10-Q

UNITED STATES OF AMERICA

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

S QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended June 30, 2014

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: 000-11486

CONNECTONE BANCORP, INC.

(Exact Name of Registrant as Specified in Its Charter)

New Jersey	26-1998619
(State or Other Jurisdiction of Incorporation or Organization)	(IRS Employer Identification No.)

301 Sylvan Avenue

Englewood Cliffs, New Jersey 07632

(Address of Principal Executive Offices) (Zip Code)

201-816-8900

(Registrant’s Telephone Number, Including Area Code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes S  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 (§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 S  No £

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

Large accelerated filer £ Accelerated filer S Non-accelerated filer £
(Do not check if smaller
reporting company) 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  S

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

Common Stock, no par value:	29,825,658, shares
(Title of Class)	(Outstanding as of August 11, 2014)

Table of Contents

		Page
PART I – FINANCIAL INFORMATION
Item 1.	Financial Statements
	Consolidated Statements of Condition at June 30, 2014 (unaudited) and December 31, 2013	3
	Consolidated Statements of Income for the three and six months ended June 30, 2014 and 2013 (unaudited)	4
	Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2014 and 2013 (unaudited)	5
	Consolidated Statements of Changes in Stockholders’ Equity for the six months ended June 30, 2014 and 2013 (unaudited)	6
	Consolidated Statements of Cash Flows for the six months ended June 30, 2014 and 2013 (unaudited)	7
	Notes to Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	34
Item 3.	Qualitative and Quantitative Disclosures about Market Risks	50
Item 4.	Controls and Procedures	51
PART II – OTHER INFORMATION
Item 1.	Legal Proceedings	51
Item 1a.	Risk Factors	51
Item 6.	Exhibits	52
SIGNATURES		53

2

Item 1. Financial Statements

CONNECTONE BANCORP, INC. AND SUBSIDIARIES 

CONSOLIDATED STATEMENTS OF CONDITION

(in thousands, except for share and per share data)	June 30, 2014			December 31, 2013
	(Unaudited)
ASSETS
Cash and due from banks	$	92,617		$	82,692
Investment securities:
Available-for-sale		266,959			323,070
Held-to-maturity (fair value of $222,503 and $210,958)		218,159			215,286
Loans held for sale		483			—
Loans		1,006,256			960,943
Less: Allowance for loan losses		10,825			10,333
Net loans		995,431			950,610
Investment in restricted stock, at cost		11,289			8,986
Premises and equipment, net		14,013			13,681
Accrued interest receivable		6,414			6,802
Bank-owned life insurance		36,245			35,734
Goodwill and other intangible assets		16,815			16,828
Other real estate owned		220			220
Due from brokers for investment securities		—			8,759
Other assets		7,164			10,414
Total assets	$	1,665,809		$	1,673,082
LIABILITIES
Deposits:
Non-interest bearing	$	238,138		$	227,370
Interest-bearing:
Time deposits $100 and over		112,616			99,444
Interest-bearing transaction, savings and time deposits less than $100		923,866			1,015,191
Total deposits		1,274,620			1,342,005
Borrowings		196,000			146,000
Subordinated debentures		5,155			5,155
Accounts payable and accrued liabilities		11,756			11,338
Total liabilities		1,487,531			1,504,498
STOCKHOLDERS’ EQUITY
Preferred stock, $1,000 liquidation value per share, authorized 5,000,000 shares; issued and outstanding 11,250 shares of Series B preferred stock at June 30, 2014 and December 31, 2013; total liquidation value of $11,250,000 at June 30, 2014 and December 31, 2013		11,250			11,250
Common stock, no par value, authorized 50,000,000 shares; issued 18,477,412 shares at June 30, 2014 and December 31, 2013; outstanding 16,413,490 shares at June 30, 2014 and 16,369,012 at December 31, 2013		110,056			110,056
Additional paid-in capital		5,380			4,986
Retained earnings		67,108			61,914
Treasury stock, at cost (2,063,922 common shares at June 30, 2014 and 2,108,400 at December 31, 2013)		(16,717	)		(17,078	)
Accumulated other comprehensive income (loss)		1,201			(2,544	)
Total stockholders’ equity		178,278			168,584
Total liabilities and stockholders’ equity	$	1,665,809		$	1,673,082

See accompanying notes to unaudited consolidated financial statements.

3

CONNECTONE BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

	Three Months Ended June 30,				Six Months Ended June 30,
(in thousands, except for share and per share data)	2014		2013		2014		2013
Interest income
Interest and fees on loans	$	10,461	$	9,892	$	20,572	$	19,815
Interest and dividends on investment securities:
Taxable		2,909		2,885		5,925		5,857
Tax-exempt		895		1,081		1,951		2,157
Dividends		136		121		290		252
Interest on federal funds sold and other short-term investments		—		—		—		2
Total interest income		14,401		13,979		28,738		28,083
Interest expense
Interest on certificates of deposit $100 or more		203		220		410		459
Interest on other deposits		1,098		1,063		2,207		2,108
Interest on borrowings		1,432		1,468		2,843		2,918
Total interest expense		2,733		2,751		5,460		5,485
Net interest income		11,668		11,228		23,278		22,598
Provision for loan losses		284		—		909		—
Net interest income after provision for loan losses		11,384		11,228		22,369		22,598
Other income
Service charges, commissions and fees		469		451		966		857
Annuities and insurance commissions		105		146		205		246
Bank-owned life insurance		256		274		511		839
Loan related fees		214		114		395		253
Net gains on sale of loans held for sale		43		91		79		229
Other		63		31		100		209
Other-than-temporary impairment losses on investment securities		—		—		—		(24	)
Net gains on sales of investment securities		574		600		1,989		943
Total other income		1,724		1,707		4,245		3,552
Other expense
Salaries and employee benefits		3,184		3,335		6,516		6,825
Occupancy and equipment		816		811		1,896		1,717
FDIC insurance		288		208		588		521
Professional and consulting		306		230		561		449
Stationery and printing		88		78		172		163
Marketing and advertising		27		62		67		163
Computer expense		373		343		718		696
Other real estate owned, net		1		107		3		126
Merger expenses		729		—		1,789		—
All other		932		902		1,930		1,954
Total other expense		6,744		6,076		14,240		12,614
Income before income tax expense		6,364		6,859		12,374		13,536
Income tax expense		1,986		1,936		3,598		3,689
Net Income		4,378		4,923		8,776		9,847
Less: Preferred stock dividends		28		28		56		84
Net income available to common stockholders	$	4,350	$	4,895	$	8,720	$	9,763
Earnings per common share
Basic	$	0.27	$	0.30	$	0.53	$	0.60
Diluted	$	0.26	$	0.30	$	0.53	$	0.60
Weighted average common shares outstanding
Basic		16,372,885		16,348,915		16,361,596		16,348,567
Diluted		16,430,376		16,375,774		16,422,339		16,375,028
Dividend per common share	$	0.075	$	0.055	$	0.150	$	0.130

See accompanying notes to unaudited consolidated financial statements. 

4

CONNECTONE BANCORP, INC. AND SUBSIDIARIES 

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
(in thousands)	2014			2013			2014			2013
Net income	$	4,378		$	4,923		$	8,776		$	9,847
Other comprehensive (loss) income, net of tax:
Unrealized gains and losses on securities available-for-sale:
Unrealized holding (losses) gains on available-for-sale securities		3,311			(11,702	)		6,827			(11,154	)
Tax effect		(1,276	)		4,689			(2,466	)		4,489
Net of tax amount		2,035			(7,013	)		4,361			(6,665	)
Reclassification adjustment of OTTI losses included in income		—			—			—			24
Tax effect		—			—			—			(6	)
Net of tax amount		—			—			—			18
Reclassification adjustment for net gains arising during the period		(574	)		(600	)		(1,989	)		(943	)
Tax effect		179			167			559			257
Net of tax amount		(395	)		(433	)		(1,430	)		(686	)
Amortization of unrealized holding gains on securities transferred from available-for-sale to held-to-maturity		54			88			99			74
Tax effect		(23	)		(33	)		(43	)		(28	)
Net of tax amount		31			55			56			46
Pension plan:
Actuarial gains		—			—			1,281			—
Tax effect		—			—			(523	)		—
Net of tax amount		—			—			758			—
Total other comprehensive (loss) income		1,671			(7,391	)		3,745			(7,287	)
Total comprehensive (loss) income	$	6,049		$	(2,468	)	$	12,521		$	2,560

See accompanying notes to unaudited consolidated financial statements. 

5

CONNECTONE BANCORP, INC. AND SUBSIDIARIES 

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(Unaudited)

(in thousands, except for share and per share data)	Preferred Stock		Common Stock		Additional Paid In Capital		Retained Earnings			Treasury Stock			Accumulated Other Comprehensive Income (Loss)			Total Stockholders’ Equity
Balance as of January 1, 2013	$	11,250	$	110,056	$	4,801	$	46,753		$	(17,232	)	$	5,063		$	160,691
Net income								9,847									9,847
Other comprehensive loss, net of tax														(7,287	)		(7,287	)
Dividend on series B preferred stock								(113	)								(113	)
Issuance cost of common stock								(6	)								(6	)
Cash dividends declared on common stock ($0.13 per share)								(2,125	)								(2,125	)
Issuance of restricted stock awards (18,829 shares)						91					152						243
Stock issued for options exercised (1,000 shares)						8					2						10
Stock-based compensation expense						25											25
Balance as of June 30, 2013	$	11,250	$	110,056	$	4,925	$	54,356		$	(17,078	)	$	(2,224	)	$	161,285
Balance as of January 1, 2014	$	11,250	$	110,056	$	4,986	$	61,914		$	(17,078	)	$	(2,544	)	$	168,584
Net income								8,776									8,776
Other comprehensive income, net of tax														3,745			3,745
Dividend on series B preferred stock								(56	)								(56	)
Issuance cost of common stock								(7	)								(7	)
Cash dividends declared on common stock ($0.15 per share)								(3,519	)								(3,519	)
Stock issued for options exercised (44,478 shares)						119					361						480
Tax benefit of options exercised						241											241
Stock-based compensation expense						34											34
Balance as of June 30, 2014	$	11,250	$	110,056	$	5,380	$	67,108		$	(16,717	)	$	1,201		$	178,278

See accompanying notes to unaudited consolidated financial statements. 

6

CONNECTONE BANCORP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(in thousands)	Six Months Ended June 30,
	2014			2013
Cash flows from operating activities:
Net income	$	8,776		$	9,847
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of premiums and accretion of discounts on investment securities, net		941			1,841
Depreciation and amortization		428			429
Provision for loan losses		909			—
Stock-based compensation		34			25
Other-than-temporary impairment losses on investment securities		—			24
Gains on sales of investment securities, net		(1,989	)		(943	)
Net loss on sale of other real estate owned		—			75
Loans originated for resale		(2,821	)		(12,351	)
Proceeds from sale of loans held for sale		2,417			13,486
Gains on sale of loans held for sale		(79	)		(229	)
Decrease (increase) in accrued interest receivable		388			(1	)
Decrease in prepaid FDIC insurance assessments		—			811
Increase in cash surrender value of bank-owned life insurance		(511	)		(548	)
Life insurance death benefit		—			(291	)
Decrease (increase) in other assets		2,545			(3,215	)
(Decrease) increase in other liabilities		(645	)		1,185
Net cash provided by operating activities		10,393			10,145
Cash flows from investing activities:
Investment securities available-for-sale:
Purchases		(10,487	)		(119,749	)
Sales		66,738			78,911
Maturities, calls and principal repayments		14,486			29,583
Investment securities held-to-maturity:
Purchases		(8,310	)		(6,104	)
Maturities and principal repayments		5,068			2,803
Net (purchases) redemption of restricted investment in bank stocks		(2,303	)		(22	)
Net increase in loans		(45,730	)		(13,421	)
Purchases of premises and equipment		(747	)		(304	)
Proceeds from bank-owned life insurance death benefits		—			592
Proceeds from sale of other real estate owned		—			1,230
Net cash provided by (used in) investing activities		18,715			(26,481	)
Cash flows from financing activities:
Net (decrease) increase in deposits		(67,385	)		(26,028	)
Net increase in borrowings		50,000			—
Cash dividends on preferred stock		(56	)		(84	)
Cash dividends on common stock		(2,456	)		(1,978	)
Issuance of restricted stock awards		—			243
Issuance cost of common stock		(7	)		(6	)
Tax benefit of options exercised		241			—
Proceeds from exercise of stock options		480			10
Net cash used in financing activities		(19,183	)		(27,843	)
Net change in cash and cash equivalents		9,925			(44,179	)
Cash and cash equivalents at beginning of period		82,692			106,138
Cash and cash equivalents at end of period	$	92,617		$	61,959
Supplemental disclosures of cash flow information:
Cash payments for:
Interest paid on deposits and borrowings	$	5,425		$	5,548
Income taxes		2,553			1,630
Supplemental disclosures of non-cash investing activities:
Transfer of loans to other real estate owned		—			236
Dividends declared, not paid		1,063			—
Transfer of investment securities available-for-sale to investment securities held-to-maturity		—			75,694

See accompanying notes to unaudited consolidated financial statements. 

7

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1. Nature of Operations and Principles of Consolidation

The consolidated financial statements of ConnectOne Bancorp, Inc. (the “Parent Corporation”) are prepared on an accrual basis and include the accounts of the Parent Corporation and its wholly-owned subsidiary, ConnectOne Bank (the “Bank” and, collectively with the Parent Corporation and the Parent Corporation’s other direct and indirect subsidiaries, the “Corporation”). All significant intercompany accounts and transactions have been eliminated from the accompanying consolidated financial statements.

The Bank is a community-based, full-service New Jersey-chartered commercial bank that was founded in 2005. The Bank operates from its headquarters located at 301 Sylvan Avenue in the Borough of Englewood Cliffs, Bergen County, New Jersey, and following consummation of the merger on July 1, 2014, through its twenty-three other banking offices. Substantially all loans are secured by specific items of collateral including business assets, consumer assets, and commercial and residential real estate. Commercial loans are expected to be repaid from cash flow from business operations. There are no significant concentrations of loans to any one industry or customer. However, the customers’ ability to repay their loans is dependent on the cash flows, real estate and general economic conditions in the area.

The following unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X, and, accordingly, do not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. However, in the opinion of management, all adjustments (consisting only of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and six months ended June 30, 2014 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2014, or for any other interim period. The Company’s 2013 Annual Report on Form 10-K, should be read in conjunction with these financial statements.

In preparing the consolidated financial statements, management has made estimates and assumptions that affect the reported amounts of assets and liabilities as of the dates of the consolidated statements of condition and that affect the results of operations for the periods presented. Actual results could differ significantly from those estimates. Material estimates that are particularly susceptible to change in the near term relate to the determination of the allowance for loan losses, the other-than-temporary impairment evaluation of securities, the evaluation of the impairment of goodwill and the evaluation of deferred tax assets.

The consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”).

Note 2. Recent Accounting Pronouncements

FASB ASU 2014-04: Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans Upon Foreclosure. EITF Issue 13-E sought to define “in substance repossession or foreclosure” because of the diversity in practice regarding when entities were reclassifying loans receivable to other real estate owned instead of as a loan receivable. The timing of loan reclassifications to OREO may be qualitatively significant to regulators and other financial statement users. “In substance repossession or foreclosure” is clarified by the ASU. A creditor is considered to have received physical possession (resulting from an in substance repossession) of residential real estate property collateralizing a consumer mortgage loan only upon the occurrence of either of the following: a) The creditor obtains legal title to the residential real estate property upon completion of a foreclosure. A creditor may obtain legal title to the residential real estate property even if the borrower has redemption rights that provide the borrower with a legal right for a period of time after a foreclosure to reclaim the real estate property by paying certain amounts specified by law. b) The borrower conveys all interest in the residential real estate property to the creditor to satisfy the loan through completion of a deed in lieu of foreclosure or through a similar legal agreement. The deed in lieu of foreclosure or similar legal agreement is completed when agreed-upon terms and conditions have been satisfied by both the borrower and the creditor. The ASU is effective for fiscal years beginning after December 15, 2014, and interim periods therein. Early adoption is permitted. The Corporation will adopt the methodologies prescribed by this ASU by the date required, and does not anticipate that the ASU will have a material effect on its financial position or results of operations.

FASB ASU No. 2014-09: Revenue from Contracts with Customers. In May 2014, the FASB issued an update creating FASB Topic 606, Revenue from Contracts with Customers. The guidance in this update affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards (for example, insurance contracts or lease contracts). The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance provides steps to follow to achieve the core principle. An entity should disclose sufficient information to enable users of financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. Qualitative and quantitative information is required about contracts with customers, significant judgments and changes in judgments, and assets recognized from the costs to obtain or fulfill a contract. The amendments in this update become effective for annual periods and interim periods within those annual periods beginning after December 15, 2016. We are currently evaluating the impact of adopting the new guidance on the consolidated financial statements.

8

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

FASB ASC ASU No. 2014-11, Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures. In June 2014, the FASB issued an update impacting FASB ASC 860, Transfers and Servicing. The amendments in this update change the accounting for repurchase-to-maturity transactions and linked repurchase financings to secured borrowing accounting, which is consistent with the accounting for other repurchase agreements. The amendments also require new disclosures. An entity is required to disclose information on transfers accounted for as sales in transactions that are economically similar to repurchase agreements. An entity must also provide additional information about the types of collateral pledged in repurchase agreements and similar transactions accounted for as secured borrowings. An entity is required to present changes in accounting for transactions outstanding on the effective date as a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption. The amendments in this update become effective for the first interim or annual period beginning after December 15, 2014. We are currently evaluating the impact of adopting the new guidance on the consolidated financial statements, but it is not expected to have a material impact.

FASB ASC ASU No. 2014-12, Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period. In June 2014, the FASB issued an update impacting FASB ASC 860, Transfers and Servicing. Generally, an award with a performance target also requires an employee to render service until the performance target is achieved. In some cases, however, the terms of an award may provide that the performance target could be achieved after an employee completes the requisite service period. The amendments in this update require that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. An entity should apply guidance in Topic 718 as it relates to awards with performance conditions that affect vesting to account for such awards. As such, the performance target should not be reflected in estimating the grant-date fair value of the award. Compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the period for which the service has already been rendered. The amendments in this update become effective for annual periods and interim periods within those annual periods beginning after December 15, 2015. We are currently evaluating the impact of adopting the new guidance on the consolidated financial statements, but it is not expected to have a material impact.

Note 3. Subsequent Event – Completion of Merger

On January 20, 2014, the Parent Corporation entered into an Agreement and Plan of Merger (the “Merger Agreement”) with ConnectOne Bancorp, Inc., a New Jersey corporation (“ConnectOne Bancorp”). Effective July 1, 2014 (the “Effective Time”), the Parent Corporation completed the merger contemplated by the Merger Agreement (the “Merger”) with legacy ConnectOne Bancorp, Inc., a New Jersey corporation (“Legacy ConnectOne”). At closing, Legacy ConnectOne merged with and into the Parent Corporation, with the Parent Corporation as the surviving corporation. Also at closing, the Parent Corporation changed its name from “Center Bancorp, Inc.” to “ConnectOne Bancorp, Inc.” and changed its NASDAQ trading symbol to “CNOB” from “CNBC.”

Pursuant to the Merger Agreement, holders of Legacy ConnectOne common stock, no par value per share (the “Legacy ConnectOne Common Stock”), received 2.6 shares of common stock of the Parent Corporarion, no par value per share (the “Company Common Stock”), for each share of Legacy ConnectOne Common Stock held immediately prior to the effective time of the Merger, with cash to be paid in lieu of fractional shares. Each outstanding share of Company Common Stock remained outstanding and was unaffected by the Merger. Each option granted by Legacy ConnectOne to purchase shares of Legacy ConnectOne Common Stock was converted into an option to purchase Company Common Stock on the same terms and conditions as were applicable prior to the Merger (taking into account any acceleration or vesting by reason of the consummation of the Merger and its related transactions), subject to adjustment of the exercise price and the number of shares of Company Common Stock issuable upon exercise of such option based on the 2.6 exchange ratio.

Immediately following the Merger, Union Center National Bank, a bank organized pursuant to the laws of the United States, and a wholly owned subsidiary of the Parent Corporation (“UNCB”), merged (the “Bank Merger”) with and into ConnectOne Bank, a New Jersey state-chartered commercial bank and a wholly owned subsidiary of Legacy ConnectOne, with ConnectOne Bank as the surviving entity (the “Bank”). The Bank will now conduct business only in the name of and under the brand of ConnectOne.

Given the initial accounting for this business combination is incomplete, management is not yet able to disclose the preliminary fair value of the assets acquired and liabilities assumed.

9

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 4. Earnings per Common Share

Basic earnings per common share (“EPS”) is computed by dividing income available to common stockholders by the weighted average number of common shares outstanding. Diluted EPS includes any additional common shares as if all potentially dilutive common shares were issued (e.g., stock options). The Corporation’s weighted average common shares outstanding for diluted EPS include the effect of stock options and restricted stock awards outstanding using the Treasury Stock Method, which are not included in the calculation of basic EPS. Anti-dilutive stock option and restricted stock award shares outstanding were 19,174 and 19,377, respectively, for the three and six months ended June 30, 2014, and anti-dilutive stock option shares outstanding were 67,451 for both the three and six months ended June 30, 2013.

Earnings per common share have been computed as follows:

	Three Months Ended June 30,						Six Months Ended June 30,
(in thousands, except per share amounts)	2014			2013			2014			2013
Net income	$	4,378		$	4,923		$	8,776		$	9,847
Preferred stock dividends		(28	)		(28	)		(56	)		(84	)
Net income available to common stockholders	$	4,350		$	4,895			8,720		$	9,763
Basic weighted average common shares outstanding		16,373			16,349			16,362			16,349
Plus: effect of dilutive options		57			27			61			26
Diluted weighted average common shares outstanding		16,430			16,376			16,423			16,375
Earnings per common share:
Basic	$	0.27		$	0.30		$	0.53		$	0.60
Diluted	$	0.26		$	0.30		$	0.53		$	0.60

Note 5. Investment Securities

The Corporation’s investment securities are classified as available-for-sale and held-to-maturity at June 30, 2014 and December 31, 2013. Investment securities available-for-sale are reported at fair value with unrealized gains or losses included in equity, net of tax. Accordingly, the carrying value of such securities reflects their fair value at the balance sheet date. Fair value is based upon either quoted market prices, or in certain cases where there is limited activity in the market for a particular instrument, assumptions are made to determine their fair value. See Note 8 of the Notes to Consolidated Financial Statements for a further discussion.

Transfers of debt securities from the available-for-sale category to the held-to-maturity category are made at fair value at the date of transfer. The unrealized holding gain or loss at the date of transfer remains in accumulated other comprehensive income and in the carrying value of the held-to-maturity investment security. Premiums or discounts on investment securities are amortized or accreted using the effective interest method over the life of the security as an adjustment of yield. Unrealized holding gains or losses that remain in accumulated other comprehensive income are amortized or accreted over the remaining life of the security as an adjustment of yield, offsetting the related amortization of the premium or accretion of the discount.

10

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following tables present information related to the Corporation’s investment securities at June 30, 2014 and December 31, 2013.

	June 30, 2014
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(dollars in thousands)
Investment Securities Available-for-Sale:
U.S. Treasury and agency securities	$	9,608	$	—	$	(136	)	$	9,472
Federal agency obligations		22,643		116		(111	)		22,648
Residential mortgage pass-through securities		44,369		1,563		(13	)		45,919
Commercial mortgage pass-through securities		3,072		—		(51	)		3,021
Obligations of U.S. states and political subdivisions		6,303		200		—			6,503
Trust preferred securities		16,085		490		(239	)		16,336
Corporate bonds and notes		132,401		6,969		(43	)		139,327
Asset-backed securities		15,010		166		—			15,176
Certificates of deposit		2,099		38		(5	)		2,132
Equity securities		376		—		(83	)		293
Mutual funds and money market funds		6,232		—		(100	)		6,132
Total	$	258,198	$	9,542	$	(781	)	$	266,959
Investment Securities Held-to-Maturity:
U.S. Treasury and agency securities	$	28,159	$	257	$	—		$	28,416
Federal agency obligations		22,039		166		(19	)		22,186
Residential mortgage pass-through securities		2,049		14		—			2,063
Commercial mortgage pass-through securities		4,341		77		(18	)		4,400
Obligations of U.S. states and political subdivisions		123,646		3,327		(410	)		126,563
Corporate bonds and notes		37,925		950		—			38,875
Total	$	218,159	$	4,791	$	(447	)	$	222,503
Total investment securities	$	476,357	$	14,333	$	(1,228	)	$	489,462

11

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

	December 31, 2013
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
	(dollars in thousands)
Investment Securities Available-for-Sale:
U.S. Treasury and agency securities	$	14,344	$	—	$	(825	)	$	13,519
Federal agency obligations		20,567		29		(655	)		19,941
Residential mortgage pass-through securities		48,312		791		(229	)		48,874
Commercial mortgage pass-through securities		7,145		3		(157	)		6,991
Obligations of U.S. states and political subdivisions		30,804		711		(55	)		31,460
Trust preferred securities		19,763		150		(510	)		19,403
Corporate bonds and notes		154,182		4,930		(482	)		158,630
Asset-backed securities		15,733		246		—			15,979
Certificates of deposit		2,250		32		(20	)		2,262
Equity securities		376		—		(89	)		287
Mutual funds and money market funds		5,671		68		(15	)		5,724
Total	$	319,147	$	6,960	$	(3,037	)	$	323,070
Investment Securities Held-to-Maturity:
U.S. Treasury and agency securities	$	28,056	$	—	$	(1,019	)	$	27,037
Federal agency obligations		15,249		23		(389	)		14,883
Residential mortgage-backed securities		2,246		—		(64	)		2,182
Commercial mortgage-backed securities		4,417		41		(62	)		4,396
Obligations of U.S. states and political subdivisions		127,418		1,303		(3,688	)		125,033
Corporate bonds and notes		37,900		149		(622	)		37,427
Total	$	215,286	$	1,516	$	(5,844	)	$	210,958
Total investment securities	$	534,433	$	8,476	$	(8,881	)	$	534,028

The following table presents information for investment securities available-for-sale at June 30, 2014, based on scheduled maturities. Actual maturities can be expected to differ from scheduled maturities due to prepayment or early call options of the issuer.

	June 30, 2014
	Amortized Cost		Fair Value
	(in thousands)
Investment Securities Available-for-Sale:
Due in one year or less	$	9,384	$	9,499
Due after one year through five years		45,331		46,591
Due after five years through ten years		112,083		117,869
Due after ten years		37,351		37,635
Residential mortgage pass-through securities		44,369		45,919
Commercial mortgage pass-through securities		3,072		3,021
Equity securities		376		293
Mutual funds and money market funds		6,232		6,132
Total	$	258,198	$	266,959
Investment Securities Held-to-Maturity:
Due in one year or less	$	2,052	$	2,054
Due after one year through five years		12,932		13,203
Due after five years through ten years		68,506		69,838
Due after ten years		128,279		130,945
Residential mortgage-backed securities		2,049		2,063
Commercial mortgage pass-through securities		4,341		4,400
Total	$	218,159	$	222,503
Total investment securities	$	476,357	$	489,462

12

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

For the six months ended June 30, 2014, proceeds of available-for-sale investment securities sold amounted to approximately $66.7 million.

All residential mortgage and commercial mortgage pass-through securities are issued by government sponsored agencies.

Gross gains and losses from the sales of investment securities for the three-month and six-month periods ended June 30, 2014 and 2013 were as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
(in thousands)	2014		2013		2014		2013
Gross gains on sales of investment securities	$	579	$	600	$	2,011	$	1,032
Gross losses on sales of investment securities		5		—		22		89
Net gains on sales of investment securities	$	574	$	600	$	1,989	$	943

The following summarizes OTTI charges for the periods indicated.

	Three Months Ended				Six Months Ended
	June 30,				June 30,
(in thousands)	2014		2013		2014		2013
Other than temporary impairment charges	$	—	$	—	$	—	$	—
Principal losses on a variable rate CMO		—		—		—		24
Total other-than-temporary impairment charges	$	—	$	—	$	—	$	24

The Corporation performs regular analysis on all its investment securities to determine whether a decline in fair value indicates that an investment is other-than-temporarily impaired in accordance with FASB ASC 320-10. FASB ASC 320-10 requires companies to record OTTI charges through earnings if they have the intent to sell, or if it is more likely than not that they will be required to sell an impaired debt security before recovery of its amortized cost basis. If the Corporation intends to sell or it is more likely than not it will be required to sell the security before recovery of its amortized cost basis, the OTTI is recognized in earnings equal to the entire difference between the investment’s amortized cost basis and its estimated fair value at the balance sheet date. If the Corporation does not intend to sell the security and it is not more likely than not that the entity will be required to sell the security before recovery of its amortized cost basis, the OTTI is separated into the amount representing the credit loss and the amount related to all other factors. The amount of the OTTI related to the credit loss is determined based on the present value of cash flows expected to be collected and is recognized in earnings. The amount of the total OTTI related to other factors is recognized in other comprehensive income, net of applicable taxes. The previous amortized cost basis less the OTTI recognized in earnings becomes the new amortized cost basis of the investment.

The Corporation’s assessment of whether an impairment is other than temporary includes factors such as whether the issuer has defaulted on scheduled payments, announced a restructuring and/or filed for bankruptcy, has disclosed severe liquidity problems that cannot be resolved, disclosed a deteriorating financial condition or sustained significant losses. The Corporation maintains a watch list for the identification and monitoring of securities experiencing problems that require a heightened level of review. This could result from credit rating downgrades.

13

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following table presents detailed information for each trust preferred security held by the Corporation at June 30, 2014 which has at least one rating below investment grade.

Deal Name	Single Issuer or Pooled	Class/ Tranche		Amortized Cost		Fair Value		Gross Unrealized Gain (Loss)			Lowest Credit Rating Assigned	Number of Banks Currently Performing		Deferrals and Defaults as % of Original Collateral	Expected Deferral/Defaults as % of Remaining Performing Collateral
	(dollars in thousands)
Countrywide Capital IV	Single		n/a	$	1,771	$	1,819	$	48		BB+		1	None	None
Countrywide Capital V	Single		n/a		2,747		2,858		111		BB+		1	None	None
Countrywide Capital V	Single		n/a		250		260		10		BB+		1	None	None
Nationsbank Cap Trust III	Single		n/a		1,574		1,335		(239	)	BB+		1	None	None
Morgan Stanley Cap Trust IV	Single		n/a		2,500		2,515		15		BB+		1	None	None
Morgan Stanley Cap Trust IV	Single		n/a		1,743		1,759		16		BB+		1	None	None
Goldman Sachs	Single		n/a		1,000		1,139		139		BB+		1	None	None
Stifel Financial	Single		n/a		4,500		4,651		151		BBB-		1	None	None
Total				$	16,085	$	16,336	$	251

Credit Loss Portion of OTTI Recognized in Earnings on Debt Securities

	Six Months Ended June 30, 2014		Year Ended December 31, 2013
	(in thousands)
Balance of credit-related OTTI at January 1,	$	—	$	4,450
Addition:
Credit losses on investment securities for which other-than-temporary impairment was not previously recognized		—		652
Reduction:
Credit losses on investment securities sold during the period		—		(5,102	)
Balance of credit-related OTTI at period end	$	—	$	—

14

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Temporarily Impaired Investments

For all securities, the Corporation does not believe that the unrealized losses, which were comprised of 81 investment securities as of June 30, 2014, represent an other-than-temporary impairment. The gross unrealized losses of $1.2 million associated with U.S. Treasury and agency securities, federal agency obligations, mortgage-backed securities, corporate bonds, tax-exempt securities, mutual funds and equity securities are not considered to be other than temporary because these unrealized losses are related to changes in interest rates and do not affect the expected cash flows of the underlying collateral or issuer.

Factors affecting the market price include credit risk, market risk, interest rates, economic cycles, and liquidity risk. The magnitude of any unrealized loss may be affected by the relative concentration of the Corporation’s investment in any one issuer or industry. The Corporation has established policies to reduce exposure through diversification of concentration of the investment portfolio including limits on concentrations to any one issuer. The Corporation believes the investment portfolio is prudently diversified.

The decline in value is related to a change in interest rates and subsequent change in credit spreads required for these issues affecting market price. All issues are performing and are expected to continue to perform in accordance with their respective contractual terms and conditions. Short to intermediate average durations and in certain cases monthly principal payments should reduce further market value exposure to increases in rates.

