10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20552

FORM 10 - Q

QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT

   OF 1934

For the quarterly period ended September 30, 2016

Commission File Number 001-36613

 Middlefield Banc Corp.

(Exact name of registrant as specified in its charter)

Ohio	34 - 1585111
(State or other jurisdiction of incorporation	(IRS Employer Identification No.)
or organization)

15985 East High Street, Middlefield, Ohio 44062-9263

(Address of principal executive offices)

(440) 632-1666

(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d)

of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the

registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

                                                                                                               YES [√] 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 (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES [√] 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 definition 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 [ ] Small reporting company [√]

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

                                                                                                               YES [ ]   NO [√]

State the number of shares outstanding of each of the issuer's classes of common equity as of the latest practicable date:

      Class: Common Stock, without par value

      Outstanding at November 10, 2016: 2,250,707

1

MIDDLEFIELD BANC CORP.

INDEX

Part I – Financial Information
Item 1.	Item 1. Financial Statements (unaudited)
	Consolidated Balance Sheet as of September 30, 2016 and December 31, 2015	3
	Consolidated Statement of Income for the Three and Nine Months ended September 30, 2016 and 2015	4
	Consolidated Statement of Comprehensive Income for the Three and Nine Months ended September 30, 2016 and 2015	5
	Consolidated Statement of Changes in Stockholders' Equity for the Nine Months ended September 30, 2016	6
	Consolidated Statement of Cash Flows for the Nine Months ended September 30, 2016 and 2015	7
	Notes to Unaudited Consolidated Financial Statements	8
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	32
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	41
Item 4.	Controls and Procedures	42
Part II – Other Information
Item 1.	Legal Proceedings	42
Item 1A.	Risk Factors	42
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	42
Item 3.	Defaults by the Company on its Senior Securities	42
Item 4.	Mine Safety Disclosures	42
Item 5.	Other Information	42
Item 6.	Exhibits and Reports on Form 8 – K	42
Signatures		46
Exhibit 31.1
Exhibit 31.2
Exhibit 32

2

MIDDLEFIELD BANC CORP.

CONSOLIDATED BALANCE SHEET

(Dollar amounts in thousands, except share data)

(Unaudited)

	September 30,			December 31,
	2016			2015
ASSETS
Cash and due from banks	$	21,976		$	22,421
Federal funds sold		1,300			1,329
Cash and cash equivalents		23,276			23,750
Investment securities available for sale, at fair value		123,054			146,520
Loans held for sale		880			1,107
Loans		586,329			533,710
Less allowance for loan and lease losses		6,334			6,385
Net loans		579,995			527,325
Premises and equipment, net		9,921			9,772
Goodwill		4,559			4,559
Core deposit intangibles		46			76
Bank-owned life insurance		13,438			13,141
Other real estate owned		1,205			1,412
Accrued interest and other assets		5,884			7,477
TOTAL ASSETS		762,258			735,139
LIABILITIES
Deposits:
Noninterest-bearing demand	$	136,320		$	116,498
Interest-bearing demand		67,061			57,219
Money market		77,774			78,856
Savings		173,272			180,653
Time		184,915			191,221
Total deposits		639,342			624,447
Short-term borrowings		32,803			35,825
Other borrowings		9,713			9,939
Accrued interest and other liabilities		2,208			2,624
TOTAL LIABILITIES		684,066			672,835
STOCKHOLDERS' EQUITY
Common stock, no par value; 10,000,000 shares authorized, 2,636,830 and 2,263,403 shares issued; 2,250,665 and 1,877,238 shares outstanding		47,812			36,191
Retained earnings		40,282			37,236
Accumulated other comprehensive income		3,616			2,395
Treasury stock, at cost; 386,165 shares		(13,518	)		(13,518	)
TOTAL STOCKHOLDERS' EQUITY		78,192			62,304
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	762,258		$	735,139

See accompanying notes to unaudited consolidated financial statements.

3

MIDDLEFIELD BANC CORP.

CONSOLIDATED STATEMENT OF INCOME

(Dollar amounts in thousands, except per share data)

(Unaudited)

	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2016			2015		2016			2015
INTEREST AND DIVIDEND INCOME
Interest and fees on loans	$	6,459		$	5,971	$	18,949		$	17,656
Interest-bearing deposits in other institutions		15			6		42			26
Federal funds sold		7			4		16			12
Investment securities:
Taxable interest		235			341		865			1,115
Tax-exempt interest		687			809		2,227			2,373
Dividends on stock		17			20		74			70
Total interest and dividend income		7,420			7,151		22,173			21,252
INTEREST EXPENSE
Deposits		921			876		2,665			2,581
Short-term borrowings		49			30		288			100
Other borrowings		14			20		47			66
Trust preferred securities		42			33		117			85
Total interest expense		1,026			959		3,117			2,832
NET INTEREST INCOME		6,394			6,192		19,056			18,420
Provision for loan losses		105			105		315			210
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES		6,289			6,087		18,741			18,210
NONINTEREST INCOME
Service charges on deposit accounts		505			471		1,443			1,382
Investment securities gains, net		-			211		303			257
Earnings on bank-owned life insurance		101			101		297			262
Gain on sale of loans		129			113		322			286
Other income		242			212		694			679
Total noninterest income		977			1,108		3,059			2,866
NONINTEREST EXPENSE
Salaries and employee benefits		2,677			2,285		7,740			7,205
Occupancy expense		306			305		933			945
Equipment expense		221			249		700			706
Data processing costs		334			287		928			798
Ohio state franchise tax		186			75		448			225
Federal deposit insurance expense		132			120		396			352
Professional fees		547			229		1,057			825
Loss (gain) on other real estate owned		(49	)		24		(52	)		72
Advertising expense		206			195		604			586
Other real estate expense		97			116		299			449
Directors fees		102			98		330			343
Core deposit intangible amortization		10			10		30			30
Appraiser fees		114			97		334			327
ATM fees		102			89		296			295
Other expense		677			490		1,872			1,539
Total noninterest expense		5,662			4,669		15,915			14,697
Income before income taxes		1,604			2,526		5,885			6,379
Income taxes		261			544		1,129			1,264
NET INCOME	$	1,343		$	1,982	$	4,756		$	5,115
EARNINGS PER SHARE
Basic	$	0.60		$	0.96	$	2.31		$	2.49
Diluted		0.60			0.96		2.30			2.47
DIVIDENDS DECLARED PER SHARE	$	0.27		$	0.27	$	0.81		$	0.80

See accompanying notes to unaudited consolidated financial statements.

4

MIDDLEFIELD BANC CORP.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

(Dollar amounts in thousands)

(Unaudited)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2016			2015			2016			2015
Net income	$	1,343		$	1,982		$	4,756		$	5,115
Other comprehensive income (loss):
Net unrealized holding gain (loss) on available-for-sale securities		(400	)		1,416			2,153			(699	)
Tax effect		137			(481	)		(732	)		238
Reclassification adjustment for investment securities gains included in net income		-			(211	)		(303	)		(257	)
Tax effect		-			71			103			87
Total other comprehensive income (loss)		(263	)		795			1,221			(631	)
Comprehensive income	$	1,080		$	2,777		$	5,977		$	4,484

See accompanying notes to unaudited consolidated financial statements.

5

MIDDLEFIELD BANC CORP.

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS EQUITY

(Dollar amounts in thousands, except share data)

(Unaudited)

						Accumulated
						Other					Total
	Common		Retained			Comprehensive		Treasury			Stockholders'
	Stock		Earnings			Income		Stock			Equity
Balance, December 31, 2015	$	36,191	$	37,236		$	2,395	$	(13,518	)	$	62,304
Net income				4,756								4,756
Other comprehensive income							1,221					1,221
Common stock issuance, net of offering cost (360,815 shares)		11,239										11,239
Dividend reinvestment and purchase plan (11,712 shares)		382										382
Cash dividends ($0.81 per share)				(1,710	)							(1,710	)
Balance, September 30, 2016	$	47,812	$	40,282		$	3,616	$	(13,518	)	$	78,192

See accompanying notes to unaudited consolidated financial statements.

6

MIDDLEFIELD BANC CORP.

CONSOLIDATED STATEMENT OF CASH FLOWS

(Dollar amounts in thousands)

(Unaudited)

	Nine Months Ended
	September 30,
	2016			2015
OPERATING ACTIVITIES
Net income	$	4,756		$	5,115
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		315			210
Investment securities gain, net		(303	)		(257	)
Depreciation and amortization		774			763
Amortization of premium and discount on investment securities		352			553
Accretion of deferred loan fees, net		(150	)		(468	)
Origination of loans held for sale		(15,497	)		(14,740	)
Proceeds from sale of loans		16,046			14,844
Gain on sale of loans		(322	)		(286	)
Earnings on bank-owned life insurance		(297	)		(262	)
Deferred income tax		224			397
Loss (gain) on sale of other real estate owned		(52	)		72
Other real estate owned writedowns		73			56
Increase in accrued interest receivable		(139	)		(481	)
(Decrease) increase in accrued interest payable		(4	)		58
Other, net		253			(158	)
Net cash provided by operating activities		6,029			5,416
INVESTING ACTIVITIES
Investment securities available for sale:
Proceeds from repayments and maturities		17,896			7,530
Proceeds from sale of securities		9,115			15,284
Purchases		(1,744	)		(14,876	)
Increase in loans, net		(53,430	)		(40,554	)
Proceeds from the sale of other real estate owned		781			1,094
Purchase of bank-owned life insurance		-			(4,000	)
Purchase of premises and equipment		(679	)		(454	)
Net cash used for investing activities		(28,061	)		(35,976	)
FINANCING ACTIVITIES
Net increase in deposits		14,895			40,436
Decrease in short-term borrowings, net		(3,022	)		(10,761	)
Repayment of other borrowings		(226	)		(324	)
Common stock issued		11,239			-
Stock options exercised		-			6
Proceeds from dividend reinvestment and purchase plan		382			504
Cash dividends		(1,710	)		(1,645	)
Net cash provided by financing activities		21,558			28,216
Decrease in cash and cash equivalents		(474	)		(2,344	)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD		23,750			25,639
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	23,276		$	23,295
SUPPLEMENTAL INFORMATION
Cash paid during the year for:
Interest on deposits and borrowings	$	3,121		$	2,774
Income taxes		475			350
Noncash investing transactions:
Transfers from loans to other real estate owned	$	595		$	638

See accompanying notes to unaudited consolidated financial statements.

7

MIDDLEFIELD BANC CORP.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - BASIS OF PRESENTATION

The consolidated financial statements of Middlefield Banc Corp. ("Company") include its bank subsidiary, The Middlefield Banking Company (“MB”), and a nonbank asset resolution subsidiary EMORECO, Inc. All significant inter-company items have been eliminated.

The accompanying unaudited financial statements have been prepared in accordance with U.S. generally accepted accounting principles and the instructions for Form 10-Q and Article 10 of Regulation S-X. In management’s opinion, the financial statements include all adjustments, consisting of normal recurring adjustments, that the Company considers necessary to fairly state the Company’s financial position and the results of operations and cash flows. The consolidated balance sheet at December 31, 2015, has been derived from the audited financial statements at that date but does not include all of the necessary informational disclosures and footnotes as required by U.S. generally accepted accounting principles. The accompanying financial statements should be read in conjunction with the financial statements and notes thereto included with the Company’s Form 10-K for the year ended December 31, 2015. The results of the Company’s operations for any interim period are not necessarily indicative of the results of the Company’s operations for any other interim period or for a full fiscal year.

Recent Accounting Pronouncements –

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (a new revenue recognition standard). The Update’s core principle is that a company will recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In addition, this Update specifies the accounting for certain costs to obtain or fulfill a contract with a customer and expands disclosure requirements for revenue recognition. This Update is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations.

In June 2014, the FASB issued ASU 2014-12, Compensation – Stock Compensation (Topic 718): Accounting for Share-Based Payments when the Terms of an Award Provide that a Performance Target Could Be Achieved After the Requisite Service Period. The amendments require that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. The amendments in this Update are effective for annual periods and interim periods within those annual periods beginning after December 15, 2015. Earlier adoption is permitted. Entities may apply the amendments in this Update either (a) prospectively to all awards granted or modified after the effective date or (b) retrospectively to all awards with performance targets that are outstanding as of the beginning of the earliest annual period presented in the financial statements and to all new or modified awards thereafter. If retrospective transition is adopted, the cumulative effect of applying this Update as of the beginning of the earliest annual period presented in the financial statements should be recognized as an adjustment to the opening retained earnings balance at that date. Additionally, if retrospective transition is adopted, an entity may use hindsight in measuring and recognizing the compensation cost. This Update is not expected to have a significant impact on the Company’s financial statements, or the Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations.

In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606). The amendments in this Update defer the effective date of ASU 2014-09 for all entities by one year. Public business entities, certain not-for-profit entities, and certain employee benefit plans should apply the guidance in ASU 2014-09 to annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. All other entities should apply the guidance in ASU 2014-09 to annual reporting periods beginning after December 15, 2018, and interim reporting periods within annual reporting periods beginning after December 15, 2019. The Company is evaluating the effect of adopting this new accounting Update.

8

In January 2016, the FASB issued ASU 2016-01, Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. This Update applies to all entities that hold financial assets or owe financial liabilities and is intended to provide more useful information on the recognition, measurement, presentation, and disclosure of financial instruments. Among other things, this Update (a) requires equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income; (b) simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment; (c) eliminates the requirement to disclose the fair value of financial instruments measured at amortized cost for entities that are not public business entities; (d) eliminates the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet; (e) requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; (f) requires 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 in accordance with the fair value option for financial instruments; (g) requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (that is, securities or loans and receivables) on the balance sheet or the accompanying notes to the financial statements; and (h) clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets. For public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. For all other entities, including not-for-profit entities and employee benefit plans within the scope of Topics 960 through 965 on plan accounting, the amendments in this Update are effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. All entities that are not public business entities may adopt the amendments in this Update earlier as of the fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The standard 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 the lease term.  A short-term lease is defined as one in which (a) the lease term is 12 months or less and (b) there is not an option to purchase the underlying asset that the lessee is reasonably certain to exercise. For short-term leases, lessees may elect to recognize lease payments over the lease term on a straight-line basis. For public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2018, and interim periods within those years. For all other entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2019, and for interim periods within fiscal years beginning after December 15, 2020. The amendments 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. This Update is not expected to have a significant impact on the Company’s financial statements.

In March 2016, the FASB issued ASU 2016-04, Liabilities – Extinguishments of Liabilities (Subtopic 405-20). The standard provides that liabilities related to the sale of prepaid stored-value products within the scope of this Update are financial liabilities. The amendments in the Update provide a narrow-scope exception to the guidance in Subtopic 405-20 to require that breakage for those liabilities be accounted for consistent with the breakage guidance in Topic 606. The amendments in this Update are effective for public business entities, certain not-for-profit entities, and certain employee benefit plans for financial statements issued for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. For all other entities, the amendments are effective for financial statements issued for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. Earlier application is permitted, including adoption in an interim period. This Update is not expected to have a significant impact on the Company’s financial statements.

9

In March 2016, the FASB issued ASU 2016-05, Derivatives and Hedging (Topic 815). The amendments in this Update apply to all reporting entities for which there is a change in the counterparty to a derivative instrument that has been designated as a heading instrument under Topic 815. The standards in this Update clarify that a change in the counterparty to a derivative instrument that has been designated as the hedging instrument under Topic 815 does not, in and of itself, require designation of that hedging relationship provided that all other hedge accounting criteria continue to be met. For public business entities, the amendments in this Update are effective for financial statements issued for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. For all other entities, the amendments in this Update are effective for financial statements issued for fiscal years beginning after December 15, 2017, and interim periods within fiscal years beginning after December 15, 2018. An entity has an option to apply the amendments in this Update on either a prospective basis or a modified retrospective basis. Early adoption is permitted, including adoption in an interim period. This Update is not expected to have a significant impact on the Company’s financial statements.

In March 2016, the FASB issued ASU 2016-06, Derivatives and Hedging (Topic 815). The amendments apply to all entities that are issuers of or investors in debt instruments (or hybrid financial instruments that are determined to have a debt host) with embedded call (put) options. The amendments in this Update clarify the requirements for assessing whether contingent call (put) options that can accelerate the payment of principal on debt instruments are clearly and closely related to their debt host. An entity performing the assessment under the amendments in this Update is required to assess the embedded call (put) options solely in accordance with the four-step decision sequence. For public business entities, the amendments in this Update are effective for financial statements issued for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. For entities other than public business entities, the amendments in this Update are effective for financial statements issued for fiscal years beginning after December 15, 2017, and interim periods within fiscal years beginning after December 15, 2018. Early adoption is permitted, including adoption in an interim period. This Update is not expected to have a significant impact on the Company’s financial statements.

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

In March 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers (Topic 606). The amendments in this Update affect entities with transactions included within the scope of Topic 606, which includes entities that enter into contracts with customers to transfer goods or services (that are an output of the entity’s ordinary activities) in exchange for consideration. The amendments in this Update do not change the core principle of the guidance in Topic 606; they simply clarify the implementation guidance on principal versus agent considerations. The amendments in this Update are intended to improve the operability and understandability of the implementation guidance on principal versus agent considerations. The amendments in this Update affect the guidance in ASU 2014-09, Revenue from Contracts with Customers (Topic 606), which is not yet effective. The effective date and transition requirements for the amendments in this Update are the same as the effective date and transition requirements of Update 2014-09. ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, defers the effective date of Update 2014-09 by one year. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations.

In March 2016, the FASB issued ASU 2016-09, Compensation – Stock Compensation (Topic 718). The amendments in this Update affect all entities that issue share-based payment awards to their employees. The standards in this Update provide simplification for several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as with equity or liabilities, and classification on the statement of cash flows. Some of the areas for simplification apply only to nonpublic entities. In addition to those simplifications, the amendments eliminate the guidance in Topic 718 that was indefinitely deferred shortly after the issuance of FASB Statement No. 123 (revised 2004), Share-Based Payment. This should not result in a change in practice because the guidance that is being superseded was never effective. For public business entities, the amendments in this Update are effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. For all other entities, the amendments are effective for annual periods beginning after December 15, 2017, and interim periods within annual periods beginning after December 15, 2018. Early adoption is permitted for any entity in any interim or annual period. This Update is not expected to have a significant impact on the Company’s financial statements.

10

In April 2016, the FASB issued ASU 2016-10, Revenue from Contracts with Customers (Topic 606). The amendments in this Update affect entities with transactions included within the scope of Topic 606, which includes entities that enter into contracts with customers to transfer goods or services in exchange for consideration. The amendments in this Update do not change the core principle for revenue recognition in Topic 606. Instead, the amendments provide (1) more detailed guidance in a few areas and (2) additional implementation guidance and examples based on feedback the FASB received from its stakeholders. The amendments are expected to reduce the degree of judgment necessary to comply with Topic 606, which the FASB expects will reduce the potential for diversity arising in practice and reduce the cost and complexity of applying the guidance. The amendments in this Update affect the guidance in ASU 2014-09, Revenue from Contracts with Customers (Topic 606), which is not yet effective. The effective date and transition requirements for the amendments in this Update are the same as the effective date and transition requirements in Topic 606 (and any other Topic amended by Update 2014-09). ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, defers the effective date of Update 2014-09 by one year. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations.

In May 2016, the FASB issued ASU 2016-11, Revenue Recognition (Topic 605) and Derivative and Hedging (Topic 815), which rescinds SEC paragraphs pursuant to two SEC Staff Announcements at the March 3, 2016, Emerging Issues Task Force meeting. This Update did not have a significant impact on the Company’s financial statements.

In May 2016, the FASB issued ASU 2016-12, Revenue from Contracts with Customers (Topic 606), which among other things clarifies the objective of the collectability criterion in Topic 606, as well as certain narrow aspects of Topic 606. The amendments in this Update affect the guidance in ASU 2014-09, Revenue from Contracts with Customers (Topic 606), which is not yet effective. The effective date and transition requirements for the amendments in this Update are the same as the effective date and transition requirements for Topic 606 (and any other Topic amended by Update 2014-09). ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, defers the effective date of Update 2014-09 by one year. This Update is not expected to have a significant impact on the Company’s financial statements.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which changes the impairment model for most financial assets. This Update is intended to improve financial reporting by requiring timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations. The underlying premise of the Update is that financial assets measured at amortized cost should be presented at the net amount expected to be collected, through an allowance for credit losses that is deducted from the amortized cost basis. The allowance for credit losses should reflect management’s current estimate of credit losses that are expected to occur over the remaining life of a financial asset. The income statement will be effected for the measurement of credit losses for newly recognized financial assets, as well as the expected increases or decreases of expected credit losses that have taken place during the period. ASU 2016-13 is effective for annual and interim periods beginning after December 15, 2019, and early adoption is permitted for annual and interim periods beginning after December 15, 2018. With certain exceptions, transition to the new requirements will be through a cumulative effect adjustment to opening retained earnings as of the beginning of the first reporting period in which the guidance is adopted. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (“ASU 2016-15”), which addresses eight specific cash flow issues with the objective of reducing diversity in practice. Among these include recognizing cash payments for debt prepayment or debt extinguishment as cash outflows for financing activities; cash proceeds received from the settlement of insurance claims should be classified on the basis of the related insurance coverage; and cash proceeds received from the settlement of bank-owned life insurance policies should be classified as cash inflows from investing activities while the cash payments for premiums on bank-owned policies may be classified as cash outflows for investing activities, operating activities, or a combination of investing and operating activities. The amendments in this Update are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. Early adoption is permitted, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. An entity that elects early adoption must adopt all of the amendments in the same period. The amendments in this Update should be applied using a retrospective transition method to each period presented. If it is impracticable to apply the amendments retrospectively for some of the issues, the amendments for those issues would be applied prospectively as of the earliest date practicable. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s statement of cash flows.

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NOTE 2 - STOCK-BASED COMPENSATION

The Company had no unvested stock options outstanding or unrecognized stock-based compensation costs outstanding as of September 30, 2016 and 2015.

Stock option activity during the nine months ended September 30 is as follows:

			Weighted-					Weighted-
			average					average
			Exercise					Exercise
	2016		Price		2015			Price
Outstanding, January 1		31,949	$	25.03		46,451		$	27.90
Expired		-		-		(3,639	)		37.33
Exercised		-		-		(1,025	)		20.21
Outstanding, September 30		31,949	$	25.03		41,787		$	27.27
Exercisable, September 30		31,949	$	25.03		41,787		$	27.27

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NOTE 3 - EARNINGS PER SHARE

The Company provides dual presentation of basic and diluted earnings per share. Basic earnings per share is calculated by dividing net income by the average shares outstanding. Diluted earnings per share adds the dilutive effects of stock options to average shares outstanding.

The following table sets forth the composition of the weighted-average common shares (denominator) used in the basic and diluted earnings per share computation.

	For the Three						For the Nine
	Months Ended						Months Ended
	September 30,						September 30,
	2016			2015			2016			2015
Weighted-average common shares outstanding		2,633,752			2,253,584			2,445,821			2,248,468
Average treasury stock shares		(386,165	)		(189,530	)		(386,165	)		(189,530	)
Weighted-average common shares and common stock equivalents used to calculate basic earnings per share		2,247,587			2,064,054			2,059,656			2,058,938
Additional common stock equivalents (stock options) used to calculate diluted earnings per share		8,643			8,585			8,876			9,254
Weighted-average common shares and common stock equivalents used to calculate diluted earnings per share		2,256,230			2,072,639			2,068,532			2,068,192

Options to purchase 31,949 shares of common stock, at prices ranging from $17.55 to $40.24, were outstanding during the three and nine months ended September 30, 2016. Of those options, 24,700 were considered dilutive for the three and nine month periods based on the market price exceeding the strike price.

Options to purchase 41,787 shares of common stock, at prices ranging from $17.55 to $37.48, were outstanding during the three and nine months ended September 30, 2015. Of those options, 27,000 were considered dilutive for the three month period based on the market price exceeding the strike price. For the nine months ended September 30, 2015, 27,250 options were considered dilutive.

NOTE 4 - FAIR VALUE MEASUREMENTS

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market for an asset or liability in an orderly transaction between market participants at the measurement date. GAAP established a fair value hierarchy that prioritizes the use of inputs used in valuation methodologies into the following levels:

Level I: Quoted prices are available in active markets for identical assets or liabilities as of the reported date.

Level II: Pricing inputs are other than the quoted prices in active markets, which are either directly or indirectly observable as of the reported date. The nature of these assets and liabilities includes items for which quoted prices are available but traded less frequently and items that are fair valued using other financial instruments, the parameters of which can be directly observed.

Level III: Assets and liabilities that have little to no pricing observability as of the reported date. These items do not have two-way markets and are measured using management’s best estimate of fair value, where the inputs into the determination of fair value require significant management judgment or estimation.

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The following tables present the assets measured on a recurring basis on the Consolidated Balance Sheet at their fair value by level within the fair value hierarchy. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

			September 30, 2016
(Dollar amounts in thousands)	Level I		Level II		Level III		Total
Assets measured on a recurring basis:
U.S. government agency securities	$	-	$	10,863	$	-	$	10,863
Obligations of states and political subdivisions		-		87,525		-		87,525
Mortgage-backed securities in government- sponsored entities		-		21,380		-		21,380
Private-label mortgage-backed securities		-		2,068		-		2,068
Total debt securities		-		121,836		-		121,836
Equity securities in financial institutions		5		1,213		-		1,218
Total	$	5	$	123,049	$	-	$	123,054

			December 31, 2015
(Dollar amounts in thousands)	Level I		Level II		Level III		Total
Assets measured on a recurring basis:
U.S. government agency securities	$	-	$	21,629	$	-	$	21,629
Obligations of states and political subdivisions		-		97,290		-		97,290
Mortgage-backed securities in government- sponsored entities		-		24,524		-		24,524
Private-label mortgage-backed securities		-		2,263		-		2,263
Total debt securities		-		145,706		-		145,706
Equity securities in financial institutions		5		809		-		814
Total	$	5	$	146,515	$	-	$	146,520

The Company obtains fair values from an independent pricing service which represent either quoted market prices for the identical securities (Level I inputs) or fair values determined by pricing models using a market approach that considers observable market data, such as interest rate volatilities, LIBOR yield curve, credit spreads and prices from market makers and live trading systems (Level II).

Financial instruments are considered Level III when their values are determined using pricing models, discounted cash flow methodologies or similar techniques and at least one significant model assumption or input is unobservable. In addition to these unobservable inputs, the valuation models for Level III financial instruments typically also rely on a number of inputs that are readily observable either directly or indirectly. Level III financial instruments also include those for which the determination of fair value requires significant management judgment or estimation. The Company has no securities considered to be Level III as of September 30, 2016 or December 31, 2015.

The Company uses prices compiled by third party vendors.

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The following tables present the assets measured on a nonrecurring basis on the Consolidated Balance Sheet at their fair value by level within the fair value hierarchy. Impaired loans that are collateral dependent are written down to fair value through the establishment of specific reserves. Techniques used to value the collateral that secure the impaired loan include quoted market prices for identical assets classified as Level I inputs and observable inputs, employed by certified appraisers, for similar assets classified as Level II inputs. In cases where valuation techniques included inputs that are unobservable and are based on estimates and assumptions developed by management based on the best information available under each circumstance, the asset valuation is classified as Level III inputs. The Company values other real estate owned at the estimated fair value of the underlying collateral less expected selling costs. Such values are estimated primarily using appraisals and reflect a market value approach. Due to the significance of the Level III inputs, other real estate owned has been classified as Level III.

			September 30, 2016
(Dollar amounts in thousands)	Level I		Level II		Level III		Total
Assets measured on a nonrecurring basis:
Impaired loans	$	-	$	-	$	11,102	$	11,102
Other real estate owned		-		-		1,205		1,205

			December 31, 2015
(Dollar amounts in thousands)	Level I		Level II		Level III		Total
Assets measured on a nonrecurring basis:
Impaired loans	$	-	$	-	$	12,848	$	12,848
Other real estate owned		-		-		1,412		1,412

The following tables present additional quantitative information about assets measured at fair value on a nonrecurring basis and for which the Company uses Level III inputs to determine fair value:

	Quantitative Information about Level III Fair Value Measurements
(Dollar amounts in thousands)
	Fair Value Estimate		Valuation Techniques	Unobservable Input	Range (Weighted Average)
September 30, 2016
Impaired loans	$	7,743	Discounted cash flow	Discount rate	3.1%	to	7.0%	(5.0%)
		3,359	Appraisal of collateral (1)	Appraisal adjustments (2)	0.0%	to	55.7%	(34.6%)
Other real estate owned	$	1,205	Appraisal of collateral (1)	Appraisal adjustments (2)	0.0%	to	10.0%	(7.3%)

	Quantitative Information about Level III Fair Value Measurements
(Dollar amounts in thousands)
	Fair Value Estimate		Valuation Techniques	Unobservable Input	Range (Weighted Average)
December 31, 2015
Impaired loans	$	6,867	Discounted cash flow	Discount rate	3.1%	to	7.9%	(5.0%)
		5,981	Appraisal of collateral (1)	Appraisal adjustments (2)	0.0%	to	87.1%	(23.3%)
Other real estate owned	$	1,412	Appraisal of collateral (1)	Appraisal adjustments (2)	0%	to	10.0%	(7.3%)

(1) Fair value is generally determined through independent appraisals of the underlying collateral, which generally include various level 3 inputs which are not identifiable.

(2) Appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated liquidation expenses. The range and weighted average of liquidation expenses and other appraisal adjustments are presented as a percent of the appraisal.

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The estimated fair value of the Company’s financial instruments is as follows:

	September 30, 2016
	Carrying								Total
	Value		Level I		Level II		Level III		Fair Value
	(Dollar amounts in thousands)
Financial assets:
Cash and cash equivalents	$	23,276	$	23,276	$	-	$	-	$	23,276
Investment securities
Available for sale		123,054		5		123,049		-		123,054
Loans held for sale		880		-		880		-		880
Net loans		579,995		-		-		586,739		586,739
Bank-owned life insurance		13,438		13,438		-		-		13,438
Federal Home Loan Bank stock		1,887		1,887		-		-		1,887
Accrued interest receivable		2,526		2,526		-		-		2,526
Financial liabilities:
Deposits	$	639,342	$	454,427	$	-	$	188,668	$	643,095
Short-term borrowings		32,803		32,803		-		-		32,803
Other borrowings		9,713		-		-		10,003		10,003
Accrued interest payable		391		391		-		-		391

	December 31, 2015
	Carrying								Total
	Value		Level I		Level II		Level III		Fair Value
	(Dollar amounts in thousands)
Financial assets:
Cash and cash equivalents	$	23,750	$	23,750	$	-	$	-	$	23,750
Investment securities
Available for sale		146,520		5		146,515		-		146,520
Loans held for sale		1,107		-		1,107		-		1,107
Net loans		527,325		-		-		534,021		534,021
Bank-owned life insurance		13,141		13,141		-		-		13,141
Federal Home Loan Bank stock		1,887		1,887		-		-		1,887
Accrued interest receivable		2,387		2,387		-		-		2,387
Financial liabilities:
Deposits	$	624,447	$	433,226	$	-	$	191,747	$	624,973
Short-term borrowings		35,825		35,825		-		-		35,825
Other borrowings		9,939		-				10,063		10,063
Accrued interest payable		395		395		-		-		395

Financial instruments are defined as cash, evidence of ownership interest in an entity, or a contract which creates an obligation or right to receive or deliver cash or another financial instrument from/to a second entity on potentially favorable or unfavorable terms.

Fair value is defined as the amount at which a financial instrument could be exchanged in a current transaction between willing parties other than in a forced liquidation sale. If a quoted market price is available for a financial instrument, the estimated fair value would be calculated based upon the market price per trading unit of the instrument.

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If no readily available market exists, the fair value estimates for financial instruments should be based upon management’s judgment regarding current economic conditions, interest rate risk, expected cash flows, future estimated losses, and other factors as determined through various option pricing formulas or simulation modeling. Since many of these assumptions result from judgments made by management based upon estimates which are inherently uncertain, the resulting estimated fair values may not be indicative of the amount realizable in the sale of a particular financial instrument. In addition, changes in assumptions on which the estimated fair values are based may have a significant impact on the resulting estimated fair values.

As certain assets such as deferred tax assets and premises and equipment are not considered financial instruments, the estimated fair value of financial instruments would not represent the full value of the Company.

The Company employed simulation modeling in determining the estimated fair value of financial instruments for which quoted market prices were not available based upon the following assumptions:

Cash and Cash Equivalents, Federal Home Loan Bank Stock, Accrued Interest Receivable, Accrued Interest Payable, and Short-Term Borrowings

The fair value is equal to the current carrying value.

Bank-Owned Life Insurance

The fair value is equal to the cash surrender value of the life insurance policies.

Investment Securities Available for Sale

The fair value of investment securities is equal to the available quoted market price.  If no quoted market price is available, fair value is estimated using the quoted market price for similar securities. 

