10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

For the quarterly period ended March 31, 2014

[   ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

For the transition period                  to                 

Commission File Number: 0-26486

Auburn National Bancorporation, Inc.

(Exact Name of Registrant as Specified in Its Charter)

Delaware	63-0885779
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

100 N. Gay Street

Auburn, Alabama 36830

(334) 821-9200

(Address and telephone number of principal executive offices)

(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x                                         No ¨

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

Yes x                                         No ¨

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

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

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

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

Class	Outstanding at April 30, 2014
Common Stock, $0.01 par value per share	3,643,283 shares

AUBURN NATIONAL BANCORPORATION, INC. AND SUBSIDIARIES

INDEX

	PAGE
PART I. FINANCIAL INFORMATION
Item 1  Financial Statements
Consolidated Balance Sheets (Unaudited) as of March 31, 2014 and December 31, 2013		3
Consolidated Statements of Earnings (Unaudited) for the quarters ended March 31, 2014 and 2013		4
Consolidated Statements of Comprehensive Income (Unaudited) for the quarters ended March 31, 2014 and 2013		5
Consolidated Statements of Stockholders’ Equity (Unaudited) for the quarters ended March 31, 2014 and 2013		6
Condensed Consolidated Statements of Cash Flows (Unaudited) for the quarters ended March 31, 2014 and 2013		7
Notes to Consolidated Financial Statements (Unaudited)		8
Item 2   Management’s Discussion and Analysis of Financial Condition and Results of Operations		29
Table 1 – Explanation of Non-GAAP Financial Measures		45
Table 2 – Selected Quarterly Financial Data		46
Table 3 – Average Balances and Net Interest Income Analysis – for the quarters ended March 31, 2014 and 2013		47
Table 4 – Loan Portfolio Composition		48
Table 5 – Allowance for Loan Losses and Nonperforming Assets		49
Table 6 – Allocation of Allowance for Loan Losses		50
Table 7 – CDs and Other Time Deposits of $100,000 or more		51
Item 3  Quantitative and Qualitative Disclosures About Market Risk		52
Item 4  Controls and Procedures		52
PART II. OTHER INFORMATION
Item 1  Legal Proceedings		52
Item  1A  Risk Factors		52
Item 2  Unregistered Sales of Equity Securities and Use of Proceeds		52
Item 3  Defaults Upon Senior Securities		52
Item 4  Mine Safety Disclosures		52
Item 5  Other Information		53
Item 6  Exhibits		53

PART 1. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

AUBURN NATIONAL BANCORPORATION, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

(Unaudited)

(Dollars in thousands, except share data)	March 31, 2014		December 31, 2013
Assets:
Cash and due from banks	$	14,318	$	13,437
Federal funds sold		60,756		26,965
Interest bearing bank deposits		1,706		13,820
Cash and cash equivalents		76,780		54,222
Securities available-for-sale		279,989		271,219
Loans held for sale		1,250		2,296
Loans, net of unearned income		377,350		383,339
Allowance for loan losses		(4,711)		(5,268)
Loans, net		372,639		378,071
Premises and equipment, net		10,345		10,442
Bank-owned life insurance		17,629		17,503
Other real estate owned		3,111		3,884
Other assets		11,590		13,706
Total assets	$	773,333	$	751,343
Liabilities:
Deposits:
Noninterest-bearing	$	125,627	$	125,740
Interest-bearing		561,461		543,104
Total deposits		687,088		668,844
Federal funds purchased and securities sold under agreements to repurchase		3,266		3,363
Long-term debt		12,217		12,217
Accrued expenses and other liabilities		2,478		2,434
Total liabilities		705,049		686,858
Stockholders’ equity:
Preferred stock of $.01 par value; authorized 200,000 shares; no issued shares		—		—
Common stock of $.01 par value; authorized 8,500,000 shares; issued 3,957,135 shares		39		39
Additional paid-in capital		3,760		3,759
Retained earnings		72,918		71,879
Accumulated other comprehensive loss, net		(1,793)		(4,552)
Less treasury stock, at cost - 313,962 shares and 314,017 shares at March 31, 2014 and December 31, 2013, respectively		(6,640)		(6,640)
Total stockholders’ equity		68,284		64,485
Total liabilities and stockholders’ equity	$	773,333	$	751,343

See accompanying notes to consolidated financial statements

3

AUBURN NATIONAL BANCORPORATION, INC. AND SUBSIDIARIES

Consolidated Statements of Earnings

(Unaudited)

	Quarter ended March 31,
(Dollars in thousands, except share and per share data)	2014		2013
Interest income:
Loans, including fees	$	4,790	$	5,328
Securities		1,803		1,616
Federal funds sold and interest bearing bank deposits		42		31
Total interest income		6,635		6,975
Interest expense:
Deposits		1,257		1,404
Short-term borrowings		4		4
Long-term debt		104		426
Total interest expense		1,365		1,834
Net interest income		5,270		5,141
Provision for loan losses		(400)		400
Net interest income after provision for loan losses		5,670		4,741
Noninterest income:
Service charges on deposit accounts		213		249
Mortgage lending		386		810
Bank-owned life insurance		126		95
Other		338		340
Securities (losses) gains, net:
Realized gains, net		26		161
Total other-than-temporary impairments		(333)		—
Total securities (losses) gains, net		(307)		161
Total noninterest income		756		1,655
Noninterest expense:
Salaries and benefits		2,281		2,250
Net occupancy and equipment		352		331
Professional fees		206		176
FDIC and other regulatory assessments		145		194
Other real estate owned, net		118		23
Prepayment penalty on long-term debt		—		425
Other		846		827
Total noninterest expense		3,948		4,226
Earnings before income taxes		2,478		2,170
Income tax expense		657		481
Net earnings	$	1,821	$	1,689
Net earnings per share:
Basic and diluted	$	0.50	$	0.46
Weighted average shares outstanding:
Basic and diluted		3,643,161		3,642,918

See accompanying notes to consolidated financial statements

4

AUBURN NATIONAL BANCORPORATION, INC. AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income

(Unaudited)

	Quarter ended March 31,
(Dollars in thousands)	2014		2013
Net earnings	$	1,821	$	1,689
Other comprehensive income (loss), net of tax:
Unrealized net holding gain (loss) on securities		2,565		(756)
Reclassification adjustment for net loss (gain) on securities recognized in net earnings		194		(101)
Other comprehensive income (loss)		2,759		(857)
Comprehensive income	$	4,580	$	832

See accompanying notes to consolidated financial statements

5

AUBURN NATIONAL BANCORPORATION, INC. AND SUBSIDIARIES

Consolidated Statements of Stockholders’ Equity

(Unaudited)

	Common Stock				Additional paid-in capital		Retained earnings		Accumulated other comprehensive income (loss)		Treasury stock		Total
(Dollars in thousands, except share data)	Shares		Amount
Balance, December 31, 2012		3,957,135	$	39	$	3,756	$	67,821	$	5,174	$	(6,641)	$	70,149
Net earnings		—		—		—		1,689		—		—		1,689
Other comprehensive loss		—		—		—		—		(857)		—		(857)
Cash dividends paid ($0.21 per share)		—		—		—		(764)		—		—		(764)
Balance, March 31, 2013		3,957,135	$	39	$	3,756	$	68,746	$	4,317	$	(6,641)	$	70,217
Balance, December 31, 2013		3,957,135	$	39	$	3,759	$	71,879	$	(4,552)	$	(6,640)	$	64,485
Net earnings		—		—		—		1,821		—		—		1,821
Other comprehensive income		—		—		—		—		2,759		—		2,759
Cash dividends paid ($0.215 per share)		—		—		—		(782)		—		—		(782)
Sale of treasury stock (55 shares)		—		—		1		—		—		—		1
Balance, March 31, 2014		3,957,135	$	39	$	3,760	$	72,918	$	(1,793)	$	(6,640)	$	68,284

See accompanying notes to consolidated financial statements

6

AUBURN NATIONAL BANCORPORATION, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(Unaudited)

	Quarter ended March 31,
(In thousands)	2014		2013
Cash flows from operating activities:
Net earnings	$	1,821	$	1,689
Adjustments to reconcile net earnings to net cash provided by operating activities:
Provision for loan losses		(400)		400
Depreciation and amortization		182		233
Premium amortization and discount accretion, net		392		602
Net loss (gain) on securities available-for-sale		307		(161)
Net gain on sale of loans held for sale		(240)		(667)
Decrease in MSR valuation allowance		—		(66)
Net loss (gain) on other real estate owned		126		(39)
Loss on prepayment of long-term debt		—		425
Loans originated for sale		(8,848)		(33,056)
Proceeds from sale of loans		10,037		31,457
Increase in cash surrender value of bank owned life insurance		(126)		(95)
Net decrease in other assets		281		430
Net increase in accrued expenses and other liabilities		44		238
Net cash provided by operating activities		3,576		1,390
Cash flows from investing activities:
Proceeds from sales of securities available-for-sale		—		12,932
Proceeds from maturities of securities available-for-sale		10,119		22,821
Purchase of securities available-for-sale		(15,217)		(48,297)
Decrease in loans, net		5,717		6,652
Net purchases of premises and equipment		—		(437)
Decrease in FHLB stock		235		703
Proceeds from sale of other real estate owned		762		765
Net cash provided by (used in) investing activities		1,616		(4,861)
Cash flows from financing activities:
Net (decrease) increase in noninterest-bearing deposits		(113)		10,006
Net increase in interest-bearing deposits		18,357		12,233
Net decrease in federal funds purchased and securities sold under agreements to repurchase		(97)		(223)
Repayments or retirement of long-term debt		—		(10,425)
Proceeds from sale of treasury stock		1		—
Dividends paid		(782)		(764)
Net cash provided by financing activities		17,366		10,827
Net change in cash and cash equivalents		22,558		7,356
Cash and cash equivalents at beginning of period		54,222		61,949
Cash and cash equivalents at end of period	$	76,780	$	69,305
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest	$	1,418	$	1,906
Income taxes		156		54
Supplemental disclosure of non-cash transactions:
Real estate acquired through foreclosure		115		617

See accompanying notes to consolidated financial statements

7

AUBURN NATIONAL BANCORPORATION, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

General

Auburn National Bancorporation, Inc. (the “Company”) provides a full range of banking services to individual and corporate customers in Lee County, Alabama and surrounding counties through its wholly owned subsidiary, AuburnBank (the “Bank”). The Company does not have any segments other than banking that are considered material.

Basis of Presentation and Use of Estimates

The unaudited consolidated financial statements in this report have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information. Accordingly, these financial statements do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. The unaudited consolidated financial statements include, in the opinion of management, all adjustments necessary to present a fair statement of the financial position and the results of operations for all periods presented. All such adjustments are of a normal recurring nature. The results of operations in the interim statements are not necessarily indicative of the results of operations that the Company and its subsidiaries may achieve for future interim periods or the entire year. For further information, refer to the consolidated financial statements and footnotes included in the Company’s annual report on Form 10-K for the year ended December 31, 2013.

The unaudited consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. Auburn National Bancorporation Capital Trust I is an affiliate of the Company and was included in these unaudited consolidated financial statements pursuant to the equity method of accounting. Significant intercompany transactions and accounts are eliminated in consolidation.

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as of the balance sheet date and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term include other-than-temporary impairment on investment securities, the determination of the allowance for loan losses, fair value of financial instruments, and the valuation of deferred tax assets and other real estate owned.

Subsequent Events

The Company has evaluated the effects of events and transactions through the date of this filing that have occurred subsequent to March 31, 2014. The Company does not believe there were any material subsequent events during this period that would have required further recognition or disclosure in the unaudited consolidated financial statements included in this report.

Accounting Developments

In the first quarter of 2014, the Company adopted new guidance related to the following Accounting Standards Update (“Update” or “ASU”):

• ASU 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists;

Information about this pronouncement is described in more detail below.

ASU 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists, is expected to eliminate diversity in practice as it provides guidance on financial statement presentation of an unrecognized tax benefit when a net operating loss (NOL) carryforward, a similar tax loss, or a tax credit carryforward exists. The changes were effective for the Company during the first quarter of 2014. Adoption of this ASU had no impact on the financial statements of the Company.

8

NOTE 2: BASIC AND DILUTED EARNINGS PER SHARE

Basic net earnings per share is computed by dividing net earnings by the weighted average common shares outstanding for the quarters ended March 31, 2014 and 2013, respectively. Diluted net earnings per share reflect the potential dilution that could occur upon exercise of securities or other rights for, or convertible into, shares of the Company’s common stock. At March 31, 2014 and 2013, respectively, the Company had no such securities or rights issued or outstanding, and therefore, no dilutive effect to consider for the diluted earnings per share calculation.

The basic and diluted earnings per share computations for the respective periods are presented below.

	Quarter ended March 31,
(Dollars in thousands, except share and per share data)	2014		2013
Basic and diluted:
Net earnings	$	1,821	$	1,689
Weighted average common shares outstanding		3,643,161		3,642,918
Earnings per share	$	0.50	$	0.46

NOTE 3: VARIABLE INTEREST ENTITIES

Generally, a variable interest entity (“VIE”) is a corporation, partnership, trust or other legal structure that does not have equity investors with substantive or proportional voting rights or has equity investors that do not provide sufficient financial resources for the entity to support its activities.

At March 31, 2014, the Company did not have any consolidated VIEs to disclose but did have one nonconsolidated VIE, discussed below.

Trust Preferred Securities

The Company owns the common stock of a subsidiary business trust, Auburn National Bancorporation Capital Trust I, which issued mandatorily redeemable preferred capital securities (“trust preferred securities”) in the aggregate of approximately $7.0 million at the time of issuance. This trust meets the definition of a VIE of which the Company is not the primary beneficiary; the trust’s only assets are junior subordinated debentures issued by the Company, which were acquired by the trust using the proceeds from the issuance of the trust preferred securities and common stock. The junior subordinated debentures of approximately $7.2 million are included in long-term debt and the Company’s equity interest of $0.2 million in the business trust is included in other assets. Interest expense on the junior subordinated debentures is included in interest expense on long-term debt.

The following table summarizes VIEs that are not consolidated by the Company as of March 31, 2014.

(Dollars in thousands)	Maximum Loss Exposure		Liability         Recognized		Classification
Type:
Trust preferred issuances		N/A		$   7,217	Long-term debt

9

NOTE 4: SECURITIES

At March 31, 2014 and December 31, 2013, respectively, all securities within the scope of ASC 320, Investments – Debt and Equity Securities, were classified as available-for-sale. The fair value and amortized cost for securities available-for-sale by contractual maturity at March 31, 2014 and December 31, 2013, respectively, are presented below.

	1 year		1 to 5		5 to 10		After 10		Fair		Gross Unrealized				Amortized
(Dollars in thousands)	or less		years		years		years		Value		Gains		Losses		Cost
March 31, 2014
Agency obligations (a)	$	—		—		33,920		22,114		56,034		54		3,143	$	59,123
Agency RMBS (a)		—		—		7,954		154,755		162,709		1,138		3,016		164,587
State and political subdivisions		—		679		20,402		40,165		61,246		2,236		111		59,121
Total available-for-sale	$	—		679		62,276		217,034		279,989		3,428		6,270	$	282,831
December 31, 2013
Agency obligations (a)	$	—		—		23,247		21,275		44,522		—		4,557	$	49,079
Agency RMBS (a)		—		—		8,306		154,052		162,358		976		4,733		166,115
State and political subdivisions		—		1,735		21,366		41,238		64,339		1,560		459		63,238
Total available-for-sale	$	—		1,735		52,919		216,565		271,219		2,536		9,749	$	278,432

(a) Includes securities issued by U.S. government agencies or government sponsored entities.

Securities with aggregate fair values of $140.0 million and $120.5 million at March 31, 2014 and December 31, 2013, respectively, were pledged to secure public deposits, securities sold under agreements to repurchase, Federal Home Loan Bank (“FHLB”) advances, and for other purposes required or permitted by law.

Included in other assets are cost-method investments. The carrying amounts of cost-method investments were $1.6 million and $1.8 million at March 31, 2014 and December 31, 2013, respectively. Cost-method investments primarily include non-marketable equity investments, such as FHLB of Atlanta stock and Federal Reserve Bank (“FRB”) stock.

Gross Unrealized Losses and Fair Value

The fair values and gross unrealized losses on securities at March 31, 2014 and December 31, 2013, respectively, segregated by those securities that have been in an unrealized loss position for less than 12 months and 12 months or longer, are presented below.

	Less than 12 Months				12 Months or Longer				Total
(Dollars in thousands)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
March 31, 2014:
Agency obligations	$	22,827		1,303		18,112		1,840	$	40,939		3,143
Agency RMBS		88,746		2,778		4,616		238		93,362		3,016
State and political subdivisions		4,255		111		—		—		4,255		111
Total	$	115,828		4,192		22,728		2,078	$	138,556		6,270
December 31, 2013:
Agency obligations	$	35,933		3,182		8,590		1,376	$	44,523		4,558
Agency RMBS		109,774		4,393		7,683		339		117,457		4,732
State and political subdivisions		9,575		459		—		—		9,575		459
Total	$	155,282		8,034		16,273		1,715	$	171,555		9,749

The Company recorded an other-than-temporary impairment charge in the first quarter of 2014 related to securities management intended to sell at March 31, 2014. Subsequent to March 31, 2014, the Company sold these available-for-sale agency residential mortgage-backed securities (“RMBS”) with a fair value of approximately $18.9 million and realized a loss of $0.3 million. Periodically, available-for-sale securities may be sold or the composition of the portfolio realigned to improve yields, quality, or marketability, or to implement changes in investment or asset/liability strategy, including collateral requirements and raising funds for liquidity purposes.

10

For the securities in the previous table, the Company does not have the intent to sell and has determined it is not more likely than not that the Company will be required to sell the security before recovery of the amortized cost basis, which may be maturity. On a quarterly basis, the Company assesses each security for credit impairment. For debt securities, the Company evaluates, where necessary, whether credit impairment exists by comparing the present value of the expected cash flows to the securities’ amortized cost basis. For cost-method investments, the Company evaluates whether an event or change in circumstances has occurred during the reporting period that may have a significant adverse effect on the fair value of the investment.

In determining whether a loss is temporary, the Company considers all relevant information including:

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

• adverse conditions specifically related to the security, an industry, or a geographic area (for example, changes in the financial condition of the issuer of the security, or in the case of an asset-backed debt security, in the financial condition of the underlying loan obligors, including changes in technology or the discontinuance of a segment of the business that may affect the future earnings potential of the issuer or underlying loan obligors of the security or changes in the quality of the credit enhancement);

• the historical and implied volatility of the fair value of the security;

• the payment structure of the debt security and the likelihood of the issuer being able to make payments that increase in the future;

• failure of the issuer of the security to make scheduled interest or principal payments;

• any changes to the rating of the security by a rating agency; and

• recoveries or additional declines in fair value subsequent to the balance sheet date.

Agency obligations

The unrealized losses associated with agency obligations were primarily driven by changes in interest rates and not due to the credit quality of the securities. These securities were issued by U.S. government agencies or government-sponsored entities and did not have any credit losses given the explicit government guarantee or other government support.

Agency RMBS

The unrealized losses associated with agency RMBS were primarily driven by changes in interest rates and not due to the credit quality of the securities. These securities were issued by U.S. government agencies or government-sponsored entities and did not have any credit losses given the explicit government guarantee or other government support.

Securities of U.S. states and political subdivisions

The unrealized losses associated with securities of U.S. states and political subdivisions were primarily driven by changes in interest rates and were not due to the credit quality of the securities. Some of these securities are guaranteed by a bond insurer, but management did not rely on the guarantee in making its investment decision. These securities will continue to be monitored as part of the Company’s quarterly impairment analysis, but are expected to perform even if the rating agencies reduce the credit rating of the bond insurers. As a result, the Company expects to recover the entire amortized cost basis of these securities.

Cost-method investments

At March 31, 2014, cost-method investments with an aggregate cost of $1.6 million were not evaluated for impairment because the Company did not identify any events or changes in circumstances that may have a significant adverse effect on the fair value of these cost-method investments.

The carrying values of the Company’s investment securities could decline in the future if the financial condition of an issuer deteriorates and the Company determines it is probable that it will not recover the entire amortized cost basis for the security. As a result, there is a risk that other-than-temporary impairment charges may occur in the future.

11

Other-Than-Temporarily Impaired Securities

The following table presents a roll-forward of the credit loss component of the amortized cost of debt securities that the Company has written down for other-than-temporary impairment and has recognized the credit component of the loss in earnings (referred to as “credit-impaired” debt securities). Other-than-temporary impairments recognized in earnings for credit-impaired debt securities are presented as additions in two components based upon whether the current period is the first time the debt security was credit-impaired (initial credit impairment) or is not the first time the debt security was credit-impaired (subsequent credit impairments). The credit loss component is reduced if the Company sells, intends to sell, or believes it will be required to sell previously credit-impaired debt securities. Additionally, the credit loss component is reduced if the Company receives cash flows in excess of what it expected to receive over the remaining life of the credit-impaired debt security, the security matures or the security is fully written-down and deemed worthless. Changes in the credit loss component of credit-impaired debt securities for the respective periods are presented below.

	Quarter ended March 31,
(Dollars in thousands)	2014		2013
Balance, beginning of period	$	—	$	1,257
Balance, end of period	$	—	$	1,257

Other-Than-Temporary Impairment

The following table presents details of the other-than-temporary impairment related to securities.

	Quarter ended March 31,
(Dollars in thousands)	2014		2013
Other-than-temporary impairment charges (included in earnings):
Debt securities:
Agency RMBS	$	333	$	—
Total debt securities		333		—
Total other-than-temporary impairment charges (included in earnings)	$	333	$	—
Other-than-temporary impairment on debt securities:
Recorded as part of gross realized losses:
Securities with intent to sell	$	333	$	—
Total other-than-temporary impairment on debt securities	$	333	$	—

Realized Gains and Losses

The following table presents the gross realized gains and losses on sales and other-than-temporary impairment charges related to securities.

	Quarter ended March 31,
(Dollars in thousands)	2014		2013
Gross realized gains	$	26	$	161
Other-than-temporary impairment charges		(333)		—
Realized gains, net	$	(307)	$	161

12

NOTE 5: LOANS AND ALLOWANCE FOR LOAN LOSSES

	March 31,		December 31,
(In thousands)	2014		2013
Commercial and industrial	$	54,632	$	57,780
Construction and land development		31,275		36,479
Commercial real estate:
Owner occupied		53,973		56,102
Other		124,748		118,818
Total commercial real estate		178,721		174,920
Residential real estate:
Consumer mortgage		58,449		57,871
Investment property		42,984		43,835
Total residential real estate		101,433		101,706
Consumer installment		11,766		12,893
Total loans		377,827		383,778
Less: unearned income		(477)		(439)
Loans, net of unearned income	$	377,350	$	383,339

Loans secured by real estate were approximately 82.4% of the Company’s total loan portfolio at March 31, 2014. At March 31, 2014, the Company’s geographic loan distribution was concentrated primarily in Lee County, Alabama and surrounding areas.

In accordance with ASC 310, a portfolio segment is defined as the level at which an entity develops and documents a systematic method for determining its allowance for loan losses. As part of the Company’s quarterly assessment of the allowance, the loan portfolio is disaggregated into the following portfolio segments: commercial and industrial, construction and land development, commercial real estate, residential real estate and consumer installment. Where appropriate, the Company’s loan portfolio segments are further disaggregated into classes. A class is generally determined based on the initial measurement attribute, risk characteristics of the loan, and an entity’s method for monitoring and determining credit risk.

The following describe the risk characteristics relevant to each of the portfolio segments and classes.

Commercial and industrial (“C&I”) — includes loans to finance business operations, equipment purchases, or other needs for small and medium-sized commercial customers. Also included in this category are loans to finance agricultural production. Generally the primary source of repayment is the cash flow from business operations and activities of the borrower.

Construction and land development (“C&D”) — includes both loans and credit lines for the purpose of purchasing, carrying and developing land into commercial developments or residential subdivisions. Also included are loans and lines for construction of residential, multi-family and commercial buildings. Generally the primary source of repayment is dependent upon the sale or refinance of the real estate collateral.

Commercial real estate (“CRE”) — includes loans disaggregated into two classes: (1) owner occupied and (2) other.

• Owner occupied – includes loans secured by business facilities to finance business operations, equipment and owner-occupied facilities primarily for small and medium-sized commercial customers. Generally the primary source of repayment is the cash flow from business operations and activities of the borrower, who owns the property.

• Other – primarily includes loans to finance income-producing commercial and multi-family properties that are not owner occupied. Loans in this class include loans for neighborhood retail centers, hotels, medical and professional offices, single retail stores, industrial buildings, warehouses and apartments leased generally to local businesses and residents. Generally the primary source of repayment is dependent upon income generated from the real estate collateral. The underwriting of these loans takes into consideration the occupancy and rental rates, as well as the financial health of the borrower.

13

Residential real estate (“RRE”) — includes loans disaggregated into two classes: (1) consumer mortgage and (2) investment property.

• Consumer mortgage – primarily includes first or second lien mortgages and home equity lines of credit to consumers that are secured by a primary residence or second home. These loans are underwritten in accordance with the Bank’s general loan policies and procedures which require, among other things, proper documentation of each borrower’s financial condition, satisfactory credit history and property value.

• Investment property – primarily includes loans to finance income-producing 1-4 family residential properties. Generally the primary source of repayment is dependent upon income generated from leasing the property securing the loan. The underwriting of these loans takes into consideration the rental rates and property value, as well as the financial health of the borrower.

Consumer installment — includes loans to individuals both secured by personal property and unsecured. Loans include personal lines of credit, automobile loans, and other retail loans. These loans are underwritten in accordance with the Bank’s general loan policies and procedures which require, among other things, proper documentation of each borrower’s financial condition, satisfactory credit history, and if applicable, property value.

The following is a summary of current, accruing past due and nonaccrual loans by portfolio segment and class as of March 31, 2014, and December 31, 2013.

			Accruing 30-89 Days		Accruing Greater than		Total Accruing		Non-		Total
(In thousands)	Current		Past Due		90 days		Loans		Accrual		Loans
March 31, 2014:
Commercial and industrial	$	54,270		191		117		54,578		54	$	54,632
Construction and land development		29,747		157		—		29,904		1,371		31,275
Commercial real estate:
Owner occupied		53,417		275		—		53,692		281		53,973
Other		124,133		186		—		124,319		429		124,748
Total commercial real estate		177,550		461		—		178,011		710		178,721
Residential real estate:
Consumer mortgage		56,358		1,340		—		57,698		751		58,449
Investment property		42,195		494		—		42,689		295		42,984
Total residential real estate		98,553		1,834		—		100,387		1,046		101,433
Consumer installment		11,659		86		14		11,759		7		11,766
Total	$	371,779		2,729		131		374,639		3,188	$	377,827
December 31, 2013:
Commercial and industrial	$	57,558		167		—		57,725		55	$	57,780
Construction and land development		34,883		14		—		34,897		1,582		36,479
Commercial real estate:
Owner occupied		54,214		861		—		55,075		1,027		56,102
Other		118,389		—		—		118,389		429		118,818
Total commercial real estate		172,603		861		—		173,464		1,456		174,920
Residential real estate:
Consumer mortgage		56,191		745		69		57,005		866		57,871
Investment property		42,935		598		—		43,533		302		43,835
Total residential real estate		99,126		1,343		69		100,538		1,168		101,706
Consumer installment		12,789		100		4		12,893		—		12,893
Total	$	376,959		2,485		73		379,517		4,261	$	383,778

14

Allowance for Loan Losses

The Company assesses the adequacy of its allowance for loan losses prior to the end of each calendar quarter. The level of the allowance is based upon management’s evaluation of the loan portfolio, past loan loss experience, current asset quality trends, known and inherent risks in the portfolio, adverse situations that may affect a borrower’s ability to repay (including the timing of future payment), the estimated value of any underlying collateral, composition of the loan portfolio, economic conditions, industry and peer bank loan loss rates and other pertinent factors, including regulatory recommendations. This evaluation is inherently subjective as it requires material estimates including the amounts and timing of future cash flows expected to be received on impaired loans that may be susceptible to significant change. Loans are charged off, in whole or in part, when management believes that the full collectability of the loan is unlikely. A loan may be partially charged-off after a “confirming event” has occurred which serves to validate that full repayment pursuant to the terms of the loan is unlikely.

The Company deems loans impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. Collection of all amounts due according to the contractual terms means that both the interest and principal payments of a loan will be collected as scheduled in the loan agreement.

An impairment allowance is recognized if the fair value of the loan is less than the recorded investment in the loan. The impairment is recognized through the allowance. Loans that are impaired are recorded at the present value of expected future cash flows discounted at the loan’s effective interest rate, or if the loan is collateral dependent, impairment measurement is based on the fair value of the collateral, less estimated disposal costs.

The level of allowance maintained is believed by management to be adequate to absorb probable losses inherent in the portfolio at the balance sheet date. The allowance is increased by provisions charged to expense and decreased by charge-offs, net of recoveries of amounts previously charged-off.

In assessing the adequacy of the allowance, the Company also considers the results of its ongoing internal and independent loan review processes. The Company’s loan review process assists in determining whether there are loans in the portfolio whose credit quality has weakened over time and evaluating the risk characteristics of the entire loan portfolio. The Company’s loan review process includes the judgment of management, the input from our independent loan reviewers, and reviews that may have been conducted by bank regulatory agencies as part of their examination process. The Company incorporates loan review results in the determination of whether or not it is probable that it will be able to collect all amounts due according to the contractual terms of a loan.

As part of the Company’s quarterly assessment of the allowance, management divides the loan portfolio into five segments: commercial and industrial, construction and land development, commercial real estate, residential real estate, and consumer installment loans. The Company analyzes each segment and estimates an allowance allocation for each loan segment.

The allocation of the allowance for loan losses begins with a process of estimating the probable losses inherent for these types of loans. The estimates for these loans are established by category and based on the Company’s internal system of credit risk ratings and historical loss data. The estimated loan loss allocation rate for the Company’s internal system of credit risk grades is based on its experience with similarly graded loans. For loan segments where the Company believes it does not have sufficient historical loss data, the Company may make adjustments based, in part, on loss rates of peer bank groups. At March 31, 2014 and December 31, 2013, and for the periods then ended, the Company adjusted its historical loss rates for the commercial real estate portfolio segment based, in part, on loss rates of peer bank groups.

The estimated loan loss allocation for all five loan portfolio segments is then adjusted for management’s estimate of probable losses for several “qualitative and environmental” factors. The allocation for qualitative and environmental factors is particularly subjective and does not lend itself to exact mathematical calculation. This amount represents estimated probable inherent credit losses which exist, but have not yet been identified, as of the balance sheet date, and are based upon quarterly trend assessments in delinquent and nonaccrual loans, credit concentration changes, prevailing economic conditions, changes in lending personnel experience, changes in lending policies or procedures and other influencing factors. These qualitative and environmental factors are considered for each of the five loan segments and the allowance allocation, as determined by the processes noted above, is increased or decreased based on the incremental assessment of these factors.

15

The Company regularly re-evaluates its practices in determining the allowance for loan losses. During 2013, the Company implemented certain refinements to its allowance for loan losses methodology, specifically the way that historical loss factors are calculated. Prior to June 30, 2013, the Company calculated average losses for all loan segments using a rolling 6 quarter historical period. Beginning with the quarter ended June 30, 2013, the Company calculated average losses for all loan segments (except for the commercial real estate loan segment) using a rolling 8 quarter historical period in order to better capture the effects of the current economic cycle on the Company’s loan loss experience, and continued this methodology through March 31, 2014. Based upon management’s review of charge-off trends for each loan segment, the Company continues to calculate average losses for the commercial real estate loan segment using a rolling 6 quarter historical period. Other than the changes discussed above, the Company has not made any changes to its calculation of historical loss periods that would impact the calculation of the allowance for loan losses or provision for loan losses for the periods included in the accompanying consolidated balance sheets and statements of earnings.

The following table details the changes in the allowance for loan losses by portfolio segment for the respective periods.

	March 31, 2014
(In thousands)	Commercial and industrial			Construction and land development			Commercial real estate			Residential real estate			Consumer installment			Total
Quarter ended:
Beginning balance	$	386			366			3,186			1,114			216		$	5,268
Charge-offs		—			(236	)		—			(31	)		(36	)		(303	)
Recoveries		4			2			118			16			6			146
Net (charge-offs) recoveries		4			(234	)		118			(15	)		(30	)		(157	)
Provision		92			82			(811	)		157			80			(400	)
Ending balance	$	482			214			2,493			1,256			266		$	4,711
	March 31, 2013
(In thousands)	Commercial and industrial			Construction and land development			Commercial real estate			Residential real estate			Consumer installment			Total
Quarter ended:
Beginning balance	$	812			1,545			3,137			1,126			103			6,723
Charge-offs		(68	)		(39	)		—			(266	)		(17	)	$	(390	)
Recoveries		12			—			5			13			6		$	36
Net (charge-offs) recoveries		(56	)		(39	)		5			(253	)		(11	)		(354	)
Provision		(187	)		113			429			12			33		$	400
Ending balance	$	569			1,619			3,571			885			125		$	6,769

16

The following table presents an analysis of the allowance for loan losses and recorded investment in loans by portfolio segment and impairment methodology as of March 31, 2014 and 2013.