The Corporation evaluates all securities with unrealized losses quarterly to determine whether the loss is other than temporary. Unrealized losses in the corporate debt securities category consists primarily of senior unsecured corporate debt securities issued by large financial institutions, insurance companies and other corporate issuers and single issuer corporate trust preferred securities. None of the corporate issuers have defaulted on interest payments. The unrealized loss in equity securities consists of losses on other bank equities. The decline in fair value is due in large part to the lack of an active trading market for these securities, changes in market credit spreads and rating agency downgrades. Management concluded that these securities were not other-than-temporarily impaired at June 30, 2014. Future deterioration in the credit quality of these large financial institution issuers of TRUP debt securities could result in impairment charges in the future.

In determining that the securities giving rise to the previously mentioned unrealized losses were not other-than-temporary, the Corporation evaluated the factors cited above, which the Corporation considers when assessing whether a security is other-than-temporarily impaired. In making these evaluations the Corporation must exercise considerable judgment. Accordingly there can be no assurance that the actual results will not differ from the Corporation’s judgments and that such differences may not require the future recognition of other-than-temporary impairment charges that could have a material effect on the Corporation’s financial position and results of operations. In addition, the value of, and the realization of any loss on an investment security are subject to numerous risks as cited above.

15

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following tables indicate gross unrealized losses not recognized in income and fair value, aggregated by investment category and the length of time individual securities have been in a continuous unrealized loss position at June 30, 2014 and December 31, 2013:

	June 30, 2014
	Total					Less than 12 Months					12 Months or Longer
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
	(in thousands)
Investment Securities Available-for-Sale:
U.S. Treasury and agency securities	$	9,472	$	(136	)	$	—	$	—		$	9,472	$	(136	)
Federal agency obligations		8,093		(111	)		3,949		(37	)		4,144		(74	)
Residential mortgage pass-through securities		3,698		(13	)		448		(1	)		3,250		(12	)
Commercial mortgage pass-through securities		3,021		(51	)		—		—			3,021		(51	)
Trust preferred securities		1,335		(239	)		—		—			1,335		(239	)
Corporate bonds and notes		7,410		(43	)		5,445		(25	)		1,965		(18	)
Certificates of deposit		217		(5	)		217		(5	)		—		—
Equity securities		294		(83	)		—		—			294		(83	)
Mutual funds and money market funds		5,401		(100	)		4,413		(89	)		988		(11	)
Total		38,941		(781	)		14,472		(157	)		24,469		(624	)
Investment Securities Held-to-Maturity:
U.S. Treasury and agency securities	$	—	$	—		$	—	$	—		$	—	$	—
Federal agency obligations		1,757		(19	)		1,757		(19	)		—		—
Residential mortgage pass-through securities		—		—			—		—			—		—
Commercial mortgage pass-through securities		1,409		(18	)		—		—			1,409		(18	)
Obligations of U.S. states and political subdivisions		33,586		(410	)		13,955		(48	)		19,631		(362	)
Total		36,752		(447	)		15,712		(67	)		21,040		(380	)
Total Temporarily Impaired Securities	$	75,693	$	(1,228	)	$	30,184	$	(224	)	$	45,509	$	(1,004	)

16

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

	December 31, 2013
	Total					Less than 12 Months					12 Months or Longer
	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
	(in thousands)
Investment Securities Available-for-Sale:
U.S. Treasury and agency securities	$	13,519	$	(825	)	$	13,519	$	(825	)	$	—	$	—
Federal agency obligation		17,200		(655	)		17,200		(655	)		—		—
Residential mortgage pass-through securities		18,293		(229	)		18,293		(229	)		—		—
Commercial mortgage pass-through securities		2,924		(157	)		2,924		(157	)		—		—
Obligations of U.S. states and political subdivisions		4,199		(55	)		4,199		(55	)		—		—
Trust preferred securities		5,306		(510	)		4,031		(211	)		1,275		(299	)
Corporate bonds and notes		32,498		(482	)		30,533		(448	)		1,965		(34	)
Certificates of deposit		552		(20	)		552		(20	)		—		—
Equity securities		287		(89	)		—		—			287		(89	)
Mutual funds and money market funds		985		(15	)		—		—			985		(15	)
Total		95,763		(3,037	)		91,251		(2,600	)		4,512		(437	)
Investment Securities Held-to-Maturity:
U.S. Treasury and agency securities	$	27,037	$	(1,019	)	$	27,037	$	(1,019	)	$	—	$	—
Federal agency obligation		13,492		(389	)		13,197		(388	)		295		(1	)
Residential mortgage pass-through securities		2,182		(64	)		2,182		(64	)		—		—
Commercial mortgage pass-through securities		1,395		(62	)		1,395		(62	)		—		—
Obligations of U.S. states and political subdivisions		66,034		(3,688	)		57,072		(2,957	)		8,962		(731	)
Corporate bonds and notes		27,210		(622	)		27,210		(622	)		—		—
Total		137,350		(5,844	)		128,093		(5,112	)		9,257		(732	)
Total Temporarily Impaired Securities	$	233,113	$	(8,881	)	$	219,344	$	(7,712	)	$	13,769	$	(1,169	)

Investment securities having a carrying value of approximately $140.0 million and $109.3 million at June 30, 2014 and December 31, 2013, respectively, were pledged to secure public deposits, borrowings, and Federal Home Loan Bank advances and for other purposes required or permitted by law.

Note 6. Loans and the Allowance for Loan Losses

Loans are stated at their principal amounts inclusive of net deferred loan origination fees. Interest income is credited as earned except when a loan becomes past due 90 days or more and doubt exists as to the ultimate collection of interest or principal. In those cases the recognition of income is discontinued. Past due status is based on the contractual terms of the loan. Loans that are past due 90 days or more that are both well secured and in the process of collection will remain on an accruing basis. When a loan is placed on non-accrual status, interest accruals cease and uncollected accrued interest is reversed and charged against current income.

Portfolio segments are defined as the level at which an entity develops and documents a systematic methodology to determine its allowance. Management has determined that the Corporation has two portfolio segments of loans and leases (commercial and consumer) in determining the allowance. Both quantitative and qualitative factors are used by management at the portfolio segment level in determining the adequacy of the allowance for the Corporation. Classes of loans and leases are a disaggregation of the Corporation’s portfolio segments. Classes are defined as a group of loans and leases which share similar initial measurement attributes, risk characteristics, and methods for monitoring and assessing credit risk. Management has determined that the Corporation has five classes of loans and leases: commercial and industrial (including lease financing), commercial – real estate, construction, residential mortgage (including home equity) and installment.

Generally, all classes of commercial and consumer loans and leases are placed on non-accrual status upon becoming contractually past due 90 days or more as to principal or interest (unless loans and leases are adequately secured by collateral and are in the process of collection), when terms are renegotiated below market levels, or where substantial doubt about full repayment of principal or interest is evident. For certain installment loans the entire outstanding balance on the loan is charged-off when the loan becomes 60 days past due.

17

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Payments received on non-accrual loans are applied against principal. A loan may only be restored to an accruing basis when it again becomes well secured and in the process of collection or all past due amounts have been collected and six months of payments have been received to demonstrate that the borrower can continue to meet the loan terms. Loan origination fees and certain direct loan origination costs are deferred and recognized over the life of the loan as an adjustment to the loan’s yield using the level yield method.

Impaired Loans

The Corporation accounts for impaired loans in accordance with FASB ASC 310-10-35. The value of impaired loans is based on the present value of expected future cash flows discounted at the loan’s effective interest rate or, as a practical expedient, at the loan’s observable market price or at the fair value of the collateral if the loan is collateral dependent.

A loan is considered impaired when, based on current information and events, it is probable that the Corporation will not be able to collect all amounts due from the borrower in accordance with the contractual terms of the loan, including scheduled interest payments. The Corporation has defined its population of impaired loans to include all classes of non-accrual and troubled debt restructuring (“TDR”) loans. As part of the evaluation of impaired loans, the Corporation individually reviews for impairment all non-homogeneous loans (in each instance, above an established dollar threshold of $200,000) internally classified as substandard or below. Generally, smaller impaired non-homogeneous loans and impaired homogeneous loans are collectively evaluated for impairment.

When a loan has been identified as being impaired, the amount of impairment is measured based on the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s observable market price, or the estimated fair value of the collateral, less any selling costs, if the loan is collateral-dependent. If the measurement of the impaired loan is less than the recorded investment in the loan (including accrued interest, net of deferred loan fees or costs and unamortized premiums or discounts), impairment is recognized by creating or adjusting an existing allocation of the allowance, or by recording a partial charge-off of the loan to its fair value. Interest payments made on impaired loans are typically applied to principal unless collectability of the principal amount is reasonably assured, in which case interest income may be accrued or recognized on a cash basis.

Loans Modified in a Troubled Debt Restructuring

Loans are considered to have been modified in a TDR when due to a borrower’s financial difficulties, the Corporation makes certain concessions to the borrower that it would not otherwise consider. Modifications may include interest rate reductions, principal or interest forgiveness, forbearance, and other actions intended to minimize economic loss and to avoid foreclosure or repossession of collateral. Generally, a non-accrual loan that has been modified in a TDR remains on non-accrual status for a period of six months to demonstrate that the borrower is able to meet the terms of the modified loan. However, performance prior to the modification, or significant events that coincide with the modification, are included in assessing whether the borrower can meet the new terms and may result in the loan being returned to accrual status at the time of loan modification or after a shorter performance period. If the borrower’s ability to meet the revised payment schedule is uncertain, the loan remains on non-accrual status.

Reserve for Credit Losses

The Corporation’s reserve for credit losses is comprised of two components, the allowance for loan losses and the reserve for unfunded commitments (the “Unfunded Commitments”).

Allowance for Loan Losses

The allowance for loan losses is a valuation allowance for probable incurred credit losses. The allowance is increased by provisions charged to operations and reduced by loan charge-offs, net of recoveries. The allowance is based on management’s evaluation of the loan portfolio considering economic conditions, the volume and nature of the loan portfolio, historical loan loss experience and individual credit situations.

Material estimates that are particularly susceptible to significant change in the near-term relate to the determination of the allowance for loan losses. In connection with the determination of the allowance for loan losses, management obtains independent appraisals for significant properties.

The ultimate collectability of a substantial portion of the Corporation’s loan portfolio is susceptible to changes in the real estate market and economic conditions in the State of New Jersey and the impact of such conditions on the creditworthiness of the borrowers.

18

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Reserve for Unfunded Commitments

The reserve for unfunded commitments is maintained at a level believed by management to be sufficient to absorb estimated probable losses related to unfunded credit facilities and is included in other liabilities in the consolidated statements of condition. The determination of the adequacy of the reserve is based upon an evaluation of the unfunded credit facilities, including an assessment of historical commitment utilization experience, and credit risk. Net adjustments to the reserve for unfunded commitments are included in other expense.

Composition of Loan Portfolio

The following table sets forth the composition of the Corporation’s loan portfolio, including net deferred fees and costs, at June 30, 2014 and December 31, 2013:

	June 30,		December 31,
	2014		2013
	(in thousands)
Commercial and industrial	$	245,930	$	229,688
Commercial real estate		565,397		536,539
Construction		46,705		42,722
Residential mortgage		147,128		150,571
Installment		617		1,084
Subtotal		1,005,777		960,604
Net deferred loan costs		479		339
Total loans	$	1,006,256	$	960,943

At June 30, 2014 and December 31, 2013, loans to executive officers and directors aggregated approximately $19,949,000 and $20,365,000, respectively. During the six months ended June 30, 2014, the Corporation made new loans and advances to executive officers and directors in the amount of $1,319,000. Payments and payoffs by such persons during the six months ended June 30, 2014 aggregate $1,735,000.

19

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

At June 30, 2014 and December 31, 2013, loan balances of approximately $503.3 million and $564.7 million, respectively, were pledged to secure borrowings from the Federal Home Loan Bank of New York.

The following table presents information about the recorded investment loan receivables on non-accrual status by class at June 30, 2014 and December 31, 2013:

Loans Receivable on Non-Accrual Status
	June 30, 2014		December 31, 2013
	(in thousands)
Commercial and industrial	$	775	$	753
Commercial real estate		1,427		744
Residential mortgage		1,830		1,640
Total loans receivable on non-accrual status	$	4,032	$	3,137

Non-accrual loans and loans past due 90 days still on accrual include both smaller balance homogenous loans that are collectively evaluated for impairment and individually classified impaired loans.

The amount of interest income that would have been recorded on non-accrual loans during the six months ended June 30, 2014, the year ended December 31, 2013 and six months ended June 30, 2013, had payments remained in accordance with the original contractual terms, was $109,000, $104,000 and $58,000, respectively.

The Corporation continuously monitors the credit quality of its loans receivable. In addition to its internal staff, the Corporation utilizes the services of a third party loan review firm to rate the credit quality of its loans receivable. Credit quality is monitored by reviewing certain credit quality indicators. Assets classified “Pass” are deemed to possess average to superior credit quality, requiring no more than normal attention. Assets classified as “Special Mention” have generally acceptable credit quality yet possess higher risk characteristics/circumstances than satisfactory assets. Such conditions include strained liquidity, slow pay, stale financial statements, or other conditions that require more stringent attention from the lending staff. These conditions, if not corrected, may weaken the loan quality or inadequately protect the Corporation’s credit position at some future date. Assets are classified “Substandard” if the asset has a well-defined weakness that requires management’s attention to a greater degree than for loans classified special mention. Such weakness, if left uncorrected, could possibly result in the compromised ability of the loan to perform to contractual requirements. An asset is classified as “Doubtful” if it is inadequately protected by the net worth and/or paying capacity of the obligor or of the collateral, if any, that secures the obligation. Assets classified as doubtful include assets for which there is a “distinct possibility” that a degree of loss will occur if the inadequacies are not corrected. All loans past due 90 days or more and all impaired loans are included in the appropriate category below. The following table presents information, excluding net deferred costs, about the Corporation’s loan credit quality at June 30, 2014 and December 31, 2013:

Credit Quality Indicators
	June 30, 2014
	Pass		Special Mention		Substandard		Doubtful		Total
		(in thousands)
Commercial and industrial	$	242,914	$	1,621	$	1,080	$	315	$	245,930
Commercial real estate		542,940		14,438		8,019		—		565,397
Construction		45,316		—		1,389		—		46,705
Residential mortgage		143,704		969		2,455		—		147,128
Installment		506		—		111		—		617
Total loans	$	975,380	$	17,028	$	13,054	$	315	$	1,005,777

	December 31, 2013
	Pass		Special Mention		Substandard		Doubtful		Total
	(in thousands)
Commercial and industrial	$	226,013	$	1,719	$	1,284	$	672	$	229,688
Commercial real estate		509,679		14,544		12,316		—		536,539
Construction		41,492		—		1,230		—		42,722
Residential mortgage		147,379		978		2,214		—		150,571
Installment		964		—		120		—		1,084
Total loans	$	925,527	$	17,241	$	17,164	$	672	$	960,604

20

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following table provides an analysis of the impaired loans, by class, at June 30, 2014 and December 31, 2013:

	June 30, 2014
	Recorded Investment		Unpaid Principal Balance		Related Allowance
	(in thousands)
No Related Allowance Recorded
Commercial and industrial	$	1,000	$	1,301	$	—
Commercial real estate		3,083		3,384		—
Residential mortgage		1,900		2,054		—
Installment		111		111		—
Total	$	6,094	$	6,850		—
With An Allowance Recorded
Commercial real estate	$	3,600	$	3,600	$	335
Total	$	3,600	$	3,600	$	335
Total
Commercial and industrial	$	1,000	$	1,301	$	—
Commercial real estate		6,683		6,984		335
Residential mortgage		1,900		2,054		—
Installment		111		111		—
Total (including related allowance)	$	9,694	$	10,450	$	335

	December 31, 2013
	Recorded Investment		Unpaid Principal Balance		Related Allowance
	(in thousands)
No Related Allowance Recorded
Commercial and industrial	$	449	$	449	$	—
Commercial real estate		10,482		10,783		—
Residential mortgage		1,858		2,000		—
Installment		120		120		—
Total	$	12,909	$	13,352	$	—
With An Allowance Recorded
Commercial and industrial	$	672	$	672	$	300
Commercial real estate		4,344		4,344		115
Total	$	5,016	$	5,016	$	415
Total
Commercial and industrial	$	1,121	$	1,121	$	300
Commercial real estate		14,826		15,127		115
Residential mortgage		1,858		2,000		—
Installment		120		120		—
Total (including related allowance)	$	17,925	$	18,368	$	415

21

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 

(Unaudited)

The following table provides an analysis related to the average recorded investment and interest income recognized on impaired loans by class as of and for the three and six months ended June 30, 2014 and 2013.

	Three Months Ended June 30,								Six Months Ended June 30,
	2014				2013				2014				2013
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
Impaired loans with no related allowance recorded:
Commercial and industrial	$	1,357	$	16	$	—	$	—	$	1,370	$	30	$	—	$	—
Commercial real estate		3,112		42		1,450		19		3,123		43		1,450		38
Residential mortgage		2,229		24		—		—		2,280		31		—		—
Installment		113		1		—		—		115		3		—		—
Total	$	6,811		83	$	1,450	$	19	$	6,888	$	107	$	1,450	$	38
Impaired loans with an allowance recorded:
Commercial real estate	$	3,600	$	43	$	3,908	$	34	$	3,600	$	85	$	4,087	$	68
Residential mortgage		—		—		1,244		11		—		—		1,244		21
Total	$	3,600	$	43	$	5,152	$	45	$	3,600	$	85	$	5,331	$	89
Total impaired loans:
Commercial and industrial	$	1,357	$	16	$	—	$	—	$	1,370	$	30	$	—	$	—
Commercial real estate		6,712		85		5,358		53		6,723		128		5,537		106
Residential mortgage		2,229		24		1,244		11		2,280		31		1,244		21
Installment		113		1		—		—		115		3		—		—
Total	$	10,411	$	126	$	6,602	$	64	$	10,488	$	192	$	6,781	$	127

Included in impaired loans at June 30, 2014 are loans that are deemed troubled debt restructurings. The recorded investment in loans include accrued interest receivable and other capitalized costs such as real estate taxes paid on behalf of the borrower and loan origination fees, net, when applicable.

Cash basis interest and interest income recognized on accrual basis approximate each other.

22

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following table provides an analysis of the aging of the recorded investment of loans, excluding net deferred costs that are past due at June 30, 2014 and December 31, 2013 by class:

Aging Analysis

	June 30, 2014
	30-59 Days Past Due		60-89 Days Past Due		90 Days or Greater Past Due		Total Past Due		Current		Total Loans Receivable		Loans Receivable > 90 Days Past Due and Accruing
	(in thousands)
Commercial and Industrial	$	911	$	1,831	$	775	$	3,517	$	242,413	$	245,930	$	—
Commercial Real Estate		990		1,647		1,427		4,064		561,333		565,397		—
Construction		—		—		—		—		46,705		46,705		—
Residential Mortgage		775		791		1,974		3,540		143,588		147,128		144
Installment		4		—		—		4		613		617		—
Total	$	2,680	$	4,269	$	4,176	$	11,125	$	994,652	$	1,005,777	$	144

	December 31, 2013
	30-59 Days Past Due		60-89 Days Past Due		90 Days or Greater Past Due		Total Past Due		Current		Total Loans Receivable		Loans Receivable > 90 Days Past Due and Accruing
	(in thousands)
Commercial and Industrial	$	18	$	—	$	753	$	771	$	228,917	$	229,688	$	—
Commercial Real Estate		221		—		744		965		535,574		536,539		—
Construction		—		—		—		—		42,722		42,722		—
Residential Mortgage		990		258		1,640		2,888		147,683		150,571		—
Installment		5		—		—		5		1,079		1,084		—
Total	$	1,234	$	258	$	3,137	$	4,629	$	955,975	$	960,604	$	—

The following table details the amount of loans receivable that are evaluated individually, and collectively, for impairment (excluding net deferred costs), and the related portion of the allowance for loan loss that is allocated to each loan portfolio class:

23

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Allowance for loan and lease losses

	June 30, 2014
	Commercial & Industrial		Commercial Real Estate		Construction		Residential Mortgage		Installment		Unallocated		Total
	(in thousands)
Allowance for loan and lease losses:
Individually evaluated for impairment	$	—	$	335	$	—	$	—	$	—	$	—	$	335
Collectively evaluated for impairment		2,142		5,406		504		1,011		63		1,364		10,490
Total	$	2,142	$	5,741	$	504		1,011	$	63	$	1,364	$	10,825
Loans Receivable
Individually evaluated for impairment	$	1,000	$	6,683	$	—	$	1,900	$	111	$	—	$	9,694
Collectively evaluated for impairment		242,915		544,960		45,316		132,955		387		—		966,533
Loans acquired with discounts related to credit quality		2,015		13,754		1,389		12,273		119		—		29,550
Total	$	245,930	$	565,397	$	46,705	$	147,128	$	617	$	—	$	1,005,777

Allowance for loan and lease losses

	December 31, 2013
	Commercial & Industrial		Commercial Real Estate		Construction		Residential Mortgage		Installment		Unallocated		Total
	(in thousands)
Allowance for loan and lease losses:
Individually evaluated for impairment	$	300	$	115	$	—	$	—	$	—	$	—	$	415
Collectively evaluated for impairment		1,398		5,631		362		990		146		1,391		9,918
Total	$	1,698	$	5,746	$	362	$	990	$	146	$	1,391	$	10,333
Loans Receivable
Individually evaluated for impairment	$	1,121	$	14,826	$	—	$	1,858	$	120	$	—	$	17,925
Collectively evaluated for impairment		226,450		505,361		41,493		135,031		839		—		909,174
Loans acquired with discounts related to credit quality		2,117		16,352		1,229		13,682		125		—		33,505
Total	$	229,688	$	536,539	$	42,722	$	150,571	$	1,084	$	—	$	960,604

The Corporation’s allowance for loan losses is analyzed quarterly. Many factors are considered, including growth in the portfolio, delinquencies, nonaccrual loan levels, and other factors inherent in the extension of credit. There have been no material changes to the allowance for loan loss methodology as disclosed in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2013.

A summary of the activity in the allowance for loan losses is as follows:

	Three Months Ended June 30, 2014
	Commercial & Industrial			Commercial Real Estate		Construction		Residential Mortgage			Installment			Unallocated			Total
	(in thousands)
Balance at April 1,	$	2,225		$	5,384	$	434	$	1,004		$	79		$	1,507		$	10,633
Charge offs		—			—		—		(90	)		(4	)		—			(94	)
Recoveries		—			—		—		1			1			—			2
Provision		(83	)		357		70		96			(13	)		(143	)		284
Balance at June 30,	$	2,142		$	5,741	$	504	$	1,011		$	63		$	1,364		$	10,825

24

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

	Six Months Ended June 30, 2014
	Commercial & Industrial			Commercial Real Estate			Construction		Residential Mortgage			Installment			Unallocated			Total
	(in thousands)
Balance at January 1,	$	1,698		$	5,746		$	362	$	990		$	146		$	1,391		$	10,333
Charge offs		(333	)		—			—		(90	)		(7	)		—			(430	)
Recoveries		—			—			—		11			2			—			13
Provision		777			(5	)		142		100			(78	)		(27	)		909
Balance at June 30,	$	2,142		$	5,741		$	504	$	1,011		$	63		$	1,364		$	10,825

	Three Months Ended June 30, 2013
	Commercial & Industrial		Commercial Real Estate			Construction		Residential Mortgage			Installment			Unallocated			Total
	(in thousands)
Balance at April 1,	$	2,083	$	5,353		$	284	$	1,378		$	103		$	1,031		$	10,232
Charge offs		—		(50	)		—		—			(11	)		—			(61	)
Recoveries		21		8			—		—			2			—			31
Provision		318		22			34		(37	)		(65	)		(272	)		—
Balance at June 30,	$	2,422	$	5,333		$	318	$	1,341		$	29		$	759		$	10,202

	Six Months Ended June 30, 2013
	Commercial & Industrial			Commercial Real Estate			Construction		Residential Mortgage			Installment			Unallocated		Total
	(in thousands)
Balance at January 1,	$	2,424		$	5,323		$	313	$	1,532		$	113		$	532	$	10,237
Charge offs		—			(50	)		—		—			(16	)		—		(66	)
Recoveries		21			8			—		—			2			—		31
Provision		(23	)		52			5		(191	)		(70	)		227		—
Balance at June 30,	$	2,422		$	5,333		$	318	$	1,341		$	29		$	759	$	10,202

At June 30, 2014, there were no commitments to lend additional funds to borrowers whose loans were on non-accrual status or were contractually past due in excess of 90 days and still accruing interest, or whose terms have been modified in troubled debt restructurings.

25

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The policy of the Corporation generally is to grant commercial, mortgage and installment loans to residents and businesses within its market area. The borrowers’ abilities to repay their obligations are dependent upon various factors, including the borrowers’ income and net worth, cash flows generated by the borrowers’ underlying collateral, value of the underlying collateral, and priority of the lender’s lien on the property. Such factors are dependent upon various economic conditions and individual circumstances beyond the control of the Corporation. The Corporation is therefore subject to risk of loss. The Corporation believes its lending policies and procedures adequately minimize the potential exposure to such risks and that adequate provisions for loan losses are provided for all known and inherent risks. Collateral and/or personal guarantees are required for virtually all loans. A loan is considered to be in payment default once it is 90 days contractually past due under the modified terms.

Loans modified in a troubled debt restructuring totaled $2.7 million at June 30, 2014, of which $1.1 million were on non-accrual status. The remaining loans modified were current and have complied with the terms of their restructure agreement. At December 31, 2013, loans modified in a troubled debt restructuring totaled $6.6 million, of which $826,000 were on non-accrual status. The remaining loans modified were current at the time of the restructuring and have complied with the terms of their restructure agreement. The Corporation has allocated $0 of specific allocations with respect to loans whose loan terms had been modified in troubled debt restructurings as of June 30, 2014 and December 31, 2013.

The following table presents loans by class modified as troubled debt restructurings that occurred during the six months ended June 30, 2014 (dollars in thousands):

	Number of Loans		Pre-Modification Outstanding Recorded Investment			Post-Modification Outstanding Recorded Investment
Troubled debt restructurings:
Commercial and industrial		1		$	672		$	315
Commercial real estate		—			—			—
Construction		—			—			—
Residential real estate		1			53			51
Installment		—			—			—
Total		2		$	725		$	366

The Corporation had a $333,000 charge-off in connection with a loan modification at the time of modification during the six months ended June 30, 2014. There were no troubled debt restructurings for which there was a payment default within twelve months following the modification during the six months ended June 30, 2014.

On April 30, 2014, a $4.1 million performing troubled debt restructuring was upgraded to pass status.

There were no troubled debt restructurings that occurred during the year ended December 31, 2013. The Corporation had no loans charged-off in connection with a loan modification at the time of the modification during the year ended December 31, 2013. There were no troubled debt restructurings for which there was a payment default within twelve months following the modification during the year ended December 31, 2013.

In an effort to proactively manage delinquent loans, the Corporation has selectively extended to certain borrowers concessions such as rate reductions, extension of maturity dates, principal or interest forgiveness, adjusted repayment terms, forbearance agreements, or combinations of two or more of these concessions. As of June 30, 2014, loans on which concessions were made with respect to adjusted repayment terms amounted to $1.4 million. Loans on which combinations of two or more concessions were made amounted to $1.3 million. The concessions granted included principal concessions, rate reduction, adjusted repayment, extended maturity and payment deferral.

Note 7. Fair Value Measurements and Fair Value of Financial Instruments

Fair Value Measurements

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. The estimated fair value amounts have been measured as of March 31, 2014 and December 31, 2013, and have not been re-evaluated or updated for purposes of these consolidated 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.

Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There are three levels of inputs that may be used to measure fair values:

· 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: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

· Level 3: Significant unobservable inputs that reflect a reporting entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

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.

26

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Investment Securities Available-for-Sale

Where quoted prices are available in an active market, investment securities are classified in Level 1 of the valuation hierarchy. Level 1 inputs include investment securities that have quoted prices in active markets for identical assets. If quoted market prices are not available, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics, or discounted cash flows. Examples of instruments, which would generally be classified within Level 2 of the valuation hierarchy, include municipal bonds and certain agency collateralized mortgage obligations. In certain cases where there is limited activity in the market for a particular instrument, assumptions must be made to determine its fair value and it is classified as Level 3. Due to the inactive condition of the markets amidst the financial crisis, the Corporation treated certain investment securities as Level 3 assets in order to provide more appropriate valuations. For assets in an inactive market, the infrequent trades that do occur are not a true indication of fair value. When measuring fair value, the valuation techniques available under the market approach, income approach and/or cost approach are used. The Corporation’s evaluations are based on market data and the Corporation employs combinations of these approaches for its valuation methods depending on the asset class. In certain cases where there were limited or less transparent information provided by the Corporation’s third-party pricing service, fair value was estimated by the use of secondary pricing services or through the use of non-binding third-party broker quotes.

On a quarterly basis, management reviews the pricing information received from the Corporation’s third-party pricing service. This review process includes a comparison to non-binding third-party broker quotes, as well as a review of market-related conditions impacting the information provided by the Corporation’s third-party pricing service.

Management primarily identifies investment securities which may have traded in illiquid or inactive markets by identifying instances of a significant decrease in the volume and frequency of trades, relative to historical levels, as well as instances of a significant widening of the bid-ask spread in the brokered markets. Investment securities that are deemed to have been trading in illiquid or inactive markets may require the use of significant unobservable inputs. For example, management may use quoted prices for similar investment securities in the absence of a liquid and active market for the securities being valued. As of June 30, 2014 and December 31, 2013, management made no adjustments to prices provided by the third-party pricing service as a result of illiquid or inactive markets.

The Corporation determined that an income approach valuation technique (present value technique) that maximizes the use of relevant observable inputs and minimizes the use of unobservable inputs will be equally or more representative of fair value than the market approach valuation technique used at the prior measurement dates. As a result, the Corporation used the discount rate adjustment technique to determine fair value.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

For financial assets and liabilities measured at fair value on a recurring basis, the fair value measurements by level within the fair value hierarchy used at June 30, 2014 and December 31, 2013 are as follows: 

27

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

			Fair Value Measurements at Reporting Date Using
Assets Measured at Fair Value on a Recurring Basis	June 30, 2014		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(in thousands)
U.S. Treasury & agency securities	$	9,472	$	9,472	$	—	$	—
Federal agency obligations		22,648		—		22,648		—
Residential mortgage pass-through securities		45,919		—		45,919		—
Commercial mortgage pass-through securities		3,021		—		3,021		—
Obligations of U.S. states and political subdivisions		6,503		—		6,503		—
Trust preferred securities		16,336		—		16,336		—
Corporate bonds and notes		139,327		—		139,327		—
Asset-backed securities		15,176		—		15,176		—
Certificates of deposit		2,132		—		2,132		—
Equity securities		293		293		—		—
Mutual funds and money market funds		6,132		6,132		—		—
Investment securities available-for-sale	$	266,959	$	15,897	$	251,062	$	—

			Fair Value Measurements at Reporting Date Using
Assets Measured at Fair Value on a Recurring Basis	December 31, 2013		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(in thousands)
U.S. Treasury and agency securities	$	13,519	$	13,519	$	—	$	—
Federal agency obligations		19,941		—		19,941		—
Residential mortgage pass-through securities		48,874		—		48,874		—
Commercial mortgage pass-through securities		6,991		—		6,991		—
Obligations of U.S. states and political subdivisions		31,460		—		31,460		—
Trust preferred securities		19,403		—		19,403		—
Corporate bonds and notes		158,630		—		158,630		—
Asset-backed securities		15,979		—		15,979		—
Certificates of deposit		2,262		—		2,262		—
Equity securities		287		287		—		—
Mutual funds and money market funds		5,724		5,724		—		—
Securities available-for-sale	$	323,070	$	19,530	$	303,540	$	—

The fair values used by the Corporation are obtained from an independent pricing service and represent either quoted market prices for the identical securities (Level 1 inputs) or fair values determined by pricing models using a market approach that considers observable market data, such as interest rate volatilities, LIBOR yield curve, credit spreads and prices from market makers and live trading systems (Level 2).

28

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following tables present the changes in investment securities available-for-sale with significant unobservable inputs (Level 3) for the three months ended June 30, 2014 and 2013.