Loans Held for Sale

Loans held for sale are carried at lower of cost or fair value. The fair value of loans held for sale is based on secondary market pricing on portfolios with similar characteristics. The changes in fair value of the assets are largely driven by changes in interest rates subsequent to loan funding and changes in the fair value of servicing associated with the mortgage loan held for sale.

Net Loans

The fair value is estimated by discounting future cash flows using current market inputs at which loans with similar terms and qualities would be made to borrowers of similar credit quality. Where quoted market prices were available, primarily for certain residential mortgage loans, such market rates were used as estimates for fair value.

Deposits and Other Borrowings

The fair values of certificates of deposit and other borrowings are based on the discounted value of contractual cash flows. The discount rates are estimated using rates currently offered for similar instruments with similar remaining maturities. Demand, savings, and money market deposits are valued at the amount payable on demand as of period end.

Commitments to Extend Credit

These financial instruments are generally not subject to sale, and estimated fair values are not readily available. The carrying value, represented by the net deferred fee arising from the unrecognized commitment or letter of credit, and the fair value, determined by discounting the remaining contractual fee over the term of the commitment using fees currently charged to enter into similar agreements with similar credit risk, are not considered material for disclosure.

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NOTE 5 – ACCUMULATED OTHER COMPREHENSIVE INCOME

The following tables present the changes in accumulated other comprehensive income by component net of tax for the three and nine months ended September 30, 2016 and 2015, respectively:

	Unrealized gains on
	available-for-sale
(Dollars in thousands)	securities
Balance as of December 31, 2015	$	2,395
Other comprehensive income before reclassification		1,421
Amount reclassified from accumulated other comprehensive income		(200	)
Period change		1,221
Balance at September 30, 2016	$	3,616
Balance as of June 30, 2016	$	3,879
Other comprehensive income before reclassification		(263	)
Amount reclassified from accumulated other comprehensive income		-
Period change		(263	)
Balance at September 30, 2016	$	3,616

	Unrealized gains on
	available-for-sale
(Dollars in thousands)	securities
Balance as of December 31, 2014	$	2,548
Other comprehensive income before reclassification		(461	)
Amount reclassified from accumulated other comprehensive income		(170	)
Period change		(631	)
Balance at September 30, 2015		1,917
Balance as of June 30, 2015	$	1,122
Other comprehensive loss before reclassification		935
Amount reclassified from accumulated other comprehensive income		(140	)
Period change		795
Balance at September 30, 2015	$	1,917

The following tables present significant amounts reclassified out of each component of accumulated other comprehensive income for the three and nine months ended September 30, 2016 and 2015, respectively:

		Amount Reclassified from Accumulated Other Comprehensive				Affected Line Item in
		Income (a)				the Statement Where
(Dollars in thousands)		For the Three Months Ended				Net Income is
Details about other comprehensive income	September 30, 2016		September 30, 2015			Presented
Unrealized gains on available-for-sale securities
	$	-	$	211		Investment securities gains, net
		-		(71	)	Income taxes
	$	-	$	140		Net of tax

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	Amount Reclassified from Accumulated Other Comprehensive						Affected Line Item in
		Income (a)					the Statement Where
(Dollars in thousands)		For the Nine Months Ended					Net Income is
Details about other comprehensive income	September 30, 2016			September 30, 2015			Presented
Unrealized gains on available-for-sale securities
	$	303		$	257		Investment securities gains, net
		(103	)		(87	)	Income taxes
	$	200		$	170		Net of tax

(a) Amounts in parentheses indicate debits to net income

NOTE 6 - INVESTMENT SECURITIES AVAILABLE FOR SALE

The amortized cost and fair values of securities available for sale are as follows:

	September 30, 2016
			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
(Dollar amounts in thousands)	Cost		Gains		Losses			Value
U.S. government agency securities	$	10,516	$	359	$	(12	)	$	10,863
Obligations of states and political subdivisions:
Taxable		1,616		186		-			1,802
Tax-exempt		81,829		3,899		(5	)		85,723
Mortgage-backed securities in government-sponsored entities		20,939		485		(44	)		21,380
Private-label mortgage-backed securities		1,927		141		-			2,068
Total debt securities		116,827		5,070		(61	)		121,836
Equity securities in financial institutions		750		468		-			1,218
Total	$	117,577	$	5,538	$	(61	)	$	123,054

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	December 31, 2015
			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
U.S. government agency securities	$	21,655	$	245	$	(271	)	$	21,629
Obligations of states and political subdivisions:
Taxable		1,989		134		-			2,123
Tax-exempt		91,940		3,402		(175	)		95,167
Mortgage-backed securities in government-sponsored entities		24,480		316		(272	)		24,524
Private-label mortgage-backed securities		2,079		184		-			2,263
Total debt securities		142,143		4,281		(718	)		145,706
Equity securities in financial institutions		750		64		-			814
Total	$	142,893	$	4,345	$	(718	)	$	146,520

The amortized cost and fair value of debt securities at September 30, 2016, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

	Amortized		Fair
(Dollar amounts in thousands)	Cost		Value
Due in one year or less	$	2,842	$	2,879
Due after one year through five years		9,132		9,500
Due after five years through ten years		12,916		13,510
Due after ten years		91,937		95,947
Total	$	116,827	$	121,836

Proceeds from the sales of securities available for sale and the gross realized gains and losses for the three and nine months ended September 30 are as follows:

	For the Three Months Ended September 30,					For the Nine Months Ended September 30,
	2016		2015			2016			2015
Proceeds from sales	$	-	$	11,973		$	9,115		$	15,284
Gross realized gains		-		233			306			373
Gross realized losses		-		(22	)		(3	)		(116	)

Investment securities with an approximate carrying value of $64.7 million and $68.8 million at September 30, 2016 and December 31, 2015, respectively, were pledged to secure deposits and other purposes as required by law.

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The following tables show the Company’s gross unrealized losses and fair value, aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position.

	September 30, 2016
	Less than Twelve Months				Twelve Months or Greater					Total
			Gross				Gross					Gross
	Fair		Unrealized		Fair		Unrealized			Fair		Unrealized
(Dollar amounts in thousands)	Value		Losses		Value		Losses			Value		Losses
U.S. government agency securities	$	2,000	$	-	$	1,465	$	(12	)	$	3,465	$	(12	)
Obligations of states and political subdivisions
Tax-exempt		608		-		-		(5	)		608		(5	)
Mortgage-backed securities in government-sponsored entities		-		-		4,709		(44	)		4,709		(44	)
Private-label mortgage-backed securities		75		-		-		-			75		-
Total	$	2,683	$	-	$	6,174	$	(61	)	$	8,857	$	(61	)

	December 31, 2015
	Less than Twelve Months					Twelve Months or Greater					Total
			Gross					Gross					Gross
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Value		Losses			Value		Losses			Value		Losses
U.S. government agency securities	$	3,818	$	(57	)	$	10,872	$	(214	)	$	14,690	$	(271	)
Obligations of states and political subdivisions
Tax-exempt		1,268		(9	)		9,394		(166	)		10,662		(175	)
Mortgage-backed securities in government-sponsored entities		8,725		(86	)		6,685		(186	)		15,410		(272	)
Total	$	13,811	$	(152	)	$	26,951	$	(566	)	$	40,762	$	(718	)

There were 9 securities considered temporarily impaired at September 30, 2016.

On a quarterly basis, the Company performs an assessment to determine whether there have been any events or economic circumstances indicating that a security with an unrealized loss has suffered other-than-temporary impairment (“OTTI”). A debt security is considered impaired if the fair value is less than its amortized cost basis at the reporting date. The Company assesses whether the unrealized loss is other than temporary.

OTTI losses are recognized in earnings when the Company has the intent to sell the debt security or it is more likely than not that it will be required to sell the debt security before recovery of its amortized cost basis. However, even if the Company does not expect to sell a debt security, it must evaluate expected cash flows to be received and determine if a credit loss has occurred.

An unrealized loss is generally deemed to be other than temporary and a credit loss is deemed to exist if the present value of the expected future cash flows is less than the amortized cost basis of the debt security. As a result the credit loss component of an OTTI is recorded as a component of investment securities gains (losses) in the accompanying Consolidated Statement of Income, while the remaining portion of the impairment loss is recognized in other comprehensive income, provided the Company does not intend to sell the underlying debt security and it is “more likely than not” that the Company will not have to sell the debt security prior to recovery.

Debt securities issued by U.S. government agencies, U.S. government-sponsored enterprises, and state and political subdivisions accounted for more than 97% of the total available-for-sale portfolio as of September 30, 2016 and no credit losses are expected, given the explicit and implicit guarantees provided by the U.S. federal government and the lack of prolonged unrealized loss positions within the obligations of state and political subdivisions security portfolio. The Company considers the following factors in determining whether a credit loss exists and the period over which the debt security is expected to recover:

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

• Changes in the near term prospects of the underlying collateral of a security such as changes in default rates, loss severity given default and significant changes in prepayment assumptions;

• The level of cash flows generated from the underlying collateral supporting the principal and interest payments of the debt securities; and

• Any adverse change to the credit conditions and liquidity of the issuer, taking into consideration the latest information available about the overall financial condition of the issuer, credit ratings, recent legislation and government actions affecting the issuer’s industry and actions taken by the issuer to deal with the present economic climate.

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For the nine months ended September 30, 2016 and 2015, there were no available-for-sale debt securities with an unrealized loss that suffered OTTI. Management does not believe any individual unrealized loss as of September 30, 2016 or December 31, 2015 represented an other-than-temporary impairment. The unrealized losses on debt securities are primarily the result of interest rate changes. These conditions will not prohibit the Company from receiving its contractual principal and interest payments on these debt securities. The fair value of these debt securities is expected to recover as payments are received on these securities and they approach maturity. Should the impairment of any of these securities become other than temporary, the cost basis of the investment will be reduced and the resulting loss recognized in net income in the period the other-than-temporary impairment is identified.

NOTE 7 - LOANS AND RELATED ALLOWANCE FOR LOAN AND LEASE LOSSES

Major classifications of loans are summarized as follows (in thousands):

	September 30,		December 31,
	2016		2015
Commercial and industrial	$	59,376	$	42,536
Real estate - construction		17,633		22,137
Real estate - mortgage:
Residential		258,952		232,478
Commercial		245,636		231,701
Consumer installment		4,732		4,858
		586,329		533,710
Less: Allowance for loan and lease losses		6,334		6,385
Net loans	$	579,995	$	527,325

The Company’s primary business activity is with customers located within its local Northeastern Ohio trade area, eastern Geauga County, and contiguous counties to the north, east, and south. The Company also serves the central Ohio market with offices in Dublin, Sunbury and Westerville, Ohio. Commercial, residential, consumer, and agricultural loans are granted. Although the Company has a diversified loan portfolio, loans outstanding to individuals and businesses are dependent upon the local economic conditions in the Company’s immediate trade area.

Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff generally are reported at their outstanding unpaid principal balances net of the allowance for loan and lease losses. Interest income is recognized as income when earned on the accrual method. The accrual of interest is discontinued on a loan when management believes, after considering economic and business conditions, the borrower’s financial condition is such that collection of interest is doubtful. Interest received on nonaccrual loans is recorded as income or applied against principal according to management’s judgment as to the collectability of such principal.

Loan origination fees and certain direct loan origination costs are being deferred and the net amount amortized as an adjustment of the related loan’s yield.  Management is amortizing these amounts over the contractual life of the related loans.

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The following tables summarize the primary segments of the loan portfolio and allowance for loan and lease losses (in thousands):

					Real Estate- Mortgage
September 30, 2016	Commercial and industrial		Real estate- construction		Residential		Commercial		Consumer installment		Total
Loans:
Individually evaluated for impairment	$	844	$	1,093	$	3,238	$	6,466	$	5	$	11,646
Collectively evaluated for impairment		58,532		16,540		255,714		239,170		4,727		574,683
Total loans	$	59,376	$	17,633	$	258,952	$	245,636	$	4,732	$	586,329

					Real estate- Mortgage
December 31, 2015	Commercial and industrial		Real estate- construction		Residential		Commercial		Consumer installment		Total
Loans:
Individually evaluated for impairment	$	1,808	$	1,787	$	3,881	$	6,199	$	6	$	13,681
Collectively evaluated for impairment		40,728		20,350		228,597		225,502		4,852		520,029
Total loans	$	42,536	$	22,137	$	232,478	$	231,701	$	4,858	$	533,710

					Real Estate- Mortgage
September 30, 2016	Commercial and industrial		Real estate- construction		Residential		Commercial		Consumer installment		Total
Allowance for loan and lease losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	184	$	17	$	104	$	239	$	-	$	544
Collectively evaluated for impairment		329		121		2,657		2,656		27		5,790
Total ending allowance balance	$	513	$	138	$	2,761	$	2,895	$	27	$	6,334

					Real Estate- Mortgage
December 31, 2015	Commercial and industrial		Real estate- construction		Residential		Commercial		Consumer installment		Total
Allowance for loan and lease losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	388	$	130	$	276	$	39	$	-	$	833
Collectively evaluated for impairment		479		146		2,863		2,039		25		5,552
Total ending allowance balance	$	867	$	276	$	3,139	$	2,078	$	25	$	6,385

The Company’s loan portfolio is segmented to a level that allows management to monitor risk and performance. The portfolio is segmented into Commercial and Industrial (“C&I”), Real Estate Construction, Real Estate - Mortgage which is further segmented into Residential and Commercial real estate (“CRE”), and Consumer Installment Loans. The C&I loan segment consists of loans made for the purpose of financing the activities of commercial customers. The residential mortgage loan segment consists of loans made for the purpose of financing the activities of residential homeowners. The commercial mortgage loan segment consists of loans made for the purpose of financing the activities of commercial real estate owners and operators. The consumer loan segment consists primarily of installment loans and overdraft lines of credit connected with customer deposit accounts. The decrease in the allowance for loan loss for C&I and Residential real estate loan portfolios were offset by increase in the allowance for the CRE loan portfolio.

Management evaluates individual loans in all of the commercial segments for possible impairment based on guidance established by the Board of Directors. Loans are considered to be impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement.  Factors considered by management in evaluating impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed. The Company does not separately evaluate individual consumer and residential mortgage loans for impairment, unless such loans are part of a larger relationship that is impaired.

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Once the determination has been made that a loan is impaired, the determination of whether a specific allocation of the allowance is necessary is measured by comparing the recorded investment in the loan to the fair value of the loan using one of the following methods: (a) the present value of expected future cash flows discounted at the loan’s effective interest rate; (b) the loan’s observable market price; or (c) the fair value of the collateral less selling costs. The method is selected on a loan-by-loan basis, with management primarily utilizing the fair value of collateral method. The evaluation of the need and amount of a specific allocation of the allowance and whether a loan can be removed from impairment status is made on a quarterly basis. The Company’s policy for recognizing interest income on impaired loans does not differ from its overall policy for interest recognition.

The following tables present impaired loans by class, segregated by those for which a specific allowance was required and those for which a specific allowance was not necessary (in thousands):

September 30, 2016
Impaired Loans
			Unpaid
	Recorded			Principal	Related
	Investment			Balance	Allowance
With no related allowance recorded:
Commercial and industrial	$	569	$	569	$	-
Real estate - construction		1,076		1,076		-
Real estate - mortgage:
Residential		2,774		2,771		-
Commercial		1,378		1,375		-
Consumer installment		5		5		-
Total	$	5,797	$	5,791	$	-
With an allowance recorded:
Commercial and industrial	$	275	$	275	$	184
Real estate - construction		17		17		17
Real estate - mortgage:
Residential		464		462		104
Commercial		5,088		5,078		239
Consumer installment		-		-		-
Total	$	5,849	$	5,837	$	544
Total:
Commercial and industrial	$	844	$	844	$	184
Real estate - construction		1,093		1,093		17
Real estate - mortgage:
Residential		3,238		3,233		104
Commercial		6,466		6,453		239
Consumer installment		5		5		-
Total	$	11,646	$	11,628	$	544

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December 31, 2015
Impaired Loans
			Balance
	Recorded			Principal	Related
	Investment			Balance	Allowance
With no related allowance recorded:
Commercial and industrial	$	1,027	$	1,025	$	-
Real estate - construction		1,657		1,651		-
Real estate - mortgage:
Residential		2,445		2,443		-
Commercial		2,337		2,335		-
Consumer installment		6		6		-
Total	$	7,466	$	7,454	$	-
With an allowance recorded:
Commercial and industrial	$	781	$	781	$	388
Real estate - construction		130		130		130
Real estate - mortgage:
Residential		1,436		1,436		276
Commercial		3,862		3,846		39
Consumer installment		-		-		-
Total	$	6,215	$	6,199	$	833
Total:
Commercial and industrial	$	1,808	$	1,806	$	388
Real estate - construction		1,787		1,781		130
Real estate - mortgage:
Residential		3,881		3,879		276
Commercial		6,199		6,181		39
Consumer installment		6		6		-
Total	$	13,681	$	13,653	$	833

The following tables present interest income by class, recognized on impaired loans (in thousands):

	For the Three Months Ended September 30, 2016				For the Nine Months Ended September 30, 2016
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
Total:
Commercial and industrial	$	864	$	4	$	1,218	$	9
Real estate - construction		1,105		3		1,404		22
Real estate - mortgage:
Residential		3,389		-		3,660		36
Commercial		7,939		8		7,449		115
Consumer installment		5		-		6		-
	$	13,302	$	15	$	13,737	$	182

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	For the Three Months Ended September 30, 2015				For the Nine Months Ended September 30, 2015
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
Total:
Commercial and industrial	$	1,480	$	21	$	1,354	$	73
Real estate - construction		2,347		28		2,614		94
Real estate - mortgage:
Residential		4,195		43		4,514		128
Commercial		5,476		71		4,871		200
Consumer installment		6		-		6		-
	$	13,504	$	163	$	13,359	$	495

Management uses a nine-point internal risk-rating system to monitor the credit quality of the overall loan portfolio. The first five categories are considered not criticized and are aggregated as Pass rated. The criticized rating categories utilized by management generally follow bank regulatory definitions. The Special Mention category includes assets that are currently protected but are potentially weak, resulting in an undue and unwarranted credit risk, but not to the point of justifying a Substandard classification.  Loans in the Substandard category have well-defined weaknesses that jeopardize the liquidation of the debt and have a distinct possibility that some loss will be sustained if the weaknesses are not corrected.  All loans greater than 90 days past due are considered Substandard.   Any portion of a loan that has been charged off is placed in the Loss category.  

To help ensure that risk ratings are accurate and reflect the present and future capacity of borrowers to repay a loan as agreed, the Company has a structured loan-rating process with several layers of internal and external oversight.  Generally, consumer and residential mortgage loans are included in the Pass categories unless a specific action, such as bankruptcy, repossession, or death, occurs to raise awareness of a possible credit event.  The Company’s Commercial Loan Officers are responsible for the timely and accurate risk rating of the loans in their portfolios at origination and on an ongoing basis with the Chief Credit Officer ultimately responsible for accurate and timely risk ratings.  The Credit Department performs an annual review of all commercial relationships with loan balances of $1,000,000 or greater.  Confirmation of the appropriate risk grade is included in the review on an ongoing basis.  The Company engages an external consultant to conduct loan reviews on a semiannual basis. Generally, the external consultant reviews commercial relationships greater than $250,000 and/or criticized relationships greater than $125,000.  Detailed reviews, including plans for resolution, are performed on loans classified as Substandard on a quarterly basis.  Loans in the Special Mention and Substandard categories that are collectively evaluated for impairment are given separate consideration in the determination of the allowance.

The primary risk of commercial and industrial loans is the current economic uncertainties. C&I loans are, by nature, secured by less substantial collateral than real estate-secured loans. The primary risk of real estate construction loans is potential delays and /or disputes during the completion process. The primary risk of residential real estate loans is current economic uncertainties along with the slow recovery in the housing market. The primary risk of commercial real estate loans is loss of income of the owner or occupier of the property and the inability of the market to sustain rent levels. Consumer installment loans historically have experienced higher delinquency rates. Consumer installments are typically secured by less substantial collateral than other types of credits.

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The following tables present the classes of the loan portfolio summarized by the aggregate Pass and the criticized categories of Special Mention, Substandard and Doubtful within the internal risk-rating system (in thousands):

			Special						Total
	Pass		Mention		Substandard		Doubtful		Loans
September 30, 2016
Commercial and industrial	$	57,954	$	445	$	977	$	-	$	59,376
Real estate - construction		17,448		144		24		17		17,633
Real estate - mortgage:
Residential		252,783		433		5,376		-		258,952
Commercial		237,916		3,141		4,579		-		245,636
Consumer installment		4,723		-		9		-		4,732
Total	$	540,188	$	4,163	$	11,325	$	17	$	586,329

			Special						Total
December 31, 2015	Pass		Mention		Substandard		Doubtful		Loans
Commercial and industrial	$	40,560	$	242	$	1,734	$	-	$	42,536
Real estate - construction		22,007		-		-		130		22,137
Real estate - mortgage:
Residential		225,945		728		5,805		-		232,478
Commercial		219,331		4,327		8,043		-		231,701
Consumer installment		4,854		-		4		-		4,858
Total	$	512,697	$	5,297	$	15,586	$	130	$	533,710

Management further monitors the performance and credit quality of the loan portfolio by analyzing the age of the portfolio as determined by the length of time a recorded payment is past due.

Nonperforming assets include nonaccrual loans, troubled debt restructurings (TDRs), loans 90 days or more past due, EMORECO assets, other real estate owned, and repossessed assets. A loan is classified as nonaccrual when, in the opinion of management, there are serious doubts about collectability of interest and principal. Accrual of interest is discontinued on a loan when management believes, after considering economic and business conditions, the borrower’s financial condition is such that collection of principal and interest is doubtful.  Payments received on nonaccrual loans are applied against the principal balance.

The following tables present the classes of the loan portfolio summarized by the aging categories of performing loans (in thousands):

			30-59 Days		60-89 Days		90 Days+		Total		Total
	Current		Past Due		Past Due		Past Due		Past Due		Loans
September 30, 2016
Commercial and industrial	$	58,889	$	59	$	92	$	336	$	487	$	59,376
Real estate - construction		17,633		-		-		-		-		17,633
Real estate - mortgage:
Residential		257,068		1,052		547		285		1,884		258,952
Commercial		244,771		121		-		744		865		245,636
Consumer installment		4,656		76		-		-		76		4,732
Total	$	583,017	$	1,308	$	639	$	1,365	$	3,312	$	586,329

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			30-59 Days		60-89 Days		90 Days+		Total		Total
	Current		Past Due		Past Due		Past Due		Past Due		Loans
December 31, 2015
Commercial and industrial	$	41,544	$	225	$	26	$	741	$	992	$	42,536
Real estate - construction		22,137		-		-		-		-		22,137
Real estate - mortgage:
Residential		229,725		1,482		92		1,179		2,753		232,478
Commercial		230,903		189		-		609		798		231,701
Consumer installment		4,837		16		3		2		21		4,858
Total	$	529,146	$	1,912	$	121	$	2,531	$	4,564	$	533,710

The following tables present the classes of the loan portfolio summarized by nonaccrual loans (in thousands):

	September 30, 2016		90+ Days Past Due
	Nonaccrual		and Accruing
Commercial and industrial	$	920	$	-
Real estate - construction		17		-
Real estate - mortgage:
Residential		3,822		-
Commercial		1,730		-
Consumer installment		-		-
Total	$	6,490	$	-

	December 31, 2015		90+ Days Past Due
	Nonaccrual		and Accruing
Commercial and industrial	$	1,450	$	-
Real estate - construction		130		-
Real estate - mortgage:
Residential		4,122		-
Commercial		1,842		-
Consumer installment		1		2
Total	$	7,545	$	2

An allowance for loan and lease losses (“ALLL”) is maintained to absorb losses from the loan portfolio.  The ALLL is based on management’s continuing evaluation of the risk characteristics and credit quality of the loan portfolio, assessment of current economic conditions, diversification and size of the portfolio, adequacy of collateral, past and anticipated loss experience, and the amount of nonperforming loans.

The Company’s methodology for determining the ALLL is based on the requirements of ASC Section 310-10-35 for loans individually evaluated for impairment (discussed above) and ASC Subtopic 450-20 for loans collectively evaluated for impairment, as well as the Interagency Policy Statements on the Allowance for Loan and Lease Losses and other bank regulatory guidance.   The total of the two components represents the Company’s ALLL. Management also performs impairment analyses on TDRs, which may result in specific reserves.

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Loans that are collectively evaluated for impairment are analyzed with general allowances being made as appropriate.  For general allowances, historical loss trends are used in the estimation of losses in the current portfolio.  These historical loss amounts are modified by other qualitative factors.

The classes described above, which are based on the purpose code assigned to each loan, provide the starting point for the ALLL analysis.  Management tracks the historical net charge-off activity at the purpose code level.  A historical charge-off factor is calculated using the last four consecutive historical quarters.

Management has identified a number of additional qualitative factors which it uses to supplement the historical charge-off factor because these factors are likely to cause estimated credit losses associated with the existing loan pools to differ from historical loss experience.  The additional factors that are evaluated quarterly and updated using information obtained from internal, regulatory, and governmental sources are: national and local economic trends and conditions; levels of and trends in delinquency rates and nonaccrual loans; trends in volumes and terms of loans; effects of changes in lending policies; experience, ability, and depth of lending staff; value of underlying collateral; and concentrations of credit from a loan type, industry and/or geographic standpoint.

Management reviews the loan portfolio on a quarterly basis using a defined, consistently applied process in order to make appropriate and timely adjustments to the ALLL.  When information confirms all or part of specific loans to be uncollectible, these amounts are promptly charged off against the ALLL.

The following tables summarize the primary segments of the loan portfolio (in thousands):

	Commercial and industrial			Real estate- construction			Real estate- residential mortgage			Real estate- commercial mortgage			Consumer installment			Total
ALLL balance at December 31, 2015	$	867		$	276		$	3,139		$	2,078		$	25		$	6,385
Charge-offs		(197	)		-			(394	)		(70	)		(18	)		(679	)
Recoveries		51			-			113			140			9			313
Provision		(208	)		(138	)		(97	)		747			11			315
ALLL balance at September 30, 2016	$	513		$	138		$	2,761		$	2,895		$	27		$	6,334

	Commercial and industrial			Real estate- construction			Real estate- residential mortgage			Real estate- commercial mortgage			Consumer installment			Total
ALLL balance at December 31, 2014	$	642		$	868		$	3,703		$	1,576		$	57		$	6,846
Charge-offs		(196	)		(385	)		(425	)		(92	)		(11	)		(1,109	)
Recoveries		186			-			161			5			21			373
Provision		(54	)		(149	)		(13	)		450			(24	)		210
ALLL balance at September 30, 2015	$	578		$	334		$	3,426		$	1,939		$	43		$	6,320

	Commercial and industrial			Real estate- construction			Real estate- residential mortgage			Real estate- commercial mortgage			Consumer installment			Total
ALLL balance at June 30, 2016	$	484		$	159		$	2,788		$	2,909		$	26		$	6,366
Charge-offs		(74	)		-			(149	)		-			(3	)		(226	)
Recoveries		4			-			82			-			3			89
Provision		99			(21	)		40			(14	)		1			105
ALLL balance at September 30, 2016	$	513		$	138		$	2,761		$	2,895		$	27		$	6,334

	Commercial and industrial			Real estate- construction			Real estate- residential mortgage			Real estate- commercial mortgage			Consumer installment			Total
ALLL balance at June 30, 2015	$	610		$	363		$	3,347		$	1,978		$	48		$	6,346
Charge-offs		(100	)		-			(124	)		(5	)		-			(229	)
Recoveries		5			-			81			5			7			98
Provision		63			(29	)		122			(39	)		(12	)		105
ALLL balance at September 30, 2015	$	578		$	334		$	3,426		$	1,939		$	43		$	6,320

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For the three months ended September 30, 2016 there were no troubled debt restructurings. The following tables summarize troubled debt restructurings (in thousands):

	For the Nine Months Ended September 30, 2016
	Number of Contracts						Pre-Modification			Post-Modification
	Term							Outstanding Recorded			Outstanding Recorded
Troubled Debt Restructurings		Modification	Other		Total			Investment			Investment
Commercial and industrial		2		-		2	$		169	$		169
Residential real estate		1		-		1			58			58
Commercial real estate		1		-		1			311			311
Consumer		-		-		-			-			-

	For the Three Months Ended September 30, 2015
	Number of Contracts						Pre-Modification			Post-Modification
	Term							Outstanding Recorded			Outstanding Recorded
Troubled Debt Restructurings		Modification	Other		Total			Investment			Investment
Commercial and industrial		2		-		2	$		15	$		15
Real estate construction		-		-		-			-			-
Residential real estate		1		-		1			164			164
Consumer		1		-		1			9			9

	For the Nine Months Ended September 30, 2015
	Number of Contracts						Pre-Modification Outstanding			Post-Modification Outstanding
	Term							Outstanding Recorded			Outstanding Recorded
Troubled Debt Restructurings		Modification	Other		Total			Investment			Investment
Commercial and industrial		3		1		4	$		126	$		126
Real estate construction		1		-		1			181			181
Residential real estate		2		1		3			398			418
Consumer		1		-		1			9			9

The following tables summarizes subsequent defaults of troubled debt restructurings (in thousands):

	For the Three Months Ended
	September 30, 2016
Troubled Debt Restructurings subsequently defaulted	Number of Contracts		Recorded Investment
Commercial and industrial		1	$	3
Residential real estate		1		58

	For the Nine Months Ended
	September 30, 2016
Troubled Debt Restructurings subsequently defaulted	Number of Contracts		Recorded Investment
Commercial and industrial		2	$	273
Real estate construction		1		58

	For the Three Months Ended
	September 30, 2015
Troubled Debt Restructurings subsequently defaulted	Number of Contracts		Recorded Investment
Commercial and industrial		1	$	8
Real estate construction		-		-
Consumer		1		8

	For the Nine Months Ended
	September 30, 2015
Troubled Debt Restructurings subsequently defaulted	Number of Contracts		Recorded Investment
Commercial and industrial		3	$	55
Real estate construction		1		152
Consumer		1		8

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NOTE 8 – OTHER REAL ESTATE OWNED (“OREO”)

OREO comprises foreclosed assets acquired in settlement of loans and is carried at fair value less estimated cost to sell and is included in other assets on the Consolidated Balance Sheet. At September 30, 2016 and December 31, 2015, there was $1.2 and 1.4 million of OREO, respectively. As of September 30, 2016, there were no formal foreclosure proceedings.

NOTE 9 – PROPOSED ACQUISITION OF LIBERTY BANK, N.A.

On July 28, 2016 Middlefield Banc Corp. and Liberty Bank, N.A. entered into an Agreement and Plan of Reorganization. Under the agreement Liberty Bank, N.A. will merge into The Middlefield Banking Company. Of the total merger consideration payable to shareholders of Liberty Bank, N.A., the merger agreement provides that 45% will consist of Middlefield Banc Corp. common stock and the remainder will be cash, for cash of approximately $37.96 per share or Middlefield Banc Corp. common stock at a fixed ratio of 1.1934 for each share of Liberty Bank, N.A. stock exchanged for Middlefield Banc Corp. stock. Liberty Bank, N.A.’s outstanding equity-based awards will be surrendered for total cash currently estimated at approximately $1.147 million. The merger agreement also provides that Liberty Bank, N.A. will pay to its shareholders before merger closing a special dividend in an amount of approximately $3.0 million, subject to possible upward adjustment. Middlefield Banc Corp. owns 23,218 shares of Liberty Bank, N.A. stock, or approximately 2.4%. Those shares will be cancelled in the merger for no consideration.

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

The following discussion and analysis provides further detail to the financial condition and results of operations of the Company. The MD&A should be read in conjunction with the notes and financial statements presented in this report.

CHANGES IN FINANCIAL CONDITION

General. The Company’s total assets ended the September 30, 2016 quarter at $762.3 million, an increase of $27.1 million or 3.7% from December 31, 2015. For the same time period, cash and cash equivalents decreased $474 thousand, or 2.0% while net loans increased $52.7 million, or 10.0%. Total liabilities increased $11.2 million, or 1.7% while stockholders’ equity increased $15.89 million, or 25.5%.

On June 30, 2016, the Company sold 360,815 shares of its common stock, without par value, at a purchase price of $33 per share, or an aggregate of $11,906,895.00, to certain institutional accredited investors pursuant to subscription agreements between the Company and such institutional investors in a private placement offering. The Company used the proceeds of the private placement to repay outstanding borrowings of approximately $9.5 million and for general corporate purposes.

Cash and cash equivalents. Cash and due from banks and Federal funds sold represent cash and cash equivalents. Cash and cash equivalents decreased $474 thousand at September 30, 2016 from $23.8 million at December 31, 2015. Deposits from customers into savings and checking accounts, loan and securities repayments and proceeds from borrowed funds typically increase these accounts. Decreases result from customer withdrawals, new loan originations, purchases of investment securities and repayments of borrowed funds.

