10-Q

UNITED STATES

 SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

_____________________________

FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

       EXCHANGE ACT OF 1934

       For the quarterly period ended September 30, 2012

OR

[  ]  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

       EXCHANGE ACT OF 1934

     For the transition period from _______ to _______

Commission File Number: 000-23601

PATHFINDER BANCORP, INC.

(Exact Name of Company as Specified in its Charter)

FEDERAL	16-1540137
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification Number)

214 West First Street, Oswego, NY 13126

(Address of Principal Executive Office) (Zip Code)

(315) 343-0057

(Issuer'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 T        NO *                                

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (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 T        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 definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer*                            Accelerated filer*                                 Non-accelerated filer*                       Smaller reporting company  T

                           (Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   YES *    NO T

As of November 12, 2012, there were 2,979,969 shares issued and 2,617,682 shares outstanding of the registrant’s common stock.

PATHFINDER BANCORP, INC.

INDEX

PART I - FINANCIAL INFORMATION		PAGE NO.
Item 1.	Consolidated Financial Statements (Unaudited)
	Consolidated Statements of Condition		3
	Consolidated Statements of Income		4
	Consolidated Statements of Comprehensive Income		5
	Consolidated Statements of Changes in Shareholders' Equity		6
	Consolidated Statements of Cash Flows		7
	Notes to Consolidated Financial Statements		8
Item 2.	Management's Discussion and Analysis of Financial Condition		28
	and Results of Operations
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		39
Item 4.	Controls and Procedures		39
PART II - OTHER INFORMATION			40
Item 1.	Legal proceedings
Item 1A.	Risk Factors
Item 2.	Unregistered sales of equity securities and use of proceeds
Item 3.	Defaults upon senior securities
Item 4.	Mine Safety Disclosures
Item 5.	Other information
Item 6.	Exhibits
SIGNATURES			41
EXHIBITS			42

PART I -  FINANCIAL INFORMATION

Item 1 – Consolidated Financial Statements

Pathfinder Bancorp, Inc.

Consolidated Statements of Condition

(Unaudited)

	September 30,			December 31,
(In thousands, except share data)	2012			2011
ASSETS:
Cash and due from banks	$	9,349		$	7,093
Interest earning deposits		4,725			3,125
Total cash and cash equivalents		14,074			10,218
Interest earning time deposits		2,000			2,000
Investment securities, at fair value		114,312			100,395
Federal Home Loan Bank stock, at cost		1,910			1,528
Loans		324,150			304,750
Less: Allowance for loan losses		4,433			3,980
Loans receivable, net		319,717			300,770
Premises and equipment, net		10,197			10,697
Accrued interest receivable		1,921			1,685
Foreclosed real estate		429			536
Goodwill		3,840			3,840
Bank owned life insurance		8,137			7,939
Other assets		2,826			3,372
Total assets	$	479,363		$	442,980
LIABILITIES AND SHAREHOLDERS' EQUITY:
Deposits:
Interest-bearing	$	349,355		$	328,976
Noninterest-bearing		44,483			37,153
Total deposits		393,838			366,129
Short-term borrowings		9,000			-
Long-term borrowings		25,991			26,074
Junior subordinated debentures		5,155			5,155
Accrued interest payable		129			145
Other liabilities		4,311			7,636
Total liabilities		438,424			405,139
Shareholders' equity:
Preferred stock - SBLF, par value $0.01 per share; $1,000 liquidation preference;
13,000 shares authorized; 13,000 shares issued and outstanding		13,000			13,000
Common stock, par value $0.01; authorized 10,000,000 shares;
2,979,969 and 2,617,682 shares issued and outstanding, respectively		30			30
Additional paid in capital		8,098			8,730
Retained earnings		26,114			24,618
Accumulated other comprehensive loss		(505	)		(2,664	)
Unearned ESOP		(964	)		(1,039	)
Treasury stock, at cost; 362,287 shares		(4,834	)		(4,834	)
Total shareholders' equity		40,939			37,841
Total liabilities and shareholders' equity	$	479,363		$	442,980

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

- 3

Pathfinder Bancorp, Inc.

Consolidated Statements of Income

(Unaudited)

	For the three		For the three			For the nine		For the nine
	months ended		months ended			months ended		months ended
(In thousands, except per share data)	September 30, 2012		September 30, 2011			September 30, 2012		September 30, 2011
Interest and dividend income:
Loans, including fees	$	3,974	$	4,089		$	11,962	$	11,945
Debt securities:
Taxable		439		489			1,386		1,687
Tax-exempt		190		81			535		230
Dividends		38		33			97		101
Interest earning time deposits		6		-			18		-
Federal funds sold and interest earning deposits		1		1			3		3
Total interest income		4,648		4,693			14,001		13,966
Interest expense:
Interest on deposits		714		810			2,211		2,444
Interest on short-term borrowings		6		4			14		22
Interest on long-term borrowings		243		259			750		816
Total interest expense		963		1,073			2,975		3,282
Net interest income		3,685		3,620			11,026		10,684
Provision for loan losses		275		145			650		670
Net interest income after provision for loan losses		3,410		3,475			10,376		10,014
Noninterest income:
Service charges on deposit accounts		285		283			838		854
Earnings and gain on bank owned life insurance		46		45			235		162
Loan servicing fees		51		63			159		155
Net gains on sales and redemptions of investment securities		18		469			179		791
Net gains (losses) on sales of loans and foreclosed real estate		6		(80	)		31		(40	)
Debit card interchange fees		105		93			308		273
Other charges, commissions & fees		150		130			423		403
Total noninterest income		661		1,003			2,173		2,598
Noninterest expense:
Salaries and employee benefits		1,733		1,787			5,576		5,260
Building occupancy		348		316			1,077		1,038
Data processing		390		349			1,072		1,054
Professional and other services		174		219			473		504
Advertising		108		91			268		366
FDIC assessments		78		(8	)		233		316
Audits and exams		73		62			184		181
Other expenses		274		392			1,106		1,175
Total noninterest expenses		3,178		3,208			9,989		9,894
Income before income taxes		893		1,270			2,560		2,718
Provision for income taxes		223		396			641		831
Net income		670		874			1,919		1,887
Preferred stock dividends and discount accretion		113		581			367		816
Net income available to common shareholders	$	557	$	293		$	1,552	$	1,071
Earnings per common share - basic	$	0.22	$	0.12		$	0.62	$	0.43
Earnings per common share - diluted	$	0.22	$	0.11		$	0.62	$	0.42
Dividends per common share	$	0.03	$	0.03		$	0.09	$	0.09

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

- 4

Pathfinder Bancorp, Inc.

Consolidated Statements of Comprehensive Income

(Unaudited)

	For the three			For the three			For the nine			For the nine
	months ended			months ended			months ended			months ended
	September 30,			September 30,			September 30,			September 30,
(In thousands)	2012			2011			2012			2011
Retirement Plans:
Retirement plan net losses recognized in plan expenses	$	78		$	67		$	318		$	200
Gain on pension plan curtailment		-			-			1,919			-
Unrealized holding loss on financial derivative:
Change in unrealized holding loss on financial derivative		(18	)		(87	)		(53	)		(141	)
Reclassification adjustment for interest expense included in net income		13			17			43			46
Net unrealized loss on financial derivative		(5	)		(70	)		(10	)		(95	)
Unrealized holding gains (losses) on available-for-sale securities:
Unrealized holding gains arising during the period		939			316			1,551			2,430
Reclassification adjustment for net gains included in income		(18	)		(469	)		(179	)		(791	)
Net unrealized gains (losses) on securities available-for-sale		921			(153	)		1,372			1,639
Other comprehensive income (loss), before tax		994			(156	)		3,599			1,744
Tax effect		(397	)		62			(1,440	)		(699	)
Other comprehensive income (loss), net of tax		597			(94	)		2,159			1,045
Net Income		670			874			1,919			1,887
Comprehensive Income	$	1,267		$	780		$	4,078		$	2,932
Tax Effect Allocated to Each Component of Other Comprehensive Income
Retirement plan net losses recognized in plan expenses	$	(31	)	$	(27	)	$	(127	)	$	(80	)
Gain on pension plan curtailment		-			-			(768	)		-
Unrealized loss on financial derivative		2			28			4			38
Unrealized gains on available-for-sale securities		(368	)		61			(549	)		(657	)
Income tax effect related to other comprehensive income	$	(397	)	$	62		$	(1,440	)	$	(699	)
	As of			As of
	September 30,			December 31,
Accumulated Other Comprehensive Loss By Component:		2012			2011
Unrealized loss for pension and other postretirement obligations	$	(3,792	)	$	(6,029	)
Tax effect		1,517			2,412
Net unrealized loss for pension and other postretirement obligations		(2,275	)		(3,617	)
Unrealized loss on financial derivative instruments used in cash flow hedging relationships		(210	)		(200	)
Tax effect		84			80
Net unrealized loss on financial derivative instruments used in cash flow hedging relationships		(126	)		(120	)
Unrealized gains on available-for-sale securities		3,161			1,789
Tax effect		(1,265	)		(716	)
Net unrealized gains on available-for-sale securities		1,896			1,073
Accumulated other comprehensive loss	$	(505	)	$	(2,664	)

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

- 5

PATHFINDER BANCORP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Nine months ended September 30, 2012 and September 30, 2011
						(Unaudited)
												Accumulated
						Additional						Other Com-
	Preferred			Common		Paid in			Retained			prehensive			Unearned			Treasury
(In thousands, except share data)	Stock			Stock		Capital			Earnings			Loss			ESOP			Stock			Total
Balance, January 1, 2012	$	13,000		$	30	$	8,730		$	24,618		$	(2,664	)	$	(1,039	)	$	(4,834	)	$	37,841
Comprehensive income:
Net income										1,919												1,919
Other comprehensive income (loss), net of tax:
Unrealized holding gains on securities
available for sale (net of $549 tax expense)													823									823
Unrealized holding losses on financial
derivative (net of $4 tax benefit)													(6	)								(6	)
Retirement plan net losses
recognized in plan expenses
(net of $127 tax expense)													191									191
Defined benefit plan freeze
(net of $768 tax expense)													1,151									1,151
Total comprehensive income																						4,078
Purchase of CPP Warrants from Treasury							(706	)		169												(537	)
Preferred stock dividends - SBLF										(367	)											(367	)
ESOP shares earned (8,520 shares)							6									75						81
Stock based compensation							68															68
Common stock dividends declared ($0.09 per share)										(225	)											(225	)
Balance, September 30, 2012	$	13,000		$	30	$	8,098		$	26,114		$	(505	)	$	(964	)	$	(4,834	)	$	40,939
Balance, January 1, 2011	$	6,225		$	30	$	8,615		$	24,163		$	(1,939	)	$	-		$	(6,502	)	$	30,592
Comprehensive income:
Net income										1,887												1,887
Other comprehensive income (loss), net of tax:
Unrealized holding gains on securities
available for sale (net of $657 tax expense)													982									982
Unrealized holding loss on financial
derivative (net of $38 tax benefit)													(57	)								(57	)
Retirement plan amortization and transition
obligation recognized in plan expenses
(net of $80 tax expense)													120									120
Total comprehensive income																						2,932
Sale of preferred stock - SBLF		13,000																				13,000
Redemption of CPP Preferred stock		(6,771	)																			(6,771	)
Preferred stock discount accretion		546								(546	)											-
Preferred stock dividends - CPP										(270	)											(270	)
Sale of treasury stock to ESOP										(566	)					(1,102	)		1,668			-
ESOP shares earned (3,445 shares)							1									31						32
Stock based compensation							25															25
Stock options exercised							66															66
Common stock dividends declared ($0.09 per share)										(224	)											(224	)
Balance, September 30, 2011	$	13,000		$	30	$	8,707		$	24,444		$	(894	)	$	(1,071	)	$	(4,834	)	$	39,382

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

- 6

Pathfinder Bancorp, Inc.

Consolidated Statements of Cash Flows

 (Unaudited)

	For the nine
	months ended
(In thousands)	September 30, 2012			September 30, 2011
OPERATING ACTIVITIES
Net income	$	1,919		$	1,887
Adjustments to reconcile net income to net cash flows from operating activities:
Provision for loan losses		650			670
Proceeds from sales of loans		207			-
Originations of loans held-for-sale		(195	)		-
Realized (gains) losses on sales and redemptions of:
Real estate acquired through foreclosure		(19	)		40
Loans		(12	)		-
Available-for-sale investment securities		(179	)		(791	)
Depreciation		593			523
Amortization of mortgage servicing rights		6			20
Amortization of deferred loan costs		132			139
Earnings on bank owned life insurance		(198	)		(162	)
Realized gain on proceeds from bank owned life insurance		(37	)		-
Net amortization of premiums and discounts on investment securities		851			370
Stock based compensation and ESOP expense		149			57
Net change in accrued interest receivable		(236	)		90
Pension plan contribution		(2,600	)		-
Net change in other assets and liabilities		734			(30	)
Net cash flows from operating activities		1,765			2,813
INVESTING ACTIVITIES
Purchase of investment securities available-for-sale		(44,429	)		(39,603	)
(Purchases) redemptions of Federal Home Loan Bank stock		(382	)		606
Proceeds from maturities and principal reductions of
investment securities available-for-sale		20,859			25,894
Proceeds from sales and redemptions of:
Available-for-sale investment securities		10,353			15,091
Real estate acquired through foreclosure		331			691
Purchase of bank owned life insurance		-			(800	)
Net change in loans		(20,020	)		(10,371	)
Purchase of premises and equipment		(93	)		(1,750	)
Net cash flows from investing activities		(33,381	)		(10,242	)
FINANCING ACTIVITIES
Net change in demand deposits, NOW accounts, savings accounts,
money management deposit accounts, MMDA accounts and escrow deposits		17,698			15,928
Net change in time deposits and brokered deposits		10,011			624
Net change in short-term borrowings		9,000			(11,000	)
Payments on long-term borrowings		(4,083	)		(6,000	)
Proceeds from long-term borrowings		4,000			4,101
Proceeds from sale of preferred stock - SBLF		-			13,000
Proceeds from exercise of stock options		-			66
Redemption of preferred stock - CPP		-			(6,771	)
Purchase of CPP warrants from the US Treasury		(537	)		-
Cash dividends paid to preferred shareholder - SBLF and CPP		(392	)		(270	)
Cash dividends paid to common shareholders		(225	)		(224	)
Net cash flows from financing activities		35,472			9,454
Change in cash and cash equivalents		3,856			2,025
Cash and cash equivalents at beginning of period		10,218			13,763
Cash and cash equivalents at end of period	$	14,074		$	15,788
CASH PAID DURING THE PERIOD FOR:
Interest	$	2,991		$	3,299
Income taxes		3			1,507
NON-CASH INVESTING ACTIVITY
Transfer of loans to foreclosed real estate		291			921

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

- 7

Notes to Consolidated Financial Statements (Unaudited)

(1)  Basis of Presentation

The accompanying unaudited consolidated financial statements of Pathfinder Bancorp, Inc. and its wholly owned subsidiaries have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information, the instructions for Form 10-Q and Article 10 of Regulation S-X.  Accordingly, they do not include all of the information and footnotes necessary for a complete presentation of consolidated financial position, results of operations and cash flows in conformity with generally accepted accounting principles.  In the opinion of management, all adjustments, consisting of normal recurring accruals considered necessary for a fair presentation, have been included.  Certain amounts in the 2011 consolidated financial statements may have been reclassified to conform to the current period presentation.  These reclassifications had no effect on net income as previously reported.

The following material under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations" is written with the presumption that the users of the interim financial statements have read, or have access to, the Company's latest audited financial statements and notes thereto, together with Management's Discussion and Analysis of Financial Condition and Results of Operations as of December 31, 2011 and 2010 and for the two years then ended.  Therefore, only material changes in financial condition and results of operations are discussed in the remainder of Part 1.

Operating results for the three and nine months ended September 30, 2012 are not necessarily indicative of the results that may be expected for the year ending December 31, 2012.

(2)  New Accounting Pronouncements

None applicable to the Company.

(3)  Earnings per Common Share

Basic earnings per share are calculated by dividing net income available to common shareholders by the weighted average number of common shares outstanding during the period.  Net income available to common shareholders is net income less the total of preferred dividends declared and the amortization of the preferred stock discount value under the CPP program during 2011.  Diluted earnings per share include the potential dilutive effect that could occur upon the assumed exercise of issued stock options and the warrants issued to the U.S. Treasury using the treasury stock method.  Unallocated common shares held by the ESOP are not included in the weighted-average number of common shares outstanding for purposes of calculating earnings per common share until they are committed to be released to plan participants.

The following table sets forth the calculation of basic and diluted earnings per share:

	Three months ended				Nine months ended
	September 30,				September 30,
(In thousands, except per share data)	2012		2011		2012		2011
Basic Earnings Per Common Share
Net income available to common shareholders	$	557	$	293	$	1,552	$	1,071
Weighted average common shares outstanding		2,505		2,493		2,503		2,488
Basic earnings per common share	$	0.22	$	0.12	$	0.62	$	0.43
Diluted Earnings Per Common Share
Net income available to common shareholders	$	557	$	293	$	1,552	$	1,071
Weighted average common shares outstanding		2,505		2,493		2,503		2,488
Effect of assumed exercise of stock options		12		11		6		5
Effect of assumed exercise of stock warrants		-		43		4		43
Diluted weighted average common shares outstanding		2,517		2,547		2,513		2,536
Diluted earnings per common share	$	0.22	$	0.11	$	0.62	$	0.42

- 8

(4) Investment Securities - Available-for-Sale

The amortized cost and estimated fair value of investment securities are summarized as follows:

	September 30, 2012
			Gross		Gross			Estimated
	Amortized		Unrealized		Unrealized			Fair
(In thousands)	Cost		Gains		Losses			Value
Debt investment securities:
US Treasury, agencies and GSEs	$	5,176	$	26	$	-		$	5,202
State and political subdivisions		25,994		1,122		(2	)		27,114
Corporate		24,042		382		(525	)		23,899
Residential mortgage-backed - US agency		52,797		1,768		(1	)		54,564
Residential mortgage-backed - private label		346		11		-			357
Total		108,355		3,309		(528	)		111,136
Equity investment securities:
Mutual funds:
Ultra short mortgage fund		1,286		14		-			1,300
Large cap equity fund		905		243		-			1,148
Other mutual funds		183		114		-			297
Common stock - financial services industry		422		10		(1	)		431
Total		2,796		381		(1	)		3,176
Total investment securities	$	111,151	$	3,690	$	(529	)	$	114,312

	December 31, 2011
			Gross		Gross			Estimated
	Amortized		Unrealized		Unrealized			Fair
(In thousands)	Cost		Gains		Losses			Value
Debt investment securities:
US Treasury, agencies and GSEs	$	5,025	$	48	$	-		$	5,073
State and political subdivisions		19,508		797		(1	)		20,304
Corporate		21,086		38		(690	)		20,434
Residential mortgage-backed - US agency		49,665		1,395		(4	)		51,056
Residential mortgage-backed - private label		505		14		-			519
Total		95,789		2,292		(695	)		97,386
Equity investment securities:
Mutual funds:
Ultra short mortgage fund		1,286		12		-			1,298
Large cap equity fund		905		119		-			1,024
Other mutual funds		183		60		-			243
Common stock - financial services industry		443		2		(1	)		444
Total		2,817		193		(1	)		3,009
Total investment securities	$	98,606	$	2,485	$	(696	)	$	100,395

- 9

The amortized cost and estimated fair value of debt investments at September 30, 2012 by contractual maturity are shown below. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without penalties.

	Amortized		Estimated
	Cost		Fair Value
(In thousands)
Due in one year or less	$	7,294	$	7,329
Due after one year through five years		22,421		22,887
Due after five years through ten years		7,042		7,478
Due after ten years		18,455		18,521
Mortgage-backed securities		53,143		54,921
Totals	$	108,355	$	111,136

The Company’s investment securities’ gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, are as follows:

										September 30, 2012
			Less than Twelve Months							Twelve Months or More							Total
	Number of							Number of							Number of
	Individual		Unrealized			Fair		Individual		Unrealized			Fair		Individual		Unrealized			Fair
	Securities		Losses			Value		Securities		Losses			Value		Securities		Losses			Value
(Dollars in thousands)
State and political subdivisions		4	$	(2	)	$	1,475		-	$	-		$	-		4	$	(2	)	$	1,475
Corporate		4		(37	)		2,633		2		(488	)		1,481		6		(525	)		4,114
Residential mortgage-backed - US agency		2		(1	)		1,018		-		-			-		2		(1	)		1,018
Common stock-financial services industry		1		(1	)		2		-		-			-		1		(1	)		2
Totals		11	$	(41	)	$	5,128		2	$	(488	)	$	1,481		13	$	(529	)	$	6,609
										December 31, 2011
			Less than Twelve Months							Twelve Months or More							Total
	Number of							Number of							Number of
	Individual		Unrealized			Fair		Individual		Unrealized			Fair		Individual		Unrealized			Fair
	Securities		Losses			Value		Securities		Losses			Value		Securities		Losses			Value
(Dollars in thousands)
State and political subdivisions		1	$	(1	)	$	412		-	$	-		$	-		1	$	(1	)	$	412
Corporate		19		(131	)		13,489		2		(559	)		1,410		21		(690	)		14,899
Residential mortgage-backed - US agency		2		(4	)		1,896		-		-			-		2		(4	)		1,896
Common stock-financial services industry		-		-			-		1		(1	)		3		1		(1	)		3
Totals		22	$	(136	)	$	15,797		3	$	(560	)	$	1,413		25	$	(696	)	$	17,210

We conduct a formal review of investment securities on a quarterly basis for the presence of other-than-temporary impairment (“OTTI”).  We assess whether OTTI is present when the fair value of a debt security is less than its amortized cost basis at the statement of condition date.  Under these circumstances, OTTI is considered to have occurred (1) if we intend to sell the security; (2) if it is “more likely than not” we will be required to sell the security before recovery of its amortized cost basis; or (3) the present value of expected cash flows is not anticipated to be sufficient to recover the entire amortized cost basis.  The guidance requires that credit-related OTTI is recognized in earnings while non-credit-related OTTI on securities not expected to be sold is recognized in other comprehensive income (“OCI”).  Non-credit-related OTTI is based on other factors, including illiquidity and changes in the general interest rate environment.  Presentation of OTTI is made in the consolidated statement of income on a gross basis, including both the portion recognized in earnings as well as the portion recorded in OCI.  The gross OTTI would then be offset by the amount of non-credit-related OTTI, showing the net as the impact on earnings.

- 10

The Company’s investment securities portfolio includes two corporate securities representing trust preferred issuances from large money center financial institutions.  The securities have been in an unrealized loss position for more than 12 months.  The securities are both floating rate notes that adjust quarterly to LIBOR (“London Interbank Offered Rate”).  These securities are reflecting a net unrealized loss due to current similar offerings being originated at higher spreads to LIBOR, as the market currently demands a greater pricing premium for the associated risk. Management has performed a detailed credit analysis on the underlying companies and has concluded that neither issue is credit impaired.  Due to the fact that each security has approximately 15 years until final maturity, and management has determined that there is no related credit impairment, the associated pricing risk is managed similar to long-term, low yielding, 15 and 30-year fixed rate residential mortgages carried in the Company’s loan portfolio.  The risk is managed through the Company’s extensive interest rate risk management procedures.  The Company expects the present value of expected cash flows will be sufficient to recover the amortized cost basis.  Thus, the securities are not deemed to be other-than-temporarily impaired.

Management does not believe any individual unrealized loss in other securities within the portfolio as of September 30, 2012 represents OTTI.  All related securities are rated Baa1 or better by Moody’s or Standard & Poor’s, with the exception of the two corporate securities noted above.  The unrealized losses in the portfolio are primarily attributable to changes in interest rates.  The Company does not intend to sell these securities, nor is it more likely than not that the Company will be required to sell these securities prior to the recovery of the amortized cost.

In determining whether OTTI has occurred for equity securities, the Company considers the applicable factors described above and the length of time the equity security’s fair value has been below the carrying amount. Management has determined that we have the intent and ability to retain the equity securities for a sufficient period of time to allow for recovery. The Company holds one equity security that had a fair value less than the carrying value at September 30, 2012.   A small common stock investment in The Phoenix Companies has an unrealized loss of  $1,300.  Due to the relatively small size of the unrealized loss and short duration of the loss period, no OTTI is deemed present in relation to this security.

The following table presents a roll-forward of the amount related to credit losses recognized in earnings for the periods ended September 30:

(In thousands)	2012		2011
Beginning balance – January 1	$	-	$	875
Reductions for securities sold		-		(875	)
Ending balance - September 30	$	-	$	-

The above credit losses were related to one security that was sold at a small gain during the period ended September 30, 2011.

Gross realized gains (losses) on sales of securities for the indicated periods are detailed below:

	For the three months					For the nine months
	ended September 30,					ended September 30,
(In thousands)	2012			2011		2012			2011
Realized gains	$	30		$	469	$	191		$	796
Realized losses		(12	)		-		(12	)		(5	)
	$	18		$	469	$	179		$	791

As of September 30, 2012 and December 31, 2011, securities with a fair value of $39.6 million and $43.1 million, respectively, were pledged to collateralize certain municipal deposit relationships.  As of the same dates, securities with a fair value of $38.4 million and $21.8 million were pledged against certain borrowing arrangements.  Total borrowings of $5.0 million were outstanding relating to the above noted collateralized borrowing arrangements as of both September 30, 2012 and December 31, 2011.

Management has reviewed its loan and mortgage-backed securities portfolios and determined that, to the best of its knowledge, little or no exposure exists to sub-prime or other high-risk residential mortgages.  The Company is not in the practice of investing in, or originating, these types of investments or loans.

- 11

(5)  Pension and Postretirement Benefits

The Company has a non-contributory defined benefit pension plan that covered substantially all employees. On May 14, 2012, the Company informed its employees of its decision to freeze participation and benefit accruals under the plan, primarily to reduce some of the volatility in earnings that can accompany the maintenance of a defined benefit plan.  The freeze became effective June 30, 2012.  Compensation earned by employees up to June 30, 2012 is used for purposes of calculating benefits under the plan but there will be no future benefit accruals after this date.  Participants as of June 30, 2012 will continue to earn vesting credit with respect to their frozen accrued benefits as they continue to work.

Prior to being frozen, the plan provided defined benefits based on years of service and final average salary. Although the plan was frozen, the Company maintains the responsibility for funding the plan, and its funding practice is to contribute at least the minimum amount annually to meet minimum funding requirements.  The funded status of the plan has and will continue to be affected by market conditions.  We expect to continue to fund this plan on an as needed basis and do not foresee any issues or conditions that could negatively impact the payment of benefit obligations to plan participants.  In addition, the Company provides certain health and life insurance benefits for eligible retired employees.  The healthcare plan is contributory with participants’ contributions adjusted annually; the life insurance plan is noncontributory.  Employees with less than 14 years of service as of January 1, 1995, are not eligible for the health and life insurance retirement benefits.

The composition of net periodic pension plan and postretirement plan costs for the indicated periods is as follows:

	Pension Benefits						Postretirement Benefits				Pension Benefits						Postretirement Benefits
	For the three months ended September 30,										For the nine months ended September 30,
(In thousands)	2012			2011			2012		2011		2012			2011			2012		2011
Service cost	$	-		$	82		$	-	$	-	$	166		$	246		$	-	$	-
Interest cost		93			103			4		5		305			310			13		15
Expected return on plan assets		(205	)		(156	)		-		-		(604	)		(468	)		-		-
Amortization of net losses		74			62			4		5		307			185			11		14
Net periodic plan cost	$	(38	)	$	91		$	8	$	10	$	174		$	273		$	24	$	29

The Company made a contribution in the amount of $2.6 million to the defined benefit pension plan in January of 2012.  The Company will evaluate any need for further contributions to the defined benefit pension plan during the fourth quarter of 2012.

- 12

(6)  Loans

Major classifications of loans at the indicated dates are as follows:

	September 30,			December 31,
(In thousands)	2012			2011
Residential mortgage loans:
1-4 family first-lien residential mortgages	$	169,062		$	158,384
Construction		2,587			3,935
		171,649			162,319
Commercial loans:
Real estate		79,770			73,420
Lines of credit		13,471			13,791
Other commercial and industrial		27,509			22,701
Municipal		5,063			3,619
		125,813			113,531
Consumer loans:
Home equity and junior liens		22,580			24,171
Other consumer		3,627			4,140
		26,207			28,311
Total loans		323,669			304,161
Net deferred loan costs		481			589
Less allowance for loan losses		(4,433	)		(3,980	)
Loans receivable, net	$	319,717		$	300,770

The Company originates residential mortgage, commercial and consumer loans largely to customers throughout Oswego, Onondaga, Jefferson, and Oneida counties. Although the Company has a diversified loan portfolio, a substantial portion of its borrowers’ abilities to honor their contracts is dependent upon the counties’ employment and economic conditions.

As of September 30, 2012 and December 31, 2011, residential mortgage loans with a carrying value of $62.3 million and $65.8 million, respectively, have been pledged by the Company to the Federal Home Loan Bank of New York (“FHLBNY”) under a blanket collateral agreement to secure the Company’s line of credit and term borrowings.  Borrowings at the FHLBNY as of September 30, 2012 and December 31, 2011 were $29.0 million and $20.0 million, respectively.

Loan Origination / Risk Management

The Company’s lending policies and procedures are presented in Note 5 to the consolidated financial statements included in the 2011 Annual Report filed on Form 10-K on March 29, 2012, and have not changed.

- 13

To develop and document a systematic methodology for determining the allowance for loan losses, the Company has divided the loan portfolio into three portfolio segments, each with different risk characteristics and methodologies for assessing risk.  Each portfolio segment is broken down into loan classes where appropriate.  Loan classes contain unique measurement attributes, risk characteristics and methods for monitoring and assessing risk that are necessary to develop the allowance for loan losses.  Unique characteristics such as borrower type, loan type, collateral type, and risk characteristics define each class.  The following table illustrates the portfolio segments and classes for the Company’s loan portfolio:

Portfolio Segment	Class
Residential Mortgage Loans	1-4 family first-lien residential mortgages
	Construction
Commercial Loans	Real estate
	Lines of credit
	Other commercial and industrial
	Municipal
Consumer Loans	Home equity and junior liens
	Other consumer

The following tables present the classes of the loan portfolio, not including net deferred loan costs, summarized by the aggregate pass rating and the classified ratings of special mention, substandard and doubtful within the Company's internal risk rating system as of the dates indicated:

	September 30, 2012
			Special
(In thousands)	Pass		Mention		Substandard		Doubtful		Total
Residential mortgage loans:
1-4 family first-lien residential mortgages	$	162,529	$	950	$	5,583	$	-	$	169,062
Construction		2,587		-		-		-		2,587
		165,116		950		5,583		-		171,649
Commercial loans:
Real estate		75,148		48		4,574		-		79,770
Lines of credit		12,325		-		1,071		75		13,471
Other commercial and industrial		26,346		-		1,157		6		27,509
Municipal		5,063		-		-		-		5,063
		118,882		48		6,802		81		125,813
Consumer loans:
Home equity and junior liens		20,614		165		1,752		49		22,580
Other consumer		3,349		191		59		28		3,627
		23,963		356		1,811		77		26,207
Total loans	$	307,961	$	1,354	$	14,196	$	158	$	323,669

- 14

	December 31, 2011
			Special
(In thousands)	Pass		Mention		Substandard		Doubtful		Total
Residential mortgage loans:
1-4 family first-lien residential mortgages	$	153,049	$	1,050	$	4,285	$	-	$	158,384
Construction		3,935		-		-		-		3,935
		156,984		1,050		4,285		-		162,319
Commercial loans:
Real estate		69,737		212		3,471		-		73,420
Lines of credit		12,579		49		1,163		-		13,791
Other commercial and industrial		21,978		89		591		43		22,701
Municipal		3,619		-		-		-		3,619
		107,913		350		5,225		43		113,531
Consumer loans:
Home equity and junior liens		22,500		162		1,456		53		24,171
Other consumer		3,922		61		123		34		4,140
		26,422		223		1,579		87		28,311
Total loans	$	291,319	$	1,623	$	11,089	$	130	$	304,161

Management has reviewed its loan portfolio and determined that, to the best of its knowledge, no exposure exists to sub-prime or other high-risk residential mortgages.  The Company is not in the practice of originating these types of loans.

