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, 2016

[    ] 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 28, 2016
Common Stock, $0.01 par value per share	3,643,503 shares

AUBURN NATIONAL BANCORPORATION, INC. AND SUBSIDIARIES

INDEX

PART I. FINANCIAL INFORMATION	PAGE
Item 1    Financial Statements
Consolidated Balance Sheets (Unaudited) as of March 31, 2016 and December 31, 2015	3
Consolidated Statements of Earnings (Unaudited) for the quarters ended March 31, 2016 and 2015	4
Consolidated Statements of Comprehensive Income (Unaudited) for the quarters ended March 31, 2016 and 2015	5
Consolidated Statements of Stockholders’ Equity (Unaudited) for the quarters ended March 31, 2016 and 2015	6
Condensed Consolidated Statements of Cash Flows (Unaudited) for the quarters ended March 31, 2016 and 2015	7
Notes to Consolidated Financial Statements (Unaudited)	8
Item 2     Management’s Discussion and Analysis of Financial Condition and Results of Operations	27
Table 1 – Explanation of Non-GAAP Financial Measures	44
Table 2 – Selected Quarterly Financial Data	45
Table 3 –  Average Balances and Net Interest Income Analysis – for the quarters ended March 31, 2016 and 2015	46
Table 4 – Loan Portfolio Composition	47
Table 5 – Allowance for Loan Losses and Nonperforming Assets	48
Table 6 – Allocation of Allowance for Loan Losses	49
Table 7 – CDs and Other Time Deposits of $100,000 or more	50
Item 3     Quantitative and Qualitative Disclosures About Market Risk	51
Item 4     Controls and Procedures	51
PART II. OTHER INFORMATION
Item 1    Legal Proceedings	51
Item 1A Risk Factors	51
Item 2     Unregistered Sales of Equity Securities and Use of Proceeds	51
Item 3    Defaults Upon Senior Securities	51
Item 4    Mine Safety Disclosures	51
Item 5    Other Information	51
Item 6    Exhibits	52

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, 2016			December 31, 2015
Assets:
Cash and due from banks	$	18,009		$	9,806
Federal funds sold		45,071			57,395
Interest bearing bank deposits		69,907			46,729
Cash and cash equivalents		132,987			113,930
Securities available-for-sale		234,109			241,687
Loans held for sale		2,326			1,540
Loans, net of unearned income		431,763			426,410
Allowance for loan losses		(4,774	)		(4,289)
Loans, net		426,989			422,121
Premises and equipment, net		11,771			11,866
Bank-owned life insurance		17,545			17,433
Other real estate owned		397			252
Other assets		7,204			8,360
Total assets	$	833,328		$	817,189
Liabilities:
Deposits:
Noninterest-bearing	$	172,643		$	156,817
Interest-bearing		564,718			566,810
Total deposits		737,361			723,627
Federal funds purchased and securities sold under agreements to repurchase		2,488			2,951
Long-term debt		7,217			7,217
Accrued expenses and other liabilities		3,375			3,445
Total liabilities		750,441			737,240
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		3,767			3,766
Retained earnings		82,216			80,845
Accumulated other comprehensive income, net		3,503			1,937
Less treasury stock, at cost - 313,632 shares and 313,657 shares at March 31, 2016 and December 31, 2015, respectively		(6,638	)		(6,638)
Total stockholders’ equity		82,887			79,949
Total liabilities and stockholders’ equity	$	833,328		$	817,189

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)	2016			2015
Interest income:
Loans, including fees	$	5,096		$	5,006
Securities
Taxable		898			1,040
Tax-exempt		625			651
Federal funds sold and interest bearing bank deposits		126			39
Total interest income		6,745			6,736
Interest expense:
Deposits		981			1,102
Short-term borrowings		4			6
Long-term debt		63			105
Total interest expense		1,048			1,213
Net interest income		5,697			5,523
Provision for loan losses		(600	)		—
Net interest income after provision for loan losses		6,297			5,523
Noninterest income:
Service charges on deposit accounts		198			206
Mortgage lending		179			334
Bank-owned life insurance		112			401
Other		345			377
Securities gains, net:
Realized gains, net		—			3
Total securities gains, net		—			3
Total noninterest income		834			1,321
Noninterest expense:
Salaries and benefits		2,405			2,268
Net occupancy and equipment		360			358
Professional fees		211			201
FDIC and other regulatory assessments		122			125
Other real estate owned, net		20			17
Prepayment penalties on long-term debt		—			362
Other		991			983
Total noninterest expense		4,109			4,314
Earnings before income taxes		3,022			2,530
Income tax expense		831			668
Net earnings	$	2,191		$	1,862
Net earnings per share:
Basic and diluted	$	0.60		$	0.51
Weighted average shares outstanding:
Basic and diluted		3,643,484			3,643,365

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)	2016		2015
Net earnings	$	2,191	$	1,862
Other comprehensive income, net of tax:
Unrealized net holding gain on securities		1,566		686
Reclassification adjustment for net gain on securities recognized in net earnings		—		(2)
Other comprehensive income		1,566		684
Comprehensive income	$	3,757	$	2,546

See accompanying notes to consolidated financial statements

5

AUBURN NATIONAL BANCORPORATION, INC. AND SUBSIDIARIES

Consolidated Statements of Stockholders’ Equity

(Unaudited)

										Accumulated
					Additional					other
	Common Stock				paid-in		Retained			comprehensive		Treasury
(Dollars in thousands, except share data)	Shares		Amount		capital		earnings			income		stock			Total
Balance, December 31, 2014		3,957,135	$	39	$	3,763	$	76,193		$	2,443	$	(6,639	)	$	75,799
Net earnings		—		—		—		1,862			—		—			1,862
Other comprehensive income		—		—		—		—			684		—			684
Cash dividends paid ($0.22 per share)		—		—		—		(802	)		—		—			(802)
Sale of treasury stock (50 shares)		—		—		1		—			—		—			1
Balance, March 31, 2015		3,957,135	$	39	$	3,764	$	77,253		$	3,127	$	(6,639	)	$	77,544
Balance, December 31, 2015		3,957,135	$	39	$	3,766	$	80,845		$	1,937	$	(6,638	)	$	79,949
Net earnings		—		—		—		2,191			—		—			2,191
Other comprehensive income		—		—		—		—			1,566		—			1,566
Cash dividends paid ($0.225 per share)		—		—		—		(820	)		—		—			(820)
Sale of treasury stock (25 shares)		—		—		1		—			—		—			1
Balance, March 31, 2016		3,957,135	$	39	$	3,767	$	82,216		$	3,503	$	(6,638	)	$	82,887

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)	2016			2015
Cash flows from operating activities:
Net earnings	$	2,191		$	1,862
Adjustments to reconcile net earnings to net cash provided by operating activities:
Provision for loan losses		(600	)		—
Depreciation and amortization		248			242
Premium amortization and discount accretion, net		335			385
Net gain on securities available-for-sale		—			(3)
Net gain on sale of loans held for sale		(97	)		(258)
Increase in MSR valuation allowance		—			10
Net loss on other real estate owned		5			5
Loss on prepayment of long-term debt		—			362
Loans originated for sale		(7,671	)		(19,148)
Proceeds from sale of loans		6,925			17,720
Increase in cash surrender value of bank-owned life insurance		(112	)		(125)
Income recognized from death benefit on bank-owned life insurance		—			(276)
Net decrease in other assets		176			365
Net increase in accrued expenses and other liabilities		(69	)		(365)
Net cash provided by operating activities		1,331			776
Cash flows from investing activities:
Proceeds from maturities of securities available-for-sale		10,848			7,760
Purchase of securities available-for-sale		(1,123	)		(1,596)
(Increase) decrease in loans, net		(4,468	)		6,227
Net purchases of premises and equipment		(7	)		(230)
Proceeds from bank-owned life insurance death benefit		—			662
(Increase) decrease in FHLB stock		(25	)		191
Proceeds from sale of other real estate owned		50			30
Net cash provided by investing activities		5,275			13,044
Cash flows from financing activities:
Net increase in noninterest-bearing deposits		15,826			11,416
Net decrease in interest-bearing deposits		(2,092	)		(6,470)
Net decrease in federal funds purchased and securities sold under agreements to repurchase		(463	)		(332)
Repayments or retirement of long-term debt		—			(5,362)
Dividends paid		(820	)		(802)
Net cash provided by (used in) financing activities		12,451			(1,550)
Net change in cash and cash equivalents		19,057			12,270
Cash and cash equivalents at beginning of period		113,930			83,503
Cash and cash equivalents at end of period	$	132,987		$	95,773
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest	$	1,097		$	1,360
Income taxes		403			391
Supplemental disclosure of non-cash transactions:
Real estate acquired through foreclosure		200			—

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, 2015.

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, 2016. 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 2016, the Company adopted new guidance related to the following Accounting Standards Updates (“Updates” or “ASUs”):

• ASU 2015-02, Amendments to the Consolidation Analysis;

• ASU 2015-03, Simplifying the Presentation of Debt Issuance Costs; and

• ASU 2015-05, Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement.

8

Information about these pronouncements is described in more detail below.

ASU 2015-02, Amendments to the Consolidation Analysis, affects reporting entities that are required to evaluate whether they should consolidate certain legal entities. Specifically, the amendments: (1) Modify the evaluation of whether limited partnerships and similar legal entities are variable interest entities (“VIEs”) or voting interest entities; (2) Eliminate the presumption that a general partner should consolidate a limited partnership; (3) Affect the consolidation analysis of reporting entities that are involved with VIEs, particularly those that have fee arrangements and related party relationships; and (4) Provide a scope exception from consolidation guidance for reporting entities with interests in legal entities that are required to comply with or operate in accordance with requirements that are similar to those in Rule 2a-7 of the Investment Company Act of 1940 for registered money market funds. Adoption of this ASU did not have a material impact on the Company’s consolidated financial statements.

ASU 2015-03, Simplifying the Presentation of Debt Issuance Costs, requires that debt issuance costs related to a recognized debt liability be presented on the balance sheet as a direct deduction from the debt liability, rather than as an asset. Adoption of this ASU did not have a material impact on the Company’s consolidated financial statements.

ASU 2015-05, Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement, provides guidance to customers about whether a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract. The new guidance does not change the accounting for a customer’s accounting for service contracts. Adoption of this ASU did not have a material impact on the Company’s consolidated financial statements.

NOTE 2: BASIC AND DILUTED NET 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, 2016 and 2015, 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, 2016 and 2015, respectively, the Company had no such securities or rights issued or outstanding, and therefore, no dilutive effect to consider for the diluted net earnings per share calculation.

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

	Quarter ended March 31,
(Dollars in thousands, except share and per share data)	2016		2015
Basic and diluted:
Net earnings	$	2,191	$	1,862
Weighted average common shares outstanding		3,643,484		3,643,365
Net earnings per share	$	0.60	$	0.51

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, 2016, 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.

9

The following table summarizes VIEs that are not consolidated by the Company as of March 31, 2016.

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

NOTE 4: SECURITIES

At March 31, 2016 and December 31, 2015, respectively, all securities within the scope of Accounting Standards Codification (“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, 2016 and December 31, 2015, 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, 2016
Agency obligations (a)	$	5,001		26,208		19,670		5,001		55,880		826		—	$	55,054
Agency RMBS (a)		—		1,450		21,408		84,806		107,664		1,644		69		106,089
State and political subdivisions		—		1,874		11,777		56,913		70,564		3,155		5		67,414
Total available-for-sale	$	5,001		29,532		52,855		146,720		234,108		5,625		74	$	228,557
December 31, 2015
Agency obligations (a)	$	5,000		25,852		19,463		9,770		60,085		384		518	$	60,219
Agency RMBS (a)		—		1,623		13,511		95,820		110,954		968		780		110,766
State and political subdivisions		—		497		12,094		58,057		70,648		3,022		7		67,633
Total available-for-sale	$	5,000		27,972		45,068		163,647		241,687		4,374		1,305	$	238,618

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

Securities with aggregate fair values of $164.4 million and $133.3 million at March 31, 2016 and December 31, 2015, 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 $1.4 million at March 31, 2016 and December 31, 2015, 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, 2016 and December 31, 2015, 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, 2016:
Agency RMBS	$	8,655		30		12,252		39	$	20,907		69
State and political subdivisions		550		5		—		—		550		5
Total	$	9,205		35		12,252		39	$	21,457		74
December 31, 2015:
Agency obligations	$	8,157		2		24,444		516	$	32,601		518
Agency RMBS		42,345		367		18,184		413		60,529		780
State and political subdivisions		267		1		969		6		1,236		7
Total	$	50,769		370		43,597		935	$	94,366		1,305

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 RMBS

The unrealized losses associated with agency residential mortgage-backed securities (“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, 2016, cost-method investments with an aggregate cost of $1.4 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

Credit-impaired debt securities are debt securities where the Company has written down the amortized cost basis of a security for other-than-temporary impairment and the credit component of the loss is recognized in earnings. At March 31, 2016 and December 31, 2015, the Company had no credit-impaired debt securities and there were no additions or reductions in the credit loss component of credit-impaired debt securities during the quarters ended March 31, 2016 and 2015, respectively.

11

Realized Gains and Losses

The following table presents the gross realized gains and losses on sales of securities.

		Quarter ended March 31,
(Dollars in thousands)	2016		2015
Gross realized gains	$	—	$	3
Realized gains, net	$	—	$	3

NOTE 5: LOANS AND ALLOWANCE FOR LOAN LOSSES

(In thousands)	March 31, 2016			December 31, 2015
Commercial and industrial	$	50,192		$	52,479
Construction and land development		45,953			43,694
Commercial real estate:
Owner occupied		47,010			46,602
Other		162,310			157,251
Total commercial real estate		209,320			203,853
Residential real estate:
Consumer mortgage		70,443			70,009
Investment property		46,603			46,664
Total residential real estate		117,046			116,673
Consumer installment		9,769			10,220
Total loans		432,280			426,919
Less: unearned income		(517	)		(509)
Loans, net of unearned income	$	431,763		$	426,410

Loans secured by real estate were approximately 86.1% of the Company’s total loan portfolio at March 31, 2016. At March 31, 2016, 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 credit 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.

12

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 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, 2016 and December 31, 2015.

(In thousands)	Current		Accruing 30-89 Days Past Due		Accruing Greater than 90 days		Total Accruing Loans		Non- Accrual		Total         Loans
March 31, 2016:
Commercial and industrial	$	50,136		14		—		50,150		42	$	50,192
Construction and land development		45,758		129		—		45,887		66		45,953
Commercial real estate:
Owner occupied		47,010		—		—		47,010		—		47,010
Other		160,576		—		—		160,576		1,734		162,310
Total commercial real estate		207,586		—		—		207,586		1,734		209,320
Residential real estate:
Consumer mortgage		69,772		575		—		70,347		96		70,443
Investment property		46,555		48		—		46,603		—		46,603
Total residential real estate		116,327		623		—		116,950		96		117,046
Consumer installment		9,741		28		—		9,769		—		9,769
Total	$	429,548		794		—		430,342		1,938	$	432,280
December 31, 2015:
Commercial and industrial	$	52,387		49		—		52,436		43	$	52,479
Construction and land development		43,111		—		—		43,111		583		43,694
Commercial real estate:
Owner occupied		46,372		—		—		46,372		230		46,602
Other		155,731		—		—		155,731		1,520		157,251
Total commercial real estate		202,103		—		—		202,103		1,750		203,853
Residential real estate:
Consumer mortgage		68,579		1,105		—		69,684		325		70,009
Investment property		46,435		229		—		46,664		—		46,664
Total residential real estate		115,014		1,334		—		116,348		325		116,673
Consumer installment		10,179		28		—		10,207		13		10,220
Total	$	422,794		1,411		—		424,205		2,714	$	426,919

13

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, the 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. The Company analyzes each segment and estimates an allowance allocation for each loan segment.

14

The allocation of the allowance for loan losses begins with a process of estimating the probable losses inherent for each loan segment. 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 Company calculates average losses for all loan segments using a rolling 20 quarter historical period. 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, 2016 and December 31, 2015, 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 following table details the changes in the allowance for loan losses by portfolio segment for the respective periods.

	March 31, 2016
(In thousands)	Commercial and industrial			Construction and land development			Commercial real estate		Residential real estate			Consumer installment			Total
Quarter ended:
Beginning balance	$	523			669			1,879		1,059			159		$	4,289
Charge-offs		—			—			—		(118	)		(26	)		(144)
Recoveries		20			1,198			—		7			4			1,229
Net recoveries (charge-offs)		20			1,198			—		(111	)		(22	)		1,085
Provision for loan losses		(26	)		(1,172	)		524		78			(4	)		(600)
Ending balance	$	517			695			2,403		1,026			133		$	4,774

	March 31, 2015
(In thousands)	Commercial and industrial			Construction and land development			Commercial real estate			Residential real estate			Consumer installment			Total
Quarter ended:
Beginning balance	$	639			974			1,928			1,119			176		$	4,836
Charge-offs		(58	)		—			—			(60	)		(17	)		(135)
Recoveries		1			5			—			14			1			21
Net (charge-offs) recoveries		(57	)		5			—			(46	)		(16	)		(114)
Provision for loan losses		62			(149	)		(40	)		80			47			—
Ending balance	$	644			830			1,888			1,153			207		$	4,722

15

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, 2016 and 2015.

	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, 2016:
Commercial and industrial	$	517		50,152		—		40		517		50,192
Construction and land development		694		45,888		—		66		695		45,953
Commercial real estate		2,055		206,571		349		2,748		2,403		209,320
Residential real estate		1,026		117,046		—		—		1,026		117,046
Consumer installment		133		9,769		—		—		133		9,769
Total	$	4,425		429,426		349		2,854		4,774		432,280
March 31, 2015:
Commercial and industrial	$	644		52,475		—		61		644		52,536
Construction and land development		830		37,307		—		618		830		37,925
Commercial real estate		1,704		181,192		184		1,679		1,888		182,871
Residential real estate		1,153		110,356		—		909		1,153		111,265
Consumer installment		207		12,478		—		—		207		12,478
Total	$	4,538		393,808		184		3,267		4,722		397,075

(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 non-impaired 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.