Investment securities. Investment securities available for sale on September 30, 2016 totaled $123.1 million, a decrease of $23.4 million or 16% from $146.5 million at December 31, 2015. During this period the Company recorded repayments, calls, and maturities of $17.9 million. Sales of securities were $9.1 million with a net realized gain of $303,000. Securities purchases were $1.7 million during this period.

Loans receivable. The loans receivable category consists primarily of single-family mortgage loans used to purchase or refinance personal residences located within the Company’s market area and commercial real estate loans used to finance properties that are used in the borrowers’ businesses or to finance investor-owned rental properties, and to a lesser extent, construction and consumer loans. Net loans receivable increased $52.7 million or 10.0% to $580 million as of September 30, 2016 from $527.3 million at December 31, 2015 due to strategic growth goals. Included in this amount were increases in the residential real estate, commercial and industrial, and commercial real estate portfolios of $26.5 million, or 11.4%, $16.8 million, or 39.6%, and $13.9 million, or 6.0%, respectively. The construction portfolio decreased by $4.5 million, or 20.35%.

The Company’s Mortgage Banking operation generates loans for sale to FHLMC. Loans held for sale on September 30, 2016 totaled $0.9 million, a decrease of $0.2 million, or 20%, from December 31, 2015. This decrease is the result of fewer funded loans being held in the warehouse at quarter end.

Allowance for loan and lease losses and Asset Quality. The Company maintained the allowance for loan and lease losses at $6.3 million, or 1.1% of total loans, at September 30, 2016. For the three months ended September 30, 2016, net loan charge-offs totaled $137,000, or 0.09% of average loans, compared to net charge-offs of $131,000, or 0.10%, for the same period in 2015. To maintain the allowance for loan and lease losses, the Company recorded a provision for loan loss of $105,000 in the three month period ending September 30, 2016. For the nine months ended September 30, 2016, net loan charge-offs totaled $366,000, or 0.09% of average loans, compared to net charge-offs of $736,000, or 0.20%, for the same period in 2015. To maintain the allowance for loan and lease losses, the Company recorded a provision for loan loss of $315,000 in the nine month period ending September 30, 2016.

Management analyzes the adequacy of the allowance for loan and lease losses regularly through reviews of the performance of the loan portfolio considering economic conditions, changes in interest rates and the effect of such changes on real estate values and changes in the amount and composition of the loan portfolio. The allowance for loan and lease losses is a significant estimate that is particularly susceptible to changes in the near term. Such evaluation includes a review of all loans designated as impaired, historical loan loss experience, the estimated fair value of the underlying collateral, economic conditions, current interest rates, trends in the borrower’s industry and other factors that management believes warrant recognition in providing for an appropriate allowance for loan and lease losses. Future additions or reductions to the allowance for loan and lease losses will be dependent on these factors. Additionally, the Company uses an outside party to conduct an independent review of commercial and commercial real estate loans that is designed to test management conclusions of risk ratings and the appropriateness of the allowance allocated to these loans. The Company uses the results of this review to help determine the effectiveness of policies and procedures and to assess the adequacy of the allowance for loan and lease losses allocated to these types of loans. Management believes the allowance for loan and lease losses is appropriately stated at September 30, 2016. Based on the variables involved and management’s judgments about uncertain outcomes, the determination of the allowance for loan and lease losses is considered a critical accounting policy.

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Nonperforming assets. Nonperforming assets includes nonaccrual loans, troubled debt restructurings (TDRs), loans 90 days or more past due, EMORECO assets, other real estate, and repossessed assets. Real estate owned is written down to fair value at its initial recording and continually monitored for changes in fair value. A loan is classified as nonaccrual when, in the opinion of management, there are serious doubts about collectability of interest and principal. Accrual of interest is discontinued on a loan when management believes, after considering economic and business conditions, the borrower’s financial condition is such that collection of principal and interest is doubtful. Payments received on nonaccrual loans are applied against principal until doubt about collectability ceases. TDRs are those loans which the Company, for economic or legal reasons related to a borrower’s financial difficulties, grants a concession to the borrower that the Company would not otherwise consider. The Company has 27 TDRs with a total balance of $2.3 million as of September 30, 2016. A TDR that yields market interest rate at the time of restructuring and is in compliance with its modified terms is no longer reported as TDR in calendar years after the year in which the restructuring took place. To be in compliance with its modified terms, a loan that is a TDR must not be in nonaccrual status and must be current or less than 30 days past due on its contractual principal and interest payments under the modified repayment terms. Nonperforming loans secured by real estate totaled $8.8 million as of September 30, 2016, a decrease of $1.5 million from $10.3 million at December 31, 2015.

	Asset Quality History
(Dollar amounts in thousands)	9/30/2016			6/30/2016			3/31/2016			12/31/2015			9/30/2015
Nonperforming loans	$	12,675		$	9,491		$	10,508		$	10,263		$	8,921
Real estate owned		1,205			1,142			1,447			1,412			2,006
Nonperforming assets	$	13,880		$	10,633		$	11,955		$	11,675		$	10,927
Allowance for loan and lease losses		6,334			6,366			6,357			6,385			6,320
Ratios
Nonperforming loans to total loans		2.16	%		1.64	%		1.98	%		1.92	%		1.75	%
Nonperforming assets to total assets		1.82	%		1.40	%		1.63	%		1.59	%		1.54	%
Allowance for loan and lease losses to total loans		1.08	%		1.10	%		1.20	%		1.20	%		1.24	%
Allowance for loan and lease losses to nonperforming loans		49.97	%		67.07	%		60.50	%		62.21	%		70.84	%

A major factor in determining the appropriateness of the allowance for loan and lease losses is the type of collateral which secures the loans. Of the total nonperforming loans at September 30, 2016, 87.97% were secured by real estate. Although this does not insure against all losses, the real estate typically provides for at least partial recovery, even in a distressed-sale and declining-value environment. The Company’s objective is to minimize the future loss exposure to the Company.

Deposits. The Company considers various sources when evaluating funding needs, including but not limited to deposits, which are a significant source of funds totaling $639.3 million or 93.8% of the Company’s total funding sources at September 30, 2016. Total deposits increased $14.9 million or 2.4% at September 30, 2016 from $624.4 million at December 31, 2015. The increase in deposits is primarily related to increases in noninterest-bearing demand and interest-bearing demand of $19.8 million or 17% and $9.8 million or 17.2%, respectively, at September 30, 2016. These increases were partially offset by decreases in time and savings accounts of $6.3 million, and $7.4 million, respectively.

Borrowed funds. The Company uses short and long-term borrowings as another source of funding used for asset growth and liquidity needs. These borrowings primarily include FHLB advances, junior subordinated debt, short-term borrowings from other banks, federal funds purchased, and repurchase agreements. Short-term borrowings decreased $3.0 million, or 8.4%, to $32.8 million as of September 30, 2016.

Stockholders’ equity. Stockholders’ equity increased $15.9 million, or 25.5%, to $78.2 million at September 30, 2016 from $62.3 million at December 31, 2015. This growth was largely the result of an increase in common stock of $11.6 million, or 32.1%. The increase in stockholders’ equity is primarily the result of the proceeds from the private placement discussed above. This growth was also the result of increases in retained earnings and accumulated other comprehensive income (“AOCI”) of $3.0 million and $1.2 million, respectively. The change to AOCI is due to available-for-sale securities fair value adjustments and the change in retained earnings is due to the year to date net income offset by dividends paid.

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RESULTS OF OPERATIONS

General. Net income for the three months ended September 30, 2016, was $1.3 million, a $639,000, or 32.2% decrease from the amount earned during the same period in 2015. Diluted earnings per share for the quarter decreased to $0.60, compared to $0.96 from the same period in 2015. Net income for the nine months ended September 30, 2016, was $4.8 million, a $359,000, or 7.0% decrease from the amount earned during the same period in 2015. Diluted earnings per share decreased to $2.30, compared to $2.47 from the same period in 2015.

The Company’s annualized return on average assets (ROA) and return on average equity (ROE) for the quarter were .69% and 6.84%, respectively, compared with 1.10% and 12.67% for the same period in 2015. The Company’s ROA and ROE for the nine month period were 0.85% and 9.07%, respectively, compared with 0.97% and 10.83% for the same period in 2015.

Net interest income. Net interest income, the primary source of revenue for the Company, is determined by the Company’s interest rate spread, which is defined as the difference between income on earning assets and the cost of funds supporting those assets, and the relative amounts of interest-earning assets and interest-bearing liabilities. Management periodically adjusts the mix of assets and liabilities, as well as the rates earned or paid on those assets and liabilities in order to manage and improve net interest income. The level of interest rates and changes in the amount and composition of interest-earning assets and liabilities affect the Company’s net interest income. Historically from an interest rate risk perspective, it has been management’s goal to maintain a balance between steady net interest income growth and the risks associated with interest rate fluctuations. Net interest income for the three months ended September 30, 2016 totaled $6.4 million, an increase of 3.3% from that reported in the comparable period of 2015. The net interest margin was 3.68% for the third quarter of 2016, down from the 3.80% reported for the same quarter of 2015. The decrease is attributable to a $39.7 million increase in average assets earning interest at a lower rate than the same period in 2015. Net interest income for the nine months ended September 30, 2016 totaled $19.1 million, an increase of 3.5% from that reported in the comparable period of 2015. The net interest margin was 3.78%, down from the 3.88% reported for the same period of 2015. The decrease is attributable to a $37.9 million increase in average assets earning interest at a lower rate than the same period in 2015.

Interest income. Interest income increased $269,000, or 3.8%, for the three months ended September 30, 2016, compared to the same period in the prior year. This is attributable to an increase in interest and fees on loans of $488,000, partially offset by a decrease in interest earned on investment securities of $228,000. Interest income increased $921,000, or 4.3%, for the nine months ended September 30, 2016, compared to the same period in the prior year. This is attributable to an increase in interest and fees on loans of $1.3 million, partially offset by a decrease in interest earned on investment securities of $396,000. Interest earned on loans receivable increased $488,000, or 8.2%, for the three months ended September 30, 2016, compared to the same period in the prior year. This is attributable to an increase in average loan balances of $77.0 million, partially offset by a 28 basis point decrease in the average yield, to 4.42%. Interest earned on loans receivable increased $1.3 million or 7.3%, for the nine months ended September 30, 2016, compared to the same period in the prior year. This is attributable to an increase in average loan balances of $70.3 million, partially offset by a 30 basis point decrease in the average yield, to 4.55%.

Interest earned on securities decreased by $228,000 for the three months ended September 30, 2016 when compared to the same period in the prior year. The average balance decreased $28.3 million, or 18.47% while the 4.06% yield on the investment portfolio increased by 1 basis point, from 4.05%, for the same period in the prior year. Interest earned on securities decreased by $396,000 for the nine months ended September 30, 2016 when compared to the same period in the prior year. The average balance decreased $17.7 million, or 11.53% while the 4.17% yield on the investment portfolio increased by 7 basis points, from 4.10%, for the same period in the prior year.

Interest expense. Interest expense increased $67,000, or 7%, for the three months ended September 30, 2016, compared to the same period in the prior year. The increase is largely attributable to an increase of $29.0 million, or 178%, in the average balance of borrowings, partially offset by a decrease in cost of 110 basis points. Interest expense increased $285,000, or 10.1%, for the nine months ended September 30, 2016, compared to the same period in the prior year. The increase is largely attributable to an increase of $26.8 million, or 148.4%, in the average balance of borrowings, partially offset by a decrease in cost of 51 basis points.

Provision for loan losses. The provision for loan losses represents the charge to income necessary to adjust the allowance for loan and lease losses to an amount that represents management’s assessment of the estimated probable incurred credit losses inherent in the loan portfolio. Each quarter management performs a review of estimated probable incurred credit losses in the loan portfolio. Based on this review, a provision for loan losses of $105,000 was recorded for the quarter ended September 30, 2016 as well as the quarter ending September 30, 2015. A provision for loan losses of $315,000 was recorded for the nine month period ended September 30, 2016, compared to $210,000 in the same period in 2015. Nonperforming loans were $8.8 million, or 1.5% of total loans at September 30, 2016 compared with $8.9 million, or 1.75% at September 30, 2015. For the three months ended September 30, 2016, net loan charge-offs totaled $137,000, or 0.09% of average loans, compared to net charge-offs of $131,000, or 0.10%, for the third quarter of 2015. For the nine months ended September 30, 2016, net loan charge-offs totaled $366,000, or 0.09% of average loans, compared to net charge-offs of $736,000, or 0.20%, for the same period in 2015.

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Noninterest income. Noninterest income decreased $131,000 for the three months ended September 30, 2016 over the comparable 2015 period. This decrease was largely the result of a decrease in net investment security gains of $211,000. Noninterest income increased $193,000 for the nine months ended September 30, 2016 over the comparable 2015 period. This increase was largely the result of an increase in net investment security gains of $46,000 and an increase of $61,000 in service charges on deposit accounts.

Noninterest expense. Noninterest expense of $5.6 million for the third quarter 2016 was 21.3%, or $993,000 more than the third quarter of 2015. Salaries and benefits, professional fees, and other expenses increased $392,000, or 17.2%, $318,000, or 138.9%, and $187,000, or 38.2%, respectively. These were partially offset by a gain on other real estate sales of $73,000. The salary increase is mostly due to an additional pay cycle in the third quarter of 2016. Other real estate expense decreased due to a return to normal from the heightened activity during the same period in 2015. Noninterest expense of $15.9 million for the nine month period ended September 30, 2016 was 8.3% or $1.22 million more than the same period in 2015. Salaries and employee benefits and professional fees increased $535,000 and $232,000, 7.4% or 28.1%, respectively. These were partially offset by a decrease in other real estate expense of $221,000, or 49.2%. The salary increase is mostly due to annual pay adjustments. Other real estate expense decreased due to a return to normal from the heightened activity during the same period in 2015. Professional fees are higher due to additional services provided related to the acquisition. Acquisition costs through third quarter 2016 were $314,000 mainly for legal, consulting and tax services.

Provision for income taxes. The Company recognized $261,000 in income tax expense, which reflected an effective tax rate of 16.3% for the three months ended September 30, 2016, as compared to $544,000 with an effective tax rate of 21.5% for the comparable 2015 period. The Company recognized $1.1million in income tax expense, which reflected an effective tax rate of 19.2% for the nine months ended September 30, 2016, as compared to $1.3 million with an effective tax rate of 19.8% for the comparable 2015 period. The provision is directly correlated to the increase in net income before taxes.

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CRITICAL ACCOUNTING ESTIMATES

The Company’s critical accounting estimates involving the more significant judgments and assumptions used in the preparation of the consolidated financial statements as of September 30, 2016, have remained unchanged from December 31, 2015.

Average Balance Sheet and Yield/Rate Analysis. The following table sets forth, for the periods indicated, information concerning the total dollar amounts of interest income from interest-earning assets and the resultant average yields, the total dollar amounts of interest expense on interest-bearing liabilities and the resultant average costs, net interest income, interest rate spread and the net interest margin earned on average interest-earning assets. For purposes of this table, average balances are calculated using monthly averages and the average loan balances include nonaccrual loans and exclude the allowance for loan and lease losses, and interest income includes accretion of net deferred loan fees. Interest and yields on tax-exempt securities (tax exempt for federal income tax purposes) are shown on a fully tax-equivalent basis utilizing a federal tax rate of 34%. Yields and rates have been calculated on an annualized basis utilizing monthly interest amounts.

	For the Three Months Ended September 30,
	2016							2015
	Average				Average			Average				Average
(Dollar amounts in thousands)	Balance		Interest		Yield/Cost			Balance		Interest		Yield/Cost
Interest-earning assets:
Loans receivable	$	580,798	$	6,459		4.42	%	$	503,790	$	5,971		4.70	%
Investment securities (3)		124,998		922		4.06	%		153,316		1,150		4.05	%
Interest-bearing deposits with other banks		23,824		39		0.65	%		32,782		30		0.36	%
Total interest-earning assets		729,620		7,420		4.24	%		689,888		7,151		4.35	%
Noninterest-earning assets		39,683							26,302
Total assets	$	769,303						$	716,190
Interest-bearing liabilities:
Interest-bearing demand deposits	$	69,666	$	54		0.31	%	$	66,041	$	53		0.32	%
Money market deposits		82,718		84		0.40	%		75,137		78		0.41	%
Savings deposits		173,311		106		0.24	%		179,416		134		0.30	%
Certificates of deposit		183,340		677		1.47	%		196,026		611		1.24	%
Borrowings		45,281		105		0.92	%		16,272		83		2.02	%
Total interest-bearing liabilities		554,316		1,026		0.74	%		532,892		959		0.71	%
Noninterest-bearing liabilities
Other liabilities		136,913							121,227
Stockholders' equity		78,074							62,071
Total liabilities and stockholders' equity	$	769,303						$	716,190
Net interest income			$	6,394						$	6,192
Interest rate spread (1)						3.50	%						3.64	%
Net interest margin (2)						3.68	%						3.80	%
Ratio of average interest-earning assets to average interest-bearing liabilities						131.63	%						129.46	%

(1) Interest rate spread represents the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities.

(2) Net interest margin represents net interest income as a percentage of average interest-earning assets.

(3) Tax-equivalent adjustments to interest income for tax-exempt securities were $354 and $417 for the three months ended September 30 2016 and 2015, respectively.

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Analysis of Changes in Net Interest Income. The following table analyzes the changes in interest income and interest expense, between the three month periods ended September 30, 2016 and 2015, in terms of: (1) changes in volume of interest-earning assets and interest-bearing liabilities and (2) changes in yields and rates. The table reflects the extent to which changes in the Company’s interest income and interest expense are attributable to changes in rate (change in rate multiplied by prior period volume), changes in volume (changes in volume multiplied by prior period rate) and changes attributable to the combined impact of volume/rate (change in rate multiplied by change in volume). The changes attributable to the combined impact of volume/rate are allocated on a consistent basis between the volume and rate variances. Changes in interest income on securities reflects the changes in interest income on a fully tax-equivalent basis.

	2016 versus 2015
	Increase (decrease) due to
(Dollar amounts in thousands)	Volume			Rate			Total
Interest-earning assets:
Loans receivable	$	910		$	(422	)	$	488
Investment securities		(288	)		60			(228	)
Interest-bearing deposits with other banks		(8	)		17			9
Total interest-earning assets		614			(345	)		269
Interest-bearing liabilities:
Interest-bearing demand deposits		3			(2	)		1
Money market deposits		8			(2	)		6
Savings deposits		(5	)		(23	)		(28	)
Certificates of deposit		(40	)		106			66
Borrowings		147			(125	)		22
Total interest-bearing liabilities		113			(46	)		67
Net interest income	$	501		$	(299	)	$	202

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Average Balance Sheet and Yield/Rate Analysis. The following table sets forth, for the periods indicated, information concerning the total dollar amounts of interest income from interest-earning assets and the resultant average yields, the total dollar amounts of interest expense on interest-bearing liabilities and the resultant average costs, net interest income, interest rate spread and the net interest margin earned on average interest-earning assets. For purposes of this table, average balances are calculated using monthly averages and the average loan balances include nonaccrual loans and exclude the allowance for loan and lease losses, and interest income includes accretion of net deferred loan fees. Interest and yields on tax-exempt securities (tax exempt for federal income tax purposes) are shown on a fully tax-equivalent basis utilizing a federal tax rate of 34%. Yields and rates have been calculated on an annualized basis utilizing monthly interest amounts.

	For the Nine Months Ended September 30,
	2016							2015
	Average				Average			Average				Average
(Dollars in thousands)	Balance		Interest		Yield/Cost			Balance		Interest		Yield/Cost
Interest-earning assets:
Loans receivable	$	556,764	$	18,949		4.55	%	$	486,438	$	17,656		4.85	%
Investment securities (3)		135,836		3,092		4.17	%		153,531		3,488		4.10	%
Interest-bearing deposits with other banks		22,254		132		0.79	%		36,942		108		0.39	%
Total interest-earning assets		714,854		22,173		4.36	%		676,911		21,252		4.44	%
Noninterest-earning assets		36,850							24,768
Total assets	$	751,704						$	701,679
Interest-bearing liabilities:
Interest-bearing demand deposits	$	66,045	$	147		0.30	%	$	62,260	$	145		0.31	%
Money market deposits		81,091		250		0.41	%		75,393		231		0.41	%
Savings deposits		175,725		323		0.25	%		179,119		409		0.00	%
Certificates of deposit		186,268		1,945		1.39	%		190,883		1,796		1.26	%
Borrowings		44,940		452		1.34	%		18,093		251		1.85	%
Total interest-bearing liabilities		554,069		3,117		0.75	%		525,748		2,832		0.72	%
Noninterest-bearing liabilities
Other liabilities		127,554							112,787
Stockholders' equity		70,081							63,144
Total liabilities and stockholders' equity	$	751,704						$	701,679
Net interest income			$	19,056						$	18,420
Interest rate spread (1)						3.61	%						3.72	%
Net interest margin (2)						3.78	%						3.88	%
Ratio of average interest-earning assets to average interest-bearing liabilities						129.02	%						128.75	%

(1) Interest rate spread represents the difference between the average yield on interest-earning assets and the average cost of interest-bearing liabilities.

(2) Net interest margin represents net interest income as a percentage of average interest-earning assets.

(3) Tax-equivalent adjustments to interest income for tax-exempt securities were $1,147 and $1,222 for the nine months ended September 30, 2016 and 2015, respectively.

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Analysis of Changes in Net Interest Income. The following table analyzes the changes in interest income and interest expense, between the nine month periods ended September 30, 2016 and 2015, in terms of: (1) changes in volume of interest-earning assets and interest-bearing liabilities and (2) changes in yields and rates. The table reflects the extent to which changes in the Company’s interest income and interest expense are attributable to changes in rate (change in rate multiplied by prior period volume), changes in volume (changes in volume multiplied by prior period rate) and changes attributable to the combined impact of volume/rate (change in rate multiplied by change in volume). The changes attributable to the combined impact of volume/rate are allocated on a consistent basis between the volume and rate variances. Changes in interest income on securities reflects the changes in interest income on a fully tax-equivalent basis.

	2016 versus 2015
	Increase (decrease) due to
(Dollars in thousands)	Volume			Rate			Total
Interest-earning assets:
Loans receivable	$	2,553		$	(1,260	)	$	1,293
Investment securities		(543	)		147			(396	)
Interest-bearing deposits with other banks		(43	)		67			24
Total interest-earning assets		1,967			(1,046	)		921
Interest-bearing liabilities:
Interest-bearing demand deposits		9			(7	)		2
Money market deposits		17			2			19
Savings deposits		-			(86	)		(86	)
Certificates of deposit		(44	)		193			149
Borrowings		372			(171	)		201
Total interest-bearing liabilities		354			(69	)		285
Net interest income	$	1,613		$	(977	)	$	636

LIQUIDITY

Management's objective in managing liquidity is maintaining the ability to continue meeting the cash flow needs of banking customers, such as borrowings or deposit withdrawals, as well as the Company’s own financial commitments. The principal sources of liquidity are net income, loan payments, maturing and principal reductions on securities and sales of securities available for sale, federal funds sold and cash and deposits with banks. Along with its liquid assets, the Company has additional sources of liquidity available to ensure that adequate funds are available as needed. These include, but are not limited to, the purchase of federal funds, and the ability to borrow funds under line of credit agreements with correspondent banks and a borrowing agreement with the Federal Home Loan Bank of Cincinnati, Ohio and the adjustment of interest rates to obtain depositors. Management believes the Company has the capital adequacy, profitability and reputation to meet the current and projected needs of its customers.

For the nine months ended September 30, 2016, the adjustments to reconcile net income to net cash from operating activities consisted mainly of depreciation and amortization of premises and equipment, the provision for loan losses, net amortization of securities and net changes in other assets and liabilities. For a more detailed illustration of sources and uses of cash, refer to the Condensed Consolidated Statements of Cash Flows.

INFLATION

Substantially all of the Company's assets and liabilities relate to banking activities and are monetary in nature. The consolidated financial statements and related financial data are presented in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”). GAAP currently requires the Company to measure the financial position and results of operations in terms of historical dollars, with the exception of securities available for sale, impaired loans and other real estate loans that are measured at fair value. Changes in the value of money due to rising inflation can cause purchasing power loss.

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Management's opinion is that movements in interest rates affect the financial condition and results of operations to a greater degree than changes in the rate of inflation. It should be noted that interest rates and inflation do affect each other, but do not always move in correlation with each other. The Company's ability to match the interest sensitivity of its financial assets to the interest sensitivity of its liabilities in its asset/liability management may tend to minimize the effect of changes in interest rates on the Company's performance.

REGULATORY MATTERS

The Company is subject to the regulatory requirements of the Federal Reserve System as a bank holding company. The bank subsidiary is subject to regulations of the Federal Deposit Insurance Corporation (“FDIC”) and the State of Ohio, Division of Financial Institutions.

The Federal Reserve Board and the FDIC have extensive authority to prevent and to remedy unsafe and unsound practices and violations of applicable laws and regulations by institutions and holding companies. The agencies may assess civil money penalties, issue cease-and-desist or removal orders, seek injunctions, and publicly disclose those actions. In addition, the Ohio Division of Financial Institutions possesses enforcement powers to address violations of Ohio banking law by Ohio-chartered banks.

REGULATORY CAPITAL REQUIREMENTS

Financial institution regulators have established guidelines for minimum capital ratios for banks, thrifts and bank holding companies. The net unrealized gain or loss on available-for-sale securities is generally not included in computing regulatory capital. In order to avoid limitations on capital distributions, including dividend payments, the Bank must hold a capital conservation buffer above the adequately capitalized risk-based capital ratios. The capital conservation buffer is being phased in from 0.0% for 2016 to 2.50% by 2019. The amounts shown below as the adequately capitalized ratio plus capital conservation buffer includes the fully phased-in 2.50% buffer.

The Bank met each of the well-capitalized ratio guidelines at September 30, 2016. The following table indicates the capital ratios for the Bank and Company at September 30, 2016 and December 31, 2015.

	As of September 30, 2016
				Tier 1 Risk			Common			Total Risk
	Leverage				Based			Equity Tier 1			Based
The Middlefield Banking Company		9.02	%		11.92	%		11.92	%		13.03	%
Middlefield Banc Corp.		10.10	%		13.58	%		13.58	%		14.69	%
Adequately capitalized ratio		4.00	%		6.00	%		4.50	%		8.00	%
Adequately capitalized ratio plus capital conservation buffer		4.00	%		8.50	%		7.00	%		10.50	%
Well-capitalized ratio (Bank only)		5.00	%		8.00	%		6.50	%		10.00	%

	As of December 31, 2015
				Tier 1 Risk			Common			Total Risk
	Leverage				Based			Equity Tier 1			Based
The Middlefield Banking Company		9.23	%		12.52	%		12.52	%		13.73	%
Middlefield Banc Corp.		8.69	%		12.00	%		12.00	%		13.20	%
Adequately capitalized ratio		4.00	%		6.00	%		4.50	%		8.00	%
Adequately capitalized ratio plus capital conservation buffer		4.00	%		8.50	%		7.00	%		10.50	%
Well-capitalized ratio (Bank only)		5.00	%		8.00	%		6.50	%		10.00	%

40

Item 3. Quantitative and Qualitative Disclosures about Market Risk

ASSET AND LIABILITY MANAGEMENT

The primary objective of the Company’s asset and liability management function is to maximize the Company’s net interest income while simultaneously maintaining an acceptable level of interest rate risk given the Company’s operating environment, capital and liquidity requirements, performance objectives and overall business focus. The principal determinant of the exposure of the Company’s earnings to interest rate risk is the timing difference between the re-pricing or maturity of interest-earning assets and the re-pricing or maturity of its interest-bearing liabilities. The Company’s asset and liability management policies are designed to decrease interest rate sensitivity primarily by shortening the maturities of interest-earning assets while at the same time extending the maturities of interest-bearing liabilities. The Board of Directors of the Company continues to believe in a strong asset/liability management process in order to insulate the Company from material and prolonged increases in interest rates. Mortgage-backed securities generally increase the quality of the Company’s assets by virtue of the insurance or guarantees that back them, are more liquid than individual mortgage loans and may be used to collateralize borrowings or other obligations of the Company.

The Company’s Board of Directors has established an Asset and Liability Management Committee consisting of outside directors and senior management. This committee, which meets quarterly, generally monitors various asset and liability management policies and strategies.

Interest Rate Sensitivity Simulation Analysis

The Company engages an external consultant to facilitate income simulation modeling on a quarterly basis. This modeling measures interest rate risk and sensitivity. The Asset and Liability Management Committee of the Company believes the various rate scenarios of the simulation modeling enables the Company to more accurately evaluate and manage the exposure of interest rate fluctuations on net interest income, the yield curve, various loan and mortgage-backed security prepayments, and deposit decay assumptions.

Earnings simulation modeling and assumptions about the timing and volatility of cash flows are critical in net portfolio equity valuation analysis. Particularly important are the assumptions driving mortgage prepayments and expected attrition of the core deposit portfolios. These assumptions are based on the Company’s historical experience and industry standards and are applied consistently across all rate risk measures.

The Company has established the following guidelines for assessing interest rate risk:

Net interest income simulation- Projected net interest income over the next twelve months will not be reduced by more than 10% given a gradual shift (i.e., over 12-months) in interest rates of up to 200 basis points (+ or -) and assuming no balance sheet growth.

Portfolio equity simulation- Portfolio equity is the net present value of the Company’s existing assets and liabilities. Given a 200 basis point immediate and permanent increase in market interest rates, portfolio equity may not correspondingly decrease or increase by more than 20% of stockholders’ equity. Given a 100 basis point immediate and permanent decrease in market interest rates, portfolio equity may not correspondingly decrease or increase by more than 10% of stockholders’ equity.

The following table presents the simulated impact of a 200 basis point upward or 100 basis point downward shift of market interest rates on net interest income, and the change in portfolio equity. This analysis was done assuming the interest-earning asset and interest-bearing liability levels at September 30, 2016 remained constant. The impact of the market rate movements was developed by simulating the effects of rates changing gradually over a one-year period from the September 30, 2016 levels for net interest income and portfolio equity. The impact of market rate movements was developed by simulating the effects of an immediate and permanent change in rates at September 30, 2016 for portfolio equity:  

	Increase			Decrease
	200 Basis Points			100 Basis Points
Net interest income - increase (decrease)		1.52	%		1.29	%
Portfolio equity - increase (decrease)		14.40	%		(27.20	)%

41

Item 4. Controls and Procedures

Controls and Procedures Disclosure

The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Corporation’s reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

As of the end of the period covered by this quarterly report, an evaluation was carried out under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934). Based on their evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures are, to the best of their knowledge, effective to ensure that information required to be disclosed by the Corporation in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. Subsequent to the date of their evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that there were no significant changes in internal control or in other factors that could significantly affect the Company’s internal controls, including any corrective actions with regard to significant deficiencies and material weaknesses.

A material weakness is a significant deficiency (as defined in Public Company Accounting Oversight Board Auditing Standard No. 2), or a combination of significant deficiencies, that results in there being more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis by management or employees in the normal course of performing their assigned functions.

Changes in Internal Control over Financial Reporting

There have not been any changes in the Company’s internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) that occurred during the Company’s most recent fiscal quarter 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

None

Item 1a. There are no material changes to the risk factors set forth in Part I, Item 1A, “Risk Factors,” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2015. Please refer to that section for disclosures regarding the risks and uncertainties related to the Company’s business.