Nonaccrual and Past Due Loans

Loans are considered past due if the required principal and interest payments have not been received within thirty days of the payment due date.

- 15

An age analysis of past due loans, segregated by portfolio segment and class of loans, as of September 30, 2012 and December 31, 2011, are detailed in the following tables:

	September 30, 2012
	30-59 Days		60-89 Days		90 Days		Total				Total Loans
(In thousands)	Past Due		Past Due		and Over		Past Due		Current		Receivable
Residential mortgage loans:
1-4 family first-lien residential mortgages	$	1,838	$	1,139	$	1,506	$	4,483	$	164,579	$	169,062
Construction		-		-		-		-		2,587		2,587
		1,838		1,139		1,506		4,483		167,166		171,649
Commercial loans:
Real estate		729		46		1,526		2,301		77,469		79,770
Lines of credit		137		500		238		875		12,596		13,471
Other commercial and industrial		272		62		578		912		26,597		27,509
Municipal		-		-		-		-		5,063		5,063
		1,138		608		2,342		4,088		121,725		125,813
Consumer loans:
Home equity and junior liens		334		313		737		1,384		21,196		22,580
Other consumer		43		48		38		129		3,498		3,627
		377		361		775		1,513		24,694		26,207
Total loans	$	3,353	$	2,108	$	4,623	$	10,084	$	313,585	$	323,669

	December 31, 2011
	30-59 Days		60-89 Days		90 Days		Total				Total Loans
(In thousands)	Past Due		Past Due		and Over		Past Due		Current		Receivable
Residential mortgage loans:
1-4 family first-lien residential mortgages	$	2,870	$	934	$	1,428	$	5,232	$	153,152	$	158,384
Construction		-		-		-		-		3,935		3,935
		2,870		934		1,428		5,232		157,087		162,319
Commercial loans:
Real estate		2,015		4		1,623		3,642		69,778		73,420
Lines of credit		337		75		467		879		12,912		13,791
Other commercial and industrial		356		392		504		1,252		21,449		22,701
Municipal		-		-		-		-		3,619		3,619
		2,708		471		2,594		5,773		107,758		113,531
Consumer loans:
Home equity and junior liens		357		182		550		1,089		23,082		24,171
Other consumer		55		2		156		213		3,927		4,140
		412		184		706		1,302		27,009		28,311
Total loans	$	5,990	$	1,589	$	4,728	$	12,307	$	291,854	$	304,161

- 16

Nonaccrual loans, segregated by class of loan, were as follows:

	September 30,		December 31,
(In thousands)	2012		2011
Residential mortgage loans:
1-4 family first-lien residential mortgages	$	1,506	$	1,428
Construction		-		-
		1,506		1,428
Commercial loans:
Real estate		1,526		1,623
Lines of credit		238		467
Other commercial and industrial		578		504
Municipal		-		-
		2,342		2,594
Consumer loans:
Home equity and junior liens		737		550
Other consumer		38		156
		775		706
Total nonaccrual loans	$	4,623	$	4,728

There were no loans past due ninety days or more and still accruing interest at September 30, 2012 or December 31, 2011.

The Company is required to disclose certain activities related to Troubled Debt Restructurings (“TDR”s) in accordance with accounting guidance.  Certain loans have been modified in a TDR where economic concessions have been granted to a borrower who is experiencing, or expected to experience, financial difficulties.  These economic concessions could include a reduction in the loan interest rate, extension of payment terms, reduction of principal amortization, or other actions that it would not otherwise consider for a new loan with similar risk characteristics.  The Company has determined that there were $1.1 million of recorded investment in new TDRs in the three and nine month periods ended September 30, 2012.  The following highlights the qualitative and quantitative information by loan class.

·   Modifications made within the commercial real estate loan class included two loans with a pre-modification and post-modification recorded investment of $564,000 and $358,000, respectively.  Economic concessions granted included interest only periods, extended payment terms and a reduction in loan interest rate.  The Company was required to increase the reserve against these two loans by $211,000 which was a component of the provision for loan losses in the third quarter of 2012.

·   Modifications made within the Home Equity Loan class included two loans with a pre-modification and post-modification recorded investment which was unchanged at $279,000.  Economic concessions granted included interest only periods, extended payment terms and a reduction in loan interest rate.  Additional provision was not required as a result of these modifications.

·   The modification made within the other commercial and industrial loan class included a consolidation of three credit facilities into a single loan with a pre-modification and post-modification recorded investment of $439,000 and $468,000, respectively.  Economic concessions granted included reduced principal amortization and an extended payment term.  Management’s review indicates adequate collateral coverage in support of this loan.  Additional provision was not required as a result of this modification.

There were no payment defaults within the three month and nine month periods ended September 30, 2012 for any TDRs modified during the preceding twelve months.

When the Company modifies a loan within a portfolio segment, a potential impairment is analyzed either based on the present value of the expected future cash flows discounted at the interest rate of the original loan terms or the fair value of the collateral less costs to sell.  If it is determined that the value of the loan is less than its recorded investment, than impairment is recognized as a component of the provision for loan losses and an associated an increase to the allowance for loan losses, or as a charge-off to the allowance for loan losses in the current period.

- 17

Impaired Loans

The following tables summarize impaired loans information by portfolio class at the indicated dates:

	September 30, 2012						December 31, 2011
			Unpaid						Unpaid
	Recorded		Principal		Related		Recorded		Principal		Related
(In thousands)	Investment		Balance		Allowance		Investment		Balance		Allowance
With no related allowance recorded:
1-4 family first-lien residential mortgages	$	946	$	946	$	-	$	442	$	442	$	-
Residential construction mortgage		-		-		-		-		-		-
Commercial real estate		1,340		1,474		-		968		1,096		-
Commercial lines of credit		374		385		-		74		74		-
Other commercial and industrial		672		683		-		257		257		-
Municipal		-		-		-		-		-		-
Home equity and junior liens		346		346		-		312		312		-
Other consumer		-		-		-		-		-		-
With an allowance recorded:
1-4 family first-lien residential mortgages		1,188		1,188		208		856		856		149
Residential construction mortgage		-		-		-		-		-		-
Commercial real estate		1,456		1,456		489		735		735		109
Commercial lines of credit		-		-		-		378		378		178
Other commercial and industrial		296		296		269		122		122		122
Municipal		-		-		-		-		-		-
Home equity and junior liens		156		156		60		136		136		61
Other consumer		6		6		6		-		-		-
Total:
1-4 family first-lien residential mortgages		2,134		2,134		208		1,298		1,298		149
Residential construction mortgage		-		-		-		-		-		-
Commercial real estate		2,796		2,930		489		1,703		1,831		109
Commercial lines of credit		374		385		-		452		452		178
Other commercial and industrial		968		979		269		379		379		122
Municipal		-		-		-		-		-		-
Home equity and junior liens		502		502		60		448		448		61
Other consumer		6		6		6		-		-		-
Totals	$	6,780	$	6,936	$	1,032	$	4,280	$	4,408	$	619

The following table presents the average recorded investment in impaired loans for the periods indicated:

	For the three months ended September 30,				For the nine months ended September 30,
(In thousands)	2012		2011		2012		2011
1-4 family first-lien residential mortgages	$	1,879	$	1,004	$	1,565	$	1,109
Commercial real estate		2,801		2,056		2,449		2,695
Commercial lines of credit		412		37		432		125
Other commercial and industrial		768		930		677		823
Home equity and junior liens		502		568		477		590
Other consumer		5		-		2		-
	$	6,367	$	4,595	$	5,602	$	5,342

- 18

The following table presents the cash basis interest income recognized on impaired loans for the periods indicated:

	For the three months ended September 30,					For the nine months ended September 30,
(In thousands)	2012			2011		2012		2011
1-4 family first-lien residential mortgages	$	34		$	6	$	80	$	29
Commercial real estate		-			26		60		71
Commercial lines of credit		(5	)		-		13		-
Other commercial and industrial		11			5		30		18
Home equity and junior liens		4			3		11		14
Other consumer		1					1		-
	$	45		$	40	$	195	$	132

- 19

(7)   Allowance for Loan Losses

Changes in the allowance for loan losses for the indicated periods and information pertaining to the allocation of the allowance for loan losses and balances of the allowance for loan losses and loans receivable based on individual and collective impairment evaluation by loan portfolio class at the indicated dates are summarized in the tables below.  An allocation of a portion of the allowance to a given portfolio class does not limit the Company’s ability to absorb losses in another portfolio class.

	For the three months ended September 30, 2012
	1-4 family
	first-lien			Residential									Other
	residential			construction			Commercial			Commercial			commercial
(In thousands)	mortgage			mortgage			real estate			lines of credit			and industrial
Allowance for loan losses:
Beginning Balance	$	777		$	-		$	1,587		$	398		$	698
Charge-offs		(61	)		-			-			-			-
Recoveries		23			-			-			-			-
Provisions		27			-			200			12			112
Ending balance	$	766		$	-		$	1,787		$	410		$	810
Ending balance: related to loans
individually evaluated for impairment		208			-			489			-			269
Ending balance: related to loans
collectively evaluated for impairment	$	558		$	-		$	1,298		$	410		$	541
Loans receivables:
Ending balance	$	169,062		$	2,587		$	79,770		$	13,471		$	27,509
Ending balance: individually
evaluated for impairment		2,134			-			2,796			374			968
Ending balance: collectively
evaluated for impairment	$	166,928		$	2,587		$	76,974		$	13,097		$	26,541
				Home equity			Other
	Municipal			and junior liens			Consumer			Unallocated			Total
Allowance for loan losses:
Beginning Balance	$	2		$	501		$	131		$	119		$	4,213
Charge-offs		-			-			(30	)		-			(91	)
Recoveries		-			1			12			-			36
Provisions		-			(24	)		65			(117	)		275
Ending balance	$	2		$	478		$	178		$	2		$	4,433
Ending balance: related to loans
individually evaluated for impairment		-			60			6			-			1,032
Ending balance: related to loans
collectively evaluated for impairment	$	2		$	418		$	172		$	2		$	3,401
Loans receivables:
Ending balance	$	5,063		$	22,580		$	3,627		$	-		$	323,669
Ending balance: individually
evaluated for impairment		-			502			6			-			6,780
Ending balance: collectively
evaluated for impairment	$	5,063		$	22,078		$	3,621		$	-		$	316,889

- 20

	For the nine months ended September 30, 2012
	1-4 family
	first-lien			Residential									Other
	residential			construction			Commercial			Commercial			commercial
(In thousands)	mortgage			mortgage			real estate			lines of credit			and industrial
Allowance for loan losses:
Beginning Balance	$	664		$	-		$	1,346		$	463		$	649
Charge-offs		(96	)		-			(54	)		-			(89	)
Recoveries		52			-			14			50			-
Provisions		146			-			481			(103	)		250
Ending balance	$	766		$	-		$	1,787		$	410		$	810
				Home equity			Other
	Municipal			and junior liens			Consumer			Unallocated			Total
Allowance for loan losses:
Beginning Balance	$	2		$	501		$	162		$	193		$	3,980
Charge-offs		-			(8	)		(114	)		-			(361	)
Recoveries		-			6			42			-			164
Provisions		-			(21	)		88			(191	)		650
Ending balance	$	2		$	478		$	178		$	2		$	4,433

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	For the three months ended September 30, 2011
	1-4 family
	first-lien			Residential									Other
	residential			construction			Commercial			Commercial			commercial
(In thousands)	mortgage			mortgage			real estate			lines of credit			and industrial
Allowance for loan losses:
Beginning Balance	$	687		$	-		$	1,625		$	291		$	831
Charge-offs		(72	)		-			-			(50	)		-
Recoveries		16			-			-			1			-
Provisions		23			-			(78	)		108			(132	)
Ending balance	$	654		$	-		$	1,547		$	350		$	699
Ending balance: related to loans
individually evaluated for impairment		128			-			306			-			200
Ending balance: related to loans
collectively evaluated for impairment	$	526		$	-		$	1,241		$	350		$	499
Loans receivables:
Ending balance	$	152,841		$	3,021		$	70,685		$	13,772		$	22,631
Ending balance: individually
evaluated for impairment		704			-			1,816			74			1,056
Ending balance: collectively
evaluated for impairment	$	152,137		$	3,021		$	68,869		$	13,698		$	21,575
				Home equity			Other
	Municipal			and junior liens			Consumer			Unallocated			Total
Allowance for loan losses:
Beginning Balance	$	2		$	460		$	116		$	(6	)	$	4,006
Charge-offs		-			(19	)		(37	)		-			(178	)
Recoveries		-			2			11			-			30
Provisions		-			73			60			91			145
Ending balance	$	2		$	516		$	150		$	85		$	4,003
Ending balance: related to loans
individually evaluated for impairment		-			61			-			-			695
Ending balance: related to loans
collectively evaluated for impairment	$	2		$	455		$	150		$	85		$	3,308
Loans receivables:
Ending balance	$	2,139		$	24,842		$	3,743		$	-		$	293,674
Ending balance: individually
evaluated for impairment		-			448			-						4,098
Ending balance: collectively
evaluated for impairment	$	2,139		$	24,394		$	3,743		$	-		$	289,576

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	For the nine months ended September 30, 2011
	1-4 family
	first-lien			Residential									Other
	residential			mortgage			Commercial			Commercial			commercial
(In thousands)	mortgage			construction			real estate			lines of credit			and industrial
Allowance for loan losses:
Beginning Balance	$	750		$	-		$	1,204		$	579		$	501
Charge-offs		(131	)		-			(71	)		(65	)		-
Recoveries		49			-			-			1			-
Provisions		(14	)		-			414			(165	)		198
Ending balance	$	654		$	-		$	1,547		$	350		$	699
				Home equity			Other
	Municipal			and junior liens			Consumer			Unallocated			Total
Allowance for loan losses:
Beginning Balance	$	3		$	424		$	89		$	98		$	3,648
Charge-offs		-			(43	)		(88	)		-			(398	)
Recoveries		-			7			26			-			83
Provisions		(1	)		128			123			(13	)		670
Ending balance	$	2		$	516		$	150		$	85		$	4,003

(8)  Guarantees

The Company does not issue any guarantees that would require liability recognition or disclosure, other than its standby letters of credit.  Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party.  Generally, all letters of credit when issued have expiration dates within one year of issuance.  The credit risk involved in issuing letters of credit is essentially the same as those that are involved in extending loan facilities to customers.  The Company generally holds collateral and/or personal guarantees supporting these commitments.  The Company had $2.0 million of standby letters of credit outstanding as of September 30, 2012.  Management believes that the proceeds obtained through a liquidation of collateral and the enforcement of guarantees would be sufficient to cover the potential amount of future payments required under the corresponding guarantees.   The fair value of standby letters of credit was not significant to the Company’s consolidated financial statements.

(9)  Fair Value Measurements

Accounting guidance related to fair value measurements and disclosures specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect our market assumptions. These two types of inputs have created the following fair value hierarchy:

Level 1 – Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

Level 2 – Quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets.

Level 3 – Model-derived valuations in which one or more significant inputs or significant value drivers are unobservable.

An asset’s or liability’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.

In determining fair value, the Company utilizes valuation techniques that maximizes the use of observable inputs, minimizes the use of unobservable inputs to the extent possible, and considers counterparty credit risk in its assessment of fair value.

The Company used the following methods and significant assumptions to estimate fair value:

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Investment securities:  The fair values of securities available for sale are obtained from an independent third party and are based on quoted prices on nationally recognized exchange where available (Level 1).  If quoted prices are not available, fair values are measured by utilizing matrix pricing, which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted prices for specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities (Level 2).  Management made no adjustment to the fair value quotes that were received from the independent third party pricing service.

Interest rate swap derivative:  The fair value of the interest rate swap derivative is calculated based on a discounted cash flow model. All future floating cash flows are projected and both floating and fixed cash flows are discounted to the valuation date.  The curve utilized for discounting and projecting is built by obtaining publicly available third party market quotes for various swap maturity terms.

Impaired loans: Impaired loans are those loans in which the Company has measured impairment generally based on the fair value of the loan’s collateral.  Fair value is generally determined based upon independent third party appraisals of the properties and/or estimates by management of working capital collateral or discounted cash flows based upon expected proceeds.  Management modifies the appraised values, if needed, to take into account recent developments in the market or other factors, such as changes in absorption rates or market conditions from the time of valuation, and anticipated sales values considering management’s plans for disposition.  Such modifications to the appraised values could result in lower valuations of such collateral. Estimated costs to sell are based on current amounts of disposal costs for similar assets.  These measurements are classified as Level 3 within the valuation hierarchy. Impaired loans are subject to nonrecurring fair value adjustment upon initial recognition or subsequent impairment.  A portion of the allowance for loan losses is allocated to impaired loans if the value of such loans is deemed to be less than the unpaid balance.

Foreclosed real estate:  Fair values for foreclosed real estate are initially recorded based on market value evaluations by third parties, less costs to sell (“initial cost basis”).  Any write-downs required when the related loan receivable is exchanged for the underlying real estate collateral at the time of transfer to foreclosed real estate are charged to the allowance for loan losses.  Values are derived from appraisals of underlying collateral or discounted cash flow analysis.   Subsequent to foreclosure, valuations are updated periodically and assets are marked to current fair value, not to exceed the initial cost basis.  In the determination of fair value subsequent to foreclosure, management also considers other factors or recent developments, such as changes in absorption rates and market conditions from the time of valuation, and anticipated sales values considering management’s plans for disposition, which could result in adjustment to lower the property value estimates indicated in the appraisals.  These measurements are classified as Level 3 within the fair value hierarchy.

The following tables summarize assets measured at fair value on a recurring basis as of the indicated dates, segregated by the level of valuation inputs within the hierarchy utilized to measure fair value:

	At September 30, 2012
								Total Fair
(In thousands)	Level 1		Level 2			Level 3		Value
Debt investment securities:
US Treasury, agencies and GSEs	$	-	$	5,202		$	-	$	5,202
State and political subdivisions		-		27,114			-		27,114
Corporate		-		23,899			-		23,899
Residential mortgage-backed - US agency		-		54,564			-		54,564
Residential mortgage-backed - private label		-		357			-		357
Equity investment securities:
Mutual funds:
Ultra short mortgage fund		1,300		-			-		1,300
Large cap equity fund		1,148		-			-		1,148
Other mutual funds		-		297			-		297
Common stock - financial services industry		31		400			-		431
Total investment securities	$	2,479	$	111,833		$	-	$	114,312
Interest rate swap derivative	$	-	$	(210	)	$	-	$	(210	)
	At December 31, 2011
								Total Fair
(In thousands)	Level 1		Level 2			Level 3		Value
Debt investment securities:
US Treasury, agencies and GSEs	$	-	$	5,073		$	-	$	5,073
State and political subdivisions		-		20,304			-		20,304
Corporate		-		20,434			-		20,434
Residential mortgage-backed - US agency		-		51,056			-		51,056
Residential mortgage-backed - private label		-		519			-		519
Equity investment securities:
Mutual funds:
Ultra short mortgage fund		1,298		-			-		1,298
Large cap equity fund		1,024		-			-		1,024
Other mutual funds		-		243			-		243
Common stock - financial services industry		25		419			-		444
Total investment securities	$	2,347	$	98,048		$	-	$	100,395
Interest rate swap derivative	$	-	$	(200	)	$	-	$	(200	)

The following tables summarize assets measured at fair value on a nonrecurring basis as of the indicated dates, segregated by the level of valuation inputs within the hierarchy utilized to measure fair value:

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	At September 30, 2012
							Total Fair
(In thousands)	Level 1		Level 2		Level 3		Value
Impaired loans	$	-	$	-	$	2,070	$	2,070
Foreclosed real estate	$	-	$	-	$	305	$	305
	At December 31, 2011
							Total Fair
(In thousands)	Level 1		Level 2		Level 3		Value
Impaired loans	$	-	$	-	$	1,608	$	1,608
Foreclosed real estate	$	-	$	-	$	165	$	165

The following table presents additional quantitative information about assets measured at fair value on a nonrecurring basis and for which Level 3 inputs were used to determine fair value.

		Quantitative Information about Level 3 Fair Value Measurements
	Valuation	Unobservable	Range
	Techniques	Input	(Weighted Avg.)
At September 30, 2012
Impaired loans	Appraisal of collateral	Appraisal Adjustments		5% - 35%  (24%)
		Costs to Sell		6%  - 17% (13%)
Foreclosed real estate	Appraisal of collateral	Appraisal Adjustments		0% - 15% (13%)
		Costs to Sell		0%     - 7% (6%)

There have been no transfers of assets in or out of any fair value measurement level.

Required disclosures include fair value information of financial instruments, whether or not recognized in the consolidated statement of condition, for which it is practicable to estimate that value.  In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the instrument.

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Management uses its best judgment in estimating the fair value of the Company’s financial instruments; however, there are inherent weaknesses in any estimation technique.  Therefore, for substantially all financial instruments, the fair value estimates herein are not necessarily indicative of the amounts the Company could have realized in a sales transaction on the dates indicated.  The estimated fair value amounts have been measured as of their respective period-ends, and have not been re-evaluated or updated for purposes of these financial statements subsequent to those respective dates.  As such, the estimated fair values of these financial instruments subsequent to the respective reporting dates may be different than the amounts reported at each period-end.

The following information should not be interpreted as an estimate of the fair value of the entire Company since a fair value calculation is only provided for a limited portion of the Company’s assets and liabilities.  Due to a wide range of valuation techniques and the degree of subjectivity used in making the estimates, comparisons between the Company’s disclosures and those of other companies may not be meaningful.  The Company, in estimating its fair value disclosures for financial instruments, used the following methods and assumptions:

Cash and cash equivalents – The carrying amounts of these assets approximate their fair value.

Interest earning time deposits – The carrying amounts of these assets approximate their fair value.

Investment securities – The fair values of securities available for sale are obtained from an independent third party and are based on quoted prices on nationally recognized exchange where available (Level 1).  If quoted prices are not available, fair values are measured by utilizing matrix pricing, which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted prices for specific securities, but rather by relying on the securities’ relationship to other benchmark quoted securities (Level 2).  Management made no adjustment to the fair value quotes that were received from the independent third party pricing service.

Federal Home Loan Bank stock – The carrying amount of these assets approximates their fair value.

Loans – For variable-rate loans that re-price frequently, fair value is based on carrying amounts.  The fair value of other loans (for example, fixed-rate commercial real estate loans, mortgage loans, and commercial and industrial loans) is estimated using discounted cash flow analysis, based on interest rates currently being offered in the market for loans with similar terms to borrowers of similar credit quality.  Loan value estimates include judgments based on expected prepayment rates.  The measurement of the fair value of loans, including impaired loans, is classified within Level 3 of the fair value hierarchy.

Accrued interest receivable and payable – The carrying amount of these assets approximates their fair value.

Interest rate swap derivative – The fair value of the interest rate swap derivative is obtained from a third party pricing agent and is calculated based on a discounted cash flow model. All future floating cash flows are projected and both floating and fixed cash flows are discounted to the valuation date.  The curve utilized for discounting and projecting is built by obtaining publicly available third party market quotes for various swap maturity terms, and therefore is classified within Level 2 of the fair value hierarchy.

Deposits – The fair values disclosed for demand deposits (e.g., interest-bearing and noninterest-bearing checking, passbook savings and certain types of money management accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amounts) and are classified within Level 1 of the fair value hierarchy.  Fair values for fixed-rate certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered in the market on certificates of deposits to a schedule of aggregated expected monthly maturities on time deposits.  Measurements of the fair value of time deposits are classified within Level 2 of the fair value hierarchy.

Borrowings – Fixed/variable term “bullet” structures are valued using a replacement cost of funds approach.  These borrowings are discounted to the FHLBNY advance curve.  Option structured borrowings’ fair values are determined by the FHLB for borrowings that include a call or conversion option.  If market pricing is not available from this source, current market indications from the FHLBNY are obtained and the borrowings are discounted to the FHLBNY advance curve less an appropriate spread to adjust for the option. These measurements are classified as Level 2 within the fair value hierarchy.

Junior subordinated debentures – Current economic conditions have rendered the market for this liability inactive.  As such, we are unable to determine a good estimate of fair value.  Since the rate paid on the debentures held is lower than what would be required to secure an interest in the same debt at year end, and we are unable to obtain a current fair value, we have disclosed that the carrying value approximates the fair value.

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Off-balance sheet instruments – Fair values for the Company’s off-balance sheet instruments are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties’ credit standing.  Such fees were not material at September 30, 2012 and December 31, 2011.

The carrying amounts and fair values of the Company’s financial instruments as of the indicated dates are presented in the following table:

			September 30, 2012				December 31, 2011
	Fair Value		Carrying		Estimated		Carrying		Estimated
(Dollars In thousands)	Hierarchy		Amounts		Fair Values		Amounts		Fair Values
Financial assets:
Cash and cash equivalents		1	$	14,074	$	14,074	$	10,218	$	10,218
Interest earning time deposits		1		2,000		2,000		2,000		2,000
Investment securities		1		2,776		2,776		2,347		2,347
Investment securities		2		111,536		111,536		98,048		98,048
Federal Home Loan Bank stock		2		1,910		1,910		1,528		1,528
Net loans		3		319,717		333,345		300,770		310,218
Accrued interest receivable		1		1,921		1,921		1,685		1,685
Financial liabilities:
Demand Deposits, Savings, NOW and MMDA		1	$	230,773	$	230,773	$	214,318	$	214,318
Time Deposits		2		163,065		165,604		151,811		154,836
Borrowings		2		34,991		36,031		26,074		27,322
Junior subordinated debentures		2		5,155		5,155		5,155		5,155
Accrued interest payable		1		129		129		145		145
Interest rate swap derivative		2		210		210		200		200
Off-balance sheet instruments:
Standby letters of credit			$	-	$	-	$	-	$	-
Commitments to extend credit			$	-	$	-	$	-	$	-

(10)  Interest Rate Derivatives

Derivative instruments are entered into primarily as a risk management tool of the Company.  Financial derivatives are recorded at fair value as other assets and other liabilities.  The accounting for changes in the fair value of a derivative depends on whether it has been designated and qualifies as part of a hedging relationship. For a fair value hedge, changes in the fair value of the derivative instrument and changes in the fair value of the hedged asset or liability are recognized currently in earnings.  For a cash flow hedge, changes in the fair value of the derivative instrument, to the extent that it is effective, are recorded in other comprehensive income and subsequently reclassified to earnings as the hedged transaction impacts net income.  Any ineffective portion of a cash flow hedge is recognized currently in earnings.  See Note 9 for further discussion of the fair value of the interest rate derivative.

The Company has $5 million of floating rate trust preferred debt indexed to 3-month LIBOR.  As a result, it is exposed to variability in cash flows related to changes in projected interest payments caused by changes in the benchmark interest rate.  During the fourth quarter of fiscal 2009, the Company entered into an interest rate swap agreement, with a $2 million notional amount, to convert a portion of the variable-rate junior subordinated debentures to a fixed rate for a term of approximately 7 years at a rate of 4.96%.  The derivative is designated as a cash flow hedge.  The hedging strategy ensures that changes in cash flows from the derivative will be highly effective at offsetting changes in interest expense from the hedged exposure.

The following table summarizes the fair value of outstanding derivatives and their presentation on the statements of condition:

		September 30,		December 31,
(In thousands)		2012		2011
Cash flow hedge:
	Other liabilities	$	210	$	200

- 27

The change in accumulated other comprehensive loss on a pretax basis and the impact on earnings from the interest rate swap that qualifies as a cash flow hedge for the periods indicated below were as follows

	Three Months Ended September 30,
(In thousands)	2012			2011
Balance as of June 30:	$	(205	)	$	(135	)
Amount of losses recognized in other comprehensive income		(18	)		(87	)
Amount of loss reclassified from other comprehensive income
and recognized as interest expense		13			17
Balance as of September 30:	$	(210	)	$	(205	)
	Nine Months Ended September 30,
(In thousands)		2012			2011
Balance as of January 1:	$	(200	)	$	(110	)
Amount of losses recognized in other comprehensive income		(53	)		(141	)
Amount of loss reclassified from other comprehensive income
and recognized as interest expense		43			46
Balance as of September 30:	$	(210	)	$	(205	)

No amount of ineffectiveness has been included in earnings and the changes in fair value have been recorded in other comprehensive income.  Some, or all, of the amount included in accumulated other comprehensive loss would be reclassified into current earnings should a portion of, or the entire hedge no longer be considered effective, but at this time, management expects the hedge to remain fully effective during the remaining term of the swap.

The Company posted cash, of $200,000, under arrangements to satisfy collateral requirements associated with the interest rate swap contract.

(11)  Subsequent Events

The Company has evaluated subsequent events for potential recognition and/or disclosure through the date that these consolidated financial statements were issued.  On September 27, 2012, the Company announced that its Board of Directors declared a quarterly cash dividend of $.03 per common share.  The dividend is payable on November 1, 2012 to shareholders of record on October 12, 2012.

Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations

General

Throughout Management’s Discussion and Analysis (“MD&A”) the term, “the Company”, refers to the consolidated entity of Pathfinder Bancorp, Inc.  Pathfinder Bank and Pathfinder Statutory Trust II are wholly owned subsidiaries of Pathfinder Bancorp, Inc., however, Pathfinder Statutory Trust II is not consolidated for reporting purposes.  Pathfinder Commercial Bank, Pathfinder REIT, Inc., Pathfinder Risk Management, Inc., and Whispering Oaks Development Corp. are wholly owned subsidiaries of Pathfinder Bank.  At September 30, 2012, Pathfinder Bancorp, M.H.C., the Company’s mutual holding company parent, whose activities are not included in the consolidated financial statements or the MD&A, held 60.5% of the Company’s outstanding common stock and public shareholders, including shares held by the Employee Stock Ownership Plan (“ESOP”), held the remaining 39.5% of the outstanding common stock.

The following discussion reviews the Company's financial condition at September 30, 2012 and the results of operations for the three and nine months ended September 30, 2012 and 2011.

