its business and shareholder value strategies. The Company’s business strategy is to operate the Bank as a well-capitalized, profitable and independent community-oriented bank.  The Company’s shareholder value strategy has three major objectives: (1) enhancing shareholder value; (2) making its retail banking franchise more valuable; and (3) efficiently utilizing its capital.

Management believes the following were important factors in the Company’s performance during the three and six month periods ended June 30, 2017:

• The Company recognized net income of $2,830,000 and $5,037,000 for the three and six month periods ended June 30, 2017, respectively, as compared to $1,904,000 and $3,413,000 for the same periods in 2016.  The factors contributing to these results will be discussed below.

• The Company recognized loan loss provisions of $35,000 for the three and six month periods ended June 30, 2017, as compared to $125,000 and $325,000 during the same periods of 2016. This variance corresponds to gross loan growth of $12,978,000 during the first six months of 2017, compared to loan growth of $38,742,000 during the first six months of 2016.

• Net interest income increased $349,000 or 4.3% and $889,000 or 5.7% for the three and six month periods ended June 30, 2017, respectively, compared to the same periods in 2016.  The increase was primarily due to the organic growth of our loan and investment security portfolios.

• Non-interest income increased by $980,000 or 92.8% and $1,414,000 or 67.6% for the three and six months ended June 30, 2017, respectively, as compared to the same periods in 2016, primarily due to professional service provider settlement payments and an increase in gains on called securities, as discussed below.

• Non-interest expense decreased by $111,000 or 1.8% and $91,000 or 0.7% for the three and six month periods ended June 30, 2017, respectively, as compared to the same periods in 2016. The decrease was partially due to data processing efficiencies gained from the Mother Lode Bank core system conversion completed in April 2016 and a legal recovery of $85,000 on an OREO property.

• Total assets increased $18,385,000 or 1.8% from December 31, 2016.  Total net loans increased by $12,978,000 or 2.2% and investment securities increased by $14,919,000 or 9.3% from December 31, 2016 to June 30, 2017, while deposits decreased by $11,693,000 or 1.3% for the same period.

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Income Summary

For the three and six month periods ended June 30, 2017, the Company recorded net income of $2,830,000 and $5,037,000, respectively, representing increases of $926,000 and $1,624,000, as compared to $1,904,000 and $3,413,000 recorded during the same periods in 2016.  Return on average assets (annualized) was 1.14% and 1.02% for the three and six months ended June 30, 2017, respectively, as compared to 0.85% and 0.76% for the same periods in 2016.  Annualized return on average common equity was 13.14% and 11.96% for the three and six months ended June 30, 2017, respectively, as compared to 9.48% and 8.59% for the same periods of 2016.

Net income before provisions for income taxes increased $1,530,000 and $2,684,000 for the three and six month periods ended June 30, 2017, respectively, from the comparable 2016 periods.  The income statement components of these variances are as follows:

Pre-Tax Income Variance Summary:

(In thousands)	Effect on Pre-Tax Income		Effect on Pre-Tax Income
	Increase (Decrease)		Increase (Decrease)
	Three Months Ended		Six Months Ended
	June 30, 2017		June 30, 2017
Change from 2016 to 2017 in:
Net interest income	$	349	$	889
Provision for loan losses		90		290
Non-interest income		980		1,414
Non-interest expense		111		91
Change in net income before income taxes	$	1,530	$	2,684

These variances will be explained in the discussion below.

Net Interest Income

Net interest income is the largest source of the Company’s operating income.  For the three and six month periods ended June 30, 2017, net interest income was $8,455,000 and $16,537,000, respectively, which represented increases of $349,000 or 4.3% and $889,000 or 5.7%, from the comparable periods in 2016. The increase is primarily due to loan and investment portfolio growth.

The net interest margin (net interest income as a percentage of average interest earning assets) was 3.74% and 3.72% for the three and six month periods ended June 30, 2017, respectively, which decreased compared to 4.03% and 3.90% for the same periods in 2016, mainly due to a decrease in loan discount amortization on acquired loans. In general, the Company has experienced net interest margin compression since the economic downturn in 2010 for several reasons: 1) deposit interest rates have essentially reached a threshold in which they cannot reasonably be further reduced, 2) competition in the lending market has driven new loan rates down, 3) loan and investment portfolio yields continue to decrease due to contractual repricing and 4) deposit growth has out-paced loan growth and the elevated interest-bearing cash balances, which yield approximately 1.25%, have compressed our net interest margin.

Earning asset yield decreased by 27 and 16 basis points for the three and six month periods ended June 30, 2017, respectively, compared to the same periods of 2016, mainly due to a decrease in loan discount accretion on loans acquired in the Mother Lode Bank acquisition, and from competition in our lending market for new loans as discussed above. The loan discount accretion variance resulted in a decrease in loan yield of 27 and 20 basis points during the three and six month periods of 2017, respectively, as compared to the same periods in 2016, but is showing signs of stabilization due to the positive impact the recent FOMC interest rate hikes have had on floating rate loans. Furthermore, the Company has been able to keep the earning asset yield relatively stable by deploying a significant portion of the low yielding cash equivalent balances into the loan and investment portfolios which recognized average balance increases of $49 million and $26 million, respectively, in the six month period of 2017 as compared to 2016.

The cost of funds on interest-bearing liabilities increased slightly from 0.13% for the three and six month periods of 2016 to 0.18% and 0.17% for the same periods in 2017, respectively, as deposit rates remain low and the banking industry has not reacted to the recent FOMC interest rate hikes thus far. The Company continues to recognize strong core deposit growth as evidenced by the increase in average non-interest-bearing demand deposit balances of $51 million, for the six month period ended June 30, 2017, as compared to the same period of 2016.

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The following tables shows the relative impact of changes in average balances of interest earning assets and interest bearing liabilities, and interest rates earned and paid by the Company on those assets and liabilities for the three and six month periods ended June 30, 2017 and 2016:

Net Interest Analysis

	Three Months Ended June 30, 2017							Three Months Ended June 30, 2016
(in thousands)	Average Balance		Interest Income / Expense		Avg Rate/ Yield			Average Balance		Interest Income / Expense		Avg Rate/ Yield
Assets:
Earning assets:
Gross loans (1) (2)	$	617,590	$	7,265		4.72	%	$	573,298	$	7,133		4.99	%
Investment securities (2)		170,267		1,367		3.22	%		143,069		1,272		3.57	%
Federal funds sold		8,258		21		1.02	%		4,216		5		0.48	%
Interest-earning deposits		142,162		370		1.04	%		111,314		147		0.53	%
Total interest-earning assets		938,277		9,023		3.86	%		831,897		8,557		4.13	%
Total noninterest earning assets		60,452							71,675
Total Assets		998,729							903,572
Liabilities and Shareholders' Equity:
Interest-bearing liabilities:
Interest-earning DDA		201,172		84		0.17	%		172,701		39		0.09	%
Money market deposits		289,162		134		0.19	%		287,389		81		0.11	%
Savings deposits		65,823		8		0.05	%		72,009		29		0.16	%
Time certificates of deposit $250,000 or more		21,071		20		0.38	%		17,599		12		0.27	%
Other time deposits		32,095		24		0.30	%		33,519		30		0.36	%
Other borrowings		0		0		0.00	%		0		0		0.00	%
Total interest-bearing liabilities		609,323		270		0.18	%		583,217		191		0.13	%
Noninterest-bearing liabilities:
Noninterest-bearing deposits		297,598							235,651
Other liabilities		5,403							4,153
Total noninterest-bearing liabilities		303,001							239,804
Shareholders' equity		86,405							80,551
Total liabilities and shareholders' equity	$	998,729						$	903,572
Net interest income			$	8,753						$	8,366
Net interest spread (3)						3.68	%						3.99	%
Net interest margin (4)						3.74	%						4.03	%

(1)  Loan fees have been included in the calculation of interest income.

(2) Yields and interest income on municipal securities and loans have been adjusted to their fully-taxable equivalents, based on a federal marginal tax rate of 34.0%.

(3) Represents the average rate earned on interest-earning assets less the average rate paid on interest-bearing liabilities.

(4) Represents net interest income as a percentage of average interest-earning assets.

(5) Annual interest rates are computed by dividing the interest income/expense by the number of days in the period multiplied by 365.

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	Six months ended							Six months ended
	June 30, 2017							June 30, 2016
(in thousands)	Average Balance		Interest Income / Expense		Avg Rate/ Yield			Average Balance		Interest Income / Expense		Avg Rate/ Yield
Assets:
Earning assets:
Gross loans (1) (2)	$	612,343	$	14,194		4.67	%	$	563,173	$	13,684		4.87	%
Investment securities (2)		166,305		2,704		3.28	%		140,273		2,500		3.57	%
Federal funds sold		7,973		36		0.91	%		5,999		15		0.50	%
Interest-earning deposits		141,624		671		0.96	%		122,266		323		0.53	%
Total interest-earning assets		928,245		17,605		3.82	%		831,711		16,522		3.98	%
Total noninterest earning assets		63,854							70,711
Total assets		992,099							902,422
Liabilities and Shareholders' Equity:
Interest-bearing liabilities:
Interest-earning DDA		193,203		128		0.13	%		162,192		64		0.08	%
Money market deposits		290,255		247		0.17	%		289,597		159		0.11	%
Savings deposits		70,619		35		0.10	%		73,196		54		0.15	%
Time certificates of deposit $250,000 or more		21,490		40		0.38	%		17,558		26		0.30	%
Other time deposits		32,196		49		0.31	%		33,129		56		0.34	%
Other borrowings		0		0		0.00	%		19		0		0.00	%
Total interest-bearing liabilities		607,763		499		0.17	%		575,691		359		0.13	%
Noninterest-bearing liabilities:
Noninterest-bearing deposits		293,856							242,942
Other liabilities		5,551							4,090
Total noninterest-bearing liabilities		299,407							247,032
Shareholders' equity		84,929							79,699
Total liabilities and shareholders' equity	$	992,099						$	902,422
Net interest income			$	17,106						$	16,163
Net interest spread (3)						3.66	%						3.86	%
Net interest margin (4)						3.72	%						3.90	%

(1)  Loan fees have been included in the calculation of interest income.

(2) Yields and interest income on municipal securities and loans have been adjusted to their fully-taxable equivalents, based on a federal marginal tax rate of 34.0%.

(3) Represents the average rate earned on interest-earning assets less the average rate paid on interest-bearing liabilities.

(4) Represents net interest income as a percentage of average interest-earning assets.

(5) Annual interest rates are computed by dividing the interest income/expense by the number of days in the period multiplied by 365.

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Shown in the following tables are the relative impacts on net interest income of changes in the average outstanding balances (volume) of earning assets and interest bearing liabilities and the rates earned and paid by the Company on those assets and liabilities for the three and six month periods ended June 30, 2017 and 2016.  Changes in interest income and expense that are not attributable specifically to either rate or volume are allocated to the rate column below.

Rate / Volume Variance Analysis

(In thousands)

	For the Three Months Ended
	June 30, 2017 vs 2016
	Increase (Decrease)
	in interest income and expense
(in thousands)	due to changes in:
	Volume			Rate			Total
Interest income:
Gross loans (1) (2)	$	551		$	(419	)	$	132
Investment securities (2)		242			(147	)		95
Federal funds sold		5			11			16
Interest-earning deposits		41			182			223
Total interest income	$	839		$	(373	)	$	466
Interest expense:
Interest-earning DDA		6			39			45
Money market deposits		0			53			53
Savings deposits		(2	)		(19	)		(21	)
Time CD $250K or more		2			6			8
Other time deposits		(1	)		(5	)		(6	)
Other borrowings		0			0			0
Total interest expense	$	5		$	74		$	79
Change in net interest income	$	834		$	(447	)	$	387

(1) Loan fees have been included in the calculation of interest income.

(2) Interest income on municipal securities and loans has been adjusted to their fully-taxable equivalents, based on a federal marginal tax rate of 34.0%.

The table above reflects a decrease of $447,000 in net interest income due to rate changes for the second quarter of 2017 as compared to the same period of 2016. This decrease is the result of a $415,000 decline in loan discount accretion on loans acquired at fair value, and is compounded by the adverse impact the current low interest rate environment has had on security yields, but was partially offset by the recent interest rate hike’s positive impact on interest-earning deposits. The increase in earning asset balances combined with the overall change in mix of balances resulted in an increase of $834,000 to net interest income over the same period.

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	For the Six Months Ended June 30,
	2017 vs 2016
	Increase (Decrease)
	in interest income and expense
(in thousands)	due to changes in:
	Volume			Rate			Total
Interest income:
Gross loans (1) (2)	$	1,195		$	(685	)	$	510
Investment securities (2)		464			(260	)		204
Federal funds sold		5			16			21
Interest-earning deposits		52			296			348
Total interest income	$	1,716		$	(633	)	$	1,083
Interest expense:
Interest-earning DDA	$	12		$	52		$	64
Money market deposits		0			88			88
Savings deposits		(2	)		(17	)		(19	)
Time CD $250K or more		6			8			14
Other time deposits		(2	)		(5	)		(7	)
Other borrowings		0			0			0
Total interest expense	$	14		$	126		$	140
Change in net interest income	$	1,702		$	(759	)	$	943

(1) Loan fees have been included in the calculation of interest income.

(2) Interest income on municipal securities and loans has been adjusted to their fully-taxable equivalents, based on a federal marginal tax rate of 34.0%.

The table above reflects a decrease of $759,000 in net interest income due to rate changes for the six month period of 2017 as compared to the same period of 2016. This decrease is primarily the result of a $485,000 decline in loan discount accretion on loans acquired at fair value, and is compounded by the adverse impact the current low interest rate environment has had on security yields, but was partially offset by the recent interest rate hike’s positive impact on interest-earning deposits. The increase in earning asset balances combined with the overall change in mix of balances resulted in an increase of $1,702,000 to net interest income over the same period.

 Non-Interest Income

Non-interest income represents service charges on deposit accounts and other non-interest related charges and fees, including fees from mortgage commissions and investment service fee income.  For the three and six month periods ended June 30, 2017, non-interest income was $2,036,000 and $3,507,000, respectively, representing increases of $980,000 or 92.8% and $1,414,000 or 67.6%, compared to the same periods in 2016.

The following tables show the major components of non-interest income:

(in thousands)	For the Three Months Ended June 30,
	2017		2016		$ change			% change
Service charges on deposits	$	351	$	337	$	14			4.2	%
Earnings on cash surrender value of life insurance		128		95		33			34.7	%
Mortgage commissions		37		49		(12	)		(24.5%	)
Gains on calls and sales of securities		1		12		(11	)		(91.7%	)
Other income		1,519		563		956			169.8	%
Total non-interest income	$	2,036	$	1,056	$	980			92.8	%

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(in thousands)	For the Six Months Ended June 30,
	2017		2016		$ change		% change
Service charges on deposits	$	686	$	670	$	16		2.4	%
Earnings on cash surrender value of life insurance		256		203		53		26.1	%
Mortgage commissions		99		95		4		4.2	%
Net gain on sales and calls of securities		390		18		372		2066.7	%
Other income		2,076		1,107		969		87.5	%
Total non-interest income	$	3,507	$	2,093	$	1,414		67.6	%

Service charges on deposits increased by $14,000 and $16,000 for the three and six months ended June 30, 2017, respectively, compared to the same periods in 2016, due to an increase in the number of deposit accounts.

Mortgage commissions decreased by $12,000 for the three months ended June 30, 2017, and increased by $4,000 for the six months ended June 30, 2017, as compared to the same periods of 2016, as the demand for home purchases and refinancing has retracted during the second quarter.

Net gain on sales and calls of securities decreased by $11,000 for the three months ended June 30, 2017, and increased by $372,000 for the six months ended June 30, 2017, as compared to the same periods in 2016, due to two large gains on called securities recorded during the first quarter of 2017.

Other income increased by $956,000 and $969,000 for the three and six month periods ended June 30, 2017, respectively, as compared to the same periods of 2016. The increase was due to settlement payments, recorded during the second quarter of 2017, totaling $938,000 from professional service providers related to the acquisition of Mother Lode Bank.

Non-Interest Expense

Non-interest expense represents salaries and benefits, occupancy expenses, professional expenses, outside services, and other miscellaneous expenses necessary to conduct business.

The following tables show the major components of non-interest expenses:

(in thousands)	For the Three Months Ended June 30,
	2017		2016		$ change			% change
Salaries and employee benefits	$	3,457	$	3,370	$	87			2.6	%
Occupancy		817		813		4			0.5	%
Data processing fees		409		440		(31	)		(7.0%	)
Regulatory assessments (FDIC & DBO)		136		170		(34	)		(20.0%	)
Other		1,257		1,394		(137	)		(9.8%	)
Total non-interest expense	$	6,076	$	6,187	$	(111	)		(1.8%	)

(in thousands)	For the Six Months Ended June 30,
	2017		2016		$ change			% change
Salaries and employee benefits	$	7,069	$	6,725	$	344			5.1	%
Occupancy		1,673		1,651		22			1.3	%
Data processing fees		755		911		(156	)		(17.1%	)
Regulatory assessments (FDIC & DBO)		280		327		(47	)		(14.4%	)
Other		2,506		2,760		(254	)		(9.2%	)
Total non-interest expense	$	12,283	$	12,374	$	(91	)		(0.7%	)

Non-interest expenses decreased by $111,000 or 1.8% and $91,000 or 0.7% for the three and six months ended June 30, 2017, respectively, as compared to the same periods of 2016.  Salaries and employee benefits increased $87,000 and $344,000 for the three and six months ended June 30, 2017, respectively, as compared to the same periods of 2016, primarily due to additional staffing required to support the continued loan and deposit growth.

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Occupancy expenses increased by $4,000 and $22,000 for the three and six months ended June 30, 2017, respectively, as compared to the same periods of 2016, which is primarily due to rent and general overhead associated with the branches. Data processing fees decreased by $31,000 and $156,000 for the three and six month periods ended June 30, 2017, respectively, as a result of cost efficiencies gained from the conversion of the Mother Lode Bank core data system completed in April 2016.

FDIC and DBO (California Department of Business Oversight) regulatory assessments decreased by $34,000 and $47,000 for the three and six months ended June 30, 2017, respectively, as compared to the same periods in 2016.  The initial base assessment rate for financial institutions varies based on the overall risk profile of the institution as defined by the FDIC and our risk profile has remained stable during 2016 and 2017. In April of 2016 the FDIC changed the methodology for determining the assessment rate, which first appeared on the December 31, 2016 invoice. The result was a reduction in our assessment rate, however we expect it to be offset by deposit growth throughout 2017, as the FDIC assessment rates are applied to average quarterly total liabilities as the primary basis.

Other expense decreased by $137,000 and $254,000 for the three and six months ended June 30, 2017, respectively, compared to the same periods in 2016, partially as a result of an $85,000 legal settlement payment received related to an OREO that was recorded as an offset to OREO expenses during the second quarter of 2017.

Management anticipates that non-interest expense will continue to increase as we continue to grow.  However, management remains committed to cost-control and efficiency, and we expect to keep these increases to a minimum relative to growth.

Income Taxes

We reported provisions for income taxes of $1,550,000 and $2,689,000 for the three and six month periods ended June 30, 2017, respectively, representing increases of $604,000 and $1,060,000 as compared to the provisions reported in the comparable periods of 2016. The effective income tax rates on income from continuing operations was 35.4% and 34.8% for the three and six months ended June 30, 2017, respectively, compared to 33.2% and 32.3% for the comparable periods of 2016. These provisions reflect accruals for taxes at the applicable rates for federal income tax and California franchise tax based upon reported pre-tax income, and adjusted for the effects of all permanent differences between income for tax and financial reporting purposes (such as earnings on qualified municipal securities, BOLI and certain tax-exempt loans). The disparity between the effective tax rates for 2017 as compared to 2016 is primarily due to tax credits from California Enterprise Zones and low income housing projects as well as tax free-income on municipal securities and loans that comprise a larger proportion of pre-tax income in 2016 as compared to 2017.

Asset Quality

Non-performing assets consist of loans on non-accrual status, including loans restructured on non-accrual status, where the terms of repayment have been renegotiated resulting in a reduction or deferral of interest or principal, loans 90 days or more past due and still accruing interest and other real estate owned (“OREO”).

Loans are generally placed on non-accrual status when they become 90 days past due, unless management believes the loan is adequately collateralized and in the process of collection. The past due loans may or may not be adequately collateralized, but collection efforts are continuously pursued. Loans may be restructured by management when a borrower has experienced some changes in financial status, causing an inability to meet the original repayment terms, and where we believe the borrower will eventually overcome those circumstances and repay the loan in full. OREO consists of properties acquired by foreclosure or similar means and which management intends to offer for sale.

Non-accrual loans totaled $2,032,000 at June 30, 2017, as compared to $3,037,000 at December 31, 2016.  The non-accrual loans as of June 30, 2017 are loans made to four borrowers primarily for residential real estate development and general commercial purposes. As of June 30, 2017, we had five loans considered troubled debt restructurings totaling $1,894,000 million, all of which are included in non-accrual loans.

OREO as of June 30, 2017 consisted of three properties, one of which was a residential land acquired through foreclosure that was written down to a zero balance because the public utilities have not been obtainable rendering these land lots unmarketable at this time. The other OREO assets consisted of two residential properties totaling $1,210,000 that were acquired through foreclosure.

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The following table presents information about the Bank’s non-performing assets, including asset quality ratios as of June 30, 2017 and December 31, 2016:

Non-Performing Assets

(in thousands)	June 30,			December 31,
	2017			2016
Loans in non-accrual status	$	2,032		$	3,037
Loans past due 90 days or more and accruing		0			0
Total non-performing loans		2,032			3,037
Other real estate owned		1,210			1,210
Total non-performing assets	$	3,242		$	4,247
Allowance for loan losses	$	7,854		$	7,832
Asset quality ratios:
Non-performing assets to total assets		0.32	%		0.42	%
Non-performing loans to total loans		0.33	%		0.50	%
Allowance for loan losses to total loans		1.26	%		1.28	%
Allowance for loan losses to total non-performing loans		386.5	%		257.9	%

Non-performing assets decreased by $1,005,000 as of June 30, 2017, as compared to December 31, 2016, as a result of principal payments of $854,000 and one loan totaling $289,000 that was returned to accrual status, which was offset by a loan totaling $138,000 that was placed on non-accrual status during the first six months of 2017. The Company did not acquire or sell any OREO properties during the first six months of 2017, and there were no fair value adjustments to OREO properties during the first six months of 2017.

Allowance for Loan and Lease Losses (“ALLL”)

Due to credit risk inherent in our lending business, we routinely set aside allowances through charges to earnings. Such charges are not only made for the outstanding loan portfolio, but also for off-balance sheet items, such as commitments to extend credits or letters of credit. Charges made for the outstanding loan portfolio have been credited to the allowance for loan losses, whereas charges for off-balance sheet items have been credited to the reserve for off-balance sheet items, which is presented as a component of other liabilities.  The Company recorded loan loss provisions of $35,000 during the three and six months ended June 30, 2017, respectively, compared to provisions of $125,000 and $325,000 during the comparable periods of 2016.

The allowance for loan losses increased by $22,000 or 0.3%, to $7,854,000 at June 30, 2017, as compared to $7,832,000 at December 31, 2016, due to the $35,000 loan loss provision which was offset by net loan charge-off of $13,000 recorded during the six month period of 2017. The gross loan growth outpaced the increase to the allowance for loan loss, resulting in a decrease to the allowance for loan losses as a percentage of total loans to 1.26% at June 30, 2017 as compared to 1.28% at December 31, 2016.

The Company will continue to monitor the adequacy of the allowance for loan losses and make additions to the allowance in accordance with the analysis referred to above. Because of uncertainties inherent in estimating the appropriate level of the allowance for loan losses, actual results may differ from management’s estimate of credit losses and the related allowance.

The Company makes provisions for loan losses when required to bring the total allowance for loan and lease losses to a level deemed appropriate for the level of risk in the loan portfolio.  At least quarterly, management conducts an assessment of the overall quality of the loan portfolio and general economic trends in the local market.  The determination of the appropriate level for the allowance is based on that review, considering such factors as historical experience, the volume and type of lending conducted, the amount of and identified potential loss associated with specific non-performing loans, regulatory policies, general economic conditions, and other factors related to the collectability of loans in the portfolio.

Although management believes the allowance at June 30, 2017 was adequate to absorb probable losses from any known and inherent risks in the portfolio, no assurance can be given that the adverse effect of current and future economic conditions on our service areas, or other variables, will not result in increased losses in the loan portfolio in the future.

Investment Activities

Investments are a key source of interest income. Management of our investment portfolio is set in accordance with strategies developed and overseen by our Investment Committee. Investment balances, including cash equivalents and interest-bearing deposits in other financial institutions, are subject to change over time based on our asset/liability funding needs and interest rate risk management objectives. Our liquidity levels take into consideration anticipated future cash flows and all available sources of credits, and are maintained at levels management believes are appropriate to assure future flexibility in meeting anticipated funding needs.

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Cash Equivalents

The Company holds federal funds sold, unpledged available-for-sale securities and salable government guaranteed loans to help meet liquidity requirements and provide temporary holdings until the funds can be otherwise deployed or invested. As of June 30, 2017, and December 31, 2016, we had $182,159,000 and $190,810,000, respectively, in cash and cash equivalents.

Investment Securities

Management of our investment securities portfolio focuses on providing an adequate level of liquidity and establishing an interest rate-sensitive position, while earning an adequate level of investment income without taking undue risk. Investment securities that we intend to hold until maturity are classified as held-to-maturity securities, and all other investment securities are classified as available-for-sale.  Currently, all of our investment securities are classified as available-for-sale. The carrying values of available-for-sale investment securities are adjusted for unrealized gains or losses as a valuation allowance and any gain or loss is reported on an after-tax basis as a component of other comprehensive income.

Management has evaluated the investment securities portfolio to determine if the impairment of any security in an unrealized loss position is temporary or other than temporary.  We conduct a periodic review and evaluation of the securities portfolio to determine if the value of any security has declined below its carrying value. If such decline is deemed other than temporary, we would adjust the carrying amount of the security by writing down the security to fair value through a charge to current period income or a charge to accumulated other comprehensive income depending on the nature of the impairment and managements intent or requirement to sell the security. Management has determined that no investment security is other than temporarily impaired.  The unrealized losses are due primarily to interest rate changes.

Goodwill

Goodwill arises when the Company’s purchase price exceeds the fair value of the net assets of an acquired business. Goodwill represents the value attributable to intangible elements acquired. The value of goodwill is supported ultimately by profit from the acquired business. A decline in earnings could lead to impairment, which would be recorded as a write-down in the Company’s consolidated statements of earnings. Events that may indicate goodwill impairment include significant or adverse changes in results of operations of the acquired business or asset, economic or political climate; an adverse action or assessment by a regulator; unanticipated competition; and a more-likely-than-not expectation that a reporting unit will be sold or disposed of at a loss. While goodwill is not amortized, the Company does conduct periodic impairment analysis on goodwill at least annually or more often as conditions require.

At June 30, 2017, the Company had goodwill in the amount of $3,312,000 in connection with the acquisition of Mother Lode Bank in December of 2015.