16

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, 2016:
Commercial and industrial	$	46,055		3,786		309		42	$	50,192
Construction and land development		45,356		54		477		66		45,953
Commercial real estate:
Owner occupied		46,419		275		316		—		47,010
Other		160,074		35		467		1,734		162,310
Total commercial real estate		206,493		310		783		1,734		209,320
Residential real estate:
Consumer mortgage		65,003		2,490		2,854		96		70,443
Investment property		45,519		—		1,084		—		46,603
Total residential real estate		110,522		2,490		3,938		96		117,046
Consumer installment		9,630		29		110		—		9,769
Total	$	418,056		6,669		5,617		1,938	$	432,280
December 31, 2015:
Commercial and industrial	$	48,038		4,075		323		43	$	52,479
Construction and land development		42,458		60		593		583		43,694
Commercial real estate:
Owner occupied		45,772		381		219		230		46,602
Other		155,423		36		272		1,520		157,251
Total commercial real estate		201,195		417		491		1,750		203,853
Residential real estate:
Consumer mortgage		64,502		1,964		3,218		325		70,009
Investment property		45,399		112		1,153		—		46,664
Total residential real estate		109,901		2,076		4,371		325		116,673
Consumer installment		10,038		55		114		13		10,220
Total	$	411,630		6,683		5,892		2,714	$	426,919

17

Impaired loans

The following tables present details related to the Company’s impaired loans. Loans that have been fully charged-off do not appear in the following tables. The related allowance generally represents the following components that 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, 2016 and December 31, 2015.

	March 31, 2016
(In thousands)	Unpaid principal balance (1)		Charge-offs and payments applied (2)			Recorded investment (3)		Related allowance
With no allowance recorded:
Commercial and industrial	$	40		—			40
Construction and land development		168		(102	)		66
Commercial real estate:
Other		305		(80	)		225
Total commercial real estate		305		(80	)		225
Total	$	513		(182	)		331
With allowance recorded:
Commercial real estate:
Owner occupied		1,014		—			1,014		110
Other		2,136		(627	)		1,509		239
Total commercial real estate		3,150		(627	)		2,523		349
Total	$	3,150		(627	)		2,523	$	349
Total impaired loans	$	3,663		(809	)		2,854	$	349

(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.

18

	December 31, 2015
(In thousands)	Unpaid principal balance (1)		Charge-offs and payments applied (2)			Recorded investment (3)		Related allowance
With no allowance recorded:
Commercial and industrial	$	48		—			48
Construction and land development		2,582		(1,999	)		583
Commercial real estate:
Owner occupied		308		(78	)		230
Other		2,136		(617	)		1,519
Total commercial real estate		2,444		(695	)		1,749
Total	$	5,074		(2,694	)		2,380
With allowance recorded:
Commercial real estate:
Owner occupied		1,027		—			1,027		121
Total commercial real estate		1,027		—			1,027		121
Total	$	1,027		—			1,027	$	121
Total impaired loans	$	6,101		(2,694	)		3,407	$	121

(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, 2016				Quarter ended March 31, 2015
(In thousands)	Average recorded investment		Total interest income recognized		Average recorded investment		Total interest income recognized
Impaired loans:
Commercial and industrial	$	32	$	1	$	67	$	1
Construction and land development		198		—		616		—
Commercial real estate:
Owner occupied		1,020		15		1,099		12
Other		1,742		—		591		10
Total commercial real estate		2,762		15		1,690		22
Residential real estate:
Consumer mortgages		—		—		751		15
Investment property		—		—		153		—
Total residential real estate		—		—		904		15
Total	$	2,992	$	16	$	3,277	$	38

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. In making the 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.

19

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 for possible impairment.

The following is a summary of accruing and nonaccrual TDRs, which are included in the impaired loan totals, and the related allowance for loan losses, by portfolio segment and class as of March 31, 2016 and December 31, 2015.

	TDRs
(In thousands)	Accruing		Nonaccrual		Total		Related         Allowance
March 31, 2016
Commercial and industrial	$	40		—		40	$	—
Construction and land development		—		66		66		—
Commercial real estate:
Owner occupied		1,014		225		1,239		110
Total commercial real estate		1,014		225		1,239		110
Total	$	1,054		291		1,345	$	110
December 31, 2015
Commercial and industrial	$	48		—		48	$	—
Construction and land development		—		582		582		—
Commercial real estate:
Owner occupied		1,027		230		1,257		121
Total commercial real estate		1,027		230		1,257		121
Total	$	1,075		812		1,887	$	121

At March 31, 2016, 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.

	Quarter ended March 31, 2016						Quarter ended March 31, 2015
(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:
Construction and land development		—	$	—		—		1	$	116		113
Commercial real estate:
Other		—		—		—		1		592		592
Total commercial real estate		—		—		—		1		592		592
Total		—	$	—		—		2	$	708		705

The majority of the loans modified in a TDR during the quarter ended March 31, 2015, 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.

20

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, 2016				Quarter ended March 31, 2015
(Dollars in thousands)	Number of Contracts		Recorded             investment(1)		Number of Contracts		Recorded             investment(1)
TDRs:
Commercial real estate:
Owner occupied		—	$	—		1	$	261
Total commercial real estate		—		—		1		261
Residential real estate:
Investment property		—		—		1		150
Total residential real estate		—		—		1		150
Total		—	$	—		2	$	411

(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 allowance 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 quarters ended March 31, 2016 and 2015 are presented below.

	Quarter ended March 31,
(Dollars in thousands)	2016		2015
MSRs, net:
Beginning balance	$	2,316	$	2,388
Additions, net		57		111
Amortization expense		(138)		(134)
Increase in MSR valuation allowance		—		(10)
Ending balance	$	2,235	$	2,355
Valuation allowance included in MSRs, net:
Beginning of period	$	—	$	53
End of period		—		63
Fair value of amortized MSRs:
Beginning of period	$	3,086	$	3,238
End of period		2,906		3,066

21

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.

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, 2016 and December 31, 2015 is presented below.

			Other       Assets		Other       Liabilities
(Dollars in thousands)	Notional		Estimated Fair Value		Estimated Fair Value
March 31, 2016:
Pay fixed / receive variable	$	4,229		—		418
Pay variable / receive fixed		4,229		418		—
Total interest rate swap agreements	$	8,458		418		418
December 31, 2015:
Pay fixed / receive variable	$	4,317		—		440
Pay variable / receive fixed		4,317		440		—
Total interest rate swap agreements	$	8,634		440		440

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, 2016, there were no transfers between levels and no changes in valuation techniques for the Company’s financial assets and liabilities.

22

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, 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, 2016 and December 31, 2015, 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, 2016:
Securities available-for-sale:
Agency obligations	$	55,880		—		55,880		—
Agency RMBS		107,664		—		107,664		—
State and political subdivisions		70,564		—		70,564		—
Total securities available-for-sale		234,108		—		234,108		—
Other assets (1)		418		—		418		—
Total assets at fair value	$	234,526		—		234,526		—
Other liabilities(1)	$	418		—		418		—
Total liabilities at fair value	$	418		—		418		—
December 31, 2015:
Securities available-for-sale:
Agency obligations	$	60,085		—		60,085		—
Agency RMBS		110,954		—		110,954		—
State and political subdivisions		70,648		—		70,648		—
Total securities available-for-sale		241,687		—		241,687		—
Other assets (1)		440		—		440		—
Total assets at fair value	$	242,127		—		242,127		—
Other liabilities(1)	$	440		—		440		—
Total liabilities at fair value	$	440		—		440		—

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

23

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 rates, 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.

24

The following table presents the balances of the assets and liabilities measured at fair value on a nonrecurring basis as of March 31, 2016 and December 31, 2015, 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, 2016:
Loans held for sale	$	2,326		—		2,326		—
Loans, net(1)		2,505		—		—		2,505
Other real estate owned		397		—		—		397
Other assets (2)		2,235		—		—		2,235
Total assets at fair value	$	7,463		—		2,326		5,137
December 31, 2015:
Loans held for sale	$	1,540		—		1,540		—
Loans, net(1)		3,286		—		—		3,286
Other real estate owned		252		—		—		252
Other assets (2)		2,316		—		—		2,316
Total assets at fair value	$	7,394		—		1,540		5,854

⁽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

At March 31, 2016, 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, 2016, 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	$	2,505	Appraisal	Appraisal discounts (%)		39.9%
Other real estate owned		397	Appraisal	Appraisal discounts (%)		7.2%
Mortgage servicing rights, net		2,235	Discounted cash flow	Prepayment speed or CPR (%)		10.7%
				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.

25

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 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, 2016 and December 31, 2015 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 deposits, interest-bearing demand deposits, 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, 2016:
Financial Assets:
Loans, net (1)	$	426,989	$	437,145	$	—	$	—	$	437,145
Loans held for sale		2,326		2,345		—		2,345		—
Financial Liabilities:
Time Deposits	$	215,388	$	216,811	$	—	$	216,811	$	—
Long-term debt		7,217		7,217		—		7,217		—
December 31, 2015:
Financial Assets:
Loans, net (1)	$	422,121	$	427,340	$	—	$	—	$	427,340
Loans held for sale		1,540		1,574		—		1,574		—
Financial Liabilities:
Time Deposits	$	219,598	$	220,093	$	—	$	220,093	$	—
Long-term debt		7,217		7,217		—		7,217		—

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

26

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, 2016 and 2015, as well as the information contained in our Annual Report on Form 10-K for the year ended December 31, 2015.

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;

27

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

• 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;

• Cyber attacks and data breaches that may compromise our systems or customers’ information;

• 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 risk 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, 2015 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, Notasulga, and Valley, Alabama. In-store branches are located in the Kroger and Wal-Mart SuperCenter in Opelika. The Bank also operates a commercial loan production office in Phenix City, Alabama.

Summary of Results of Operations
	Quarter ended March 31,
(Dollars in thousands, except per share data)	2016			2015
Net interest income (a)	$	6,019		$	5,858
Less: tax-equivalent adjustment		322			335
Net interest income (GAAP)		5,697			5,523
Noninterest income		834			1,321
Total revenue		6,531			6,844
Provision for loan losses		(600	)		—
Noninterest expense		4,109			4,314
Income tax expense		831			668
Net earnings	$	2,191		$	1,862
Basic and diluted earnings per share	$	0.60		$	0.51
(a) Tax-equivalent. See “Table 1 - Explanation of Non-GAAP Financial Measures.”

28

Financial Summary

The Company’s net earnings were $2.2 million for the first quarter of 2016, compared to $1.9 million for the first quarter of 2015. Basic and diluted earnings per share were $0.60 per share for the first quarter of 2016, compared to $0.51 per share for the first quarter of 2015.

Net interest income (tax-equivalent) was $6.0 million for the first quarter of 2016, an increase of 3% compared to the first quarter of 2015. The increase was primarily due to a reduction in interest expense as the Company repaid higher-cost wholesale funding sources and lowered its deposit costs. Additionally, the Company continued its efforts to increase earnings by shifting its asset mix through loan growth. Average loans were $429.5 million in the first quarter of 2016, an increase of $29.4 million or 7%, from the first quarter of 2015. Average deposits were $726.4 million in the first quarter of 2016, an increase of $20.6 million or 3%, from the first quarter of 2015.

The Company recorded a negative provision for loan losses of $0.6 million for the first quarter of 2016, compared to no provision for loan losses for the first quarter of 2015. Annualized net recoveries as a percent of average loans were 1.01% for the first quarter of 2016 compared to net charge-offs as a percent of average loans of 0.11% for the first quarter of 2015. The Company recognized a recovery of $1.2 million from the payoff of one nonperforming construction and land development loan during the first quarter of 2016.

Noninterest income was $0.8 million for the first quarter of 2016, compared to $1.3 million in the first quarter of 2015. The decrease was primarily due to $0.3 million in non-taxable death benefits from bank-owned life insurance that were received in the first quarter of 2015, compared to none in the first quarter of 2016, and a decrease in mortgage lending income of $0.2 million as mortgage loan production declined.

Noninterest expense was $4.1 million in the first quarter of 2016, compared to $4.3 million in the first quarter of 2015. The decrease was primarily due to no prepayment penalties on long-term debt incurred in the first quarter of 2016 compared to $0.4 million incurred in the first quarter of 2015 when the Company repaid $5.0 million of long-term debt with an interest rate of 3.59%. This decrease was partially offset by a $0.2 million increase in salary and benefits due to routine annual increases.

Income tax expense was $0.8 million for the first quarter of 2016, compared to $0.7 million for the first quarter of 2015. The Company’s income tax expense for the first quarter of 2016 reflects an effective income tax rate of 27.50%, compared to 26.40% for the first quarter of 2015. The increase in the effective tax rate is primarily due to a decrease in tax preference items such as income from bank-owned life insurance. The Company’s effective income tax rate is principally impacted by tax-exempt earnings from the Company’s investments in municipal securities and bank-owned life insurance.

In the first quarter of 2016, the Company paid cash dividends of $0.8 million, or $0.225 per share. The Company’s balance sheet remains “well capitalized” under current regulatory guidelines with a total risk-based capital ratio of 17.64% and a Tier 1 leverage ratio of 10.47% at March 31, 2016.

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.

29

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, the 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. 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 each loan segment. 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 Company calculates average losses for all loan segments using a rolling 20 quarter historical period. 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, 2016 and December 31, 2015, 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.

30

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 it 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.

31

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, 2016. The amount of the deferred tax assets considered realizable, however, could be reduced if estimates of future taxable income are reduced.

RESULTS OF OPERATIONS

Average Balance Sheet and Interest Rates

	Quarter ended March 31,
	2016				2015
	Average		Yield/		Average		Yield/
(Dollars in thousands)	Balance		Rate		Balance		Rate
Loans and loans held for sale	$	430,545		4.76%	$	403,109		5.04%
Securities - taxable		170,125		2.12%		196,234		2.15%
Securities - tax-exempt		66,963		5.69%		68,034		5.88%
Total securities		237,088		3.13%		264,268		3.11%
Federal funds sold		58,415		0.49%		74,514		0.19%
Interest bearing bank deposits		49,983		0.44%		13,408		0.12%
Total interest-earning assets		776,031		3.66%		755,299		3.80%
Deposits:
NOW		122,151		0.31%		114,675		0.30%
Savings and money market		229,865		0.38%		211,797		0.43%
Certificates of deposits less than $100,000		84,006		0.96%		95,460		1.08%
Certificates of deposits and other time deposits of $100,000 or more		133,420		1.41%		147,750		1.47%
Total interest-bearing deposits		569,442		0.69%		569,682		0.78%
Short-term borrowings		3,155		0.51%		4,661		0.52%
Long-term debt		7,217		3.51%		11,550		3.69%
Total interest-bearing liabilities		579,814		0.73%		585,893		0.84%
Net interest income and margin (tax-equivalent)	$	6,019		3.12%	$	5,858		3.15%

Net Interest Income and Margin

Net interest income (tax-equivalent) was $6.0 million for the first quarter of 2016, compared to $5.9 million for the first quarter of 2015. This increase reflects management’s ongoing efforts to increase earnings by shifting the Company’s asset mix through loan growth, focusing on deposit pricing, and repaying higher-cost wholesale funding.

The tax-equivalent yield on total interest-earning assets decreased by 14 basis points in the first quarter of 2016 from the first quarter of 2015 to 3.66%. This decrease was primarily due to declining yields on loans and increased pricing competition for quality loan opportunities in our markets, which has limited the Company’s ability to increase yields on new and renewed loans.

The cost of total interest-bearing liabilities decreased 11 basis points in the first quarter of 2016 from the first quarter of 2015 to 0.73%. The net decrease was largely a result of the continued shift in our funding mix, as we increased our lower-cost interest bearing demand deposits (NOW accounts), and savings and money market accounts and concurrently reduced balances of higher-cost certificates of deposits and long-term debt.

32

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 $0.6 million in the first quarter of 2016 as a result of a $1.2 million recovery from the payoff of a non-performing construction and land development loan. No provision for loan losses was made for the first quarter of 2015. Provision expense reflects the absolute level of loans, loan growth, the credit quality of the loan portfolio, and the amount of net charge-offs or recoveries.

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 1.11% at March 31, 2016, compared to 1.01% at December 31, 2015. 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) 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)	2016		2015
Service charges on deposit accounts	$	198	$	206
Mortgage lending income		179		334
Bank-owned life insurance		112		401
Securities gains (losses), net		—		3
Other		345		377
Total noninterest income	$	834	$	1,321

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.

33

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

	Quarter ended March 31,
(Dollars in thousands)	2016		2015
Origination income, net	$	97	$	258
Servicing fees, net		82		86
Increase in MSR valuation allowance		—		(10)
Total mortgage lending income	$	179	$	334

The decrease in mortgage lending income was primarily due to a decrease in the volume of mortgage loans originated and sold. The decrease in volume is due to various factors, including the Company’s efforts to comply with the new TILA-RESPA Integrated Disclosure (TRID) rules and a reduction in the number of mortgage originators. Until the Company’s new loan origination system is fully implemented and operational, management expects mortgage lending income and volume will decrease compared to prior periods. Management currently expects this new system will be fully implemented and operational prior to the end of the second quarter of 2016.

Income from bank-owned life insurance decreased in the first quarter of 2016, compared to the first quarter of 2015 due to non-taxable death benefits received in the prior year. 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.

Noninterest Expense

	Quarter ended March 31,
(Dollars in thousands)	2016		2015
Salaries and benefits	$	2,405	$	2,268
Net occupancy and equipment		360		358
Professional fees		211		201
FDIC and other regulatory assessments		122		125
Other real estate owned, net		20		17
Prepayment penalties on long-term debt		—		362
Other		991		983
Total noninterest expense	$	4,109	$	4,314

The increase in salaries and benefits expense reflected routine annual increases.

During the first quarter of 2015, the Company repaid $5.0 million of long-term debt with an interest rate of 3.59% and incurred prepayment penalties of $0.4 million.

Income Tax Expense

Income tax expense was $0.8 million for the first quarter of 2016, compared to $0.7 million for the first quarter of 2015. The Company’s income tax expense for the first quarter of 2016 reflects an effective income tax rate of 27.50%, compared to 26.40% for the first quarter of 2015. The increase in the effective tax rate is primarily due to a decrease in tax preference items such as income from bank-owned life insurance. The Company’s income tax expense is principally affected by tax exempt earnings on municipal securities investments and bank-owned life insurance.

BALANCE SHEET ANALYSIS

Securities

Securities available-for-sale were $234.1 million at March 31, 2016, a decrease of $7.6 million, or 3%, compared to $241.7 million at December 31, 2015. This decline was primarily due to a decrease of $10.8 million in the amortized cost basis of securities available-for-sale from principal repayments, maturities and calls. This decrease was offset by securities purchases of $1.1 million and a $2.5 million change in net unrealized gains on securities available-for-sale, reflecting an increase in prices as long-term interest rates declined during the first quarter of 2016.

34

The average tax-equivalent yields earned on total securities were 3.13% in the first quarter of 2016 and 3.11% in the first quarter of 2015.

Loans

	2016			2015
	First			Fourth			Third			Second			First
(In thousands)	Quarter			Quarter			Quarter			Quarter			Quarter
Commercial and industrial	$	50,192			52,479			47,925			57,310			52,536
Construction and land development		45,953			43,694			41,592			38,854			37,925
Commercial real estate		209,320			203,853			201,449			184,124			182,871
Residential real estate		117,046			116,673			117,863			115,039			111,265
Consumer installment		9,769			10,220			14,362			13,632			12,478
Total loans		432,280			426,919			423,191			408,959			397,075
Less: unearned income		(517	)		(509	)		(619	)		(464	)		(462)
Loans, net of unearned income	$	431,763			426,410			422,572			408,495			396,613

Total loans, net of unearned income, were $431.8 million at March 31, 2016, compared to $426.4 million at December 31, 2015. Four loan categories represented the majority of the loan portfolio at March 31, 2016: commercial real estate (48%), residential real estate (27%), construction and land development (11%) and commercial and industrial (12%). Approximately 22% of the Company’s commercial real estate loans were classified as owner-occupied at March 31, 2016.