	Collectively evaluated (1)				Individually evaluated (2)				Total
(In thousands)	Allowance     for loan     losses		Recorded     investment     in loans		Allowance     for loan     losses		Recorded     investment     in loans		Allowance     for loan     losses		Recorded     investment     in loans
March 31, 2014:
Commercial and industrial	$	482		54,520		—		112		482		54,632
Construction and land development		214		29,904		—		1,371		214		31,275
Commercial real estate		2,314		176,548		179		2,173		2,493		178,721
Residential real estate		1,256		100,529		—		904		1,256		101,433
Consumer installment		266		11,766		—		—		266		11,766
Total	$	4,532		373,267		179		4,560		4,711		377,827
March 31, 2013:
Commercial and industrial	$	569		55,576		—		160		569		55,736
Construction and land development		1,498		39,489		121		1,615		1,619		41,104
Commercial real estate		3,327		176,492		244		2,501		3,571		178,993
Residential real estate		801		101,861		84		1,117		885		102,978
Consumer installment		125		12,026		—		—		125		12,026
Total	$	6,320		385,444		449		5,393		6,769		390,837

(1) Represents loans collectively evaluated for impairment in accordance with ASC 450-20, Loss Contingencies (formerly FAS 5), and pursuant to amendments by ASU 2010-20 regarding allowance for unimpaired loans.

(2) Represents loans individually evaluated for impairment in accordance with ASC 310-30, Receivables (formerly FAS 114), and pursuant to amendments by ASU 2010-20 regarding allowance for impaired loans.

17

Credit Quality Indicators

The credit quality of the loan portfolio is summarized no less frequently than quarterly using categories similar to the standard asset classification system used by the federal banking agencies. The following table presents credit quality indicators for the loan portfolio segments and classes. These categories are utilized to develop the associated allowance for loan losses using historical losses adjusted for qualitative and environmental factors and are defined as follows:

• Pass—loans which are well protected by the current net worth and paying capacity of the obligor (or guarantors, if any) or by the fair value, less cost to acquire and sell, of any underlying collateral.

• Special Mention—loans with potential weakness that may, if not reversed or corrected, weaken the credit or inadequately protect the Company’s position at some future date. These loans are not adversely classified and do not expose an institution to sufficient risk to warrant an adverse classification.

• Substandard Accruing—loans that exhibit a well-defined weakness which presently jeopardizes debt repayment, even though they are currently performing. These loans are characterized by the distinct possibility that the Company may incur a loss in the future if these weaknesses are not corrected;

• Nonaccrual—includes loans where management has determined that full payment of principal and interest is not expected.

(In thousands)	Pass		Special Mention		Substandard Accruing		Nonaccrual		Total loans
March 31, 2014:
Commercial and industrial	$	49,947		4,182		449		54	$	54,632
Construction and land development		28,593		633		678		1,371		31,275
Commercial real estate:
Owner occupied		52,058		1,218		416		281		53,973
Other		123,434		90		795		429		124,748
Total commercial real estate		175,492		1,308		1,211		710		178,721
Residential real estate:
Consumer mortgage		50,436		2,724		4,538		751		58,449
Investment property		39,971		1,343		1,375		295		42,984
Total residential real estate		90,407		4,067		5,913		1,046		101,433
Consumer installment		11,621		32		106		7		11,766
Total	$	356,060		10,222		8,357		3,188	$	377,827
December 31, 2013:
Commercial and industrial	$	53,060		4,183		482		55	$	57,780
Construction and land development		33,616		180		1,101		1,582		36,479
Commercial real estate:
Owner occupied		53,430		770		875		1,027		56,102
Other		117,490		91		808		429		118,818
Total commercial real estate		170,920		861		1,683		1,456		174,920
Residential real estate:
Consumer mortgage		50,392		1,137		5,476		866		57,871
Investment property		40,517		1,310		1,706		302		43,835
Total residential real estate		90,909		2,447		7,182		1,168		101,706
Consumer installment		12,713		34		146		—		12,893
Total	$	361,218		7,705		10,594		4,261	$	383,778

18

Impaired loans

The following tables present details related to the Company’s impaired loans. Loans which have been fully charged-off do not appear in the following table. The related allowance generally represents the following components which correspond to impaired loans:

• Individually evaluated impaired loans equal to or greater than $500,000 secured by real estate (nonaccrual construction and land development, commercial real estate, and residential real estate loans).

• Individually evaluated impaired loans equal to or greater than $250,000 not secured by real estate (nonaccrual commercial and industrial and consumer installment loans).

The following tables set forth certain information regarding the Company’s impaired loans that were individually evaluated for impairment at March 31, 2014 and December 31, 2013.

	March 31, 2014
(In thousands)	Unpaid principal balance (1)		Charge-offs and payments applied (2)		Recorded investment (3)		Related allowance
With no allowance recorded:
Commercial and industrial	$	112		—		112
Construction and land development		3,326		(1,955)		1,371
Commercial real estate:
Owner occupied		340		(59)		281
Other		519		(90)		429
Total commercial real estate		859		(149)		710
Residential real estate:
Consumer mortgages		947		(211)		736
Investment property		207		(39)		168
Total residential real estate		1,154		(250)		904
Total	$	5,451		(2,354)		3,097
With allowance recorded:
Commercial real estate:
Owner occupied		868		—		868		124
Other		595		—		595		55
Total commercial real estate		1,463		—		1,463		179
Total	$	1,463		—		1,463	$	179
Total impaired loans	$	6,914		(2,354)		4,560	$	179

(1) Unpaid principal balance represents the contractual obligation due from the customer.

(2) Charge-offs and payments applied represents cumulative charge-offs taken, as well as interest payments that have been applied against the outstanding principal balance subsequent to the loans being placed on nonaccrual status.

(3) Recorded investment represents the unpaid principal balance less charge-offs and payments applied; it is shown before any related allowance for loan losses.

19

	December 31, 2013
(In thousands)	Unpaid principal balance (1)		Charge-offs and payments applied (2)		Recorded investment (3)		Related allowance
With no allowance recorded:
Commercial and industrial	$	124		—		124
Construction and land development		2,879		(1,682)		1,197
Commercial real estate:
Owner occupied		1,217		(190)		1,027
Other		518		(89)		429
Total commercial real estate		1,735		(279)		1,456
Residential real estate:
Consumer mortgages		952		(198)		754
Investment property		207		(35)		172
Total residential real estate		1,159		(233)		926
Total	$	5,897		(2,194)		3,703
With allowance recorded:
Construction and land development		452		(67)		385		88
Commercial real estate:
Owner occupied		875		—		875		110
Other		602		—		602		62
Total commercial real estate		1,477		—		1,477		172
Total	$	1,929		(67)		1,862	$	260
Total impaired loans	$	7,826		(2,261)		5,565	$	260

(1) Unpaid principal balance represents the contractual obligation due from the customer.

(2) Charge-offs and payments applied represents cumulative charge-offs taken, as well as interest payments that have been applied against the outstanding principal balance subsequent to the loans being placed on nonaccrual status.

(3) Recorded investment represents the unpaid principal balance less charge-offs and payments applied; it is shown before any related allowance for loan losses.

The following table provides the average recorded investment in impaired loans and the amount of interest income recognized on impaired loans after impairment by portfolio segment and class during the respective periods.

	Quarter ended March 31, 2014				Quarter ended March 31, 2013
(In thousands)	Average recorded investment		Total interest income recognized		Average recorded investment		Total interest income recognized
Impaired loans:
Commercial and industrial	$	116	$	2	$	164	$	3
Construction and land development		1,508		—		1,619		—
Commercial real estate:
Owner occupied		1,648		12		2,044		14
Other		1,026		9		3,004		—
Total commercial real estate		2,674		21		5,048		14
Residential real estate:
Consumer mortgages		742		—		811		—
Investment property		170		—		305		—
Total residential real estate		912		—		1,116		—
Total	$	5,210	$	23	$	7,947	$	17

20

Troubled Debt Restructurings

Impaired loans also include troubled debt restructurings (“TDRs”). In the normal course of business, management may grant concessions to borrowers that are experiencing financial difficulty. A concession may include, but is not limited to, delays in required payments of principal and interest for a specified period, reduction of the stated interest rate of the loan, reduction of accrued interest, extension of the maturity date or reduction of the face amount or maturity amount of the debt. A concession has been granted when, as a result of the restructuring, the Bank does not expect to collect all amounts due, including interest at the original stated rate. A concession may have also been granted if the debtor is not able to access funds elsewhere at a market rate for debt with similar risk characteristics as the restructured debt. The Company’s determination of whether a loan modification is a TDR, the Company considers the individual facts and circumstances surrounding each modification. As part of the credit approval process, the restructured loans are evaluated for adequate collateral protection in determining the appropriate accrual status at the time of restructure.

Similar to other impaired loans, TDRs are measured for impairment based on the present value of expected payments using the loan’s original effective interest rate as the discount rate, or the fair value of the collateral, less selling costs if the loan is collateral dependent. If the recorded investment in the loan exceeds the measure of fair value, impairment is recognized by establishing a valuation allowance as part of the allowance for loan losses or a charge-off to the allowance for loan losses. In periods subsequent to the modification, all TDRs are individually evaluated, including those that have payment defaults, for possible impairment.

The following is a summary of accruing and nonaccrual TDRs, which are included in impaired loan totals, and the related allowance for loan losses, by portfolio segment and class as of March 31, 2014, and December 31, 2013.

	TDRs
(In thousands)	Accruing		Nonaccrual		Total		Related Allowance
March 31, 2014
Commercial and industrial	$	112		—		112	$	—
Construction and land development		—		1,371		1,371		—
Commercial real estate:
Owner occupied		868		281		1,149		124
Other		595		429		1,024		55
Total commercial real estate		1,463		710		2,173		179
Residential real estate:
Consumer mortgages		—		736		736		—
Investment property		—		168		168		—
Total residential real estate		—		904		904		—
Total	$	1,575		2,985		4,560	$	179
December 31, 2013
Commercial and industrial	$	124		—		124	$	—
Construction and land development		—		1,582		1,582		88
Commercial real estate:
Owner occupied		875		285		1,160		110
Other		602		429		1,031		62
Total commercial real estate		1,477		714		2,191		172
Residential real estate:
Consumer mortgages		—		754		754		—
Investment property		—		172		172		—
Total residential real estate		—		926		926		—
Total	$	1,601		3,222		4,823	$	260

At March 31, 2014, there were no significant outstanding commitments to advance additional funds to customers whose loans had been restructured.

21

The following table summarizes loans modified in a TDR during the respective periods both before and after their modification.

	March 31, 2014						March 31, 2013
(Dollars in thousands)	Number of contracts		Pre- modification outstanding recorded investment		Post - modification outstanding recorded investment		Number of contracts		Pre- modification outstanding recorded investment		Post - modification outstanding recorded investment
TDRs:
Commercial real estate:
Other		—	$	—		—		1	$	431		431
Total commercial real estate		—		—		—		1		431		431
Residential real estate:
Consumer mortgages		—		—		—		1		131		131
Total residential real estate		—		—		—		1		131		131
Total		—	$	—		—		2	$	562		562

The majority of the loans modified in a TDR during the quarter ended March 31, 2013 included permitting delays in required payments of principal and/or interest or where the only concession granted by the Company was that the interest rate at renewal was considered to be less than a market rate.

The following table summarizes the recorded investment in loans modified in a TDR within the previous 12 months for which there was a payment default (defined as 90 days or more past due) during the respective periods.

	Quarter ended March 31, 2014				Quarter ended March 31, 2013
(Dollars in thousands)	Number of Contracts		Recorded investment(1)		Number of Contracts		Recorded investment(1)
TDRs:
Construction and land development		—	$	—		1	$	1,197
Total		—	$	—		1	$	1,197

(1) Amount as of applicable month end during the respective period for which there was a payment default.

NOTE 6: MORTGAGE SERVICING RIGHTS, NET

Mortgage servicing rights (“MSRs”) are recognized based on the fair value of the servicing rights on the date the corresponding mortgage loans are sold. An estimate of the Company’s MSRs is determined using assumptions that market participants would use in estimating future net servicing income, including estimates of prepayment speeds, discount rate, default rates, cost to service, escrow account earnings, contractual servicing fee income, ancillary income, and late fees. Subsequent to the date of transfer, the Company has elected to measure its MSRs under the amortization method. Under the amortization method, MSRs are amortized in proportion to, and over the period of, estimated net servicing income.

The Company has recorded MSRs related to loans sold without recourse to Fannie Mae. The Company generally sells conforming, fixed-rate, closed-end, residential mortgages to Fannie Mae. MSRs are included in other assets on the accompanying Consolidated Balance Sheets.

The Company evaluates MSRs for impairment on a quarterly basis. Impairment is determined by stratifying MSRs into groupings based on predominant risk characteristics, such as interest rate and loan type. If, by individual stratum, the carrying amount of the MSRs exceeds fair value, a valuation reserve is established. The valuation allowance is adjusted as the fair value changes. Changes in the valuation allowance are recognized in earnings as a component of mortgage lending income.

22

The change in amortized MSRs and the related valuation allowance for the quarters ended March 31, 2014 and 2013 are presented below.

	Quarter ended March 31,
(Dollars in thousands)	2014		2013
MSRs, net:
Beginning balance	$	2,350	$	1,526
Additions, net		98		261
Amortization expense		(80)		(125)
Decrease in MSR valuation allowance		—		66
Ending balance	$	2,368	$	1,728
Valuation allowance included in MSRs, net:
Beginning of period	$	—	$	386
End of period		—		320
Fair value of amortized MSRs:
Beginning of period	$	3,452	$	1,526
End of period		3,886		1,994

NOTE 7: DERIVATIVE INSTRUMENTS

Financial derivatives are reported at fair value in other assets or other liabilities on the accompanying Consolidated Balance Sheets. The accounting for changes in the fair value of a derivative depends on whether it has been designated and qualifies as part of a hedging relationship. For derivatives not designated as part of a hedging relationship, the gain or loss is recognized in current earnings within other noninterest income on the accompanying Consolidated Statements of Earnings. From time to time, the Company may enter into interest rate swaps (“swaps”) to facilitate customer transactions and meet their financing needs. Upon entering into these swaps, the Company enters into offsetting positions in order to minimize the risk to the Company. These swaps qualify as derivatives, but are not designated as hedging instruments. At March 31, 2014 and December 31, 2013, the Company had no derivative contracts to assist in managing its own interest rate sensitivity.

Interest rate swap agreements involve the risk of dealing with counterparties and their ability to meet contractual terms. When the fair value of a derivative instrument is positive, this generally indicates that the counterparty or customer owes the Company, and results in credit risk to the Company. When the fair value of a derivative instrument is negative, the Company owes the customer or counterparty and therefore, has no credit risk.

A summary of the Company’s interest rate swap agreements at March 31, 2014 and December 31, 2013 is presented below.

			Other Assets		Other Liabilities
(Dollars in thousands)	Notional		Estimated Fair Value		Estimated Fair Value
March 31, 2014:
Pay fixed / receive variable	$	4,929		—		788
Pay variable / receive fixed		4,929		788		—
Total interest rate swap agreements	$	9,858		788		788
December 31, 2013:
Pay fixed / receive variable	$	5,017		—		844
Pay variable / receive fixed		5,017		844		—
Total interest rate swap agreements	$	10,034		844		844

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NOTE 8: FAIR VALUE

Fair Value Hierarchy

“Fair value” is defined by ASC 820, Fair Value Measurements and Disclosures, as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction occurring in the principal market (or most advantageous market in the absence of a principal market) for an asset or liability at the measurement date. GAAP establishes a fair value hierarchy for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The fair value hierarchy is as follows:

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, quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs that are observable for the asset or liability, either directly or indirectly.

Level 3—inputs to the valuation methodology are unobservable and reflect the Company’s own assumptions about the inputs market participants would use in pricing the asset or liability.

Level changes in fair value measurements

Transfers between levels of the fair value hierarchy are generally recognized at the end of the reporting period. The Company monitors the valuation techniques utilized for each category of financial assets and liabilities to ascertain when transfers between levels have been affected. The nature of the Company’s financial assets and liabilities generally is such that transfers in and out of any level are expected to be infrequent. For the quarter ended March 31, 2014, there were no transfers between levels and no changes in valuation techniques for the Company’s financial assets and liabilities.

Assets and liabilities measured at fair value on a recurring basis

Securities available-for-sale

Fair values of securities available for sale were primarily measured using Level 2 inputs. For these securities, the Company obtains pricing from third party pricing services. These third party pricing services consider observable data that may include broker/dealer quotes, market spreads, cash flows, market consensus prepayment speeds, benchmark yields, reported trades for similar securities, market consensus prepayment speeds, credit information and the securities’ terms and conditions. On a quarterly basis, management reviews the pricing received from the third party pricing services for reasonableness given current market conditions. As part of its review, management may obtain non-binding third party broker quotes to validate the fair value measurements. In addition, management will periodically submit pricing provided by the third party pricing services to another independent valuation firm on a sample basis. This independent valuation firm will compare the price provided by the third party pricing service with its own price and will review the significant assumptions and valuation methodologies used with management.

Interest rate swap agreements

The carrying amount of interest rate swap agreements was included in other assets and accrued expenses and other liabilities on the accompanying consolidated balance sheets. The fair value measurements for our interest rate swap agreements were based on information obtained from a third party bank. This information is periodically tested by the Company and validated against other third party valuations. If needed, other third party market participants may be utilized to corroborate the fair value measurements for our interest rate swap agreements. The Company classified these derivative assets and liabilities within Level 2 of the valuation hierarchy. These swaps qualify as derivatives, but are not designated as hedging instruments.

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The following table presents the balances of the assets and liabilities measured at fair value on a recurring basis as of March 31, 2014 and December 31, 2013, respectively, by caption, on the accompanying consolidated balance sheets by ASC 820 valuation hierarchy (as described above).

(Dollars in thousands)	Amount		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs         (Level 3)
March 31, 2014:
Securities available-for-sale:
Agency obligations	$	56,034		—		56,034		—
Agency RMBS		162,709		—		162,709		—
State and political subdivisions		61,246		—		61,246		—
Total securities available-for-sale		279,989		—		279,989		—
Other assets (1)		788		—		788		—
Total assets at fair value	$	280,777		—		280,777		—
Other liabilities(1)	$	788		—		788		—
Total liabilities at fair value	$	788		—		788		—
December 31, 2013:
Securities available-for-sale:
Agency obligations	$	44,522		—		44,522		—
Agency RMBS		162,358		—		162,358		—
State and political subdivisions		64,339		—		64,339		—
Total securities available-for-sale		271,219		—		271,219		—
Other assets (1)		844		—		844		—
Total assets at fair value	$	272,063		—		272,063		—
Other liabilities(1)	$	844		—		844		—
Total liabilities at fair value	$	844		—		844		—

⁽¹⁾  Represents the fair value of interest rate swap agreements.

Assets and liabilities measured at fair value on a nonrecurring basis

Loans held for sale

Loans held for sale are carried at the lower of cost or fair value. Fair values of loans held for sale are determined using quoted market secondary market prices for similar loans. Loans held for sale are classified within Level 2 of the fair value hierarchy.

Impaired Loans

Loans considered impaired under ASC 310-10-35, Receivables, are loans for which, based on current information and events, it is probable that the Company will be unable to collect all principal and interest payments due in accordance with the contractual terms of the loan agreement. Impaired loans can be measured based on the present value of expected payments using the loan’s original effective rate as the discount rate, the loan’s observable market price, or the fair value of the collateral less selling costs if the loan is collateral dependent.

The fair value of impaired loans were primarily measured based on the value of the collateral securing these loans. Impaired loans are classified within Level 3 of the fair value hierarchy. Collateral may be real estate and/or business assets including equipment, inventory, and/or accounts receivable. The Company determines the value of the collateral based on independent appraisals performed by qualified licensed appraisers. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Appraised values are discounted for costs to sell and may be discounted further based on management’s historical knowledge, changes in market conditions from the date of the most recent appraisal, and/or management’s expertise and knowledge of the customer and the

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customer’s business. Such discounts by management are subjective and are typically significant unobservable inputs for determining fair value. Impaired loans are reviewed and evaluated on at least a quarterly basis for additional impairment and adjusted accordingly, based on the same factors discussed above.

Other real estate owned

Other real estate owned, consisting of properties obtained through foreclosure or in satisfaction of loans, are initially recorded at the lower of the loan’s carrying amount or the fair value less costs to sell upon transfer of the loans to other real estate. Subsequently, other real estate is carried at the lower of carrying value or fair value less costs to sell. Fair values are generally based on third party appraisals of the property and are classified within Level 3 of the fair value hierarchy. The appraisals are sometimes further discounted based on management’s historical knowledge, and/or changes in market conditions from the date of the most recent appraisal, and/or management’s expertise and knowledge of the customer and the customer’s business. Such discounts are typically significant unobservable inputs for determining fair value. In cases where the carrying amount exceeds the fair value, less costs to sell, a loss is recognized in noninterest expense.

Mortgage servicing rights, net

Mortgage servicing rights, net, included in other assets on the accompanying consolidated balance sheets, are carried at the lower of cost or estimated fair value. MSRs do not trade in an active market with readily observable prices. To determine the fair value of MSRs, the Company engages an independent third party. The independent third party’s valuation model calculates the present value of estimated future net servicing income using assumptions that market participants would use in estimating future net servicing income, including estimates of prepayment speeds, discount rate, default rates, cost to service, escrow account earnings, contractual servicing fee income, ancillary income, and late fees. Periodically, the Company will review broker surveys and other market research to validate significant assumptions used in the model. The significant unobservable inputs include prepayment speeds or the constant prepayment rate (“CPR”) and the weighted average discount rate. Because the valuation of MSRs requires the use of significant unobservable inputs, all of the Company’s MSRs are classified within Level 3 of the valuation hierarchy.

The following table presents the balances of the assets and liabilities measured at fair value on a nonrecurring basis as of March 31, 2014 and December 31, 2013, respectively, by caption, on the accompanying consolidated balance sheets and by FASB ASC 820 valuation hierarchy (as described above):

(Dollars in thousands)		Carrying     Amount		Quoted Prices in Active Markets for Identical Assets (Level 1)		Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
March 31, 2014:
Loans held for sale	$		1,250		—		1,250		—
Loans, net(1)			4,381		—		—		4,381
Other real estate owned			3,111		—		—		3,111
Other assets (2)			2,368		—		—		2,368
Total assets at fair value	$		11,110		—		1,250		9,860
December 31, 2013:
Loans held for sale	$		2,296		—		2,296		—
Loans, net(1)			5,305		—		—		5,305
Other real estate owned			3,884		—		—		3,884
Other assets (2)			2,350		—		—		2,350
Total assets at fair value	$		13,835		—		2,296		11,539

⁽¹⁾  Loans considered impaired under ASC 310-10-35 Receivables. This amount reflects the recorded investment in impaired loans, net of any related allowance for loan losses.

⁽²⁾  Represents MSRs, net, carried at lower of cost or estimated fair value.

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Quantitative Disclosures for Level 3 Fair Value Measurements

The following is a reconciliation of the beginning and ending balances of recurring fair value measurements for trust preferred securities recognized in the accompanying consolidated balance sheets using Level 3 inputs:

	Quarter ended March 31,
(Dollars in thousands)	2014		2013
Beginning balance	$	—	$	652
Total realized and unrealized gains and (losses):
Included in other comprehensive income		—		8
Ending balance	$	—	$	660

At March 31, 2014, the Company had no Level 3 assets measured at fair value on a recurring basis. For Level 3 assets measured at fair value on a non-recurring basis at March 31, 2014, the significant unobservable inputs used in the fair value measurements are presented below.

(Dollars in thousands)	Carrying Amount		Valuation Technique	Significant Unobservable Input	Weighted Average     of Input
Nonrecurring:
Impaired loans	$	4,381	Appraisal	Appraisal discounts (%)	19.7%
Other real estate owned		3,111	Appraisal	Appraisal discounts (%)	15.1%
Mortgage servicing rights, net		2,368	Discounted cash flow	Prepayment speed or CPR (%)	8.3%
				Discount rate (%)	10.0%

Fair Value of Financial Instruments

ASC 825, Financial Instruments, requires disclosure of fair value information about financial instruments, whether or not recognized on the face of the balance sheet, for which it is practicable to estimate that value. The assumptions used in the estimation of the fair value of the Company’s financial instruments are explained below. Where quoted market prices are not available, fair values are based on estimates using discounted cash flow analyses. Discounted cash flows can be significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. The following fair value estimates cannot be substantiated by comparison to independent markets and should not be considered representative of the liquidation value of the Company’s financial instruments, but rather are a good–faith estimate of the fair value of financial instruments held by the Company. ASC 825 excludes certain financial instruments and all nonfinancial instruments from its disclosure requirements.

The following methods and assumptions were used by the Company in estimating the fair value of its financial instruments:

Loans, net

Fair values for loans were calculated using discounted cash flows. The discount rates reflected current rates at which similar loans would be made for the same remaining maturities. This method of estimating fair value does not incorporate the exit-price concept of fair value prescribed by ASC 820 and generally produces a higher value than an exit-price approach. Expected future cash flows were projected based on contractual cash flows, adjusted for estimated prepayments.

Loans held for sale

Fair values of loans held for sale are determined using quoted market secondary market prices for similar loans.

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Time Deposits

Fair values for time deposits were estimated using discounted cash flows. The discount rates were based on rates currently offered for deposits with similar remaining maturities.

Long-term debt

The fair value of the Company’s fixed rate long-term debt is estimated using discounted cash flows based on estimated current market rates for similar types of borrowing arrangements. The carrying amount of the Company’s variable rate long-term debt approximates its fair value.

The carrying value, related estimated fair value, and placement in the fair value hierarchy of the Company’s financial instruments at March 31, 2014 and December 31, 2013 are presented below. This table excludes financial instruments for which the carrying amount approximates fair value. Financial assets for which fair value approximates carrying value included cash and cash equivalents. Financial liabilities for which fair value approximates carrying value included noninterest-bearing demand, interest-bearing demand, and savings deposits due to these products having no stated maturity. In addition, financial liabilities for which fair value approximates carrying value included overnight borrowings such as federal funds purchased and securities sold under agreements to repurchase.

					Fair Value Hierarchy
(Dollars in thousands)	Carrying amount		Estimated fair value		Level 1 inputs		Level 2 inputs		Level 3 Inputs
March 31, 2014:
Financial Assets:
Loans, net (1)	$	372,639	$	372,112	$	—	$	—	$	372,112
Loans held for sale		1,250	$	1,265	$	—	$	1,265	$	—
Financial Liabilities:
Time Deposits	$	262,209	$	265,588	$	—	$	265,588	$	—
Long-term debt		12,217		12,617		—		12,617		—
December 31, 2013:
Financial Assets:
Loans, net (1)	$	378,071	$	387,180	$	—	$	—	$	387,180
Loans held for sale		2,296		2,310		—		2,310		—
Financial Liabilities:
Time Deposits	$	261,199	$	263,985	$	—	$	263,985	$	—
Long-term debt		12,217		12,569		—		12,569		—

(1) Represents loans, net of unearned income and the allowance for loan losses.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis is designed to provide a better understanding of various factors related to the results of operations and financial condition of the Auburn National Bancorporation, Inc. (the “Company”) and its wholly owned subsidiary, AuburnBank (the “Bank”). This discussion is intended to supplement and highlight information contained in the accompanying unaudited condensed consolidated financial statements and related notes for the quarters ended March 31, 2014 and 2013, as well as the information contained in our annual report on Form 10-K for the year ended December 31, 2013.

Special Notice Regarding Forward-Looking Statements

Certain of the statements made in this discussion and analysis and elsewhere, including information incorporated herein by reference to other documents, are “forward-looking statements” within the meaning of, and subject to, the protections of Section 27A of the Securities Act of 1933, as amended, (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

Forward-looking statements include statements with respect to our beliefs, plans, objectives, goals, expectations, anticipations, assumptions, estimates, intentions and future performance, and involve known and unknown risks, uncertainties and other factors, which may be beyond our control, and which may cause the actual results, performance, achievements, or financial condition of the Company to be materially different from future results, performance, achievements, or financial condition expressed or implied by such forward-looking statements. You should not expect us to update any forward-looking statements.

All statements other than statements of historical fact are statements that could be forward-looking statements. You can identify these forward-looking statements through our use of words such as “may,” “will,” “anticipate,” “assume,” “should,” “indicate,” “would,” “believe,” “contemplate,” “expect,” “estimate,” “continue,” “plan,” “point to,” “project,” “could,” “intend,” “target” and other similar words and expressions of the future. These forward-looking statements may not be realized due to a variety of factors, including, without limitation:

• the effects of future economic, business and market conditions and changes, domestic and foreign, including seasonality;

• governmental monetary and fiscal policies;

• legislative and regulatory changes, including changes in banking, securities and tax laws, regulations and rules and their application by our regulators, including capital and liquidity requirements, and changes in the scope and cost of FDIC insurance;

• changes in accounting policies, rules and practices;

• the risks of changes in interest rates on the levels, composition and costs of deposits, loan demand, and the values and liquidity of loan collateral, securities, and interest sensitive assets and liabilities, and the risks and uncertainty of the amounts realizable and the timing of dispositions of assets by the FDIC where we may have a participation or other interest;

• changes in borrower credit risks and payment behaviors;

• changes in the availability and cost of credit and capital in the financial markets, and the types of instruments that may be included as capital for regulatory purposes;

• changes in the prices, values and sales volumes of residential and commercial real estate;

• the effects of competition from a wide variety of local, regional, national and other providers of financial, investment and insurance services;

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• the failure of assumptions and estimates underlying the establishment of allowances for possible loan and other asset impairments, losses and other estimates;

• the risks of mergers, acquisitions and divestitures, including, without limitation, the related time and costs of implementing such transactions, integrating operations as part of these transactions and possible failures to achieve expected gains, revenue growth and/or expense savings from such transactions;

• changes in technology or products that may be more difficult, costly, or less effective than anticipated;

• the effects of war or other conflicts, acts of terrorism or other catastrophic events that may affect general economic conditions;

• the failure of assumptions and estimates, as well as differences in, and changes to, economic, market and credit conditions, including changes in borrowers’ credit risks and payment behaviors from those used in our loan portfolio stress tests and other evaluations;

• the risks that our deferred tax assets could be reduced if estimates of future taxable income from our operations and tax planning strategies are less than currently estimated, and sales of our capital stock could trigger a reduction in the amount of net operating loss carry-forwards that we may be able to utilize for income tax purposes; and

• the other factors and information in this report and other filings that we make with the SEC under the Exchange Act, including our annual report on Form 10-K for the year ended December 31, 2013 and subsequent quarterly and current reports. See Part II, Item 1A, “RISK FACTORS”.

All written or oral forward-looking statements that are made by or attributable to us are expressly qualified in their entirety by this cautionary notice. We have no obligation and do not undertake to update, revise or correct any of the forward-looking statements after the date of this report, or after the respective dates on which such statements otherwise are made.

Business

The Company was incorporated in 1990 under the laws of the State of Delaware and became a bank holding company after it acquired its Alabama predecessor, which was a bank holding company established in 1984. The Bank, the Company’s principal subsidiary, is an Alabama state-chartered bank that is a member of the Federal Reserve System and has operated continuously since 1907. Both the Company and the Bank are headquartered in Auburn, Alabama. The Bank conducts its business primarily in East Alabama, including Lee County and surrounding areas. The Bank operates full-service branches in Auburn, Opelika, Valley, Hurtsboro, and Notasulga, Alabama. In-store branches are located in the Kroger and Wal-Mart SuperCenter stores in both Auburn and Opelika. The Bank also operates commercial loan production offices in Montgomery and Phenix City, Alabama.

Summary of Results of Operations

	Quarter ended March 31,
(Dollars in thousands, except per share data)	2014		2013
Net interest income (a)	$	5,594	$	5,523
Less: tax-equivalent adjustment		324		382
Net interest income (GAAP)		5,270		5,141
Noninterest income		756		1,655
Total revenue		6,026		6,796
Provision for loan losses		(400)		400
Noninterest expense		3,948		4,226
Income tax expense		657		481
Net earnings	$	1,821	$	1,689
Basic and diluted earnings per share	$	0.50	$	0.46

(a) Tax-equivalent. See “Table 1—Explanation of Non-GAAP Financial Measures.”

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Financial Summary

The Company’s net earnings were $1.8 million for the first quarter of 2014, compared to $1.7 million for the first quarter of 2013. Basic and diluted earnings per share were $0.50 per share for the first quarter of 2014, compared to $0.46 per share for the first quarter of 2013.

Net interest income (tax-equivalent) was $5.6 million for the first quarter of 2014, compared to $5.5 million for the first quarter of 2013. Net interest income (tax-equivalent) increased as net interest margin improvement offset a decline in average interest-earning assets of 2%. The Company’s improved net interest margin reflects management’s efforts to increase earnings by focusing on deposit pricing and repaying higher-cost wholesale borrowings.