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2014		2013		2014		2013
	(in thousands)
Balance, beginning of the period	$	—	$	44	$	—	$	36
Interest payment deferrals		—		15		—		29
Principal repayments		—		—		—		—
Total net losses included in net income		—		—		—		—
Total net unrealized (losses) gains		—		13		—		7
Balance, end of the period		—	$	72		—	$	72

For the six months ended June 30, 2014, there were no transfers of investment securities available-for-sale into or out of Level 1, Level 2, or Level 3 assets.

Assets Measured at Fair Value on a Non-Recurring Basis

For assets measured at fair value on a non-recurring basis, the unobservable inputs used to derive fair value measurements at June 30, 2014 and December 31, 2013 were as follows:

Impaired Loans	Valuation Techniques	Range of Unobservable Inputs
Residential	Appraisals of collateral value	Adjustment for age of comparable sales, generally a decline of 0% to 25%
Commercial	Discounted cash flow model	Discount rate from 0% to 6%
Commercial real estate	Appraisals of collateral value	Market capitalization rates between 8% to 12%. Market rental rates for similar properties
Construction	Appraisals of collateral value	Adjustment for age comparable sales. Generally a decline of 0% to 5%
Other Real Estate Owned
Residential	Appraisals of collateral value	Adjustment for age of comparable sales, generally a decline of 0% to 25%
Commercial	Appraisals of collateral value	Adjustment for age of comparable sales, generally a decline of 0% to 15%

					Fair Value Measurements at Reporting Date Using
Assets Measured at Fair Value on a Non-Recurring Basis		June 30, 2014			Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)
Impaired Loans	(in thousands)
Commercial real estate		$	3,265	$		—	$	—	$		3,265
Other Real Estate Owned
Residential			220			—		—				220
					Fair Value Measurements at Reporting Date Using
Assets Measured at Fair Value on a Non-Recurring Basis		December 31, 2013			Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)
Impaired Loans	(in thousands)
Commercial and industrial		$	372		$	—	$	—		$		372
Commercial real estate			4,229			—		—				4,229
Other Real Estate Owned Residential			220			—		—				220

29

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following methods and assumptions were used to estimate the fair values of the Corporation’s assets measured at fair value on a non-recurring basis at June 30, 2014 and December 31, 2013.

Impaired Loans. The value of an impaired loan is measured based upon the present value of expected future cash flows discounted at the loan’s effective interest rate, or the fair value of the collateral if the loan is collateral dependent. Smaller balance homogeneous loans that are collectively evaluated for impairment, such as residential mortgage loans and installment loans, are specifically excluded from the impaired loan portfolio. The Corporation’s impaired loans are primarily collateral dependent. Impaired loans are individually assessed to determine that each loan’s carrying value is not in excess of the fair value of the related collateral or the present value of the expected future cash flows. Impaired loans at June 30, 2014 that required a valuation allowance during 2014 were $3.6 million with a related valuation allowance of $335,000 compared to $5.0 million with a related valuation allowance of $415,000 at December 31, 2013. Additional provision for loan losses of $110,000 and $222,000 for the second quarter and first six months of 2014, respectively, were recorded.

Other Real Estate Owned. Other real estate owned (“OREO”) is measured at fair value less costs to sell, generally a decline of 0% to 25% for residential OREO and a decline of 0% to 15% for commercial OREO. The Corporation believes that the fair value component in its valuation follows the provisions of FASB ASC 820-10-05. The fair value of OREO is determined by sales agreements or appraisals by qualified licensed appraisers approved and hired by the Corporation. Costs to sell associated with OREO are based on estimation per the terms and conditions of the sales agreements or appraisals.

Cash and due from banks and interest bearing deposits: The carrying amounts of cash and short-term instruments approximate fair values and care classified as Level 1.

Investment in Restricted Stock: It is not practical to determine the fair value of FHLB Stock due to restrictions placed on its transferability.

Fair Value of Financial Instruments

FASB ASC 825-10 requires all entities to disclose the estimated fair value of their financial instrument assets and liabilities. For the Corporation, as for most financial institutions, the majority of its assets and liabilities are considered financial instruments as defined in FASB ASC 825-10. Many of the Corporation’s financial instruments, however, lack an available trading market as characterized by a willing buyer and willing seller engaging in an exchange transaction. It is also the Corporation’s general practice and intent to hold its financial instruments to maturity and not to engage in trading or sales activities except for loans held-for-sale and investment securities available-for-sale. Therefore, significant estimations and assumptions, as well as present value calculations, were used by the Corporation for the purposes of this disclosure.

Investment Securities Held-to-Maturity. The fair value of the Corporation’s investment securities held-to-maturity was primarily measured using information from a third-party pricing service. If quoted prices were not available, fair values were estimated primarily by obtaining quoted prices for similar assets in active markets or through the use of pricing models. In cases where there may be limited or less transparent information provided by the Corporation’s third-party pricing service, fair value may be estimated by the use of secondary pricing services or through the use of non-binding third-party broker quotes.

Loans Held-for-Sale. Fair value is estimated using the prices of the Corporation’s existing commitments to sell such loans and/or the quoted market price for commitments to sell similar loans.

Loans. The fair value of the Corporation’s loans was estimated by discounting the expected future cash flows using the current interest rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. Loans were segregated by types such as commercial, residential and consumer loans. Expected future cash flows were projected based on contractual cash flows, adjusted for estimated prepayments.

Non-Interest-Bearing Deposits. The fair value for non-interest-bearing deposits is equal to the amount payable on demand at the reporting date.

Interest-Bearing Deposits. The fair values of the Corporation’s interest-bearing deposits were estimated using discounted cash flow analyses. The discounted rates used were based on rates currently offered for deposits with similar remaining maturities. The fair values of the Corporation’s interest-bearing deposits do not take into consideration the value of the Corporation’s long-term relationships with depositors, which may have significant value.

Term Borrowings and Subordinated Debentures. The fair value of the Corporation’s long-term borrowings and subordinated debentures were calculated using a discounted cash flow approach and applying discount rates currently offered based on weighted remaining maturities.

Accrued Interest Receivable/Payable. The carrying amounts of accrued interest approximate fair value resulting in a Level 2 or Level 3 classification based on the level of the asset or liability with which the accrual is associated.

30

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following presents the carrying amount, fair value, and placement in the fair value hierarchy of the Corporation’s financial instruments as of June 30, 2014 and December 31, 2013.

					Fair Value Measurements
	Carrying Amount		Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(in thousands)
June 30, 2014
Financial assets
Cash and due from banks	$	92,617	$	92,617	$	92,617	$	—	$	—
Investment securities available-for-sale		266,959		266,959		15,897		251,062		—
Investment securities held-to-maturity		218,159		222,503		28,416		175,210		18,877
Investment in restricted stock		11,289		n/a		n/a		n/a		n/a
Net loans		995,431		992,632		—		—		992,632
Accrued interest receivable		6,414		6,414		89		3,568		2,757
Financial liabilities
Non interest-bearing deposits		238,138		238,138		238,138		—		—
Interest-bearing deposits		1,036,482		1,043,230		—		1,043,230		—
Borrowings		196,000		209,075		—		209,075		—
Subordinated debentures		5,155		4,923		—		4,923		—
Accrued interest payable		998		998		—		998		—
December 31, 2013
Financial assets
Cash and due from banks	$	82,692	$	82,692	$	82,692	$	—	$	—
Investment securities available-for-sale		323,070		323,070		19,530		303,540		—
Investment securities held-to-maturity		215,286		210,958		27,037		164,940		18,981
Investment in restricted stock		8,986		n/a		n/a		n/a		n/a
Net loans		950,610		948,606		—		—		948,606
Accrued interest receivable		6,802		6,802		102		4,034		2,666
Financial liabilities
Non interest-bearing deposits		227,370		227,370		227,370		—		—
Interest-bearing deposits		1,114,635		1,115,781		—		1,115,781		—
Long-term borrowings		146,000		157,440		—		157,440		—
Subordinated debentures		5,155		5,143		—		5,143		—
Accrued interest payable		963		963		—		963		—

31

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 8. Accumulated Other Comprehensive Income

Accumulated other comprehensive income (loss) at June 30, 2014 and December 31, 2013 consisted of the following:

	June 30, 2014			December 31, 2013
	(in thousands)
Net unrealized gain on investment securities available-for-sale, net of tax	$	5,304		$	2,374
Unamortized component of securities transferred from available-for-sale to held-to-maturity, net of tax		(1,368	)		(1,425	)
Defined benefit pension and post-retirement plans, net of tax		(2,735	)		(3,493	)
Total accumulated other comprehensive income (loss)	$	1,201		$	(2,544	)

Note 9. Stock-Based Compensation

The Corporation maintains two stock-based compensation plans from which new grants could be issued. The Corporation’s stock-based compensation plans permit Parent Corporation common stock to be issued to key employees and directors of the Corporation and its subsidiaries. The options granted under the plans are intended to be either incentive stock options or non-qualified options. Under the 2009 Equity Incentive Plan, a total of 363,081 shares are available for grant and issuance as of June 30, 2014. Under the 2003 Non-Employee Director Stock Option Plan, a total of 380,644 shares remain available for grant and issuance under the plan as of June 30, 2014. Such shares may be treasury shares, newly issued shares or a combination thereof.

Options have been granted to purchase common stock principally at the fair market value of the stock at the date of grant. Options are exercisable over a three-year vesting period starting one year after the date of grant and generally expire ten years from the date of grant.

Stock-based compensation expense for share-based payment awards is based on the grant date fair value estimated on the date of grant. The Corporation recognizes compensation costs for those shares expected to vest on a straight-line basis over the requisite service period of the award, which is generally the option vesting term of three years. The Corporation estimates the forfeiture rate based on its historical experience during the preceding seven fiscal years.

For the six months ended June 30, 2014, the Corporation’s income before income taxes and net income were reduced by $34,000 and $20,000, respectively; as a result of the compensation expense related to stock options and restricted stock awards. For the six months ended June 30, 2013, the Corporation’s income before income taxes and net income were reduced by $25,000 and $15,000, respectively, as a result of the compensation expense related to stock options.

Under the principal stock-based compensation plans, the Corporation may also grant stock awards to certain employees. Stock awards are independent of option grants and are generally subject to forfeiture if employment terminates prior to the release of any applicable restrictions. Unless fully vested at the time of grant, such awards generally vest within 30 days to five years from the date of grant. During that period, ownership of the shares cannot be transferred. Restricted stock and stock awards that are fully vested at the time of grant have the same cash dividend and voting rights as other common stock and are considered to be currently issued and outstanding. The Corporation expenses the cost of stock awards, which is determined to be the fair market value of the shares at the date of grant, ratably over the period during which any restrictions lapse.

There were 18,829 restricted stock awards outstanding at June 30, 2014 and June 30, 2013. These awards were issued with an award price equal to the market price of the Corporation’s common stock on the award date and with a five year vesting period. Forfeiture provisions exist for personnel that separate employment before the vesting period expires. During the first sixth months of 2014, none of the shares of restricted stock were vested. All shares of restricted stock were fully vested on July 1, 2014.

32

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

There were 0 and 31,257 shares of common stock underlying options that were granted during the three and six months ended June 30, 2014 and 2013, respectively. The fair value of share-based payment awards was estimated using the Black-Scholes option pricing model with the following assumptions and weighted average fair values at the time the grants were awarded:

	Six Months Ended June 30,
	2014		2013
Weighted average fair value of grants		n/a	$	2.50
Risk-free interest rate		n/a		1.86	%
Dividend yield		n/a		1.76	%
Expected volatility		n/a		23.21	%
Expected life in months		n/a		69

Activity under the stock-based compensation plans as of June 30, 2014 and changes during the sixth months ended June 30, 2014 were as follows:

	Shares		Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value
Outstanding at December 31, 2013		214,263	$	10.59
Granted – options		—
Exercised		44,478	$	10.78
Canceled/expired		—
Forfeited		—
Outstanding at June 30, 2014		169,785	$	10.54		5.96	$	1,474,951
Exercisable at June 30, 2014		120,343	$	10.05		5.01	$	1,105,335

The aggregate intrinsic value of options above represents the total pre-tax intrinsic value (the difference between the Corporation’s closing stock price on the last trading day of the second quarter of 2014 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on June 30, 2014. This amount changes based on the fair value of the Corporation’s stock.

As of June 30, 2014, there was approximately $117,000 of total unrecognized compensation expense relating to unvested stock options. These costs are expected to be recognized over a weighted average period of 2.5 years. As of June 30, 2014, there was approximately $194,000 of total unrecognized compensation expense relating to unvested restricted stock awards. These costs are expected to be recognized over a weighted average period of 5.0 years.

Note 10. Components of Net Periodic Pension Cost

The Corporation maintained a non-contributory defined benefit pension plan for substantially all of its employees until September 30, 2007, at which time the Corporation froze the plan. The following table sets forth the net periodic pension cost of the Corporation’s pension plan for the periods indicated.

	Three Months Ended June 30,						Six Months Ended June 30,
	2014			2013			2014			2013
	(in thousands)
Interest cost	$	144		$	132		$	288		$	264
Expected return on plan assets		(149	)		(148	)		(298	)		(244	)
Net amortization and deferral		56			94			112			188
Net periodic pension cost	$	51		$	78		$	102		$	208

Contributions

The Corporation presently estimates that it will contribute $400,000 to its Pension Trust for 2014. The trust is established to provide retirement and other benefits for eligible employees and their beneficiaries. No part of the trust assets may be applied to any purpose other than providing benefits under the plan and for defraying expenses of administering the plan and the trust.

33

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

The purpose of this analysis is to provide the reader with information relevant to understanding and assessing the Corporation’s results of operations for the periods presented herein and financial condition as of June 30, 2014 and December 31, 2013. In order to fully understand this analysis, the reader is encouraged to review the consolidated financial statements and accompanying notes thereto appearing elsewhere in this report.

Cautionary Statement Concerning Forward-Looking Statements

This report includes forward-looking statements within the meaning of Sections 27A of the Securities Act of 1933, as amended, and 21E of the Securities Exchange Act of 1934, as amended, that involve inherent risks and uncertainties. This report contains certain forward-looking statements with respect to the financial condition, results of operations, plans, objectives, future performance and business of ConnectOne Bancorp Inc. and its subsidiaries, including statements preceded by, followed by or that include words or phrases such as “believes,” “expects,” “anticipates,” “plans,” “trend,” “objective,” “continue,” “remain,” “pattern” or similar expressions or future or conditional verbs such as “will,” “would,” “should,” “could,” “might,” “can,” “may” or similar expressions. There are a number of important factors that could cause future results to differ materially from historical performance and these forward-looking statements. Factors that might cause such a difference include, but are not limited to: (1) competitive pressures among depository institutions may increase significantly; (2) changes in the interest rate environment may reduce interest margins; (3) prepayment speeds, loan origination and sale volumes, charge-offs and loan loss provisions may vary substantially from period to period; (4) general economic conditions may be less favorable than expected; (5) political developments, sovereign debt problems, wars or other hostilities may disrupt or increase volatility in securities markets or other economic conditions; (6) legislative or regulatory changes or actions may adversely affect the businesses in which ConnectOne Bancorp is engaged, including, without limitation, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010; (7) changes and trends in the securities markets may adversely impact ConnectOne Bancorp; (8) a delayed or incomplete resolution of regulatory issues could adversely impact planning by ConnectOne Bancorp; (9) the impact on reputation risk created by the developments discussed above on such matters as business generation and retention, funding and liquidity could be significant; and (10)the outcome of regulatory and legal investigations and proceedings may not be anticipated. Further information on other factors that could affect the financial results of ConnectOne Bancorp is included in Item 1A. of ConnectOne Bancorp’s Annual Report on Form 10-K and in ConnectOne Bancorp’s other filings with the Securities and Exchange Commission. These documents are available free of charge at the Commission’s website at http://www.sec.gov and/or from ConnectOne Bancorp, Inc.

Critical Accounting Policies and Estimates

The accounting and reporting policies followed by ConnectOne Bancorp, Inc. and its subsidiaries (collectively, the “Corporation”) conform, in all material respects, to U.S. generally accepted accounting principles. In preparing the consolidated financial statements, management has made estimates, judgments and assumptions that affect the reported amounts of assets and liabilities as of the dates of the consolidated statements of condition and for the periods indicated in the consolidated statements of operations. Actual results could differ significantly from those estimates.

The Corporation’s accounting policies are fundamental to understanding Management’s Discussion and Analysis (“MD&A”) of financial condition and results of operations. The Corporation has identified the determination of the allowance for loan losses, the other-than-temporary impairment evaluation of securities, the evaluation of the impairment of goodwill and the evaluation of deferred tax assets to be critical because management must make subjective and/or complex judgments about matters that are inherently uncertain and could be most subject to revision as new information becomes available. Additional information on these policies is provided below.

Allowance for Loan Losses and Related Provision

The allowance for loan losses represents management’s estimate of probable credit 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, individual credit situation and consideration of current economic trends and conditions, all of which may be susceptible to significant change. The loan portfolio also represents the largest asset type on the consolidated statements of condition.

The evaluation of the adequacy of the allowance for loan losses includes, among other factors, an analysis of historical loss rates by loan category applied to current loan totals. However, actual loan losses may be higher or lower than historical trends, which vary. Actual losses on specified problem loans, which also are provided for in the evaluation, may vary from estimated loss percentages, which are established based upon a limited number of potential loss classifications.

34

The allowance for loan losses is established through a provision for loan losses charged to expense. Management believes that the current allowance for loan losses will be adequate to absorb loan losses on existing loans that may become uncollectible based on the evaluation of known and inherent risks in the loan portfolio. The evaluation takes into consideration such factors as changes in the nature and size of the portfolio, overall portfolio quality, and specific problem loans and current economic conditions which may affect the borrowers’ ability to pay. The evaluation also details historical losses by loan category and the resulting loan loss rates which are projected for current loan total amounts. Loss estimates for specified problem loans are also detailed. All of the factors considered in the analysis of the adequacy of the allowance for loan losses may be subject to change. To the extent actual outcomes differ from management estimates, additional provisions for loan losses may be required that could materially adversely impact earnings in future periods. Additional information can be found in Note 1 of the Notes to Consolidated Financial Statements.

Other-Than-Temporary Impairment of Investment Securities

Investment securities are evaluated on at least a quarterly basis, and more frequently when market conditions warrant such an evaluation, to determine whether a decline in their value is other-than-temporary. FASB ASC 320-10-65 clarifies the interaction of the factors that should be considered when determining whether a debt security is other–than-temporarily impaired. For debt securities, management assesses whether (a) it has the intent to sell the security and (b) it is more likely than not that it will be required to sell the security prior to its anticipated recovery.

In instances when a determination is made that an other-than-temporary impairment exists but the investor does not intend to sell the debt security and it is not more likely than not that it will be required to sell the debt security prior to its anticipated recovery, the other-than-temporary impairment is separated into (a) the amount of the total other-than-temporary impairment related to a decrease in cash flows expected to be collected from the debt security (the credit loss) and (b) the amount of the total other-than-temporary impairment related to all other factors. The amount of the total other-than-temporary impairment related to the credit loss is recognized in earnings. The amount of the total other-than-temporary impairment related to all other factors is recognized in other comprehensive income.

Fair Value of Investment Securities

FASB ASC 820-10-35 clarifies the application of the provisions of FASB ASC 820-10-05 in an inactive market and how an entity would determine fair value in an inactive market. The Corporation applies the guidance in FASB ASC 820-10-35 when determining fair value for the Corporation’s private label collateralized mortgage obligations, pooled trust preferred securities and single name corporate trust preferred securities. See Note 8 of the Notes to Consolidated Financial Statements for further discussion.

FASB ASC 820-10-65 provides additional guidance for estimating fair value in accordance with FASB ASC 820-10-05 when the volume and level of activity for the asset or liability have significantly decreased. This ASC also includes guidance on identifying circumstances that indicate a transaction is not orderly.

Goodwill

The Corporation adopted the provisions of FASB ASC 350-10, which requires that goodwill be reported separate from other intangible assets in the Consolidated Statements of Condition and not be amortized but rather tested for impairment annually or more frequently if impairment indicators arise. No impairment charge was deemed necessary for the three and six months ended June 30, 2014 and 2013.

Income Taxes

The objectives of accounting for income taxes are to recognize the amount of taxes payable or refundable for the current year and deferred tax liabilities and assets for the future tax consequences of events that have been recognized in an entity’s financial statements or tax returns. Judgment is required in assessing the future tax consequences of events that have been recognized in the Corporation’s consolidated financial statements or tax returns.

Fluctuations in the actual outcome of these future tax consequences could impact the Corporation’s consolidated financial condition or results of operations. Note 12 of the 2013 Form 10-K of the Notes to Consolidated Financial Statements includes additional discussion on the accounting for income taxes.

35

Operating Results Overview

Net income available to common stockholders for the three months ended June 30, 2014 amounted to $4.4 million compared to $4.9 million for the comparable three-month period ended June 30, 2013. The Corporation recorded earnings per diluted common share of $0.26 for the three months ended June 30, 2014 as compared with earnings of $0.30 per diluted common share for the same three months in 2013. The annualized return on average assets was 1.06% for the three months ended June 30, 2014, compared to 1.22% for the three months ended June 30, 2013. The annualized return on average stockholders’ equity was 9.92% for the three-month period ended June 30, 2014, compared to 11.84% for the three months ended June 30, 2013.

Net income available to common stockholders for the six months ended June 30, 2014 amounted to $8.7 million compared to $9.8 million for the comparable six-month period ended June 30, 2013. The Corporation recorded earnings per diluted common share of $0.53 for the six months ended June 30, 2014 as compared with earnings of $0.60 per diluted common share for the same six months in 2013. The annualized return on average assets was 1.05% for the six months ended June 30, 2014, compared to 1.22% for six months ended June 30, 2013. The annualized return on average stockholders’ equity was 9.97% for the six-month period ended June 30, 2013, compared to 11.96% for the six months ended June 30, 2013.

Net Interest Income and Margin

Net interest income is the difference between the interest earned on the portfolio of earning assets (principally loans and investments) and the interest paid for deposits and borrowings, which support these assets. Net interest income is presented on a tax-equivalent basis by adjusting tax-exempt income (primarily interest earned on obligations of state and political subdivisions) by the amount of income tax which would have been paid had the assets been invested in taxable issues. Net interest margin is defined as net interest income on a tax-equivalent basis as a percentage of total average interest-earning assets.

The following table presents the components of net interest income on a tax-equivalent basis for the periods indicated.

Net Interest Income

(tax-equivalent basis)

	Three Months Ended June 30,												Six Months Ended June 30,
(dollars in thousands)	2014			2013			Increase (Decrease)			Percent Change			2014			2013			Increase (Decrease)			Percent Change
Interest income:
Investment securities AFS	$	2,288		$	3,521		$	(1,233	)		(35.02	)%	$	4,957		$	7,410		$	(2,453	)		(33.10	)%
Investment securities HTM		2,037			1,048			989			94.37			4,050			1,810			2,240			123.76
Loans, including net costs		10,563			9,892			671			6.78			20,750			19,815			935			4.72
Restricted investment in bank stocks, at cost		97			99			(2	)		(2.02	)		210			207			3			1.45
Other interest-bearing deposits		—			—			—			—			—			2			(2	)		(100.00	)
Total interest income		14,985			14,560			425			2.92			29,967			29,244			723			2.47
Interest expense:
Time deposits $100 or more		203			220			(17	)		(7.73	)		410			459			(49	)		(10.68	)
All other deposits		1,098			1,063			35			3.29			2,207			2,108			99			4.70
Borrowings		1,432			1,468			(36	)		(2.45	)		2,843			2,918			(75	)		(2.57	)
Total interest expense		2,733			2,751			(18	)		(0.65	)		5,460			5,485			(25	)		(0.46	)
Net interest income on a fully tax-equivalent basis		12,252			11,809			443			3.75			24,507			23,759			748			3.15
Tax-equivalent adjustment (1)		(584	)		(581	)		(3	)		(0.52	)		(1,229	)		(1,161	)		(68	)		(5.86	)
Net interest income	$	11,668		$	11,228		$	440			3.92	%	$	23,278		$	22,598		$	680			3.01	%

(1) Computed using a federal income tax rate of 35 percent for 2014 and 2013.

36

Net interest income on a tax-equivalent basis increased $443,000, or 3.75%, to $12.3 million for the three months ended June 30, 2014 as compared to the same period in 2013. For the three months ended June 30, 2014, the net interest margin widened by 1 basis point to 3.29% from 3.28% during the three months ended June 30, 2013. For the three months ended June 30, 2014, a decrease in the average yield on interest-earning assets of 2 basis points was partially offset by a decrease in the average cost of interest-bearing liabilities of 3 basis points, resulting in a stabilization of the Corporation’s net interest spread for the periods. Net interest margin contracting during the second quarter period of 2014 occurred primarily as result of a higher liquidity pool carried during the quarter.

Net interest income on a fully tax-equivalent basis increased $748,000, or 3.1%, to $24.5 million for the six months ended June 30, 2014 as compared to the same period in 2013. For the six months ended June 30, 2014, the net interest margin contracted 1 basis point to 3.28% from 3.29% during the six months ended June 30, 2013. For the six months ended June 30, 2014, a decrease in the average yield on interest-earning assets of 4 basis points was partially offset by a decrease in the average cost of interest-bearing liabilities of 4 basis points, resulting in a flat net interest spread of 3.14% for the periods.

The yield on the Company’s loan portfolio continues to decline, reflecting the protracted low interest rate environment, a pronounced shift in the composition of interest earning assets, from securities to loans, has resulted in a stable net interest margin and an increase in net interest income. Management expects a continuation of this trend whereby investment securities will represent a declining percentage of interest earning assets.

The following table quantifies the impact on net interest income on a tax-equivalent basis resulting from changes in average balances and average rates during the three month periods presented. Any change in interest income or expense attributable to both changes in volume and changes in rate has been allocated in proportion to the relationship of the absolute dollar amount of change in each category.

Analysis of Variance in Net Interest Income Due to Changes in Volume and Rates

	Three Months Ended June 30, 2014 and 2013 Increase (Decrease) Due to Change in:									Six Months Ended June 30, 2014 and 2013 Increase (Decrease) Due to Change in:
(tax-equivalent basis, in thousands)	Average Volume			Average Rate			Net Change			Average Volume			Average Rate			Net Change
Interest-earning assets:
Investment securities:
Available-for-sale
Taxable	$	(860	)	$	341		$	(519	)	$	(1,732	)	$	710		$	(1,022	)
Tax-exempt		(871	)		157			(714	)		(1,790	)		358			(1,432	)
Held-to-maturity
Taxable		616			(56	)		560			1,217			(92	)		1,125
Tax-exempt		438			(9	)		429			1,203			(88	)		1,115
Total investment securities		(677	)		433			(244	)		(1,102	)		888			(214	)
Loans		1,094			(423	)		671			2,093			(1,157	)		936
Restricted investment in bank stocks		2			(4	)		(2	)		2			1			3
Other interest bearing deposits		—			—			—			(2	)		—			(2	)
Total interest-earning assets	$	419		$	6		$	425		$	991		$	(268	)	$	723
Interest-bearing liabilities:
Money market deposits	$	(1	)	$	73		$	72		$	50		$	143		$	193
Savings deposits		(30	)		(13	)		(43	)		(58	)		(22	)		(80	)
Time deposits		(2	)		(18	)		(20	)		(16	)		(65	)		(81	)
Other interest-bearing deposits		57			(48	)		9			99			(81	)		18
Total interest-bearing deposits		24			(6	)		18			75			(25	)		50
Borrowings and subordinated debentures		40			(76	)		(36	)		42			(117	)		(75	)
Total interest-bearing liabilities		64			(82	)		(18	)		117			(142	)		(25	)
Change in net interest income	$	355		$	88		$	443		$	874		$	(126	)	$	748

37

The following tables, “Average Statements of Condition with Interest and Average Rates”, present for the three and six months ended June 30, 2014 and 2013, the Corporation’s average assets, liabilities and stockholders’ equity. The Corporation’s net interest income, net interest spread and net interest margin are also reflected.

Average Statements of Condition with Interest and Average Rates

	Three Months Ended June 30,
	2014									2013
(tax-equivalent basis)	Average Balance			Interest Income/ Expense			Average Rate			Average Balance			Interest Income/ Expense			Average Rate
	(dollars in thousands)
Assets
Interest-earning assets:
Investment securities (1) :
Available-for-sale
Taxable	$	267,114		$	2,179			3.26	%	$	376,944		$	2,698			2.86	%
Tax-exempt		7,642			109			5.68			71,545			823			4.60
Held-to-maturity
Taxable		107,210			769			2.87			22,712			209			3.68
Tax-exempt		110,667			1,268			4.58			72,451			839			4.63
Total investment securities		492,633			4,325			3.51			543,652			4,569			3.36
Loans (2)		989,454			10,563			4.27			888,175			9,892			4.45
Restricted investment in bank stocks		9,210			97			4.22			8,995			99			4.40
Other interest-bearing deposits		—			—			—			—			—			—
Total interest-earning assets		1,491,297			14,985			4.02			1,440,822			14,560			4.04
Non interest-earning assets:
Cash and due from banks		92,230									100,807
Bank-owned life insurance		36,096									35,049
Intangible assets		16,819									16,845
Other assets		31,754									31,193
Allowance for loan losses		(10,756	)								(10,214	)
Total non-interest-earning assets		166,143									173,680
Total assets	$	1,657,440								$	1,614,502
Liabilities and Stockholders’ Equity
Interest-bearing liabilities:
Money market deposits	$	395,912		$	491			0.50	%	$	396,920		$	420			0.42	%
Savings deposits		161,522			124			0.31			200,433			167			0.33
Time deposits		173,544			383			0.88			172,865			402			0.93
Other interest-bearing deposits		350,761			303			0.35			289,334			294			0.41
Total interest-bearing deposits		1,081,739			1,301			0.48			1,059,552			1,283			0.48
Short-term and long-term borrowings		150,934			1,393			3.69			146,769			1,428			3.89
Subordinated debentures		5,155			39			3.02			5,155			40			3.10
Total interest-bearing liabilities		1,237,828			2,733			0.88			1,211,476			2,751			0.91
Non interest-bearing liabilities:
Demand deposits		228,873									219,965
Other liabilities		14,188									16,676
Total non interest-bearing liabilities		243,061									236,641
Stockholders’ equity		176,551									166,385
Total liabilities and stockholders’ equity	$	1,657,440								$	1,614,502
Net interest income (tax-equivalent basis)														11,809
Net interest spread					12,252			3.14	%								3.13	%
Net interest margin (3)								3.29	%								3.28	%
Tax-equivalent adjustment (4)					(584	)								(581	)
Net interest income				$	11,668								$	11,228

(1)	Average balances are based on amortized cost.
(2)	Average balances include loans on non-accrual status.
(3)	Represents net interest income as a percentage of total average interest-earning assets.
(4)	Computed using a federal income tax rate of 35 percent for 2014 and 2013.

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Average Statements of Condition with Interest and Average Rates

	Six Months Ended June 30,
	2014									2013
(tax-equivalent basis)	Average Balance			Interest Income/ Expense			Average Rate			Average Balance			Interest Income/ Expense			Average Rate
	(dollars in thousands)
Assets
Interest-earning assets:
Investment securities (1) :
Available-for-sale
Taxable	$	276,953		$	4,503			3.25	%	$	388,088		$	5,525			2.85	%
Tax-exempt		16,246			454			5.58			83,159			1,885			4.53
Held-to-maturity
Taxable		104,014			1,502			2.89			20,802			377			3.62
Tax-exempt		112,274			2,548			4.54			59,551			1,433			4.81
Total investment securities		509,487			9,007			3.54			551,600			9,220			3.34
Loans (2)		976,349			20,750			4.25			881,085			19,815			4.50
Restricted investment in bank stocks		9,099			210			4.62			8,980			207			4.61
Other interest-bearing deposits		—			—			—			709			2			0.56
Total interest-earning assets		1,494,935			29,967			4.01			1,442,374			29,244			4.05
Non interest-earning assets:
Cash and due from banks		97,897									94,570
Bank-owned life insurance		35,968									34,973
Intangible assets		16,822									16,850
Other assets		32,070									30,730
Allowance for loan losses		(10,558	)								(10,221	)
Total non-interest-earning assets		172,199									166,902
Total assets	$	1,667,134								$	1,609,276
Liabilities and Stockholders’ Equity
Interest-bearing liabilities:
Money market deposits	$	412,905		$	1,011			0.49	%	$	390,086		$	818			0.42	%
Savings deposits		162,069			250			0.31			198,628			330			0.33
Time deposits		172,351			751			0.87			175,741			832			0.95
Other interest-bearing deposits		350,065			605			0.35			295,946			587			0.40
Total interest-bearing deposits		1,097,390			2,617			0.48			1,060,401			2,567			0.48
Short-term and long-term borrowings		148,729			2,766			3.72			146,552			2,839			3.87
Subordinated debentures		5,155			77			3.01			5,155			79			3.06
Total interest-bearing liabilities		1,251,274			5,460			0.87			1,212,108			5,485			0.91
Non interest-bearing liabilities:
Demand deposits		227,150									216,432
Other liabilities		13,833									16,107
Total non interest-bearing liabilities		240,983									232,539
Stockholders’ equity		174,877									164,629
Total liabilities and stockholders’ equity	$	1,667,134								$	1,609,276
Net interest income (tax-equivalent basis)					24,507									23,759
Net interest spread								3.14	%								3.14	%
Net interest margin (3)								3.28	%								3.29	%
Tax-equivalent adjustment (4)					(1,229	)								(1,161	)
Net interest income				$	23,278								$	22,598

(1)	Average balances are based on amortized cost.
(2)	Average balances include loans on non-accrual status.
(3)	Represents net interest income as a percentage of total average interest-earning assets.
(4)	Computed using a federal income tax rate of 35 percent for 2014 and 2013.