Within the residential real estate portfolio segment, the Company had junior lien mortgages of approximately $15.6 million, or 4% of total loans, at March 31, 2016, compared to $16.4 million, or 4% of total loans, at December 31, 2015. For residential real estate mortgage loans with a consumer purpose, $1.7 million required interest-only payments at March 31, 2016, compared to $0.9 million at December 31, 2015. 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 $1.5 million at March 31, 2016 compared to $1.4 million at December 31, 2015. All purchased loan participations are underwritten by the Company independent of the selling bank. In addition, all loans, including purchased loan 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 4.76% in the first quarter of 2016 and 5.04% in the first quarter of 2015.

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.

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 have established and periodically review, 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 secured loan relationships in excess of approximately $17.9 million. Furthermore, we have an internal limit for aggregate credit exposure (loans outstanding plus unfunded commitments) to a single borrower of $16.1 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, 2016, the Bank had no loan relationships exceeding these limits.

35

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, 2016 (and related balances at December 31, 2015).

	March 31,		December 31,
(In thousands)	2016		2015
Lessors of 1 to 4 family residential properties	$	46,603	$	46,664
Multi-family residential properties		43,124		45,264
Shopping centers		38,765		38,116

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, 2016 and December 31, 2015, the allowance for loan losses was $4.8 million and $4.3 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 2016 and the previous four quarters is presented below.

	2016			2015
	First			Fourth			Third			Second			First
(Dollars in thousands)	Quarter			Quarter			Quarter			Quarter			Quarter
Balance at beginning of period	$	4,289			5,127			4,886			4,722			4,836
Charge-offs:
Commercial and industrial		—			(42	)		—			—			(58)
Commercial real estate		—			(866	)		—			—			—
Residential real estate		(118	)		(3	)		(26	)		—			(60)
Consumer installment		(26	)		(14	)		(23	)		(5	)		(17)
Total charge-offs		(144	)		(925	)		(49	)		(5	)		(135)
Recoveries		1,229			87			90			169			21
Net recoveries (charge-offs)		1,085			(838	)		41			164			(114)
Provision for loan losses		(600	)		—			200			—			—
Ending balance	$	4,774			4,289			5,127			4,886			4,722
as a % of loans		1.11	%		1.01			1.21			1.20			1.19
as a % of nonperforming loans		246	%		158			140			360			377
Net (recoveries) charge-offs as % of average loans (a)		(1.01	)%		0.79			(0.04	)		(0.16	)		0.11
(a) Net (recoveries) charge-offs are annualized.

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 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 1.11% at March 31, 2016, compared to 1.01% at December 31, 2015. 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 loan losses based on their judgement about information available to them at the time of their examinations.

36

Net recoveries were $1.1 million, or 1.01% of average loans in the first quarter of 2016, compared to net charge-offs of $114,000, or 0.11% of average loans in the first quarter of 2015. In the first quarter of 2016, the Company recognized a recovery of $1.2 million from the payoff of one nonperforming construction and land development loan.

At March 31, 2016, the ratio of our allowance for loan losses as a percentage of nonperforming loans was 246%, compared to 158% at December 31, 2015. The increase was primarily due to the payoff of one nonperforming loan with a recorded investment of $0.5 million and no corresponding valuation allowance at December 31, 2015 and an increase in the allowance for loan losses of $0.5 for the commercial real estate loan portfolio segment.

At March 31, 2016 and December 31, 2015, the Company’s recorded investment in loans considered impaired was $1.9 million and $3.4 million, respectively, with corresponding valuation allowances (included in the allowance for loan losses) of $0.3 million and $0.1 million at each respective date.

Nonperforming Assets

At March 31, 2016 and December 31, 2015, respectively, the Company had $2.3 million and $3.0 million in nonperforming assets. The decrease was primarily due to the payoff of one nonperforming construction and land development loan with a recorded investment of $0.5 million at December 31, 2015.    

The table below provides information concerning total nonperforming assets and certain asset quality ratios for the first quarter of 2016 and the previous four quarters.

	2016			2015
	First			Fourth		Third		Second		First
(Dollars in thousands)	Quarter			Quarter		Quarter		Quarter		Quarter
Nonperforming assets:
Nonaccrual loans	$	1,938			2,714		3,650		1,359		1,251
Other real estate owned		397			252		278		499		499
Total nonperforming assets	$	2,335			2,966		3,928		1,858		1,750
as a % of loans and other real estate owned		0.54	%		0.70		0.93		0.45		0.44
as a % of total assets		0.28	%		0.36		0.48		0.23		0.22
Nonperforming loans as a % of total loans		0.45	%		0.64		0.86		0.33		0.32
Accruing loans 90 days or more past due	$	—			—		112		442		2

The table below provides information concerning the composition of nonaccrual loans for the first quarter of 2016 and the previous four quarters.

	2016		2015
	First		Fourth		Third		Second		First
(In thousands)	Quarter		Quarter		Quarter		Quarter		Quarter
Nonaccrual loans:
Commercial and industrial	$	42		43		81		46		51
Construction and land development		66		583		594		602		618
Commercial real estate		1,734		1,750		2,790		684		405
Residential real estate		96		325		185		27		177
Consumer installment		—		13		—		—		—
Total nonaccrual loans	$	1,938		2,714		3,650		1,359		1,251

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, 2016 and December 31, 2015, respectively, the Company had $1.9 million and $2.7 million in loans on nonaccrual.

At March 31, 2016 and December 31, 2015., there were no loans 90 days or more past due and still accruing.

37

The table below provides information concerning the composition of other real estate owned for the first quarter of 2016 and the previous four quarters.

	2016		2015
	First		Fourth		Third		Second		First
(In thousands)	Quarter		Quarter		Quarter		Quarter		Quarter
Other real estate owned:
Commercial:
Developed lots	$	252		252		252		252		252
Residential		145		—		26		247		247
Total other real estate owned	$	397		252		278		499		499

At March 31, 2016 and December 31, 2015, respectively, the Company held $0.4 million and $0.3 million in OREO, which we acquired from borrowers.

Potential Problem Loans

Potential problem loans represent those loans with a well-defined weakness and where information about possible credit problems of a borrower have 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 $5.6 million, or 1.3% of total loans at March 31, 2016, compared to $5.9 million, or 1.4% of total loans at December 31, 2015.

The table below provides information concerning the composition of potential problem loans for the first quarter of 2016 and the previous four quarters.

	2016		2015
	First		Fourth		Third		Second		First
(In thousands)	Quarter		Quarter		Quarter		Quarter		Quarter
Potential problem loans:
Commercial and industrial	$	309		323		329		383		385
Construction and land development		477		593		578		627		768
Commercial real estate		783		491		501		503		880
Residential real estate		3,938		4,371		4,964		4,898		5,682
Consumer installment		110		114		128		167		112
Total potential problem loans	$	5,617		5,892		6,500		6,578		7,827

At March 31, 2016, approximately $0.3 million, or 5.6%, of total potential problem loans were past due at least 30 days, but less than 90 days. At March 31, 2016, the remaining balance of potential problem loans were current or past due less than 30 days.

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 2016 and the previous four quarters.

	2016		2015
	First		Fourth		Third		Second		First
(In thousands)	Quarter		Quarter		Quarter		Quarter		Quarter
Performing loans past due 30 to 89 days:
Commercial and industrial	$	14		49		37		6		82
Construction and land development		129		—		—		12		319
Commercial real estate		—		—		182		—		—
Residential real estate		623		1,334		335		415		1,417
Consumer installment		28		28		20		23		25
Total	$	794		1,411		574		456		1,843

38

Deposits

Total deposits were $737.4 million at March 31, 2016, compared to $723.6 million at December 31, 2015. Noninterest bearing deposits were $172.6 million, or 23.4% of total deposits, at March 31, 2016, compared to $156.8 million, or 21.7% of total deposits at December 31, 2015.

The average rate paid on total interest-bearing deposits was 0.69% in the first quarter of 2016 and 0.78% in the first quarter of 2015.

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 March 31, 2016, and at December 31, 2015, respectively. Securities sold under agreements to repurchase totaled $2.5 million and $3.0 million at March 31, 2016 and December 31, 2015, respectively.

The average rate paid on short-term borrowings was 0.51% in the first quarter of 2016 and 0.52% in the first quarter of 2015.

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 no long-term FHLB advances outstanding at March 31, 2016 and December 31, 2015, respectively. In March 2015, the Bank repaid a $5.0 million FHLB advance and incurred prepayment penalties of $0.4 million. At both March 31, 2016 and December 31, 2015, the Bank had $7.2 million in junior subordinated debentures related to trust preferred securities outstanding. The debentures mature on December 31, 2033 and have been redeemable since December 31, 2008.

The average rate paid on long-term debt was 3.51% in the first quarter of 2016 and 3.69% in the first quarter of 2015.

CAPITAL ADEQUACY

The Company’s consolidated stockholders’ equity was $82.9 million and $79.9 million as of March 31, 2016 and December 31, 2015, respectively. The change from December 31, 2015 was primarily driven by net earnings of $2.2 million and other comprehensive income due to the change in unrealized gains (losses) on securities available-for-sale, net-of-tax, of $1.6 million, partially offset by cash dividends paid of $0.8 million.

The Company’s tier 1 leverage ratio was 10.47%, common equity tier 1 (“CET1”) risk-based capital ratio was 15.36%, tier 1 risk-based capital ratio was 16.69%, and total risk-based capital ratio was 17.64% at March 31, 2016. These ratios exceed the minimum regulatory capital percentages of 5.0% for tier 1 leverage ratio, 6.5% for CET1 risk-based capital ratio, 8.0% 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.”

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 an acceptable asset/liability composition. Two critical areas of focus for ALCO are interest rate risk and liquidity risk management.

Interest Rate Risk 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 (“EVE”) model.

39

Earnings simulation. Management believes that interest rate risk is best estimated by our earnings simulation modeling. 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 other factors in order to produce various earnings simulations and estimates. To help limit interest rate risk, we have guidelines for earnings at risk which seek to limit the variance of net interest income from gradual changes in interest rates. For changes up or down in rates from management’s flat interest rate forecast over the next 12 months, policy limits for net interest income variances are as follows:

• +/- 20% for a gradual change of 400 basis points

• +/- 15% for a gradual change of 300 basis points

• +/- 10% for a gradual change of 200 basis points

• +/- 5% for a gradual change of 100 basis points

At March 31, 2016, our earnings simulation model indicated that we were in compliance with the policy guidelines noted above.

Economic Value of Equity. EVE measures the extent that the 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 EVE. In contrast with our earnings simulation model, which evaluates interest rate risk over a 12 month timeframe, EVE uses a terminal horizon which allows for the re-pricing of all assets, liabilities, and off-balance sheet items. Further, EVE is measured using values as of a point in time and does not reflect any actions that ALCO might take in responding to or anticipating changes in interest rates, or market and competitive conditions. To help limit interest rate risk, we have stated policy guidelines for an instantaneous basis point change in interest rates, such that our EVE should not decrease from our base case by more than the following:

• 45% for an instantaneous change of +/- 400 basis points

• 35% for an instantaneous change of +/- 300 basis points

• 25% for an instantaneous change of +/- 200 basis points

• 15% for an instantaneous change of +/- 100 basis points

At March 31, 2016, our EVE model indicated that we were in compliance with the policy guidelines noted above.

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 a 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, 2016 and December 31, 2015, the Company had no derivative contracts designated as part of a hedging relationship to assist in managing its interest rate sensitivity.

40

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.

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 by 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 the 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 may participate in the FHLB’s advance program to obtain funding for its growth. Advances include both fixed and variable terms and may be taken out with varying maturities. At March 31, 2016, the Bank had a remaining available line of credit with the FHLB of $241.1 million. At March 31, 2016, 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, 2016, the Bank had outstanding standby letters of credit of $8.9 million and unfunded loan commitments outstanding of $46.1 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, 2016, the unpaid principal balance of residential mortgage loans, which we have originated and sold, but retained the servicing rights was $356.0 million. Although these loans are generally sold on a non-recourse basis, we may be obligated to repurchase residential mortgage loans or reimburse investors for losses incurred (make whole requests) if a loan review reveals a potential breach of seller representations and warranties. Upon receipt of a repurchase or make whole request, we work with investors to arrive at a mutually agreeable resolution. Repurchase and make whole requests 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 or make whole event has occurred. We seek to reduce and manage the risks of potential repurchases, make whole requests, or other claims by mortgage loan investors through our underwriting and quality assurance practices and by servicing mortgage loans to meet investor and secondary market standards.

In the first quarter of 2016, as a result of the representation and warranty provisions contained in the Company’s sale agreements with Fannie Mae, the Company was required to repurchase one loan with a principal balance of $198,000 that was current as to principal and interest at the time of repurchase. At March 31, 2016, the Company had no pending repurchase or make whole requests.

41

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.

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 repurchase and make whole requests related to representation and warranty provisions and servicing activities have been limited to date, it is possible that requests to repurchase mortgage loans or reimburse investors for losses incurred (make whole requests) may increase in frequency if investors more aggressively pursue all means of recovering losses on their purchased loans. As of March 31, 2016, we do not believe that this exposure is material due to the historical level of repurchase requests and loss trends, in addition to the fact that 98% 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 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 2014-09, Revenue from Contracts with Customers;

• ASU 2015-14, Revenue from Contracts with Customers – Deferral of the Effective Date;

• ASU 2016-01, Financial Instruments – Overall: Recognition and Measurement of Financial Assets and Financial Liabilities; and

• ASU 2016-02, Leases.

Information about these pronouncements is described in more detail below.

ASU 2014-09, Revenue from Contracts with Customers, provides a comprehensive and converged standard on revenue recognition. The new guidance is intended to improve comparability of revenue recognition practices across entities, industries, jurisdictions, and capital markets. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects consideration to which the entity expects to be entitled in exchange for those goods and services. This guidance also requires new qualitative and quantitative disclosures related to revenue from contracts with customers. In August 2015, FASB issued ASU 2015-14, Revenue from Contracts with Customers – Deferral of the Effective Date, which defers the effective date by one year. With the deferral, these changes are effective for the Company in the first quarter of 2018 with retrospective application to each prior reporting period or with the cumulative effect of initially applying this Update at the date of initial application. Early adoption is not permitted. The Company is currently evaluating the impact this ASU will have on its consolidated financial statements.

42

ASU 2016-01, Financial Instruments – Overall: Recognition and Measurement of Financial Assets and Financial Liabilities, enhances the reporting model for financial instruments to provide users of financial statements with more decision-useful information. The ASU addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. Some of the amendments include the following: 1) Require equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income; 2) Simplify the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment; 3) Require public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; 4) Require an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value; among others. For public business entities, the amendments of this ASU are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company is currently evaluating the impact of this ASU will have on its consolidated financial statements.

ASU 2016-02, Leases, requires lessees to recognize the assets and liabilities that arise from leases on the balance sheet. A lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for lease term. The new guidance is effective for annual and interim reporting periods beginning after December 15, 2018. The amendment should be applied at the beginning of the earliest period presented using a modified retrospective approach with earlier application permitted as of the beginning of an interim or annual reporting period. The Company is currently evaluating the impact of the new guidance on its consolidated financial statements.

43

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 and 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.

	2016		2015
	First		Fourth		Third		Second		First
(in thousands)	Quarter		Quarter		Quarter		Quarter		Quarter
Net interest income (GAAP)	$	5,697		5,737		5,670		5,788		5,523
Tax-equivalent adjustment		322		328		341		338		335
Net interest income (Tax-equivalent)	$	6,019		6,065		6,011		6,126		5,858

44

Table 2 - Selected Quarterly Financial Data

	2016			2015
	First			Fourth		Third		Second		First
(Dollars in thousands, except per share amounts)	Quarter			Quarter		Quarter		Quarter		Quarter
Results of Operations
Net interest income (a)	$	6,019			6,065		6,011		6,126		5,858
Less: tax-equivalent adjustment		322			328		341		338		335
Net interest income (GAAP)		5,697			5,737		5,670		5,788		5,523
Noninterest income		834			988		1,056		1,167		1,321
Total revenue		6,531			6,725		6,726		6,955		6,844
Provision for loan losses		(600	)		—		200		—		—
Noninterest expense		4,109			4,137		3,892		4,029		4,314
Income tax expense		831			652		724		776		668
Net earnings	$	2,191			1,936		1,910		2,150		1,862
Per share data:
Basic and diluted net earnings	$	0.60			0.53		0.52		0.59		0.51
Cash dividends declared		0.225			0.22		0.22		0.22		0.22
Weighted average shares outstanding:
Basic and diluted		3,643,484			3,643,478		3,643,455		3,643,413		3,643,365
Shares outstanding, at period end		3,643,503			3,643,478		3,643,478		3,643,428		3,643,378
Book value	$	22.75			21.94		21.85		21.15		21.28
Common stock price
High	$	30.49			30.39		27.80		25.75		25.25
Low		24.56			26.14		25.78		24.51		23.15
Period end:		28.25			29.62		26.47		25.73		24.85
To earnings ratio		12.61	x		13.78		12.37		12.08		12.12
To book value		124	%		135		121		122		117
Performance ratios:
Return on average equity		10.82	%		9.59		9.75		10.91		9.68
Return on average assets		1.07	%		0.95		0.95		1.09		0.93
Dividend payout ratio		37.50	%		41.51		42.31		37.29		43.14
Asset Quality:
Allowance for loan losses as a % of:
Loans		1.11	%		1.01		1.21		1.20		1.19
Nonperforming loans		246	%		158		140		360		377
Nonperforming assets as a % of:
Loans and other real estate owned		0.54	%		0.70		0.93		0.45		0.44
Total assets		0.28	%		0.36		0.48		0.23		0.22
Nonperforming loans as a % of total loans		0.45	%		0.64		0.86		0.33		0.32
Annualized net (recoveries) charge-offs as % of average loans		(1.01)	%		0.79		(0.04)		(0.16)		0.11
Capital Adequacy:
CET 1 risk-based capital ratio		15.36	%		15.28		15.01		15.42		15.38
Tier 1 risk-based capital ratio		16.69	%		16.57		16.29		16.76		16.83
Total risk-based capital ratio		17.64	%		17.44		17.33		17.78		17.84
Tier 1 Leverage Ratio		10.47	%		10.35		10.37		10.39		10.13
Other financial data:
Net interest margin (a)		3.12	%		3.12		3.13		3.29		3.15
Effective income tax rate		27.50	%		25.19		27.49		26.52		26.40
Efficiency ratio (b)		59.96	%		58.66		55.07		55.24		60.09
Selected average balances:
Securities	$	237,087			246,130		251,393		259,376		264,268
Loans, net of unearned income		429,528			426,192		416,210		402,482		400,161
Total assets		821,382			815,616		806,764		791,889		802,062
Total deposits		726,354			720,854		714,960		699,453		705,746
Long-term debt		7,217			7,217		7,217		7,217		11,550
Total stockholders’ equity		80,965			80,764		78,387		78,791		76,915
Selected period end balances:
Securities	$	234,109			241,687		250,142		252,906		262,141
Loans, net of unearned income		431,763			426,410		422,572		408,495		396,613
Allowance for loan losses		4,774			4,289		5,127		4,886		4,722
Total assets		833,328			817,189		817,994		806,233		790,224
Total deposits		737,361			723,627		724,311		715,994		698,336
Long-term debt		7,217			7,217		7,217		7,217		7,217
Total stockholders’ equity		82,887			79,949		79,599		77,053		77,544

(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.