The Company recorded a negative provision for loan losses of $0.4 million for the first quarter of 2014 compared to a charge of $0.4 million for the first quarter of 2013. The decrease in the provision for loan losses was primarily due to improvement in the overall credit quality of the loan portfolio, including declining net charge-offs and lower levels of adversely classified and nonperforming loans.

Noninterest income was $0.8 million for the first quarter of 2014, compared to $1.7 million in the first quarter of 2013. The decrease was primarily due to a decrease in mortgage lending income of $0.4 million as higher interest rates for mortgage loans negatively impacted refinance activity and a decrease in net securities gains (losses) of $0.5 million that was primarily due to an other-than-temporary impairment charge on securities management intended to sell at March 31, 2014. Subsequent to March 31, 2014, the Company sold these available-for-sale agency RMBS with a fair value of approximately $18.9 million and realized a loss of $0.3 million.

Noninterest expense was approximately $4.0 million in the first quarter of 2014, compared to $4.2 million in the first quarter of 2013. The decrease was primarily due to a decrease in prepayment penalties on long-term debt. The Company incurred no prepayment penalties during the first quarter of 2014, compared to $0.4 million during the first quarter of 2013 when the Company repaid a $10.0 million FHLB advance with an interest rate of 3.17%. This decrease was partially offset by increases in certain other noninterest expenses, including an increase in net OREO expenses of $0.1 million due to realized holding losses or write-downs on the valuations of certain OREO properties.

Income tax expense was approximately $0.7 million for the first quarter of 2014, compared to $0.5 million in the first quarter of 2013. The Company’s effective tax rate for the first quarter of 2014 was 26.51%, compared to 22.17% in the first quarter of 2013. The increase in the Company’s effective tax rate was primarily due to decreases in tax exempt interest income as our holdings of municipal securities have declined. In addition, as earnings before income taxes increases, the impact of tax preference items, such as tax exempt interest income, on the Company’s effective tax rate is reduced.

In the first quarter of 2014, the Company paid cash dividends of $0.8 million, or $0.215 per share. The Company’s balance sheet remains “well capitalized” under current regulatory guidelines with a total risk-based capital ratio of 18.64% and a Tier 1 leverage ratio of 10.03% at March 31, 2014.

CRITICAL ACCOUNTING POLICIES

The accounting and financial reporting policies of the Company conform with U.S. generally accepted accounting principles and with general practices within the banking industry. In connection with the application of those principles, we have made judgments and estimates which, in the case of the determination of our allowance for loan losses, our assessment of other-than-temporary impairment, recurring and non-recurring fair value measurements, the valuation of other real estate owned, and the valuation of deferred tax assets, were critical to the determination of our financial position and results of operations. Other policies also require subjective judgment and assumptions and may accordingly impact our financial position and results of operations.

Allowance for Loan Losses

The Company assesses the adequacy of its allowance for loan losses prior to the end of each calendar quarter. The level of the allowance is based upon management’s evaluation of the loan portfolio, past loan loss experience, current asset quality trends, known and inherent risks in the portfolio, adverse situations that may affect a borrower’s ability to repay (including the timing of future payment), the estimated value of any underlying collateral, composition of the loan portfolio, economic conditions, industry and peer bank loan loss rates and other pertinent factors, including regulatory recommendations. This evaluation is inherently subjective as it requires material estimates including the amounts and timing of future cash flows expected to be received on impaired loans that may be susceptible to significant change. Loans are charged off, in whole or in part, when management believes that the full collectability of the loan is unlikely. A loan may be partially charged-off after a “confirming event” has occurred which serves to validate that full repayment pursuant to the terms of the loan is unlikely.

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The Company deems loans impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. Collection of all amounts due according to the contractual terms means that both the interest and principal payments of a loan will be collected as scheduled in the loan agreement.

An impairment allowance is recognized if the fair value of the loan is less than the recorded investment in the loan. The impairment is recognized through the allowance. Loans that are impaired are recorded at the present value of expected future cash flows discounted at the loan’s effective interest rate, or if the loan is collateral dependent, impairment measurement is based on the fair value of the collateral, less estimated disposal costs.

The level of allowance maintained is believed by management to be adequate to absorb probable losses inherent in the portfolio at the balance sheet date. The allowance is increased by provisions charged to expense and decreased by charge-offs, net of recoveries of amounts previously charged-off.

In assessing the adequacy of the allowance, the Company also considers the results of its ongoing internal and independent loan review processes. The Company’s loan review process assists in determining whether there are loans in the portfolio whose credit quality has weakened over time and evaluating the risk characteristics of the entire loan portfolio. The Company’s loan review process includes the judgment of management, the input from our independent loan reviewers, and reviews that may have been conducted by bank regulatory agencies as part of their examination process. The Company incorporates loan review results in the determination of whether or not it is probable that it will be able to collect all amounts due according to the contractual terms of a loan.

As part of the Company’s quarterly assessment of the allowance, management divides the loan portfolio into five segments: commercial and industrial, construction and land development, commercial real estate, residential real estate, and consumer installment loans. The Company analyzes each segment and estimates an allowance allocation for each loan segment.

The allocation of the allowance for loan losses begins with a process of estimating the probable losses inherent for these types of loans. The estimates for these loans are established by category and based on the Company’s internal system of credit risk ratings and historical loss data. The estimated loan loss allocation rate for the Company’s internal system of credit risk grades is based on its experience with similarly graded loans. For loan segments where the Company believes it does not have sufficient historical loss data, the Company may make adjustments based, in part, on loss rates of peer bank groups. At March 31, 2014 and December 31, 2013, and for the periods then ended, the Company adjusted its historical loss rates for the commercial real estate portfolio segment based, in part, on loss rates of peer bank groups.

The estimated loan loss allocation for all five loan portfolio segments is then adjusted for management’s estimate of probable losses for several “qualitative and environmental” factors. The allocation for qualitative and environmental factors is particularly subjective and does not lend itself to exact mathematical calculation. This amount represents estimated probable inherent credit losses which exist, but have not yet been identified, as of the balance sheet date, and are based upon quarterly trend assessments in delinquent and nonaccrual loans, credit concentration changes, prevailing economic conditions, changes in lending personnel experience, changes in lending policies or procedures and other influencing factors. These qualitative and environmental factors are considered for each of the five loan segments and the allowance allocation, as determined by the processes noted above, is increased or decreased based on the incremental assessment of these factors.

Assessment for Other-Than-Temporary Impairment of Securities

On a quarterly basis, management makes an assessment to determine whether there have been events or economic circumstances to indicate that a security on which there is an unrealized loss is other-than-temporarily impaired. For equity securities with an unrealized loss, the Company considers many factors including the severity and duration of the impairment; the intent and ability of the Company to hold the security for a period of time sufficient for a recovery in value; and recent events specific to the issuer or industry. Equity securities for which there is an unrealized loss that is deemed to be other-than-temporary are written down to fair value with the write-down recorded as a realized loss in securities gains (losses).

For debt securities with an unrealized loss, an other-than-temporary impairment write-down is triggered when (1) the Company has the intent to sell a debt security, (2) it is more likely than not that the Company will be required to sell the debt security before recovery of its amortized cost basis, or (3) the Company does not expect to recover the entire amortized cost basis of the debt security. If the Company has the intent to sell a debt security or if it is more likely than not that that it

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will be required to sell the debt security before recovery, the other-than-temporary write-down is equal to the entire difference between the debt security’s amortized cost and its fair value. If the Company does not intend to sell the security or it is not more likely than not that it will be required to sell the security before recovery, the other-than-temporary impairment write-down is separated into the amount that is credit related (credit loss component) and the amount due to all other factors. The credit loss component is recognized in earnings and is the difference between the security’s amortized cost basis and the present value of its expected future cash flows. The remaining difference between the security’s fair value and the present value of future expected cash flows is due to factors that are not credit related and is recognized in other comprehensive income, net of applicable taxes.

Fair Value Determination

U.S. GAAP requires management to value and disclose certain of the Company’s assets and liabilities at fair value, including investments classified as available-for-sale and derivatives. ASC 820, Fair Value Measurements and Disclosures, which defines fair value, establishes a framework for measuring fair value in accordance with U.S. GAAP and expands disclosures about fair value measurements. For more information regarding fair value measurements and disclosures, please refer to Note 8, Fair Value, of the consolidated financial statements that accompany this report.

Fair values are based on active market prices of identical assets or liabilities when available. Comparable assets or liabilities or a composite of comparable assets in active markets are used when identical assets or liabilities do not have readily available active market pricing. However, some of the Company’s assets or liabilities lack an available or comparable trading market characterized by frequent transactions between willing buyers and sellers. In these cases, fair value is estimated using pricing models that use discounted cash flows and other pricing techniques. Pricing models and their underlying assumptions are based upon management’s best estimates for appropriate discount rates, default rates, prepayments, market volatility and other factors, taking into account current observable market data and experience.

These assumptions may have a significant effect on the reported fair values of assets and liabilities and the related income and expense. As such, the use of different models and assumptions, as well as changes in market conditions, could result in materially different net earnings and retained earnings results.

Other Real Estate Owned

Other real estate owned (“OREO”), consists of properties obtained through foreclosure or in satisfaction of loans and is reported at the lower of cost or fair value, less estimated costs to sell at the date acquired with any loss recognized as a charge-off through the allowance for loan losses. Additional OREO losses for subsequent valuation adjustments are determined on a specific property basis and are included as a component of other noninterest expense along with holding costs. Any gains or losses on disposal of OREO are also reflected in noninterest expense. Significant judgments and complex estimates are required in estimating the fair value of OREO, and the period of time within which such estimates can be considered current is significantly shortened during periods of market volatility. As a result, the net proceeds realized from sales transactions could differ significantly from appraisals, comparable sales, and other estimates used to determine the fair value of other OREO.

Deferred Tax Asset Valuation

A valuation allowance is recognized for a deferred tax asset if, based on the weight of available evidence, it is more-likely-than-not that some portion or the entire deferred tax asset will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. Based upon the level of taxable income over the last three years and projections for future taxable income over the periods in which the deferred tax assets are deductible, management believes it is more likely than not that we will realize the benefits of these deductible differences at March 31, 2014. The amount of the deferred tax assets considered realizable, however, could be reduced if estimates of future taxable income are reduced.

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RESULTS OF OPERATIONS Average Balance Sheet and Interest Rates
	Quarter ended March 31,
	2014				2013
(Dollars in thousands)	Average Balance		Yield/     Rate		Average     Balance		Yield/     Rate
Loans and loans held for sale	$	378,780		5.13%	$	400,062		5.40%
Securities - taxable		206,630		2.31%		191,211		1.85%
Securities - tax-exempt		61,383		6.28%		71,863		6.34%
Total securities		268,013		3.22%		263,074		3.08%
Federal funds sold		55,120		0.18%		60,814		0.21%
Interest bearing bank deposits		7,700		0.90%		593		—
Total interest-earning assets		709,613		3.98%		724,543		4.12%
Deposits:
NOW		106,331		0.32%		105,578		0.31%
Savings and money market		189,601		0.51%		167,928		0.52%
Certificates of deposits less than $100,000		104,646		1.21%		105,452		1.46%
Certificates of deposits and other time deposits of $100,000 or more		157,431		1.60%		155,858		1.89%
Total interest-bearing deposits		558,009		0.91%		534,816		1.06%
Short-term borrowings		3,478		0.47%		2,862		0.57%
Long-term debt		12,217		3.45%		46,661		3.70%
Total interest-bearing liabilities		573,704		0.96%		584,339		1.27%
Net interest income and margin (tax-equivalent)	$	5,594		3.20%	$	5,523		3.09%

Net Interest Income and Margin

Net interest income (tax-equivalent) increased as net interest margin improvement offset a decline in average interest-earning assets of 2%. The Company’s improved net interest margin reflects management’s efforts to increase earnings by focusing on deposit pricing and repaying higher-cost wholesale borrowings.

The tax-equivalent yield on total interest-earning assets decreased by 14 basis points in the first quarter of 2014 from the first quarter of 2013 to 3.98%. The decrease was primarily due to a decrease in average loans and loan yields as reduced loan demand and increased pricing competition for quality loan opportunities in our markets has limited the Company’s ability to increase loans generally, as well as a decrease in the yields on new and renewed loans over the last several quarters.

The cost of total interest-bearing liabilities decreased 31 basis points in the first quarter of 2014 from the first quarter of 2013 to 0.96%. The net decrease was largely a result of the continued shift in our funding mix, as we increased our savings and money market accounts and concurrently reduced balances of higher-cost long-term debt (i.e. wholesale borrowings).

The Company continues to deploy various asset liability management strategies to manage its risk to interest rate fluctuations. The Company’s net interest margin could experience pressure due to lower reinvestment yields in the securities portfolio given the current interest rate environment, increased competition for quality loan opportunities, and fewer opportunities to reduce our cost of funds due to the low level of deposit rates currently.

Provision for Loan Losses

The provision for loan losses represents a charge to earnings necessary to provide an allowance for loan losses that management believes, based on its processes and estimates, should be adequate to provide for the probable losses on outstanding loans. The Company recorded a negative provision for loan losses of $0.4 million for the first quarter of 2014 compared to a charge of $0.4 million for the first quarter of 2013. The decrease in the provision for loan losses was primarily due to improvement in the overall credit quality of the loan portfolio, including declining net charge-offs and lower levels of adversely classified and nonperforming loans.

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Based upon its assessment of the loan portfolio, management adjusts the allowance for loan losses to an amount it believes should be appropriate to adequately cover its estimate of probable losses in the loan portfolio. The Company’s allowance for loan losses as a percentage of total loans was 1.25% at March 31, 2014, compared to 1.37% at December 31, 2013. While the policies and procedures used to estimate the allowance for loan losses, as well as the resulting provision for loan losses charged to operations, are considered adequate by management and are reviewed from time to time by our regulators, they are based on estimates and judgments and are therefore approximate and imprecise. Factors beyond our control (such as conditions in the local and national economy, local real estate markets, or industry conditions) may have a material adverse effect on our asset quality and the adequacy of our allowance for loan losses resulting in significant increases in the provision for loan losses.

Noninterest Income

	Quarter ended March 31,
(Dollars in thousands)	2014		2013
Service charges on deposit accounts	$	213	$	249
Mortgage lending income		386		810
Bank-owned life insurance		126		95
Securities (losses) gains, net		(307)		161
Other		338		340
Total noninterest income	$	756	$	1,655

Service charges on deposit accounts decreased primarily due to a decline in insufficient funds charges, reflecting changes in customer behavior and spending patterns.

The Company’s income from mortgage lending was primarily attributable to the (1) origination and sale of new mortgage loans and (2) servicing of mortgage loans. Origination income, net, is comprised of gains or losses from the sale of the mortgage loans originated, origination fees, underwriting fees and other fees associated with the origination of loans, which are netted against the commission expense associated with these originations. The Company’s normal practice is to originate mortgage loans for sale in the secondary market and to either sell or retain the associated mortgage servicing rights (“MSRs”) when the loan is sold.

MSRs are recognized based on the fair value of the servicing right on the date the corresponding mortgage loan is sold. Subsequent to the date of transfer, the Company has elected to measure its MSRs under the amortization method. Servicing fee income is reported net of any related amortization expense.

MSRs are also evaluated for impairment on a quarterly basis. Impairment is determined by grouping MSRs by common predominant characteristics, such as interest rate and loan type. If the aggregate carrying amount of a particular group of MSRs exceeds the group’s aggregate fair value, a valuation allowance for that group is established. The valuation allowance is adjusted as the fair value changes. An increase in mortgage interest rates typically results in an increase in the fair value of the MSRs while a decrease in mortgage interest rates typically results in a decrease in the fair value of MSRs.

The following table presents a breakdown of the Company’s mortgage lending income.

	Quarter ended March 31,
(Dollars in thousands)	2014		2013
Origination income, net	$	240	$	667
Servicing fees, net		146		77
Decrease in MSR valuation allowance		—		66
Total mortgage lending income	$	386	$	810

The decrease in mortgage lending income was primarily due to a decline in origination income as refinance activity slowed significantly. This decrease was partially offset by an increase in servicing fees, net of related amortization expense. Servicing fees increased due to an increase in the unpaid principal balance of loans serviced and amortization expense decreased as prepayment speeds slowed.

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The increase in income from bank-owned life insurance was primarily due to improved policy returns. During the fourth quarter of 2013, the Bank exchanged certain bank-owned life insurance policies with a cash surrender value of approximately $5.9 million. These policies were exchanged to two new carriers with better credit ratings and policy returns. The assets that support these policies are administered by the life insurance carriers and the income we receive (i.e. increases or decreases in the cash surrender value of the policies) on these policies is dependent upon the returns the insurance carriers are able to earn on the underlying investments that support these policies. Earnings on these policies are generally not taxable.

Net securities gains (losses) consist of realized gains and losses on the sale of securities and other-than-temporary impairment charges. Net gains realized on the sale of securities were $26,000 for the first quarter of 2014, compared to net gains on the sale of securities of $161,000 for the first quarter of 2013. The Company recorded an other-than-temporary impairment charge in the first quarter of 2014 related to securities management intended to sell at March 31, 2014. Subsequent to March 31, 2014, the Company sold these available-for-sale Agency RMBS securities with a fair value of $18.9 million and realized a loss of approximately $333,000. The Company incurred no other-than-temporary impairment charges in the first quarter of 2013.

Noninterest Expense

	Quarter ended March 31,
(Dollars in thousands)	2014		2013
Salaries and benefits	$	2,281	$	2,250
Net occupancy and equipment		352		331
Professional fees		206		176
FDIC and other regulatory assessments		145		194
Other real estate owned, net		118		23
Prepayment penalty on long-term debt		—		425
Other		846		827
Total noninterest expense	$	3,948	$	4,226

The increase in salaries and benefits expense during the first quarter of 2014, compared to the first quarter of 2013 reflected routine annual increases.

The increase in net occupancy and equipment expense was primarily due to a decrease in rental income. During the fourth quarter of 2013, the Company sold an office building in downtown Auburn that was leased to third party tenants.

The decrease in FDIC and other regulatory assessments expense was primarily due to a decrease in the Bank’s quarterly assessment rate as several variables utilized by the FDIC in calculating our deposit insurance assessments improved.

The increase in OREO expense, net was primarily due to realized holding losses or write-downs on the valuations of certain OREO properties. These properties could be subject to future valuation adjustments as a result of updated appraisal information or further deterioration in real estate values, which would cause additional fluctuations in OREO expense, net. Also, the Company will continue to incur expenses for the maintenance costs and property taxes associated with these properties.

During the first quarter of 2013, the Company repaid a $10.0 million FHLB advance with an interest rate of 3.17% and a remaining term of 1.5 years and incurred a prepayment penalty of $0.4 million.

Income Tax Expense

Income tax expense was approximately $0.7 million for the first quarter of 2014, compared to $0.5 million in the first quarter of 2013. The Company’s effective tax rate for the first quarter of 2014 was 26.51%, compared to 22.17% in the first quarter of 2013. The increase in the Company’s effective tax rate was primarily due to decreases in tax exempt interest income as our holdings of municipal securities have declined. In addition, as earnings before income taxes increases, the impact of tax preference items, such as tax exempt interest income, on the Company’s effective tax rate is reduced.

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BALANCE SHEET ANALYSIS

Securities

Securities available-for-sale were $280.0 million at March 31, 2014, an increase of $8.8 million, or 3%, compared to $271.2 million at December 31, 2013. This increase reflects an increase in the amortized cost basis of securities available-for-sale of $4.4 million and a decrease in unrealized net losses on securities available-for-sale of $4.4 million. The increase in the amortized cost basis was primarily attributable to management allocating more funding to the investment portfolio as the loan portfolio declined. The decrease in unrealized net losses on securities available-for-sale was primarily due to a decrease in long-term interest rates during the first quarter of 2014.

The average tax-equivalent yields earned on total securities were 3.22% in the first quarter of 2014 and 3.08% in the first quarter of 2013.

Loans
	2014		2013
(In thousands)	First Quarter		Fourth     Quarter		Third     Quarter		Second     Quarter		First     Quarter
Commercial and industrial	$	54,632		57,780		58,766		56,030		55,736
Construction and land development		31,275		36,479		37,062		45,886		41,104
Commercial real estate		178,721		174,920		170,520		177,291		178,993
Residential real estate		101,433		101,706		102,565		99,021		102,978
Consumer installment		11,766		12,893		12,170		12,747		12,026
Total loans		377,827		383,778		381,083		390,975		390,837
Less: unearned income		(477)		(439)		(378)		(249)		(267)
Loans, net of unearned income	$	377,350		383,339		380,705		390,726		390,570

Total loans, net of unearned income, were $377.4 million at March 31, 2014, compared to $383.3 million at December 31, 2013. The decrease in loans over the past several quarters was primarily due to a decline in construction and land development loans. Four loan categories represented the majority of the loan portfolio at March 31, 2014: commercial real estate (47%), residential real estate (27%), construction and land development (8%) and commercial and industrial (14%). Approximately 30% of the Company’s commercial real estate loans were classified as owner-occupied at March 31, 2014.

Within the residential real estate portfolio segment, the Company had junior lien mortgages of approximately $16.3 million, or 4% of total loans, at March 31, 2014, compared to $15.8 million, or 4% of total loans, at December 31, 2013. For residential real estate mortgage loans with a consumer purpose, approximately $0.8 million and $1.2 million required interest-only payments at March 31, 2014 and December 31, 2013, respectively. The Company’s residential real estate mortgage portfolio does not include any option ARM loans, subprime loans, or any material amount of other high-risk consumer mortgage products.

Purchased loan participations included in the Company’s loan portfolio were approximately $1.4 million at both March 31, 2014 and December 31, 2013. All purchased loan participations are underwritten by the Company independent of the selling bank. In addition, all loans, including purchased participations, are evaluated for collectability during the course of the Company’s normal loan review procedures. If the Company deems a participation loan impaired, it applies the same accounting policies and procedures described under “CRITICAL ACCOUNTING POLICIES – Allowance for Loan Losses”.

The average yield earned on loans and loans held for sale was 5.13% in the first quarter of 2014 and 5.40% in the first quarter of 2013.

The specific economic and credit risks associated with our loan portfolio include, but are not limited to, the effects of current economic conditions on our borrowers’ cash flows, real estate market sales volumes, valuations, availability and cost of financing properties, real estate industry concentrations, deterioration in certain credits, interest rate fluctuations, reduced collateral values or non-existent collateral, title defects, inaccurate appraisals, financial deterioration of borrowers, fraud, and any violation of applicable laws and regulations.

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The Company attempts to reduce these economic and credit risks by adhering to loan to value guidelines for collateralized loans, investigating the creditworthiness of borrowers and monitoring borrowers’ financial position. Also, we establish and periodically review our lending policies and procedures. Banking regulations limit a bank’s credit exposure by prohibiting unsecured loan relationships that exceed 10% of its capital accounts; or 20% of capital accounts if loans in excess of 10% are fully secured. Under these regulations, we are prohibited from having unsecured loan relationships in excess of approximately $16.1 million. Furthermore, we have an internal limit for aggregate credit exposure (loans outstanding plus unfunded commitments) to a single borrower of $14.5 million. Our loan policy requires that the Loan Committee of the Board of Directors approve any loan relationships that exceed this internal limit. At March 31, 2014, the Bank had no loan relationships exceeding these limits.

We periodically analyze our commercial loan portfolio to determine if a concentration of credit risk exists in any one or more industries. We use classification systems broadly accepted by the financial services industry in order to categorize our commercial borrowers. Loan concentrations to borrowers in the following classes exceeded 25% of the Bank’s total risk-based capital at March 31, 2014 (and related balances at December 31, 2013).

(In thousands)	March 31, 2014		December 31, 2013
Lessors of 1 to 4 family residential properties	$	42,984	$	43,835
Multi-family residential properties		27,245		27,673
Shopping centers		29,691		29,953

Allowance for Loan Losses

The Company maintains the allowance for loan losses at a level that management believes appropriate to adequately cover the Company’s estimate of probable losses inherent in the loan portfolio. At March 31, 2014 and December 31, 2013, the allowance for loan losses was $4.7 million and $5.3 million, respectively, which management believed to be adequate at each of the respective dates. The judgments and estimates associated with the determination of the allowance for loan losses are described under “CRITICAL ACCOUNTING POLICIES.”

A summary of the changes in the allowance for loan losses and certain asset quality ratios for the first quarter of 2014 and the previous four quarters is presented below.

	2014		2013
	First		Fourth		Third		Second		First
(Dollars in thousands)	Quarter		Quarter		Quarter		Quarter		Quarter
Balance at beginning of period	$	5,268		5,946		6,457		6,769		6,723
Charge-offs:
Commercial and industrial		—		(269)		(177)		—		(68)
Construction and land development		(236)		—		—		—		(39)
Commercial real estate		—		—		(144)		(118)		—
Residential real estate		(31)		(250)		(103)		(189)		(266)
Consumer installment		(36)		(198)		(137)		(45)		(17)
Total charge-offs		(303)		(717)		(561)		(352)		(390)
Recoveries		146		39		50		40		36
Net charge-offs		(157)		(678)		(511)		(312)		(354)
Provision for loan losses		(400)		—		—		—		400
Ending balance	$	4,711		5,268		5,946		6,457		6,769
as a % of loans		1.25%		1.37		1.56		1.65		1.73
as a % of nonperforming loans		148%		124		134		138		143
Annualized net charge-offs as % of average loans		0.17%		0.71		0.53		0.32		0.36

As described under “CRITICAL ACCOUNTING POLICIES,” management assesses the adequacy of the allowance prior to the end of each calendar quarter. The level of the allowance is based upon management’s evaluation of the loan portfolios, past loan loss experience, known and inherent risks in the portfolio, adverse situations that may affect the borrower’s ability to repay (including the timing of future payment), the estimated value of any underlying collateral, composition of the loan portfolio, economic conditions, industry and peer bank loan loss rates and other pertinent factors. This evaluation is inherently subjective as it requires various material estimates and judgments, including the amounts and

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timing of future cash flows expected to be received on impaired loans that may be susceptible to significant change. The ratio of our allowance for loan losses to total loans outstanding was 1.25% at March 31, 2014, compared to 1.37% at December 31, 2013. In the future, the allowance to total loans outstanding ratio will increase or decrease to the extent the factors that influence our quarterly allowance assessment in their entirety either improve or weaken. In addition, our regulators, as an integral part of their examination process, will periodically review the Company’s allowance for loan losses, and may require the Company to make additional provisions to the allowance for losses based on their judgment about information available to them at the time of their examinations.

At March 31, 2014, the ratio of our allowance for loan losses as a percentage of nonperforming loans was 148%, compared to 124% at December 31, 2013. The increase was primarily due to the payoff of one nonperforming commercial real estate loan during the first quarter of 2014 with a total recorded investment of $0.7 million and no related allowance for loan losses at December 31, 2013. Excluding this nonperforming loan, the ratio of our allowance for loan losses as a percentage of nonperforming loans was 150% at December 31, 2013.

At March 31, 2014, the Company’s recorded investment in loans considered impaired was $4.6 million, with a corresponding valuation allowance (included in the allowance for loan losses) of $0.2 million. At December 31, 2013, the Company’s recorded investment in loans considered impaired was $5.6 million, with a corresponding valuation allowance (included in the allowance for loan losses) of $0.3 million.

Nonperforming Assets

At March 31, 2014, the Company had $6.3 million in nonperforming assets, compared to $8.1 million at December 31, 2013. The majority of the balance in nonperforming assets at March 31, 2014 related to deterioration in the commercial real estate and construction and land development loan portfolios.

The table below provides information concerning total nonperforming assets and certain asset quality ratios for the first quarter of 2014 and the previous four quarters.

	2014			2013
	First			Fourth		Third		Second		First
(Dollars in thousands)	Quarter			Quarter		Quarter		Quarter		Quarter
Nonperforming assets:
Nonaccrual loans	$	3,188			4,261		4,425		4,664		4,748
Other real estate owned		3,111			3,884		4,585		3,609		4,810
Total nonperforming assets	$	6,299			8,145		9,010		8,273		9,558
as a % of loans and other real estate owned		1.66	%		2.10		2.34		2.10		2.42
as a % of total assets		0.81	%		1.08		1.21		1.08		1.24
Nonperforming loans as a % of total loans		0.84	%		1.11		1.16		1.19		1.22
Accruing loans 90 days or more past due	$	131			73		99		—		—

The table below provides information concerning the composition of nonaccrual loans for the first quarter of 2014 and the previous four quarters.

	2014		2013
	First		Fourth		Third		Second		First
(In thousands)	Quarter		Quarter		Quarter		Quarter		Quarter
Nonaccrual loans:
Commercial and industrial	$	54		55		56		57		59
Construction and land development		1,371		1,582		1,592		1,601		1,615
Commercial real estate		710		1,456		1,467		1,484		1,610
Residential real estate		1,046		1,168		1,310		1,520		1,459
Consumer installment		7		—		—		2		5
Total nonaccrual loans	$	3,188		4,261		4,425		4,664		4,748

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The Company discontinues the accrual of interest income when (1) there is a significant deterioration in the financial condition of the borrower and full repayment of principal and interest is not expected or (2) the principal or interest is 90 days or more past due, unless the loan is both well-secured and in the process of collection. At March 31, 2014, the Company had $3.2 million in loans on nonaccrual, compared to $4.3 million at December 31, 2013.

At March 31, 2014, there were $131,000 in loans 90 days or more past due and still accruing interest compared to $73,000 at December 31, 2013.

The table below provides information concerning the composition of other real estate owned for the first quarter of 2014 and the previous four quarters.

	2014		2013
	First		Fourth		Third		Second		First
(In thousands)	Quarter		Quarter		Quarter		Quarter		Quarter
Other real estate owned:
Commercial:
Buildings	$	1,515		1,772		1,829		535		540
Developed lots		1,260		1,260		1,275		1,275		1,275
Residential:
Undeveloped land		113		113		242		242		1,464
Other		223		739		1,239		1,557		1,531
Total other real estate owned	$	3,111		3,884		4,585		3,609		4,810

At March 31, 2014 and December 31, 2013, respectively, the Company held $3.1 million and $3.9 million in OREO, which we acquired from borrowers. At March 31, 2014, approximately 89% of the total balance in OREO related to properties acquired from three borrowers with a total carrying value of $2.8 million.

Potential Problem Loans

Potential problem loans represent those loans with a well-defined weakness and where information about possible credit problems of borrowers has caused management to have serious doubts about the borrower’s ability to comply with present repayment terms. This definition is believed to be substantially consistent with the standards established by the Federal Reserve, the Company’s primary regulator, for loans classified as substandard, excluding nonaccrual loans. Potential problem loans, which are not included in nonperforming assets, amounted to $8.4 million, or 2.2% of total loans at March 31, 2014, compared to $10.6 million, or 2.7% of total loans at December 31, 2013.

The table below provides information concerning the composition of performing potential problem loans for the first quarter of 2014 and the previous four quarters.

	2014		2013
	First		Fourth		Third		Second		First
(In thousands)	Quarter		Quarter		Quarter		Quarter		Quarter
Potential problem loans:
Commercial and industrial	$	449		482		750		884		555
Construction and land development		678		1,101		1,118		1,201		1,288
Commercial real estate		1,211		1,683		1,700		1,833		2,843
Residential real estate		5,913		7,182		7,417		7,772		7,939
Consumer installment		106		146		161		146		197
Total potential problem loans	$	8,357		10,594		11,146		11,836		12,822

At March 31, 2014, approximately $1.1 million or 13.5% of total potential problem loans were past due at least 30 days but less than 90 days. At March 31, 2014, the remaining balance of potential problem loans were current or past due less than 30 days.

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The following table is a summary of the Company’s performing loans that were past due at least 30 days but less than 90 days for the first quarter of 2014 and the previous four quarters.

	2014		2013
	First		Fourth		Third		Second		First
(In thousands)	Quarter		Quarter		Quarter		Quarter		Quarter
Performing loans past due 30 to 89 days:
Commercial and industrial	$	191		167		444		329		47
Construction and land development		157		14		—		—		135
Commercial real estate		461		861		49		1,498		—
Residential real estate		1,834		1,343		489		501		403
Consumer installment		86		100		40		147		36
Total	$	2,729		2,485		1,022		2,475		621

Deposits

Total deposits were $687.1 million at March 31, 2014, compared to $668.9 million at December 31, 2013. Noninterest bearing deposits were $125.6 million, or 18.3% of total deposits, at March 31, 2014, compared to $125.7 million, or 18.8% of total deposits at December 31, 2013. The increase in total deposits of $18.2 million was primarily due to a $13.1 million increase in public depositor account balances which are generally subject to seasonal fluctuations.

The average rate paid on total interest-bearing deposits was 0.91% in the first quarter of 2014 and 1.06% in the first quarter of 2013.

Other Borrowings

Other borrowings consist of short-term borrowings and long-term debt. Short-term borrowings consist of federal funds purchased and securities sold under agreements to repurchase with an original maturity less than one year. The Bank had available federal funds lines totaling $41.0 million with none outstanding at both March 31, 2014 and December 31, 2013. Securities sold under agreements to repurchase totaled $3.3 million and $3.4 million at March 31, 2014 and December 31, 2013, respectively.