Deposits

Total deposits at June 30, 2017 were $925,786,000, a $11,693,000 or 1.3% increase from the deposit total of $914,093,000 at December 31, 2016.  Average deposits increased $83,005,000 to $901,619,000 for the six month period ended June 30, 2017 as compared to the same period in 2016. We attracted deposits due to the safety and soundness of the Bank and our focus on customer service.

Deposits Outstanding

	June 30,		December 31,		Six Month Change
(in thousands)	2017		2016		$			%
Demand	$	517,175	$	500,930	$	16,245			3.2	%
MMDA		290,499		283,643		6,856			2.4	%
Savings		66,623		75,122		(8,499	)		(11.3%	)
Time < $250K		32,667		33,428		(761	)		(2.3%	)
Time > $250K		18,822		20,970		(2,148	)		(10.2%	)
	$	925,786	$	914,093	$	11,693			1.3	%

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Because our client base is comprised primarily of commercial and industrial accounts, individual account balances are generally higher than those of consumer-oriented banks. Six of our clients carry deposit balances of more than 1% of our total deposits, two of which had a deposit balance of more than 3% of total deposits at June 30, 2017.

Since our deposit growth strategy emphasizes core deposit growth we have avoided relying on brokered deposits as a consistent source of funds. The Company had $50,000 in brokered deposits as of June 30, 2017 and December 31, 2016. The only brokered deposits the Bank holds are from CDARS and ICS, a certificate of deposit and money market account program, respectively, that exchanges funds with other network banks to offer full FDIC insurance coverage to the customer.

Borrowings

Although deposits are the primary source of funds for our lending and investment activities and for general business purposes, we may obtain advances from the Federal Home Loan Bank of San Francisco (“FHLB”) as an alternative to retail deposit funds. Our outstanding FHLB advances remained a zero balance at December 31, 2016 and June 30, 2017, as we continue to rely on deposit growth as our primary source of funding. See “Liquidity Management” below for the details on the FHLB borrowings program.

Capital Ratios

The Company is regulated by the Board of Governors of the Federal Reserve Board (FRB) and is subject to the securities registration and public reporting regulations of the Securities and Exchange Commission. As a California state-chartered bank, our banking subsidiary is subject to primary supervision, examination and regulation by the California Department of Business Oversight (DBO) and the Federal Reserve Board. The Federal Reserve Board is the primary federal regulator of state member banks. The Bank is also subject to regulation by the FDIC, which insures the Bank’s deposits as permitted by law. We are not aware of any recommendations of regulatory authorities or otherwise which, if they were to be implemented, would have a material effect on our liquidity, capital resources, or operations.

The Company must comply with regulatory capital requirements established by the FRB. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary, actions by regulators that, if undertaken, could have a direct material effect on our financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, we must meet specific capital guidelines that involve quantitative measures of our assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. Our capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. These capital standards require us to maintain minimum ratios of “Tier 1” capital to total risk-weighted assets and total capital to risk-weighted assets of 6.00% and 8.00%, respectively. Tier 1 capital is comprised of total shareholders’ equity calculated in accordance with generally accepted accounting principles, excluding accumulated other comprehensive income (loss), less intangible assets, and total capital is comprised of Tier 1 capital plus certain adjustments, the largest of which is our allowance for loan losses. Risk-weighted assets refer to our on- and off-balance sheet exposures, adjusted for their related risk levels using formulas set forth in FRB and FDIC regulations.

In addition to the risk-based capital requirements described above, we are subject to a leverage capital requirement, which calls for a minimum ratio of Tier 1 capital (as defined above) to quarterly average total assets of 4.00%.

In July 2013, the U.S. banking agencies approved the U.S. version of Basel III. The federal bank regulatory agencies adopted version of Basel III revises the risk-based and leverage capital requirements and the method for calculating risk-weighted assets to make them consistent with Basel III and to meet the requirements of the Dodd-Frank Act. Although many of the rules contained in these final regulations are applicable only to large, internationally active banks, some of them will apply on a phased in basis to all banking organizations, including the Company and the Bank. Among other things, the rules establish a new minimum common equity Tier 1 ratio (4.5% of risk-weighted assets), a higher minimum Tier 1 risk-based capital requirement (6.0% of risk-weighted assets) and a minimum non-risk-based leverage ratio (4.00% eliminating a 3.00% exception for higher rated banks). The new additional capital conservation buffer of 2.5% of risk weighted assets over each of the required capital ratios will be phased in from 2016 to 2019 and must be met to avoid limitations on the ability of the Bank to pay dividends, repurchase shares or pay discretionary bonuses. The additional “countercyclical capital buffer” is also required for larger and more complex institutions. The new rules assign higher risk weighting to exposures that are more than 90 days past due or are on nonaccrual status and certain commercial real estate facilities that finance the acquisition, development or construction of real property. The rules also change the permitted composition of Tier 1 capital to exclude trust preferred securities, mortgage servicing rights and certain deferred tax assets and include unrealized gains and losses on available for sale debt and equity securities (with a one-time opt out option for Standardized Banks (banks with less than $250 billion of total consolidated assets and less than $10 billion of foreign exposures)). The rules, including alternative requirements for smaller community financial institutions like the Company, would be phased in through 2019. The implementation of the Basel III framework for the Company and the Bank commenced on January 1, 2015.

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Failure to meet minimum capital requirements can trigger regulatory actions that could have a material adverse effect on our financial statements and operations. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, we must meet specific capital guidelines that rely on quantitative measures of our assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. Our capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

The following table shows our capital ratios, as calculated under regulatory guidelines, compared to the regulatory minimum capital ratios and the regulatory minimum capital ratios needed to qualify as a “well-capitalized” institution at June 30, 2017 and December 31, 2016:

									To be well
									capitalized under
(in thousands)						For capital			prompt corrective
	Actual					adequacy purposes			action provisions
Capital ratios for Bank:	Amount		Ratio			Amount		Ratio	Amount		Ratio
As of June 30, 2017
Total capital (to Risk- Weighted Assets)	$	90,708		11.43	%	$	73,382	>9.25%	$	79,332	>10.0%
Tier I capital (to Risk- Weighted Assets)	$	82,552		10.41	%	$	57,515	>7.25%	$	63,465	>8.0%
Common Equity Tier 1 Capital (to Risk Weighted Assets)	$	82,552		10.41	%	$	45,616	>5.75%	$	51,566	>6.5%
Tier I capital (to Average Assets)	$	82,552		8.30	%	$	39,799	>4.0%	$	49,749	>5.0%
As of December 31, 2016
Total capital (to Risk- Weighted Assets)	$	86,603		11.3	%	$	66,358	>8.625%	$	76,937	>10.0%
Tier I capital (to Risk- Weighted Assets)	$	78,487		10.2	%	$	50,970	>6.625%	$	61,549	>8.0%
Common Equity Tier 1 Capital (to Risk Weighted Assets)	$	78,487		10.2	%	$	39,430	>5.125%	$	50,009	>6.5%
Tier I capital (to Average Assets)	$	78,487		8.1	%	$	38,726	>4.0%	$	48,408	>5.0%
Capital ratios for the Company:
As of June 30, 2017
Total capital (to Risk- Weighted Assets)	$	91,024		11.5	%	$	73,388	>9.25%		N/A		N/A
Tier I capital (to Risk- Weighted Assets)	$	82,868		10.4	%	$	57,521	>7.25%		N/A		N/A
Common Equity Tier 1 Capital (to Risk Weighted Assets)	$	82,868		10.4	%	$	45,620	>5.75%		N/A		N/A
Tier I capital (to Average Assets)	$	82,868		8.3	%	$	39,801	>4.0%		N/A		N/A
As of December 31, 2016
Total capital (to Risk- Weighted Assets)	$	86,966		11.3	%	$	66,365	>8.625%		N/A		N/A
Tier I capital (to Risk- Weighted Assets)	$	78,850		10.3	%	$	50,976	>6.625%		N/A		N/A
Common Equity Tier 1 Capital (to Risk Weighted Assets)	$	78,850		10.3	%	$	39,435	>5.125%		N/A		N/A
Tier I capital (to Average Assets)	$	78,850		8.1	%	$	38,731	>4.0%		N/A		N/A

Our bank subsidiary is also subject to capital requirements similar to those discussed above. The bank subsidiary’s capital ratios do not vary materially from our capital ratios presented above. At June 30, 2017, our bank subsidiary exceeded the minimum ratios established by the FRB.

Liquidity Management

Since the Company is a holding company and does not conduct regular banking operations, its primary sources of liquidity are dividends from the Bank. Under the California Financial Code, payment of a dividend from the Bank to the Company is restricted to the lesser of the Bank’s retained earnings or the amount of the Bank’s undistributed net profits from the previous three fiscal years. The primary uses of funds for the Company are stockholder dividends, investment in the Bank and ordinary operating expenses. Management anticipates that there will be sufficient earnings at the Bank level to provide dividends to the Company to meet its funding requirements for the next twelve months.

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Maintenance of adequate liquidity requires that sufficient resources be available at all times to meet our cash flow requirements. Liquidity in a banking institution is required primarily to provide for deposit withdrawals and the credit needs of its customers and to take advantage of investment opportunities as they arise. Liquidity management involves our ability to convert assets into cash or cash equivalents without incurring significant loss, and to raise cash or maintain funds without incurring excessive additional cost. For this purpose, we maintain a portion of our funds in cash and cash equivalents, salable government guaranteed loans and securities available for sale. We obtain funds from the repayment and maturity of loans as well as deposit inflows, investment security maturities and paydowns, Federal funds purchased, FHLB advances, and other borrowings. Our primary uses of funds are the origination of loans, the purchase of investment securities, withdrawals of deposits, maturity of certificate of deposits, repayment of borrowings and dividends to common and preferred stockholders. Our liquid assets at June 30, 2017 were $274.4 million compared to $269.7 million at December 31, 2016.  Our liquidity level measured as the percentage of liquid assets to total assets was 26.9% at June 30, 2017 and December 31, 2016. We anticipate that cash and cash equivalents on hand and other sources of funds will provide adequate liquidity for our operating, investing and financing needs and our regulatory liquidity requirements for the next twelve months. Management monitors our liquidity position daily, balancing loan funding/payments with changes in deposit activity and overnight investments.

As a secondary source of liquidity, we rely on advances from the FHLB to supplement our supply of lendable funds and to meet deposit withdrawal requirements. Advances from the FHLB are typically secured by a portion of our loan portfolio. The FHLB determines limitations on the amount of advances by assigning a percentage to each eligible loan category that will count towards the borrowing capacity. As of June 30, 2017, our borrowing capacity from the FHLB was approximately $247.4 million and there were no outstanding advances. We also maintain 2 lines of credit with correspondent banks to purchase up to $30 million in federal funds, for which there were no advances as of June 30, 2017.

Off-Balance-Sheet Arrangements

During the ordinary course of business, we provide various forms of credit lines to meet the financing needs of our customers. These commitments, which represent a credit risk to us, are not represented in any form on our balance sheets.

As of June 30, 2017 and December 31, 2016, we had commitments to extend credit of $118.6 million and $110.8 million, respectively, which includes obligations under letters of credit of $2.3 million and $1.3 million.

The effect on our revenues, expenses, cash flows and liquidity from the unused portion of the commitments to provide credit cannot be reasonably predicted because there is no guarantee that the lines of credit will be used.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not applicable.

Item 4. Controls and Procedures

The Company’s Chief Executive Officer and its Chief Financial Officer, after evaluating the effectiveness of the Company’s disclosure controls and procedures, as defined in Exchange Act Rules 13 a-15(e) and 15(d)-15(e) promulgated under the Exchange Act, as of the end of the period covered by this report (the “Evaluation Date”) have concluded that as of the Evaluation Date, the Company’s disclosure controls and procedures were adequate and effective to ensure that material information relating to the Company would be made known to them by others within the Company, particularly during the period in which this report was being prepared.  Disclosure controls and procedures are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.  Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

There were no significant changes in our internal control over financial reporting during the last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting subsequent to the Evaluation Date.

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PART II - OTHER INFORMATION

Item 1. Legal Proceedings

There are no pending, or to management's knowledge, any threatened, material legal proceedings to which we are a defendant, or to which any of our properties are subject. There are no material legal proceedings to which any director, any nominee for election as a director, any executive officer, or any associate of any such director, nominee or officer is a party adverse to us.

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

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

None.

Item 5. Other Information

None.

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Item6. Exhibits

The following exhibits are filed as part of this report or hereby incorporated by reference to filings previously made with the SEC:

Exhibit No.		Exhibit Description
	10.1	The First Amendment to the Oak Valley Community Bank Amended and Restated Salary Continuation Agreement with Christopher M. Courtney, dated July 1, 2016 (incorporated by reference from exhibit 10.1 to the Company’s Form 8-K filed on June 9, 2017).
	10.2	The 2016 Salary Continuation Agreement with Christopher M. Courtney, dated July 1, 2016 (incorporated by reference from exhibit 10.2 to the Company’s Form 8-K filed on June 9, 2017).
	10.3	The First Amendment to the Oak Valley Community Bank Amended and Restated Salary Continuation Agreement with Richard A. McCarty, dated July 1, 2016 (incorporated by reference from exhibit 10.3 to the Company’s Form 8-K filed on June 9, 2017).
	10.4	The 2016 Salary Continuation Agreement with Richard A. McCarty, dated July 1, 2016 (incorporated by reference from exhibit 10.4 to the Company’s Form 8-K filed on June 9, 2017).
	10.5	The First Amendment to the Oak Valley Community Bank Amended and Restated Salary Continuation Agreement with Michael J. Rodrigues, dated July 1, 2016 (incorporated by reference from exhibit 10.5 to the Company’s Form 8-K filed on June 9, 2017).
	10.6	The 2016 Salary Continuation Agreement with Michael J. Rodrigues, dated July 1, 2016 (incorporated by reference from exhibit 10.6 to the Company’s Form 8-K filed on June 9, 2017).
	10.7	The 2016 Salary Continuation Agreement with Jeffrey Gall, dated July 1, 2016 (incorporated by reference from exhibit 10.7 to the Company’s Form 8-K filed on June 9, 2017).
	10.8	The Director Retirement Agreement with H. Randolph Holder, effective July 1, 2016.
	31.01	Certification of Principal Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	31.02	Certification of Principal Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	32.01	Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
	101.INS*	XBRL Instance Document
	101.SCH*	XBRL Taxonomy Extension Schema Document
	101.CAL*	XBRL Taxonomy Extension Calculation Linkbase Document
	101.DEF*	XBRL Taxonomy Extension Definition Linkbase Document
	101.LAB*	XBRL Taxonomy Extension Label Linkbase Document
	101.PRE*	XBRL Taxonomy Extension Presentation Linkbase Document

*In accordance with Rule 406T of Regulation S-T, the information in these exhibits is “furnished” and shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liability under that section, and shall not be incorporated by reference into any registration statement or other document filed under the Securities Act of 1933, as amended, except as expressly set forth by specific reference in such filing.

46

SIGNATURES

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

	Oak Valley Bancorp
Date: August 11, 2017	By:	/s/    JEFFREY A. GALL
		Jeffrey A. Gall
		Senior Vice President and Chief Financial Officer
		(Principal Financial Officer and duly authorized signatory)

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EXHIBIT INDEX

10.1	The First Amendment to the Oak Valley Community Bank Amended and Restated Salary Continuation Agreement with Christopher M. Courtney, dated July 1, 2016 (incorporated by reference from exhibit 10.1 to the Company’s Form 8-K filed on June 9, 2017).
10.2	The 2016 Salary Continuation Agreement with Christopher M. Courtney, dated July 1, 2016 (incorporated by reference from exhibit 10.2 to the Company’s Form 8-K filed on June 9, 2017).
10.3	The First Amendment to the Oak Valley Community Bank Amended and Restated Salary Continuation Agreement with Richard A. McCarty, dated July 1, 2016 (incorporated by reference from exhibit 10.3 to the Company’s Form 8-K filed on June 9, 2017).
10.4	The 2016 Salary Continuation Agreement with Richard A. McCarty, dated July 1, 2016 (incorporated by reference from exhibit 10.4 to the Company’s Form 8-K filed on June 9, 2017).
10.5	The First Amendment to the Oak Valley Community Bank Amended and Restated Salary Continuation Agreement with Michael J. Rodrigues, dated July 1, 2016 (incorporated by reference from exhibit 10.5 to the Company’s Form 8-K filed on June 9, 2017).
10.6	The 2016 Salary Continuation Agreement with Michael J. Rodrigues, dated July 1, 2016 (incorporated by reference from exhibit 10.6 to the Company’s Form 8-K filed on June 9, 2017).
10.7	The 2016 Salary Continuation Agreement with Jeffrey Gall, dated July 1, 2016 (incorporated by reference from exhibit 10.7 to the Company’s Form 8-K filed on June 9, 2017).
10.8	The Director Retirement Agreement with H. Randolph Holder, effective July 1, 2016.
31.01	Certification of Principal Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.02	Certification of Principal Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.01	Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS*	XBRL Instance Document
101.SCH*	XBRL Taxonomy Extension Schema Document
101.CAL*	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*	XBRL Taxonomy Extension Label Linkbase Document
101.PRE*	XBRL Taxonomy Extension Presentation Linkbase Document

48

EX-10.8

Exhibit 10.8

OAK VALLEY COMMUNITY BANK

DIRECTOR RETIREMENT AGREEMENT

THIS AGREEMENT between, OAK VALLEY COMMUNITY BANK, a state-chartered commercial bank located in Oakdale, California (the "Company"), and H. RANDOLPH HOLDER (the "Director")

INTRODUCTION

To encourage the Director to remain a member of the Company’s Board of Directors, the Company is willing to provide retirement benefits to the Director. The Company will pay the benefits from its general assets.

AGREEMENT

The Director and the Company agree as follows:

Article 1

Definitions

Whenever used in this Agreement, the following words and phrases shall have the meanings specified:

1.1 “Change of Control” means:

(a)     A change in the ownership of the capital stock of the Company or the Holding Company, whereby a corporation, person, or group acting in concert (hereinafter this Agreement shall collectively refer to any combination of these three [a corporation, person, or group acting in concert] as a “Person”) as described in Section 14(d)(2) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), acquires, directly or indirectly, beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of a number of shares of capital stock of the Company or Holding Company which constitutes fifty percent (50%) or more of the combined voting power of the Company’s or Holding Company’s then outstanding capital stock then entitled to vote generally in the election of directors; or

(b)     The persons who were members of the Board of Directors of the Company or Holding Company immediately prior to a tender offer, exchange offer, contested election or any combination of the foregoing, cease to constitute a majority of the Board of Directors; or

(c)     The adoption by the Board of Directors of the Company or of the Holding Company of a merger, consolidation or reorganization plan involving the Company or Holding Company in which the Company or the Holding Company is not the surviving entity, or a sale of all or substantially all of the assets of the Company or Holding Company. For purposes of this Agreement, a sale of all or substantially all of the assets of the Company or Holding Company shall be deemed to occur if any Person acquires (or during the 12-month period ending on the date of the most recent acquisition by such Person, has acquired) gross assets of the Company or Holding Company that have an aggregate fair market value equal to fifty percent (50%) or more of the fair market value of all of the respective gross assets of the Company or Holding Company immediately prior to such acquisition or acquisitions; or

(d)     A tender offer or exchange offer is made by any Person which results in such Person beneficially owning (within the meaning of Rule 13d-3 promulgated under the Exchange Act) either fifty percent (50%) or more of the Company’s or Holding Company’s outstanding shares of Common Stock or shares of capital stock having fifty percent (50%) or more the combined voting power of the Company’s or Holding Company’s then outstanding capital stock (other than an offer made by the Company or the Holding Company), and sufficient shares are acquired under the offer to cause such person to own fifty percent (50%) or more of the voting power; or

(e)     Any other transactions or series of related transactions occurring which have substantially the same effect as the transactions specified in any of the preceding clauses of this subsection (1.1).

1.1.1     “Permitted Transfers” means that a Shareholder, defined as the existing owners of all issued and outstanding stock of the Company as of the date of this Agreement, may make the following transfers and such transfers shall be deemed not to be a Change of Control under Section 1.1:

(a)       To any trust created solely for the benefit of any Shareholder or any spouse of or any lineal descendant of any Shareholder;

(b)       To any individual or entity by bona fide gift;

(c)       To any spouse or former spouse pursuant to the terms of a decree of divorce;

(d)       To any officer or employee of the Company pursuant to any incentive stock option plan established by the Shareholders;

(e)        To any family member; or

(f)       After receipt of any necessary regulatory approvals, to any Company or partnership a majority of the stock or interests of which Company or partnership are owned by any of the Shareholders.

1.2 "Code" means the Internal Revenue Code of 1986, as amended.

1.3     "Disability" means the Director’s suffering a sickness, accident or injury which has been determined by the carrier of any individual or group disability insurance policy covering the Director, or by the Social Security Administration, to be a disability rendering the Director totally and permanently disabled. For this purpose, totally and permanently disabled means unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than twelve (12) months). The Director must submit proof to the Company of the carrier’s or Social Security Administration’s determination upon the request of the Company.

1.4     "Early Termination" means the Termination of Service before Normal Retirement Age for reasons other than death, Disability, Termination for Cause or following a Change of Control.

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1.5     "Early Termination Date" means the month, day and year in which Early Termination occurs.

1.6     "Effective Date" means July 1, 2016.

1.7     “Involuntary Termination of Service” means, following a Change of Control, the Director is removed from the Board of Directors without his consent.

1.8     "Normal Retirement Age" means the later of the Director’s 72^nd birthday or ten (10) Years of Service.

1.9     "Normal Retirement Date" means the later of Normal Retirement Age or Termination of Service.

1.10   "Plan Year" means each calendar year from January 1 through December 31. The initial Plan Year shall commence on the date of this Agreement, and end on December 31^st of that year.

1.11  “Specified Employee” means an employee who, as of the date of his Termination of Employment, is a “key employee” of the Company or any member of a controlled group that includes the Company, any stock of which is actively traded on an established securities market or otherwise. An Employee is a key employee if he meets the requirements of Code Section 416(i)(1)(A)(i), (ii), or (iii) (applied in accordance with applicable regulations thereunder and without regard to Code Section 416(i)(5)) at any time during the 12-month period ending on December 31 of any Plan Year. Such Employee shall be treated as a key employee for the entire 12-month period beginning on the Specified Employee Effective Date.

1.12   "Termination for Cause" See Section 5.2.

1.13   "Termination of Service" means that the Director ceases to be a member of the Company’s Board of Directors for any reason, voluntarily or involuntarily, other than by reason of a leave of absence approved by the Company.

1.14   “Years of Service” means the total number of calendar years during which the Director serves on the Board of Directors.

Article 2

Lifetime Benefits

2.1      Normal Retirement Benefit. Upon Termination of Service on or after the Normal Retirement Date for reasons other than death, the Company shall pay to the Director the benefit described in this Section 2.1 in lieu of any other benefit under this Article.

2.1.1       Amount of Benefit. The annual benefit under this Section 2.1 is twelve thousand dollars ($12,000). The Company's Board of Directors, in its sole discretion, may increase the annual benefit under this Section 2.1.1; however, any increase shall require the recalculation of Schedule A.

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2.1.2        Payment of Benefit. The Company shall pay the annual benefit to the Director in 12 equal monthly installments payable on the first day of each month commencing with the month following the Director’s Normal Retirement Date. The annual benefit shall be paid to the Director for ten (10) years. Payment to Specified Employees shall be made on the first day of the seventh (7^th) month following Termination of Employment.

2.2           Early Termination Benefit. Upon Early Termination, the Company shall pay to the Director the benefit described in this Section 2.2 in lieu of any other benefit under this Agreement.

2.2.1        Amount of Benefit. The benefit under this Section 2.2 is the Early Termination Lump Sum Benefit set forth in Schedule A for the Plan Year ending immediately prior to the Early Termination Date, determined by vesting the Director in one hundred percent (100%) of the Accrual Balance on Schedule A. Any increase in the annual benefit under Section 2.1.1 shall require the recalculation of this benefit on Schedule A.

2.2.2        Payment of Benefit. The Company shall pay the benefit to the Director in a lump sum within sixty (60) days following Termination of Service. Payment to Specified Employees shall be made on the first day of the seventh (7^th) month following Termination of Employment.

2.3           Disability Benefit. If the Director incurs a Termination of Service due to a Disability prior to Normal Retirement Age, the Company shall pay to the Director the benefit described in this Section 2.3 in lieu of any other benefit under this Agreement.

2.3.1       Amount of Benefit. The benefit under this Section 2.3 is the Disability Lump Sum Benefit set forth in Schedule A for the Plan Year ending immediately prior to the date in which Termination of Service occurs, determined by vesting the Director in one hundred percent (100%) percent of the Accrual Balance on Schedule A. Any increase in the annual benefit under Section 2.1.1 would require the recalculation of the Disability benefit on Schedule A.

2.3.2        Payment of Benefit. The Company shall pay the benefit amount to the Director in a lump sum within sixty (60) days following the Termination of Service.

2.4          Change of Control Benefit. Upon Involuntary Termination of Service within twenty-four (24) months following a Change of Control, the Company shall pay to the Director the benefit described in this Section 2.4 in lieu of any other benefit under this Agreement.

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2.4.1       Amount of Benefit. The annual benefit under this Section 2.4 is the Change of Control Annual Benefit set forth in Schedule A for the Plan Year ending immediately prior to the date in which Termination of Service occurs, determined by vesting the Director in the one hundred percent (100%) of the Normal Retirement Benefit described in Section 2.1.1. Any increase in the annual benefit under Section 2.1.1 would require the recalculation of the Change of Control benefit on Schedule A.

2.4.2        Payment of Benefit. The Company shall pay the annual benefit amount to the Director in 12 equal monthly installments payable on the first day of each month commencing with the month following the Termination of Service unless the Director is a Specified Employee in which case the Company shall pay the annual benefit commencing with the seventh (7^th) month following Termination of Employment. . The annual benefit shall be paid to the Director for ten (10) years.

Article 3

Death Benefits

Upon the Director’s death prior to Termination of Service, the Company shall pay to the Director's beneficiary the sum of (i) the Accrual Balance on Schedule A for the Plan Year ending immediately prior to the date of the Director’s death, plus (ii) the benefit described in the Split Dollar Agreement and Endorsement attached as Addendum A between the Company and the Director. The Company shall pay the benefit in (i) above to the Director’s beneficiary in a lump sum within 60 days following the Director’s death.

Article 4

Beneficiaries

4.1     Beneficiary Designations. The Director shall designate a beneficiary by delivering a written designation to the Company. The Director may revoke or modify the designation at any time by delivering a new designation. However, designations will only be effective if signed by the Director and delivered to and received by the Company during the Director's lifetime. The Director's beneficiary designation shall be deemed automatically revoked if the beneficiary predeceases the Director or if the Director names a spouse as beneficiary and the marriage is subsequently dissolved. If the Director dies without a valid beneficiary designation, all payments shall be made to the personal representative of the Director's estate.

4.2     Facility of Payment. If a benefit is payable to a minor, to a person declared incompetent or to a person incapable of handling the disposition of his or her property, the Company may pay such benefit to the guardian, legal representative or person having the care or custody of such minor, incapacitated person or incapable person. The Company may require proof of incompetence, minority or guardianship as it may deem appropriate prior to distribution of the benefit. Such distribution shall completely discharge the Company from all liability with respect to such benefit.