45

Table 3 - Average Balances and Net Interest Income Analysis

	Quarter ended March 31,
	2016						2015
			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)	$	430,545	$	5,096		4.76%	$	403,109	$	5,006		5.04%
Securities - taxable		170,125		898		2.12%		196,234		1,040		2.15%
Securities - tax-exempt (2)		66,963		947		5.69%		68,034		986		5.88%
Total securities		237,088		1,845		3.13%		264,268		2,026		3.11%
Federal funds sold		58,415		71		0.49%		74,514		35		0.19%
Interest bearing bank deposits		49,983		55		0.44%		13,408		4		0.12%
Total interest-earning assets		776,031	$	7,067		3.66%		755,299	$	7,071		3.80%
Cash and due from banks		13,120						13,800
Other assets		32,231						32,963
Total assets	$	821,382					$	802,062
Interest-bearing liabilities:
Deposits:
NOW	$	122,151	$	95		0.31%	$	114,675	$	86		0.30%
Savings and money market		229,865		219		0.38%		211,797		226		0.43%
Certificates of deposits less than $100,000		84,006		200		0.96%		95,460		254		1.08%
Certificates of deposits and other time deposits of $100,000 or more		133,420		467		1.41%		147,750		536		1.47%
Total interest-bearing deposits		569,442		981		0.69%		569,682		1,102		0.78%
Short-term borrowings		3,155		4		0.51%		4,661		6		0.52%
Long-term debt		7,217		63		3.51%		11,550		105		3.69%
Total interest-bearing liabilities		579,814	$	1,048		0.73%		585,893	$	1,213		0.84%
Noninterest-bearing deposits		156,912						136,064
Other liabilities		3,691						3,190
Stockholders’ equity		80,965						76,915
Total liabilities and stockholders’ equity	$	821,382					$	802,062
Net interest income and margin			$	6,019		3.12%			$	5,858		3.15%

(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%.

46

Table 4 - Loan Portfolio Composition

	2016			2015
	First			Fourth			Third			Second			First
(In thousands)	Quarter			Quarter			Quarter			Quarter			Quarter
Commercial and industrial	$	50,192			52,479			47,925			57,310			52,536
Construction and land development		45,953			43,694			41,592			38,854			37,925
Commercial real estate		209,320			203,853			201,449			184,124			182,871
Residential real estate		117,046			116,673			117,863			115,039			111,265
Consumer installment		9,769			10,220			14,362			13,632			12,478
Total loans		432,280			426,919			423,191			408,959			397,075
Less: unearned income		(517	)		(509	)		(619	)		(464	)		(462)
Loans, net of unearned income		431,763			426,410			422,572			408,495			396,613
Less: allowance for loan losses		(4,774	)		(4,289	)		(5,127	)		(4,886	)		(4,722)
Loans, net	$	426,989			422,121			417,445			403,609			391,891

47

Table 5 - Allowance for Loan Losses and Nonperforming Assets

	2016			2015
	First			Fourth			Third			Second			First
(Dollars in thousands)	Quarter			Quarter			Quarter			Quarter			Quarter
Allowance for loan losses:
Balance at beginning of period	$	4,289			5,127			4,886			4,722			4,836
Charge-offs:
Commercial and industrial		—			(42	)		—			—			(58)
Commercial real estate		—			(866	)		—			—			—
Residential real estate		(118	)		(3	)		(26	)		—			(60)
Consumer installment		(26	)		(14	)		(23	)		(5	)		(17)
Total charge-offs		(144	)		(925	)		(49	)		(5	)		(135)
Recoveries		1,229			87			90			169			21
Net recoveries (charge-offs)		1,085			(838	)		41			164			(114)
Provision for loan losses		(600	)		—			200			—			—
Ending balance	$	4,774			4,289			5,127			4,886			4,722
as a % of loans		1.11	%		1.01			1.21			1.20			1.19
as a % of nonperforming loans		246	%		158			140			360			377
Net (recoveries) charge-offs as % of avg. loans (a)		(1.01	)%		0.79			(0.04	)		(0.16	)		0.11
Nonperforming assets:
Nonaccrual loans	$	1,938			2,714			3,650			1,359			1,251
Other real estate owned		397			252			278			499			499
Total nonperforming assets	$	2,335			2,966			3,928			1,858			1,750
as a % of loans and other real estate owned		0.54	%		0.70			0.93			0.45			0.44
as a % of total assets		0.28	%		0.36			0.48			0.23			0.22
Nonperforming loans as a % of total loans		0.45	%		0.64			0.86			0.33			0.32
Accruing loans 90 days or more past due	$	—			—			112			442			2

(a) Net (recoveries) charge-offs are annualized.

48

Table 6 - Allocation of Allowance for Loan Losses

	2016				2015
	First Quarter				Fourth Quarter				Third Quarter				Second Quarter				First Quarter
(Dollars in thousands)	Amount		%*		Amount		%*		Amount		%*		Amount		%*		Amount		%*
Commercial and industrial	$	517		11.6	$	523		12.3	$	504		11.3	$	681		14.0	$	644		13.2
Construction and land development		695		10.6		669		10.2		627		9.8		640		9.6		830		9.6
Commercial real estate		2,403		48.4		1,879		47.8		2,679		47.6		2,146		45.0		1,888		46.1
Residential real estate		1,026		27.1		1,059		27.3		1,103		27.9		1,180		28.1		1,153		28.0
Consumer installment		133		2.3		159		2.4		214		3.4		239		3.3		207		3.1
Total allowance for loan losses	$	4,774			$	4,289			$	5,127			$	4,886			$	4,722

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

49

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

(Dollars in thousands)	March 31, 2016
Maturity of:
3 months or less	$	9,175
Over 3 months through 6 months		13,462
Over 6 months through 12 months		35,460
Over 12 months		74,398
Total CDs and other time deposits of $100,000 or more	$	132,495

50

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 Chief Financial 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 Chief Financial 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 its business, the Company and the Bank are, from time to time, involved in legal proceedings. The Company’s and Bank’s 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, 2015.

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 the Company’s Annual Report on Form 10-K for the year ended December 31, 2015, 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

Not applicable.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

Not applicable.

51

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, Executive Vice President, Chief Financial 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 E.L. Spencer, Jr., President, Chief Executive Officer and Chairman of the Board.***
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 David A. Hedges, Executive Vice President, Chief Financial Officer.***
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.

52

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:            April 29, 2016	By:	/s/ E. L. Spencer, Jr.
		E. L. Spencer, Jr.
		President, Chief Executive Officer and
		Chairman of the Board
Date:            April 29, 2016	By:	/s/ David A. Hedges
		David A. Hedges
		EVP, Chief Financial 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: April 29, 2016

/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: April 29, 2016

/s/ David A. Hedges

EVP, 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, 2016, 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: April 29, 2016

/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, 2016, as filed with the Securities and Exchange Commission as of the date hereof (the “Report”), I, David A. Hedges, Executive Vice President, 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: April 29, 2016

/s/ David A. Hedges

David A. Hedges

EVP, Chief Financial Officer

XML

Document and Entity Information - shares	3 Months Ended
	Mar. 31, 2016	Apr. 28, 2016
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
Trading Symbol	AUBN
Entity voluntary filers	No
Entity well known seasoned issuer	No
Entity common stock shares outstanding		3,643,503
Amendment flag	false
Document Type	10-Q
Document Year Focus	2016
Document Period Focus	Q1
Document Period End Date	Mar. 31, 2016

XML

Consolidated Balance Sheets - USD ($) $ in Thousands	Mar. 31, 2016	Dec. 31, 2015
Assets:
Cash and due from banks	$ 18,009	$ 9,806
Federal funds sold	45,071	57,395
Interest bearing bank deposits	69,907	46,729
Cash and cash equivalents	132,987	113,930
Securities available-for-sale	234,109	241,687
Loans held for sale	2,326	1,540
Loans, net of unearned income	431,763	426,410
Allowance for loan losses	(4,774)	(4,289)
Loans, net	426,989	422,121
Premises and equipment, net	11,771	11,866
Bank-owned life insurance	17,545	17,433
Other real estate owned	397	252
Other assets	7,204	8,360
Total assets	833,328	817,189
Deposits:
Noninterest-bearing	172,643	156,817
Interest-bearing	564,718	566,810
Total deposits	737,361	723,627
Federal funds purchased and securities sold under agreements to repurchase	2,488	2,951
Long-term debt	7,217	7,217
Accrued expenses and other liabilities	3,375	3,445
Total liabilities	750,441	737,240
Stockholders' equity:
Preferred stock	0	0
Common stock	39	39
Additional paid-in capital	3,767	3,766
Retained earnings	82,216	80,845
Accumulated other comprehensive income, net	3,503	1,937
Less treasury stock, at cost	(6,638)	(6,638)
Total stockholders' equity	82,887	79,949
Total liabilities and stockholders' equity	$ 833,328	$ 817,189

XML

Consolidated Balance Sheets (Parentheticals) - $ / shares	Mar. 31, 2016	Dec. 31, 2015
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	313,632	313,657

XML

Consolidated Statements of Earnings - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2016	Mar. 31, 2015
Interest income:
Loans, including fees	$ 5,096	$ 5,006
Securities - Taxable	898	1,040
Securities - Tax-exempt	625	651
Federal funds sold and interest bearing bank deposits	126	39
Total interest income	6,745	6,736
Interest expense:
Deposits	981	1,102
Short-term borrowings	4	6
Long-term debt interest expense	63	105
Total interest expense	1,048	1,213
Net interest income	5,697	5,523
Provision for loan losses	(600)	0
Net interest income after provision for loan losses	6,297	5,523
Noninterest income:
Service charges on deposit accounts	198	206
Mortgage lending	179	334
Bank-owned life insurance income	112	401
Other noninterest income	345	377
Securities gains, net:
Realized gains, net	0	3
Total other-than-temporary impairments	0	0
Total securities gains, net	0	3
Total noninterest income	834	1,321
Noninterest expense:
Salaries and benefits	2,405	2,268
Net occupancy and equipment	360	358
Professional fees	211	201
FDIC and other regulatory assessments	122	125
Other real estate owned, net	20	17
Prepayment penalties on long-term debt	0	362
Other noninterest expense	991	983
Total noninterest expense	4,109	4,314
Earnings before income taxes	3,022	2,530
Income tax expense	831	668
Net earnings	$ 2,191	$ 1,862
Net earnings per share:
Basic and diluted earnings per share	$ 0.6	$ 0.51
Weighted average shares outstanding:
Basic and diluted weighted average shares outstanding	3,643,484	3,643,365

XML

Consolidated Statements of Comprehensive Income - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2016	Mar. 31, 2015
Statements of Comprehensive Income [Abstract]
Net earnings	$ 2,191	$ 1,862
Other comprehensive income, net of tax:
Unrealized net holding gain on securities	1,566	686
Reclassification adjustment for net gain on securities recognized in net earnings	0	(2)
Other comprehensive income	1,566	684
Comprehensive income	$ 3,757	$ 2,546

XML

Consolidated Statements of Stockholders' Equity - USD ($) $ in Thousands	Total	Common Stock Member	Additional Paid In Capital Member	Retained Earnings Member	Accumulated Other Comprehensive Income Member	Treasury Stock Member
Balance, shares at Dec. 31, 2014	3,957,135
Balance, Beg at Dec. 31, 2014	$ 75,799	$ 39	$ 3,763	$ 76,193	$ 2,443	$ (6,639)
Net earnings	1,862			1,862
Other Comprehensive Income (Loss), Net Of Tax	684				684
Cash dividends paid	(802)			(802)
Sale of treasury stock	1		1
Balance, End at Mar. 31, 2015	$ 77,544	39	3,764	77,253	3,127	(6,639)
Balance, shares at Mar. 31, 2015	3,957,135
Balance, shares at Dec. 31, 2015	3,957,135
Balance, Beg at Dec. 31, 2015	$ 79,949	39	3,766	80,845	1,937	(6,638)
Net earnings	2,191			2,191
Other Comprehensive Income (Loss), Net Of Tax	1,566				1,566
Cash dividends paid	(820)			(820)
Sale of treasury stock	1		1
Balance, End at Mar. 31, 2016	$ 82,887	$ 39	$ 3,767	$ 82,216	$ 3,503	$ (6,638)
Balance, shares at Mar. 31, 2016	3,957,135

XML

Consolidated Statements of Stockholders' Equity (Parentheticals) - $ / shares	3 Months Ended
	Mar. 31, 2016	Mar. 31, 2015
Statement of Stockholders' Equity (Parentheticals)
Cash dividends paid per share	$ 0.225	$ 0.22
Treasury shares sold	25	50

XML

Consolidated Statements of Cash Flows - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2016	Mar. 31, 2015
Cash flows from operating activities:
Net earnings	$ 2,191	$ 1,862
Adjustments to reconcile net earnings to net cash provided by operating activties:
Provision for loan losses	(600)	0
Depreciation and amortization	248	242
Premium amortization and discount accretion, net	335	385
Net gain on securities available for sale	0	(3)
Net gain on sale of loans held for sale	(97)	(258)
Increase in MSR valuation allowance	0	10
Net loss on other real estate owned	5	5
Loss on prepayment of long-term debt	0	362
Loans originated for sale	(7,671)	(19,148)
Proceeds from sale of loans	6,925	17,720
Increase in cash surrender value of bank owned life insurance	(112)	(125)
Income recognized from death benefit on bank-owned life insurance	0	(276)
Net decrease in other assets	176	365
Net increase in accrued expenses and other liabilities	(69)	(365)
Net cash provided by operating activities	1,331	776
Cash flows from investing activities:
Proceeds from sales of securities available-for-sale	0	0
Proceeds from maturities of securities available-for-sale	10,848	7,760
Purchase of securities available-for-sale	(1,123)	(1,596)
(Increase) decrease in loans, net	(4,468)	6,227
Net purchases of premises and equipment	(7)	(230)
Proceeds from bank-owned life insurance death benefit	0	662
(Increase) decrease in FHLB stock	(25)	191
Proceeds from sale of other real estate owned	50	30
Net cash provided by investing activities	5,275	13,044
Cash flows from financing activities:
Net increase in noninterest-bearing deposits	15,826	11,416
Net decrease in interest-bearing deposits	(2,092)	(6,470)
Net decrease in federal funds purchased and securities sold under agreements to repurchase	(463)	(332)
Repayments or retirement of long-term debt	0	(5,362)
Dividends paid	(820)	(802)
Net cash provided by (used in) financing activities	12,451	(1,550)
Net change in cash and cash equivalents	19,057	12,270
Cash and cash equivalents at beginning of period	113,930	83,503
Cash and cash equivalents at end of period	132,987	95,773
Cash paid during the period for:
Interest	1,097	1,360
Income taxes	403	391
Supplemental disclosure of non-cash transactions:
Real estate acquired through foreclosure	$ 200	$ 0

XML

Summary of Significant Accounting Policies

3 Months Ended

Mar. 31, 2016

Summary of Signficant Accounting Policies

Summary of 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 31,2015.

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 31,2016. 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 2016, the Company adopted new guidance related to the following Accounting Standards Updates (“Updates” or “ASUs”):

•

ASU 2015-02, Amendments to the Consolidation Analysis;

•

ASU 2015-03, Simplifying the Presentation of Debt Issuance Costs; and

•

ASU 2015-05, Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement.

Information about these pronouncements is described in more detail below.

ASU 2015-02, Amendments to the Consolidation Analysis, affects reporting entities that are required to evaluate whether they should consolidate certain legal entities. Specifically, the amendments: (1) Modify the evaluation of whether limited partnerships and similar legal entities are variable interest entities (“VIEs”) or voting interest entities; (2) Eliminate the presumption that a general partner should consolidate a limited partnership; (3) Affect the consolidation analysis of reporting entities that are involved with VIEs, particularly those that have fee arrangements and related party relationships; and (4) Provide a scope exception from consolidation guidance for reporting entities with interests in legal entities that are required to comply with or operate in accordance with requirements that are similar to those in Rule 2a-7 of the Investment Company Act of 1940 for registered money market funds. Adoption of this ASU did not have a material impact on the Company’s consolidated financial statements.

ASU 2015-03, Simplifying the Presentation of Debt Issuance Costs, requires that debt issuance costs related to a recognized debt liability be presented on the balance sheet as a direct deduction from the debt liability, rather than as an asset. Adoption of this ASU did not have a material impact on the Company’s consolidated financial statements.

ASU 2015-05, Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement, provides guidance to customers about whether a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract. The new guidance does not change the accounting for a customer’s accounting for service contracts. Adoption of this ASU did not have a material impact on the Company’s consolidated financial statements.

XML

Basic and Diluted Earnings Per Share

3 Months Ended

Mar. 31, 2016

Basic and Diluted Earnings Per Share [Abstract]

Basic and Diluted Earnings Per Share Text Block

NOTE 2: BASIC AND DILUTED NET 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 31,2016 and 2015, 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 31,2016 and 2015, respectively, the Company had no such securities or rights issued or outstanding, and therefore, no dilutive effect to consider for the diluted net earnings per share calculation.

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

				Quarter ended March 31,
(Dollars in thousands, except share and per share data)				2016		2015
Basic and diluted:
	Net earnings		$	2,191	$	1,862
	Weighted average common shares outstanding			3,643,484		3,643,365
		Net earnings per share	$	0.60	$	0.51

XML

Variable Interest Entities

3 Months Ended

Mar. 31, 2016

Variable interest entities [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 31,2016, 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 31,2016.