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Non-Interest Income

The following table presents the principal categories of other income for the periods indicated.

	Three Months Ended June 30,										Six Months Ended June 30,
(dollars in thousands)	2014		2013		Increase (Decrease)			% Change			2014		2013		Increase (Decrease)			% Change
Service charges, commissions and fees	$	469	$	451	$	18			3.99	%	$	966	$	857	$	109			12.72	%
Annuities and insurance commission		105		146		(41	)		(28.08	)		205		246		(41	)		(16.67	)
Bank-owned life insurance		256		274		(18	)		(6.57	)		511		839		(328	)		(39.09	)
Net investment securities gains		574		600		(26	)		(4.33	)		1,989		919		(1,070	)		116.43
Loan related fees		214		114		100			87.72			395		253		142			56.13
Net gains on sales of loans held for sale		43		91		(48	)		(52.75	)		79		229		(150	)		(65.50	)
All other		63		31		32			103.23			100		209		(109	)		(52.15	)
Total other income	$	1,724	$	1,707	$	17			1.00	%	$	4,245	$	3,552	$	693			19.51	%

Non-interest income totaled $1.7 million in each of the second quarters of 2014 and 2013. The largest component of non-interest income was net investment securities gains which totaled $0.6 million in each of the second quarters of 2014 and 2013. Non-interest income totaled $4.2 million for the first six months of 2014, a $0.6 million increase from $3.6 million for the first six months of 2013. Net investment securities gains increased, by $1.1 million to $2.0 million for the first six months of 2014, from $0.9 million in the prior-year period. Partially offsetting this increase was $0.3 million decline in bank-owned life insurance (“BOLI”) income. Other types of non-interest income for the Bank include deposit and loan fees, annuities and life insurance commissions, and gains on the sale of residential mortgages in the secondary market.

Non-Interest Expense

The following table presents the principal categories of other expense for the periods indicated.

	Three Months Ended June 30,										Six Months Ended June 30,
(dollars in thousands)	2014		2013		Increase (Decrease)			% Change			2014		2013		Increase (Decrease)			% Change
Salaries and employee benefits	$	3,184	$	3,335	$	(151	)		(4.53	)%	$	6,516	$	6,825	$	(309	)		(4.53	)%
Occupancy and equipment		816		811		5			0.62			1,896		1,717		179			10.43
FDIC insurance		288		208		80			38.46			588		521		67			12.86
Professional and consulting		306		230		76			33.04			561		449		112			24.94
Stationery and printing		88		78		10			12.82			172		163		9			5.52
Marketing and advertising		27		62		(35	)		(56.45	)		67		163		(96	)		(58.90	)
Computer expense		373		343		30			8.75			718		696		22			3.16
Other real estate owned, net		1		107		(106	)		99.07			3		126		(123	)		(97.62	)
Merger expenses		729		—		729			100.0			1,789		—		1,789			100.0
All other		932		902		30			3.33			1,930		1,954		(24	)		(1.23	)
Total other expense	$	6,744	$	6,076	$	668			10.99	%	$	14,240	$	12,614	$	1,626			12.89	%

Non-interest expenses totaled $6.7 million, including merger expenses of $0.7 million, for the second quarter of 2014, and $14.2 million, including merger expenses of $1.8 million, for the six months ended June 30, 2014. Excluding merger expenses, total non-interest expense was $6.0 million for the second quarter 2014, a decline of $0.1 million from $6.1 million for the prior-year period. Excluding merger expenses, total non-interest expense was $12.5 million for the six months ended June 30, 2014, a decline of $0.1 million from $12.6 million for the prior-year period. The decline in expense levels from last year reflects continued successful efforts by management to leverage the Bank’s infrastructure as well as a decline in staff expenses in anticipation of the merger. In the latter half of 2014, management will be focusing on achieving merger expense synergies, which are ahead of schedule, while balancing investment in infrastructure with prudent and sustainable growth.

40

Income Taxes

Income tax expense was $2.0 million and $3.6 million for the second quarter and first six months of 2014, respectively, compared with $1.9 million and $3.7 million, for the second quarter and first six months of 2013, respectively. The effective tax rates were 31.2% and 29.1% for the second quarter and first six months of 2014, respectively, compared with 28.2% and 27.2%, for the second quarter and first six months of 2013, respectively. The increase in effective tax rates for 2014 reflects non-deductibility of certain merger expenses. The Company’s effective tax rate is projected to trend upward in future periods as the proportion of tax-exempt income to taxable income is expected to decline.

Investment Portfolio

At June 30, 2014, the principal components of the investment securities portfolio were U.S. Treasury and agency obligations, federal agency obligations, mortgage-backed securities, obligations of U.S. states and political subdivisions, corporate bonds and notes, trust preferred securities, asset backed securities and equity securities.

During the six months ended June 30, 2014, approximately $66.7 million in investment securities were sold from the available-for-sale portfolio. The cash flow from the sale of investment securities was primarily used to either fund loan growth or purchase new securities.

For the three months ended June 30, 2014, average investment securities decreased $51.0 million to approximately $492.6 million, or 33.0% of average interest-earning assets, from $543.7 million on average, or 37.7% of average interest-earning assets, for the comparable period in 2013. For the six months ended June 30, 2014, average investment securities decreased $42.1 million to approximately $509.5 million, or 34.1% of average interest-earning assets, from $551.6 million on average, or 38.2% of average interest-earning assets, for the comparable period in 2013.

At June 30, 2014, net unrealized gains on investment securities available-for-sale, which are carried as a component of accumulated other comprehensive income and included in stockholders’ equity, net of tax, amounted to $5.3 million as compared with net unrealized gains of $2.4 million at December 31, 2013. At June 30, 2014, the net unrealized gains on investment securities held-to-maturity that were transferred from securities available-for-sale, are carried, net of tax, as a component of accumulated other comprehensive income and included in stockholders’ equity. The gross unrealized losses associated with agency securities and federal agency obligations, mortgage-backed securities, corporate bonds and tax-exempt securities are not considered to be other-than-temporary because their unrealized losses are related to changes in interest rates and do not affect the expected cash flows of the underlying collateral or issuer.

Loan Portfolio

Lending is one of the Corporation’s primary business activities. The Corporation’s loan portfolio consists of commercial, residential and retail loans, serving the diverse customer base in its market area. The composition of the Corporation’s portfolio continues to change due to the local economy. Factors such as the economic climate, interest rates, real estate values and employment all contribute to these changes. Growth is generated through business development efforts, repeat customer requests for new financings, penetration into existing markets and entry into new markets.

The Corporation seeks to create growth in commercial lending by offering customer-focused products and competitive pricing and by capitalizing on the positive trends in its market area. Products offered are designed to meet the financial requirements of the Corporation’s customers. It is the objective of the Corporation’s credit policies to diversify the commercial loan portfolio to limit concentrations in any single industry.

At June 30, 2014, total loans amounted to $1.0 billion, an increase of $45.3 million or 4.72% as compared to December 31, 2013. For the period ended June 30, 2014, growth of $40.2 million and $59.6 million in the commercial and industrial and commercial real estate portfolios, $8.1 million in the construction portfolio was partially offset by a decrease of $5.5 million in residential mortgage loans compared to June 30, 2013. Total gross loans recorded in the quarter included $81.0 million of new loans and advances, offset by payoffs and principal payments of $61.4 million.

At June 30, 2014, the Corporation had $87.2 million in outstanding loan commitments which are expected to fund over the next 90 days.

Allowance for Loan Losses and Related Provision

The purpose of the allowance for loan losses (the “allowance”) is to establish a valuation allowance for probable incurred losses in the loan portfolio. Additions to the allowance are made through provisions charged against current operations and through recoveries made on loans previously charged-off. The allowance for loan losses is maintained at an amount considered adequate by management to provide for probable credit losses inherent in the loan portfolio based upon a periodic evaluation of the portfolio’s risk characteristics. In establishing an appropriate allowance, an assessment of the individual borrowers, a determination of the value of the underlying collateral, a review of historical loss experience and an analysis of the levels and trends of loan categories, delinquencies and problem loans are considered. Such factors as the level and trend of interest rates and current economic conditions and peer group statistics are also reviewed. Given the extraordinary economic volatility impacting national, regional and local markets, the Corporation’s analysis of its allowance for loan losses takes into consideration the potential impact that current trends may have on the Corporation’s borrower base.

41

Although management uses the best information available, the level of the allowance for loan losses remains an estimate, which is subject to significant judgment and short-term change. Various regulatory agencies, as an integral part of their examination process, periodically review the Corporation’s allowance for loan losses. Such agencies may require the Corporation to increase the allowance based on their analysis of information available to them at the time of their examination. Furthermore, the majority of the Corporation’s loans are secured by real estate in the State of New Jersey. Future adjustments to the allowance may be necessary due to economic factors impacting New Jersey real estate and the economy in general, as well as operating, regulatory and other conditions beyond the Corporation’s control.

At June 30, 2014, the level of the allowance was $10.8 million as compared to $10.3 million at December 31, 2013. Provisions to the allowance for the six-month period ended June 30, 2014 totaled $909,000 compared to $0 for the same period in 2013. The net charge-offs were $417,000 for the six months ended June 30, 2014 compared to $35,000 in net charge-offs for the six months ended June 30, 2013. The allowance for loan losses as a % of total loans amounted to 1.08% at June 30, 2014 compared to 1.08% at December 31, 2013 and 1.13% at June 30, 2013.

The level of the allowance for the respective periods of 2014 and 2013 reflects the credit quality within the loan portfolio, the loan volume recorded during the periods, the changing composition of the commercial and residential real estate loan portfolios and other related factors. In management’s view, the level of the allowance at June 30, 2014 is adequate to cover losses inherent in the loan portfolio. Management’s judgment regarding the adequacy of the allowance constitutes a “Forward-Looking Statement” under the Private Securities Litigation Reform Act of 1995. Actual results could differ materially from management’s analysis, based principally upon the factors considered by management in establishing the allowance.

Changes in the allowance for loan losses are presented in the following table for the periods indicated.

	Six Months Ended June 30,
	2014			2013
	(dollars in thousands)
Average loans for the period	$	976,349		$	881,085
Total loans at end of period		1,006,256			902,822
Analysis of the Allowance for Loan Losses:
Balance — beginning of year	$	10,333		$	10,237
Charge-offs:
Commercial and industrial		(333	)		(50	)
Residential mortgage loans		(90	)
Installment loans		(7	)		(16	)
Total charge-offs		(430	)		(66	)
Recoveries:
Commercial and industrial		—			21
Commercial real estate		—			8
Construction		—			—
Residential mortgage loans		11			—
Installment loans		2			2
Total recoveries		13			31
Net charge-offs		(417	)		(35	)
Provision for loan losses		909			—
Balance — end of period	$	10,825		$	10,202
Ratio of net charge-offs during the period to average loans during the period (1)		0.09	%		0.00	%
Allowance for loan losses as a percent of total loans		1.08	%		1.13	%

(1) Annualized.

42

Asset Quality

The Corporation manages asset quality and credit risk by maintaining diversification in its loan portfolio and through review processes that include analysis of credit requests and ongoing examination of outstanding loans, delinquencies, and potential problem loans, with particular attention to portfolio dynamics and mix. The Corporation strives to identify loans experiencing difficulty early enough to correct the problems, to record charge-offs promptly based on realistic assessments of current collateral values and cash flows, and to maintain an adequate allowance for loan losses at all times.

It is generally the Corporation’s policy to discontinue interest accruals once a loan is past due as to interest or principal payments for a period of ninety days. When a loan is placed on non-accrual status, interest accruals cease and uncollected accrued interest is reversed and charged against current income. Payments received on non-accrual loans are applied against principal. A loan may be restored to an accruing basis when it again becomes well-secured, all past due amounts have been collected and the borrower continues to make payments for the next six months on a timely basis. Accruing loans past due 90 days or more are generally well-secured and in the process of collection.

Non-Performing Assets and Troubled Debt Restructured Loans

Non-performing loans include non-accrual loans and accruing loans past due 90 days or more. Non-accrual loans represent loans on which interest accruals have been suspended. In general, it is the policy of management to consider the charge-off of loans at the point they become past due in excess of 90 days, with the exception of loans that are both well-secured and in the process of collection. Non-performing assets include non-performing loans and other real estate owned. Performing troubled debt restructured loans represent loans to borrowers experiencing financial difficulties on which a concession was granted, such as a reduction in interest rate below the current market rate for new debt with similar risks, or modified repayment terms, and are performing under the restructured terms. Such loans, as restructured, are not included within the Corporation’s non-performing loans.

The following table sets forth, as of the dates indicated, the amount of the Corporation’s non-accrual loans, accruing loans past due 90 days or more, other real estate owned and troubled debt restructured loans.

	June 30, 2014		December 31, 2013
	(in thousands)
Non-accrual loans	$	4,032	$	3,137
Accruing loans past due 90 days or more		144		—
Total non-performing loans		4,176		3,137
Other real estate owned		220		220
Total non-performing assets	$	4,396	$	3,357
Troubled debt restructured loans — performing	$	1,586	$	5,746

At June 30, 2014, non-performing assets totaled $4.4 million, or 0.26% of total assets, as compared with $2.8 million, or 0.17% of total assets, at June 30, 2013 and $3.4 million, or 0.20%, at December 31, 2013. The increase from June 30, 2013 reflects an increase of $1.6 million in non-performing problem asset loans. The largest component of the non-accrual loans is comprised of one relationship totaling $676,000, or 15.4 % of the total non-performing assets, secured by a mixed use property, located in Ocean County, New Jersey.

The Corporation held $220,000 in other real estate owned at June 30, 2014 and December 31, 2013.

Troubled debt restructured loans totaled $2.6 million at June 30, 2014 and $6.6 million at December 31, 2013. A total of $1.6 million and $5.7 million of troubled debt restructured loans were performing pursuant to the terms of their respective modifications at June 30, 2014 and at December 31, 2013, respectively.

Overall credit quality in the Bank’s loan portfolio at June 30, 2014 remains sound. Other known “potential problem loans” (as defined by SEC regulations), some of which are non-performing loans and are included in the table above, as of June 30, 2014 have been identified and internally risk-rated as assets specially mentioned, substandard or doubtful. Such loans amounted to $30.4 million and $35.1 million at June 30, 2014 and December 31, 2013, respectively. The improvement in credit quality occurred as the commercial and industrial loans decreased $98,000 in special mention, decreased $204,000 in the substandard category and decreased $357,000 in doubtful due to charge-off of $333,000 and payments of $24,000. Commercial real estate loans decreased $106,000 in special mention and decreased $4.3 million in the substandard category. Residential mortgage loans decreased in special mention by $9,000 and increased in the substandard category by $241,000. Installment loans decreased $9,000 in the substandard category and construction loans increased $159,000 in the substandard category. These loans are considered potential problem loans due to a variety of changing conditions affecting the credits, including general economic conditions and/or conditions applicable to the specific borrowers.

At June 30, 2014, other than the loans set forth above, the Corporation is not aware of any loans which present serious doubts as to the ability of its borrowers to comply with present loan repayment terms and which are expected to fall into one of the categories set forth in the tables or descriptions above

43

Recent Accounting Pronouncements

Note 2 of the Notes to Consolidated Financial Statements discusses the expected impact of accounting pronouncements recently issued or proposed and adopted or not yet required to be adopted.

Asset and Liability Management

Asset and liability management encompasses an analysis of market risk, the control of interest rate risk (interest sensitivity management) and the ongoing maintenance and planning of liquidity and capital. The composition of the Corporation’s statement of condition is planned and monitored by the Bank’s Asset and Liability Committee (“ALCO”). In general, management’s objective is to optimize net interest income and minimize market risk and interest rate risk by monitoring the components of the statement of condition and the interaction of interest rates.

Short-term interest rate exposure analysis is supplemented with an interest sensitivity gap model. The Corporation utilizes interest sensitivity analysis to measure the responsiveness of net interest income to changes in interest rate levels. Interest rate risk arises when an earning asset matures or when its interest rate changes in a time period different than that of a supporting interest-bearing liability, or when an interest-bearing liability matures or when its interest rate changes in a time period different than that of an earning asset that it supports. While the Corporation matches only a small portion of specific assets and liabilities, total earning assets and interest-bearing liabilities are grouped to determine the overall interest rate risk within a number of specific time frames. The difference between interest-sensitive assets and interest-sensitive liabilities is referred to as the interest sensitivity gap. At any given point in time, the Corporation may be in an asset-sensitive position, whereby its interest-sensitive assets exceed its interest-sensitive liabilities, or in a liability-sensitive position, whereby its interest-sensitive liabilities exceed its interest-sensitive assets, depending in part on management’s judgment as to projected interest rate trends.

The Corporation’s interest rate sensitivity position in each time frame may be expressed as assets less liabilities, as liabilities less assets, or as the ratio between rate sensitive assets (“RSA”) and rate sensitive liabilities (“RSL”). For example, a short-funded position (liabilities repricing before assets) would be expressed as a net negative position, when period gaps are computed by subtracting repricing liabilities from repricing assets. When using the ratio method, a RSA/RSL ratio of 1 indicates a balanced position, a ratio greater than 1 indicates an asset-sensitive position and a ratio less than 1 indicates a liability-sensitive position.

A negative gap and/or a rate sensitivity ratio less than 1 tends to expand net interest margins in a falling rate environment and reduce net interest margins in a rising rate environment. Conversely, when a positive gap occurs, generally margins expand in a rising rate environment and contract in a falling rate environment. From time to time, the Corporation may elect to deliberately mismatch liabilities and assets in a strategic gap position.

At June 30, 2014, the Corporation reflected a positive interest sensitivity gap with an interest sensitivity ratio of 1.55:1.00 at the cumulative one-year position. Based on management’s perception of interest rates remaining low through 2014, emphasis has been, and is expected to continue to be, placed on controlling liability costs while extending the maturities of liabilities in order to minimize the impact on the net interest spread of rising interest rates in the future. However, no assurance can be given that this objective will be met.

44

Estimates of Fair Value

The estimation of fair value is significant to a number of the Corporation’s assets, including loans held for sale and investment securities available-for-sale. These are all recorded at either fair value or the lower of cost or fair value. Fair values are volatile and may be influenced by a number of factors. Circumstances that could cause estimates of the fair value of certain assets and liabilities to change include a change in prepayment speeds, discount rates, or market interest rates. Fair values for most available-for-sale investment securities are based on quoted market prices. If quoted market prices are not available, fair values are based on judgments regarding future expected loss experience, current economic condition risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature, involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

Impact of Inflation and Changing Prices

The financial statements and notes thereto presented elsewhere herein have been prepared in accordance with generally accepted accounting principles, which require the measurement of financial position and operating results in terms of historical dollars without considering the change in the relative purchasing power of money over time due to inflation. The impact of inflation is reflected in the increased cost of operations; unlike most industrial companies, nearly all of the Corporation’s assets and liabilities are monetary. As a result, interest rates have a greater impact on performance than do the effects of general levels of inflation. Interest rates do not necessarily move in the same direction or to the same extent as the prices of goods and services.

Liquidity

The liquidity position of the Corporation is dependent primarily on successful management of the Bank’s assets and liabilities so as to meet the needs of both deposit and credit customers. Liquidity needs arise principally to accommodate possible deposit outflows and to meet customers’ requests for loans. Scheduled principal loan repayments, maturing investments, short-term liquid assets and deposit inflows, can satisfy such needs. The objective of liquidity management is to enable the Corporation to maintain sufficient liquidity to meet its obligations in a timely and cost-effective manner.

Management monitors current and projected cash flows, and adjusts positions as necessary to maintain adequate levels of liquidity. Under its liquidity risk management program, the Corporation regularly monitors correspondent bank funding exposure and credit exposure in accordance with guidelines issued by the banking regulatory authorities. Management uses a variety of potential funding sources and staggering maturities to reduce the risk of potential funding pressure. Management also maintains a detailed contingency funding plan designed to respond adequately to situations which could lead to stresses on liquidity. Management believes that the Corporation has the funding capacity to meet the liquidity needs arising from potential events. In addition to pledgeable investment securities, the Corporation also maintains borrowing capacity through the Federal Reserve Bank Discount Window and the Federal Home Loan Bank of New York secured with loans and marketable securities.

The Corporation’s primary sources of short-term liquidity consist of cash and cash equivalents and unpledged investment securities available-for-sale.

At June 30, 2014, the Parent Corporation had $482,000 in cash and short-term investments compared to $285,000 at December 31, 2013. Expenses at the Parent Corporation are moderate and management believes that the Parent Corporation presently has adequate liquidity to fund its obligations.

Certain provisions of long-term debt agreements, primarily subordinated debt, prevent the Corporation from creating liens on, disposing of or issuing voting stock of subsidiaries. As of June 30, 2014, the Corporation was in compliance with all covenants and provisions of these agreements.

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Deposits

Total deposits remained flat at $1.3 billion at June 30, 2014 and December 31, 2013. Total non interest-bearing deposits increased from $227.4 million at December 31, 2013 to $238.1 million at June 30, 2014, an increase of $10.8 million or 4.74 %. Interest-bearing demand, savings and time deposits under $100,000 decreased $91.3 million to a total of $923.9 million at June 30, 2014 as compared to $1.0 billion at December 31, 2013. Time deposits $100,000 and over increased $13.2 million as compared to year-end 2013, primarily due to an inflow of municipal certificates of deposit. Time deposits $100,000 and over represented 8.84 % of total deposits at June 30, 2014 compared to 7.41 % at December 31, 2013.

Core Deposits

The Corporation derives a significant proportion of its liquidity from its core deposit base. Total demand deposits, savings and money market accounts of $1.1 billion at June 30, 2014 decreased by $77.9 million, or 6.51%, from December 31, 2013. At June 30, 2014, total demand deposits, savings and money market accounts were 87.7% of total deposits compared to 89.1 % at year-end 2013. Alternatively, the Corporation uses a more stringent calculation for the management of its liquidity positions internally, which calculation consists of total demand, savings accounts and money market accounts (excluding money market accounts greater than $100,000 and time deposits) as a % of total deposits. This number decreased by $36.8 million, or 4.91 %, from $750.2 million at December 31, 2013 to $713.4 million at June 30, 2014 and represented 56.0% of total deposits at June 30, 2014 as compared with 55.9% at December 31, 2013.

The Corporation continues to place the main focus of its deposit gathering efforts in the maintenance, development, and expansion of its core deposit base. Management believes that the emphasis on serving the needs of our communities will provide a long term relationship base that will allow the Corporation to efficiently compete for business in its market.

The following table depicts the Corporation’s core deposit mix at June 30, 2014 and December 31, 2013 based on the Corporation’s alternative calculation:

	June 30, 2014					December 31, 2013					Dollar Change
	Amount		percent			Amount		percent			2014 vs. 2013
	(dollars in thousands)
Non interest-bearing demand	$	238,138		33.4	%	$	227,370		30.3	%	$	10,768
Interest-bearing demand		249,695		35.0			266,613		35.5			(16,918	)
Regular savings		107,157		15.0			102,721		13.7			4,436
Money market deposits under $100		118,405		16.6			153,502		20.5			(35,097	)
Total core deposits	$	713,395		100.0	%	$	750,206		100.0	%	$	(36,811	)
Total deposits	$	1,274,620				$	1,342,005				$	(67,385	)
Core deposits to total deposits				56.0	%				55.9	%

Borrowings

Short-Term Borrowings

Short-term borrowings, which consist primarily of securities sold under agreements to repurchase, Federal Home Loan Bank (“FHLB”) advances and federal funds purchased, generally have maturities of less than one year. The details of these short-term borrowings are presented in the following table.

	June 30, 2014
	(dollars in thousands)
Interest rate:
At quarter end		0.38	%
Average for the quarter		0.28	%
Average amount outstanding during the quarter	$	4,934
Maximum amount outstanding at any month end in the quarter	$	50,000
Amount outstanding at quarter end	$	50,000

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Long-Term Borrowings

Long-term borrowings, which consist primarily of FHLB advances and securities sold under agreements to repurchase, totaled $146.0 million at June 30, 2014 and December 31, 2013, and mature within three to eight years. The FHLB advances are secured by pledges of certain collateral, including but not limited to U.S. government and agency mortgage-backed securities and a blanket assignment of qualifying first lien mortgage loans, consisting of both residential mortgages and commercial real estate loans. At June 30, 2014, FHLB advances and securities sold under agreements to repurchase had weighted average interest rates of 3.26% and 5.90%, respectively.

Subordinated Debentures

On December 19, 2003, Center Bancorp Statutory Trust II, a statutory business trust and wholly-owned subsidiary of the Parent Corporation issued $5.0 million of MMCapS capital securities to investors due on January 23, 2034. The trust loaned the proceeds of this offering to the Corporation and received in exchange $5.2 million of the Parent Corporation’s subordinated debentures. The subordinated debentures are redeemable in whole or part. The floating interest rate on the subordinated debentures is three-month LIBOR plus 2.85% and reprices quarterly. The rate at June 30, 2014 was 3.07%.

Cash Flows

The Consolidated Statements of Cash Flows present the changes in cash and cash equivalents resulting from the Corporation’s operating, investing and financing activities. During the six months ended June 30, 2014, cash and cash equivalents increased by $9.9 million over the balance at December 31, 2013. Net cash of $10.4 million was provided by operating activities, primarily, net income as adjusted to net cash. Net cash provided by investing activities amounted to approximately $18.7 million, primarily reflecting a net increase in loans of $45.7 million offset by a net decrease in investment securities of $67.5 million. Net cash of $19.2 million was used in financing activities, primarily from the decrease in deposits of $67.4 million and the funding of dividends.

Stockholders’ Equity

Total stockholders’ equity amounted to $178.3 million, or 10.7% of total assets, at June 30, 2014, compared to $168.6 million or 10.1% of total assets at December 31, 2013. Book value per common share was $10.18 at June 30, 2014, compared to $9.61 at December 31, 2013. Tangible book value (i.e., total stockholders’ equity less preferred stock, goodwill and other intangible assets) per common share was $9.15 at June 30, 2014, compared to $8.58 at December 31, 2013.

Tangible book value per share is a non-GAAP financial measure and represents tangible stockholders’ equity (or tangible book value) calculated on a per common share basis. The Corporation believes that a disclosure of tangible book value per share may be helpful for those investors who seek to evaluate the Corporation’s book value per share without giving effect to goodwill and other intangible assets. The following table presents a reconciliation of total book value per share to tangible book value per share as of June 30, 2014 and December 31, 2013.

	June 30,		December 31,
	2014		2013
	(in thousands, except for share data)
Stockholders’ equity	$	178,278	$	168,584
Less: Preferred stock		11,250		11,250
Less: Goodwill and other intangible assets		16,815		16,828
Tangible common stockholders’ equity	$	150,213	$	140,506
Book value per common share	$	10.18	$	9.61
Less: Goodwill and other intangible assets		1.03		1.03
Tangible book value per common share	$	9.15	$	8.58

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On September 15, 2011, the Corporation issued $11.25 million in nonvoting senior preferred stock to the Treasury under the SBLF Program. Under the Securities Purchase Agreement, the Corporation issued to the Treasury a total of 11,250 shares of the Corporation’s Senior non-cumulative perpetual preferred stock, Series B, having a liquidation value of $1,000 per share. Simultaneously, using the proceeds from the issuance of the SBLF Preferred Stock, the Corporation redeemed from the Treasury, all 10,000 outstanding shares of its fixed rate cumulative perpetual preferred stock, Series A, liquidation amount $1,000 per share, for a redemption price of $10,041,667, including accrued but unpaid dividends up to the date of redemption. The investment in the SBLF program provided the Corporation with approximately $1.25 million additional Tier 1 capital. The capital that the Corporation received under the program enabled it to continue to serve small business clients through the commercial lending program. On December 7, 2011, the Corporation repurchased the warrants issued on January 12, 2009 to the Treasury as part of its participation in the Treasury’s TARP Capital Purchase Program. In the repurchase, the Corporation paid the Treasury $245,000 for the warrants.

During the three and six months ended June 30, 2014, the Corporation had no purchases of common stock associated with its stock buyback programs. At June 30, 2014, there were 652,868 shares available for repurchase under the Corporation’s stock buyback programs.

Regulatory Capital and Capital Adequacy

The maintenance of a solid capital foundation is a primary goal for the Corporation. Accordingly, capital plans and dividend policies are monitored on an ongoing basis. The Corporation’s objective with respect to the capital planning process is to effectively balance the retention of capital to support future growth with the goal of providing stockholders with an attractive long-term return on their investment.

The Corporation and the Bank are subject to regulatory guidelines establishing minimum capital standards that involve quantitative measures of assets, and certain off-balance sheet items, as risk-adjusted assets under regulatory accounting practices.

The following is a summary of regulatory capital amounts and ratios as of June 30, 2014 for the Corporation and the Bank, compared with minimum capital adequacy requirements and the regulatory requirements for classification as a well-capitalized depository institution.

	ConnectOne Bancorp, Inc.					For Capital Adequacy Purposes					To Be Well-Capitalized Under Prompt Corrective Action Provisions
At June 30, 2014	Amount		Ratio			Amount		Ratio			Amount	Ratio
	(dollars in thousands)
Tier 1 leverage capital	$	165,299		10.08	%	$	65,595		4.00	%	N/A		N/A
Tier 1 risk-based capital		165,299		12.59	%		52,518		4.00	%	N/A		N/A
Total risk-based capital		176,334		13.43	%		105,039		8.00	%	N/A		N/A

	ConnectOne Bank					For Capital Adequacy Purposes					To Be Well-Capitalized Under Prompt Corrective Action Provisions
At June 30, 2014	Amount		Ratio			Amount		Ratio			Amount		Ratio
	(dollars in thousands)
Tier 1 leverage capital	$	163,749		9.99	%	$	65,565		4.00	%	$	81,956		5.00	%
Tier 1 risk-based capital		163,749		12.48	%		52,484		4.00	%		78,725		6.00	%
Total risk-based capital		174,784		13.32	%		104,975		8.00	%		131,219		10.00	%

N/A - not applicable

As of June 30, 2014, management believes that each of the Bank and the Corporation meet all capital adequacy requirements to which they are subject.

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Basel III

The Basel Committee on Banking Supervision (the “Basel Committee”) provides a forum for regular cooperation on banking supervisory matters. Its objective is to enhance understanding of key supervisory issues and improve the quality of banking supervision worldwide. It seeks to do so by exchanging information on national supervisory issues, approaches and techniques, with a view to promoting common understanding. At times, the Committee uses this common understanding to develop guidelines and supervisory standards in areas where they are considered desirable. In this regard, the Committee is best known for its international standards on capital adequacy; the Core Principles for Effective Banking Supervision; and the Concordat on cross-border banking supervision.

The Basel Committee released a comprehensive list of proposals for changes to capital, leverage, and liquidity requirements for banks in December 2009 (commonly referred to as “Basel III”). In July 2010, the Basel Committee announced the design for its capital and liquidity reform proposals and in September 2010, the oversight body of the Basel Committee announced minimum capital ratios and transition periods.

In December 2010 and January 2011, the Basel Committee published the final texts of reforms on capital and liquidity generally referred to as “Basel III.” Although Basel III is intended to be implemented by participating countries for large, internationally active banks, its provisions have also been considered by United States banking regulators in developing new regulations applicable to other banks in the United States, including Union Center National Bank.