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Article 5

General Limitations

5.1     Excess Parachute Payment. Notwithstanding any provision of this Agreement to the contrary, the Company shall not pay any benefit under this Agreement to the extent the benefit would create an excise tax under the excess parachute rules of Section 280G of the Code. To the extent possible, such benefit payment shall be reduced to allow payment within the fullest extent permissible under applicable law.

5.2      Termination for Cause. Notwithstanding any provision of this Agreement to the contrary, the Company shall not pay any benefit under this Agreement if the Company terminates the Director's service for:

(a)           Gross negligence or gross neglect of duties; or

(b)           Fraud, disloyalty, dishonesty or willful violation of any law or significant Company policy committed in connection with the Director's service and resulting in an adverse effect on the Company.

5.3     Suicide or Misstatement. The Company shall not pay any benefit under this Agreement if the Director commits suicide within three years after the date of this Agreement. In addition, the Company shall not pay any benefit under this Agreement if the Director has made any material misstatement of fact on a resume provided to the Company, or on any application for any benefits provided by the Company to the Director.

Article 6

Claims and Review Procedures

6.1      Claims Procedure. A Participant or beneficiary (“claimant”) who has not received benefits under the Plan that he or she believes should be paid shall make a claim for such benefits as follows:

6.1.1       Initiation – Written Claim. The claimant initiates a claim by submitting to the Company a written claim for the benefits.

6.1.2       Timing of Company Response. The Company shall respond to such claimant within 90 days after receiving the claim. If the Company determines that special circumstances require additional time for processing the claim, the Company can extend the response period by an additional 90 days by notifying the claimant in writing, prior to the end of the initial 90-day period, that an additional period is required. The notice of extension must set forth the special circumstances and the date by which the Company expects to render its decision.

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6.1.3       Notice of Decision. If the Company denies part or all of the claim, the Company shall notify the claimant in writing of such denial. The Company shall write the notification in a manner calculated to be understood by the claimant. The notification shall set forth:

6.1.3.1     The specific reasons for the denial,

6.1.3.2     A reference to the specific provisions of the Plan on which the denial is based,

6.1.3.3     A description of any additional information or material necessary for the claimant to perfect the claim and an explanation of why it is needed,

6.1.3.4     An explanation of the Plan’s review procedures and the time limits applicable to such procedures, and

6.1.3.5     A statement of the claimant’s right to bring a civil action under ERISA Section 502(a) following an adverse benefit determination on review.

6.2      Review Procedure. If the Company denies part or all of the claim, the claimant shall have the opportunity for a full and fair review by the Company of the denial, as follows:

6.2.1       Initiation – Written Request. To initiate the review, the claimant, within 60 days after receiving the Company’s notice of denial, must file with the Company a written request for review.

6.2.2       Additional Submissions – Information Access. The claimant shall then have the opportunity to submit written comments, documents, records and other information relating to the claim. The Company shall also provide the claimant, upon request and free of charge, reasonable access to, and copies of, all documents, records and other information relevant (as defined in applicable ERISA regulations) to the claimant’s claim for benefits.

6.2.3      Considerations on Review. In considering the review, the Company shall take into account all materials and information the claimant submits relating to the claim, without regard to whether such information was submitted or considered in the initial benefit determination.

6.2.4       Timing of Company Response. The Company shall respond in writing to such claimant within 60 days after receiving the request for review. If the Company determines that special circumstances require additional time for processing the claim, the Company can extend the response period by an additional 60 days by notifying the claimant in writing, prior to the end of the initial 60-day period, that an additional period is required. The notice of extension must set forth the special circumstances and the date by which the Company expects to render its decision.

6.2.5      Notice of Decision. The Company shall notify the claimant in writing of its decision on review. The Company shall write the notification in a manner calculated to be understood by the claimant. The notification shall set forth:

6.2.5.1     The specific reasons for the denial,

6.2.5.2     A reference to the specific provisions of the Plan on which the denial is based,

6.2.5.3     A statement that the claimant is entitled to receive, upon request and free of charge, reasonable access to, and copies of, all documents, records and other information relevant (as defined in applicable ERISA regulations) to the claimant’s claim for benefits, and

6.2.5.4     A statement of the claimant’s right to bring a civil action under ERISA Section 502(a).

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Article 7

Amendments and Termination

This Agreement may be amended or terminated only by a written agreement signed by the Company and the Director. Provided, however, unless otherwise agreed to by the Company and the Director, this Agreement will automatically terminate upon the Director’s Termination of Service prior to the Normal Retirement Age and payment in full by the Company of any benefits due to the Director under Sections 2.2, 2.3 or 2.4.

Notwithstanding the previous paragraph in this Article 7, the Company may amend or terminate this Agreement at any time if, pursuant to legislative, judicial or regulatory action, continuation of the Agreement would (i) cause benefits to be taxable to the Director prior to actual receipt, or (ii) result in significant financial penalties or other significantly detrimental ramifications to the Company (other than the financial impact of paying the benefits).

Article 8

Miscellaneous

8.1     Binding Effect. This Agreement shall bind the Director and the Company, and their beneficiaries, survivors, executors, successors, administrators and transferees.

8.2     No Guarantee of Service. This Agreement is not a contract for services. It does not give the Director the right to remain in the service of the Company, nor does it interfere with the shareholder's rights to discharge the Director. It also does not require the Director to remain in the service of the Company nor interfere with the Director's right to terminate services at any time.

8.3     Non-Transferability. Benefits under this Agreement cannot be sold, transferred, assigned, pledged, attached or encumbered in any manner.

8.4     Reorganization. The Company shall not merge or consolidate into or with another company, or reorganize, or sell substantially all of its assets to another company, firm, or person unless such succeeding or continuing company, firm, or person agrees to assume and discharge the obligations of the Company under this Agreement. Upon the occurrence of such event, the term “Company” as used in this Agreement shall be deemed to refer to the successor or survivor company.

8.5     Tax Withholding. The Company shall withhold any taxes that are required to be withheld from the benefits provided under this Agreement.

8.6     Applicable Law. The Agreement and all rights hereunder shall be governed by the laws of the State of California, except to the extent preempted by the laws of the United States of America.

8.7     Unfunded Arrangement. The Director and beneficiary are general unsecured creditors of the Company for the payment of benefits under this Agreement. The benefits represent the mere promise by the Company to pay such benefits. The rights to benefits are not subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, attachment, or garnishment by creditors. Any insurance on the Director's life is a general asset of the Company to which the Director and beneficiary have no preferred or secured claim.

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8.8      Entire Agreement. This Agreement constitutes the entire agreement between the Company and the Director as to the subject matter hereof. No rights are granted to the Director by virtue of this Agreement other than those specifically set forth herein.

8.9      Administration. The Company shall have powers which are necessary to administer this Agreement, including but not limited to:

(a) Interpreting the provisions of the Agreement;

(b) Establishing and revising the method of accounting for the Agreement;

(c)	Maintaining a record of benefit payments; and
(d)	Establishing rules and prescribing any forms necessary or desirable to administer the Agreement.

8.10     Named Fiduciary. The Company shall be the named fiduciary and plan administrator under the Agreement. The named fiduciary may delegate to others certain aspects of the management and operation responsibilities of the plan including the Service of advisors and the delegation of ministerial duties to qualified individuals.

IN WITNESS WHEREOF, the Director and a duly authorized Company officer have signed this amended and restated Agreement.

DIRECTOR:	COMPANY:
	OAK VALLEY COMMUNITY BANK
/s/  H. RANDOLPH HOLDER	By	/s/ Richard A. McCarty
H. RANDOLPH HOLDER	Title	Senior Executive Vice President/ Chief Administrative Officer

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BENEFICIARY DESIGNATION

OAK VALLEY COMMUNITY BANK

DIRECTOR RETIREMENT AGREEMENT

H. RANDOLPH HOLDER

I designate the following as beneficiary of any death benefits under this Agreement:

Primary:  Betty Holder

Contingent:  Susan C. Holder

Note: To name a trust as beneficiary, please provide the name of the trustee(s) and the exact name and date of the trust agreement.

I understand that I may change these beneficiary designations by filing a new written designation with the Company. I further understand that the designations will be automatically revoked if the beneficiary predeceases me, or, if I have named my spouse as beneficiary and our marriage is subsequently dissolved.

Signature  /s/ H. Randolph Holder                             

Date                10/13/16

Received by the Company this 18^th day of October, 2016.

By  /s/ Richard A. McCarty                                     

Title  Senior Executive Vice President/ Chief Administrative Officer

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ADDENDUM A

OAK VALLEY COMMUNITY BANK

SPLIT DOLLAR AGREEMENT

THIS AGREEMENT is made and entered into this 4^th day of October, 2016, by and between OAK VALLEY COMMUNITY BANK, a state-chartered commercial bank located in Oakdale, California (the "Company"), and H. RANDOLPH HOLDER (the "Director"). This Agreement shall append the Split Dollar Endorsement entered into on October 4, 2016, by and between the aforementioned parties.

INTRODUCTION

To encourage the Director to remain a member of the Company’s Board of Directors, the Company is willing to divide the death proceeds of a life insurance policy on the Director's life. The Company will pay life insurance premiums from its general assets.

Article 1

General Definitions

The following terms shall have the meanings specified:

1.1        “Insurer” means each life insurance carrier in which there is a Split Dollar Policy Endorsement attached to this Agreement.

1.2        “Policy” means the specific life insurance policy issued by the Insurer.

1.3        “Insured” means the Director.

1.4       “Termination of Service” means the Director ceases to be a member of the Company’s Board of Directors, for any reason whatsoever, other than by reason of a leave of absence approved by the Company.

Article 2

Policy Ownership/Interests

2.1        Company Ownership. The Company is the sole owner of the Policy and shall have the right to exercise all incidents of ownership. The Company shall be the direct beneficiary of the remaining death proceeds after the Director’s interest is paid pursuant to Article 2.2 below.

2.2       Director's Interest. The Director shall have the right to designate the beneficiary of death proceeds of the Policy in the amount of eighty thousand dollars ($80,000) while the Director is an active Director with the bank. When the Director terminates service per section 1.4 the benefit under this agreement ceases.

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2.3        Option to Purchase. The Company shall not sell, surrender or transfer ownership of the Policy while this Agreement is in effect without first giving the Director or the Director’s transferee the option to purchase the Policy for a period of sixty (60) days from written notice of such intention. The purchase price shall be an amount equal to the cash surrender value of the Policy. This provision shall not impair the right of the Company to terminate this Agreement.

Article 3

Premiums

3.1         Premium Payment. The Company shall pay any premiums due on the Policy.

3.2        Economic Benefit. The Company shall determine the economic benefit attributable to the Director based on the amount of the current term rate for the Director's age multiplied by the aggregate death benefit payable to the Director's beneficiary. The "current term rate" is the minimum amount required to be imputed under Revenue Rulings 64-328 and 66-110, or any subsequent applicable authority.

Article 4

Assignment

The Director may assign without consideration his interests in the Policy and in this Agreement to any person, entity or trust. In the event the Director transfers all of the Director’s interest in the Policy, then all of the Director's interest in the Policy and in the Agreement shall be vested in the Director’s transferee, who shall be substituted as a party hereunder and the Director shall have no further interest in the Policy or in this Agreement.

Article 5

Insurer

The Insurer shall be bound only by the terms of the Policy. Any payments the Insurer makes or actions it takes in accordance with the Policy shall fully discharge it from all claims, suits and demands of all entities or persons. The Insurer shall not be bound by or be deemed to have notice of the provisions of this Agreement.

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Article 6

Claims Procedure

6.1      Claims Procedure. A Participant or beneficiary (“claimant”) who has not received benefits under the Plan that he or she believes should be paid shall make a claim for such benefits as follows:

6.1.1       Initiation – Written Claim. The claimant initiates a claim by submitting to the Company a written claim for the benefits.

6.1.2       Timing of Company Response. The Company shall respond to such claimant within 90 days after receiving the claim. If the Company determines that special circumstances require additional time for processing the claim, the Company can extend the response period by an additional 90 days by notifying the claimant in writing, prior to the end of the initial 90-day period, that an additional period is required. The notice of extension must set forth the special circumstances and the date by which the Company expects to render its decision.

6.1.3       Notice of Decision. If the Company denies part or all of the claim, the Company shall notify the claimant in writing of such denial. The Company shall write the notification in a manner calculated to be understood by the claimant. The notification shall set forth:

6.1.3.1     The specific reasons for the denial,

6.1.3.2     A reference to the specific provisions of the Plan on which the denial is based,

6.1.3.3     A description of any additional information or material necessary for the claimant to perfect the claim and an explanation of why it is needed,

6.1.3.4     An explanation of the Plan’s review procedures and the time limits applicable to such procedures, and

6.1.3.5     A statement of the claimant’s right to bring a civil action under ERISA Section 502(a) following an adverse benefit determination on review.

6.2       Review Procedure. If the Company denies part or all of the claim, the claimant shall have the opportunity for a full and fair review by the Company of the denial, as follows:

6.2.1       Initiation – Written Request. To initiate the review, the claimant, within 60 days after receiving the Company’s notice of denial, must file with the Company a written request for review.

6.2.2       Additional Submissions – Information Access. The claimant shall then have the opportunity to submit written comments, documents, records and other information relating to the claim. The Company shall also provide the claimant, upon request and free of charge, reasonable access to, and copies of, all documents, records and other information relevant (as defined in applicable ERISA regulations) to the claimant’s claim for benefits.

6.2.3      Considerations on Review. In considering the review, the Company shall take into account all materials and information the claimant submits relating to the claim, without regard to whether such information was submitted or considered in the initial benefit determination.

6.2.4       Timing of Company Response. The Company shall respond in writing to such claimant within 60 days after receiving the request for review. If the Company determines that special circumstances require additional time for processing the claim, the Company can extend the response period by an additional 60 days by notifying the claimant in writing, prior to the end of the initial 60-day period, that an additional period is required. The notice of extension must set forth the special circumstances and the date by which the Company expects to render its decision.

12

6.2.5       Notice of Decision. The Company shall notify the claimant in writing of its decision on review. The Company shall write the notification in a manner calculated to be understood by the claimant. The notification shall set forth:

6.2.5.1     The specific reasons for the denial,

6.2.5.2     A reference to the specific provisions of the Plan on which the denial is based,

6.2.5.3     A statement that the claimant is entitled to receive, upon request and free of charge, reasonable access to, and copies of, all documents, records and other information relevant (as defined in applicable ERISA regulations) to the claimant’s claim for benefits, and

6.2.5.4     A statement of the claimant’s right to bring a civil action under ERISA Section 502(a).

Article 7

Amendments and Termination

This Agreement may be amended or terminated only by a written agreement signed by the Company and the Director. However, unless otherwise agreed to by the Company and the Director, this Agreement will automatically terminate upon the Director’s Termination of Service.

Notwithstanding the previous paragraph in this Article 7, the Company may amend or terminate this Agreement at any time if, pursuant to legislative, judicial or regulatory action, continuation of the Agreement would result in significant financial penalties or other significantly detrimental ramifications to the Company (other than the financial impact of paying the benefits).

Article 8

Miscellaneous

8.1        Binding Effect. This Agreement shall bind the Director and the Company, their beneficiaries, survivors, executors, administrators and transferees, and any Policy beneficiary.

8.2        No Guarantee of Service. This Agreement is not a contract for services. It does not give the Director the right to remain in the service of the Company, nor does it interfere with the shareholder's rights to discharge the Director. It also does not require the Director to remain in the service of the Company nor interfere with the Director's right to terminate services at any time.

8.3        Applicable Law. The Agreement and all rights hereunder shall be governed by and construed according to the laws of the State of California, except to the extent preempted by the laws of the United States of America.

8.4       Reorganization. The Company shall not merge or consolidate into or with another company, or reorganize, or sell substantially all of its assets to another company, firm or person unless such succeeding or continuing company, firm or person agrees to assume and discharge the obligations of the Company.

13

8.5        Notice. Any notice, consent or demand required or permitted to be given under the provisions of this Split Dollar Agreement by one party to another shall be in writing, shall be signed by the party giving or making the same, and may be given either by delivering the same to such other party personally, or by mailing the same, by United States certified mail, postage prepaid, to such party, addressed to his or her last known address as shown on the records of the Company. The date of such mailing shall be deemed the date of such mailed notice, consent or demand.

8.6        Entire Agreement. This Agreement constitutes the entire agreement between the Company and the Director as to the subject matter hereof. No rights are granted to the Director by virtue of this Agreement other than those specifically set forth herein.

8.7        Administration. The Company shall have powers which are necessary to administer this Agreement, including but not limited to:

(a)      Interpreting the provisions of the Agreement;

(b)      Establishing and revising the method of accounting for the Agreement;

(c)      Maintaining a record of benefit payments; and

(d)      Establishing rules and prescribing any forms necessary or desirable to administer the Agreement.

8.8      Named Fiduciary. For purposes of the Employee Retirement Income Security Act of 1974, if applicable, the Company shall be the named fiduciary and plan administrator under the Agreement. The named fiduciary may delegate to others certain aspects of the management and operation responsibilities of the plan including the employment of advisors and the delegation of ministerial duties to qualified individuals

IN WITNESS WHEREOF, the parties have executed this Agreement the day and year first above written.

COMPANY:
OAK VALLEY COMMUNITY BANK
By	/s/ Richard A. McCarty
Title	Senior Executive Vice President/ Chief Administrative Officer
DIRECTOR:
/s/ H. RANDOLPH HOLDER
H. RANDOLPH HOLDER

14 

Distribution Options

Director Retirement Plan

H. Randolph Holder

Event	Benefit Amount	Distribution Method
Normal Retirement (age 72) Change of Control	Normal Retirement Benefit	10 years of monthly payments
Termination for Cause	No Benefit	N/A
Early Termination	Vested Portion of Accrual Balance	Immediate Lump Sum Payment
Disability	100% of the Accrual Balance	Immediate Lump Sum Payment
Pre-Retirement Death	Death Benefits equal to: Present Value of Normal Retirement Benefit ($80,000) + 100% of Accrual Balance	Lump Sum Tax-Free Immediate Lump Sum Taxable
Post-Retirement Death	Death Benefits equal to: 100% of Accrual Balance	Immediate Lump Sum Taxable

Schedule A- Holder

Values		Discount		Benefit		Accrual		Early				Change in
as of		Rate		Level		Balance		Termination		Disability		Control		Death Benefit
				Annual Amount		Accrual Starts		Lump Sum Payable		Lump Sum Payable		Annual Amount For 10		Lump Sum
				For 10 years at age 72		7/1/2016		at Termination		at Termination		years at Termination		Payable at Death
Dec	2016		4.50%	$	12,000	$	2,756	$	2,756	$	2,756	$	12,000	$	2,756
Dec	2017		4.50%	$	12,000	$	8,594	$	8,594	$	8,594	$	12,000	$	8,594
Dec	2018		4.50%	$	12,000	$	14,951	$	14,951	$	14,951	$	12,000	$	14,951
Dec	2019		4.50%	$	12,000	$	21,864	$	21,864	$	21,864	$	12,000	$	21,864
Dec	2020		4.50%	$	12,000	$	29,368	$	29,368	$	29,368	$	12,000	$	29,368
Dec	2021		4.50%	$	12,000	$	37,503	$	37,503	$	37,503	$	12,000	$	37,503
Dec	2022		4.50%	$	12,000	$	46,311	$	46,311	$	46,311	$	12,000	$	46,311
Dec	2023		4.50%	$	12,000	$	55,836	$	55,836	$	55,836	$	12,000	$	55,836
Dec	2024		4.50%	$	12,000	$	66,124	$	66,124	$	66,124	$	12,000	$	66,124
Dec	2025		4.50%	$	12,000	$	77,225	$	77,225	$	77,225	$	12,000	$	77,225
Dec	2026		4.50%	$	12,000	$	89,121	$	89,121	$	89,121	$	12,000	$	89,121
Dec	2027		4.50%	$	12,000	$	97,058	$	97,058	$	97,058	$	12,000	$	97,058

15

EX-31.01

Exhibit 31.01

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Christopher M. Courtney, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Oak Valley Bancorp;

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

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

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

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

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

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

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

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

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

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

Date: August 11, 2017

 /s/  CHRISTOPHER M. COURTNEY

Christopher M. Courtney

President and Chief Executive Officer

EX-31.02

Exhibit 31.02

CERTIFICATION OF CHIEF FINANCIAL OFFICER

PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Jeffrey A. Gall, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Oak Valley Bancorp;

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

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

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

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

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

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

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

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

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

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

Date: August 11, 2017

/s/  JEFFREY A. GALL

Jeffrey A. Gall

Chief Financial Officer

EX-32.01

Exhibit 32.01

CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER

PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Christopher M. Courtney, certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report of Oak Valley Bancorp on Form 10-Q for the quarterly period ended June 30, 2017, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of Oak Valley Bancorp.

Date: August 11, 2017	By:	/s/    CHRISTOPHER M. COURTNEY
	Name:	Christopher M. Courtney
	Title:	President and Chief Executive Officer

I, Jeffrey A. Gall, certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report of Oak Valley Bancorp on Form 10-Q for the quarterly period ended June 30, 2017, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of Oak Valley Bancorp.

Date: August 11, 2017	By:	/s/    JEFFREY A. GALL
	Name:	Jeffrey A. Gall
	Title:	Chief Financial Officer

XML

Document And Entity Information - shares	6 Months Ended
	Jun. 30, 2017	Aug. 04, 2017
Document Information [Line Items]
Entity Registrant Name	Oak Valley Bancorp
Entity Central Index Key	0001431567
Trading Symbol	ovly
Current Fiscal Year End Date	--12-31
Entity Filer Category	Smaller Reporting Company
Entity Current Reporting Status	Yes
Entity Voluntary Filers	No
Entity Well-known Seasoned Issuer	No
Entity Common Stock, Shares Outstanding (in shares)		8,089,105
Document Type	10-Q
Document Period End Date	Jun. 30, 2017
Document Fiscal Year Focus	2017
Document Fiscal Period Focus	Q2
Amendment Flag	false

XML

Condensed Consolidated Balance Sheets (Unaudited) - USD ($) $ in Thousands	Jun. 30, 2017	Dec. 31, 2016
ASSETS
Cash and due from banks	$ 171,179	$ 179,025
Federal funds sold	10,980	11,785
Cash and cash equivalents	182,159	190,810
Securities available for sale	175,252	160,333
Loans, net of allowance for loan loss of $7,854 and $7,832 at June 30, 2017 and December 31, 2016, respectively	614,082	601,104
Bank premises and equipment, net	13,223	13,688
Other real estate owned	1,210	1,210
Interest receivable and other assets	34,569	34,965
	1,020,495	1,002,110
LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits	925,786	914,093
Interest payable and other liabilities	6,609	5,567
Total liabilities	932,395	919,660
Commitments and contingencies
Shareholders’ equity
Common stock, no par value; 50,000,000 shares authorized, 8,089,705 and 8,088,455 shares issued and outstanding at June 30, 2017 and December 31, 2016, respectively	24,698	24,682
Additional paid-in capital	3,528	3,473
Retained earnings	58,546	54,520
Accumulated other comprehensive income (loss), net of tax	1,328	(225)
Total shareholders’ equity	88,100	82,450
	$ 1,020,495	$ 1,002,110

XML

Condensed Consolidated Balance Sheets (Unaudited) (Parentheticals) - USD ($) $ / shares in Thousands, $ in Thousands	Jun. 30, 2017	Dec. 31, 2016
Net of allowance for loan loss	$ 7,854	$ 7,832
Common stock, par value (in dollars per share)	$ 0	$ 0
Common stock, shares authorized (in shares)	50,000,000	50,000,000
Common stock, shares issued (in shares)	8,089,705	8,088,455
Common stock, shares outstanding (in shares)	8,089,705	8,088,455

XML

Condensed Consolidated Statements of Income (Unaudited) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016
INTEREST INCOME
Interest and fees on loans	$ 7,230	$ 7,129	$ 14,152	$ 13,677
Interest on securities available for sale	1,102	1,016	2,176	1,993
Interest on federal funds sold	21	5	36	14
Interest on deposits with banks	372	147	672	323
Total interest income	8,725	8,297	17,036	16,007
INTEREST EXPENSE
Deposits	270	191	499	359
Total interest expense	270	191	499	359
Net interest income	8,455	8,106	16,537	15,648
Provision for loan losses	35	125	35	325
Net interest income after provision for loan losses	8,420	7,981	16,502	15,323
OTHER INCOME
Service charges on deposits	351	337	686	670
Earnings on cash surrender value of life insurance	128	95	256	203
Mortgage commissions	37	49	99	95
Gains on called securities	1	12	390	18
Other	1,519	563	2,076	1,107
Total non-interest income	2,036	1,056	3,507	2,093
OTHER EXPENSES
Salaries and employee benefits	3,457	3,370	7,069	6,725
Occupancy expenses	817	813	1,673	1,651
Data processing fees	409	440	755	911
Regulatory assessments (FDIC & DBO)	136	170	280	327
Other operating expenses	1,257	1,394	2,506	2,760
Total non-interest expense	6,076	6,187	12,283	12,374
Net income before provision for income taxes	4,380	2,850	7,726	5,042
PROVISION FOR INCOME TAXES	1,550	946	2,689	1,629
NET INCOME	$ 2,830	$ 1,904	$ 5,037	$ 3,413
NET INCOME PER COMMON SHARE (in dollars per share)	$ 0.35	$ 0.24	$ 0.63	$ 0.43
NET INCOME PER DILUTED COMMON SHARE (in dollars per share)	$ 0.35	$ 0.24	$ 0.62	$ 0.42

XML

Condensed Consolidated Statements of Comprehensive Income (Unaudited) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016
Net income	$ 2,830	$ 1,904	$ 5,037	$ 3,413
Other comprehensive income:
Unrealized holding gains on securities arising during the current period, net of tax effect of $820 thousand and $1.2 million for the three and six month periods ended June 30, 2017, respectively, and $748 thousand and $816 thousand for the comparable 2016 periods	1,171	1,069	1,783	1,168
Reclassification adjustment due to net gains realized on sales and calls of securities, net of tax effect of $4 hundred and $160 thousand for the three and six months ended June 30, 2017, respectively, and $5 thousand and $7 thousand for the comparable 2016 periods	(1)	(7)	(230)	(11)
Other comprehensive income	1,170	1,062	1,553	1,157
Comprehensive income	$ 4,000	$ 2,966	$ 6,590	$ 4,570

XML

Condensed Consolidated Statements of Comprehensive Income (Unaudited) (Parentheticals) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016
Tax effect of unrealized holding (losses) gain on securities arising during current period	$ 820	$ 748	$ 1,200	$ 816
Tax effect of reclassification adjustment due to net gains realized on calls of securities	$ 400	$ 5	$ 160	$ 7

XML

Condensed Consolidated Statements of Changes in Shareholders' Equity (Unaudited) - USD ($) $ in Thousands	Common Stock [Member]	Additional Paid-in Capital [Member]	Retained Earnings [Member]	AOCI Attributable to Parent [Member]	Total
Balances (in shares) at Dec. 31, 2015	8,078,155
Balances at Dec. 31, 2015	$ 24,682	$ 3,217	$ 48,795	$ 1,569	$ 78,263
Restricted stock issued (in shares)	17,000
Restricted stock issued					0
Restricted stock forfeited (in shares)	(6,700)
Balances at Dec. 31, 2016	$ 24,682	3,473	54,520	(225)	82,450
Restricted stock forfeited					0
Cash dividends declared			(1,940)		(1,940)
Stock based compensation		256			256
Other comprehensive income (loss)				(1,794)	(1,794)
Net income			7,665		7,665
Balances (in shares) at Dec. 31, 2016	8,088,455
Stock options exercised (in shares)	1,500
Stock options exercised	$ 16				16
Restricted stock issued (in shares)	6,000
Restricted stock issued					0
Restricted stock forfeited (in shares)	(6,250)
Balances at Jun. 30, 2017	$ 24,698	3,528	58,546	1,328	88,100
Restricted stock forfeited					0
Cash dividends declared			(1,011)		(1,011)
Stock based compensation		$ 55			55
Other comprehensive income (loss)				$ 1,553	1,553
Net income			$ 5,037		$ 5,037
Balances (in shares) at Jun. 30, 2017	8,089,705

XML

Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$ 5,037	$ 3,413
Adjustments to reconcile net earnings to net cash from operating activities:
Provision for loan losses	35	325
Increase (decrease) in deferred fees/costs, net	77	(132)
Depreciation	560	646
Amortization of investment securities, net	393	164
Stock based compensation	55	129
Gain on sale of premises and equipment	0	(1)
OREO loss on sales and write downs	0	88
Gain on sales and calls of available for sale securities	(390)	(18)
Earnings on cash surrender value of life insurance	(256)	(203)
Gain on BOLI death benefit	0	(2)
Increase in interest payable and other liabilities	1,042	1,100
Increase in interest receivable	(58)	(125)
Increase in other assets	(37)	(324)
Net cash from operating activities	6,458	5,060
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of available for sale securities	(16,023)	(32,286)
Proceeds from maturities, calls, and principal paydowns of securities available for sale	3,741	15,353
Net increase in loans	(13,090)	(39,467)
Purchase of FHLB Stock	(340)	(79)
Proceeds from sale of OREO	0	746
Proceeds from redemption of BOLI policies	0	186
Proceeds from sales of premises and equipment	0	1
Net purchases of premises and equipment	(95)	(291)
Net cash used in investing activities	(25,807)	(55,837)
CASH FLOWS FROM FINANCING ACTIVITIES:
Shareholder cash dividends paid	(1,011)	(969)
Net increase in demand deposits and savings accounts	14,602	22,180
Net (decrease) increase in time deposits	(2,909)	1,587
Proceeds from sale of common stock and exercise of stock options	16	0
Net cash from financing activities	10,698	22,798
NET DECREASE IN CASH AND CASH EQUIVALENTS	(8,651)	(27,979)
CASH AND CASH EQUIVALENTS, beginning of period	190,810	190,603
CASH AND CASH EQUIVALENTS, end of period	182,159	162,624
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest	500	368
Income taxes	2,087	11
NON-CASH INVESTING ACTIVITIES:
Change in unrealized gain on available-for-sale securities	$ 2,640	$ 1,966

XML

Note 1 - Basis of Presentation

6 Months Ended

Jun. 30, 2017

Notes to Financial Statements

Basis of Accounting [Text Block]

NOTE

1

– BASIS OF PRESENTATION

On

July 

3,

2008

(the “Effective Date”), a bank holding company reorganization was completed whereby Oak Valley Bancorp (“the Company”) became the parent holding company for Oak Valley Community Bank ( the “Bank”).  On the Effective Date, a tax-free exchange was completed whereby each outstanding share of the Bank was converted into

one

share of the Company and the Company became the sole wholly-owned subsidiary of the holding company.

