(6) Loans

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

	March 31,			December 31,
(In thousands)	2013			2012
Residential mortgage loans:
1-4 family first-lien residential mortgages	$	177,411		$	173,955
Construction		778			2,655
Total residential mortgage loans		178,189			176,610

Commercial loans:
Real estate		84,308			82,329
Lines of credit		13,461			13,748
Other commercial and industrial		32,826			31,477
Municipal		4,538			3,588
Total commercial loans		135,133			131,142

Consumer loans:
Home equity and junior liens		21,552			22,073
Other consumer		3,643			3,469
Total consumer loans		25,195			25,542

Total loans		338,517			333,294
Net deferred loan costs		427			454
Less allowance for loan losses		(4,686	)		(4,501	)
Loans receivable, net	$	334,258		$	329,247

The Company originates residential mortgage, commercial, and consumer loans largely to customers throughout Oswego and Onondaga 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 March 31, 2013 and December 31, 2012, residential mortgage loans with a carrying value of $121.4 million and $58.6 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.

Loan Origination / Risk Management

The Company's lending policies and procedures are presented in Note 5 to the consolidated financial statements included in the 2012 Annual Report filed on Form 10-K on March 18, 2013, 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:

	As of March 31, 2013
			Special
(In thousands)	Pass		Mention		Substandard		Doubtful		Total
Residential mortgage loans:
1-4 family first-lien residential mortgages	$	169,774	$	1,177	$	6,432	$	28	$	177,411
Construction		778		-		-		-		778
Total residential mortgage loans		170,552		1,177		6,432		28		178,189
Commercial loans:
Real estate		78,694		1,429		4,002		183		84,308
Lines of credit		11,868		396		1,197		-		13,461
Other commercial and industrial		30,987		400		1,139		300		32,826
Municipal		4,538		-		-		-		4,538
Total commercial loans		126,087		2,225		6,338		483		135,133
Consumer loans:
Home equity and junior liens		19,600		85		1,780		87		21,552
Other consumer		3,515		49		55		24		3,643
Total consumer loans		23,115		134		1,835		111		25,195
Total loans	$	319,754	$	3,536	$	14,605	$	622	$	338,517

	As of December 31, 2012
			Special
(In thousands)	Pass		Mention		Substandard		Doubtful		Total
Residential mortgage loans:
1-4 family first-lien residential mortgages	$	166,801	$	1,323	$	5,831	$	-	$	173,955
Construction		2,655		-		-		-		2,655
Total residential mortgage loans		169,456		1,323		5,831		-		176,610
Commercial loans:
Real estate		76,719		1,685		3,925		-		82,329
Lines of credit		12,026		-		1,647		75		13,748
Other commercial and industrial		29,705		237		1,500		35		31,477
Municipal		3,588		-		-		-		3,588
Total commercial loans		122,038		1,922		7,072		110		131,142
Consumer loans:
Home equity and junior liens		20,078		145		1,801		49		22,073
Other consumer		3,199		133		111		26		3,469
Total consumer loans		23,277		278		1,912		75		25,542
Total loans	$	314,771	$	3,523	$	14,815	$	185	$	333,294

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 March 31, 2013 and December 31, 2012, are detailed in the following tables:

	As of March 31, 2013

	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	$	1,646	$	1,153	$	1,605	$	4,404	$	173,007	$	177,411
Construction		-		-		-		-		778		778
Total residential mortgage loans		1,646		1,153		1,605		4,404		173,785		178,189
Commercial loans:
Real estate		525		552		3,140		4,217		80,091		84,308
Lines of credit		504		271		263		1,038		12,423		13,461
Other commercial and industrial		923		1,360		593		2,876		29,950		32,826
Municipal		-		-		-		-		4,538		4,538
Total commercial loans		1,952		2,183		3,996		8,131		127,002		135,133
Consumer loans:
Home equity and junior liens		347		182		337		866		20,686		21,552
Other consumer		21		18		45		84		3,559		3,643
Total consumer loans		368		200		382		950		24,245		25,195
Total loans	$	3,966	$	3,536	$	5,983	$	13,485	$	325,032	$	338,517