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

None

Item 3. Defaults by the Company on its Senior Securities

None

Item 4. Mine Safety Disclosures

N/A

Item 5. Other information

None

Item 6.    Exhibits and Reports on Form 8-K

42

Exhibit list for Middlefield Banc Corp.’s Form 10-Q Quarterly Report for the Period Ended September 30, 2016

3.1	Second Amended and Restated Articles of Incorporation of Middlefield Banc Corp., as amended	Incorporated by reference to Exhibit 3.1 of Middlefield Banc Corp.’s Annual Report on Form 10-K for the Fiscal Year Ended December 31, 2005, filed on March 29, 2006
3.2	Regulations of Middlefield Banc Corp.	Incorporated by reference to Exhibit 3.2 of Middlefield Banc Corp.’s registration statement on Form 10 filed on April 17, 2001
4.0	Specimen stock certificate	Incorporated by reference to Exhibit 4 of Middlefield Banc Corp.’s registration statement on Form 10 filed on April 17, 2001
4.1	Amended and Restated Trust Agreement, dated as of December 21, 2006, between Middlefield Banc Corp., as Depositor, Wilmington Trust Company, as Property trustee, Wilmington Trust Company, as Delaware Trustee, and Administrative Trustees	Incorporated by reference to Exhibit 4.1 of Middlefield Banc Corp.’s Form 8-K Current Report filed on December 27, 2006
4.2	Junior Subordinated Indenture, dated as of December 21, 2006, between Middlefield Banc Corp. and Wilmington Trust Company	Incorporated by reference to Exhibit 4.2 of Middlefield Banc Corp.’s Form 8-K Current Report filed on December 27, 2006
4.3	Guarantee Agreement, dated as of December 21, 2006, between Middlefield Banc Corp. and Wilmington Trust Company	Incorporated by reference to Exhibit 4.3 of Middlefield Banc Corp.’s Form 8-K Current Report filed on December 27, 2006
10.1.0*	1999 Stock Option Plan of Middlefield Banc Corp.	Incorporated by reference to Exhibit 10.1 of Middlefield Banc Corp.’s registration statement on Form 10 filed on April 17, 2001
10.1.1*	2007 Omnibus Equity Plan	Incorporated by reference to Middlefield Banc Corp.’s definitive proxy statement for the 2008 Annual Meeting of Shareholders, Appendix A, filed on April 7, 2008
10.2*	Severance Agreement between Middlefield Banc Corp. and Thomas G. Caldwell, dated January 7, 2008	Incorporated by reference to Exhibit 10.2 of Middlefield Banc Corp.’s Form 8-K Current Report filed on January 9, 2008
10.3*	Severance Agreement between Middlefield Banc Corp. and James R. Heslop, II, dated January 7, 2008	Incorporated by reference to Exhibit 10.3 of Middlefield Banc Corp.’s Form 8-K Current Report filed on January 9, 2008
10.4.1*	Severance Agreement between Middlefield Banc Corp. and Teresa M. Hetrick, dated January 7, 2008	Incorporated by reference to Exhibit 10.4.1 of Middlefield Banc Corp.’s Form 8-K Current Report filed on January 9, 2008
10.4.2	[reserved]
10.4.3*	Severance Agreement between Middlefield Banc Corp. and Donald L. Stacy, dated January 7, 2008	Incorporated by reference to Exhibit 10.4.3 of Middlefield Banc Corp.’s Form 8-K Current Report filed on January 9, 2008
10.4.4*	Severance Agreement between Middlefield Banc Corp. and Alfred F. Thompson Jr., dated January 7, 2008	Incorporated by reference to Exhibit 10.4.4 of Middlefield Banc Corp.’s Form 8-K Current Report filed on January 9, 2008
10.5	Federal Home Loan Bank of Cincinnati Agreement for Advances and Security Agreement dated September 14, 2000	Incorporated by reference to Exhibit 10.4 of Middlefield Banc Corp.’s registration statement on Form 10 filed on April 17, 2001
10.6*	Amended Director Retirement Agreement with Richard T. Coyne	Incorporated by reference to Exhibit 10.6 of Middlefield Banc Corp.’s Form 8-K Current Report filed on January 9, 2008

43

10.7*	Amended Director Retirement Agreement with Frances H. Frank	Incorporated by reference to Exhibit 10.7 of Middlefield Banc Corp.’s Form 8-K Current Report filed on January 9, 2008
10.8*	Amended Director Retirement Agreement with Thomas C. Halstead	Incorporated by reference to Exhibit 10.8 of Middlefield Banc Corp.’s Form 8-K Current Report filed on January 9, 2008
10.9*	[reserved]
10.10*	Director Retirement Agreement with Donald D. Hunter	Incorporated by reference to Exhibit 10.10 of Middlefield Banc Corp.’s Annual Report on Form 10-K for the Year Ended December 31, 2001, filed on March 28, 2002
10.11*	Director Retirement Agreement with Martin S. Paul	Incorporated by reference to Exhibit 10.11 of Middlefield Banc Corp.’s Annual Report on Form 10-K for the Year Ended December 31, 2001, filed on March 28, 2002
10.12*	Amended Director Retirement Agreement with Donald E. Villers	Incorporated by reference to Exhibit 10.12 of Middlefield Banc Corp.’s Form 8-K Current Report filed on January 9, 2008
10.13*	Executive Survivor Income Agreement (aka DBO agreement [death benefit only]) with Donald L. Stacy	Incorporated by reference to Exhibit 10.14 of Middlefield Banc Corp.’s Annual Report on Form 10-K for the Year Ended December 31, 2003, filed on March 30, 2004
10.14*	DBO Agreement with Jay P. Giles	Incorporated by reference to Exhibit 10.15 of Middlefield Banc Corp.’s Annual Report on Form 10-K for the Year Ended December 31, 2003, filed on March 30, 2004
10.15*	DBO Agreement with Alfred F. Thompson Jr.	Incorporated by reference to Exhibit 10.16 of Middlefield Banc Corp.’s Annual Report on Form 10-K for the Year Ended December 31, 2003, filed on March 30, 2004
10.16	[reserved]
10.17*	DBO Agreement with Teresa M. Hetrick	Incorporated by reference to Exhibit 10.18 of Middlefield Banc Corp.’s Annual Report on Form 10-K for the Year Ended December 31, 2003, filed on March 30, 2004
10.18 *	Executive Deferred Compensation Agreement with Jay P. Giles	Incorporated by reference to Exhibit 10.18 of Middlefield Banc Corp.’s Annual Report on Form 10-K for the Year Ended December 31, 2011, filed on March 20, 2012
10.19*	DBO Agreement with James R. Heslop, II	Incorporated by reference to Exhibit 10.20 of Middlefield Banc Corp.’s Annual Report on Form 10-K for the Year Ended December 31, 2003, filed on March 30, 2004
10.20*	DBO Agreement with Thomas G. Caldwell	Incorporated by reference to Exhibit 10.21 of Middlefield Banc Corp.’s Annual Report on Form 10-K for the Year Ended December 31, 2003, filed on March 30, 2004
10.21*	Form of Indemnification Agreement with directors of Middlefield Banc Corp. and with executive officers of Middlefield Banc Corp. and The Middlefield Banking Company	Incorporated by reference to Exhibit 99.1 of Middlefield Banc Corp.’s registration statement on Form 10, Amendment No. 1, filed on June 14, 2001

44

10.22*	Annual Incentive Plan	Incorporated by reference to Exhibit 10.22 of Middlefield Banc Corp.’s Form 8-K Current Report filed on June 12, 2012
10.22.1*	Annual Incentive Plan 2016 Award Summary	Incorporated by reference to Exhibit 10.22.1 of Middlefield Banc Corp.’s Form 8-K Current Report filed on March 9, 2016
10.23*	Amended Executive Deferred Compensation Agreement with Thomas G. Caldwell	Incorporated by reference to Exhibit 10.23 of Middlefield Banc Corp.’s Form 8-K Current Report filed on May 9, 2008
10.24*	Amended Executive Deferred Compensation Agreement with James R. Heslop, II	Incorporated by reference to Exhibit 10.24 of Middlefield Banc Corp.’s Form 8-K Current Report filed on May 9, 2008
10.25*	Amended Executive Deferred Compensation Agreement with Donald L. Stacy	Incorporated by reference to Exhibit 10.25 of Middlefield Banc Corp.’s Form 8-K Current Report filed on May 9, 2008
10.26	[reserved]
10.27	[reserved]
10.28	[reserved]
10.29*	Form of conditional stock award	Incorporated by reference to Exhibit 10.29 of Middlefield Banc Corp.’s Form 8-K Current Report filed on March 4, 2016
31.1	Rule 13a-14(a) certification of Chief Executive Officer	filed herewith
31.2	Rule 13a-14(a) certification of Chief Financial Officer	filed herewith
32	Rule 13a-14(b) certification	filed herewith
101.INS**	XBRL Instance	furnished herewith
101.SCH**	XBRL Taxonomy Extension Schema	furnished herewith
101.CAL**	XBRL Taxonomy Extension Calculation	furnished herewith
101.DEF**	XBRL Taxonomy Extension Definition	furnished herewith
101.LAB**	XBRL Taxonomy Extension Labels	furnished herewith
101.PRE**	XBRL Taxonomy Extension Presentation	furnished herewith

* management contract or compensatory plan or arrangement

** XBRL information is furnished and not filed or a part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

45

SIGNATURES

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

	MIDDLEFIELD BANC CORP.
Date: November 14, 2016	By:	/s/ Thomas G. Caldwell
	Thomas G. Caldwell
	President and Chief Executive Officer

Date: November 14, 2016	By:	/s/ Donald L. Stacy
	Donald L. Stacy
	Principal Financial and Accounting Officer

46

EX-31.1

Exhibit 31.1

Certification of Principal Executive Officer

Pursuant to Section 302 of the Securities Exchange Act of 1934

I, Thomas G. Caldwell, certify that:

1.  I have reviewed this quarterly report on Form 10-Q of Middlefield Banc Corp.;

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

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

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

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

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

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

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

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

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

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

Date: November 14, 2016	/s/ Thomas G. Caldwell
	Thomas G. Caldwell
	President and Chief Executive Officer

EX-31.2

Exhibit 31.2

Certification of Principal Executive Officer

Pursuant to Section 302 of the Securities Exchange Act of 1934

I, Donald L. Stacy, certify that:

1.  I have reviewed this quarterly report on Form 10-Q of Middlefield Banc Corp.;

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

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

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

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

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

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

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

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

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

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

Date: November 14, 2016	/s/ Donald L. Stacy
	Donald L. Stacy
	Principal Financial and Accounting Officer

EX-32

Exhibit 32

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 Middlefield Banc Corp. (the “Company”) on Form 10-Q for the period ending September 30, 2016 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), we, Thomas G. Caldwell, President, and Donald L. Stacy, Chief Financial Officer, 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.

By: /s/Thomas G. Caldwell	By: /s/Donald L. Stacy
Thomas G. Caldwell	Donald L. Stacy
President and Chief Executive Officer	Principal Financial and Accounting Officer

November 14, 2016

A signed original of this written statement required by Section 906 has been provided to Middlefield Banc Corp. and will be retained by Middlefield Banc Corp. and furnished to the Securities and Exchange Commission or its staff upon request.

XML

Document And Entity Information - shares	9 Months Ended
	Sep. 30, 2016	Nov. 10, 2016
Document Information [Line Items]
Entity Registrant Name	Middlefield Banc Corp.
Entity Central Index Key	0000836147
Trading Symbol	mbcn
Current Fiscal Year End Date	--12-31
Entity Filer Category	Smaller Reporting Company
Entity Current Reporting Status	Yes
Entity Voluntary Filers	No
Entity Well-known Seasoned Issuer	No
Entity Common Stock, Shares Outstanding (in shares)		2,250,707
Document Type	10-Q
Document Period End Date	Sep. 30, 2016
Document Fiscal Year Focus	2016
Document Fiscal Period Focus	Q3
Amendment Flag	false

XML

Consolidated Balance Sheet (Current Period Unaudited) - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
ASSETS
Cash and due from banks	$ 21,976	$ 22,421
Federal funds sold	1,300	1,329
Cash and cash equivalents	23,276	23,750
Investment securities available for sale, at fair value	123,054	146,520
Loans held for sale	880	1,107
Loans	586,329	533,710
Less allowance for loan and lease losses	6,334	6,385
Net loans	579,995	527,325
Premises and equipment, net	9,921	9,772
Goodwill	4,559	4,559
Core deposit intangibles	46	76
Bank-owned life insurance	13,438	13,141
Other real estate owned	1,205	1,412
Accrued interest and other assets	5,884	7,477
TOTAL ASSETS	762,258	735,139
LIABILITIES
Noninterest-bearing demand	136,320	116,498
Interest-bearing demand	67,061	57,219
Money market	77,774	78,856
Savings	173,272	180,653
Time	184,915	191,221
Total deposits	639,342	624,447
Short-term borrowings	32,803	35,825
Other borrowings	9,713	9,939
Accrued interest and other liabilities	2,208	2,624
TOTAL LIABILITIES	684,066	672,835
STOCKHOLDERS' EQUITY
Common stock, no par value; 10,000,000 shares authorized, 2,636,830 and 2,263,403 shares issued; 2,250,665 and 1,877,238 shares outstanding	47,812	36,191
Retained earnings	40,282	37,236
Accumulated other comprehensive income	3,616	2,395
Treasury stock, at cost; 386,165 shares	(13,518)	(13,518)
TOTAL STOCKHOLDERS' EQUITY	78,192	62,304
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$ 762,258	$ 735,139

XML

Consolidated Balance Sheet (Current Period Unaudited) (Parentheticals) - $ / shares	Sep. 30, 2016	Dec. 31, 2015
Common stock, par value (in dollars per share)	$ 0	$ 0
Common stock, shares authorized (in shares)	10,000,000	10,000,000
Common stock, shares issued (in shares)	2,636,830	2,263,403
Common stock, shares outstanding (in shares)	2,250,665	1,877,238
Treasury stock, shares (in shares)	386,165	386,165

XML

Consolidated Statement of Income (Unaudited) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Core Deposits [Member]
NONINTEREST EXPENSE
Core deposit intangible amortization	$ 10	$ 10	$ 30	$ 30
Interest and fees on loans	6,459	5,971	18,949	17,656
Interest-bearing deposits in other institutions	15	6	42	26
Federal funds sold	7	4	16	12
Taxable interest	235	341	865	1,115
Tax-exempt interest	687	809	2,227	2,373
Dividends on stock	17	20	74	70
Total interest and dividend income	7,420	7,151	22,173	21,252
Deposits	921	876	2,665	2,581
Short-term borrowings	49	30	288	100
Other borrowings	14	20	47	66
Trust preferred securities	42	33	117	85
Total interest expense	1,026	959	3,117	2,832
NET INTEREST INCOME	6,394	6,192	19,056	18,420
Provision for loan losses	105	105	315	210
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES	6,289	6,087	18,741	18,210
Service charges on deposit accounts	505	471	1,443	1,382
Investment securities gains, net		211	303	257
Earnings on bank-owned life insurance	101	101	297	262
Gain on sale of loans	129	113	322	286
Other income	242	212	694	679
Total noninterest income	977	1,108	3,059	2,866
Salaries and employee benefits	2,677	2,285	7,740	7,205
Occupancy expense	306	305	933	945
Equipment expense	221	249	700	706
Data processing costs	334	287	928	798
Ohio state franchise tax	186	75	448	225
Federal deposit insurance expense	132	120	396	352
Professional fees	547	229	1,057	825
Loss (gain) on other real estate owned	(49)	24	(52)	72
Advertising expense	206	195	604	586
Other real estate expense	97	116	299	449
Directors fees	102	98	330	343
Appraiser fees	114	97	334	327
ATM fees	102	89	296	295
Other expense	677	490	1,872	1,539
Total noninterest expense	5,662	4,669	15,915	14,697
Income before income taxes	1,604	2,526	5,885	6,379
Income taxes	261	544	1,129	1,264
NET INCOME	$ 1,343	$ 1,982	$ 4,756	$ 5,115
EARNINGS PER SHARE
Basic (in dollars per share)	$ 0.60	$ 0.96	$ 2.31	$ 2.49
Diluted (in dollars per share)	0.60	0.96	2.30	2.47
Cash dividends (in dollars per share)	$ 0.27	$ 0.27	$ 0.81	$ 0.80

XML

Consolidated Statement of Comprehensive Income (Unaudited) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Net income	$ (1,343)	$ (1,982)	$ (4,756)	$ (5,115)
Other comprehensive income (loss):
Net unrealized holding gain (loss) on available-for-sale securities	(400)	1,416	2,153	(699)
Tax effect	137	(481)	(732)	238
Reclassification adjustment for investment securities gains included in net income		(211)	(303)	(257)
Tax effect		71	102	87
Period change	(263)	795	1,221	(631)
Comprehensive income	$ 1,080	$ 2,777	$ 5,977	$ 4,484

XML

Consolidated Statement of Changes in Stockholders' Equity (Unaudited) - 9 months ended Sep. 30, 2016 - USD ($) $ in Thousands	Common Stock [Member]	Retained Earnings [Member]	AOCI Attributable to Parent [Member]	Treasury Stock [Member]	Total
Balance at Dec. 31, 2015	$ 36,191	$ 37,236	$ 2,395	$ (13,518)	$ 62,304
Net income		4,756			4,756
Other comprehensive income			1,221		1,221
Common stock issuance, net of offering cost (360,815 shares)	11,239				11,239
Dividend reinvestment and purchase plan (11,712 shares)	382				382
Cash dividends ($0.81 per share)		(1,710)			(1,710)
Balance at Sep. 30, 2016	$ 47,812	$ 40,282	$ 3,616	$ (13,518)	$ 78,192

XML

Consolidated Statement of Changes in Stockholders' Equity (Unaudited) (Parentheticals)	9 Months Ended
	Sep. 30, 2016 $ / shares
Retained Earnings [Member]
Cash dividends (in dollars per share)	$ 0.81
Cash dividends (in dollars per share)	$ 0.81

XML

Consolidated Statement of Cash Flows (Unaudited) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015
OPERATING ACTIVITIES
Net income	$ 4,756	$ 5,115
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses	315	210
Investment securities gain, net	(303)	(257)
Depreciation and amortization	774	763
Amortization of premium and discount on investment securities	352	553
Accretion of deferred loan fees, net	(150)	(468)
Origination of loans held for sale	(15,497)	(14,740)
Proceeds from sale of loans	16,046	14,844
Gain on sale of loans	(322)	(286)
Earnings on bank-owned life insurance	(297)	(262)
Deferred income tax	224	397
Loss (gain) on other real estate owned	(52)	72
Other real estate owned writedowns	73	56
Increase in accrued interest receivable	(139)	(481)
(Decrease) increase in accrued interest payable	(4)	58
Other, net	253	(158)
Net cash provided by operating activities	6,029	5,416
INVESTING ACTIVITIES
Proceeds from repayments and maturities	17,896	7,530
Proceeds from sale of securities	9,115	15,284
Purchases	(1,744)	(14,876)
Increase in loans, net	(53,430)	(40,554)
Proceeds from the sale of other real estate owned	781	1,094
Purchase of bank-owned life insurance		(4,000)
Purchase of premises and equipment	(679)	(454)
Net cash used for investing activities	(28,061)	(35,976)
FINANCING ACTIVITIES
Net increase in deposits	14,895	40,436
Decrease in short-term borrowings, net	(3,022)	(10,761)
Repayment of other borrowings	(226)	(324)
Common stock issued	11,239
Stock options exercised		6
Proceeds from dividend reinvestment and purchase plan	382	504
Cash dividends	(1,710)	(1,645)
Net cash provided by financing activities	21,558	28,216
Decrease in cash and cash equivalents	(474)	(2,344)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD	23,750	25,639
CASH AND CASH EQUIVALENTS AT END OF PERIOD	23,276	23,295
SUPPLEMENTAL INFORMATION
Interest on deposits and borrowings	3,121	2,774
Income taxes	475	350
Noncash investing transactions:
Transfers from loans to other real estate owned	$ 595	$ 638

XML

Note 1 - Basis of Presentation

9 Months Ended

Sep. 30, 2016

Notes to Financial Statements

Basis of Presentation and Significant Accounting Policies [Text Block]

NOTE 1 - BASIS OF PRESENTATION

The consolidated financial statements of Middlefield Banc Corp. ("Company") include its bank subsidiary, The Middlefield Banking Company (“MB”), and a nonbank asset resolution subsidiary EMORECO, Inc. All significant inter-company items have been eliminated.

The accompanying unaudited financial statements have been prepared in accordance with U.S. generally accepted accounting principles and the instructions for Form 10-Q and Article 10 of Regulation S-X. In management’s opinion, the financial statements include all adjustments, consisting of normal recurring adjustments, that the Company considers necessary to fairly state the Company’s financial position and the results of operations and cash flows. The consolidated balance sheet at December 31, 2015, has been derived from the audited financial statements at that date but does not include all of the necessary informational disclosures and footnotes as required by U.S. generally accepted accounting principles. The accompanying financial statements should be read in conjunction with the financial statements and notes thereto included with the Company’s Form 10-K for the year ended December 31, 2015. The results of the Company’s operations for any interim period are not necessarily indicative of the results of the Company’s operations for any other interim period or for a full fiscal year.

Recent Accounting Pronouncements –

In May 2014, the FASB issued ASU 2014-09,

Revenue from Contracts with Customers

(a new revenue

recognition standard). The Update’s core principle is that a company will recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In addition, this Update specifies the accounting for certain costs to obtain or fulfill a contract with a customer and expands disclosure requirements for revenue recognition. This Update is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations.

In June 2014, the FASB issued ASU 2014-12,

Compensation – Stock Compensation (

Topic 718

): Accounting for Share-Based Payments when the Terms of an Award Provide that a Performance Target Could Be Achieved After the Requisite Service Period

. The amendments require that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. The amendments in this Update are effective for annual periods and interim periods within those annual periods beginning after December 15, 2015. Earlier adoption is permitted. Entities may apply the amendments in this Update either (a) prospectively to all awards granted or modified after the effective date or (b) retrospectively to all awards with performance targets that are outstanding as of the beginning of the earliest annual period presented in the financial statements and to all new or modified awards thereafter. If retrospective transition is adopted, the cumulative effect of applying this Update as of the beginning of the earliest annual period presented in the financial statements should be recognized as an adjustment to the opening retained earnings balance at that date. Additionally, if retrospective transition is adopted, an entity may use hindsight in measuring and recognizing the compensation cost. This Update is not expected to have a significant impact on the Company’s financial statements, or the Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations.

In August 2015, the FASB issued ASU 2015-14,

Revenue from Contracts with Customers

(

Topic 606

). The amendments in this Update defer the effective date of ASU 2014-09 for all entities by one year. Public business entities, certain not-for-profit entities, and certain employee benefit plans should apply the guidance in ASU 2014-09 to annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. All other entities should apply the guidance in ASU 2014-09 to annual reporting periods beginning after December 15, 2018, and interim reporting periods within annual reporting periods beginning after December 15, 2019. The Company is evaluating the effect of adopting this new accounting Update.

In January 2016, the FASB issued ASU 2016-01,

Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities

. This Update applies to all entities that hold financial assets or owe financial liabilities and is intended to provide more useful information on the recognition, measurement, presentation, and disclosure of financial instruments. Among other things, this Update (a) requires equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income; (b) simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment; (c) eliminates the requirement to disclose the fair value of financial instruments measured at amortized cost for entities that are not public business entities; (d) eliminates the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet; (e) requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; (f) requires 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 in accordance with the fair value option for financial instruments; (g) requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (that is, securities or loans and receivables) on the balance sheet or the accompanying notes to the financial statements; and (h) clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets. For public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. For all other entities, including not-for-profit entities and employee benefit plans within the scope of Topics 960 through 965 on plan accounting, the amendments in this Update are effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. All entities that are not public business entities may adopt the amendments in this Update earlier as of the fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations.

In February 2016, the FASB issued ASU 2016-02,

Leases (Topic 842)

. The standard 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 the lease term.  A short-term lease is defined as one in which (a) the lease term is 12 months or less and (b) there is not an option to purchase the underlying asset that the lessee is reasonably certain to exercise. For short-term leases, lessees may elect to recognize lease payments over the lease term on a straight-line basis. For public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2018, and interim periods within those years. For all other entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2019, and for interim periods within fiscal years beginning after December 15, 2020. The amendments 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. This Update is not expected to have a significant impact on the Company’s financial statements.

In March 2016, the FASB issued ASU 2016-04,

Liabilities

–

Extinguishments of Liabilities (Subtopic 405-20).

The standard provides that liabilities related to the sale of prepaid stored-value products within the scope of this Update are financial liabilities. The amendments in the Update provide a narrow-scope exception to the guidance in Subtopic 405-20 to require that breakage for those liabilities be accounted for consistent with the breakage guidance in Topic 606. The amendments in this Update are effective for public business entities, certain not-for-profit entities, and certain employee benefit plans for financial statements issued for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. For all other entities, the amendments are effective for financial statements issued for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. Earlier application is permitted, including adoption in an interim period. This Update is not expected to have a significant impact on the Company’s financial statements.

In March 2016, the FASB issued ASU 2016-05,

Derivatives and Hedging (Topic 815)

. The amendments in this Update apply to all reporting entities for which there is a change in the counterparty to a derivative instrument that has been designated as a heading instrument under Topic 815

.

The standards in this Update clarify that a change in the counterparty to a derivative instrument that has been designated as the hedging instrument under Topic 815does not, in and of itself, require designation of that hedging relationship provided that all other hedge accounting criteria continue to be met. For public business entities, the amendments in this Update are effective for financial statements issued for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. For all other entities, the amendments in this Update are effective for financial statements issued for fiscal years beginning after December 15, 2017, and interim periods within fiscal years beginning after December 15, 2018. An entity has an option to apply the amendments in this Update on either a prospective basis or a modified retrospective basis. Early adoption is permitted, including adoption in an interim period. This Update is not expected to have a significant impact on the Company’s financial statements.

In March 2016, the FASB issued ASU 2016-06,

Derivatives and Hedging (Topic 815)

. The amendments apply to all entities that are issuers of or investors in debt instruments (or hybrid financial instruments that are determined to have a debt host) with embedded call (put) options. The amendments in this Update clarify the requirements for assessing whether contingent call (put) options that can accelerate the payment of principal on debt instruments are clearly and closely related to their debt host. An entity performing the assessment under the amendments in this Update is required to assess the embedded call (put) options solely in accordance with the four-step decision sequence. For public business entities, the amendments in this Update are effective for financial statements issued for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. For entities other than public business entities, the amendments in this Update are effective for financial statements issued for fiscal years beginning after December 15, 2017, and interim periods within fiscal years beginning after December 15, 2018. Early adoption is permitted, including adoption in an interim period. This Update is not expected to have a significant impact on the Company’s financial statements.

In March 2016, the FASB issued ASU 2016-07,

Investments

–

Equity Method and Joint Ventures (Topic 323)

. The Update affects all entities that have an investment that becomes qualified for the equity method of accounting as a result of an increase in the level of ownership interest or degree of influence. The amendments in this Update eliminate the requirement that when an investment qualifies for use of the equity method as a result of an increase in the level of ownership interest or degree of influence, an investor must adjust the investment, results of operations, and retained earnings retroactively on a step-by-step basis as if the equity method had been in effect during all previous periods that the investment had been held. The amendments require that the equity method investor add the cost of acquiring the additional interest in the investee to the current basis of the investor's previously held interest and adopt the equity method of accounting as of the date the investment becomes qualified for equity method accounting. Therefore, upon qualifying for the equity method of accounting, no retroactive adjustment of the investment is required. The amendments in this Update require that an entity that has an available-for-sale equity security that becomes qualified for the equity method of accounting recognize through earnings the unrealized holding gain or loss in accumulated other comprehensive income at the date the investment becomes qualified for use of the equity method. The amendments in this Update are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. The amendments should be applied prospectively upon their effective date to increases in the level of ownership interest or degree of influence that result in the adoption of the equity method. Earlier application is permitted. This Update is not expected to have a significant impact on the Company’s financial statements.

In March 2016, the FASB issued ASU 2016-08,

Revenue from Contracts with Customers (Topic 606).

The amendments in this Update affect entities with transactions included within the scope of Topic 606, which includes entities that enter into contracts with customers to transfer goods or services (that are an output of the entity’s ordinary activities) in exchange for consideration. The amendments in this Update do not change the core principle of the guidance in Topic 606; they simply clarify the implementation guidance on principal versus agent considerations. The amendments in this Update are intended to improve the operability and understandability of the implementation guidance on principal versus agent considerations. The amendments in this Update affect the guidance in ASU 2014-09,

Revenue from Contracts with Customers (Topic 606),

which is not yet effective. The effective date and transition requirements for the amendments in this Update are the same as the effective date and transition requirements of Update 2014-09. ASU No. 2015-14,

Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date,

defers the effective date of Update 2014-09 by one year. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations.

In March 2016, the FASB issued ASU 2016-09,

Compensation – Stock Compensation (Topic 718)

. The amendments in this Update affect all entities that issue share-based payment awards to their employees. The standards in this Update provide simplification for several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as with equity or liabilities, and classification on the statement of cash flows. Some of the areas for simplification apply only to nonpublic entities. In addition to those simplifications, the amendments eliminate the guidance in Topic 718 that was indefinitely deferred shortly after the issuance of FASB Statement No. 123 (revised 2004),

Share-Based Payment

. This should not result in a change in practice because the guidance that is being superseded was never effective. For public business entities, the amendments in this Update are effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. For all other entities, the amendments are effective for annual periods beginning after December 15, 2017, and interim periods within annual periods beginning after December 15, 2018. Early adoption is permitted for any entity in any interim or annual period. This Update is not expected to have a significant impact on the Company’s financial statements.

In April 2016, the FASB issued ASU 2016-10,

Revenue from Contracts with Customers (Topic 606).

The amendments in this Update affect entities with transactions included within the scope of Topic 606, which includes entities that enter into contracts with customers to transfer goods or services in exchange for consideration. The amendments in this Update do not change the core principle for revenue recognition in Topic 606. Instead, the amendments provide (1) more detailed guidance in a few areas and (2) additional implementation guidance and examples based on feedback the FASB received from its stakeholders. The amendments are expected to reduce the degree of judgment necessary to comply with Topic 606, which the FASB expects will reduce the potential for diversity arising in practice and reduce the cost and complexity of applying the guidance. The amendments in this Update affect the guidance in ASU 2014-09,

Revenue from Contracts with Customers (Topic 606)

, which is not yet effective. The effective date and transition requirements for the amendments in this Update are the same as the effective date and transition requirements in Topic 606 (and any other Topic amended by Update 2014-09). ASU 2015-14,

Revenue from Contracts with Customers (Topic 606)

:

Deferral of the Effective Date

, defers the effective date of Update 2014-09 by one year. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations.

In May 2016, the FASB issued ASU 2016-11, Revenue Recognition (Topic 605) and Derivative and Hedging (Topic 815), which rescinds SEC paragraphs pursuant to two SEC Staff Announcements at the March 3, 2016, Emerging Issues Task Force meeting. This Update did not have a significant impact on the Company’s financial statements.

In May 2016, the FASB issued ASU 2016-12, Revenue from Contracts with Customers (Topic 606), which among other things clarifies the objective of the collectability criterion in Topic 606, as well as certain narrow aspects of Topic 606. The amendments in this Update affect the guidance in ASU 2014-09, Revenue from Contracts with Customers (Topic 606), which is not yet effective. The effective date and transition requirements for the amendments in this Update are the same as the effective date and transition requirements for Topic 606 (and any other Topic amended by Update 2014-09). ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, defers the effective date of Update 2014-09 by one year. This Update is not expected to have a significant impact on the Company’s financial statements.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which changes the impairment model for most financial assets. This Update is intended to improve financial reporting by requiring timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations. The underlying premise of the Update is that financial assets measured at amortized cost should be presented at the net amount expected to be collected, through an allowance for credit losses that is deducted from the amortized cost basis. The allowance for credit losses should reflect management’s current estimate of credit losses that are expected to occur over the remaining life of a financial asset. The income statement will be effected for the measurement of credit losses for newly recognized financial assets, as well as the expected increases or decreases of expected credit losses that have taken place during the period. ASU 2016-13 is effective for annual and interim periods beginning after December 15, 2019, and early adoption is permitted for annual and interim periods beginning after December 15, 2018. With certain exceptions, transition to the new requirements will be through a cumulative effect adjustment to opening retained earnings as of the beginning of the first reporting period in which the guidance is adopted. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (“ASU 2016-15”), which addresses eight specific cash flow issues with the objective of reducing diversity in practice. Among these include recognizing cash payments for debt prepayment or debt extinguishment as cash outflows for financing activities; cash proceeds received from the settlement of insurance claims should be classified on the basis of the related insurance coverage; and cash proceeds received from the settlement of bank-owned life insurance policies should be classified as cash inflows from investing activities while the cash payments for premiums on bank-owned policies may be classified as cash outflows for investing activities, operating activities, or a combination of investing and operating activities. The amendments in this Update are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. Early adoption is permitted, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. An entity that elects early adoption must adopt all of the amendments in the same period. The amendments in this Update should be applied using a retrospective transition method to each period presented. If it is impracticable to apply the amendments retrospectively for some of the issues, the amendments for those issues would be applied prospectively as of the earliest date practicable. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s statement of cash flows.

XML

Note 2 - Stock-based Compensation

9 Months Ended

Sep. 30, 2016

Notes to Financial Statements

Compensation and Employee Benefit Plans [Text Block]

NOTE 2 - STOCK-BASED COMPENSATION

The Company had no unvested stock options outstanding or unrecognized stock-based compensation costs outstanding as of September 30, 2016 and 2015.

Stock option activity during the nine months ended September

30 is

as follows:

			Weighted-					Weighted-
			average					average
			Exercise					Exercise
	2016		Price		2015			Price
Outstanding, January 1		31,949	$	25.03		46,451		$	27.90
Expired		-		-		(3,639	)		37.33
Exercised		-		-		(1,025	)		20.21
Outstanding, September 30		31,949	$	25.03		41,787		$	27.27
Exercisable, September 30		31,949	$	25.03		41,787		$	27.27

XML

Note 3 - Earnings Per Share

9 Months Ended

Sep. 30, 2016

Notes to Financial Statements

Earnings Per Share [Text Block]

NOTE 3 - EARNINGS PER SHARE

The Company provides dual presentation of basic and diluted earnings per share. Basic earnings per share is calculated by dividing net income by the average shares outstanding. Diluted earnings per share adds the dilutive effects of stock options to average shares outstanding.