The consolidated financial statements include the accounts of the parent company and its wholly-owned bank subsidiary. Unless otherwise stated, the “Company” refers to the consolidated entity, Oak Valley Bancorp, while the “Bank” refers to Oak Valley Community Bank.

All material intercompany transactions have been eliminated. In the opinion of Management, the consolidated financial statements contain all adjustments necessary to present fairly the financial position, results of operations, changes in shareholders’ equity and cash flows.  All adjustments are of a normal, recurring nature. The interim consolidated financial statements included in this report are unaudited but reflect all adjustments which, in the opinion of management, are necessary for a fair presentation of the financial position and results of operations for the interim periods presented. All such adjustments are of a normal recurring nature. The results of operations for the

three

and

six

month periods ended

June 30, 2017

are

not

necessarily indicative of the results of a full year’s operations. Certain prior year amounts have been reclassified to conform to the current year presentation. There was

no

effect on net income or shareholders’ equity as a result of reclassifications. For further information, refer to the audited consolidated financial statements and footnotes included in the Company’s Form

10

-K for the year ended

December 

31,

2016.

Oak Valley Community Bank is a California state-chartered bank. The Company was incorporated under the laws of the State of California on

May 

31,

1990,

and began operations in Oakdale on

May 

28,

1991.

The Company operates branches in Oakdale, Sonora, Bridgeport, Bishop, Mammoth Lakes, Modesto, Manteca, Patterson, Turlock, Ripon, Stockton, and Escalon, California. The Bridgeport, Mammoth Lakes, and Bishop branches operate as a separate division, Eastern Sierra Community Bank. The Company’s primary source of revenue is providing loans to customers who are predominantly middle-market businesses.

On

December 23, 2015,

the Company completed its acquisition of Mother Lode Bank (“MLB”), a California state-chartered bank headquartered in Sonora, California, in a transaction in which Mother Lode Bank was merged with and into the Bank, with the Bank as the surviving company in the transaction. The purchase price for Mother Lode Bank was approximately

$7.3

million.

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant accounting estimates reflected in the Company’s consolidated financial statements include the allowance for loan losses, accounting for income taxes, fair value measurements, and the determination, recognition and measurement of impaired loans. Actual results could differ from these estimates.

XML

Note 2 - Recent Accounting Pronouncements

6 Months Ended

Jun. 30, 2017

Notes to Financial Statements

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

NOTE

2

– RECENT ACCOUNTING PRONOUNCEMENTS

In

May 2014,

the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU)

No.

2014

-

09,

Revenue from Contracts with Customers (Topic

606

). This ASU is a converged standard involving FASB and International Financial Reporting Standards that provides a single comprehensive revenue recognition model for all contracts with customers across transactions and industries. The core principal of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount and at a time that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Subsequent updates related to Revenue from Contracts with Customers (Topic

606

) are as follows:

● August 2015 ASU No. 2015 - 14 - Deferral of the Effective Date, institutes a one -year deferral of the effective date of this amendment to annual reporting periods beginning after December 15, 2017. Early application is permitted only as of annual periods beginning after December 15, 2016, including interim reporting periods within that reporting period.

● March 2016 ASU No. 2016 - 08 - Principal versus Agent Considerations (Reporting Revenue Gross versus Net), clarifies the implementation guidance on principal versus agent considerations and on the use of indicators that assist an entity in determining whether it controls a specified good or service before it is transferred to the customer.

● April 2016 ASU No. 2016 - 10 - Identifying Performance Obligations and Licensing, provides guidance in determining performance obligations in a contract with a customer and clarifies whether a promise to grant a license provides a right to access or the right to use intellectual property.

● May 2016 ASU No. 2016 - 12 - Narrow Scope Improvements and Practical Expedients, gives further guidance on assessing collectability, presentation of sales taxes, noncash consideration, and completed contracts and contract modifications at transition.

The adoption of this update is

not

expected to have a material impact on the Company’s consolidated financial statements.

In

September, 2015,

the FASB issued ASU

No.

2015

-

16,

Simplifying the Accounting for Measurement Period Adjustments (Topic

805

).

This ASU eliminates the requirement to restate prior period financial statements for measurement period adjustments to assets acquired and liabilities assumed in a business combination. The new guidance under this update requires the cumulative impact of measurement period adjustments be recognized in the period the adjustment is determined. This update does

not

change what constitutes a measurement period adjustment, nor does it change the length of the measurement period. The new standard is effective for interim annual periods beginning after

December 15, 2015

and should be applied prospectively to measurement period adjustments that occur after the effective date. The adoption of this update is

not

expected to have a material impact on the Company’s consolidated financial statements.

In

January 2016,

the FASB issued ASU

No.

2016

-

01,

Financial Instruments - Overall (Subtopic

825

-

10

)

: Recognition and Measurement of Financial Assets and Financial Liabilities. The amendments in this ASU make improvements to GAAP related to financial instruments that include the following as applicable to us:

● Equity investments, except for those accounted for under the equity method of accounting or those that result in consolidation of the investee, are required to be measured at fair value with changes in fair value recognized in net income. However, an entity may choose to measure equity investments that do not have readily determinable fair values at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer.

● Simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment - if impairment exists, this requires measuring the investment at fair value.

● Eliminates the requirement for public companies to disclose the method(s) and significant assumptions used to estimate the fair value that is currently required to be disclosed for financial instruments measured at amortized cost on the balance sheet.

● Public companies will be required to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes.

● Requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset on the balance sheet or the accompanying notes to the financial statements.

● The reporting entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity's other deferred tax assets.

ASU

2016

-

01

is effective for public business entities for fiscal years beginning after

December 15, 2017,

including interim periods within those fiscal years. This ASU will impact our financial statement disclosures, however, we do

not

expect this ASU to have a material impact on our financial condition or results of operations.

In

February 2016,

the FASB issued ASU

No.

2016

-

02,

Leases (Topic

842

).

This ASU was issued to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities, including leases classified as operating leases under previous GAAP, on the balance sheet and requiring additional disclosures of key information about leasing arrangements. ASU

2016

-

02

is effective for annual periods, including interim periods within those annual periods beginning after

December 15, 2018

and requires a modified retrospective approach to adoption. Early application of the amendments is permitted. While the Company has

not

quantified the impact to its balance sheet, it does expect the adoption of this ASU will result in a gross-up in its balance sheet as a result of recording a right-of-use asset and a lease liability for each lease, which is expected to increase our leverage ratio by less than

one

percent.

In

March 2016,

FASB issued ASU

2016

-

09,

Stock Compensation (Topic

718

): Improvements to Employee Share-Based Payment Accounting.

  The amendments in ASU

2016

-

09

simplify several aspects of the accounting for share-based payment award transactions, including: (a) income tax consequences; (b) classification of awards as either equity or liabilities; and (c) classification on the statement of cash flows. The amendments are effective for public companies for annual periods beginning after

December 15, 2016,

and interim periods within those annual periods. Early adoption is permitted for any interim or annual period. The Company adopted this ASU for the full fiscal year of

2016

and it did

not

have a significant impact on its consolidated financial statements.

In

June 

2016,

the FASB issued ASU

No.

 

2016

-

13,

Financial Instruments – Credit Losses (Topic

326

).

This update changes the methodology used by financial institutions under current U.S. GAAP to recognize credit losses in the financial statements.  Currently, U.S. GAAP requires the use of the incurred loss model, whereby financial institutions recognize in current period earnings, incurred credit losses and those inherent in the financial statements, as of the date of the balance sheet.    This guidance results in a new model for estimating the allowance for loan and lease losses, commonly referred to as the Current Expected Credit Loss (“CECL”) model.  Under the CECL model, financial institutions are required to estimate future credit losses and recognize those losses in current period earnings.  The amendments within the update are effective for fiscal years and all interim periods beginning after

December 

15,

2019,

with early adoption permitted.  Upon adoption of the amendments within this update, the Company will be required to make a cumulative-effect adjustment to the opening balance of retained earnings in the year of adoption. The Company is currently in the process of evaluating the impact the adoption of this update will have on its financial statements. While the Company has

not

quantified the impact of this ASU, it does expect changing from the current incurred loss model to an expected loss model will result in an earlier recognition of losses, and an increase to our allowance for loan losses.

In

August 

2016,

the FASB issued ASU

No.

 

2016

-

15,

Statement of Cash Flows – Classification of Certain Cash Receipts and Cash Payments (Topic

230

).

This update clarifies how entities should classify certain cash receipts and cash payments on the statement of cash flows with the objective of reducing the existing diversity in practice related to

eight

specific cash flow issues. The amendments in this update are effective for annual periods beginning after

December 

15,

2017,

and interim periods within those fiscal years. Early adoption is permitted. The Company does

not

expect the adoption of the amendments within this update will have a material impact on the Company’s financial statements.

In

January 2017,

FASB issued ASU

2017

-

03,

Accounting Changes and Error Corrections (Topic

250

) and Investments - Equity Method and Joint Ventures (Topic

323

): Amendments to SEC Paragraphs Pursuant to Staff Announcements at the

September 22, 2016

and

November 17, 2016

EITF Meetings.

  These amendments apply to ASU

2014

-

9

(Revenue from Contracts with Customers), ASU

2016

-

02

(Leases), and ASU

2016

-

13

(Financial Instruments - Credit Losses).  The Company does

not

expect these amendments to have a significant impact on its consolidated financial statements.

XML

Note 3 - Securities

6 Months Ended

Jun. 30, 2017

Notes to Financial Statements

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

NOTE

3

– SECURITIES

The amortized cost and estimated fair values of debt securities as of

June 30, 2017

are as follows:

(dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Available-for-sale securities:
U.S. agencies	$	24,600	$	552	$	(89	)	$	25,063
Collateralized mortgage obligations		4,872		7		(17	)		4,862
Municipalities		84,668		2,610		(85	)		87,193
SBA pools		12,939		8		(33	)		12,914
Corporate debt		21,354		99		(648	)		20,805
Asset backed securities		21,257		93		(29	)		21,321
Mutual fund		3,305		0		(211	)		3,094
	$	172,995	$	3,369	$	(1,112	)	$	175,252

The following tables detail the gross unrealized losses and fair values aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at

June 30, 2017.

(dollars in thousands)	Less than 12 months					12 months or more					Total
Description of Securities	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
U.S. agencies	$	6,537		(89	)	$	0	$	0		$	6,537	$	(89	)
Collateralized mortgage obligations		1,012		(17	)		0		0			1,012		(17	)
Municipalities		9,698		(70	)		1,877		(15	)		11,575		(85	)
SBA pools		8,393		(24	)		726		(9	)		9,119		(33	)
Corporate debt		4,728		(271	)		9,115		(377	)		13,843		(648	)
Asset backed securities		1,920		(15	)		3,141		(14	)		5,061		(29	)
Mutual fund		0		0			3,094		(211	)		3,094		(211	)
Total temporarily impaired securities	$	32,288	$	(486	)	$	17,953	$	(626	)	$	50,241	$	(1,112	)

At

June 30, 2017,

there were

three

U.S municipalities,

two

SBA pools,

seven

corporate debts,

three

asset backed securities and

one

mutual fund that comprised the total securities in an unrealized loss position for greater than

12

months and

five

U.S. agencies,

one

collateralized mortgage obligation,

nine

municipalities,

four

SBA pools,

three

corporate debts and

one

asset backed security that make up the total securities in a loss position for less than

12

months. Management periodically evaluates each available-for-sale investment security in an unrealized loss position to determine if the impairment is temporary or other than temporary.

This evaluation encompasses various factors including, the nature of the investment, the cause of the impairment, the severity and duration of the impairment, credit ratings and other credit related factors such as

third

party guarantees and volatility of the security’s fair value. Management has determined that

no

investment security is other than temporarily impaired. The unrealized losses are due primarily to interest rate changes and the Company does

not

intend to sell the securities and it is

not

likely that we will be required to sell the securities before the earlier of the forecasted recovery or the maturity of the underlying investment security.

The amortized cost and estimated fair value of investment securities at

June 30, 2017,

by contractual maturity or call date, are shown below. Expected maturities will differ from contractual maturities because borrowers

may

have the right to call or prepay obligations with or without call or prepayment penalties.

(dollars in thousands)	Amortized		Fair
	Cost		Value
Available-for-sale securities:
Due in one year or less	$	12,771	$	13,014
Due after one year through five years		51,484		51,883
Due after five years through ten years		61,040		62,336
Due after ten years		47,700		48,019
	$	172,995	$	175,252

The amortized cost and estimated fair values of debt securities as of

December 

31,

2016,

are as follows:

(dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Available-for-sale securities:
U.S. agencies	$	27,879	$	616	$	(209	)	$	28,286
Collateralized mortgage obligations		4,159		7		(57	)		4,109
Municipalities		77,957		1,318		(946	)		78,329
SBA pools		7,219		0		(51	)		7,168
Corporate debt		21,349		81		(867	)		20,563
Asset backed securities		18,888		32		(101	)		18,819
Mutual fund		3,264		0		(205	)		3,059
	$	160,715	$	2,054	$	(2,436	)	$	160,333

The following tables detail the gross unrealized losses and fair values aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at

December 

31,

2016.

(dollars in thousands)	Less than 12 months					12 months or more					Total
Description of Securities	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
U.S. agencies	$	8,769	$	(208	)	$	718	$	(1	)	$	9,487	$	(209	)
Collateralized mortgage obligations		3,166		(57	)		0		0			3,166		(57	)
Municipalities		45,137		(917	)		402		(29	)		45,539		(946	)
SBA pools		6,415		(46	)		753		(5	)		7,168		(51	)
Corporate debt		12,776		(757	)		2,884		(110	)		15,660		(867	)
Asset backed securities		2,576		(15	)		8,272		(86	)		10,848		(101	)
Mutual fund		0		0			3,059		(205	)		3,059		(205	)
Total temporarily impaired securities	$	78,839	$	(2,000	)	$	16,088	$	(436	)	$	94,927	$	(2,436	)

We recognized gross gains of

$1,000

and

$390,000

for the

three

and

six

month periods ended

June 30, 2017,

respectively, on certain available-for-sale securities that were called, which compares to

$12,000

and

$18,000

in the same periods of

2016.

There were

no

securities sold during the

first

six

months of

2017

or

2016.

Securities carried at

$93,352,000

and

$89,362,000

at

June 30, 2017

and

December 

31,

2016,

respectively, were pledged to secure deposits of public funds.

XML

Note 4 - Loans

6 Months Ended

Jun. 30, 2017

Notes to Financial Statements

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

NOTE

4

– LOANS

Our customers are primarily located in Stanislaus, San Joaquin, Tuolumne, Inyo, and Mono Counties. As of

June 30, 2017,

approximately

79%

of the Company’s loans are commercial real estate loans which include construction loans. Approximately

10%

of the Company’s loans are for general commercial uses including professional, retail, and small business. Additionally,

7%

of the Company’s loans are for residential real estate and other consumer loans. The remaining

4%

are agriculture loans. Loan totals were as follows:

(in thousands)	June 30, 2017			December 31, 2016
Commercial real estate:
Commercial real estate- construction	$	15,804		$	23,378
Commercial real estate- mortgages		413,750			389,495
Land		10,016			9,823
Farmland		55,452			56,159
Commercial and industrial		63,854			64,201
Consumer		684			767
Consumer residential		39,301			38,672
Agriculture		24,948			28,454
Total loans		623,809			610,949
Less:
Deferred loan fees and costs, net		(1,873	)		(2,013	)
Allowance for loan losses		(7,854	)		(7,832	)
Net loans	$	614,082		$	601,104

Loan Origination/Risk Management.

The Company has certain lending policies and procedures in place that are designed to maximize loan income within an acceptable level of risk. Management reviews and approves these policies and procedures on a regular basis. A reporting system supplements the review process by providing management with frequent reports related to loan production, loan quality, concentration of credit, loan delinquencies and non-performing and potential problem loans. Diversification in the loan portfolio is a means of managing risk associated with fluctuations in economic conditions.

Commercial and industrial loans are underwritten after evaluating and understanding the borrower’s ability to operate profitably and prudently expand its business. Underwriting standards are designed to promote relationship banking rather than transactional banking. Once it is determined that the borrower’s management possesses sound ethics and solid business acumen, our management examines current and projected cash flows to determine the ability of the borrower to repay their obligations as agreed. Commercial and industrial loans are primarily made based on the identified cash flows of the borrower and secondarily on the underlying collateral provided by the borrower. The cash flows of borrowers, however,

may

not

be as expected and the collateral securing these loans

may

fluctuate in value. Most commercial and industrial loans are secured by the assets being financed or other business assets such as accounts receivable or inventory and

may

incorporate a personal guarantee; however, some short-term loans

may

be made on an unsecured basis. In the case of loans secured by accounts receivable, the availability of funds for the repayment of these loans

may

be substantially dependent on the ability of the borrower to collect amounts due from its customers.

Commercial real estate loans are subject to underwriting standards and processes similar to commercial and industrial loans, in addition to those of real estate loans. These loans are viewed primarily as cash flow loans and secondarily as loans secured by real estate. Commercial real estate lending typically involves higher loan principal amounts and the repayment of these loans is generally largely dependent on the successful operation of the property securing the loan or the business conducted on the property securing the loan. Commercial real estate loans

may

be more adversely affected by conditions in the real estate markets or in the general economy. The properties securing the Company’s commercial real estate portfolio are diverse in terms of type and geographic location. This diversity helps reduce the Company’s exposure to adverse economic events that affect any single market or industry. Management monitors and evaluates commercial real estate loans based on collateral, geography and risk grade criteria. As a general rule, the Company avoids financing single-purpose projects unless other underwriting factors are present to help mitigate risk. The Company also utilizes

third

-party experts to provide insight and guidance about economic conditions and trends affecting market areas it serves. In addition, management tracks the level of owner-occupied commercial real estate loans versus non-owner occupied loans. At

June 30, 2017

and

December 31, 2016,

commercial real estate loans equal to approximately

42.4%

and

40.9%,

respectively, of the outstanding principal balance of our commercial real estate loans were secured by owner-occupied properties.

With respect to loans to developers and builders that are secured by non-owner occupied properties that the Company

may

originate from time to time, the Company generally requires the borrower to have had an existing relationship with the Company and have a proven record of success. Construction loans are underwritten utilizing feasibility studies, independent appraisal reviews, sensitivity analysis of absorption and lease rates and financial analysis of the developers and property owners. Construction loans are generally based upon estimates of costs and value associated with the complete project. These estimates

may

be inaccurate. Construction loans often involve the disbursement of substantial funds with repayment substantially dependent on the success of the ultimate project. Sources of repayment for these types of loans

may

be pre-committed permanent loans from approved long-term lenders, sales of developed property or an interim loan commitment from the Company until permanent financing is obtained. These loans are closely monitored by on-site inspections and are considered to have higher risks than other real estate loans due to their ultimate repayment being sensitive to interest rate changes, governmental regulation of real property, general economic conditions and the availability of long-term financing.

Agricultural production, real estate and development lending is susceptible to credit risks including adverse weather conditions, pest and disease, as well as market price fluctuations and foreign competition. Agricultural loan underwriting standards are maintained by following Company policies and procedures in place to minimize risk in this lending segment. These standards consist of limiting credit to experienced farmers who have demonstrated farm management capabilities, requiring cash flow projections displaying margins sufficient for repayment from normal farm operations along with equity injected as required by policy, as well as providing adequate secondary repayment and sponsorship including satisfactory collateral support. Credit enhancement obtained through government guarantee programs

may

also be used to provide further support as available. 

The Company originates consumer loans utilizing common underwriting criteria specified in policy. To monitor and manage consumer loan risk, policies and procedures are developed and modified, as needed, jointly by line and staff personnel. This activity, coupled with relatively small loan amounts that are spread across many individual borrowers, minimizes risk. Additionally, trend and outlook reports are reviewed by management on a regular basis. Underwriting standards for

1

-

4

family, home equity lines and loans follow bank policy, which include, but are

not

limited to, a maximum loan-to-value percentage of

80%,

 a maximum housing and total debt ratio of

36%

and

42%,

respectively and other specified credit and documentation requirements.

The Company maintains an independent loan review department that reviews and validates the credit risk program on a periodic basis. Results of these reviews are presented to management. The loan review process complements and reinforces the risk identification and assessment decisions made by lenders and credit personnel, as well as the Bank’s policies and procedures.

Non-Accrual and Past Due Loans.

Loans are considered past due if the required principal and interest payments have

not

been received as of the date such payments were due. Loans are placed on non-accrual status when, in management’s opinion, the borrower

may

be unable to meet payment obligations as they become due, as well as when required by regulatory provisions. Loans

may

be placed on non-accrual status regardless of whether or

not

such loans are considered past due. When interest accrual is discontinued, all unpaid accrued interest is reversed. Interest income is subsequently recognized only to the extent cash payments are received in excess of principal due. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

Non-accrual loans, segregated by class of loans, were as follows:

(in thousands)	June 30, 2017		December 31, 2016
Commercial real estate:
Commercial real estate- construction	$	0	$	0
Commercial real estate- mortgages		0		0
Land		1,574		2,715
Farmland		0		0
Commercial and industrial		304		306
Consumer		0		0
Consumer residential		154		16
Agriculture		0		0
Total non-accrual loans	$	2,032	$	3,037

Excluded from the above non-accrual loan table is the

$33,000

carrying value of

one

Purchased Credit Impaired loan acquired in the MLB Acquisition.

Had non-accrual loans performed in accordance with their original contract terms, we would have recognized additional interest income of approximately

$31,000

and

$68,000

in the

three

and

six

month periods ended

June 30, 2017,

respectively, as compared to

$38,000

and

$79,000

in the same periods of

2016.

The following table analyzes past due loans including the non-accrual loans in the above table, segregated by class of loans, as of

June 30, 2017 (

in thousands):

June 30, 2017	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days Past Due		Total Past Due		Current		Purchased Credit Impaired Loans		Total		Greater Than 90 Days Past Due and Still Accruing
Commercial real estate:
Commercial R.E. - construction	$	0	$	0	$	0	$	0	$	15,804	$	0	$	15,804	$	0
Commercial R.E. - mortgages		0		0		0		0		413,750		0		413,750		0
Land		0		0		1,574		1,574		8,409		33		10,016		0
Farmland		0		0		0		0		55,452		0		55,452		0
Commercial and industrial		0		0		302		302		63,552		0		63,854		0
Consumer		0		0		0		0		684		0		684		0
Consumer residential		0		0		138		138		39,163		0		39,301		0
Agriculture		0		0		0		0		24,948		0		24,948		0
Total	$	0	$	0	$	2,014	$	2,014	$	621,762	$	33	$	623,809	$	0

The following table analyzes past due loans including the non-accrual loans in the above table, segregated by class of loans, as of

December 

31,

2016

(in thousands):

December 31, 2016	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days Past Due		Total Past Due		Current		Purchased Credit Impaired Loans		Total		Greater Than 90 Days Past Due and Still Accruing
Commercial real estate:
Commercial R.E. - construction	$	0	$	0	$	0	$	0	$	23,378	$	0		23,378	$	0
Commercial R.E. - mortgages		0		0		0		0		389,495		0		389,495		0
Land		0		0		2,715		2,715		7,075		33		9,823		0
Farmland		0		0		0		0		56,159		0		56,159		0
Commercial and industrial		0		0		302		302		63,899		0		64,201		0
Consumer		0		0		0		0		767		0		767		0
Consumer residential		0		0		16		16		38,656		0		38,672		0
Agriculture		0		0		0		0		28,454		0		28,454		0
Total	$	0	$	0	$	3,033	$	3,033	$	607,883	$	33		610,949	$	0

Impaired Loans.