	As of December 31, 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	$	2,698	$	1,161	$	2,046	$	5,905	$	168,050	$	173,955
Construction		-		-		-		-		2,655		2,655
Total residential mortgage loans		2,698		1,161		2,046		5,905		170,705		176,610
Commercial loans:
Real estate		1,706		1,833		1,794		5,333		76,996		82,329
Lines of credit		496		153		334		983		12,765		13,748
Other commercial and industrial		1,279		85		598		1,962		29,515		31,477
Municipal		-		-		-		-		3,588		3,588
Total commercial loans		3,481		2,071		2,726		8,278		122,864		131,142
Consumer loans:
Home equity and junior liens		207		405		730		1,342		20,731		22,073
Other consumer		26		42		46		114		3,355		3,469
Total consumer loans		233		447		776		1,456		24,086		25,542
Total loans	$	6,412	$	3,679	$	5,548	$	15,639	$	317,655	$	333,294

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

	March 31,		December 31,
(In thousands)	2013		2012
Residential mortgage loans:
1-4 family first-lien residential mortgages	$	1,605	$	2,046
		1,605		2,046
Commercial loans:
Real estate		3,140		1,794
Lines of credit		263		334
Other commercial and industrial		593		598
		3,996		2,726
Consumer loans:
Home equity and junior liens		337		730
Other consumer		45		46
		382		776
Total nonaccrual loans	$	5,983	$	5,548

There were no loans past due ninety days or more and still accruing interest at March 31, 2013 or December 31, 2012.

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 is required to disclose new TDRs for each reporting period for which an income statement is being presented. The Company has determined that there were no new TDRs for the three month periods ending March 31, 2013 and March 31, 2012.

There are four loans that are in payment default within the three month period ended March 31, 2013 which were modified during the preceding twelve month period. Two of these loans are commercial real estate loans in the amount of $746,000, one is a commercial line of credit in the amount of $87,000, and the other is a commercial loan in the amount of $110,000.

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, then impairment is recognized as a component of the provision for loan losses, an associated 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 loan information by portfolio class at the indicated dates:

	March 31, 2013						December 31, 2012
			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	$	1,354	$	1,354	$	-	$	844	$	844	$	-
Commercial real estate		1,924		1,948		-		1,554		1,571		-
Commercial lines of credit		356		369		-		358		370		-
Other commercial and industrial		575		729		-		657		801		-
Home equity and junior liens		474		474		-		380		380		-
Other consumer		-		-		-		-		-		-
With an allowance recorded:
1-4 family first-lien residential mortgages		1,016		1,016		172		1,307		1,307		215
Commercial real estate		1,928		1,928		451		1,182		1,182		401
Commercial lines of credit		100		100		100		-		-		-
Other commercial and industrial		261		266		242		225		230		207
Home equity and junior liens		158		158		93		155		155		95
Other consumer		3		3		3		5		5		5
Total:
1-4 family first-lien residential mortgages		2,370		2,370		172		2,151		2,151		215
Commercial real estate		3,852		3,876		451		2,736		2,753		401
Commercial lines of credit		456		469		100		358		370		-
Other commercial and industrial		836		995		242		882		1,031		207
Home equity and junior liens		632		632		93		535		535		95
Other consumer		3		3		3		5		5		5
Totals	$	8,149	$	8,345	$	1,061	$	6,667	$	6,845	$	923

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

	For the three months ended March 31,
(In thousands)	2013		2012
1-4 family first-lien residential mortgages	$	2,261	$	1,252
Commercial real estate		3,294		2,097
Commercial lines of credit		407		452
Other commercial and industrial		859		586
Home equity and junior liens		583		452
Other consumer		4		-
Total	$	7,408	$	4,839

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

	For the three months ended March 31,
(In thousands)	2013		2012
1-4 family first-lien residential mortgages	$	30	$	15
Commercial real estate		45		23
Commercial lines of credit		4		5
Other commercial and industrial		5		6
Home equity and junior liens		15		4
Other consumer		-		-
Total	$	99	$	53