The average rate paid on short-term borrowings was 0.47% in the first quarter of 2014 and 0.57% in the first quarter of 2013.

Long-term debt includes FHLB advances with an original maturity greater than one year and subordinated debentures related to trust preferred securities. The Bank had $5.0 million in long-term FHLB advances at both March 31, 2014 and December 31, 2013. At both March 31, 2014 and December 31, 2013, the Company had $7.2 million in junior subordinated debentures related to trust preferred securities outstanding.

The average rate paid on long-term debt was 3.45% in the first quarter of 2014 and 3.70% in the first quarter of 2013.

CAPITAL ADEQUACY

The Company’s consolidated stockholders’ equity was $68.3 million and $64.5 million as of March 31, 2014 and December 31, 2013, respectively. The change from December 31, 2013 was primarily driven by other comprehensive income due to the change in unrealized gains (losses) on securities available-for-sale of $2.8 million and net earnings of $1.8 million, partially offset by cash dividends paid of $0.8 million.

The Company’s tier 1 leverage ratio was 10.03%, tier 1 risk-based capital ratio was 17.55% and total risk-based capital ratio was 18.64% at March 31, 2014. These ratios exceed the minimum regulatory capital percentages of 5.0% for tier 1 leverage ratio, 6.0% for tier 1 risk-based capital ratio and 10.0% for total risk-based capital ratio to be considered “well-capitalized.” Based on current regulatory standards, the Company is classified as “well capitalized.”

41

MARKET AND LIQUIDITY RISK MANAGEMENT

Management’s objective is to manage assets and liabilities to provide a satisfactory, consistent level of profitability within the framework of established liquidity, loan, investment, borrowing, and capital policies. The Bank’s Asset Liability Management Committee (“ALCO”) is charged with the responsibility of monitoring these policies, which are designed to ensure acceptable composition of asset/liability mix. Two critical areas of focus for ALCO are interest rate sensitivity and liquidity risk management.

Interest Rate Sensitivity Management

In the normal course of business, the Company is exposed to market risk arising from fluctuations in interest rates. ALCO measures and evaluates interest rate risk so that the Bank can meet customer demands for various types of loans and deposits. Measurements used to help manage interest rate sensitivity include an earnings simulation model and an economic value of equity model.

Management uses earnings simulation modeling to estimate and manage interest rate risk. Forecasted levels of earning assets, interest-bearing liabilities, and off-balance sheet financial instruments are combined with ALCO forecasts of market interest rates for the next 12 months and are combined with other factors in order to produce various earnings simulations and estimates. To limit interest rate risk, we have guidelines for earnings at risk which seek to limit the variance of net interest income to less than a 10% decline for a 200 basis point change up or down in rates from management’s flat interest rate forecast over the next twelve months. The results of our current simulation model indicate that we were in compliance with our current guidelines at March 31, 2014.

Economic value of equity measures the extent that estimated economic values of our assets, liabilities and off-balance sheet items will change as a result of interest rate changes. Economic values are estimated by discounting expected cash flows from assets, liabilities and off-balance sheet items, which establishes a base case economic value of equity. To help limit interest rate risk, we have a guideline stating that for a 200 basis point instantaneous change in interest rates up or down, the economic value of equity should not decrease by more than 25%. The results of our current economic value of equity model indicate that we were in compliance with our guidelines at March 31, 2014.

Each of the above analyses may not, on its own, be an accurate indicator of how our net interest income will be affected by changes in interest rates. Income associated with interest-earning assets and costs associated with interest-bearing liabilities may not be affected uniformly by changes in interest rates. In addition, the magnitude and duration of changes in interest rates may have a significant impact on net interest income. For example, although certain assets and liabilities may have similar maturities or periods of repricing, they may react in different degrees to changes in market interest rates, and other economic and market factors, including market perceptions. Interest rates on certain types of assets and liabilities fluctuate in advance of changes in general market rates, while interest rates on other types of assets and liabilities may lag behind changes in general market rates. In addition, certain assets, such as adjustable rate mortgage loans, have features (generally referred to as “interest rate caps and floors”) which limit changes in interest rates. Prepayment and early withdrawal levels also could deviate significantly from those assumed in calculating the maturity of certain instruments. The ability of many borrowers to service their debts also may decrease during periods of rising interest rates or economic stress, which may differ across industries and economic sectors. ALCO reviews each of the above interest rate sensitivity analyses along with several different interest rate scenarios in seeking satisfactory, consistent levels of profitability within the framework of the Company’s established liquidity, loan, investment, borrowing, and capital policies.

The Company may also use derivative financial instruments to improve the balance between interest-sensitive assets and interest-sensitive liabilities and as one tool to manage interest rate sensitivity while continuing to meet the credit and deposit needs of our customers. From time to time, the Company may enter into interest rate swaps (“swaps”) to facilitate customer transactions and meet their financing needs. These swaps qualify as derivatives, but are not designated as hedging instruments. At March 31, 2014 and December 31, 2013, the Company had no derivative contracts designated as part of a hedging relationship to assist in managing its interest rate sensitivity.

Liquidity Risk Management

Liquidity is the Company’s ability to convert assets into cash equivalents in order to meet daily cash flow requirements, primarily for deposit withdrawals, loan demand and maturing obligations. Without proper management of its liquidity, the Company could experience higher costs of obtaining funds due to insufficient liquidity, while excessive liquidity can lead to a decline in earnings due to the cost of foregoing alternative higher-yielding investment opportunities.

Liquidity is managed at two levels. The first is the liquidity of the Company. The second is the liquidity of the Bank. The management of liquidity at both levels is essential, because the Company and the Bank are separate legal entities with different funding needs and sources, and each are subject to regulatory guidelines and requirements.

42

The primary source of funding and the primary source of liquidity for the Company include dividends received from the Bank, and secondarily proceeds from the possible issuance of common stock or other securities. Primary uses of funds for the Company include dividends paid to stockholders, stock repurchases, and interest payments on junior subordinated debentures issued by the Company in connection with trust preferred securities. The junior subordinated debentures are presented as long-term debt in the accompanying Consolidated Balance Sheets and the related trust preferred securities are currently includible in Tier 1 Capital for regulatory capital purposes.

Primary sources of funding for the Bank include customer deposits, other borrowings, repayment and maturity of securities, sales of securities, and sale and repayment of loans. The Bank has access to federal funds lines from various banks and borrowings from the Federal Reserve discount window. In addition to these sources, the Bank has participated in the FHLB’s advance program to obtain funding for its growth. Advances include both fixed and variable terms and are taken out with varying maturities. At March 31, 2014, the Bank had a remaining available line of credit with the FHLB totaling $214.5 million. At March 31, 2014, the Bank also had $41.0 million of available federal funds lines with none outstanding. Primary uses of funds include repayment of maturing obligations and growing the loan portfolio.

Management believes that the Company and the Bank have adequate sources of liquidity to meet all known contractual obligations and unfunded commitments, including loan commitments and reasonable borrower, depositor, and creditor requirements over the next twelve months.

Off-Balance Sheet Arrangements, Commitments and Contingencies

At March 31, 2014, the Bank had outstanding standby letters of credit of $8.3 million and unfunded loan commitments outstanding of $38.9 million. Because these commitments generally have fixed expiration dates and many will expire without being drawn upon, the total commitment level does not necessarily represent future cash requirements. If needed to fund these outstanding commitments, the Bank could liquidate federal funds sold or a portion of securities available-for-sale, or draw on its available credit facilities.

Mortgage lending activities

Since 2009, we have primarily sold residential mortgage loans in the secondary market to Fannie Mae while retaining the servicing of these loans. The sale agreements for these residential mortgage loans with Fannie Mae and other investors include various representations and warranties regarding the origination and characteristics of the residential mortgage loans. Although the representations and warranties vary among investors, they typically cover ownership of the loan, validity of the lien securing the loan, the absence of delinquent taxes or liens against the property securing the loan, compliance with loan criteria set forth in the applicable agreement, compliance with applicable federal, state, and local laws, among other matters.

As of March 31, 2014, the unpaid principal balance of the residential mortgage loans, which we have originated and sold, but retained the servicing rights was $358.4 million. Although these loans are generally sold on a non-recourse basis, except for breaches of customary seller representations and warranties, we may have to repurchase residential mortgage loans in cases where we breach such representations or warranties or the other terms of the sale, such as where we fail to deliver required documents or the documents we deliver are defective. Investors also may require the repurchase of a mortgage loan when an early payment default underwriting review reveals significant underwriting deficiencies, even if the mortgage loan has subsequently been brought current. Repurchase demands are typically reviewed on an individual loan by loan basis to validate the claims made by the investor and to determine if a contractually required repurchase event has occurred. We seek to reduce and manage the risks of potential repurchases or other claims by mortgage loan investors through our underwriting, quality assurance and servicing practices, including good communications with our residential mortgage investors.

We were not required to repurchase any residential mortgage loans in the first quarter of 2014 or during the full year 2013.

We service all residential mortgage loans originated and sold by us to Fannie Mae. As servicer, our primary duties are to: (1) collect payments due from borrowers; (2) advance certain delinquent payments of principal and interest; (3) maintain and administer any hazard, title, or primary mortgage insurance policies relating to the mortgage loans; (4) maintain any required escrow accounts for payment of taxes and insurance and administer escrow payments; and (5) foreclose on defaulted mortgage loans or take other actions to mitigate the potential losses to investors consistent with the agreements governing our rights and duties as servicer.

43

The agreement under which we act as servicer generally specifies a standard of responsibility for actions taken by us in such capacity and provides protection against expenses and liabilities incurred by us when acting in compliance with the respective servicing agreements. However, if we commit a material breach of our obligations as servicer, we may be subject to termination if the breach is not cured within a specified period following notice. The standards governing servicing and the possible remedies for violations of such standards are determined by servicing guides issued by Fannie Mae as well as the contract provisions established between Fannie Mae and the Bank. Remedies could include repurchase of an affected loan.

Although to date repurchase requests related to representation and warranty provisions, and servicing activities have been limited, it is possible that requests to repurchase mortgage loans may increase in frequency if investors more aggressively pursue all means of recovering losses on their purchased loans. As of March 31, 2014, we believe that this exposure is not material due to the historical level of repurchase requests and loss trends, in addition to the fact that 99.6% of our residential mortgage loans serviced for Fannie Mae were current as of such date. We maintain ongoing communications with our investors and will continue to evaluate this exposure by monitoring the level and number of repurchase requests as well as the delinquency rates in our investor portfolios.

Effects of Inflation and Changing Prices

The Condensed Consolidated Financial Statements and related consolidated financial data presented herein have been prepared in accordance with U.S. generally accepted accounting principles and practices within the banking industry which require the measurement of financial position and operating results in terms of historical dollars without considering the changes in the relative purchasing power of money over time due to inflation. Unlike most industrial companies, virtually all the assets and liabilities of a financial institution are monetary in nature. As a result, interest rates have a more significant impact on a financial institution’s performance than the effects of general levels of inflation.

CURRENT ACCOUNTING DEVELOPMENTS

The following Accounting Standards Updates (“Updates” or “ASUs”) have been issued by the FASB but are not yet effective.

• ASU 2014-01, Accounting for Investments in Qualified Affordable Housing Projects; and

• ASU 2014-04, Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure.

Information about these pronouncements is described in more detail below.

ASU 2014-01, Accounting for Investments in Qualified Affordable Housing Projects, amends the criteria a company must meet to elect to account for investments in qualified affordable housing projects using a method other than the cost or equity methods. If the criteria are met, a company is permitted to amortize the initial investment cost in proportion to and over the same period as the total tax benefits the company expects to receive. The amortization of the initial investment cost and tax benefits are to be recorded in the income tax expense line. The Update also requires new disclosures about all investments in qualified affordable housing projects regardless of the accounting method used. These changes are effective for the Company in the first quarter of 2015 with retrospective application. Early adoption is permitted. The Company is evaluating the impact this ASU will have on our consolidated financial statements.

ASU 2014-04, Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure, clarifies the timing of when a creditor is considered to have taken physical possession of residential real estate collateral for a consumer mortgage loan, resulting in the reclassification of the loan receivable to real estate owned. A creditor has taken physical possession of the property when either (1) the creditor obtains legal title through foreclosure, or (2) the borrower transfers all interests in the property to the creditor via a deed in lieu of foreclosure or a similar legal agreement. The Update also requires disclosure of the amount of foreclosed residential real estate property held by the creditor and the recorded investment in residential real estate mortgage loans that are in process of foreclosure. These changes are effective for the Company in the first quarter of 2015 with retrospective application. Early adoption is permitted. Adoption of this ASU will not have a significant impact on the financial statements of the Company.

44

Table 1 – Explanation of Non-GAAP Financial Measures

In addition to results presented in accordance with U.S. generally accepted accounting principles (GAAP), this quarterly report on Form 10-Q includes certain designated net interest income amounts presented on a tax-equivalent basis, a non-GAAP financial measure, including the presentation of total revenue and the calculation of the efficiency ratio.

The Company believes the presentation of net interest income on a tax-equivalent basis provides comparability of net interest income from both taxable and tax-exempt sources and facilitates comparability within the industry. Although the Company believes these non-GAAP financial measures enhance investors’ understanding of its business and performance, these non-GAAP financial measures should not be considered an alternative to GAAP. The reconciliations of these non-GAAP financial measures to their most directly comparable GAAP financial measures are presented below.

	2014		2013
	First		Fourth		Third		Second		First
(in thousands)	Quarter		Quarter		Quarter		Quarter		Quarter
Net interest income (GAAP)	$	5,270		5,279		5,270		5,232		5,141
Tax-equivalent adjustment		324		342		351		365		382
Net interest income (Tax-equivalent)	$	5,594		5,621		5,621		5,597		5,523

45

Table 2—Selected Quarterly Financial Data

	2014			2013
	First			Fourth		Third		Second		First
(Dollars in thousands, except per share amounts)	Quarter			Quarter		Quarter		Quarter		Quarter
Results of Operations
Net interest income (a)	$	5,594			5,621		5,621		5,597		5,523
Less: tax-equivalent adjustment		324			342		351		365		382
Net interest income (GAAP)		5,270			5,279		5,270		5,232		5,141
Noninterest income		756			2,140		1,432		2,071		1,655
Total revenue		6,026			7,419		6,702		7,303		6,796
Provision for loan losses		(400	)		—		—		—		400
Noninterest expense		3,948			5,188		4,274		4,724		4,226
Income tax expense		657			501		636		672		481
Net earnings	$	1,821			1,730		1,792		1,907		1,689
Per share data:
Basic and diluted net earnings	$	0.50			0.47		0.49		0.52		0.46
Cash dividends declared		0.215			0.21		0.21		0.21		0.21
Weighted average shares outstanding:
Basic and diluted		3,643,161			3,643,110		3,643,028		3,642,955		3,642,918
Shares outstanding, at period end		3,643,173			3,643,118		3,643,058		3,642,993		3,642,928
Book value	$	18.74			17.70		18.06		17.90		19.27
Common stock price
High	$	25.80			25.75		24.71		22.33		22.60
Low		23.20			23.93		22.00		21.54		20.80
Period end:		23.20			25.00		24.40		22.00		22.00
To earnings ratio		11.72x			12.89		12.64		11.70		11.46
To book value		124	%		141		135		123		114
Performance ratios:
Return on average equity		11.11	%		10.33		10.78		10.74		9.47
Return on average assets		0.96	%		0.92		0.95		1.00		0.87
Dividend payout ratio		43.00	%		44.68		42.86		40.38		45.65
Asset Quality:
Allowance for loan losses as a % of:
Loans		1.25	%		1.37		1.56		1.65		1.73
Nonperforming loans		148	%		124		134		138		143
Nonperforming assets as a % of:
Loans and other real estate owned		1.66	%		2.10		2.34		2.10		2.42
Total assets		0.81	%		1.08		1.21		1.08		1.24
Nonperforming loans as a % of total loans		0.84	%		1.11		1.16		1.19		1.22
Annualized net charge-offs as % of average loans		0.17	%		0.71		0.53		0.32		0.36
Capital Adequacy:
Tier 1 risk-based capital ratio		17.55	%		17.19		17.29		16.45		16.32
Total risk-based capital ratio		18.64	%		18.40		18.55		17.70		17.57
Tier 1 Leverage Ratio		10.03	%		10.10		9.96		9.76		9.42
Other financial data:
Net interest margin (a)		3.20	%		3.20		3.19		3.16		3.09
Effective income tax rate		26.51	%		22.46		26.19		26.06		22.17
Efficiency ratio (b)		62.17	%		66.85		60.60		61.61		58.87
Selected average balances:
Securities	$	268,013			260,091		265,380		266,056		263,074
Loans, net of unearned income		377,322			379,450		383,460		389,402		396,436
Total assets		762,153			748,894		751,311		761,534		777,756
Total deposits		678,324			653,825		651,334		652,952		653,802
Long-term debt		12,217			21,347		26,782		31,613		46,661
Total stockholders’ equity		65,556			67,015		66,485		71,006		71,317
Selected period end balances:
Securities	$	279,989			271,219		259,467		270,794		270,219
Loans, net of unearned income		377,350			383,339		380,705		390,726		390,570
Allowance for loan losses		4,711			5,268		5,946		6,457		6,769
Total assets		773,333			751,343		744,602		767,747		772,155
Total deposits		687,088			668,844		650,421		666,490		659,056
Long-term debt		12,217			12,217		22,217		27,217		37,217
Total stockholders’ equity		68,284			64,485		65,807		65,211		70,217

(a) Tax-equivalent. See “Table 1 - Explanation of Non-GAAP Financial Measures.”

(b) Efficiency ratio is the result of noninterest expense divided by the sum of noninterest income and tax-equivalent net interest income.

46

Table 3—Average Balances and Net Interest Income Analysis

	Quarter ended March 31,
	2014						2013
			Interest						Interest
	Average		Income/		Yield/		Average		Income/		Yield/
(Dollars in thousands)	Balance		Expense		Rate		Balance		Expense		Rate
Interest-earning assets:
Loans and loans held for sale (1)	$	378,780	$	4,790		5.13%	$	400,062	$	5,328		5.40%
Securities - taxable		206,630		1,176		2.31%		191,211		874		1.85%
Securities - tax-exempt (2)		61,383		951		6.28%		71,863		1,124		6.34%
Total securities		268,013		2,127		3.22%		263,074		1,998		3.08%
Federal funds sold		55,120		25		0.18%		60,814		31		0.21%
Interest bearing bank deposits		7,700		17		0.90%		593		—		—
Total interest-earning assets		709,613	$	6,959		3.98%		724,543	$	7,357		4.12%
Cash and due from banks		12,835						16,515
Other assets		39,705						36,698
Total assets	$	762,153					$	777,756
Interest-bearing liabilities:
Deposits:
NOW	$	106,331	$	84		0.32%	$	105,578	$	82		0.31%
Savings and money market		189,601		237		0.51%		167,928		217		0.52%
Certificates of deposits less than $100,000		104,646		313		1.21%		105,452		380		1.46%
Certificates of deposits and other time deposits of $100,000 or more		157,431		623		1.60%		155,858		725		1.89%
Total interest-bearing deposits		558,009		1,257		0.91%		534,816		1,404		1.06%
Short-term borrowings		3,478		4		0.47%		2,862		4		0.57%
Long-term debt		12,217		104		3.45%		46,661		426		3.70%
Total interest-bearing liabilities		573,704	$	1,365		0.96%		584,339	$	1,834		1.27%
Noninterest-bearing deposits		120,315						118,986
Other liabilities		2,578						3,114
Stockholders’ equity		65,556						71,317
Total liabilities and stockholders’ equity	$	762,153					$	777,756
Net interest income and margin			$	5,594		3.20%			$	5,523		3.09%

(1) Average loan balances are shown net of unearned income and loans on nonaccrual status have been included in the computation of average balances.

(2) Yields on tax-exempt securities have been computed on a tax-equivalent basis using an income tax rate of 34%.

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Table 4—Loan Portfolio Composition

	2014		2013
	First		Fourth		Third		Second		First
(In thousands)	Quarter		Quarter		Quarter		Quarter		Quarter
Commercial and industrial	$	54,632		57,780		58,766		56,030		55,736
Construction and land development		31,275		36,479		37,062		45,886		41,104
Commercial real estate		178,721		174,920		170,520		177,291		178,993
Residential real estate		101,433		101,706		102,565		99,021		102,978
Consumer installment		11,766		12,893		12,170		12,747		12,026
Total loans		377,827		383,778		381,083		390,975		390,837
Less: unearned income		(477)		(439)		(378)		(249)		(267)
Loans, net of unearned income		377,350		383,339		380,705		390,726		390,570
Less: allowance for loan losses		(4,711)		(5,268)		(5,946)		(6,457)		(6,769)
Loans, net	$	372,639		378,071		374,759		384,269		383,801

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Table 5—Allowance for Loan Losses and Nonperforming Assets

	2014			2013
	First			Fourth		Third		Second		First
(Dollars in thousands)	Quarter			Quarter		Quarter		Quarter		Quarter
Allowance for loan losses:
Balance at beginning of period	$	5,268			5,946		6,457		6,769		6,723
Charge-offs:
Commercial and industrial		—			(269)		(177)		—		(68)
Construction and land development		(236)			—		—		—		(39)
Commercial real estate		—			—		(144)		(118)		—
Residential real estate		(31)			(250)		(103)		(189)		(266)
Consumer installment		(36)			(198)		(137)		(45)		(17)
Total charge-offs		(303)			(717)		(561)		(352)		(390)
Recoveries		146			39		50		40		36
Net charge-offs		(157)			(678)		(511)		(312)		(354)
Provision for loan losses		(400)			—		—		—		400
Ending balance	$	4,711			5,268		5,946		6,457		6,769
as a % of loans		1.25	%		1.37		1.56		1.65		1.73
as a % of nonperforming loans		148	%		124		134		138		143
Annualized net charge-offs as % of average loans		0.17	%		0.71		0.53		0.32		0.36
Nonperforming assets:
Nonaccrual loans	$	3,188			4,261		4,425		4,664		4,748
Other real estate owned		3,111			3,884		4,585		3,609		4,810
Total nonperforming assets	$	6,299			8,145		9,010		8,273		9,558
as a % of loans and other real estate owned		1.66	%		2.10		2.34		2.10		2.42
as a % of total assets		0.81	%		1.08		1.21		1.08		1.24
Nonperforming loans as a % of total loans		0.84	%		1.11		1.16		1.19		1.22
Accruing loans 90 days or more past due	$	131			73		99		—		—

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Table 6—Allocation of Allowance for Loan Losses

	2014				2013
	First Quarter				Fourth Quarter				Third Quarter				Second Quarter				First Quarter
(Dollars in thousands)	Amount		%*		Amount		%*		Amount		%*		Amount		%*		Amount		%*
Commercial and industrial	$	482		14.5	$	386		15.1	$	546		15.4	$	675		14.3	$	569		14.3
Construction and land development		214		8.3		366		9.5		1,189		9.7		1,454		11.7		1,619		10.5
Commercial real estate		2,493		47.3		3,186		45.6		3,104		44.7		3,111		45.3		3,571		45.8
Residential real estate		1,256		26.8		1,114		26.5		982		26.9		1,125		25.3		885		26.3
Consumer installment		266		3.1		216		3.4		125		3.2		92		3.3		125		3.1
Total allowance for loan losses	$	4,711			$	5,268			$	5,946			$	6,457			$	6,769

* Loan balance in each category expressed as a percentage of total loans.

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Table 7—CDs and Other Time Deposits of $100,000 or More

(Dollars in thousands)	March 31, 2014
Maturity of:
3 months or less	$	15,222
Over 3 months through 6 months		16,210
Over 6 months through 12 months		44,497
Over 12 months		82,122
Total CDs and other time deposits of $100,000 or more	$	158,051

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The information called for by ITEM 3 is set forth in ITEM 2 under the caption “MARKET AND LIQUIDITY RISK MANAGEMENT” and is incorporated herein by reference.

ITEM 4. CONTROLS AND PROCEDURES

The Company, with the participation of its management, including its Chief Executive Officer and Principal Financial and Accounting Officer, carried out an evaluation of the effectiveness of the design and operation of its disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report. Based upon that evaluation and as of the end of the period covered by this report, the Company’s Chief Executive Officer and Principal Financial and Accounting Officer concluded that the Company’s disclosure controls and procedures were effective to allow timely decisions regarding disclosure in its reports that the Company files or submits to the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended. There have been no changes in the Company’s internal control over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

In the normal course of business, the Company and the Bank from time to time are involved in legal proceedings. The Company and Bank management believe there are no pending or threatened legal, governmental, or regulatory proceedings that upon resolution are expected to have a material adverse effect upon the Company’s or the Bank’s financial condition or results of operations. See also, Part I, Item 3 of the Company’s annual report on Form 10-K for the year ended December 31, 2013.

ITEM 1A. RISK FACTORS

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I “Item 1A. Risk Factors” in our annual report on Form 10-K for the year ended December 31, 2013, which could materially affect our business, financial condition or future results. The risks described in our annual report on Form 10-K are not the only the risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results in the future. .

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

ISSUER PURCHASES OF EQUITY SECURITIES

Period(1)	Total Number of   Shares Purchased	Average Price Paid   per Share	Total Number of Shares   Purchased as Part of   Publicly Announced   Plans or Programs	Maximum Number of Shares  that May Yet Be Purchased Under the Plans or Programs
January 1 - January 31	––	––	––	––
February 1 - February 28	––	––	––	––
March 1 - March 31	––	––	––	––
Total	––	––	––	––

(1) Based on trade date, not settlement date.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

52

ITEM 5. OTHER INFORMATION

Not applicable.

ITEM 6. EXHIBITS

Exhibit Number	Description
3.1	Certificate of Incorporation of Auburn National Bancorporation, Inc. and all amendments thereto.*
3.2	Amended and Restated Bylaws of Auburn National Bancorporation, Inc., adopted as of November 13, 2007. **
31.1	Certification Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, As Adopted Pursuant To Section 302 of the Sarbanes-Oxley Act of 2002, by E.L. Spencer, Jr., President, Chief Executive Officer and Chairman of the Board.
31.2	Certification Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, As Adopted Pursuant To Section 302 of the Sarbanes-Oxley Act of 2002, by David A. Hedges, Vice President, Controller and Chief Financial Officer (Principal Financial and Accounting Officer).
32.1	Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant To Section 906 of the Sarbanes-Oxley Act of 2002, by David A. Hedges, Vice President, Controller and Chief Financial Officer (Principal Financial and Accounting Officer).***
32.2	Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant To Section 906 of the Sarbanes-Oxley Act of 2002, by E.L. Spencer, Jr., President, Chief Executive Officer and Chairman of the Board.***
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document

* Incorporated by reference from Registrant’s Form 10-Q dated September 30, 2002.

** Incorporated by reference from Registrant’s Form 10-K dated March 31, 2008.

*** The certifications attached as exhibits 32.1 and 32.2 to this quarterly report on Form 10-Q are “furnished” to the Securities and Exchange Commission pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed “filed” by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.

53

SIGNATURES

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

	AUBURN NATIONAL BANCORPORATION, INC.                 (Registrant)
Date: May 5, 2014	By:	/s/ E. L. Spencer, Jr.
		E. L. Spencer, Jr.
		President, Chief Executive Officer and Chairman of the Board

Date: May 5, 2014	By:	/s/ David A. Hedges
		David A. Hedges
		SVP, Controller and Chief Financial Officer (Principal Financial and Accounting Officer)

EX-31.1

AUBURN NATIONAL BANCORPORATION, INC AND SUBSIDIARIES

EXHIBIT 31.1

CERTIFICATION PURSUANT TO

RULE 13a-14 OF THE SECURITIES EXCHANGE ACT OF 1934,

AS ADOPTED PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

CERTIFICATION

I, E.L. Spencer, Jr., certify that:

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

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

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

4. The registrant’s other certifying officer 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: May 5, 2014

/s/ E.L. Spencer, Jr.

President, Chief Executive Officer

and Chairman of the Board

EX-31.2

AUBURN NATIONAL BANCORPORATION, INC AND SUBSIDIARIES

EXHIBIT 31.2

CERTIFICATION PURSUANT TO

RULE 13a-14 OF THE SECURITIES EXCHANGE ACT OF 1934,

AS ADOPTED PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

CERTIFICATION

I, David A. Hedges, certify that:

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

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

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

4. The registrant’s other certifying officer 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: May 5, 2014

/s/ David A. Hedges

SVP, Controller and Chief Financial Officer

EX-32.1

AUBURN NATIONAL BANCORPORATION, INC AND SUBSIDIARIES

EXHIBIT 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the quarterly report of Auburn National Bancorporation, Inc. (the “Company”) on Form 10-Q for the period ending March 31, 2014, as filed with the Securities and Exchange Commission as of the date hereof (the “Report”), I, E.L. Spencer, Jr., President, Chief Executive Officer and Chairman of the Board of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

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

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

Date: May 5, 2014

/s/ E.L. Spencer, Jr.

E.L. Spencer, Jr.