Loans are considered impaired when, based on current information and events, it is probable the Company will be unable to collect all amounts due in accordance with the original contractual terms of the loan agreement, including scheduled principal and interest payments. Impairment is evaluated in total for smaller-balance loans of a similar nature and on an individual loan basis for other loans. If a loan is impaired, a specific valuation allowance is allocated, if necessary, so that the loan is reported net, at the present value of estimated future cash flows using the loan’s existing rate or at the fair value of collateral if repayment is expected solely from the collateral. Interest payments on impaired loans are typically applied to principal unless collectability of the principal amount is reasonably assured, in which case interest is recognized on a cash basis. There was

no

interest income realized on impaired loans for the

three

and

six

months ended

June 30, 2017

and

2016.

Impaired loans as of

June 30, 2017

and

December 31, 2016

are set forth in the following tables. PCI loans are excluded from the tables below, as they have

not

experienced post acquisition declines in cash flows expected to be collected.

(in thousands)	Unpaid Contractual Principal Balance		Recorded Investment With No Allowance		Recorded Investment With Allowance		Total Recorded Investment		Related Allowance
June 30, 2017
Commercial real estate:
Commercial R.E. - construction	$	0	$	0	$	0	$	0	$	0
Commercial R.E. - mortgages		0		0		0		0		0
Land		1,891		0		1,574		1,574		680
Farmland		0		0		0		0		0
Commercial and Industrial		351		304		0		304		0
Consumer		0		0		0		0		0
Consumer residential		154		154		0		154		0
Agriculture		0		0		0		0		0
Total	$	2,396	$	458	$	1,574	$	2,032	$	680

(in thousands)	Unpaid Contractual Principal Balance		Recorded Investment With No Allowance		Recorded Investment With Allowance		Total Recorded Investment		Related Allowance
December 31, 2016
Commercial real estate:
Commercial R.E. - construction	$	0	$	0	$	0	$	0	$	0
Commercial R.E. - mortgages		0		0		0		0		0
Land		3,131		2,715		0		2,715		680
Farmland		0		0		0		0		0
Commercial and Industrial		353		4		302		306		0
Consumer		0		0		0		0		0
Consumer residential		16		16		0		16		0
Agriculture		0		0		0		0		0
Total	$	3,500	$	2,735	$	302	$	3,037	$	680

Average recorded investment in impaired loans outstanding as of

June 30, 2017

and

2016

is set forth in the following table.

	Average Recorded Investment for the
(in thousands)	Three Months Ended		Three Months Ended		Six Months Ended		Six Months Ended
	June 30, 2017		June 30, 2016		June 30, 2017		June 30, 2016
Commercial real estate:
Commercial R.E. - construction	$	0	$	0	$	0	$	0
Commercial R.E. - mortgages		0		0		0		0
Land		1,850		2,498		2,273		2,396
Farmland		0		0		0		0
Commercial and Industrial		304		318		305		316
Consumer		0		0		0		0
Consumer residential		154		0		107		0
Agriculture		0		0		0		0
Total	$	2,308	$	2,816	$	2,685	$	2,712

Troubled Debt Restructurings –

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

At

June 30, 2017,

there were

5

loans that were considered to be troubled debt restructurings, all of which are considered non-accrual totaling

$1,894,000.

At

December 31, 2016,

there were

6

loans that were considered to be troubled debt restructurings, all of which are considered non-accrual totaling

$3,037,000.

At

June 30, 2017

and

December 31, 2016

there were

no

unfunded commitments on loans classified as a troubled debt restructures.

We have allocated

$

680,000

of specific reserves to loans whose terms have been modified in troubled debt restructurings as of

June 30, 2017

and

December 31, 2016.

The modification of the terms of such loans typically includes

one

or a combination of the following: a reduction of the stated interest rate of the loan; an extension of the maturity date; or a temporary payment modification in which the payment amount allocated towards principal was reduced. In some cases, a permanent reduction of the accrued interest on the loan is conceded.

During the

three

and

six

months ended

June 30, 2017,

no

loans were modified as troubled debt restructurings, compared to

one

loan with a recorded investment of

$473,000

that was modified as a troubled debt restructuring by extending the maturity date during the

six

month period ended

March 31, 2016.

This troubled debt restructuring did

not

increase the allowance for loan losses as a result of loan modifications. There were

no

charge-offs as a result of the loan modification, as the contractual balances outstanding were determined to be collectible.

There were

no

loans modified as troubled debt restructurings within the previous

twelve

months and for which there was a payment default during the

three

and

six

month periods ended

June 30, 2017

and

2016.

A loan is considered to be in payment default once it is

ninety

days contractually past due under the modified terms.

Loan Risk Grades

–

Quality ratings (Risk Grades) are assigned to all commitments and stand-alone notes. Risk grades define the basic characteristics of commitments or stand-alone note in relation to their risk. All loans are graded using a system that maximizes the loan quality information contained in loan review grades, while ensuring that the system is compatible with the grades used by bank examiners.

We grade loans using the following letter system:

1

Exceptional Loan

2

Quality Loan

3A

Better Than Acceptable Loan

3B

Acceptable Loan

3C

Marginally Acceptable Loan

4

(W) Watch Acceptable Loan

5

Other Loans Especially Mentioned

6

Substandard Loan

7

Doubtful Loan

8

Loss

1.

Exceptional Loan

- Loans with A+ credits that contain very little, if any, risk. Grade

1

loans are considered Pass. To qualify for this rating, the following characteristics must be present:

-A high level of liquidity and whose debt-servicing capacity exceeds expected obligations by a substantial margin.

-Where leverage is below average for the industry and earnings are consistent or growing without severe vulnerability to economic cycles.

-Also included in this rating (but

not

mandatory unless

one

or more of the preceding characteristics are missing) are loans that are fully secured and properly margined by our own time instruments or U.S. blue chip securities. To be properly margined cash collateral must be equal to, or greater than,

110%

of the loan amount.

2.

Quality Loan

- Loans with excellent sources of repayment that conform in all respects to bank policy and regulatory requirements. These are also loans for which little repayment risk has been identified.

No

credit or collateral exceptions. Grade

2

loans are considered Pass. Other factors include:

-Unquestionable debt-servicing capacity to cover all obligations in the ordinary course of business from well-defined primary and secondary sources.

-Consistent strong earnings.

-A solid equity base.

3A.

Better than Acceptable Loan

- In the interest of better delineating the loan portfolio’s true credit risk for reserve allocation, further granularity has been sought by splitting the grade

3

category into

three

classifications. The distinction between the

three

are bank-defined guidelines and represent a further refinement of the regulatory definition of a pass, or grade

3

loan. Grade

3A

is the stronger

third

of the pass category, but is

not

strong enough to be a grade

2

and is characterized by:

-Strong earnings with

no

loss in last

three

years and ample cash flow to service all debt well above policy guidelines.

-Long term experienced management with depth and defined management succession.

-The loan has

no

exceptions to policy.

-Loan-to-value on real estate secured transactions is

10%

to

20%

less than policy guidelines.

-Very liquid balance sheet that

may

have cash available to pay off our loan completely.

-Little to

no

debt on balance sheet.

3B.

Acceptable Loan

-

3B

loans are simply defined as all loans that are less qualified than

3A

loans and are stronger than

3C

loans. These loans are characterized by acceptable sources of repayment that conform to bank policy and regulatory requirements. Repayment risks are acceptable for these loans. Credit or collateral exceptions are minimal, are in the process of correction, and do

not

represent repayment risk. These loans:

-Are those where the borrower has average financial strengths, a history of profitable operations and experienced management.

-Are those where the borrower can be expected to handle normal credit needs in a satisfactory manner.

3C.

Marginally Acceptable

-

3C

loans have similar characteristics as that of

3Bs

with the following additional characteristics:

Requires collateral. A credit facility where the borrower has average financial strengths, but usually lacks reliable secondary sources of repayment other than the subject collateral. Other common characteristics can include some or all of the following: minimal background experience of management, lacking continuity of management, a start-up operation, erratic historical profitability (acceptable reasons-well identified), lack of or marginal sponsorship of guarantor, and government guaranteed loans.

4W

Watch Acceptable

- Watch grade will be assigned to any credit that is adequately secured and performing but monitored for a number of indicators. These characteristics

may

include any unexpected short-term adverse financial performance from budgeted projections or prior period’s results (i.e., declining profits, sales, margins, cash flow, or increased reliance on leverage, including adverse balance sheet ratios, trade debt issues, etc.). Additionally, any managerial or personal problems of company management, decline in the entire industry or local economic conditions, or failure to provide financial information or other documentation as requested; issues regarding delinquency, overdrafts, or renewals; and any other issues that cause concern for the company. Loans to individuals or loans supported by guarantors with marginal net worth and/or marginal collateral. Weakness identified in a Watch credit is short-term in nature. Loans in this category are usually accounts the Bank would want to retain providing a positive turnaround can be expected within a reasonable time frame. Grade

4

loans are considered Pass.

5

Other Loans Especially Mentioned (Special Mention)

- A special mention extension of credit is defined as having potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses

may,

at some future date result in the deterioration of the repayment prospects for the credit or the institution’s credit position. Extensions of credit that might be detailed in this category include the following:

-The lending officer

may

be unable to properly supervise the credit because of an inadequate loan or credit agreement.

-Questions exist regarding the condition of and/or control over collateral.

-Economic or market conditions

may

unfavorably affect the obligor in the future.

-A declining trend in the obligor’s operations or an imbalanced position in the balance sheet exists, but

not

to the point that repayment is jeopardized.

6

Substandard Loan

- A “substandard” extension of credit is inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. Extensions of credit so classified must have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are

not

corrected. Loss potential, while existing in the aggregate amount of substandard credits, does

not

have to exist in individual extensions of credit classified substandard.

7

Doubtful Loan

- An extension of credit classified “doubtful” has all the weaknesses inherent in

one

classified substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. The possibility of loss is extremely high but because of certain important and reasonably specific pending factors that

may

work to the advantage of and strengthen the credit, its classification as an estimated loss is deferred until its more exact status

may

be determined. Pending factors

may

include a proposed merger or acquisition, liquidation proceedings, capital injection, perfecting liens on additional collateral or refinancing plans. The entire loan need

not

be classified doubtful when collection of a specific portion appears highly probable. An example of proper use of the doubtful category is the case of a company being liquidated, with the trustee-in-bankruptcy indicating a minimum disbursement of

40

percent and a maximum of

65

percent to unsecured creditors, including the Bank. In this situation, estimates are based on liquidation value appraisals with actual values yet to be realized. By definition, the only portion of the credit that is doubtful is the

25

percent difference between

40

and

65

percent.

A proper classification of such a credit would show

40

percent substandard,

25

percent doubtful, and

35

percent loss. A credit classified as doubtful should be resolved within a ‘reasonable’ period of time. Reasonable is generally defined as the period between examinations. In other words, a credit classified doubtful at an examination should be cleared up before the next exam. However, there

may

be situations that warrant continuation of the doubtful classification a while longer.

8

Loss

- Extensions of credit classified “loss” are considered uncollectible and of such little value that their continuance as bankable assets is

not

warranted. This classification does

not

mean that the credit has absolutely

no

recovery or salvage value, but rather that it is

not

practical or desirable to defer writing off, even though partial recovery

may

be affected in the future. It should

not

be the Company’s practice to attempt long-term recoveries while the credit remains on the books. Losses should be taken in the period in which they surface as uncollectible.

As of

June 30, 2017

and

December 31, 2016,

there are

no

loans that are classified with a risk grade of

8

- Loss.

The following table presents weighted average risk grades of our loan portfolio:

	June 30, 2017		December 31, 2016
	Weighted Average Risk Grade		Weighted Average Risk Grade
Commercial real estate:
Commercial real estate - construction		3.00		3.07
Commercial real estate - mortgages		3.07		3.08
Land		4.01		4.39
Farmland		3.09		3.09
Commercial and industrial		3.60		2.70
Consumer		2.23		2.28
Consumer residential		3.04		3.03
Agriculture		3.19		3.08
Total gross loans		3.14		3.06

The following table presents risk grade totals by class of loans as of

June 30, 2017

and

December 31, 2016.

Risk grades

1

through

4

have been aggregated in the “Pass” line.

(in thousands)	Commercial R.E. Construction		Commercial R.E. Mortgages		Land (1)		Farmland		Commercial and Industrial		Consumer		Consumer Residential		Agriculture		Total
June 30, 2017
Pass	$	15,804	$	412,779	$	7,978	$	55,452	$	58,562	$	651	$	38,785	$	24,948	$	614,959
Special mention		-		260		-		-		4,087		-		-		-		4,347
Substandard		-		711		1,758		-		1,205		33		516		-		4,223
Doubtful		-		-		280		-		-		-		-		-		280
Total loans	$	15,804	$	413,750	$	10,016	$	55,452	$	63,854	$	684	$	39,301	$	24,948	$	623,809
December 31, 2016
Pass	$	22,560	$	388,365	$	6,637	$	56,159	$	62,770	$	738	$	38,300	$	28,454	$	603,983
Special mention		818		1,063		-		-		189		-		-		-		2,070
Substandard		-		67		2,906				1,242		29		372		-		4,616
Doubtful		-		-		280		-		-		-		-		-		280
Total loans	$	23,378	$	389,495	$	9,823	$	56,159	$	64,201	$	767	$	38,672	$	28,454	$	610,949

( 1 ) Included in the above table is Purchased Credit Impaired loans recorded at their fair value of $ 33,000 as of June 30, 2017 and December 31, 2016,   which were acquired in the MLB Acquisition.

Allowance for Loan Losses.

The allowance for loan losses is a reserve established by the Company through a provision for loan losses charged to expense, which represents management’s best estimate of probable losses that have been incurred within the existing portfolio of loans. The allowance, in the judgment of management, is necessary to reserve for estimated loan losses and risks inherent in the loan portfolio. The allowance for loan loss methodology includes allowance allocations calculated in accordance with ASC Topic 

310,

“Receivables” and allowance allocations calculated in accordance with ASC Topic 

450,

“Contingencies.” Accordingly, the methodology is based on historical loss experience by type of credit and internal risk grade, specific homogeneous risk pools and specific loss allocations, with adjustments for current events and conditions. The process for determining the appropriate level of the allowance for loan losses is designed to account for credit deterioration as it occurs. The provision for loan losses reflects loan quality trends, including the levels of and trends related to non-accrual loans, past due loans, potential problem loans, criticized loans and net charge-offs or recoveries, among other factors. The provision for loan losses also reflects the totality of actions taken on all loans for a particular period. In other words, the amount of the provision reflects

not

only the necessary increases in the allowance for loan losses related to newly identified criticized loans, but it also reflects actions taken related to other loans including, among other things, any necessary increases or decreases in required allowances for specific loans or loan pools.

The level of the allowance reflects management’s continuing evaluation of industry concentrations, specific credit risks, loan loss experience, current loan portfolio quality, present economic, political and regulatory conditions and unidentified losses inherent in the current loan portfolio. Portions of the allowance

may

be allocated for specific credits; however, the entire allowance is available for any credit that, in management’s judgment, should be charged off. While management utilizes its best judgment and information available, the ultimate adequacy of the allowance is dependent upon a variety of factors beyond the Company’s control, including, among other things, the performance of the Company’s loan portfolio, the economy, changes in interest rates and the view of the regulatory authorities toward loan classifications.

The Company’s allowance for loan losses consists of

three

elements: (i) specific valuation allowances determined in accordance with ASC Topic 

310

based on probable losses on specific loans; (ii) historical valuation allowances determined in accordance with ASC Topic 

450

based on historical loan loss experience for similar loans with similar characteristics and trends, adjusted, as necessary, to reflect the impact of current conditions; (iii) general valuation allowances determined in accordance with ASC Topic 

450

based on general economic conditions and other qualitative risk factors both internal and external to the Bank and the Company; and (iv) unallocated allowance which represents the excess allowance

not

allocated to specific loans pools.

The allowances established for probable losses on specific loans are based on a regular analysis and evaluation of problem loans. Loans are classified based on an internal credit risk grading process that evaluates, among other things: (i) the obligor’s ability to repay; (ii) the underlying collateral, if any; and (iii) the economic environment and industry in which the borrower operates. This analysis is performed at the relationship manager level for all commercial loans. When a loan has a calculated grade of

5

or higher, a special assets officer analyzes the loan to determine whether the loan is impaired and, if impaired, the need to specifically allocate a portion of the allowance for loan losses to the loan. Specific valuation allowances are determined by analyzing the borrower’s ability to repay amounts owed, collateral deficiencies, the relative risk grade of the loan and economic conditions affecting the borrower’s industry, among other things.

Historical valuation allowances are calculated based on the historical loss experience of specific types of loans and the internal risk grade of such loans at the time they were charged-off. The Company calculates historical loss ratios for pools of similar loans with similar characteristics based on the proportion of actual charge-offs experienced to the total population of loans in the pool. The historical loss ratios are periodically updated based on actual charge-off experience. A historical valuation allowance is established for each pool of similar loans based upon the product of the historical loss ratio and the total dollar amount of the loans in the pool. The Company’s pools of similar loans include similarly risk-graded groups of commercial and industrial loans, commercial real estate loans, consumer real estate loans and consumer and other loans.

General valuation allowances are based on general economic conditions and other qualitative risk factors both internal and external to the Bank and the Company. In general, such valuation allowances are determined by evaluating, among other things: (i) the experience, ability and effectiveness of the Bank’s lending management and staff; (ii) the effectiveness of the Bank’s loan policies, procedures and internal controls; (iii) changes in asset quality; (iv) changes in loan portfolio volume; (v) the composition and concentrations of credit; (vi) the impact of competition on loan structuring and pricing; (vii) the effectiveness of the internal loan review function; (viii) the impact of environmental risks on portfolio risks; and (ix) the impact of rising interest rates on portfolio risk. Management evaluates the degree of risk that each

one

of these components has on the quality of the loan portfolio on a quarterly basis. Each component is determined to have either a high, moderate or low degree of risk. The results are then input into a “general allocation matrix” to determine an appropriate general valuation allowance.

Included in the general valuation allowances are allocations for groups of similar loans with risk characteristics that exceed certain concentration limits established by management. Concentration risk limits have been established, among other things, for certain industry concentrations, large balance and highly leveraged credit relationships that exceed specified risk grades, and loans originated with policy exceptions that exceed specified risk grades.

Loans identified as losses by management, internal loan review and/or bank examiners are charged-off. Furthermore, consumer loan accounts are charged-off automatically based on regulatory requirements.

The following table details activity in the allowance for loan losses by portfolio segment for the

three

and

six

months ended

June 30, 2017

and

2016.

Allocation of a portion of the allowance to

one

category of loans does

not

preclude its availability to absorb losses in other categories.

Allowance for Loan Losses
For the Three and Six Months Ended June 30, 2017 and 2016
(in thousands)	Commercial			Commercial					Consumer
Three Months Ended June 30, 2017	Real Estate			and Industrial		Consumer			Residential			Agriculture			Unallocated			Total
Beginning balance	$	6,266		$	735	$	37		$	310		$	447		$	32		$	7,827
Charge-offs		0			0		(10	)		0			0			0			(10	)
Recoveries		0			0		1			1			0			0			2
(Reversal of) provision for loan losses		(19	)		11		2			10			6			25			35
Ending balance	$	6,247		$	746	$	30		$	321		$	453		$	57		$	7,854
Six Months Ended June 30, 2017
Beginning balance	$	6,185		$	697	$	51		$	325		$	504		$	70		$	7,832
Charge-offs		0			0		(17	)		0			0			0			(17	)
Recoveries		0			0		3			1			0			0			4
(Reversal of) provision for loan losses		62			49		(7	)		(5	)		(51	)		(13	)		35
Ending balance	$	6,247		$	746	$	30		$	321		$	453		$	57		$	7,854

(in thousands)	Commercial		Commercial						Consumer
Three Months Ended June 30, 2016	Real Estate		and Industrial			Consumer			Residential			Agriculture		Unallocated			Total
Beginning balance	$	5,998	$	720		$	44		$	398		$	302	$	95		$	7,557
Charge-offs		0		0			(4	)		0			0		0			(4	)
Recoveries		0		0			2			0			0		0			2
(Reversal of) provision for loan losses		135		(49	)		13			(11	)		129		(92	)		125
Ending balance	$	6,133	$	671		$	55		$	387		$	431	$	3		$	7,680
Six Months Ended June 30, 2016
Beginning balance	$	5,920	$	627		$	38		$	426		$	309	$	36		$	7,356
Charge-offs		0		0			(7	)		0			0		0			(7	)
Recoveries		3		0			3			0			0		0			6
(Reversal of) provision for loan losses		210		44			21			(39	)		122		(33	)		325
Ending balance	$	6,133	$	671		$	55		$	387		$	431	$	3		$	7,680

The following table details the allowance for loan losses and ending gross loan balances as of

June 30, 2017,

December 31, 2016

and

March 31, 2016

summarized by collective and individual evaluation methods of impairment.

(in thousands)	Commercial		Commercial				Consumer
June 30, 2017	Real Estate		and Industrial		Consumer		Residential		Agriculture		Unallocated		Total
Allowance for loan losses for loans:
Individually evaluated for impairment	$	680	$	0	$	0	$	0	$	0			$	680
Collectively evaluated for impairment		5,567		746		30		321		453		57		7,174
	$	6,247	$	746	$	30	$	321	$	453	$	57	$	7,854
Ending gross loan balances:
Individually evaluated for impairment	$	1,574	$	304	$	0	$	154	$	0	$	0	$	2,032
Individually evaluated purchased credit impaired loans		33		0		0		0		0		0		33
Collectively evaluated for impairment		493,415		63,550		684		39,147		24,948		0		621,744
	$	495,022	$	63,854	$	684	$	39,301	$	24,948	$	0	$	623,809
December 31, 2016
Allowance for loan losses for loans:
Individually evaluated for impairment	$	680	$	0	$	0	$	0	$	0			$	680
Collectively evaluated for impairment		5,505		697		51		325		504		70		7,152
	$	6,185	$	697	$	51	$	325	$	504	$	70	$	7,832
Ending gross loans balances:
Individually evaluated for impairment	$	2,715	$	306	$	0	$	16	$	0	$	0	$	3,037
Individually evaluated purchased credit impaired loans		33		0		0		0		0		0		33
Collectively evaluated for impairment		476,107		63,895		767		38,656		28,454		0		607,879
	$	478,855	$	64,201	$	767	$	38,672	$	28,454	$	0	$	610,949
June 30, 2016
Allowance for loan losses for loans:
Individually evaluated for impairment	$	680	$	0	$	0	$	0	$	0			$	680
Collectively evaluated for impairment		5,453		671		55		387		431		3		7,000
	$	6,133	$	671	$	55	$	387	$	431	$	3	$	7,680
Ending gross loans balances:
Individually evaluated for impairment	$	2,340	$	314	$	0	$	0	$	0	$	0	$	2,654
Individually evaluated purchased credit impaired loans		286		529		0		0		0		0		815
Collectively evaluated for impairment		450,964		64,516		910		35,275		24,640		0		576,305
	$	453,590	$	65,359	$	910	$	35,275	$	24,640	$	0	$	579,774

Changes in the reserve for off-balance-sheet commitments were as follows:

	THREE MONTHS ENDED JUNE 30,					SIX MONTHS ENDED JUNE 30,
	2017		2016			2017		2016
Balance, beginning of period	$	289	$	264		$	284	$	238
Provision (Recovery) to Operations for Off Balance Sheet Commitments		13		(7	)		18		19
Balance, end of period	$	302	$	257		$	302	$	257

The method for calculating the reserve for off-balance-sheet loan commitments is based on a reserve percentage which is less than other outstanding loan types because they are at a lower risk level.  This reserve percentage, based on many factors including historical losses and existing economic conditions, is evaluated by management periodically and is applied to the total undisbursed loan commitment balance to calculate the reserve for off-balance-sheet commitments. Reserves for off-balance-sheet commitments are recorded in interest payable and other liabilities on the condensed consolidated balance sheets.

At

June 30, 2017

and

December 

31,

2016,

loans carried at

$623,809,000

and

$610,949,000,

respectively, were pledged as collateral on advances from the Federal Home Loan Bank.

XML

Note 5 - Other Real Estate Owned

6 Months Ended

Jun. 30, 2017

Notes to Financial Statements

Real Estate Owned [Text Block]

NOTE

5

– OTHER REAL ESTATE OWNED

As of

June 30, 2017

and

December 31, 2016,

the Company owned

three

properties classified as other real estate totaling

$

1,210,000

.

One

of the properties owned at

June 30, 2017

and

December 31, 2016,

was a residential land property that was written down to a

zero

balance because the public utilities have

not

been obtainable rendering these land lots unmarketable at this time. Each of the OREO properties were acquired through loan foreclosures, but there were

no

OREO property acquisitions during the

six

months ended

June 30, 2017,

and

no

sales of properties during that period. During the

six

months ended

June 30, 2016,

there was

one

sale that accounted for the disposition of

two

OREO properties,

Real estate properties acquired through, or in lieu of, loan foreclosure are to be sold and are initially recorded at the lower of carrying amount of the loan or fair value of the property at the date of foreclosure less selling costs.  Subsequent to foreclosure, valuations are periodically performed and any subject revisions in the estimate of fair value are reported as adjustment to the carrying value of the real estate, provided the adjusted carrying amount does

not

exceed the original amount at foreclosure.  Revenues and expenses from operations and changes in the valuation allowance are included in other operating expenses.

XML

Note 6 - Other Post-retirement Benefit Plans

6 Months Ended

Jun. 30, 2017

Notes to Financial Statements

Pension and Other Postretirement Benefits Disclosure [Text Block]

NOTE

6

–

OTHER POST-RETIREMENT BENEFIT PLANS

During

January 

2008,

the Bank awarded certain officers a salary continuation plan (the “Plan”). Under the Plan, the participants will be provided with a fixed annual retirement benefit for

ten

to

twenty

years after retirement. The Bank is also responsible for certain pre-retirement death benefits under the Plan. In connection with the implementation of the Plan, the Bank purchased single premium life insurance policies on the life of each of the officers covered under the Plan. The Bank is the owner and partial beneficiary of these life insurance policies. The assets of the Plan, under Internal Revenue Service regulations, are owned by the Bank and are available to satisfy the Company’s general creditors.

In

August 2001,

the Board of Directors of the Bank authorized Director Retirement Plans (“DRP”) with each director. The Bank awarded a director retirement plan to

two

of its directors in

January 2008,

to

three

of its directors in

March 2014,

and to its newest director in

2016

. Under the DRP, the participants will be provided with a fixed annual retirement benefit for

ten

years after retirement. The Bank is also responsible for certain pre-retirement death benefits under the DRP. In connection with the implementation of the DRP, the Bank purchased single premium life insurance policies on the life of each director covered under the DRP. The Bank is the owner and partial beneficiary of these life insurance policies. The assets of the DRP, under Internal Revenue Service regulations, are the property of the Bank and are available to satisfy the Bank’s general creditors.

Future compensation under both plans is earned for services rendered through retirement. The Bank accrues for the salary continuation liability based on anticipated years of service and vesting schedules provided under the plans. The Bank’s current benefit liability is determined based on vesting and the present value of the benefits at a corresponding discount rate. The discount rate used is an equivalent rate for investment-grade bonds with lives matching those of the service periods remaining for the salary continuation contracts, which average approximately

10

 years. The salary continuation liability as of

June 30, 2017

and

December 31, 2016

was

$2,960,000

and

$2,762,000,

respectively, and is reported in interest payable and other liabilities on the condensed consolidated balance sheets.