On July 9, 2013, the Office of the Comptroller of the Currency approved a final rule revising regulatory capital rules applicable to national banks, implementing Basel III. This rule redefines Tier 1 capital as two components (Common Equity Tier 1 and Additional Tier 1), creates a new capital ratio (Common Equity Tier 1 Risk-based Capital Ratio) and implements a capital conservation buffer. It also revises the prompt corrective action thresholds and makes changes to risk weighs for certain assets and off-balance-sheet exposures. Banks are required to transition into the new rule beginning on January 1, 2015, although, based on the Corporation’s capital levels and balance sheet composition at June 30, 2014, the Corporation does not believe implementation of the new rule will have a material impact on the Corporation’s capital needs; however, due to the complexity of the rules, the Corporation will continue to evaluate the impact of these changes to our regulatory capital. This statement regarding the impact of the new regulations constitutes a forward-looking statement under the Private Securities Litigation Reform Act of 1995. Actual results could differ materially from this statement as a result of various factors, including modifications to the new regulations that may be adopted prior to the effective dates of the new regulations.

Looking Forward

One of the Corporation’s primary objectives is to achieve balanced asset and revenue growth, and at the same time expand market presence and diversify its financial products. However, it is recognized that objectives, no matter how focused, are subject to factors beyond the control of the Corporation, which can impede its ability to achieve these goals. The following factors should be considered when evaluating the Corporation’s ability to achieve its objectives:

The financial marketplace is rapidly changing and currently is in flux. The United States Treasury and banking regulators have implemented, and may continue to implement, a number of programs under new legislation to address capital and liquidity issues in the banking system. In addition, new financial system reform legislation may affect banks’ abilities to compete in the marketplace. It is difficult to assess whether these programs and actions will have short-term and/or long-term positive effects.

Banks are not the only place to obtain loans, nor the only place to keep financial assets. The banking industry has lost market share to other financial service providers. The future is predicated on the Corporation’s ability to adapt its products, provide superior customer service and compete in an ever-changing marketplace.

Net interest income, the primary source of earnings, is impacted favorably or unfavorably by changes in interest rates. Although the impact of interest rate fluctuations can be mitigated by appropriate asset/liability management strategies, significant changes in interest rates can have a material adverse impact on profitability.

The ability of customers to repay their obligations is often impacted by changes in the regional and local economy. Although the Corporation sets aside loan loss provisions toward the allowance for loan losses when the Board determines such action to be appropriate, significant unfavorable changes in the economy could impact the assumptions used in the determination of the adequacy of the allowance.

Technological changes will have a material impact on how financial service companies compete for and deliver services. It is recognized that these changes will have a direct impact on how the marketplace is approached and ultimately on profitability. The Corporation has taken steps to improve its traditional delivery channels. However, continued success will likely be measured by the ability to anticipate and react to future technological changes.

This “Looking Forward” description constitutes a forward-looking statement under the Private Securities Litigation Reform Act of 1995. Actual results could differ materially from those projected in the Corporation’s forward-looking statements due to numerous known and unknown risks and uncertainties, including the factors referred to in this quarterly report and in the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2013.

49

Item 3. Qualitative and Quantitative Disclosures about Market Risks

Market Risk

The Corporation’s profitability is affected by fluctuations in interest rates. A sudden and substantial increase or decrease in interest rates may adversely affect the Corporation’s earnings to the extent that the interest rates borne by assets and liabilities do not similarly adjust. The Corporation’s primary objective in managing interest rate risk is to minimize the adverse impact of changes in interest rates on the Corporation’s net interest income and capital, while structuring the Corporation’s asset-liability structure to obtain the maximum yield-cost spread on that structure. The Corporation relies primarily on its asset-liability structure to control interest rate risk. The Corporation continually evaluates interest rate risk management opportunities and has been focusing its efforts on increasing the Corporation’s yield-cost spread through wholesale and retail growth opportunities.

The Corporation monitors the impact of changes in interest rates on its net interest income using several tools. One measure of the Corporation’s exposure to differential changes in interest rates between assets and liabilities is the Corporation’s analysis of its interest rate sensitivity. This test measures the impact on net interest income and on net portfolio value of an immediate change in interest rates in 100 basis point increments. Net portfolio value is defined as the net present value of assets, liabilities and off-balance sheet contracts.

The primary tool used by management to measure and manage interest rate exposure is a simulation model. Use of the model to perform simulations reflecting changes in interest rates over multiple-year time horizons enables management to develop and initiate strategies for managing exposure to interest rate risk. In its simulations, management estimates the impact on net interest income of various changes in interest rates. Projected net interest income sensitivity to movements in interest rates is modeled based on a ramped rise and fall in interest rates based on a parallel yield curve shift over a twelve month time horizon and then maintained at those levels over the remainder of the model time horizon, which provides a rate shock to the two-year period and beyond. The model is based on the actual maturity and repricing characteristics of interest rate-sensitive assets and liabilities. The model incorporates assumptions regarding earning asset and deposit growth, prepayments, interest rates and other factors.

Management believes that both individually and taken together, these assumptions are reasonable, but the complexity of the simulation modeling process results in a sophisticated estimate, not an absolutely precise calculation of exposure. For example, estimates of future cash flows must be made for instruments without contractual maturities or payment schedules.

Based on the results of the interest simulation model as of June 30, 2014, and assuming that management does not take action to alter the outcome, the Corporation would expect a decrease of 0.17 % in net interest income if interest rates increased by 200 basis points from current rates in a gradual and parallel rate ramp over a twelve month period. These results and other analyses indicate to management that the Corporation’s net interest income is presently minimally sensitive to rising interest rates.

Based on management’s perception that financial markets will continue to be volatile, interest rates that are projected to continue at low levels will generate increased downward repricing of earning assets. Emphasis has been, and is expected to continue to be, placed on interest-sensitivity matching with an overall objective of improving the net interest spread and margin over the next twelve months. However, no assurance can be given that this objective will be met.

Equity Price Risk

The Corporation is exposed to equity price risk inherent in its portfolio of publicly traded equity securities, which had an estimated fair value of approximately $293,000 and $287,000 at June 30, 2014 and December 31, 2013, respectively. We monitor equity investment holdings for impairment on a quarterly basis. In the event that the carrying value of the equity investment exceeds its fair value, and the decline in value is determined to be to be other than temporary, the carrying value is reduced to its current fair value by recording a charge to current operations. For the three months ended June 30, 2014 and 2013, the Corporation recorded no other-than-temporary impairment charges on its equity security holdings.

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Item 4. Controls and Procedures

a) Disclosure controls and procedures. As of the end of the Corporation’s most recently completed fiscal quarter covered by this report, the Corporation carried out an evaluation, with the participation of the Corporation’s management, including the Corporation’s chief executive officer and chief financial officer, of the effectiveness of the Corporation’s disclosure controls and procedures pursuant to Securities Exchange Act Rule 13a-15. Based upon that evaluation, the Corporation’s chief executive officer and chief financial officer concluded that the Corporation’s disclosure controls and procedures are effective in ensuring that information required to be disclosed by the Corporation in the reports that it files or submits under the Securities Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms and are operating in an effective manner and that such information is accumulated and communicated to management, including the Corporation’s chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure.

b) Changes in internal controls over financial reporting: There have been no changes in the Corporation’s internal controls over financial reporting that occurred during the Corporation’s last fiscal quarter to which this report relates that have materially affected, or are reasonable likely to materially affect, the Corporation’s internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

Complaints were filed against Legacy ConnectOne, the members of its Board of Directors and the Company in the Superior Court of New Jersey, seeking class action status and asserting that Legacy ConnectOne and the members of its Board violated their duties to Legacy ConnectOne’s shareholders in connection with the proposed merger. The asserted factual bases for the allegations of breach of duty included (i) that the exchange ratio undervalues Legacy ConnectOne, (ii) that the terms of the merger agreement and certain related documents impermissibly locked up the proposed transaction, inhibiting other offers for Legacy ConnectOne, and (iii) that the proposed transaction provides benefits to insiders of Legacy ConnectOne. In addition, in their amended complaint, the plaintiffs raised claims that this joint proxy statement and prospectus failed to disclose material information. Certain of the complaints also alleged that the Company has aided and abetted the individual defendants in their alleged breaches of fiduciary duties. On April 25, 2014, the plantiffs dismissed each of these legal proceedings. Other than as discussed as discussed above, the Company is not subject to any legal proceedings which could have a materially adverse impact on its results of operations and financial condition.

Item 1a. Risk Factors

In addition to the risks described under Item 1A –Risk Factors of our Annual Report on Form 10-K, investors in our securities should consider the following additional information:

Risk Related to our Mortgage Banking Operations

The Bank sells residential mortgage loans in the secondary market, primarily to Fannie Mae but also to other investors. The agreements governing these loan sales include various representations and warranties regarding the origination and characteristics of the residential mortgage loans sold as well as its servicing by the Bank. In addition, the agreements require the Bank to deliver various documents to the purchaser or its agent. Although the Bank sells residential mortgage loans on a non-recourse basis, the Bank may be obligated to repurchase sold loans where required documents are not delivered or are defective or there is a breach of a representation or warranty made by the Bank. Investors may require the immediate repurchase of a mortgage loan when an early payment default occurs, even if the mortgage loan has subsequently been brought current. As of June 30, 2014, there were no pending repurchase requests related to representation and warranty provisions. However, we can give you no assurance that we will not be required to repurchase sold loans in the future, or that our mortgage banking operations will not expose us to potential future losses.

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Item 6. Exhibits

Exhibit No.	Description
31.1	Certification of the Chief Executive Officer of the Parent Corporation Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of the Chief Financial Officer of the Parent Corporation Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*	Certification of the Chief Executive Officer of the Parent Corporation Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2*	Certification of the Chief Financial Officer of the Parent Corporation Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	Definition Taxonomy Extension Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

* Furnished and not filed.

52

SIGNATURES

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

CONNECTONE BANCORP, INC.

(Registrant)

By:	/s/ Frank Sorrentino III	By:	/s/ William S. Burns
	Frank Sorrentino III		William S. Burns
	Chairman and Chief Executive Officer		Executive Vice President, and Chief Financial Officer
	Date: August 11, 2014		Date: August 11, 2014

53

EX-31.1

EXHIBIT 31.1

CERTIFICATION

I, Frank Sorrentino III, certify that:

1. I have reviewed this quarterly report on Form 10-Q of ConnectOne 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 me 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.

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

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

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

Date: August 11, 2014	/s/ Frank Sorrentino III
	Frank Sorrentino III
	Chairman and Chief Executive Officer

EX-31.2

EXHIBIT 31.2

CERTIFICATION

I, William S. Burns, certify that:

1. I have reviewed this quarterly report on Form 10-Q of ConnectOne 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 me 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.

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

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

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

Date: August 11, 2014	/s/ William S. Burns
	William S. Burns
	Executive Vice President, Chief Financial Officer

EX-32.1

EXHIBIT 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with this Quarterly Report of ConnectOne Bancorp, Inc. (the “Corporation”) on Form 10-Q for the quarter ended June 30, 2014 filed with the Securities and Exchange Commission (the “Report”), I, Frank Sorrentino III, Chairman and Chief Executive Officer of the Corporation, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

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

2. The information contained in the Report fairly presents, in all material respects, the consolidated financial condition of the Corporation as of the dates presented and the consolidated results of operations of the Corporation for the periods presented.

Date: August 11, 2014	/s/ Frank Sorrentino III
	Frank Sorrentino III
	Chairman and Chief Executive Officer

EX-32.2

EXHIBIT 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with this Quarterly Report of ConnectOne Bancorp, Inc. (the “Corporation”) on Form 10-Q for the quarter ended June 30, 2014 filed with the Securities and Exchange Commission (the “Report”), I, William S. Burns, Executive Vice President and Chief Financial Officer of the Corporation, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

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

2. The information contained in the Report fairly presents, in all material respects, the consolidated financial condition of the Corporation as of the dates presented and the consolidated results of operations of the Corporation for the periods presented.

Date: August 11, 2014	/s/ William S. Burns
	William S. Burns
	Executive Vice President and Chief Financial Officer

XML

Loans and the Allowance for Loan Losses (Details) (USD $)	1 Months Ended	6 Months Ended		12 Months Ended
	Apr. 30, 2014	Jun. 30, 2014	Jun. 30, 2013	Dec. 31, 2013
Receivables [Abstract]
Number of Loans and Leases Receivable Types		2
Number of Classes of Loans and Leases		5
Non Accrual Contractual Due		90 days
Past Due Period of Loan Charged Off		60 years
Duration for Payments Received to Demonstrate Loan Terms		6 months
Threshold Amount of Loan for Evaluation of Impairment		$ 200,000
Number of Credit Losses Components		2
Loans and Leases Receivable, Related Parties		19,949,000		20,365,000
Loans and Leases Receivable, Related Parties, Additions		1,319,000
Loans and Leases Receivable, Related Parties, Collections		1,735,000
Loans Pledged as Collateral		503,300,000		564,700,000
Loans and Leases Receivable, Impaired, Interest Lost on Nonaccrual Loans		109,000	58,000	104,000
Commitments to Lend Additional Funds		0
Financing Receivable, Modifications, Recorded Investment		2,700,000		6,600,000
Loans Modified In Troubled Debt Restructuring On Non Accrual Status		1,100,000		826,000
Financing Receivables, Impaired, Troubled Debt Restructuring, Write-down		333,000		0
Financing Receivable, Modifications, Subsequent Default, Number of Contracts		0		0
Financing Receivable, Modifications, Subsequent Default, Recorded Investment	4,100,000
Financing Receivable, Modifications, Number of Contracts		2		0
Loans on Which Concessions Were Made		1,400,000
Loans on Which Two or More Concessions Were Made		$ 1,200,000

XML

Fair Value Measurements and Fair Value of Financial Instruments (Details) - Schedule of Fair Value Hierarchy (USD $) In Thousands, unless otherwise specified	6 Months Ended	12 Months Ended
	Jun. 30, 2014	Dec. 31, 2013
Financial assets
Cash and due from banks, Carrying Amount	$ 92,617	$ 82,692
Cash and due from banks, Fair Value	92,617	82,692
Investment securities available-for-sale, Carrying Amount	266,959	323,070
Investment securities: Available-for-sale, Fair Value	266,959	323,070
Investment securities held-to-maturity, Carrying Amount	218,159	215,286
Investment securities held-to-maturity, Fair Value	222,503	210,958
Restricted investment in bank stocks, Carrying Amount	11,289	8,986
Restricted investment in bank stocks, Fair Value
Net Loans, Carrying Amount	995,431	950,610
Net Loans, Fair Value	992,632	948,606
Accrued interest receivable, Carrying Amount	6,414	6,802
Accrued interest receivable, Fair Value	6,414	6,802
Financial liabilities
Non interest-bearing deposits, Carrying Amount	238,138	227,370
Non interest-bearing deposits, Fair Value	238,138	227,370
Interest-bearing deposits, Carrying Amount	1,036,482	1,114,635
Interest-bearing deposits, Fair Value	1,043,230	1,115,781
Long-term borrowings, Carrying Amount	196,000	146,000
Long-term borrowings, Fair Value	209,075	157,440
Subordinated debentures, Carrying Amount	5,155	5,155
Subordinated debentures, Fair Value	4,923	5,143
Accrued interest payable, Carrying Amount	998	963
Accrued interest payable, Fair Value	998	963
Fair Value, Inputs, Level 1 [Member]
Financial assets
Cash and due from banks, Fair Value	92,617	82,692
Investment securities: Available-for-sale, Fair Value	15,897	19,530
Investment securities held-to-maturity, Fair Value	28,416	27,037
Restricted investment in bank stocks, Fair Value
Accrued interest receivable, Fair Value	89	102
Financial liabilities
Non interest-bearing deposits, Fair Value	238,138	227,370
Fair Value, Inputs, Level 2 [Member]
Financial assets
Investment securities: Available-for-sale, Fair Value	251,062	303,540
Investment securities held-to-maturity, Fair Value	175,210	164,940
Restricted investment in bank stocks, Fair Value
Accrued interest receivable, Fair Value	3,568	4,034
Financial liabilities
Interest-bearing deposits, Fair Value	1,043,230	1,115,781
Long-term borrowings, Fair Value	209,075	157,440
Subordinated debentures, Fair Value	4,923	5,143
Accrued interest payable, Fair Value	998	963
Fair Value, Inputs, Level 3 [Member]
Financial assets
Investment securities held-to-maturity, Fair Value	18,877	18,981
Restricted investment in bank stocks, Fair Value
Net Loans, Fair Value	992,632	948,606
Accrued interest receivable, Fair Value	$ 2,757	$ 2,666

XML

Loans and the Allowance for Loan Losses (Details) - Schedule of Troubled Debt Restructuring by Class (USD $) In Thousands, unless otherwise specified	6 Months Ended	12 Months Ended
	Jun. 30, 2014	Dec. 31, 2013
Troubled debt restructurings:
Number of Loans	2	0
Pre-Modification Outstanding Recorded Investment	$ 725
Post-Modification Outstanding Recorded Investment	366
Commercial Portfolio Segment [Member]
Troubled debt restructurings:
Number of Loans	1
Pre-Modification Outstanding Recorded Investment	672
Post-Modification Outstanding Recorded Investment	315
Residential Portfolio Segment [Member]
Troubled debt restructurings:
Number of Loans	1
Pre-Modification Outstanding Recorded Investment	53
Post-Modification Outstanding Recorded Investment	$ 51

XML

Accumulated Other Comprehensive Income (Details) - Schedule of Accumulated Other Comprehensive Income (Loss) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2014	Dec. 31, 2013
Schedule of Accumulated Other Comprehensive Income (Loss) [Abstract]
Net unrealized gain on investment securities available-for-sale, net of tax	$ 5,304	$ 2,374
Unamortized component of securities transferred from available-for-sale to held-to-maturity, net of tax	(1,368)	(1,425)
Defined benefit pension and post-retirement plans, net of tax	(2,735)	(3,493)
Total accumulated other comprehensive income (loss)	$ 1,201	$ (2,544)

XML

Loans and the Allowance for Loan Losses (Details) - Allowance for loan and lease losses (USD $) In Thousands, unless otherwise specified	Jun. 30, 2014	Mar. 31, 2014	Dec. 31, 2013	Jun. 30, 2013	Mar. 31, 2013	Dec. 31, 2012
Allowance for loan and lease losses:
Allowance for loan and lease losses, individually evaluated for impairment	$ 335		$ 415
Allowance for loan and lease losses, collectively evaluated for impairment	10,490		9,918
Allowance for loan and lease losses, total	10,825	10,633	10,333	10,202	10,232	10,237
Loans Receivable
Loans Receivable, individually evaluated for impairment	9,694		17,925
Loans Receivable, collectively evaluated for impairment	966,533		909,174
Loans Receivable, loans acquired with discounts related to credit quality	29,550		33,505
Loans Receivable, Total	1,005,777		960,604
Commercial Portfolio Segment [Member]
Allowance for loan and lease losses:
Allowance for loan and lease losses, individually evaluated for impairment			300
Allowance for loan and lease losses, collectively evaluated for impairment	2,142		1,398
Allowance for loan and lease losses, total	2,142	2,225	1,698	2,422	2,083	2,424
Loans Receivable
Loans Receivable, individually evaluated for impairment	1,000		1,121
Loans Receivable, collectively evaluated for impairment	242,915		226,450
Loans Receivable, loans acquired with discounts related to credit quality	2,015		2,117
Loans Receivable, Total	245,930		229,688
Commercial Real Estate Portfolio Segment [Member]
Allowance for loan and lease losses:
Allowance for loan and lease losses, individually evaluated for impairment	335		115
Allowance for loan and lease losses, collectively evaluated for impairment	5,406		5,631
Allowance for loan and lease losses, total	5,741	5,384	5,746	5,333	5,353	5,323
Loans Receivable
Loans Receivable, individually evaluated for impairment	6,683		14,826
Loans Receivable, collectively evaluated for impairment	544,960		505,361
Loans Receivable, loans acquired with discounts related to credit quality	13,754		16,352
Loans Receivable, Total	565,397		536,539
Construction Loans [Member]
Allowance for loan and lease losses:
Allowance for loan and lease losses, collectively evaluated for impairment	504		362
Allowance for loan and lease losses, total	504	434	362	318	284	313
Loans Receivable
Loans Receivable, collectively evaluated for impairment	45,316		41,493
Loans Receivable, loans acquired with discounts related to credit quality	1,389		1,229
Loans Receivable, Total	46,705		42,722
Residential Portfolio Segment [Member]
Allowance for loan and lease losses:
Allowance for loan and lease losses, collectively evaluated for impairment	1,011		990
Allowance for loan and lease losses, total	1,011	1,004	990	1,341	1,378	1,532
Loans Receivable
Loans Receivable, individually evaluated for impairment	1,900		1,858
Loans Receivable, collectively evaluated for impairment	132,955		135,031
Loans Receivable, loans acquired with discounts related to credit quality	12,273		13,682
Loans Receivable, Total	147,128		150,571
Consumer Portfolio Segment [Member]
Allowance for loan and lease losses:
Allowance for loan and lease losses, collectively evaluated for impairment	63		146
Allowance for loan and lease losses, total	63	79	146	29	103	113
Loans Receivable
Loans Receivable, individually evaluated for impairment	111		120
Loans Receivable, collectively evaluated for impairment	387		839
Loans Receivable, loans acquired with discounts related to credit quality	119		125
Loans Receivable, Total	617		1,084
Unallocated Financing Receivables [Member]
Allowance for loan and lease losses:
Allowance for loan and lease losses, collectively evaluated for impairment	1,364		1,391
Allowance for loan and lease losses, total	$ 1,364	$ 1,507	$ 1,391	$ 759	$ 1,031	$ 532

XML

Investment Securities (Details) - Investments classified by maturity date (USD $) In Thousands, unless otherwise specified	Jun. 30, 2014	Dec. 31, 2013
Investment Securities Available-for-Sale:
Due in one year or less	$ 9,384
Due in one year or less	9,499
Due after one year through five years	45,331
Due after one year through five years	46,591
Due after five years through ten years	112,083
Due after five years through ten years	117,869
Due after ten years	37,351
Due after ten years	37,635
Total	258,198
Total	266,959	323,070
Investment Securities Held-to-Maturity:
Due in one year or less	2,052
Due in one year or less	2,054
Due after one year through five years	12,932
Due after one year through five years	13,203
Due after five years through ten years	68,506
Due after five years through ten years	69,838
Due after ten years	128,279
Due after ten years	130,945
Total	218,159	215,286
Total	222,503	210,958
Total investment securities	476,357
Total investment securities	489,462
Residential Mortgage Backed Securities [Member]
Investment Securities Available-for-Sale:
Investment Securities Available-for-Sale: amortized cost	44,369
Investment Securities Available-for-Sale: fair value	45,919
Total	45,919	48,874
Investment Securities Held-to-Maturity:
Investment Securities Held-to-Maturity: amoritzed cost	2,049
Investment Securities Held-to-Maturity: fair value	2,063
Total	2,063	2,182
Commercial Mortgage Backed Securities [Member]
Investment Securities Available-for-Sale:
Investment Securities Available-for-Sale: amortized cost	3,072
Investment Securities Available-for-Sale: fair value	3,021
Total	3,021	6,991
Investment Securities Held-to-Maturity:
Investment Securities Held-to-Maturity: amoritzed cost	4,341
Investment Securities Held-to-Maturity: fair value	4,400
Total	4,400	4,396
Equity Securities [Member]
Investment Securities Available-for-Sale:
Investment Securities Available-for-Sale: amortized cost	376
Investment Securities Available-for-Sale: fair value	293
Total	293	287
Money Market Funds [Member]
Investment Securities Available-for-Sale:
Investment Securities Available-for-Sale: amortized cost	6,232
Investment Securities Available-for-Sale: fair value	6,132
Total	$ 6,132	$ 5,724

XML

Stock-Based Compensation (Details) - Schedule of Share-based Payment Award, Stock Options, Valuation Assumptions (USD $)	6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013
Schedule of Share-based Payment Award, Stock Options, Valuation Assumptions [Abstract]
Weighted average fair value of grants (in Dollars per share)		$ 2.50
Risk-free interest rate		1.86%
Dividend yield		1.76%
Expected volatility		23.21%
Expected life in months		69 months

XML

Stock-Based Compensation (Tables)

6 Months Ended

Jun. 30, 2014

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Schedule of Share-based Payment Award, Stock Options, Valuation Assumptions [Table Text Block]

The fair value of share-based payment awards was estimated using the Black-Scholes option pricing model with the following assumptions and weighted average fair values at the time the grants were awarded:

	Six Months Ended June 30,
	2014		2013
Weighted average fair value of grants		n/a	$	2.50
Risk-free interest rate		n/a		1.86	%
Dividend yield		n/a		1.76	%
Expected volatility		n/a		23.21	%
Expected life in months		n/a		69

Disclosure of Share-based Compensation Arrangements by Share-based Payment Award [Table Text Block]

Activity under the stock-based compensation plans as of June 30, 2014 and changes during the sixth months ended June 30, 2014 were as follows:

	Shares		Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value
Outstanding at December 31, 2013		214,263	$	10.59
Granted – options		—
Exercised		44,478	$	10.78
Canceled/expired		—
Forfeited		—
Outstanding at June 30, 2014		169,785	$	10.54		5.96	$	1,474,951
Exercisable at June 30, 2014		120,343	$	10.05		5.01	$	1,105,335

XML

Fair Value Measurements and Fair Value of Financial Instruments (Details) - Schedule of Fair Value, Assets and Liabilities Measured on Recurring Basis (USD $) In Thousands, unless otherwise specified	Jun. 30, 2014	Dec. 31, 2013
Fair Value Measurements and Fair Value of Financial Instruments (Details) - Schedule of Fair Value, Assets and Liabilities Measured on Recurring Basis [Line Items]
Investment securities: Available-for-sale, Fair Value	$ 266,959	$ 323,070
US Treasury Securities [Member] | Fair Value, Inputs, Level 1 [Member]
Fair Value Measurements and Fair Value of Financial Instruments (Details) - Schedule of Fair Value, Assets and Liabilities Measured on Recurring Basis [Line Items]
Investment securities: Available-for-sale, Fair Value	9,472	13,519
US Treasury Securities [Member]
Fair Value Measurements and Fair Value of Financial Instruments (Details) - Schedule of Fair Value, Assets and Liabilities Measured on Recurring Basis [Line Items]
Investment securities: Available-for-sale, Fair Value	9,472	13,519
Federal Agency Obligations [Member] | Fair Value, Inputs, Level 2 [Member]
Fair Value Measurements and Fair Value of Financial Instruments (Details) - Schedule of Fair Value, Assets and Liabilities Measured on Recurring Basis [Line Items]
Investment securities: Available-for-sale, Fair Value	22,648	19,941
Federal Agency Obligations [Member]
Fair Value Measurements and Fair Value of Financial Instruments (Details) - Schedule of Fair Value, Assets and Liabilities Measured on Recurring Basis [Line Items]
Investment securities: Available-for-sale, Fair Value	22,648	19,941
Residential Mortgage Backed Securities [Member] | Fair Value, Inputs, Level 2 [Member]
Fair Value Measurements and Fair Value of Financial Instruments (Details) - Schedule of Fair Value, Assets and Liabilities Measured on Recurring Basis [Line Items]
Investment securities: Available-for-sale, Fair Value	45,919	48,874
Residential Mortgage Backed Securities [Member]
Fair Value Measurements and Fair Value of Financial Instruments (Details) - Schedule of Fair Value, Assets and Liabilities Measured on Recurring Basis [Line Items]
Investment securities: Available-for-sale, Fair Value	45,919	48,874
Commercial Mortgage Backed Securities [Member] | Fair Value, Inputs, Level 2 [Member]
Fair Value Measurements and Fair Value of Financial Instruments (Details) - Schedule of Fair Value, Assets and Liabilities Measured on Recurring Basis [Line Items]
Investment securities: Available-for-sale, Fair Value	3,021	6,991
Commercial Mortgage Backed Securities [Member]
Fair Value Measurements and Fair Value of Financial Instruments (Details) - Schedule of Fair Value, Assets and Liabilities Measured on Recurring Basis [Line Items]
Investment securities: Available-for-sale, Fair Value	3,021	6,991
US States and Political Subdivisions Debt Securities [Member] | Fair Value, Inputs, Level 2 [Member]
Fair Value Measurements and Fair Value of Financial Instruments (Details) - Schedule of Fair Value, Assets and Liabilities Measured on Recurring Basis [Line Items]
Investment securities: Available-for-sale, Fair Value	6,503	31,460
US States and Political Subdivisions Debt Securities [Member]
Fair Value Measurements and Fair Value of Financial Instruments (Details) - Schedule of Fair Value, Assets and Liabilities Measured on Recurring Basis [Line Items]
Investment securities: Available-for-sale, Fair Value	6,503	31,460
Trust Preferred Securities [Member] | Fair Value, Inputs, Level 2 [Member]
Fair Value Measurements and Fair Value of Financial Instruments (Details) - Schedule of Fair Value, Assets and Liabilities Measured on Recurring Basis [Line Items]
Investment securities: Available-for-sale, Fair Value	16,336	19,403
Trust Preferred Securities [Member]
Fair Value Measurements and Fair Value of Financial Instruments (Details) - Schedule of Fair Value, Assets and Liabilities Measured on Recurring Basis [Line Items]
Investment securities: Available-for-sale, Fair Value	16,336	19,403
Corporate Bonds and Notes [Member] | Fair Value, Inputs, Level 2 [Member]
Fair Value Measurements and Fair Value of Financial Instruments (Details) - Schedule of Fair Value, Assets and Liabilities Measured on Recurring Basis [Line Items]
Investment securities: Available-for-sale, Fair Value	139,327	158,630
Corporate Bonds and Notes [Member]
Fair Value Measurements and Fair Value of Financial Instruments (Details) - Schedule of Fair Value, Assets and Liabilities Measured on Recurring Basis [Line Items]
Investment securities: Available-for-sale, Fair Value	139,327	158,630
Asset-backed Securities [Member] | Fair Value, Inputs, Level 2 [Member]
Fair Value Measurements and Fair Value of Financial Instruments (Details) - Schedule of Fair Value, Assets and Liabilities Measured on Recurring Basis [Line Items]
Investment securities: Available-for-sale, Fair Value	15,176	15,979
Asset-backed Securities [Member]
Fair Value Measurements and Fair Value of Financial Instruments (Details) - Schedule of Fair Value, Assets and Liabilities Measured on Recurring Basis [Line Items]
Investment securities: Available-for-sale, Fair Value	15,176	15,979
Certificates of Deposit [Member] | Fair Value, Inputs, Level 2 [Member]
Fair Value Measurements and Fair Value of Financial Instruments (Details) - Schedule of Fair Value, Assets and Liabilities Measured on Recurring Basis [Line Items]
Investment securities: Available-for-sale, Fair Value	2,132	2,262
Certificates of Deposit [Member]
Fair Value Measurements and Fair Value of Financial Instruments (Details) - Schedule of Fair Value, Assets and Liabilities Measured on Recurring Basis [Line Items]
Investment securities: Available-for-sale, Fair Value	2,132	2,262
Equity Securities [Member] | Fair Value, Inputs, Level 1 [Member]
Fair Value Measurements and Fair Value of Financial Instruments (Details) - Schedule of Fair Value, Assets and Liabilities Measured on Recurring Basis [Line Items]
Investment securities: Available-for-sale, Fair Value	293	287
Equity Securities [Member]
Fair Value Measurements and Fair Value of Financial Instruments (Details) - Schedule of Fair Value, Assets and Liabilities Measured on Recurring Basis [Line Items]
Investment securities: Available-for-sale, Fair Value	293	287
Money Market Funds [Member] | Fair Value, Inputs, Level 1 [Member]
Fair Value Measurements and Fair Value of Financial Instruments (Details) - Schedule of Fair Value, Assets and Liabilities Measured on Recurring Basis [Line Items]
Investment securities: Available-for-sale, Fair Value	6,132	5,724
Money Market Funds [Member]
Fair Value Measurements and Fair Value of Financial Instruments (Details) - Schedule of Fair Value, Assets and Liabilities Measured on Recurring Basis [Line Items]
Investment securities: Available-for-sale, Fair Value	6,132	5,724
Fair Value, Inputs, Level 1 [Member]
Fair Value Measurements and Fair Value of Financial Instruments (Details) - Schedule of Fair Value, Assets and Liabilities Measured on Recurring Basis [Line Items]
Investment securities: Available-for-sale, Fair Value	15,897	19,530
Fair Value, Inputs, Level 2 [Member]
Fair Value Measurements and Fair Value of Financial Instruments (Details) - Schedule of Fair Value, Assets and Liabilities Measured on Recurring Basis [Line Items]
Investment securities: Available-for-sale, Fair Value	$ 251,062	$ 303,540