Statement Regarding Forward-Looking Statements

When used in this quarterly report the words or phrases “will likely result”, “are expected to”, “will continue”, “is anticipated”, “estimate”, ”project” or similar expression are intended to identify “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995.  Such statements are subject to certain risks and uncertainties. By identifying these forward-looking statements for you in this manner, the Company is alerting you to the possibility that its actual results and financial condition may differ, possibly materially, from the anticipated results and financial condition indicated in these forward-looking statements. The Company wishes to caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made.  The Company wishes to advise readers that various factors could affect the Company’s financial performance and could cause the Company’s actual results for future periods to differ materially from any opinions or statements expressed with respect to future periods in any current statements.  Additionally, all statements in this document, including forward-looking statements, speak only as of the date they are made, and the Company undertakes no obligation to update any statement in light of new information or future events.

- 28

Application of Critical Accounting Policies

The Company's consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States and follow practices within the banking industry.  Application of these principles requires management to make estimates, assumptions and judgments that affect the amounts reported in the consolidated financial statements and accompanying notes.  These estimates, assumptions and judgments are based on information available as of the date of the consolidated financial statements; accordingly, as this information changes, the consolidated financial statements could reflect different estimates, assumptions and judgments.  Certain policies inherently have a greater reliance on the use of estimates, assumptions and judgments and as such have a greater possibility of producing results that could be materially different than originally reported.  Estimates, assumptions and judgments are necessary when assets and liabilities are required to be recorded at fair value or when an asset or liability needs to be recorded contingent upon a future event.  Carrying assets and liabilities at fair value inherently results in more financial statement volatility.  The fair values and information used to record valuation adjustments for certain assets and liabilities are based on quoted market prices or are provided by other third-party sources, when available.  When third party information is not available, valuation adjustments are estimated in good faith by management.

The most significant accounting policies followed by the Company are presented in Note 1 to the consolidated financial statements included in the 2011 Annual Report on Form 10-K ("the consolidated financial statements").  These policies, along with the disclosures presented in the other financial statement notes and in this discussion, provide information on how significant assets and liabilities are valued in the consolidated financial statements and how those values are determined.  Based on the valuation techniques used and the sensitivity of financial statement amounts to the methods, assumptions and estimates underlying those amounts, management has identified the allowance for loan losses, deferred income taxes, pension obligations, the evaluation of investment securities for other than temporary impairment and the estimation of fair values for accounting and disclosure purposes to be the accounting areas that require the most subjective and complex judgments, and as such, could be the most subject to revision as new information becomes available.

The allowance for loan losses represents management's estimate of probable loan losses inherent in the loan portfolio.  Determining the amount of the allowance for loan losses is considered a critical accounting estimate because it requires significant judgment and the use of estimates related to the amount and timing of expected future cash flows on impaired loans, estimated losses on pools of homogeneous loans based on historical loss experience, and consideration of current economic trends and conditions, all of which may be susceptible to significant change.  The Company establishes a specific allowance for all loans identified as being impaired with a balance in excess of $100,000 which are on nonaccrual or have been risk rated under the Company’s risk rating system as substandard, doubtful, or loss. The measurement of impaired loans is generally based upon the present value of future cash flows discounted at the historical effective interest rate, except that all collateral-dependent loans are measured for impairment based on the fair value of the collateral, less costs to sell.  The majority of the Company’s impaired loans are collateral-dependent.  For all other loans and leases, the Company uses the general allocation methodology that establishes an allowance to estimate the probable incurred loss for each risk-rating category.  The loan portfolio also represents the largest asset type on the consolidated statement of condition.  Note 1 to the consolidated financial statements describes the methodology used to determine the allowance for loan losses, and a discussion of the factors driving changes in the amount of the allowance for loan losses is included in this report.

Deferred income tax assets and liabilities are determined using the liability method.  Under this method, the net deferred tax asset or liability is recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases as well as net operating and capital loss carry forwards.  Deferred tax assets and liabilities are measured using enacted tax rates applied to taxable income in the years in which those temporary differences are expected to be recovered or settled.  The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income tax expense in the period that includes the enactment date.  To the extent that current available evidence about the future raises doubt about the likelihood of a deferred tax asset being realized, a valuation allowance is established.  The judgment about the level of future taxable income, including that which is considered capital, is inherently subjective and is reviewed on a continual basis as regulatory and business factors change.

- 29

Pension and post-retirement benefit plan liabilities and expenses are based upon actuarial assumptions of future events, including fair value of plan assets, interest rates and the length of time the Company will have to provide those benefits.  The assumptions used by management are discussed in Note 12 in the Company’s 2011 Annual Report on Form 10-K to the consolidated financial statements.

The Company carries all of its investments at fair value with any unrealized gains or losses reported net of tax as an adjustment to shareholders' equity, except for security impairment losses, which are charged to earnings.  The Company's ability to fully realize the value of its investments in various securities, including corporate debt securities, is dependent on the underlying creditworthiness of the issuing organization.  In evaluating the security portfolio for other-than-temporary impairment losses, management considers (1) if we intend to sell the security; (2) if it is “more likely than not” we will be required to sell the security before recovery of its amortized cost basis; or (3) the present value of expected cash flows is not sufficient to recover the entire amortized cost basis.  In determining whether OTTI has occurred for equity securities, the Company considers the applicable factors described above and the length of time the equity security’s fair value has been below the carrying amount.  Management continually analyzes the portfolio to determine if further impairment has occurred that may be deemed as other-than-temporary.  Further charges are possible depending on future economic conditions.

The estimation of fair value is significant to several of our assets, including investment securities available for sale, the interest rate derivative, and foreclosed real estate, as well as the value of loan collateral when valuing loans.  These are all recorded at either fair value or the lower of cost or fair value.  Fair values are determined based on third party sources, when available. Furthermore, accounting principles generally accepted in the United States require disclosure of the fair value of financial instruments as a part of the notes to the consolidated financial statements.  Fair values may be influenced by a number of factors, including market interest rates, prepayment speeds, discount rates and the shape of yield curves.

Fair values for securities available for sale and the derivative are obtained from an independent third party pricing service.  Where available, fair values are based on quoted prices on a nationally recognized securities exchange.  If quoted prices are not available, fair values are measured using quoted market prices for similar benchmark securities.  Management makes no adjustments to the fair value quotes that were provided by the pricing source.  The fair values of foreclosed real estate and the underlying collateral value of impaired loans are typically determined based on evaluations by third parties, less estimated costs to sell. If necessary, appraisals are updated to reflect changes in market conditions.

Recent Events

As reported by the Company on its Form 10-K filed on March 29, 2012, the purchase of the 51% controlling interest in the Fitzgibbons Agency, pending the completion of the final stages of due diligence, was expected to close in the early part of the second quarter of 2012.  The Company and the Fitzgibbons Agency are addressing the final elements of the transaction and are working to expedite a closing at the earliest possible time.

Overview and Results of Operations

For the third quarter of 2012, net income was $670,000 as compared to $874,000 for the third quarter of 2011 due principally to net gains on the sales and redemptions of investment securities in 2011 that were $451,000 greater than that recorded in the third quarter of this year.

Through the first nine months of 2012, net income was $1.9 million, unchanged from net income recorded through the first nine months of 2011.

The Company’s return on average assets and return on average equity for the third quarter of 2012 were 0.57% and 6.59%, respectively, as compared to 0.83% and 9.97% for the same prior year period.  Return on average assets and return on average equity for the nine month period ended September 30, 2012 was 0.55% and 6.53%, respectively, as compared to 0.61% and 7.69% for the same prior year period.

Average assets for the third quarter of 2012 were $471.7 million, or 12.6% greater than the comparable prior year period.  The increase was attributable to increases in residential mortgages, mortgage-backed securities, and non-taxable investment securities.  Average assets for the nine month period ended September 30, 2012 were $464.6 million, or 11.8% greater than the comparable prior year period.

Net Interest Income

Net interest income is the Company's primary source of operating income for payment of operating expenses and providing for loan losses.  It is the amount by which interest earned on loans, interest-earning deposits and investment securities, exceeds the interest paid on deposits and other interest-bearing liabilities.  Changes in net interest income and net interest margin result from the interaction between the volume and composition of interest-earning assets, interest-bearing liabilities, related yields and associated funding costs.

- 30

The following table sets forth information concerning average interest-earning assets and interest-bearing liabilities and the yields and rates thereon for the periods indicated. Interest income and resultant yield information in the table is on a fully tax-equivalent basis using marginal federal income tax rates of 34%. Averages are computed on the daily average balance for each month in the period divided by the number of days in the period. Yields and amounts earned include loan fees. Nonaccrual loans have been included in interest-earning assets for purposes of these calculations.

	For the Three Months Ended September 30,
	2012								2011
						Average								Average
	Average					Yield /			Average					Yield /
(Dollars in thousands)	Balance			Interest		Cost			Balance			Interest		Cost
Interest-earning assets:
Real estate loans residential	$	170,595		$	2,041		4.79	%	$	154,370		$	2,017		5.23	%
Real estate loans commercial		73,426			1,023		5.57	%		70,794			1,157		6.54	%
Commercial loans		44,074			552		5.01	%		37,941			486		5.12	%
Consumer loans		26,794			372		5.55	%		28,444			440		6.19	%
Taxable investment securities		94,587			477		2.02	%		76,234			522		2.74	%
Tax-exempt investment securities		25,106			288		4.59	%		10,103			123		4.87	%
Interest-earning time deposit		2,000			6		1.20	%		-			-		0.00	%
Interest-earning deposits		2,901			1		0.14	%		6,582			1		0.06	%
Total interest-earning assets		439,483			4,760		4.33	%		384,468			4,746		4.94	%
Noninterest-earning assets:
Other assets		33,725								36,403
Allowance for loan losses		(4,264	)							(4,072	)
Net unrealized gains
on available for sale securities		2,733								2,073
Total assets	$	471,677							$	418,872
Interest-bearing liabilities:
NOW accounts	$	33,169			23		0.28	%	$	30,727			24		0.31	%
Money management accounts		14,235			9		0.25	%		12,897			11		0.34	%
MMDA accounts		74,380			102		0.55	%		59,160			106		0.72	%
Savings and club accounts		65,793			13		0.08	%		62,006			20		0.13	%
Time deposits		163,625			567		1.39	%		141,254			649		1.84	%
Junior subordinated debentures		5,155			40		3.10	%		5,155			41		3.18	%
Borrowings		29,999			209		2.77	%		29,176			222		3.03	%
Total interest-bearing liabilities		386,356			963		1.00	%		340,375			1,073		1.26	%
Noninterest-bearing liabilities:
Demand deposits		40,914								38,867
Other liabilities		3,766								4,555
Total liabilities		431,036								383,797
Shareholders' equity		40,641								35,075
Total liabilities & shareholders' equity	$	471,677							$	418,872
Net interest income				$	3,797							$	3,673
Net interest rate spread							3.36	%							3.68	%
Net interest margin							3.46	%							3.82	%
Ratio of average interest-earning assets
to average interest-bearing liabilities							113.75	%							112.95	%

- 31

	For the Nine Months Ended September 30,
	2012								2011
						Average								Average
	Average					Yield /			Average					Yield /
(Dollars in thousands)	Balance			Interest		Cost			Balance			Interest		Cost
Interest-earning assets:
Real estate loans residential	$	166,731		$	6,168		4.93	%	$	151,445		$	5,980		5.26	%
Real estate loans commercial		70,500			3,093		5.85	%		69,702			3,312		6.34	%
Commercial loans		44,039			1,571		4.76	%		38,396			1,408		4.89	%
Consumer loans		27,403			1,160		5.64	%		28,542			1,282		5.99	%
Taxable investment securities		96,912			1,483		2.04	%		79,793			1,788		2.99	%
Tax-exempt investment securities		22,919			809		4.71	%		9,615			348		4.83	%
Interest-earning time deposit		2,000			18		1.20	%		-			-		0.00	%
Interest-earning deposits		1,721			3		0.23	%		4,680			3		0.09	%
Total interest-earning assets		432,225			14,305		4.41	%		382,173			14,121		4.93	%
Noninterest-earning assets:
Other assets		34,108								35,919
Allowance for loan losses		(4,156	)							(3,848	)
Net unrealized gains
on available for sale securities		2,393								1,206
Total assets	$	464,570							$	415,450
Interest-bearing liabilities:
NOW accounts	$	31,712			61		0.26	%	$	30,611			65		0.28	%
Money management accounts		14,522			35		0.32	%		12,695			32		0.34	%
MMDA accounts		77,597			325		0.56	%		62,080			317		0.68	%
Savings and club accounts		64,093			41		0.09	%		60,931			63		0.14	%
Time deposits		158,989			1,749		1.47	%		139,033			1,966		1.89	%
Junior subordinated debentures		5,155			127		3.28	%		5,155			122		3.16	%
Borrowings		29,455			637		2.88	%		31,981			717		2.99	%
Total interest-bearing liabilities		381,523			2,975		1.04	%		342,486			3,282		1.28	%
Noninterest-bearing liabilities:
Demand deposits		39,990								35,355
Other liabilities		3,897								4,905
Total liabilities		425,410								382,746
Shareholders' equity		39,160								32,704
Total liabilities & shareholders' equity	$	464,570							$	415,450
Net interest income				$	11,330							$	10,839
Net interest rate spread							3.37	%							3.65	%
Net interest margin							3.50	%							3.78	%
Ratio of average interest-earning assets
to average interest-bearing liabilities							113.29	%							111.59	%

Net interest income, on a tax-equivalent basis, increased to $3.8 million for the three months ended September 30, 2012, from $3.7 million for the three months ended September 30, 2011.  This was due to an increase in average earning assets between the year over year quarters, and partially offset by the decrease in net interest margin, which has been a continuing trend for several quarters.

For the first nine months of 2012, net interest income improved, driven by a strong increase in interest earning assets and again, partially offset by net interest margin compression.  The decline in the yield on interest earning assets outpaced the decline in the cost of interest bearing liabilities.

As indicated in the three month table above and in the rate/volume analysis below, total interest income on a tax-equivalent basis increased $14,000 due principally to an increase in average balances of tax-exempt investment securities, commercial loans, and residential real estate loans, offset by reductions in the yield for each of these products.  The yield on all classes of asset products decreased, with the most significant yield decrease reported in real estate commercial loans as maturing loans and payoffs were replaced with those of lower rates reflecting current market conditions.  Additionally, taxable investment securities yields also decreased significantly as maturing mortgage-backed securities and other securities were replaced with those of shorter duration at  lower market rates to accommodate the liquidity needs of our loan growth initiatives.

- 32

Referencing the nine month table above and in the rate/volume analysis below, tax-equivalent interest income increased $184,000 between the year over year nine month periods.  This was principally due to the increase in average balances of residential real estate loans, taxable and tax-exempt investment securities and commercial loans, partially offset by declines in yields for each of these products.

Interest expense decreased $110,000 between year over year third quarter periods, as indicated in the above three month table.  The primary reason for the decline was lower rates paid on time deposits as higher cost maturing time deposits were replaced with lower cost time deposits at current market rates.

Interest expense for the nine month period ended September 30, 2012 decreased $307,000 due principally to the decrease in rates paid on all deposit products, with the most significant impact stemming from lower rates paid on time deposits.

Rate/Volume Analysis

Net interest income can also be analyzed in terms of the impact of changing interest rates on interest-earning assets and interest-bearing liabilities and changes in the volume or amount of these assets and liabilities. The following table represents the extent to which changes in interest rates and changes in the volume of interest-earning assets and interest-bearing liabilities have affected the Company’s interest income and interest expense during the periods indicated. Information is provided in each category with respect to: (i) changes attributable to changes in volume (change in volume multiplied by prior rate); (ii) changes attributable to changes in rate (changes in rate multiplied by prior volume); and (iii) total increase or decrease.  Changes attributable to both rate and volume have been allocated ratably.

	Three Months Ended September 30									Nine Months Ended September 30
	2012 vs. 2011									2012 vs. 2011
	Increase/(Decrease) Due to									Increase/(Decrease) Due to
							Total									Total
							Increase									Increase
(In thousands)	Volume			Rate			(Decrease)			Volume			Rate			(Decrease)
Interest Income:
Real estate loans residential	$	772		$	(748	)	$	24		$	729		$	(541	)	$	188
Real estate loans commercial		248			(382	)		(134	)		59			(278	)		(219	)
Commercial loans		132			(66	)		66			224			(61	)		163
Consumer loans		(25	)		(43	)		(68	)		(50	)		(72	)		(122	)
Taxable investment securities		504			(549	)		(45	)		488			(793	)		(305	)
Tax-exempt investment securities		214			(49	)		165			476			(15	)		461
Interest-earning time deposits		6			-			6			18			-			18
Interest-earning deposits		-			-			-			(4	)		4			-
Total interest income		1,851			(1,837	)		14			1,940			(1,756	)		184
Interest Expense:
NOW accounts		8			(9	)		(1	)		3			(7	)		(4	)
Money management accounts		6			(8	)		(2	)		5			(2	)		3
MMDA accounts		103			(107	)		(4	)		93			(85	)		8
Savings and club accounts		8			(15	)		(7	)		5			(27	)		(22	)
Time deposits		511			(593	)		(82	)		372			(590	)		(218	)
Junior subordinated debentures		-			(1	)		(1	)		-			5			5
Borrowings		(8	)		(5	)		(13	)		(54	)		(25	)		(79	)
Total interest expense		628			(738	)		(110	)		424			(731	)		(307	)
Net change in net interest income	$	1,223		$	(1,099	)	$	124		$	1,516		$	(1,025	)	$	491

Provision for Loan Losses

The provision for loan losses represents management’s estimate of the amount necessary to maintain the allowance for loan losses at an adequate level.  The Company recorded $275,000 in provision for loan losses for the three-month period ended September 30, 2012, as compared to $145,000 for the three-month period ended September 30, 2011.  This increase is principally due to the increase in gross loans reported over the third quarter of 2012.  Net charge-offs for the third quarter of 2012 were $55,000 as compared to net charge-offs of $148,000 for the third quarter of 2011.

- 33

For the nine-month period ended September 30, 2012, the Company recorded $650,000 in provision for loan losses, slightly less than the $670,000 recorded in the third quarter of 2011.  The Company considers asset quality to be stable with some asset quality metrics improving and others worsening.  Asset quality metrics that improved were annualized net loan charge-offs to average loans which were 0.09% for the first nine months of 2012 as compared to 0.15% for the comparable prior year period.  Also, non-performing loans to period end loans at September 30, 2012 were 1.43% as compared to 1.55% and 1.46% at December 31, 2011 and September 30, 2011, respectively.  The improvement between December 31, 2011 and September 30, 2012 reflects the decrease in non-performing loans between these two dates and an increase in new loan originations recorded in the current year third quarter.  Asset quality metrics that worsened between December 31, 2011 and September 30, 2012 included the increase in impaired loans from $4.3 million to $6.8 million, respectively, between these two dates.  The majority of this increase was principally due to increases in commercial real estate and 1-4 family residential mortgages.   Additionally, the related allowance on impaired loans increased from $619,000 to $1.0 million between these two dates, with the majority of this increase within the commercial real estate impaired loan class.

Delinquency trends of past due 1-4 family residential mortgages and the commercial loan segment improved as of September 30, 2012 when compared to December 31, 2011.  Delinquency trends of the consumer segment however, particularly home equity loans and junior liens deteriorated on a linked quarter basis and compared to December 31, 2011.  Management continues to monitor this trend closely and is working with our borrowers to mitigate loss.

Noninterest Income

The Company's noninterest income is primarily comprised of fees on deposit account balances and transactions, loan servicing, commissions, and net gains (losses) on securities, loans and foreclosed real estate.

The following table sets forth certain information on noninterest income for the periods indicated:

	Three Months Ended September 30,
(Dollars in thousands)	2012		2011			Change
Service charges on deposit accounts	$	285	$	283		$	2		0.7	%
Earnings and gain on bank owned life insurance		46		45			1		2.2	%
Loan servicing fees		51		63			(12	)	-19.0	%
Debit card interchange fees		105		93			12		12.9	%
Other charges, commissions and fees		150		130			20		15.4	%
Noninterest income before gains		637		614			23		3.7	%
Net gains on sales and redemptions of investment securities		18		469			(451	)	-96.2	%
Net gains (losses) on sales of loans and foreclosed real estate		6		(80	)		86		-107.5	%
Total noninterest income	$	661	$	1,003		$	(342	)	-34.1	%
	Nine Months Ended September 30,
(Dollars in thousands)		2012		2011		Change
Service charges on deposit accounts	$	838	$	854		$	(16	)	-1.9	%
Earnings and gain on bank owned life insurance		235		162			73		45.1	%
Loan servicing fees		159		155			4		2.6	%
Debit card interchange fees		308		273			35		12.8	%
Other charges, commissions and fees		423		403			20		5.0	%
Noninterest income before gains		1,963		1,847			116		6.3	%
Net gains on sales and redemptions of investment securities		179		791			(612	)	-77.4	%
Net gains (losses) on sales of loans and foreclosed real estate		31		(40	)		71		-177.5	%
Total noninterest income	$	2,173	$	2,598		$	(425	)	-16.4	%

As indicated above, noninterest income for the third quarter and nine month periods of 2012 decreased when compared to the same prior year periods due principally to significant net gains from the sale of investment securities in 2011.  The Company completed portfolio restructuring to accommodate the liquidity as part of its planned loan growth. Earnings on bank owned life insurance for the nine month period of 2012 exceeded the same prior year period due to higher levels of cash values and income from a claim on bank owned life insurance due to the passing of a former Company director.

- 34

Noninterest Expense

The following table sets forth certain information on noninterest expense for the periods indicated:

	Three Months Ended September 30,
(Dollars In thousands)	2012		2011			Change
Salaries and employee benefits	$	1,733	$	1,787		$	(54	)	-3.0	%
Building occupancy		348		316			32		10.1	%
Data processing		390		349			41		11.7	%
Professional and other services		174		219			(45	)	-20.5	%
Advertising		108		91			17		18.7	%
FDIC assessments		78		(8	)		86		-1075.0	%
Audits and exams		73		62			11		17.7	%
Other expenses		274		392			(118	)	-29.8	%
Total noninterest expense	$	3,178	$	3,208		$	(30	)	-0.9	%
	Nine Months Ended September 30,
(Dollars In thousands)		2012		2011		Change
Salaries and employee benefits	$	5,576	$	5,260		$	316		6.0	%
Building occupancy		1,077		1,038			39		3.8	%
Data processing		1,072		1,054			18		1.7	%
Professional and other services		473		504			(31	)	-6.2	%
Advertising		268		366			(98	)	-26.8	%
FDIC assessments		233		316			(83	)	-26.3	%
Audits and exams		184		181			3		1.7	%
Other expenses		1,106		1,175			(69	)	-5.9	%
Total noninterest expense	$	9,989	$	9,894		$	95		1.0	%

As indicated above, noninterest expense for the year over year third quarter periods remained essentially unchanged, aided by the third quarter 2012 reduction of pension expenses which, as one of its components, allowed salaries and employee benefits to slightly decrease in the third quarter of 2012 as compared to the same prior year period.  Additionally, other expenses decreased due to the Company’s review of its liability in connection with its debit card rewards program which caused a reduction to expense.  Offsetting these reductions was an increase in FDIC assessment expenses, when compared to the third quarter of 2011.  The Company recorded the impact of the reduced assessment in the third quarter of 2011 reflecting the change in the assessment formula.

For the nine month period, noninterest expense was unchanged at approximately $10.0 million.  Advertising expenses decreased for the year over year nine month period as 2011 included a heightened level of advertising expenses for the successful launch of the Cicero branch.  FDIC assessment expenses decreased as compared to the prior year due to the change in the assessment method that became effective in the second quarter of 2011.  This was offset by the year over year increase in personnel expenses resulting from wage increases and increased pension expenses up to the time we froze the pension plan in the second quarter of 2012.

Income Tax Expense

Income taxes expense decreased by $173,000 for the quarter ended September 30, 2012 as compared to the same period in 2011 primarily due to a decrease in income before taxes and a decrease in the effective tax rate to 25.0% as compared to 31.2% for the same prior year period.  The effective tax rate reduction was principally due to a greater proportion of tax-exempt items to the total pretax income in the third quarter of 2012 as compared to the third quarter of 2011.  The Company has reduced its effective tax rate from the combined federal and state statutory rate of 38.7% primarily through the ownership of tax-exempt investment securities, bank owned life insurance and other tax saving strategies.

Income tax expenses decreased $190,000 for the nine month period ended September 30, 2012.  The effective tax rate for the first nine months of 2012 was 25.0% as compared to 30.6% for the first nine months of 2011; the decrease is due to the reasons stated above.

- 35

Earnings per Share

Basic and diluted earnings per share were $0.22 in the third quarter of 2012 as compared to basic earnings per share of $0.12 and diluted earnings per share of $0.11 in the third quarter of 2011.  This increase was due to net income available to common shareholders being reduced in the third quarter of 2011 due to the accelerated accretion of $470,000 of preferred stock discount as a result of the Company’s participation in, and exit from, the U.S. Treasury’s Capital Purchase Program.

For the nine months ended September 30, 2012, basic and diluted earnings per share were $0.62 as compared to basic earnings per share of $0.43 and diluted earnings per share of $0.42 for the same prior year period.  This improvement was for reasons similar to those provided above.

Changes in Financial Condition

Assets

Total assets increased to $479.4 million at September 30, 2012, from $443.0 million at December 31, 2011.  The increase in total assets was primarily the result of an increase of $14.0 million in the investment securities portfolio and a $19.4 million increase in gross loans.  Funds received by the Company following its participation in Treasury’s SBLF program were invested in shorter term taxable and tax-exempt securities to allow subsequent funding of targeted loan growth in support of the Company’s strategic plan.

Liabilities

Total liabilities increased to $438.4 million at September 30, 2012, from $405.1 million at December 31, 2011.  Deposits increased $27.7 million due to an increase in brokered deposits, the opening of the Cicero branch, and growth throughout the remaining branches.  In addition, short term borrowings increased $9.0 million over this same time period.  Over 89% of our deposits are interest-bearing.  This increase in deposits was partially offset by reductions in other liabilities of $3.3 million due principally to the Company’s election to make a $2.6 million pension contribution in the first quarter of 2012 to reduce the pension liability and the subsequent election by the Company to freeze the pension plan in the second quarter of 2012 which had a further impact on reducing the pension liability.  More details on the pension plan freeze can be found in Note 5 to these financial statements.

Capital

Shareholders' equity of $40.9 million increased $3.1 million as compared to December 31, 2011 due principally to $1.9 million in net income through the period, the $1.2 million impact from the decision to freeze the pension plan, and the $823,000 after tax impact of increases in unrealized gains on available for sale securities.  These increases were partially offset by dividends payable on the preferred stock held by the SBLF, dividends paid to common shareholders and the redemption of CPP warrants from the U.S. Treasury in 2012.

Capital adequacy is evaluated primarily by the use of ratios which measure capital against total assets, as well as against total assets that are weighted based on defined risk characteristics.  The Company’s goal is to maintain a strong capital position, consistent with the risk profile of its subsidiary banks that supports growth and expansion activities while at the same time exceeding regulatory standards.  At September 30, 2012, Pathfinder Bank exceeded all regulatory required minimum capital ratios and met the regulatory definition of a “well-capitalized” institution, i.e. a leverage capital ratio exceeding 5%, a Tier 1 risk-based capital ratio exceeding 6% and a total risk-based capital ratio exceeding 10%.

- 36

The Bank’s actual capital amounts and ratios as of the indicated dates are presented in the following table.

											Minimum
											To Be "Well-
						Minimum					Capitalized"
						For Capital					Under Prompt
	Actual					Adequacy Purposes					Corrective Provisions
(Dollars in thousands)	Amount		Ratio			Amount		Ratio			Amount		Ratio
As of September 30, 2012
Total Core Capital (to Risk-Weighted Assets)	$	46,166		14.5	%	$	25,554		8.0	%	$	31,943		10.0	%
Tier 1 Capital (to Risk-Weighted Assets)	$	41,993		13.2	%	$	12,777		4.0	%	$	19,166		6.0	%
Tier 1 Capital (to Assets) (1)	$	41,993		8.9	%	$	18,983		4.0	%	$	23,729		5.0	%
As of December 31, 2011:
Total Core Capital (to Risk-Weighted Assets)	$	43,670		14.9	%	$	23,386		8.0	%	$	29,233		10.0	%
Tier 1 Capital (to Risk-Weighted Assets)	$	39,917		13.7	%	$	11,693		4.0	%	$	17,540		6.0	%
Tier 1 Capital (to Average Assets)	$	39,917		9.4	%	$	17,041		4.0	%	$	21,301		5.0	%

(1) As of March 31, 2012, the Federal Financial Institutions Examination Council changed the computation for the Tier 1 Capital ratio as it applies to the Bank’s designation as a savings association.  The denominator has changed from using the average assets over the prior three months to the assets on the statement of condition as of the end of the March 31, 2012 and subsequent reporting quarters.

Loan and Asset Quality and Allowance for Loan Losses

The following table represents information concerning the aggregate amount of non-performing assets at the indicated dates:

	September 30,			December 31,			September 30,
(Dollars in thousands)	2012			2011			2011
Nonaccrual loans:
Commercial real estate and commercial	$	2,342		$	2,594		$	2,554
Consumer		775			706			649
Residential real estate		1,506			1,428			1,082
Total nonaccrual loans		4,623			4,728			4,285
Total non-performing loans		4,623			4,728			4,285
Foreclosed real estate		429			536			562
Total non-performing assets	$	5,052		$	5,264		$	4,847
Troubled debt restructurings not included above	$	982		$	594		$	598
Non-performing loans to total loans		1.43	%		1.55	%		1.46	%
Non-performing assets to total assets		1.05	%		1.19	%		1.15	%

Non-performing assets include nonaccrual loans, troubled debt restructurings (“TDR”), and foreclosed real estate. Loans are considered modified in a TDR when, due to a borrower’s financial difficulties, the Company makes a concession(s) to the borrower that it would not otherwise consider. These modifications may include, among others, an extension of the term of the loan, and granting a period when interest-only payments can be made, with the principal payments made over the remaining term of the loan or at maturity.  TDRs are included in the above table within the following categories of nonaccrual loans or TDRs not included above (the latter also known as accruing TDRs).

As indicated in the above table, total non-performing loans decreased modestly at September 30, 2012, when compared to December 31, 2011, but slightly above the amounts recorded at September 30, 2011.  Management continues to monitor and react to national and local economic trends as well as general portfolio conditions, which may impact the quality of the portfolio.  Management believes that the current level of the allowance for loan losses, at $4.4 million, adequately addresses the current level of risk within the loan portfolio.  The Company has also maintained strict loan underwriting standards and carefully monitors the performance of the loan portfolio.

- 37

Foreclosed real estate balances decreased $107,000 to $429,000 at September 30, 2012, from December 31, 2011 as the Company successfully reduced its inventory of other real estate properties from eleven to eight.  Through the nine months of 2012, the sale of nine properties resulted in a net gain of $19,000.  As indicated above, the current level of foreclosed real estate balances have significantly decreased from the balances recorded a year ago.

The Company generally places a loan on nonaccrual status and ceases accruing interest when loan payment performance is deemed unsatisfactory and the loan is past due 90 days or more.  There are no loans that are past due 90 days or more and still accruing interest.  The Company considers a loan impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal and interest when due according to the contractual terms of the loan.