President, Chief Executive Officer

and Chairman of the Board

EX-32.2

AUBURN NATIONAL BANCORPORATION, INC AND SUBSIDIARIES

EXHIBIT 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the quarterly report of Auburn National Bancorporation, Inc. (the “Company”) on Form 10-Q for the period ending March 31, 2014, as filed with the Securities and Exchange Commission as of the date hereof (the “Report”), I, David A. Hedges, Vice President, Controller and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

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

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

Date: May 5, 2014

/s/ David A. Hedges

David A. Hedges

SVP, Controller and Chief Financial Officer

XML

Impaired Loans (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2014	Mar. 31, 2013	Dec. 31, 2013
Financing Receivable, Impaired [Line Items]
Impaired Financing Receivable, with No Related Allowance, Unpaid Principal Balance	$ 5,451		$ 5,897
Impaired Financing Receivable, with No Related Allowance, Charge-off And Payments Applied	(2,354)		(2,194)
Impaired Financing Receivable, with No Related Allowance, Recorded Investment	3,097		3,703
Impaired Financing Receivable, with Related Allowance, Unpaid Principal Balance	1,463		1,929
Impaired Financing Receivable, with Related Allowance, Charge-off And Payments Applied	0		(67)
Impaired Financing Receivable, with Related Allowance, Recorded Investment	1,463		1,862
Impaired Financing Receivable, With Related Allowance, Related Allowance	179		260
Impaired Financing Receivable, Unpaid Principal Balance	6,914		7,826
Impaired Financing Receivable, Charge-off And Payments Applied	(2,354)		(2,261)
Impaired Financing Receivable, Recorded Investment	4,560		5,565
Impaired Financing Receivable, Related Allowance	179		260
Impaired Financing Receivable, Average Recorded Investment [Abstract]
Impaired Financing Receivable, Average Recorded Investment	5,210	7,947
Impaired Financing Receivable, Interest Income, Accrual Method	23	17
Commercial and Industrial Loans [Member]
Financing Receivable, Impaired [Line Items]
Impaired Financing Receivable, with No Related Allowance, Unpaid Principal Balance	112		124
Impaired Financing Receivable, with No Related Allowance, Charge-off And Payments Applied	0		0
Impaired Financing Receivable, with No Related Allowance, Recorded Investment	112		124
Impaired Financing Receivable, Average Recorded Investment [Abstract]
Impaired Financing Receivable, Average Recorded Investment	116	164
Impaired Financing Receivable, Interest Income, Accrual Method	2	3
Construction And Land Development Loans [Member]
Financing Receivable, Impaired [Line Items]
Impaired Financing Receivable, with No Related Allowance, Unpaid Principal Balance	3,326		2,879
Impaired Financing Receivable, with No Related Allowance, Charge-off And Payments Applied	(1,955)		(1,682)
Impaired Financing Receivable, with No Related Allowance, Recorded Investment	1,371		1,197
Impaired Financing Receivable, with Related Allowance, Unpaid Principal Balance			452
Impaired Financing Receivable, with Related Allowance, Charge-off And Payments Applied			(67)
Impaired Financing Receivable, with Related Allowance, Recorded Investment			385
Impaired Financing Receivable, Related Allowance			88
Impaired Financing Receivable, Average Recorded Investment [Abstract]
Impaired Financing Receivable, Average Recorded Investment	1,508	1,619
Impaired Financing Receivable, Interest Income, Accrual Method	0	0
Commercial Real Estate Owner Occupied Loans [Member]
Financing Receivable, Impaired [Line Items]
Impaired Financing Receivable, with No Related Allowance, Unpaid Principal Balance	340		1,217
Impaired Financing Receivable, with No Related Allowance, Charge-off And Payments Applied	(59)		(190)
Impaired Financing Receivable, with No Related Allowance, Recorded Investment	281		1,027
Impaired Financing Receivable, with Related Allowance, Unpaid Principal Balance	868		875
Impaired Financing Receivable, with Related Allowance, Charge-off And Payments Applied	0		0
Impaired Financing Receivable, with Related Allowance, Recorded Investment	868		875
Impaired Financing Receivable, Related Allowance	124		110
Impaired Financing Receivable, Average Recorded Investment [Abstract]
Impaired Financing Receivable, Average Recorded Investment	1,648	2,044
Impaired Financing Receivable, Interest Income, Accrual Method	12	14
Commercial Real Estate Other Loans [Member]
Financing Receivable, Impaired [Line Items]
Impaired Financing Receivable, with No Related Allowance, Unpaid Principal Balance	519		518
Impaired Financing Receivable, with No Related Allowance, Charge-off And Payments Applied	(90)		(89)
Impaired Financing Receivable, with No Related Allowance, Recorded Investment	429		429
Impaired Financing Receivable, with Related Allowance, Unpaid Principal Balance	595		602
Impaired Financing Receivable, with Related Allowance, Charge-off And Payments Applied	0		0
Impaired Financing Receivable, with Related Allowance, Recorded Investment	595		602
Impaired Financing Receivable, Related Allowance	55		62
Impaired Financing Receivable, Average Recorded Investment [Abstract]
Impaired Financing Receivable, Average Recorded Investment	1,026	3,004
Impaired Financing Receivable, Interest Income, Accrual Method	9	0
Commercial Real Estate Loans, Total [Member]
Financing Receivable, Impaired [Line Items]
Impaired Financing Receivable, with No Related Allowance, Unpaid Principal Balance	859		1,735
Impaired Financing Receivable, with No Related Allowance, Charge-off And Payments Applied	(149)		(279)
Impaired Financing Receivable, with No Related Allowance, Recorded Investment	710		1,456
Impaired Financing Receivable, with Related Allowance, Unpaid Principal Balance	1,463		1,477
Impaired Financing Receivable, with Related Allowance, Charge-off And Payments Applied	0		0
Impaired Financing Receivable, with Related Allowance, Recorded Investment	1,463		1,477
Impaired Financing Receivable, Related Allowance	179		172
Impaired Financing Receivable, Average Recorded Investment [Abstract]
Impaired Financing Receivable, Average Recorded Investment	2,674	5,048
Impaired Financing Receivable, Interest Income, Accrual Method	21	14
Residential Real Estate Consumer Mortgage Loans [Member]
Financing Receivable, Impaired [Line Items]
Impaired Financing Receivable, with No Related Allowance, Unpaid Principal Balance	947		952
Impaired Financing Receivable, with No Related Allowance, Charge-off And Payments Applied	(211)		(198)
Impaired Financing Receivable, with No Related Allowance, Recorded Investment	736		754
Impaired Financing Receivable, Average Recorded Investment [Abstract]
Impaired Financing Receivable, Average Recorded Investment	742	811
Impaired Financing Receivable, Interest Income, Accrual Method	0	0
Residential Real Estate Investment Property Loans [Member]
Financing Receivable, Impaired [Line Items]
Impaired Financing Receivable, with No Related Allowance, Unpaid Principal Balance	207		207
Impaired Financing Receivable, with No Related Allowance, Charge-off And Payments Applied	(39)		(35)
Impaired Financing Receivable, with No Related Allowance, Recorded Investment	168		172
Impaired Financing Receivable, Average Recorded Investment [Abstract]
Impaired Financing Receivable, Average Recorded Investment	170	305
Impaired Financing Receivable, Interest Income, Accrual Method	0	0
Residential Real Estate Loans, Total [Member]
Financing Receivable, Impaired [Line Items]
Impaired Financing Receivable, with No Related Allowance, Unpaid Principal Balance	1,154		1,159
Impaired Financing Receivable, with No Related Allowance, Charge-off And Payments Applied	(250)		(233)
Impaired Financing Receivable, with No Related Allowance, Recorded Investment	904		926
Impaired Financing Receivable, Average Recorded Investment [Abstract]
Impaired Financing Receivable, Average Recorded Investment	912	1,116
Impaired Financing Receivable, Interest Income, Accrual Method	$ 0	$ 0

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Fair Value Unobservable Inputs (Details) (Fair Value, Measurements, Nonrecurring [Member], USD $) In Thousands, unless otherwise specified	Mar. 31, 2014
Impaired Loans [Member] | Appraisal, Appraisal Discount [Member]
Schedule Of Fair Value Significant Unobservable Inputs Used [Line Items]
Unobservable Input, Weighted Average of Input Percent	19.7
Impaired Loans [Member] | Carrying (Reported) Amount, Fair Value Disclosure [Member]
Schedule Of Fair Value Significant Unobservable Inputs Used [Line Items]
Assets, Fair Value Disclosure	$ 4,381
Other Real Estate Owned [Member] | Appraisal, Appraisal Discount [Member]
Schedule Of Fair Value Significant Unobservable Inputs Used [Line Items]
Unobservable Input, Weighted Average of Input Percent	15.1
Other Real Estate Owned [Member] | Carrying (Reported) Amount, Fair Value Disclosure [Member]
Schedule Of Fair Value Significant Unobservable Inputs Used [Line Items]
Assets, Fair Value Disclosure	3,111
Mortgage Servicing Rights [Member] | Discounted Cash Flow, Prepayment Speed [Member]
Schedule Of Fair Value Significant Unobservable Inputs Used [Line Items]
Unobservable Input, Weighted Average of Input Percent	8.3
Mortgage Servicing Rights [Member] | Discounted Cash Flow, Discount Rate [Member]
Schedule Of Fair Value Significant Unobservable Inputs Used [Line Items]
Unobservable Input, Weighted Average of Input Percent	10
Mortgage Servicing Rights [Member] | Carrying (Reported) Amount, Fair Value Disclosure [Member]
Schedule Of Fair Value Significant Unobservable Inputs Used [Line Items]
Assets, Fair Value Disclosure	$ 2,368

XML

Securities Textuals (Details) (USD $) In Millions, unless otherwise specified	Mar. 31, 2014	Dec. 31, 2013
Securities (Textuals) [Abstract]
Available-for-sale Securities Pledged as Collateral	$ 140.00	$ 120.50
Cost-method Investments, Aggregate Carrying Amount	$ 1.60	$ 1.80

XML

Basic and Diluted Earnings Per Share (Details) (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended
	Mar. 31, 2014	Mar. 31, 2013
Earnings Per Share Abstract
Net earnings	$ 1,821	$ 1,689
Basic and diluted weighted average shares outstanding	3,643,161	3,642,918
Basic and diluted earnings per share	$ 0.5	$ 0.46

XML

Mortgage Servicing Rights, Net (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2014	Mar. 31, 2013
Servicing Asset at Amortized Value, Balance [Roll Forward]
Servicing Asset at Amortized Cost, Beginning	$ 2,350	$ 1,526
Servicing Asset at Amortized Value, Additions	98	261
Servicing Asset at Amortized Value, Amortization	(80)	(125)
Servicing Asset at Amortized Value, Change In Valuation Allowance	0	66
Servicing Asset at Amortized Cost, Ending	2,368	1,728
Valuation Allowance for Impairment of Recognized Servicing Assets, Balance [Abstract]
Valuation Allowance for Impairment of Recognized Servicing Assets, Beginning Balance	0	386
Valuation Allowance for Impairment of Recognized Servicing Assets, Ending Balance	0	320
Servicing Asset at Amortized Value, Fair Value [Abstract]
Servicing Asset at Amortized Value, Fair Value, Beginning	3,452	1,526
Servicing Asset at Amortized Value, Fair Value, Ending	$ 3,886	$ 1,994

XML

Allowance For Loan Loss Additional Information (Details) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2014	Dec. 31, 2013	Mar. 31, 2013
Financing Receivable Allowance For Credit Loss Additional Information [Line Items]
Financing Receivable, Allowance for Credit Losses, Collectively Evaluated for Impairment	$ 4,532		$ 6,320
Financing Receivable, Collectively Evaluated for Impairment	373,267		385,444
Financing Receivable, Allowance for Credit Losses, Individually Evaluated for Impairment	179		449
Financing Receivable, Individually Evaluated for Impairment	4,560		5,393
Allowance for loan losses	4,711	5,268	6,769
Loans and Leases Receivable, Gross, Carrying Amount	377,827	383,778	390,837
Commercial and Industrial Loans [Member]
Financing Receivable Allowance For Credit Loss Additional Information [Line Items]
Financing Receivable, Allowance for Credit Losses, Collectively Evaluated for Impairment	482		569
Financing Receivable, Collectively Evaluated for Impairment	54,520		55,576
Financing Receivable, Allowance for Credit Losses, Individually Evaluated for Impairment	0		0
Financing Receivable, Individually Evaluated for Impairment	112		160
Allowance for loan losses	482		569
Loans and Leases Receivable, Gross, Carrying Amount	54,632	57,780	55,736
Construction And Land Development Loans [Member]
Financing Receivable Allowance For Credit Loss Additional Information [Line Items]
Financing Receivable, Allowance for Credit Losses, Collectively Evaluated for Impairment	214		1,498
Financing Receivable, Collectively Evaluated for Impairment	29,904		39,489
Financing Receivable, Allowance for Credit Losses, Individually Evaluated for Impairment	0		121
Financing Receivable, Individually Evaluated for Impairment	1,371		1,615
Allowance for loan losses	214		1,619
Loans and Leases Receivable, Gross, Carrying Amount	31,275	36,479	41,104
Commercial Real Estate Loans, Total [Member]
Financing Receivable Allowance For Credit Loss Additional Information [Line Items]
Financing Receivable, Allowance for Credit Losses, Collectively Evaluated for Impairment	2,314		3,327
Financing Receivable, Collectively Evaluated for Impairment	176,548		176,492
Financing Receivable, Allowance for Credit Losses, Individually Evaluated for Impairment	179		244
Financing Receivable, Individually Evaluated for Impairment	2,173		2,501
Allowance for loan losses	2,493		3,571
Loans and Leases Receivable, Gross, Carrying Amount	178,721	174,920	178,993
Residential Real Estate Loans, Total [Member]
Financing Receivable Allowance For Credit Loss Additional Information [Line Items]
Financing Receivable, Allowance for Credit Losses, Collectively Evaluated for Impairment	1,256		801
Financing Receivable, Collectively Evaluated for Impairment	100,529		101,861
Financing Receivable, Allowance for Credit Losses, Individually Evaluated for Impairment	0		84
Financing Receivable, Individually Evaluated for Impairment	904		1,117
Allowance for loan losses	1,256		885
Loans and Leases Receivable, Gross, Carrying Amount	101,433	101,706	102,978
Consumer Installment and Revolving Loans [Member]
Financing Receivable Allowance For Credit Loss Additional Information [Line Items]
Financing Receivable, Allowance for Credit Losses, Collectively Evaluated for Impairment	266		125
Financing Receivable, Collectively Evaluated for Impairment	11,766		12,026
Financing Receivable, Allowance for Credit Losses, Individually Evaluated for Impairment	0		0
Financing Receivable, Individually Evaluated for Impairment	0		0
Allowance for loan losses	266		125
Loans and Leases Receivable, Gross, Carrying Amount	$ 11,766	$ 12,893	$ 12,026

XML

Fair Value Financial Instruments (Details) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2014	Dec. 31, 2013
Carrying (Reported) Amount, Fair Value Disclosure [Member]
Fair Value, Financial Assets: [Abstract]
Fair Value, Financial Instruments, Loans, Net	$ 372,639	$ 378,071
Fair Value, Financial Instruments, Loans Held For Sale	1,250	2,296
Fair Value, Financial Liabilities: [Abstract]
Fair Value, Financial Instruments, Time Deposits	262,209	261,199
Fair Value, Financial Instruments, Long-term Debt	12,217	12,217
Estimate of Fair Value, Fair Value Disclosure [Member]
Fair Value, Financial Assets: [Abstract]
Fair Value, Financial Instruments, Loans, Net	372,112	387,180
Fair Value, Financial Instruments, Loans Held For Sale	1,265	2,310
Fair Value, Financial Liabilities: [Abstract]
Fair Value, Financial Instruments, Time Deposits	265,588	263,985
Fair Value, Financial Instruments, Long-term Debt	12,617	12,569
Fair Value, Inputs, Level 1 [Member]
Fair Value, Financial Assets: [Abstract]
Fair Value, Financial Instruments, Loans, Net	0	0
Fair Value, Financial Instruments, Loans Held For Sale	0	0
Fair Value, Financial Liabilities: [Abstract]
Fair Value, Financial Instruments, Time Deposits	0	0
Fair Value, Financial Instruments, Long-term Debt	0	0
Fair Value, Inputs, Level 2 [Member]
Fair Value, Financial Assets: [Abstract]
Fair Value, Financial Instruments, Loans, Net	0	0
Fair Value, Financial Instruments, Loans Held For Sale	1,265	2,310
Fair Value, Financial Liabilities: [Abstract]
Fair Value, Financial Instruments, Time Deposits	265,588	263,985
Fair Value, Financial Instruments, Long-term Debt	12,617	12,569
Fair Value, Inputs, Level 3 [Member]
Fair Value, Financial Assets: [Abstract]
Fair Value, Financial Instruments, Loans, Net	372,112	387,180
Fair Value, Financial Instruments, Loans Held For Sale	0	0
Fair Value, Financial Liabilities: [Abstract]
Fair Value, Financial Instruments, Time Deposits	0	0
Fair Value, Financial Instruments, Long-term Debt	$ 0	$ 0

XML

Summary of Significant Accounting Policies

3 Months Ended

Mar. 31, 2014

Summary of Signficant Accounting Policies

Significant Accounting Policies Text Block

AUBURN NATIONAL BANCORPORATION, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(Unaudited)

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

General

Auburn National Bancorporation, Inc. (the “Company”) provides a full range of banking services to individual and corporate customers in Lee County, Alabama and surrounding counties through its wholly owned subsidiary, AuburnBank (the “Bank”). The Company does not have any segments other than banking that are considered material.

Basis of Presentation and Use of Estimates

The unaudited consolidated financial statements in this report have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information. Accordingly, these financial statements do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. The unaudited consolidated financial statements include, in the opinion of management, all adjustments necessary to present a fair statement of the financial position and the results of operations for all periods presented. All such adjustments are of a normal recurring nature. The results of operations in the interim statements are not necessarily indicative of the results of operations that the Company and its subsidiaries may achieve for future interim periods or the entire year. For further information, refer to the consolidated financial statements and footnotes included in the Company's annual report on Form 10-K for the year ended December 31,2013.

The unaudited consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. Auburn National Bancorporation Capital Trust I is an affiliate of the Company and was included in these unaudited consolidated financial statements pursuant to the equity method of accounting. Significant intercompany transactions and accounts are eliminated in consolidation.

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as of the balance sheet date and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term include other-than-temporary impairment on investment securities, the determination of the allowance for loan losses, fair value of financial instruments, and the valuation of deferred tax assets and other real estate owned.

Subsequent Events

The Company has evaluated the effects of events and transactions through the date of this filing that have occurred subsequent to March 31,2014. The Company does not believe there were any material subsequent events during this period that would have required further recognition or disclosure in the unaudited consolidated financial statements included in this report.

Accounting Developments

In the first quarter of 2014, the Company adopted new guidance related to the following Accounting Standards Update (“Update” or “ASU”):

•

ASU 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists;

Information about this pronouncement is described in more detail below.

ASU 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists, is expected to eliminate diversity in practice as it provides guidance on financial statement presentation of an unrecognized tax benefit when a net operating loss (NOL) carryforward, a similar tax loss, or a tax credit carryforward exists. Thechanges were effective for the Company during the first quarter of 2014. Adoption of this ASU had no impact on the financial statements of the Company.

XML

Derivative Instruments (Details) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2014	Dec. 31, 2013
Derivative [Line Items]
Derivative, Notional Amount1	$ 9,858	$ 10,034
DerivativeAssetFairValueGrossAsset	788	844
Derivative Asset, Fair Value, Gross Liability	788	844
Derivative, Interest Rate Swap, Pay Fixed, Receive Variable [Member]
Derivative [Line Items]
Derivative, Notional Amount1	4,929	5,017
DerivativeAssetFairValueGrossAsset	0	0
Derivative Asset, Fair Value, Gross Liability	788	844
Derivative, Interest Rate Swap, Pay Variable, Receive Fixed [Member]
Derivative [Line Items]
Derivative, Notional Amount1	4,929	5,017
DerivativeAssetFairValueGrossAsset	788	844
Derivative Asset, Fair Value, Gross Liability	$ 0	$ 0

XML

Securities Continuous Unrealized Loss (Details) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2014	Dec. 31, 2013
Schedule of Available-for-sale Securities [Line Items]
Available-for-sale Securities, Continuous Unrealized Loss Position, Less than Twelve Months, Fair Value	$ 115,828	$ 155,282
Available-for-sale Securities, Continuous Unrealized Loss Position, Less than 12 Months, Aggregate Losses	4,192	8,034
Available-for-sale Securities, Continuous Unrealized Loss Position, Twelve Months or Longer, Fair Value	22,728	16,273
Available-for-sale Securities, Continuous Unrealized Loss Position, 12 Months or Longer, Aggregate Losses	2,078	1,715
Available-for-sale Securities, Continuous Unrealized Loss Position, Fair Value	138,556	171,555
Available-for-sale Securities, Continuous Unrealized Loss Position, Aggregate Losses	6,270	9,749
US Government and Government Agencies and Authorities [Member]
Schedule of Available-for-sale Securities [Line Items]
Available-for-sale Securities, Continuous Unrealized Loss Position, Less than Twelve Months, Fair Value	22,827	35,933
Available-for-sale Securities, Continuous Unrealized Loss Position, Less than 12 Months, Aggregate Losses	1,303	3,182
Available-for-sale Securities, Continuous Unrealized Loss Position, Twelve Months or Longer, Fair Value	18,112	8,590
Available-for-sale Securities, Continuous Unrealized Loss Position, 12 Months or Longer, Aggregate Losses	1,840	1,376
Available-for-sale Securities, Continuous Unrealized Loss Position, Fair Value	40,939	44,523
Available-for-sale Securities, Continuous Unrealized Loss Position, Aggregate Losses	3,143	4,558
Mortgage-backed Securities, Issued by US Government Sponsored Enterprises [Member]
Schedule of Available-for-sale Securities [Line Items]
Available-for-sale Securities, Continuous Unrealized Loss Position, Less than Twelve Months, Fair Value	88,746	109,774
Available-for-sale Securities, Continuous Unrealized Loss Position, Less than 12 Months, Aggregate Losses	2,778	4,393
Available-for-sale Securities, Continuous Unrealized Loss Position, Twelve Months or Longer, Fair Value	4,616	7,683
Available-for-sale Securities, Continuous Unrealized Loss Position, 12 Months or Longer, Aggregate Losses	238	339
Available-for-sale Securities, Continuous Unrealized Loss Position, Fair Value	93,362	117,457
Available-for-sale Securities, Continuous Unrealized Loss Position, Aggregate Losses	3,016	4,732
US States and Political Subdivisions Debt Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Available-for-sale Securities, Continuous Unrealized Loss Position, Less than Twelve Months, Fair Value	4,255	9,575
Available-for-sale Securities, Continuous Unrealized Loss Position, Less than 12 Months, Aggregate Losses	111	459
Available-for-sale Securities, Continuous Unrealized Loss Position, Twelve Months or Longer, Fair Value	0	0
Available-for-sale Securities, Continuous Unrealized Loss Position, 12 Months or Longer, Aggregate Losses	0	0
Available-for-sale Securities, Continuous Unrealized Loss Position, Fair Value	4,255	9,575
Available-for-sale Securities, Continuous Unrealized Loss Position, Aggregate Losses	$ 111	$ 459

XML

Security Types (Details) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2014	Dec. 31, 2013
US Government and Government Agencies and Authorities [Member]
Schedule of Available-for-sale Securities [Line Items]
Available-for-sale Securities, Debt Maturities, within One Year, Fair Value	$ 0	$ 0
Available-for-sale Securities, Debt Maturities, after One Through Five Years, Fair Value	0	0
Available-for-sale Securities, Debt Maturities, after Five Through Ten Years, Fair Value	33,920	23,247
Available-for-sale Securities, Debt Maturities, after Ten Years, Fair Value	22,114	21,275
Available-for-sale Securities, Fair Value, Total	56,034	44,522
Available-for-sale Securities, Gross Unrealized Gain	54	0
Available-for-sale Securities, Gross Unrealized Losses	3,143	4,557
Available-for-sale Securities, Amortized Cost Basis	59,123	49,079
Mortgage-backed Securities, Issued by US Government Sponsored Enterprises [Member]
Schedule of Available-for-sale Securities [Line Items]
Available-for-sale Securities, Debt Maturities, within One Year, Fair Value	0	0
Available-for-sale Securities, Debt Maturities, after One Through Five Years, Fair Value	0	0
Available-for-sale Securities, Debt Maturities, after Five Through Ten Years, Fair Value	7,954	8,306
Available-for-sale Securities, Debt Maturities, after Ten Years, Fair Value	154,755	154,052
Available-for-sale Securities, Fair Value, Total	162,709	162,358
Available-for-sale Securities, Gross Unrealized Gain	1,138	976
Available-for-sale Securities, Gross Unrealized Losses	3,016	4,733
Available-for-sale Securities, Amortized Cost Basis	164,587	166,115
US States and Political Subdivisions Debt Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Available-for-sale Securities, Debt Maturities, within One Year, Fair Value	0	0
Available-for-sale Securities, Debt Maturities, after One Through Five Years, Fair Value	679	1,735
Available-for-sale Securities, Debt Maturities, after Five Through Ten Years, Fair Value	20,402	21,366
Available-for-sale Securities, Debt Maturities, after Ten Years, Fair Value	40,165	41,238
Available-for-sale Securities, Fair Value, Total	61,246	64,339
Available-for-sale Securities, Gross Unrealized Gain	2,236	1,560
Available-for-sale Securities, Gross Unrealized Losses	111	459
Available-for-sale Securities, Amortized Cost Basis	59,121	63,238
Security Maturities, Total [Member]
Schedule of Available-for-sale Securities [Line Items]
Available-for-sale Securities, Debt Maturities, within One Year, Fair Value	0	0
Available-for-sale Securities, Debt Maturities, after One Through Five Years, Fair Value	679	1,735
Available-for-sale Securities, Debt Maturities, after Five Through Ten Years, Fair Value	62,276	52,919
Available-for-sale Securities, Debt Maturities, after Ten Years, Fair Value	217,034	216,565
Available-for-sale Securities, Fair Value, Total	279,989	271,219
Available-for-sale Securities, Gross Unrealized Gain	3,428	2,536
Available-for-sale Securities, Gross Unrealized Losses	6,270	9,749
Available-for-sale Securities, Amortized Cost Basis	$ 282,831	$ 278,432

XML

Fair Value (Details) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2014	Dec. 31, 2013
Estimate of Fair Value, Fair Value Disclosure [Member]
Fair Value Disclosure, Securities Available-for-Sale [Abstract]
Fair Value Disclosure, Agency Obligations	$ 56,034	$ 44,522
Fair Value Disclosure, Agency RMBS	162,709	162,358
Fair Value Disclosure, State and Political Subdivisions	61,246	64,339
Trust Preferred Securities	0	0
Fair Value Disclosure, Securities Available-for-Sale, Total	279,989	271,219
Other Assets, Fair Value Disclosure	788	844
Assets, Fair Value Disclosure, Recurring	280,777	272,063
Liabilities Fair Value Disclosure [Abstract]
Other Liabilities, Fair Value Disclosure	788	844
Liabilities, Fair Value Disclosure, Recurring, Total	788	844
Fair Value, Assets and Liabilities Measured on Nonrecurring Basis [Abstract]
Loans Held-for-sale, Fair Value Disclosure	1,250	2,296
Impaired Loans, Fair Value Disclosure	4,381	5,305
Other Real Esate Owned, Fair Value Disclosure	3,111	3,884
Servicing Asset at Fair Value, Amount	2,368	2,350
Assets, Fair Value Disclosure, Nonrecurring	11,110	13,835
Fair Value, Inputs, Level 1 [Member]
Fair Value Disclosure, Securities Available-for-Sale [Abstract]
Fair Value Disclosure, Agency Obligations	0	0
Fair Value Disclosure, Agency RMBS	0	0
Fair Value Disclosure, State and Political Subdivisions	0	0
Trust Preferred Securities	0	0
Fair Value Disclosure, Securities Available-for-Sale, Total	0	0
Other Assets, Fair Value Disclosure	0	0
Assets, Fair Value Disclosure, Recurring	0	0
Liabilities Fair Value Disclosure [Abstract]
Other Liabilities, Fair Value Disclosure	0	0
Liabilities, Fair Value Disclosure, Recurring, Total	0	0
Fair Value, Assets and Liabilities Measured on Nonrecurring Basis [Abstract]
Loans Held-for-sale, Fair Value Disclosure	0	0
Impaired Loans, Fair Value Disclosure	0	0
Other Real Esate Owned, Fair Value Disclosure	0	0
Servicing Asset at Fair Value, Amount	0	0
Assets, Fair Value Disclosure, Nonrecurring	0	0
Fair Value, Inputs, Level 2 [Member]
Fair Value Disclosure, Securities Available-for-Sale [Abstract]
Fair Value Disclosure, Agency Obligations	56,034	44,522
Fair Value Disclosure, Agency RMBS	162,709	162,358
Fair Value Disclosure, State and Political Subdivisions	61,246	64,339
Trust Preferred Securities	0	0
Fair Value Disclosure, Securities Available-for-Sale, Total	279,989	271,219
Other Assets, Fair Value Disclosure	788	844
Assets, Fair Value Disclosure, Recurring	280,777	272,063
Liabilities Fair Value Disclosure [Abstract]
Other Liabilities, Fair Value Disclosure	788	844
Liabilities, Fair Value Disclosure, Recurring, Total	788	844
Fair Value, Assets and Liabilities Measured on Nonrecurring Basis [Abstract]
Loans Held-for-sale, Fair Value Disclosure	1,250	2,296
Impaired Loans, Fair Value Disclosure	0	0
Other Real Esate Owned, Fair Value Disclosure	0	0
Servicing Asset at Fair Value, Amount	0	0
Assets, Fair Value Disclosure, Nonrecurring	1,250	2,296
Fair Value, Inputs, Level 3 [Member]
Fair Value Disclosure, Securities Available-for-Sale [Abstract]
Fair Value Disclosure, Agency Obligations	0	0
Fair Value Disclosure, Agency RMBS	0	0
Fair Value Disclosure, State and Political Subdivisions	0	0
Trust Preferred Securities	0	0
Fair Value Disclosure, Securities Available-for-Sale, Total	0	0
Other Assets, Fair Value Disclosure	0	0
Assets, Fair Value Disclosure, Recurring	0	0
Liabilities Fair Value Disclosure [Abstract]
Other Liabilities, Fair Value Disclosure	0	0
Liabilities, Fair Value Disclosure, Recurring, Total	0	0
Fair Value, Assets and Liabilities Measured on Nonrecurring Basis [Abstract]
Loans Held-for-sale, Fair Value Disclosure	0	0
Impaired Loans, Fair Value Disclosure	4,381	5,305
Other Real Esate Owned, Fair Value Disclosure	3,111	3,884
Servicing Asset at Fair Value, Amount	2,368	2,350
Assets, Fair Value Disclosure, Nonrecurring	$ 9,860	$ 11,539

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Securities Credit Impaired Debt Securities (Details) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2014	Dec. 31, 2013	Mar. 31, 2013	Dec. 31, 2012
Changes in the credit loss component of credit-impaired debt securities
Other Than Temporary Impairment Credit Losses Recognized In Earnings Credit Losses On Debt Securities Held	$ 0	$ 0	$ 1,257	$ 1,257
Other Than Temporary Impairment Credit Losses Recognized In Earnings Credit Losses On Debt Securities Held	$ 0	$ 0	$ 1,257	$ 1,257

XML

Securities OTTI (Details) (USD $)	3 Months Ended
	Mar. 31, 2014	Mar. 31, 2013
Debt Securties Other Than Temporary Impairment Charges [Abstract]
Other Than Temporary Impairment Charges, Agency RMBS	$ 333,000	$ 0
Other Than Temporary Impairment Charges, Debt Securities Total	333,000	0
Other-Than-Temporary Impairment Charges included in earnings	333,000	0
Other Than Temporary Impairment On Debt Securities [Abstract]
Other Than Temporary Impairment, Securities With Intent To Sell	333,000	0
Other Than Temporary Impairment Charges On Debt Securities, Total	$ 333,000	$ 0

XML

Consolidated Statements of Cash Flows (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2014	Mar. 31, 2013
Consolidated Statements of Cash Flows:
Net earnings	$ 1,821	$ 1,689
Adjustments to reconcile net earnings to net cash provided by operating activties:
Provision for loan and lease losses	(400)	400
Depreciation and amortization	182	233
Premium amortization and discount accretion, net	392	602
Net loss (gain) on securities available-for-sale	307	(161)
Net gain on sale of loans held for sale	(240)	(667)
Decrease in MSR valuation allowance	0	(66)
Net loss (gain) on other real estate owned	126	(39)
Loss on prepayment of long-term debt	0	425
Loans originated for sale	(8,848)	(33,056)
Proceeds from sale of loans	10,037	31,457
Increase in cash surrender value of bank owned life insurance	(126)	(95)
Net decrease in other assets	281	430
Net increase in accrued expenses and other liabilities	44	238
Net cash provided by operating activities	3,576	1,390
Cash flows from investing activities:
Proceeds from sales of securities available-for-sale	0	12,932
Proceeds from maturities of securities available-for-sale	10,119	22,821
Purchase of securities available-for-sale	(15,217)	(48,297)
Decrease in loans, net	5,717	6,652
Net purchases of premises and equipment	0	(437)
Decrease in FHLB stock	235	703
Proceeds from sale of other real estate owned	762	765
Net cash provided by (used in) investing activities	1,616	(4,861)
Cash flows from financing activities:
Net (decrease) increase in noninterest-bearing deposits	(113)	10,006
Net increase in interest-bearing deposits	18,357	12,233
Net decrease in federal funds purchased and securities sold under agreements to repurchase	(97)	(223)
Repayments or retirement of long-term debt	0	(10,425)
Proceeds from sale of treasury stock	1	0
Dividends paid	(782)	(764)
Net cash provided by financing activities	17,366	10,827
Net change in cash and cash equivalents	22,558	7,356
Cash and cash equivalents at beginning of period	54,222	61,949
Cash and cash equivalents at end of period	76,780	69,305
Supplemental disclosures of cash flow information:
Interest	1,418	1,906
Income taxes	156	54
Supplemental disclosure of non-cash transactions:
Real estate acquired through foreclosure	$ 115	$ 617

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Securities Gross Realized Gain Loss (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2014	Mar. 31, 2013
Available-for-sale Securities, Gross Realized Gain (Loss) [Abstract]
Available-for-sale Securities, Gross Realized Gains	$ 26	$ 161
Available-for-sale Securities, Gross Realized Losses	0	0
Other-Than-Temporary Impairment Charges included in earnings	(333)	0
Available-for-sale Securities, Gross Realized Gain (Loss), Net	$ (307)	$ 161