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

XML

Securities

3 Months Ended

Mar. 31, 2016

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 31,2016 and December 31,2015, respectively, all securities within the scope of Accounting Standards Codification (“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 31,2016 and December 31,2015, 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, 2016
Agency obligations (a)		$	5,001	26,208	19,670	5,001	55,880	826	—	$	55,054
Agency RMBS (a)			—	1,450	21,408	84,806	107,664	1,644	69		106,089
State and political subdivisions			—	1,874	11,777	56,913	70,564	3,155	5		67,414
	Total available-for-sale	$	5,001	29,532	52,855	146,720	234,108	5,625	74	$	228,557

December 31, 2015
Agency obligations (a)		$	5,000	25,852	19,463	9,770	60,085	384	518	$	60,219
Agency RMBS (a)			—	1,623	13,511	95,820	110,954	968	780		110,766
State and political subdivisions			—	497	12,094	58,057	70,648	3,022	7		67,633
	Total available-for-sale	$	5,000	27,972	45,068	163,647	241,687	4,374	1,305	$	238,618
(a) Includes securities issued by U.S. government agencies or government sponsored entities.

Securities with aggregate fair values of $164.4 million and $133.3 million at March 31,2016 and December 31,2015, 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 $1.4 million at March 31,2016 and December 31,2015, 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 31,2016 and December 31,2015, 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, 2016:
Agency RMBS		$	8,655	30	12,252	39	$	20,907	69
State and political subdivisions			550	5	—	—		550	5
	Total	$	9,205	35	12,252	39	$	21,457	74

December 31, 2015:
Agency obligations		$	8,157	2	24,444	516	$	32,601	518
Agency RMBS			42,345	367	18,184	413		60,529	780
State and political subdivisions			267	1	969	6		1,236	7
	Total	$	50,769	370	43,597	935	$	94,366	1,305

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 RMBS

The unrealized losses associated with agency residential mortgage-backed securities (“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 31,2016, cost-method investments with an aggregate cost of $1.4 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

Credit-impaired debt securities are debt securities where the Company has written down the amortized cost basis of a security for other-than-temporary impairment and the credit component of the loss is recognized in earnings. At March 31,2016 and December 31,2015, the Company had no credit-impaired debt securities and there were no additions or reductions in the credit loss component of credit-impaired debt securities during the quarters endedMarch 31,2016 and 2015, respectively.

Realized Gains and Losses
The following table presents the gross realized gains and losses on sales of securities.
			Quarter ended March 31,
(Dollars in thousands)			2016		2015
Gross realized gains		$	—	$	3
	Realized gains, net	$	—	$	3

XML

Loan and Allowance for Loan Losses

3 Months Ended

Mar. 31, 2016

Loans And Leases Receivable Disclosure [Abstract]

Loans and leases receivable disclosure [Text Block]

NOTE 5: LOANS AND ALLOWANCE FOR LOAN LOSSES

				March 31,		December 31,
(In thousands)				2016		2015
Commercial and industrial			$	50,192	$	52,479
Construction and land development				45,953		43,694
Commercial real estate:
	Owner occupied			47,010		46,602
	Other			162,310		157,251
		Total commercial real estate		209,320		203,853
Residential real estate:
	Consumer mortgage			70,443		70,009
	Investment property			46,603		46,664
		Total residential real estate		117,046		116,673
Consumer installment				9,769		10,220
		Total loans		432,280		426,919
Less: unearned income				(517)		(509)
		Loans, net of unearned income	$	431,763	$	426,410

Loans secured by real estate were approximately 86.1% of the Company’s total loan portfolio at March 31,2016. At March 31,2016, 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 credit 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 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 31,2016 an

					Accruing	Accruing	Total
					30-89 Days	Greater than	Accruing	Non-		Total
(In thousands)			Current		Past Due	90 days	Loans	Accrual		Loans
March 31, 2016:
Commercial and industrial			$	50,136	14	—	50,150	42	$	50,192
Construction and land development				45,758	129	—	45,887	66		45,953
Commercial real estate:
	Owner occupied			47,010	—	—	47,010	—		47,010
	Other			160,576	—	—	160,576	1,734		162,310
		Total commercial real estate		207,586	—	—	207,586	1,734		209,320
Residential real estate:
	Consumer mortgage			69,772	575	—	70,347	96		70,443
	Investment property			46,555	48	—	46,603	—		46,603
		Total residential real estate		116,327	623	—	116,950	96		117,046
Consumer installment				9,741	28	—	9,769	—		9,769
		Total	$	429,548	794	—	430,342	1,938	$	432,280

December 31, 2015:
Commercial and industrial			$	52,387	49	—	52,436	43	$	52,479
Construction and land development				43,111	—	—	43,111	583		43,694
Commercial real estate:
	Owner occupied			46,372	—	—	46,372	230		46,602
	Other			155,731	—	—	155,731	1,520		157,251
		Total commercial real estate		202,103	—	—	202,103	1,750		203,853
Residential real estate:
	Consumer mortgage			68,579	1,105	—	69,684	325		70,009
	Investment property			46,435	229	—	46,664	—		46,664
		Total residential real estate		115,014	1,334	—	116,348	325		116,673
Consumer installment				10,179	28	—	10,207	13		10,220
		Total	$	422,794	1,411	—	424,205	2,714	$	426,919

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, the 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. 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 each loan segment. 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 Company calculates average losses for all loan segments using a rolling 20 quarter historical period. 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 31,2016 and December 31, 2015, 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 following table details the changes in the allowance for loan losses by portfolio segment for the respective periods.

			March 31, 2016
(In thousands)		Commercial and industrial		Construction and land development	Commercial real estate	Residential real estate	Consumer installment		Total
Quarter ended:
Beginning balance		$	523	669	1,879	1,059	159	$	4,289
Charge-offs			—	—	—	(118)	(26)		(144)
Recoveries			20	1,198	—	7	4		1,229
	Net recoveries (charge-offs)		20	1,198	—	(111)	(22)		1,085
Provision for loan losses			(26)	(1,173)	525	78	(4)		(600)
Ending balance		$	517	694	2,404	1,026	133	$	4,774

			March 31, 2015
(In thousands)		Commercial and industrial		Construction and land development	Commercial real estate	Residential real estate	Consumer installment		Total
Quarter ended:
Beginning balance		$	639	974	1,928	1,119	176	$	4,836
Charge-offs			(58)	—	—	(60)	(17)		(135)
Recoveries			1	5	—	14	1		21
	Net (charge-offs) recoveries		(57)	5	—	(46)	(16)		(114)
Provision for loan losses			62	(149)	(40)	80	47		—
Ending balance		$	644	830	1,888	1,153	207	$	4,722

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 31,2016and 2015.

			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, 2016:
Commercial and industrial		$	517	50,152	—	40	517	50,192
Construction and land development			694	45,887	—	66	694	45,953
Commercial real estate			2,055	206,572	349	2,748	2,404	209,320
Residential real estate			1,026	117,046	—	—	1,026	117,046
Consumer installment			133	9,769	—	—	133	9,769
	Total	$	4,425	429,426	349	2,854	4,774	432,280

March 31, 2015:
Commercial and industrial		$	644	52,475	—	61	644	52,536
Construction and land development			830	37,307	—	618	830	37,925
Commercial real estate			1,704	181,192	184	1,679	1,888	182,871
Residential real estate			1,153	110,356	—	909	1,153	111,265
Consumer installment			207	12,478	—	—	207	12,478
	Total	$	4,538	393,808	184	3,267	4,722	397,075
(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 non-impaired 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, 2016:
Commercial and industrial			$	46,055	3,786	309	42	$	50,192
Construction and land development				45,356	54	477	66		45,953
Commercial real estate:
	Owner occupied			46,419	275	316	-		47,010
	Other			160,074	35	467	1,734		162,310
		Total commercial real estate		206,493	310	783	1,734		209,320
Residential real estate:
	Consumer mortgage			65,003	2,490	2,854	96		70,443
	Investment property			45,519	-	1,084	—		46,603
		Total residential real estate		110,522	2,490	3,938	96		117,046
Consumer installment				9,630	29	110	—		9,769
		Total	$	418,056	6,669	5,617	1,938	$	432,280

December 31, 2015:
Commercial and industrial			$	48,038	4,075	323	43	$	52,479
Construction and land development				42,458	60	593	583		43,694
Commercial real estate:
	Owner occupied			45,772	381	219	230		46,602
	Other			155,423	36	272	1,520		157,251
		Total commercial real estate		201,195	417	491	1,750		203,853
Residential real estate:
	Consumer mortgage			64,502	1,964	3,218	325		70,009
	Investment property			45,399	112	1,153	—		46,664
		Total residential real estate		109,901	2,076	4,371	325		116,673
Consumer installment				10,038	55	114	13		10,220
		Total	$	411,630	6,683	5,892	2,714	$	426,919

Impaired loans

The following tables present details related to the Company’s impaired loans. Loans that have been fully charged-off do not appear in the following tables. The related allowance generally represents the following components that 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 31,2016 and December 31,2015.

				March 31, 2016
(In thousands)				Unpaid principal balance (1)	Charge-offs and payments applied (2)	Recorded investment (3)		Related allowance
With no allowance recorded:
Commercial and industrial			$	40	—	40
Construction and land development				167	(101)	66
Commercial real estate:
	Other			306	(81)	225
		Total commercial real estate		306	(81)	225
		Total	$	513	(182)	331
With allowance recorded:
Commercial real estate:
	Owner occupied			1,014	—	1,014		110
	Other			2,136	(627)	1,509		239
		Total commercial real estate		3,150	(627)	2,523		349
		Total	$	3,150	(627)	2,523	$	349
		Total impaired loans	$	3,663	(809)	2,854	$	349
(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, 2015
(In thousands)				Unpaid principal balance (1)	Charge-offs and payments applied (2)	Recorded investment (3)		Related allowance
With no allowance recorded:
Commercial and industrial			$	48	—	48
Construction and land development				2,582	(1,999)	583
Commercial real estate:
	Owner occupied			308	(78)	230
	Other			2,136	(617)	1,519
		Total commercial real estate		2,444	(695)	1,749
		Total	$	5,074	(2,694)	2,380
With allowance recorded:
Commercial real estate:
	Owner occupied			1,027	—	1,027		121
		Total commercial real estate		1,027	—	1,027		121
		Total	$	1,027	—	1,027	$	121
		Total impaired loans	$	6,101	(2,694)	3,407	$	121
(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, 2016				Quarter ended March 31, 2015
				Average	Total interest			Average	Total interest
				recorded	income			recorded	income
(In thousands)				investment	recognized			investment	recognized
Impaired loans:
Commercial and industrial			$	32	$	1	$	67	$	1
Construction and land development				198		—		616		—
Commercial real estate:
	Owner occupied			1,020		15		1,099		12
	Other			1,742		—		591		10
		Total commercial real estate		2,762		15		1,690		22
Residential real estate:
	Consumer mortgages			—		—		751		15
	Investment property			—		—		153		—
		Total residential real estate		—		—		904		15
		Total	$	2,992	$	16	$	3,277	$	38

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. In making the 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 for possible impairment.

The following is a summary of accruing and nonaccrual TDRs, which are included in the impaired loan totals, and the related allowance for loan losses, by portfolio segment and class as of March 31,2016 and December 31,2015.

				TDRs
								Related
(In thousands)				Accruing	Nonaccrual	Total		Allowance
March 31, 2016
Commercial and industrial			$	40	—	40	$	—
Construction and land development				—	66	66		—
Commercial real estate:
	Owner occupied			1,014	225	1,239		110
		Total commercial real estate		1,014	225	1,239		110
		Total	$	1,054	291	1,345	$	110

December 31, 2015
Commercial and industrial			$	48	—	48	$	—
Construction and land development				—	582	582		—
Commercial real estate:
	Owner occupied			1,027	230	1,257		121
		Total commercial real estate		1,027	230	1,257		121
		Total	$	1,075	812	1,887	$	121

At March 31,2016, 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.

			Quarter ended March 31, 2016				Quarter ended March 31, 2015
					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:
Construction and land development			—	$	—	—	1	$	116	113
Commercial real estate:
	Other		—		—	—	1		592	592
		Total commercial real estate	—		—	—	1		592	592
		Total	—	$	—	—	2	$	708	705

The majority of the loans modified in a TDR during the quarter ended March 31, 2015, 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, 2016			Quarter ended March 31, 2015
			Number of		Recorded	Number of		Recorded
(Dollars in thousands)			Contracts		investment(1)	Contracts		investment(1)
TDRs:
Commercial real estate:
	Owner occupied		—	$	—	1	$	261
		Total commercial real estate	—		—	1		261
Residential real estate:
	Investment property		—		—	1		150
		Total residential real estate	—		—	1		150
		Total	—	$	—	2	$	411
(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, 2016

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 allowance 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 31,2016 and 2015 are presented below.

		Quarter ended March 31,
(Dollars in thousands)		2016		2015
MSRs, net:
Beginning balance	$	2,316	$	2,388
Additions, net		57		111
Amortization expense		(138)		(134)
Increase in MSR valuation allowance		—		(10)
Ending balance	$	2,235	$	2,355
Valuation allowance included in MSRs, net:
Beginning of period	$	—	$	53
End of period		—		63
Fair value of amortized MSRs:
Beginning of period	$	3,086	$	3,238
End of period		2,906		3,066

XML

Derivative Instruments

3 Months Ended

Mar. 31, 2016

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.

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 31,2016 and December 31,2015 is presented below.

				Other	Other
				Assets	Liabilities
				Estimated	Estimated
(Dollars in thousands)			Notional	Fair Value	Fair Value
March 31, 2016:
Pay fixed / receive variable		$	4,229	—	418
Pay variable / receive fixed			4,229	418	—
	Total interest rate swap agreements	$	8,458	418	418
December 31, 2015:
Pay fixed / receive variable		$	4,317	—	440
Pay variable / receive fixed			4,317	440	—
	Total interest rate swap agreements	$	8,634	440	440

XML

Fair Value Disclosures

3 Months Ended

Mar. 31, 2016

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 31,2016, 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, 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 31,2016 and December 31,2015, 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, 2016:
Securities available-for-sale:
	Agency obligations		$	55,880	—	55,880	—
	Agency RMBS			107,664	—	107,664	—
	State and political subdivisions			70,564	—	70,564	—
Total securities available-for-sale				234,108	—	234,108	—
Other assets (1)				418	—	418	—
		Total assets at fair value	$	234,526	—	234,526	—
Other liabilities(1)			$	418	—	418	—
		Total liabilities at fair value	$	418	—	418	—
December 31, 2015:
Securities available-for-sale:
	Agency obligations		$	60,085	—	60,085	—
	Agency RMBS			110,954	—	110,954	—
	State and political subdivisions			70,648	—	70,648	—
Total securities available-for-sale				241,687	—	241,687	—
Other assets (1)				440	—	440	—
		Total assets at fair value	$	242,127	—	242,127	—
Other liabilities(1)			$	440	—	440	—
		Total liabilities at fair value	$	440	—	440	—
(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 rates, 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 31,2016 and December 31,2015, 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, 2016:
Loans held for sale		$	2,326	—	2,326	—
Loans, net(1)			2,505	—	—	2,505
Other real estate owned			397	—	—	397
Other assets (2)			2,235	—	—	2,235
	Total assets at fair value	$	7,463	—	2,326	5,137
December 31, 2015:
Loans held for sale		$	1,540	—	1,540	—
Loans, net(1)			3,286	—	—	3,286
Other real estate owned			252	—	—	252
Other assets (2)			2,316	—	—	2,316
	Total assets at fair value	$	7,394	—	1,540	5,854
(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

At March 31,2016, 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 31,2016, 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	$	2,505	Appraisal	Appraisal discounts (%)	39.9	%
Other real estate owned		397	Appraisal	Appraisal discounts (%)	7.2	%
Mortgage servicing rights, net		2,235	Discounted cash flow	Prepayment speed or CPR (%)	10.7	%
				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 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 31,2016 and December 31,2015 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 deposits, interest-bearing demand deposits, 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, 2016:
Financial Assets:
	Loans, net (1)	$	426,989	$	437,145	$	—	$	—	$	437,145
	Loans held for sale		2,326		2,345		—		2,345		—
Financial Liabilities:
	Time Deposits	$	215,388	$	216,811	$	—	$	216,811	$	—
	Long-term debt		7,217		7,217		—		7,217		—
December 31, 2015:
Financial Assets:
	Loans, net (1)	$	422,121	$	427,340	$	—	$	—	$	427,340
	Loans held for sale		1,540		1,574		—		1,574		—
Financial Liabilities:
	Time Deposits	$	219,598	$	220,093	$	—	$	220,093	$	—
	Long-term debt		7,217		7,217		—		7,217		—
(1) Represents loans, net of unearned income and the allowance for loan losses.

XML

Summary of Significant Accounting Policies (Policies)

3 Months Ended

Mar. 31, 2016

Summary of Signficant Accounting Policies

Nature of Business Policy

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 Policy

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 31,2015.

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.

Consolidation Policy

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

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

Subsequent Events

The Company has evaluated the effects of events and transactions through the date of this filing that have occurred subsequent to March 31,2016. 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

Accounting Developments

In the first quarter of 2016, the Company adopted new guidance related to the following Accounting Standards Updates (“Updates” or “ASUs”):

•

ASU 2015-02, Amendments to the Consolidation Analysis;

•

ASU 2015-03, Simplifying the Presentation of Debt Issuance Costs; and

•

ASU 2015-05, Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement.

Information about these pronouncements is described in more detail below.

ASU 2015-02, Amendments to the Consolidation Analysis, affects reporting entities that are required to evaluate whether they should consolidate certain legal entities. Specifically, the amendments: (1) Modify the evaluation of whether limited partnerships and similar legal entities are variable interest entities (“VIEs”) or voting interest entities; (2) Eliminate the presumption that a general partner should consolidate a limited partnership; (3) Affect the consolidation analysis of reporting entities that are involved with VIEs, particularly those that have fee arrangements and related party relationships; and (4) Provide a scope exception from consolidation guidance for reporting entities with interests in legal entities that are required to comply with or operate in accordance with requirements that are similar to those in Rule 2a-7 of the Investment Company Act of 1940 for registered money market funds. Adoption of this ASU did not have a material impact on the Company’s consolidated financial statements.

ASU 2015-03, Simplifying the Presentation of Debt Issuance Costs, requires that debt issuance costs related to a recognized debt liability be presented on the balance sheet as a direct deduction from the debt liability, rather than as an asset. Adoption of this ASU did not have a material impact on the Company’s consolidated financial statements.

ASU 2015-05, Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement, provides guidance to customers about whether a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract. The new guidance does not change the accounting for a customer’s accounting for service contracts. Adoption of this ASU did not have a material impact on the Company’s consolidated financial statements.