XML

Loans and the Allowance for Loan Losses (Details) - Credit Quality Indicators (USD $) In Thousands, unless otherwise specified	Jun. 30, 2014	Dec. 31, 2013
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	$ 1,005,777	$ 960,604
Commercial Portfolio Segment [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	242,914	226,013
Commercial Portfolio Segment [Member] | Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	1,621	1,719
Commercial Portfolio Segment [Member] | Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	1,080	1,284
Commercial Portfolio Segment [Member] | Doubtful [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	315	672
Commercial Portfolio Segment [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	245,930	229,688
Commercial Real Estate Portfolio Segment [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	542,940	509,679
Commercial Real Estate Portfolio Segment [Member] | Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	14,438	14,544
Commercial Real Estate Portfolio Segment [Member] | Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	8,019	12,316
Commercial Real Estate Portfolio Segment [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	565,397	536,539
Commercial Real Estate Construction Financing Receivable [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	45,316	41,492
Commercial Real Estate Construction Financing Receivable [Member] | Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	1,389	1,230
Commercial Real Estate Construction Financing Receivable [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	46,705	42,722
Residential Portfolio Segment [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	143,704	147,379
Residential Portfolio Segment [Member] | Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	969	978
Residential Portfolio Segment [Member] | Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	2,455	2,214
Residential Portfolio Segment [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	147,128	150,571
Consumer Portfolio Segment [Member] | Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	506	964
Consumer Portfolio Segment [Member] | Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	111	120
Consumer Portfolio Segment [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	617	1,084
Pass [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	975,380	925,527
Special Mention [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	17,028	17,241
Substandard [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	13,054	17,164
Doubtful [Member]
Financing Receivable, Recorded Investment [Line Items]
Loans and Leases Receivable, Gross, Carrying Amount	$ 315	$ 672

XML

Investment Securities (Details) - Credit loss portion of OTTI recognized in earnings on debt securities (USD $) In Thousands, unless otherwise specified	12 Months Ended
	Dec. 31, 2013
Credit loss portion of OTTI recognized in earnings on debt securities [Abstract]
Balance of credit-related OTTI at January 1,	$ 4,450
Addition:
Credit losses on investment securities for which other-than-temporary impairment was not previously recognized	652
Reduction:
Credit losses on investment securities sold during the period	$ (5,102)

XML

Fair Value Measurements and Fair Value of Financial Instruments (Details) - Fair Value, Assets and Liabilities Measured on Nonrecurring Basis, Valuation Techniques	6 Months Ended	12 Months Ended
	Jun. 30, 2014	Dec. 31, 2013
Appraisals of Collateral Valuation Technique [Member] | Residential Portfolio Segment [Member] | Impaired Loans [Member]
Fair Value Measurements and Fair Value of Financial Instruments (Details) - Fair Value, Assets and Liabilities Measured on Nonrecurring Basis, Valuation Techniques [Line Items]
Valuation Technique	Appraisals of collateral value	Appraisals of collateral value
Appraisals of Collateral Valuation Technique [Member] | Residential Portfolio Segment [Member] | Impaired Loans [Member] | Minimum [Member]
Fair Value Measurements and Fair Value of Financial Instruments (Details) - Fair Value, Assets and Liabilities Measured on Nonrecurring Basis, Valuation Techniques [Line Items]
Discounted Range	0.00%	0.00%
Appraisals of Collateral Valuation Technique [Member] | Residential Portfolio Segment [Member] | Impaired Loans [Member] | Maximum [Member]
Fair Value Measurements and Fair Value of Financial Instruments (Details) - Fair Value, Assets and Liabilities Measured on Nonrecurring Basis, Valuation Techniques [Line Items]
Discounted Range	25.00%	25.00%
Appraisals of Collateral Valuation Technique [Member] | Residential Portfolio Segment [Member] | Other Real Estate Owned [Member]
Fair Value Measurements and Fair Value of Financial Instruments (Details) - Fair Value, Assets and Liabilities Measured on Nonrecurring Basis, Valuation Techniques [Line Items]
Valuation Technique	Appraisals of collateral value	Appraisals of collateral value
Appraisals of Collateral Valuation Technique [Member] | Residential Portfolio Segment [Member] | Other Real Estate Owned [Member] | Minimum [Member]
Fair Value Measurements and Fair Value of Financial Instruments (Details) - Fair Value, Assets and Liabilities Measured on Nonrecurring Basis, Valuation Techniques [Line Items]
Discounted Range	0.00%	0.00%
Appraisals of Collateral Valuation Technique [Member] | Residential Portfolio Segment [Member] | Other Real Estate Owned [Member] | Maximum [Member]
Fair Value Measurements and Fair Value of Financial Instruments (Details) - Fair Value, Assets and Liabilities Measured on Nonrecurring Basis, Valuation Techniques [Line Items]
Discounted Range	25.00%	25.00%
Appraisals of Collateral Valuation Technique [Member] | Commercial Portfolio Segment [Member] | Other Real Estate Owned [Member]
Fair Value Measurements and Fair Value of Financial Instruments (Details) - Fair Value, Assets and Liabilities Measured on Nonrecurring Basis, Valuation Techniques [Line Items]
Valuation Technique	Appraisals of collateral value	Appraisals of collateral value
Appraisals of Collateral Valuation Technique [Member] | Commercial Portfolio Segment [Member] | Other Real Estate Owned [Member] | Minimum [Member]
Fair Value Measurements and Fair Value of Financial Instruments (Details) - Fair Value, Assets and Liabilities Measured on Nonrecurring Basis, Valuation Techniques [Line Items]
Discounted Range	0.00%	0.00%
Appraisals of Collateral Valuation Technique [Member] | Commercial Portfolio Segment [Member] | Other Real Estate Owned [Member] | Maximum [Member]
Fair Value Measurements and Fair Value of Financial Instruments (Details) - Fair Value, Assets and Liabilities Measured on Nonrecurring Basis, Valuation Techniques [Line Items]
Discounted Range	15.00%	15.00%
Appraisals of Collateral Valuation Technique [Member] | Commercial Real Estate [Member] | Impaired Loans [Member]
Fair Value Measurements and Fair Value of Financial Instruments (Details) - Fair Value, Assets and Liabilities Measured on Nonrecurring Basis, Valuation Techniques [Line Items]
Valuation Technique	Appraisals of collateral value	Appraisals of collateral value
Appraisals of Collateral Valuation Technique [Member] | Commercial Real Estate [Member] | Impaired Loans [Member] | Minimum [Member]
Fair Value Measurements and Fair Value of Financial Instruments (Details) - Fair Value, Assets and Liabilities Measured on Nonrecurring Basis, Valuation Techniques [Line Items]
Discounted Range	8.00%	8.00%
Appraisals of Collateral Valuation Technique [Member] | Commercial Real Estate [Member] | Impaired Loans [Member] | Maximum [Member]
Fair Value Measurements and Fair Value of Financial Instruments (Details) - Fair Value, Assets and Liabilities Measured on Nonrecurring Basis, Valuation Techniques [Line Items]
Discounted Range	12.00%	12.00%
Appraisals of Collateral Valuation Technique [Member] | Construction Loans [Member] | Impaired Loans [Member]
Fair Value Measurements and Fair Value of Financial Instruments (Details) - Fair Value, Assets and Liabilities Measured on Nonrecurring Basis, Valuation Techniques [Line Items]
Valuation Technique	Appraisals of collateral value	Appraisals of collateral value
Appraisals of Collateral Valuation Technique [Member] | Construction Loans [Member] | Impaired Loans [Member] | Minimum [Member]
Fair Value Measurements and Fair Value of Financial Instruments (Details) - Fair Value, Assets and Liabilities Measured on Nonrecurring Basis, Valuation Techniques [Line Items]
Discounted Range	0.00%	0.00%
Appraisals of Collateral Valuation Technique [Member] | Construction Loans [Member] | Impaired Loans [Member] | Maximum [Member]
Fair Value Measurements and Fair Value of Financial Instruments (Details) - Fair Value, Assets and Liabilities Measured on Nonrecurring Basis, Valuation Techniques [Line Items]
Discounted Range	5.00%	5.00%
Discounted Cash Flow Model [Member] | Commercial Portfolio Segment [Member] | Impaired Loans [Member]
Fair Value Measurements and Fair Value of Financial Instruments (Details) - Fair Value, Assets and Liabilities Measured on Nonrecurring Basis, Valuation Techniques [Line Items]
Valuation Technique	Discounted cash flow model	Discounted cash flow model
Discounted Cash Flow Model [Member] | Commercial Portfolio Segment [Member] | Impaired Loans [Member] | Minimum [Member]
Fair Value Measurements and Fair Value of Financial Instruments (Details) - Fair Value, Assets and Liabilities Measured on Nonrecurring Basis, Valuation Techniques [Line Items]
Discounted Range	0.00%	0.00%
Discounted Cash Flow Model [Member] | Commercial Portfolio Segment [Member] | Impaired Loans [Member] | Maximum [Member]
Fair Value Measurements and Fair Value of Financial Instruments (Details) - Fair Value, Assets and Liabilities Measured on Nonrecurring Basis, Valuation Techniques [Line Items]
Discounted Range	6.00%	6.00%

XML

Loans and the Allowance for Loan Losses (Details) - Schedule of Allowance for Loan Losses (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013	Mar. 31, 2014	Dec. 31, 2013	Mar. 31, 2013	Dec. 31, 2012
Financing Receivable, Allowance for Credit Losses [Line Items]
Balance	$ 10,825	$ 10,202	$ 10,825	$ 10,202	$ 10,633	$ 10,333	$ 10,232	$ 10,237
Charge offs	(94)	(61)	(430)	(66)
Recoveries	2	31	13	31
Provision	284		909
Commercial Portfolio Segment [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Balance	2,142	2,422	2,142	2,422	2,225	1,698	2,083	2,424
Charge offs			(333)
Recoveries		21		21
Provision	(83)	318	777	(23)
Commercial Real Estate Portfolio Segment [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Balance	5,741	5,333	5,741	5,333	5,384	5,746	5,353	5,323
Charge offs		(50)		(50)
Recoveries		8		8
Provision	357	22	(5)	52
Construction Loans [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Balance	504	318	504	318	434	362	284	313
Provision	70	34	142	5
Residential Portfolio Segment [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Balance	1,011	1,341	1,011	1,341	1,004	990	1,378	1,532
Charge offs	(90)		(90)
Recoveries	1		11
Provision	96	(37)	100	(191)
Consumer Portfolio Segment [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Balance	63	29	63	29	79	146	103	113
Charge offs	(4)	(11)	(7)	(16)
Recoveries	1	2	2	2
Provision	(13)	(65)	(78)	(70)
Unallocated Financing Receivables [Member]
Financing Receivable, Allowance for Credit Losses [Line Items]
Balance	1,364	759	1,364	759	1,507	1,391	1,031	532
Provision	$ (143)	$ (272)	$ (27)	$ 227

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Nature of Operations and Principles of Consolidation

6 Months Ended

Jun. 30, 2014

Disclosure Text Block [Abstract]

Organization, Consolidation and Presentation of Financial Statements Disclosure [Text Block]

Note 1. Nature of Operations and Principles of Consolidation

The consolidated financial statements of ConnectOne Bancorp, Inc. (the “Parent Corporation”) are prepared on an accrual basis and include the accounts of the Parent Corporation and its wholly-owned subsidiary, ConnectOne Bank (the “Bank” and, collectively with the Parent Corporation and the Parent Corporation’s other direct and indirect subsidiaries, the “Corporation”). All significant intercompany accounts and transactions have been eliminated from the accompanying consolidated financial statements.

The Bank is a community-based, full-service New Jersey-chartered commercial bank that was founded in 2005. The Bank operates from its headquarters located at 301 Sylvan Avenue in the Borough of Englewood Cliffs, Bergen County, New Jersey, and following consummation of the merger on July 1, 2014, through its twenty-three other banking offices. Substantially all loans are secured by specific items of collateral including business assets, consumer assets, and commercial and residential real estate. Commercial loans are expected to be repaid from cash flow from business operations. There are 0 significant concentrations of loans to any one industry or customer. However, the customers’ ability to repay their loans is dependent on the cash flows, real estate and general economic conditions in the area.

The following unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X, and, accordingly, do not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. However, in the opinion of management, all adjustments (consisting only of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and six months ended June 30, 2014 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2014, or for any other interim period. The Company’s 2013 Annual Report on Form 10-K, should be read in conjunction with these financial statements.

In preparing the consolidated financial statements, management has made estimates and assumptions that affect the reported amounts of assets and liabilities as of the dates of the consolidated statements of condition and that affect the results of operations for the periods presented. Actual results could differ significantly from those estimates. Material estimates that are particularly susceptible to change in the near term relate to the determination of the allowance for loan losses, the other-than-temporary impairment evaluation of securities, the evaluation of the impairment of goodwill and the evaluation of deferred tax assets.

The consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”).

XML

Loans and the Allowance for Loan Losses (Details) - Schedule of analysis of impaired loans, by class (USD $)	Jun. 30, 2014	Dec. 31, 2013
Financing Receivable, Impaired [Line Items]
No related allowance recorded, Recorded Investment	$ 6,094,000	$ 12,909,000
No related allowance recorded, Unpaid Principal Balance	6,850,000	13,352,000
With an allowance recorded, Recorded Investment	3,600,000	5,016,000
With an allowance recorded, Unpaid Principal Balance	3,600,000	5,016,000
With an allowance recorded, Related Allowance	335,000	415,000
Total
Total, Recorded Investment	9,694,000	17,925,000
Total, Unpaid Principal Balance	10,450,000	18,368,000
Total, Related Allowance	335,000	415,000
Commercial Portfolio Segment [Member]
Financing Receivable, Impaired [Line Items]
No related allowance recorded, Recorded Investment	1,000,000	449,000
No related allowance recorded, Unpaid Principal Balance	1,301,000	449,000
With an allowance recorded, Recorded Investment		672,000
With an allowance recorded, Unpaid Principal Balance		672,000
With an allowance recorded, Related Allowance		300,000
Total
Total, Recorded Investment	1,000,000	1,121,000
Total, Unpaid Principal Balance	1,301,000	1,121,000
Total, Related Allowance		300,000
Commercial Real Estate Portfolio Segment [Member]
Financing Receivable, Impaired [Line Items]
No related allowance recorded, Recorded Investment	3,083,000	10,482,000
No related allowance recorded, Unpaid Principal Balance	3,384,000	10,783,000
With an allowance recorded, Recorded Investment	3,600,000	4,344,000
With an allowance recorded, Unpaid Principal Balance	3,600,000	4,344,000
With an allowance recorded, Related Allowance	335,000	115,000
Total
Total, Recorded Investment	6,683,000	14,826,000
Total, Unpaid Principal Balance	6,984,000	15,127,000
Total, Related Allowance	335,000	115,000
Residential Portfolio Segment [Member]
Financing Receivable, Impaired [Line Items]
No related allowance recorded, Recorded Investment	1,900,000	1,858,000
No related allowance recorded, Unpaid Principal Balance	2,054,000	2,000,000
Total
Total, Recorded Investment	1,900,000	1,858,000
Total, Unpaid Principal Balance	2,054,000	2,000,000
Consumer Portfolio Segment [Member]
Financing Receivable, Impaired [Line Items]
No related allowance recorded, Recorded Investment	111,000	120,000
No related allowance recorded, Unpaid Principal Balance	111,000	120,000
Total
Total, Recorded Investment	111,000	120,000
Total, Unpaid Principal Balance	$ 111,000	$ 120,000

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Earnings per Common Share (Details)	3 Months Ended		6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013
Earnings Per Share [Abstract]
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount	19,174	67,451	19,377	67,451

XML

Subsequent Event - Completion of Merger (Details)	6 Months Ended
	Jun. 30, 2014
Subsequent Events [Abstract]
Common Stock Conversion Ratio Shares	2.6

XML

Stock-Based Compensation (Details) (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013
Stock-Based Compensation (Details) [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Rights			The Corporation maintains two stock-based compensation plans from which new grants could be issued. The Corporation's stock-based compensation plans permit Parent Corporation common stock to be issued to key employees and directors of the Corporation and its subsidiaries. The options granted under the plans are intended to be either incentive stock options or non-qualified options. Under the 2009 Equity Incentive Plan, a total of 363,081 shares are available for grant and issuance as of June 30, 2014. Under the 2003 Non-Employee Director Stock Option Plan, a total of 380,644 shares remain available for grant and issuance under the plan as of June 30, 2014. Such shares may be treasury shares, newly issued shares or a combination thereof.Options have been granted to purchase common stock principally at the fair market value of the stock at the date of grant. Options are exercisable over a three-year vesting period starting one year after the date of grant and generally expire ten years from the date of grant.Stock-based compensation expense for share-based payment awards is based on the grant date fair value estimated on the date of grant. The Corporation recognizes compensation costs for those shares expected to vest on a straight-line basis over the requisite service period of the award, which is generally the option vesting term of three years. The Corporation estimates the forfeiture rate based on its historical experience during the preceding seven fiscal years.
Share Based Compensation Arrangement by Share Based Payment Award Number of Plans	2		2
Share Based Compensation Arrangement by Share Based Payment Award Options Exercisable Period Over Vesting Period			3 years
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period			3 years
Allocated Share-based Compensation Expense (in Dollars)			$ 34,000	$ 25,000
Allocated Share-based Compensation Expense, Net of Tax (in Dollars)			20,000	15,000
Stock Issued During Period, Shares, Restricted Stock Award, Gross				18,829
Common Stock Underlying Grant Options	0	0	31,257	31,257
Restricted Stock [Member]
Stock-Based Compensation (Details) [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period			5 years
Stock Issued During Period, Shares, Restricted Stock Award, Gross			18,829	18,829
Share-based Compensation Arrangement by Share-based Payment Award, Options, Vested, Number of Shares			0
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized (in Dollars)	194,000		194,000
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized, Period for Recognition			5 years
Employee Stock Option [Member]
Stock-Based Compensation (Details) [Line Items]
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized (in Dollars)	$ 117,000		$ 117,000
Employee Service Share-based Compensation, Nonvested Awards, Compensation Cost Not yet Recognized, Period for Recognition			2 years 6 months
Employee Director Stock Option Plan 2009 [Member]
Stock-Based Compensation (Details) [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Available for Grant	363,081		363,081
Non Employee Director Stock Option Plan 2003 Member
Stock-Based Compensation (Details) [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Available for Grant	380,644		380,644
Minimum [Member]
Stock-Based Compensation (Details) [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period			30 days
Maximum [Member]
Stock-Based Compensation (Details) [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Period			5 years

XML

Loans and the Allowance for Loan Losses (Details) - Schedule of Analysis related to the average recorded investment (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013
Loans and the Allowance for Loan Losses (Details) - Schedule of Analysis related to the average recorded investment [Line Items]
Impaired loans with no related allowance recorded, Average Recorded Investment	$ 6,811	$ 1,450	$ 6,888	$ 1,450
Impaired loans with no related allowance recorded, Interest Income Recognized	83	19	107	38
Impaired loans with an allowance recorded, Average Recorded Investment	3,600	5,152	3,600	5,331
Impaired loans with an allowance recorded, Interest Income Recognized	43	45	85	89
Total impaired loans, Average Recorded Investment	10,411	6,602	10,488	6,781
Total impaired loans, Interest Income Recognized	126	64	192	127
Commercial Portfolio Segment [Member]
Loans and the Allowance for Loan Losses (Details) - Schedule of Analysis related to the average recorded investment [Line Items]
Impaired loans with no related allowance recorded, Average Recorded Investment	1,357		1,370
Impaired loans with no related allowance recorded, Interest Income Recognized	16		30
Total impaired loans, Average Recorded Investment	1,357		1,370
Total impaired loans, Interest Income Recognized	16		30
Commercial Real Estate Portfolio Segment [Member]
Loans and the Allowance for Loan Losses (Details) - Schedule of Analysis related to the average recorded investment [Line Items]
Impaired loans with no related allowance recorded, Average Recorded Investment	3,112	1,450	3,123	1,450
Impaired loans with no related allowance recorded, Interest Income Recognized	42	19	43	38
Impaired loans with an allowance recorded, Average Recorded Investment	3,600	3,908	3,600	4,087
Impaired loans with an allowance recorded, Interest Income Recognized	43	34	85	68
Total impaired loans, Average Recorded Investment	6,712	5,358	6,723	5,537
Total impaired loans, Interest Income Recognized	85	53	128	106
Residential Portfolio Segment [Member]
Loans and the Allowance for Loan Losses (Details) - Schedule of Analysis related to the average recorded investment [Line Items]
Impaired loans with no related allowance recorded, Average Recorded Investment	2,229		2,280
Impaired loans with no related allowance recorded, Interest Income Recognized	24		31
Impaired loans with an allowance recorded, Average Recorded Investment		1,244		1,244
Impaired loans with an allowance recorded, Interest Income Recognized		11		21
Total impaired loans, Average Recorded Investment	2,229	1,244	2,280	1,244
Total impaired loans, Interest Income Recognized	24	11	31	21
Consumer Portfolio Segment [Member]
Loans and the Allowance for Loan Losses (Details) - Schedule of Analysis related to the average recorded investment [Line Items]
Impaired loans with no related allowance recorded, Average Recorded Investment	113		115
Impaired loans with no related allowance recorded, Interest Income Recognized	1		3
Total impaired loans, Average Recorded Investment	113		115
Total impaired loans, Interest Income Recognized	$ 1		$ 3

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Earnings per Common Share (Details) - Schedule of Earning Per Share (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013
Schedule of Earning Per Share [Abstract]
Net income	$ 4,378	$ 4,923	$ 8,776	$ 9,847
Preferred stock dividends	(28)	(28)	(56)	(84)
Net income available to common stockholders	$ 4,350	$ 4,895	$ 8,720	$ 9,763
Basic weighted average common shares outstanding	16,372,885	16,348,915	16,361,596	16,348,567
Plus: effect of dilutive options	57,000	27,000	61,000	26,000
Diluted weighted average common shares outstanding	16,430,376	16,375,774	16,422,339	16,375,028
Earnings per common share:
Basic	$ 0.27	$ 0.30	$ 0.53	$ 0.60
Diluted	$ 0.26	$ 0.30	$ 0.53	$ 0.60

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Investment Securities (Details) (USD $)	6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Dec. 31, 2013
Investments, Debt and Equity Securities [Abstract]
Proceeds from Sale of Available-for-sale Securities	$ 66,738,000	$ 78,911,000
Number of Investment Securities Sold	81
Available-for-sale Securities, Gross Realized Gain (Loss)	1,200,000
Available-for-sale Securities Pledged as Collateral	$ 140,000,000		$ 109,300,000

XML

CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $) In Thousands, unless otherwise specified	6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013
Cash flows from operating activities:
Net income	$ 8,776	$ 9,847
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of premiums and accretion of discounts on investment securities, net	941	1,841
Depreciation and amortization	428	429
Provision for loan losses	909
Stock-based compensation	34	25
Other-than-temporary impairment losses on investment securities		24
Gains on sales of investment securities, net	(1,989)	(943)
Net loss on sale of other real estate owned		75
Loans originated for resale	(2,821)	(12,351)
Proceeds from sale of loans held for sale	2,417	13,486
Gains on sale of loans held for sale	(79)	(229)
Decrease (increase) in accrued interest receivable	388	(1)
Decrease in prepaid FDIC insurance assessments		811
Increase in cash surrender value of bank-owned life insurance	(511)	(548)
Life insurance death benefit		(291)
Decrease (increase) in other assets	2,545	(3,215)
(Decrease) increase in other liabilities	(645)	1,185
Net cash provided by operating activities	10,393	10,145
Investment securities available-for-sale:
Purchases	(10,487)	(119,749)
Sales	66,738	78,911
Maturities, calls and principal repayments	14,486	29,583
Investment securities held-to-maturity:
Purchases	(8,310)	(6,104)
Maturities and principal repayments	5,068	2,803
Net (purchases) redemption of restricted investment in bank stocks	(2,303)	(22)
Net increase in loans	(45,730)	(13,421)
Purchases of premises and equipment	(747)	(304)
Proceeds from bank-owned life insurance death benefits		592
Proceeds from sale of other real estate owned		1,230
Net cash provided by (used in) investing activities	18,715	(26,481)
Cash flows from financing activities:
Net (decrease) increase in deposits	(67,385)	(26,028)
Net increase in borrowings	50,000
Cash dividends on preferred stock	(56)	(84)
Cash dividends on common stock	(2,456)	(1,978)
Issuance of restricted stock awards		243
Issuance cost of common stock	(7)	(6)
Tax benefit of options exercised	241
Proceeds from exercise of stock options	480	10
Net cash (used in) provided by financing activities	(19,183)	(27,843)
Net change in cash and cash equivalents	9,925	(44,179)
Cash and cash equivalents at beginning of period	82,692	106,138
Cash and cash equivalents at end of period	92,617	61,959
Cash payments for:
Interest paid on deposits and borrowings	5,425	5,548
Income taxes	2,553	1,630
Supplemental disclosures of non-cash investing activities:
Transfer of loans to other real estate owned		236
Dividends declared, not paid	1,063
Transfer of investment securities available-for-sale to investment securities held-to-maturity		$ 75,694

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Investment Securities (Details) - Unrealized gains on investment securities (USD $) In Thousands, unless otherwise specified	Jun. 30, 2014	Dec. 31, 2013
Investment Securities (Details) - Unrealized gains on investment securities [Line Items]
Investment Securities Available-for-Sale, Amortized Cost	$ 258,198	$ 319,147
Investment Securities Available-for-Sale, Gross Unrealized Gains	9,542	6,960
Investment Securities Available-for-Sale, Gross Unrealized Losses	(781)	(3,037)
Investment Securities Available-for-Sale, Fair Value	266,959	323,070
Investment Securities Held-to-Maturity, Amortized Cost	218,159	215,286
Investment Securities Held-to-Maturity, Gross Unrealized Gains	4,791	1,516
Investment Securities Held-to-Maturity, Gross Unrealized Losses	(447)	(5,844)
Investment Securities Held-to-Maturity, Fair Value	222,503	210,958
Total, Amortized Cost	476,357	534,433
Total, Gross Unrealized Gains	14,333	8,476
Total, Gross Unrealized Losses	(1,228)	(8,881)
Total, Fair Value	489,462	534,028
US Treasury Securities [Member]
Investment Securities (Details) - Unrealized gains on investment securities [Line Items]
Investment Securities Available-for-Sale, Amortized Cost	9,608	14,344
Investment Securities Available-for-Sale, Gross Unrealized Losses	(136)	(825)
Investment Securities Available-for-Sale, Fair Value	9,472	13,519
Investment Securities Held-to-Maturity, Amortized Cost	28,159	28,056
Investment Securities Held-to-Maturity, Gross Unrealized Gains	257
Investment Securities Held-to-Maturity, Gross Unrealized Losses		(1,019)
Investment Securities Held-to-Maturity, Fair Value	28,416	27,037
Federal Agency Obligations [Member]
Investment Securities (Details) - Unrealized gains on investment securities [Line Items]
Investment Securities Available-for-Sale, Amortized Cost	22,643	20,567
Investment Securities Available-for-Sale, Gross Unrealized Gains	116	29
Investment Securities Available-for-Sale, Gross Unrealized Losses	(111)	(655)
Investment Securities Available-for-Sale, Fair Value	22,648	19,941
Investment Securities Held-to-Maturity, Amortized Cost	22,039	15,249
Investment Securities Held-to-Maturity, Gross Unrealized Gains	166	23
Investment Securities Held-to-Maturity, Gross Unrealized Losses	(19)	(389)
Investment Securities Held-to-Maturity, Fair Value	22,186	14,883
Residential Mortgage Backed Securities [Member]
Investment Securities (Details) - Unrealized gains on investment securities [Line Items]
Investment Securities Available-for-Sale, Amortized Cost	44,369	48,312
Investment Securities Available-for-Sale, Gross Unrealized Gains	1,563	791
Investment Securities Available-for-Sale, Gross Unrealized Losses	(13)	(229)
Investment Securities Available-for-Sale, Fair Value	45,919	48,874
Investment Securities Held-to-Maturity, Amortized Cost	2,049	2,246
Investment Securities Held-to-Maturity, Gross Unrealized Gains	14
Investment Securities Held-to-Maturity, Gross Unrealized Losses		(64)
Investment Securities Held-to-Maturity, Fair Value	2,063	2,182
Commercial Mortgage Backed Securities [Member]
Investment Securities (Details) - Unrealized gains on investment securities [Line Items]
Investment Securities Available-for-Sale, Amortized Cost	3,072	7,145
Investment Securities Available-for-Sale, Gross Unrealized Gains		3
Investment Securities Available-for-Sale, Gross Unrealized Losses	(51)	(157)
Investment Securities Available-for-Sale, Fair Value	3,021	6,991
Investment Securities Held-to-Maturity, Amortized Cost	4,341	4,417
Investment Securities Held-to-Maturity, Gross Unrealized Gains	77	41
Investment Securities Held-to-Maturity, Gross Unrealized Losses	(18)	(62)
Investment Securities Held-to-Maturity, Fair Value	4,400	4,396
US States and Political Subdivisions Debt Securities [Member]
Investment Securities (Details) - Unrealized gains on investment securities [Line Items]
Investment Securities Available-for-Sale, Amortized Cost	6,303	30,804
Investment Securities Available-for-Sale, Gross Unrealized Gains	200	711
Investment Securities Available-for-Sale, Gross Unrealized Losses		(55)
Investment Securities Available-for-Sale, Fair Value	6,503	31,460
Investment Securities Held-to-Maturity, Amortized Cost	123,646	127,418
Investment Securities Held-to-Maturity, Gross Unrealized Gains	3,327	1,303
Investment Securities Held-to-Maturity, Gross Unrealized Losses	(410)	(3,688)
Investment Securities Held-to-Maturity, Fair Value	126,563	125,033
Trust Preferred Securities [Member]
Investment Securities (Details) - Unrealized gains on investment securities [Line Items]
Investment Securities Available-for-Sale, Amortized Cost	16,085	19,763
Investment Securities Available-for-Sale, Gross Unrealized Gains	490	150
Investment Securities Available-for-Sale, Gross Unrealized Losses	(239)	(510)
Investment Securities Available-for-Sale, Fair Value	16,336	19,403
Corporate Bonds and Notes [Member]
Investment Securities (Details) - Unrealized gains on investment securities [Line Items]
Investment Securities Available-for-Sale, Amortized Cost	132,401	154,182
Investment Securities Available-for-Sale, Gross Unrealized Gains	6,969	4,930
Investment Securities Available-for-Sale, Gross Unrealized Losses	(43)	(482)
Investment Securities Available-for-Sale, Fair Value	139,327	158,630
Investment Securities Held-to-Maturity, Amortized Cost	37,925	37,900
Investment Securities Held-to-Maturity, Gross Unrealized Gains	950	149
Investment Securities Held-to-Maturity, Gross Unrealized Losses		(622)
Investment Securities Held-to-Maturity, Fair Value	38,875	37,427
Asset-backed Securities [Member]
Investment Securities (Details) - Unrealized gains on investment securities [Line Items]
Investment Securities Available-for-Sale, Amortized Cost	15,010	15,733
Investment Securities Available-for-Sale, Gross Unrealized Gains	166	246
Investment Securities Available-for-Sale, Fair Value	15,176	15,979
Certificates of Deposit [Member]
Investment Securities (Details) - Unrealized gains on investment securities [Line Items]
Investment Securities Available-for-Sale, Amortized Cost	2,099	2,250
Investment Securities Available-for-Sale, Gross Unrealized Gains	38	32
Investment Securities Available-for-Sale, Gross Unrealized Losses	(5)	(20)
Investment Securities Available-for-Sale, Fair Value	2,132	2,262
Equity Securities [Member]
Investment Securities (Details) - Unrealized gains on investment securities [Line Items]
Investment Securities Available-for-Sale, Amortized Cost	376	376
Investment Securities Available-for-Sale, Gross Unrealized Losses	(83)	(89)
Investment Securities Available-for-Sale, Fair Value	293	287
Money Market Funds [Member]
Investment Securities (Details) - Unrealized gains on investment securities [Line Items]
Investment Securities Available-for-Sale, Amortized Cost	6,232	5,671
Investment Securities Available-for-Sale, Gross Unrealized Gains		68
Investment Securities Available-for-Sale, Gross Unrealized Losses	(100)	(15)
Investment Securities Available-for-Sale, Fair Value	$ 6,132	$ 5,724