XML

Troubled Debt Restructuring (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2014	Dec. 31, 2013
Commercial and Industrial Loans [Member]
Impaired Financing Receivable And Troubled Debt Restructing [Line Items]
Impaired Financing Receivable, Troubled Debt Restructuring, Still Accruing		$ 112	$ 124
Impaired Financing Receivable, Troubled Debt Restructuring, Nonaccrual		0	0
Impaired Financing Receivable, Trouble Debt Structuring, Total		112	124
Impaired Financing Receivable, Troubled Debt Restructuring, Allowance for Credit Losses		0	0
Construction And Land Development Loans [Member]
Impaired Financing Receivable And Troubled Debt Restructing [Line Items]
Impaired Financing Receivable, Troubled Debt Restructuring, Still Accruing		0	0
Impaired Financing Receivable, Troubled Debt Restructuring, Nonaccrual		1,371	1,582
Impaired Financing Receivable, Trouble Debt Structuring, Total		1,371	1,582
Impaired Financing Receivable, Troubled Debt Restructuring, Allowance for Credit Losses		0	88
Financing Receivable, Modifications, Subsequent Default [Line Items]
Financing Receivable, Modifications, Subsequent Default, Number of Contracts	1
Financing Receivable, Modifications, Subsequent Default, Recorded Investment	1,197
Commercial Real Estate Owner Occupied Loans [Member]
Impaired Financing Receivable And Troubled Debt Restructing [Line Items]
Impaired Financing Receivable, Troubled Debt Restructuring, Still Accruing		868	875
Impaired Financing Receivable, Troubled Debt Restructuring, Nonaccrual		281	285
Impaired Financing Receivable, Trouble Debt Structuring, Total		1,149	1,160
Impaired Financing Receivable, Troubled Debt Restructuring, Allowance for Credit Losses		124	110
Commercial Real Estate Other Loans [Member]
Impaired Financing Receivable And Troubled Debt Restructing [Line Items]
Impaired Financing Receivable, Troubled Debt Restructuring, Still Accruing		595	602
Impaired Financing Receivable, Troubled Debt Restructuring, Nonaccrual		429	429
Impaired Financing Receivable, Trouble Debt Structuring, Total		1,024	1,031
Impaired Financing Receivable, Troubled Debt Restructuring, Allowance for Credit Losses		55	62
Financing Receivable, Modifications [Line Items]
Financing Receivable, Modification, Number of Contracts	1
Financing Receivable, Modification, Pre-Modification Recorded Investment	431
Financing Receivable, Modifications, Post-Modifications Recorded Investment	431
Commercial Real Estate Loans, Total [Member]
Impaired Financing Receivable And Troubled Debt Restructing [Line Items]
Impaired Financing Receivable, Troubled Debt Restructuring, Still Accruing		1,463	1,477
Impaired Financing Receivable, Troubled Debt Restructuring, Nonaccrual		710	714
Impaired Financing Receivable, Trouble Debt Structuring, Total		2,173	2,191
Impaired Financing Receivable, Troubled Debt Restructuring, Allowance for Credit Losses		179	172
Financing Receivable, Modifications [Line Items]
Financing Receivable, Modification, Number of Contracts	1
Financing Receivable, Modification, Pre-Modification Recorded Investment	431
Financing Receivable, Modifications, Post-Modifications Recorded Investment	431
Residential Real Estate Consumer Mortgage Loans [Member]
Impaired Financing Receivable And Troubled Debt Restructing [Line Items]
Impaired Financing Receivable, Troubled Debt Restructuring, Still Accruing		0	0
Impaired Financing Receivable, Troubled Debt Restructuring, Nonaccrual		736	754
Impaired Financing Receivable, Trouble Debt Structuring, Total		736	754
Impaired Financing Receivable, Troubled Debt Restructuring, Allowance for Credit Losses		0	0
Financing Receivable, Modifications [Line Items]
Financing Receivable, Modification, Number of Contracts	1
Financing Receivable, Modification, Pre-Modification Recorded Investment	131
Financing Receivable, Modifications, Post-Modifications Recorded Investment	131
Residential Real Estate Investment Property Loans [Member]
Impaired Financing Receivable And Troubled Debt Restructing [Line Items]
Impaired Financing Receivable, Troubled Debt Restructuring, Still Accruing		0	0
Impaired Financing Receivable, Troubled Debt Restructuring, Nonaccrual		168	172
Impaired Financing Receivable, Trouble Debt Structuring, Total		168	172
Impaired Financing Receivable, Troubled Debt Restructuring, Allowance for Credit Losses		0	0
Residential Real Estate Loans, Total [Member]
Impaired Financing Receivable And Troubled Debt Restructing [Line Items]
Impaired Financing Receivable, Troubled Debt Restructuring, Still Accruing		0	0
Impaired Financing Receivable, Troubled Debt Restructuring, Nonaccrual		904	926
Impaired Financing Receivable, Trouble Debt Structuring, Total		904	926
Impaired Financing Receivable, Troubled Debt Restructuring, Allowance for Credit Losses		0	0
Financing Receivable, Modifications [Line Items]
Financing Receivable, Modification, Number of Contracts	1
Financing Receivable, Modification, Pre-Modification Recorded Investment	131
Financing Receivable, Modifications, Post-Modifications Recorded Investment	131
Trouble Debt Restructurings Total [Member]
Impaired Financing Receivable And Troubled Debt Restructing [Line Items]
Impaired Financing Receivable, Troubled Debt Restructuring, Still Accruing		1,575	1,601
Impaired Financing Receivable, Troubled Debt Restructuring, Nonaccrual		2,985	3,222
Impaired Financing Receivable, Trouble Debt Structuring, Total		4,560	4,823
Impaired Financing Receivable, Troubled Debt Restructuring, Allowance for Credit Losses		179	260
Financing Receivable, Modifications [Line Items]
Financing Receivable, Modification, Number of Contracts	2
Financing Receivable, Modification, Pre-Modification Recorded Investment	562
Financing Receivable, Modifications, Post-Modifications Recorded Investment	562
Financing Receivable, Modifications, Subsequent Default [Line Items]
Financing Receivable, Modifications, Subsequent Default, Number of Contracts	1
Financing Receivable, Modifications, Subsequent Default, Recorded Investment	$ 1,197

XML

Consolidated Balance Sheets (USD $) In Thousands, unless otherwise specified	Mar. 31, 2014	Dec. 31, 2013
Assets:
Cash and due from banks	$ 14,318	$ 13,437
Federal funds sold	60,756	26,965
Interest bearing bank deposits	1,706	13,820
Cash and cash equivalents	76,780	54,222
Securities available-for-sale	279,989	271,219
Loans held for sale	1,250	2,296
Loans, net of unearned income	377,350	383,339
Allowance for loan losses	(4,711)	(5,268)
Loans, net	372,639	378,071
Premises and equipment, net	10,345	10,442
Bank-owned life insurance	17,629	17,503
Other real estate owned	3,111	3,884
Other assets	11,590	13,706
Total assets	773,333	751,343
Deposits:
Noninterest-bearing	125,627	125,740
Interest-bearing	561,461	543,104
Total deposits	687,088	668,844
Federal funds purchased and securities sold under agreements to repurchase	3,266	3,363
Long-term debt	12,217	12,217
Accrued expenses and other liabilities	2,478	2,434
Total liabilities	705,049	686,858
Stockholders' equity:
Preferred stock	0	0
Common stock	39	39
Additional paid-in capital	3,760	3,759
Retained earnings	72,918	71,879
Accumulated other comprehensive loss, net	(1,793)	(4,552)
Less treasury stock, at cost	(6,640)	(6,640)
Total stockholders' equity	68,284	64,485
Total liabilities and stockholders' equity	$ 773,333	$ 751,343

XML

Fair Value Level 3 Recurring (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2014	Mar. 31, 2013
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation, Calculation [Roll Forward]
Fair Value, Measurement with Unobservable Inputs Reconciliation, Recurring Basis, Asset Value, Beginning Balance	$ 0	$ 652
Fair Value, Assets Measured on Recurring Basis, Gain (Loss) Included in Earnings [Abstract]
Fair Value, Measurement with Unobservable Inputs Reconciliation, Recurring Basis, Asset, Gain (Loss) Included in Other Comprehensive Income (Loss)	0	8
Fair Value, Measurement with Unobservable Inputs Reconciliation, Recurring Basis, Asset Value, Ending Balance	$ 0	$ 660

XML

Consolidated Statements of Stockholders' Equity (USD $) In Thousands, except Share data	Total	Common Stock Member	Additional Paid In Capital Member	Retained Earnings Member	Accumulated Other Comprehensive Income Member	Treasury Stock Member
Balance, Beg at Dec. 31, 2012	$ 70,149	$ 39	$ 3,756	$ 67,821	$ 5,174	$ (6,641)
Balance, shares at Dec. 31, 2012	3,957,135
Net earnings	1,689	0	0	1,689	0	0
Other Comprehensive Income (Loss), Net of Tax	(857)	0	0	0	(857)	0
Cash dividends paid	(764)	0	0	(764)	0	0
Balance, End at Mar. 31, 2013	70,217	39	3,756	68,746	4,317	(6,641)
Balance, shares at Mar. 31, 2013	3,957,135
Balance, Beg at Dec. 31, 2013	64,485	39	3,759	71,879	(4,552)	(6,640)
Balance, shares at Dec. 31, 2013	3,957,135
Net earnings	1,821	0	0	1,821	0	0
Other Comprehensive Income (Loss), Net of Tax	2,759	0	0	0	2,759	0
Cash dividends paid	(782)	0	0	(782)	0	0
Sale of treasury stock	1	0	1	0	0	0
Balance, End at Mar. 31, 2014	$ 68,284	$ 39	$ 3,760	$ 72,918	$ (1,793)	$ (6,640)
Balance, shares at Mar. 31, 2014	3,957,135

XML

Loans Past Due Analysis (Details) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2014	Dec. 31, 2013	Mar. 31, 2013
Financing Receivable, Recorded Investment, Past Due [Line Items]
Financing Receivable, Recorded Investment, Current	$ 371,779	$ 376,959
Financing Receivable, Recorded Investment, 30 To 89 Days Past Due	2,729	2,485
Financing Receivable, Recorded Investment, 90 Days Past Due and Still Accruing	131	73
Financing Receivable, Recorded Investment, Total Still Accruing	374,639	379,517
Financing Receivable, Recorded Investment, Nonaccrual Status	3,188	4,261
Loans and Leases Receivable, Gross, Carrying Amount	377,827	383,778	390,837
Commercial and Industrial Loans [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Financing Receivable, Recorded Investment, Current	54,270	57,558
Financing Receivable, Recorded Investment, 30 To 89 Days Past Due	191	167
Financing Receivable, Recorded Investment, 90 Days Past Due and Still Accruing	117	0
Financing Receivable, Recorded Investment, Total Still Accruing	54,578	57,725
Financing Receivable, Recorded Investment, Nonaccrual Status	54	55
Loans and Leases Receivable, Gross, Carrying Amount	54,632	57,780	55,736
Construction And Land Development Loans [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Financing Receivable, Recorded Investment, Current	29,747	34,883
Financing Receivable, Recorded Investment, 30 To 89 Days Past Due	157	14
Financing Receivable, Recorded Investment, 90 Days Past Due and Still Accruing	0	0
Financing Receivable, Recorded Investment, Total Still Accruing	29,904	34,897
Financing Receivable, Recorded Investment, Nonaccrual Status	1,371	1,582
Loans and Leases Receivable, Gross, Carrying Amount	31,275	36,479	41,104
Commercial Real Estate Owner Occupied Loans [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Financing Receivable, Recorded Investment, Current	53,417	54,214
Financing Receivable, Recorded Investment, 30 To 89 Days Past Due	275	861
Financing Receivable, Recorded Investment, 90 Days Past Due and Still Accruing	0	0
Financing Receivable, Recorded Investment, Total Still Accruing	53,692	55,075
Financing Receivable, Recorded Investment, Nonaccrual Status	281	1,027
Loans and Leases Receivable, Gross, Carrying Amount	53,973	56,102
Commercial Real Estate Other Loans [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Financing Receivable, Recorded Investment, Current	124,133	118,389
Financing Receivable, Recorded Investment, 30 To 89 Days Past Due	186	0
Financing Receivable, Recorded Investment, 90 Days Past Due and Still Accruing	0	0
Financing Receivable, Recorded Investment, Total Still Accruing	124,319	118,389
Financing Receivable, Recorded Investment, Nonaccrual Status	429	429
Loans and Leases Receivable, Gross, Carrying Amount	124,748	118,818
Commercial Real Estate Loans, Total [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Financing Receivable, Recorded Investment, Current	177,550	172,603
Financing Receivable, Recorded Investment, 30 To 89 Days Past Due	461	861
Financing Receivable, Recorded Investment, 90 Days Past Due and Still Accruing	0	0
Financing Receivable, Recorded Investment, Total Still Accruing	178,011	173,464
Financing Receivable, Recorded Investment, Nonaccrual Status	710	1,456
Loans and Leases Receivable, Gross, Carrying Amount	178,721	174,920	178,993
Residential Real Estate Consumer Mortgage Loans [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Financing Receivable, Recorded Investment, Current	56,358	56,191
Financing Receivable, Recorded Investment, 30 To 89 Days Past Due	1,340	745
Financing Receivable, Recorded Investment, 90 Days Past Due and Still Accruing	0	69
Financing Receivable, Recorded Investment, Total Still Accruing	57,698	57,005
Financing Receivable, Recorded Investment, Nonaccrual Status	751	866
Loans and Leases Receivable, Gross, Carrying Amount	58,449	57,871
Residential Real Estate Investment Property Loans [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Financing Receivable, Recorded Investment, Current	42,195	42,935
Financing Receivable, Recorded Investment, 30 To 89 Days Past Due	494	598
Financing Receivable, Recorded Investment, 90 Days Past Due and Still Accruing	0	0
Financing Receivable, Recorded Investment, Total Still Accruing	42,689	43,533
Financing Receivable, Recorded Investment, Nonaccrual Status	295	302
Loans and Leases Receivable, Gross, Carrying Amount	42,984	43,835
Residential Real Estate Loans, Total [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Financing Receivable, Recorded Investment, Current	98,553	99,126
Financing Receivable, Recorded Investment, 30 To 89 Days Past Due	1,834	1,343
Financing Receivable, Recorded Investment, 90 Days Past Due and Still Accruing	0	69
Financing Receivable, Recorded Investment, Total Still Accruing	100,387	100,538
Financing Receivable, Recorded Investment, Nonaccrual Status	1,046	1,168
Loans and Leases Receivable, Gross, Carrying Amount	101,433	101,706	102,978
Consumer Installment and Revolving Loans [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Financing Receivable, Recorded Investment, Current	11,659	12,789
Financing Receivable, Recorded Investment, 30 To 89 Days Past Due	86	100
Financing Receivable, Recorded Investment, 90 Days Past Due and Still Accruing	14	4
Financing Receivable, Recorded Investment, Total Still Accruing	11,759	12,893
Financing Receivable, Recorded Investment, Nonaccrual Status	7	0
Loans and Leases Receivable, Gross, Carrying Amount	$ 11,766	$ 12,893	$ 12,026

XML

Mortgage Servicing Rights, Net(Table)

3 Months Ended

Mar. 31, 2014

Mortgage Servicing [Abstract]

Schedule Of Servicing Assets At Fair Value Text Block

		Quarter ended March 31,
(Dollars in thousands)		2014		2013
MSRs, net:
Beginning balance	$	2,350	$	1,526
Additions, net		98		261
Amortization expense		(80)		(125)
Decrease in MSR valuation allowance		—		66
Ending balance	$	2,368		1,728
Valuation allowance included in MSRs, net:
Beginning of period	$	—	$	386
End of period		—		320
Fair value of amortized MSRs:
Beginning of period	$	3,452	$	1,526
End of period		3,886		1,994

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Allowance for Loan Loss (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2014	Mar. 31, 2013
Financing Receivable, Allowance for Credit Losses [Roll Forward]
Financing Receivable, Allowance for Credit Losses	$ 5,268	$ 6,723
Financing Receivable, Allowance for Credit Losses, Charge-offs	(303)	(390)
Financing Receivable, Allowance for Credit Losses, Recoveries	146	36
Financing Receivable Allowance For Credit Losses Net Chargeoffs Recoveries	(157)	(354)
Provision for loan losses	(400)	400
Financing Receivable, Allowance for Credit Losses	4,711	6,769
Commercial and Industrial Loans [Member]
Financing Receivable, Allowance for Credit Losses [Roll Forward]
Financing Receivable, Allowance for Credit Losses	386	812
Financing Receivable, Allowance for Credit Losses, Charge-offs	0	(68)
Financing Receivable, Allowance for Credit Losses, Recoveries	4	12
Financing Receivable Allowance For Credit Losses Net Chargeoffs Recoveries	4	(56)
Provision for loan losses	92	(187)
Financing Receivable, Allowance for Credit Losses	482	569
Construction And Land Development Loans [Member]
Financing Receivable, Allowance for Credit Losses [Roll Forward]
Financing Receivable, Allowance for Credit Losses	366	1,545
Financing Receivable, Allowance for Credit Losses, Charge-offs	(236)	(39)
Financing Receivable, Allowance for Credit Losses, Recoveries	2	0
Financing Receivable Allowance For Credit Losses Net Chargeoffs Recoveries	(234)	(39)
Provision for loan losses	82	113
Financing Receivable, Allowance for Credit Losses	214	1,619
Commercial Real Estate Loans, Total [Member]
Financing Receivable, Allowance for Credit Losses [Roll Forward]
Financing Receivable, Allowance for Credit Losses	3,186	3,137
Financing Receivable, Allowance for Credit Losses, Charge-offs	0	0
Financing Receivable, Allowance for Credit Losses, Recoveries	118	5
Financing Receivable Allowance For Credit Losses Net Chargeoffs Recoveries	118	5
Provision for loan losses	(811)	429
Financing Receivable, Allowance for Credit Losses	2,493	3,571
Residential Real Estate Loans, Total [Member]
Financing Receivable, Allowance for Credit Losses [Roll Forward]
Financing Receivable, Allowance for Credit Losses	1,114	1,126
Financing Receivable, Allowance for Credit Losses, Charge-offs	(31)	(266)
Financing Receivable, Allowance for Credit Losses, Recoveries	16	13
Financing Receivable Allowance For Credit Losses Net Chargeoffs Recoveries	(15)	(253)
Provision for loan losses	157	12
Financing Receivable, Allowance for Credit Losses	1,256	885
Consumer Installment and Revolving Loans [Member]
Financing Receivable, Allowance for Credit Losses [Roll Forward]
Financing Receivable, Allowance for Credit Losses	216	103
Financing Receivable, Allowance for Credit Losses, Charge-offs	(36)	(17)
Financing Receivable, Allowance for Credit Losses, Recoveries	6	6
Financing Receivable Allowance For Credit Losses Net Chargeoffs Recoveries	(30)	(11)
Provision for loan losses	80	33
Financing Receivable, Allowance for Credit Losses	$ 266	$ 125

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Fair Value (Tables)

3 Months Ended

Mar. 31, 2014

Fair Value Disclosures [Abstract]

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

					Quoted Prices in	Significant
					Active Markets	Other	Significant
					for	Observable	Unobservable
					Identical Assets	Inputs	Inputs
(Dollars in thousands)				Amount	(Level 1)	(Level 2)	(Level 3)
March 31, 2014:
Securities available-for-sale:
	Agency obligations		$	56,034	—	56,034	—
	Agency RMBS			162,709	—	162,709	—
	State and political subdivisions			61,246	—	61,246	—
Total securities available-for-sale				279,989	—	279,989	—
Other assets (1)				788	—	788	—
		Total assets at fair value	$	280,777	—	280,777	—
Other liabilities(1)			$	788	—	788	—
		Total liabilities at fair value	$	788	—	788	—
December 31, 2013:
Securities available-for-sale:
	Agency obligations		$	44,522	—	44,522	—
	Agency RMBS			162,358	—	162,358	—
	State and political subdivisions			64,339	—	64,339	—
Total securities available-for-sale				271,219	—	271,219	—
Other assets (1)				844	—	844	—
		Total assets at fair value	$	272,063	—	272,063	—
Other liabilities(1)			$	844	—	844	—
		Total liabilities at fair value	$	844	—	844	—
(1)Represents the fair value of interest rate swap agreements.

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

				Quoted Prices in
				Active Markets	Other	Significant
				for	Observable	Unobservable
			Carrying	Identical Assets	Inputs	Inputs
(Dollars in thousands)			Amount	(Level 1)	(Level 2)	(Level 3)
March 31, 2014:
Loans held for sale		$	1,250	—	1,250	—
Loans, net(1)			4,381	—	—	4,381
Other real estate owned			3,111	—	—	3,111
Other assets (2)			2,368	—	—	2,368
	Total assets at fair value	$	11,110	—	1,250	9,860
December 31, 2013:
Loans held for sale		$	2,296	—	2,296	—
Loans, net(1)			5,305	—	—	5,305
Other real estate owned			3,884	—	—	3,884
Other assets (2)			2,350	—	—	2,350
	Total assets at fair value	$	13,835	—	2,296	11,539
(1)Loans considered impaired under ASC 310-10-35 Receivables. This amount reflects the recorded investment in
	impaired loans, net of any related allowance for loan losses.
(2)Represents MSRs, net, carried at lower of cost or estimated fair value.

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

				Quarter ended March 31,
(Dollars in thousands)				2014		2013
Beginning balance			$	—	$	652
	Total realized and unrealized gains and (losses):
		Included in other comprehensive income		—		8
Ending balance			$	—	$	660

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

					Weighted
		Carrying			Average
(Dollars in thousands)		Amount	Valuation Technique	Significant Unobservable Input	of Input
Nonrecurring:
Impaired loans	$	4,381	Appraisal	Appraisal discounts (%)	19.7	%
Other real estate owned		3,111	Appraisal	Appraisal discounts (%)	15.1	%
Mortgage servicing rights, net		2,368	Discounted cash flow	Prepayment speed or CPR (%)	8.3	%
				Discount rate (%)	10.0	%

Financial Instruments [Table Text Block]

							Fair Value Hierarchy
			Carrying		Estimated		Level 1		Level 2		Level 3
(Dollars in thousands)			amount		fair value		inputs		inputs		Inputs
March 31, 2014:
Financial Assets:
	Loans, net (1)	$	372,639	$	372,112	$	—	$	—	$	372,112
	Loans held for sale		1,250		1,265		—		1,265		—
Financial Liabilities:
	Time Deposits	$	262,209	$	265,588	$	—	$	265,588	$	—
	Long-term debt		12,217		12,617		—		12,617		—
December 31, 2013:
Financial Assets:
	Loans, net (1)	$	378,071	$	387,180	$	—	$	—	$	387,180
	Loans held for sale		2,296		2,310		—		2,310		—
Financial Liabilities:
	Time Deposits	$	261,199	$	263,985	$	—	$	263,985	$	—
	Long-term debt		12,217		12,569		—		12,569		—
(1) Represents loans, net of unearned income and the allowance for loan losses.

XML

Consolidated Statements of Stockholders' Equity (Parentheticals) (USD $)	3 Months Ended
	Mar. 31, 2014	Mar. 31, 2013
Statement of Stockholders' Equity (Parentheticals)
Cash dividends paid per share	$ 0.215	$ 0.21
Treasury shares sold	55	0

XML

Consolidated Balance Sheets (Parentheticals) (USD $)	Mar. 31, 2014	Dec. 31, 2013
Statement of Financial Position [Abstract]
Preferred stock par value	$ 0.01	$ 0.01
Authorized shares, preferred	200,000	200,000
Issued shares, preferred	0	0
Common stock par value	$ 0.01	$ 0.01
Authorized shares, common	8,500,000	8,500,000
Issued shares, common	3,957,135	3,957,135
Treasury stock, shares held	313,962	314,017

XML

Summary of Significant Accounting Policies (Policies)

3 Months Ended

Mar. 31, 2014

Summary of Signficant Accounting Policies

Nature of Operations [Text Block]

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

General

Auburn National Bancorporation, Inc. (the “Company”) provides a full range of banking services to individual and corporate customers in Lee County, Alabama and surrounding counties through its wholly owned subsidiary, AuburnBank (the “Bank”). The Company does not have any segments other than banking that are considered material.

Basis of Accounting [Text Block]

Basis of Presentation and Use of Estimates

The unaudited consolidated financial statements in this report have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information. Accordingly, these financial statements do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. The unaudited consolidated financial statements include, in the opinion of management, all adjustments necessary to present a fair statement of the financial position and the results of operations for all periods presented. All such adjustments are of a normal recurring nature. The results of operations in the interim statements are not necessarily indicative of the results of operations that the Company and its subsidiaries may achieve for future interim periods or the entire year. For further information, refer to the consolidated financial statements and footnotes included in the Company's annual report on Form 10-K for the year ended December 31,2013.

Consolidation Policy [TextBlock]

The unaudited consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. Auburn National Bancorporation Capital Trust I is an affiliate of the Company and was included in these unaudited consolidated financial statements pursuant to the equity method of accounting. Significant intercompany transactions and accounts are eliminated in consolidation.

Use of Estimates, Policy [Policy Text Block]

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as of the balance sheet date and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term include other-than-temporary impairment on investment securities, the determination of the allowance for loan losses, fair value of financial instruments, and the valuation of deferred tax assets and other real estate owned.

Subsequent Events, Policy [Policy Text Block]

Subsequent Events

The Company has evaluated the effects of events and transactions through the date of this filing that have occurred subsequent to March 31,2014. The Company does not believe there were any material subsequent events during this period that would have required further recognition or disclosure in the unaudited consolidated financial statements included in this report.

New Accounting Pronouncements Policy [Policy Text Block]

Accounting Developments

In the first quarter of 2014, the Company adopted new guidance related to the following Accounting Standards Update (“Update” or “ASU”):

•

ASU 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists;

Information about this pronouncement is described in more detail below.

ASU 2013-11, Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists, is expected to eliminate diversity in practice as it provides guidance on financial statement presentation of an unrecognized tax benefit when a net operating loss (NOL) carryforward, a similar tax loss, or a tax credit carryforward exists. Thechanges were effective for the Company during the first quarter of 2014. Adoption of this ASU had no impact on the financial statements of the Company.

XML

Document and Entity Information	3 Months Ended
	Mar. 31, 2014	Apr. 30, 2014
Document and entity information [Abstract]
Current fiscal year end date	--12-31
Entity central index key	0000750574
Entity current reporting status	Yes
Entity filer category	Smaller Reporting Company
Entity registrant name	Auburn National Bancorporation, Inc
Entity voluntary filers	No
Entity well known seasoned issuer	No
Entity common stock shares outstanding		3,643,283
Amendment flag	false
Document Type	10-Q
Document Year Focus	2014
Document Period Focus	Q1
Document Period End Date	Mar. 31, 2014

XML

Basic and Diluted Earnings Per Share (Tables)

3 Months Ended

Mar. 31, 2014

Earnings Per Share Abstract

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

				Quarter ended March 31,
(Dollars in thousands, except share and per share data)				2014		2013
Basic and diluted:
	Net earnings		$	1,821	$	1,689
	Weighted average common shares outstanding			3,643,161		3,642,918
		Earnings per share	$	0.50	$	0.46

XML

Consolidated Statements of Earnings (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended
	Mar. 31, 2014	Mar. 31, 2013
Interest income:
Loans, including fees	$ 4,790	$ 5,328
Securities	1,803	1,616
Federal funds sold and interest bearing bank deposits	42	31
Total interest income	6,635	6,975
Interest expense:
Deposits	1,257	1,404
Short-term borrowings	4	4
Long-term debt interest expense	104	426
Total interest expense	1,365	1,834
Net interest income	5,270	5,141
Provision for loan losses	(400)	400
Net interest income after provision for loan losses	5,670	4,741
Noninterest income:
Service charges on deposit accounts	213	249
Mortgage lending	386	810
Bank-owned life insurance gain	126	95
Other noninterest income	338	340
Securities (losses) gains, net:
Realized gains, net	26	161
Total other-than-temporary impairments	(333)	0
Total securities (losses) gains, net	(307)	161
Total noninterest income	756	1,655
Noninterest expense:
Salaries and benefits	2,281	2,250
Net occupancy and equipment	352	331
Professional fees	206	176
FDIC and other regulatory assessments	145	194
Other real estate owned, net	118	23
Prepayment penalty on long-term debt	0	425
Other noninterest expense	846	827
Total noninterest expense	3,948	4,226
Earnings before income taxes	2,478	2,170
Income tax expense	657	481
Net earnings	$ 1,821	$ 1,689
Net earnings per share:
Earnings per share basic and diluted	$ 0.5	$ 0.46
Weighted average shares outstanding:
Basic and diluted weighted average shares outstanding	3,643,161	3,642,918

XML

Securities

3 Months Ended

Mar. 31, 2014

Investments debt and equity securities [Abstract]

Investments In Debt And Marketable Equity Securities And Certain Trading Assets Disclosure Text Block

NOTE 4: SECURITIES

At March 31,2014 and December 31,2013, respectively, all securities within the scope of ASC 320, Investments – Debt and Equity Securities, were classified as available-for-sale. The fair value and amortized cost for securities available-for-sale by contractual maturityat March 31,2014 and December 31,2013, respectively, are presented below.

December 31, 2013
Agency obligations (a)		$	—	—	23,247	21,275	44,522	—	4,557	$	49,079
Agency RMBS (a)			—	—	8,306	154,052	162,358	976	4,733		166,115
State and political subdivisions			—	1,735	21,366	41,238	64,339	1,560	459		63,238
	Total available-for-sale	$	—	1,735	52,919	216,565	271,219	2,536	9,749	$	278,432
(a) Includes securities issued by U.S. government agencies or government sponsored entities.

			1 year	1 to 5	5 to 10	After 10	Fair	Gross Unrealized		Amortized
(Dollars in thousands)			or less	years	years	years	Value	Gains	Losses	Cost
March 31, 2014
Agency obligations (a)		$	—	—	33,920	22,114	56,034	54	3,143	$	59,123
Agency RMBS (a)			—	—	7,954	154,755	162,709	1,138	3,016		164,587
State and political subdivisions			—	679	20,402	40,165	61,246	2,236	111		59,121
	Total available-for-sale	$	—	679	62,276	217,034	279,989	3,428	6,270	$	282,831

Securities with aggregate fair values of $140.0 million and $120.5 million at March 31,2014 and December 31,2013, respectively, were pledged to secure public deposits, securities sold under agreements to repurchase, Federal Home Loan Bank (“FHLB”) advances, and for other purposes required or permitted by law.

Included in other assets are cost-method investments. The carrying amounts of cost-method investments were $1.6 million and $1.8 million at March 31,2014 and December 31,2013, respectively. Cost-method investments primarily include non-marketable equity investments, such as FHLB of Atlanta stock and Federal Reserve Bank (“FRB”) stock.

Gross Unrealized Losses and Fair Value

The fair values and gross unrealized losses on securities at March 31,2014 and December 31,2013, respectively, segregated by those securities that have been in an unrealized loss position for less than 12 months and 12 months or longer, are presented below.

			Less than 12 Months		12 Months or Longer			Total
			Fair	Unrealized	Fair	Unrealized		Fair	Unrealized
(Dollars in thousands)			Value	Losses	Value	Losses		Value	Losses
March 31, 2014:
Agency obligations		$	22,827	1,303	18,112	1,840	$	40,939	3,143
Agency RMBS			88,746	2,778	4,616	238		93,362	3,016
State and political subdivisions			4,255	111	—	—		4,255	111
	Total	$	115,828	4,192	22,728	2,078	$	138,556	6,270

December 31, 2013:
Agency obligations		$	35,933	3,182	8,590	1,376	$	44,523	4,558
Agency RMBS			109,774	4,393	7,683	339		117,457	4,732
State and political subdivisions			9,575	459	—	—		9,575	459
	Total	$	155,282	8,034	16,273	1,715	$	171,555	9,749

The Company recorded an other-than-temporary impairment charge in the first quarter of 2014 related to securities management intended to sell at March 31, 2014. Subsequent to March 31, 2014, the Company sold these available-for-sale agency residential mortgage-backed securities (“RMBS”)with a fair value of approximately $18.9 million and realized a loss of $0.3 million. Periodically, available-for-sale securities may be sold or the composition of the portfolio realigned to improve yields, quality, or marketability, or to implement changes in investment or asset/liability strategy, including collateral requirements and raising funds for liquidity purposes.

For the securities in the previous table, the Company does not have the intent to sell and has determined it is not more likely than not that the Company will be required to sell the security before recovery of the amortized cost basis, which may be maturity. On a quarterly basis, the Company assesses each security for credit impairment. For debt securities, the Company evaluates, where necessary, whether credit impairment exists by comparing the present value of the expected cash flows to the securities’ amortized cost basis. For cost-method investments, the Company evaluates whether an event or change in circumstances has occurred during the reporting period that may have a significant adverse effect on the fair value of the investment.

In determining whether a loss is temporary, the Company considers all relevant information including:

• the length of time and the extent to which the fair value has been less than the amortized cost basis;
• adverse conditions specifically related to the security, an industry, or a geographic area (for example, changes in the financial condition of the issuer of the security, or in the case of an asset-backed debt security, in the financial condition of the underlying loan obligors, including changes in technology or the discontinuance of a segment of the business that may affect the future earnings potential of the issuer or underlying loan obligors of the security or changes in the quality of the credit enhancement);
• the historical and implied volatility of the fair value of the security;
• the payment structure of the debt security and the likelihood of the issuer being able to make payments that increase in the future;
• failure of the issuer of the security to make scheduled interest or principal payments;
• any changes to the rating of the security by a rating agency; and
• recoveries or additional declines in fair value subsequent to the balance sheet date.

Agency obligations

The unrealized losses associated with agency obligations were primarily driven by changes in interest rates and not due to the credit quality of the securities. These securities were issued by U.S. government agencies or government-sponsored entities and did not have any credit losses given the explicit government guarantee or other government support.

Agency RMBS

The unrealized losses associated with agency RMBS were primarily driven by changes in interest rates and not due to the credit quality of the securities. These securities were issued by U.S. government agencies or government-sponsored entities and did not have any credit losses given the explicit government guarantee or other government support.

Securities of U.S. states and political subdivisions

The unrealized losses associated with securities of U.S. states and political subdivisions were primarily driven by changes in interest rates and were not due to the credit quality of the securities. Some of these securities are guaranteed by a bond insurer, but management did not rely on the guarantee in making its investment decision. These securities will continue to be monitored as part of the Company’s quarterly impairment analysis, but are expected to perform even if the rating agencies reduce the credit rating of the bond insurers. As a result, the Company expects to recover the entire amortized cost basis of these securities.

Cost-method investments

At March 31,2014, cost-method investments with an aggregate cost of $1.6 million were not evaluated for impairment because the Company did not identify any events or changes in circumstances that may have a significant adverse effect on the fair value of these cost-method investments.

The carrying values of the Company’s investment securities could decline in the future if the financial condition of an issuer deteriorates and the Company determines it is probable that it will not recover the entire amortized cost basis for the security. As a result, there is a risk that other-than-temporary impairment charges may occur in the future.