The measurement of impaired loans is generally based upon the fair value of the collateral with a portion of the impaired loans measured based upon the present value of future cash flows discounted at the historical effective interest rate.  The Company used the fair value of collateral to measure impairment on commercial and commercial real estate loans.  At September 30, 2012 and December 31, 2011, the Company had $6.8 million and $4.3 million in loans, which were deemed to be impaired, having specific reserves of $1.0 million and $619,000, respectively.

Management has identified potential problem loans totaling $8.8 million as of September 30, 2012, compared to $8.0 million as of December 31, 2011.  This increase in problem loans reflects increases in classifications of 1-4 family residential mortgages and home equity and junior liens.  These loans have been internally classified as special mention or substandard, yet are not currently considered impaired or in non-accrual status.  Management has identified potential credit problems which may result in the borrowers not being able to comply with the current loan repayment terms and which may result in it being included in future impaired loan reporting.  Management believes that the current allowance for loan losses is adequate to cover probable credit losses in the current loan portfolio.  As a result, the ratio of the allowance to loan and lease losses to period-end loans at September 30, 2012 was 1.37% as compared to December 31, 2011 of 1.31%.  The increase was driven by the required provision for loan losses prompted by the strong increase in gross loans reported in the third quarter of 2012, and an increase in the related allowance for impaired commercial real estate loans between June 30, 2012 and September 30, 2012.

Appraisals are obtained at the time a real estate secured loan is originated.   For commercial real estate held as collateral, the property is inspected every two years.  When evaluating our ability to collect from secondary sources, appraised values are adjusted to reflect the age of appraisal, the condition of the property, the current local real estate market, and cost to sell.  Properties are re-appraised when our evaluation of the current property condition and the local real estate market suggests values may not be accurate.

In the normal course of business, Pathfinder Bank has sold residential mortgage loans and participation interests in commercial loans. As is typical in the industry, Pathfinder Bank makes certain representations and warranties to the buyer. Pathfinder Bank maintains a quality control program for closed loans and considers the risks and uncertainties associated with potential repurchase requirements to be minimal.  There are no known or alleged defects in the securitization process or in the mortgage documentation.

Liquidity

Liquidity management involves the Company’s ability to generate cash or otherwise obtain funds at reasonable rates to support asset growth, meet deposit withdrawals, maintain reserve requirements and otherwise operate the Company on an ongoing basis.  The Company's primary sources of funds are deposits, borrowed funds, amortization and prepayment of loans, maturities of investment securities and other short-term investments and earnings and funds provided from operations.  While scheduled principal repayments on loans are a relatively predictable source of funds, deposit flows and loan prepayments are greatly influenced by general interest rates, economic conditions and competition.  The Company manages the pricing of deposits to maintain a desired deposit balance.  In addition, the Company invests excess funds in short-term interest-earning and other assets which provide liquidity to meet lending requirements.

The Company's liquidity has been enhanced by its membership in the Federal Home Loan Bank of New York, whose competitive advance programs and lines of credit provide the Company with a safe, reliable and convenient source of funds.  A significant decrease in deposits in the future could result in the Company having to seek other sources of funds for liquidity purposes.  Such sources could include, but are not limited to, additional borrowings, brokered deposits, negotiated time deposits, the sale of "available-for-sale" investment securities, the sale of securitized loans or the sale of whole loans.  Such actions could result in higher interest expense costs and/or losses on the sale of securities or loans.

- 38

For the first nine months of 2012, as indicated in the Consolidated Statement of Cash Flows, the Company reported net cash flows from financing activities of $35.5 million generated by increased balances of demand and savings deposits, money market deposit accounts, certificates of deposits, brokered deposits and short-term borrowings.  This was invested in available for sale investment securities of $13.2 million, net, and loan generation of $20.0 million.  As a recurring source of liquidity, the Company’s investment securities provided $20.9 million in proceeds from maturities and principal reductions through the first nine months of 2012.  Net cash provided by operating activities for this same period was $1.8 million.

The Company has a number of existing credit facilities available to it.  At September 30, 2012, total credit available to the Company under the existing lines of credit is approximately $109.3 million.  At September 30, 2012, the Company has $34.0 million outstanding on its existing lines of credit with $75.3 million available.

The Asset Liability Management Committee of the Company is responsible for implementing the policies and guidelines for the maintenance of prudent levels of liquidity.  As of September 30, 2012, management reported to the Board of Directors that the Company is in compliance with its liquidity policy guidelines.

Item 3 - Quantitative and Qualitative Disclosures About Market Risk

A smaller reporting company is not required to provide the information relating to this item.

Item 4 - Controls and Procedures

Under the supervision and with the participation of the Company's management, including our Chief Executive Officer and Chief Financial Officer, the Company has evaluated the effectiveness of the design and operation of its disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this quarterly report.  Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this report, the Company's disclosure controls and procedures are effective to ensure that information required to be disclosed in the reports that the Company 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.  There has been no change in the Company's internal control over financial reporting during the most recent fiscal quarter that has materially affected, or is reasonable likely to materially affect, the Company's internal control over financial reporting.

- 39

PART II - OTHER INFORMATION

Item 1 - Legal Proceedings

The Company is not currently a named party in a legal proceeding, the outcome of which would have a material and adverse effect on the financial condition or results of operations of the Company.

Item 1A – Risk Factors

A smaller reporting company is not required to provide the information relating to this item.

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

None

Item 3 - Defaults Upon Senior Securities

None

Item 4 – Mine Safety Disclosures

Not applicable

Item 5 - Other Information

None

Item 6 - Exhibits

Exhibit No.                                      Description                                                                                                                                                                

31.1                      Rule 13a-14(a) / 15d-14(a) Certification of the Chief Executive Officer

31.2                      Rule 13a-14(a) / 15d-14(a) Certification of the Chief Financial Officer

32.1                      Section 1350 Certification of the Chief Executive Officer and Chief Financial

                             Officer

- 40

SIGNATURES

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

 PATHFINDER BANCORP, INC.

November 13, 2012                                                                 /s/ Thomas W. Schneider

  Thomas W. Schneider

                                  President and Chief Executive Officer

November 13, 2012                                                                  /s/ James A. Dowd

   James A. Dowd

   Senior Vice President and Chief Financial Officer

- 41

EXHIBIT 31.1: Rule 13a-14(a) / 15d-14(a) Certification of the Chief Executive Officer

Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Thomas W. Schneider, certify that:
1.I have reviewed this Quarterly Report on Form 10-Q of Pathfinder Bancorp, Inc.;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
	(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b)Designed such internal control over financial reporting, or caused such internal control over financial reporting, to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
	(c)Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
	(d)Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors:
	(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.
November 13, 2012		/s/ Thomas W. Schneider Thomas W. Schneider President and Chief Executive Officer

- 42

EXHIBIT 31.2: Rule 13a-14(a) / 15d-14(a) Certification of the Chief Financial Officer

Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, James A. Dowd, certify that:
1.I have reviewed this Quarterly Report on Form 10-Q of Pathfinder Bancorp, Inc.;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a   material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
	(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b)Designed such internal control over financial reporting, or caused such internal control over financial reporting, to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
	(c)Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
	(d)Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors:
	(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.
November 13, 2012		/s/ James A. Dowd James A. Dowd Senior Vice President and Chief Financial Officer

- 43

EXHIBIT 32.1  Section 1350 Certification of the Chief Executive Officer and Chief Financial Officer

Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Thomas W. Schneider, President and Chief Executive Officer, and James A. Dowd, Senior Vice President and Chief Financial Officer of Pathfinder Bancorp, Inc. (the "Company"), each certify in his capacity as an officer of the Company that he has reviewed the Quarterly Report of the Company on Form 10-Q for the quarter ended September 30, 2012 and that to the best of his knowledge:
1.The report fully complies with the requirements of Sections 13(a) 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.
The purpose of this statement is solely to comply with Title 18, Chapter 63, Section 1350 of the United States Code, as amended by Section 906 of the Sarbanes-Oxley Act of 2002.
November 13, 2012	/s/ Thomas W. Schneider Thomas W. Schneider President and Chief Executive Officer
November 13, 2012	/s/ James A. Dowd James A. Dowd Senior Vice President and Chief Financial Officer

- 44

EX-31.1

EXHIBIT 31.1: Rule 13a-14(a) / 15d-14(a) Certification of the Chief Executive Officer

Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, Thomas W. Schneider, certify that:
1.I have reviewed this Quarterly Report on Form 10-Q of Pathfinder Bancorp, Inc.;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
	(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b)Designed such internal control over financial reporting, or caused such internal control over financial reporting, to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
	(c)Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
	(d)Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors:
	(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.
November 13, 2012		/s/ Thomas W. Schneider Thomas W. Schneider President and Chief Executive Officer

EX-31.2

EXHIBIT 31.2: Rule 13a-14(a) / 15d-14(a) Certification of the Chief Financial Officer

Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, James A. Dowd, certify that:
1.I have reviewed this Quarterly Report on Form 10-Q of Pathfinder Bancorp, Inc.;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a   material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
	(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b)Designed such internal control over financial reporting, or caused such internal control over financial reporting, to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
	(c)Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
	(d)Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5.The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors:
	(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.
November 13, 2012		/s/ James A. Dowd James A. Dowd Senior Vice President and Chief Financial Officer

EX-32.1

EXHIBIT 32.1  Section 1350 Certification of the Chief Executive Officer and Chief Financial Officer

Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Thomas W. Schneider, President and Chief Executive Officer, and James A. Dowd, Senior Vice President and Chief Financial Officer of Pathfinder Bancorp, Inc. (the "Company"), each certify in his capacity as an officer of the Company that he has reviewed the Quarterly Report of the Company on Form 10-Q for the quarter ended September 30, 2012 and that to the best of his knowledge:
1.The report fully complies with the requirements of Sections 13(a) 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.
The purpose of this statement is solely to comply with Title 18, Chapter 63, Section 1350 of the United States Code, as amended by Section 906 of the Sarbanes-Oxley Act of 2002.
November 13, 2012	/s/ Thomas W. Schneider Thomas W. Schneider President and Chief Executive Officer
November 13, 2012	/s/ James A. Dowd James A. Dowd Senior Vice President and Chief Financial Officer

XML

Guarantees (Details) (USD $) In Millions, unless otherwise specified	Sep. 30, 2012
Guarantees [Abstract]
Standby Letters Of Credit	$ 2

XML

Fair Value Measurements (Tables)

9 Months Ended

Sep. 30, 2012

Fair Value Measurements [Abstract]

Fair value of assets on recurring basis segregated by level of valuation inputs

The following tables summarize assets measured at fair value on a recurring basis as of the indicated dates, segregated by the level of valuation inputs within the hierarchy utilized to measure fair value:

	At September 30, 2012
								Total Fair
(In thousands)	Level 1		Level 2			Level 3		Value
Debt investment securities:
US Treasury, agencies and GSEs	$	-	$	5,202		$	-	$	5,202
State and political subdivisions		-		27,114			-		27,114
Corporate		-		23,899			-		23,899
Residential mortgage-backed - US agency		-		54,564			-		54,564
Residential mortgage-backed - private label		-		357			-		357
Equity investment securities:
Mutual funds:
Ultra short mortgage fund		1,300		-			-		1,300
Large cap equity fund		1,148		-			-		1,148
Other mutual funds		-		297			-		297
Common stock - financial services industry		31		400			-		431
Total investment securities	$	2,479	$	111,833		$	-	$	114,312
Interest rate swap derivative	$	-	$	(210	)	$	-	$	(210	)
	At December 31, 2011
								Total Fair
(In thousands)	Level 1		Level 2			Level 3		Value
Debt investment securities:
US Treasury, agencies and GSEs	$	-	$	5,073		$	-	$	5,073
State and political subdivisions		-		20,304			-		20,304
Corporate		-		20,434			-		20,434
Residential mortgage-backed - US agency		-		51,056			-		51,056
Residential mortgage-backed - private label		-		519			-		519
Equity investment securities:
Mutual funds:
Ultra short mortgage fund		1,298		-			-		1,298
Large cap equity fund		1,024		-			-		1,024
Other mutual funds		-		243			-		243
Common stock - financial services industry		25		419			-		444
Total investment securities	$	2,347	$	98,048		$	-	$	100,395
Interest rate swap derivative	$	-	$	(200	)	$	-	$	(200	)

Summary of assets measured at fair value on a nonrecurring basis segregated by level of valuation inputs [Table Text Block]

The following tables summarize assets measured at fair value on a nonrecurring basis as of the indicated dates, segregated by the level of valuation inputs within the hierarchy utilized to measure fair value:

	At September 30, 2012
							Total Fair
(In thousands)	Level 1		Level 2		Level 3		Value
Impaired loans	$	-	$	-	$	2,070	$	2,070
Foreclosed real estate	$	-	$	-	$	305	$	305
	At December 31, 2011
							Total Fair
(In thousands)	Level 1		Level 2		Level 3		Value
Impaired loans	$	-	$	-	$	1,608	$	1,608
Foreclosed real estate	$	-	$	-	$	165	$	165

Fair Value Inputs, Quantitative Information

The following table presents additional quantitative information about assets measured at fair value on a nonrecurring basis and for which Level 3 inputs were used to determine fair value.

		Quantitative Information about Level 3 Fair Value Measurements
	Valuation	Unobservable	Range
	Techniques	Input	(Weighted Avg.)
At September 30, 2012
Impaired loans	Appraisal of collateral	Appraisal Adjustments		5% - 35%  (24%)
		Costs to Sell		6%  - 17% (13%)
Foreclosed real estate	Appraisal of collateral	Appraisal Adjustments		0% - 15% (13%)
		Costs to Sell		0%     - 7% (6%)

Schedule of carrying amounts and fair value of financial instruments

The carrying amounts and fair values of the Company's financial instruments as of the indicated dates are presented in the following table:

			September 30, 2012				December 31, 2011
	Fair Value		Carrying		Estimated		Carrying		Estimated
(Dollars In thousands)	Hierarchy		Amounts		Fair Values		Amounts		Fair Values
Financial assets:
Cash and cash equivalents		1	$	14,074	$	14,074	$	10,218	$	10,218
Interest earning time deposits		1		2,000		2,000		2,000		2,000
Investment securities		1		2,776		2,776		2,347		2,347
Investment securities		2		111,536		111,536		98,048		98,048
Federal Home Loan Bank stock		2		1,910		1,910		1,528		1,528
Net loans		3		319,717		333,345		300,770		310,218
Accrued interest receivable		1		1,921		1,921		1,685		1,685
Financial liabilities:
Demand Deposits, Savings, NOW and MMDA		1	$	230,773	$	230,773	$	214,318	$	214,318
Time Deposits		2		163,065		165,604		151,811		154,836
Borrowings		2		34,991		36,031		26,074		27,322
Junior subordinated debentures		2		5,155		5,155		5,155		5,155
Accrued interest payable		1		129		129		145		145
Interest rate swap derivative		2		210		210		200		200
Off-balance sheet instruments:
Standby letters of credit			$	-	$	-	$	-	$	-
Commitments to extend credit			$	-	$	-	$	-	$	-

XML

Interest Rate Derivative (Details) (USD $)	9 Months Ended	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2012 Interest Rate Swap [Member]	Sep. 30, 2011 Interest Rate Swap [Member]	Sep. 30, 2012 Interest Rate Swap [Member]	Sep. 30, 2011 Interest Rate Swap [Member]	Sep. 30, 2012 Other Liabilities [Member] Designated as Hedging Instrument [Member]	Dec. 31, 2011 Other Liabilities [Member] Designated as Hedging Instrument [Member]
Interest Rate Derivative [Abstract]
Floating rate trust preferred debenture	$ 5,000,000
Debt instrument variable rate basis	3-month LIBOR
Derivatives, Fair Value [Line Items]
Notional amount		2,000,000		2,000,000
Remaining term (in years)				7 years
Junior subordinated debentures, derivative converted fixed interest rate (in hundredths)		4.96%		4.96%
Derivative Liability, Fair Value, Net, Total						210,000	200,000
Derivative Instruments, Gain (Loss) Recognized in Other Comprehensive Income (Loss), Effective Portion, Net [Abstract]
Balance		(205,000)	(135,000)	(200,000)	(110,000)
Amount of losses recognized in other comprehensive income		(18,000)	(87,000)	(53,000)	(141,000)
Amount of loss reclassified from other comprehensive income and recognized as interest expense		13,000	17,000	43,000	46,000
Balance		(210,000)	(205,000)	(210,000)	(205,000)
Collateral requirement associated with interest rate swap contract	$ 200,000

XML

Basis of Presentation

9 Months Ended

Sep. 30, 2012

Basis of Presentation [Abstract]

Basis of Presentation

(1)  Basis of Presentation

The accompanying unaudited consolidated financial statements of Pathfinder Bancorp, Inc. and its wholly owned subsidiaries have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information, the instructions for Form 10-Q and Article 10 of Regulation S-X.  Accordingly, they do not include all of the information and footnotes necessary for a complete presentation of consolidated financial position, results of operations and cash flows in conformity with generally accepted accounting principles.  In the opinion of management, all adjustments, consisting of normal recurring accruals considered necessary for a fair presentation, have been included.  Certain amounts in the 2011 consolidated financial statements may have been reclassified to conform to the current period presentation.  These reclassifications had no effect on net income as previously reported.

The following material under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations" is written with the presumption that the users of the interim financial statements have read, or have access to, the Company's latest audited financial statements and notes thereto, together with Management's Discussion and Analysis of Financial Condition and Results of Operations as of December 31, 2011 and 2010 and for the two years then ended.  Therefore, only material changes in financial condition and results of operations are discussed in the remainder of Part 1.

Operating results for the three and nine months ended September 30, 2012 are not necessarily indicative of the results that may be expected for the year ending December 31, 2012.

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Pension and Postretirement Benefits (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Defined Benefit Plan Disclosure [Line Items]
Contribution to defined benefit pension plan			$ 2,600	$ 0
Pension Benefit [Member]
Defined Benefit Plan Disclosure [Line Items]
Service cost	0	82	166	246
Interest cost	93	103	305	310
Expected return on plan assets	(205)	(156)	(604)	(468)
Amortization of net losses	74	62	307	185
Net periodic plan cost	(38)	91	174	273
Postretirement Benefits [Member]
Defined Benefit Plan Disclosure [Line Items]
Service cost	0	0	0	0
Interest cost	4	5	13	15
Expected return on plan assets	0	0	0	0
Amortization of net losses	4	5	11	14
Net periodic plan cost	$ 8	$ 10	$ 24	$ 29

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Investment Securities (Details) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011	Dec. 31, 2011	Dec. 31, 2010
Schedule of Available-for-sale Securities [Line Items]
Total investment securities, amortized cost basis	$ 111,151,000		$ 111,151,000		$ 98,606,000
Gross Unrealized Gains	3,690,000		3,690,000		2,485,000
Gross Unrealized Losses	(529,000)		(529,000)		(696,000)
Estimated Fair Value	114,312,000		114,312,000		100,395,000
Available-for-sale securities, debt maturities, amortized cost
Due in one year or less, amortized cost	7,294,000		7,294,000
Due after one year through five years, amortized cost	22,421,000		22,421,000
Due after five years through ten years, amortized cost	7,042,000		7,042,000
Due after ten years, amortized cost	18,455,000		18,455,000
Mortgage-backed securities amortized cost	53,143,000		53,143,000
Totals, amortized cost	108,355,000		108,355,000
Available-for-sale securities, debt maturities, Estimated Fair Value
Due in one year or less, fair value	7,329,000		7,329,000
Due after one year through five years, fair value	22,887,000		22,887,000
Due after five years through ten years, fair value	7,478,000		7,478,000
Due after ten years, fair value	18,521,000		18,521,000
Mortgage-backed securities fair value disclosure	54,921,000		54,921,000
Available-for-sale securities, debt maturities, fair value, totals	111,136,000		111,136,000
Available-for-sale Securities, Continuous Unrealized Loss Position, Aggregate Losses [Abstract]
Less than twelve months Unrealized Losses	(41,000)		(41,000)		(136,000)
Twelve months or more Unrealized Losses	(488,000)		(488,000)		(560,000)
Total Unrealized Losses	(529,000)		(529,000)		(696,000)
Available-for-sale Securities, Continuous Unrealized Loss Position, Fair Value [Abstract]
Less than twelve Fair Value	5,128,000		5,128,000		15,797,000
Twelve months or more Fair Value	1,481,000		1,481,000		1,413,000
Total Fair Value	6,609,000		6,609,000		17,210,000
Number of securities in unrealized loss positions, less than twelve months	11		11		22
Number of securities in unrealized loss positions, twelve months or more	2		2		3
Number of securities in unrealized loss positions	13		13		25
Months of unrealized loss positions (in months)			12
Number of securities rated below Baa1 or better	2		2
Unrealized losses	(1,300)		(1,300)
Final maturity of each security			15 years
Minimum term of fixed rate residential mortgage carried in loan portfolio ( in years)			15 years
Maximum term of fixed rate residential mortgage carried in loan portfolio (in years)			30 years
Other than Temporary Impairment, Credit Losses Recognized in Earnings [Roll Forward]
Beginning balance - January 1	0	0	0	0	0	875,000
Reductions for securities sold			0	(875,000)
Ending balance - September 30	0	0	0	0	0	875,000
Gain (Loss) on Sale of Investments [Abstract]
Realized gains	30,000	469,000	191,000	796,000
Realized losses	(12,000)	0	(12,000)	(5,000)
Total	18,000	469,000	179,000	791,000
Securities Pledged To Collateralize Deposit	39,600,000		39,600,000		43,100,000
Securities Pledged To Collateralize Borrowing	38,400,000		38,400,000		21,800,000
Borrowings Secured By Collateral	5,000,000		5,000,000		5,000,000
Debt Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized cost, debt securities	108,355,000		108,355,000		95,789,000
Gross Unrealized Gains	3,309,000		3,309,000		2,292,000
Gross Unrealized Losses	(528,000)		(528,000)		(695,000)
Estimated Fair Value	111,136,000		111,136,000		97,386,000
US Treasury, agencies and GSEs [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized cost, debt securities	5,176,000		5,176,000		5,025,000
Gross Unrealized Gains	26,000		26,000		48,000
Gross Unrealized Losses	0		0		0
Estimated Fair Value	5,202,000		5,202,000		5,073,000
State and Political Subdivisions [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized cost, debt securities	25,994,000		25,994,000		19,508,000
Gross Unrealized Gains	1,122,000		1,122,000		797,000
Gross Unrealized Losses	(2,000)		(2,000)		(1,000)
Estimated Fair Value	27,114,000		27,114,000		20,304,000
Available-for-sale Securities, Continuous Unrealized Loss Position, Aggregate Losses [Abstract]
Less than twelve months Unrealized Losses	(2,000)		(2,000)		(1,000)
Twelve months or more Unrealized Losses	0		0		0
Total Unrealized Losses	(2,000)		(2,000)		(1,000)
Available-for-sale Securities, Continuous Unrealized Loss Position, Fair Value [Abstract]
Less than twelve Fair Value	1,475,000		1,475,000		412,000
Twelve months or more Fair Value	0		0		0
Total Fair Value	1,475,000		1,475,000		412,000
Number of securities in unrealized loss positions, less than twelve months	4		4		1
Number of securities in unrealized loss positions, twelve months or more	0		0		0
Number of securities in unrealized loss positions	4		4		1
Corporate [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized cost, debt securities	24,042,000		24,042,000		21,086,000
Gross Unrealized Gains	382,000		382,000		38,000
Gross Unrealized Losses	(525,000)		(525,000)		(690,000)
Estimated Fair Value	23,899,000		23,899,000		20,434,000
Available-for-sale Securities, Continuous Unrealized Loss Position, Aggregate Losses [Abstract]
Less than twelve months Unrealized Losses	(37,000)		(37,000)		(131,000)
Twelve months or more Unrealized Losses	(488,000)		(488,000)		(559,000)
Total Unrealized Losses	(525,000)		(525,000)		(690,000)
Available-for-sale Securities, Continuous Unrealized Loss Position, Fair Value [Abstract]
Less than twelve Fair Value	2,633,000		2,633,000		13,489,000
Twelve months or more Fair Value	1,481,000		1,481,000		1,410,000
Total Fair Value	4,114,000		4,114,000		14,899,000
Number of securities in unrealized loss positions, less than twelve months	4		4		19
Number of securities in unrealized loss positions, twelve months or more	2		2		2
Number of securities in unrealized loss positions	6		6		21
Residential mortgage-backed - US agency [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized cost, debt securities	52,797,000		52,797,000		49,665,000
Gross Unrealized Gains	1,768,000		1,768,000		1,395,000
Gross Unrealized Losses	(1,000)		(1,000)		(4,000)
Estimated Fair Value	54,564,000		54,564,000		51,056,000
Available-for-sale Securities, Continuous Unrealized Loss Position, Aggregate Losses [Abstract]
Less than twelve months Unrealized Losses	(1,000)		(1,000)		(4,000)
Twelve months or more Unrealized Losses	0		0		0
Total Unrealized Losses	(1,000)		(1,000)		(4,000)
Available-for-sale Securities, Continuous Unrealized Loss Position, Fair Value [Abstract]
Less than twelve Fair Value	1,018,000		1,018,000		1,896,000
Twelve months or more Fair Value	0		0		0
Total Fair Value	1,018,000		1,018,000		1,896,000
Number of securities in unrealized loss positions, less than twelve months	2		2		2
Number of securities in unrealized loss positions, twelve months or more	0		0		0
Number of securities in unrealized loss positions	2		2		2
Residential mortgage-backed-Private label [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized cost, debt securities	346,000		346,000		505,000
Gross Unrealized Gains	11,000		11,000		14,000
Gross Unrealized Losses	0		0		0
Estimated Fair Value	357,000		357,000		519,000
Equity Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized cost, equity securities	2,796,000		2,796,000		2,817,000
Gross Unrealized Gains	381,000		381,000		193,000
Gross Unrealized Losses	(1,000)		(1,000)		(1,000)
Estimated Fair Value	3,176,000		3,176,000		3,009,000
Mutual Funds Ultra Short Mortgage Funds [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized cost, equity securities	1,286,000		1,286,000		1,286,000
Gross Unrealized Gains	14,000		14,000		12,000
Gross Unrealized Losses	0		0		0
Estimated Fair Value	1,300,000		1,300,000		1,298,000
Mutual Funds Large Cap Equity Fund [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized cost, equity securities	905,000		905,000		905,000
Gross Unrealized Gains	243,000		243,000		119,000
Gross Unrealized Losses	0		0		0
Estimated Fair Value	1,148,000		1,148,000		1,024,000
Other Mutual Funds [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized cost, equity securities	183,000		183,000		183,000
Gross Unrealized Gains	114,000		114,000		60,000
Gross Unrealized Losses	0		0		0
Estimated Fair Value	297,000		297,000		243,000
Mutual funds Common Stock Financial Services Industry [Member]
Schedule of Available-for-sale Securities [Line Items]
Amortized cost, equity securities	422,000		422,000		443,000
Gross Unrealized Gains	10,000		10,000		2,000
Gross Unrealized Losses	(1,000)		(1,000)		(1,000)
Estimated Fair Value	431,000		431,000		444,000
Available-for-sale Securities, Continuous Unrealized Loss Position, Aggregate Losses [Abstract]
Less than twelve months Unrealized Losses	(1,000)		(1,000)		0
Twelve months or more Unrealized Losses	0		0		(1,000)
Total Unrealized Losses	(1,000)		(1,000)		(1,000)
Available-for-sale Securities, Continuous Unrealized Loss Position, Fair Value [Abstract]
Less than twelve Fair Value	2,000		2,000		0
Twelve months or more Fair Value	0		0		3,000
Total Fair Value	$ 2,000		$ 2,000		$ 3,000
Number of securities in unrealized loss positions, less than twelve months	1		1		0
Number of securities in unrealized loss positions, twelve months or more	0		0		1
Number of securities in unrealized loss positions	1		1		1