During

January 

2008,

the Bank purchased

$4.7

million in bank owned life insurance policies and entered into split-dollar life insurance agreements with certain officers and directors. During

March 2014,

the Bank purchased an additional

$1.0

million in bank owned life insurance policies and entered into split-dollar life insurance agreements with its

three

newest directors. During

September 2016,

the Bank purchased an additional

$4.0

million in bank owned life insurance policies and entered into split-dollar life insurance agreements with certain officers and directors. In connection with the implementation of the split-dollar agreements, the Bank purchased single premium life insurance policies on the life of each of the officers and directors covered by the split-dollar life insurance agreements. The Bank is the owner of the policies and the partial beneficiary in an amount equal to the cash surrender value of the policies.

The combined cash surrender value of all Bank-owned life insurance policies recorded in interest receivable and other assets on the condensed consolidated balance sheets were

$18,260,000

and

$18,004,000

at

June 30, 2017

and

December 

31,

2016,

respectively.

XML

Note 7 - Financial Instruments and Fair Value Measurements

6 Months Ended

Jun. 30, 2017

Notes to Financial Statements

Fair Value, Measurement Inputs, Disclosure [Text Block]

NOTE

7

— FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS

Fair values of financial instruments —

The consolidated financial statements include various estimated fair value information as of

June 30, 2017

and

December 

31,

2016.

Such information, which pertains to the Company’s financial instruments, does

not

purport to represent the aggregate net fair value of the Company. Further, the fair value estimates are based on various assumptions, methodologies, and subjective considerations, which vary widely among different financial institutions and which are subject to change.

Fair value measurements defines fair value, establishes a framework for measuring fair value, establishes a

three

-level valuation hierarchy for disclosure of fair value measurement and enhances disclosure requirements for fair value measurements. The valuation hierarchy is based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The

three

levels are defined as follow:

Level

1:

  Inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.

Level

2:

  Inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.

Level

3:

  Inputs to the valuation methodology are unobservable and significant to the fair value measurement.

In certain cases, the inputs used to measure fair value

may

fall into different levels of the fair value hierarchy.  In such cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls has been determined based on the lowest level input that is significant to the fair value measurement in its entirety.  The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability. Transfers between levels of the fair value hierarchy are recognized on the actual date of the event or circumstance that caused the transfer, which generally corresponds with the Company’s quarterly valuation process. There were

no

transfers between levels during the

six

month periods ended

June 30, 2017

or

2016.

Following is a description of valuation methodologies used for assets and liabilities in the tables below:

Cash and cash equivalents

–

The carrying amounts of cash and cash equivalents approximate their fair value and are considered a level

1

valuation.

Restricted Equity Securities-

The carrying amounts of the stock the Company’s owns in FRB and FHLB approximate their fair value and are considered a level

2

valuation.

Loans receivable

— For variable-rate loans that reprice frequently and have

no

significant change in credit risk, fair values are based on carrying values. The fair values for other loans (e.g., real estate construction and mortgage, commercial, and installment loans) are estimated using discounted cash flow analyses, using interest rates currently being offered for loans with similar terms to borrowers of similar credit quality. The allowance for loan losses is considered to be a reasonable estimate of loan discount due to credit risks. The Company’s fair value model takes into account many inputs including current market rates on new loans, the U.S. treasury yield curve, LIBOR yield curve, rate floors, rate ceilings, remaining maturity, and average life based on specific loan type. Loans are considered to be a level

3

valuation.

Deposit liabilities

— The fair values estimated for demand deposits (interest and non-interest checking, savings, and certain types of money market accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e. their carrying amounts). The carrying amounts for variable-rate, fixed-term money market accounts and certificates of deposit approximate their fair values at the reporting date. Fair values for fixed-rate certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates to a schedule of the aggregate expected monthly maturities on time deposits. The fair value of deposits is determined by the Company’s internal assets and liabilities modeling system that accounts for various inputs such as decay rates, rate floors, FHLB yield curve, maturities and current rates offered on new accounts. Fair value on deposits is considered a level

3

valuation.

Interest receivable and payable -

The carrying amounts of accrued interest approximate their fair value and are considered to be a level

2

valuation.

Off-balance-sheet instruments

— Fair values for the Bank’s off-balance-sheet lending commitments are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the credit standing of the counterparties. The Company considers the Bank’s off balance sheet instruments to be a level

3

valuation

.

The estimated fair values of the Company’s financial instruments

not

measured at fair value at

June 30, 2017

were as follows:

							Hierarchy
(in thousands)	Carrying			Fair			Valuation
	Amount			Value			Level
Financial assets:
Cash and cash equivalents	$	182,159		$	182,159			1
Restricted equity securities		4,135			4,135			2
Loans, net		614,082			620,977			3
Interest receivable		2,889			2,889			2
Financial liabilities:
Deposits		(925,786	)		(825,057	)		3
Interest payable		(44	)		(44	)		2
Off-balance-sheet assets (liabilities):
Commitments and standby letters of credit					(1,186	)		3

The estimated fair values of the Company’s financial instruments

not

measured at fair value at

December 

31,

2016

were as follows:

							Hierarchy
(in thousands)	Carrying			Fair			Valuation
	Amount			Value			Level
Financial assets:
Cash and cash equivalents	$	190,810		$	190,810			1
Restricted equity securities		3,795			3,795			2
Loans, net		601,104			611,553			3
Interest receivable		2,831			2,831			2
Financial liabilities:
Deposits		(914,093	)		(811,519	)		3
Interest payable		(45	)		(45	)		2
Off-balance-sheet assets (liabilities):
Commitments and standby letters of credit					(1,107	)		3

The following table presents the carrying value of recurring and nonrecurring financial instruments that were measured at fair value and that were still held in the condensed consolidated balance sheets at each respective period end, by level within the fair value hierarchy as of

June 30, 2017

and

December 31, 2016

.

	Fair Value Measurements at June 30, 2017 Using
(in thousands)	June 30, 2017		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets and liabilities measured on a recurring basis:
Available-for-sale securities:
U.S. agencies	$	25,063	$	0	$	25,063	$	0
Collateralized mortgage obligations		4,862		0		4,862		0
Municipalities		87,193		0		87,193		0
SBA pools		12,914		0		12,914		0
Corporate debt		20,805		0		20,805		0
Asset backed securities		21,321		0		21,321		0
Mutual fund		3,094		3,094		0		0
Assets and liabilities measured on a non-recurring basis:
Impaired loans:
Land	$	894	$	0	$	0	$	894
Commercial and industrial		302		0		0		302
Other real estate owned		1,210		0		0		1,210

	Fair Value Measurements at December 31, 2016 Using
(in thousands)	December 31, 2016		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets and liabilities measured on a recurring basis:
Available-for-sale securities
U.S. agencies	$	28,286	$	0	$	28,286	$	0
Collateralized mortgage obligations		4,109		0		4,109		0
Municipalities		78,329		0		78,329		0
SBA pools		7,168		0		7,168		0
Corporate debt		20,563		0		20,563		0
Asset backed securities		18,819		0		18,819		0
Mutual fund		3,059		3,059		0		0
Assets and liabilities measured on a non-recurring basis:
Impaired loans:
Land	$	1,746	$	0	$	0	$	1,746
Commercial and industrial		302		0		0		302
Other real estate owned	$	1,210	$	0	$	0	$	1,210

Following is a description of valuation methodologies used for assets and liabilities recorded at fair value.

Available-for-sale securities

-

Investment securities available-for-sale are recorded at fair value on a recurring basis. Fair value measurement is based upon quoted market prices, if available. If quoted market 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 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 corporate debt securities. Securities classified as Level

3

include asset-backed securities in less liquid markets where significant inputs are unobservable.

Impaired loans

- ASC Topic

820

applies to loans measured for impairment using the practical expedients permitted by ASC Topic

310,

Accounting by Creditors for Impairment of a Loan

. 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 where an allowance is established based on the fair value of collateral less the cost related to liquidation of the collateral require classification in the fair value hierarchy. When the fair value of the collateral is based on an observable market price or a current appraised value, the Company records the impaired loan as non-recurring Level

3.

Likewise, when an appraised value is

not

available or management 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 non-recurring Level

3.

Other Real Estate Owned

- Other real estate assets (“OREO”) acquired through, or in lieu of, foreclosure are held-for-sale and are initially recorded at the lower of cost or fair value, less selling costs. Any write-downs to fair value at the time of transfer to OREO are charged to the allowance for loan losses, subsequent to foreclosure. Appraisals or evaluations are then done periodically thereafter charging any additional write-downs or valuation allowances to the appropriate expense accounts. Values are derived from appraisals of underlying collateral and discounted cash flow analysis. OREO is classified within Level

3

of the hierarchy.

Net realizable value of the underlying collateral is the fair value of the collateral less estimated selling costs and any prior liens. Appraisals, recent comparable sales, offers and listing prices are factored in when valuing the collateral. We review and verify the qualifications and licenses of the certified general appraisers used for appraising commercial properties or certified residential appraisers for residential properties. Real estate appraisals

may

utilize a combination of approaches including replacement cost, sales comparison and the income approach. Comparable sales and income data are analyzed by the appraisers and adjusted to reflect differences between them and the subject property such as type, leasing status and physical condition. When the appraisals are received, Management reviews the assumptions and methodology utilized in the appraisal, as well as the overall resulting value in conjunction with independent data sources such as recent market data and industry-wide statistics. We generally use a

6%

discount for selling costs which is applied to all properties, regardless of size. Appraised values

may

be adjusted to reflect changes in market conditions that have occurred subsequent to the appraisal date, or for revised estimates regarding the timing or cost of the property sale. These adjustments are based on qualitative judgments made by management on a case-by-case basis.

No

fair value adjustments were made to OREO properties during the

three

months ended

June 30, 2017.

There have been

no

significant changes in the valuation techniques during the period ended

June 30, 2017.

XML

Note 8 - Earnings Per Share

6 Months Ended

Jun. 30, 2017

Notes to Financial Statements

Earnings Per Share [Text Block]

NOTE

8

– EARNINGS PER SHARE

Earnings per share (“EPS”) are based upon the weighted average number of common shares outstanding during each year. The following table shows: (

1

) weighted average basic shares, (

2

) effect of dilutive securities related to stock options and non-vested restricted stock, and (

3

) weighted average shares of common stock and common stock equivalents. Net income available to common stockholders is calculated as net income reduced by dividends accumulated on preferred stock, if any. Basic EPS are calculated by dividing net income available to common stockholders by the weighted average number of common shares outstanding during each period, excluding unvested restricted stock awards. Diluted EPS are calculated using the weighted average diluted shares, which

reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. The dilutive shares included in year-to-date diluted EPS is a weighted average of the dilutive shares included in each quarterly diluted EPS computation under the treasury stock method. We have

two

forms of outstanding common stock: common stock and unvested restricted stock awards. Holders of restricted stock awards receive non-forfeitable dividends at the same rate as common stockholders and they both share equally in undistributed earnings. Therefore, under the

two

class method the difference in EPS is

not

significant for these participating securities.

The Company’s calculation of basic and diluted earnings per share (“EPS”) for the

three

and

six

month periods ended

June 30, 2017

and

2016

are reflected in the table below.

	THREE MONTHS ENDED
(In thousands)	JUNE 30,
	2017		2016
BASIC EARNINGS PER SHARE
Net income	$	2,830	$	1,904
Weighted average shares outstanding		8,062		8,028
Net income per common share	$	0.35	$	0.24
DILUTED EARNINGS PER SHARE
Net income	$	2,830	$	1,904
Weighted average shares outstanding		8,062		8,028
Effect of dilutive stock options		4		1
Effect of dilutive non-vested restricted shares		14		31
Weighted average shares of common stock and common stock equivalents		8,080		8,060
Net income per diluted common share	$	0.35	$	0.24

	SIX MONTHS ENDED
(In thousands)	JUNE 30,
	2017		2016
BASIC EARNINGS PER SHARE
Net income	$	5,037	$	3,413
Weighted average shares outstanding		8,052		8,018
Net income per common share	$	0.63	$	0.43
DILUTED EARNINGS PER SHARE
Net income	$	5,037	$	3,413
Weighted average shares outstanding		8,052		8,018
Effect of dilutive stock options		4		1
Effect of dilutive non-vested restricted shares		20		37
Weighted average shares of common stock and common stock equivalents		8,076		8,056
Net income per diluted common share	$	0.62	$	0.42

During the

three

and

six

month periods ended

June 30, 2017,

there were

no

anti-dilutive options to purchase shares of common stock, as compared to anti-dilutive weighted average stock options of

26,500

and

27,505

outstanding during the

three

and

six

month periods of

2016,

respectively, with prices ranging from

$

9.95

to

$

15.00

.

These options were

not

included in the computation of diluted EPS because the options’ exercise price was greater than the average market price of the common shares.

There were

no

anti-dilutive non-vested restricted stock grants for the

three

and

six

months ended

June 30, 2017

and

2016.

 

XML

Note 3 - Securities (Tables)

6 Months Ended

Jun. 30, 2017

Notes Tables

Available-for-sale Securities [Table Text Block]

(dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Available-for-sale securities:
U.S. agencies	$	24,600	$	552	$	(89	)	$	25,063
Collateralized mortgage obligations		4,872		7		(17	)		4,862
Municipalities		84,668		2,610		(85	)		87,193
SBA pools		12,939		8		(33	)		12,914
Corporate debt		21,354		99		(648	)		20,805
Asset backed securities		21,257		93		(29	)		21,321
Mutual fund		3,305		0		(211	)		3,094
	$	172,995	$	3,369	$	(1,112	)	$	175,252

(dollars in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
Available-for-sale securities:
U.S. agencies	$	27,879	$	616	$	(209	)	$	28,286
Collateralized mortgage obligations		4,159		7		(57	)		4,109
Municipalities		77,957		1,318		(946	)		78,329
SBA pools		7,219		0		(51	)		7,168
Corporate debt		21,349		81		(867	)		20,563
Asset backed securities		18,888		32		(101	)		18,819
Mutual fund		3,264		0		(205	)		3,059
	$	160,715	$	2,054	$	(2,436	)	$	160,333

Schedule of Unrealized Loss on Investments [Table Text Block]

(dollars in thousands)	Less than 12 months					12 months or more					Total
Description of Securities	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
U.S. agencies	$	6,537		(89	)	$	0	$	0		$	6,537	$	(89	)
Collateralized mortgage obligations		1,012		(17	)		0		0			1,012		(17	)
Municipalities		9,698		(70	)		1,877		(15	)		11,575		(85	)
SBA pools		8,393		(24	)		726		(9	)		9,119		(33	)
Corporate debt		4,728		(271	)		9,115		(377	)		13,843		(648	)
Asset backed securities		1,920		(15	)		3,141		(14	)		5,061		(29	)
Mutual fund		0		0			3,094		(211	)		3,094		(211	)
Total temporarily impaired securities	$	32,288	$	(486	)	$	17,953	$	(626	)	$	50,241	$	(1,112	)

(dollars in thousands)	Less than 12 months					12 months or more					Total
Description of Securities	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss			Fair Value		Unrealized Loss
U.S. agencies	$	8,769	$	(208	)	$	718	$	(1	)	$	9,487	$	(209	)
Collateralized mortgage obligations		3,166		(57	)		0		0			3,166		(57	)
Municipalities		45,137		(917	)		402		(29	)		45,539		(946	)
SBA pools		6,415		(46	)		753		(5	)		7,168		(51	)
Corporate debt		12,776		(757	)		2,884		(110	)		15,660		(867	)
Asset backed securities		2,576		(15	)		8,272		(86	)		10,848		(101	)
Mutual fund		0		0			3,059		(205	)		3,059		(205	)
Total temporarily impaired securities	$	78,839	$	(2,000	)	$	16,088	$	(436	)	$	94,927	$	(2,436	)

Investments Classified by Contractual Maturity Date [Table Text Block]

(dollars in thousands)	Amortized		Fair
	Cost		Value
Available-for-sale securities:
Due in one year or less	$	12,771	$	13,014
Due after one year through five years		51,484		51,883
Due after five years through ten years		61,040		62,336
Due after ten years		47,700		48,019
	$	172,995	$	175,252

XML

Note 4 - Loans (Tables)

6 Months Ended

Jun. 30, 2017

Notes Tables

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

(in thousands)	June 30, 2017			December 31, 2016
Commercial real estate:
Commercial real estate- construction	$	15,804		$	23,378
Commercial real estate- mortgages		413,750			389,495
Land		10,016			9,823
Farmland		55,452			56,159
Commercial and industrial		63,854			64,201
Consumer		684			767
Consumer residential		39,301			38,672
Agriculture		24,948			28,454
Total loans		623,809			610,949
Less:
Deferred loan fees and costs, net		(1,873	)		(2,013	)
Allowance for loan losses		(7,854	)		(7,832	)
Net loans	$	614,082		$	601,104

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

(in thousands)	June 30, 2017		December 31, 2016
Commercial real estate:
Commercial real estate- construction	$	0	$	0
Commercial real estate- mortgages		0		0
Land		1,574		2,715
Farmland		0		0
Commercial and industrial		304		306
Consumer		0		0
Consumer residential		154		16
Agriculture		0		0
Total non-accrual loans	$	2,032	$	3,037

Past Due Financing Receivables [Table Text Block]

June 30, 2017	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days Past Due		Total Past Due		Current		Purchased Credit Impaired Loans		Total		Greater Than 90 Days Past Due and Still Accruing
Commercial real estate:
Commercial R.E. - construction	$	0	$	0	$	0	$	0	$	15,804	$	0	$	15,804	$	0
Commercial R.E. - mortgages		0		0		0		0		413,750		0		413,750		0
Land		0		0		1,574		1,574		8,409		33		10,016		0
Farmland		0		0		0		0		55,452		0		55,452		0
Commercial and industrial		0		0		302		302		63,552		0		63,854		0
Consumer		0		0		0		0		684		0		684		0
Consumer residential		0		0		138		138		39,163		0		39,301		0
Agriculture		0		0		0		0		24,948		0		24,948		0
Total	$	0	$	0	$	2,014	$	2,014	$	621,762	$	33	$	623,809	$	0

December 31, 2016	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days Past Due		Total Past Due		Current		Purchased Credit Impaired Loans		Total		Greater Than 90 Days Past Due and Still Accruing
Commercial real estate:
Commercial R.E. - construction	$	0	$	0	$	0	$	0	$	23,378	$	0		23,378	$	0
Commercial R.E. - mortgages		0		0		0		0		389,495		0		389,495		0
Land		0		0		2,715		2,715		7,075		33		9,823		0
Farmland		0		0		0		0		56,159		0		56,159		0
Commercial and industrial		0		0		302		302		63,899		0		64,201		0
Consumer		0		0		0		0		767		0		767		0
Consumer residential		0		0		16		16		38,656		0		38,672		0
Agriculture		0		0		0		0		28,454		0		28,454		0
Total	$	0	$	0	$	3,033	$	3,033	$	607,883	$	33		610,949	$	0

Impaired Financing Receivables [Table Text Block]

(in thousands)	Unpaid Contractual Principal Balance		Recorded Investment With No Allowance		Recorded Investment With Allowance		Total Recorded Investment		Related Allowance
June 30, 2017
Commercial real estate:
Commercial R.E. - construction	$	0	$	0	$	0	$	0	$	0
Commercial R.E. - mortgages		0		0		0		0		0
Land		1,891		0		1,574		1,574		680
Farmland		0		0		0		0		0
Commercial and Industrial		351		304		0		304		0
Consumer		0		0		0		0		0
Consumer residential		154		154		0		154		0
Agriculture		0		0		0		0		0
Total	$	2,396	$	458	$	1,574	$	2,032	$	680

(in thousands)	Unpaid Contractual Principal Balance		Recorded Investment With No Allowance		Recorded Investment With Allowance		Total Recorded Investment		Related Allowance
December 31, 2016
Commercial real estate:
Commercial R.E. - construction	$	0	$	0	$	0	$	0	$	0
Commercial R.E. - mortgages		0		0		0		0		0
Land		3,131		2,715		0		2,715		680
Farmland		0		0		0		0		0
Commercial and Industrial		353		4		302		306		0
Consumer		0		0		0		0		0
Consumer residential		16		16		0		16		0
Agriculture		0		0		0		0		0
Total	$	3,500	$	2,735	$	302	$	3,037	$	680

Financing Receivable Credit Quality Indicators [Table Text Block]

(in thousands)	Commercial R.E. Construction		Commercial R.E. Mortgages		Land (1)		Farmland		Commercial and Industrial		Consumer		Consumer Residential		Agriculture		Total
June 30, 2017
Pass	$	15,804	$	412,779	$	7,978	$	55,452	$	58,562	$	651	$	38,785	$	24,948	$	614,959
Special mention		-		260		-		-		4,087		-		-		-		4,347
Substandard		-		711		1,758		-		1,205		33		516		-		4,223
Doubtful		-		-		280		-		-		-		-		-		280
Total loans	$	15,804	$	413,750	$	10,016	$	55,452	$	63,854	$	684	$	39,301	$	24,948	$	623,809
December 31, 2016
Pass	$	22,560	$	388,365	$	6,637	$	56,159	$	62,770	$	738	$	38,300	$	28,454	$	603,983
Special mention		818		1,063		-		-		189		-		-		-		2,070
Substandard		-		67		2,906				1,242		29		372		-		4,616
Doubtful		-		-		280		-		-		-		-		-		280
Total loans	$	23,378	$	389,495	$	9,823	$	56,159	$	64,201	$	767	$	38,672	$	28,454	$	610,949

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

Allowance for Loan Losses
For the Three and Six Months Ended June 30, 2017 and 2016
(in thousands)	Commercial			Commercial					Consumer
Three Months Ended June 30, 2017	Real Estate			and Industrial		Consumer			Residential			Agriculture			Unallocated			Total
Beginning balance	$	6,266		$	735	$	37		$	310		$	447		$	32		$	7,827
Charge-offs		0			0		(10	)		0			0			0			(10	)
Recoveries		0			0		1			1			0			0			2
(Reversal of) provision for loan losses		(19	)		11		2			10			6			25			35
Ending balance	$	6,247		$	746	$	30		$	321		$	453		$	57		$	7,854
Six Months Ended June 30, 2017
Beginning balance	$	6,185		$	697	$	51		$	325		$	504		$	70		$	7,832
Charge-offs		0			0		(17	)		0			0			0			(17	)
Recoveries		0			0		3			1			0			0			4
(Reversal of) provision for loan losses		62			49		(7	)		(5	)		(51	)		(13	)		35
Ending balance	$	6,247		$	746	$	30		$	321		$	453		$	57		$	7,854

(in thousands)	Commercial		Commercial						Consumer
Three Months Ended June 30, 2016	Real Estate		and Industrial			Consumer			Residential			Agriculture		Unallocated			Total
Beginning balance	$	5,998	$	720		$	44		$	398		$	302	$	95		$	7,557
Charge-offs		0		0			(4	)		0			0		0			(4	)
Recoveries		0		0			2			0			0		0			2
(Reversal of) provision for loan losses		135		(49	)		13			(11	)		129		(92	)		125
Ending balance	$	6,133	$	671		$	55		$	387		$	431	$	3		$	7,680
Six Months Ended June 30, 2016
Beginning balance	$	5,920	$	627		$	38		$	426		$	309	$	36		$	7,356
Charge-offs		0		0			(7	)		0			0		0			(7	)
Recoveries		3		0			3			0			0		0			6
(Reversal of) provision for loan losses		210		44			21			(39	)		122		(33	)		325
Ending balance	$	6,133	$	671		$	55		$	387		$	431	$	3		$	7,680

(in thousands)	Commercial		Commercial				Consumer
June 30, 2017	Real Estate		and Industrial		Consumer		Residential		Agriculture		Unallocated		Total
Allowance for loan losses for loans:
Individually evaluated for impairment	$	680	$	0	$	0	$	0	$	0			$	680
Collectively evaluated for impairment		5,567		746		30		321		453		57		7,174
	$	6,247	$	746	$	30	$	321	$	453	$	57	$	7,854
Ending gross loan balances:
Individually evaluated for impairment	$	1,574	$	304	$	0	$	154	$	0	$	0	$	2,032
Individually evaluated purchased credit impaired loans		33		0		0		0		0		0		33
Collectively evaluated for impairment		493,415		63,550		684		39,147		24,948		0		621,744
	$	495,022	$	63,854	$	684	$	39,301	$	24,948	$	0	$	623,809
December 31, 2016
Allowance for loan losses for loans:
Individually evaluated for impairment	$	680	$	0	$	0	$	0	$	0			$	680
Collectively evaluated for impairment		5,505		697		51		325		504		70		7,152
	$	6,185	$	697	$	51	$	325	$	504	$	70	$	7,832
Ending gross loans balances:
Individually evaluated for impairment	$	2,715	$	306	$	0	$	16	$	0	$	0	$	3,037
Individually evaluated purchased credit impaired loans		33		0		0		0		0		0		33
Collectively evaluated for impairment		476,107		63,895		767		38,656		28,454		0		607,879
	$	478,855	$	64,201	$	767	$	38,672	$	28,454	$	0	$	610,949
June 30, 2016
Allowance for loan losses for loans:
Individually evaluated for impairment	$	680	$	0	$	0	$	0	$	0			$	680
Collectively evaluated for impairment		5,453		671		55		387		431		3		7,000
	$	6,133	$	671	$	55	$	387	$	431	$	3	$	7,680
Ending gross loans balances:
Individually evaluated for impairment	$	2,340	$	314	$	0	$	0	$	0	$	0	$	2,654
Individually evaluated purchased credit impaired loans		286		529		0		0		0		0		815
Collectively evaluated for impairment		450,964		64,516		910		35,275		24,640		0		576,305
	$	453,590	$	65,359	$	910	$	35,275	$	24,640	$	0	$	579,774

Change in Allowance for Loan Losses [Table Text Block]

	THREE MONTHS ENDED JUNE 30,					SIX MONTHS ENDED JUNE 30,
	2017		2016			2017		2016
Balance, beginning of period	$	289	$	264		$	284	$	238
Provision (Recovery) to Operations for Off Balance Sheet Commitments		13		(7	)		18		19
Balance, end of period	$	302	$	257		$	302	$	257

Average Recorded Investment [Member]

Notes Tables

Impaired Financing Receivables [Table Text Block]

	Average Recorded Investment for the
(in thousands)	Three Months Ended		Three Months Ended		Six Months Ended		Six Months Ended
	June 30, 2017		June 30, 2016		June 30, 2017		June 30, 2016
Commercial real estate:
Commercial R.E. - construction	$	0	$	0	$	0	$	0
Commercial R.E. - mortgages		0		0		0		0
Land		1,850		2,498		2,273		2,396
Farmland		0		0		0		0
Commercial and Industrial		304		318		305		316
Consumer		0		0		0		0
Consumer residential		154		0		107		0
Agriculture		0		0		0		0
Total	$	2,308	$	2,816	$	2,685	$	2,712

Weighted Average [Member]

Notes Tables

Financing Receivable Credit Quality Indicators [Table Text Block]

	June 30, 2017		December 31, 2016
	Weighted Average Risk Grade		Weighted Average Risk Grade
Commercial real estate:
Commercial real estate - construction		3.00		3.07
Commercial real estate - mortgages		3.07		3.08
Land		4.01		4.39
Farmland		3.09		3.09
Commercial and industrial		3.60		2.70
Consumer		2.23		2.28
Consumer residential		3.04		3.03
Agriculture		3.19		3.08
Total gross loans		3.14		3.06