The following table sets forth the composition of the weighted-average common shares (denominator) used in the basic and diluted earnings per share computation.

	For the Three						For the Nine
	Months Ended						Months Ended
	September 30,						September 30,
	2016			2015			2016			2015
Weighted-average common shares outstanding		2,633,752			2,253,584			2,445,821			2,248,468
Average treasury stock shares		(386,165	)		(189,530	)		(386,165	)		(189,530	)
Weighted-average common shares and common stock equivalents used to calculate basic earnings per share		2,247,587			2,064,054			2,059,656			2,058,938
Additional common stock equivalents (stock options) used to calculate diluted earnings per share		8,643			8,585			8,876			9,254
Weighted-average common shares and common stock equivalents used to calculate diluted earnings per share		2,256,230			2,072,639			2,068,532			2,068,192

Options to purchase 31,949 shares of common stock, at prices ranging from $17.55 to $40.24, were outstanding during the three and nine months ended September 30, 2016. Of those options, 24,700 were considered dilutive for the three and nine month periods based on the market price exceeding the strike price.

Options to purchase 41,787 shares of common stock, at prices ranging from $17.55 to $37.48, were outstanding during the three and nine months ended September 30, 2015. Of those options, 27,000 were considered dilutive for the three month period based on the market price exceeding the strike price. For the nine months ended September 30, 2015, 27,250 options were considered dilutive.

XML

Note 4 - Fair Value Measurements

9 Months Ended

Sep. 30, 2016

Notes to Financial Statements

Fair Value Disclosures [Text Block]

NOTE 4 - FAIR VALUE MEASUREMENTS

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market for an asset or liability in an orderly transaction between market participants at the measurement date. GAAP established a fair value hierarchy that prioritizes the use of inputs used in valuation methodologies into the following levels:

Level I: Quoted prices are available in active markets for identical assets or liabilities as of the reported date.

Level II: Pricing inputs are other than the quoted prices in active markets, which are either directly or indirectly observable as of the reported date. The nature of these assets and liabilities includes items for which quoted prices are available but traded less frequently and items that are fair valued using other financial instruments, the parameters of which can be directly observed.

Level III: Assets and liabilities that have little to no pricing observability as of the reported date. These items do not have two-way markets and are measured using management’s best estimate of fair value, where the inputs into the determination of fair value require significant management judgment or estimation.

The following tables present the assets measured on a recurring basis on the Consolidated Balance Sheet at their fair value by level within the fair value hierarchy. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

			September 30, 2016
(Dollar amounts in thousands)	Level I		Level II		Level III		Total
Assets measured on a recurring basis:
U.S. government agency securities	$	-	$	10,863	$	-	$	10,863
Obligations of states and political subdivisions		-		87,525		-		87,525
Mortgage-backed securities in government- sponsored entities		-		21,380		-		21,380
Private-label mortgage-backed securities		-		2,068		-		2,068
Total debt securities		-		121,836		-		121,836
Equity securities in financial institutions		5		1,213		-		1,218
Total	$	5	$	123,049	$	-	$	123,054

			December 31, 2015
(Dollar amounts in thousands)	Level I		Level II		Level III		Total
Assets measured on a recurring basis:
U.S. government agency securities	$	-	$	21,629	$	-	$	21,629
Obligations of states and political subdivisions		-		97,290		-		97,290
Mortgage-backed securities in government- sponsored entities		-		24,524		-		24,524
Private-label mortgage-backed securities		-		2,263		-		2,263
Total debt securities		-		145,706		-		145,706
Equity securities in financial institutions		5		809		-		814
Total	$	5	$	146,515	$	-	$	146,520

The Company obtains fair values from an independent pricing service which represent either quoted market prices for the identical securities (Level I inputs) or fair values determined by pricing models using a market approach that considers observable market data, such as interest rate volatilities, LIBOR yield curve, credit spreads and prices from market makers and live trading systems (Level II).

Financial instruments are considered Level III when their values are determined using pricing models, discounted cash flow methodologies or similar techniques and at least one significant model assumption or input is unobservable. In addition to these unobservable inputs, the valuation models for Level III financial instruments typically also rely on a number of inputs that are readily observable either directly or indirectly. Level III financial instruments also include those for which the determination of fair value requires significant management judgment or estimation. The Company has no securities considered to be Level III as of September 30, 2016 or December 31, 2015.

The Company uses prices compiled by third party vendors.

The following tables present the assets measured on a nonrecurring basis on the Consolidated Balance Sheet at their fair value by level within the fair value hierarchy. Impaired loans that are collateral dependent are written down to fair value through the establishment of specific reserves. Techniques used to value the collateral that secure the impaired loan include quoted market prices for identical assets classified as Level I inputs and observable inputs, employed by certified appraisers, for similar assets classified as Level II inputs. In cases where valuation techniques included inputs that are unobservable and are based on estimates and assumptions developed by management based on the best information available under each circumstance, the asset valuation is classified as Level III inputs. The Company values other real estate owned at the estimated fair value of the underlying collateral less expected selling costs. Such values are estimated primarily using appraisals and reflect a market value approach. Due to the significance of the Level III inputs, other real estate owned has been classified as Level III.

			September 30, 2016
(Dollar amounts in thousands)	Level I		Level II		Level III		Total
Assets measured on a nonrecurring basis:
Impaired loans	$	-	$	-	$	11,102	$	11,102
Other real estate owned		-		-		1,205		1,205

			December 31, 2015
(Dollar amounts in thousands)	Level I		Level II		Level III		Total
Assets measured on a nonrecurring basis:
Impaired loans	$	-	$	-	$	12,848	$	12,848
Other real estate owned		-		-		1,412		1,412

The following tables present additional quantitative information about assets measured at fair value on a nonrecurring basis and for which the Company uses Level III inputs to determine fair value:

	Quantitative Information about Level III Fair Value Measurements
(Dollar amounts in thousands)
	Fair Value Estimate		Valuation Techniques	Unobservable Input	Range (Weighted Average)
September 30, 2016
Impaired loans	$	7,743	Discounted cash flow	Discount rate	3.1%	to	7.0%	(5.0%)
		3,359	Appraisal of collateral (1)	Appraisal adjustments (2)	0.0%	to	55.7%	(34.6%)
Other real estate owned	$	1,205	Appraisal of collateral (1)	Appraisal adjustments (2)	0.0%	to	10.0%	(7.3%)

	Quantitative Information about Level III Fair Value Measurements
(Dollar amounts in thousands)
	Fair Value Estimate		Valuation Techniques	Unobservable Input	Range (Weighted Average)
December 31, 2015
Impaired loans	$	6,867	Discounted cash flow	Discount rate	3.1%	to	7.9%	(5.0%)
		5,981	Appraisal of collateral (1)	Appraisal adjustments (2)	0.0%	to	87.1%	(23.3%)
Other real estate owned	$	1,412	Appraisal of collateral (1)	Appraisal adjustments (2)	0%	to	10.0%	(7.3%)

(1) Fair value is generally determined through independent appraisals of the underlying collateral, which generally include various level 3 inputs which are not identifiable.

(2) Appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated liquidation expenses. The range and weighted average of liquidation expenses and other appraisal adjustments are presented as a percent of the appraisal.

The estimated fair value of the Company’s financial instruments is as follows:

	September 30, 2016
	Carrying								Total
	Value		Level I		Level II		Level III		Fair Value
	(Dollar amounts in thousands)
Financial assets:
Cash and cash equivalents	$	23,276	$	23,276	$	-	$	-	$	23,276
Investment securities
Available for sale		123,054		5		123,049		-		123,054
Loans held for sale		880		-		880		-		880
Net loans		579,995		-		-		586,739		586,739
Bank-owned life insurance		13,438		13,438		-		-		13,438
Federal Home Loan Bank stock		1,887		1,887		-		-		1,887
Accrued interest receivable		2,526		2,526		-		-		2,526
Financial liabilities:
Deposits	$	639,342	$	454,427	$	-	$	188,668	$	643,095
Short-term borrowings		32,803		32,803		-		-		32,803
Other borrowings		9,713		-		-		10,003		10,003
Accrued interest payable		391		391		-		-		391

	December 31, 2015
	Carrying								Total
	Value		Level I		Level II		Level III		Fair Value
	(Dollar amounts in thousands)
Financial assets:
Cash and cash equivalents	$	23,750	$	23,750	$	-	$	-	$	23,750
Investment securities
Available for sale		146,520		5		146,515		-		146,520
Loans held for sale		1,107		-		1,107		-		1,107
Net loans		527,325		-		-		534,021		534,021
Bank-owned life insurance		13,141		13,141		-		-		13,141
Federal Home Loan Bank stock		1,887		1,887		-		-		1,887
Accrued interest receivable		2,387		2,387		-		-		2,387
Financial liabilities:
Deposits	$	624,447	$	433,226	$	-	$	191,747	$	624,973
Short-term borrowings		35,825		35,825		-		-		35,825
Other borrowings		9,939		-				10,063		10,063
Accrued interest payable		395		395		-		-		395

Financial instruments are defined as cash, evidence of ownership interest in an entity, or a contract which creates an obligation or right to receive or deliver cash or another financial instrument from/to a second entity on potentially favorable or unfavorable terms.

Fair value is defined as the amount at which a financial instrument could be exchanged in a current transaction between willing parties other than in a forced liquidation sale. If a quoted market price is available for a financial instrument, the estimated fair value would be calculated based upon the market price per trading unit of the instrument.

If no readily available market exists, the fair value estimates for financial instruments should be based upon management’s judgment regarding current economic conditions, interest rate risk, expected cash flows, future estimated losses, and other factors as determined through various option pricing formulas or simulation modeling. Since many of these assumptions result from judgments made by management based upon estimates which are inherently uncertain, the resulting estimated fair values may not be indicative of the amount realizable in the sale of a particular financial instrument. In addition, changes in assumptions on which the estimated fair values are based may have a significant impact on the resulting estimated fair values.

As certain assets such as deferred tax assets and premises and equipment are not considered financial instruments, the estimated fair value of financial instruments would not represent the full value of the Company.

The Company employed simulation modeling in determining the estimated fair value of financial instruments for which quoted market prices were not available based upon the following assumptions:

Cash and Cash Equivalents, Federal Home Loan Bank Stock, Accrued Interest Receivable, Accrued Interest Payable, and Short-Term Borrowings

The fair value is equal to the current carrying value.

Bank-Owned Life Insurance

The fair value is equal to the cash surrender value of the life insurance policies.

Investment Securities Available for Sale

The fair value of investment securities is equal to the available quoted market price.  If no quoted market price is available, fair value is estimated using the quoted market price for similar securities. 

Loans Held for Sale

Loans held for sale are carried at lower of cost or fair value. The fair value of loans held for sale is based on secondary market pricing on portfolios with similar characteristics. The changes in fair value of the assets are largely driven by changes in interest rates subsequent to loan funding and changes in the fair value of servicing associated with the mortgage loan held for sale.

Net Loans

The fair value is estimated by discounting future cash flows using current market inputs at which loans with similar terms and qualities would be made to borrowers of similar credit quality. Where quoted market prices were available, primarily for certain residential mortgage loans, such market rates were used as estimates for fair value.

Deposits and Other Borrowings

The fair values of certificates of deposit and other borrowings are based on the discounted value of contractual cash flows. The discount rates are estimated using rates currently offered for similar instruments with similar remaining maturities. Demand, savings, and money market deposits are valued at the amount payable on demand as of period end.

Commitments to Extend Credit

These financial instruments are generally not subject to sale, and estimated fair values are not readily available. The carrying value, represented by the net deferred fee arising from the unrecognized commitment or letter of credit, and the fair value, determined by discounting the remaining contractual fee over the term of the commitment using fees currently charged to enter into similar agreements with similar credit risk, are not considered material for disclosure.

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Note 5 - Accumulated Other Comprehensive Income

9 Months Ended

Sep. 30, 2016

Notes to Financial Statements

Comprehensive Income (Loss) Note [Text Block]

NOTE 5 – ACCUMULATED OTHER COMPREHENSIVE INCOME

The following tables present the changes in accumulated other comprehensive income by component net of tax for the three and nine months ended September 30, 2016 and 2015, respectively:

	Unrealized gains on
	available-for-sale
(Dollars in thousands)	securities
Balance as of December 31, 2015	$	2,395
Other comprehensive income before reclassification		1,421
Amount reclassified from accumulated other comprehensive income		(200	)
Period change		1,221
Balance at September 30, 2016	$	3,616
Balance as of June 30, 2016	$	3,879
Other comprehensive income before reclassification		(263	)
Amount reclassified from accumulated other comprehensive income		-
Period change		(263	)
Balance at September 30, 2016	$	3,616

	Unrealized gains on
	available-for-sale
(Dollars in thousands)	securities
Balance as of December 31, 2014	$	2,548
Other comprehensive income before reclassification		(461	)
Amount reclassified from accumulated other comprehensive income		(170	)
Period change		(631	)
Balance at September 30, 2015		1,917
Balance as of June 30, 2015	$	1,122
Other comprehensive loss before reclassification		935
Amount reclassified from accumulated other comprehensive income		(140	)
Period change		795
Balance at September 30, 2015	$	1,917

The following tables present significant amounts reclassified out of each component of accumulated other comprehensive income for the three and nine months ended September 30, 2016 and 2015, respectively:

		Amount Reclassified from Accumulated Other Comprehensive				Affected Line Item in
		Income (a)				the Statement Where
(Dollars in thousands)		For the Three Months Ended				Net Income is
Details about other comprehensive income	September 30, 2016		September 30, 2015			Presented
Unrealized gains on available-for-sale securities
	$	-	$	211		Investment securities gains, net
		-		(71	)	Income taxes
	$	-	$	140		Net of tax

	Amount Reclassified from Accumulated Other Comprehensive						Affected Line Item in
		Income (a)					the Statement Where
(Dollars in thousands)		For the Nine Months Ended					Net Income is
Details about other comprehensive income	September 30, 2016			September 30, 2015			Presented
Unrealized gains on available-for-sale securities
	$	303		$	257		Investment securities gains, net
		(103	)		(87	)	Income taxes
	$	200		$	170		Net of tax

(a) Amounts in parentheses indicate debits to net income

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Note 6 - Investment Securities Available for Sale

9 Months Ended

Sep. 30, 2016

Notes to Financial Statements

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

NOTE 6 - INVESTMENT SECURITIES AVAILABLE FOR SALE

The amortized cost and fair values of securities available for sale are as follows:

	September 30, 2016
			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
(Dollar amounts in thousands)	Cost		Gains		Losses			Value
U.S. government agency securities	$	10,516	$	359	$	(12	)	$	10,863
Obligations of states and political subdivisions:
Taxable		1,616		186		-			1,802
Tax-exempt		81,829		3,899		(5	)		85,723
Mortgage-backed securities in government-sponsored entities		20,939		485		(44	)		21,380
Private-label mortgage-backed securities		1,927		141		-			2,068
Total debt securities		116,827		5,070		(61	)		121,836
Equity securities in financial institutions		750		468		-			1,218
Total	$	117,577	$	5,538	$	(61	)	$	123,054

	December 31, 2015
			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
U.S. government agency securities	$	21,655	$	245	$	(271	)	$	21,629
Obligations of states and political subdivisions:
Taxable		1,989		134		-			2,123
Tax-exempt		91,940		3,402		(175	)		95,167
Mortgage-backed securities in government-sponsored entities		24,480		316		(272	)		24,524
Private-label mortgage-backed securities		2,079		184		-			2,263
Total debt securities		142,143		4,281		(718	)		145,706
Equity securities in financial institutions		750		64		-			814
Total	$	142,893	$	4,345	$	(718	)	$	146,520

The amortized cost and fair value of debt securities at September 30, 2016, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

	Amortized		Fair
(Dollar amounts in thousands)	Cost		Value
Due in one year or less	$	2,842	$	2,879
Due after one year through five years		9,132		9,500
Due after five years through ten years		12,916		13,510
Due after ten years		91,937		95,947
Total	$	116,827	$	121,836

Proceeds from the sales of securities available for sale and the gross realized gains and losses for the three and nine months ended September 30 are as follows:

	For the Three Months Ended September 30,					For the Nine Months Ended September 30,
	2016		2015			2016			2015
Proceeds from sales	$	-	$	11,973		$	9,115		$	15,284
Gross realized gains		-		233			306			373
Gross realized losses		-		(22	)		(3	)		(116	)

Investment securities with an approximate carrying value of $64.7 million and $68.8 million at September 30, 2016 and December 31, 2015, respectively, were pledged to secure deposits and other purposes as required by law.

The following tables show the Company’s gross unrealized losses and fair value, aggregated by investment category and length of time that the individual securities have been in a continuous unrealized loss position.

	September 30, 2016
	Less than Twelve Months				Twelve Months or Greater					Total
			Gross				Gross					Gross
	Fair		Unrealized		Fair		Unrealized			Fair		Unrealized
(Dollar amounts in thousands)	Value		Losses		Value		Losses			Value		Losses
U.S. government agency securities	$	2,000	$	-	$	1,465	$	(12	)	$	3,465	$	(12	)
Obligations of states and political subdivisions
Tax-exempt		608		-		-		(5	)		608		(5	)
Mortgage-backed securities in government-sponsored entities		-		-		4,709		(44	)		4,709		(44	)
Private-label mortgage-backed securities		75		-		-		-			75		-
Total	$	2,683	$	-	$	6,174	$	(61	)	$	8,857	$	(61	)

	December 31, 2015
	Less than Twelve Months					Twelve Months or Greater					Total
			Gross					Gross					Gross
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Value		Losses			Value		Losses			Value		Losses
U.S. government agency securities	$	3,818	$	(57	)	$	10,872	$	(214	)	$	14,690	$	(271	)
Obligations of states and political subdivisions
Tax-exempt		1,268		(9	)		9,394		(166	)		10,662		(175	)
Mortgage-backed securities in government-sponsored entities		8,725		(86	)		6,685		(186	)		15,410		(272	)
Total	$	13,811	$	(152	)	$	26,951	$	(566	)	$	40,762	$	(718	)

There were 9 securities considered temporarily impaired at September 30, 2016.

On a quarterly basis, the Company performs an assessment to determine whether there have been any events or economic circumstances indicating that a security with an unrealized loss has suffered other-than-temporary impairment (“OTTI”). A debt security is considered impaired if the fair value is less than its amortized cost basis at the reporting date. The Company assesses whether the unrealized loss is other than temporary.

OTTI losses are recognized in earnings when the Company has the intent to sell the debt security or it is more likely than not that it will be required to sell the debt security before recovery of its amortized cost basis. However, even if the Company does not expect to sell a debt security, it must evaluate expected cash flows to be received and determine if a credit loss has occurred.

An unrealized loss is generally deemed to be other than temporary and a credit loss is deemed to exist if the present value of the expected future cash flows is less than the amortized cost basis of the debt security. As a result the credit loss component of an OTTI is recorded as a component of investment securities gains (losses) in the accompanying Consolidated Statement of Income, while the remaining portion of the impairment loss is recognized in other comprehensive income, provided the Company does not intend to sell the underlying debt security and it is “more likely than not” that the Company will not have to sell the debt security prior to recovery.

Debt securities issued by U.S. government agencies, U.S. government-sponsored enterprises, and state and political subdivisions accounted for more than 97% of the total available-for-sale portfolio as of September 30, 2016 and no credit losses are expected, given the explicit and implicit guarantees provided by the U.S. federal government and the lack of prolonged unrealized loss positions within the obligations of state and political subdivisions security portfolio. The Company considers the following factors in determining whether a credit loss exists and the period over which the debt security is expected to recover:

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

• Changes in the near term prospects of the underlying collateral of a security such as changes in default rates, loss severity given default and significant changes in prepayment assumptions;

• The level of cash flows generated from the underlying collateral supporting the principal and interest payments of the debt securities; and

• Any adverse change to the credit conditions and liquidity of the issuer, taking into consideration the latest information available about the overall financial condition of the issuer, credit ratings, recent legislation and government actions affecting the issuer’s industry and actions taken by the issuer to deal with the present economic climate.

For the nine months ended September 30, 2016 and 2015, there were no available-for-sale debt securities with an unrealized loss that suffered OTTI. Management does not believe any individual unrealized loss as of September 30, 2016 or December 31, 2015 represented an other-than-temporary impairment. The unrealized losses on debt securities are primarily the result of interest rate changes. These conditions will not prohibit the Company from receiving its contractual principal and interest payments on these debt securities. The fair value of these debt securities is expected to recover as payments are received on these securities and they approach maturity. Should the impairment of any of these securities become other than temporary, the cost basis of the investment will be reduced and the resulting loss recognized in net income in the period the other-than-temporary impairment is identified.

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Note 7 - Loans and Related Allowance for Loan and Lease Losses

9 Months Ended

Sep. 30, 2016

Notes to Financial Statements

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

NOTE 7 -

LOANS AND RELATED ALLOWANCE FOR LOAN AND LEASE LOSSES

Major classifications of loans are summarized as follows (in thousands):

	September 30,		December 31,
	2016		2015
Commercial and industrial	$	59,376	$	42,536
Real estate - construction		17,633		22,137
Real estate - mortgage:
Residential		258,952		232,478
Commercial		245,636		231,701
Consumer installment		4,732		4,858
		586,329		533,710
Less: Allowance for loan and lease losses		6,334		6,385
Net loans	$	579,995	$	527,325

The Company’s primary business activity is with customers located within its local Northeastern Ohio trade area, eastern Geauga County, and contiguous counties to the north, east, and south. The Company also serves the central Ohio market with offices in Dublin, Sunbury and Westerville, Ohio. Commercial, residential, consumer, and agricultural loans are granted. Although the Company has a diversified loan portfolio, loans outstanding to individuals and businesses are dependent upon the local economic conditions in the Company’s immediate trade area.

Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff generally are reported at their outstanding unpaid principal balances net of the allowance for loan and lease losses. Interest income is recognized as income when earned on the accrual method. The accrual of interest is discontinued on a loan when management believes, after considering economic and business conditions, the borrower’s financial condition is such that collection of interest is doubtful. Interest received on nonaccrual loans is recorded as income or applied against principal according to management’s judgment as to the collectability of such principal.

Loan origination fees and certain direct loan origination costs are being deferred and the net amount amortized as an adjustment of the related loan’s yield.  Management is amortizing these amounts over the contractual life of the related loans.

The following tables summarize the primary segments of the loan portfolio and allowance for loan and lease losses (in thousands):

					Real Estate- Mortgage
September 30, 2016	Commercial and industrial		Real estate- construction		Residential		Commercial		Consumer installment		Total
Loans:
Individually evaluated for impairment	$	844	$	1,093	$	3,238	$	6,466	$	5	$	11,646
Collectively evaluated for impairment		58,532		16,540		255,714		239,170		4,727		574,683
Total loans	$	59,376	$	17,633	$	258,952	$	245,636	$	4,732	$	586,329

					Real estate- Mortgage
December 31, 2015	Commercial and industrial		Real estate- construction		Residential		Commercial		Consumer installment		Total
Loans:
Individually evaluated for impairment	$	1,808	$	1,787	$	3,881	$	6,199	$	6	$	13,681
Collectively evaluated for impairment		40,728		20,350		228,597		225,502		4,852		520,029
Total loans	$	42,536	$	22,137	$	232,478	$	231,701	$	4,858	$	533,710

					Real Estate- Mortgage
September 30, 2016	Commercial and industrial		Real estate- construction		Residential		Commercial		Consumer installment		Total
Allowance for loan and lease losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	184	$	17	$	104	$	239	$	-	$	544
Collectively evaluated for impairment		329		121		2,657		2,656		27		5,790
Total ending allowance balance	$	513	$	138	$	2,761	$	2,895	$	27	$	6,334

					Real Estate- Mortgage
December 31, 2015	Commercial and industrial		Real estate- construction		Residential		Commercial		Consumer installment		Total
Allowance for loan and lease losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	388	$	130	$	276	$	39	$	-	$	833
Collectively evaluated for impairment		479		146		2,863		2,039		25		5,552
Total ending allowance balance	$	867	$	276	$	3,139	$	2,078	$	25	$	6,385

The Company’s loan portfolio is segmented to a level that allows management to monitor risk and performance. The portfolio is segmented into Commercial and Industrial (“C&I”), Real Estate Construction, Real Estate - Mortgage which is further segmented into Residential and Commercial real estate (“CRE”), and Consumer Installment Loans. The C&I loan segment consists of loans made for the purpose of financing the activities of commercial customers. The residential mortgage loan segment consists of loans made for the purpose of financing the activities of residential homeowners. The commercial mortgage loan segment consists of loans made for the purpose of financing the activities of commercial real estate owners and operators. The consumer loan segment consists primarily of installment loans and overdraft lines of credit connected with customer deposit accounts. The decrease in the allowance for loan loss for C&I and Residential real estate loan portfolios were offset by increase in the allowance for the CRE loan portfolio.

Management evaluates individual loans in all of the commercial segments for possible impairment based on guidance established by the Board of Directors. Loans are considered to be impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement.  Factors considered by management in evaluating impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed. The Company does not separately evaluate individual consumer and residential mortgage loans for impairment, unless such loans are part of a larger relationship that is impaired.

Once the determination has been made that a loan is impaired, the determination of whether a specific allocation of the allowance is necessary is measured by comparing the recorded investment in the loan to the fair value of the loan using one of the following methods: (a) the present value of expected future cash flows discounted at the loan’s effective interest rate; (b) the loan’s observable market price; or (c) the fair value of the collateral less selling costs. The method is selected on a loan-by-loan basis, with management primarily utilizing the fair value of collateral method. The evaluation of the need and amount of a specific allocation of the allowance and whether a loan can be removed from impairment status is made on a quarterly basis. The Company’s policy for recognizing interest income on impaired loans does not differ from its overall policy for interest recognition.

The following tables present impaired loans by class, segregated by those for which a specific allowance was required and those for which a specific allowance was not necessary (in thousands):

September 30, 2016
Impaired Loans
			Unpaid
	Recorded			Principal	Related
	Investment			Balance	Allowance
With no related allowance recorded:
Commercial and industrial	$	569	$	569	$	-
Real estate - construction		1,076		1,076		-
Real estate - mortgage:
Residential		2,774		2,771		-
Commercial		1,378		1,375		-
Consumer installment		5		5		-
Total	$	5,797	$	5,791	$	-
With an allowance recorded:
Commercial and industrial	$	275	$	275	$	184
Real estate - construction		17		17		17
Real estate - mortgage:
Residential		464		462		104
Commercial		5,088		5,078		239
Consumer installment		-		-		-
Total	$	5,849	$	5,837	$	544
Total:
Commercial and industrial	$	844	$	844	$	184
Real estate - construction		1,093		1,093		17
Real estate - mortgage:
Residential		3,238		3,233		104
Commercial		6,466		6,453		239
Consumer installment		5		5		-
Total	$	11,646	$	11,628	$	544

December 31, 2015
Impaired Loans
			Balance
	Recorded			Principal	Related
	Investment			Balance	Allowance
With no related allowance recorded:
Commercial and industrial	$	1,027	$	1,025	$	-
Real estate - construction		1,657		1,651		-
Real estate - mortgage:
Residential		2,445		2,443		-
Commercial		2,337		2,335		-
Consumer installment		6		6		-
Total	$	7,466	$	7,454	$	-
With an allowance recorded:
Commercial and industrial	$	781	$	781	$	388
Real estate - construction		130		130		130
Real estate - mortgage:
Residential		1,436		1,436		276
Commercial		3,862		3,846		39
Consumer installment		-		-		-
Total	$	6,215	$	6,199	$	833
Total:
Commercial and industrial	$	1,808	$	1,806	$	388
Real estate - construction		1,787		1,781		130
Real estate - mortgage:
Residential		3,881		3,879		276
Commercial		6,199		6,181		39
Consumer installment		6		6		-
Total	$	13,681	$	13,653	$	833

The following tables present interest income by class, recognized on impaired loans (in thousands):

	For the Three Months Ended September 30, 2016				For the Nine Months Ended September 30, 2016
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
Total:
Commercial and industrial	$	864	$	4	$	1,218	$	9
Real estate - construction		1,105		3		1,404		22
Real estate - mortgage:
Residential		3,389		-		3,660		36
Commercial		7,939		8		7,449		115
Consumer installment		5		-		6		-
	$	13,302	$	15	$	13,737	$	182

	For the Three Months Ended September 30, 2015				For the Nine Months Ended September 30, 2015
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
Total:
Commercial and industrial	$	1,480	$	21	$	1,354	$	73
Real estate - construction		2,347		28		2,614		94
Real estate - mortgage:
Residential		4,195		43		4,514		128
Commercial		5,476		71		4,871		200
Consumer installment		6		-		6		-
	$	13,504	$	163	$	13,359	$	495

Management uses a nine-point internal risk-rating system to monitor the credit quality of the overall loan portfolio. The first five categories are considered not criticized and are aggregated as Pass rated. The criticized rating categories utilized by management generally follow bank regulatory definitions. The Special Mention category includes assets that are currently protected but are potentially weak, resulting in an undue and unwarranted credit risk, but not to the point of justifying a Substandard classification.  Loans in the Substandard category have well-defined weaknesses that jeopardize the liquidation of the debt and have a distinct possibility that some loss will be sustained if the weaknesses are not corrected.  All loans greater than 90 days past due are considered Substandard.   Any portion of a loan that has been charged off is placed in the Loss category.  

To help ensure that risk ratings are accurate and reflect the present and future capacity of borrowers to repay a loan as agreed, the Company has a structured loan-rating process with several layers of internal and external oversight.  Generally, consumer and residential mortgage loans are included in the Pass categories unless a specific action, such as bankruptcy, repossession, or death, occurs to raise awareness of a possible credit event.  The Company’s Commercial Loan Officers are responsible for the timely and accurate risk rating of the loans in their portfolios at origination and on an ongoing basis with the Chief Credit Officer ultimately responsible for accurate and timely risk ratings.  The Credit Department performs an annual review of all commercial relationships with loan balances of $1,000,000 or greater.  Confirmation of the appropriate risk grade is included in the review on an ongoing basis.  The Company engages an external consultant to conduct loan reviews on a semiannual basis. Generally, the external consultant reviews commercial relationships greater than $250,000 and/or criticized relationships greater than $125,000.  Detailed reviews, including plans for resolution, are performed on loans classified as Substandard on a quarterly basis.  Loans in the Special Mention and Substandard categories that are collectively evaluated for impairment are given separate consideration in the determination of the allowance.

The primary risk of commercial and industrial loans is the current economic uncertainties. C&I loans are, by nature, secured by less substantial collateral than real estate-secured loans. The primary risk of real estate construction loans is potential delays and /or disputes during the completion process. The primary risk of residential real estate loans is current economic uncertainties along with the slow recovery in the housing market. The primary risk of commercial real estate loans is loss of income of the owner or occupier of the property and the inability of the market to sustain rent levels. Consumer installment loans historically have experienced higher delinquency rates. Consumer installments are typically secured by less substantial collateral than other types of credits.

The following tables present the classes of the loan portfolio summarized by the aggregate Pass and the criticized categories of Special Mention, Substandard and Doubtful within the internal risk-rating system (in thousands):

			Special						Total
	Pass		Mention		Substandard		Doubtful		Loans
September 30, 2016
Commercial and industrial	$	57,954	$	445	$	977	$	-	$	59,376
Real estate - construction		17,448		144		24		17		17,633
Real estate - mortgage:
Residential		252,783		433		5,376		-		258,952
Commercial		237,916		3,141		4,579		-		245,636
Consumer installment		4,723		-		9		-		4,732
Total	$	540,188	$	4,163	$	11,325	$	17	$	586,329

			Special						Total
December 31, 2015	Pass		Mention		Substandard		Doubtful		Loans
Commercial and industrial	$	40,560	$	242	$	1,734	$	-	$	42,536
Real estate - construction		22,007		-		-		130		22,137
Real estate - mortgage:
Residential		225,945		728		5,805		-		232,478
Commercial		219,331		4,327		8,043		-		231,701
Consumer installment		4,854		-		4		-		4,858
Total	$	512,697	$	5,297	$	15,586	$	130	$	533,710

Management further monitors the performance and credit quality of the loan portfolio by analyzing the age of the portfolio as determined by the length of time a recorded payment is past due.

Nonperforming assets include nonaccrual loans, troubled debt restructurings (TDRs), loans 90 days or more past due, EMORECO assets, other real estate owned, and repossessed assets. A loan is classified as nonaccrual when, in the opinion of management, there are serious doubts about collectability of interest and principal. Accrual of interest is discontinued on a loan when management believes, after considering economic and business conditions, the borrower’s financial condition is such that collection of principal and interest is doubtful.  Payments received on nonaccrual loans are applied against the principal balance.