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Loans (Details) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011	Dec. 31, 2011
Notes, Loans and Financing Receivable, Net [Abstract]
Loans, gross	$ 323,669,000		$ 323,669,000		$ 304,161,000
Net deferred loan costs	481,000		481,000		589,000
Less allowance for loan losses	(4,433,000)		(4,433,000)		(3,980,000)
Loans receivable, net	319,717,000		319,717,000		300,770,000
Carrying value of loans pledged to FHLB of New York under blanket collateral agreement	62,300,000		62,300,000		65,800,000
Borrowings at the FHLBNY	29,000,000		29,000,000		20,000,000
Past due, Loans receivable [Abstract]
30 to 59 Days Past Due	3,353,000		3,353,000		5,990,000
60 to 89 Days Past Due	2,108,000		2,108,000		1,589,000
90 Days and Over	4,623,000		4,623,000		4,728,000
Total Past Due	10,084,000		10,084,000		12,307,000
Current	313,585,000		313,585,000		291,854,000
Total Loans Receivable	323,669,000		323,669,000		304,161,000
Nonaccrual loans, Segregated by class of loans [Abstract]
Nonaccrual status loans	4,623,000		4,623,000		4,728,000
Recorded investment in new TDRs	1,100,000		1,100,000
Provisions	275,000	145,000	650,000	670,000
Pass [Member]
Notes, Loans and Financing Receivable, Net [Abstract]
Loans, gross	307,961,000		307,961,000		291,319,000
Past due, Loans receivable [Abstract]
Total Loans Receivable	307,961,000		307,961,000		291,319,000
Special Mention [Member]
Notes, Loans and Financing Receivable, Net [Abstract]
Loans, gross	1,354,000		1,354,000		1,623,000
Past due, Loans receivable [Abstract]
Total Loans Receivable	1,354,000		1,354,000		1,623,000
Substandard [Member]
Notes, Loans and Financing Receivable, Net [Abstract]
Loans, gross	14,196,000		14,196,000		11,089,000
Past due, Loans receivable [Abstract]
Total Loans Receivable	14,196,000		14,196,000		11,089,000
Doubtful [Member]
Notes, Loans and Financing Receivable, Net [Abstract]
Loans, gross	158,000		158,000		130,000
Past due, Loans receivable [Abstract]
Total Loans Receivable	158,000		158,000		130,000
Residential Mortgage Loans [Member]
Notes, Loans and Financing Receivable, Net [Abstract]
Loans, gross	171,649,000		171,649,000		162,319,000
Past due, Loans receivable [Abstract]
30 to 59 Days Past Due	1,838,000		1,838,000		2,870,000
60 to 89 Days Past Due	1,139,000		1,139,000		934,000
90 Days and Over	1,506,000		1,506,000		1,428,000
Total Past Due	4,483,000		4,483,000		5,232,000
Current	167,166,000		167,166,000		157,087,000
Total Loans Receivable	171,649,000		171,649,000		162,319,000
Nonaccrual loans, Segregated by class of loans [Abstract]
Nonaccrual status loans	1,506,000		1,506,000		1,428,000
Residential Mortgage Loans [Member] | Pass [Member]
Notes, Loans and Financing Receivable, Net [Abstract]
Loans, gross	165,116,000		165,116,000		156,984,000
Past due, Loans receivable [Abstract]
Total Loans Receivable	165,116,000		165,116,000		156,984,000
Residential Mortgage Loans [Member] | Special Mention [Member]
Notes, Loans and Financing Receivable, Net [Abstract]
Loans, gross	950,000		950,000		1,050,000
Past due, Loans receivable [Abstract]
Total Loans Receivable	950,000		950,000		1,050,000
Residential Mortgage Loans [Member] | Substandard [Member]
Notes, Loans and Financing Receivable, Net [Abstract]
Loans, gross	5,583,000		5,583,000		4,285,000
Past due, Loans receivable [Abstract]
Total Loans Receivable	5,583,000		5,583,000		4,285,000
Residential Mortgage Loans [Member] | Doubtful [Member]
Notes, Loans and Financing Receivable, Net [Abstract]
Loans, gross	0		0		0
Past due, Loans receivable [Abstract]
Total Loans Receivable	0		0		0
1-4 family first-lien residential mortgages [Member]
Notes, Loans and Financing Receivable, Net [Abstract]
Loans, gross	169,062,000		169,062,000		158,384,000
Past due, Loans receivable [Abstract]
30 to 59 Days Past Due	1,838,000		1,838,000		2,870,000
60 to 89 Days Past Due	1,139,000		1,139,000		934,000
90 Days and Over	1,506,000		1,506,000		1,428,000
Total Past Due	4,483,000		4,483,000		5,232,000
Current	164,579,000		164,579,000		153,152,000
Total Loans Receivable	169,062,000		169,062,000		158,384,000
Nonaccrual loans, Segregated by class of loans [Abstract]
Nonaccrual status loans	1,506,000		1,506,000		1,428,000
1-4 family first-lien residential mortgages [Member] | Pass [Member]
Notes, Loans and Financing Receivable, Net [Abstract]
Loans, gross	162,529,000		162,529,000		153,049,000
Past due, Loans receivable [Abstract]
Total Loans Receivable	162,529,000		162,529,000		153,049,000
1-4 family first-lien residential mortgages [Member] | Special Mention [Member]
Notes, Loans and Financing Receivable, Net [Abstract]
Loans, gross	950,000		950,000		1,050,000
Past due, Loans receivable [Abstract]
Total Loans Receivable	950,000		950,000		1,050,000
1-4 family first-lien residential mortgages [Member] | Substandard [Member]
Notes, Loans and Financing Receivable, Net [Abstract]
Loans, gross	5,583,000		5,583,000		4,285,000
Past due, Loans receivable [Abstract]
Total Loans Receivable	5,583,000		5,583,000		4,285,000
1-4 family first-lien residential mortgages [Member] | Doubtful [Member]
Notes, Loans and Financing Receivable, Net [Abstract]
Loans, gross	0		0		0
Past due, Loans receivable [Abstract]
Total Loans Receivable	0		0		0
Construction loans, residential mortgages [Member]
Notes, Loans and Financing Receivable, Net [Abstract]
Loans, gross	2,587,000		2,587,000		3,935,000
Past due, Loans receivable [Abstract]
30 to 59 Days Past Due	0		0		0
60 to 89 Days Past Due	0		0		0
90 Days and Over	0		0		0
Total Past Due	0		0		0
Current	2,587,000		2,587,000		3,935,000
Total Loans Receivable	2,587,000		2,587,000		3,935,000
Nonaccrual loans, Segregated by class of loans [Abstract]
Nonaccrual status loans	0		0		0
Provisions	211,000
Construction loans, residential mortgages [Member] | Pass [Member]
Notes, Loans and Financing Receivable, Net [Abstract]
Loans, gross	2,587,000		2,587,000		3,935,000
Past due, Loans receivable [Abstract]
Total Loans Receivable	2,587,000		2,587,000		3,935,000
Construction loans, residential mortgages [Member] | Special Mention [Member]
Notes, Loans and Financing Receivable, Net [Abstract]
Loans, gross	0		0		0
Past due, Loans receivable [Abstract]
Total Loans Receivable	0		0		0
Construction loans, residential mortgages [Member] | Substandard [Member]
Notes, Loans and Financing Receivable, Net [Abstract]
Loans, gross	0		0		0
Past due, Loans receivable [Abstract]
Total Loans Receivable	0		0		0
Construction loans, residential mortgages [Member] | Doubtful [Member]
Notes, Loans and Financing Receivable, Net [Abstract]
Loans, gross	0		0		0
Past due, Loans receivable [Abstract]
Total Loans Receivable	0		0		0
Commercial Loans [Member]
Notes, Loans and Financing Receivable, Net [Abstract]
Loans, gross	125,813,000		125,813,000		113,531,000
Past due, Loans receivable [Abstract]
30 to 59 Days Past Due	1,138,000		1,138,000		2,708,000
60 to 89 Days Past Due	608,000		608,000		471,000
90 Days and Over	2,342,000		2,342,000		2,594,000
Total Past Due	4,088,000		4,088,000		5,773,000
Current	121,725,000		121,725,000		107,758,000
Total Loans Receivable	125,813,000		125,813,000		113,531,000
Nonaccrual loans, Segregated by class of loans [Abstract]
Nonaccrual status loans	2,342,000		2,342,000		2,594,000
Commercial Loans [Member] | Pass [Member]
Notes, Loans and Financing Receivable, Net [Abstract]
Loans, gross	118,882,000		118,882,000		107,913,000
Past due, Loans receivable [Abstract]
Total Loans Receivable	118,882,000		118,882,000		107,913,000
Commercial Loans [Member] | Special Mention [Member]
Notes, Loans and Financing Receivable, Net [Abstract]
Loans, gross	48,000		48,000		350,000
Past due, Loans receivable [Abstract]
Total Loans Receivable	48,000		48,000		350,000
Commercial Loans [Member] | Substandard [Member]
Notes, Loans and Financing Receivable, Net [Abstract]
Loans, gross	6,802,000		6,802,000		5,225,000
Past due, Loans receivable [Abstract]
Total Loans Receivable	6,802,000		6,802,000		5,225,000
Commercial Loans [Member] | Doubtful [Member]
Notes, Loans and Financing Receivable, Net [Abstract]
Loans, gross	81,000		81,000		43,000
Past due, Loans receivable [Abstract]
Total Loans Receivable	81,000		81,000		43,000
Commercial real estate [Member]
Notes, Loans and Financing Receivable, Net [Abstract]
Loans, gross	79,770,000		79,770,000		73,420,000
Past due, Loans receivable [Abstract]
30 to 59 Days Past Due	729,000		729,000		2,015,000
60 to 89 Days Past Due	46,000		46,000		4,000
90 Days and Over	1,526,000		1,526,000		1,623,000
Total Past Due	2,301,000		2,301,000		3,642,000
Current	77,469,000		77,469,000		69,778,000
Total Loans Receivable	79,770,000		79,770,000		73,420,000
Nonaccrual loans, Segregated by class of loans [Abstract]
Nonaccrual status loans	1,526,000		1,526,000		1,623,000
Pre-modification recorded investment in new TDRs	564,000		564,000
Post-modification recorded investment in new TDRs	358,000		358,000
Commercial real estate [Member] | Pass [Member]
Notes, Loans and Financing Receivable, Net [Abstract]
Loans, gross	75,148,000		75,148,000		69,737,000
Past due, Loans receivable [Abstract]
Total Loans Receivable	75,148,000		75,148,000		69,737,000
Commercial real estate [Member] | Special Mention [Member]
Notes, Loans and Financing Receivable, Net [Abstract]
Loans, gross	48,000		48,000		212,000
Past due, Loans receivable [Abstract]
Total Loans Receivable	48,000		48,000		212,000
Commercial real estate [Member] | Substandard [Member]
Notes, Loans and Financing Receivable, Net [Abstract]
Loans, gross	4,574,000		4,574,000		3,471,000
Past due, Loans receivable [Abstract]
Total Loans Receivable	4,574,000		4,574,000		3,471,000
Commercial real estate [Member] | Doubtful [Member]
Notes, Loans and Financing Receivable, Net [Abstract]
Loans, gross	0		0		0
Past due, Loans receivable [Abstract]
Total Loans Receivable	0		0		0
Lines of Credit, commercial [Member]
Notes, Loans and Financing Receivable, Net [Abstract]
Loans, gross	13,471,000		13,471,000		13,791,000
Past due, Loans receivable [Abstract]
30 to 59 Days Past Due	137,000		137,000		337,000
60 to 89 Days Past Due	500,000		500,000		75,000
90 Days and Over	238,000		238,000		467,000
Total Past Due	875,000		875,000		879,000
Current	12,596,000		12,596,000		12,912,000
Total Loans Receivable	13,471,000		13,471,000		13,791,000
Nonaccrual loans, Segregated by class of loans [Abstract]
Nonaccrual status loans	238,000		238,000		467,000
Lines of Credit, commercial [Member] | Pass [Member]
Notes, Loans and Financing Receivable, Net [Abstract]
Loans, gross	12,325,000		12,325,000		12,579,000
Past due, Loans receivable [Abstract]
Total Loans Receivable	12,325,000		12,325,000		12,579,000
Lines of Credit, commercial [Member] | Special Mention [Member]
Notes, Loans and Financing Receivable, Net [Abstract]
Loans, gross	0		0		49,000
Past due, Loans receivable [Abstract]
Total Loans Receivable	0		0		49,000
Lines of Credit, commercial [Member] | Substandard [Member]
Notes, Loans and Financing Receivable, Net [Abstract]
Loans, gross	1,071,000		1,071,000		1,163,000
Past due, Loans receivable [Abstract]
Total Loans Receivable	1,071,000		1,071,000		1,163,000
Lines of Credit, commercial [Member] | Doubtful [Member]
Notes, Loans and Financing Receivable, Net [Abstract]
Loans, gross	75,000		75,000		0
Past due, Loans receivable [Abstract]
Total Loans Receivable	75,000		75,000		0
Other commercial and industrial loans [Member]
Notes, Loans and Financing Receivable, Net [Abstract]
Loans, gross	27,509,000		27,509,000		22,701,000
Past due, Loans receivable [Abstract]
30 to 59 Days Past Due	272,000		272,000		356,000
60 to 89 Days Past Due	62,000		62,000		392,000
90 Days and Over	578,000		578,000		504,000
Total Past Due	912,000		912,000		1,252,000
Current	26,597,000		26,597,000		21,449,000
Total Loans Receivable	27,509,000		27,509,000		22,701,000
Nonaccrual loans, Segregated by class of loans [Abstract]
Nonaccrual status loans	578,000		578,000		504,000
Pre-modification recorded investment in new TDRs	439,000		439,000
Post-modification recorded investment in new TDRs	468,000		468,000
Other commercial and industrial loans [Member] | Pass [Member]
Notes, Loans and Financing Receivable, Net [Abstract]
Loans, gross	26,346,000		26,346,000		21,978,000
Past due, Loans receivable [Abstract]
Total Loans Receivable	26,346,000		26,346,000		21,978,000
Other commercial and industrial loans [Member] | Special Mention [Member]
Notes, Loans and Financing Receivable, Net [Abstract]
Loans, gross	0		0		89,000
Past due, Loans receivable [Abstract]
Total Loans Receivable	0		0		89,000
Other commercial and industrial loans [Member] | Substandard [Member]
Notes, Loans and Financing Receivable, Net [Abstract]
Loans, gross	1,157,000		1,157,000		591,000
Past due, Loans receivable [Abstract]
Total Loans Receivable	1,157,000		1,157,000		591,000
Other commercial and industrial loans [Member] | Doubtful [Member]
Notes, Loans and Financing Receivable, Net [Abstract]
Loans, gross	6,000		6,000		43,000
Past due, Loans receivable [Abstract]
Total Loans Receivable	6,000		6,000		43,000
Municipal loans, commercial [Member]
Notes, Loans and Financing Receivable, Net [Abstract]
Loans, gross	5,063,000		5,063,000		3,619,000
Past due, Loans receivable [Abstract]
30 to 59 Days Past Due	0		0		0
60 to 89 Days Past Due	0		0		0
90 Days and Over	0		0		0
Total Past Due	0		0		0
Current	5,063,000		5,063,000		3,619,000
Total Loans Receivable	5,063,000		5,063,000		3,619,000
Nonaccrual loans, Segregated by class of loans [Abstract]
Nonaccrual status loans	0		0		0
Municipal loans, commercial [Member] | Pass [Member]
Notes, Loans and Financing Receivable, Net [Abstract]
Loans, gross	5,063,000		5,063,000		3,619,000
Past due, Loans receivable [Abstract]
Total Loans Receivable	5,063,000		5,063,000		3,619,000
Municipal loans, commercial [Member] | Special Mention [Member]
Notes, Loans and Financing Receivable, Net [Abstract]
Loans, gross	0		0		0
Past due, Loans receivable [Abstract]
Total Loans Receivable	0		0		0
Municipal loans, commercial [Member] | Substandard [Member]
Notes, Loans and Financing Receivable, Net [Abstract]
Loans, gross	0		0		0
Past due, Loans receivable [Abstract]
Total Loans Receivable	0		0		0
Municipal loans, commercial [Member] | Doubtful [Member]
Notes, Loans and Financing Receivable, Net [Abstract]
Loans, gross	0		0		0
Past due, Loans receivable [Abstract]
Total Loans Receivable	0		0		0
Consumer Loans [Member]
Notes, Loans and Financing Receivable, Net [Abstract]
Loans, gross	26,207,000		26,207,000		28,311,000
Past due, Loans receivable [Abstract]
30 to 59 Days Past Due	377,000		377,000		412,000
60 to 89 Days Past Due	361,000		361,000		184,000
90 Days and Over	775,000		775,000		706,000
Total Past Due	1,513,000		1,513,000		1,302,000
Current	24,694,000		24,694,000		27,009,000
Total Loans Receivable	26,207,000		26,207,000		28,311,000
Nonaccrual loans, Segregated by class of loans [Abstract]
Nonaccrual status loans	775,000		775,000		706,000
Consumer Loans [Member] | Pass [Member]
Notes, Loans and Financing Receivable, Net [Abstract]
Loans, gross	23,963,000		23,963,000		26,422,000
Past due, Loans receivable [Abstract]
Total Loans Receivable	23,963,000		23,963,000		26,422,000
Consumer Loans [Member] | Special Mention [Member]
Notes, Loans and Financing Receivable, Net [Abstract]
Loans, gross	356,000		356,000		223,000
Past due, Loans receivable [Abstract]
Total Loans Receivable	356,000		356,000		223,000
Consumer Loans [Member] | Substandard [Member]
Notes, Loans and Financing Receivable, Net [Abstract]
Loans, gross	1,811,000		1,811,000		1,579,000
Past due, Loans receivable [Abstract]
Total Loans Receivable	1,811,000		1,811,000		1,579,000
Consumer Loans [Member] | Doubtful [Member]
Notes, Loans and Financing Receivable, Net [Abstract]
Loans, gross	77,000		77,000		87,000
Past due, Loans receivable [Abstract]
Total Loans Receivable	77,000		77,000		87,000
Home equity and junior liens, consumer loans [Member]
Notes, Loans and Financing Receivable, Net [Abstract]
Loans, gross	22,580,000		22,580,000		24,171,000
Past due, Loans receivable [Abstract]
30 to 59 Days Past Due	334,000		334,000		357,000
60 to 89 Days Past Due	313,000		313,000		182,000
90 Days and Over	737,000		737,000		550,000
Total Past Due	1,384,000		1,384,000		1,089,000
Current	21,196,000		21,196,000		23,082,000
Total Loans Receivable	22,580,000		22,580,000		24,171,000
Nonaccrual loans, Segregated by class of loans [Abstract]
Nonaccrual status loans	737,000		737,000		550,000
Pre-modification recorded investment in new TDRs	279,000		279,000
Post-modification recorded investment in new TDRs	279,000		279,000
Home equity and junior liens, consumer loans [Member] | Pass [Member]
Notes, Loans and Financing Receivable, Net [Abstract]
Loans, gross	20,614,000		20,614,000		22,500,000
Past due, Loans receivable [Abstract]
Total Loans Receivable	20,614,000		20,614,000		22,500,000
Home equity and junior liens, consumer loans [Member] | Special Mention [Member]
Notes, Loans and Financing Receivable, Net [Abstract]
Loans, gross	165,000		165,000		162,000
Past due, Loans receivable [Abstract]
Total Loans Receivable	165,000		165,000		162,000
Home equity and junior liens, consumer loans [Member] | Substandard [Member]
Notes, Loans and Financing Receivable, Net [Abstract]
Loans, gross	1,752,000		1,752,000		1,456,000
Past due, Loans receivable [Abstract]
Total Loans Receivable	1,752,000		1,752,000		1,456,000
Home equity and junior liens, consumer loans [Member] | Doubtful [Member]
Notes, Loans and Financing Receivable, Net [Abstract]
Loans, gross	49,000		49,000		53,000
Past due, Loans receivable [Abstract]
Total Loans Receivable	49,000		49,000		53,000
Consumer other financing receivable [Member]
Notes, Loans and Financing Receivable, Net [Abstract]
Loans, gross	3,627,000		3,627,000		4,140,000
Past due, Loans receivable [Abstract]
30 to 59 Days Past Due	43,000		43,000		55,000
60 to 89 Days Past Due	48,000		48,000		2,000
90 Days and Over	38,000		38,000		156,000
Total Past Due	129,000		129,000		213,000
Current	3,498,000		3,498,000		3,927,000
Total Loans Receivable	3,627,000		3,627,000		4,140,000
Nonaccrual loans, Segregated by class of loans [Abstract]
Nonaccrual status loans	38,000		38,000		156,000
Consumer other financing receivable [Member] | Pass [Member]
Notes, Loans and Financing Receivable, Net [Abstract]
Loans, gross	3,349,000		3,349,000		3,922,000
Past due, Loans receivable [Abstract]
Total Loans Receivable	3,349,000		3,349,000		3,922,000
Consumer other financing receivable [Member] | Special Mention [Member]
Notes, Loans and Financing Receivable, Net [Abstract]
Loans, gross	191,000		191,000		61,000
Past due, Loans receivable [Abstract]
Total Loans Receivable	191,000		191,000		61,000
Consumer other financing receivable [Member] | Substandard [Member]
Notes, Loans and Financing Receivable, Net [Abstract]
Loans, gross	59,000		59,000		123,000
Past due, Loans receivable [Abstract]
Total Loans Receivable	59,000		59,000		123,000
Consumer other financing receivable [Member] | Doubtful [Member]
Notes, Loans and Financing Receivable, Net [Abstract]
Loans, gross	28,000		28,000		34,000
Past due, Loans receivable [Abstract]
Total Loans Receivable	$ 28,000		$ 28,000		$ 34,000

XML

Loans, Schedule of Impaired Financing Receivable (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011	Dec. 31, 2011
Total [Abstract]
Recorded Investment	$ 6,780		$ 6,780		$ 4,280
Unpaid Principal Balance	6,936		6,936		4,408
Related Allowance	1,032		1,032		619
Average recorded investment [Abstract]
Total	6,367	4,595	5,602	5,342
Cash basis interest recognized on impaired loans [Abstract]
Total	45	40	195	132
1-4 family first-lien residential mortgages [Member]
With no related allowance recorded [Abstract]
Recorded Investment	946		946		442
Unpaid Principal Balance	946		946		442
Related Allowance	0		0		0
With an allowance recorded [Abstract]
Recorded Investment	1,188		1,188		856
Unpaid Principal Balance	1,188		1,188		856
Related Allowance	208		208		149
Total [Abstract]
Recorded Investment	2,134		2,134		1,298
Unpaid Principal Balance	2,134		2,134		1,298
Related Allowance	208		208		149
Average recorded investment [Abstract]
Total	1,879	1,004	1,565	1,109
Cash basis interest recognized on impaired loans [Abstract]
Total	34	6	80	29
Residential construction mortgage [Member]
With no related allowance recorded [Abstract]
Recorded Investment	0		0		0
Unpaid Principal Balance	0		0		0
Related Allowance	0		0		0
With an allowance recorded [Abstract]
Recorded Investment	0		0		0
Unpaid Principal Balance	0		0		0
Related Allowance	0		0		0
Total [Abstract]
Recorded Investment	0		0		0
Unpaid Principal Balance	0		0		0
Related Allowance	0		0		0
Commercial real estate [Member]
With no related allowance recorded [Abstract]
Recorded Investment	1,340		1,340		968
Unpaid Principal Balance	1,474		1,474		1,096
Related Allowance	0		0		0
With an allowance recorded [Abstract]
Recorded Investment	1,456		1,456		735
Unpaid Principal Balance	1,456		1,456		735
Related Allowance	489		489		109
Total [Abstract]
Recorded Investment	2,796		2,796		1,703
Unpaid Principal Balance	2,930		2,930		1,831
Related Allowance	489		489		109
Average recorded investment [Abstract]
Total	2,801	2,056	2,449	2,695
Cash basis interest recognized on impaired loans [Abstract]
Total	0	26	60	71
Commercial lines of credit [Member]
With no related allowance recorded [Abstract]
Recorded Investment	374		374		74
Unpaid Principal Balance	385		385		74
Related Allowance	0		0		0
With an allowance recorded [Abstract]
Recorded Investment	0		0		378
Unpaid Principal Balance	0		0		378
Related Allowance	0		0		178
Total [Abstract]
Recorded Investment	374		374		452
Unpaid Principal Balance	385		385		452
Related Allowance	0		0		178
Average recorded investment [Abstract]
Total	412	37	432	125
Cash basis interest recognized on impaired loans [Abstract]
Total	(5)	0	13	0
Other commercial and industrial loans [Member]
With no related allowance recorded [Abstract]
Recorded Investment	672		672		257
Unpaid Principal Balance	683		683		257
Related Allowance	0		0		0
With an allowance recorded [Abstract]
Recorded Investment	296		296		122
Unpaid Principal Balance	296		296		122
Related Allowance	269		269		122
Total [Abstract]
Recorded Investment	968		968		379
Unpaid Principal Balance	979		979		379
Related Allowance	269		269		122
Average recorded investment [Abstract]
Total	768	930	677	823
Cash basis interest recognized on impaired loans [Abstract]
Total	11	5	30	18
Municipal [Member]
With no related allowance recorded [Abstract]
Recorded Investment	0		0		0
Unpaid Principal Balance	0		0		0
Related Allowance	0		0		0
With an allowance recorded [Abstract]
Recorded Investment	0		0		0
Unpaid Principal Balance	0		0		0
Related Allowance	0		0		0
Total [Abstract]
Recorded Investment	0		0		0
Unpaid Principal Balance	0		0		0
Related Allowance	0		0		0
Home equity and junior liens [Member]
With no related allowance recorded [Abstract]
Recorded Investment	346		346		312
Unpaid Principal Balance	346		346		312
Related Allowance	0		0		0
With an allowance recorded [Abstract]
Recorded Investment	156		156		136
Unpaid Principal Balance	156		156		136
Related Allowance	60		60		61
Total [Abstract]
Recorded Investment	502		502		448
Unpaid Principal Balance	502		502		448
Related Allowance	60		60		61
Average recorded investment [Abstract]
Total	502	568	477	590
Cash basis interest recognized on impaired loans [Abstract]
Total	4	3	11	14
Other Consumer [Member]
With no related allowance recorded [Abstract]
Recorded Investment	0		0		0
Unpaid Principal Balance	0		0		0
Related Allowance	0		0		0
With an allowance recorded [Abstract]
Recorded Investment	6		6		0
Unpaid Principal Balance	6		6		0
Related Allowance	6		6		0
Total [Abstract]
Recorded Investment	6		6		0
Unpaid Principal Balance	6		6		0
Related Allowance	6		6		0
Average recorded investment [Abstract]
Total	5	0	2	0
Cash basis interest recognized on impaired loans [Abstract]
Total	$ 1	$ 0	$ 1	$ 0

XML

Consolidated Statements Of Cash Flows (Unaudited) (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011
OPERATING ACTIVITIES
Net income	$ 1,919	$ 1,887
Adjustments to reconcile net income to net cash flows from operating activities:
Provision for loan losses	650	670
Proceeds from sales of loans	207	0
Originations of loans held-for-sale	(195)	0
Realized (gains) losses on sales and redemptions of:
Real estate acquired through foreclosure	(19)	40
Loans	(12)	0
Available-for-sale investment securities	(179)	(791)
Depreciation	593	523
Amortization of mortgage servicing rights	6	20
Amortization of deferred loan costs	132	139
Earnings on bank owned life insurance	(198)	(162)
Realized gain on proceeds from bank owned life insurance	(37)	0
Net amortization of premiums and discounts on investment securities	851	370
Stock based compensation and ESOP expense	149	57
Net change in accrued interest receivable	(236)	90
Pension plan contribution	(2,600)	0
Net change in other assets and liabilities	734	(30)
Net cash flows from operating activities	1,765	2,813
INVESTING ACTIVITIES
Purchase of investment securities available-for-sale	(44,429)	(39,603)
(Purchases) redemptions of Federal Home Loan Bank stock	(382)	606
Proceeds from maturities and principal reductions of investment securities available-for-sale	20,859	25,894
Proceeds from sales and redemption of: Available-for-sale investment securities	10,353	15,091
Real estate acquired through foreclosure	331	691
Purchase of bank owned life insurance	0	(800)
Net change in loans	(20,020)	(10,371)
Purchase of premises and equipment	(93)	(1,750)
Net cash flows from investing activities	(33,381)	(10,242)
FINANCING ACTIVITIES
Net increase in demand deposits, NOW accounts, savings accounts, money management deposit accounts, MMDA accounts and escrow deposits	17,698	15,928
Net change in time deposits and brokered deposits	10,011	624
Proceeds from sale of preferred stock - SBLF	0	13,000
Net change in short-term borrowings	9,000	(11,000)
Payments on long-term borrowings	(4,083)	(6,000)
Proceeds from long-term borrowings	4,000	4,101
Proceeds from exercise of stock options	0	66
Redemption of preferred stock - CPP	0	(6,771)
Purchase of CPP warrants from the US Treasury	(537)	0
Cash dividends paid to preferred shareholder - SBLF and CPP	(392)	(270)
Cash dividends paid to common shareholders	(225)	(224)
Net cash flows from financing activities	35,472	9,454
Change in cash and cash equivalents	3,856	2,025
Cash and cash equivalents at beginning of period	10,218	13,763
Cash and cash equivalents at end of period	14,074	15,788
Cash paid during the period for:
Interest	2,991	3,299
Income taxes	3	1,507
Non-Cash Investing Activity
Transfer of loans to foreclosed real estate	$ 291	$ 921

XML

Allowances for Loan Losses (Details) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Allowance for credit losses [Roll Forward]
Beginning Balance	$ 4,213,000	$ 4,006,000	$ 3,980,000	$ 3,648,000
Charge-offs	(91,000)	(178,000)	(361,000)	(398,000)
Recoveries	36,000	30,000	164,000	83,000
Provisions	275,000	145,000	650,000	670,000
Ending balance	4,433,000	4,003,000	4,433,000	4,003,000
Ending balance: related to loans individually evaluated for impairment	1,032,000	695,000	1,032,000	695,000
Ending balance: related to loans collectively evaluated for impairment	3,401,000	3,308,000	3,401,000	3,308,000
Loans receivable, Ending balance	323,669,000	293,674,000	323,669,000	293,674,000
Ending balance: individually evaluated for impairment	6,780,000	4,098,000	6,780,000	4,098,000
Ending balance: collectively evaluated for impairment	316,889,000	289,576,000	316,889,000	289,576,000
Family first lien residential mortgages 1 to 4 [Member]
Allowance for credit losses [Roll Forward]
Beginning Balance	777,000	687,000	664,000	750,000
Charge-offs	(61,000)	(72,000)	(96,000)	(131,000)
Recoveries	23,000	16,000	52,000	49,000
Provisions	27,000	23,000	146,000	(14,000)
Ending balance	766,000	654,000	766,000	654,000
Ending balance: related to loans individually evaluated for impairment	208,000	128,000	208,000	128,000
Ending balance: related to loans collectively evaluated for impairment	558,000	526,000	558,000	526,000
Loans receivable, Ending balance	169,062,000	152,841,000	169,062,000	152,841,000
Ending balance: individually evaluated for impairment	2,134,000	704,000	2,134,000	704,000
Ending balance: collectively evaluated for impairment	166,928,000	152,137,000	166,928,000	152,137,000
Residential mortgage construction [Member]
Allowance for credit losses [Roll Forward]
Beginning Balance	0	0	0	0
Charge-offs	0	0	0	0
Recoveries	0	0	0	0
Provisions	0	0	0	0
Ending balance	0	0	0	0
Ending balance: related to loans individually evaluated for impairment	0	0	0	0
Ending balance: related to loans collectively evaluated for impairment	0	0	0	0
Loans receivable, Ending balance	2,587,000	3,021,000	2,587,000	3,021,000
Ending balance: individually evaluated for impairment	0	0	0	0
Ending balance: collectively evaluated for impairment	2,587,000	3,021,000	2,587,000	3,021,000
Commercial real estate [Member]
Allowance for credit losses [Roll Forward]
Beginning Balance	1,587,000	1,625,000	1,346,000	1,204,000
Charge-offs	0	0	(54,000)	(71,000)
Recoveries	0	0	14,000	0
Provisions	200,000	(78,000)	481,000	414,000
Ending balance	1,787,000	1,547,000	1,787,000	1,547,000
Ending balance: related to loans individually evaluated for impairment	489,000	306,000	489,000	306,000
Ending balance: related to loans collectively evaluated for impairment	1,298,000	1,241,000	1,298,000	1,241,000
Loans receivable, Ending balance	79,770,000	70,685,000	79,770,000	70,685,000
Ending balance: individually evaluated for impairment	2,796,000	1,816,000	2,796,000	1,816,000
Ending balance: collectively evaluated for impairment	76,974,000	68,869,000	76,974,000	68,869,000
Commercial lines of credit [Member]
Allowance for credit losses [Roll Forward]
Beginning Balance	398,000	291,000	463,000	579,000
Charge-offs	0	(50,000)	0	(65,000)
Recoveries	0	1,000	50,000	1,000
Provisions	12,000	108,000	(103,000)	(165,000)
Ending balance	410,000	350,000	410,000	350,000
Ending balance: related to loans individually evaluated for impairment	0	0	0	0
Ending balance: related to loans collectively evaluated for impairment	410,000	350,000	410,000	350,000
Loans receivable, Ending balance	13,471,000	13,772,000	13,471,000	13,772,000
Ending balance: individually evaluated for impairment	374,000	74,000	374,000	74,000
Ending balance: collectively evaluated for impairment	13,097,000	13,698,000	13,097,000	13,698,000
Other commercial and industrial loans [Member]
Allowance for credit losses [Roll Forward]
Beginning Balance	698,000	831,000	649,000	501,000
Charge-offs	0	0	(89,000)	0
Recoveries	0	0	0	0
Provisions	112,000	(132,000)	250,000	198,000
Ending balance	810,000	699,000	810,000	699,000
Ending balance: related to loans individually evaluated for impairment	269,000	200,000	269,000	200,000
Ending balance: related to loans collectively evaluated for impairment	541,000	499,000	541,000	499,000
Loans receivable, Ending balance	27,509,000	22,631,000	27,509,000	22,631,000
Ending balance: individually evaluated for impairment	968,000	1,056,000	968,000	1,056,000
Ending balance: collectively evaluated for impairment	26,541,000	21,575,000	26,541,000	21,575,000
Municipal [Member]
Allowance for credit losses [Roll Forward]
Beginning Balance	2,000	2,000	2,000	3,000
Charge-offs	0	0	0	0
Recoveries	0	0	0	0
Provisions	0	0	0	(1,000)
Ending balance	2,000	2,000	2,000	2,000
Ending balance: related to loans individually evaluated for impairment	0	0	0	0
Ending balance: related to loans collectively evaluated for impairment	2,000	2,000	2,000	2,000
Loans receivable, Ending balance	5,063,000	2,139,000	5,063,000	2,139,000
Ending balance: individually evaluated for impairment	0	0	0	0
Ending balance: collectively evaluated for impairment	5,063,000	2,139,000	5,063,000	2,139,000
Home equity and junior liens [Member]
Allowance for credit losses [Roll Forward]
Beginning Balance	501,000	460,000	501,000	424,000
Charge-offs	0	(19,000)	(8,000)	(43,000)
Recoveries	1,000	2,000	6,000	7,000
Provisions	(24,000)	73,000	(21,000)	128,000
Ending balance	478,000	516,000	478,000	516,000
Ending balance: related to loans individually evaluated for impairment	60,000	61,000	60,000	61,000
Ending balance: related to loans collectively evaluated for impairment	418,000	455,000	418,000	455,000
Loans receivable, Ending balance	22,580,000	24,842,000	22,580,000	24,842,000
Ending balance: individually evaluated for impairment	502,000	448,000	502,000	448,000
Ending balance: collectively evaluated for impairment	22,078,000	24,394,000	22,078,000	24,394,000
Other Consumer [Member]
Allowance for credit losses [Roll Forward]
Beginning Balance	131,000	116,000	162,000	89,000
Charge-offs	(30,000)	(37,000)	(114,000)	(88,000)
Recoveries	12,000	11,000	42,000	26,000
Provisions	65,000	60,000	88,000	123,000
Ending balance	178,000	150,000	178,000	150,000
Ending balance: related to loans individually evaluated for impairment	6,000	0	6,000	0
Ending balance: related to loans collectively evaluated for impairment	172,000	150,000	172,000	150,000
Loans receivable, Ending balance	3,627,000	3,743,000	3,627,000	3,743,000
Ending balance: individually evaluated for impairment	6,000	0	6,000	0
Ending balance: collectively evaluated for impairment	3,621,000	3,743,000	3,621,000	3,743,000
Unallocated [Member]
Allowance for credit losses [Roll Forward]
Beginning Balance	119,000	(6,000)	193,000	98,000
Charge-offs	0	0	0	0
Recoveries	0	0	0	0
Provisions	(117,000)	91,000	(191,000)	(13,000)
Ending balance	2,000	85,000	2,000	85,000
Ending balance: related to loans individually evaluated for impairment	0	0	0	0
Ending balance: related to loans collectively evaluated for impairment	2,000	85,000	2,000	85,000
Loans receivable, Ending balance	0	0	0	0
Ending balance: individually evaluated for impairment	0		0
Ending balance: collectively evaluated for impairment	$ 0	$ 0	$ 0	$ 0