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Note 7 - Financial Instruments and Fair Value Measurements (Tables)

6 Months Ended

Jun. 30, 2017

Notes Tables

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

							Hierarchy
(in thousands)	Carrying			Fair			Valuation
	Amount			Value			Level
Financial assets:
Cash and cash equivalents	$	182,159		$	182,159			1
Restricted equity securities		4,135			4,135			2
Loans, net		614,082			620,977			3
Interest receivable		2,889			2,889			2
Financial liabilities:
Deposits		(925,786	)		(825,057	)		3
Interest payable		(44	)		(44	)		2
Off-balance-sheet assets (liabilities):
Commitments and standby letters of credit					(1,186	)		3

							Hierarchy
(in thousands)	Carrying			Fair			Valuation
	Amount			Value			Level
Financial assets:
Cash and cash equivalents	$	190,810		$	190,810			1
Restricted equity securities		3,795			3,795			2
Loans, net		601,104			611,553			3
Interest receivable		2,831			2,831			2
Financial liabilities:
Deposits		(914,093	)		(811,519	)		3
Interest payable		(45	)		(45	)		2
Off-balance-sheet assets (liabilities):
Commitments and standby letters of credit					(1,107	)		3

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

	Fair Value Measurements at June 30, 2017 Using
(in thousands)	June 30, 2017		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets and liabilities measured on a recurring basis:
Available-for-sale securities:
U.S. agencies	$	25,063	$	0	$	25,063	$	0
Collateralized mortgage obligations		4,862		0		4,862		0
Municipalities		87,193		0		87,193		0
SBA pools		12,914		0		12,914		0
Corporate debt		20,805		0		20,805		0
Asset backed securities		21,321		0		21,321		0
Mutual fund		3,094		3,094		0		0
Assets and liabilities measured on a non-recurring basis:
Impaired loans:
Land	$	894	$	0	$	0	$	894
Commercial and industrial		302		0		0		302
Other real estate owned		1,210		0		0		1,210

	Fair Value Measurements at December 31, 2016 Using
(in thousands)	December 31, 2016		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets and liabilities measured on a recurring basis:
Available-for-sale securities
U.S. agencies	$	28,286	$	0	$	28,286	$	0
Collateralized mortgage obligations		4,109		0		4,109		0
Municipalities		78,329		0		78,329		0
SBA pools		7,168		0		7,168		0
Corporate debt		20,563		0		20,563		0
Asset backed securities		18,819		0		18,819		0
Mutual fund		3,059		3,059		0		0
Assets and liabilities measured on a non-recurring basis:
Impaired loans:
Land	$	1,746	$	0	$	0	$	1,746
Commercial and industrial		302		0		0		302
Other real estate owned	$	1,210	$	0	$	0	$	1,210

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Note 8 - Earnings Per Share (Tables)

6 Months Ended

Jun. 30, 2017

Notes Tables

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

	THREE MONTHS ENDED
(In thousands)	JUNE 30,
	2017		2016
BASIC EARNINGS PER SHARE
Net income	$	2,830	$	1,904
Weighted average shares outstanding		8,062		8,028
Net income per common share	$	0.35	$	0.24
DILUTED EARNINGS PER SHARE
Net income	$	2,830	$	1,904
Weighted average shares outstanding		8,062		8,028
Effect of dilutive stock options		4		1
Effect of dilutive non-vested restricted shares		14		31
Weighted average shares of common stock and common stock equivalents		8,080		8,060
Net income per diluted common share	$	0.35	$	0.24

	SIX MONTHS ENDED
(In thousands)	JUNE 30,
	2017		2016
BASIC EARNINGS PER SHARE
Net income	$	5,037	$	3,413
Weighted average shares outstanding		8,052		8,018
Net income per common share	$	0.63	$	0.43
DILUTED EARNINGS PER SHARE
Net income	$	5,037	$	3,413
Weighted average shares outstanding		8,052		8,018
Effect of dilutive stock options		4		1
Effect of dilutive non-vested restricted shares		20		37
Weighted average shares of common stock and common stock equivalents		8,076		8,056
Net income per diluted common share	$	0.62	$	0.42

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Note 1 - Basis of Presentation (Details Textual) - USD ($) $ in Millions	Dec. 23, 2015	Jul. 03, 2008
Conversion of Stock Shares Converted for Each Outstanding Share of Wholly Owned Subsidiary		1
Mother Lode Bank [Member]
Payments to Acquire Businesses, Gross	$ 7.3

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Note 3 - Securities (Details Textual)	3 Months Ended		6 Months Ended
	Jun. 30, 2017 USD ($)	Jun. 30, 2016 USD ($)	Jun. 30, 2017 USD ($)	Jun. 30, 2016 USD ($)	Dec. 31, 2016 USD ($)
Available-for-sale Securities, Gross Realized Gains	$ 1,000	$ 12,000	$ 390,000	$ 18,000
Number of Available-for-sale Securities Sold			0	0
Security Owned and Pledged as Collateral, Fair Value	$ 93,352,000		$ 93,352,000		$ 89,362,000
US States and Political Subdivisions Debt Securities [Member]
Available-for-sale, Securities in Unrealized Loss Positions, Qualitative Disclosure, Number of Positions, Greater than or Equal to One Year	3		3
Available-for-sale, Securities in Unrealized Loss Positions, Qualitative Disclosure, Number of Positions, Less than One Year	9		9
SBA Pool [Member]
Available-for-sale, Securities in Unrealized Loss Positions, Qualitative Disclosure, Number of Positions, Greater than or Equal to One Year	2		2
Available-for-sale, Securities in Unrealized Loss Positions, Qualitative Disclosure, Number of Positions, Less than One Year	4		4
Corporate Debt Securities [Member]
Available-for-sale, Securities in Unrealized Loss Positions, Qualitative Disclosure, Number of Positions, Greater than or Equal to One Year	7		7
Available-for-sale, Securities in Unrealized Loss Positions, Qualitative Disclosure, Number of Positions, Less than One Year	3		3
Asset-backed Securities [Member]
Available-for-sale, Securities in Unrealized Loss Positions, Qualitative Disclosure, Number of Positions, Greater than or Equal to One Year	3		3
Available-for-sale, Securities in Unrealized Loss Positions, Qualitative Disclosure, Number of Positions, Less than One Year	1		1
Mutual Fund [Member]
Available-for-sale, Securities in Unrealized Loss Positions, Qualitative Disclosure, Number of Positions, Greater than or Equal to One Year	1		1
US Government Agencies Debt Securities [Member]
Available-for-sale, Securities in Unrealized Loss Positions, Qualitative Disclosure, Number of Positions, Less than One Year	5		5
Collateralized Mortgage Obligations [Member]
Available-for-sale, Securities in Unrealized Loss Positions, Qualitative Disclosure, Number of Positions, Less than One Year	1		1

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Note 3 - Securities - Amortized Cost and Estimated Fair Values of Debt Securities (Details) - USD ($) $ in Thousands	Jun. 30, 2017	Dec. 31, 2016
Available-for-sale securities: Amortized Cost	$ 172,995	$ 160,715
Available-for-sale securities: Gross Unrealized Gains	3,369	2,054
Available-for-sale securities: Gross Unrealized Losses	(1,112)	(2,436)
Securities available for sale	175,252	160,333
US Government Agencies Debt Securities [Member]
Available-for-sale securities: Amortized Cost	24,600	27,879
Available-for-sale securities: Gross Unrealized Gains	552	616
Available-for-sale securities: Gross Unrealized Losses	(89)	(209)
Securities available for sale	25,063	28,286
Collateralized Mortgage Obligations [Member]
Available-for-sale securities: Amortized Cost	4,872	4,159
Available-for-sale securities: Gross Unrealized Gains	7	7
Available-for-sale securities: Gross Unrealized Losses	(17)	(57)
Securities available for sale	4,862	4,109
US States and Political Subdivisions Debt Securities [Member]
Available-for-sale securities: Amortized Cost	84,668	77,957
Available-for-sale securities: Gross Unrealized Gains	2,610	1,318
Available-for-sale securities: Gross Unrealized Losses	(85)	(946)
Securities available for sale	87,193	78,329
SBA Pool [Member]
Available-for-sale securities: Amortized Cost	12,939	7,219
Available-for-sale securities: Gross Unrealized Gains	8	0
Available-for-sale securities: Gross Unrealized Losses	(33)	(51)
Securities available for sale	12,914	7,168
Corporate Debt Securities [Member]
Available-for-sale securities: Amortized Cost	21,354	21,349
Available-for-sale securities: Gross Unrealized Gains	99	81
Available-for-sale securities: Gross Unrealized Losses	(648)	(867)
Securities available for sale	20,805	20,563
Asset-backed Securities [Member]
Available-for-sale securities: Amortized Cost	21,257	18,888
Available-for-sale securities: Gross Unrealized Gains	93	32
Available-for-sale securities: Gross Unrealized Losses	(29)	(101)
Securities available for sale	21,321	18,819
Mutual Fund [Member]
Available-for-sale securities: Amortized Cost	3,305	3,264
Available-for-sale securities: Gross Unrealized Gains	0	0
Available-for-sale securities: Gross Unrealized Losses	(211)	(205)
Securities available for sale	$ 3,094	$ 3,059

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Note 3 - Securities - Gross Unrealized Losses and Fair Value of Investments (Details) - USD ($) $ in Thousands	Jun. 30, 2017	Dec. 31, 2016
Description of Securities-Fair Value	$ 50,241	$ 94,927
Description of Securities-Unrealized Loss	(1,112)	(2,436)
Description of Securities- Fair Value Less than 12 months	32,288	78,839
Description of Securities-Unrealized Loss Less than 12 months	(486)	(2,000)
Description of Securities-Fair Value 12 months or more	17,953	16,088
Description of Securities-Unrealized Loss 12 months or more	(626)	(436)
US Government Agencies Debt Securities [Member]
Description of Securities-Fair Value	6,537	9,487
Description of Securities-Unrealized Loss	(89)	(209)
Description of Securities- Fair Value Less than 12 months	6,537	8,769
Description of Securities-Unrealized Loss Less than 12 months	(89)	(208)
Description of Securities-Fair Value 12 months or more	0	718
Description of Securities-Unrealized Loss 12 months or more	0	(1)
Collateralized Mortgage Obligations [Member]
Description of Securities-Fair Value	1,012	3,166
Description of Securities-Unrealized Loss	(17)	(57)
Description of Securities- Fair Value Less than 12 months	1,012	3,166
Description of Securities-Unrealized Loss Less than 12 months	(17)	(57)
Description of Securities-Fair Value 12 months or more	0	0
Description of Securities-Unrealized Loss 12 months or more	0	0
US States and Political Subdivisions Debt Securities [Member]
Description of Securities-Fair Value	11,575	45,539
Description of Securities-Unrealized Loss	(85)	(946)
Description of Securities- Fair Value Less than 12 months	9,698	45,137
Description of Securities-Unrealized Loss Less than 12 months	(70)	(917)
Description of Securities-Fair Value 12 months or more	1,877	402
Description of Securities-Unrealized Loss 12 months or more	(15)	(29)
SBA Pool [Member]
Description of Securities-Fair Value	9,119	7,168
Description of Securities-Unrealized Loss	(33)	(51)
Description of Securities- Fair Value Less than 12 months	8,393	6,415
Description of Securities-Unrealized Loss Less than 12 months	(24)	(46)
Description of Securities-Fair Value 12 months or more	726	753
Description of Securities-Unrealized Loss 12 months or more	(9)	(5)
Corporate Debt Securities [Member]
Description of Securities-Fair Value	13,843	15,660
Description of Securities-Unrealized Loss	(648)	(867)
Description of Securities- Fair Value Less than 12 months	4,728	12,776
Description of Securities-Unrealized Loss Less than 12 months	(271)	(757)
Description of Securities-Fair Value 12 months or more	9,115	2,884
Description of Securities-Unrealized Loss 12 months or more	(377)	(110)
Asset-backed Securities [Member]
Description of Securities-Fair Value	5,061	10,848
Description of Securities-Unrealized Loss	(29)	(101)
Description of Securities- Fair Value Less than 12 months	1,920	2,576
Description of Securities-Unrealized Loss Less than 12 months	(15)	(15)
Description of Securities-Fair Value 12 months or more	3,141	8,272
Description of Securities-Unrealized Loss 12 months or more	(14)	(86)
Mutual Fund [Member]
Description of Securities-Fair Value	3,094	3,059
Description of Securities-Unrealized Loss	(211)	(205)
Description of Securities- Fair Value Less than 12 months	0	0
Description of Securities-Unrealized Loss Less than 12 months	0	0
Description of Securities-Fair Value 12 months or more	3,094	3,059
Description of Securities-Unrealized Loss 12 months or more	$ (211)	$ (205)

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Note 3 - Securities - Amortized Cost and Estimated Fair Values of Debt Securities by Contractual Maturity or Call Date (Details) - USD ($) $ in Thousands	Jun. 30, 2017	Dec. 31, 2016
Due in one year or less, Amortized Cost	$ 12,771
Due in one year or less, Fair Value	13,014
Due after one year through five years, Amortized Cost	51,484
Due after one year through five years, Fair Value	51,883
Due after five years through ten years, Amortized Cost	61,040
Due after five years through ten years, Fair Value	62,336
Due after ten years, Amortized Cost	47,700
Due after ten years, Fair Value	48,019
Amortized Cost	172,995	$ 160,715
Fair Value	$ 175,252

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Note 4 - Loans (Details Textual)	3 Months Ended		6 Months Ended			12 Months Ended
	Jun. 30, 2017 USD ($)	Jun. 30, 2016 USD ($)	Jun. 30, 2017 USD ($)	Jun. 30, 2016 USD ($)	Mar. 31, 2016 USD ($)	Dec. 31, 2016 USD ($)	Mar. 31, 2017 USD ($)
Financing Receivable, Modifications, Recorded Investment	$ 1,894,000		$ 1,894,000			$ 3,037,000
Federal Home Loan Bank, Advances, General Debt Obligations, Disclosures, Collateral Pledged	623,809,000		623,809,000			610,949,000
Allowance for Credit Losses, Change in Method of Calculating Impairment	$ 680,000		$ 680,000			$ 680,000
Financing Receivable, Modifications, Number of Contracts			5			6
Financing Receivables, Impaired, Troubled Debt Restructuring, Write-down					$ 0
Allowance for Loan and Lease Losses, Period Increase (Decrease)					$ 0
Financing Receivable, Modifications, Subsequent Default, Number of Contracts	0	0	0	0
Loans and Leases Receivable, Percentage of Outstanding Principal Balance Secured by Owner Occupied Properties	42.40%		42.40%			40.90%
Underwriting Standards, Loan to Value Percentage	80.00%		80.00%
Underwriting Standards, Housing Percentage	36.00%		36.00%
Underwriting Standards, Total Debt Ratio	42.00%		42.00%
Loans and Leases Receivable, Impaired, Interest Lost on Nonaccrual Loans	$ 31,000	$ 38,000	$ 68,000	$ 79,000
Impaired Financing Receivable, Interest Income, Accrual Method	0	0	0	$ 0
Loans and Leases Receivable, Impaired, Commitment to Lend	$ 0		$ 0			$ 0
Financing Receivable Modifications, Period Contractually Past Due for Loan to Be Considered in Payment Default			90 years	90 years
Loans and Leases Receivable, Minimum Cash Collateral Percent	110.00%		110.00%
Loans and Leases Receivable, Gross	$ 623,809,000	579,774,000	$ 623,809,000	$ 579,774,000		610,949,000
Substandard [Member]
Financing Receivable Rating Example, Percentage of Loans Classified in Rating Category			40.00%
Loans and Leases Receivable, Gross	4,223,000		$ 4,223,000			4,616,000
Doubtful [Member]
Financing Receivable Rating Example, Percentage of Loans Classified in Rating Category			25.00%
Loans and Leases Receivable, Gross	280,000		$ 280,000			280,000
Unlikely to be Collected Financing Receivable [Member]
Financing Receivable Rating Example, Percentage of Loans Classified in Rating Category			35.00%
Loans and Leases Receivable, Gross	$ 0		$ 0			0
Minimum [Member]
Financing Receivable, Rating Example Disbursement to Unsecured Creditors by Illusory Company in Liquidation, Percentage			40.00%
Maximum [Member]
Financing Receivable, Rating Example Disbursement to Unsecured Creditors by Illusory Company in Liquidation, Percentage			65.00%
Extended Maturity [Member]
Financing Receivable, Modifications, Number of Contracts	0		0		1
Financing Receivable, Modifications, Pre-Modification Recorded Investment					$ 473,000
Commercial Real Estate Portfolio Segment [Member]
Loans and Leases Receivable, Gross Carrying Amount As Percentage of Total Loans	79.00%		79.00%
Loans and Leases Receivable, Gross	$ 495,022,000	453,590,000	$ 495,022,000	453,590,000		478,855,000
Commercial Portfolio Segment [Member]
Loans and Leases Receivable, Gross Carrying Amount As Percentage of Total Loans	10.00%		10.00%
Loans and Leases Receivable, Gross	$ 63,854,000	65,359,000	$ 63,854,000	65,359,000		64,201,000
Commercial Portfolio Segment [Member] | Substandard [Member]
Loans and Leases Receivable, Gross	1,205,000		1,205,000			1,242,000
Commercial Portfolio Segment [Member] | Doubtful [Member]
Loans and Leases Receivable, Gross
Residential Real Estate and Other Consumer Loans [Member]
Loans and Leases Receivable, Gross Carrying Amount As Percentage of Total Loans	7.00%		7.00%
Agriculture [Member]
Loans and Leases Receivable, Gross Carrying Amount As Percentage of Total Loans	4.00%		4.00%
Loans and Leases Receivable, Gross	$ 24,948,000	$ 24,640,000	$ 24,948,000	$ 24,640,000		28,454,000
Agriculture [Member] | Substandard [Member]
Loans and Leases Receivable, Gross
Agriculture [Member] | Doubtful [Member]
Loans and Leases Receivable, Gross
Purchased Credit Impaired Loans [Member]
Loans and Leases Receivable, Gross						$ 33,000	$ 33,000

XML

Note 4 - Loans - Loans (Details) - USD ($) $ in Thousands		Jun. 30, 2017	Mar. 31, 2017	Dec. 31, 2016	Jun. 30, 2016	Mar. 31, 2016	Dec. 31, 2015
Loans		$ 623,809		$ 610,949	$ 579,774
Deferred loan fees and costs, net		(1,873)		(2,013)
Allowance for loan losses		(7,854)	$ (7,827)	(7,832)	(7,680)	$ (7,557)	$ (7,356)
Net loans		614,082		601,104
Commercial Real Estate Portfolio Segment [Member]
Loans		495,022		478,855	453,590
Allowance for loan losses		(6,247)	(6,266)	(6,185)	(6,133)	(5,998)	(5,920)
Commercial Real Estate Portfolio Segment [Member] | Construction Loans [Member]
Loans		15,804		23,378
Commercial Real Estate Portfolio Segment [Member] | Mortgage Loans [Member]
Loans		413,750		389,495
Commercial Real Estate Portfolio Segment [Member] | Land Loans [Member]
Loans	[1]	10,016		9,823
Commercial Real Estate Portfolio Segment [Member] | Farmland Loans [Member]
Loans		55,452		56,159
Commercial Portfolio Segment [Member]
Loans		63,854		64,201	65,359
Allowance for loan losses		(746)	(735)	(697)	(671)	(720)	(627)
Consumer Portfolio Segment [Member]
Loans		684		767	910
Allowance for loan losses		(30)	(37)	(51)	(55)	(44)	(38)
Residential Portfolio Segment [Member]
Loans		39,301		38,672	35,275
Allowance for loan losses		(321)	(310)	(325)	(387)	(398)	(426)
Agriculture [Member]
Loans		24,948		28,454	24,640
Allowance for loan losses		$ (453)	$ (447)	$ (504)	$ (431)	$ (302)	$ (309)

[1] Included in the above table is one Purchased Credit Impaired loan recorded at its fair value of $33,000 as of March 31, 2017 and December 31, 2016, which were acquired in the MLB Acquisition.

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Note 4 - Loans - Non Accrual Loans (Details) - USD ($) $ in Thousands	Jun. 30, 2017	Dec. 31, 2016
Non Accrual Loans	$ 2,032	$ 3,037
Commercial Real Estate Portfolio Segment [Member] | Construction Loans [Member]
Non Accrual Loans	0	0
Commercial Real Estate Portfolio Segment [Member] | Mortgage Loans [Member]
Non Accrual Loans	0	0
Commercial Real Estate Portfolio Segment [Member] | Land Loans [Member]
Non Accrual Loans	1,574	2,715
Commercial Real Estate Portfolio Segment [Member] | Farmland Loans [Member]
Non Accrual Loans	0	0
Commercial Portfolio Segment [Member]
Non Accrual Loans	304	306
Consumer Portfolio Segment [Member]
Non Accrual Loans	0	0
Residential Portfolio Segment [Member]
Non Accrual Loans	154	16
Agriculture [Member]
Non Accrual Loans	$ 0	$ 0

XML

Note 4 - Loans - Aging of Past Due Loans (Details) - USD ($) $ in Thousands		Jun. 30, 2017	Dec. 31, 2016	Jun. 30, 2016
Past due		$ 2,014	$ 3,033
Current		621,762	607,883
Non Accrual Loans		2,032	3,037
Loans		623,809	610,949	$ 579,774
Greater than 90 days past due and still accruing		0	0
Receivables Acquired with Deteriorated Credit Quality [Member]
Non Accrual Loans		33	33
Financing Receivables, 30 to 59 Days Past Due [Member]
Past due		0	0
Financing Receivables, 60 to 89 Days Past Due [Member]
Past due		0	0
Financing Receivables, Equal to Greater than 90 Days Past Due [Member]
Past due		2,014	3,033
Commercial Real Estate Portfolio Segment [Member]
Loans		495,022	478,855	453,590
Commercial Real Estate Portfolio Segment [Member] | Construction Loans [Member]
Past due		0	0
Current		15,804	23,378
Non Accrual Loans		0	0
Loans		15,804	23,378
Greater than 90 days past due and still accruing		0	0
Commercial Real Estate Portfolio Segment [Member] | Construction Loans [Member] | Receivables Acquired with Deteriorated Credit Quality [Member]
Non Accrual Loans		0	0
Commercial Real Estate Portfolio Segment [Member] | Construction Loans [Member] | Financing Receivables, 30 to 59 Days Past Due [Member]
Past due		0	0
Commercial Real Estate Portfolio Segment [Member] | Construction Loans [Member] | Financing Receivables, 60 to 89 Days Past Due [Member]
Past due		0	0
Commercial Real Estate Portfolio Segment [Member] | Construction Loans [Member] | Financing Receivables, Equal to Greater than 90 Days Past Due [Member]
Past due		0	0
Commercial Real Estate Portfolio Segment [Member] | Mortgage Loans [Member]
Past due		0	0
Current		413,750	389,495
Non Accrual Loans		0	0
Loans		413,750	389,495
Greater than 90 days past due and still accruing		0	0
Commercial Real Estate Portfolio Segment [Member] | Mortgage Loans [Member] | Receivables Acquired with Deteriorated Credit Quality [Member]
Non Accrual Loans		0	0
Commercial Real Estate Portfolio Segment [Member] | Mortgage Loans [Member] | Financing Receivables, 30 to 59 Days Past Due [Member]
Past due		0	0
Commercial Real Estate Portfolio Segment [Member] | Mortgage Loans [Member] | Financing Receivables, 60 to 89 Days Past Due [Member]
Past due		0	0
Commercial Real Estate Portfolio Segment [Member] | Mortgage Loans [Member] | Financing Receivables, Equal to Greater than 90 Days Past Due [Member]
Past due		0	0
Commercial Real Estate Portfolio Segment [Member] | Land Loans [Member]
Past due		1,574	2,715
Current		8,409	7,075
Non Accrual Loans		1,574	2,715
Loans	[1]	10,016	9,823
Greater than 90 days past due and still accruing		0	0
Commercial Real Estate Portfolio Segment [Member] | Land Loans [Member] | Receivables Acquired with Deteriorated Credit Quality [Member]
Non Accrual Loans		33	33
Commercial Real Estate Portfolio Segment [Member] | Land Loans [Member] | Financing Receivables, 30 to 59 Days Past Due [Member]
Past due		0	0
Commercial Real Estate Portfolio Segment [Member] | Land Loans [Member] | Financing Receivables, 60 to 89 Days Past Due [Member]
Past due		0	0
Commercial Real Estate Portfolio Segment [Member] | Land Loans [Member] | Financing Receivables, Equal to Greater than 90 Days Past Due [Member]
Past due		1,574	2,715
Commercial Real Estate Portfolio Segment [Member] | Farmland Loans [Member]
Past due		0	0
Current		55,452	56,159
Non Accrual Loans		0	0
Loans		55,452	56,159
Greater than 90 days past due and still accruing		0	0
Commercial Real Estate Portfolio Segment [Member] | Farmland Loans [Member] | Receivables Acquired with Deteriorated Credit Quality [Member]
Non Accrual Loans		0	0
Commercial Real Estate Portfolio Segment [Member] | Farmland Loans [Member] | Financing Receivables, 30 to 59 Days Past Due [Member]
Past due		0	0
Commercial Real Estate Portfolio Segment [Member] | Farmland Loans [Member] | Financing Receivables, 60 to 89 Days Past Due [Member]
Past due		0	0
Commercial Real Estate Portfolio Segment [Member] | Farmland Loans [Member] | Financing Receivables, Equal to Greater than 90 Days Past Due [Member]
Past due		0	0
Commercial Portfolio Segment [Member]
Past due		302	302
Current		63,552	63,899
Non Accrual Loans		304	306
Loans		63,854	64,201	65,359
Greater than 90 days past due and still accruing		0	0
Commercial Portfolio Segment [Member] | Receivables Acquired with Deteriorated Credit Quality [Member]
Non Accrual Loans		0	0
Commercial Portfolio Segment [Member] | Financing Receivables, 30 to 59 Days Past Due [Member]
Past due		0	0
Commercial Portfolio Segment [Member] | Financing Receivables, 60 to 89 Days Past Due [Member]
Past due		0	0
Commercial Portfolio Segment [Member] | Financing Receivables, Equal to Greater than 90 Days Past Due [Member]
Past due		302	302
Consumer Portfolio Segment [Member]
Past due		0	0
Current		684	767
Non Accrual Loans		0	0
Loans		684	767	910
Greater than 90 days past due and still accruing		0	0
Consumer Portfolio Segment [Member] | Receivables Acquired with Deteriorated Credit Quality [Member]
Non Accrual Loans		0	0
Consumer Portfolio Segment [Member] | Financing Receivables, 30 to 59 Days Past Due [Member]
Past due		0	0
Consumer Portfolio Segment [Member] | Financing Receivables, 60 to 89 Days Past Due [Member]
Past due		0	0
Consumer Portfolio Segment [Member] | Financing Receivables, Equal to Greater than 90 Days Past Due [Member]
Past due		0	0
Residential Portfolio Segment [Member]
Past due		138	16
Current		39,163	38,656
Non Accrual Loans		154	16
Loans		39,301	38,672	35,275
Greater than 90 days past due and still accruing		0	0
Residential Portfolio Segment [Member] | Receivables Acquired with Deteriorated Credit Quality [Member]
Non Accrual Loans		0	0
Residential Portfolio Segment [Member] | Financing Receivables, 30 to 59 Days Past Due [Member]
Past due		0	0
Residential Portfolio Segment [Member] | Financing Receivables, 60 to 89 Days Past Due [Member]
Past due		0	0
Residential Portfolio Segment [Member] | Financing Receivables, Equal to Greater than 90 Days Past Due [Member]
Past due		138	16
Agriculture [Member]
Past due		0	0
Current		24,948	28,454
Non Accrual Loans		0	0
Loans		24,948	28,454	$ 24,640
Greater than 90 days past due and still accruing		0	0
Agriculture [Member] | Receivables Acquired with Deteriorated Credit Quality [Member]
Non Accrual Loans		0	0
Agriculture [Member] | Financing Receivables, 30 to 59 Days Past Due [Member]
Past due		0	0
Agriculture [Member] | Financing Receivables, 60 to 89 Days Past Due [Member]
Past due		0	0
Agriculture [Member] | Financing Receivables, Equal to Greater than 90 Days Past Due [Member]
Past due		$ 0	$ 0

[1] Included in the above table is one Purchased Credit Impaired loan recorded at its fair value of $33,000 as of March 31, 2017 and December 31, 2016, which were acquired in the MLB Acquisition.