The following tables present the classes of the loan portfolio summarized by the aging categories of performing loans (in thousands):

			30-59 Days		60-89 Days		90 Days+		Total		Total
	Current		Past Due		Past Due		Past Due		Past Due		Loans
September 30, 2016
Commercial and industrial	$	58,889	$	59	$	92	$	336	$	487	$	59,376
Real estate - construction		17,633		-		-		-		-		17,633
Real estate - mortgage:
Residential		257,068		1,052		547		285		1,884		258,952
Commercial		244,771		121		-		744		865		245,636
Consumer installment		4,656		76		-		-		76		4,732
Total	$	583,017	$	1,308	$	639	$	1,365	$	3,312	$	586,329

			30-59 Days		60-89 Days		90 Days+		Total		Total
	Current		Past Due		Past Due		Past Due		Past Due		Loans
December 31, 2015
Commercial and industrial	$	41,544	$	225	$	26	$	741	$	992	$	42,536
Real estate - construction		22,137		-		-		-		-		22,137
Real estate - mortgage:
Residential		229,725		1,482		92		1,179		2,753		232,478
Commercial		230,903		189		-		609		798		231,701
Consumer installment		4,837		16		3		2		21		4,858
Total	$	529,146	$	1,912	$	121	$	2,531	$	4,564	$	533,710

The following tables present the classes of the loan portfolio summarized by nonaccrual loans (in thousands):

	September 30, 2016		90+ Days Past Due
	Nonaccrual		and Accruing
Commercial and industrial	$	920	$	-
Real estate - construction		17		-
Real estate - mortgage:
Residential		3,822		-
Commercial		1,730		-
Consumer installment		-		-
Total	$	6,490	$	-

	December 31, 2015		90+ Days Past Due
	Nonaccrual		and Accruing
Commercial and industrial	$	1,450	$	-
Real estate - construction		130		-
Real estate - mortgage:
Residential		4,122		-
Commercial		1,842		-
Consumer installment		1		2
Total	$	7,545	$	2

An allowance for loan and lease losses (“ALLL”) is maintained to absorb losses from the loan portfolio.  The ALLL is based on management’s continuing evaluation of the risk characteristics and credit quality of the loan portfolio, assessment of current economic conditions, diversification and size of the portfolio, adequacy of collateral, past and anticipated loss experience, and the amount of nonperforming loans.

The Company’s methodology for determining the ALLL is based on the requirements of ASC Section 310-10-35 for loans individually evaluated for impairment (discussed above) and ASC Subtopic 450-20 for loans collectively evaluated for impairment, as well as the Interagency Policy Statements on the Allowance for Loan and Lease Losses and other bank regulatory guidance.   The total of the two components represents the Company’s ALLL. Management also performs impairment analyses on TDRs, which may result in specific reserves.

Loans that are collectively evaluated for impairment are analyzed with general allowances being made as appropriate.  For general allowances, historical loss trends are used in the estimation of losses in the current portfolio.  These historical loss amounts are modified by other qualitative factors.

The classes described above, which are based on the purpose code assigned to each loan, provide the starting point for the ALLL analysis.  Management tracks the historical net charge-off activity at the purpose code level.  A historical charge-off factor is calculated using the last four consecutive historical quarters.

Management has identified a number of additional qualitative factors which it uses to supplement the historical charge-off factor because these factors are likely to cause estimated credit losses associated with the existing loan pools to differ from historical loss experience.  The additional factors that are evaluated quarterly and updated using information obtained from internal, regulatory, and governmental sources are: national and local economic trends and conditions; levels of and trends in delinquency rates and nonaccrual loans; trends in volumes and terms of loans; effects of changes in lending policies; experience, ability, and depth of lending staff; value of underlying collateral; and concentrations of credit from a loan type, industry and/or geographic standpoint.

Management reviews the loan portfolio on a quarterly basis using a defined, consistently applied process in order to make appropriate and timely adjustments to the ALLL.  When information confirms all or part of specific loans to be uncollectible, these amounts are promptly charged off against the ALLL.

The following tables summarize the primary segments of the loan portfolio (in thousands):

	Commercial and industrial			Real estate- construction			Real estate- residential mortgage			Real estate- commercial mortgage			Consumer installment			Total
ALLL balance at December 31, 2015	$	867		$	276		$	3,139		$	2,078		$	25		$	6,385
Charge-offs		(197	)		-			(394	)		(70	)		(18	)		(679	)
Recoveries		51			-			113			140			9			313
Provision		(208	)		(138	)		(97	)		747			11			315
ALLL balance at September 30, 2016	$	513		$	138		$	2,761		$	2,895		$	27		$	6,334

	Commercial and industrial			Real estate- construction			Real estate- residential mortgage			Real estate- commercia l mortgage			Consumer installment			Total
ALLL balance at December 31, 2014	$	642		$	868		$	3,703		$	1,576		$	57		$	6,846
Charge-offs		(196	)		(385	)		(425	)		(92	)		(11	)		(1,109	)
Recoveries		186			-			161			5			21			373
Provision		(54	)		(149	)		(13	)		450			(24	)		210
ALLL balance at September 30, 2015	$	578		$	334		$	3,426		$	1,939		$	43		$	6,320

	Commercial and industrial			Real estate- construction			Real estate- residential mortgage			Real estate- commercial mortgage			Consumer installment			Total
ALLL balance at June 30, 2016	$	484		$	159		$	2,788		$	2,909		$	26		$	6,366
Charge-offs		(74	)		-			(149	)		-			(3	)		(226	)
Recoveries		4			-			82			-			3			89
Provision		99			(21	)		40			(14	)		1			105
ALLL balance at September 30, 2016	$	513		$	138		$	2,761		$	2,895		$	27		$	6,334

	Commercial and industrial			Real estate- construction			Real estate- residential mortgage			Real estate- commercial mortgage			Consumer installment			Total
ALLL balance at June 30, 2015	$	610		$	363		$	3,347		$	1,978		$	48		$	6,346
Charge-offs		(100	)		-			(124	)		(5	)		-			(229	)
Recoveries		5			-			81			5			7			98
Provision		63			(29	)		122			(39	)		(12	)		105
ALLL balance at September 30, 2015	$	578		$	334		$	3,426		$	1,939		$	43		$	6,320

For the three months ended September 30, 2016 there were no troubled debt restructurings. The following tables summarize troubled debt restructurings (in thousands):

	For the Nine Months Ended September 30, 2016
	Number of Contracts						Pre-Modification			Post-Modification
	Term							Outstanding Recorded			Outstanding Recorded
Troubled Debt Restructurings		Modification	Other		Total			Investment			Investment
Commercial and industrial		2		-		2	$		169	$		169
Residential real estate		1		-		1			58			58
Commercial real estate		1		-		1			311			311
Consumer		-		-		-			-			-

	For the Three Months Ended September 30, 2015
	Number of Contracts						Pre-Modification			Post-Modification
	Term							Outstanding Recorded			Outstanding Recorded
Troubled Debt Restructurings		Modification	Other		Total			Investment			Investment
Commercial and industrial		2		-		2	$		15	$		15
Real estate construction		-		-		-			-			-
Residential real estate		1		-		1			164			164
Consumer		1		-		1			9			9

	For the Nine Months Ended September 30, 2015
	Number of Contracts						Pre-Modification Outstanding			Post-Modification Outstanding
	Term							Outstanding Recorded			Outstanding Recorded
Troubled Debt Restructurings		Modification	Other		Total			Investment			Investment
Commercial and industrial		3		1		4	$		126	$		126
Real estate construction		1		-		1			181			181
Residential real estate		2		1		3			398			418
Consumer		1		-		1			9			9

The following tables summarizes subsequent defaults of troubled debt restructurings (in thousands):

	For the Three Months Ended
	September 30, 2016
Troubled Debt Restructurings subsequently defaulted	Number of Contracts		Recorded Investment
Commercial and industrial		1	$	3
Residential real estate		1		58

	For the Nine Months Ended
	September 30, 2016
Troubled Debt Restructurings subsequently defaulted	Number of Contracts		Recorded Investment
Commercial and industrial		2	$	273
Real estate construction		1		58

	For the Three Months Ended
	September 30, 2015
Troubled Debt Restructurings subsequently defaulted	Number of Contracts		Recorded Investment
Commercial and industrial		1	$	8
Real estate construction		-		-
Consumer		1		8

	For the Nine Months Ended
	September 30, 2015
Troubled Debt Restructurings subsequently defaulted	Number of Contracts		Recorded Investment
Commercial and industrial		3	$	55
Real estate construction		1		152
Consumer		1		8

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Note 8 - Other Real Estate Owned ("OREO")

9 Months Ended

Sep. 30, 2016

Notes to Financial Statements

Other Real Estate Owned (OREO) [Text Block]

NOTE 8 –

OTHER REAL ESTATE OWNED (“OREO”)

OREO comprises foreclosed assets acquired in settlement of loans and is carried at fair value less estimated cost to sell and is included in other assets on the Consolidated Balance Sheet. At September 30, 2016 and December 31, 2015, there was $1.2 and 1.4 million of OREO, respectively. As of September 30, 2016, there were no formal foreclosure proceedings.

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Note 9 - Subsequent Event

9 Months Ended

Sep. 30, 2016

Notes to Financial Statements

Subsequent Events [Text Block]

NOTE 9 –

PROPOSED ACQUISITION OF LIBERTY BANK, N.A.

On July 28, 2016 Middlefield Banc Corp. and Liberty Bank, N.A. entered into an Agreement and Plan of Reorganization. Under the agreement Liberty Bank, N.A. will merge into The Middlefield Banking Company. Of the total merger consideration payable to shareholders of Liberty Bank, N.A., the merger agreement provides that 45% will consist of Middlefield Banc Corp. common stock and the remainder will be cash, for cash of approximately $37.96 per share or Middlefield Banc Corp. common stock at a fixed ratio of 1.1934 for each share of Liberty Bank, N.A. stock exchanged for Middlefield Banc Corp. stock. Liberty Bank, N.A.’s outstanding equity-based awards will be surrendered for total cash currently estimated at approximately $1.147 million. The merger agreement also provides that Liberty Bank, N.A. will pay to its shareholders before merger closing a special dividend in an amount of approximately $3.0 million, subject to possible upward adjustment. Middlefield Banc Corp. owns 23,218 shares of Liberty Bank, N.A. stock, or approximately 2.4%. Those shares will be cancelled in the merger for no consideration.

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Significant Accounting Policies (Policies)

9 Months Ended

Sep. 30, 2016

Accounting Policies [Abstract]

New Accounting Pronouncements, Policy [Policy Text Block]

Recent Accounting Pronouncements –

In May 2014, the FASB issued ASU 2014-09,

Revenue from Contracts with Customers

(a new revenue

recognition standard). The Update’s core principle is that a company will recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In addition, this Update specifies the accounting for certain costs to obtain or fulfill a contract with a customer and expands disclosure requirements for revenue recognition. This Update is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations.

In June 2014, the FASB issued ASU 2014-12,

Compensation – Stock Compensation (

Topic 718

): Accounting for Share-Based Payments when the Terms of an Award Provide that a Performance Target Could Be Achieved After the Requisite Service Period

. The amendments require that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. The amendments in this Update are effective for annual periods and interim periods within those annual periods beginning after December 15, 2015. Earlier adoption is permitted. Entities may apply the amendments in this Update either (a) prospectively to all awards granted or modified after the effective date or (b) retrospectively to all awards with performance targets that are outstanding as of the beginning of the earliest annual period presented in the financial statements and to all new or modified awards thereafter. If retrospective transition is adopted, the cumulative effect of applying this Update as of the beginning of the earliest annual period presented in the financial statements should be recognized as an adjustment to the opening retained earnings balance at that date. Additionally, if retrospective transition is adopted, an entity may use hindsight in measuring and recognizing the compensation cost. This Update is not expected to have a significant impact on the Company’s financial statements, or the Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations.

In August 2014, the FASB issued ASU 2014-15,

Presentation of Financial Statements – Going Concern (Subtopic

205-40). The amendments in this Update provide guidance in accounting principles generally accepted in the United States of America about management's responsibility to evaluate whether there is substantial doubt about an entity's ability to continue as a going concern and to provide related footnote disclosures. The amendments in this Update are effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. Early application is permitted. This Update is not expected to have a significant impact on the Company’s financial statements.

In November 2014, the FASB issued ASU 2014-16,

Derivatives and Hedging (Topic 815): Determining Whether the Host Contract in a Hybrid Financial Instrument Issued in the Form of a Share Is More Akin to Debt or to Equity (a consensus of the FASB Emerging Issues Task Force).

This Update clarifies how current U.S. GAAP should be interpreted in subjectively evaluating the economic characteristics and risks of a host contract in a hybrid financial instrument that is issued in the form of a share. Public business entities are required to implement the new requirements in fiscal years and interim periods within those fiscal years beginning after December 15, 2015. This Update is not expected to have a significant impact on the Company’s financial statements, or the Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations.

In January 2015, the FASB issued ASU 2015-01,

Income Statement – Extraordinary and Unusual Items,

as part of its initiative to reduce complexity in accounting standards. This Update eliminates from U.S. GAAP the concept of extraordinary items. The amendments in this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. A reporting entity may apply the amendments prospectively. A reporting entity may also apply the amendments retrospectively to all prior periods presented in the financial statements. Early adoption is permitted provided that the guidance is applied from the beginning of the fiscal year of adoption. This Update is not expected to have a significant impact on the Company’s financial statements.

In February 2015, the FASB issued ASU 2015-02,

Consolidation (Topic 810)

. The amendments in this Update affect reporting entities that are required to evaluate whether they should consolidate certain legal entities. All legal entities are subject to reevaluation under the revised consolidation model. 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. The amendments in this Update are effective for public business entities for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2015. For all other entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2016, and for interim periods within fiscal years beginning after December 15, 2017. This Update is not expected to have a significant impact on the Company’s financial statements, or the Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations.

In April 2015, the FASB issued ASU 2015-03,

Interest – Imputation of Interest (Subtopic 835-30)

, as part of its initiative to reduce complexity in accounting standards. To simplify presentation of debt issuance costs, the amendments in this Update require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this Update. For public business entities, the amendments in this Update are effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. For all other entities, the amendments in this Update are effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within fiscal years beginning after December 15, 2016. An entity should apply the new guidance on a retrospective basis, wherein the balance sheet of each individual period presented should be adjusted to reflect the period-specific effects of applying the new guidance. This Update is not expected to have a significant impact on the Company’s financial statements or the Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations.

In April 2015, the FASB issued ASU 2015-04,

Compensation – Retirement Benefits (Topic 715),

as part of its initiative to reduce complexity in accounting standards. For an entity with a fiscal year-end that does not coincide with a month-end, the amendments in this Update provide a practical expedient that permits the entity to measure defined benefit plan assets and obligations using the month-end that is closest to the entity's fiscal year-end and apply that practical expedient consistently from year to year. The practical expedient should be applied consistently to all plans if an entity has more than one plan. The amendments in this Update are effective for public business entities for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. For all other entities, the amendments in this Update are effective for financial statements issued for fiscal years beginning after December 15, 2016, and interim periods within fiscal years beginning after December 15, 2017. Earlier application is permitted. This Update is not expected to have a significant impact on the Company’s financial statements.

In April 2015, the FASB issued ASU 2015-05,

Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40)

, as part of its initiative to reduce complexity in accounting standards. This guidance will help entities evaluate the accounting for fees paid by a customer in a cloud computing arrangement. The amendments in this Update provide guidance to customers about whether a cloud computing arrangement includes a software license. If a cloud computing arrangement includes a software license, then 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. For public business entities, the FASB decided that the amendments will be effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2015. For all other entities, the amendments will be effective for annual periods beginning after December 15, 2015, and interim periods in annual periods beginning after December 15, 2016. Early adoption is permitted for all entities. This Update is not expected to have a significant impact on the Company’s financial statements.

In April 2015, the FASB issued ASU 2015-06,

Earnings Per Share (Topic 260): Effects on Historical Earnings per Unit of Master Limited Partnership Dropdown Transactions.

Topic 260,

Earnings Per Share

, contains guidance that addresses master limited partnerships that originated from the Emerging Issues Task Force (“EITF”) Issue No. 07-4,

Application of the Two-Class Method Under FASB Statement No. 128 to Master Limited Partnerships

. Under Topic 260, master limited partnerships apply the two-class method of calculating earnings per unit because the general partner, limited partners, and incentive distribution rights holders each participate differently in the distribution of available cash in accordance with the contractual rights contained in the partnership agreement. The amendments in this Update specify that for purposes of calculating historical earnings per unit under the two-class method, the earnings (losses) of a transferred business before the date of a dropdown transaction should be allocated entirely to the general partner. In that circumstance, the previously reported earnings per unit of the limited partners (which is typically the earnings per unit measure presented in the financial statements) would not change as a result of the dropdown transaction. Qualitative disclosures about how the rights to the earnings (losses) differ before and after the dropdown transaction occurs for purposes of computing earnings per unit under the two-class method are also required. The amendments in this Update are effective for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. Earlier application is permitted. This Update is not expected to have a significant impact on the Company’s financial statements.

In May 2015, the FASB issued ASU 2015-07,

Disclosures for Investments in Certain Entities that Calculate Net Asset Value per Share (or Its Equivalent)

. The Update applies to reporting entities that elect to measure the fair value of an investment using the net asset value per share (or its equivalent) practical expedient. Under the amendments in this Update, investments for which fair value is measured at net asset value per share (or its equivalent) using the practical expedient should not be categorized in the fair value hierarchy. Removing those investments from the fair value hierarchy not only eliminates the diversity in practice resulting from the way in which investments measured at net asset value per share (or its equivalent) with future redemption dates are classified, but also ensures that all investments categorized in the fair value hierarchy are classified using a consistent approach. Investments that calculate net asset value per share (or its equivalent), but for which the practical expedient is not applied will continue to be included in the fair value hierarchy. A reporting entity should continue to disclose information on investments for which fair value is measured at net asset value (or its equivalent) as a practical expedient to help users understand the nature and risks of the investments and whether the investments, if sold, are probable of being sold at amounts different from net asset value. The amendments in this Update are effective for public business entities for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. For all other entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. A reporting entity should apply the amendments retrospectively to all periods presented. The retrospective approach requires that an investment for which fair value is measured using the net asset value per share practical expedient be removed from the fair value hierarchy in all periods presented in an entity's financial statements. Earlier application is permitted. This Update is not expected to have a significant impact on the Company’s financial statements.

In May 2015, the FASB issued ASU 2015-09,

Financial Services – Insurance (Topic 944): Disclosure About Short-Duration Contracts

. The amendments apply to all insurance entities that issue short-duration contracts as defined in Topic 944,

Financial Services – Insurance

. The amendments require insurance entities to disclose for annual reporting periods certain information about the liability for unpaid claims and claim adjustment expenses. The amendments also require insurance entities to disclose information about significant changes in methodologies and assumptions used to calculate the liability for unpaid claims and claim adjustment expenses, including reasons for the change and the effects on the financial statements. Additionally, the amendments require insurance entities to disclose for annual and interim reporting periods a roll forward of the liability for unpaid claims and claim adjustment expenses, described in Topic 944. For health insurance claims, the amendments require the disclosure of the total of incurred-but-not-reported liabilities plus expected development on reported claims included in the liability for unpaid claims and claim adjustment expenses. For public business entities, the amendments in this Update are effective for annual periods beginning after December 15, 2015, and interim periods within annual periods beginning after December 15, 2016. For all other entities, the amendments in this Update are effective for annual periods beginning after December 15, 2016, and interim periods within annual periods beginning after December 15, 2017. This Update is not expected to have a significant impact on the Company’s financial statements.

In June 2015, the FASB issued ASU 2015-10,

Technical Corrections and Improvements

. The amendments in this Update represent changes to clarify the FASB Accounting Standards Codification (“Codification”), correct unintended application of guidance, or make minor improvements to the Codification that are not expected to have a significant effect on current accounting practice or create a significant administrative cost to most entities. Transition guidance varies based on the amendments in this Update. The amendments in this Update that require transition guidance are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. Early adoption is permitted, including adoption in an interim period. All other amendments will be effective upon the issuance of this Update. This Update is not expected to have a significant impact on the Company’s financial statements.

In August 2015, the FASB issued ASU 2015-14,

Revenue from Contract with Customers

(

Topic 606

). The amendments in this Update defer the effective date of ASU 2014-09 for all entities by one year. Public business entities, certain not-for-profit entities, and certain employee benefit plans should apply the guidance in ASU 2014-09 to annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. All other entities should apply the guidance in ASU 2014-09 to annual reporting periods beginning after December 15, 2018, and interim reporting periods within annual reporting periods beginning after December 15, 2019. The Company is evaluating the effect of adopting this new accounting Update.

In September 2015, the FASB issued ASU 2015-16,

Business Combinations (Topic 805).

The amendments in this Update require that an acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. The amendments in this Update require that the acquirer record, in the same period's financial statements, the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date. The amendments in this Update require an entity to present separately on the face of the income statement or disclose in the notes the portion of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date. For public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2015, including interim periods within those fiscal years. For all other entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2016, and interim periods within fiscal years beginning after December 15, 2017. This Update is not expected to have a significant impact on the Company’s financial statements, or the Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations.

In November 2015, the FASB issued ASU 2015-17,

Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes

. The amendments in this Update require that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position. The amendments in this Update apply to all entities that present a classified statement of financial position. For public business entities, the amendments in this Update are effective for financial statements issued for annual periods beginning after December 15, 2016, and interim periods within those annual periods. For all other entities, the amendments in this Update are effective for financial statements issued for annual periods beginning after December 15, 2017, and interim periods within annual periods beginning after December 15, 2018. Earlier application is permitted for all entities as of the beginning of an interim or annual reporting period. The amendments in this Update may be applied either prospectively to all deferred tax liabilities and assets or retrospectively to all periods presented. This Update is not expected to have a significant impact on the Company’s financial statements.

In January 2016, the FASB issued ASU 2016-01,

Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities

. This Update applies to all entities that hold financial assets or owe financial liabilities and is intended to provide more useful information on the recognition, measurement, presentation, and disclosure of financial instruments. Among other things, this Update (a) requires equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income; (b) simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment; (c) eliminates the requirement to disclose the fair value of financial instruments measured at amortized cost for entities that are not public business entities; (d) eliminates the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet; (e) requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; (f) requires 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 in accordance with the fair value option for financial instruments; (g) requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (that is, securities or loans and receivables) on the balance sheet or the accompanying notes to the financial statements; and (h) clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets. For public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. For all other entities, including not-for-profit entities and employee benefit plans within the scope of Topics 960 through 965 on plan accounting, the amendments in this Update are effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. All entities that are not public business entities may adopt the amendments in this Update earlier as of the fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations.

In February 2016, the FASB issued ASU 2016-02,

Leases (Topic 842)

. The standard 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 the lease term.  A short-term lease is defined as one in which (a) the lease term is 12 months or less and (b) there is not an option to purchase the underlying asset that the lessee is reasonably certain to exercise. For short-term leases, lessees may elect to recognize lease payments over the lease term on a straight-line basis. For public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2018, and interim periods within those years. For all other entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2019, and for interim periods within fiscal years beginning after
December 15, 2020. The amendments 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. This Update is not expected to have a significant impact on the Company’s financial statements, or the Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations.

In March 2016, the FASB issued ASU 2016-04,

Liabilities

–

Extinguishments of Liabilities (Subtopic 405-20).

The standard provides that liabilities related to the sale of prepaid stored-value products within the scope of this Update are financial liabilities. The amendments in the Update provide a narrow-scope exception to the guidance in Subtopic 405-20 to require that breakage for those liabilities be accounted for consistent with the breakage guidance in Topic 606. The amendments in this Update are effective for public business entities, certain not-for-profit entities, and certain employee benefit plans for financial statements issued for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. For all other entities, the amendments are effective for financial statements issued for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. Earlier application is permitted, including adoption in an interim period. This Update is not expected to have a significant impact on the Company’s financial statements.

In March 2016, the FASB issued ASU 2016-05,

Derivatives and Hedging (Topic 815)

. The amendments in this Update apply to all reporting entities for which there is a change in the counterparty to a derivative instrument that has been designated as a heading instrument under Topic 815

.

The standards in this Update clarify that a change in the counterparty to a derivative instrument that has been designated as the hedging instrument under Topic 815does not, in and of itself, require designation of that hedging relationship provided that all other hedge accounting criteria continue to be met. For public business entities, the amendments in this Update are effective for financial statements issued for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. For all other entities, the amendments in this Update are effective for financial statements issued for fiscal years beginning after December 15, 2017, and interim periods within fiscal years beginning after December 15, 2018. An entity has an option to apply the amendments in this Update on either a prospective basis or a modified retrospective basis. Early adoption is permitted, including adoption in an interim period. This Update is not expected to have a significant impact on the Company’s financial statements, or the Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations.

In March 2016, the FASB issued ASU 2016-06,

Derivatives and Hedging (Topic 815)

. The amendments apply to all entities that are issuers of or investors in debt instruments (or hybrid financial instruments that are determined to have a debt host) with embedded call (put) options. The amendments in this Update clarify the requirements for assessing whether contingent call (put) options that can accelerate the payment of principal on debt instruments are clearly and closely related to their debt host. An entity performing the assessment under the amendments in this Update is required to assess the embedded call (put) options solely in accordance with the four-step decision sequence. For public business entities, the amendments in this Update are effective for financial statements issued for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. For entities other than public business entities, the amendments in this Update are effective for financial statements issued for fiscal years beginning after December 15, 2017, and interim periods within fiscal years beginning after December 15, 2018. Early adoption is permitted, including adoption in an interim period. This Update is not expected to have a significant impact on the Company’s financial statements, or the Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations.

In March 2016, the FASB issued ASU 2016-07,

Investments

–

Equity Method and Joint Ventures (Topic 323)

. The Update affects all entities that have an investment that becomes qualified for the equity method of accounting as a result of an increase in the level of ownership interest or degree of influence. The amendments in this Update eliminate the requirement that when an investment qualifies for use of the equity method as a result of an increase in the level of ownership interest or degree of influence, an investor must adjust the investment, results of operations, and retained earnings retroactively on a step-by-step basis as if the equity method had been in effect during all previous periods that the investment had been held. The amendments require that the equity method investor add the cost of acquiring the additional interest in the investee to the current basis of the investor's previously held interest and adopt the equity method of accounting as of the date the investment becomes qualified for equity method accounting. Therefore, upon qualifying for the equity method of accounting, no retroactive adjustment of the investment is required. The amendments in this Update require that an entity that has an available-for-sale equity security that becomes qualified for the equity method of accounting recognize through earnings the unrealized holding gain or loss in accumulated other comprehensive income at the date the investment becomes qualified for use of the equity method. The amendments in this Update are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. The amendments should be applied prospectively upon their effective date to increases in the level of ownership interest or degree of influence that result in the adoption of the equity method. Earlier application is permitted. This Update is not expected to have a significant impact on the Company’s financial statements or the Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations.

In March 2016, the FASB issued ASU 2016-08,

Revenue from Contracts with Customers (Topic 606).

The amendments in this Update affect entities with transactions included within the scope of Topic 606, which includes entities that enter into contracts with customers to transfer goods or services (that are an output of the entity’s ordinary activities) in exchange for consideration. The amendments in this Update do not change the core principle of the guidance in Topic 606; they simply clarify the implementation guidance on principal versus agent considerations. The amendments in this Update are intended to improve the operability and understandability of the implementation guidance on principal versus agent considerations. The amendments in this Update affect the guidance in ASU 2014-09,

Revenue from Contracts with Customers (Topic 606),

which is not yet effective. The effective date and transition requirements for the amendments in this Update are the same as the effective date and transition requirements of Update 2014-09. ASU No. 2015-14,

Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date,

defers the effective date of Update 2014-09 by one year. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations.

In March 2016, the FASB issued ASU 2016-09,

Compensation – Stock Compensation (Topic 718)

. The amendments in this Update affect all entities that issue share-based payment awards to their employees. The standards in this Update provide simplification for several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as with equity or liabilities, and classification on the statement of cash flows. Some of the areas for simplification apply only to nonpublic entities. In addition to those simplifications, the amendments eliminate the guidance in Topic 718 that was indefinitely deferred shortly after the issuance of FASB Statement No. 123 (revised 2004),

Share-Based Payment

. This should not result in a change in practice because the guidance that is being superseded was never effective. For public business entities, the amendments in this Update are effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. For all other entities, the amendments are effective for annual periods beginning after December 15, 2017, and interim periods within annual periods beginning after December 15, 2018. Early adoption is permitted for any entity in any interim or annual period. This Update is not expected to have a significant impact on the Company’s financial statements, or the Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations.

In April 2016, the FASB issued ASU 2016-10,

Revenue from Contracts with Customers (Topic 606).

The amendments in this Update affect entities with transactions included within the scope of Topic 606, which includes entities that enter into contracts with customers to transfer goods or services in exchange for consideration. The amendments in this Update do not change the core principle for revenue recognition in Topic 606. Instead, the amendments provide (1) more detailed guidance in a few areas and (2) additional implementation guidance and examples based on feedback the FASB received from its stakeholders. The amendments are expected to reduce the degree of judgment necessary to comply with Topic 606, which the FASB expects will reduce the potential for diversity arising in practice and reduce the cost and complexity of applying the guidance. The amendments in this Update affect the guidance in ASU 2014-09,

Revenue from Contracts with Customers (Topic 606)

, which is not yet effective. The effective date and transition requirements for the amendments in this Update are the same as the effective date and transition requirements in Topic 606 (and any other Topic amended by Update 2014-09). ASU 2015-14,

Revenue from Contracts with Customers (Topic 606)

:

Deferral of the Effective Date

, defers the effective date of Update 2014-09 by one year. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations.

In May 2016, the FASB issued ASU 2016-11, Revenue Recognition (Topic 605) and Derivative and Hedging (Topic 815), which rescinds SEC paragraphs pursuant to two SEC Staff Announcements at the March 3, 2016, Emerging Issues Task Force meeting. This Update did not have a significant impact on the Company’s financial statements

In May 2016, the FASB issued ASU 2016-12, Revenue from Contracts with Customers (Topic 606), which among other things clarifies the objective of the collectability criterion in Topic 606, as well as certain narrow aspects of Topic 606. The amendments in this Update affect the guidance in ASU 2014-09, Revenue from Contracts with Customers (Topic 606), which is not yet effective. The effective date and transition requirements for the amendments in this Update are the same as the effective date and transition requirements for Topic 606 (and any other Topic amended by Update 2014-09). ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, defers the effective date of Update 2014-09 by one year. This Update is not expected to have a significant impact on the Company’s financial statements

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), which changes the impairment model for most financial assets. This Update is intended to improve financial reporting by requiring timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations. The underlying premise of the Update is that financial assets measured at amortized cost should be presented at the net amount expected to be collected, through an allowance for credit losses that is deducted from the amortized cost basis. The allowance for credit losses should reflect management’s current estimate of credit losses that are expected to occur over the remaining life of a financial asset. The income statement will be effected for the measurement of credit losses for newly recognized financial assets, as well as the expected increases or decreases of expected credit losses that have taken place during the period. ASU 2016-13 is effective for annual and interim periods beginning after December 15, 2019, and early adoption is permitted for annual and interim periods beginning after December 15, 2018. With certain exceptions, transition to the new requirements will be through a cumulative effect adjustment to opening retained earnings as of the beginning of the first reporting period in which the guidance is adopted. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results of operations.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (“ASU 2016-15”), which addresses eight specific cash flow issues with the objective of reducing diversity in practice. Among these include recognizing cash payments for debt prepayment or debt extinguishment as cash outflows for financing activities; cash proceeds received from the settlement of insurance claims should be classified on the basis of the related insurance coverage; and cash proceeds received from the settlement of bank-owned life insurance policies should be classified as cash inflows from investing activities while the cash payments for premiums on bank-owned policies may be classified as cash outflows for investing activities, operating activities, or a combination of investing and operating activities. The amendments in this Update are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. Early adoption is permitted, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. An entity that elects early adoption must adopt all of the amendments in the same period. The amendments in this Update should be applied using a retrospective transition method to each period presented. If it is impracticable to apply the amendments retrospectively for some of the issues, the amendments for those issues would be applied prospectively as of the earliest date practicable. The Company is currently evaluating the impact the adoption of the standard will have on the Company’s statement of cash flows.