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Consolidated Statements Of Condition (Unaudited) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
ASSETS :
Cash and due from banks	$ 9,349	$ 7,093
Interest earning deposits	4,725	3,125
Total cash and cash equivalents	14,074	10,218
Interest earning time deposits	2,000	2,000
Investment securities, at fair value	114,312	100,395
Federal Home Loan Bank stock, at cost	1,910	1,528
Loans	324,150	304,750
Less: Allowance for loan losses	4,433	3,980
Loans receivable, net	319,717	300,770
Premises and equipment, net	10,197	10,697
Accrued interest receivable	1,921	1,685
Foreclosed real estate	429	536
Goodwill	3,840	3,840
Bank owned life insurance	8,137	7,939
Other assets	2,826	3,372
Total assets	479,363	442,980
Deposits:
Interest-bearing	349,355	328,976
Noninterest-bearing	44,483	37,153
Total deposits	393,838	366,129
Short-term borrowings	9,000	0
Long-term borrowings	25,991	26,074
Junior subordinated debentures	5,155	5,155
Accrued interest payable	129	145
Other liabilities	4,311	7,636
Total liabilities	438,424	405,139
Shareholders' equity:
Preferred stock - SBLF, par value $0.01 per share; $1,000 liquidation preference; 13,000 shares authorized; 13,000 shares issued and outstanding	13,000	13,000
Common stock, par value $0.01; authorized 10,000,000 shares; 2,979,969 and 2,617,682 shares issued and outstanding, respectively	30	30
Additional paid in capital	8,098	8,730
Retained earnings	26,114	24,618
Accumulated other comprehensive loss	(505)	(2,664)
Unearned ESOP	(964)	(1,039)
Treasury stock, at cost; 362,287 shares	(4,834)	(4,834)
Total shareholders' equity	40,939	37,841
Total liabilities and shareholders' equity	$ 479,363	$ 442,980

XML

Consolidated Statements of Changes in Shareholders' Equity (Unaudited) (USD $) In Thousands, unless otherwise specified	Preferred Stock [Member]	Common Stock [Member]	Additional Paid-in Capital [Member]	Retained Earnings [Member]	Accumulated Other Comprehensive Loss [Member]	Unearned ESOP [Member]	Treasury Stock [Member]	Total
Balance at Dec. 31, 2010	$ 6,225	$ 30	$ 8,615	$ 24,163	$ (1,939)	$ 0	$ (6,502)	$ 30,592
Comprehensive Income [Abstract]
Net income				1,887				1,887
Other comprehensive income (loss), net of tax:
Unrealized holding gains on securities available for sale					982			982
Unrealized holding loss on financial derivative					(57)			(57)
Retirement plan amortization and transition obligation recognized in plan expenses					120			120
Total comprehensive income								2,932
Sale Of Preferred Stock Sblf	13,000							13,000
Redemption Of Cpp Preferred Stock	(6,771)							(6,771)
Preferred stock dividends - SBLF	546			(546)				0
Preferred stock dividends CPP				(270)				(270)
Sale Of Treasury Stock To Esop				(566)		(1,102)	1,668	0
ESOP shares earned			1			31		32
Stock based compensation			25					25
Stock options exercised			66					66
Common stock dividends declared				(224)				(224)
Balance at Sep. 30, 2011	13,000	30	8,707	24,444	(894)	(1,071)	(4,834)	39,382
Balance at Dec. 31, 2011	13,000	30	8,730	24,618	(2,664)	(1,039)	(4,834)	37,841
Comprehensive Income [Abstract]
Net income				1,919				1,919
Other comprehensive income (loss), net of tax:
Unrealized holding gains on securities available for sale					823			823
Unrealized holding loss on financial derivative					(6)			(6)
Retirement plan amortization and transition obligation recognized in plan expenses					191			191
Defined benefit plan freeze					1,151			1,151
Total comprehensive income								4,078
Purchase of CPP Warrants from Treasury			(706)	169				(537)
Preferred stock dividends - SBLF				(367)				(367)
ESOP shares earned			6			75		81
Stock based compensation			68					68
Common stock dividends declared				(225)				(225)
Balance at Sep. 30, 2012	$ 13,000	$ 30	$ 8,098	$ 26,114	$ (505)	$ (964)	$ (4,834)	$ 40,939

XML

Fair Value Measurements, Fair Value Inputs, Quantitative Information (Details) (Fair Value, Inputs, Level 3 [Member])	9 Months Ended
	Sep. 30, 2012
Appraisal collateral - appraisal approach [Member] | Maximum [Member] | Impaired loans [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Fair Value Inputs, Discount Rate (in hundredths)	35.00%
Appraisal collateral - appraisal approach [Member] | Maximum [Member] | Foreclosed real estate [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Fair Value Inputs, Discount Rate (in hundredths)	15.00%
Appraisal collateral - appraisal approach [Member] | Minimum [Member] | Impaired loans [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Fair Value Inputs, Discount Rate (in hundredths)	5.00%
Appraisal collateral - appraisal approach [Member] | Minimum [Member] | Foreclosed real estate [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Fair Value Inputs, Discount Rate (in hundredths)	0.00%
Appraisal collateral - appraisal approach [Member] | Weighted Average [Member] | Impaired loans [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Fair Value Inputs, Discount Rate (in hundredths)	(24.00%)
Appraisal collateral - appraisal approach [Member] | Weighted Average [Member] | Foreclosed real estate [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Fair Value Inputs, Discount Rate (in hundredths)	(13.00%)
Appraisal collateral - cost to sell approach [Member] | Maximum [Member] | Impaired loans [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Fair Value Inputs, Discount Rate (in hundredths)	17.00%
Appraisal collateral - cost to sell approach [Member] | Maximum [Member] | Foreclosed real estate [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Fair Value Inputs, Discount Rate (in hundredths)	7.00%
Appraisal collateral - cost to sell approach [Member] | Minimum [Member] | Impaired loans [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Fair Value Inputs, Discount Rate (in hundredths)	6.00%
Appraisal collateral - cost to sell approach [Member] | Minimum [Member] | Foreclosed real estate [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Fair Value Inputs, Discount Rate (in hundredths)	0.00%
Appraisal collateral - cost to sell approach [Member] | Weighted Average [Member] | Impaired loans [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Fair Value Inputs, Discount Rate (in hundredths)	(13.00%)
Appraisal collateral - cost to sell approach [Member] | Weighted Average [Member] | Foreclosed real estate [Member]
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Fair Value Inputs, Discount Rate (in hundredths)	(6.00%)

XML

Pension and Postretirement Benefits (Tables)

9 Months Ended

Sep. 30, 2012

Pension and Postretirement Benefits [Abstract]

Composition of net periodic pension and postretirement plan costs

The composition of net periodic pension plan and postretirement plan costs for the indicated periods is as follows:

	Pension Benefits						Postretirement Benefits				Pension Benefits						Postretirement Benefits
	For the three months ended September 30,										For the nine months ended September 30,
(In thousands)	2012			2011			2012		2011		2012			2011			2012		2011
Service cost	$	-		$	82		$	-	$	-	$	166		$	246		$	-	$	-
Interest cost		93			103			4		5		305			310			13		15
Expected return on plan assets		(205	)		(156	)		-		-		(604	)		(468	)		-		-
Amortization of net losses		74			62			4		5		307			185			11		14
Net periodic plan cost	$	(38	)	$	91		$	8	$	10	$	174		$	273		$	24	$	29

XML

Fair Value Measurements, Fair Value Measurement By Balance Sheet Groupings (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Carrying (Reported) Amount, Fair Value Disclosure [Member]
Off-balance sheet instruments [Abstract]
Standby letters of credit	$ 0	$ 0
Commitments to extend credit	0	0
Estimate of Fair Value, Fair Value Disclosure [Member]
Off-balance sheet instruments [Abstract]
Standby letters of credit	0	0
Commitments to extend credit	0	0
Fair Value, Inputs, Level 1 [Member] | Carrying (Reported) Amount, Fair Value Disclosure [Member]
Financial assets [Abstract]
Cash and cash equivalents	14,074	10,218
Interest earning time deposits	2,000	2,000
Investment securities	2,776	2,347
Accrued interest receivable	1,921	1,685
Financial liabilities [Abstract]
Demand Deposits, Savings, NOW and MMDA	230,773	214,318
Accrued interest payable	129	145
Fair Value, Inputs, Level 1 [Member] | Estimate of Fair Value, Fair Value Disclosure [Member]
Financial assets [Abstract]
Cash and cash equivalents	14,074	10,218
Interest earning time deposits	2,000	2,000
Investment securities	2,776	2,347
Accrued interest receivable	1,921	1,685
Financial liabilities [Abstract]
Demand Deposits, Savings, NOW and MMDA	230,773	214,318
Accrued interest payable	129	145
Fair Value, Inputs, Level 2 [Member] | Carrying (Reported) Amount, Fair Value Disclosure [Member]
Financial assets [Abstract]
Investment securities	111,536	98,048
Federal Home Loan Bank stock	1,910	1,528
Financial liabilities [Abstract]
Time Deposits	163,065	151,811
Borrowed funds	34,991	26,074
Junior subordinated debentures	5,155	5,155
Interest rate swap derivative	210	200
Fair Value, Inputs, Level 2 [Member] | Estimate of Fair Value, Fair Value Disclosure [Member]
Financial assets [Abstract]
Investment securities	111,536	98,048
Federal Home Loan Bank stock	1,910	1,528
Financial liabilities [Abstract]
Time Deposits	165,604	154,836
Borrowed funds	36,031	27,322
Junior subordinated debentures	5,155	5,155
Interest rate swap derivative	210	200
Fair Value, Inputs, Level 3 [Member] | Carrying (Reported) Amount, Fair Value Disclosure [Member]
Financial assets [Abstract]
Net loans	319,717	300,770
Fair Value, Inputs, Level 3 [Member] | Estimate of Fair Value, Fair Value Disclosure [Member]
Financial assets [Abstract]
Net loans	$ 333,345	$ 310,218

XML

Allowances for Loan Losses (Tables)

9 Months Ended

Sep. 30, 2012

Allowances for Loan Losses [Abstract]

Changes in the allowance for loan losses

Changes in the allowance for loan losses for the indicated periods and information pertaining to the allocation of the allowance for loan losses and balances of the allowance for loan losses and loans receivable based on individual and collective impairment evaluation by loan portfolio class at the indicated dates are summarized in the tables below.  An allocation of a portion of the allowance to a given portfolio class does not limit the Company's ability to absorb losses in another portfolio class.

	For the three months ended September 30, 2012
	1-4 family
	first-lien			Residential									Other
	residential			construction			Commercial			Commercial			commercial
(In thousands)	mortgage			mortgage			real estate			lines of credit			and industrial
Allowance for loan losses:
Beginning Balance	$	777		$	-		$	1,587		$	398		$	698
Charge-offs		(61	)		-			-			-			-
Recoveries		23			-			-			-			-
Provisions		27			-			200			12			112
Ending balance	$	766		$	-		$	1,787		$	410		$	810
Ending balance: related to loans
individually evaluated for impairment		208			-			489			-			269
Ending balance: related to loans
collectively evaluated for impairment	$	558		$	-		$	1,298		$	410		$	541
Loans receivables:
Ending balance	$	169,062		$	2,587		$	79,770		$	13,471		$	27,509
Ending balance: individually
evaluated for impairment		2,134			-			2,796			374			968
Ending balance: collectively
evaluated for impairment	$	166,928		$	2,587		$	76,974		$	13,097		$	26,541
				Home equity			Other
	Municipal			and junior liens			Consumer			Unallocated			Total
Allowance for loan losses:
Beginning Balance	$	2		$	501		$	131		$	119		$	4,213
Charge-offs		-			-			(30	)		-			(91	)
Recoveries		-			1			12			-			36
Provisions		-			(24	)		65			(117	)		275
Ending balance	$	2		$	478		$	178		$	2		$	4,433
Ending balance: related to loans
individually evaluated for impairment		-			60			6			-			1,032
Ending balance: related to loans
collectively evaluated for impairment	$	2		$	418		$	172		$	2		$	3,401
Loans receivables:
Ending balance	$	5,063		$	22,580		$	3,627		$	-		$	323,669
Ending balance: individually
evaluated for impairment		-			502			6			-			6,780
Ending balance: collectively
evaluated for impairment	$	5,063		$	22,078		$	3,621		$	-		$	316,889

	For the nine months ended September 30, 2012
	1-4 family
	first-lien			Residential									Other
	residential			construction			Commercial			Commercial			commercial
(In thousands)	mortgage			mortgage			real estate			lines of credit			and industrial
Allowance for loan losses:
Beginning Balance	$	664		$	-		$	1,346		$	463		$	649
Charge-offs		(96	)		-			(54	)		-			(89	)
Recoveries		52			-			14			50			-
Provisions		146			-			481			(103	)		250
Ending balance	$	766		$	-		$	1,787		$	410		$	810
				Home equity			Other
	Municipal			and junior liens			Consumer			Unallocated			Total
Allowance for loan losses:
Beginning Balance	$	2		$	501		$	162		$	193		$	3,980
Charge-offs		-			(8	)		(114	)		-			(361	)
Recoveries		-			6			42			-			164
Provisions		-			(21	)		88			(191	)		650
Ending balance	$	2		$	478		$	178		$	2		$	4,433

	For the three months ended September 30, 2011
	1-4 family
	first-lien			Residential									Other
	residential			construction			Commercial			Commercial			commercial
(In thousands)	mortgage			mortgage			real estate			lines of credit			and industrial
Allowance for loan losses:
Beginning Balance	$	687		$	-		$	1,625		$	291		$	831
Charge-offs		(72	)		-			-			(50	)		-
Recoveries		16			-			-			1			-
Provisions		23			-			(78	)		108			(132	)
Ending balance	$	654		$	-		$	1,547		$	350		$	699
Ending balance: related to loans
individually evaluated for impairment		128			-			306			-			200
Ending balance: related to loans
collectively evaluated for impairment	$	526		$	-		$	1,241		$	350		$	499
Loans receivables:
Ending balance	$	152,841		$	3,021		$	70,685		$	13,772		$	22,631
Ending balance: individually
evaluated for impairment		704			-			1,816			74			1,056
Ending balance: collectively
evaluated for impairment	$	152,137		$	3,021		$	68,869		$	13,698		$	21,575
				Home equity			Other
	Municipal			and junior liens			Consumer			Unallocated			Total
Allowance for loan losses:
Beginning Balance	$	2		$	460		$	116		$	(6	)	$	4,006
Charge-offs		-			(19	)		(37	)		-			(178	)
Recoveries		-			2			11			-			30
Provisions		-			73			60			91			145
Ending balance	$	2		$	516		$	150		$	85		$	4,003
Ending balance: related to loans
individually evaluated for impairment		-			61			-			-			695
Ending balance: related to loans
collectively evaluated for impairment	$	2		$	455		$	150		$	85		$	3,308
Loans receivables:
Ending balance	$	2,139		$	24,842		$	3,743		$	-		$	293,674
Ending balance: individually
evaluated for impairment		-			448			-						4,098
Ending balance: collectively
evaluated for impairment	$	2,139		$	24,394		$	3,743		$	-		$	289,576

	For the nine months ended September 30, 2011
	1-4 family
	first-lien			Residential									Other
	residential			mortgage			Commercial			Commercial			commercial
(In thousands)	mortgage			construction			real estate			lines of credit			and industrial
Allowance for loan losses:
Beginning Balance	$	750		$	-		$	1,204		$	579		$	501
Charge-offs		(131	)		-			(71	)		(65	)		-
Recoveries		49			-			-			1			-
Provisions		(14	)		-			414			(165	)		198
Ending balance	$	654		$	-		$	1,547		$	350		$	699
				Home equity			Other
	Municipal			and junior liens			Consumer			Unallocated			Total
Allowance for loan losses:
Beginning Balance	$	3		$	424		$	89		$	98		$	3,648
Charge-offs		-			(43	)		(88	)		-			(398	)
Recoveries		-			7			26			-			83
Provisions		(1	)		128			123			(13	)		670
Ending balance	$	2		$	516		$	150		$	85		$	4,003

XML

Consolidated Statements of Changes in Shareholders' Equity (Unaudited) (Parenthetical) (USD $) In Thousands, except Share data, unless otherwise specified	9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011
Other Comprehensive Income (loss), net of tax:
Unrealized holding gains on securities available for sale, net of tax expense	$ 549	$ 657
Unrealized holding loss on financial derivative, net of tax benefit	4	38
Retirement plan amortization and transition obligation recognized in plan expenses, net of tax expense	127	80
Defined benefit plan freeze, net of tax expense	$ 768	$ 0
ESOP shares earned (in shares)	8,520	3,445
Common stock dividend declared (in dollars per share)	$ 0.09	$ 0.09

XML

Consolidated Statements Of Condition (Unaudited) (Parenthetical) (USD $)	Sep. 30, 2012	Dec. 31, 2011
Shareholders' equity:
Preferred stock SBLF par value (dollars per share)	$ 0.01	$ 0.01
Preferred stock SBLF liquidation preference	$ 1,000	$ 1,000
Preferred stock-SBLF shares authorized (in shares)	13,000	13,000
Preferred stock-SBLF, shares issued (in shares)	13,000	13,000
Preferred stock-SBLF, shares outstanding (in shares)	13,000	13,000
Common Stock, Par or Stated Value Per Share (in dollars per share)	$ 0.01	$ 0.01
Common Stock, Shares Authorized (in shares)	10,000,000	10,000,000
Common Stock, Shares, Issued (in shares)	2,979,969	2,979,969
Common Stock, Shares, Outstanding (in shares)	2,617,682	2,617,682
Treasury Stock, Shares (in shares)	362,287	362,287

XML

Fair Value Measurements

9 Months Ended

Sep. 30, 2012

Fair Value Measurements [Abstract]

Fair Value Measurements

(9)  Fair Value Measurements

Accounting guidance related to fair value measurements and disclosures specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect our market assumptions. These two types of inputs have created the following fair value hierarchy:

Level 1 – Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

Level 2 – Quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets.

Level 3 – Model-derived valuations in which one or more significant inputs or significant value drivers are unobservable.

An asset's or liability's level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.

In determining fair value, the Company utilizes valuation techniques that maximizes the use of observable inputs, minimizes the use of unobservable inputs to the extent possible, and considers counterparty credit risk in its assessment of fair value.

The Company used the following methods and significant assumptions to estimate fair value:

Investment securities:  The fair values of securities available for sale are obtained from an independent third party and are based on quoted prices on nationally recognized exchange where available (Level 1).  If quoted prices are not available, fair values are measured by utilizing matrix pricing, which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted prices for specific securities but rather by relying on the securities' relationship to other benchmark quoted securities (Level 2).  Management made no adjustment to the fair value quotes that were received from the independent third party pricing service.

Interest rate swap derivative:  The fair value of the interest rate swap derivative is calculated based on a discounted cash flow model. All future floating cash flows are projected and both floating and fixed cash flows are discounted to the valuation date.  The curve utilized for discounting and projecting is built by obtaining publicly available third party market quotes for various swap maturity terms.

Impaired loans: Impaired loans are those loans in which the Company has measured impairment generally based on the fair value of the loan's collateral.  Fair value is generally determined based upon independent third party appraisals of the properties and/or estimates by management of working capital collateral or discounted cash flows based upon expected proceeds.  Management modifies the appraised values, if needed, to take into account recent developments in the market or other factors, such as changes in absorption rates or market conditions from the time of valuation, and anticipated sales values considering management's plans for disposition.  Such modifications to the appraised values could result in lower valuations of such collateral. Estimated costs to sell are based on current amounts of disposal costs for similar assets.  These measurements are classified as Level 3 within the valuation hierarchy. Impaired loans are subject to nonrecurring fair value adjustment upon initial recognition or subsequent impairment.  A portion of the allowance for loan losses is allocated to impaired loans if the value of such loans is deemed to be less than the unpaid balance.

Foreclosed real estate:  Fair values for foreclosed real estate are initially recorded based on market value evaluations by third parties, less costs to sell ("initial cost basis").  Any write-downs required when the related loan receivable is exchanged for the underlying real estate collateral at the time of transfer to foreclosed real estate are charged to the allowance for loan losses.  Values are derived from appraisals of underlying collateral or discounted cash flow analysis.   Subsequent to foreclosure, valuations are updated periodically and assets are marked to current fair value, not to exceed the initial cost basis.  In the determination of fair value subsequent to foreclosure, management also considers other factors or recent developments, such as changes in absorption rates and market conditions from the time of valuation, and anticipated sales values considering management's plans for disposition, which could result in adjustment to lower the property value estimates indicated in the appraisals.  These measurements are classified as Level 3 within the fair value hierarchy.

The following tables summarize assets measured at fair value on a recurring basis as of the indicated dates, segregated by the level of valuation inputs within the hierarchy utilized to measure fair value:

	At September 30, 2012
								Total Fair
(In thousands)	Level 1		Level 2			Level 3		Value
Debt investment securities:
US Treasury, agencies and GSEs	$	-	$	5,202		$	-	$	5,202
State and political subdivisions		-		27,114			-		27,114
Corporate		-		23,899			-		23,899
Residential mortgage-backed - US agency		-		54,564			-		54,564
Residential mortgage-backed - private label		-		357			-		357
Equity investment securities:
Mutual funds:
Ultra short mortgage fund		1,300		-			-		1,300
Large cap equity fund		1,148		-			-		1,148
Other mutual funds		-		297			-		297
Common stock - financial services industry		31		400			-		431
Total investment securities	$	2,479	$	111,833		$	-	$	114,312
Interest rate swap derivative	$	-	$	(210	)	$	-	$	(210	)
	At December 31, 2011
								Total Fair
(In thousands)	Level 1		Level 2			Level 3		Value
Debt investment securities:
US Treasury, agencies and GSEs	$	-	$	5,073		$	-	$	5,073
State and political subdivisions		-		20,304			-		20,304
Corporate		-		20,434			-		20,434
Residential mortgage-backed - US agency		-		51,056			-		51,056
Residential mortgage-backed - private label		-		519			-		519
Equity investment securities:
Mutual funds:
Ultra short mortgage fund		1,298		-			-		1,298
Large cap equity fund		1,024		-			-		1,024
Other mutual funds		-		243			-		243
Common stock - financial services industry		25		419			-		444
Total investment securities	$	2,347	$	98,048		$	-	$	100,395
Interest rate swap derivative	$	-	$	(200	)	$	-	$	(200	)

The following tables summarize assets measured at fair value on a nonrecurring basis as of the indicated dates, segregated by the level of valuation inputs within the hierarchy utilized to measure fair value:

	At September 30, 2012
							Total Fair
(In thousands)	Level 1		Level 2		Level 3		Value
Impaired loans	$	-	$	-	$	2,070	$	2,070
Foreclosed real estate	$	-	$	-	$	305	$	305
	At December 31, 2011
							Total Fair
(In thousands)	Level 1		Level 2		Level 3		Value
Impaired loans	$	-	$	-	$	1,608	$	1,608
Foreclosed real estate	$	-	$	-	$	165	$	165

The following table presents additional quantitative information about assets measured at fair value on a nonrecurring basis and for which Level 3 inputs were used to determine fair value.

		Quantitative Information about Level 3 Fair Value Measurements
	Valuation	Unobservable	Range
	Techniques	Input	(Weighted Avg.)
At September 30, 2012
Impaired loans	Appraisal of collateral	Appraisal Adjustments		5% - 35%  (24%)
		Costs to Sell		6%  - 17% (13%)
Foreclosed real estate	Appraisal of collateral	Appraisal Adjustments		0% - 15% (13%)
		Costs to Sell		0%     - 7% (6%)

There have been no transfers of assets in or out of any fair value measurement level.

Required disclosures include fair value information of financial instruments, whether or not recognized in the consolidated statement of condition, for which it is practicable to estimate that value.  In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the instrument.

Management uses its best judgment in estimating the fair value of the Company's financial instruments; however, there are inherent weaknesses in any estimation technique.  Therefore, for substantially all financial instruments, the fair value estimates herein are not necessarily indicative of the amounts the Company could have realized in a sales transaction on the dates indicated.  The estimated fair value amounts have been measured as of their respective period-ends, and have not been re-evaluated or updated for purposes of these financial statements subsequent to those respective dates.  As such, the estimated fair values of these financial instruments subsequent to the respective reporting dates may be different than the amounts reported at each period-end.

The following information should not be interpreted as an estimate of the fair value of the entire Company since a fair value calculation is only provided for a limited portion of the Company's assets and liabilities.  Due to a wide range of valuation techniques and the degree of subjectivity used in making the estimates, comparisons between the Company's disclosures and those of other companies may not be meaningful.  The Company, in estimating its fair value disclosures for financial instruments, used the following methods and assumptions:

Cash and cash equivalents – The carrying amounts of these assets approximate their fair value.

Interest earning time deposits – The carrying amounts of these assets approximate their fair value.

Investment securities – The fair values of securities available for sale are obtained from an independent third party and are based on quoted prices on nationally recognized exchange where available (Level 1).  If quoted prices are not available, fair values are measured by utilizing matrix pricing, which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted prices for specific securities, but rather by relying on the securities' relationship to other benchmark quoted securities (Level 2).  Management made no adjustment to the fair value quotes that were received from the independent third party pricing service.

Federal Home Loan Bank stock – The carrying amount of these assets approximates their fair value.

Loans – For variable-rate loans that re-price frequently, fair value is based on carrying amounts.  The fair value of other loans (for example, fixed-rate commercial real estate loans, mortgage loans, and commercial and industrial loans) is estimated using discounted cash flow analysis, based on interest rates currently being offered in the market for loans with similar terms to borrowers of similar credit quality.  Loan value estimates include judgments based on expected prepayment rates.  The measurement of the fair value of loans, including impaired loans, is classified within Level 3 of the fair value hierarchy.

Accrued interest receivable and payable – The carrying amount of these assets approximates their fair value.

Interest rate swap derivative – The fair value of the interest rate swap derivative is obtained from a third party pricing agent and is calculated based on a discounted cash flow model. All future floating cash flows are projected and both floating and fixed cash flows are discounted to the valuation date.  The curve utilized for discounting and projecting is built by obtaining publicly available third party market quotes for various swap maturity terms, and therefore is classified within Level 2 of the fair value hierarchy.

Deposits – The fair values disclosed for demand deposits (e.g., interest-bearing and noninterest-bearing checking, passbook savings and certain types of money management accounts) are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amounts) and are classified within Level 1 of the fair value hierarchy.  Fair values for fixed-rate certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered in the market on certificates of deposits to a schedule of aggregated expected monthly maturities on time deposits.  Measurements of the fair value of time deposits are classified within Level 2 of the fair value hierarchy.

Borrowings – Fixed/variable term "bullet" structures are valued using a replacement cost of funds approach.  These borrowings are discounted to the FHLBNY advance curve.  Option structured borrowings' fair values are determined by the FHLB for borrowings that include a call or conversion option.  If market pricing is not available from this source, current market indications from the FHLBNY are obtained and the borrowings are discounted to the FHLBNY advance curve less an appropriate spread to adjust for the option. These measurements are classified as Level 2 within the fair value hierarchy.

Junior subordinated debentures – Current economic conditions have rendered the market for this liability inactive.  As such, we are unable to determine a good estimate of fair value.  Since the rate paid on the debentures held is lower than what would be required to secure an interest in the same debt at year end, and we are unable to obtain a current fair value, we have disclosed that the carrying value approximates the fair value.

Off-balance sheet instruments – Fair values for the Company's off-balance sheet instruments are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties' credit standing.  Such fees were not material at September 30, 2012 and December 31, 2011.