XML

Basic and Diluted Earnings Per Share (Tables)

3 Months Ended

Mar. 31, 2016

Basic and Diluted 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)				2016		2015
Basic and diluted:
	Net earnings		$	2,191	$	1,862
	Weighted average common shares outstanding			3,643,484		3,643,365
		Net earnings per share	$	0.60	$	0.51

XML

Variable Interest Entities (Tables)

3 Months Ended

Mar. 31, 2016

Variable interest entities [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

Securities (Tables)

3 Months Ended

Mar. 31, 2016

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, 2016
Agency obligations (a)		$	5,001	26,208	19,670	5,001	55,880	826	—	$	55,054
Agency RMBS (a)			—	1,450	21,408	84,806	107,664	1,644	69		106,089
State and political subdivisions			—	1,874	11,777	56,913	70,564	3,155	5		67,414
	Total available-for-sale	$	5,001	29,532	52,855	146,720	234,108	5,625	74	$	228,557

December 31, 2015
Agency obligations (a)		$	5,000	25,852	19,463	9,770	60,085	384	518	$	60,219
Agency RMBS (a)			—	1,623	13,511	95,820	110,954	968	780		110,766
State and political subdivisions			—	497	12,094	58,057	70,648	3,022	7		67,633
	Total available-for-sale	$	5,000	27,972	45,068	163,647	241,687	4,374	1,305	$	238,618
(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, 2016:
Agency RMBS		$	8,655	30	12,252	39	$	20,907	69
State and political subdivisions			550	5	—	—		550	5
	Total	$	9,205	35	12,252	39	$	21,457	74

December 31, 2015:
Agency obligations		$	8,157	2	24,444	516	$	32,601	518
Agency RMBS			42,345	367	18,184	413		60,529	780
State and political subdivisions			267	1	969	6		1,236	7
	Total	$	50,769	370	43,597	935	$	94,366	1,305

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

Realized Gains and Losses
The following table presents the gross realized gains and losses on sales of securities.
			Quarter ended March 31,
(Dollars in thousands)			2016		2015
Gross realized gains		$	—	$	3
	Realized gains, net	$	—	$	3

XML

Loan and Allowance for Loan Losses (Tables)

3 Months Ended

Mar. 31, 2016

Loans And Leases Receivable Disclosure [Abstract]

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

				March 31,		December 31,
(In thousands)				2016		2015
Commercial and industrial			$	50,192	$	52,479
Construction and land development				45,953		43,694
Commercial real estate:
	Owner occupied			47,010		46,602
	Other			162,310		157,251
		Total commercial real estate		209,320		203,853
Residential real estate:
	Consumer mortgage			70,443		70,009
	Investment property			46,603		46,664
		Total residential real estate		117,046		116,673
Consumer installment				9,769		10,220
		Total loans		432,280		426,919
Less: unearned income				(517)		(509)
		Loans, net of unearned income	$	431,763	$	426,410

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, 2016:
Commercial and industrial			$	50,136	14	—	50,150	42	$	50,192
Construction and land development				45,758	129	—	45,887	66		45,953
Commercial real estate:
	Owner occupied			47,010	—	—	47,010	—		47,010
	Other			160,576	—	—	160,576	1,734		162,310
		Total commercial real estate		207,586	—	—	207,586	1,734		209,320
Residential real estate:
	Consumer mortgage			69,772	575	—	70,347	96		70,443
	Investment property			46,555	48	—	46,603	—		46,603
		Total residential real estate		116,327	623	—	116,950	96		117,046
Consumer installment				9,741	28	—	9,769	—		9,769
		Total	$	429,548	794	—	430,342	1,938	$	432,280

December 31, 2015:
Commercial and industrial			$	52,387	49	—	52,436	43	$	52,479
Construction and land development				43,111	—	—	43,111	583		43,694
Commercial real estate:
	Owner occupied			46,372	—	—	46,372	230		46,602
	Other			155,731	—	—	155,731	1,520		157,251
		Total commercial real estate		202,103	—	—	202,103	1,750		203,853
Residential real estate:
	Consumer mortgage			68,579	1,105	—	69,684	325		70,009
	Investment property			46,435	229	—	46,664	—		46,664
		Total residential real estate		115,014	1,334	—	116,348	325		116,673
Consumer installment				10,179	28	—	10,207	13		10,220
		Total	$	422,794	1,411	—	424,205	2,714	$	426,919

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

			March 31, 2016
(In thousands)		Commercial and industrial		Construction and land development	Commercial real estate	Residential real estate	Consumer installment		Total
Quarter ended:
Beginning balance		$	523	669	1,879	1,059	159	$	4,289
Charge-offs			—	—	—	(118)	(26)		(144)
Recoveries			20	1,198	—	7	4		1,229
	Net recoveries (charge-offs)		20	1,198	—	(111)	(22)		1,085
Provision for loan losses			(26)	(1,173)	525	78	(4)		(600)
Ending balance		$	517	694	2,404	1,026	133	$	4,774

			March 31, 2015
(In thousands)		Commercial and industrial		Construction and land development	Commercial real estate	Residential real estate	Consumer installment		Total
Quarter ended:
Beginning balance		$	639	974	1,928	1,119	176	$	4,836
Charge-offs			(58)	—	—	(60)	(17)		(135)
Recoveries			1	5	—	14	1		21
	Net (charge-offs) recoveries		(57)	5	—	(46)	(16)		(114)
Provision for loan losses			62	(149)	(40)	80	47		—
Ending balance		$	644	830	1,888	1,153	207	$	4,722

Financing Receivable Allowance for Credit Loss Additional Information [Table Text Block]

			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, 2016:
Commercial and industrial		$	517	50,152	—	40	517	50,192
Construction and land development			694	45,887	—	66	694	45,953
Commercial real estate			2,055	206,572	349	2,748	2,404	209,320
Residential real estate			1,026	117,046	—	—	1,026	117,046
Consumer installment			133	9,769	—	—	133	9,769
	Total	$	4,425	429,426	349	2,854	4,774	432,280

Financing Receivable Credit Quality Indicators [Table Text Block]

(In thousands)				Pass	Special Mention	Substandard Accruing	Nonaccrual		Total loans
March 31, 2016:
Commercial and industrial			$	46,055	3,786	309	42	$	50,192
Construction and land development				45,356	54	477	66		45,953
Commercial real estate:
	Owner occupied			46,419	275	316	-		47,010
	Other			160,074	35	467	1,734		162,310
		Total commercial real estate		206,493	310	783	1,734		209,320
Residential real estate:
	Consumer mortgage			65,003	2,490	2,854	96		70,443
	Investment property			45,519	-	1,084	—		46,603
		Total residential real estate		110,522	2,490	3,938	96		117,046
Consumer installment				9,630	29	110	—		9,769
		Total	$	418,056	6,669	5,617	1,938	$	432,280

December 31, 2015:
Commercial and industrial			$	48,038	4,075	323	43	$	52,479
Construction and land development				42,458	60	593	583		43,694
Commercial real estate:
	Owner occupied			45,772	381	219	230		46,602
	Other			155,423	36	272	1,520		157,251
		Total commercial real estate		201,195	417	491	1,750		203,853
Residential real estate:
	Consumer mortgage			64,502	1,964	3,218	325		70,009
	Investment property			45,399	112	1,153	—		46,664
		Total residential real estate		109,901	2,076	4,371	325		116,673
Consumer installment				10,038	55	114	13		10,220
		Total	$	411,630	6,683	5,892	2,714	$	426,919

Impaired Financing Receivables [Table Text Block]

				March 31, 2016
(In thousands)				Unpaid principal balance (1)	Charge-offs and payments applied (2)	Recorded investment (3)		Related allowance
With no allowance recorded:
Commercial and industrial			$	40	—	40
Construction and land development				167	(101)	66
Commercial real estate:
	Other			306	(81)	225
		Total commercial real estate		306	(81)	225
		Total	$	513	(182)	331
With allowance recorded:
Commercial real estate:
	Owner occupied			1,014	—	1,014		110
	Other			2,136	(627)	1,509		239
		Total commercial real estate		3,150	(627)	2,523		349
		Total	$	3,150	(627)	2,523	$	349
		Total impaired loans	$	3,663	(809)	2,854	$	349
(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, 2015
(In thousands)				Unpaid principal balance (1)	Charge-offs and payments applied (2)	Recorded investment (3)		Related allowance
With no allowance recorded:
Commercial and industrial			$	48	—	48
Construction and land development				2,582	(1,999)	583
Commercial real estate:
	Owner occupied			308	(78)	230
	Other			2,136	(617)	1,519
		Total commercial real estate		2,444	(695)	1,749
		Total	$	5,074	(2,694)	2,380
With allowance recorded:
Commercial real estate:
	Owner occupied			1,027	—	1,027		121
		Total commercial real estate		1,027	—	1,027		121
		Total	$	1,027	—	1,027	$	121
		Total impaired loans	$	6,101	(2,694)	3,407	$	121
(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.

Schedule Of Average Impaired Financing Receivable [Table Text Block]

			Quarter ended March 31, 2016				Quarter ended March 31, 2015
				Average	Total interest			Average	Total interest
				recorded	income			recorded	income
(In thousands)				investment	recognized			investment	recognized
Impaired loans:
Commercial and industrial			$	32	$	1	$	67	$	1
Construction and land development				198		—		616		—
Commercial real estate:
	Owner occupied			1,020		15		1,099		12
	Other			1,742		—		591		10
		Total commercial real estate		2,762		15		1,690		22
Residential real estate:
	Consumer mortgages			—		—		751		15
	Investment property			—		—		153		—
		Total residential real estate		—		—		904		15
		Total	$	2,992	$	16	$	3,277	$	38

Troubled Debt Restructurings on Financing Receivables, Accrual Status [Table Text Block]

				TDRs
								Related
(In thousands)				Accruing	Nonaccrual	Total		Allowance
March 31, 2016
Commercial and industrial			$	40	—	40	$	—
Construction and land development				—	66	66		—
Commercial real estate:
	Owner occupied			1,014	225	1,239		110
		Total commercial real estate		1,014	225	1,239		110
		Total	$	1,054	291	1,345	$	110

December 31, 2015
Commercial and industrial			$	48	—	48	$	—
Construction and land development				—	582	582		—
Commercial real estate:
	Owner occupied			1,027	230	1,257		121
		Total commercial real estate		1,027	230	1,257		121
		Total	$	1,075	812	1,887	$	121

Troubled Debt Restructuring Modifications [Table Text Block]

			Quarter ended March 31, 2016				Quarter ended March 31, 2015
					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:
Construction and land development			—	$	—	—	1	$	116	113
Commercial real estate:
	Other		—		—	—	1		592	592
		Total commercial real estate	—		—	—	1		592	592
		Total	—	$	—	—	2	$	708	705

Schedule Of Debtor Troubled Debt Restructuring, Subsequent Defaults [Table Text Block]

			Quarter ended March 31, 2016			Quarter ended March 31, 2015
			Number of		Recorded	Number of		Recorded
(Dollars in thousands)			Contracts		investment(1)	Contracts		investment(1)
TDRs:
Commercial real estate:
	Owner occupied		—	$	—	1	$	261
		Total commercial real estate	—		—	1		261
Residential real estate:
	Investment property		—		—	1		150
		Total residential real estate	—		—	1		150
		Total	—	$	—	2	$	411
(1) Amount as of applicable month end during the respective period for which there was a payment default.

XML

Mortgage Servicing Rights, Net (Tables)

3 Months Ended

Mar. 31, 2016

Mortgage Servicing [Abstract]

Schedule Of Servicing Assets At Fair Value [Table Text Block]

		Quarter ended March 31,
(Dollars in thousands)		2016		2015
MSRs, net:
Beginning balance	$	2,316	$	2,388
Additions, net		57		111
Amortization expense		(138)		(134)
Increase in MSR valuation allowance		—		(10)
Ending balance	$	2,235	$	2,355
Valuation allowance included in MSRs, net:
Beginning of period	$	—	$	53
End of period		—		63
Fair value of amortized MSRs:
Beginning of period	$	3,086	$	3,238
End of period		2,906		3,066

XML

Derivative Instruments (Tables)

3 Months Ended

Mar. 31, 2016

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, 2016:
Pay fixed / receive variable		$	4,229	—	418
Pay variable / receive fixed			4,229	418	—
	Total interest rate swap agreements	$	8,458	418	418
December 31, 2015:
Pay fixed / receive variable		$	4,317	—	440
Pay variable / receive fixed			4,317	440	—
	Total interest rate swap agreements	$	8,634	440	440

XML

Fair Value (Tables)

3 Months Ended

Mar. 31, 2016

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, 2016:
Securities available-for-sale:
	Agency obligations		$	55,880	—	55,880	—
	Agency RMBS			107,664	—	107,664	—
	State and political subdivisions			70,564	—	70,564	—
Total securities available-for-sale				234,108	—	234,108	—
Other assets (1)				418	—	418	—
		Total assets at fair value	$	234,526	—	234,526	—
Other liabilities(1)			$	418	—	418	—
		Total liabilities at fair value	$	418	—	418	—
December 31, 2015:
Securities available-for-sale:
	Agency obligations		$	60,085	—	60,085	—
	Agency RMBS			110,954	—	110,954	—
	State and political subdivisions			70,648	—	70,648	—
Total securities available-for-sale				241,687	—	241,687	—
Other assets (1)				440	—	440	—
		Total assets at fair value	$	242,127	—	242,127	—
Other liabilities(1)			$	440	—	440	—
		Total liabilities at fair value	$	440	—	440	—
(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, 2016:
Loans held for sale		$	2,326	—	2,326	—
Loans, net(1)			2,505	—	—	2,505
Other real estate owned			397	—	—	397
Other assets (2)			2,235	—	—	2,235
	Total assets at fair value	$	7,463	—	2,326	5,137
December 31, 2015:
Loans held for sale		$	1,540	—	1,540	—
Loans, net(1)			3,286	—	—	3,286
Other real estate owned			252	—	—	252
Other assets (2)			2,316	—	—	2,316
	Total assets at fair value	$	7,394	—	1,540	5,854
(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 and Liabilities Measured on Nonrecurring Basis, Valuation Techniques [Table Text Block]

					Weighted
		Carrying			Average
(Dollars in thousands)		Amount	Valuation Technique	Significant Unobservable Input	of Input
Nonrecurring:
Impaired loans	$	2,505	Appraisal	Appraisal discounts (%)	39.9	%
Other real estate owned		397	Appraisal	Appraisal discounts (%)	7.2	%
Mortgage servicing rights, net		2,235	Discounted cash flow	Prepayment speed or CPR (%)	10.7	%
				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, 2016:
Financial Assets:
	Loans, net (1)	$	426,989	$	437,145	$	—	$	—	$	437,145
	Loans held for sale		2,326		2,345		—		2,345		—
Financial Liabilities:
	Time Deposits	$	215,388	$	216,811	$	—	$	216,811	$	—
	Long-term debt		7,217		7,217		—		7,217		—
December 31, 2015:
Financial Assets:
	Loans, net (1)	$	422,121	$	427,340	$	—	$	—	$	427,340
	Loans held for sale		1,540		1,574		—		1,574		—
Financial Liabilities:
	Time Deposits	$	219,598	$	220,093	$	—	$	220,093	$	—
	Long-term debt		7,217		7,217		—		7,217		—
(1) Represents loans, net of unearned income and the allowance for loan losses.

XML

Basic and Diluted Earnings Per Share (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended
	Mar. 31, 2016	Mar. 31, 2015
Basic and Diluted Earnings Per Share [Abstract]
Net earnings	$ 2,191	$ 1,862
Basic and diluted weighted average shares outstanding	3,643,484	3,643,365
Basic and diluted earnings per share	$ 0.6	$ 0.51

XML

Variable Interest Entities (Details) $ in Thousands	Mar. 31, 2016 USD ($)
Variable Interest Entities [Line Items]
Trust Preferred Issuance, Liability Recognized	$ 7,217
Liability Recognized [Member]
Variable Interest Entities [Line Items]
Trust Preferred Issuance, Liability Recognized	$ 7,217

XML

Variable Interest Entities Textuals (Details) $ in Millions	Mar. 31, 2016 USD ($)
Variable Interest Entities (Textuals) [Abstract]
Trust Preferred Securities, Issued	$ 7.0
Junior Subordinated, Issued	7.2
Equity Interest, ANB Capital Trust	$ 0.2

XML

Security Types (Details) - USD ($) $ in Thousands	Mar. 31, 2016	Dec. 31, 2015
Schedule of Available-for-sale Securities [Line Items]
Available-for-sale Securities, Debt Maturities, within One Year, Fair Value	$ 5,001	$ 5,000
Available-for-sale Securities, Debt Maturities, after One Through Five Years, Fair Value	29,532	27,972
Available-for-sale Securities, Debt Maturities, after Five Through Ten Years, Fair Value	52,855	45,068
Available-for-sale Securities, Debt Maturities, after Ten Years, Fair Value	146,720	163,647
Available-for-sale Securities, Fair Value, Total	234,108	241,687
Available For Sale Securities, Gross Unrealized Gains	5,625	4,374
Available For Sale Securities, Gross Unrealized Losses	74	1,305
Available-for-sale Securities, Amortized Cost Basis	228,557	238,618
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	5,001	5,000
Available-for-sale Securities, Debt Maturities, after One Through Five Years, Fair Value	26,208	25,852
Available-for-sale Securities, Debt Maturities, after Five Through Ten Years, Fair Value	19,670	19,463
Available-for-sale Securities, Debt Maturities, after Ten Years, Fair Value	5,001	9,770
Available-for-sale Securities, Fair Value, Total	55,880	60,085
Available For Sale Securities, Gross Unrealized Gains	826	384
Available For Sale Securities, Gross Unrealized Losses	0	518
Available-for-sale Securities, Amortized Cost Basis	55,054	60,219
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	1,450	1,623
Available-for-sale Securities, Debt Maturities, after Five Through Ten Years, Fair Value	21,408	13,511
Available-for-sale Securities, Debt Maturities, after Ten Years, Fair Value	84,806	95,820
Available-for-sale Securities, Fair Value, Total	107,664	110,954
Available For Sale Securities, Gross Unrealized Gains	1,644	968
Available For Sale Securities, Gross Unrealized Losses	69	780
Available-for-sale Securities, Amortized Cost Basis	106,089	110,766
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	1,874	497
Available-for-sale Securities, Debt Maturities, after Five Through Ten Years, Fair Value	11,777	12,094
Available-for-sale Securities, Debt Maturities, after Ten Years, Fair Value	56,913	58,057
Available-for-sale Securities, Fair Value, Total	70,564	70,648
Available For Sale Securities, Gross Unrealized Gains	3,155	3,022
Available For Sale Securities, Gross Unrealized Losses	5	7
Available-for-sale Securities, Amortized Cost Basis	$ 67,414	$ 67,633