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Loans and the Allowance for Loan Losses (Details) - Composition of Loan Portfolio (USD $) In Thousands, unless otherwise specified	Jun. 30, 2014	Dec. 31, 2013
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	$ 1,005,777	$ 960,604
Net deferred loan costs	479	339
Total loans	1,006,256	960,943
Commercial Portfolio Segment [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	245,930	229,688
Commercial Real Estate Portfolio Segment [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	565,397	536,539
Construction Loans [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	46,705	42,722
Residential Portfolio Segment [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	147,128	150,571
Consumer Portfolio Segment [Member]
Accounts, Notes, Loans and Financing Receivable [Line Items]
Loans	$ 617	$ 1,084

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Fair Value Measurements and Fair Value of Financial Instruments (Details) - Schedule of assets at fair value on a non-recurring basis (USD $) In Thousands, unless otherwise specified	Jun. 30, 2014	Dec. 31, 2013
Commercial Real Estate Portfolio Segment [Member] | Fair Value, Inputs, Level 3 [Member] | Impaired Loans [Member]
Impaired Loans
Assets, Fair Value Disclosure, Nonrecurring	$ 3,265	$ 4,229
Commercial Real Estate Portfolio Segment [Member] | Impaired Loans [Member]
Impaired Loans
Assets, Fair Value Disclosure, Nonrecurring	3,265	4,229
Residential Portfolio Segment [Member] | Fair Value, Inputs, Level 3 [Member] | Other Real Estate Owned [Member]
Impaired Loans
Assets, Fair Value Disclosure, Nonrecurring	220	220
Residential Portfolio Segment [Member] | Other Real Estate Owned [Member]
Impaired Loans
Assets, Fair Value Disclosure, Nonrecurring	220	220
Commercial Portfolio Segment [Member] | Fair Value, Inputs, Level 3 [Member] | Impaired Loans [Member]
Impaired Loans
Assets, Fair Value Disclosure, Nonrecurring		372
Commercial Portfolio Segment [Member] | Impaired Loans [Member]
Impaired Loans
Assets, Fair Value Disclosure, Nonrecurring		$ 372

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CONSOLIDATED STATEMENTS OF CONDITION (USD $) In Thousands, unless otherwise specified	Jun. 30, 2014	Dec. 31, 2013
ASSETS
Cash and due from banks	$ 92,617	$ 82,692
Investment securities:
Available-for-sale	266,959	323,070
Held-to-maturity (fair value of $222,503 and $210,958)	218,159	215,286
Loans held for sale	483
Loans	1,006,256	960,943
Less: Allowance for loan losses	10,825	10,333
Net loans	995,431	950,610
Investment in restricted stock, at cost	11,289	8,986
Premises and equipment, net	14,013	13,681
Accrued interest receivable	6,414	6,802
Bank-owned life insurance	36,245	35,734
Goodwill and other intangible assets	16,815	16,828
Other real estate owned	220	220
Due from brokers for investment securities		8,759
Other assets	7,164	10,414
Total assets	1,665,809	1,673,082
Deposits:
Non-interest bearing	238,138	227,370
Interest-bearing:
Time deposits $100 and over	112,616	99,444
Interest-bearing transaction, savings and time deposits less than $100	923,866	1,015,191
Total deposits	1,274,620	1,342,005
Borrowings	196,000	146,000
Subordinated debentures	5,155	5,155
Accounts payable and accrued liabilities	11,756	11,338
Total liabilities	1,487,531	1,504,498
STOCKHOLDERS’ EQUITY
Preferred stock, $1,000 liquidation value per share, authorized 5,000,000 shares; issued and outstanding 11,250 shares of Series B preferred stock at June 30, 2014 and December 31, 2013; total liquidation value of $11,250,000 at June 30, 2014 and December 31, 2013	11,250	11,250
Common stock, no par value, authorized 50,000,000 shares; issued 18,477,412 shares at June 30, 2014 and December 31, 2013; outstanding 16,413,490 shares at June 30, 2014 and 16,369,012 at December 31, 2013	110,056	110,056
Additional paid-in capital	5,380	4,986
Retained earnings	67,108	61,914
Treasury stock, at cost (2,063,922 common shares at June 30, 2014 and 2,108,400 at December 31, 2013)	(16,717)	(17,078)
Accumulated other comprehensive income (loss)	1,201	(2,544)
Total stockholders’ equity	178,278	168,584
Total liabilities and stockholders’ equity	$ 1,665,809	$ 1,673,082

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Loans and the Allowance for Loan Losses (Details) - Aging Analysis (USD $) In Thousands, unless otherwise specified	Jun. 30, 2014	Dec. 31, 2013
Financing Receivable, Recorded Investment, Past Due [Line Items]
30-59 Days Past Due	$ 2,680	$ 1,234
60-89 Days Past Due	4,269	258
90 Days or Greater Past Due	4,176	3,137
Total Past Due	11,125	4,629
Current	994,652	955,975
Total Loans Receivable	1,005,777	960,604
Loans Receivable > 90 Days Past Due and Accruing	144
Commercial Portfolio Segment [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
30-59 Days Past Due	911	18
60-89 Days Past Due	1,831
90 Days or Greater Past Due	775	753
Total Past Due	3,517	771
Current	242,413	228,917
Total Loans Receivable	245,930	229,688
Commercial Real Estate Portfolio Segment [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
30-59 Days Past Due	990	221
60-89 Days Past Due	1,647
90 Days or Greater Past Due	1,427	744
Total Past Due	4,064	965
Current	561,333	535,574
Total Loans Receivable	565,397	536,539
Construction Loans [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
Current	46,705	42,722
Total Loans Receivable	46,705	42,722
Residential Portfolio Segment [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
30-59 Days Past Due	775	990
60-89 Days Past Due	791	258
90 Days or Greater Past Due	1,974	1,640
Total Past Due	3,540	2,888
Current	143,588	147,683
Total Loans Receivable	147,128	150,571
Loans Receivable > 90 Days Past Due and Accruing	144
Consumer Portfolio Segment [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
30-59 Days Past Due	4	5
Total Past Due	4	5
Current	613	1,079
Total Loans Receivable	$ 617	$ 1,084

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CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (USD $) In Thousands	Preferred Stock [Member]	Common Stock [Member]	Additional Paid-in Capital [Member]	Retained Earnings [Member]	Treasury Stock [Member]	Accumulated Other Comprehensive Income (Loss) [Member]	Total
Balance at Dec. 31, 2012	$ 11,250	$ 110,056	$ 4,801	$ 46,753	$ (17,232)	$ 5,063	$ 160,691
Net income				9,847			9,847
Other comprehensive income (loss), net of tax						(7,287)	(7,287)
Dividend on series B preferred stock				(113)			(113)
Issuance cost of common stock				(6)			(6)
Cash dividends declared on common stock				(2,125)			(2,125)
Issuance of restricted stock awards (18,829 shares)			91		152		243
Stock issued for options exercised			8		2		10
Stock-based compensation expense			25				25
Balance at Jun. 30, 2013	11,250	110,056	4,925	54,356	(17,078)	(2,224)	161,285
Balance at Dec. 31, 2013	11,250	110,056	4,986	61,914	(17,078)	(2,544)	168,584
Net income				8,776			8,776
Other comprehensive income (loss), net of tax						3,745	3,745
Dividend on series B preferred stock				(56)			(56)
Issuance cost of common stock				(7)			(7)
Cash dividends declared on common stock				(3,519)			(3,519)
Stock issued for options exercised			119		361		480
Tax benefit of options exercised			241				241
Stock-based compensation expense			34				34
Balance at Jun. 30, 2014	$ 11,250	$ 110,056	$ 5,380	$ 67,108	$ (16,717)	$ 1,201	$ 178,278

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Components of Net Periodic Pension Cost (Details) (USD $)	6 Months Ended
	Jun. 30, 2014
Compensation and Retirement Disclosure [Abstract]
Defined Contribution Plan, Employer Discretionary Contribution Amount	$ 400,000

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Investment Securities (Details) - Schedule of OTTI Charges for period (USD $) In Thousands, unless otherwise specified	6 Months Ended
	Jun. 30, 2013
Schedule of OTTI Charges for period [Abstract]
Principal losses on a variable rate CMO	$ 24
Total other-than-temporary impairment charges	$ 24

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Loans and the Allowance for Loan Losses (Tables)

6 Months Ended

Jun. 30, 2014

Receivables [Abstract]

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

The following table sets forth the composition of the Corporation’s loan portfolio, including net deferred fees and costs, at June 30, 2014 and December 31, 2013:

	June 30,		December 31,
	2014		2013
	(in thousands)
Commercial and industrial	$	245,930	$	229,688
Commercial real estate		565,397		536,539
Construction		46,705		42,722
Residential mortgage		147,128		150,571
Installment		617		1,084
Subtotal		1,005,777		960,604
Net deferred loan costs		479		339
Total loans	$	1,006,256	$	960,943

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

The following table presents information about the recorded investment loan receivables on non-accrual status by class at June 30, 2014 and December 31, 2013:

Loans Receivable on Non-Accrual Status
	June 30, 2014		December 31, 2013
	(in thousands)
Commercial and industrial	$	775	$	753
Commercial real estate		1,427		744
Residential mortgage		1,830		1,640
Total loans receivable on non-accrual status	$	4,032	$	3,137

Financing Receivable Credit Quality Indicators [Table Text Block]

The following table presents information, excluding net deferred costs, about the Corporation’s loan credit quality at June 30, 2014 and December 31, 2013:

Credit Quality Indicators
	June 30, 2014
	Pass		Special Mention		Substandard		Doubtful		Total
		(in thousands)
Commercial and industrial	$	242,914	$	1,621	$	1,080	$	315	$	245,930
Commercial real estate		542,940		14,438		8,019		—		565,397
Construction		45,316		—		1,389		—		46,705
Residential mortgage		143,704		969		2,455		—		147,128
Installment		506		—		111		—		617
Total loans	$	975,380	$	17,028	$	13,054	$	315	$	1,005,777

	December 31, 2013
	Pass		Special Mention		Substandard		Doubtful		Total
	(in thousands)
Commercial and industrial	$	226,013	$	1,719	$	1,284	$	672	$	229,688
Commercial real estate		509,679		14,544		12,316		—		536,539
Construction		41,492		—		1,230		—		42,722
Residential mortgage		147,379		978		2,214		—		150,571
Installment		964		—		120		—		1,084
Total loans	$	925,527	$	17,241	$	17,164	$	672	$	960,604

Impaired Financing Receivables [Table Text Block]

The following table provides an analysis of the impaired loans, by class, at June 30, 2014 and December 31, 2013:

	June 30, 2014
	Recorded Investment		Unpaid Principal Balance		Related Allowance
	(in thousands)
No Related Allowance Recorded
Commercial and industrial	$	1,000	$	1,301	$	—
Commercial real estate		3,083		3,384		—
Residential mortgage		1,900		2,054		—
Installment		111		111		—
Total	$	6,094	$	6,850		—
With An Allowance Recorded
Commercial real estate	$	3,600	$	3,600	$	335
Total	$	3,600	$	3,600	$	335
Total
Commercial and industrial	$	1,000	$	1,301	$	—
Commercial real estate		6,683		6,984		335
Residential mortgage		1,900		2,054		—
Installment		111		111		—
Total (including related allowance)	$	9,694	$	10,450	$	335

	December 31, 2013
	Recorded Investment		Unpaid Principal Balance		Related Allowance
	(in thousands)
No Related Allowance Recorded
Commercial and industrial	$	449	$	449	$	—
Commercial real estate		10,482		10,783		—
Residential mortgage		1,858		2,000		—
Installment		120		120		—
Total	$	12,909	$	13,352	$	—
With An Allowance Recorded
Commercial and industrial	$	672	$	672	$	300
Commercial real estate		4,344		4,344		115
Total	$	5,016	$	5,016	$	415
Total
Commercial and industrial	$	1,121	$	1,121	$	300
Commercial real estate		14,826		15,127		115
Residential mortgage		1,858		2,000		—
Installment		120		120		—
Total (including related allowance)	$	17,925	$	18,368	$	415

Schedule of Average Balance and Interest Income Recognized on Impaired Loans [Table Text Block]

The following table provides an analysis related to the average recorded investment and interest income recognized on impaired loans by class as of and for the three and six months ended June 30, 2014 and 2013.

	Three Months Ended June 30,								Six Months Ended June 30,
	2014				2013				2014				2013
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
Impaired loans with no related allowance recorded:
Commercial and industrial	$	1,357	$	16	$	—	$	—	$	1,370	$	30	$	—	$	—
Commercial real estate		3,112		42		1,450		19		3,123		43		1,450		38
Residential mortgage		2,229		24		—		—		2,280		31		—		—
Installment		113		1		—		—		115		3		—		—
Total	$	6,811		83	$	1,450	$	19	$	6,888	$	107	$	1,450	$	38
Impaired loans with an allowance recorded:
Commercial real estate	$	3,600	$	43	$	3,908	$	34	$	3,600	$	85	$	4,087	$	68
Residential mortgage		—		—		1,244		11		—		—		1,244		21
Total	$	3,600	$	43	$	5,152	$	45	$	3,600	$	85	$	5,331	$	89
Total impaired loans:
Commercial and industrial	$	1,357	$	16	$	—	$	—	$	1,370	$	30	$	—	$	—
Commercial real estate		6,712		85		5,358		53		6,723		128		5,537		106
Residential mortgage		2,229		24		1,244		11		2,280		31		1,244		21
Installment		113		1		—		—		115		3		—		—
Total	$	10,411	$	126	$	6,602	$	64	$	10,488	$	192	$	6,781	$	127

Past Due Financing Receivables [Table Text Block]

The following table provides an analysis of the aging of the recorded investment of loans, excluding net deferred costs that are past due at June 30, 2014 and December 31, 2013 by class:

	June 30, 2014
	30-59 Days Past Due		60-89 Days Past Due		90 Days or Greater Past Due		Total Past Due		Current		Total Loans Receivable		Loans Receivable > 90 Days Past Due and Accruing
	(in thousands)
Commercial and Industrial	$	911	$	1,831	$	775	$	3,517	$	242,413	$	245,930	$	—
Commercial Real Estate		990		1,647		1,427		4,064		561,333		565,397		—
Construction		—		—		—		—		46,705		46,705		—
Residential Mortgage		775		791		1,974		3,540		143,588		147,128		144
Installment		4		—		—		4		613		617		—
Total	$	2,680	$	4,269	$	4,176	$	11,125	$	994,652	$	1,005,777	$	144

	December 31, 2013
	30-59 Days Past Due		60-89 Days Past Due		90 Days or Greater Past Due		Total Past Due		Current		Total Loans Receivable		Loans Receivable > 90 Days Past Due and Accruing
	(in thousands)
Commercial and Industrial	$	18	$	—	$	753	$	771	$	228,917	$	229,688	$	—
Commercial Real Estate		221		—		744		965		535,574		536,539		—
Construction		—		—		—		—		42,722		42,722		—
Residential Mortgage		990		258		1,640		2,888		147,683		150,571		—
Installment		5		—		—		5		1,079		1,084		—
Total	$	1,234	$	258	$	3,137	$	4,629	$	955,975	$	960,604	$	—

Schedule of Recorded Investment in Financing Receivables [Table Text Block]

The following table details the amount of loans receivable that are evaluated individually, and collectively, for impairment (excluding net deferred costs), and the related portion of the allowance for loan loss that is allocated to each loan portfolio class:

	June 30, 2014
	Commercial & Industrial		Commercial Real Estate		Construction		Residential Mortgage		Installment		Unallocated		Total
	(in thousands)
Allowance for loan and lease losses:
Individually evaluated for impairment	$	—	$	335	$	—	$	—	$	—	$	—	$	335
Collectively evaluated for impairment		2,142		5,406		504		1,011		63		1,364		10,490
Total	$	2,142	$	5,741	$	504		1,011	$	63	$	1,364	$	10,825
Loans Receivable
Individually evaluated for impairment	$	1,000	$	6,683	$	—	$	1,900	$	111	$	—	$	9,694
Collectively evaluated for impairment		242,915		544,960		45,316		132,955		387		—		966,533
Loans acquired with discounts related to credit quality		2,015		13,754		1,389		12,273		119		—		29,550
Total	$	245,930	$	565,397	$	46,705	$	147,128	$	617	$	—	$	1,005,777

	December 31, 2013
	Commercial & Industrial		Commercial Real Estate		Construction		Residential Mortgage		Installment		Unallocated		Total
	(in thousands)
Allowance for loan and lease losses:
Individually evaluated for impairment	$	300	$	115	$	—	$	—	$	—	$	—	$	415
Collectively evaluated for impairment		1,398		5,631		362		990		146		1,391		9,918
Total	$	1,698	$	5,746	$	362	$	990	$	146	$	1,391	$	10,333
Loans Receivable
Individually evaluated for impairment	$	1,121	$	14,826	$	—	$	1,858	$	120	$	—	$	17,925
Collectively evaluated for impairment		226,450		505,361		41,493		135,031		839		—		909,174
Loans acquired with discounts related to credit quality		2,117		16,352		1,229		13,682		125		—		33,505
Total	$	229,688	$	536,539	$	42,722	$	150,571	$	1,084	$	—	$	960,604

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

A summary of the activity in the allowance for loan losses is as follows:

	Three Months Ended June 30, 2014
	Commercial & Industrial			Commercial Real Estate		Construction		Residential Mortgage			Installment			Unallocated			Total
	(in thousands)
Balance at April 1,	$	2,225		$	5,384	$	434	$	1,004		$	79		$	1,507		$	10,633
Charge offs		—			—		—		(90	)		(4	)		—			(94	)
Recoveries		—			—		—		1			1			—			2
Provision		(83	)		357		70		96			(13	)		(143	)		284
Balance at June 30,	$	2,142		$	5,741	$	504	$	1,011		$	63		$	1,364		$	10,825

	Six Months Ended June 30, 2014
	Commercial & Industrial			Commercial Real Estate			Construction		Residential Mortgage			Installment			Unallocated			Total
	(in thousands)
Balance at January 1,	$	1,698		$	5,746		$	362	$	990		$	146		$	1,391		$	10,333
Charge offs		(333	)		—			—		(90	)		(7	)		—			(430	)
Recoveries		—			—			—		11			2			—			13
Provision		777			(5	)		142		100			(78	)		(27	)		909
Balance at June 30,	$	2,142		$	5,741		$	504	$	1,011		$	63		$	1,364		$	10,825

	Three Months Ended June 30, 2013
	Commercial & Industrial		Commercial Real Estate			Construction		Residential Mortgage			Installment			Unallocated			Total
	(in thousands)
Balance at April 1,	$	2,083	$	5,353		$	284	$	1,378		$	103		$	1,031		$	10,232
Charge offs		—		(50	)		—		—			(11	)		—			(61	)
Recoveries		21		8			—		—			2			—			31
Provision		318		22			34		(37	)		(65	)		(272	)		—
Balance at June 30,	$	2,422	$	5,333		$	318	$	1,341		$	29		$	759		$	10,202

	Six Months Ended June 30, 2013
	Commercial & Industrial			Commercial Real Estate			Construction		Residential Mortgage			Installment			Unallocated		Total
	(in thousands)
Balance at January 1,	$	2,424		$	5,323		$	313	$	1,532		$	113		$	532	$	10,237
Charge offs		—			(50	)		—		—			(16	)		—		(66	)
Recoveries		21			8			—		—			2			—		31
Provision		(23	)		52			5		(191	)		(70	)		227		—
Balance at June 30,	$	2,422		$	5,333		$	318	$	1,341		$	29		$	759	$	10,202

Schedule of Debtor Troubled Debt Restructuring, Current Period [Table Text Block]

The following table presents loans by class modified as troubled debt restructurings that occurred during the six months ended June 30, 2014

	Number of Loans		Pre-Modification Outstanding Recorded Investment			Post-Modification Outstanding Recorded Investment
Troubled debt restructurings:
Commercial and industrial		1		$	672		$	315
Commercial real estate		—			—			—
Construction		—			—			—
Residential real estate		1			53			51
Installment		—			—			—
Total		2		$	725		$	366

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Investment Securities (Details) - Schedule of preferred security and associated ratings (USD $) In Thousands, unless otherwise specified	6 Months Ended
	Jun. 30, 2014	Dec. 31, 2013
Investment Securities (Details) - Schedule of preferred security and associated ratings [Line Items]
Available-for-sale Securities, Amortized Cost	$ 258,198	$ 319,147
Available-for-sale Securities, Fair Value	266,959	323,070
Trust Preferred Securities [Member] | Countrywide Capital IV [Member]
Investment Securities (Details) - Schedule of preferred security and associated ratings [Line Items]
Available-for-sale Securities, Amortized Cost	1,771
Available-for-sale Securities, Fair Value	1,819
Available-for-sale Securities, Gross Unrealized Gain (Loss)	48
Lowest Credit Rating Assigned	BB+
Number of Banks Currently Performing	1
Trust Preferred Securities [Member] | Countrywide Capital V [Member]
Investment Securities (Details) - Schedule of preferred security and associated ratings [Line Items]
Available-for-sale Securities, Amortized Cost	2,747
Available-for-sale Securities, Fair Value	2,858
Available-for-sale Securities, Gross Unrealized Gain (Loss)	111
Lowest Credit Rating Assigned	BB+
Number of Banks Currently Performing	1
Trust Preferred Securities [Member] | Nationsbank Cap Trust III [Member]
Investment Securities (Details) - Schedule of preferred security and associated ratings [Line Items]
Available-for-sale Securities, Amortized Cost	1,574
Available-for-sale Securities, Fair Value	1,335
Available-for-sale Securities, Gross Unrealized Gain (Loss)	(239)
Lowest Credit Rating Assigned	BB+
Number of Banks Currently Performing	1
Trust Preferred Securities [Member] | Morgan Stanley Cap Trust IV [Member]
Investment Securities (Details) - Schedule of preferred security and associated ratings [Line Items]
Available-for-sale Securities, Amortized Cost	2,500
Available-for-sale Securities, Fair Value	2,515
Available-for-sale Securities, Gross Unrealized Gain (Loss)	15
Lowest Credit Rating Assigned	BB+
Number of Banks Currently Performing	1
Trust Preferred Securities [Member] | Goldman Sachs [Member]
Investment Securities (Details) - Schedule of preferred security and associated ratings [Line Items]
Available-for-sale Securities, Amortized Cost	1,000
Available-for-sale Securities, Fair Value	1,139
Available-for-sale Securities, Gross Unrealized Gain (Loss)	139
Lowest Credit Rating Assigned	BB+
Number of Banks Currently Performing	1
Trust Preferred Securities [Member] | Stifel Financial [Member]
Investment Securities (Details) - Schedule of preferred security and associated ratings [Line Items]
Available-for-sale Securities, Amortized Cost	4,500
Available-for-sale Securities, Fair Value	4,651
Available-for-sale Securities, Gross Unrealized Gain (Loss)	151
Lowest Credit Rating Assigned	BBB-
Number of Banks Currently Performing	1
Trust Preferred Securities [Member]
Investment Securities (Details) - Schedule of preferred security and associated ratings [Line Items]
Available-for-sale Securities, Amortized Cost	16,085	19,763
Available-for-sale Securities, Fair Value	16,336	19,403
Available-for-sale Securities, Gross Unrealized Gain (Loss)	251
Trust Preferred Securities [Member] | Additional Deal Value [Member] | Countrywide Capital V [Member]
Investment Securities (Details) - Schedule of preferred security and associated ratings [Line Items]
Available-for-sale Securities, Amortized Cost	250
Available-for-sale Securities, Fair Value	260
Available-for-sale Securities, Gross Unrealized Gain (Loss)	10
Lowest Credit Rating Assigned	BB+
Number of Banks Currently Performing	1
Trust Preferred Securities [Member] | Additional Deal Value [Member] | Morgan Stanley Cap Trust IV [Member]
Investment Securities (Details) - Schedule of preferred security and associated ratings [Line Items]
Available-for-sale Securities, Amortized Cost	1,743
Available-for-sale Securities, Fair Value	1,759
Available-for-sale Securities, Gross Unrealized Gain (Loss)	$ 16
Lowest Credit Rating Assigned	BB+
Number of Banks Currently Performing	1

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Accumulated Other Comprehensive Income (Tables)

6 Months Ended

Jun. 30, 2014

Disclosure Text Block [Abstract]

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

Accumulated other comprehensive income (loss) at June 30, 2014 and December 31, 2013 consisted of the following:

	June 30, 2014			December 31, 2013
	(in thousands)
Net unrealized gain on investment securities available-for-sale, net of tax	$	5,304		$	2,374
Unamortized component of securities transferred from available-for-sale to held-to-maturity, net of tax		(1,368	)		(1,425	)
Defined benefit pension and post-retirement plans, net of tax		(2,735	)		(3,493	)
Total accumulated other comprehensive income (loss)	$	1,201		$	(2,544	)

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CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (Parentheticals) (USD $)	6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013
Cash dividends declared on common stock, per share (in Dollars per share)	$ 0.15	$ 0.13
Issuance of restricted stock awards, shares		18,829
Stock issued for options exercised, shares	44,478	1,000
Additional Paid-in Capital [Member]
Issuance of restricted stock awards, shares		18,829
Stock issued for options exercised, shares	44,478	1,000
Retained Earnings [Member]
Cash dividends declared on common stock, per share (in Dollars per share)	$ 0.15	$ 0.13
Treasury Stock [Member]
Issuance of restricted stock awards, shares		18,829
Stock issued for options exercised, shares	44,478	1,000

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CONSOLIDATED STATEMENTS OF CONDITION (Parentheticals) (USD $)	Jun. 30, 2014	Dec. 31, 2013
Held-to-maturity, fair value (in Dollars)	$ 222,503,000	$ 210,958,000
Preferred stock, liquidation value (in Dollars per share)	$ 1,000	$ 1,000
Preferred stock, shares authorized	5,000,000	5,000,000
Preferred Stock, total liquidation value (in Dollars)	$ 11,250,000	$ 11,250,000
Common stock, par value (in Dollars per share)
Common stock, shares authorized	50,000,000	50,000,000
Common stock, shares issued	18,477,412	18,477,412
Common stock, shares outstanding	16,413,490	16,369,012
Treasury Stock, Shares	2,063,922	2,108,400
Series B Preferred Stock [Member]
Preferred stock, shares issued	11,250	11,250
Preferred stock, shares outstanding	11,250	11,250

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Stock-Based Compensation

6 Months Ended

Jun. 30, 2014

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Disclosure of Compensation Related Costs, Share-based Payments [Text Block]

Note 9. Stock-Based Compensation

The Corporation maintains two stock-based compensation plans from which new grants could be issued. The Corporation’s stock-based compensation plans permit Parent Corporation common stock to be issued to key employees and directors of the Corporation and its subsidiaries. The options granted under the plans are intended to be either incentive stock options or non-qualified options. Under the 2009 Equity Incentive Plan, a total of 363,081 shares are available for grant and issuance as of June 30, 2014. Under the 2003 Non-Employee Director Stock Option Plan, a total of 380,644 shares remain available for grant and issuance under the plan as of June 30, 2014. Such shares may be treasury shares, newly issued shares or a combination thereof.

Options have been granted to purchase common stock principally at the fair market value of the stock at the date of grant. Options are exercisable over a three-year vesting period starting one year after the date of grant and generally expire ten years from the date of grant.

Stock-based compensation expense for share-based payment awards is based on the grant date fair value estimated on the date of grant. The Corporation recognizes compensation costs for those shares expected to vest on a straight-line basis over the requisite service period of the award, which is generally the option vesting term of three years. The Corporation estimates the forfeiture rate based on its historical experience during the preceding seven fiscal years.

For the six months ended June 30, 2014, the Corporation’s income before income taxes and net income were reduced by $34,000 and $20,000, respectively; as a result of the compensation expense related to stock options and restricted stock awards. For the six months ended June 30, 2013, the Corporation’s income before income taxes and net income were reduced by $25,000 and $15,000, respectively, as a result of the compensation expense related to stock options.

Under the principal stock-based compensation plans, the Corporation may also grant stock awards to certain employees. Stock awards are independent of option grants and are generally subject to forfeiture if employment terminates prior to the release of any applicable restrictions. Unless fully vested at the time of grant, such awards generally vest within 30 days to five years from the date of grant. During that period, ownership of the shares cannot be transferred. Restricted stock and stock awards that are fully vested at the time of grant have the same cash dividend and voting rights as other common stock and are considered to be currently issued and outstanding. The Corporation expenses the cost of stock awards, which is determined to be the fair market value of the shares at the date of grant, ratably over the period during which any restrictions lapse.

There were 18,829 restricted stock awards outstanding at June 30, 2014 and June 30, 2013. These awards were issued with an award price equal to the market price of the Corporation’s common stock on the award date and with a five year vesting period. Forfeiture provisions exist for personnel that separate employment before the vesting period expires. During the first sixth months of 2014, 0 of the shares of restricted stock were vested. All shares of restricted stock were fully vested on July 1, 2014.

There were 0 and 31,257 shares of common stock underlying options that were granted during the three and six months ended June 30, 2014 and 2013, respectively. The fair value of share-based payment awards was estimated using the Black-Scholes option pricing model with the following assumptions and weighted average fair values at the time the grants were awarded:

	Six Months Ended June 30,
	2014		2013
Weighted average fair value of grants		n/a	$	2.50
Risk-free interest rate		n/a		1.86	%
Dividend yield		n/a		1.76	%
Expected volatility		n/a		23.21	%
Expected life in months		n/a		69

Activity under the stock-based compensation plans as of June 30, 2014 and changes during the sixth months ended June 30, 2014 were as follows:

	Shares		Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value
Outstanding at December 31, 2013		214,263	$	10.59
Granted – options		—
Exercised		44,478	$	10.78
Canceled/expired		—
Forfeited		—
Outstanding at June 30, 2014		169,785	$	10.54		5.96	$	1,474,951
Exercisable at June 30, 2014		120,343	$	10.05		5.01	$	1,105,335

The aggregate intrinsic value of options above represents the total pre-tax intrinsic value (the difference between the Corporation’s closing stock price on the last trading day of the second quarter of 2014 and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on June 30, 2014. This amount changes based on the fair value of the Corporation’s stock.

As of June 30, 2014, there was approximately $117,000 of total unrecognized compensation expense relating to unvested stock options. These costs are expected to be recognized over a weighted average period of 2.5 years. As of June 30, 2014, there was approximately $194,000 of total unrecognized compensation expense relating to unvested restricted stock awards. These costs are expected to be recognized over a weighted average period of 5.0 years.

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Document And Entity Information	6 Months Ended
	Jun. 30, 2014	Aug. 11, 2014
Document and Entity Information [Abstract]
Entity Registrant Name	ConnectOne Bancorp, Inc.
Document Type	10-Q
Current Fiscal Year End Date	--12-31
Entity Common Stock, Shares Outstanding		29,825,658
Amendment Flag	false
Entity Central Index Key	0000712771
Entity Filer Category	Accelerated Filer
Document Period End Date	Jun. 30, 2014
Document Fiscal Year Focus	2014
Document Fiscal Period Focus	Q2

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Components of Net Periodic Pension Cost

6 Months Ended

Jun. 30, 2014

Compensation and Retirement Disclosure [Abstract]

Pension and Other Postretirement Benefits Disclosure [Text Block]

Note 10. Components of Net Periodic Pension Cost

The Corporation maintained a non-contributory defined benefit pension plan for substantially all of its employees until September 30, 2007, at which time the Corporation froze the plan. The following table sets forth the net periodic pension cost of the Corporation’s pension plan for the periods indicated.

	Three Months Ended June 30,						Six Months Ended June 30,
	2014			2013			2014			2013
	(in thousands)
Interest cost	$	144		$	132		$	288		$	264
Expected return on plan assets		(149	)		(148	)		(298	)		(244	)
Net amortization and deferral		56			94			112			188
Net periodic pension cost	$	51		$	78		$	102		$	208

Contributions

The Corporation presently estimates that it will contribute $400,000 to its Pension Trust for 2014. The trust is established to provide retirement and other benefits for eligible employees and their beneficiaries. No part of the trust assets may be applied to any purpose other than providing benefits under the plan and for defraying expenses of administering the plan and the trust.