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Note 2 - Stock-based Compensation (Tables)

9 Months Ended

Sep. 30, 2016

Notes Tables

Schedule of Share-based Compensation, Stock Options, Activity [Table Text Block]

			Weighted-					Weighted-
			average					average
			Exercise					Exercise
	2016		Price		2015			Price
Outstanding, January 1		31,949	$	25.03		46,451		$	27.90
Expired		-		-		(3,639	)		37.33
Exercised		-		-		(1,025	)		20.21
Outstanding, September 30		31,949	$	25.03		41,787		$	27.27
Exercisable, September 30		31,949	$	25.03		41,787		$	27.27

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Note 3 - Earnings Per Share (Tables)

9 Months Ended

Sep. 30, 2016

Notes Tables

Schedule of Weighted Average Number of Shares [Table Text Block]

	For the Three						For the Nine
	Months Ended						Months Ended
	September 30,						September 30,
	2016			2015			2016			2015
Weighted-average common shares outstanding		2,633,752			2,253,584			2,445,821			2,248,468
Average treasury stock shares		(386,165	)		(189,530	)		(386,165	)		(189,530	)
Weighted-average common shares and common stock equivalents used to calculate basic earnings per share		2,247,587			2,064,054			2,059,656			2,058,938
Additional common stock equivalents (stock options) used to calculate diluted earnings per share		8,643			8,585			8,876			9,254
Weighted-average common shares and common stock equivalents used to calculate diluted earnings per share		2,256,230			2,072,639			2,068,532			2,068,192

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Note 4 - Fair Value Measurements (Tables)

9 Months Ended

Sep. 30, 2016

Notes Tables

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

			September 30, 2016
(Dollar amounts in thousands)	Level I		Level II		Level III		Total
Assets measured on a recurring basis:
U.S. government agency securities	$	-	$	10,863	$	-	$	10,863
Obligations of states and political subdivisions		-		87,525		-		87,525
Mortgage-backed securities in government- sponsored entities		-		21,380		-		21,380
Private-label mortgage-backed securities		-		2,068		-		2,068
Total debt securities		-		121,836		-		121,836
Equity securities in financial institutions		5		1,213		-		1,218
Total	$	5	$	123,049	$	-	$	123,054

			December 31, 2015
(Dollar amounts in thousands)	Level I		Level II		Level III		Total
Assets measured on a recurring basis:
U.S. government agency securities	$	-	$	21,629	$	-	$	21,629
Obligations of states and political subdivisions		-		97,290		-		97,290
Mortgage-backed securities in government- sponsored entities		-		24,524		-		24,524
Private-label mortgage-backed securities		-		2,263		-		2,263
Total debt securities		-		145,706		-		145,706
Equity securities in financial institutions		5		809		-		814
Total	$	5	$	146,515	$	-	$	146,520

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

			September 30, 2016
(Dollar amounts in thousands)	Level I		Level II		Level III		Total
Assets measured on a nonrecurring basis:
Impaired loans	$	-	$	-	$	11,102	$	11,102
Other real estate owned		-		-		1,205		1,205

			December 31, 2015
(Dollar amounts in thousands)	Level I		Level II		Level III		Total
Assets measured on a nonrecurring basis:
Impaired loans	$	-	$	-	$	12,848	$	12,848
Other real estate owned		-		-		1,412		1,412

Fair Value Inputs, Assets, Quantitative Information [Table Text Block]

	Quantitative Information about Level III Fair Value Measurements
(Dollar amounts in thousands)
	Fair Value Estimate		Valuation Techniques	Unobservable Input	Range (Weighted Average)
September 30, 2016
Impaired loans	$	7,743	Discounted cash flow	Discount rate	3.1%	to	7.0%	(5.0%)
		3,359	Appraisal of collateral (1)	Appraisal adjustments (2)	0.0%	to	55.7%	(34.6%)
Other real estate owned	$	1,205	Appraisal of collateral (1)	Appraisal adjustments (2)	0.0%	to	10.0%	(7.3%)

	Quantitative Information about Level III Fair Value Measurements
(Dollar amounts in thousands)
	Fair Value Estimate		Valuation Techniques	Unobservable Input	Range (Weighted Average)
December 31, 2015
Impaired loans	$	6,867	Discounted cash flow	Discount rate	3.1%	to	7.9%	(5.0%)
		5,981	Appraisal of collateral (1)	Appraisal adjustments (2)	0.0%	to	87.1%	(23.3%)
Other real estate owned	$	1,412	Appraisal of collateral (1)	Appraisal adjustments (2)	0%	to	10.0%	(7.3%)

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

	September 30, 2016
	Carrying								Total
	Value		Level I		Level II		Level III		Fair Value
	(Dollar amounts in thousands)
Financial assets:
Cash and cash equivalents	$	23,276	$	23,276	$	-	$	-	$	23,276
Investment securities
Available for sale		123,054		5		123,049		-		123,054
Loans held for sale		880		-		880		-		880
Net loans		579,995		-		-		586,739		586,739
Bank-owned life insurance		13,438		13,438		-		-		13,438
Federal Home Loan Bank stock		1,887		1,887		-		-		1,887
Accrued interest receivable		2,526		2,526		-		-		2,526
Financial liabilities:
Deposits	$	639,342	$	454,427	$	-	$	188,668	$	643,095
Short-term borrowings		32,803		32,803		-		-		32,803
Other borrowings		9,713		-		-		10,003		10,003
Accrued interest payable		391		391		-		-		391

	December 31, 2015
	Carrying								Total
	Value		Level I		Level II		Level III		Fair Value
	(Dollar amounts in thousands)
Financial assets:
Cash and cash equivalents	$	23,750	$	23,750	$	-	$	-	$	23,750
Investment securities
Available for sale		146,520		5		146,515		-		146,520
Loans held for sale		1,107		-		1,107		-		1,107
Net loans		527,325		-		-		534,021		534,021
Bank-owned life insurance		13,141		13,141		-		-		13,141
Federal Home Loan Bank stock		1,887		1,887		-		-		1,887
Accrued interest receivable		2,387		2,387		-		-		2,387
Financial liabilities:
Deposits	$	624,447	$	433,226	$	-	$	191,747	$	624,973
Short-term borrowings		35,825		35,825		-		-		35,825
Other borrowings		9,939		-				10,063		10,063
Accrued interest payable		395		395		-		-		395

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Note 5 - Accumulated Other Comprehensive Income (Tables)

9 Months Ended

Sep. 30, 2016

Notes Tables

Schedule of Accumulated Other Comprehensive Income (Loss) [Table Text Block]

	Unrealized gains on
	available-for-sale
(Dollars in thousands)	securities
Balance as of December 31, 2015	$	2,395
Other comprehensive income before reclassification		1,421
Amount reclassified from accumulated other comprehensive income		(200	)
Period change		1,221
Balance at September 30, 2016	$	3,616
Balance as of June 30, 2016	$	3,879
Other comprehensive income before reclassification		(263	)
Amount reclassified from accumulated other comprehensive income		-
Period change		(263	)
Balance at September 30, 2016	$	3,616

	Unrealized gains on
	available-for-sale
(Dollars in thousands)	securities
Balance as of December 31, 2014	$	2,548
Other comprehensive income before reclassification		(461	)
Amount reclassified from accumulated other comprehensive income		(170	)
Period change		(631	)
Balance at September 30, 2015		1,917
Balance as of June 30, 2015	$	1,122
Other comprehensive loss before reclassification		935
Amount reclassified from accumulated other comprehensive income		(140	)
Period change		795
Balance at September 30, 2015	$	1,917

Schedule of Amounts Recognized in Other Comprehensive Income (Loss) [Table Text Block]

		Amount Reclassified from Accumulated Other Comprehensive				Affected Line Item in
		Income (a)				the Statement Where
(Dollars in thousands)		For the Three Months Ended				Net Income is
Details about other comprehensive income	September 30, 2016		September 30, 2015			Presented
Unrealized gains on available-for-sale securities
	$	-	$	211		Investment securities gains, net
		-		(71	)	Income taxes
	$	-	$	140		Net of tax

	Amount Reclassified from Accumulated Other Comprehensive						Affected Line Item in
		Income (a)					the Statement Where
(Dollars in thousands)		For the Nine Months Ended					Net Income is
Details about other comprehensive income	September 30, 2016			September 30, 2015			Presented
Unrealized gains on available-for-sale securities
	$	303		$	257		Investment securities gains, net
		(103	)		(87	)	Income taxes
	$	200		$	170		Net of tax

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Note 6 - Investment Securities Available for Sale (Tables)

9 Months Ended

Sep. 30, 2016

Notes Tables

Schedule of Available-for-sale Securities Reconciliation [Table Text Block]

	September 30, 2016
			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
(Dollar amounts in thousands)	Cost		Gains		Losses			Value
U.S. government agency securities	$	10,516	$	359	$	(12	)	$	10,863
Obligations of states and political subdivisions:
Taxable		1,616		186		-			1,802
Tax-exempt		81,829		3,899		(5	)		85,723
Mortgage-backed securities in government-sponsored entities		20,939		485		(44	)		21,380
Private-label mortgage-backed securities		1,927		141		-			2,068
Total debt securities		116,827		5,070		(61	)		121,836
Equity securities in financial institutions		750		468		-			1,218
Total	$	117,577	$	5,538	$	(61	)	$	123,054

	December 31, 2015
			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
U.S. government agency securities	$	21,655	$	245	$	(271	)	$	21,629
Obligations of states and political subdivisions:
Taxable		1,989		134		-			2,123
Tax-exempt		91,940		3,402		(175	)		95,167
Mortgage-backed securities in government-sponsored entities		24,480		316		(272	)		24,524
Private-label mortgage-backed securities		2,079		184		-			2,263
Total debt securities		142,143		4,281		(718	)		145,706
Equity securities in financial institutions		750		64		-			814
Total	$	142,893	$	4,345	$	(718	)	$	146,520

Investments Classified by Contractual Maturity Date [Table Text Block]

	Amortized		Fair
(Dollar amounts in thousands)	Cost		Value
Due in one year or less	$	2,842	$	2,879
Due after one year through five years		9,132		9,500
Due after five years through ten years		12,916		13,510
Due after ten years		91,937		95,947
Total	$	116,827	$	121,836

Realized Gain (Loss) on Investments [Table Text Block]

	For the Three Months Ended September 30,					For the Nine Months Ended September 30,
	2016		2015			2016			2015
Proceeds from sales	$	-	$	11,973		$	9,115		$	15,284
Gross realized gains		-		233			306			373
Gross realized losses		-		(22	)		(3	)		(116	)

Schedule of Unrealized Loss on Investments [Table Text Block]

	September 30, 2016
	Less than Twelve Months				Twelve Months or Greater					Total
			Gross				Gross					Gross
	Fair		Unrealized		Fair		Unrealized			Fair		Unrealized
(Dollar amounts in thousands)	Value		Losses		Value		Losses			Value		Losses
U.S. government agency securities	$	2,000	$	-	$	1,465	$	(12	)	$	3,465	$	(12	)
Obligations of states and political subdivisions
Tax-exempt		608		-		-		(5	)		608		(5	)
Mortgage-backed securities in government-sponsored entities		-		-		4,709		(44	)		4,709		(44	)
Private-label mortgage-backed securities		75		-		-		-			75		-
Total	$	2,683	$	-	$	6,174	$	(61	)	$	8,857	$	(61	)

	December 31, 2015
	Less than Twelve Months					Twelve Months or Greater					Total
			Gross					Gross					Gross
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Value		Losses			Value		Losses			Value		Losses
U.S. government agency securities	$	3,818	$	(57	)	$	10,872	$	(214	)	$	14,690	$	(271	)
Obligations of states and political subdivisions
Tax-exempt		1,268		(9	)		9,394		(166	)		10,662		(175	)
Mortgage-backed securities in government-sponsored entities		8,725		(86	)		6,685		(186	)		15,410		(272	)
Total	$	13,811	$	(152	)	$	26,951	$	(566	)	$	40,762	$	(718	)

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Note 7 - Loans and Related Allowance for Loan and Lease Losses (Tables)

9 Months Ended

Sep. 30, 2016

Subsequently Defaulted [Member]

Notes Tables

Troubled Debt Restructurings on Financing Receivables [Table Text Block]

	For the Three Months Ended
	September 30, 2016
Troubled Debt Restructurings subsequently defaulted	Number of Contracts		Recorded Investment
Commercial and industrial		1	$	3
Residential real estate		1		58

	For the Nine Months Ended
	September 30, 2016
Troubled Debt Restructurings subsequently defaulted	Number of Contracts		Recorded Investment
Commercial and industrial		2	$	273
Real estate construction		1		58

	For the Three Months Ended
	September 30, 2015
Troubled Debt Restructurings subsequently defaulted	Number of Contracts		Recorded Investment
Commercial and industrial		1	$	8
Real estate construction		-		-
Consumer		1		8

	For the Nine Months Ended
	September 30, 2015
Troubled Debt Restructurings subsequently defaulted	Number of Contracts		Recorded Investment
Commercial and industrial		3	$	55
Real estate construction		1		152
Consumer		1		8

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

	September 30,		December 31,
	2016		2015
Commercial and industrial	$	59,376	$	42,536
Real estate - construction		17,633		22,137
Real estate - mortgage:
Residential		258,952		232,478
Commercial		245,636		231,701
Consumer installment		4,732		4,858
		586,329		533,710
Less: Allowance for loan and lease losses		6,334		6,385
Net loans	$	579,995	$	527,325

Schedule Of Financing Receivable By Segment [Table Text Block]

					Real Estate- Mortgage
September 30, 2016	Commercial and industrial		Real estate- construction		Residential		Commercial		Consumer installment		Total
Loans:
Individually evaluated for impairment	$	844	$	1,093	$	3,238	$	6,466	$	5	$	11,646
Collectively evaluated for impairment		58,532		16,540		255,714		239,170		4,727		574,683
Total loans	$	59,376	$	17,633	$	258,952	$	245,636	$	4,732	$	586,329

					Real estate- Mortgage
December 31, 2015	Commercial and industrial		Real estate- construction		Residential		Commercial		Consumer installment		Total
Loans:
Individually evaluated for impairment	$	1,808	$	1,787	$	3,881	$	6,199	$	6	$	13,681
Collectively evaluated for impairment		40,728		20,350		228,597		225,502		4,852		520,029
Total loans	$	42,536	$	22,137	$	232,478	$	231,701	$	4,858	$	533,710

Schedule of Credit Losses for Financing Receivables, Current [Table Text Block]

					Real Estate- Mortgage
September 30, 2016	Commercial and industrial		Real estate- construction		Residential		Commercial		Consumer installment		Total
Allowance for loan and lease losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	184	$	17	$	104	$	239	$	-	$	544
Collectively evaluated for impairment		329		121		2,657		2,656		27		5,790
Total ending allowance balance	$	513	$	138	$	2,761	$	2,895	$	27	$	6,334

					Real Estate- Mortgage
December 31, 2015	Commercial and industrial		Real estate- construction		Residential		Commercial		Consumer installment		Total
Allowance for loan and lease losses:
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	388	$	130	$	276	$	39	$	-	$	833
Collectively evaluated for impairment		479		146		2,863		2,039		25		5,552
Total ending allowance balance	$	867	$	276	$	3,139	$	2,078	$	25	$	6,385

	Commercial and industrial			Real estate- construction			Real estate- residential mortgage			Real estate- commercial mortgage			Consumer installment			Total
ALLL balance at December 31, 2015	$	867		$	276		$	3,139		$	2,078		$	25		$	6,385
Charge-offs		(197	)		-			(394	)		(70	)		(18	)		(679	)
Recoveries		51			-			113			140			9			313
Provision		(208	)		(138	)		(97	)		747			11			315
ALLL balance at September 30, 2016	$	513		$	138		$	2,761		$	2,895		$	27		$	6,334

	Commercial and industrial			Real estate- construction			Real estate- residential mortgage			Real estate- commercia l mortgage			Consumer installment			Total
ALLL balance at December 31, 2014	$	642		$	868		$	3,703		$	1,576		$	57		$	6,846
Charge-offs		(196	)		(385	)		(425	)		(92	)		(11	)		(1,109	)
Recoveries		186			-			161			5			21			373
Provision		(54	)		(149	)		(13	)		450			(24	)		210
ALLL balance at September 30, 2015	$	578		$	334		$	3,426		$	1,939		$	43		$	6,320

	Commercial and industrial			Real estate- construction			Real estate- residential mortgage			Real estate- commercial mortgage			Consumer installment			Total
ALLL balance at June 30, 2016	$	484		$	159		$	2,788		$	2,909		$	26		$	6,366
Charge-offs		(74	)		-			(149	)		-			(3	)		(226	)
Recoveries		4			-			82			-			3			89
Provision		99			(21	)		40			(14	)		1			105
ALLL balance at September 30, 2016	$	513		$	138		$	2,761		$	2,895		$	27		$	6,334

	Commercial and industrial			Real estate- construction			Real estate- residential mortgage			Real estate- commercial mortgage			Consumer installment			Total
ALLL balance at June 30, 2015	$	610		$	363		$	3,347		$	1,978		$	48		$	6,346
Charge-offs		(100	)		-			(124	)		(5	)		-			(229	)
Recoveries		5			-			81			5			7			98
Provision		63			(29	)		122			(39	)		(12	)		105
ALLL balance at September 30, 2015	$	578		$	334		$	3,426		$	1,939		$	43		$	6,320

Impaired Financing Receivables [Table Text Block]

September 30, 2016
Impaired Loans
			Unpaid
	Recorded			Principal	Related
	Investment			Balance	Allowance
With no related allowance recorded:
Commercial and industrial	$	569	$	569	$	-
Real estate - construction		1,076		1,076		-
Real estate - mortgage:
Residential		2,774		2,771		-
Commercial		1,378		1,375		-
Consumer installment		5		5		-
Total	$	5,797	$	5,791	$	-
With an allowance recorded:
Commercial and industrial	$	275	$	275	$	184
Real estate - construction		17		17		17
Real estate - mortgage:
Residential		464		462		104
Commercial		5,088		5,078		239
Consumer installment		-		-		-
Total	$	5,849	$	5,837	$	544
Total:
Commercial and industrial	$	844	$	844	$	184
Real estate - construction		1,093		1,093		17
Real estate - mortgage:
Residential		3,238		3,233		104
Commercial		6,466		6,453		239
Consumer installment		5		5		-
Total	$	11,646	$	11,628	$	544

December 31, 2015
Impaired Loans
			Balance
	Recorded			Principal	Related
	Investment			Balance	Allowance
With no related allowance recorded:
Commercial and industrial	$	1,027	$	1,025	$	-
Real estate - construction		1,657		1,651		-
Real estate - mortgage:
Residential		2,445		2,443		-
Commercial		2,337		2,335		-
Consumer installment		6		6		-
Total	$	7,466	$	7,454	$	-
With an allowance recorded:
Commercial and industrial	$	781	$	781	$	388
Real estate - construction		130		130		130
Real estate - mortgage:
Residential		1,436		1,436		276
Commercial		3,862		3,846		39
Consumer installment		-		-		-
Total	$	6,215	$	6,199	$	833
Total:
Commercial and industrial	$	1,808	$	1,806	$	388
Real estate - construction		1,787		1,781		130
Real estate - mortgage:
Residential		3,881		3,879		276
Commercial		6,199		6,181		39
Consumer installment		6		6		-
Total	$	13,681	$	13,653	$	833

Schedule of Additional Information Related to Impaired Loans [Table Text Block]

	For the Three Months Ended September 30, 2016				For the Nine Months Ended September 30, 2016
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
Total:
Commercial and industrial	$	864	$	4	$	1,218	$	9
Real estate - construction		1,105		3		1,404		22
Real estate - mortgage:
Residential		3,389		-		3,660		36
Commercial		7,939		8		7,449		115
Consumer installment		5		-		6		-
	$	13,302	$	15	$	13,737	$	182

	For the Three Months Ended September 30, 2015				For the Nine Months Ended September 30, 2015
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
Total:
Commercial and industrial	$	1,480	$	21	$	1,354	$	73
Real estate - construction		2,347		28		2,614		94
Real estate - mortgage:
Residential		4,195		43		4,514		128
Commercial		5,476		71		4,871		200
Consumer installment		6		-		6		-
	$	13,504	$	163	$	13,359	$	495

Financing Receivable Credit Quality Indicators [Table Text Block]

			Special						Total
	Pass		Mention		Substandard		Doubtful		Loans
September 30, 2016
Commercial and industrial	$	57,954	$	445	$	977	$	-	$	59,376
Real estate - construction		17,448		144		24		17		17,633
Real estate - mortgage:
Residential		252,783		433		5,376		-		258,952
Commercial		237,916		3,141		4,579		-		245,636
Consumer installment		4,723		-		9		-		4,732
Total	$	540,188	$	4,163	$	11,325	$	17	$	586,329

			Special						Total
December 31, 2015	Pass		Mention		Substandard		Doubtful		Loans
Commercial and industrial	$	40,560	$	242	$	1,734	$	-	$	42,536
Real estate - construction		22,007		-		-		130		22,137
Real estate - mortgage:
Residential		225,945		728		5,805		-		232,478
Commercial		219,331		4,327		8,043		-		231,701
Consumer installment		4,854		-		4		-		4,858
Total	$	512,697	$	5,297	$	15,586	$	130	$	533,710

Past Due Financing Receivables [Table Text Block]

			30-59 Days		60-89 Days		90 Days+		Total		Total
	Current		Past Due		Past Due		Past Due		Past Due		Loans
September 30, 2016
Commercial and industrial	$	58,889	$	59	$	92	$	336	$	487	$	59,376
Real estate - construction		17,633		-		-		-		-		17,633
Real estate - mortgage:
Residential		257,068		1,052		547		285		1,884		258,952
Commercial		244,771		121		-		744		865		245,636
Consumer installment		4,656		76		-		-		76		4,732
Total	$	583,017	$	1,308	$	639	$	1,365	$	3,312	$	586,329

			30-59 Days		60-89 Days		90 Days+		Total		Total
	Current		Past Due		Past Due		Past Due		Past Due		Loans
December 31, 2015
Commercial and industrial	$	41,544	$	225	$	26	$	741	$	992	$	42,536
Real estate - construction		22,137		-		-		-		-		22,137
Real estate - mortgage:
Residential		229,725		1,482		92		1,179		2,753		232,478
Commercial		230,903		189		-		609		798		231,701
Consumer installment		4,837		16		3		2		21		4,858
Total	$	529,146	$	1,912	$	121	$	2,531	$	4,564	$	533,710

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

	September 30, 2016		90+ Days Past Due
	Nonaccrual		and Accruing
Commercial and industrial	$	920	$	-
Real estate - construction		17		-
Real estate - mortgage:
Residential		3,822		-
Commercial		1,730		-
Consumer installment		-		-
Total	$	6,490	$	-

	December 31, 2015		90+ Days Past Due
	Nonaccrual		and Accruing
Commercial and industrial	$	1,450	$	-
Real estate - construction		130		-
Real estate - mortgage:
Residential		4,122		-
Commercial		1,842		-
Consumer installment		1		2
Total	$	7,545	$	2

Troubled Debt Restructurings on Financing Receivables [Table Text Block]

	For the Nine Months Ended September 30, 2016
	Number of Contracts						Pre-Modification			Post-Modification
	Term							Outstanding Recorded			Outstanding Recorded
Troubled Debt Restructurings		Modification	Other		Total			Investment			Investment
Commercial and industrial		2		-		2	$		169	$		169
Residential real estate		1		-		1			58			58
Commercial real estate		1		-		1			311			311
Consumer		-		-		-			-			-

	For the Three Months Ended September 30, 2015
	Number of Contracts						Pre-Modification			Post-Modification
	Term							Outstanding Recorded			Outstanding Recorded
Troubled Debt Restructurings		Modification	Other		Total			Investment			Investment
Commercial and industrial		2		-		2	$		15	$		15
Real estate construction		-		-		-			-			-
Residential real estate		1		-		1			164			164
Consumer		1		-		1			9			9

	For the Nine Months Ended September 30, 2015
	Number of Contracts						Pre-Modification Outstanding			Post-Modification Outstanding
	Term							Outstanding Recorded			Outstanding Recorded
Troubled Debt Restructurings		Modification	Other		Total			Investment			Investment
Commercial and industrial		3		1		4	$		126	$		126
Real estate construction		1		-		1			181			181
Residential real estate		2		1		3			398			418
Consumer		1		-		1			9			9

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Note 2 - Stock-based Compensation (Details Textual) - USD ($)	Sep. 30, 2016	Sep. 30, 2015
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized	$ 0	$ 0
Share-based Compensation Arrangement by Share-based Payment Award, Options, Nonvested, Number of Shares	0	0

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Note 2 - Stock-based Compensation - Stock Option Activity (Details) - $ / shares	9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015
Outstanding, January 1 (in shares)	31,949	46,451
Outstanding, January 1 (in dollars per share)	$ 25.03	$ 27.90
Expired (in shares)	0	(3,639)
Expired (in dollars per share)		$ 37.33
Exercised (in shares)	0	(1,025)
Exercised (in dollars per share)	$ 0	$ 20.21
Outstanding, September 30 (in shares)	31,949	41,787
Outstanding, September 30 (in dollars per share)	$ 25.03	$ 27.27
Exercisable, September 30 (in shares)	31,949	41,787
Exercisable, September 30 (in dollars per share)	$ 25.03	$ 27.27

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Note 3 - Earnings Per Share (Details Textual) - $ / shares	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015	Dec. 31, 2015	Dec. 31, 2014
Employee Stock Option [Member]
Incremental Common Shares Attributable to Dilutive Effect of Share-based Payment Arrangements	24,700	27,000	24,700	27,250
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range, Lower Range Limit	$ 17.55	$ 17.55	$ 17.55	$ 17.55
Share-based Compensation, Shares Authorized under Stock Option Plans, Exercise Price Range, Upper Range Limit	$ 40.24	$ 37.48	$ 40.24	$ 37.48
Incremental Common Shares Attributable to Dilutive Effect of Share-based Payment Arrangements	8,643	8,585	8,876	9,254
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Number	31,949	41,787	31,949	41,787	31,949	46,451

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Note 3 - Earnings Per Share - Shares Used in Calculation of Earnings Per Share (Details) - shares	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Weighted-average common shares outstanding (in shares)	2,633,752	2,253,584	2,445,821	2,248,468
Average treasury stock shares (in shares)	(386,165)	(189,530)	(386,165)	(189,530)
Weighted-average common shares and common stock equivalents used to calculate basic earnings per share (in shares)	2,247,587	2,064,054	2,059,656	2,058,938
Incremental Common Shares Attributable to Dilutive Effect of Share-based Payment Arrangements	8,643	8,585	8,876	9,254
Weighted-average common shares and common stock equivalents used to calculate diluted earnings per share (in shares)	2,256,230	2,072,639	2,068,532	2,068,192

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Note 4 - Fair Value Measurements (Details Textual) - USD ($)	Sep. 30, 2016	Dec. 31, 2015
Fair Value, Inputs, Level 3 [Member]
Available-for-sale Securities	$ 0	$ 0
Available-for-sale Securities	$ 123,054,000	$ 146,520,000

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Note 4 - Fair Value Measurments - Assets Measured on a Recurring Basis (Details) - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
Fair Value, Inputs, Level 2 [Member] | Fair Value, Measurements, Recurring [Member] | US Government Agencies Debt Securities [Member]
Available-for-sale Securities	$ 10,863	$ 21,629
Fair Value, Inputs, Level 2 [Member] | Fair Value, Measurements, Recurring [Member] | US States and Political Subdivisions Debt Securities [Member]
Available-for-sale Securities	87,525	97,290
Fair Value, Inputs, Level 2 [Member] | Fair Value, Measurements, Recurring [Member] | Mortgage-backed Securities, Issued by US Government Sponsored Enterprises [Member]
Available-for-sale Securities	21,380	24,524
Fair Value, Inputs, Level 2 [Member] | Fair Value, Measurements, Recurring [Member] | Mortgage-backed Securities, Issued by Private Enterprises [Member]
Available-for-sale Securities	2,068	2,263
Fair Value, Inputs, Level 2 [Member] | Fair Value, Measurements, Recurring [Member] | Debt Securities [Member]
Available-for-sale Securities	121,836	145,706
Fair Value, Inputs, Level 2 [Member] | Fair Value, Measurements, Recurring [Member] | Equity Securities In Financial Institutions [Member]
Available-for-sale Securities	1,213	809
Fair Value, Inputs, Level 2 [Member] | Fair Value, Measurements, Recurring [Member]
Available-for-sale Securities	123,049	146,515
Fair Value, Inputs, Level 2 [Member]
Available-for-sale Securities	123,049	146,515
Fair Value, Inputs, Level 1 [Member] | Fair Value, Measurements, Recurring [Member] | Equity Securities In Financial Institutions [Member]
Available-for-sale Securities	5	5
Fair Value, Inputs, Level 1 [Member] | Fair Value, Measurements, Recurring [Member]
Available-for-sale Securities	5	5
Fair Value, Inputs, Level 1 [Member]
Available-for-sale Securities	5	5
US Government Agencies Debt Securities [Member]
Available-for-sale Securities	10,863	21,629
US States and Political Subdivisions Debt Securities [Member]
Available-for-sale Securities	87,525	97,290
Mortgage-backed Securities, Issued by US Government Sponsored Enterprises [Member]
Available-for-sale Securities	21,380	24,524
Mortgage-backed Securities, Issued by Private Enterprises [Member]
Available-for-sale Securities	2,068	2,263
Debt Securities [Member]
Available-for-sale Securities	121,836	145,706
Equity Securities In Financial Institutions [Member]
Available-for-sale Securities	1,218	814
Available-for-sale Securities	$ 123,054	$ 146,520

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Note 4 - Assets Measured on a Nonrecurring Basis (Details) - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
Fair Value, Inputs, Level 3 [Member] | Fair Value, Measurements, Nonrecurring [Member]
Impaired loans	$ 11,102	$ 12,848
Other real estate owned	1,205	1,412
Estimate of Fair Value Measurement [Member]
Impaired loans	11,102	12,848
Other real estate owned	1,205	1,412
Impaired loans	11,646	13,681
Other real estate owned	$ 1,200	$ 1,400

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Note 4 - Fair Value Measurements - Additional Quantitative Information about Assets Measured at Fair Value on Non-recurring Basis (Details) - Fair Value, Measurements, Nonrecurring [Member] - Fair Value, Inputs, Level 3 [Member] - USD ($) $ in Thousands		9 Months Ended	12 Months Ended
		Sep. 30, 2016	Dec. 31, 2015
Impaired Loans [Member] | Income Approach Valuation Technique [Member] | Minimum [Member]
Discount rate		3.10%	3.10%
Discount rate, weighted average		(3.10%)	(3.10%)
Impaired Loans [Member] | Income Approach Valuation Technique [Member] | Maximum [Member]
Discount rate		7.00%	7.90%
Discount rate, weighted average		(7.00%)	(7.90%)
Impaired Loans [Member] | Income Approach Valuation Technique [Member] | Weighted Average [Member]
Discount rate		5.00%	5.00%
Discount rate, weighted average		(5.00%)	(5.00%)
Impaired Loans [Member] | Income Approach Valuation Technique [Member]
Fair value estimate		$ 7,743	$ 6,867
Valuation Techniques / Unobservable Input		Discounted cash flow	Discounted cash flow / Discount rate
Impaired Loans [Member] | Appraisal Adjustments [Member] | Minimum [Member]
Discount rate		0.00%	0.00%
Discount rate, weighted average		0.00%	0.00%
Impaired Loans [Member] | Appraisal Adjustments [Member] | Maximum [Member]
Discount rate		55.70%	87.10%
Discount rate, weighted average		(55.70%)	(87.10%)
Impaired Loans [Member] | Appraisal Adjustments [Member] | Weighted Average [Member]
Discount rate		34.60%	23.30%
Discount rate, weighted average		(34.60%)	(23.30%)
Impaired Loans [Member] | Appraisal Adjustments [Member]
Fair value estimate		$ 3,359	$ 5,981
Valuation Techniques / Unobservable Input	[1],[2]	Appraisal of collateral (1)	Appraisal of collateral / Appraisal adjustments
Other Real Estate Owned [Member] | Appraisal Adjustments [Member] | Minimum [Member]
Discount rate		0.00%	0.00%
Discount rate, weighted average		0.00%	0.00%
Other Real Estate Owned [Member] | Appraisal Adjustments [Member] | Maximum [Member]
Discount rate		10.00%	10.00%
Discount rate, weighted average		(10.00%)	(10.00%)
Other Real Estate Owned [Member] | Appraisal Adjustments [Member] | Weighted Average [Member]
Discount rate		7.30%	7.30%
Discount rate, weighted average		(7.30%)	(7.30%)
Other Real Estate Owned [Member] | Appraisal Adjustments [Member]
Fair value estimate		$ 1,205	$ 1,412
Valuation Techniques / Unobservable Input	[1],[2]	Appraisal of collateral / Appraisal adjustments	Appraisal of collateral / Appraisal adjustments

[1] Appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated liquidation expenses. The range and weighted average of liquidation expenses and other appraisal adjustments are presented as a percent of the appraisal.

[2] Fair value is generally determined through independent appraisals of the underlying collateral, which generally include various level 3 inputs which are not identifiable.