XML

Securities Continuous Unrealized Loss (Details) - USD ($) $ in Thousands	Mar. 31, 2016	Dec. 31, 2015
Schedule of Available-for-sale Securities [Line Items]
Available-for-sale Securities, Continuous Unrealized Loss Position, Less than Twelve Months, Fair Value	$ 9,205	$ 50,769
Available-for-sale Securities, Continuous Unrealized Loss Position, Less than 12 Months, Aggregate Losses	35	370
Available-for-sale Securities, Continuous Unrealized Loss Position, Twelve Months or Longer, Fair Value	12,252	43,597
Available-for-sale Securities, Continuous Unrealized Loss Position, 12 Months or Longer, Aggregate Losses	39	935
Available-for-sale Securities, Continuous Unrealized Loss Position, Fair Value	21,457	94,366
Available-for-sale Securities, Continuous Unrealized Loss Position, Aggregate Losses	74	1,305
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	0	8,157
Available-for-sale Securities, Continuous Unrealized Loss Position, Less than 12 Months, Aggregate Losses	0	2
Available-for-sale Securities, Continuous Unrealized Loss Position, Twelve Months or Longer, Fair Value	0	24,444
Available-for-sale Securities, Continuous Unrealized Loss Position, 12 Months or Longer, Aggregate Losses	0	516
Available-for-sale Securities, Continuous Unrealized Loss Position, Fair Value	0	32,601
Available-for-sale Securities, Continuous Unrealized Loss Position, Aggregate Losses	0	518
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	8,655	42,345
Available-for-sale Securities, Continuous Unrealized Loss Position, Less than 12 Months, Aggregate Losses	30	367
Available-for-sale Securities, Continuous Unrealized Loss Position, Twelve Months or Longer, Fair Value	12,252	18,184
Available-for-sale Securities, Continuous Unrealized Loss Position, 12 Months or Longer, Aggregate Losses	39	413
Available-for-sale Securities, Continuous Unrealized Loss Position, Fair Value	20,907	60,529
Available-for-sale Securities, Continuous Unrealized Loss Position, Aggregate Losses	69	780
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	550	267
Available-for-sale Securities, Continuous Unrealized Loss Position, Less than 12 Months, Aggregate Losses	5	1
Available-for-sale Securities, Continuous Unrealized Loss Position, Twelve Months or Longer, Fair Value	0	969
Available-for-sale Securities, Continuous Unrealized Loss Position, 12 Months or Longer, Aggregate Losses	0	6
Available-for-sale Securities, Continuous Unrealized Loss Position, Fair Value	550	1,236
Available-for-sale Securities, Continuous Unrealized Loss Position, Aggregate Losses	$ 5	$ 7

XML

Securities Gross Realized Gain Loss (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2016	Mar. 31, 2015
Available-for-sale Securities, Gross Realized Gain (Loss) [Abstract]
Available-for-sale Securities, Gross Realized Gains	$ 0	$ 3
Available-for-sale Securities, Gross Realized Losses	0	0
Available-for-sale Securities, Gross Realized Gain (Loss), Net	$ 0	$ 3

XML

Securities Textuals (Details) - USD ($) $ in Millions	Mar. 31, 2016	Dec. 31, 2015
Securities (Textuals) [Abstract]
Available-for-sale Securities Pledged as Collateral	$ 164.4	$ 133.3
Cost-method Investments, Aggregate Carrying Amount	$ 1.4	$ 1.4

XML

Loans (Details) - USD ($) $ in Thousands	Mar. 31, 2016	Dec. 31, 2015	Mar. 31, 2015
Loans And Leases Receivable Disclosure [Abstract]
Loans and Leases Receivable, Gross, Commercial	$ 50,192	$ 52,479
Construction And Land Development Loans	45,953	43,694
Commericial Real Estate Loans [Abstract]
Commercial Real Estate Owner Occupied Loans	47,010	46,602
Commerical Real Estate Other Loans	162,310	157,251
Total Commercial Real Estate Loans	209,320	203,853
Residential Real Estate Loans [Abstract]
Consumer Mortgage Loans	70,443	70,009
Residential Real Estate Investment Property Loans	46,603	46,664
Total Residential Real Estate Loans	117,046	116,673
Consumer Installment And Revolving Loans	9,769	10,220
Loans and Leases Receivable, Gross, Carrying Amount	432,280	426,919	$ 397,075
Loans and Leases Receivable Deferred Income	(517)	(509)
Loans, net of unearned income	$ 431,763	$ 426,410

XML

Loans Past Due Analysis (Details) - USD ($) $ in Thousands	Mar. 31, 2016	Dec. 31, 2015	Mar. 31, 2015
Financing Receivable, Recorded Investment, Past Due [Line Items]
Financing Receivable, Recorded Investment, Current	$ 429,548	$ 422,794
Financing Receivable, Recorded Investment, 30 To 89 Days Past Due	794	1,411
Financing Receivable, Recorded Investment, 90 Days Past Due and Still Accruing	0	0
Financing Receivable, Recorded Investment, Total Still Accruing	430,342	424,205
Financing Receivable, Recorded Investment, Nonaccrual Status	1,938	2,714
Loans and Leases Receivable, Gross, Carrying Amount	432,280	426,919	$ 397,075
Commercial and Industrial Loans [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Financing Receivable, Recorded Investment, Current	50,136	52,387
Financing Receivable, Recorded Investment, 30 To 89 Days Past Due	14	49
Financing Receivable, Recorded Investment, 90 Days Past Due and Still Accruing	0	0
Financing Receivable, Recorded Investment, Total Still Accruing	50,150	52,436
Financing Receivable, Recorded Investment, Nonaccrual Status	42	43
Loans and Leases Receivable, Gross, Carrying Amount	50,192	52,479	52,536
Construction And Land Development Loans [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Financing Receivable, Recorded Investment, Current	45,758	43,111
Financing Receivable, Recorded Investment, 30 To 89 Days Past Due	129	0
Financing Receivable, Recorded Investment, 90 Days Past Due and Still Accruing	0	0
Financing Receivable, Recorded Investment, Total Still Accruing	45,887	43,111
Financing Receivable, Recorded Investment, Nonaccrual Status	66	583
Loans and Leases Receivable, Gross, Carrying Amount	45,953	43,694	37,925
Commercial Real Estate Owner Occupied Loans [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Financing Receivable, Recorded Investment, Current	47,010	46,372
Financing Receivable, Recorded Investment, 30 To 89 Days Past Due	0	0
Financing Receivable, Recorded Investment, 90 Days Past Due and Still Accruing	0	0
Financing Receivable, Recorded Investment, Total Still Accruing	47,010	46,372
Financing Receivable, Recorded Investment, Nonaccrual Status	0	230
Loans and Leases Receivable, Gross, Carrying Amount	47,010	46,602
Commercial Real Estate Other Loans [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Financing Receivable, Recorded Investment, Current	160,576	155,731
Financing Receivable, Recorded Investment, 30 To 89 Days Past Due	0	0
Financing Receivable, Recorded Investment, 90 Days Past Due and Still Accruing	0	0
Financing Receivable, Recorded Investment, Total Still Accruing	160,576	155,731
Financing Receivable, Recorded Investment, Nonaccrual Status	1,734	1,520
Loans and Leases Receivable, Gross, Carrying Amount	162,310	157,251
Commercial Real Estate Loans, Total [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Financing Receivable, Recorded Investment, Current	207,586	202,103
Financing Receivable, Recorded Investment, 30 To 89 Days Past Due	0	0
Financing Receivable, Recorded Investment, 90 Days Past Due and Still Accruing	0	0
Financing Receivable, Recorded Investment, Total Still Accruing	207,586	202,103
Financing Receivable, Recorded Investment, Nonaccrual Status	1,734	1,750
Loans and Leases Receivable, Gross, Carrying Amount	209,320	203,853	182,871
Residential Real Estate Consumer Mortgage Loans [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Financing Receivable, Recorded Investment, Current	69,772	68,579
Financing Receivable, Recorded Investment, 30 To 89 Days Past Due	575	1,105
Financing Receivable, Recorded Investment, 90 Days Past Due and Still Accruing	0	0
Financing Receivable, Recorded Investment, Total Still Accruing	70,347	69,684
Financing Receivable, Recorded Investment, Nonaccrual Status	96	325
Loans and Leases Receivable, Gross, Carrying Amount	70,443	70,009
Residential Real Estate Investment Property Loans [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Financing Receivable, Recorded Investment, Current	46,555	46,435
Financing Receivable, Recorded Investment, 30 To 89 Days Past Due	48	229
Financing Receivable, Recorded Investment, 90 Days Past Due and Still Accruing	0	0
Financing Receivable, Recorded Investment, Total Still Accruing	46,603	46,664
Financing Receivable, Recorded Investment, Nonaccrual Status	0	0
Loans and Leases Receivable, Gross, Carrying Amount	46,603	46,664
Residential Real Estate Loans, Total [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Financing Receivable, Recorded Investment, Current	116,327	115,014
Financing Receivable, Recorded Investment, 30 To 89 Days Past Due	623	1,334
Financing Receivable, Recorded Investment, 90 Days Past Due and Still Accruing	0	0
Financing Receivable, Recorded Investment, Total Still Accruing	116,950	116,348
Financing Receivable, Recorded Investment, Nonaccrual Status	96	325
Loans and Leases Receivable, Gross, Carrying Amount	117,046	116,673	111,265
Consumer Installment and Revolving Loans [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Financing Receivable, Recorded Investment, Current	9,741	10,179
Financing Receivable, Recorded Investment, 30 To 89 Days Past Due	28	28
Financing Receivable, Recorded Investment, 90 Days Past Due and Still Accruing	0	0
Financing Receivable, Recorded Investment, Total Still Accruing	9,769	10,207
Financing Receivable, Recorded Investment, Nonaccrual Status	0	13
Loans and Leases Receivable, Gross, Carrying Amount	$ 9,769	$ 10,220	$ 12,478

XML

Allowance for Loan Loss (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2016	Mar. 31, 2015
Financing Receivable, Allowance for Credit Losses [Roll Forward]
Financing Receivable, Allowance for Credit Losses	$ 4,289	$ 4,836
Financing Receivable, Allowance for Credit Losses, Charge-offs	(144)	(135)
Financing Receivable, Allowance for Credit Losses, Recoveries	1,229	21
Financing Receivable Allowance For Credit Losses Net Chargeoffs Recoveries	1,085	(114)
Provision for loan losses	(600)	0
Financing Receivable, Allowance for Credit Losses	4,774	4,722
Commercial and Industrial Loans [Member]
Financing Receivable, Allowance for Credit Losses [Roll Forward]
Financing Receivable, Allowance for Credit Losses	523	639
Financing Receivable, Allowance for Credit Losses, Charge-offs	0	(58)
Financing Receivable, Allowance for Credit Losses, Recoveries	20	1
Financing Receivable Allowance For Credit Losses Net Chargeoffs Recoveries	20	(57)
Provision for loan losses	(26)	62
Financing Receivable, Allowance for Credit Losses	517	644
Construction And Land Development Loans [Member]
Financing Receivable, Allowance for Credit Losses [Roll Forward]
Financing Receivable, Allowance for Credit Losses	669	974
Financing Receivable, Allowance for Credit Losses, Charge-offs	0	0
Financing Receivable, Allowance for Credit Losses, Recoveries	1,198	5
Financing Receivable Allowance For Credit Losses Net Chargeoffs Recoveries	1,198	5
Provision for loan losses	(1,173)	(149)
Financing Receivable, Allowance for Credit Losses	694	830
Commercial Real Estate Loans, Total [Member]
Financing Receivable, Allowance for Credit Losses [Roll Forward]
Financing Receivable, Allowance for Credit Losses	1,879	1,928
Financing Receivable, Allowance for Credit Losses, Charge-offs	0	0
Financing Receivable, Allowance for Credit Losses, Recoveries	0	0
Financing Receivable Allowance For Credit Losses Net Chargeoffs Recoveries	0	0
Provision for loan losses	525	(40)
Financing Receivable, Allowance for Credit Losses	2,404	1,888
Residential Real Estate Loans, Total [Member]
Financing Receivable, Allowance for Credit Losses [Roll Forward]
Financing Receivable, Allowance for Credit Losses	1,059	1,119
Financing Receivable, Allowance for Credit Losses, Charge-offs	(118)	(60)
Financing Receivable, Allowance for Credit Losses, Recoveries	7	14
Financing Receivable Allowance For Credit Losses Net Chargeoffs Recoveries	(111)	(46)
Provision for loan losses	78	80
Financing Receivable, Allowance for Credit Losses	1,026	1,153
Consumer Installment and Revolving Loans [Member]
Financing Receivable, Allowance for Credit Losses [Roll Forward]
Financing Receivable, Allowance for Credit Losses	159	176
Financing Receivable, Allowance for Credit Losses, Charge-offs	(26)	(17)
Financing Receivable, Allowance for Credit Losses, Recoveries	4	1
Financing Receivable Allowance For Credit Losses Net Chargeoffs Recoveries	(22)	(16)
Provision for loan losses	(4)	47
Financing Receivable, Allowance for Credit Losses	$ 133	$ 207

XML

Allowance For Loan Loss Additional Information (Details) - USD ($) $ in Thousands	Mar. 31, 2016	Dec. 31, 2015	Mar. 31, 2015
Financing Receivable Allowance For Credit Loss Additional Information [Line Items]
Financing Receivable, Allowance for Credit Losses, Collectively Evaluated for Impairment	$ 4,425		$ 4,538
Financing Receivable, Collectively Evaluated for Impairment	429,426		393,808
Financing Receivable, Allowance for Credit Losses, Individually Evaluated for Impairment	349		184
Financing Receivable, Individually Evaluated for Impairment	2,854		3,267
Allowance for loan losses	4,774	$ 4,289	4,722
Loans and Leases Receivable, Gross, Carrying Amount	432,280	426,919	397,075
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	517		644
Financing Receivable, Collectively Evaluated for Impairment	50,152		52,475
Financing Receivable, Allowance for Credit Losses, Individually Evaluated for Impairment	0		0
Financing Receivable, Individually Evaluated for Impairment	40		61
Allowance for loan losses	517		644
Loans and Leases Receivable, Gross, Carrying Amount	50,192	52,479	52,536
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	694		830
Financing Receivable, Collectively Evaluated for Impairment	45,887		37,307
Financing Receivable, Allowance for Credit Losses, Individually Evaluated for Impairment	0		0
Financing Receivable, Individually Evaluated for Impairment	66		618
Allowance for loan losses	694		830
Loans and Leases Receivable, Gross, Carrying Amount	45,953	43,694	37,925
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	2,055		1,704
Financing Receivable, Collectively Evaluated for Impairment	206,572		181,192
Financing Receivable, Allowance for Credit Losses, Individually Evaluated for Impairment	349		184
Financing Receivable, Individually Evaluated for Impairment	2,748		1,679
Allowance for loan losses	2,404		1,888
Loans and Leases Receivable, Gross, Carrying Amount	209,320	203,853	182,871
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	1,026		1,153
Financing Receivable, Collectively Evaluated for Impairment	117,046		110,356
Financing Receivable, Allowance for Credit Losses, Individually Evaluated for Impairment	0		0
Financing Receivable, Individually Evaluated for Impairment	0		909
Allowance for loan losses	1,026		1,153
Loans and Leases Receivable, Gross, Carrying Amount	117,046	116,673	111,265
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	133		207
Financing Receivable, Collectively Evaluated for Impairment	9,769		12,478
Financing Receivable, Allowance for Credit Losses, Individually Evaluated for Impairment	0		0
Financing Receivable, Individually Evaluated for Impairment	0		0
Allowance for loan losses	133		207
Loans and Leases Receivable, Gross, Carrying Amount	$ 9,769	$ 10,220	$ 12,478

XML

Loan Credit Quality Analysis (Details) - USD ($) $ in Thousands	Mar. 31, 2016	Dec. 31, 2015	Mar. 31, 2015
Financing Receivable, Recorded Investment [Line Items]
Financing Receivable, Recorded Investment, Pass	$ 418,056	$ 411,630
Financing Receivable, Recorded Investment, Special Mention	6,669	6,683
Financing Receivable Recorded Investment, Substandard Accruing	5,617	5,892
Financing Receivable, Recorded Investment, Nonaccrual Status	1,938	2,714
Loans and Leases Receivable, Gross, Carrying Amount	432,280	426,919	$ 397,075
Commercial and Industrial Loans [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing Receivable, Recorded Investment, Pass	46,055	48,038
Financing Receivable, Recorded Investment, Special Mention	3,786	4,075
Financing Receivable Recorded Investment, Substandard Accruing	309	323
Financing Receivable, Recorded Investment, Nonaccrual Status	42	43
Loans and Leases Receivable, Gross, Carrying Amount	50,192	52,479	52,536
Construction And Land Development Loans [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing Receivable, Recorded Investment, Pass	45,356	42,458
Financing Receivable, Recorded Investment, Special Mention	54	60
Financing Receivable Recorded Investment, Substandard Accruing	477	593
Financing Receivable, Recorded Investment, Nonaccrual Status	66	583
Loans and Leases Receivable, Gross, Carrying Amount	45,953	43,694	37,925
Commercial Real Estate Owner Occupied Loans [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing Receivable, Recorded Investment, Pass	46,419	45,772
Financing Receivable, Recorded Investment, Special Mention	275	381
Financing Receivable Recorded Investment, Substandard Accruing	316	219
Financing Receivable, Recorded Investment, Nonaccrual Status	0	230
Loans and Leases Receivable, Gross, Carrying Amount	47,010	46,602
Commercial Real Estate Other Loans [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing Receivable, Recorded Investment, Pass	160,074	155,423
Financing Receivable, Recorded Investment, Special Mention	35	36
Financing Receivable Recorded Investment, Substandard Accruing	467	272
Financing Receivable, Recorded Investment, Nonaccrual Status	1,734	1,520
Loans and Leases Receivable, Gross, Carrying Amount	162,310	157,251
Commercial Real Estate Loans, Total [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing Receivable, Recorded Investment, Pass	206,493	201,195
Financing Receivable, Recorded Investment, Special Mention	310	417
Financing Receivable Recorded Investment, Substandard Accruing	783	491
Financing Receivable, Recorded Investment, Nonaccrual Status	1,734	1,750
Loans and Leases Receivable, Gross, Carrying Amount	209,320	203,853	182,871
Residential Real Estate Consumer Mortgage Loans [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing Receivable, Recorded Investment, Pass	65,003	64,502
Financing Receivable, Recorded Investment, Special Mention	2,490	1,964
Financing Receivable Recorded Investment, Substandard Accruing	2,854	3,218
Financing Receivable, Recorded Investment, Nonaccrual Status	96	325
Loans and Leases Receivable, Gross, Carrying Amount	70,443	70,009
Residential Real Estate Investment Property Loans [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing Receivable, Recorded Investment, Pass	45,519	45,399
Financing Receivable, Recorded Investment, Special Mention	0	112
Financing Receivable Recorded Investment, Substandard Accruing	1,084	1,153
Financing Receivable, Recorded Investment, Nonaccrual Status	0	0
Loans and Leases Receivable, Gross, Carrying Amount	46,603	46,664
Residential Real Estate Loans, Total [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing Receivable, Recorded Investment, Pass	110,522	109,901
Financing Receivable, Recorded Investment, Special Mention	2,490	2,076
Financing Receivable Recorded Investment, Substandard Accruing	3,938	4,371
Financing Receivable, Recorded Investment, Nonaccrual Status	96	325
Loans and Leases Receivable, Gross, Carrying Amount	117,046	116,673	111,265
Consumer Installment and Revolving Loans [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing Receivable, Recorded Investment, Pass	9,630	10,038
Financing Receivable, Recorded Investment, Special Mention	29	55
Financing Receivable Recorded Investment, Substandard Accruing	110	114
Financing Receivable, Recorded Investment, Nonaccrual Status	0	13
Loans and Leases Receivable, Gross, Carrying Amount	$ 9,769	$ 10,220	$ 12,478