The carrying amounts and fair values of the Company's financial instruments as of the indicated dates are presented in the following table:

			September 30, 2012				December 31, 2011
	Fair Value		Carrying		Estimated		Carrying		Estimated
(Dollars In thousands)	Hierarchy		Amounts		Fair Values		Amounts		Fair Values
Financial assets:
Cash and cash equivalents		1	$	14,074	$	14,074	$	10,218	$	10,218
Interest earning time deposits		1		2,000		2,000		2,000		2,000
Investment securities		1		2,776		2,776		2,347		2,347
Investment securities		2		111,536		111,536		98,048		98,048
Federal Home Loan Bank stock		2		1,910		1,910		1,528		1,528
Net loans		3		319,717		333,345		300,770		310,218
Accrued interest receivable		1		1,921		1,921		1,685		1,685
Financial liabilities:
Demand Deposits, Savings, NOW and MMDA		1	$	230,773	$	230,773	$	214,318	$	214,318
Time Deposits		2		163,065		165,604		151,811		154,836
Borrowings		2		34,991		36,031		26,074		27,322
Junior subordinated debentures		2		5,155		5,155		5,155		5,155
Accrued interest payable		1		129		129		145		145
Interest rate swap derivative		2		210		210		200		200
Off-balance sheet instruments:
Standby letters of credit			$	-	$	-	$	-	$	-
Commitments to extend credit			$	-	$	-	$	-	$	-

XML

Document and Entity Information	9 Months Ended
	Sep. 30, 2012	Nov. 12, 2012
Document and Entity Information [Abstract]
Entity Registrant Name	PATHFINDER BANCORP INC
Entity Central Index Key	0001046188
Current Fiscal Year End Date	--12-31
Entity Well-known Seasoned Issuer	No
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		2,617,682
Document Fiscal Year Focus	2012
Document Fiscal Period Focus	Q3
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Sep. 30, 2012

XML

Interest Rate Derivative

9 Months Ended

Sep. 30, 2012

Interest Rate Derivative [Abstract]

Interest Rate Derivative

(10)  Interest Rate Derivatives

Derivative instruments are entered into primarily as a risk management tool of the Company.  Financial derivatives are recorded at fair value as other assets and other liabilities.  The accounting for changes in the fair value of a derivative depends on whether it has been designated and qualifies as part of a hedging relationship. For a fair value hedge, changes in the fair value of the derivative instrument and changes in the fair value of the hedged asset or liability are recognized currently in earnings.  For a cash flow hedge, changes in the fair value of the derivative instrument, to the extent that it is effective, are recorded in other comprehensive income and subsequently reclassified to earnings as the hedged transaction impacts net income.  Any ineffective portion of a cash flow hedge is recognized currently in earnings.  See Note 9 for further discussion of the fair value of the interest rate derivative.

The Company has $5 million of floating rate trust preferred debt indexed to 3-month LIBOR.  As a result, it is exposed to variability in cash flows related to changes in projected interest payments caused by changes in the benchmark interest rate.  During the fourth quarter of fiscal 2009, the Company entered into an interest rate swap agreement, with a $2 million notional amount, to convert a portion of the variable-rate junior subordinated debentures to a fixed rate for a term of approximately 7 years at a rate of 4.96%.  The derivative is designated as a cash flow hedge.  The hedging strategy ensures that changes in cash flows from the derivative will be highly effective at offsetting changes in interest expense from the hedged exposure.

The following table summarizes the fair value of outstanding derivatives and their presentation on the statements of condition:

		September 30,		December 31,
(In thousands)		2012		2011
Cash flow hedge:
	Other liabilities	$	210	$	200

The change in accumulated other comprehensive loss on a pretax basis and the impact on earnings from the interest rate swap that qualifies as a cash flow hedge for the periods indicated below were as follows

	Three Months Ended September 30,
(In thousands)	2012			2011
Balance as of June 30:	$	(205	)	$	(135	)
Amount of losses recognized in other comprehensive income		(18	)		(87	)
Amount of loss reclassified from other comprehensive income
and recognized as interest expense		13			17
Balance as of September 30:	$	(210	)	$	(205	)
	Nine Months Ended September 30,
(In thousands)		2012			2011
Balance as of January 1:	$	(200	)	$	(110	)
Amount of losses recognized in other comprehensive income		(53	)		(141	)
Amount of loss reclassified from other comprehensive income
and recognized as interest expense		43			46
Balance as of September 30:	$	(210	)	$	(205	)

No amount of ineffectiveness has been included in earnings and the changes in fair value have been recorded in other comprehensive income.  Some, or all, of the amount included in accumulated other comprehensive loss would be reclassified into current earnings should a portion of, or the entire hedge no longer be considered effective, but at this time, management expects the hedge to remain fully effective during the remaining term of the swap.

The Company posted cash, of $200,000, under arrangements to satisfy collateral requirements associated with the interest rate swap contract.

XML

Consolidated Statements Of Income (Unaudited) (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Interest and dividend income:
Loans, including fees	$ 3,974	$ 4,089	$ 11,962	$ 11,945
Debt securities:
Taxable	439	489	1,386	1,687
Tax-exempt	190	81	535	230
Dividends	38	33	97	101
Interest earnings time deposits	6	0	18	0
Federal funds sold and interest earning deposits	1	1	3	3
Total interest income	4,648	4,693	14,001	13,966
Interest expense:
Interest on deposits	714	810	2,211	2,444
Interest on long-term borrowings	243	259	750	816
Interest on short-term borrowings	6	4	14	22
Total interest expense	963	1,073	2,975	3,282
Net interest income	3,685	3,620	11,026	10,684
Provision for loan losses	275	145	650	670
Net interest income after provision for loan losses	3,410	3,475	10,376	10,014
Noninterest income:
Service charges on deposit accounts	285	283	838	854
Earnings and gain on bank owned life insurance	46	45	235	162
Loan servicing fees	51	63	159	155
Net gains on sales and redemptions of investment securities	18	469	179	791
Net gains (losses) on sales of loans and foreclosed real estate	6	(80)	31	(40)
Debit card interchange fees	105	93	308	273
Other charges, commissions & fees	150	130	423	403
Total noninterest income	661	1,003	2,173	2,598
Noninterest expense:
Salaries and employee benefits	1,733	1,787	5,576	5,260
Building occupancy	348	316	1,077	1,038
Data processing	390	349	1,072	1,054
Professional and other services	174	219	473	504
Advertising	108	91	268	366
FDIC assessments	78	(8)	233	316
Audits and exams	73	62	184	181
Other expenses	274	392	1,106	1,175
Total noninterest expenses	3,178	3,208	9,989	9,894
Income before income taxes	893	1,270	2,560	2,718
Provision for income taxes	223	396	641	831
Net income	670	874	1,919	1,887
Preferred stock dividends and discount accretion	113	581	367	816
Net income available to common shareholders	$ 557	$ 293	$ 1,552	$ 1,071
Earnings per common share - basic (in dollars per share)	$ 0.22	$ 0.12	$ 0.62	$ 0.43
Earnings per common share - diluted (in dollars per share)	$ 0.22	$ 0.11	$ 0.62	$ 0.42
Dividends per common share (in dollars per share)	$ 0.03	$ 0.03	$ 0.09	$ 0.09

XML

Investment Securities

9 Months Ended

Sep. 30, 2012

Investment Securities [Abstract]

Investment Securities

(4) Investment Securities - Available-for-Sale

The amortized cost and estimated fair value of investment securities are summarized as follows:

	September 30, 2012
			Gross		Gross			Estimated
	Amortized		Unrealized		Unrealized			Fair
(In thousands)	Cost		Gains		Losses			Value
Debt investment securities:
US Treasury, agencies and GSEs	$	5,176	$	26	$	-		$	5,202
State and political subdivisions		25,994		1,122		(2	)		27,114
Corporate		24,042		382		(525	)		23,899
Residential mortgage-backed - US agency		52,797		1,768		(1	)		54,564
Residential mortgage-backed - private label		346		11		-			357
Total		108,355		3,309		(528	)		111,136
Equity investment securities:
Mutual funds:
Ultra short mortgage fund		1,286		14		-			1,300
Large cap equity fund		905		243		-			1,148
Other mutual funds		183		114		-			297
Common stock - financial services industry		422		10		(1	)		431
Total		2,796		381		(1	)		3,176
Total investment securities	$	111,151	$	3,690	$	(529	)	$	114,312

	December 31, 2011
			Gross		Gross			Estimated
	Amortized		Unrealized		Unrealized			Fair
(In thousands)	Cost		Gains		Losses			Value
Debt investment securities:
US Treasury, agencies and GSEs	$	5,025	$	48	$	-		$	5,073
State and political subdivisions		19,508		797		(1	)		20,304
Corporate		21,086		38		(690	)		20,434
Residential mortgage-backed - US agency		49,665		1,395		(4	)		51,056
Residential mortgage-backed - private label		505		14		-			519
Total		95,789		2,292		(695	)		97,386
Equity investment securities:
Mutual funds:
Ultra short mortgage fund		1,286		12		-			1,298
Large cap equity fund		905		119		-			1,024
Other mutual funds		183		60		-			243
Common stock - financial services industry		443		2		(1	)		444
Total		2,817		193		(1	)		3,009
Total investment securities	$	98,606	$	2,485	$	(696	)	$	100,395

The amortized cost and estimated fair value of debt investments at September 30, 2012 by contractual maturity are shown below. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without penalties.

	Amortized		Estimated
	Cost		Fair Value
(In thousands)
Due in one year or less	$	7,294	$	7,329
Due after one year through five years		22,421		22,887
Due after five years through ten years		7,042		7,478
Due after ten years		18,455		18,521
Mortgage-backed securities		53,143		54,921
Totals	$	108,355	$	111,136

The Company's investment securities' gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, are as follows:

										September 30, 2012
			Less than Twelve Months							Twelve Months or More							Total
	Number of							Number of							Number of
	Individual		Unrealized			Fair		Individual		Unrealized			Fair		Individual		Unrealized			Fair
	Securities		Losses			Value		Securities		Losses			Value		Securities		Losses			Value
(Dollars in thousands)
State and political subdivisions		4	$	(2	)	$	1,475		-	$	-		$	-		4	$	(2	)	$	1,475
Corporate		4		(37	)		2,633		2		(488	)		1,481		6		(525	)		4,114
Residential mortgage-backed - US agency		2		(1	)		1,018		-		-			-		2		(1	)		1,018
Common stock-financial services industry		1		(1	)		2		-		-			-		1		(1	)		2
Totals		11	$	(41	)	$	5,128		2	$	(488	)	$	1,481		13	$	(529	)	$	6,609
										December 31, 2011
			Less than Twelve Months							Twelve Months or More							Total
	Number of							Number of							Number of
	Individual		Unrealized			Fair		Individual		Unrealized			Fair		Individual		Unrealized			Fair
	Securities		Losses			Value		Securities		Losses			Value		Securities		Losses			Value
(Dollars in thousands)
State and political subdivisions		1	$	(1	)	$	412		-	$	-		$	-		1	$	(1	)	$	412
Corporate		19		(131	)		13,489		2		(559	)		1,410		21		(690	)		14,899
Residential mortgage-backed - US agency		2		(4	)		1,896		-		-			-		2		(4	)		1,896
Common stock-financial services industry		-		-			-		1		(1	)		3		1		(1	)		3
Totals		22	$	(136	)	$	15,797		3	$	(560	)	$	1,413		25	$	(696	)	$	17,210

We conduct a formal review of investment securities on a quarterly basis for the presence of other-than-temporary impairment ("OTTI").  We assess whether OTTI is present when the fair value of a debt security is less than its amortized cost basis at the statement of condition date.  Under these circumstances, OTTI is considered to have occurred (1) if we intend to sell the security; (2) if it is "more likely than not" we will be required to sell the security before recovery of its amortized cost basis; or (3) the present value of expected cash flows is not anticipated to be sufficient to recover the entire amortized cost basis.  The guidance requires that credit-related OTTI is recognized in earnings while non-credit-related OTTI on securities not expected to be sold is recognized in other comprehensive income ("OCI").  Non-credit-related OTTI is based on other factors, including illiquidity and changes in the general interest rate environment.  Presentation of OTTI is made in the consolidated statement of income on a gross basis, including both the portion recognized in earnings as well as the portion recorded in OCI.  The gross OTTI would then be offset by the amount of non-credit-related OTTI, showing the net as the impact on earnings.

The Company's investment securities portfolio includes two corporate securities representing trust preferred issuances from large money center financial institutions.  The securities have been in an unrealized loss position for more than 12 months.  The securities are both floating rate notes that adjust quarterly to LIBOR ("London Interbank Offered Rate").  These securities are reflecting a net unrealized loss due to current similar offerings being originated at higher spreads to LIBOR, as the market currently demands a greater pricing premium for the associated risk. Management has performed a detailed credit analysis on the underlying companies and has concluded that neither issue is credit impaired.  Due to the fact that each security has approximately 15 years until final maturity, and management has determined that there is no related credit impairment, the associated pricing risk is managed similar to long-term, low yielding, 15 and 30-year fixed rate residential mortgages carried in the Company's loan portfolio.  The risk is managed through the Company's extensive interest rate risk management procedures.  The Company expects the present value of expected cash flows will be sufficient to recover the amortized cost basis.  Thus, the securities are not deemed to be other-than-temporarily impaired.

Management does not believe any individual unrealized loss in other securities within the portfolio as of September 30, 2012 represents OTTI.  All related securities are rated Baa1 or better by Moody's or Standard & Poor's, with the exception of the two corporate securities noted above.  The unrealized losses in the portfolio are primarily attributable to changes in interest rates.  The Company does not intend to sell these securities, nor is it more likely than not that the Company will be required to sell these securities prior to the recovery of the amortized cost.

In determining whether OTTI has occurred for equity securities, the Company considers the applicable factors described above and the length of time the equity security's fair value has been below the carrying amount. Management has determined that we have the intent and ability to retain the equity securities for a sufficient period of time to allow for recovery. The Company holds one equity security that had a fair value less than the carrying value at September 30, 2012.   A small common stock investment in The Phoenix Companies has an unrealized loss of  $1,300.  Due to the relatively small size of the unrealized loss and short duration of the loss period, no OTTI is deemed present in relation to this security.

The following table presents a roll-forward of the amount related to credit losses recognized in earnings for the periods ended September 30:

(In thousands)	2012		2011
Beginning balance – January 1	$	-	$	875
Reductions for securities sold		-		(875	)
Ending balance - September 30	$	-	$	-

The above credit losses were related to one security that was sold at a small gain during the period ended September 30, 2011.

Gross realized gains (losses) on sales of securities for the indicated periods are detailed below:

	For the three months					For the nine months
	ended September 30,					ended September 30,
(In thousands)	2012			2011		2012			2011
Realized gains	$	30		$	469	$	191		$	796
Realized losses		(12	)		-		(12	)		(5	)
	$	18		$	469	$	179		$	791

As of September 30, 2012 and December 31, 2011, securities with a fair value of $39.6 million and $43.1 million, respectively, were pledged to collateralize certain municipal deposit relationships.  As of the same dates, securities with a fair value of $38.4 million and $21.8 million were pledged against certain borrowing arrangements.  Total borrowings of $5.0 million were outstanding relating to the above noted collateralized borrowing arrangements as of both September 30, 2012 and December 31, 2011.

Management has reviewed its loan and mortgage-backed securities portfolios and determined that, to the best of its knowledge, little or no exposure exists to sub-prime or other high-risk residential mortgages.  The Company is not in the practice of investing in, or originating, these types of investments or loans.

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Earnings per Common Share

9 Months Ended

Sep. 30, 2012

Earnings per Common Share [Abstract]

Earnings per Common Share

(3)  Earnings per Common Share

Basic earnings per share are calculated by dividing net income available to common shareholders by the weighted average number of common shares outstanding during the period.  Net income available to common shareholders is net income less the total of preferred dividends declared and the amortization of the preferred stock discount value under the CPP program during 2011.  Diluted earnings per share include the potential dilutive effect that could occur upon the assumed exercise of issued stock options and the warrants issued to the U.S. Treasury using the treasury stock method.  Unallocated common shares held by the ESOP are not included in the weighted-average number of common shares outstanding for purposes of calculating earnings per common share until they are committed to be released to plan participants.

The following table sets forth the calculation of basic and diluted earnings per share:

	Three months ended				Nine months ended
	September 30,				September 30,
(In thousands, except per share data)	2012		2011		2012		2011
Basic Earnings Per Common Share
Net income available to common shareholders	$	557	$	293	$	1,552	$	1,071
Weighted average common shares outstanding		2,505		2,493		2,503		2,488
Basic earnings per common share	$	0.22	$	0.12	$	0.62	$	0.43
Diluted Earnings Per Common Share
Net income available to common shareholders	$	557	$	293	$	1,552	$	1,071
Weighted average common shares outstanding		2,505		2,493		2,503		2,488
Effect of assumed exercise of stock options		12		11		6		5
Effect of assumed exercise of stock warrants		-		43		4		43
Diluted weighted average common shares outstanding		2,517		2,547		2,513		2,536
Diluted earnings per common share	$	0.22	$	0.11	$	0.62	$	0.42

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Loans (Tables)

9 Months Ended

Sep. 30, 2012

Loans [Abstract]

Major classification of loans

Major classifications of loans at the indicated dates are as follows:

	September 30,			December 31,
(In thousands)	2012			2011
Residential mortgage loans:
1-4 family first-lien residential mortgages	$	169,062		$	158,384
Construction		2,587			3,935
		171,649			162,319
Commercial loans:
Real estate		79,770			73,420
Lines of credit		13,471			13,791
Other commercial and industrial		27,509			22,701
Municipal		5,063			3,619
		125,813			113,531
Consumer loans:
Home equity and junior liens		22,580			24,171
Other consumer		3,627			4,140
		26,207			28,311
Total loans		323,669			304,161
Net deferred loan costs		481			589
Less allowance for loan losses		(4,433	)		(3,980	)
Loans receivable, net	$	319,717		$	300,770

Summary of classes of loan portfolio

To develop and document a systematic methodology for determining the allowance for loan losses, the Company has divided the loan portfolio into three portfolio segments, each with different risk characteristics and methodologies for assessing risk.  Each portfolio segment is broken down into loan classes where appropriate.  Loan classes contain unique measurement attributes, risk characteristics and methods for monitoring and assessing risk that are necessary to develop the allowance for loan losses.  Unique characteristics such as borrower type, loan type, collateral type, and risk characteristics define each class.  The following table illustrates the portfolio segments and classes for the Company's loan portfolio:

Portfolio Segment	Class
Residential Mortgage Loans	1-4 family first-lien residential mortgages
	Construction
Commercial Loans	Real estate
	Lines of credit
	Other commercial and industrial
	Municipal
Consumer Loans	Home equity and junior liens
	Other consumer

The following tables present the classes of the loan portfolio, not including net deferred loan costs, summarized by the aggregate pass rating and the classified ratings of special mention, substandard and doubtful within the Company's internal risk rating system as of the dates indicated:

	September 30, 2012
			Special
(In thousands)	Pass		Mention		Substandard		Doubtful		Total
Residential mortgage loans:
1-4 family first-lien residential mortgages	$	162,529	$	950	$	5,583	$	-	$	169,062
Construction		2,587		-		-		-		2,587
		165,116		950		5,583		-		171,649
Commercial loans:
Real estate		75,148		48		4,574		-		79,770
Lines of credit		12,325		-		1,071		75		13,471
Other commercial and industrial		26,346		-		1,157		6		27,509
Municipal		5,063		-		-		-		5,063
		118,882		48		6,802		81		125,813
Consumer loans:
Home equity and junior liens		20,614		165		1,752		49		22,580
Other consumer		3,349		191		59		28		3,627
		23,963		356		1,811		77		26,207
Total loans	$	307,961	$	1,354	$	14,196	$	158	$	323,669

	December 31, 2011
			Special
(In thousands)	Pass		Mention		Substandard		Doubtful		Total
Residential mortgage loans:
1-4 family first-lien residential mortgages	$	153,049	$	1,050	$	4,285	$	-	$	158,384
Construction		3,935		-		-		-		3,935
		156,984		1,050		4,285		-		162,319
Commercial loans:
Real estate		69,737		212		3,471		-		73,420
Lines of credit		12,579		49		1,163		-		13,791
Other commercial and industrial		21,978		89		591		43		22,701
Municipal		3,619		-		-		-		3,619
		107,913		350		5,225		43		113,531
Consumer loans:
Home equity and junior liens		22,500		162		1,456		53		24,171
Other consumer		3,922		61		123		34		4,140
		26,422		223		1,579		87		28,311
Total loans	$	291,319	$	1,623	$	11,089	$	130	$	304,161

Nonaccrual and past due loans

An age analysis of past due loans, segregated by portfolio segment and class of loans, as of September 30, 2012 and December 31, 2011, are detailed in the following tables:

	September 30, 2012
	30-59 Days		60-89 Days		90 Days		Total				Total Loans
(In thousands)	Past Due		Past Due		and Over		Past Due		Current		Receivable
Residential mortgage loans:
1-4 family first-lien residential mortgages	$	1,838	$	1,139	$	1,506	$	4,483	$	164,579	$	169,062
Construction		-		-		-		-		2,587		2,587
		1,838		1,139		1,506		4,483		167,166		171,649
Commercial loans:
Real estate		729		46		1,526		2,301		77,469		79,770
Lines of credit		137		500		238		875		12,596		13,471
Other commercial and industrial		272		62		578		912		26,597		27,509
Municipal		-		-		-		-		5,063		5,063
		1,138		608		2,342		4,088		121,725		125,813
Consumer loans:
Home equity and junior liens		334		313		737		1,384		21,196		22,580
Other consumer		43		48		38		129		3,498		3,627
		377		361		775		1,513		24,694		26,207
Total loans	$	3,353	$	2,108	$	4,623	$	10,084	$	313,585	$	323,669

	December 31, 2011
	30-59 Days		60-89 Days		90 Days		Total				Total Loans
(In thousands)	Past Due		Past Due		and Over		Past Due		Current		Receivable
Residential mortgage loans:
1-4 family first-lien residential mortgages	$	2,870	$	934	$	1,428	$	5,232	$	153,152	$	158,384
Construction		-		-		-		-		3,935		3,935
		2,870		934		1,428		5,232		157,087		162,319
Commercial loans:
Real estate		2,015		4		1,623		3,642		69,778		73,420
Lines of credit		337		75		467		879		12,912		13,791
Other commercial and industrial		356		392		504		1,252		21,449		22,701
Municipal		-		-		-		-		3,619		3,619
		2,708		471		2,594		5,773		107,758		113,531
Consumer loans:
Home equity and junior liens		357		182		550		1,089		23,082		24,171
Other consumer		55		2		156		213		3,927		4,140
		412		184		706		1,302		27,009		28,311
Total loans	$	5,990	$	1,589	$	4,728	$	12,307	$	291,854	$	304,161

Nonaccrual loans segregated by class of loan [Table Text Block]

Nonaccrual loans, segregated by class of loan, were as follows:

	September 30,		December 31,
(In thousands)	2012		2011
Residential mortgage loans:
1-4 family first-lien residential mortgages	$	1,506	$	1,428
Construction		-		-
		1,506		1,428
Commercial loans:
Real estate		1,526		1,623
Lines of credit		238		467
Other commercial and industrial		578		504
Municipal		-		-
		2,342		2,594
Consumer loans:
Home equity and junior liens		737		550
Other consumer		38		156
		775		706
Total nonaccrual loans	$	4,623	$	4,728

Summary of impaired loans information by portfolio class

The following tables summarize impaired loans information by portfolio class at the indicated dates:

	September 30, 2012						December 31, 2011
			Unpaid						Unpaid
	Recorded		Principal		Related		Recorded		Principal		Related
(In thousands)	Investment		Balance		Allowance		Investment		Balance		Allowance
With no related allowance recorded:
1-4 family first-lien residential mortgages	$	946	$	946	$	-	$	442	$	442	$	-
Residential construction mortgage		-		-		-		-		-		-
Commercial real estate		1,340		1,474		-		968		1,096		-
Commercial lines of credit		374		385		-		74		74		-
Other commercial and industrial		672		683		-		257		257		-
Municipal		-		-		-		-		-		-
Home equity and junior liens		346		346		-		312		312		-
Other consumer		-		-		-		-		-		-
With an allowance recorded:
1-4 family first-lien residential mortgages		1,188		1,188		208		856		856		149
Residential construction mortgage		-		-		-		-		-		-
Commercial real estate		1,456		1,456		489		735		735		109
Commercial lines of credit		-		-		-		378		378		178
Other commercial and industrial		296		296		269		122		122		122
Municipal		-		-		-		-		-		-
Home equity and junior liens		156		156		60		136		136		61
Other consumer		6		6		6		-		-		-
Total:
1-4 family first-lien residential mortgages		2,134		2,134		208		1,298		1,298		149
Residential construction mortgage		-		-		-		-		-		-
Commercial real estate		2,796		2,930		489		1,703		1,831		109
Commercial lines of credit		374		385		-		452		452		178
Other commercial and industrial		968		979		269		379		379		122
Municipal		-		-		-		-		-		-
Home equity and junior liens		502		502		60		448		448		61
Other consumer		6		6		6		-		-		-
Totals	$	6,780	$	6,936	$	1,032	$	4,280	$	4,408	$	619

Average recorded investment in impaired loans [Table Text Block]

The following table presents the average recorded investment in impaired loans for the periods indicated:

	For the three months ended September 30,				For the nine months ended September 30,
(In thousands)	2012		2011		2012		2011
1-4 family first-lien residential mortgages	$	1,879	$	1,004	$	1,565	$	1,109
Commercial real estate		2,801		2,056		2,449		2,695
Commercial lines of credit		412		37		432		125
Other commercial and industrial		768		930		677		823
Home equity and junior liens		502		568		477		590
Other consumer		5		-		2		-
	$	6,367	$	4,595	$	5,602	$	5,342

Cash basis interest income recognized on impaired loans [Table Text Block]

The following table presents the cash basis interest income recognized on impaired loans for the periods indicated:

	For the three months ended September 30,					For the nine months ended September 30,
(In thousands)	2012			2011		2012		2011
1-4 family first-lien residential mortgages	$	34		$	6	$	80	$	29
Commercial real estate		-			26		60		71
Commercial lines of credit		(5	)		-		13		-
Other commercial and industrial		11			5		30		18
Home equity and junior liens		4			3		11		14
Other consumer		1					1		-
	$	45		$	40	$	195	$	132

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Subsequent Events

9 Months Ended

Sep. 30, 2012

Subsequent Events [Abstract]

Subsequent Events

(11)  Subsequent Events

The Company has evaluated subsequent events for potential recognition and/or disclosure through the date that these consolidated financial statements were issued.  On September 27, 2012, the Company announced that its Board of Directors declared a quarterly cash dividend of $.03 per common share.  The dividend is payable on November 1, 2012 to shareholders of record on October 12, 2012.

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Allowances for Loan Losses

9 Months Ended

Sep. 30, 2012

Allowances for Loan Losses [Abstract]

Allowances for Loan Losses

(7)   Allowance for Loan Losses

Changes in the allowance for loan losses for the indicated periods and information pertaining to the allocation of the allowance for loan losses and balances of the allowance for loan losses and loans receivable based on individual and collective impairment evaluation by loan portfolio class at the indicated dates are summarized in the tables below.  An allocation of a portion of the allowance to a given portfolio class does not limit the Company's ability to absorb losses in another portfolio class.

	For the three months ended September 30, 2012
	1-4 family
	first-lien			Residential									Other
	residential			construction			Commercial			Commercial			commercial
(In thousands)	mortgage			mortgage			real estate			lines of credit			and industrial
Allowance for loan losses:
Beginning Balance	$	777		$	-		$	1,587		$	398		$	698
Charge-offs		(61	)		-			-			-			-
Recoveries		23			-			-			-			-
Provisions		27			-			200			12			112
Ending balance	$	766		$	-		$	1,787		$	410		$	810
Ending balance: related to loans
individually evaluated for impairment		208			-			489			-			269
Ending balance: related to loans
collectively evaluated for impairment	$	558		$	-		$	1,298		$	410		$	541
Loans receivables:
Ending balance	$	169,062		$	2,587		$	79,770		$	13,471		$	27,509
Ending balance: individually
evaluated for impairment		2,134			-			2,796			374			968
Ending balance: collectively
evaluated for impairment	$	166,928		$	2,587		$	76,974		$	13,097		$	26,541
				Home equity			Other
	Municipal			and junior liens			Consumer			Unallocated			Total
Allowance for loan losses:
Beginning Balance	$	2		$	501		$	131		$	119		$	4,213
Charge-offs		-			-			(30	)		-			(91	)
Recoveries		-			1			12			-			36
Provisions		-			(24	)		65			(117	)		275
Ending balance	$	2		$	478		$	178		$	2		$	4,433
Ending balance: related to loans
individually evaluated for impairment		-			60			6			-			1,032
Ending balance: related to loans
collectively evaluated for impairment	$	2		$	418		$	172		$	2		$	3,401
Loans receivables:
Ending balance	$	5,063		$	22,580		$	3,627		$	-		$	323,669
Ending balance: individually
evaluated for impairment		-			502			6			-			6,780
Ending balance: collectively
evaluated for impairment	$	5,063		$	22,078		$	3,621		$	-		$	316,889

	For the nine months ended September 30, 2012
	1-4 family
	first-lien			Residential									Other
	residential			construction			Commercial			Commercial			commercial
(In thousands)	mortgage			mortgage			real estate			lines of credit			and industrial
Allowance for loan losses:
Beginning Balance	$	664		$	-		$	1,346		$	463		$	649
Charge-offs		(96	)		-			(54	)		-			(89	)
Recoveries		52			-			14			50			-
Provisions		146			-			481			(103	)		250
Ending balance	$	766		$	-		$	1,787		$	410		$	810
				Home equity			Other
	Municipal			and junior liens			Consumer			Unallocated			Total
Allowance for loan losses:
Beginning Balance	$	2		$	501		$	162		$	193		$	3,980
Charge-offs		-			(8	)		(114	)		-			(361	)
Recoveries		-			6			42			-			164
Provisions		-			(21	)		88			(191	)		650
Ending balance	$	2		$	478		$	178		$	2		$	4,433

	For the three months ended September 30, 2011
	1-4 family
	first-lien			Residential									Other
	residential			construction			Commercial			Commercial			commercial
(In thousands)	mortgage			mortgage			real estate			lines of credit			and industrial
Allowance for loan losses:
Beginning Balance	$	687		$	-		$	1,625		$	291		$	831
Charge-offs		(72	)		-			-			(50	)		-
Recoveries		16			-			-			1			-
Provisions		23			-			(78	)		108			(132	)
Ending balance	$	654		$	-		$	1,547		$	350		$	699
Ending balance: related to loans
individually evaluated for impairment		128			-			306			-			200
Ending balance: related to loans
collectively evaluated for impairment	$	526		$	-		$	1,241		$	350		$	499
Loans receivables:
Ending balance	$	152,841		$	3,021		$	70,685		$	13,772		$	22,631
Ending balance: individually
evaluated for impairment		704			-			1,816			74			1,056
Ending balance: collectively
evaluated for impairment	$	152,137		$	3,021		$	68,869		$	13,698		$	21,575
				Home equity			Other
	Municipal			and junior liens			Consumer			Unallocated			Total
Allowance for loan losses:
Beginning Balance	$	2		$	460		$	116		$	(6	)	$	4,006
Charge-offs		-			(19	)		(37	)		-			(178	)
Recoveries		-			2			11			-			30
Provisions		-			73			60			91			145
Ending balance	$	2		$	516		$	150		$	85		$	4,003
Ending balance: related to loans
individually evaluated for impairment		-			61			-			-			695
Ending balance: related to loans
collectively evaluated for impairment	$	2		$	455		$	150		$	85		$	3,308
Loans receivables:
Ending balance	$	2,139		$	24,842		$	3,743		$	-		$	293,674
Ending balance: individually
evaluated for impairment		-			448			-						4,098
Ending balance: collectively
evaluated for impairment	$	2,139		$	24,394		$	3,743		$	-		$	289,576

	For the nine months ended September 30, 2011
	1-4 family
	first-lien			Residential									Other
	residential			mortgage			Commercial			Commercial			commercial
(In thousands)	mortgage			construction			real estate			lines of credit			and industrial
Allowance for loan losses:
Beginning Balance	$	750		$	-		$	1,204		$	579		$	501
Charge-offs		(131	)		-			(71	)		(65	)		-
Recoveries		49			-			-			1			-
Provisions		(14	)		-			414			(165	)		198
Ending balance	$	654		$	-		$	1,547		$	350		$	699
				Home equity			Other
	Municipal			and junior liens			Consumer			Unallocated			Total
Allowance for loan losses:
Beginning Balance	$	3		$	424		$	89		$	98		$	3,648
Charge-offs		-			(43	)		(88	)		-			(398	)
Recoveries		-			7			26			-			83
Provisions		(1	)		128			123			(13	)		670
Ending balance	$	2		$	516		$	150		$	85		$	4,003

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Pension and Postretirement Benefits

9 Months Ended

Sep. 30, 2012

Pension and Postretirement Benefits [Abstract]

Pension and Postretirement Benefits

(5)  Pension and Postretirement Benefits

The Company has a non-contributory defined benefit pension plan that covered substantially all employees. On May 14, 2012, the Company informed its employees of its decision to freeze participation and benefit accruals under the plan, primarily to reduce some of the volatility in earnings that can accompany the maintenance of a defined benefit plan.  The freeze became effective June 30, 2012.  Compensation earned by employees up to June 30, 2012 is used for purposes of calculating benefits under the plan but there will be no future benefit accruals after this date.  Participants as of June 30, 2012 will continue to earn vesting credit with respect to their frozen accrued benefits as they continue to work.