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Note 4 - Loans - Impaired Loans (Details) - USD ($) $ in Thousands	Jun. 30, 2017	Dec. 31, 2016
Unpaid contractual principal	$ 2,396	$ 3,500
Recorded investment with no allowance	458	2,735
Recorded investment with allowance	1,574	302
Non Accrual Loans	2,032	3,037
Related Allowance	680	680
Commercial Real Estate Portfolio Segment [Member] | Construction Loans [Member]
Unpaid contractual principal	0	0
Recorded investment with no allowance	0	0
Recorded investment with allowance	0	0
Non Accrual Loans	0	0
Related Allowance	0	0
Commercial Real Estate Portfolio Segment [Member] | Mortgage Loans [Member]
Unpaid contractual principal	0	0
Recorded investment with no allowance	0	0
Recorded investment with allowance	0	0
Non Accrual Loans	0	0
Related Allowance	0	0
Commercial Real Estate Portfolio Segment [Member] | Land Loans [Member]
Unpaid contractual principal	1,891	3,131
Recorded investment with no allowance	0	2,715
Recorded investment with allowance	1,574	0
Non Accrual Loans	1,574	2,715
Related Allowance	680	680
Commercial Real Estate Portfolio Segment [Member] | Farmland Loans [Member]
Unpaid contractual principal	0	0
Recorded investment with no allowance	0	0
Recorded investment with allowance	0	0
Non Accrual Loans	0	0
Related Allowance	0	0
Commercial Portfolio Segment [Member]
Unpaid contractual principal	351	353
Recorded investment with no allowance	304	4
Recorded investment with allowance	0	302
Non Accrual Loans	304	306
Related Allowance	0	0
Consumer Portfolio Segment [Member]
Unpaid contractual principal	0	0
Recorded investment with no allowance	0	0
Recorded investment with allowance	0	0
Non Accrual Loans	0	0
Related Allowance	0	0
Residential Portfolio Segment [Member]
Unpaid contractual principal	154	16
Recorded investment with no allowance	154	16
Recorded investment with allowance	0	0
Non Accrual Loans	154	16
Related Allowance	0	0
Agriculture [Member]
Unpaid contractual principal	0	0
Recorded investment with no allowance	0	0
Recorded investment with allowance	0	0
Non Accrual Loans	0	0
Related Allowance	$ 0	$ 0

XML

Note 4 - Loans - Impaired Loans, Average Recorded Investment (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016
Average recorded investment	$ 2,308	$ 2,816	$ 2,685	$ 2,712
Commercial Real Estate Portfolio Segment [Member] | Construction Loans [Member]
Average recorded investment	0	0	0	0
Commercial Real Estate Portfolio Segment [Member] | Mortgage Loans [Member]
Average recorded investment	0	0	0	0
Commercial Real Estate Portfolio Segment [Member] | Land Loans [Member]
Average recorded investment	1,850	2,498	2,273	2,396
Commercial Real Estate Portfolio Segment [Member] | Farmland Loans [Member]
Average recorded investment	0	0	0	0
Commercial Portfolio Segment [Member]
Average recorded investment	304	318	305	316
Consumer Portfolio Segment [Member]
Average recorded investment	0	0	0	0
Residential Portfolio Segment [Member]
Average recorded investment	154	0	107	0
Agriculture [Member]
Average recorded investment	$ 0	$ 0	$ 0	$ 0

XML

Note 4 - Loans - Weighted Average Risk Grades of Loan Portfolio (Details)	6 Months Ended	12 Months Ended
	Jun. 30, 2017	Dec. 31, 2016
Weighted average risk grade of loans	3.14	3.06
Commercial Real Estate Portfolio Segment [Member] | Construction Loans [Member]
Weighted average risk grade of loans	3	3.07
Commercial Real Estate Portfolio Segment [Member] | Mortgage Loans [Member]
Weighted average risk grade of loans	3.07	3.08
Commercial Real Estate Portfolio Segment [Member] | Land Loans [Member]
Weighted average risk grade of loans	4.01	4.39
Commercial Real Estate Portfolio Segment [Member] | Farmland Loans [Member]
Weighted average risk grade of loans	3.09	3.09
Commercial Portfolio Segment [Member]
Weighted average risk grade of loans	3.6	2.7
Consumer Portfolio Segment [Member]
Weighted average risk grade of loans	2.23	2.28
Residential Portfolio Segment [Member]
Weighted average risk grade of loans	3.04	3.03
Agriculture [Member]
Weighted average risk grade of loans	3.19	3.08

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Note 4 - Loans - Loans by Credit Quality Indicator (Details) - USD ($) $ in Thousands		Jun. 30, 2017	Dec. 31, 2016	Jun. 30, 2016
Loans		$ 623,809	$ 610,949	$ 579,774
Commercial Real Estate Portfolio Segment [Member]
Loans		495,022	478,855	453,590
Commercial Real Estate Portfolio Segment [Member] | Construction Loans [Member]
Loans		15,804	23,378
Commercial Real Estate Portfolio Segment [Member] | Mortgage Loans [Member]
Loans		413,750	389,495
Commercial Real Estate Portfolio Segment [Member] | Land Loans [Member]
Loans	[1]	10,016	9,823
Commercial Real Estate Portfolio Segment [Member] | Farmland Loans [Member]
Loans		55,452	56,159
Commercial Portfolio Segment [Member]
Loans		63,854	64,201	65,359
Consumer Portfolio Segment [Member]
Loans		684	767	910
Residential Portfolio Segment [Member]
Loans		39,301	38,672	35,275
Agriculture [Member]
Loans		24,948	28,454	$ 24,640
Pass [Member]
Loans		614,959	603,983
Pass [Member] | Commercial Real Estate Portfolio Segment [Member] | Construction Loans [Member]
Loans		15,804	22,560
Pass [Member] | Commercial Real Estate Portfolio Segment [Member] | Mortgage Loans [Member]
Loans		412,779	388,365
Pass [Member] | Commercial Real Estate Portfolio Segment [Member] | Land Loans [Member]
Loans	[1]	7,978	6,637
Pass [Member] | Commercial Real Estate Portfolio Segment [Member] | Farmland Loans [Member]
Loans		55,452	56,159
Pass [Member] | Commercial Portfolio Segment [Member]
Loans		58,562	62,770
Pass [Member] | Consumer Portfolio Segment [Member]
Loans		651	738
Pass [Member] | Residential Portfolio Segment [Member]
Loans		38,785	38,300
Pass [Member] | Agriculture [Member]
Loans		24,948	28,454
Special Mention [Member]
Loans		4,347	2,070
Special Mention [Member] | Commercial Real Estate Portfolio Segment [Member] | Construction Loans [Member]
Loans			818
Special Mention [Member] | Commercial Real Estate Portfolio Segment [Member] | Mortgage Loans [Member]
Loans		260	1,063
Special Mention [Member] | Commercial Real Estate Portfolio Segment [Member] | Land Loans [Member]
Loans	[1]
Special Mention [Member] | Commercial Real Estate Portfolio Segment [Member] | Farmland Loans [Member]
Loans
Special Mention [Member] | Commercial Portfolio Segment [Member]
Loans		4,087	189
Special Mention [Member] | Consumer Portfolio Segment [Member]
Loans
Special Mention [Member] | Residential Portfolio Segment [Member]
Loans
Special Mention [Member] | Agriculture [Member]
Loans
Substandard [Member]
Loans		4,223	4,616
Substandard [Member] | Commercial Real Estate Portfolio Segment [Member] | Construction Loans [Member]
Loans
Substandard [Member] | Commercial Real Estate Portfolio Segment [Member] | Mortgage Loans [Member]
Loans		711	67
Substandard [Member] | Commercial Real Estate Portfolio Segment [Member] | Land Loans [Member]
Loans	[1]	1,758	2,906
Substandard [Member] | Commercial Real Estate Portfolio Segment [Member] | Farmland Loans [Member]
Loans
Substandard [Member] | Commercial Portfolio Segment [Member]
Loans		1,205	1,242
Substandard [Member] | Consumer Portfolio Segment [Member]
Loans		33	29
Substandard [Member] | Residential Portfolio Segment [Member]
Loans		516	372
Substandard [Member] | Agriculture [Member]
Loans
Doubtful [Member]
Loans		280	280
Doubtful [Member] | Commercial Real Estate Portfolio Segment [Member] | Construction Loans [Member]
Loans
Doubtful [Member] | Commercial Real Estate Portfolio Segment [Member] | Mortgage Loans [Member]
Loans
Doubtful [Member] | Commercial Real Estate Portfolio Segment [Member] | Land Loans [Member]
Loans	[1]	280	280
Doubtful [Member] | Commercial Real Estate Portfolio Segment [Member] | Farmland Loans [Member]
Loans
Doubtful [Member] | Commercial Portfolio Segment [Member]
Loans
Doubtful [Member] | Consumer Portfolio Segment [Member]
Loans
Doubtful [Member] | Residential Portfolio Segment [Member]
Loans
Doubtful [Member] | Agriculture [Member]
Loans

[1] Included in the above table is one Purchased Credit Impaired loan recorded at its fair value of $33,000 as of March 31, 2017 and December 31, 2016, which were acquired in the MLB Acquisition.

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Note 4 - Loans - Allowance for Loan Losses (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Dec. 31, 2016	Jun. 30, 2016
Beginning balance	$ 7,827	$ 7,557	$ 7,832	$ 7,356
Charge-offs	(10)	(4)	(17)	(7)
Recoveries	2	2	4	6
Provision for loan losses	35	125	35	325
Ending balance	7,854	7,680	7,854	7,680
Individually evaluated for impairment					$ 680	$ 680	$ 680
Collectively evaluated for impairment					7,174	7,152	7,000
	7,854	7,557	7,854	7,680	7,854	7,832	7,680
Individually evaluated for impairment					2,032	3,037	2,654
Collectively evaluated for impairment					621,744	607,879	576,305
Loans and Leases Receivable, Gross					623,809	610,949	579,774
Receivables Acquired with Deteriorated Credit Quality [Member]
Individually evaluated for impairment					33	33	815
Commercial Real Estate Portfolio Segment [Member]
Beginning balance	6,266	5,998	6,185	5,920
Charge-offs	0	0	0	0
Recoveries	0	0	0	3
Provision for loan losses	(19)	135	62	210
Ending balance	6,247	6,133	6,247	6,133
Individually evaluated for impairment					680	680	680
Collectively evaluated for impairment					5,567	5,505	5,453
	6,266	5,998	6,247	6,133	6,247	6,185	6,133
Individually evaluated for impairment					1,574	2,715	2,340
Collectively evaluated for impairment					493,415	476,107	450,964
Loans and Leases Receivable, Gross					495,022	478,855	453,590
Commercial Real Estate Portfolio Segment [Member] | Receivables Acquired with Deteriorated Credit Quality [Member]
Individually evaluated for impairment					33	33	286
Commercial Portfolio Segment [Member]
Beginning balance	735	720	697	627
Charge-offs	0	0	0	0
Recoveries	0	0	0	0
Provision for loan losses	11	(49)	49	44
Ending balance	746	671	746	671
Individually evaluated for impairment					0	0	0
Collectively evaluated for impairment					746	697	671
	735	720	746	671	746	697	671
Individually evaluated for impairment					304	306	314
Collectively evaluated for impairment					63,550	63,895	64,516
Loans and Leases Receivable, Gross					63,854	64,201	65,359
Commercial Portfolio Segment [Member] | Receivables Acquired with Deteriorated Credit Quality [Member]
Individually evaluated for impairment					0	0	529
Consumer Portfolio Segment [Member]
Beginning balance	37	44	51	38
Charge-offs	(10)	(4)	(17)	(7)
Recoveries	1	2	3	3
Provision for loan losses	2	13	(7)	21
Ending balance	30	55	30	55
Individually evaluated for impairment					0	0	0
Collectively evaluated for impairment					30	51	55
	37	44	30	55	30	51	55
Individually evaluated for impairment					0	0	0
Collectively evaluated for impairment					684	767	910
Loans and Leases Receivable, Gross					684	767	910
Consumer Portfolio Segment [Member] | Receivables Acquired with Deteriorated Credit Quality [Member]
Individually evaluated for impairment					0	0	0
Residential Portfolio Segment [Member]
Beginning balance	310	398	325	426
Charge-offs	0	0	0	0
Recoveries	1	0	1	0
Provision for loan losses	10	(11)	(5)	(39)
Ending balance	321	387	321	387
Individually evaluated for impairment					0	0	0
Collectively evaluated for impairment					321	325	387
	310	398	321	387	321	325	387
Individually evaluated for impairment					154	16	0
Collectively evaluated for impairment					39,147	38,656	35,275
Loans and Leases Receivable, Gross					39,301	38,672	35,275
Residential Portfolio Segment [Member] | Receivables Acquired with Deteriorated Credit Quality [Member]
Individually evaluated for impairment					0	0	0
Agriculture [Member]
Beginning balance	447	302	504	309
Charge-offs	0	0	0	0
Recoveries	0	0	0	0
Provision for loan losses	6	129	(51)	122
Ending balance	453	431	453	431
Individually evaluated for impairment					0	0	0
Collectively evaluated for impairment					453	504	431
	447	302	453	431	453	504	431
Individually evaluated for impairment					0	0	0
Collectively evaluated for impairment					24,948	28,454	24,640
Loans and Leases Receivable, Gross					24,948	28,454	24,640
Agriculture [Member] | Receivables Acquired with Deteriorated Credit Quality [Member]
Individually evaluated for impairment					0	0	0
Unallocated Financing Receivables [Member]
Beginning balance	32	95	70	36
Charge-offs	0	0	0	0
Recoveries	0	0	0	0
Provision for loan losses	25	(92)	(13)	(33)
Ending balance	57	3	57	3
Individually evaluated for impairment
Collectively evaluated for impairment					57	70	3
	$ 32	$ 95	$ 57	$ 3	57	70	3
Individually evaluated for impairment					0	0	0
Collectively evaluated for impairment					0	0	0
Loans and Leases Receivable, Gross					0	0	0
Unallocated Financing Receivables [Member] | Receivables Acquired with Deteriorated Credit Quality [Member]
Individually evaluated for impairment					$ 0	$ 0	$ 0

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Note 4 - Loans - Changes in the Allowance Off Balance Sheet Commitments (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016
Balance, beginning of period	$ 289	$ 264	$ 284	$ 238
Provision (Recovery) to Operations for Off Balance Sheet Commitments	13	(7)	18	19
Balance, end of period	$ 302	$ 257	$ 302	$ 257

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Note 5 - Other Real Estate Owned (Details Textual)	6 Months Ended
	Jun. 30, 2017 USD ($)	Jun. 30, 2016	Dec. 31, 2016 USD ($)
Number of Real Estate Properties, Disposed Of	0	2
Real Estate Acquired Through Foreclosure	$ 1,210,000		$ 1,210,000
Number of Real Estate Properties	3		3
Residential Portfolio Segment [Member]
Number of Real Estate Properties, Written Off	1		1
Real Estate Acquired in Satisfaction of Debt [Member]
Number of Real Estate Properties	0

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Note 6 - Other Post-retirement Benefit Plans (Details Textual)		1 Months Ended			6 Months Ended
	Jan. 31, 2008	Sep. 30, 2016 USD ($)	Mar. 31, 2014 USD ($)	Jan. 31, 2008 USD ($)	Jun. 30, 2017 USD ($)	Dec. 31, 2016 USD ($)
Number Of Directors Awarded Director Retirement Plan			3	2
Liability, Other Postretirement Defined Benefit Plan					$ 2,960,000	$ 2,762,000
Payment to Acquire Life Insurance Policy, Investing Activities		$ 4,000,000	$ 1,000,000	$ 4,700,000
Bank Owned Life Insurance					$ 18,260,000	$ 18,004,000
Director Retirement Plan [Member]
Other Postretirement Defined Benefit Plan Expected Annual Future Benefit Payments Period	10 years
Minimum [Member]
Other Postretirement Defined Benefit Plan Expected Annual Future Benefit Payments Period					10 years
Maximum [Member]
Other Postretirement Defined Benefit Plan Expected Annual Future Benefit Payments Period					20 years

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Note 7 - Financial Instruments and Fair Value Measurements (Details Textual)	6 Months Ended
	Jun. 30, 2017
Other Real Estate Owned [Member] | Fair Value, Inputs, Level 3 [Member]
Fair Value Inputs, Discount Rate	6.00%

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Note 7 - Financial Instruments and Fair Value Measurements - Fair Value of Financial Instruments (Details) - USD ($) $ in Thousands	Jun. 30, 2017	Dec. 31, 2016	Jun. 30, 2016	Dec. 31, 2015
Loans, net	$ 614,082	$ 601,104
Deposits	(925,786)	(914,093)
Cash and cash equivalents	182,159	190,810	$ 162,624	$ 190,603
Fair Value, Inputs, Level 1 [Member]
Cash and cash equivalents	182,159	190,810
Cash and cash equivalents, fair value	182,159	190,810
Fair Value, Inputs, Level 2 [Member]
Restricted equity securities	4,135	3,795
Restricted equity securities, fair value	4,135	3,795
Interest receivable	2,889	2,831
Interest payable	(44)	(45)
Fair Value, Inputs, Level 3 [Member]
Loans, net	614,082	601,104
Loans, net, fair value	620,977	611,553
Deposits	(925,786)	(914,093)
Deposits, fair value	(825,057)	(811,519)
Commitments and standby letters of credit, fair value	$ (1,186)	$ (1,107)

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Note 7 - Financial Instruments and Fair Value Measurements - Assets and Liabilities Measured at Fair Value on Recurring and Non Recurring Basis (Details) - USD ($)	Jun. 30, 2017	Dec. 31, 2016
Other real estate owned	$ 1,210,000	$ 1,210,000
Securities available for sale	175,252,000	160,333,000
Fair Value, Measurements, Recurring [Member] | Mutual Fund [Member]
Securities available for sale	3,094,000	3,059,000
Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 1 [Member] | Mutual Fund [Member]
Securities available for sale	3,094,000	3,059,000
Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 2 [Member] | Mutual Fund [Member]
Securities available for sale	0	0
Fair Value, Measurements, Recurring [Member] | Fair Value, Inputs, Level 3 [Member] | Mutual Fund [Member]
Securities available for sale	0	0
Fair Value, Measurements, Recurring [Member] | US Government Agencies Debt Securities [Member]
Securities available for sale	25,063,000	28,286,000
Fair Value, Measurements, Recurring [Member] | US Government Agencies Debt Securities [Member] | Fair Value, Inputs, Level 1 [Member]
Securities available for sale	0	0
Fair Value, Measurements, Recurring [Member] | US Government Agencies Debt Securities [Member] | Fair Value, Inputs, Level 2 [Member]
Securities available for sale	25,063,000	28,286,000
Fair Value, Measurements, Recurring [Member] | US Government Agencies Debt Securities [Member] | Fair Value, Inputs, Level 3 [Member]
Securities available for sale	0	0
Fair Value, Measurements, Recurring [Member] | Collateralized Mortgage Obligations [Member]
Securities available for sale	4,862,000	4,109,000
Fair Value, Measurements, Recurring [Member] | Collateralized Mortgage Obligations [Member] | Fair Value, Inputs, Level 1 [Member]
Securities available for sale	0	0
Fair Value, Measurements, Recurring [Member] | Collateralized Mortgage Obligations [Member] | Fair Value, Inputs, Level 2 [Member]
Securities available for sale	4,862,000	4,109,000
Fair Value, Measurements, Recurring [Member] | Collateralized Mortgage Obligations [Member] | Fair Value, Inputs, Level 3 [Member]
Securities available for sale	0	0
Fair Value, Measurements, Recurring [Member] | US States and Political Subdivisions Debt Securities [Member]
Securities available for sale	87,193,000	78,329,000
Fair Value, Measurements, Recurring [Member] | US States and Political Subdivisions Debt Securities [Member] | Fair Value, Inputs, Level 1 [Member]
Securities available for sale	0	0
Fair Value, Measurements, Recurring [Member] | US States and Political Subdivisions Debt Securities [Member] | Fair Value, Inputs, Level 2 [Member]
Securities available for sale	87,193,000	78,329,000
Fair Value, Measurements, Recurring [Member] | US States and Political Subdivisions Debt Securities [Member] | Fair Value, Inputs, Level 3 [Member]
Securities available for sale	0	0
Fair Value, Measurements, Recurring [Member] | SBA Pool [Member]
Securities available for sale	12,914,000	7,168,000
Fair Value, Measurements, Recurring [Member] | SBA Pool [Member] | Fair Value, Inputs, Level 1 [Member]
Securities available for sale	0	0
Fair Value, Measurements, Recurring [Member] | SBA Pool [Member] | Fair Value, Inputs, Level 2 [Member]
Securities available for sale	12,914,000	7,168,000
Fair Value, Measurements, Recurring [Member] | SBA Pool [Member] | Fair Value, Inputs, Level 3 [Member]
Securities available for sale	0	0
Fair Value, Measurements, Recurring [Member] | Corporate Debt Securities [Member]
Securities available for sale	20,805,000	20,563,000
Fair Value, Measurements, Recurring [Member] | Corporate Debt Securities [Member] | Fair Value, Inputs, Level 1 [Member]
Securities available for sale	0	0
Fair Value, Measurements, Recurring [Member] | Corporate Debt Securities [Member] | Fair Value, Inputs, Level 2 [Member]
Securities available for sale	20,805,000	20,563,000
Fair Value, Measurements, Recurring [Member] | Corporate Debt Securities [Member] | Fair Value, Inputs, Level 3 [Member]
Securities available for sale	0	0
Fair Value, Measurements, Recurring [Member] | Asset-backed Securities [Member]
Securities available for sale	21,321,000	18,819,000
Fair Value, Measurements, Recurring [Member] | Asset-backed Securities [Member] | Fair Value, Inputs, Level 1 [Member]
Securities available for sale	0	0
Fair Value, Measurements, Recurring [Member] | Asset-backed Securities [Member] | Fair Value, Inputs, Level 2 [Member]
Securities available for sale	21,321,000	18,819,000
Fair Value, Measurements, Recurring [Member] | Asset-backed Securities [Member] | Fair Value, Inputs, Level 3 [Member]
Securities available for sale	0	0
Fair Value, Measurements, Nonrecurring [Member]
Other real estate owned	1,210,000	1,210,000
Fair Value, Measurements, Nonrecurring [Member] | Commercial Real Estate Portfolio Segment [Member] | Land Loans [Member]
Impaired loans	894,000	1,746,000
Fair Value, Measurements, Nonrecurring [Member] | Commercial Portfolio Segment [Member]
Impaired loans	302,000	302,000
Fair Value, Measurements, Nonrecurring [Member] | Fair Value, Inputs, Level 1 [Member]
Other real estate owned	0	0
Fair Value, Measurements, Nonrecurring [Member] | Fair Value, Inputs, Level 1 [Member] | Commercial Real Estate Portfolio Segment [Member] | Land Loans [Member]
Impaired loans	0	0
Fair Value, Measurements, Nonrecurring [Member] | Fair Value, Inputs, Level 1 [Member] | Commercial Portfolio Segment [Member]
Impaired loans	0	0
Fair Value, Measurements, Nonrecurring [Member] | Fair Value, Inputs, Level 2 [Member]
Other real estate owned	0	0
Fair Value, Measurements, Nonrecurring [Member] | Fair Value, Inputs, Level 2 [Member] | Commercial Real Estate Portfolio Segment [Member] | Land Loans [Member]
Impaired loans	0	0
Fair Value, Measurements, Nonrecurring [Member] | Fair Value, Inputs, Level 2 [Member] | Commercial Portfolio Segment [Member]
Impaired loans	0	0
Fair Value, Measurements, Nonrecurring [Member] | Fair Value, Inputs, Level 3 [Member]
Other real estate owned	1,210,000	1,210,000
Fair Value, Measurements, Nonrecurring [Member] | Fair Value, Inputs, Level 3 [Member] | Commercial Real Estate Portfolio Segment [Member] | Land Loans [Member]
Impaired loans	894,000	1,746,000
Fair Value, Measurements, Nonrecurring [Member] | Fair Value, Inputs, Level 3 [Member] | Commercial Portfolio Segment [Member]
Impaired loans	$ 302,000	$ 302,000

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Note 8 - Earnings Per Share (Details Textual)	3 Months Ended		6 Months Ended
	Jun. 30, 2017 $ / shares shares	Jun. 30, 2016 $ / shares shares	Jun. 30, 2017 $ / shares shares	Jun. 30, 2016 $ / shares shares
Number Of Forms Of Outstanding Common Stock			2
Employee Stock Option [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount | shares	0	26,500	0	27,505
Employee Stock Option [Member] | Minimum [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Exercise Price | $ / shares	$ 9.95	$ 9.95	$ 9.95	$ 9.95
Employee Stock Option [Member] | Maximum [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Exercise Price | $ / shares	$ 15	$ 15	$ 15	$ 15
Restricted Stock [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount | shares	0	0	0	0

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Note 8 - Earnings Per Share - Earnings Per Share (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	3 Months Ended		6 Months Ended		12 Months Ended
	Jun. 30, 2017	Jun. 30, 2016	Jun. 30, 2017	Jun. 30, 2016	Dec. 31, 2016
Effect of dilutive stock options (in shares)	4	1	4	1
Effect of dilutive non-vested restricted shares (in shares)	14	31	20	37
Weighted average shares of common stock and common stock equivalents (in shares)	8,080	8,060	8,076	8,056
NET INCOME PER DILUTED COMMON SHARE (in dollars per share)	$ 0.35	$ 0.24	$ 0.62	$ 0.42
Net income	$ 2,830	$ 1,904	$ 5,037	$ 3,413	$ 7,665
Weighted average shares outstanding (in shares)	8,062	8,028	8,052	8,018
Net income per common share (in dollars per share)	$ 0.35	$ 0.24	$ 0.63	$ 0.43