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Note 4 - Fair Value Measurements - Estimated Fair Value of the Company's Financial Instruments (Details) - USD ($)	Sep. 30, 2016	Dec. 31, 2015	Sep. 30, 2015	Dec. 31, 2014
Fair Value, Inputs, Level 1 [Member]
Cash and cash equivalents, fair value	$ 23,276,000	$ 23,750,000
Available-for-sale Securities	5,000	5,000
Available for sale, fair value	5,000	5,000
Bank-owned life insurance	13,438,000	13,141,000
Bank-owned life insurance, fair value	13,438,000	13,141,000
Federal Home Loan Bank stock	1,887,000	1,887,000
Federal Home Loan Bank stock, fair value	1,887,000	1,887,000
Accrued interest receivable	2,526,000	2,387,000
Accrued interest receivable, fair value	2,526,000	2,387,000
Deposits, fair value	454,427,000	433,226,000
Short-term borrowings, fair value	32,803,000	35,825,000
Accrued interest payable	391,000	395,000
Accrued interest payable, fair value	391,000	395,000
Fair Value, Inputs, Level 2 [Member]
Available-for-sale Securities	123,049,000	146,515,000
Available for sale, fair value	123,049,000	146,515,000
Loans held for sale, fair value	880,000	1,107,000
Deposits, fair value
Fair Value, Inputs, Level 3 [Member]
Available-for-sale Securities	0	0
Available for sale, fair value	0	0
Net loans, fair value	586,739,000	534,021,000
Deposits, fair value	188,668,000	191,747,000
Other borrowings, fair value	10,003,000	10,063,000
Cash and cash equivalents	23,276,000	23,750,000	$ 23,295,000	$ 25,639,000
Cash and cash equivalents, fair value	23,276,000	23,750,000
Available-for-sale Securities	123,054,000	146,520,000
Available for sale, fair value	123,054,000	146,520,000
Loans held for sale	880,000	1,107,000
Loans held for sale, fair value	880,000	1,107,000
Net loans	579,995,000	527,325,000
Net loans, fair value	586,739,000	534,021,000
Bank-owned life insurance	13,438,000	13,141,000
Bank-owned life insurance, fair value	13,438,000	13,141,000
Federal Home Loan Bank stock	1,887,000	1,887,000
Federal Home Loan Bank stock, fair value	1,887,000	1,887,000
Accrued interest receivable	2,526,000	2,387,000
Accrued interest receivable, fair value	2,526,000	2,387,000
Deposits	639,342,000	624,447,000
Deposits, fair value	643,095,000	624,973,000
Short-term borrowings	32,803,000	35,825,000
Short-term borrowings, fair value	32,803,000	35,825,000
Other borrowings	9,713,000	9,939,000
Other borrowings, fair value	10,003,000	10,063,000
Accrued interest payable	391,000	395,000
Accrued interest payable, fair value	$ 391,000	$ 395,000

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Note 5 - Accumulate Other Comprehensive Income - Changes in Accumulated Other Comprehensive Income (Loss) by Component, Net of Tax (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Beginning balance	$ 3,879	$ 1,122	$ 2,395	$ 2,548
Other comprehensive income before reclassification	(263)	935	1,421	(461)
Amount reclassified from accumulated other comprehensive income		(140)	(200)	(170)
Period change	(263)	795	1,221	(631)
Ending balance	$ 3,616	$ 1,917	$ 3,616	$ 1,917

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Note 5 - Accumulated Other Comprehensive Income - Significant Amounts Reclassified out of Each Component of Accumulated Other Comprehensive Income (Loss) (Details) - USD ($) $ in Thousands		3 Months Ended		9 Months Ended
		Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Unrealized gains on available-for-sale securities	[1]		$ 211	$ 303	$ 257
Income taxes			(71)	(103)	(87)
Net of tax			$ 140	$ 200	$ 170

[1] Amounts in parentheses indicate debits to net income.

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Note 6 - Investment Securities Available for Sale (Details Textual) - USD ($)	Sep. 30, 2016	Dec. 31, 2015
Other than Temporary Impairment, Credit Losses Recognized in Earnings, Credit Losses on Debt Securities Held	$ 0
Available-for-sale Securities Pledged as Collateral	$ 64,700,000	$ 68,800,000
Available-for-sale, Securities in Unrealized Loss Positions, Qualitative Disclosure, Number of Positions	9
Available-for-sale Securities, Percentage of Portfolio	97.00%

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Note 6 - Investment Securities Available for Sale - Amortized Cost and Fair Values of Securities Available for Sale (Details) - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
US Government Agencies Debt Securities [Member]
Amortized cost	$ 10,516	$ 21,655
Gross unrealized gains	359	245
Gross unrealized losses	(12)	(271)
Investment securities available for sale, at fair value	10,863	21,629
US States and Political Subdivisions Debt Securities [Member] | Taxable [Member]
Amortized cost	1,616	1,989
Gross unrealized gains	186	134
Gross unrealized losses
Investment securities available for sale, at fair value	1,802	2,123
US States and Political Subdivisions Debt Securities [Member] | Tax Exempt [Member]
Amortized cost	81,829	91,940
Gross unrealized gains	3,899	3,402
Gross unrealized losses	(5)	(175)
Investment securities available for sale, at fair value	85,723	95,167
US States and Political Subdivisions Debt Securities [Member]
Investment securities available for sale, at fair value	87,525	97,290
Mortgage-backed Securities, Issued by US Government Sponsored Enterprises [Member]
Amortized cost	20,939	24,480
Gross unrealized gains	485	316
Gross unrealized losses	(44)	(272)
Investment securities available for sale, at fair value	21,380	24,524
Mortgage-backed Securities, Issued by Private Enterprises [Member]
Amortized cost	1,927	2,079
Gross unrealized gains	141	184
Gross unrealized losses
Investment securities available for sale, at fair value	2,068	2,263
Debt Securities [Member]
Amortized cost	116,827	142,143
Gross unrealized gains	5,070	4,281
Gross unrealized losses	(61)	(718)
Investment securities available for sale, at fair value	121,836	145,706
Equity Securities In Financial Institutions [Member]
Amortized cost	750	750
Gross unrealized gains	468	64
Gross unrealized losses
Investment securities available for sale, at fair value	1,218	814
Amortized cost	117,577	142,893
Gross unrealized gains	5,538	4,345
Gross unrealized losses	(61)	(718)
Investment securities available for sale, at fair value	$ 123,054	$ 146,520

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Note 6 - Investment Securities Available for Sale - Amortized Cost and Fair Value of Debt Securities by Contractual Maturity (Details) $ in Thousands	Sep. 30, 2016 USD ($)
Due in one year or less	$ 2,842
Due in one year or less	2,879
Due after one year through five years	9,132
Due after one year through five years	9,500
Due after five years through ten years	12,916
Due after five years through ten years	13,510
Due after ten years	91,937
Due after ten years	95,947
Total	116,827
Total	$ 121,836

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Note 6 - Investment Securities Available for Sale - Sales of Available for Sale Securities (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Proceeds from sales		$ 11,973	$ 9,115	$ 15,284
Gross realized gains		233	306	373
Gross realized losses		$ (22)	$ (3)	$ (116)

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Note 6 - Investment Securities Available for Sale - Gross Unrealized Losses and Fair Value (Details) - USD ($)	Sep. 30, 2016	Dec. 31, 2015
US Government Agencies Debt Securities [Member]
Less than Twelve Months, Fair Value	$ 2,000,000	$ 3,818,000
Less than Twelve Months, Gross Unrealized Losses	0	(57,000)
Twelve Months or Greater, Fair Value	1,465,000	10,872,000
Twelve Months or Greater, Gross Unrealized Losses	(12,000)	(214,000)
Total, Fair Value	3,465,000	14,690,000
Total, Gross Unrealized Losses	(12,000)	(271,000)
US States and Political Subdivisions Debt Securities [Member] | Tax Exempt [Member]
Less than Twelve Months, Fair Value	608,000	1,268,000
Less than Twelve Months, Gross Unrealized Losses	0	(9,000)
Twelve Months or Greater, Fair Value	0	9,394,000
Twelve Months or Greater, Gross Unrealized Losses	(5,000)	(166,000)
Total, Fair Value	608,000	10,662,000
Total, Gross Unrealized Losses	(5,000)	(175,000)
Mortgage-backed Securities, Issued by US Government Sponsored Enterprises [Member]
Less than Twelve Months, Fair Value	0	8,725,000
Less than Twelve Months, Gross Unrealized Losses	0	(86,000)
Twelve Months or Greater, Fair Value	4,709,000	6,685,000
Twelve Months or Greater, Gross Unrealized Losses	(44,000)	(186,000)
Total, Fair Value	4,709,000	15,410,000
Total, Gross Unrealized Losses	(44,000)	(272,000)
Mortgage-backed Securities, Issued by Private Enterprises [Member]
Less than Twelve Months, Fair Value	75,000
Less than Twelve Months, Gross Unrealized Losses	0
Twelve Months or Greater, Fair Value	0
Twelve Months or Greater, Gross Unrealized Losses	0
Total, Fair Value	75,000
Total, Gross Unrealized Losses	0
Less than Twelve Months, Fair Value	2,683,000	13,811,000
Less than Twelve Months, Gross Unrealized Losses	0	(152,000)
Twelve Months or Greater, Fair Value	6,174,000	26,951,000
Twelve Months or Greater, Gross Unrealized Losses	(61,000)	(566,000)
Total, Fair Value	8,857,000	40,762,000
Total, Gross Unrealized Losses	$ (61,000)	$ (718,000)

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Note 7 - Loans and Related Allowance for Loan and Lease Losses (Details Textual)	9 Months Ended
	Sep. 30, 2016 USD ($)
Threshold For Loans Evaluated For Impairment [Member] | Outside Consultant [Member]
Loans and Leases Receivable before Fees, Gross	$ 250,000
Threshold For Loans Evaluated For Impairment [Member] | Criticized Relationships [Member]
Financing Receivable, Gross	125,000
Threshold For Loans Evaluated For Impairment [Member]
Loans and Leases Receivable before Fees, Gross	$ 1,000,000
Financing Receivable, Modifications, Subsequent Default, Number of Contracts	1
Financing Receivable, Modifications, Subsequent Default, Recorded Investment	$ 270,000

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Note 7 - Loans and Related Allowance for Loan and Lease Losses - Major Classifications of Net Loans (Details) - USD ($) $ in Thousands	Sep. 30, 2016	Jun. 30, 2016	Dec. 31, 2015	Sep. 30, 2015	Jun. 30, 2015	Dec. 31, 2014
Commercial And Industrial [Member]
Financing Receivable Gross	$ 59,376		$ 42,536
Less: Allowance for loan and lease losses	513	$ 484	867	$ 578	$ 610	$ 642
Real Estate Construction Porfolio Segment [Member]
Financing Receivable Gross	17,633		22,137
Less: Allowance for loan and lease losses	138	159	276	334	363	868
Real Estate Mortgage Portfolio Segment [Member] | Residential Loan [Member]
Financing Receivable Gross	258,952		232,478
Less: Allowance for loan and lease losses	2,761	2,788	3,139	3,426	3,347	3,703
Real Estate Mortgage Portfolio Segment [Member] | Commercial Loans [Member]
Financing Receivable Gross	245,636		231,701
Less: Allowance for loan and lease losses	2,895	2,909	2,078	1,939	1,978	1,576
Consumer Portfolio Segment [Member]
Financing Receivable Gross	4,732		4,858
Less: Allowance for loan and lease losses	27	26	25	43	48	57
Financing Receivable Gross	586,329		533,710
Less: Allowance for loan and lease losses	6,334	$ 6,366	6,385	$ 6,320	$ 6,346	$ 6,846
Net loans	$ 579,995		$ 527,325

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Note 7 - Loans and Realted Allowance for Loan and Lease Losses - Primary Segments of the Loan Portfolio (Details) - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
Commercial And Industrial [Member]
Individually evaluated for impairment	$ 844	$ 1,808
Collectively evaluated for impairment	58,532	40,728
Total loans	59,376	42,536
Real Estate Construction Porfolio Segment [Member]
Individually evaluated for impairment	1,093	1,787
Collectively evaluated for impairment	16,540	20,350
Total loans	17,633	22,137
Real Estate Mortgage Portfolio Segment [Member] | Residential Loan [Member]
Individually evaluated for impairment	3,238	3,881
Collectively evaluated for impairment	255,714	228,597
Total loans	258,952	232,478
Real Estate Mortgage Portfolio Segment [Member] | Commercial Loans [Member]
Individually evaluated for impairment	6,466	6,199
Collectively evaluated for impairment	239,170	225,502
Total loans	245,636	231,701
Consumer Portfolio Segment [Member]
Individually evaluated for impairment	5	6
Collectively evaluated for impairment	4,727	4,852
Total loans	4,732	4,858
Individually evaluated for impairment	11,646	13,681
Collectively evaluated for impairment	574,683	520,029
Total loans	$ 586,329	$ 533,710

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Note 7 - Loans and Related Allowance of Loan and Lease Losses - Allowance for Loan Losses (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Dec. 31, 2015
Commercial And Industrial [Member]
Individually evaluated for impairment					$ 184	$ 388
Collectively evaluated for impairment					329	479
Total ending allowance balance	$ 513	$ 578	$ 513	$ 642	513	867
ALLL balance, period start	484	610	867	642
Charge-offs	(74)	(100)	(197)	(196)
Recoveries	4	5	51	186
Provision	99	63	(208)	(54)
ALLL balance, period end	513	578	513	578
Real Estate Construction Porfolio Segment [Member]
Individually evaluated for impairment					17	130
Collectively evaluated for impairment					121	146
Total ending allowance balance	138	334	138	868	138	276
ALLL balance, period start	159	363	276	868
Charge-offs				(385)
Recoveries
Provision	(21)	(29)	(138)	(149)
ALLL balance, period end	138	334	138	334
Real Estate Mortgage Portfolio Segment [Member] | Residential Loan [Member]
Individually evaluated for impairment					104	276
Collectively evaluated for impairment					2,657	2,863
Total ending allowance balance	2,761	3,426	2,761	3,703	2,761	3,139
ALLL balance, period start	2,788	3,347	3,139	3,703
Charge-offs	(149)	(124)	(394)	(425)
Recoveries	82	81	113	161
Provision	40	122	(97)	(13)
ALLL balance, period end	2,761	3,426	2,761	3,426
Real Estate Mortgage Portfolio Segment [Member] | Commercial Loans [Member]
Individually evaluated for impairment					239	39
Collectively evaluated for impairment					2,656	2,039
Total ending allowance balance	2,895	1,939	2,895	1,576	2,895	2,078
ALLL balance, period start	2,909	1,978	2,078	1,576
Charge-offs		(5)	(70)	(92)
Recoveries		5	140	5
Provision	(14)	(39)	747	450
ALLL balance, period end	2,895	1,939	2,895	1,939
Consumer Portfolio Segment [Member]
Individually evaluated for impairment
Collectively evaluated for impairment					27	25
Total ending allowance balance	27	43	27	57	27	25
ALLL balance, period start	26	48	25	57
Charge-offs	(3)		(18)	(11)
Recoveries	3	7	9	21
Provision	1	(12)	11	(24)
ALLL balance, period end	27	43	27	43
Individually evaluated for impairment					544	833
Collectively evaluated for impairment					5,790	5,552
Total ending allowance balance	6,334	6,320	6,334	6,846	$ 6,334	$ 6,385
ALLL balance, period start	6,366	6,346	6,385	6,846
Charge-offs	(226)	(229)	(679)	(1,109)
Recoveries	89	98	313	373
Provision	105	105	315	210
ALLL balance, period end	$ 6,334	$ 6,320	$ 6,334	$ 6,320

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Note 7 - Loans and Related Allowance for Loan and Lease Losses - Impaired Loans by Class (Details) - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
Commercial And Industrial [Member]
Recorded investment, with no related allowance	$ 569	$ 1,027
Unpaid principal balance, with no related allowance	569	1,025
Recorded investment, with related allowance	275	781
Unpaid principal balance, with related allowance	275	781
Related allowance	184	388
Recorded investment	844	1,808
Unpaid principal balance	844	1,806
Real Estate Construction Porfolio Segment [Member] | Residential Loan [Member]
Recorded investment, with related allowance	464
Unpaid principal balance, with related allowance	462
Related allowance	104
Real Estate Construction Porfolio Segment [Member]
Recorded investment, with no related allowance	1,076	1,657
Unpaid principal balance, with no related allowance	1,076	1,651
Recorded investment, with related allowance	17	130
Unpaid principal balance, with related allowance	17	130
Related allowance	17	130
Recorded investment	1,093	1,787
Unpaid principal balance	1,093	1,781
Real Estate Mortgage Portfolio Segment [Member] | Residential Loan [Member]
Recorded investment, with no related allowance	2,774	2,445
Unpaid principal balance, with no related allowance	2,771	2,443
Recorded investment, with related allowance		1,436
Unpaid principal balance, with related allowance		1,436
Related allowance	104	276
Recorded investment	3,238	3,881
Unpaid principal balance	3,233	3,879
Real Estate Mortgage Portfolio Segment [Member] | Commercial Loans [Member]
Recorded investment, with no related allowance	1,378	2,337
Unpaid principal balance, with no related allowance	1,375	2,335
Recorded investment, with related allowance		3,862
Unpaid principal balance, with related allowance		3,846
Related allowance	239	39
Recorded investment	6,466	6,199
Unpaid principal balance	6,453	6,181
Consumer Portfolio Segment [Member]
Recorded investment, with no related allowance	5	6
Unpaid principal balance, with no related allowance	5	6
Recorded investment, with related allowance
Unpaid principal balance, with related allowance
Related allowance
Recorded investment	5	6
Unpaid principal balance	5	6
Commercial Loans [Member]
Recorded investment, with related allowance	5,088
Unpaid principal balance, with related allowance	5,078
Related allowance	239
Recorded investment, with no related allowance	5,797	7,466
Unpaid principal balance, with no related allowance	5,791	7,454
Recorded investment, with related allowance	5,849	6,215
Unpaid principal balance, with related allowance	5,837	6,199
Related allowance	544	833
Recorded investment	11,646	13,681
Unpaid principal balance	$ 11,628	$ 13,653

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Note 7 - Loans and Related Allowance for Loan and Lease Losses - Additional Information on Impaired Loans (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Commercial And Industrial [Member]
Average Recorded Investment	$ 864	$ 1,480	$ 1,218	$ 1,354
Interest Income Recognized	4	21	9	73
Real Estate Construction Porfolio Segment [Member]
Average Recorded Investment	1,105	2,347	1,404	2,614
Interest Income Recognized	3	28	22	94
Real Estate Mortgage Portfolio Segment [Member] | Residential Loan [Member]
Average Recorded Investment	3,389	4,195	3,660	4,514
Interest Income Recognized		43	36	128
Real Estate Mortgage Portfolio Segment [Member] | Commercial Loans [Member]
Average Recorded Investment	7,939	5,476	7,449	4,871
Interest Income Recognized	8	71	115	200
Consumer Portfolio Segment [Member]
Average Recorded Investment	5	6	6	6
Interest Income Recognized
Average Recorded Investment	13,302	13,504	13,737	13,359
Interest Income Recognized	$ 15	$ 163	$ 182	$ 495

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Note 7 - Loans and Related Allowance for Loan and Lease Losses - Classes of the Loan Portfolio Summarized by Credit Quality (Details) - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
Pass [Member] | Commercial And Industrial [Member]
Loans, total	$ 57,954	$ 40,560
Pass [Member] | Real Estate Construction Porfolio Segment [Member]
Loans, total	17,448	22,007
Pass [Member] | Real Estate Mortgage Portfolio Segment [Member] | Residential Loan [Member]
Loans, total	252,783	225,945
Pass [Member] | Real Estate Mortgage Portfolio Segment [Member] | Commercial Loans [Member]
Loans, total	237,916	219,331
Pass [Member] | Consumer Portfolio Segment [Member]
Loans, total	4,723	4,854
Pass [Member]
Loans, total	540,188	512,697
Special Mention [Member] | Commercial And Industrial [Member]
Loans, total	445	242
Special Mention [Member] | Real Estate Construction Porfolio Segment [Member]
Loans, total	144
Special Mention [Member] | Real Estate Mortgage Portfolio Segment [Member] | Residential Loan [Member]
Loans, total	433	728
Special Mention [Member] | Real Estate Mortgage Portfolio Segment [Member] | Commercial Loans [Member]
Loans, total	3,141	4,327
Special Mention [Member]
Loans, total	4,163	5,297
Substandard [Member] | Commercial And Industrial [Member]
Loans, total	977	1,734
Substandard [Member] | Real Estate Construction Porfolio Segment [Member]
Loans, total	24
Substandard [Member] | Real Estate Mortgage Portfolio Segment [Member] | Residential Loan [Member]
Loans, total	5,376	5,805
Substandard [Member] | Real Estate Mortgage Portfolio Segment [Member] | Commercial Loans [Member]
Loans, total	4,579	8,043
Substandard [Member] | Consumer Portfolio Segment [Member]
Loans, total	9	4
Substandard [Member]
Loans, total	11,325	15,586
Doubtful [Member] | Commercial And Industrial [Member]
Loans, total
Doubtful [Member] | Real Estate Construction Porfolio Segment [Member]
Loans, total	17	130
Doubtful [Member] | Real Estate Mortgage Portfolio Segment [Member] | Residential Loan [Member]
Loans, total
Doubtful [Member] | Real Estate Mortgage Portfolio Segment [Member] | Commercial Loans [Member]
Loans, total
Doubtful [Member]
Loans, total	17	130
Commercial And Industrial [Member]
Loans, total	59,376	42,536
Real Estate Construction Porfolio Segment [Member]
Loans, total	17,633	22,137
Real Estate Mortgage Portfolio Segment [Member] | Residential Loan [Member]
Loans, total	258,952	232,478
Real Estate Mortgage Portfolio Segment [Member] | Commercial Loans [Member]
Loans, total	245,636	231,701
Consumer Portfolio Segment [Member]
Loans, total	4,732	4,858
Loans, total	$ 586,329	$ 533,710

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Note 7 - Loans and Related Allowance for Loan and Lease Losses - Past Due Financing Receivables (Details) - USD ($)	Sep. 30, 2016	Dec. 31, 2015
Commercial And Industrial [Member] | Financing Receivables, 30 to 59 Days Past Due [Member]
Loans, past due	$ 59,000	$ 225,000
Commercial And Industrial [Member] | Financing Receivables, 60 to 89 Days Past Due [Member]
Loans, past due	92,000	26,000
Commercial And Industrial [Member] | Financing Receivables, Equal to Greater than 90 Days Past Due [Member]
Loans, past due	336,000	741,000
Commercial And Industrial [Member]
Loans, current balance	58,889,000	41,544,000
Loans, past due	487,000	992,000
Loans, total	59,376,000	42,536,000
Real Estate Construction Porfolio Segment [Member] | Financing Receivables, 30 to 59 Days Past Due [Member]
Loans, past due	0	0
Real Estate Construction Porfolio Segment [Member] | Financing Receivables, 60 to 89 Days Past Due [Member]
Loans, past due	0	0
Real Estate Construction Porfolio Segment [Member] | Financing Receivables, Equal to Greater than 90 Days Past Due [Member]
Loans, past due	0	0
Real Estate Construction Porfolio Segment [Member]
Loans, current balance	17,633,000	22,137,000
Loans, past due	0	0
Loans, total	17,633,000	22,137,000
Real Estate Mortgage Portfolio Segment [Member] | Financing Receivables, 30 to 59 Days Past Due [Member] | Residential Loan [Member]
Loans, past due	1,052,000	1,482,000
Real Estate Mortgage Portfolio Segment [Member] | Financing Receivables, 30 to 59 Days Past Due [Member] | Commercial Loans [Member]
Loans, past due	121,000	189,000
Real Estate Mortgage Portfolio Segment [Member] | Financing Receivables, 60 to 89 Days Past Due [Member] | Residential Loan [Member]
Loans, past due	547,000	92,000
Real Estate Mortgage Portfolio Segment [Member] | Financing Receivables, 60 to 89 Days Past Due [Member] | Commercial Loans [Member]
Loans, past due
Real Estate Mortgage Portfolio Segment [Member] | Financing Receivables, Equal to Greater than 90 Days Past Due [Member] | Residential Loan [Member]
Loans, past due	285,000	1,179,000
Real Estate Mortgage Portfolio Segment [Member] | Financing Receivables, Equal to Greater than 90 Days Past Due [Member] | Commercial Loans [Member]
Loans, past due	744,000	609,000
Real Estate Mortgage Portfolio Segment [Member] | Residential Loan [Member]
Loans, current balance	257,068,000	229,725,000
Loans, past due	1,884,000	2,753,000
Loans, total	258,952,000	232,478,000
Real Estate Mortgage Portfolio Segment [Member] | Commercial Loans [Member]
Loans, current balance	244,771,000	230,903,000
Loans, past due	865,000	798,000
Loans, total	245,636,000	231,701,000
Consumer Portfolio Segment [Member] | Financing Receivables, 30 to 59 Days Past Due [Member]
Loans, past due	76,000	16,000
Consumer Portfolio Segment [Member] | Financing Receivables, 60 to 89 Days Past Due [Member]
Loans, past due		3,000
Consumer Portfolio Segment [Member] | Financing Receivables, Equal to Greater than 90 Days Past Due [Member]
Loans, past due		2,000
Consumer Portfolio Segment [Member]
Loans, current balance	4,656,000	4,837,000
Loans, past due	76,000	21,000
Loans, total	4,732,000	4,858,000
Financing Receivables, 30 to 59 Days Past Due [Member]
Loans, past due	1,308,000	1,912,000
Financing Receivables, 60 to 89 Days Past Due [Member]
Loans, past due	639,000	121,000
Financing Receivables, Equal to Greater than 90 Days Past Due [Member]
Loans, past due	1,365,000	2,531,000
Loans, current balance	583,017,000	529,146,000
Loans, past due	3,312,000	4,564,000
Loans, total	$ 586,329,000	$ 533,710,000

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Note 7 - Loans and Relaed Allowance for Loan and Lease Losses - Classes of the Loan Portfolio Summarized by Nonaccrual Loans and Still Accruing (Details) - USD ($)	Sep. 30, 2016	Dec. 31, 2015
Commercial And Industrial [Member]
Loans, nonacrrual status	$ 920,000	$ 1,450,000
Loans, 90+ days past due and accruing	0	0
Real Estate Construction Porfolio Segment [Member]
Loans, nonacrrual status	17,000	130,000
Loans, 90+ days past due and accruing	0	0
Real Estate Mortgage Portfolio Segment [Member] | Residential Loan [Member]
Loans, nonacrrual status	3,822,000	4,122,000
Loans, 90+ days past due and accruing	0	0
Real Estate Mortgage Portfolio Segment [Member] | Commercial Loans [Member]
Loans, nonacrrual status	1,730,000	1,842,000
Loans, 90+ days past due and accruing	0	0
Consumer Portfolio Segment [Member]
Loans, nonacrrual status	0	1,000
Loans, 90+ days past due and accruing	0	2,000
Loans, nonacrrual status	6,490,000	7,545,000
Loans, 90+ days past due and accruing	$ 0	$ 2,000

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Note 7 - Loans and Related Allowance for Loan and Lease Losses - Troubled Debt Restructurings (Details) $ in Thousands	3 Months Ended	9 Months Ended
	Sep. 30, 2015 USD ($)	Sep. 30, 2016 USD ($)	Sep. 30, 2015 USD ($)
Extended Maturity [Member] | Commercial And Industrial [Member]
Number of contracts	2	2	3
Extended Maturity [Member] | Real Estate Mortgage Portfolio Segment [Member] | Residential Loan [Member]
Number of contracts	1	1	2
Extended Maturity [Member] | Real Estate Mortgage Portfolio Segment [Member] | Commercial Loans [Member]
Number of contracts		1
Extended Maturity [Member] | Real Estate Construction Porfolio Segment [Member]
Number of contracts			1
Extended Maturity [Member] | Consumer Portfolio Segment [Member]
Number of contracts	1		1
Other Restructurings [Member] | Commercial And Industrial [Member]
Number of contracts			1
Other Restructurings [Member] | Real Estate Mortgage Portfolio Segment [Member] | Residential Loan [Member]
Number of contracts			1
Other Restructurings [Member] | Real Estate Mortgage Portfolio Segment [Member] | Commercial Loans [Member]
Number of contracts
Other Restructurings [Member] | Real Estate Construction Porfolio Segment [Member]
Number of contracts
Other Restructurings [Member] | Consumer Portfolio Segment [Member]
Number of contracts
Commercial And Industrial [Member]
Number of contracts	2	2	4
Pre-modification outstanding recorded investment	$ 15	$ 169	$ 126
Post-modification outstanding recorded investment	15	169	126
Post-modification outstanding recorded investment	$ 15	$ 169	$ 126
Real Estate Mortgage Portfolio Segment [Member] | Residential Loan [Member]
Number of contracts	1	1	3
Pre-modification outstanding recorded investment	$ 164	$ 58	$ 398
Post-modification outstanding recorded investment	164	58	418
Post-modification outstanding recorded investment	$ 164	$ 58	$ 418
Real Estate Mortgage Portfolio Segment [Member] | Commercial Loans [Member]
Number of contracts		1
Pre-modification outstanding recorded investment		$ 311
Post-modification outstanding recorded investment		311
Post-modification outstanding recorded investment		$ 311
Real Estate Construction Porfolio Segment [Member]
Number of contracts			1
Pre-modification outstanding recorded investment			$ 181
Post-modification outstanding recorded investment
Post-modification outstanding recorded investment
Consumer Portfolio Segment [Member]
Number of contracts	1		1
Pre-modification outstanding recorded investment	$ 9		$ 9
Post-modification outstanding recorded investment	9		9
Post-modification outstanding recorded investment	$ 9		$ 9

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Note 7 - Loans and Related Allowance for Loan and Lease Losses - Troubled Debt Restructurings Subsequently Defaulted (Details)	3 Months Ended		9 Months Ended
	Sep. 30, 2016 USD ($)	Sep. 30, 2015 USD ($)	Sep. 30, 2016 USD ($)	Sep. 30, 2015 USD ($)
Extended Maturity [Member] | Commercial And Industrial [Member]
Financing Receivable, Modifications, Subsequent Default, Number of Contracts	1
Extended Maturity [Member] | Real Estate Mortgage Portfolio Segment [Member] | Residential Loan [Member]
Financing Receivable, Modifications, Subsequent Default, Number of Contracts	1
Other Restructurings [Member] | Commercial And Industrial [Member]
Financing Receivable, Modifications, Subsequent Default, Recorded Investment	$ 3,000
Other Restructurings [Member] | Real Estate Mortgage Portfolio Segment [Member] | Residential Loan [Member]
Financing Receivable, Modifications, Subsequent Default, Recorded Investment	$ 58,000
Commercial And Industrial [Member]
Financing Receivable, Modifications, Subsequent Default, Number of Contracts		1	2	3
Financing Receivable, Modifications, Subsequent Default, Recorded Investment		$ 8,000	$ 273,000	$ 55
Real Estate Construction Porfolio Segment [Member]
Financing Receivable, Modifications, Subsequent Default, Number of Contracts			1	1
Financing Receivable, Modifications, Subsequent Default, Recorded Investment			$ 58,000	$ 152
Consumer Portfolio Segment [Member]
Financing Receivable, Modifications, Subsequent Default, Number of Contracts		1		1
Financing Receivable, Modifications, Subsequent Default, Recorded Investment		$ 8,000		$ 8
Financing Receivable, Modifications, Subsequent Default, Number of Contracts			1
Financing Receivable, Modifications, Subsequent Default, Recorded Investment			$ 270,000

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Note 8 - Other Real Estate Owned ("OREO") (Details Textual) - USD ($) $ in Millions	Sep. 30, 2016	Dec. 31, 2015
Real Estate Acquired Through Foreclosure	$ 1.2	$ 1.4

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Note 9 - Subsequent Event (Details Textual) - Merger of Liberty Bank, N.A. into The Middlefield Banking Company [member] - USD ($) $ / shares in Units, $ in Thousands	2 Months Ended
	Dec. 31, 2016	Jul. 28, 2016
Scenario, Forecast [Member]
Payments to Acquire Businesses, Gross	$ 1,147
Liberty Bank, N.A. [Member]
Business Combination, Merger Agreement, Special Dividend to Be Paid to Entity's Shareholders Before Merger		$ 3,000
Business Combination, Merger Agreement, Percentage of Merger Consideration to Be Paid in Common Stock		45.00%
Business Combination, Merger Agreement, Cash Per Share of Reporting Entity Common Stock		$ 37.96
Business Combination, Merger Agreement, Ratio of Shares of Reporting Entity's Common Stock for Each Share of Acquired Entity's Common Stock		1.1934
Business Combination, Shares in Acquired Entity Owned Prior to Merger		23,218
Business Combination, Ownership Percentage in Acquired Entity Prior to Merger		2.40%