Prior to being frozen, the plan provided defined benefits based on years of service and final average salary. Although the plan was frozen, the Company maintains the responsibility for funding the plan, and its funding practice is to contribute at least the minimum amount annually to meet minimum funding requirements.  The funded status of the plan has and will continue to be affected by market conditions.  We expect to continue to fund this plan on an as needed basis and do not foresee any issues or conditions that could negatively impact the payment of benefit obligations to plan participants.  In addition, the Company provides certain health and life insurance benefits for eligible retired employees.  The healthcare plan is contributory with participants' contributions adjusted annually; the life insurance plan is noncontributory.  Employees with less than 14 years of service as of January 1, 1995, are not eligible for the health and life insurance retirement benefits.

The composition of net periodic pension plan and postretirement plan costs for the indicated periods is as follows:

	Pension Benefits						Postretirement Benefits				Pension Benefits						Postretirement Benefits
	For the three months ended September 30,										For the nine months ended September 30,
(In thousands)	2012			2011			2012		2011		2012			2011			2012		2011
Service cost	$	-		$	82		$	-	$	-	$	166		$	246		$	-	$	-
Interest cost		93			103			4		5		305			310			13		15
Expected return on plan assets		(205	)		(156	)		-		-		(604	)		(468	)		-		-
Amortization of net losses		74			62			4		5		307			185			11		14
Net periodic plan cost	$	(38	)	$	91		$	8	$	10	$	174		$	273		$	24	$	29

The Company made a contribution in the amount of $2.6 million to the defined benefit pension plan in January of 2012.  The Company will evaluate any need for further contributions to the defined benefit pension plan during the fourth quarter of 2012.

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Loans

9 Months Ended

Sep. 30, 2012

Loans [Abstract]

Loans

(6)  Loans

Major classifications of loans at the indicated dates are as follows:

	September 30,			December 31,
(In thousands)	2012			2011
Residential mortgage loans:
1-4 family first-lien residential mortgages	$	169,062		$	158,384
Construction		2,587			3,935
		171,649			162,319
Commercial loans:
Real estate		79,770			73,420
Lines of credit		13,471			13,791
Other commercial and industrial		27,509			22,701
Municipal		5,063			3,619
		125,813			113,531
Consumer loans:
Home equity and junior liens		22,580			24,171
Other consumer		3,627			4,140
		26,207			28,311
Total loans		323,669			304,161
Net deferred loan costs		481			589
Less allowance for loan losses		(4,433	)		(3,980	)
Loans receivable, net	$	319,717		$	300,770

The Company originates residential mortgage, commercial and consumer loans largely to customers throughout Oswego, Onondaga, Jefferson, and Oneida counties. Although the Company has a diversified loan portfolio, a substantial portion of its borrowers' abilities to honor their contracts is dependent upon the counties' employment and economic conditions.

As of September 30, 2012 and December 31, 2011, residential mortgage loans with a carrying value of $62.3 million and $65.8 million, respectively, have been pledged by the Company to the Federal Home Loan Bank of New York ("FHLBNY") under a blanket collateral agreement to secure the Company's line of credit and term borrowings.  Borrowings at the FHLBNY as of September 30, 2012 and December 31, 2011 were $29.0 million and $20.0 million, respectively.

Loan Origination / Risk Management

The Company's lending policies and procedures are presented in Note 5 to the consolidated financial statements included in the 2011 Annual Report filed on Form 10-K on March 29, 2012, and have not changed.

To develop and document a systematic methodology for determining the allowance for loan losses, the Company has divided the loan portfolio into three portfolio segments, each with different risk characteristics and methodologies for assessing risk.  Each portfolio segment is broken down into loan classes where appropriate.  Loan classes contain unique measurement attributes, risk characteristics and methods for monitoring and assessing risk that are necessary to develop the allowance for loan losses.  Unique characteristics such as borrower type, loan type, collateral type, and risk characteristics define each class.  The following table illustrates the portfolio segments and classes for the Company's loan portfolio:

Portfolio Segment	Class
Residential Mortgage Loans	1-4 family first-lien residential mortgages
	Construction
Commercial Loans	Real estate
	Lines of credit
	Other commercial and industrial
	Municipal
Consumer Loans	Home equity and junior liens
	Other consumer

The following tables present the classes of the loan portfolio, not including net deferred loan costs, summarized by the aggregate pass rating and the classified ratings of special mention, substandard and doubtful within the Company's internal risk rating system as of the dates indicated:

	September 30, 2012
			Special
(In thousands)	Pass		Mention		Substandard		Doubtful		Total
Residential mortgage loans:
1-4 family first-lien residential mortgages	$	162,529	$	950	$	5,583	$	-	$	169,062
Construction		2,587		-		-		-		2,587
		165,116		950		5,583		-		171,649
Commercial loans:
Real estate		75,148		48		4,574		-		79,770
Lines of credit		12,325		-		1,071		75		13,471
Other commercial and industrial		26,346		-		1,157		6		27,509
Municipal		5,063		-		-		-		5,063
		118,882		48		6,802		81		125,813
Consumer loans:
Home equity and junior liens		20,614		165		1,752		49		22,580
Other consumer		3,349		191		59		28		3,627
		23,963		356		1,811		77		26,207
Total loans	$	307,961	$	1,354	$	14,196	$	158	$	323,669

	December 31, 2011
			Special
(In thousands)	Pass		Mention		Substandard		Doubtful		Total
Residential mortgage loans:
1-4 family first-lien residential mortgages	$	153,049	$	1,050	$	4,285	$	-	$	158,384
Construction		3,935		-		-		-		3,935
		156,984		1,050		4,285		-		162,319
Commercial loans:
Real estate		69,737		212		3,471		-		73,420
Lines of credit		12,579		49		1,163		-		13,791
Other commercial and industrial		21,978		89		591		43		22,701
Municipal		3,619		-		-		-		3,619
		107,913		350		5,225		43		113,531
Consumer loans:
Home equity and junior liens		22,500		162		1,456		53		24,171
Other consumer		3,922		61		123		34		4,140
		26,422		223		1,579		87		28,311
Total loans	$	291,319	$	1,623	$	11,089	$	130	$	304,161

Management has reviewed its loan portfolio and determined that, to the best of its knowledge, no exposure exists to sub-prime or other high-risk residential mortgages.  The Company is not in the practice of originating these types of loans.

Nonaccrual and Past Due Loans

Loans are considered past due if the required principal and interest payments have not been received within thirty days of the payment due date.

An age analysis of past due loans, segregated by portfolio segment and class of loans, as of September 30, 2012 and December 31, 2011, are detailed in the following tables:

	September 30, 2012
	30-59 Days		60-89 Days		90 Days		Total				Total Loans
(In thousands)	Past Due		Past Due		and Over		Past Due		Current		Receivable
Residential mortgage loans:
1-4 family first-lien residential mortgages	$	1,838	$	1,139	$	1,506	$	4,483	$	164,579	$	169,062
Construction		-		-		-		-		2,587		2,587
		1,838		1,139		1,506		4,483		167,166		171,649
Commercial loans:
Real estate		729		46		1,526		2,301		77,469		79,770
Lines of credit		137		500		238		875		12,596		13,471
Other commercial and industrial		272		62		578		912		26,597		27,509
Municipal		-		-		-		-		5,063		5,063
		1,138		608		2,342		4,088		121,725		125,813
Consumer loans:
Home equity and junior liens		334		313		737		1,384		21,196		22,580
Other consumer		43		48		38		129		3,498		3,627
		377		361		775		1,513		24,694		26,207
Total loans	$	3,353	$	2,108	$	4,623	$	10,084	$	313,585	$	323,669

	December 31, 2011
	30-59 Days		60-89 Days		90 Days		Total				Total Loans
(In thousands)	Past Due		Past Due		and Over		Past Due		Current		Receivable
Residential mortgage loans:
1-4 family first-lien residential mortgages	$	2,870	$	934	$	1,428	$	5,232	$	153,152	$	158,384
Construction		-		-		-		-		3,935		3,935
		2,870		934		1,428		5,232		157,087		162,319
Commercial loans:
Real estate		2,015		4		1,623		3,642		69,778		73,420
Lines of credit		337		75		467		879		12,912		13,791
Other commercial and industrial		356		392		504		1,252		21,449		22,701
Municipal		-		-		-		-		3,619		3,619
		2,708		471		2,594		5,773		107,758		113,531
Consumer loans:
Home equity and junior liens		357		182		550		1,089		23,082		24,171
Other consumer		55		2		156		213		3,927		4,140
		412		184		706		1,302		27,009		28,311
Total loans	$	5,990	$	1,589	$	4,728	$	12,307	$	291,854	$	304,161

Nonaccrual loans, segregated by class of loan, were as follows:

	September 30,		December 31,
(In thousands)	2012		2011
Residential mortgage loans:
1-4 family first-lien residential mortgages	$	1,506	$	1,428
Construction		-		-
		1,506		1,428
Commercial loans:
Real estate		1,526		1,623
Lines of credit		238		467
Other commercial and industrial		578		504
Municipal		-		-
		2,342		2,594
Consumer loans:
Home equity and junior liens		737		550
Other consumer		38		156
		775		706
Total nonaccrual loans	$	4,623	$	4,728

There were no loans past due ninety days or more and still accruing interest at September 30, 2012 or December 31, 2011.

The Company is required to disclose certain activities related to Troubled Debt Restructurings ("TDR"s) in accordance with accounting guidance.  Certain loans have been modified in a TDR where economic concessions have been granted to a borrower who is experiencing, or expected to experience, financial difficulties.  These economic concessions could include a reduction in the loan interest rate, extension of payment terms, reduction of principal amortization, or other actions that it would not otherwise consider for a new loan with similar risk characteristics.  The Company has determined that there were $1.1 million of recorded investment in new TDRs in the three and nine month periods ended September 30, 2012.  The following highlights the qualitative and quantitative information by loan class.

·   Modifications made within the commercial real estate loan class included two loans with a pre-modification and post-modification recorded investment of $564,000 and $358,000, respectively.  Economic concessions granted included interest only periods, extended payment terms and a reduction in loan interest rate.  The Company was required to increase the reserve against these two loans by $211,000 which was a component of the provision for loan losses in the third quarter of 2012.

·   Modifications made within the Home Equity Loan class included two loans with a pre-modification and post-modification recorded investment which was unchanged at $279,000.  Economic concessions granted included interest only periods, extended payment terms and a reduction in loan interest rate.  Additional provision was not required as a result of these modifications.

·   The modification made within the other commercial and industrial loan class included a consolidation of three credit facilities into a single loan with a pre-modification and post-modification recorded investment of $439,000 and $468,000, respectively.  Economic concessions granted included reduced principal amortization and an extended payment term.  Management's review indicates adequate collateral coverage in support of this loan.  Additional provision was not required as a result of this modification.

There were no payment defaults within the three month and nine month periods ended September 30, 2012 for any TDRs modified during the preceding twelve months.

When the Company modifies a loan within a portfolio segment, a potential impairment is analyzed either based on the present value of the expected future cash flows discounted at the interest rate of the original loan terms or the fair value of the collateral less costs to sell.  If it is determined that the value of the loan is less than its recorded investment, than impairment is recognized as a component of the provision for loan losses and an associated an increase to the allowance for loan losses, or as a charge-off to the allowance for loan losses in the current period.

Impaired Loans

The following tables summarize impaired loans information by portfolio class at the indicated dates:

	September 30, 2012						December 31, 2011
			Unpaid						Unpaid
	Recorded		Principal		Related		Recorded		Principal		Related
(In thousands)	Investment		Balance		Allowance		Investment		Balance		Allowance
With no related allowance recorded:
1-4 family first-lien residential mortgages	$	946	$	946	$	-	$	442	$	442	$	-
Residential construction mortgage		-		-		-		-		-		-
Commercial real estate		1,340		1,474		-		968		1,096		-
Commercial lines of credit		374		385		-		74		74		-
Other commercial and industrial		672		683		-		257		257		-
Municipal		-		-		-		-		-		-
Home equity and junior liens		346		346		-		312		312		-
Other consumer		-		-		-		-		-		-
With an allowance recorded:
1-4 family first-lien residential mortgages		1,188		1,188		208		856		856		149
Residential construction mortgage		-		-		-		-		-		-
Commercial real estate		1,456		1,456		489		735		735		109
Commercial lines of credit		-		-		-		378		378		178
Other commercial and industrial		296		296		269		122		122		122
Municipal		-		-		-		-		-		-
Home equity and junior liens		156		156		60		136		136		61
Other consumer		6		6		6		-		-		-
Total:
1-4 family first-lien residential mortgages		2,134		2,134		208		1,298		1,298		149
Residential construction mortgage		-		-		-		-		-		-
Commercial real estate		2,796		2,930		489		1,703		1,831		109
Commercial lines of credit		374		385		-		452		452		178
Other commercial and industrial		968		979		269		379		379		122
Municipal		-		-		-		-		-		-
Home equity and junior liens		502		502		60		448		448		61
Other consumer		6		6		6		-		-		-
Totals	$	6,780	$	6,936	$	1,032	$	4,280	$	4,408	$	619

The following table presents the average recorded investment in impaired loans for the periods indicated:

	For the three months ended September 30,				For the nine months ended September 30,
(In thousands)	2012		2011		2012		2011
1-4 family first-lien residential mortgages	$	1,879	$	1,004	$	1,565	$	1,109
Commercial real estate		2,801		2,056		2,449		2,695
Commercial lines of credit		412		37		432		125
Other commercial and industrial		768		930		677		823
Home equity and junior liens		502		568		477		590
Other consumer		5		-		2		-
	$	6,367	$	4,595	$	5,602	$	5,342

The following table presents the cash basis interest income recognized on impaired loans for the periods indicated:

	For the three months ended September 30,					For the nine months ended September 30,
(In thousands)	2012			2011		2012		2011
1-4 family first-lien residential mortgages	$	34		$	6	$	80	$	29
Commercial real estate		-			26		60		71
Commercial lines of credit		(5	)		-		13		-
Other commercial and industrial		11			5		30		18
Home equity and junior liens		4			3		11		14
Other consumer		1					1		-
	$	45		$	40	$	195	$	132

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Guarantees

9 Months Ended

Sep. 30, 2012

Guarantees [Abstract]

Guarantees

(8)  Guarantees

The Company does not issue any guarantees that would require liability recognition or disclosure, other than its standby letters of credit.  Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party.  Generally, all letters of credit when issued have expiration dates within one year of issuance.  The credit risk involved in issuing letters of credit is essentially the same as those that are involved in extending loan facilities to customers.  The Company generally holds collateral and/or personal guarantees supporting these commitments.  The Company had $2.0 million of standby letters of credit outstanding as of September 30, 2012.  Management believes that the proceeds obtained through a liquidation of collateral and the enforcement of guarantees would be sufficient to cover the potential amount of future payments required under the corresponding guarantees.   The fair value of standby letters of credit was not significant to the Company's consolidated financial statements.

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Fair Value Measurements (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Fair Value, Measurements, Nonrecurring [Member] | Total Fair Value [Member]
Nonrecurring basis [Abstract]
Impaired loans	$ 2,070	$ 1,608
Foreclosed real estate	305	165
Fair Value, Measurements, Nonrecurring [Member] | Level 1 [Member]
Nonrecurring basis [Abstract]
Impaired loans	0	0
Foreclosed real estate	0	0
Fair Value, Measurements, Nonrecurring [Member] | Level 2 [Member]
Nonrecurring basis [Abstract]
Impaired loans	0	0
Foreclosed real estate	0	0
Fair Value, Measurements, Nonrecurring [Member] | Level 3 [Member]
Nonrecurring basis [Abstract]
Impaired loans	2,070	1,608
Foreclosed real estate	305	165
Fair Value, Measurements, Recurring [Member] | Total Fair Value [Member]
Debt investment securities [Abstract]
US Treasury agencies and GSEs	5,202	5,073
State and political subdivisions	27,114	20,304
Corporate	23,899	20,434
Residential mortgage-backed - US agency	54,564	51,056
Residential mortgage-backed - private label	357	519
Mutual funds [Abstract]
Ultra short mortgage fund	1,300	1,298
Large cap equity fund	1,148	1,024
Other mutual funds	297	243
Common stock - financial services industry	431	444
Investments [Abstract]
Investment securities	114,312	100,395
Interest rate swap derivative	(210)	(200)
Fair Value, Measurements, Recurring [Member] | Level 1 [Member]
Debt investment securities [Abstract]
US Treasury agencies and GSEs	0	0
State and political subdivisions	0	0
Corporate	0	0
Residential mortgage-backed - US agency	0	0
Residential mortgage-backed - private label	0	0
Mutual funds [Abstract]
Ultra short mortgage fund	1,300	1,298
Large cap equity fund	1,148	1,024
Other mutual funds	0	0
Common stock - financial services industry	31	25
Investments [Abstract]
Investment securities	2,479	2,347
Interest rate swap derivative	0	0
Fair Value, Measurements, Recurring [Member] | Level 2 [Member]
Debt investment securities [Abstract]
US Treasury agencies and GSEs	5,202	5,073
State and political subdivisions	27,114	20,304
Corporate	23,899	20,434
Residential mortgage-backed - US agency	54,564	51,056
Residential mortgage-backed - private label	357	519
Mutual funds [Abstract]
Ultra short mortgage fund	0	0
Large cap equity fund	0	0
Other mutual funds	297	243
Common stock - financial services industry	400	419
Investments [Abstract]
Investment securities	111,833	98,048
Interest rate swap derivative	(210)	(200)
Fair Value, Measurements, Recurring [Member] | Level 3 [Member]
Debt investment securities [Abstract]
US Treasury agencies and GSEs	0	0
State and political subdivisions	0	0
Corporate	0	0
Residential mortgage-backed - US agency	0	0
Residential mortgage-backed - private label	0	0
Mutual funds [Abstract]
Ultra short mortgage fund	0	0
Large cap equity fund	0	0
Other mutual funds	0	0
Common stock - financial services industry	0	0
Investments [Abstract]
Investment securities	0	0
Interest rate swap derivative	$ 0	$ 0

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Investment Securities (Tables)

9 Months Ended

Sep. 30, 2012

Investment Securities [Abstract]

Amortized cost and estimated fair value of investment securities

The amortized cost and estimated fair value of investment securities are summarized as follows:

	September 30, 2012
			Gross		Gross			Estimated
	Amortized		Unrealized		Unrealized			Fair
(In thousands)	Cost		Gains		Losses			Value
Debt investment securities:
US Treasury, agencies and GSEs	$	5,176	$	26	$	-		$	5,202
State and political subdivisions		25,994		1,122		(2	)		27,114
Corporate		24,042		382		(525	)		23,899
Residential mortgage-backed - US agency		52,797		1,768		(1	)		54,564
Residential mortgage-backed - private label		346		11		-			357
Total		108,355		3,309		(528	)		111,136
Equity investment securities:
Mutual funds:
Ultra short mortgage fund		1,286		14		-			1,300
Large cap equity fund		905		243		-			1,148
Other mutual funds		183		114		-			297
Common stock - financial services industry		422		10		(1	)		431
Total		2,796		381		(1	)		3,176
Total investment securities	$	111,151	$	3,690	$	(529	)	$	114,312

	December 31, 2011
			Gross		Gross			Estimated
	Amortized		Unrealized		Unrealized			Fair
(In thousands)	Cost		Gains		Losses			Value
Debt investment securities:
US Treasury, agencies and GSEs	$	5,025	$	48	$	-		$	5,073
State and political subdivisions		19,508		797		(1	)		20,304
Corporate		21,086		38		(690	)		20,434
Residential mortgage-backed - US agency		49,665		1,395		(4	)		51,056
Residential mortgage-backed - private label		505		14		-			519
Total		95,789		2,292		(695	)		97,386
Equity investment securities:
Mutual funds:
Ultra short mortgage fund		1,286		12		-			1,298
Large cap equity fund		905		119		-			1,024
Other mutual funds		183		60		-			243
Common stock - financial services industry		443		2		(1	)		444
Total		2,817		193		(1	)		3,009
Total investment securities	$	98,606	$	2,485	$	(696	)	$	100,395

Amortized cost and estimated fair value of debt investments by contractual maturity

The amortized cost and estimated fair value of debt investments at September 30, 2012 by contractual maturity are shown below. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without penalties.

	Amortized		Estimated
	Cost		Fair Value
(In thousands)
Due in one year or less	$	7,294	$	7,329
Due after one year through five years		22,421		22,887
Due after five years through ten years		7,042		7,478
Due after ten years		18,455		18,521
Mortgage-backed securities		53,143		54,921
Totals	$	108,355	$	111,136

Investment securities' gross unrealized losses and fair value by investment category and length of time that individual securities have continuous unrealized loss position

The Company's investment securities' gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, are as follows:

										September 30, 2012
			Less than Twelve Months							Twelve Months or More							Total
	Number of							Number of							Number of
	Individual		Unrealized			Fair		Individual		Unrealized			Fair		Individual		Unrealized			Fair
	Securities		Losses			Value		Securities		Losses			Value		Securities		Losses			Value
(Dollars in thousands)
State and political subdivisions		4	$	(2	)	$	1,475		-	$	-		$	-		4	$	(2	)	$	1,475
Corporate		4		(37	)		2,633		2		(488	)		1,481		6		(525	)		4,114
Residential mortgage-backed - US agency		2		(1	)		1,018		-		-			-		2		(1	)		1,018
Common stock-financial services industry		1		(1	)		2		-		-			-		1		(1	)		2
Totals		11	$	(41	)	$	5,128		2	$	(488	)	$	1,481		13	$	(529	)	$	6,609
										December 31, 2011
			Less than Twelve Months							Twelve Months or More							Total
	Number of							Number of							Number of
	Individual		Unrealized			Fair		Individual		Unrealized			Fair		Individual		Unrealized			Fair
	Securities		Losses			Value		Securities		Losses			Value		Securities		Losses			Value
(Dollars in thousands)
State and political subdivisions		1	$	(1	)	$	412		-	$	-		$	-		1	$	(1	)	$	412
Corporate		19		(131	)		13,489		2		(559	)		1,410		21		(690	)		14,899
Residential mortgage-backed - US agency		2		(4	)		1,896		-		-			-		2		(4	)		1,896
Common stock-financial services industry		-		-			-		1		(1	)		3		1		(1	)		3
Totals		22	$	(136	)	$	15,797		3	$	(560	)	$	1,413		25	$	(696	)	$	17,210

Roll-forward of the amount related to credit losses recognized in earnings

The following table presents a roll-forward of the amount related to credit losses recognized in earnings for the periods ended September 30:

(In thousands)	2012		2011
Beginning balance – January 1	$	-	$	875
Reductions for securities sold		-		(875	)
Ending balance - September 30	$	-	$	-

Gross realized gains (losses) on sale of securities

Gross realized gains (losses) on sales of securities for the indicated periods are detailed below:

	For the three months					For the nine months
	ended September 30,					ended September 30,
(In thousands)	2012			2011		2012			2011
Realized gains	$	30		$	469	$	191		$	796
Realized losses		(12	)		-		(12	)		(5	)
	$	18		$	469	$	179		$	791

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Interest Rate Derivative (Tables)

9 Months Ended

Sep. 30, 2012

Interest Rate Derivative [Abstract]

Fair value outstanding derivatives and presentation on statement of condition

The following table summarizes the fair value of outstanding derivatives and their presentation on the statements of condition:

		September 30,		December 31,
(In thousands)		2012		2011
Cash flow hedge:
	Other liabilities	$	210	$	200

Change in accumulated other comprehensive loss on pretax basis and impact on earnings from interest rate swap

The change in accumulated other comprehensive loss on a pretax basis and the impact on earnings from the interest rate swap that qualifies as a cash flow hedge for the periods indicated below were as follows

	Three Months Ended September 30,
(In thousands)	2012			2011
Balance as of June 30:	$	(205	)	$	(135	)
Amount of losses recognized in other comprehensive income		(18	)		(87	)
Amount of loss reclassified from other comprehensive income
and recognized as interest expense		13			17
Balance as of September 30:	$	(210	)	$	(205	)
	Nine Months Ended September 30,
(In thousands)		2012			2011
Balance as of January 1:	$	(200	)	$	(110	)
Amount of losses recognized in other comprehensive income		(53	)		(141	)
Amount of loss reclassified from other comprehensive income
and recognized as interest expense		43			46
Balance as of September 30:	$	(210	)	$	(205	)

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Consolidated Statements of Comprehensive Income (Unaudited) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended		12 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011	Dec. 31, 2011
Retirement Plans:
Retirement plan net losses recognized in plan expenses	$ 78	$ 67	$ 318	$ 200
Gain on pension plan curtailment	0	0	1,919	0
Unrealized holding loss on financial derivative:
Change in unrealized holding loss on financial derivative	(18)	(87)	(53)	(141)
Reclassification adjustment for interest expense included in net income	13	17	43	46
Net unrealized loss on financial derivative	(5)	(70)	(10)	(95)
Unrealized holding gains (losses) on available-for-sale securities:
Unrealized holding gains arising during the period	939	316	1,551	2,430
Reclassification adjustment for net gains included in income	(18)	(469)	(179)	(791)
Net unrealized gains (losses) on securities available-for-sale	921	(153)	1,372	1,639
Other comprehensive income (loss), before tax	994	(156)	3,599	1,744
Tax effect	(397)	62	(1,440)	(699)
Other comprehensive income (loss), net of tax	597	(94)	2,159	1,045
Net Income	670	874	1,919	1,887
Comprehensive Income	1,267	780	4,078	2,932
Tax Effect Allocated to Each Component of Comprehensive Income
Retirement plan net losses recognized in plan expenses	(31)	(27)	(127)	(80)
Gain on pension plan curtailment	0	0	(768)	0
Unrealized loss on financial derivative	2	28	4	38
Unrealized gains on available-for-sale securities	(368)	61	(549)	(657)
Income tax effect related to other comprehensive income	(397)	62	(1,440)	(699)
Accumulated Other Comprehensive Loss By Component:
Unrealized loss for pension and other postretirement obligations	(3,792)		(3,792)		(6,029)
Tax effect			1,517		2,412
Net unrealized loss for pension and other postretirement obligations	(2,275)		(2,275)		(3,617)
Unrealized loss on financial derivative instruments used in cash flow hedging relationships	(210)		(210)		(200)
Tax effect			84		80
Net unrealized loss on financial derivative instruments used in cash flow hedging relationships	(126)		(126)		(120)
Unrealized gains on available-for-sale securities	3,161		3,161		1,789
Tax effect			(1,265)		(716)
Net unrealized gains on available-for-sale securities	1,896		1,896		1,073
Accumulated other comprehensive loss	$ (505)		$ (505)		$ (2,664)

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New Accounting Pronouncements

9 Months Ended

Sep. 30, 2012

New Accounting Pronouncements [Abstract]

New Accounting Pronouncements

(2)  New Accounting Pronouncements

None applicable to the Company.

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Earnings per Common Share (Details) (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Basic Earnings Per Common Share
Net income available to common shareholders	$ 557	$ 293	$ 1,552	$ 1,071
Weighted average common shares outstanding (in shares)	2,505	2,493	2,503	2,488
Basic earnings per common share (in dollars per share)	$ 0.22	$ 0.12	$ 0.62	$ 0.43
Diluted Earnings Per Common Share
Effect of assumed exercise of stock options	12	11	6	5
Effect of assumed exercise of stock warrants	$ 0	$ 43	$ 4	$ 43
Diluted average common shares outstanding (in shares)	2,517	2,547	2,513	2,536
Earnings per common share - diluted (in dollars per share)	$ 0.22	$ 0.11	$ 0.62	$ 0.42

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Subsequent Events (Details) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Subsequent Event [Line Items]
Quarterly dividend declared per common share (in dollars per share)	$ 0.03	$ 0.03	$ 0.09	$ 0.09
Subsequent Event [Member]
Subsequent Event [Line Items]
Dividend declaration date			Sep. 27, 2012
Quarterly dividend declared per common share (in dollars per share)			$ 0.03
Dividends payable, date to be paid			Nov. 01, 2012
Dividends payable, date of record			Oct. 12, 2012

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Earnings per Common Share (Tables)

9 Months Ended

Sep. 30, 2012

Earnings per Common Share [Abstract]

Calculations of basic and diluted earnings per share

The following table sets forth the calculation of basic and diluted earnings per share:

	Three months ended				Nine months ended
	September 30,				September 30,
(In thousands, except per share data)	2012		2011		2012		2011
Basic Earnings Per Common Share
Net income available to common shareholders	$	557	$	293	$	1,552	$	1,071
Weighted average common shares outstanding		2,505		2,493		2,503		2,488
Basic earnings per common share	$	0.22	$	0.12	$	0.62	$	0.43
Diluted Earnings Per Common Share
Net income available to common shareholders	$	557	$	293	$	1,552	$	1,071
Weighted average common shares outstanding		2,505		2,493		2,503		2,488
Effect of assumed exercise of stock options		12		11		6		5
Effect of assumed exercise of stock warrants		-		43		4		43
Diluted weighted average common shares outstanding		2,517		2,547		2,513		2,536
Diluted earnings per common share	$	0.22	$	0.11	$	0.62	$	0.42