Other-Than-Temporarily Impaired Securities

The following table presents a roll-forward of the credit loss component of the amortized cost of debt securities that the Company has written down for other-than-temporary impairment and has recognized the credit component of the loss in earnings (referred to as “credit-impaired” debt securities). Other-than-temporary impairmentsrecognized in earnings for credit-impaired debt securities are presented as additions in two components based upon whether the current period is the first time the debt security was credit-impaired (initial credit impairment) or is not the first time the debt security was credit-impaired (subsequent credit impairments). The credit loss component is reduced if the Company sells, intends to sell, or believesit will be required to sell previously credit-impaired debt securities. Additionally, the credit loss component is reduced if the Company receives cash flows in excess of what it expected to receive over the remaining life of the credit-impaired debt security, the security matures orthe security is fully written-down and deemed worthless. Changes in the credit loss component of credit-impaired debt securities for the respective periods are presented below.

		Quarter ended March 31,
(Dollars in thousands)		2014		2013
Balance, beginning of period	$	—	$	1,257
Balance, end of period	$	—	$	1,257

Other-Than-Temporary Impairment

The following table presents details of the other-than-temporary impairment related to securities.

					Quarter ended March 31,
(Dollars in thousands)					2014		2013
Other-than-temporary impairment charges (included in earnings):
	Debt securities:
		Agency RMBS		$	333	$	—
			Total debt securities		333		—
Total other-than-temporary impairment charges (included in earnings)				$	333	$	—
Other-than-temporary impairment on debt securities:
	Recorded as part of gross realized losses:
		Securities with intent to sell		$	333	$	—
Total other-than-temporary impairment on debt securities				$	333	$	—

Realized Gains and Losses
The following table presents the gross realized gains and losses on sales and other-than-temporary impairment charges
related to securities.
			Quarter ended March 31,
(Dollars in thousands)			2014		2013
Gross realized gains		$	26	$	161
Other-than-temporary impairment charges			(333)		—
	Realized gains, net	$	(307)	$	161

XML

Variable Interest Entities

3 Months Ended

Mar. 31, 2014

Variable interest entity [Abstract]

Variable interest entity [Text Block]

NOTE 3: VARIABLE INTEREST ENTITIES

Generally, a variable interest entity (“VIE”) is a corporation, partnership, trust or other legal structure that does not have equity investors with substantive or proportional voting rights or has equity investors that do not provide sufficient financial resources for the entity to support its activities.

At March 31,2014, the Company did not have any consolidated VIEs to disclose but did have one nonconsolidated VIE, discussed below.

Trust Preferred Securities

The Company owns the common stock of a subsidiary business trust, Auburn National Bancorporation Capital Trust I, which issued mandatorily redeemable preferred capital securities (“trust preferred securities”) in the aggregate of approximately $7.0 million at the time of issuance. This trust meets the definition of a VIE of which the Company is not the primary beneficiary; the trust’s only assets are junior subordinated debentures issued by the Company, which were acquired by the trust using the proceeds from the issuance of the trust preferred securities and common stock. The junior subordinated debentures of approximately $7.2 million are included in long-term debt and the Company’s equity interest of $0.2 million in the business trust is included in other assets. Interest expense on the junior subordinated debentures is included in interest expense on long-term debt.

The following table summarizes VIEs that are not consolidated by the Company as of March 31,2014.

	Maximum	Liability
(Dollars in thousands)	Loss Exposure	Recognized	Classification
Type:
Trust preferred issuances	N/A	$ 7,217	Long-term debt

XML

Derivative Instruments (Table)

3 Months Ended

Mar. 31, 2014

Derivative instruments and hedging activities disclosure abstract

Schedule of Derivative Instruments [Table Text Block]

				Other	Other
				Assets	Liabilities
				Estimated	Estimated
(Dollars in thousands)			Notional	Fair Value	Fair Value
March 31, 2014:
Pay fixed / receive variable		$	4,929	—	788
Pay variable / receive fixed			4,929	788	—
	Total interest rate swap agreements	$	9,858	788	788
December 31, 2013:
Pay fixed / receive variable		$	5,017	—	844
Pay variable / receive fixed			5,017	844	—
	Total interest rate swap agreements	$	10,034	844	844

XML

Variable Interest Entities (Tables)

3 Months Ended

Mar. 31, 2014

Variable interest entity [Abstract]

Variable Interest Entity [Table Text Block]

	Maximum	Liability
(Dollars in thousands)	Loss Exposure	Recognized	Classification
Type:
Trust preferred issuances	N/A	$ 7,217	Long-term debt

XML

Derivative Instruments

3 Months Ended

Mar. 31, 2014

Derivative instruments and hedging activities disclosure abstract

Derivative Instruments And Hedging Activities Disclosure Text Block

NOTE 7: DERIVATIVE INSTRUMENTS

Financial derivatives are reported at fair value in other assets or other liabilities on the accompanying Consolidated Balance Sheets. The accounting for changes in the fair value of a derivative depends on whether it has been designated and qualifies as part of a hedging relationship. For derivatives not designated as part of a hedging relationship, the gain or loss is recognized in current earnings within other noninterest income on the accompanying Consolidated Statements of Earnings. From time to time, the Company may enter into interest rate swaps (“swaps”) to facilitate customer transactions and meet their financing needs. Upon entering into these swaps, the Company enters into offsetting positions in order to minimize the risk to the Company. These swaps qualify as derivatives, but are not designated as hedging instruments. At March 31,2014 and December 31,2013, the Company had no derivative contracts to assist in managing its own interest rate sensitivity.

Interest rate swap agreements involve the risk of dealing with counterparties and their ability to meet contractual terms. When the fair value of a derivative instrument is positive, this generally indicates that the counterparty or customer owes the Company, and results in credit risk to the Company. When the fair value of a derivative instrument is negative, the Company owes the customer or counterparty and therefore, has no credit risk.

A summary of the Company’s interest rate swap agreements at March 31,2014 and December 31,2013 is presented below.

				Other	Other
				Assets	Liabilities
				Estimated	Estimated
(Dollars in thousands)			Notional	Fair Value	Fair Value
March 31, 2014:
Pay fixed / receive variable		$	4,929	—	788
Pay variable / receive fixed			4,929	788	—
	Total interest rate swap agreements	$	9,858	788	788
December 31, 2013:
Pay fixed / receive variable		$	5,017	—	844
Pay variable / receive fixed			5,017	844	—
	Total interest rate swap agreements	$	10,034	844	844

XML

Loan and Allowance for Loan Losses

3 Months Ended

Mar. 31, 2014

Loans And Leases Receivable Disclosure

Loans and leases receivable disclosure [Text Block]

NOTE 5: LOANS AND ALLOWANCE FOR LOAN LOSSES

				March 31,		December 31,
(In thousands)				2014		2013
Commercial and industrial			$	54,632	$	57,780
Construction and land development				31,275		36,479
Commercial real estate:
	Owner occupied			53,973		56,102
	Other			124,748		118,818
		Total commercial real estate		178,721		174,920
Residential real estate:
	Consumer mortgage			58,449		57,871
	Investment property			42,984		43,835
		Total residential real estate		101,433		101,706
Consumer installment				11,766		12,893
		Total loans		377,827		383,778
Less: unearned income				(477)		(439)
		Loans, net of unearned income	$	377,350	$	383,339

Loans secured by real estate were approximately 82.4% of the Company’s total loan portfolio at March 31,2014. At March 31,2014, the Company’s geographic loan distribution was concentrated primarily in Lee County, Alabama and surrounding areas.

In accordance with ASC 310, a portfolio segment is defined as the level at which an entity develops and documents a systematic method for determining its allowance for loan losses. As part of the Company’s quarterly assessment of the allowance, the loan portfolio is disaggregated into the following portfolio segments: commercial and industrial, construction and land development, commercial real estate, residential real estate and consumer installment. Where appropriate, the Company’s loan portfolio segments are further disaggregated into classes. A class is generally determined based on the initial measurement attribute, risk characteristics of the loan, and an entity’s method for monitoring and determining credit risk.

The following describe the risk characteristics relevant to each of the portfolio segments and classes.

Commercial and industrial (“C&I”)— includes loans to finance business operations, equipment purchases, or other needs for small and medium-sized commercial customers. Also included in this category are loans to finance agricultural production. Generally the primary source of repayment is the cash flow from business operations and activities of the borrower.

Construction and land development (“C&D”)— includes both loans and credit lines for the purpose of purchasing, carrying and developing land into commercial developments or residential subdivisions. Also included are loans and lines for construction of residential, multi-family and commercial buildings. Generally the primary source of repayment is dependent upon the sale or refinance of the real estate collateral.

Commercial real estate(“CRE”) — includes loans disaggregated into two classes: (1) owner occupied and (2) other.

Owner occupied – includes loans secured by business facilities to finance business operations, equipment and owner-occupied facilities primarily for small and medium-sized commercial customers. Generally the primary source of repayment is the cash flow from business operations and activities of the borrower, who owns the property.

Other – primarily includes loans to finance income-producing commercial and multi-family properties that are not owner occupied. Loans in this class include loans for neighborhood retail centers, hotels, medical and professional offices, single retail stores, industrial buildings, warehouses and apartments leased generally to local businesses and residents. Generally the primary source of repayment is dependent upon income generated from the real estate collateral. The underwriting of these loans takes into consideration the occupancy and rental rates, as well as the financial health of the borrower.

Residential real estate (“RRE”) — includes loans disaggregated into two classes: (1) consumer mortgage and (2) investment property.

Consumer mortgage – primarily includes first or second lien mortgages and home equity lines of credit to consumers that are secured by a primary residence or second home. These loans are underwritten in accordance with the Bank’s general loan policies and procedures which require, among other things, proper documentation of each borrower’s financial condition, satisfactory credit history and property value.

Investment property – primarily includes loans to finance income-producing 1-4 family residential properties. Generally the primary source of repayment is dependent upon income generated from leasing the property securing the loan. The underwriting of these loans takes into consideration the rental rates and property value, as well as the financial health of the borrower.

Consumer installment — includes loans to individuals both secured by personal property and unsecured. Loans include personal lines of credit, automobile loans, and other retail loans. These loans are underwritten in accordance with the Bank’s general loan policies and procedures which require, among other things, proper documentation of each borrower’s financial condition, satisfactory credit history, and if applicable, property value.

The following is a summary of current, accruing past due and nonaccrual loans by portfolio segment and class as of March 31,2014, and December 31,2013

					Accruing	Accruing	Total
					30-89 Days	Greater than	Accruing	Non-		Total
(In thousands)			Current		Past Due	90 days	Loans	Accrual		Loans
March 31, 2014:
Commercial and industrial			$	54,270	191	117	54,578	54	$	54,632
Construction and land development				29,747	157	—	29,904	1,371		31,275
Commercial real estate:
	Owner occupied			53,417	275	—	53,692	281		53,973
	Other			124,133	186	—	124,319	429		124,748
		Total commercial real estate		177,550	461	—	178,011	710		178,721
Residential real estate:
	Consumer mortgage			56,358	1,340	—	57,698	751		58,449
	Investment property			42,195	494	—	42,689	295		42,984
		Total residential real estate		98,553	1,834	—	100,387	1,046		101,433
Consumer installment				11,659	86	14	11,759	7		11,766
		Total	$	371,779	2,729	131	374,639	3,188	$	377,827

December 31, 2013:
Commercial and industrial			$	57,558	167	—	57,725	55	$	57,780
Construction and land development				34,883	14	—	34,897	1,582		36,479
Commercial real estate:
	Owner occupied			54,214	861	—	55,075	1,027		56,102
	Other			118,389	—	—	118,389	429		118,818
		Total commercial real estate		172,603	861	—	173,464	1,456		174,920
Residential real estate:
	Consumer mortgage			56,191	745	69	57,005	866		57,871
	Investment property			42,935	598	—	43,533	302		43,835
		Total residential real estate		99,126	1,343	69	100,538	1,168		101,706
Consumer installment				12,789	100	4	12,893	—		12,893
		Total	$	376,959	2,485	73	379,517	4,261	$	383,778

Allowance for Loan Losses

The Company assesses the adequacy of its allowance for loan losses prior to the end of each calendar quarter. The level of the allowance is based upon management’s evaluation of the loan portfolio, past loan loss experience, current asset quality trends, known and inherent risks in the portfolio, adverse situations that may affect a borrower’s ability to repay (including the timing of future payment), the estimated value of any underlying collateral, composition of the loan portfolio, economic conditions, industry and peer bank loan loss rates and other pertinent factors, including regulatory recommendations. This evaluation is inherently subjective as it requires material estimates including the amounts and timing of future cash flows expected to be received on impaired loans that may be susceptible to significant change. Loans are charged off, in whole or in part, when management believes that the full collectability of the loan is unlikely. A loan may be partially charged-off after a “confirming event” has occurred which serves to validate that full repayment pursuant to the terms of the loan is unlikely.

 The Company deems loans impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. Collection of all amounts due according to the contractual terms means that both the interest and principal payments of a loan will be collected as scheduled in the loan agreement.

An impairment allowance is recognized if the fair value of the loan is less than the recorded investment in the loan. The impairment is recognized through the allowance. Loans that are impaired are recorded at the present value of expected future cash flows discounted at the loan’s effective interest rate, or if the loan is collateral dependent, impairment measurement is based on the fair value of the collateral, less estimated disposal costs.

The level of allowance maintained is believed by management to be adequate to absorb probable losses inherent in the portfolio at the balance sheet date. The allowance is increased by provisions charged to expense and decreased by charge-offs, net of recoveries of amounts previously charged-off.

In assessing the adequacy of the allowance, the Company also considers the results of its ongoing internal and independent loan review processes. The Company’s loan review process assists in determining whether there are loans in the portfolio whose credit quality has weakened over time and evaluating the risk characteristics of the entire loan portfolio. The Company’s loan review process includes the judgment of management, the input from our independent loan reviewers, and reviews that may have been conducted by bank regulatory agencies as part of their examination process. The Company incorporates loan review results in the determination of whether or not it is probable that it will be able to collect all amounts due according to the contractual terms of a loan.

As part of the Company’s quarterly assessment of the allowance, management divides the loan portfolio into five segments: commercial and industrial, construction and land development, commercial real estate, residential real estate, and consumer installment loans. The Company analyzes each segment and estimates an allowance allocation for each loan segment.

The allocation of the allowance for loan losses begins with a process of estimating the probable losses inherent for these types of loans. The estimates for these loans are established by category and based on the Company’s internal system of credit risk ratings and historical loss data. The estimated loan loss allocation rate for the Company’s internal system of credit risk grades is based on its experience with similarly graded loans. For loan segments where the Company believes it does not have sufficient historical loss data, the Company may make adjustments based, in part, on loss rates of peer bank groups. At March 31,2014 and December 31,2013, and for the periods then ended, the Company adjusted its historical loss rates for the commercial real estate portfolio segment based, in part, on loss rates of peer bank groups.

The estimated loan loss allocation for all five loan portfolio segments is then adjusted for management’s estimate of probable losses for several “qualitative and environmental” factors. The allocation for qualitative and environmental factors is particularly subjective and does not lend itself to exact mathematical calculation. This amount represents estimated probable inherent credit losses which exist, but have not yet been identified, as of the balance sheet date, and are based upon quarterly trend assessments in delinquent and nonaccrual loans, credit concentration changes, prevailing economic conditions, changes in lending personnel experience, changes in lending policies or procedures and other influencing factors. These qualitative and environmental factors are considered for each of the five loan segments and the allowance allocation, as determined by the processes noted above, is increased or decreased based on the incremental assessment of these factors.

The Company regularly re-evaluates its practices in determining the allowance for loan losses. During 2013, the Company implemented certain refinements to its allowance for loan losses methodology, specifically the way that historical loss factors are calculated. Prior to June 30, 2013, the Company calculated average losses for all loan segments using a rolling 6 quarter historical period. Beginning with the quarter ended June 30, 2013, the Company calculated average losses for all loan segments (except for the commercial real estate loan segment) using a rolling 8 quarter historical period in order to better capture the effects of the current economic cycle on the Company’s loan loss experience, and continued this methodology through March 31, 2014. Based upon management’s review of charge-off trends for each loan segment, the Company continues to calculate average losses for the commercial real estate loan segment using a rolling 6 quarter historical period. Other than the changes discussed above, the Company has not made any changes to its calculation of historical loss periods that would impact the calculation of the allowance for loan losses or provision for loan losses for the periods included in the accompanying consolidated balance sheets and statements of earnings.

The following table details the changes in the allowance for loan losses by portfolio segment for the respective periods.

			March 31, 2014
(In thousands)		Commercial and industrial		Construction and land development	Commercial real estate	Residential real estate	Consumer installment		Total
Quarter ended:
Beginning balance		$	386	366	3,186	1,114	216	$	5,268
Charge-offs			—	(236)	—	(31)	(36)		(303)
Recoveries			4	2	118	16	6		146
	Net (charge-offs) recoveries		4	(234)	118	(15)	(30)		(157)
Provision			92	82	(811)	157	80		(400)
Ending balance		$	482	214	2,493	1,256	266	$	4,711

			March 31, 2013
(In thousands)		Commercial and industrial		Construction and land development	Commercial real estate	Residential real estate	Consumer installment		Total
Quarter ended:
Beginning balance		$	812	1,545	3,137	1,126	103		6,723
Charge-offs			(68)	(39)	—	(266)	(17)	$	(390)
Recoveries			12	—	5	13	6	$	36
	Net (charge-offs) recoveries		(56)	(39)	5	(253)	(11)		(354)
Provision			(187)	113	429	12	33	$	400
Ending balance		$	569	1,619	3,571	885	125	$	6,769

The following table presents an analysis of the allowance for loan losses and recorded investment in loans by portfolio segment and impairment methodology as of March 31,2014and 2013.

			Collectively evaluated (1)		Individually evaluated (2)		Total
			Allowance	Recorded	Allowance	Recorded	Allowance	Recorded
			for loan	investment	for loan	investment	for loan	investment
(In thousands)			losses	in loans	losses	in loans	losses	in loans
March 31, 2014:
Commercial and industrial		$	482	54,520	—	112	482	54,632
Construction and land development			214	29,904	—	1,371	214	31,275
Commercial real estate			2,314	176,548	179	2,173	2,493	178,721
Residential real estate			1,256	100,529	—	904	1,256	101,433
Consumer installment			266	11,766	—	—	266	11,766
	Total	$	4,532	373,267	179	4,560	4,711	377,827

March 31, 2013:
Commercial and industrial		$	569	55,576	—	160	569	55,736
Construction and land development			1,498	39,489	121	1,615	1,619	41,104
Commercial real estate			3,327	176,492	244	2,501	3,571	178,993
Residential real estate			801	101,861	84	1,117	885	102,978
Consumer installment			125	12,026	—	—	125	12,026
	Total	$	6,320	385,444	449	5,393	6,769	390,837
(1)	Represents loans collectively evaluated for impairment in accordance with ASC 450-20, Loss Contingencies (formerly FAS 5), and
	pursuant to amendments by ASU 2010-20 regarding allowance for unimpaired loans.
(2)	Represents loans individually evaluated for impairment in accordance with ASC 310-30, Receivables (formerly FAS 114), and
	pursuant to amendments by ASU 2010-20 regarding allowance for impaired loans.

Credit Quality Indicators

The credit quality of the loan portfolio is summarized no less frequently than quarterly using categories similar to the standard asset classification system used by the federal banking agencies. The following table presents credit quality indicators for the loan portfolio segments and classes. These categories are utilized to develop the associated allowance for loan losses using historical losses adjusted for qualitative and environmental factors and are defined as follows:

Pass – loans which are well protected by the current net worth and paying capacity of the obligor (or guarantors, if any) or by the fair value, less cost to acquire and sell, of any underlying collateral.

Special Mention – loans with potential weakness that may, if not reversed or corrected, weaken the credit or inadequately protect the Company’s position at some future date. These loans are not adversely classified and do not expose an institution to sufficient risk to warrant an adverse classification.

Substandard Accruing – loans that exhibit a well-defined weakness which presently jeopardizes debt repayment, even though they are currently performing. These loans are characterized by the distinct possibility that the Company may incur a loss in the future if these weaknesses are not corrected

Nonaccrual – includes loans where management has determined that full payment of principal and interest is not expected.

(In thousands)				Pass	Special Mention	Substandard Accruing	Nonaccrual		Total loans
March 31, 2014:
Commercial and industrial			$	49,947	4,182	449	54	$	54,632
Construction and land development				28,593	633	678	1,371		31,275
Commercial real estate:
	Owner occupied			52,058	1,218	416	281		53,973
	Other			123,434	90	795	429		124,748
		Total commercial real estate		175,492	1,308	1,211	710		178,721
Residential real estate:
	Consumer mortgage			50,436	2,724	4,538	751		58,449
	Investment property			39,971	1,343	1,375	295		42,984
		Total residential real estate		90,407	4,067	5,913	1,046		101,433
Consumer installment				11,621	32	106	7		11,766
		Total	$	356,060	10,222	8,357	3,188	$	377,827

December 31, 2013:
Commercial and industrial			$	53,060	4,183	482	55	$	57,780
Construction and land development				33,616	180	1,101	1,582		36,479
Commercial real estate:
	Owner occupied			53,430	770	875	1,027		56,102
	Other			117,490	91	808	429		118,818
		Total commercial real estate		170,920	861	1,683	1,456		174,920
Residential real estate:
	Consumer mortgage			50,392	1,137	5,476	866		57,871
	Investment property			40,517	1,310	1,706	302		43,835
		Total residential real estate		90,909	2,447	7,182	1,168		101,706
Consumer installment				12,713	34	146	—		12,893
		Total	$	361,218	7,705	10,594	4,261	$	383,778

Impaired loans

The following tables present details related to the Company’s impaired loans. Loans which have been fully charged-off do not appear in the following table. The related allowance generally represents the following components which correspond to impaired loans:

Individually evaluated impaired loans equal to or greater than $500,000 secured by real estate (nonaccrual construction and land development, commercial real estate, and residential real estate loans).

Individually evaluated impaired loans equal to or greater than $250,000 not secured by real estate (nonaccrual commercial and industrial and consumer installment loans).

The following tables set forth certain information regarding the Company’s impaired loans that were individually evaluated for impairment at March 31,2014and December 31,2013.

				March 31, 2014
(In thousands)				Unpaid principal balance (1)	Charge-offs and payments applied (2)	Recorded investment (3)		Related allowance
With no allowance recorded:
Commercial and industrial			$	112	—	112
Construction and land development				3,326	(1,955)	1,371
Commercial real estate:
	Owner occupied			340	(59)	281
	Other			519	(90)	429
		Total commercial real estate		859	(149)	710
Residential real estate:
	Consumer mortgages			947	(211)	736
	Investment property			207	(39)	168
		Total residential real estate		1,154	(250)	904
		Total	$	5,451	(2,354)	3,097
With allowance recorded:
Commercial real estate:
	Owner occupied			868	—	868		124
	Other			595	—	595		55
		Total commercial real estate		1,463	—	1,463		179
		Total	$	1,463	—	1,463	$	179
		Total impaired loans	$	6,914	(2,354)	4,560	$	179
(1) Unpaid principal balance represents the contractual obligation due from the customer.
(2) Charge-offs and payments applied represents cumulative charge-offs taken, as well as interest payments that have been
	applied against the outstanding principal balance subsequent to the loans being placed on nonaccrual status.
(3) Recorded investment represents the unpaid principal balance less charge-offs and payments applied; it is shown before
	any related allowance for loan losses.

				December 31, 2013
(In thousands)				Unpaid principal balance (1)	Charge-offs and payments applied (2)	Recorded investment (3)		Related allowance
With no allowance recorded:
Commercial and industrial			$	124	—	124
Construction and land development				2,879	(1,682)	1,197
Commercial real estate:
	Owner occupied			1,217	(190)	1,027
	Other			518	(89)	429
		Total commercial real estate		1,735	(279)	1,456
Residential real estate:
	Consumer mortgages			952	(198)	754
	Investment property			207	(35)	172
		Total residential real estate		1,159	(233)	926
		Total	$	5,897	(2,194)	3,703
With allowance recorded:
Construction and land development				452	(67)	385		88
Commercial real estate:
	Owner occupied			875	—	875		110
	Other			602	—	602		62
		Total commercial real estate		1,477	—	1,477		172
		Total	$	1,929	(67)	1,862	$	260
		Total impaired loans	$	7,826	(2,261)	5,565	$	260
(1) Unpaid principal balance represents the contractual obligation due from the customer.
(2) Charge-offs and payments applied represents cumulative charge-offs taken, as well as interest payments that have been
	applied against the outstanding principal balance subsequent to the loans being placed on nonaccrual status.
(3) Recorded investment represents the unpaid principal balance less charge-offs and payments applied; it is shown before
	any related allowance for loan losses.

The following table provides the average recorded investment in impaired loans and the amount of interest income recognized on impaired loans after impairment by portfolio segment and class during the respective periods.

			Quarter ended March 31, 2014				Quarter ended March 31, 2013
				Average	Total interest			Average	Total interest
				recorded	income			recorded	income
(In thousands)				investment	recognized			investment	recognized
Impaired loans:
Commercial and industrial			$	116	$	2	$	164	$	3
Construction and land development				1,508		—		1,619		—
Commercial real estate:
	Owner occupied			1,648		12		2,044		14
	Other			1,026		9		3,004		—
		Total commercial real estate		2,674		21		5,048		14
Residential real estate:
	Consumer mortgages			742		—		811		—
	Investment property			170		—		305		—
		Total residential real estate		912		—		1,116		—
		Total	$	5,210	$	23	$	7,947	$	17

Troubled Debt Restructurings

Impaired loans also include troubled debt restructurings (“TDRs”). In the normal course of business, management may grant concessions to borrowers that are experiencing financial difficulty. A concession may include, but is not limited to, delays in required payments of principal and interest for a specified period, reduction of the stated interest rate of the loan, reduction of accrued interest, extension of the maturity date or reduction of the face amount or maturity amount of the debt. A concession has been granted when, as a result of the restructuring, the Bank does not expect to collect all amounts due, including interest at the original stated rate. A concession may have also been granted if the debtor is not able to access funds elsewhere at a market rate for debt with similar risk characteristics as the restructured debt. The Company’s determination of whether a loan modification is a TDR, the Company considers the individual facts and circumstances surrounding each modification. As part of the credit approval process, the restructured loans are evaluated for adequate collateral protection in determining the appropriate accrual status at the time of restructure.

Similar to other impaired loans, TDRs are measured for impairment based on the present value of expected payments using the loan’s original effective interest rate as the discount rate, or the fair value of the collateral, less selling costs if the loan is collateral dependent. If the recorded investment in the loan exceeds the measure of fair value, impairment is recognized by establishing a valuation allowance as part of the allowance for loan losses or a charge-off to the allowance for loan losses. In periods subsequent to the modification, all TDRs are individually evaluated, including those that have payment defaults, for possible impairment.

The following is a summary of accruing and nonaccrual TDRs, which are included in impaired loan totals, and the related allowance for loan losses, by portfolio segment and class as of March 31,2014, and December 31,2013.

				TDRs
								Related
(In thousands)				Accruing	Nonaccrual	Total		Allowance
March 31, 2014
Commercial and industrial			$	112	—	112	$	—
Construction and land development				—	1,371	1,371		—
Commercial real estate:
	Owner occupied			868	281	1,149		124
	Other			595	429	1,024		55
		Total commercial real estate		1,463	710	2,173		179
Residential real estate:
	Consumer mortgages			—	736	736		—
	Investment property			—	168	168		—
		Total residential real estate		—	904	904		—
		Total	$	1,575	2,985	4,560	$	179

December 31, 2013
Commercial and industrial			$	124	—	124	$	—
Construction and land development				—	1,582	1,582		88
Commercial real estate:
	Owner occupied			875	285	1,160		110
	Other			602	429	1,031		62
		Total commercial real estate		1,477	714	2,191		172
Residential real estate:
	Consumer mortgages			—	754	754		—
	Investment property			—	172	172		—
		Total residential real estate		—	926	926		—
		Total	$	1,601	3,222	4,823	$	260

At March 31,2014, there were no significant outstanding commitments to advance additional funds to customers whose loans had been restructured.

The following table summarizes loans modified in a TDR during the respective periods both before and after their modification.

			March 31, 2014				Marh 31, 2013
					Pre-	Post -			Pre-	Post -
					modification	modification			modification	modification
			Number		outstanding	outstanding	Number		outstanding	outstanding
			of		recorded	recorded	of		recorded	recorded
(Dollars in thousands)			contracts		investment	investment	contracts		investment	investment
TDRs:
Commercial real estate:
	Other		—	$	—	—	1	$	431	431
		Total commercial real estate	—		—	—	1		431	431
Residential real estate:
	Consumer mortgages		—		—	—	1		131	131
		Total residential real estate	—		—	—	1		131	131
		Total	—	$	—	—	2	$	562	562

The majority of the loans modified in a TDR during the quarter ended March 31, 2013 included permitting delays in required payments of principal and/or interest or where the only concession granted by the Company was that the interest rate at renewal was considered to be less than a market rate.

The following table summarizes the recorded investment in loans modified in a TDR within the previous 12 months for which there was a payment default (defined as 90 days or more past due) during the respective periods.

		Quarter ended March 31, 2014			Quarter ended March 31, 2013
		Number of		Recorded	Number of		Recorded
(Dollars in thousands)		Contracts		investment(1)	Contracts		investment(1)
TDRs:
Construction and land development		—	$	—	1	$	1,197
	Total	—	$	—	1	$	1,197
(1) Amount as of applicable month end during the respective period for which there was a payment default.

XML

Mortgage Servicing Rights, Net

3 Months Ended

Mar. 31, 2014

Mortgage Servicing [Abstract]

Transfers and Servicing of Financial Assets [Text Block]

NOTE 6: MORTGAGE SERVICING RIGHTS, NET

Mortgage servicing rights (“MSRs”) are recognized based on the fair value of the servicing rights on the date the corresponding mortgage loans are sold. An estimate of the Company’s MSRs is determined using assumptions that market participants would use in estimating future net servicing income, including estimates of prepayment speeds, discount rate, default rates, cost to service, escrow account earnings, contractual servicing fee income, ancillary income, and late fees. Subsequent to the date of transfer, the Company has elected to measure its MSRs under the amortization method. Under the amortization method, MSRs are amortized in proportion to, and over the period of, estimated net servicing income.

The Company has recorded MSRs related to loans sold without recourse to Fannie Mae. The Company generally sells conforming, fixed-rate, closed-end, residential mortgages to Fannie Mae. MSRs are included in other assets on the accompanying Consolidated Balance Sheets.

The Company evaluates MSRs for impairment on a quarterly basis. Impairment is determined by stratifying MSRs into groupings based on predominant risk characteristics, such as interest rate and loan type. If, by individual stratum, the carrying amount of the MSRs exceeds fair value, a valuation reserve is established. The valuation allowance is adjusted as the fair value changes. Changes in the valuation allowance are recognized in earnings as a component of mortgage lending income.

The change in amortized MSRs and the related valuation allowance for the quartersended March 31,2014 and 2013 are presented below.

		Quarter ended March 31,
(Dollars in thousands)		2014		2013
MSRs, net:
Beginning balance	$	2,350	$	1,526
Additions, net		98		261
Amortization expense		(80)		(125)
Decrease in MSR valuation allowance		—		66
Ending balance	$	2,368		1,728
Valuation allowance included in MSRs, net:
Beginning of period	$	—	$	386
End of period		—		320
Fair value of amortized MSRs:
Beginning of period	$	3,452	$	1,526
End of period		3,886		1,994

XML

Fair Value Disclosures

3 Months Ended

Mar. 31, 2014

Fair Value Disclosures [Abstract]

Fair Value Disclosures Text Block

NOTE 8: FAIR VALUE

Fair Value Hierarchy

“Fair value” is defined by ASC 820, Fair Value Measurements and Disclosures, as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction occurring in the principal market (or most advantageous market in the absence of a principal market) for an asset or liability at the measurement date. GAAP establishes a fair value hierarchy for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The fair value hierarchy is as follows:

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, quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs that are observable for the asset or liability, either directly or indirectly.

Level 3—inputs to the valuation methodology are unobservable and reflect the Company’s own assumptions about the inputs market participants would use in pricing the asset or liability.

Level changes in fair value measurements

Transfers between levels of the fair value hierarchy are generally recognized at the end of the reporting period. The Company monitors the valuation techniques utilized for each category of financial assets and liabilities to ascertain when transfers between levels have been affected. The nature of the Company’s financial assets and liabilities generally is such that transfers in and out of any level are expected to be infrequent. For the quarter endedMarch 31,2014, there were no transfers between levels and no changes in valuation techniques for the Company’s financial assets and liabilities.

Assets and liabilities measured at fair value on a recurring basis

Securities available-for-sale

Fair values of securities available for sale were primarily measured using Level 2 inputs. For these securities, the Company obtains pricing from third party pricing services. These third party pricing services consider observable data that may include broker/dealer quotes, market spreads, cash flows, market consensus prepayment speeds, benchmark yields, reported trades for similar securities, market consensus prepayment speeds, credit information and the securities’ terms and conditions. On a quarterly basis, management reviews the pricing received from the third party pricing services for reasonableness given current market conditions. As part of its review, management may obtain non-binding third party broker quotes to validate the fair value measurements. In addition, management will periodically submit pricing provided by the third party pricing services to another independent valuation firm on a sample basis. This independent valuation firm will compare the price provided by the third party pricing service with its own price and will review the significant assumptions and valuation methodologies used with management.