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CONSOLIDATED STATEMENTS OF INCOME (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013
Interest income
Interest and fees on loans	$ 10,461	$ 9,892	$ 20,572	$ 19,815
Interest and dividends on investment securities:
Taxable	2,909	2,885	5,925	5,857
Tax-exempt	895	1,081	1,951	2,157
Dividends	136	121	290	252
Interest on federal funds sold and other short-term investments				2
Total interest income	14,401	13,979	28,738	28,083
Interest expense
Interest on certificates of deposit $100 or more	203	220	410	459
Interest on other deposits	1,098	1,063	2,207	2,108
Interest on borrowings	1,432	1,468	2,843	2,918
Total interest expense	2,733	2,751	5,460	5,485
Net interest income	11,668	11,228	23,278	22,598
Provision for loan losses	284		909
Net interest income after provision for loan losses	11,384	11,228	22,369	22,598
Other income
Service charges, commissions and fees	469	451	966	857
Annuities and insurance commissions	105	146	205	246
Bank-owned life insurance	256	274	511	839
Loan related fees	214	114	395	253
Net gains on sale of loans held for sale	43	91	79	229
Other	63	31	100	209
Other-than-temporary impairment losses on investment securities				(24)
Net gains on sales of investment securities	574	600	1,989	943
Total other income	1,724	1,707	4,245	3,552
Other expense
Salaries and employee benefits	3,184	3,335	6,516	6,825
Occupancy and equipment	816	811	1,896	1,717
FDIC insurance	288	208	588	521
Professional and consulting	306	230	561	449
Stationery and printing	88	78	172	163
Marketing and advertising	27	62	67	163
Computer expense	373	343	718	696
Other real estate owned, net	1	107	3	126
Merger expenses	729		1,789
All other	932	902	1,930	1,954
Total other expense	6,744	6,076	14,240	12,614
Income before income tax expense	6,364	6,859	12,374	13,536
Income tax expense	1,986	1,936	3,598	3,689
Net Income	4,378	4,923	8,776	9,847
Less: Preferred stock dividends	28	28	56	84
Net income available to common stockholders	$ 4,350	$ 4,895	$ 8,720	$ 9,763
Earnings per common share
Basic (in Dollars per share)	$ 0.27	$ 0.30	$ 0.53	$ 0.60
Diluted (in Dollars per share)	$ 0.26	$ 0.30	$ 0.53	$ 0.60
Weighted average common shares outstanding
Basic (in Shares)	16,372,885	16,348,915	16,361,596	16,348,567
Diluted (in Shares)	16,430,376	16,375,774	16,422,339	16,375,028
Dividend per common share (in Dollars per share)	$ 0.075	$ 0.055	$ 0.150	$ 0.130

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Earnings per Common Share

6 Months Ended

Jun. 30, 2014

Earnings Per Share [Abstract]

Earnings Per Share [Text Block]

Note 4. Earnings per Common Share

Basic earnings per common share (“EPS”) is computed by dividing income available to common stockholders by the weighted average number of common shares outstanding. Diluted EPS includes any additional common shares as if all potentially dilutive common shares were issued (e.g., stock options). The Corporation’s weighted average common shares outstanding for diluted EPS include the effect of stock options and restricted stock awards outstanding using the Treasury Stock Method, which are not included in the calculation of basic EPS. Anti-dilutive stock option and restricted stock award shares outstanding were 19,174 and 19,377, respectively, for the three and six months ended June 30, 2014, and anti-dilutive stock option shares outstanding were 67,451 for both the three and six months ended June 30, 2013.

Earnings per common share have been computed as follows:

	Three Months Ended June 30,						Six Months Ended June 30,
(in thousands, except per share amounts)	2014			2013			2014			2013
Net income	$	4,378		$	4,923		$	8,776		$	9,847
Preferred stock dividends		(28	)		(28	)		(56	)		(84	)
Net income available to common stockholders	$	4,350		$	4,895			8,720		$	9,763
Basic weighted average common shares outstanding		16,373			16,349			16,362			16,349
Plus: effect of dilutive options		57			27			61			26
Diluted weighted average common shares outstanding		16,430			16,376			16,423			16,375
Earnings per common share:
Basic	$	0.27		$	0.30		$	0.53		$	0.60
Diluted	$	0.26		$	0.30		$	0.53		$	0.60

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Subsequent Event - Completion of Merger

6 Months Ended

Jun. 30, 2014

Subsequent Events [Abstract]

Subsequent Events [Text Block]

Note 3. Subsequent Event – Completion of Merger

On January 20, 2014, the Parent Corporation entered into an Agreement and Plan of Merger (the “Merger Agreement”) with ConnectOne Bancorp, Inc., a New Jersey corporation (“ConnectOne Bancorp”). Effective July 1, 2014 (the “Effective Time”), the Parent Corporation completed the merger contemplated by the Merger Agreement (the “Merger”) with legacy ConnectOne Bancorp, Inc., a New Jersey corporation (“Legacy ConnectOne”). At closing, Legacy ConnectOne merged with and into the Parent Corporation, with the Parent Corporation as the surviving corporation. Also at closing, the Parent Corporation changed its name from “Center Bancorp, Inc.” to “ConnectOne Bancorp, Inc.” and changed its NASDAQ trading symbol to “CNOB” from “CNBC.”

Pursuant to the Merger Agreement, holders of Legacy ConnectOne common stock, 0 par value per share (the “Legacy ConnectOne Common Stock”), received 2.6 shares of common stock of the Parent Corporarion, 0 par value per share (the “Company Common Stock”), for each share of Legacy ConnectOne Common Stock held immediately prior to the effective time of the Merger, with cash to be paid in lieu of fractional shares. Each outstanding share of Company Common Stock remained outstanding and was unaffected by the Merger. Each option granted by Legacy ConnectOne to purchase shares of Legacy ConnectOne Common Stock was converted into an option to purchase Company Common Stock on the same terms and conditions as were applicable prior to the Merger (taking into account any acceleration or vesting by reason of the consummation of the Merger and its related transactions), subject to adjustment of the exercise price and the number of shares of Company Common Stock issuable upon exercise of such option based on the 2.6 exchange ratio.

Immediately following the Merger, Union Center National Bank, a bank organized pursuant to the laws of the United States, and a wholly owned subsidiary of the Parent Corporation (“UNCB”), merged (the “Bank Merger”) with and into ConnectOne Bank, a New Jersey state-chartered commercial bank and a wholly owned subsidiary of Legacy ConnectOne, with ConnectOne Bank as the surviving entity (the “Bank”). The Bank will now conduct business only in the name of and under the brand of ConnectOne.

Given the initial accounting for this business combination is incomplete, management is not yet able to disclose the preliminary fair value of the assets acquired and liabilities assumed.

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Fair Value Measurements and Fair Value of Financial Instruments (Tables)

6 Months Ended

Jun. 30, 2014

Fair Value Disclosures [Abstract]

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

For financial assets and liabilities measured at fair value on a recurring basis, the fair value measurements by level within the fair value hierarchy used at June 30, 2014 and December 31, 2013 are as follows:

			Fair Value Measurements at Reporting Date Using
Assets Measured at Fair Value on a Recurring Basis	June 30, 2014		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(in thousands)
U.S. Treasury & agency securities	$	9,472	$	9,472	$	—	$	—
Federal agency obligations		22,648		—		22,648		—
Residential mortgage pass-through securities		45,919		—		45,919		—
Commercial mortgage pass-through securities		3,021		—		3,021		—
Obligations of U.S. states and political subdivisions		6,503		—		6,503		—
Trust preferred securities		16,336		—		16,336		—
Corporate bonds and notes		139,327		—		139,327		—
Asset-backed securities		15,176		—		15,176		—
Certificates of deposit		2,132		—		2,132		—
Equity securities		293		293		—		—
Mutual funds and money market funds		6,132		6,132		—		—
Investment securities available-for-sale	$	266,959	$	15,897	$	251,062	$	—

			Fair Value Measurements at Reporting Date Using
Assets Measured at Fair Value on a Recurring Basis	December 31, 2013		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(in thousands)
U.S. Treasury and agency securities	$	13,519	$	13,519	$	—	$	—
Federal agency obligations		19,941		—		19,941		—
Residential mortgage pass-through securities		48,874		—		48,874		—
Commercial mortgage pass-through securities		6,991		—		6,991		—
Obligations of U.S. states and political subdivisions		31,460		—		31,460		—
Trust preferred securities		19,403		—		19,403		—
Corporate bonds and notes		158,630		—		158,630		—
Asset-backed securities		15,979		—		15,979		—
Certificates of deposit		2,262		—		2,262		—
Equity securities		287		287		—		—
Mutual funds and money market funds		5,724		5,724		—		—
Securities available-for-sale	$	323,070	$	19,530	$	303,540	$	—

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

The following tables present the changes in investment securities available-for-sale with significant unobservable inputs (Level 3) for the three months ended June 30, 2014 and 2013.

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2014		2013		2014		2013
	(in thousands)
Balance, beginning of the period	$	—	$	44	$	—	$	36
Interest payment deferrals		—		15		—		29
Principal repayments		—		—		—		—
Total net losses included in net income		—		—		—		—
Total net unrealized (losses) gains		—		13		—		7
Balance, end of the period		—	$	72		—	$	72

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

For assets measured at fair value on a non-recurring basis, the unobservable inputs used to derive fair value measurements at June 30, 2014 and December 31, 2013 were as follows:

			Range
Impaired Loans	Valuation Techniques	Range of Unobservable Inputs	Minimum	Maximum
Residential	Appraisals of collateral value	Adjustment for age of comparable sales	0%	25%
Commercial	Discounted cash flow model	Discount rate	0%	6%
Commercial real estate	Appraisals of collateral value	Market capitalization rates, Market rental rates for similar properties	8%	12%
Construction	Appraisals of collateral value	Adjustment for age comparable sales	0%	5%
Other Real Estate Owned
Residential	Appraisals of collateral value	Adjustment for age of comparable sales	0%	25%
Commercial	Appraisals of collateral value	Adjustment for age of comparable sales	0%	15%

			Range
Impaired Loans	Valuation Techniques	Range of Unobservable Inputs	Minimum	Maximum
Residential	Appraisals of collateral value	Adjustment for age of comparable sales	0%	25%
Commercial	Discounted cash flow model	Discount rate	0%	6%
Commercial real estate	Appraisals of collateral value	Market capitalization rates, Market rental rates for similar properties	8%	12%
Construction	Appraisals of collateral value	Adjustment for age comparable sales	0%	5%
Other Real Estate Owned
Residential	Appraisals of collateral value	Adjustment for age of comparable sales	0%	25%
Commercial	Appraisals of collateral value	Adjustment for age of comparable sales	0%	15%

Fair Value Measurements, Nonrecurring [Table Text Block]

			Fair Value Measurements at Reporting Date Using
Assets Measured at Fair Value on a Non-Recurring Basis	June 30, 2014		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(in thousands)
Impaired Loans
Commercial real estate	$	3,265	$	—	$	—	$	3,265
Other Real Estate Owned
Residential		220		—		—		220

			Fair Value Measurements at Reporting Date Using
Assets Measured at Fair Value on a Non-Recurring Basis	December 31, 2013		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(in thousands)
Impaired Loans
Commercial and industrial	$	372	$	—	$	—	$	372
Commercial real estate		4,229		—		—		4,229
Other Real Estate Owned
Residential		220		—		—		220

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

The following presents the carrying amount, fair value, and placement in the fair value hierarchy of the Corporation’s financial instruments as of June 30, 2014 and December 31, 2013.

					Fair Value Measurements
	Carrying Amount		Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(in thousands)
June 30, 2014
Financial assets
Cash and due from banks	$	92,617	$	92,617	$	92,617	$	—	$	—
Investment securities available-for-sale		266,959		266,959		15,897		251,062		—
Investment securities held-to-maturity		218,159		222,503		28,416		175,210		18,877
Investment in restricted stock		11,289		n/a		n/a		n/a		n/a
Net loans		995,431		992,632		—		—		992,632
Accrued interest receivable		6,414		6,414		89		3,568		2,757
Financial liabilities
Non interest-bearing deposits		238,138		238,138		238,138		—		—
Interest-bearing deposits		1,036,482		1,043,230		—		1,043,230		—
Borrowings		196,000		209,075		—		209,075		—
Subordinated debentures		5,155		4,923		—		4,923		—
Accrued interest payable		998		998		—		998		—
December 31, 2013
Financial assets
Cash and due from banks	$	82,692	$	82,692	$	82,692	$	—	$	—
Investment securities available-for-sale		323,070		323,070		19,530		303,540		—
Investment securities held-to-maturity		215,286		210,958		27,037		164,940		18,981
Investment in restricted stock		8,986		n/a		n/a		n/a		n/a
Net loans		950,610		948,606		—		—		948,606
Accrued interest receivable		6,802		6,802		102		4,034		2,666
Financial liabilities
Non interest-bearing deposits		227,370		227,370		227,370		—		—
Interest-bearing deposits		1,114,635		1,115,781		—		1,115,781		—
Long-term borrowings		146,000		157,440		—		157,440		—
Subordinated debentures		5,155		5,143		—		5,143		—
Accrued interest payable		963		963		—		963		—

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Accounting Policies, by Policy (Policies)

6 Months Ended

Jun. 30, 2014

Accounting Policies [Abstract]

Consolidation, Policy [Policy Text Block]

The consolidated financial statements of ConnectOne Bancorp, Inc. (the “Parent Corporation”) are prepared on an accrual basis and include the accounts of the Parent Corporation and its wholly-owned subsidiary, ConnectOne Bank (the “Bank” and, collectively with the Parent Corporation and the Parent Corporation’s other direct and indirect subsidiaries, the “Corporation”). All significant intercompany accounts and transactions have been eliminated from the accompanying consolidated financial statements.

Use of Estimates, Policy [Policy Text Block]

In preparing the consolidated financial statements, management has made estimates and assumptions that affect the reported amounts of assets and liabilities as of the dates of the consolidated statements of condition and that affect the results of operations for the periods presented. Actual results could differ significantly from those estimates. Material estimates that are particularly susceptible to change in the near term relate to the determination of the allowance for loan losses, the other-than-temporary impairment evaluation of securities, the evaluation of the impairment of goodwill and the evaluation of deferred tax assets.

Basis of Accounting, Policy [Policy Text Block]

The consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”).

New Accounting Pronouncements, Policy [Policy Text Block]

FASB ASU 2014-04: Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans Upon Foreclosure. EITF Issue 13-E sought to define “in substance repossession or foreclosure” because of the diversity in practice regarding when entities were reclassifying loans receivable to other real estate owned instead of as a loan receivable. The timing of loan reclassifications to OREO may be qualitatively significant to regulators and other financial statement users. “In substance repossession or foreclosure” is clarified by the ASU. A creditor is considered to have received physical possession (resulting from an in substance repossession) of residential real estate property collateralizing a consumer mortgage loan only upon the occurrence of either of the following: a) The creditor obtains legal title to the residential real estate property upon completion of a foreclosure. A creditor may obtain legal title to the residential real estate property even if the borrower has redemption rights that provide the borrower with a legal right for a period of time after a foreclosure to reclaim the real estate property by paying certain amounts specified by law. b) The borrower conveys all interest in the residential real estate property to the creditor to satisfy the loan through completion of a deed in lieu of foreclosure or through a similar legal agreement. The deed in lieu of foreclosure or similar legal agreement is completed when agreed-upon terms and conditions have been satisfied by both the borrower and the creditor. The ASU is effective for fiscal years beginning after December 15, 2014, and interim periods therein. Early adoption is permitted. The Corporation will adopt the methodologies prescribed by this ASU by the date required, and does not anticipate that the ASU will have a material effect on its financial position or results of operations.

FASB ASU No. 2014-09: Revenue from Contracts with Customers. In May 2014, the FASB issued an update creating FASB Topic 606, Revenue from Contracts with Customers. The guidance in this update affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards (for example, insurance contracts or lease contracts). The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance provides steps to follow to achieve the core principle. An entity should disclose sufficient information to enable users of financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. Qualitative and quantitative information is required about contracts with customers, significant judgments and changes in judgments, and assets recognized from the costs to obtain or fulfill a contract. The amendments in this update become effective for annual periods and interim periods within those annual periods beginning after December 15, 2016. We are currently evaluating the impact of adopting the new guidance on the consolidated financial statements.

FASB ASC ASU No. 2014-11, Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures. In June 2014, the FASB issued an update impacting FASB ASC 860, Transfers and Servicing. The amendments in this update change the accounting for repurchase-to-maturity transactions and linked repurchase financings to secured borrowing accounting, which is consistent with the accounting for other repurchase agreements. The amendments also require new disclosures. An entity is required to disclose information on transfers accounted for as sales in transactions that are economically similar to repurchase agreements. An entity must also provide additional information about the types of collateral pledged in repurchase agreements and similar transactions accounted for as secured borrowings. An entity is required to present changes in accounting for transactions outstanding on the effective date as a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption. The amendments in this update become effective for the first interim or annual period beginning after December 15, 2014. We are currently evaluating the impact of adopting the new guidance on the consolidated financial statements, but it is not expected to have a material impact.

FASB ASC ASU No. 2014-12, Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period. In June 2014, the FASB issued an update impacting FASB ASC 860, Transfers and Servicing. Generally, an award with a performance target also requires an employee to render service until the performance target is achieved. In some cases, however, the terms of an award may provide that the performance target could be achieved after an employee completes the requisite service period. The amendments in this update require that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. An entity should apply guidance in Topic 718 as it relates to awards with performance conditions that affect vesting to account for such awards. As such, the performance target should not be reflected in estimating the grant-date fair value of the award. Compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the period for which the service has already been rendered. The amendments in this update become effective for annual periods and interim periods within those annual periods beginning after December 15, 2015. We are currently evaluating the impact of adopting the new guidance on the consolidated financial statements, but it is not expected to have a material impact.

Fair Value of Financial Instruments, Policy [Policy Text Block]

Fair Value of Financial Instruments

FASB ASC 825-10 requires all entities to disclose the estimated fair value of their financial instrument assets and liabilities. For the Corporation, as for most financial institutions, the majority of its assets and liabilities are considered financial instruments as defined in FASB ASC 825-10. Many of the Corporation’s financial instruments, however, lack an available trading market as characterized by a willing buyer and willing seller engaging in an exchange transaction. It is also the Corporation’s general practice and intent to hold its financial instruments to maturity and not to engage in trading or sales activities except for loans held-for-sale and investment securities available-for-sale. Therefore, significant estimations and assumptions, as well as present value calculations, were used by the Corporation for the purposes of this disclosure.

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Fair Value Measurements and Fair Value of Financial Instruments

6 Months Ended

Jun. 30, 2014

Fair Value Disclosures [Abstract]

Fair Value Disclosures [Text Block]

Note 7. Fair Value Measurements and Fair Value of Financial Instruments

Fair Value Measurements

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. The estimated fair value amounts have been measured as of March 31, 2014 and December 31, 2013, and have not been re-evaluated or updated for purposes of these consolidated 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.

Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There are three levels of inputs that may be used to measure fair values:

· 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: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

· Level 3: Significant unobservable inputs that reflect a reporting entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

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.

Investment Securities Available-for-Sale

Where quoted prices are available in an active market, investment securities are classified in Level 1 of the valuation hierarchy. Level 1 inputs include investment securities that have quoted prices in active markets for identical assets. If quoted market prices are not available, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics, or discounted cash flows. Examples of instruments, which would generally be classified within Level 2 of the valuation hierarchy, include municipal bonds and certain agency collateralized mortgage obligations. In certain cases where there is limited activity in the market for a particular instrument, assumptions must be made to determine its fair value and it is classified as Level 3. Due to the inactive condition of the markets amidst the financial crisis, the Corporation treated certain investment securities as Level 3 assets in order to provide more appropriate valuations. For assets in an inactive market, the infrequent trades that do occur are not a true indication of fair value. When measuring fair value, the valuation techniques available under the market approach, income approach and/or cost approach are used. The Corporation’s evaluations are based on market data and the Corporation employs combinations of these approaches for its valuation methods depending on the asset class. In certain cases where there were limited or less transparent information provided by the Corporation’s third-party pricing service, fair value was estimated by the use of secondary pricing services or through the use of non-binding third-party broker quotes.

On a quarterly basis, management reviews the pricing information received from the Corporation’s third-party pricing service. This review process includes a comparison to non-binding third-party broker quotes, as well as a review of market-related conditions impacting the information provided by the Corporation’s third-party pricing service.

Management primarily identifies investment securities which may have traded in illiquid or inactive markets by identifying instances of a significant decrease in the volume and frequency of trades, relative to historical levels, as well as instances of a significant widening of the bid-ask spread in the brokered markets. Investment securities that are deemed to have been trading in illiquid or inactive markets may require the use of significant unobservable inputs. For example, management may use quoted prices for similar investment securities in the absence of a liquid and active market for the securities being valued. As of June 30, 2014 and December 31, 2013, management made no adjustments to prices provided by the third-party pricing service as a result of illiquid or inactive markets.

The Corporation determined that an income approach valuation technique (present value technique) that maximizes the use of relevant observable inputs and minimizes the use of unobservable inputs will be equally or more representative of fair value than the market approach valuation technique used at the prior measurement dates. As a result, the Corporation used the discount rate adjustment technique to determine fair value.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

For financial assets and liabilities measured at fair value on a recurring basis, the fair value measurements by level within the fair value hierarchy used at June 30, 2014 and December 31, 2013 are as follows: 

			Fair Value Measurements at Reporting Date Using
Assets Measured at Fair Value on a Recurring Basis	June 30, 2014		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(in thousands)
U.S. Treasury & agency securities	$	9,472	$	9,472	$	—	$	—
Federal agency obligations		22,648		—		22,648		—
Residential mortgage pass-through securities		45,919		—		45,919		—
Commercial mortgage pass-through securities		3,021		—		3,021		—
Obligations of U.S. states and political subdivisions		6,503		—		6,503		—
Trust preferred securities		16,336		—		16,336		—
Corporate bonds and notes		139,327		—		139,327		—
Asset-backed securities		15,176		—		15,176		—
Certificates of deposit		2,132		—		2,132		—
Equity securities		293		293		—		—
Mutual funds and money market funds		6,132		6,132		—		—
Investment securities available-for-sale	$	266,959	$	15,897	$	251,062	$	—

			Fair Value Measurements at Reporting Date Using
Assets Measured at Fair Value on a Recurring Basis	December 31, 2013		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(in thousands)
U.S. Treasury and agency securities	$	13,519	$	13,519	$	—	$	—
Federal agency obligations		19,941		—		19,941		—
Residential mortgage pass-through securities		48,874		—		48,874		—
Commercial mortgage pass-through securities		6,991		—		6,991		—
Obligations of U.S. states and political subdivisions		31,460		—		31,460		—
Trust preferred securities		19,403		—		19,403		—
Corporate bonds and notes		158,630		—		158,630		—
Asset-backed securities		15,979		—		15,979		—
Certificates of deposit		2,262		—		2,262		—
Equity securities		287		287		—		—
Mutual funds and money market funds		5,724		5,724		—		—
Securities available-for-sale	$	323,070	$	19,530	$	303,540	$	—

The fair values used by the Corporation are obtained from an independent pricing service and represent either quoted market prices for the identical securities (Level 1 inputs) or fair values determined by pricing models using a market approach that considers observable market data, such as interest rate volatilities, LIBOR yield curve, credit spreads and prices from market makers and live trading systems (Level 2).

The following tables present the changes in investment securities available-for-sale with significant unobservable inputs (Level 3) for the three months ended June 30, 2014 and 2013.

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2014		2013		2014		2013
	(in thousands)
Balance, beginning of the period	$	—	$	44	$	—	$	36
Interest payment deferrals		—		15		—		29
Principal repayments		—		—		—		—
Total net losses included in net income		—		—		—		—
Total net unrealized (losses) gains		—		13		—		7
Balance, end of the period		—	$	72		—	$	72

For the six months ended June 30, 2014, there were no transfers of investment securities available-for-sale into or out of Level 1, Level 2, or Level 3 assets.

Assets Measured at Fair Value on a Non-Recurring Basis

For assets measured at fair value on a non-recurring basis, the unobservable inputs used to derive fair value measurements at June 30, 2014 and December 31, 2013 were as follows:

			Range
Impaired Loans	Valuation Techniques	Range of Unobservable Inputs	Minimum	Maximum
Residential	Appraisals of collateral value	Adjustment for age of comparable sales	0%	25%
Commercial	Discounted cash flow model	Discount rate	0%	6%
Commercial real estate	Appraisals of collateral value	Market capitalization rates, Market rental rates for similar properties	8%	12%
Construction	Appraisals of collateral value	Adjustment for age comparable sales	0%	5%
Other Real Estate Owned
Residential	Appraisals of collateral value	Adjustment for age of comparable sales	0%	25%
Commercial	Appraisals of collateral value	Adjustment for age of comparable sales	0%	15%

			Range
Impaired Loans	Valuation Techniques	Range of Unobservable Inputs	Minimum	Maximum
Residential	Appraisals of collateral value	Adjustment for age of comparable sales	0%	25%
Commercial	Discounted cash flow model	Discount rate	0%	6%
Commercial real estate	Appraisals of collateral value	Market capitalization rates, Market rental rates for similar properties	8%	12%
Construction	Appraisals of collateral value	Adjustment for age comparable sales	0%	5%
Other Real Estate Owned
Residential	Appraisals of collateral value	Adjustment for age of comparable sales	0%	25%
Commercial	Appraisals of collateral value	Adjustment for age of comparable sales	0%	15%

			Fair Value Measurements at Reporting Date Using
Assets Measured at Fair Value on a Non-Recurring Basis	June 30, 2014		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(in thousands)
Impaired Loans
Commercial real estate	$	3,265	$	—	$	—	$	3,265
Other Real Estate Owned
Residential		220		—		—		220

			Fair Value Measurements at Reporting Date Using
Assets Measured at Fair Value on a Non-Recurring Basis	December 31, 2013		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(in thousands)
Impaired Loans
Commercial and industrial	$	372	$	—	$	—	$	372
Commercial real estate		4,229		—		—		4,229
Other Real Estate Owned
Residential		220		—		—		220

The following methods and assumptions were used to estimate the fair values of the Corporation’s assets measured at fair value on a non-recurring basis at June 30, 2014 and December 31, 2013.

Impaired Loans. The value of an impaired loan is measured based upon the present value of expected future cash flows discounted at the loan’s effective interest rate, or the fair value of the collateral if the loan is collateral dependent. Smaller balance homogeneous loans that are collectively evaluated for impairment, such as residential mortgage loans and installment loans, are specifically excluded from the impaired loan portfolio. The Corporation’s impaired loans are primarily collateral dependent. Impaired loans are individually assessed to determine that each loan’s carrying value is not in excess of the fair value of the related collateral or the present value of the expected future cash flows. Impaired loans at June 30, 2014 that required a valuation allowance during 2014 were $3.6 million with a related valuation allowance of $335,000 compared to $5.0 million with a related valuation allowance of $415,000 at December 31, 2013. Additional provision for loan losses of $110,000 and $222,000 for the second quarter and first six months of 2014, respectively, were recorded.

Other Real Estate Owned. Other real estate owned (“OREO”) is measured at fair value less costs to sell, generally a decline of 0% to 25% for residential OREO and a decline of 0% to 15% for commercial OREO. The Corporation believes that the fair value component in its valuation follows the provisions of FASB ASC 820-10-05. The fair value of OREO is determined by sales agreements or appraisals by qualified licensed appraisers approved and hired by the Corporation. Costs to sell associated with OREO are based on estimation per the terms and conditions of the sales agreements or appraisals.

Cash and due from banks and interest bearing deposits: The carrying amounts of cash and short-term instruments approximate fair values and care classified as Level 1.

Investment in Restricted Stock: It is not practical to determine the fair value of FHLB Stock due to restrictions placed on its transferability.

Fair Value of Financial Instruments

FASB ASC 825-10 requires all entities to disclose the estimated fair value of their financial instrument assets and liabilities. For the Corporation, as for most financial institutions, the majority of its assets and liabilities are considered financial instruments as defined in FASB ASC 825-10. Many of the Corporation’s financial instruments, however, lack an available trading market as characterized by a willing buyer and willing seller engaging in an exchange transaction. It is also the Corporation’s general practice and intent to hold its financial instruments to maturity and not to engage in trading or sales activities except for loans held-for-sale and investment securities available-for-sale. Therefore, significant estimations and assumptions, as well as present value calculations, were used by the Corporation for the purposes of this disclosure.

Investment Securities Held-to-Maturity. The fair value of the Corporation’s investment securities held-to-maturity was primarily measured using information from a third-party pricing service. If quoted prices were not available, fair values were estimated primarily by obtaining quoted prices for similar assets in active markets or through the use of pricing models. In cases where there may be limited or less transparent information provided by the Corporation’s third-party pricing service, fair value may be estimated by the use of secondary pricing services or through the use of non-binding third-party broker quotes.

Loans Held-for-Sale. Fair value is estimated using the prices of the Corporation’s existing commitments to sell such loans and/or the quoted market price for commitments to sell similar loans.

Loans. The fair value of the Corporation’s loans was estimated by discounting the expected future cash flows using the current interest rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. Loans were segregated by types such as commercial, residential and consumer loans. Expected future cash flows were projected based on contractual cash flows, adjusted for estimated prepayments.

Non-Interest-Bearing Deposits. The fair value for non-interest-bearing deposits is equal to the amount payable on demand at the reporting date.

Interest-Bearing Deposits. The fair values of the Corporation’s interest-bearing deposits were estimated using discounted cash flow analyses. The discounted rates used were based on rates currently offered for deposits with similar remaining maturities. The fair values of the Corporation’s interest-bearing deposits do not take into consideration the value of the Corporation’s long-term relationships with depositors, which may have significant value.

Term Borrowings and Subordinated Debentures. The fair value of the Corporation’s long-term borrowings and subordinated debentures were calculated using a discounted cash flow approach and applying discount rates currently offered based on weighted remaining maturities.

Accrued Interest Receivable/Payable. The carrying amounts of accrued interest approximate fair value resulting in a Level 2 or Level 3 classification based on the level of the asset or liability with which the accrual is associated.

The following presents the carrying amount, fair value, and placement in the fair value hierarchy of the Corporation’s financial instruments as of June 30, 2014 and December 31, 2013.

					Fair Value Measurements
	Carrying Amount		Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(in thousands)
June 30, 2014
Financial assets
Cash and due from banks	$	92,617	$	92,617	$	92,617	$	—	$	—
Investment securities available-for-sale		266,959		266,959		15,897		251,062		—
Investment securities held-to-maturity		218,159		222,503		28,416		175,210		18,877
Investment in restricted stock		11,289		n/a		n/a		n/a		n/a
Net loans		995,431		992,632		—		—		992,632
Accrued interest receivable		6,414		6,414		89		3,568		2,757
Financial liabilities
Non interest-bearing deposits		238,138		238,138		238,138		—		—
Interest-bearing deposits		1,036,482		1,043,230		—		1,043,230		—
Borrowings		196,000		209,075		—		209,075		—
Subordinated debentures		5,155		4,923		—		4,923		—
Accrued interest payable		998		998		—		998		—
December 31, 2013
Financial assets
Cash and due from banks	$	82,692	$	82,692	$	82,692	$	—	$	—
Investment securities available-for-sale		323,070		323,070		19,530		303,540		—
Investment securities held-to-maturity		215,286		210,958		27,037		164,940		18,981
Investment in restricted stock		8,986		n/a		n/a		n/a		n/a
Net loans		950,610		948,606		—		—		948,606
Accrued interest receivable		6,802		6,802		102		4,034		2,666
Financial liabilities
Non interest-bearing deposits		227,370		227,370		227,370		—		—
Interest-bearing deposits		1,114,635		1,115,781		—		1,115,781		—
Long-term borrowings		146,000		157,440		—		157,440		—
Subordinated debentures		5,155		5,143		—		5,143		—
Accrued interest payable		963		963		—		963		—

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Components of Net Periodic Pension Cost (Details) - Schedule of Net Periodic Pension Cost (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013
Schedule of Net Periodic Pension Cost [Abstract]
Interest cost	$ 144	$ 132	$ 288	$ 264
Expected return on plan assets	(149)	(148)	(298)	(244)
Net amortization and deferral	56	94	112	188
Net periodic pension cost	$ 51	$ 78	$ 102	$ 208