XML

Impaired Loans (Details) - USD ($) $ in Thousands	Mar. 31, 2016	Dec. 31, 2015
Financing Receivable, Impaired [Line Items]
Impaired Financing Receivable, with No Related Allowance, Unpaid Principal Balance	$ 513	$ 5,074
Impaired Financing Receivable, with No Related Allowance, Charge-off And Payments Applied	(182)	(2,694)
Impaired Financing Receivable, with No Related Allowance, Recorded Investment	331	2,380
Impaired Financing Receivable, with Related Allowance, Unpaid Principal Balance	3,150	1,027
Impaired Financing Receivable, with Related Allowance, Charge-off And Payments Applied	(627)	0
Impaired Financing Receivable, with Related Allowance, Recorded Investment	2,523	1,027
Impaired Financing Receivable, With Related Allowance, Related Allowance	349	121
Impaired Financing Receivable, Unpaid Principal Balance	3,663	6,101
Impaired Financing Receivable, Charge-off And Payments Applied	(809)	(2,694)
Impaired Financing Receivable, Recorded Investment	2,854	3,407
Impaired Financing Receivable, Related Allowance	349	121
Commercial and Industrial Loans [Member]
Financing Receivable, Impaired [Line Items]
Impaired Financing Receivable, with No Related Allowance, Unpaid Principal Balance	40	48
Impaired Financing Receivable, with No Related Allowance, Charge-off And Payments Applied	0	0
Impaired Financing Receivable, with No Related Allowance, Recorded Investment	40	48
Construction And Land Development Loans [Member]
Financing Receivable, Impaired [Line Items]
Impaired Financing Receivable, with No Related Allowance, Unpaid Principal Balance	167	2,582
Impaired Financing Receivable, with No Related Allowance, Charge-off And Payments Applied	(101)	(1,999)
Impaired Financing Receivable, with No Related Allowance, Recorded Investment	66	583
Commercial Real Estate Owner Occupied Loans [Member]
Financing Receivable, Impaired [Line Items]
Impaired Financing Receivable, with No Related Allowance, Unpaid Principal Balance		308
Impaired Financing Receivable, with No Related Allowance, Charge-off And Payments Applied		(78)
Impaired Financing Receivable, with No Related Allowance, Recorded Investment		230
Impaired Financing Receivable, with Related Allowance, Unpaid Principal Balance	1,014	1,027
Impaired Financing Receivable, with Related Allowance, Charge-off And Payments Applied	0	0
Impaired Financing Receivable, with Related Allowance, Recorded Investment	1,014	1,027
Impaired Financing Receivable, With Related Allowance, Related Allowance	110	121
Commercial Real Estate Other Loans [Member]
Financing Receivable, Impaired [Line Items]
Impaired Financing Receivable, with No Related Allowance, Unpaid Principal Balance	306	2,136
Impaired Financing Receivable, with No Related Allowance, Charge-off And Payments Applied	(81)	(617)
Impaired Financing Receivable, with No Related Allowance, Recorded Investment	225	1,519
Impaired Financing Receivable, with Related Allowance, Unpaid Principal Balance	2,136
Impaired Financing Receivable, with Related Allowance, Charge-off And Payments Applied	(627)
Impaired Financing Receivable, with Related Allowance, Recorded Investment	1,509
Impaired Financing Receivable, With Related Allowance, Related Allowance	239
Commercial Real Estate Loans, Total [Member]
Financing Receivable, Impaired [Line Items]
Impaired Financing Receivable, with No Related Allowance, Unpaid Principal Balance	306	2,444
Impaired Financing Receivable, with No Related Allowance, Charge-off And Payments Applied	(81)	(695)
Impaired Financing Receivable, with No Related Allowance, Recorded Investment	225	1,749
Impaired Financing Receivable, with Related Allowance, Unpaid Principal Balance	3,150	1,027
Impaired Financing Receivable, with Related Allowance, Charge-off And Payments Applied	(627)	0
Impaired Financing Receivable, with Related Allowance, Recorded Investment	2,523	1,027
Impaired Financing Receivable, With Related Allowance, Related Allowance	$ 349	$ 121

XML

Impaired Loans Averages (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2016	Mar. 31, 2015
Impaired Financing Receivable, Average Recorded Investment [Line Items]
Impaired Financing Receivable, Average Recorded Investment	$ 2,992	$ 3,277
Impaired Financing Receivable, Interest Income, Accrual Method	16	38
Commercial and Industrial Loans [Member]
Impaired Financing Receivable, Average Recorded Investment [Line Items]
Impaired Financing Receivable, Average Recorded Investment	32	67
Impaired Financing Receivable, Interest Income, Accrual Method	1	1
Construction And Land Development Loans [Member]
Impaired Financing Receivable, Average Recorded Investment [Line Items]
Impaired Financing Receivable, Average Recorded Investment	198	616
Impaired Financing Receivable, Interest Income, Accrual Method	0	0
Commercial Real Estate Owner Occupied Loans [Member]
Impaired Financing Receivable, Average Recorded Investment [Line Items]
Impaired Financing Receivable, Average Recorded Investment	1,020	1,099
Impaired Financing Receivable, Interest Income, Accrual Method	15	12
Commercial Real Estate Other Loans [Member]
Impaired Financing Receivable, Average Recorded Investment [Line Items]
Impaired Financing Receivable, Average Recorded Investment	1,742	591
Impaired Financing Receivable, Interest Income, Accrual Method	0	10
Commercial Real Estate Loans, Total [Member]
Impaired Financing Receivable, Average Recorded Investment [Line Items]
Impaired Financing Receivable, Average Recorded Investment	2,762	1,690
Impaired Financing Receivable, Interest Income, Accrual Method	15	22
Residential Real Estate Consumer Mortgage Loans [Member]
Impaired Financing Receivable, Average Recorded Investment [Line Items]
Impaired Financing Receivable, Average Recorded Investment	0	751
Impaired Financing Receivable, Interest Income, Accrual Method	0	15
Residential Real Estate Investment Property Loans [Member]
Impaired Financing Receivable, Average Recorded Investment [Line Items]
Impaired Financing Receivable, Average Recorded Investment	0	153
Impaired Financing Receivable, Interest Income, Accrual Method	0	0
Residential Real Estate Loans, Total [Member]
Impaired Financing Receivable, Average Recorded Investment [Line Items]
Impaired Financing Receivable, Average Recorded Investment	0	904
Impaired Financing Receivable, Interest Income, Accrual Method	$ 0	$ 15

XML

Troubled Debt Restructuring (Details) - USD ($) $ in Thousands	Mar. 31, 2016	Dec. 31, 2015
Impaired Financing Receivable And Troubled Debt Restructing [Line Items]
Impaired Financing Receivable, Troubled Debt Restructuring, Still Accruing	$ 1,054	$ 1,075
Impaired Financing Receivable, Troubled Debt Restructuring, Nonaccrual	291	812
Impaired Financing Receivable, Trouble Debt Structuring, Total	1,345	1,887
Impaired Financing Receivable, Troubled Debt Restructuring, Allowance for Credit Losses	110	121
Commercial and Industrial Loans [Member]
Impaired Financing Receivable And Troubled Debt Restructing [Line Items]
Impaired Financing Receivable, Troubled Debt Restructuring, Still Accruing	40	48
Impaired Financing Receivable, Troubled Debt Restructuring, Nonaccrual	0	0
Impaired Financing Receivable, Trouble Debt Structuring, Total	40	48
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	66	582
Impaired Financing Receivable, Trouble Debt Structuring, Total	66	582
Impaired Financing Receivable, Troubled Debt Restructuring, Allowance for Credit Losses	0	0
Commercial Real Estate Owner Occupied Loans [Member]
Impaired Financing Receivable And Troubled Debt Restructing [Line Items]
Impaired Financing Receivable, Troubled Debt Restructuring, Still Accruing	1,014	1,027
Impaired Financing Receivable, Troubled Debt Restructuring, Nonaccrual	225	230
Impaired Financing Receivable, Trouble Debt Structuring, Total	1,239	1,257
Impaired Financing Receivable, Troubled Debt Restructuring, Allowance for Credit Losses	110	121
Commercial Real Estate Loans, Total [Member]
Impaired Financing Receivable And Troubled Debt Restructing [Line Items]
Impaired Financing Receivable, Troubled Debt Restructuring, Still Accruing	1,014	1,027
Impaired Financing Receivable, Troubled Debt Restructuring, Nonaccrual	225	230
Impaired Financing Receivable, Trouble Debt Structuring, Total	1,239	1,257
Impaired Financing Receivable, Troubled Debt Restructuring, Allowance for Credit Losses	$ 110	$ 121

XML

Troubled Debt Restructuring Modifications (Details) $ in Thousands	3 Months Ended
	Mar. 31, 2015 USD ($)
Financing Receivable, Modifications [Line Items]
Financing Receivable, Modification, Number of Contracts	2
Financing Receivable, Modification, Pre-Modification Recorded Investment	$ 708
Financing Receivable, Modifications, Post-Modifications Recorded Investment	$ 705
Construction And Land Development Loans [Member]
Financing Receivable, Modifications [Line Items]
Financing Receivable, Modification, Number of Contracts	1
Financing Receivable, Modification, Pre-Modification Recorded Investment	$ 116
Financing Receivable, Modifications, Post-Modifications Recorded Investment	$ 113
Commercial Real Estate Other Loans [Member]
Financing Receivable, Modifications [Line Items]
Financing Receivable, Modification, Number of Contracts	1
Financing Receivable, Modification, Pre-Modification Recorded Investment	$ 592
Financing Receivable, Modifications, Post-Modifications Recorded Investment	$ 592
Commercial Real Estate Loans, Total [Member]
Financing Receivable, Modifications [Line Items]
Financing Receivable, Modification, Number of Contracts	1
Financing Receivable, Modification, Pre-Modification Recorded Investment	$ 592
Financing Receivable, Modifications, Post-Modifications Recorded Investment	$ 592

XML

Troubled Debt Restructuring Defaults (Details) $ in Thousands	3 Months Ended
	Mar. 31, 2015 USD ($)
Financing Receivable, Modifications, Subsequent Default [Line Items]
Financing Receivable, Modifications, Subsequent Default, Number of Contracts	2
Financing Receivable, Modifications, Subsequent Default, Recorded Investment	$ 411
Commercial Real Estate Owner Occupied Loans [Member]
Financing Receivable, Modifications, Subsequent Default [Line Items]
Financing Receivable, Modifications, Subsequent Default, Number of Contracts	1
Financing Receivable, Modifications, Subsequent Default, Recorded Investment	$ 261
Commercial Real Estate Loans, Total [Member]
Financing Receivable, Modifications, Subsequent Default [Line Items]
Financing Receivable, Modifications, Subsequent Default, Number of Contracts	1
Financing Receivable, Modifications, Subsequent Default, Recorded Investment	$ 261
Residential Real Estate Investment Property Loans [Member]
Financing Receivable, Modifications, Subsequent Default [Line Items]
Financing Receivable, Modifications, Subsequent Default, Number of Contracts	1
Financing Receivable, Modifications, Subsequent Default, Recorded Investment	$ 150
Residential Real Estate Loans, Total [Member]
Financing Receivable, Modifications, Subsequent Default [Line Items]
Financing Receivable, Modifications, Subsequent Default, Number of Contracts	1
Financing Receivable, Modifications, Subsequent Default, Recorded Investment	$ 150

XML

Loans Textuals (Details)	Mar. 31, 2016
Loan and Lease Disclosure (Textuals) [Abstract]
Percentage Of Loans Secured By Real Estate	86.10%

XML

Mortgage Servicing Rights, Net (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2016	Mar. 31, 2015
Servicing Asset at Amortized Value, Balance [Roll Forward]
Servicing Asset at Amortized Cost, Beginning	$ 2,316	$ 2,388
Servicing Asset at Amortized Value, Additions	57	111
Servicing Asset at Amortized Value, Amortization	(138)	(134)
Servicing Asset at Amortized Value, Valuation Allowance	0	(10)
Servicing Asset at Amortized Cost, Ending	2,235	2,355
Valuation Allowance for Impairment of Recognized Servicing Assets, Balance [Abstract]
Valuation Allowance for Impairment of Recognized Servicing Assets, Beginning Balance	0	53
Valuation Allowance for Impairment of Recognized Servicing Assets, Ending Balance	0	63
Servicing Asset at Amortized Value, Fair Value [Abstract]
Servicing Asset at Amortized Value, Fair Value, Beginning	3,086	3,238
Servicing Asset at Amortized Value, Fair Value, Ending	$ 2,906	$ 3,066

XML

Derivative Instruments (Details) - USD ($) $ in Thousands	Mar. 31, 2016	Dec. 31, 2015
Derivative [Line Items]
Derivative, Notional Amount1	$ 8,458	$ 8,634
DerivativeAssetFairValueGrossAsset	418	440
Derivative Asset, Fair Value, Gross Liability	418	440
Derivative, Interest Rate Swap, Pay Fixed, Receive Variable [Member]
Derivative [Line Items]
Derivative, Notional Amount1	4,229	4,317
DerivativeAssetFairValueGrossAsset	0	0
Derivative Asset, Fair Value, Gross Liability	418	440
Derivative, Interest Rate Swap, Pay Variable, Receive Fixed [Member]
Derivative [Line Items]
Derivative, Notional Amount1	4,229	4,317
DerivativeAssetFairValueGrossAsset	418	440
Derivative Asset, Fair Value, Gross Liability	$ 0	$ 0

XML

Fair Value (Details) - USD ($) $ in Thousands	Mar. 31, 2016	Dec. 31, 2015
Estimate of Fair Value, Fair Value Disclosure [Member]
Fair Value Disclosure, Securities Available-for-Sale [Abstract]
Fair Value Disclosure, Agency Obligations	$ 55,880	$ 60,085
Fair Value Disclosure, Agency RMBS	107,664	110,954
Fair Value Disclosure, State and Political Subdivisions	70,564	70,648
Fair Value Disclosure, Securities Available-for-Sale, Total	234,108	241,687
Other Assets, Fair Value Disclosure	418	440
Assets, Fair Value Disclosure, Recurring	234,526	242,127
Liabilities Fair Value Disclosure [Abstract]
Other Liabilities, Fair Value Disclosure	418	440
Liabilities, Fair Value Disclosure, Recurring, Total	418	440
Fair Value, Assets and Liabilities Measured on Nonrecurring Basis [Abstract]
Loans Held-for-sale, Fair Value Disclosure	2,326	1,540
Impaired Loans, Fair Value Disclosure	2,505	3,286
Other Real Esate Owned, Fair Value Disclosure	397	252
Servicing Asset at Fair Value, Amount	2,235	2,316
Assets, Fair Value Disclosure, Nonrecurring	7,463	7,394
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
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	55,880	60,085
Fair Value Disclosure, Agency RMBS	107,664	110,954
Fair Value Disclosure, State and Political Subdivisions	70,564	70,648
Fair Value Disclosure, Securities Available-for-Sale, Total	234,108	241,687
Other Assets, Fair Value Disclosure	418	440
Assets, Fair Value Disclosure, Recurring	234,526	242,127
Liabilities Fair Value Disclosure [Abstract]
Other Liabilities, Fair Value Disclosure	418	440
Liabilities, Fair Value Disclosure, Recurring, Total	418	440
Fair Value, Assets and Liabilities Measured on Nonrecurring Basis [Abstract]
Loans Held-for-sale, Fair Value Disclosure	2,326	1,540
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	2,326	1,540
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
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	2,505	3,286
Other Real Esate Owned, Fair Value Disclosure	397	252
Servicing Asset at Fair Value, Amount	2,235	2,316
Assets, Fair Value Disclosure, Nonrecurring	$ 5,137	$ 5,854

XML

Fair Value Unobservable Inputs (Details) - Fair Value, Measurements, Nonrecurring [Member] - Carrying (Reported) Amount, Fair Value Disclosure [Member] $ in Thousands	Mar. 31, 2016 USD ($)
Impaired Loans [Member]
Schedule Of Fair Value Significant Unobservable Inputs Used [Line Items]
Assets, Fair Value Disclosure	$ 2,505
Impaired Loans [Member] | Appraisal, Appraisal Discount [Member]
Schedule Of Fair Value Significant Unobservable Inputs Used [Line Items]
Unobservable Input, Weighted Average of Input Percent	39.90%
Other Real Estate Owned [Member]
Schedule Of Fair Value Significant Unobservable Inputs Used [Line Items]
Assets, Fair Value Disclosure	$ 397
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	7.20%
Mortgage Servicing Rights [Member]
Schedule Of Fair Value Significant Unobservable Inputs Used [Line Items]
Assets, Fair Value Disclosure	$ 2,235
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	10.70%
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	10.00%

XML

Fair Value Financial Instruments (Details) - USD ($) $ in Thousands	Mar. 31, 2016	Dec. 31, 2015
Carrying (Reported) Amount, Fair Value Disclosure [Member]
Fair Value, Financial Assets: [Abstract]
Fair Value, Financial Instruments, Loans, Net	$ 426,989	$ 422,121
Fair Value, Financial Instruments, Loans Held For Sale	2,326	1,540
Fair Value, Financial Liabilities: [Abstract]
Fair Value, Financial Instruments, Time Deposits	215,388	219,598
Fair Value, Financial Instruments, Long-term Debt	7,217	7,217
Estimate of Fair Value, Fair Value Disclosure [Member]
Fair Value, Financial Assets: [Abstract]
Fair Value, Financial Instruments, Loans, Net	437,145	427,340
Fair Value, Financial Instruments, Loans Held For Sale	2,345	1,574
Fair Value, Financial Liabilities: [Abstract]
Fair Value, Financial Instruments, Time Deposits	216,811	220,093
Fair Value, Financial Instruments, Long-term Debt	7,217	7,217
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	2,345	1,574
Fair Value, Financial Liabilities: [Abstract]
Fair Value, Financial Instruments, Time Deposits	216,811	220,093
Fair Value, Financial Instruments, Long-term Debt	7,217	7,217
Fair Value, Inputs, Level 3 [Member]
Fair Value, Financial Assets: [Abstract]
Fair Value, Financial Instruments, Loans, Net	437,145	427,340
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