Interest rate swap agreements

The carrying amount of interest rate swap agreements was included in other assets and accrued expenses and other liabilities on the accompanying consolidated balance sheets. The fair value measurements for our interest rate swap agreements were based on information obtained from a third party bank. This information is periodically tested by the Company and validated against other third party valuations. If needed, other third party market participants may be utilized to corroborate the fair value measurements for our interest rate swap agreements. The Company classified these derivative assets and liabilities within Level 2 of the valuation hierarchy. These swaps qualify as derivatives, but are not designated as hedging instruments.

The following table presents the balances of the assets and liabilities measured at fair value on a recurring basis as of March 31,2014 andDecember 31,2013, respectively, by caption, on the accompanying consolidated balance sheets by ASC 820 valuation hierarchy (as described above).

					Quoted Prices in	Significant
					Active Markets	Other	Significant
					for	Observable	Unobservable
					Identical Assets	Inputs	Inputs
(Dollars in thousands)				Amount	(Level 1)	(Level 2)	(Level 3)
March 31, 2014:
Securities available-for-sale:
	Agency obligations		$	56,034	—	56,034	—
	Agency RMBS			162,709	—	162,709	—
	State and political subdivisions			61,246	—	61,246	—
Total securities available-for-sale				279,989	—	279,989	—
Other assets (1)				788	—	788	—
		Total assets at fair value	$	280,777	—	280,777	—
Other liabilities(1)			$	788	—	788	—
		Total liabilities at fair value	$	788	—	788	—
December 31, 2013:
Securities available-for-sale:
	Agency obligations		$	44,522	—	44,522	—
	Agency RMBS			162,358	—	162,358	—
	State and political subdivisions			64,339	—	64,339	—
Total securities available-for-sale				271,219	—	271,219	—
Other assets (1)				844	—	844	—
		Total assets at fair value	$	272,063	—	272,063	—
Other liabilities(1)			$	844	—	844	—
		Total liabilities at fair value	$	844	—	844	—
(1)Represents the fair value of interest rate swap agreements.

Assets and liabilities measured at fair value on a nonrecurring basis

Loans held for sale

Loans held for sale are carried at the lower of cost or fair value. Fair values of loans held for sale are determined using quoted market secondary market prices for similar loans. Loans held for sale are classified within Level 2 of the fair value hierarchy.

Impaired Loans

Loans considered impaired under ASC 310-10-35, Receivables, are loans for which, based on current information and events, it is probable that the Company will be unable to collect all principal and interest payments due in accordance with the contractual terms of the loan agreement. Impaired loans can be measured based on the present value of expected payments using the loan’s original effective rate as the discount rate, the loan’s observable market price, or the fair value of the collateral less selling costs if the loan is collateral dependent.

The fair value of impaired loans were primarily measured based on the value of the collateral securing these loans. Impaired loans are classified within Level 3 of the fair value hierarchy. Collateral may be real estate and/or business assets including equipment, inventory, and/or accounts receivable. The Company determines the value of the collateral based on independent appraisals performed by qualified licensed appraisers. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Appraised values are discounted for costs to sell and may be discounted further based on management’s historical knowledge, changes in market conditions from the date of the most recent appraisal, and/or management’s expertise and knowledge of the customer and the customer’s business. Such discounts by management are subjective and are typically significant unobservable inputs for determining fair value. Impaired loans are reviewed and evaluated on at least a quarterly basis for additional impairment and adjusted accordingly, based on the same factors discussed above.

Other real estate owned

Other real estate owned, consisting of properties obtained through foreclosure or in satisfaction of loans, are initially recorded at the lower of the loan’s carrying amount or the fair value less costs to sell upon transfer of the loans to other real estate. Subsequently, other real estate is carried at the lower of carrying value or fair value less costs to sell. Fair values are generally based on third party appraisals of the property and are classified within Level 3 of the fair value hierarchy. The appraisals are sometimes further discounted based on management’s historical knowledge, and/or changes in market conditions from the date of the most recent appraisal, and/or management’s expertise and knowledge of the customer and the customer’s business. Such discounts are typically significant unobservable inputs for determining fair value. In cases where the carrying amount exceeds the fair value, less costs to sell, a loss is recognized in noninterest expense.

Mortgage servicing rights, net

Mortgage servicing rights, net, included in other assets on the accompanying consolidated balance sheets, are carried at the lower of cost or estimated fair value. MSRs do not trade in an active market with readily observable prices. To determine the fair value of MSRs, the Company engages an independent third party. The independent third party’s valuation model calculates the present value of estimated future net servicing income using assumptions that market participants would use in estimating future net servicing income, including estimates of prepayment speeds, discount rate, default rates, cost to service, escrow account earnings, contractual servicing fee income, ancillary income, and late fees. Periodically, the Company will review broker surveys and other market research to validate significant assumptions used in the model. The significant unobservable inputs include prepayment speeds or the constant prepayment rate (“CPR”) and the weighted average discount rate. Because the valuation of MSRs requires the use of significant unobservable inputs, all of the Company’s MSRs are classified within Level 3 of the valuation hierarchy.

The following table presents the balances of the assets and liabilities measured at fair value on a nonrecurring basis as of March 31,2014 and December 31,2013, respectively, by caption, on the accompanying consolidated balance sheets and by FASB ASC 820 valuation hierarchy (as described above):

				Quoted Prices in
				Active Markets	Other	Significant
				for	Observable	Unobservable
			Carrying	Identical Assets	Inputs	Inputs
(Dollars in thousands)			Amount	(Level 1)	(Level 2)	(Level 3)
March 31, 2014:
Loans held for sale		$	1,250	—	1,250	—
Loans, net(1)			4,381	—	—	4,381
Other real estate owned			3,111	—	—	3,111
Other assets (2)			2,368	—	—	2,368
	Total assets at fair value	$	11,110	—	1,250	9,860
December 31, 2013:
Loans held for sale		$	2,296	—	2,296	—
Loans, net(1)			5,305	—	—	5,305
Other real estate owned			3,884	—	—	3,884
Other assets (2)			2,350	—	—	2,350
	Total assets at fair value	$	13,835	—	2,296	11,539
(1)Loans considered impaired under ASC 310-10-35 Receivables. This amount reflects the recorded investment in
	impaired loans, net of any related allowance for loan losses.
(2)Represents MSRs, net, carried at lower of cost or estimated fair value.

Quantitative Disclosures for Level 3 Fair Value Measurements

The following is a reconciliation of the beginning and ending balances of recurring fair value measurements for trust preferred securitiesrecognized in the accompanying consolidated balance sheets using Level 3 inputs:

				Quarter ended March 31,
(Dollars in thousands)				2014		2013
Beginning balance			$	—	$	652
	Total realized and unrealized gains and (losses):
		Included in other comprehensive income		—		8
Ending balance			$	—	$	660

At March 31,2014, the Company had no Level 3 assets measured at fair value on a recurring basis. For Level 3 assets measured at fair value on anon-recurring basis at March 31,2014, the significant unobservable inputs used in the fair value measurements are presented below.

					Weighted
		Carrying			Average
(Dollars in thousands)		Amount	Valuation Technique	Significant Unobservable Input	of Input
Nonrecurring:
Impaired loans	$	4,381	Appraisal	Appraisal discounts (%)	19.7	%
Other real estate owned		3,111	Appraisal	Appraisal discounts (%)	15.1	%
Mortgage servicing rights, net		2,368	Discounted cash flow	Prepayment speed or CPR (%)	8.3	%
				Discount rate (%)	10.0	%

Fair Value of Financial Instruments

ASC 825, Financial Instruments, requires disclosure of fair value information about financial instruments, whether or not recognized on the face of the balance sheet, for which it is practicable to estimate that value. The assumptions used in the estimation of the fair value of the Company’s financial instruments are explained below. Where quoted market prices are not available, fair values are based on estimates using discounted cash flow analyses. Discounted cash flows can be significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. The following fair value estimates cannot be substantiated by comparison to independent markets and should not be considered representative of the liquidation value of the Company’s financial instruments, but rather are a good–faith estimate of the fair value of financial instruments held by the Company. ASC 825 excludes certain financial instruments and all nonfinancial instruments from its disclosure requirements.

The following methods and assumptions were used by the Company in estimating the fair value of its financial instruments:

Loans, net

Fair values for loans were calculated using discounted cash flows. The discount rates reflected current rates at which similar loans would be made for the same remaining maturities. This method of estimating fair value does not incorporate the exit-price concept of fair value prescribed by ASC 820 and generally produces a higher value than an exit-price approach. Expected future cash flows were projected based on contractual cash flows, adjusted for estimated prepayments.

Loans held for sale

Fair values of loans held for sale are determined using quoted market secondary market prices for similar loans.

Time Deposits

Fair values for time deposits were estimated using discounted cash flows. The discount rates were based on rates currently offered for deposits with similar remaining maturities.

Long-term debt

The fair value of the Company’s fixed rate long-term debt is estimated using discounted cash flows based on estimated current market rates for similar types of borrowing arrangements. The carrying amount of the Company’s variable rate long-term debt approximates its fair value.

The carrying value, related estimated fair value, and placement in the fair value hierarchy of the Company’s financial instruments at March 31,2014 and December 31,2013 are presented below. This table excludes financial instruments for which the carrying amount approximates fair value. Financial assets for which fair value approximates carrying value included cash and cash equivalents. Financial liabilities for which fair value approximates carrying value included noninterest-bearing demand, interest-bearing demand, and savings deposits due to these products having no stated maturity. In addition, financial liabilities for which fair value approximates carrying value included overnight borrowings such as federal funds purchased and securities sold under agreements to repurchase.

							Fair Value Hierarchy
			Carrying		Estimated		Level 1		Level 2		Level 3
(Dollars in thousands)			amount		fair value		inputs		inputs		Inputs
March 31, 2014:
Financial Assets:
	Loans, net (1)	$	372,639	$	372,112	$	—	$	—	$	372,112
	Loans held for sale		1,250		1,265		—		1,265		—
Financial Liabilities:
	Time Deposits	$	262,209	$	265,588	$	—	$	265,588	$	—
	Long-term debt		12,217		12,617		—		12,617		—
December 31, 2013:
Financial Assets:
	Loans, net (1)	$	378,071	$	387,180	$	—	$	—	$	387,180
	Loans held for sale		2,296		2,310		—		2,310		—
Financial Liabilities:
	Time Deposits	$	261,199	$	263,985	$	—	$	263,985	$	—
	Long-term debt		12,217		12,569		—		12,569		—
(1) Represents loans, net of unearned income and the allowance for loan losses.

XML

Loans (Details) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2014	Dec. 31, 2013	Mar. 31, 2013
Loans And Leases Receivable Disclosure
Loans and Leases Receivable, Gross, Commercial	$ 54,632	$ 57,780
Construction And Land Development Loans	31,275	36,479
Commericial Real Estate Loans [Abstract]
Commercial Real Estate Owner Occupied Loans	53,973	56,102
Commerical Real Estate Other Loans	124,748	118,818
Total Commercial Real Estate Loans	178,721	174,920
Residential Real Estate Loans [Abstract]
Consumer Mortgage Loans	58,449	57,871
Residential Real Estate Investment Property Loans	42,984	43,835
Total Residential Real Estate Loans	101,433	101,706
Consumer Installment And Revolving Loans	11,766	12,893
Loans and Leases Receivable, Gross, Carrying Amount	377,827	383,778	390,837
Loans and Leases Receivable Deferred Income	(477)	(439)
Loans, net of unearned income	$ 377,350	$ 383,339

XML

Loan and Allowance for Loan Loss (Tables)

3 Months Ended

Mar. 31, 2014

Loans And Leases Receivable Disclosure

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

				March 31,		December 31,
(In thousands)				2014		2013
Commercial and industrial			$	54,632	$	57,780
Construction and land development				31,275		36,479
Commercial real estate:
	Owner occupied			53,973		56,102
	Other			124,748		118,818
		Total commercial real estate		178,721		174,920
Residential real estate:
	Consumer mortgage			58,449		57,871
	Investment property			42,984		43,835
		Total residential real estate		101,433		101,706
Consumer installment				11,766		12,893
		Total loans		377,827		383,778
Less: unearned income				(477)		(439)
		Loans, net of unearned income	$	377,350	$	383,339

Past Due Financing Receivables [Table Text Block]

					Accruing	Accruing	Total
					30-89 Days	Greater than	Accruing	Non-		Total
(In thousands)			Current		Past Due	90 days	Loans	Accrual		Loans
March 31, 2014:
Commercial and industrial			$	54,270	191	117	54,578	54	$	54,632
Construction and land development				29,747	157	—	29,904	1,371		31,275
Commercial real estate:
	Owner occupied			53,417	275	—	53,692	281		53,973
	Other			124,133	186	—	124,319	429		124,748
		Total commercial real estate		177,550	461	—	178,011	710		178,721
Residential real estate:
	Consumer mortgage			56,358	1,340	—	57,698	751		58,449
	Investment property			42,195	494	—	42,689	295		42,984
		Total residential real estate		98,553	1,834	—	100,387	1,046		101,433
Consumer installment				11,659	86	14	11,759	7		11,766
		Total	$	371,779	2,729	131	374,639	3,188	$	377,827

December 31, 2013:
Commercial and industrial			$	57,558	167	—	57,725	55	$	57,780
Construction and land development				34,883	14	—	34,897	1,582		36,479
Commercial real estate:
	Owner occupied			54,214	861	—	55,075	1,027		56,102
	Other			118,389	—	—	118,389	429		118,818
		Total commercial real estate		172,603	861	—	173,464	1,456		174,920
Residential real estate:
	Consumer mortgage			56,191	745	69	57,005	866		57,871
	Investment property			42,935	598	—	43,533	302		43,835
		Total residential real estate		99,126	1,343	69	100,538	1,168		101,706
Consumer installment				12,789	100	4	12,893	—		12,893
		Total	$	376,959	2,485	73	379,517	4,261	$	383,778

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

			March 31, 2014
(In thousands)		Commercial and industrial		Construction and land development	Commercial real estate	Residential real estate	Consumer installment		Total
Quarter ended:
Beginning balance		$	386	366	3,186	1,114	216	$	5,268
Charge-offs			—	(236)	—	(31)	(36)		(303)
Recoveries			4	2	118	16	6		146
	Net (charge-offs) recoveries		4	(234)	118	(15)	(30)		(157)
Provision			92	82	(811)	157	80		(400)
Ending balance		$	482	214	2,493	1,256	266	$	4,711

			March 31, 2013
(In thousands)		Commercial and industrial		Construction and land development	Commercial real estate	Residential real estate	Consumer installment		Total
Quarter ended:
Beginning balance		$	812	1,545	3,137	1,126	103		6,723
Charge-offs			(68)	(39)	—	(266)	(17)	$	(390)
Recoveries			12	—	5	13	6	$	36
	Net (charge-offs) recoveries		(56)	(39)	5	(253)	(11)		(354)
Provision			(187)	113	429	12	33	$	400
Ending balance		$	569	1,619	3,571	885	125	$	6,769

FinancingReceivableAllowanceforCreditLossAdditionalInformationTableTextBlock

			Collectively evaluated (1)		Individually evaluated (2)		Total
			Allowance	Recorded	Allowance	Recorded	Allowance	Recorded
			for loan	investment	for loan	investment	for loan	investment
(In thousands)			losses	in loans	losses	in loans	losses	in loans
March 31, 2014:
Commercial and industrial		$	482	54,520	—	112	482	54,632
Construction and land development			214	29,904	—	1,371	214	31,275
Commercial real estate			2,314	176,548	179	2,173	2,493	178,721
Residential real estate			1,256	100,529	—	904	1,256	101,433
Consumer installment			266	11,766	—	—	266	11,766
	Total	$	4,532	373,267	179	4,560	4,711	377,827

March 31, 2013:
Commercial and industrial		$	569	55,576	—	160	569	55,736
Construction and land development			1,498	39,489	121	1,615	1,619	41,104
Commercial real estate			3,327	176,492	244	2,501	3,571	178,993
Residential real estate			801	101,861	84	1,117	885	102,978
Consumer installment			125	12,026	—	—	125	12,026
	Total	$	6,320	385,444	449	5,393	6,769	390,837
(1)	Represents loans collectively evaluated for impairment in accordance with ASC 450-20, Loss Contingencies (formerly FAS 5), and
	pursuant to amendments by ASU 2010-20 regarding allowance for unimpaired loans.
(2)	Represents loans individually evaluated for impairment in accordance with ASC 310-30, Receivables (formerly FAS 114), and
	pursuant to amendments by ASU 2010-20 regarding allowance for impaired loans.

Financing Receivable Credit Quality Indicators [Table Text Block]

(In thousands)				Pass	Special Mention	Substandard Accruing	Nonaccrual		Total loans
March 31, 2014:
Commercial and industrial			$	49,947	4,182	449	54	$	54,632
Construction and land development				28,593	633	678	1,371		31,275
Commercial real estate:
	Owner occupied			52,058	1,218	416	281		53,973
	Other			123,434	90	795	429		124,748
		Total commercial real estate		175,492	1,308	1,211	710		178,721
Residential real estate:
	Consumer mortgage			50,436	2,724	4,538	751		58,449
	Investment property			39,971	1,343	1,375	295		42,984
		Total residential real estate		90,407	4,067	5,913	1,046		101,433
Consumer installment				11,621	32	106	7		11,766
		Total	$	356,060	10,222	8,357	3,188	$	377,827

December 31, 2013:
Commercial and industrial			$	53,060	4,183	482	55	$	57,780
Construction and land development				33,616	180	1,101	1,582		36,479
Commercial real estate:
	Owner occupied			53,430	770	875	1,027		56,102
	Other			117,490	91	808	429		118,818
		Total commercial real estate		170,920	861	1,683	1,456		174,920
Residential real estate:
	Consumer mortgage			50,392	1,137	5,476	866		57,871
	Investment property			40,517	1,310	1,706	302		43,835
		Total residential real estate		90,909	2,447	7,182	1,168		101,706
Consumer installment				12,713	34	146	—		12,893
		Total	$	361,218	7,705	10,594	4,261	$	383,778

Impaired Financing Receivables [Table Text Block]

				March 31, 2014
(In thousands)				Unpaid principal balance (1)	Charge-offs and payments applied (2)	Recorded investment (3)		Related allowance
With no allowance recorded:
Commercial and industrial			$	112	—	112
Construction and land development				3,326	(1,955)	1,371
Commercial real estate:
	Owner occupied			340	(59)	281
	Other			519	(90)	429
		Total commercial real estate		859	(149)	710
Residential real estate:
	Consumer mortgages			947	(211)	736
	Investment property			207	(39)	168
		Total residential real estate		1,154	(250)	904
		Total	$	5,451	(2,354)	3,097
With allowance recorded:
Commercial real estate:
	Owner occupied			868	—	868		124
	Other			595	—	595		55
		Total commercial real estate		1,463	—	1,463		179
		Total	$	1,463	—	1,463	$	179
		Total impaired loans	$	6,914	(2,354)	4,560	$	179
(1) Unpaid principal balance represents the contractual obligation due from the customer.
(2) Charge-offs and payments applied represents cumulative charge-offs taken, as well as interest payments that have been
	applied against the outstanding principal balance subsequent to the loans being placed on nonaccrual status.
(3) Recorded investment represents the unpaid principal balance less charge-offs and payments applied; it is shown before
	any related allowance for loan losses.

				December 31, 2013
(In thousands)				Unpaid principal balance (1)	Charge-offs and payments applied (2)	Recorded investment (3)		Related allowance
With no allowance recorded:
Commercial and industrial			$	124	—	124
Construction and land development				2,879	(1,682)	1,197
Commercial real estate:
	Owner occupied			1,217	(190)	1,027
	Other			518	(89)	429
		Total commercial real estate		1,735	(279)	1,456
Residential real estate:
	Consumer mortgages			952	(198)	754
	Investment property			207	(35)	172
		Total residential real estate		1,159	(233)	926
		Total	$	5,897	(2,194)	3,703
With allowance recorded:
Construction and land development				452	(67)	385		88
Commercial real estate:
	Owner occupied			875	—	875		110
	Other			602	—	602		62
		Total commercial real estate		1,477	—	1,477		172
		Total	$	1,929	(67)	1,862	$	260
		Total impaired loans	$	7,826	(2,261)	5,565	$	260
(1) Unpaid principal balance represents the contractual obligation due from the customer.
(2) Charge-offs and payments applied represents cumulative charge-offs taken, as well as interest payments that have been
	applied against the outstanding principal balance subsequent to the loans being placed on nonaccrual status.
(3) Recorded investment represents the unpaid principal balance less charge-offs and payments applied; it is shown before
	any related allowance for loan losses.

ScheduleOfAverageImpairedFinancingReceivableTableTextBlock

			Quarter ended March 31, 2014				Quarter ended March 31, 2013
				Average	Total interest			Average	Total interest
				recorded	income			recorded	income
(In thousands)				investment	recognized			investment	recognized
Impaired loans:
Commercial and industrial			$	116	$	2	$	164	$	3
Construction and land development				1,508		—		1,619		—
Commercial real estate:
	Owner occupied			1,648		12		2,044		14
	Other			1,026		9		3,004		—
		Total commercial real estate		2,674		21		5,048		14
Residential real estate:
	Consumer mortgages			742		—		811		—
	Investment property			170		—		305		—
		Total residential real estate		912		—		1,116		—
		Total	$	5,210	$	23	$	7,947	$	17

Troubled Debt Restructurings on Financing Receivables [Table Text Block]

				TDRs
								Related
(In thousands)				Accruing	Nonaccrual	Total		Allowance
March 31, 2014
Commercial and industrial			$	112	—	112	$	—
Construction and land development				—	1,371	1,371		—
Commercial real estate:
	Owner occupied			868	281	1,149		124
	Other			595	429	1,024		55
		Total commercial real estate		1,463	710	2,173		179
Residential real estate:
	Consumer mortgages			—	736	736		—
	Investment property			—	168	168		—
		Total residential real estate		—	904	904		—
		Total	$	1,575	2,985	4,560	$	179

December 31, 2013
Commercial and industrial			$	124	—	124	$	—
Construction and land development				—	1,582	1,582		88
Commercial real estate:
	Owner occupied			875	285	1,160		110
	Other			602	429	1,031		62
		Total commercial real estate		1,477	714	2,191		172
Residential real estate:
	Consumer mortgages			—	754	754		—
	Investment property			—	172	172		—
		Total residential real estate		—	926	926		—
		Total	$	1,601	3,222	4,823	$	260

			March 31, 2014				Marh 31, 2013
					Pre-	Post -			Pre-	Post -
					modification	modification			modification	modification
			Number		outstanding	outstanding	Number		outstanding	outstanding
			of		recorded	recorded	of		recorded	recorded
(Dollars in thousands)			contracts		investment	investment	contracts		investment	investment
TDRs:
Commercial real estate:
	Other		—	$	—	—	1	$	431	431
		Total commercial real estate	—		—	—	1		431	431
Residential real estate:
	Consumer mortgages		—		—	—	1		131	131
		Total residential real estate	—		—	—	1		131	131
		Total	—	$	—	—	2	$	562	562

		Quarter ended March 31, 2014			Quarter ended March 31, 2013
		Number of		Recorded	Number of		Recorded
(Dollars in thousands)		Contracts		investment(1)	Contracts		investment(1)
TDRs:
Construction and land development		—	$	—	1	$	1,197
	Total	—	$	—	1	$	1,197
(1) Amount as of applicable month end during the respective period for which there was a payment default.

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Variable Interest Entities (Details) (Liability Recognized [Member], USD $) In Thousands, unless otherwise specified	Mar. 31, 2014
Liability Recognized [Member]
Variable Interest Entities [Line Items]
Trust Preferred Issuance, Liability Recognized	$ 7,217

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Loans Textuals (Details)	Mar. 31, 2014
Loan and Lease Disclosure (Textuals) [Abstract]
Percentage Of Loans Secured By Real Estate	0.824

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Consolidated Statements of Comprehensive Income (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2014	Mar. 31, 2013
Statements of Comprehensive Income [Abstract]
Net earnings	$ 1,821	$ 1,689
Other comprehensive income (loss), net of tax:
Unrealized net holding gain (loss) on securities	2,565	(756)
Reclassification adjustment for net loss (gain) on securities recognized in net earnings	194	(101)
Other comprehensive income (loss), net of tax	2,759	(857)
Comprehensive income	$ 4,580	$ 832

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Basic and Diluted Earnings Per Share

3 Months Ended

Mar. 31, 2014

Earnings Per Share Abstract

Earnings Per Share [Text Block]

NOTE 2: BASIC AND DILUTED EARNINGS PER SHARE

Basic net earnings per share is computed by dividing net earnings by the weighted average common shares outstanding for the quarters ended March 31,2014 and 2013, respectively. Diluted net earnings per share reflect the potential dilution that could occur upon exercise of securities or other rights for, or convertible into, shares of the Company’s common stock. At March 31,2014 and 2013, respectively, the Company had no such securities or rights issued or outstanding, and therefore, no dilutive effect to consider for the diluted earnings per share calculation.

The basic and diluted earnings per share computations for the respective periods are presented below.

				Quarter ended March 31,
(Dollars in thousands, except share and per share data)				2014		2013
Basic and diluted:
	Net earnings		$	1,821	$	1,689
	Weighted average common shares outstanding			3,643,161		3,642,918
		Earnings per share	$	0.50	$	0.46

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Variable Interest Entities Textuals (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended
	Mar. 31, 2014
Variable Interest Entities (Textuals) [Abstract]
Trust Preferred Securities, Issued	$ 7.00
Junior Subordinated Debt, Issued	7.20
Equity Interest, ANB Capital Trust	$ 0.20

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Loan Credit Quality Analysis (Details) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2014	Dec. 31, 2013	Mar. 31, 2013
Financing Receivable, Recorded Investment [Line Items]
Financing Receivable, Recorded Investment, Pass	$ 356,060	$ 361,218
Financing Receivable, Recorded Investment, Special Mention	10,222	7,705
Financing Receivable Recorded Investment, Substandard Accruing	8,357	10,594
Financing Receivable, Recorded Investment, Nonaccrual Status	3,188	4,261
Loans and Leases Receivable, Gross, Carrying Amount	377,827	383,778	390,837
Commercial and Industrial Loans [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing Receivable, Recorded Investment, Pass	49,947	53,060
Financing Receivable, Recorded Investment, Special Mention	4,182	4,183
Financing Receivable Recorded Investment, Substandard Accruing	449	482
Financing Receivable, Recorded Investment, Nonaccrual Status	54	55
Loans and Leases Receivable, Gross, Carrying Amount	54,632	57,780	55,736
Construction And Land Development Loans [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing Receivable, Recorded Investment, Pass	28,593	33,616
Financing Receivable, Recorded Investment, Special Mention	633	180
Financing Receivable Recorded Investment, Substandard Accruing	678	1,101
Financing Receivable, Recorded Investment, Nonaccrual Status	1,371	1,582
Loans and Leases Receivable, Gross, Carrying Amount	31,275	36,479	41,104
Commercial Real Estate Owner Occupied Loans [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing Receivable, Recorded Investment, Pass	52,058	53,430
Financing Receivable, Recorded Investment, Special Mention	1,218	770
Financing Receivable Recorded Investment, Substandard Accruing	416	875
Financing Receivable, Recorded Investment, Nonaccrual Status	281	1,027
Loans and Leases Receivable, Gross, Carrying Amount	53,973	56,102
Commercial Real Estate Other Loans [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing Receivable, Recorded Investment, Pass	123,434	117,490
Financing Receivable, Recorded Investment, Special Mention	90	91
Financing Receivable Recorded Investment, Substandard Accruing	795	808
Financing Receivable, Recorded Investment, Nonaccrual Status	429	429
Loans and Leases Receivable, Gross, Carrying Amount	124,748	118,818
Commercial Real Estate Loans, Total [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing Receivable, Recorded Investment, Pass	175,492	170,920
Financing Receivable, Recorded Investment, Special Mention	1,308	861
Financing Receivable Recorded Investment, Substandard Accruing	1,211	1,683
Financing Receivable, Recorded Investment, Nonaccrual Status	710	1,456
Loans and Leases Receivable, Gross, Carrying Amount	178,721	174,920	178,993
Residential Real Estate Consumer Mortgage Loans [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing Receivable, Recorded Investment, Pass	50,436	50,392
Financing Receivable, Recorded Investment, Special Mention	2,724	1,137
Financing Receivable Recorded Investment, Substandard Accruing	4,538	5,476
Financing Receivable, Recorded Investment, Nonaccrual Status	751	866
Loans and Leases Receivable, Gross, Carrying Amount	58,449	57,871
Residential Real Estate Investment Property Loans [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing Receivable, Recorded Investment, Pass	39,971	40,517
Financing Receivable, Recorded Investment, Special Mention	1,343	1,310
Financing Receivable Recorded Investment, Substandard Accruing	1,375	1,706
Financing Receivable, Recorded Investment, Nonaccrual Status	295	302
Loans and Leases Receivable, Gross, Carrying Amount	42,984	43,835
Residential Real Estate Loans, Total [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing Receivable, Recorded Investment, Pass	90,407	90,909
Financing Receivable, Recorded Investment, Special Mention	4,067	2,447
Financing Receivable Recorded Investment, Substandard Accruing	5,913	7,182
Financing Receivable, Recorded Investment, Nonaccrual Status	1,046	1,168
Loans and Leases Receivable, Gross, Carrying Amount	101,433	101,706	102,978
Consumer Installment and Revolving Loans [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing Receivable, Recorded Investment, Pass	11,621	12,713
Financing Receivable, Recorded Investment, Special Mention	32	34
Financing Receivable Recorded Investment, Substandard Accruing	106	146
Financing Receivable, Recorded Investment, Nonaccrual Status	7	0
Loans and Leases Receivable, Gross, Carrying Amount	$ 11,766	$ 12,893	$ 12,026

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Securities (Tables)

3 Months Ended

Mar. 31, 2014

Investments debt and equity securities [Abstract]

Available-for-sale Securities [Table Text Block]

			1 year	1 to 5	5 to 10	After 10	Fair	Gross Unrealized		Amortized
(Dollars in thousands)			or less	years	years	years	Value	Gains	Losses	Cost
March 31, 2014
Agency obligations (a)		$	—	—	33,920	22,114	56,034	54	3,143	$	59,123
Agency RMBS (a)			—	—	7,954	154,755	162,709	1,138	3,016		164,587
State and political subdivisions			—	679	20,402	40,165	61,246	2,236	111		59,121
	Total available-for-sale	$	—	679	62,276	217,034	279,989	3,428	6,270	$	282,831

December 31, 2013
Agency obligations (a)		$	—	—	23,247	21,275	44,522	—	4,557	$	49,079
Agency RMBS (a)			—	—	8,306	154,052	162,358	976	4,733		166,115
State and political subdivisions			—	1,735	21,366	41,238	64,339	1,560	459		63,238
	Total available-for-sale	$	—	1,735	52,919	216,565	271,219	2,536	9,749	$	278,432
(a) Includes securities issued by U.S. government agencies or government sponsored entities.

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

			Less than 12 Months		12 Months or Longer			Total
			Fair	Unrealized	Fair	Unrealized		Fair	Unrealized
(Dollars in thousands)			Value	Losses	Value	Losses		Value	Losses
March 31, 2014:
Agency obligations		$	22,827	1,303	18,112	1,840	$	40,939	3,143
Agency RMBS			88,746	2,778	4,616	238		93,362	3,016
State and political subdivisions			4,255	111	—	—		4,255	111
	Total	$	115,828	4,192	22,728	2,078	$	138,556	6,270

December 31, 2013:
Agency obligations		$	35,933	3,182	8,590	1,376	$	44,523	4,558
Agency RMBS			109,774	4,393	7,683	339		117,457	4,732
State and political subdivisions			9,575	459	—	—		9,575	459
	Total	$	155,282	8,034	16,273	1,715	$	171,555	9,749

Other than Temporary Impairment, Credit Losses Recognized in Earnings [Table Text Block]

		Quarter ended March 31,
(Dollars in thousands)		2014		2013
Balance, beginning of period	$	—	$	1,257
Balance, end of period	$	—	$	1,257

Available For Sale Securiites Changes In Other Than Temporary Impairment Losses [Table Text Block]

					Quarter ended March 31,
(Dollars in thousands)					2014		2013
Other-than-temporary impairment charges (included in earnings):
	Debt securities:
		Agency RMBS		$	333	$	—
			Total debt securities		333		—
Total other-than-temporary impairment charges (included in earnings)				$	333	$	—
Other-than-temporary impairment on debt securities:
	Recorded as part of gross realized losses:
		Securities with intent to sell		$	333	$	—
Total other-than-temporary impairment on debt securities				$	333	$	—

Schedule of Realized Gain (Loss) [Table Text Block]

Realized Gains and Losses
The following table presents the gross realized gains and losses on sales and other-than-temporary impairment charges
related to securities.
			Quarter ended March 31,
(Dollars in thousands)			2014		2013
Gross realized gains		$	26	$	161
Other-than-temporary impairment charges			(333)		—
	Realized gains, net	$	(307)	$	161